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Fair Value Measurements
 6 Months Ended
Jun. 30, 2019
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]  
Fair Value Measurements Fair Value Measurements
Accounting standards define fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. When measuring fair value, CMS Energy and Consumers are required to incorporate all assumptions that market participants would use in pricing an asset or liability, including assumptions about risk. A fair value hierarchy prioritizes inputs used to measure fair value according to their observability in the market. The three levels of the fair value hierarchy are as follows:
•
Level 1 inputs are unadjusted quoted prices in active markets for identical assets or liabilities.
•
Level 2 inputs are observable, market‑based inputs, other than Level 1 prices. Level 2 inputs may include quoted prices for similar assets or liabilities in active markets, quoted prices in inactive markets, and inputs derived from or corroborated by observable market data.
•
Level 3 inputs are unobservable inputs that reflect CMS Energy’s or Consumers’ own assumptions about how market participants would value their assets and liabilities.
CMS Energy and Consumers classify fair value measurements within the fair value hierarchy based on the lowest level of input that is significant to the fair value measurement in its entirety.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
Presented in the following table are CMS Energy’s and Consumers’ assets and liabilities recorded at fair value on a recurring basis:
In Millions
 
 
CMS Energy, including Consumers
 
Consumers
 
June 30
2019
 
December 31
2018
 
 
June 30
2019
 
December 31
2018
 
Assets1
 
 
 
 
 
 
 
 
 
Cash equivalents
 
$
18

 
$
27

 
 
$
—

 
$
—

Restricted cash equivalents
 
22

 
21

 
 
16

 
17

CMS Energy common stock
 
—

 
—

 
 
1

 
1

Nonqualified deferred compensation plan assets
 
16

 
14

 
 
12

 
10

DB SERP cash equivalents
 
—

 
1

 
 
—

 
—

Derivative instruments
 
2

 
1

 
 
2

 
1

Total
 
$
58

 
$
64

 
 
$
31

 
$
29

Liabilities1
 
 
 
 
 
 
 
 
 
Nonqualified deferred compensation plan liabilities
 
$
16

 
$
14

 
 
$
12

 
$
10

Derivative instruments
 
11

 
3

 
 
1

 
—

Total
 
$
27

 
$
17

 
 
$
13

 
$
10

1 
All assets and liabilities were classified as Level 1 with the exception of derivative contracts, which were classified as Level 2 or Level 3.
Cash Equivalents: Cash equivalents and restricted cash equivalents consist of money market funds with daily liquidity.
Nonqualified Deferred Compensation Plan Assets and Liabilities: The nonqualified deferred compensation plan assets consist of mutual funds, which are valued using the daily quoted net asset values. CMS Energy and Consumers value their nonqualified deferred compensation plan liabilities based on the fair values of the plan assets, as they reflect the amount owed to the plan participants in accordance with their investment elections. CMS Energy and Consumers report the assets in other non‑current assets and the liabilities in other non‑current liabilities on their consolidated balance sheets.
DB SERP Cash Equivalents: The DB SERP cash equivalents consist of a money market fund with daily liquidity and are reported in other non‑current assets on CMS Energy and Consumers’ consolidated balance sheets.
Derivative Instruments: CMS Energy and Consumers value their derivative instruments using either a market approach that incorporates information from market transactions, or an income approach that discounts future expected cash flows to a present value amount. CMS Energy’s and Consumers’ derivatives are classified as Level 2 or Level 3.
The derivatives classified as Level 2 are interest rate swaps at CMS Energy, which are valued using market‑based inputs. CMS Energy uses interest rate swaps to manage its interest rate risk on certain long‑term debt obligations and certain notes receivable at EnerBank.
Certain interest rate swaps are accounted for as cash flow hedges of the future variability of interest payments on debt with a notional amount of $95 million at June 30, 2019. Gains or losses on these swaps are initially reported in other comprehensive income and then, as interest payments are made on the hedged debt, are recognized in earnings within other interest expense on CMS Energy’s consolidated statements of income. CMS Energy recorded in other comprehensive income a $3 million loss for the three months ended June 30, 2019 and a $4 million loss for the six months ended June 30, 2019. There were no material impacts on other interest expense associated with these swaps for the three and six months ended June 30, 2019. The fair value of these swaps recorded in other liabilities on CMS Energy’s consolidated balance sheets totaled $6 million at June 30, 2019 and $3 million at December 31, 2018. CMS Energy also has other interest rate swaps that economically hedge interest rate risk on debt, but that do not qualify for cash flow hedge accounting; the amounts associated with these swaps were not material.
The interest rate swaps at EnerBank qualify as fair value hedges of long‑term, fixed‑rate notes receivable with a notional amount of $61 million at June 30, 2019. The fair value of these interest rate swaps recorded in other liabilities was $1 million at June 30, 2019. CMS Energy is adjusting the carrying value of the hedged notes receivable for the change in their fair value due to the hedged risk. Both gains and losses on the swaps and the changes to the carrying value of the hedged notes receivable are recorded within operating revenue on CMS Energy’s consolidated statements of income. There were no material amounts recognized in operating revenue associated with these swaps for the three months ended June 30, 2019 and six months ended June 30, 2019.
The majority of derivatives classified as Level 3 are FTRs held by Consumers. Consumers uses FTRs to manage price risk related to electricity transmission congestion. An FTR is a financial instrument that entitles its holder to receive compensation or requires its holder to remit payment for congestion‑related transmission charges. Due to the lack of quoted pricing information, Consumers determines the fair value of its FTRs based on Consumers’ average historical settlements. There was no material activity within the Level 3 categories of assets and liabilities during the periods presented.
Consumers Energy Company  
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]  
Fair Value Measurements Fair Value Measurements
Accounting standards define fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. When measuring fair value, CMS Energy and Consumers are required to incorporate all assumptions that market participants would use in pricing an asset or liability, including assumptions about risk. A fair value hierarchy prioritizes inputs used to measure fair value according to their observability in the market. The three levels of the fair value hierarchy are as follows:
•
Level 1 inputs are unadjusted quoted prices in active markets for identical assets or liabilities.
•
Level 2 inputs are observable, market‑based inputs, other than Level 1 prices. Level 2 inputs may include quoted prices for similar assets or liabilities in active markets, quoted prices in inactive markets, and inputs derived from or corroborated by observable market data.
•
Level 3 inputs are unobservable inputs that reflect CMS Energy’s or Consumers’ own assumptions about how market participants would value their assets and liabilities.
CMS Energy and Consumers classify fair value measurements within the fair value hierarchy based on the lowest level of input that is significant to the fair value measurement in its entirety.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
Presented in the following table are CMS Energy’s and Consumers’ assets and liabilities recorded at fair value on a recurring basis:
In Millions
 
 
CMS Energy, including Consumers
 
Consumers
 
June 30
2019
 
December 31
2018
 
 
June 30
2019
 
December 31
2018
 
Assets1
 
 
 
 
 
 
 
 
 
Cash equivalents
 
$
18

 
$
27

 
 
$
—

 
$
—

Restricted cash equivalents
 
22

 
21

 
 
16

 
17

CMS Energy common stock
 
—

 
—

 
 
1

 
1

Nonqualified deferred compensation plan assets
 
16

 
14

 
 
12

 
10

DB SERP cash equivalents
 
—

 
1

 
 
—

 
—

Derivative instruments
 
2

 
1

 
 
2

 
1

Total
 
$
58

 
$
64

 
 
$
31

 
$
29

Liabilities1
 
 
 
 
 
 
 
 
 
Nonqualified deferred compensation plan liabilities
 
$
16

 
$
14

 
 
$
12

 
$
10

Derivative instruments
 
11

 
3

 
 
1

 
—

Total
 
$
27

 
$
17

 
 
$
13

 
$
10

1 
All assets and liabilities were classified as Level 1 with the exception of derivative contracts, which were classified as Level 2 or Level 3.
Cash Equivalents: Cash equivalents and restricted cash equivalents consist of money market funds with daily liquidity.
Nonqualified Deferred Compensation Plan Assets and Liabilities: The nonqualified deferred compensation plan assets consist of mutual funds, which are valued using the daily quoted net asset values. CMS Energy and Consumers value their nonqualified deferred compensation plan liabilities based on the fair values of the plan assets, as they reflect the amount owed to the plan participants in accordance with their investment elections. CMS Energy and Consumers report the assets in other non‑current assets and the liabilities in other non‑current liabilities on their consolidated balance sheets.
DB SERP Cash Equivalents: The DB SERP cash equivalents consist of a money market fund with daily liquidity and are reported in other non‑current assets on CMS Energy and Consumers’ consolidated balance sheets.
Derivative Instruments: CMS Energy and Consumers value their derivative instruments using either a market approach that incorporates information from market transactions, or an income approach that discounts future expected cash flows to a present value amount. CMS Energy’s and Consumers’ derivatives are classified as Level 2 or Level 3.
The derivatives classified as Level 2 are interest rate swaps at CMS Energy, which are valued using market‑based inputs. CMS Energy uses interest rate swaps to manage its interest rate risk on certain long‑term debt obligations and certain notes receivable at EnerBank.
Certain interest rate swaps are accounted for as cash flow hedges of the future variability of interest payments on debt with a notional amount of $95 million at June 30, 2019. Gains or losses on these swaps are initially reported in other comprehensive income and then, as interest payments are made on the hedged debt, are recognized in earnings within other interest expense on CMS Energy’s consolidated statements of income. CMS Energy recorded in other comprehensive income a $3 million loss for the three months ended June 30, 2019 and a $4 million loss for the six months ended June 30, 2019. There were no material impacts on other interest expense associated with these swaps for the three and six months ended June 30, 2019. The fair value of these swaps recorded in other liabilities on CMS Energy’s consolidated balance sheets totaled $6 million at June 30, 2019 and $3 million at December 31, 2018. CMS Energy also has other interest rate swaps that economically hedge interest rate risk on debt, but that do not qualify for cash flow hedge accounting; the amounts associated with these swaps were not material.
The interest rate swaps at EnerBank qualify as fair value hedges of long‑term, fixed‑rate notes receivable with a notional amount of $61 million at June 30, 2019. The fair value of these interest rate swaps recorded in other liabilities was $1 million at June 30, 2019. CMS Energy is adjusting the carrying value of the hedged notes receivable for the change in their fair value due to the hedged risk. Both gains and losses on the swaps and the changes to the carrying value of the hedged notes receivable are recorded within operating revenue on CMS Energy’s consolidated statements of income. There were no material amounts recognized in operating revenue associated with these swaps for the three months ended June 30, 2019 and six months ended June 30, 2019.
The majority of derivatives classified as Level 3 are FTRs held by Consumers. Consumers uses FTRs to manage price risk related to electricity transmission congestion. An FTR is a financial instrument that entitles its holder to receive compensation or requires its holder to remit payment for congestion‑related transmission charges. Due to the lack of quoted pricing information, Consumers determines the fair value of its FTRs based on Consumers’ average historical settlements. There was no material activity within the Level 3 categories of assets and liabilities during the periods presented.