Fair Value Measurements

12 Months Ended

Dec. 31, 2016

Fair Value Measurements

6:Fair  Value  Measurements

Accounting standards define fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. When measuring fair value, CMS Energy and Consumers are required to incorporate all assumptions that market participants would use in pricing an asset or liability, including assumptions about risk. A fair value hierarchy prioritizes inputs used to measure fair value according to their observability in the market. The three levels of the fair value hierarchy are as follows:

· Level 1 inputs are unadjusted quoted prices in active markets for identical assets or liabilities.

· Level 2 inputs are observable, market-based inputs, other than Level 1 prices. Level 2 inputs may include quoted prices for similar assets or liabilities in active markets, quoted prices in inactive markets, and inputs derived from or corroborated by observable market data.

· Level 3 inputs are unobservable inputs that reflect CMS Energy’s or Consumers’ own assumptions about how market participants would value their assets and liabilities.

CMS Energy and Consumers classify fair value measurements within the fair value hierarchy based on the lowest level of input that is significant to the fair value measurement in its entirety.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

Presented in the following table are CMS Energy’s and Consumers’ assets and liabilities recorded at fair value on a recurring basis:

In Millions
	CMS Energy, including Consumers						Consumers
December 31	2016			2015			2016			2015
Assets1
Cash equivalents		$	44		$	158		$	-		$	-
Restricted cash equivalents			19			19			19			19
CMS Energy common stock			-			-			33			29
Nonqualified deferred    compensation plan assets			12			10			8			7
DB SERP
Cash equivalents			3			2			2			2
Mutual funds			141			146			102			104
Derivative instruments
Commodity contracts			1			1			1			1
Total		$	220		$	336		$	165		$	162
Liabilities1
Nonqualified deferred    compensation plan liabilities		$	12		$	10		$	8		$	7
Total		$	12		$	10		$	8		$	7

¹ All assets and liabilities were classified as Level 1 with the exception of some commodity contracts, which were classified as Level 3.

Cash Equivalents:Cash equivalents and restricted cash equivalents consist of money market funds with daily liquidity. Short-term debt instruments classified as cash equivalents on the consolidated balance sheets are not included since they are recorded at amortized cost.

Nonqualified Deferred Compensation Plan Assets and Liabilities:The nonqualified deferred compensation plan assets consist of mutual funds, which are valued using the daily quoted NAVs. CMS Energy and Consumers value their nonqualified deferred compensation plan liabilities based on the fair values of the plan assets, as they reflect what is owed to the plan participants in accordance with their investment elections. CMS Energy and Consumers report the assets in other non‑current assets and the liabilities in other non‑current liabilities on their consolidated balance sheets.

DB SERP Assets:The DB SERP cash equivalents consist of a money market fund with daily liquidity. The DB SERP invests in mutual funds that hold primarily fixed-income instruments of varying maturities. In order to meet their investment objectives, the funds hold investment-grade debt securities, and may invest a portion of their assets in high-yield securities, foreign debt, and derivative instruments. CMS Energy and Consumers value these funds using the daily quoted NAVs. CMS Energy and Consumers report their DB SERP assets in other non‑current assets on their consolidated balance sheets. For additional details about DB SERP securities, see Note 7, Financial Instruments.

Derivative Instruments:CMS Energy and Consumers value their derivative instruments using either a market approach that incorporates information from market transactions, or an income approach that discounts future expected cash flows to a present value amount. CMS Energy values its exchange-traded derivative contracts based on Level 1 quoted prices. CMS Energy’s and Consumers’ remaining derivatives are classified as Level 3.

The majority of derivatives classified as Level 3 are FTRs held by Consumers. Due to the lack of quoted pricing information, Consumers determines the fair value of its FTRs based on Consumers’ average historical settlements.

Assets and Liabilities Measured at Fair Value on a Recurring Basis Using Significant Level 3 Inputs

Presented in the following table are reconciliations of changes in the fair values of Level 3 assets and liabilities at CMS Energy and Consumers:

In Millions
Years Ended December 31	2016			2015			2014
CMS Energy, including Consumers
Balance at beginning of period		$	1		$	1		$	4
Total gains (losses) included in earnings1			1			(1)			-
Total gains (losses) offset through regulatory accounting			(2)			2			(15)
Purchases			2			1			(1)
Settlements			(1)			(2)			13
Balance at end of period		$	1		$	1		$	1
Consumers
Balance at beginning of period		$	1		$	1		$	4
Total gains included in earnings1			1			-			-
Total gains (losses) offset through regulatory accounting			(2)			2			(15)
Purchases			2			-			(1)
Settlements			(1)			(2)			13
Balance at end of period		$	1		$	1		$	1

¹ CMS Energy and Consumers record realized gains and losses for Level 3 recurring fair value measurements in earnings as a component of maintenance and other operating expenses or purchased and interchange power on their consolidated statements of income.

Consumers Energy Company [Member]

Fair Value Measurements

6:Fair  Value  Measurements

Accounting standards define fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. When measuring fair value, CMS Energy and Consumers are required to incorporate all assumptions that market participants would use in pricing an asset or liability, including assumptions about risk. A fair value hierarchy prioritizes inputs used to measure fair value according to their observability in the market. The three levels of the fair value hierarchy are as follows:

· Level 1 inputs are unadjusted quoted prices in active markets for identical assets or liabilities.

· Level 2 inputs are observable, market-based inputs, other than Level 1 prices. Level 2 inputs may include quoted prices for similar assets or liabilities in active markets, quoted prices in inactive markets, and inputs derived from or corroborated by observable market data.

· Level 3 inputs are unobservable inputs that reflect CMS Energy’s or Consumers’ own assumptions about how market participants would value their assets and liabilities.

CMS Energy and Consumers classify fair value measurements within the fair value hierarchy based on the lowest level of input that is significant to the fair value measurement in its entirety.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

Presented in the following table are CMS Energy’s and Consumers’ assets and liabilities recorded at fair value on a recurring basis:

In Millions
	CMS Energy, including Consumers						Consumers
December 31	2016			2015			2016			2015
Assets1
Cash equivalents		$	44		$	158		$	-		$	-
Restricted cash equivalents			19			19			19			19
CMS Energy common stock			-			-			33			29
Nonqualified deferred    compensation plan assets			12			10			8			7
DB SERP
Cash equivalents			3			2			2			2
Mutual funds			141			146			102			104
Derivative instruments
Commodity contracts			1			1			1			1
Total		$	220		$	336		$	165		$	162
Liabilities1
Nonqualified deferred    compensation plan liabilities		$	12		$	10		$	8		$	7
Total		$	12		$	10		$	8		$	7

¹ All assets and liabilities were classified as Level 1 with the exception of some commodity contracts, which were classified as Level 3.

Cash Equivalents:Cash equivalents and restricted cash equivalents consist of money market funds with daily liquidity. Short-term debt instruments classified as cash equivalents on the consolidated balance sheets are not included since they are recorded at amortized cost.

Nonqualified Deferred Compensation Plan Assets and Liabilities:The nonqualified deferred compensation plan assets consist of mutual funds, which are valued using the daily quoted NAVs. CMS Energy and Consumers value their nonqualified deferred compensation plan liabilities based on the fair values of the plan assets, as they reflect what is owed to the plan participants in accordance with their investment elections. CMS Energy and Consumers report the assets in other non‑current assets and the liabilities in other non‑current liabilities on their consolidated balance sheets.

DB SERP Assets:The DB SERP cash equivalents consist of a money market fund with daily liquidity. The DB SERP invests in mutual funds that hold primarily fixed-income instruments of varying maturities. In order to meet their investment objectives, the funds hold investment-grade debt securities, and may invest a portion of their assets in high-yield securities, foreign debt, and derivative instruments. CMS Energy and Consumers value these funds using the daily quoted NAVs. CMS Energy and Consumers report their DB SERP assets in other non‑current assets on their consolidated balance sheets. For additional details about DB SERP securities, see Note 7, Financial Instruments.

Derivative Instruments:CMS Energy and Consumers value their derivative instruments using either a market approach that incorporates information from market transactions, or an income approach that discounts future expected cash flows to a present value amount. CMS Energy values its exchange-traded derivative contracts based on Level 1 quoted prices. CMS Energy’s and Consumers’ remaining derivatives are classified as Level 3.

The majority of derivatives classified as Level 3 are FTRs held by Consumers. Due to the lack of quoted pricing information, Consumers determines the fair value of its FTRs based on Consumers’ average historical settlements.

Assets and Liabilities Measured at Fair Value on a Recurring Basis Using Significant Level 3 Inputs

Presented in the following table are reconciliations of changes in the fair values of Level 3 assets and liabilities at CMS Energy and Consumers:

In Millions
Years Ended December 31	2016			2015			2014
CMS Energy, including Consumers
Balance at beginning of period		$	1		$	1		$	4
Total gains (losses) included in earnings1			1			(1)			-
Total gains (losses) offset through regulatory accounting			(2)			2			(15)
Purchases			2			1			(1)
Settlements			(1)			(2)			13
Balance at end of period		$	1		$	1		$	1
Consumers
Balance at beginning of period		$	1		$	1		$	4
Total gains included in earnings1			1			-			-
Total gains (losses) offset through regulatory accounting			(2)			2			(15)
Purchases			2			-			(1)
Settlements			(1)			(2)			13
Balance at end of period		$	1		$	1		$	1

¹ CMS Energy and Consumers record realized gains and losses for Level 3 recurring fair value measurements in earnings as a component of maintenance and other operating expenses or purchased and interchange power on their consolidated statements of income.