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Income Taxes (Tables)

12 Months Ended

Dec. 31, 2011

Schedule of Effective Income Tax Rate Reconciliation


In Millions, Except Tax Rate
Years Ended December 31		2011			2010			2009
CMS ENERGY, INCLUDING CONSUMERS
Income from continuing operations before income taxes	$	604		$	587		$	324
Income tax expense at statutory rate		211			205			114
Increase (decrease) in income taxes from:
MCIT law change, net of federal benefit¹		(32	)		-			-
State and local income taxes, net of federal benefit		21			26			21
Income tax credit amortization		(4	)		(4	)		(4	)
Medicare Part D exempt income, net of law change²		(6	)		(6	)		(6	)
Plant basis differences		(1	)		2			1
Tax credits, net		(1	)		(3	)		(9	)
Valuation allowance		1			1			2
Other, net		2			3			(4	)
Income tax expense	$	191		$	224		$	115
Effective tax rate		31.6	%		38.2	%		35.5	%
CONSUMERS
Income from continuing operations before income taxes	$	734		$	688		$	456
Income tax expense at statutory rate		257			241			160
Increase (decrease) in income taxes from:
State and local income taxes, net of federal benefit		24			26			19
Income tax credit amortization		(4	)		(4	)		(4	)
Medicare Part D exempt income		(6	)		(9	)		(6	)
Plant basis differences		(1	)		2			1
Tax credits, net		(1	)		(3	)		(7	)
Other, net		(2	)		1			-
Income tax expense	$	267		$	254		$	163
Effective tax rate		36.4	%		36.9	%		35.7	%

CMS Energy's effective tax rate for the year ended December 31, 2011 was reduced due to a one-time non-cash reduction in tax expense resulting from a change in Michigan tax law. In May 2011, Michigan enacted the MCIT, effective January 1, 2012. The MCIT, a simplified six percent corporate income tax, will replace the MBT, which is a complex multi-part business tax. Both the MBT and the MCIT are income taxes for financial reporting purposes, for which deferred income tax assets and liabilities are recorded. CMS Energy and Consumers remeasured their Michigan deferred income tax assets and liabilities at June 30, 2011 to reflect this change in law. Unlike the MBT, the MCIT does not allow future tax deductions to offset the book-tax differences that existed upon enactment of the tax. Due primarily to the elimination of these future tax deductions, Consumers has eliminated $128 million of net deferred tax assets associated with its utility book-tax temporary differences, recognizing a $128 million regulatory asset (not including the effects of income tax gross-ups), and in addition to the amounts related to Consumers, CMS Energy eliminated $32 million of net deferred tax liabilities associated with its non-utility book-tax temporary differences, recognizing a $32 million deferred income tax benefit.

For the year ended December 31, 2010, CMS Energy recognized deferred tax expense of $3 million to reflect the enactment of the Health Care Acts. The law change prospectively repealed the tax deduction for the portion of the health care costs reimbursed by the Medicare Part D subsidy for taxable years beginning after December 31, 2012. Consumers has recorded a regulatory asset of $98 million at December 31, 2011 to reflect the expected recovery of additional future income taxes.

Significant Components of Income Tax Expense Table


Years Ended December 31	2011			2010			2009
	In Millions

CMS ENERGY, INCLUDING CONSUMERS
Current income taxes
Federal	$	2		$	(21	)	$	(12	)
State and local		24			26			17

	$	26		$	5		$	5

Deferred income taxes
Federal	$	207		$	210		$	86
State and local		11			13			28
MCIT law change		(49	)		—			—

	$	169		$	223		$	114

Deferred income tax credit, net		(4	)		(4	)		(4	)

Tax expense	$	191		$	224		$	115

CONSUMERS
Current income taxes
Federal	$	74		$	(17	)	$	72
State and local		32			25			24

	$	106		$	8		$	96

Deferred income taxes
Federal	$	159		$	236		$	66
State and local		6			14			5

	$	165		$	250		$	71

Deferred income tax credit, net		(4	)		(4	)		(4	)

Tax expense	$	267		$	254		$	163

Principal Components of Deferred Income Tax Assets Table


In Millions
December 31		2011			2010
CMS ENERGY, INCLUDING CONSUMERS
Employee benefits	$	(126	)	$	(76	)
Gas inventory		(155	)		(177	)
Plant, property, and equipment		(1,668	)		(1,382	)
Regulatory tax liability		70			162
Reserves and accruals		86			101
Securitized costs		(96	)		(120	)
Tax loss and credit carryforwards		806			996
Other		92			(103	)
	$	(991	)	$	(599	)
Less valuation allowance		(20	)		(19	)
Total net deferred income tax liabilities	$	(1,011	)	$	(618	)
Deferred tax assets, net of valuation reserves	$	1,034		$	1,240
Deferred tax liabilities		(2,045	)		(1,858	)
Total net deferred income tax liabilities	$	(1,011	)	$	(618	)
CONSUMERS
Employee benefits	$	(158	)	$	(110	)
Gas inventory		(155	)		(177	)
Plant, property, and equipment		(1,742	)		(1,464	)
Regulatory tax liability		70			162
Reserves and accruals		44			45
Securitized costs		(96	)		(120	)
Tax loss and credit carryforwards		67			281
Other		81			(115	)
	$	(1,889	)	$	(1,498	)
Less valuation allowance		(1	)		-
Total net deferred income tax liabilities	$	(1,890	)	$	(1,498	)
Deferred tax assets, net of valuation reserves	$	261		$	488
Deferred tax liabilities		(2,151	)		(1,986	)
Total net deferred income tax liabilities	$	(1,890	)	$	(1,498	)

Loss and Credit Carryforwards Table


In Millions
	Gross Amount		Tax Attribute		Expiration
CMS ENERGY, INCLUDING CONSUMERS
Federal net operating loss carryforward		$ 1,403		$ 491		2023 – 2031
Local net operating loss carryforwards		439		4		2023 – 2031
State capital loss carryforward		26		2		2014 – 2015
Alternative minimum tax credits		269		269		No expiration
General business credits		40		40		2012 – 2031
Total tax attributes				$ 806
CONSUMERS
Federal net operating loss carryforward		$ 134		$ 47		2023 – 2031
State capital loss carryforward		10		1		2014 – 2015
Alternative minimum tax credits		5		5		No expiration
General business credits		14		14		2012 – 2031
Total tax attributes				$ 67

Reconciliation of Beginning and Ending Uncertain Tax Benefits Table


In Millions
Years Ended December 31	2011		2010		2009
CMS ENERGY, INCLUDING CONSUMERS
Balance at beginning of period	$ 4		$ 62		$ 65
Reductions for prior year tax positions	(1	)	(58	)	(6	)
Additions for prior year tax positions	1		-		2
Additions for current year tax positions	-		-		1
Balance at end of period	$ 4		$ 4		$ 62
CONSUMERS
Balance at beginning of period	$ 3		$ 57		$ 55
Reductions for prior year tax positions	-		(54	)	(1	)
Additions for prior year tax positions	1		-		2
Additions for current year tax positions	-		-		1
Balance at end of period	$ 4		$ 3		$ 57

Consumers Energy Company [Member]

Schedule of Effective Income Tax Rate Reconciliation


In Millions, Except Tax Rate
Years Ended December 31		2011			2010			2009
CMS ENERGY, INCLUDING CONSUMERS
Income from continuing operations before income taxes	$	604		$	587		$	324
Income tax expense at statutory rate		211			205			114
Increase (decrease) in income taxes from:
MCIT law change, net of federal benefit¹		(32	)		-			-
State and local income taxes, net of federal benefit		21			26			21
Income tax credit amortization		(4	)		(4	)		(4	)
Medicare Part D exempt income, net of law change²		(6	)		(6	)		(6	)
Plant basis differences		(1	)		2			1
Tax credits, net		(1	)		(3	)		(9	)
Valuation allowance		1			1			2
Other, net		2			3			(4	)
Income tax expense	$	191		$	224		$	115
Effective tax rate		31.6	%		38.2	%		35.5	%
CONSUMERS
Income from continuing operations before income taxes	$	734		$	688		$	456
Income tax expense at statutory rate		257			241			160
Increase (decrease) in income taxes from:
State and local income taxes, net of federal benefit		24			26			19
Income tax credit amortization		(4	)		(4	)		(4	)
Medicare Part D exempt income		(6	)		(9	)		(6	)
Plant basis differences		(1	)		2			1
Tax credits, net		(1	)		(3	)		(7	)
Other, net		(2	)		1			-
Income tax expense	$	267		$	254		$	163
Effective tax rate		36.4	%		36.9	%		35.7	%

Significant Components of Income Tax Expense Table


Years Ended December 31	2011			2010			2009
	In Millions

CMS ENERGY, INCLUDING CONSUMERS
Current income taxes
Federal	$	2		$	(21	)	$	(12	)
State and local		24			26			17

	$	26		$	5		$	5

Deferred income taxes
Federal	$	207		$	210		$	86
State and local		11			13			28
MCIT law change		(49	)		—			—

	$	169		$	223		$	114

Deferred income tax credit, net		(4	)		(4	)		(4	)

Tax expense	$	191		$	224		$	115

CONSUMERS
Current income taxes
Federal	$	74		$	(17	)	$	72
State and local		32			25			24

	$	106		$	8		$	96

Deferred income taxes
Federal	$	159		$	236		$	66
State and local		6			14			5

	$	165		$	250		$	71

Deferred income tax credit, net		(4	)		(4	)		(4	)

Tax expense	$	267		$	254		$	163

Principal Components of Deferred Income Tax Assets Table


In Millions
December 31		2011			2010
CMS ENERGY, INCLUDING CONSUMERS
Employee benefits	$	(126	)	$	(76	)
Gas inventory		(155	)		(177	)
Plant, property, and equipment		(1,668	)		(1,382	)
Regulatory tax liability		70			162
Reserves and accruals		86			101
Securitized costs		(96	)		(120	)
Tax loss and credit carryforwards		806			996
Other		92			(103	)
	$	(991	)	$	(599	)
Less: valuation allowance		(20	)		(19	)
Total net deferred income tax liabilities	$	(1,011	)	$	(618	)
Deferred tax assets, net of valuation reserves	$	1,034		$	1,240
Deferred tax liabilities		(2,045	)		(1,858	)
Total net deferred income tax liabilities	$	(1,011	)	$	(618	)
CONSUMERS
Employee benefits	$	(158	)	$	(110	)
Gas inventory		(155	)		(177	)
Plant, property, and equipment		(1,742	)		(1,464	)
Regulatory tax liability		70			162
Reserves and accruals		44			45
Securitized costs		(96	)		(120	)
Tax loss and credit carryforwards		67			281
Other		81			(115	)
	$	(1,889	)	$	(1,498	)
Less: valuation allowance		(1	)		-
Total net deferred income tax liabilities	$	(1,890	)	$	(1,498	)
Deferred tax assets, net of valuation reserves	$	261		$	488
Deferred tax liabilities		(2,151	)		(1,986	)
Total net deferred income tax liabilities	$	(1,890	)	$	(1,498	)

Loss and Credit Carryforwards Table


In Millions
	Gross Amount		Tax Attribute		Expiration
CMS ENERGY, INCLUDING CONSUMERS
Federal net operating loss carryforward		$ 1,403		$ 491		2023 – 2031
Local net operating loss carryforwards		439		4		2023 – 2031
State capital loss carryforward		26		2		2014 – 2015
Alternative minimum tax credits		269		269		No expiration
General business credits		40		40		2012 – 2031
Total tax attributes				$ 806
CONSUMERS
Federal net operating loss carryforward		$ 134		$ 47		2023 – 2031
State capital loss carryforward		10		1		2014 – 2015
Alternative minimum tax credits		5		5		No expiration
General business credits		14		14		2012 – 2031
Total tax attributes				$ 67

Reconciliation of Beginning and Ending Uncertain Tax Benefits Table


In Millions
Years Ended December 31	2011		2010		2009
CMS ENERGY, INCLUDING CONSUMERS
Balance at beginning of period	$ 4		$ 62		$ 65
Reductions for prior year tax positions	(1	)	(58	)	(6	)
Additions for prior year tax positions	1		-		2
Additions for current year tax positions	-		-		1
Balance at end of period	$ 4		$ 4		$ 62
CONSUMERS
Balance at beginning of period	$ 3		$ 57		$ 55
Reductions for prior year tax positions	-		(54	)	(1	)
Additions for prior year tax positions	1		-		2
Additions for current year tax positions	-		-		1
Balance at end of period	$ 4		$ 3		$ 57

- Definition

Tabular disclosure of tax positions taken in the tax returns filed or to be filed for which it is more likely than not that the tax position will not be sustained upon examination by taxing authorities (i.e., uncertain tax positions) and other types of income tax contingencies, including: (1) the policy on classification of interest and penalties; (2) a tabular reconciliation of the total amounts of unrecognized tax benefits at the beginning and end of the period; the total amount(s) of: (3) unrecognized tax benefits that, if recognized, would affect the effective tax rate, and (4) interest and penalties recognized in each of the income statement and balance sheet; (5) for positions for which it is reasonably possible that the total amounts unrecognized will significantly change within 12 months of the reporting date the: (i) nature of the uncertainty, (ii) nature of the event that could occur that would cause the change, and (iii) an estimate of the range of the reasonably possible change or a statement that an estimate of the range cannot be made; and (6) a description of tax years that remain subject to examination by major tax jurisdictions.

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