Financial Instruments

9 Months Ended

Sep. 30, 2014

Financial Instruments

6:FINANCIAL INSTRUMENTS

Presented in the following table are the carrying amounts and fair values, by level within the fair value hierarchy, of CMS Energy’s and Consumers’ financial instruments that are not recorded at fair value.  The table does not include information on cash, cash equivalents, short-term accounts and notes receivable, short-term investments, and current liabilities since the carrying amounts of these items approximate their fair values because of their short-term nature.  For information about assets and liabilities recorded at fair value and for additional details regarding the fair value hierarchy, see Note 5, Fair Value Measurements.

In Millions
	September 30, 2014															December 31, 2013
				Fair Value															Fair Value
	Carrying						Level									Carrying						Level
	Amount			Total			1			2			3			Amount			Total			1			2			3
CMS Energy, including Consumers
Securities held    to maturity		$	11		$	11		$	-		$	11		$	-		$	10		$	10		$	-		$	10		$	-
Notes    receivable1			847			896			-			-			896			683			724			-			-			724
Long-term    debt2			8,711			9,380			-			8,370			1,010			7,642			8,368			-			7,406			962
Consumers
Long-term    debt3		$	5,290		$	5,691		$	-		$	4,681		$	1,010		$	4,622		$	4,940		$	-		$	3,978		$	962

¹ Includes current portion of notes receivable of $95 million at September 30, 2014 and $48 million at December 31, 2013.

² Includes current portion of long-term debt of $669 million at September 30, 2014 and $541 million at December 31, 2013.

³ Includes current portion of long-term debt of $60 million at September 30, 2014 and $43 million at December 31, 2013.

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.

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 and models may be used that rely on assumptions that cannot be observed or confirmed through market transactions.

The effects of third-party credit enhancements are excluded from the fair value measurements of long-term debt.  At September 30, 2014 and December 31, 2013, 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 classified as available for sale or held to maturity:

In Millions
	September 30, 2014												December 31, 2013
				Unrealized			Unrealized			Fair						Unrealized			Unrealized			Fair
	Cost			Gains			Losses			Value			Cost			Gains			Losses			Value
CMS Energy, including Consumers
Available for sale
DB SERP
Mutual funds		$	131		$	-		$	-		$	131		$	136		$	-		$	-		$	136
Held to maturity
Debt securities			11			-			-			11			10			-			-			10
Consumers
Available for sale
DB SERP
Mutual funds		$	93		$	-		$	-		$	93		$	95		$	-		$	-		$	95
CMS Energy
common stock			5			27			-			32			5			24			-			29

The mutual funds classified as available for sale hold primarily fixed-income instruments of varying maturities.  Debt securities classified as held to maturity consist primarily of mortgage-backed securities and Utah Housing Corporation bonds held by EnerBank.

Consumers recognized a gain of $4 million in January 2013 associated with the transfer of shares of CMS Energy common stock to a related charitable foundation.  The gain reflected the excess of fair value over cost of the stock donated and was included in Consumers’ income.

Consumers Energy Company [Member]

Financial Instruments

6:FINANCIAL INSTRUMENTS

Presented in the following table are the carrying amounts and fair values, by level within the fair value hierarchy, of CMS Energy’s and Consumers’ financial instruments that are not recorded at fair value.  The table does not include information on cash, cash equivalents, short-term accounts and notes receivable, short-term investments, and current liabilities since the carrying amounts of these items approximate their fair values because of their short-term nature.  For information about assets and liabilities recorded at fair value and for additional details regarding the fair value hierarchy, see Note 5, Fair Value Measurements.

In Millions
	September 30, 2014															December 31, 2013
				Fair Value															Fair Value
	Carrying						Level									Carrying						Level
	Amount			Total			1			2			3			Amount			Total			1			2			3
CMS Energy, including Consumers
Securities held    to maturity		$	11		$	11		$	-		$	11		$	-		$	10		$	10		$	-		$	10		$	-
Notes    receivable1			847			896			-			-			896			683			724			-			-			724
Long-term    debt2			8,711			9,380			-			8,370			1,010			7,642			8,368			-			7,406			962
Consumers
Long-term    debt3		$	5,290		$	5,691		$	-		$	4,681		$	1,010		$	4,622		$	4,940		$	-		$	3,978		$	962

¹ Includes current portion of notes receivable of $95 million at September 30, 2014 and $48 million at December 31, 2013.

² Includes current portion of long-term debt of $669 million at September 30, 2014 and $541 million at December 31, 2013.

³ Includes current portion of long-term debt of $60 million at September 30, 2014 and $43 million at December 31, 2013.

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.

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 and models may be used that rely on assumptions that cannot be observed or confirmed through market transactions.

The effects of third-party credit enhancements are excluded from the fair value measurements of long-term debt.  At September 30, 2014 and December 31, 2013, 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 classified as available for sale or held to maturity:

In Millions
	September 30, 2014												December 31, 2013
				Unrealized			Unrealized			Fair						Unrealized			Unrealized			Fair
	Cost			Gains			Losses			Value			Cost			Gains			Losses			Value
CMS Energy, including Consumers
Available for sale
DB SERP
Mutual funds		$	131		$	-		$	-		$	131		$	136		$	-		$	-		$	136
Held to maturity
Debt securities			11			-			-			11			10			-			-			10
Consumers
Available for sale
DB SERP
Mutual funds		$	93		$	-		$	-		$	93		$	95		$	-		$	-		$	95
CMS Energy
common stock			5			27			-			32			5			24			-			29

The mutual funds classified as available for sale hold primarily fixed-income instruments of varying maturities.  Debt securities classified as held to maturity consist primarily of mortgage-backed securities and Utah Housing Corporation bonds held by EnerBank.

Consumers recognized a gain of $4 million in January 2013 associated with the transfer of shares of CMS Energy common stock to a related charitable foundation.  The gain reflected the excess of fair value over cost of the stock donated and was included in Consumers’ income.