Variable Interest Entities

3 Months Ended

Mar. 31, 2021

Variable Interest Entities [Abstract]

CMS Enterprises has a 51-percent ownership interest in Aviator Wind Equity Holdings, which holds a Class B membership interest in Aviator Wind, a 525-MW wind generation project in Coke County, Texas. The Class A membership interest in Aviator Wind is held by a tax equity investor, BHE Renewables, LLC, a subsidiary of Berkshire Hathaway Energy Company. Earnings, tax attributes, and cash flows generated by Aviator Wind are allocated among and distributed to the membership classes in accordance with the ratios specified in the associated limited liability company operating agreement; these ratios change over time and are not representative of the ownership interest percentages of each membership class.

Since Aviator Wind’s income and cash flows are not distributed among its investors based on ownership interest percentages, CMS Enterprises allocates Aviator Wind’s income (loss) among its investors by

applying the hypothetical liquidation at book value method. This method calculates each investor’s earnings based on a hypothetical liquidation of Aviator Wind at the net book value of its underlying net assets as of the balance sheet date. The liquidation tax gain (loss) is allocated to each investor’s capital account, resulting in income (loss) equal to the period change in the investor’s capital account balance. CMS Enterprises then receives 51 percent of the earnings, tax attributes, and cash flows that were allocated to Aviator Wind Equity Holdings.

Aviator Wind Equity Holdings and Aviator Wind represent VIEs. In accordance with the associated limited liability company operating agreement, the tax equity investor is guaranteed preferred returns from Aviator Wind. However, CMS Enterprises manages and controls the operating activities of Aviator Wind Equity Holdings and, ultimately, Aviator Wind. As a result, CMS Enterprises is the primary beneficiary of Aviator Wind Equity Holdings and Aviator Wind, as it has the power to direct the activities that most significantly impact the economic performance of the companies, as well as the obligation to absorb losses or the right to receive benefits from the companies. CMS Enterprises consolidates Aviator Wind Equity Holdings and Aviator Wind and presents the Class A membership interest and 49 percent of the Class B membership interest in Aviator Wind as noncontrolling interests.

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


In Millions
	March 31, 2021			December 31, 2020
Current
Cash and cash equivalents		$	8		$	7

Accounts receivable		9			5
Prepayments and other current assets		1			1
Non-current
Plant, property, and equipment, net		686			692
Total assets1		$	704		$	705
Current
Accounts payable		$	6		$	3
Non-current
Asset retirement obligations		19			19
Total liabilities		$	25		$	22

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

CMS Enterprises is obligated under certain indemnities that protect the tax equity investor against losses incurred as a result of breaches of representations and warranties provided by Aviator Wind Equity Holdings and its subsidiaries. For additional details on these indemnity obligations, see Note 2, Contingencies and Commitments—Guarantees.

Other VIEs: CMS Energy has variable interests in T.E.S. Filer City, Grayling, Genesee, and Craven. While CMS Energy owns 50 percent of each partnership, it is not the primary beneficiary of any of these partnerships because decision making is shared among unrelated parties, and no one party has the ability to direct the activities that most significantly impact the entities’ economic performance, such as operations and maintenance, plant dispatch, and fuel strategy. The partners must agree on all major decisions for each of the partnerships.

Presented in the following table is information about these partnerships:


Name	Nature of the Entity	Nature of CMS Energy’s Involvement
T.E.S. Filer City	Coal-fueled power generator	Long-term PPA between partnership and Consumers
		Employee assignment agreement

Grayling	Wood waste-fueled power generator	Long-term PPA between partnership and Consumers
		Reduced dispatch agreement with Consumers1
		Operating and management contract

Genesee	Wood waste-fueled power generator	Long-term PPA between partnership and Consumers
		Reduced dispatch agreement with Consumers1
		Operating and management contract

Craven	Wood waste-fueled power generator	Operating and management contract

1Reduced dispatch agreements allow the facilities to be dispatched based on the market price of power compared with the cost of production of the plants. This results in fuel cost savings that each partnership shares with Consumers’ customers.

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

CMS Energy’s investment in these partnerships is included in investments on its consolidated balance sheets in the amount of $72 million as of March 31, 2021 and $70 million as of December 31, 2020.