Financial Instruments

12 Months Ended

Dec. 31, 2011

Financial Instruments

9: FINANCIAL INSTRUMENTS

The carrying amounts of CMS Energy's and Consumers' cash, cash equivalents, current accounts and notes receivable, short-term investments, and current liabilities approximate their fair values because of their short-term nature. Presented in the following table are the cost or carrying amounts and fair values of CMS Energy's and Consumers' long-term financial instruments

In Millions

December 31	2011				2010
		Cost or Carrying Amount		Fair Value		Cost or Carrying Amount		Fair Value
CMS ENERGY, INCLUDING CONSUMERS
Securities held to maturity	$	7	$	7	$	5	$	6
Securities available for sale		113		113		90		90
Notes receivable1		480		504		386		407
Long-term debt2		7,073		8,025		7,174		7,861
CONSUMERS
Securities available for sale	$	81	$	109	$	64	$	90
Long-term debt3		4,326		4,882		4,525		4,891

¹  Includes current portion of notes receivable of $19 million at December 31, 2011 and $11 million at December 31, 2010.

²  Includes current portion of long-term debt of $1.0 billion at December 31, 2011 and $726 million at December 31, 2010.

³  Includes current portion of long-term debt of $339 million at December 31, 2011 and $37 million at December 31, 2010.

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. Fair values for impaired loans are estimated using discounted cash flows or underlying collateral values.

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 may be used that rely on internal assumptions and models. CMS Energy includes the value of the conversion features in estimating the fair value of its convertible debt, and incorporates, as appropriate, information on the market prices of CMS Energy common stock.

The effects of third-party credit enhancements are excluded from the fair value measurements of long-term debt. At December 31, 2011 and 2010, 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:

	2011								2010
December 31	Cost		Unrealized Gains		Unrealized Losses		Fair Value		Cost		Unrealized Gains		Unrealized Losses		Fair Value
	In Millions
CMS ENERGY, INCLUDING CONSUMERS
Available for sale
SERP
Mutual funds	$	113	$	—	$	—	$	113	$	62	$	—	$	—	$	62
State and municipal bonds		—		—		—		—		28		—		—		28
Held to maturity
Debt securities		7		—		—		7		5		1		—		6
CONSUMERS
Available for sale
SERP
Mutual funds	$	74	$	—	$	—	$	74	$	39	$	—	$	—	$	39
State and municipal bonds		—		—		—		—		17		—		—		17
CMS Energy common stock		7		28		—		35		8		26		—		34

The mutual funds classified as available for sale are fixed-income funds of varying maturities. During the year ended December 31, 2011, CMS Energy contributed $27 million to the SERP, which included a contribution of $20 million by Consumers. The contributions were used to acquire additional shares in the mutual funds. State and municipal bonds classified as available for sale consisted of investment grade state and municipal bonds. Debt securities classified as held to maturity consist primarily of mortgage-backed securities held by EnerBank, as well as state and municipal bonds held by EnerBank.

Presented in the following table is a summary of the sales activity for CMS Energy's and Consumers' investment securities:

In Millions

Years Ended December 31		2011		2010		2009
CMS ENERGY, INCLUDING CONSUMERS
Proceeds from sales of investment securities1	$	29	$	1	$	53
Realized gains		-		-		8
Net gains from AOCI recognized in net income		-		-		5
CONSUMERS
Proceeds from sales of investment securities1	$	19	$	-	$	32
Realized gains		-		-		5
Net gains from AOCI recognized in net income		-		-		3

¹  All proceeds related to sales of investments that were held within the SERP and classified as available for sale. Realized losses on these sales were less than $1 million for both CMS Energy and Consumers during each period.

In 2011, CMS Energy and Consumers sold their SERP investments in state and municipal bonds. The proceeds were reinvested in a mutual fund that holds fixed-income instruments of varying maturities. The activity during 2009 related primarily to the sale of a SERP investment in a mutual fund.

Consumers Energy Company [Member]

Financial Instruments

9: FINANCIAL INSTRUMENTS

The carrying amounts of CMS Energy's and Consumers' cash, cash equivalents, current accounts and notes receivable, short-term investments, and current liabilities approximate their fair values because of their short-term nature. Presented in the following table are the cost or carrying amounts and fair values of CMS Energy's and Consumers' long-term financial instruments

In Millions

December 31	2011				2010
		Cost or Carrying Amount		Fair Value		Cost or Carrying Amount		Fair Value
CMS ENERGY, INCLUDING CONSUMERS
Securities held to maturity	$	7	$	7	$	5	$	6
Securities available for sale		113		113		90		90
Notes receivable1		480		504		386		407
Long-term debt2		7,073		8,025		7,174		7,861
CONSUMERS
Securities available for sale	$	81	$	109	$	64	$	90
Long-term debt3		4,326		4,882		4,525		4,891

¹  Includes current portion of notes receivable of $19 million at December 31, 2011 and $11 million at December 31, 2010.

²  Includes current portion of long-term debt of $1.0 billion at December 31, 2011 and $726 million at December 31, 2010.

³  Includes current portion of long-term debt of $339 million at December 31, 2011 and $37 million at December 31, 2010.

: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. Fair values for impaired loans are estimated using discounted cash flows or underlying collateral values.

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 may be used that rely on internal assumptions and models. CMS Energy includes the value of the conversion features in estimating the fair value of its convertible debt, and incorporates, as appropriate, information on the market prices of CMS Energy common stock.

The effects of third-party credit enhancements are excluded from the fair value measurements of long-term debt. At December 31, 2011 and 2010, 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:

	2011								2010
December 31	Cost		Unrealized Gains		Unrealized Losses		Fair Value		Cost		Unrealized Gains		Unrealized Losses		Fair Value
	In Millions
CMS ENERGY, INCLUDING CONSUMERS
Available for sale
SERP
Mutual funds	$	113	$	—	$	—	$	113	$	62	$	—	$	—	$	62
State and municipal bonds		—		—		—		—		28		—		—		28
Held to maturity
Debt securities		7		—		—		7		5		1		—		6
CONSUMERS
Available for sale
SERP
Mutual funds	$	74	$	—	$	—	$	74	$	39	$	—	$	—	$	39
State and municipal bonds		—		—		—		—		17		—		—		17
CMS Energy common stock		7		28		—		35		8		26		—		34

The mutual funds classified as available for sale are fixed-income funds of varying maturities. During the year ended December 31, 2011, CMS Energy contributed $27 million to the SERP, which included a contribution of $20 million by Consumers. The contributions were used to acquire additional shares in the mutual funds. State and municipal bonds classified as available for sale consisted of investment grade state and municipal bonds. Debt securities classified as held to maturity consist primarily of mortgage-backed securities held by EnerBank, as well as state and municipal bonds held by EnerBank.

Presented in the following table is a summary of the sales activity for CMS Energy's and Consumers' investment securities:

In Millions

Years Ended December 31		2011		2010		2009
CMS ENERGY, INCLUDING CONSUMERS
Proceeds from sales of investment securities1	$	29	$	1	$	53
Realized gains		-		-		8
Net gains from AOCI recognized in net income		-		-		5
CONSUMERS
Proceeds from sales of investment securities1	$	19	$	-	$	32
Realized gains		-		-		5
Net gains from AOCI recognized in net income		-		-		3

¹  All proceeds related to sales of investments that were held within the SERP and classified as available for sale. Realized losses on these sales were less than $1 million for both CMS Energy and Consumers during each period.

In 2011, CMS Energy and Consumers sold their SERP investments in state and municipal bonds. The proceeds were reinvested in a mutual fund that holds fixed-income instruments of varying maturities. The activity during 2009 related primarily to the sale of a SERP investment in a mutual fund.