Financial Instruments

9 Months Ended

Sep. 30, 2011

Financial Instruments

7: FINANCIAL INSTRUMENTS

The carrying amounts of CMS Energy's and Consumers' cash, cash equivalents, current accounts and notes receivable, short-term investments, and current liabilities approximate their fair values because of their short-term nature. Presented in the following table are the cost or carrying amounts and fair values of CMS Energy's and Consumers' long-term financial instruments:

In Millions
	September 30, 2011				December 31, 2010
	Cost or				Cost or
	Carrying				Carrying
	Amount		Fair Value		Amount		Fair Value
CMS Energy, including Consumers
Securities held to maturity	$	7	$	8	$	5	$	6
Securities available for sale		113		113		90		90
Notes receivable1		439		459		386		407
Long-term debt2		7,153		8,093		7,174		7,861
Consumers
Securities available for sale	$	81	$	105	$	64	$	90
Long-term debt3		4,335		4,901		4,525		4,891

¹    Includes current portion of notes receivable of $16 million at September 30, 2011 and $11 million at December 31, 2010.

²    Includes current portion of long-term debt of $1,116 million at September 30, 2011 and $726 million at December 31, 2010.

³    Includes current portion of long-term debt of $338 million at September 30, 2011 and $37 million at December 31, 2010.

Notes receivable consist of EnerBank's fixed-rate installment loans. EnerBank estimates the fair value of these loans using a discounted cash flows technique that incorporates market interest rates as well as assumptions about the remaining life of the loans and credit risk. Fair values for impaired loans are estimated using discounted cash flows or underlying collateral values.

CMS Energy and Consumers estimate the fair value of their long-term debt using quoted prices from market trades of the debt, if available. In the absence of quoted prices, CMS Energy and Consumers calculate market yields and prices for the debt using a matrix method that incorporates market data for similarly rated debt. Depending on the information available, other valuation techniques may be used that rely on internal assumptions and models. CMS Energy includes the value of the conversion features in estimating the fair value of its convertible debt, and incorporates, as appropriate, information on the market prices of CMS Energy common stock.

The effects of third-party credit enhancements are excluded from the fair value measurements of long-term debt. At September 30, 2011 and December 31, 2010, CMS Energy's long-term debt included $103 million principal amount that was supported by third-party credit enhancements. This entire principal amount was at Consumers.

Presented in the following table are CMS Energy's and Consumers' investment securities:

In Millions
	September 30, 2011								December 31, 2010
			Unrealized		Unrealized						Unrealized		Unrealized
	Cost		Gains		Losses		Fair Value		Cost		Gains		Losses		Fair Value
CMS Energy, including consumers
Available for sale
SERP
Mutual fund	$	88	$	—	$	1	$	87	$	62	$	—	$	—	$	62
State and municipal bonds		25		1		—		26		28		—		—		28
Held to maturity
Debt securities		7		1		—		8		5		1		—		6
Consumers
Available for sale
SERP
Mutual fund	$	57	$	—	$	—	$	57	$	39	$	—	$	—	$	39
State and municipal bonds		17		—		—		17		17		—		—		17
CMS Energy common stock		7		24		—		31		8		26		—		34

The mutual fund classified as available for sale is a short-term, fixed-income fund. During the nine months ended September 30, 2011, CMS Energy contributed $27 million to the SERP, which included a contribution of $20 million by Consumers. The contributions were used to acquire additional shares in the mutual fund. State and municipal bonds classified as available for sale consist of investment grade state and municipal bonds. Debt securities classified as held to maturity consist primarily of mortgage-backed securities held by EnerBank, as well as state and municipal bonds held by EnerBank.

Presented in the following table is a summary of the sales activity for CMS Energy's and Consumers' investment securities:

In Millions
	Three months ended			Nine months ended
September 30	2011		2010	2011		2010
CMS Energy, including Consumers
Proceeds from sales of investment securities1	$	1	$ —	$	2	$	1
Consumers
Proceeds from sales of investment securities1	$	1	$ —	$	1	$	—

¹     All of the proceeds related to sales of investments that were held within the SERP and classified as available for sale. Realized losses on these sales were less than $1 million for both CMS Energy and Consumers during each period.

Presented in the following table are the fair values of the SERP state and municipal bonds by contractual maturity at September 30, 2011:

In Millions
	CMS Energy,
	including Consumers		Consumers
Due one year or less	$	2	$	1
Due after one year through five years		9		6
Due after five years through ten years		12		8
Due after ten years		3		2
Total	$	26	$	17

Consumers Energy Company [Member]

Financial Instruments

7: FINANCIAL INSTRUMENTS

The carrying amounts of CMS Energy's and Consumers' cash, cash equivalents, current accounts and notes receivable, short-term investments, and current liabilities approximate their fair values because of their short-term nature. Presented in the following table are the cost or carrying amounts and fair values of CMS Energy's and Consumers' long-term financial instruments:

In Millions
	September 30, 2011				December 31, 2010
	Cost or				Cost or
	Carrying				Carrying
	Amount		Fair Value		Amount		Fair Value
CMS Energy, including Consumers
Securities held to maturity	$	7	$	8	$	5	$	6
Securities available for sale		113		113		90		90
Notes receivable1		439		459		386		407
Long-term debt2		7,153		8,093		7,174		7,861
Consumers
Securities available for sale	$	81	$	105	$	64	$	90
Long-term debt3		4,335		4,901		4,525		4,891

¹    Includes current portion of notes receivable of $16 million at September 30, 2011 and $11 million at December 31, 2010.

²    Includes current portion of long-term debt of $1,116 million at September 30, 2011 and $726 million at December 31, 2010.

³    Includes current portion of long-term debt of $338 million at September 30, 2011 and $37 million at December 31, 2010.

Notes receivable consist of EnerBank's fixed-rate installment loans. EnerBank estimates the fair value of these loans using a discounted cash flows technique that incorporates market interest rates as well as assumptions about the remaining life of the loans and credit risk. Fair values for impaired loans are estimated using discounted cash flows or underlying collateral values.

CMS Energy and Consumers estimate the fair value of their long-term debt using quoted prices from market trades of the debt, if available. In the absence of quoted prices, CMS Energy and Consumers calculate market yields and prices for the debt using a matrix method that incorporates market data for similarly rated debt. Depending on the information available, other valuation techniques may be used that rely on internal assumptions and models. CMS Energy includes the value of the conversion features in estimating the fair value of its convertible debt, and incorporates, as appropriate, information on the market prices of CMS Energy common stock.

The effects of third-party credit enhancements are excluded from the fair value measurements of long-term debt. At September 30, 2011 and December 31, 2010, CMS Energy's long-term debt included $103 million principal amount that was supported by third-party credit enhancements. This entire principal amount was at Consumers.

Presented in the following table are CMS Energy's and Consumers' investment securities:

In Millions
	September 30, 2011								December 31, 2010
			Unrealized		Unrealized						Unrealized		Unrealized
	Cost		Gains		Losses		Fair Value		Cost		Gains		Losses		Fair Value
CMS Energy, including consumers
Available for sale
SERP
Mutual fund	$	88	$	—	$	1	$	87	$	62	$	—	$	—	$	62
State and municipal bonds		25		1		—		26		28		—		—		28
Held to maturity
Debt securities		7		1		—		8		5		1		—		6
Consumers
Available for sale
SERP
Mutual fund	$	57	$	—	$	—	$	57	$	39	$	—	$	—	$	39
State and municipal bonds		17		—		—		17		17		—		—		17
CMS Energy common stock		7		24		—		31		8		26		—		34

The mutual fund classified as available for sale is a short-term, fixed-income fund. During the nine months ended September 30, 2011, CMS Energy contributed $27 million to the SERP, which included a contribution of $20 million by Consumers. The contributions were used to acquire additional shares in the mutual fund. State and municipal bonds classified as available for sale consist of investment grade state and municipal bonds. Debt securities classified as held to maturity consist primarily of mortgage-backed securities held by EnerBank, as well as state and municipal bonds held by EnerBank.

Presented in the following table is a summary of the sales activity for CMS Energy's and Consumers' investment securities:

In Millions
	Three months ended			Nine months ended
September 30	2011		2010	2011		2010
CMS Energy, including Consumers
Proceeds from sales of investment securities1	$	1	$ —	$	2	$	1
Consumers
Proceeds from sales of investment securities1	$	1	$ —	$	1	$	—

¹     All of the proceeds related to sales of investments that were held within the SERP and classified as available for sale. Realized losses on these sales were less than $1 million for both CMS Energy and Consumers during each period.

Presented in the following table are the fair values of the SERP state and municipal bonds by contractual maturity at September 30, 2011:

In Millions
	CMS Energy,
	including Consumers		Consumers
Due one year or less	$	2	$	1
Due after one year through five years		9		6
Due after five years through ten years		12		8
Due after ten years		3		2
Total	$	26	$	17