Table of Contents

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) November 2, 2009
 	 	 	 	 	
Commission
File Number	 	Registrant; State of Incorporation;
Address; and Telephone Number	 	IRS Employer
Identification No.	

 	 	CMS ENERGY CORPORATION	 	 	
1-9513	 	(A Michigan Corporation)
One Energy Plaza
Jackson, Michigan 49201
(517) 788-0550	 	38-2726431	
 	 	 	 	 	
 	 	CONSUMERS ENERGY COMPANY	 	 	
1-5611	 	(A Michigan Corporation)
One Energy Plaza
Jackson, Michigan 49201
(517) 788-0550	 	38-0442310	
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

   

TABLE OF CONTENTS

									
Item 8.01. Other Events	
Item 9.01. Financial Statements and Exhibits	
SIGNATURES	
EX-12.(A)1	
EX-12.(B)1	
EX-12.(A)2	
EX-12.(B)2	
EX-12.(A)3	
EX-12.(B)3	
EX-99.1	
EX-99.2	
EX-99.3	

Table of Contents
Item 8.01. Other Events.
Each of CMS Energy Corporation (CMS Energy) and Consumers Energy Company (Consumers) is filing this Current Report on Form 8-K to revise its interim Consolidated Financial Statements that were filed with the United States Securities and Exchange Commission on April 30, 2009, July 30, 2009, and October 30, 2009.
CMS Energy’s and Consumers’ revised interim Consolidated Financial Statements reflect the impacts on prior interim periods of an opinion and order issued on November 2, 2009 (Rate Order) by the Michigan Public Service Commission (MPSC). The Rate Order authorized Consumers to increase its retail electric rates to produce an additional $139 million of annual revenue. Consumers had, under the provisions of Michigan law, previously self-implemented a retail electric rate increase effective in May 2009 in the annual amount of $179 million. The Rate Order requires Consumers to refund an amount equal to the difference between the revenues collected by application of the self-implemented rates and the revenues that would have been collected had the final authorized rates been in effect for the period of time the self-implemented rates were effective, together with interest as required by law. The Rate Order also adopted an uncollectible expense tracking mechanism, effective January 1, 2009, that will allow rates to be adjusted to collect or refund 80 percent of the difference between the level of uncollectible expense included in rates and actual uncollectible expense. The Rate Order, which contains a number of other findings, can be found at the MPSC’s website at http://efile.mpsc.state.mi.us (Case No. U-15645).
In accordance with the accounting rules that apply to certain adjustments of utility revenue under ratemaking processes, CMS Energy and Consumers have recorded the impacts of the Rate Order that are specifically identifiable with prior interim periods of the current year as adjustments to those periods. Accordingly, the exhibits attached to this Current Report on Form 8-K contain revised interim Consolidated Financial Statements for CMS Energy and Consumers that reflect a decrease of $6 million to net income for the three months ended September 30, 2009, an increase of $1 million to net income for the three months ended June 30, 2009, and an increase of $1 million to net income for the three months ended March 31, 2009. CMS Energy and Consumers have also revised Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) for the three months and nine months ended September 30, 2009. CMS Energy and Consumers considered the impacts of the adjustments on the first and second quarters of 2009 and have elected not to revise MD&A for those two periods, since the adjustments were not material and did not result in a material change to the discussion and analysis.
All other information in CMS Energy’s and Consumers’ quarterly reports on Form 10-Q remains unchanged. This Current Report on Form 8-K does not reflect events or developments that occurred after October 30, 2009 other than the receipt of the Rate Order and its related impacts on the Consolidated Financial Statements. The information in this Current Report on Form 8-K should be read in conjunction with CMS Energy’s and Consumers’ 2008 Annual Report.

Table of Contents
Item 9.01. Financial Statements and Exhibits.
(d) Exhibits.
 	 	 	
Exhibit No.	 	Description	
12(a).1	 	Ratios of Earnings to Fixed Charges (as revised) — CMS Energy, for the nine months ended September 30, 2009	
 		
12(b).1	 	Ratios of Earnings to Fixed Charges (as revised) — Consumers, for the nine months ended September 30, 2009	
 		
12(a).2	 	Ratios of Earnings to Fixed Charges (as revised) — CMS Energy, for the six months ended June 30, 2009	
 		
12(b).2	 	Ratios of Earnings to Fixed Charges (as revised) — Consumers, for the six months ended June 30, 2009	
 		
12(a).3	 	Ratios of Earnings to Fixed Charges (as revised) — CMS Energy, for the three months ended March 31, 2009	
 		
12(b).3	 	Ratios of Earnings to Fixed Charges (as revised) — Consumers, for the three months ended March 31, 2009	
 		
99.1	 	Management’s Discussion and Analysis of Financial Condition and Results of Operations and Consolidated Financial Statements (unaudited) (as revised) — for the three months and the nine months ended September 30, 2009	
 		
99.2	 	Consolidated Financial Statements (unaudited) (as revised) — for the three months and the six months ended June 30, 2009	
 		
99.3	 	Consolidated Financial Statements (unaudited) (as revised) — for the three months ended March 31, 2009	

Table of Contents
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrants have duly caused this report to be signed on their behalf by the undersigned hereunto duly authorized.
 	 	 	 	 	
Dated: December 9, 2009 	CMS ENERGY CORPORATION

 	
 	By:  	/s/ Thomas J. Webb  	 	
 	 	Thomas J. Webb 	 	
 	 	Executive Vice President and
Chief Financial Officer 	 	
 	
Dated: December 9, 2009 	CONSUMERS ENERGY COMPANY

 	
 	By:  	/s/ Thomas J. Webb  	 	
 	 	Thomas J. Webb 	 	
 	 	Executive Vice President and
Chief Financial Officer 	 	

Exhibit 12(a).1
CMS ENERGY CORPORATION
Ratios of Earnings to Fixed Charges and Combined Fixed Charges and Preferred Dividends
(As Revised, See Note 1)
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	In Millions, Except Ratios	
 	 	Nine Months Ended	 	Year Ended December 31	
 	 	September 30, 2009	 	2008	 	2007	 	2006	 	2005	 	2004	
 	 	 	 	 	 	 	 	 	 	(b)	 	(c)	 	(d)	 	(e)	
Earnings as defined (a)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Pretax income from continuing operations	 	$	326	 	 	$	441	 	 	$	(317	)	 	$	(434	)	 	$	(772	)	 	$	98	 	
Exclude equity basis subsidiaries	 	 	2	 	 	 	(1	)	 	 	(22	)	 	 	(14	)	 	 	(17	)	 	 	(88	)	
Fixed charges as defined	 	 	323	 	 	 	429	 	 	 	489	 	 	 	535	 	 	 	539	 	 	 	637	 	
 	 	 	
Earnings as defined	 	$	651	 	 	$	869	 	 	$	150	 	 	$	87	 	 	$	(250	)	 	$	647	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Fixed charges as defined (a)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Interest on long-term debt	 	$	280	 	 	$	371	 	 	$	415	 	 	$	492	 	 	$	514	 	 	$	560	 	
Other interest charges	 	 	30	 	 	 	33	 	 	 	51	 	 	 	35	 	 	 	19	 	 	 	73	 	
Estimated interest portion of lease rental	 	 	13	 	 	 	25	 	 	 	23	 	 	 	8	 	 	 	6	 	 	 	4	 	
 	 	 	
Fixed charges as defined	 	$	323	 	 	$	429	 	 	$	489	 	 	$	535	 	 	$	539	 	 	$	637	 	
Preferred dividends	 	 	12	 	 	 	17	 	 	 	12	 	 	 	11	 	 	 	10	 	 	 	11	 	
 	 	 	
Combined fixed charges and preferred dividends	 	$	335	 	 	$	446	 	 	$	501	 	 	$	546	 	 	$	549	 	 	$	648	 	
 	 	 	
Ratio of earnings to fixed charges	 	 	2.02	 	 	 	2.03	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	1.02	 	
 	 	 	
Ratio of earnings to combined fixed charges and preferred dividends	 	 	1.94	 	 	 	1.95	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	

NOTES:

(a)	 	Earnings and fixed charges as defined in instructions for Item 503 of Regulation S-K.	
 		
(b)	 	For the year ended December 31, 2007, fixed charges exceeded earnings by $339 million and combined fixed charges and preferred dividends exceeded earnings by $351 million. Earnings as defined include $204 million in asset impairment charges and a $279 million charge for an electric sales contract termination.	
 		
(c)	 	For the year ended December 31, 2006, fixed charges exceeded earnings by $448 million and combined fixed charges and preferred dividends exceeded earnings by $459 million. Earnings as defined include $459 million of asset impairment charges.	
 		
(d)	 	For the year ended December 31, 2005, fixed charges exceeded earnings by $789 million and combined fixed charges and preferred dividends exceeded earnings by $799 million. Earnings as defined include $1.184 billion of asset impairment charges.	
 		
(e)	 	For 2004, fixed charges and combined fixed charges and preferred dividends, adjusted as defined, include $25 million of interest cost that was capitalized prior to 2004 and subsequently expensed in 2004. Combined fixed charges and preferred dividends exceeded earnings by $1 million. Earnings as defined include $160 million of asset impairments.	

Exhibit 12(b).1
CONSUMERS ENERGY COMPANY
Ratios of Earnings to Fixed Charges and Combined Fixed Charges and Preferred Dividends
(As Revised, See Note 1)
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	In Millions, Except Ratios	
 	 	Nine Months Ended	 	Year Ended December 31	
 	 	September 30, 2009	 	2008	 	2007	 	2006	 	2005	 	2004	
 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	(b)	 	 	 	 	 		
Earnings as defined (a)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Pretax income from continuing operations	 	$	437	 	 	$	562	 	 	$	437	 	 	$	167	 	 	$	(590	)	 	$	439	 	
Exclude equity basis subsidiaries	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(1	)	 	 	(1	)	 	 	(1	)	
Fixed charges as defined	 	 	215	 	 	 	276	 	 	 	293	 	 	 	307	 	 	 	316	 	 	 	345	 	
 	 	 	
Earnings as defined	 	$	652	 	 	$	838	 	 	$	730	 	 	$	473	 	 	$	(275	)	 	$	783	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Fixed charges as defined (a)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Interest on long-term debt	 	$	187	 	 	$	229	 	 	$	236	 	 	$	286	 	 	$	305	 	 	$	328	 	
Other interest charges	 	 	15	 	 	 	22	 	 	 	34	 	 	 	13	 	 	 	5	 	 	 	13	 	
Estimated interest portion of lease rental	 	 	13	 	 	 	25	 	 	 	23	 	 	 	8	 	 	 	6	 	 	 	4	 	
 	 	 	
Fixed charges as defined	 	$	215	 	 	 	276	 	 	 	293	 	 	 	307	 	 	 	316	 	 	 	345	 	
Preferred dividends	 	 	3	 	 	 	3	 	 	 	3	 	 	 	3	 	 	 	3	 	 	 	3	 	
 	 	 	
Combined fixed charges and preferred dividends	 	$	218	 	 	$	279	 	 	$	296	 	 	$	310	 	 	$	319	 	 	$	348	 	
 	 	 	
Ratio of earnings to fixed charges	 	 	3.03	 	 	 	3.04	 	 	 	2.49	 	 	 	1.54	 	 	 	—	 	 	 	2.27	 	
 	 	 	
Ratio of earnings to combined fixed charges and preferred dividends	 	 	2.99	 	 	 	3.00	 	 	 	2.47	 	 	 	1.53	 	 	 	—	 	 	 	2.25	 	

NOTES:

(a)	 	Earnings and fixed charges as defined in instructions for Item 503 of Regulation S-K.	
 		
(b)	 	For the year ended December 31, 2005, fixed charges exceeded earnings by $591 million and combined fixed charges and preferred dividends exceeded earnings by $594 million. Earnings as defined include $1.184 billion of asset impairment charges.	

Exhibit 12(a).2
CMS ENERGY CORPORATION
Ratios of Earnings to Fixed Charges and Combined Fixed Charges and Preferred Dividends
(Millions of Dollars)
(As Revised, See Note 1)
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Six	 	 	 	 	 	 	 	 	 	 	 	
 	 	Months	 	 	 	 	 	 	 	 	 	 	 	
 	 	Ended	 	 	 	 	 	 	 	 	 	 	 	
 	 	June 30	 	 	 	 	 	 	Year Ended December 31	 	 	 	 	
 	 	2009	 	 	2008	 	 	2007	 	 	2006	 	 	2005	 	 	2004	 	
 	 	 	 	 	 	 	 	 	 	(b)	 	 	(c)	 	 	(d)	 	 	(e)	 	
Earnings as defined (a)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Pretax income from continuing operations	 	$	204	 	 	$	441	 	 	$	(317	)	 	$	(434	)	 	$	(772	)	 	$	98	 	
Exclude equity basis subsidiaries	 	 	1	 	 	 	(1	)	 	 	(22	)	 	 	(14	)	 	 	(17	)	 	 	(88	)	
Fixed charges as defined	 	 	220	 	 	 	429	 	 	 	489	 	 	 	535	 	 	 	539	 	 	 	637	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Earnings as defined	 	$	425	 	 	$	869	 	 	$	150	 	 	$	87	 	 	$	(250	)	 	$	647	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Fixed charges as defined (a)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Interest on long-term debt	 	$	184	 	 	$	371	 	 	$	415	 	 	$	492	 	 	$	514	 	 	$	560	 	
Other interest charges	 	 	22	 	 	 	33	 	 	 	51	 	 	 	35	 	 	 	19	 	 	 	73	 	
Estimated interest portion of lease rental	 	 	14	 	 	 	25	 	 	 	23	 	 	 	8	 	 	 	6	 	 	 	4	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Fixed charges as defined	 	$	220	 	 	$	429	 	 	$	489	 	 	$	535	 	 	$	539	 	 	$	637	 	
Preferred dividends	 	 	9	 	 	 	17	 	 	 	12	 	 	 	11	 	 	 	10	 	 	 	11	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Combined fixed charges and preferred dividends	 	$	229	 	 	$	446	 	 	$	501	 	 	$	546	 	 	$	549	 	 	$	648	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Ratio of earnings to fixed charges	 	 	1.93	 	 	 	2.03	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	1.02	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Ratio of earnings to combined fixed charges and preferred dividends	 	 	1.86	 	 	 	1.95	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	

			
NOTES:	
(a)	 	Earnings and fixed charges as defined in instructions for Item 503 of Regulation S-K.	
 		
(b)	 	For the year ended December 31, 2007, fixed charges exceeded earnings by $339 million and combined fixed charges and preferred dividends exceeded earnings by $351 million. Earnings as defined include $204 million in asset impairment charges and a $279 million charge for an electric sales contract termination.	
 		
(c)	 	For the year ended December 31, 2006, fixed charges exceeded earnings by $448 million and combined fixed charges and preferred dividends exceeded earnings by $459 million. Earnings as defined include $459 million of asset impairment charges.	
 		
(d)	 	For the year ended December 31, 2005, fixed charges exceeded earnings by $789 million and combined fixed charges and preferred dividends exceeded earnings by $799 million. Earnings as defined include $1.184 billion of asset impairment charges.	
 		
(e)	 	For 2004, fixed charges and combined fixed charges and preferred dividends, adjusted as defined, include $25 million of interest cost that was capitalized prior to 2004 and subsequently expensed in 2004. Combined fixed charges and preferred dividends exceeded earnings by $1 million. Earnings as defined include $160 million of asset impairments.	

Exhibit 12(b).2
CONSUMERS ENERGY COMPANY
Ratios of Earnings to Fixed Charges and Combined Fixed Charges and Preferred Dividends
(Millions of Dollars)
(As Revised, See Note 1)
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Six	 	 	 	 	 	 	 	 	 	 	 	
 	 	Months	 	 	 	 	 	 	 	 	 	 	 	
 	 	Ended	 	 	 	 	 	 	 	 	 	 	 	
 	 	June 30	 	 	 	 	 	 	Year Ended December 31	 	 	 	 	
 	 	2009	 	 	2008	 	 	2007	 	 	2006	 	 	2005	 	 	2004	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	(b)	 	 	 	 	 	
Earnings as defined (a)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Pretax income from continuing operations	 	$	272	 	 	$	562	 	 	$	437	 	 	$	167	 	 	$	(590	)	 	$	439	 	
Exclude equity basis subsidiaries (c)	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(1	)	 	 	(1	)	 	 	(1	)	
Fixed charges as defined	 	 	148	 	 	 	276	 	 	 	293	 	 	 	307	 	 	 	316	 	 	 	345	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Earnings as defined	 	$	420	 	 	$	838	 	 	$	730	 	 	$	473	 	 	$	(275	)	 	$	783	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Fixed charges as defined (a)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Interest on long-term debt	 	$	124	 	 	$	229	 	 	$	236	 	 	$	286	 	 	$	305	 	 	$	328	 	
Other interest charges	 	 	10	 	 	 	22	 	 	 	34	 	 	 	13	 	 	 	5	 	 	 	13	 	
Estimated interest portion of lease rental	 	 	14	 	 	 	25	 	 	 	23	 	 	 	8	 	 	 	6	 	 	 	4	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Fixed charges as defined	 	$	148	 	 	 	276	 	 	 	293	 	 	 	307	 	 	 	316	 	 	 	345	 	
Preferred dividends	 	 	2	 	 	 	3	 	 	 	3	 	 	 	3	 	 	 	3	 	 	 	3	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Combined fixed charges and preferred dividends	 	$	150	 	 	$	279	 	 	$	296	 	 	$	310	 	 	$	319	 	 	$	348	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Ratio of earnings to fixed charges	 	 	2.84	 	 	 	3.04	 	 	 	2.49	 	 	 	1.54	 	 	 	—	 	 	 	2.27	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Ratio of earnings to combined fixed charges and preferred dividends	 	 	2.80	 	 	 	3.00	 	 	 	2.47	 	 	 	1.53	 	 	 	—	 	 	 	2.25	 	

			
NOTES:	
(a)	 	Earnings and fixed charges as defined in instructions for Item 503 of Regulation S-K.	
 		
(b)	 	For the year ended December 31, 2005, fixed charges exceeded earnings by $591 million and combined fixed charges and preferred dividends exceeded earnings by $594 million. Earnings as defined include $1.184 billion of asset impairment charges.	
 		
(c)	 	In 2004, Consumers consolidated the MCV Partnership and the FMLP in accordance with FIN 46(R).	

Exhibit 12(a).3
CMS ENERGY CORPORATION
Ratios of Earnings to Fixed Charges and Combined Fixed Charges and Preferred Dividends
(Millions of Dollars)
(As Revised, See Note 1)
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Three	 	 	 	 	 	 	 	 	 	 	 	
 	 	Months	 	 	 	 	 	 	 	 	 	 	 	
 	 	Ended	 	 	 	 	 	 	 	 	 	 	 	
 	 	March 31	 	 	 	 	 	 	Year Ended December 31	 	 	 	 	
 	 	2009	 	 	2008	 	 	2007	 	 	2006	 	 	2005	 	 	2004	 	
 	 	 	 	 	 	 	 	 	 	 	(b)	 	 	 	(c)	 	 	 	(d)	 	 	 	(e)	 	
Earnings as defined (a)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Pretax income from continuing operations	 	$	123	 	 	$	441	 	 	$	(317	)	 	$	(434	)	 	$	(772	)	 	$	98	 	
Exclude equity basis subsidiaries	 	 	1	 	 	 	(1	)	 	 	(22	)	 	 	(14	)	 	 	(17	)	 	 	(88	)	
Fixed charges as defined	 	 	106	 	 	 	429	 	 	 	489	 	 	 	535	 	 	 	539	 	 	 	637	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Earnings as defined	 	$	230	 	 	$	869	 	 	$	150	 	 	$	87	 	 	$	(250	)	 	$	647	 	

Fixed charges as defined (a)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Interest on long-term debt	 	$	89	 	 	$	371	 	 	$	415	 	 	$	492	 	 	$	514	 	 	$	560	 	
Other interest charges	 	 	11	 	 	 	33	 	 	 	51	 	 	 	35	 	 	 	19	 	 	 	73	 	
Estimated interest portion of lease rental	 	 	6	 	 	 	25	 	 	 	23	 	 	 	8	 	 	 	6	 	 	 	4	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Fixed charges as defined	 	$	106	 	 	$	429	 	 	$	489	 	 	$	535	 	 	$	539	 	 	$	637	 	
Preferred dividends	 	 	5	 	 	 	17	 	 	 	12	 	 	 	11	 	 	 	10	 	 	 	11	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Combined fixed charges and preferred dividends	 	$	111	 	 	$	446	 	 	$	501	 	 	$	546	 	 	$	549	 	 	$	648	 	

Ratio of earnings to fixed charges	 	 	2.17	 	 	 	2.03	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	1.02	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Ratio of earnings to combined fixed charges and preferred dividends	 	 	2.07	 	 	 	1.95	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	

			
NOTES:	 	 	
 		
(a)	 	Earnings and fixed charges as defined in instructions for Item 503 of Regulation S-K.	
 		
(b)	 	For the year ended December 31, 2007, fixed charges exceeded earnings by $339 million and combined fixed charges and preferred dividends exceeded earnings by $351 million. Earnings as defined include $204 million in asset impairment charges and a $279 million charge for an electric sales contract termination.	
 		
(c)	 	For the year ended December 31, 2006, fixed charges exceeded earnings by $448 million and combined fixed charges and preferred dividends exceeded earnings by $459 million. Earnings as defined include $459 million of asset impairment charges.	
 		
(d)	 	For the year ended December 31, 2005, fixed charges exceeded earnings by $789 million and combined fixed charges and preferred dividends exceeded earnings by $799 million. Earnings as defined include $1.184 billion of asset impairment charges.	
 		
(e)	 	For 2004, fixed charges and combined fixed charges and preferred dividends, adjusted as defined, include $25 million of interest cost that was capitalized prior to 2004 and subsequently expensed in 2004. Combined fixed charges and preferred dividends exceeded earnings by $1 million. Earnings as defined include $160 million of asset impairments.	

Exhibit 12(b).3
CONSUMERS ENERGY COMPANY
Ratios of Earnings to Fixed Charges and Combined Fixed Charges and Preferred Dividends
(Millions of Dollars)
(As Revised, See Note 1)
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Three	 	 	 	 	 	 	 	 	 	 	 	
 	 	Months	 	 	 	 	 	 	 	 	 	 	 	
 	 	Ended	 	 	 	 	 	 	 	 	 	 	 	
 	 	March 31	 	 	 	 	 	 	Year Ended December 31	 	 	 	 	
 	 	2009	 	 	2008	 	 	2007	 	 	2006	 	 	2005	 	 	2004	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	(b)	 	 	 	 	 	
Earnings as defined (a)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Pretax income from continuing operations	 	$	155	 	 	$	562	 	 	$	437	 	 	$	167	 	 	$	(590	)	 	$	439	 	
Exclude equity basis subsidiaries (c)	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(1	)	 	 	(1	)	 	 	(1	)	
Fixed charges as defined	 	 	70	 	 	 	276	 	 	 	293	 	 	 	307	 	 	 	316	 	 	 	345	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Earnings as defined	 	$	225	 	 	$	838	 	 	$	730	 	 	$	473	 	 	$	(275	)	 	$	783	 	

Fixed charges as defined (a)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Interest on long-term debt	 	$	59	 	 	$	229	 	 	$	236	 	 	$	286	 	 	$	305	 	 	$	328	 	
Other interest charges	 	 	5	 	 	 	22	 	 	 	34	 	 	 	13	 	 	 	5	 	 	 	13	 	
Estimated interest portion of lease rental	 	 	6	 	 	 	25	 	 	 	23	 	 	 	8	 	 	 	6	 	 	 	4	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Fixed charges as defined	 	$	70	 	 	 	276	 	 	 	293	 	 	 	307	 	 	 	316	 	 	 	345	 	
Preferred dividends	 	 	2	 	 	 	3	 	 	 	3	 	 	 	3	 	 	 	3	 	 	 	3	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Combined fixed charges and preferred dividends	 	$	72	 	 	$	279	 	 	$	296	 	 	$	310	 	 	$	319	 	 	$	348	 	

Ratio of earnings to fixed charges	 	 	3.21	 	 	 	3.04	 	 	 	2.49	 	 	 	1.54	 	 	 	—	 	 	 	2.27	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Ratio of earnings to combined fixed charges and preferred dividends	 	 	3.13	 	 	 	3.00	 	 	 	2.47	 	 	 	1.53	 	 	 	—	 	 	 	2.25	 	

			
NOTES: 	 	 	
 		
(a)	 	Earnings and fixed charges as defined in instructions for Item 503 of Regulation S-K.	
 		
(b)	 	For the year ended December 31, 2005, fixed charges exceeded earnings by $591 million and combined fixed charges and preferred dividends exceeded earnings by $594 million. Earnings as defined include $1.184 billion of asset impairment charges.	
 		
(c)	 	In 2004, Consumers consolidated the MCV Partnership and the FMLP in accordance with FIN 46(R).	

Exhibit 99.1
CMS Energy Corporation
Consumers Energy Company
MANAGEMENT’S DISCUSSION AND ANALYSIS
This MD&A is a combined report of CMS Energy and Consumers. It has been prepared in accordance with the instructions to Form 10-Q and Item 303 of Regulation S-K. This MD&A should be read in conjunction with the MD&A contained in CMS Energy’s and Consumers’ 2008 Form 10-K.
CMS and Consumers have revised their interim Consolidated Financial Statements for 2009 to reflect the impacts on prior interim periods of a rate order issued on November 2, 2009 by the MPSC. In accordance with the accounting rules that apply to certain adjustments of utility revenue under ratemaking processes, CMS Energy and Consumers have recorded the impacts of the MSPC rate order that are specifically identifiable with prior interim periods of the current year as adjustments to those periods. Accordingly, the revised interim Consolidated Financial Statements for CMS Energy and Consumers reflect a decrease of $6 million to net income for the three months ended September 30, 2009, an increase of $1 million to net income for the three months ended June 30, 2009, and an increase of $1 million to net income for the three months ended March 31, 2009. CMS Energy and Consumers have also revised this MD&A for the three months and nine months ended September 30, 2009. All other information in this MD&A remains unchanged. For further information about the rate order, see Note 1, Subsequent Event, and Note 6, Utility Rate Matters.
FORWARD-LOOKING STATEMENTS AND INFORMATION
This Form 10-Q and other written and oral statements that CMS Energy and Consumers make contain forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. The use of “might,” “may,” “could,” “anticipates,” “believes,” “estimates,” “expects,” “intends,” “plans,” and other similar words is intended to identify forward-looking statements that involve risk and uncertainty. This discussion of potential risks and uncertainties is designed to highlight important factors that may impact CMS Energy’s and Consumers’ business and financial outlook. CMS Energy and Consumers have no obligation to update or revise forward-looking statements regardless of whether new information, future events, or any other factors affect the information contained in the statements. These forward-looking statements are subject to various factors that could cause CMS Energy’s and Consumers’ actual results to differ materially from the results anticipated in these statements. These factors include CMS Energy’s and Consumers’ inability to predict or control:

 	•	 	the price of CMS Energy Common Stock, capital and financial market conditions, and the effect of these market conditions on CMS Energy’s and Consumers’ postretirement benefit plans, interest costs, and access to the capital markets, including availability of financing (including Consumers’ accounts receivable sales program and CMS Energy’s and Consumers’ revolving credit facilities) to CMS Energy, Consumers, or any of their affiliates, and the energy industry;	

 	•	 	the impact of the continued downturn in the economy and the sharp downturn and extreme volatility in the financial and credit markets on CMS Energy, Consumers, or any of their affiliates, including their:	

 	•	 	revenues;	
 		
 	•	 	capital expenditure programs and related earnings growth;	
 		
 	•	 	ability to collect accounts receivable from customers;	
 		
 	•	 	cost of capital and availability of capital; and	
 		
 	•	 	Pension Plan and postretirement benefit plans assets and required contributions;	
 1 

 

 	•	 	changes in the economic and financial viability of CMS Energy’s and Consumers’ suppliers, customers, and other counterparties and the continued ability of these third parties, including third parties in bankruptcy, to meet their obligations to CMS Energy and Consumers;	

 	•	 	population growth or decline in the geographic areas where CMS Energy and Consumers conduct business;	

 	•	 	changes in applicable laws, rules, regulations, principles or practices, or in their interpretation, including those related to taxes, the environment, and accounting matters, that could have an impact on CMS Energy’s and Consumers’ businesses, including the impact of any future regulations or laws regarding:	

 	•	 	carbon dioxide and other greenhouse gas emissions, including potential future legislation to establish a cap and trade system;	
 		
 	•	 	mercury emissions;	
 		
 	•	 	coal ash;	
 		
 	•	 	limitations on the use or construction of coal-fueled electric power plants; and	
 		
 	•	 	renewable portfolio standards and energy efficiency mandates;	

 	•	 	national, regional, and local economic, competitive, and regulatory policies, conditions, and developments;	

 	•	 	adverse regulatory or legal interpretations or decisions, including those related to environmental laws and regulations, and potential environmental remediation costs associated with these interpretations or decisions, including but not limited to those that may affect Bay Harbor or Consumers’ RMRR classification under NSR regulations;	

 	•	 	potentially adverse regulatory treatment or failure to receive timely regulatory orders concerning a number of significant matters affecting Consumers that are presently or potentially before the MPSC, including:	

 	•	 	sufficient and timely recovery of:	

 	•	 	Clean Air Act capital and operating costs and other environmental and safety-related expenditures;	
 		
 	•	 	power supply and natural gas supply costs;	
 		
 	•	 	operating and maintenance expenses;	
 		
 	•	 	additional utility rate-based investments;	
 		
 	•	 	increased MISO energy and transmission costs;	
 		
 	•	 	costs associated with energy efficiency investments and state or federally mandated renewable resource standards; and	
 		
 	•	 	Big Rock decommissioning funding shortfalls;	

 	•	 	actions of regulators with respect to expenditures subject to tracking mechanisms;	
 		
 	•	 	actions of regulators to prevent or curtail shutoffs for non-paying customers;	
 		
 	•	 	regulatory orders preventing or curtailing rights to self-implement rate requests;	
 		
 	•	 	regulatory orders potentially requiring a refund of previously self-implemented rates;	
 		
 	•	 	authorization of a new coal-fueled plant; and	
 		
 	•	 	implementation of new energy legislation;	

 	•	 	potentially adverse regulatory treatment resulting from pressure on regulators to oppose annual rate increases or to lessen rate impacts upon customers, particularly in difficult economic times;	
 2 

 

 	•	 	potentially adverse regulatory treatment concerning a number of significant matters affecting Consumers that are presently before the MDEQ, including the approval of Consumers’ air permit application for its proposed coal-fueled plant;	
 		
 	•	 	the ability of Consumers to recover its regulatory assets in full and in a timely manner;	
 		
 	•	 	the ability of Consumers to recover nuclear fuel storage costs incurred as a result of the DOE’s failure to accept spent nuclear fuel on schedule, and the outcome of pending litigation with the DOE;	
 		
 	•	 	loss of customer load to alternative energy suppliers;	
 		
 	•	 	the impact of expanded enforcement powers and investigation activities at the FERC;	
 		
 	•	 	federal regulation of electric sales and transmission of electricity, including periodic re-examination by federal regulators of CMS Energy’s and Consumers’ market-based sales authorizations in wholesale power markets without price restrictions;	
 		
 	•	 	effects of weather conditions, such as unusually cool weather during the summer or warm weather during the winter, on sales;	
 		
 	•	 	the market perception of the energy industry or of CMS Energy, Consumers, or any of their affiliates;	
 		
 	•	 	the credit ratings of CMS Energy or Consumers;	
 		
 	•	 	the impact of credit markets, economic conditions, and new banking regulations on EnerBank;	
 		
 	•	 	disruptions in the normal commercial insurance and surety bond markets that may increase costs or reduce traditional insurance coverage, particularly terrorism and sabotage insurance, performance bonds, and tax-exempt debt insurance, and stability of insurance providers;	
 		
 	•	 	energy markets, including availability of capacity and the timing and extent of changes in commodity prices for oil, coal, natural gas, natural gas liquids, electricity, and certain related products due to lower or higher demand, shortages, transportation problems, or other developments, and their impact on CMS Energy’s and Consumers’ cash flows and working capital;	
 		
 	•	 	changes in construction material prices and the availability of qualified construction personnel to implement Consumers’ construction program;	
 		
 	•	 	factors affecting operations, such as unusual weather conditions, catastrophic weather-related damage, unscheduled generation outages, maintenance or repairs, environmental incidents, or electric transmission or gas pipeline system constraints;	
 		
 	•	 	potential disruption or interruption of facilities or operations due to accidents, war, or terrorism, and the ability to obtain or maintain insurance coverage for these events;	
 		
 	•	 	technological developments in energy production, delivery, usage, and storage;	
 		
 	•	 	achievement of capital expenditure and operating expense goals;	
 3 

 

 	•	 	the impact of CMS Energy’s and Consumers’ integrated business software system on their operations, including utility customer billing and collections;	
 		
 	•	 	the effectiveness of CMS Energy’s and Consumers’ risk management policies and procedures;	
 		
 	•	 	CMS Energy’s and Consumers’ ability to achieve generation planning goals and the occurrence and duration of planned or unplanned generation outages;	
 		
 	•	 	adverse outcomes regarding tax positions;	
 		
 	•	 	adverse consequences resulting from any past or future assertion of indemnity or warranty claims associated with assets and businesses previously owned by CMS Energy or Consumers, including the F.T. Barr matter and claims resulting from attempts by foreign or domestic governments to assess taxes on past operations or transactions;	
 		
 	•	 	the outcome, cost, and other effects of legal or administrative proceedings, settlements, investigations, or claims;	
 		
 	•	 	earnings volatility resulting from the application of fair value accounting to certain energy commodity contracts, such as electricity sales agreements and interest rate and foreign currency contracts;	
 		
 	•	 	changes in financial or regulatory accounting principles or policies, including possible changes to rules involving fair value accounting;	
 		
 	•	 	new or revised interpretations of GAAP by regulators, which could affect how accounting principles are applied, and could impact future periods’ financial statements or previously filed financial statements;	
 		
 	•	 	a possible future requirement to comply with International Financial Reporting Standards, which differ from GAAP in various ways, including the present lack of special accounting treatment for regulated activities; and	
 		
 	•	 	other business or investment matters that may be disclosed from time to time in CMS Energy’s and Consumers’ SEC filings, or in other publicly issued documents.	
For additional details regarding these and other uncertainties, see the “Outlook” section included in this MD&A, Note 5, Contingencies, Note 6, Utility Rate Matters, and Part II, Item 1A. Risk Factors.
 4 

 

EXECUTIVE OVERVIEW
CMS Energy is an energy company operating primarily in Michigan and is the parent holding company of several subsidiaries, including Consumers and Enterprises. Consumers is a combination electric and gas utility company serving Michigan’s Lower Peninsula. Consumers’ electric utility operations include the generation, purchase, distribution, and sale of electricity. Consumers’ gas utility operations include the purchase, transportation, storage, distribution, and sale of natural gas. Consumers’ customer base includes a mix of residential, commercial, and diversified industrial customers. Enterprises, through its equity investments and subsidiaries, is primarily engaged in independent power production.
CMS Energy and Consumers manage their businesses by the nature of services each provides. CMS Energy operates principally in three business segments: electric utility; gas utility; and enterprises, its non-utility investments and operations. Consumers operates principally in two business segments: electric utility and gas utility.
CMS Energy and Consumers earn revenue and generate cash from operations by providing electric and natural gas utility services, electric power generation, gas distribution, transmission and storage, and other energy-related services. Their businesses are affected primarily by:

 	•	 	weather, especially during the heating and cooling seasons;	

 	•	 	economic conditions;	

 	•	 	regulation and regulatory matters;	

 	•	 	energy commodity prices;	

 	•	 	interest rates; and	

 	•	 	CMS Energy’s and Consumers’ debt credit ratings.	
During the past several years, CMS Energy’s business strategy has emphasized improving its consolidated balance sheet and maintaining focus on its core strength, which is Consumers’ utility operations and service.
Consumers’ forecast calls for capital investments in excess of $6 billion from 2009 through 2013, with a key aspect of its strategy being the balanced energy initiative. The balanced energy initiative is a comprehensive energy resource plan to meet Consumers’ projected short-term and long-term electric power requirements with energy efficiency; demand management; expanded use of renewable energy; development of new power plants; pursuit of additional power purchase agreements to complement existing generating sources; and potential retirement of older, less efficient generating units.
Consumers filed an air permit application with the MDEQ in October 2007 for its proposed new 830 MW coal-fueled plant. Consumers expects the MDEQ to act on the application by the end of 2009. Consumers prepared and filed with the MDEQ and the MPSC a needs-and-alternatives analysis that supported Consumers’ current balanced energy initiative and the construction of its proposed power plant. In September 2009, the MPSC staff issued a report to the MDEQ on Consumers’ analysis, concluding that the long-term capacity need was unjustified without the retirement of certain existing coal-fueled power plants from its fleet and that the proposed coal-fueled plant is only one alternative out of a range of alternatives that Consumers may use to fill the projected capacity need.
The 2008 Energy Legislation requires that at least ten percent of Consumers’ electric sales volume come from renewable energy sources by 2015, and includes requirements for specific capacity additions. In compliance with this legislation, Consumers filed a renewable energy plan with the MPSC in February 2009 outlining its plans to build or contract for additional renewable energy capacity of 200 MW by December 31, 2013, and an additional 300 MW of renewable energy capacity by December 31, 2015.
 5 

 

Consumers’ plan proposed that half of the new renewable capacity would be obtained through long-term agreements to purchase power from third parties, with the remaining capacity to be supplied by facilities built and owned by Consumers. At the same time, Consumers filed an energy optimization plan, also called for by the 2008 Energy Legislation, under which Consumers will promote energy efficiency and provide incentives to reduce customer usage. Consumers’ filings include a request for recovery of the cost of the renewable energy and energy optimization measures. In May 2009, the MPSC approved the energy optimization plan and, with minor exceptions, the renewable energy plan.
In April 2009, Consumers filed tariff sheets indicating that it planned to self-implement an electric rate increase in the annual amount of $179 million based on an 11 percent authorized return on equity, beginning in May 2009. The MPSC issued an order in May 2009 requiring that, if Consumers self-implemented the $179 million electric rate increase, it must simultaneously distribute to customers $36 million of proceeds from the April 2007 sale of Palisades. Accordingly, Consumers self-implemented an annual electric rate increase of $179 million, subject to refund with interest, and also implemented a one-time distribution of $36 million. Consumers received a final order in this rate filing in November 2009. For details of the rate order, see Note 1, Subsequent Event, and Note 6, Utility Rate Matters.
Additionally, in May 2009, Consumers filed an application with the MPSC seeking an annual increase in gas revenue of $114 million based on an 11 percent authorized return on equity. In October 2009, Consumers filed tariff sheets indicating it plans to self-implement a gas rate case in the annual amount of $89 million beginning November 19, 2009. These rate filings include requests for increases in rates to cover various costs, including capital additions under the balanced energy initiative.
In October 2009, the MPSC issued a show-cause order that directed Consumers to present details of its forestry and fossil-fueled plant operation and maintenance expenditures for 2006 through 2008, as well as available detail for 2009 expenditures, and also to explain why Consumers should not be found in violation of the MPSC’s December 2005 order, which required certain minimum operation and maintenance expenditures on these activities.
There is uncertainty associated with federal legislative and regulatory proposals related to the regulation of carbon dioxide emissions, particularly associated with coal-fueled generation. Federal legislation is being considered to establish a cap and trade system, or alternatively, to tax carbon dioxide emissions. In addition, in April 2009, the EPA issued a proposed finding that greenhouse gases, including carbon dioxide, contribute to air pollution that may endanger the public health and welfare, thus setting the stage for regulation of carbon dioxide emissions under the Clean Air Act. CMS Energy and Consumers are monitoring these developments for potential effects on their plans and operations.
Consumers is developing an advanced metering infrastructure system that will provide enhanced controls over and information about energy usage, as well as timely notification of service interruptions. Consumers is using a phased implementation approach that will allow it to analyze, test, and pilot the new technology prior to widespread investment and deployment. Consumers will also make certain modifications to its software to enable the new system.
In the future, CMS Energy will focus its strategy on:

 	•	 	investing in Consumers’ utility system;	

 	•	 	growing earnings and operating cash flow while controlling operating and fuel costs; and	

 	•	 	maintaining principles of safe, efficient operations, customer value, fair and timely regulation, and consistent financial performance.	
 6 

 

As CMS Energy and Consumers execute this strategy, they will need to overcome a Michigan economy that has been impacted adversely by the continued downturn and uncertainty in Michigan’s automotive industry marked by the bankruptcies of GM and Chrysler. The financial market crisis, the effects of which became evident in a global economic downturn during the fourth quarter of 2008, continues to result in a negative economic outlook. A range of possible outcomes exists due to the uncertain financial market environment and ongoing government policy responses. Consumers expects its annual 2009 weather-adjusted sales to decline by four percent for the electric utility and five percent for the gas utility and it projects slower growth in the longer term. While CMS Energy and Consumers believe that their sources of liquidity will be sufficient to meet their requirements, they continue to monitor developments in the financial and credit markets and government policy responses to those developments for potential implications for CMS Energy’s and Consumers’ businesses and their future financial needs.
 7 

 

RESULTS OF OPERATIONS
CMS ENERGY’S CONSOLIDATED RESULTS OF OPERATIONS
 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	In Millions (except for per share amounts)	
Three months ended September 30	 	2009	 	2008	 	Change	
 	
Net Income Available to Common Stockholders	 	$	67	 	 	$	78	 	 	$	(11	)	
Basic Earnings Per Share	 	$	0.29	 	 	$	0.35	 	 	$	(0.06	)	
Diluted Earnings Per Share	 	$	0.28	 	 	$	0.33	 	 	$	(0.05	)	

Electric Utility	 	$	111	 	 	$	108	 	 	$	3	 	
Gas Utility	 	 	(12	)	 	 	(18	)	 	 	6	 	
Enterprises	 	 	5	 	 	 	5	 	 	 	—	 	
Corporate Interest and Other	 	 	(37	)	 	 	(18	)	 	 	(19	)	
Discontinued Operations	 	 	—	 	 	 	1	 	 	 	(1	)	
 	 	 	
Net Income Available to Common Stockholders	 	$	67	 	 	$	78	 	 	$	(11	)	
 	 	 	
For the three months ended September 30, 2009, net income was $67 million, compared with $78 million for 2008. Combined net income for Consumers’ electric and gas utility segments increased, as the impact of the MPSC’s December 2008 gas rate order, the November 2009 electric rate order that Consumers self-implemented in May 2009, and a favorable sales mix more than offset lower electric deliveries, increased operating expenses, and increased interest expense. The positive impacts from the utility segments on CMS Energy’s consolidated net income offset partially the premiums paid on retirement of debt.
Specific after-tax changes to net income available to common stockholders for the three months ended September 30, 2009 versus 2008 are:
 	 	 	 	 	
 	 	After Tax, In Millions	 	
•       Increase in electric and gas revenues at Consumers due primarily to MPSC rate orders	 	$	30	 	
•       Increase in electric and gas revenues at Consumers due to a favorable sales mix	 	 	11	 	
•       Decrease in electric and gas revenues at Consumers due to decreased deliveries, primarily reflecting unfavorable economic conditions	 	 	(26	)	
•       Change in corporate interest and other due primarily to premiums paid on the retirement of debt	 	 	(19	)	
•       Increase in other net expenses at Consumers, primarily reflecting higher pension and OPEB expenses, higher interest expense, and higher plant maintenance expense, partially offset by the absence of an impairment charge on its SERP investments recorded in 2008	 	 	(6	)	
•       Absence of a gain from discontinued operations due to a reduction to a legal reserve recorded in 2008, related to previously sold assets	 	 	(1	)	
 	 	 	 	
Total change	 	$	(11	)	
 	 	 	 	
 8 

 

 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	In Millions (except for per share amounts)	
Nine months ended September 30	 	2009	 	2008	 	Change	
 	
Net Income Available to Common Stockholders	 	$	212	 	 	$	224	 	 	$	(12	)	
Basic Earnings Per Share	 	$	0.93	 	 	$	0.99	 	 	$	(0.06	)	
Diluted Earnings Per Share	 	$	0.90	 	 	$	0.94	 	 	$	(0.04	)	

Electric Utility	 	$	217	 	 	$	232	 	 	$	(15	)	
Gas Utility	 	 	52	 	 	 	46	 	 	 	6	 	
Enterprises	 	 	(12	)	 	 	13	 	 	 	(25	)	
Corporate Interest and Other	 	 	(74	)	 	 	(67	)	 	 	(7	)	
Discontinued Operations	 	 	29	 	 	 	—	 	 	 	29	 	
 	 	 	
Net Income Available to Common Stockholders	 	$	212	 	 	$	224	 	 	$	(12	)	
 	 	 	
For the nine months ended September 30, 2009, net income was $212 million, compared with $224 million for 2008. Combined net income from Consumers’ electric utility and gas utility segments decreased, reflecting decreased deliveries, the absence of gains from the sale of sulfur dioxide allowances recognized in 2008, and an increase in operating expenses and interest expense. These decreases were offset partially by increased earnings from a June 2008 electric rate order, a December 2008 gas rate order, a November 2009 electric rate order that Consumers self-implemented in May 2009, and a favorable sales mix. CMS Energy’s consolidated net income was also negatively impacted by an increase in projected Bay Harbor remediation costs and higher corporate expenses, which were offset partially by the expiration of an indemnity obligation related primarily to discontinued operations.
 9 

 

Specific after-tax changes to net income available to common stockholders for the nine months ended September 30, 2009 versus 2008 are:
 	 	 	 	 	 	 	
 	 	 	 	After Tax, In Millions	 	
•	 	Increase in electric and gas revenues at Consumers due primarily to MPSC rate orders	 	$	94	 	
•	 	Increase in electric and gas revenues at Consumers due to a favorable sales mix	 	 	34	 	
•	 	Increase from discontinued operations due primarily to a benefit from the expiration of an indemnity obligation	 	 	29	 	
•	 	Decrease in electric and gas revenues at Consumers due to decreased deliveries, primarily reflecting unfavorable economic conditions	 	 	(66	)	
•	 	Increase in projected Bay Harbor remediation costs at Enterprises	 	 	(22	)	
•	 	Increase in pension and OPEB expenses at Consumers	 	 	(18	)	
•	 	Increase in other net expenses at Consumers primarily related to higher interest, uncollectible accounts expense, and property taxes	 	 	(16	)	
•	 	Increase in plant maintenance expense at Consumers	 	 	(15	)	
•	 	Absence of gains from the sale of sulfur dioxide credits recognized at Consumers in 2008	 	 	(12	)	
•	 	Absence of resource conservation savings recorded in 2008 related to Consumers’ power purchase agreement with the MCV Partnership	 	 	(10	)	
•	 	Change in corporate interest and other due primarily to premiums paid on the retirement of debt and increased tax-related expenses, offset partially by a gain on the redemption of preferred securities	 	 	(7	)	
•	 	Decrease in revenues at Enterprises due primarily to lower power demand and prices	 	 	(3	)	
 	 	 	 	 	 	
Total change	 	$	(12	)	
 	 	 	 	 	 	
CONSUMERS’ ELECTRIC UTILITY RESULTS OF OPERATIONS
 	 	 	 	 	 	 	 	 	 	 	 	 	
In Millions	
September 30	 	2009	 	2008	 	Change	
 	
Net Income:	 	 	 	 	 	 	 	 	 	 	 	 	
Three months ended	 	$	111	 	 	$	108	 	 	$	3	 	
Nine months ended	 	$	217	 	 	$	232	 	 	$	(15	)	

 	 	Three Months Ended	 	Nine Months Ended	
 	 	September 30, 2009	 	September 30, 2009	
Reasons for the change:	 	vs. 2008	 	vs. 2008	
 	
Electric deliveries and rate increase	 	$	8	 	 	$	43	 	
Power supply costs and related revenue	 	 	1	 	 	 	3	 	
Other income, net of deductions	 	 	8	 	 	 	7	 	
Maintenance and other operating expenses	 	 	(3	)	 	 	(46	)	
Depreciation and amortization	 	 	5	 	 	 	2	 	
General taxes	 	 	(5	)	 	 	(8	)	
Interest charges	 	 	(5	)	 	 	(15	)	
Income taxes	 	 	(6	)	 	 	(1	)	
 	 	 	
Total change	 	$	3	 	 	$	(15	)	
 	 	 	
 10 

 

Electric deliveries and rate increase: For the three months ended September 30, 2009, electric delivery revenues increased $8 million compared with 2008. The increase resulted from $40 million of additional revenue from the November 2009 MPSC rate order, which Consumers self-implemented in May 2009, other rate-related items, and a $13 million increase in revenues from a favorable sales mix. These increases were offset partially by $40 million in lower deliveries. Deliveries to end-use customers were 9 billion kWh, a decrease of 0.7 billion kWh or 7.2 percent compared with 2008, primarily reflecting unfavorable economic conditions in Michigan. Additionally, surcharge revenues and related reserves decreased $5 million due to the expiration of the electric restructuring implementation plan surcharge of $5 million and a reduction in PA 141 surcharge revenue of $4 million, offset partially by a $4 million increase resulting from the implementation of an energy optimization program in June 2009.
For the nine months ended September 30, 2009, electric delivery revenues increased $43 million compared with 2008. The increase resulted from a combined $110 million of additional revenue from the June 2008 MPSC rate order, the November 2009 MPSC rate order, which Consumers self-implemented in May 2009, and other rate-related items, net of a $20 million decrease from a new rate design structure that provides lower winter and higher summer rates to encourage conservation. These variances, together with a $44 million increase in revenues from a favorable sales mix, were offset partially by $90 million in lower deliveries. Deliveries to end-use customers were 27 billion kWh, a decrease of 1.8 billion kWh or 6.3 percent compared with 2008, primarily reflecting unfavorable economic conditions in Michigan. Additionally, surcharge revenues and related reserves decreased $21 million, reflecting the absence of $12 million of retirement benefits expense recovered in revenue in 2008. Also contributing to the decrease were the expiration of the electric restructuring implementation plan surcharge of $9 million and a reduction in PA 141 surcharge revenue of $5 million, offset partially by a $5 million increase resulting from the implementation of an energy optimization program in June 2009.
Power supply costs and related revenue: For the three months ended September 30, 2009, PSCR and related revenue increased $1 million compared with 2008, due primarily to an increase in wholesale fuel recovery revenue.
For the nine months ended September 30, 2009, PSCR and related revenue increased $3 million compared with 2008. The increase reflects the absence of a revenue reduction in 2008 related to amounts excluded from recovery in the 2006 PSCR reconciliation case.
Other income, net of deductions: For the three months ended September 30, 2009, other income increased $8 million compared with 2008. The increase was due to the absence in 2009 of a $6 million impairment charge that recognized an other-than-temporary decline in the fair value of Consumers’ SERP investments. Also contributing to the increase was $5 million related to gains from land sales. These increases were offset partially by a decrease in interest income and related items of $3 million, primarily reflecting lower levels of short-term cash investments.
For the nine months ended September 30, 2009, other income increased $7 million compared with 2008. The increase was due to gains from land sales of $9 million and the absence in 2009 of a $6 million impairment charge that recognized an other-than-temporary decline in the fair value of Consumers’ SERP investments. These increases were offset partially by a decrease in interest income and related items of $8 million, primarily reflecting lower levels of short-term cash investments.
 11 

 

Maintenance and other operating expenses: For the three months ended September 30, 2009, maintenance and other operating expenses increased $3 million compared with 2008. The increase was due to cost increases for plant maintenance of $4 million, and a $5 million increase in OPEB expense due to the unfavorable market performance of retirement benefit plan assets. Also contributing to the increase were the absence in 2009 of $4 million of resource conservation savings recorded in 2008 related to Consumers’ power purchase agreement with the MCV Partnership, higher expenses of $5 million related to forestry and tree-trimming services, and additional expenses of $4 million associated with the implementation of an energy optimization program in 2009. These increases were offset largely by a $6 million decrease in uncollectible accounts expense and a $13 million decrease in storm restoration, outside services, and other net expenses.
For the nine months ended September 30, 2009, maintenance and other operating expenses increased $46 million compared with 2008. The increase was due to cost increases for plant maintenance of $18 million, the absence of an $18 million benefit from the sale of sulfur dioxide credits recognized in 2008, higher expenses of $18 million related to forestry and tree-trimming services, and $5 million associated with the implementation of an energy optimization program in 2009. Also contributing to the increase was the absence of $16 million of resource conservation savings recorded in 2008 related to Consumers’ power purchase agreement with the MCV Partnership. Additionally, pension and OPEB expenses increased $5 million, as a $17 million expense increase due to the unfavorable market performance of retirement benefit plan assets more than offset the absence of $12 million of expense associated with retirement benefits recovered in revenue in 2008. These increases were offset partially by a $6 million decrease in uncollectible accounts expense and a $28 million decrease in storm restoration, outside services, and other net expenses.
Depreciation and amortization: For the three months ended September 30, 2009, depreciation and amortization expense decreased $5 million compared with 2008. The decrease was due to a $9 million reduction in amortization expense on certain regulatory assets, offset partially by a $4 million increase in depreciation from higher plant in service.
For the nine months ended September 30, 2009, depreciation and amortization expense decreased $2 million compared with 2008. The decrease was due to a $14 million reduction in amortization expense on certain regulatory assets, offset partially by a $12 million increase in depreciation from higher plant in service.
General taxes: For the three months ended September 30, 2009, general taxes increased $5 million and for the nine months ended September 30, 2009, general taxes increased $8 million, due to increased property taxes, primarily reflecting higher capital spending.
Interest charges: For the three months ended September 30, 2009, interest charges increased $5 million and for the nine months ended September 30, 2009, interest charges increased $15 million due primarily to the issuance of debt in 2009.
Income taxes: For the three months ended September 30, 2009, income taxes increased $6 million compared with 2008, reflecting $3 million associated with higher utility earnings in the third quarter of 2009 and a $3 million increase in the MBT.
For the nine months ended September 30, 2009, income taxes increased $1 million compared with 2008, reflecting a $6 million increase in the MBT, offset partially by $5 million associated with lower earnings in 2009.
 12 

 

CONSUMERS’ GAS UTILITY RESULTS OF OPERATIONS
 	 	 	 	 	 	 	 	 	 	 	 	 	
In Millions	
September 30	 	2009	 	2008	 	Change	
 	
Net Income:	 	 	 	 	 	 	 	 	 	 	 	 	
Three months ended	 	$	(12	)	 	$	(18	)	 	$	6	 	
Nine months ended	 	$	52	 	 	$	46	 	 	$	6	 	

 	 	Three Months Ended	 	Nine Months Ended	
 	 	September 30, 2009	 	September 30, 2009	
Reasons for the change:	 	vs. 2008	 	vs. 2008	
 	
Gas deliveries and rate increase	 	$	13	 	 	$	17	 	
Gas wholesale and retail services, other gas revenues, and other income	 	 	—	 	 	 	2	 	
Other income, net of deductions	 	 	5	 	 	 	5	 	
Maintenance and other operating expenses	 	 	(5	)	 	 	(19	)	
Depreciation and amortization	 	 	1	 	 	 	9	 	
General taxes	 	 	(2	)	 	 	(3	)	
Interest charges	 	 	(1	)	 	 	(3	)	
Income taxes	 	 	(5	)	 	 	(2	)	
 	 	 	
Total change	 	$	6	 	 	$	6	 	
 	 	 	
Gas deliveries and rate increase: For the three months ended September 30, 2009, gas delivery revenue increased $13 million compared with 2008. The increase was due to additional revenue of $3 million from the MPSC’s December 2008 gas rate order. Also contributing to the increase were higher deliveries of $1 million, and $6 million from a combination of a favorable sales mix and lower system losses incurred in 2009. Gas deliveries, including miscellaneous transportation to end-use customers, were 25 bcf, an increase of 1 bcf or 4.2 percent compared with 2008. Additionally, surcharge revenues increased $3 million due to the implementation of an energy optimization program in June 2009.
For the nine months ended September 30, 2009, gas delivery revenue increased $17 million compared with 2008. The increase was due to additional revenue of $14 million from the MPSC’s December 2008 gas rate order. Also contributing to the increase was $10 million from a favorable sales mix and lower system losses incurred in 2009. These increases were offset partially by lower deliveries of $11 million. Gas deliveries, including miscellaneous transportation to end-use customers, were 196 bcf, a decrease of 8 bcf or 3.9 percent compared with 2008. Additionally, surcharge revenues increased $4 million due to the implementation of an energy optimization program in June 2009.
Gas wholesale and retail services, other gas revenues, and other income: For the nine months ended September 30, 2009, gas delivery revenue increased $2 million compared with 2008. The increase was due to additional revenue from the appliance service plan program and an increase in transmission line revenue.
Other income, net of deductions: For the three months and nine months ended September 30, 2009, other income increased $5 million compared with 2008. The increase was due primarily to the absence in 2009 of an impairment charge that recognized an other-than-temporary decline in the fair value of Consumers’ SERP investments.
Maintenance and other operating expenses: For the three months ended September 30, 2009, maintenance and other operating expenses increased $5 million compared with 2008. The increase was due to higher OPEB expense of $3 million, reflecting unfavorable market performance of Consumers’
 13 

 

retirement benefit plan assets and an expense associated with prior year retirement benefits recovered in revenue in 2009. Also contributing to the increase were additional expenses related to the implementation of an energy optimization program of $3 million, offset partially by a decrease of $1 million in other net expenses.
For the nine months ended September 30, 2009, maintenance and other operating expenses increased $19 million compared with 2008. The increase was due to higher OPEB expense of $10 million, reflecting unfavorable market performance of Consumers’ retirement benefit plan assets. Also contributing to the increase were higher uncollectible account expense of $8 million and additional expenses of $4 million related to the implementation of an energy optimization program. These increases were offset partially by a decrease of $3 million in other net expenses.
Depreciation and amortization: For the three months ended September 30, 2009, depreciation and amortization expense decreased $1 million compared with 2008. The MPSC’s December 2008 gas rate order reduced amortization expense by $2 million, and delayed collection of an equal amount of amortization in rates. This decrease was offset partially by $1 million of higher depreciation expense due to an increase in plant in service.
For the nine months ended September 30, 2009, depreciation and amortization expense decreased $9 million compared with 2008. The MPSC’s December 2008 gas rate order reduced amortization expense by $13 million, and delayed collection of an equal amount of amortization in rates. This decrease was offset partially by $4 million of higher depreciation expense due to an increase in plant in service.
General taxes: For the three months ended September 30, 2009, general taxes increased $2 million and for the nine months ended September 30, 2009, general taxes increased $3 million, due to increased property taxes, primarily reflecting higher capital spending.
Interest charges: For the three months ended September 30, 2009, interest charges increased $1 million and for the nine months ended September 30, 2009, interest charges increased $3 million, due primarily to the issuance of debt in 2009.
Income taxes: For the three months ended September 30, 2009, income taxes increased $5 million and for the nine months ended September 30, 2009, income taxes increased $2 million, due to higher utility earnings in the third quarter of 2009.
ENTERPRISES RESULTS OF OPERATIONS
 	 	 	 	 	 	 	 	 	 	 	 	 	
September 30	 	2009	 	 	2008	 	 	Change	 	
 	
Net Income:	 	 	 	 	 	 	 	 	 	 	 	 	
Three months ended	 	$	5	 	 	$	5	 	 	$	—	 	
Nine months ended	 	$	(12	)	 	$	13	 	 	$	(25	)	
 	 	     	
For the three months ended September 30, 2009, Enterprises reported no change in net income, as the impact of depressed power demand and prices was offset by higher fuel reimbursement revenue.
For the nine months ended September 30, 2009, Enterprises recorded a net loss of $12 million compared with net income of $13 million in 2008. The change reflects an after-tax expense of $22 million resulting from an increase in projected future environmental remediation costs associated with Bay Harbor, and $3 million of lower earnings due to depressed power demand and prices.
 14 

 

CORPORATE INTEREST AND OTHER RESULTS OF OPERATIONS
 	 	 	 	 	 	 	 	 	 	 	 	 	
September 30	 	2009	 	 	2008	 	 	Change	 	
 	
Net Income:	 	 	 	 	 	 	 	 	 	 	 	 	
Three months ended	 	$	(37	)	 	$	(18	)	 	$	(19	)	
Nine months ended	 	$	(74	)	 	$	(67	)	 	$	( 7	)	
 	 	     	
For the three months ended September 30, 2009, corporate interest and other net expenses increased $19 million, due primarily to a premium paid on the early retirement of debt and the absence of benefits recorded in 2008 related to the reduction of certain tax valuation allowances.
For the nine months ended September 30, 2009, corporate interest and other net expenses increased $7 million. The increase was due to premiums paid on the early retirement of CMS Energy senior notes, the absence of benefits recorded in 2008 related to the reduction of certain tax valuation allowances, and an increase in tax expense due to legislation related to the MBT. These increases were offset partially by a gain recognized on the early retirement of CMS Energy’s long-term debt — related parties.
DISCONTINUED OPERATIONS
For the three months ended September 30, 2009, CMS Energy reported no income from discontinued operations. In 2008, income from discontinued operations was $1 million due primarily to a reduction to a legal reserve related to previously sold assets.
For the nine months ended September 30, 2009, income from discontinued operations was $29 million, due primarily to the expiration of an indemnity obligation related to a 2007 asset sale.
CAPITAL RESOURCES AND LIQUIDITY
Components of CMS Energy’s and Consumers’ cash management plan include controlling operating expenses and capital expenditures and evaluating market conditions for financing opportunities, if needed. Recent major financing transactions and commitments are as follows:

 	•	 	In February 2009, Consumers retired $200 million FMB at maturity;	
 		
 	•	 	In March 2009, Consumers issued $500 million in FMB;	
 		
 	•	 	In June 2009, CMS Energy issued $173 million in convertible senior notes and $300 million in senior notes, and early retired $144 million of its $178 million Long-term debt — related parties;	
 		
 	•	 	In July 2009, CMS Energy repurchased and retired $233 million principal amount of the senior notes due 2010 and $87 million principal amount of the senior notes due 2011;	
 		
 	•	 	In August 2009, Consumers retired $150 million FMB at maturity; and	
 		
 	•	 	In September 2009, CMS Energy’s $243 million preferred stock and $140 million 3.375 percent senior notes became convertible at the holders’ option for the fourth quarter of 2009.	
Despite the present market volatility, CMS Energy and Consumers expect to continue to have access to the financial and capital markets. Recent and upcoming credit renewals and maturities are as follows:

 	•	 	Consumers renewed its accounts receivable sales program in April 2009 through February 2010;	
 		
 	•	 	Consumers renewed its $150 million 364-day revolving credit facility in September 2009;	
 		
 	•	 	Consumers renewed its letter of credit facility in the amount of $30 million in September 2009, effective November 30, 2009;	
 		
 	•	 	Consumers’ $500 million revolving credit facility is planned for renewal in 2012;	
 15 

 

 	•	 	Consumers’ FMB maturities are $250 million in 2010, and $300 million in 2012;	
 		
 	•	 	Consumers’ tax-exempt pollution control revenue bond maturities are $58 million in 2010;	
 		
 	•	 	CMS Energy’s senior notes maturities are $67 million in 2010, $213 million in 2011, and $150 million in 2012; and	
 		
 	•	 	CMS Energy’s $550 million revolving credit facility is planned for renewal in 2012.	
CMS Energy and Consumers believe that their present level of cash and their expected cash flows from operating activities, together with access to sources of liquidity, will be sufficient to meet cash requirements. If access to the capital markets were to become diminished or otherwise restricted, CMS Energy and Consumers would implement contingency plans to address debt maturities, which could include reduced capital spending. For additional details, see Note 7, Financings and Capitalization.
At September 30, 2009, CMS Energy and Consumers were each in compliance with the financial covenants in their respective debt agreements, and no events of default had occurred with respect to any debt covenants.
Cash Position, Investing, and Financing
CMS Energy’s and Consumers’ operating, investing, and financing activities meet their consolidated cash needs. At September 30, 2009, CMS Energy had $213 million of consolidated cash and cash equivalents, which includes $30 million of restricted cash and cash equivalents and $14 million of cash and cash equivalents held by consolidated VIEs. At September 30, 2009, Consumers had $120 million of consolidated cash and cash equivalents, which includes $22 million of restricted cash and cash equivalents.
CMS Energy’s primary ongoing source of cash is dividends and other distributions from its subsidiaries. Consumers paid $233 million in common stock dividends and Enterprises paid $55 million in common stock dividends to CMS Energy for the nine months ended September 30, 2009. For details on dividend restrictions, see Note 7, Financings and Capitalization.
Operating Activities: For the nine months ended September 30, 2009, CMS Energy generated $638 million in cash from operations and Consumers generated $703 million in cash from operations. For the nine months ended September 30, 2008, CMS Energy generated $181 million in cash from operations and Consumers generated $524 million in cash from operations. Specific components of cash provided by (used in) operating activities for the nine months ended September 30, 2009 and 2008 are:
 	 	 	 	 	 	 	 	 	 	 	 	 	
CMS Energy, including Consumers	 	In Millions	 	
Nine months ended September 30	 	2009	 	 	2008	 	 	Change	 	
 	
•      Net income	 	$	229	 	 	$	238	 	 	$	(9	)	
•      Non-cash transactions (a)	 	 	714	 	 	 	695	 	 	 	19	 	
 	 	 	
 	 	$	943	 	 	$	933	 	 	$	10	 	
•      Sale of gas purchased in prior year	 	 	577	 	 	 	548	 	 	 	29	 	
•      Purchase of gas in current year	 	 	(654	)	 	 	(904	)	 	 	250	 	
•      Electric sales contract termination payment	 	 	—	 	 	 	(275	)	 	 	275	 	
•      Accounts receivable sales	 	 	(170	)	 	 	—	 	 	 	(170	)	
•      Pension contribution	 	 	(206	)	 	 	—	 	 	 	(206	)	
•      Change in other core working capital	 	 	275	 	 	 	120	 	 	 	155	 	
•      Other changes in assets and liabilities, net	 	 	(127	)	 	 	(241	)	 	 	114	 	
 	 	 	
Net cash provided by operating activities	 	$	638	 	 	$	181	 	 	$	457	 	
 	 	 	
 16 

 

 	 	 	 	 	 	 	 	 	 	 	 	 	
Consumers	 	In Millions	 	
Nine months ended September 30	 	2009	 	 	2008	 	 	Change	 	
 	
•      Net income	 	$	272	 	 	$	281	 	 	$	(9	)	
•      Non-cash transactions (a)	 	 	640	 	 	 	650	 	 	 	(10	)	
 	 	 	
 	 	$	912	 	 	$	931	 	 	$	(19	)	
•      Sale of gas purchased in prior year	 	 	577	 	 	 	548	 	 	 	29	 	
•      Purchase of gas in current year	 	 	(654	)	 	 	(904	)	 	 	250	 	
•      Accounts receivable sales	 	 	(170	)	 	 	—	 	 	 	(170	)	
•      Pension contribution	 	 	(199	)	 	 	—	 	 	 	(199	)	
•      Change in other core working capital	 	 	278	 	 	 	109	 	 	 	169	 	
•      Other changes in assets and liabilities, net	 	 	(41	)	 	 	(160	)	 	 	119	 	
 	 	 	
Net cash provided by operating activities	 	$	703	 	 	$	524	 	 	$	179	 	

			
(a)	 	Non-cash transactions comprise depreciation and amortization, changes in deferred income taxes, postretirement benefits expense, and other non-cash items.	
For the nine months ended September 30, 2009, net cash provided by operating activities at CMS Energy increased $457 million compared with 2008. This increase was due to the absence in 2009 of a payment made by CMS ERM in 2008 to terminate electricity sales agreements and the changes affecting Consumers’ cash provided by operating activities described in the following paragraph.
For the nine months ended September 30, 2009, net cash provided by operating activities at Consumers increased $179 million compared with 2008. This increase was due primarily to the impact of lower gas prices on inventory purchased in 2009, collection of increased billings due to recent regulatory actions, and other timing differences. These changes were offset partially by the 2009 pension contribution and the absence of 2008 accounts receivable sales.
Investing Activities: For the nine months ended September 30, 2009, net cash used in investing activities was $679 million at CMS Energy and $639 million at Consumers. For the nine months ended September 30, 2008, net cash used in investing activities was $538 million at CMS Energy and $531 million at Consumers. Specific components of cash used in investing activities for the nine months ended September 30, 2009 and 2008 are:
 	 	 	 	 	 	 	 	 	 	 	 	 	
CMS Energy, including Consumers	 	In Millions	 	
Nine months ended September 30	 	2009	 	 	2008	 	 	Change	 	
 	
•      Capital expenditures	 	$	(621	)	 	$	(511	)	 	$	(110	)	
•      Increase in non-current notes receivable	 	 	(43	)	 	 	(11	)	 	 	(32	)	
•      Costs to retire property and other	 	 	(15	)	 	 	(16	)	 	 	1	 	
 	 	 	
Net cash used in investing activities	 	$	(679	)	 	$	(538	)	 	$	(141	)	

Consumers	 	In Millions	 	
Nine months ended September 30	 	2009	 	 	2008	 	 	Change	 	
 	
•      Capital expenditures	 	$	(616	)	 	$	(510	)	 	$	(106	)	
•      Costs to retire property and other	 	 	(23	)	 	 	(21	)	 	 	(2	)	
 	 	 	
Net cash used in investing activities	 	$	(639	)	 	$	(531	)	 	$	(108	)	
 	 	 	
For the nine months ended September 30, 2009, net cash used in investing activities at CMS Energy increased $141 million compared with 2008. For the nine months ended September 30, 2009, net cash used in investing activities at Consumers increased $108 million compared with 2008. These increases were due primarily to an increase in Consumers’ capital expenditures.
 17 

 

Financing Activities: For the nine months ended September 30, 2009, net cash provided by financing activities was $11 million at CMS Energy and net cash used in financing activities was $35 million at Consumers. For the nine months ended September 30, 2008, net cash provided by financing activities was $171 million at CMS Energy and net cash used in financing activities was $99 million at Consumers. Specific components of cash provided by (used in) financing activities for the nine months ended September 30, 2009 and 2008 are:
 	 	 	 	 	 	 	 	 	 	 	 	 	
CMS Energy, including Consumers	 	In Millions	 	
Nine months ended September 30	 	2009	 	 	2008	 	 	Change	 	
 	
•      Issuance of FMB, convertible senior notes, senior notes and other debt	 	$	1,047	 	 	$	685	 	 	$	362	 	
•      Borrowings on revolving credit facility	 	 	215	 	 	 	245	 	 	 	(30	)	
•      Retirement of debt and other debt maturity payments	 	 	(905	)	 	 	(528	)	 	 	(377	)	
•      Payments on revolving credit facility	 	 	(255	)	 	 	(140	)	 	 	(115	)	
•      Payments of common and preferred stock dividends	 	 	(93	)	 	 	(69	)	 	 	(24	)	
•      Other financing activities	 	 	2	 	 	 	(22	)	 	 	24	 	
 	 	 	
Net cash provided by financing activities	 	$	11	 	 	$	171	 	 	$	(160	)	

Consumers	 	In Millions	 	
Nine months ended September 30	 	2009	 	 	2008	 	 	Change	 	
 	
•      Issuance of FMB	 	$	500	 	 	$	600	 	 	$	(100	)	
•      Retirement of debt and other debt maturity payments	 	 	(377	)	 	 	(434	)	 	 	57	 	
•      Payments of common stock dividends	 	 	(233	)	 	 	(238	)	 	 	5	 	
•      Stockholder’s contribution from CMS Energy	 	 	100	 	 	 	—	 	 	 	100	 	
•      Other financing activities	 	 	(25	)	 	 	(27	)	 	 	2	 	
 	 	 	
Net cash used in financing activities	 	$	(35	)	 	$	(99	)	 	$	64	 	
 	 	 	
For the nine months ended September 30, 2009, net cash provided by financing activities at CMS Energy decreased $160 million compared with 2008. This decrease was due primarily to a decrease in net proceeds from borrowings.
For the nine months ended September 30, 2009, net cash used in financing activities at Consumers decreased $64 million compared with 2008. This decrease was due primarily to a stockholder’s contribution from CMS Energy offset partially by a decrease in net proceeds from borrowings.
For additional details on long-term debt activity, see Note 7, Financings and Capitalization.
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Retirement Benefits
The following table provides the most recent estimates of pension cost and pension cash contributions:
 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	In Millions	
 	 	Pension Cost	 	Pension Contributions	
 	
CMS Energy, including Consumers	 	 	 	 	 	 	 	 	
2009	 	$	97	 	 	$	206	 	
2010	 	 	108	 	 	 	92	 	
2011	 	 	106	 	 	 	118	 	
 	
Consumers	 	 	 	 	 	 	 	 	
2009	 	$	94	 	 	$	199	 	
2010	 	 	105	 	 	 	89	 	
2011	 	 	103	 	 	 	114	 	
 	
Based on recent guidance from the federal Pension Protection Act of 2006, IRS notices, and the federal Worker, Retiree, and Employer Recovery Act of 2008, CMS Energy reduced its estimated pension contribution for 2009 by $94 million to $206 million. During the first nine months of 2009, CMS Energy contributed $206 million to its pension fund, which includes a contribution of $199 million by Consumers. Actual future pension cost and contributions will depend on future investment performance, changes in discount rates, and various other factors related to the Pension Plan participants.
For additional details on retirement benefits, see Note 11, Retirement Benefits.
Obligations And Commitments
Revolving Credit Facilities: For details on CMS Energy’s and Consumers’ revolving credit facilities, see Note 7, Financings and Capitalization.
Dividend Restrictions: For details on CMS Energy’s and Consumers’ dividend restrictions, see Note 7, Financings and Capitalization.
Off-Balance-Sheet Arrangements
Off-Balance-Sheet Arrangements: CMS Energy, Consumers, and certain of their subsidiaries enter into various arrangements in the normal course of business to facilitate commercial transactions with third parties. These arrangements include indemnities, surety bonds, letters of credit, and financial and performance guarantees. Indemnities are usually agreements to reimburse a counterparty that may incur losses due to outside claims or breach of contract terms. The maximum payment that could be required under a number of these indemnity obligations is not estimable. While CMS Energy and Consumers believe it is unlikely that they will incur any material losses related to indemnities they have not recorded as liabilities, they cannot predict the impact of these contingent obligations on their liquidity and financial condition. For additional details on these and other guarantee arrangements, see Note 5, Contingencies, “Guarantees.”
Sale of Accounts Receivable: Under Consumers’ revolving accounts receivable sales program, Consumers may sell up to $250 million of accounts receivable, subject to certain eligibility requirements. At September 30, 2009, $250 million of accounts receivable were eligible for sale, and no accounts receivable were sold under the program.
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OUTLOOK
Several business trends and uncertainties may affect CMS Energy’s and Consumers’ financial condition and future results of operations. These trends and uncertainties could have a material impact on CMS Energy’s and Consumers’ consolidated income, cash flows, or financial position. For additional details regarding these and other uncertainties, see the “Forward-Looking Statements and Information” section included in this MD&A and Part II, Item 1A. Risk Factors.
Consumers’ Electric Utility Business Outlook and Uncertainties
Balanced Energy Initiative : Consumers’ balanced energy initiative is a comprehensive energy resource plan designed to meet its projected short-term and long-term electric power requirements through:

 	•	 	energy efficiency;	
 		
 	•	 	demand management;	
 		
 	•	 	expanded use of renewable energy;	
 		
 	•	 	development of new power plants and pursuit of additional power purchase agreements to complement existing generating sources; and	
 		
 	•	 	potential retirement of older, less efficient generating units.	
Consumers’ balanced energy initiative includes plans to build an 830 MW coal-fueled plant at its Karn/Weadock generating complex near Bay City, Michigan. Consumers expects the plant to be in operation in 2017 and plans to use five-eighths of the plant’s output to serve its own customers, with the remaining output to be committed to others. The 2008 Energy Legislation provided guidelines with respect to the MPSC’s review and approval of energy resource plans and proposed power plants through the issuance of a certificate of need. Consumers plans to file a new case with the MPSC seeking a certificate of need that conforms to the legislation.
In October 2007, Consumers filed an air permit application with the MDEQ for its proposed coal-fueled plant. The MDEQ published Consumers’ draft air permit for public comment in March 2009 and, in response to public comments, indicated that it would require a needs-and-alternatives analysis. In June 2009, Consumers prepared and filed with the MDEQ and the MPSC a needs-and-alternatives analysis that supported Consumers’ current balanced energy initiative and the construction of its proposed coal-fueled power plant. In September 2009, the MPSC staff issued a report to the MDEQ on Consumers’ analysis, concluding that the long-term capacity need identified by Consumers in its analysis was unjustified without the retirement of certain existing coal-fueled power plants from its fleet. The MPSC staff’s report also stated that the proposed coal-fueled plant is only one alternative out of a range of options that Consumers may use to fill the projected capacity need, and that such options include increased energy efficiency and renewable energy.
Renewable Energy Plan: The 2008 Energy Legislation prescribed renewable energy standards for energy and capacity. The energy standard requires that at least ten percent of Consumers’ electric sales volume come from renewable sources by 2015 with interim target requirements. Using the guidelines of the standard, four percent of Consumers’ electric sales volume now comes from renewable sources. The capacity standard requires Consumers to add new renewable energy capacity of 200 MW by December 31, 2013, and an additional 300 MW by December 31, 2015, from owned renewable energy sources or agreements to purchase power.
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In February 2009, Consumers filed its renewable energy plan with the MPSC. The plan detailed how Consumers would meet the renewable energy standards for energy and capacity, with wind generation as Consumers’ primary resource. Consumers’ plan proposed that half of the new renewable capacity would be obtained through long-term agreements to purchase power from third parties, with the remaining capacity to be supplied by facilities built and owned by Consumers. The plan also proposed a schedule of surcharges to be applied over a 20-year period to recover the incremental cost of compliance. Consumers’ plan was approved by the MPSC in May 2009 with minor exceptions. It is subject to biennial review and annual cost and revenue reconciliation proceedings.
Consumers has secured more than 52,000 acres of land easements in Michigan’s Tuscola and Mason Counties for potential wind generation development and is collecting wind speed and other meteorological data at the sites. Consumers will continue to seek opportunities for wind generation development in support of the renewable energy standard. Consumers has also executed agreements with six small-scale renewable energy suppliers for the purchase of 9.4 MW of renewable capacity and an estimated two percent of its long-term renewable energy needs. The MPSC approved these agreements in October, which will enable Consumers to recover the full costs of these contracts from its customers. Additionally, in May 2009, Consumers requested proposals, due in December 2009, for capacity and energy from larger projects to meet its renewable capacity and energy needs through 2015.
Energy Optimization Plan: The 2008 Energy Legislation requires utilities to prepare energy optimization plans and achieve annual sales reduction targets beginning in 2009 through at least 2015. The targets are incremental with the goal of achieving a six percent reduction in customers’ electricity use and a four percent reduction in natural gas use by December 31, 2015. In February 2009, Consumers filed its energy optimization plan with the MPSC. The plan detailed Consumers’ proposals for energy cost savings among all customer classes through incentives to reduce customer usage by offering customer energy audits, rebates and discounts on purchases of highly efficient appliances, and other incentives and programs. The plan also sought recovery of program costs. Consumers’ plan was approved by the MPSC in May 2009. It is subject to biennial review and annual cost and revenue reconciliation proceedings. In July 2009, Consumers launched its energy optimization programs for residential customers.
Electric Customer Revenue: Michigan’s economy has suffered from plant closures, restructurings, and bankruptcies in the automotive sector and from the depressed housing market. The Michigan economy also has been harmed by the present volatility in the financial and credit markets. Although Consumers’ electric utility results are not substantially dependent upon a single customer, or even a few customers, customers in the automotive sector and their direct suppliers represented four percent of Consumers’ total 2008 electric revenue and 2.5 percent of Consumers’ 2008 electric operating income. Consumers cannot predict the financial impact of the Michigan economy on its electric customer revenue.
Electric Deliveries: Consumers expects weather-adjusted electric deliveries to decrease in 2009 by four percent compared with 2008. Consumers’ outlook for 2009 includes continuing growth in deliveries to its largest customer, which produces semiconductor and solar energy components. Excluding this customer’s growth, Consumers expects weather-adjusted electric deliveries in 2009 to decrease six percent compared with 2008. Consumers’ outlook reflects reduced deliveries associated with its investment in energy efficiency programs included in the 2008 Energy Legislation, as well as recent projections of Michigan economic conditions.
Beginning in 2010, Consumers expects economic conditions to stabilize, resulting in modestly growing deliveries of electricity through 2014. This modest growth expectation takes into account the predicted effects of energy efficiency programs. Actual deliveries will depend on:
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 	•	 	energy conservation measures and results of energy efficiency programs;	
 		
 	•	 	fluctuations in weather; and	
 		
 	•	 	changes in economic conditions, including utilization and expansion or contraction of manufacturing facilities, population trends, and housing activity.	
Electric Supply Resources: Consumers, through its supply resources, which consist of electric generating plants, long-term power purchase contracts, and short-term purchases of capacity and energy, is planning to meet the resource adequacy requirements established by MISO.
Electric Transmission Expenses: Consumers expects the transmission charges it incurs to increase by $47 million in 2009 compared with 2008, due primarily to a 25 percent increase in METC and Wolverine transmission rates. This increase was included in Consumers’ 2009 PSCR plan filed with the MPSC in September 2008. For details on litigation concerning Consumers’ recovery of its electric transmission expense, see Note 5, Contingencies, “Consumers’ Electric Utility Contingencies — Litigation.”
Electric ROA: The Customer Choice Act allows Consumers’ electric customers to buy electric generation service from Consumers or from an alternative electric supplier. However, the 2008 Energy Legislation generally limits alternative electric supply to ten percent of Consumers’ weather-adjusted retail sales of the preceding calendar year. During the third quarter of 2009, customer enrollment in the ROA program reached the ten percent limit. At September 30, 2009, alternative electric suppliers were providing 586 MW of generation service to ROA customers, a 77 percent increase from December 31, 2008. For the twelve-month period ended September 30, 2009, alternative electric supply represented 4.5 percent of Consumers’ weather-adjusted retail sales of the preceding calendar year.
Electric Environmental Estimates: Consumers’ operations are subject to various state and federal environmental laws and regulations. Generally, Consumers has been able to recover, in customer rates, its costs to operate its facilities in compliance with these laws and regulations.
Clean Air Act: Consumers continues to focus on complying with the federal Clean Air Act and numerous state and federal environmental regulations. Consumers estimates expenditures of $1.32 billion from 2009 through 2017 for equipment installation to comply with a number of environmental regulations, including regulations limiting nitrogen oxides, sulfur dioxide, and mercury emissions. Consumers expects to recover these costs in customer rates.
It is expected that allowances and installation of pollution control equipment will cover the shortfall in nitrogen oxides emission allowances through 2015. Consumers also plans to purchase sulfur dioxide emission allowances between 2012 and 2015 at an average cost of $5 million per year. Consumers expects to recover emission allowance costs from its customers through the PSCR process.
Clean Air Interstate Rule: In 2005, the EPA adopted the CAIR, which required additional coal-fueled electric generating plant emission controls for nitrogen oxides and sulfur dioxide. The CAIR was appealed to the U.S. Court of Appeals for the District of Columbia. The court initially nullified the CAIR and the CAIR federal implementation plan in its entirety, but subsequently changed course and remanded the rule to the EPA, maintaining the rule in effect pending EPA revision. At this time, the CAIR remains in effect, with 2009 as the first nitrogen oxides compliance year. The EPA must now revise the rule to resolve the court’s concerns. The impacts of this revision are unknown, but stricter regulation is envisioned. A draft rule is expected in 2010.
State and Federal Mercury Air Rules: In 2005, the EPA issued the CAMR, which required initial reductions of mercury emissions from coal-fueled electric generating plants by 2010 and further reductions by 2018. A number of states and other entities appealed certain portions of the CAMR to the
 22 

 

U.S. Court of Appeals for the District of Columbia. In 2008, the U.S. Court of Appeals for the District of Columbia determined that the rules developed by the EPA were not consistent with the Clean Air Act. The U.S. Supreme Court denied a request to review this decision. The EPA has initiated the development of a revised rule based on MACT. The rule is expected to be proposed in early 2010, at which time Consumers will have a better understanding of the potential impact.
In 2006, Michigan’s governor proposed a plan that would result in mercury emissions reductions of 90 percent by 2015. In response to the governor’s proposal, the MDEQ promulgated a rule that became effective in October 2009. Consumers has a plan in place to comply with this proposed rule; however, the development of the Federal rule may affect Consumers’ plan. Consumers cannot predict the financial impact or outcome of this matter until this state regulation can be evaluated with respect to a Federal rule that is under development.
Greenhouse Gases : In June 2009, the United States House of Representatives passed the American Clean Energy and Security Act, which requires reductions in emissions of greenhouse gases, including carbon dioxide. The bill proposes to reduce carbon dioxide and other greenhouse gas emissions by 3 percent below 2005 levels by 2012, 17 percent below 2005 levels by 2020, and 42 percent below 2005 levels by 2030. The bill also contains provisions for the direct granting of substantial free greenhouse gas emission allowances to load-serving entities in order to mitigate price impacts to customers. Consumers considers it likely that Congress will pass greenhouse gas legislation, but the form and timing of any final bill is difficult to predict. These laws, or similar state laws or rules, if enacted, could require Consumers to replace equipment, install additional equipment for emission controls, purchase allowances, curtail operations, arrange for alternative sources of supply, or take other steps to manage or lower the emission of greenhouse gases.
In September 2009, the EPA finalized the Mandatory Reporting of Greenhouse Gases Rule. This rule will require facilities producing 25,000 metric tons or more of greenhouse gases to collect emissions data under a new reporting system, beginning January 1, 2010. The first reports will be due to the EPA on March 31, 2011. The rule covers carbon dioxide, methane, nitrous oxide, hydro fluorocarbons, and other fluorinated gases. The purpose of the rule is to collect accurate and timely data on greenhouse gas emissions that can be used to inform future climate change policy decisions. In addition, the EPA, through public statements and actions, has signaled that it intends to initiate regulation of greenhouse gases through the Clean Air Act.
Although associated capital or operating costs relating to greenhouse gas regulation or legislation could be material, and cost recovery cannot be assured, Consumers expects to have an opportunity to recover these costs and capital expenditures in rates consistent with the recovery of other reasonable costs of complying with environmental laws and regulations.
 23 

 

Water: In 2004, the EPA issued rules that govern existing electric generating plant cooling water intake systems. These rules require a significant reduction in the number of fish harmed by intake structures at existing power plants. The EPA compliance options in the rule were challenged before the U.S. Court of Appeals for the Second Circuit, which remanded the bulk of the rule back to the EPA for reconsideration in 2007. In April 2009, the U.S. Supreme Court ruled in favor of the utility industry’s position that the EPA can rely on a cost-benefit analysis in setting the national performance standards for fish protection. The EPA has announced plans to issue a revised draft rule in early 2010. Consumers estimates capital expenditures of $150 million to comply with these regulations.
Other electric environmental matters, including routine maintenance classification, could have a major impact on Consumers’ outlook. For additional details on these and other electric environmental matters, see Note 5, Contingencies, “Consumers’ Electric Utility Contingencies - Electric Environmental Matters.”
Electric Rate Matters: Rate matters are critical to Consumers’ electric utility business. For details on Consumers’ stranded cost recovery, power supply cost recovery, electric rate case and self-implemented rates, Palisades regulatory proceedings, and Big Rock decommissioning proceedings, see Note 6, Utility Rate Matters, “Consumers’ Electric Utility Rate Matters.”
Consumers’ Gas Utility Business Outlook and Uncertainties
Gas Deliveries: Consumers expects weather-adjusted gas deliveries to decline in 2009 by five percent compared with 2008, due to continuing conservation and overall economic conditions in Michigan. In addition, Consumers expects weather-adjusted gas deliveries to decline an average of two percent annually from 2010 through 2014, which reflects expected effects of energy efficiency programs. Actual delivery levels from year to year may vary from this trend due to:

 	•	 	fluctuations in weather;	
 		
 	•	 	use by independent power producers;	
 		
 	•	 	availability and development of renewable energy sources;	
 		
 	•	 	changes in gas prices;	
 		
 	•	 	Michigan economic conditions including population trends and housing activity;	
 		
 	•	 	the price of competing energy sources or fuels; and	
 		
 	•	 	energy efficiency and conservation.	
Gas Environmental Estimates: Consumers expects to incur investigation and remedial action costs at a number of sites, including 23 former manufactured gas plant sites. For additional details, see Note 5, Contingencies, “Consumers’ Gas Utility Contingencies — Gas Environmental Matters.”
Gas Rate Matters: Rate matters are critical to Consumers’ gas utility business. For details on Consumers’ gas cost recovery, gas depreciation, gas rate case, and lost and unaccounted for gas, see Note 6, Utility Rate Matters, “Consumers’ Gas Utility Rate Matters.”
Enterprises’ Outlook and Uncertainties
The primary focus with respect to CMS Energy’s remaining non-utility businesses is to optimize cash flow and maximize the value of their assets.
Trends and uncertainties that could have a material impact on CMS Energy’s consolidated income, cash flows, or financial position include:
 24 

 

 	•	 	the impact of indemnity and environmental remediation obligations at Bay Harbor;	
 		
 	•	 	the outcome of certain legal proceedings;	
 		
 	•	 	the impact of lower electricity prices, caused primarily by lower natural gas prices, unseasonably cool weather, and decreased industrial production, on the profitability of Enterprises’ generating units;	
 		
 	•	 	the impact of representations, warranties, and indemnities provided by CMS Energy or its subsidiaries in connection with the sales of assets;	
 		
 	•	 	the impact of changes in commodity prices and interest rates on certain derivative contracts that do not qualify for hedge accounting and must be marked to market through earnings; and	
 		
 	•	 	the impact of economic conditions in Michigan, including population trends and housing activity.	
For additional details regarding Enterprises’ uncertainties, see Note 5, Contingencies and Part II, Item 1. Legal Proceedings.
Other Outlook and Uncertainties
Advanced Metering Infrastructure: Consumers’ development of an advanced metering infrastructure system is proceeding as planned. This system is designed to provide two-way communications between Consumers and its customers and should allow Consumers to read meters, receive outage and restoration notification, and turn service on and off without visiting the meter. It should enable customers to monitor and manage their energy usage and help reduce demand during critical peak times, resulting in higher energy efficiency and environmental benefits. Due to this system’s complexity and relative market immaturity, Consumers is using a phased implementation approach that will allow it to analyze, test, and pilot the new technology prior to widespread investment and deployment. Consumers will also make certain modifications to its software to enable the new system. Consumers intends to begin mass deployment of the system and installation of new meters in 2012.
Litigation: CMS Energy, Consumers, and certain of their subsidiaries are named as a party in various litigation matters, as well as in administrative proceedings before various courts and governmental agencies arising in the ordinary course of business. For additional details regarding these and other legal matters, see Note 5, Contingencies and Part II, Item 1. Legal Proceedings.
EnerBank: EnerBank, a wholly owned subsidiary of CMS Capital that represents one percent of CMS Energy’s net assets, is a state-chartered, FDIC-insured industrial bank providing unsecured home improvement loans. The carrying value of EnerBank’s loan portfolio was $227 million at September 30, 2009. Its loan portfolio was funded primarily by deposit liabilities of $163 million and borrowings from the U.S. Federal Reserve bank of $50 million. Twelve-month rolling average default rates on loans held by EnerBank have risen from 1.4 percent at December 31, 2008 to 2.2 percent at September 30, 2009. Due to the economic downturn, EnerBank expects the level of loan defaults to continue to increase throughout the remainder of 2009 and into 2010, returning to lower levels thereafter.
NEW ACCOUNTING STANDARDS
For details regarding the implementation of new accounting standards and new accounting standards issued that are not yet effective, see Note 3, New Accounting Standards.
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CMS Energy Corporation
Consolidated Statements of Income
(Unaudited)
(As Revised, See Note 1)
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	In Millions	
 	 	Three Months Ended	 	 	Nine Months Ended	 	
September 30	 	2009	 	 	2008	 	 	2009	 	 	2008	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Operating Revenue	 	$	1,265	 	 	$	1,428	 	 	$	4,597	 	 	$	4,977	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Income (Loss) from Equity Method Investees	 	 	(1	)	 	 	5	 	 	 	(2	)	 	 	3	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Operating Expenses	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Fuel for electric generation	 	 	140	 	 	 	173	 	 	 	393	 	 	 	470	 	
Purchased and interchange power	 	 	318	 	 	 	406	 	 	 	889	 	 	 	1,026	 	
Cost of gas sold	 	 	123	 	 	 	191	 	 	 	1,294	 	 	 	1,526	 	
Other operating expenses	 	 	229	 	 	 	218	 	 	 	704	 	 	 	615	 	
Maintenance	 	 	52	 	 	 	51	 	 	 	163	 	 	 	140	 	
Depreciation and amortization	 	 	128	 	 	 	135	 	 	 	422	 	 	 	436	 	
General taxes	 	 	51	 	 	 	47	 	 	 	164	 	 	 	155	 	
Gain on asset sales, net	 	 	(5	)	 	 	—	 	 	 	(13	)	 	 	(8	)	
 	 	 	1,036	 	 	 	1,221	 	 	 	4,016	 	 	 	4,360	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Operating Income	 	 	228	 	 	 	212	 	 	 	579	 	 	 	620	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Other Income (Deductions)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Interest and dividends	 	 	6	 	 	 	5	 	 	 	17	 	 	 	23	 	
Regulatory return on capital expenditures	 	 	7	 	 	 	9	 	 	 	20	 	 	 	25	 	
Other income	 	 	4	 	 	 	4	 	 	 	42	 	 	 	10	 	
Other expense	 	 	(20	)	 	 	(15	)	 	 	(25	)	 	 	(21	)	
 	 	 	(3	)	 	 	3	 	 	 	54	 	 	 	37	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Interest Charges	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Interest on long-term debt	 	 	96	 	 	 	88	 	 	 	280	 	 	 	264	 	
Interest on long-term debt — related parties	 	 	1	 	 	 	3	 	 	 	7	 	 	 	10	 	
Other interest	 	 	7	 	 	 	8	 	 	 	23	 	 	 	26	 	
Capitalized interest	 	 	(1	)	 	 	(1	)	 	 	(3	)	 	 	(4	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	103	 	 	 	98	 	 	 	307	 	 	 	296	 	

Income Before Income Taxes	 	 	122	 	 	 	117	 	 	 	326	 	 	 	361	 	
Income Tax Expense	 	 	47	 	 	 	36	 	 	 	126	 	 	 	123	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Income from Continuing Operations	 	 	75	 	 	 	81	 	 	 	200	 	 	 	238	 	
Income From Discontinued Operations, Net of Tax of $-, $1, $19 and $-	 	 	—	 	 	 	1	 	 	 	29	 	 	 	—	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net Income	 	 	75	 	 	 	82	 	 	 	229	 	 	 	238	 	
Income Attributable to Noncontrolling Interests	 	 	6	 	 	 	2	 	 	 	9	 	 	 	6	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net Income Attributable to CMS Energy	 	 	69	 	 	 	80	 	 	 	220	 	 	 	232	 	
Preferred Stock Dividends	 	 	2	 	 	 	2	 	 	 	8	 	 	 	8	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net Income Available to Common Stockholders	 	$	67	 	 	$	78	 	 	$	212	 	 	$	224	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
The accompanying notes are an integral part of these statements.
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 	 	 	 	 	 	In Millions, Except Per Share Amounts	
 	 	Three Months Ended	 	Nine Months Ended	
September 30	 	2009	 	2008	 	2009	 	2008	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net Income Available to Common Stockholders	 	$	67	 	 	$	78	 	 	$	212	 	 	$	224	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Basic Earnings Per Average Common Share	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Income from Continuing Operations	 	$	0.29	 	 	$	0.34	 	 	$	0.80	 	 	$	0.99	 	
Income from Discontinued Operations	 	 	—	 	 	 	0.01	 	 	 	0.13	 	 	 	—	 	
Net Income Attributable to Common Stock	 	$	0.29	 	 	$	0.35	 	 	$	0.93	 	 	$	0.99	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Diluted Earnings Per Average Common Share	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Income from Continuing Operations	 	$	0.28	 	 	$	0.32	 	 	$	0.77	 	 	$	0.94	 	
Income from Discontinued Operations	 	 	—	 	 	 	0.01	 	 	 	0.13	 	 	 	—	 	
Net Income Attributable to Common Stock	 	$	0.28	 	 	$	0.33	 	 	$	0.90	 	 	$	0.94	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Dividends Declared Per Common Share	 	$	0.125	 	 	$	0.09	 	 	$	0.375	 	 	$	0.27	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 27 

 

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 28 

 

CMS Energy Corporation
Consolidated Statements of Cash Flows
(Unaudited)
(As Revised, See Note 1)
 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	In Millions	 	
Nine Months Ended September 30	 	2009	 	 	2008	 	
 	 	 	 	 	 	 	
Cash Flows from Operating Activities	 	 	 	 	 	 	 	 	
Net income	 	$	229	 	 	$	238	 	
Adjustments to reconcile net income to net cash provided by operating activities	 	 	 	 	 	 	 	 	
Depreciation and amortization	 	 	422	 	 	 	436	 	
Deferred income taxes and investment tax credit	 	 	131	 	 	 	115	 	
Postretirement benefits expense	 	 	136	 	 	 	110	 	
Regulatory return on capital expenditures	 	 	(20	)	 	 	(25	)	
Capital lease and other amortization	 	 	31	 	 	 	34	 	
Bad debt expense	 	 	46	 	 	 	36	 	
Gain due to expiration of indemnification	 	 	(50	)	 	 	—	 	
Gain on sale of assets	 	 	(8	)	 	 	(8	)	
Gain on extinguishment of long-term debt — related parties	 	 	(28	)	 	 	—	 	
Loss on extinguishment of debt	 	 	17	 	 	 	—	 	
Increase in environmental remediation accrual	 	 	35	 	 	 	—	 	
Loss (income) from equity method investees	 	 	2	 	 	 	(3	)	
Cash distributions from equity method investees	 	 	—	 	 	 	2	 	
Postretirement benefits contributions	 	 	(247	)	 	 	(38	)	
Electric sales contract termination payment	 	 	—	 	 	 	(275	)	
Changes in other assets and liabilities:	 	 	 	 	 	 	 	 	
Decrease in accounts receivable and accrued revenues	 	 	205	 	 	 	178	 	
Decrease (increase) in accrued power supply and gas revenue	 	 	(1	)	 	 	39	 	
Increase in inventories	 	 	(122	)	 	 	(393	)	
Decrease in deferred property taxes	 	 	122	 	 	 	118	 	
Decrease in accounts payable	 	 	(55	)	 	 	(21	)	
Decrease in accrued taxes	 	 	(166	)	 	 	(189	)	
Decrease in accrued expenses	 	 	(15	)	 	 	(42	)	
Decrease in other current and non-current assets	 	 	15	 	 	 	11	 	
Decrease in other current and non-current liabilities	 	 	(41	)	 	 	(142	)	
Net cash provided by operating activities	 	 	638	 	 	 	181	 	
 	 	 	 	 	 	 	 	 	
Cash Flows from Investing Activities	 	 	 	 	 	 	 	 	
Capital expenditures (excludes assets placed under capital lease)	 	 	(621	)	 	 	(511	)	
Cost to retire property	 	 	(33	)	 	 	(22	)	
Proceeds from sale of assets	 	 	7	 	 	 	1	 	
Decrease in restricted cash and cash equivalents	 	 	8	 	 	 	4	 	
Increase in non-current notes receivable	 	 	(43	)	 	 	(11	)	
Other investing activities	 	 	3	 	 	 	1	 	
Net cash used in investing activities	 	 	(679	)	 	 	(538	)	
 	 	 	 	 	 	 	 	 	
Cash Flows from Financing Activities	 	 	 	 	 	 	 	 	
Proceeds from issuance of notes, bonds, and other long-term debt	 	 	1,188	 	 	 	845	 	
Proceeds from (retirement of) EnerBank notes, net	 	 	(12	)	 	 	8	 	
Issuance of common stock	 	 	7	 	 	 	6	 	
Retirement of bonds and other long-term debt, including related parties	 	 	(1,074	)	 	 	(591	)	
Payment of common stock dividends	 	 	(85	)	 	 	(61	)	
Payment of preferred stock dividends	 	 	(8	)	 	 	(8	)	
Increase in non-current notes payable	 	 	50	 	 	 	—	 	
Payment of capital lease and finance lease obligations	 	 	(17	)	 	 	(18	)	
Debt issuance costs, financing fees, and other	 	 	(38	)	 	 	(10	)	
Net cash provided by financing activities	 	 	11	 	 	 	171	 	
 	 	 	 	 	 	 	 	 	
Net Decrease in Cash and Cash Equivalents	 	 	(30	)	 	 	(186	)	
 	 	 	 	 	 	 	 	 	
Cash and Cash Equivalents, Beginning of Period	 	 	213	 	 	 	348	 	
 	 	 	 	 	 	 	 	 	
Cash and Cash Equivalents, End of Period	 	$	183	 	 	$	162	 	
 	 	 	 	 	 	 	 	 	
The accompanying notes are an integral part of these statements.
 29 

 

CMS Energy Corporation
Consolidated Balance Sheets
(Unaudited)
(As Revised, See Note 1)
 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	In Millions	 	
 	 	September 30	 	 	December 31	 	
ASSETS	 	2009	 	 	2008	 	
 	
Plant and Property (at cost)	 	 	 	 	 	 	 	 	
Electric utility	 	$	9,374	 	 	$	8,965	 	
Gas utility	 	 	3,755	 	 	 	3,622	 	
Enterprises	 	 	395	 	 	 	390	 	
Other	 	 	33	 	 	 	33	 	
 	 	 	
 	 	 	13,557	 	 	 	13,010	 	
Less accumulated depreciation, depletion and amortization	 	 	4,515	 	 	 	4,428	 	
 	 	 	
 	 	 	9,042	 	 	 	8,582	 	
Construction work in progress	 	 	524	 	 	 	608	 	
 	 	 	
 	 	 	9,566	 	 	 	9,190	 	

Investments	 	 	 	 	 	 	 	 	
Enterprises	 	 	3	 	 	 	5	 	
Other	 	 	6	 	 	 	6	 	
 	 	 	
 	 	 	9	 	 	 	11	 	

Current Assets	 	 	 	 	 	 	 	 	
Cash and cash equivalents	 	 	183	 	 	 	213	 	
Restricted cash and cash equivalents	 	 	30	 	 	 	35	 	
Accounts receivable and accrued revenue, less allowances of $31 in 2009 and $26 in 2008	 	 	665	 	 	 	851	 	
Notes receivable	 	 	87	 	 	 	95	 	
Accrued power supply and gas revenue	 	 	8	 	 	 	7	 	
Inventories at average cost	 	 	 	 	 	 	 	 	
Gas in underground storage	 	 	1,246	 	 	 	1,168	 	
Materials and supplies	 	 	128	 	 	 	110	 	
Generating plant fuel stock	 	 	153	 	 	 	127	 	
Deferred property taxes	 	 	115	 	 	 	165	 	
Regulatory assets — postretirement benefits	 	 	19	 	 	 	19	 	
Prepayments and other	 	 	28	 	 	 	37	 	
 	 	 	
 	 	 	2,662	 	 	 	2,827	 	

Non-current Assets	 	 	 	 	 	 	 	 	
Regulatory assets	 	 	 	 	 	 	 	 	
Securitized costs	 	 	378	 	 	 	416	 	
Postretirement benefits	 	 	1,363	 	 	 	1,431	 	
Customer Choice Act	 	 	56	 	 	 	90	 	
Other	 	 	473	 	 	 	482	 	
Notes receivable, less allowances of $6 in 2009 and $34 in 2008	 	 	227	 	 	 	186	 	
Other	 	 	154	 	 	 	268	 	
 	 	 	
 	 	 	2,651	 	 	 	2,873	 	

Total Assets	 	$	14,888	 	 	$	14,901	 	
 	 	 	
The accompanying notes are an integral part of these statements.
 30 

 

 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	In Millions	 	
 	 	September 30	 	 	December 31	 	
STOCKHOLDERS’ INVESTMENT AND LIABILITIES	 	2009	 	 	2008	 	
 	
Capitalization	 	 	 	 	 	 	 	 	
Common stockholders’ equity	 	 	 	 	 	 	 	 	
Common stock, authorized 350.0 shares; outstanding 227.6 shares in 2009 and 226.4 shares in 2008	 	$	2	 	 	$	2	 	
Other paid-in capital	 	 	4,555	 	 	 	4,533	 	
Accumulated other comprehensive loss	 	 	(23	)	 	 	(28	)	
Accumulated deficit	 	 	(1,904	)	 	 	(2,031	)	
 	 	 	
 	 	 	2,630	 	 	 	2,476	 	
Noncontrolling interests	 	 	53	 	 	 	52	 	
Preferred stock of subsidiary	 	 	44	 	 	 	44	 	
Preferred stock	 	 	239	 	 	 	243	 	
 	 	 	
Total equity	 	 	2,966	 	 	 	2,815	 	
 	 	 	 	 	 	 	 	 	
Long-term debt	 	 	5,889	 	 	 	5,837	 	
Long-term debt — related parties	 	 	34	 	 	 	178	 	
Non-current portion of capital and finance lease obligations	 	 	193	 	 	 	206	 	
 	 	 	
 	 	 	9,082	 	 	 	9,036	 	

Current Liabilities	 	 	 	 	 	 	 	 	
Current portion of long-term debt, capital and finance lease obligations	 	 	662	 	 	 	514	 	
Notes payable	 	 	50	 	 	 	—	 	
Accounts payable	 	 	376	 	 	 	466	 	
Accrued rate refunds	 	 	21	 	 	 	7	 	
Accrued interest	 	 	79	 	 	 	107	 	
Accrued taxes	 	 	123	 	 	 	289	 	
Deferred income taxes	 	 	185	 	 	 	100	 	
Regulatory liabilities	 	 	107	 	 	 	120	 	
Other	 	 	236	 	 	 	260	 	
 	 	 	
 	 	 	1,839	 	 	 	1,863	 	

Non-current Liabilities	 	 	 	 	 	 	 	 	
Regulatory liabilities	 	 	 	 	 	 	 	 	
Cost of removal	 	 	1,246	 	 	 	1,203	 	
Income taxes, net	 	 	528	 	 	 	519	 	
Other	 	 	158	 	 	 	146	 	
Postretirement benefits	 	 	1,336	 	 	 	1,502	 	
Asset retirement obligation	 	 	214	 	 	 	206	 	
Deferred investment tax credit	 	 	52	 	 	 	54	 	
Deferred income taxes	 	 	105	 	 	 	55	 	
Other	 	 	328	 	 	 	317	 	
 	 	 	
 	 	 	3,967	 	 	 	4,002	 	

Commitments and Contingencies (Notes 5, 6, 7, 9 and 10)	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	
Total Stockholders’ Investment and Liabilities	 	$	14,888	 	 	$	14,901	 	
 	 	 	
 31 

 

CMS Energy Corporation
Consolidated Statements of Changes in Equity
(Unaudited)
(As Revised, See Note 1)
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	In Millions	 	
 	 	Three Months Ended	 	 	Nine Months Ended	 	
September 30	 	2009	 	 	2008	 	 	2009	 	 	2008	 	
 	
Common Stock	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
At beginning and end of period	 	$	2	 	 	$	2	 	 	$	2	 	 	$	2	 	

Other Paid-in Capital	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
At beginning of period	 	 	4,552	 	 	 	4,525	 	 	 	4,533	 	 	 	4,517	 	
Common stock issued	 	 	4	 	 	 	4	 	 	 	12	 	 	 	12	 	
Common stock repurchased	 	 	(1	)	 	 	(1	)	 	 	(1	)	 	 	(1	)	
Conversion option on convertible debt	 	 	—	 	 	 	—	 	 	 	11	 	 	 	—	 	
 	 	 	
At end of period	 	 	4,555	 	 	 	4,528	 	 	 	4,555	 	 	 	4,528	 	

Accumulated Other Comprehensive Loss	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Retirement benefits liability	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
At beginning of period	 	 	(27	)	 	 	(16	)	 	 	(27	)	 	 	(15	)	
Retirement benefits liability adjustments (a)	 	 	1	 	 	 	—	 	 	 	1	 	 	 	(1	)	
 	 	 	
At end of period	 	 	(26	)	 	 	(16	)	 	 	(26	)	 	 	(16	)	

Investments	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
At beginning of period	 	 	1	 	 	 	(5	)	 	 	—	 	 	 	—	 	
Unrealized gain (loss) on investments (a)	 	 	3	 	 	 	(3	)	 	 	4	 	 	 	(8	)	
Reclassification adjustments included in net income (a)	 	 	—	 	 	 	8	 	 	 	—	 	 	 	8	 	
 	 	 	
At end of period	 	 	4	 	 	 	—	 	 	 	4	 	 	 	—	 	

Derivative instruments	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
At beginning and end of period	 	 	(1	)	 	 	(1	)	 	 	(1	)	 	 	(1	)	

Foreign currency translation	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
At beginning of period	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(128	)	
Sale of interests in TGN (a)	 	 	—	 	 	 	—	 	 	 	—	 	 	 	128	 	
 	 	 	
At end of period	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	
 	 	 	
Total Accumulated Other Comprehensive Loss	 	 	(23	)	 	 	(17	)	 	 	(23	)	 	 	(17	)	

Accumulated Deficit	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
At beginning of period	 	 	(1,943	)	 	 	(2,128	)	 	 	(2,031	)	 	 	(2,227	)	
Effects of changing the retirement plans measurement date	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Service cost, interest cost, and expected return on plan assets for December 1 through December 31, 2007, net of tax	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(4	)	
Additional loss from December 1 through December 31, 2007, net of tax	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(2	)	
Net income attributable to CMS Energy (a)	 	 	69	 	 	 	80	 	 	 	220	 	 	 	232	 	
Preferred stock dividends declared	 	 	(2	)	 	 	(2	)	 	 	(8	)	 	 	(8	)	
Common stock dividends declared	 	 	(28	)	 	 	(20	)	 	 	(85	)	 	 	(61	)	
 	 	 	
At end of period	 	 	(1,904	)	 	 	(2,070	)	 	 	(1,904	)	 	 	(2,070	)	

Noncontrolling Interests	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
At beginning of period	 	 	338	 	 	 	345	 	 	 	339	 	 	 	347	 	
Conversion of preferred stock	 	 	(4	)	 	 	—	 	 	 	(4	)	 	 	(1	)	
Other changes in noncontrolling interests	 	 	2	 	 	 	1	 	 	 	1	 	 	 	—	 	
 	 	 	
At end of period	 	 	336	 	 	 	346	 	 	 	336	 	 	 	346	 	

Total Equity	 	$	2,966	 	 	$	2,789	 	 	$	2,966	 	 	$	2,789	 	
 	 	 	
The accompanying notes are an integral part of these statements.
 32 

 

 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	In Millions	
 	 	Three Months Ended	 	 	Nine Months Ended	 	
September 30	 	2009	 	 	2008	 	 	2009	 	 	2008	 	
  | | | |	
(a) Disclosure of Comprehensive Income:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income attributable to CMS Energy	 	$	69	 	 	$	80	 	 	$	220	 	 	$	232	 	
 		
Retirement benefits liability adjustments, net of tax of $-, $-, $-, and $2, respectively	 	 	1	 	 	 	—	 	 	 	1	 	 	 	(1	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Unrealized gain (loss) on investments, net of tax (tax benefit) of $4, $(3), $4, and $(6), respectively	 	 	3	 	 	 	(3	)	 	 	4	 	 	 	(8	)	
Reclassification adjustments included in net income, net of tax of $-, $5, $-, and $5, respectively	 	 	—	 	 	 	8	 	 	 	—	 	 	 	8	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Sale of interests in TGN, net of tax of $69	 	 	—	 	 	 	—	 	 	 	—	 	 	 	128	 	

Total Comprehensive Income	 	$	73	 	 	$	85	 	 	$	225	 	 	$	359	 	
 	 	 	
 33 

 

Consumers Energy Company
Consolidated Statements of Income
(Unaudited)
(As Revised, See Note 1)
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	In Millions	 	
 	 	Three Months Ended	 	 	Nine Months Ended	 	
September 30	 	2009	 	 	2008	 	 	2009	 	 	2008	 	
 	
Operating Revenue	 	$	1,204	 	 	$	1,307	 	 	$	4,420	 	 	$	4,661	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Operating Expenses	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Fuel for electric generation	 	 	119	 	 	 	128	 	 	 	335	 	 	 	373	 	
Purchased and interchange power	 	 	315	 	 	 	405	 	 	 	879	 	 	 	1,015	 	
Purchased power — related parties	 	 	25	 	 	 	20	 	 	 	60	 	 	 	57	 	
Cost of gas sold	 	 	103	 	 	 	135	 	 	 	1,234	 	 	 	1,368	 	
Other operating expenses	 	 	205	 	 	 	201	 	 	 	608	 	 	 	565	 	
Maintenance	 	 	49	 	 	 	44	 	 	 	147	 	 	 	124	 	
Depreciation and amortization	 	 	125	 	 	 	131	 	 	 	413	 	 	 	425	 	
General taxes	 	 	51	 	 	 	44	 	 	 	158	 	 	 	146	 	
Gain on asset sales, net	 	 	(6	)	 	 	—	 	 	 	(9	)	 	 	—	 	
 	 	 	
 	 	 	986	 	 	 	1,108	 	 	 	3,825	 	 	 	4,073	 	

Operating Income	 	 	218	 	 	 	199	 	 	 	595	 	 	 	588	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Other Income (Deductions)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Interest	 	 	6	 	 	 	4	 	 	 	16	 	 	 	20	 	
Regulatory return on capital expenditures	 	 	7	 	 	 	9	 	 	 	20	 	 	 	25	 	
Other income	 	 	3	 	 	 	4	 	 	 	11	 	 	 	9	 	
Other expense	 	 	(2	)	 	 	(11	)	 	 	(6	)	 	 	(17	)	
 	 	 	
 	 	 	14	 	 	 	6	 	 	 	41	 	 	 	37	 	

Interest Charges	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Interest on long-term debt	 	 	63	 	 	 	56	 	 	 	187	 	 	 	169	 	
Other interest	 	 	5	 	 	 	6	 	 	 	15	 	 	 	17	 	
Capitalized interest	 	 	(1	)	 	 	(1	)	 	 	(3	)	 	 	(4	)	
 	 	 	
 	 	 	67	 	 	 	61	 	 	 	199	 	 	 	182	 	

Income Before Income Taxes	 	 	165	 	 	 	144	 	 	 	437	 	 	 	443	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Income Tax Expense	 	 	64	 	 	 	53	 	 	 	165	 	 	 	162	 	

Net Income	 	 	101	 	 	 	91	 	 	 	272	 	 	 	281	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Preferred Stock Dividends	 	 	1	 	 	 	1	 	 	 	2	 	 	 	2	 	

Net Income Available to Common Stockholder	 	$	100	 	 	$	90	 	 	$	270	 	 	$	279	 	
 	 	 	
The accompanying notes are an integral part of these statements.
 34 

 

Consumers Energy Company
Consolidated Statements of Cash Flows
(Unaudited)
(As Revised, See Note 1)
 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	In Millions	
Nine Months Ended September 30	 	2009	 	 	2008	 	
 	
Cash Flows from Operating Activities	 	 	 	 	 	 	 	 	
Net income	 	$	272	 	 	$	281	 	
Adjustments to reconcile net income to net cash provided by operating activities	 	 	 	 	 	 	 	 	
Depreciation and amortization	 	 	413	 	 	 	425	 	
Deferred income taxes and investment tax credit	 	 	65	 	 	 	87	 	
Postretirement benefits expense	 	 	132	 	 	 	107	 	
Regulatory return on capital expenditures	 	 	(20	)	 	 	(25	)	
Capital lease and other amortization	 	 	19	 	 	 	23	 	
Bad debt expense	 	 	40	 	 	 	33	 	
Gain on sale of assets	 	 	(9	)	 	 	—	 	
Postretirement benefits contributions	 	 	(239	)	 	 	(37	)	
Changes in assets and liabilities:	 	 	 	 	 	 	 	 	
Decrease in accounts receivable, notes receivable and accrued revenue	 	 	205	 	 	 	178	 	
Decrease (increase) in accrued power supply and gas revenue	 	 	(1	)	 	 	39	 	
Increase in inventories	 	 	(119	)	 	 	(411	)	
Decrease in deferred property taxes	 	 	122	 	 	 	118	 	
Decrease in accounts payable	 	 	(55	)	 	 	(14	)	
Decrease in accrued taxes	 	 	(132	)	 	 	(127	)	
Decrease in accrued expenses	 	 	(11	)	 	 	(36	)	
Decrease in other current and non-current assets	 	 	29	 	 	 	17	 	
Decrease in other current and non-current liabilities	 	 	(8	)	 	 	(134	)	
 	 	 	
Net cash provided by operating activities	 	 	703	 	 	 	524	 	

Cash Flows from Investing Activities	 	 	 	 	 	 	 	 	
Capital expenditures (excludes assets placed under capital lease)	 	 	(616	)	 	 	(510	)	
Cost to retire property	 	 	(33	)	 	 	(22	)	
Proceeds from sale of assets	 	 	7	 	 	 	—	 	
Decrease in restricted cash and cash equivalents	 	 	3	 	 	 	1	 	
 	 	 	
Net cash used in investing activities	 	 	(639	)	 	 	(531	)	

Cash Flows from Financing Activities	 	 	 	 	 	 	 	 	
Proceeds from issuance of long-term debt	 	 	500	 	 	 	600	 	
Retirement of long-term debt	 	 	(377	)	 	 	(434	)	
Payment of common stock dividends	 	 	(233	)	 	 	(238	)	
Payment of capital and finance lease obligations	 	 	(17	)	 	 	(18	)	
Stockholder’s contribution	 	 	100	 	 	 	—	 	
Payment of preferred stock dividends	 	 	(2	)	 	 	(2	)	
Debt issuance and financing costs	 	 	(6	)	 	 	(7	)	
 	 	 	
Net cash used in financing activities	 	 	(35	)	 	 	(99	)	

Net Increase (Decrease) in Cash and Cash Equivalents	 	 	29	 	 	 	(106	)	
Cash and Cash Equivalents, Beginning of Period	 	 	69	 	 	 	195	 	

 		
Cash and Cash Equivalents, End of Period	 	$	98	 	 	$	89	 	
 	 	 	
The accompanying notes are an integral part of these statements.
 35 

 

Consumers Energy Company
Consolidated Balance Sheets
(Unaudited)
(As Revised, See Note 1)
 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	In Millions	
 	 	September 30	 	 	December 31	 	
ASSETS	 	2009	 	 	2008	 	
 	
Plant and Property (at cost)	 	 	 	 	 	 	 	 	
Electric utility	 	$	9,374	 	 	$	8,965	 	
Gas utility	 	 	3,755	 	 	 	3,622	 	
Other	 	 	15	 	 	 	15	 	
 	 	 	
 	 	 	13,144	 	 	 	12,602	 	
Less accumulated depreciation, depletion, and amortization	 	 	4,321	 	 	 	4,242	 	
 	 	 	
 	 	 	8,823	 	 	 	8,360	 	
Construction work in progress	 	 	522	 	 	 	607	 	
 	 	 	
 	 	 	9,345	 	 	 	8,967	 	

Investments	 	 	 	 	 	 	 	 	
Stock of affiliates	 	 	25	 	 	 	19	 	

Current Assets	 	 	 	 	 	 	 	 	
Cash and cash equivalents	 	 	98	 	 	 	69	 	
Restricted cash and cash equivalents	 	 	22	 	 	 	25	 	
Accounts receivable and accrued revenue, less allowances of $28 in 2009 and $24 in 2008	 	 	647	 	 	 	829	 	
Notes receivable	 	 	84	 	 	 	93	 	
Accrued power supply and gas revenue	 	 	8	 	 	 	7	 	
Accounts receivable — related parties	 	 	1	 	 	 	2	 	
Inventories at average cost	 	 	 	 	 	 	 	 	
Gas in underground storage	 	 	1,242	 	 	 	1,168	 	
Materials and supplies	 	 	121	 	 	 	103	 	
Generating plant fuel stock	 	 	145	 	 	 	118	 	
Deferred property taxes	 	 	115	 	 	 	165	 	
Regulatory assets — postretirement benefits	 	 	19	 	 	 	19	 	
Prepayments and other	 	 	25	 	 	 	30	 	
 	 	 	
 	 	 	2,527	 	 	 	2,628	 	
 	 	 	
Non-current Assets	 	 	 	 	 	 	 	 	
Regulatory assets	 	 	 	 	 	 	 	 	
Securitized costs	 	 	378	 	 	 	416	 	
Postretirement benefits	 	 	1,363	 	 	 	1,431	 	
Customer Choice Act	 	 	56	 	 	 	90	 	
Other	 	 	473	 	 	 	482	 	
Other	 	 	100	 	 	 	213	 	
 	 	 	
 	 	 	2,370	 	 	 	2,632	 	

Total Assets	 	$	14,267	 	 	$	14,246	 	
 	 	 	
The accompanying notes are an integral part of these statements.
 36 

 

 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	In Millions	 	
 	 	September 30	 	 	December 31	 	
STOCKHOLDER’S INVESTMENT AND LIABILITIES  	 	2009	 	 	2008	 	
 	
Capitalization	 	 	 	 	 	 	 	 	
Common stockholder’s equity	 	 	 	 	 	 	 	 	
Common stock, authorized 125.0 shares; outstanding 84.1 shares for both periods	 	$	841	 	 	$	841	 	
Other paid-in capital	 	 	2,582	 	 	 	2,482	 	
Accumulated other comprehensive income (loss)	 	 	6	 	 	 	(1	)	
Retained earnings	 	 	420	 	 	 	383	 	
 	 	 	
 	 	 	3,849	 	 	 	3,705	 	
Preferred stock	 	 	44	 	 	 	44	 	
 	 	 	
Total equity	 	 	3,893	 	 	 	3,749	 	
 	 	 	 	 	 	 	 	 	
Long-term debt	 	 	4,072	 	 	 	3,908	 	
Non-current portion of capital and finance lease obligations	 	 	193	 	 	 	206	 	
 	 	 	
 	 	 	8,158	 	 	 	7,863	 	

Current Liabilities	 	 	 	 	 	 	 	 	
Current portion of long-term debt, capital and finance lease obligations	 	 	365	 	 	 	408	 	
Accounts payable	 	 	359	 	 	 	444	 	
Accrued rate refunds	 	 	21	 	 	 	7	 	
Accounts payable — related parties	 	 	10	 	 	 	14	 	
Accrued interest	 	 	45	 	 	 	69	 	
Accrued taxes	 	 	157	 	 	 	289	 	
Deferred income taxes	 	 	251	 	 	 	277	 	
Regulatory liabilities	 	 	107	 	 	 	120	 	
Other	 	 	192	 	 	 	151	 	
 	 	 	
 	 	 	1,507	 	 	 	1,779	 	

Non-current Liabilities	 	 	 	 	 	 	 	 	
Deferred income taxes	 	 	881	 	 	 	792	 	
Regulatory liabilities	 	 	 	 	 	 	 	 	
Cost of removal	 	 	1,246	 	 	 	1,203	 	
Income taxes, net	 	 	528	 	 	 	519	 	
Other	 	 	158	 	 	 	146	 	
Postretirement benefits	 	 	1,278	 	 	 	1,436	 	
Asset retirement obligations	 	 	213	 	 	 	205	 	
Deferred investment tax credit	 	 	52	 	 	 	54	 	
Other	 	 	246	 	 	 	249	 	
 	 	 	
 	 	 	4,602	 	 	 	4,604	 	

Commitments and Contingencies (Notes 5, 6, 7, 9 and 10)	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	
Total Stockholder’s Investment and Liabilities	 	$	14,267	 	 	$	14,246	 	
 	 	 	
 37 

 

Consumers Energy Company
Consolidated Statements of Changes in Equity
(Unaudited)
(As Revised, See Note 1)
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	In Millions	 	
 	 	Three Months Ended	 	 	Nine Months Ended	 	
September 30	 	2009	 	 	2008	 	 	2009	 	 	2008	 	
 	
Common Stock	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
At beginning and end of period (a)	 	$	841	 	 	$	841	 	 	$	841	 	 	$	841	 	

Other Paid-in Capital	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
At beginning of period	 	 	2,582	 	 	 	2,482	 	 	 	2,482	 	 	 	2,482	 	
Stockholder’s contribution	 	 	—	 	 	 	—	 	 	 	100	 	 	 	—	 	
 	 	 	
At end of period	 	 	2,582	 	 	 	2,482	 	 	 	2,582	 	 	 	2,482	 	

Accumulated Other Comprehensive Income	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Retirement benefits liability	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
At beginning of period	 	 	(7	)	 	 	(9	)	 	 	(7	)	 	 	(15	)	
Retirement benefits liability adjustments (b)	 	 	—	 	 	 	—	 	 	 	—	 	 	 	6	 	
 	 	 	
At end of period	 	 	(7	)	 	 	(9	)	 	 	(7	)	 	 	(9	)	

Investments	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
At beginning of period	 	 	10	 	 	 	8	 	 	 	6	 	 	 	15	 	
Unrealized gain (loss) on investments (b)	 	 	3	 	 	 	(5	)	 	 	7	 	 	 	(12	)	
Reclassification adjustments included in net income (b)	 	 	—	 	 	 	6	 	 	 	—	 	 	 	6	 	
 	 	 	
At end of period	 	 	13	 	 	 	9	 	 	 	13	 	 	 	9	 	

Total Accumulated Other Comprehensive Income	 	 	6	 	 	 	—	 	 	 	6	 	 	 	—	 	

Retained Earnings	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
At beginning of period	 	 	423	 	 	 	339	 	 	 	383	 	 	 	324	 	
Effects of changing the retirement plans measurement date	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Service cost, interest cost, and expected return on plan assets for December 1 through December 31, 2007, net of tax	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(4	)	
Additional loss from December 1 through December 31,2007, net of tax	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(2	)	
Net income (b)	 	 	101	 	 	 	91	 	 	 	272	 	 	 	281	 	
Common stock dividends declared	 	 	(103	)	 	 	(70	)	 	 	(233	)	 	 	(238	)	
Preferred stock dividends declared	 	 	(1	)	 	 	(1	)	 	 	(2	)	 	 	(2	)	
 	 	 	
At end of period	 	 	420	 	 	 	359	 	 	 	420	 	 	 	359	 	

Preferred Stock	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
At beginning and end of period	 	 	44	 	 	 	44	 	 	 	44	 	 	 	44	 	

Total Equity	 	$	3,893	 	 	$	3,726	 	 	$	3,893	 	 	$	3,726	 	
 	 	 	
The accompanying notes are an integral part of these statements.
 38 

 

 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	In Millions	 	
 	 	Three Months Ended	 	 	Nine Months Ended	 	
September 30	 	2009	 	 	2008	 	 	2009	 	 	2008	 	
 	
(a) Number of shares of common stock outstanding was 84,108,789 for all periods presented.	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
(b) Disclosure of Comprehensive Income:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 		
Net income	 	$	101	 	 	$	91	 	 	$	272	 	 	$	281	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Retirement benefits liability	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Retirement benefits liability adjustments, net of tax of $-, $-, $-, and $2, respectively	 	 	—	 	 	 	—	 	 	 	—	 	 	 	6	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Investments	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Unrealized gain (loss) on investments, net of tax (tax benefit) of $4, $(3), $4, $(6), respectively	 	 	3	 	 	 	(5	)	 	 	7	 	 	 	(12	)	
Reclassification adjustments included in net income, net of tax of $-, $3, $-, $3, respectively	 	 	—	 	 	 	6	 	 	 	—	 	 	 	6	 	

Total Comprehensive Income	 	$	104	 	 	$	92	 	 	$	279	 	 	$	281	 	
 	 	 	
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 40 

 

CMS Energy Corporation
Consumers Energy Company
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
These interim Consolidated Financial Statements have been prepared by CMS Energy and Consumers in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. As a result, CMS Energy and Consumers have condensed or omitted certain information and Note disclosures normally included in consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States. CMS Energy and Consumers have reclassified certain prior year amounts to conform to the presentation in the current year. The Consolidated Financial Statements for the nine months ended September 30, 2008 have been updated for amounts previously reported. In management’s opinion, the unaudited information contained in this report reflects all adjustments of a normal recurring nature necessary to ensure the fair presentation of financial position, results of operations and cash flows for the periods presented. The Notes to Consolidated Financial Statements and the related Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and related Notes contained in CMS Energy’s and Consumers’ 2008 Form 10-K. Due to the seasonal nature of CMS Energy’s and Consumers’ operations, the results presented for this interim period are not necessarily indicative of results to be achieved for the fiscal year.
These interim Consolidated Financial Statements and accompanying Note disclosures include the evaluation of subsequent events through October 30, 2009, the date of issuance, except for updates to reflect the impacts of the rate order that Consumers received on November 2, 2009, as described in Note 1, Subsequent Event.
1: SUBSEQUENT EVENT
On November 2, 2009, the MPSC issued a final order in Consumers’ electric rate case, authorizing Consumers to increase its electric rates by $139 million annually, which was $40 million less than the rate increase that Consumers self-implemented in May 2009. The MPSC directed Consumers to refund to customers the difference between the rates it self-implemented in May and the rates authorized in this order, plus interest, subject to a reconciliation proceeding. The order also authorized Consumers to implement an uncollectible accounts expense tracking mechanism, effective January 1, 2009. This tracker will allow Consumers to adjust its rates to collect or refund 80 percent of the difference between actual uncollectible accounts expense for the calendar year and the base level of uncollectible expense in Consumers’ rates. The order contained a number of other provisions, including a decoupling mechanism, that apply prospectively to Consumers’ electric rates.
In accordance with the accounting rules that apply to certain adjustments of utility revenue under ratemaking processes, CMS Energy and Consumers have recorded the impacts of the MSPC rate order that are specifically identifiable with prior interim periods of 2009 as adjustments to those periods, and have revised their financial statements to reflect these effects. All other information in CMS Energy’s and Consumers’ financial statements for the interim periods of 2009 remains unchanged.
The effect of the uncollectible accounts expense tracking mechanism on the nine months ended September 30, 2009 was a decrease in Other operating expenses of $5 million, with a corresponding increase to Other Non-current Assets. The effect of the adjustment to Consumers’ self-implemented rates was a decrease in Operating Revenue of $11 million, with a corresponding increase to Other Regulatory liabilities. For the three months ended September 30, 2009, the effect of the uncollectible accounts expense tracking mechanism was an increase in Other operating expenses of $1 million, with a corresponding decrease to Other Non-current Assets. The effect of the adjustment to Consumers’ self-
 41 

 

implemented rates was a decrease in Operating Revenue of $9 million, with a corresponding increase to Current Regulatory liabilities.
Revised amounts as of September 30, 2009 are as follows:
 	 	 	 	 	 	 	 	 	 	 	 	 	
CMS Energy, including Consumers	 	In Millions (except for per share amounts)	
Nine months ended September 30, 2009	 	As Reported	 	Adjustment	 	As Revised	
 	
Income from Continuing Operations	 	$	204	 	 	$	(4	)	 	$	200	 	
Net Income Available to Common Stockholders	 	$	216	 	 	$	(4	)	 	$	212	 	
Basic Earnings Per Share	 	$	0.95	 	 	$	(0.02	)	 	$	0.93	 	
Diluted Earnings Per Share	 	$	0.92	 	 	$	(0.02	)	 	$	0.90	 	

Three months ended September 30, 2009	 	As Reported	 	Adjustment	 	As Revised	
 	
Income from Continuing Operations	 	$	81	 	 	$	(6	)	 	$	75	 	
Net Income Available to Common Stockholders	 	$	73	 	 	$	(6	)	 	$	67	 	
Basic Earnings Per Share	 	$	0.32	 	 	$	(0.03	)	 	$	0.29	 	
Diluted Earnings Per Share	 	$	0.31	 	 	$	(0.03	)	 	$	0.28	 	

Consumers	 	In Millions	
Nine months ended September 30, 2009	 	As Reported	 	Adjustment	 	As Revised	
 	
Net Income	 	$	276	 	 	$	(4	)	 	$	272	 	
Net Income Available to Common Stockholder	 	$	274	 	 	$	(4	)	 	$	270	 	

Three months ended September 30, 2009	 	As Reported	 	Adjustment	 	As Revised	
  | | |	
Net Income	 	$	107	 	 	$	(6	)	 	$	101	 	
Net Income Available to Common Stockholder	 	$	106	 	 	$	(6	)	 	$	100	 	
 	 	 	
For further details on Consumers’ electric rate case, see the “Consumers’ Electric Utility Rate Matters — Electric Rate Case and Self-Implemented Rates” section of Note 6, Utility Rate Matters.
2: SIGNIFICANT ACCOUNTING POLICIES
Self-Implemented Rates: Consumers is allowed to self-implement new energy rates six months after a new rate case filing if the MPSC has not issued an order in the case. The MPSC then has another six months to issue a final order. If the MPSC does not issue an order, the filed rates are considered approved. If the MPSC issues an order, the rates that Consumers self-implemented may be subject to refund, with interest. Consumers recognizes revenue associated with self-implemented rates. If Consumers considers it probable that it will be required to refund a portion of its self-implemented rates, then Consumers records a provision for revenue subject to refund. For details on Consumers’ self-implemented rates, see Note 6, Utility Rate Matters.
3: NEW ACCOUNTING STANDARDS
IMPLEMENTATION OF NEW ACCOUNTING STANDARDS
SFAS No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles, codified in ASC 105-10, Generally Accepted Accounting Principles: This standard, which was effective for CMS Energy and Consumers July 1, 2009, establishes the ASC as the single source of authoritative nongovernmental U.S. GAAP, except for SEC rules and interpretive releases, which are also authoritative GAAP for SEC registrants. The ASC supersedes all existing non-
 42 

 

SEC accounting and reporting standards. CMS Energy and Consumers have included references to the ASC in these consolidated financial statements and notes where appropriate.
SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements — an amendment to ARB No. 51, codified in ASC 810-10, Consolidation: Under this standard, which was effective for CMS Energy and Consumers January 1, 2009, ownership interests in subsidiaries held by third parties, previously referred to as minority interests, are presented as noncontrolling interests and shown separately on the parent’s balance sheet within equity. In addition, net income attributable to noncontrolling interests is included in net income on the income statement. CMS Energy and Consumers have applied these provisions to current and prior periods presented in its consolidated financial statements. The standard also affects the accounting for changes in a parent’s ownership interest, including deconsolidation of a subsidiary. CMS Energy and Consumers will apply these provisions of the standard to any such future transactions.
SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133, codified in ASC 815-10, Derivatives and Hedging: This standard, which was effective for CMS Energy and Consumers January 1, 2009, requires enhanced disclosures about how and why derivatives are used, how derivatives and related hedged items are accounted for, and how derivatives and any related hedged items affect financial position, financial performance, and cash flows. The standard did not impact CMS Energy’s or Consumers’ consolidated income, cash flows, or financial position. For additional details on CMS Energy’s and Consumers’ derivatives, see Note 10, Derivative Instruments.
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FSP APB 14-1, Accounting for Convertible Debt Instruments That May Be Settled In Cash Upon Conversion (Including Partial Cash Settlement), codified in ASC 470-20, Debt with Conversion and Other Options: This standard, which was effective for CMS Energy and Consumers January 1, 2009, requires CMS Energy to account for the liability and equity components of its convertible debt securities separately and in a manner that reflects CMS Energy’s borrowing rate for nonconvertible debt. The following table summarizes the effects of adopting this standard on CMS Energy’s consolidated financial statements:
 	 	 	 	 	 	 	 	 	 	 	 	 	
Increases (decreases)	 	In Millions, Except Per Share Amounts	 	 	 	 	
Three months ended September 30	 	2009	 	2008	 	 	 	 	
 	 	 	 	 	
Interest on long-term debt	 	$	2	 	 	$	2	 	 	 	 	 	
Income tax expense	 	 	—	 	 	 	(1	)	 	 	 	 	
 	 	 	
Net income	 	$	(2	)	 	$	(1	)	 	 	 	 	

Earnings Per Average Common Share	 	 	 	 	 	 	 	 	 	 	 	 	
Basic	 	$	(0.01	)	 	$	(0.01	)	 	 	 	 	
Diluted	 	$	(0.01	)	 	$	(0.01	)	 	 	 	 	

Nine months ended September 30	 	2009	 	2008	 	 	 	 	
 	 	 	 	 	
Interest on long-term debt	 	$	6	 	 	$	7	 	 	 	 	 	
Income tax expense	 	 	(2	)	 	 	(3	)	 	 	 	 	
 	 	 	
Net income	 	$	(4	)	 	$	(4	)	 	 	 	 	

Earnings Per Average Common Share	 	 	 	 	 	 	 	 	 	 	 	 	
Basic	 	$	(0.02	)	 	$	(0.02	)	 	 	 	 	
Diluted	 	$	(0.02	)	 	$	(0.02	)	 	 	 	 	

Increases (decreases)	 	December 31, 2008	 	January 1, 2008	 	 	 	 	
 	 	 	 	 	
Assets	 	 	 	 	 	 	 	 	 	 	 	 	
Non-current deferred income tax assets	 	$	—	 	 	$	(12	)	 	 	 	 	

Liabilities	 	 	 	 	 	 	 	 	 	 	 	 	
Long-term debt	 	$	(22	)	 	$	(30	)	 	 	 	 	
Non-current deferred income tax liabilities	 	 	9	 	 	 	—	 	 	 	 	 	
 	 	 	
Total	 	$	(13	)	 	$	(30	)	 	 	 	 	

Common Stockholders’ Equity	 	 	 	 	 	 	 	 	 	 	 	 	
Other paid-in capital	 	$	37	 	 	$	37	 	 	 	 	 	
Accumulated deficit	 	 	24	 	 	 	19	 	 	 	 	 	
 	 	 	
Total	 	$	13	 	 	$	18	 	 	 	 	 	
 	 	 	
The standard had no impact on Consumers’ consolidated financial statements. For additional details on CMS Energy’s convertible debt instruments, see Note 7, Financings and Capitalization.
 44 

 

FSP EITF 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities, codified in ASC 260-10, Earnings per Share: Under this standard, which was effective for CMS Energy and Consumers January 1, 2009, share-based payment awards that accrue cash dividends when common shareholders receive dividends are considered participating securities if the dividends are not required to be returned to the company when the employee forfeits the award. The standard applies to CMS Energy’s outstanding unvested restricted stock awards, which are considered participating securities and thus are included in the computation of basic EPS. Implementation of the standard for CMS Energy reduced basic and diluted EPS by $0.01 for the nine months ended September 30, 2009 and 2008. The standard had no impact on Consumers’ consolidated financial statements.
FSP FAS 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly, codified in ASC 820-10, Fair Value Measurements and Disclosures: The standard, which was effective for CMS Energy and Consumers April 1, 2009, provides guidance on determining whether there has been a significant decrease in market activity for an asset or liability and whether quoted prices may reflect distressed transactions. The guidance indicates that entities should not rely on distressed prices in determining fair value, but may instead use alternative valuation techniques, such as discounting future cash flows assuming an orderly transaction. The standard requires quarterly disclosures about the inputs and valuation techniques used in fair value measurements. Previously, these disclosures were required only annually. See Note 4, Fair Value Measurements, for the required disclosures. The standard had no impact on CMS Energy’s or Consumers’ consolidated income, cash flows, or financial position.
FSP FAS 115-2 and FAS 124-2, Recognition and Presentation of Other-Than-Temporary Impairments, codified in ASC 320-10, Investments—Debt and Equity Securities: The standard, which was effective for CMS Energy and Consumers April 1, 2009, amends the other-than-temporary impairment guidance for debt securities. Entities no longer need to assert both the intent and ability to hold an impaired debt security until recovery to avoid recording an other-than-temporary impairment. Instead, an entity must consider whether it intends to sell the security or whether it is more likely than not that it will be required to sell the security prior to recovery. If either of these criteria are met, the full impairment should be recognized in earnings. If neither criterion is met, only impairments due to credit losses should be recorded to earnings, while impairments related to other factors should be recorded to other comprehensive income. The standard also includes additional disclosure requirements. The standard had no impact on CMS Energy’s or Consumers’ consolidated financial statements; however, the new guidance will be incorporated in future assessments of other-than-temporary impairments of debt securities.
FSP FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments, codified in ASC 825-10, Financial Instruments: This standard, which was effective for CMS Energy and Consumers April 1, 2009, requires quarterly disclosures of the fair values of financial instruments. Previously, these disclosures were required only annually. The standard also requires quarterly disclosure of the methods and significant assumptions used in the fair value measurements. The standard did not impact CMS Energy’s or Consumers’ consolidated income, cash flows, or financial position.
EITF Issue 07-5, Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entity’s Own Stock, codified in ASC 815-40, Derivatives and Hedging—Contracts in Entity’s Own Equity: This standard, which was effective for CMS Energy and Consumers January 1, 2009, establishes new criteria for determining whether freestanding instruments or embedded features are considered “indexed to an entity’s own stock” for the purpose of assessing potential derivative accounting or balance sheet classification. This guidance applies to the equity conversion features in CMS Energy’s contingently convertible senior notes and preferred stock. Under the new criteria, these features remain exempt from derivative accounting, and thus, this standard had no impact on CMS Energy’s or Consumers’ consolidated financial statements.
 45 

 

EITF Issue 08-5, Issuer’s Accounting for Liabilities Measured at Fair Value with a Third-Party Credit Enhancement, codified in ASC 820-10, Fair Value Measurements and Disclosures: This standard, which was effective for CMS Energy and Consumers January 1, 2009, concludes that the fair value measurement of a liability should not consider the effect of a third-party credit enhancement or guarantee supporting the liability. To comply with the standard, CMS Energy and Consumers adjusted the methods they use to determine the fair values of certain long-term debt instruments for their fair value disclosures, resulting in a minor reduction in the fair values disclosed. For the fair value disclosures, see Note 9, Financial Instruments. The standard had no impact on CMS Energy’s or Consumers’ consolidated income, cash flows, or financial position.
NEW ACCOUNTING STANDARDS NOT YET EFFECTIVE
SFAS No. 166, Accounting for Transfers of Financial Assets, an amendment of FASB Statement No. 140: This standard, which will be effective for CMS Energy and Consumers January 1, 2010, removes the concept of a qualifying special purpose entity (QSPE) from guidance relating to transfers of financial assets and extinguishments of liabilities. It also removes the exceptions from applying guidance relating to VIEs to QSPEs. The standard revises and clarifies when an entity is required to derecognize a financial asset that it has transferred to another entity. It further clarifies how to measure beneficial interests received as proceeds in connection with a transfer of a financial asset, and introduces the concept of a “participating interest,” the conditions of which must be met for a partial asset transfer to qualify for sale accounting treatment. The standard also requires enhanced disclosures related to continuing involvement with transferred financial assets. CMS Energy and Consumers are evaluating the impact of this standard on their consolidated financial statements.
SFAS No. 167, Amendments to FASB Interpretation No. 46(R): This standard, which will be effective for CMS Energy and Consumers January 1, 2010, amends the criteria used to determine which enterprise, if any, has a controlling financial interest in a VIE. It replaces the quantitative calculation of risks and rewards with a qualitative approach focused on identifying which enterprise (1) has the power to direct the activities of a VIE that most significantly impact the entity’s economic performance and (2) has the obligation to absorb losses of the entity or the right to receive benefits from the entity. The standard also requires ongoing assessments of whether an enterprise is the primary beneficiary of a VIE. CMS Energy and Consumers are evaluating the impact of this standard on their consolidated financial statements.
FSP FAS 132(R)-1, Employers’ Disclosures about Postretirement Benefit Plan Assets, codified in ASC 715-20, Compensation—Retirement Benefits—Defined Benefit Plans—General: This standard, which will be effective for CMS Energy and Consumers December 31, 2009, requires expanded annual disclosures about postretirement benefit plan assets. The required disclosures include information about investment allocation decisions, major categories of plan assets, the inputs and valuation techniques used in the fair value measurements, the effects of significant unobservable inputs on changes in plan assets, and significant concentrations of risk within plan assets. The standard will not impact CMS Energy’s or Consumers’ consolidated income, cash flows, or financial position.
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4: 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. These markets must be accessible to CMS Energy and Consumers at the measurement date.	
 		
 	•	 	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, interest rates and yield curves observable at commonly quoted intervals, credit risks, default rates, 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.	
To the extent possible, CMS Energy and Consumers use quoted market prices or other observable market pricing data in valuing assets and liabilities measured at fair value. If this information is unavailable, they use market-corroborated data or reasonable estimates about market participant assumptions. 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.
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Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following table summarizes, by level within the fair value hierarchy, CMS Energy’s and Consumers’ assets and liabilities reported at fair value on a recurring basis at September 30, 2009:
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
In Millions	
 	 	Total	 	Level 1	 	Level 2	 	Level 3	
 	
CMS Energy, including Consumers	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Assets:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Cash equivalents	 	$	109	 	 	$	109	 	 	$	—	 	 	$	—	 	
Restricted cash equivalents	 	 	9	 	 	 	9	 	 	 	—	 	 	 	—	 	
Nonqualified deferred compensation plan assets	 	 	5	 	 	 	5	 	 	 	—	 	 	 	—	 	
SERP	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Equity securities	 	 	47	 	 	 	47	 	 	 	—	 	 	 	—	 	
Debt securities	 	 	27	 	 	 	—	 	 	 	27	 	 	 	—	 	
Derivative instruments (a)	 	 	1	 	 	 	—	 	 	 	1	 	 	 	—	 	
 	 	 	
Total	 	$	198	 	 	$	170	 	 	$	28	 	 	$	—	 	

Liabilities:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Nonqualified deferred compensation plan liabilities	 	$	5	 	 	$	5	 	 	$	—	 	 	$	—	 	
Derivative instruments (b)	 	 	12	 	 	 	2	 	 	 	2	 	 	 	8	 	
 	 	 	
Total (c)	 	$	17	 	 	$	7	 	 	$	2	 	 	$	8	 	
 	 	 	
Consumers	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Assets:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Cash equivalents	 	$	51	 	 	$	51	 	 	$	—	 	 	$	—	 	
Restricted cash equivalents	 	 	4	 	 	 	4	 	 	 	—	 	 	 	—	 	
CMS Energy Common Stock	 	 	25	 	 	 	25	 	 	 	—	 	 	 	—	 	
Nonqualified deferred compensation plan assets	 	 	4	 	 	 	4	 	 	 	—	 	 	 	—	 	
SERP	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Equity securities	 	 	31	 	 	 	31	 	 	 	—	 	 	 	—	 	
Debt securities	 	 	18	 	 	 	—	 	 	 	18	 	 	 	—	 	
 	 	 	
Total	 	$	133	 	 	$	115	 	 	$	18	 	 	$	—	 	

Liabilities:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Nonqualified deferred compensation plan liabilities	 	$	4	 	 	$	4	 	 	$	—	 	 	$	—	 	
 	 	 	
Total (c)	 	$	4	 	 	$	4	 	 	$	—	 	 	$	—	 	

			
(a)	 	This amount is gross and excludes the $1 million impact of offsetting derivative assets and liabilities under master netting arrangements.	
 		
(b)	 	This amount is gross and excludes the $1 million impact of offsetting derivative assets and liabilities under master netting arrangements and the $2 million impact of offsetting cash margin deposits paid by CMS ERM to other parties.	
 		
(c)	 	At September 30, 2009, CMS Energy’s liabilities classified as Level 3 represent 47 percent of CMS Energy’s total liabilities measured at fair value. Consumers did not have any assets or liabilities classified as Level 3.	
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The following table summarizes, by level within the fair value hierarchy, CMS Energy’s and Consumers’ assets and liabilities reported at fair value on a recurring basis at December 31, 2008:
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
In Millions	
 	 	Total	 	Level 1	 	Level 2	 	Level 3	
 	
CMS Energy, including Consumers	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Assets:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Cash equivalents	 	$	176	 	 	$	176	 	 	$	—	 	 	$	—	 	
Restricted cash equivalents	 	 	5	 	 	 	5	 	 	 	—	 	 	 	—	 	
Nonqualified deferred compensation plan assets	 	 	5	 	 	 	5	 	 	 	—	 	 	 	—	 	
SERP	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Equity securities	 	 	39	 	 	 	39	 	 	 	—	 	 	 	—	 	
Debt securities	 	 	29	 	 	 	—	 	 	 	29	 	 	 	—	 	
Derivative instruments (a)	 	 	1	 	 	 	—	 	 	 	1	 	 	 	—	 	
 	 	 	
Total	 	$	255	 	 	$	225	 	 	$	30	 	 	$	—	 	

Liabilities:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Nonqualified deferred compensation plan liabilities	 	$	5	 	 	$	5	 	 	$	—	 	 	$	—	 	
Derivative instruments (b)	 	 	20	 	 	 	2	 	 	 	2	 	 	 	16	 	
 	 	 	
Total (c)	 	$	25	 	 	$	7	 	 	$	2	 	 	$	16	 	
 	 	 	
Consumers	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Assets:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Cash equivalents	 	$	56	 	 	$	56	 	 	$	—	 	 	$	—	 	
Restricted cash equivalents	 	 	5	 	 	 	5	 	 	 	—	 	 	 	—	 	
CMS Energy Common Stock	 	 	19	 	 	 	19	 	 	 	—	 	 	 	—	 	
Nonqualified deferred compensation plan assets	 	 	3	 	 	 	3	 	 	 	—	 	 	 	—	 	
SERP	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Equity securities	 	 	25	 	 	 	25	 	 	 	—	 	 	 	—	 	
Debt securities	 	 	19	 	 	 	—	 	 	 	19	 	 	 	—	 	
 	 	 	
Total	 	$	127	 	 	$	108	 	 	$	19	 	 	$	—	 	

Liabilities:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Nonqualified deferred compensation plan liabilities	 	$	3	 	 	$	3	 	 	$	—	 	 	$	—	 	
Derivative instruments	 	 	1	 	 	 	—	 	 	 	1	 	 	 	—	 	
 	 	 	
Total (c)	 	$	4	 	 	$	3	 	 	$	1	 	 	$	—	 	

			
(a)	 	This amount is gross and excludes the immaterial impact of offsetting derivative assets and liabilities under master netting arrangements.	
 		
(b)	 	This amount is gross and excludes the immaterial impact of offsetting derivative assets and liabilities under master netting arrangements and the $2 million impact of offsetting cash margin deposits paid by CMS ERM to other parties.	
 		
(c)	 	At December 31, 2008, CMS Energy’s liabilities classified as Level 3 represent 64 percent of CMS Energy’s total liabilities measured at fair value. Consumers did not have any assets or liabilities classified as Level 3.	
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Cash Equivalents: Cash equivalents and restricted cash equivalents consist of money market funds with daily liquidity. The funds invest in U.S. Treasury notes, other government-backed securities, and repurchase agreements collateralized by U.S. Treasury notes.
Nonqualified Deferred Compensation Plan Assets: CMS Energy’s and Consumers’ nonqualified deferred compensation plan assets are invested in various mutual funds. CMS Energy and Consumers value these assets using a market approach, using the daily quoted NAV provided by the fund managers that are the basis for transactions to buy or sell shares in each fund. CMS Energy and Consumers report these assets in Other non-current assets on their Consolidated Balance Sheets.
SERP Assets: CMS Energy and Consumers value their SERP assets using a market approach, incorporating prices and other relevant information from market transactions. The SERP equity securities consist of an investment in a Standard & Poor’s 500 Index mutual fund. The fund’s equity securities are listed on an active exchange. The fair value of the SERP equity securities is based on the NAV of the mutual fund, derived from the daily closing prices of the equity securities held by the fund. The NAV is the basis for transactions to buy or sell shares in the fund.
CMS Energy and Consumers value their SERP debt securities, which are investment grade municipal bonds, using a matrix pricing model that incorporates market-based information. The fair value of the SERP debt securities 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 municipal securities normally considered by market participants when pricing such debt securities. CMS Energy and Consumers report their SERP assets in Other non-current assets on their Consolidated Balance Sheets. For additional details about SERP securities, see Note 9, Financial Instruments.
Nonqualified Deferred Compensation Plan Liabilities: CMS Energy and Consumers value their non-qualified deferred compensation plan liabilities based on the fair values of the plan assets, as they reflect what CMS Energy and Consumers owe the plan participants in accordance with their investment elections. CMS Energy reports these liabilities, except for liabilities related to its DSSP, in Other non-current liabilities on its Consolidated Balance Sheets; its DSSP liability is included in Non-current postretirement benefits. Consumers reports all of its nonqualified deferred compensation plan liabilities in Other non-current liabilities on its 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. They use various inputs to value the derivatives depending on the type of contract and the availability of market data. CMS Energy has exchange-traded derivative contracts that are valued based on Level 1 quoted prices in actively traded markets, as well as derivatives that are valued using Level 2 inputs, including commodity market prices, interest rates, credit ratings, default rates, and market-based seasonality factors. CMS Energy also has derivative instruments that extend beyond time periods in which quoted prices are available. For these instruments, CMS Energy uses modeling methods to project future prices. Such fair value measurements are classified in Level 3 unless modeling was required only for an insignificant portion of the total derivative value.
CMS Energy’s derivatives include an electricity sales agreement held by CMS ERM. This agreement, classified as Level 3, extends beyond the term for which quoted electricity prices are available. To value this agreement, CMS Energy uses a proprietary forward power pricing curve that is based on forward gas prices and an implied heat rate. CMS Energy also increases the fair value of the liability for this agreement by an amount that reflects the uncertainty of its model.
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For all fair values other than Level 1 prices, CMS Energy and Consumers incorporate adjustments for the risk of nonperformance. For derivative assets, a credit adjustment is applied against the asset based on the published default rate for the credit rating that CMS Energy and Consumers assign to the counterparty based on an internal credit-scoring model. This model considers various inputs, including the counterparty’s financial statements, credit reports, trade press, and other information that would be available to market participants. To the extent that the internal ratings are comparable to credit ratings published by independent rating agencies, the resulting credit adjustment is classified within Level 2. If the internal model results in a rating that is outside of the range of ratings given by the independent agencies and the credit adjustment is significant to the overall valuation, the derivative fair value is classified as Level 3. CMS Energy and Consumers adjust their derivative liabilities downward to reflect the risk of their own nonperformance, based on their published credit ratings. Adjustments for credit risk using the approach outlined within this paragraph are not materially different from the adjustments that would result from using credit default swap rates for the contracts presently held. For further details about derivative contracts, see Note 10, Derivative Instruments.
Assets and Liabilities Measured at Fair Value on a Recurring Basis using Level 3 Inputs
The following table is a reconciliation of changes in the fair values of Level 3 assets and liabilities at CMS Energy:
 	 	 	 	 	 	 	 	 	
In Millions	
Three months ended September 30	 	2009	 	2008	
 	
Balance at July 1	 	$	(11	)	 	$	(24	)	
Total gains (losses) (realized and unrealized) Included in earnings (a)	 	 	(1	)	 	 	5	 	
Purchases, sales, issuances, and settlements (net)	 	 	4	 	 	 	1	 	
 	 	 	
Balance at September 30	 	 	(8	)	 	 	(18	)	
 	 	 	
Unrealized gains (losses) included in earnings for the quarter ended September 30 relating to assets and liabilities still held at September 30 (a)	 	$	(1	)	 	$	6	 	

In Millions	
Nine months ended September 30	 	2009	 	2008	
 	
Balance at January 1	 	$	(16	)	 	$	(19	)	
Total gains (losses) (realized and unrealized) Included in earnings (a)	 	 	5	 	 	 	(1	)	
Purchases, sales, issuances, and settlements (net)	 	 	3	 	 	 	2	 	
 	 	 	
Balance at September 30	 	 	(8	)	 	 	(18	)	
 	 	 	
Unrealized gains (losses) included in earnings for the nine months ended September 30 relating to assets and liabilities still held at September 30 (a)	 	$	3	 	 	$	—	 	

			
(a)	 	CMS Energy records realized and unrealized gains and losses for Level 3 recurring fair values in earnings as a component of Operating Revenue or Operating Expenses in its Consolidated Statements of Income.	
5: CONTINGENCIES
CMS ENERGY CONTINGENCIES
Gas Index Price Reporting Investigation: In 2002, CMS Energy notified appropriate regulatory and governmental agencies that some employees at CMS MST and CMS Field Services appeared to have provided inaccurate information regarding natural gas trades to various energy industry publications, which compile and report index prices. CMS Energy cooperated with an investigation by the DOJ regarding this matter. Although CMS Energy has not received any formal notification that the DOJ has
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completed its investigation, the DOJ’s last request for information occurred in 2003, and CMS Energy completed its response to this request in 2004. CMS Energy is unable to predict the outcome of the DOJ investigation and what effect, if any, the investigation will have on its business.
Gas Index Price Reporting Litigation: CMS Energy, along with CMS MST, CMS Field Services, Cantera Natural Gas, Inc. (the company that purchased CMS Field Services) and Cantera Gas Company, are named as defendants in various class action and individual lawsuits arising as a result of alleged inaccurate natural gas price reporting. Allegations include manipulation of NYMEX natural gas futures and options prices, price-fixing conspiracies, and artificial inflation of natural gas retail prices in California, Colorado, Kansas, Missouri, Tennessee, and Wisconsin.
In 2007, CMS MST settled a master class action suit in California state court for $7 million and the CMS Energy defendants settled four class action suits originally filed in California federal court. In July 2009, CMS MST, as the only remaining defendant in the California state court cases, entered into a settlement of those remaining California state court cases and those cases have been dismissed. The settlement amount is immaterial to CMS Energy.
All CMS Energy defendants were dismissed from the Missouri Public Service Commission case, a state action, and the Breckenridge case, a federal action. An appeal is pending in the Missouri Public Service Commission case. CMS Energy was also dismissed from three federal cases, while the other CMS Energy defendants remain. CMS Energy defendants were also dismissed from a federal case in Wisconsin, but the plaintiffs have filed a motion for reconsideration and refiled the complaint in Michigan federal court. The Michigan case was transferred to the multi-district litigation proceeding in Nevada. In addition, the Tennessee Supreme Court has granted the CMS Energy defendants’ application for leave to appeal the Tennessee class action lawsuit. Other cases in several jurisdictions remain pending.
Another class action complaint was filed in March 2009 in circuit court in Wood County, Wisconsin, against CMS Energy defendants, along with 19 other non-CMS Energy companies, alleging conspiracy to restrain trade through inaccurate natural gas price reporting. Defendants removed the case to federal court in Wisconsin, and it was transferred through the multi-district litigation process to the consolidated actions in Nevada. CMS Energy cannot predict the financial impact or outcome of these matters.
Bay Harbor: As part of the development of Bay Harbor by certain subsidiaries of CMS Energy, and under an agreement with the MDEQ, third parties constructed a golf course and park over several abandoned CKD piles left over from the former cement plant operations on the Bay Harbor site. The third parties also undertook a series of remedial actions, including constructing a leachate collection system at an identified seep. Leachate is produced when water enters into the CKD piles. In 2002, CMS Energy sold its interest in Bay Harbor, but retained its obligations under environmental indemnities entered into at the start of the project.
In 2005, the EPA, along with CMS Land and CMS Capital, voluntarily executed an AOC under Superfund and approved a Removal Action Work Plan to address contamination issues at Bay Harbor. Collection systems required under the plan have been installed and effectiveness monitoring of the systems at the shoreline is ongoing. CMS Land, CMS Capital, and the EPA agreed upon augmentation measures to address areas where pH measurements were not satisfactory. The augmentation measures were implemented and completed in the second quarter of 2009.
In 2008, the MDEQ and the EPA granted permits for CMS Land or its affiliate, Beeland, to construct and operate a deep injection well in Antrim County, Michigan, to dispose of leachate from Bay Harbor. Certain environmental groups, a local township, and a local county filed lawsuits appealing the permits. The legal proceeding was stayed in the third quarter of 2009 and can be renewed by either party at any time. CMS Land and CMS Capital continue to seek a lower cost long-term water disposal option including using deep injection wells, permitted discharge to surface water, and disposal with a local municipal water treatment facility.
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CMS Land and CMS Capital, the MDEQ, the EPA, and other parties are discussing the long-term remedy for the Bay Harbor sites, including:

 	•	 	the disposal of leachate;	
 		
 	•	 	the capping and excavation of CKD;	
 		
 	•	 	the location and design of collection lines and upstream diversion of water;	
 		
 	•	 	potential flow of leachate below the collection system;	
 		
 	•	 	applicable criteria for various substances such as mercury; and	
 		
 	•	 	other matters that are likely to affect the scope of remedial work that CMS Land and CMS Capital may be obligated to undertake.	
CMS Energy has recorded a cumulative charge related to Bay Harbor, including accretion expense, of $178 million, of which $36 million was recorded in the second quarter of 2009. Several factors contributed to the revised remediation cost estimates in the second quarter of 2009. These factors include increased costs related to the disposal of collected leachate and delays in identifying and securing a long-term water management solution. In addition, CMS Land and CMS Capital are projecting higher costs for operating and maintaining the existing collection system.
At September 30, 2009, CMS Energy had a recorded liability of $85 million for its remaining obligations. CMS Energy calculated this liability based on discounted projected costs, using a discount rate of 4.32 percent and an inflation rate of 1 percent on annual operating and maintenance costs. CMS Energy based the discount rate on the interest rate for 30-year U.S. Treasury securities on June 30, 2009. The undiscounted amount of the remaining obligation is $114 million. CMS Energy expects to pay $29 million in 2009, $11 million in 2010, $4 million in 2011, and the remainder on long-term liquid disposal and operating and maintenance costs.
CMS Energy’s estimate of remedial action costs and the timing of expenditures could change if there are additional major changes in circumstances or assumptions, including but not limited to:

 	•	 	further increases in water disposal costs;	
 		
 	•	 	delays in developing a long-term water disposal option;	
 		
 	•	 	an increase in the number of contamination areas;	
 		
 	•	 	different remediation techniques;	
 		
 	•	 	the nature and extent of contamination;	
 		
 	•	 	continued inability to reach agreement with the MDEQ or the EPA over required remedial actions;	
 		
 	•	 	delays in the receipt of requested permits;	
 		
 	•	 	delays following the receipt of any requested permits due to legal appeals of third parties;	
 		
 	•	 	additional or new legal or regulatory requirements; or	
 		
 	•	 	new or different landowner claims.	
Depending on the size of any indemnity obligation or liability under environmental laws, an adverse outcome of this matter could have a material adverse effect on CMS Energy’s liquidity and financial condition and could negatively affect CMS Energy’s financial results. CMS Energy cannot predict the financial impact or outcome of this matter.
Quicksilver Resources, Inc.: In 2001, Quicksilver sued CMS MST in Texas state court in Fort Worth, Texas, for breach of contract in connection with a base contract for the sale and purchase of natural gas. The jury verdict awarded Quicksilver no compensatory damages but $10 million in punitive damages. In 2007, the trial court nullified the jury award of punitive damages but held that the contract should be rescinded prospectively. The judicial rescission of the contract caused CMS Energy to record a charge in the second quarter of 2007 of $24 million, net of tax. In June 2009, the Texas Court of Appeals ruled in
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favor of CMS MST and, pursuant to a settlement agreement to end the litigation, Quicksilver paid $5 million to CMS MST, which caused CMS Energy to recognize a $5 million credit to Cost of gas sold in the second quarter of 2009. The parties have agreed not to appeal, and this settlement has resolved the Quicksilver matter.
State Street Bank and TSU Litigation: In 1998, CMS Viron installed a number of energy savings measures at TSU. CMS Viron sold the master lease for the project to a third-party, which transferred its interest to State Street Bank. Although TSU accepted the improvements, it refused to pay on the grounds that the Texas Board of Higher Education had not approved the expenditure. As Texas law requires that special approval be obtained from the state legislature before any state agency, including a university, may be sued, State Street Bank did not sue TSU under the master lease. Instead, in 2002, State Street Bank sued CMS Viron in the District Court of Harris County, Texas, claiming primarily a breach of representations and warranties. The plaintiffs are seeking $8 million plus interest from CMS Viron. The plaintiffs have received $2 million from an escrow account, which could have been paid to CMS Viron to compensate it for the cost of some of the improvements. During the same year, CMS Viron filed a counterclaim, as well as a third-party action against TSU for breach of contract and conversion. CMS Viron filed a motion for summary disposition, which was denied. The trial is scheduled to begin on November 30, 2009. CMS Viron believes it has a valid defense to the claim, but cannot predict the outcome of this litigation.
Equatorial Guinea Tax Claim: In 2004, CMS Energy received a request for indemnification from the purchaser of CMS Oil and Gas. The indemnity claim relates to the sale of CMS Energy’s oil, gas, and methanol projects in Equatorial Guinea and the claim of the government of Equatorial Guinea that CMS Energy owes $142 million in taxes in connection with that sale. CMS Energy concluded that the government’s tax claim is without merit and the purchaser of CMS Oil and Gas submitted a response to the government rejecting the claim. The government of Equatorial Guinea has indicated that it still intends to pursue its claim. CMS Energy cannot predict the financial impact or outcome of this matter.
Moroccan Tax Claim: In 2007, CMS Energy sold its 50 percent interest in Jorf Lasfar. As part of the sale agreement, CMS Energy agreed to indemnify the purchaser for 50 percent of any tax assessments on Jorf Lasfar attributable to tax years prior to the sale. In 2007, the Moroccan tax authority concluded its audit of Jorf Lasfar for tax years 2003 through 2005. The audit asserted deficiencies in certain corporate and withholding taxes. In January 2009, CMS Energy paid $18 million, which it charged against a tax indemnification liability established when it recorded the sale of Jorf Lasfar, and accordingly, the payment did not affect earnings. The Moroccan tax authority may also assess taxes for 2006. At September 30, 2009, CMS Energy had a recorded liability of $4 million for its potential indemnity obligation for corporate and withholding taxes for 2006. CMS Energy cannot predict the financial impact or outcome of this matter.
Marathon Indemnity Claim regarding F.T. Barr Claim: In 2001, F. T. Barr, an individual with an overriding royalty interest in production from the Alba field, filed a lawsuit in Harris County District Court in Texas against CMS Energy, CMS Oil and Gas and other defendants alleging that his overriding royalty payments related to Alba field production were improperly calculated. CMS Oil and Gas believes that Barr was properly paid on gas sales and that he was not entitled to the additional overriding royalty payment sought. All parties signed a confidential settlement agreement in 2004. The settlement resolved claims between Barr and the defendants, and the involved CMS Energy entities reserved all defenses to any indemnity claim relating to the settlement. Issues exist between Marathon and certain present or former CMS Energy entities as to the existence and scope of any indemnity obligation to Marathon in connection with the matter. In April 2008, Marathon indicated its intent to pursue the indemnity claim, and certain present and former CMS Energy entities and Marathon entered into a one-year agreement tolling the statute of limitations on any claim by Marathon under the indemnity. In April 2009, certain Marathon entities filed a case in the United States District Court for the Southern District of Texas against Enterprises for indemnification. CMS Energy entities dispute Marathon’s claim, and will vigorously oppose it. CMS Energy entities also will assert that Marathon has suffered minimal, if any, damages.
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CMS Energy cannot predict the outcome of this matter. If Marathon’s claim were sustained, it would have a material effect on CMS Energy’s future earnings and cash flow.
CONSUMERS’ ELECTRIC UTILITY CONTINGENCIES
Electric Environmental Matters: Consumers’ operations are subject to environmental laws and regulations. Generally, Consumers has been able to recover, in customer rates, the costs to operate its facilities in compliance with these laws and regulations.
Cleanup and Solid Waste: Under the NREPA, Consumers will ultimately incur remediation and other response activity costs at a number of sites. Consumers believes that these costs will be recoverable in rates under current ratemaking policies. At September 30, 2009, Consumers had a recorded liability of $1 million, the minimum amount in the range of its estimated probable NREPA liability, in accordance with applicable accounting standards.
Consumers is a potentially responsible party at a number of contaminated sites administered under the Superfund. Superfund liability is joint and several. In addition to Consumers, many other creditworthy parties with substantial assets are potentially responsible with respect to the individual sites. Based on its experience, Consumers estimates that its share of the total liability for known Superfund sites will be between $2 million and $8 million. Various factors, including the number of potentially responsible parties involved with each site, affect Consumers’ share of the total liability. At September 30, 2009, Consumers had a recorded liability of $2 million, the minimum amount in the range of its estimated probable Superfund liability, in accordance with applicable accounting standards.
The timing of payments related to Consumers’ remediation and other response activities at its Superfund and NREPA sites is uncertain. Periodically, Consumers receives information about new sites, which leads it to review its cost estimates. Any significant change in the underlying assumptions, such as an increase in the number of sites, different remediation techniques, nature and extent of contamination, and legal and regulatory requirements, could affect its estimates of NREPA and Superfund 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 and replaced part of the PCB material with non-PCB material. Since proposing a plan to take action with respect to the remaining materials, Consumers has had several communications with the EPA. Consumers is not able to predict when the EPA will issue a final ruling and cannot predict the financial impact or outcome of this matter.
Electric Utility Plant Air Permit Issues and Notices of Violation: In 2007, Consumers received a NOV/FOV from the EPA alleging that fourteen utility boilers exceeded the visible emission limits in their associated air permits. The utility boilers are located at the Karn/Weadock Generating Complex, Campbell Plant, Cobb Electric Generating Station, and Whiting Plant, which are all in Michigan. Consumers has responded formally to the NOV/FOV denying the allegations and is awaiting the EPA’s response to its submission.
In addition, the EPA has alleged that some utilities have incorrectly classified major plant modifications as RMRR rather than seeking permits from the EPA to modify their plants. Consumers responded to information requests from the EPA on this subject in 2000, 2002, 2006, and 2008. Consumers believes that it has properly interpreted the requirements of RMRR. In addition, in 2008, Consumers received a NOV for three of its coal-fueled facilities alleging, among other things, violations of NSR and PSD regulations relating to ten projects from 1986 to 1998 allegedly subject to NSR review.
Consumers is engaged in discussions with the EPA on both of these matters. Depending upon the outcome of these discussions, the EPA could bring legal action against Consumers and/or Consumers
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could be required to install additional pollution control equipment at some or all of its coal-fueled electric generating plants, surrender emission allowances, engage in Supplemental Environmental Programs, and/or pay fines. Additionally, Consumers would need to assess the viability of continuing operations at certain plants. Consumers cannot predict the financial impact or outcome of these matters.
RFC Settlement : In July 2008, Consumers notified the RFC, the reliability organization in the region that includes Consumers’ generating plants, that certain generation equipment covered by the NERC standards for maintenance and testing of certain electrical protection equipment was not covered by Consumers’ Generation Reliability Compliance Program. In February 2009, the RFC issued an initial notice of alleged violation to Consumers. Since notifying RFC, Consumers has submitted and implemented a mitigation plan. In October 2009, Consumers agreed to settle with the RFC for an immaterial amount. The settlement must be approved by the NERC and the FERC. Consumers cannot predict the timing or the outcome of the approval process.
Litigation: The transmission charges Consumers pays to the MISO have been subject to regulatory review and recovery through the annual PSCR process. Michigan’s attorney general has argued that the statute governing the PSCR process does not permit recovery of transmission charges in that manner and that those expenses should be considered in general rate cases. Several decisions of the Michigan Court of Appeals have ruled against the Michigan attorney general’s arguments, but in September 2008, the Michigan Supreme Court granted the Michigan attorney general’s applications for leave to appeal two of those decisions. In May 2009, the Michigan Supreme Court issued an order affirming Consumers’ ability to recover transmission costs through the PSCR process. The Michigan attorney general filed a petition for reconsideration/rehearing on this decision, which the Michigan Supreme Court denied in June 2009.
Nuclear Matters:
DOE Litigation: In 1997, a United States Court of Appeals decision confirmed that the DOE was to begin accepting deliveries of spent nuclear fuel for disposal by January 1998. Subsequent United States Court of Appeals litigation, in which Consumers and other utilities participated, has not been successful in producing more specific relief for the DOE’s failure to accept the spent nuclear fuel.
A number of court decisions support the right of utilities to pursue damage claims in the United States Court of Claims against the DOE for failure to take delivery of spent nuclear fuel. Consumers filed a complaint in 2002. If Consumers’ litigation against the DOE is successful, Consumers plans to use any recoveries as reimbursement for the incurred costs of spent nuclear fuel storage during Consumers’ ownership of Palisades and Big Rock. Consumers cannot predict the financial impact or outcome of this matter. The sale of Palisades and the Big Rock ISFSI did not transfer the right to any recoveries from the DOE related to costs of spent nuclear fuel storage incurred during Consumers’ ownership of Palisades and Big Rock.
Nuclear Fuel Disposal Cost: Consumers deferred payment for disposal of spent nuclear fuel used before April 7, 1983. Its DOE liability is $163 million at September 30, 2009. This amount includes interest, and is payable upon the first delivery of spent nuclear fuel to the DOE. Consumers recovered the amount of this liability, excluding a portion of interest, through electric rates. In conjunction with the sale of Palisades and the Big Rock ISFSI in 2007, Consumers retained this obligation and provided a letter of credit to Entergy as security for this obligation.
CONSUMERS’ GAS UTILITY CONTINGENCIES
Gas Environmental Matters: Consumers expects to incur remediation and other response activity costs at a number of sites under the NREPA. These sites include 23 former manufactured gas plant facilities. Consumers operated the facilities on these sites for some part of their operating lives. For some of these sites, it has no current ownership or may own only a portion of the original site. At September 30, 2009,
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Consumers estimated its undiscounted remaining remediation and other response activity costs to be between $36 million and $50 million. Generally, Consumers has been able to recover most of its costs to date through proceeds from insurance settlements and customer rates.
At September 30, 2009, Consumers had a recorded liability of $36 million and a regulatory asset of $65 million that included $29 million of deferred MGP expenditures. The timing of payments related to the remediation and other response activity at Consumers’ former manufactured gas plant sites is uncertain. Consumers expects its remediation and other response activity costs to average $6 million annually over the next five years. 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 MGP liability.
FERC Investigation: In February 2008, Consumers received a data request relating to an investigation the FERC is conducting into possible violations of the FERC’s posting and competitive bidding regulations related to releases of firm capacity on natural gas pipelines. Consumers responded to the FERC’s first data request in the first quarter of 2008. The FERC has also taken depositions and Consumers has responded to additional data requests. In August 2009, Consumers received a letter presenting the preliminary view of the FERC staff that Consumers violated a regulation in connection with certain capacity release transactions from August 2005 through October 2007. Consumers submitted a response and defense of its views to the FERC in September 2009. Consumers cannot predict the financial impact or outcome of this matter.
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GUARANTEES
The following table describes CMS Energy’s guarantees at September 30, 2009:
 	 	 	 	 	 	 	 	 	
In Millions	
 	 	Issue	 	Expiration	 	Maximum	 	Carrying	
Guarantee Description	 	Date	 	Date	 	Obligation	 	Amount	
Indemnity obligations from asset sales and other agreements (a)	 	Various	 	Various through June 2022	 	$857(b)	 	$16	
Surety bonds and other indemnity obligations (c)	 	Various	 	Various through May 2022	 	12	 	—	
Guarantees and put options (d)(e)	 	Various	 	Various	 	3	 	1	
 	 	 	 	through	 	 	 	 	
 	 	 	 	September	 	 	 	 	
 	 	 	 	2023	 	 	 	 	

(a)     In May 2007, CMS Energy provided an indemnity to TAQA in connection with the sale of its ownership interests in businesses in the Middle East, Africa, and India, and recorded a $50 million provision for the contingent liability. This indemnity expired on May 2, 2009. CMS Energy eliminated the liability from its balance sheet, recognizing a $45 million benefit to Income from Discontinued Operations, Net of Tax and a $5 million benefit to Gain on asset sales, net.
(b)     The majority of this amount arises from stock and asset sales agreements under which CMS Energy indemnified the purchaser for losses resulting from various matters, including claims related to tax disputes, claims related to power purchase agreements, and defects in title to the assets or stock sold to the purchaser by CMS Energy subsidiaries. Except for items described elsewhere in this Note, CMS Energy believes the likelihood of loss to be remote for the indemnity obligations not recorded as liabilities.
(c)     In the normal course of business, CMS Energy issues surety bonds and indemnifications to counterparties to facilitate commercial transactions. CMS Energy would be required to pay a counterparty if it incurred losses due to a breach of contract terms or nonperformance under the contract.
(d)     In 1987, Consumers issued an $85 million guarantee of the MCV Partnership’s performance under a steam and electric power agreement with Dow. In May 2009, the parties mutually terminated the steam and electric power agreement. The termination of the agreement released Consumers from its $85 million guarantee to Dow.
(e)     At September 30, 2009, the carrying amount of CMS Energy’s put option agreements with certain Bay Harbor property owners was $1 million. Additionally, if CMS Energy is required to purchase a Bay Harbor property under a put option agreement, it may sell the property to recover the amount paid under the option.
At September 30, 2009, the maximum obligation and carrying amount for Consumers’ guarantees were immaterial.
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The following table provides additional information regarding CMS Energy’s guarantees:
 	 	 	 	 	
 	 	 	 	Events That Would	
Guarantee Description	 	How Guarantee Arose	 	Require Performance	
Indemnity obligations from asset sales and other agreements	 	Stock and asset sales agreements	 	Findings of misrepresentation, breach of warranties, tax claims, and other specific events or circumstances	
Surety bonds and other indemnity obligations	 	Normal operating activity, permits and licenses	 	Nonperformance	
Guarantees and put options	 	Normal operating activity	 	Nonperformance or non-payment by a subsidiary under a related contract	
 	 	 	 	 	
 	 	Bay Harbor remediation efforts	 	Owners exercising put options requiring CMS Land and CMS Capital to purchase property	
     	
CMS Energy and Consumers also enter into various agreements containing tax and other indemnity provisions for which they are unable to estimate the maximum potential obligation. These factors include unspecified exposure under certain agreements. CMS Energy and Consumers consider the likelihood that they would be required to perform or incur substantial losses related to these indemnities to be remote.
OTHER CONTINGENCIES
In addition to the matters disclosed in this Note, CMS Energy, Consumers, and certain other subsidiaries of CMS Energy are parties to certain lawsuits and administrative proceedings before various courts and governmental agencies arising from the ordinary course of business. These lawsuits and proceedings may involve personal injury, property damage, contracts, environmental issues, federal and state taxes, rates, licensing, and other matters. CMS Energy and Consumers believe that the outcome of any one of these proceedings will not have a material adverse effect on their consolidated results of operations, financial position, or cash flows. Further, CMS Energy and Consumers occasionally self-report certain regulatory non-compliance matters that may or may not eventually result in administrative proceedings.
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6: UTILITY RATE MATTERS
CONSUMERS’ ELECTRIC UTILITY RATE MATTERS
Stranded Cost Recovery: In 2004, the MPSC approved recovery of Consumers’ Stranded Costs incurred in 2002 and 2003 plus interest through the period of collection through a surcharge on ROA customers. The 2008 Energy Legislation amended the Customer Choice Act and directed the MPSC to approve rates that will allow recovery of Stranded Costs within five years. In January 2009, Consumers filed an application with the MPSC requesting recovery of these Stranded Costs through a surcharge on both full service and ROA customers. The MPSC approved the surcharge in August 2009. At September 30, 2009, Consumers had a regulatory asset for Stranded Costs of $71 million.
Power Supply Cost Recovery: The PSCR process is designed to allow Consumers to recover all of its power supply 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 billing factor monthly in order to minimize the over- or underrecovery amount in the annual PSCR reconciliation.
The following table summarizes the PSCR reconciliation filings pending with the MPSC:
 	 	 	 	 	 	 	 	 	
 	 	 	 	Net Over-	 	PSCR Cost	 	 	
PSCR	 	Date	 	(Under)	 	of Power	 	 	
Year	 	Filed	 	recovery (a)	 	Sold	 	Description	
2007	 	March 2008	 	$(42) million (b)	 	$1.628 billion	 	In the 2007 PSCR Plan, Consumers expected to offset power supply costs by including a $44 million credit for Palisades sale proceeds due customers. However, the MPSC directed that the Palisades sale proceeds be refunded through bill credits outside of the PSCR process.	
 	 	 	 	 	 	 	 	 	
2008	 	March 2009	 	$2 million	 	$1.670 billion	 	The overrecovery amount includes accrued interest and reflects an overrecovery for 2008 less underrecoveries from 2007.	

(a)     Amount includes prior year over- or underrecoveries as allowed by the MPSC order in Consumers’ 2007 PSCR plan case.
(b)     In May 2009, the ALJ’s proposal for decision recommended no PSCR recovery for economic development discounts of $3 million and disallowance of $4 million of net replacement power costs associated with a crane incident at Consumers’ Campbell Plant.
2009 PSCR Plan : In September 2008, Consumers submitted its 2009 PSCR plan to the MPSC. The plan seeks approval to apply a uniform maximum PSCR factor of up to $0.02680 per kWh to all classes of customers, which includes recovery of an expected $22 million discount in power supply charges provided to a large industrial customer. The MPSC approved this discount in 2005 to promote long-term investments in the industrial infrastructure of Michigan. In June 2009, the ALJ’s proposal for decision recommended that recovery of this discount should not be included in the PSCR, but should be determined through a general rate case. Consumers cannot predict the outcome of this matter, but will vigorously oppose any attempt to prevent recovery of the $22 million discount already approved by the MPSC.
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Consumers self-implemented the 2009 PSCR charge in January 2009. The November 2009 PSCR billing factor is $0.01216 per kWh. While Consumers expects to recover all of its PSCR costs, it cannot predict the financial impact or outcome of these proceedings.
2010 PSCR Plan : In September 2009, Consumers submitted its 2010 PSCR plan to the MSPC. The plan seeks approval to apply a uniform maximum PSCR factor of up to $0.02257 per kWh to all classes of customers. Consumers expects to self-implement the proposed 2010 PCSR charge in January 2010. While Consumers expects to recover all of its PSCR costs, it cannot predict the financial impact or outcome of this proceeding.
Electric Rate Case and Self-Implemented Rates: In November 2008, Consumers filed an application with the MPSC seeking an annual increase in revenue of $214 million based on an 11 percent authorized return on equity. The filing sought recovery of costs associated with new plant investments including Clean Air Act investments, higher operating and maintenance costs, and the approval to recover costs associated with Consumers’ advanced metering infrastructure program.
This was the first electric rate case under the new streamlined regulatory process enacted by the 2008 Energy Legislation. The new provisions generally allow utilities to self-implement rates six months after filing, subject to refund with interest, unless the MPSC finds good cause to prohibit self-implementation. The rate of interest to be charged on refunded amounts is LIBOR plus five percent for the appropriate period. For any portion of a refund that exceeds 25 percent of the annual revenue increase approved by the MPSC in its final order, the rate of interest charged would be Consumers’ authorized rate of return on equity. The new provisions require the MPSC to issue an order 12 months after filing or the rates, as filed, become permanent.
In April 2009, Consumers filed tariff sheets indicating that it planned to self-implement an electric rate increase in the annual amount of $179 million beginning in May 2009. The MPSC issued an order in May 2009 requiring that, if Consumers self-implemented the $179 million electric rate increase, it must simultaneously distribute to customers $36 million of proceeds from the April 2007 sale of Palisades. Accordingly, in May 2009 Consumers self-implemented an annual electric rate increase of $179 million, subject to refund with interest, and also implemented a one-time distribution of $36 million to customers.
In November 2009, the MPSC issued its final order in this case, authorizing Consumers to increase its rates by $139 million annually, $40 million less than the rate increase self-implemented by Consumers. The order reflects an authorized rate of return of 10.7 percent and the exclusion from rate base of amounts associated with an obligation to the DOE for nuclear fuel disposal. The order also requires Consumers to refund the remaining $73 million of proceeds from the April 2007 sale of Palisades. The order adopts a pilot decoupling mechanism that goes into effect December 1, 2009, and which, subject to certain conditions, will allow rates to be adjusted to collect or refund the difference between the level of average sales per customer adopted in the order and actual average sales per customer. The order also adopts an uncollectible expense tracking mechanism, effective January 1, 2009, that will allow rates to be adjusted to collect or refund 80 percent of the difference between the level of uncollectible expense included in rates and actual uncollectible expense.
For details on the impacts of the rate order on the interim periods of 2009, see Note 1, Subsequent Event.
Electric Operation and Maintenance Expenditures Show-Cause Order: In December 2005, the MPSC authorized Consumers to increase its electric rates. In the same order, the MPSC ordered Consumers to spend certain amounts on future tree trimming and line clearing activities, as well as on the operation and maintenance of Consumers’ fossil-fueled power plants. At that time, the MPSC also ordered Consumers to establish mechanisms to track these expenditures and stated that the rate increase was subject to refund with interest if the specified amounts were not spent on these activities.
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In October 2009, the MPSC issued a show-cause order alleging that, in 2007, Consumers spent $14 million less on forestry and fossil-fueled plant operation and maintenance activity than the amount ordered by the MPSC. The October 2009 show-cause order directed Consumers to explain why it should not be found in violation of the MPSC’s December 2005 order and subject to applicable sanctions, and why the refunds required by that order have not yet occurred. Consumers’ response must include the details of its forestry and fossil-fueled plant operation and maintenance expenditures for 2006 through 2008, as well as available data for 2009 expenditures. Consumers expects that the total amounts it will have spent on forestry and fossil-fueled plant operation and maintenance activity for the years 2006 through 2009 will approximate the total amounts included in the December 2005 order for these activities. While it cannot predict the outcome of this proceeding, Consumers does not consider it probable that it will be required to provide a refund to customers. Accordingly, Consumers has not recorded a provision for revenue subject to refund.
Palisades Regulatory Proceedings: The MPSC order approving the Palisades sale transaction required that Consumers credit $255 million of excess sales proceeds and decommissioning amounts to its retail customers by December 2008. There are additional excess sales proceeds and decommissioning fund balances of $135 million above the amount in the MPSC order. The MPSC order in Consumers’ 2007 electric rate case instructed Consumers to offset the excess sales proceeds and decommissioning fund balances with $26 million of transaction costs from the Palisades sale. In addition, the MPSC required Consumers to offset the electric rate increase it self-implemented in May 2009 with $36 million of these funds. Furthermore, the November 2009 electric rate order ordered Consumers to refund the remaining balance of $73 million, as described in the “Electric Rate Case and Self-Implemented Rates” section of this Note.
Big Rock Decommissioning: The MPSC and the FERC regulate the recovery of costs to decommission Big Rock. Subsequent to December 31, 2000, Consumers stopped funding a Big Rock trust fund because the MPSC-authorized decommissioning surcharge collection period expired on that date. The level of funds provided by the trust fell short of the amount needed to complete decommissioning. As a result, Consumers provided $44 million of corporate contributions for decommissioning costs. Consumers also paid $30 million to Entergy to assume ownership and responsibility for the Big Rock ISFSI and paid $55 million for nuclear fuel storage costs incurred as a result of the DOE’s failure to accept spent nuclear fuel on schedule. At September 30, 2009, Consumers has a $129 million regulatory asset recorded on its Consolidated Balance Sheets for these costs.
In 2008, Consumers filed an application with the MPSC seeking to recover the $44 million Big Rock decommissioning shortfall from customers. At that time, Consumers also indicated that no action from the MPSC was necessary with respect to the recovery of the nuclear fuel storage costs and the payment to Entergy, as those costs are the subject of litigation in the federal courts. The MPSC staff and other interveners have filed testimony in this case recommending that the MPSC deny Consumers’ request and requesting rate refunds of various amounts up to $107 million. Consumers continues to believe that recovery of its regulatory asset is probable, but it cannot predict the financial impact or outcome of this proceeding.
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CONSUMERS’ GAS UTILITY RATE MATTERS
Gas Cost Recovery: The GCR process is designed to allow Consumers to recover all of its 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 GCR billing factor monthly in order to minimize the over- or underrecovery amount in the annual GCR reconciliation.
The following table summarizes the GCR reconciliation filings pending with the MPSC:
 	 	 	 	 	 	 	 	 	
 	 	 	 	Net Over-	 	 	 	 	
 	 	 	 	(Under)	 	GCR Cost of Gas	 	 	
GCR Year	 	Date Filed	 	recovery	 	Sold	 	Description	
2007-2008	 	June 2008	 	$17 million	 	$1.7 billion	 	The overrecovery amount reflects an overrecovery of $15 million plus $2 million in accrued interest owed to customers.	
2008-2009	 	June 2009	 	$(15) million	 	$1.8 billion	 	The underrecovery amount reflects an underrecovery of $16 million less $1 million in accrued interest owed to customers.	
 	
GCR plan for year 2009-2010: In December 2008, Consumers filed an application with the MPSC seeking approval of a GCR plan for its 2009-2010 GCR plan year. The request proposed the use of a base GCR ceiling factor of $8.10 per mcf, plus a quarterly GCR ceiling price adjustment contingent upon future events. Using the proposed base GCR ceiling factor, Consumers self-implemented the 2009-2010 GCR charge in April 2009. The November 2009 GCR billing factor is $7.41 per mcf. While Consumers expects to recover all of its GCR costs, it cannot predict the financial impact or outcome of these proceedings.
Gas Depreciation: In August 2008, Consumers filed a gas depreciation case using 2007 data with the MPSC-ordered variations on traditional cost-of-removal methodologies. In December 2008, the MPSC approved a partial settlement agreement allowing Consumers to implement the filed depreciation rates, on an interim basis, concurrent with the implementation of settled rates in its 2008 gas rate case. In September 2009, the MPSC ordered that Consumers continue to use the depreciation rates authorized by the December 2008 partial settlement agreement. These depreciation rates have reduced Consumers’ recovery of depreciation expense by $20 million per year. The MPSC also ordered Consumers to adopt certain standard retirement units by January 1, 2010. Consumers estimates that the utilization of these standard retirement units will increase gas revenues and maintenance expense by $10 million in 2010.
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Gas Rate Case: In May 2009, Consumers filed an application with the MPSC seeking an annual increase in revenue of $114 million based on an 11 percent authorized return on equity. The filing seeks recovery of costs associated with ongoing investments in gas utility assets, increases in operating and maintenance costs, and recognition of a decrease in expected sales related to the continued decline in the Michigan economy. The following table details the components of the requested increase in revenue:
 	 	 	 	 	
In Millions	 	
Components of the increase in revenue	 	 	 	 	
Recovery of operating and maintenance costs	 	$	25	 	
Impact of sales declines	 	 	41	 	
Investment in rate base	 	 	40	 	
Return on equity	 	 	8	 	
 	 	 	 	
Total	 	$	114	 	
 	
Under the new streamlined regulatory process described in the “Consumers’ Electric Utility Rate Matters — Electric Rate Case and Self-Implemented Rates” section of this Note, utilities may be allowed to self-implement rates six months after filing. In October 2009, the MPSC issued an order requiring Consumers to file tariff sheets showing the rate that it intends to self-implement. Accordingly, on October 16, 2009, Consumers filed tariff sheets indicating that it plans to self-implement an annual gas rate increase of $89 million beginning November 19, 2009. If the MPSC were to take action to prevent or delay Consumers’ self-implementation, it could have a materially negative impact on Consumers’ earnings and cash flows. Consumers cannot predict the financial impact or outcome of this gas rate case.
Lost and Unaccounted for Gas: Gas utilities typically lose some gas as it is injected into and withdrawn from storage and sent through transmission and distribution systems. Consumers recovers the cost of lost and unaccounted for gas through general rate cases, which have provided for recovery based on an average of the previous five years of actual losses. To the extent that Consumers’ annual lost and unaccounted for gas cost exceeds the previous five-year average, Consumers may be unable to recover these amounts in rates.
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7: FINANCINGS AND CAPITALIZATION
Long-term debt is summarized as follows:
 	 	 	 	 	 	 	 	 	
In Millions	 	
 	 	September 30, 2009	 	 	December 31, 2008	 	
CMS Energy	 	 	 	 	 	 	 	 	
Senior notes	 	$	1,856	 	 	$	1,703	 	
Revolving credit facility	 	 	65	 	 	 	105	 	
 	 	 	 	 	 	 	
Total — CMS Energy	 	$	1,921	 	 	$	1,808	 	
Consumers	 	 	4,420	 	 	 	4,297	 	
Other CMS Energy Subsidiaries	 	 	233	 	 	 	252	 	
 	 	 	 	 	 	 	
Total CMS Energy principal amounts outstanding	 	$	6,574	 	 	$	6,357	 	
Current amounts	 	 	(640	)	 	 	(489	)	
Net unamortized discount	 	 	(45	)	 	 	(31	)	

Total CMS Energy Long-term debt	 	$	5,889	 	 	$	5,837	 	
 	 	 	
Consumers	 	 	 	 	 	 	 	 	
First mortgage bonds	 	$	3,664	 	 	$	3,517	 	
Senior notes and other	 	 	503	 	 	 	503	 	
Securitization bonds	 	 	253	 	 	 	277	 	
 	 	 	 	 	 	 	
Total Consumers principal amounts outstanding	 	$	4,420	 	 	$	4,297	 	
Current amounts	 	 	(343	)	 	 	(383	)	
Net unamortized discount	 	 	(5	)	 	 	(6	)	

Total Consumers Long-term debt	 	$	4,072	 	 	$	3,908	 	
 	 	 	
Financings: The following is a summary of significant long-term debt transactions during the nine months ended September 30, 2009:
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Principal	 	 	Interest	 	 	Issue/Retirement	 	 	 	 	
 	 	(in millions)	 	 	Rate (%)	 	 	Date	 	 	Maturity Date	 	
Debt Issuances:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
CMS Energy	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Convertible senior notes	 	$	173	 	 	 	5.50	%	 	June 2009	 	June 2029	
Senior notes	 	 	300	 	 	 	8.75	%	 	June 2009	 	June 2019	
Consumers	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
First mortgage bonds	 	 	500	 	 	 	6.70	%	 	March 2009	 	September 2019	
 	 	 	
Debt Retirements:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
CMS Energy	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Long-term debt — related parties (a)	 	$	144	 	 	 	7.75	%	 	June 2009	 	July 2027	
Senior notes (b)	 	 	233	 	 	 	7.75	%	 	July 2009	 	August 2010	
Senior notes (b)	 	 	87	 	 	 	8.50	%	 	July 2009	 	April 2011	
Consumers	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
First mortgage bonds	 	 	200	 	 	 	4.80	%	 	February 2009	 	February 2009	
First mortgage bonds	 	 	150	 	 	 	4.40	%	 	August 2009	 	August 2009	

(a)     CMS Energy retired this debt at a discount, and recorded a gain on extinguishment of debt of $28 million in Other income in its Consolidated Statements of Income.
(b)     CMS Energy retired this debt at a premium, and recorded a loss on extinguishment of debt of $17 million in Other expense in its Consolidated Statements of Income.
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Revolving Credit Facilities: The following secured revolving credit facilities with banks were available at September 30, 2009:
In Millions

 	 	 	 	 	 	 	 	 	 	 	 	Letters of Credit	 	 		
Company	 	Expiration Date	 	Amount of Facility	 	Amount Borrowed	 	Outstanding	 	Amount Available		
CMS Energy (a)	 	April 2, 2012	 	$	550	 	 	$	65	 	 	$	3	 	 	$	482	 		
Consumers	 	March 30, 2012	 	 	500	 	 	 	—	 	 	 	335	 	 	 	165	 		
Consumers (b)	 	November 30, 2009	 	 	30	 	 	 	—	 	 	 	30	 	 	—		
Consumers	 	August 17, 2010	 	 	150	 	 	 	—	 	 	 	—	 	 	 	150	 		

			
(a)	 	CMS Energy’s average borrowings during the nine months ended September 30, 2009, totaled $70 million, with a weighted average annual interest rate of 1.23 percent, at LIBOR plus 0.75 percent.	
 		
(b)	 	Consumers’ secured revolving letter of credit facility. During September 2009, the facility was renewed effective November 30, 2009 in the amount of $30 million, with an expiration date of November 30, 2010.	
Sale of Accounts Receivable: Under Consumers’ revolving accounts receivable sales program, Consumers may sell up to $250 million of accounts receivable, subject to certain eligibility requirements. At September 30, 2009, $250 million of accounts receivable were eligible for sale, and no accounts receivable were sold under the program.
Contingently Convertible Securities: At September 30, 2009, the significant terms of CMS Energy’s contingently convertible securities were as follows:
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	Outstanding	 	 	Adjusted Conversion	 	 	Adjusted Trigger	 	
Security	 	Maturity	 	 	(In Millions)	 	 	Price	 	 	Price	 	
4.50% preferred stock (a) (b)	 	 	—	 	 	$	243	 	 	$	9.32	 	 	$	11.18	 	
3.375% senior notes (a) (c)	 	 	2023	 	 	 	140	 	 	 	10.05	 	 	 	12.06	 	
2.875% senior notes	 	 	2024	 	 	 	288	 	 	 	13.89	 	 	 	16.67	 	
5.50% senior notes	 	 	2029	 	 	 	173	 	 	 	14.46	 	 	 	18.80	 	

			
(a)	 	During 20 of the last 30 trading days ended September 30, 2009, the adjusted trigger prices were met for these securities and, as a result, the securities are convertible at the option of the security holders for the three months ending December 31, 2009.	
 		
(b)	 	At September 30, 2009, the condition had been met for CMS Energy to exercise its mandatory conversion option for these securities. The required condition is that the price of CMS Energy common stock exceed $12.11 (130 percent of the prevailing conversion price) for 20 of the previous 30 trading days, including the most recent trading day, prior to exercise.	
 		
(c)	 	CMS Energy has the option to redeem these securities at par.	
During the quarter ended September 30, 2009, no other trigger price contingencies were met that would have allowed CMS Energy or the holders of the convertible securities to convert the securities to cash and equity.
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In September 2009, 84,000 shares of 4.50 percent preferred stock were tendered for conversion. The conversion at $13.37 per share resulted in the issuance of 136,712 shares of common stock and payment of $4 million in October 2009.
Dividend Restrictions: Under provisions of CMS Energy’s senior notes indenture, at September 30, 2009, payment of common stock dividends by CMS Energy was limited to $723 million.
Under the provisions of its articles of incorporation, at September 30, 2009, Consumers had $366 million of unrestricted retained earnings available to pay common stock dividends 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 the FERC suggest that under a variety of circumstances common stock dividends from Consumers would not be limited to amounts in Consumers’ retained earnings. Any decision by Consumers to pay common stock dividends in excess of retained earnings would be based on specific facts and circumstances and would result only after a formal regulatory filing process.
For the nine months ended September 30, 2009, CMS Energy received $233 million of common stock dividends from Consumers.
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8: EARNINGS PER SHARE — CMS ENERGY
The following table presents CMS Energy’s basic and diluted EPS computations based on Earnings from Continuing Operations:
 	 	 	 	 	 	 	 	 	
 	 	In Millions, Except Per Share Amounts	 	
 	 	Three months ended	 	
September 30	 	2009	 	 	2008	 	
Earnings Available to Common Stockholders	 	 	 	 	 	 	 	 	
Earnings from Continuing Operations	 	$	75	 	 	$	81	 	
Less Earnings Attributable to Noncontrolling Interests	 	 	(6	)	 	 	(2	)	
Less Preferred Dividends	 	 	(2	)	 	 	(2	)	
 	 	 	 	 	 	 	
Earnings from Continuing Operations Available to Common Stockholders — Basic and Diluted	 	$	67	 	 	$	77	 	
 	 	 	 	 	 	 	
Average Common Shares Outstanding	 	 	 	 	 	 	 	 	
Weighted Average Shares — Basic	 	 	227.3	 	 	 	225.8	 	
Add dilutive impact of Contingently Convertible Securities	 	 	11.1	 	 	 	10.4	 	
Add dilutive Stock Options and Warrants	 	 	0.1	 	 	 	0.1	 	
 	 	 	 	 	 	 	
Weighted Average Shares — Diluted	 	 	238.5	 	 	 	236.3	 	
 	 	 	 	 	 	 	
Earnings Per Average Common Share Available to Common Stockholders	 	 	 	 	 	 	 	 	
Basic	 	$	0.29	 	 	$	0.34	 	
Diluted	 	$	0.28	 	 	$	0.32	 	

 	 	In Millions, Except Per Share Amounts	 	
 	 	Nine months ended	 	
September 30	 	2009	 	 	2008	 	
Earnings Available to Common Stockholders	 	 	 	 	 	 	 	 	
Earnings from Continuing Operations	 	$	200	 	 	$	238	 	
Less Earnings Attributable to Noncontrolling Interests	 	 	(9	)	 	 	(6	)	
Less Preferred Dividends	 	 	(8	)	 	 	(8	)	
 	 	 	 	 	 	 	
Earnings from Continuing Operations Available to Common Stockholders — Basic and Diluted	 	$	183	 	 	$	224	 	
 	 	 	 	 	 	 	
Average Common Shares Outstanding	 	 	 	 	 	 	 	 	
Weighted Average Shares — Basic	 	 	227.0	 	 	 	225.5	 	
Add dilutive impact of Contingently Convertible Securities	 	 	8.6	 	 	 	12.5	 	
Add dilutive Stock Options and Warrants	 	 	0.1	 	 	 	0.2	 	
 	 	 	 	 	 	 	
Weighted Average Shares — Diluted	 	 	235.7	 	 	 	238.2	 	
 	 	 	 	 	 	 	
Earnings Per Average Common Share Available to Common Stockholders	 	 	 	 	 	 	 	 	
Basic	 	$	0.80	 	 	$	0.99	 	
Diluted	 	$	0.77	 	 	$	0.94	 	
 	 	 	 	 	 	 	
Contingently Convertible Securities: When CMS Energy has earnings from continuing operations, its contingently convertible securities dilute EPS to the extent that the conversion value of a security, which is based on the average market price of CMS Energy’s common stock, exceeds the principal value of that security. For additional details on contingently convertible securities, see Note 7, Financings and Capitalization.
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Stock Options and Warrants: For the three and nine months ended September 30, 2009, outstanding options and warrants to purchase 0.5 million shares of CMS Energy common stock had no impact on diluted EPS, since the exercise price was greater than the average market price of common stock. These stock options have the potential to dilute EPS in the future.
Convertible Debentures: For the three and nine months ended September 30, 2009 and 2008, there was no impact on diluted EPS from CMS Energy’s 7.75 percent convertible subordinated debentures. Using the if-converted method, the debentures would have:

 	•	 	increased the numerator of diluted EPS by less then $1 million for the three months ended September 30, 2009, by $2 million for the three months ended September 30, 2008, by $4 million for the nine months ended September 30, 2009, and by $7 million for the nine months ended September 30, 2008, from an assumed reduction of interest expense, net of tax; and	
 		
 	•	 	increased the denominator of diluted EPS by 0.7 million shares for the three months ended September 30, 2009 and by 2.8 million shares for the nine months ended September 30, 2009. The denominator of diluted EPS would have increased by 4.2 million shares for the three months and nine months ended September 30, 2008.	
CMS Energy can revoke the conversion rights if certain conditions are met.
9: FINANCIAL INSTRUMENTS
     The carrying amounts of CMS Energy’s and Consumers’ cash, current accounts and notes receivable, short-term investments, and current liabilities approximate their fair values because of their short-term nature. The cost or carrying amount and fair value of CMS Energy’s and Consumers’ long-term financial instruments were as follows:
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	In Millions	 	
 	 	September 30, 2009	 	 	December 31, 2008	 	
 	 	Cost or Carrying	 	 	 	 	 	 	Cost or Carrying	 	 	 	 	
 	 	Amount	 	 	Fair Value	 	 	Amount	 	 	Fair Value	 	
CMS Energy, including Consumers	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Securities held to maturity	 	$	3	 	 	$	3	 	 	$	3	 	 	$	3	 	
Securities available for sale	 	 	66	 	 	 	74	 	 	 	68	 	 	 	68	 	
Notes receivable, net	 	 	227	 	 	 	239	 	 	 	186	 	 	 	201	 	
Long-term debt (a)	 	 	6,529	 	 	 	7,004	 	 	 	6,326	 	 	 	5,962	 	
Long-term debt — related parties	 	 	34	 	 	 	30	 	 	 	178	 	 	 	107	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Consumers	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Securities available for sale	 	$	51	 	 	$	74	 	 	$	52	 	 	$	63	 	
Long-term debt (b)	 	 	4,415	 	 	 	4,724	 	 	 	4,291	 	 	 	4,073	 	

			
(a)	 	Includes current maturities of $640 million at September 30, 2009 and $489 million at December 31, 2008.	
 		
(b)	 	Includes current maturities of $343 million at September 30, 2009 and $383 million at December 31, 2008.	
Notes receivable, net consist of EnerBank’s fixed-rate installment loans. EnerBank estimates the fair value of these loans using a discounted cash flows technique that incorporates current market interest rates as well as assumptions about the remaining life of the loans and credit risk. Fair values for impaired loans are estimated using discounted cash flows or underlying collateral values.
CMS Energy and Consumers estimate the fair value of their long-term debt using quoted prices from
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market trades of the debt, if available. In the absence of quoted prices, CMS Energy and Consumers calculate market yields and prices for the debt using a matrix method that incorporates market data for similarly rated debt. Depending on the information available, other valuation techniques may be used that rely on internal assumptions and models. For its convertible securities, CMS Energy incorporates, as appropriate, information on the market prices of CMS Energy common stock. CMS Energy’s long-term debt includes $287 million principal amount that is supported by third-party insurance or other credit enhancements. Of this amount, $272 million principal amount is at Consumers. The effects of this third-party credit support were excluded from the measurement of fair value at September 30, 2009.
The following table summarizes CMS Energy’s and Consumers’ investment securities:
In Millions

 	 	September 30, 2009	 	 	December 31, 2008	 	
 	 	 	 	 	 	Unrealized	 	 	Unrealized	 	 	 	 	 	 	 	 	 	 	Unrealized	 	 	Unrealized	 	 	 	 	
 	 	Cost	 	 	Gains	 	 	Losses	 	 	Fair Value	 	 	Cost	 	 	Gains	 	 	Losses	 	 	Fair Value	 	
CMS Energy, including Consumers	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Available for sale:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
SERP:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Equity securities	 	$	40	 	 	$	7	 	 	$	—	 	 	$	47	 	 	$	39	 	 	$	—	 	 	$	—	 	 	$	39	 	
Debt securities	 	 	26	 	 	 	1	 	 	 	—	 	 	 	27	 	 	 	29	 	 	 	—	 	 	 	—	 	 	 	29	 	
Held to maturity:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Debt securities	 	 	3	 	 	 	—	 	 	 	—	 	 	 	3	 	 	 	3	 	 	 	—	 	 	 	—	 	 	 	3	 	
 	 	 	
Consumers	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Available for sale:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
SERP:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Equity securities	 	$	26	 	 	$	5	 	 	$	—	 	 	$	31	 	 	$	25	 	 	$	—	 	 	$	—	 	 	$	25	 	
Debt securities	 	 	17	 	 	 	1	 	 	 	—	 	 	 	18	 	 	 	19	 	 	 	—	 	 	 	—	 	 	 	19	 	
Common stock of CMS Energy	 	 	8	 	 	 	17	 	 	 	—	 	 	 	25	 	 	 	8	 	 	 	11	 	 	 	—	 	 	 	19	 	
 	 	 	
Equity securities classified as available for sale consist of an investment in a Standard & Poor’s 500 Index mutual fund. Debt securities classified as available for sale consist of investment-grade municipal bonds. Debt securities classified as held to maturity consist of municipal bonds and mortgage-backed securities held by EnerBank.
10: DERIVATIVE INSTRUMENTS
In order to limit exposure to certain market risks, primarily changes in commodity prices, interest rates, and foreign exchange rates, CMS Energy and Consumers may enter into various risk management contracts, such as forward contracts, futures, and swaps. In entering into these contracts, they follow established policies and procedures, under the direction of an executive oversight committee consisting of senior management representatives and a risk committee consisting of business unit managers. Neither CMS Energy nor Consumers holds any of its derivatives for trading purposes.
The contracts used to manage market risks may qualify as derivative instruments. If a contract is a derivative and does not qualify for the normal purchases and sales exception, the contract is recorded on the balance sheet at its fair value. Each quarter, the resulting asset or liability is adjusted to reflect any change in the fair value of the contract, a practice known as marking the contract to market. Since none of CMS Energy’s or Consumers’ derivatives have been designated as accounting hedges, all mark-to-market gains and losses are reported in earnings. For a discussion of how CMS Energy and Consumers determine the fair value of their derivatives, see Note 4, Fair Value Measurements.
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Commodity Price Risk : In order to support ongoing operations, CMS Energy and Consumers enter into contracts for the future purchase and sale of various commodities, such as electricity, natural gas, and coal. These forward contracts are generally long-term in nature and result in physical delivery of the commodity at a contracted price. Most of these contracts are not subject to derivative accounting because:

 	•	 	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; or	
 		
 	•	 	there is not an active market for the commodity.	
CMS Energy’s and Consumers’ coal purchase contracts are not derivatives because there is not an active market for the coal they purchase. If an active market for coal develops in the future, some of these contracts may qualify as derivatives. For Consumers, which is subject to regulatory accounting, the resulting mark-to-market gains and losses would be offset by changes in regulatory assets and liabilities and would not affect net income. For other subsidiaries, CMS Energy does not believe the resulting mark-to-market impact on earnings would be material.
CMS ERM has not designated its contracts to purchase and sell electricity and natural gas as normal purchases and sales and, therefore, CMS Energy accounts for those contracts as derivatives. At September 30, 2009, CMS ERM held a forward contract for the physical sale of 855 GWh of electricity through 2015 on behalf of one of CMS Energy’s non-utility generating plants. CMS ERM also held futures contracts through 2011 as an economic hedge of 47 percent of the generating plant’s natural gas requirements needed to serve a steam sales contract, for a total of 0.92 bcf of natural gas. In its role as a marketer of natural gas for third-party producers, CMS ERM held forward contracts to purchase 7.8 bcf and sell 6.9 bcf of natural gas through 2010 and a financial contract to sell 0.75 bcf of natural gas as an economic hedge of gas storage sales in 2010. At September 30, 2009, CMS ERM held financial contracts through 2010 as an economic hedge of the sale of 260 GWh of electricity and 1.67 bcf of gas.
Interest rate risk : In order to mitigate its exposure to changes in interest rates, Grayling executed an interest rate collar as an economic hedge of the variable interest rate charged on its outstanding revenue bonds. At September 30, 2009, the notional amount of this contract was $15 million.
At September 30, 2009, the fair value of Consumers’ derivative instruments was immaterial. The following table summarizes the fair values of CMS Energy’s derivative instruments:
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
  	 	 	 	 	 	 	 	In Millions	 	
September 30, 2009	 	Asset Derivatives	 	 	Liability Derivatives	 	
 	 	Balance Sheet	 	 	 	 	 	 	Balance Sheet	 	 	 	 	
 	 	Location	 	 	Fair Value	 	 	Location	 	 	Fair Value	 	
 	
CMS Energy	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Derivatives not designated as hedging instruments:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Commodity contracts (a)	 	Other assets	 	$	1	 	 	Other liabilities	 	$	(11	)	
Interest rate contracts	 	Other assets	 	 	—	 	 	Other liabilities	 	 	(1	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total CMS Energy Derivatives	 	 	 	 	 	$	1	 	 	 	 	 	 	$	(12	)	

			
(a)	 	Assets and liabilities are presented gross and exclude the $1 million impact of offsetting derivative assets and liabilities under master netting arrangements. The liability also excludes the $2 million impact of offsetting cash margin deposits paid by CMS ERM to other parties. CMS Energy presents these assets and liabilities net of these impacts on its Consolidated Balance Sheets.	
 71 

 

The following tables summarize the effect of CMS Energy’s and Consumers’ derivative instruments on their Consolidated Statements of Income:
 	 	 	 	 	 	 	
 	 	 	 	In Millions	 	
 	 	Location of Gain (Loss)	 	Amount of Gain (Loss)	 	
 	 	Recognized in Income on	 	Recognized in Income on	 	
Three months ended September 30, 2009	 	Derivatives	 	Derivatives	 	
CMS Energy, including Consumers	 	 	 	 	 	 	
Derivatives not designated as hedging instruments:	 	 	 	 	 	 	
Commodity contracts	 	Operating Revenue	 	$	2	 	
 	 	Fuel for electric generation	 	 	(1	)	
 	 	Cost of gas sold	 	 	—	 	
 	 	Other income	 	 	4	 	
Interest rate contracts	 	Other expense	 	 	—	 	
 	 	 	 	 	 	
Total CMS Energy	 	 	 	$	5	 	
 	 	 	 	 	
Consumers	 	 	 	 	 	 	
Derivatives not designated as hedging instruments:	 	 	 	 	 	 	
Commodity contracts	 	Other income	 	$	4	 	

 	 	In Millions	 	
 	 	Location of Gain (Loss)	 	Amount of Gain (Loss)	 	
 	 	Recognized in Income on	 	Recognized in Income on	 	
Nine months ended September 30, 2009	 	Derivatives	 	Derivatives	 	
CMS Energy, including Consumers	 	 	 	 	 	 	
Derivatives not designated as hedging instruments:	 	 	 	 	 	 	
Commodity contracts	 	Operating Revenue	 	$	7	 	
 	 	Fuel for electric generation	 	 	(3	)	
 	 	Cost of gas sold	 	 	(3	)	
 	 	Other income	 	 	5	 	
Interest rate contracts	 	Other expense	 	 	—	 	
Foreign exchange contracts (a)	 	Other expense	 	 	(1	)	
 	 	 	 	 	 	
Total CMS Energy	 	 	 	$	5	 	
 	 	 	 	 	
Consumers	 	 	 	 	 	 	
Derivatives not designated as hedging instruments:	 	 	 	 	 	 	
Commodity contracts	 	Other income	 	$	5	 	

			
(a)	 	This derivative loss relates to a foreign-exchange forward contract CMS Energy held at December 31, 2008. CMS Energy settled this obligation and the related derivative in January 2009.	
At September 30, 2009, CMS Energy’s derivative liabilities subject to credit-risk-related contingent features were immaterial.
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11: RETIREMENT BENEFITS
CMS Energy and Consumers provide pension, OPEB, and other retirement benefit plans to employees.
The following tables show the costs and other changes in plan assets and benefit obligations incurred in CMS Energy’s and Consumers’ retirement benefits plans:
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	In Millions	
 	 	Pension	
 	 	Three months ended	 	Nine months ended	
September 30	 	2009	 	2008	 	2009	 	2008	
 	
CMS Energy, including Consumers	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Service cost	 	$	10	 	 	$	11	 	 	$	30	 	 	$	32	 	
Interest expense	 	 	24	 	 	 	23	 	 	 	72	 	 	 	71	 	
Expected return on plan assets	 	 	(22	)	 	 	(20	)	 	 	(65	)	 	 	(61	)	
Amortization of:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net loss	 	 	10	 	 	 	10	 	 	 	31	 	 	 	31	 	
Prior service cost	 	 	2	 	 	 	1	 	 	 	5	 	 	 	4	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net periodic cost	 	 	24	 	 	 	25	 	 	 	73	 	 	 	77	 	
Regulatory adjustment	 	 	—	 	 	 	—	 	 	 	—	 	 	 	4	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net periodic cost after regulatory adjustment	 	$	24	 	 	$	25	 	 	$	73	 	 	$	81	 	
 	 	 	
Consumers	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Service cost	 	$	9	 	 	$	10	 	 	$	29	 	 	$	30	 	
Interest expense	 	 	24	 	 	 	23	 	 	 	70	 	 	 	69	 	
Expected return on plan assets	 	 	(20	)	 	 	(20	)	 	 	(62	)	 	 	(59	)	
Amortization of:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net loss	 	 	9	 	 	 	10	 	 	 	29	 	 	 	30	 	
Prior service cost	 	 	2	 	 	 	2	 	 	 	5	 	 	 	5	 	
 	 	 	
Net periodic cost	 	$	24	 	 	$	25	 	 	$	71	 	 	$	75	 	
Regulatory adjustment	 	 	—	 	 	 	—	 	 	 	—	 	 	 	4	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net periodic cost after regulatory adjustment	 	$	24	 	 	$	25	 	 	$	71	 	 	$	79	 	
 	 	 	
CMS Energy’s and Consumers’ expected long-term rate of return on plan assets is 8.25 percent. For the nine months ended September 30, 2009, the actual return on pension plan assets was 17.4 percent, and for 2008 the actual return was a negative 23.2 percent. The expected rate of return is an assumption about long-term asset performance that CMS Energy and Consumers review annually for reasonableness and appropriateness.
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 	 	 	 	 	 	 	 	 	 	 	 	In Millions	
 	 	OPEB	
  	 	Three months ended	 	Nine months ended	
September 30	 	2009	 	2008	 	2009	 	2008	
 	
CMS Energy, including Consumers	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Service cost	 	$	6	 	 	$	6	 	 	$	19	 	 	$	17	 	
Interest expense	 	 	20	 	 	 	18	 	 	 	60	 	 	 	54	 	
Expected return on plan assets	 	 	(12	)	 	 	(17	)	 	 	(38	)	 	 	(50	)	
Amortization of:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net loss	 	 	8	 	 	 	3	 	 	 	25	 	 	 	7	 	
Prior service credit	 	 	(3	)	 	 	(3	)	 	 	(8	)	 	 	(8	)	
 	 	 	
Net periodic cost	 	$	19	 	 	$	7	 	 	$	58	 	 	 	20	 	
Regulatory adjustment	 	 	—	 	 	 	—	 	 	 	—	 	 	 	3	 	
 	 	 	
Net periodic cost after regulatory adjustment	 	$	19	 	 	$	7	 	 	$	58	 	 	$	23	 	
 	 	 	
Consumers	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Service cost	 	$	6	 	 	$	6	 	 	$	18	 	 	$	17	 	
Interest expense	 	 	20	 	 	 	18	 	 	 	59	 	 	 	54	 	
Expected return on plan assets	 	 	(11	)	 	 	(16	)	 	 	(35	)	 	 	(49	)	
Amortization of:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net loss	 	 	8	 	 	 	3	 	 	 	25	 	 	 	8	 	
Prior service credit	 	 	(3	)	 	 	(3	)	 	 	(8	)	 	 	(8	)	
 	 	 	
Net periodic cost	 	 	20	 	 	 	8	 	 	 	59	 	 	 	22	 	
Regulatory adjustment	 	 	—	 	 	 	—	 	 	 	—	 	 	 	3	 	
 	 	 	
Net periodic cost after regulatory adjustment	 	$	20	 	 	$	8	 	 	$	59	 	 	$	25	 	
 	 	 	
12: INCOME TAXES
The actual income tax expense on continuing operations differs from the amount computed by applying the statutory federal tax rate of 35 percent to income before income taxes, as follows:
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	In Millions	
 	 	Three months ended	 	Nine months ended	
September 30	 	2009	 	2008	 	2009	 	2008	
 	
CMS Energy, including Consumers	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Income from continuing operations before income taxes less income attributable to noncontrolling interests	 	$	116	 	 	$	115	 	 	$	317	 	 	$	355	 	
Statutory federal income tax rate	 	x	35	%	 	x	35	%	 	x	35	%	 	x	35	%	
 	 	 	
Expected income tax expense	 	 	41	 	 	 	40	 	 	 	111	 	 	 	124	 	
Increase (decrease) in taxes from:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
State and local income taxes, net of federal benefit	 	 	7	 	 	 	3	 	 	 	19	 	 	 	7	 	
Medicare Part D exempt income	 	 	(2	)	 	 	(4	)	 	 	(5	)	 	 	(7	)	
Other, net	 	 	1	 	 	 	(3	)	 	 	1	 	 	 	(1	)	
 	 	 	
Recorded income tax expense	 	$	47	 	 	$	36	 	 	$	126	 	 	$	123	 	
 	 	 	
Effective tax rate	 	 	40.5	%	 	 	31.3	%	 	 	39.7	%	 	 	34.6	%	
 	 	 	
The increase in the effective tax rate from September 30, 2008 to September 30, 2009 was due to increases in the MBT from legislative changes, as well as the recognition, beginning in the second quarter of 2009, of deferred MBT for the electric utility segment of Consumers. The period ended September 30, 2008 also benefitted from the reversal of a valuation allowance related to certain loss carryforwards.
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13: REPORTABLE SEGMENTS
Reportable segments consist of business units defined by the products and services they offer. CMS Energy and Consumers evaluate performance based on the net income of each segment. The reportable segments for CMS Energy and Consumers are:
CMS Energy:

 	•	 	electric utility, consisting of regulated activities associated with the generation and distribution of electricity in Michigan;	
 		
 	•	 	gas utility, consisting of regulated activities associated with the transportation, storage, and distribution of natural gas in Michigan;	
 		
 	•	 	enterprises, consisting of various subsidiaries engaging primarily in domestic independent power production; and	
 		
 	•	 	other, including corporate interest and other expenses and discontinued operations.	
Consumers:

 	•	 	electric utility, consisting of regulated activities associated with the generation and distribution of electricity in Michigan;	
 		
 	•	 	gas utility, consisting of regulated activities associated with the transportation, storage, and distribution of natural gas in Michigan; and	
 		
 	•	 	other, including a consolidated special-purpose entity for the sale of accounts receivable.	
 75 

 

The following tables show financial information by reportable segment:
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	In Millions	
 	 	Three months ended	 	Nine months ended	
September 30	 	2009	 	2008	 	2009	 	2008	
 	
Operating Revenue	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
CMS Energy, including Consumers	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Electric utility	 	$	991	 	 	$	1,074	 	 	$	2,651	 	 	$	2,775	 	
Gas utility	 	 	213	 	 	 	233	 	 	 	1,769	 	 	 	1,886	 	
Enterprises	 	 	54	 	 	 	115	 	 	 	158	 	 	 	300	 	
Other	 	 	7	 	 	 	6	 	 	 	19	 	 	 	16	 	
 	 	 	
Total Operating Revenue — CMS Energy	 	$	1,265	 	 	$	1,428	 	 	$	4,597	 	 	$	4,977	 	
 	 	 	
Consumers	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Electric utility	 	$	991	 	 	$	1,074	 	 	$	2,651	 	 	$	2,775	 	
Gas utility	 	 	213	 	 	 	233	 	 	 	1,769	 	 	 	1,886	 	
 	 	 	
Total Operating Revenue — Consumers	 	$	1,204	 	 	$	1,307	 	 	$	4,420	 	 	$	4,661	 	
 	 	 	
Net Income Available to Common Stockholders	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
CMS Energy, including Consumers	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Electric utility	 	$	111	 	 	$	108	 	 	$	217	 	 	$	232	 	
Gas utility	 	 	(12	)	 	 	(18	)	 	 	52	 	 	 	46	 	
Enterprises	 	 	5	 	 	 	5	 	 	 	(12	)	 	 	13	 	
Other	 	 	(37	)	 	 	(17	)	 	 	(45	)	 	 	(67	)	
 	 	 	
Total Net Income Available to Common Stockholders — CMS Energy	 	$	67	 	 	$	78	 	 	$	212	 	 	$	224	 	
 	 	 	
Consumers	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Electric utility	 	$	111	 	 	$	108	 	 	$	217	 	 	$	232	 	
Gas utility	 	 	(12	)	 	 	(18	)	 	 	52	 	 	 	46	 	
Other	 	 	1	 	 	 	—	 	 	 	1	 	 	 	1	 	
 	 	 	
Total Net Income Available to Common Stockholder — Consumers	 	$	100	 	 	$	90	 	 	$	270	 	 	$	279	 	
 	 	 	
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 	 	In Millions	
 	 	September 30, 2009	 	December 31, 2008	
 	
Assets	 	 	 	 	 	 	 	 	
CMS Energy, including Consumers	 	 	 	 	 	 	 	 	
Electric utility (a)	 	$	9,000	 	 	$	8,904	 	
Gas utility (a)	 	 	4,704	 	 	 	4,565	 	
Enterprises	 	 	301	 	 	 	313	 	
Other	 	 	883	 	 	 	1,119	 	
 	 	 	
Total Assets — CMS Energy	 	$	14,888	 	 	$	14,901	 	
 	 	 	
Consumers	 	 	 	 	 	 	 	 	
Electric utility (a)	 	$	9,000	 	 	$	8,904	 	
Gas utility (a)	 	 	4,704	 	 	 	4,565	 	
Other	 	 	563	 	 	 	777	 	
 	 	 	
Total Assets — Consumers	 	$	14,267	 	 	$	14,246	 	

			
(a)	 	Amounts include a portion of Consumers’ other common assets attributable to both the electric and the gas utility businesses.	
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Exhibit 99.2
CMS Energy Corporation
Consolidated Statements of Income
(Unaudited)
(As Revised, See Note 1)
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	In Millions	 	
 	 	Three Months Ended	 	 	Six Months Ended	 	
June 30	 	2009	 	 	2008	 	 	2009	 	 	2008	 	
 	
Operating Revenue	 	$	1,226	 	 	$	1,365	 	 	$	3,332	 	 	$	3,549	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Loss from Equity Method Investees	 	 	—	 	 	 	(1	)	 	 	(1	)	 	 	(2	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Operating Expenses	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Fuel for electric generation	 	 	118	 	 	 	135	 	 	 	253	 	 	 	297	 	
Purchased and interchange power	 	 	282	 	 	 	297	 	 	 	571	 	 	 	620	 	
Cost of gas sold	 	 	208	 	 	 	351	 	 	 	1,171	 	 	 	1,335	 	
Other operating expenses	 	 	250	 	 	 	209	 	 	 	475	 	 	 	397	 	
Maintenance	 	 	63	 	 	 	49	 	 	 	111	 	 	 	89	 	
Depreciation and amortization	 	 	121	 	 	 	128	 	 	 	294	 	 	 	301	 	
General taxes	 	 	48	 	 	 	48	 	 	 	113	 	 	 	108	 	
Gain on asset sales, net	 	 	(8	)	 	 	(8	)	 	 	(8	)	 	 	(8	)	
 	 	 	
 	 	 	1,082	 	 	 	1,209	 	 	 	2,980	 	 	 	3,139	 	

Operating Income	 	 	144	 	 	 	155	 	 	 	351	 	 	 	408	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Other Income (Deductions)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Interest and dividends	 	 	6	 	 	 	9	 	 	 	11	 	 	 	18	 	
Regulatory return on capital expenditures	 	 	6	 	 	 	8	 	 	 	13	 	 	 	16	 	
Other income	 	 	33	 	 	 	3	 	 	 	38	 	 	 	6	 	
Other expense	 	 	(3	)	 	 	(5	)	 	 	(5	)	 	 	(6	)	
 	 	 	
 	 	 	42	 	 	 	15	 	 	 	57	 	 	 	34	 	

Interest Charges	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Interest on long-term debt	 	 	95	 	 	 	87	 	 	 	184	 	 	 	176	 	
Interest on long-term debt — related parties	 	 	3	 	 	 	4	 	 	 	6	 	 	 	7	 	
Other interest	 	 	8	 	 	 	7	 	 	 	16	 	 	 	18	 	
Capitalized interest	 	 	(1	)	 	 	(1	)	 	 	(2	)	 	 	(3	)	
 	 	 	
 	 	 	105	 	 	 	97	 	 	 	204	 	 	 	198	 	

Income Before Income Taxes	 	 	81	 	 	 	73	 	 	 	204	 	 	 	244	 	
Income Tax Expense	 	 	30	 	 	 	24	 	 	 	79	 	 	 	87	 	

Income from Continuing Operations	 	 	51	 	 	 	49	 	 	 	125	 	 	 	157	 	
Income (Loss) From Discontinued Operations, Net of Tax (Tax Benefit) of $19, $(1), $19 and $(1)	 	 	29	 	 	 	(1	)	 	 	29	 	 	 	(1	)	

Net Income	 	 	80	 	 	 	48	 	 	 	154	 	 	 	156	 	
Income Attributable to Noncontrolling Interests	 	 	2	 	 	 	1	 	 	 	3	 	 	 	4	 	

Net Income Attributable to CMS Energy	 	 	78	 	 	 	47	 	 	 	151	 	 	 	152	 	
Preferred Stock Dividends	 	 	3	 	 	 	3	 	 	 	6	 	 	 	6	 	

Net Income Available to Common Stockholders	 	$	75	 	 	$	44	 	 	$	145	 	 	$	146	 	

			
The accompanying notes are an integral part of these statements.	
 1 

 

 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	In Millions, Except Per Share Amounts	
 	 	Three Months Ended	 	 	Six Months Ended	 	
June 30	 	2009	 	 	2008	 	 	2009	 	 	2008	 	
 	
CMS Energy	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net Income Available to Common Stockholders	 	$	75	 	 	$	44	 	 	$	145	 	 	$	146	 	

Basic Earnings Per Average Common Share	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Income from Continuing Operations	 	$	0.20	 	 	$	0.21	 	 	$	0.51	 	 	$	0.65	 	
Income (Loss) from Discontinued Operations	 	 	0.13	 	 	 	(0.01	)	 	 	0.13	 	 	 	(0.01	)	
 	 	 	
Net Income Attributable to Common Stock	 	$	0.33	 	 	$	0.20	 	 	$	0.64	 	 	$	0.64	 	

Diluted Earnings Per Average Common Share	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Income from Continuing Operations	 	$	0.19	 	 	$	0.19	 	 	$	0.49	 	 	$	0.61	 	
Income (Loss) from Discontinued Operations	 	 	0.13	 	 	 	(0.01	)	 	 	0.13	 	 	 	(0.01	)	
 	 	 	
Net Income Attributable to Common Stock	 	$	0.32	 	 	$	0.18	 	 	$	0.62	 	 	$	0.60	 	

Dividends Declared Per Common Share	 	$	0.125	 	 	$	0.09	 	 	$	0.25	 	 	$	0.18	 	
 	 	 	
 2 

 

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 3 

 

CMS Energy Corporation
Consolidated Statements of Cash Flows
(Unaudited)
(As Revised, See Note 1)
 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	In Millions	 	
Six Months Ended June 30	 	2009	 	 	2008	 	
  | |	
Cash Flows from Operating Activities	 	 	 	 	 	 	 	 	
Net income	 	$	154	 	 	$	156	 	
Adjustments to reconcile net income attributable to CMS Energy to net cash provided by operating activities	 	 	 	 	 	 	 	 	
Depreciation and amortization	 	 	294	 	 	 	301	 	
Deferred income taxes and investment tax credit	 	 	94	 	 	 	81	 	
Regulatory return on capital expenditures	 	 	(13	)	 	 	(16	)	
Postretirement benefits expense	 	 	91	 	 	 	76	 	
Capital lease and other amortization	 	 	19	 	 	 	23	 	
Gain on indemnification	 	 	(50	)	 	 	—	 	
Gain on sale of assets	 	 	(3	)	 	 	(8	)	
Gain on extinguishment of long-term debt, related parties	 	 	(28	)	 	 	—	 	
Increase in environmental remediation accrual	 	 	35	 	 	 	—	 	
Bad debt expense	 	 	34	 	 	 	17	 	
Loss from equity method investees	 	 	1	 	 	 	2	 	
Postretirement benefits contributions	 	 	(232	)	 	 	(25	)	
Electric sales contract termination payment	 	 	—	 	 	 	(275	)	
Changes in other assets and liabilities:	 	 	 	 	 	 	 	 	
Decrease in accounts receivable and accrued revenue	 	 	115	 	 	 	187	 	
Decrease in accrued power supply and gas revenue	 	 	5	 	 	 	40	 	
Decrease in inventories	 	 	267	 	 	 	139	 	
Increase (decrease) in accounts payable	 	 	(26	)	 	 	3	 	
Decrease in accrued expenses	 	 	(5	)	 	 	(49	)	
Decrease in other current and non-current assets	 	 	104	 	 	 	111	 	
Decrease in other current and non-current liabilities	 	 	(53	)	 	 	(112	)	
 	 	 	
Net cash provided by operating activities	 	 	803	 	 	 	651	 	

Cash Flows from Investing Activities	 	 	 	 	 	 	 	 	
Capital expenditures (excludes assets placed under capital lease)	 	 	(412	)	 	 	(340	)	
Cost to retire property	 	 	(25	)	 	 	(12	)	
Proceeds for sale of assets	 	 	7	 	 	 	—	 	
Restricted cash and cash equivalents	 	 	6	 	 	 	7	 	
Other investing	 	 	(12	)	 	 	1	 	
 	 	 	
Net cash used in investing activities	 	 	(436	)	 	 	(344	)	

Cash Flows from Financing Activities	 	 	 	 	 	 	 	 	
Proceeds from issuance of long-term debt	 	 	973	 	 	 	475	 	
Proceeds from EnerBank notes, net	 	 	4	 	 	 	7	 	
Issuance of common stock	 	 	5	 	 	 	4	 	
Retirement of bonds and other long-term debt, including related parties	 	 	(443	)	 	 	(550	)	
Payment of common stock dividends	 	 	(57	)	 	 	(41	)	
Payment of preferred stock dividends	 	 	(6	)	 	 	(6	)	
Payment of capital and finance lease obligations	 	 	(12	)	 	 	(12	)	
Debt issuance costs, financing fees, and other	 	 	(19	)	 	 	(5	)	
 	 	 	
Net cash provided (used in) by financing activities	 	 	445	 	 	 	(128	)	

Net Increase in Cash and Cash Equivalents	 	 	812	 	 	 	179	 	
 	 	 	 	 	 	 	 	 	
Cash and Cash Equivalents, Beginning of Period	 	 	213	 	 	 	348	 	

Cash and Cash Equivalents, End of Period	 	$	1,025	 	 	$	527	 	
 	 	 	
The accompanying notes are an integral part of these statements.
 4 

 

CMS Energy Corporation
Consolidated Balance Sheets
(Unaudited)
(As Revised, See Note 1)
 	 	       	 	 	 	 	 	 	
 	 	 	 	 	 	In Millions	 	
 	 	June 30	 	 	December 31	 	
ASSETS	 	2009	 	 	2008	 	
Plant and Property (at cost)	 	 	 	 	 	 	 	 	
Electric utility	 	$	9,235	 	 	$	8,965	 	
Gas utility	 	 	3,667	 	 	 	3,622	 	
Enterprises	 	 	395	 	 	 	390	 	
Other	 	 	33	 	 	 	33	 	
 	 	 	
 	 	 	13,330	 	 	 	13,010	 	
Less accumulated depreciation, depletion and amortization	 	 	4,462	 	 	 	4,428	 	
 	 	 	
 	 	 	8,868	 	 	 	8,582	 	
Construction work in progress	 	 	553	 	 	 	608	 	
 	 	 	
 	 	 	9,421	 	 	 	9,190	 	

Investments	 	 	 	 	 	 	 	 	
Enterprises	 	 	4	 	 	 	5	 	
Other	 	 	6	 	 	 	6	 	
 	 	 	
 	 	 	10	 	 	 	11	 	

Current Assets	 	 	 	 	 	 	 	 	
Cash and cash equivalents	 	 	1,025	 	 	 	213	 	
Restricted cash and cash equivalents	 	 	31	 	 	 	35	 	
Accounts receivable and accrued revenue, less allowances of $31 in 2009 and $26 in 2008	 	 	701	 	 	 	851	 	
Notes receivable	 	 	87	 	 	 	95	 	
Accrued power supply and gas revenue	 	 	2	 	 	 	7	 	
Inventories at average cost	 	 	 	 	 	 	 	 	
Gas in underground storage	 	 	887	 	 	 	1,168	 	
Materials and supplies	 	 	115	 	 	 	110	 	
Generating plant fuel stock	 	 	136	 	 	 	127	 	
Deferred property taxes	 	 	128	 	 	 	165	 	
Regulatory assets — postretirement benefits	 	 	19	 	 	 	19	 	
Prepayments and other	 	 	25	 	 	 	37	 	
 	 	 	
 	 	 	3,156	 	 	 	2,827	 	

Non-current Assets	 	 	 	 	 	 	 	 	
Regulatory assets	 	 	 	 	 	 	 	 	
Securitized costs	 	 	392	 	 	 	416	 	
Postretirement benefits	 	 	1,386	 	 	 	1,431	 	
Customer Choice Act	 	 	68	 	 	 	90	 	
Other	 	 	475	 	 	 	482	 	
Notes receivable, less allowances of $5 in 2009 and $34 in 2008	 	 	196	 	 	 	186	 	
Other	 	 	179	 	 	 	268	 	
 	 	 	
 	 	 	2,696	 	 	 	2,873	 	

Total Assets	 	$	15,283	 	 	$	14,901	 	
 	 	 	
The accompanying notes are an integral part of these statements.
 5 

 

 	 	       	 	 	 	 	 	 	
 	 	 	 	 	 	In Millions	 	
 	 	June 30	 	 	December 31	 	
STOCKHOLDERS’ INVESTMENT AND LIABILITIES	 	2009	 	 	2008	 	
Capitalization	 	 	 	 	 	 	 	 	
Common stockholders’ equity	 	 	 	 	 	 	 	 	
Common stock, authorized 350.0 shares; outstanding 227.0 shares in 2009 and 226.4 shares in 2008	 	$	2	 	 	$	2	 	
Other paid-in capital	 	 	4,552	 	 	 	4,533	 	
Accumulated other comprehensive loss	 	 	(27	)	 	 	(28	)	
Accumulated deficit	 	 	(1,943	)	 	 	(2,031	)	
 	 	 	
 	 	 	2,584	 	 	 	2,476	 	
Noncontrolling interests	 	 	51	 	 	 	52	 	
Preferred stock of subsidiary	 	 	44	 	 	 	44	 	
Preferred stock	 	 	243	 	 	 	243	 	
 	 	 	
Total equity	 	 	2,922	 	 	 	2,815	 	
 	 	 	 	 	 	 	 	 	
Long-term debt	 	 	6,356	 	 	 	5,837	 	
Long-term debt — related parties	 	 	34	 	 	 	178	 	
Non-current portion of capital and finance lease obligations	 	 	197	 	 	 	206	 	
 	 	 	
 	 	 	9,509	 	 	 	9,036	 	

Current Liabilities	 	 	 	 	 	 	 	 	
Current portion of long-term debt, capital and finance lease obligations	 	 	604	 	 	 	514	 	
Notes payable	 	 	19	 	 	 	—	 	
Accounts payable	 	 	406	 	 	 	466	 	
Accrued rate refunds	 	 	58	 	 	 	7	 	
Accrued interest	 	 	113	 	 	 	107	 	
Accrued taxes	 	 	227	 	 	 	289	 	
Deferred income taxes	 	 	129	 	 	 	100	 	
Regulatory liabilities	 	 	116	 	 	 	120	 	
Other	 	 	155	 	 	 	260	 	
 	 	 	
 	 	 	1,827	 	 	 	1,863	 	

Non-current Liabilities	 	 	 	 	 	 	 	 	
Regulatory liabilities	 	 	 	 	 	 	 	 	
Cost of removal	 	 	1,227	 	 	 	1,203	 	
Income taxes, net	 	 	532	 	 	 	519	 	
Other	 	 	146	 	 	 	146	 	
Postretirement benefits	 	 	1,324	 	 	 	1,502	 	
Asset retirement obligation	 	 	211	 	 	 	206	 	
Deferred investment tax credit	 	 	53	 	 	 	54	 	
Deferred income taxes	 	 	114	 	 	 	55	 	
Other	 	 	340	 	 	 	317	 	
 	 	 	
 	 	 	3,947	 	 	 	4,002	 	

Commitments and Contingencies (Notes 4, 6 and 8)	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	
Total Stockholders’ Investment and Liabilities	 	$	15,283	 	 	$	14,901	 	
 	 	 	
 6 

 

CMS Energy Corporation
Consolidated Statements of Common Stockholders’ Equity
(Unaudited)
(As Revised, See Note 1)
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
In Millions	
 	 	Three Months Ended	 	Six Months Ended	
June 30	 	2009	 	2008	 	2009	 	2008	
 	
Common Stock	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
At beginning and end of period	 	$	2	 	 	$	2	 	 	$	2	 	 	$	2	 	

Other Paid-in Capital	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
At beginning of period	 	 	4,538	 	 	 	4,520	 	 	 	4,533	 	 	 	4,517	 	
Common stock issued	 	 	3	 	 	 	5	 	 	 	8	 	 	 	8	 	
Conversion option on convertible debt	 	 	11	 	 	 	—	 	 	 	11	 	 	 	—	 	
 	 	 	
At end of period	 	 	4,552	 	 	 	4,525	 	 	 	4,552	 	 	 	4,525	 	

Accumulated Other Comprehensive Loss	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Retirement benefits liability	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
At beginning of period	 	 	(27	)	 	 	(16	)	 	 	(27	)	 	 	(15	)	
Retirement benefits liability adjustments (a)	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(1	)	
 	 	 	
At end of period	 	 	(27	)	 	 	(16	)	 	 	(27	)	 	 	(16	)	

Investments	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
At beginning of period	 	 	(4	)	 	 	(4	)	 	 	—	 	 	 	—	 	
Unrealized gain (loss) on investments (a)	 	 	5	 	 	 	(1	)	 	 	1	 	 	 	(5	)	
 	 	 	
At end of period	 	 	1	 	 	 	(5	)	 	 	1	 	 	 	(5	)	

Derivative instruments	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
At beginning and end of period	 	 	(1	)	 	 	(1	)	 	 	(1	)	 	 	(1	)	

Foreign currency translation	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
At beginning of period	 	 	—	 	 	 	(128	)	 	 	—	 	 	 	(128	)	
Sale of interests in TGN (a)	 	 	—	 	 	 	128	 	 	 	—	 	 	 	128	 	
 	 	 	
At end of period	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	

Total Accumulated Other Comprehensive Loss	 	 	(27	)	 	 	(22	)	 	 	(27	)	 	 	(22	)	

Accumulated Deficit	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
At beginning of period	 	 	(1,990	)	 	 	(2,151	)	 	 	(2,031	)	 	 	(2,227	)	
Effects of changing the retirement plans measurement date pursuant to SFAS No. 158	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Service cost, interest cost, and expected return on plan assets for December 1 through December 31, 2007, net of tax	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(4	)	
Additional loss from December 1 through December 31, 2007, net of tax	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(2	)	
Net income attributable to CMS Energy (a)	 	 	78	 	 	 	47	 	 	 	151	 	 	 	152	 	
Preferred stock dividends declared	 	 	(3	)	 	 	(3	)	 	 	(6	)	 	 	(6	)	
Common stock dividends declared	 	 	(28	)	 	 	(21	)	 	 	(57	)	 	 	(41	)	
 	 	 	
At end of period	 	 	(1,943	)	 	 	(2,128	)	 	 	(1,943	)	 	 	(2,128	)	

Total Common Stockholders’ Equity	 	$	2,584	 	 	$	2,377	 	 	$	2,584	 	 	$	2,377	 	
 	 	 	
The accompanying notes are an integral part of these statements.
 7 

 

 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
In Millions	
 	 	Three Months Ended	 	Six Months Ended	
June 30	 	2009	 	2008	 	2009	 	2008	
 	
(a) Disclosure of Comprehensive Income:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 		
Net income attributable to CMS Energy	 	$  	78	 	 	$  	47	 	 	$  	151	 	 	$  	152	 	
 		
Retirement benefits liability adjustments, net of tax of $-, $-, $-, and $2, respectively	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(1	)	
 		
Unrealized gain (loss) on investments, net of tax (tax benefit) of $-, $(1), $-, and $(3), respectively	 	 	5	 	 	 	(1	)	 	 	1	 	 	 	(5	)	
 		
Sale of interests in TGN, net of tax of $69	 	 	—	 	 	 	128	 	 	 	—	 	 	 	128	 	

Total Comprehensive Income	 	$  	83	 	 	$  	174	 	 	$  	152	 	 	$  	274	 	
 	 	 	
 8 

 

Consumers Energy Company
Consolidated Statements of Income
(Unaudited)
(As Revised, See Note 1)
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
In Millions	
 	 	Three Months Ended	 	Six Months Ended	
June 30	 	2009	 	2008	 	2009	 	2008	
 	
Operating Revenue	 	$  	1,182	 	 	$  	1,263	 	 	$  	3,216	 	 	$  	3,354	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Operating Expenses	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Fuel for electric generation	 	 	105	 	 	 	118	 	 	 	216	 	 	 	245	 	
Purchased and interchange power	 	 	280	 	 	 	293	 	 	 	564	 	 	 	610	 	
Purchased power — related parties	 	 	17	 	 	 	17	 	 	 	35	 	 	 	37	 	
Cost of gas sold	 	 	195	 	 	 	289	 	 	 	1,131	 	 	 	1,233	 	
Other operating expenses	 	 	196	 	 	 	194	 	 	 	403	 	 	 	364	 	
Maintenance	 	 	54	 	 	 	44	 	 	 	98	 	 	 	80	 	
Depreciation and amortization	 	 	118	 	 	 	124	 	 	 	288	 	 	 	294	 	
General taxes	 	 	46	 	 	 	45	 	 	 	107	 	 	 	102	 	
Gain on asset sales, net	 	 	(3	)	 	 	—	 	 	 	(3	)	 	 	—	 	
 	 	 	
 	 	 	1,008	 	 	 	1,124	 	 	 	2,839	 	 	 	2,965	 	

Operating Income	 	 	174	 	 	 	139	 	 	 	377	 	 	 	389	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Other Income (Deductions)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Interest	 	 	5	 	 	 	9	 	 	 	10	 	 	 	16	 	
Regulatory return on capital expenditures	 	 	6	 	 	 	8	 	 	 	13	 	 	 	16	 	
Other income	 	 	3	 	 	 	2	 	 	 	8	 	 	 	5	 	
Other expense	 	 	(2	)	 	 	(5	)	 	 	(4	)	 	 	(6	)	
 	 	 	
 	 	 	12	 	 	 	14	 	 	 	27	 	 	 	31	 	

Interest Charges	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Interest on long-term debt	 	 	65	 	 	 	55	 	 	 	124	 	 	 	113	 	
Other interest	 	 	5	 	 	 	4	 	 	 	10	 	 	 	11	 	
Capitalized interest	 	 	(1	)	 	 	(1	)	 	 	(2	)	 	 	(3	)	
 	 	 	
 	 	 	69	 	 	 	58	 	 	 	132	 	 	 	121	 	

Income Before Income Taxes	 	 	117	 	 	 	95	 	 	 	272	 	 	 	299	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Income Tax Expense	 	 	45	 	 	 	35	 	 	 	101	 	 	 	109	 	

Net Income	 	 	72	 	 	 	60	 	 	 	171	 	 	 	190	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Preferred Stock Dividends	 	 	—	 	 	 	—	 	 	 	1	 	 	 	1	 	

Net Income Available to Common Stockholder	 	$  	72	 	 	$  	60	 	 	$  	170	 	 	$  	189	 	
 	 	 	
The accompanying notes are an integral part of these statements.
 9 

 

Consumers Energy Company
Consolidated Statements of Cash Flows
(Unaudited)
(As Revised, See Note 1)
 	 	 	 	 	 	 	 	 	
In Millions	
Six Months Ended June 30	 	2009	 	2008	
 	
Cash Flows from Operating Activities	 	 	 	 	 	 	 	 	
Net income	 	$	171	 	 	$	190	 	
Adjustments to reconcile net income to net cash provided by operating activities	 	 	 	 	 	 	 	 	
Depreciation and amortization	 	 	288	 	 	 	294	 	
Deferred income taxes and investment tax credit	 	 	46	 	 	 	44	 	
Regulatory return on capital expenditures	 	 	(13	)	 	 	(16	)	
Postretirement benefits expense	 	 	89	 	 	 	74	 	
Capital lease and other amortization	 	 	13	 	 	 	16	 	
Bad debt expense	 	 	30	 	 	 	16	 	
Gain on sale of assets	 	 	(3	)	 	 	—	 	
Postretirement benefits contributions	 	 	(225	)	 	 	(24	)	
Changes in assets and liabilities:	 	 	 	 	 	 	 	 	
Decrease in accounts receivable, notes receivable and accrued revenue	 	 	114	 	 	 	199	 	
Decrease in accrued power supply and gas revenue	 	 	5	 	 	 	40	 	
Decrease in inventories	 	 	266	 	 	 	122	 	
Decrease in accounts payable	 	 	(20	)	 	 	(3	)	
Increase in accrued expenses	 	 	4	 	 	 	7	 	
Decrease in other current and non-current assets	 	 	106	 	 	 	101	 	
Decrease in other current and non-current liabilities	 	 	(15	)	 	 	(106	)	
 	 	 	
Net cash provided by operating activities	 	 	856	 	 	 	954	 	

Cash Flows from Investing Activities	 	 	 	 	 	 	 	 	
Capital expenditures (excludes assets placed under capital lease)	 	 	(407	)	 	 	(338	)	
Cost to retire property	 	 	(25	)	 	 	(12	)	
Proceeds from sale of assets	 	 	7	 	 	 	—	 	
Restricted cash and cash equivalents	 	 	2	 	 	 	5	 	
 	 	 	
Net cash used in investing activities	 	 	(423	)	 	 	(345	)	

Cash Flows from Financing Activities	 	 	 	 	 	 	 	 	
Proceeds from issuance of long-term debt	 	 	500	 	 	 	250	 	
Retirement of long-term debt	 	 	(218	)	 	 	(426	)	
Payment of common stock dividends	 	 	(130	)	 	 	(168	)	
Payment of capital and finance lease obligations	 	 	(12	)	 	 	(12	)	
Stockholder’s contribution	 	 	100	 	 	 	—	 	
Payment of preferred stock dividends	 	 	(1	)	 	 	(1	)	
Debt issuance and financing costs	 	 	(4	)	 	 	(4	)	
 	 	 	
Net cash provided by (used in) financing activities	 	 	235	 	 	 	(361	)	

Net Increase in Cash and Cash Equivalents	 	 	668	 	 	 	248	 	
 	 	 	 	 	 	 	 	 	
Cash and Cash Equivalents, Beginning of Period	 	 	69	 	 	 	195	 	

Cash and Cash Equivalents, End of Period	 	$	737	 	 	$	443	 	
 	 	 	
The accompanying notes are an integral part of these statements.
 10 

 

Consumers Energy Company
Consolidated Balance Sheets
(Unaudited)
(As Revised, See Note 1)
 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	In Millions	
 	 	June 30	 	December 31	
ASSETS	 	2009	 	2008	
 	 	 	
Plant and Property (at cost)	 	 	 	 	 	 	 	 	
Electric utility	 	$  	9,235	 	 	$  	8,965	 	
Gas utility	 	 	3,667	 	 	 	3,622	 	
Other	 	 	15	 	 	 	15	 	
 	 	 	
 	 	 	12,917	 	 	 	12,602	 	
Less accumulated depreciation, depletion, and amortization	 	 	4,271	 	 	 	4,242	 	
 	 	 	
 	 	 	8,646	 	 	 	8,360	 	
Construction work in progress	 	 	553	 	 	 	607	 	
 	 	 	
 	 	 	9,199	 	 	 	8,967	 	

Investments	 	 	 	 	 	 	 	 	
Stock of affiliates	 	 	22	 	 	 	19	 	

Current Assets	 	 	 	 	 	 	 	 	
Cash and cash equivalents	 	 	737	 	 	 	69	 	
Restricted cash and cash equivalents	 	 	23	 	 	 	25	 	
Accounts receivable and accrued revenue, less allowances of $28 in 2009 and $24 in 2008	 	 	683	 	 	 	829	 	
Notes receivable	 	 	80	 	 	 	93	 	
Accrued power supply and gas revenue	 	 	2	 	 	 	7	 	
Accounts receivable — related parties	 	 	1	 	 	 	2	 	
Inventories at average cost	 	 	 	 	 	 	 	 	
Gas in underground storage	 	 	885	 	 	 	1,168	 	
Materials and supplies	 	 	108	 	 	 	103	 	
Generating plant fuel stock	 	 	130	 	 	 	118	 	
Deferred property taxes	 	 	128	 	 	 	165	 	
Regulatory assets — postretirement benefits	 	 	19	 	 	 	19	 	
Prepayments and other	 	 	21	 	 	 	30	 	
 	 	 	
 	 	 	2,817	 	 	 	2,628	 	

Non-current Assets	 	 	 	 	 	 	 	 	
Regulatory assets	 	 	 	 	 	 	 	 	
Securitized costs	 	 	392	 	 	 	416	 	
Postretirement benefits	 	 	1,386	 	 	 	1,431	 	
Customer Choice Act	 	 	68	 	 	 	90	 	
Other	 	 	475	 	 	 	482	 	
Other	 	 	124	 	 	 	213	 	
 	 	 	
 	 	 	2,445	 	 	 	2,632	 	

Total Assets	 	$  	14,483	 	 	$  	14,246	 	

The accompanying notes are an integral part of these statements.	 	 	 	 	 	 	 	 	
 11 

 

 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	In Millions	
 	 	June 30	 	December 31	
STOCKHOLDER’S INVESTMENT AND LIABILITIES	 	2009	 	2008	
 	 	 	
Capitalization	 	 	 	 	 	 	 	 	
Common stockholder’s equity	 	 	 	 	 	 	 	 	
Common stock, authorized 125.0 shares; outstanding 84.1 shares for both periods	 	$  	841	 	 	$  	841	 	
Other paid-in capital	 	 	2,582	 	 	 	2,482	 	
Accumulated other comprehensive income (loss)	 	 	3	 	 	 	(1	)	
Retained earnings	 	 	423	 	 	 	383	 	
 	 	 	
 	 	 	3,849	 	 	 	3,705	 	
Preferred stock	 	 	44	 	 	 	44	 	
 	 	 	
Total equity	 	 	3,893	 	 	 	3,749	 	
 		
Long-term debt	 	 	4,081	 	 	 	3,908	 	
Non-current portion of capital and finance lease obligations	 	 	197	 	 	 	206	 	
 	 	 	
 	 	 	8,171	 	 	 	7,863	 	

Current Liabilities	 	 	 	 	 	 	 	 	
Current portion of long-term debt, capital and finance lease obligations	 	 	515	 	 	 	408	 	
Accounts payable	 	 	394	 	 	 	444	 	
Accrued rate refunds	 	 	58	 	 	 	7	 	
Accounts payable — related parties	 	 	10	 	 	 	14	 	
Accrued interest	 	 	78	 	 	 	69	 	
Accrued taxes	 	 	234	 	 	 	289	 	
Deferred income taxes	 	 	232	 	 	 	277	 	
Regulatory liabilities	 	 	116	 	 	 	120	 	
Other	 	 	118	 	 	 	151	 	
 	 	 	
 	 	 	1,755	 	 	 	1,779	 	

Non-current Liabilities	 	 	 	 	 	 	 	 	
Deferred income taxes	 	 	872	 	 	 	792	 	
Regulatory liabilities	 	 	 	 	 	 	 	 	
Cost of removal	 	 	1,227	 	 	 	1,203	 	
Income taxes, net	 	 	532	 	 	 	519	 	
Other	 	 	146	 	 	 	146	 	
Postretirement benefits	 	 	1,266	 	 	 	1,436	 	
Asset retirement obligations	 	 	210	 	 	 	205	 	
Deferred investment tax credit	 	 	53	 	 	 	54	 	
Other	 	 	251	 	 	 	249	 	
 	 	 	
 	 	 	4,557	 	 	 	4,604	 	

Commitments and Contingencies (Notes 4, 6 and 8)	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	
Total Stockholder’s Investment and Liabilities	 	$  	14,483	 	 	$  	14,246	 	
 	 	 	
 12 

 

Consumers Energy Company
Consolidated Statements of Common Stockholder’s Equity
(Unaudited)
(As Revised, See Note 1)
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	In Millions	
 	 	Three Months Ended	 	Six Months Ended	
June 30	 	2009	 	2008	 	2009	 	2008	
 	
Common Stock	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
At beginning and end of period (a)	 	$  	841	 	 	$  	841	 	 	$  	841	 	 	$  	841	 	

Other Paid-in Capital	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
At beginning of period	 	 	2,482	 	 	 	2,482	 	 	 	2,482	 	 	 	2,482	 	
Stockholder’s contribution	 	 	100	 	 	 	—	 	 	 	100	 	 	 	—	 	
 	 	 	
At end of period	 	 	2,582	 	 	 	2,482	 	 	 	2,582	 	 	 	2,482	 	

Accumulated Other Comprehensive Loss	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Retirement benefits liability	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
At beginning of period	 	 	(7	)	 	 	(9	)	 	 	(7	)	 	 	(15	)	
Retirement benefits liability adjustments (b)	 	 	—	 	 	 	—	 	 	 	—	 	 	 	6	 	
 	 	 	
At end of period	 	 	(7	)	 	 	(9	)	 	 	(7	)	 	 	(9	)	

Investments	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
At beginning of period	 	 	7	 	 	 	7	 	 	 	6	 	 	 	15	 	
Unrealized gain (loss) on investments (b)	 	 	3	 	 	 	1	 	 	 	4	 	 	 	(7	)	
 	 	 	
At end of period	 	 	10	 	 	 	8	 	 	 	10	 	 	 	8	 	

Total Accumulated Other Comprehensive Income (Loss)	 	 	3	 	 	 	(1	)	 	 	3	 	 	 	(1	)	

Retained Earnings	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
At beginning of period	 	 	409	 	 	 	334	 	 	 	383	 	 	 	324	 	
Effects of changing the retirement plans measurement date pursuant to SFAS No. 158	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Service cost, interest cost, and expected return on plan assets for December 1 through December 31, 2007, net of tax	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(4	)	
Additional loss from December 1 through December 31, 2007, net of tax	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(2	)	
Net income (b)	 	 	72	 	 	 	60	 	 	 	171	 	 	 	190	 	
Common stock dividends declared	 	 	(58	)	 	 	(55	)	 	 	(130	)	 	 	(168	)	
Preferred stock dividends declared	 	 	—	 	 	 	—	 	 	 	(1	)	 	 	(1	)	
 	 	 	
At end of period	 	 	423	 	 	 	339	 	 	 	423	 	 	 	339	 	

Total Common Stockholder’s Equity	 	$  	3,849	 	 	$  	3,661	 	 	$  	3,849	 	 	$  	3,661	 	
 	 	 	
The accompanying notes are an integral part of these statements.
 13 

 

 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	In Millions	
 	 	Three Months Ended	 	Six Months Ended	
June 30	 	2009	 	2008	 	2009	 	2008	
 	
(a) Number of shares of common stock outstanding was 84,108,789 for all periods presented.	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 		
(b) Disclosure of Comprehensive Income:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 		
Net income	 	$  	72	 	 	$  	60	 	 	$  	171	 	 	$  	190	 	
 		
Retirement benefits liability	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Retirement benefits liability adjustments, net of tax of $-, $-, $-, and $2, respectively	 	 	—	 	 	 	—	 	 	 	—	 	 	 	6	 	
 		
Investments	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Unrealized gain (loss) on investments, net of tax (tax benefit) of $-, $1, $-, and $(3), respectively	 	 	3	 	 	 	1	 	 	 	4	 	 	 	(7	)	

Total Comprehensive Income	 	$  	75	 	 	$  	61	 	 	$  	175	 	 	$  	189	 	
 	 	 	
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CMS Energy Corporation
Consumers Energy Company
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
These interim Consolidated Financial Statements have been prepared by CMS Energy and Consumers in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. As a result, CMS Energy and Consumers have condensed or omitted certain information and Note disclosures normally included in consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States. CMS Energy and Consumers have reclassified certain prior year amounts to conform to the presentation in the current year. The Consolidated Financial Statements for the six months ended June 30, 2008 have been updated for amounts previously reported. In management’s opinion, the unaudited information contained in this report reflects all adjustments of a normal recurring nature necessary to ensure the fair presentation of financial position, results of operations and cash flows for the periods presented. The Notes to Consolidated Financial Statements and the related Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and related Notes contained in CMS Energy’s and Consumers’ 2008 Form 10-K. Due to the seasonal nature of CMS Energy’s and Consumers’ operations, the results presented for this interim period are not necessarily indicative of results to be achieved for the fiscal year.
These interim Consolidated Financial Statements and accompanying Note disclosures include the evaluation of subsequent events through July 30, 2009, the date of issuance, except for updates to reflect the impacts of the rate order that Consumers received on November 2, 2009, as described in Note 1, Subsequent Event.
1: SUBSEQUENT EVENT
On November 2, 2009, the MPSC issued a final order in Consumers’ electric rate case, authorizing Consumers to increase its electric rates by $139 million annually, which was $40 million less than the rate increase that Consumers self-implemented in May 2009. The MPSC directed Consumers to refund to customers the difference between the rates it self-implemented in May and the rates authorized in this order, plus interest, subject to a reconciliation proceeding. The order also authorized Consumers to implement an uncollectible accounts expense tracking mechanism, effective January 1, 2009. This tracker will allow Consumers to adjust its rates to collect or refund 80 percent of the difference between actual uncollectible accounts expense for the calendar year and the base level of uncollectible expense in Consumers’ rates. The order contained a number of other provisions, including a decoupling mechanism, that apply prospectively to Consumers’ electric rates.
In accordance with the accounting rules that apply to certain adjustments of utility revenue under ratemaking processes, CMS Energy and Consumers have recorded the impacts of the MSPC rate order that are specifically identifiable with prior interim periods of 2009 as adjustments to those periods, and have revised their financial statements to reflect these effects. All other information in CMS Energy’s and Consumers’ financial statements for the interim periods of 2009 remains unchanged.
The effect of the uncollectible accounts expense tracking mechanism on the six months ended June 30, 2009 was a decrease in Other operating expenses of $6 million, with a corresponding increase to Other Non-current Assets. The effect of the adjustment to Consumers’ self-implemented rates was a decrease in Operating Revenue of $2 million, with a corresponding increase to Other Regulatory liabilities. For the three months ended June 30, 2009, the effect of the uncollectible accounts expense tracking mechanism was a decrease in Other operating expenses of $4 million, with an corresponding increase to Other Non-
 16 

 

current Assets. The effect of the adjustment to Consumers’self-implemented rates was a decrease in Operating Revenue of $2 million, with a corresponding increase to Current Regulatory liabilities.
Revised amounts as of June 30, 2009 are as follows:
 	 	 	 	 	 	 	 	 	 	 	 	 	
CMS Energy, including Consumers	 	In Millions (except for per share amounts)	
Six months ended June 30, 2009	 	As Reported	 	Adjustment	 	As Revised	
 	
Income from Continuing Operations	 	$	123	 	 	$	2	 	 	$	125	 	
Net Income Available to Common Stockholders	 	$	143	 	 	$	2	 	 	$	145	 	
Basic Earnings Per Share	 	$	0.63	 	 	$	0.01	 	 	$	0.64	 	
Diluted Earnings Per Share	 	$	0.61	 	 	$	0.01	 	 	$	0.62	 	

Three months ended June 30, 2009	 	As Reported	 	Adjustment	 	As Revised	
 	
Income from Continuing Operations	 	$	50	 	 	$	1	 	 	$	51	 	
Net Income Available to Common Stockholders	 	$	74	 	 	$	1	 	 	$	75	 	
Basic Earnings Per Share	 	$	0.33	 	 	$	—	 	 	$	0.33	 	
Diluted Earnings Per Share	 	$	0.32	 	 	$	—	 	 	$	0.32	 	

Consumers	 	 	 	 	 	 	 	 	 	In Millions	
Six months ended June 30, 2009	 	As Reported	 	Adjustment	 	As Revised	
 	
Net Income	 	$	169	 	 	$	2	 	 	$	171	 	
Net Income Available to Common Stockholder	 	$	168	 	 	$	2	 	 	$	170	 	

Three months ended June 30, 2009	 	As Reported	 	Adjustment	 	As Revised	
 	
Net Income	 	$	71	 	 	$	1	 	 	$	72	 	
Net Income Available to Common Stockholder	 	$	71	 	 	$	1	 	 	$	72	 	
 	 	 	
For further details on Consumers’ electric rate case, see the “Consumers’ Electric Utility Rate Matters — Electric Rate Case and Self-Implemented Rates” section of Note 5, Utility Rate Matters.
2: ACCOUNTING POLICIES
SIGNIFICANT ACCOUNTING POLICIES
Self-implemented Rates: Consumers is allowed to self-implement new energy rates six months after a new rate case filing if the MPSC has not issued an order in the case. The MPSC then has another six months to issue a final order. If the MPSC does not issue an order, the filed rates are considered approved. If the MPSC issues an order, the rates that Consumers self-implemented may be subject to refund, with interest. Consumers recognizes revenue associated with self-implemented rates. If Consumers considers it probable that it will be required to refund a portion of its self-implemented rates, then Consumers records a provision for revenue subject to refund. For details on Consumers’ self-implemented rates, see Note 5, Utility Rate Matters.
IMPLEMENTATION OF NEW ACCOUNTING STANDARDS
SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements — an amendment to ARB No. 51: Under this standard, which was effective for CMS Energy and Consumers January 1, 2009, ownership interests in subsidiaries held by third parties, previously referred to as minority interests, are presented as noncontrolling interests and shown separately on the parent’s balance sheet within equity. In addition, net income attributable to noncontrolling interests is included in net income on the income
 17 

 

statement. CMS Energy has applied these provisions to current and prior periods presented in its consolidated financial statements. The standard had no impact on Consumers’ consolidated financial statements for the periods presented. The standard also affects the accounting for changes in a parent’s ownership interest, including deconsolidation of a subsidiary. CMS Energy and Consumers will apply these provisions of the standard to any such future transactions.
SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133: This standard, which was effective for CMS Energy and Consumers January 1, 2009, requires enhanced disclosures about how and why derivatives are used, how derivatives and related hedged items are accounted for, and how derivatives and any related hedged items affect financial position, financial performance, and cash flows. The standard did not impact CMS Energy’s or Consumers’ consolidated income, cash flows, or financial position. For additional details on CMS Energy’s and Consumers’ derivatives, see Note 8, Financial and Derivative Instruments.
 18 

 

FSP APB 14-1, Accounting for Convertible Debt Instruments That May Be Settled In Cash Upon Conversion (Including Partial Cash Settlement): This standard, which was effective for CMS Energy and Consumers January 1, 2009, requires CMS Energy to account for the liability and equity components of its convertible debt securities separately and in a manner that reflects CMS Energy’s borrowing rate for nonconvertible debt. The following table summarizes the effects of adopting this standard on CMS Energy’s consolidated financial statements:
 	 	 	 	 	 	 	 	 	
Increases (decreases)	In Millions, Except Per Share Amounts	
Three months ended June 30	 	2009	 	2008	
 	
Interest on long-term debt	 	$	2	 	 	$	3	 	
Income tax expense	 	 	(1	)	 	 	(1	)	
 	 	 	
Net income	 	$	(1	)	 	$	(2	)	

Earnings Per Average Common Share	 	 	 	 	 	 	 	 	
Basic	 	$	(0.01	)	 	$	—	 	
Diluted	 	$	(0.01	)	 	$	—	 	

Six months ended June 30	 	2009	 	2008	
 	
Interest on long-term debt	 	$	4	 	 	$	5	 	
Income tax expense	 	 	(2	)	 	 	(2	)	
 	 	 	
Net income	 	$	(2	)	 	$	(3	)	

Earnings Per Average Common Share	 	 	 	 	 	 	 	 	
Basic	 	$	(0.01	)	 	$	(0.01	)	
Diluted	 	$	(0.01	)	 	$	(0.01	)	

Increases (decreases)	 	December 31, 2008	 	January 1, 2008	
 	
Assets	 	 	 	 	 	 	 	 	
Non-current deferred income tax assets	 	$	—	 	 	$	(12	)	

Liabilities	 	 	 	 	 	 	 	 	
Long-term debt	 	$	(22	)	 	$	(30	)	
Non-current deferred income tax liabilities	 	 	9	 	 	 	—	 	
 	 	 	
Total	 	$	(13	)	 	$	(30	)	

Common Stockholders’ Equity	 	 	 	 	 	 	 	 	
Other paid-in capital	 	$	37	 	 	$	37	 	
Accumulated deficit	 	 	24	 	 	 	19	 	
 	 	 	
Total	 	$	13	 	 	$	18	 	
 	 	 	
The standard had no impact on Consumers’ consolidated financial statements. For additional details on CMS Energy’s convertible debt instruments, see Note 6, Financings and Capitalization.
FSP EITF 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities: Under this standard, which was effective for CMS Energy and Consumers January 1, 2009, share-based payment awards that accrue cash dividends when common shareholders receive dividends are considered participating securities if the dividends are not required to be returned to the company when the employee forfeits the award. The standard applies to CMS Energy’s outstanding unvested restricted stock awards, which are considered participating securities and thus are included in the computation of basic EPS. Implementation of the standard for CMS Energy did not have a material
 19 

 

impact for the six months ended June 30, 2009 or 2008. Retrospective implementation of the standard at CMS Energy will reduce basic and diluted EPS by $0.01 for the year ended December 31, 2008. The standard had no impact on Consumers’ consolidated financial statements.
FSP FAS 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly: The standard, which was effective for the quarter ended June 30, 2009 for CMS Energy and Consumers, provides guidance on determining whether there has been a significant decrease in market activity for an asset or liability and whether quoted prices may reflect distressed transactions. The guidance indicates that entities should not rely on distressed prices in determining fair value, but may instead use alternative valuation techniques, such as discounting future cash flows assuming an orderly transaction. The standard requires quarterly disclosures about the inputs and valuation techniques used in fair value measurements. Previously, these disclosures were required only annually. See Note 3, Fair Value Measurements, for the required disclosures. The standard had no impact on CMS Energy’s or Consumers’ consolidated income, cash flows, or financial position.
FSP FAS 115-2 and FAS 124-2, Recognition and Presentation of Other-Than-Temporary Impairments: The standard, which was effective for the quarter ended June 30, 2009 for CMS Energy and Consumers, amends the other-than-temporary impairment guidance for debt securities. Entities no longer need to assert both the intent and ability to hold an impaired debt security until recovery to avoid recording an other-than-temporary impairment. Instead, an entity must consider whether it intends to sell the security or whether it is more likely than not that it will be required to sell the security prior to recovery. If either of these criteria are met, the full impairment should be recognized in earnings. If neither criterion is met, only impairments due to credit losses should be recorded to earnings, while impairments related to other factors should be recorded to other comprehensive income. The standard also includes additional disclosure requirements. The standard had no impact on CMS Energy’s or Consumers’ consolidated financial statements; however, the new guidance will be incorporated in future assessments of other-than-temporary impairments of debt securities.
FSP FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments: This standard, which was effective for the quarter ended June 30, 2009 for CMS Energy and Consumers, requires quarterly disclosures of the fair values of financial instruments. Previously, these disclosures were required only annually. The standard also requires quarterly disclosure of the methods and significant assumptions used in the fair value measurements. The standard did not impact CMS Energy’s or Consumers’ consolidated income, cash flows, or financial position.
EITF Issue 07-5, Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entity’s Own Stock: This standard, which was effective for CMS Energy and Consumers January 1, 2009, establishes new criteria for determining whether freestanding instruments or embedded features are considered “indexed to an entity’s own stock” for the purpose of assessing potential derivative accounting or balance sheet classification. This guidance applies to the equity conversion features in CMS Energy’s contingently convertible senior notes and preferred stock. Under the new criteria, these features remain exempt from derivative accounting, and thus, this standard had no impact on CMS Energy’s or Consumers’ consolidated financial statements.
EITF Issue 08-5, Issuer’s Accounting for Liabilities Measured at Fair Value with a Third-Party Credit Enhancement: This standard, which was effective for CMS Energy and Consumers January 1, 2009, concludes that the fair value measurement of a liability should not consider the effect of a third-party credit enhancement or guarantee supporting the liability. To comply with the standard, CMS Energy and Consumers adjusted the methods they use to determine the fair values of certain long-term debt instruments for their fair value disclosures, resulting in a minor reduction in the fair values disclosed. For the fair value disclosures, see Note 8, Financial and Derivative Instruments. The standard had no impact on CMS Energy’s or Consumers’ consolidated income, cash flows, or financial position.
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NEW ACCOUNTING STANDARDS NOT YET EFFECTIVE
SFAS No. 166, Accounting for Transfers of Financial Assets, an amendment of FASB Statement No. 140: This standard, which will be effective for CMS Energy and Consumers January 1, 2010, removes the concept of a qualifying special purpose entity (QSPE) from guidance relating to transfers of financial assets and extinguishments of liabilities. It also removes the exceptions from applying guidance relating to VIEs to QSPEs. The standard revises and clarifies when an entity is required to derecognize a financial asset that it has transferred to another entity. It further clarifies how to measure beneficial interests received as proceeds in connection with a transfer of a financial asset, and introduces the concept of a “participating interest,” the conditions of which must be met for a partial asset transfer to qualify for sale accounting treatment. The standard also requires enhanced disclosures related to continuing involvement with transferred financial assets. CMS Energy and Consumers are evaluating the impact of this standard on their consolidated financial statements.
SFAS No. 167, Amendments to FASB Interpretation No. 46(R): This standard, which will be effective for CMS Energy and Consumers January 1, 2010, amends FIN 46(R) to replace the quantitative calculation of risks and rewards used to determine which enterprise, if any, has a controlling financial interest in a VIE. The standard establishes a qualitative approach focused on identifying which enterprise (1) has the power to direct the activities of a VIE that most significantly impact the entity’s economic performance and (2) has the obligation to absorb losses of the entity or the right to receive benefits from the entity. The standard also requires ongoing assessments of whether an enterprise is the primary beneficiary of a VIE. CMS Energy and Consumers are evaluating the impact of this standard on their consolidated financial statements.
FSP FAS 132(R)-1, Employers’ Disclosures about Postretirement Benefit Plan Assets: This standard, which will be effective for the year ending December 31, 2009 for CMS Energy and Consumers, requires expanded annual disclosures about postretirement benefit plan assets. The required disclosures include information about investment allocation decisions, major categories of plan assets, the inputs and valuation techniques used in the fair value measurements, the effects of significant unobservable inputs on changes in plan assets, and significant concentrations of risk within plan assets. The standard will not impact CMS Energy’s or Consumers’ consolidated income, cash flows, or financial position.
3: 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. These markets must be accessible to CMS Energy and Consumers at the measurement date.	
 		
 	•	 	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, interest rates and yield curves observable at commonly quoted intervals, credit risks, default rates, 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.	
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To the extent possible, CMS Energy and Consumers use quoted market prices or other observable market pricing data in valuing assets and liabilities measured at fair value. If this information is unavailable, they use market-corroborated data or reasonable estimates about market participant assumptions. CMS Energy and Consumers classify fair value measurements within the fair value hierarchy based on the lowest level of input that is significant to the fair value measurement in its entirety.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following table summarizes, by level within the fair value hierarchy, CMS Energy’s and Consumers’ assets and liabilities reported at fair value on a recurring basis at June 30, 2009:
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
In Millions	 	
 	 	Total	 	 	Level 1	 	 	Level 2	 	 	Level 3	 	
CMS Energy, including Consumers	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Assets:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Cash equivalents	 	$	985	 	 	$	985	 	 	$	—	 	 	$	—	 	
Restricted cash equivalents	 	 	5	 	 	 	5	 	 	 	—	 	 	 	—	 	
Nonqualified deferred compensation plan assets	 	 	4	 	 	 	4	 	 	 	—	 	 	 	—	 	
SERP	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Equity securities	 	 	41	 	 	 	41	 	 	 	—	 	 	 	—	 	
Debt securities	 	 	27	 	 	 	—	 	 	 	27	 	 	 	—	 	
Derivative instruments (a)	 	 	1	 	 	 	—	 	 	 	1	 	 	 	—	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Total	 	$	1,063	 	 	$	1,035	 	 	$	28	 	 	$	—	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Liabilities:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Nonqualified deferred compensation plan liabilities	 	$	5	 	 	$	5	 	 	$	—	 	 	$	—	 	
Derivative instruments (b)	 	 	17	 	 	 	3	 	 	 	3	 	 	 	11	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Total (c)	 	$	22	 	 	$	8	 	 	$	3	 	 	$	11	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Consumers	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Assets:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Cash equivalents	 	$	713	 	 	$	713	 	 	$	—	 	 	$	—	 	
Restricted cash equivalents	 	 	5	 	 	 	5	 	 	 	—	 	 	 	—	 	
CMS Energy Common Stock	 	 	22	 	 	 	22	 	 	 	—	 	 	 	—	 	
Nonqualified deferred compensation plan assets	 	 	3	 	 	 	3	 	 	 	—	 	 	 	—	 	
SERP	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Equity securities	 	 	27	 	 	 	27	 	 	 	—	 	 	 	—	 	
Debt securities	 	 	18	 	 	 	—	 	 	 	18	 	 	 	—	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Total	 	$	788	 	 	$	770	 	 	$	18	 	 	$	—	 	

Liabilities:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Nonqualified deferred compensation plan liabilities	 	$	3	 	 	$	3	 	 	$	—	 	 	$	—	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Total (c)	 	$	3	 	 	$	3	 	 	$	—	 	 	$	—	 	

(a)	 	This amount is gross and excludes the $1 million impact of offsetting derivative assets and liabilities under master netting arrangements.	
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(b)	 	This amount is gross and excludes the $1 million impact of offsetting derivative assets and liabilities under master netting arrangements and the $3 million impact of offsetting cash margin deposits paid by CMS ERM to other parties.	
 		
(c)	 	At June 30, 2009, CMS Energy’s liabilities classified as Level 3 represent 50 percent of CMS Energy’s total liabilities measured at fair value. Consumers did not have any assets or liabilities classified as Level 3.	
The following table summarizes, by level within the fair value hierarchy, CMS Energy’s and Consumers’ assets and liabilities reported at fair value on a recurring basis at December 31, 2008:
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
In Millions	 	
 	 	Total	 	 	Level 1	 	 	Level 2	 	 	Level 3	 	
CMS Energy, including Consumers	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Assets:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Cash equivalents	 	$	176	 	 	$	176	 	 	$	—	 	 	$	—	 	
Restricted cash equivalents	 	 	5	 	 	 	5	 	 	 	—	 	 	 	—	 	
Nonqualified deferred compensation plan assets	 	 	5	 	 	 	5	 	 	 	—	 	 	 	—	 	
SERP	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Equity securities	 	 	39	 	 	 	39	 	 	 	—	 	 	 	—	 	
Debt securities	 	 	29	 	 	 	—	 	 	 	29	 	 	 	—	 	
Derivative instruments (a)	 	 	1	 	 	 	—	 	 	 	1	 	 	 	—	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Total	 	$	255	 	 	$	225	 	 	$	30	 	 	$	—	 	

Liabilities:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Nonqualified deferred compensation plan liabilities	 	$	5	 	 	$	5	 	 	$	—	 	 	$	—	 	
Derivative instruments (b)	 	 	20	 	 	 	2	 	 	 	2	 	 	 	16	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Total (c)	 	$	25	 	 	$	7	 	 	$	2	 	 	$	16	 	

Consumers	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Assets:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Cash equivalents	 	$	56	 	 	$	56	 	 	$	—	 	 	$	—	 	
Restricted cash equivalents	 	 	5	 	 	 	5	 	 	 	—	 	 	 	—	 	
CMS Energy Common Stock	 	 	19	 	 	 	19	 	 	 	—	 	 	 	—	 	
Nonqualified deferred compensation plan assets	 	 	3	 	 	 	3	 	 	 	—	 	 	 	—	 	
SERP	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Equity securities	 	 	25	 	 	 	25	 	 	 	—	 	 	 	—	 	
Debt securities	 	 	19	 	 	 	—	 	 	 	19	 	 	 	—	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Total	 	$	127	 	 	$	108	 	 	$	19	 	 	$	—	 	

Liabilities:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Nonqualified deferred compensation plan liabilities	 	$	3	 	 	$	3	 	 	$	—	 	 	$	—	 	
Derivative instruments	 	 	1	 	 	 	—	 	 	 	1	 	 	 	—	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Total (c)	 	$	4	 	 	$	3	 	 	$	1	 	 	$	—	 	

(a)	 	This amount is gross and excludes the immaterial impact of offsetting derivative assets and liabilities under master netting arrangements.	
 		
(b)	 	This amount is gross and excludes the immaterial impact of offsetting derivative assets and liabilities under master netting arrangements and the $2 million impact of offsetting cash margin deposits paid by CMS ERM to other parties.	
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(c)	 	At December 31, 2008, CMS Energy’s liabilities classified as Level 3 represent 64 percent of CMS Energy’s total liabilities measured at fair value. Consumers did not have any assets or liabilities classified as Level 3.	
Cash Equivalents: Cash equivalents and restricted cash equivalents consist of money market funds with daily liquidity. The funds invest in U.S. Treasury notes, other government-backed securities, and repurchase agreements collateralized by U.S. Treasury notes.
Nonqualified Deferred Compensation Plan Assets: CMS Energy’s and Consumers’ nonqualified deferred compensation plan assets are invested in various mutual funds. CMS Energy and Consumers value these assets using a market approach, using the daily quoted NAV provided by the fund managers that are the basis for transactions to buy or sell shares in each fund. CMS Energy and Consumers report these assets in Other non-current assets on their Consolidated Balance Sheets.
SERP Assets: CMS Energy and Consumers value their SERP assets using a market approach, incorporating prices and other relevant information from market transactions. The SERP equity securities consist of an investment in a Standard & Poor’s 500 Index mutual fund. The fund’s equity securities are listed on an active exchange. The fair value of the SERP equity securities is based on the NAV of the mutual fund, derived from the daily closing prices of the equity securities held by the fund. The NAV is the basis for transactions to buy or sell shares in the fund.
CMS Energy and Consumers value their SERP debt securities, which are investment grade municipal bonds, using a matrix pricing model that incorporates market-based information. The fair value of the SERP debt securities 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 municipal securities normally considered by market participants when pricing such debt securities. CMS Energy and Consumers report their SERP assets in Other non-current assets on their Consolidated Balance Sheets. For additional details about SERP securities, see Note 8, Financial and Derivative Instruments.
Nonqualified Deferred Compensation Plan Liabilities: CMS Energy and Consumers value their non-qualified deferred compensation plan liabilities based on the fair values of the plan assets, as they reflect what CMS Energy and Consumers owe the plan participants in accordance with their investment elections. CMS Energy reports these liabilities, except for liabilities related to its DSSP, in Other non-current liabilities on its Consolidated Balance Sheets; its DSSP liability is included in Non-current postretirement benefits. Consumers reports all of its nonqualified deferred compensation plan liabilities in Other non-current liabilities on its 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. They use various inputs to value the derivatives depending on the type of contract and the availability of market data. CMS Energy has exchange-traded derivative contracts that are valued based on Level 1 quoted prices in actively traded markets, as well as derivatives that are valued using Level 2 inputs, including commodity market prices, interest rates, credit ratings, default rates, and market-based seasonality factors. CMS Energy also has derivative instruments that extend beyond time periods in which quoted prices are available. For these instruments, CMS Energy uses modeling methods to project future prices. Such fair value measurements are classified in Level 3 unless modeling was required only for an insignificant portion of the total derivative value.
CMS Energy’s derivatives include an electricity sales agreement held by CMS ERM. This agreement, classified as Level 3, extends beyond the term for which quoted electricity prices are available. To value this agreement, CMS Energy uses a proprietary forward power pricing curve that is based on forward gas
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prices and an implied heat rate. CMS Energy also increases the fair value of the liability for this agreement by an amount that reflects the uncertainty of its model.
For all fair values other than Level 1 prices, CMS Energy and Consumers incorporate adjustments for the risk of nonperformance. For derivative assets, a credit adjustment is applied against the asset based on the published default rate for the credit rating that CMS Energy and Consumers assign to the counterparty based on an internal credit-scoring model. This model considers various inputs, including the counterparty’s financial statements, credit reports, trade press, and other information that would be available to market participants. To the extent that the internal ratings are comparable to credit ratings published by independent rating agencies, the resulting credit adjustment is classified within Level 2. If the internal model results in a rating that is outside of the range of ratings given by the independent agencies and the credit adjustment is significant to the overall valuation, the derivative fair value is classified as Level 3. CMS Energy and Consumers adjust their derivative liabilities downward to reflect the risk of their own nonperformance, based on their published credit ratings. Adjustments for credit risk using the approach outlined above are not materially different from the adjustments that would result from using credit default swap rates for the contracts presently held. For details about derivative contracts, see Note 8, Financial and Derivative Instruments.
Assets and Liabilities Measured at Fair Value on a Recurring Basis using Level 3 Inputs
The following table is a reconciliation of changes in the fair values of Level 3 assets and liabilities at CMS Energy:
 	 	 	 	 	 	 	 	 	
In Millions	
Three months ended June 30	 	2009	 	2008	
Balance at April 1	 	$	(10	)	 	$	(21	)	
Total gains (realized and unrealized)	 	 	 	 	 	 	 	 	
Included in earnings (a)	 	 	—	 	 	 	(3	)	
Purchases, sales, issuances, and settlements (net)	 	 	(1	)	 	—	
 	 	 	
Balance at June 30	 	 	(11	)	 	 	(24	)	
 	 	 	
Unrealized gains (losses) included in earnings for the quarter ended June 30 relating to assets and liabilities still held at June 30 (a)	 	$	(1	)	 	$	(4	)	

In Millions	
Six months ended June 30	 	2009	 	2008	
Balance at January 1	 	$	(16	)	 	$	(19	)	
Total gains (realized and unrealized)	 	 	 	 	 	 	 	 	
Included in earnings (a)	 	 	6	 	 	 	(6	)	
Purchases, sales, issuances, and settlements (net)	 	 	(1	)	 	 	1	 	
 	 	 	
Balance at June 30	 	 	(11	)	 	 	(24	)	
 	 	 	
Unrealized gains (losses) included in earnings for the six months ended June 30 relating to assets and liabilities still held at June 30 (a)	 	$	4	 	 	$	(8	)	

			
(a)	 	CMS Energy records realized and unrealized gains and losses for Level 3 recurring fair values in earnings as a component of Operating Revenue or Operating Expenses in its Consolidated Statements of Income.	
4: CONTINGENCIES
CMS ENERGY CONTINGENCIES
Gas Index Price Reporting Investigation: In 2002, CMS Energy notified appropriate regulatory and governmental agencies that some employees at CMS MST and CMS Field Services appeared to have
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provided inaccurate information regarding natural gas trades to various energy industry publications, which compile and report index prices. CMS Energy cooperated with an investigation by the DOJ regarding this matter. Although CMS Energy has not received any formal notification that the DOJ has completed its investigation, the DOJ’s last request for information occurred in 2003, and CMS Energy completed its response to this request in 2004. CMS Energy is unable to predict the outcome of the DOJ investigation and what effect, if any, the investigation will have on its business.
Gas Index Price Reporting Litigation: CMS Energy, along with CMS MST, CMS Field Services, Cantera Natural Gas, Inc. (the company that purchased CMS Field Services) and Cantera Gas Company are named as defendants in various class action and individual lawsuits arising as a result of allegedly inaccurate natural gas price reporting. Allegations include manipulation of NYMEX natural gas futures and options prices, price-fixing conspiracies, and artificial inflation of natural gas retail prices in California, Colorado, Kansas, Missouri, Tennessee, and Wisconsin.
In 2007, CMS MST settled a master class action suit in California state court for $7 million and the CMS Energy defendants settled four class action suits originally filed in California federal court. CMS MST is the only remaining defendant in the California state court cases. In July 2009, CMS MST entered into a settlement of the remaining California state court cases. The settlement amount is immaterial to CMS Energy.
All CMS Energy defendants were dismissed from the Missouri Public Service Commission case, a state action, and the Breckenridge case, a federal action. Appeals are pending in both cases. CMS Energy was also dismissed from three federal cases, while the other CMS Energy defendants remain. CMS Energy defendants were also dismissed from a federal case in Wisconsin, but the plaintiffs have filed a motion for reconsideration and refiled the complaint in Michigan federal court. The Michigan case was transferred to the multi-district litigation proceeding in Nevada. In addition, the Tennessee Supreme Court has granted the CMS Energy defendants’ application for leave to appeal the Tennessee class action lawsuit. Other cases in several jurisdictions remain pending.
Another class action complaint was filed in March 2009 in circuit court in Wood County, Wisconsin, against CMS Energy defendants, along with 19 other non-CMS Energy companies, alleging conspiracy to restrain trade through inaccurate natural gas price reporting. Defendants removed the case to federal court in Wisconsin, and it was transferred through the multi-district litigation process to the consolidated actions in Nevada. CMS Energy cannot predict the financial impact or outcome of these matters.
Bay Harbor: As part of the development of Bay Harbor by certain subsidiaries of CMS Energy, and under an agreement with the MDEQ, third parties constructed a golf course and park over several abandoned CKD piles left over from the former cement plant operations on the Bay Harbor site. The third parties also undertook a series of remedial actions, including constructing a leachate collection system at an identified seep. Leachate is produced when water enters into the CKD piles. In 2002, CMS Energy sold its interest in Bay Harbor, but retained its obligations under environmental indemnities entered into at the start of the project.
In 2005, the EPA, along with CMS Land and CMS Capital, voluntarily executed an AOC under Superfund and approved a Removal Action Work Plan to address contamination issues at Bay Harbor. Collection systems required under the plan have been installed and effectiveness monitoring of the systems at the shoreline is ongoing. CMS Land, CMS Capital, and the EPA have agreed upon augmentation measures to address areas where pH measurements are not satisfactory. The augmentation measures are being implemented and are expected to be completed this year.
In 2008, the MDEQ and the EPA granted permits for CMS Land or its affiliate, Beeland, to construct and operate a deep injection well in Antrim County, Michigan, to dispose of leachate from Bay Harbor. Certain environmental groups, a local township, and a local county filed lawsuits appealing the permits. One appeal relating to the permit remains pending in the state court. Groups opposed to the injection well
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filed a lawsuit in Antrim County against development of the well and in January 2009, the trial judge issued an injunction. Beeland filed an application for leave to appeal the court’s order with the Michigan Court of Appeals and the Michigan Supreme Court. Both appeals were denied.
CMS Land and CMS Capital, the MDEQ, the EPA, and other parties are discussing the long-term remedy for the Bay Harbor sites, including:

 	•	 	the disposal of leachate;	
 		
 	•	 	the capping and excavation of CKD;	
 		
 	•	 	the location and design of collection lines and upstream diversion of water;	
 		
 	•	 	potential flow of leachate below the collection system;	
 		
 	•	 	applicable criteria for various substances such as mercury; and	
 		
 	•	 	other matters that are likely to affect the scope of remedial work that CMS Land and CMS Capital may be obligated to undertake.	
CMS Energy has recorded a cumulative charge related to Bay Harbor, including accretion expense, of $177 million, of which $36 million was recorded in the second quarter of 2009. Several factors contributed to the revised remediation cost estimates in the second quarter of 2009. These factors include increased costs related to the disposal of collected leachate and delays in identifying and securing a long-term water management solution. In addition, CMS Land and CMS Capital are projecting higher costs for operating and maintaining the existing collection system.
At June 30, 2009, CMS Energy had a recorded liability of $90 million for its remaining obligations. CMS Energy calculated this liability based on discounted projected costs, using a discount rate of 4.32 percent and an inflation rate of 1 percent on annual operating and maintenance costs. CMS Energy based the discount rate on the interest rate for 30-year U.S. Treasury securities on June 30, 2009. The undiscounted amount of the remaining obligation is $116 million. CMS Energy expects to pay $22 million in 2009, $13 million in 2010, $6 million in 2011, and the remainder on long-term liquid disposal and operating and maintenance costs.
CMS Energy’s estimate of remedial action costs and the timing of expenditures could change if there are additional major changes in circumstances or assumptions, including but not limited to:

 	•	 	an increase in the number of contamination areas;	
 		
 	•	 	different remediation techniques;	
 		
 	•	 	the nature and extent of contamination;	
 		
 	•	 	continued inability to reach agreement with the MDEQ or the EPA over required remedial actions;	
 		
 	•	 	delays in the receipt of requested permits;	
 		
 	•	 	delays following the receipt of any requested permits due to legal appeals of third parties;	
 		
 	•	 	further increases in water disposal costs;	
 		
 	•	 	delays in developing a long-term water disposal option;	
 		
 	•	 	additional or new legal or regulatory requirements; or	
 		
 	•	 	new or different landowner claims.	
Depending on the size of any indemnity obligation or liability under environmental laws, an adverse outcome of this matter could have a material adverse effect on CMS Energy’s liquidity and financial condition and could negatively impact CMS Energy’s financial results. CMS Energy cannot predict the financial impact or outcome of this matter.
Quicksilver Resources, Inc.: In 2001, Quicksilver sued CMS MST in Texas state court in Fort Worth, Texas for breach of contract in connection with a base contract for the sale and purchase of natural gas. The jury verdict awarded Quicksilver no compensatory damages but $10 million in punitive damages. In
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2007, the trial court nullified the jury award of punitive damages but held that the contract should be rescinded prospectively. The judicial rescission of the contract caused CMS Energy to record a charge in the second quarter of 2007 of $24 million, net of tax. In June 2009, the Texas Court of Appeals ruled in favor of CMS MST and, pursuant to a settlement agreement to end the litigation, Quicksilver paid $5 million to CMS MST, which caused CMS Energy to recognize a $5 million credit to Cost of gas sold. The parties have agreed not to appeal. The Quicksilver matter has now been resolved.
State Street Bank and TSU Litigation: In 1998, CMS Viron installed a number of energy savings measures at TSU. CMS Viron sold the master lease for the project to a third-party, which transferred its interest to State Street Bank. Although TSU accepted the improvements, it refused to pay on the grounds that the Texas Board of Higher Education had not approved the expenditure. In 2002, State Street Bank sued CMS Viron in the District Court of Harris County, Texas, claiming primarily a breach of warranty. The plaintiffs are seeking $6 million plus interest from CMS Viron. CMS Viron has filed a motion for summary disposition. The trial is scheduled to begin in August 2009. CMS Viron believes it has a valid defense to the claim, but cannot predict the outcome of this litigation.
Equatorial Guinea Tax Claim: In 2004, CMS Energy received a request for indemnification from the purchaser of CMS Oil and Gas. The indemnity claim relates to the sale of CMS Energy’s oil, gas and methanol projects in Equatorial Guinea and the claim of the government of Equatorial Guinea that CMS Energy owes $142 million in taxes in connection with that sale. CMS Energy concluded that the government’s tax claim is without merit and the purchaser of CMS Oil and Gas submitted a response to the government rejecting the claim. The government of Equatorial Guinea has indicated that it still intends to pursue its claim. CMS Energy cannot predict the financial impact or outcome of this matter.
Moroccan Tax Claim: In 2007, CMS Energy sold its 50 percent interest in Jorf Lasfar. As part of the sale agreement, CMS Energy agreed to indemnify the purchaser for 50 percent of any tax assessments on Jorf Lasfar attributable to tax years prior to the sale. In 2007, the Moroccan tax authority concluded its audit of Jorf Lasfar for tax years 2003 through 2005. The audit asserted deficiencies in certain corporate and withholding taxes. In January 2009, CMS Energy paid $18 million, which it charged against a tax indemnification liability established when it recorded the sale of Jorf Lasfar, and accordingly, the payment did not affect earnings. The Moroccan tax authority may also assess taxes for 2006. At June 30, 2009, CMS Energy had a recorded liability of $4 million for its potential indemnity obligation for corporate and withholding taxes for 2006. CMS Energy cannot predict the financial impact or outcome of this matter.
Marathon Indemnity Claim regarding F.T. Barr Claim: In 2001, F. T. Barr, an individual with an overriding royalty interest in production from the Alba field, filed a lawsuit in Harris County District Court in Texas against CMS Energy, CMS Oil and Gas and other defendants alleging that his overriding royalty payments related to Alba field production were improperly calculated. CMS Oil and Gas believes that Barr was properly paid on gas sales and that he was not entitled to the additional overriding royalty payment sought. All parties signed a confidential settlement agreement in 2004. The settlement resolved claims between Barr and the defendants, and the involved CMS Energy entities reserved all defenses to any indemnity claim relating to the settlement. Issues exist between Marathon and certain present or former CMS Energy entities as to the existence and scope of any indemnity obligation to Marathon in connection with the matter. In April 2008, Marathon indicated its intent to pursue the indemnity claim, and certain present and former CMS Energy entities and Marathon entered into a one-year agreement tolling the statute of limitations on any claim by Marathon under the indemnity. In April 2009, certain Marathon entities filed a case in the United States District Court for the Southern District of Texas against Enterprises for indemnification. CMS Energy entities dispute Marathon’s claim, and will vigorously oppose it. CMS Energy entities also will assert that Marathon has suffered minimal, if any, damages. CMS Energy cannot predict the outcome of this matter. If Marathon’s claim were sustained, it would have a material effect on CMS Energy’s future earnings and cash flow.
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CONSUMERS’ ELECTRIC UTILITY CONTINGENCIES
Electric Environmental Matters: Consumers’ operations are subject to environmental laws and regulations. Generally, Consumers has been able to recover, in customer rates, the costs to operate its facilities in compliance with these laws and regulations.
Cleanup and Solid Waste: Under the NREPA, Consumers will ultimately incur investigation and response activity costs at a number of sites. Consumers believes that these costs will be recoverable in rates under current ratemaking policies. At June 30, 2009, Consumers had a recorded liability of $1 million, the minimum amount in the range of its estimated probable NREPA liability, in accordance with applicable accounting standards.
Consumers is a potentially responsible party at a number of contaminated sites administered under the Superfund. Superfund liability is joint and several. However, many other creditworthy parties with substantial assets are potentially responsible with respect to the individual sites. Based on its experience, Consumers estimates that its share of the total liability for known Superfund sites will be between $2 million and $11 million. Various factors, including the number of potentially responsible parties involved with each site, affect Consumers’ share of the total liability. At June 30, 2009, Consumers had a recorded liability of $2 million, the minimum amount in the range of its estimated probable Superfund liability, in accordance with applicable accounting standards.
The timing of payments related to Consumers’ investigation and response activities at its Superfund and NREPA sites is uncertain. Periodically, Consumers receives information about new sites, which leads it to review its response activity estimates. Any significant change in the underlying assumptions, such as an increase in the number of sites, different remediation techniques, nature and extent of contamination, and legal and regulatory requirements, could affect its estimates of NREPA and Superfund 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 and replaced part of the PCB material with non-PCB material. Since proposing a plan to take action with respect to the remaining materials, Consumers has had several communications with the EPA. Consumers is not able to predict when the EPA will issue a final ruling and cannot predict the financial impact or outcome of this matter.
Electric Utility Plant Air Permit Issues and Notices of Violation: In 2007, Consumers received a NOV/FOV from the EPA alleging that fourteen utility boilers exceeded the visible emission limits in their associated air permits. The utility boilers are located at the Karn/Weadock Generating Complex, Campbell Plant, Cobb Electric Generating Station and Whiting Plant, which are all in Michigan. Consumers has responded formally to the NOV/FOV denying the allegations and is awaiting the EPA’s response to its submission.
In addition, the EPA has alleged that some utilities have incorrectly classified major plant modifications as RMRR rather than seeking permits from the EPA to modify their plants. Consumers responded to information requests from the EPA on this subject in 2000, 2002, 2006, and 2008. Consumers believes that it has properly interpreted the requirements of RMRR. In addition, in 2008, Consumers received a NOV for three of its coal-fueled facilities alleging, among other things, violations of NSR and PSD regulations relating to ten projects from 1986 to 1998 allegedly subject to NSR review.
Consumers is engaged in discussions with the EPA on both of these matters. Depending upon the outcome of these discussions, the EPA could bring legal action against Consumers and/or Consumers could be required to install additional pollution control equipment at some or all of its coal-fueled electric generating plants, surrender emission allowances, engage in Supplemental Environmental Programs, and/or pay fines. Additionally, Consumers would need to assess the viability of continuing operations at certain plants. Consumers cannot predict the financial impact or outcome of these matters.
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RFC Initial Notice of Alleged Violation : In July 2008, Consumers notified RFC, the NERC-affiliated regional reliability organization in the region that includes Consumers’ generating plants, that certain generation equipment covered by the NERC standards for maintenance and testing of certain electrical protection equipment was not covered by Consumers’ Generation Reliability Compliance Program. Since notifying RFC, Consumers has submitted and implemented a mitigation plan. It has also responded to the February 2009 initial notice of violation. Consumers cannot predict the financial impact or outcome of this matter.
Litigation: The transmission charges Consumers pays to MISO have been subject to regulatory review and recovery through the annual PSCR process. Michigan’s attorney general has argued that the statute governing the PSCR process does not permit recovery of transmission charges in that manner and that those expenses should be considered in general rate cases. Several decisions of the Michigan Court of Appeals have ruled against the Michigan attorney general’s arguments, but in September 2008, the Michigan Supreme Court granted the Michigan attorney general’s applications for leave to appeal two of those decisions. In May 2009, the Michigan Supreme Court issued an order affirming Consumers’ ability to recover transmission costs through the PSCR process. The Michigan attorney general filed a petition for reconsideration/rehearing on this decision, which the Michigan Supreme Court denied.
Nuclear Matters:
DOE Litigation: In 1997, a United States Court of Appeals decision confirmed that the DOE was to begin accepting deliveries of spent nuclear fuel for disposal by January 1998. Subsequent United States Court of Appeals litigation, in which Consumers and other utilities participated, has not been successful in producing more specific relief for the DOE’s failure to accept the spent nuclear fuel.
A number of court decisions support the right of utilities to pursue damage claims in the United States Court of Claims against the DOE for failure to take delivery of spent nuclear fuel. Consumers filed a complaint in 2002. If Consumers’ litigation against the DOE is successful, Consumers plans to use any recoveries as reimbursement for the incurred costs of spent nuclear fuel storage during Consumers’ ownership of Palisades and Big Rock. Consumers cannot predict the financial impact or outcome of this matter. The sale of Palisades and the Big Rock ISFSI did not transfer the right to any recoveries from the DOE related to costs of spent nuclear fuel storage incurred during Consumers’ ownership of Palisades and Big Rock.
Nuclear Fuel Disposal Cost: Consumers deferred payment for disposal of spent nuclear fuel used before April 7, 1983. Its DOE liability is $163 million at June 30, 2009. This amount includes interest, and is payable upon the first delivery of spent nuclear fuel to the DOE. Consumers recovered the amount of this liability, excluding a portion of interest, through electric rates. In conjunction with the sale of Palisades and the Big Rock ISFSI in 2007, Consumers retained this obligation and provided a $162 million letter of credit to Entergy as security for this obligation.
CONSUMERS’ GAS UTILITY CONTINGENCIES
Gas Environmental Matters: Consumers expects to incur investigation and remediation costs at a number of sites under the NREPA. These sites include 23 former manufactured gas plant facilities. Consumers operated the facilities on these sites for some part of their operating lives. For some of these sites, it has no current ownership or may own only a portion of the original site. In December 2008, Consumers estimated its undiscounted remaining costs to be between $38 million and $52 million. Consumers expects to fund most of these costs through proceeds from insurance settlements and MPSC-approved rates.
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At June 30, 2009, Consumers had a recorded liability of $37 million and a regulatory asset of $66 million that included $30 million of deferred MGP expenditures. The timing of payments related to the remediation of Consumers’ manufactured gas plant sites is uncertain. Consumers expects annual response activity costs to range between $5 million and $6 million over the next five years. Consumers periodically reviews these response activity 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 MGP liability.
FERC Investigation: In February 2008, Consumers received a data request relating to an investigation the FERC is conducting into possible violations of the FERC’s posting and competitive bidding regulations related to releases of firm capacity on natural gas pipelines. Consumers responded to the FERC’s first data request in the first quarter of 2008. The FERC has also taken depositions and Consumers has responded to additional data requests. Consumers cannot predict the financial impact or outcome of this matter.
GUARANTEES
The following table describes CMS Energy’s guarantees at June 30, 2009:
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
In Millions	 	
 	 	Issue	 	 	Expiration	 	 	Maximum	 	 	Carrying	 	
Guarantee Description	 	Date	 	 	Date	 	 	Obligation	 	 	Amount	 	
 	
Indemnity obligations from asset sales and other agreements (a)	 	Various	 	Indefinite	 	$	1,369	(b)	 	$	15	 	
Surety bonds and other indemnity obligations (c)	 	Various	 	Indefinite	 	 	35	 	 	 	—	 	
Guarantees and put options (d)	 	Various	 	Various through	 	 	4	 	 	 	1	 	
 	 	 	 	 	 	September 2023	 	 	 	 	 	 	 	 	

			
(a)	 	In May 2007, CMS Energy provided an indemnity to TAQA in connection with the sale of its ownership interests in businesses in the Middle East, Africa, and India, and recorded a $50 million provision for the contingent liability. This indemnity expired on May 2, 2009. CMS Energy eliminated the liability from its balance sheet, recognizing a $45 million benefit to Income (Loss) from Discontinued Operations, Net of Tax (Tax Benefit) and a $5 million benefit to Gain on asset sales, net.	
 		
(b)	 	The majority of this amount arises from stock and asset sales agreements under which CMS Energy indemnified the purchaser for losses resulting from various matters, including claims related to tax disputes, claims related to power purchase agreements, and defects in title to the assets or stock sold to the purchaser by CMS Energy subsidiaries. Except for items described elsewhere in this Note, CMS Energy believes the likelihood of loss to be remote for the indemnity obligations not recorded as liabilities.	
 		
(c)	 	In the normal course of business, CMS Energy issues surety bonds and indemnifications to counterparties to facilitate commercial transactions. CMS Energy would be required to pay a counterparty if it incurred losses due to a breach of contract terms or nonperformance under the contract.	
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(d)	 	 In 1987, Consumers issued an $85 million guarantee of the MCV Partnership’s performance under a steam and electric power agreement with Dow. In May 2009, the parties mutually terminated the steam and electric power agreement. The termination of the agreement released Consumers from its $85 million guarantee to Dow. At June 30, 2009, the maximum obligation and the carrying amount of CMS Energy’s put option agreements with certain Bay Harbor property owners were $1 million. Additionally, if CMS Energy is required to purchase a Bay Harbor property under a put option agreement, it may sell the property to recover the amount paid under the option.	
At June 30, 2009, the maximum obligation and carrying amount for Consumers’ guarantees were immaterial.
The following table provides additional information regarding CMS Energy’s guarantees:

 	 	 	 	 	
 	 	 	 	Events That Would	
Guarantee Description	 	How Guarantee Arose	 	Require Performance	
 	
Indemnity obligations from asset sales and other agreements	 	Stock and asset sales agreements	 	Findings of misrepresentation, breach of warranties, tax claims, and other specific events or circumstances	
Surety bonds and other indemnity obligations	 	Normal operating activity, permits and licenses	 	Nonperformance	
Guarantees and put options	 	Normal operating activity	 	Nonperformance or
non-payment by a
subsidiary under a
related contract	
 	 	Bay Harbor remediation
efforts	 	Owners exercising put options requiring CMS Land and CMS Capital to purchase property	
 
CMS Energy and Consumers also enter into various agreements containing tax and other indemnity provisions for which they are unable to estimate the maximum potential obligation. These factors include unspecified exposure under certain agreements. CMS Energy and Consumers consider the likelihood that they would be required to perform or incur substantial losses related to these indemnities to be remote.
OTHER CONTINGENCIES
In addition to the matters disclosed in this Note, CMS Energy, Consumers, and certain other subsidiaries of CMS Energy are parties to certain lawsuits and administrative proceedings before various courts and governmental agencies arising from the ordinary course of business. These lawsuits and proceedings may involve personal injury, property damage, contracts, environmental issues, federal and state taxes, rates, licensing, and other matters. CMS Energy and Consumers believe that the outcome of any one of these proceedings will not have a material adverse effect on their consolidated results of operations, financial position, or cash flows.
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5: UTILITY RATE MATTERS
CONSUMERS’ ELECTRIC UTILITY RATE MATTERS
Stranded Cost Recovery: In 2004, the MPSC approved recovery of Consumers’ Stranded Costs incurred in 2002 and 2003 plus interest through the period of collection through a surcharge on ROA customers. Consumers presently has fewer ROA customers than at the time of the 2004 MPSC order, but has experienced a recent upward trend in ROA customers. The 2008 Energy Legislation amended the Customer Choice Act and directed the MPSC to approve rates that will allow recovery of Stranded Costs within five years. In January 2009, Consumers filed an application with the MPSC requesting recovery of these Stranded Costs through a surcharge on both full service and ROA customers. In June 2009, the ALJ’s proposal for decision supported Consumers’ request for recovery. At June 30, 2009, Consumers had a regulatory asset for Stranded Costs of $72 million.
Power Supply Cost Recovery: The PSCR process is designed to allow Consumers to recover all of its power supply 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 billing factor monthly in order to minimize the over- or underrecovery amount in the annual PSCR reconciliation.
The following table summarizes the PSCR reconciliation filings pending with the MPSC:
 	 	 	 	 	 	 	 	 	
Power Supply Cost Recovery Reconciliation	
  	 	 	 	Net Over-(Under)	 	PSCR Cost of Power	 	 	
PSCR Year	 	Date Filed	 	recovery (a)	 	Sold	 	Description	
 	
2007	 	March 2008	 	$(42) million (b)	 	$1.628 billion	 	In the 2007 PSCR Plan, Consumers expected to offset power supply costs by including a $44 million credit for Palisades sale proceeds due customers. However, the MPSC directed that the Palisades sale proceeds be refunded through bill credits outside of the PSCR process.	
2008	 	March 2009	 	$2 million	 	$1.670 billion	 	The overrecovery amount includes accrued interest and reflects an overrecovery for 2008 less underrecoveries from 2007.	

(a)     Amount includes prior year over- or underrecoveries as allowed by the MPSC order in Consumers’ 2007 PSCR plan case.
(b)     In May 2009, the ALJ’s proposal for decision recommended no PSCR recovery for economic development discounts of $3 million and disallowance of $4 million of net replacement power costs associated with a crane incident at Consumers’ Campbell Plant.
2009 PSCR Plan : In September 2008, Consumers submitted its 2009 PSCR plan to the MPSC. The plan seeks approval to apply a uniform maximum PSCR factor of up to $0.02680 per kWh to all classes of customers, which includes recovery of an expected $22 million discount in power supply charges provided to a large industrial customer. The MPSC approved this discount in 2005 to promote long-term investments in the industrial infrastructure of Michigan. In June 2009, the ALJ’s proposal for decision recommended that recovery of this discount should not be included in the PSCR, but should be determined through a general rate case.
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Consumers self-implemented the 2009 PSCR charge in January 2009. The August 2009 PSCR billing factor is $0.01529 per kWh. While Consumers expects to recover all of its PSCR costs, it cannot predict the financial impact or outcome of these proceedings.
Electric Rate Case and Self-Implemented Rates: In November 2008, Consumers filed an application with the MPSC seeking an annual increase in revenue of $214 million based on an 11 percent authorized return on equity. The filing sought recovery of costs associated with new plant investments including Clean Air Act investments, higher operating and maintenance costs, and the approval to recover costs associated with Consumers’ advanced metering infrastructure program. The following table details the components of the requested increase in revenue:
 	 	 	 	 	
In Millions	 	
Components of the increase in revenue	 	 	 	 	
 	
Operating and maintenance	 	$	50	 	
Rate of return	 	 	17	 	
Rate base	 	 	104	 	
Sales	 	 	43	 	
 	 	 	 	
Total	 	$	214	 	
 	
In April 2009, the MPSC staff and intervenors filed testimony concerning the rate case. The MPSC staff recommended a revenue increase of $75 million, based on an 11 percent return on equity. The MPSC staff subsequently filed revised testimony recommending a $111 million revenue increase.
This was the first electric rate case under the new streamlined regulatory process enacted by the 2008 Energy Legislation. The new provisions generally allow utilities to self-implement rates six months after filing, subject to refund with interest, unless the MPSC finds good cause to prohibit self-implementation. The new provisions require the MPSC to issue an order 12 months after filing or the rates, as filed, become permanent. In April 2009, Consumers filed tariff sheets indicating that it planned to self-implement an electric rate increase in the annual amount of $179 million beginning in May 2009. The MPSC issued an order in May 2009 requiring that, if Consumers self-implemented the $179 million electric rate increase, it must simultaneously refund to customers $36 million of excess proceeds from the April 2007 sale of Palisades. Accordingly, in May 2009 Consumers self-implemented an annual electric rate increase of $179 million, subject to refund with interest, and also implemented a one-time refund of $36 million to customers.
In November 2009, the MPSC issued its final order in this case, authorizing Consumers to increase its rates by $139 million annually, $40 million less than the rate increase self-implemented by Consumers. The order reflects an authorized rate of return of 10.7 percent and the exclusion from rate base of amounts associated with an obligation to the DOE for nuclear fuel disposal. The order also requires Consumers to refund the remaining $73 million of proceeds from the April 2007 sale of Palisades. The order adopts a pilot decoupling mechanism that goes into effect December 1, 2009, and which, subject to certain conditions, will allow rates to be adjusted to collect or refund the difference between the level of average sales per customer adopted in the order and actual average sales per customer. The order also adopts an uncollectible expense tracking mechanism, effective January 1, 2009, that will allow rates to be adjusted to collect or refund 80 percent of the difference between the level of uncollectible expense included in rates and actual uncollectible expense.
For details on the impacts of the rate order on the interim periods of 2009, see Note 1, Subsequent Event.
Palisades Regulatory Proceedings: The MPSC order approving the Palisades sale transaction required that Consumers credit $255 million of excess sales proceeds and decommissioning amounts to its retail customers by December 2008. There are additional excess sales proceeds and decommissioning fund balances of $135 million above the amount in the MPSC order. The MPSC order in Consumers’ 2007 electric rate case
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instructed Consumers to offset the excess sales proceeds and decommissioning fund balances with $26 million of transaction costs from the Palisades sale. In addition, the MPSC required Consumers to offset the electric rate increase it self-implemented in May 2009 with $36 million of these funds. Furthermore, the November 2009 electric rate order ordered Consumers to refund the remaining balance of $73 million, as described in the “Electric Rate Case and Self-Implemented Rates” section of this Note.
Big Rock Decommissioning: The MPSC and the FERC regulate the recovery of costs to decommission Big Rock. In 2000, Consumers stopped funding a Big Rock trust fund because the MPSC-authorized decommissioning surcharge collection period expired. The level of funds provided by the trust fell short of the amount needed to complete decommissioning. As a result, Consumers provided $44 million of corporate contributions for decommissioning costs. Consumers also paid $30 million to Entergy to assume ownership and responsibility for the Big Rock ISFSI and paid $55 million for nuclear fuel storage costs incurred as a result of the DOE’s failure to accept spent nuclear fuel on schedule. At June 30, 2009, Consumers has a $129 million regulatory asset recorded on its Consolidated Balance Sheets for these costs.
In 2008, Consumers filed an application with the MPSC seeking the deferral of ratemaking treatment for the recovery of its nuclear fuel storage costs and the payment to Entergy, until the litigation regarding these costs is resolved in the federal courts. In the application, Consumers is seeking to recover the $44 million Big Rock decommissioning shortfall from customers. The MPSC staff and other interveners have filed testimony in this case recommending that the MPSC deny Consumers’ request and requesting rate refunds of various amounts. Consumers continues to believe that recovery of its regulatory asset is probable, but it cannot predict the financial impact or outcome of this proceeding.
CONSUMERS’ GAS UTILITY RATE MATTERS
Gas Cost Recovery: The GCR process is designed to allow Consumers to recover all of its 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 GCR billing factor monthly in order to minimize the over- or underrecovery amount in the annual GCR reconciliation.
The following table summarizes the GCR reconciliation filings pending with the MPSC:
Gas Cost Recovery Reconciliation

 	 	 	 	Net Over-(Under)	 	 	 	 	
GCR Year	 	Date Filed	 	recovery	 	GCR Cost of Gas Sold	 	Description	
 	
2007-2008	 	June 2008	 	$17 million	 	$1.7 billion	 	The overrecovery amount reflects an overrecovery of $15 million plus $2 million in accrued interest owed to customers.	
2008-2009	 	June 2009	 	$(15) million	 	$1.8 billion	 	The underrecovery amount reflects an underrecovery of $16 million less $1 million in accrued interest owed to customers.	
 	
GCR plan for year 2009-2010: In December 2008, Consumers filed an application with the MPSC seeking approval of a GCR plan for its 2009-2010 GCR plan year. The request proposed the use of a base GCR ceiling factor of $8.10 per mcf, plus a quarterly GCR ceiling price adjustment contingent upon future events. Using the proposed base GCR ceiling factor, Consumers self-implemented the 2009-2010 GCR charge in April 2009. The August 2009 GCR billing factor is $7.36 per mcf. While Consumers expects to recover all of its GCR costs, it cannot predict the financial impact or outcome of these proceedings.
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Gas Depreciation: In August 2008, Consumers filed a gas depreciation case using 2007 data with the MPSC-ordered variations on traditional cost-of-removal methodologies. In December 2008, the MPSC approved a partial settlement agreement allowing Consumers to implement the filed depreciation rates, on an interim basis, concurrent with the implementation of settled rates in its 2008 gas rate case. The interim depreciation rates, which reduced Consumers’ recovery of depreciation expense by $20 million per year, will remain in effect until the MPSC issues a final order in the gas depreciation case. In July 2009, the ALJ’s proposal for decision recommended an additional reduction to Consumers’ recovery of depreciation expense of $28 million per year. The final order in Consumers’ gas depreciation case may increase or decrease its annual recovery of depreciation expense.
Gas Rate Case: In May 2009, Consumers filed an application with the MPSC seeking an annual increase in revenue of $114 million based on an 11 percent authorized return on equity. The filing seeks recovery of costs associated with ongoing investments in gas utility assets, increases in operating and maintenance costs, and recognition of a decrease in expected sales related to the continued decline in the Michigan economy. The following table details the components of the requested increase in revenue:
 	 	 	 	 	
 	 	In Millions	 	
 	
Components of the increase in revenue	 	 	 	 	
 	
Operating and maintenance	 	$	25	 	
Rate of return	 	 	8	 	
Rate base	 	 	40	 	
Sales	 	 	41	 	
 	 	 	 	
Total	 	$	114	 	
 	 	 	 	
Under the new streamlined regulatory process described in the “Consumers’ Electric Utility Rate Matters — Electric Rate Case and Self-Implemented Rates” section of this Note, utilities may be allowed to self-implement rates six months after filing. If the MPSC were to take action to prevent or delay Consumers’ self-implementation, it could have a materially negative impact on Consumers’ earnings and cash flows. Consumers cannot predict the financial impact or outcome of this gas rate case.
Lost and Unaccounted for Gas: Gas utilities typically lose some gas as it is injected into and withdrawn from storage and sent through transmission and distribution systems. Consumers recovers the cost of lost and unaccounted for gas through general rate cases, which have provided for recovery based on an average of the previous five years of actual losses. To the extent that Consumers’ annual lost and unaccounted for gas cost exceeds the previous five-year average, Consumers may be unable to recover these amounts in rates.
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6: FINANCINGS AND CAPITALIZATION
Long-term debt is summarized as follows:
 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	In Millions	 	
 	 	June 30, 2009	 	 	December 31, 2008	 	
 	
CMS Energy	 	 	 	 	 	 	 	 	
Senior notes	 	$	2,175	 	 	$	1,703	 	
Revolving credit facility	 	 	—	 	 	 	105	 	
 	 	 	 	 	 	 	
Total — CMS Energy	 	 	2,175	 	 	 	1,808	 	
Consumers	 	 	4,579	 	 	 	4,297	 	
Other CMS Energy Subsidiaries	 	 	232	 	 	 	252	 	
 	 	 	 	 	 	 	
Total CMS Energy principal amounts outstanding	 	 	6,986	 	 	 	6,357	 	
Current amounts	 	 	(581	)	 	 	(489	)	
Net unamortized discount	 	 	(49	)	 	 	(31	)	
 	 	 	 	 	 	 	
Total CMS Energy Long-term debt	 	$	6,356	 	 	$	5,837	 	
 	 	 	 	 	 	 	
Consumers	 	 	 	 	 	 	 	 	
First mortgage bonds	 	$	3,815	 	 	$	3,517	 	
Senior notes and other	 	 	503	 	 	 	503	 	
Securitization bonds	 	 	261	 	 	 	277	 	
 	 	 	 	 	 	 	
Total Consumers principal amounts outstanding	 	 	4,579	 	 	 	4,297	 	
Current amounts	 	 	(492	)	 	 	(383	)	
Net unamortized discount	 	 	(6	)	 	 	(6	)	
 	 	 	 	 	 	 	
Total Consumers Long-term debt	 	$	4,081	 	 	$	3,908	 	
 	 	 	 	 	 	 	
Financings: The following is a summary of major long-term debt transactions during the six months ended June 30, 2009:

 	 	Principal	 	 	 	 	 	 	Issue/Retirement	 	 	 	 	
 	 	(in millions)	 	 	Interest Rate (%)	 	 	Date	 	 	Maturity Date	 	
 	
Debt Issuances:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
CMS Energy	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Convertible senior notes	 	$	173	 	 	 	5.50	%	 	June 2009	 	June 2029	
Senior notes	 	 	300	 	 	 	8.75	%	 	June 2009	 	June 2019	
Consumers	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
First mortgage bonds	 	 	500	 	 	 	6.70	%	 	March 2009	 	September 2019	
 	 	 	
Debt Retirements:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
CMS Energy	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Long-term debt — related parties (a)	 	$	144	 	 	 	7.75	%	 	June 2009	 	July 2027	
Consumers	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
First mortgage bonds	 	 	200	 	 	 	4.80	%	 	February 2009	 	February 2009	

(a)      CMS Energy retired this debt at a discount, and recorded a gain on extinguishment of debt of $28 million in Other income in its Consolidated Statements of Income.
In June 2009, CMS Energy commenced cash tender offers to repurchase up to $330 million of CMS Energy’s 7.75 percent senior notes due 2010 and 8.50 percent senior notes due 2011. In July 2009, under the terms of the tender offers, CMS Energy repurchased and retired $233 million principal amount of the 7.75 percent senior notes and $87 million principal amount of the 8.50 percent senior notes.
 37 

 

Revolving Credit Facilities: The following secured revolving credit facilities with banks were available at June 30, 2009:
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	In Millions	
 	 	 	 	 	 	 	 	 	 	Letters of Credit	 	 	
Company	Expiration Date	Amount of Facility	Amount Borrowed	Outstanding	 	Amount Available	
 	
CMS Energy (a)	 	April 2, 2012	 	$	550	 	 	$  —	(b)	$	3	 	 	$	547	 	
Consumers	 	March 30, 2012	 	 	500	 	 	—	 	 	172	 	 	 	328	 	
Consumers (c)	 	November 30, 2009	 	 	192	 	 	—	 	 	192	 	 	 	—	 	
Consumers	 	September 9, 2009	 	 	150	 	 	—	 	 	—	 	 	 	150	 	

(a)	 	CMS Energy’s average borrowings during the six months ended June 30, 2009, totaled $69 million, with a weighted average annual interest rate of 1.32 percent, at LIBOR plus 0.75 percent.	
 		
(b)	 	In July 2009, CMS Energy borrowed $130 million on its revolving credit facility to fund the repurchase and retirement of senior notes.	
 		
(c)	 	Consumers’ secured revolving letter of credit facility.	
Sale of Accounts Receivable: Under Consumers’ revolving accounts receivable sales program, Consumers may sell up to $250 million of accounts receivable, subject to certain eligibility requirements. At June 30, 2009, $134 million of accounts receivable were eligible for sale, and no accounts receivable were sold under the program.
Contingently Convertible Securities: At June 30, 2009, the significant terms of CMS Energy’s contingently convertible securities were as follows:

 	 	 	 	 	 	Outstanding	 	Adjusted Conversion	 	Adjusted Trigger	
Security	 	Maturity	 	(In Millions)	 	Price	 	Price	
 	
4.50% preferred stock (a)	 	 	—	 	 	$	243	 	 	$	9.32	 	 	$	11.18	 	
3.375% senior notes (b)	 	 	2023	 	 	 	140	 	 	 	10.05	 	 	 	12.06	 	
2.875% senior notes	 	 	2024	 	 	 	288	 	 	 	13.89	 	 	 	16.67	 	
5.50% senior notes (c)	 	 	2029	 	 	 	173	 	 	 	14.46	 	 	 	18.80	 	

(a)     During 20 of the last 30 trading days ended June 30, 2009, the $11.18 per share adjusted trigger price was met for these securities and, as a result, the securities are convertible at the option of the security holders for the three months ending September 30, 2009.
(b)     CMS Energy has the option to redeem these securities at par.
(c)     The $173 million of 5.50 percent convertible senior notes issued in June 2009 become convertible for the calendar quarter beginning October 1, 2009, if the price of CMS Energy’s common stock remains at or above the trigger price for 20 of 30 consecutive trading days ending on the last trading day of the third quarter of 2009. The trigger price at which these securities become convertible is 130 percent of the conversion price. The conversion and trigger prices are subject to adjustment under certain circumstances, including payments or distributions to CMS Energy’s common stockholders.
During the quarter ended June 30, 2009, no other trigger price contingencies were met that would have allowed CMS Energy or the holders of the convertible securities to convert the securities to cash and equity.
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Dividend Restrictions: Under provisions of CMS Energy’s senior notes indenture, at June 30, 2009, payment of common stock dividends by CMS Energy was limited to $677 million.
Under the provisions of its articles of incorporation, at June 30, 2009, Consumers had $364 million of unrestricted retained earnings available to pay common stock dividends 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 the FERC suggest that under a variety of circumstances common stock dividends from Consumers would not be limited to amounts in Consumers’ retained earnings. Any decision by Consumers to pay common stock dividends in excess of retained earnings would be based on specific facts and circumstances and would result only after a formal regulatory filing process.
For the six months ended June 30, 2009, CMS Energy received $130 million of common stock dividends from Consumers.
 39 

 

7: EARNINGS PER SHARE — CMS ENERGY
The following table presents CMS Energy’s basic and diluted EPS computations based on Earnings from Continuing Operations:
 	 	 	 	 	 	 	 	 	
 	 	In Millions, Except Per Share Amounts	 	
Three months ended June 30	 	2009	 	 	2008	 	
 	
Earnings Available to Common Stockholders	 	 	 	 	 	 	 	 	
Earnings from Continuing Operations	 	$	51	 	 	$	49	 	
Less Earnings Attributable to Noncontrolling Interests	 	 	(2	)	 	 	(1	)	
Less Preferred Dividends	 	 	(3	)	 	 	(3	)	
 	 	 	 	 	 	 	
Earnings from Continuing Operations Available to Common Stockholders — Basic and Diluted	 	$	46	 	 	$	45	 	
 	 	 	 	 	 	 	
Average Common Shares Outstanding	 	 	 	 	 	 	 	 	
Weighted Average Shares — Basic	 	 	226.9	 	 	 	225.4	 	
Add dilutive impact of Contingently Convertible Securities	 	 	7.6	 	 	 	15.0	 	
Add dilutive Stock Options and Warrants	 	 	0.1	 	 	 	0.2	 	
 	 	 	 	 	 	 	
Weighted Average Shares — Diluted	 	 	234.6	 	 	 	240.6	 	
 	 	 	 	 	 	 	
Earnings Per Average Common Share Available to Common Stockholders	 	 	 	 	 	 	 	 	
Basic	 	$	0.20	 	 	$	0.21	 	
Diluted	 	$	0.19	 	 	$	0.19	 	

 	 	In Millions, Except Per Share Amounts	 	
Six months ended June 30	 	2009	 	 	2008	 	
  | |	
Earnings Available to Common Stockholders	 	 	 	 	 	 	 	 	
Earnings from Continuing Operations	 	$	125	 	 	$	157	 	
Less Earnings Attributable to Noncontrolling Interests	 	 	(3	)	 	 	(4	)	
Less Preferred Dividends	 	 	(6	)	 	 	(6	)	
 	 	 	 	 	 	 	
Earnings from Continuing Operations Available to Common Stockholders — Basic and Diluted	 	$	116	 	 	$	147	 	
 	 	 	 	 	 	 	
Average Common Shares Outstanding	 	 	 	 	 	 	 	 	
Weighted Average Shares — Basic	 	 	226.8	 	 	 	225.3	 	
Add dilutive impact of Contingently Convertible Securities	 	 	7.2	 	 	 	14.3	 	
Add dilutive Stock Options and Warrants	 	 	0.1	 	 	 	0.2	 	
 	 	 	 	 	 	 	
Weighted Average Shares — Diluted	 	 	234.1	 	 	 	239.8	 	
 	 	 	 	 	 	 	
Earnings Per Average Common Share Available to Common Stockholders	 	 	 	 	 	 	 	 	
Basic	 	$	0.51	 	 	$	0.65	 	
Diluted	 	$	0.49	 	 	$	0.61	 	
 	 	 	
Contingently Convertible Securities: When CMS Energy has earnings from continuing operations, its contingently convertible securities dilute EPS to the extent that the conversion value of a security, which is based on the average market price of CMS Energy’s common stock, exceeds the principal value of that security. For additional details on contingently convertible securities, see Note 6, Financings and Capitalization.
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Stock Options and Warrants: For the three and six months ended June 30, 2009, outstanding options and warrants to purchase 0.6 million shares of CMS Energy common stock had no impact on diluted EPS, since the exercise price was greater than the average market price of common stock. These stock options have the potential to dilute EPS in the future.
Convertible Debentures: For the three and six months ended June 30, 2009 and 2008, there was no impact on diluted EPS from CMS Energy’s 7.75 percent convertible subordinated debentures. Using the if-converted method, the debentures would have:

 	•	 	increased the numerator of diluted EPS by $2 million for the three months ended June 30, 2009 and 2008 and by $4 million for the six months ended June 30, 2009 and 2008, from an assumed reduction of interest expense, net of tax; and	
 		
 	•	 	increased the denominator of diluted EPS by 3.6 million shares for the three months ended June 30, 2009 and by 3.9 million shares for the six months ended June 30, 2009. The denominator of diluted EPS would have increased by 4.2 million shares for the three months and six months ended June 30, 2008.	
CMS Energy can revoke the conversion rights if certain conditions are met.
8: FINANCIAL AND DERIVATIVE INSTRUMENTS
Financial Instruments: The carrying amounts of CMS Energy’s and Consumers’ cash, current accounts and notes receivable, short-term investments, and current liabilities approximate their fair values because of their short-term nature. The cost or carrying amount and fair value of CMS Energy’s and Consumers’ long-term financial instruments were as follows:
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
In Millions	 	
 	 	June 30, 2009	 	 	December 31, 2008	 	
 	 	Cost or Carrying	 	 	 	 	 	 	Cost or Carrying	 	 	 	 	
 	 	Amount	 	 	Fair Value	 	 	Amount	 	 	Fair Value	 	
 	
CMS Energy, including Consumers	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Securities held to maturity	 	$	3	 	 	$	3	 	 	$	3	 	 	$	3	 	
Securities available for sale	 	 	67	 	 	 	68	 	 	 	68	 	 	 	68	 	
Notes receivable, net	 	 	196	 	 	 	207	 	 	 	186	 	 	 	201	 	
Long-term debt (a)	 	 	6,937	 	 	 	6,979	 	 	 	6,326	 	 	 	5,962	 	
Long-term debt — related parties	 	 	34	 	 	 	27	 	 	 	178	 	 	 	107	 	
Consumers	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Securities available for sale	 	$	52	 	 	$	67	 	 	$	52	 	 	$	63	 	
Long-term debt (b)	 	 	4,573	 	 	 	4,575	 	 	 	4,291	 	 	 	4,073	 	

			
(a)	 	Includes current maturities of $581 million at June 30, 2009 and $489 million at December 31, 2008.	
 		
(b)	 	Includes current maturities of $492 million at June 30, 2009 and $383 million at December 31, 2008.	
Notes receivable, net consist of EnerBank’s fixed-rate installment loans. EnerBank estimates the fair value of these loans using a discounted cash flows technique that incorporates current market interest rates as well as assumptions about the remaining life of the loans and credit risk. Fair values for impaired loans are estimated using discounted cash flows or underlying collateral values.
CMS Energy and Consumers estimate the fair value of their long-term debt using quoted prices from market trades of the debt, if available. In the absence of quoted prices, CMS Energy and Consumers calculate market yields and prices for the debt using a matrix method that incorporates market data for similarly rated debt. Depending on the information available, other valuation techniques may be used that
 41 

 

rely on internal assumptions and models. For its convertible securities, CMS Energy incorporates, as appropriate, information on the market prices of CMS Energy common stock. CMS Energy’s long-term debt includes $290 million principal amount that is supported by third-party insurance or other credit enhancements. Of this amount, $273 million principal amount is at Consumers. The effects of this third-party credit support were excluded from the measurement of fair value at June 30, 2009.
The following table summarizes CMS Energy’s and Consumers’ investment securities:
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
In Millions	 	
 	 	June 30, 2009	 	 	December 31, 2008	 	
 	 	 	 	 	 	Unrealized	 	 	Unrealized	 	 	 	 	 	 	 	 	 	 	Unrealized	 	 	Unrealized	 	 	 	 	
 	 	Cost	 	 	Gains	 	 	Losses	 	 	Fair Value	 	 	Cost	 	 	Gains	 	 	Losses	 	 	Fair Value	 	
 	
CMS Energy, including Consumers	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Available for sale:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
SERP:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Equity securities	 	$	40	 	 	$	1	 	 	$	—	 	 	$	41	 	 	$	39	 	 	$	—	 	 	$	—	 	 	$	39	 	
Debt securities	 	 	27	 	 	 	—	 	 	 	—	 	 	 	27	 	 	 	29	 	 	 	—	 	 	 	—	 	 	 	29	 	
Held to maturity:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Debt securities	 	 	3	 	 	 	—	 	 	 	—	 	 	 	3	 	 	 	3	 	 	 	—	 	 	 	—	 	 	 	3	 	
Consumers	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Available for sale:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
SERP:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Equity securities	 	$	26	 	 	$	1	 	 	$	—	 	 	$	27	 	 	$	25	 	 	$	—	 	 	$	—	 	 	$	25	 	
Debt securities	 	 	18	 	 	 	—	 	 	 	—	 	 	 	18	 	 	 	19	 	 	 	—	 	 	 	—	 	 	 	19	 	
Common stock of CMS Energy	 	 	8	 	 	 	14	 	 	 	—	 	 	 	22	 	 	 	8	 	 	 	11	 	 	 	—	 	 	 	19	 	
 	 	 	
Equity securities classified as available for sale consist of an investment in a Standard & Poor’s 500 Index mutual fund. Debt securities classified as available for sale consist of investment-grade municipal bonds. Debt securities classified as held to maturity consist of municipal bonds and mortgage-backed securities held by EnerBank.
Derivative Instruments: In order to limit exposure to certain market risks, primarily changes in commodity prices, interest rates, and foreign exchange rates, CMS Energy and Consumers may enter into various risk management contracts, such as forward contracts, futures, and swaps. In entering into these contracts, they follow established policies and procedures, under the direction of an executive oversight committee consisting of senior management representatives and a risk committee consisting of business unit managers. Neither CMS Energy nor Consumers holds any of its derivatives for trading purposes.
The contracts used to manage market risks may qualify as derivative instruments. If a contract is a derivative and does not qualify for the normal purchases and sales exception, the contract is recorded on the balance sheet at its fair value. Each quarter, the resulting asset or liability is adjusted to reflect any change in the fair value of the contract, a practice known as marking the contract to market. Since none of CMS Energy’s or Consumers’ derivatives have been designated as accounting hedges, all mark-to-market gains and losses are reported in earnings. For a discussion of how CMS Energy and Consumers determine the fair value of their derivatives, see Note 3, Fair Value Measurements.
Commodity Price Risk : In order to support ongoing operations, CMS Energy and Consumers enter into contracts for the future purchase and sale of various commodities, such as electricity, natural gas, and coal. These forward contracts are generally long-term in nature and result in physical delivery of the commodity at a contracted price. Most of these contracts are not subject to derivative accounting because:
 42 

 

 	•	 	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; or	
 		
 	•	 	there is not an active market for the commodity.	
CMS Energy’s and Consumers’ coal purchase contracts are not derivatives because there is not an active market for the coal they purchase. If an active market for coal develops in the future, some of these contracts may qualify as derivatives. For Consumers, which is subject to regulatory accounting, the resulting mark-to-market gains and losses would be offset by changes in regulatory assets and liabilities and would not affect net income. For other subsidiaries, CMS Energy does not believe the resulting mark-to-market impact on earnings would be material.
CMS ERM has not designated its contracts to purchase and sell electricity and natural gas as normal purchases and sales and, therefore, CMS Energy accounts for those contracts as derivatives. At June 30, 2009, CMS ERM held a forward contract for the physical sale of 889 GWh of electricity through 2015 on behalf of one of CMS Energy’s non-utility generating plants. CMS ERM also held futures contracts through 2011 as an economic hedge of 42 percent of the generating plant’s natural gas requirements needed to serve a steam sales contract, for a total of 1.2 bcf of natural gas. In its role as a marketer of natural gas for third-party producers, CMS ERM also held forward contracts to purchase 9.6 bcf of natural gas and to sell 7.7 bcf of natural gas through 2010.
Interest rate risk : In order to mitigate its exposure to changes in interest rates, Grayling executed an interest rate collar as an economic hedge of the variable interest rate charged on its outstanding revenue bonds. At June 30, 2009, the notional amount of this contract was $17 million.
At June 30, 2009, the fair value of Consumers’ derivative instruments was immaterial. The following table summarizes the fair values of CMS Energy’s derivative instruments:
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 In Millions	 	
June 30, 2009	 	Asset Derivatives	 	 	Liability Derivatives	 	
 	 	Balance Sheet	 	 	 	 	 	 	Balance Sheet	 	 	 	 	
 	 	Location	 	 	Fair Value	 	 	Location	 	 	Fair Value	 	
 	
CMS Energy	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Derivatives not designated as hedging instruments:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Commodity contracts (a)	 	Other assets	 	$	1	 	 	Other liabilities	 	$	(16	)	
Interest rate contracts	 	Other assets	 	 	—	 	 	Other liabilities	 	 	(1	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total CMS Energy Derivatives	 	 	 	 	 	$	1	 	 	 	 	 	 	$	(17	)	

			
(a)	 	Assets and liabilities are presented gross and exclude the $1 million impact of offsetting derivative assets and liabilities under master netting arrangements. The liability also excludes the $3 million impact of offsetting cash margin deposits paid by CMS ERM to other parties. CMS Energy presents these assets and liabilities net of these impacts on its Consolidated Balance Sheets.	
 43 

 

The following tables summarize the effect of CMS Energy’s and Consumers’ derivative instruments on their Consolidated Statements of Income:
 	 	 	 	 	 	 	
In Millions	 	
 	 	 	 	Amount of Gain	 	
 	 	Location of Gain (Loss)	 	(Loss) Recognized	 	
 	 	Recognized in Income on	 	in Income on	 	
Three months ended June 30, 2009	 	Derivatives	 	Derivatives	 	
 	
CMS Energy, including Consumers	 	 	 	 	 	 	
Derivatives not designated as hedging instruments:	 	 	 	 	 	 	
Commodity contracts	 	Operating Revenue	 	$	(2	)	
 	 	Fuel for electric generation	 	 	—	 	
 	 	Cost of gas sold	 	 	—	 	
 	 	Other income	 	 	1	 	
Interest rate contracts	 	Other expense	 	 	—	 	
 	 	 	 	 	 	
Total CMS Energy	 	 	 	$	(1	)	
 	 	 	 	 	 	
Consumers	 	 	 	 	 	 	
Derivatives not designated as hedging instruments:	 	 	 	 	 	 	
Commodity contracts	 	Other income	 	$	1	 	

In Millions	 	
 	 	 	 	Amount of Gain	 	
 	 	Location of Gain (Loss)	 	(Loss) Recognized	 	
 	 	Recognized in Income on	 	in Income on	 	
Six months ended June 30, 2009	 	Derivatives	 	Derivatives	 	
CMS Energy, including Consumers	 	 	 	 	 	 	
Derivatives not designated as hedging instruments:	 	 	 	 	 	 	
Commodity contracts	 	Operating Revenue	 	$	5	 	
 	 	Fuel for electric generation	 	 	(2	)	
 	 	Cost of gas sold	 	 	(3	)	
 	 	Other income	 	 	1	 	
Interest rate contracts	 	Other expense	 	 	—	 	
Foreign exchange contracts (a)	 	Other expense	 	 	(1	)	
 	 	 	 	 	 	
Total CMS Energy	 	 	 	$	—	 	
 	 	 	 	 	 	
Consumers	 	 	 	 	 	 	
Derivatives not designated as hedging instruments:	 	 	 	 	 	 	
Commodity contracts	 	Other income	 	$	1	 	

			
(a)	 	This derivative loss relates to a foreign-exchange forward contract CMS Energy held at December 31, 2008. CMS Energy settled this obligation and the related derivative in January 2009.	
At June 30, 2009, none of CMS Energy’s derivative liabilities was subject to credit-risk-related contingent features. Therefore, there is no credit-risk-related circumstance in which CMS Energy would have to post collateral or settle its derivative liabilities.
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9: RETIREMENT BENEFITS
CMS Energy and Consumers provide pension, OPEB, and other retirement benefit plans to their employees.
The following tables show the costs and other changes in plan assets and benefit obligations incurred in CMS Energy’s and Consumers’ retirement benefits plans:
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
In Millions	
 	 	Pension	
 	 	Three months ended	 	Six months ended	
June 30	 	2009	 	2008	 	2009	 	2008	
 	
CMS Energy, including Consumers	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Service cost	 	$	10	 	 	$	10	 	 	$	20	 	 	$	21	 	
Interest expense	 	 	24	 	 	 	24	 	 	 	48	 	 	 	48	 	
Expected return on plan assets	 	 	(22	)	 	 	(21	)	 	 	(43	)	 	 	(41	)	
Amortization of:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net loss	 	 	11	 	 	 	11	 	 	 	21	 	 	 	21	 	
Prior service cost	 	 	1	 	 	 	2	 	 	 	3	 	 	 	3	 	
 	 	 	
Net periodic cost	 	 	24	 	 	 	26	 	 	 	49	 	 	 	52	 	
Regulatory adjustment	 	 	—	 	 	 	8	 	 	 	—	 	 	 	4	 	
 	 	 	
Net periodic cost after regulatory adjustment	 	$	24	 	 	$	34	 	 	$	49	 	 	$	56	 	
 	 	 	
Consumers	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Service cost	 	$	10	 	 	$	10	 	 	$	20	 	 	$	20	 	
Interest expense	 	 	23	 	 	 	23	 	 	 	46	 	 	 	46	 	
Expected return on plan assets	 	 	(22	)	 	 	(20	)	 	 	(42	)	 	 	(39	)	
Amortization of:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net loss	 	 	10	 	 	 	10	 	 	 	20	 	 	 	20	 	
Prior service cost	 	 	2	 	 	 	2	 	 	 	3	 	 	 	3	 	
 	 	 	
Net periodic cost	 	 	23	 	 	 	25	 	 	 	47	 	 	 	50	 	
Regulatory adjustment	 	 	—	 	 	 	8	 	 	 	—	 	 	 	4	 	
 	 	 	
Net periodic cost after regulatory adjustment	 	$	23	 	 	$	33	 	 	$	47	 	 	$	54	 	
 	 	 	
CMS Energy’s and Consumers’ expected long-term rate of return on plan assets is 8.25 percent. For the six months ended June 30, 2009, the actual return on pension plan assets was 4.8 percent, and for 2008 the actual return was a negative 23.2 percent. The expected rate of return is an assumption about long-term asset performance that CMS Energy and Consumers review annually for reasonableness and appropriateness.
 45 

 

 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
In Millions	
 	 	OPEB	
  	 	Three months ended	 	Six months ended	
June 30	 	2009	 	2008	 	2009	 	2008	
 	
CMS Energy, including Consumers	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Service cost	 	$	7	 	 	$	5	 	 	$	13	 	 	$	11	 	
Interest expense	 	 	20	 	 	 	18	 	 	 	40	 	 	 	36	 	
Expected return on plan assets	 	 	(13	)	 	 	(17	)	 	 	(26	)	 	 	(33	)	
Amortization of:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net loss	 	 	9	 	 	 	2	 	 	 	17	 	 	 	4	 	
Prior service credit	 	 	(3	)	 	 	(2	)	 	 	(5	)	 	 	(5	)	
 	 	 	
Net periodic cost	 	 	20	 	 	 	6	 	 	 	39	 	 	 	13	 	
Regulatory adjustment	 	 	—	 	 	 	2	 	 	 	—	 	 	 	3	 	
 	 	 	
Net periodic cost after regulatory adjustment	 	$	20	 	 	$	8	 	 	$	39	 	 	$	16	 	
 	 	 	
Consumers	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Service cost	 	$	6	 	 	$	5	 	 	$	12	 	 	$	11	 	
Interest expense	 	 	19	 	 	 	18	 	 	 	39	 	 	 	36	 	
Expected return on plan assets	 	 	(12	)	 	 	(17	)	 	 	(24	)	 	 	(33	)	
Amortization of:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net loss	 	 	9	 	 	 	3	 	 	 	17	 	 	 	5	 	
Prior service credit	 	 	(3	)	 	 	(2	)	 	 	(5	)	 	 	(5	)	
 	 	 	
Net periodic cost	 	 	19	 	 	 	7	 	 	 	39	 	 	 	14	 	
Regulatory adjustment	 	 	—	 	 	 	2	 	 	 	—	 	 	 	3	 	
 	 	 	
Net periodic cost after regulatory adjustment	 	$	19	 	 	$	9	 	 	$	39	 	 	$	17	 	
 	 	 	
10: INCOME TAXES
The actual income tax expense on continuing operations differs from the amount computed by applying the statutory federal tax rate of 35 percent to income before income taxes, as follows:
 	 	 	 	 	 	 	 	 	
In Millions	
Six months ended June 30	 	2009	 	2008	
 	
Income from continuing operations before income taxes less income attributable to noncontrolling interests	 	$	201	 	 	$	240	 	
Statutory federal income tax rate	 	x	35	%	 	x	35	%	
 	 	 	
Expected income tax expense	 	 	70	 	 	 	84	 	
Increase (decrease) in taxes from:	 	 	 	 	 	 	 	 	
State and local income taxes, net of federal benefit	 	 	12	 	 	 	4	 	
Medicare Part D exempt income	 	 	(3	)	 	 	(3	)	
Other, net	 	 	—	 	 	 	2	 	
 	 	 	
Recorded income tax expense	 	$	79	 	 	$	87	 	
 	 	 	
Effective tax rate	 	 	39.3	%	 	 	36.3	%	
 	 	 	
The increase in the effective tax rate for the six months ended June 30, 2009 was due to increases in the MBT from legislative changes that increased the tax, as well as the recognition of deferred MBT for the electric utility segment of Consumers, beginning with the second quarter of 2009.
 46 

 

11: REPORTABLE SEGMENTS
Reportable segments consist of business units defined by the products and services they offer. CMS Energy and Consumers evaluate performance based on the net income of each segment. The reportable segments for CMS Energy and Consumers are:
CMS Energy:

 	•	 	electric utility, consisting of regulated activities associated with the generation and distribution of electricity in Michigan;	
 		
 	•	 	gas utility, consisting of regulated activities associated with the transportation, storage, and distribution of natural gas in Michigan;	
 		
 	•	 	enterprises, consisting of various subsidiaries engaging primarily in domestic independent power production; and	
 		
 	•	 	other, including corporate interest and other expenses and discontinued operations.	
Consumers:

 	•	 	electric utility, consisting of regulated activities associated with the generation and distribution of electricity in Michigan;	
 		
 	•	 	gas utility, consisting of regulated activities associated with the transportation, storage, and distribution of natural gas in Michigan; and	
 		
 	•	 	other, including a consolidated special-purpose entity for the sale of accounts receivable.	
 47 

 

The following tables show financial information by reportable segment:
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
In Millions	 	
 	 	Three months ended	 	 	Six months ended	 	
June 30	 	2009	 	 	2008	 	 	2009	 	 	2008	 	
Operating Revenue	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
CMS Energy, including Consumers	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Electric utility	 	$	848	 	 	$	841	 	 	$	1,660	 	 	$	1,701	 	
Gas utility	 	 	334	 	 	 	422	 	 	 	1,556	 	 	 	1,653	 	
Enterprises	 	 	38	 	 	 	97	 	 	 	104	 	 	 	185	 	
Other	 	 	6	 	 	 	5	 	 	 	12	 	 	 	10	 	
 	 	 	
Total Operating Revenue — CMS Energy	 	$	1,226	 	 	$	1,365	 	 	$	3,332	 	 	$	3,549	 	
Consumers	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Electric utility	 	$	848	 	 	$	841	 	 	$	1,660	 	 	$	1,701	 	
Gas utility	 	 	334	 	 	 	422	 	 	 	1,556	 	 	 	1,653	 	
 	 	 	
Total Operating Revenue — Consumers	 	$	1,182	 	 	$	1,263	 	 	$	3,216	 	 	$	3,354	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net Income Available to Common Stockholders	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
CMS Energy, including Consumers	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Electric utility	 	$	67	 	 	$	57	 	 	$	106	 	 	$	124	 	
Gas utility	 	 	5	 	 	 	2	 	 	 	64	 	 	 	64	 	
Enterprises	 	 	(17	)	 	 	10	 	 	 	(17	)	 	 	8	 	
Other	 	 	20	 	 	 	(25	)	 	 	(8	)	 	 	(50	)	
 	 	 	
Total Net Income Available to Common Stockholders — CMS Energy	 	$	75	 	 	$	44	 	 	$	145	 	 	$	146	 	
Consumers	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Electric utility	 	$	67	 	 	$	57	 	 	$	106	 	 	$	124	 	
Gas utility	 	 	5	 	 	 	2	 	 	 	64	 	 	 	64	 	
Other	 	 	—	 	 	 	1	 	 	 	—	 	 	 	1	 	
 	 	 	
Total Net Income Available to Common Stockholder — Consumers	 	$	72	 	 	$	60	 	 	$	170	 	 	$	189	 	
 	 	 	
 48 

 

 	 	 	 	 	 	 	 	 	
In Millions	 	
 	 	June 30, 2009	 	 	December 31, 2008	 	
Assets	 	 	 	 	 	 	 	 	
CMS Energy, including Consumers	 	 	 	 	 	 	 	 	
Electric utility (a)	 	$	9,352	 	 	$	8,904	 	
Gas utility (a)	 	 	4,396	 	 	 	4,565	 	
Enterprises	 	 	301	 	 	 	313	 	
Other	 	 	1,234	 	 	 	1,119	 	
 	 	 	
Total Assets — CMS Energy	 	$	15,283	 	 	$	14,901	 	
Consumers	 	 	 	 	 	 	 	 	
Electric utility (a)	 	$	9,352	 	 	$	8,904	 	
Gas utility (a)	 	 	4,396	 	 	 	4,565	 	
Other	 	 	735	 	 	 	777	 	
 	 	 	
Total Assets — Consumers	 	$	14,483	 	 	$	14,246	 	

(a)	 	Amounts include a portion of Consumers’ other common assets attributable to both the electric and the gas utility businesses.	
 49 

Exhibit 99.3
CMS Energy Corporation
Consolidated Statements of Income
(Unaudited)
(As Revised, See Note 1)
 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	In Millions	
Three Months Ended March 31	 	2009	 	2008	
 	
Operating Revenue	 	$	2,106	 	 	$	2,184	 	
 	 	 	 	 	 	 	 	 	
Loss from Equity Method Investees	 	 	(1	)	 	 	(1	)	
 	 	 	 	 	 	 	 	 	
Operating Expenses	 	 	 	 	 	 	 	 	
Fuel for electric generation	 	 	135	 	 	 	162	 	
Purchased and interchange power	 	 	289	 	 	 	323	 	
Cost of gas sold	 	 	963	 	 	 	984	 	
Other operating expenses	 	 	225	 	 	 	188	 	
Maintenance	 	 	48	 	 	 	40	 	
Depreciation and amortization	 	 	173	 	 	 	173	 	
General taxes	 	 	65	 	 	 	60	 	
 	 	 	
 	 	 	1,898	 	 	 	1,930	 	

Operating Income	 	 	207	 	 	 	253	 	
 	 	 	 	 	 	 	 	 	
Other Income (Deductions)	 	 	 	 	 	 	 	 	
Interest and dividends	 	 	5	 	 	 	9	 	
Regulatory return on capital expenditures	 	 	7	 	 	 	8	 	
Other income	 	 	5	 	 	 	3	 	
Other expense	 	 	(2	)	 	 	(1	)	
 	 	 	
 	 	 	15	 	 	 	19	 	

Interest Charges	 	 	 	 	 	 	 	 	
Interest on long-term debt	 	 	89	 	 	 	89	 	
Interest on long-term debt — related parties	 	 	3	 	 	 	3	 	
Other interest	 	 	8	 	 	 	11	 	
Capitalized interest	 	 	(1	)	 	 	(2	)	
 	 	 	
 	 	 	99	 	 	 	101	 	

Income Before Income Taxes	 	 	123	 	 	 	171	 	
Income Tax Expense	 	 	49	 	 	 	63	 	

Net Income	 	 	74	 	 	 	108	 	
Income Attributable to Noncontrolling Interests	 	 	1	 	 	 	3	 	

Net Income Attributable to CMS Energy	 	 	73	 	 	 	105	 	
Preferred Stock Dividends	 	 	3	 	 	 	3	 	

Net Income Available to Common Stockholders	 	$	70	 	 	$	102	 	

The accompanying notes are an integral part of these statements.	 	 	 	 	 	 	 	 	
 1 

 

 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	In Millions, Except Per Share Amounts	
Three Months Ended March 31	 	2009	 	2008	
 	
CMS Energy	 	 	 	 	 	 	 	 	 	 	
 	 	Net Income Available to Common Stockholders	 	$	70	 	 	$	102	 	

 	 	Basic Earnings Per Average Common Share	 	 	 	 	 	 	 	 	
 	 	      Net Income Attributable to Common Stock	 	$	0.31	 	 	$	0.45	 	

 	 	Diluted Earnings Per Average Common Share	 	 	 	 	 	 	 	 	
 	 	      Net Income Attributable to Common Stock	 	$	0.30	 	 	$	0.43	 	

 	 	Dividends Declared Per Common Share	 	$	0.125	 	 	$	0.09	 	
 	 	 	 	 	
 2 

 

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 3 

 

CMS Energy Corporation
Consolidated Statements of Cash Flows
(Unaudited)
(As Revised, See Note 1)
 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	In Millions	
Three Months Ended March 31	 	2009	 	2008	
 	
Cash Flows from Operating Activities	 	 	 	 	 	 	 	 	
Net income	 	$	74	 	 	$	108	 	
Adjustments to reconcile net income attributable to CMS Energy to net cash provided by operating activities	 	 	 	 	 	 	 	 	
Depreciation and amortization	 	 	173	 	 	 	173	 	
Deferred income taxes and investment tax credit	 	 	49	 	 	 	66	 	
Postretirement benefits expense	 	 	46	 	 	 	31	 	
Regulatory return on capital expenditures	 	 	(7	)	 	 	(8	)	
Capital lease and other amortization	 	 	10	 	 	 	11	 	
Bad debt expense	 	 	20	 	 	 	8	 	
Loss from equity method investees	 	 	1	 	 	 	1	 	
Postretirement benefits contributions	 	 	(13	)	 	 	(12	)	
Electric sales contract termination payment	 	 	—	 	 	 	(275	)	
Changes in other assets and liabilities:	 	 	 	 	 	 	 	 	
Increase in accounts receivable and accrued revenues	 	 	(161	)	 	 	(58	)	
Decrease in accrued power supply and gas revenue	 	 	1	 	 	 	38	 	
Decrease in inventories	 	 	566	 	 	 	526	 	
Decrease in accounts payable	 	 	(75	)	 	 	(35	)	
Decrease in accrued taxes	 	 	(61	)	 	 	(65	)	
Increase (decrease) in accrued expenses	 	 	9	 	 	 	(24	)	
Decrease in other current and non-current assets	 	 	33	 	 	 	55	 	
Decrease in other current and non-current liabilities	 	 	(59	)	 	 	(65	)	
 	 	 	
Net cash provided by operating activities	 	 	606	 	 	 	475	 	

Cash Flows from Investing Activities	 	 	 	 	 	 	 	 	
Capital expenditures (excludes assets placed under capital lease)	 	 	(180	)	 	 	(155	)	
Cost to retire property	 	 	(17	)	 	 	(6	)	
Restricted cash and cash equivalents	 	 	(1	)	 	 	5	 	
Other investing	 	 	6	 	 	 	4	 	
 	 	 	
Net cash used in investing activities	 	 	(192	)	 	 	(152	)	

Cash Flows from Financing Activities	 	 	 	 	 	 	 	 	
Proceeds from notes, bonds, and other long-term debt	 	 	538	 	 	 	493	 	
Issuance of common stock	 	 	3	 	 	 	2	 	
Retirement of bonds and other long-term debt	 	 	(300	)	 	 	(290	)	
Payment of common stock dividends	 	 	(29	)	 	 	(20	)	
Payment of preferred stock dividends	 	 	(3	)	 	 	(4	)	
Payment of capital lease and financial lease obligations	 	 	(6	)	 	 	(6	)	
Debt issuance costs, financing fees, and other	 	 	(4	)	 	 	(5	)	
 	 	 	
Net cash provided by financing activities	 	 	199	 	 	 	170	 	

Net Increase in Cash and Cash Equivalents	 	 	613	 	 	 	493	 	
 	 	 	 	 	 	 	 	 	
Cash and Cash Equivalents, Beginning of Period	 	 	213	 	 	 	348	 	

Cash and Cash Equivalents, End of Period	 	$	826	 	 	$	841	 	
 	 	 	
The accompanying notes are an integral part of these statements.
 4 

 

CMS Energy Corporation
Consolidated Balance Sheets
(Unaudited)
(As Revised, See Note 1)
 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	In Millions	
 	 	March 31	 	December 31	
ASSETS	 	2009	 	2008	
 	
Plant and Property (at cost)	 	 	 	 	 	 	 	 	
Electric utility	 	$	9,179	 	 	$	8,965	 	
Gas utility	 	 	3,690	 	 	 	3,622	 	
Enterprises	 	 	390	 	 	 	390	 	
Other	 	 	33	 	 	 	33	 	
 	 	 	
 	 	 	13,292	 	 	 	13,010	 	
Less accumulated depreciation, depletion and amortization	 	 	4,524	 	 	 	4,428	 	
 	 	 	
 	 	 	8,768	 	 	 	8,582	 	
Construction work in progress	 	 	498	 	 	 	608	 	
 	 	 	
 	 	 	9,266	 	 	 	9,190	 	

Investments	 	 	 	 	 	 	 	 	
Enterprises	 	 	5	 	 	 	5	 	
Other	 	 	6	 	 	 	6	 	
 	 	 	
 	 	 	11	 	 	 	11	 	

Current Assets	 	 	 	 	 	 	 	 	
Cash and cash equivalents	 	 	826	 	 	 	213	 	
Restricted cash and cash equivalents	 	 	36	 	 	 	35	 	
Accounts receivable and accrued revenue, less allowances of $26 in 2009 and 2008	 	 	982	 	 	 	851	 	
Notes receivable	 	 	77	 	 	 	95	 	
Accrued power supply and gas revenue	 	 	6	 	 	 	7	 	
Inventories at average cost	 	 	 	 	 	 	 	 	
Gas in underground storage	 	 	611	 	 	 	1,168	 	
Materials and supplies	 	 	113	 	 	 	110	 	
Generating plant fuel stock	 	 	115	 	 	 	127	 	
Deferred property taxes	 	 	140	 	 	 	165	 	
Regulatory assets — postretirement benefits	 	 	19	 	 	 	19	 	
Prepayments and other	 	 	59	 	 	 	37	 	
 	 	 	
 	 	 	2,984	 	 	 	2,827	 	

Non-current Assets	 	 	 	 	 	 	 	 	
Regulatory assets	 	 	 	 	 	 	 	 	
Securitized costs	 	 	404	 	 	 	416	 	
Postretirement benefits	 	 	1,408	 	 	 	1,431	 	
Customer Choice Act	 	 	74	 	 	 	90	 	
Other	 	 	479	 	 	 	482	 	
Notes receivable, less allowances of $34 in 2009 and 2008	 	 	180	 	 	 	186	 	
Other	 	 	198	 	 	 	268	 	
 	 	 	
 	 	 	2,743	 	 	 	2,873	 	

Total Assets	 	$	15,004	 	 	$	14,901	 	
 	 	 	
The accompanying notes are an integral part of these statements.
 5 

 

 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	In Millions	 	
 	 	March 31	 	 	December 31	 	
STOCKHOLDERS’ INVESTMENT AND LIABILITIES	 	2009	 	 	2008	 	
 	
Capitalization	 	 	 	 	 	 	 	 	
Common stockholders’ equity	 	 	 	 	 	 	 	 	
Common stock, authorized 350.0 shares; outstanding 226.8 shares in 2009 and 226.4 shares in 2008	 	$	2	 	 	$	2	 	
Other paid-in capital	 	 	4,538	 	 	 	4,533	 	
Accumulated other comprehensive loss	 	 	(32	)	 	 	(28	)	
Accumulated deficit	 	 	(1,990	)	 	 	(2,031	)	
 	 	 	
 	 	 	2,518	 	 	 	2,476	 	
 	 	 	 	 	 	 	 	 	
Noncontrolling interests	 	 	52	 	 	 	52	 	
 	 	 	 	 	 	 	 	 	
Preferred stock of subsidiary	 	 	44	 	 	 	44	 	
Preferred stock	 	 	243	 	 	 	243	 	
 	 	 	 	 	 	 	 	 	
Long-term debt	 	 	6,279	 	 	 	5,837	 	
Long-term debt — related parties	 	 	178	 	 	 	178	 	
Non-current portion of capital and finance lease obligations	 	 	200	 	 	 	206	 	
 	 	 	
 	 	 	9,514	 	 	 	9,036	 	

Current Liabilities	 	 	 	 	 	 	 	 	
Current portion of long-term debt, capital and finance lease obligations	 	 	311	 	 	 	514	 	
Accounts payable	 	 	354	 	 	 	466	 	
Accrued rate refunds	 	 	43	 	 	 	7	 	
Accrued interest	 	 	79	 	 	 	107	 	
Accrued taxes	 	 	228	 	 	 	289	 	
Deferred income taxes	 	 	113	 	 	 	100	 	
Regulatory liabilities	 	 	119	 	 	 	120	 	
Electric sales contract termination liability	 	 	2	 	 	 	2	 	
Other	 	 	188	 	 	 	258	 	
 	 	 	
 	 	 	1,437	 	 	 	1,863	 	

Non-current Liabilities	 	 	 	 	 	 	 	 	
Regulatory liabilities	 	 	 	 	 	 	 	 	
Cost of removal	 	 	1,217	 	 	 	1,203	 	
Income taxes, net	 	 	536	 	 	 	519	 	
Other	 	 	144	 	 	 	146	 	
Postretirement benefits	 	 	1,516	 	 	 	1,502	 	
Asset retirement obligation	 	 	208	 	 	 	206	 	
Deferred investment tax credit	 	 	54	 	 	 	54	 	
Deferred income taxes	 	 	76	 	 	 	55	 	
Other	 	 	302	 	 	 	317	 	
 	 	 	
 	 	 	4,053	 	 	 	4,002	 	

Commitments and Contingencies (Notes 4, 5 and 7)	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	
Total Stockholders’ Investment and Liabilities	 	$	15,004	 	 	$	14,901	 	
 	 	 	
 6 

 

CMS Energy Corporation
Consolidated Statements of Common Stockholders’ Equity
(Unaudited)
(As Revised, See Note 1)
 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	In Millions	
Three Months Ended March 31	 	2009	 	2008	
 	
Common Stock	 	 	 	 	 	 	 	 	
At beginning and end of period	 	$	2	 	 	$	2	 	

Other Paid-in Capital	 	 	 	 	 	 	 	 	
At beginning of period	 	 	4,533	 	 	 	4,517	 	
Common stock issued	 	 	5	 	 	 	3	 	
 	 	 	
At end of period	 	 	4,538	 	 	 	4,520	 	

Accumulated Other Comprehensive Loss	 	 	 	 	 	 	 	 	
Retirement benefits liability	 	 	 	 	 	 	 	 	
At beginning of period	 	 	(27	)	 	 	(15	)	
Retirement benefits liability adjustments (a)	 	 	—	 	 	 	(1	)	
 	 	 	
At end of period	 	 	(27	)	 	 	(16	)	

Investments	 	 	 	 	 	 	 	 	
At beginning of period	 	 	—	 	 	 	—	 	
Unrealized loss on investments (a)	 	 	(4	)	 	 	(4	)	
 	 	 	
At end of period	 	 	(4	)	 	 	(4	)	

Derivative instruments	 	 	 	 	 	 	 	 	
At beginning and end of period	 	 	(1	)	 	 	(1	)	

Foreign currency translation	 	 	 	 	 	 	 	 	
At beginning and end of period	 	 	—	 	 	 	(128	)	

Total Accumulated Other Comprehensive Loss	 	 	(32	)	 	 	(149	)	

Accumulated Deficit	 	 	 	 	 	 	 	 	
At beginning of period	 	 	(2,031	)	 	 	(2,227	)	
Effects of changing the retirement plans measurement date pursuant to SFAS No. 158	 	 	 	 	 	 	 	 	
Service cost, interest cost, and expected return on plan assets for December 1 through December 31, 2007, net of tax	 	 	—	 	 	 	(4	)	
Additional loss from December 1 through December 31, 2007, net of tax	 	 	—	 	 	 	(2	)	
Net income attributable to CMS Energy (a)	 	 	73	 	 	 	105	 	
Preferred stock dividends declared	 	 	(3	)	 	 	(3	)	
Common stock dividends declared	 	 	(29	)	 	 	(20	)	
 	 	 	
At end of period	 	 	(1,990	)	 	 	(2,151	)	

Total Common Stockholders’ Equity	 	$	2,518	 	 	$	2,222	 	
 	 	 	
The accompanying notes are an integral part of these statements.
 7 

 

 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	In Millions	
Three Months Ended March 31	 	2009	 	2008	
 	
(a) Disclosure of Comprehensive Income:	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	
Net income attributable to CMS Energy	 	$	73	 	 	$	105	 	
 	 	 	 	 	 	 	 	 	
Net loss arising during the period, net of tax of $2 in 2008	 	 	—	 	 	 	(1	)	
 	 	 	 	 	 	 	 	 	
Unrealized loss on investments, net of tax benefit of $- in 2009 and $2 in 2008	 	 	(4	)	 	 	(4	)	

Total Comprehensive Income	 	$	69	 	 	$	100	 	
 	 	 	
 8 

 

Consumers Energy Company
Consolidated Statements of Income
(Unaudited)
(As Revised, See Note 1)
 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	In Millions	
Three Months Ended March 31	 	2009	 	2008	
 	
Operating Revenue	 	$	2,034	 	 	$	2,091	 	
 	 	 	 	 	 	 	 	 	
Operating Expenses	 	 	 	 	 	 	 	 	
Fuel for electric generation	 	 	111	 	 	 	127	 	
Purchased and interchange power	 	 	284	 	 	 	317	 	
Purchased power — related parties	 	 	18	 	 	 	20	 	
Cost of gas sold	 	 	936	 	 	 	944	 	
Other operating expenses	 	 	207	 	 	 	170	 	
Maintenance	 	 	44	 	 	 	36	 	
Depreciation and amortization	 	 	170	 	 	 	170	 	
General taxes	 	 	61	 	 	 	57	 	
 	 	 	
 	 	 	1,831	 	 	 	1,841	 	

Operating Income	 	 	203	 	 	 	250	 	
 	 	 	 	 	 	 	 	 	
Other Income (Deductions)	 	 	 	 	 	 	 	 	
Interest	 	 	5	 	 	 	7	 	
Regulatory return on capital expenditures	 	 	7	 	 	 	8	 	
Other income	 	 	5	 	 	 	3	 	
Other expense	 	 	(2	)	 	 	(1	)	
 	 	 	
 	 	 	15	 	 	 	17	 	

Interest Charges	 	 	 	 	 	 	 	 	
Interest on long-term debt	 	 	59	 	 	 	58	 	
Other interest	 	 	5	 	 	 	7	 	
Capitalized interest	 	 	(1)	 	 	 	(2)	 	
 	 	 	
 	 	 	63	 	 	 	63	 	

Income Before Income Taxes	 	 	155	 	 	 	204	 	
 	 	 	 	 	 	 	 	 	
Income Tax Expense	 	 	56	 	 	 	74	 	

Net Income	 	 	99	 	 	 	130	 	
 	 	 	 	 	 	 	 	 	
Preferred Stock Dividends	 	 	1	 	 	 	1	 	

Net Income Available to Common Stockholder	 	$	98	 	 	$	129	 	
 	 	 	
The accompanying notes are an integral part of these statements.
 9 

 

Consumers Energy Company
Consolidated Statements of Cash Flows
(Unaudited)
(As Revised, See Note 1)
 	 	 	 	 	 	 	 	 	
In Millions	
Three Months Ended March 31	 	2009	 	2008	
 	
Cash Flows from Operating Activities	 	 	 	 	 	 	 	 	
Net income	 	$	99	 	 	$	130	 	
Adjustments to reconcile net income to net cash provided by operating activities	 	 	 	 	 	 	 	 	
Depreciation and amortization	 	 	170	 	 	 	170	 	
Deferred income taxes and investment tax credit	 	 	29	 	 	 	30	 	
Regulatory return on capital expenditures	 	 	(7	)	 	 	(8	)	
Postretirement benefits expense	 	 	45	 	 	 	30	 	
Capital lease and other amortization	 	 	6	 	 	 	8	 	
Bad debt expense	 	 	19	 	 	 	8	 	
Postretirement benefits contributions	 	 	(12	)	 	 	(12	)	
Changes in assets and liabilities:	 	 	 	 	 	 	 	 	
Increase in accounts receivable, notes receivable and accrued revenue	 	 	(167	)	 	 	(57	)	
Decrease in accrued power supply and gas revenue	 	 	1	 	 	 	38	 	
Decrease in inventories	 	 	566	 	 	 	515	 	
Decrease in accounts payable	 	 	(71	)	 	 	(29	)	
Decrease in accrued expenses	 	 	(19	)	 	 	(37	)	
Decrease in other current and non-current assets	 	 	30	 	 	 	48	 	
Decrease in other current and non-current liabilities	 	 	(25	)	 	 	(65	)	
 	 	 	
Net cash provided by operating activities	 	 	664	 	 	 	769	 	

Cash Flows from Investing Activities	 	 	 	 	 	 	 	 	
Capital expenditures (excludes assets placed under capital lease)	 	 	(177	)	 	 	(155	)	
Cost to retire property	 	 	(17	)	 	 	(6	)	
Restricted cash and cash equivalents	 	 	(5	)	 	 	4	 	
 	 	 	
Net cash used in investing activities	 	 	(199	)	 	 	(157	)	

Cash Flows from Financing Activities	 	 	 	 	 	 	 	 	
Proceeds from issuance of long term debt	 	 	500	 	 	 	250	 	
Retirement of long-term debt	 	 	(209	)	 	 	(168	)	
Payment of common stock dividends	 	 	(72	)	 	 	(113	)	
Payment of capital and finance lease obligations	 	 	(6	)	 	 	(6	)	
Debt issuance and financing costs	 	 	(4	)	 	 	(3	)	
 	 	 	
Net cash provided by (used in) financing activities	 	 	209	 	 	 	(40	)	

Net Increase in Cash and Cash Equivalents	 	 	674	 	 	 	572	 	
 	 	 	 	 	 	 	 	 	
Cash and Cash Equivalents, Beginning of Period	 	 	69	 	 	 	195	 	

Cash and Cash Equivalents, End of Period	 	$	743	 	 	$	767	 	
 	 	 	
The accompanying notes are an integral part of these statements.
 10 

 

Consumers Energy Company
Consolidated Balance Sheets
(Unaudited)
(As Revised, See Note 1)
 	 	 	 	 	 	 	 	 	
In Millions	
 	 	March 31	 	December 31	
ASSETS	 	2009	 	2008	
 	
Plant and Property (at cost)	 	 	 	 	 	 	 	 	
Electric	 	$	9,179	 	 	$	8,965	 	
Gas	 	 	3,690	 	 	 	3,622	 	
Other	 	 	15	 	 	 	15	 	
 	 	 	
 	 	 	12,884	 	 	 	12,602	 	
Less accumulated depreciation, depletion, and amortization	 	 	4,335	 	 	 	4,242	 	
 	 	 	
 	 	 	8,549	 	 	 	8,360	 	
Construction work in progress	 	 	495	 	 	 	607	 	
 	 	 	
 	 	 	9,044	 	 	 	8,967	 	

Investments	 	 	 	 	 	 	 	 	
Stock of affiliates	 	 	22	 	 	 	19	 	

Current Assets	 	 	 	 	 	 	 	 	
Cash and cash equivalents	 	 	743	 	 	 	69	 	
Restricted cash and cash equivalents	 	 	30	 	 	 	25	 	
Accounts receivable and accrued revenue, less allowances of $23 in 2009 and $24 in 2008	 	 	967	 	 	 	829	 	
Notes receivable	 	 	75	 	 	 	93	 	
Accrued power supply and gas revenue	 	 	6	 	 	 	7	 	
Accounts receivable — related parties	 	 	3	 	 	 	2	 	
Inventories at average cost	 	 	 	 	 	 	 	 	
Gas in underground storage	 	 	611	 	 	 	1,168	 	
Materials and supplies	 	 	104	 	 	 	103	 	
Generating plant fuel stock	 	 	108	 	 	 	118	 	
Deferred property taxes	 	 	140	 	 	 	165	 	
Regulatory assets — postretirement benefits	 	 	19	 	 	 	19	 	
Prepayments and other	 	 	53	 	 	 	30	 	
 	 	 	
 	 	 	2,859	 	 	 	2,628	 	

Non-current Assets	 	 	 	 	 	 	 	 	
Regulatory assets	 	 	 	 	 	 	 	 	
Securitized costs	 	 	404	 	 	 	416	 	
Postretirement benefits	 	 	1,408	 	 	 	1,431	 	
Customer Choice Act	 	 	74	 	 	 	90	 	
Other	 	 	479	 	 	 	482	 	
Other	 	 	147	 	 	 	213	 	
 	 	 	
 	 	 	2,512	 	 	 	2,632	 	

Total Assets	 	$	14,437	 	 	$	14,246	 	
 	 	 	
The accompanying notes are an integral part of these statements.
 11 

 

 	 	 	 	 	 	 	 	 	
In Millions	
 	 	March 31	 	December 31	
STOCKHOLDER’S INVESTMENT AND LIABILITIES	 	2009	 	2008	
 	
Capitalization	 	 	 	 	 	 	 	 	
Common stockholder’s equity	 	 	 	 	 	 	 	 	
Common stock, authorized 125.0 shares; outstanding 84.1 shares for both periods	 	$	841	 	 	$	841	 	
Other paid-in capital	 	 	2,482	 	 	 	2,482	 	
Accumulated other comprehensive loss	 	 	—	 	 	 	(1	)	
Retained earnings	 	 	409	 	 	 	383	 	
 	 	 	
 	 	 	3,732	 	 	 	3,705	 	
 	 	 	 	 	 	 	 	 	
Preferred stock	 	 	44	 	 	 	44	 	
 	 	 	 	 	 	 	 	 	
Long-term debt	 	 	4,399	 	 	 	3,908	 	
Non-current portion of capital and finance lease obligations	 	 	200	 	 	 	206	 	
 	 	 	
 	 	 	8,375	 	 	 	7,863	 	

Current Liabilities	 	 	 	 	 	 	 	 	
Current portion of long-term debt, capital and finance lease obligations	 	 	208	 	 	 	408	 	
Accounts payable	 	 	340	 	 	 	444	 	
Accrued rate refunds	 	 	43	 	 	 	7	 	
Accounts payable — related parties	 	 	10	 	 	 	14	 	
Accrued interest	 	 	47	 	 	 	69	 	
Accrued taxes	 	 	255	 	 	 	289	 	
Deferred income taxes	 	 	287	 	 	 	277	 	
Regulatory liabilities	 	 	119	 	 	 	120	 	
Other	 	 	101	 	 	 	151	 	
 	 	 	
 	 	 	1,410	 	 	 	1,779	 	

Non-current Liabilities	 	 	 	 	 	 	 	 	
Deferred income taxes	 	 	796	 	 	 	792	 	
Regulatory liabilities	 	 	 	 	 	 	 	 	
Cost of removal	 	 	1,217	 	 	 	1,203	 	
Income taxes, net	 	 	536	 	 	 	519	 	
Other	 	 	144	 	 	 	146	 	
Postretirement benefits	 	 	1,451	 	 	 	1,436	 	
Asset retirement obligations	 	 	207	 	 	 	205	 	
Deferred investment tax credit	 	 	54	 	 	 	54	 	
Other	 	 	247	 	 	 	249	 	
 	 	 	
 	 	 	4,652	 	 	 	4,604	 	

Commitments and Contingencies (Notes 4, 5 and 7 )	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	
Total Stockholder’s Investment and Liabilities	 	$	14,437	 	 	$	14,246	 	
 	 	 	
 12 

 

Consumers Energy Company
Consolidated Statements of Common Stockholder’s Equity
(Unaudited)
(As Revised, See Note 1)
 	 	 	 	 	 	 	 	 	
In Millions	
Three Months Ended March 31	 	2009	 	2008	
 	
Common Stock	 	 	 	 	 	 	 	 	
At beginning and end of period (a)	 	$	841	 	 	$	841	 	

Other Paid-in Capital	 	 	 	 	 	 	 	 	
At beginning and end of period	 	 	2,482	 	 	 	2,482	 	

Accumulated Other Comprehensive Loss	 	 	 	 	 	 	 	 	
Retirement benefits liability	 	 	 	 	 	 	 	 	
At beginning of period	 	 	(7	)	 	 	(15	)	
Retirement benefits liability adjustments (b)	 	 	—	 	 	 	6	 	
 	 	 	
At end of period	 	 	(7	)	 	 	(9	)	

Investments	 	 	 	 	 	 	 	 	
At beginning of period	 	 	6	 	 	 	15	 	
Unrealized gain (loss) on investments (b)	 	 	1	 	 	 	(8	)	
 	 	 	
At end of period	 	 	7	 	 	 	7	 	

Total Accumulated Other Comprehensive Loss	 	 	—	 	 	 	(2	)	

Retained Earnings	 	 	 	 	 	 	 	 	
At beginning of period	 	 	383	 	 	 	324	 	
Effects of changing the retirement plans measurement date pursuant to SFAS No. 158	 	 	 	 	 	 	 	 	
Service cost, interest cost, and expected return on plan assets for December 1 through December 31, 2007, net of tax	 	 	—	 	 	 	(4	)	
Additional loss from December 1 through December 31, 2007, net of tax	 	 	—	 	 	 	(2	)	
Net income	 	 	99	 	 	 	130	 	
Common Stock dividends declared	 	 	(72	)	 	 	(113	)	
Preferred Stock dividends declared	 	 	(1	)	 	 	(1	)	
 	 	 	
At end of period	 	 	409	 	 	 	334	 	

Total Common Stockholder’s Equity	 	$	3,732	 	 	$	3,655	 	
 	 	 	
The accompanying notes are an integral part of these statements.
 13 

 

 	 	 	 	 	 	 	 	 	
In Millions	
Three Months Ended March 31	 	2009	 	2008	
 	
(a) Number of shares of common stock outstanding was 84,108,789 for all periods presented	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	
(b) Disclosure of Comprehensive Income:	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	
Net income	 	$	99	 	 	$	130	 	
 	 	 	 	 	 	 	 	 	
Retirement benefits liability	 	 	 	 	 	 	 	 	
Retirement benefits liability adjustments, net of tax of $2 in 2008	 	 	—	 	 	 	6	 	
 	 	 	 	 	 	 	 	 	
Investments	 	 	 	 	 	 	 	 	
Unrealized gain (loss) on investments, net of tax of $- in 2009 and tax benefit of $3 in 2008	 	 	1	 	 	 	(8	)	

Total Comprehensive Income	 	$	100	 	 	$	128	 	
 	 	 	
 14 

 

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 15 

 

CMS Energy Corporation
Consumers Energy Company
notes to consolidated financial statements
(Unaudited)
These interim Consolidated Financial Statements have been prepared by CMS Energy and Consumers in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. As a result, CMS Energy and Consumers have condensed or omitted certain information and Note disclosures normally included in consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States. CMS Energy and Consumers have reclassified certain prior year amounts to conform to the presentation in the current year. The Consolidated Financial Statements for the three months ended March 31, 2008 have been updated for amounts previously reported. In management’s opinion, the unaudited information contained in this report reflects all adjustments of a normal recurring nature necessary to ensure the fair presentation of financial position, results of operations and cash flows for the periods presented. The Notes to Consolidated Financial Statements and the related Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and related Notes contained in CMS Energy’s and Consumers’ Form 10-K for the year ended December 31, 2008. Due to the seasonal nature of CMS Energy’s and Consumers’ operations, the results presented for this interim period are not necessarily indicative of results to be achieved for the fiscal year.
These interim Consolidated Financial Statements and accompanying Note disclosures include the evaluation of subsequent events through April 30, 2009, the date of issuance, except for updates to reflect the impacts of the rate order that Consumers received on November 2, 2009, as described in Note 1, Subsequent Event.
1: SUBSEQUENT EVENT
On November 2, 2009, the MPSC issued a final order in Consumers’ electric rate case, authorizing Consumers to increase its electric rates by $139 million annually, which was $40 million less than the rate increase that Consumers self-implemented in May 2009. The MPSC directed Consumers to refund to customers the difference between the rates it self-implemented in May and the rates authorized in this order, plus interest, subject to a reconciliation proceeding. The order also authorized Consumers to implement an uncollectible accounts expense tracking mechanism, effective January 1, 2009. This tracker will allow Consumers to adjust its rates to collect or refund 80 percent of the difference between actual uncollectible accounts expense for the calendar year and the base level of uncollectible expense in Consumers’ rates. The order contained a number of other provisions, including a decoupling mechanism, that apply prospectively to Consumers’ electric rates.
In accordance with the accounting rules that apply to certain adjustments of utility revenue under ratemaking processes, CMS Energy and Consumers have recorded the impacts of the MSPC rate order that are specifically identifiable with prior interim periods of 2009 as adjustments to those periods, and have revised their financial statements to reflect these effects. All other information in CMS Energy’s and Consumers’ financial statements for the interim periods of 2009 remains unchanged.
The effect of the uncollectible accounts expense tracking mechanism on the three months ended March 31, 2009 was a decrease in Other operating expenses of $2 million, with a corresponding increase to Other Non-current Assets.
 16 

 

Revised amounts as of March 31, 2009 are as follows:
 	 	 	 	 	 	 	 	 	 	 	 	 	
CMS Energy, including Consumers	 	In Millions (except for per share amounts)	 	
Three months ended March 31, 2009	 	As Reported	 	 	Adjustment	 	 	As Revised	 	
 	
Net Income	 	$	73	 	 	$	1	 	 	$	74	 	
Net Income Available to Common Stockholders	 	$	69	 	 	$	1	 	 	$	70	 	
Basic Earnings Per Share	 	$	0.30	 	 	$	0.01	 	 	$	0.31	 	
Diluted Earnings Per Share	 	$	0.30	 	 	$	—	 	 	$	0.30	 	

Consumers	 	In Millions	 	
Three months ended March 31, 2009	 	As Reported	 	 	Adjustment	 	 	As Revised	 	
  | | |	
Net Income	 	$	98	 	 	$	1	 	 	$	99	 	
Net Income Available to Common Stockholder	 	$	97	 	 	$	1	 	 	$	98	 	
 	 	 	
For further details on Consumers’ electric rate case, see the “Consumers’ Electric Utility Rate Matters — Electric Rate Case and Self-Implemented Rates” section of Note 4, Contingencies.
2: ACCOUNTING POLICIES
IMPLEMENTATION OF NEW ACCOUNTING STANDARDS
SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements — an amendment to ARB No. 51: Under this standard, which was effective for CMS Energy and Consumers January 1, 2009, ownership interests in subsidiaries held by third parties, previously referred to as minority interests, are presented as noncontrolling interests and shown separately on the parent’s balance sheet within equity. In addition, net income attributable to noncontrolling interests is included in net income on the income statement. CMS Energy has applied these provisions to current and prior periods presented in its consolidated financial statements. This standard had no impact on Consumers’ consolidated financial statements for the periods presented. The standard also affects the accounting for changes in a parent’s ownership interest, including deconsolidation of a subsidiary. CMS Energy and Consumers will apply these provisions of the standard to any future transactions.
SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133: This standard, which was effective for CMS Energy and Consumers January 1, 2009, requires enhanced disclosures about how and why derivatives are used, how derivatives and related hedged items are accounted for, and how derivatives and any related hedged items affect financial position, financial performance, and cash flows. This standard did not have a material effect on either CMS Energy’s or Consumers’ consolidated financial statements. For additional details on CMS Energy’s and Consumers’ derivatives, see Note 7, Financial and Derivative Instruments.
 17 

 

FSP APB 14-1, Accounting for Convertible Debt Instruments That May Be Settled In Cash Upon Conversion (Including Partial Cash Settlement): This standard was effective for CMS Energy and Consumers January 1, 2009. It requires CMS Energy to account for the liability and equity components of its convertible debt securities separately and in a manner that reflects CMS Energy’s borrowing rate for nonconvertible debt. The following table summarizes the effects of adopting this standard on CMS Energy’s consolidated financial statements:
 	 	 	 	 	 	 	 	 	
Increases (decreases)	 	In Millions, Except Per Share Amounts	 	
Three months ended March 31	 	2009	 	 	2008	 	
 	
Interest on long-term debt	 	$	2	 	 	$	2	 	
Income tax expense	 	 	(1	)	 	 	(1	)	
 	 	 	
Net income	 	$	(1	)	 	$	(1	)	

Earnings Per Average Common Share	 	 	 	 	 	 	 	 	
Basic	 	$	—	 	 	$	(0.01	)	
Diluted	 	$	—	 	 	$	(0.01	)	

In Millions	 	
Increases (decreases)	 	December 31, 2008	 	 	January 1, 2008	 	
 	
Assets	 	 	 	 	 	 	 	 	
Non-current deferred income tax assets	 	$	—	 	 	$	(12	)	

Liabilities	 	 	 	 	 	 	 	 	
Long-term debt	 	$	(22	)	 	$	(30	)	
Non-current deferred income tax liabilities	 	 	9	 	 	 	—	 	
 	 	 	
Total	 	$	(13	)	 	$	(30	)	

Common Stockholders’ Equity	 	 	 	 	 	 	 	 	
Other paid-in capital	 	$	37	 	 	$	37	 	
Accumulated deficit	 	 	24	 	 	 	19	 	
 	 	 	
Total	 	$	13	 	 	$	18	 	
 	 	 	
This standard had no impact on Consumers’ consolidated financial statements. For additional details on CMS Energy’s convertible debt instruments, see Note 5, Financings and Capitalization.
FSP EITF 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities: Under this standard, which was effective for CMS Energy and Consumers January 1, 2009, share-based payment awards that accrue cash dividends when common shareholders receive dividends are considered participating securities if the dividends do not need to be returned to the company when the employee forfeits the award. This standard applies to CMS Energy’s outstanding unvested restricted stock awards, which are considered participating securities and thus are included in the computation of basic EPS. Implementation of this standard for CMS Energy did not have a material impact for the first quarters of 2008 and 2009. Retrospective implementation of this standard at CMS Energy will reduce basic and diluted EPS by $0.01 for the year ended December 31, 2008. This standard had no impact on Consumers’ consolidated financial statements.
 18 

 

EITF Issue 07-5, Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entity’s Own Stock: This standard, which was effective for CMS Energy and Consumers January 1, 2009, establishes criteria for determining whether freestanding instruments or embedded features are considered “indexed to an entity’s own stock” for the purpose of assessing potential derivative accounting or balance sheet classification. The standard applies to all outstanding instruments at January 1, 2009, with transition impacts recognized as a cumulative effect adjustment to the opening balance of retained earnings. This guidance applies to the equity conversion features in CMS Energy’s contingently convertible senior notes and preferred stock. These conversion features have been exempted from derivative accounting because they are indexed to CMS Energy’s own stock and would be classified in stockholders’ equity. These features are still considered indexed to CMS Energy’s own stock under this new guidance, and thus, this standard had no impact on CMS Energy’s or Consumers’ consolidated financial statements.
EITF Issue 08-5, Issuer’s Accounting for Liabilities Measured at Fair Value with a Third-Party Credit Enhancement: This standard, which was effective for CMS Energy and Consumers January 1, 2009, concludes that the fair value measurement of a liability should not consider the effect of a third-party credit enhancement or guarantee supporting the liability. The standard had no impact on either CMS Energy’s or Consumers’ consolidated financial statements for the quarter ended March 31, 2009. The standard will cause CMS Energy and Consumers to adjust the methods they use to determine the fair value of certain long-term debt instruments for their fair value disclosures, which will be required quarterly starting with the quarter ending June 30, 2009. Neither CMS Energy nor Consumers expects the impact on the fair values disclosed to be significant.
NEW ACCOUNTING STANDARDS NOT YET EFFECTIVE
FSP FAS 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly: The standard, which will be effective for CMS Energy and Consumers for the quarter ending June 30, 2009, provides guidance on determining whether there has been a significant decrease in market activity for an asset or liability and whether quoted prices may reflect distressed transactions. The guidance indicates that entities should not rely on distressed prices in determining fair value, but may instead use alternative valuation techniques, such as discounting future cash flows assuming an orderly transaction. The standard will also require quarterly disclosures on the inputs and valuation techniques used in CMS Energy’s and Consumers’ fair value measurements, in addition to the annual disclosures now required. Neither CMS Energy nor Consumers expects the implementation of this standard to have a material impact on its consolidated income, cash flows, or financial position.
FSP FAS 115-2 and FAS 124-2, Recognition and Presentation of Other-Than-Temporary Impairments: The standard, which will be effective for CMS Energy and Consumers for the quarter ending June 30, 2009, amends the other-than-temporary impairment guidance for debt securities. Entities will no longer need to assert both the intent and ability to hold an impaired debt security until recovery to avoid recording an other-than-temporary impairment. Instead, an entity will consider whether it intends to sell the security or whether it is more likely than not that it will be required to sell the security prior to recovery. If either of these criteria are met, the full impairment should be recognized in earnings. If neither criteria is met, only impairments due to credit losses will be recorded to earnings, while impairments related to other factors will be recorded to other comprehensive income. The standard also includes additional disclosure requirements. Neither CMS Energy nor Consumers expects the implementation of this standard to have a material impact on its consolidated financial statements.
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FSP FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments: This standard, which will be effective for CMS Energy and Consumers for the quarter ending June 30, 2009, requires quarterly disclosures of the fair values of financial instruments. Previously, these disclosures were required only annually. The standard also requires quarterly disclosure of the methods and significant assumptions used in the fair value measurements. The standard involves disclosures only, and will not impact CMS Energy’s or Consumers’ consolidated income, cash flows, or financial position.
FSP FAS 132(R)-1, Employers’ Disclosures about Postretirement Benefit Plan Assets: This standard, which will be effective for CMS Energy and Consumers for the year ending December 31, 2009, requires expanded annual disclosures about the plan assets in the defined benefit pension and OPEB plans. The required disclosures include information about investment allocation decisions, major categories of plan assets, the inputs and valuation techniques used in the fair value measurements, the effects of significant unobservable inputs on changes in plan assets, and significant concentrations of risk within plan assets. The standard involves disclosures only, and will not impact CMS Energy’s or Consumers’ consolidated income, cash flows, or financial position.
3: FAIR VALUE MEASUREMENTS
SFAS No. 157 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. It does not require any new fair value measurements, but applies to fair value measurements recorded or disclosed under other accounting standards. The standard defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly exchange between market participants, and requires that fair value measurements incorporate all assumptions that market participants would use in pricing an asset or liability, including assumptions about risk. The standard became effective on January 1, 2009 for fair value measurements for nonfinancial assets and liabilities that are recorded or disclosed at fair value on a nonrecurring basis. The implementation of SFAS No. 157 for these items did not have a material effect on either CMS Energy’s or Consumers’ consolidated financial statements.
SFAS No. 157 establishes a fair value hierarchy that 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. These markets must be accessible to CMS Energy and Consumers at the measurement date.	
 		
 	•	 	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, interest rates and yield curves observable at commonly quoted intervals, credit risks, default rates, and inputs derived from or corroborated by observable market data.	
 		
 	•	 	Level 3 inputs are unobservable inputs that reflect an entity’s own assumptions about how market participants would value its assets and liabilities.	
To the extent possible, CMS Energy and Consumers use quoted market prices or other observable market pricing data in valuing assets and liabilities measured at fair value. If this information is unavailable, they use market-corroborated data or reasonable estimates about market participant assumptions. 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.
 20 

 

Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following table summarizes, by level within the fair value hierarchy, CMS Energy’s and Consumers’ assets and liabilities reported at fair value on a recurring basis at March 31, 2009:
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	In Millions	 	
 	 	Total	 	 	Level 1	 	 	Level 2	 	 	Level 3	 	
 	
CMS Energy, including Consumers	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Assets:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Cash equivalents (a)	 	$	780	 	 	$	780	 	 	$	—	 	 	$	—	 	
Restricted cash equivalents (a)	 	 	5	 	 	 	5	 	 	 	—	 	 	 	—	 	
Nonqualified deferred compensation plan assets	 	 	4	 	 	 	4	 	 	 	—	 	 	 	—	 	
SERP	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Equity securities	 	 	35	 	 	 	35	 	 	 	—	 	 	 	—	 	
Debt securities	 	 	28	 	 	 	—	 	 	 	28	 	 	 	—	 	
Derivative instruments	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
CMS ERM Non-trading electricity/gas contracts (b)	 	 	1	 	 	 	—	 	 	 	1	 	 	 	—	 	
 	 	 	
Total	 	$	853	 	 	$	824	 	 	$	29	 	 	$	—	 	
Liabilities:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Nonqualified deferred compensation plan liabilities	 	$	4	 	 	$	4	 	 	$	—	 	 	$	—	 	
Derivative instruments	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
CMS ERM Non-trading electricity/gas contracts (c)	 	 	15	 	 	 	4	 	 	 	2	 	 	 	9	 	
Derivative instruments — other	 	 	1	 	 	 	—	 	 	 	—	 	 	 	1	 	
 	 	 	
Total (d)	 	 	20	 	 	 	8	 	 	 	2	 	 	 	10	 	

Consumers	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Assets:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Cash equivalents (a)	 	$	726	 	 	$	726	 	 	$	—	 	 	$	—	 	
Restricted cash equivalents (a)	 	 	5	 	 	 	5	 	 	 	—	 	 	 	—	 	
CMS Energy Common Stock	 	 	22	 	 	 	22	 	 	 	—	 	 	 	—	 	
Nonqualified deferred compensation plan assets	 	 	3	 	 	 	3	 	 	 	—	 	 	 	—	 	
SERP	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Equity securities	 	 	23	 	 	 	23	 	 	 	—	 	 	 	—	 	
Debt securities	 	 	18	 	 	 	—	 	 	 	18	 	 	 	—	 	
 	 	 	
Total	 	$	797	 	 	$	779	 	 	$	18	 	 	$	—	 	
Liabilities:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Nonqualified deferred compensation plan liabilities	 	$	3	 	 	$	3	 	 	$	—	 	 	$	—	 	
Derivative instruments — Fixed price fuel contracts	 	 	1	 	 	 	—	 	 	 	1	 	 	 	—	 	
 	 	 	
Total (d)	 	$	4	 	 	$	3	 	 	$	1	 	 	$	—	 	

			
(a)	 	Cash equivalents and restricted cash equivalents consist of money market funds with daily liquidity. The funds invest in U.S. Treasury notes, other government-backed securities, and repurchase agreements collateralized by U.S. Treasury notes.	
 		
(b)	 	This amount is gross and excludes the $1 million impact of offsetting derivative assets and liabilities under master netting arrangements. CMS Energy reports the fair values of its derivative assets net of these impacts within Other assets on its Consolidated Balance Sheets.	
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(c)	 	This amount is gross and excludes the $1 million impact of offsetting derivative assets and liabilities under master netting arrangements and the $4 million impact of offsetting cash margin deposits paid by CMS ERM to other parties. CMS Energy reports the fair values of its derivative liabilities net of these impacts within Other liabilities on its Consolidated Balance Sheets.	
 		
(d)	 	At March 31, 2009, CMS Energy’s liabilities classified as Level 3 represent 50 percent of CMS Energy’s total liabilities measured at fair value. Consumers did not have any assets or liabilities classified as Level 3.	
The following table summarizes, by level within the fair value hierarchy, CMS Energy’s and Consumers’ assets and liabilities reported at fair value on a recurring basis at December 31, 2008:
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	In Millions	 	
 	
 	 	Total	 	 	Level 1	 	 	Level 2	 	 	Level 3	 	
 	
CMS Energy, including Consumers	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Assets:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Cash equivalents (a)	 	$	176	 	 	$	176	 	 	$	—	 	 	$	—	 	
Restricted cash equivalents (a)	 	 	5	 	 	 	5	 	 	 	—	 	 	 	—	 	
Nonqualified deferred compensation plan assets	 	 	5	 	 	 	5	 	 	 	—	 	 	 	—	 	
SERP	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Equity securities	 	 	39	 	 	 	39	 	 	 	—	 	 	 	—	 	
Debt securities	 	 	29	 	 	 	—	 	 	 	29	 	 	 	—	 	
Derivative instruments	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
CMS ERM Non-trading electricity/gas contracts (b)	 	 	1	 	 	 	—	 	 	 	1	 	 	 	—	 	
 	 	 	
Total	 	$	255	 	 	$	225	 	 	$	30	 	 	$	—	 	

Liabilities:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Nonqualified deferred compensation plan liabilities	 	$	5	 	 	$	5	 	 	$	—	 	 	$	—	 	
Derivative instruments	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
CMS ERM Non-trading electricity/gas contracts (c)	 	 	17	 	 	 	2	 	 	 	—	 	 	 	15	 	
Derivative instruments — other	 	 	3	 	 	 	—	 	 	 	2	 	 	 	1	 	
 	 	 	
Total (d)	 	$	25	 	 	$	7	 	 	$	2	 	 	$	16	 	

Consumers	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Assets:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Cash equivalents (a)	 	$	56	 	 	$	56	 	 	$	—	 	 	$	—	 	
Restricted cash equivalents (a)	 	 	5	 	 	 	5	 	 	 	—	 	 	 	—	 	
CMS Energy Common Stock	 	 	19	 	 	 	19	 	 	 	—	 	 	 	—	 	
Nonqualified deferred compensation plan assets	 	 	3	 	 	 	3	 	 	 	—	 	 	 	—	 	
SERP	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Equity securities	 	 	25	 	 	 	25	 	 	 	—	 	 	 	—	 	
Debt securities	 	 	19	 	 	 	—	 	 	 	19	 	 	 	—	 	
 	 	 	
Total	 	$	127	 	 	$	108	 	 	$	19	 	 	$	—	 	

Liabilities:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Nonqualified deferred compensation plan liabilities	 	$	3	 	 	$	3	 	 	$	—	 	 	$	—	 	
Derivative instruments — Fixed fuel price contracts	 	 	1	 	 	 	—	 	 	 	1	 	 	 	—	 	
 	 	 	
Total (d)	 	$	4	 	 	$	3	 	 	$	1	 	 	$	—	 	

			
(a)	 	Cash equivalents and restricted cash equivalents consist of money market funds with daily liquidity. The funds invest in U.S. Treasury notes, other government-backed securities, and repurchase agreements collateralized by U.S. Treasury notes.	
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(b)	 	This amount is gross and excludes the immaterial impact of offsetting derivative assets and liabilities under master netting arrangements. CMS Energy reports the fair values of its derivative assets net of these impacts within Other assets on its Consolidated Balance Sheets.	
 		
(c)	 	This amount is gross and excludes the immaterial impact of offsetting derivative assets and liabilities under master netting arrangements and the $2 million impact of offsetting cash margin deposits paid by CMS ERM to other parties. CMS Energy reports the fair values of its derivative liabilities net of these impacts within Other liabilities on its Consolidated Balance Sheets.	
 		
(d)	 	At December 31, 2008, CMS Energy liabilities classified as Level 3 represent 64 percent of total liabilities measured at fair value. Consumers did not have any assets or liabilities classified as Level 3.	
Assets and Liabilities Measured at Fair Value on a Recurring Basis using Level 3 Inputs
The following table is a reconciliation of changes in the fair values of Level 3 assets and liabilities at CMS Energy:
 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	In Millions	
 	
Three months ended March 31	 	2009	 	2008	
 	
Balance at January 1	 	$	(16	)	 	$	(19	)	
Total gains (realized and unrealized)	 	 	 	 	 	 	 	 	
Included in earnings (a)	 	 	6	 	 	 	(3	)	
Purchases, sales, issuances, and settlements (net)	 	 	—	 	 	 	1	 	
 	 	 	
Balance at March 31	 	 	(10	)	 	 	(21	)	
 	 	 	
Unrealized gains (losses) included in earnings for the quarter ended March 31 relating to assets and liabilities still held at March 31(a)	 	$	5	 	 	$	(3	)	

			
(a)	 	Realized and unrealized gains and losses for Level 3 recurring fair values are recorded in earnings as a component of Operating Revenue or Operating Expenses in CMS Energy’s Consolidated Statements of Income.	
4: CONTINGENCIES
CMS ENERGY CONTINGENCIES
Gas Index Price Reporting Investigation: CMS Energy notified appropriate regulatory and governmental agencies that some employees at CMS MST and CMS Field Services appeared to have provided inaccurate information regarding natural gas trades to various energy industry publications, which compile and report index prices. CMS Energy cooperated with an investigation by the DOJ regarding this matter. Although CMS Energy has not received any formal notification that the DOJ has completed its investigation, the DOJ’s last request for information occurred in November 2003, and CMS Energy completed its response to this request in May 2004. CMS Energy is unable to predict the outcome of the DOJ investigation and what effect, if any, the investigation will have on its business.
Gas Index Price Reporting Litigation: CMS Energy, along with CMS MST, CMS Field Services, Cantera Natural Gas, Inc. (the company that purchased CMS Field Services) and Cantera Gas Company are named as defendants in various lawsuits arising as a result of allegedly inaccurate natural gas price reporting. Allegations include manipulation of NYMEX natural gas futures and options prices, price-fixing conspiracies, and artificial inflation of natural gas retail prices in California, Colorado, Kansas, Missouri, Tennessee, and Wisconsin. In 2007, CMS MST settled a master class action suit in California
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state court for $7 million and the CMS Energy defendants also settled four class action suits originally filed in California federal court. All CMS Energy defendants were dismissed from Missouri Public Service Commission, a state action, and Breckenridge, a federal action. Appeals are expected in both cases. Recently, CMS Energy was also dismissed from three federal cases, while the other CMS Energy defendants remain. CMS Energy defendants were also dismissed from a federal case in Wisconsin, but the plaintiffs have refiled the complaint in Michigan federal court. In addition, the Tennessee Supreme Court has recently granted the CMS Energy defendants’ application for leave to appeal the Tennessee class action lawsuit. Other cases in several jurisdictions remain pending.
Another complaint was filed in March 2009 in circuit court in Wood County, Wisconsin, against CMS Energy defendants, along with 19 other non-CMS Energy companies, alleging conspiracy to restrain trade through inaccurate natural gas price reporting. CMS Energy defendants expect to remove the case to federal court. CMS Energy cannot predict the financial impact or outcome of these matters.
Bay Harbor: As part of the development of Bay Harbor by certain subsidiaries of CMS Energy, and under an agreement with the MDEQ, third parties constructed a golf course and park over several abandoned CKD piles left over from the former cement plant operations on the Bay Harbor site. The third parties also undertook a series of remedial actions, including constructing a leachate collection system at an identified seep. In 2002, CMS Energy sold its interest in Bay Harbor, but retained its obligations under environmental indemnifications entered into at the start of the project.
In 2005, the EPA, along with CMS Land and CMS Capital, voluntarily executed an AOC under Superfund and approved a Removal Action Work Plan to address contamination issues at Bay Harbor. Collection systems required under the plan have been installed and effectiveness monitoring of the systems at the shoreline is ongoing. CMS Land, CMS Capital, and the EPA have agreed upon augmentation measures to address areas where pH measurements are not satisfactory. The augmentation measures are being implemented and are expected to be completed in 2009.
In 2008, the MDEQ and the EPA granted permits for CMS Land or its affiliate, Beeland, to construct and operate a deep injection well in Antrim County, Michigan. Certain environmental groups, a local township, and a local county filed lawsuits appealing the permits. One appeal relating to the permit remains pending in the state court. Groups opposed to the injection well filed a lawsuit in Antrim County against development of the well and in January 2009, the trial judge issued an injunction. Beeland filed an application for leave to appeal the court’s order with the Michigan Court of Appeals.
CMS Land and CMS Capital, the MDEQ, the EPA, and other parties are discussing the long-term remedy for the Bay Harbor sites, including:

 	•	 	the disposal of leachate;	
 		
 	•	 	the capping and excavation of CKD;	
 		
 	•	 	the location and design of collection lines and upstream diversion of water;	
 		
 	•	 	potential flow of leachate below the collection system;	
 		
 	•	 	applicable criteria for various substances such as mercury; and	
 		
 	•	 	other matters that are likely to affect the scope of remedial work that CMS Land and CMS Capital may be obligated to undertake.	
CMS Energy has recorded a cumulative charge related to Bay Harbor of $141 million, which includes accretion expense. At March 31, 2009, CMS Energy has a recorded liability of $59 million for its remaining obligations. CMS Energy calculated this liability based on discounted projected costs, using a discount rate of 4.45 percent and an inflation rate of 1 percent on annual operating and maintenance costs. CMS Energy based the discount rate on the interest rate for 30-year U.S. Treasury securities on December 31, 2007, the date of the last major revision to its remediation cost estimate. The undiscounted amount of the remaining obligation is $72 million. CMS Energy expects to pay $21 million in 2009, $12 million
 24 

 

in 2010, $3 million in 2011, and the remainder on long-term liquid disposal and operating and maintenance costs. CMS Energy’s estimate of remedial action costs and the timing of expenditures could change if there is a significant change in circumstances or assumptions, including but not limited to:

 	•	 	an increase in the number of contamination areas;	
 		
 	•	 	different remediation techniques;	
 		
 	•	 	the nature and extent of contamination;	
 		
 	•	 	continued inability to reach agreement with the MDEQ or the EPA over required remedial actions;	
 		
 	•	 	delays in the receipt of requested permits;	
 		
 	•	 	delays following the receipt of any requested permits due to legal appeals of third parties;	
 		
 	•	 	an increase in water disposal costs;	
 		
 	•	 	delays in developing a long-term water disposal option;	
 		
 	•	 	additional or new legal or regulatory requirements; or	
 		
 	•	 	new or different landowner claims.	
In addition, CMS Energy is becoming increasingly concerned about delays in discussions with federal and state regulators over remediation issues and permitting delays regarding long-term water disposal options.
Depending on the size of any indemnification obligation or liability under environmental laws, an adverse outcome of this matter could have a material adverse effect on CMS Energy’s liquidity and financial condition and could negatively impact CMS Energy’s financial results. CMS Energy cannot predict the financial impact or outcome of this matter.
Quicksilver Resources, Inc.: In 2001, Quicksilver sued CMS MST in Texas state court in Fort Worth, Texas for breach of contract in connection with a base contract for the sale and purchase of natural gas. The jury verdict awarded Quicksilver no compensatory damages but $10 million in punitive damages. In 2007, the trial court vacated the jury award of punitive damages but held that the contract should be rescinded prospectively. The judicial rescission of the contract caused CMS Energy to record a charge in the second quarter of 2007 of $24 million, net of tax. CMS MST has filed a notice of appeal with the Texas Court of Appeals. Quicksilver has filed a cross appeal, where it claims that the contract should be rescinded from its inception, rather than merely from the date of the judgment. Although CMS Enrgy believes Quicksilver’s position to be without merit, if the court were to grant the relief requestd by Quicksilver, it could result in a loss of up $10 million.
State Street Bank and TSU Litigation: In 1998, CMS Viron installed a number of energy savings measures at TSU. CMS Viron sold the master lease for the project to a third-party, which transferred its interest to State Street Bank. Although the university accepted the improvements, it refused to pay on the grounds that the Texas Board of Higher Education had not approved the expenditure. In 2002, State Street Bank sued CMS Viron in the District Court of Harris County, Texas because state law made it difficult to sue TSU. The plaintiffs are seeking $6 million plus interest from CMS Viron. CMS Viron believes it has a valid defense to the claim, but cannot predict the outcome of this litigation.
Equatorial Guinea Tax Claim: In 2004, CMS Energy received a request for indemnification from the purchaser of CMS Oil and Gas. The indemnification claim relates to the sale of CMS Energy’s oil, gas and methanol projects in Equatorial Guinea and the claim of the government of Equatorial Guinea that CMS Energy owes $142 million in taxes in connection with that sale. CMS Energy concluded that the government’s tax claim is without merit and the purchaser of CMS Oil and Gas submitted a response to the government rejecting the claim. The government of Equatorial Guinea has indicated that it still intends to pursue its claim. CMS Energy cannot predict the financial impact or outcome of this matter.
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Moroccan Tax Claim: In May 2007, CMS Energy sold its 50 percent interest in Jorf Lasfar. As part of the sale agreement, CMS Energy agreed to indemnify the purchaser for 50 percent of any tax assessments on Jorf Lasfar attributable to tax years prior to the sale. In December 2007, the Moroccan tax authority concluded its audit of Jorf Lasfar for tax years 2003 through 2005. The audit asserted deficiencies in certain corporate and withholding taxes. In January 2009, CMS Energy paid $18 million, which it charged against a tax indemnification liability established when it recorded the sale of Jorf Lasfar, and accordingly, the payment did not affect earnings. The Moroccan tax authority may also assess taxes for 2006. CMS Energy cannot predict the financial impact or outcome of this matter.
Marathon Indemnity Claim regarding F.T. Barr Claim: In 2001, F. T. Barr, an individual with an overriding royalty interest in production from the Alba field, filed a lawsuit in Harris County District Court in Texas against CMS Energy, CMS Oil and Gas and other defendants alleging that his overriding royalty payments related to Alba field production were improperly calculated. CMS Oil and Gas believes that Barr was properly paid on gas sales and that he was not entitled to the additional overriding royalty payment sought. All parties signed a confidential settlement agreement in 2004. The settlement resolved claims between Barr and the defendants, and the involved CMS Energy entities reserved all defenses to any indemnity claim relating to the settlement. Issues exist between Marathon and certain current or former CMS Energy entities as to the existence and scope of any indemnity obligations to Marathon in connection with the matter. In April 2008, Marathon indicated its intent to pursue the indemnity claim, and present and former CMS Energy entities and Marathon entered into a one-year agreement tolling the statute of limitations on any claim by Marathon under the indemnity. In April 2009, certain Marathon entities filed a claim in the United States District Court for the Southern District of Texas against CMS Enterprises for indemnification. CMS Energy entities dispute Marathon’s claim, and will vigorously oppose it. CMS Energy entities also will assert that Marathon has suffered minimal, if any, damages. CMS Energy cannot predict the outcome of this matter. If Marathon’s claim were sustained, it would have a material effect on CMS Energy’s future earnings and cash flow.
CONSUMERS’ ELECTRIC UTILITY CONTINGENCIES
Electric Environmental Matters: Consumers’ operations are subject to environmental laws and regulations. Generally, Consumers has been able to recover, in customer rates, the costs to operate its facilities in compliance with these laws and regulations.
Cleanup and Solid Waste: Under the NREPA, Consumers will ultimately incur investigation and response activity costs at a number of sites. Consumers believes that these costs will be recoverable in rates under current ratemaking policies.
Consumers is a potentially responsible party at a number of contaminated sites administered under the Superfund. Superfund liability is joint and several. However, many other creditworthy parties with substantial assets are potentially responsible with respect to the individual sites. Based on its experience, Consumers estimates that its share of the total liability for known Superfund sites will be between $1 million and $11 million. Various factors, including the number of potentially responsible parties involved with each site, affect Consumers’ share of the total liability. As of March 31, 2009, Consumers has recorded a liability of $2 million, the minimum amount in the estimated range of possible outcomes of estimated probable Superfund liability, in accordance with FIN 14.
The timing of payments related to Consumers’ investigation and response activities at its Superfund and NREPA sites is uncertain. Periodically, Consumers receives information about new sites, which leads it to review its response activity estimates. Any significant change in the underlying assumptions, such as an increase in the number of sites, different remediation techniques, nature and extent of contamination, and legal and regulatory requirements, could affect its estimates of NREPA and Superfund liability.
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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 and replaced part of the PCB material with non-PCB material. Since proposing a plan to take action with respect to the remaining materials, Consumers has had several communications with the EPA. Consumers is not able to predict when the EPA will issue a final ruling and cannot predict the financial impact or outcome of this matter.
Electric Utility Plant Air Permit Issues: In 2007, Consumers received a NOV/FOV from the EPA alleging that fourteen utility boilers exceeded the visible emission limits in their associated air permits. The utility boilers are located at the Karn/Weadock Generating Complex, Campbell Plant, Cobb Electric Generating Station and Whiting Plant, which are all in Michigan. Consumers has responded formally to the NOV/FOV denying the allegations and is awaiting the EPA’s response to its submission. Consumers cannot predict the financial impact or outcome of this matter.
Routine Maintenance Classification: The EPA has alleged that some utilities have incorrectly classified major plant modifications as RMRR rather than seeking permits from the EPA to modify their plants. Consumers responded to information requests from the EPA on this subject in 2000, 2002, 2006, and 2008. Consumers believes that it has properly interpreted the requirements of RMRR. In addition, in 2008, Consumers received a NOV for three of its coal-based facilities alleging, among other things, violations of NSR and PSD regulations relating to ten projects from 1986 to 1998 allegedly subject to NSR review. Consumers is engaged in discussions with the EPA on this matter. Depending upon the outcome of these discussions, the EPA could bring legal action against Consumers and/or Consumers could be required to install additional pollution control equipment at some or all of its coal-based electric generating plants, surrender emission allowances, engage in Supplemental Environmental Programs, and/or pay fines. Additionally, Consumers would need to assess the viability of continuing operations at certain plants. Consumers cannot predict the financial impact or outcome of this matter.
RFC Initial Notice of Alleged Violation : In July 2008, Consumers notified RFC, the NERC-affiliated regional reliability organization in the region that includes Consumers’ generating plants, that certain generation equipment covered by the NERC standards for maintenance and testing of certain electrical protection equipment was not covered by Consumers’ Generation Reliability Compliance Program. In September 2008, Consumers submitted a mitigation plan, which was completed in December 2008 and was accepted by RFC in March 2009. In February 2009, Consumers received an initial notice of alleged violation and a request for information on its internal NERC compliance program from RFC. It responded to this request in March 2009. Consumers also responded to an additional information request in April 2009. There is a limited history with regard to penalties from NERC, as 2008 was the first year for which the NERC issued them for most of its standards. Consumers cannot predict the financial impact or outcome of this matter.
Litigation: The transmission charges Consumers pays to MISO have been subject to regulatory review and recovery through the annual PSCR process. Michigan’s attorney general has argued that the statute governing the PSCR process does not permit recovery of transmission charges in that manner and that those expenses should be considered in general rate cases. Several decisions of the Michigan Court of Appeals have ruled against the Michigan attorney general’s arguments, but in September 2008, the Michigan Supreme Court granted the Michigan attorney general’s applications for leave to appeal two of those decisions. If the Michigan Supreme Court accepts the attorney general’s position, Consumers and other electric utilities will be required to obtain recovery of transmission charges through an alternative ratemaking mechanism. Consumers expects a decision by the Michigan Supreme Court on these appeals by mid-2009. In addition, if Michigan’s attorney general were to prevail, it would cause at least a temporary disruption in Consumers’ recovery of transmission costs, including past costs recoverable through the PSCR clause. Consumers believes that such costs are legitimate and fully recoverable, but it cannot predict the financial impact or outcome of this matter.
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CONSUMERS’ ELECTRIC UTILITY RATE MATTERS
Stranded Cost Recovery: In 2004, the MPSC approved recovery of Consumers’ Stranded Costs incurred in 2002 and 2003 plus interest through the period of collection through a surcharge on ROA customers. Consumers presently has fewer ROA customers than at the time of the 2004 MPSC order, but has experienced a recent upward trend in ROA customers. In 2008, the Michigan legislature enacted legislation that amended the Customer Choice Act and directed the MPSC to approve rates that will allow recovery of Stranded Costs within five years. In January 2009, Consumers filed an application with the MPSC requesting recovery of these Stranded Costs through a surcharge on both full service and ROA customers. At March 31, 2009, Consumers had a regulatory asset for Stranded Costs of $72 million.
Power Supply Cost Recovery: The PSCR process is designed to allow Consumers to recover all of its power supply 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 billing factor monthly in order to minimize the over- or underrecovery amount in the annual PSCR reconciliation.
The following table summarizes the PSCR reconciliation filings currently pending with the MPSC:
 	 	 	 	 	 	 	 	 	 	 	
Power Supply Cost Recovery Reconciliation	
  	 	 	 	 	 	Net Over-	 	 	 	 	
 	 	 	 	 	 	(Under)	 	PSCR Cost of Power	 	 	
PSCR Year	 	Date Filed	 	recovery (a)	 	Sold	 	Description	
 	
 	2007	 	 	March 2008	 	$(42) million	 	$1.628 billion	 	In the 2007 PSCR Plan, Consumers expected to offset power supply costs by including a $44 million credit for Palisades sale proceeds due customers. However, the MPSC directed that the Palisades sale proceeds be refunded through bill credits outside of the PSCR process.	
 	 	 	 	 	 	 	 	 	 	 	
 	2008	 	 	March 2009	 	$2 million	 	$1.670 billion	 	The overrecovery amount includes accrued interest and reflects an overrecovery for 2008 less underrecoveries from 2007.	

			
(a)	 	Amount includes prior year over- or underrecoveries as allowed by the MPSC order in Consumers’ 2007 PSCR plan case.	
2009 PSCR Plan : In September 2008, Consumers submitted its 2009 PSCR plan to the MPSC. The plan seeks approval to apply a uniform maximum PSCR factor of $0.02680 per kWh to all classes of customers. The plan also seeks approval to recover an expected $22 million discount in power supply charges provided to a large industrial customer. The MPSC approved the discount in 2005 to promote long-term investments in the industrial infrastructure of Michigan. Consumers self-implemented the 2009 PSCR charge in January 2009. The May 2009 PSCR billing factor is $0.01618 per kWh.
While Consumers expects to recover all of its PSCR costs, it cannot predict the financial impact or outcome of these proceedings. When Consumers is unable to collect PSCR costs as they are incurred, there is a negative impact on its cash flows.
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Electric Rate Case and Self-Implemented Rates: In November 2008, Consumers filed an application with the MPSC seeking an annual increase in revenue of $214 million based on an 11 percent authorized return on equity. The filing sought recovery of costs associated with new plant investments including Clean Air Act investments, higher operating and maintenance costs, and the approval to recover costs associated with Consumers’ advanced metering infrastructure program. The following table details the components of the requested increase in revenue:
 	 	 	 	 	
In Millions	 	
Components of the increase in revenue	 	
Operating and maintenance	 	$	50	 	
Rate of return	 	 	17	 	
Rate base	 	 	76	 	
Depreciation on new investment	 	 	14	 	
Property taxes on new investment	 	 	9	 	
Gross margin	 	 	43	 	
Other	 	 	5	 	
 	 	 	 	
Total	 	$	214	 	
 	 	 	 	
In April 2009, the MPSC Staff and intervenors filed testimony concerning the rate case. The MPSC Staff recommended a revenue increase of $75 million, based on an 11 percent return on equity.
This was the first electric rate case under the new streamlined regulatory process enacted by the Michigan legislation in 2008. The new provisions generally allow utilities to self-implement rates six months after filing, subject to refund, unless the MPSC finds good cause to prohibit self-implementation. The new provisions require the MPSC to issue an order 12 months after filing or the rates, as filed, become permanent.
In April 2009, ABATE, an organization that represents certain large customers and which intervened in Consumers’ electric rate case, filed a motion for a temporary order seeking to prevent or delay Consumers’ self-implementation. Also, in April 2009, the MPSC issued an order requiring Consumers to file tariff sheets showing the rates which it intends to self-implement. Accordingly, on April 29, 2009, Consumers filed tariff sheets indicating that it planned to self-implement an electric rate increase in the annual amount of $179 million beginning in May 2009. The MPSC issued an order in May 2009 requiring that, if Consumers self-implemented the $179 million electric rate increase, it must simultaneously distribute to customers $36 million of proceeds from the April 2007 sale of Palisades. Accordingly, in May 2009 Consumers self-implemented an annual electric rate increase of $179 million, subject to refund with interest, and also implemented a one-time distribution of $36 million to customers.
In November 2009, the MPSC issued its final order in this case, authorizing Consumers to increase its rates by $139 million annually, $40 million less than the rate increase self-implemented by Consumers. The order reflects an authorized rate of return of 10.7 percent and the exclusion from rate base of amounts associated with an obligation to the DOE for nuclear fuel disposal. The order also requires Consumers to refund the remaining $73 million of proceeds from the April 2007 sale of Palisades. The order adopts a pilot decoupling mechanism that goes into effect December 1, 2009, and which, subject to certain conditions, will allow rates to be adjusted to collect or refund the difference between the level of average sales per customer adopted in the order and actual average sales per customer. The order also adopts an uncollectible expense tracking mechanism, effective January 1, 2009, that will allow rates to be adjusted to collect or refund 80 percent of the difference between the level of uncollectible expense included in rates and actual uncollectible expense.
For details on the impacts of the rate order on the interim periods of 2009, see Note 1, Subsequent Event.
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Palisades Regulatory Proceedings: The MPSC order approving the Palisades sale transaction required that Consumers credit $255 million of excess sales proceeds and decommissioning amounts to its retail customers by December 2008. There are additional excess sales proceeds and decommissioning fund balances of $135 million above the amount in the MPSC order. The MPSC order in Consumers’ 2007 electric rate case instructed Consumers to offset the excess sales proceeds and decommissioning fund balances with $26 million of transaction costs from the Palisades sale. In addition, the MPSC required Consumers to offset the electric rate increase it self-implemented in May 2009 with $36 million of these funds. Furthermore, the November 2009 electric rate order ordered Consumers to refund the remaining balance of $73 million, as described in the “Electric Rate Case and Self-Implemented Rates” section of this Note.
OTHER CONSUMERS’ ELECTRIC UTILITY CONTINGENCIES
Nuclear Matters:
DOE Litigation: In 1997, a United States Court of Appeals decision confirmed that the DOE was to begin accepting deliveries of spent nuclear fuel for disposal by January 1998. Subsequent United States Court of Appeals litigation, in which Consumers and other utilities participated, has not been successful in producing more specific relief for the DOE’s failure to accept the spent nuclear fuel.
A number of court decisions support the right of utilities to pursue damage claims in the United States Court of Claims against the DOE for failure to take delivery of spent nuclear fuel. Consumers filed a complaint in 2002. If Consumers’ litigation against the DOE is successful, Consumers plans to use any recoveries as reimbursement for the incurred costs of spent nuclear fuel storage during Consumers’ ownership of Palisades and Big Rock. Consumers cannot predict the financial impact or outcome of this matter. The sale of Palisades and the Big Rock ISFSI did not transfer the right to any recoveries from the DOE related to costs of spent nuclear fuel storage incurred during Consumers’ ownership of Palisades and Big Rock.
Big Rock Decommissioning: The MPSC and the FERC regulate the recovery of costs to decommission Big Rock. In 2000, Consumers stopped funding a Big Rock trust fund because the MPSC-authorized decommissioning surcharge collection period expired. The level of funds provided by the trust fell short of the amount needed to complete decommissioning. As a result, Consumers provided $44 million of corporate contributions for decommissioning costs. Consumers also paid $30 million to Entergy to assume ownership and responsibility for the Big Rock ISFSI and paid $55 million for nuclear fuel storage costs incurred as a result of the DOE’s failure to accept spent nuclear fuel on schedule. At March 31, 2009, Consumers has a $129 million regulatory asset recorded on its Consolidated Balance Sheets for these costs.
In 2008, Consumers filed an application with the MPSC seeking the deferral of ratemaking treatment for the recovery of its nuclear fuel storage costs and the payment to Entergy, until the litigation regarding these costs is resolved in the federal courts. In the application, Consumers is seeking to recover the $44 million Big Rock decommissioning shortfall from customers. Consumers cannot predict the outcome of this proceeding.
Nuclear Fuel Disposal Cost: Consumers deferred payment for disposal of spent nuclear fuel used before April 7, 1983. Its DOE liability is $163 million at March 31, 2009. This amount includes interest, and is payable upon the first delivery of spent nuclear fuel to the DOE. Consumers recovered the amount of this liability, excluding a portion of interest, through electric rates. In conjunction with the sale of Palisades and the Big Rock ISFSI, Consumers retained this obligation and provided a $162 million letter of credit to Entergy as security for this obligation.
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CONSUMERS’ GAS UTILITY CONTINGENCIES
Gas Environmental Matters: Consumers expects to incur investigation and remediation costs at a number of sites under the NREPA, a Michigan statute that covers environmental activities including remediation. These sites include 23 former manufactured gas plant facilities. Consumers operated the facilities on these sites for some part of their operating lives. For some of these sites, it has no current ownership or may own only a portion of the original site. In December 2008, Consumers estimated its remaining costs to be between $38 million and $52 million. Consumers expects to fund most of these costs through proceeds from insurance settlements and MPSC-approved rates.
At March 31, 2009, Consumers has a liability of $38 million and a regulatory asset of $68 million that includes $30 million of deferred MGP expenditures. The timing of payments related to the remediation of Consumers’ manufactured gas plant sites is uncertain. Consumers expects annual response activity costs to range between $5 million and $6 million over the next five years. Consumers periodically reviews these response activity 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 MGP liability.
FERC Investigation: In February 2008, Consumers received a data request relating to an investigation the FERC is conducting into possible violations of the FERC’s posting and competitive bidding regulations related to releases of firm capacity on natural gas pipelines. Consumers responded to the FERC’s first data request in the first quarter of 2008. The FERC has also taken depositions and Consumers has responded to additional data requests. Consumers cannot predict the financial impact or outcome of this matter.
CONSUMERS’ GAS UTILITY RATE MATTERS
Gas Cost Recovery: The GCR process is designed to allow Consumers to recover all of its 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 GCR billing factor monthly in order to minimize the over- or underrecovery amount in the annual GCR reconciliation.
The following table summarizes the GCR reconciliation filing currently pending with the MPSC:
 	 	 	 	 	 	 	 	 	
Gas Cost Recovery Reconciliation	
  	 	 	 	Net Over-	 	 	 	 	
GCR Year	 	Date Filed	 	recovery	 	GCR Cost of Gas Sold	 	Description	
 	
2007-2008	 	June 2008	 	$17 million	 	$1.7 billion	 	The overrecovery amount reflects an overrecovery of $15 million plus $2 million in accrued interest owed to customers.	
 	
GCR plan for year 2009-2010: In December 2008, Consumers filed an application with the MPSC seeking approval of a GCR plan for its 2009-2010 GCR plan year. The request proposed the use of a base GCR ceiling factor of $8.10 per mcf, plus a quarterly GCR ceiling price adjustment contingent upon future events. Consumers self-implemented the 2009-2010 GCR charge in April 2009. The May 2009 GCR billing factor is $7.23 per mcf.
While Consumers expects to recover all of its GCR costs, it cannot predict the financial impact or outcome of these proceedings. When Consumers is unable to collect GCR costs as they are incurred, there is a negative impact on its cash flows.
Gas Depreciation: In August 2008, Consumers filed a gas depreciation case using 2007 data with the MPSC-ordered variations on traditional cost-of-removal methodologies. In December 2008, the MPSC
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approved a partial settlement agreement allowing Consumers to implement the filed depreciation rates, on an interim basis, concurrent with the implementation of settled rates in its 2008 gas rate case. The interim depreciation rates, which reduced Consumers’ recovery of depreciation expense by $20 million per year, will remain in effect until the MPSC issues a final order in the gas depreciation case. The final order in Consumers’ gas depreciation case may increase or decrease its annual recovery of depreciation expense.
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GUARANTEES
The following table describes CMS Energy’s and Consumers’ guarantees at March 31, 2009:
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
In Millions	 	
 	 	Issue	 	 	Expiration	 	 	Maximum	 	 	Carrying	 	
Guarantee Description	 	Date	 	 	Date	 	 	Obligation	 	 	Amount	 	
 	
CMS Energy, including Consumers	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Indemnifications from asset sales and other agreements	 	Various	 	Indefinite	 	$	1,419	(a)	 	$	65	(b)	
Surety bonds and other indemnifications	 	Various	 	Indefinite	 	 	35	 	 	 	—	 	
Guarantees and put options (c)	 	Various	 	Various through September 2027	 	 	89	 	 	 	2	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Consumers	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Guarantees, surety bonds, and other indemnifications (c)	 	Various	 	Various through September 2027	 	$	85	 	 	 	—	 	

			
(a)	 	The majority of this amount arises from stock and asset sales agreements under which CMS Energy indemnified the purchaser for losses resulting from various matters, including claims related to tax disputes, claims related to power purchase agreements, and the failure of title to the assets or stock sold to the purchaser by CMS Energy subsidiaries. Except for items described elsewhere in this Note, CMS Energy believes the likelihood of loss to be remote for the indemnifications not recorded as liabilities.	
 		
(b)	 	In May 2007, CMS Energy provided an indemnification to TAQA in connection with the sale of its ownership interests in businesses in the Middle East, Africa, and India. This indemnification is capped at $50 million and expires two years after the May 2, 2007 sale closing date. The indemnification covers claims related to the following matters:	

 	•	 	a dispute between Neyveli and the TNEB regarding the capital costs to be reflected in the tariff paid by the TNEB to Neyveli; and	
 		
 	•	 	various matters related to Takoradi, including the lack of a valid site lease and current operating license.	
As of March 31, 2009, CMS Energy has recorded a $65 million liability in connection with indemnities related to the sale of certain subsidiaries, including a $50 million liability related to the indemnification to TAQA described in the preceding paragraphs. The TAQA indemnification liability may be resolved during 2009, and CMS Energy’s ultimate payment obligation could be materially less than the amount it has accrued for the indemnification.
 	 	 	
(c)	 	The maximum obligation includes an $85 million guarantee by Consumers, issued in 1987, of the MCV Partnership’s nonperformance under a steam and electric power agreement with Dow. Consumers sold its interests in the MCV Partnership and the FMLP. The sales agreement calls for the purchaser, an affiliate of GSO Capital Partners and Rockland Capital Energy Investments, to pay $85 million, subject to certain reimbursement rights, if Dow terminates an agreement under which the MCV Partnership provides it steam and electric power. This agreement expires in March 2016, subject to certain terms and conditions. The purchaser secured its reimbursement obligation to Consumers with an irrevocable letter of credit of up to $85 million.	
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In the normal course of business, CMS Energy and Consumers issue surety bonds and indemnities to counterparties to facilitate commercial transactions. CMS Energy and Consumers would be required to pay a counterparty if it incurred losses due to a breach of contract terms or nonperformance under the contract. At March 31, 2009, the maximum obligation and the carrying amount of CMS Energy’s and Consumers’ surety bonds and indemnities was less than $1 million.
The following table provides additional information regarding CMS Energy’s and Consumers’ guarantees:

 	 	 	 	 	
 	 	 	 	Events That Would Require	
Guarantee Description	 	How Guarantee Arose	 	Performance	
CMS Energy, including Consumers	 	 	 	 	
Indemnifications from asset sales and other agreements	 	Stock and asset sales agreements	 	Findings of misrepresentation, breach of warranties, tax claims, and other specific events or circumstances	
 	 	 	 	 	
Surety bonds and other indemnifications	 	Normal operating activity, permits and licenses	 	Nonperformance	
 	 	 	 	 	
Guarantees and put options	 	Normal operating activity	 	Nonperformance or non-payment by
a subsidiary under a related contract	
 	 	 	 	 	
 	 	Bay Harbor remediation
efforts	 	Owners exercising put options requiring CMS Land and CMS Capital to purchase property	
 	 	 	 	 	
 	 	Consumers’ agreement to provide power and steam to Dow	 	MCV Partnership’s nonperformance or non-payment under a related contract	
 	 	 	 	 	
Consumers	 	 	 	 	
Guarantees, surety bonds, and other indemnifications	 	Normal operating activity, permits and licenses	 	Nonperformance, findings of misrepresentation, breach of warranties, and other circumstances	
 	 	 	 	 	
 	 	Agreement to provide power and steam to Dow	 	MCV Partnership’s nonperformance or non-payment under a related contract	
 	
At March 31, 2009, certain contracts contained provisions allowing CMS Energy and Consumers to recover amounts paid under guarantees from third parties. Additionally, if CMS Energy is required to purchase a Bay Harbor property under a put option agreement, it may sell the property to recover the amount paid under the option.
CMS Energy and Consumers also enter into various agreements containing tax and other indemnification provisions for which they are unable to estimate the maximum potential obligation. These factors include unspecified exposure under certain agreements. CMS Energy and Consumers consider the likelihood that they would be required to perform or incur significant losses related to these indemnities to be remote.
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OTHER CONTINGENCIES
In addition to the matters disclosed in this Note, CMS Energy, Consumers, and certain other subsidiaries of CMS Energy are parties to certain lawsuits and administrative proceedings before various courts and governmental agencies arising from the ordinary course of business. These lawsuits and proceedings may involve personal injury, property damage, contracts, environmental issues, federal and state taxes, rates, licensing, and other matters.
5: FINANCINGS AND CAPITALIZATION
Long-term debt is summarized as follows:
 	 	 	 	 	 	 	 	 	
In Millions	 	
 	 	March 31, 2009	 	 	December 31, 2008	 	
CMS Energy	 	 	 	 	 	 	 	 	
Senior notes	 	$	1,703	 	 	$	1,703	 	
Revolving credit facility	 	 	60	 	 	 	105	 	
 	 	 	 	 	 	 	
Total — CMS Energy	 	 	1,763	 	 	 	1,808	 	
Consumers	 	 	4,588	 	 	 	4,297	 	
Other CMS Energy Subsidiaries	 	 	243	 	 	 	252	 	
 	 	 	 	 	 	 	
Total CMS Energy principal amounts outstanding	 	 	6,594	 	 	 	6,357	 	
Current amounts	 	 	(286	)	 	 	(489	)	
Net unamortized discount	 	 	(29	)	 	 	(31	)	

Total CMS Energy Long-term debt	 	$	6,279	 	 	$	5,837	 	
 	 	 	 	 	 	 	
Consumers	 	 	 	 	 	 	 	 	
First mortgage bonds	 	$	3,816	 	 	$	3,517	 	
Senior notes and other	 	 	503	 	 	 	503	 	
Securitization bonds	 	 	269	 	 	 	277	 	
 	 	 	 	 	 	 	
Total Consumers principal amounts outstanding	 	 	4,588	 	 	 	4,297	 	
Current amounts	 	 	(184	)	 	 	(383	)	
Net unamortized discount	 	 	(5	)	 	 	(6	)	
 	 	 	 	 	 	 	
Total Consumers Long-term debt	 	$	4,399	 	 	$	3,908	 	
 	 	 	
Financings: The following is a summary of significant long-term debt transactions during the three months ended March 31, 2009:
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Principal	 	 	Interest	 	 	Issue/Retirement	 	 	 	 	
 	 	(in millions)	 	 	Rate (%)	 	 	Date	 	 	Maturity Date	 	
Debt Issuances:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Consumers	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
First mortgage bonds	 	$	500	 	 	 	6.70	%	 	March 2009	 	September 2019	
 	 	 	
Debt Retirements:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Consumers	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
First mortgage bonds	 	$	200	 	 	 	4.80	%	 	February 2009	 	February 2009	
 	 	 	
 35 

 

Revolving Credit Facilities: The following secured revolving credit facilities with banks are available at March 31, 2009:
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
In Millions	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	Letters of	 	 	 	 	
 	 	 	 	 	 	Amount of	 	 	Amount	 	 	Credit	 	 	Amount	 	
Company	 	Expiration Date	 	Facility	 	 	Borrowed	 	 	Outstanding	 	 	Available	 	
CMS Energy (a)	 	April 2, 2012	 	$	550	 	 	$	60	 	 	$	3	 	 	$	487	 	
Consumers	 	March 30, 2012	 	 	500	 	 	 	—	 	 	 	172	 	 	 	328	 	
Consumers (b)	 	November 30, 2009	 	 	192	 	 	 	—	 	 	 	192	 	 	 	—	 	
Consumers	 	September 9, 2009	 	 	150	 	 	 	—	 	 	 	—	 	 	 	150	 	

(a)    CMS Energy’s average borrowings during the quarter totaled $98 million, with a weighted average annual interest rate of 1.33 percent, at LIBOR plus 0.75 percent.
(b)    Consumers’ secured revolving letter of credit facility.
Dividend Restrictions: Under provisions of CMS Energy’s senior notes indenture, at March 31, 2009, payment of common stock dividends by CMS Energy was limited to $629 million.
Under the provisions of its articles of incorporation, at March 31, 2009, Consumers had $351 million of unrestricted retained earnings available to pay common stock dividends 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 the FERC suggest that under a variety of circumstances common stock dividends from Consumers would not be limited to amounts in Consumers’ retained earnings. Any decision by Consumers to pay dividend in excess of retained earnings would be based on specific facts and circumstances and would result only after a formal regulatory filing process.
For the three months ended March 31, 2009, CMS Energy received $72 million of common stock dividends from Consumers.
Contingently Convertible Securities: At March 31, 2009, the significant terms of CMS Energy’s contingently convertible securities were as follows:
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	Outstanding	 	Adjusted	 	Adjusted	
Security	 	Maturity	 	(In Millions)	 	Conversion Price	 	Trigger Price	
4.50% preferred stock	 	 	—	 	 	$	243	 	 	$	9.41	 	 	$	11.30	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
3.375% senior notes	 	 	2023	 	 	$	140	 	 	$	10.15	 	 	$	12.18	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
2.875% senior notes	 	 	2024	 	 	$	288	 	 	$	14.03	 	 	$	16.84	 	
 	
During March 2009, no trigger price contingencies were met that would have allowed CMS Energy or the holders of the convertible securities to convert the securities to cash and equity.
Sales of Accounts Receivable: At March 31, 2009, there were no receivables sold under Consumers’ revolving accounts receivable sales program.
 36 

 

6: EARNINGS PER SHARE — CMS ENERGY
The following table presents CMS Energy’s basic and diluted EPS computations based on Earnings from Continuing Operations:
 	 	 	 	 	 	 	 	 	
In Millions, Except Per Share Amounts	 	
Three months ended March 31	 	2009	 	 	2008	 	
Earnings Available to Common Stockholders	 	 	 	 	 	 	 	 	
Earnings from Continuing Operations	 	$	74	 	 	$	108	 	
Less Earnings Attributable to Noncontrolling Interests	 	 	(1	)	 	 	(3	)	
Less Preferred Dividends and Redemption Premium	 	 	(3	)	 	 	(3	)	
 	 	 	 	 	 	 	
Earnings from Continuing Operations Available to Common Stockholders — Basic and Diluted	 	$	70	 	 	$	102	 	
 	 	 	 	 	 	 	
Average Common Shares Outstanding	 	 	 	 	 	 	 	 	
Weighted Average Shares — Basic	 	 	226.6	 	 	 	225.2	 	
Add dilutive impact of Contingently Convertible Securities	 	 	6.5	 	 	 	12.3	 	
Add dilutive Stock Options and Warrants	 	 	0.1	 	 	 	0.1	 	
 	 	 	 	 	 	 	
Weighted Average Shares — Diluted	 	 	233.2	 	 	 	237.6	 	
 	 	 	 	 	 	 	
Earnings Per Average Common Share Available to Common Stockholders	 	 	 	 	 	 	 	 	
Basic	 	$	0.31	 	 	$	0.45	 	
Diluted	 	$	0.30	 	 	$	0.43	 	
 	 	 	 	 	 	 	
Contingently Convertible Securities: When CMS Energy has earnings from continuing operations, its contingently convertible securities dilute EPS to the extent that the conversion value, which is based on the average market price of CMS Energy’s common stock, exceeds the principal or par value. For additional details on contingently convertible securities, see Note 5, Financings and Capitalization.
Stock Options and Warrants: For the three months ended March 31, 2009, outstanding options and warrants to purchase 0.6 million shares of CMS Energy common stock had no impact on diluted EPS, since the exercise price was greater than the average market price of common stock. These stock options have the potential to dilute EPS in the future.
Convertible Debentures: For the three months ended March 31, 2009 and 2008, there was no impact on diluted EPS from CMS Energy’s 7.75 percent convertible subordinated debentures. Using the if-converted method, the debentures would have:

 	•	 	increased the numerator of diluted EPS by $2 million from an assumed reduction of interest expense, net of tax; and	

 	•	 	increased the denominator of diluted EPS by 4.2 million shares.	
CMS Energy can revoke the conversion rights if certain conditions are met.
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7: FINANCIAL AND DERIVATIVE INSTRUMENTS
Financial Instruments: The following table summarizes CMS Energy’s and Consumers’ available-for-sale investment securities:
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	In Millions	
 	 	March 31, 2009	 	December 31, 2008	
 	 	Cost	 	Unrealized Gains	 	Unrealized Losses	 	Fair Value	 	Cost	 	Unrealized Gains	 	Unrealized Losses	 	Fair Value	
 	
CMS Energy, including Consumers	 	 		 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
SERP:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Equity securities	 	$	39	 	 	$	—	 	 	$	(4	)	 	$	35	 	 	$	39	 	 	$	—	 	 	$	—	 	 	$	39	 	
Debt securities	 	 	28	 	 	 	—	 	 	 	—	 	 	 	28	 	 	 	29	 	 	 	—	 	 	 	—	 	 	 	29	 	
Consumers	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
SERP:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Equity securities	 	 	26	 	 	 	—	 	 	 	(3	)	 	 	23	 	 	 	25	 	 	 	—	 	 	 	—	 	 	 	25	 	
Debt securities	 	 	18	 	 	 	—	 	 	 	—	 	 	 	18	 	 	 	19	 	 	 	—	 	 	 	—	 	 	 	19	 	
Common stock of CMS Energy	 	 	8	 	 	 	14	 	 	 	—	 	 	 	22	 	 	 	8	 	 	 	11	 	 	 	—	 	 	 	19	 	
 	 	 	
Derivative Instruments: In order to limit CMS Energy’s and Consumers’ exposure to certain market risks, primarily changes in commodity prices, interest rates, and foreign exchange rates, CMS Energy and Consumers may enter into various risk management contracts, such as forward contracts, futures, and swaps. In entering into these contracts, they follow established policies and procedures, under the direction of an executive oversight committee consisting of senior management representatives and a risk committee consisting of business unit managers. Neither CMS Energy nor Consumers holds any of its derivatives for trading purposes.
The contracts used to manage market risks may qualify as derivative instruments that are subject to derivative accounting under SFAS No. 133. If a contract is a derivative and does not qualify for the normal purchases and sales exception under SFAS No. 133, the contract is recorded on the balance sheet at its fair value. Each quarter, the resulting asset or liability is adjusted to reflect any change in the fair value of the contract, a practice known as marking the contract to market. Since none of CMS Energy’s or Consumers’ derivatives have been designated as accounting hedges under SFAS No. 133, all mark-to-market gains and losses are reported in earnings. For a discussion of how CMS Energy and Consumers determine the fair value of their derivatives, see Note 3, Fair Value Measurements.
Commodity Price Risk : In order to support ongoing operations, CMS Energy and Consumers enter into contracts for the future purchase and sale of various commodities, such as electricity, natural gas, and coal. These forward contracts are generally long-term in nature and result in physical delivery of the commodity at a contracted price. Most of these contracts are not subject to derivative accounting under SFAS No. 133 because:

 	•	 	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; or	
 		
 	•	 	there is not an active market for the commodity.	
 38 

 

CMS Energy’s and Consumers’ coal purchase contracts are not derivatives because there is not an active market for the coal they purchase. If an active market for coal develops in the future, some of these contracts may qualify as derivatives. For Consumers, which is subject to regulatory accounting, the resulting mark-to-market gains and losses would be offset by changes in regulatory assets and liabilities and would not affect net income. For other subsidiaries, CMS Energy does not believe the resulting mark-to-market impact on earnings would be material.
CMS ERM has not designated its contracts to purchase and sell electricity and natural gas as normal purchases and sales under SFAS No. 133 and, therefore, CMS Energy accounts for those contracts as derivatives. At March 31, 2009, CMS ERM held a forward contract for the physical sale of 912 GWh of electricity through 2015 on behalf of one of CMS Energy’s non-utility generating plants. CMS ERM also held futures contracts through 2011 as an economic hedge of 58 percent of the generating plant’s natural gas requirements needed to serve a steam sales contract, for a total of 1.5 bcf of natural gas. In its role as a marketer of natural gas for third-party producers, CMS ERM also held forward contracts to purchase 10.7 bcf of natural gas and to sell 9.5 bcf of natural gas through 2010.
Consumers entered into two financial contracts as an economic hedge of the price of gasoline and diesel fuel it purchases for its fleet vehicles and equipment. Under these agreements, Consumers has locked in a price for one million gallons each of gasoline and diesel fuel through November 2009.
Interest rate risk : In order to mitigate its exposure to changes in interest rates, Grayling executed an interest rate collar as an economic hedge of the variable interest rate charged on its outstanding revenue bonds. At March 31, 2009, the notional amount of this contract was $17 million.
The following tables summarize the fair values of CMS Energy’s and Consumers’ derivative instruments and the effect of such derivative instruments on their respective Consolidated Statements of Income:
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	In Millions	 	
 	
March 31, 2009	 	Asset Derivatives	 	 	Liability Derivatives	 	
 	 	Balance Sheet	 	 	 	 	 	 	Balance Sheet	 	 	 	 	
 	 	Location	 	 	Fair Value	 	 	Location	 	 	Fair Value	 	
 	
CMS Energy, including Consumers	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Derivatives not designated as hedging instruments under SFAS No. 133:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Commodity contracts (a)	 	Other assets	 	$	1	 	 	Other liabilities	 	$	(15	)	
Interest rate contracts	 	Other assets	 	 	—	 	 	Other liabilities	 	 	(1	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total CMS Energy Derivatives	 	 	 	 	 	$	1	 	 	 	 	 	 	$	(16	)	

Consumers	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Derivatives not designated as hedging instruments under SFAS No. 133:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Commodity contracts	 	Other assets	 	$	—	 	 	Other liabilities	 	$	(1	)	

			
(a)	 	Asset and liability amounts are presented gross and exclude $1 million impact of offsetting derivative assets and liabilities under master netting arrangements. The liability amount also excludes the $4 million impact of offsetting cash margin deposits paid by CMS ERM to other parties.	
 39 

 

 	 	 	 	 	 	 	 	 	
In Millions	
 	 	 	 	 	 	Amount of Gain	 	
 	 	Location of Gain (Loss)	 	 	(Loss) Recognized	 	
 	 	Recognized in Income on	 	 	in Income on	 	
Three months ended March 31, 2009	 	Derivatives	 	 	Derivatives	 	
 	
CMS Energy, including Consumers	 	 	 	 	 	 	 	 	
Derivatives not designated as hedging instruments under SFAS No. 133:	 	 	 	 	 	 	 	 	
Commodity contracts	 	Operating Revenue	 	$	7	 	
 	 	Fuel for electric generation	 	 	(2	)	
 	 	Cost of gas sold	 	 	(3	)	
Interest rate contracts	 	Other expense	 	 	—	 	
Foreign exchange contracts (a)	 	Other expense	 	 	(1	)	
 	 	 	 	 	 	 	 	
Total CMS Energy	 	 	 	 	 	$	1	 	
 	 	 	 	 	 	 	 	
Consumers	 	 	 	 	 	 	 	 	
Derivatives not designated as hedging instruments under SFAS No. 133:	 	 	 	 	 	 	 	 	
Commodity contracts	 	Other Expense	 	$	—	 	

			
(a)	 	This derivative loss relates to a foreign-exchange forward contract CMS Energy held at December 31, 2008. CMS Energy settled this obligation and the related derivative in January 2009.	
 		
At March 31, 2009, none of CMS Energy’s and Consumers’ derivative liabilities were subject to credit-risk-related contingent features. Therefore, there is no credit-risk related circumstance in which CMS Energy or Consumers would have to post collateral or settle their derivative liabilities.
 40 

 

8: RETIREMENT BENEFITS
CMS Energy and Consumers provide pension, OPEB, and other retirement benefit plans to their respective employees.
The following table recaps the costs and other changes in plan assets and benefit obligations incurred in CMS Energy’s and Consumers’ retirement benefits plans:
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
In Millions	 	
 	 	Pension	 	 	OPEB	 	
Three months ended March 31	 	2009	 	 	2008	 	 	2009	 	 	2008	 	
 	
CMS Energy, including Consumers	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Service cost	 	$	10	 	 	$	11	 	 	$	6	 	 	$	6	 	
Interest expense	 	 	24	 	 	 	24	 	 	 	20	 	 	 	18	 	
Expected return on plan assets	 	 	(21	)	 	 	(20	)	 	 	(13	)	 	 	(16	)	
Amortization of:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net loss	 	 	10	 	 	 	10	 	 	 	8	 	 	 	2	 	
Prior service cost (credit)	 	 	2	 	 	 	1	 	 	 	(2	)	 	 	(3	)	
 	 	 	
Net periodic cost	 	 	25	 	 	 	26	 	 	 	19	 	 	 	7	 	
Regulatory adjustment	 	 	—	 	 	 	(4	)	 	 	—	 	 	 	1	 	
 	 	 	
Net periodic cost after regulatory adjustment	 	$	25	 	 	$	22	 	 	$	19	 	 	$	8	 	
 	 	 	
Consumers	 	
Service cost	 	$	10	 	 	$	10	 	 	$	6	 	 	$	6	 	
Interest expense	 	 	23	 	 	 	23	 	 	 	20	 	 	 	18	 	
Expected return on plan assets	 	 	(20	)	 	 	(19	)	 	 	(12	)	 	 	(16	)	
Amortization of:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net loss	 	 	10	 	 	 	10	 	 	 	8	 	 	 	2	 	
Prior service cost (credit)	 	 	1	 	 	 	1	 	 	 	(2	)	 	 	(3	)	
 	 	 	
Net periodic cost	 	 	24	 	 	 	25	 	 	 	20	 	 	 	7	 	
Regulatory adjustment	 	 	—	 	 	 	(4	)	 	 	—	 	 	 	1	 	
 	 	 	
Net periodic cost after regulatory adjustment	 	$	24	 	 	$	21	 	 	$	20	 	 	$	8	 	
 	 	 	
9: INCOME TAXES
For the three months ended March 31, 2009, the effective tax rate at CMS Energy was 40 percent, compared with 38 percent for the three months ended March 31, 2008. The increase is primarily due to an increase in MBT expense related to tax legislation enacted in the first quarter of 2009.
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10: REPORTABLE SEGMENTS
Reportable segments consist of business units defined by the products and services they offer. CMS Energy and Consumers evaluate performance based on the net income of each segment. These reportable segments are:
CMS Energy:

 	•	 	electric utility, consisting of regulated activities associated with the generation and distribution of electricity in Michigan;	
 		
 	•	 	gas utility, consisting of regulated activities associated with the transportation, storage, and distribution of natural gas in Michigan; and	
 		
 	•	 	enterprises, consisting of various subsidiaries engaging primarily in domestic independent power production.	
Consumers:

 	•	 	electric utility, consisting of regulated activities associated with the generation and distribution of electricity in Michigan; and	
 		
 	•	 	gas utility, consisting of regulated activities associated with the transportation, storage, and distribution of natural gas in Michigan.	
CMS Energy’s “Other” segment includes corporate interest and other expenses and certain deferred income taxes. Consumers’ “Other” segment includes a consolidated special-purpose entity for the sale of accounts receivable. The following tables show financial information by reportable segment:
 	 	 	 	 	 	 	 	 	
In Millions	 	
Three months ended March 31	 	2009	 	 	2008	 	

Operating Revenue	 	 	 	 	 	 	 	 	
CMS Energy, including Consumers	 	 	 	 	 	 	 	 	
Electric utility	 	$	812	 	 	$	860	 	
Gas utility	 	 	1,222	 	 	 	1,231	 	
Enterprises	 	 	66	 	 	 	88	 	
Other	 	 	6	 	 	 	5	 	
 	 	 	
Total Operating Revenue — CMS Energy	 	$	2,106	 	 	$	2,184	 	
Consumers	 	
Electric utility	 	$	812	 	 	$	860	 	
Gas utility	 	 	1,222	 	 	 	1,231	 	
 	 	 	
Total Operating Revenue — Consumers	 	$	2,034	 	 	$	2,091	 	
 		
Net Income Available to Common Stockholders	 	 	 	 	 	 	 	 	
CMS Energy, including Consumers	 	 	 	 	 	 	 	 	
Electric utility	 	$	39	 	 	$	67	 	
Gas utility	 	 	59	 	 	 	62	 	
Enterprises	 	 	—	 	 	 	(2	)	
Other	 	 	(28	)	 	 	(25	)	
 	 	 	
Total Net Income Available to Common Stockholders — CMS Energy	 	$	70	 	 	$	102	 	
Consumers	 	 	 	 	 	 	 	 	
Electric utility	 	$	39	 	 	$	67	 	
Gas utility	 	 	59	 	 	 	62	 	
 	 	 	
Total Net Income Available to Common Stockholder — Consumers	 	$	98	 	 	$	129	 	
 	 	 	
 42 

 

 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	In Millions	 	
 	 	March 31, 2009	 	 	December 31, 2008	 	
 	
Assets	 	 	 	 	 	 	 	 	
CMS Energy, including Consumers	 	 	 	 	 	 	 	 	
Electric utility (a)	 	$	9,349	 	 	$	8,904	 	
Gas utility (a)	 	 	4,133	 	 	 	4,565	 	
Enterprises	 	 	300	 	 	 	313	 	
Other	 	 	1,222	 	 	 	1,119	 	
 	 	 	
Total Assets — CMS Energy	 	$	15,004	 	 	$	14,901	 	
Consumers	 	 	 	 	 	 	 	 	
Electric utility (a)	 	$	9,349	 	 	$	8,904	 	
Gas utility (a)	 	 	4,133	 	 	 	4,565	 	
Other	 	 	955	 	 	 	777	 	
 	 	 	
Total Assets — Consumers	 	$	14,437	 	 	$	14,246	 	

			
(a)	 	Amounts include a portion of Consumers’ other common assets attributable to both the electric and the gas utility businesses.	
 43