Plant, Property, and Equipment

12 Months Ended

Dec. 31, 2016

9:Plant, Property, and Equipment

Presented in the following table are details of CMS Energy’s and Consumers’ plant, property, and equipment:



In Millions
December 31	Estimated Depreciable Life in Years			2016			2015
CMS Energy, including Consumers
Plant, property, and equipment, gross
Consumers	5	-	125		$	20,838		$	18,797
Enterprises
Independent power production	3	-	30			141			95
Other	3	-	40			16			25
Other	1	-	7			15			26
Plant, property, and equipment, gross					$	21,010		$	18,943
Construction work in progress						761			1,509
Less accumulated depreciation and amortization						(6,056)			(5,747)
Total plant, property, and equipment1					$	15,715		$	14,705
Consumers
Plant, property, and equipment, gross
Electric
Generation	22	-	125		$	5,900		$	4,925
Distribution	20	-	75			7,149			6,809
Transmission	46	-	75			59			-
Other	5	-	50			1,137			1,039
Assets under capital leases and financing obligation						295			286
Gas
Distribution	28	-	80			3,806			3,497
Transmission	17	-	75			1,124			981
Underground storage facilities2	29	-	65			630			601
Other	5	-	50			708			630
Capital leases						15			14
Other non-utility property	8	-	51			15			15
Plant, property, and equipment, gross					$	20,838		$	18,797
Construction work in progress						759			1,467
Less accumulated depreciation and amortization						(5,994)			(5,676)
Total plant, property, and equipment1					$	15,603		$	14,588

For the year ended December 31, 2016, Consumers’ plant additions were $2.3 billion and plant retirements were $285 million. For the year ended December 31, 2015, Consumers’ plant additions were $1.4 billion and plant retirements were $187 million.

Underground storage includes base natural gas of $26 million at December 31, 2016 and 2015. Base natural gas is not subject to depreciation.

Capitalization: CMS Energy and Consumers record plant, property, and equipment at original cost when placed into service. The cost includes labor, material, applicable taxes, overhead such as pension and other benefits, and AFUDC, if applicable. Consumers’ plant, property, and equipment is generally recoverable through its general rate making process.

With the exception of utility property for which the remaining book value has been securitized, mothballed utility property stays in rate base and continues to be depreciated at the same rate as before the mothball period. When utility property is retired or otherwise disposed of in the ordinary course of business, Consumers records the original cost to accumulated depreciation, along with associated cost of removal, net of salvage. CMS Energy and Consumers recognize gains or losses on the retirement or disposal of non‑regulated assets in income. Consumers records cost of removal collected from customers, but not spent, as a regulatory liability.

Software: CMS Energy and Consumers capitalize the costs to purchase and develop internal-use computer software. These costs are expensed evenly over the estimated useful life of the internal-use computer software. If computer software is integral to computer hardware, then its cost is capitalized and depreciated with the hardware.

AFUDC: Consumers capitalizes AFUDC on regulated major construction projects, except pollution control facilities on its fossil-fuel-fired power plants. AFUDC represents the estimated cost of debt and authorized return-on-equity funds used to finance construction additions. Consumers records the offsetting credit as a reduction of interest for the amount representing the borrowed funds component and as other income for the equity funds component on the consolidated statements of income. When construction is completed and the property is placed in service, Consumers depreciates and recovers the capitalized AFUDC from customers over the life of the related asset. Presented in the following table are Consumers’ composite AFUDC capitalization rates:



Years Ended December 31	2016			2015			2014
AFUDC capitalization rate		7.0	%		7.1	%		7.2	%

Electric Transmission: In October 2015, Consumers became registered under NERC standards as a transmission owner, transmission planner, and transmission operator. Consumers had previously received approval from the MPSC in 2014 and from FERC in 2015 to reclassify $34 million of net plant assets from distribution to transmission. In March 2016, Consumers received FERC approval to begin collecting transmission revenues under MISO’s transmission tariff effective April 2016. Consumers completed the reclassification of plant assets from distribution to transmission in April 2016.

Electric Plant Purchase: In December 2015, Consumers completed the purchase of a 540‑MW natural gas-fueled electric generating plant located in Jackson, Michigan for $155 million from AlphaGen Power LLC and DPC Juniper, LLC, affiliates of JPMorgan Chase & Co. Consumers purchased the plant to help address its future capacity requirements.

Consumers accounted for the purchase as a business combination and prepared a valuation analysis of the assets acquired and liabilities assumed to determine their fair values. The cash consideration of $155 million was allocated based on the underlying fair values of the assets acquired, which were primarily plant, property, and equipment, and the liabilities assumed. No goodwill was recorded as a result of this purchase. The pro forma results of operations have not been presented, as the effects of the acquisition would not have been material to CMS Energy’s or Consumers’ consolidated results of operations in 2015.

Assets Under Capital Leases and Financing Obligation: Presented in the following table are further details about changes in Consumers’ assets under capital leases and financing obligation:



In Millions
Years Ended December 31	2016			2015
Consumers
Balance at beginning of period		$	300		$	295
Additions			13			17
Net retirements and other adjustments			(3)			(12)
Balance at end of period		$	310		$	300

Assets under capital leases and financing obligation are presented as gross amounts. Accumulated amortization of assets under capital leases and financing obligation was $172 million at December 31, 2016 and $152 million at December 31, 2015 for Consumers.

Depreciation and Amortization: Presented in the following table are further details about CMS Energy’s and Consumers’ accumulated depreciation and amortization:



In Millions
December 31	2016			2015
CMS Energy, including Consumers
Utility plant assets		$	5,993		$	5,674
Non-utility plant assets			63			73
Consumers
Utility plant assets		$	5,993		$	5,674
Non-utility plant assets			1			2

Consumers depreciates utility property on an asset-group basis, in which it applies a single MPSC-approved depreciation rate to the gross investment in a particular class of property within the electric and gas segments. Consumers performs depreciation studies periodically to determine appropriate group lives. Presented in the following table are the composite depreciation rates for Consumers’ segment properties:



Years Ended December 31	2016			2015			2014
Electric utility property		3.9	%		3.5	%		3.5	%
Gas utility property		2.9			2.8			2.8
Other property		9.8			8.7			7.7

CMS Energy and Consumers record property repairs and minor property replacement as maintenance expense. CMS Energy and Consumers record planned major maintenance activities as operating expense unless the cost represents the acquisition of additional long-lived assets or the replacement of an existing long-lived asset.

Presented in the following table are the components of CMS Energy’s and Consumers’ depreciation and amortization expense:



In Millions
Years Ended December 31	2016			2015			2014
CMS Energy, including Consumers
Depreciation expense – plant, property, and equipment		$	687		$	591		$	551
Amortization expense
Software			96			70			50
Other intangible assets			3			4			4
Securitized regulatory assets			25			83			75
Other regulatory assets			-			2			5
Total depreciation and amortization expense		$	811		$	750		$	685
Consumers
Depreciation expense – plant, property, and equipment		$	680		$	586		$	546
Amortization expense
Software			95			69			49
Other intangible assets			3			4			3
Securitized regulatory assets			25			83			75
Other regulatory assets			-			2			5
Total depreciation and amortization expense		$	803		$	744		$	678

Presented in the following table is CMS Energy’s and Consumers’ estimated amortization expense on intangible assets for each of the next five years:



In Millions
	2017			2018			2019			2020			2021
CMS Energy, including Consumers
Intangible asset amortization expense		$	115		$	120		$	112		$	95		$	77
Consumers
Intangible assets amortization expense		$	114		$	119		$	111		$	94		$	77

Intangible Assets: Included in net plant, property, and equipment are intangible assets. Presented in the following table are details about CMS Energy’s and Consumers’ intangible assets:



In Millions
					December 31, 2016						December 31, 2015
Description	Amortization Life in Years				Gross Cost1			Accumulated Amortization			Gross Cost1			Accumulated Amortization
CMS Energy, including Consumers
Software development		1	-	15		$	853		$	367		$	734		$	294
Rights of way		50	-	75			155			48			153			46
Franchises and consents		5	-	30			15			8			15			8
Leasehold improvements		various2					7			6			7			5
Other intangibles		various					22			15			21			15
Total						$	1,052		$	444		$	930		$	368
Consumers
Software development		3	-	15		$	845		$	363		$	729		$	291
Rights of way		50	-	75			155			48			153			46
Franchises and consents		5	-	30			15			8			15			8
Leasehold improvements		various2					7			6			7			5
Other intangibles		various					21			15			21			15
Total						$	1,043		$	440		$	925		$	365

For the year ended December 31, 2016, Consumers’ intangible asset additions were $141 million and intangible asset retirements were $23 million. For the year ended December 31, 2015, Consumers’ intangible asset additions were $140 million and there were no retirements.

Leasehold improvements are amortized over the life of the lease, which may change whenever the lease is renewed or extended.

Jointly Owned Regulated Utility Facilities

Presented in the following table are Consumers’ investments in jointly owned regulated utility facilities at December 31, 2016:



In Millions, Except Ownership Share
	J.H. Campbell Unit 3				Ludington				Distribution
Ownership share			93.3	%			51.0	%			various
Utility plant in service		$	1,648			$	291			$	206
Accumulated depreciation			(529)				(150)				(63)
Construction work in progress			13				157				7
Net investment		$	1,132			$	298			$	150

Consumers includes its share of the direct expenses of the jointly owned plants in operating expenses. Consumers shares operation, maintenance, and other expenses of these jointly owned utility facilities in proportion to each participant’s undivided ownership interest. Consumers is required to provide only its share of financing for the jointly owned utility facilities.

Consumers Energy Company [Member]

Plant, Property, and Equipment