Income Taxes

12 Months Ended

Dec. 31, 2023

Income Taxes [Line Items]

Income Taxes

Income Taxes

CMS Energy and its subsidiaries file a consolidated U.S. federal income tax return as well as a Michigan Corporate Income Tax return for the unitary business group and various other state unitary group combined income tax returns. Income taxes are allocated based on each company’s separate taxable income in accordance with the CMS Energy tax sharing agreement.

Presented in the following table is the difference between actual income tax expense on continuing operations and income tax expense computed by applying the statutory U.S. federal income tax rate:

In Millions, Except Tax Rate
Years Ended December 31	2023				2022				2021
CMS Energy, including Consumers
Income from continuing operations before income taxes		$	954			$	902			$	823
Income tax expense at statutory rate		200				189				173
Increase (decrease) in income taxes from:
State and local income taxes, net of federal effect1		31				51				39
Renewable energy tax credits		(58)				(51)				(44)
TCJA excess deferred taxes2		(40)				(65)				(50)
Taxes attributable to noncontrolling interests		17				5				5
Accelerated flow-through of regulatory tax benefits3		—				(39)				(28)
Other, net		(3)				3				—
Income tax expense		$	147			$	93			$	95
Effective tax rate		15.4		%		10.3		%		11.5		%
Consumers
Income from continuing operations before income taxes		$	1,028			$	1,085			$	1,024
Income tax expense at statutory rate		216				228				215
Increase (decrease) in income taxes from:
State and local income taxes, net of federal effect1		36				59				54
Renewable energy tax credits		(46)				(46)				(37)
TCJA excess deferred taxes2		(40)				(65)				(50)
Accelerated flow-through of regulatory tax benefits3		—				(39)				(28)
Other, net		(5)				3				2
Income tax expense		$	161			$	140			$	156
Effective tax rate		15.7		%		12.9		%		15.2		%

1CMS Energy initiated a plan to divest immaterial business activities in a non‑Michigan jurisdiction and will no longer have a taxable presence within that jurisdiction after 2023. As a result of these actions, CMS Energy reversed a $13 million non‑Michigan reserve, all of which was recognized at Consumers.

2In 2020, the MPSC authorized Consumers to accelerate the amortization of the gas portion of its regulatory liability associated with unprotected, non-property-related excess deferred income taxes resulting from the TCJA. This portion of the regulatory liability was fully amortized in 2022.

3In 2020, the MPSC authorized Consumers to accelerate the amortization of income tax benefits associated with the cost to remove gas plant assets. These tax benefits were fully amortized in 2022.

Presented in the following table are the significant components of income tax expense on continuing operations:

In Millions
Years Ended December 31	2023			2022			2021
CMS Energy, including Consumers
Current income taxes
Federal		$	5		$	6		$	(1)
State and local		1			—			1
		$	6		$	6		$	—
Deferred income taxes
Federal		107			4			49
State and local		38			65			49
		$	145		$	69		$	98
Deferred income tax credit		(4)			18			(3)
Tax expense		$	147		$	93		$	95
Consumers
Current income taxes
Federal		$	3		$	(2)		$	(13)
State and local		2			8			15
		$	5		$	6		$	2
Deferred income taxes
Federal		117			50			103
State and local		43			66			54
		$	160		$	116		$	157
Deferred income tax credit		(4)			18			(3)
Tax expense		$	161		$	140		$	156

Presented in the following table are the principal components of deferred income tax assets (liabilities) recognized:

In Millions
December 31	2023			2022
CMS Energy, including Consumers
Deferred income tax assets
Tax loss and credit carryforwards		$	428		$	385
Net regulatory tax liability		305			318
Reserves and accruals		28			35
Total deferred income tax assets		$	761		$	738
Valuation allowance		(2)			(2)
Total deferred income tax assets, net of valuation allowance		$	759		$	736
Deferred income tax liabilities
Plant, property, and equipment		$	(2,520)		$	(2,515)
Employee benefits		(473)			(433)
Gas inventory		(66)			(53)
Securitized costs		(194)			(39)
Other		(121)			(103)
Total deferred income tax liabilities		$	(3,374)		$	(3,143)
Total net deferred income tax liabilities		$	(2,615)		$	(2,407)
Consumers
Deferred income tax assets
Net regulatory tax liability		$	305		$	318
Tax loss and credit carryforwards		175			145
Reserves and accruals		27			28
Total deferred income tax assets		$	507		$	491
Deferred income tax liabilities
Plant, property, and equipment		$	(2,498)		$	(2,458)
Employee benefits		(459)			(423)
Gas inventory		(66)			(53)
Securitized costs		(194)			(39)
Other		(79)			(103)
Total deferred income tax liabilities		$	(3,296)		$	(3,076)
Total net deferred income tax liabilities		$	(2,789)		$	(2,585)

Deferred tax assets and liabilities are recognized for the estimated future tax effect of temporary differences between the tax basis of assets or liabilities and the reported amounts on CMS Energy’s and Consumers’ consolidated financial statements.

Presented in the following table are the tax loss and credit carryforwards at December 31, 2023:

In Millions
	Tax Attribute			Expiration
CMS Energy, including Consumers
State net operating loss carryforwards		$	69	2030 – 2033
Local net operating loss carryforwards		3		2024 – 2040
General business credits		356		2035 – 2043
Total tax attributes		$	428
Consumers
State net operating loss carryforwards		$	53	2030 – 2033
General business credits		122		2035 – 2043
Total tax attributes		$	175

CMS Energy has provided a valuation allowance of $2 million for the local tax loss carryforward. CMS Energy and Consumers expect to utilize fully their tax loss and credit carryforwards for which no valuation allowance has been provided. It is reasonably possible that further adjustments will be made to the valuation allowances within one year.

Presented in the following table is a reconciliation of the beginning and ending amount of uncertain tax benefits:

In Millions
Years Ended December 31	2023			2022			2021
CMS Energy, including Consumers
Balance at beginning of period		$	28		$	27		$	25
Additions for current-year tax positions		1			1			2
Additions for prior-year tax positions		—			1			—
Reductions for prior-year tax positions		(3)			(1)			—
Balance at end of period		$	26		$	28		$	27
Consumers
Balance at beginning of period		$	36		$	34		$	31
Additions for current-year tax positions		1			3			3
Additions for prior-year tax positions		2			1			—
Reductions for prior-year tax positions		(3)			(2)			—
Balance at end of period		$	36		$	36		$	34

If recognized, all of these uncertain tax benefits would affect CMS Energy’s and Consumers’ annual effective tax rates in future years. One uncertain tax benefit relates to the methodology of state apportionment for Consumers’ electricity sales to MISO. The Michigan Tax Tribunal heard oral arguments on this methodology during 2022. A final conclusion is not anticipated in the next 12 months.

CMS Energy and Consumers recognize accrued interest and penalties, where applicable, as part of income tax expense. CMS Energy, including Consumers, recognized no interest or penalties for each of the years ended December 31, 2023, 2022, or 2021.

The amount of income taxes paid is subject to ongoing audits by federal, state, local, and foreign tax authorities, which can result in proposed assessments. CMS Energy’s federal income tax returns for 2020

and subsequent years remain subject to examination by the IRS. CMS Energy’s Michigan Corporate Income Tax returns for 2013-2016 and 2019 and subsequent years remain subject to examination by the State of Michigan. CMS Energy’s and Consumers’ estimate of the potential outcome for any uncertain tax issue is highly judgmental. CMS Energy and Consumers believe that their accrued tax liabilities at December 31, 2023 were adequate for all years.

Consumers Energy Company

Income Taxes [Line Items]

Income Taxes

Income Taxes

CMS Energy and its subsidiaries file a consolidated U.S. federal income tax return as well as a Michigan Corporate Income Tax return for the unitary business group and various other state unitary group combined income tax returns. Income taxes are allocated based on each company’s separate taxable income in accordance with the CMS Energy tax sharing agreement.

Presented in the following table is the difference between actual income tax expense on continuing operations and income tax expense computed by applying the statutory U.S. federal income tax rate:

In Millions, Except Tax Rate
Years Ended December 31	2023				2022				2021
CMS Energy, including Consumers
Income from continuing operations before income taxes		$	954			$	902			$	823
Income tax expense at statutory rate		200				189				173
Increase (decrease) in income taxes from:
State and local income taxes, net of federal effect1		31				51				39
Renewable energy tax credits		(58)				(51)				(44)
TCJA excess deferred taxes2		(40)				(65)				(50)
Taxes attributable to noncontrolling interests		17				5				5
Accelerated flow-through of regulatory tax benefits3		—				(39)				(28)
Other, net		(3)				3				—
Income tax expense		$	147			$	93			$	95
Effective tax rate		15.4		%		10.3		%		11.5		%
Consumers
Income from continuing operations before income taxes		$	1,028			$	1,085			$	1,024
Income tax expense at statutory rate		216				228				215
Increase (decrease) in income taxes from:
State and local income taxes, net of federal effect1		36				59				54
Renewable energy tax credits		(46)				(46)				(37)
TCJA excess deferred taxes2		(40)				(65)				(50)
Accelerated flow-through of regulatory tax benefits3		—				(39)				(28)
Other, net		(5)				3				2
Income tax expense		$	161			$	140			$	156
Effective tax rate		15.7		%		12.9		%		15.2		%

1CMS Energy initiated a plan to divest immaterial business activities in a non‑Michigan jurisdiction and will no longer have a taxable presence within that jurisdiction after 2023. As a result of these actions, CMS Energy reversed a $13 million non‑Michigan reserve, all of which was recognized at Consumers.

2In 2020, the MPSC authorized Consumers to accelerate the amortization of the gas portion of its regulatory liability associated with unprotected, non-property-related excess deferred income taxes resulting from the TCJA. This portion of the regulatory liability was fully amortized in 2022.

3In 2020, the MPSC authorized Consumers to accelerate the amortization of income tax benefits associated with the cost to remove gas plant assets. These tax benefits were fully amortized in 2022.

Presented in the following table are the significant components of income tax expense on continuing operations:

In Millions
Years Ended December 31	2023			2022			2021
CMS Energy, including Consumers
Current income taxes
Federal		$	5		$	6		$	(1)
State and local		1			—			1
		$	6		$	6		$	—
Deferred income taxes
Federal		107			4			49
State and local		38			65			49
		$	145		$	69		$	98
Deferred income tax credit		(4)			18			(3)
Tax expense		$	147		$	93		$	95
Consumers
Current income taxes
Federal		$	3		$	(2)		$	(13)
State and local		2			8			15
		$	5		$	6		$	2
Deferred income taxes
Federal		117			50			103
State and local		43			66			54
		$	160		$	116		$	157
Deferred income tax credit		(4)			18			(3)
Tax expense		$	161		$	140		$	156

Presented in the following table are the principal components of deferred income tax assets (liabilities) recognized:

In Millions
December 31	2023			2022
CMS Energy, including Consumers
Deferred income tax assets
Tax loss and credit carryforwards		$	428		$	385
Net regulatory tax liability		305			318
Reserves and accruals		28			35
Total deferred income tax assets		$	761		$	738
Valuation allowance		(2)			(2)
Total deferred income tax assets, net of valuation allowance		$	759		$	736
Deferred income tax liabilities
Plant, property, and equipment		$	(2,520)		$	(2,515)
Employee benefits		(473)			(433)
Gas inventory		(66)			(53)
Securitized costs		(194)			(39)
Other		(121)			(103)
Total deferred income tax liabilities		$	(3,374)		$	(3,143)
Total net deferred income tax liabilities		$	(2,615)		$	(2,407)
Consumers
Deferred income tax assets
Net regulatory tax liability		$	305		$	318
Tax loss and credit carryforwards		175			145
Reserves and accruals		27			28
Total deferred income tax assets		$	507		$	491
Deferred income tax liabilities
Plant, property, and equipment		$	(2,498)		$	(2,458)
Employee benefits		(459)			(423)
Gas inventory		(66)			(53)
Securitized costs		(194)			(39)
Other		(79)			(103)
Total deferred income tax liabilities		$	(3,296)		$	(3,076)
Total net deferred income tax liabilities		$	(2,789)		$	(2,585)

Deferred tax assets and liabilities are recognized for the estimated future tax effect of temporary differences between the tax basis of assets or liabilities and the reported amounts on CMS Energy’s and Consumers’ consolidated financial statements.

Presented in the following table are the tax loss and credit carryforwards at December 31, 2023:

In Millions
	Tax Attribute			Expiration
CMS Energy, including Consumers
State net operating loss carryforwards		$	69	2030 – 2033
Local net operating loss carryforwards		3		2024 – 2040
General business credits		356		2035 – 2043
Total tax attributes		$	428
Consumers
State net operating loss carryforwards		$	53	2030 – 2033
General business credits		122		2035 – 2043
Total tax attributes		$	175

CMS Energy has provided a valuation allowance of $2 million for the local tax loss carryforward. CMS Energy and Consumers expect to utilize fully their tax loss and credit carryforwards for which no valuation allowance has been provided. It is reasonably possible that further adjustments will be made to the valuation allowances within one year.

Presented in the following table is a reconciliation of the beginning and ending amount of uncertain tax benefits:

In Millions
Years Ended December 31	2023			2022			2021
CMS Energy, including Consumers
Balance at beginning of period		$	28		$	27		$	25
Additions for current-year tax positions		1			1			2
Additions for prior-year tax positions		—			1			—
Reductions for prior-year tax positions		(3)			(1)			—
Balance at end of period		$	26		$	28		$	27
Consumers
Balance at beginning of period		$	36		$	34		$	31
Additions for current-year tax positions		1			3			3
Additions for prior-year tax positions		2			1			—
Reductions for prior-year tax positions		(3)			(2)			—
Balance at end of period		$	36		$	36		$	34

If recognized, all of these uncertain tax benefits would affect CMS Energy’s and Consumers’ annual effective tax rates in future years. One uncertain tax benefit relates to the methodology of state apportionment for Consumers’ electricity sales to MISO. The Michigan Tax Tribunal heard oral arguments on this methodology during 2022. A final conclusion is not anticipated in the next 12 months.

CMS Energy and Consumers recognize accrued interest and penalties, where applicable, as part of income tax expense. CMS Energy, including Consumers, recognized no interest or penalties for each of the years ended December 31, 2023, 2022, or 2021.

The amount of income taxes paid is subject to ongoing audits by federal, state, local, and foreign tax authorities, which can result in proposed assessments. CMS Energy’s federal income tax returns for 2020

and subsequent years remain subject to examination by the IRS. CMS Energy’s Michigan Corporate Income Tax returns for 2013-2016 and 2019 and subsequent years remain subject to examination by the State of Michigan. CMS Energy’s and Consumers’ estimate of the potential outcome for any uncertain tax issue is highly judgmental. CMS Energy and Consumers believe that their accrued tax liabilities at December 31, 2023 were adequate for all years.