CMS Energy Corp. Preferred Stock 5.625% 03/15/2078

Company Overview

Business Model: CMS Energy is an energy company operating primarily in Michigan, serving as the parent holding company for several subsidiaries. Its core operations are conducted through Consumers, an electric and gas utility, and NorthStar Clean Energy, primarily a domestic independent power producer and marketer. Consumers owns and operates electric generation and distribution facilities, as well as gas transmission, storage, and distribution facilities, providing electricity and/or natural gas to 6.8 million Michigan residents. NorthStar Clean Energy focuses on domestic independent power production, including the development and operation of renewable generation, and the marketing of independent power production.

Market Position: Consumers serves 1.9 million electric customers and 1.8 million gas customers in Michigan’s Lower Peninsula, with its operations not dependent on a single customer or a few large customers. The electric utility faces competition from alternative electric suppliers (operating at the 10% statutory limit for Retail Open Access, or ROA), potential municipal utilities, and customer self-generation, including distributed generation. The gas utility competes with Gas Customer Choice (GCC) programs, system bypass by customers, and alternative fuels such as propane, oil, and electricity. NorthStar Clean Energy competes with other energy developers, energy retailers, and independent power producers, with market needs driven by current and projected electric demand and available generation.

Recent Strategic Developments: CMS Energy and Consumers are executing a multi-faceted strategy focused on clean energy transition and reliability:

• Coal Retirement: Retired D.E. Karn coal-fueled generating units (515 MW) in 2023. Obtained Michigan Public Service Commission (MPSC) approval to retire J.H. Campbell (1,407 MW), though its retirement is subject to temporary extensions under emergency orders from the U.S. Secretary of Energy.
• Capacity Acquisition: Purchased Covert Generating Station (1,200 MW) in 2023 to maintain controllable electricity sources. Entered a new 10-year Power Purchase Agreement (PPA) with MCV Partnership for up to 1,240 MW from MCV Facility, effective June 1, 2030.
• Renewable Expansion: Updates to the Renewable Energy Plan include up to 9,000 MW of solar energy resources (purchased and owned) and up to 4,000 MW of wind energy resources. This positions Consumers to achieve 60% renewable energy by 2035 and 100% clean energy by 2040.
• Energy Storage: Contracted to purchase 850 MW of battery storage capacity in Michigan’s Lower Peninsula, with expected commercial operation through 2028.
• Methane Reduction: Consumers has set a goal of net-zero methane emissions from its natural gas delivery system by 2030, aiming for an 80% reduction from 2012 baseline levels.
• Customer GHG Reduction: Goal to reduce customer greenhouse gas emissions by 25% by 2035 through carbon offsets, renewable natural gas, and energy efficiency programs.
• Grid Reliability: Launched the Reliability Roadmap, a five-year strategy for significant investments in grid hardening, distribution capacity, and automation.
• New Projects: Began operations at Muskegon Solar Energy Center (250 MW) in 2025. Secured an agreement with a new data center expected to add over 1 GW of incremental load growth.
• Hydroelectric Asset Sale: Signed an agreement in September 2025 to sell 13 hydroelectric dams to a non-affiliated company, contingent on MPSC and Federal Energy Regulatory Commission (FERC) approval.

Geographic Footprint: CMS Energy and its primary subsidiary, Consumers, operate predominantly in Michigan, serving customers across Michigan’s Lower Peninsula. NorthStar Clean Energy, through its subsidiaries and equity investments, is engaged in domestic independent power production across various states, including Michigan, Arkansas, Texas, and Ohio.

Financial Performance (CMS Energy Consolidated)

Revenue Analysis

Profitability Metrics:

• Operating Margin: 20.3% (2025)
• Net Margin: 11.8% (2025)

Investment in Growth:

• Capital Expenditures: $3,824 million (2025), $3,018 million (2024).
• Strategic Investments:
  • Consumers' planned capital expenditures for 2026-2030 total $24.1 billion, with $8.8 billion allocated to electric generation (solar, wind, natural gas, energy storage) and $15.3 billion for electric distribution and gas infrastructure.
  • Acquisition of Covert Generating Station for $812 million in 2023.

Business Segment Analysis

Electric Utility (Consumers)

Financial Performance:

• Revenue: $5.6 billion (2025), $5.1 billion (2024), $4.7 billion (2023).
  • Revenue Growth (YoY): +9.8% (2025 vs 2024)
• Operating Margin: 19.5% (2025)
• Key Growth Drivers: Higher electric sales volumes (37.4 billion kWh in 2025 vs 36.8 billion kWh in 2024) and electric rate increases.

Product Portfolio:

• Generation, purchase, distribution, and sale of electricity.
• Total owned generation capacity: 5,940 MW (2025).
  • Gas combined cycle: 2,155 MW (Covert Generating Station, Jackson, Zeeland)
  • Oil/Gas steam: 1,189 MW (D.E. Karn 3 & 4)
  • Hydroelectric: 1,194 MW (Ludington, Conventional hydro)
  • Wind: 832 MW (Crescent Wind Farm, Cross Winds Energy Park, Gratiot Farms Wind Project, Heartland Farms Wind Project, Lake Winds Energy Park)
  • Solar: 255 MW (Solar Gardens, Muskegon Solar Energy Center)
  • Battery storage: 1 MW
• Purchased power capacity: 3,250 MW (2025).
• Distribution system: 82,854 miles of overhead lines, 10,027 miles of underground lines, and 1,102 substations with an aggregate transformer capacity of 29 million kVA.

Market Dynamics:

• Customer base: Primarily residential, commercial, and diversified industrial customers in Michigan’s Lower Peninsula.
• Electric deliveries: 37 billion kWh in 2025, including 3 billion kWh from ROA. Net bundled sales were 34 billion kWh.
• Summer peak demand: 8,500 MW in 2025, including 552 MW from ROA.
• Competition: Faces competition from ROA (at the 10% limit), potential municipal utilities, and customer self-generation.

Gas Utility (Consumers)

Financial Performance:

• Revenue: $2.5 billion (2025), $2.1 billion (2024), $2.4 billion (2023).
  • Revenue Growth (YoY): +19.0% (2025 vs 2024)
• Operating Margin: 26.9% (2025)
• Key Growth Drivers: Higher gas sales volumes (396 Bcf in 2025 vs 362 Bcf in 2024) and gas rate increases.

Product Portfolio:

• Purchase, transmission, storage, distribution, and sale of natural gas.
• Transmission lines: 2,337 miles.
• Gas storage fields: 14 fields with a total storage capacity of 300 Bcf and a working gas volume of 153 Bcf.
• Distribution mains: 28,433 miles.
• Compressor stations: 8 stations with 147,393 installed horsepower.

Market Dynamics:

• Customer base: Primarily residential, commercial, and diversified industrial customers in Michigan’s Lower Peninsula.
• Natural gas deliveries: 396 Bcf in 2025, including 31 Bcf from GCC.
• 46% of winter natural gas supply in 2025 was sourced from storage.
• Competition: Faces competition from GCC and transportation programs, system bypass, and alternative fuels.

NorthStar Clean Energy

Financial Performance:

• Revenue: $408 million (2025), $316 million (2024), $297 million (2023).
  • Revenue Growth (YoY): +29.1% (2025 vs 2024)
• Operating Income (Loss): ($28 million) (2025), ($10 million) (2024).
• Key Growth Drivers: Higher renewable earnings primarily driven by new project additions.

Product Portfolio:

• Domestic independent power production, including development and operation of renewable generation, and marketing of independent power production.
• Owned independent power plants (as of December 31, 2025):
  • Total Gross Capacity: 2,085 MW (1,665 MW net to CMS Energy ownership).
  • Total Net Generation (2025): 6,018 GWh (net to CMS Energy ownership).
  • Diverse portfolio including natural gas, solar, wind, coal, and wood waste facilities across various states.
• Energy Resource Management (CMS ERM): Marketed 2 Bcf of natural gas and 7,625 GWh of electricity in 2025, optimizing the independent power production portfolio.

Market Dynamics:

• Competes with other energy developers, energy retailers, and independent power producers. Market dynamics are influenced by current and projected electric demand and available generation.

Capital Allocation Strategy (CMS Energy Consolidated)

Shareholder Returns:

• Share Repurchases: Repurchased 452 common shares for $71.05 average price during Q4 2025, primarily to satisfy statutory income tax withholding for vested stock awards. No other publicly announced share repurchase programs.
• Dividend Payments: Declared $653 million in common stock dividends and $10 million in preferred stock dividends in 2025, totaling $663 million.
• Dividend Yield: Common stock dividends declared per share were $2.170 in 2025.

Balance Sheet Position (as of December 31, 2025):

• Cash and Equivalents: $615 million (including $106 million restricted cash).
• Total Debt: $18,757 million (comprising $950 million current portion and $17,807 million long-term debt).
• Net Cash Position: -$18,142 million (Net Debt).
• Debt Maturity Profile:
  • 2026: $950 million
  • 2027: $300 million
  • 2028: $800 million
  • 2029: $1,878 million
  • 2030: $812 million

Cash Flow Generation (CMS Energy Consolidated):

• Operating Cash Flow: $2,235 million (2025), $2,370 million (2024).
• Free Cash Flow (Operating Cash Flow - Capital Expenditures): -$1,589 million (2025), -$648 million (2024).

Operational Excellence

Production & Service Model: CMS Energy and Consumers operate under the "CE Way," a lean operating system designed to enhance safety, quality, cost, delivery, and employee morale, coupled with digital transformation initiatives. Consumers' electric utility model involves generation, purchase, distribution, and sale of electricity, while its gas utility focuses on the purchase, transmission, storage, distribution, and sale of natural gas. NorthStar Clean Energy's model centers on independent power production and energy commodity marketing.

Supply Chain Architecture: Key Suppliers & Partners:

• Gas Transportation: Panhandle Eastern Pipe Line Company and Trunkline Gas Company, LLC, provide firm gas transportation contracts.
• Coal Supply: Relationships with existing suppliers for coal procurement and rail services.
• Power Purchase Agreements: Long-term PPAs with various generating plants, including a new 10-year PPA with MCV Partnership for the MCV Facility.
• Construction & Services: Engages various companies for construction and service agreements.
• Tax Equity Investors: Partnerships with tax equity investors for renewable generation projects, such as BG Solar Holdings.

Facility Network:

• Electric Generation: Includes natural gas-fueled plants (Covert Generating Station, Jackson, Zeeland), pumped-storage (Ludington), wind farms (e.g., Crescent Wind Farm, Cross Winds Energy Park), solar energy centers (e.g., Muskegon Solar Energy Center), and coal-fueled units (J.H. Campbell, D.E. Karn).
• Gas Infrastructure: Comprises 2,337 miles of transmission lines, 14 gas storage fields, 28,433 miles of distribution mains, and 8 compressor stations.
• Distribution: Consumers' electric distribution system includes 82,854 miles of overhead lines and 10,027 miles of underground lines, supported by 1,102 substations.

Operational Metrics:

• Electric Deliveries: 37 billion kWh in 2025.
• Gas Deliveries: 396 Bcf in 2025.
• Emissions Reductions (Consumers):
  • Carbon dioxide: Nearly 30% reduction since 2005.
  • Methane: Over 40% reduction since 2012.
  • Sulfur dioxide and particulate matter: Over 90% reduction since 2005.
  • NOx: Over 85% reduction since 2005.
  • Mercury: Over 90% reduction since 2007.
• Water Usage Reduction: Nearly 60% reduction since 2012.
• Landfill Waste Diversion: 93% in 2025.
• Safety: OSHA recordable incident rate of 2.34 in 2025. Recorded 9 high-risk injuries in 2025, meeting the goal of less than 12.

Market Access & Customer Relationships

Go-to-Market Strategy: Distribution Channels:

• Direct Sales: Consumers primarily serves its residential, commercial, and industrial customers directly through its regulated electric and gas utility operations.
• Digital Platforms: The company is undergoing digital transformation, which supports its operational philosophy and customer engagement.

Customer Portfolio: Enterprise Customers:

• Strategic Partnerships: Consumers has long-term PPAs with entities like MCV Partnership.
• Customer Concentration: Both electric and gas utility operations are diversified and not materially dependent on a single customer or a few large customers.
• New Load Growth: Secured an agreement with a new data center expected to add over 1 GW of incremental load growth in its service territory.

Geographic Revenue Distribution:

• Michigan: The substantial majority of CMS Energy's and Consumers' operating revenue is generated within Michigan.
• Domestic (NorthStar Clean Energy): NorthStar Clean Energy's independent power production and marketing activities span various domestic locations beyond Michigan.

Competitive Intelligence

Market Structure & Dynamics

Industry Characteristics: The energy sector in Michigan is characterized by extensive regulation from the MPSC and FERC. The 2023 Energy Law significantly reshaped the landscape, increasing renewable energy standards to 50% by 2030 and 60% by 2035, and establishing a clean energy standard of 100% by 2040. It also mandates increased energy waste reduction, sets a new energy storage target of 2,500 MW statewide by 2029, and expands the cap on distributed generation resources. The wholesale electricity market is governed by regional transmission organizations like MISO, PJM Interconnection Inc., and ERCOT. Gas operations are subject to federal pipeline safety regulations. The industry faces strong competition for specialized talent in areas like electric line work, renewable energy, technology, and data analytics.

Competitive Positioning Matrix:

Direct Competitors

Primary Competitors:

• Alternative Electric Suppliers: Compete for electric generation service under Michigan's ROA program, which is currently at its 10% statutory limit.
• Municipal Utilities: Potential for municipalities within Consumers' service territory to establish or expand their own electric delivery systems.
• Energy Developers and Retailers: NorthStar Clean Energy competes with other independent power producers and energy marketers in the domestic market.
• Alternative Fuels: For gas utility operations, competition arises from alternative energy sources such as propane, oil, and electricity.

Emerging Competitive Threats:

• Community Solar Programs: Advocacy for ROA-like community solar programs that would allow third parties to sell directly to customers.
• Federal Regulatory Actions: Potential for FERC to assert jurisdiction over distribution components of large-load interconnections or allow large-load customers direct access to wholesale markets.
• Distributed Energy Resources: Increased customer adoption of self-generation and energy storage technologies.
• Data Center Market Competition: Competition from other utilities and regions to attract data center developers, or the risk that anticipated demand growth from data center expansion may not materialize as expected.
• AI-related Economic Disruptions: Potential for significant declines in investor confidence in AI technologies to lead to broader economic disruptions, reduced customer demand, and tightening capital markets.

Competitive Response Strategy: CMS Energy and Consumers address competition by:

• Executing comprehensive plans such as the Electric Supply Plan, Methane Reduction Plan, and Natural Gas Delivery Plan to ensure safe, reliable, affordable, clean, and equitable energy.
• Implementing the Reliability Roadmap to enhance grid resilience and reduce outages.
• Offering diverse renewable energy options and robust energy waste reduction programs.
• Providing competitive rate-design options and tariff-based incentives to support economic development and retain large customers.
• Continuously monitoring competitive activity and market trends in adjacent geographical areas.

Risk Assessment Framework

Strategic & Market Risks

Market Dynamics:

• Regulatory Uncertainty: Adverse regulatory treatment, delays in MPSC/FERC orders, or changes in regulations (e.g., energy policy, ROA, environmental, tax) could materially impact operations and financial results.
• Energy Market Volatility: Fluctuations in the availability, price, and seasonality of electric capacity, energy, and commodity prices (natural gas, coal, RECs) pose risks to profitability.
• Economic Conditions: A sluggish or declining Michigan economy could reduce demand for electricity and natural gas, impacting revenues and cash flow, and affecting account receivables.
• Customer Demand Shifts: Loss of customer demand to alternative electric suppliers, municipal utilities, self-generation, energy waste reduction, or alternative fuels could reduce sales.
• Data Center Demand Volatility: While new data centers offer growth, there is a risk that anticipated demand may not materialize or that competition for these projects could limit future load growth.
• Climate Change & Environmental Policy: Changes in environmental regulations, litigation, or public perception regarding greenhouse gas emissions could lead to significant compliance costs, operational restrictions, or reputational damage. Physical impacts of climate change (e.g., severe weather) could damage infrastructure and disrupt operations.

Operational & Execution Risks

Supply Chain Vulnerabilities:

• Resource Availability: Shortages or increased costs of personnel, equipment, and materials, exacerbated by tariffs, embargoes, or global supply chain disruptions, could delay projects and increase costs.
• Fuel Supply Disruptions: Inability to obtain adequate natural gas or coal supply due to supplier issues or natural disasters could limit electric generation or gas service.
• Project Execution: Delays or difficulties in financing, siting, constructing, or permitting new generation, storage, or infrastructure projects, including interconnection delays, could impact strategic goals.

Operational Incidents:

• Infrastructure Failures: Damage to facilities, utility infrastructure, or backup systems from natural disasters, extreme weather, fires, cyber incidents, physical attacks, or vandalism could disrupt service and incur significant costs.
• IT and Cybersecurity Risks: Vulnerability of sophisticated IT and control systems to failures, cyberattacks, or unauthorized access could compromise sensitive data, disrupt operations, and lead to financial harm.
• Liability Exposure: Incidents involving assets, equipment, or personnel could result in injury, loss of life, or property damage, leading to financial losses, reputational damage, and regulatory repercussions.
• Unplanned Outages: Unforeseen outages or maintenance of electric and gas delivery systems or power plants could lead to unexpected expenses, spot market purchases, or service curtailments.

Financial & Regulatory Risks

Market & Financial Risks:

• Holding Company Dependence: CMS Energy relies on dividends from its subsidiaries, particularly Consumers, which are subject to regulatory and contractual restrictions.
• Indebtedness: High levels of present and future indebtedness could limit financial flexibility, increase borrowing costs, and affect access to capital markets.
• Capital Market Access: Disruptions in capital and credit markets or inability to obtain regulatory authorization for securities issuances could hinder financing strategies.
• Employee Benefit Plan Funding: Market performance and changes in actuarial assumptions could increase funding requirements for pension and postretirement benefit plans.
• Taxation Changes: Unfavorable settlements of tax issues or changes in federal, state, or local tax laws could negatively impact financial results.

Regulatory & Compliance Risks:

• Rate Regulation: Failure of regulators to provide adequate rate relief or adverse decisions in rate cases could materially affect financial results and capital investment plans.
• Utility Regulation: Non-compliance with extensive state and federal utility regulations could result in fines, penalties, or disallowed costs.
• Environmental Permitting: Delays or failures in obtaining or maintaining environmental permits could prevent construction or continued operation of facilities.
• Environmental Remediation Costs: Substantial costs for environmental remediation of former sites (e.g., MGP sites, coal ash disposal) may not be fully recoverable in rates.
• J.H. Campbell Emergency Orders: Uncertainty regarding cost recovery for the continued operation of J.H. Campbell under emergency orders.

Innovation & Technology Leadership

Research & Development Focus: Core Technology Areas:

• Clean Energy Transformation: Significant investment and focus on developing and integrating solar, wind, natural gas-fueled generation, and energy storage solutions to meet clean energy goals.
• Methane Reduction: Implementing innovative leak detection technologies and process changes to achieve net-zero methane emissions from the natural gas delivery system.
• Grid Modernization: Investing in grid hardening, distribution capacity, and automation technologies, including successful pilot programs for underground power lines, to enhance reliability and resilience.
• Digital Transformation: Coupling digital transformation with the "CE Way" operating system to drive operational improvements across safety, quality, cost, delivery, and employee morale.

Innovation Pipeline:

• Renewable Natural Gas: Has renewable natural gas facilities under construction, scheduled for commercial operation in 2026. Two early-phase renewable natural gas development projects were paused indefinitely in 2025, resulting in a $15 million impairment charge.
• Emerging Technologies: Actively evaluating and monitoring newer technologies such as biofuels, geothermal, synthetic methane, carbon capture sequestration systems, and electric vehicles to determine their role in achieving interim and long-term net-zero goals.

Intellectual Property Portfolio:

• The filing does not provide specific details on the company's intellectual property portfolio, patent strategy, or licensing programs.

Technology Partnerships:

• The filing does not explicitly detail specific technology partnerships beyond general mentions of strategic alliances and research collaborations.

Leadership & Governance

Executive Leadership Team

Leadership Continuity: The executive officers' terms extend to the first meeting of the Board after the next annual election of Directors (May 8, 2026). Board Composition: Two members of the Board have extensive industry experience in cybersecurity and serve on the Audit Committee.

Human Capital Strategy

Workforce Composition:

• Total Employees (CMS Energy, including Consumers): 8,350 (2025), 8,324 (2024), 8,356 (2023).
• Total Employees (Consumers): 8,095 (2025), 8,090 (2024), 8,144 (2023).
• Union Representation: As of December 31, 2025, unions represented 44% of CMS Energy’s employees and 45% of Consumers’ employees. The Utility Workers Union of America, AFL-CIO (UWUA) represents operating, maintenance, construction, and customer contact center employees for Consumers and NorthStar Clean Energy. The United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Service Workers International Union (USW) represents Consumers’ Zeeland plant employees. Consumers’ union agreements expire in 2030, and most of NorthStar Clean Energy’s agreements expire in 2029.

Talent Management: Acquisition & Retention:

• Hiring Strategy: CMS Energy and Consumers implement a comprehensive "People Strategy" to attract, develop, and retain highly skilled co-workers, particularly in high-demand areas like electric line work, renewable energy generation, technology, and data analytics.
• Retention Metrics: The OSHA recordable incident rate was 2.34 in 2025. The companies recorded nine high-risk injuries in 2025, achieving their goal of less than 12. The 2026 target serious injury incidence rate is 0.037.
• Employee Value Proposition: Offers competitive compensation and benefits.
• Culture & Experience: Focuses on cultivating a purpose-driven culture and creating a "Breakthrough Employee Experience" that instills pride and ownership. Engagement sentiment was 75% positive in 2025, empowerment was 65% positive, and diversity, equity, and inclusion sentiment was 75% positive.
• Skill Development: Builds skill sets through union apprenticeship programs and yearly trainings for newly required skills.

Diversity & Development:

• Diversity Metrics (December 31, 2025):
  • Female employees: 26%
  • Racially or ethnically diverse employees: 13%
  • Employees with disabilities: 5%
  • Veteran employees: 10%
• Development Programs: Supports eight business employee resource groups (e.g., Women in Energy, Minority Advisory Panel, Veterans Advisory Panel, Pride Alliance of CMS Energy) to foster personal growth, connections, and an inclusive workplace.

Environmental & Social Impact

Environmental Commitments: Climate Strategy:

• Emissions Targets: Consumers has reduced carbon dioxide emissions from owned generation by nearly 30% since 2005, methane emissions by over 40% since 2012, sulfur dioxide and particulate matter emissions by over 90% since 2005, NOx emissions by over 85% since 2005, and mercury emissions by over 90% since 2007.
• Carbon Neutrality: Consumers aims to achieve 100% clean energy by 2040.
• Renewable Energy: Consumers targets 60% renewable energy by 2035, with plans for up to 9,000 MW of solar and 4,000 MW of wind energy resources. The Muskegon Solar Energy Center (250 MW) began operations in 2025.
• Methane Reduction: Consumers has a goal of net-zero methane emissions from its natural gas delivery system by 2030, targeting an 80% reduction from 2012 baseline levels.

Supply Chain Sustainability:

• The filing does not provide specific details on supply chain sustainability initiatives or supplier engagement programs.

Social Impact Initiatives:

• Community Investment: In 2025, connected over 140,000 customers with $60 million in energy-bill assistance and helped make over $100 million in statewide aid available for 2026.
• Product Impact: Launched "Green Giving" to enable public contributions to renewable energy with financial benefits for low-income customers, and a new Residential Renewable Energy Program for customers to match energy usage with renewable sources.
• Environmental Justice: Conducted an environmental justice analysis for its clean energy transformation and uses a State of Michigan screening tool to prioritize investments in vulnerable communities for electric and gas distribution system improvements.
• Land & Water Stewardship: Enhanced, restored, or protected 6,700 acres of land from 2023-2025, surpassing its 6,500-acre goal for 2023-2027. Reduced water usage by over 1.9 billion gallons towards a 1.7 billion gallon goal through 2027.
• Waste Management: Achieved a 93% rate of waste diverted from landfills in 2025, exceeding its annual goal of a minimum 90%.

Business Cyclicality & Seasonality

Demand Patterns:

• Seasonal Trends: CMS Energy's and Consumers' utility operations are seasonal. Electric energy consumption typically increases in the summer months due to air conditioning use, with electric rates generally higher during this period. Natural gas consumption peaks in the winter months due to colder temperatures and heating demand. Consumers injects natural gas into storage during summer for use in winter.
• Economic Sensitivity: Electric and gas utility businesses are affected by the economic conditions in Michigan, with potential for reduced demand during sluggish or declining economic periods.

Planning & Forecasting:

• Electric Deliveries: Over the next five years, Consumers expects weather-normalized electric deliveries to increase, driven by strong growth in electric demand, partially offset by energy waste reduction programs.
• Gas Deliveries: Weather-normalized gas deliveries are expected to remain stable relative to 2025, reflecting modest growth in gas demand, offset by energy waste reduction programs.

Regulatory Environment & Compliance

Regulatory Framework: Industry-Specific Regulations:

• MPSC: Regulates Consumers' retail utility rates, accounting, services, facilities, asset transfers, and mergers in Michigan.
• FERC: Regulates certain aspects of Consumers' electric business, including wholesale electric and transmission rates, licensed hydroelectric plants, corporate mergers, asset sales, securities issuance, and affiliate conduct. FERC also oversees MISO and other independent system operators' tariffs and bulk power system reliability in conjunction with North American Electric Reliability Corporation (NERC).
• U.S. Secretary of Energy: Has authority to issue emergency orders for power plants, as demonstrated by the temporary extensions for J.H. Campbell's operation.
• U.S. Department of Transportation & Transportation Security Administration: Regulate the safety and security of gas pipelines.
• Michigan's 2023 Energy Law: Mandates increased renewable energy standards (50% by 2030, 60% by 2035), a clean energy standard (80% by 2035, 100% by 2040), higher energy waste reduction requirements, a new energy storage standard (2,500 MW statewide target by 2029), and expanded distributed generation caps.
• Environmental Regulations: Subject to federal, state, and local environmental laws for solid waste management (Resource Conservation and Recovery Act, RCRA), air quality (Clean Air Act, National Ambient Air Quality Standards, NAAQS, Cross-State Air Pollution Rule, CSAPR, Mercury and Air Toxics Standards, MATS), water quality (Clean Water Act, National Pollutant Discharge Elimination System, NPDES), and protected species (Endangered Species Act, Migratory Bird Treaty Act).

Trade & Export Controls:

• The filing notes that changes in trade policies, regulations, or tariffs are a risk factor, but does not detail specific trade or export control compliance requirements beyond general mentions.

Legal Proceedings:

• J.H. Campbell Emergency Orders: The U.S. Secretary of Energy issued emergency orders requiring J.H. Campbell to continue operating through February 17, 2026. Consumers is seeking cost recovery for compliance at FERC, and third parties have filed legal challenges to these orders.
• Ludington Overhaul Contract Dispute: A jury awarded Consumers and DTE Electric $383 million in damages against TAES in December 2025 for defective work during a major overhaul of Ludington. Post-verdict proceedings and appeals are ongoing. Consumers estimates its share of repair costs at $350 million, expected to be offset by litigation proceeds.
• State Income Tax Claim: CMS Energy is appealing an adverse Michigan Tax Tribunal ruling regarding the state apportionment methodology for Consumers' electricity sales to MISO.
• ROA Local Clearing Requirement: The U.S. Court of Appeals for the Sixth Circuit remanded a case to the District Court to determine if the MPSC's local clearing requirement for electric suppliers discriminates against interstate commerce.
• MPSC Rate Cases: Consumers has ongoing electric and gas rate cases, including a $447 million electric rate increase request (2025 Electric Rate Case, MPSC decision by April 2026) and a $240 million gas rate increase request (2025 Gas Rate Case, MPSC decision by October 2026).
• MPSC Distribution System Audit: The MPSC adopted recommendations from a third-party audit of Consumers' electric distribution system in June 2025.
• Performance-based Financial Incentives/Disincentives: The MPSC established a mechanism for electric utilities, effective 2026, allowing up to $10 million in annual incentives or penalties for meeting reliability benchmarks.
• Large-load Tariff: The MPSC approved changes to Consumers' large-customer tariff in November 2025, requiring minimum 100 MW demand, 15-year contracts, 80% minimum demand billing, upfront fees, and collateral/exit-fee protections for new large electricity users like data centers.
• Depreciation Rate Case: Consumers filed a depreciation case in December 2025 to increase electric and common utility property depreciation expense by $34 million annually.

Tax Strategy & Considerations

Tax Profile:

• Effective Tax Rate (CMS Energy): 21.0% (2025), 15.7% (2024), 15.4% (2023).
• Effective Tax Rate (Consumers): 20.3% (2025), 16.5% (2024), 15.7% (2023).
• Geographic Tax Planning: Files a consolidated U.S. federal income tax return and Michigan Corporate Income Tax return for the unitary business group, along with various other state unitary group combined income tax returns.
• Tax Reform Impact: Evaluated the provisions of the One Big Beautiful Bill Act of 2025 (OBBBA), signed in July 2025, which allows immediate expensing of domestic R&D costs, includes changes to clean energy tax credits, and restores 100% bonus depreciation. CMS Energy and Consumers concluded that the legislation is not expected to have a material impact on their financial statements, though this conclusion is subject to further guidance.
• Renewable Energy Tax Credits: Under the Inflation Reduction Act of 2022, renewable energy tax credits generated after 2022 are eligible for transfer to third parties. CMS Energy sold $36 million in renewable energy tax credits in 2025 and received $13 million from 2024 sales.

Insurance & Risk Transfer

Risk Management Framework: CMS Energy and Consumers manage security risks, including cybersecurity, through a robust enterprise risk management program encompassing people, processes, technology, and governance. This program identifies significant business risks and informs mitigation strategies, reviewed annually by the Board. The cybersecurity program, led by the Vice President of IT and Security and CIO, assesses and manages threats using industry frameworks, best practices, and continuous technological upgrades. It includes annual employee training, third-party penetration testing, audits, and technical exercises. The companies maintain an incident response plan and cybersecurity insurance. Commodity price risk (natural gas, coal, electricity) is managed using established policies and procedures, including various contracts like swaps, options, futures, and forward contracts.

Insurance Coverage: CMS Energy and its subsidiaries maintain insurance coverage generally comparable to similar companies, subject to terms, conditions, limitations, and exclusions. A portion of each loss is assumed through deductibles and self-insured retentions, which can be substantial. The availability and terms of future insurance coverage may be subject to restrictive insurance markets.

Risk Transfer Mechanisms:

• Hedging Strategies: Utilizes interest rate swap agreements to manage interest rate risk and various commodity contracts to mitigate exposure to commodity price volatility.
• Contractual Risk Allocation: Enters into arrangements such as indemnities, surety bonds, letters of credit, and financial and performance guarantees to facilitate commercial transactions and allocate risk with third parties.