Variable Interest Entities

6 Months Ended

Jun. 30, 2022

Variable Interest Entities [Abstract]

In June 2022, CMS Enterprises sold a Class A membership interest in NWO Holdco to a tax equity investor for $49 million. NWO Holdco owns 100 percent of Northwest Ohio Wind, LLC, a 105‑MW wind generation project in Paulding County, Ohio. CMS Enterprises retained a Class B membership interest in NWO Holdco.

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.

Earnings, tax attributes, and cash flows generated by NWO Holdco and Aviator Wind are allocated among and distributed to the membership classes in accordance with the ratios specified in the associated limited liability company agreements; these ratios change over time and are not representative of the ownership interest percentages of each membership class. Since NWO Holdco’s and Aviator Wind’s income and cash flows are not distributed among their investors based on ownership interest percentages,

CMS Enterprises allocates the entities’ income (loss) among the investors by applying the hypothetical liquidation at book value method. This method calculates each investor’s earnings based on a hypothetical liquidation of the entities at the net book value of underlying assets as of the balance sheet date. The liquidation tax gain (loss) is allocated to each investor’s capital account, resulting in income (loss) equal to the period change in the investor’s capital account balance.

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

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
	June 30, 2022			December 31, 2021
Current
Cash and cash equivalents		$	24		$	21
Restricted cash and cash equivalents		—			1
Accounts receivable		10			3
Prepayments and other current assets		3			2
Non-current
Plant, property, and equipment, net		841			856
Total assets1		$	878		$	883
Current
Accounts payable		$	18		$	17
Other Liabilities		—			2
Non-current
Asset retirement obligations		23			23
Other Liabilities					4
Total liabilities		$	41		$	46

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

CMS Enterprises is obligated under certain indemnities that protect the tax equity investors against losses incurred as a result of breaches of representations and warranties under the associated limited liability company agreements. For additional details on these indemnity obligations, see Note 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. CMS Energy and Consumers have 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 $69 million at June 30, 2022 and $71 million at December 31, 2021.