Financial Instruments

9 Months Ended

Sep. 30, 2017

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 excludes cash, cash equivalents, short-term financial instruments, and trade accounts receivable and payable whose carrying amounts approximate their fair values. 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, 2017															December 31, 2016
				Fair Value															Fair Value
	Carrying						Level									Carrying						Level
	Amount			Total			1			2			3			Amount			Total			1			2			3
CMS Energy, including Consumers
Assets
Long-term    receivables1		$	22		$	22		$	-		$	-		$	22		$	22		$	22		$	-		$	-		$	22
Notes    receivable2			1,382			1,479			-			-			1,479			1,326			1,415			-			-			1,415
Securities held    to maturity			16			16			-			16			-			13			13			-			13			-
Liabilities
Long-term    debt3			9,983			10,484			-			9,331			1,153			9,504			9,953			-			8,990			963
Long-term    payables4			18			18			-			-			18			17			17			-			-			17
Consumers
Assets
Long-term    receivables1		$	22		$	22		$	-		$	-		$	22		$	22		$	22		$	-		$	-		$	22
Notes    receivable5			46			46			-			-			46			45			45			-			-			45
Liabilities
Long-term    debt6			5,718			6,032			-			4,879			1,153			5,628			5,903			-			4,940			963

1Includes current accounts receivable of $14 million at September 30, 2017 and $12 million at December 31, 2016.

2Includes current portion of notes receivable of $228 million at September 30, 2017 and $219 million at December 31, 2016.

3Includes current portion of long-term debt of $959 million at September 30, 2017 and $864 million at December 31, 2016.

4Includes current portion of long-term payables of $1 million at September 30, 2017 and December 31, 2016.

5Includes current portion of notes receivable of $30 million at September 30, 2017 and $29 million at December 31, 2016.

6Includes current portion of long-term debt of $443 million at September 30, 2017 and $375 million at December 31, 2016.

At CMS Energy, notes receivable consist primarily 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, 2017 and December 31, 2016, 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, 2017												December 31, 2016
				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		$	142		$	3		$	-		$	145		$	141		$	-		$	-		$	141
Held to maturity
Debt securities			16			-			-			16			13			-			-			13
Consumers
Available for sale
DB SERP
Mutual funds		$	103		$	2		$	-		$	105		$	102		$	-		$	-		$	102
CMS Energy    common stock			2			19			-			21			4			29			-			33

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 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 excludes cash, cash equivalents, short-term financial instruments, and trade accounts receivable and payable whose carrying amounts approximate their fair values. 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, 2017															December 31, 2016
				Fair Value															Fair Value
	Carrying						Level									Carrying						Level
	Amount			Total			1			2			3			Amount			Total			1			2			3
CMS Energy, including Consumers
Assets
Long-term    receivables1		$	22		$	22		$	-		$	-		$	22		$	22		$	22		$	-		$	-		$	22
Notes    receivable2			1,382			1,479			-			-			1,479			1,326			1,415			-			-			1,415
Securities held    to maturity			16			16			-			16			-			13			13			-			13			-
Liabilities
Long-term    debt3			9,983			10,484			-			9,331			1,153			9,504			9,953			-			8,990			963
Long-term    payables4			18			18			-			-			18			17			17			-			-			17
Consumers
Assets
Long-term    receivables1		$	22		$	22		$	-		$	-		$	22		$	22		$	22		$	-		$	-		$	22
Notes    receivable5			46			46			-			-			46			45			45			-			-			45
Liabilities
Long-term    debt6			5,718			6,032			-			4,879			1,153			5,628			5,903			-			4,940			963

1Includes current accounts receivable of $14 million at September 30, 2017 and $12 million at December 31, 2016.

2Includes current portion of notes receivable of $228 million at September 30, 2017 and $219 million at December 31, 2016.

3Includes current portion of long-term debt of $959 million at September 30, 2017 and $864 million at December 31, 2016.

4Includes current portion of long-term payables of $1 million at September 30, 2017 and December 31, 2016.

5Includes current portion of notes receivable of $30 million at September 30, 2017 and $29 million at December 31, 2016.

6Includes current portion of long-term debt of $443 million at September 30, 2017 and $375 million at December 31, 2016.

At CMS Energy, notes receivable consist primarily 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, 2017 and December 31, 2016, 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, 2017												December 31, 2016
				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		$	142		$	3		$	-		$	145		$	141		$	-		$	-		$	141
Held to maturity
Debt securities			16			-			-			16			13			-			-			13
Consumers
Available for sale
DB SERP
Mutual funds		$	103		$	2		$	-		$	105		$	102		$	-		$	-		$	102
CMS Energy    common stock			2			19			-			21			4			29			-			33

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.