Regulatory Matters

9 Months Ended

Sep. 30, 2015

Regulatory Matters

2:REGULATORY MATTERS

Regulatory matters are critical to Consumers.  The Michigan Attorney General, ABATE, the MPSC Staff, and certain other parties typically participate in MPSC proceedings concerning Consumers, such as Consumers’ rate cases and PSCR and GCR processes.  These parties often challenge various aspects of those proceedings, including the prudence of Consumers’ policies and practices, and seek cost disallowances and other relief.  The parties also have appealed significant MPSC orders.  Depending upon the specific issues, the outcomes of rate cases and proceedings, including judicial proceedings challenging MPSC orders or other actions, could negatively affect CMS Energy’s and Consumers’ liquidity, financial condition, and results of operations.  Consumers cannot predict the outcome of these proceedings.

There are multiple appeals pending that involve various issues concerning cost allocation among customers, the allocation of refunds among customer groups, the adequacy of the record evidence supporting the recovery of Smart Energy investments, and other matters.  Consumers is unable to predict the outcome of these appeals.

Electric Rate Case:  In December 2014, Consumers filed an application with the MPSC seeking an annual rate increase of $163 million, based on a 10.7 percent authorized return on equity.  The filing requested authority to recover new investment in system reliability, environmental compliance, and technology enhancements.  Presented in the following table are the components of the requested increase in revenue:

In Millions
Components of the rate increase
Investment in rate base	$	185
Addition of natural gas-fueled electric generating plant		35
Operating and maintenance costs		26
Cost of capital		21
Working capital		6
Cost-reduction initiatives		(80)
Gross margin		(30)
Total	$	163

The filing also seeks approval of an investment recovery mechanism that would allow recovery of an additional $163 million in total for incremental investments that Consumers plans to make in 2016 and 2017 and $78 million for incremental investments planned in 2018, subject to reconciliation.These incremental investments would help to ensure continued system reliability, environmental compliance, and technology enhancements.

In June 2015, Consumers self-implemented an annual rate increase of $110 million, subject to refund with interest.Consumers expects a final order on or before December 1, 2015.

Gas Rate Case:  In July 2014, Consumers filed an application with the MPSC seeking an annual rate increase of $88 million.  The filing requested authority to recover new investments that will allow Consumers to improve system reliability, comply with regulations, and enhance technology.

In January 2015, the MPSC approved a settlement agreement authorizing a $45 million annual rate increase, based on a 10.3 percent authorized return on equity.  This was Consumers’ first gas base rate increase since 2012.

Energy Optimization Plan Incentive:In September 2015, the MPSC approved a settlement agreementauthorizing Consumers to collect $17 million during 2016 as an incentive for exceeding statutory targets under both its electric and gas optimization plans during 2014.  Consumers recognized revenue under this program of $17 million in 2014.

Consumers Energy Company [Member]

Regulatory Matters

2:REGULATORY MATTERS

Regulatory matters are critical to Consumers.  The Michigan Attorney General, ABATE, the MPSC Staff, and certain other parties typically participate in MPSC proceedings concerning Consumers, such as Consumers’ rate cases and PSCR and GCR processes.  These parties often challenge various aspects of those proceedings, including the prudence of Consumers’ policies and practices, and seek cost disallowances and other relief.  The parties also have appealed significant MPSC orders.  Depending upon the specific issues, the outcomes of rate cases and proceedings, including judicial proceedings challenging MPSC orders or other actions, could negatively affect CMS Energy’s and Consumers’ liquidity, financial condition, and results of operations.  Consumers cannot predict the outcome of these proceedings.

There are multiple appeals pending that involve various issues concerning cost allocation among customers, the allocation of refunds among customer groups, the adequacy of the record evidence supporting the recovery of Smart Energy investments, and other matters.  Consumers is unable to predict the outcome of these appeals.

Electric Rate Case:  In December 2014, Consumers filed an application with the MPSC seeking an annual rate increase of $163 million, based on a 10.7 percent authorized return on equity.  The filing requested authority to recover new investment in system reliability, environmental compliance, and technology enhancements.  Presented in the following table are the components of the requested increase in revenue:

In Millions
Components of the rate increase
Investment in rate base	$	185
Addition of natural gas-fueled electric generating plant		35
Operating and maintenance costs		26
Cost of capital		21
Working capital		6
Cost-reduction initiatives		(80)
Gross margin		(30)
Total	$	163

The filing also seeks approval of an investment recovery mechanism that would allow recovery of an additional $163 million in total for incremental investments that Consumers plans to make in 2016 and 2017 and $78 million for incremental investments planned in 2018, subject to reconciliation.These incremental investments would help to ensure continued system reliability, environmental compliance, and technology enhancements.

In June 2015, Consumers self-implemented an annual rate increase of $110 million, subject to refund with interest.Consumers expects a final order on or before December 1, 2015.

Gas Rate Case:  In July 2014, Consumers filed an application with the MPSC seeking an annual rate increase of $88 million.  The filing requested authority to recover new investments that will allow Consumers to improve system reliability, comply with regulations, and enhance technology.

In January 2015, the MPSC approved a settlement agreement authorizing a $45 million annual rate increase, based on a 10.3 percent authorized return on equity.  This was Consumers’ first gas base rate increase since 2012.

Energy Optimization Plan Incentive:In September 2015, the MPSC approved a settlement agreementauthorizing Consumers to collect $17 million during 2016 as an incentive for exceeding statutory targets under both its electric and gas optimization plans during 2014.  Consumers recognized revenue under this program of $17 million in 2014.