CONSUMERS ENERGY CO
( CMS PR A )
10−K
Annual report pursuant to section 13 and 15(d)
Filed on 2/24/2011
Filed Period 12/31/2010
Table of Contents
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10−K
⌧
o
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2010
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___ to ___
Commission
Registrant; State of Incorporation;
Address;
and
Telephone
Number
IRS Employer
1−9513
CMS ENERGY CORPORATION
(A Michigan Corporation)
One Energy Plaza, Jackson, Michigan 49201
(517) 788−0550
38−2726431
1−5611
CONSUMERS ENERGY COMPANY
(A Michigan Corporation)
One Energy Plaza, Jackson, Michigan 49201
(517) 788−0550
38−0442310
File
Number
Identification
No.
Securities registered pursuant to Section 12(b) of the Act:
Registrant
CMS Energy Corporation
Consumers Energy Company
Name of Each Exchange
on
Which
Registered
Title
of
Class
Common Stock, $.01 par value
Preferred Stocks, $100 par value: $4.16 Series,
$4.50 Series
New York Stock Exchange
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the Registrant is a well−known seasoned issuer, as defined in Rule 405 of the Securities Act.
CMS Energy Corporation: Yes ⌧
No o
Consumers Energy Company: Yes ⌧
No o
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
CMS Energy Corporation: Yes o
No ⌧
Consumers Energy Company: Yes o
No ⌧
Indicate by check mark whether the Registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrants were
required to file such reports), and (2) have been subject to such filing requirements for the past 90 days.
CMS Energy Corporation: Yes ⌧
No o
Consumers Energy Company: Yes ⌧
No o
Indicate by check mark whether the Registrants have submitted electronically and posted on their corporate Web sites, if any,
every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S−T (§ 232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the Registrants were required to submit and post
such files).
CMS Energy Corporation: Yes ⌧
No o
Consumers Energy Company: Yes ⌧
No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S−K is not contained herein, and
will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10−K or any amendment to this Form 10−K. [
]
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non−accelerated filer, or a
smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company”
in Rule 12b−2 of the Exchange Act.
CMS Energy Corporation: Large accelerated filer ⌧
reporting company o
Consumers Energy Company: Large accelerated filer o
reporting company o
Accelerated filer o
Non−Accelerated filer o Smaller
Accelerated filer o
Non−Accelerated filer ⌧ Smaller
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b−2 of the Exchange Act).
CMS Energy Corporation: Yes o
No ⌧
Consumers Energy Company: Yes o
No ⌧
The aggregate market value of CMS Energy voting and non−voting common equity held by non−affiliates was $3.326 billion
for the 227,027,288 CMS Energy Common Stock shares outstanding on June 30, 2010 based on the closing sale price of
$14.65 for CMS Energy Common Stock, as reported by the New York Stock Exchange on such date.
There were 252,140,618 shares of CMS Energy Common Stock outstanding on February 10, 2011. On February 24, 2011,
CMS Energy held all voting and non−voting common equity of Consumers. Documents incorporated by reference in Part III:
CMS Energy’s proxy statement and Consumers’ information statement relating to the 2011 annual meeting of stockholders to
be held May 20, 2011.
CMS Energy Corporation
Consumers Energy Company
Annual Reports on Form 10−K to the Securities and Exchange Commission for the Year Ended
December 31, 2010
TABLE OF CONTENTS
Page
Glossary
3
Filing Format
10
Forward−Looking Statements and Information
10
PART I:
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
14
32
41
41
41
41
PART II:
Item 5.
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Removed and Reserved
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Selected Financial Data
Management's Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
42
43
43
43
44
174
174
175
PART III:
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services
176
177
177
177
177
PART IV:
Item 15.
Exhibits and Financial Statement Schedules
EX−10.34
EX−10.40
EX−12.1
EX−12.2
EX−21.1
EX−23.1
EX−23.2
EX−24.1
EX−24.2
EX−31.1
EX−31.2
EX−31.3
EX−31.4
EX−32.1
EX−32.2
EX−99.1
EX−101 INSTANCE DOCUMENT
EX−101 SCHEMA DOCUMENT
EX−101 CALCULATION LINKBASE DOCUMENT
EX−101 LABELS LINKBASE DOCUMENT
EX−101 PRESENTATION LINKBASE DOCUMENT
EX−101 DEFINITION LINKBASE DOCUMENT
177
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Table of Contents
GLOSSARY
Certain terms used in the text and financial statements are defined below.
2008 Energy Legislation
Comprehensive energy reform package enacted in October 2008 with the
approval of Michigan Senate Bill 213 and Michigan House Bill 5524
ABATE
Association of Businesses Advocating Tariff Equity
ABO
Accumulated Benefit Obligation. The liabilities of a pension plan based on
service and pay to date. This differs from the PBO that is typically disclosed in
that it does not reflect expected future salary increases.
AFUDC
Allowance for borrowed and equity funds used during construction
AOCI
Accumulated Other Comprehensive Income (Loss)
ARO
Asset retirement obligation
ASU
FASB Accounting Standards Update
Bay Harbor
A residential/commercial real estate area located near Petoskey, Michigan. In
2002, CMS Energy sold its interest in Bay Harbor.
bcf
Billion cubic feet of gas
Big Rock
Big Rock Point nuclear power plant, formerly owned by Consumers
Btu
British thermal unit; one Btu equals the amount of energy required to raise the
temperature of one pound of water by one degree Fahrenheit
CAIR
The Clean Air Interstate Rule
Cantera Gas Company
Cantera Gas Company LLC, a non−affiliated company
Cantera Natural Gas, Inc.
Cantera Natural Gas, Inc., a non−affiliated company that purchased CMS Field
Services
CAO
Chief Accounting Officer
CATR
The Clean Air Transport Rule
CCB
Coal combustion by−product
CEO
Chief Executive Officer
CFO
Chief Financial Officer
C&HR Committees
The Compensation and Human Resources Committees of the Boards of Directors
of CMS Energy and Consumers
City−gate contract
An arrangement made for the point at which a local distribution company
physically receives gas from a supplier or pipeline
CKD
Cement kiln dust
Clean Air Act
Federal Clean Air Act, as amended
Clean Water Act
Federal Water Pollution Control Act
CMS Capital
CMS Capital, L.L.C., a wholly owned subsidiary of CMS Energy
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CMS Electric & Gas
CMS Electric & Gas, L.L.C., a wholly owned subsidiary of CMS International
Ventures
CMS Energy
CMS Energy Corporation, the parent of Consumers and CMS Enterprises
CMS Energy Brasil S.A.
CMS Energy Brasil S.A., a former wholly owned subsidiary of CMS Electric &
Gas
CMS Enterprises
CMS Enterprises Company, a wholly owned subsidiary of CMS Energy
CMS ERM
CMS Energy Resource Management Company, formerly CMS MST, a wholly
owned subsidiary of CMS Enterprises
CMS Field Services
CMS Field Services, Inc., a former wholly owned subsidiary of CMS Gas
Transmission
CMS Gas Transmission
CMS Gas Transmission Company, a wholly owned subsidiary of CMS
Enterprises
CMS Generation
CMS Generation Co., a former wholly owned subsidiary of CMS Enterprises
CMS Generation San Nicolas Company
CMS Generation San Nicolas Company, a company in which CMS Enterprises
formerly owned a 0.1 percent interest
CMS International Ventures
CMS International Ventures LLC, a subsidiary of CMS Enterprises in which
CMS Enterprises owns a 61.49 percent interest and CMS Gas Transmission owns
a 37.01 percent interest
CMS Land
CMS Land Company, a wholly owned subsidiary of CMS Capital
CMS MST
CMS Marketing, Services and Trading Company, a wholly owned subsidiary of
CMS Enterprises, whose name was changed to CMS ERM effective January
2004
CMS Oil and Gas
CMS Oil and Gas Company, a former wholly owned subsidiary of CMS
Enterprises
CMS Viron
CMS Viron Corporation, a wholly owned subsidiary of CMS ERM
Consumers
Consumers Energy Company, a wholly owned subsidiary of CMS Energy
Consumers Funding
Consumers Funding LLC, a wholly owned consolidated bankruptcy−remote
subsidiary of Consumers and special−purpose entity organized for the sole
purpose of purchasing and owning Securitization property, assuming
Securitization bonds, and pledging its interest in Securitization property to a
trustee to collateralize the Securitization bonds
Customer Choice Act
Customer Choice and Electricity Reliability Act, a Michigan statute
D.C.
District of Columbia
DCCP
Defined Company Contribution Plan
DC SERP
Defined Contribution SERP
Detroit Edison
The Detroit Edison Company, a non−affiliated company
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DIG
Dearborn Industrial Generation, L.L.C., a wholly owned subsidiary of Dearborn
Industrial Energy, L.L.C., a wholly owned subsidiary of CMS Energy
Dodd−Frank Act
Dodd−Frank Wall Street Reform and Consumer Protection Act, enacted in July
2010
DOE
U.S. Department of Energy
DOJ
U.S. Department of Justice
EBITDA
Earnings Before Interest, Taxes, Depreciation, and Amortization
EISP
Executive Incentive Separation Plan
EnerBank
EnerBank USA, a wholly owned subsidiary of CMS Capital
Entergy
Entergy Corporation, a non−affiliated company
EPA
U.S. Environmental Protection Agency
EPS
Earnings per share
Exchange Act
Securities Exchange Act of 1934, as amended
Exeter
Exeter Energy Limited Partnership, a limited partnership owned directly and
indirectly by HYDRA−CO
FASB
Financial Accounting Standards Board
FDIC
Federal Deposit Insurance Corporation
FERC
The Federal Energy Regulatory Commission
First Mortgage Bond Indenture
The indenture dated as of September 1, 1945 between Consumers and The Bank
of New York Mellon, as Trustee, as amended and supplemented
FLI Liquidating Trust
Trust formed in Missouri bankruptcy court to accomplish the liquidation of
Farmland Industries, Inc., a non−affiliated entity
FMB
First mortgage bond
FOV
Finding of Violation
GAAP
U.S. Generally Accepted Accounting Principles
GasAtacama
GasAtacama Holding Limited, a limited liability partnership that manages
GasAtacama S.A., which includes Atacama Finance Company, an integrated
natural gas pipeline and electric generating plant in Argentina and Chile, in
which CMS International Ventures formerly owned a 50 percent interest
GCC
Gas Customer Choice, which allows gas customers to purchase gas from
alternative suppliers
GCR
Gas cost recovery
Genesee
Genesee Power Station Limited Partnership, a VIE in which HYDRA−CO has a
50 percent interest
Grayling
Grayling Generating Station Limited Partnership, a VIE in which HYDRA−CO
has a 50 percent interest
GWh
Gigawatt−hour (a unit of energy equal to one million kWh)
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Health Care Acts
Comprehensive health care reform enacted in March 2010, comprising the
Patient Protection and Affordable Care Act and the related Health Care and
Education Reconciliation Act
HYDRA−CO
HYDRA−CO Enterprises, Inc., a wholly owned subsidiary of CMS Enterprises
IPP
Independent power producer or independent power production
IRS
Internal Revenue Service
ISFSI
Independent spent fuel storage installation
kilovolts
Thousand volts (unit used to measure the difference in electrical pressure along a
current)
kVA
Thousand volt−amperes (unit used to reflect the electrical power capacity rating
of equipment or a system)
kWh
Kilowatt−hour (a unit of energy equal to one thousand watt−hours)
LIBOR
The London Interbank Offered Rate
Lucid Energy
Lucid Energy LLC, a non−affiliated company
Ludington
Ludington pumped storage plant, jointly owned by Consumers and Detroit
Edison
Marathon
Marathon Oil Company, Marathon E.G. Holding, Marathon E.G. Alba, Marathon
E.G. LPG, Marathon Production LTD, and Alba Associates, LLC, each a
non−affiliated company
MCV Facility
A 1,500 MW natural gas−fueled, combined−cycle cogeneration facility operated
by the MCV Partnership
MCV Partnership
Midland Cogeneration Venture Limited Partnership
MCV PPA
The PPA between Consumers and the MCV Partnership, with a 35−year term
commencing in March 1990, as amended and restated in an agreement dated as
of June 9, 2008 between Consumers and the MCV Partnership
MD&A
Management’s Discussion and Analysis
MDL
A pending multi−district litigation case in Nevada
MDNRE
Michigan Department of Natural Resources and Environment, which, effective
January 17, 2010, is the successor to the Michigan Department of Environmental
Quality and the Michigan Department of Natural Resources
MEI
Michigan Energy Investments LLC, an affiliate of Lucid Energy and a
non−affiliated company
METC
Michigan Electric Transmission Company, LLC, a non−affiliated company
MGP
Manufactured gas plant
Midwest Energy Market
An energy market developed by the MISO to provide day−ahead and real−time
market information and centralized dispatch for market participants
MISO
The Midwest Independent Transmission System Operator, Inc.
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MPSC
Michigan Public Service Commission
MRV
Market−Related Value of Plan assets
MW
Megawatt (a unit of power equal to one million watts)
MWh
Megawatt−hour (a unit of energy equal to one million watt−hours)
NAV
Net asset value
NERC
The North American Electric Reliability Corporation, a non−affiliated company
NOMECO
CMS NOMECO Oil & Gas Co., a former wholly owned subsidiary of CMS
Enterprises
NOV
Notice of Violation
NPDES
National Pollutant Discharge Elimination System
NREPA
Part 201 of Michigan Natural Resources and Environmental Protection Act, a
statute that covers environmental activities including remediation
NSR
New Source Review, a construction−permitting program under the Clean Air Act
NYMEX
The New York Mercantile Exchange
OPEB
Postretirement benefit plans other than pensions
Palisades
Palisades nuclear power plant, sold by Consumers to Entergy in 2007
Panhandle
Panhandle Eastern Pipe Line Company, including its wholly owned subsidiaries
Trunkline, Pan Gas Storage Company, Panhandle Storage Company, and
Panhandle Holding Company, a former wholly owned subsidiary of CMS Gas
Transmission
PBO
Projected benefit obligation
PCB
Polychlorinated biphenyl
Pension Plan
Trusteed, non−contributory, defined benefit pension plan of CMS Energy,
Consumers, and Panhandle
PISP
Performance Incentive Stock Plan
PPA
Power purchase agreement
PSCR
Power supply cost recovery
PSD
Prevention of Significant Deterioration
PURPA
Public Utility Regulatory Policies Act of 1978
RCP
Resource Conservation Plan
REC
Renewable energy credit established under the 2008 Energy Legislation
ReEnergy
ReEnergy Sterling LLC, a non−affiliated company
RMRR
Routine maintenance, repair, and replacement
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ROA
Retail Open Access, which allows electric generation customers to choose
alternative electric suppliers pursuant to the Customer Choice Act
S&P
Standard and Poor’s Financial Services LLC, which includes Standard and Poor’s
Ratings Services
SEC
U.S. Securities and Exchange Commission
Securitization
A financing method authorized by statute and approved by the MPSC which
allows a utility to sell its right to receive a portion of the rate payments received
from its customers for the repayment of securitization bonds issued by a
special−purpose entity affiliated with such utility
SENECA
Sistema Electrico del Estado Nueva Esparta C.A., a former wholly owned
subsidiary of CMS International Ventures
SERP
Supplemental Executive Retirement Plan
SFAS
Statement of Financial Accounting Standards
Sherman Act
Sherman Antitrust Act, enacted in 1890
Stranded costs
Costs incurred by utilities in order to serve their customers in a regulated
monopoly environment, which may not be recoverable in a competitive
environment because of customers leaving their systems and ceasing to pay for
their costs. These costs could include owned and purchased generation and
regulatory assets.
Superfund
Comprehensive Environmental Response, Compensation and Liability Act
Supplemental Environmental Projects
Environmentally beneficial projects that a party agrees to undertake as part of the
settlement of an enforcement action, but which the party is not otherwise legally
required to perform
TAQA
Abu Dhabi National Energy Company, a subsidiary of Abu Dhabi Water and
Electricity Authority, a non−affiliated company
Terminal Rental Adjustment Clause
A provision of a leasing agreement which permits or requires the rental price to
be adjusted upward or downward by reference to the amount realized by the
lessor under the agreement upon sale or other disposition of formerly leased
property
T.E.S. Filer City
T.E.S. Filer City Station Limited Partnership, a VIE in which HYDRA−CO has a
50 percent interest
TGN
A natural gas transportation and pipeline business located in Argentina, in which
CMS Gas Transmission formerly owned a 23.54 percent interest
Title V
A federal program under the Clean Air Act designed to standardize air quality
permits and the permitting process for major sources of emissions across the U.S.
Trunkline
Trunkline Gas Company, LLC, a former wholly owned subsidiary of CMS
Panhandle Holding, LLC
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Trust Preferred Securities
Securities representing an undivided beneficial interest in the assets of statutory
business trusts, the interests of which have a preference with respect to certain
trust distributions over the interests of either CMS Energy or Consumers, as
applicable, as owner of the common beneficial interests of the trusts
TSR
Total shareholder return
TSU
Texas Southern University, a non−affiliated entity
Union
Utility Workers Union of America, AFL−CIO
U.S.
United States
VEBA
Voluntary employees’ beneficiary association trusts accounts established
specifically to set aside employer−contributed assets to pay for future expenses of
the OPEB plan
VIE
Variable interest entity
Wolverine
Wolverine Power Supply Cooperative, Inc., a non−affiliated company
XBRL
eXtensible Business Reporting Language
Zeeland
A 935 MW gas−fueled power plant located in Zeeland, Michigan
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FILING FORMAT
This combined Form 10−K is separately filed by CMS Energy and Consumers. Information in this combined Form 10−K relating
to each individual registrant is filed by such registrant on its own behalf. Consumers makes no representation regarding information
relating to any other companies affiliated with CMS Energy other than its own subsidiaries. None of CMS Energy, CMS Enterprises,
nor any of CMS Energy’s other subsidiaries (other than Consumers) has any obligation in respect of Consumers’ debt securities and
holders of such debt securities should not consider the financial resources or results of operations of CMS Energy, CMS Enterprises,
nor any of CMS Energy’s other subsidiaries (other than Consumers and its own subsidiaries (in relevant circumstances)) in making a
decision with respect to Consumers’ debt securities. Similarly, none of Consumers nor any other subsidiary of CMS Energy has any
obligation in respect of debt securities of CMS Energy.
FORWARD−LOOKING STATEMENTS AND INFORMATION
This Form 10−K and other written and oral statements that CMS Energy and Consumers make may contain forward−looking
statements as defined by the Private Securities Litigation Reform Act of 1995. The use of “might,” “may,” “could,” “should,”
“anticipates,” “believes,” “estimates,” “expects,” “intends,” “plans,” “projects,” “forecasts,” “predicts,” “assumes,” and other similar
words is intended to identify forward−looking statements that involve risk and uncertainty. This discussion of potential risks and
uncertainties is designed to highlight important factors that may impact CMS Energy’s and Consumers’ businesses and financial
outlook. CMS Energy and Consumers have no obligation to update or revise forward−looking statements regardless of whether new
information, future events, or any other factors affect the information contained in the statements. These forward−looking statements
are subject to various factors that could cause CMS Energy’s and Consumers’ actual results to differ materially from the results
anticipated in these statements. These factors include CMS Energy’s and Consumers’ inability to predict or control the following, all of
which are potentially significant:
• the price of CMS Energy common stock, capital and financial market conditions, and the effect of these
market conditions on CMS Energy’s and Consumers’ postretirement benefit plans, interest costs, and
access to the capital markets, including availability of financing (including Consumers’ accounts
receivable sales program and CMS Energy’s and Consumers’ revolving credit facilities) to CMS Energy,
Consumers, or any of their affiliates, and the energy industry;
• the impact of the economy, particularly in Michigan, and potential future volatility in the financial and
credit markets on CMS Energy’s, Consumers’, or any of their affiliates’:
• revenues;
• capital expenditure programs and related earnings growth;
• ability to collect accounts receivable from customers;
• cost of capital and availability of capital; and
• Pension Plan and postretirement benefit plans assets and required contributions;
• changes in the economic and financial viability of CMS Energy’s and Consumers’ suppliers, customers,
and other counterparties and the continued ability of these third parties, including third parties in
bankruptcy, to meet their obligations to CMS Energy and Consumers;
• population decline in the geographic areas where CMS Energy and Consumers conduct business;
• national, regional, and local economic, competitive, and regulatory policies, conditions, and
developments;
• changes in applicable laws, rules, regulations, principles or practices, or in their interpretation, including
those related to taxes, the environment, and accounting matters, that could have an impact on CMS
Energy’s
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and Consumers’ businesses or financial results, including the impact of any future regulations or
lawsuits regarding:
• carbon dioxide and other greenhouse gas emissions, including potential future legislation to establish a
cap and trade system;
• criteria pollutants, such as nitrogen oxide, sulfur dioxide, and particulate, and hazardous air pollutants,
including impacts of the CAIR and CATR;
• CCBs;
• PCBs;
• cooling water intake or discharge from power plants or other industrial equipment;
• limitations on the use or construction of coal−fueled electric power plants;
• nuclear−related regulation;
• renewable portfolio standards and energy efficiency mandates;
• energy−related derivatives and hedges under the Dodd−Frank Act; and
• any other potential legislative changes, including changes to the ten−percent ROA limit;
• potentially adverse regulatory or legal interpretations or decisions, including those related to
environmental laws and regulations, and potential environmental remediation costs associated with these
interpretations or decisions, including those that may affect Bay Harbor or Consumers’ RMRR
classification under NSR regulations;
• potentially adverse or delayed regulatory treatment or permitting decisions concerning significant matters
affecting CMS Energy or Consumers that are presently or soon to be before the MDNRE and/or EPA,
including Bay Harbor;
• potentially adverse regulatory treatment or failure to receive timely regulatory orders concerning a number
of significant matters affecting Consumers that are presently or potentially before the MPSC, including:
• sufficient and timely recovery of:
• environmental and safety−related expenditures for coal−fueled plants and other utility properties;
• power supply and natural gas supply costs;
• operating and maintenance expenses;
• additional utility rate−based investments;
• costs associated with the proposed retirement and decommissioning of facilities;
• development costs of the proposed coal−fueled plant;
• MISO energy and transmission costs; and
• costs associated with energy efficiency investments and state or federally mandated renewable
resource standards;
• actions of regulators with respect to expenditures subject to tracking mechanisms;
• actions of regulators to prevent or curtail shutoffs for non−paying customers;
• actions of regulators with respect to Consumers’ pilot electric and gas decoupling mechanisms;
• regulatory orders preventing or curtailing rights to self−implement rate requests;
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• regulatory orders potentially requiring a refund of previously self−implemented rates; and
• implementation of new energy legislation or revisions of existing regulations;
• potentially adverse regulatory treatment resulting from pressure on regulators to oppose annual rate
increases or to lessen rate impacts upon customers, particularly in difficult economic times;
• loss of customer demand for electric generation supply to alternative energy suppliers;
• the ability of Consumers to recover its regulatory assets in full and in a timely manner;
• the effectiveness of the electric and gas decoupling mechanisms in moderating the impact of sales
variability on net revenues;
• the ability of Consumers to recover nuclear fuel storage costs incurred as a result of the DOE’s failure to
accept spent nuclear fuel on schedule or at all, and the outcome of pending litigation with the DOE;
• the impact of enforcement powers and investigation activities at FERC;
• federal regulation of electric sales and transmission of electricity, including periodic re−examination by
federal regulators of CMS Energy’s and Consumers’ market−based sales authorizations in wholesale
power markets without price restrictions;
• effects of weather conditions, such as unseasonably warm weather during the winter, on sales;
• the market perception of the energy industry or of CMS Energy, Consumers, or any of their affiliates;
• the credit ratings of CMS Energy or Consumers;
• the impact of credit markets, economic conditions, and any new banking regulations on EnerBank;
• potential effects of the Dodd−Frank Act and related regulations on CMS Energy and Consumers,
including regulation of financial institutions such as EnerBank, and shareholder activity that is permitted
or may be permitted under the Act;
• disruptions in the normal commercial insurance and surety bond markets that may increase costs or reduce
traditional insurance coverage, particularly terrorism and sabotage insurance, performance bonds, and
tax−exempt debt insurance, and stability of insurance providers, and the ability of Consumers to recover
the costs of any such insurance from customers;
• energy markets, including availability of capacity and the timing and extent of changes in commodity
prices for oil, coal, natural gas, natural gas liquids, electricity, and certain related products due to lower or
higher demand, shortages, transportation problems, or other developments, and their impact on CMS
Energy’s and Consumers’ cash flows and working capital;
• the effectiveness of CMS Energy’s and Consumers’ risk management policies, procedures, and strategies,
including their strategies to hedge risk related to future prices of electricity, natural gas, and other
energy−related commodities;
• changes in construction material prices and the availability of qualified construction personnel to
implement Consumers’ construction program;
• factors affecting development of generation projects and distribution infrastructure replacement and
expansion projects, including those related to project site identification, construction, permitting, and
government approvals;
• costs and availability of personnel, equipment, and materials for operating and maintaining existing
facilities;
• factors affecting operations, such as unusual weather conditions, catastrophic weather−related damage,
unscheduled generation outages, maintenance or repairs, environmental incidents, or electric transmission
and distribution or gas pipeline system constraints;
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• potential disruption or interruption of facilities or operations due to accidents, war, or terrorism, and the
ability to obtain or maintain insurance coverage for these events;
• the impact of an accident, explosion, or other physical disaster involving Consumers’ high−or
low−pressure gas pipelines, gas storage fields, overhead or underground electrical lines, or other utility
infrastructure;
• CMS Energy’s and Consumers’ ability to achieve generation planning goals and the occurrence and
duration of scheduled or unscheduled generation or gas compression outages;
• technological developments in energy production, delivery, usage, and storage;
• achievement of capital expenditure and operating expense goals, including the 2011 capital expenditures
forecast;
• the impact of CMS Energy’s and Consumers’ integrated business software system on their operations,
including utility customer billing and collections;
• potential effects of the Health Care Acts on existing or future health care costs;
• adverse outcomes regarding tax positions;
• adverse consequences resulting from any past or future assertion of indemnity or warranty claims
associated with assets and businesses previously owned by CMS Energy or Consumers, including claims
resulting from attempts by foreign or domestic governments to assess taxes on past operations or
transactions;
• the outcome, cost, and other effects of legal or administrative proceedings, settlements, investigations, or
claims;
• earnings volatility resulting from the application of fair value accounting to certain energy commodity
contracts, such as electricity sales agreements and interest rate and foreign currency contracts;
• changes in financial or regulatory accounting principles or policies;
• a possible future requirement to comply with International Financial Reporting Standards, which differ
from GAAP in various ways, including the present lack of special accounting treatment for regulated
activities; and
• other business or investment matters that may be disclosed from time to time in CMS Energy’s and
Consumers’ SEC filings, or in other publicly issued documents.
For additional details regarding these and other uncertainties, see Item 1A. Risk Factors; the “Outlook” section included in
MD&A; Note 5, Contingencies and Commitments; and Note 6, Regulatory Matters.
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PART I
ITEM 1. BUSINESS
GENERAL
CMS Energy
CMS Energy was formed in Michigan in 1987 and is an energy company operating primarily in Michigan. It is the parent holding
company of several subsidiaries, including Consumers, an electric and gas utility, and CMS Enterprises, primarily a domestic IPP.
Consumers serves individuals and businesses operating in the alternative energy, automotive, chemical, metal, and food products
industries, as well as a diversified group of other industries. CMS Enterprises, through its subsidiaries and equity investments, is
engaged primarily in IPP and owns power generation facilities fueled mostly by natural gas and biomass.
CMS Energy manages its businesses by the nature of services each provides and operates, principally in three business segments:
electric utility, gas utility, and enterprises, its non−utility operations and investments. Consumers’ consolidated operations account for
substantially all of CMS Energy’s total assets, income, and operating revenue. CMS Energy’s consolidated operating revenue was
$6.4 billion in 2010, $6.2 billion in 2009, and $6.8 billion in 2008.
For further information about operating revenue, net operating income, and identifiable assets and liabilities attributable to all of
CMS Energy’s business segments and operations, see Item 8. Financial Statements and Supplementary Data, CMS Energy’s Selected
Financial Information, Consolidated Financial Statements, and Notes to Consolidated Financial Statements.
Consumers
Consumers has served Michigan customers since 1886. Consumers was incorporated in Maine in 1910 and became a Michigan
corporation in 1968. Consumers owns and operates electric distribution and generation facilities and gas transmission, storage, and
distribution facilities. It provides electricity and/or natural gas to 6.8 million of Michigan’s 10 million residents. Consumers’ rates and
certain other aspects of its business are subject to the jurisdiction of the MPSC and FERC, as described in “CMS Energy and
Consumers Regulation” in this Item 1.
Consumers’ consolidated operating revenue was $6.2 billion in 2010, $6.0 billion in 2009, and $6.4 billion in 2008. For further
information about operating revenue, net operating income, and identifiable assets and liabilities attributable to Consumers’ electric and
gas utility operations, see Item 8. Financial Statements and Supplementary Data, Consumers’ Selected Financial Information,
Consolidated Financial Statements, and Notes to Consolidated Financial Statements.
Consumers owns its principal properties in fee, except that most electric lines and gas mains are located below public roads or on
land owned by others and are accessed by Consumers through easements and other rights. Almost all of Consumers’ properties are
subject to the lien of its First Mortgage Bond Indenture. For additional information on Consumers’ properties, see Consumers Electric
Utility — Electric Utility Properties and Consumers Gas Utility — Gas Utility Properties in the “Business Segments” section of this
Item 1.
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In 2010, Consumers served 1.8 million electric customers and 1.7 million gas customers in Michigan’s Lower Peninsula.
Presented in the following map is Consumers’ service territory:
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BUSINESS SEGMENTS
Consumers Electric Utility
Electric Utility Operations: Consumers’ electric utility operations, which include the generation, purchase, distribution, and sale
of electricity, generated operating revenue of $3.8 billion in 2010, $3.4 billion in 2009, and $3.6 billion in 2008. Consumers’ electric
utility customer base consists of a mix of residential, commercial, and diversified industrial customers in Michigan’s Lower Peninsula.
The automotive industry represented six percent of Consumers’ 2010 electric utility operating revenue. Presented in the following
illustration is Consumers’ 2010 electric utility operating revenue of $3.8 billion by customer class:
Consumers’ electric utility operations are not dependent on a single customer, or even a few customers, and the loss of any one or
even a few of its largest customers is not reasonably likely to have a material adverse effect on Consumers’ financial condition.
In 2010, Consumers’ electric deliveries, excluding intersystem deliveries, were 38 million MWh, which included ROA deliveries
of four million MWh, consistent with the ten−percent cap. Net bundled sales were 34 million MWh in 2010. In 2009, Consumers’
electric deliveries, excluding intersystem deliveries, were 36 million MWh, which included ROA deliveries of two million MWh,
resulting in net bundled sales of 34 million MWh.
Consumers’ electric utility operations are seasonal. The consumption of electric energy typically increases in the summer months,
due primarily to the use of air conditioners and other cooling equipment.
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Presented in the following illustration are Consumers’ monthly weather−adjusted electric deliveries (deliveries adjusted to reflect
normal weather conditions) to its customers, including ROA deliveries, during 2010 and 2009:
Consumers’ 2010 summer peak demand was 8,190 MW, which includes ROA demand of 555 MW. For the 2009−2010 winter
period, Consumers’ peak demand was 6,093 MW, which includes ROA demand of 425 MW. As required by MISO reserve margin
requirements, Consumers owns or controls, through long−term contracts, capacity necessary to supply its projected firm peak load and
necessary reserve margin for summer 2011.
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Electric Utility Properties: At December 31, 2010, Consumers’ electric generating system consisted of the following:
Name
and
Location
(Michigan)
Coal Generation
J. H. Campbell 1 & 2 — West Olive
J. H. Campbell 3 — West Olive(b)
B. C. Cobb — Muskegon
D. E. Karn — Essexville
J. C. Weadock — Essexville
J. R. Whiting — Erie
Number of Units and Year
2010
Summer Net
Demonstrated
Capability(a)
2010 Net
Generation
Entered Service
(MW)
(GWh)
2 Units, 1962−1967
1 Unit, 1980
2 Units, 1956−1957
2 Units, 1959−1961
2 Units, 1955−1958
3 Units, 1952−1953
Total coal generation
Oil/Gas Generation
B. C. Cobb — Muskegon
D. E. Karn — Essexville
Zeeland — Zeeland
3 Units, 1999−2000(c)
2 Units, 1975−1977
1 Unit, 2002
Total oil/gas generation
Hydroelectric
Conventional hydro generation
Ludington — Ludington
13 Plants, 1906−1949
6 Units, 1973
Total hydroelectric
Gas/Oil Combustion Turbine
Various plants
Zeeland — Zeeland
615
770
310
515
290
328
4,015
5,419
1,932
2,810
1,739
1,964
2,828
17,879
—
1,276
538
—
99
720
1,814
819
74
955(d)
365
(366)(e)
1,029
7 Plants, 1966−1971
2 Units, 2001
(1)
187
330
10
235
517
245
Total owned generation
Purchased and Interchange Power(f)
6,188
3,058(g)
18,942
18,048(h)
Total Supply
9,246
36,990
Total gas/oil combustion turbine
Generation and transmission use/loss
(3,373)
Total Net Bundled Sales
33,617
(a)
Represents each plant’s electric generating capacity during the critical summer months.
(b)
Represents Consumers’ share of the capacity of the J. H. Campbell 3 unit, net of the 6.69 percent ownership interest of the
Michigan Public Power Agency and Wolverine.
(c)
B. C. Cobb 1−3 are retired coal−fueled units that were converted to gas−fueled units. B. C. Cobb 1−3 were placed back into
service in the years indicated, and subsequently taken out of service beginning in April 2009. Consumers plans to reevaluate the
status of B. C. Cobb 1−3 in 2011 and may return the units to service in 2012.
(d)
Represents Consumers’ 51 percent share of the capacity of Ludington. Detroit Edison owns the remaining 49 percent.
(e)
Represents Consumers’ share of net pumped−storage generation. The pumped−storage facility consumes electricity to pump water
during off−peak hours for storage in order to generate electricity later during peak−demand hours.
(f)
Includes purchases from the Midwest Energy Market, long−term purchase contracts, and seasonal purchases.
(g)
Includes 1,240 MW of purchased contract capacity from the MCV Facility and 778 MW of purchased contract capacity from
Palisades.
(h)
Includes 2,456 GWh of purchased energy from the MCV Facility and 6,241 GWh of purchased energy from Palisades.
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Consumers’ distribution system includes:
• 413 miles of high−voltage distribution radial lines operating at 120 kilovolts or above;
• 4,244 miles of high−voltage distribution overhead lines operating at 23 kilovolts and 46 kilovolts;
• 17 miles of high−voltage distribution underground lines operating at 23 kilovolts and 46 kilovolts;
• 55,933 miles of electric distribution overhead lines;
• 10,058 miles of underground distribution lines; and
• substations with an aggregate transformer capacity of 24 million kVA.
Consumers is interconnected to the interstate high−voltage electric transmission system owned by METC and operated by MISO,
to neighboring utilities, and to other transmission systems.
Generation and Power Purchase Capacity by Fuel Type: As shown in the following illustration, Consumers’ 2010 generation
capacity of 9,246 MW, including capacity of 3,058 MW purchased under PPAs, relied on a variety of fuel sources:
Renewable generation capacity includes wind generation resources assumed to provide capacity at eight percent of nameplate
rating.
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Consumers’ Electric Generating System Power Generation: Consumers generated power from the following sources:
GWh
Power
Generated
2010
2009
2008
2007
2006
Coal
Gas
Hydro(a)
Oil
Nuclear
Net pumped storage(b)
17,879
1,043
365
21
—
(366)
17,255
565
466
14
—
(303)
17,701
804
454
41
—
(382)
17,903
129
416
112
1,781
(478)
17,744
161
485
48
5,904
(426)
Total owned generation
Purchased renewable energy(c)
Purchased generation−other(c)
Net interchange power(d)
18,942
1,582
10,421
6,045
17,997
1,472
10,066
6,925
18,618
1,503
12,140
6,653
19,863
1,480
11,022
8,009
23,916
1,529
7,065
7,244
Net purchased and interchange power
18,048
18,463
20,296
20,511
15,838
Total Net Power Supply
36,990
36,460
38,914
40,374
39,754
(a)
Represents Consumers’ owned renewable generation.
(b)
Represents Consumers’ share of net pumped−storage generation. The pumped−storage facility consumes electricity to pump water
during off−peak hours for storage in order to generate electricity later during peak−demand hours.
(c)
Includes purchases from long−term purchase contracts.
(d)
Includes purchases from the Midwest Energy Market and seasonal purchases.
The cost of all fuels consumed, shown in the following table, fluctuates with the mix of fuel used.
Cost per Million Btu
Fuel
Consumed
2010
2009
2008
2007
2006
Coal
Gas
Oil
Nuclear
$
2.51
5.57
10.98
—
$ 2.37
6.57
9.59
—
$
2.01
10.94
11.54
—
$
2.04
10.29
8.21
0.42
$ 2.09
8.92
8.68
0.24
All Fuels(a)
$
2.71
$ 2.56
$
2.47
$
2.07
$ 1.72
(a)
Weighted−average fuel costs
In 2010, Consumers’ four coal−fueled generating sites burned 10 million tons of coal and produced a combined total of 17,879
GWh of electricity, which represented 48 percent of the energy provided by Consumers to meet customer demand.
In order to obtain its coal requirements, Consumers enters into physical coal supply contracts. At December 31, 2010, Consumers
had contracts to purchase coal through 2013; these contracts total $315 million. All of Consumers’ coal supply contracts have fixed
prices. At December 31, 2010, Consumers had 85 percent of its 2011 expected coal requirements under contract, as well as a 41−day
supply of coal on hand.
In conjunction with its coal supply contracts, Consumers leases a fleet of rail cars and has long−term transportation contracts with
various companies to provide rail and vessel services for delivery of purchased coal to Consumers’ generating facilities. Consumers’
coal transportation contracts expire from 2011 through 2014; these contracts total $445 million.
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Consumers participates in the Midwest Energy Market. Consumers offers its generation into the market on a day−ahead and
real−time basis and bids for power in the market to serve the demand of its customers. Consumers is a net purchaser of power and
supplements its generation capability with purchases from the market to meet its customers’ needs during peak demand periods.
At December 31, 2010, Consumers had unrecognized future commitments (amounts for which liabilities, in accordance with
GAAP, have not been recorded on its balance sheet) to purchase capacity and energy under long−term PPAs with various generating
plants. These contracts require monthly capacity payments based on the plants’ availability or deliverability. These payments for 2011
through 2030 total $15.3 billion and range from $822 million to $1 billion annually for each of the next five years. These amounts may
vary depending on plant availability and fuel costs. For further information about Consumers’ future capacity and energy purchase
obligations, see Item 7. MD&A, “Capital Resources and Liquidity.”
Consumers Gas Utility
Gas Utility Operations:
Consumers’ gas utility operations, which include the purchase, transmission, storage, distribution, and sale of natural gas,
generated operating revenue of $2.4 billion in 2010, $2.6 billion in 2009, and $2.8 billion in 2008. Consumers’ gas utility customer base
consists of a mix of residential, commercial, and diversified industrial customers in Michigan’s Lower Peninsula. Presented in the
following illustration is Consumers’ 2010 gas utility operating revenue by customer class:
Consumers’ gas utility operations are not dependent on a single customer, or even a few customers, and the loss of any one or
even a few of its largest customers is not reasonably likely to have a material adverse effect on Consumers’ financial condition.
In 2010, deliveries of natural gas, including off−system transportation deliveries, through Consumers’ pipeline and distribution
network totaled 317 bcf, which included GCC deliveries of 36 bcf. In 2009, deliveries of natural gas, including off−system
transportation deliveries, through Consumers’ pipeline and distribution network totaled 319 bcf, which included GCC deliveries of 27
bcf. Consumers’ gas utility operations are seasonal. Consumers injects natural gas into storage during the summer months for use
during the winter months when the demand for natural gas is higher. Peak demand occurs in the winter due to colder temperatures and
the resulting use of natural gas as a heating fuel. During 2010, 46 percent of the natural gas supplied to all customers during the winter
months
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was supplied from storage. Presented in the following illustration are Consumers’ monthly weather−adjusted gas deliveries to its
customers, including GCC deliveries, during 2010 and 2009:
Gas Utility Properties: Consumers’ gas distribution and transmission system located in Michigan’s Lower Peninsula consists of:
• 26,585 miles of distribution mains;
• 1,664 miles of transmission lines;
• seven compressor stations with a total of 150,475 installed and available horsepower; and
• 15 gas storage fields with an aggregate storage capacity of 307 bcf and a working storage capacity of 142
bcf.
Gas Supply: In 2010, Consumers purchased 61 percent of the gas it delivered from U.S. producers and 21 percent from Canadian
producers. The remaining 18 percent was purchased from authorized GCC suppliers and
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delivered by Consumers to customers in the GCC program. Presented in the following illustration are the supply arrangements for the
gas Consumers delivered to GCC and GCR customers during 2010:
Firm transportation or firm city−gate contracts are those that define a fixed amount, price, and delivery time frame. Consumers’
firm gas transportation contracts are with ANR Pipeline Company, Great Lakes Gas Transmission, L.P., Panhandle, Trunkline, and
Vector Pipeline L.P. Under these contracts, Consumers purchases and transports gas to Michigan for ultimate delivery to its customers.
Consumers’ firm gas transportation contracts expire through 2017 and provide for the delivery of 71 percent of Consumers’ total gas
supply requirements.
Consumers purchases the balance of its required gas supply under firm city−gate contracts and through authorized suppliers under
the GCC program. Consumers may also utilize incremental firm transportation contracts and interruptible transportation contracts to
purchase its gas supply. Under interruptible transportation contracts, the transportation provider is permitted to interrupt service.
Consumers’ use of incremental firm transportation contracts and interruptible transportation contracts is generally during off−peak
summer months and after Consumers has fully utilized the services under the firm transportation contracts. The amount of interruptible
transportation service and its use vary primarily with the price for this service and the availability and price of purchased and
transported spot supplies.
Enterprises Segment — Non−Utility Operations and Investments
CMS Energy’s enterprises segment, through various subsidiaries and certain equity investments, is engaged primarily in domestic
IPP and the marketing of IPP. In 2007, the enterprises segment made a significant change in business strategy by exiting the
international marketplace and refocusing on its independent power business in the U.S.
The enterprises segment’s operating revenue included in Income From Continuing Operations in CMS Energy’s Consolidated
Financial Statements was $238 million in 2010, $216 million in 2009, and $365 million in 2008. The enterprises segment’s operating
revenue included in Income (Loss) From Discontinued Operations in CMS Energy’s Consolidated Financial Statements was
$10 million in 2010, $7 million in 2009, and $14 million in 2008.
IPP: While owned by CMS Enterprises, CMS Generation invested in and operated non−utility power generation plants in the
U.S. and abroad. In 2007, CMS Enterprises sold CMS Generation and all of CMS
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Enterprises’ international assets to third parties and transferred its domestic independent power plant operations to its subsidiary,
HYDRA−CO.
The operating revenue from IPP included in Income From Continuing Operations in CMS Energy’s Consolidated Financial
Statements was $18 million in 2010, $18 million in 2009, and $22 million in 2008. The operating revenue from IPP included in Income
(Loss) From Discontinued Operations in CMS Energy’s Consolidated Financial Statements was $10 million in 2010, $7 million in
2009, and $14 million in 2008.
IPP Properties: At December 31, 2010, CMS Energy had ownership interests in independent power plants totaling 1,166 gross
MW or 1,066 net MW. (Net MW reflects that portion of the gross capacity relating to CMS Energy’s ownership interests.)
Presented in the following table are CMS Energy’s interests in independent power plants at December 31, 2010:
Location
Connecticut(a)
Michigan
Michigan
Michigan
Michigan
Michigan
North Carolina
Primary
Fuel Type
Ownership Interest
(%)
Gross Capacity
(MW)
Gross Capacity
Under Long−Term
Contract
(%)
Scrap tire
Natural gas
Natural gas
Coal
Biomass
Biomass
Biomass
100
100
100
50
50
50
50
31
710
224
73
40
38
50
—
88
89
100
100
100
—
Total
(a)
1,166
Represents Exeter. In January 2011, CMS Energy sold its ownership interest in Exeter to ReEnergy.
Energy Resource Management: CMS ERM purchases and sells energy commodities in support of CMS Energy’s generating
facilities. In 2010, CMS ERM marketed 15 bcf of natural gas and 2,308 GWh of electricity. All marketed electricity was generated by
IPPs of the enterprises segment. CMS ERM’s operating revenue included in Income From Continuing Operations in CMS Energy’s
Consolidated Financial Statements was $220 million in 2010, $198 million in 2009, and $343 million in 2008.
Natural Gas Transmission: CMS Gas Transmission owned, developed, and managed domestic and international natural gas
facilities. In 2007, CMS Gas Transmission sold a portfolio of its businesses in Argentina and its northern Michigan non−utility natural
gas assets to Lucid Energy, and its investment in GasAtacama to Endesa S.A. In 2008, CMS Gas Transmission completed the sale of its
investment in TGN. CMS Gas Transmission’s operating revenue included in Income From Continuing Operations in CMS Energy’s
Consolidated Financial Statements was less than $1 million in each of 2010, 2009, and 2008.
International Energy Distribution: In 2007, CMS Energy exited this line of business when it sold its ownership interests in
SENECA and CMS Energy Brasil S.A.
OTHER BUSINESSES
EnerBank: EnerBank, a wholly owned subsidiary of CMS Energy, is a Utah state−chartered, FDIC−insured industrial bank
providing unsecured consumer installment loans for financing home improvements. EnerBank’s operating revenue included in Income
From Continuing Operations in CMS Energy’s Consolidated Financial Statements was $38 million in 2010, $26 million in 2009, and
$21 million in 2008.
CMS ENERGY AND CONSUMERS REGULATION
CMS Energy, Consumers, and their subsidiaries are subject to regulation by various federal, state, local, and foreign governmental
agencies, including those described in the following sections.
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MPSC
Consumers is subject to the jurisdiction of the MPSC, which regulates public utilities in Michigan with respect to retail utility
rates, accounting, utility services, certain facilities, corporate mergers, and other matters.
The Michigan Attorney General, ABATE, the MPSC staff, and certain other parties typically participate in MPSC proceedings
concerning Consumers. The Michigan Attorney General, ABATE, and others often appeal significant MPSC orders.
Rate Proceedings: For information regarding open rate proceedings, see Item 8. Financial Statements and Supplementary Data,
Notes to Consolidated Financial Statements, Note 6, Regulatory Matters.
Michigan Energy Legislation
The 2008 Energy Legislation required that at least ten percent of Consumers’ electric sales volume come from renewable energy
sources by 2015, and included requirements for specific capacity additions. The 2008 Energy Legislation also required Consumers to
prepare an energy optimization plan and achieve annual sales reduction targets through at least 2015. The targets are incremental with
the goal of achieving a six percent reduction in customers’ electricity use and a four percent reduction in customers’ natural gas use by
December 31, 2015. For additional information regarding Consumers’ renewable energy and energy optimization plans, see Item 7.
MD&A, Outlook, “Consumers’ Electric Utility Business Outlook and Uncertainties.”
The 2008 Energy Legislation also reformed the Customer Choice Act to limit alternative energy suppliers to supplying no more
than ten percent of Consumers’ weather−adjusted sales. For additional information regarding the Customer Choice Act, see Item 7.
MD&A, Outlook, “Consumers’ Electric Utility Business Outlook and Uncertainties.”
FERC
FERC has exercised limited jurisdiction over several independent power plants and exempt wholesale generators in which CMS
Enterprises has ownership interests, as well as over CMS ERM, CMS Gas Transmission, and DIG. Among other things, FERC has
jurisdiction over acquisitions, operations, and disposals of certain assets and facilities, services provided and rates charged, conduct
among affiliates, and limited jurisdiction over holding company matters with respect to CMS Energy. FERC, in connection with NERC
and with regional reliability organizations, also regulates generation owners and operators, load serving entities, purchase and sale
entities, and others with regard to reliability of the bulk power system. Certain aspects of Consumers’ gas business are also subject to
regulation by FERC, including a blanket transportation tariff under which Consumers may transport gas in interstate commerce.
FERC also regulates certain aspects of Consumers’ electric operations, including compliance with FERC accounting rules,
wholesale rates, operation of licensed hydroelectric generating plants, transfers of certain facilities, corporate mergers, and issuances of
securities.
Other Regulation
The Secretary of Energy regulates imports and exports of natural gas and has delegated various aspects of this jurisdiction to
FERC and the DOE’s Office of Fossil Fuels.
Consumers’ pipelines are subject to the Natural Gas Pipeline Safety Act of 1968 and the Pipeline Safety Improvement Act of
2002, which regulate the safety of gas pipelines.
EnerBank is regulated by the FDIC.
CMS ENERGY AND CONSUMERS ENVIRONMENTAL COMPLIANCE
CMS Energy, Consumers, and their subsidiaries are subject to various federal, state, and local regulations for environmental
quality, including air and water quality, solid waste management, and other matters. For additional
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information concerning environmental matters, see Item 1A. Risk Factors and Item 8. Financial Statements and Supplementary Data,
Notes to Consolidated Financial Statements, Note 5, Contingencies and Commitments.
CMS Energy has recorded a significant liability for its affiliates’ obligations associated with Bay Harbor. For additional
information, see Item 1A. Risk Factors and Item 8. Financial Statements and Supplementary Data, Notes to Consolidated Financial
Statements, Note 5, Contingencies and Commitments.
Air: Consumers continues to install state−of−the−art emissions control equipment at its electric generating plants and to convert
electric generating units to burn cleaner fuels. Consumers estimates that it will incur expenditures of $1.4 billion from 2011 through
2018 to comply with present and future federal and state regulations that will require extensive reductions in nitrogen oxides, sulfur
dioxides, particulate matter, and mercury emissions. Consumers’ estimate may increase if additional laws or regulations are adopted or
implemented regarding greenhouse gases, including carbon dioxide. For additional information concerning estimated capital
expenditures related to emissions control, see Item 7. MD&A, Outlook, “Consumers’ Electric Utility Business Outlook and
Uncertainties — Electric Environmental Estimates.”
Solid Waste Disposal: Costs related to the construction, operation, and closure of solid waste disposal facilities for coal ash are
significant. Historically, Consumers has worked with others to reuse 30 to 40 percent of ash produced by its coal−fueled plants, and
sells ash for use as a Portland cement replacement in concrete products, as feedstock for the manufacture of Portland cement, and for
other environmentally−compatible uses. Consumers’ solid waste disposal areas are regulated under Michigan’s solid waste rules.
Consumers has converted all of its fly ash handling systems to dry systems, which reduce landfill venting substantially. All of
Consumers’ ash facilities have programs designed to protect the environment and are subject to quarterly MDNRE inspections.
Furthermore, an independent consultant has assessed dike integrity and stability. No major deficiencies were identified that could
immediately jeopardize continued safe and reliable operation of the project structures. The draft reports of three EPA contractors who
have since inspected these facilities with regard to National Dam Safety Program Act requirements comport with this conclusion. The
EPA has proposed new federal regulations for ash disposal areas. Consumers estimates that it will incur expenditures of $320 million
from 2011 through 2018 to comply with future regulations relating to ash disposal. For additional information concerning estimated
capital expenditures related to solid waste disposal, see Item 7. MD&A, Outlook, “Consumers’ Electric Utility Business Outlook and
Uncertainties — Electric Environmental Estimates.”
Water: Consumers uses significant amounts of water to operate and cool its electric generating plants. Water discharge quality is
regulated and administered by the MDNRE under the federal NPDES program. To comply with such regulation, Consumers’ facilities
have discharge monitoring programs. The EPA is developing new regulations related to cooling water intake systems. Consumers
estimates that it will incur expenditures of $180 million from 2011 through 2018 to comply with future regulations relating to cooling
water intake systems. For additional information concerning estimated capital expenditures related to cooling water intake systems, see
Item 7. MD&A, Outlook, “Consumers’ Electric Utility Business Outlook and Uncertainties — Electric Environmental Estimates.”
CMS ENERGY AND CONSUMERS COMPETITION
Electric Competition
Consumers’ electric utility business is subject to actual and potential competition from many sources, in both the wholesale and
retail markets, as well as in electric generation, electric delivery, and retail services.
The Customer Choice Act allows all of Consumers’ electric customers to buy electric generation service from Consumers or from
an alternative electric supplier. The 2008 Energy Legislation revised the Customer Choice Act by limiting alternative electric supply to
ten percent of weather−adjusted retail sales for the preceding calendar year. At December 31, 2010, electric deliveries under the ROA
program were at the ten percent limit. Alternative electric suppliers were providing 807 MW of generation service to ROA customers.
Consumers also has competition or potential competition from:
• industrial customers relocating all or a portion of their production capacity outside Consumers’ service
territory for economic reasons;
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• municipalities owning or operating competing electric delivery systems;
• customer self−generation; and
• adjacent utilities that extend lines to customers in contiguous service territories.
Consumers addresses this competition by monitoring activity in adjacent areas and monitoring compliance with the MPSC’s and
FERC’s rules, providing non−energy services, and providing tariff−based incentives that support economic development.
CMS ERM continues to focus on optimizing CMS Energy’s IPP portfolio. CMS Energy’s IPP business faces competition from
generators, marketers and brokers, and utilities marketing power in the wholesale market.
Gas Competition
Competition exists in various aspects of Consumers’ gas utility business. Competition comes from other gas suppliers taking
advantage of direct access to Consumers’ customers and from alternative fuels and energy sources, such as propane, oil, and electricity.
INSURANCE
CMS Energy and its subsidiaries, including Consumers, maintain insurance coverage generally similar to comparable companies
in the same lines of business. The insurance policies are subject to terms, conditions, limitations, and exclusions that might not fully
compensate CMS Energy or Consumers for all losses. A portion of each loss is generally assumed by CMS Energy or Consumers in the
form of deductibles and self−insured retentions that, in some cases, are substantial. As CMS Energy or Consumers renews its policies, it
is possible that some of the present insurance coverage may not be renewed or obtainable on commercially reasonable terms due to
restrictive insurance markets.
CMS Energy’s and Consumers’ present insurance program does not cover the risks of certain environmental cleanup costs and
environmental damages, such as claims for air pollution, damage to sites owned by CMS Energy or Consumers, and some long−term
storage or disposal of wastes.
EMPLOYEES
CMS Energy
At December 31, 2010, CMS Energy and its wholly owned subsidiaries, including Consumers, had 7,822 full−time equivalent
employees. Included in the total are 3,310 full−time operating, maintenance, and construction employees and full−time and part−time
call center employees who are represented by the Union.
Consumers
At December 31, 2010, Consumers and its subsidiaries had 7,522 full−time equivalent employees. Included in the total are
3,310 full−time operating, maintenance, and construction employees and full−time and part−time call center employees who are
represented by the Union.
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CMS ENERGY EXECUTIVE OFFICERS (as of February 1, 2011)
Name
John G. Russell
Age
53
Position
Period
President and CEO of CMS Energy
President and CEO of Consumers
Director of CMS Energy
Director of Consumers
Director of CMS Enterprises
Chairman of the Board, President and CEO of CMS
Enterprises
President and Chief Operating Officer of Consumers
5/2010−Present
5/2010−Present
5/2010−Present
5/2010−Present
5/2010−Present
2002−Present
2002−Present
2002−Present
2002−Present
Thomas J. Webb
58
Executive Vice President, CFO of CMS Energy
Executive Vice President, CFO of Consumers
Executive Vice President, CFO of CMS Enterprises
Director of CMS Enterprises
James E. Brunner
58
Senior Vice President and General Counsel of CMS
Energy
Senior Vice President and General Counsel of
Consumers
Senior Vice President and General Counsel of CMS
Enterprises
Director of CMS Enterprises
Senior Vice President of CMS Enterprises
Senior Vice President, General Counsel and Chief
Compliance Officer of CMS Energy
Senior Vice President, General Counsel and Chief
Compliance Officer of Consumers
Senior Vice President and General Counsel of CMS
Energy
Senior Vice President, General Counsel and Interim
Chief Compliance Officer of Consumers
Vice President and General Counsel of Consumers
John M. Butler*
46
Senior Vice President of CMS Energy
Senior Vice President of Consumers
Senior Vice President of CMS Enterprises
28
5/2010−Present
2004−5/2010
11/2006−Present
11/2006−Present
11/2007−Present
2006−Present
2006−11/2007
5/2006−11/2006
5/2006−11/2006
2/2006−5/2006
2/2006−5/2006
7/2004−2/2006
2006−Present
2006−Present
2006−Present
Table of Contents
Name
David G. Mengebier
Glenn P. Barba
Age
53
45
Position
Period
Senior Vice President and Chief Compliance Officer of
CMS Energy
Senior Vice President and Chief Compliance Officer of
Consumers
Senior Vice President of CMS Enterprises
Senior Vice President of CMS Energy
Senior Vice President of Consumers
11/2006−Present
11/2006−Present
2003−Present
2001−11/2006
2001−11/2006
Vice President, Controller and Chief Accounting Officer
of CMS Energy
Vice President, Controller and Chief Accounting Officer
of Consumers
Vice President, Chief Accounting Officer and Controller
of CMS Enterprises
Vice President and Chief Accounting Officer of CMS
Enterprises
2003−Present
2003−Present
11/2007−Present
2003−11/2007
* From 2004 until June 2006, Mr. Butler was Human Resources Director, Manufacturing and Engineering at Dow Chemical
Company, a non−affiliated company.
There are no family relationships among executive officers and directors of CMS Energy.
The term of office of each of the executive officers extends to the first meeting of the Board of Directors of CMS Energy after the
next annual election of Directors of CMS Energy (scheduled to be held on May 20, 2011).
CONSUMERS EXECUTIVE OFFICERS (as of February 1, 2011)
Name
John G. Russell
Age
53
Position
Period
President and CEO of CMS Energy
President and CEO of Consumers
Director of CMS Energy
Director of Consumers
Director of CMS Enterprises
Chairman of the Board, President and CEO of CMS
Enterprises
President and Chief Operating Officer of Consumers
5/2010−Present
5/2010−Present
5/2010−Present
5/2010−Present
5/2010−Present
2002−Present
2002−Present
2002−Present
2002−Present
Thomas J. Webb
58
Executive Vice President, CFO of CMS Energy
Executive Vice President, CFO of Consumers
Executive Vice President, CFO of CMS Enterprises
Director of CMS Enterprises
James E. Brunner
58
Senior Vice President and General Counsel of CMS
Energy
Senior Vice President and General Counsel of
Consumers
Senior Vice President and General Counsel of CMS
Enterprises
Director of CMS Enterprises
Senior Vice President of CMS Enterprises
29
5/2010−Present
2004−5/2010
11/2006−Present
11/2006−Present
11/2007−Present
2006−Present
2006−11/2007
Table of Contents
Name
Age
Position
Period
Senior Vice President, General Counsel and Chief
Compliance Officer of CMS Energy
Senior Vice President, General Counsel and Chief
Compliance Officer of Consumers
Senior Vice President and General Counsel of CMS
Energy
Senior Vice President, General Counsel and Interim
Chief Compliance Officer of Consumers
Vice President and General Counsel of Consumers
John M. Butler*
46
Senior Vice President of CMS Energy
Senior Vice President of Consumers
Senior Vice President of CMS Enterprises
David G. Mengebier
53
Senior Vice President and Chief Compliance Officer of
CMS Energy
Senior Vice President and Chief Compliance Officer of
Consumers
Senior Vice President of CMS Enterprises
Senior Vice President of CMS Energy
Senior Vice President of Consumers
5/2006−11/2006
5/2006−11/2006
2/2006−5/2006
2/2006−5/2006
7/2004−2/2006
2006−Present
2006−Present
2006−Present
11/2006−Present
11/2006−Present
2003−Present
2001−11/2006
2001−11/2006
William E. Garrity
62
Senior Vice President of Consumers
2005−Present
Jackson L. Hanson
54
Senior Vice President of Consumers
Vice President of Consumers
Plant and Site Business Manager of Consumers
5/2010−Present
11/2006−5/2010
4/2006−11/2006
Daniel J. Malone
50
Senior Vice President of Consumers
Vice President of Consumers
Site Business Manager of Consumers
Manager of Equipment Services of Consumers
5/2010−Present
6/2008−5/2010
12/2006−6/2008
8/2006−12/2006
Glenn P. Barba
45
Vice President, Controller and Chief Accounting Officer
of CMS Energy
Vice President, Controller and Chief Accounting Officer
of Consumers
Vice President, Controller and Chief Accounting Officer
of CMS Enterprises
Vice President and Chief Accounting Officer of CMS
Enterprises
2003−Present
2003−Present
11/2007−Present
2003−11/2007
* From 2004 until June 2006, Mr. Butler was Human Resources Director, Manufacturing and Engineering at Dow Chemical
Company, a non−affiliated company.
There are no family relationships among executive officers and directors of Consumers.
The term of office of each of the executive officers extends to the first meeting of the Board of Directors of Consumers after the
next annual election of Directors of Consumers (scheduled to be held on May 20, 2011).
AVAILABLE INFORMATION
CMS Energy’s internet address is www.cmsenergy.com. Information contained on CMS Energy’s website is not incorporated
herein. All of CMS Energy’s annual reports on Form 10−K, quarterly reports on Form 10−Q, current reports on Form 8−K, and
amendments to those reports filed pursuant to Section 13(a) or 15(d) of the Exchange Act
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are accessible free of charge on CMS Energy’s website. These reports are available soon after they are filed electronically with the
SEC. Also on CMS Energy’s website are its:
• Corporate Governance Principles;
• Codes of Conduct (CMS Energy Corporation/Consumers Energy Company Board of Directors Code of
Conduct — 2010 and Code of Conduct and Guide to Ethical Business Behavior 2010);
• Board committee charters (including the Audit Committee, the Compensation and Human Resources
Committee, the Finance Committee, and the Governance and Public Responsibility Committee); and
• Articles of Incorporation (and amendments) and Bylaws.
CMS Energy will provide this information in print to any stockholder who requests it.
Any materials CMS Energy files with the SEC may also be read and copied at the SEC’s Public Reference Room at 100 F Street,
NE, Washington D.C., 20549. Information on the operation of the Public Reference Room may be obtained by calling the SEC at
1−800−SEC−0330. The SEC also maintains an internet site that contains reports, proxy and information statements, and other
information regarding issuers that file electronically with the SEC. The address is www.sec.gov.
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ITEM 1A. RISK FACTORS
Actual results in future periods for CMS Energy and Consumers could differ materially from historical results and the
forward−looking statements contained in this report. Factors that might cause or contribute to these differences include, but are not
limited to, those discussed in the following sections. CMS Energy’s and Consumers’ businesses are influenced by many factors that are
difficult to predict, that involve uncertainties that may materially affect results, and that are often beyond their control. Additional risks
and uncertainties not presently known or that the companies’ management believes to be immaterial may also adversely affect the
companies. The risk factors described in the following sections, as well as the other information included in this report and in other
documents filed with the SEC, should be considered carefully before making an investment in securities of CMS Energy or Consumers.
Risk factors of Consumers are also risk factors of CMS Energy. All of these risk factors are potentially significant.
CMS Energy depends on dividends from its subsidiaries to meet its debt service obligations.
Due to its holding company structure, CMS Energy depends on dividends from its subsidiaries to meet its debt service and other
payment obligations. Restrictions contained in Consumers’ preferred stock provisions and other legal restrictions, such as certain terms
in its articles of incorporation and FERC requirements, limit Consumers’ ability to pay dividends or acquire its own stock from CMS
Energy. At December 31, 2010, Consumers had $404 million of unrestricted retained earnings available to pay common stock
dividends. If sufficient dividends are not paid to CMS Energy by its subsidiaries, CMS Energy may not be able to generate the funds
necessary to fulfill its payment obligations, which could have a material adverse effect on CMS Energy’s liquidity and financial
condition.
CMS Energy has indebtedness that could limit its financial flexibility and hence its ability to meet its debt service obligations.
At December 31, 2010, CMS Energy, including Consumers, had $7.2 billion aggregate principal amount of indebtedness,
including $29 million of subordinated indebtedness relating to its convertible preferred securities. CMS Energy had $2.3 billion
aggregate principal amount of indebtedness at December 31, 2010. At December 31, 2010, there were no borrowings and $3 million of
letters of credit outstanding under CMS Energy’s revolving credit agreement. CMS Energy and its subsidiaries may incur additional
indebtedness in the future.
The level of CMS Energy’s present and future indebtedness could have several important effects on its future operations,
including, among others:
• a significant portion of CMS Energy’s cash flow from operations could be dedicated to the payment of
principal and interest on its indebtedness and would not be available for other purposes;
• covenants contained in CMS Energy’s existing debt arrangements, which require it to meet certain
financial tests, could affect its flexibility in planning for, and reacting to, changes in its business;
• CMS Energy’s ability to obtain additional financing for working capital, capital expenditures,
acquisitions, and general corporate and other purposes could become limited;
• CMS Energy could be placed at a competitive disadvantage to its competitors that are less leveraged;
• CMS Energy’s vulnerability to adverse economic and industry conditions could increase; and
• CMS Energy’s future credit ratings could fluctuate.
CMS Energy’s ability to meet its debt service obligations and to reduce its total indebtedness will depend on its future
performance, which will be subject to general economic conditions, industry cycles, changes in laws or regulatory decisions (including
with respect to environmental matters), and financial, business, and other factors affecting its operations, many of which are beyond its
control. CMS Energy cannot make assurances that its business will continue to generate sufficient cash flow from operations to service
its indebtedness. If CMS Energy is unable to generate sufficient cash flows from operations, it may be required to sell assets or obtain
additional financing. CMS Energy cannot ensure that additional financing will be available on commercially acceptable terms or at all.
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CMS Energy cannot predict the outcome of regulatory reviews and claims regarding its participation in the development of Bay
Harbor.
The EPA and the MDNRE have not completed their review of proposals by CMS Land and CMS Capital to remedy the flow of
leachate from buried CKD piles at the Bay Harbor site to Lake Michigan and related environmental issues. One of the major issues to
be resolved is determining a long−term solution to the disposal of leachate collected at the site. In December 2010, the MDNRE issued
a five−year NPDES permit that authorizes CMS Land to discharge treated leachate into Little Traverse Bay. Costs to treat and discharge
collected leachate under this permit could exceed those that are presently anticipated. Additionally, CMS Land and CMS Capital could
be required to alter their present water disposal strategy upon expiration of this permit if the MDNRE or EPA identify a more suitable
option, or if the permit itself is challenged before the MDNRE or the courts. CMS Land and CMS Capital, the MDNRE, the EPA, and
other parties continue to negotiate the long−term remedy for the Bay Harbor site. These negotiations are focused on, among other
things, issues related to:
• the disposal of leachate;
• the capping and excavation of CKD;
• the location and design of collection lines and upstream water diversion systems;
• application of criteria for various substances such as mercury; and
• other matters that are likely to affect the scope of remedial work that CMS Land and CMS Capital may be
obligated to undertake.
Depending on the results of these negotiations, as well as the size of any indemnity obligation or liability under an Administrative
Order on Consent signed by CMS Land and CMS Capital or other liability under environmental laws, adverse outcomes of some or all
of these matters could have a material adverse effect on CMS Energy’s liquidity and financial condition and could negatively affect
CMS Energy’s financial results.
CMS Energy could be affected adversely by a regulatory investigation and civil lawsuits regarding pricing information that CMS
MST and CMS Field Services provided to market publications.
In 2002, CMS Energy notified appropriate regulatory and governmental agencies that some employees at CMS MST and CMS
Field Services appeared to have provided inaccurate information regarding natural gas trades to various energy industry publications
which compile and report index prices. CMS Energy is cooperating with an ongoing investigation by the DOJ regarding this matter.
CMS Energy is unable to predict the outcome of the DOJ investigation or the amount of any fines or penalties that may be imposed and
what effect, if any, the investigation will have on CMS Energy.
CMS Energy, CMS MST, CMS Field Services, Cantera Natural Gas, Inc., and Cantera Gas Company were named as defendants
in various lawsuits arising as a result of alleged false natural gas price reporting. Allegations included manipulation of NYMEX natural
gas futures and options prices, price−fixing conspiracies, and artificial inflation of natural gas retail prices in Colorado, Kansas,
Missouri, Tennessee, and Wisconsin. CMS Energy cannot predict the outcome of the lawsuits or the amount of damages for which
CMS Energy may be liable. It is possible that the outcome in one or more of the lawsuits could have a material adverse effect on CMS
Energy’s liquidity, financial condition, and results of operations.
CMS Energy and Consumers retain contingent liabilities in connection with their asset sales.
The agreements that CMS Energy and Consumers enter into for the sale of assets customarily include provisions whereby they are
required to:
• retain specified preexisting liabilities, such as for taxes, pensions, or environmental conditions;
• indemnify the buyers against specified risks, including the inaccuracy of representations and warranties
they make; and
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• make payments to the buyers depending on the outcome of post−closing adjustments, litigation, audits, or
other reviews, including claims resulting from attempts by foreign or domestic governments to assess
taxes on past operations or transactions.
Many of these contingent liabilities can remain open for extended periods of time after the sales are closed. Depending on the
extent to which the buyers may ultimately seek to enforce their rights under these contractual provisions, and the resolution of any
disputes concerning them, there could be a material adverse effect on CMS Energy’s or Consumers’ liquidity, financial condition, and
results of operations.
CMS Energy and Consumers have financing needs and could be unable to obtain bank financing or access the capital markets.
Potential disruption in the capital and credit markets could have a material adverse effect on CMS Energy’s and Consumers’
businesses, including the availability and cost of short−term funds for liquidity requirements and their ability to meet long−term
commitments. These consequences could have a material adverse effect on CMS Energy’s and Consumers’ liquidity, financial
condition, and results of operations.
CMS Energy and Consumers may be subject to liquidity demands under commercial commitments, guarantees, indemnities, and
letters of credit. Consumers’ capital requirements are expected to be substantial over the next several years as it implements generation
and environmental projects, and those requirements may increase if additional laws or regulations are adopted or implemented
regarding greenhouse gases, including carbon dioxide.
CMS Energy and Consumers rely on the capital markets, particularly for publicly offered debt, as well as on bank syndications, to
meet their financial commitments and short−term liquidity needs if internal funds are not available from CMS Energy’s and
Consumers’ respective operations. CMS Energy and Consumers also use letters of credit issued under certain of their revolving credit
facilities to support certain operations and investments.
Longer term disruptions in the capital and credit markets as a result of uncertainty, changing or increased regulation, reduced
alternatives, or failures of significant financial institutions could adversely affect CMS Energy’s and Consumers’ access to liquidity
needed for their respective businesses. Any disruption could require CMS Energy and Consumers to take measures to conserve cash
until the markets stabilize or until alternative credit arrangements or other funding for their business needs can be arranged. These
measures could include deferring capital expenditures, changing CMS Energy’s and Consumers’ commodity purchasing strategy to
avoid collateral−posting requirements, and reducing or eliminating future share repurchases, dividend payments, or other discretionary
uses of cash.
CMS Energy continues to explore financing opportunities to supplement its financial plan. These potential opportunities include
refinancing and/or issuing new capital markets debt, preferred stock and/or common equity, and bank financing. Similarly, Consumers
plans to seek funds through the capital markets, commercial lenders, and leasing arrangements. Entering into new financings is subject
in part to capital market receptivity to utility industry securities in general and to CMS Energy’s and Consumers’ securities issuances in
particular. CMS Energy and Consumers cannot guarantee the capital markets’ acceptance of their securities or predict the impact of
factors beyond their control, such as actions of rating agencies. If CMS Energy or Consumers is unable to obtain bank financing or
access the capital markets to incur or refinance indebtedness, or is unable to obtain commercially reasonable terms for any financing,
there could be a material adverse effect on its liquidity, financial condition, and results of operations.
Certain of CMS Energy’s securities and those of its affiliates, including Consumers, are rated by various credit rating agencies.
Any reduction or withdrawal of one or more of its credit ratings could have a material adverse impact on CMS Energy’s or Consumers’
ability to access capital on acceptable terms and maintain commodity lines of credit, could make its cost of borrowing higher, and could
cause CMS Energy or Consumers to reduce its capital expenditures. If it is unable to maintain commodity lines of credit, CMS Energy
or Consumers may have to post collateral or make prepayments to certain of its suppliers under existing contracts. Further, since
Consumers provides dividends to CMS Energy, any adverse developments affecting Consumers that result in a lowering of its credit
ratings could have an adverse effect on CMS Energy’s credit ratings. CMS Energy and Consumers cannot
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guarantee that any of their present ratings will remain in effect for any given period of time or that a rating will not be lowered or
withdrawn entirely by a rating agency.
CMS Energy and Consumers could incur additional significant costs to comply with environmental requirements.
CMS Energy, Consumers, and their subsidiaries are subject to costly and increasingly stringent environmental regulations. They
believe that environmental laws and regulations related to flue gas emissions, ash disposal, and cooling water use will continue to
become more stringent and require them to make additional significant capital expenditures for emissions control equipment installation
and upgrades.
In 2009, the EPA issued an endangerment finding for greenhouse gases under the Clean Air Act. In this finding, which has been
challenged in the U.S. Court of Appeals for the D.C. Circuit by numerous parties, the EPA determined that present and projected
atmospheric concentrations of six greenhouse gases threaten the public health and welfare of present and future generations. In May
2010, the EPA issued a final rule that addresses greenhouse gas emissions from stationary sources under the Clean Air Act permitting
programs. The “tailoring rule” sets thresholds for greenhouse gas emissions that define when permits under the NSR and Title V
programs are required for new and existing industrial facilities. This regulation took effect in January 2011. Comprehensive federal
legislation that addresses greenhouse gases has not advanced in the U.S. Congress. Federal legislation is considered likely to be enacted
in some form in the future and could have a significant impact on the operation and cost of existing and future fossil−fueled power
plants.
In 2010, a significant percentage of the energy generated by Consumers came from fossil−fueled power plants. The emissions
from fossil−fueled power plants would be subject to greenhouse gas regulations. CMS Enterprises also has interests in fossil−fueled
power plants and other types of power plants that produce greenhouse gases. Federal laws and rules limiting the emission of greenhouse
gases or similar state laws and rules, if enacted, as well as international accords and treaties, could require CMS Energy and Consumers
to install additional equipment for emission controls, purchase carbon emissions allowances, curtail operations, invest in
non−fossil−fuel generating capacity, or take other significant steps to manage or lower the emission of greenhouse gases. The following
risks related to climate change could also have a material adverse impact on CMS Energy’s and Consumers’ liquidity, financial
condition, and results of operations:
• litigation originated by third parties against CMS Energy, Consumers, or their subsidiaries due to CMS
Energy’s or Consumers’ greenhouse gas emissions;
• impairment of CMS Energy’s or Consumers’ reputation due to its greenhouse gas emissions and public
perception of its response to potential greenhouse gas regulations, rules, and legislation; and
• extreme weather conditions, such as severe storms, that may affect customer demand, company
operations, or assets.
The EPA is considering regulating CCBs, such as coal ash, as hazardous wastes under the Resource Conservation and Recovery
Act. Michigan already regulates CCBs as low−hazard industrial waste. If coal ash is regulated as a hazardous waste, Consumers would
likely cease the beneficial re−use of this product, resulting in significantly more coal ash requiring costly disposal. Additionally, it is
possible that existing landfills could be closed if the upgrades to hazardous waste landfill standards are economically prohibitive. Costs
associated with this potential regulation could be substantial.
The EPA is revising regulations that govern cooling water intake structures aimed at protecting aquatic life. Costs associated with
these revisions could be material to CMS Energy, Consumers, and CMS Enterprises and result in operational changes or the retirement
of certain generating units.
CMS Energy and Consumers expect to collect fully from their customers, through the ratemaking process, expenditures incurred
to comply with environmental regulations. If Consumers were unable to recover these expenditures from customers in rates, it could
negatively affect CMS Energy’s and/or Consumers’ liquidity, results of operations, and financial condition and CMS Energy and/or
Consumers could be required to seek significant additional financing to fund these expenditures.
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CMS Energy’s and Consumers’ businesses could be affected adversely by any delay in meeting environmental requirements.
A delay or failure by CMS Energy or Consumers to obtain or maintain any necessary environmental permits or approvals to
satisfy any applicable environmental regulatory requirements or install emission control equipment could:
• prevent the construction of new facilities;
• prevent the continued operation and sale of energy from existing facilities;
• prevent the modification of existing facilities; or
• result in significant additional costs that could have a material adverse effect on their liquidity, financial
condition, or results of operations.
Market performance and other changes could decrease the value of benefit plan assets, which then could require significant
funding.
The performance of the capital markets affects the values of assets that are held in trust to satisfy future obligations under CMS
Energy’s and Consumers’ pension and postretirement benefit plans. CMS Energy and Consumers have significant obligations under
these plans and hold significant assets in these trusts. These assets are subject to market fluctuations and will yield uncertain returns,
which may fall below CMS Energy’s and Consumers’ forecasted return rates. A decline in the market value of the assets or a change in
the level of interest rates used to measure the required minimum funding levels may increase the funding requirements of these
obligations. Also, changes in demographics, including increased number of retirements or changes in life expectancy assumptions, may
increase the funding requirements of the obligations related to the pension and postretirement benefit plans. If CMS Energy and
Consumers were unable to manage their pension and postretirement plan assets successfully, it could have a material adverse effect on
their liquidity, financial condition, and results of operations.
Periodic reviews of the values of CMS Energy’s and Consumers’ assets could result in accounting charges.
CMS Energy and Consumers are required by GAAP to review periodically the carrying value of their assets, including those that
may be sold. Market conditions, the operational characteristics of their assets, and other factors could result in recording impairment
charges for their assets, which could have an adverse effect on their stockholders’ equity and their access to additional financing. In
addition, CMS Energy and Consumers may be required to record impairment charges at the time they sell assets, depending on the sale
prices they are able to secure and other factors.
CMS Energy’s and Consumers’ businesses have safety risks.
Consumers’ electric and gas delivery systems, power plants, gas infrastructure, and energy products could be involved in accidents
that result in injury or property loss to customers, employees, or the public. Although CMS Energy and Consumers have insurance
coverage for many potential incidents, depending upon the nature or severity of any incident or accident, CMS Energy or Consumers
could suffer financial loss, damage to its reputation, and negative repercussions from regulatory agencies or other public authorities.
CMS Energy’s and Consumers’ revenues and results of operations are subject to risks that are beyond their control, including but
not limited to natural disasters, terrorist attacks or related acts of war, hostile cyber intrusions, or other catastrophic events.
The impact of natural disasters, wars, terrorist acts, cyber intrusions, and other catastrophic events on the facilities and operations
of CMS Energy and Consumers could have a material adverse affect on their liquidity, financial condition, and results of operations. A
terrorist attack on physical infrastructure or a major natural disaster could result in severe damage to CMS Energy’s and Consumers’
assets beyond what could be recovered through insurance policies. Hostile cyber intrusions, including those targeting information
systems as well as electronic control systems used at the generating plants and for the electric and gas distribution systems, could
severely disrupt
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business operations and result in loss of service to customers, as well as significant expense to repair security breaches or system
damage. Terrorist attacks or acts of war could result in the disruption of power and fuel markets that could increase costs or disrupt
service. Instability in the financial markets as a result of terrorism, war, natural disasters, credit crises, recessions, or other factors, could
have a material adverse effect on CMS Energy’s and Consumers’ liquidity, financial condition, and results of operations.
CMS Energy and Consumers are exposed to significant reputational risks.
Consumers is actively engaged in multiple regulatory oversight processes and has a large electric and gas customer base. As a
result, Consumers has a highly visible public profile in Michigan. Consumers and CMS Energy could suffer negative impacts to their
reputations as a result of operational incidents, violations of corporate compliance policies, regulatory violations, or other events. This
could have a material adverse effect on CMS Energy’s and Consumers’ liquidity, financial condition, and results of operations. It could
also result in negative customer perception and increased regulatory oversight.
Energy risk management strategies may not be effective in managing fuel and electricity pricing risks, which could result in
unanticipated liabilities to Consumers and CMS Energy or increased volatility of their earnings.
Consumers is exposed to changes in market prices for natural gas, coal, electricity, emission allowances, and RECs. Prices for
natural gas, coal, electricity, emission allowances, and RECs may fluctuate substantially over relatively short periods of time and
expose Consumers to commodity price risk. A substantial portion of Consumers’ operating expenses for its plants consists of the costs
of obtaining these commodities. Consumers manages these risks using established policies and procedures, and it may use various
contracts to manage these risks, including swaps, options, futures, and forward contracts. No assurance can be made that these strategies
will be successful in managing Consumers’ pricing risk or that they will not result in net liabilities to Consumers as a result of future
volatility in these markets.
Natural gas prices in particular have been historically volatile. Consumers routinely enters into contracts to mitigate exposure to
the risks of demand, market effects of weather, and changes in commodity prices associated with its gas distribution business. These
contracts are executed in conjunction with the GCR mechanism, which is designed to allow Consumers to recover prudently incurred
costs associated with those positions. Consumers does not always hedge the entire exposure of its operations from commodity price
volatility. Furthermore, the ability to hedge exposure to commodity price volatility depends on liquid commodity markets. As a result,
to the extent the commodity markets are illiquid, Consumers may not be able to execute its risk management strategies, which could
result in greater unhedged positions than preferred at a given time. To the extent that unhedged positions exist, fluctuating commodity
prices could have a negative effect on CMS Energy’s and Consumers’ liquidity, financial condition, and results of operations.
Changes in taxation as well as the inherent difficulty in quantifying potential tax effects of business decisions could negatively
impact CMS Energy’s and Consumers’ results of operations.
CMS Energy and Consumers are required to make judgments regarding the potential tax effects of various financial transactions
and results of operations in order to estimate their obligations to taxing authorities. The tax obligations include income, real estate, sales
and use taxes, employment−related taxes, and ongoing issues related to these tax matters. The judgments include determining reserves
for potential adverse outcomes regarding tax positions that have been taken and may be subject to challenge by the IRS and/or other
taxing authorities. Unfavorable settlements of any of the issues related to these reserves at CMS Energy or Consumers could have a
material adverse effect on its liquidity, financial condition, and results of operations.
CMS Energy and Consumers are subject to changing tax laws. Increases in local, state, or federal tax rates or other changes in tax
laws could have adverse impacts on their liquidity, financial condition, and results of operations.
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Consumers is exposed to risks related to general economic conditions in its service territories.
Consumers’ electric and gas utility businesses are affected by the economic conditions of the customers they serve. In Consumers’
service territories in Michigan, the economy has been affected adversely by economic and financial instability in the automotive and
real estate sectors and by relatively high unemployment. The Michigan economy also has been affected negatively by the uncertainty in
the financial and credit markets. If economic conditions in Michigan decline further, Consumers may experience reduced demand for
electricity or natural gas that could result in decreased earnings and cash flow. In addition, economic conditions in Consumers’ service
territory affect its collections of accounts receivable and levels of lost or stolen gas, which in turn impact its liquidity, financial
condition, and results of operations.
CMS Energy’s and Consumers’ energy sales and operations are affected by seasonal factors and varying weather conditions from
year to year.
CMS Energy’s and Consumers’ businesses are seasonal. Demand for electricity is greater in the summer cooling season and the
winter heating season. Demand for natural gas peaks in the winter heating season. Accordingly, their overall results in the future may
fluctuate substantially on a seasonal basis. Mild temperatures during the summer cooling season and winter heating season could have a
material adverse affect on CMS Energy’s and Consumers’ liquidity, financial condition, and results of operations.
Unplanned power plant outages could be costly for Consumers.
When unplanned maintenance work is required on power plants or other equipment, Consumers may be required to incur
unplanned expenses and to make spot market purchases of electricity that exceed its costs of generation. If Consumers were unable to
recover any of these increased costs in rates, it could have a material adverse effect on Consumers’ liquidity, financial condition, and
results of operations.
A work interruption or other union actions could adversely affect CMS Energy and Consumers.
Over 40 percent of CMS Energy’s and Consumers’ employees are represented by a union. If these employees were to engage in a
strike, work stoppage, or other slowdown, or if the terms and conditions in future labor agreements were renegotiated, CMS Energy and
Consumers could experience a significant disruption in their operations and higher ongoing labor costs.
Failure to attract and retain an appropriately qualified workforce could harm CMS Energy’s and Consumers’ results of operations.
If CMS Energy and Consumers were unable to match skill sets to future needs, they could encounter operating challenges and
increased costs. These challenges could include a lack of resources, loss of knowledge, and delays in skill development. Additionally,
higher costs could result from the use of contractors to replace employees, loss of productivity, and safety incidents. Failing to train
replacement employees adequately and to transfer internal knowledge and expertise could affect CMS Energy’s and Consumers’ ability
to manage and operate their businesses. If CMS Energy and Consumers were unable to attract and retain an appropriately qualified
workforce, their results of operations could be affected negatively.
Consumers may not be able to obtain an adequate supply of coal or natural gas, which could limit its ability to operate its electric
generation facilities or serve its natural gas customers.
Consumers is dependent on coal for a significant portion of its electric generating capacity. While Consumers has coal supply and
transportation contracts in place, there can be no assurance that the counterparties to these agreements will fulfill their obligations to
supply coal to Consumers. The suppliers under the agreements may experience financial or operational problems that inhibit their
ability to fulfill their obligations to Consumers. In addition, suppliers under these agreements may not be required to supply coal to
Consumers under certain circumstances, such as in the event of a natural disaster. If Consumers were unable to obtain its coal
requirements under existing or future coal supply and transportation contracts, it may be required to purchase coal at higher
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prices, or it may be forced to purchase electricity from higher cost generating resources in the Midwest Energy Market, which would
increase Consumers’ working capital requirements.
Consumers has firm interstate transportation and supply agreements in place to facilitate deliveries of natural gas to its customers.
Apart from the contractual and monetary remedies available to Consumers in the event of a counterparty’s failure to perform, there can
be no assurances that the counterparties to these firm interstate transportation and supply agreements will fulfill their obligations to
provide natural gas to Consumers. In addition, suppliers under these agreements may not be required to deliver natural gas to
Consumers in certain circumstances, such as in the event of a natural disaster. If Consumers were unable to obtain its natural gas supply
requirements under existing or future natural gas supply and transportation contracts, it could be required to purchase natural gas at
higher prices from other sources or implement its natural gas curtailment program filed with the MPSC, which would increase
Consumers’ working capital requirements and decrease its natural gas revenues.
Electric industry regulation could have a material adverse effect on CMS Energy’s and Consumers’ businesses.
Federal and state regulation of electric utilities has changed dramatically in the last two decades and could continue to change over
the next several years. These changes could have a material adverse effect on CMS Energy’s and Consumers’ liquidity, financial
condition, and results of operations.
CMS Energy and Consumers are subject to, or affected by, extensive federal and state utility regulation. In CMS Energy’s and
Consumers’ business planning and management of operations, they must address the effects of existing and proposed regulation on their
businesses and changes in the regulatory framework, including initiatives by federal and state legislatures, regional transmission
organizations, utility regulators, and taxing authorities. Adoption of new regulations by federal or state agencies, or changes to present
regulations and interpretations of these regulations, could have a material adverse effect on CMS Energy’s and Consumers’ liquidity,
financial condition, and results of operations.
There are multiple proceedings pending before FERC involving transmission rates, regional transmission organizations, and
electric bulk power markets and transmission. CMS Energy and Consumers cannot predict the impact of these electric industry
restructuring proceedings on their liquidity, financial condition, and results of operations.
Electric industry legislation could have a material adverse effect on CMS Energy’s and Consumers’ businesses.
The 2008 Energy Legislation, among other things, limits alternative electric supply to ten percent of weather−adjusted retail sales
for the preceding calendar year for ROA. Proposals have been made to raise that limit, which, if enacted, could have a material adverse
effect on Consumers’ business. Proposals also have been made to increase the electric sales volume that will be required from
renewable energy sources. Other new legislation or interpretations could change how the businesses of CMS Energy and Consumers
operate, impact the ability of Consumers to recover costs through rate increases, or require CMS Energy or Consumers to incur
additional expenses.
The markets for alternative energy and distributed generation could impact financial results.
Advances in technology could reduce the cost of alternative methods of producing electricity, such as fuel cells, microturbines,
windmills, and photovoltaic (solar) cells, to a level that is competitive with that of fossil−fuel technology utilized by CMS Energy and
Consumers to produce a majority of their electricity. It is also possible that electric customers could reduce their electric consumption
significantly through demand−side energy conservation programs. Changes in technology could also alter the channels through which
electric customers buy electricity. Any of these changes could have a material adverse effect on CMS Energy’s and Consumers’
liquidity, financial condition, or results of operations.
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CMS Energy and Consumers are subject to rate regulation, which could have an adverse effect on financial results.
CMS Energy and Consumers are subject to rate regulation. Electric and gas rates for their utilities are set by the MPSC and cannot
be increased without regulatory authorization. While Consumers is permitted by the 2008 Energy Legislation to self−implement rate
changes six months after a rate filing with the MPSC, subject to certain limitations, if a final rate order from the MPSC provides for
lower rates than Consumers self−implemented, Consumers must refund the difference, with interest. Also, the MPSC may delay or
deny implementation of a rate increase upon showing of good cause.
In addition, Consumers’ plans for making significant capital investments, including modifications to meet new environmental
requirements and investment in new generation, could be affected adversely or could have a material adverse effect on Consumers if
rate regulators fail to provide timely rate relief. Regulators seeking to avoid or minimize rate increases could resist raising customer
rates sufficiently to permit Consumers to recover the full cost of modifications to meet environmental requirements and other prudent
investments. In addition, because certain costs are mandated by state requirements for cost recovery, such as resource additions to meet
Michigan’s renewable resource standard, regulators could be more inclined to oppose rate increases for other required items and
investments. Rate regulators could also face pressure to avoid or limit rate increases for a number of reasons, including failure of
Michigan’s economy to improve or diminishment of Consumers’ customer base. In addition to potentially affecting Consumers’
investment program, any limitation of cost recovery through rates could have a material adverse effect on Consumers’ liquidity,
financial condition, and results of operations.
A further regulatory risk could arise from the MPSC’s adoption of mechanisms to decouple revenues from electricity and gas
sales. The MPSC’s adoption or future treatment of these mechanisms could impact future revenues.
FERC authorizes certain subsidiaries of CMS Energy to sell electricity at market−based rates. Failure of CMS Energy and
Consumers to obtain adequate rates or regulatory approvals in a timely manner could have a material adverse effect on CMS Energy’s
and Consumers’ liquidity, financial condition, and results of operations.
The various risks associated with the MPSC and FERC regulation of CMS Energy’s and Consumers’ businesses, which include
the risk of adverse decisions in any number of rate or regulatory proceedings before either agency, could have a substantial negative
effect on the companies’ investment plans and results of operations.
CMS Energy’s and Consumers’ financial statements, including their reported earnings, could be significantly impacted by
convergence with International Financial Reporting Standards.
The FASB is expected to make broad changes to GAAP as part of an overall initiative to converge U.S. standards with
International Financial Reporting Standards. These changes could have significant impacts on the financial statements of CMS Energy
and Consumers. Also, the SEC is considering incorporating International Financial Reporting Standards into the financial reporting
system for U.S. registrants. A transition to International Financial Reporting Standards could significantly impact CMS Energy’s and
Consumers’ financial results, since these standards differ from GAAP in many ways. One of the major differences is the lack of special
accounting treatment for regulated activities under International Financial Reporting Standards, which could result in greater earnings
volatility for CMS Energy and Consumers.
CMS Energy and Consumers are exposed to credit risk of those with whom they do business.
CMS Energy and Consumers are exposed to credit risk of counterparties with whom they do business. Adverse economic
conditions or financial difficulties experienced by these counterparties could impair the ability of these counterparties to pay for CMS
Energy’s and Consumers’ services or fulfill their contractual obligations, including performance and payment of damages. CMS Energy
and Consumers depend on these counterparties to remit payments and perform services timely. Any delay or default in payment or
performance of contractual obligations could have a material adverse effect on CMS Energy’s and Consumers’ liquidity, financial
condition, and results of operations.
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In recent years, the capital and credit markets have experienced unprecedented high levels of volatility and disruption. Market
disruption and volatility could have a negative impact on CMS Energy’s and Consumers’ lenders, suppliers, customers, and other
counterparties, causing them to fail to meet their obligations. Adverse economic conditions could also have a negative impact on the
loan portfolio of CMS Energy’s banking subsidiary, EnerBank.
CMS Energy could be required to pay cash to certain security holders in connection with the optional conversion of their convertible
securities.
CMS Energy has issued two series of cash−convertible securities, of which an aggregate principal amount of $460 million was
outstanding at December 31, 2010. If the trading price of CMS Energy’s common stock exceeds specified amounts at the end of a
particular fiscal quarter, then holders of one or more series of these convertible securities will have the option to convert their securities
in the following fiscal quarter, with the principal amount payable in cash by CMS Energy. Accordingly, if these trading price
minimums are satisfied and security holders exercise their conversion rights, CMS Energy may be required to outlay a significant
amount of cash to those security holders, which could have a material adverse effect on CMS Energy’s liquidity and financial condition.
There are risks associated with Consumers’ significant capital investment program planned for the next five years.
Consumers’ planned investments include an advanced metering infrastructure program, renewable power generation, gas
compression, environmental controls, other electric and gas infrastructure to upgrade delivery systems, and, potentially, new power
plants. The success of these investments depends on or could be affected by a variety of factors including, but not limited to, effective
cost and schedule management during implementation, changes in commodity and other prices, operational performance, changes in
environmental, legislative and regulatory requirements, and regulatory cost recovery. Consumers cannot predict the impact that any of
these factors could have on the success of its capital investment program. It is possible that adverse events associated with these factors
could have a material adverse effect on Consumers’ liquidity, financial condition, and results of operations.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
Descriptions of CMS Energy’s and Consumers’ properties are found in the following sections of Item 1, all of which are
incorporated by reference in this Item 2:
• Business, Business Segments, Consumers Electric Utility, Electric Utility Properties;
• Business, Business Segments, Consumers Gas Utility, Gas Utility Properties; and
• Business, Business Segments, Enterprises Segment — Non−Utility Operations and Investments, IPP
Properties.
ITEM 3. LEGAL PROCEEDINGS
For information regarding CMS Energy’s, Consumers’, and their subsidiaries’ significant pending administrative and judicial
proceedings involving regulatory, operating, transactional, environmental, and other matters, see Item 8. Financial Statements and
Supplementary Data, Notes to Consolidated Financial Statements, Note 5, Contingencies and Commitments and Note 6, Regulatory
Matters.
CMS Energy, Consumers, and certain of their subsidiaries and affiliates are also parties to routine lawsuits and administrative
proceedings incidental to their businesses involving, for example, claims for personal injury and property damage, contractual matters,
various taxes, and rates and licensing.
ITEM 4. REMOVED AND RESERVED
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PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
CMS Energy
CMS Energy’s common stock is traded on the New York Stock Exchange. Market prices for CMS Energy’s common stock and
related security holder matters are contained in Item 7. MD&A and Item 8. Financial Statements and Supplementary Data, Notes to
Consolidated Financial Statements, Note 22, Quarterly Financial and Common Stock Information (Unaudited), which are incorporated
by reference herein. At February 10, 2011, the number of registered holders of CMS Energy’s common stock totaled 42,360, based on
the number of record holders. Presented in the following table are CMS Energy’s dividends on its common stock:
Per Share
May
August
February
2010
2009
$
$
0.150
0.125
$ 0.150
$ 0.125
$ 0.150
$ 0.125
November
$
$
0.210
0.125
Information regarding securities authorized for issuance under equity compensation plans is included in CMS Energy’s definitive
proxy statement, which is incorporated by reference herein. For additional information regarding dividends and dividend restrictions,
see Item 8. Financial Statements and Supplementary Data, Notes to Consolidated Financial Statements, Note 7, Financings and
Capitalization.
Consumers
Consumers’ common stock is privately held by its parent, CMS Energy, and does not trade in the public market. Presented in the
following table are Consumers’ cash dividends on its common stock:
2010
2009
February
In Millions
May
August
November
$
$
$ 54
$ 58
$
$
114
72
$
$
91
103
99
52
For additional information regarding dividends and dividend restrictions, see Item 8. Financial Statements and Supplementary
Data, Notes to Consolidated Financial Statements, Note 7, Financings and Capitalization.
Issuer Repurchases of Equity Securities
Presented in the following table are CMS Energy’s repurchases of equity securities for the three months ended December 31,
2010:
Period
October 1, 2010 to October 31, 2010
November 1, 2010 to November 30, 2010
December 1, 2010 to December 31, 2010
Total
(a)
Total Number of
Shares Purchased
(a)
Average
Price Paid
per Share
Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programs
Maximum Number of
Shares that May Yet
Be Purchased Under
Publicly Announced
Plans or Programs
2,071
—
1,861
$
18.54
—
18.62
—
—
—
—
—
—
3,932
$
18.58
—
—
Common shares were purchased to satisfy CMS Energy’s minimum statutory income tax withholding obligation for common
shares that have vested under the PISP. Shares repurchased have a value based on the market price on the vesting date.
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Unregistered Sales of Equity Securities
On December 30, 2010, CMS Energy issued 166,930 shares of its common stock and paid $3 million in cash in exchange for
$3 million aggregate principal amount of its 3.375 percent Convertible Senior Notes Due 2023, Series B. These convertible notes were
tendered for conversion on December 13, 2010 in accordance with the terms and provisions of the Indenture of CMS Energy dated as of
September 15, 1992, as supplemented by the Sixteenth Supplemental Indenture dated as of December 16, 2004. Such shares of common
stock were issued based on the conversion value of $2,006.88 per $1,000 principal amount of convertible note. The issuance of these
shares of common stock was an exchange of securities with existing shareholders and was exempt from registration pursuant to
Section 3(a)(9) of the Securities Act of 1933, as amended.
ITEM 6. SELECTED FINANCIAL DATA
CMS Energy
Selected financial information is contained in Item 8. Financial Statements and Supplementary Data, CMS Energy’s Selected
Financial Information, which is incorporated by reference herein.
Consumers
Selected financial information is contained in Item 8. Financial Statements and Supplementary Data, Consumers’ Selected
Financial Information, which is incorporated by reference herein.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CMS Energy
Management’s discussion and analysis of financial condition and results of operations is contained in Item 8. Financial Statements
and Supplementary Data, MD&A, which is incorporated by reference herein.
Consumers
Management’s discussion and analysis of financial condition and results of operations is contained in Item 8. Financial Statements
and Supplementary Data, MD&A, which is incorporated by reference herein.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
CMS Energy
Quantitative and qualitative disclosures about market risk are contained in Item 8. Financial Statements and Supplementary Data,
MD&A, Critical Accounting Policies, “Financial and Derivative Instruments and Market Risk Information,” which is incorporated by
reference herein.
Consumers
Quantitative and qualitative disclosures about market risk are contained in Item 8. Financial Statements and Supplementary Data,
MD&A, Critical Accounting Policies, “Financial and Derivative Instruments and Market Risk Information,” which is incorporated by
reference herein.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Page
Index to Financial Statements:
Selected Financial Information
CMS Energy
Consumers
Management’s Discussion and Analysis
Consolidated Financial Statements
CMS Energy
Consumers
Notes to Consolidated Financial Statements
Reports of Independent Registered Public Accounting Firms
CMS Energy
Consumers
47
48
49
75
84
92
172
173
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(This page intentionally left blank)
45
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2010 Consolidated Financial Statements
and
2010 Consolidated Financial Statements
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Selected Financial Information
CMS Energy Corporation
2010
Operating revenue (in millions)
Income (loss) from equity method
investees
(in millions)
Income (loss) from continuing operations
(in millions)(a)
Income (loss) from discontinued
operations
(in millions)
Net income (loss) available to common
stockholders (in millions)
Average common shares outstanding
(in thousands)
Earnings (loss) from continuing operations
per average common share
CMS Energy — Basic
− Diluted
Earnings (loss) per average common share
CMS Energy — Basic
− Diluted
Cash provided by operations (in millions)
Capital expenditures, excluding assets
placed under capital lease (in millions)
Total assets (in millions)
Long−term debt, excluding current portion
(in millions)
Non−current portion of capital and finance
lease obligations (in millions)
Total preferred stock (in millions)
Cash dividends declared per common
share
Market price of common stock at
year−end
Book value per common share at year−end
Number of employees at year−end
(full−time equivalents)
Electric Utility Statistics
Sales (billions of kWh)
Customers (in thousands)
Average sales rate per kWh
Gas Utility Statistics
Sales and transportation deliveries (bcf)
Customers (in thousands)(b)
Average sales rate per mcf
2009
2008
($)
6,432
6,205
($)
11
($)
366
220
($)
(23)
($)
2007
2006
6,807
6,451
6,117
5
40
89
301
(120)
(242)
20
1
(110)
60
324
218
284
(234)
(96)
231,473
227,169
225,671
($)
($)
1.50
1.36
0.87
0.83
1.25
1.20
(0.65)
(0.65)
(0.67)
(0.67)
($)
($)
($)
1.40
1.28
959
0.96
0.91
848
1.25
1.20
557
(1.04)
(1.04)
23
(0.43)
(0.43)
688
($)
($)
821
15,616
818
15,256
792
14,901
1,263
14,180
670
15,324
($)
6,448
5,895
6,015
5,533
6,338
($)
($)
188
—
197
239
206
243
225
250
42
261
($)
0.66
0.50
0.36
0.20
—
($)
($)
18.60
11.19
15.66
11.42
10.11
10.93
17.38
9.54
16.70
10.14
7,822
8,039
7,970
7,898
8,640
(¢)
38
1,792
10.54
36
1,796
9.81
37
1,814
9.48
39
1,799
8.65
38
1,797
8.46
($)
317
1,711
10.60
319
1,708
10.73
338
1,713
11.25
340
1,710
10.66
309
1,714
10.44
(2)
224,473
221,618
(a) Income (loss) from continuing operations includes income (loss) attributable to noncontrolling interests of $3 million at
December 31, 2010, $11 million at December 31, 2009, $7 million at December 31, 2008, $(8) million at December 31, 2007, and
$(97) million at December 31, 2006.
(b) Excludes off−system transportation customers.
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Selected Financial Information
Consumers Energy Company
2010
Operating revenue (in millions)
Income from equity method investees (in millions)
Net income (in millions)
Net income available to common stockholder
(in millions)
Cash provided by operations (in millions)
Capital expenditures, excluding assets placed under
capital lease (in millions)
Total assets (in millions)
Long−term debt, excluding current portion (in millions)
Non−current portion of capital and finance lease
obligations (in millions)
Total preferred stock (in millions)
Number of preferred stockholders at year−end
Number of employees at year−end (full−time
equivalents)
Electric Utility Statistics
Sales (billions of kWh)
Customers (in thousands)
Average sales rate per kWh
Gas Utility Statistics
Sales and transportation deliveries (bcf)
Customers (in thousands)(a)
Average sales rate per mcf
(a)
2009
2008
2007
2006
($)
($)
($)
6,156
—
434
5,963
—
293
6,421
—
364
6,064
—
312
5,721
1
186
($)
($)
432
910
291
922
362
873
310
440
184
474
($)
($)
($)
815
14,839
4,488
811
14,622
4,063
789
14,246
3,908
1,258
13,401
3,692
646
12,845
4,127
($)
($)
188
44
1,496
197
44
1,531
206
44
1,584
225
44
1,641
42
44
1,728
7,522
7,755
7,697
7,614
8,026
(¢)
38
1,792
10.54
36
1,796
9.81
37
1,814
9.48
39
1,799
8.65
38
1,797
8.46
($)
317
1,711
10.60
319
1,708
10.73
338
1,713
11.25
340
1,710
10.66
309
1,714
10.44
Excludes off−system transportation customers.
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CMS Energy Corporation
Consumers Energy Company
MANAGEMENT’S DISCUSSION AND ANALYSIS
This MD&A is a combined report of CMS Energy and Consumers.
EXECUTIVE OVERVIEW
CMS Energy is an energy company operating primarily in Michigan. It is the parent holding company of several subsidiaries,
including Consumers, an electric and gas utility, and CMS Enterprises, primarily a domestic IPP. Consumers’ electric utility operations
include the generation, purchase, distribution, and sale of electricity, and Consumers’ gas utility operations include the purchase,
transmission, storage, distribution, and sale of natural gas. Consumers’ customer base consists of a mix of residential, commercial, and
diversified industrial customers. CMS Enterprises, through its subsidiaries and equity investments, owns and operates power generation
facilities.
CMS Energy and Consumers manage their businesses by the nature of services each provides. CMS Energy operates principally in
three business segments: electric utility; gas utility; and enterprises, its non−utility investments and operations. Consumers operates
principally in two business segments: electric utility and gas utility.
CMS Energy and Consumers earn revenue and generate cash from operations by providing electric and natural gas utility services;
electric distribution and generation; gas transmission, storage, and distribution; and other energy−related services. Their businesses are
affected primarily by:
• regulation and regulatory matters;
• economic conditions;
• weather;
• energy commodity prices;
• interest rates; and
• CMS Energy’s and Consumers’ securities’ credit ratings.
During the past several years, CMS Energy’s “Growing Forward” business strategy has emphasized the following key elements:
Utility Investment
Consumers expects to make capital investments of more than $6 billion over the next five years, with a key aspect of its strategy
being the balanced energy initiative. The balanced energy initiative is a comprehensive energy resource plan to meet Consumers’
projected short−term and long−term electric power requirements with energy efficiency, demand management, expanded use of
renewable energy, development of new power plants, pursuit of
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additional PPAs to complement existing generating sources, potential retirement or mothballing of older generating units, and continued
operation of others.
Presented in the following illustration are CMS Energy’s and Consumers’ estimated capital expenditures, including lease
commitments, for 2011 through 2015:
Renewable energy projects are a major component of Consumers’ planned capital investments. Consumers expects to spend
$650 million on renewable energy investments through 2015. The 2008 Energy Legislation requires that at least ten percent of
Consumers’ electric sales volume come from renewable energy sources by 2015, and includes requirements for specific capacity
additions. Consumers has historically included renewable resources as part of its portfolio, with about five percent of its present power
supply coming from such renewable sources as hydroelectric, landfill gas, biomass, and wind. In 2010, Consumers filed with the MPSC
its first annual reports and reconciliations for its renewable energy plan and its energy optimization plan, requesting approval of 2009
plan costs. As one of the conditions to the continuation of the electric and gas decoupling mechanisms that were adopted in general rate
cases, Consumers must exceed the statutory savings targets specified in the 2008 Energy Legislation for 2011 through 2014. In
December 2010, the MPSC approved Consumers’ amended energy optimization plan to recover the additional spending necessary to
exceed these savings targets.
In February 2011, Consumers and Detroit Edison together announced an $800 million maintenance and upgrade project at their
jointly owned Ludington pumped−storage plant. The project, scheduled to begin in 2013 and extend through 2019, will increase the
capacity of Ludington from its present level of 1,872 MW to about 2,172 MW. Consumers expects its share of the project cost to total
$400 million.
Consumers’ smart grid program will also represent a significant capital investment. The initial deployment will include advanced
metering infrastructure and will follow a phased approach, beginning in early 2012. Consumers expects to spend $355 million on its
smart grid program through 2015.
In May 2010, Consumers announced plans to defer the development of its proposed 830−MW coal−fueled plant at its
Karn/Weadock generating complex. This decision reflects reduced customer demand for electricity resulting from the recession in
Michigan, forecasted lower natural gas prices due to recent developments in shale gas recovery technology, and projected surplus
generating capacity in the MISO market.
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Regulation
Regulatory matters are a key aspect of CMS Energy’s and Consumers’ businesses, particularly Consumers’ rate cases and
regulatory proceedings before the MPSC. Recent significant regulatory events and developments are summarized below.
• Big Rock Decommissioning Refund: In February 2010, the MPSC issued an order requiring that
Consumers refund to customers $85 million collected during a rate freeze from 2001 to 2003 plus interest.
Consumers completed this refund in January 2011. Consumers has filed an appeal of this order.
• 2009 Gas Rate Case: In May 2010, the MPSC issued a gas rate order authorizing Consumers to increase
its gas rates in an annual amount of $66 million based on an authorized return on equity of 10.55 percent.
This rate order also adopted a pilot revenue decoupling mechanism. In general, a decoupling mechanism
allows a utility to adjust rates due to changes in sales volumes, in order to improve the match between the
collection of revenues and the revenue level approved by the utility’s regulator. Consumers’ gas
decoupling mechanism, subject to certain conditions, allows Consumers to adjust future gas rates to
compensate for changes in sales volumes resulting from energy efficiency, conservation, and other
non−weather factors. This mechanism is subject to review at the end of annual periods.
• 2010 Gas Rate Case: In August 2010, Consumers filed an application with the MPSC seeking an annual
gas rate increase of $55 million based on an 11 percent authorized return on equity. The filing requested
recovery for investments made to enhance safety, system reliability, and operational efficiencies that
improve service to customers. In January 2011, Consumers filed testimony and exhibits with the MPSC in
support of a self−implemented annual gas rate increase of $48 million, subject to refund with interest. In
February 2011, Consumers filed a letter with the MPSC revising the proposed self−implemented increase
to $29 million. The MPSC issued an order in February 2011, delaying Consumers’ self−implementation in
order to give other parties to the proceeding an opportunity to respond to Consumers’ revised
self−implementation filing.
• 2010 Electric Rate Case: In November 2010, the MPSC issued an electric rate order authorizing
Consumers to increase its rates in an annual amount of $146 million based on an authorized return on
equity of 10.7 percent. This electric rate order continues Consumers’ pilot electric decoupling mechanism,
which, subject to certain conditions, was adopted in a November 2009 electric rate order. The electric
decoupling mechanism is similar to the gas decoupling mechanism, but also permits rate adjustments to
compensate for changes in sales volumes resulting from weather fluctuations. The mechanism is subject to
review at the end of annual periods.
Environmental regulation is another area of importance for CMS Energy and Consumers. In 2009, the EPA issued an
endangerment finding that greenhouse gases, including carbon dioxide, contribute to air pollution that may endanger the public health
and welfare, thus setting the stage for regulation of carbon dioxide emissions under the Clean Air Act. The EPA also issued an Advance
Notice of Proposed Rulemaking in April 2010, indicating that it is considering a variety of regulatory actions with respect to PCBs. In
June 2010, the EPA proposed a range of alternatives for regulating CCBs, such as coal ash, under the Resource Conservation and
Recovery Act. In July 2010, the EPA released CATR, a proposed rule that would replace CAIR. CMS Energy and Consumers are
monitoring these developments for potential effects on their plans and operations.
Safety
The safety and security of employees, customers, and the general public remain a priority of CMS Energy and Consumers.
Accordingly, CMS Energy and Consumers have worked to integrate a set of safety principles into their business operations and culture.
These principles include complying with applicable safety, health, and security regulations and implementing programs and processes
aimed at continually improving safety and security conditions.
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Financial Performance in 2010 and Beyond
In 2010, CMS Energy’s net income available to common stockholders was $324 million, and diluted earnings per share were
$1.28. This compares with net income available to common stockholders of $218 million and diluted earnings per share of $0.91 in
2009.
Among the most significant factors contributing to CMS Energy’s improved performance in 2010 were benefits from electric and
gas rate orders, the absence of a revenue reduction in 2009 associated with the Big Rock decommissioning refund order, increased
deliveries of electricity, and an insurance settlement related to a previously sold investment.
Also in 2010, CMS Energy recognized a $40 million charge to increase the recorded liability for its affiliates’ environmental
remediation obligation associated with Bay Harbor. This increase was due to several factors, including anticipated cost increases for the
disposal of leachate under an NPDES permit issued by the MDNRE; additional costs for the increased scope of remediation to meet
EPA and MDNRE requirements; and increased legal, management, and engineering costs due to delays in reaching an agreement with
all involved parties. In addition, Consumers recorded charges of $22 million in 2010 to write off previously capitalized development
costs associated with its proposed coal−fueled plant. These charges reflected Consumers’ decision to defer the development of the
plant, and the reduced likelihood that the plant will be constructed.
A more detailed discussion of the factors affecting CMS Energy’s and Consumers’ performance in 2010 can be found in the
“Results of Operations” section that follows this Executive Overview.
In 2010, Consumers’ weather−adjusted electric deliveries increased by 1.7 percent over 2009, while Consumers’
weather−adjusted gas deliveries were at similar levels to 2009. These trends support CMS Energy’s view that economic conditions in
Michigan have stabilized. Although Michigan’s economy continues to be affected by the recession and its impact on the state’s
automotive industry, by high unemployment rates, and by a modestly shrinking population, there are indications that the recession is
easing in Michigan. Consumers expects its electric sales to increase by about 1.5 percent annually through 2016, driven largely by the
continued rise in industrial production. Consumers is projecting that its gas sales will decline by about one percent annually through
2016, due largely to energy efficiency and conservation.
As Consumers continues to seek fair and timely regulatory treatment, delivering customer value will remain a key strategic
priority. To keep costs down for its utility customers, Consumers has set aggressive goals for annual productivity improvements.
Additionally, Consumers will strive to give priority to capital investments that increase customer value or lower costs.
Consumers expects to continue to have sufficient capacity to fund its investment−based growth plans. CMS Energy also expects
its sources of liquidity to remain sufficient to meet its cash requirements. CMS Energy and Consumers will continue to monitor
developments in the financial and credit markets, as well as government policy responses to those developments, for potential
implications for their businesses and their future financial needs.
RESULTS OF OPERATIONS
CMS Energy’s Consolidated Results of Operations
Years
Ended
December
31
2010
2009
2008
In Millions (except for Per
Share Amounts)
Net Income Available to Common Stockholders
Basic Earnings Per Share
Diluted Earnings Per Share
$ 324
$ 1.40
$ 1.28
52
$ 218
$ 0.96
$ 0.91
$ 284
$ 1.25
$ 1.20
Table of Contents
Years
Ended
December
31
2010
2009
Change
2009
In Millions
2008
Change
Electric Utility
Gas Utility
Enterprises
Corporate Interest and Other
Discontinued Operations
$
303
127
36
(119)
(23)
$ 194
96
(7)
(85)
20
$
109
31
43
(34)
(43)
$ 194
96
(7)
(85)
20
$ 271
89
13
(90)
1
$
(77)
7
(20)
5
19
Net Income Available to Common Stockholders
$
324
$ 218
$
106
$ 218
$ 284
$
(66)
Presented in the following table are specific after−tax changes to net income available to common stockholders for 2010 versus
2009:
2010 Over/(Under) 2009
(In Millions)
Electric and gas rate orders
Electric sales:
Weather
Customer shift to energy−only rates and to ROA
Decoupling benefit
$
$
52
(36)
11
90
27
Gas sales, primarily weather
2009 net benefits, primarily asset sale gain and tax credit
Write−off of proposed coal−fueled plant cost
Other, mainly depreciation
(14)
(17)
(14)
(5)
Subsidiary earnings of enterprises segment
Cost of debt retirements and preferred stock redemptions, net
Interest expense
Other, mainly tax adjustments
(20)
(9)
(6)
(35)
2009 Big Rock decommissioning refund
Insurance settlement recovery
2009 gain on indemnity expiration
Other, including increase in Bay Harbor environmental liability
79
31
(31)
(18)
61
$
67
13
Total change
$ 106
Presented in the following table are specific after−tax changes to net income available to common stockholders for 2009 versus
2008:
2009 Over/(Under) 2008
(In Millions)
Electric and gas rate orders
Electric and gas sales:
Weather
Lower deliveries, mainly economic conditions
$
$ (34)
(14)
2008 net benefits, primarily sulfur dioxide credits
Plant maintenance expense
Pension and OPEB expenses
Forestry and tree trimming costs
Other, mainly higher property tax and interest expense
139
(48)
(23)
(20)
(19)
(12)
(19)
Subsidiary earnings of enterprises segment
Gain on early retirement of debt
Other, mainly tax adjustments
$
(2)
5
Big Rock decommissioning refund
Increase in Bay Harbor environmental liability
Gain on indemnity expiration
Other
Total change
7
3
10
(79)
(22)
31
(9)
(79)
$ (66)
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Table of Contents
Consumers’ Electric Utility Results of Operations
Years
Ended
December
31
Net Income Available to Common Stockholders
Reasons for the change:
Electric deliveries and rate increases
Power supply costs and related revenue
Other income, net of expenses
Maintenance and other operating expenses
Depreciation and amortization
General taxes
Interest charges
Income taxes
2010
2009
$ 303
$ 194
Total change
Change
2009
In Millions
$
109
$
$
$ 194
2008
$ 271
Change
$
(77)
266
(7)
(27)
(59)
(9)
2
23
(80)
$
(6)
(1)
14
(77)
(2)
(10)
(42)
47
109
$
(77)
Electric deliveries and rate increases: For 2010, electric delivery revenues increased $266 million compared with 2009. This
variance included $84 million associated with favorable weather in 2010, offset partially by $40 million of decreased demand revenues
and $19 million from lower customer usage. Additionally, revenues increased $32 million due to surcharges from MPSC orders
allowing recovery of retirement benefit expenses, and $100 million from authorized rate increases in November 2010 and November
2009. Revenues also increased $99 million due to the absence of a refund ordered in 2009 related to the Big Rock decommissioning
case. For more details regarding the Big Rock decommissioning order, see Note 6, Regulatory Matters. Other miscellaneous revenue
increases totaled $10 million. Overall, deliveries to end−use customers were 37.7 billion kWh in 2010, an increase of 1.9 billion kWh or
5.3 percent compared with 2009.
For 2009, electric delivery revenues decreased $6 million compared with 2008. This variance resulted from $43 million associated
with unfavorable weather in 2009, $10 million from lower customer usage, and $99 million from a refund order related to the Big Rock
decommissioning case, offset largely by $146 million of additional revenues from authorized rate increases in June 2008 and November
2009. Overall, deliveries to end−use customers were 35.8 billion kWh in 2009, a decrease of 1.7 billion kWh or 4.5 percent compared
with 2008.
Other income, net of expenses: For 2010, other income decreased $27 million compared with 2009, due primarily to a reduction
of $8 million in interest income recorded on regulatory assets and the absence, in 2010, of $9 million of gains recognized on land sales
in 2009.
For 2009, other income increased $14 million compared with 2008, due primarily to $9 million of gains recognized on land sales
in 2009 and an $11 million impairment charge recorded on Consumers’ SERP investments in 2008.
Maintenance and other operating expenses: For 2010, maintenance and other operating expenses increased $59 million
compared with 2009. The increase was due primarily to higher retirement benefit expenses of $32 million and a $22 million impairment
charge related to Consumers’ decision to defer the development of its proposed coal−fueled plant.
For 2009, maintenance and other operating expenses increased $77 million compared with 2008. The increase was due primarily
to $24 million of higher plant maintenance expenses, $23 million related to energy optimization program costs, and higher benefit
expenses of $7 million. In addition, expenses increased $35 million in 2009 due to sulfur dioxide credits and RCP savings on
Consumers’ MCV PPA contract recorded in 2008.
Interest charges: For 2010, interest charges decreased $23 million compared with 2009. The decrease was due to the absence, in
2010, of $31 million of interest expense associated with the 2009 Big Rock decommissioning order, offset partially by an $8 million
increase in other interest charges in 2010.
For 2009, interest charges increased $42 million compared with 2008, due to higher interest expense of $31 million associated
with the Big Rock decommissioning order and an $11 million increase in other interest charges.
54
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Income taxes: For 2010, income taxes increased $80 million compared with 2009, due to higher electric utility earnings. For
2009, income taxes decreased $47 million compared with 2008, due to lower electric utility earnings.
Consumers’ Gas Utility Results of Operations
Years
Ended
December
31
Net Income Available to Common Stockholders
Reasons for the change:
Gas deliveries and rate increases
Other income, net of expenses
Maintenance and other operating expenses
Depreciation and amortization
General taxes
Interest charges
Income taxes
2010
2009
Change
2009
In Millions
2008
Change
$ 127
$ 96
$
31
$ 89
$
7
$
60
(2)
(7)
(4)
2
(7)
(11)
$
29
13
(32)
18
(4)
(5)
(12)
$
31
$
7
Total change
$ 96
Gas deliveries and rate increases: For 2010, gas delivery revenues increased $60 million compared with 2009, due primarily to
additional revenues of $54 million from an authorized rate increase in May 2010. In addition, surcharge and other miscellaneous
revenues increased $30 million. These increases were offset partially by a $24 million reduction due to unfavorable weather in 2010.
Gas deliveries, including miscellaneous transportation to end−use customers, were 273.1 bcf in 2010, a decrease of 11.2 bcf or
3.9 percent compared with 2009.
For 2009, gas delivery revenues increased $29 million compared with 2008, due to additional revenues of $32 million from an
authorized rate increase in December 2008 and a self−implemented rate increase in November 2009. In addition, surcharge and other
miscellaneous revenues increased $28 million. These increases were offset by $10 million associated with unfavorable weather in 2009
and $21 million due to lower customer usage. Gas deliveries, including miscellaneous transportation to end−use customers, were 284.3
bcf in 2009, a decrease of 19.4 bcf or 6.4 percent compared with 2008.
Other income, net of expenses: Other income in 2010 was not materially different from other income in 2009.
For 2009, other income increased $13 million compared with 2008 due to $8 million of higher interest income on secured
borrowing agreements and a $5 million impairment charge recorded on Consumers’ SERP investments in 2008.
Maintenance and other operating expenses: For 2010, maintenance and other operating expenses increased $7 million
compared with 2009 due primarily to energy optimization program costs.
For 2009, maintenance and other operating expenses increased $32 million compared with 2008, due primarily to $14 million
related to energy optimization program costs and higher benefit expenses of $12 million.
Depreciation and amortization: For 2010, depreciation and amortization expense increased $4 million compared with 2009, due
primarily to increased plant in service. For 2009, depreciation and amortization expense decreased $18 million compared with 2008 due
to the December 2008 gas rate order, which reduced depreciation expense.
Income taxes: For 2010, income taxes increased $11 million compared with 2009, and for 2009, income taxes increased
$12 million compared with 2008. Both increases were due to higher gas utility earnings.
Enterprises Results of Operations
Years
Ended
December
31
2010
2009
Change
2009
In Millions
2008
Change
Net Income (Loss) Available to Common Stockholders
$ 36
$
$
$ 13
$
55
(7)
43
$
(7)
(20)
Table of Contents
For 2010, the enterprises segment reported net income of $36 million, compared with a net loss of $7 million for 2009. The
$43 million change reflected income of $31 million from the settlement of an insurance claim related to a previously sold asset and a
$9 million tax benefit related to the Michigan Business Tax. Additionally, income increased $6 million due to higher gas and power
sales offset partially by increased maintenance and other operating expenses. These increases were offset by a $3 million decrease
associated with Bay Harbor; in 2010, the enterprises segment recorded a $25 million after−tax increase in the environmental
remediation liability associated with Bay Harbor, compared with a $22 million after−tax increase in 2009. For more details regarding
Bay Harbor, see Note 5, Contingencies and Commitments.
For 2009, the enterprises segment reported a net loss of $7 million compared with net income of $13 million for 2008. The
$20 million change was due primarily to a $22 million after−tax increase in the environmental remediation liability associated with Bay
Harbor.
Corporate Interest and Other Results of Operations
Years
Ended
December
31
Net Loss Available to Common Stockholders
2010
2009
Change
2009
In Millions
2008
Change
$ (119)
$ (85)
$
$ (90)
$
(34)
$ (85)
5
For 2010, corporate interest and other net expenses increased $34 million compared with 2009, reflecting an $18 million gain
recognized in 2009 on the early retirement of long−term debt — related parties and $15 million due primarily to higher tax expense in
2010 related to the Michigan Business Tax. Additionally, interest expense increased $10 million due to higher debt levels at higher
average interest rates. These items were offset partially by $9 million of higher net earnings at EnerBank and lower legal fees.
For 2009, corporate interest and other net expenses decreased $5 million, reflecting an $18 million gain on the early retirement of
long−term debt — related parties, offset partially by $11 million in premiums paid on the early retirement of senior notes.
Discontinued Operations
For 2010, a loss of $23 million was recorded from discontinued operations, compared with income of $20 million for 2009. The
$43 million change was due primarily to a $28 million gain recognized in 2009 on the expiration of an indemnity for a 2007 asset sale
and $10 million of additional tax expense in 2010 resulting from an IRS audit adjustment related to a 2003 asset sale.
For 2009, income of $20 million was recorded from discontinued operations, compared with income of $1 million for 2008. The
$19 million change was due primarily to a $28 million gain on the expiration of an indemnity for a 2007 asset sale, offset partially by a
loss of $8 million, reflecting operating results at Exeter.
Cash Position, Investing, and Financing
At December 31, 2010, CMS Energy had $270 million of consolidated cash and cash equivalents, which included $23 million of
restricted cash and cash equivalents. At December 31, 2010, Consumers had $94 million of consolidated cash and cash equivalents,
which included $23 million of restricted cash and cash equivalents.
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Table of Contents
Operating Activities
Presented in the following table are specific components of net cash provided by operating activities for the years ended
December 31, 2010 and 2009:
Years
Ended
December
31
2010
CMS Energy, including Consumers
• Net income
• Non−cash transactions(a)
$
343
1,112
2009
In Millions
$
240
877
Change
$
103
235
$ 1,455
756
(663)
(50)
(463)
(22)
(54)
$ 1,117
845
(718)
(120)
(262)
(62)
48
$
338
(89)
55
70
(201)
40
(102)
Net cash provided by operating activities
$
959
$
848
$
111
Consumers
• Net income
• Non−cash transactions(a)
$
434
1,103
$
293
841
$
141
262
•
•
•
•
•
•
•
•
•
•
•
•
Sale of gas purchased in the prior year
Purchase of gas in the current year
Accounts receivable sales, net
Postretirement benefits contributions
Change in other core working capital(b)
Other changes in assets and liabilities, net
Sale of gas purchased in the prior year
Purchase of gas in the current year
Accounts receivable sales, net
Postretirement benefits contributions
Change in other core working capital(b)
Other changes in assets and liabilities, net
Net cash provided by operating activities
$ 1,537
756
(663)
(50)
(447)
(19)
(204)
$ 1,134
845
(718)
(120)
(254)
(58)
93
$
403
(89)
55
70
(193)
39
(297)
$
$
$
(12)
910
922
(a) Non−cash transactions comprise depreciation and amortization, changes in deferred income taxes, postretirement benefits expense,
and other non−cash items.
(b) Other core working capital comprises other changes in accounts receivable and accrued revenues, inventories, and accounts
payable.
For the year ended December 31, 2010, net cash provided by operating activities at CMS Energy increased $111 million compared
with 2009. The increase was due primarily to higher net income, net of non−cash transactions, offset partially by higher pension
contributions.
For the year ended December 31, 2010, net cash provided by operating activities at Consumers decreased $12 million compared
with 2009. The decrease was due primarily to higher pension contributions and refunds to customers. These changes were offset largely
by increased billings due to recent regulatory actions.
57
Table of Contents
Presented in the following table are specific components of net cash provided by operating activities for the years ended
December 31, 2009 and 2008:
Years
Ended
December
31
2009
CMS Energy, including Consumers
• Net income
• Non−cash transactions(a)
$
240
877
2008
In Millions
$
302
911
Change
$
(62)
(34)
$ 1,117
845
(718)
—
(120)
(262)
(62)
48
$ 1,213
915
(963)
(275)
170
(51)
(278)
(174)
$
(96)
(70)
245
275
(290)
(211)
216
222
Net cash provided by operating activities
$
848
$
557
$
291
Consumers
• Net income
• Non−cash transactions(a)
$
293
841
$
364
956
$
(71)
(115)
•
•
•
•
•
•
•
•
•
•
•
•
•
Sale of gas purchased in the prior year
Purchase of gas in the current year
Electric sales contract termination payment
Accounts receivable sales, net
Postretirement benefits contributions
Change in other core working capital(b)
Other changes in assets and liabilities, net
Sale of gas purchased in the prior year
Purchase of gas in the current year
Accounts receivable sales, net
Postretirement benefits contributions
Change in other core working capital(b)
Other changes in assets and liabilities, net
Net cash provided by operating activities
$ 1,134
845
(718)
(120)
(254)
(58)
93
$ 1,320
915
(963)
170
(50)
(289)
(230)
$
(186)
(70)
245
(290)
(204)
231
323
$
$
$
49
922
873
(a) Non−cash transactions comprise depreciation and amortization, changes in deferred income taxes, postretirement benefits expense,
and other non−cash items.
(b) Other core working capital comprises other changes in accounts receivable and accrued revenues, inventories, and accounts
payable.
For the year ended December 31, 2009, net cash provided by operating activities at CMS Energy increased $291 million compared
with 2008. This increase was due primarily to the absence in 2009 of a payment made by CMS ERM in 2008 to terminate electricity
sales agreements and the changes affecting Consumers’ cash provided by operating activities described in the following paragraph.
For the year ended December 31, 2009, net cash provided by operating activities at Consumers increased $49 million compared
with 2008. This increase was due primarily to the impact of lower gas prices on inventory purchased in 2009, increased billings due to
recent regulatory actions, the absence, in 2009, of refunds to customers of excess Palisades decommissioning funds, and other timing
differences. These changes were offset partially by the pension contribution of $199 million and lower sales of accounts receivable in
2009.
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Table of Contents
Investing Activities
Presented in the following table are specific components of cash used in investing activities for the years ended December 31,
2010 and 2009:
Years
Ended
December
31
2010
CMS Energy, including Consumers
• Capital expenditures
• Cash effect of deconsolidation of partnerships
• Increase in loans and notes receivable
• Costs to retire property and other
$
2009
In Millions
Change
(821)
(10)
(131)
(41)
$ (818)
—
(83)
(34)
$
(3)
(10)
(48)
(7)
Net cash used in investing activities
$ (1,003)
$ (935)
$
(68)
Consumers
• Capital expenditures
• Costs to retire property and other
$
(815)
(44)
$ (811)
(39)
$
(4)
(5)
Net cash used in investing activities
$
(859)
$ (850)
$
(9)
For the year ended December 31, 2010, net cash used in investing activities at CMS Energy increased $68 million compared with
2009. The change was due primarily to an increase in EnerBank consumer lending. For the year ended December 31, 2010, net cash
used in investing activities at Consumers increased $9 million compared with 2009, due to increases in capital expenditures and costs to
retire property.
Presented in the following table are specific components of cash used in investing activities for the years ended December 31,
2009 and 2008:
Years
Ended
December
31
2009
2008
In Millions
Change
CMS Energy, including Consumers
• Capital expenditures
• Increase in non−current notes receivable
• Costs to retire property and other
$ (818)
(83)
(34)
$ (792)
(19)
(28)
$
(26)
(64)
(6)
Net cash used in investing activities
$ (935)
$ (839)
$
(96)
Consumers
• Capital expenditures
• Costs to retire property and other
$ (811)
(39)
$ (789)
(34)
$
(22)
(5)
Net cash used in investing activities
$ (850)
$ (823)
$
(27)
For the year ended December 31, 2009, net cash used in investing activities at CMS Energy increased $96 million compared with
2008. For the year ended December 31, 2009, net cash used in investing activities at Consumers increased $27 million compared with
2008. The increases at CMS Energy were due primarily to increases in EnerBank consumer lending and in Consumers’ capital
expenditures.
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Table of Contents
Financing Activities
Presented in the following table are specific components of net cash provided by (used in) financing activities for the years ended
December 31, 2010 and 2009:
Years
Ended
December
31
2010
CMS Energy, including Consumers
• Issuance of FMBs, convertible senior notes, senior notes, and other debt
• Retirement of debt and other debt maturity payments
• Payments of common and preferred stock dividends
• Redemption of preferred stock
• Changes in EnerBank notes payable
• Other financing activities
Net cash provided by (used in) financing activities
Consumers
• Issuance of FMBs
• Retirement of debt and other debt maturity payments
• Payments of common and preferred stock dividends
• Stockholder’s contribution from CMS Energy
• Other financing activities
Net cash used in financing activities
$
1,704
(1,033)
(162)
(239)
(40)
(28)
2009
In Millions
Change
$
1,374
(1,271)
(125)
(4)
40
(49)
$
330
238
(37)
(235)
(80)
21
$
202
$
(35)
$
237
$
600
(482)
(360)
250
(27)
$
500
(387)
(287)
100
(28)
$
100
(95)
(73)
150
1
$
(19)
$
(102)
$
83
For the year ended December 31, 2010, net cash provided by financing activities at CMS Energy increased $237 million compared
to 2009. The change was due primarily to an increase in net proceeds from borrowings by CMS Energy, offset partially by a decrease in
borrowings by EnerBank.
For the year ended December 31, 2010, net cash used in financing activities at Consumers decreased $83 million compared with
2009. The change was due primarily to a stockholder’s contribution from CMS Energy, offset partially by an increase in common
dividend payments.
Presented in the following table are specific components of net cash provided by (used in) financing activities for the years ended
December 31, 2009 and 2008:
Years
Ended
December
31
2009
CMS Energy, including Consumers
• Issuance of FMBs, convertible senior notes, senior notes, and other debt
• Retirement of debt and other debt maturity payments
• Payments of common and preferred stock dividends
• Changes in EnerBank notes payable
• Other financing activities
Net cash provided by (used in) financing activities
Consumers
• Issuance of FMBs
• Retirement of debt and other debt maturity payments
• Payments of common and preferred stock dividends
• Stockholder’s contribution from CMS Energy
• Other financing activities
Net cash used in financing activities
2008
In Millions
$
1,374
(1,271)
(125)
40
(53)
$
$
(35)
$
$
500
(387)
(287)
100
(28)
$
(102)
1,396
(1,130)
(93)
—
(26)
Change
$
(22)
(141)
(32)
40
(27)
147
$
(182)
$
600
(444)
(299)
—
(33)
$
(100)
57
12
100
5
$
(176)
$
74
For the year ended December 31, 2009, net cash used in financing activities at CMS Energy increased by $182 million compared
with 2008. The increase in net cash used in financing activities was due primarily to an increase in net debt retirements.
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Table of Contents
For the year ended December 31, 2009, net cash used in financing activities at Consumers decreased $74 million compared with
2008. This decrease was due primarily to a stockholder’s contribution from CMS Energy, offset partially by a decrease in net proceeds
from borrowings.
For additional details on long−term debt activity, see Note 7, Financings and Capitalization.
CAPITAL RESOURCES AND LIQUIDITY
CMS Energy uses dividends from its subsidiaries and external financing and capital transactions to invest in its utility and
non−utility businesses, retire debt, pay dividends, and fund its other obligations. The ability of CMS Energy’s subsidiaries, including
Consumers, to pay dividends to CMS Energy depends upon each subsidiary’s revenues, earnings, cash needs, and other factors. In
addition, Consumers’ ability to pay dividends is restricted by certain terms included in its articles of incorporation, as well as by FERC
requirements. For the year ended December 31, 2010, Consumers paid $358 million in common stock dividends to CMS Energy.
Consumers uses cash flows generated from operations and external financing transactions, as well as stockholder’s contributions
from CMS Energy, to fund capital expenditures, retire debt, pay dividends, contribute to its employee benefit plans, and fund its other
obligations.
CMS Energy’s and Consumers’ access to the financial and capital markets depends on their credit ratings and on market
conditions. As evidenced by past financing transactions, CMS Energy and Consumers have had ready access to these markets and,
barring major market dislocations or disruptions, they expect to continue to have such access. If access to these markets were to become
diminished or otherwise restricted, however, CMS Energy and Consumers would implement contingency plans to address debt
maturities, which could include reduced capital spending. CMS Energy and Consumers also have the following secured revolving credit
facilities available:
At
December 31,
2010
CMS Energy
Revolving credit facility
Consumers
Revolving credit facility
Revolving credit facility
Amount of Facility
$
550
Amount Available
In Millions
$
500
150
Expiration Date
547
April 2012
200
150
March 2012
August 2013
CMS Energy and Consumers presently use these credit facilities to issue letters of credit, and they intend to renew these facilities
at reasonable terms before their expiration. An additional source of liquidity is Consumers’ revolving accounts receivable sales
program, which allows it to transfer up to $250 million of accounts receivable as a secured borrowing. At December 31, 2010,
$250 million of account receivable were eligible for transfer under this program.
Certain of CMS Energy’s and Consumers’ credit agreements and debt indentures contain covenants that require CMS Energy and
Consumers to maintain certain financial ratios. CMS Energy’s $550 million revolving credit agreement specifies a maximum debt to
EBITDA ratio, as defined therein, and a minimum interest coverage ratio, as defined therein. Also, certain of CMS Energy’s senior
notes indenture supplements specify a minimum interest coverage ratio, as defined therein. Consumers’ revolving credit agreements
specify a maximum debt to capital ratio, as defined therein. At December 31, 2010, no events of default had occurred with respect to
any debt covenants contained in CMS Energy and Consumers’ credit agreements or debt indentures. CMS Energy and Consumers were
each in compliance with these limits as of December 31, 2010, as presented in the following table:
(1)Minimum
(2)Maximum
Credit
agreement
or
facility
CMS Energy’s revolving credit agreement
CMS Energy’s revolving credit agreement
CMS Energy’s senior notes indenture
Consumers’ revolving credit agreements
Description
Debt to EBITDA
Interest Coverage
Interest Coverage
Debt to Capital
61
Limit
Ratio at
December 31,
2010
(2)7.0 to 1.0
(1)1.2 to 1.0
(1)1.7 to 1.0
(2)0.7 to 1.0
4.70 to 1.0
3.62 to 1.0
3.70 to 1.0
0.51 to 1.0
Table of Contents
Components of CMS Energy’s and Consumers’ cash management plan include controlling operating expenses and capital
expenditures and evaluating market conditions for financing and refinancing opportunities. CMS Energy and Consumers believe that
their present level of cash and their expected cash flows from operating activities, together with their access to sources of liquidity, will
be sufficient to fund their contractual obligations for 2011 and beyond.
Contractual Obligations: Presented in the following table are CMS Energy’s and Consumers’ contractual cash obligations for
each of the periods presented. The table excludes all amounts classified as current liabilities on CMS Energy’s and Consumers’
Consolidated Balance Sheets, other than the current portion of long−term debt and capital and finance leases.
Payments Due
One to
Less Than
At
December 31,
2010
CMS Energy, including Consumers
Long−term debt(a)
Interest payments on long−term debt(b)
Capital and finance leases(c)
Interest payments on capital and finance
leases(d)
Operating leases(e)
Purchase obligations(f)
Purchase obligations — related parties(f)
Total contractual obligations
Consumers
Long−term debt(a)
Interest payments on long−term debt(b)
Capital and finance leases(c)
Interest payments on capital and finance
leases(d)
Operating leases(e)
Purchase obligations(f)
Purchase obligations — related parties(f)
Total contractual obligations
Total
$
7,206
2,909
212
One Year
$
98
260
15,794
1,735
439
357
23
Three to
More Than
Three Years
In Millions
Five Years
Five Years
$
$
14
29
1,996
87
1,019
662
50
22
57
2,613
180
976
587
42
$
4,772
1,303
97
18
51
1,751
193
44
123
9,434
1,275
$ 28,214
$
2,945
$
4,603
$
3,618
$
17,048
$
$
37
238
23
$
755
436
50
$
567
365
42
$
3,170
860
97
4,529
1,899
212
98
260
15,794
1,735
$ 24,527
14
29
1,996
87
$
2,424
22
57
2,613
180
$
4,113
18
51
1,751
193
$
2,987
44
123
9,434
1,275
$
15,003
(a) Principal amounts due on outstanding debt obligations, current and long−term, at December 31, 2010. For additional details on
long−term debt, see Note 7, Financings and Capitalization.
(b) Scheduled interest payments on both variable−rate and fixed−rate long−term debt, current and long−term. Variable interest
payments are based on contractual rates in effect at December 31, 2010.
(c) Principal portion of lease payments under capital and finance leases, comprising mainly leased service vehicles and certain PPAs.
(d) Imputed interest on capital and finance leases.
(e) Minimum noncancelable lease payments under leases of railroad cars and miscellaneous office buildings and equipment, which are
accounted for as operating leases.
(f) Long−term contracts for purchase of commodities and services. These obligations include operating contracts used for the
purchase of capacity and energy from PURPA qualifying facilities. These commodities and services include natural gas and
associated transportation, electricity, and coal and associated transportation.
For details related to benefit payments, see Note 11, Retirement Benefits.
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Off−Balance−Sheet Arrangements: CMS Energy, Consumers, and certain of their subsidiaries also enter into various
arrangements in the normal course of business to facilitate commercial transactions with third parties. These arrangements include
indemnities, surety bonds, letters of credit, and financial and performance guarantees. Indemnities are usually agreements to reimburse
a counterparty that may incur losses due to outside claims or breach of contract terms. The maximum payment that could be required
under a number of these indemnity obligations is not estimable. While CMS Energy and Consumers believe it is unlikely that they will
incur any material losses related to indemnities they have not recorded as liabilities, they cannot predict the impact of these contingent
obligations on their liquidity and financial condition. For additional details on these and other guarantee arrangements, see Note 5,
Contingencies and Commitments, “Guarantees.”
Capital Expenditures: Over the next five years, CMS Energy and Consumers expect to make capital investments of more than
$6 billion. CMS Energy and Consumers may revise their forecasts of capital expenditures periodically due to a number of factors,
including environmental regulations, business opportunities, market volatility, economic trends, and the ability to access capital.
Presented in the following table are CMS Energy’s and Consumers’ estimated capital expenditures, including lease commitments, for
2011 through 2015:
CMS Energy, including Consumers
Consumers
Enterprises
Total CMS Energy
Consumers
Electric utility operations(a)(b)
Gas utility operations(b)
Total Consumers
Five Years
Total
2011
2012
2013
2014
In Millions
2015
$ 1,070
6
$ 1,290
8
$ 1,280
1
$ 1,530
1
$ 1,260
1
$
6,430
17
$ 1,076
$ 1,298
$ 1,281
$ 1,531
$ 1,261
$
6,447
$
790
280
$ 1,060
230
$ 1,060
220
$ 1,310
220
$ 1,030
230
$
5,250
1,180
$ 1,070
$ 1,290
$ 1,280
$ 1,530
$ 1,260
$
6,430
(a) These amounts include estimates for capital expenditures that may be required by environmental laws, regulations, or potential
consent decrees.
(b) These amounts include estimates for capital expenditures related to information technology projects, facility improvements, and
vehicle leasing.
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Presented in the following illustration are the components of CMS Energy’s (including Consumers’) planned capital spending for
2011 through 2015:
OUTLOOK
Several business trends and uncertainties may affect CMS Energy’s and Consumers’ financial condition and results of operations.
These trends and uncertainties could have a material impact on CMS Energy’s and Consumers’ consolidated income, cash flows, or
financial position. For additional details regarding these and other uncertainties, see “Forward−Looking Statements and Information;”
Note 5, Contingencies and Commitments; and Part I, Item 1A. Risk Factors.
Consumers’ Electric Utility Business Outlook and Uncertainties
Balanced Energy Initiative: Consumers’ balanced energy initiative is a comprehensive energy resource plan designed to meet its
projected short−term and long−term electric power requirements through:
• energy efficiency;
• demand management;
• expanded use of renewable energy;
• development of new power plants;
• pursuit of additional PPAs to complement existing generating sources;
• continued operation of existing units; and
• potential retirement or mothballing of older generating units.
In May 2010, Consumers announced plans to defer the development of its proposed 830 MW coal−fueled plant at its
Karn/Weadock generating complex. This decision reflects reduced customer demand for electricity due to the recession, forecasted
lower natural gas prices due to recent developments in shale gas recovery technology, and projected surplus generating capacity in the
MISO market. Consumers has been monitoring customer demand, fuel and power prices, and other market conditions, and has not set a
timetable for a future decision about the project; however, the likelihood that the plant will be constructed has diminished significantly.
Consumers’ alternatives to
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constructing the proposed coal−fueled plant include constructing new gas−fueled generation, relying on additional market purchases, as
well as continued operation of several existing generating units.
Renewable Energy Plan: Consumers’ renewable energy plan details how Consumers will meet REC and capacity standards
prescribed by the 2008 Energy Legislation. This legislation requires Consumers to obtain RECs in an amount equal to at least ten
percent of its electric sales volume (estimated to be 3.6 million RECs annually) by 2015. RECs represent proof that the associated
electricity was generated from a renewable energy resource. The legislation also requires Consumers to obtain 500 MW of capacity
from renewable energy resources by 2015, either through generation resources owned by Consumers or through agreements to purchase
capacity from other parties.
Under its renewable energy plan, Consumers expects to secure its required RECs each year with a combination of newly generated
RECs and previously generated RECs carried over from prior years. Presently, Consumers generates or purchases 1.6 million RECs per
year, which represents 44 percent of the 2015 renewable energy requirement. In 2010, Consumers contracted for the purchase of
900,000 RECs per year, which represents an additional 25 percent of the 2015 renewable energy requirement. In addition, at December
2010, Consumers held three million RECs in inventory for use over the next 15 years beginning in 2015. This inventory will provide
200,000 RECs per year, or 5.5 percent of the 2015 renewable energy requirement.
To meet its renewable capacity requirements, Consumers expects to add more than 500 MW of owned or contracted renewable
capacity by 2015. Through December 2010, Consumers has contracted for the purchase of 296 MW of nameplate capacity from
renewable energy suppliers, which represents 59 percent of the 2015 renewable capacity requirement.
Consumers has secured more than 79,000 acres of land easements in Michigan’s Huron, Mason, and Tuscola Counties for the
potential development of wind generation, and is presently collecting wind speed and other meteorological data at those sites.
Consumers has entered into construction and supply contracts as well as a contract to purchase wind turbine generators for the
construction of a 100−MW wind farm in Mason County, the Lake Winds Energy Park, which Consumers expects to be operational in
late 2012. Consumers will continue to seek opportunities for wind generation development in support of the renewable capacity
standards.
Electric Customer Deliveries and Revenue: Consumers’ electric customer deliveries are largely dependent on Michigan’s
economy, which has suffered from economic and financial instability in the automotive and real estate sectors.
Consumers expects weather−adjusted electric deliveries to increase in 2011 by two percent compared with 2010. Consumers’
outlook for 2011 includes continuing growth in deliveries to its largest customer, which produces energy−related and computer
components. Consumers has a long−term contract with this customer to provide electricity at a discounted rate for economic
development purposes. Excluding this customer’s growth, Consumers expects weather−adjusted electric deliveries in 2011 to be at a
similar level to 2010. Consumers’ outlook reflects the impact of reduced deliveries associated with its investment in energy efficiency
programs prescribed by the 2008 Energy Legislation, as well as recent projections of Michigan’s economic conditions.
Consumers believes economic conditions have stabilized. Consumers’ present outlook for electric delivery growth is about
1.5 percent annually on average through 2016. This reflects growth in electric deliveries offset by the predicted effects of energy
efficiency programs and appliance efficiency standards. Actual deliveries will depend on:
• energy conservation measures and results of energy efficiency programs;
• fluctuations in weather; and
• changes in economic conditions, including utilization and expansion or contraction of manufacturing
facilities, population trends, and housing activity.
A decoupling mechanism, authorized by the MPSC in Consumers’ 2009 electric rate case order and extended in the 2010 electric
rate case order, allows Consumers to adjust future electric rates to compensate for changes in sales volumes resulting from weather
fluctuations, energy efficiency, and conservation. Consumers expects this mechanism to reduce volatility of electric utility revenue.
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Electric ROA: The Customer Choice Act allows all of Consumers’ electric customers to buy electric generation service from
Consumers or from an alternative electric supplier. The 2008 Energy Legislation revised the Customer Choice Act by limiting
alternative electric supply to ten percent of Consumers’ weather−adjusted retail sales of the preceding calendar year. At December 31,
2010, electric deliveries under the ROA program were at the ten percent limit and alternative electric suppliers were providing 807 MW
of generation service to ROA customers. Based on 2010 weather−adjusted retail sales, Consumers expects 2011 electric deliveries
under the ROA program to be at a similar level to 2010.
In May 2010, a bill was introduced to the Michigan Senate and House of Representatives that would increase from ten percent to
25 percent the proportion of an electric utility’s sales for which service may be provided by an alternative electric supplier. The 2010
legislative session ended without any definitive action being taken on this bill.
Electric Environmental Estimates: Consumers’ operations are subject to various state and federal environmental laws and
regulations. Consumers continues to focus on complying with the Clean Air Act, Clean Water Act, and numerous state and federal
environmental regulations. Consumers estimates that it will incur expenditures of $1.9 billion from 2011 through 2018 to comply with
these regulations. Consumers expects to recover these costs in customer rates, but cannot guarantee this result. Consumers’ primary
environmental compliance focus includes, but is not limited to, the following matters:
Clean Air Interstate Rule/Clean Air Transport Rule: Due to a December 2008 court decision that remanded CAIR back to the
EPA, CAIR remains in effect at this time, pending the EPA’s finalization of a new rule. In July 2010, the EPA released CATR, a
proposed rule that would replace CAIR. Consumers is evaluating this proposed rule. If adopted in its present form, CATR could result
in additional or accelerated environmental compliance costs related to Consumers’ fossil−fueled power plants and retirement of some or
all of the older, smaller generating units in Consumers’ fleet. Presently, Consumers’ strategy to comply with CAIR involves the
installation of state−of−the−art emission control equipment.
Federal Hazardous Air Pollutant Regulation: The EPA is developing Maximum Achievable Control Technology emission
standards for electric generating units, based on Section 112 of the Clean Air Act. Consumers is unable to predict the impact of this
proposed regulation, but expects to have a better understanding of the potential impact upon the release a proposed rule, which is
expected in March 2011. Existing sources must meet the standards generally within three years of issuance of the final rule. The final
rule is expected to be issued in November 2011.
Greenhouse Gases: There are numerous legislative and regulatory initiatives at the state, regional, and national levels that involve
the regulation of greenhouse gases. Consumers monitors and comments on these initiatives and also follows litigation involving
greenhouse gases. Consumers believes Congress may eventually pass greenhouse gas legislation, but is unable to predict the form and
timing of any final legislation.
In May 2010, the EPA released its Prevention of Significant Deterioration and Title V Greenhouse Gas Tailoring Rule. The final
rule, which numerous parties have challenged in the U.S. Court of Appeals for the D.C. Circuit, sets limits for greenhouse gas emissions
that define when permits are required for new and existing industrial facilities under NSR PSD and Title V Operating Permit programs.
Consumers does not expect that this regulation will require it to incur significant expenditures for efficiency upgrades for modified or
new facilities at this time.
Litigation, as well as federal laws, EPA regulations regarding greenhouse gases, or similar treaties, state laws, or rules, if enacted,
could require Consumers to replace equipment, install additional equipment for emission controls, purchase emission allowances,
curtail operations, arrange for alternative sources of supply, or take other steps to manage or lower the emission of greenhouse gases.
Although associated capital or operating costs relating to greenhouse gas regulation or legislation could be material and cost recovery
cannot be assured, Consumers expects to recover these costs and capital expenditures in rates consistent with the recovery of other
reasonable costs of complying with environmental laws and regulations.
In 2010, carbon dioxide emissions from fossil−fueled power plants owned by Consumers, excluding the portion of Campbell Unit
3 that is owned by others, exceeded 18 million metric tons. During the same period, coal−fueled plants owned by the enterprises
segment emitted about 700,000 metric tons of carbon dioxide.
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Coal Combustion By−Products: In June 2010, the EPA proposed rules regulating CCBs, such as coal ash, under the Resource
Conservation and Recovery Act. Michigan already regulates CCBs as low−hazard industrial waste. The EPA proposed a range of
alternatives for regulating CCBs, including regulation as either a non−hazardous waste or a hazardous waste. If coal ash were regulated
as a hazardous waste, Consumers would likely cease the beneficial re−use of this product, resulting in significantly more coal ash
requiring costly disposal. Additionally, it is possible that existing coal ash disposal areas could be closed and costly alternative
arrangements for coal ash disposal could be required if the upgrades to hazardous waste landfill standards are economically prohibitive.
Consumers is unable to predict accurately the full impacts from this wide range of possible outcomes, but significant expenditures are
likely.
Water: In 2004, the EPA issued rules that govern existing electric generating plant cooling water intake systems. These rules
require a significant reduction in the number of fish harmed by cooling water intake structures at existing power plants. The EPA
compliance options in the rule were challenged before the U.S. Court of Appeals for the Second Circuit, which remanded the bulk of
the rule back to the EPA for reconsideration in 2007. In April 2009, the U.S. Supreme Court ruled in favor of the utility industry’s
position that the EPA can rely on a cost−benefit analysis in setting the national performance standards for fish protection. The EPA is
scheduled to issue a draft rule in the first half of 2011 and a final rule in 2012.
Advance Notice of Proposed Rulemaking on PCBs: In April 2010, the EPA issued an Advance Notice of Proposed Rulemaking,
indicating that it is considering a variety of regulatory actions with respect to PCBs. One proposal aims to phase out equipment
containing PCBs by 2025. Another proposal eliminates an exemption for small equipment containing PCBs. Consumers could incur
substantial costs associated with the regulation of PCBs due to prior installation of electrical equipment potentially containing PCBs.
Other electric environmental matters could have a major impact on Consumers’ outlook. For additional details on other electric
environmental matters, see Note 5, Contingencies and Commitments, “Consumers’ Electric Utility Contingencies — Electric
Environmental Matters.”
Electric Transmission: In June 2010, FERC issued a Notice of Proposed Rulemaking to establish a closer link between regional
electric transmission planning and cost allocations to ensure the construction of required transmission facilities. In a related matter,
MISO filed a tariff revision with FERC in July 2010, proposing a cost allocation methodology for a new category of transmission
projects. In December 2010, FERC approved MISO’s cost allocation proposal. Under this tariff revision, the cost of these new
transmission projects will be spread proportionally across the Midwest Energy Market. Consumers believes that Michigan customers
will bear additional costs under MISO’s tariff without receiving comparable benefits from these projects. In January 2011, Consumers,
along with the Michigan Attorney General, ABATE, Detroit Edison, the Michigan Municipal Electric Association, and the Michigan
Public Power Agency, filed a protest and request for rehearing with FERC, opposing the allocation methodology in the MISO tariff
revision. Consumers expects to continue to recover transmission expenses, including those associated with the MISO tariff revision,
through the PSCR process.
Electric Rate Matters: Rate matters are critical to Consumers’ electric utility business. For details on Consumers’ electric rate
cases, PSCR, electric operation and maintenance expenditures show−cause order, electric depreciation cases, renewable energy plan,
and energy optimization plan, see Note 6, Regulatory Matters, “Consumers’ Electric Utility.”
Consumers’ Gas Utility Business Outlook and Uncertainties
Gas Deliveries: Consumers expects 2011 weather−adjusted gas deliveries to decline by one percent compared with 2010, due to
continuing conservation and overall economic conditions in Michigan. In addition, Consumers expects weather−adjusted gas deliveries
to decline an average of one percent annually from 2012 through 2016, which includes expected effects of energy efficiency programs
and continued conservation. Actual delivery levels from year to year may vary from this trend due to:
• fluctuations in weather;
• use by IPPs;
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• availability and development of renewable energy sources;
• changes in gas prices;
• Michigan economic conditions, including population trends and housing activity;
• the price of competing energy sources or fuels; and
• energy efficiency and conservation.
A decoupling mechanism, authorized by the MPSC in Consumers’ 2009 gas rate case order, allows Consumers to adjust future gas
rates to compensate for changes in sales volumes by class arising from the difference between the level of average sales per customer
adopted in the order and actual average weather−adjusted sales per customer. The mechanism will not provide rate adjustments for
changes in sales volumes arising from weather fluctuations. Consumers expects this mechanism to mitigate the impacts of energy
efficiency programs, conservation, and changes in economic conditions on its gas revenue.
Gas Pipeline Safety: In September 2010, the U.S. House of Representatives passed the Corporate Liability and Emergency
Accident Notification Act, which would require oil and natural gas pipeline operators to notify regulators within one hour following the
discovery of certain oil spills or natural gas leaks. The bill also would increase civil fines for delayed reporting of oil spills and natural
gas leaks and would establish an online database of safety violations searchable by pipeline owner or operator.
In response to the natural gas pipeline explosion that occurred in San Bruno, California in September 2010, the U.S. House of
Representatives and the U.S. Senate have proposed bills stipulating stricter regulation of natural gas pipelines nationwide. These
proposed bills affect primarily transmission pipelines and contain provisions mandating:
• the use of internal inspection devices or comparable methods effective in detecting pipeline deterioration;
• the installation of automatic shutoff equipment in high−consequence areas; and
• certain disclosures to homeowners and regulatory agencies.
Consumers continues to comply with laws and regulations governing natural gas pipeline safety. If these proposed laws are put
into effect, Consumers could incur significant additional costs related to its natural gas pipeline safety programs. Consumers expects
that it would be able to recover the costs in rates, consistent with the recovery of other reasonable costs of complying with laws and
regulations.
Gas Environmental Estimates: Consumers expects to incur response activity costs at a number of sites, including 23 former
MGP sites. For additional details, see Note 5, Contingencies and Commitments, “Consumers’ Gas Utility Contingencies — Gas
Environmental Matters.”
The Mandatory Reporting of Greenhouse Gases Rule requires facilities engaging in the distribution of natural gas to collect data
on greenhouse gas emissions resulting from the combustion of natural gas. In 2010, Consumers estimated that carbon dioxide emissions
from its customers were 15 million metric tons.
Gas Rate Matters: Rate matters are critical to Consumers’ gas utility business. For details on Consumers’ gas rate cases and
GCR, see Note 6, Regulatory Matters, “Consumers’ Gas Utility.”
Consumers’ Other Outlook and Uncertainties
Smart Grid: Consumers’ grid modernization effort continues to move forward. The foundation of this effort is the installation of
advanced metering and the infrastructure to support it. The installation will include smart meters that are capable of transmitting and
receiving data, a two−way communications network, and modifications to Consumers’ existing information technology systems to
manage the data and enable changes to key business processes. It is intended to allow customers to monitor and manage their energy
usage and help reduce demand during critical peak times, resulting in lower peak capacity requirements. Due to this system’s
complexity and relative market immaturity, Consumers intends to continue its phased implementation approach. Consumers has
concluded the testing and assessment phase of the project and will begin full deployment of meters in early 2012.
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Enterprises Outlook and Uncertainties
The primary focus with respect to CMS Energy’s remaining non−utility businesses is to optimize cash flow and maximize the
value of their assets.
Trends, uncertainties, and other matters that could have a material impact on CMS Energy’s consolidated income, cash flows, or
financial position include:
• indemnity and environmental remediation obligations at Bay Harbor;
• the outcome of certain legal proceedings;
• impacts of declines in electricity prices on the profitability of the enterprises segment’s generating units;
• representations, warranties, and indemnities provided by CMS Energy or its subsidiaries in connection
with previous sales of assets;
• changes in commodity prices and interest rates on certain derivative contracts that do not qualify for hedge
accounting and must be marked to market through earnings;
• changes in various environmental laws, regulations, principles, practices, or in their interpretation; and
• economic conditions in Michigan, including population trends and housing activity.
For additional details regarding the enterprises segment’s uncertainties, see Note 5, Contingencies and Commitments.
Other Outlook and Uncertainties
Litigation: CMS Energy, Consumers, and certain of their subsidiaries are named as parties in various litigation matters, as well as
in administrative proceedings before various courts and governmental agencies, arising in the ordinary course of business. For
additional details regarding these and other legal matters, see Note 5, Contingencies and Commitments and Note 6, Regulatory Matters.
EnerBank: EnerBank, a wholly owned subsidiary of CMS Capital that represents one percent of CMS Energy’s net assets and
three percent of CMS Energy’s Net Income Available to Common Stockholders, is a Utah state−chartered, FDIC−insured industrial
bank providing unsecured home improvement loans. The carrying value of EnerBank’s loan portfolio was $385 million at
December 31, 2010. Its loan portfolio was funded primarily by deposit liabilities of $363 million. Twelve−month rolling average
default rates on loans held by EnerBank have declined from 2.1 percent at December 31, 2009 to 1.4 percent at December 31, 2010.
EnerBank expects the rate of loan defaults to decline further, and to level out at about 1.0 percent. CMS Energy is required to ensure
that EnerBank remains well capitalized.
CRITICAL ACCOUNTING POLICIES
The following accounting policies and related information are important to an understanding of CMS Energy’s and Consumers’
results of operations and financial condition and should be considered an integral part of their MD&A. For additional accounting
policies, see Note 1, Significant Accounting Policies.
Use of Estimates and Assumptions
In the preparation of CMS Energy’s and Consumers’ Consolidated Financial Statements, estimates and assumptions are used that
may affect reported amounts and disclosures. CMS Energy and Consumers use accounting estimates for asset valuations, unbilled
revenue, depreciation, amortization, financial and derivative instruments, employee benefits, the effects of regulation, indemnities, and
contingencies. Actual results may differ from estimated results due to changes in the regulatory environment, regulatory decisions,
lawsuits, competition, and other factors. CMS Energy and Consumers consider all relevant factors in making these assessments.
Fair Value Measurements: CMS Energy and Consumers have assets and liabilities that are accounted for or disclosed at fair
value. Fair value measurements incorporate assumptions that market participants would use in
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pricing an asset or liability, including assumptions about risk. Development of these assumptions may require significant judgment. For
a detailed discussion of the valuation techniques and inputs used to calculate fair value measurements, see Note 4, Fair Value
Measurements. Details about the fair value measurements for the Pension Plan and OPEB plan assets are included in Note 11,
Retirement Benefits.
Income Taxes: The amount of income taxes paid by CMS Energy is subject to ongoing audits by federal, state, and foreign tax
authorities, which can result in proposed assessments. An estimate of the potential outcome of any uncertain tax issue is highly
judgmental. CMS Energy believes adequate reserves have been provided for these exposures; however, future results may include
favorable or unfavorable adjustments to the estimated tax liabilities in the period the assessments are made or resolved or when statutes
of limitation on potential assessments expire. Additionally, CMS Energy’s judgment as to the ability to recover its deferred tax assets
may change. CMS Energy believes the valuation allowances related to its deferred tax assets are adequate, but future results may
include favorable or unfavorable adjustments. As a result, CMS Energy’s effective tax rate may fluctuate significantly over time.
Long−Lived Assets and Equity Method Investments: CMS Energy and Consumers assess the recoverability of their long−lived
assets and equity method investments by performing impairment tests if certain triggering events occur or if there has been a decline in
value that may be other than temporary. CMS Energy and Consumers base their evaluations of impairment on such indicators as:
• the nature of the assets;
• projected future economic benefits;
• regulatory and political environments;
• historical and future cash flow and profitability measurements; and
• other external market conditions and factors.
The estimates CMS Energy and Consumers use may change over time, which could have a material impact on their Consolidated
Financial Statements. For additional details, see Note 20, Asset Sales, Discontinued Operations, and Impairment Charges.
Unbilled Revenues: CMS Energy’s and Consumers’ customers are billed monthly in cycles having billing dates that do not
generally coincide with the end of a calendar month. This results in customers having received electricity or gas that they have not been
billed for as of the month−end. Consumers estimates its unbilled revenues by applying an average billed rate to total unbilled deliveries
for each customer class. Unbilled revenues, which are recorded as Accounts receivable on CMS Energy’s and Consumers’ Consolidated
Balance Sheets, were $439 million at December 31, 2010 and $477 million at December 31, 2009.
Accounting for the Effects of Industry Regulation
Because Consumers has regulated operations, it uses regulatory accounting to recognize the effects of the regulators’ decisions on
its financial statements. Consumers continually assesses whether future recovery of its regulatory assets is probable by considering
communications and experience with its regulators and changes in the regulatory environment. If Consumers determined that recovery
of a regulatory asset were not probable, Consumers would be required to write off the asset and immediately recognize the expense to
earnings.
Under electric and gas rate orders issued by the MPSC in 2009 and 2010, Consumers was granted authority to implement revenue
decoupling mechanisms. The electric decoupling mechanism adjusts customer rates to collect or refund the change in marginal revenue
arising from the difference between the level of average sales per customer adopted in the electric rate order and actual average sales
per customer. The gas decoupling mechanism is similar, but does not adjust customer rates for changes in sales volumes resulting from
weather fluctuations. Consumers accounts for these programs as alternative−revenue programs that meet the criteria for recognizing the
effects of decoupling adjustments on revenue as electricity and gas are delivered.
Unless prohibited by the MPSC upon a showing of good cause, Consumers is allowed to self−implement new energy rates six
months after a new rate case filing; however, the rates that Consumers self−implements may be
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subject to refund, with interest. Consumers recognizes revenue associated with self−implemented rates. If Consumers considers it
probable that it will be required to refund a portion of its self−implemented rates, it records a provision for revenue subject to refund. A
final rate order could differ materially from Consumers’ estimates underlying its self−implemented rates, giving rise to accounting
adjustments. Under accounting rules for prior period adjustments, CMS Energy and Consumers may need to record such differences, if
they are specifically identifiable to prior interim periods, as revisions to those periods.
For additional details, see Note 6, Regulatory Matters.
Financial and Derivative Instruments and Market Risk Information
Financial Instruments: Debt and equity securities classified as available for sale are reported at fair value as determined from
quoted market prices or other observable, market−based inputs. Unrealized gains and losses resulting from changes in fair value of the
equity securities are reported, net of tax, in equity as part of AOCI, except that unrealized losses determined to be other than temporary
are reported in earnings. Unrealized gains resulting from changes in fair value of the debt securities are reported, net of tax, in equity as
part of AOCI. Unrealized losses on the debt securities, if significant, are considered other than temporary and reported in earnings since
these securities are managed by an independent investment manager that can sell the securities at its own discretion.
Derivative Instruments: CMS Energy and Consumers account for certain contracts as derivative instruments. The criteria used to
determine if an instrument qualifies for derivative accounting are complex and often require significant judgment in application. If a
contract is a derivative and does not qualify for the normal purchases and sales exception, it is recorded on the consolidated balance
sheet at its fair value. Each quarter, the resulting asset or liability is adjusted to reflect any change in the fair value of the contract. For
additional details on CMS Energy’s and Consumers’ derivatives, see Note 10, Derivative Instruments.
CMS Energy and Consumers generally use information from external sources, such as quoted market prices and other valuation
information to determine the fair value of their derivatives. For certain contracts, this information is not available and mathematical
models are used to value the derivatives. The most material of CMS Energy’s derivative liabilities, an electricity sales agreement held
by CMS ERM, extends beyond the term for which quoted electricity prices are available. Thus, to value this derivative, CMS Energy
uses a valuation model that incorporates a proprietary forward pricing curve for electricity based on forward natural gas prices and an
implied heat rate. The model incorporates discounting, credit, and modeling risks. The model is sensitive to electricity and natural gas
forward prices, and the fair value of this derivative liability will increase as these forward prices increase. The model is adjusted each
quarter to incorporate market data as it becomes available.
The fair values calculated for CMS Energy’s and Consumers’ derivatives may change significantly as commodity prices and
volatilities change. The cash returns actually realized on derivatives may be different from their estimated fair values. For derivatives in
an asset position, calculations of fair value include reserves of less than $1 million to reflect the credit risk of CMS Energy’s and
Consumers’ counterparties. For derivatives in a liability position, calculations include reserves of less than $1 million to reflect CMS
Energy’s and Consumers’ own credit risk. For additional details on how the fair values of derivatives are determined, see Note 4, Fair
Value Measurements.
The types of contracts typically classified as derivatives are interest rate swaps, financial transmission rights, fixed price fuel
contracts, natural gas futures, electricity swaps, and forward and option contracts for electricity, natural gas, and foreign currencies.
Most of CMS Energy’s and Consumers’ commodity purchase and sale contracts are not subject to derivative accounting because:
• they do not have a notional amount (that is, a number of units specified in a derivative instrument, such as
MWh of electricity or bcf of natural gas);
• they qualify for the normal purchases and sales exception; or
• there is not an active market for the commodity.
CMS Energy’s and Consumers’ coal purchase contracts are not derivatives because there is not an active market for the coal they
purchase. If an active market for coal develops in the future, some of these contracts may
71
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qualify as derivatives. For Consumers, which is subject to regulatory accounting, the resulting mark−to−market gains and losses would
be offset by changes in regulatory assets and liabilities and would not affect net income. For other subsidiaries, CMS Energy does not
believe the resulting mark−to−market impact on earnings would be material.
Market Risk Information: CMS Energy and Consumers are exposed to market risks including, but not limited to, changes in
interest rates, commodity prices, and investment security prices. They may enter into various risk management contracts to limit
exposure to these risks, including swaps, options, futures, and forward contracts. CMS Energy and Consumers enter into these contracts
using established policies and procedures, under the direction of an executive oversight committee consisting of senior management
representatives and a risk committee consisting of business unit managers.
These contracts contain credit risk, which is the risk that the counterparties will fail to meet their contractual obligations. CMS
Energy and Consumers reduce this risk using established policies and procedures, such as evaluating counterparties’ credit quality and
setting collateral requirements as necessary. If terms permit, standard agreements are used that allow for the netting of positive and
negative exposures associated with the same counterparty. Given these policies, present exposures, and credit reserves, CMS Energy
and Consumers do not expect a material adverse effect on their financial position or future earnings because of counterparty
nonperformance.
The following risk sensitivities illustrate the potential loss in fair value, cash flows, or future earnings from financial instruments,
including derivative contracts, assuming a hypothetical adverse change in market rates or prices of ten percent. Potential losses could
exceed the amounts shown in the sensitivity analyses if changes in market rates or prices were to exceed ten percent.
Interest−Rate Risk: CMS Energy and Consumers are exposed to interest−rate risk resulting from issuing fixed−rate and
variable−rate financing instruments. CMS Energy and Consumers use a combination of these instruments, and may also enter into
interest−rate swap agreements, in order to manage this risk and to achieve a reasonable cost of capital.
Interest−Rate Risk Sensitivity Analysis (assuming an adverse change in market interest rates of ten percent):
December
31
2010
2009
In Millions
Fixed−rate financing — potential loss in fair value
CMS Energy, including Consumers
Consumers
$ 187
113
$ 183
122
The fair value losses in the above table could be realized only if CMS Energy and Consumers transferred all of their fixed−rate
financing to other creditors. The annual earnings exposure related to variable−rate financing was insignificant for both CMS Energy and
Consumers at December 31, 2010 and 2009, assuming an adverse change in market interest rates of ten percent.
Commodity Price Risk: CMS Energy and Consumers are exposed to commodity price risk, which arises from fluctuations in the
price of electricity, natural gas, coal, and other commodities. Commodity prices are influenced by a number of factors, including
weather, changes in supply and demand, and liquidity of commodity markets. In order to manage commodity price risk, they may enter
into various non−trading derivative contracts, such as forward purchase and sale contracts, options, and swaps.
An adverse change in market prices of ten percent would result in a potential reduction in fair value of less than $1 million for
CMS Energy’s and Consumers’ derivative contracts.
Investment Securities Price Risk: Through investments in debt and equity securities, CMS Energy and Consumers are exposed to
changes in interest rates and price fluctuations in equity markets. The following table shows the potential effect of adverse changes in
interest rates and fluctuations in equity prices on CMS Energy’s and Consumers’ available−for−sale investments.
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Investment Securities Price Risk Sensitivity Analysis (assuming an adverse change in market interest rates or prices of ten
percent):
December
31
2010
2009
In Millions
CMS Energy, including Consumers
Potential reduction in fair value of available−for−sale:
SERP:
Mutual fund
State & municipal bonds
Consumers
Potential reduction in fair value of available−for−sale:
SERP:
Mutual fund
CMS Energy common stock
$
6
—
$ —
1
$
4
3
$ —
3
Shares in the mutual fund were acquired during the year ended December 31, 2010.
Notes Receivable Risk: CMS Energy is exposed to interest−rate risk resulting from EnerBank’s fixed−rate installment loans.
EnerBank provides these loans to homeowners to finance home improvements.
Notes Receivable Sensitivity Analysis (assuming an adverse change in market interest rates of ten percent):
December
31
2010
2009
In Millions
CMS Energy, including Consumers
Potential reduction in fair value:
Notes receivable
$
6
$
5
The fair value losses in the above table could be realized only if EnerBank sold its loans to other parties. For additional details on
market risk, financial instruments, and derivatives, see Note 9, Financial Instruments and Note 10, Derivative Instruments.
Retirement Benefits
Pension: CMS Energy and Consumers have external trust funds to provide retirement pension benefits to their employees under a
non−contributory, defined benefit Pension Plan. On September 1, 2005, the defined benefit Pension Plan was closed to new participants
and CMS Energy and Consumers implemented the qualified DCCP, which provides an employer contribution of six percent of base pay
to the existing 401(k) plan. An employee contribution is not required to receive the plan’s employer cash contribution. All employees
hired on or after September 1, 2005 participate in this plan as part of their retirement benefit program. Previous cash balance Pension
Plan participants also participate in the DCCP as of September 1, 2005. Additional pay credits under the cash balance Pension Plan
were discontinued as of that date.
401(k): CMS Energy and Consumers provide an employer match in their 401(k) plan equal to 60 percent on eligible contributions
up to the first six percent of an employee’s wages.
OPEB: CMS Energy and Consumers provide postretirement health and life benefits under their OPEB plan to qualifying retired
employees.
CMS Energy and Consumers record liabilities for pension and OPEB on their Consolidated Balance Sheets at the present value of
the future obligations, net of any plan assets. The calculation of the liabilities and associated expenses requires the expertise of
actuaries, and requires many assumptions, including:
• life expectancies;
• discount rates;
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• expected long−term rate of return on plan assets;
• rate of compensation increases; and
• anticipated health care costs.
A change in these assumptions could change significantly CMS Energy’s and Consumers’ recorded liabilities and associated
expenses.
Presented in the following table are estimates of CMS Energy’s and Consumers’ pension cost, OPEB cost, and cash contributions
through 2013:
CMS Energy, including Consumers
2011
2012
2013
Consumers
2011
2012
2013
Pension Cost
OPEB Cost
Pension Contribution
In Millions
OPEB Contribution
$
104
106
102
$
49
57
53
$
—
—
154
$
65
49
57
$
101
103
99
$
51
59
55
$
—
—
149
$
64
48
56
Contribution estimates include amounts required and discretionary contributions. Consumers’ pension and OPEB costs are
recoverable through its general ratemaking process. Actual future pension cost and contributions will depend on future investment
performance, changes in future discount rates, and various other factors related to the populations participating in the Pension Plan.
Lowering the expected long−term rate of return on the Pension Plan assets by 0.25 percentage point (from 8.0 percent to
7.75 percent) would increase estimated pension cost for 2011 by $4 million for both CMS Energy and Consumers. Lowering the
discount rate by 0.25 percentage point (from 5.40 percent to 5.15 percent) would increase estimated pension cost for 2011 by $5 million
for both CMS Energy and Consumers.
For additional details on postretirement benefits, see Note 11, Retirement Benefits.
Asset Retirement Obligations
CMS Energy and Consumers are required to record the fair value of the cost to remove assets at the end of their useful lives if
there is a legal obligation to remove them. CMS Energy and Consumers have legal obligations to remove some of their assets at the end
of their useful lives. CMS Energy and Consumers calculate the fair value of ARO liabilities using an expected present value technique
that reflects assumptions about costs, inflation, and profit margin that third parties would require to assume the obligation. CMS Energy
and Consumers did not include market risk premiums in their ARO fair value estimates since reasonable estimates could not be made.
If a reasonable estimate of fair value cannot be made in the period in which the ARO is incurred, such as for assets with
indeterminate lives, the liability is recognized when a reasonable estimate of fair value can be made. CMS Energy and Consumers have
not recorded liabilities for assets that have insignificant cumulative disposal costs, such as substation batteries. For additional details,
see Note 16, Asset Retirement Obligations.
NEW ACCOUNTING STANDARDS
For details regarding the implementation of new accounting standards and new accounting standards issued that are not yet
effective, see Note 2, New Accounting Standards.
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CMS Energy Corporation
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31
2010
2009
2008
In Millions
Operating Revenue
Operating Expenses
Fuel for electric generation
Purchased and interchange power
Purchased power — related parties
Cost of gas sold
Maintenance and other operating expenses
Depreciation and amortization
General taxes
Insurance settlement
Gain on asset sales, net
$ 6,432
$ 6,205
$ 6,807
604
1,239
85
1,590
1,206
576
210
(50)
(6)
541
1,163
—
1,866
1,163
570
217
—
(13)
600
1,335
—
2,277
1,019
588
203
—
(9)
5,454
5,507
6,013
978
698
794
19
5
11
32
(24)
18
6
(2)
80
(30)
24
6
5
48
(37)
43
72
46
394
40
(3)
383
56
(4)
371
33
(4)
431
435
400
Income Before Income Taxes
Income Tax Expense
590
224
335
115
440
139
Income From Continuing Operations
Income (Loss) From Discontinued Operations, Net of Tax
Expense of $2, $13, and $1
366
220
301
(23)
20
1
Net Income
Income Attributable to Noncontrolling Interests
343
3
240
11
302
7
Net Income Attributable to CMS Energy
Charge for Deferred Issuance Costs on Preferred Stock
Preferred Stock Dividends
340
8
8
229
—
11
295
—
11
Total operating expenses
Operating Income
Other Income (Expense)
Interest and dividends
Allowance for equity funds used during construction
Income (loss) from equity method investees
Other income
Other expense
Total other income
Interest Charges
Interest on long−term debt
Other interest
Allowance for borrowed funds used during construction
Total interest charges
Net Income Available to Common Stockholders
$
75
324
$
218
$
284
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Years Ended December 31
2010
2009
2008
In Millions, Except Per
Share Amounts
Net Income Attributable to Common Stockholders
Amounts Attributable to Continuing Operations
Amounts Attributable to Discontinued Operations
$
347
(23)
$ 198
20
$ 283
1
Net Income Available to Common Stockholders
$
324
$ 218
$ 284
Income Attributable to Noncontrolling Interests
Amounts Attributable to Continuing Operations
Amounts Attributable to Discontinued Operations
$
3
—
$
11
—
$
7
—
Income Attributable to Noncontrolling Interests
$
3
$
11
$
7
Basic Earnings Per Average Common Share
Basic Earnings from Continuing Operations
Basic Earnings (Loss) from Discontinued Operations
Basic Earnings Attributable to Common Stock
Diluted Earnings Per Average Common Share
Diluted Earnings from Continuing Operations
Diluted Earnings (Loss) from Discontinued Operations
Diluted Earnings Attributable to Common Stock
Dividends Declared Per Common Share
The accompanying notes are an integral part of these statements.
76
$
1.50
(0.10)
$ 0.87
0.09
$ 1.25
—
$
1.40
$ 0.96
$ 1.25
$
1.36
(0.08)
$ 0.83
0.08
$ 1.20
—
$
1.28
$ 0.91
$ 1.20
$
0.66
$ 0.50
$ 0.36
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CMS Energy Corporation
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31
2010
2009
2008
In Millions
Cash Flows from Operating Activities
Net Income
Adjustments to reconcile net income to net cash provided by
operating activities
Depreciation and amortization
Deferred income taxes and investment tax credit
Postretirement benefits expense
Capital lease and other amortization
Bad debt expense
Gain due to expiration of indemnification obligation
Other non−cash operating activities
Postretirement benefits contributions
Electric sales contract termination payment
Changes in other assets and liabilities:
Increase in accounts receivable, notes receivable, and accrued revenue
Decrease (increase) in accrued power supply revenue
Decrease (increase) in inventories
Decrease in accounts payable
Increase (decrease) in accrued expenses
Decrease (increase) in other current and non−current assets
Increase (decrease) in current and non−current regulatory liabilities
Decrease in other current and non−current liabilities
Net cash provided by operating activities
Cash Flows from Investing Activities
Capital expenditures (excludes assets placed under capital lease)
Cost to retire property
Cash effect of deconsolidation of partnerships
Increase in loans and notes receivable
Other investing activities
Net cash used in investing activities
77
$
343
$
240
$
302
576
227
213
40
57
—
(1)
(463)
—
570
122
181
42
54
(50)
(42)
(262)
—
589
126
144
44
51
—
(43)
(51)
(275)
(105)
33
133
(7)
22
(28)
(69)
(12)
(91)
(41)
86
(50)
(6)
59
102
(66)
(80)
35
(71)
(5)
(31)
12
(178)
(12)
959
848
557
(821)
(43)
(10)
(131)
2
(818)
(49)
—
(83)
15
(792)
(34)
—
(19)
6
(1,003)
(935)
(839)
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Years Ended December 31
2010
2009
2008
In Millions
Cash Flows from Financing Activities
Proceeds from issuance of long−term debt
Proceeds from EnerBank notes, net
Issuance of common stock
Retirement of long−term debt
Payment of common stock dividends
Payment of preferred stock dividends
Redemption of preferred stock
Payment of capital and finance lease obligations
Increase (decrease) in notes payable
Other financing costs
1,400
149
10
(878)
(154)
(8)
(239)
(23)
(40)
(15)
Net cash (used in) provided by financing activities
1,218
39
9
(1,154)
(114)
(11)
(4)
(23)
40
(35)
1,265
23
9
(1,022)
(82)
(11)
(1)
(26)
—
(8)
202
(35)
147
Net Increase (Decrease) in Cash and Cash Equivalents, Including Assets Held for Sale
Decrease (Increase) in Cash and Cash Equivalents Included in Assets Held for Sale
158
(1)
(122)
5
(135)
(2)
Net Increase (Decrease) in Cash and Cash Equivalents
Cash and Cash Equivalents, Beginning of Period
157
90
(117)
207
(137)
344
Cash and Cash Equivalents, End of Period
Other cash flow activities and non−cash investing and financing activities were:
Cash transactions
Interest paid (net of amounts capitalized)
Income taxes paid (net of refunds of $−, $−, and $2)
Non−cash transactions
Capital expenditures not paid
Other assets placed under capital lease
$
247
$
90
$
207
$
405
14
$
422
17
$
372
3
$
56
16
$
15
16
$
31
5
The accompanying notes are an integral part of these statements.
78
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CMS Energy Corporation
CONSOLIDATED BALANCE SHEETS
December 31
2010
2009
In Millions
ASSETS
Current Assets
Cash and cash equivalents
Restricted cash and cash equivalents
Accounts receivable and accrued revenue,
less allowances of $25 in 2010 and $23 in 2009
Notes receivable
Accounts receivable — related parties
Accrued power supply revenue
Inventories at average cost
Gas in underground storage
Materials and supplies
Generating plant fuel stock
Deferred property taxes
Regulatory assets
Assets held for sale
Prepayments and other current assets
$
Total current assets
Plant, Property & Equipment (at cost)
Plant, property & equipment, gross
Less accumulated depreciation, depletion and amortization
Plant, property & equipment, net
Construction work in progress
Total plant, property & equipment
Non−current Assets
Regulatory assets
Notes receivable, less allowances of $5 in 2010 and $6 in 2009
Investments
Assets held for sale
Other non−current assets
Total non−current assets
Total Assets
79
247
23
$
90
32
981
70
10
15
948
81
—
48
946
104
125
180
19
2
37
1,043
118
158
172
19
2
31
2,759
2,742
14,145
4,646
13,716
4,540
9,499
570
9,176
506
10,069
9,682
2,093
397
49
4
245
2,291
297
9
9
226
2,788
2,832
$ 15,616
$ 15,256
Table of Contents
December 31
2010
2009
In Millions
LIABILITIES AND EQUITY
Current Liabilities
Current portion of long−term debt, capital and finance lease obligations
Notes payable
Accounts payable
Accounts payable — related parties
Accrued rate refunds
Accrued interest
Accrued taxes
Deferred income taxes
Regulatory liabilities
Liabilities held for sale
Other current liabilities
Total current liabilities
Non−current Liabilities
Long−term debt
Non−current portion of capital and finance lease obligations
Regulatory liabilities
Postretirement benefits
Asset retirement obligations
Deferred investment tax credit
Deferred income taxes
Other non−current liabilities
Total non−current liabilities
Commitments and Contingencies (Notes 5, 6, 7, 9, and 10)
Equity
Common stockholders’ equity
Common stock, authorized 350.0 shares; outstanding 249.6 shares in 2010 and 227.9 shares in 2009
Other paid−in capital
Accumulated other comprehensive loss
Accumulated deficit
Total common stockholders’ equity
Preferred stock
Noncontrolling interests
Total equity
Total Liabilities and Equity
The accompanying notes are an integral part of these statements.
80
$
750
—
492
9
19
102
302
180
22
1
144
$
694
40
509
—
21
96
283
43
145
—
123
2,021
1,954
6,448
188
1,988
1,135
245
49
438
267
5,895
197
1,991
1,460
229
51
231
310
10,758
10,364
2
4,588
(40)
(1,757)
2
4,560
(33)
(1,927)
2,793
—
44
2,602
239
97
2,837
2,938
$ 15,616
$ 15,256
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CMS Energy Corporation
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Years Ended December 31
2010
2009
2008
2010
Number of Shares in Thousands
Common Stock
At beginning and end of period
Other Paid−in Capital
At beginning of period
Common stock issued
Common stock repurchased
Common stock reacquired
Conversion option on convertible debt
Charge for deferred issuance costs
At end of period
$
2
2009
In Millions
$
2
2008
$
2
227,891
22,090
(148)
(205)
—
—
226,414
1,793
(78)
(238)
—
—
225,146
1,751
(38)
(445)
—
—
4,560
22
(2)
—
—
8
4,533
17
(1)
—
11
—
4,517
17
(1)
—
—
—
249,628
227,891
226,414
4,588
4,560
4,533
Accumulated Other Comprehensive Loss
Retirement benefits liability
At beginning of period
Net loss arising during the period(a)
Amortization of net actuarial loss(a)
Prior service credit adjustment(a)
(32)
(9)
1
1
(27)
(6)
1
—
(15)
(12)
—
—
(39)
(32)
(27)
—
—
—
—
5
(5)
—
(15)
15
—
—
—
Derivative instruments
At beginning and end of period
(1)
(1)
(1)
Foreign currency translation
At beginning of period
Sale of interests in TGN(a)
—
—
—
—
(128)
128
—
—
—
(40)
(33)
(28)
(1,927)
(2,031)
(2,227)
At end of period
Investments
At beginning of period
Unrealized gain (loss) on investments(a)
Reclassification adjustments included in net income(a)
At end of period
At end of period
At end of period
Accumulated Deficit
At beginning of period
Effects of changing the retirement plans measurement date
Service cost, interest cost, and expected return on plan assets for
December 1 through December 31, 2007, net of tax
Additional loss from December 1 through December 31, 2007, net of
tax
Net income attributable to CMS Energy(a)
Common stock dividends declared
Preferred stock dividends declared
Charge for deferred issuance costs
At end of period
Preferred Stock
At beginning of period
Conversion of preferred stock
At end of period
Noncontrolling Interests
At beginning of period
Income attributable to noncontrolling interests
Distributions and other changes in noncontrolling interests
At end of period
Total Equity
$
81
—
—
—
340
(154)
(8)
(8)
—
229
(114)
(11)
—
(2)
295
(82)
(11)
—
(1,757)
(1,927)
(2,031)
239
(239)
243
(4)
250
(7)
—
239
243
97
3
(56)
96
11
(10)
97
7
(8)
44
97
96
2,837
$
2,938
(4)
$
2,815
Table of Contents
Years Ended December 31
2010
2009
2008
In Millions
(a) Disclosure of Comprehensive Income:
Net income
Income attributable to noncontrolling interests
$ 343
3
$ 240
11
$ 302
7
Net income attributable to CMS Energy
Retirement benefits liability:
Net loss arising during the period, net of tax benefit of ($6) in 2010, ($3) in 2009, and ($6)
in 2008
Amortization of net actuarial loss, net of tax of $− in 2010 and 2009
Prior service credit adjustment, net of tax of $1 in 2010
Investments:
Unrealized gain (loss) on investments, net of tax (tax benefit) of $− in 2010, $3 in 2009,
and ($9) in 2008
Reclassification adjustments included in net income (loss), net of tax (tax benefit) of $− in
2010, ($3) in 2009, and $9 in 2008
Foreign currency translation:
Sale of interests in TGN, net of tax of $69
$ 340
$ 229
$ 295
Total Comprehensive Income
The accompanying notes are an integral part of these statements.
82
(9)
1
1
(6)
1
—
(12)
—
—
—
5
(15)
—
(5)
15
—
—
128
$ 333
$ 224
$ 411
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83
Table of Contents
Consumers Energy Company
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31
2010
2009
2008
In Millions
Operating Revenue
Operating Expenses
Fuel for electric generation
Purchased and interchange power
Purchased power — related parties
Cost of gas sold
Maintenance and other operating expenses
Depreciation and amortization
General taxes
Loss (gain) on asset sales, net
$ 6,156
$ 5,963
$ 6,421
520
1,224
84
1,516
1,109
572
205
—
460
1,151
81
1,778
1,045
559
209
(9)
483
1,313
75
2,079
935
574
195
1
5,230
5,274
5,655
926
689
766
18
5
31
(15)
17
6
47
(11)
20
6
45
(28)
39
59
43
246
34
(3)
250
46
(4)
229
22
(4)
277
292
247
Income Before Income Taxes
Income Tax Expense
688
254
456
163
562
198
Net Income
Preferred Stock Dividends
434
2
293
2
364
2
Total operating expenses
Operating Income
Other Income (Expense)
Interest and dividends
Allowance for equity funds used during construction
Other income
Other expense
Total other income
Interest Charges
Interest on long−term debt
Other interest
Allowance for borrowed funds used during construction
Total interest charges
Net Income Available to Common Stockholder
$
The accompanying notes are an integral part of these statements.
84
432
$
291
$
362
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85
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Consumers Energy Company
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31
2010
2009
2008
In Millions
Cash Flows from Operating Activities
Net Income
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization
Deferred income taxes and investment tax credit
Postretirement benefits expense
Capital lease and other amortization
Bad debt expense
Other non−cash operating activities
Postretirement benefits contributions
Changes in other assets and liabilities:
Increase in accounts receivable, notes receivable, and accrued revenue
Decrease (increase) in accrued power supply revenue
Decrease (increase) in inventories
Increase (decrease) in accounts payable
Increase (decrease) in accrued expenses
Decrease (increase) in other current and non−current assets
Increase (decrease) in current and non−current regulatory liabilities
Decrease in other current and non−current liabilities
Net cash provided by operating activities
Cash Flows from Investing Activities
Capital expenditures (excludes assets placed under capital lease)
Cost to retire property
Other investing activities
Net cash used in investing activities
86
$
434
$
293
$
364
572
246
208
24
53
—
(447)
559
67
177
26
47
(35)
(254)
574
196
141
30
47
(32)
(50)
(92)
33
132
(16)
(83)
(21)
(69)
(64)
(92)
(41)
91
(50)
2
60
101
(29)
(79)
35
(89)
1
(79)
14
(178)
(22)
910
922
873
(815)
(43)
(1)
(811)
(49)
10
(789)
(34)
—
(859)
(850)
(823)
Table of Contents
Years Ended December 31
2010
2009
2008
In Millions
Cash Flows from Financing Activities
Proceeds from issuance of long−term debt
Retirement of long−term debt
Payment of common stock dividends
Payment of preferred stock dividends
Stockholder’s contribution
Payment of capital and finance lease obligations
Other financing costs
Net cash used in financing activities
Net Increase (Decrease) in Cash and Cash Equivalents
Cash and Cash Equivalents, Beginning of Period
Cash and Cash Equivalents, End of Period
Other cash flow activities and non−cash investing and financing activities were:
Cash transactions
Interest paid (net of amounts capitalized)
Income taxes paid
Non−cash transactions
Capital expenditures not paid
Other assets placed under capital lease
The accompanying notes are an integral part of these statements.
87
600
(482)
(358)
(2)
250
(23)
(4)
500
(387)
(285)
(2)
100
(23)
(5)
600
(444)
(297)
(2)
—
(26)
(7)
(19)
(102)
(176)
32
39
(30)
69
(126)
195
$
71
$
39
$
69
$
259
149
$
276
104
$
223
84
$
56
16
$
15
16
$
31
5
Table of Contents
Consumers Energy Company
CONSOLIDATED BALANCE SHEETS
December 31
2010
2009
In Millions
ASSETS
Current Assets
Cash and cash equivalents
Restricted cash and cash equivalents
Accounts receivable and accrued revenue,
less allowances of $23 in 2010 and $21 in 2009
Notes receivable
Accrued power supply revenue
Accounts receivable — related parties
Inventories at average cost
Gas in underground storage
Materials and supplies
Generating plant fuel stock
Deferred property taxes
Regulatory assets
Prepayments and other current assets
$
Total current assets
Plant, Property & Equipment (at cost)
Plant, property & equipment, gross
Less accumulated depreciation, depletion, and amortization
Plant, property & equipment, net
Construction work in progress
Total plant, property & equipment
Non−current Assets
Regulatory assets
Investments
Other non−current assets
Total non−current assets
Total Assets
88
71
23
$
39
22
963
55
15
1
935
79
48
2
941
100
124
180
19
27
1,038
111
148
172
19
23
2,519
2,636
14,022
4,593
13,352
4,386
9,429
566
8,966
505
9,995
9,471
2,093
34
198
2,291
29
195
2,325
2,515
$ 14,839
$ 14,622
Table of Contents
December 31
2010
2009
In Millions
LIABILITIES AND EQUITY
Current Liabilities
Current portion of long−term debt, capital and finance lease obligations
Accounts payable
Accounts payable — related parties
Accrued rate refunds
Accrued interest
Accrued taxes
Deferred income taxes
Regulatory liabilities
Other current liabilities
Total current liabilities
Non−current Liabilities
Long−term debt
Non−current portion of capital and finance lease obligations
Regulatory liabilities
Postretirement benefits
Asset retirement obligations
Deferred investment tax credit
Deferred income taxes
Other non−current liabilities
Total non−current liabilities
Commitments and Contingencies (Notes 5, 6, 7, 9, and 10)
Equity
Common stockholder’s equity
Common stock, authorized 125.0 shares; outstanding 84.1 shares for both periods
Other paid−in capital
Accumulated other comprehensive income
Retained earnings
Total common stockholder’s equity
Preferred stock
Total equity
Total Liabilities and Equity
The accompanying notes are an integral part of these statements.
89
$
61
471
11
19
74
199
209
22
95
$
365
490
11
21
70
277
206
145
86
1,161
1,671
4,488
188
1,988
1,076
244
49
1,289
176
4,063
197
1,991
1,396
228
51
926
241
9,498
9,093
841
2,832
—
463
841
2,582
2
389
4,136
44
3,814
44
4,180
3,858
$ 14,839
$ 14,622
Table of Contents
Consumers Energy Company
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Years Ended December 31
2010
2009
2008
In Millions
Common Stock
At beginning and end of period(a)
$
841
$
841
$
841
Other Paid−in Capital
At beginning of period
Stockholder’s contribution
2,582
250
2,482
100
2,482
—
At end of period
2,832
2,582
2,482
Accumulated Other Comprehensive Income (Loss)
Retirement benefits liability
At beginning of period
Retirement benefits liability adjustments(b)
Net gain (loss) arising during the period(b)
(11)
—
(5)
(7)
—
(4)
(15)
6
2
(16)
(11)
(7)
13
3
—
6
10
(3)
15
(19)
10
16
13
6
—
2
(1)
389
383
324
—
—
434
(358)
(2)
—
—
293
(285)
(2)
(4)
(2)
364
(297)
(2)
At end of period
463
389
383
Preferred Stock
At beginning and end of period
44
44
44
$ 4,180
$ 3,858
$ 3,749
At end of period
Investments
At beginning of period
Unrealized gain (loss) on investments(b)
Reclassification adjustments included in net income(b)
At end of period
At end of period
Retained Earnings
At beginning of period
Effects of changing the retirement plans measurement date
Service cost, interest cost, and expected return on plan assets for
December 1 through December 31, 2007, net of tax
Additional loss from December 1 through December 31, 2007, net of tax
Net income(b)
Common stock dividends declared
Preferred stock dividends declared
Total Equity
90
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Years Ended December 31
2010
2009
2008
In Millions
(a) Number of shares of common stock outstanding was 84,108,789 for all periods presented.
(b) Disclosure of Comprehensive Income:
Net income
Retirement benefits liability
Retirement benefits liability adjustments, net of tax of $2 in 2008
Net gain (loss) arising during the period, net of tax (tax benefit) of $(3) in 2010, $(2) in
2009 and $1 in 2008
Investments
Unrealized gain (loss) on investments, net of tax (tax benefit) of $2 in 2010, $6 in 2009,
and $(10) in 2008
Reclassification adjustments included in net income, net of tax (tax benefit) of $− in 2010,
$(2) in 2009 and $6 in 2008
Total Comprehensive Income
$ 434
$ 293
$ 364
—
—
6
(5)
(4)
2
3
10
(19)
—
(3)
10
$ 432
The accompanying notes are an integral part of these statements.
91
$ 296
$ 363
Table of Contents
CMS Energy Corporation
Consumers Energy Company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1: SIGNIFICANT ACCOUNTING POLICIES
Corporate Structure: CMS Energy is an energy company operating primarily in Michigan. It is the parent holding company of
several subsidiaries, including Consumers, an electric and gas utility, and CMS Enterprises, primarily a domestic IPP. CMS Energy and
Consumers manage their businesses by the nature of services each provides. CMS Energy operates principally in three business
segments: electric utility; gas utility; and enterprises, its non−utility investments and operations. Consumers operates principally in two
business segments: electric utility and gas utility.
Principles of Consolidation: CMS Energy and Consumers prepare their Consolidated Financial Statements in conformity with
GAAP. CMS Energy’s Consolidated Financial Statements comprise CMS Energy, Consumers, CMS Enterprises, and all other entities
in which CMS Energy has a controlling financial interest or is the primary beneficiary. Consumers’ Consolidated Financial Statements
comprise Consumers and all other entities in which it has a controlling financial interest or is the primary beneficiary. CMS Energy uses
the equity method of accounting for investments in companies and partnerships that are not consolidated, where they have significant
influence over operations and financial policies but are not the primary beneficiary. CMS Energy and Consumers eliminate
intercompany transactions and balances.
Use of Estimates: CMS Energy and Consumers are required to make estimates using assumptions that may affect reported
amounts and disclosures. Actual results could differ from those estimates.
CMS Energy and Consumers record estimated liabilities for contingencies in their Consolidated Financial Statements when it is
probable that a liability has been incurred and when the amount of loss can be reasonably estimated. For additional details, see Note 5,
Contingencies and Commitments.
Revenue Recognition Policy: CMS Energy and Consumers recognize revenue from deliveries of electricity and natural gas, and
from the transportation, processing, and storage of natural gas, when services are provided. CMS Energy and Consumers record
unbilled revenue for the estimated amount of energy delivered to customers but not yet billed. CMS Energy and Consumers record sales
tax net and exclude it from revenue. CMS Energy recognizes revenue on sales of marketed electricity, natural gas, and other energy
products at delivery.
Alternative−Revenue Programs: In September 2009, the MPSC approved an energy optimization incentive mechanism that
provides a financial incentive if the energy savings of Consumers’ customers exceed annual targets established by the MPSC.
Consumers accounts for this program as an alternative−revenue program that meets the criteria for recognizing revenue related to the
incentive as soon as energy savings exceed the annual targets established by the MPSC.
Under electric and gas rate orders issued by the MPSC in 2009 and 2010, Consumers was granted authority to implement revenue
decoupling mechanisms. The electric decoupling mechanism adjusts customer rates to collect or refund the change in marginal revenue
arising from the difference between the level of average sales per customer adopted in the electric rate order and actual average sales
per customer. The gas decoupling mechanism is similar, but does not adjust customer rates for changes in sales volumes resulting from
weather fluctuations. Consumers accounts for these programs as alternative−revenue programs that meet the criteria for recognizing the
effects of decoupling adjustments on revenue as electricity and gas are delivered. For details on Consumers’ decoupling mechanisms,
see Note 6, Regulatory Matters.
Self−Implemented Rates: Unless prohibited by the MPSC upon a showing of good cause, Consumers is allowed to self−implement
new energy rates six months after a new rate case filing if the MPSC has not issued an order in the case. The MPSC then has another six
months to issue a final order. If the MPSC does not issue an order, the filed rates are considered approved. If the MPSC issues an order,
the rates that Consumers self−implemented may be subject to refund, with interest. Consumers recognizes revenue associated with
self−implemented rates. If Consumers considers it probable that it will be required to refund a portion of its self−implemented rates,
then
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CMS Energy Corporation
Consumers Energy Company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Consumers records a provision for revenue subject to refund. For details on Consumers’ self−implemented rates, see Note 6, Regulatory
Matters.
Accounting for Legal Fees: CMS Energy and Consumers expense legal fees as incurred; fees incurred but not yet billed are
accrued based on estimates of work performed. This policy also applies to any fees incurred on behalf of employees and officers under
indemnification agreements; such fees are billed directly to CMS Energy or Consumers.
Accounting for MISO Transactions: MISO requires the submission of hourly day−ahead and real−time bids and offers for
energy at locations across the MISO region. Consumers and CMS ERM account for MISO transactions on a net hourly basis in each of
the real−time and day−ahead markets, and they net transactions across all MISO energy market locations. CMS Energy and Consumers
record net purchases in a single hour in Purchased and interchange power and net sales in a single hour in Operating Revenue on the
Consolidated Statements of Income. They record net sale billing adjustments upon invoice receipt, record expense accruals for future
net purchases adjustments based on historical experience, and reconcile accruals to actual expenses upon invoice receipt.
Accounts Receivable: Accounts receivable comprise trade receivables and unbilled receivables. CMS Energy and Consumers
record their accounts receivable at cost, which approximates fair value. CMS Energy and Consumers establish an allowance for
uncollectible accounts and loan losses based on historical losses, management’s assessment of existing economic conditions, customer
trends, and other factors. CMS Energy and Consumers assess late payment fees on trade receivables based on contractual past−due
terms established with customers. CMS Energy and Consumers charge off accounts deemed uncollectible to operating expense.
Cash and Cash Equivalents: Cash and cash equivalents include short−term, highly liquid investments with original maturities of
three months or less.
Derivative Instruments: CMS Energy and Consumers record derivative contracts that do not qualify for the normal purchases
and sales exception at fair value on their Consolidated Balance Sheets. If a derivative qualifies for cash flow hedge accounting, changes
in the fair value are recorded in AOCI; otherwise, changes are reported in earnings. For additional details regarding derivative
instruments, see Note 10, Derivative Instruments.
Determination of Pension and OPEB MRV of Plan Assets: CMS Energy and Consumers determine the MRV for pension plan
assets as the fair value of plan assets on the measurement date, adjusted by the gains or losses that will not be admitted into the MRV
until future years. CMS Energy and Consumers reflect each year’s gain or loss in the MRV in equal amounts over a five−year period
beginning on the date the original amount was determined. CMS Energy and Consumers determine the MRV for OPEB plan assets as
the fair value of assets on the measurement date. CMS Energy and Consumers use the MRV in the calculation of net pension and OPEB
costs.
Earnings Per Share: CMS Energy calculates basic and diluted EPS using the weighted−average number of shares of common
stock and dilutive potential common stock outstanding during the period. Potential common stock, for purposes of determining diluted
EPS, includes the effects of dilutive stock options, warrants, and convertible securities. CMS Energy computes the effect on potential
common stock using the treasury stock method or the if−converted method, as applicable. Diluted EPS excludes the impact of
antidilutive securities, which are those securities resulting in an increase in EPS or a decrease in loss per share. For EPS computations,
see Note 8, Earnings Per Share — CMS Energy.
Financial Instruments: CMS Energy and Consumers record debt and equity securities classified as available for sale at fair value
as determined from quoted market prices or other observable, market−based inputs. Unrealized gains and losses on these securities are
determined on a specific−identification basis. CMS Energy and Consumers report unrealized gains and losses from changes in fair
value of the equity securities, net of tax, in equity as part of AOCI, except that unrealized losses determined to be other than temporary
are reported in earnings. CMS Energy
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CMS Energy Corporation
Consumers Energy Company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
and Consumers report unrealized gains resulting from changes in fair value of the debt securities, net of tax, in equity as part of AOCI.
Unrealized losses on the debt securities, if significant, are considered other than temporary and reported in earnings since these
securities are managed by an independent investment manager that can sell the securities at its own discretion. For additional details
regarding financial instruments, see Note 9, Financial Instruments.
Impairment of Long−Lived Assets and Equity Method Investments: CMS Energy and Consumers perform tests of impairment
if certain triggering events occur, or if there has been a decline in value that may be other than temporary.
CMS Energy and Consumers evaluate long−lived assets held in use for impairment by calculating the undiscounted future cash
flows expected to result from the use of the asset and its eventual disposition. If the undiscounted future cash flows are less than the
carrying amount, CMS Energy and Consumers recognize an impairment loss equal to the amount by which the carrying amount
exceeds the fair value. CMS Energy and Consumers estimate the fair value of the asset using quoted market prices, market prices of
similar assets, or discounted future cash flow analyses.
CMS Energy also assesses equity method investments for impairment whenever there has been a decline in value that is other than
temporary. This assessment requires CMS Energy to determine the fair value of the equity method investment. CMS Energy determines
fair value using valuation methodologies, including discounted cash flows, and assesses the ability of the investee to sustain an earnings
capacity that justifies the carrying amount of the investment. CMS Energy records an impairment if the fair value is less than the
carrying amount and the decline in value is considered to be other than temporary.
For additional details, see Note 20, Asset Sales, Discontinued Operations, and Impairment Charges.
Inventory: CMS Energy and Consumers use the weighted−average cost method for valuing working gas, recoverable base gas in
underground storage facilities, and materials and supplies inventory. CMS Energy and Consumers also use this method for valuing coal
inventory, and they classify these amounts as Generating plant fuel stock on their Consolidated Balance Sheets.
CMS Energy and Consumers classify RECs and emission allowances as materials and supplies inventory and use the average cost
method to remove amounts from inventory. RECs and emission allowances are used to satisfy compliance obligations related to the
generation of power.
CMS Energy and Consumers use the lower−of−cost−or−market method to evaluate inventory for impairment.
Maintenance and Depreciation: 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.
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
2010
2009
2008
Electric utility property
Gas utility property
Other property
3.0%
2.9%
7.4%
3.0%
2.9%
7.6%
3.0%
3.6%
8.5%
94
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CMS Energy Corporation
Consumers Energy Company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Notes Receivable: EnerBank provides unsecured consumer installment loans for financing home improvements. These loans
totaled $385 million, net of an allowance for loan losses of $5 million, at December 31, 2010, and $269 million, net of an allowance for
loan losses of $6 million, at December 31, 2009. At December 31, 2010, $10 million of EnerBank’s loans were classified as current
Notes receivable and $375 million were classified as non−current Notes receivable on CMS Energy’s Consolidated Balance Sheets. At
December 31, 2009, $1 million of EnerBank’s loans were classified as current Notes receivable and $268 million were classified as
non−current Notes receivable on CMS Energy’s Consolidated Balance Sheets.
The allowance for loan losses is a valuation allowance to reflect probable credit losses. The allowance is increased by the
provision for loan losses and decreased by loan charge−offs net of recoveries. Management estimates the allowance balance required
using historical loan loss experience, the nature and volume of the portfolio, economic conditions, and other factors. Loans losses are
charged against the allowance when the loss is confirmed, but no later than the point at which a loan becomes 120 days past due.
Loans that are 30 days or more past due are considered delinquent. Presented in the following table is the delinquency status of
EnerBank’s consumer loans at December 31, 2010:
Past Due
30−59 Days
Past Due
60−89 Days
$1
$1
Past Due
Total
Over 90 Days
Delinquent
In Millions
$—
$2
Current
Total
Outstanding
$383
$385
Plant, Property, and Equipment: 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. For additional
details see Note 6, Regulatory Matters.
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. Cost of removal collected from customers, but not spent, is recorded as
a regulatory liability.
Consumers capitalizes AFUDC on regulated major construction projects, except pollution control facilities on its fossil−fueled
power plants, and where financing costs are specifically approved by the MPSC in rates. 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
2010
2009
2008
AFUDC capitalization rate
7.6%
7.6%
7.7%
CMS Energy and Consumers capitalize the purchase and development of 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.
The types of costs capitalized are consistent for all periods presented by the financial statements. For additional details on plant,
property, and equipment see Note 15, Plant, Property, and Equipment.
Property Taxes: Property taxes are based on the taxable value of Consumers’ real and personal property assessed by local taxing
authorities. Consumers records property tax expense over the fiscal year of the taxing
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CMS Energy Corporation
Consumers Energy Company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
authority for which the taxes are levied based on Consumers’ budgeted customer sales. The deferred property tax balance represents the
amount of Consumers’ accrued property tax that will be recognized over future governmental fiscal periods.
Reclassifications: CMS Energy and Consumers have reclassified certain prior−period amounts on their Consolidated Financial
Statements to conform to the presentation for the current period. These reclassifications did not affect consolidated net income or cash
flows for the periods presented.
Restricted Cash and Cash Equivalents: CMS Energy and Consumers have restricted cash and cash equivalents dedicated for
repayment of Securitization bonds and for payment under performance guarantees. CMS Energy and Consumers classify these amounts
as a current asset, as they relate to payments that could occur within one year.
Unamortized Debt Premium, Discount, and Expense: CMS Energy and Consumers defer premiums, discounts, and issuance
costs of long−term debt and amortize those costs over the terms of the debt issues. For the non−regulated portions of CMS Energy’s and
Consumers’ businesses, refinancing costs are expensed as incurred. For the regulated portions of CMS Energy’s and Consumers’
businesses, any remaining unamortized premiums, discounts, and issuance costs associated with refinanced debt are amortized over the
term of the newly issued debt.
2: NEW ACCOUNTING STANDARDS
Implementation of New Accounting Standards
SFAS No. 166, Accounting for Transfers of Financial Assets, an amendment of FASB Statement No. 140, codified through ASU
No. 2009−16, Transfers and Servicing (Topic 860): Accounting for Transfers of Financial Assets: This standard, which was effective
for CMS Energy and Consumers January 1, 2010, removes the concept of a qualifying special−purpose entity from guidance relating to
transfers of financial assets and extinguishments of liabilities. It also removes the exceptions from applying guidance relating to VIEs to
qualifying special−purpose entities. This standard revises and clarifies when an entity is required to derecognize a financial asset that it
has transferred to another entity. It further clarifies how to measure beneficial interests received as proceeds in connection with a
transfer of a financial asset, and introduces the concept of a “participating interest,” the conditions of which must be met for a partial
asset transfer to qualify for sale accounting treatment. The standard also requires enhanced disclosures related to continuing
involvement with financial assets. Under this standard, transactions entered into under Consumers’ revolving accounts receivable sales
program, discussed in Note 7, Financings and Capitalization, are accounted for as secured borrowings rather than as sales. CMS Energy
and Consumers present outstanding amounts under the program as short−term debt collateralized by accounts receivable.
SFAS No. 167, Amendments to FASB Interpretation No. 46(R), codified through ASU No. 2009−17, Consolidations (Topic 810):
Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities: This standard, which was effective for
CMS Energy and Consumers January 1, 2010, amends the criteria used to determine which entity, if any, has a controlling financial
interest in a VIE. It replaces the quantitative calculation of risks and rewards with a qualitative approach focused on identifying which
entity (1) has the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance and (2) has the
obligation to absorb losses of the VIE or the right to receive benefits from the VIE. This standard also requires ongoing assessments of
whether an entity is the primary beneficiary of a VIE. Upon implementation of this guidance, CMS Energy concluded that it is the
primary beneficiary of CMS Energy Trust I and consolidated the trust in its Consolidated Financial Statements on January 1, 2010.
CMS Energy also concluded that it is not the primary beneficiary of T.E.S. Filer City, Grayling, or Genesee and deconsolidated these
partnerships in its Consolidated Financial Statements on January 1, 2010. CMS Energy consolidated CMS Energy Trust I at the
carrying value that would be recorded had this guidance been effective when CMS Energy initially became involved
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CMS Energy Corporation
Consumers Energy Company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
with CMS Energy Trust I. CMS Energy recorded its retained interest in the deconsolidated partnerships at the carrying value that would
be recorded had this guidance been effective when CMS Energy initially became involved with the partnerships. CMS Energy and
Consumers have chosen not to adjust previously reported balances. No cumulative effect adjustments were required. For additional
details, see Note 18, Variable Interest Entities.
3: OTHER INCOME AND OTHER EXPENSE
Presented in the following table are the components of Other income and Other expense at CMS Energy and Consumers:
Years
Ended
December
31
2010
CMS Energy, including Consumers
Other income:
Gain on early retirement of long−term debt
Regulatory return on capital expenditures
Gain on SERP investment
Return on stranded and security costs
Electric restructuring return
Foreign currency gain
All other
Total other income
Other expense:
Loss on reacquired and extinguished debt
Unrealized investment loss
Donations
Civic and political expenditures
All other
Total other expense
Consumers
Other income:
Regulatory return on capital expenditures
Gain on SERP investment
Return on stranded and security costs
Electric restructuring return
All other
Total other income
97
2009
In Millions
2008
$
—
17
—
4
—
—
11
$
28
26
8
5
—
—
13
$
—
33
—
5
1
2
7
$
32
$
80
$
48
$
(8)
—
(6)
(3)
(7)
$ (18)
—
—
(3)
(9)
$
—
(24)
—
(5)
(8)
$ (24)
$ (30)
$ (37)
$
17
—
4
—
10
$
26
5
5
—
11
$
33
—
5
1
6
$
31
$
47
$
45
Table of Contents
CMS Energy Corporation
Consumers Energy Company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Years
Ended
December
31
2010
Other expense:
Unrealized investment loss
Donations
Civic and political expenditures
All other
$
Total other expense
—
(6)
(3)
(6)
$ (15)
2009
In Millions
$
2008
—
—
(3)
(8)
$ (16)
—
(5)
(7)
$ (11)
$ (28)
4: 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, interest
rates and yield curves observable at commonly quoted intervals, credit risks, default rates, 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.
To the extent possible, CMS Energy and Consumers use quoted market prices or other observable market pricing data in valuing
assets and liabilities measured at fair value. If this information is unavailable, they use market−corroborated data or reasonable
estimates about market participant assumptions. 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.
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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, by level within the fair value hierarchy,
reported at fair value on a recurring basis at December 31, 2010:
CMS Energy, including Consumers
Assets:
Cash equivalents
Restricted cash equivalents
Nonqualified deferred compensation plan assets
SERP:
Cash equivalents
Mutual fund
State and municipal bonds
Derivative instruments:
Commodity contracts(a)
Total(b)
Liabilities:
Nonqualified deferred compensation plan liabilities
Derivative instruments:
Commodity contracts(c)
Total
Level 1
Level 2
In Millions
Level 3
$ 183
6
6
$
$
Consumers
Assets:
Cash equivalents
Restricted cash equivalents
CMS Energy common stock
Nonqualified deferred compensation plan assets
SERP:
Cash equivalents
Mutual fund
State and municipal bonds
Derivative instruments:
Commodity contracts
$
—
—
—
—
—
—
1
62
28
1
62
—
—
—
28
—
—
—
1
—
—
1
$ 287
$
258
$
28
$
1
$
$
6
$
—
$
—
6
4
Total(d)
183
6
6
—
—
4
$
10
$
6
$
—
$
4
$
19
6
34
4
$
19
6
34
4
$
—
—
—
—
$
—
—
—
—
1
39
17
1
39
—
—
—
17
—
—
—
1
—
—
1
Total(e)
$ 121
$
103
$
17
$
1
Liabilities:
Nonqualified deferred compensation plan liabilities
$
4
$
4
$
—
$
—
Total
$
4
$
4
$
—
$
—
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(a)
This amount is gross and excludes the impact of offsetting derivative assets and liabilities under master netting arrangements,
which was less than $1 million at December 31, 2010.
(b)
At December 31, 2010, CMS Energy’s assets classified as Level 3 represented less than one percent of CMS Energy’s total assets
measured at fair value.
(c)
This amount is gross and excludes the impact of offsetting derivative assets and liabilities under master netting arrangements and
offsetting cash margin deposits paid by CMS ERM to other parties, which was less than $1 million at December 31, 2010.
(d)
At December 31, 2010, CMS Energy’s liabilities classified as Level 3 represented 40 percent of CMS Energy’s total liabilities
measured at fair value. The Level 3 liabilities consisted primarily of an electricity sales agreement held by CMS ERM.
(e)
At December 31, 2010, Consumers’ assets classified as Level 3 represented one percent of Consumers’ total assets measured at
fair value.
Presented in the following table are CMS Energy’s and Consumers’ assets and liabilities, by level within the fair value hierarchy,
reported at fair value on a recurring basis at December 31, 2009:
CMS Energy, including Consumers
Assets:
Cash equivalents
Restricted cash equivalents
Nonqualified deferred compensation plan assets
SERP:
Cash equivalents
State and municipal bonds
Derivative instruments:
Commodity contracts(a)
Total
Liabilities:
Nonqualified deferred compensation plan liabilities
Derivative instruments:
Commodity contracts(b)
Interest rate contracts
Total
Level 1
Level 2
In Millions
Level 3
$
$
$
57
12
5
—
—
—
—
—
—
49
—
—
27
—
—
1
—
1
—
$ 151
$
123
$
28
$
—
$
$
5
$
—
$
—
$
100
$
49
27
5
9
1
Total(c)
57
12
5
15
1
—
$
6
1
—
$
1
7
1
$
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Consumers
Assets:
Cash equivalents
Restricted cash equivalents
CMS Energy common stock
Nonqualified deferred compensation plan assets
SERP:
Cash equivalents
State and municipal bonds
Total
Level 1
Level 2
In Millions
Level 3
$
$
$
31
5
29
4
30
16
31
5
29
4
$
30
—
—
—
—
—
—
16
—
—
—
—
—
—
Total
$ 115
$
99
$
16
$
—
Liabilities:
Nonqualified deferred compensation plan liabilities
$
4
$
4
$
—
$
—
Total
$
4
$
4
$
—
$
—
(a)
This amount is gross and excludes the $1 million impact of offsetting derivative assets and liabilities under master netting
arrangements.
(b)
This amount is gross and excludes the $1 million impact of offsetting derivative assets and liabilities under master netting
arrangements and the $1 million impact of offsetting cash margin deposits paid by CMS ERM to other parties.
(c)
At December 31, 2009, CMS Energy’s liabilities classified as Level 3 represented 53 percent of CMS Energy’s total liabilities
measured at fair value. The Level 3 liabilities consisted primarily of an electricity sales agreement held by CMS ERM.
Cash Equivalents: Cash equivalents and restricted cash equivalents consist of money market funds with daily liquidity. The funds
invest in U.S. Treasury notes, other government−backed securities, and repurchase agreements collateralized by U.S. Treasury notes.
Nonqualified Deferred Compensation Plan Assets: CMS Energy’s and Consumers’ nonqualified deferred compensation plan
assets are invested in various mutual funds. CMS Energy and Consumers value these assets using a market approach, using the daily
quoted NAVs provided by the fund managers that are the basis for transactions to buy or sell shares in each fund. CMS Energy and
Consumers report these assets in Other non−current assets on their Consolidated Balance Sheets.
SERP Assets: CMS Energy and Consumers value their SERP assets using a market approach, incorporating prices and other
relevant information from market transactions. The SERP cash equivalents consist of a money market fund with daily liquidity, which
invests in state and municipal securities.
The SERP invests in a short−term, fixed−income mutual fund that holds a variety of debt securities with average maturities of one
to three years. The fund invests primarily in investment−grade debt securities but, in order to achieve its investment objective, it may
invest a portion of its assets in high−yield securities, foreign debt, and derivative instruments. The fair value of the fund is determined
using the daily published NAV, which is the basis for transactions to buy or sell shares in the fund.
The SERP state and municipal bonds are investment grade securities that are valued using a matrix pricing model that incorporates
Level 2 market−based information. The fair value of the bonds is derived from various
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observable inputs, including benchmark yields, reported trades, broker/dealer quotes, bond ratings, and general information on market
movements normally considered by market participants when pricing such debt securities. CMS Energy and Consumers report their
SERP assets in Other non−current assets on their Consolidated Balance Sheets. For additional details about SERP securities, see Note 9,
Financial Instruments.
Nonqualified Deferred Compensation Plan Liabilities: CMS Energy and Consumers value their non−qualified 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 these liabilities in Other non−current liabilities on their
Consolidated Balance Sheets.
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. They use various inputs to value the derivatives depending on the type of contract and the availability of market data. CMS
Energy has exchange−traded derivative contracts that are valued based on Level 1 quoted prices in actively traded markets, as well as
derivatives that are valued using Level 2 inputs, including commodity market prices, interest rates, credit ratings, default rates, and
market−based seasonality factors. CMS Energy and Consumers have classified certain derivatives as Level 3 since the fair value
measurements incorporate pricing assumptions that cannot be observed or confirmed through market transactions.
CMS Energy’s derivatives include an electricity sales agreement held by CMS ERM that extends beyond the term for which
quoted electricity prices are available. To value this agreement, CMS Energy uses an internally developed model to project future
prices. This method incorporates a proprietary forward power pricing curve that is based on forward gas prices and an implied heat rate.
CMS Energy also increases the fair value of the liability for this agreement by an amount that reflects the uncertainty of its model.
Since the modeling technique is significant to the overall fair value measurement, this agreement is classified as Level 3.
For all fair values other than Level 1 prices, CMS Energy and Consumers incorporate adjustments for the risk of nonperformance.
For derivative assets, a credit adjustment is applied against the asset based on the published default rate for the credit rating that CMS
Energy and Consumers assign to the counterparty based on an internal credit−scoring model. This model considers various inputs,
including the counterparty’s financial statements, credit reports, trade press, and other information that would be available to market
participants. To the extent that the internal ratings are comparable to credit ratings published by independent rating agencies, the
resulting credit adjustment is classified within Level 2. If the internal model results in a rating that is outside of the range of ratings
given by the independent agencies and the credit adjustment is significant to the overall valuation, the derivative fair value is classified
as Level 3. CMS Energy and Consumers adjust their derivative liabilities downward to reflect the risk of their own nonperformance,
based on their published credit ratings. Adjustments for credit risk using the approach outlined within this paragraph are not materially
different from the adjustments that would result from using credit default swap rates for the contracts presently held. For additional
details about derivative contracts, see Note 10, Derivative Instruments.
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Assets and Liabilities Measured at Fair Value on a Recurring Basis using Significant Level 3 Inputs
Presented in the following table is a reconciliation of changes in the fair values of Level 3 assets and liabilities at CMS Energy,
which includes Level 3 assets and liabilities at Consumers:
Years
Ended
December
31
2010
2009
In Millions
2008
Balance at January 1
Total gains included in earnings(a)
Purchases, sales, issuances, and settlements (net)
$
(8)
8
(3)
$ (16)
17
(9)
$ (19)
2
1
Balance at December 31
$
(3)
$
(8)
$ (16)
Unrealized gains included in earnings for the years ended December 31 relating to assets and
liabilities still held at December 31(a)
$
4
$
6
(a)
$
3
CMS Energy records realized and unrealized gains and losses for Level 3 recurring fair values in earnings as a component of
Operating Revenue, Other income, or Maintenance and other operating expenses on its Consolidated Statements of Income.
Presented in the following table is a reconciliation of changes in the fair values of Level 3 assets and liabilities at Consumers:
Years
Ended
December
31
2010
Balance at January 1
Total gains (losses) included in earnings(a)
Purchases, sales, issuances, and settlements (net)
$ —
4
(3)
$
—
10
(10)
$ —
(1)
1
Balance at December 31
$
1
$
—
$ —
Unrealized gains included in earnings for the years ended December 31 relating to assets and
liabilities still held at December 31(a)
$
1
$
—
$ —
(a)
2009
In Millions
2008
Consumers records realized and unrealized gains and losses for Level 3 recurring fair values in earnings as a component of Other
income on its Consolidated Statements of Income.
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
Presented in the following table are CMS Energy’s assets, by level within the fair value hierarchy, reported at fair value on a
nonrecurring basis during the year ended December 31, 2010:
Level 1
CMS Energy, including Consumers
Assets held for sale
$ —
Level 2
Level 3
In Millions
$ 5
$ —
Gains
(Losses)
$ (6)
In 2010, CMS Energy wrote down assets held for sale from their carrying amount of $11 million to their fair value of $5 million,
resulting in a loss of $6 million, which was recorded in earnings as part of discontinued operations for the year ended December 31,
2010. The fair value was determined based on the price that CMS Energy received for the sale of these assets, which closed in January
2011. The reduction in fair value was due primarily to declines in forward electricity prices. For further information, refer to the
discussion of Exeter in Note 20, Asset Sales, Discontinued Operations, and Impairment Charges. Consumers did not have any
nonrecurring
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fair value measurements during the year ended December 31, 2010. Neither CMS Energy nor Consumers had any nonrecurring fair
value measurements during the years ended December 31, 2009 and 2008.
5: CONTINGENCIES AND COMMITMENTS
CMS Energy Contingencies
Gas Index Price Reporting Investigation: In 2002, CMS Energy notified appropriate regulatory and governmental agencies that
some employees at CMS MST and CMS Field Services appeared to have provided inaccurate information regarding natural gas trades
to various energy industry publications, which compile and report index prices. CMS Energy cooperated with an investigation by the
DOJ regarding this matter. Although CMS Energy has not received any formal notification that the DOJ has completed its investigation,
the DOJ’s last request for information occurred in 2003, and CMS Energy completed its response to this request in 2004. CMS Energy
is unable to predict the outcome of the DOJ investigation and what effect, if any, the investigation will have on CMS Energy.
Gas Index Price Reporting Litigation: CMS Energy, along with CMS MST, CMS Field Services, Cantera Natural Gas, Inc., and
Cantera Gas Company, are named as defendants in various class action and individual lawsuits arising as a result of alleged inaccurate
natural gas price reporting to publications that report trade information. Allegations include manipulation of NYMEX natural gas
futures and options prices, price−fixing conspiracies, restraint of trade, and artificial inflation of natural gas retail prices in Colorado,
Kansas, Missouri, and Wisconsin. The following provides more detail on these proceedings:
• In 2005, CMS MST was served with a summons and complaint that named CMS Energy, CMS MST, and
CMS Field Services as defendants in a putative class action filed in Kansas state court, Learjet, Inc., et
al. v. Oneok, Inc., et al. The complaint alleges that during the putative class period, January 1, 2000
through October 31, 2002, the defendants engaged in a scheme to violate the Kansas Restraint of Trade
Act. The plaintiffs, who allege they purchased natural gas from the defendants and others for their
facilities, are seeking statutory full consideration damages consisting of the full consideration paid by
plaintiffs for natural gas.
• In 2007, a class action complaint, Heartland Regional Medical Center, et al. v. Oneok, Inc. et al., was filed
in Missouri state court alleging violations of Missouri antitrust laws. Defendants, including CMS Energy,
CMS Field Services, and CMS MST, are alleged to have violated the Missouri antitrust law in connection
with their natural gas price reporting activities.
• Breckenridge Brewery of Colorado, LLC and BBD Acquisition Co. v. Oneok, Inc., et al., a class action
complaint brought on behalf of retail direct purchasers of natural gas in Colorado, was filed in Colorado
state court in May 2006. Defendants, including CMS Energy, CMS Field Services, and CMS MST, are
alleged to have violated the Colorado Antitrust Act of 1992 in connection with their natural gas price
reporting activities. Plaintiffs are seeking full refund damages.
• A class action complaint, Arandell Corp., et al. v. XCEL Energy Inc., et al., was filed in 2006 in
Wisconsin state court on behalf of Wisconsin commercial entities that purchased natural gas between
January 1, 2000 and October 31, 2002. The defendants, including CMS Energy, CMS ERM, and Cantera
Gas Company, are alleged to have violated Wisconsin’s antitrust statute. The plaintiffs are seeking full
consideration damages, plus exemplary damages, and attorneys’ fees. After dismissal on jurisdictional
grounds in 2009, plaintiffs filed a new case in the U.S. District Court for the Eastern District of Michigan.
In November 2010, the MDL judge issued an opinion and order granting the CMS Energy defendants’
motion to dismiss the new Michigan case on statute−of−limitations grounds and all CMS Energy
defendants have been dismissed from the Arandell Michigan case.
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• Another class action complaint, Newpage Wisconsin System v. CMS ERM, CMS Energy, and Cantera
Gas Company, was filed in 2009 in circuit court in Wood County, Wisconsin, against CMS Energy
defendants and 19 other non−CMS Energy companies. The plaintiff is seeking full consideration damages,
treble damages, costs, interest, and attorneys’ fees.
• In 2005, J.P. Morgan Trust Company, in its capacity as Trustee of the FLI Liquidating Trust, filed an
action in Kansas state court against a number of energy companies, including CMS Energy, CMS MST,
and CMS Field Services. The complaint alleges various claims under the Kansas Restraint of Trade Act.
The plaintiff is seeking statutory full consideration damages for its purchases of natural gas between
January 1, 2000 and December 31, 2001. This case is not a class action.
After removal to federal court, the Learjet, Heartland, Breckenridge, both Arandell cases, Newpage, and J.P. Morgan cases were
transferred to the MDL case. CMS Energy was dismissed from the Learjet, Heartland, and J.P. Morgan cases in 2009, but other CMS
Energy defendants remain parties. All CMS Energy defendants were dismissed from the Breckenridge case in 2009. It is expected that
the plaintiffs in this case will appeal this decision after all claims against defendants have been dismissed. At this time, there is no
pending appeal. In June 2010, CMS Energy and Cantera Gas Company were dismissed from the Newpage case; the Arandell
(Wisconsin) case was reinstated against CMS ERM; and the Arandell (Wisconsin) case was consolidated with the Newpage case. These
two consolidated cases remain pending only against CMS ERM. Pending before the court in all of the MDL cases are the defendants’
renewed motions for summary judgment based on FERC preemption. In all but the J.P. Morgan case, there are also pending plaintiffs’
motions for class certification. These motions are not yet decided. In October 2010, the MDL court entered an order denying the
plaintiffs’ motion for leave to amend their complaint to add a federal Sherman Act antitrust claim.
These cases involve complex facts, a large number of similarly situated defendants with different factual positions, and multiple
jurisdictions. Presently, any estimate of liability would be highly speculative; the amount of CMS Energy’s possible loss would be
based on widely varying models previously untested in this context. Defenses are being pursued vigorously, which could result in the
dismissal of the cases completely, but CMS Energy is unable to predict the outcome of these matters. If the outcome is unfavorable,
these cases could have a material adverse impact on CMS Energy’s liquidity, financial condition, and results of operations.
Bay Harbor: As part of the development of Bay Harbor by certain subsidiaries of CMS Energy, and under an agreement with the
MDNRE, third parties constructed a golf course and park over several abandoned CKD piles left over from the former cement plant
operations on the Bay Harbor site. The third parties also undertook a series of response activities, including constructing a leachate
collection system in one area where CKD−impacted groundwater was entering Little Traverse Bay. Leachate is produced when water
enters into the CKD piles. In 2002, CMS Energy sold its interest in Bay Harbor, but retained its obligations under environmental
indemnities entered into at the start of the project.
In 2005, the EPA, along with CMS Land and CMS Capital, voluntarily executed an Administrative Order on Consent under
Superfund, and the EPA approved a Removal Action Work Plan to address contamination issues. Collection systems required under the
plan have been installed and effectiveness monitoring of the systems at the shoreline is ongoing. CMS Land, CMS Capital, and the EPA
agreed upon augmentation measures to address areas where pH measurements were not satisfactory. Several augmentation measures
were implemented and completed in 2009, with the remaining measure completed in 2010.
In December 2010, CMS Energy recorded a charge of $40 million to increase the remaining liability for Bay Harbor as a result of
recent developments. The factors that contributed to this revision of estimated costs include anticipated cost increases for the disposal of
leachate under an NPDES permit issued by the MDNRE in December 2010, additional costs for the scope of remediation to meet EPA
and MDNRE requirements, and increased legal, management, and engineering costs anticipated to reach agreement with all parties on
the long−term remedy for the
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Bay Harbor site. The NPDES permit issued by the MDNRE authorizes CMS Land to discharge treated leachate into Little Traverse
Bay. This permit requires renewal every five years. CMS Land also completed mercury modeling studies as required by the EPA in
November 2010. The completion of these studies was necessary to finalize the scope of remedies that was submitted to the EPA in
December 2010. Additionally, CMS Land has committed to investigate the potential for a deep injection well on the Bay Harbor site as
an alternative long−term solution to the leachate disposal issue. In 2008, the MDNRE and the EPA granted permits for CMS Land or its
wholly owned subsidiary, Beeland Group LLC, to construct and operate an off−site deep injection well in Antrim County, Michigan, to
dispose of leachate from Bay Harbor. Certain environmental groups, a local township, and a local county filed lawsuits appealing the
permits. The legal proceeding was stayed in 2009 and can be renewed by either party at any time.
Various claims have been brought against CMS Land or its affiliates, including CMS Energy, alleging environmental damage to
property, loss of property value, insufficient disclosure of environmental matters, breach of agreement relating to access, or other
matters. There is presently one lawsuit (Jankowski v. CMS Energy, CMS Capital, and CMS Land) pending that was filed in June 2010
in Emmet County Circuit Court in Michigan relating to such subjects. Resolution of this lawsuit is not expected to have a material
impact on CMS Energy’s consolidated income, cash flows, or financial position. In October 2010, CMS Land and other parties received
a demand for payment from the EPA in the amount of $7 million, plus interest, whereby the EPA is seeking recovery, as allowed under
Superfund, of the EPA’s response costs incurred at the Bay Harbor site. CMS Land believes that this is not a valid claim and intends to
dispute it.
CMS Land and CMS Capital, the MDNRE, the EPA, and other parties continue to negotiate the long−term remedy for the Bay
Harbor site, including:
• the disposal of leachate;
• the capping and excavation of CKD;
• the location and design of collection lines and upstream water diversion systems;
• application of criteria for various substances such as mercury; and
• other matters that are likely to affect the scope of response activities that CMS Land and CMS Capital
may be obligated to undertake.
CMS Energy has recorded a cumulative charge related to Bay Harbor of $222 million, which with accretion expense, includes
$43 million recorded in 2010, $37 million in 2009, and $1 million in 2008, in Other operating expenses on the Consolidated Statements
of Income. At December 31, 2010, CMS Energy had a recorded liability of $98 million for its remaining obligations. CMS Energy
calculated this liability based on discounted projected costs, using a discount rate of 4.34 percent and an inflation rate of one percent on
annual operating and maintenance costs. CMS Energy based the discount rate on the interest rate for 30−year U.S. Treasury securities at
December 31, 2010. The undiscounted amount of the remaining obligation is $121 million. CMS Energy expects to pay $34 million
during 2011, $12 million in 2012, $5 million in 2013, $5 million in 2014, $4 million in 2015, and the remaining amount thereafter on
long−term liquid disposal and operating and maintenance costs.
CMS Energy’s estimate of response activity costs and the timing of expenditures could change if there are additional major
changes in circumstances or assumptions, including but not limited to:
• inability to complete the present long−term water disposal strategy at a reasonable cost;
• delays in implementing the present long−term water disposal strategy;
• requirements to alter the present long−term water disposal strategy upon expiration of the NPDES permit
if the MDNRE or EPA identify a more suitable alternative;
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• an increase in the number of contamination areas;
• different remediation techniques;
• the nature and extent of contamination;
• inability to reach agreement with the MDNRE or the EPA over additional response activities;
• delays in the receipt of requested permits;
• delays following the receipt of any requested permits due to legal appeals of third parties;
• additional or new legal or regulatory requirements; or
• new or different landowner claims.
Depending on the size of any indemnity obligation or liability under environmental laws, an adverse outcome of this matter could
have a material adverse effect on CMS Energy’s liquidity and financial condition and could negatively affect CMS Energy’s financial
results. Although a liability for its present estimate of remaining response activity costs has been recorded, CMS Energy cannot predict
the ultimate financial impact or outcome of this matter.
State Street Bank and TSU Litigation: In 2002, State Street Bank sued CMS Viron in the District Court of Harris County,
Texas, claiming primarily a breach of representations and warranties and seeking $9 million plus interest from CMS Viron. During the
same year, CMS Viron filed a counterclaim, as well as third−party actions against TSU, Academic Capital Group, Inc., and Academic
Services, Inc. for breach of contract and fiduciary duties and conversion. At December 31, 2010, CMS Energy had a recorded liability
of $3 million for its potential obligation related to this matter. This case was resolved in January 2011 for an amount that will not have a
material impact on CMS Energy’s consolidated income, cash flows, or financial position.
Equatorial Guinea Tax Claim: In 2004, CMS Energy received a request for indemnification from the purchaser of CMS Oil and
Gas. The indemnity claim relates to the sale of CMS Energy’s oil, gas, and methanol projects in Equatorial Guinea and the claim of the
government of Equatorial Guinea that CMS Energy owes $142 million in taxes in connection with that sale. CMS Energy concluded
that the government’s tax claim is without merit and the purchaser of CMS Oil and Gas submitted a response to the government
rejecting the claim. The government of Equatorial Guinea has indicated that it still intends to pursue its claim. CMS Energy cannot
predict the financial impact or outcome of this matter.
Marathon Indemnity Claim regarding F.T. Barr Claim: In 2001, F.T. Barr filed a lawsuit in Harris County District Court in
Texas against CMS Energy, CMS Oil and Gas, and other defendants alleging that his overriding royalty payments related to Alba field
production were improperly calculated. In 2004, all parties signed a confidential settlement agreement that resolved claims between
Barr and the defendants. The CMS Energy defendants reserved all defenses to any indemnity claim relating to the settlement.
In April 2009, certain Marathon entities filed a case in the U.S. District Court for the Southern District of Texas against CMS
Enterprises for indemnification in connection with this matter. In December 2010, CMS Energy and Marathon signed a confidential
settlement agreement that resolved this matter. This settlement did not have a material impact on CMS Energy’s consolidated income,
cash flows, or financial position.
Former NOMECO Employees’ Litigation: In June 2010, eight former employees of NOMECO filed a lawsuit in Ingham
County Circuit Court in Michigan against CMS Energy and three Marathon entities (Richard Rulewicz, Trustee of the Richard
Rulewicz Revocable Living Trust, et al. v. CMS Energy) alleging underpayment of the former employees’ overriding royalty payments
related to the Alba field production in Equatorial Guinea, to which the plaintiffs claim to be entitled. CMS Oil and Gas sold its interests
in the Alba field to Marathon in 2002. CMS Energy believes that it may be entitled to full or partial indemnification from Marathon for
monetary damages
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that may arise from this lawsuit. Although CMS Energy cannot predict with certainty the ultimate outcome of this litigation, the
resolution of this matter is not expected to have a material adverse impact on CMS Energy’s consolidated income, cash flows, or
financial position.
Consumers’ Electric Utility Contingencies
Electric Environmental Matters: Consumers’ operations are subject to environmental laws and regulations. Generally,
Consumers has been able to recover, in customer rates, the costs to operate its facilities in compliance with these laws and regulations.
Cleanup and Solid Waste: Consumers expects to incur remediation and other response activity costs at a number of sites under
NREPA. Consumers believes that these costs should be recoverable in rates, but cannot guarantee that outcome. At December 31, 2010,
Consumers had a recorded liability of $2 million, its estimated probable NREPA liability.
Consumers is a potentially responsible party at a number of contaminated sites administered under the Superfund. Superfund
liability is joint and several. In addition to Consumers, many other creditworthy parties with substantial assets are potentially
responsible with respect to the individual sites. In November 2010, Consumers received official notification from the EPA that
identified Consumers as a potentially responsible party at the Kalamazoo River Superfund site. The notification claimed that the EPA
has reason to believe Consumers disposed of PCBs and arranged for the disposal and treatment of PCB−containing materials at portions
of the site. Consumers responded to the EPA in December 2010, stating that it has no information showing that it disposed of PCBs or
arranged for disposal or treatment of PCB−containing material at portions of the site and requesting further information from the EPA
before Consumers would commit to perform or finance cleanup activities at the site. Until further information is received from the EPA,
Consumers is unable to estimate a range of potential liability for cleanup of the river.
Based on its experience, Consumers estimates that its share of the total liability for other known Superfund sites will be between
$2 million and $8 million. Various factors, including the number of potentially responsible parties involved with each site, affect
Consumers’ share of the total liability. At December 31, 2010, Consumers had a recorded liability of $2 million, the minimum amount
in the range of its estimated probable Superfund liability.
The timing of payments related to Consumers’ remediation and other response activities at its Superfund and NREPA sites is
uncertain. Consumers periodically reviews these cost estimates. Any significant change in the underlying assumptions, such as an
increase in the number of sites, different remediation techniques, nature and extent of contamination, and legal and regulatory
requirements, could affect its estimates of NREPA and Superfund liability.
Ludington PCB: In 1998, during routine maintenance activities, Consumers identified PCB as a component in certain paint, grout,
and sealant materials at Ludington. Consumers removed and replaced part of the PCB material with non−PCB material. Since
proposing a plan to take action with respect to the remaining materials, Consumers has had several communications with the EPA.
Consumers is not able to predict when the EPA will issue a final ruling and cannot predict the financial impact or outcome of this
matter.
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Electric Utility Plant Air Permit Issues and Notices of Violation: In 2007, Consumers received an NOV/FOV from the EPA
alleging that fourteen utility boilers exceeded the visible emission limits in their associated air permits. Consumers has responded
formally to the NOV/FOV denying the allegations. In addition, in 2008, Consumers received an NOV for three of its coal−fueled
facilities alleging, among other things, violations of NSR PSD regulations relating to ten projects from 1986 to 1998 allegedly subject
to NSR review. The EPA has alleged that some utilities have classified incorrectly major plant modifications as RMRR rather than
seeking permits from the EPA or state regulatory agencies to modify their plants. Consumers responded to the information requests
from the EPA on this subject in the past. Consumers believes that it has properly interpreted the requirements of RMRR.
Consumers is engaged in discussions with the EPA on all of these matters. Depending upon the outcome of these discussions, the
EPA could bring legal action against Consumers and/or Consumers could be required to install additional pollution control equipment
at some or all of its coal−fueled electric generating plants, surrender emission allowances, engage in Supplemental Environmental
Projects, and/or pay fines. Additionally, Consumers would need to assess the viability of continuing operations at certain plants. The
potential costs relating to these matters could be material and the extent of cost recovery cannot be reasonably estimated. Although
Consumers cannot predict the financial impact or outcome of these matters, Consumers expects that it would be able to recover some or
all of the costs in rates, consistent with the recovery of other reasonable costs of complying with environmental laws and regulations.
Nuclear Matters:
DOE Litigation: In 1997, a U.S. Court of Appeals decision confirmed that the DOE was to begin accepting deliveries of spent
nuclear fuel for disposal by January 1998. Subsequent U.S. Court of Appeals litigation, in which Consumers and other utilities
participated, has not been successful in producing more specific relief for the DOE’s failure to accept the spent nuclear fuel.
A number of court decisions support the right of utilities to pursue damage claims in the U.S. Court of Claims against the DOE for
failure to take delivery of spent nuclear fuel. Consumers filed a complaint in 2002. If Consumers’ litigation against the DOE is
successful, Consumers plans to use any recoveries as reimbursement for the incurred costs of spent nuclear fuel storage during
Consumers’ ownership of Palisades and Big Rock. The sale of Palisades and the Big Rock ISFSI did not transfer the right to any
recoveries from the DOE related to costs of spent nuclear fuel storage incurred during Consumers’ ownership of Palisades and Big
Rock.
Nuclear Fuel Disposal Cost: Consumers has a recorded liability of $163 million to fund the disposal of spent nuclear fuel used
before 1983. This balance comprises the principal amount of $44 million collected from customers for spent nuclear fuel disposal fees
and $119 million of interest accrued on those collections. The liability, which is classified in Long−term debt on CMS Energy’s and
Consumers’ Consolidated Balance Sheets, is payable to the DOE when it begins to accept delivery of spent nuclear fuel. In conjunction
with the sale of Palisades and the Big Rock ISFSI in 2007, Consumers retained this obligation and provided a letter of credit to Entergy
as security for this obligation. In its November 2010 electric rate order, the MPSC directed Consumers to establish, within six months
of the date of the order, an independent trust fund for the amount payable to the DOE. In December 2010, Consumers filed a Petition
for Rehearing and Clarification, requesting that the MPSC modify its conclusion that this amount be placed in a trust.
Consumers’ Gas Utility Contingencies
Gas Environmental Matters: Consumers expects to incur remediation and other response activity costs at a number of sites
under the NREPA. These sites include 23 former MGP facilities. Consumers operated the facilities on these sites for some part of their
operating lives. For some of these sites, Consumers has no present ownership interest or may own only a portion of the original site. At
December 31, 2010, Consumers estimated its undiscounted remaining remediation and other response activity costs to be between
$31 million and
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$46 million. Generally, Consumers has been able to recover most of its costs to date through proceeds from insurance settlements and
customer rates.
At December 31, 2010, Consumers had a recorded liability of $31 million and a regulatory asset of $58 million that included
$27 million of deferred MGP expenditures. The timing of payments related to the remediation and other response activity at
Consumers’ former MGP sites is uncertain. Consumers expects its remediation and other response activity costs to average $6 million
annually over the next five years. Consumers periodically reviews these cost estimates. Any significant change in the underlying
assumptions, such as an increase in the number of sites, changes in remediation techniques, or legal and regulatory requirements, could
affect Consumers’ estimates of annual response activity costs and the MGP liability.
Guarantees
Presented in the following table are CMS Energy’s guarantees at December 31, 2010:
Guarantee
Description
Issue Date
Indemnity obligations from asset sales and other agreements
Maximum
Carrying
Expiration Date
Obligation
In Millions
Amount
Various
Various through
June 2022
Guarantees and put options(b)
$
512(a)
$
21
Various
Various through
December 2011
36
1
(a)
The majority of this amount arises from stock and asset sales agreements under which CMS Energy or a subsidiary of CMS
Energy, other than Consumers, indemnified the purchaser for losses resulting from various matters, including claims related to tax
disputes, claims related to PPAs, and defects in title to the assets or stock sold to the purchaser by CMS Energy subsidiaries.
Except for items described elsewhere in this Note, CMS Energy believes the likelihood of material loss to be remote for the
indemnity obligations not recorded as liabilities.
(b)
At December 31, 2010, the carrying amount of CMS Land’s put option agreements with certain Bay Harbor property owners was
$1 million. If CMS Land is required to purchase a Bay Harbor property under a put option agreement, it may sell the property to
recover the amount paid under the put option agreement.
At December 31, 2010, the maximum obligation and carrying amounts for Consumers’ guarantees were less than $1 million.
Presented in the following table is additional information regarding CMS Energy’s guarantees:
Guarantee
Description
How Guarantee Arose
Events That Would Require Performance
Indemnity obligations from asset sales and
other agreements
Stock and asset sales agreements
Guarantees and put options
Normal operating activity
Findings of misrepresentation, breach of
warranties, tax claims, and other specific
events or circumstances
Nonperformance or non−payment by a
subsidiary under a related contract
Owners exercising put options requiring CMS
Land to purchase property
Bay Harbor remediation efforts
CMS Energy, Consumers, and certain other subsidiaries of CMS Energy also enter into various agreements containing tax and
other indemnity provisions for which they are unable to estimate the maximum potential
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obligation. These factors include unspecified exposure under certain agreements. CMS Energy and Consumers consider the likelihood
that they would be required to perform or incur substantial losses related to these indemnities to be remote.
Other Contingencies
In addition to the matters disclosed in this Note and Note 6, Regulatory Matters, there are certain other lawsuits and administrative
proceedings before various courts and governmental agencies arising in the ordinary course of business to which CMS Energy,
Consumers, and certain other subsidiaries of CMS Energy are parties. These other lawsuits and proceedings may involve personal
injury, property damage, contracts, environmental issues, federal and state taxes, rates, licensing, employment, and other matters.
Further, CMS Energy and Consumers occasionally self−report certain regulatory non−compliance matters that may or may not
eventually result in administrative proceedings. CMS Energy and Consumers believe that the outcome of any one of these proceedings
will not have a material adverse effect on their consolidated results of operations, financial condition, or liquidity.
Contractual Commitments
Purchase Obligations: Presented in the following table are Consumers’ contractual cash obligations at December 31, 2010 for
each of the periods shown. CMS Energy did not have any contractual cash obligations at December 31, 2010 that were not included in
Consumers’ reported amounts.
Total
Consumers
Purchase obligations
Purchase obligations — related parties
$ 15,794
1,735
Less Than
One Year
Payments Due
One to
Three to
Three Years
Five Years
In Millions
More Than
Five Years
$
$
$
1,996
87
2,613
180
$
1,751
193
9,434
1,275
Purchase obligations are long−term contracts for the purchase of commodities and services. These obligations include operating
contracts used to ensure adequate supply with generating facilities that meet PURPA requirements. The commodities and services
include natural gas and associated transportation, electricity, and coal and associated transportation.
The MCV PPA: Consumers has a 35−year PPA that began in 1990 with the MCV Partnership to purchase 1,240 MW of
electricity. The MCV PPA provides for:
• a capacity charge of $10.14 per MWh of available capacity;
• a fixed energy charge based on Consumers’ annual average baseload coal generating plant operating and
maintenance cost, fuel inventory, and average administrative and general expenses;
• a variable energy charge for all delivered energy that reflects the MCV Partnership’s cost of production;
• a $5 million annual contribution by the MCV Partnership to a renewable resources program; and
• an option for Consumers to extend the MCV PPA for five years or purchase the MCV Facility at the
conclusion of the MCV PPA’s term in March 2025.
Capacity and energy charges, net of RCP replacement energy and benefits, under the MCV PPA were $285 million in 2010,
$246 million in 2009, and $320 million in 2008. Based on a 2008 contract amendment and approval by the MPSC that allows
Consumers to manage the contract more cost effectively, Consumers estimates that capacity and energy charges under the MCV PPA
will average $320 million annually. These amounts are included in the table above.
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The Palisades PPA: Consumers has a PPA expiring in 2022 with Entergy to purchase all of the capacity and energy produced by
Palisades, up to the annual average capacity of 798 MW. Consumers estimates that capacity and energy payments under the Palisades
PPA will average $342 million annually. A portion of these amounts is included in the table above. Consumers’ total purchases of
capacity and energy under the PPA were $286 million in 2010, $276 million in 2009, and $298 million in 2008. For further details
about Palisades, see Note 14, Leases.
6: REGULATORY MATTERS
Rate Matters
Rate matters are critical to Consumers. Depending upon the specific issues, the outcomes of rate cases and proceedings could have
a material adverse effect on CMS Energy’s and Consumers’ liquidity, financial condition, and results of operations. Consumers cannot
predict the outcome of these proceedings.
Consumers’ Electric Utility
Electric Rate Cases: The MPSC, through a final order and rehearing in Consumers’ 2009 electric rate case, directed Consumers
to refund to customers the difference between the rates it self−implemented in May 2009 and the rates authorized in the order, plus
interest, subject to a reconciliation proceeding. In August 2010, the MPSC ordered Consumers to refund self−implemented revenue of
$16 million to customers. Consumers refunded this amount in September 2010.
In January 2010, Consumers filed an application with the MPSC seeking an annual increase in revenue of $178 million based on
an 11 percent authorized return on equity. The filing requested authority to recover new investments in system reliability,
environmental compliance, and technology advancements.
In July 2010, Consumers self−implemented an annual electric rate increase of $150 million, subject to refund with interest.
Consumers self−implemented $28 million less than it originally requested in order to respond to concerns raised by the MPSC Staff and
other intervenors and to provide a balance between the need for investment in Michigan’s infrastructure, which will support economic
recovery in the state, and the resulting rate impacts on customers. In its July 2010 order allowing Consumers to self−implement the
$150 million increase, the MPSC expressed concern about utilities repeatedly self−implementing rate increases over short time periods,
and before the return of previous overcollections of self−implemented rate increases. In August 2010, the Attorney General filed a
claim for appeal with the Michigan Court of Appeals regarding the MPSC’s July 2010 order.
In November 2010, the MPSC issued its order in this case, authorizing Consumers to increase its rates in an annual amount of
$146 million based on an authorized return on equity of 10.7 percent. Presented in the following table are the components of the electric
rate increase authorized by the MPSC and Consumers’ self−implemented increase:
Increase Authorized
by the MPSC
Components of the increase in revenue
Investment in rate base
Recovery of operating and maintenance costs
Cost of capital
Impact of sales declines
Total
Consumers’
Self−Implemented
Increase
In Millions
Difference
$
102
25
—
19
$
106
21
18
5
$
(4)
4
(18)
14
$
146
$
150
$
(4)
The MPSC directed Consumers to refund to customers the difference between the rates it self−implemented in July 2010 and the
rates authorized in the November 2010 order, plus interest, subject to a reconciliation proceeding.
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In February 2011, Consumers filed an application to reconcile the total revenues collected under its self−implemented rates with those
that would have been collected under the rates authorized by the MPSC. This reconciliation found that no refund is required.
Power Supply Cost Recovery: The PSCR process is designed to allow Consumers to recover all of its power supply costs if
incurred under reasonable and prudent policies and practices. The MPSC reviews these costs, policies, and practices in annual plan and
reconciliation proceedings. Consumers adjusts its PSCR billing factor monthly in order to minimize the overrecovery or underrecovery
amount in the annual PSCR reconciliation.
PSCR Plans: In September 2009, Consumers submitted its 2010 PSCR plan to the MPSC. In accordance with its proposed plan,
Consumers self−implemented the 2010 PSCR charge beginning in January 2010. In February 2011, the MPSC issued an order
approving Consumers’ 2010 PSCR plan with the exception of $5 million of gas supply costs related to Zeeland.
In September 2010, Consumers submitted its 2011 PSCR plan to the MPSC. In accordance with its proposed plan, Consumers
self−implemented the 2011 PSCR charge beginning in January 2011.
PSCR Reconciliations: Presented in the following table is the PSCR reconciliation filing pending with the MPSC:
PSCR Year
Date Filed
2009
March 2010
(a)
Net Underrecovery
$39 million(a)
PSCR Cost of
Power Sold
$ 1.6 billion
In 2005, the MPSC approved an economic development discount for a large industrial customer to promote long−term
investments in the industrial infrastructure of Michigan. It was determined in the November 2009 electric rate case order that
recovery of this discount should be provided through the electric general rates that Consumers self−implemented in May 2009.
That order, however, did not address the recovery of the power−supply component of the discount provided from January 2009
through self−implementation, which totaled $4 million. Consumers has requested recovery of this amount through its 2009 PSCR
reconciliation. In this reconciliation, intervenors are seeking disallowances ranging from $11 million to $43 million.
The MPSC issued an order in Consumers’ 2007 PSCR reconciliation in March 2010. In April 2010, Consumers filed for a
rehearing in its reconciliation, asking the MPSC to reconsider its decision to disallow recovery of a $2 million economic development
discount provided in 2007 to the large industrial customer. In June 2010, the MPSC denied Consumers’ petition for rehearing. In July
2010, Consumers filed a claim for appeal with the Michigan Court of Appeals regarding the MPSC’s decision to disallow recovery of
the economic development discount. In January 2011, the Michigan Court of Appeals dismissed Consumers’ claim.
The MPSC issued an order in Consumers’ 2008 PSCR reconciliation in June 2010. In July 2010, Consumers filed for a rehearing
in its 2008 PSCR reconciliation, asking the MPSC to reconsider its decision to disallow recovery of a $3 million economic development
discount. In January 2011, the MPSC denied Consumers’ petition for rehearing.
Electric Operation and Maintenance Expenditures Show−Cause Order: In December 2005, the MPSC authorized Consumers
to increase its electric rates. In the same order, the MPSC ordered Consumers to spend certain amounts on future tree−trimming and
line−clearing activities, as well as on the operation and maintenance of Consumers’ fossil−fueled power plants. At that time, the MPSC
also ordered Consumers to establish mechanisms to track these expenditures and stated that the rate increase was subject to refund with
interest if the specified amounts were not spent on these activities.
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In October 2009, the MPSC issued a show−cause order alleging that, in 2007, Consumers spent $14 million less on forestry and
fossil−fueled plant operation and maintenance activity than the amount ordered by the MPSC and that Consumers had not refunded this
amount to customers. The order directed Consumers to explain why it should not be found in violation of the MPSC’s December 2005
order and subjected to applicable sanctions, and why the refunds required by that order had not yet occurred. Consumers’ response
indicated that the total amount it spent on forestry and fossil−fueled plant operation and maintenance activity for the years 2006 through
2009 exceeded the total amounts included in rates for these activities.
In March 2010, the MPSC Staff requested that the MPSC find Consumers in violation of the December 2005 order and that the
MPSC order Consumers to refund $27 million for failure to meet annual spending requirements during 2007 and 2008. Consumers filed
a response, stating that it would be unreasonable and unlawful to order a refund of this amount and that Consumers’ expenditures were
consistent with the MPSC’s orders. In March 2010, the administrative law judge’s proposal for decision found Consumers’
expenditures to be prudent and that Consumers did not violate the December 2005 order. The administrative law judge recommended
that the MPSC find that no violation of the December 2005 order occurred and that no refunds be made to customers.
Electric Depreciation: In February 2010, Consumers filed an electric depreciation case related to its wholly owned electric utility
property. As ordered by the MPSC, Consumers prepared a traditional cost−of−removal study, which supported a $46 million increase in
annual depreciation expense.
Also in February 2010, Consumers filed an electric depreciation case for Ludington, the pumped−storage plant jointly owned by
Consumers and Detroit Edison. This case, filed jointly with Detroit Edison, requests an increase in annual depreciation expense.
Consumers’ share of this increase is $9 million annually.
Wind Plant Depreciation: In January 2011, Consumers filed an application with the MPSC seeking approval of depreciation
rates for facilities to be installed in connection with Consumers’ plans to construct a 100−MW wind farm, Lake Winds Energy Park, in
Mason County, Michigan. This case requests an increase of $10 million in annual depreciation expense associated with these wind
power production facilities.
Renewable Energy Plan: In June 2010, Consumers filed its first annual report and reconciliation for its renewable energy plan
with the MPSC, requesting approval of Consumers’ reconciliation of renewable energy plan costs for 2009.
In February 2011, Consumers filed an amended renewable energy plan to reduce the amount recoverable from customers.
Consumers proposed the amendment as a result of lower−than−anticipated costs to comply with the renewable energy requirements
prescribed by the 2008 Energy Legislation.
Energy Optimization Plan: In April 2010, Consumers filed its first annual report and reconciliation for its energy optimization
plan with the MPSC, requesting approval of Consumers’ reconciliation of energy optimization plan costs for 2009. Consumers also
requested approval to collect $6 million from customers as an incentive payment for achieving savings targets under both its gas and
electric energy optimization plans during 2009.
During 2010, Consumers achieved 137 percent of its electric savings target and 124 percent of its gas savings target. For achieving
these savings levels, Consumers will request the MPSC’s approval to collect $8 million, the maximum incentive, in the energy
optimization reconciliation to be filed in April 2011.
As one of the conditions to the continuation of the electric and gas decoupling mechanisms, Consumers must exceed the statutory
savings targets specified in the 2008 Energy Legislation for 2011 through 2014. In December 2010, the MPSC approved Consumers’
amended energy optimization plan to recover the additional spending necessary to exceed these savings targets.
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Consumers’ Gas Utility
Gas Rate Cases: In May 2010, the MPSC authorized Consumers to implement an annual rate increase of $66 million, based on an
authorized return on equity of 10.55 percent. In December 2010, the MPSC directed Consumers to refund $11 million to customers for
the difference between the rates it self−implemented in November 2009 and the rates authorized by the MPSC in its order, plus interest,
in January 2011.
In August 2010, Consumers filed an application with the MPSC seeking an annual increase in revenue of $55 million based on an
11 percent authorized return on equity. The filing requested recovery for investments made to enhance safety, system reliability, and
operational efficiencies that improve service to customers. In January 2011, the MPSC Staff recommended a revenue increase of
$5 million, based on a 10.1 percent return on equity.
In January 2011, Consumers filed testimony and exhibits with the MPSC in support of a self−implemented annual gas rate
increase of $48 million, subject to refund with interest. In February 2011, Consumers filed a letter with the MPSC revising the proposed
self−implemented increase to $29 million. The MPSC issued an order in February 2011, delaying Consumers’ self−implementation in
order to give other parties to the proceeding an opportunity to respond to Consumers’ revised self−implementation filing.
Presented in the following table are the components of the rate increase recommended by the MPSC Staff and the
self−implemented increase proposed by Consumers:
Increase Recommended
by the MPSC Staff
Components of the increase in revenue
Investment in rate base
Recovery of operating and maintenance costs
Cost of capital
Impact of sales declines
Total
Consumers’
Proposed
Self−Implemented
Increase
In Millions
Difference
$
25
2
(20)
(2)
$
28
7
(9)
3
$
(3)
(5)
(11)
(5)
$
5
$
29
$
(24)
Gas Cost Recovery: The GCR process is designed to allow Consumers to recover all of its purchased natural gas costs if incurred
under reasonable and prudent policies and practices. The MPSC reviews these costs, policies, and practices in annual plan and
reconciliation proceedings. Consumers adjusts its GCR billing factor monthly in order to minimize the overrecovery or underrecovery
amount in the annual GCR reconciliation.
GCR Plans: In March 2010, the MPSC authorized Consumers to implement its 2009−2010 base GCR factor and generally
approved Consumers’ plan.
In December 2010, the MPSC authorized Consumers to implement its 2010−2011 base GCR factor with certain adjustments to its
purchasing guidelines and contingent cost recovery methodology.
In December 2010, Consumers filed an application with the MPSC seeking approval of its GCR plan for the 2011−2012 GCR
plan year. Consumers plans to self−implement its filed GCR plan factor in April 2011.
GCR Reconciliation: Presented in the following table is the GCR reconciliation filing pending with the MPSC:
GCR Year
2009−2010
Date Filed
Net Overrecovery
June 2010
$1 million
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GCR Cost of
Gas Sold
$
1.3 billion
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Consumers Energy Company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In November 2010, the MPSC issued an order in Consumers’ 2008−2009 GCR reconciliation approving full recovery of
$1.8 billion in gas costs, and authorized Consumers to roll into its 2009−2010 GCR plan the underrecovery of $16 million.
Regulatory Assets and Liabilities
Consumers is subject to the actions of the MPSC and FERC and prepares its Consolidated Financial Statements in accordance
with the provisions of regulatory accounting. A utility must apply regulatory accounting when its rates are designed to recover specific
costs of providing regulated services. Under regulatory accounting, Consumers records regulatory assets or liabilities for certain
transactions that would have been treated as expense or revenue by non−regulated businesses.
Consumers reflected the following regulatory assets and liabilities, which included both current and non−current amounts, on its
Consolidated Balance Sheets:
End of
Recovery
or Refund
December
31
Period
Regulatory Assets:
Postretirement benefits (Note 11)(a)
Securitized costs (Note 7)(b)
ARO (Note 16)(b)
Big Rock nuclear decommissioning and related costs(b)(c)
MGP sites (Note 5)(a)
Unamortized debt costs(b)
Stranded costs(d)
Decoupling mechanisms(d)(e)
Energy optimization plan incentive(b)(f)
Uncollectible expense tracking mechanism(d)(g)
Customer Choice Act(d)
Other(d)(h)
various
2015
various
n/a
2020
n/a
2013
n/a
various
n/a
2013
various
Total regulatory assets(i)
Regulatory Liabilities:
Cost of removal(j)
Income taxes, net (Note 12)
ARO (Note 16)
Renewable energy plan(k)
Energy optimization plan(k)
Self−implemented rate refunds(l)
Refund of revenue in excess of nuclear decommissioning costs(m)
Palisades refund(n)
Other(h)
Total regulatory liabilities(i)
116
various
various
various
n/a
n/a
2011
2011
2011
various
2010
2009
In Millions
$ 1,383
310
107
85
58
52
46
39
14
3
2
13
$ 1,464
364
100
85
63
56
67
5
6
6
42
52
$ 2,112
$ 2,310
$ 1,311
410
122
101
34
14
7
2
9
$ 1,247
529
130
25
6
18
86
85
10
$ 2,010
$ 2,136
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(a)
The regulatory assets associated with postretirement benefits and MGP sites are offset partially by liabilities. The net amount is
included in rate base (or is expected to be included, for costs incurred subsequent to the most recently approved rate case), thereby
providing a return.
(b)
These regulatory assets represent incurred costs for which the MPSC has provided, or Consumers expects, recovery without a
return on investment.
(c)
Consumers paid $30 million to Entergy to assume ownership and responsibility for the Big Rock ISFSI, and incurred $55 million
for nuclear fuel storage costs as a result of the DOE’s failure to accept spent nuclear fuel. Consumers is seeking recovery of these
costs from the DOE.
(d)
These regulatory assets either are included in rate base (or are expected to be included, for costs incurred subsequent to the most
recently approved rate case), thereby providing a return on incurred costs, or provide a specific return on investment authorized by
the MPSC.
(e)
A decoupling mechanism, authorized by the MPSC in Consumers’ 2009 electric rate case order and extended in the 2010 electric
rate case order, allows Consumers to adjust future electric rates to compensate for changes in sales volumes resulting from
weather fluctuations, energy efficiency, and conservation. Various parties have filed appeals concerning the electric decoupling
mechanism. At December 31, 2010, Consumers had a $28 million non−current regulatory asset recorded for electric decoupling.
At December 31, 2009, Consumers had a $5 million non−current regulatory asset recorded for electric decoupling. Consumers
plans to file its first annual electric decoupling mechanism reconciliation in March 2011.
Also, in its May 2010 gas rate order, the MPSC authorized Consumers to adopt a gas decoupling mechanism, which is similar to
the electric decoupling mechanism except that it does not compensate for changes in sales volumes resulting from weather
fluctuations. At December 31, 2010, Consumers had an $11 million non−current regulatory asset recorded for gas decoupling.
Consumers plans to file its first annual gas decoupling mechanism reconciliation in September 2011.
(f)
In 2009 and 2010, Consumers exceeded annual energy savings targets established by the MPSC and, therefore, qualified for
financial incentives. For achieving 2009 targets, Consumers requested $6 million from the MPSC through the energy optimization
reconciliation case filed in April 2010. Consumers will request $8 million, the maximum incentive for achieving 2010 targets,
from the MPSC through the energy optimization reconciliation to be filed in April 2011. Consumers reported the 2009 and 2010
incentives in non−current regulatory assets.
(g)
In its November 2009 electric rate order, the MPSC authorized an uncollectible expense tracking mechanism, which allowed
future rates to be adjusted to collect or refund 80 percent of the difference between the level of electric uncollectible expense
included in rates and actual uncollectible expense. Various parties have filed appeals concerning the uncollectible expense
tracking mechanism. In its November 2010 electric rate order, the MPSC terminated the uncollectible expense tracking
mechanism as of November 2010 and ordered Consumers to file its reconciliation for the entire period of the tracker in March
2011.
(h)
At December 31, 2010 and 2009, other regulatory assets included electric restructuring implementation costs, a gas inventory
regulatory asset, and OPEB and pension expense incurred in excess of the MPSC−approved amounts. Consumers will recover
these regulatory assets from its customers. Other regulatory liabilities included AFUDC collected in excess of the
MPSC−approved amount.
(i)
At December 31, 2010, Consumers had $19 million of regulatory assets classified as current regulatory assets and $22 million of
regulatory liabilities classified as current regulatory liabilities. At December 31, 2009, Consumers had $19 million of regulatory
assets classified as current regulatory assets and $145 million of regulatory liabilities classified as current regulatory liabilities.
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Consumers Energy Company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(j)
Consumers records a non−current regulatory liability for the amounts collected from customers to fund future asset removal costs.
(k)
At December 31, 2010 and 2009, surcharges collected from customers to fund Consumers’ renewable energy plan and energy
optimization plan exceeded Consumers’ spending. These excess amounts are reported in the non−current portion of regulatory
liabilities, as the period in which Consumers will spend the surcharges collected is beyond one year. The regulatory liability
related to the renewable energy plan will be amortized as costs are incurred to operate and depreciate Consumers’ planned wind
farms and as Consumers purchases RECs under renewable energy purchase agreements. Consumers expects its first wind farm,
Lake Winds Energy Park, to be operational in late 2012. Delivery of RECs under the majority of Consumers’ renewable energy
purchase agreements is also expected to begin during 2012.
(l)
At December 31, 2010, Consumers had a $3 million regulatory liability recorded related to its self−implemented electric rates and
an $11 million regulatory liability recorded related to its self−implemented gas rates. At December 31, 2009, Consumers had a
$17 million regulatory liability recorded related to its self−implemented electric rates.
(m) The MPSC and FERC regulate the recovery of Consumers’ costs to decommission Big Rock. Subsequent to 2000, Consumers
stopped funding a Big Rock trust fund because the collection period for an MPSC−authorized decommissioning surcharge expired
on that date. The level of funds provided by the trust fell short of the amount needed to complete decommissioning and
Consumers provided $44 million of corporate contributions for decommissioning costs.
In an order issued in February 2010, the MPSC concluded that certain revenues collected during a statutory rate freeze from 2001
through 2003 should have been deposited in a decommissioning trust fund. The MPSC agreed that Consumers was entitled to
recover $44 million of decommissioning costs, but concluded that Consumers had collected this amount previously through the
rates in effect during the rate freeze. In April 2010, the MPSC ordered Consumers to refund $85 million of revenue collected in
excess of decommissioning costs plus interest, over seven months beginning in July 2010. At December 31, 2010, a $7 million
regulatory liability remained to be refunded. Consumers completed this refund in January 2011. Consumers filed an appeal with
the Michigan Court of Appeals in March 2010 to dispute the MPSC’s conclusion that the collections received during the rate
freeze should be subject to refund.
(n)
In 2009, the MPSC required Consumers to distribute to customers proceeds from the Palisades and Big Rock ISFSI sale
transaction and Palisades decommissioning fund balances.
Consumers’ PSCR and GCR mechanisms also represent probable future revenues that will be recovered from customers or
previously collected revenues that will be refunded to customers through the ratemaking process. Underrecoveries are included in
Accrued power supply and overrecoveries are included in Accrued rate refunds on Consumers’ Consolidated Balance Sheets.
Consumers reflected the following regulatory assets and liabilities for PSCR and GCR underrecoveries and overrecoveries on its
Consolidated Balance Sheets:
Years
Ended
December
31
2010
2009
In Millions
Regulatory assets for PSCR and GCR underrecoveries
Regulatory liabilities for PSCR and GCR overrecoveries
$ 15
$ 19
118
$ 48
$ 21
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CMS Energy Corporation
Consumers Energy Company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7: FINANCINGS AND CAPITALIZATION
Presented in the following table is CMS Energy’s Long−term debt at December 31:
Interest Rate (%)
CMS Energy
Senior notes
7.750
8.500
6.300
Variable(a)
6.875
4.250
6.550
5.050
8.750
6.250
3.375(b)
2.875(b)
5.500(b)
Maturity
2010
2011
2012
2013
2015
2015
2017
2018
2019
2020
2023
2024
2029
Revolving credit facility
Total — CMS Energy
Consumers
Other CMS Energy Subsidiaries
EnerBank brokered certificates of deposit
Genesee tax exempt bonds(e)
Grayling tax exempt bonds(e)
Trust Preferred Securities
Total — other CMS Energy subsidiaries
Long−term debt — related parties
Total CMS Energy principal amount outstanding
Current amounts
Net unamortized discount
1.707(c)
7.500
Variable(d)
7.750
2011−2018
2011−2021
2011−2012
2027
7.750
2027
Total CMS Energy Long−term debt
2010
2009
In Millions
$
—
146
50
150
125
250
250
250
300
300
4
288
172
$
67
214
150
150
125
—
250
—
300
—
140
288
172
$ 2,285
—
$ 1,856
25
$ 2,285
$ 4,529
$ 1,881
$ 4,411
363
—
—
29
214
54
15
—
$ 392
$
—
$ 7,206
(726)
(32)
$ 283
$
34
$ 6,609
(672)
(42)
$ 6,448
$ 5,895
(a)
CMS Energy’s variable−rate senior notes bear interest at three−month LIBOR plus 95 basis points (1.239 percent at December 31,
2010 and 1.234 percent at December 31, 2009).
(b)
CMS Energy’s contingently convertible notes. See the “Contingently Convertible Securities” section in this Note for further
discussion of the conversion features.
(c)
The weighted−average interest rate for EnerBank’s brokered certificates of deposit was 1.707 percent at December 31, 2010 and
2.727 percent at December 31, 2009. EnerBank sells these deposits through investment brokers in large pools, with each
certificate within the pool having a face value of $1,000. They cannot be withdrawn until maturity, except in the case of death or
incompetence of the holder.
(d)
The interest rate for Grayling’s variable−rate tax−exempt bonds was 0.270 percent at December 31, 2009.
(e)
Genesee and Grayling were deconsolidated as of January 1, 2010. For details, see Note 18, Variable Interest Entities.
119
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CMS Energy Corporation
Consumers Energy Company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Presented in the following table is Consumers’ Long−term debt at December 31:
Interest Rate (%)
Consumers
FMBs(a)
Maturity
4.000
5.000
5.375
6.000
5.000
2.600
5.500
5.150
3.210
5.650
6.125
6.700
5.650
3.770
5.300
5.650
5.800
6.170
4.970
2010
2012
2013
2014
2015
2015
2016
2017
2017
2018
2019
2019
2020
2020
2022
2035
2035
2040
2040
6.875
5.613(b)
(c)
Various
2018
2011−2015
(c)
2018−2035
2010
2009
In Millions
$
—
300
375
200
225
50
350
250
100
250
350
500
300
100
250
—
175
50
50
$
250
300
375
200
225
—
350
250
—
250
350
500
300
—
—
139
175
—
—
$ 3,875
180
208
163
103
$ 3,664
180
243
163
161
Total Consumers principal amount outstanding
Current amounts
Net unamortized discount
$ 4,529
(37)
(4)
$ 4,411
(343)
(5)
Total Consumers Long−term debt
$ 4,488
$ 4,063
Senior notes
Securitization bonds
Nuclear fuel disposal liability to DOE
Tax−exempt pollution control revenue bonds
(a)
The weighted−average interest rate for Consumers’ FMBs was 5.517 percent at December 31, 2010 and 5.583 percent at
December 31, 2009.
(b)
The weighted−average interest rate for Consumers’ Securitization bonds was 5.613 percent at December 31, 2010 and
5.566 percent at December 31, 2009.
(c)
The interest rate for Consumers’ nuclear fuel disposal liability was 0.132 percent at December 31, 2010 and 0.117 percent at
December 31, 2009. The interest rate is based on the 13−week Treasury Bill rate. The maturity date of the nuclear fuel disposal
liability is uncertain. For additional details, see the “Consumers’ Electric Utility Contingencies — Nuclear Matters — Nuclear
Fuel Disposal Cost” section included in Note 5, Contingencies and Commitments.
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CMS Energy Corporation
Consumers Energy Company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Financings: Presented in the following table is a summary of significant long−term debt transactions during 2010:
Principal
(In Millions)
Debt Issuances:
CMS Energy
Senior notes
Senior notes
Senior notes(a)
Consumers
FMBs
FMBs
FMBs
FMBs
FMBs
FMBs
Debt Retirements:
CMS Energy
Senior notes
Senior notes(b)
Senior notes(c)
Contingently convertible senior
notes(a)
Consumers
FMBs
FMBs
Tax−exempt pollution control revenue
bonds
$
$
Interest Rate
Issue/Retirement Date
Maturity Date
300
250
250
6.25%
4.25%
5.05%
January 2010
September 2010
November 2010
February 2020
September 2015
February 2018
250
50
50
100
100
50
5.30%
6.17%
2.60%
3.21%
3.77%
4.97%
September 2010
September 2010
October 2010
October 2010
October 2010
October 2010
September 2022
September 2040
October 2015
October 2017
October 2020
October 2040
67
100
68
7.75%
6.30%
8.50%
August 2010
February 2012
April 2011
136
3.375%
August 2010
December 2010
December 2010
August and
December 2010
250
137
4.00%
5.65%
May 2010
October 2010
May 2010
April 2035
June 2010
June 2010
58
Various
July 2023
(a)
In conjunction with the issuance of the 5.05 percent senior notes due 2018, CMS Energy called for redemption on December 20,
2010 all of its outstanding 3.375 percent contingently convertible senior notes due 2023. In December 2010, holders tendered for
conversion $132 million of the 3.375 percent contingently convertible senior notes due 2023. In December 2010, CMS Energy
used a portion of the net proceeds from the issuance of the 5.05 percent senior notes to pay $128 million principal amount of the
conversion value and issued 6,715,073 shares of its common stock to pay the common stock portion of the conversion value. In
January 2011, CMS Energy paid $4 million principal amount of the conversion value and issued 197,472 shares of its common
stock to pay the common stock portion of the conversion value, which completed the redemption of the 3.375 percent contingently
convertible senior notes due 2023.
(b)
CMS Energy retired this debt at a premium, and recorded a loss on extinguishment of debt of $6 million in Other expense on its
Consolidated Statements of Income.
(c)
CMS Energy retired this debt at a premium, and recorded a loss on extinguishment of debt of $2 million in Other expense on its
Consolidated Statements of Income.
FMBs: Consumers secures its FMBs by a mortgage and lien on substantially all of its property. Consumers’ ability to issue FMBs
is restricted by certain provisions in the First Mortgage Bond Indenture and the need for
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Consumers Energy Company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
regulatory approvals under federal law. Restrictive issuance provisions in the First Mortgage Bond Indenture include achieving a
two−times interest coverage ratio and having sufficient unfunded net property additions.
Regulatory Authorization for Financings: FERC has authorized Consumers to have outstanding at any one time, up to
$1.0 billion of secured and unsecured short−term securities for general corporate purposes. The remaining availability is $670 million at
December 31, 2010. FERC has also authorized Consumers to issue and sell up to $1.1 billion of secured and unsecured long−term
securities for general corporate purposes. The remaining availability is $650 million at December 31, 2010. The authorizations are for
the period ending June 30, 2012. Any long−term issuances during the authorization period are exempt from FERC’s competitive
bidding and negotiated placement requirements.
Securitization Bonds: Certain regulatory assets owned by Consumers’ subsidiary, Consumers Funding, collateralize Consumers’
Securitization bonds. The bondholders have no recourse to Consumers’ other assets. Through its rate structure, Consumers bills
customers for Securitization surcharges to fund the payment of principal, interest, and other related expenses. The surcharges collected
are remitted to a trustee and are not available to creditors of Consumers or creditors of Consumers’ affiliates other than Consumers
Funding. Securitization surcharges totaled $49 million in 2010 and $46 million in 2009.
Long−Term Debt — Related Parties: CMS Energy formed a statutory wholly owned business trust for the sole purpose of
issuing preferred securities and lending the gross proceeds to itself. The sole assets of the trust consist of 7.75 percent convertible
subordinated debentures maturing in 2027. These debentures have terms similar to those of the mandatorily redeemable preferred
securities the trust issued. Under prior accounting rules, CMS Energy did not hold the controlling financial interest in the trust.
Accordingly, at December 31, 2009, CMS Energy’s obligation to the trust was reflected in Long−term debt — related parties in the
amount of $34 million. Interest expense was $8 million in 2009 and $14 million in 2008.
Effective January 1, 2010, CMS Energy consolidated CMS Energy Trust I, the issuer of the Trust Preferred Securities.
Accordingly, at December 31, 2010, the trust’s obligations were included on CMS Energy’s Consolidated Balance Sheets as Long−term
debt in the amount of $29 million.
Debt Maturities: At December 31, 2010, the aggregate annual contractual maturities for long−term debt for the next five years
were:
CMS Energy, including Consumers
Long−term debt
Consumers
Long−term debt
122
Payments Due
2013
2014
In Millions
2011
2012
$ 439
$ 429
$ 590
$ 262
$ 714
$
$ 339
$ 416
$ 243
$ 324
37
2015
Table of Contents
CMS Energy Corporation
Consumers Energy Company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Revolving Credit Facilities: The following secured revolving credit facilities with banks were available at December 31, 2010:
Company
CMS Energy(a)
Consumers(b)
Consumers
Consumers
Expiration Date
April 2, 2012
September 21, 2011
March 30, 2012
August 9, 2013
Amount of
Facility
Letters of
Amount
Credit
Borrowed
Outstanding
In Millions
Amount
Available
$
$
$
550
30
500
150
—
—
—
—
$
3
30
300
—
547
—
200
150
(a)
CMS Energy’s average borrowings during the year ended December 31, 2010, totaled $1 million, with a weighted−average annual
interest rate of 1.0 percent, at LIBOR plus 0.75 percent.
(b)
Secured revolving letter of credit facility.
Short−term Borrowings: Under Consumers’ revolving accounts receivable sales program, Consumers may transfer up to
$250 million of accounts receivable, subject to certain eligibility requirements, to a wholly owned, consolidated, bankruptcy−remote
special−purpose entity. In turn, the special purpose entity may transfer an undivided interest in the receivables. Under accounting rules
effective January 1, 2010, transactions entered into under this program are accounted for as secured borrowings rather than as sales. At
December 31, 2010, $250 million of accounts receivable were eligible for transfer, and no accounts receivable had been transferred
under the program. Prior to 2010, Consumers accounted for these transfers as sales. At December 31, 2009, $250 million of accounts
receivable were eligible for sale, of which $50 million were sold.
During the year ended December 31, 2010, Consumers’ maximum short−term borrowings totaled $50 million, and its average
short−term borrowings totaled $1 million, with a weighted−average annual interest rate of 0.2 percent.
Contingently Convertible Securities: Presented in the following table are the significant terms of CMS Energy’s contingently
convertible securities at December 31, 2010:
Security
2.875% senior notes
3.375% senior notes
5.50% senior notes
Maturity
2024
2023
2029
Outstanding
(In Millions)
Adjusted
Conversion Price
Adjusted
Trigger Price
$
$
$
288
4
172
13.09
9.47
14.46
15.70
11.36
18.80
The holders of the 2.875 percent senior notes have the right to require CMS Energy to purchase the notes at par on December 1,
2011, 2014, and 2019.
The securities become convertible for a calendar quarter if the price of CMS Energy’s common stock remains at or above the
trigger price for 20 of 30 consecutive trading days ending on the last trading day of the previous quarter. The trigger price at which
these securities become convertible is 120 percent of the conversion price for the 2.875 percent senior notes and 130 percent for the
5.5 percent senior notes. The conversion and trigger prices are subject to adjustment in certain circumstances, including payments or
distributions to CMS Energy’s common stockholders. The conversion and trigger price adjustment is made when the cumulative change
in conversion and trigger prices is one percent or more. During December 2010, trigger price contingencies were met for the
2.875 percent senior notes.
All of CMS Energy’s contingently convertible securities, if converted, require CMS Energy to pay cash up to the principal amount
of the securities. Any conversion value in excess of that amount is paid in shares of CMS Energy’s common stock.
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CMS Energy Corporation
Consumers Energy Company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Presented in the following tables are details about conversions of contingently convertible securities during 2010:
4.5 percent
cumulative convertible
preferred
stock(a)
Voluntary conversion
Voluntary conversion
Voluntary conversion
Voluntary conversion
Mandatory conversion
Conversion
Shares
Conversion
Value
Common Stock
Issued
Cash Paid on
Settlement
Date
Converted
per Share
on Settlement
(In Millions)
June 2010
July 2010
October 2010
October 2010
October 2010
100
250,000
1,000
632,971
3,884,929
$
$
$
$
$
84.75
89.43
102.32
103.88
104.22
4,769,000
3.375 percent
contingently convertible
senior
notes
due
2023(b)
Voluntary conversion
Voluntary conversion
Voluntary conversion
Voluntary conversion
Voluntary conversion
228
614,940
2,852
1,831,604
11,276,277
$
—
13
—
32
194
13,725,901
$
239
Conversion
Principal
Converted
Conversion
Value
per $1,000 of
Common Stock
Issued
Cash Paid on
Settlement
Date
(In Millions)
principal
on Settlement
(In Millions)
August 2010
December 2010
December 2010
December 2010
December 2010
$
8
75
21
29
3
$
136
$
$
$
$
$
1,666.57
1,982.59
1,987.87
1,996.32
2,006.88
331,008
3,941,770
1,102,299
1,504,074
166,930
$
8
75
21
29
3
7,046,081
$
136
(a)
In September 2010, CMS Energy exercised its mandatory conversion rights for all of its outstanding 4.50 percent cumulative
convertible preferred stock. Also in September 2010, holders voluntarily tendered 633,971 shares of the 4.50 percent cumulative
convertible preferred stock for conversion. In October 2010, CMS Energy paid $226 million in cash and issued 13,110,733 shares
of its common stock upon conversion of 4,518,900 shares of its 4.50 percent cumulative convertible preferred stock.
(b)
In December 2010, CMS Energy called all of its outstanding 3.375 percent contingently convertible senior notes for redemption.
In response to the call, holders voluntarily tendered $128 million aggregate principal amount of the notes for conversion in
December 2010. In December 2010, holders also voluntarily tendered $4 million aggregate principal amount of the notes for
conversion in January 2011. The conversion value per $1,000 principal amount of convertible notes was $1,994.21. In January
2011, CMS Energy paid $4 million in cash and issued 197,472 shares of its common stock in exchange for the $4 million
aggregate principal amount of notes tendered.
Dividend Restrictions: Under provisions of CMS Energy’s senior notes indenture, at December 31, 2010, payment of common
stock dividends by CMS Energy was limited to $959 million.
Under the provisions of its articles of incorporation, at December 31, 2010, Consumers had $404 million of unrestricted retained
earnings available to pay common stock dividends to CMS Energy. Provisions of the Federal Power Act and the Natural Gas Act
appear to restrict dividends payable by Consumers to the amount of Consumers’ retained earnings. Several decisions from FERC
suggest that under a variety of circumstances common stock dividends from Consumers would not be limited to amounts in Consumers’
retained earnings. Any decision by Consumers to pay common stock dividends in excess of retained earnings would be based on
specific facts and circumstances and would result only after a formal regulatory filing process.
During 2010, CMS Energy received $358 million of common stock dividends from Consumers.
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CMS Energy Corporation
Consumers Energy Company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Capitalization: The authorized capital stock of CMS Energy consists of:
• 350 million shares of CMS Energy Common Stock, par value $0.01 per share, and
• 10 million shares of CMS Energy Preferred Stock, par value $0.01 per share.
Preferred Stock of Subsidiary: Presented in the following table are details about Consumers’ preferred stock outstanding:
December 31,
2010
and
2009
Optional
Redemption
Number of
Price
Shares
Series
Cumulative $100 par value, authorized 7,500,000 shares, with no
mandatory redemption
$ 4.16
$ 4.50
$
$
103.25
110.00
In Millions
68,451
373,148
Total preferred stock of Consumers
$
7
37
$
44
8: EARNINGS PER SHARE — CMS ENERGY
Presented in the following table are CMS Energy’s basic and diluted EPS computations based on Income from Continuing
Operations:
Years
Ended
December
31
2010
2009
2008
In Millions, Except Per Share
Amounts
Income Available to Common Stockholders
Income from Continuing Operations
Less Income Attributable to Noncontrolling Interests
Less Charge for Deferred Issuance Costs on Preferred Stock
Less Preferred Stock Dividends
Income from Continuing Operations Available to Common Stockholders — Basic and
Diluted
$
366
(3)
(8)
(8)
$
220
(11)
—
(11)
$
301
(7)
—
(11)
$
347
$
198
$
283
Average Common Shares Outstanding
Weighted average shares — basic
Add dilutive contingently convertible securities
Add dilutive non−vested stock awards, options, and warrants
Weighted average shares — diluted
Income from Continuing Operations per Average Common Share Available to Common
Stockholders
Basic
Diluted
$
$
231.5
21.3
0.1
227.2
10.6
0.1
225.7
10.3
0.2
252.9
237.9
236.2
1.50
1.36
$
$
0.87
0.83
$
$
1.25
1.20
Contingently Convertible Securities: When CMS Energy has earnings from continuing operations, its contingently convertible
securities dilute EPS to the extent that the conversion value of a security, which is based on the average market price of CMS Energy’s
common stock, exceeds the principal value of that security.
In September 2010, CMS Energy exercised its mandatory conversion rights for all of its outstanding 4.50 percent cumulative
convertible preferred stock and charged unamortized issuance costs of $8 million to Charge for Deferred Issuance Costs on Preferred
Stock, in Accumulated Deficit, which reduced Net Income Available to Common Stockholders on its Consolidated Statements of
Income. In October 2010, CMS Energy
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CMS Energy Corporation
Consumers Energy Company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
issued 11,276,277 shares of its common stock upon conversion. For additional details on contingently convertible securities, see Note 7,
Financings and Capitalization.
Stock Options and Warrants: For the year ended December 31, 2010, outstanding options to purchase 0.4 million shares of
CMS Energy common stock had no impact on diluted EPS, since the exercise price was greater than the average market price of CMS
Energy common stock. These stock options have the potential to dilute EPS in the future.
Non−vested Stock Awards: CMS Energy’s non−vested stock awards are composed of participating and non−participating
securities. The participating securities accrue cash dividends when common stockholders receive dividends. Since the recipient is not
required to return the dividends to CMS Energy if the recipient forfeits the award, the non−vested stock awards are considered
participating securities. As such, the participating non−vested stock awards were included in the computation of basic EPS. The
non−participating securities accrue stock dividends that vest concurrently with the stock award. If the recipient forfeits the award, the
stock dividends accrued on the non−participating securities are also forfeited. Accordingly, the non−participating awards and stock
dividends were included in the computation of diluted EPS, but not basic EPS.
Convertible Debentures: For the years ended December 31, 2010, 2009, and 2008, there was no impact on diluted EPS from
CMS Energy’s 7.75 percent convertible subordinated debentures. Using the if−converted method, the debentures would have:
• increased the numerator of diluted EPS by $1 million for the year ended December 31, 2010, by
$5 million for the year ended December 31, 2009, and by $9 million for the year ended December 31,
2008, from an assumed reduction of interest expense, net of tax; and
• increased the denominator of diluted EPS by 0.7 million shares for the year ended December 31, 2010, by
2.3 million shares for the year ended December 31, 2009, and by 4.2 million shares for the year ended
December 31, 2008.
CMS Energy can revoke the conversion rights if certain conditions are met.
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:
2010
December
31
CMS Energy, including Consumers
Securities held to maturity
Securities available for sale
Notes receivable(a)
Long−term debt(b)
Consumers
Securities available for sale
Long−term debt(c)
126
2009
Cost or
Carrying
Cost or
Carrying
Amount
Fair Value
Amount
In Millions
Fair Value
$
5
90
386
7,174
$
6
90
407
7,861
$
4
26
269
6,567
$
4
27
279
7,013
$
64
4,525
$
90
4,891
$
24
4,406
$
45
4,635
Table of Contents
CMS Energy Corporation
Consumers Energy Company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(a)
Includes current portion of notes receivable of $11 million at December 31, 2010 and less than $1 million at December 31, 2009.
(b)
Includes current portion of long−term debt of $726 million at December 31, 2010 and $672 million at December 31, 2009.
(c)
Includes current portion of long−term debt of $37 million at December 31, 2010 and $343 million at December 31, 2009.
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’s common stock.
The effects of third−party credit enhancements are excluded from the fair value measurements of long−term debt. At
December 31, 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. At December 31, 2009, CMS Energy’s long−term debt included
$286 million principal amount that was supported by third−party insurance or other credit enhancements. Of this amount, $271 million
principal amount was at Consumers.
Presented in the following table are CMS Energy’s and Consumers’ investment securities:
Unrealized
December
31
CMS Energy, including
Consumers
Available for sale:
SERP:
Mutual fund
State and
municipal
bonds
Held to maturity:
Debt securities
Consumers
Available for sale:
SERP:
Mutual fund
State and
municipal
bonds
CMS Energy
common stock
Cost
$ 62
2010
Unrealized
Gains
$
Losses
—
$
Fair
Unrealized
Value
Cost
In Millions
—
$
62
$ —
2009
Unrealized
Gains
$
Losses
—
$
Fair
Value
—
$
—
28
—
—
28
26
1
—
27
5
1
—
6
4
—
—
4
39
$ —
$ 39
$
—
$
—
$
$
—
$
—
$
—
17
—
—
17
16
—
—
16
8
26
—
34
8
21
—
29
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Consumers Energy Company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The mutual fund classified as available for sale is a short−term, fixed−income fund. Shares in this fund were acquired during the
year ended December 31, 2010. State and municipal bonds classified as available for sale consist 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 the sales activity for CMS Energy’s and Consumers’ investment securities:
Years
Ended
December
31
2010
CMS Energy, including Consumers:
Proceeds from sales of investment securities
Realized gains
Net gains from AOCI recognized in net income
Consumers:
Proceeds from sales of investment securities
Realized gains
Net gains from AOCI recognized in net income
$
2009
In Millions
2008
1
—
—
$ 53
8
5
$
2
—
—
$ —
—
—
$ 32
5
3
$
2
—
—
The amounts for all periods represent sales of SERP securities classified as available for sale. The activity during 2009 related
primarily to the sale of a SERP investment in a mutual fund, while the remainder of the activity for all three years related to sales of
state and municipal bonds held within the SERP.
During 2008, the fair value of CMS Energy’s SERP investment in a mutual fund declined from $63 million to $39 million. These
amounts include the decline in fair value of Consumers’ SERP investment in the mutual fund from $41 million to $25 million. CMS
Energy and Consumers determined that these declines in fair value were other than temporary. Accordingly, CMS Energy recognized
net unrealized losses of $24 million ($15 million net of tax) in Other expense on its Consolidated Statements of Income. Consumers
recognized net unrealized losses of $16 million ($10 million net of tax) in Other expense on its Consolidated Statements of Income.
These losses had been recorded in AOCI, in accordance with applicable accounting standards, before they were determined to be other
than temporary.
Presented in the following table are the fair values of the SERP state and municipal bonds by contractual maturity at December 31,
2010:
CMS Energy,
including
Consumers
Consumers
In Millions
Due one year or less
Due after one year through five years
Due after five years through ten years
Due after ten years
Total
$
1
12
9
6
$
—
7
6
4
$
28
$
17
10: DERIVATIVE INSTRUMENTS
In order to limit exposure to certain market risks, primarily changes in commodity prices, interest rates, and foreign exchange
rates, CMS Energy and Consumers may enter into various risk management contracts, such as forward contracts, futures, options, and
swaps. In entering into these contracts, they follow established policies and procedures under the direction of an executive oversight
committee consisting of senior management
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representatives and a risk committee consisting of business unit managers. Neither CMS Energy nor Consumers enters into any
derivatives for trading purposes.
The contracts used to manage market risks may qualify as derivative instruments. If a contract is a derivative and does not qualify
for the normal purchases and sales exception, the contract is recorded on the balance sheet at its fair value. Each reporting period, the
resulting asset or liability is adjusted to reflect any change in the fair value of the contract. Since none of CMS Energy’s or Consumers’
derivatives have been designated as accounting hedges, all changes in fair value are reported in earnings.
For a discussion of how CMS Energy and Consumers determine the fair value of their derivatives, see Note 4, Fair Value
Measurements.
Commodity Price Risk: In order to support ongoing operations, CMS Energy and Consumers enter into contracts for the future
purchase and sale of various commodities, such as electricity, natural gas, and coal. These forward contracts are generally long−term in
nature and result in physical delivery of the commodity at a contracted price. Most of these contracts are not subject to derivative
accounting because:
• they do not have a notional amount (that is, a number of units specified in a derivative instrument, such as
MWh of electricity or bcf of natural gas);
• they qualify for the normal purchases and sales exception; or
• there is not an active market for the commodity.
CMS Energy’s and Consumers’ coal purchase contracts are not derivatives because there is not an active market for the coal they
purchase. If an active market for coal develops in the future, some of these contracts may qualify as derivatives. For Consumers, which
is subject to regulatory accounting, the resulting fair value gains and losses would be offset by changes in regulatory assets and
liabilities and would not affect net income. No other subsidiaries of CMS Energy enter into coal purchase contracts.
CMS ERM has not designated its contracts to purchase and sell electricity and natural gas as normal purchases and sales and,
therefore, CMS Energy accounts for those contracts as derivatives. To manage commodity price risks associated with these forward
purchase and sale contracts, CMS ERM uses various financial instruments, such as futures, options, and swaps. At December 31, 2010,
CMS ERM held the following derivative contracts:
• a forward contract for the physical sale of 675 GWh of electricity through 2015 on behalf of one of CMS
Energy’s non−utility generating plants;
• futures contracts through 2011 as an economic hedge of 20 percent of the generating plant’s natural gas
requirements needed to serve a steam sales contract, for a total of 0.2 bcf of natural gas;
• a forward contract for the physical sale of 50 GWh of electricity in January 2011;
• forward contracts to purchase 2.1 bcf and sell 2.1 bcf of natural gas through October 2011 in CMS ERM’s
role as a marketer of natural gas for third−party producers; and
• an option to sell 612 GWh of electricity, and as an economic hedge, contracts to purchase 0.8 bcf of
natural gas through 2011.
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Consumers Energy Company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Presented in the following table are the fair values of CMS Energy’s and Consumers’ derivative instruments:
Derivative Assets
Derivative Liabilities
Fair Value at
Fair Value at
Balance Sheet
December 31
Balance Sheet
December 31
Location
2010
2009
Location
2010
2009
In Millions
CMS Energy, including Consumers
Derivatives not designated as hedging
instruments:
Commodity contracts(a)
Interest rate contracts(c)
Other assets
Other assets
Total CMS Energy
Consumers
Derivatives not designated as hedging
instruments:
Commodity contracts
Other assets
$
1
—
$
1
—
$
1
$
1
$
1
$ —
Other liabilities(b)
Other liabilities
Other liabilities
$
4
—
$
9
1
$
4
$ 10
$ —
$ —
(a)
Assets and liabilities are presented gross and exclude the impact of offsetting derivative assets and liabilities under master netting
agreements, which was less than $1 million at December 31, 2010 and was $1 million at December 31, 2009.
(b)
Liabilities exclude the impact of offsetting cash margin deposits paid by CMS ERM to other parties, which was less than
$1 million at December 31, 2010 and was $1 million at December 31, 2009. CMS Energy presents these liabilities net of these
impacts on its Consolidated Balance Sheets.
(c)
At December 31, 2009, CMS Energy’s derivatives included an interest rate collar held by Grayling as an economic hedge of the
variable interest rate charged on its outstanding revenue bonds. Effective January 1, 2010, CMS Energy deconsolidated Grayling.
CMS Energy reflected its share of the loss on the interest rate collar, which was less than $1 million at December 31, 2010, in
Income (loss) from equity method investees on its Consolidated Statements of Income. For additional details about the
deconsolidation of Grayling, see Note 18, Variable Interest Entities.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Presented in the following table is the effect of CMS Energy’s and Consumers’ derivative instruments on their Consolidated
Statements of Income:
Location of Gain (Loss)
on Derivatives
Twelve
Months
Ended
December
31
Recognized in Income
Amount of Gain (Loss)
on Derivatives
Recognized in Income
2010
2009
In Millions
CMS Energy, including Consumers
Derivatives not designated as hedging instruments:
Commodity contracts
Operating Revenue
Fuel for electric generation
Cost of gas sold
Purchased and interchange power
Other income
Other expense
Other expense
Interest rate contracts
Foreign exchange contracts(a)
Total CMS Energy
Consumers
Derivatives not designated as hedging instruments:
Commodity contracts
(a)
Other income
$
4
4
—
2
4
—
—
$
7
(3)
(2)
—
9
(1)
(1)
$
14
$
9
$
4
$
9
This derivative loss relates to a foreign−exchange forward contract that CMS Energy settled in January 2009.
CMS Energy’s derivative liabilities subject to credit−risk−related contingent features were $1 million at December 31, 2010 and
less than $1 million at December 31, 2009.
Credit Risk: CMS Energy’s swaps, options, and forward contracts contain credit risk, which is the risk that a counterparty will fail
to meet its contractual obligations. CMS Energy reduces this risk through established policies and procedures. CMS Energy assesses
credit quality by considering credit ratings, financial condition, and other available information for counterparties. A credit limit is
established for each counterparty based on the evaluation of its credit quality. Exposure to potential loss under each contract is
monitored and action is taken when appropriate.
CMS ERM enters into contracts primarily with companies in the electric and gas industry. This industry concentration may have a
positive or negative impact on CMS Energy’s exposure to credit risk based on how similar changes in economic conditions, the
weather, or other conditions affect these counterparties. CMS ERM reduces its credit risk exposure by using industry−standard
agreements that allow for netting positive and negative exposures associated with the same counterparty. Typically, these agreements
also allow each party to demand adequate assurance of future performance from the other party, when there is reason to do so.
At December 31, 2010, if counterparties within this industry concentration all failed to meet their contractual obligations, the loss
to CMS Energy on contracts accounted for as derivatives would be less than $1 million.
CMS Energy does not expect a material adverse effect on its Consolidated Balance Sheets and Consolidated Statements of Income
as a result of counterparty nonperformance, given CMS Energy’s credit policies, current exposures, and credit reserves.
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Consumers Energy Company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11: RETIREMENT BENEFITS
CMS Energy and Consumers provide pension, OPEB, and other retirement benefits to employees under a number of different
plans. These plans include:
• a non−contributory, qualified defined benefit Pension Plan (closed to new non−union participants as of
July 1, 2003 and closed to new union participants as of September 1, 2005);
• a qualified cash balance Pension Plan for certain employees hired between July 1, 2003 and August 31,
2005;
• a non−contributory, qualified DCCP for employees hired on or after September 1, 2005;
• benefits to certain management employees under a non−contributory, nonqualified defined benefit SERP
(closed to new participants as of March 31, 2006);
• a non−contributory, nonqualified DC SERP for certain management employees hired or promoted on or
after April 1, 2006;
• health care and life insurance benefits under an OPEB plan;
• benefits to a selected group of management under a non−contributory, nonqualified EISP; and
• a contributory, qualified defined contribution 401(k) plan.
Pension Plan: Participants in the Pension Plan include CMS Energy’s and Consumers’ present employees, employees of their
subsidiaries, and employees of Panhandle, a former CMS Energy subsidiary. Pension Plan trust assets are not distinguishable by
company.
CMS Energy and Consumers provide an employer contribution of five percent of base pay to the DCCP 401(k) plan for
employees hired on or after September 1, 2005. On January 1, 2011, the employer contribution was increased to six percent. Employees
are not required to contribute in order to receive the plan’s employer contribution.
Participants in the cash balance Pension Plan, effective July 1, 2003 to September 1, 2005, also participate in the DCCP as of
September 1, 2005. Additional pay credits under the cash balance Pension Plan were discontinued as of September 1, 2005. DCCP
expense for CMS Energy and Consumers was $5 million for the year ended December 31, 2010, $4 million for the year ended
December 31, 2009, and $3 million for the year ended December 31, 2008.
SERP: The SERP is a non−qualified plan as defined by the Internal Revenue Code. SERP benefits are paid from a trust
established in 1988. SERP trust earnings are taxable. Presented in the following table are the funded status and fair value of trust assets
for CMS Energy’s and Consumers’ SERP:
Years
Ended
December
31
2010
2009
In Millions
CMS Energy, including Consumers
Trust assets(a)
ABO
Contributions
Consumers
Trust assets(a)
ABO
Contributions
(a)
$
91
107
17
$ 77
93
2
$
57
66
11
$ 50
54
1
Trust assets are included in Other non−current assets on CMS Energy’s and Consumers’ Consolidated Balance Sheets.
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On April 1, 2006, CMS Energy and Consumers implemented a DC SERP and froze further new participation in the SERP. The
DC SERP provides participants benefits ranging from 5 percent to 15 percent of total compensation. The DC SERP requires a minimum
of five years of participation before vesting. CMS Energy’s and Consumers’ contributions to the plan, if any, are placed in a grantor
trust. For CMS Energy and Consumers, trust assets were less than $1 million at December 31, 2010 and December 31, 2009. DC SERP
assets are included in Other non−current assets on CMS Energy’s and Consumers’ Consolidated Balance Sheets. CMS Energy’s and
Consumers’ DC SERP expense was less than $1 million for each of the years ended December 31, 2010, 2009, and 2008.
401(k): The 401(k) plan employer match equals 60 percent of eligible contributions up to the first six percent of an employee’s
wages. The total 401(k) plan cost for CMS Energy, including Consumers, was $16 million for each of the years ended December 31,
2010, 2009, and 2008. The total 401(k) plan cost for Consumers was $15 million for each of the years ended December 31, 2010, 2009,
and 2008.
EISP: In 2002, CMS Energy and Consumers implemented a nonqualified EISP to provide flexibility in separation of employment
by officers, a selected group of management, or other highly compensated employees. Terms of the plan include payment of a lump
sum, payment of monthly benefits for life, payment of premiums for continuation of health care, or any other legally permissible term
deemed to be in CMS Energy’s and Consumers’ best interest. EISP expense for CMS Energy and Consumers was less than $1 million
for each of the years ended December 31, 2010, 2009, and 2008. The ABO for the EISP for CMS Energy, including Consumers, was
$5 million at December 31, 2010 and $4 million at December 31, 2009. The ABO for the EISP for Consumers was $1 million at
December 31, 2010 and 2009.
OPEB: Participants in the OPEB plan include all regular full−time employees covered by the employee health care plan on the
day before retirement from either CMS Energy or Consumers at age 55 or older with at least ten full years of applicable continuous
service. Regular full−time employees who qualify for Pension Plan disability retirement and have 15 years of applicable continuous
service may also participate in the OPEB plan. Retiree health care costs were based on the assumption that costs would increase
8.0 percent in 2011 for all retirees. In 2010, the assumption was 8.5 percent for those under 65 and 8.0 percent for those over 65. The
rate of increase was assumed to decline to five percent for all retirees by 2017 and thereafter.
The assumptions used in the health care cost−trend rate affect service, interest, and PBO costs. Presented in the following table are
the effects of a one−percentage−point change in the health care cost−trend assumption:
One Percentage
One Percentage
Point Increase
Point Decrease
In Millions
CMS Energy, including Consumers
Effect on total service and interest cost component
Effect on PBO
Consumers
Effect on total service and interest cost component
Effect on PBO
$
$
19
201
$
$
(16)
(175)
$
$
18
196
$
$
(15)
(170)
In 1992, Consumers recorded a liability of $466 million for the accumulated transition obligation and a corresponding regulatory
asset for anticipated recovery in utility rates. The MPSC authorized recovery of the electric utility portion of these costs in 1994 over
18 years and the gas utility portion in 1996 over 16 years.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Assumptions: Presented in the following tables are the weighted−average assumptions used in CMS Energy’s and Consumers’
retirement benefits plans to determine benefit obligations and net periodic benefit cost:
Weighted Average for Benefit Obligations:
Pension and SERP
Years
Ended
December
31
CMS Energy, including Consumers
Discount rate(a)
Expected long−term rate of return on plan assets(b)
Mortality table(c)
Rate of compensation increase:
Pension
SERP
2010
2009
OPEB
2008
5.40%
8.00%
2000
5.85%
8.00%
2000
6.50%
8.25%
2000
4.00%
5.50%
4.00%
5.50%
4.00%
5.50%
2010
5.60%
7.50%
2000
2009
6.00%
7.50%
2000
2008
6.50%
7.75%
2000
Weighted Average for Net Periodic Benefit Cost:
Pension and SERP
Years
Ended
December
31
CMS Energy, including Consumers
Discount rate(a)
Expected long−term rate of return on plan assets(b)
Mortality table(c)
Rate of compensation increase:
Pension
SERP
2010
2009
OPEB
2008
5.85%
8.00%
2000
6.50%
8.25%
2000
6.40%
8.25%
2000
4.00%
5.50%
4.00%
5.50%
4.00%
5.50%
2010
6.00%
7.50%
2000
2009
6.50%
7.75%
2000
2008
6.50%
7.75%
2000
(a)
The discount rate reflects the rate at which benefits could be effectively settled and is equal to the equivalent single rate resulting
from a yield curve analysis. This analysis incorporated the projected benefit payments specific to CMS Energy’s and Consumers’
Pension Plan and OPEB plan and the yields on high quality corporate bonds rated Aa or better.
(b)
CMS Energy and Consumers determined the long−term rate of return using historical market returns, the present and expected
future economic environment, the capital market principles of risk and return, and the expert opinions of individuals and firms
with financial market knowledge. CMS Energy and Consumers considered the asset allocation of the portfolio in forecasting the
future expected total return of the portfolio. The goal was to determine a long−term rate of return that could be incorporated into
the planning of future cash flow requirements in conjunction with the change in the liability. Annually, CMS Energy and
Consumers review for reasonableness and appropriateness the forecasted returns for various classes of assets used to construct an
expected return model. CMS Energy’s and Consumers’ expected long−term rate of return on Pension Plan assets was eight percent
in 2010. In 2010, the actual return on Pension Plan assets was 13 percent, in 2009 the actual return was 21 percent, and in 2008 the
actual return was a negative 23 percent.
(c)
The mortality assumption was based on the RP−2000 mortality tables with projection of future mortality improvements using
Scale AA, which aligned with the IRS prescriptions for cash funding valuations under the Pension Protection Act of 2006.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Costs: Presented in the following tables are the costs and other changes in plan assets and benefit obligations incurred in CMS
Energy’s and Consumers’ retirement benefits plans:
Pension and SERP
Years
Ended
December
31
2010
CMS Energy, including Consumers
Net periodic pension cost
Service cost
Interest expense
Expected return on plan assets
Amortization of:
Net loss
Prior service cost
$
Net periodic pension cost
Regulatory adjustment(a)
Net periodic pension cost after regulatory adjustment
Consumers
Net periodic pension cost
Service cost
Interest expense
Expected return on plan assets
Amortization of:
Net loss
Prior service cost
45
104
(92)
2009
In Millions
$
Net periodic pension cost after regulatory adjustment
135
$
43
101
(81)
52
5
41
6
41
6
$ 114
30
$ 104
—
$ 110
4
$ 144
$ 104
$ 114
$
$
$
44
99
(89)
50
5
Net periodic pension cost
Regulatory adjustment(a)
41
102
(86)
2008
40
97
(83)
41
96
(78)
40
5
40
6
$ 109
30
$
99
—
$ 105
4
$ 139
$
99
$ 109
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CMS Energy Corporation
Consumers Energy Company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OPEB
Years
Ended
December
31
CMS Energy, including Consumers
Net periodic OPEB cost
Service cost
Interest expense
Expected return on plan assets
Amortization of:
Net loss
Prior service credit
Net periodic OPEB cost
Regulatory adjustment(a)
Net periodic OPEB cost after regulatory adjustment
Consumers
Net periodic OPEB cost
Service cost
Interest expense
Expected return on plan assets
Amortization of:
Net loss
Prior service credit
Net periodic OPEB cost
Regulatory adjustment(a)
Net periodic OPEB cost after regulatory adjustment
(a)
2010
$
26
80
(60)
2009
In Millions
$
32
(17)
24
80
(50)
2008
$
33
(10)
22
72
(66)
9
(10)
$
61
5
$
77
—
$
27
3
$
66
$
77
$
30
$
25
77
(56)
$
24
77
(46)
$
21
69
(61)
33
(16)
33
(10)
10
(10)
$
63
5
$
78
—
$
29
3
$
68
$
78
$
32
Regulatory adjustments are the differences between amounts included in rates and the periodic benefit cost calculated. These
regulatory adjustments were offset by surcharge revenues, which resulted in no impact to net income for the years presented. The
pension and OPEB regulatory liability was less than $1 million at December 31, 2010. The pension and OPEB regulatory asset
was $34 million at December 31, 2009.
The estimated net loss and prior service cost for the defined benefit Pension Plans that will be amortized into net periodic benefit
cost in 2011 for CMS Energy from the regulatory asset is $66 million and from AOCI is $2 million. The estimated net loss and prior
service cost for the defined benefit Pension Plans that will be amortized into net periodic benefit cost in 2011 for Consumers from the
regulatory asset is $66 million. The estimated net loss and prior service credit for OPEB plans that will be amortized into net periodic
benefit cost in 2011 for CMS Energy from the regulatory asset is $21 million, with a decrease from AOCI of $1 million. The estimated
net loss and prior service credit for OPEB plans that will be amortized into net periodic benefit cost in 2011 for Consumers from the
regulatory asset is $21 million.
CMS Energy and Consumers amortize net gains and losses in excess of ten percent of the greater of the PBO or the MRV over the
average remaining service period. The estimated time of amortization of gains and losses for CMS Energy and Consumers was 12 years
for pension and 14 years for OPEB for each of the years ended December 31, 2010, 2009, and 2008. Prior service cost amortization is
established in the year in which the prior service cost first
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occurred, and is based on the same amortization period for all future years until the prior service costs are fully amortized. The
estimated time of amortization of new prior service costs for CMS Energy and Consumers was 12 years for pension and ten years for
OPEB for each of the years ended December 31, 2010, 2009, and 2008.
Reconciliations: Presented in the following tables are reconciliations of the funded status of CMS Energy’s and Consumers’
retirement benefits plans with their retirement benefits plans’ liabilities:
Pension Plan
Years
Ended
December
31
2010
2009
In Millions
Benefit obligation at beginning of period
Service cost
Interest cost
Actuarial loss
Benefits paid
$ 1,717
44
98
150
(113)
$ 1,524
40
96
145
(88)
Benefit obligation at end of period(a)
$ 1,896
$ 1,717
Plan assets at fair value at beginning of period
Actual return on plan assets
Company contribution
Actual benefits paid(b)
$ 1,007
132
375
(113)
$
Plan assets at fair value at end of period
$ 1,401
$ 1,007
Funded status at December 31(c)(d)
$
$
(495)
SERP
Years
Ended
December
31
2010
CMS Energy, including Consumers
Benefit obligation at beginning of period
Service cost
Interest cost
Plan amendments(e)
Actuarial loss
Benefits paid
106
1
6
—
11
(6)
$
Benefit obligation at end of period(a)
$
118
$
Plan assets at fair value at beginning of period
Actual return on plan assets
Company contribution
Actual benefits paid(b)
$
—
—
6
(6)
$
Plan assets at fair value at end of period
$
—
$
Funded status at December 31(c)
$ (118)
137
(710)
OPEB
2009
2010
In Millions
$
724
165
206
(88)
95
1
6
—
9
(5)
2009
$ 1,423
26
80
(101)
36
(54)
$ 1,266
24
80
—
106
(53)
$ 1,410
$ 1,423
—
—
5
(5)
$
782
88
71
(54)
$
662
117
56
(53)
—
$
887
$
782
$
(523)
$
(641)
106
$ (106)
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CMS Energy Corporation
Consumers Energy Company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SERP
Years
Ended
December
31
OPEB
2010
2009
2010
In Millions
$
67
1
4
—
8
—
(3)
$
62
1
4
—
6
(4)
(2)
$ 1,373
25
77
(100)
34
—
(51)
$ 1,219
24
77
—
104
—
(51)
Benefit obligation at end of period(a)
$
77
$
67
$ 1,358
$ 1,373
Plan assets at fair value at beginning of period
Actual return on plan assets
Company contribution
Actual benefits paid(b)
$
—
—
3
(3)
$
—
—
2
(2)
$
725
81
70
(51)
$
612
108
55
(50)
Plan assets at fair value at end of period
$
—
$
—
$
825
$
725
Funded status at December 31(c)
$ (77)
$
(533)
$
(648)
Consumers
Benefit obligation at beginning of period
Service cost
Interest cost
Plan amendments(e)
Actuarial loss
Transfer
Benefits paid
$ (67)
2009
(a)
The Medicare Prescription Drug, Improvement and Modernization Act of 2003 established a prescription drug benefit under
Medicare (Medicare Part D) and a federal subsidy, which is tax−exempt, to sponsors of retiree health care benefit plans that
provide a benefit that is actuarially equivalent to Medicare Part D. In 2010, the Health Care Acts repealed these tax−exempt
deductions for years beginning after December 31, 2012. The Medicare Part D annualized reduction in net OPEB cost for CMS
Energy was $28 million for 2010, $19 million for 2009, and $25 million for 2008. Consumers’ Medicare Part D annualized
reduction in net OPEB costs was $26 million for 2010, $18 million for 2009, and $24 million for 2008. The reduction for CMS
Energy and Consumers includes $10 million for 2010, $6 million for 2009, and $7 million for 2008 in capitalized OPEB costs.
(b)
CMS Energy received payments of $5 million in 2010, $4 million in 2009, and $6 million in 2008 for the Medicare Part D
subsidies. Consumers received payments of $5 million in 2010, $4 million in 2009, and $5 million in 2008 for the Medicare Part D
subsidies.
(c)
At December 31, 2010, CMS Energy classified $7 million as current liabilities and $1.1 billion as non−current liabilities on its
Consolidated Balance Sheets. At December 31, 2009, CMS Energy classified $6 million as current liabilities and $1.5 billion as
non−current liabilities on its Consolidated Balance Sheets.
At December 31, 2010, Consumers classified $4 million as current liabilities and $1.1 billion as non−current liabilities on its
Consolidated Balance Sheets. At December 31, 2009, Consumers classified $3 million as current liabilities and $1.4 billion as
non−current liabilities on its Consolidated Balance Sheets.
(d)
At December 31, 2010, $463 million of the total funded status of the Pension Plan was attributable to Consumers based on an
allocation of expenses. At December 31, 2009, $675 million of the funded status of the Pension Plan was attributable to
Consumers based on an allocation of expenses.
(e)
Plan amendments reflect changes resulting from an agreement reached with the Union in April 2010 on a new five−year contract
for Union members.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Presented in the following table are the Pension Plan PBO, ABO, and fair value of plan assets:
Years
Ended
December
31
2010
2009
In Millions
CMS Energy, including Consumers
Pension PBO
Pension ABO
Fair value of Pension Plan assets
$ 1,896
1,517
1,401
$ 1,717
1,393
1,007
Items Not Yet Recognized as a Component of Net Periodic Benefit Cost: Presented in the following table are the amounts
recognized in regulatory assets and AOCI that have not been recognized as components of net periodic benefit cost. For additional
details on regulatory assets, see Note 6, Regulatory Matters.
Pension and
SERP
Years
Ended
December
31
2010
CMS Energy, including Consumers
Regulatory assets
Net loss
Prior service cost (credit)
AOCI
Net loss (gain)
Prior service cost (credit)
$
Total amounts recognized in regulatory assets and AOCI
Consumers
Regulatory assets
Net loss
Prior service cost (credit)
AOCI
Net loss
Prior service cost
Total amounts recognized in regulatory assets and AOCI
2009
2010
In Millions
$
2009
914
23
$ 860
27
72
2
58
3
$ 1,011
$ 948
$
414
$ 522
$
914
23
$ 860
27
$
579
(152)
$ 604
(68)
22
1
14
1
960
$ 902
$
139
OPEB
$
579
(152)
$ 604
(68)
(9)
(4)
(11)
(3)
—
—
—
—
427
$ 536
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CMS Energy Corporation
Consumers Energy Company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Plan Assets: Presented in the following tables are the fair values of CMS Energy’s and Consumers’ Pension Plan and OPEB plan
assets at December 31, 2010 and 2009, by asset category and by level within the fair value hierarchy. For additional details regarding
the fair value hierarchy, see Note 4, Fair Value Measurements.
Pension Plan
Year
Ended
December 31,
2010
Total
CMS Energy, including Consumers
Asset Category:
Cash and short−term investments(a)
U.S. government and agencies securities(b)
Corporate debt(c)
State and municipal bonds(e)
Foreign corporate debt(f)
Mutual funds(h)
Pooled funds(i)
$
Total
Level 1
In Millions
Level 2
248
57
161
8
17
183
727
$
248
—
—
—
—
183
—
$
—
57
161
8
17
—
727
$ 1,401
$
431
$
970
Pension Plan
Year
Ended
December 31,
2009
Total
CMS Energy, including Consumers
Asset Category:
Cash and short−term investments(a)
U.S. government and agencies securities(b)
Corporate debt(c)
State and municipal bonds(e)
Foreign corporate debt(f)
Mutual funds(h)
Pooled funds(i)
$
Total
140
Level 1
In Millions
Level 2
65
40
145
4
17
117
619
$
65
—
—
—
—
117
—
$
—
40
145
4
17
—
619
$ 1,007
$
182
$
825
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CMS Energy Corporation
Consumers Energy Company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OPEB Plan
Year
Ended
December 31,
2010
CMS Energy, including Consumers
Asset Category:
Cash and short−term investments(a)
U.S. government and agencies securities(b)
Corporate debt(d)
State and municipal bonds(e)
Foreign corporate debt(f)
Common stocks(g)
Mutual funds(h)
Pooled funds(j)
Total
Total
Level 1
In Millions
Level 2
$
56
181
20
36
2
154
23
415
$
56
—
—
—
—
154
23
—
$
—
181
20
36
2
—
—
415
$ 887
$
233
$
654
OPEB Plan
Year
Ended
December 31,
2009
CMS Energy, including Consumers
Asset Category:
Cash and short−term investments(a)
U.S. government and agencies securities(b)
Corporate debt(d)
State and municipal bonds(e)
Foreign corporate debt(f)
Common stocks(g)
Mutual funds(h)
Pooled funds(j)
Total
Total
Level 1
In Millions
Level 2
$
29
157
21
51
2
134
17
371
$
29
—
—
—
—
134
17
—
$
—
157
21
51
2
—
—
371
$ 782
$
180
$
602
(a)
Cash and short−term investments consist of money market funds with daily liquidity.
(b)
U.S. government and agencies securities consist of U.S. Treasury notes and other debt securities backed by the U.S. government
and related agencies. These securities were valued based on quoted market prices.
(c)
At December 31, 2010, corporate debt investments in the Pension Plan included investment grade bonds (61 percent) and
non−investment grade, high−yield bonds (39 percent) of U.S. issuers from diverse industries. At December 31, 2009, corporate
debt investments in the Pension Plan included investment grade bonds (63 percent) and non−investment grade, high−yield bonds
(37 percent) of U.S. issuers from diverse industries. These securities are valued based on quoted market prices, when available, or
yields presently available on comparable securities of issuers with similar credit ratings.
(d)
At December 31, 2010, corporate debt investments in the OPEB plan included investment grade bonds (61 percent) and
non−investment grade, high−yield bonds (39 percent) of U.S. issuers from diverse industries. At December 31, 2009, corporate
debt investments in the OPEB plan included investment grade bonds (62 percent) and non−investment grade, high−yield bonds
(38 percent) of U.S. issuers from diverse industries.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
These securities are valued based on quoted market prices, when available, or yields presently available on comparable securities
of issuers with similar credit ratings.
(e)
State and municipal bonds were valued using a matrix−pricing model that incorporates Level 2 market−based information. The
fair value of the bonds was derived from various observable inputs, including benchmark yields, reported securities trades,
broker/dealer quotes, bond ratings, and general information on market movements for investment grade state and municipal
securities normally considered by market participants when pricing such debt securities.
(f)
Foreign corporate debt securities were valued based on quoted market prices, when available, or on yields available on
comparable securities of issuers with similar credit ratings.
(g)
Common stocks in the OPEB plan consist of equity securities with low transaction costs that were actively managed and tracked
by the S&P 500 Index. These securities were valued at their quoted closing prices.
(h)
Mutual funds represent shares in registered investment companies that are priced based on the quoted NAV that is the basis for
transactions to buy or sell shares in the funds.
(i)
Pooled funds in the Pension Plan include both common and collective trust funds as well as special funds that contain only
employee benefit plan assets from two or more unrelated benefit plans. At December 31, 2010, these funds included investments
in U.S. equity securities (55 percent), foreign equity securities (24 percent), foreign fixed−income securities (14 percent), U.S.
fixed−income securities (four percent), and alternative investments (three percent). At December 31, 2009, these funds included
investments in U.S. equity securities (56 percent), foreign equity securities (22 percent), foreign fixed−income securities
(16 percent), U.S. fixed−income securities (three percent), and alternative investments (three percent). These investments were
valued at the quoted NAV provided by the fund managers that is the basis for transactions to buy or sell shares in the funds.
(j)
Pooled funds in the OPEB plan include both common and collective trust funds as well as special funds that contain only
employee benefit plan assets from two or more unrelated benefit plans. At December 31, 2010, these funds included investments
in U.S. equity securities (89 percent), foreign equity securities (six percent), foreign fixed−income securities (three percent), U.S.
fixed−income securities (one percent), and alternative investments (one percent). At December 31, 2009, these funds included
investments in U.S. equity securities (89 percent), foreign equity securities (five percent), foreign fixed−income securities (four
percent), U.S. fixed−income securities (one percent), and alternative investments (one percent). These investments are valued at
the quoted NAV provided by the fund managers that is the basis for transactions to buy or sell shares in the funds.
The fair value of Pension Plan and OPEB plan assets classified as Level 3 at December 31, 2010 and 2009 was less than
$1 million.
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Consumers Energy Company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Presented in the following table are the contributions to CMS Energy’s and Consumers’ OPEB plan and Pension Plan:
Years
Ended
December
31
2010
2009
In Millions
CMS Energy, including Consumers
OPEB: (a)
VEBA trust
401(h) component
$
Pension(b)
Consumers
OPEB: (a)
VEBA trust
401(h) component
57
14
40
16
$ 71
$ 375
$ 56
$ 206
$
$
57
13
$ 70
$ 366
Pension(b)
$
39
16
$ 55
$ 199
(a)
CMS Energy, including Consumers, plans to contribute $65 million to the OPEB plan in 2011 and Consumers plans to contribute
$64 million to the OPEB plan in 2011.
(b)
CMS Energy, including Consumers, does not plan to contribute to the Pension Plan in 2011.
Contributions include required and discretionary amounts. Actual future contributions will depend on future investment
performance, changes in discount rates, and various factors related to the populations participating in the plans.
In 2008, CMS Energy adjusted its target asset allocation for Pension Plan assets to 50 percent equity, 30 percent fixed income, and
20 percent alternative−strategy investments. This adjustment is being made gradually by the allocation of contributions into alternative
assets and the drawdown of equities to cover plan benefit payments and distributions. This revised target asset allocation is expected to
continue to maximize the long−term return on plan assets, while maintaining a prudent level of risk. The level of acceptable risk is a
function of the liabilities of the plan. Equity investments are diversified mostly across the S&P 500 Index, with lesser allocations to the
S&P MidCap and SmallCap Indexes and Foreign Equity Funds. Fixed−income investments are diversified across investment grade
instruments of government and corporate issuers as well as high−yield and global bond funds. Alternative strategies are diversified
across absolute return investment approaches and global tactical asset allocation. CMS Energy and Consumers use annual liability
measurements, quarterly portfolio reviews, and periodic asset/liability studies to evaluate the need for adjustments to the portfolio
allocation.
CMS Energy and Consumers established union and non−union VEBA trusts to fund their future retiree health and life insurance
benefits. These trusts are funded through the ratemaking process for Consumers and through direct contributions from the non−utility
subsidiaries. CMS Energy and Consumers have a target asset allocation of 60 percent equity and 40 percent fixed−income investments.
CMS Energy and Consumers invest the equity portions of the union and non−union health care VEBA trusts in an S&P 500 Index
fund. CMS Energy and Consumers invest the fixed−income portion of the union health care VEBA trust in domestic investment grade
taxable instruments. CMS Energy and Consumers invest the fixed−income portion of the non−union health care VEBA trust in a
diversified mix of domestic tax−exempt securities. The
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CMS Energy Corporation
Consumers Energy Company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
investment selections of each VEBA trust are influenced by the tax consequences, as well as the objective of generating asset returns
that will meet the medical and life insurance costs of retirees.
Benefit Payments: Presented in the following table are the expected benefit payments for each of the next five years and the
five−year period thereafter:
Pension
CMS Energy, including Consumers
2011
2012
2013
2014
2015
2016−2020
Consumers
2011
2012
2013
2014
2015
2016−2020
(a)
SERP
OPEB(a)
In Millions
$ 86
96
106
115
126
764
$ 7
7
6
7
8
42
$ 62
64
67
71
74
428
$ 83
93
103
112
122
741
$ 4
4
3
4
4
22
$ 59
61
64
67
71
407
CMS Energy’s and Consumers’ OPEB benefit payments are net of employee contributions and expected Medicare Part D
prescription drug subsidy payments. For CMS Energy, subsidies to be received are estimated to be $6 million for 2011, $7 million
for 2012 and 2013, $8 million for 2014 and 2015, and $51 million combined for 2016 through 2020. For Consumers, subsidies to
be received are estimated to be $6 million for 2011 and 2012, $7 million for 2013 and 2014, $8 million for 2015, and $49 million
combined for 2016 through 2020.
Collective Bargaining Agreements: At December 31, 2010, the Union represented 42 percent of CMS Energy’s employees and
44 percent of Consumers’ employees. The Union represents Consumers’ operating, maintenance, construction, and call center
employees. Union contracts expire in 2015. In October 2010, the United Steelworkers ratified a new agreement with Consumers for
Zeeland employees, which became effective in January 2011.
12: INCOME TAXES
CMS Energy and its subsidiaries file a consolidated U.S. federal income tax return and a unitary Michigan income tax return.
Income taxes are allocated based on each company’s separate taxable income in accordance with the CMS Energy tax sharing
agreement.
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Consumers Energy Company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Presented in the following table is the difference between actual income tax expense on continuing operations, excluding
noncontrolling interests, and income tax expense computed by applying the statutory U.S. federal income tax rate:
Years
Ended
December
31
CMS Energy, including Consumers
Income from continuing operations before income taxes
Income tax expense at statutory rate
Increase (decrease) in income taxes from:
State and local income taxes, net of federal benefit
Income tax credit amortization
Medicare Part D exempt income(a)
Property differences
Research and development credit, net
Valuation allowance
Other, net
2009
In Millions
2008
$ 587
205
$ 324
114
$ 433
152
26
(4)
(6)
2
(3)
1
3
Income tax expense
$ 224
Effective tax rate
Consumers
Income from continuing operations before income taxes
Income tax expense at statutory rate
Increase (decrease) in income taxes from:
State and local income taxes, net of federal benefit
Income tax credit amortization
Medicare Part D exempt income(a)
Property differences
Research and development credit, net
Other, net
38.2%
$ 688
241
26
(4)
(9)
2
(3)
1
Income tax expense
$ 254
Effective tax rate
(a)
2010
36.9%
21
(4)
(6)
1
(9)
2
(4)
$ 115
35.5%
$ 456
160
19
(4)
(6)
1
(7)
—
$ 163
35.7%
3
(4)
(9)
3
—
(6)
—
$ 139
32.1%
$ 562
197
8
(4)
(8)
3
—
2
$ 198
35.2%
For taxable years beginning after December 31, 2012, the Health Care Acts prospectively repealed the tax deduction for the
portion of health care costs that are reimbursed by the Medicare Part D subsidy. To reflect the law change, CMS Energy
recognized deferred tax expense of $3 million during 2010. Consumers expects to recover this lost benefit through the ratemaking
process and therefore continued to recognize the tax benefit during 2010. The total anticipated recovery was recorded as a
regulatory asset of $74 million (not including the effects of ratemaking tax gross−ups) at December 31, 2010.
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CMS Energy Corporation
Consumers Energy Company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Presented in the following table are the significant components of income tax expense on continuing operations:
Years
Ended
December
31
CMS Energy, including Consumers
Current income taxes:
Federal
State and local
2010
2009
In Millions
2008
$ (21)
26
$ (12)
17
$
4
9
$
$
13
5
$
5
Deferred income taxes:
Federal
State and local
$ 210
13
$
86
28
Deferred income tax credit, net
$ 223
(4)
$ 114
(4)
$ 130
(4)
Tax expense
$ 224
$ 115
$ 139
Consumers
Current income taxes:
Federal
State and local
$ (17)
25
$
72
24
$ (10)
12
$
$ 134
(4)
8
$
96
$
Deferred income taxes:
Federal
State and local
$ 236
14
$
66
5
$ 200
—
$ 250
(4)
$
Deferred income tax credit, net
71
(4)
$ 200
(4)
Tax expense
$ 254
$ 163
146
2
$ 198
Table of Contents
CMS Energy Corporation
Consumers Energy Company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Presented in the following table are the principal components of deferred income tax assets (liabilities) recognized:
December
31
2010
2009
In Millions
CMS Energy, including Consumers
Employee benefits
Gas inventory
Plant, property, and equipment
Regulatory tax liability
Reserves and accruals
Securitized costs
Tax loss and credit carryforwards
Other
$
(76)
(177)
(1,382)
162
101
(120)
996
(103)
$
65
(201)
(1,145)
209
83
(141)
919
(29)
$
(599)
(19)
$
(240)
(34)
Total net deferred income tax liabilities
$
(618)
$
(274)
Deferred tax assets, net of valuation reserves
Deferred tax liabilities
$
1,240
(1,858)
$
1,242
(1,516)
Total net deferred income tax liabilities
$
(618)
$
(274)
$
(110)
(177)
(1,464)
162
45
(120)
281
(115)
$
28
(201)
(1,237)
209
29
(141)
232
(51)
Less: valuation allowance
Consumers
Employee benefits
Gas inventory
Plant, property, and equipment
Regulatory tax liability
Reserves and accruals
Securitized costs
Tax loss and credit carryforwards
Other
Total net deferred income tax liabilities
$ (1,498)
$ (1,132)
Deferred tax assets, net of valuation reserves
Deferred tax liabilities
$
$
Total net deferred income tax liabilities
$ (1,498)
488
(1,986)
498
(1,630)
$ (1,132)
Deferred tax assets and liabilities are recognized for the estimated future tax effect of temporary differences between the tax basis
of assets or liabilities and the reported amounts in CMS Energy’s and Consumers’ Consolidated Financial Statements. Deferred tax
assets and liabilities are classified as current or non−current according to the classification of the related assets or liabilities. Deferred
tax assets and liabilities not related to assets or liabilities are classified according to the expected reversal date of the temporary
differences.
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CMS Energy Corporation
Consumers Energy Company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Presented in the following table are the loss and credit carryforwards at December 31, 2010:
Gross Amount
CMS Energy, including Consumers
Federal net operating loss carryforward
State and local net operating loss carryforwards(a)
Future state tax deductions(b)
Alternative minimum tax credits
General business credits(a)
$1,466
450
—
269
39
Total tax attributes
Consumers
Federal net operating loss carryforward
State capital loss carryforward
Future state tax deductions(b)
General business credits
$184
10
—
13
Total tax attributes
Tax Attribute
In Millions
Expiration
$
513
5
170
269
39
$
996
$
64
1
203
13
$
281
2023 − 2030
2023 − 2030
No expiration
No expiration
2011 − 2030
2023 − 2030
2014
No expiration
2011 − 2030
(a)
CMS Energy has provided a valuation allowance of $2 million for the local loss carryforward and a valuation allowance of
$2 million for general business credits. CMS Energy and Consumers expect to utilize fully loss and credit carryforwards for which
no valuation has been provided. It is reasonably possible that further adjustments will be made to the valuation allowances within
one year.
(b)
This State of Michigan tax deduction was granted as part of the enactment of the Michigan Business Tax. Under the Michigan
Business Tax, the amount of future deduction is intended to offset the financial statement impact that would have been recognized
upon enactment in 2007. Utilization of the deduction begins in 2015. Due to various limitations, the gross amount of this
deduction is not meaningful.
Presented in the following table is a reconciliation of the beginning and ending amount of uncertain tax benefits:
Years
Ended
December
31
2010
CMS Energy, including Consumers
Balance at beginning of period
Reductions for prior year tax positions
Additions for prior year tax positions
Additions for current year tax positions
Balance at end of period
Consumers
Balance at beginning of period
Reductions for prior year tax positions
Additions for prior year tax positions
Additions for current year tax positions
Balance at end of period
148
2009
In Millions
2008
$
62
(58)
—
—
$ 65
(6)
2
1
$ 51
—
12
2
$
4
$ 62
$ 65
$
57
(54)
—
—
$ 55
(1)
2
1
$ 41
—
12
2
$
3
$ 57
$ 55
Table of Contents
CMS Energy Corporation
Consumers Energy Company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CMS Energy, including Consumers, had uncertain tax benefits of $4 million at December 31, 2010, $8 million at December 31,
2009, and $10 million at December 31, 2008 that, if recognized, would affect the annual effective tax rate in future years. Consumers
had uncertain tax benefits of $3 million at December 31, 2010 and 2009. There were no uncertain tax benefits that would reduce
Consumers’ effective tax rate at December 31, 2008.
CMS Energy and Consumers recognize accrued interest and penalties, where applicable, as part of income tax expense. CMS
Energy, including Consumers, recognized no interest for the years ended December 31, 2010 and 2009, and $1 million for the year
ended December 31, 2008. In 2010, CMS Energy settled with the IRS and, as a result, paid $6 million of accrued interest in December.
At that time, a remaining accrued interest balance of $3 million was eliminated. Consumers recognized no interest for the years ended
December 31, 2010 and 2009, and $1 million for the year ended December 31, 2008. Upon settlement with the IRS, Consumers paid
$4 million to CMS Energy and eliminated a remaining accrued interest balance of $1 million.
In November 2010, the IRS concluded its most recent audit of CMS Energy and its subsidiaries, and proposed changes of
$132 million to taxable income for the years ended December 31, 2002 through December 31, 2007. Of this amount, $82 million
resulted in an adjustment to the existing net operating loss carryforward; the remaining $50 million increased taxable income. Most of
the adjustments related to the timing of deductions, not the disallowance of deductions. CMS Energy accepted the proposed adjustments
to taxable income, which resulted in the payment of $15 million of tax and accrued interest. The tax adjustments were allocated based
on the companies’ separate taxable income, in accordance with CMS Energy’s tax sharing agreement. The impact to net income was
less than $1 million.
In December 2010, the IRS began its audit of CMS Energy and its subsidiaries’ 2008 and 2009 federal tax returns. The IRS also is
auditing CMS Energy’s research and development tax credit claims for 2001 through 2009. These credits are part of CMS Energy’s
overall general business credit carryforward. It is reasonably possible that, within the next twelve months, a settlement will be reached
with the IRS on CMS Energy’s research and development tax credit claim. The total claimed credit is $21 million.
The amount of income taxes paid is subject to ongoing audits by federal, state, and foreign tax authorities, which can result in
proposed assessments. CMS Energy’s and Consumers’ estimate of the potential outcome for any uncertain tax issue is highly
judgmental. CMS Energy and Consumers believe that their accrued tax liabilities at December 31, 2010 were adequate for all years.
13: STOCK−BASED COMPENSATION
CMS Energy and Consumers provide a PISP to key employees and non−employee directors based on their contributions to the
successful management of the company. The PISP has a five−year term, expiring in May 2014.
All grants under the PISP for 2010, 2009, and 2008 were in the form of TSR restricted stock and time−lapse restricted stock.
Restricted stock recipients receive shares of CMS Energy common stock. Restricted stock shares granted prior to August 1, 2010 have
full dividend and voting rights. The TSR restricted stock shares granted in 2010 have full voting rights. In lieu of cash dividend
payments, however, the TSR restricted stock shares granted in 2010 receive additional restricted shares equal to the value of the
dividend. These additional restricted shares are subject to the same vesting conditions as the underlying restricted stock shares.
TSR restricted stock vesting is contingent on meeting a three−year service requirement and specific market conditions. For awards
granted in 2008, half of the market condition is based on the achievement of specified levels of TSR over a three−year period and half is
based on a comparison of CMS Energy’s TSR with the median TSR of a peer group over the same three−year period. Depending on the
outcome of the market condition, a recipient may earn a total award ranging from zero to 150 percent of the initial grant. For awards
granted in 2010 and 2009, the market condition is based entirely on a comparison of CMS Energy’s TSR with the median TSR of a peer
group over the same three−year period. Depending on the outcome of the market condition, a recipient may earn a total award
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CMS Energy Corporation
Consumers Energy Company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
ranging from zero to 200 percent of the initial grant. Time−lapse restricted stock vests after a service period of three years.
Restricted stock awards granted to officers in 2008 were 80 percent TSR restricted stock and 20 percent time−lapsed restricted
stock. Awards granted to officers in 2010 and 2009 were 67 percent TSR restricted stock and 33 percent time−lapse restricted stock.
For awards granted prior to August 1, 2010, restricted shares may vest fully upon retirement, disability, or change of control of
CMS Energy if certain minimum service requirements are met or are waived by action of the C&HR Committees. If employment
terminates for any other reason (other than death) or the minimum service requirements are not met or waived, the restricted shares will
be fully forfeited. For awards granted after August 1, 2010, a pro−rata portion of the award equal to the portion of the service period
served between the award grant date and the employee’s termination date will vest upon termination of an employee due to retirement,
disability, or change of control of CMS Energy. The remaining portion of the award will be forfeited. All awards vest fully upon death.
The PISP also allows for stock options, stock appreciation rights, phantom shares, performance units, and incentive options, none
of which was granted in 2010, 2009, or 2008.
Shares awarded or subject to stock options, phantom shares, or performance units may not exceed 6 million shares from June 2009
through May 2014, nor may such awards to any recipient exceed 500,000 shares in any fiscal year. CMS Energy and Consumers may
issue awards of up to 4,650,719 shares of common stock under the PISP at December 31, 2010. Shares for which payment or exercise is
in cash, as well as shares or stock options forfeited for any reason other than failure to meet a market condition, may be awarded or
granted again under the PISP.
Presented in the following table is restricted stock activity under the PISP:
Weighted−Average Grant
Restricted
Stock
Number of Shares
CMS Energy, including Consumers
Nonvested at December 31, 2009
Granted(a)
Vested
Forfeited(b)
2,019,777
636,273
(457,430)
(205,155)
Nonvested at December 31, 2010
1,993,465
Consumers
Nonvested at December 31, 2009
Granted(a)
Vested
Forfeited(b)
1,809,987
575,895
(396,760)
(184,099)
Nonvested at December 31, 2010
1,805,023
Date Fair Value per Share
$
12.52
16.22
14.41
12.62
13.26
$
12.50
16.27
14.38
12.62
13.28
(a)
During 2010, CMS Energy granted 285,212 TSR shares and 351,061 time−lapse shares of restricted stock. During 2010,
Consumers granted 254,234 TSR shares and 321,661 time−lapse shares of restricted stock.
(b)
During 2010, 204,155 TSR shares granted by CMS Energy in 2007 were forfeited due to the failure to meet the specific market
conditions. During 2010, 183,099 TSR shares granted by Consumers in 2007 were forfeited due to the failure to meet the specific
market conditions.
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CMS Energy Corporation
Consumers Energy Company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CMS Energy and Consumers charge the fair value of the awards to expense over the required service period. As a result, for
awards granted prior to August 1, 2010, CMS Energy and Consumers recognize all compensation expense for share−based awards that
have accelerated service provisions upon retirement by the period in which the employee becomes eligible to retire. TSR restricted
stock awards granted after August 1, 2010 have graded vesting features, and CMS Energy and Consumers recognize expense for those
awards on a graded vesting schedule over the required service period. Expense for time−lapse awards is recognized on a straight−line
basis over the required service period. CMS Energy and Consumers calculate the fair value of time−lapse restricted stock based on the
price of CMS Energy’s common stock on the grant date. CMS Energy and Consumers calculate the fair value of TSR restricted stock
awards on the grant date using a Monte Carlo simulation. CMS Energy and Consumers base expected volatilities on the historical
volatility of the price of CMS Energy common stock.
The risk−free rate for each valuation was based on the three−year U.S. Treasury yield at the award grant date. Presented in the
following table are the significant assumptions used to estimate the fair value of the TSR restricted stock awards:
2010
Expected volatility
Expected dividend yield
Risk−free rate
2009
30.1%
2.4%
0.9%
2008
29.8%
2.0%
1.8%
19.7%
2.7%
2.8%
Presented in the following table are amounts related to restricted stock awards:
2010
CMS Energy, including Consumers
Fair value of shares that vested during the year
Compensation expense recognized
Income tax benefit recognized
Consumers
Fair value of shares that vested during the year
Compensation expense recognized
Income tax benefit recognized
2009
In Millions
2008
$
7
9
4
$
4
9
3
$
2
8
3
$
6
9
3
$
4
8
3
$
2
7
2
At December 31, 2010, $10 million of total unrecognized compensation cost was related to restricted stock for CMS Energy,
including Consumers, and $9 million of total unrecognized compensation cost was related to restricted stock for Consumers. CMS
Energy and Consumers expect to recognize this cost over a weighted−average period of 2.1 years.
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CMS Energy Corporation
Consumers Energy Company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Presented in the following table is stock option activity under the PISP:
Stock
Options
Options
Outstanding,
Fully Vested,
and
Weighted−
Average
Exercise
Price per
Weighted−
Average
Remaining
Contractual
Aggregate
Intrinsic
Value
Exercisable
Share
Term
(in millions)
CMS Energy, including Consumers
Outstanding at December 31, 2009
Granted
Exercised
Cancelled or Expired
581,040
—
(74,000)
(69,960)
Outstanding at December 31, 2010
$
2.0 years
$(2)
$
$
19.79
—
6.59
17.86
437,080
$
22.34
1.1 years
$(2)
Consumers
Outstanding at December 31, 2009
Granted
Exercised
Cancelled or Expired
378,786
—
(68,818)
(42,500)
$
2.3 years
$(1)
$
$
17.74
—
6.61
17.52
Outstanding at December 31, 2010
267,468
$
20.64
1.2 years
$(1)
Stock options give the holder the right to purchase common stock at the market price on the grant date. Stock options are
exercisable upon grant, and expire up to ten years and one month from the grant date. CMS Energy and Consumers issue new shares
when recipients exercise stock options. The total intrinsic value of stock options exercised for CMS Energy was $1 million in 2010, less
than $1 million in 2009, and $1 million in 2008. The total intrinsic value of stock options exercised for Consumers was $1 million in
2010 and less than $1 million in 2009 and 2008. Cash received from exercise of these stock options in 2010 was less than $1 million for
CMS Energy and Consumers.
Since CMS Energy has utilized tax loss carryforwards, CMS Energy was unable to realize excess tax benefits upon exercise of
stock options and vesting of restricted stock. Therefore, CMS Energy did not recognize the related excess tax benefits in equity. As of
December 31, 2010, CMS Energy has $20 million of unrealized excess tax benefits.
Presented in the following table is the weighted−average grant−date fair value of awards under the PISP:
Years
Ended
December
31
CMS Energy, including Consumers
Weighted−average grant−date fair value per share
Restricted stock granted
Consumers
Weighted−average grant−date fair value per share
Restricted stock granted
2010
2009
2008
$ 16.22
$ 13.49
$ 10.38
$ 16.27
$ 13.44
$ 10.43
14: LEASES
CMS Energy and Consumers lease various assets, including service vehicles, railcars, gas pipeline capacity, and buildings. In
addition, CMS Energy and Consumers account for a number of their PPAs as capital and operating leases.
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CMS Energy Corporation
Consumers Energy Company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Operating leases for coal−carrying railcars have lease terms expiring without extension provisions over the next 13 years and with
extension provisions over the next 16 years. These leases contain fair market value extension and buyout provisions, with some
providing for predetermined extension period rentals. Capital leases for Consumers’ vehicle fleet operations have a maximum term of
120 months with some having Terminal Rental Adjustment Clause end−of−life provisions and others having fixed percentage purchase
options.
Consumers has capital leases for gas transportation pipelines to the Karn generating complex and Zeeland. The capital lease for
the gas transportation pipeline into the Karn generating complex has a term of 15 years with a provision to extend the contract from
month to month. The remaining term of the contract was 11 years at December 31, 2010. The capital lease for the gas transportation
pipeline to Zeeland has a term of 12 years with a renewal provision at the end of the contract. The remaining term of the contract was
one year at December 31, 2010. The remaining terms of Consumers’ long−term PPAs range between two and 20 years. Most of these
PPAs contain provisions at the end of the initial contract terms to renew the agreements annually.
Consumers is authorized by the MPSC to record operating lease payments as operating expense and recover the total cost from
customers. Presented in the following table is CMS Energy’s and Consumers’ operating lease expense:
Years
Ended
December
31
CMS Energy, including Consumers
Operating lease expense
Income from subleases
Consumers
Operating lease expense
2010
2009
In Millions
2008
$ 28
—
$ 34
—
$ 28
(1)
$ 28
$ 34
$ 27
Presented in the following table are the minimum annual rental commitments under Consumers’ non−cancelable leases at
December 31, 2010. CMS Energy did not have any non−cancelable leases at December 31, 2010 that were not included in Consumers’
amounts.
Consumers
2011
2012
2013
2014
2015
2016 and thereafter
Total minimum lease payments
Capital
Leases
Finance
Lease(a)
In Millions
Operating
Leases
$
17
20
12
11
12
44
$
21
20
20
19
18
96
$
29
30
27
26
25
123
$
116
$
194
$
260
Less imputed interest
52
46
Present value of net minimum lease payments
Less current portion
$
64
11
$
148
13
Non−current portion
$
53
$
135
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CMS Energy Corporation
Consumers Energy Company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(a)
In 2007, Consumers sold Palisades to Entergy and entered into a 15−year PPA to buy all of the capacity and energy then capable
of being produced by Palisades. Consumers has continuing involvement with Palisades through security provided to Entergy for
Consumers’ PPA obligation, Consumers’ DOE liability, and other forms of involvement. Because of these ongoing arrangements,
Consumers accounted for the transaction as a financing of Palisades and not a sale. Accordingly, no gain on the sale of Palisades
was recognized on the Consolidated Statements of Income. Consumers accounted for the remaining non−real−estate assets and
liabilities associated with the transaction as a sale.
Palisades remains on Consumers’ Consolidated Balance Sheets and Consumers continues to depreciate it. Consumers recorded the
related proceeds as a finance obligation with payments recorded to interest expense and the finance obligation based on the
amortization of the obligation over the life of the Palisades PPA. The value of the finance obligation was determined based on an
allocation of the transaction proceeds to the fair values of the net assets sold and fair value of the plant asset under the financing.
Total amortization and interest charges under the financing were $22 million and $23 million, respectively, for each of the years
ended December 31, 2010 and 2009.
15: PLANT, PROPERTY, AND EQUIPMENT
Presented in the following table are CMS Energy’s and Consumers’ plant, property, and equipment:
Estimated
Depreciable
Years
Ended
December
31
Life in Years
CMS Energy, including Consumers
Electric:
Generation
Distribution
Other
Capital and finance leases(a)
Gas:
Underground storage facilities(b)
Transmission
Distribution
Other
Capital leases(a)
Enterprises:
IPP
Other
Other:
Construction work in progress
Less accumulated depreciation, depletion, and amortization(c)
18−85
12−75
7−40
Net plant, property, and equipment(d)
154
2010
2009
In Millions
$
3,812
5,250
609
273
$ 3,671
4,991
574
289
30−65
13−75
30−80
5−50
311
713
2,654
380
5
299
573
2,557
366
17
5−30
3−40
1−71
85
17
36
570
4,646
329
16
34
506
4,540
$ 10,069
$ 9,682
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CMS Energy Corporation
Consumers Energy Company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Estimated
Depreciable
Years
Ended
December
31
Consumers
Electric:
Generation
Distribution
Other
Capital and finance leases(a)
Gas:
Underground storage facilities(b)
Transmission
Distribution
Other
Capital leases(a)
Other non−utility property
Construction work in progress
Less accumulated depreciation, depletion, and amortization(c)
Net plant, property, and equipment(d)
(a)
Life in Years
2010
2009
In Millions
18−85
12−75
7−40
$ 3,812
5,250
609
273
$ 3,671
4,991
574
289
30−65
13−75
30−80
5−50
311
713
2,654
380
5
15
566
4,593
299
573
2,557
366
17
15
505
4,386
$ 9,995
$ 9,471
7−71
Capital and finance leases presented are gross amounts. Presented in the following table are changes in Consumers’ capital and
finance leases:
Years
Ended
December
31
2010
2009
In Millions
Consumers
Balance at beginning of period
Additions
Net retirements and other adjustments
$ 306
15
(43)
$ 312
16
(22)
Balance at end of period
$ 278
$ 306
Accumulated amortization of capital and finance leases was $65 million at December 31, 2010 and $84 million at December 31,
2009 for Consumers. There were no significant capital and finance leases at CMS Energy.
(b)
Underground storage includes base natural gas of $26 million at December 31, 2010 and 2009. Base natural gas is not subject to
depreciation.
(c)
Presented in the following table is CMS Energy’s and Consumers’ accumulated depreciation, depletion, and amortization:
Years
Ended
December
31
CMS Energy, including Consumers
Utility plant assets
Non−utility plant assets
Consumers
Utility plant assets
Non−utility plant assets
(d)
2010
2009
In Millions
$ 4,592
54
$ 4,385
155
$ 4,592
1
$ 4,385
1
For the year ended December 31, 2010, utility plant additions were $783 million and utility plant retirements were $85 million.
For the year ended December 31, 2009, utility plant additions were $928 million and utility plant retirements were $171 million.
155
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CMS Energy Corporation
Consumers Energy Company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Intangible Assets: Included in net plant, property, and equipment are intangible assets. Presented in the following table are CMS
Energy’s and Consumers’ intangible assets:
Years
Ended
December
31
Description
CMS Energy, including
Consumers
Software development
Plant acquisition adjustments
Rights of way
Leasehold improvements
Franchises and consents
Other intangibles(c)
Amortization
Life
in years
2010
3−15
40
50−75
various(b)
5−30
various
Total
Consumers
Software development
Plant acquisition adjustments
Rights of way
Leasehold improvements
Franchises and consents
Other intangibles
3−15
40
50−75
various(b)
5−30
various
Total
2009
Gross Cost(a)
Accumulated
Amortization
In Millions
Gross Cost(a)
Accumulated
Amortization
$
323
213
140
13
15
20
$
125
16
37
9
6
14
$
303
214
134
13
15
28
$
105
11
35
9
6
21
$
724
$
207
$
707
$
187
$
323
213
140
13
15
18
$
125
16
37
9
6
14
$
303
214
134
13
15
18
$
105
11
35
9
6
13
$
722
$
207
$
697
$
179
(a)
Intangible asset additions for Consumers’ utility plant were $25 million during 2010 and $62 million during 2009. Retirements
were less than $1 million in 2010 and were $110 million during 2009.
(b)
Leasehold improvements are amortized over the life of the lease, which may change whenever the lease is renewed or extended.
(c)
Effective January 1, 2010, CMS Energy deconsolidated Genesee. As a result of the deconsolidation, other intangible assets were
reduced by $8 million.
Presented in the following table is CMS Energy’s and Consumers’ amortization expense related to intangible assets:
CMS Energy
(including Consumers)
Total
Software
Amortization
Amortization
Years
Ended
December
31
2010
2009
2008
Expense
$
Consumers
Total
Software
Amortization
Amortization
Expense
Expense
In Millions
28
30
32
$
19
22
27
$
Expense
27
30
32
$
Amortization of intangible assets is expected to range between $34 million and $40 million per year over the next five years.
156
19
22
23
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CMS Energy Corporation
Consumers Energy Company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
At December 31, 2010 and 2009, CMS Energy had less than $1 million of goodwill recorded on its Consolidated Balance Sheets.
16: ASSET RETIREMENT OBLIGATIONS
CMS Energy and Consumers record the fair value of the cost to remove assets at the end of their useful lives, if there is a legal
obligation to remove them. No market risk premiums were included in CMS Energy’s and Consumers’ ARO fair value estimates since
reasonable estimates could not be made. If a five percent market risk premium were assumed, CMS Energy’s and Consumers’ ARO
liabilities at December 31, 2010 would increase by $12 million and at December 31, 2009 would increase by $11 million, respectively.
If a reasonable estimate of fair value cannot be made in the period in which the ARO is incurred, such as for assets with
indeterminate lives, the liability is recognized when a reasonable estimate of fair value can be made. CMS Energy and Consumers have
not recorded liabilities for assets that have insignificant cumulative disposal costs, such as substation batteries.
Presented below are the categories of assets that CMS Energy and Consumers have legal obligations to remove at the end of their
useful lives and for which they have an ARO liability recorded:
In−Service
Company
and
ARO
Description
Date
CMS Energy, Including Consumers
Close gas treating plant and gas wells
Closure of coal ash disposal areas
Closure of wells at gas storage fields
Indoor gas services equipment relocations
Asbestos abatement
Gas distribution cut, purge and cap
Consumers
Closure of coal ash disposal areas
Closure of wells at gas storage fields
Indoor gas services equipment relocations
Asbestos abatement
Gas distribution cut, purge and cap
Long−Lived
Assets
Various
Various
Various
Various
1973
Various
Gas transmission and storage
Generating plants coal ash areas
Gas storage fields
Gas meters located inside structures
Electric and gas utility plant
Gas distribution mains and services
Various
Various
Various
1973
Various
Generating plants coal ash areas
Gas storage fields
Gas meters located inside structures
Electric and gas utility plant
Gas distribution mains and services
No assets have been restricted for purposes of settling AROs.
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CMS Energy Corporation
Consumers Energy Company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Presented in the following tables are the changes in CMS Energy’s and Consumers’ ARO liabilities:
ARO
Liability
Company
and
ARO
Description
Cash flow
ARO
Liability
Revisions
12/31/10
12/31/09
Incurred
Settled(a)
Accretion
In Millions
CMS Energy, Including Consumers
Close gas treating plant and gas wells
Consumers
$
1
228
$
—
6
$
—
(7)
$
—
17
$
—
—
$
1
244
Total CMS Energy
$
229
$
6
$
(7)
$
17
$
—
$
245
$
64
1
1
38
124
$
—
—
—
—
6
$
(4)
—
—
(1)
(2)
$
6
—
—
3
8
$
—
—
—
—
—
$
66
1
1
40
136
$
228
$
6
$
(7)
$
17
$
—
$
244
Consumers
Coal ash disposal areas
Wells at gas storage fields
Indoor gas services relocations
Asbestos abatement
Gas distribution cut, purge, cap
Total Consumers
ARO
Liability
Company
and
ARO
Description
Cash flow
ARO
Liability
Revisions
12/31/09
12/31/08
Incurred
Settled(a)
Accretion
In Millions
CMS Energy, Including Consumers
Close gas treating plant and gas wells
Consumers
$
1
205
$
—
15
$
—
(8)
$
—
16
$
—
—
$
1
228
Total CMS Energy
$
206
$
15
$
(8)
$
16
$
—
$
229
$
62
1
1
36
105
$
—
—
—
—
15
$
(4)
—
—
(1)
(3)
$
6
—
—
3
7
$
—
—
—
—
—
$
64
1
1
38
124
$
205
$
15
$
(8)
$
16
$
—
$
228
Consumers
Coal ash disposal areas
Wells at gas storage fields
Indoor gas services relocations
Asbestos abatement
Gas distribution cut, purge, cap
Total Consumers
(a)
Cash payments of $7 million in 2010 and $8 million in 2009 were included in the other current and non−current liabilities line in
Net cash provided by operating activities in CMS Energy’s and Consumers’ Consolidated Statements of Cash Flows.
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CMS Energy Corporation
Consumers Energy Company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
17: JOINTLY OWNED REGULATED UTILITY FACILITIES
Presented in the following table are Consumers’ investments in jointly owned regulated utility facilities:
Ownership
Share
December
31
(%)
Campbell Unit 3
Ludington
Distribution
93.3
51.0
Various
(a)
Net Investment(a)
2010
$
653
60
115
2009
$
Accumulated
Depreciation
2010
In Millions
662
62
105
$ 404
114
44
2009
$ 387
111
43
Construction
Work in Progress
2010
$
23
11
7
2009
$
14
5
7
Net investment is the amount of utility plant in service less accumulated depreciation.
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.
18: VARIABLE INTEREST ENTITIES
Entities that are VIEs must be consolidated if the reporting entity determines that it has a controlling financial interest. The entity
that is required to consolidate the VIE is called the primary beneficiary. Variable interests are contractual, ownership, or other interests
in an entity that change as the fair value of the VIE’s net assets, excluding variable interests, changes. An entity is considered to be a
VIE when its capital is insufficient to permit it to finance its activities without additional subordinated financial support or its equity
investors, as a group, lack the characteristics of having a controlling financial interest.
Effective January 1, 2010, the accounting standards for consolidation of VIEs were amended. The most significant amendment
changed the criteria for identifying the primary beneficiary. Under the amended standard, the primary beneficiary is the entity that has
both (1) the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance and (2) the
obligation to absorb losses of the VIE that could potentially be significant to the VIE.
As a result of adopting this amendment, effective January 1, 2010, CMS Energy has consolidated CMS Energy Trust I and
deconsolidated three partnerships that it had previously consolidated.
CMS Energy has consolidated CMS Energy Trust I because CMS Energy is the variable interest holder that designed the entity
and, through the design, has the power to direct the activities of CMS Energy Trust I that most significantly impact the trust’s economic
performance. CMS Energy has guaranteed payment of the Trust Preferred Securities. The sole assets of the trust consist of subordinated
notes issued by CMS Energy, and the sole liabilities of the trust consist of Trust Preferred Securities. Upon consolidation, CMS Energy
reduced its equity method investment by $5 million and its Long−term debt by $34 million. CMS Energy also recorded a $29 million
liability for the mandatorily redeemable preferred securities issued by the trust. No gain or loss was recognized on the consolidation of
CMS Energy Trust I.
CMS Energy has deconsolidated T.E.S. Filer City, Grayling, and Genesee because CMS Energy determined that power is shared
among unrelated parties, and that no one party has the power to direct the activities that most significantly impact the entities’ economic
performance. The partners must agree on all major decisions for each of the partnerships. As a result, CMS Energy is not the primary
beneficiary of these partnerships.
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CMS Energy Corporation
Consumers Energy Company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Presented in the following table is information about these partnerships:
Name
(Ownership
Interest)
Nature
of
the
Entity
Financing
of
Partnership
T.E.S. Filer City (50%)
Coal−fueled power generator
Grayling (50%)
Wood waste−fueled power generator
Genesee (50%)
Wood waste−fueled power generator
Non−recourse long−term debt that matured in December
2007.
Sale of revenue bonds that mature in November 2012 and
bear interest at variable rates. The debt is recourse to the
partnership, but not the individual partners, and secured by
a letter of credit equal to the outstanding balance.
Sale of revenue bonds that mature in 2021 and bear interest
at fixed rates. The debt is non−recourse to the partnership
and secured by a CMS Energy guarantee capped at $3
million annually.
CMS Energy has operating and management contracts with Grayling and Genesee, and Consumers is the primary purchaser of
power from each partnership through long−term PPAs. Consumers also has reduced dispatch agreements with Grayling and Genesee,
which allow these facilities to be dispatched based on the market price of wood waste. This results in fuel cost savings that each
partnership shares with Consumers’ customers.
CMS Energy’s investment in these partnerships is included in Investments on its Consolidated Balance Sheets in the amount of
$49 million as of December 31, 2010. The partnerships were consolidated at December 31, 2009. Total assets of the partnerships were
$189 million and total liabilities were $92 million at December 31, 2009. The partnerships had third−party debt obligations totaling
$70 million at December 31, 2009. Plant, property, and equipment serving as collateral for these obligations had a carrying value of
$137 million at December 31, 2009. The creditors of these partnerships do not have recourse to the general credit of CMS Energy or
Consumers, except through a guarantee provided by CMS Energy of $3 million annually. CMS Energy has deferred collections on
certain receivables owed by Genesee. CMS Energy’s maximum exposure to loss from these receivables is $6 million. Consumers has
not provided any financial or other support during the periods presented that was not previously contractually required.
19: RELATED−PARTY TRANSACTIONS — CONSUMERS
Consumers enters into a number of significant transactions with related parties. These transactions include:
• purchase and sale of electricity from and to CMS Enterprises;
• payment of parent company overhead costs to CMS Energy; and
• investment in CMS Energy common stock.
Transactions involving power supply purchases from certain affiliates of CMS Enterprises are based on avoided costs under
PURPA, state law, and competitive bidding. The payment of parent company overhead costs is based on the use of accepted industry
allocation methodologies. These payments are for costs that occur in the normal course of business. Presented in the following table are
Consumers’ recorded income and expense from related parties as of December 31:
Description
Purchases of capacity and energy
Dividend income
Related
Party
Affiliates of CMS Enterprises
CMS Energy
160
2010
2009
In Millions
2008
$ (84)
1
$ (81)
1
$ (75)
1
Table of Contents
CMS Energy Corporation
Consumers Energy Company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Amounts payable to related parties for purchased power and other services were $11 million at December 31, 2010 and 2009.
Consumers owns 1.8 million shares of CMS Energy common stock with a fair value of $34 million at December 31, 2010. For
additional details on Consumers’ investment in CMS Energy common stock, see Note 9, Financial Instruments.
20: ASSET SALES, DISCONTINUED OPERATIONS, AND IMPAIRMENT CHARGES
Asset Sales
The impacts of asset sales are included in Gain on asset sales, net and Income (Loss) from Discontinued Operations in CMS
Energy’s Consolidated Statements of Income, and they are included in Loss (gain) on asset sales, net in Consumers’ Consolidated
Statements of Income. Asset sales for CMS Energy and Consumers were immaterial for the years ended December 31, 2010, 2009, and
2008.
In connection with the sale of CMS Energy’s Argentine and Michigan assets to Lucid Energy in 2007, CMS Energy entered into
agreements that granted MEI, an affiliate of Lucid Energy, the right to any proceeds from an assignment of an arbitration award
associated with TGN. The agreements also granted MEI an option to purchase CMS Gas Transmission’s ownership interests in TGN,
and the rights to any proceeds CMS Enterprises would receive if it sold its stock interest in CMS Generation San Nicolas Company.
In 2008, CMS Energy executed an agreement with MEI and a third party to assign the arbitration award and to sell its interests in
TGN directly to the third party. In accordance with the agreements executed in 2007, the proceeds from the assignment of the
arbitration award and the sale of TGN were passed on to MEI, and in 2008, CMS Energy recognized an $8 million gain on the
assignment of the award in Gain on asset sales, net on CMS Energy’s Consolidated Statements of Income. CMS Energy also recognized
a $197 million cumulative net foreign currency translation loss related to TGN, which had been deferred as a Foreign currency
translation component of stockholders’ equity. This charge was fully offset by the elimination of a $197 million Argentine currency
impairment reserve on CMS Energy’s Consolidated Balance Sheets, created when it impaired its investment in TGN in 2007.
In 2010, CMS Enterprises exercised its option to sell its stock interest in CMS Generation San Nicolas Company and transferred
the sale proceeds to MEI. As a result, CMS Enterprises recognized a $3 million net gain. In 2010, CMS Enterprises also sold a
cost−method investment with a carrying value of zero, and recognized a $3 million gain.
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CMS Energy Corporation
Consumers Energy Company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Discontinued Operations
Discontinued operations are a component of the enterprises segment. CMS Energy included the following amounts in Income
(Loss) From Discontinued Operations:
Years
Ended
December
31
2010
Revenues
$
Discontinued operations:
Pretax income (loss) from discontinued operations
Income tax expense
$ (21)
2
$ 33
13
$
2
1
Income (Loss) From Discontinued Operations, Net of Tax Expense
$ (23)(a)
$ 20(b)
$
1
(a)
10
2009
In Millions
$
7
2008
$ 14
Includes an operating loss of $2 million ($1 million net of tax) at Exeter, whose assets and liabilities were reclassified as held for
sale in 2009.
Also includes disposal−related losses of $10 million in additional tax expense resulting from an IRS audit adjustment related to a
2003 asset sale, a $6 million ($4 million net of tax) loss for the write down of CMS Energy’s investment in Exeter, a $5 million
($3 million net of tax) loss for the increase in a liability for a 2007 asset sale, and a $5 million ($3 million net of tax) loss on the
settlement of a 2002 asset sale indemnity.
(b)
Includes an operating loss of $11 million ($7 million net of tax) at Exeter and a loss of $3 million ($2 million net of tax) related to
the State Street Bank and TSU litigation at CMS Viron. For additional details on CMS Viron, see Note 5, Contingencies and
Commitments.
Also includes a gain for the expiration of an indemnity obligation related to a 2007 asset sale. CMS Energy provided an indemnity
to TAQA in connection with the sale of its ownership interests in businesses in the Middle East, Africa, and India, and recorded a
$50 million provision for the contingent liability. This indemnity expired in 2009 and CMS Energy eliminated the liability from its
Consolidated Balance Sheets, recognizing a $45 million benefit ($28 million net of tax) to Income (Loss) from Discontinued
Operations and a $5 million benefit to Gain on asset sales, net.
Discontinued operations include a provision for closing costs and a portion of CMS Energy’s parent company interest expense.
CMS Energy allocated interest expense of less than $1 million in each of 2010 and 2009 and $1 million in 2008. CMS Energy allocates
its interest expense by applying its total interest expense to the net carrying amount of the asset sold divided by CMS Energy’s total
capitalization.
During the fourth quarter of 2009, CMS Energy’s management committed to a plan to sell its interest in Exeter and initiated an
active program to locate potential buyers. CMS Energy completed the sale of this business in
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CMS Energy Corporation
Consumers Energy Company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
January 2011. Presented in the following table are the major classes of assets and liabilities of Exeter classified as held for sale on CMS
Energy’s Consolidated Balance Sheets in 2010 and 2009:
Years
Ended
December
31
2010
2009
In Millions
Assets:
Current Assets:
Cash
Accounts receivable, net
Non−Current Assets:
Plant, property, and equipment, net
Other
$
1
1
$
1
1
3
1
8
1
Total assets
$
6
$ 11
Liabilities:
Current Liabilities
$
1
$ —
Total liabilities
$
1
$ —
Impairment Charges
In 2010, CMS Energy wrote down its investment in Exeter from its carrying amount of $11 million to Exeter’s fair value of
$5 million. This valuation was based on the price that CMS Energy received for the sale of Exeter, which closed in January 2011. The
impairment resulted in a loss of $6 million, which was recorded in earnings as part of discontinued operations for the year ended
December 31, 2010.
In May 2010, Consumers announced plans to defer the development of its proposed 830 MW coal−fueled plant at its
Karn/Weadock generating complex. At that time, Consumers recorded a charge of $3 million to write off certain capitalized
development costs because the costs were deemed not to have long−term value in connection with the potential future construction of
the plant. The project’s air permit, issued by the MDNRE in December 2009, will expire in August 2011 if construction of the coal
plant has not commenced or if Consumers has not been granted an extension of the air permit. In December 2010, Consumers
determined that it would not begin construction before August 2011 as a means of preserving the air permit. As a result, the likelihood
that the plant will be constructed has diminished significantly. In December 2010, in accordance with accounting standards governing
impairment of plant costs for regulated utilities, Consumers recorded an additional charge of $19 million to write off the remaining
previously capitalized development costs associated with the proposed plant. The total charge of $22 million was recorded in other
operating expenses for the year ended December 31, 2010.
CMS Energy and Consumers recorded no other impairments of long−lived assets for the years ended December 31, 2010, 2009,
and 2008.
21: REPORTABLE SEGMENTS
Reportable segments consist of business units defined by the products and services they offer. CMS Energy and Consumers
evaluate the performance of each segment based on its contribution to net income available to CMS Energy’s common stockholders.
The reportable segments for CMS Energy and Consumers are:
CMS Energy:
• electric utility, consisting of regulated activities associated with the generation and distribution of
electricity in Michigan;
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CMS Energy Corporation
Consumers Energy Company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
• gas utility, consisting of regulated activities associated with the transportation, storage, and distribution of
natural gas in Michigan;
• enterprises, consisting of various subsidiaries engaging primarily in domestic IPP; and
• other, including EnerBank, corporate interest and other expenses, and discontinued operations.
Consumers:
• electric utility, consisting of regulated activities associated with the generation and distribution of
electricity in Michigan;
• gas utility, consisting of regulated activities associated with the transportation, storage, and distribution of
natural gas in Michigan; and
• other, including a consolidated special−purpose entity for the sale of accounts receivable.
Accounting policies for CMS Energy’s and Consumers’ segments are as described in Note 1, Significant Accounting Policies. The
Consolidated Financial Statements reflect the assets, liabilities, revenues, and expenses of the individual segments when appropriate.
Accounts are allocated among the segments when common accounts are attributable to more than one segment. The allocations are
based on certain measures of business activities, such as revenue, labor dollars, customers, other operation and maintenance expense,
construction expense, leased property, taxes, or functional surveys. For example, customer receivables are allocated based on revenue,
and pension provisions are allocated based on labor dollars.
Inter−segment sales and transfers are accounted for at current market prices and are eliminated in consolidated Net Income
Available to Common Stockholders by segment.
Presented in the following tables is financial information by reportable segment:
Years
Ended
December
31
CMS Energy, including Consumers
Operating Revenue:
Electric utility
Gas utility
Enterprises
Other
Total Operating Revenue — CMS Energy
Consumers
Operating Revenue:
Electric utility
Gas utility
Total Operating Revenue — Consumers
CMS Energy, including Consumers
Income (Loss) from Equity Method Investees:(a)
Enterprises
Total Income (Loss) from Equity Method Investees — CMS Energy
164
2010
2009
In Millions
2008
$ 3,802
2,354
238
38
$ 3,407
2,556
216
26
$ 3,594
2,827
365
21
$ 6,432
$ 6,205
$ 6,807
$ 3,802
2,354
$ 3,407
2,556
$ 3,594
2,827
$ 6,156
$ 5,963
$ 6,421
$
11
$
(2)
$
5
$
11
$
(2)
$
5
Table of Contents
CMS Energy Corporation
Consumers Energy Company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Years
Ended
December
31
2010
CMS Energy, including Consumers
Depreciation and Amortization:
Electric utility
Gas utility
Enterprises
Other
Total Depreciation and Amortization — CMS Energy
Consumers
Depreciation and Amortization:
Electric utility
Gas utility
Total Depreciation and Amortization — Consumers
CMS Energy, including Consumers
Interest Charges:
Electric utility
Gas utility
Enterprises
Other
Total Interest Charges — CMS Energy
Consumers
Interest Charges:
Electric utility
Gas utility
Other
Total Interest Charges — Consumers
CMS Energy, including Consumers
Income Tax Expense (Benefit):
Electric utility
Gas utility
Enterprises
Other
Total Income Tax Expense — CMS Energy
165
2009
In Millions
2008
$
450
122
3
1
$
441
118
10
1
$
438
136
10
4
$
576
$
570
$
588
$
450
122
$
441
118
$
438
136
$
572
$
559
$
574
$
202
73
—
156
$
225
66
5
139
$
185
60
6
149
$
431
$
435
$
400
$
202
73
2
$
225
66
1
$
185
60
2
$
277
$
292
$
247
$
187
67
14
(44)
$
107
56
4
(52)
$
153
45
(10)
(49)
$
224
$
115
$
139
Table of Contents
CMS Energy Corporation
Consumers Energy Company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Years
Ended
December
31
2010
Consumers
Income Tax Expense:
Electric utility
Gas utility
Total Income Tax Expense — Consumers
CMS Energy, including Consumers
Net Income (Loss) Available to Common Stockholders:
Electric utility
Gas utility
Enterprises
Discontinued operations
Other
Total Net Income Available to Common Stockholders — CMS Energy
Consumers
Net Income Available to Common Stockholder:
Electric utility
Gas utility
Other
Total Net Income Available to Common Stockholder — Consumers
CMS Energy, including Consumers
Investments in Equity Method Investees:(a)
Enterprises
Other
Total Investments in Equity Method Investees — CMS Energy
CMS Energy, including Consumers
Plant, Property, and Equipment, Gross
Electric utility
Gas utility
Enterprises
Other
Total Plant, Property, and Equipment — CMS Energy
2009
In Millions
$
187
67
$
107
56
$
153
45
$
254
$
163
$
198
$
303
127
36
(23)
(119)
$
194
96
(7)
20
(85)
$
271
89
13
1
(90)
$
324
$
218
$
284
$
303
127
2
$
194
96
1
$
271
89
2
$
432
$
291
$
362
$
48
1
$
3
6
$
5
6
$
49
$
9
$
11
$
9,944
4,063
102
36
$
9,525
3,812
345
34
$
8,965
3,622
340
33
$ 14,145
166
2008
$ 13,716
$ 12,960
Table of Contents
CMS Energy Corporation
Consumers Energy Company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Years
Ended
December
31
2010
Consumers
Plant, Property, and Equipment, Gross
Electric utility
Gas utility
Other
$
Total Plant, Property, and Equipment — Consumers
CMS Energy, including Consumers
Total Assets:
Electric utility(b)
Gas utility(b)
Enterprises
Other
Total Assets — CMS Energy
Consumers
Total Assets:
Electric utility(b)
Gas utility(b)
Other
Total Assets — Consumers
CMS Energy, including Consumers
Capital Expenditures:(c)
Electric utility
Gas utility
Enterprises
Other
Total Capital Expenditures — CMS Energy
Consumers
Capital Expenditures:(c)
Electric utility
Gas utility
Total Capital Expenditures — Consumers
167
9,944
4,063
15
2009
In Millions
$
9,525
3,812
15
2008
$
8,965
3,622
15
$ 14,022
$ 13,352
$ 12,602
$
$
$
9,321
4,614
191
1,490
9,157
4,594
303
1,202
8,904
4,565
313
1,119
$ 15,616
$ 15,256
$ 14,901
$
$
$
9,321
4,614
904
9,157
4,594
871
8,904
4,565
777
$ 14,839
$ 14,622
$ 14,246
$
642
235
4
2
$
557
270
7
—
$
553
241
3
—
$
883
$
834
$
797
$
642
235
$
557
270
$
553
241
$
877
$
827
$
794
Table of Contents
CMS Energy Corporation
Consumers Energy Company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Geographic Areas:
Years
Ended
December
31
CMS Energy, including Consumers(d)
United States
Operating revenue(e)
Operating income
Total Assets
International
Operating revenue(e)
Operating income
Total Assets
2010
2009
In Millions
2008
$ 6,432
$
978
$ 15,613
$ 6,205
$
698
$ 15,253
$ 6,807
$
793
$ 14,898
$
$
$
$
$
$
$
$
$
—
—
3
—
—
3
—
1
3
(a)
Consumers had no material equity method investments.
(b)
Amounts include a portion of Consumers’ other common assets attributable to both the electric and gas utility businesses.
(c)
Amounts include purchase of capital lease additions. Amounts also include a portion of Consumers’ capital expenditures for plant
and equipment attributable to both the electric and gas utility businesses.
(d)
Consumers had no international assets, international operating revenues, or international operating income.
(e)
Revenues were based on the country location of customers.
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CMS Energy Corporation
Consumers Energy Company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
22:
QUARTERLY FINANCIAL AND COMMON STOCK INFORMATION (UNAUDITED)
2010
Quarters
Ended
March 31
June 30
Sept. 30
Dec. 31
In Millions, Except Per Share Amounts and Stock
Prices
CMS Energy, including Consumers
Operating Revenue
Operating Income
Income From Continuing Operations
Loss From Discontinued Operations
Net Income
Income Attributable to Noncontrolling Interests
Net Income Attributable to CMS Energy
Charge for Deferred Issuance Cost on Preferred Stock
Preferred Stock Dividends
Net income Available to Common Stockholders
Earnings From Continuing Operations Per Average Common Share —
Basic(a)
Earnings From Continuing Operations Per Average Common Share —
Diluted(a)
Basic Earnings Per Average Common Share(a)
Diluted Earnings Per Average Common Share(a)
Common stock prices(b)
High
Low
Consumers
Operating Revenue
Operating Income
Net Income
Preferred Stock Dividends
Net Income Available to Common Stockholder
169
$
$
1,967
239
89
(1)
88
—
88
—
3
85
$
1,340
262
100
(16)
84
2
82
—
2
80
$
1,443
319
146
—
146
1
145
8
3
134
$ 1,682
158
31
(6)
25
—
25
—
—
25
0.38
0.42
0.58
0.13
0.35
0.37
0.34
0.39
0.35
0.32
0.53
0.58
0.53
0.11
0.11
0.09
15.90
14.57
16.55
14.26
18.15
14.68
19.16
17.72
1,370
304
160
1
159
$ 1,620
191
79
—
79
1,890
224
107
—
107
$
1,276
207
88
1
87
$
Table of Contents
CMS Energy Corporation
Consumers Energy Company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2009
Quarters
Ended
CMS Energy, including Consumers
Operating Revenue
Operating Income
Income From Continuing Operations
Income (Loss) From Discontinued Operations
Net Income
Income Attributable to Noncontrolling Interests
Net Income Attributable to CMS Energy
Preferred Stock Dividends
Net Income Available to Common Stockholders
Earnings From Continuing Operations Per Average Common Share —
Basic(a)
Earnings From Continuing Operations Per Average Common Share —
Diluted(a)
Basic Earnings Per Average Common Share(a)
Diluted Earnings Per Average Common Share(a)
Common stock prices(b)
High
Low
Consumers
Operating Revenue
Operating Income
Net Income
Preferred Stock Dividends
Net Income Available to Common Stockholder
March 31
June 30
Sept. 30
Dec. 31
In Millions, Except Per Share Amounts and Stock
Prices
$
$
2,104
210
75
(1)
74
1
73
3
70
$
1,225
150
55
25
80
2
78
3
75
$
1,263
230
76
(1)
75
6
69
2
67
$ 1,613
108
14
(3)
11
2
9
3
6
0.32
0.22
0.30
0.04
0.31
0.31
0.30
0.21
0.33
0.32
0.29
0.29
0.28
0.03
0.03
0.02
12.20
10.09
12.30
10.98
13.64
11.78
16.04
13.05
1,204
218
101
1
100
$ 1,543
94
21
—
21
2,034
203
99
1
98
$
1,182
174
72
—
72
$
(a)
The sum of the quarters may not equal the annual EPS due to changes in the number of shares outstanding.
(b)
Based on New York Stock Exchange composite transactions.
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171
Table of Contents
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of
CMS Energy Corporation
In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, of cash flows,
and of changes in equity present fairly, in all material respects, the financial position of CMS Energy Corporation and its subsidiaries at
December 31, 2010 and December 31, 2009, and the results of their operations and their cash flows for each of the three years in the
period ended December 31, 2010 in conformity with accounting principles generally accepted in the United States of America. In
addition, in our opinion, the financial statement schedules listed in the index appearing under Item 15(a)(2) present fairly, in all material
respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Also in our
opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2010,
based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). The Company’s management is responsible for these financial statements and financial statement
schedules, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal
control over financial reporting, included in Management’s Annual Report on Internal Control over Financial Reporting appearing
under Item 9A. Our responsibility is to express opinions on these financial statements, on the financial statement schedules, and on the
Company’s internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the
standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the
audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective
internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included
examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of
internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the
risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the
assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe
that our audits provide a reasonable basis for our opinions.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in
accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect
on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers LLP
Detroit, Michigan
February 24, 2011
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Table of Contents
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholder of
Consumers Energy Company
In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, of cash flows,
and of changes in equity present fairly, in all material respects, the financial position of Consumers Energy Company and its
subsidiaries at December 31, 2010 and December 31, 2009, and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 2010 in conformity with accounting principles generally accepted in the United States of
America. In addition, in our opinion, the financial statement schedule listed in the index appearing under Item 15(a)(2) presents fairly,
in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements.
Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of
December 31, 2010, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). The Company’s management is responsible for these financial statements and
financial statement schedules, for maintaining effective internal control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting, included in Management’s Annual Report on Internal Control over Financial
Reporting appearing under Item 9A. Our responsibility is to express opinions on these financial statements, on the financial statement
schedules, and on the Company’s internal control over financial reporting based on our integrated audits. We conducted our audits in
accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we
plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and
whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements
included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation.
Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting,
assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control
based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances.
We believe that our audits provide a reasonable basis for our opinions.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in
accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect
on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers LLP
Detroit, Michigan
February 24, 2011
173
Table of Contents
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
CMS Energy
None.
Consumers
None.
ITEM 9A. CONTROLS AND PROCEDURES
CMS Energy
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures: Under the supervision and with the
participation of management, including its CEO and CFO, CMS Energy conducted an evaluation of its disclosure controls and
procedures (as such term is defined in Rules 13a−15(e) and 15d−15(e) under the Exchange Act). Based on such evaluation, CMS
Energy’s CEO and CFO have concluded that its disclosure controls and procedures were effective as of December 31, 2010.
Management’s Annual Report on Internal Control Over Financial Reporting: CMS Energy’s management is responsible for
establishing and maintaining adequate internal control over financial reporting, as defined in Exchange Act Rule 13a−15(f). CMS
Energy’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with GAAP and includes policies and
procedures that:
• pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of CMS Energy;
• provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with GAAP, and that receipts and expenditures of CMS Energy are being made
only in accordance with authorizations of management and directors of CMS Energy; and
• provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of CMS Energy’s assets that could have a material effect on its financial statements.
Management, including its CEO and CFO, does not expect that its internal controls will prevent or detect all errors and all fraud. A
control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of
the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the
benefits of controls must be considered relative to their costs. In addition, any evaluation of the effectiveness of controls is subject to
risks that those internal controls may become inadequate in future periods because of changes in business conditions, or that the degree
of compliance with the policies or procedures deteriorates.
Under the supervision and with the participation of management, including its CEO and CFO, CMS Energy conducted an
evaluation of the effectiveness of its internal control over financial reporting as of December 31, 2010. In making this evaluation,
management used the criteria set forth in the framework in Internal Control — Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission. Based on such evaluation, CMS Energy’s management concluded that its
internal control over financial reporting was effective as of December 31, 2010. The effectiveness of CMS Energy’s internal control
over financial reporting as of December 31, 2010 has been audited by PricewaterhouseCoopers LLP, an independent registered public
accounting firm, as stated in their report which appears under Item 8.
Changes in Internal Control over Financial Reporting: There have been no changes in CMS Energy’s internal control over
financial reporting during the most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially
affect, its internal control over financial reporting.
174
Table of Contents
Consumers
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures: Under the supervision and with the
participation of management, including its CEO and CFO, Consumers conducted an evaluation of its disclosure controls and procedures
(as such term is defined in Rules 13a−15(e) and 15d−15(e) under the Exchange Act). Based on such evaluation, Consumers’ CEO and
CFO have concluded that its disclosure controls and procedures were effective as of December 31, 2010.
Management’s Annual Report on Internal Control Over Financial Reporting: Consumers’ management is responsible for
establishing and maintaining adequate internal control over financial reporting, as defined in Exchange Act Rule 13a−15(f).
Consumers’ internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with GAAP and includes policies and
procedures that:
• pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of Consumers;
• provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with GAAP, and that receipts and expenditures of Consumers are being made
only in accordance with authorizations of management and directors of Consumers; and
• provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of Consumers’ assets that could have a material effect on its financial statements.
Management, including its CEO and CFO, does not expect that its internal controls will prevent or detect all errors and all fraud. A
control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of
the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the
benefits of controls must be considered relative to their costs. In addition, any evaluation of the effectiveness of controls is subject to
risks that those internal controls may become inadequate in future periods because of changes in business conditions, or that the degree
of compliance with the policies or procedures deteriorates.
Under the supervision and with the participation of management, including its CEO and CFO, Consumers conducted an evaluation
of the effectiveness of its internal control over financial reporting as of December 31, 2010. In making this evaluation, management
used the criteria set forth in the framework in Internal Control — Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on such evaluation, Consumers’ management concluded that its internal control
over financial reporting was effective as of December 31, 2010. The effectiveness of Consumers’ internal control over financial
reporting as of December 31, 2010 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting
firm, as stated in their report which appears under Item 8.
Changes in Internal Control over Financial Reporting: There have been no changes in Consumers’ internal control over
financial reporting during the most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially
affect, its internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
CMS Energy
None.
Consumers
None.
175
Table of Contents
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
CMS Energy
Information that is required in Item 10 regarding executive officers is included in the Item 1. Business, CMS Energy Executive
Officers section, which is incorporated by reference herein.
Information that is required in Item 10 regarding directors, executive officers, and corporate governance is included in CMS
Energy’s definitive proxy statement, which is incorporated by reference herein.
CODE OF ETHICS
CMS Energy adopted a code of ethics that applies to its CEO, CFO and CAO, as well as all other officers and employees of CMS
Energy and its affiliates, including Consumers. This code of ethics, entitled “Code of Conduct and Guide to Ethical Business Behavior
2010” is posted on CMS Energy’s website at www.cmsenergy.com, under “Compliance and Ethics”. CMS Energy’s Code of Conduct
and Guide to Ethical Business Behavior 2010 is administered by the Chief Compliance Officer of CMS Energy, who reports directly to
the Audit Committee of the Board of Directors of CMS Energy. Any amendment to, or waiver of, a provision of CMS Energy’s code of
ethics that applies to CMS Energy’s CEO, CFO, CAO or persons performing similar functions will be disclosed on CMS Energy’s
website at www.cmsenergy.com under “Compliance and Ethics.”
CMS Energy has also adopted a code of conduct that applies to its directors, entitled “Board of Directors Code of Conduct”. This
Board of Directors Code of Conduct can also be found on CMS Energy’s website at www.cmsenergy.com. CMS Energy’s Board of
Directors Code of Conduct is administered by the Audit Committee of the Board of Directors of CMS Energy. Any alleged violation of
this Board of Directors Code of Conduct by a director will be investigated by disinterested members of the Audit Committee of the
Board of Directors of CMS Energy, or if none, by disinterested members of the entire Board of Directors of CMS Energy.
Consumers
Information that is required in Item 10 regarding executive officers is included in the Item 1. Business, Consumers Executive
Officers section, which is incorporated by reference herein.
Information that is required in Item 10 regarding Consumers’ directors, executive officers, and corporate governance is included in
CMS Energy’s definitive proxy statement, which is incorporated by reference herein.
CODE OF ETHICS
Consumers adopted a code of ethics that applies to its CEO, CFO and CAO, as well as all other officers and employees of
Consumers and its affiliates. This code of ethics, entitled “Code of Conduct and Guide to Ethical Business Behavior 2010” is posted on
Consumers’ website at www.consumersenergy.com, under “Compliance and Ethics”. Consumers’ Code of Conduct and Guide to
Ethical Business Behavior 2010 is administered by the Chief Compliance Officer of Consumers, who reports directly to the Audit
Committee of the Board of Directors of Consumers. Any amendment to, or waiver of, a provision of Consumers’ code of ethics that
applies to Consumers’ CEO, CFO, CAO or persons performing similar functions will be disclosed on Consumers’ website at
www.consumersenergy.com under “Compliance and Ethics.”
Consumers has also adopted a code of conduct that applies to its directors, entitled “Board of Directors Code of Conduct”. This
Board of Directors Code of Conduct can also be found on Consumers’ website at www.consumersenergy.com. The Consumers’ Board
of Directors Code of Conduct is administered by the Audit Committee of the Board of Directors of Consumers. Any alleged violation of
this Board of Directors Code of Conduct by a director will be investigated by disinterested members of the Audit Committee of the
Board of Directors of Consumers, or if none, by disinterested members of the entire Board of Directors of Consumers.
176
Table of Contents
ITEM 11. EXECUTIVE COMPENSATION
Information that is required in Item 11 regarding executive compensation of CMS Energy’s and Consumers’ executive officers is
included in CMS Energy’s definitive proxy statement, which is incorporated by reference herein.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
CMS Energy
Information that is required in Item 12 regarding securities authorized for issuance under equity compensation plans and security
ownership of certain beneficial owners and management is included in CMS Energy’s definitive proxy statement, which is incorporated
by reference herein.
Consumers
Information that is required in Item 12 regarding securities authorized for issuance under equity compensation plans and security
ownership of certain beneficial owners and management of Consumers is included in CMS Energy’s definitive proxy statement, which
is incorporated by reference herein.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS,
AND DIRECTOR INDEPENDENCE
CMS Energy
Information that is required in Item 13 regarding certain relationships and related transactions, and director independence is
included in CMS Energy’s definitive proxy statement, which is incorporated by reference herein.
Consumers
Information that is required in Item 13 regarding certain relationships and related transactions, and director independence
regarding Consumers is included in CMS Energy’s definitive proxy statement, which is incorporated by reference herein.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
CMS Energy
Information that is required in Item 14 regarding principal accountant fees and services is included in CMS Energy’s definitive
proxy statement, which is incorporated by reference herein.
Consumers
Information that is required in Item 14 regarding principal accountant fees and services relating to Consumers is included in CMS
Energy’s definitive proxy statement, which is incorporated by reference herein.
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)(1)
Financial Statements and Reports of Independent Public Accountants for CMS Energy and
Consumers are included in each company’s Item 8. Financial Statements and Supplementary Data and
are incorporated by reference herein.
(a)(2)
Index to Financial Statement Schedules.
177
Table of Contents
Page
Schedule I
Condensed Financial Information of Registrant CMS Energy−Parent Company
Condensed Statements of Income
Statements of Cash Flows
Condensed Balance Sheets
Notes to Condensed Financial Statements
Schedule II
Valuation and Qualifying Accounts and Reserves
CMS Energy
Consumers
Report of Independent Registered Public Accounting Firm
CMS Energy
Consumers
184
185
186
188
189
189
172
173
Schedules other than those listed above are omitted because they are either not required, not applicable, or the required
information is shown in the financial statements or notes thereto. Columns omitted from schedules filed have been omitted because the
information is not applicable.
(a)(3) Exhibits for CMS Energy and Consumers are listed after Item 15(b) below and are incorporated by reference herein.
(b) Exhibits, including those incorporated by reference.
178
Table of Contents
CMS ENERGY’S AND CONSUMERS’ EXHIBITS
The agreements included as exhibits to this Form 10−K filing are included solely to provide information regarding the terms of the
agreements and are not intended to provide any other factual or disclosure information about CMS Energy, Consumers, or other parties
to the agreements. The agreements may contain representations and warranties made by each of the parties to each of the agreements
that were made exclusively for the benefit of the parties involved in each of the agreements and should not be treated as statements of
fact. The representations and warranties were made as a way to allocate risk if one or more of those statements prove to be incorrect.
The statements were qualified by disclosures to the parties to each of the agreements and may not be reflected in each of the
agreements. The agreements may apply standards of materiality that are different than standards applied to other investors.
Additionally, the statements were made as of the date of the agreements or as specified in the agreements and have not been updated.
The representations and warranties may not describe the actual state of affairs of the parties to each agreement. Additional
information about CMS Energy and Consumers may be found in this filing at www.cmsenergy.com, at www.consumersenergy.com,
and through the SEC’s website at www.sec.gov.
Exhibits
Previously Filed
With File
As Exhibit
Number
Number
Description
3.1
1−9513
(3)(a)*
—
3.2
1−9513
3.1*
—
3.3
1−5611
3(c)
—
3.4
1−5611
3.2
—
4.1
2−65973
(b)(1)−4
—
4.1.a
4.1.b
4.1.c
4.1.d
4.1.e
4.1.f
4.1.g
4.1.h
4.1.i
4.1.j
4.1.k
4.1.l
4.1.m
4.1.n
4.1.o
4.1.p
4.2
1−5611
1−5611
1−5611
1−5611
1−5611
1−5611
1−5611
1−5611
1−5611
1−5611
1−5611
1−5611
1−5611
1−5611
1−5611
1−5611
1−5611
(4)(a)
(4)(d)
(4)(b)
(4)(a)
4.4
(4)(a)(i)
4.2
4.2
4(b)
4(a)
4.1
4.1
4.1
4.1
4.1
4.1
(4)(b)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
4.3
1−5611
(4)(c)
—
Restated Articles of Incorporation of CMS Energy effective June 1, 2004, as
amended May 22, 2009 (2nd qtr. 2009 Form 10−Q)
CMS Energy Corporation Bylaws, amended and restated as of January 27,
2011 (Form 8−K filed February 1, 2011)
Restated Articles of Incorporation of Consumers effective June 7, 2000 (2000
Form 10−K)
Consumers Energy Company Bylaws, amended and restated as of January 27,
2011 (Form 8−K filed February 1, 2011)
Indenture dated as of September 1, 1945 between Consumers and Chemical
Bank (successor to Manufacturers Hanover Trust Company), as Trustee,
including therein indentures supplemental thereto through the Forty−third
Supplemental Indenture dated as of May 1, 1979 (Form S−16 filed November
13, 1979)
Indentures Supplemental thereto:
71st dated as of 3/06/98 (1997 Form 10−K)
90th dated as of 4/30/03 (1st qtr. 2003 Form 10−Q)
92nd dated as of 8/26/03 (3rd qtr. 2003 Form 10−Q)
96th dated as of 8/17/04 (Form 8−K filed August 20, 2004)
98th dated as of 12/13/04 (Form 8−K filed December 13, 2004)
99th dated as of 1/20/05 (2004 Form 10−K)
100th dated as of 3/24/05 (Form 8−K filed March 30, 2005)
104th dated as of 8/11/05 (Form 8−K filed August 11, 2005)
105th dated as of 3/30/07 (2007 Form 10−K)
106th dated as of 11/30/07 (2007 Form 10−K)
108th dated as of 3/14/08 (Form 8−K filed March 14, 2008)
109th dated as of 9/11/08 (Form 8−K filed September 16, 2008)
110th dated as of 9/12/08 (Form 8−K filed September 12, 2008)
111th dated as of 3/6/09 (Form 8−K filed March 6, 2009)
112th dated as of 9/1/10 (Form 8−K filed September 7, 2010)
113th dated as of 10/15/10 (Form 8−K filed October 20, 2010)
Indenture dated as of January 1, 1996 between Consumers and The Bank of
New York Mellon, as Trustee (1995 Form 10−K)
Indenture dated as of February 1, 1998 between Consumers and The Bank of
New York Mellon (formerly The Chase Manhattan Bank), as Trustee (1997
Form 10−K)
179
Table of Contents
Exhibits
Previously Filed
With File
As Exhibit
Number
Number
Description
4.4
33−47629
(4)(a)*
—
4.4.a
4.4.b
4.4.c
4.4.d
4.4.e
4.4.f
4.4.g
4.4.h
4.4.i
4.4.j
4.4.k
4.4.l
4.5
333−58686
1−9513
1−9513
1−9513
1−9513
1−9513
1−9513
1−9513
1−9513
1−9513
1−9513
1−9513
1−9513
(4)(a)*
(4)(d)(ii)*
4.2*
4.2*
4.2*
4.2*
4.3*
4.1*
4.3*
4.1*
4.1*
4.1*
(4a)*
—
—
—
—
—
—
—
—
—
—
—
—
—
4.5.a
10.1
1−9513
1−9513
(4)(b)*
(10)(d)*
—
—
10.2
1−9513
(10)(b)*
—
10.3
1−9513
(10)(e)*
—
10.4
1−9513
10(b)*
—
10.5
1−9513
10(c)*
—
10.6
1−5611
(10)(f)
—
10.7
10.8
10.9
10.10
1−9513
1−9513
1−9513
1−9513
(10)(g)
(10)(h)
(10)(g)
10.1
—
—
—
—
Indenture dated as of September 15, 1992 between CMS Energy and NBD
Bank, as Trustee (Form S−3 filed May 1, 1992)
Indentures Supplemental thereto:
11th dated as of 3/29/01 (Form S−8 filed April 11, 2001)
16th dated as of 12/16/04 (2004 Form 10−K)
17th dated as of 12/13/04 (Form 8−K filed December 13, 2004)
18th dated as of 1/19/05 (Form 8−K filed January 20, 2005)
19th dated as of 12/13/05 (Form 8−K filed December 15, 2005)
20th dated as of 7/3/07 (Form 8−K filed July 5, 2007)
21st dated as of 7/3/07 (Form 8−K filed July 5, 2007)
22nd dated as of 6/15/09 (Form 8−K filed June 15, 2009)
23rd dated as of 6/15/09 (Form 8−K filed June 15, 2009)
24th dated as of 1/14/10 (Form 8−K filed January 14, 2010)
25th dated as of 9/23/10 (Form 8−K filed September 23, 2010)
26th dated as of 11/19/10 (Form 8−K filed November 19, 2010)
Indenture dated as of June 1, 1997 between CMS Energy and The Bank of
New York Mellon, as Trustee (Form 8−K filed July 1, 1997)
Indentures Supplemental thereto:
1st dated as of 6/20/97 (Form 8−K filed July 1, 1997)
$300 million Seventh Amended and Restated Credit Agreement dated as of
April 2, 2007 among CMS Energy Corporation, the Banks, the Administrative
Agent, Collateral Agent, Syndication Agent and Documentation Agents, all
defined therein and Amendment No. 1 dated as of December 19, 2007 (3rd
qtr. 2009 Form 10−Q)
Amendment No. 2 dated as of January 23, 2009 to the $300 million Seventh
Amended and Restated Credit Agreement (2008 Form 10−K)
Assumption and Acceptance dated January 8, 2008 to the $300 million
Seventh Amended and Restated Credit Agreement (3rd qtr. 2009 Form 10−Q)
Fourth Amended and Restated Pledge and Security Agreement dated as of
April 2, 2007 among CMS Energy and Collateral Agent, as defined therein
(2007 Form 10−K)
Amended and Restated Cash Collateral Agreement dated as of April 2, 2007,
made by CMS Energy to the Administrative Agent for the lenders and
Collateral Agent, as defined therein (2007 Form 10−K)
$500 million Fourth Amended and Restated Credit Agreement dated as of
March 30, 2007 among Consumers Energy Company, the Banks, the
Administrative Agent, the Collateral Agent, the Syndication Agent and the
Documentation Agents, all as defined therein (3rd qtr. 2009 Form 10−Q)
2004 Form of Executive Severance Agreement (3rd qtr. 2009 Form 10−Q)
2004 Form of Officer Severance Agreement (3rd qtr. 2009 Form 10−Q)
2004 Form of Change−in−Control Agreement (2007 Form 10−K)
CMS Energy’s Performance Incentive Stock Plan, effective February 3, 1988,
amended and restated effective August 1, 2010 (2nd qtr. 2010 Form 10−Q)
180
Table of Contents
Exhibits
Previously Filed
With File
As Exhibit
Number
Number
Description
10.11
1−9513
(10)(i)
—
10.12
1−9513
(10)(l)
—
10.13
1−9513
(10)(k)
—
10.14
1−9513
(10)(p)
—
10.15
1−9513
(10)(l)
—
10.16
1−9513
(10)(r)
—
10.17
10.18
1−9513
1−9513
(10)(t)
(10)(v)
—
—
10.19
1−9513
(10)(y)*
—
10.20
1−5611
(10)(y)
—
10.21
1−5611
(10)(aa)*
—
10.22
1−5611
(10)(i)
—
10.23
1−5611
(10)(j)
—
10.24
1−9513
(10)(k)*
—
10.25
1−9513
10.1*
—
10.26
1−9513
(10)(l)*
—
CMS Deferred Salary Savings Plan effective December 1, 1989 and as further
amended effective December 1, 2007 (2007 Form 10−K)
Amendment to the Deferred Salary Savings Plan dated December 21, 2008
(2008 Form 10−K)
Supplemental Executive Retirement Plan for Employees of CMS
Energy/Consumers Energy Company effective January 1, 1982 and as further
amended effective December 1, 2007 (2007 Form 10−K)
Amendment to the Defined Benefit Supplemental Executive Retirement Plan
dated December 21, 2008 (2008 Form 10−K)
Defined Contribution Supplemental Executive Retirement Plan effective April
1, 2006 and as further amended effective December 1, 2007 (2007 Form
10−K)
Amendment to the Defined Contribution Supplemental Executive Retirement
Plan dated December 21, 2008 (2008 Form 10−K)
2009 Form of Officer Separation Agreement (2008 Form 10−K)
Amended and Restated Investor Partner Tax Indemnification Agreement
dated as of June 1, 1990 among Investor Partners, CMS Midland as
Indemnitor and CMS Energy as Guarantor (1990 Form 10−K)
Environmental Agreement dated as of June 1, 1990 made by CMS Energy to
The Connecticut National Bank and Others (1990 Form 10−K)
Unwind Agreement dated as of December 10, 1991 by and among CMS
Energy, Midland Group, Ltd., Consumers, CMS Midland, Inc., MEC
Development Corp. and CMS Midland Holdings Company (1991 Form
10−K)
Parent Guaranty dated as of June 14, 1990 from CMS Energy to MCV, each
of the Owner Trustees, the Indenture Trustees, the Owner Participants and the
Initial Purchasers of Senior Bonds in the MCV Sale Leaseback transaction,
and MEC Development (1991 Form 10−K)
Asset Sale Agreement dated as of July 11, 2006 by and among Consumers
Energy Company as Seller and Entergy Nuclear Palisades, LLC as Buyer (3rd
qtr. 2009 Form 10−Q)
Palisades Nuclear Power Plant Power Purchase Agreement dated as of July
11, 2006 between Entergy Nuclear Palisades, LLC and Consumers Energy
Company (3rd qtr. 2009 Form 10−Q)
Agreement of Purchase and Sale by and between CMS Enterprises Company
and Abu Dhabi National Energy Company PJSC dated as of February 3, 2007
(3rd qtr. 2009 Form 10−Q)
Common Agreement dated March 12, 2007 between CMS Enterprises
Company and Lucid Energy, LLC (Form 8−K filed March 14, 2007)
Agreement of Purchase and Sale dated March 12, 2007 by and among CMS
Enterprises Company, CMS Energy Investment, LLC, and Lucid Energy,
LLC, and Michigan Pipeline and Processing, LLC (3rd qtr. 2009 Form 10−Q)
181
Table of Contents
Exhibits
Previously Filed
With File
As Exhibit
Number
Number
Description
10.27
1−9513
(10)(m)*
—
10.28
1−9513
(10)(a)*
—
10.29
1−5611
(10)(b)
—
10.30
1−5611
10.3
—
10.31
1−5611
10.1
—
10.32
1−5611
(10)(t)
—
10.33
1−5611
10.4
—
10.34
—
10.35
1−5611
(10)(v)
—
10.36
1−5611
(10)(rr)
—
10.37
1−5611
(10)(ss)
—
10.38
1−5611
(10)(b)
—
10.39
1−5611
(10)(d)
—
10.40
10.41
—
1−9513
(10)(e)
—
Agreement of Purchase and Sale dated March 12, 2007 by and among CMS
Enterprises Company, CMS Generation Holdings Company, CMS
International Ventures, LLC, and Lucid Energy, LLC, and New Argentine
Generation Company, LLC (3rd qtr. 2009 Form 10−Q)
Form of Indemnification Agreement between CMS Energy Corporation and
its Directors effective as of November 1, 2007 (3rd qtr. 2007 Form 10−Q)
Form of Indemnification Agreement between Consumers Energy Company
and its Directors effective as of November 1, 2007 (3rd qtr. 2007 Form 10−Q)
Amended and Restated Letter of Credit Reimbursement Agreement between
Consumers and U.S. Bank National Association dated as of September 21,
2010 (3rd qtr. 2010 Form 10−Q)
$150,000,000 Second Amended and Restated Revolving Credit Agreement
dated as of August 11, 2010 among Consumers Energy Company, the Banks,
Agent, Co−Syndication Agents and Documentation Agent, all as defined
therein (Form 8−K filed August 16, 2010)
Settlement Agreement and Amended and Restated Power Purchase
Agreement between Consumers Energy Company and Midland Cogeneration
Venture Limited Partnership dated as of June 9, 2008 (3rd qtr. 2009 Form
10−Q)
1st Amendment to the Amended and Restated Power Purchase Agreement
between Consumers and MCV Partnership dated as of March 1, 2010 (3rd qtr.
2010 Form 10−Q)
Amended and Restated Receivables Purchase Agreement dated as of
November 23, 2010 among Consumers Receivables Funding II, LLC,
Consumers Energy Company, The Conduits from time to time party thereto,
The Financial Institutions from time to time party thereto, The Managing
Agents from time to time party thereto, and JPMorgan Chase Bank, NA, as
Administrative Agent
Receivables Sale Agreement dated as of May 22, 2003 between Consumers
Energy Company as Originator and Consumers Receivables Funding II, LLC
as Buyer, as amended by Amendment No. 1 dated as of May 20, 2004 and as
amended by Amendment No. 2 dated as of August 15, 2006 (3rd qtr. 2009
Form 10−Q)
Amendment No. 3 to the Receivables Sale Agreement dated as of September
3, 2009 (2009 Form 10−K)
Amendment No. 4 to the Receivables Sale Agreement dated as of February
12, 2010 (2009 Form 10−K)
Amendment No. 5 to the Receivables Sale Agreement dated as of March 17,
2010 (1st qtr. 2010 Form 10−Q)
Amendment No. 6 to the Receivables Sale Agreement dated as of April 20,
2010 (1st qtr. 2010 Form 10−Q)
Amendment No. 7 to the Receivables Sale Agreement dated as of November
23, 2010
CMS Incentive Compensation Plan for CMS Energy and its Subsidiaries
effective January 1, 2004, amended and restated effective as of January 1,
2010 (1st qtr. 2010 Form 10−Q)
182
Table of Contents
Exhibits
Previously Filed
With File
As Exhibit
Number
Number
Description
10.42
1−9513
(10)(f)
—
10.43
1−9513
(10)(g)*
—
10.44
1−5611
(10)(h)
—
10.45
1−5611
10.1
—
12.1
—
12.2
—
21.1
23.1
23.2
24.1
24.2
31.1
—
—
—
—
—
—
31.2
—
31.3
—
31.4
—
32.1
—
32.2
—
99.1
—
101.INS**
101.SCH**
101.CAL**
101.DEF**
101.LAB**
101.PRE**
—
—
—
—
—
—
Form of Change in Control Agreement as of March 2010 (1st qtr. 2010 Form
10−Q)
Agreement between David W. Joos and CMS Energy Board of Directors (1st
qtr. 2010 Form 10−Q)
Bond Purchase Agreement between Consumers and each of the Purchasers
named therein dated as of April 19, 2010 (1st qtr. 2010 Form 10−Q)
Bond Purchase Agreement between Consumers and each of the Purchasers
named therein dated as of September 27, 2010 (Form 8−K filed September
30, 2010)
Statement regarding computation of CMS Energy’s Ratios of Earnings to
Fixed Charges and Combined Fixed Charges and Preferred Dividends
Statement regarding computation of Consumers’ Ratios of Earnings to Fixed
Charges and Combined Fixed Charges and Preferred Dividends
Subsidiaries of CMS Energy and Consumers
Consent of PricewaterhouseCoopers LLP for CMS Energy
Consent of PricewaterhouseCoopers LLP for Consumers
Power of Attorney for CMS Energy
Power of Attorney for Consumers
CMS Energy’s certification of the CEO pursuant to Section 302 of the
Sarbanes−Oxley Act of 2002
CMS Energy’s certification of the CFO pursuant to Section 302 of the
Sarbanes−Oxley Act of 2002
Consumers’ certification of the CEO pursuant to Section 302 of the
Sarbanes−Oxley Act of 2002
Consumers’ certification of the CFO pursuant to Section 302 of the
Sarbanes−Oxley Act of 2002
CMS Energy’s certifications pursuant to Section 906 of the Sarbanes−Oxley
Act of 2002
Consumers’ certifications pursuant to Section 906 of the Sarbanes−Oxley Act
of 2002
CMS Energy Corporation Stock Purchase Plan, amended and restated as of
December 1, 2010
XBRL Instance Document
XBRL Taxonomy Extension Schema
XBRL Taxonomy Extension Calculation Linkbase
XBRL Taxonomy Extension Definition Linkbase
XBRL Taxonomy Extension Labels Linkbase
XBRL Taxonomy Extension Presentation Linkbase
* Obligations of CMS Energy or its subsidiaries, but not of Consumers.
** In accordance with Regulation S−T, the XBRL−related information in Exhibit 101 shall be deemed to be “furnished” and not
“filed”. The financial information contained in the XBRL−related information is “unaudited” and “unreviewed.”
Exhibits listed above that have heretofore been filed with the SEC pursuant to various acts administered by the SEC, and which
were designated as noted above, are hereby incorporated herein by reference and made a part hereof with the same effect as if filed
herewith.
183
Table of Contents
CMS ENERGY CORPORATION
SCHEDULE I — CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CMS Energy — Parent Company
Condensed Statements of Income
Years
Ended
December
31
2010
Operating Expenses
Depreciation and amortization
Other operating expense
$
Total Operating Expenses
—
6
2009
In Millions
$
—
10
2008
$
3
5
6
10
8
(6)
(10)
(8)
Operating Loss
Other Income
Equity earnings of subsidiaries
Interest income
Other income (expense)
464
1
(8)
310
—
12
433
1
(4)
Total Other Income
457
322
430
Interest Charges
Interest on long−term debt
Interest on preferred securities
Intercompany interest expense and other
147
—
4
124
8
8
127
14
48
Total Interest Charges
151
140
189
Income Before Income Taxes
Income Tax Benefit
300
(50)
172
(57)
233
(62)
Income From Continuing Operations
Loss From Discontinued Operations
350
(10)
229
—
295
—
Net Income
Preferred Dividends
Redemption Premium on Preferred Stock
340
8
8
229
11
—
295
11
—
$ 324
$ 218
$ 284
Net Income Available to Common Stockholders
The accompanying condensed notes are an integral part of these statements.
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Table of Contents
CMS ENERGY CORPORATION
SCHEDULE I — CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CMS Energy — Parent Company
Condensed Statements of Cash Flows
Years
Ended
December
31
2010
Cash Flows From Operating Activities
Net income
Adjustments to reconcile net income to net cash provided by
operating activities:
Equity earnings of subsidiaries
Dividends received from subsidiaries
Depreciation and amortization
Increase in accounts receivable
Increase (decrease) in accounts payable
Change in other assets and liabilities
$
Net cash provided by operating activities
Cash Flows From Investing Activities
Investment in subsidiaries
Net cash used in investing activities
Cash Flows From Financing Activities
Proceeds from bank loans and notes
Proceeds from issuance of common stock
Retirement of bank loans and notes
Payment of common stock dividends
Payment of preferred stock dividends
Redemption of preferred stock
Debt issuance costs and financing fees
Increase (decrease) in notes payable, net
Net cash used in financing activities
Net Change in Cash and Temporary Cash Investments
Cash and Temporary Cash Investments, Beginning of Period
Cash and Temporary Cash Investments, End of Period
$
$
$
340
$
229
2008
$
295
(464)
358
—
—
(16)
117
(310)
340
—
(2)
16
7
(433)
1,247
3
—
(2)
(55)
335
280
1,055
(250)
(100)
(22)
(250)
(100)
(22)
800
8
(396)
(154)
(8)
(239)
(11)
(85)
718
9
(788)
(114)
(11)
(4)
(5)
15
665
9
(570)
(82)
(11)
(1)
—
(1,043)
(85)
(180)
(1,033)
—
—
—
The accompanying condensed notes are an integral part of these statements.
185
2009
In Millions
$
$
$
—
—
—
$
$
$
—
—
—
Table of Contents
CMS ENERGY CORPORATION
SCHEDULE I — CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CMS Energy — Parent Company
Condensed Balance Sheets
December
31
2010
2009
In Millions
Assets
Current Assets
Notes and accrued interest receivable
Accounts receivable, including intercompany and related parties
Deferred income taxes
Total current assets
$
1
5
13
$
1
6
7
19
14
16
(16)
16
(15)
—
1
Non−current Assets
Deferred income taxes
Investment in Subsidiaries
Other investment — SERP
Other
372
4,942
19
26
371
4,591
17
46
Total non−current assets
5,359
5,025
$ 5,378
$ 5,040
Plant, Property, and Equipment, at cost
Less accumulated depreciation
Total plant, property, and equipment
Total Assets
The accompanying condensed notes are an integral part of these statements.
186
Table of Contents
CMS ENERGY CORPORATION
SCHEDULE I — CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CMS ENERGY — PARENT COMPANY
Condensed Balance Sheets
December 31
2010
2009
In Millions
Liabilities and Equity
Current Liabilities
Current portion of long−term debt
Accounts and notes payable, including intercompany and related parties
Accrued interest, including intercompany
Accrued taxes
Other
Total current liabilities
$
437
156
27
81
5
$
207
258
24
13
5
706
507
1,848
34
—
(28)
23
2
1,673
—
34
(37)
22
—
Total non−current liabilities
1,879
1,692
Equity
Common stockholders’ equity
Nonredeemable preferred stock
2,793
—
2,602
239
2,793
2,841
$ 5,378
$ 5,040
Non−Current Liabilities
Long−term debt
Senior notes
Intercompany notes
Related party
Unamortized discount
Postretirement benefits
Other non−current liabilities
Total equity
Total Liabilities and Equity
The accompanying condensed notes are an integral part of these statements.
187
Table of Contents
CMS ENERGY CORPORATION
SCHEDULE I — CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CMS Energy — Parent Company
Notes to Condensed Financial Statements
1: Basis of Presentation
CMS Energy’s condensed financial statements have been prepared on a parent−only basis. In accordance with Rule 12−04 of
Regulation S−X, these parent−only financial statements do not include all of the information and notes required by GAAP for annual
financial statements and therefore, these parent−only financial statements and other information included should be read in conjunction
with CMS Energy’s audited Consolidated Financial Statements contained within Part II, Item 8 of this Form 10−K for the year ended
December 31, 2010.
2: Guaranty
CMS Energy has issued a guaranty on behalf of its wholly owned subsidiary, CMS ERM, to support its payment obligations to a
third party under certain commodity purchase or swap agreements. CMS Energy’s maximum potential obligation under the guaranty is
$5 million, plus expenses.
188
Table of Contents
CMS ENERGY CORPORATION
SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
Years Ended December 31, 2010, 2009, and 2008
Balance at
Beginning
of Period
Charged
to
Expense
Charged to
Other
Accounts
(In Millions)
Deductions
Balance
at End
of Period
$
$
$
23
26
21
$
$
$
53
47
47
$
$
$
—
—
—
$
$
$
51
50
42
$
$
$
25
23
26
$
$
$
34
32
32
$
$
$
1
2
—
$
$
$
(15)
—
7
$
$
$
1
—
7
$
$
$
19
34
32
$
$
$
6
34
33
$
$
$
4
7
4
$
$
$
—
—
—
$
$
$
5
35
3
$
$
$
5
6
34
Description
Allowance for uncollectible accounts(a)
2010
2009
2008
Deferred tax valuation allowance
2010
2009
2008
Allowance for notes receivable(a)
2010
2009
2008
(a)
Deductions are write−offs of uncollectible accounts, net of recoveries.
CONSUMERS ENERGY COMPANY
SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
Years Ended December 31, 2010, 2009, and 2008
Description
Balance at
Beginning
of Period
Charged
to
Expense
Charged to
Other
Accounts
(In Millions)
Deductions
Balance at
End of
Period
Allowance for uncollectible accounts(a)
2010
2009
2008
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
(a)
21
24
16
Deductions are write−offs of uncollectible accounts, net of recoveries.
189
53
47
47
—
—
—
51
50
39
23
21
24
Table of Contents
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, CMS Energy Corporation has duly
caused this Annual Report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 24th day of February 2011.
CMS ENERGY CORPORATION
By
/s/ John G. Russell
John G. Russell
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report has been signed below by the following
persons on behalf of CMS Energy Corporation and in the capacities indicated and on the 24th day of February 2011.
Signature
Title
(i) Principal executive officer:
/s/ John G. Russell
President and Chief Executive Officer
John G. Russell
(ii) Principal financial officer:
/s/ Thomas J. Webb
Executive Vice President and
Chief Financial Officer
Thomas J. Webb
(iii) Controller or principal accounting officer:
Vice President, Controller
and Chief Accounting Officer
/s/ Glenn P. Barba
Glenn P. Barba
(iv) A majority of the Directors:
*
Director
Merribel S. Ayres
*
Director
Jon E. Barfield
*
Director
Stephen E. Ewing
*
Director
Richard M. Gabrys
*
Director
David W. Joos
*
Director
Philip R. Lochner, Jr.
190
Table of Contents
Signature
Title
*
Director
Michael T. Monahan
*
Director
John G. Russell
*
Director
Kenneth L. Way
*
Director
John B. Yasinsky
*By
/s/ Thomas J. Webb
Thomas J. Webb,
Attorney−in−Fact
191
Table of Contents
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Consumers Energy Company has duly
caused this Annual Report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 24th day of February 2011.
CONSUMERS ENERGY COMPANY
By
/s/ John G. Russell
John G. Russell
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report has been signed below by the following
persons on behalf of Consumers Energy Company and in the capacities indicated and on the 24th day of February 2011.
Signature
Title
(i) Principal executive officer:
/s/ John G. Russell
President and Chief Executive Officer
John G. Russell
(ii) Principal financial officer:
/s/ Thomas J. Webb
Executive Vice President and
Chief Financial Officer
Thomas J. Webb
(iii) Controller or principal accounting officer:
Vice President, Controller
and Chief Accounting Officer
/s/ Glenn P. Barba
Glenn P. Barba
(iv) A majority of the Directors:
*
Director
Merribel S. Ayres
*
Director
Jon E. Barfield
*
Director
Stephen E. Ewing
*
Director
Richard M. Gabrys
*
Director
David W. Joos
*
Director
Philip R. Lochner, Jr.
192
Table of Contents
Signature
Title
*
Director
Michael T. Monahan
*
Director
John G. Russell
*
Director
Kenneth L. Way
*
Director
John B. Yasinsky
*By
/s/ Thomas J. Webb
Thomas J. Webb,
Attorney−in−Fact
193
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(This page intentionally left blank)
194
Table of Contents
EXHIBITS
195
Table of Contents
CMS ENERGY’S AND CONSUMERS’ EXHIBIT INDEX
Exhibits
10.34
10.40
99.1
12.1
12.2
21.1
23.1
23.2
24.1
24.2
31.1
31.2
31.3
31.4
32.1
32.2
101.INS*
101.SCH*
101.CAL*
101.DEF*
101.LAB*
101.PRE*
Description
— Amended and Restated Receivables Purchase Agreement dated as of November 23, 2010 among Consumers
Receivables Funding II, LLC, Consumers Energy Company, The Conduits from time to time party thereto, The
Financial Institutions from time to time party thereto, The Managing Agents from time to time party thereto,
and JPMorgan Chase Bank, NA, as Administrative Agent
— Amendment No. 7 to the Receivables Sale Agreement dated as of November 23, 2010
— CMS Energy Corporation Stock Purchase Plan, amended and restated as of December 1, 2010
— Statement regarding computation of CMS Energy’s Ratios of Earnings to Fixed Charges and Combined Fixed
Charges and Preferred Dividends
— Statement regarding computation of Consumers’ Ratios of Earnings to Fixed Charges and Combined Fixed
Charges and Preferred Dividends
— Subsidiaries of CMS Energy and Consumers
— Consent of PricewaterhouseCoopers LLP for CMS Energy
— Consent of PricewaterhouseCoopers LLP for Consumers
— Power of Attorney for CMS Energy
— Power of Attorney for Consumers
— CMS Energy’s certification of the CEO pursuant to Section 302 of the Sarbanes−Oxley Act of 2002
— CMS Energy’s certification of the CFO pursuant to Section 302 of the Sarbanes−Oxley Act of 2002
— Consumers’ certification of the CEO pursuant to Section 302 of the Sarbanes−Oxley Act of 2002
— Consumers’ certification of the CFO pursuant to Section 302 of the Sarbanes−Oxley Act of 2002
— CMS Energy’s certifications pursuant to Section 906 of the Sarbanes−Oxley Act of 2002
— Consumers’ certifications pursuant to Section 906 of the Sarbanes−Oxley Act of 2002
— XBRL Instance Document
— XBRL Taxonomy Extension Schema
— XBRL Taxonomy Extension Calculation Linkbase
— XBRL Taxonomy Extension Definition Linkbase
— XBRL Taxonomy Extension Labels Linkbase
— XBRL Taxonomy Extension Presentation Linkbase
* In accordance with Regulation S−T, the XBRL−related information in Exhibit 101 shall be deemed to be “furnished” and not
“filed”. The financial information contained in the XBRL−related information is “unaudited” and “unreviewed.”
196
Exhibit 10.34
EXECUTION COPY
AMENDED AND RESTATED
RECEIVABLES PURCHASE AGREEMENT
dated as of November 23, 2010
Among
CONSUMERS RECEIVABLES FUNDING II, LLC, as Seller,
CONSUMERS ENERGY COMPANY, as Servicer,
THE CONDUITS
from time to time party hereto,
THE FINANCIAL INSTITUTIONS
from time to time party hereto,
THE MANAGING AGENTS
from time to time party hereto,
and
JPMORGAN CHASE BANK, N.A.,
as Administrative Agent
CONSUMERS RECEIVABLES FUNDING II, LLC
AMENDED AND RESTATED
RECEIVABLES PURCHASE AGREEMENT
This Amended and Restated Receivables Purchase Agreement dated as of November 23, 2010 is among Consumers Receivables Funding II, LLC, a
Delaware limited liability company (the “Seller”), Consumers Energy Company, a Michigan corporation (“Consumers”), as initial servicer (the “Servicer”
and together with the Seller, the “Seller Parties” and each a “Seller Party”), the entities party hereto from time to time as Conduits (together with any of their
respective successors and assigns hereunder, the “Conduits”), the entities party hereto from time to time as Financial Institutions (together with any of their
respective successors and assigns hereunder, the “Financial Institutions”), the entities party hereto from time to time as Managing Agents (together with any
of their respective successors and assigns hereunder, the “Managing Agents”) and JPMorgan Chase Bank, N.A. (“JPMC”), as administrative agent for the
Purchasers hereunder or any successor administrative agent hereunder (together with its successors and assigns hereunder, the “Administrative Agent”).
Unless defined elsewhere herein, capitalized terms used in this Agreement shall have the meanings assigned to such terms in Exhibit I.
PRELIMINARY STATEMENTS
A. The Seller, the Servicer, Falcon and JPMC as a “Financial Institution” and as “Administrative Agent,” are parties to the Receivables Purchase
Agreement dated as of May 22, 2003 (as amended, restated, modified or supplemented prior to the date hereto, the “Original RPA”) pursuant to which,
among other things, the Seller transferred and assigned to the Purchasers, and the Purchasers purchased from the Seller, Purchaser Interests from time to
time.
B. Pursuant to this Agreement, Falcon will assign a portion of its Purchaser Interests, and JPMC will assign a portion of its Commitment, to the New
Purchasers.
C. The Conduits may, in their absolute and sole discretion, continue to purchase Purchaser Interests from the Seller from time to time.
D. In the event that a Conduit declines to make any purchase of Purchaser Interests, the Financial Institutions within such Conduit’s Purchaser Group
shall, subject to the terms and conditions of this Agreement, purchase such Purchaser Interests from time to time.
E. Each Managing Agent has been requested and is willing to act as Managing Agent on behalf of the Conduit and the Financial Institutions in its
Purchaser Group in accordance with the terms hereof.
F. The parties hereto have agreed to amend and restate the Original RPA pursuant to the terms and conditions of this Agreement.
1
G. The amendment and restatement of the Original RPA pursuant to this Agreement shall have the effect of a substitution of terms of the Original
RPA, but will not have the effect of causing a novation, refinancing or other repayment of the Aggregate Unpaids of the Seller under and as defined in the
Original RPA (hereinafter, the “Original Obligations”), which Original Obligations shall remain outstanding and repayable pursuant to the terms of this
Agreement.
ARTICLE I
PURCHASE ARRANGEMENTS
Section 1.1 Purchase Facility.
(a) Upon the terms and subject to the conditions hereof, the Seller hereby sells and assigns Purchaser Interests to the Administrative Agent for the
benefit of one or more of the Purchasers. In accordance with the terms and conditions set forth herein, each Conduit may, at its option, instruct its related
Managing Agent to purchase through the Administrative Agent on behalf of such Conduit, or if any such Conduit shall decline to purchase, such related
Managing Agent shall purchase through the Administrative Agent, on behalf of the Financial Institutions in such Conduit’s Purchaser Group, the Purchaser
Interests from time to time in an aggregate amount not to exceed the Group Purchase Limit for such Purchaser Group during the period from the date hereof
to but not including the Amortization Date.
(b) The Seller may, upon at least 15 Business Days’ notice to the Administrative Agent and each Managing Agent, terminate in whole or reduce in
part, the Purchase Limit; provided, that after giving effect to any such reduction and any amounts paid to reduce the Purchaser Interest on such date, the
Aggregate Capital shall not exceed the Purchase Limit. Any such partial reduction shall be in a minimum amount of $5,000,000 or an integral multiple
thereof. Any such reduction shall, (x) reduce each Group Purchase Limit (and the corresponding Conduit Purchase Limit(s)) hereunder ratably in
accordance with each Purchaser Group’s Pro Rata Share and (y) reduce each Financial Institution’s Commitment ratably within its Purchaser Group in
accordance with each Financial Institution’s Pro Rata Share.
Section 1.2 Increases.
(a) The Seller shall provide the Administrative Agent and each Managing Agent with at least one Business Day’s prior notice in the form set forth as
Exhibit II hereto of each Incremental Purchase (a “Purchase Notice”). Each Purchase Notice shall be subject to Section 6.2 hereof and, except as set forth
below, shall be irrevocable and shall specify the requested Purchase Price (which shall not be less than $1,000,000 in the aggregate for all Purchasers), date
of purchase and, in the case of an Incremental Purchase to be funded by the Financial Institutions, the requested Bank Rate and Tranche Period.
(b) Each Purchase Notice issued hereunder shall constitute a request by the Seller (i) for an Incremental Purchase to be made ratably by each
Purchaser Group, in accordance with the Pro Rata Share of such Purchaser Group as among all Purchaser Groups (such Purchaser Group’s “Purchase
Allocation”) and (ii) that, unless the Seller shall cancel such Purchase Notice as hereinafter provided, in the event a Conduit in any Purchaser Group shall
2
elect to purchase less than all of its Purchaser Group’s Purchase Allocation in connection with such Incremental Purchase, the balance of such Purchase
Allocation is to be made ratably by each Financial Institution within such Purchaser Group, in accordance with the Pro Rata Share of such Financial
Institution as among all Financial Institutions within such Purchaser Group.
(c) Following receipt of a Purchase Notice, each Managing Agent will determine whether the Purchaser Group Conduit agrees to purchase the entire
amount of its Purchaser Group’s Purchase Allocation in connection with the Incremental Purchase. If any Conduit declines to make a proposed purchase,
the applicable Managing Agent shall promptly notify the Seller and the Seller may cancel the Purchase Notice within one Business Day after receiving
notice from such Managing Agent (but in any event not later than 3:00 p.m. (New York time) on the Business Day prior to the requested date of purchase)
or, in the absence of such a cancellation, the balance of the Purchase Allocation for such Purchaser Group shall be made by such Purchaser Group’s
Financial Institutions ratably in accordance with their Pro Rata Shares within such Purchaser Group.
(d) On the date of each Incremental Purchase, upon satisfaction of the applicable conditions precedent set forth in Article VI, each applicable
Purchaser shall deposit to the account of the Seller (or its designee) designated in the Purchase Notice, in immediately available funds, no later than 12:00
noon (New York time), an amount equal to (i) in the case of a Conduit, the Purchase Price of the Purchaser Interests such Conduit is then purchasing, up to
the Purchase Allocation of its Purchaser Group, and (ii) in the case of a Financial Institution, such Financial Institution’s Pro Rata Share, as among all
Financial Institutions in its Purchaser Group, of the Purchase Price for the Purchase Allocation of its Purchaser Group to the extent such Purchase Price is
not then being paid by the Conduit in such Purchaser Group.
Section 1.3 Decreases. The Seller shall provide the Administrative Agent and each Managing Agent with prior written notice in conformity with the
Required Notice Period in substantially the form set forth on Exhibit X hereto (each, a “Reduction Notice”) of any proposed reduction of Aggregate Capital
from Collections. Such Reduction Notice shall designate (i) the date (the “Proposed Reduction Date”) upon which any such reduction of Aggregate Capital
shall occur (which date shall give effect to the applicable Required Notice Period), and (ii) the amount of Aggregate Capital to be reduced which shall be
applied ratably to the Purchaser Interests of the Conduits and the Financial Institutions in accordance with the amount of Capital (if any) owing to each
Purchaser (the “Aggregate Reduction”). Only one (1) Reduction Notice shall be outstanding at any time.
Section 1.4 Payment Requirements. All amounts to be paid or deposited by any Seller Party pursuant to any provision of this Agreement shall be paid
or deposited in accordance with the terms hereof no later than 12:00 noon (New York time) on the day when due in immediately available funds, and if not
received before 12:00 noon (New York time) shall be deemed to be received on the next succeeding Business Day. If such amounts are payable to a
Managing Agent or Purchaser they shall be paid to such Managing Agent, for the account of such Managing Agent or its related Purchaser, at such
Managing Agent’s account as directed by such Managing Agent and such Managing Agent shall promptly pay the applicable amount to the related
Purchaser. If such amounts are payable to the Administrative Agent, they shall be paid to the account as directed by the Administrative Agent. All
computations of Yield (other than
3
Yield calculated using the Alternate Base Rate described in clauses (a) or (b) of the definition thereof), per annum fees hereunder and per annum fees under
the Fee Letter shall be made on the basis of a year of 360 days for the actual number of days elapsed. All computations of Yield calculated using the
Alternate Base Rate described in clauses (a) or (b) of the definition thereof shall be made on the basis of a year of 365 or 366 days, as applicable, for the
actual number of days elapsed. If any amount hereunder shall be payable on a day which is not a Business Day, such amount shall be payable on the next
succeeding Business Day.
ARTICLE II
PAYMENTS AND COLLECTIONS
Section 2.1 Payments. Notwithstanding any limitation on recourse contained in this Agreement, the Seller shall immediately pay to each Managing
Agent when due, for its own account or for the account of its related Purchasers, or to the Administrative Agent, as applicable, on a full recourse basis,
(i) such fees as set forth in the Fee Letter (which fees shall be sufficient to pay all fees owing to the Financial Institutions), (ii) all amounts payable as Yield,
(iii) all amounts payable as Deemed Collections (which shall be immediately due and payable by Seller and applied to reduce outstanding Aggregate Capital
hereunder in accordance with Sections 2.2 and 2.4 hereof), (iv) all amounts payable pursuant to Section 2.7, (v) all amounts payable pursuant to Article X, if
any, (vi) all Servicer costs and expenses, including the Servicing Fee, in connection with servicing, administering and collecting the Receivables, (vii) all
Broken Funding Costs and (viii) all Default Fees (collectively, the “Obligations”). If the Seller fails to pay any of the Obligations when due, or if Servicer
fails to make any deposit required to be made by it under this Agreement when due, such Person agrees to pay, on demand, the Default Fee in respect
thereof until paid. Notwithstanding the foregoing, no provision of this Agreement or the Fee Letter shall require the payment or permit the collection of any
amounts hereunder in excess of the maximum permitted by applicable law. If at any time the Seller receives any Collections or is deemed to receive any
Collections, the Seller shall immediately pay such Collections or Deemed Collections to the Servicer for application in accordance with the terms and
conditions hereof and, at all times prior to such payment, such Collections or Deemed Collections shall be held in trust by the Seller for the exclusive
benefit of the Purchasers, the Managing Agents and the Administrative Agent.
Section 2.2 Collections Prior to Amortization.
(a) Subject to the following paragraph (b), prior to the Amortization Date, any Collections and/or Deemed Collections received by the Servicer shall
be set aside and held in trust by the Servicer for the payment of any accrued and unpaid Aggregate Unpaids or for a Reinvestment as provided in this
Section 2.2.
(b) At any time any Collections or Deemed Collections are received by the Servicer prior to the Amortization Date:
(i) the Servicer shall set aside the Termination Percentage of Collections and Deemed Collections evidenced by the Purchaser Interests of each
Terminating Financial Institution, and
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(ii) the Seller hereby requests and the Purchasers (other than any Terminating Financial Institutions) hereby agree to make (subject to the conditions
precedent set forth in Section 6.2 and the requirements of Section 2.7), simultaneously with such receipt, a reinvestment (each a “Reinvestment”) with
that portion of the balance of each and every Collection received or Deemed Collection deemed received by the Servicer that is part of any Purchaser
Interest, such that after giving effect to such Reinvestment, the amount of Aggregate Capital immediately after such receipt and corresponding
Reinvestment shall be equal to the amount of Aggregate Capital immediately prior to such receipt.
(c) On each Settlement Date prior to the occurrence of the Amortization Date, the Servicer shall remit to the appropriate accounts the amounts set
aside during the preceding Settlement Period that have not been subject to a Reinvestment and apply such amounts (if not previously paid in accordance
with Section 2.1):
first, to the Servicer for the payment of the Servicer’s reasonable out−of−pocket costs and expenses in connection with servicing, administering and
collecting the Receivables, including the Servicing Fee,
second, to the Managing Agents for the account of the Purchasers ratably to the payment of all accrued and unpaid Yield,
third, to the Managing Agents for the account of the Purchasers ratably to the payment of all accrued and unpaid fees under the Fee Letter,
fourth, to the Managing Agents for the account of the Purchasers to reduce the Capital of all Purchaser Interests of Terminating Financial Institutions
to zero, applied ratably to each Terminating Financial Institution according to its respective Termination Percentage,
fifth, to the Managing Agents for the account of the Purchasers to reduce Capital of outstanding Purchaser Interests in an amount, if any, necessary so
that the aggregate of the Purchaser Interests does not exceed the Applicable Maximum Purchaser Interest applied ratably in accordance with the Capital
Pro Rata Share of the Purchasers,
sixth, to each applicable Person for the ratable payment of all other unpaid Obligations,
seventh, to the Managing Agents for the account of the Purchasers to fund any Aggregate Reduction on such Settlement Date applied ratably in
accordance with the Capital Pro Rata Share of the Purchasers, and
eighth, any balance remaining thereafter shall be remitted from the Servicer to the Seller on such Settlement Date.
In the event that, pursuant to Section 1.3, an Aggregate Reduction is to take place on a date other than a Settlement Date, on the date of such
Aggregate Reduction, the Servicer shall remit to each Managing Agent’s account ratably in accordance with the Pro Rata Share of
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such Managing Agent’s Purchaser Group, out of the amounts set aside pursuant to this Section 2.2, an amount equal to such Aggregate Reduction to be
applied in accordance with Section 1.3.
Section 2.3 Terminating Financial Institutions. Each Terminating Financial Institution shall be allocated a ratable portion of Collections and Deemed
Collections from the date of its becoming a Terminating Financial Institution (the “Termination Date”) until such Terminating Financial Institution’s Capital
shall be paid in full. This ratable portion shall be calculated on the Termination Date of each Terminating Financial Institution as a percentage equal to
(i) Capital of such Terminating Financial Institution outstanding on its Termination Date, divided by (ii) the Aggregate Capital outstanding on such
Termination Date (the “Termination Percentage”). Each Terminating Financial Institution’s Termination Percentage shall remain constant prior to the
Amortization Date. On and after the Amortization Date, each Termination Percentage shall be disregarded, and each Terminating Financial Institution’s
Capital shall be reduced ratably with all Purchasers in accordance with Section 2.4.
Section 2.4 Collections Following Amortization. On the Amortization Date and on each day thereafter, the Servicer shall set aside and hold in trust,
for the holder of each Purchaser Interest, all Collections and Deemed Collections received on such day and an additional amount of funds of the Seller for
the payment of any accrued and unpaid Obligations owed by the Seller and not previously paid by the Seller in accordance with Section 2.1. On and after
the Amortization Date, the Servicer shall (i) remit to the each Managing Agent’s account ratably in accordance with the Pro Rata Share of such Managing
Agent’s Purchaser Group the amounts set aside pursuant to the preceding sentence, and (ii) apply such amounts to reduce the Aggregate Capital and any
other Aggregate Unpaids.
Section 2.5 Application of Collections. All Collections received on and after the Amortization Date shall be distributed by the Servicer (or the
Administrative Agent) on each Settlement Date and on such additional days as the Administrative Agent may elect (which election shall be made by the
Administrative Agent at the direction of any Managing Agent or Financial Institution), in the following order of priority:
first, to the Servicer to the payment of the Servicer’s reasonable out−of−pocket costs and expenses in connection with servicing, administering and
collecting the Receivables, including the Servicing Fee,
second, to the applicable Person to the reimbursement of the Administrative Agent’s and each Managing Agent’s costs of collection and enforcement
of this Agreement,
third, to each Managing Agent for the benefit of the Purchasers for the ratable payment of all accrued and unpaid fees under the Fee Letter and Yield,
fourth, to each Managing Agent for the account of the applicable Purchasers, to the ratable reduction of the Aggregate Capital (without regard to any
Termination Percentage),
fifth, to each applicable Person for the ratable payment of all other unpaid Obligations, and
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sixth, after the Aggregate Unpaids have been indefeasibly reduced to zero, to Seller.
Collections applied to the payment of Aggregate Unpaids shall be distributed in accordance with the aforementioned provisions, and, giving effect to
each of the priorities set forth above in this Section 2.5, shall be shared ratably (within each priority) among the Administrative Agent, the Managing Agents
and the Purchasers in accordance with the amount of such Aggregate Unpaids owing to each of them in respect of each such priority.
Section 2.6 Payment Rescission. No payment of any of the Aggregate Unpaids shall be considered paid or applied hereunder to the extent that, at any
time, all or any portion of such payment or application is rescinded by application of law or judicial authority, or must otherwise be returned or refunded for
any reason. The Seller shall remain obligated for the amount of any payment or application so rescinded, returned or refunded, and shall promptly pay to the
Administrative Agent (for application to the Person or Persons who suffered such rescission, return or refund) the full amount thereof, plus the Default Fee
from the date of any such rescission, return or refunding.
Section 2.7 Maximum Purchaser Interests. The Seller shall ensure that the Purchaser Interests of the Purchasers shall at no time exceed in the
aggregate the Applicable Maximum Purchaser Interest. If the aggregate of the Purchaser Interests of the Purchasers exceeds the Applicable Maximum
Purchaser Interest, the Seller shall pay to each Managing Agent for the account of the applicable Purchasers (ratably according to the aggregate Purchaser
Interests of the Purchasers), within one (1) Business Day, an amount such that, after giving effect to such payment, the aggregate of the Purchaser Interests
equals or is less than the Applicable Maximum Purchaser Interest. Amounts paid by the Seller under this Section 2.7 shall be applied to the outstanding
Capital of the Purchasers ratably in accordance with such Purchasers’ respective Capital Pro Rata Shares.
Section 2.8 Clean Up Call. In addition to Seller’s rights pursuant to Section 1.3, Seller shall have the right (after providing written notice to each
Managing Agent and the Administrative Agent in accordance with the Required Notice Period), at any time following the reduction of the Aggregate
Capital to a level that is less than 10.0% of the original Purchase Limit, to repurchase from the Purchasers all, but not less than all, of the then outstanding
Purchaser Interests. The purchase price in respect thereof shall be an amount equal to the Aggregate Unpaids through the date of such repurchase, payable in
immediately available funds. Such repurchase shall be without representation, warranty or recourse of any kind by, on the part of, or against any Purchaser,
any Managing Agent or the Administrative Agent.
Section 2.9 Payment Allocations. The Servicer shall, upon receipt of payments of amounts billed and collected from Obligors on their utility bills,
allocate those receipts on a daily basis between Collections of Receivables and Securitization Charge Collections in accordance with the allocation
methodology specified in Annex 2 to the Servicing Agreement. The Servicer will apply the Collections from Receivables as provided in this Article II.
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ARTICLE III
CONDUIT FUNDING
Section 3.1 Yield. The Seller shall pay Yield with respect to the Capital associated with each Purchaser Interest of each Conduit for each day that any
Capital in respect of such Purchaser Interest is outstanding. Each Purchaser Interest funded substantially with Pooled Commercial Paper will accrue Yield at
the CP Rate for each day. Each Purchaser Interest that is not funded substantially with Pooled Commercial Paper will accrue Yield as described in Article
IV.
Section 3.2 Payments. On each Yield Payment Date, the Seller shall pay to each Managing Agent for the benefit of the Conduit in such Managing
Agent’s Purchaser Group an aggregate amount equal to all accrued and unpaid Yield in respect of the Capital associated with all Purchaser Interests of the
related Conduit for the immediately preceding Accrual Period in accordance with Article II.
Section 3.3 Calculation of Yield. On the third (3 rd) Business Day immediately preceding each Yield Payment Date, each Managing Agent shall
calculate its Purchaser Group’s aggregate amount of Yield in respect of the Capital associated with all Purchaser Interests of each related Conduit for the
applicable Accrual Period and shall notify the Seller of such amount.
ARTICLE IV
FINANCIAL INSTITUTION FUNDING
Section 4.1 Financial Institution Funding. Each Purchaser Interest funded by the Financial Institutions shall accrue Yield for each day during its
Tranche Period at either the LIBO Rate or the Alternate Base Rate in accordance with the terms and conditions hereof. Until the Seller gives notice to the
applicable Managing Agent of another Bank Rate in accordance with Section 4.4, the initial Bank Rate for any Purchaser Interest transferred to the
Financial Institutions pursuant to the terms and conditions hereof shall be the Alternate Base Rate. If any Financial Institution acquires by assignment from
the Conduit in its Purchaser Group all or any portion of such Conduit’s Purchaser Interest (or an undivided interest therein) or otherwise funds such
Purchaser Interest pursuant to such Conduit’s Liquidity Agreement, such Purchaser Interest so assigned or funded shall each be deemed to have a new
Tranche Period commencing on the date of any such assignment or funding.
Section 4.2 Yield Payments. On each Yield Payment Date for each Purchaser Interest of the Financial Institutions, the Seller shall pay to each
Managing Agent for the benefit of the Financial Institutions in its Purchaser Group an aggregate amount equal to the accrued and unpaid Yield for the entire
Tranche Period of such Purchaser Interest in accordance with Article II.
Section 4.3 Selection and Continuation of Tranche Periods.
(a) With consultation from and adequate prior notice to each related Managing Agent, the Seller shall from time to time request Tranche Periods for
the Purchaser Interests funded, directly or indirectly, by the Financial Institutions, provided that, (i) if at any time the Financial Institutions shall have a
Purchaser Interest, the Seller shall always request
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Tranche Periods such that at least one Tranche Period shall end on the date specified in clause (A) of the definition of Yield Payment Date and (ii) no more
than three (3) Tranche Periods shall be outstanding at any time.
(b) The Seller, upon notice to and consultation with the Managing Agents received at least three (3) Business Days prior to the last day of a Tranche
Period (the “Terminating Tranche”) for any Purchaser Interest, may, effective on such last day of the Terminating Tranche: (i) divide any such Purchaser
Interest into multiple Purchaser Interests or (ii) combine any such Purchaser Interest with one or more other Purchaser Interests which either have a
Terminating Tranche ending on such day or are newly created on such day (subject to such Conduit’s ability to accommodate such division or combination),
provided, that in no event may a Purchaser Interest funded by Pooled Commercial Paper issued by a Conduit be combined with a Purchaser Interest funded
by any Financial Institution.
Section 4.4 Financial Institution Bank Rates. The Seller may select the LIBO Rate or the Alternate Base Rate for each Purchaser Interest funded by
the Financial Institutions. The Seller shall by 12:00 noon (New York time): (i) at least three (3) Business Days prior to the expiration of any Terminating
Tranche with respect to which the LIBO Rate is being requested as a new Bank Rate and (ii) at least one (1) Business Day prior to the expiration of any
Terminating Tranche with respect to which the Alternate Base Rate is being requested as a new Bank Rate, give each applicable Managing Agent
irrevocable notice of the new Bank Rate for the Purchaser Interest associated with such Terminating Tranche. Until the Seller gives notice to such
applicable Managing Agent of another Bank Rate, the initial Bank Rate for any Purchaser Interest transferred to or otherwise funded by any Financial
Institution pursuant to the terms and conditions hereof shall be the Alternate Base Rate.
Section 4.5 Suspension of the LIBO Rate.
(a) If any Financial Institution notifies its related Managing Agent that it has determined that funding its Pro Rata Share of the Purchaser Interests at a
LIBO Rate would violate any applicable law, rule, regulation, or directive of any governmental or regulatory authority, whether or not having the force of
law, or that (i) deposits of a type and maturity appropriate to fund its Purchaser Interests at such LIBO Rate are not available or (ii) such LIBO Rate does
not accurately reflect the cost of acquiring or maintaining a Purchaser Interest at such LIBO Rate, then such Managing Agent shall notify the Administrative
Agent and shall suspend the availability of such LIBO Rate for the Financial Institutions in such Managing Agent’s Purchaser Group and select the
Alternate Base Rate for any Purchaser Interest accruing Yield at such LIBO Rate, and the then current Tranche Period for any Purchaser Interest funded by
a Financial Institution in such Managing Agent’s Purchaser Group shall thereupon be terminated and a new Tranche Period based upon the Alternate Base
Rate shall commence.
(b) If less than all of the Managing Agents give a notice to the Administrative Agent pursuant to Section 4.5(a), the Financial Institution in the
Purchaser Group which gave such a notice shall be obligated, at the request of the Seller or the related Conduit in such Purchaser Group, to assign all of its
rights and obligations hereunder to (i) another Financial Institution or (ii) another funding entity nominated by the Seller or its related Managing Agent that
is acceptable to the related Conduit and willing to participate in this Agreement and the
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related Liquidity Agreement through the Liquidity Termination Date in the place of such notifying Financial Institution; provided that (i) the notifying
Financial Institution receives payment in full, pursuant to an Assignment Agreement, of an amount equal to such notifying Financial Institution’s Capital
Pro Rata Share of the Capital and Yield owing to all of the Purchasers and all accrued but unpaid fees and other costs and expenses payable in respect of its
Capital Pro Rata Share of the Purchaser Interests of such Financial Institution, and (ii) the replacement Financial Institution otherwise satisfies the
requirements of Section 12.1(b).
Section 4.6 Liquidity Agreement Fundings. The parties hereto acknowledge that a Conduit may borrow against or put all or any portion of its
Purchaser Interests to the Financial Institutions in its Purchaser Group at any time pursuant to such Conduit’s related Liquidity Agreement to finance or
refinance the necessary portion of its Purchaser Interests through a funding under such Liquidity Agreement to the extent available. The fundings under such
Liquidity Agreement will accrue interest at the Bank Rate in accordance with this Article IV. Regardless of whether a funding of Purchaser Interests by any
Financial Institution constitutes the direct purchase of a Purchaser Interest hereunder, an assignment under the related Liquidity Agreement of a Purchaser
Interest originally funded by a Conduit, the sale of one or more participations under the related Liquidity Agreement in a Purchaser Interest originally
funded by a Conduit or a loan made under a Liquidity Agreement in respect of a Conduit’s Purchaser Interest, each Financial Institution participating in a
funding of a Purchaser Interest shall have the rights and obligations of a “Purchaser” hereunder with the same force and effect as if it had directly purchased
such Purchaser Interest from the Seller hereunder.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
Section 5.1 Representations and Warranties of The Seller Parties. Each Seller Party hereby represents and warrants to the Administrative Agent, the
Managing Agents and the Purchasers, as to itself, as of the date hereof and as of the date of each Incremental Purchase and the date of each Reinvestment
that:
(a) Corporate Existence and Power. Such Seller Party is duly formed, validly existing and in good standing under the laws of its state of formation.
The Seller is duly qualified to do business and is in good standing, and has and holds all power and all governmental licenses, authorizations, consents and
approvals required to carry on its business in each jurisdiction in which its business is conducted, except where the failure to so qualify or so hold could not
reasonably be expected to have a Material Adverse Effect.
(b) Power and Authority; Due Authorization, Execution and Delivery. The execution and delivery by such Seller Party of this Agreement and each
other Transaction Document to which it is a party, and the performance of its obligations hereunder and thereunder and, in the case of the Seller, the Seller’s
use of the proceeds of purchases made hereunder, are within its powers and authority and have been duly authorized by all necessary action on its part.
(c) No Conflict. The execution and delivery by such Seller Party of this Agreement and each other Transaction Document to which it is a party, and
the performance of its obligations hereunder and thereunder do not contravene or violate (i) (A) its certificate or
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articles of incorporation or by−laws or (B) limited liability company agreement or certificate of formation, as applicable, (ii) any law, rule or regulation
applicable to it, including, without limitation, the Public Utility Holding Company Act of 1935, as amended, (iii) any restrictions under any material
agreement, contract or instrument to which it is a party or by which it or any of its property is bound, or (iv) any order, writ, judgment, award, injunction or
decree binding on or affecting it or its property, and do not result in the creation or imposition of any Adverse Claim on assets of such Seller Party or its
Subsidiaries (except as created hereunder); and no transaction contemplated hereby requires compliance with any bulk sales act or similar law.
(d) Governmental Authorization. Other than (i) the filing of the financing statements required hereunder or (ii) such authorizations, approvals, notices,
filings or other actions as have been obtained, made or taken prior to the date hereof, no authorization or approval or other action by, and no notice to or
filing with, any governmental authority or regulatory body is required for the due execution and delivery by such Seller Party of this Agreement and each
other Transaction Document to which it is a party and the performance of its obligations hereunder and thereunder.
(e) Actions, Suits. Except (i) to the extent described in Consumers’ Annual Report on Form 10−K for the year ended December 31, 2009, as filed with
the SEC, and (ii) such other similar actions, suits and proceedings predicated on the occurrence of the same events giving rise to any actions, suits and
proceedings described in the Annual Reports referred to in the foregoing clause (i), there are no actions, suits or proceedings pending, or to the best of such
Seller Party’s knowledge, threatened, against or affecting such Seller Party, or any of its properties, in or before any court, arbitrator or other body, that
(i) relate to the transactions under this Agreement or (ii) could reasonably be expected to have a Material Adverse Effect. Such Seller Party is not in default
with respect to any order of any court, arbitrator or governmental body.
(f) Binding Effect. This Agreement and each other Transaction Document to which such Seller Party is a party constitute the legal, valid and binding
obligations of such Seller Party enforceable against such Seller Party in accordance with their respective terms, except as such enforcement may be limited
by applicable bankruptcy, insolvency, reorganization or other similar laws relating to or limiting creditors’ rights generally and by general principles of
equity (regardless of whether enforcement is sought in a proceeding in equity or at law).
(g) Accuracy of Information. All information heretofore furnished by such Seller Party or any of its Affiliates to the Administrative Agent, any
Managing Agent or any Purchasers for purposes of or in connection with this Agreement, any Monthly Report, any of the other Transaction Documents or
any transaction contemplated hereby or thereby is, and all such information hereafter furnished by such Seller Party or any of its Affiliates to the
Administrative Agent, any Managing Agent or any Purchaser will be, true and accurate in every material respect on the date such information is stated or
certified and does not and will not contain any material misstatement of fact or omit to state a material fact or any fact necessary to make the statements
contained therein not materially misleading.
(h) Use of Proceeds. No proceeds of any purchase hereunder will be used (i) for a purpose that violates, or would be inconsistent with, Regulation T,
U or X promulgated by
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the Board of Governors of the Federal Reserve System from time to time or (ii) to acquire any security in any transaction which is subject to Section 12, 13
or 14 of the Securities Exchange Act of 1934, as amended.
(i) Good Title. Immediately prior to each purchase hereunder, the Seller shall be the legal and beneficial owner of the Receivables and Related
Security with respect thereto, free and clear of any Adverse Claim, except as created by the Transaction Documents. There have been duly filed all
financing statements or other similar instruments or documents necessary under the UCC (or any comparable law) of all appropriate jurisdictions to perfect
the Seller’s ownership interest in each Receivable, its Collections and the Related Security.
(j) Perfection. This Agreement, together with the filing of the financing statements contemplated hereby, is effective to, and shall, upon each purchase
hereunder, transfer to the Administrative Agent for the benefit of the Purchasers (and the Administrative Agent for the benefit of such Purchasers shall
acquire from the Seller) a valid and perfected first priority undivided percentage ownership or security interest in each Receivable existing or hereafter
arising and in the Related Security and Collections with respect thereto, free and clear of any Adverse Claim, except as created by the Transactions
Documents. There have been duly filed all financing statements or other similar instruments or documents necessary under the UCC (or any comparable
law) of all appropriate jurisdictions to perfect the Administrative Agent’s (on behalf of the Purchasers) ownership or security interest in the Receivables, the
Related Security and the Collections.
(k) Places of Business and Locations of Records. The principal places of business and chief executive office of such Seller Party and the offices where
it keeps all of its Records are located at the address(es) listed on Exhibit III or such other locations of which the Administrative Agent has been notified in
accordance with Section 7.2(a) in jurisdictions where all action required by Section 7.2(a) has been taken and completed. Seller is a limited liability
company organized solely in the State of Delaware. The Seller’s Delaware organizational identification number and Federal Employer Identification
Number are correctly set forth on Exhibit III.
(l) Collections. The conditions and requirements set forth in Section 7.1(j) and Section 8.2 have at all times been satisfied and duly performed. The
names and addresses of all Collection Banks, together with the account numbers of the Collection Accounts of the Seller at each Collection Bank and the
special zip code number of each Lock−Box, are listed on Exhibit IV. The Seller has not granted any Person, other than the Administrative Agent as
contemplated by this Agreement and the Intercreditor Agreement, dominion and control of any Lock−Box or Collection Account, or the right to take
dominion and control of any such Lock−Box or Collection Account at a future time or upon the occurrence of a future event.
(m) Material Adverse Effect. (i) The initial Servicer represents and warrants that since December 31, 2009, no event has occurred that would have a
material adverse effect on the financial condition or operations of the initial Servicer and its Subsidiaries, taken as a whole, or the ability of the initial
Servicer to perform its obligations under this Agreement, and (ii) the Seller represents and warrants that since December 31, 2009, no event has occurred
that would have a material adverse effect on (A) the financial condition or operations of the Seller,
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(B) the ability of the Seller to perform its obligations under the Transaction Documents, or (C) the collectibility of the Receivables generally or any material
portion of the Receivables.
(n) Names. The Seller has not used any names, trade names or assumed names other than the name in which it has executed this Agreement.
(o) Ownership of Seller. Consumers owns, directly or indirectly, 100% of the issued and outstanding membership interests of the Seller, free and clear
of any Adverse Claim. There are no options, warrants or other rights to acquire securities of the Seller.
(p) Public Utility Holding Company Act; Investment Company Act. Such Seller Party is exempt from the registration requirements of the Public
Utility Holding Company Act of 1935, as amended, or any successor statute. Such Seller Party is not an “investment company” within the meaning of the
Investment Company Act of 1940, as amended, or any successor statute.
(q) Compliance with Law. Such Seller Party has complied in all respects with all applicable laws, rules, regulations, orders, writs, judgments,
injunctions, decrees or awards to which it may be subject, except where the failure to so comply could not reasonably be expected to have a Material
Adverse Effect. Each Receivable, together with the Contract related thereto, does not contravene any laws, rules or regulations applicable thereto (including,
without limitation, laws, rules and regulations relating to truth in lending, fair credit billing, fair credit reporting, equal credit opportunity, fair debt
collection practices and privacy), and no part of such Contract is in violation of any such law, rule or regulation.
(r) Compliance with Credit and Collection Policy. Such Seller Party has complied in all material respects with the Credit and Collection Policy with
regard to each Receivable and the related Contract, and has not made any change to such Credit and Collection Policy, other than as permitted under
Section 7.2 and in compliance with the notification requirements of Section 7.1(a)(vii).
(s) Payments to Originator. With respect to each Receivable transferred to the Seller under the Receivables Sale Agreement, the Seller has given
reasonably equivalent value to the Originator in consideration therefor and such transfer was not made for or on account of an antecedent debt. No transfer
by the Originator of any Receivable under the Receivables Sale Agreement is or may be voidable under any section of the Bankruptcy Reform Act of 1978
(11 U.S.C. §§ 101 et seq.), as amended.
(t) Enforceability of Contracts. Each Contract with respect to each Receivable is effective to create, and has created, a legal, valid and binding
obligation of the related Obligor to pay the Outstanding Balance of the Receivable created thereunder and any accrued interest thereon, enforceable against
the Obligor in accordance with its terms, except as such enforcement may be limited by applicable bankruptcy, insolvency, reorganization or other similar
laws relating to or limiting creditors’ rights generally and by general principles of equity (regardless of whether enforcement is sought in a proceeding in
equity or at law).
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(u) Eligible Receivables. Each Receivable included in the Net Receivables Balance as an Eligible Receivable on the date of its purchase under the
Receivables Sale Agreement was an Eligible Receivable on such purchase date.
(v) Net Receivables Balance. The Seller has determined that, immediately after giving effect to each purchase hereunder, the Net Receivables Balance
is at least equal to the sum of (i) the Aggregate Capital, plus (ii) the Aggregate Reserves.
(w) Accounting. In the case of the Seller, the Seller is treating the conveyance of the ownership interest in the Receivables and the Collections as a
sale for purposes of GAAP.
Section 5.2 Financial Institution Representations and Warranties. Each Financial Institution hereby represents and warrants, as to itself, to the
Administrative Agent, the Managing Agent of its Purchaser Group and the Conduit in its Purchaser Group that:
(a) Existence and Power. Such Financial Institution is a corporation or a banking association duly organized, validly existing and in good standing
under the laws of its jurisdiction of incorporation or organization, and has all corporate power to perform its obligations hereunder.
(b) No Conflict. The execution and delivery by such Financial Institution of this Agreement and the performance of its obligations hereunder are
within its corporate powers, have been duly authorized by all necessary corporate action, do not contravene or violate (i) its certificate or articles of
incorporation or association or by−laws, (ii) any law, rule or regulation applicable to it, (iii) any restrictions under any agreement, contract or instrument to
which it is a party or any of its property is bound, or (iv) any order, writ, judgment, award, injunction or decree binding on or affecting it or its property, and
do not result in the creation or imposition of any Adverse Claim on its assets. This Agreement has been duly authorized, executed and delivered by such
Financial Institution.
(c) Governmental Authorization. No authorization or approval or other action by, and no notice to or filing with, any governmental authority or
regulatory body is required for the due execution and delivery by such Financial Institution of this Agreement and the performance of its obligations
hereunder.
(d) Binding Effect. This Agreement constitutes the legal, valid and binding obligation of such Financial Institution enforceable against such Financial
Institution in accordance with its terms, except as such enforcement may be limited by applicable bankruptcy, insolvency, reorganization or other similar
laws relating to or limiting creditors’ rights generally and by general principles of equity (regardless of whether such enforcement is sought in a proceeding
in equity or at law).
ARTICLE VI
CONDITIONS OF PURCHASES
Section 6.1 Conditions Precedent to Effectiveness of this Agreement. This Agreement shall become effective as of the date hereof upon the
Administrative Agent and each Managing Agent receiving, in form and substance reasonably satisfactory to each such Person,
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on or before the date hereof (i) the satisfactory report of the Administrative Agent’s auditors; (ii) those documents listed on Schedule B; (iii) a Monthly
Report covering the immediately preceding Accrual Period and (iv) all fees and expenses required to be paid on such date pursuant to the terms of this
Agreement and the Fee Letter and (b) the Servicer shall have complied (and have caused the Originator to comply) with the requirements of Section 7.1(e).
Section 6.2 Conditions Precedent to All Purchases and Reinvestments. Each purchase of a Purchaser Interest (other than pursuant to Section 12.1) and
each Reinvestment shall be subject to the further conditions precedent that in the case of each such purchase or Reinvestment: (a) the Servicer shall have
delivered to the Administrative Agent and each Managing Agent on or prior to the date of such purchase, in form and substance satisfactory to the
Administrative Agent and each Managing Agent, all Monthly Reports as and when due under Section 8.5 and upon the Administrative Agent’s or any
Managing Agent’s request; (b) upon the Administrative Agent’s or any Managing Agent’s reasonable request, the Servicer shall have delivered to the
Administrative Agent and each Managing Agent at least three (3) days prior to such purchase or Reinvestment an interim report, in a form agreed to by the
Servicer and the Administrative Agent, showing the amount of Eligible Receivables; (c) the Amortization Date shall not have occurred; (d) the
Administrative Agent and each Managing Agent shall have received such other approvals, opinions or documents as it may reasonably request if the
Administrative Agent or any Managing Agent reasonably believes there has been a change in law or circumstance that affects the status or characteristics of
the Receivables, Related Security or Collections, any Seller Party or the Administrative Agent’s first priority perfected security interest in the Receivables,
Related Security and Collections and (e) on the date of each such Incremental Purchase or Reinvestment, the following statements shall be true (and
acceptance of the proceeds of such Incremental Purchase or Reinvestment shall be deemed a representation and warranty by the Seller that such statements
are then true):
(i) the representations and warranties set forth in Section 5.1 are true and correct on and as of the date of such Incremental Purchase or Reinvestment
as though made on and as of such date;
(ii) no event has occurred and is continuing, or would result from such Incremental Purchase or Reinvestment, that will constitute an Amortization
Event, and no event has occurred and is continuing, or would result from such Incremental Purchase or Reinvestment, that would constitute a Potential
Amortization Event;
(iii) the Capital owing to each Purchaser does not exceed the Conduit Purchase Limit (in the case of a Conduit) or Commitment (in the case of a
Financial Institution); and
(iv) the Aggregate Capital does not exceed the Purchase Limit and the aggregate Purchaser Interests do not exceed the Applicable Maximum
Purchaser Interest.
It is expressly understood that each Reinvestment shall, unless otherwise directed by the Administrative Agent or any Managing Agent, occur automatically
on each day that the Servicer shall receive any Collections without the requirement that any further action be taken on the part of any Person and
notwithstanding the failure of the Seller to satisfy any of the foregoing
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conditions precedent in respect of such Reinvestment. The failure of the Seller to satisfy any of the foregoing conditions precedent in respect of any
Reinvestment shall give rise to a right of the Administrative Agent, which right may be exercised at any time on demand of the Administrative Agent or any
Managing Agent, to rescind the related Reinvestment and direct the Seller to pay to the Managing Agents for the benefit of the Purchasers an amount equal
to the Collections prior to the Amortization Date that shall have been applied to the affected Reinvestment.
ARTICLE VII
COVENANTS
Section 7.1 Affirmative Covenants of The Seller Parties. Until the date on which the Aggregate Unpaids have been indefeasibly paid in full and this
Agreement terminates in accordance with its terms, each Seller Party hereby covenants, as to itself, as set forth below:
(a) Financial Reporting. Such Seller Party will maintain, for itself and each of its Subsidiaries, a system of accounting established and administered in
accordance with GAAP, and furnish or cause to be furnished to the Administrative Agent, each Managing Agent and each Financial Institution:
(i) Annual Reporting. Within 120 days after the close of (A) each of Consumer’s fiscal years, a copy of the Annual Report on Form 10−K (or any
successor form) for Consumers for such year, including therein the consolidated balance sheet of Consumers and its consolidated Subsidiaries as at the
end of such year and the consolidated statements of income, cash flows and common stockholder’s equity of Consumers and its consolidated
Subsidiaries as at the end of and for such year, or statements providing substantially similar information, in each case certified by independent public
accountants of recognized national standing selected by Consumers (and not objected to by the Administrative Agent or any Managing Agent), together
with a certificate of such accounting firm addressed to the Administrative Agent and each Managing Agent stating that, in the course of its examination
of the consolidated financial statements of Consumers and its consolidated Subsidiaries, which examination was conducted by such accounting firm in
accordance with GAAP, (1) such accounting firm has obtained no knowledge that an Amortization Event, insofar as such Amortization Event related to
accounting or financial matters, has occurred and is continuing, or if, in the opinion of such accounting firm, such an Amortization Event has occurred
and is continuing, a statement as to the nature thereof, and (2) such accounting firm has examined a certificate prepared by Consumers setting forth the
computations made by Consumers in determining, as of the end of such fiscal year, the ratios specified in Section 9.1(k), which certificate shall be
attached to the certificate of such accounting firm, and such accounting firm confirms that such computations accurately reflect such ratios, and (B) each
of the Seller’s fiscal years, unaudited financial statements (which shall include balance sheets, statements of income and retained earnings and a
statement of cash flows) for such fiscal year, all certified by a Responsible Officer of the Seller as fairly presenting in all material respects the financial
condition and results of operations of the Seller in accordance with GAAP.
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(ii) Quarterly Reporting. Within 60 days after the close of the first three (3) quarterly periods of each of its respective fiscal years, balance sheets of
each of Originator and its consolidated Subsidiaries and the Seller as at the close of each such period and statements of income and retained earnings and
a statement of cash flows for each such Person (and, in the case of the Originator, its consolidated Subsidiaries) for the period from the beginning of such
fiscal year to the end of such quarter, all certified by its respective chief financial officer.
(iii) Compliance Certificate. Together with the financial statements required hereunder, a compliance certificate in substantially the form of Exhibit V
signed by such Seller Party’s Responsible Officer and dated the date of such annual financial statement or such quarterly financial statement, as the case
may be.
(iv) Shareholders Statements and Reports. Promptly upon the furnishing thereof to the shareholders of such Seller Party copies of all financial
statements, reports and proxy statements (other than those which relate solely to employee benefit plans) so furnished which Consumers files with the
Securities and Exchange Commission.
(v) Bond Servicing Reports; S.E.C. Filings. Promptly upon the execution, delivery or filing thereof, (i) copies of all reports, statements, notices and
certificates delivered or received by the Servicer (in its capacity as Servicer under the Servicing Agreement or otherwise) pursuant to Sections 3.05, 3.06,
3.07, 6.02, Annex 1 and Annex 2 of the Servicing Agreement (excluding any “Daily Servicer’s Report” delivered pursuant to Annex 2 of the Servicing
Agreement), (ii) copies of all reports and notices delivered to the holders of the Securitization Bonds, (iii) copies of all amendments, waivers or other
modifications to any of the Basic Documents (as defined in the Servicing Agreement), (iv) copies of all reports which the Servicer sends to the holders of
any of its securities or its creditors generally and (v) copies of all registration statements and annual, quarterly, monthly or other regular reports which
Originator or any of its Subsidiaries files with the Securities and Exchange Commission.
(vi) Copies of Notices. Promptly upon its receipt of any notice, request for consent, financial statements, certification, report or other communication
under or in connection with any Transaction Document from any Person other than the Administrative Agent or any Managing Agent, copies of the
same.
(vii) Change in Credit and Collection Policy. At least thirty (30) days prior to the effectiveness of any material change in or material amendment to
the Credit and Collection Policy, a copy of the Credit and Collection Policy then in effect and a notice (A) indicating such change or amendment, and
(B) if such proposed change or amendment would be reasonably likely to adversely affect the collectibility of the Receivables or decrease the credit
quality of any newly created Receivables, requesting each Managing Agent’s consent thereto, such consent not to be unreasonably withheld.
(viii) Other Information. Promptly, from time to time, such other information, documents, records or reports relating to the Receivables or the
condition or operations, financial or otherwise, of such Seller Party as the Administrative Agent or any Managing
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Agent may from time to time reasonably request in order to protect the interests of the Administrative Agent, any Managing Agent or any Purchaser
under or as contemplated by this Agreement (including, without limitation, any information relevant to the calculation and allocations described in the
Servicing Agreement and the Intercreditor Agreement).
(b) Notices. Such Seller Party will notify the Administrative Agent, each Managing Agent and each Financial Institution in writing of any of the
following promptly upon learning of the occurrence thereof, describing the same and, if applicable, the steps being taken with respect thereto:
(i) Amortization Events or Potential Amortization Events. The occurrence of each Amortization Event and each Potential Amortization Event, by a
statement of a Responsible Officer of such Seller Party.
(ii) Judgment and Proceedings. (A) (1) The entry of any judgment or decree against the Servicer if the aggregate amount of all judgments and decrees
then outstanding against the Servicer exceeds $25,000,000 and (2) the institution of any litigation, arbitration proceeding or governmental proceeding
against the Servicer which, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect; and (B) the entry of any
judgment or decree or the institution of any litigation, arbitration proceeding or governmental proceeding against the Seller.
(iii) Material Adverse Effect. The occurrence of any event or condition that has had, or could reasonably be expected to have, a Material Adverse
Effect.
(iv) Termination Date. The occurrence of the “Termination Date” under and as defined in the Receivables Sale Agreement.
(v) Defaults Under Other Agreements. With respect to the Seller, the occurrence of a default or an event of default under any other financing
arrangement pursuant to which the Seller is a debtor or an obligor.
(vi) Downgrade of Originator. Any downgrade in the rating of any Indebtedness of Originator by S&P, by Moody’s or by Fitch, setting forth the
Indebtedness affected and the nature of such change.
(vii) Servicer Default. The occurrence of any event or circumstance which constitutes a Servicer Default (as defined in the Servicing Agreement) or
which, with the giving of notice or the passage of time, would become a Servicer Default.
(viii) Receivables Classification. The occurrence of any event or circumstance (including, without limitation, any change in law, regulation or systems
reporting), which would impact the identification of any accounts receivable on the books and records of the Originator or the Seller not less than thirty
(30) days prior to such occurrence (or in the event of a change in law or regulation, as soon as reasonably possible).
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(ix) Appointment of Independent Manager. The decision to appoint a new manager of the Seller as the “Independent Manager” for purposes of this
Agreement, such notice to be issued not less than ten (10) days prior to the effective date of such appointment and to certify that the designated Person
satisfies the criteria set forth in the definition herein of “Independent Manager.
(c) Compliance with Laws and Preservation of Corporate Existence. Such Seller Party will comply in all respects with all applicable laws, rules,
regulations, orders, writs, judgments, injunctions, decrees or awards to which it may be subject, except where the failure to so comply could not reasonably
be expected to have a Material Adverse Effect. Such Seller Party will preserve and maintain its existence, rights and franchises in the jurisdiction of its
organization, and qualify and remain qualified in good standing as a foreign corporation or limited liability company, as applicable, in each jurisdiction in
which such qualification is necessary in view of its businesses and operations or the ownership of its properties, provided that such Seller Party shall not be
required to preserve any such right or franchise or to remain so qualified unless the failure to do so could reasonably be expected to have a Material Adverse
Effect.
(d) Audits. Such Seller Party will furnish to the Administrative Agent, each Managing Agent and each Financial Institution from time to time such
information with respect to it and the Receivables as the Administrative Agent, any Managing Agent or any Financial Institution may reasonably request.
Such Seller Party will, from time to time during regular business hours as requested by the Administrative Agent, any Managing Agent or any Financial
Institution upon reasonable notice permit the Administrative Agent, such Managing Agent or such Financial Institution, or any of their respective agents or
representatives (and shall cause the Originator to permit the Administrative Agent, any Managing Agent or any Financial Institution or any of their
respective agents or representatives), to (i) examine and make copies of and abstracts from all Records in the possession or under the control of such Person
relating to the Receivables, the Related Security, the Securitization Property and the Servicing Agreement, including, without limitation, the related
Contracts, and (ii) to visit the offices and properties of such Person for the purpose of examining such materials described in clause (i) above, and to discuss
matters relating to such Person’s financial condition or the Receivables and the Related Security or any Person’s performance under any of the Transaction
Documents or any Person’s performance under the Contracts and, in each case, with any of the officers or employees of Seller or the Servicer having
knowledge of such matters. Each such audit shall be at the sole cost of such Seller Party, provided that such Seller Party shall be required to pay for
(A) during a Level One Enhancement Period, not more than one such audit per year, (B) during a Level Two Enhancement Period, not more than two such
audits per year and (C) during a Level Three Enhancement Period, an unlimited number of such audits per year.
(e) Keeping and Marking of Records and Books.
(i) The Servicer will (and will cause the Originator to) maintain and implement administrative and operating procedures (including, without
limitation, an ability to recreate records evidencing Receivables in the event of the destruction of the originals thereof), and keep and maintain all
documents, books, records and other information reasonably necessary or advisable for the collection of all Receivables and
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the performance of each Seller Party’s duties under the Transaction Documents and the Servicing Agreement (including, without limitation, records
adequate to permit (A) the immediate identification of each new Receivable and all Collections of and adjustments to each existing Receivable and
(B) the performance of the calculations and allocations required by the Intercreditor Agreement and the Servicing Agreement). The Servicer will (and
will cause the Originator to) give the Administrative Agent and each Managing Agent notice of any material change in the administrative and operating
procedures referred to in the previous sentence.
(ii) Such Seller Party will (and will cause the Originator to) (A) on or prior to the date hereof, mark its master data processing records and other books
and records relating to the Purchaser Interests with a legend, acceptable to the Administrative Agent, describing the Purchaser Interests and (B) at any
time after the occurrence of an Amortization Event, upon the request of the Administrative Agent or any Managing Agent, deliver to the Administrative
Agent all Contracts (including, without limitation, all multiple originals of any such Contract) relating to the Receivables, provided, that the requirements
of this clause (B) shall apply solely to any Contract consisting of or evidenced by an instrument or chattel paper.
(f) Compliance with Contracts and Credit and Collection Policy. Such Seller Party will (and will cause the Originator to) timely and fully (i) perform
and comply with all provisions, covenants and other promises required to be observed by it under the Contracts related to the Receivables, except where the
failure to so perform or comply could not reasonably be expected to have a Material Adverse Effect, and (ii) comply in all respects with the Credit and
Collection Policy in regard to each Receivable and the related Contract, except where the failure to so comply could not reasonably be expected to have a
Material Adverse Effect.
(g) Performance and Enforcement of Receivables Sale Agreement. The Seller will, and will require the Originator to, perform each of their respective
obligations and undertakings under and pursuant to the Receivables Sale Agreement, will purchase Receivables thereunder in compliance with the terms
thereof and will enforce the rights and remedies accorded to the Seller under the Receivables Sale Agreement. The Seller will take all actions to perfect and
enforce its rights and interests (and the rights and interests of the Administrative Agent and the Purchasers as assignees of the Seller) under the Receivables
Sale Agreement as the Administrative Agent, any Managing Agent or any Financial Institution may from time to time reasonably request, including,
without limitation, making claims to which it may be entitled under any indemnity, reimbursement or similar provision contained in the Receivables Sale
Agreement.
(h) Ownership. The Seller will (or will cause the Originator to) take all necessary action to (i) vest legal and equitable title to the Receivables, the
Related Security and the Collections purchased under the Receivables Sale Agreement irrevocably in Seller, free and clear of any Adverse Claims other than
Adverse Claims in favor of the Administrative Agent, the Managing Agents and the Purchasers (including, without limitation, the filing of all financing
statements or other similar instruments or documents necessary under the UCC (or any comparable law) of all appropriate jurisdictions to perfect the
Seller’s interest in such Receivables, Related Security and Collections and such other action to perfect, protect or more
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fully evidence the interest of the Seller therein as the Administrative Agent or any Managing Agent may reasonably request), and (ii) establish and maintain,
in favor of the Administrative Agent, for the benefit of the Managing Agents and the Purchasers, a valid and perfected first priority undivided percentage
ownership interest (and/or a valid and perfected first priority security interest) in all Receivables, Related Security and Collections to the full extent
contemplated herein, free and clear of any Adverse Claims other than Adverse Claims in favor of the Administrative Agent for the benefit of the Managing
Agents and the Purchasers (including, without limitation, the filing of all financing statements or other similar instruments or documents necessary under the
UCC (or any comparable law) of all appropriate jurisdictions to perfect the Administrative Agent’s (for the benefit of the Managing Agents and the
Purchasers) interest in such Receivables, Related Security and Collections and such other action to perfect, protect or more fully evidence the interest of the
Administrative Agent for the benefit of the Managing Agents and the Purchasers as the Administrative Agent or any Managing Agent may reasonably
request).
(i) Purchasers’ Reliance. The Seller acknowledges that the Purchasers are entering into the transactions contemplated by this Agreement in reliance
upon the Seller’s identity as a legal entity that is separate from Originator or any Affiliate thereof (each, a “CMS Entity”). Therefore, from and after the date
of execution and delivery of this Agreement, Seller shall take all reasonable steps, including, without limitation, all steps that the Administrative Agent, any
Managing Agent or any Purchaser may from time to time reasonably request, to maintain the Seller’s identity as a separate legal entity and to make it
manifest to third parties that the Seller is an entity with assets and liabilities distinct from those of any CMS Entity and not just a division of a CMS Entity.
Without limiting the generality of the foregoing and in addition to the other covenants set forth herein, the Seller will:
(i) conduct its own business in its own name and require that all full−time employees of the Seller, if any, identify themselves as such and not as
employees of any CMS Entity (including, without limitation, by means of providing appropriate employees with business or identification cards
identifying such employees as the Seller’s employees);
(ii) compensate all employees, consultants and agents directly, from Seller’s own funds, for services provided to the Seller by such employees,
consultants and agents and, to the extent any employee, consultant or agent of the Seller is also an employee, consultant or agent of any CMS Entity,
allocate the compensation of such employee, consultant or agent between the Seller and such CMS Entity, as applicable, on a basis that reflects the
services rendered to the Seller and such CMS Entity, as applicable;
(iii) maintain separate offices and, if such office is located in the offices of any CMS Entity, the Seller shall lease such office at a fair market rent;
(iv) have separate stationery, invoices and checks in its own name;
(v) conduct all transactions with each CMS Entity (including, without limitation, any delegation of its obligations hereunder as Servicer) strictly on an
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arm’s−length basis, allocate all overhead expenses for items shared between the Seller and any CMS Entity fairly and reasonably;
(vi) at all times have at least three Managers, at least one of which is an Independent Manager;
(vii) observe all limited liability company formalities as a distinct entity, and ensure that all limited liability company actions relating to (A) the
selection, maintenance or replacement of the Independent Manager, (B) the dissolution or liquidation of the Seller or (C) the initiation of, participation
in, acquiescence in or consent to any bankruptcy, insolvency, reorganization or similar proceeding involving the Seller, are duly authorized by
unanimous vote of its Managers (including the Independent Manager);
(viii) maintain the Seller’s books and records separate from those of any CMS Entity thereof and otherwise readily identifiable as its own assets rather
than assets of a CMS Entity;
(ix) prepare its financial statements separately from those of any CMS Entity and insure that any consolidated financial statements of any CMS Entity
that include Seller and that are filed with the Securities and Exchange Commission or any other governmental agency have notes clearly stating that the
Seller is a separate corporate entity and that its assets will be available first and foremost to satisfy the claims of the creditors of the Seller;
(x) except as herein specifically otherwise provided, maintain the funds or other assets of Seller separate from, and not commingled with, those of any
CMS Entity and only maintain bank accounts or other depository accounts to which Seller alone is the account party, into which only the Seller or
Servicer makes deposits and from which only the Seller or Servicer (or the Administrative Agent hereunder) has the power to make withdrawals;
(xi) pay all of the Seller’s operating expenses from the Seller’s own assets (except for certain payments by a CMS Entity or other Persons pursuant to
allocation arrangements that comply with the requirements of this Section 7.1(i));
(xii) maintain its corporate separateness such that it does not merge or consolidate with or into, or convey, transfer, lease or otherwise dispose of
(whether in one transaction or in a series of transactions, and except as otherwise contemplated herein) all or substantially all of its assets (whether now
owned or hereafter acquired) to, or acquire all or substantially all of the assets of, any Person, nor at any time create, have, acquire, maintain or hold any
interest in any Subsidiary;
(xiii) take such other actions as are necessary on its part to ensure that the facts and assumptions set forth in the opinion dated May 22, 2003 and
issued by Skadden, Arps, Slate, Meagher & Flom, LLP, as counsel for the Seller, in connection with the Original RPA and relating to substantive
consolidation issues,
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and in the certificates accompanying such opinion, remain true and correct in all material respects at all times; and
(xiv) maintain its Certificate of Formation and Limited Liability Company Agreement in conformity with this Agreement, such that it does not
amend, restate, supplement or otherwise modify its Certificate of Formation or Limited Liability Company Agreement in any respect that would impair
its ability to comply with the terms or provisions of any of the Transaction Documents, including, without limitation, Section 7.1(i) of this Agreement.
(j) Collections. Such Seller Party will cause (i) all checks representing Collections and Securitization Charge Collections to be remitted to a
Lock−Box, (ii) all other amounts in respect of Collections and Securitization Charge Collections to be deposited directly to a Collection Account, (iii) all
proceeds from all Lock−Boxes to be deposited by the Servicer into a Collection Account, (iv) all funds in each Collection Account which is not a Specified
Account to be remitted to a Specified Account as soon as is reasonably practicable and (v) each Specified Account to be subject at all times to a Collection
Account Agreement that is in full force and effect. In the event any payments relating to Receivables are remitted directly to Seller or any Affiliate of the
Seller, the Seller will remit (or will cause all such payments to be remitted) directly to a Collection Bank and deposited into a Collection Account within two
(2) Business Days following receipt thereof, and, at all times prior to such remittance, the Seller will itself hold or, if applicable, will cause such payments to
be held in trust for the exclusive benefit of the Administrative Agent, the Managing Agents and the Purchasers. The Seller will maintain exclusive
ownership, dominion and control (subject to the terms of this Agreement) of each Lock−Box and Collection Account and shall not grant the right to take
dominion and control of any Lock−Box or Collection Account at a future time or upon the occurrence of a future event to any Person, except to the
Administrative Agent as contemplated by this Agreement and the Intercreditor Agreement. Upon not less than 30 days prior written notice to the Seller and
the Servicer, the Administrative Agent may, in its reasonable discretion, designate additional Collection Accounts as Specified Accounts and such Specified
Accounts shall be subject to the requirement set forth in clause (v) above. On the date which is 30 days after the first day of a Level Three Enhancement
Period, all Collection Accounts shall be Specified Accounts and such Specified Accounts shall be subject to the requirement set forth in clause (v) above.
(k) Taxes. The Seller will file all tax returns and reports required by law to be filed by it and will promptly pay all taxes and governmental charges at
any time owing, except any such taxes which are not yet delinquent or are being diligently contested in good faith by appropriate proceedings and for which
adequate reserves in accordance with GAAP shall have been set aside on its books. The Seller will pay when due any taxes payable in connection with the
Receivables, exclusive of taxes on or measured by income or gross receipts of any Conduit, the Administrative Agent or any Financial Institution. The
Servicer will pay and discharge before the same shall become delinquent, all taxes and governmental charges imposed upon it or its property, provided that
the Servicer shall not be required to pay or discharge any such tax or governmental charge (i) which is being contested by it in good faith and by proper
procedures or (ii) the non−payment of which will not have a Material Adverse Effect.
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(l) Insurance. The Seller will maintain in effect, or cause to be maintained in effect, at the Seller’s own expense, such casualty and liability insurance
as the Seller shall deem appropriate in its good faith business judgment.
(m) Payment to Originator. With respect to any Receivable purchased by the Seller from the Originator, such sale shall be effected under, and in
compliance with the terms of, the Receivables Sale Agreement, including, without limitation, the terms relating to the method of payment and amount and
timing of payments to be made to the Originator in respect of the purchase price for such Receivable.
(n) Restrictions on Activities. The Seller will operate its business and activities such that: it does not engage in any business or activity of any kind, or
enter into any transaction or indenture, mortgage, instrument, agreement, contract, lease or other undertaking, other than the transactions contemplated and
authorized by this Agreement and the Receivables Sale Agreement; and does not create, incur, guarantee, assume or suffer to exist any indebtedness or other
liabilities, whether direct or contingent, other than (i) as a result of the endorsement of negotiable instruments for deposit or collection or similar
transactions in the ordinary course of business, (ii) the incurrence of obligations under this Agreement, (iii) the incurrence of obligations, as expressly
contemplated in the Receivables Sale Agreement, to make payment to the Originator thereunder for the purchase of Receivables under the Receivables Sale
Agreement, and (iv) the incurrence of operating expenses in the ordinary course of business of the type otherwise contemplated by this Agreement.
(o) Modification of Limited Liability Company Agreement. The Seller will maintain its limited liability company agreement in conformity with this
Agreement, such that it does not amend, restate, supplement or otherwise modify its limited liability company agreement in any respect that would impair
its ability to comply with the terms or provisions of any of the Transaction Documents, including, without limitation, Section 7.1(i) of this Agreement;
(p) Modification of Receivables Sale Agreement. The Seller will maintain the effectiveness of, and continue to perform under the Receivables Sale
Agreement, such that it does not amend, restate, supplement, cancel, terminate or otherwise modify the Receivables Sale Agreement, or give any consent,
waiver, directive or approval thereunder or waive any default, action, omission or breach under the Receivables Sale Agreement or otherwise grant any
indulgence thereunder, without (in each case) the prior written consent of the Administrative Agent, each Managing Agent and each Financial Institution.
(q) Maintenance of Required Capital Amount. The Seller will maintain at all times the Required Capital Amount (as defined in the Receivables Sale
Agreement) and refrain from making any dividend, distribution, redemption of capital stock or payment of any subordinated indebtedness which would
cause the Required Capital Amount to cease to be so maintained.
(r) Performance under Servicing Agreement. The Servicer will perform and comply with all obligations of the Servicer as “Servicer” under the
Servicing Agreement, including, without limitation, its duties and responsibilities relating to the calculations and allocations required by the Intercreditor
Agreement and the Servicing Agreement.
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(s) Financing Statements for Supplement Indentures. The Seller will (or will cause Originator to) cause the collateral description in each UCC−1
Financing Statement filed pursuant to any Supplement Indenture to expressly exclude all Receivables, all Related Security, all Collections, each Lock−Box,
each Collection Account and the proceeds thereof in a manner acceptable to the Administrative Agent.
(t) Receivables Classification. In connection with any change in the identification of any accounts receivable on the books and records of the
Originator or the Seller, the Seller shall ensure that all actions required by Section 7.1(h) will have been taken prior to such change.
(u) Certification of Receivables Classification. In connection with the delivery of each Monthly Report, the Servicer shall certify to the
Administrative Agent and each Managing Agent that it has made diligent inquiry and that the accounts receivable included in such report as Receivables are
identified on the books and records of the Originator and the Seller with the account code “Account 1460000 Customer Receivables” or “Account 1460201
— A/R Other”.
Section 7.2 Negative Covenants of the Seller Parties. Until the date on which the Aggregate Unpaids have been indefeasibly paid in full and this
Agreement terminates in accordance with its terms, each Seller Party hereby covenants, as to itself, that:
(a) Name Change, Offices and Records. The Seller will not (and will not permit the Originator to) (i) make any change to its name (within the
meaning of Section 9−507(c) of any applicable enactment of the UCC), identity, corporate structure or location of books and records unless, at least thirty
(30) days prior to the effective date of any such name change, change in corporate structure, or change in location of its books and records the Seller notifies
the Administrative Agent and each Managing Agent thereof and delivers to the Administrative Agent and each Managing Agent such financing statements
(Forms UCC−1 and UCC−3) authorized or executed by the Seller (if required under applicable law) which the Administrative Agent or any Managing
Agent may reasonably request to reflect such name change, location change, or change in corporate structure, together with such other documents and
instruments that the Administrative Agent or any Managing Agent may reasonably request in connection therewith and has taken all other steps to ensure
that the Administrative Agent, for the benefit of itself, the Managing Agents and the Purchasers, continues to have a first priority, perfected ownership or
security interest in the Receivables, the Related Security related thereto and any Collections thereon, or (ii) change its jurisdiction of organization unless the
Administrative Agent shall have received from the Seller, prior to such change, (A) those items described in clause (i) hereof, and (B) if the Administrative
Agent, any Managing Agent or any Purchaser shall so request, an opinion of counsel, in form and substance reasonably satisfactory to such Person, as to
such organization and the Seller’s or the Originator’s, as applicable, valid existence and good standing and the perfection and priority of the Administrative
Agent’s ownership or security interest in the Receivables, the Related Security and Collections.
(b) Change in Payment Instructions to Obligors. Except as may be required by the Administrative Agent pursuant to Section 8.2(b), such Seller Party
will not add or terminate any bank as a Collection Bank, or make any change in the instructions to Obligors
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regarding payments to be made to any Lock−Box or Collection Account, unless the Administrative Agent shall have received, at least ten (10) days before
the proposed effective date therefor, (i) written notice of such addition, termination or change and (ii) (A) with respect to the addition of a Collection Bank
or a Collection Account or Lock−Box, an executed Collection Account Agreement with respect to the new Collection Account if a Specified Account, or
Lock−Box if linked to a Specified Account and (B) with respect to the addition of a Lock−Box, an executed P.O. Box Transfer Notice with respect to the
new Lock−Box; provided, however, that the Servicer may make changes in instructions to Obligors regarding payments without notice to the
Administrative Agent if such new instructions require such Obligor to make payments to an existing Specified Account or Lock−Box.
(c) Modifications to Contracts and Credit and Collection Policy. Such Seller Party will not, and will not permit the Originator to, make any change to
the Credit and Collection Policy that would be reasonably likely to adversely affect the collectibility of the Receivables. Except as provided in
Section 8.2(d), the Servicer will not, and will not permit the Originator to, extend, amend or otherwise modify the terms of any Receivable or any Contract
related thereto other than in accordance with the Credit and Collection Policy.
(d) Sales, Liens. The Seller will not sell, assign (by operation of law or otherwise) or otherwise dispose of, or grant any option with respect to, or
create or suffer to exist any Adverse Claim upon (including, without limitation, the filing of any financing statement) or with respect to, any Receivable,
Related Security or Collections, or upon or with respect to any Contract under which any Receivable arises, or any Lock−Box or Collection Account, or
assign any right to receive income with respect thereto (other than, in each case, the creation of the interests therein in favor of the Administrative Agent, the
Managing Agents and the Purchasers provided for herein), and the Seller will defend the right, title and interest of the Administrative Agent, the Managing
Agents and the Purchasers in, to and under any of the foregoing property, against all claims of third parties claiming through or under the Seller or the
Originator. The Seller will not create or suffer to exist any mortgage, pledge, security interest, encumbrance, lien, charge or other similar arrangement on
any of its inventory.
(e) Net Receivables Balance. At no time prior to the Amortization Date shall the Seller permit the Net Receivables Balance to be less than an amount
equal to the sum of (i) the Aggregate Capital plus (ii) the Aggregate Reserves.
(f) Termination Date Determination. The Seller will not designate the Termination Date (as defined in the Receivables Sale Agreement), or send any
written notice to Originator in respect thereof, without the prior written consent of the Administrative Agent, each Managing Agent and each Financial
Institution, except with respect to the occurrence of such Termination Date arising pursuant to Section 5.1(d) of the Receivables Sale Agreement.
(g) Restricted Junior Payments. During the continuation of any Amortization Event, the Seller will not make any Restricted Junior Payment if, after
giving effect thereto, the Seller would fail to meet its obligations set forth in Section 7.2(e).
(h) Collection Accounts not Subject to Collection Account Agreement. At any time after the 30 th day following the first day of a Level Three
Enhancement Period, such
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Seller Party will not, and will not permit the Originator to, direct any Collections to be remitted to any Collection Account not subject at all times to a
Collection Account Agreement.
(i) Commingling. Such Seller Party shall not deposit or otherwise credit, or cause or permit to be so deposited or credited, to any Lock−Box or
Collection Account cash or cash proceeds other than Collections and Securitization Charge Collections.
(j) Servicing Agreement. Without the consent of the Administrative Agent, each Managing Agent and each Financial Institution, the Servicer will not
amend, modify or waive any term or condition of (i) Section 3.02 or Section 5.04 of the Servicing Agreement, (ii) Annex 2 to the Servicing Agreement,
(iii) the definition of the term “Securitization Charges”, “Securitization Charge Collections” or “Transferred Securitization Property” in the Servicing
Agreement or (iv) to the extent relating to any of the foregoing, any definition used directly or indirectly in any of the foregoing terms or conditions.
ARTICLE VIII
ADMINISTRATION AND COLLECTION
Section 8.1 Designation of Servicer.
(a) The servicing, administration and collection of the Receivables shall be conducted by such Person (the “Servicer”) so designated from time to time
in accordance with this Section 8.1. Consumers is hereby designated as, and hereby agrees to perform the duties and obligations of, the Servicer pursuant to
the terms of this Agreement. The Administrative Agent may, and shall, at the direction of the Required Financial Institutions, at any time designate as the
Servicer any Person to succeed Consumers or any successor Servicer.
(b) Without the prior written consent of the Administrative Agent, each Managing Agent and the Required Financial Institutions, Consumers shall not
be permitted to delegate any of its duties or responsibilities as the Servicer to any Person other than (i) the Seller and (ii) with respect to certain delinquent
Receivables, outside collection agencies in accordance with its customary practices. The Seller shall not be permitted to further delegate to any other Person
any of the duties or responsibilities of the Servicer delegated to it by Consumers. If at any time the Administrative Agent shall designate as the Servicer any
Person other than Consumers, all duties and responsibilities theretofore delegated by Consumers to the Seller may, at the discretion of the Administrative
Agent and shall, at the direction of the Required Financial Institutions, be terminated forthwith on notice given by the Administrative Agent to Consumers
and to the Seller.
(c) Notwithstanding any delegation by Consumers pursuant to the foregoing subsection (b), (i) Consumers shall be and remain primarily liable to the
Administrative Agent, the Managing Agents and the Purchasers for the full and prompt performance of all duties and responsibilities of the Servicer
hereunder and (ii) the Administrative Agent, the Managing Agents and the Purchasers shall be entitled to deal exclusively with Consumers in matters
relating to the discharge by the Servicer of its duties and responsibilities hereunder. The Administrative Agent, the Managing Agents and the Purchasers
shall not be required to give notice, demand or other communication to any Person other than Consumers in order for
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communication to the Servicer and its sub−servicer or other delegate with respect thereto to be accomplished. Consumers, at all times that it is the Servicer,
shall be responsible for providing any sub−servicer or other delegate of the Servicer with any notice given to the Servicer under this Agreement.
Section 8.2 Duties of Servicer.
(a) The Servicer shall take or cause to be taken all such actions as may be necessary or advisable to collect each Receivable from time to time, all in
accordance with applicable laws, rules and regulations, with reasonable care and diligence, and in accordance with the Credit and Collection Policy.
(b) The Servicer will instruct all Obligors to pay all Collections and all Securitization Charge Collections directly to a Lock−Box or Collection
Account. The Servicer shall effect (i) except as agreed to between the Servicer and the Administrative Agent (such agreement not to be unreasonably
withheld), a Collection Account Agreement substantially in the form of Exhibit VI with each bank maintaining a Collection Account at any time and (ii) a
P.O. Box Transfer Notice substantially in the form of Exhibit XI with respect to each Lock−Box. In the case of any remittances received in any Lock−Box
or Collection Account that shall have been identified, to the satisfaction of the Servicer, to not constitute Collections or other proceeds of the Receivables or
the Related Security, the Servicer shall promptly remit such items to the Person identified to it as being the owner of such remittances. From and after the
date the Administrative Agent delivers to any Collection Bank a Collection Notice pursuant to Section 8.3, the Administrative Agent may request that the
Servicer, and the Servicer thereupon promptly shall instruct all Obligors with respect to the Receivables, to remit all payments thereon to a new depositary
account specified by the Administrative Agent and, at all times thereafter, Seller and the Servicer shall not deposit or otherwise credit, and shall not permit
any other Person to deposit or otherwise credit to such new depositary account any cash or payment item other than Collections.
(c) The Servicer shall administer the Collections in accordance with the procedures described herein and in Article II. The Servicer shall set aside and
hold in trust for the account of the Seller and the Purchasers their respective shares of the Collections in accordance with Article II. The Servicer shall, upon
the request of the Administrative Agent, segregate, in a manner acceptable to the Administrative Agent, all cash, checks and other instruments received by it
from time to time constituting Collections from the general funds of the Servicer or Seller prior to the remittance thereof in accordance with Article II. If the
Servicer shall be required to segregate Collections pursuant to the preceding sentence, the Servicer shall segregate and deposit with a bank designated by the
Administrative Agent such allocable share of Collections of Receivables set aside for the Purchasers on the first Business Day following receipt by the
Servicer of such Collections, duly endorsed or with duly executed instruments of transfer.
(d) The Servicer may, in accordance with the Credit and Collection Policy, extend the maturity of any Receivable or adjust the Outstanding Balance
of any Receivable as the Servicer determines to be appropriate to maximize Collections thereof; provided, however, that such extension or adjustment shall
not alter the status of such Receivable as a Delinquent
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Receivable or Charged−Off Receivable or limit the rights of the Administrative Agent, the Managing Agents or the Purchasers under this Agreement.
Notwithstanding anything to the contrary contained herein, the Administrative Agent shall have the absolute and unlimited right to direct the Servicer to
commence or settle any legal action with respect to any Receivable or to foreclose upon or repossess any Related Security.
(e) The Servicer shall hold in trust for the Seller and the Purchasers all Records that (i) evidence or relate to the Receivables, the related Contracts and
Related Security or (ii) are otherwise necessary or desirable to collect the Receivables and shall, as soon as practicable upon demand of the Administrative
Agent, deliver or make available to the Administrative Agent all such Records, at a place selected by the Administrative Agent. The Servicer shall, as soon
as practicable following receipt thereof turn over to the Seller any cash collections or other cash proceeds received with respect to Indebtedness not
constituting Receivables. The Servicer shall, from time to time at the request of any Purchaser, furnish to the Purchasers (promptly after any such request) a
calculation of the amounts set aside for the Purchasers pursuant to Article II.
(f) Any payment by an Obligor in respect of any indebtedness owed by it to the Originator or the Seller shall, except as otherwise specified by such
Obligor or otherwise required by contract or law, be applied as a Collection of any Receivable of such Obligor (starting with the oldest such Receivable) to
the extent of any amounts then due and payable thereunder before being applied to any other receivable or other obligation of such Obligor.
Section 8.3 Collection Notices. The Administrative Agent is authorized at any time (i) when an Amortization Event exists or (ii) during a Level Three
Enhancement Period, to date and to deliver to the Collection Banks the Collection Notices. The Seller hereby transfers to the Administrative Agent for the
benefit of the Purchasers, effective when the Administrative Agent delivers such notice, the exclusive ownership and control of each Collection Account
and control of each Lock−Box. In case any authorized signatory of the Seller whose signature appears on a Collection Account Agreement shall cease to
have such authority before the delivery of such notice, such Collection Notice shall nevertheless be valid as if such authority had remained in force. The
Seller hereby authorizes the Administrative Agent, and agrees that the Administrative Agent shall be entitled (i) when an Amortization Event exists or
(ii) during a Level Three Enhancement Period to (A) endorse the Seller’s name on checks and other instruments representing Collections, (B) enforce the
Receivables, the related Contracts and the Related Security and (C) take such action as shall be necessary or desirable to cause all cash, checks and other
instruments constituting Collections of Receivables to come into the possession of the Administrative Agent rather than the Seller.
Section 8.4 Responsibilities of Seller. Anything herein to the contrary notwithstanding, the exercise by the Administrative Agent, any Managing
Agent or any Purchaser of its rights hereunder shall not release the Servicer, the Originator or the Seller from any of their duties or obligations with respect
to any Receivables or under the related Contracts. None of the Administrative Agent, the Managing Agents or the Purchasers shall have any obligation or
liability with respect to any Receivables or related Contracts, nor shall any of them be obligated to perform the obligations of the Seller.
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Section 8.5 Reports. The Servicer shall prepare and forward to the Administrative Agent, each Managing Agent and each Financial Institution (i) on
the twelfth (12th) Business Day of each month and at such times as the Administrative Agent, any Managing Agent or any Financial Institution shall
request, a Monthly Report, (ii) on the second (2nd) Business Day of each week during a Level Two Enhancement Period, a weekly report in substantially
the same form as the Monthly Report or such other form approved by the Administrative Agent and each Managing Agent in writing and reflecting
information as of the end of the prior week, (iii) on each Business Day during a Level Three Enhancement Period, a Daily Report, and (iv) at such times as
the Administrative Agent, any Managing Agent or any Financial Institution shall reasonably request, an aging of Receivables.
Section 8.6 Servicing Fees. In consideration of Consumers’ agreement to act as the Servicer hereunder, the Purchasers hereby agree that, so long as
Consumers shall continue to perform as the Servicer hereunder, the Seller shall pay over to Consumers a fee (the “Servicing Fee”) on the first calendar day
of each month, in arrears for the immediately preceding month, equal to 1.0% per annum of the average aggregate Outstanding Balance of all Receivables
during such period, as compensation for its servicing activities.
ARTICLE IX
AMORTIZATION EVENTS
Section 9.1 Amortization Events. The occurrence of any one or more of the following events shall constitute an Amortization Event:
(a) Any Seller Party shall fail (i) to make any payment or deposit required hereunder when due and such failure shall continue for one (1) Business
Day, or (ii) to perform or observe any term, covenant or agreement hereunder (other than as referred to in clause (i) of this paragraph (a) and Section 9.1(b)
through (m)) and such failure shall continue for five (5) consecutive Business Days or a “Servicer Default” shall occur under (and as such term is defined
in) the Servicing Agreement.
(b) Any representation, warranty, certification or statement made by any Seller Party in this Agreement, any other Transaction Document or in any
other document delivered pursuant hereto or thereto shall prove to have been (i) with respect to any representations, warranties, certifications or statements
which contain a materiality qualifier, incorrect in any respect when made or deemed made and (ii) with respect to any representations, warranties,
certifications or statements which do not contain a materiality qualifier, incorrect in any material respect when made or deemed made.
(c) (i) Failure of the Seller to pay any Indebtedness when due or the failure of Servicer to pay Indebtedness when due in excess of $25,000,000 and
such failure shall continue after any applicable grace period; or (ii) the default by any Seller Party in the performance of any term, provision or condition
contained in any agreement under which any such Indebtedness was created or is governed, the effect of which is to cause, or to permit the holder or holders
of such Indebtedness to cause, such Indebtedness to become due prior to its stated maturity, unless the obligor under or holder of such Indebtedness shall
have waived in writing such circumstance, or such circumstance has been cured so that such circumstance is no longer continuing; or (iii) any
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such Indebtedness of any Seller Party shall be declared to be due and payable or required to be prepaid (other than by a regularly scheduled payment) prior
to the date of maturity thereof; or (iv) any “default” under the 1945 Indenture shall occur.
(d) (i) Any Seller Party shall generally not pay its debts as such debts become due or shall admit in writing its inability to pay its debts generally or
shall make a general assignment for the benefit of creditors; or (ii) any proceeding shall be instituted by or against any Seller Party seeking to adjudicate it
bankrupt or insolvent, or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief or composition of it or its debts under
any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver,
trustee or other similar official for it or any substantial part of its property and, in the case of any such proceeding instituted against it (but not instituted by
it), any such proceeding shall remain undismissed or unstayed for a period of 30 days, or any of the actions sought in such proceeding (including, without
limitation, the entry of an order for relief against, or the appointment of a receiver, trustee, custodian or other similar official for, it or for any substantial
part of its property) shall occur or (iii) any Seller Party shall take any corporate action to authorize any of the actions set forth in clauses (i) or (ii) above in
this subsection (d).
(e) The Seller shall fail to comply with the terms of Section 2.7 hereof.
(f) As at the end of any Accrual Period:
(i) the average of the Dilution Ratios as of the end of such Accrual Period and the two preceding Accrual Periods shall exceed 1.75%, or
(ii) the average of the Loss−to−Liquidation Ratios as of the end of such Accrual Period and the two preceding Accrual Periods shall exceed 2.5%, or
(iii) the average of the Past Due Ratios as of the end of such Accrual Period and the two preceding Accrual Periods shall exceed (A) 12.0% for any
Accrual Period occurring in May through November of any calendar year or (B) 8.5% for any Accrual Period occurring in December through April of
any calendar year, or
(iv) the average of the Days Sales Outstanding Ratios as of the end of such Accrual Period and the two preceding Accrual Periods shall exceed
55 days.
(g) A Change of Control shall occur.
(h) (i) One or more final judgments for the payment of money in an amount in excess of $10,000 shall be entered against the Seller or (ii) one or more
final judgments for the payment of money in an amount in excess of $25,000,000 in the aggregate, shall be entered against the Servicer on claims not
covered by insurance or as to which the insurance carrier has denied its responsibility, and (i) enforcement proceedings have been commenced by any
creditor upon any such judgment or (ii) such judgment shall continue unsatisfied and in effect for thirty (30) consecutive days without a stay of execution.
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(i) The “Termination Date” under and as defined in the Receivables Sale Agreement shall occur under the Receivables Sale Agreement or Originator
shall for any reason cease to transfer Receivables to the Seller under the Receivables Sale Agreement.
(j) This Agreement shall terminate in whole or in part (except in accordance with its terms), or shall cease to be effective or to be the legally valid,
binding and enforceable obligation of the Seller, or the Administrative Agent for the benefit of the Managing Agents and the Purchasers shall cease to have
a valid and perfected first priority security interest in the Receivables, the Related Security and the Collections with respect thereto and the Specified
Accounts.
(k) Consumers shall fail to maintain a ratio of Total Consolidated Debt to Total Consolidated Capitalization of not greater than 0.70 to 1.0. Defined
terms used in this Section 9.1(k) shall have the meanings given to such terms in Schedule C.
(l) Any term or provision of the Securitization Charge Sale Agreement or the Servicing Agreement shall be amended, waived or otherwise modified
in any manner which, in the judgment of the Administrative Agent or any Managing Agent, has an adverse effect on the Administrative Agent’s, Managing
Agent’s or the Purchasers’ interests under this Agreement.
(m) Any Person shall be appointed as an Independent Manager of the Seller without prior notice thereof having been given to the Administrative
Agent and each Managing Agent in accordance with Section 7.1(b)(ix) or without the written acknowledgement by the Administrative Agent and each
Managing Agent that such Person conforms, to the reasonable satisfaction of the Administrative Agent and each Managing Agent, with the criteria set forth
in the definition herein of “Independent Manager.”
Section 9.2 Remedies. Upon the occurrence and during the continuation of an Amortization Event, the Administrative Agent may, or upon the
direction of any Managing Agent or any Financial Institution shall, take any of the following actions: (i) replace the Person then acting as the Servicer,
(ii) declare the Amortization Date to have occurred, whereupon the Amortization Date shall forthwith occur, without demand, protest or further notice of
any kind, all of which are hereby expressly waived by each Seller Party; provided, however, that upon the occurrence of an Amortization Event described in
Section 9.1(d), the Amortization Date shall automatically occur, without demand, protest or any notice of any kind, all of which are hereby expressly
waived by each Seller Party, (iii) to the fullest extent permitted by applicable law, declare that the Default Fee shall accrue with respect to any of the
Aggregate Unpaids outstanding at such time, (iv) deliver the Collection Notices to the Collection Banks and/or instruct the Postmaster General of the
applicable Post Office to restrict access to the Lock−Boxes, and (v) notify Obligors of the Purchasers’ interest in the Receivables. The aforementioned rights
and remedies shall be without limitation, and shall be in addition to all other rights and remedies of the Administrative Agent, the Managing Agents and the
Purchasers otherwise available under any other provision of this Agreement, by operation of law, at equity or otherwise, all of which are hereby expressly
preserved, including, without limitation, all rights and remedies provided under the UCC, all of which rights shall be cumulative.
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ARTICLE X
INDEMNIFICATION
Section 10.1 Indemnities by the Seller. Without limiting any other rights that the Administrative Agent, any Managing Agent or any Purchaser may
have hereunder or under applicable law, the Seller hereby agrees to indemnify (and pay upon demand to) the Administrative Agent, each Managing Agent
and each Purchaser and their respective assigns, officers, directors, agents and employees (each an “Indemnified Party”) from and against any and all
damages, losses, claims, taxes, liabilities, costs, expenses and for all other amounts payable, including reasonable attorneys’ fees (which attorneys may be
employees of the Administrative Agent, such Managing Agent or such Purchaser) and disbursements (all of the foregoing being collectively referred to as
“Indemnified Amounts”) awarded against or incurred by any of them arising out of or as a result of this Agreement or the acquisition, either directly or
indirectly, by a Purchaser of an interest in the Receivables, excluding, however, in all of the foregoing instances:
(a) Indemnified Amounts to the extent a final judgment of a court of competent jurisdiction holds that such Indemnified Amounts resulted from gross
negligence or willful misconduct on the part of the Indemnified Party seeking indemnification;
(b) Indemnified Amounts to the extent the same includes losses in respect of Receivables that are uncollectible on account of the insolvency,
bankruptcy or lack of creditworthiness of the related Obligor; or
(c) taxes imposed by the jurisdiction in which such Indemnified Party’s principal executive office is located, on or measured by the overall net income
of such Indemnified Party to the extent that the computation of such taxes is consistent with the intended characterization for income tax purposes of the
acquisition by the Purchasers of Purchaser Interests as a loan or loans by the Purchasers to the Seller secured by the Receivables, the Related Security,
the Collection Accounts and the Collections;
provided, however, that nothing contained in this sentence shall limit the liability of the Seller or limit the recourse of any Indemnified Party to the Seller for
amounts otherwise specifically provided to be paid by the Seller under the terms of this Agreement. Without limiting the generality of the foregoing
indemnification, but subject to the exclusions in clauses (a), (b) and (c) above, the Seller shall indemnify the Indemnified Parties for Indemnified Amounts
(including, without limitation, losses in respect of uncollectible receivables, regardless of whether reimbursement therefor would constitute recourse to the
Seller) relating to or resulting from:
(i) the failure of any Receivable included in the calculation of the Net Receivables Balance as an Eligible Receivable to be an Eligible Receivable at
the time so included;
(ii) any representation or warranty made by the Seller or the Originator (or any officers of any such Person) under or in connection with this
Agreement, any other
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Transaction Document or any other written information or report delivered by any such Person pursuant hereto or thereto, which shall have been false or
incorrect when made or deemed made;
(iii) the failure by the Seller or the Originator to comply with any applicable law, rule or regulation with respect to any Receivable or Contract related
thereto, or the nonconformity of any Receivable or Contract included therein with any such applicable law, rule or regulation, the violation of which shall
cause the Receivables to be uncollectible or unenforceable by the Seller, the Administrative Agent, the Managing Agents or the Purchasers in whole or in
part, or any failure of the Originator to keep or perform any of its obligations, express or implied, with respect to any Contract;
(iv) any failure of the Seller or the Originator to perform its duties, covenants or other obligations in accordance with the provisions of this Agreement
or any other Transaction Document;
(v) any products liability, personal injury or damage suit, or other similar claim arising out of or in connection with merchandise, insurance or
services that are the subject of any Contract or any Receivable;
(vi) any dispute, claim, offset or defense (other than discharge in bankruptcy of the Obligor) of the Obligor to the payment of any Receivable
(including, without limitation, a defense based on such Receivable or the related Contract not being a legal, valid and binding obligation of such Obligor
enforceable against it in accordance with its terms), or any other claim resulting from the provision of goods, electricity, gas or services related to such
Receivable or the furnishing or failure to furnish such goods, electricity, gas or services;
(vii) the commingling of Collections of Receivables at any time with other funds;
(viii) any investigation, litigation or proceeding initiated by a party other than a Purchaser, a Managing Agent or the Administrative Agent related to
or arising from this Agreement, any other Transaction Document, the Servicing Agreement or any other Basic Document (as defined in the Servicing
Agreement), the transactions contemplated hereby, the use of the proceeds of an Incremental Purchase or a Reinvestment, the ownership of the Purchaser
Interests or any other investigation, litigation or proceeding relating to the Seller or the Originator in which any Indemnified Party becomes involved as a
result of any of the transactions contemplated hereby, provided that the Seller shall have no obligation to indemnify any Indemnified Party under this
paragraph (viii) for Indemnified Amounts to the extent a final judgment of a court of competent jurisdiction holds that such Indemnified Amounts
resulted from gross negligence or willful misconduct on the part of the Indemnified Party seeking indemnification;
(ix) any inability to litigate any claim against any Obligor in respect of any Receivable as a result of such Obligor being immune from civil and
commercial law and suit on the grounds of sovereignty or otherwise from any legal action, suit or proceeding;
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(x) any Amortization Event described in Section 9.1(d);
(xi) any failure of the Seller to acquire and maintain legal and equitable title to, and ownership of any Receivable and the Related Security and
Collections with respect thereto from the Originator, free and clear of any Adverse Claim (other than as created hereunder); or any failure of the Seller to
give reasonably equivalent value to the Originator under the Receivables Sale Agreement in consideration of the transfer by the Originator of any
Receivable, or any attempt by any Person to void such transfer under statutory provisions or common law or equitable action;
(xii) any failure to vest and maintain vested in the Administrative Agent for the benefit of the Managing Agents and the Purchasers, or to transfer to
the Administrative Agent for the benefit of the Managing Agents and the Purchasers, legal and equitable title to, and ownership of, a first priority
perfected undivided percentage ownership interest (to the extent of the Purchaser Interests contemplated hereunder) or security interest in the
Receivables, the Related Security and the Collections, free and clear of any Adverse Claim (except as created by the Transaction Documents);
(xiii) the failure to have filed, or any delay in filing, financing statements or other similar instruments or documents under the UCC of any applicable
jurisdiction or other applicable laws with respect to any Receivable, the Related Security and Collections with respect thereto, and the proceeds of any
thereof, whether at the time of any Incremental Purchase or Reinvestment or at any subsequent time;
(xiv) any action or omission by the Seller (other than in accordance with or as contemplated by this Agreement or any other Transaction Document)
which reduces or impairs the rights of the Administrative Agent, the Managing Agents or the Purchasers with respect to any Receivable and the Related
Security and Collections with respect thereto or the value of any such Receivable and the Related Security and Collections with respect thereto; and
(xv) any attempt by any Person to void any Incremental Purchase or Reinvestment hereunder under statutory provisions or common law or equitable
action.
Section 10.2 Indemnities by the Servicer. Without limiting any other rights that an Indemnified Party may have hereunder or under applicable law, the
Servicer hereby agrees to indemnify each Indemnified Party from and against any and all Indemnified Amounts that may be imposed on, incurred by or
asserted against an Indemnified Party in any way arising out of or relating to:
(a) any representation or warranty made by the Servicer (or any officers of Servicer) under or in connection with this Agreement, any other
Transaction Document or any other written information or report delivered by the Servicer pursuant hereto or thereto, which shall have been false or
incorrect when made or deemed made;
(b) the failure by the Servicer to comply with any applicable law, rule or regulation with respect to any Receivable or Contract related thereto, the
violation of which shall
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cause the Receivables to be uncollectible or unenforceable by Seller, the Administrative Agent, the Managing Agents or the Purchasers in whole or in part;
(c) any failure of the Servicer to perform its duties, covenants or other obligations in accordance with the provisions of this Agreement or any other
Transaction Document;
(d) the commingling of Collections of Receivables at any time with other funds;
(e) any action or omission by the Servicer (other than in accordance with or as contemplated by this Agreement or any other Transaction Document)
which reduces or impairs the rights of the Administrative Agent, the Managing Agents or the Purchasers with respect to any Receivable and the Related
Security and Collections with respect thereto or the value of any Receivable and the Related Security and Collections with respect thereto; and
(f) the failure of any Receivable treated as or represented by the Servicer to be an Eligible Receivable to be an Eligible Receivable at the time so
treated or represented;
excluding, however, in all of the foregoing instances Indemnified Amounts to the extent a final judgment of a court of competent jurisdiction holds that such
Indemnified Amounts resulted from gross negligence or willful misconduct on the part of the Indemnified Party seeking indemnification.
Section 10.3 Increased Cost and Reduced Return.
(a) If any Regulatory Change (i) subjects any Funding Source to any charge or withholding on or with respect to any Funding Agreement or a
Funding Source’s obligations under a Funding Agreement, or on or with respect to the Receivables, or changes the basis of taxation of payments to any
Funding Source of any amounts payable under any Funding Agreement (except for changes in the rate of tax on the overall net income of a Funding Source
or taxes excluded by Section 10.1) or (ii) imposes, modifies or deems applicable any reserve, assessment, fee, tax, insurance charge, special deposit or
similar requirement against assets of, deposits with or for the account of, or liabilities of a Funding Source, or credit extended by a Funding Source pursuant
to a Funding Agreement or (iii) imposes any other condition the result of which is to increase the cost to a Funding Source of performing its obligations
under a Funding Agreement, or to reduce the rate of return on a Funding Source’s capital as a consequence of its obligations under a Funding Agreement, or
to reduce the amount of any sum received or receivable by a Funding Source under a Funding Agreement or to require any payment calculated by reference
to the amount of interests or loans held or interest received by it, then, upon presentation to the Seller of a certificate setting forth the basis for such
determination and the additional amounts reasonably determined by such related Managing Agent to reasonably compensate such Funding Source for the
period of up to 90 days prior to the date on which such certificate is delivered to the Seller, the Seller shall pay to such Managing Agent, for the benefit of
the relevant Funding Source, such amounts charged to such Funding Source or such amounts to otherwise compensate such Funding Source for such
increased cost or such reduction. The term “Regulatory Change” shall mean (i) the adoption after the date hereof
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of any applicable law, rule or regulation (including any applicable law, rule or regulation regarding capital adequacy) or any change therein after the date
hereof, (ii) any change after the date hereof in the interpretation or administration thereof by any governmental authority, central bank or comparable agency
charged with the interpretation or administration thereof, or compliance with any request or directive (whether or not having the force of law) of any such
authority, central bank or comparable agency, or (iii) the compliance, whether commenced prior to or after the date hereof, by any Funding Source with the
final rule titled Risk−Based Capital Guidelines; Capital Adequacy Guidelines; Capital Maintenance: Regulatory Capital; Impact of Modifications to
Generally Accepted Accounting Principles; Consolidation of Asset−Backed Commercial Paper Programs; and Other Related Issues, adopted by the United
States bank regulatory agencies on December 15, 2009 (the “FAS 166/167 Capital Guidelines”), or any existing or future guidance, interpretations or
directives from the U.S. bank regulatory agencies relating to the FAS 166/167 Capital Guidelines (whether or not having the force of law), or any rules or
regulations promulgated in connection therewith by any U.S. bank regulatory agency.
(b) A certificate of the applicable Purchaser or Funding Source setting forth the amount or amounts necessary to compensate such Purchaser or
Funding Source pursuant to paragraph (a) of this Section 10.3 shall be delivered to the Seller and shall be conclusive absent manifest error.
Section 10.4 Other Costs and Expenses. The Seller shall pay to the Administrative Agent, each Managing Agent and each Purchaser on demand all
reasonable costs and out−of−pocket expenses in connection with the preparation, execution, delivery and administration of this Agreement, the transactions
contemplated hereby and the other documents to be delivered hereunder, including without limitation, the reasonable cost of such Person’s auditors auditing
the books, records and procedures of the Seller, reasonable fees and out−of−pocket expenses of legal counsel for such Person (which such counsel may be
employees of such Person) with respect thereto and with respect to advising such Person as to their respective rights and remedies under this Agreement.
The Seller shall pay to the Administrative Agent or each Managing Agent, as applicable (for the account of the Administrative Agent, the Managing Agents
and the Purchasers, as applicable) on demand any and all reasonable costs and expenses of the Administrative Agent, the Managing Agents and the
Purchasers, if any, including reasonable counsel fees and expenses in connection with the enforcement of this Agreement and the other documents delivered
hereunder and in connection with any restructuring or workout of this Agreement or such documents (including any amendments hereto or thereto), or the
administration of this Agreement following an Amortization Event.
Section 10.5 Accounting Based Consolidation Event.
Upon demand by the Administrative Agent or the applicable Managing Agent, the Seller shall pay to the Administrative Agent or such applicable
Managing Agent, for the benefit of the relevant Funding Source, such amounts as such Funding Source reasonably determines will compensate or reimburse
such Funding Source for any (i) fee, expense or increased cost charged to, incurred or otherwise suffered by such Funding Source, (ii) reduction in the rate
of return on such Funding Source’s capital or reduction in the amount of any sum received or receivable by such Funding Source or (iii) internal capital
charge or other imputed cost determined by such Funding Source to be allocable to the Seller or the transactions contemplated
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in this Agreement, in each case resulting from or in connection with the consolidation, for financial and/or regulatory accounting purposes, of all or any
portion of the assets and liabilities of any Conduit that are subject to this Agreement or any other Transaction Document with all or any portion of the assets
and liabilities of an Funding Source. Amounts under this Section 10.5 may be demanded at any time without regard to the timing of issuance of any
financial statement by any Conduit or by any Funding Source.
ARTICLE XI
THE AGENT
Section 11.1 Authorization and Action. Each Purchaser hereby (i) designates and appoints JPMC to act as its administrative agent hereunder and
under each other Transaction Document, (ii) designates and appoints its related Managing Agent as its managing agent, and (iii) authorizes the
Administrative Agent and such Managing Agent to take such actions as agent on its behalf and to exercise such powers as are delegated to the
Administrative Agent or the Managing Agent, as applicable, by the terms of this Agreement and the other Transaction Documents together with such
powers as are reasonably incidental thereto. Neither the Administrative Agent nor any Managing Agent shall have any duties or responsibilities, except
those expressly set forth herein or in any other Transaction Document, nor any fiduciary relationship with any Purchaser, and no implied covenants,
functions, responsibilities, duties, obligations or liabilities on the part of the Administrative Agent or any Managing Agent shall be read into this Agreement
or any other Transaction Document or otherwise exist for the Administrative Agent or any Managing Agent. In performing its functions and duties
hereunder and under the other Transaction Documents, the Administrative Agent and each Managing Agent shall act solely as agent for the Purchasers
designating such agent and does not assume nor shall be deemed to have assumed any obligation or relationship of trust or agency with or for any Seller
Party or any of such Seller Party’s successors or assigns. Neither the Administrative Agent nor any Managing Agent shall be required to take any action that
exposes the such Person to personal liability or that is contrary to this Agreement, any other Transaction Document or applicable law. The appointment and
authority of the Administrative Agent and the Managing Agents hereunder shall terminate upon the indefeasible payment in full of all Aggregate Unpaids.
Each Purchaser hereby authorizes the Administrative Agent to execute each of the UCC financing statements, the Intercreditor Agreement and such other
Transaction Documents as may require the Administrative Agent’s signature on behalf of such Purchaser (the terms of which shall be binding on such
Purchaser). Each Purchaser hereby authorizes its related Managing Agent to execute the Fee Letter on behalf of such Purchaser (the terms of which shall be
binding on such Purchaser).
Section 11.2 Delegation of Duties. The Administrative Agent and the Managing Agents may execute any of their respective duties under this
Agreement and each other Transaction Document by or through agents or attorneys−in−fact and shall be entitled to advice of counsel concerning all matters
pertaining to such duties. Neither the Administrative Agent nor any Managing Agent shall be responsible for the negligence or misconduct of any agents or
attorneys−in−fact selected by it with reasonable care.
Section 11.3 Exculpatory Provisions. None of the Administrative Agent, the Managing Agents, or any of their respective directors, officers, agents or
employees shall be (i)
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liable for any action lawfully taken or omitted to be taken by it or them under or in connection with this Agreement or any other Transaction Document
(except for its, their or such Person’s own gross negligence or willful misconduct), or (ii) responsible in any manner to any of the Purchasers for any
recitals, statements, representations or warranties made by any Seller Party contained in this Agreement, any other Transaction Document or any certificate,
report, statement or other document referred to or provided for in, or received under or in connection with, this Agreement, or any other Transaction
Document or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement, or any other Transaction Document or any
other document furnished in connection herewith or therewith, or for any failure of any Seller Party to perform its obligations hereunder or thereunder, or
for the satisfaction of any condition specified in Article VI, or for the perfection, priority, condition, value or sufficiency of any collateral pledged in
connection herewith. Neither the Administrative Agent nor any Managing Agent shall be under any obligation to any Purchaser to ascertain or to inquire as
to the observance or performance of any of the agreements or covenants contained in, or conditions of, this Agreement or any other Transaction Document,
or to inspect the properties, books or records of the Seller Parties. Neither the Administrative Agent nor any Managing Agent shall be deemed to have
knowledge of any Amortization Event or Potential Amortization Event unless the Administrative Agent or such Managing Agent, as applicable, has
received notice of such Amortization Event or Potential Amortization Event from the Seller or a Purchaser. No Managing Agent shall have any
responsibility hereunder to any Purchaser other than the Purchasers in its Purchaser Group.
Section 11.4 Reliance by the Administrative Agent and the Managing Agents. The Administrative Agent and the Managing Agents shall in all cases
be entitled to rely, and shall be fully protected in relying, upon any document or conversation believed by it to be genuine and correct and to have been
signed, sent or made by the proper Person or Persons and upon advice and statements of legal counsel (including, without limitation, counsel to the Seller),
independent accountants and other experts selected by the Administrative Agent or any Managing Agent. Each of the Administrative Agent and each
Managing Agent shall in all cases be fully justified in failing or refusing to take any action under this Agreement or any other Transaction Document unless
it shall first receive such advice or concurrence of the related Purchaser Group or the Required Financial Institutions or all of the Purchasers, as applicable,
as it deems appropriate and it shall first be indemnified to its satisfaction by the Purchasers, provided that unless and until the Administrative Agent or such
Managing Agent shall have received such advice, the Administrative Agent or such Managing Agent may take or refrain from taking any action, as the
Administrative Agent or such Managing Agent shall deem advisable and in the best interests of the Purchasers. The Administrative Agent and the Managing
Agents shall in all cases be fully protected in acting, or in refraining from acting, in accordance with a request of its related Purchaser Group or the Required
Financial Institutions or all of the Purchasers, as applicable, and such request and any action taken or failure to act pursuant thereto shall be binding upon all
the Purchasers.
Section 11.5 Non−Reliance on Administrative Agent, the Managing Agents and Other Purchasers.
(a) Each Purchaser expressly acknowledges that none of the Administrative Agent, the Managing Agents, or any of their respective officers, directors,
employees, agents,
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attorneys−in−fact or affiliates has made any representations or warranties to it and that no act by the Administrative Agent or any Managing Agent hereafter
taken, including, without limitation, any review of the affairs of any Seller Party, shall be deemed to constitute any representation or warranty by the
Administrative Agent or such Managing Agent. Each Purchaser represents and warrants to the Administrative Agent and the Managing Agents that it has
and will, independently and without reliance upon the Administrative Agent, any Managing Agent or any other Purchaser and based on such documents and
information as it has deemed appropriate, made its own appraisal of and investigation into the business, operations, property, prospects, financial and other
conditions and creditworthiness of the Seller and made its own decision to enter into this Agreement, the other Transaction Documents and all other
documents related hereto or thereto.
(b) Without limiting clause (a) above, each Purchaser acknowledges and agrees that neither such Purchaser nor any of its Affiliates, participants or
assignees may rely on the Administrative Agent or any Managing Agent to carry out such Purchaser’s or other Person’s customer identification program, or
other obligations required or imposed under or pursuant to the USA Patriot Act or the regulations thereunder, including the regulations contained in 31
C.F.R. 103.121 (as amended or replaced, the “CIP Regulations”), or any other applicable law, rule, regulation or order of any governmental authority,
including any program involving any of the following items relating to or in connection with any Seller Party or any of their Affiliates or agents, the
Transaction Documents or the transactions contemplated hereby: (i) any identity verification procedure; (ii) any recordkeeping; (iii) any comparison with a
government list; (iv) any customer notice or (v) any other procedure required under the CIP Regulations or such other law, rule, regulation or order.
Section 11.6 Reimbursement and Indemnification. The Financial Institutions agree to reimburse and indemnify the Administrative Agent and the
Financial Institutions in each Purchaser Group agree to reimburse and indemnify the Managing Agent for such Purchaser Group, and their respective
officers, directors, employees, representatives and agents ratably according to their Pro Rata Shares, to the extent not paid or reimbursed by the Seller
Parties (i) for any amounts for which the Administrative Agent or such Managing Agent, acting in its capacity as the Administrative Agent or a Managing
Agent, is entitled to reimbursement by the Seller Parties hereunder and (ii) for any other expenses incurred by the Administrative Agent, in its capacity as
Administrative Agent, or any Managing Agent, acting in its capacity as a Managing Agent and acting on behalf of its related Purchasers, in connection with
the administration and enforcement of this Agreement and the other Transaction Documents.
Section 11.7 Administrative Agent and Managing Agents in their Individual Capacity. The Administrative Agent, each Managing Agent and each of
their respective Affiliates may make loans to, accept deposits from and generally engage in any kind of business with the Seller or any Affiliate of the Seller
as though it were not the Administrative Agent or a Managing Agent hereunder. With respect to the acquisition of Purchaser Interests pursuant to this
Agreement, the Administrative Agent and each Managing Agent shall have the same rights and powers under this Agreement in its individual capacity as
any Purchaser and may exercise the same as though it were not the Administrative Agent or a Managing Agent, and the terms “Financial Institution,”
“Purchaser,” “Financial Institutions” and “Purchasers” shall include the Administrative Agent or such Managing Agent in its individual capacity, as
applicable.
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Section 11.8 Successor Administrative Agent. The Administrative Agent may, upon five (5) days’ notice to the Seller and the Purchasers, and the
Administrative Agent will, upon the direction of all of the Purchasers (other than the Administrative Agent, in its individual capacity) resign as
Administrative Agent. If the Administrative Agent shall resign, then the Required Financial Institutions during such five−day period shall appoint from
among the Purchasers a successor administrative agent. If for any reason no successor Administrative Agent is appointed by the Required Financial
Institutions during such five−day period, then effective upon the termination of such five day period, the Purchasers shall perform all of the duties of the
Administrative Agent hereunder and under the other Transaction Documents and Seller and the Servicer (as applicable) shall make all payments in respect
of the Aggregate Unpaids directly to the applicable Purchasers and for all purposes shall deal directly with the Purchasers. After the effectiveness of any
retiring Administrative Agent’s resignation hereunder as Administrative Agent, the retiring Administrative Agent shall be discharged from its duties and
obligations hereunder and under the other Transaction Documents and the provisions of this Article XI and Article X shall continue in effect for its benefit
with respect to any actions taken or omitted to be taken by it while it was Administrative Agent under this Agreement and under the other Transaction
Documents.
Section 11.9 Successor Managing Agent. A Managing Agent may, upon five− days’ notice to the Seller, the Administrative Agent and the Purchasers
in its Purchaser Group, and a Managing Agent will, upon the direction of all of the Purchasers in such Managing Agent’s Purchaser Group (other than such
Managing Agent, in its individual capacity) resign as Managing Agent. If a Managing Agent shall resign, then the Financial Institutions in such Purchaser
Group during such five−day period shall appoint from among such Financial Institutions a successor Managing Agent. If for any reason no successor
Managing Agent is appointed by such Financial Institutions during such five−day period, then effective upon the termination of such five−day period, the
Purchasers in such Purchaser Group shall perform all of the duties of the resigning Managing Agent hereunder and under the other Transaction Documents
and the Seller, the Servicer and the Administrative Agent (as applicable) shall make all payments in respect of the Aggregate Unpaids directly to the
applicable Purchasers and for all purposes shall deal directly with such Purchasers. After the effectiveness of any retiring Managing Agent’s resignation
hereunder, the retiring Managing Agent shall be discharged from its duties and obligations hereunder and under the other Transaction Documents and the
provisions of this Article XI and Article X shall continue in effect for its benefit with respect to any actions taken or omitted to be taken by it while it was a
Managing Agent under this Agreement and under the other Transaction Documents.
ARTICLE XII
ASSIGNMENTS; PARTICIPATIONS
Section 12.1 Assignments.
(a) The Seller and each Financial Institution hereby agree and consent to the complete or partial assignment by a Conduit of all or any portion of its
rights under, interest in, title to and obligations under this Agreement (i) to the Financial Institutions in such Conduit’s Purchaser Group pursuant to this
Agreement or pursuant to a Liquidity Agreement, (ii) to any other issuer of commercial paper notes sponsored or administered by a Financial Institution or
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(iii) to any other Person; provided that, except (A) after the occurrence and during the continuation of an Amortization Event or (B) during a Level Two
Enhancement Period or a Level Three Enhancement Period, such Conduit may not make any such assignment pursuant to this clause (iii), except in the
event that the circumstances described in Section 12.1(c) occur, without the consent of the Seller (which consent shall not be unreasonably withheld or
delayed). Upon such assignment, such Conduit shall be released from its obligations so assigned. Further, the parties hereto hereby agree that any assignee
of a Conduit of this Agreement or all or any of the Purchaser Interests of any Conduit shall have all of the rights and benefits under this Agreement as if the
term “Conduit” explicitly referred to such party, and no such assignment shall in any way impair the rights and benefits of such Conduit hereunder. Neither
the Seller nor the Servicer shall have the right to assign its rights or obligations under this Agreement.
(b) Any Financial Institution may at any time and from time to time assign to one or more Persons (“Purchasing Financial Institutions”) all or any part
of its rights and obligations under this Agreement pursuant to an assignment agreement, substantially in the form set forth in Exhibit VII hereto (the
“Assignment Agreement”) executed by such Purchasing Financial Institution and such selling Financial Institution, provided, that an assignment made by an
Affected Financial Institution pursuant to paragraph (c) below may occur at any time. The consent of the Conduit in such Financial Institution’s Purchaser
Group and, other than (A) after the occurrence and during the continuation of an Amortization Event or (B) during a Level Two Enhancement Period or a
Level Three Enhancement Period, the Seller (such consent not to be unreasonably withheld or delayed) shall be required prior to the effectiveness of any
such assignment. Notwithstanding the foregoing, an assignment made by an Affected Financial Institution pursuant to paragraph (c) below may occur
without the consent of the Seller; provided that if the Affected Financial Institution is not a Financial Institution or Managing Agent on the date hereof or an
Affiliate of such Person, the applicable Managing Agent agrees to use reasonable efforts to choose an assignee of such Affected Financial Institution that is
acceptable to the Seller; provided further however, that if such Managing Agent and the Seller do not agree on such an assignee within ten (10) Business
Days after such Affected Financial Institution becomes an Affected Financial Institution, such Managing Agent may choose an assignee in its sole
discretion. Each assignee of a Financial Institution must (i) have a short−term debt rating of A−1 or better by S&P and P−1 by Moody’s and (ii) agree to
deliver to the related Managing Agent, promptly following any request therefor by the Managing Agent for its Purchaser Group or the affected Conduit, an
enforceability opinion in form and substance satisfactory to such Managing Agent and such Conduit. Upon delivery of the executed Assignment Agreement
to the related Managing Agent and the Administrative Agent, such selling Financial Institution shall be released from its obligations hereunder to the extent
of such assignment. Thereafter the Purchasing Financial Institution shall for all purposes be a Financial Institution party to this Agreement and shall have all
the rights and obligations of a Financial Institution under this Agreement to the same extent as if it were an original party hereto and no further consent or
action by the Seller, the Purchasers, the Managing Agents or the Administrative Agent shall be required.
(c) Each of the Financial Institutions agrees that in the event that it shall cease to have a short−term debt rating of A−1 or better by S&P and P−1 by
Moody’s (an “Affected Financial Institution”), such Affected Financial Institution shall be obligated, at the request of the Conduit in such Financial
Institution’s Purchaser Group or the applicable Managing Agent, to
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assign all of its rights and obligations hereunder to (x) another Financial Institution or (y) another funding entity nominated by such Managing Agent and
acceptable to such affected Conduit, and willing to participate in this Agreement through the Liquidity Termination Date in the place of such Affected
Financial Institution; provided that the Affected Financial Institution receives payment in full, pursuant to an Assignment Agreement, of an amount equal to
such Financial Institution’s Pro Rata Share of the Aggregate Capital and Yield owing to the Financial Institutions and all accrued but unpaid fees and other
costs and expenses payable in respect of its Pro Rata Share of the Purchaser Interests of the Financial Institutions.
Section 12.2 Participations. Any Financial Institution may, in the ordinary course of its business at any time sell to one or more Persons (each a
“Participant”) participating interests in its Pro Rata Share of the Purchaser Interests of such Financial Institutions or any other interest of such Financial
Institution hereunder. Notwithstanding any such sale by a Financial Institution of a participating interest to a Participant, such Financial Institution’s rights
and obligations under this Agreement shall remain unchanged, such Financial Institution shall remain solely responsible for the performance of its
obligations hereunder, and the Seller, the Conduits, the Managing Agents and the Administrative Agent shall continue to deal solely and directly with such
Financial Institution in connection with such Financial Institution’s rights and obligations under this Agreement. Each Financial Institution agrees that any
agreement between such Financial Institution and any such Participant in respect of such participating interest shall not restrict such Financial Institution’s
right to agree to any amendment, supplement, waiver or modification to this Agreement, except for any amendment, supplement, waiver or modification
described in Section 13.1(b)(i).
Section 12.3 Additional Purchaser Groups. Upon the Seller’s request with written consent of the Administrative Agent and each Managing Agent, an
additional Purchaser Group may be added to this Agreement at any time by the execution and delivery of a Joinder Agreement by the members of such
proposed additional Purchaser Group, the Seller, the Servicer, the Administrative Agent and each Managing Agent. Upon the effective date of such Joinder
Agreement, (i) each Person specified therein as a “Conduit” shall become a party hereto as a Conduit, entitled to the rights and subject to the obligations of a
Conduit hereunder, (ii) each Person specified therein as a “Financial Institution” shall become a party hereto as a Financial Institution, entitled to the rights
and subject to the obligations of a Financial Institution hereunder, (iii) each Person specified therein as a “Managing Agent” shall become a party hereto as a
Managing Agent, entitled to the rights and subject to the obligations of a Managing Agent hereunder and (iv) the Purchase Limit shall be increased by an
amount equal to the aggregate Commitments of the Financial Institutions party to such Joinder Agreement.
Section 12.4 Extension of Liquidity Termination Date. The Seller may advise the Administrative Agent and each Managing Agent in writing of its
desire to extend the Liquidity Termination Date for an additional 364 days, provided such request is made not more than 90 days prior to, and not less than
60 days prior to, the then current Liquidity Termination Date. Each Managing Agent, upon being so advised by the Seller, shall promptly notify each
Financial Institution in such Managing Agent’s Purchaser Group of any such request and each such Financial Institution shall notify the Administrative
Agent, its related Managing Agent and the Seller of its decision to accept or decline the request for such extension no later than 30 days prior to the then
current Liquidity Termination Date (it being understood that each Financial
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Institution may accept or decline such request in its sole discretion and on such terms as it may elect, and the failure to so notify the Administrative Agent,
its related Managing Agent and the Seller shall be deemed an election not to extend by such Financial Institution). In the event that at least one Financial
Institution agrees to extend the Liquidity Termination Date, the Seller Parties, the Administrative Agent, the related Managing Agents and the extending
Financial Institutions shall enter into such documents as such extending Financial Institutions may deem necessary or appropriate to reflect such extension,
and all reasonable costs and expenses incurred by such Financial Institutions, the related Managing Agents and the Administrative Agent (including
reasonable attorneys’ fees) shall be paid by the Seller. In the event that any Financial Institution declines the request to extend the Liquidity Termination
Date (each such Financial Institution being referred to herein as a “Non−Renewing Financial Institution”), and, in the case of a Non−Renewing Financial
Institution described in clause (a), the Commitment of such Non−Renewing Financial Institution is not assigned to another Person in accordance with the
terms of this Article XII prior to the then current Liquidity Termination Date, the Purchase Limit shall be reduced by an amount equal to each such
Non−Renewing Financial Institution’s Commitment on the then current Liquidity Termination Date.
Section 12.5 Terminating Financial Institutions.
(a) Any Affected Financial Institution or Non−Renewing Financial Institution which has not assigned its rights and obligations hereunder if requested
pursuant to this Article XII shall be a “Terminating Financial Institution” for purposes of this Agreement as of the then current Liquidity Termination Date
(or, in the case of any Affected Financial Institution, such earlier date as declared by the Administrative Agent).
(b) The Commitment of any Financial Institution shall terminate on the date it becomes a Terminating Financial Institution. Upon reduction to zero of
the Capital of all of the Purchaser Interests of a Terminating Financial Institution (after application of Collections thereto pursuant to Sections 2.2, 2.4 and
2.5) all rights and obligations of such terminating Financial Institution hereunder shall be terminated and such terminating Financial Institution shall no
longer be a “Financial Institution” hereunder; provided, however, that the provisions of Article X shall continue in effect for its benefit with respect to
Purchaser Interests or the Commitment held by such Terminating Financial Institution prior to its termination as a Financial Institution.
Section 12.6 USA Patriot Act Certification. Within 10 days after the date of this Agreement and at such other times as are required under the USA
Patriot Act, each Purchaser and each assignee and participant that is not incorporated under the laws of the United States of America or a state thereof (and
is not excepted from the certification requirement contained in Section 313 of the USA Patriot Act and the applicable regulations) shall deliver to the
Administrative Agent a certification, or, if applicable, recertification, certifying that such Purchaser is not a “shell” and certifying as to other matters as
required by Section 313 of the USA Patriot Act and the applicable regulations.
Section 12.7 Federal Reserve. Notwithstanding any other provision of this Agreement to the contrary, any Financial Institution may at any time
pledge or grant a security interest in all or any portion of its rights (including, without limitation, any Purchaser Interest and any rights to payment of Capital
and Yield) under this Agreement to secure obligations of
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such Financial Institution to a Federal Reserve Bank, without notice to or consent of the Seller or the Administrative Agent or any other Person; provided
that no such pledge or grant of a security interest shall release a Financial Institution from any of its obligations hereunder, or substitute any such pledgee or
grantee for such Financial Institution as a party hereto.
Section 12.8 Closing Date Assignments.
(a) On the date hereof, (i) Falcon hereby assigns to Victory Receivables Corporation, $100,000,000 of its Purchase Limit and (ii) JPMC hereby
assigns to Union Bank, N.A., $100,000,000 of its Commitment, such that after giving effect to such assignments, each of the Purchasers party hereto on the
date hereof have the respective amounts of the Conduit Purchase Limit or Commitment, as applicable, as set forth on Schedule A hereto. All accrued fees
due to Falcon and JPMC through the date hereof shall be paid to the Administrative Agent for the benefit of Falcon and JPMC by the Seller on the
Settlement Date in December of 2010.
(b) Each of Falcon, JPMC and each New Purchaser hereby confirms to and agrees with each other, the Administrative Agent and each Managing
Agent hereto as follows: (i) other than the representation and warranty that it has not created any Adverse Claim upon any interest being transferred
hereunder, neither Falcon nor JPMC makes any representation or warranty or assumes any responsibility with respect to any statements, warranties or
representations made by any other Person in or in connection with this Agreement or the Transaction Documents or the execution, legality, validity,
enforceability, genuineness, sufficiency or value of Purchaser Interests, this Agreement or any other instrument or document furnished pursuant thereto or
the perfection, priority, condition, value or sufficiency of any collateral; (ii) neither Falcon nor JPMC makes any representation or warranty or assumes any
responsibility with respect to the financial condition of the Seller, any Obligor, the Servicer, the Originator, Consumers, any Affiliate of the Seller or the
performance or observance by the Seller, any Obligor, the Servicer, the Originator, any Affiliate of the Seller of any of their respective obligations under the
Transaction Documents or any other instrument or document furnished pursuant thereto or in connection therewith; (iii) each New Purchaser confirms that it
has received a copy of this Agreement and copies of such other Transaction Documents, and other documents and information as it has requested and
deemed appropriate to make its own credit analysis and decision to enter into this Agreement; and (iv) each New Purchaser will, independently and without
reliance upon the Administrative Agent, any Managing Agent, any Purchaser or the Seller and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement and the Transaction Documents.
ARTICLE XIII
MISCELLANEOUS
Section 13.1 Waivers and Amendments.
(a) No failure or delay on the part of the Administrative Agent, any Managing Agent or any Purchaser in exercising any power, right or remedy under
this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or remedy preclude any other further
exercise thereof or the exercise of any other power, right or
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remedy. The rights and remedies herein provided shall be cumulative and nonexclusive of any rights or remedies provided by law. Any waiver of this
Agreement shall be effective only in the specific instance and for the specific purpose for which given.
(b) No provision of this Agreement may be amended, supplemented, modified or waived except in writing in accordance with the provisions of this
Section 13.1(b). The Seller and the Administrative Agent, at the direction of the Required Financial Institutions, may enter into written modifications or
waivers of any provisions of this Agreement, provided, however, that no such modification or waiver shall:
(i) without the consent of each Purchaser, (A) extend the Liquidity Termination Date or the date of any payment or deposit of Collections by Seller or
the Servicer, (B) reduce the rate or extend the time of payment of Yield (or any component thereof), (C) reduce any fee payable to any Managing Agent
for the benefit of the Purchasers, (D) except pursuant to Article XII hereof, change the amount of the Capital of any Purchaser, any Financial Institution’s
Pro Rata Share (except as may be required pursuant to a Liquidity Agreement) or any Financial Institution’s Commitment, (E) amend, modify or waive
any provision of the definition of Required Financial Institutions, this Section 13.1(b) or Section 9.1, (F) consent to or permit the assignment or transfer
by the Seller of any of its rights and obligations under this Agreement, (G) change the definition of “Applicable Maximum Purchaser Interest,”
“Applicable Stress Factor,” “Dilution Percentage,” “Dilution Reserve,” “Eligible Receivable,” “Level One Enhancement Period,” “Level Two
Enhancement Period,” “Level Three Enhancement Period,” “Loss Reserve,” “Loss Percentage,” “Net Receivables Balance,” “Yield and Servicer Fee
Reserve,” or “Yield and Servicer Fee Percentage,” or (H) amend or modify any defined term (or any defined term used directly or indirectly in such
defined term) used in clauses (A) through (G) above in a manner that would circumvent the intention of the restrictions set forth in such clauses;
(ii) without the written consent of the then Administrative Agent, amend, modify or waive any provision of this Agreement if the effect thereof is to
affect the rights or duties of the Administrative Agent; or
(iii) without the written consent of each Managing Agent, amend, modify or waive any provision of this Agreement if the effect thereof is to affect the
rights or duties of such Managing Agent.
Any modification or waiver made in accordance with this Section 13.1 shall apply to each of the Purchasers equally and shall be binding upon the Seller, the
Servicer, the Purchasers, the Managing Agents and the Administrative Agent.
Section 13.2 Notices. Except as provided in this Section 13.2, all communications and notices provided for hereunder shall be in writing (including
bank wire, telecopy or electronic facsimile transmission or similar writing) and shall be given to the other parties hereto at their respective addresses or
telecopy numbers set forth on the signature pages hereof or at such other address or telecopy number as such Person may hereafter specify for the purpose
of notice to each of the other parties hereto. Each such notice or other communication
46
shall be effective if given by facsimile transmission, upon confirmation of receipt thereof, if given by mail, three (3) Business Days after the time such
communication is deposited in the mail with first class postage prepaid or if given by any other means, when received at the address specified in this
Section 13.2. The Seller and the Servicer hereby authorize each Managing Agent to effect purchases and each Managing Agent to make Tranche Period and
Bank Rate selections based on telephonic notices made by any Person whom such Managing Agent in good faith believes to be acting on behalf of the
Seller. The Seller agrees to deliver promptly to the applicable Managing Agent a written confirmation of each telephonic notice signed by an authorized
officer of the Seller; provided, however, the absence of such confirmation shall not affect the validity of such notice. If the written confirmation differs from
the action taken by such Managing Agent, the records of such Managing Agent shall govern absent manifest error.
Section 13.3 Ratable Payments. If any Purchaser, whether by setoff or otherwise, has payment made to it with respect to any portion of the Aggregate
Unpaids owing to such Purchaser (other than payments received pursuant to Section 10.3, 10.4 or 10.5) in a greater proportion than that received by any
other Purchaser entitled to receive a ratable share of such Aggregate Unpaids, such Purchaser agrees, promptly upon demand, to purchase for cash without
recourse or warranty a portion of such Aggregate Unpaids held by the other Purchasers so that after such purchase each Purchaser will hold its ratable
proportion of such Aggregate Unpaids; provided that if all or any portion of such excess amount is thereafter recovered from such Purchaser, such purchase
shall be rescinded and the purchase price restored to the extent of such recovery, but without interest.
Section 13.4 Protection of Ownership Interests of the Purchasers.
(a) The Seller agrees that from time to time, at its expense, it will promptly execute and deliver all instruments and documents, and take all actions,
that may be necessary or desirable, or that the Administrative Agent or any Managing Agent may request, to perfect, protect or more fully evidence the
Purchaser Interests, or to enable the Administrative Agent, the Managing Agents or the Purchasers to exercise and enforce their rights and remedies
hereunder. At any time after the occurrence and during the continuation of an Amortization Event, the Administrative Agent may, or the Administrative
Agent may direct the Seller or the Servicer to, notify the Obligors of Receivables, at the Seller’s expense, of the ownership or security interests of the
Purchasers under this Agreement and may also direct that payments of all amounts due or that become due under any or all Receivables be made directly to
the Administrative Agent or its designee. The Seller or the Servicer (as applicable) shall, at any Purchaser’s request, withhold the identity of such Purchaser
in any such notification.
(b) If any Seller Party fails to perform any of its obligations hereunder, the Administrative Agent, any Managing Agent or any Purchaser may (but
shall not be required to), after providing notice to such Seller Party, perform, or cause performance of, such obligations, and the Administrative Agent’s,
such Managing Agent’s or such Purchaser’s costs and expenses incurred in connection therewith shall be payable by Seller as provided in Section 10.4.
Each Seller Party irrevocably authorizes the Administrative Agent at any time and from time to time in the sole discretion of the Administrative Agent, and
appoints the Administrative Agent as its attorney−in−fact, to act on behalf of such Seller Party to (i) execute on behalf of the Seller as debtor and to file
financing statements necessary or desirable in the Administrative Agent’s sole
47
discretion, after providing notice to such Seller Party, to perfect and to maintain the perfection and priority of the interest of the Purchasers in the
Receivables and (ii) file a carbon, photographic or other reproduction of this Agreement or any financing statement with respect to the Receivables as a
financing statement in such offices as the Administrative Agent in its sole discretion deems necessary or desirable to perfect and to maintain the perfection
and priority of the interests of the Purchasers in the Receivables. This appointment is coupled with an interest and is irrevocable.
Section 13.5 Confidentiality.
(a) Each party hereto shall maintain and shall cause each of its employees and officers to maintain the confidentiality of this Agreement and the other
confidential or proprietary information with respect to each other party and their respective businesses obtained by it or them in connection with the
structuring, negotiating and execution of the transactions contemplated herein, except that such party and its officers and employees may disclose such
information to such party’s external accountants and attorneys and as required by any applicable law, regulation or order of any judicial, regulatory or
administrative proceeding (whether or not having the force of law). Anything herein to the contrary notwithstanding, each Seller Party, each Purchaser, the
Administrative Agent, each Managing Agent and each Indemnified Party and any successor or assign of any of the foregoing (and each employee,
representative or other agent of any of the foregoing) may disclose to any and all Persons, without limitation of any kind, the “tax treatment” and “tax
structure” (in each case, within the meaning of Treasury Regulation Section 1.6011−4) of the transactions contemplated herein and all materials of any kind
(including opinions or other tax analyses) that are or have been provided to any of the foregoing relating to such tax treatment or tax structure, and it is
hereby confirmed that each of the foregoing have been so authorized since the commencement of discussions regarding the transactions.
(b) Anything herein to the contrary notwithstanding, each Seller Party hereby consents to the disclosure of any nonpublic information with respect to
it (i) to the Administrative Agent, the Managing Agents, the Financial Institutions or the Conduits by each other, (ii) by the Administrative Agent, the
Managing Agents or the Purchasers to any prospective or actual assignee or participant of any of them and (iii) by the Administrative Agent, any Managing
Agent or any Conduit to any rating agency (including, without limitation, in compliance with Rule 17g−5 under the Securities Exchange Act of 1934),
Commercial Paper dealer or provider of a surety, guaranty or credit or liquidity enhancement to its related Conduit or any entity organized for the purpose
of purchasing, or making loans secured by, financial assets for which any Managing Agent acts as the administrative agent and to any officers, directors,
employees, outside accountants and attorneys of any of the foregoing, provided each such Person is informed of the confidential nature of such information.
In addition, the Purchasers, the Managing Agents and the Administrative Agent may disclose any such nonpublic information pursuant to any law, rule,
regulation, direction, request or order of any judicial, administrative or regulatory authority or proceedings (whether or not having the force or effect of
law).
Section 13.6 Bankruptcy Petition. The Seller, the Servicer, the Administrative Agent, each Managing Agent and each Purchaser hereby covenants and
agrees that, prior to the
48
date that is one year and one day after the payment in full of all outstanding senior indebtedness of a Conduit, it will not institute against, or join any other
Person in instituting against, such Conduit any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings or other similar proceeding
under the laws of the United States or any state of the United States.
Section 13.7 Limitation of Liability.
(a) No claim may be made by any party to this Agreement or any other Person against any other party hereto or any Financial Institution or their
respective Affiliates, directors, officers, employees, attorneys or agents for any special, indirect, consequential or punitive damages in respect of any claim
for breach of contract or any other theory of liability arising out of or related to the transactions contemplated by this Agreement, or any act, omission or
event occurring in connection therewith; and each party to this Agreement hereby waives, releases, and agrees not to sue upon any claim for any such
damages, whether or not accrued and whether or not known or suspected to exist in its favor, except, with respect to any claim against any party hereto
(other than a Conduit) arising due to such Person’s gross negligence or willful misconduct.
(b) Notwithstanding any provisions contained in this Agreement or any other Transaction Document to the contrary, a Conduit shall not be obligated
to pay any amount pursuant to this Agreement or any other Transaction Document unless such Conduit has excess cash flow from operations or has
received funds which may be used to make such payment and which funds or excess cash flow are not required to repay any of such Conduit’s Commercial
Paper when due. Any amount which a Conduit does not pay pursuant to the operation of the preceding sentence shall not constitute a claim against such
Conduit for any such insufficiency. The agreements in this section shall survive the termination of this Agreement and the other Transaction Documents.
Section 13.8 CHOICE OF LAW. THIS AGREEMENT SHALL BE GOVERNED AND CONSTRUED IN ACCORDANCE WITH THE
INTERNAL LAWS (INCLUDING, WITHOUT LIMITATION, SECTION 5−1401 OF THE GENERAL OBLIGATIONS LAW OF NEW YORK, BUT
OTHERWISE WITHOUT REGARD TO THE LAW OF CONFLICTS) OF THE STATE OF NEW YORK, BUT GIVING EFFECT TO FEDERAL LAWS
APPLICABLE TO NATIONAL BANKS.
Section 13.9 CONSENT TO JURISDICTION. EACH SELLER PARTY HEREBY IRREVOCABLY SUBMITS TO THE NON−EXCLUSIVE
JURISDICTION OF ANY UNITED STATES FEDERAL OR NEW YORK STATE COURT SITTING IN NEW YORK, NEW YORK IN ANY ACTION
OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY DOCUMENT EXECUTED BY SUCH PERSON
PURSUANT TO THIS AGREEMENT AND EACH SELLER PARTY HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF
SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH COURT AND IRREVOCABLY WAIVES ANY
OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH
A COURT OR THAT SUCH COURT IS AN INCONVENIENT FORUM. NOTHING HEREIN SHALL LIMIT THE RIGHT OF THE
ADMINISTRATIVE AGENT, ANY MANAGING AGENT OR ANY
49
PURCHASER TO BRING PROCEEDINGS AGAINST ANY SELLER PARTY IN THE COURTS OF ANY OTHER JURISDICTION. ANY JUDICIAL
PROCEEDING BY ANY SELLER PARTY AGAINST THE ADMINISTRATIVE AGENT, ANY MANAGING AGENT OR ANY PURCHASER OR
ANY AFFILIATE OF THE ADMINISTRATIVE AGENT, ANY MANAGING AGENT OR ANY PURCHASER INVOLVING, DIRECTLY OR
INDIRECTLY, ANY MATTER IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH THIS AGREEMENT OR ANY
DOCUMENT EXECUTED BY SUCH SELLER PARTY PURSUANT TO THIS AGREEMENT SHALL BE BROUGHT ONLY IN A COURT IN NEW
YORK, NEW YORK.
Section 13.10 WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES TRIAL BY JURY IN ANY JUDICIAL PROCEEDING
INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT, CONTRACT OR OTHERWISE) IN ANY WAY
ARISING OUT OF, RELATED TO, OR CONNECTED WITH THIS AGREEMENT, ANY DOCUMENT EXECUTED BY ANY SELLER PARTY
PURSUANT TO THIS AGREEMENT OR THE RELATIONSHIP ESTABLISHED HEREUNDER OR THEREUNDER.
Section 13.11 Integration; Binding Effect; Survival of Terms.
(a) This Agreement and each other Transaction Document contain the final and complete integration of all prior expressions by the parties hereto with
respect to the subject matter hereof and shall constitute the entire agreement among the parties hereto with respect to the subject matter hereof superseding
all prior oral or written understandings.
(b) This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns
(including any trustee in bankruptcy). This Agreement shall create and constitute the continuing obligations of the parties hereto in accordance with its
terms and shall remain in full force and effect until terminated in accordance with its terms; provided, however, that the rights and remedies with respect to
(i) any breach of any representation and warranty made by any Seller Party pursuant to Article V, (ii) the indemnification and payment provisions of
Article X, and Sections 13.5, 13.6 and 13.7 shall be continuing and shall survive any termination of this Agreement.
Section 13.12 Counterparts; Severability; Section References. This Agreement may be executed in any number of counterparts and by different
parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall
constitute one and the same agreement. Any provisions of this Agreement which are prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such
prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. Unless otherwise
expressly indicated, all references herein to “Article,” “Section,” “Schedule” or “Exhibit” shall mean articles and sections of, and schedules and exhibits to,
this Agreement.
Section 13.13 Agent Roles. Each of the Financial Institutions acknowledges that each Person party hereto as the Administrative Agent or a Managing
Agent acts, or may in the
50
future act, (i) as administrative agent for a Conduit or a Financial Institution, (ii) as issuing and paying agent for the Commercial Paper, (iii) to provide
credit or liquidity enhancement for the timely payment for the Commercial Paper and (iv) to provide other services from time to time for a Conduit or a
Financial Institution (collectively, the “Agent Roles”). Without limiting the generality of this Section 13.13, each Financial Institution hereby acknowledges
and consents to any and all Agent Roles and agrees that in connection with any Agent Role, a Managing Agent or the Administrative Agent, as applicable,
may take, or refrain from taking, any action that it, in its discretion, deems appropriate, including, without limitation, in its role as administrative agent for a
Conduit.
Section 13.14 Characterization.
(a) It is the intention of the parties hereto that each purchase hereunder shall constitute and be treated as an absolute and irrevocable sale, which
purchase shall provide the applicable Purchaser with the full benefits of ownership of the applicable Purchaser Interest. Except as specifically provided in
this Agreement, each sale of a Purchaser Interest hereunder is made without recourse to the Seller; provided, however, that (i) the Seller shall be liable to
each Purchaser, each Managing Agent and the Administrative Agent for all representations, warranties, covenants and indemnities made by the Seller
pursuant to the terms of this Agreement, and (ii) such sale does not constitute and is not intended to result in an assumption by any Purchaser, any Managing
Agent or the Administrative Agent or any assignee thereof of any obligation of the Seller, the Originator or any other Person arising in connection with the
Receivables, the Related Security, or the related Contracts, or any other obligations of the Seller or the Originator.
(b) In addition to any ownership interest which the Administrative Agent may from time to time acquire pursuant hereto, the Seller hereby grants to
the Administrative Agent for the ratable benefit of the Managing Agents and the Purchasers a valid and perfected security interest in all of the Seller’s right,
title and interest in, to and under the following, whether now existing or hereafter arising, all Receivables, the Collections, each Lock−Box, each Collection
Account, all Related Security, all other rights and payments relating to such Receivables, all of the Seller’s rights, title and interest in, to and under the
Receivables Sale Agreement (including, without limitation, (a) all rights to indemnification arising thereunder and (b) all UCC financing statements filed
pursuant thereto), and all proceeds of any thereof and all other assets in which the Administrative Agent on behalf of the Managing Agents and the
Purchasers has acquired, may hereafter acquire and/or purports to have acquired an interest under this Agreement prior to all other liens on and security
interests therein to secure the prompt and complete payment of the Aggregate Unpaids. The Administrative Agent, the Managing Agents and the Purchasers
shall have, in addition to the rights and remedies that they may have under this Agreement, all other rights and remedies provided to a secured creditor
under the UCC and other applicable law, which rights and remedies shall be cumulative. The Seller hereby authorizes the Administrative Agent, within the
meaning of 9−509 of any applicable enactment of the UCC, as secured party for the benefit of itself and of the Purchasers, (x) to file, without the signature
of the Seller or the Originator, as debtors, the UCC financing statements contemplated herein and under the Receivables Sale Agreement and (y) to include,
on any financing statement filed against the Seller, the collateral description: “All of the Debtor’s personal property and other assets, whether now owned or
existing or hereafter acquired or arising, together with all products and proceeds
51
thereof, substitutions and replacements therefor, and additions and accessions thereto.” The Administrative Agent shall promptly deliver a copy of any such
UCC financing statements so filed to the Seller, provided that the Administrative Agent’s failure to deliver such copy shall not effect the validity of such
filing.
(c) In connection with the Seller’s transfer of its right, title and interest in, to and under the Receivables Sale Agreement, from and after the
occurrence of an Amortization Event and during the continuation thereof, the Seller agrees that the Administrative Agent shall have the right to enforce the
Seller’s rights and remedies under the Receivables Sale Agreement, to receive all amounts payable thereunder or in connection therewith, to consent to
amendments, modifications or waivers thereof, and to direct, instruct or request any action thereunder, but in each case without any obligation on the part of
the Administrative Agent, any Managing Agent or any Purchaser or any of its or their respective Affiliates to perform any of the obligations of the Seller
under the Receivables Sale Agreement. To the extent that the Seller enforces the Seller’s rights and remedies under the Receivables Sale Agreement, from
and after the occurrence of an Amortization Event, and during the continuance thereof, the Administrative Agent shall have the exclusive right to direct such
enforcement by the Seller.
(d) If, notwithstanding the intention of the parties expressed above, any sale or transfer by the Seller hereunder shall be characterized as a secured
loan and not a sale or such sale shall for any reason be ineffective or unenforceable (any of the foregoing being a “Recharacterization”), then this Agreement
shall be deemed to constitute a security agreement under the UCC and other applicable law. In the case of any Recharacterization, each of the Seller and the
Administrative Agent and each Purchaser represents and warrants as to itself that each remittance of Collections by the Seller to the Administrative Agent,
any Managing Agent or any Purchaser hereunder will have been (i) in payment of a debt incurred by the Seller in the ordinary course of business or
financial affairs of the Seller, the Administrative Agent and each Purchaser and (ii) made in the ordinary course of business or financial affairs of the Seller,
the Administrative Agent and each Purchaser.
Section 13.15 Intercreditor Agreement. Each Purchaser and each Managing Agent hereby agrees to be bound by the terms of, and the Administrative
Agent’s covenants, agreements, waivers and acknowledgements under, the Intercreditor Agreement.
Section 13.16 Accounting Terms. All accounting terms not specifically defined herein shall be construed in accordance with GAAP. If any changes in
generally accepted accounting principles are hereafter required or permitted and are adopted by Consumers or any of its Subsidiaries, or Consumers or any
of its Subsidiaries shall change its application of generally accepted accounting principles with respect to any Off−Balance Sheet Liabilities, in each case
with the agreement of its independent certified public accountants, and such changes result in a change in the method of calculation of any of the financial
covenants, tests, restrictions or standards herein or in the related definitions or terms used therein (“Accounting Changes”), the parties hereto agree, at
Consumers’ request, to enter into negotiations, in good faith, in order to amend such provisions in a credit neutral manner so as to reflect equitably such
changes with the desired result that the criteria for evaluating Consumers and its Subsidiaries’ financial condition shall be the same after such changes as if
such changes had not been made; provided, however, until such provisions are amended in a manner reasonably satisfactory to the
52
Administrative Agent, each Managing Agent and each Purchaser, no Accounting Change shall be given effect in such calculations. In the event such
amendment is entered into, all references in this Agreement to GAAP shall mean generally accepted accounting principles as of the date of such
amendment.
Section 13.17 USA Patriot Act. Each Purchaser hereby notifies the Seller that pursuant to requirements of the USA Patriot Act, such Purchaser is
required to obtain, verify and record information that identifies the Seller, which information includes the name and address of the Seller and other
information that will allow such Purchaser to identify the Seller in accordance with the USA Patriot Act.
Section 13.18 Required Ratings. Any Managing Agent or any Financial Institution (each such Person, a “Requesting Party”) shall have the right at
any time to request that public ratings of the facility evidenced by this Agreement of at least A−/A3 (the “Required Ratings”) be obtained from two credit
rating agencies acceptable to such Requesting Party. Each of the Seller and the Servicer agree that they shall cooperate with such Requesting Party’s efforts
to obtain the Required Ratings, and shall provide such Requesting Party, for distribution to the applicable credit rating agencies, any information reasonably
requested by such credit rating agencies for purposes of providing the Required Ratings. Any such request (a “Ratings Request”) shall be in writing, and if
the Required Ratings are not obtained within 60 days following the date of such Ratings Request (the “Ratings Request Due Date”) (unless the failure to
obtain the Required Ratings is solely the result of such Requesting Party’s failure to provide the credit rating agencies with sufficient information to permit
the credit rating agencies to perform their analysis, and is not the result of the Seller or the Servicer’s failure to cooperate or provide sufficient information
to such Requesting Party), (i) upon written notice by such Requesting Party to the Seller within 90 days after the Ratings Request Due Date, the
Amortization Date shall occur, and (ii) outstanding Capital shall thereafter bear interest at a rate per annum equal to 2.00% above the Alternate Base Rate.
Such Requesting Party shall pay the initial fees payable to the credit rating agencies for providing the Required Ratings.
Section 13.19 Amendment and Restatement. The amendment and restatement of the Original RPA pursuant to this Agreement shall be effective as of
the Closing Date, subject to the satisfaction of the conditions precedent set forth in Section 6.1. This Agreement shall amend and restate in its entirety the
Original RPA and shall have the effect of a substitution of terms of the Original RPA, but this Agreement will not have the effect of causing a novation,
refinancing or other repayment of the Original Obligations or a termination or extinguishment of the liens securing such Original Obligations, which
Original Obligations shall remain outstanding and repayable pursuant to the terms of this Agreement and which liens shall remain attached, enforceable and
perfected securing such Original Obligations and all additional Obligations arising under this Agreement. Each reference to the Original RPA in any of the
Transaction Documents, or any other document, instrument or agreement delivered in connection therewith, shall mean and be a reference to this
Agreement.
[SIGNATURE PAGES FOLLOW]
53
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed and delivered by their duly authorized officers as of the date
hereof.
CONSUMERS RECEIVABLES FUNDING II, LLC
By: /s/ Laura L. Mountcastle
Name: Laura L. Mountcastle
Title: President, Chief Executive Officer,
Chief Financial Officer and Treasurer
Notice Address:
Consumers Receivables Funding II, LLC
One Energy Plaza
Jackson, MI 49201−2276
Attn: James L Loewen
Fax: (517) 788−0412
CONSUMERS ENERGY COMPANY, as Servicer
By: /s/ Laura L. Mountcastle
Name: Laura L. Mountcastle
Title: Vice President and Treasurer
Notice Address:
Consumers Energy Company
One Energy Plaza
Jackson, MI 49201−2276
Attn: James L Loewen
Fax: (517) 788−0412
Signature Page to Amended and Restated Receivables Purchase Agreement
JPMORGAN PURCHASER GROUP:
FALCON ASSET SECURITIZATION COMPANY LLC, as a
Conduit
By: JPMorgan Chase Bank, N.A., its attorney−in−fact
By: /s/ Patrick Menichillo
Name: Patrick Menichillo
Title: Vice President
Notice Address:
c/o JPMorgan Chase Bank, N.A.
10 S. Dearborn, Floor 13
Chicago, IL 60603
Attn: Kathleen Rovner
Phone: (312) 336−2685
Fax: (312) 732−1844
Email: [email protected]
JPMORGAN CHASE BANK, N.A., as a Financial
Institution, as a Managing Agent and as
Administrative Agent
By: /s/ Patrick Menichillo
Name: Patrick Menichillo
Title: Vice President
Notice Address:
JPMorgan Chase Bank, N.A.
10 S. Dearborn, Floor 13
Chicago, IL 60603
Attn: Kathleen Rovner
Phone: (312) 336−2685
Fax: (312) 732−1844
Email: [email protected]
Signature Page to Amended and Restated Receivables Purchase Agreement
THE BANK OF TOKYO−MITSUBISHI UFJ, LTD., NEW YORK BRANCH PURCHASER GROUP:
VICTORY RECEIVABLES CORPORATION, as a Conduit
By: /s/ Frank B. Bilotta
Name: Frank B. Bilotta
Title: President
Notice Address:
Victory Receivables Corporation
1251 Avenue of Americas, 12th Floor
New York, NY 10020−1104
Attention: Securitization Group
Facsimile: 212−782−6448
THE BANK OF TOKYO−MITSUBISHI UFJ, LTD., NEW
YORK BRANCH, as a Managing Agent
By: /s/ Aditya Reddy
Name: Aditya Reddy
Title: Senior Vice President
Notice Address:
The Bank of Tokyo−Mitsubishi UFJ, Ltd., New
York Branch
1251 Avenue of Americas, 12th Floor
New York, NY 10020−1104
Attention: Securitization Group
Facsimile: 212−782−6448
UNION BANK, N.A., as a Financial Institution
Signature Page to Amended and Restated Receivables Purchase Agreement
By: /s/ Jeffrey Fesenmaier
Name: Jeffrey Fesenmaier
Title: Vice President
Notice Address:
Union Bank, N.A.
c/o Commercial Loan Operations
1980 Saturn St.
Monterey Park, CA 91754
Fax No: (800) 446−9951 or (323) 724−6198
Email: #clo [email protected]
For inquiries, call: Maria Suncin (323) 720−2870
Signature Page to Amended and Restated Receivables Purchase Agreement
EXHIBIT I
DEFINITIONS
As used in this Agreement, the following terms shall have the following meanings (such meanings to be equally applicable to both the singular and
plural forms of the terms defined):
“Accounting Changes” has the meaning set forth in Section 13.16.
“Accrual Period” means each calendar month, provided that the initial Accrual Period hereunder means the period from (and including) the date of the
initial purchase hereunder to (and including) the last day of the calendar month thereafter.
“Administrative Agent” has the meaning set forth in the preamble to this Agreement.
“Adverse Claim” means a lien, security interest, financing statement, charge or encumbrance, or other right or claim in, of or on any Person’s assets
or properties in favor of any other Person.
“Affected Financial Institution” has the meaning specified in Section 12.1(c).
“Affiliate” means, with respect to any Person, any other Person directly or indirectly controlling, controlled by, or under direct or indirect common
control with, such Person or any Subsidiary of such Person. A Person shall be deemed to control another Person if the controlling Person owns 10% or more
of any class of voting securities of the controlled Person or possesses, directly or indirectly, the power to direct or cause the direction of the management or
policies of the controlled Person, whether through ownership of stock, by contract or otherwise.
“Aggregate Capital” means, at any time, the aggregate amount of Capital of all Purchaser Interests outstanding on such date.
“Aggregate Reduction” means any reduction to Aggregate Capital pursuant to Section 1.3.
“Aggregate Reserves” means, at any time, the sum of the Loss Reserve, the Yield and Servicer Fee Reserve and the Dilution Reserve.
“Aggregate Unpaids” means, at any time, an amount equal to the sum of all Aggregate Capital and all other unpaid Obligations (whether due or
accrued) at such time.
“Agreement” means this Amended and Restated Receivables Purchase Agreement, as the same may be further amended, restated, supplemented or
otherwise modified from time to time.
Exh I − 1
“Alternate Base Rate” means, for any date, a rate per annum equal to the greatest of (a) the LIBO Rate for a one month Tranche Period at
approximately 11:00 a.m. London time on such day (or if such day is not a Business Day, the immediately preceding Business Day) plus 1.0%, (b) the
Federal Funds Effective Rate in effect on such day plus 1/2 of 1% and (c) the corporate base rate, prime rate or base rate of interest, as applicable, announced
by the Administrative Agent from time to time, changing when and as such rate changes (the “Base Rate”). Any change in the Alternate Base Rate due to a
change in the Base Rate, the Federal Funds Effective Rate or the LIBO Rate shall be effective from and including the effective date of such change in the
Base Rate, the Federal Funds Effective Rate or the LIBO Rate, respectively.
“Amortization Date” means the earliest to occur of (i) the day on which any of the conditions precedent set forth in Section 6.2 are not satisfied,
(ii) the Business Day immediately prior to the occurrence of an Amortization Event set forth in Section 9.1(d), (iii) the Business Day specified in a written
notice from the Administrative Agent following the occurrence of any other Amortization Event, (iv) the Liquidity Termination Date, (v) the date which is
at least fifteen (15) Business Days after the Administrative Agent’s receipt of written notice from the Seller that it wishes to terminate the facility evidenced
by this Agreement, provided that any prepayment resulting from such declaration of the Amortization Date shall be subject to the provisions of Section 2.1
and (vi) the Business Day specified in a written notice from the Administrative Agent to the Seller in accordance with Section 13.18.
“Amortization Event” has the meaning specified in Article IX.
“Applicable Margin” has the meaning set forth in the Fee Letter.
“Applicable Maximum Purchaser Interest” means the percentage as set forth in the schedule below based upon the Monthly Report Coverage Period
then in effect.
Monthly Report Coverage Period
January
February
March
April
May
June
July
August
September
Applicable Maximum Purchaser Interest
95%
92.5%
85%
85%
100%
100%
100%
95%
95%
Exh I − 2
Monthly Report Coverage Period
Applicable Maximum Purchaser Interest
October
100%
November
100%
December
100%
“Applicable Stress Factor” means 2.00.
“Applicable Unbilled Receivables Limit” means (i) at any time during a Level One Enhancement Period, 50%, (ii) at any time during a Level Two
Enhancement Period, 35%, and (iii) at any time during a Level Three Enhancement Period, 25%.
“Assignment Agreement” has the meaning set forth in Section 12.1(b).
“Bank Rate” means, the LIBO Rate or the Alternate Base Rate, as applicable, with respect to each Purchaser Interest of the Financial Institutions and
any Purchaser Interest of a Conduit, an undivided interest in which has been assigned by a Conduit to a Financial Institution or is otherwise funded by a
Financial Institution pursuant to a Liquidity Agreement.
“Base Rate” has the meaning set forth in the definition “Alternate Base Rate”.
“Billed Receivable” means a Receivable for which, as of the time of determination, an invoice addressed to the Obligor thereof has been sent.
“Broken Funding Costs” means for any Tranche Period or any tranche period for Commercial Paper for any Purchaser Interest which: (i) has its
Capital reduced without compliance by the Seller with the notice requirements hereunder, (ii) does not become subject to an Aggregate Reduction following
the delivery of any Reduction Notice, or (iii) is assigned or otherwise funded under a Liquidity Agreement or terminated prior to the date on which it was
originally scheduled to end, including by the written notice of the Seller that it wishes to terminate the facility evidenced by this Agreement; an amount
equal to the excess, if any, of (A) the Yield that would have accrued during the remainder of the Tranche Period or the tranche period for Commercial Paper
determined by the related Managing Agent to relate to such Purchaser Interest (as applicable) subsequent to the date of such reduction, assignment or
termination (or in respect of clause (ii) above, the date such Aggregate Reduction was designated to occur pursuant to the Reduction Notice) of the Capital
of such Purchaser Interest if such reduction, assignment, funding or termination had not occurred or such Reduction Notice had not been delivered, over
(B) the sum of (x) to the extent all or a portion of such Capital is allocated to another Purchaser Interest, the amount of Yield actually accrued during the
remainder of such period on such Capital for the new Purchaser Interest, and (y) to the extent such Capital is not allocated to another Purchaser Interest, the
income, if any, actually received during the remainder of such period by the holder of such Purchaser Interest from investing the portion of such Capital not
so allocated. In the event that the amount referred to in clause (B) (y) exceeds the amount referred to in clause (A), the relevant Purchaser or Purchasers
agree to pay to the Seller the amount of such excess. All Broken Funding Costs shall be due and payable hereunder upon demand.
Exh I − 3
“Business Day” means any day on which banks are not authorized or required to close in New York, New York, Chicago, Illinois or Los Angeles,
California and The Depository Trust Company of New York is open for business, and, if the applicable Business Day relates to any computation or payment
to be made with respect to the LIBO Rate, any day on which dealings in dollar deposits are carried on in the London interbank market.
“Capital” of any Purchaser Interest means, at any time, (A) the Purchase Price of such Purchaser Interest, minus (B) the sum of the aggregate amount
of Collections and other payments received by the Administrative Agent or any Managing Agent which in each case are applied to reduce such Capital in
accordance with the terms and conditions of this Agreement; provided that such Capital shall be restored (in accordance with Section 2.6) in the amount of
any Collections or other payments so received and applied if at any time the distribution of such Collections or payments are rescinded, returned or refunded
for any reason.
“Capital Lease” means any lease which has been or would be capitalized on the books of the lessee in accordance with GAAP.
“Capital Pro Rata Share” means, for any Purchaser at any time, the amount of Capital allocated to the Purchaser Interests of such Purchaser at such
time divided by the Aggregate Capital at such time.
“Change of Control” means (a) with respect to Originator, the acquisition by any Person, or two or more Persons acting in concert, of beneficial
ownership (within the meaning of Rule 13d−3 of the Securities and Exchange Commission under the Securities Exchange Act of 1934) of 50% or more of
the outstanding shares of voting stock of Originator and (b) with respect to the Seller, Originator’s failure to own, directly or indirectly, 100% of the issued
and outstanding equity of the Seller.
“Charged−Off Receivable” means a Receivable which, consistent with the Credit and Collection Policy, would be written off the Seller’s books as
uncollectible.
“CIP Regulations” has the meaning specified in Section 11.5(b).
“Closing Date” means November 23, 2010.
“CMS Entity” has the meaning set forth in Section 7.1(i).
“Collection Account” means each concentration account, depositary account, lock−box account or similar account in which any Collections are
collected or deposited and which is listed on Exhibit IV.
“Collection Account Agreement” means an agreement substantially in the form of Exhibit VI among the Servicer, the Seller, the Administrative
Agent and a Collection Bank.
“Collection Bank” means, at any time, any of the banks holding one or more Collection Accounts.
Exh I − 4
“Collection Notice” means a notice, in substantially the form of Annex A to Exhibit VI, from the Administrative Agent to a Collection Bank.
“Collections” means, with respect to any Receivable, all cash collections and other cash proceeds in respect of such Receivable, including, without
limitation, all yield, Finance Charges or other related amounts accruing in respect thereof and all cash proceeds of Related Security with respect to such
Receivable.
“Commercial Paper” means promissory notes of a Conduit issued by such Conduit in the commercial paper market.
“Commitment” means, for each Financial Institution, the commitment of such Financial Institution to purchase Purchaser Interests from the Seller in
an amount not to exceed (i) in the aggregate, the amount set forth opposite such Financial Institution’s name on Schedule A to this Agreement, or in the case
of a Financial Institution that becomes party to this Agreement pursuant to an Assignment Agreement or a Joinder Agreement, as applicable, the amount set
forth therein as such Financial Institution’s “Commitment,” in each case, as such amount may be modified in accordance with the terms hereof and (ii) with
respect to any individual purchase hereunder, its Pro Rata Share of the Purchase Price therefor.
“Concentration Limit” means, at any time, for any Obligor, 2% of the Outstanding Balance of all Eligible Receivables, or such other amount (a
“Special Concentration Limit”) for such Obligor designated by the Administrative Agent (with the consent of each Managing Agent); provided, that in the
case of an Obligor and any Affiliate of such Obligor, the Concentration Limit shall be calculated as if such Obligor and such Affiliate are one Obligor; and
provided, further, that the Administrative Agent may (and shall upon the direction of any Managing Agent), upon not less than three Business Days’ notice
to the Seller, cancel any Special Concentration Limit.
“Conduit” means a Person identified as a “Conduit” on Schedule A and its respective successors and permitted assigns.
“Conduit Purchase Limit” means for any Conduit, the maximum principal amount of the Purchaser Interests which may be purchased by such
Conduit as set forth on Schedule A (or on the applicable schedule to the Assignment Agreement or Joinder Agreement pursuant to which such Conduit
became a party hereto), subject to assignment pursuant to Section 12.1(a), as such amount may be reduced in accordance with Section 1.1(b).
“Consumers” means Consumers Energy Company, a Michigan corporation.
“Contingent Obligation” of a Person means any agreement, undertaking or arrangement by which such Person assumes, guarantees, endorses,
contingently agrees to purchase or provide funds for the payment of, or otherwise becomes or is contingently liable upon, the obligation or liability of any
other Person, or agrees to maintain the net worth or working capital or other financial condition of any other Person, or otherwise assures any creditor of
such other Person against loss, including, without limitation, any comfort letter, operating agreement, take−or−pay contract or application for a letter of
credit.
Exh I − 5
“Contract” means, with respect to any Receivable, the invoices and any instruments, agreements or other writings pursuant to which such Receivable
arises or which evidences such Receivable.
“CP Rate” means, for any Accrual Period for any Purchaser Interest owned by a Conduit if and to the extent such Conduit funds the Purchase or
maintenance of its Purchaser Interest by the issuance of commercial paper notes during such Settlement Period, the per annum rate that reflects, for each day
during such Settlement Period, the sum of (i) discount or yield accrued on Pooled Commercial Paper on such day, plus (ii) any and all accrued commissions
in respect of placement agents and Commercial Paper dealers, and issuing and paying agent fees incurred, in respect of such Pooled Commercial Paper for
such day, plus (iii) other costs associated with funding small or odd−lot amounts with respect to all receivable purchase facilities which are funded by
Pooled Commercial Paper for such day, minus (iv) any accrual of income net of expenses received on such day from investment of collections received
under all receivable purchase facilities funded substantially with Pooled Commercial Paper, minus (v) any payment received on such day net of expenses in
respect of Broken Funding Costs related to the prepayment of any Purchaser Interest of a Conduit pursuant to the terms of any receivable purchase facilities
funded substantially with Pooled Commercial Paper. In addition to the foregoing costs, if the Seller shall request any Incremental Purchase during any
period of time determined by the applicable Managing Agent in its sole discretion to result in an incrementally higher CP Rate applicable to such additional
Purchase, the Capital associated with any such Incremental Purchase shall, during such period, be deemed to be funded by such Conduit in a special pool
(which may include capital associated with other receivable purchase facilities) for purposes of determining such higher CP Rate applicable only to such
special pool and charged each day during such period against such Capital.
“Credit Agreement” means that certain Fourth Amended and Restated Credit Agreement, dated as of March 30, 2007 (as in effect on August 14,
2007) among Consumers, the financial institutions from time to time party thereto as “Banks” and JPMorgan, as Agent.
“Credit and Collection Policy” means Originator’s credit and collection policies and practices relating to Contracts and Receivables existing on the
date hereof and summarized in Exhibit VIII hereto, as modified from time to time in accordance with this Agreement, or as required under regulatory
directive.
“Customer Deposits” means, at any time, the aggregate amount of cash deposits held by Consumers against Obligors’ accounts.
“Daily Report” means a report, in substantially the form of Exhibit XII hereto (appropriately completed), furnished by the Servicer to the
Administrative Agent and each Managing Agent pursuant to Section 8.5.
“Days Sales Outstanding Ratio” means, for any Accrual Period, (i) the aggregate Outstanding Balance of all Receivables as of the last day of the
Accrual Period ending one Accrual Period prior to such Accrual Period, divided by (ii) the aggregate amount of Collections received during such Accrual
Period, multiplied by (iii) 30.
Exh I − 6
“Debt Rating” means the rating then assigned by S&P, Moody’s or Fitch, as applicable, (a) at any time prior to the FMB Release Date, with respect to
the Senior Debt, and (b) at any time thereafter, with respect to the Originator’s senior unsecured long−term debt (without credit enhancement).
“Deemed Collections” means the aggregate of all amounts the Seller shall have been deemed to have received as a Collection of a Receivable. The
Seller shall be deemed to have received a Collection of a Receivable to the extent that (i) the Outstanding Balance of any such Receivable is either
(x) reduced as a result of any defective or rejected goods or services, any discount or any adjustment or otherwise by the Seller (other than cash Collections
on account of such Receivable) or (y) reduced or canceled as a result of a setoff in respect of any claim by any Person (whether such claim arises out of the
same or a related transaction or an unrelated transaction) or (ii) any of the representations or warranties in Article V are no longer true with respect to such
Receivable.
“Default Fee” means with respect to any amount due and payable by the Seller (or required to be deposited by the Servicer) in respect of any
Aggregate Unpaids, an amount equal to the greater of (i) $1000 and (ii) interest on any such unpaid Aggregate Unpaids at a rate per annum equal to 2.00%
above the Alternate Base Rate.
“Defaulted Receivable” means a Receivable that becomes a Charged−Off Receivable prior to 91 calendar days after the original due date.
“Delinquent Receivable” means a Billed Receivable as to which any payment, or part thereof, remains unpaid for sixty−one (61) days or more from
the original due date for such payment.
“Dilution Horizon Factor” means, at any time, a fraction, the numerator of which equals the sum of (a) the aggregate Original Balance of all Billed
Receivables originated during the two most recently ended Accrual Periods and (b) the aggregate Original Balance of all Unbilled Receivables as of the end
of the most recently ended Accrual Period, and the denominator of which equals the Net Receivables Balance as of the end of the most recently ended
Accrual Period.
“Dilution Percentage” means as of any date of determination the greater of (i) 6% and (ii) a percentage calculated in accordance with the following
formula:
DP = [(ASF x ADR) + [(HDR − ADR) x (HDR/ADR)]] x DHF
where:
DP
ADR
ASF
HDR
DHF
=
=
=
=
=
the Dilution Percentage;
the average of the monthly Dilution Ratios occurring during the 12 most recent Accrual Periods;
Applicable Stress Factor;
the highest Dilution Ratio occurring during the 12 most recent Accrual Periods; and
the Dilution Horizon Factor at such time.
Exh I − 7
“Dilution Ratio” means, for any Accrual Period, a percentage equal to (i) the aggregate amount of Dilutions which occurred during such Accrual
Period divided by (ii) the aggregate Original Balance of all Receivables generated by the Originator during such Accrual Period.
“Dilution Reserve” means, at any time, an amount equal to the product of (a) the Net Receivables Balance as of the close of business on such date,
times (b) the Dilution Percentage.
“Dilutions” means, at any time or for any period, the aggregate amount of reductions or cancellations described in clause (i) of the definition of
“Deemed Collections”.
“Eligible Receivable” means, at any time, a Receivable:
(i) which is not a Charged−Off Receivable, a Delinquent Receivable, a WPP Receivable or a Rate I Receivable,
(ii) which by its terms is due and payable within 30 days of the original billing date therefor and has not had its payment terms extended,
(iii) which is an “account” within the meaning of Section 9−102 of the UCC of all applicable jurisdictions,
(iv) which is denominated and payable only in United States dollars in the United States,
(v) the Obligor of which, if a natural person, maintains a service address in the United States, or if a corporation or other business organization,
maintains a place of business in the United States,
(vi) the Obligor of which (a) is not an Affiliate of (1) any party hereto or (2) Originator and (b) to the knowledge of either Servicer or Seller, has not
taken any action, or suffered any event to occur, of the type described in Section 9.1(d) (as if references to Seller Party therein refer to such Obligor),
(vii) which arises under a Contract which, together with such Receivable, is in full force and effect and constitutes the legal, valid and binding
obligation of the related Obligor enforceable against such Obligor in accordance with its terms subject to no offset, rescission, counterclaim or other
defense, except as limited by bankruptcy, insolvency or other similar laws,
(viii) which arises under a Contract which (A) does not require the Obligor under such Contract to consent to the transfer, sale or assignment of the
rights to payment of Originator or any of its assignees under such Contract and (B) does not contain a confidentiality provision that purports to restrict
the ability of any Purchaser to exercise its rights under this Agreement, including, without limitation, its right to review the Contract,
Exh I − 8
(ix) which arises under a Contract that contains an obligation to pay a specified sum of money, contingent only upon the sale of goods, electricity or
gas or provision of services by Originator and not by any other person (in whole or in part),
(x) which, if an Unbilled Receivable, has been included on a Monthly Report as an Eligible Receivable during a period of not more than thirty−six
(36) consecutive calendar days,
(xi) which, together with the Contract related thereto, does not contravene any law, rule or regulation applicable thereto (including, without limitation,
any law, rule and regulation relating to truth in lending, fair credit billing, fair credit reporting, equal credit opportunity, fair debt collection practices and
privacy) and with respect to which no part of the Contract related thereto is in violation of any such law, rule or regulation,
(xii) which satisfies in all material respects all applicable requirements of the applicable Credit and Collection Policy,
(xiii) which was originated in the ordinary course of Originator’s business,
(xiv) which is not subject to any right of rescission, set−off, counterclaim, any other defense (including defenses arising out of violations of usury
laws) of the applicable Obligor against the Originator (it being understood that only a portion of a Receivable equal to the amount of such partial
rescission, set−off, counterclaim or defense, if the amount of such partial rescission, set−off, counterclaim or defense can be quantified, shall be deemed
not to be an Eligible Receivable) or any other Adverse Claim, and the Obligor thereon holds no right as against the Originator,
(xv) as to which Originator has satisfied and fully performed all obligations on its part with respect to such Receivable required to be fulfilled by it,
and no further action is required to be performed by any Person with respect thereto other than payment thereon by the applicable Obligor, and
(xvi) all right, title and interest to and in which has been validly transferred by the Originator directly to the Seller under and in accordance with the
Receivables Sale Agreement, and the Seller has good and marketable title thereto free and clear of any Adverse Claim.
“EMPP Receivable” means a Receivable arising under an Obligor’s account which is subject to a balanced or levelized payment plan of Originator.
“ERISA” means the Employee Retirement Income Security Act of 1974, as amended from time to time.
“Excess Government Receivables Amount” means at any time, an amount equal to the positive difference, if any, between (i) the aggregate
Outstanding Balance of the Eligible Receivables consisting of Government Receivables at such time and (ii) the Government Receivable Concentration
Limit at such time.
Exh I − 9
“Excess Non−Energy Receivables Amount” means at any time, an amount equal to the positive difference, if any, between (i) the sum of (A) the
aggregate Original Balance of the Eligible Receivables consisting of Non−Energy Receivables originated during the immediately preceding Accrual Period
plus (B), without duplication of the amount set forth in clause (A), the aggregate amount of Finance Charges then due and owing with respect to all Eligible
Receivables at such time and (ii) the Non−Energy Receivables Limit at such time.
“Excess Unbilled Receivables Amount” means at any time, an amount equal to the positive difference, if any, between (i) the aggregate Outstanding
Balance of the Eligible Receivables consisting of Unbilled Receivables as of the last day of the most recently ended Accrual Period and (ii) the product of
(a) the Applicable Unbilled Receivables Limit at such time, multiplied by (b) the aggregate Outstanding Balance of all Receivables as of the last day of the
most recently ended Accrual Period.
“Falcon” means Falcon Asset Securitization Company LLC, a Delaware limited liability company.
“Federal Bankruptcy Code” means Title 11 of the United States Code entitled “Bankruptcy,” as amended and any successor statute thereto.
“Federal Funds Effective Rate” means, for any period, a fluctuating interest rate per annum for each day during such period equal to (a) the weighted
average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers, as published for
such day (or, if such day is not a Business Day, for the preceding Business Day) by the Federal Reserve Bank of New York in the Composite Closing
Quotations for U.S. Government Securities; or (b) if such rate is not so published for any day which is a Business Day, the average of the quotations at
approximately 11:30 a.m. (New York time) for such day on such transactions received by JPMC from three federal funds brokers of recognized standing
selected by it.
“Fee Letter” means that certain letter agreement dated as of the date hereof among the Seller, the Purchasers, the Managing Agents and the
Administrative Agent, as it may be further amended, restated, supplemented or otherwise modified from time to time.
“Finance Charges” means, with respect to a Contract, any finance, interest, late payment charges or similar charges owing by an Obligor pursuant to
such Contract.
“Financial Institutions” means, as to any Purchaser Group, each of the financial institutions listed on Schedule A as a “Financial Institution” for such
Purchaser Group, together with its respective successors and permitted assigns.
“Financing Order” means the financing order issued by the Michigan Public Service Commission on October 24, 2000, as amended.
“Fitch” means Fitch Inc.
“FMB Release Date” has the meaning set forth in the Credit Agreement.
Exh I − 10
“Funding Agreement” means this Agreement and any agreement or instrument executed by any Funding Source with or for the benefit of any Conduit
(including any Liquidity Agreement).
“Funding Source” means (i) any Financial Institution, (ii) any insurance company, bank or other funding entity providing liquidity, credit
enhancement or back−up purchase support or facilities to any Conduit, (iii) any agent, administrator or manager of any Conduit, (iv) any bank holding
company in respect of any of the foregoing or (v) any Conduit or any entity that is consolidated with any Conduit for financial and/or regulatory accounting
purposes.
“GAAP” means generally accepted accounting principles in the United States of America as in effect on the date hereof, applied on a basis consistent
with those used in the preparation of the financial statements of Consumers for the period ending December 31, 2009 (except, for purposes of the financial
statements required to be delivered pursuant to Sections 7.1, for changes concurred in by the Consumers’ independent public accountants).
“Government Receivable” means a Receivable the Obligor of which is a federal, state or local government, or an agency, branch, division, district or
other political subdivision thereof.
“Government Receivable Concentration Limit” means, at any time, with respect to Government Receivables that are otherwise Eligible Receivables,
an amount equal to the lesser of (A) $20,000,000 and (B) 5% of the aggregate Outstanding Balance of all Eligible Receivables at such time.
“Group Purchase Limit” means, for each Purchaser Group, the amount set forth on Schedule A (or in the Joinder Agreement pursuant to which such
Purchaser Group became party hereto), subject to assignment pursuant to Section 12.1, as such amount may be reduced in accordance with Section 1.1(b).
“Incremental Purchase” means a purchase of one or more Purchaser Interests which increases the total outstanding Aggregate Capital hereunder.
“Indebtedness” of a Person means such Person’s (i) obligations for borrowed money, (ii) obligations representing the deferred purchase price of
property or services (other than accounts payable arising in the ordinary course of such Person’s business payable on terms customary in the trade),
(iii) obligations, whether or not assumed, secured by liens or payable out of the proceeds or production from property now or hereafter owned or acquired
by such Person, (iv) obligations which are evidenced by notes, acceptances, or other instruments, (v) capitalized lease obligations, (vi) net liabilities under
interest rate swap, exchange or cap agreements, (vii) Contingent Obligations and (viii) liabilities in respect of unfunded vested benefits under plans covered
by Title IV of ERISA.
“Independent Manager” means, with respect to the Seller, a manager who (i) is not, and within the previous five years was not (except solely by virtue
of such Person’s serving as, or being an Affiliate of any other Person serving as, an independent director or manager, as applicable, of Consumers or any
bankruptcy−remote special purpose entity that is an Affiliate of Consumers or the Seller) (a) a stockholder, member, partner, director, officer, employee,
Exh I − 11
Affiliate, customer, supplier, creditor or independent contractor of, or any Person that has received any benefit in any form whatever from (other than in
such manager’s capacity as a ratepayer or customer of Consumers in the ordinary course of business), or any Person that has provided any service in any
form whatsoever to, or any major creditor (or any Affiliate of any major creditor) of, the Seller, Consumers, or any of their Affiliates, or (b) any Person
owning beneficially, directly or indirectly, any outstanding shares of common stock, any limited liability company interests or any partnership interests, as
applicable, of the Seller, Consumers or any of their Affiliates, or of any major creditor (or any Affiliate of any major creditor) of any of the foregoing, or a
stockholder, member, partner, director, officer, employee, Affiliate, customer, supplier, creditor or independent contractor of, or any Person that has
received any benefit in any form whatever from (other than in such Person’s capacity as a ratepayer or customer of Consumers in the ordinary course of
business), or any Person that has provided any service in any form whatever to, such beneficial owner or any of such beneficial owner’s Affiliates, or (c) a
member of the immediate family of any person described above; provided that the indirect or beneficial ownership of stock through a mutual fund or similar
diversified investment vehicle with respect to which the owner does not have discretion or control over the investments held by such diversified investment
vehicle shall not preclude such owner from being an Independent Manager; (ii) has prior experience as an independent director or independent manager for
a corporation or limited liability company whose charter documents required the unanimous consent of all independent directors or independent managers,
as applicable, thereof before such corporation or limited liability company could consent to the institution of bankruptcy or insolvency proceedings against
it or could file a petition seeking relief under any applicable federal or state law relating to bankruptcy and (iii) has at least three years of employment
experience with one or more entities that provide, in the ordinary course of their respective businesses, advisory, management or placement services to
issuers of securitization or structured finance instruments, agreements or securities. For purposes of this definition, “major creditor” shall mean a natural
person or business entity to which the Seller, Consumers or any of their Affiliates has outstanding indebtedness for borrowed money or credit on open
account in a sum sufficiently large as would reasonably be expected to influence the judgment of the proposed Independent Manager adversely to the
interests of the Seller when the interests of that Person are adverse to those of the Seller.
“Intercreditor Agreement” means the Intercreditor Agreement dated as of May 22, 2003 among JPMC (as successor by merger to Bank One, NA
(Main Office Chicago)), Falcon Asset Securitization Company LLC, The Bank of New York, as trustee, Consumers Funding LLC, Consumers Receivables
Funding II, LLC and Consumers Energy Company, as the same may be amended, restated, supplemented or otherwise modified from time to time.
“JPMC” as the meaning set forth in the preamble to this Agreement.
“Level One Enhancement Period” means any period during which Consumers’ Debt Rating shall be BBB− or higher as rated by S&P and Baa3 or
higher as rated by Moody’s.
“Level Two Enhancement Period” means any period during which Consumers’ Debt Rating shall be lower than BBB− as rated by S&P or Baa3 as
rated by Moody’s but higher than BB− by S&P and Ba3 by Moody’s.
Exh I − 12
“Level Three Enhancement Period” means any period during which Consumers’ Debt Rating shall be BB− or lower as rated by S&P or Ba3 or lower
as rated by Moody’s.
“LIBO Rate” means the rate per annum equal to the sum of (i) (a) the applicable British Bankers’ Association Interest Settlement Rate for deposits in
U.S. dollars appearing on Reuters Screen FRBD as of 11:00 a.m. (London time) two (2) Business Days prior to the first day of the relevant Tranche Period,
and having a maturity equal to such Tranche Period, provided that, (A) if Reuters Screen FRBD is not available to the Administrative Agent for any reason,
the applicable LIBO Rate for the relevant Tranche Period shall instead be the applicable British Bankers’ Association Interest Settlement Rate for deposits
in U.S. dollars as reported by any other generally recognized financial information service as of 11:00 a.m. (London time) two (2) Business Days prior to
the first day of such Tranche Period, and having a maturity equal to such Tranche Period, and (B) if no such British Bankers’ Association Interest
Settlement Rate is available to the Administrative Agent, the applicable LIBO Rate for the relevant Tranche Period shall instead be the rate determined by
the Administrative Agent to be the rate at which JPMC offers to place deposits in U.S. dollars with first−class banks in the London interbank market at
approximately 11:00 a.m. (London time) two (2) Business Days prior to the first day of such Tranche Period, in the approximate amount to be funded at the
LIBO Rate and having a maturity equal to such Tranche Period, divided by (b) one minus the maximum aggregate reserve requirement (including all basic,
supplemental, marginal or other reserves) which is imposed against the Administrative Agent in respect of Eurocurrency liabilities, as defined in
Regulation D of the Board of Governors of the Federal Reserve System as in effect from time to time (expressed as a decimal), applicable to such Tranche
Period plus (ii) the Applicable Margin. The LIBO Rate shall be rounded, if necessary, to the next higher 1/16 of 1%.
“Liquidity Agreement” means an agreement entered into by a Conduit and the related Financial Institutions in its Purchaser Group in connection
herewith for the purpose of providing liquidity with respect to the Capital funded by such Conduit under this Agreement (it being understood that a Conduit
may enter into more than one Liquidity Agreement).
“Liquidity Termination Date” means November 22, 2011.
“Lock−Box” means each postal box or code listed on Exhibit IV over which the Administrative Agent has been granted control pursuant to a P.O.
Box Transfer Notice.
“Loss Horizon Factor” means, at any time, a fraction, the numerator of which equals the sum of (a) the aggregate Original Balance of all Billed
Receivables originated during the three Accrual Periods ending immediately prior to the last day of the most recently ended Accrual Period and (b) the
aggregate Original Balance of Unbilled Receivables as of the last day of the most recently ended Accrual Period, and the denominator of which equals the
Net Receivables Balance as of the end of the most recently ended Accrual Period.
“Loss Percentage” means at any time the greater of (i) 15% and (ii) a percentage calculated in accordance with the following formula:
LP = ASF x LHF x LR
Exh I − 13
where:
ASF
=
Applicable Stress Factor;
LP
=
the Loss Percentage;
LHF
=
the Loss Horizon Factor; and
LR
=
the highest three month rolling average of the Loss Ratios occurring during the 12 most recent Accrual Periods.
“Loss Ratio” means, at any time, a ratio (expressed as a percentage) equal to (i) the sum of (a) the aggregate Outstanding Balance of all Billed
Receivables which are more than ninety (90) and less than one hundred twenty−one (121) days past due as of the last day of the most recently ended
Accrual Period and (b) all Receivables that became Defaulted Receivables during such Accrual Period divided by (ii) the aggregate Original Balance of all
Receivables originated during the Accrual Period which ended three Accrual Periods prior to such Accrual Period.
“Loss Reserve” means, at any time, an amount equal to the Loss Percentage multiplied by the Net Receivables Balance as of the close of business of
the Servicer on such date.
“Loss−to−Liquidation Ratio” means, for any Accrual Period, the ratio (expressed as a percentage) equal to (i) all Charged−Off Receivables written
off during such Accrual Period divided by (ii) the aggregate amount of Collections received during such Accrual Period.
“Manager” has the meaning specified in the Limited Liability Company Agreement of the Seller.
“Managing Agent” means, as to any Conduit or Financial Institution, the Person listed on Schedule A as the “Managing Agent” for such Purchasers,
together with its respective successors and permitted assigns.
“Material Adverse Effect” means a material adverse effect on (i) the financial condition or operations of either Seller Party and its Subsidiaries, taken
as a whole (except that a downgrade in any debt rating of either Seller Party or any of its Subsidiaries shall not by itself have any such material adverse
effect), (ii) the ability of any Seller Party to perform its obligations under this Agreement or any other Transaction Document, (iii) the legality, validity or
enforceability of this Agreement or any other Transaction Document, (iv) any Purchaser’s interest in the Receivables generally or in any significant portion
of the Receivables, the Related Security or the Collections with respect thereto, or (v) the collectibility of the Receivables generally or of any material
portion of the Receivables.
“Monthly Report Coverage Period” means a period of time commencing on each due date for a Monthly Report and ending on the day occurring
immediately prior to the due date for the next Monthly Report.
Exh I − 14
“Monthly Report” means a report, in substantially the form of Exhibit IX hereto (appropriately completed), furnished by the Servicer to the
Administrative Agent and each Managing Agent pursuant to Section 8.5.
“Moody’s” means Moody’s Investors Service, Inc.
“1945 Indenture” means that certain Indenture (as the same has been amended, restated, supplemented or otherwise modified from time to time) dated
as of September 1, 1945 between Originator (formerly known as Consumers Power Company) and JPMorgan Chase Bank (as successor to City Bank
Farmers Trust Company), as Trustee.
“Net Receivables Balance” means, at any time, the aggregate Outstanding Balance of all Eligible Receivables at such time, minus the sum (without
duplication) of (i) the greater of (a) $3,000,000 and (b) the aggregate amount by which the Outstanding Balance of all Eligible Receivables of each Obligor
and its Affiliates exceeds the Concentration Limit for such Obligor, (ii) the Excess Unbilled Receivables Amount at such time, (iii) the aggregate
Outstanding Balance of Unapplied Cash and Credits at such time, (iv) the Customer Deposits at such time, (v) the Unbilled Receivables Offset Amount at
such time, (vi) the Excess Government Receivables Amount at such time, (vii) the Excess Non−Energy Receivables Amount at such time and (viii) the SPP
Arrearage Amount.
“New Purchasers” means Victory Receivables Corporation and Union Bank, N.A.
“Non−Energy Receivable” means a Receivable arising from the sale of goods other than electricity or gas.
“Non−Energy Receivables Limit” means, at any time, with respect to Non−Energy Receivables that are otherwise Eligible Receivables, an amount
equal to the lesser of (A) $8,000,000 and (B) 2% of the aggregate Outstanding Balance of all Eligible Receivables at such time.
“Non−Renewing Financial Institution” has the meaning set forth in Section 12.4.
“Obligations” shall have the meaning set forth in Section 2.1.
“Obligor” means a Person obligated to make payments pursuant to a Contract.
“Off−Balance Sheet Liability” of a Person means (i) any repurchase obligation or liability of such Person with respect to accounts or notes receivable
sold by such Person, (ii) any liability under any sale and leaseback transaction which is not a Capital Lease, (iii) any liability under any so−called “synthetic
lease” transaction entered into by such Person, or (iv) any obligation arising with respect to any other transaction which is the functional equivalent of or
takes the place of borrowing but which does not constitute a liability on the balance sheets of such Person, but excluding from this clause (iv) Operating
Leases.
“Operating Lease” of a Person means any lease of Property (other than a Capital Lease) by such Person as lessee.
Exh I − 15
“Original Balance” means, with respect to any Receivable, the Outstanding Balance of such Receivable on the date it was originated.
“Original Obligations” has the meaning set forth in the preliminary statements to this Agreement.
“Original RPA” has the meaning set forth in the preliminary statements to this Agreement.
“Originator” means Consumers, in its capacity as seller under the Receivables Sale Agreement.
“Outstanding Balance” of any Receivable at any time means the then outstanding principal balance thereof.
“Participant” has the meaning set forth in Section 12.2.
“Past Due Ratio” means, for any Accrual Period, (i) the aggregate Outstanding Balance of all Receivables which are more than 60 days past due as of
the last day of such Accrual Period divided by (ii) the aggregate Outstanding Balance of all Receivables.
“Person” means an individual, partnership, corporation (including a business trust), limited liability company, joint stock company, trust,
unincorporated association, joint venture or other entity, or a government or any political subdivision or agency thereof.
“P.O. Box Transfer Notice” means an agreement substantially in the form of Exhibit XI, or such other agreement in form and substance reasonably
acceptable to the Administrative Agent.
“Pooled Commercial Paper” means Commercial Paper notes of a Conduit subject to any particular pooling arrangement by such Conduit, but
excluding Commercial Paper issued by such Conduit for a tenor and in an amount specifically requested by any Person in connection with any agreement
effected by such Conduit.
“Potential Amortization Event” means an event which, with the passage of time or the giving of notice, or both, would constitute an Amortization
Event.
“Property” of a Person means any and all property, whether real, personal, tangible, intangible, or mixed, of such Person, or other assets owned,
leased or operated by such Person.
“Proposed Reduction Date” has the meaning set forth in Section 1.3.
“Pro Rata Share” means, as the context requires:
(i) for each Purchaser Group, as among all Purchaser Groups, the ratio at such time (expressed as a percentage) of the aggregate Commitments of
the Financial
Exh I − 16
Institutions in such Purchaser Group to the aggregate Commitments of all Financial Institutions; and
(ii) for each Financial Institution as among all Financial Institutions within such Purchaser Group, the ratio at such time (expressed as a
percentage) of the Commitment of such Financial Institution to the aggregate Commitment of all Financial Institutions within such Purchaser Group; and
(iii) with respect to the allocation of any payment or distribution hereunder, for each Purchaser, the ratio at such time (expressed as a percentage)
of the aggregate Capital in respect of the Purchaser Interests held by such Purchaser to the Aggregate Capital in respect of the Purchaser Interests held by
all Purchasers.
“Purchase Allocation” has the meaning set forth in Section 1.2.
“Purchase Limit” means $250,000,000, as such amount may be decreased in accordance with Section 1.1(b).
“Purchase Notice” has the meaning set forth in Section 1.2.
“Purchase Price” means, with respect to any Incremental Purchase of a Purchaser Interest, the amount paid to the Seller for such Purchaser Interest
which shall not exceed the least of (i) the amount requested by the Seller in the applicable Purchase Notice, (ii) the unused portion of the Purchase Limit on
the applicable purchase date and (iii) the amount (which may be an amount less than requested by the Seller in such Purchase Notice) which, when added to
the Aggregate Capital, would not cause the Purchaser Interests to exceed the Applicable Maximum Purchaser Interest.
“Purchaser Group” means a Conduit, its related Financial Institution and their related Managing Agent.
“Purchasers” means any Conduit or Financial Institution, as applicable.
“Purchaser Interest” means, at any time, an undivided percentage ownership interest (computed as set forth below) associated with a designated
amount of Capital, selected pursuant to the terms and conditions hereof in (i) each Receivable arising prior to the time of the most recent computation or
recomputation of such undivided interest, (ii) all Related Security with respect to each such Receivable, and (iii) all Collections with respect to, and other
proceeds of, each such Receivable. Each such undivided percentage interest shall equal:
C
NRB−AR
where:
C
=
the Capital of such Purchaser Interest.
AR
=
the Aggregate Reserves.
Exh I − 17
NRB
=
the Net Receivables Balance.
Such undivided percentage ownership interest shall be initially computed on its date of purchase. Thereafter, until the Amortization Date, each Purchaser
Interest shall be automatically recomputed (or deemed to be recomputed) on each day prior to the Amortization Date. The variable percentage represented
by any Purchaser Interest as computed (or deemed recomputed) as of the close of the Business Day immediately preceding the Amortization Date shall
remain constant at all times thereafter.
“Purchasing Financial Institution” has the meaning set forth in Section 12.1(b).
“Rate I Receivable” means a Receivable, the Obligor of which is a non−residential customer, and which arises under a tariff available to any such
Obligor desiring interruptible electric service where the billing demand is 5,000 kW or more, issued under the authority of the Michigan Public Service
Commission dated December 22, 2005 in Case No. U−14347.
“Receivable” means all indebtedness and other obligations owed to the Seller or the Originator (at the time it arises, and before giving effect to any
transfer or conveyance under the Receivables Sale Agreement or hereunder) or in which the Seller or the Originator has a security interest or other interest,
including, without limitation, any indebtedness, obligation or interest constituting an account, chattel paper, instrument or general intangible, arising in
connection with the sale of goods, electricity or gas or the rendering of services by Originator, and which is identified on the books and records of the
Originator or the Seller (including its accounting system) with the account code “Account 1460000 Customer Receivables” or “Account 1460201 — A/R
Other” (or, in each case, any subsequent or replacement account code used to identify similar indebtedness or other similar obligations owed to the Seller or
Originator), and further includes, without limitation, the obligation to pay any Finance Charges with respect thereto. Indebtedness and other rights and
obligations arising from any one transaction, including, without limitation, indebtedness and other rights and obligations represented by an individual
invoice, shall constitute a Receivable separate from a Receivable consisting of the indebtedness and other rights and obligations arising from any other
transaction; provided, that any indebtedness, rights or obligations referred to in the immediately preceding sentence shall be a Receivable regardless of
whether the account debtor, the Seller or the Originator treats such indebtedness, rights or obligations as a separate payment obligation. Notwithstanding the
foregoing, “Receivable” does not include (i) Transferred Securitization Property or (ii) the books and records relating solely to the Transferred
Securitization Property; provided that the determination of what constitutes collections of the Securitization Charges in respect of Transferred Securitization
Property shall be made in accordance with the allocation methodology specified in Annex 2 to the Servicing Agreement.
“Receivables Sale Agreement” means that certain Receivables Sale Agreement, dated as of May 22, 2003, between Originator and Seller, as the same
has been amended prior to the date hereof and may be further amended, restated, supplemented or otherwise modified from time to time.
“Records” means, with respect to any Receivable, all Contracts and other documents, books, records and other information (including, without
limitation, computer
Exh I − 18
programs, tapes, disks, punch cards, data processing software and related property and rights) relating to such Receivable, any Related Security therefor and
the related Obligor.
“Reduction Notice” has the meaning set forth in Section 1.3.
“Regulatory Change” has the meaning set forth in Section 10.3(a).
“Reinvestment” has the meaning set forth in Section 2.2.
“Related Security” means, with respect to any Receivable:
(i) all of the Seller’s interest in the inventory and goods (including returned or repossessed inventory and goods), if any, the sale of which by
Originator gave rise to such Receivable, and all insurance contracts with respect thereto,
(ii) all other security interests or liens and property subject thereto from time to time, if any, purporting to secure payment of such Receivable,
whether pursuant to the Contract related to such Receivable or otherwise, together with all financing statements and security agreements describing any
collateral securing such Receivable,
(iii) all guaranties, letters of credit, letter of credit rights, supporting obligations, insurance and other agreements or arrangements of whatever
character from time to time supporting or securing payment of such Receivable whether pursuant to the Contract related to such Receivable or otherwise,
(iv) all service contracts and other contracts and agreements associated with such Receivable,
(v) all Records related to such Receivable,
(vi) all of the Seller’s right, title and interest in, to and under any contracts or agreements providing for the servicing of such Receivable,
(vii) all of the Seller’s right, title and interest in, to and under the Receivables Sale Agreement in respect of such Receivable, and
(viii) all proceeds of any of the foregoing.
“Required Financial Institutions” means, at any time, Financial Institutions with Commitments equalling 100% of the Purchase Limit.
“Required Notice Period” means the number of days required notice set forth below applicable to the Aggregate Reduction indicated below:
Aggregate Reduction
d$100,000,000
>$100,000,000
Required Notice Period
one Business Days
two Business Days
Exh I − 19
“Responsible Officer” means, with respect to any Person, its chief financial officer, the chief accounting officer, the senior vice president−finance, the
treasurer, an assistant treasurer, or corporate controller, or any other officer of whose primary duties are similar to the duties of any of the previously listed
officers.
“Restricted Junior Payment” means (i) any dividend or other distribution, direct or indirect, on account of any shares of any class of capital stock of
the Seller now or hereafter outstanding, except a dividend payable solely in shares of that class of stock or in any junior class of stock of the Seller, (ii) any
redemption, retirement, sinking fund or similar payment, purchase or other acquisition for value, direct or indirect, of any shares of any class of capital stock
of the Seller now or hereafter outstanding, (iii) any payment or prepayment of principal of, premium, if any, or interest, fees or other charges on or with
respect to, and any redemption, purchase, retirement, defeasance, sinking fund or similar payment and any claim for rescission with respect to the
Subordinated Loans (as defined in the Receivables Sale Agreement), (iv) any payment made to redeem, purchase, repurchase or retire, or to obtain the
surrender of, any outstanding warrants, options or other rights to acquire shares of any class of capital stock of the Seller now or hereafter outstanding, and
(v) any payment of management fees by the Seller (except for reasonable management fees to Originator or its Affiliates in reimbursement of actual
management services performed).
“S&P” means Standard & Poor’s Ratings Service, a division of The McGraw−Hill Companies, Inc.
“Securitization Charge” has the meaning specified in Appendix A to the Servicing Agreement.
“Securitization Charge Collections” has the meaning specified in Appendix A to the Servicing Agreement.
“Securitization Charge Sale Agreement” means the Sale Agreement dated as of November 8, 2001 between Consumers and Consumers Funding LLC,
as the same may from time to time be amended, restated, supplemented or otherwise modified with the consent of the Administrative Agent and each
Managing Agent.
“Securitization Property” means “securitization property” within the meaning of the Michigan Customer Choice and Electricity Reliability Act, 2000
PA 141 and 2000 PA 142 as approved in the Financing Order.
“Seller” has the meaning set forth in the preamble to this Agreement.
“Seller Parties” has the meaning set forth in the preamble to this Agreement.
“Senior Debt” has the meaning set forth in the Credit Agreement.
Exh I − 20
“Servicer” means at any time the Person (which may be the Administrative Agent) then authorized pursuant to Article VIII to service, administer and
collect Receivables.
“Servicing Agreement” means the Servicing Agreement dated as of November 8, 2001 between Consumers Funding LLC and Consumers Energy
Company, as the same may be amended, restated, supplemented or otherwise modified from time to time with the consent of the Administrative Agent and
each Managing Agent (to the extent such consent is required by the terms of this Agreement).
“Servicing Fee” has the meaning set forth in Section 8.6.
“Settlement Date” means the date which is two (2) Business Days after a Monthly Report is due.
“Settlement Period” means (A) in respect of each Purchaser Interest funded by a Conduit, the immediately preceding Accrual Period, and (B) in
respect of each Purchaser Interest funded by a Financial Institution, the entire Tranche Period of such Purchaser Interest.
“Specified Accounts” means each Collection Account identified as a “Specified Account” on Exhibit IV and each other Collection Account
designated by the Administrative Agent as a Specified Account in accordance with Section 7.1(j).
“SPP Arrearage Amount” means $50,000,000 or such lesser amount as consented to in writing by the Administrative Agent, each Managing Agent
and each Financial Institution.
“Subsidiary” of a Person means (i) any corporation more than 50% of the outstanding securities having ordinary voting power of which shall at the
time be owned or controlled, directly or indirectly, by such Person or by one or more of its Subsidiaries or by such Person and one or more of its
Subsidiaries, or (ii) any partnership, association, limited liability company, joint venture or similar business organization more than 50% of the ownership
interests having ordinary voting power of which shall at the time be so owned or controlled. Unless otherwise expressly provided, all references herein to a
“Subsidiary” shall mean a Subsidiary of the Seller.
“Supplement Indenture” means each Supplement Indenture made and entered into by Originator (formerly known as Consumers Power Company)
and JPMorgan Chase Bank (as successor to City Bank Farmers Trust Company) under the 1945 Indenture.
“Termination Date” has the meaning set forth in Section 2.3.
“Terminating Financial Institution” has the meaning set forth in Section 12.4.
“Termination Percentage” has the meaning set forth in Section 2.3.
“Terminating Tranche” has the meaning set forth in Section 2.3(b).
Exh I − 21
“Tranche Period” means, with respect to any Purchaser Interest funded by a Financial Institution, including any Purchaser Interest or undivided
interest in a Purchaser Interest assigned to a Financial Institution pursuant to a Liquidity Agreement:
(a) if Yield for such Purchaser Interest is calculated on the basis of the LIBO Rate, a period of one, two or three months, or such other period as may
be mutually agreeable to the related Managing Agent for such Financial Institution and the Seller, commencing on a Business Day selected by the Seller or
such Managing Agent pursuant to this Agreement. Such Tranche Period shall end on the day in the applicable succeeding calendar month which
corresponds numerically to the beginning day of such Tranche Period, provided, however, that if there is no such numerically corresponding day in such
succeeding month, such Tranche Period shall end on the last Business Day of such succeeding month; or
(b) if Yield for such Purchaser Interest is calculated on the basis of clause (a) or (b) of the definition of Alternate Base Rate, a period commencing on
a Business Day selected by the Seller and agreed to by the related Managing Agent for such Financial Institution, provided no such period shall exceed one
month.
If any Tranche Period would end on a day which is not a Business Day, such Tranche Period shall end on the next succeeding Business Day, provided,
however, that in the case of Tranche Periods corresponding to the LIBO Rate, if such next succeeding Business Day falls in a new month, such Tranche
Period shall end on the immediately preceding Business Day. In the case of any Tranche Period for any Purchaser Interest which commences before the
Amortization Date and would otherwise end on a date occurring after the Amortization Date, such Tranche Period shall end on the Amortization Date. The
duration of each Tranche Period which commences after the Amortization Date shall be of such duration as selected by the related Managing Agent.
“Transaction Documents” means, collectively, this Agreement, each Purchase Notice, the Receivables Sale Agreement, the Intercreditor Agreement,
each Collection Account Agreement, each P.O. Box Transfer Notice, the Fee Letter, the Subordinated Note (as defined in the Receivables Sale Agreement)
and all other instruments, documents and agreements executed and delivered in connection herewith.
“Transferred Securitization Property” has the meaning specified in Appendix A to the Servicing Agreement.
“UCC” means the Uniform Commercial Code as from time to time in effect in the specified jurisdiction.
“Unapplied Cash and Credits” means, at any time, the aggregate amount of Collections or other cash or credits then held by or for the account of the
Servicer, the Originator or the Seller in respect of the payment of Billed Receivables, but not yet applied to the payment of such Receivables.
“Unbilled Receivables” means Receivables in respect of which an invoice addressed to the Obligor thereof has not been sent.
Exh I − 22
“Unbilled Receivables Offset Amount” means, at any time, an amount equal to the lesser of (a) the credit balance of all EMPP Receivables as of the
last day of the immediately preceding Accrual Period and (b) the product of (i) the greater of (A) 7% and (B) the ratio of (1) the total number of Obligors
whose accounts are subject to a balanced or levelized payment plan or a payment plan based on a percentage of such Obligor’s income (giving rise to EMPP
Receivables) as of the last day of the immediately preceding Accrual Period divided by (2) the total number of Obligors as of the last day of the immediately
preceding Accrual Period multiplied by (ii) the aggregate amount of Unbilled Receivables for such Accrual Period.
“USA Patriot Act” means the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act
of 2001, Pub. L. No. 107−56, 115 Stat. 272 (2001), as amended.
“WPP Receivable” means a Receivable arising under an Obligor’s account which is subject to a payment plan requiring payments based on a
percentage of such Obligor’s income.
“Yield” means (a) for each respective Tranche Period relating to Purchaser Interests funded by a Financial Institution or by a Conduit other than
through the issuance of Commercial Paper, an amount equal to the product of the applicable Bank Rate for each Purchaser Interest multiplied by the Capital
of such Purchaser Interest for each day elapsed during such Tranche Period, annualized on a 360 day basis (or a 365 or 366 day basis, as applicable, in the
case of a Bank Rate determined by clause (a) or (b) of the definition of Alternate Base Rate), and (b) for each respective Settlement Period relating to
Purchaser Interests funded by a Conduit through the issuance of Commercial Paper, an amount equal to the product of the applicable CP Rate multiplied by
the Capital of such Purchaser Interest for each day elapsed during such Settlement Period, annualized on a 360 day basis.
“Yield and Servicer Fee Percentage” means, at any time, an amount equal to the greater of (i) 1.5% and (ii) the ratio (expressed as a percentage) equal
to (a) the product of (x) 1.5, multiplied by (y) the Base Rate (measured as of the close of business as of the last Business Day of the preceding calendar
month) plus 2.0%, multiplied by (z) the highest three−month average Days Sales Outstanding Ratio over the prior twelve (12) months, divided by (b) 360.
“Yield and Servicer Fee Reserve” means, at any time, an amount equal to the product of (a) the Yield and Servicer Fee Percentage, multiplied by
(b) the Net Receivables Balance as of the close of business of the Servicer on such date.
“Yield Payment Date” means (A) the date each month which is two (2) Business Days after the Monthly Report due in such month is due, and (B) the
last day of the relevant Tranche Period in respect of each Purchaser Interest funded by any Financial Institution.
All accounting terms not specifically defined herein shall be construed in accordance with GAAP. All terms used in Article 9 of the UCC in the State of
New York, and not specifically defined herein, are used herein as defined in such Article 9.
Exh I − 23
EXHIBIT II
FORM OF PURCHASE NOTICE
[Date]
JPMorgan Chase Bank, N.A., as Administrative Agent and as a Managing Agent
1 Chase Plaza, Suite IL1−0079
Asset−Backed Finance
Chicago, Illinois 60670−0596
Attn: ABS Treasury
The Bank of Tokyo−Mitsubishi UFJ, Ltd., New York Branch, as a Managing Agent
1251 Avenue of Americas, 12th Floor
New York, NY 10020−1104
Attn: Securitization Group
cc: Union Bank, N.A., as a Financial Institution
c/o Commercial Loan Operations
1980 Saturn St.
Monterey Park, CA 91754
Attn: Maria Suncin
Re: PURCHASE NOTICE
Ladies and Gentlemen:
Reference is hereby made to the Amended and Restated Receivables Purchase Agreement, dated as of November 23, 2010, by and among Consumers
Receivable Funding II, LLC, a Delaware limited liability company, as the seller (the “Seller”), Consumers Energy Company, a Michigan corporation, as the
Servicer, the Conduits party thereto from time to time, the Financial Institutions party thereto from time to time, the Managing Agents party thereto from
time to time and JPMorgan Chase Bank, N.A., as Administrative Agent (as the same may be further amended, restated, supplemented or otherwise modified
from time to time, the “Receivables Purchase Agreement”). Capitalized terms used herein shall have the meanings assigned to such terms in the Receivables
Purchase Agreement.
The Administrative Agent and each Managing Agent is hereby notified of the following Incremental Purchase:
Purchaser Group
(identified by the related Managing Agent)
JPMorgan Chase Bank, N.A.
The Bank of Tokyo−Mitsubishi UFJ, Ltd., New York Branch
Total Purchase Price:
Purchase Price
$____________________
$____________________
$____________________
Date of Purchase: [ ______________ ]
Requested Discount Rate: [LIBO Rate][Alternate Base Rate][CP Rate]
Requested Tranche Period: [ ______________ ]
Please wire−transfer the Purchase Price in immediately available funds on the above−specified date of purchase to:
Consumers Receivables Funding II, LLC
Account Number: 2000032635920
Wachovia Bank, Charlotte, North Carolina
ABA# 053000219
Reference: A/R Purchase
Telephone advice to: Steve Headley @ tel. No. (517−788−1511)
Please advise Steve Headley at telephone no. (517) 788−1511 if any Conduit will not be making this purchase.
In connection with the Incremental Purchase to be made on the above listed “Date of Purchase” (the “Purchase Date”), the Seller hereby certifies that
the following statements are true on the date hereof, and will be true on the Purchase Date (before and after giving effect to the proposed Incremental
Purchase):
(i) the representations and warranties of the Seller set forth in Section 5.1 of the Receivables Purchase Agreement are true and correct on and as of the
Purchase Date as though made on and as of such date;
(ii) no event has occurred and is continuing, or would result from the proposed Incremental Purchase, that will constitute an Amortization Event or a
Potential Amortization Event;
(iii) the Amortization Date has not occurred, the Aggregate Capital does not exceed the Purchase Limit and the aggregate Purchaser Interests do not
exceed the Applicable Maximum Purchaser Interest; and
Exh. II−2
(iv) the amount of Aggregate Capital is $_________ after giving effect to the Incremental Purchase to be made on the Purchase Date.
Very truly yours,
CONSUMERS RECEIVABLES FUNDING II, LLC
By:
Name:
Title:
Exh. II−3
EXHIBIT III
PLACES OF BUSINESS OF THE SELLER PARTIES;
LOCATIONS OF RECORDS;
FEDERAL EMPLOYER IDENTIFICATION NUMBER(S);
STATE ORGANIZATION IDENTIFICATION NUMBER(S)
CONSUMERS RECEIVABLE FUNDING II, LLC
Principal Place of Business
& Chief Executive Office:
One Energy Plaza
Jackson, MI 49201−2276
Location of Records:
One Energy Plaza
Jackson, MI 49201−2276
Federal Employer Identification Number:
87−0700466
Delaware Organizational Identification Number:
CONSUMERS ENERGY COMPANY
Place of Business,
Chief Executive Office, and
Location of Records:
One Energy Plaza
Jackson, MI 49201−2276
3467905
Federal Employer Identification Number:
38−0442310
Michigan Organizational Identification Number:
MI 021−395
Exh. III−1
EXHIBIT IV
NAMES OF COLLECTION BANKS; COLLECTION ACCOUNTS; LOCK−BOXES
JP Morgan Chase Bank
717 Travis, TX2−S084
Houston, TX 77002
Contact: Nina Lacy
Phone: 713−216−2227
Collection Account: 1242263;
provided, that, such account shall be a Specified Account on and after such date as the account is subject to a Collection
Account Agreement.
Comerica Bank
500 Woodward Avenue, 9th Floor, MC3268
Detroit, MI 48226
Contact: Stacie McVeigh
Phone: 313−222−4515
Collection Account: 1076119914; provided, that, such account shall be a Specified Account on and after such date as the account is subject to a Collection
Account Agreement.
Wachovia Bank
10401 Deerwood Park Blvd — FL0117
South Building, 3rd Floor
Jacksonville, FL 32256
Contact: Carol Grant
Phone: 800−590−7868 team 662 ext. 4
Collection Account: 2000032635920
Lock−Box Zip Code:
Lansing, MI 48937−0001
PNC Bank, National Association
620 Liberty Avenue
Pittsburgh, PA 15222
Contact: Gabe Galioto
Phone: 412−768−1819
Specified Account: 4006909862
Fifth Third Bank
710 Seminole Rd MD R17061
Norton Shores, MI 49441
Contact: Randy Wolffis, VP & Relationship Manager
Phone: 231−733−5006
Fax: 231−739−7430
Email: [email protected]; [email protected]
Specified Account: 7164496916
Exh. IV−1
To:
EXHIBIT V
FORM OF COMPLIANCE CERTIFICATE
JPMorgan Chase Bank, N.A., as Administrative Agent and as Managing Agent
The Bank of Tokyo−Mitsubishi UFJ, Ltd., New York Branch, as Managing Agent
This Compliance Certificate is furnished pursuant to that certain Amended and Restated Receivables Purchase Agreement dated as of
November 23, 2010, among Consumers Receivable Funding II, LLC, as the seller (the “Seller”), Consumers Energy Company, a Michigan corporation, as
the servicer (the “Servicer”), the Conduits party thereto from time to time, the Financial Institutions party thereto from time to time, the Managing Agents
party thereto from time to time and JPMorgan Chase Bank, N.A., as Administrative Agent (as the same may be further amended, restated, supplemented or
otherwise modified from time to time, the “Agreement”). Capitalized terms used herein shall have the meaning assigned to such terms in the Agreement.
THE UNDERSIGNED HEREBY CERTIFIES THAT:
1. I am the duly elected _______________ of the [Seller][Servicer].
2. I have reviewed the terms of the Agreement and I have made, or have caused to be made under my supervision, a detailed review of the transactions
and conditions of the [Seller][Servicer] and its Subsidiaries during the accounting period covered by the attached financial statements.
3. The examinations described in paragraph 2 did not disclose, and I have no knowledge of, the existence of any condition or event which constitutes an
Amortization Event or Potential Amortization Event, as each such term is defined under the Agreement during or at the end of the accounting period
covered by the attached financial statements or existing as of the date of this Certificate, except as set forth in paragraph 5 below.
4. Schedule I attached hereto sets forth financial data and computations evidencing the compliance with certain covenants of the Agreement, all of which
data and computations are true, complete and correct.
5. Described below are the exceptions, if any, to paragraph 3 by listing, in detail, the nature of the condition or event, the period during which it has
existed and the action which the [Seller][Servicer] has taken, is taking, or proposes to take with respect to each such condition or event:
Exh. V−1
The foregoing certifications, together with the computations set forth in Schedule I hereto and the financial statements delivered with this Certificate in
support hereof, are made and delivered this ____________________________ day of ______, _______.
Exh. V−2
A.
SCHEDULE I TO COMPLIANCE CERTIFICATE
Schedule of Compliance as of __________, ____ with Section ___ of the Agreement. Unless otherwise defined herein, the terms used in this
Compliance Certificate have the meanings ascribed thereto in the Agreement.
This schedule relates to the period ended: ______________
Exh. V−3
EXHIBIT VI
FORM OF COLLECTION ACCOUNT AGREEMENT
(Attached)
Exhibit VI−1
Execution Copy
DEPOSIT ACCOUNT CONTROL AGREEMENT
This Deposit Account Control Agreement (this “Agreement”) is entered into as of April 20, 2010, by and among Consumers Receivables Funding II, LLC
(“Customer”), JPMorgan Chase Bank, N.A., as administrative agent (the “Secured Party”), and Fifth Third Bank, an Ohio banking corporation (“Bank”),
with reference to the following facts:
RECITALS
A. Customer maintains the Deposit Account (as defined below) at Bank’s office (the “Banking Office”).
B. Customer, Consumers Energy Company, as Servicer (the “Servicer”), Secured Party, and certain other financial institutions party thereto from time to
time (the “Purchasers”) have entered into a Receivables Purchase Agreement dated as of May 22, 2003 (together with other documents executed and
delivered in connection therewith, in each case, as amended, restated, supplemented or otherwise modified from time to time, the “Transaction
Documents”), pursuant to which the Customer has granted Secured Party a security interest in the Deposit Account and all funds now or at any time
hereafter held in the Deposit Account.
C. Secured Party, Customer and Bank have agreed to enter into this Agreement to provide for the control of the Deposit Account by Secured Party and to
perfect Secured Party’s security interests in the Deposit Account (as each such term is defined below).
NOW, THEREFORE, in consideration of the mutual promises and covenants, contained herein the parties hereto mutually agree as follows.
ARTICLE 1−DEFINITIONS
1.01 Definitions. As used in this Agreement, the following terms shall have the following meanings:
“Code” means the Uniform Commercial Code as in effect from time to time in the State of New York, and any successor statute.
“Deposit Account” means Customer’s deposit account (as such term is defined in the Code) with Bank, number 7164496916.
“Notice of Exclusive Control” means written notice to Bank that states that in accordance with the terms of the Transaction Documents, Secured Party
is exercising exclusive control over the Deposit Account. The Notice of Exclusive Control shall be in the form of Exhibit A.
1
“Order” means any instruction issued by any person with respect to the disposition of any funds contained in the Deposit Account.
1.02 Construction Any reference herein to any document includes any and all alterations, amendments, extensions, modifications, renewals, or
supplements thereto or thereof, as applicable. Neither this Agreement nor any uncertainty or ambiguity herein shall be construed or resolved against Secured
Party, whether under any rule of construction or otherwise. This Agreement has been reviewed by each of the parties hereto, and their respective counsel.
This Agreement shall be construed and interpreted according to the ordinary meaning of the words used so as to fairly accomplish the purposes and
intentions of Customer and Secured Party.
ARTICLE 2−CONTROL
2.01 No Withdrawals or Payments After Receipt of Notice of Exclusive Control. Anything contained in Section 2.03 to the contrary notwithstanding,
Customer hereby absolutely, irrevocably and unconditionally authorizes and instructs Bank to, and Bank agrees that it shall, promptly upon receipt of a
Notice of Exclusive Control by Bank in accordance with Section 3.08 hereof:
(a) neither accept nor comply with any Order from Customer or any other person for the payment of any funds from the Deposit Account to any third
person nor permit Customer to withdraw any funds from the Deposit Account without the specific prior written consent of Secured Party; and
(b) comply with the Orders originated by Secured Party concerning the Deposit Account and all other requests or instructions from Secured Party
regarding disposition and/or delivery of funds contained in the Deposit Account, without further consent or direction from Customer or any other person
and without regard to any inconsistent or conflicting Orders given to Bank by Customer.
2.02 Priority of Lien. Bank hereby acknowledges and agrees that:
(a) Bank has received notice of the existence of the security interest of Secured Party in the Deposit Account and all amounts from time to time on
deposit therein for the benefit of (i) the Purchasers and the Secured Party and (ii) The Bank of New York Mellon, or any successor thereto, as trustee (the
“Bond Trustee”) under the Indenture dated as of November 8, 2001 between Consumers Funding LLC and the Bond Trustee, as supplemented, and Bank
recognizes the security interest granted to Secured Party by Customer;
(b) All of Bank’s present and future rights against the Deposit Account and all funds deposited therein from time to time are subordinate to Secured
Party’s security interest therein; provided, however, that Secured Party hereby acknowledges and agrees that nothing herein subordinates or waives, and
that Bank expressly reserves, all of its present and future rights (whether described as rights of setoff, banker’s lien, security interest, chargeback or
otherwise, and whether available to Bank under the law or under any other agreement between Bank and Customer concerning the Deposit Account, or
otherwise) with respect to: (i) items deposited to the Deposit Account and returned unpaid, whether for insufficient funds or for any other reason, and
without regard to the timeliness of return of any such items or the occurrence or timeliness of any drawee’s notice of non−payment of such items;
(ii) ACH entries credited to the Deposit Account and later reversed, whether for insufficient funds or for any other reason, and without regard to the
timeliness of such entries’ reversal; (iii)
2
chargebacks to the Deposit Account of credit card transactions; (iv) erroneous entries to the Deposit Account; (v) overdrafts on the Deposit Account,
(vi) claims of breach of the transfer or presentment warranties made to Bank pursuant to the Code in connection with items deposited to the Deposit
Account; and (vii) Bank’s usual and customary charges for services rendered in connection with the Deposit Account; and
(c) Except as otherwise required by law, Bank shall not enter into any agreement with any third party relating to the Deposit Account or agree that it
will comply with any Orders concerning the Deposit Account originated by any such third party without the prior written consent of Secured Party and
Customer.
2.03 Control of Deposit Account. At all times during the effectiveness of this Agreement, Customer hereby absolutely, irrevocably and unconditionally
instructs, and Bank hereby agrees, that;
(a) Bank shall not comply with any Orders or other instructions concerning the Deposit Account, from any third party without the prior written
consent of (i) prior to delivery of a Notice of Exclusive Control, Secured Party and Customer and (ii) after delivery of a Notice of Exclusive Control,
Secured Party.
(b) Except as otherwise provided in Sections 2.01 and 2.02, prior to the receipt of a Notice of Exclusive Control by Bank in accordance with
Section 3.08 hereof, Bank may accept and execute Orders from Customer with respect to the payment or withdrawal of any funds from the Deposit
Account or the payment of any funds in the Deposit Account to Customer.
2.04 Representations, Warranties and Acknowledgments.
(a) Customer represents and warrants to Secured Party that:
(i) the Deposit Account has been established and is maintained with Bank at the Banking office, solely in Customer’s name as recited above;
(ii) Customer has not entered into any agreement with any third party regarding the Deposit Account, nor has it previously pledged a security
interest in the Deposit Account.
(b) Bank represents and warrants to Secured Party that, to the best of its knowledge:
(i) Bank has not entered into any agreement with any third party regarding the Deposit Account or agreed that it will comply with any Orders
concerning the Deposit Account originated by any such third party.
(ii) There is no claim to, security interest in or lien upon the Deposit Account, except the security interests in favor of Secured Party and Bank’s
liens securing fees and charges pursuant to Section 2.02 hereof.
2.05 Agreements of Bank and Customer. Bank and Customer agree that: (a) Bank shall send copies of all statements relating to the Deposit Account
simultaneously to Customer and to Secured Party;
3
(b) Bank may disclose to Secured Party such other information concerning the Deposit Account as Secured Party may from time to time request;
provided, however, that Bank shall have no obligation to disclose to Secured Party any information which Bank does not ordinarily make available to its
depositors; and
(c) Bank shall use reasonable efforts to promptly notify Secured Party and Customer if any other party asserts any claim to, security or property
interest in or lien upon the Deposit Account.
2.06 Bank’s Responsibility. Anything contained in the foregoing to the contrary notwithstanding:
(a) Except for permitting a withdrawal in violation of Section 2.01, Bank shall not be liable to Secured Party for complying with Orders from
Customer that are received by Bank before the Effective Time. For purposes hereof, the “Effective Time” will be as soon as practicable after Bank
confirms receipt (as confirmation is described in Section 3.08 hereof) and has had a reasonable opportunity to act on such Notice of Exclusive Control
and any contrary Order from Secured Party; provided, however, that (i) the “Effective Time” will be no later than the close of business on the second
(2nd) Business Day following the Business Day of such receipt, and (ii) “Business Day” shall mean any day other than a Saturday, Sunday or other day
on which Bank is or is authorized or required by law to be closed.
(b) Bank shall not be liable to Customer for complying with Orders originated by Secured Party, even if Customer notifies Bank that Secured Party is
not legally entitled to issue Orders, unless Bank takes the action after it is served with an injunction, restraining order, or other legal process enjoining it
from doing so, issued by a court of competent jurisdiction, and had a reasonable opportunity to act on the injunction, restraining order or other legal
process.
(c) This Agreement does not create any obligation of Bank except for those expressly set forth in this Agreement. In particular, Bank need not
investigate whether the Secured Party is entitled under Secured Party’s agreements with Customer to give Orders. Bank may rely on notices and
communications it reasonably believes are given by the appropriate party.
(d) Bank will not have any liability to Customer or Secured Party for claims, losses, liabilities or damages suffered or incurred by Customer or
Secured Party as a result of or in connection with this Agreement except to the extent such losses, liabilities and damages directly result from Bank’s
gross negligence or willful misconduct.
(e) In no event shall Bank have any liability to Customer or Secured Party for any consequential, special, punitive or indirect loss or damage whether
or not any claim for such damages is based on tort or contract or Bank knew or should have known the likelihood of such damages in any circumstances.
In no event shall Secured Party have any liability to Bank for any consequential, special, punitive or indirect loss or damage whether or not any claim for
such damages is based on tort or contract or Secured Party knew or should have known the likelihood of such damages in any circumstances.
4
2.07 Indemnity.
(a) Customer shall indemnify and hold harmless Bank, its officers, directors, employees, and agents against any and all claims, liabilities, demands,
damages and expenses arising out of this Agreement (including reasonable attorneys’ fees and disbursements and the reasonable estimate of the allocated
costs and expenses of in−house legal counsel and staff), except to the extent the claims, liabilities, demands, damages or expenses are caused by Bank’s
gross negligence or willful misconduct or breach of this Agreement. Customer shall indemnify Secured Party for any indemnity obligations Secured
Party owes to Bank under this Agreement.
(b) Secured Party shall indemnify and hold harmless Bank, its officers, directors, employees, and agents against any and all claims, liabilities,
demands, damages and expenses arising out of any Orders originated by Secured Party to Bank with respect to the Deposit Account under this
Agreement (including reasonable attorneys’ fees and disbursements and the reasonable estimate of the allocated costs and expenses of in−house legal
counsel and staff), except to the extent the claims, liabilities, demands, damages or expenses are caused by Bank’s gross negligence or willful
misconduct or breach of this Agreement; provided, however, that in no event shall the Secured Party be liable for any special, consequential, exemplary
damages, or lost profits.
2.08 Termination, Survival.
(a) This Agreement shall terminate:
(i) By Secured Party, immediately upon receipt by the Bank at the Banking Office set forth in Section 3.08 of written notice from Secured Party
expressly stating that Secured Party is terminating this Agreement in the form of Exhibit B hereto; or
(ii) By Bank, thirty (30) days after the receipt by Secured Party and Customer of written notice from Bank stating that it is terminating this
Agreement.
(b) For the avoidance of doubt, until this Agreement has been terminated in accordance with this Section 2.08, Customer shall not be entitled to direct
Bank to close the Deposit Account without the prior written consent of the Secured Party.
(c) Section 2.06. “Bank’s Responsibility,” and Section 2.07. “Indemnity,” shall survive termination of this Agreement.
ARTICLE 3−GENERAL PROVISIONS
3.01 Conflicts; Controlling Agreement. As to the matters specifically the subject of this Agreement, in the event of any conflict between this Agreement
and any other agreement between Bank and Customer, the terms of this Agreement shall control.
3.02 Final Agreement; Amendments and Waivers. This Agreement, together with any other document, instrument, or agreement entered into between
Customer and Secured Party in connection therewith with respect to the subject matter contained therein constitutes the entire understanding between them
with respect to the subject matter thereof. This Agreement supersedes
5
any and all prior oral or written agreements relating to the Deposit Account and the subject matter hereof.
3.03 Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the heirs, executors, administrators, legal representatives,
successors and assigns of the parties; provided, that Customer may not assign or otherwise transfer any of its rights or obligations hereunder without the
prior written consent of Secured Party. Secured Party may assign or transfer all of its rights or obligations under this Agreement with prior written notice to
Bank and prior written notice to Customer in the form of Exhibit C (a “Notice of Assignment”). Notwithstanding the foregoing, in order for such
assignment by Secured Party to be effective, Bank must acknowledge receipt of the Notice of Assignment, which Bank shall provide as soon as practicable
after receiving such Notice of Assignment, but no later than the close of business on the second (2 nd) Business Day following the Business Day of such
receipt. Bank may assign or transfer its rights and obligations under this Agreement in the event of a merger or acquisition of Bank to Bank’s successor
depositary institution (which successor shall be a “bank” as defined in Section 9−102 of the Code).
3.04 Amendments Modifications. This Agreement may be amended or modified only in writing signed by all parties hereto.
3.05 Severability of Provisions. If any provision of this Agreement for any reason is held to be invalid, illegal or unenforceable in any respect, that
provision shall not affect the validity, legality or enforceability of any other provision of this Agreement.
3.06 Section Headings. Headings and numbers used to identify sections and paragraphs of this Agreement have been set forth herein for convenience
only. Unless the contrary is compelled by the context, everything contained in each section applies equally to this entire Agreement.
3.07 Counterparts; Facsimile Execution. This Agreement may be executed in any number of counterparts and by different parties on separate
counterparts, each of which, when executed and delivered, shall be deemed to be an original, and all of which, when taken together, shall constitute but one
and the same Agreement. Delivery of an executed counterpart of this Agreement by facsimile shall be equally as effective as delivery of a manually
executed counterpart of this Agreement. Any party delivering an executed counterpart of this Agreement by facsimile also shall deliver a manually executed
counterpart of this Agreement but the failure to deliver a manually executed counterpart shall not affect the validity, enforceability, and binding effect of
this Agreement.
3.08 Notices. All notices, requests and demands which any party is required or may desire to give to any other party under any provision of this
Agreement must be in writing (unless otherwise specifically provided) and delivered to each party at the following address:
Customer:
Consumers Receivables Funding II, LLC
One Energy Plaza
Jackson, Michigan 49201
Attn: Treasurer
Facsimile: (517) 788−8233
Telephone: (517) 788−2286
Secured Party:
JPMorgan Chase Bank, N.A.
10 South Dearborn
Chicago, Illinois 60670
Attn: Asset Backed Securities — Conduits
Facsimile: (312) 732−3600
Telephone: (312) 732−1174
6
Bank:
Email: [email protected]
AND
Fifth Third Bank
710 Seminole Rd MD R17061
Norton Shores, MI 49441
Attn: Randy Wolffis, VP & Relationship Manager
Phone: 231−733−5006
Fax: 231−739−7430
Email: [email protected]
AND
Fifth Third Bank
5522 East Galbraith Rd
Cincinnati, OH 45236
Attn: Malcolm Williams, A VP & Treasury Management Officer
Phone: 614−744−5313
Fax: 513−534−5947
Email: [email protected]
or to such other address or facsimile number as any party may designate by written notice to all other parties. Each such notice, request and demand shall be
deemed given or made when delivered.
3.09 Governing Law. This Agreement shall be deemed to have been made in the state of New York and the validity, construction, interpretation, and
enforcement hereof, and the rights of the parties hereto, shall be determined under, governed by, and construed in accordance with the internal laws of the
state of New York, without regard to principles regarding the conflicts or choice of law.
3.10 WAIVER OF JURY TRIAL. TO THE EXTENT NOT PROHIBITED BY APPLICABLE LAW WHICH CANNOT BE WAIVED, EACH PARTY
HERETO HEREBY ABSOLUTELY, IRREVOCABLY AND UNCONDITIONALLY WAIVES, AND COVENANTS THAT IT WILL NOT ASSERT
(WHETHER AS PLAINTIFF, DEFENDANT OR OTHERWISE), ANY RIGHT TO TRIAL BY JURY IN ANY FORUM IN RESPECT OF ANY ISSUE,
CLAIM, DEMAND, ACTION, OR CAUSE OF ACTION ARISING OUT OF OR BASED UPON THIS AGREEMENT OR THE SUBJECT MATTER
HEREOF, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING OR WHETHER IN CONTRACT OR TORT OR OTHERWISE.
EACH PARTY HERETO ACKNOWLEDGES THAT IT HAS BEEN INFORMED BY THE OTHER PARTIES HERETO THAT THE PROVISIONS OF
THIS SECTION CONSTITUTE A MATERIAL INDUCEMENT UPON WHICH THE OTHER PARTIES HAVE RELIED, ARE RELYING AND WILL
RELY IN ENTERING INTO THIS AGREEMENT, THE PARTIES HERETO MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS
SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF SUCH OTHER PARTY TO THE WAIVER OF ITS RIGHTS TO
TRIAL BY JURY.
7
Nothing in this Section shall prejudice the right of the Secured Party to exercise its non judicial foreclosure rights and remedies, or prejudice the right of
any party to obtain provisional relief or other equitable remedies as shall otherwise be available judicially pending submission of any issue, claim, demand,
action, or cause of action to trial by the court as provided in this Section.
[Remainder of page intentionally blank]
8
IN WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement as of the date set forth in the first paragraph hereof.
CUSTOMER:
Consumers Receivables Funding II, LC
By: /s/ Laura L. Mountcastle
Name: Laura L. Mountcastle
Title: President, Chief Executive Officer,
Chief Financial Officer and Treasurer
SECURED PARTY:
JPMorgan Chase Bank, N.A.
By:
Name:
Title:
THIS AGREEMENT IS NOT EFFECTIVE UNTIL AND UNLESS ACCEPTED BY FIFTH
THIRD BANK REVIEW, CONTROL AND SUPPORT
ACCEPTED:
BANK:
Fifth Third Bank,
Review, Control and Support
By:
Name:
Title:
Signature Page to
Deposit Account Control Agreement
IN WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement as of the date set forth in the first paragraph hereof.
CUSTOMER:
Consumers Receivables Funding II, LC
By:
Name:
Title:
SECURED PARTY:
JPMorgan Chase Bank, N.A.
By: /s/ Patrick J. Menichillo
Name: Patrick J. Menichillo
Title: Vice President
THIS AGREEMENT IS NOT EFFECTIVE UNTIL AND UNLESS ACCEPTED BY FIFTH
THIRD BANK REVIEW, CONTROL AND SUPPORT
ACCEPTED:
BANK:
Fifth Third Bank,
Review, Control and Support
By:
Name:
Title:
IN WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement as of the date set forth in the first paragraph hereof.
Signature Page to
Deposit Account Control Agreement
CUSTOMER:
Consumers Receivables Funding II, LC
By:
Name:
Title:
SECURED PARTY:
JPMorgan Chase Bank, N.A.
By:
Name:
Title:
THIS AGREEMENT IS NOT EFFECTIVE UNTIL AND UNLESS ACCEPTED BY FIFTH
THIRD BANK REVIEW, CONTROL AND SUPPORT
ACCEPTED:
BANK:
Fifth Third Bank,
Review, Control and Support
By: /s/ Judith Hoerst
Name: Judith Hoerst
Title: VP, Global Payments Administration Manager
Signature Page to
Deposit Account Control Agreement
EXHIBIT A: NOTICE OF EXCLUSIVE CONTROL
ACCOUNT CONTROL AGREEMENT
NOTICE OF EXCLUSIVE CONTROL
Email: [email protected]
Fifth Third Bank
710 Seminole Rd MD R17061
Norton Shores, MI 49441
Attn: Randy Wolffis, VP & Relationship Manager
Phone: 231−733−5006
Fax: 231−739−7430
Email: [email protected]
Fifth Third Bank
5522 East Galbraith Rd
Cincinnati, OH 45236
Attn: Malcolm Williams, AVP & Treasury Management Officer
Phone: 614−744−5313
Fax: 513−534−5947
Email: [email protected]
Re: Account Control Agreement (“Agreement”) by and among Consumers Receivables Funding II, LLC (“Customer”), JPMorgan Chase Bank, N.A., as
administrative agent (“Secured Party”), and Fifth Third Bank, an Ohio banking corporation (“Bank”), dated April 20, 2010 affecting Account Number
7164496916 (the “Deposit Account”).
Date:
To Whom It May Concern:
This letter serves as notice to Fifth Third Bank that Secured Party is hereby exercising exclusive control over the Deposit Account.
Secured Party hereby orders Fifth Third to transfer funds from the Deposit Account to the following account held by Secured Party:
Please contact us at ___________________ (phone number) immediately with any questions.
Name and Title
Secured Party
EXHIBIT B: NOTICE OF TERMINATION
From:
ACCOUNT CONTROL AGREEMENT
NOTICE OF TERMINATION
Email: [email protected]
Fifth Third Bank
710 Seminole Rd MD R17061
Norton Shores, MI 49441
Attn: Randy Wolffis, VP & Relationship Manager
Phone: 231−733−5006
Fax: 231−739−7430
Email: [email protected]
Fifth Third Bank
5522 East Galbraith Rd
Cincinnati, OH 45236
Attn: Malcolm Williams, AVP & Treasury Management Officer
Phone: 614−744−5313
Fax: 513−534−5947
Email: [email protected]
Re: Account Control Agreement (“Agreement”) by and among Consumers Receivables Funding II, LLC (“Customer”), JPMorgan Chase Bank, N.A., as
administrative agent (“Secured Party”), and Fifth Third Bank, a Ohio banking corporation (“Bank”), dated April 20, 2010 affecting Account Number
7164496916 (the “Deposit Account”).
Date:
, 20
To Whom It May Concern:
This letter serves as notice to Fifth Third Bank in accordance with Section 2.08 of the Agreement that Secured Party is hereby permanently releasing its
control over the Deposit Account. The Agreement is hereby permanently terminated.
Please contact us at ___________________ (phone number) immediately with any questions.
Name and Title
Secured Party
Fifth Third and Fifth Third Bank are registered service marks of Fifth Third Bancorp. Member FDIC
EXHIBIT C: NOTICE OF ASSIGNMENT
ACCOUNT CONTROL AGREEMENT
NOTICE OF ASSIGNMENT
Email: [email protected]
Fifth Third Bank
710 Seminole Rd MD R17061
Norton Shores, MI 49441
Attn: Randy Wolffis, VP & Relationship Manager
Phone: 231−733−5006
Fax: 231−739−7430
Email: [email protected]
Fifth Third Bank
5522 East Galbraith Rd
Cincinnati, OH 45236
Attn: Malcolm Williams, AVP & Treasury Management Officer
Phone: 614−744−5313
Fax: 513−534−5947
Email: [email protected]
Consumers Receivables Funding II, LLC
One Energy Plaza
Jackson, Michigan 49201
Attn: Treasurer
Phone : 517−788−2286
Fax: 517−788−8233
Re: Account Control Agreement (“Agreement”) by and among Consumers Receivables Funding II, LLC (“Customer”), JPMorgan Chase Bank, N.A., as
administrative agent (“JPMorgan”), and Fifth Third Bank, an Ohio banking corporation (“Bank”), dated April 20, 2010 affecting Account Number
7164496916 (the “Deposit Account”).
Date:
To Whom It May Concern:
This letter serves as notice to Fifth Third Bank and Customer in accordance with Section 3.03 of the Agreement that JPMorgan, as Secured Party is
assigning its rights and obligations under the Agreement to [SUCCESSOR SECURED PARTY] (the “Successor Secured Party”) effective as of [DATE]
(the “Assignment Effective Date”).
JPMorgan hereby notifies Fifth Third and Customer that from and after the Assignment Effective Date, the Successor Secured Party succeeds to and
becomes vested with all the rights, powers, privileges and duties of the Secured Party under the Agreement.
The Successor Secured Party’s address for purposes of Section 3.08 of the Agreement is as follows: [
Please contact us at ___________________ (phone number) immediately with any questions.
Name and Title
Secured Party
Acknowledged and Agreed:
Fifth Third Bank,
Review, Control and Support
By:
Name:
Title:
]
Execution Copy
BLOCKED ACCOUNT AGREEMENT
March 17, 2010
PNC Bank, National Association
620 Liberty Avenue Pittsburgh, PA
15222 Attention: Gabe Galioto
Ladies and Gentlemen:
Reference is made to account number 4006909862 (the “Blocked Account”) at PNC Bank, National Association (“PNC Bank”), in the name of, and into
which certain monies, instruments and other properties are deposited on behalf of Consumers Receivables Funding II, LLC (the “Customer”). JPMorgan
Chase Bank, N.A. (the “Administrative Agent”) hereby advises PNC Bank that pursuant to the Receivables Purchase Agreement dated as of May 22, 2003
(together with the other documents executed and delivered in connection therewith, in each case as amended, restated, supplemented or otherwise modified
from time to time, the “Transaction Documents”), among the Customer, Consumers Energy Company, as Servicer (the “Servicer”), the Purchasers party
thereto from time to time (the “Purchasers”) and the Administrative Agent, the Customer has granted a security interest in, among other things, the Blocked
Account and all proceeds thereof to the Administrative Agent.
By signing this letter agreement (“Blocked Account Agreement”), PNC Bank (i) acknowledges that it has received notice of the Administrative Agent’s
interest in the Blocked Account and all amounts from time to time on deposit therein for the benefit of (A) the Purchasers and the Administrative Agent,
(B) The Bank of New York Mellon, or any successor thereto, as trustee (the “Bond Trustee”) under the Indenture dated as of November 8, 2001 between
Consumers Funding LLC and the Bond Trustee, as supplemented, and (C) Consumers Funding LLC, (ii) confirms that PNC Bank has received no currently
effective notice of any pledge or assignment of the Blocked Account (other than pursuant to this Blocked Account Agreement) and (iii) agrees that, until
this Blocked Account Agreement is terminated, PNC Bank shall have no security interest or rights in or claims to the funds in the Blocked Account except
as set forth herein. Further, it is hereby agreed that:
a. Until the Effective Time (as defined below), the Customer will be entitled to request the transfer of collected funds from the Blocked Account in
accordance with PNC Bank’s customary procedures; provided, however, that the Customer will not be entitled to direct PNC Bank to close the Blocked
Account without the prior written consent of the Administrative Agent. From and after the Effective Time, (i) the Administrative Agent will have
exclusive rights with respect to the transfer, withdrawal or other disposition of the funds on deposit (subject to PNC Bank’s customary availability
schedules) from the Blocked Account and as to any other matters relating to the Blocked Account or the funds
deposited therein, (ii) PNC Bank will comply with the Administrative Agent’s written instructions directing disposition of the funds on deposit in the
Blocked Account, in accordance with PNC Bank’s customary procedures and the terms of this Blocked Account Agreement, without further consent or
direction from the Customer or any other person, (iii) PNC Bank will disregard any instructions of the Customer with respect thereto, and (iv) PNC
Bank will furnish the Administrative Agent and the Customer with copies of monthly account statements, in the form and manner typical for PNC Bank,
and PNC Bank will make available to the Administrative Agent other information relating to the Blocked Account by web−based computer systems in
accordance with PNC Bank’s customary procedures. The Customer consents to PNC Bank’s release of account information to the Administrative Agent.
For the purposes hereof, the “Effective Time” will be a time as soon as practicable after receipt by PNC Bank of a notice purporting to be signed by the
Administrative Agent in substantially the same form as Exhibit A (the “Shifting Control Notice”) with a copy of this Blocked Account
Agreement
nd
attached thereto; provided, however, that (i) the “Effective Time” will be no later than the opening of business on the second (2 ) business day
following the business day of such receipt, and (ii) a “business day” is any day other than a Saturday, Sunday or other day on which PNC Bank is or is
authorized or required by law to be closed.
b. In the event any fees and expenses (“Fees”) related to the Blocked Account go unpaid or any checks or other items which were deposited or credited to
the Blocked Account are returned, reversed, refunded or charged back for insufficient funds or for any other reason (“Returned Items”), PNC Bank may
charge the Blocked Account or other accounts of the Customer maintained at PNC Bank. If there are insufficient funds in the Blocked Account or any of
the Customer’s other accounts to cover the Fees and Returned Items, the Customer agrees to immediately reimburse PNC Bank for the amount of such
shortfall. After the Effective Time, if the Customer fails to pay the amount demanded by PNC Bank, the Administrative Agent agrees to reimburse PNC
Bank within ten (10) business days after demand thereof by PNC Bank for any Returned Items to the extent that the funds in respect thereof were
transferred out of the Blocked Account at the direction of the Administrative Agent.
c. Unless the Administrative Agent directs PNC Bank in writing to the contrary, and subject to PNC Bank’s right to place holds for uncollected funds
pursuant to Federal Reserve Regulation CC and PNC Bank’s customary procedures, after receipt of the Shifting Control Notice, PNC Bank agrees to
wire transfer the funds in the Blocked Account, on a daily basis and in same day funds, to such account as the Administrative Agent may direct in
writing.
d. Notwithstanding the foregoing, PNC Bank shall have the right at any time to set−off against and withdraw funds from the Blocked Account for (i) items
credited to the Blocked Account in error or which were unpaid for any reason, (ii) for overdrafts created on related accounts of the Customer or any of
its subsidiaries, (iii) any amounts deposited therein in error or as necessary to correct processing errors; (iv) PNC Bank’s fees and expenses owed
2
by Customer and Administrative Agent for the maintenance of the Blocked Account and for PNC Bank’s services under this Blocked Account
Agreement; (v) reasonable attorney’s fees of PNC Bank’s counsel for the review, negotiation and enforcement of this Blocked Account Agreement,
which attorney’s fees Customer hereby agrees to pay; and (vi) obligations and liabilities arising out of any banking and cash management services
provided by PNC Bank, including, but not limited to, Automated Clearing House transactions. Except for its right to charge the Blocked Account in
accordance with this paragraph (d), PNC Bank unconditionally and irrevocably waives (so long as this Blocked Account Agreement is in effect) any
rights of set−off or banker’s lien against, or rights to otherwise deduct from, any funds held in the Blocked Account for any indebtedness or other claim
owed by the Customer to PNC Bank. After the Effective Time, if there are insufficient funds in the Blocked Account and the Customer has not fully
reimbursed PNC Bank, the Administrative Agent shall return such amount to PNC Bank on demand to the extent that such amounts were transferred out
of the Blocked Account at the direction of the Administrative Agent.
e. The Customer agrees that the Administrative Agent shall have full and irrevocable right, power and authority to take any action which the
Administrative Agent deems reasonably necessary or appropriate to preserve or protect its interest in the Blocked Account consistent with this Blocked
Account Agreement and the Transaction Documents.
f. PNC Bank will follow its customary procedures for determining whether or not to honor any checks, drafts or other payment requests drawn on or with
respect to the Blocked Account. Any electronic funds transfers (wire, automated clearing house, etc.) to or from the Blocked Account will be subject to
the terms and conditions of PNC Bank’s standard agreements for such services, as in effect and as amended from time to time. In the event of any
conflict between the terms and conditions of such agreements and those of this Blocked Account Agreement, then this Blocked Account Agreement
shall control.
g. PNC Bank will not modify or alter PNC Bank’s arrangements with the Customer concerning the Blocked Account without the Administrative Agent’s
prior written consent.
h. PNC Bank may rely, and shall be protected in acting or refraining from acting, upon any notice (including but not limited to electronically confirmed
facsimiles of such notice) believed by PNC Bank to be genuine and to have been given by the proper party or parties.
This Blocked Account Agreement shall not be effective until signed by the Administrative Agent, the Customer and PNC Bank and shall then be binding
upon the parties hereto and their respective successors and assigns. Notwithstanding the foregoing, PNC Bank will not assign or transfer any of its rights or
obligations hereunder (other than to the Administrative Agent) without the prior written consent of the Administrative Agent except PNC Bank may freely
assign this Blocked Account Agreement to any successor by merger of PNC Bank or to any financial institution that is directly or indirectly (i) in control of
PNC Bank, (ii) under the control of PNC Bank, or (iii) under common control with PNC Bank.
3
In the absence of fraud or abuse on the part of the Customer or any of its subsidiaries, PNC Bank may not terminate this Blocked Account Agreement or the
Blocked Account without giving thirty (30) days’ prior written notice thereof to both the Customer and the Administrative Agent. Upon such termination,
PNC Bank shall close the Blocked Account and transfer all funds therein and any future instruments deposited in the Blocked Account: (i) to the Customer,
prior to the Effective Time, or (ii) to the Administrative Agent, subsequent to the Effective Time.
The Customer will indemnify PNC Bank for, and hold PNC Bank harmless from, all claims, demands, losses, liabilities and expenses, including reasonable
legal fees and expenses, resulting from or with respect to this Blocked Account Agreement, the Blocked Account and the services provided hereunder,
except to the extent of PNC Bank’s gross negligence or willful misconduct. This indemnification shall survive termination of this Agreement. After the
Effective Time, without limiting in any way the Administrative Agent’s obligation to pay or reimburse PNC Bank as otherwise specified in this Blocked
Account Agreement, the Administrative Agent shall indemnify PNC Bank and hold it harmless against all claims, demands, losses, liabilities and expenses,
including reasonable legal fees and expenses, which PNC Bank shall incur as a result of honoring or following any instruction (including the Shifting
Control Notice) it shall receive from (or shall believe in good faith to be from) the Administrative Agent under this Blocked Account Agreement, but only
to the extent (a) such loss, damage or expense does not exceed the amounts received by the Administrative Agent following the Shifting Control Notice and
(b) that PNC Bank is unable to recover from the Blocked Account or from the Customer within ten (10) days after request for reimbursement has been made
by PNC Bank to the Customer. The Administrative Agent shall not be responsible for any loss, damage, or expense that a court having jurisdiction shall
have determined had been caused by PNC Bank’s gross negligence or willful misconduct in its performance of its obligations under this Blocked Account
Agreement. This indemnification shall survive termination of this Blocked Account Agreement.
PNC Bank will not be liable to the Customer or the Administrative Agent for any expense, claim, loss, damage or cost (“Damages”) arising out of or
relating to its performance under this Blocked Account Agreement other than Damages which result directly from its acts or omissions constituting gross
negligence. In no event will PNC Bank be liable for any punitive, special, indirect, or consequential damages, including but not limited to lost profits, even
if advised of the possibility or likelihood of such damages.
If the Customer becomes subject to a voluntary or involuntary proceeding under the United States Bankruptcy Code, or if PNC Bank is otherwise served
with legal process or becomes aware of facts or circumstances which PNC Bank in good faith believes affects its ability to carry out the terms of a Shifting
Control Notice or the disposition of funds deposited in the Blocked Account, PNC Bank shall have the right (a) to place a hold on funds deposited in the
Blocked Account until such time as PNC Bank receives an appropriate order from a court of competent jurisdiction or other assurances satisfactory to PNC
Bank establishing that the Shifting Control Notice may be effectuated and/or funds may continue to be disbursed according to the instructions contained in
this Blocked Account Agreement; or (b) to commence, at the Customer’s expense, an interpleader action in any court of competent jurisdiction and to take
no further action except in accordance with joint instructions from the Customer and the Administrative Agent or in accordance with the final order of court
in such action.
4
All notices and communications hereunder will be in writing and will be deemed to have been received and will be effective on the day on which delivered
(including delivery by facsimile) to the applicable party at the address set forth below, or to such other address of which it notifies the other parties in
writing from time to time.
Customer:
Consumers Receivables Funding II, LLC
One Energy Plaza
Jackson, Michigan 49201
Attn: Treasurer
Facsimile: 517−788−8233
Telephone: 517−788−2286
Servicer:
Consumers Energy Company
One Energy Plaza
Jackson, Michigan 49201
Attn: Treasurer
Facsimile: 517−788−8233
Telephone: 517−788−2286
Administrative Agent:
JPMorgan Chase Bank, N.A.
10 South Dearborn
Chicago, Illinois 60670
Attn: Asset Backed Securities — Conduits
Facsimile: 312−732−3600
Telephone: 312−732−1174
Depositary Bank:
PNC Bank, National Association
620 Liberty Avenue
Pittsburgh, PA 15222
Attention: Gabe Galioto
Facsimile: 412−762−6264
Telephone: 412−768−1819
This Blocked Account Agreement may be amended only by a written instrument executed by the Customer, the Administrative Agent and PNC Bank,
acting by their representative officers thereunto duly authorized. PNC Bank will not enter into any other agreement with any other person by which PNC
Bank would be obligated to comply with the instructions of such other person as to the disposition of funds or other dealings with the Blocked Account
except in order to comply with the order of a court of competent jurisdiction. PNC Bank agrees to give the Administrative Agent prior written notice of any
agreement PNC Bank enters into as described in the immediately preceding sentence.
The parties hereto unconditionally and irrevocably waive any right to trial by jury in any legal proceeding relating to any dispute arising under this Blocked
Account Agreement.
5
PNC Bank agrees, in its capacity as a creditor of the Customer, that it shall not institute or join any other person or entity in instituting against the Customer
any involuntary case pursuant to Title 11 of the United States Code, or any similar case under applicable state or federal law for debts owed under this
Blocked Account Agreement or in connection with the Blocked Account prior to the date which is one year and one day after any indebtedness of the
Customer for borrowed money has been paid in full.
This Blocked Account Agreement may be executed by one or more of the parties hereto on any number of separate counterparts, each of which when so
executed shall be an original, but all of which shall together constitute one and the same instrument.
This Blocked Account Agreement shall be governed by and construed in accordance with the laws of the State of New York. The State of New York shall
be PNC Bank’s jurisdiction for purposes of Article 9 of the Uniform Commercial Code.
Very truly yours,
JPMORGAN CHASE BANK, N.A., as
Administrative Agent
By: /s/ Patrick Menichillo
Name: Patrick Menichillo
Title: Vice President
6
Acknowledged and agreed to this 17 day of March , 2010.
PNC BANK, NATIONAL ASSOCIATION
By:
Name:
Title:
The Customer hereby agrees and consents to all of the terms and conditions of the foregoing Blocked Account Agreement and authorizes and directs PNC
Bank to take any and all action required or requested by the Administrative Agent or otherwise necessary to implement and maintain compliance with such
terms and conditions.
CONSUMERS RECEIVABLES FUNDING II, LLC
By: /s/ Laura L. Mountcastle
Name: Laura L. Mountcastle
Title: President, Chief Executive Officer,
Chief Financial Officer and Treasurer
7
Acknowledged and agreed to this 17 th day of March , 2010.
PNC BANK, NATIONAL ASSOCIATION
By: /s/ Susie Richardson
Name: Susie Richardson
Title: Ass’t Vice President
The Customer hereby agrees and consents to all of the terms and conditions of the foregoing Blocked Account Agreement and authorizes and directs PNC
Bank to take any and all action required or requested by the Administrative Agent or otherwise necessary to implement and maintain compliance with such
terms and conditions.
CONSUMERS RECEIVABLES FUNDING II, LLC
By:
Name:
Title:
7
EXHIBIT A
FORM OF NOTICE
_____________ ____, ____
Facsimile No. (412) 762−6264
PNC Bank, National Association
620 Liberty Avenue
Pittsburgh, PA 15222
Attention: Gabe Galioto
(Telephone Number 412−768−1819)
Re: Consumers Receivables Funding II, LLC
Dear
:
We hereby notify you that we are exercising our rights pursuant to that certain Blocked Account Agreement dated March 17, 2010, among Consumers
Receivables Funding II, LLC, you and us, to have the name of, and to have the exclusive ownership and control of, account number 4006909862 maintained
with you, transferred to us. Collected funds deposited in the Blocked Account should be sent in accordance with the Blocked Account Agreement by wire
transfer at the end of each day to:
[Insert account and wire transfer information]
We will be responsible for all fees and expenses of the account from this date.
Very truly yours,
JPMorgan Chase Bank, N.A., as
Administrative Agent
By:
Print Name:
Title:
EXHIBIT VII
FORM OF ASSIGNMENT AGREEMENT
THIS ASSIGNMENT AGREEMENT (this “Assignment Agreement”) is entered into as of the ___ day of ____________, ____, by and between
_____________________ (“Assignor”) and __________________ (“Assignee”).
PRELIMINARY STATEMENTS
A. This Assignment Agreement is being executed and delivered in accordance with [Section 12.1(a)][Section 12.1(b)] of that certain Amended and
Restated Receivables Purchase Agreement dated as of November 23, 2010 by and among Consumers Receivable Funding II, LLC, as Seller, Consumers
Energy Company, as Servicer, the Conduits party thereto from time to time, the Financial Institutions party thereto from time to time, the Managing Agents
party thereto from time to time and JPMorgan Chase Bank, N.A., as Administrative Agent (as the same may be further amended, restated, supplemented or
otherwise modified from time to time, the “Purchase Agreement”). Capitalized terms used and not otherwise defined herein are used with the meanings set
forth or incorporated by reference in the Purchase Agreement.
B. Assignor is a [Conduit][Financial Institution] party to the Purchase Agreement, and Assignee wishes to become a [Conduit][Financial Institution]
thereunder; and
C. Assignor is selling and assigning to Assignee an undivided ____________% (the “Transferred Percentage”) interest in all of Assignor’s rights and
obligations under the Purchase Agreement and the Transaction Documents, including, without limitation, Assignor’s [Conduit Purchase
Limit][Commitment] and (if applicable) the Capital of Assignor’s Purchaser Interests as set forth herein.
AGREEMENT
The parties hereto hereby agree as follows:
1. The sale, transfer and assignment effected by this Assignment Agreement shall become effective (the “Effective Date”) two (2) Business Days (or
such other date selected by the Administrative Agent in its sole discretion) following the date on which a notice substantially in the form of Schedule II to
this Assignment Agreement (“Effective Notice”) is delivered by the Administrative Agent to the Purchasers and the Managing Agent[s] of the Assignor’s
and Assignee’s Purchaser Group[s]. From and after the Effective Date, (i) Assignee shall be a [Conduit][Financial Institution] party to the Purchase
Agreement for all purposes thereof as if Assignee were an original party thereto and Assignee agrees to be bound by all of the terms and provisions
contained therein and (ii) Assignor shall, to the extent provided in this Assignment Agreement, relinquish its rights and be released from its obligations
under the Purchaser Agreement.
Exh. VII−1
2. If Assignor has no outstanding Capital under the Purchase Agreement, on the Effective Date, Assignor shall be deemed to have hereby transferred
and assigned to Assignee, without recourse, representation or warranty (except as provided in paragraph 6 below), and the Assignee shall be deemed to have
hereby irrevocably taken, received and assumed from Assignor, the Transferred Percentage of Assignor’s [Conduit Purchase Limit][Commitment] and all
rights and obligations associated therewith under the terms of the Purchase Agreement[, including, without limitation, the Transferred Percentage of
Assignor’s future funding obligations under Section 4.1 of the Purchase Agreement].
3. If Assignor has any outstanding Capital under the Purchase Agreement, at or before 12:00 noon, local time of Assignor, on the Effective Date
Assignee shall pay to Assignor, in immediately available funds, an amount equal to the sum of (i) the Transferred Percentage of the outstanding Capital of
Assignor’s Purchaser Interests (such amount, being hereinafter referred to as the “Assignee’s Capital”); (ii) all accrued but unpaid (whether or not then due)
Yield attributable to Assignee’s Capital; and (iii) accruing but unpaid fees and other costs and expenses payable in respect of Assignee’s Capital for the
period commencing upon each date such unpaid amounts commence accruing, to and including the Effective Date (the “Assignee’s Acquisition Cost”);
whereupon, Assignor shall be deemed to have sold, transferred and assigned to Assignee, without recourse, representation or warranty (except as provided
in paragraph 6 below), and Assignee shall be deemed to have hereby irrevocably taken, received and assumed from Assignor, the Transferred Percentage of
Assignor’s [Conduit Purchase Limit][Commitment] and the Capital of Assignor’s Purchaser Interests (if applicable) and all related rights and obligations
under the Purchase Agreement and the Transaction Documents[, including, without limitation, the Transferred Percentage of Assignor’s future funding
obligations under Section 4.1 of the Purchase Agreement].
4. Concurrently with the execution and delivery hereof, Assignor will provide to Assignee copies of all documents requested by Assignee which were
delivered to Assignor pursuant to the Purchase Agreement.
5. Each of the parties to this Assignment Agreement agrees that at any time and from time to time upon the written request of any other party, it will
execute and deliver such further documents and do such further acts and things as such other party may reasonably request in order to effect the purposes of
this Assignment Agreement.
6. By executing and delivering this Assignment Agreement, Assignor and Assignee confirm to and agree with each other, the Administrative Agent
and the other Financial Institutions in such Assignor’s Purchaser Group (if applicable) as follows: (a) other than the representation and warranty that it has
not created any Adverse Claim upon any interest being transferred hereunder, Assignor makes no representation or warranty and assumes no responsibility
with respect to any statements, warranties or representations made by any other Person in or in connection with the Purchase Agreement or the Transaction
Documents or the execution, legality, validity, enforceability, genuineness, sufficiency or value of Assignee, the Purchase Agreement or any other
instrument or document furnished pursuant thereto or the perfection, priority, condition, value or sufficiency of any collateral; (b) Assignor makes no
representation or warranty and assumes no responsibility with respect to the financial condition of the Seller, the Servicer, any Obligor or any Affiliate of
the Seller or the performance or
Exh. VII−2
observance by the Seller, the Servicer, any Obligor, or any Affiliate of the Seller of any of their respective obligations under the Transaction Documents or
any other instrument or document furnished pursuant thereto or in connection therewith; (c) Assignee confirms that it has received a copy of the Purchase
Agreement and copies of such other Transaction Documents, and other documents and information as it has requested and deemed appropriate to make its
own credit analysis and decision to enter into this Assignment Agreement; (d) Assignee will, independently and without reliance upon the Administrative
Agent, any Managing Agent or any Purchaser and based on such documents and information as it shall deem appropriate at the time, continue to make its
own credit decisions in taking or not taking action under the Purchase Agreement and the Transaction Documents; (e) Assignee appoints and authorizes the
Administrative Agent to take such action as collateral agent on its behalf and to exercise such powers under the Transaction Documents as are delegated to
the Administrative Agent by the terms thereof, together with such powers as are reasonably incidental thereto, (f) Assignee appoints and and authorizes
[____________] as its Managing Agent to take such action as a managing agent on its behalf and to exercise such powers under the Transaction Documents
as are delegated to the Managing Agent for the Assignee’s Purchaser Group by the terms thereof, together with such powers as are reasonably incidental
thereto; and (g) Assignee agrees that it will perform in accordance with their terms all of the obligations which, by the terms of the Purchase Agreement and
the other Transaction Documents, are required to be performed by it as a [Conduit][Financial Institution].
7. Each party hereto represents and warrants to and agrees with the Administrative Agent that it is aware of and will comply with the provisions of the
Purchase Agreement, including, without limitation, Sections 4.1, 13.5 and 13.6 thereof.
8. Schedule I hereto sets forth the revised [Conduit Purchase Limit][Commitment] of Assignor and the [Conduit Purchase Limit][Commitment] of
Assignee, as well as administrative information with respect to Assignee.
9. THIS ASSIGNMENT AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE
STATE OF ILLINOIS.
10. Assignee hereby covenants and agrees that, prior to the date which is one year and one day after the payment in full of all outstanding senior
indebtedness for borrowed money of a Conduit, it will not institute against, or join any other Person in instituting against, such Conduit any bankruptcy,
reorganization, arrangement, insolvency or liquidation proceedings or other similar proceeding under the laws of the United States or any state of the United
States.
Exh. VII−3
IN WITNESS WHEREOF, the parties hereto have caused this Assignment Agreement to be executed by their respective duly authorized officers of
the date hereof.
[ASSIGNOR]
By:
Name:
Title:
[ASSIGNEE]
By:
Name:
Title:
Acknowledged and Agreed:
[NAME OF MANAGING AGENT FOR ASSIGNOR], as a
Managing Agent
By:
Name:
Title:
[NAME OF MANAGING AGENT FOR ASSIGNEE], as a
Managing Agent
By:
Name:
Title:
[NAME OF FINANCIAL INSTITUTIONS IN ASSIGNOR’S
PURCHASER GROUP], as a Financial Institution
By:
Name:
Title:
JPMORGAN CHASE BANK, N.A., as Administrative Agent
By:
Name:
Title:
Exh. VII−4
SCHEDULE I TO ASSIGNMENT AGREEMENT
LIST OF COMMITMENT AMOUNTS
Date: _______________, ____
Effective Date: _______________, ____
Transferred Percentage: ________%
Assignor
Assignee
A−1
[Conduit Purchase
Limit]
[Commitment] (prior
to giving effect to the
Assignment
Agreement)
A−2
[Conduit Purchase
Limit]
[Commitment] (after
giving effect to the
Assignment
Agreement)
B−1
Outstanding Capital
(if any)
A−2
B−1
B−2
[Conduit Purchase
Limit]
[Commitment] (after
giving effect to the
Assignment
Agreement)
Outstanding Capital
(if any)
Ratable Share of
Outstanding Capital
Exh. VII−5
B−2
Ratable Share of
Outstanding Capital
SCHEDULE II TO ASSIGNMENT AGREEMENT
EFFECTIVE NOTICE
TO: [ASSIGNOR] and [related MANAGING AGENT]
TO: [ASSIGNEE] and [related MANAGING AGENT]
The undersigned, as Administrative Agent under the Amended and Restated Receivables Purchase Agreement dated as of November 23, 2010 by and
among Consumers Receivable Funding II, LLC, as Seller (“Seller”), Consumers Energy Company, as Servicer, the Conduits party thereto from time to time,
the Financial Institutions party thereto from time to time, the Managing Agents party thereto from time to time and JPMorgan Chase Bank, N.A., as
Administrative Agent, hereby acknowledges receipt of executed counterparts of a completed Assignment Agreement dated as of ____________, ____
between __________________, as Assignor, and __________________, as Assignee. Terms defined in such Assignment Agreement are used herein as
therein defined.
1. Pursuant to such Assignment Agreement, you are advised that the Effective Date will be ______________, ___.
2. [Each Conduit in Assignor’s Purchaser Group hereby consents to the Assignment Agreement as required by Section 12.1(b) of the Receivables
Purchase Agreement.]
[3. Pursuant to such Assignment Agreement, the Assignee is required to pay $______________ to Assignor at or before 12:00 noon (local time of
Assignor) on the Effective Date in immediately available funds.]
Very truly yours,
JPMORGAN CHASE BANK, N.A., as Administrative Agent
By:
Name:
Title:
[CONDUIT]
By:
Name:
Title:
Exh. VII−6
EXHIBIT VIII
CREDIT AND COLLECTION POLICY
On File with Administrative Agent.
Exh. VIII−1
EXHIBIT IX
FORM OF MONTHLY REPORT
(Attached)
Exh. IX−1
Consumers Receivables Funding II, LLC
Monthly Report
Consumers Energy Company Ratings
(The senior secured long−term debt securities rating without third party credit enhancement)
S&P
Moody’s
LIBO Rate
Federal Funds Effective Rate
Prime Rate
Alternate Base Rate
Monthly Report for the Month ending
I. Receivable Performance Ratios (update monthly)
Month
Actual
Trigger
1.75%
12.00%
55.00
2.50%
Compliance
Actual
Trigger
0.70
Compliance
3−month average Dilution Ratio
3−month average Past Due Ratio
3−month average Day Sales Outstanding
3−month average Loss−to−Liquidation Ratio
II. Financial Covenants (updated in March, June, September and December for the prior quarter)
Total Consolidated Debt to Total Consolidated Capitilization
III. Receivables Rollforward
Beginning Billed Receivables
Sales− Billings
Sales− Late Payment Charges
Collections
Collections for Company Use
Non−Cash Credits
Write−offs
Security Deposit Credits
Debit Adjustments
Unreconciled Difference
Ending Billed Receivables
Unbilled Receivables
Total Receivables
IV. Receivables Aging
Current
1−30 dpd
31−60 dpd
61−90 dpd
91−120 dpd
121−150 dpd
151+ dpd
Unbilled Receivables
Total Receivables
V. Rollforward/ Aging Balance Reconciliation
Aging Balance
EMPP Credits
WPP Credits
Other Unapplied Credit Balances
Postings with Alternate Posting Date Timing Difference
Ending Rollforward Balance
Difference
VI. Eligible Receivables
Total Outstanding Balance of Receivables
Less: Charged−Off Receivables (< 60 days past due)
Delinquent Receivables (> 60 days past due)
Receivables with terms > 30 days
Non−USD denominated Receivables (< 60 days past due)
Affiliate Receivables (< 60 days past due)
Receivables subject to set−off (< 60 days past due)
Portion of Receivables subject to Intercreditor Agreement
WPP Receivables (< 60 days past due)
Bankrupt Obligors (< 60 days past due)
Rate I Receivables (< 60 days past due)
Extended, Modified and Restructured Receivables (< 60 days past due)
Accrued Liability from ELECTRIC rate case refunds
Accrued Liability from GAS rate case refunds
Accrued Liability from BIG ROCK rate case refunds
Other Ineligible Receivables (< 60 days past due)
Eligible Receivables Balance
Consumers Receivables Funding II, LLC
Monthly Report
VII. Net Receivables Balance
Eligible Receivables Balance
Less: Excess Obligor Concentrations (Plug figure of $3,000,000)
Excess Unbilled Receivables Amount
Unapplied Cash
Unapplied Credits
Customer Deposits
Unbilled Receivables Offset Amount
Excess Government Receivables Amount
Excess Non−Energy Receivables Amount
SPP receivables (Plug figure of $50,000,000)
Net Receivables Balance
Schedule of Defaulted Receivables
Defaulted Receivables
Schedule of Unbilled Receivables
Unbilled Receivables
Applicable Unbilled Receivables Limit (50% of Total Receivables)
Excess Unbilled Receivables Amount
Schedule of Unbilled Receivables Offset Amount
—
Number of EMPP customers with a credit balance (1)
Total Number of Consumers’ customers (2)
Greater of (a) (1) / (2) and (b) 7%
Multiplied by Unbilled Receivables (A)
EMPP Credit amount (B)
Unbilled Receivables Offset Amount (lesser of (A) or (B))
Schedule of Government Receivables
Government Receivables < 60 dpd
Government Receivable Concentration Limit (Lesser of (a) $20MM or (b) 5% of Eligible Rec.)
Excess Government Receivables Amount
Schedule of Non−Energy Receivables
Non−Energy Receivables and Finance Charges < 60 dpd
Non−Energy Receivables Limit (Lesser of (a) $8MM or (b) 2% of Eligible Receivables)
Excess Non−Energy Receivables Amount
VIII. Capital Availability
Net Receivables Balance
Less: Loss Reserve (% / $)
Dilution Reserve (% / $)
Yield & Servicer Fee Reserve (% / $)
Total Reserves (% / $)
Net Receivables Balance — Reserves
Applicable Maximum Purchaser Interest
Maximum Funding Amount
Maximum Funding Amount
Purchase Limit
Max Funding Amount
Current Capital Outstanding
Capital Available for Funding
Paydown Required
—
—
—
—
—
—
Fully Funded
IX. Purchaser Interest (current)
Request for Purchase (+) or Paydown (−)
Purchaser’s Interest (pro−forma)
Pro−forma Capital Outstanding
$
—
The undersigned hereby represents and warrants that the foregoing is accurate accounting in accordance with the Receivables Purchase Agreement dated as
of May 22, 2003 and that all representations and warranties are restated and reaffirmed.
Name:
Title: Director of Cash Management
EXHIBIT X
FORM OF REDUCTION NOTICE
[Date]
JPMorgan Chase Bank, N.A., as Administrative Agent and as a Managing Agent
1 Chase Plaza, Suite IL1−0079
Asset−Backed Finance
Chicago, Illinois 60670−0596
Attn: ABS Treasury
The Bank of Tokyo−Mitsubishi UFJ, Ltd., New York Branch, as a Managing Agent
1251 Avenue of Americas, 12th Floor
New York, NY 10020−1104
Attn: Securitization Group
cc: Union Bank, N.A., as a Financial Institution
c/o Commercial Loan Operations
1980 Saturn St.
Monterey Park, CA 91754
Attn: Maria Suncin
Re: REDUCTION NOTICE
Ladies and Gentlemen:
Reference is hereby made to the Amended and Restated Receivables Purchase Agreement, dated as of November 23, 2010, by and among Consumers
Receivable Funding II, LLC, a Delaware limited liability company, as the seller (the “Seller”), Consumers Energy Company, a Michigan corporation, as the
Servicer, the Conduits party thereto from time to time, the Financial Institutions party thereto from time to time, the Managing Agents party thereto from
time to time and JPMorgan Chase Bank, N.A., as Administrative Agent (as the same may be further amended, restated, supplemented or otherwise modified
from time to time, the “Receivables Purchase Agreement”). Capitalized terms used herein shall have the meanings assigned to such terms in the Receivables
Purchase Agreement.
The Administrative Agent and each Managing Agent is hereby notified of the following Aggregate Reduction:
Purchaser Group
(identified by the related Managing Agent)
JPMorgan Chase Bank, N.A.
Amount of Reduction
$
The Bank of Tokyo−Mitsubishi UFJ, Ltd., New York Branch
$
Aggregate Reduction:
$
Exh. X−1
Proposed Reduction Date: [
]
The Aggregate Reduction set forth above will be made in available funds on the Proposed Reduction Date (by 12:00 noon New York time) to each
Managing Agent (on behalf of the Purchasers in such Managing Agent’s Purchaser Group):
JPMorgan Chase Bank, N.A. Purchaser Group
Account Title: Falcon Asset Securitization LLC
JPMorgan Chase Bank, N.A.
ABA Number: 021−000−021
Account Number: 5114810
SWIFT Address: CHASUS33XXX
Reference: Consumers Receivables Funding II, LLC
The Bank of Tokyo−Mitsubishi UFJ, Ltd., New York Branch Purchaser Group
Deutsche Bank Trust Company Americas
ABA Number: 021−001−033
Account Number: 01419647
Beneficiary: Trust and Securities Services
Payment Details: PORT VICTORY.20
In connection with the Aggregate Reduction to be made on the Proposed Reduction Date, the Seller hereby certifies that the following statements are true
on the date hereof, and will be true on the Proposed Reduction Date (before and after giving effect to the proposed Aggregate Reduction):
(i) the representations and warranties of the Seller set forth in Section 5.1 of the Receivables Purchase Agreement are true and correct on and as of the
Proposed Reduction Date as though made on and as of such date;
Exh. X−2
(ii) no event has occurred and is continuing, or would result from the proposed Aggregate Reduction, that will constitute an Amortization Event or a
Potential Amortization Event; and
(iii) the Amortization Date has not occurred, the Aggregate Capital does not exceed the Purchase Limit and the aggregate Purchaser Interests do not
exceed the Applicable Maximum Purchaser Interest.
After giving effect to such Aggregate Reduction made on the Proposed Reduction Date, the Aggregate Capital is $[
].
Very truly yours,
CONSUMERS RECEIVABLES FUNDING II, LLC
By:
Name:
Title:
Exh. X−3
EXHIBIT XI
FORM OF P.O. BOX TRANSFER NOTICE
(Attached)
Exh. XI−1
United States Postal Service
[Address of Post Office]
Re: Zip Code: Lansing, MI 48937−0001
[Date]
Dear Sir or Madam:
Please be informed that Consumers Energy Company, the customer for Zip Code: Lansing, MI 48937−0001 hereby requests that effective immediately
the customer for Zip Code: Lansing, MI 48937−0001 be changed to JPMorgan Chase Bank, N.A., as Administrative Agent for the benefit of (i) the
Purchasers under that certain Amended and Restated Receivables Purchase Agreement dated November 23, 2010, (ii) The Bank of New York, or any
successor thereto, as trustee (the “Bond Trustee”) under the Indenture dated as of November 8, 2001 between Consumers Funding LLC and the Bond
Trustee, as supplemented, and (iii) Consumers Funding LLC, as issuer of the Securitization Bonds under the Indenture.
Thank you.
CONSUMERS ENERGY COMPANY
By:
Name:
Title:
JPMorgan Chase Bank, N.A., as customer for Zip Code: Lansing, MI 48937−0001 hereby gives notice that effective immediately, only authorized
representatives (as determined by the branch managers or officers of such organization) of the organizations listed are authorized to accept mail addressed to
this post office box, to change the keys for this post office box, or otherwise instruct you with respect to this post office box:
[List follows on next page]
Exh. XI−2
Name of Individual or Organization
Contact Number
Thank you.
JPMORGAN CHASE BANK, N.A.
By:
Name:
Title:
Exh. XI−3
EXHIBIT XII
FORM OF DAILY REPORT
(Attached)
Exh. XII−1
Exhibit XII to Receivables Purchase Agreement Consumers Date
Daily Receivables Report
I. Daily Receivables Rollforward
Beginning Receivables (Ending Receivables Balance from prior Weekly Report)
Add: Receivables (billed invoices)
Receivables (unbilled = deliveries at sales or estimated price)
Less: Cash Collections
Dilutions (all issued credits)
Charged−Off Receivables (<61 days past−due)
Ending Receivables Balance
II. Net Receivables Balance
Eligible Receivables Pool Balance (from most recent Monthly Report)
Excess Concentrations (from most recent Monthly Report)
Originator Receivables Pool Balance (from most recent Monthly Report)
Weekly Eligible Receivables Pool Ratio
Weekly Excess Concentrations Ratio
#DIV/0!
#DIV/0!
Weekly Eligible Receivables Pool Balance
Less: Weekly Excess Concentrations
#DIV/0!
#DIV/0!
Net Receivables Balance (“NRB”)
III. Calculation of Potential Capital
#DIV/0!
Loss Reserve % (from most recent Monthly Report)
Dilution Reserve % (from most recent Monthly Report)
Discount Reserve % (from most recent Monthly Report)
Minimum Seller Interest
Net Receivables Balance (from II above)
Weekly Loss Reserve
Weekly Dilution Reserve
Weekly Discount Reserve
#DIV/0!
#DIV/0!
#DIV/0!
#DIV/0!
Less: Weekly Aggregate Reserves
Less: Weekly Minimum Seller Interest
#DIV/0!
#DIV/0!
Potential Capital (this weekly report)
IV. Purchase Facility — Increases/Decreases
#DIV/0!
Facility Limit
Potential Capital (maximum available funding)
Capital Outstanding total all Purchasers (immediately prior to this Report date)
250,000,000
#DIV/0!
Excess / (Shortfall)
Available Funding Increase
Required Capital Paydown
#DIV/0!
#DIV/0!
#DIV/0!
Current Purchaser Interest (net of Minimum Seller Interest must be <95%)
Potential Purchaser Interest (net of Minimum Seller Interest must be <95%)
#DIV/0!
#DIV/0!
Is a Purchase being requested?
Falcon/PREFCO Related Group Pro Rata Share
#DIV/0!
100.00%
In Compliance?
In Compliance?
#DIV/0!
#DIV/0!
Purchase Notice Request for PREFCO #DIV/0!
Reduction Notice Request for PREFCO #DIV/0!
Purchase Notice Request for
#DIV/0!
Reduction Notice Request for
#DIV/0!
The undersigned hereby represent and warrants that the foregoing is a true and accurate accounting with respect to the outstandings of Consumers Energy
Co in accordance with the conformed Receivables Purchase Agreement date as of February 12. 2009 and that all Representations and Warranties are
restated and reaffirmed.
Signed by:
Exh. XII−2
Title: Authorized Officer
Exh. XII−3
EXHIBIT XIII
FORM OF JOINDER AGREEMENT
Reference is made to that certain Amended and Restated Receivables Purchase Agreement dated as of November 23, 2010 (as the same may be
further amended, restated, supplemented or otherwise modified from time to time, the “Receivables Purchase Agreement”), by and among Consumers
Receivable Funding II, LLC, a Delaware limited liability company, as the seller (the “Seller”), Consumers Energy Company, a Michigan corporation, as the
servicer (the “Servicer”), the Purchasers party thereto from time to time, the Managing Agents party thereto from time to time and JPMorgan Chase Bank,
N.A., as Administrative Agent. To the extent not defined herein, capitalized terms used herein have the meanings assigned to such terms in the Receivables
Purchase Agreement.
(the “New Managing Agent”),
(the “New Conduit[s]”),
(the “New Financial Institution[s]”; and together with
the New Managing Agent and the New Conduit[s], the “New Purchaser Group”) and the Administrative Agent agree as follows:
1. The Seller has requested that the New Purchaser Group become a “Purchaser Group” under the Receivables Purchase Agreement.
2. The effective date (the “Effective Date”) of this Joinder Agreement shall be the later of (i) the date on which a fully executed copy of this Joinder
Agreement is delivered to the Administrative Agent and the Seller and (ii) the date of this Joinder Agreement.
3. By executing and delivering this Joinder Agreement, each of the New Managing Agent, the New Conduit[s] and the New Financial Institution[s]
(i) confirms that it has received a copy of the Receivables Purchase Agreement and such Transaction Documents and other documents and information
requested by it, and that it has, independently and without reliance upon the Seller, the Servicer, any Purchaser, any Managing Agent or the Administrative
Agent, and based on such documentation and information as it has deemed appropriate, made its own decision to enter into this Joinder Agreement;
(ii) agrees that it shall, independently and without reliance upon the Seller, the Servicer, any Purchaser, any Managing Agent or the Administrative Agent,
and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking
action under the Transaction Documents; (iii) appoints and authorizes the Administrative Agent to take such action as the administrative agent on its behalf
and to exercise such powers and discretion under the Transaction Documents as are delegated to the Administrative Agent by the terms hereof and thereof,
together with such powers and discretion as are reasonably incidental thereto; (iv) agrees that it shall perform in accordance with their terms all of the
obligations that by the terms of the Receivables Purchase Agreement and the other Transaction Documents are required to be performed by it as a Managing
Agent, Conduit and Financial Institution, respectively; (v) specifies as its address for notices the office set forth beneath its name on the signature pages of
this Joinder Agreement; and (vi), in the case of the New Conduit[s] and the New Financial Institution[s], appoints and authorizes the New Managing Agent
as its Managing Agent to take such action as a managing agent on its behalf and to exercise such powers under the Transaction
Exh. XIII−1
Documents, as are delegated to the Managing Agents by the terms thereof together with such powers that are reasonably incidental thereto.
4. On the Effective Date of this Joinder Agreement, the New Managing Agent shall join in and be a party to the Fee Letter and each of the New
Managing Agent, the New Conduit[s] and the New Financial Institution[s] shall join in and be a party to the Receivables Purchase Agreement and, to the
extent provided in this Joinder Agreement, shall be entitled to the rights and subject to the obligations of a Managing Agent, a Conduit and a Financial
Institution, respectively, under the Fee Letter and the Receivables Purchase Agreement. Schedule A to the Receivables Purchase Agreement shall be
amended and restated in its entirety as set forth on Schedule I hereto, and Schedule II to this Joinder Agreement sets forth the notice address for each of the
parties in the New Purchaser Group.
5. This Joinder Agreement may be executed by one or more of the parties on any number of separate counterparts, and all of said counterparts taken
together shall be deemed to constitute one and the same instrument.
6. This Joinder Agreement shall be governed by and construed in accordance with the internal laws (and not the law of conflicts) of the State of
Illinois.
7. Any term or provision of this Joinder Agreement which is invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective to
the extent of such invalidity or unenforceability without rendering invalid or unenforceable the remaining terms and provisions of this Joinder Agreement or
affecting the validity or enforceability of any of the terms or provisions of this Joinder Agreement in any other jurisdiction. If any provision of this Joinder
Agreement is so broad as to be unenforceable, the provision shall be interpreted to be only so broad as would be enforceable.
8. Each member of the New Purchaser Group hereby agrees that it will promptly execute and deliver all instruments and documents, and take all
actions, that may be reasonably necessary or desirable, or that the Administrative Agent or any Seller Party may reasonably request, to more fully evidence
this Joinder Agreement or the transactions contemplated hereby. The Administrative Agent and the Seller Parties shall each be a third−party beneficiary of
this Joinder Agreement.
*****
Exh. XIII−2
IN WITNESS WHEREOF, the parties hereto have caused this Joinder Agreement to be executed by their respective officers thereunto duly
authorized, as of the date first above written.
NEW CONDUIT[S]:
[NEW CONDUIT]
By:
Name:
Title:
NEW FINANCIAL INSTITUTION[S]:
[NEW FINANCIAL INSTITUTION]
By:
Name:
Title:
NEW MANAGING AGENT:
[NEW MANAGING AGENT]
By:
Name:
Title:
Exh. XIII−3
Consented to this
day of
, 20
by:
JPMORGAN CHASE BANK, N.A., as a Managing
Agent and as Administrative Agent
By:
Name:
Title:
THE BANK OF TOKYO−MITSUBISHI UFJ, LTD.,
NEW YORK BRANCH, as a Managing Agent
By:
Name:
Title:
CONSUMERS RECEIVABLES FUNDING II, LLC, as Seller
By:
Name:
Title:
CONSUMERS ENERGY COMPANY, as Servicer
By:
Name:
Title:
Exh. XIII−4
Schedule I
to
Joinder Agreement
SCHEDULE A
COMMITMENTS; PURCHASER GROUPS
Dated
, 20
[
] Purchaser Group
Managing Agent:
Group Purchase Limit:
Conduit:
Conduit Purchase Limit:
Financial Institution:
Commitment:
[
[
$
[
[
$
[
[
$
[
]
]
]
]
]
]
] Purchaser Group
Managing Agent:
Group Purchase Limit:
Conduit:
Conduit Purchase Limit:
Financial Institution:
Commitment:
[
$
[
[
$
[
[
$
[
] Purchaser Group
Managing Agent:
Group Purchase Limit:
Conduit:
Conduit Purchase Limit:
Financial Institution:
Commitment:
[
[
$
[
[
$
[
[
$
Exh. XIII−5
[
]
]
]
]
]
]
]
]
]
]
]
]
Schedule II
to
Joinder Agreement
Dated
, 20
ADDRESSES FOR NOTICES
NEW MANAGING AGENT
[
]
NEW CONDUIT
[
]
NEW FINANCIAL INSTITUTION
[
]
SCHEDULE A
COMMITMENTS OF PURCHASER GROUPS
JPMorgan Chase Bank, N.A. Purchaser Group:
JPMorgan Chase Bank, N.A.
Managing Agent:
$150,000,000
Group Purchase Limit:
Falcon Asset Securitization Company LLC
Conduit:
$150,000,000
Conduit Purchase Limit:
JPMorgan Chase Bank, N.A.
Financial Institution:
$150,000,000
Commitment:
The Bank of Tokyo−Mitsubishi UFJ, Ltd., New York Branch Purchaser Group:
Managing Agent:
Group Purchase Limit:
Conduit:
Conduit Purchase Limit:
Financial Institution:
Commitment:
The Bank of Tokyo−Mitsubishi UFJ, Ltd., New York Branch
$100,000,000
Victory Receivables Corporation
$100,000,000
Union Bank, N.A.
$100,000,000
SCHEDULE B
CLOSING DOCUMENTS
(Attached)
Amended And Restated Receivables Purchase Facility
among
Consumers Receivables Funding II, LLC,
as Seller,
Consumers Energy Company,
as Servicer,
The Conduits, Financial Institutions and Managing Agents
Party Thereto From Time to Time
and
JPMorgan Chase Bank, N.A.,
as Administrative Agent
November 23, 2010 1
LIST OF CLOSING DOCUMENTS
1
Each capitalized term used herein and not defined herein shall have the meaning assigned to such term in the RPA. Unless otherwise indicated, all
documents are dated as of the closing date.
FACILITY DOCUMENTS
1.
Amended and Restated Receivables Purchase Agreement (the “RPA”) among Consumers Receivables Funding II, LLC (“Seller”), Consumers Energy
Company (“Consumers”), in its capacity as Servicer (in such capacity, the “Servicer”), the Conduits, Financial Institutions and Managing Agents
from time to time parties hereto and JPMorgan Chase Bank, N.A (“JPM”), as a Financial Institution and as Administrative Agent (in such capacity,
the “Administrative Agent”).
Exhibit I
Definitions
Exhibit II
Form of Purchase Notice
Exhibit III
Places of Business of the Seller Parties; Location(s) of Records; Organizational and Federal Employer Identification Number(s)
Exhibit IV
Names of Collection Banks; Collection Accounts; Lock−Boxes; Specified Accounts
Exhibit V
Form of Compliance Certificate
Exhibit VI
Form of Collection Account Agreement
Exhibit VII
Form of Assignment Agreement
Exhibit VIII
Credit and Collection Policy
Exhibit IX
Form of Monthly Report
Exhibit X
Form of Reduction Notice
Exhibit XI
Form of P.O. Box Transfer Notice
Exhibit XII
Form of Daily Report
Exhibit XIII
Form of Joinder Agreement
Schedule A
Commitments
Schedule B
Closing Documents
Schedule C
Financial Covenant Definitions
2.
Amendment No. 7 to Receivables Sale Agreement (the “Amendment to RSA”) between the Originator, the Buyer and consented to by the
Administrative Agent.
3.
Receivables Sale Agreement (the “RSA”) dated as of May 22, 2003 between the Originator and the Buyer, together with Amendment Nos. 1−6.
Exhibit I
Definitions
Exhibit II
Places of Business; Location(s) of Records; Organizational and Federal Employer Identification Numbers; Other Names
Exhibit III
Lock−Boxes; Collection Accounts, Collection Banks; Specified Accounts
Exhibit IV
Form of Compliance Certificate
Exhibit V
Credit and Collection Policy
Exhibit VI
Form of Subordinated Note
Exhibit VII
Form of UCC−3
Schedule A
List of Documents to be delivered to Buyer Prior to the Purchase
4.
Amended and Restated Subordinated Note (the “Subordinated Note”) executed by the Seller in favor of Consumers.
5.
Intercreditor Agreement (the “Intercreditor Agreement”) dated as of May 22, 2003 executed by the Administrative Agent, the Purchasers, the Bank of
New York, Consumers Funding LLC, the Seller and Consumers, together with:
(i)
Consent of Bond Trustee under Intercreditor Agreement to termination or amendment of Lock−Box Agreements.
(ii)
Opinion of Michael D. VanHemert, in−house counsel to Seller and Consumers, relating to execution of Intercreditor Agreement.
(iii)
Satisfaction of Rating Agency Condition (as defined in the Intercreditor Agreement) with respect to execution of Intercreditor Agreement.
6.
Servicing Agreement dated as of November 8, 2001 between Consumers Funding LLC and Consumers Energy Company, as the same may be
amended, restated, supplemented or otherwise modified from time to time with the consent of the Administrative Agent and each Managing Agent (to
the extent such consent is required by the terms of this Agreement).
7.
Collection Account Agreement among the Originator, Seller, Servicer, Administrative Agent and each of the following collection banks in regards to
the identified account(s):
Collection Bank
JP Morgan Chase Bank
Comerica Bank
Bank of America
Wachovia Bank
PNC Bank, National Association
Fifth Third Bank
8.
Fee Letter among the Seller, the Managing Agents and JPM, as Administrative Agent.
Collection
Account
1242263
1076119914
1054516142
2000032635920
Specified
Account
4825285820
4006909862
7164496916
CORPORATE DOCUMENTS
9.
Certificate of the Secretary of Seller certifying (i) a copy of the Certificate of Formation of Seller (attached thereto), certified as of a recent date by the
Secretary of State of the State of Delaware, (ii) a copy of the limited liability company agreement of Seller (attached thereto), (iii) a copy of the
written consent of the board of directors of Seller (attached thereto) authorizing the execution, delivery and performance of the RPA, Amendment to
RSA, Subordinated Note, and any other document to be delivered by it in connection with such agreements, and (iv) the names and signatures of the
officers authorized on its behalf to execute the RPA, Amendment to RSA, Subordinated Note, and any other document to be delivered by it in
connection with such agreements.
10.
Good Standing Certificates for Seller issued by the Secretaries of State of Delaware and Michigan.
11.
Certificate of the Secretary of Consumers certifying (i) a copy of the Articles of Incorporation of Consumers (attached thereto), certified as of a recent
date by the Secretary of State of the State of Michigan, (ii) a copy of the by−laws of Consumers
(attached thereto), (iii) a copy of the written consent of the board of directors of Consumers (attached thereto) authorizing the execution, delivery and
performance of the RPA, Amendment to RSA, and any other document to be delivered by it in connection with such agreements, and (iv) the names
and signatures of the officers authorized on its behalf to execute the RPA, Amendment to RSA, and any other document to be delivered by it in
connection with such agreements.
12.
Good Standing Certificate for Consumers issued by the Secretary of State of Michigan.
UCC Documents
13.
UCC Lien Search Reports for the Seller and Consumers from the office of the Secretary of State of Delaware and Michigan, respectively.
14.
UCC−3 Financing Statement amending and restating the collateral description on the UCC−1 Financing Statement number 3131731 5 filed on
May 22, 2003 in the office of the Delaware Secretary of State against the Seller.
15.
UCC−3 Financing Statement terminating UCC−1 Financing Statement number 3131734 9 filed on May 22, 2003 in the office of the Delaware
Secretary of State against Consumers Receivables Funding, LLC.
16.
UCC−3 Financing Statement terminating UCC−1 Financing Statement number 35661C filed on April 1, 2002 in the office of the Michigan Secretary
of State against Consumers Energy Company.
17.
Post−filing UCC Lien Search Reports evidencing the recording of the above UCC−3 Financing Statements.
OPINIONS
18.
Opinion of Kimberly Wilson, in−house counsel to Seller and Consumers relating to issues of (i) corporate matters and (ii) perfection and priority of
security interest perfected in the State of Michigan
19.
Reliance letter of Skadden, Arps, Slate, Meagher & Flom, LLP counsel to Seller and Consumers, relating to reliance on the May 22, 2003 opinion
regarding issues of true sale and non−consolidation.
20.
Opinion of Sidley Austin LLP, counsel to the Administrative Agent, relating to enforceability, creation and perfection and priority of security interest
perfected in the State of Delaware.
21.
Reliance letter of Sidley Austin LLP, counsel to the Administrative Agent, relating to reliance on the May 22, 2003 opinion regarding issues of
enforceability, creating and perfection and priority of security interests perfected in the State of Delaware.
MISCELLANEOUS
22. Partial Release Authorization Letter among Administrative Agent, Falcon and JPMorgan Chase Bank as Trustee under the Indenture.
LIQUIDITY DOCUMENTATION (DISTRIBUTED TO SIGNATORIES ONLY)
23. Amended and Restated Liquidity Asset Purchase Agreement between Falcon and JPM. (distributed to signatories only)
24.
Liquidity Asset Purchase Agreement among Victory, Union Bank and BTMU. (distributed to signatories only)
POST−CLOSING ITEMS
25.
Letter Notice regarding Intercreditor Agreement among the Administrative Agent, the Purchasers, The Bank of New York Mellon (formerly, The
Bank of New York), Consumers Funding LLC, the Seller and Consumers.
26.
Collection Account Agreement among the Originator, Seller, Servicer, Administrative Agent and each of the following collection banks in regards to
the identified account(s):
Collection Bank
JP Morgan Chase Bank
Comerica Bank
Collection
Account
1242263
1076119914
Specified
Account
SCHEDULE C
FINANCIAL COVENANT DEFINITIONS
“Affiliate” means, with respect to any Person, any other Person directly or indirectly controlling (including all directors and officers of such Person),
controlled by, or under direct or indirect common control with such Person. A Person shall be deemed to control another entity if such Person possesses,
directly or indirectly, the power to direct or cause the direction of the management and policies of such entity, whether through the ownership of voting
securities, by contract or otherwise.
“Agent” means JPMorgan in its capacity as administrative agent for the Banks pursuant to the Credit Agreement, and not in its individual capacity as a
Bank, and any successor Agent appointed pursuant to the Credit Agreement.
“Assignment Agreement” means an assignment made pursuant to an agreement substantially in the form of Exhibit D to the Credit Agreement.
“Banks” means the financial institutions from time to time party to the Credit Agreement as Banks thereunder.
“Bonds” means a series of interest−bearing First Mortgage Bonds created under the Supplemental Indenture issued in favor of, and in form and
substance satisfactory to, the Agent.
“Capital Lease” means any lease which has been or would be capitalized on the books of the lessee in accordance with GAAP.
“Code” means the Internal Revenue Code of 1986, as amended from time to time.
“Commitment” means, for each Bank, the obligation of such Bank to make Loans to, and participate in Facility LCs issued upon the application of,
Consumers in an aggregate amount not exceeding the amount set forth in the Credit Agreement or in any Assignment Agreement, as such amount may be
modified from time to time.
“Consolidated Subsidiary” means any Subsidiary whose accounts are or are required to be consolidated with the accounts of Consumers in accordance
with GAAP.
“Consumers” means Consumers Energy Company, a Michigan corporation.
“Credit Agreement” means that certain Fourth Amended and Restated Credit Agreement, dated as of March 30, 2007 (as the same may be amended,
supplemented or otherwise modified from time to time) among Consumers, the financial institutions from time to time party thereto as “Banks” and
JPMorgan, as Agent.
“Credit Documents” means the Credit Agreement, the Facility LC Applications, the Supplemental Indenture and the Bonds.
“Debt” means, with respect to any Person, and without duplication, (a) all indebtedness of such Person for borrowed money, (b) all indebtedness of such
Person for the deferred purchase price of property or services (other than trade accounts payable arising in the ordinary course of business which are not
overdue), (c) all liabilities arising from any accumulated funding deficiency (as defined in Section 412(a) of the Code) for a Plan, (d) all liabilities arising in
connection with any withdrawal liability under ERISA to any Multiemployer Plan, (e) all obligations of such Person arising under acceptance facilities,
(f) all obligations of such Person as lessee under Capital Leases, (g) all obligations of such Person arising under any interest rate swap, “cap”, “collar” or
other hedging agreement; provided that for purposes of the calculation of Debt for this clause (g) only, the actual amount of Debt of such Person shall be
determined on a net basis to the extent such agreements permit such amounts to be calculated on a net basis, and (h) all guaranties, endorsements (other than
for collection in the ordinary course of business) and other contingent obligations of such Person to assure a creditor against loss (whether by the purchase
of goods or services, the provision of funds for payment, the supply of funds to invest in any Person or otherwise) in respect of indebtedness or obligations
of any other Person of the kinds referred to in clauses (a) through (g) above.
“ERISA” means the Employee Retirement Income Security Act of 1974, as amended from time to time.
“ERISA Affiliate” means any corporation or trade or business which is a member of the same controlled group of corporations (within the meaning of
Section 414(b) of the Code) as Consumers or is under common control (within the meaning of Section 414(c) of the Code) with Consumers.
“Existing Facility LC” means each letter of credit issued under the Prior Credit Agreement and identified in the Credit Agreement.
“Facility LC” means each standby or commercial letter of credit issued under the Credit Agreement and each Existing Facility LC.
“Facility LC Application” means each application agreement executed and delivered by Consumers in respect of a Facility LC.
“First Mortgage Bonds” means bonds issued by Consumers pursuant to the Indenture.
“Fitch” means Fitch Inc. or any successor thereto.
“GAAP” means generally accepted accounting principles in the United States of America as in effect on the date hereof, applied on a basis consistent
with those used in the preparation of the financial statements referred to in the Credit Agreement (except, for purposes of the annual and quarterly financial
statements required to be delivered pursuant to the Credit Agreement, for changes concurred in by Consumers’ independent public accountants).
“Hybrid Equity Securities” means securities issued by Consumers or a Hybrid Equity Securities Subsidiary that (i) are classified as possessing a
minimum of at least two of the following: (x) “intermediate equity content” by S&P; (y) “Basket C equity credit” by Moody’s; and (z) “50% equity credit”
by Fitch and (ii) require no repayment, prepayment,
mandatory redemption or mandatory repurchase prior to the date that is at least 91 days after the later of the termination of the Commitments and the
repayment in full of all Obligations.
“Hybrid Equity Securities Subsidiary” means any Delaware business trust (or similar entity) (i) all of the common equity interest of which is owned
(either directly or indirectly through one or more wholly−owned Subsidiaries of Consumers) at all times by Consumers or a wholly−owned direct or indirect
Subsidiary of Consumers, (ii) that has been formed for the purpose of issuing Hybrid Equity Securities and (iii) substantially all of the assets of which
consist at all times solely of Junior Subordinated Debt issued by Consumers or a wholly−owned direct or indirect Subsidiary of Consumers (as the case may
be) and payments made from time to time on such Junior Subordinated Debt.
“Hybrid Preferred Securities” means any preferred securities issued by a Hybrid Preferred Securities Subsidiary, where such preferred securities have the
following characteristics:
(i) such Hybrid Preferred Securities Subsidiary lends substantially all of the proceeds from the issuance of such preferred securities to Consumers
or a wholly−owned direct or indirect Subsidiary of Consumers in exchange for Junior Subordinated Debt issued by Consumers or such wholly−owned
direct or indirect Subsidiary, respectively;
(ii) such preferred securities contain terms providing for the deferral of interest payments corresponding to provisions providing for the deferral of
interest payments on the Junior Subordinated Debt; and
(iii) Consumers or a wholly−owned direct or indirect Subsidiary of Consumers (as the case may be) makes periodic interest payments on the Junior
Subordinated Debt, which interest payments are in turn used by the Hybrid Preferred Securities Subsidiary to make corresponding payments to the
holders of the preferred securities.
“Hybrid Preferred Securities Subsidiary” means any Delaware business trust (or similar entity) (i) all of the common equity interest of which is owned
(either directly or indirectly through one or more wholly−owned Subsidiaries of Consumers) at all times by Consumers or a wholly−owned direct or indirect
Subsidiary of Consumers, (ii) that has been formed for the purpose of issuing Hybrid Preferred Securities and (iii) substantially all of the assets of which
consist at all times solely of Junior Subordinated Debt issued by Consumers or a wholly−owned direct or indirect Subsidiary of Consumers (as the case may
be) and payments made from time to time on such Junior Subordinated Debt.
“Indenture” means the Indenture, dated as of September 1, 1945, as supplemented and amended from time to time, from Consumers to The Bank of New
York, as successor Trustee.
“JPMorgan” means JPMorgan Chase Bank, N.A. (as successor by merger to Bank One, NA (Main Office — Chicago)), in its individual capacity, and its
successors and assigns.
“Junior Subordinated Debt” means any unsecured Debt of Consumers or a Subsidiary of Consumers (i) issued in exchange for the proceeds of Hybrid
Equity Securities or Hybrid
Preferred Securities and (ii) subordinated to the rights of the Banks under the Credit Agreement and under the other Credit Documents pursuant to terms of
subordination substantially similar to those set forth in Exhibit E to the Credit Agreement, or pursuant to other terms and conditions satisfactory to the
Majority Banks.
“LC Issuer” means JPMorgan (or any subsidiary or affiliate of JPMorgan designated by JPMorgan) in its capacity as an issuer of Facility LCs under the
Credit Agreement, and any other Bank designated by Consumers that (i) agrees to be an issuer of Facility LCs hereunder and (ii) is approved by the Agent
(such approval not to be unreasonably withheld or delayed).
“Loan” means the loans made time to time to Consumers by the Banks under the Credit Agreement.
“Majority Banks” means, as of any date of determination, Banks in the aggregate having more than 50% of the aggregate commitments under the Credit
Agreement as of such date or, if the aggregate commitments have been terminated, Banks in the aggregate holding more than 50% of the aggregate unpaid
principal amount of outstanding credit exposure as of such date.
“Moody’s” means Moody’s Investors Service, Inc. or any successor thereto.
“Multiemployer Plan” means a “multiemployer plan” as defined in Section 4001(a)(3) of ERISA.
“Net Proceeds” means, with respect to any sale or issuance of securities or incurrence of Debt by any Person, the excess of (i) the gross cash proceeds
received by or on behalf of such Person in respect of such sale, issuance or incurrence (as the case may be) over (ii) customary underwriting commissions,
auditing and legal fees, printing costs, rating agency fees and other customary and reasonable fees and expenses incurred by such Person in connection
therewith.
“Obligations” means all unpaid principal of and accrued and unpaid interest on the Loans, all Reimbursement Obligations, all accrued and unpaid fees
and all other obligations of Consumers to the Banks or to any Bank, the LC Issuer or the Agent arising under the Credit Documents.
“Person” means an individual, partnership, corporation, limited liability company, business trust, joint stock company, trust, unincorporated association,
joint venture, governmental authority or other entity of whatever nature.
“Plan” means any employee benefit plan (other than a Multiemployer Plan) maintained for employees of Consumers or any ERISA Affiliate and covered
by Title IV of ERISA.
“Prior Agreement” means the Third Amended and Restated Credit Agreement dated as of May 18, 2005 among Consumers, various financial institutions
and JPMorgan (then known as Bank One, NA), as Agent, as amended.
“Reimbursement Obligations” means, at any time, the aggregate of all obligations of Consumers then outstanding under the Credit Agreement to
reimburse the LC Issuer for amounts paid by the LC Issuer in respect of any one or more drawings under Facility LCs.
“S&P” means Standard and Poor’s Rating Services, a division of The McGraw Hill Companies, Inc., or any successor thereto.
“Securitized Bonds” shall mean any nonrecourse bonds or similar asset−backed securities issued by a special−purpose Subsidiary of Consumers which
are payable solely from specialized charges authorized by the utility commission of the relevant state in connection with the recovery of (x) stranded
regulatory costs, (y) stranded clean air and pension costs and (z) other “Qualified Costs” (as defined in M.C.L. §460.10h(g)) authorized to be securitized by
the Michigan Public Service Commission.
“Single Employer Plan” means a Plan maintained by Consumers or any ERISA Affiliate for employees of Consumers or any ERISA Affiliate.
“Subsidiary” means, as to any Person, any corporation or other entity of which at least a majority of the securities or other ownership interests having
ordinary voting power (absolutely or contingently) for the election of directors or other Persons performing similar functions are at the time owned directly
or indirectly by such Person.
“Supplemental Indenture” means a supplemental indenture substantially in the form set forth in the Exhibits to the Credit Agreement.
“Total Consolidated Capitalization” means, at any date of determination, without duplication, the sum of (a) Total Consolidated Debt plus all amounts
excluded from Total Consolidated Debt pursuant to clauses (ii), (iii), (iv), (vi) and (vii) of the proviso to the definition of such term (but only, in the case of
securities of the type described in clause (iii) or (iv) of such proviso, to the extent such securities have been deemed to be equity pursuant to Financial
Accounting Standards Board Statement No. 150), (b) equity of the common stockholders of Consumers, (c) equity of the preference stockholders of
Consumers and (d) equity of the preferred stockholders of Consumers, in each case determined at such date.
“Total Consolidated Debt” means, at any date of determination, the aggregate Debt of Consumers and its Consolidated Subsidiaries; provided that Total
Consolidated Debt shall exclude, without duplication, (i) the principal amount of any Securitized Bonds, (ii) any Junior Subordinated Debt owned by any
Hybrid Equity Securities Subsidiary or Hybrid Preferred Securities Subsidiary, (iii) Hybrid Equity Securities or Hybrid Preferred Securities outstanding as
of December 31, 2002 (including any guaranty by Consumers of payments with respect to any such Hybrid Equity Securities or Hybrid Preferred Securities,
provided that such guaranty is subordinated to the rights of the Banks under the Credit Agreement and under the other Credit Documents pursuant to terms
of subordination substantially similar to those set forth in Exhibit F to the Credit Agreement, or pursuant to other terms and conditions satisfactory to the
Majority Banks), (iv) such percentage of the Net Proceeds from any issuance of hybrid debt/equity securities (other than Junior Subordinated Debt, Hybrid
Equity Securities and Hybrid Preferred Securities) by Consumers or any Consolidated Subsidiary as shall be agreed to be deemed equity by the Agent and
Consumers prior to the issuance thereof (which determination shall be based on, among other things, the treatment (if any) given to such securities by the
applicable rating agencies), (v) if all or any portion of the disposition of Consumers’ Palisades Nuclear Plant is required to be accounted for as a financing
under GAAP rather than as a sale, the amount of
liabilities reflected on Consumers’ consolidated balance sheet as the result of such disposition, (vi) obligations of Consumers and its Consolidated
Subsidiaries of the type described in Section 1.3 in the Credit Agreement, (vii) Debt of any Affiliate of Consumers that is (1) consolidated on the financial
statements of Consumers solely as a result of the effect and application of Financial Accounting Standards Board No. 46 and of Accounting Research
Bulletin No. 51, Consolidated Financial Statements, as modified by Statement of Financial Accounting Standards No. 94, and (2) non−recourse to
Consumers or any of its Affiliates (other than the primary obligor of such Debt and any of its Subsidiaries), (viii) Debt of Consumers and its Affiliates that
is re−categorized as such from certain lease obligations pursuant to Emerging Issues Task Force (“EITF”) Issue 01−8, any subsequent EITF Issue or
recommendation or other interpretation, bulletin or other similar document by the Financial Accounting Standards Board on or related to such
re−categorization and (ix) any non−cash obligations resulting from the adoption of Financial Accounting Standards Board Statement No. 158 and any
proposed amendment thereto, to the extent such obligations are required to be treated as debt.
ARTICLE I PURCHASE ARRANGEMENTS
Section 1.1
Section 1.2
Section 1.3
Section 1.4
2
Purchase Facility
Increases
Decreases
Payment Requirements
2
2
3
3
ARTICLE II PAYMENTS AND COLLECTIONS
Section 2.1
Section 2.2
Section 2.3
Section 2.4
Section 2.5
Section 2.6
Section 2.7
Section 2.8
Section 2.9
4
Payments
Collections Prior to Amortization
Terminating Financial Institutions
Collections Following Amortization
Application of Collections
Payment Rescission
Maximum Purchaser Interests
Clean Up Call
Payment Allocations
4
4
6
6
6
7
7
7
7
ARTICLE III CONDUIT FUNDING
Section 3.1
Section 3.2
Section 3.3
8
Yield
Payments
Calculation of Yield
8
8
8
ARTICLE IV FINANCIAL INSTITUTION FUNDING
Section 4.1
Section 4.2
Section 4.3
Section 4.4
Section 4.5
Section 4.6
8
Financial Institution Funding
Yield Payments
Selection and Continuation of Tranche Periods
Financial Institution Bank Rates
Suspension of the LIBO Rate
Liquidity Agreement Fundings
8
8
8
9
9
10
ARTICLE V REPRESENTATIONS AND WARRANTIES
Section 5.1
Section 5.2
10
Representations and Warranties of The Seller Parties
Financial Institution Representations and Warranties
10
14
ARTICLE VI CONDITIONS OF PURCHASES
Section 6.1
Section 6.2
14
Conditions Precedent to Effectiveness of this Agreement
Conditions Precedent to All Purchases and Reinvestments
ARTICLE VII COVENANTS
Section 7.1
Section 7.2
14
15
16
Affirmative Covenants of The Seller Parties
Negative Covenants of the Seller Parties
16
25
Page i
ARTICLE VIII ADMINISTRATION AND COLLECTION
Section 8.1
Section 8.2
Section 8.3
Section 8.4
Section 8.5
Section 8.6
27
Designation of Servicer
Duties of Servicer
Collection Notices
Responsibilities of Seller
Reports
Servicing Fees
27
28
29
29
30
30
ARTICLE IX AMORTIZATION EVENTS
Section 9.1
Section 9.2
30
Amortization Events
Remedies
30
32
ARTICLE X INDEMNIFICATION
Section 10.1
Section 10.2
Section 10.3
Section 10.4
Section 10.5
33
Indemnities by the Seller
Indemnities by the Servicer
Increased Cost and Reduced Return
Other Costs and Expenses
Accounting Based Consolidation Event
33
35
36
37
37
ARTICLE XI THE AGENT
Section 11.1
Section 11.2
Section 11.3
Section 11.4
Section 11.5
Section 11.6
Section 11.7
Section 11.8
Section 11.9
38
Authorization and Action
Delegation of Duties
Exculpatory Provisions
Reliance by the Administrative Agent and the Managing Agents
Non−Reliance on Administrative Agent, the Managing Agents and Other Purchasers
Reimbursement and Indemnification
Administrative Agent and Managing Agents in their Individual Capacity
Successor Administrative Agent
Successor Managing Agent
ARTICLE XII ASSIGNMENTS; PARTICIPATIONS
Section 12.1
Section 12.2
Section 12.3
Section 12.4
Section 12.5
Section 12.6
Section 12.7
Section 12.8
41
Assignments
Participations
Additional Purchaser Groups
Extension of Liquidity Termination Date
Terminating Financial Institutions
USA Patriot Act Certification
Federal Reserve
Closing Date Assignments
41
43
43
43
44
44
44
45
ARTICLE XIII MISCELLANEOUS
Section 13.1
38
38
38
39
39
40
40
41
41
45
Waivers and Amendments
45
Page ii
Section 13.2
Section 13.3
Section 13.4
Section 13.5
Section 13.6
Section 13.7
Section 13.8
Section 13.9
Section 13.10
Section 13.11
Section 13.12
Section 13.13
Section 13.14
Section 13.15
Section 13.16
Section 13.17
Section 13.18
Section 13.19
Notices
Ratable Payments
Protection of Ownership Interests of the Purchasers
Confidentiality
Bankruptcy Petition
Limitation of Liability
CHOICE OF LAW
CONSENT TO JURISDICTION
WAIVER OF JURY TRIAL
Integration; Binding Effect; Survival of Terms
Counterparts; Severability; Section References
Agent Roles
Characterization
Intercreditor Agreement
Accounting Terms
USA Patriot Act
Required Ratings
Amendment and Restatement
46
47
47
48
48
49
49
49
50
50
50
50
51
52
52
53
53
53
Exhibits and Schedules
Exhibit I
Definitions
Exhibit II
Form of Purchase Notice
Exhibit III
Places of Business of the Seller Parties; Locations of Records; Federal Employer
Identification Number(s)
Exhibit IV
Names of Collection Banks; Collection Accounts; Lock−Boxes; Specified Accounts
Exhibit V
Form of Compliance Certificate
Exhibit VI
Form of Collection Account Agreement
Exhibit VII
Form of Assignment Agreement
Exhibit VIII
Credit and Collection Policy
Exhibit IX
Form of Monthly Report
Exhibit X
Form of Reduction Notice
Exhibit XI
Form of P.O. Box Transfer Notice
Exhibit XII
Form of Daily Report
Exhibit XIII
Form of Joinder Agreement
Schedule A
Schedule B
Schedule C
Commitments
Closing Documents
Financial Covenant Definitions
Page iii
Exhibit 10.40
EXECUTION COPY
AMENDMENT NO. 7
TO
RECEIVABLES SALE AGREEMENT
THIS AMENDMENT NO. 7 TO RECEIVABLES SALE AGREEMENT (this “Amendment”) dated as of November 23, 2010, is entered into among
CONSUMERS RECEIVABLES FUNDING II, LLC (“Buyer”) and CONSUMERS ENERGY COMPANY (“Originator”). Capitalized terms used herein
without definition shall have the meanings ascribed thereto in the “Receivables Sale Agreement” referred to below.
PRELIMINARY STATEMENTS
A. Reference is made to that certain Receivables Sale Agreement dated as of May 22, 2003 between Buyer and Originator (as amended prior to the
date hereof, as amended hereby and as the same may be further amended, restated, supplemented or modified from time to time, the “Receivables Sale
Agreement”).
B. The parties hereto have agreed to amend certain provisions of the Receivables Sale Agreement upon the terms and conditions set forth herein.
SECTION 1. Amendments. Subject to the satisfaction of the condition precedent set forth in Section 3 hereof, the parties hereto hereby agree to
amend the Receivables Sale Agreement as follows:
(a) Paragraph 3 of the preliminary statements is hereby amended and restated in its entirety as follows:
“Buyer will sell undivided interests in the Receivables and in the associated Related Security and Collections pursuant to that certain Amended and
Restated Receivables Purchase Agreement dated as of November 23, 2010 (as the same may from time to time be amended, restated, supplemented or
otherwise modified, the “Purchase Agreement”) among Buyer, Originator, as Servicer, the Conduits party thereto from time to time, the Financial
Institutions party thereto from time to time, the Managing Agents party thereto from time to time and JPMorgan Chase Bank, N.A. or any successor
agent appointed pursuant to the terms of the Purchase Agreement, as administrative agent for the Purchasers (in such capacity, the “Administrative
Agent”).”
(b) Section 1.2(b) is hereby amended to delete the penultimate sentence and replace it with the following:
“The Subordinated Loans shall be evidenced by, and shall be payable in accordance with the terms and provisions of the Subordinated Note and shall
be payable solely from funds which Buyer is not required under the Purchase Agreement to set aside for the benefit of, or otherwise pay over to, the
Administrative Agent, the Managing Agents or the Purchasers.”
(c) Section 1.6(b) is hereby amended and restated in its entirety as follows:
“Originator acknowledges that Buyer, pursuant to the Purchase Agreement, shall assign to the Administrative Agent, for the benefit of the
Administrative Agent, the Managing Agents and the Purchasers thereunder, all of its rights, remedies, powers and privileges under this Agreement
and that the Administrative Agent may further assign such rights, remedies, powers and privileges to the extent permitted by the Purchase Agreement.
The Originator agrees that the Administrative Agent, as the assignee of the Buyer, shall, subject to the terms of the Purchase Agreement, have the
right to enforce this Agreement and to exercise directly all of Buyer’s rights and remedies under this Agreement (including, without limitation, the
right to give or withhold any consents or approvals of Buyer to be given or withheld hereunder, and, in any case without regard to whether specific
reference is made to Buyer’s assigns in the provisions of this Agreement which set forth such rights and remedies) and Originator agrees to cooperate
fully with the Administrative Agent and the Purchasers in the exercise of such rights and remedies. Originator further agrees to give to the
Administrative Agent copies of all notices it is required to give to Buyer hereunder.”
(d) Section 4.1(a)(vi) is hereby amended and restated in its entirety as follows:
“Copies of Notices. Promptly upon its receipt of any notice, request for consent, financial statements, certification, report or other communication
under or in connection with any Transaction Document from any Person other than Buyer, the Administrative Agent, any Managing Agent or any
Financial Institution, copies of the same.”
(e) The last sentence of Section 4.2(d) is hereby amended and restated in its entirety as follows:
“Originator shall not create or suffer to exist any mortgage, pledge, security interest, encumbrance, lien, charge or other similar arrangement on any
of its inventory.”
(f) Section 7.1(b) is hereby amended and restated in its entirety as follows:
“No provision of this Agreement may be amended, supplemented, modified or waived except in writing signed by Originator and Buyer and consented
to by the Administrative Agent, each Managing Agent and each Financial Institution.”
(g) Section 7.4(a) is hereby amended and restated in its entirety as follows:
“Originator shall maintain and shall cause each of its employees and officers to maintain the confidentiality of this Agreement and the other
confidential proprietary information with respect to the Administrative
2
Agent, the Managing Agents and the Purchasers and their respective businesses obtained by it or them in connection with the structuring, negotiating
and execution of the transactions contemplated herein, except that Originator and its officers and employees may disclose such information to
Originator’s external accountants and attorneys and as required by any applicable law, regulation or order of any judicial or administrative
proceeding (whether or not having the force of law).”
(h) Section 7.4(c) is hereby amended and restated in its entirety as follows:
“Anything herein to the contrary notwithstanding, Originator hereby consents to the disclosure of any nonpublic information with respect to it (i) to
Buyer, the Administrative Agent, the Managing Agents, the Financial Institutions or the Conduits by each other, (ii) by Buyer, the Administrative
Agent, the Managing Agents, the Financial Institutions or the Conduits to any prospective or actual assignee or participant of any of them or (iii) by
the Administrative Agent, any Managing Agent or any Conduit to any rating agency (including, without limitation, in compliance with Rule 17g−5
under the Securities Exchange Act of 1934), Commercial Paper dealer or provider of a surety, guaranty or credit or liquidity enhancement to a
Conduit or any entity organized for the purpose of purchasing, or making loans secured by, financial assets for which any Managing Agent acts as
the administrative agent and to any officers, directors, employees, outside accountants and attorneys of any of the foregoing provided each such
Person is informed of the confidential nature of such information. In addition, the Purchasers, the Managing Agents and the Administrative Agent
may disclose any such nonpublic information pursuant to any law, rule, regulation, direction, request or order of any judicial, administrative or
regulatory authority or proceedings (whether or not having the force or effect of law).”
(i) Section 7.5 is hereby amended and restated in its entirety as follows:
“Bankruptcy Petition. Originator and Buyer each hereby covenants and agrees that, prior to the date that is one year and one day after the payment
in full of all outstanding senior indebtedness of a Conduit, it will not institute against, or join any other Person in instituting against, such Conduit
any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings or other similar proceeding under the laws of the United States
or any state of the United States.”
(j) Exhibit I is hereby amended to delete the definitions of “Bank Rate,” “Business Day,” “Conduit,” “Financial Institution” and “Purchasers” and
substitute the following therefor:
““Bank Rate” means a rate per annum equal to the corporate base rate, prime rate or base rate of interest, as applicable, announced by
3
JPMorgan Chase Bank, N.A. from time to time, changing when and as such rate changes.”
““Business Day” means any day on which banks are not authorized or required to close in New York, New York, Chicago, Illinois or Los Angeles,
California and The Depository Trust Company of New York is open for business.”
““Conduit” means a Person identified as a “Conduit” on Schedule A to the Purchase Agreement and its respective successors and permitted
assigns.”
““Financial Institutions” means, as to any Purchaser Group, each of the financial institutions listed on Schedule A to the Purchase Agreement as a
“Financial Institution” for such Purchaser Group, together with its respective successors and permitted assigns.”
““Purchasers” means each Conduit and each Financial Institution.”
(k) Exhibit I is hereby amended to add the following definition in the appropriate alphabetical order:
““Managing Agent” means, as to any Conduit or Financial Institution, the Person listed on Schedule A to the Purchase Agreement as the “Managing
Agent” for such Purchasers, together with its respective successors and permitted assigns.”
(l) Exhibit III is hereby replaced in its entirety with the Exhibit III attached hereto.
(m) Exhibit VI is hereby replaced in its entirety with the Exhibit VI attached hereto.
SECTION 2. Representations and Warranties. The Originator hereby represents and warrants to Buyer and its assigns that:
(a) this Amendment constitutes its legal, valid and binding obligation, enforceable against it in accordance with its terms; and
(b) on the date hereof, before and after giving effect to this Amendment, no Termination Event or Potential Termination Event has occurred and is
continuing.
SECTION 3. Conditions Precedent. This Amendment shall become effective on the first Business Day (the “Effective Date”) on which Buyer and the
Administrative Agent or its counsel has received four (4) counterpart signature pages to this Amendment, executed by each of the parties hereto.
SECTION 4. Reference to and Effect on the Transaction Documents.
4
(a) Upon the effectiveness of this Amendment, (i) each reference in the Receivables Sale Agreement to “this Receivables Sale Agreement”, “this
Agreement”, “hereunder”, “hereof”, “herein” or words of like import shall mean and be a reference to the Receivables Sale Agreement as amended or
otherwise modified hereby, and (ii) each reference to the Receivables Sale Agreement in any other Transaction Document or any other document,
instrument or agreement executed and/or delivered in connection therewith, shall mean and be a reference to the Receivables Sale Agreement as
amended or otherwise modified hereby.
(b) Except as specifically amended, terminated or otherwise modified above, the terms and conditions of the Receivables Sale Agreement, of all other
Transaction Documents and any other documents, instruments and agreements executed and/or delivered in connection therewith, shall remain in full
force and effect and are hereby ratified and confirmed.
(c) The execution, delivery and effectiveness of this Amendment shall not operate as a waiver of any right, power or remedy of Buyer or its assigns
under the Receivables Sale Agreement or any other Transaction Document or any other document, instrument or agreement executed in connection
therewith, nor constitute a waiver of any provision contained therein. Buyer and its assigns hereby expressly reserve all of their rights with respect to the
occurrence of other Termination Events, if any, whether previously existing or hereinafter arising or which exist at any time on or after the date first
written above.
SECTION 5. Execution in Counterparts. This Amendment may be executed in any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which taken together shall constitute but one and
the same instrument. Delivery of an executed counterpart of a signature page to this Amendment by telecopier shall be effective as delivery of a manually
executed counterpart of this Amendment.
SECTION 6. Governing Law. THIS AGREEMENT SHALL BE GOVERNED AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL
LAWS (INCLUDING, WITHOUT LIMITATION, SECTION 5−1401 OF THE GENERAL OBLIGATIONS LAW OF NEW YORK, BUT OTHERWISE
WITHOUT REGARD TO THE LAW OF CONFLICTS) OF THE STATE OF NEW YORK, BUT GIVING EFFECT TO FEDERAL LAWS
APPLICABLE TO NATIONAL BANKS.
SECTION 7. Headings. Section headings in this Amendment are included herein for convenience of reference only and shall not constitute a part of
this Amendment for any other purpose.
[Remainder of Page Deliberately Left Blank]
5
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed by their respective officers as of the date first above
written.
CONSUMERS RECEIVABLES FUNDING II, LLC
By: /s/ Laura L. Mountcastle
Name: Laura L. Mountcastle
Title: President, Chief Executive Officer, Chief Financial
Officer and Treasurer
CONSUMERS ENERGY COMPANY
By: /s/ Laura L. Mountcastle
Name: Laura L. Mountcastle
Title: Vice President and Treasurer
Signature Page to Amendment No. 7 to RSA
Consented to by:
JPMORGAN CHASE BANK, N.A., as a Managing
Agent, as a Financial Institution and as
Administrative Agent
By: /s/ Patrick Menichillo
Name: Patrick Menichillo
Title: Vice President
THE BANK OF TOKYO−MITSUBISHI UFJ, LTD., NEW
YORK BRANCH, as a Managing Agent
By: /s/ Aditya Reddy
Name: Aditya Reddy
Title: Senior Vice President
UNION BANK, N.A., as a Financial Institution
By: /s/ Jeffrey Fesenmaier
Name: Jeffrey Fesenmaier
Title: Vice President
Signature Page to Amendment No. 7 to RSA
Exhibit III
Lock−boxes; Collection Accounts; Collection Banks; Specified Accounts
JP Morgan Chase Bank
717 Travis, TX2−S084
Houston, TX 77002
Contact: Nina Lacy
Phone: 713−216−2227
Collection Account: 1242263;
provided, that, such account shall be a Specified Account on and after such date as the account is subject to a Collection
Account Agreement.
Comerica Bank
500 Woodward Avenue, 9th Floor, MC3268
Detroit, MI 48226
Contact: Stacie McVeigh
Phone: 313−222−4515
Collection Account: 1076119914;
provided, that, such account shall be a Specified Account on and after such date as the account is subject to a
Collection Account Agreement.
Wachovia Bank
10401 Deerwood Park Blvd — FL0117
South Building, 3rd Floor
Jacksonville, FL 32256
Contact: Carol Grant
Phone: 800−590−7868 team 662 ext. 4
Collection Account: 2000032635920
Lock−Box Zip Code:
Lansing, MI 48937−0001
PNC Bank, National Association
620 Liberty Avenue
Pittsburgh, PA 15222
Contact: Gabe Galioto
Phone: 412−768−1819
Specified Account: 4006909862
Fifth Third Bank
710 Seminole Rd MD R17061
Norton Shores, MI 49441
Contact: Randy Wolffis, VP & Relationship Manager
Phone: 231−733−5006
Fax: 231−739−7430
Email: [email protected]; [email protected]
Specified Account: 7164496916
Exh. III−1
Exhibit VI
Form of Amended and Restated Subordinated Note
AMENDED AND RESTATED SUBORDINATED NOTE
November 23, 2010
1. Note. FOR VALUE RECEIVED, the undersigned, CONSUMERS RECEIVABLES FUNDING II, LLC, a Delaware limited liability company
(“SPV”), hereby unconditionally promises to pay to the order of CONSUMERS ENERGY COMPANY, a Michigan corporation (“Originator”), in lawful
money of the United States of America and in immediately available funds, on the date following the Termination Date which is one year and one day after
the date on which (i) the Outstanding Balance of all Receivables sold under the “Sale Agreement” referred to below has been reduced to zero and
(ii) Originator has paid to the Buyer all indemnities, adjustments and other amounts which may be owed thereunder in connection with the Purchases (the
“Collection Date”), the aggregate unpaid principal sum outstanding of all “Subordinated Loans” made from time to time by Originator to SPV pursuant to
and in accordance with the terms of that certain Receivables Sale Agreement dated as of May 22, 2003 between Originator and SPV (as amended, restated,
supplemented or otherwise modified from time to time, the “Sale Agreement”). Reference to Section 1.2 of the Sale Agreement is hereby made for a
statement of the terms and conditions under which the loans evidenced hereby have been and will be made. All terms which are capitalized and used herein
and which are not otherwise specifically defined herein shall have the meanings ascribed to such terms in the Sale Agreement or the Purchase Agreement
(as hereinafter defined).
2. Interest. SPV further promises to pay interest on the outstanding unpaid principal amount hereof from the date hereof until payment in full hereof at
a rate equal to the Bank Rate; provided, however, that if SPV shall default in the payment of any principal hereof, SPV promises to pay, on demand, interest
at the rate of the Bank Rate plus 2.00% per annum on any such unpaid amounts, from the date such payment is due to the date of actual payment. Interest
shall be payable on the first Business Day of each month in arrears; provided, however, that SPV may elect on the date any interest payment is due
hereunder to defer such payment and upon such election the amount of interest due but unpaid on such date shall constitute principal under this Amended
and Restated Subordinated Note (the “Subordinated Note”). The outstanding principal of any loan made under this Subordinated Note shall be due and
payable on the Collection Date and may be repaid or prepaid at any time without premium or penalty.
3. Principal Payments. Originator is authorized and directed by SPV to enter on the grid attached hereto, or, at its option, in its books and records, the
date and amount of each loan made by it which is evidenced by this Subordinated Note and the amount of each payment of principal made by SPV, and
absent manifest error, such entries shall constitute prima facie evidence of the accuracy of the information so entered; provided that neither the failure of
Originator to make any such entry or any error therein shall expand, limit or affect the obligations of SPV hereunder.
Exh. VI−1
4. Subordination. The indebtedness evidenced by this Subordinated Note is subordinated to the prior payment in full of all of SPV’s recourse
obligations under that certain Amended and Restated Receivables Purchase Agreement dated as of November 23, 2010 by and among SPV, Originator, as
Servicer, the entities from time to time party thereto as Conduits, the entities from time to time party thereto as Financial Institutions, the entities from time
to time party thereto as Managing Agents, and JPMorgan Chase Bank, N.A., as the “Administrative Agent” (as amended, restated, supplemented or
otherwise modified from time to time, the “Purchase Agreement”). The subordination provisions contained herein are for the direct benefit of, and may be
enforced by, the Administrative Agent, the Managing Agents and the Purchasers and/or any of their respective assignees (collectively, the “Senior
Claimants”) under the Purchase Agreement. Until the date on which all “Capital” outstanding under the Purchase Agreement has been repaid in full and all
other obligations of SPV and/or the Servicer thereunder and under the “Fee Letter” referenced therein (all such obligations, collectively, the “Senior Claim”)
have been indefeasibly paid and satisfied in full, Originator shall not demand, accelerate, sue for, take, receive or accept from SPV, directly or indirectly, in
cash or other property or by set−off or any other manner (including, without limitation, from or by way of collateral) any payment or security of all or any
of the indebtedness under this Subordinated Note or exercise any remedies or take any action or proceeding to enforce the same; provided, however, that (i)
Originator hereby agrees that it will not institute against SPV any proceeding of the type described in Section 5.1(d) of the Sale Agreement unless and until
the Collection Date has occurred and (ii) nothing in this paragraph shall restrict SPV from paying, or Originator from requesting, any payments under this
Subordinated Note so long as SPV is not required under the Purchase Agreement to set aside for the benefit of, or otherwise pay over to, the funds used for
such payments to any of the Senior Claimants and further provided that the making of such payment would not otherwise violate the terms and provisions of
the Purchase Agreement. Should any payment, distribution or security or proceeds thereof be received by Originator in violation of the immediately
preceding sentence, Originator agrees that such payment shall be segregated, received and held in trust for the benefit of, and deemed to be the property of,
and shall be immediately paid over and delivered to the Administrative Agent for the benefit of the Senior Claimants.
5. Bankruptcy; Insolvency. Upon the occurrence of any proceeding of the type described in Section 5.1(d) of the Sale Agreement involving SPV as
debtor, then and in any such event the Senior Claimants shall receive payment in full of all amounts due or to become due on or in respect of Capital and the
Senior Claim (including “Yield” as defined and as accruing under the Purchase Agreement after the commencement of any such proceeding, whether or not
any or all of such Yield is an allowable claim in any such proceeding) before Originator is entitled to receive payment on account of this Subordinated Note,
and to that end, any payment or distribution of assets of SPV of any kind or character, whether in cash, securities or other property, in any applicable
insolvency proceeding, which would otherwise be payable to or deliverable upon or with respect to any or all indebtedness under this Subordinated Note, is
hereby assigned to and shall be paid or delivered by the Person making such payment or delivery (whether a trustee in bankruptcy, a receiver, custodian or
liquidating trustee or otherwise) directly to the Administrative Agent for application to, or as collateral for the payment of, the Senior Claim until such
Senior Claim shall have been paid in full and satisfied.
Exh. VI−2
6. Amendments. This Subordinated Note shall not be amended or modified except in accordance with Section 7.1 of the Sale Agreement. The terms
of this Subordinated Note may not be amended or otherwise modified without the prior written consent of the Administrative Agent and each Managing
Agent.
7. GOVERNING LAW. THIS SUBORDINATED NOTE SHALL BE INTERPRETED AND THE RIGHTS AND LIABILITIES OF THE
PARTIES HERETO DETERMINED IN ACCORDANCE WITH THE LAWS AND DECISIONS OF THE STATE OF NEW YORK.
WHEREVER POSSIBLE EACH PROVISION OF THIS SUBORDINATED NOTE SHALL BE INTERPRETED IN SUCH MANNER AS TO BE
EFFECTIVE AND VALID UNDER APPLICABLE LAW, BUT IF ANY PROVISION OF THIS SUBORDINATED NOTE SHALL BE
PROHIBITED BY OR INVALID UNDER APPLICABLE LAW, SUCH PROVISION SHALL BE INEFFECTIVE TO THE EXTENT OF SUCH
PROHIBITION OR INVALIDITY, WITHOUT INVALIDATING THE REMAINDER OF SUCH PROVISION OR THE REMAINING
PROVISIONS OF THIS SUBORDINATED NOTE.
8. Waivers. All parties hereto, whether as makers, endorsers, or otherwise, severally waive presentment for payment, demand, protest and notice of
dishonor. Originator additionally expressly waives all notice of the acceptance by any Senior Claimant of the subordination and other provisions of this
Subordinated Note and expressly waives reliance by any Senior Claimant upon the subordination and other provisions herein provided.
9. Assignment. This Subordinated Note may not be assigned, pledged or otherwise transferred to any party other than Originator without the prior
written consent of the Administrative Agent, and any such attempted transfer shall be void.
10. Amendment and Restatement. This Subordinated Note amends and restates in full that certain Subordinated Note dated May 22, 2003 (the
“Existing Subordinated Note”) made by SPV in favor of Originator and evidences all amounts outstanding thereunder as of the date hereof as well as
amounts hereafter incurred as described above, which Existing Subordinated Note shall, from and after the date hereof, be of no further force and effect.
This Subordinated Note is given in substitution for, and not in payment of, such Existing Subordinated Note, and is not intended to constitute a novation of
the Existing Subordinated Note.
*****
Exh. VI−3
IN WITNESS WHEREOF, SPV has caused this Subordinated Note to be executed on the date first set forth above.
CONSUMERS RECEIVABLES FUNDING II, LLC
By:
Name:
Title:
Exh. VI−4
Schedule
to
AMENDED AND RESTATED SUBORDINATED NOTE
SUBORDINATED LOANS AND PAYMENTS OF PRINCIPAL
Date
Amount of
Subordinated
Loan
Amount of
Principal
Paid
Exh. VI−5
Unpaid
Principal
Balance
Notation made
by
Exhibit 12.1
CMS ENERGY CORPORATION
Ratio of Earnings to Fixed Charges and Combined Fixed Charges and Preferred Dividends
(Millions of Dollars)
2010
Year Ended December 31
2009
2008
2007
(b)
2006
(c)
Earnings as defined (a)
Pretax income from continuing operations
Exclude equity basis subsidiaries
Fixed charges as defined (d)
$ 590
(2)
449
$ 335
2
456
$ 440
(1)
429
$ (317)
(22)
489
$ (434)
(14)
535
Earnings as defined (d)
$1,037
$ 793
$ 868
$ 150
$ 87
Fixed charges as defined (a)
Interest on long−term debt
Estimated interest portion of lease rental
Other interest charges
$ 394
16
42
$ 383
17
58
$ 371
25
35
$ 415
23
53
$ 492
8
37
Fixed charges as defined (d)
Preferred dividends
$ 452
13
$ 458
17
$ 431
17
$ 491
12
$ 537
11
Combined fixed charges and preferred dividends
$ 465
$ 475
$ 448
$ 503
$ 548
Ratio of earnings to fixed charges
2.29
1.73
2.01
—
—
Ratio of earnings to combined fixed
charges and preferred dividends
2.23
1.67
1.94
—
—
NOTES:
(a) Earnings and fixed charges as defined in instructions for Item 503 of Regulation S−K.
(b) For the year ended December 31, 2007, fixed charges exceeded earnings by $341 million and combined fixed charges and preferred
dividends exceeded earnings by $353 million. Earnings as defined include $204 million in asset impairment charges and a $279 million
charge for an electric sales contract termination.
(c) For the year ended December 31, 2006, fixed charges exceeded earnings by $450 million and combined fixed charges and preferred
dividends exceeded earnings by $461 million. Earnings as defined include $459 million of asset impairment charges.
(d) Preferred dividends of a consolidated subsidiary are included in fixed charges, but excluded from earnings as defined because the
amount was not deducted in arriving at pretax income from continuing operations.
Exhibit 12.2
CONSUMERS ENERGY COMPANY
Ratio of Earnings to Fixed Charges and Combined Fixed Charges and Preferred Dividends
(Millions of Dollars)
2010
Year Ended December 31
2009
2008
2007
2006
Earnings as defined (a)
Pretax income from continuing operations
Exclude equity basis subsidiaries
Fixed charges as defined
$ 688
—
296
$ 456
—
313
$ 562
—
276
$ 437
—
293
$ 167
(1)
307
Earnings as defined
$ 984
$ 769
$ 838
$ 730
$ 473
Fixed charges as defined (a)
Interest on long−term debt
Estimated interest portion of lease rental
Other interest charges
$ 246
16
34
$ 250
17
46
$ 229
25
22
$ 236
23
34
$ 286
8
13
Fixed charges as defined
Preferred dividends
$ 296
3
$ 313
3
$ 276
3
$ 293
3
$ 307
3
Combined fixed charges and preferred dividends
$ 299
$ 316
$ 279
$ 296
$ 310
Ratio of earnings to fixed charges
3.32
Ratio of earnings to combined fixed
charges and preferred dividends
3.29
NOTES:
(a) Earnings and fixed charges as defined in instructions for Item 503 of Regulation S−K.
2.46
3.04
2.49
1.54
2.43
3.00
2.47
1.53
Exhibit 21.1
For the purpose of this filing, information is organized under the headings of CMS Energy Corporation (Tier 1), CMS Capital,
L.L.C. (Tier 2), CMS Enterprises Company (Tier 2), CMS Treasury Services, LLC (Tier 2), Consumers Energy Company (Tier 2) and
Dearborn Industrial Energy, L.L.C. (Tier 2). As set forth in detail below, CMS Energy Corporation is the parent company of CMS
Capital, L.L.C., CMS Enterprises Company, CMS Treasury Services, LLC, Consumers Energy Company, and Dearborn Industrial
Energy, L.L.C. All ownership interests are 100 percent unless indicated parenthetically to the contrary and are accurate as of
December 31, 2010.
01 CMS Energy Corporation
Address:
One Energy Plaza
Jackson, Michigan 49201
CMS Energy Corporation (“CMS Energy”) is an integrated energy company, which has as its primary business operations an electric
and natural gas utility, natural gas pipeline systems, and independent power generation.
The name, state of organization and nature of business of CMS Energy’s direct subsidiaries are described below:
02
CMS Capital, L.L.C.
CMS Capital, L.L.C. is a Michigan limited liability company that holds ownership interests in CMS Land Company and EnerBank
USA.
02
CMS Enterprises Company
CMS Enterprises Company is a Michigan corporation that, through various subsidiaries and affiliates, is engaged in diversified
businesses in the United States and in select international markets.
02
CMS Treasury Services, LLC
CMS Treasury Services, LLC is a Michigan limited liability company formed to handle cash management functions and
intercompany banking operations for CMS Energy and its subsidiaries and affiliates.
02
Consumers Energy Company
Consumers Energy Company is a Michigan corporation engaged in the generation, purchase, distribution, and sale of electricity,
and in the purchase, storage, distribution, and sale of natural gas, in the lower peninsula of the State of Michigan.
02
Dearborn Industrial Energy, L.L.C.
Dearborn Industrial Energy, L.L.C. is a Michigan limited liability company that holds the ownership interest in Dearborn
Industrial Generation, L.L.C.
The name, state of organization, and nature of business of each subsidiary and their subsidiaries are described below:
02 CMS Capital, L.L.C.
Address:
One Energy Plaza
Jackson, Michigan 49201
CMS Capital, L.L.C. is a Michigan limited liability company that holds ownership interests in CMS Land Company and EnerBank
USA.
03
CMS Land Company
CMS Land Company is a Michigan corporation formed to act as a repository for any unused real property formerly owned by
Consumers Energy Company, and hold the same for possible non−utility development.
04
Beeland Group LLC
Beeland Group LLC is a Michigan limited liability company formed to acquire land and other property in order to provide a
disposal well for the Bay Harbor properties.
03
EnerBank USA
EnerBank USA is a Utah corporation engaged in the business of an “industrial bank” to issue thrift certificates of deposit and thrift
savings accounts for the payment of money, to issue capital notes or debentures, to receive payments with or without allowance
for interest, and to exercise all of the rights, privileges, and powers of an industrial bank.
02 CMS Enterprises Company
Address:
One Energy Plaza
Jackson, Michigan 49201
CMS Enterprises Company is a Michigan corporation that, through various subsidiaries and affiliates, is engaged in diversified
businesses in the United States and in select international markets.
03 CMS Energy Resource Management Company
CMS Energy Resource Management Company is a Michigan corporation concentrating on the purchase and sale of energy
commodities in support of CMS Energy’s generating facilities.
04
CMS ERM Michigan LLC
CMS ERM Michigan LLC is a Michigan limited liability company formed for the sole purpose of taking an assignment of
the Ford/Rouge Electricity Sales Agreements from Dearborn Industrial Generation, L.L.C. and to perform those contracts.
04
03
03
04
CMS Viron Corporation
CMS Viron Corporation is a Missouri corporation formed to provide services in the area of energy usage analysis and the
engineering and implementation of energy conservation measures.
CMS Enterprises Development, L.L.C.
CMS Enterprises Development, L.L.C. is a Michigan limited liability company formed to invest in various projects.
CMS Gas Transmission Company
CMS Gas Transmission Company is a Michigan corporation organized to engage in the transmission, storage, and processing of
natural gas.
CMS Gas Argentina Company
CMS Gas Argentina Company is a Cayman Islands corporation formed to own an equity interest in Transportadora de Gas
del Norte S.A., an Argentine corporation, which provides natural gas transmission services to the northern and central parts
of Argentina.
04
CMS International Ventures, L.L.C. (37.01%) (See Exhibit A for list of subsidiaries)
CMS International Ventures, L.L.C. is a Michigan limited liability company, formed to own, manage, and sell certain of
CMS Energy’s international investments.
04
Nitrotec Corporation (50%)
Nitrotec Corporation is a Delaware corporation formed to invest in plants that extract helium from natural gas.
03
04
03
04
03
03
CMS Generation Jegurupadu I Limited Duration Company (1%)
CMS Generation Jegurupadu I Limited Duration Company is a Cayman Islands company and formerly one of the owners of the
company which operates a 235−MW gas− and naphtha−fueled independent power generating plant in Jegurupadu, Andhra
Pradesh Province, India.
Jegurupadu O&M Company Mauritius (50%)
Jegurupadu O&M Company Mauritius, a Mauritius company, is inactive and in the process of liquidation.
CMS Generation Jegurupadu II Limited Duration Company (1%)
CMS Generation Jegurupadu II Limited Duration Company is a Cayman Islands company and formerly one of the owners of the
company which operates a 235−MW gas− and naphtha−fueled independent power generating plant in Jegurupadu, Andhra
Pradesh Province, India.
Jegurupadu O&M Company Mauritius (50%)
CMS International Ventures, L.L.C. (61.49%) (See Exhibit A for list of subsidiaries)
HYDRA−CO Enterprises, Inc. (See Exhibit B for list of subsidiaries)
HYDRA−CO Enterprises, Inc. is a New York corporation involved in the management and operation of various power plants. The
plants are fueled by coal, natural gas, waste wood, and water.
02 CMS Treasury Services, LLC
Address:
One Energy Plaza
Jackson, Michigan 49201
CMS Treasury Services, LLC is a Michigan limited liability company formed to handle the cash management functions and
intercompany banking operations for CMS Energy and certain of its subsidiaries and affiliates.
02 Consumers Energy Company
Address:
One Energy Plaza
Jackson, Michigan 49201
The consolidated operations of Consumers Energy Company (“Consumers”) account for the largest share of CMS Energy’s total assets
and income and account for a substantial portion of its revenues. The name, state of organization, and nature of business of Consumers’
subsidiaries are described below:
03 CMS Engineering Co.
CMS Engineering Co. is a Michigan corporation engaged in offering design, engineering, project management and related
construction services to natural gas utilities, natural gas exploration and production companies, and other energy businesses.
03 Consumers Campus Holdings, LLC
Consumers Campus Holdings, LLC is a Michigan limited liability company formed for the purpose of being the lessee in the
synthetic lease financing of the Consumers office building located in downtown Jackson, Michigan.
03 Consumers Funding LLC
Consumers Funding LLC is a Delaware limited liability company formed for the purpose of acting as issuer of securitization
bonds and assignee of property transferred by Consumers.
03 Consumers Receivables Funding II, LLC
Consumers Receivables Funding II, LLC is a Delaware limited liability company that buys certain accounts receivable from
Consumers and sells them to a third party.
03 ES Services Company
ES Services Company is a Michigan corporation formed for the purpose of offering design, engineering, project management, and
related services primarily to electric utilities and generation facilities.
03 Maxey Flats Site IRP, L.L.C. (1.71%)
Maxey Flats Site IRP, L.L.C. is a Virginia limited liability company formed for the purpose of environmental remediation of a
former low−level radioactive waste disposal site.
02 Dearborn Industrial Energy, L.L.C.
Address:
One Energy Plaza
Jackson, Michigan 49201
Dearborn Industrial Energy, L.L.C. is a Michigan limited liability company that holds the ownership interest in Dearborn Industrial
Generation, L.L.C.
03 Dearborn Industrial Generation, L.L.C.
Dearborn Industrial Generation, L.L.C. is a Michigan limited liability company engaged in the operation of the Ford/Rouge
Cogeneration Facility in Dearborn, Michigan.
EXHIBIT A
Subsidiaries of CMS International Ventures, L.L.C.
Address:
One Energy Plaza
Jackson, Michigan 49201
04
CMS Electric & Gas, L.L.C.
05
CMS Electric & Gas, L.L.C. is a Michigan limited liability company. CMS International Distribution LLC and CMS Electric and
Gas Company merged in December 2002 to form CMS Electric & Gas, L.L.C.
CMS (Barbados), SRL
06
CMS (Barbados), SRL is a Barbados entity which was formed for the purpose of holding investments in Venezuela (In process
of liquidation).
CMS Venezuela, S.A.
06
CMS Venezuela, S.A. is a Venezuelan corporation formed to operate Sistema Electrico Nueva Esparta C.A. (SENECA).
ENELMAR S.A.
05
ENELMAR S.A. is a Venezuelan corporation formed to hold CMS Electric & Gas, L.L.C.’s interests in the privatized
electric system of the State of Nueva Esparta.
CMS Empreendimentos Ltda (99.99%)
04
CMS Empreendimentos Ltda, a Brazilian corporation was established as CMS Electric & Gas, L.L.C.’s Rio office in Brazil and
is in the process of liquidation.
CMS Generation Jegurupadu I Limited Duration Company (99%)
05
CMS Generation Jegurupadu I Limited Duration Company is a Cayman Islands company and formerly one of the owners of the
company which operates a 235−MW gas− and naphtha−fueled independent power generating plant in Jegurupadu, Andhra
Pradesh Province, India.
Jegurupadu O&M Company Mauritius (50%)
04
Jegurupadu O&M Company Mauritius, a Mauritius company, is inactive and in the process of liquidation.
CMS Generation Jegurupadu II Limited Duration Company (99%)
05
04
CMS Generation Jegurupadu II Limited Duration Company is a Cayman Islands company and formerly one of the owners of the
company which operates a 235−MW gas− and naphtha−fueled independent power generating plant in Jegurupadu, Andhra
Pradesh Province, India.
Jegurupadu O&M Company Mauritius (50%) (In process of liquidation)
Jegurupadu CMS Generation Company Ltd.
Jegurupadu CMS Generation Company Ltd. is a Mauritius company that is inactive and is in the process of liquidation.
EXHIBIT B
Subsidiaries of HYDRA−CO Enterprises, Inc.
Address:
One Energy Plaza
Jackson, Michigan 49201
04
CMS Exeter LLC
05
CMS Exeter LLC is a Michigan limited liability company formed to facilitate the restructuring of Oxford/CMS Development
Limited Partnership and Exeter Energy Limited Partnership for state tax planning purposes.
Exeter Energy Limited Partnership (2% GP)
05
04
Oxford/CMS Development Limited Partnership (1% GP)
CMS Generation Filer City, Inc.
05
04
CMS Generation Filer City, Inc. is a Michigan corporation involved as a General Partner in the T.E.S. Filer City Station Limited
Partnership, a Michigan limited partnership that is the owner of the 54 megawatt (net) woodchip− and coal−fueled electric
generating station in Filer City, Michigan.
T.E.S. Filer City Station Limited Partnership (50%)
CMS Generation Filer City Operating LLC
04
CMS Generation Filer City Operating LLC is a Michigan limited liability company formed to operate a coal and waste
wood−fueled power plant near Filer City, Michigan owned by the T.E.S. Filer City Station Limited Partnership.
CMS Generation Genesee Company
05
04
CMS Generation Genesee Company is a Michigan corporation involved as a General Partner in the Genesee Power Station
Limited Partnership, a Delaware limited partnership, which owns and operates a 35−megawatt (net) waste wood−fired electric
generating facility located in Genesee County, Michigan.
Genesee Power Station Limited Partnership (1% GP)
CMS Generation Grayling Company
CMS Generation Grayling Company is a Michigan corporation involved as a General Partner in Grayling Generating Station
Limited Partnership, a Michigan limited partnership, that owns a waste wood−fueled power plant in Grayling, Michigan. Grayling
Generating Station Limited Partnership owns GGS Holdings Company, a Michigan corporation, which is a General Partner in
AJD Forest Products Limited Partnership, a Michigan limited partnership, that operates a sawmill adjacent to the Grayling
Generating Station and also supplies waste wood fuel to Grayling Generating Station. Grayling Generating Station Limited
Partnership is a Limited Partner in AJD Forest Products Limited Partnership.
05
06
06
07
05
Grayling Generating Station Limited Partnership (1% GP)
AJD Forest Products Limited Partnership (49.5% LP)
GGS Holdings Company
A Michigan corporation that owns a General Partner interest in AJD Forest Products Limited Partnership, a Michigan limited
partnership.
AJD Forest Products Limited Partnership (0.5% GP)
Grayling Partners Land Development, L.L.C. (1% GP)
04
A Michigan limited liability company formed to acquire land near the Grayling facility for potential development of an ash
disposal site.
CMS Generation Grayling Holdings Company
05
06
CMS Generation Grayling Holdings Company is a Michigan corporation involved as a Limited Partner in Grayling Generating
Station Limited Partnership, a Michigan limited partnership. Grayling Generating Station Limited Partnership owns GGS
Holdings Company, a Michigan corporation that owns a General Partner interest in AJD Forest Products Limited Partnership, a
Michigan limited partnership.
Grayling Generating Station Limited Partnership (49% LP)
AJD Forest Products Limited Partnership (49.5% LP)
06
07
05
04
GGS Holdings Company
AJD Forest Products Limited Partnership (0.5% GP)
Grayling Partners Land Development, L.L.C. (49% LP)
CMS Generation Holdings Company
05
CMS Generation Holdings Company is a Michigan corporation involved as a limited partner in various partnerships.
Genesee Power Station Limited Partnership (48.75% LP)
05
06
04
GPS Newco, L.L.C. (50%)
GPS Newco, L.L.C. is a Kansas limited liability company formed for the purpose of facilitating financing and /or restricting
liabilities of CMS Energy’s equity invested in Genesee Power Station Limited Partnership.
Genesee Power Station Limited Partnership (0.5% LP)
CMS Generation Honey Lake Company
CMS Generation Honey Lake Company is a Michigan corporation and formerly held General Partnership and Limited Partnership
interests in H. L. Power Company, a California limited partnership that uses waste wood and geothermal fluid to generate a
30−megawatt (net) electric generating station in Lassen County, California. It is also
05
05
04
involved as General Partner in Honey Lake Energy I L.P., and Honey Lake Energy II, L.P., both Michigan limited partnerships
formed to own limited partnership interests in H. L. Power Company.
Honey Lake Energy I L.P. (99%)
Honey Lake Energy II, L.P. (99%)
CMS Generation Michigan Power L.L.C.
04
CMS Generation Michigan Power L.L.C. is a Michigan limited liability company formed to own generating units in Michigan for
the purpose of generating power during peak demand periods.
CMS Generation Operating Company II, Inc.
04
CMS Generation Operating Company II, Inc. is a New York corporation formed to operate power plants, primarily in the United
States.
CMS Generation Operating LLC
04
CMS Generation Operating LLC is a Michigan limited liability company involved in the operation of various power plants
throughout the United States.
CMS Generation Recycling Company
05
CMS Generation Recycling Company is a Michigan corporation that has ownership interest in Mid−Michigan Recycling, L.C.
Mid−Michigan Recycling, L.C. was created to be involved in supplying waste wood fuel for the Genesee Power Station Limited
Partnership.
Mid−Michigan Recycling, L.C. (50%)
04
Mid−Michigan Recycling, L.C. is a Michigan limited liability company involved in supplying waste−wood fuel for the Genesee
Power Station Limited Partnership.
CMS Prairie State LLC
04
04
CMS Prairie State LLC is a Michigan limited liability company formed to hold a membership interest in an entity which would
hold an interest in the Prairie State mine−mouth coal generation project.
Craven County Wood Energy Limited Partnership (44.99% LP)
Dearborn Generation Operating, L.L.C.
04
Dearborn Generation Operating, L.L.C. is a Michigan limited liability company formed to operate the Ford/Rouge Project.
Exeter Energy Limited Partnership (50% LP)
04
HCE−Biopower, Inc.
HCE−Biopower, Inc. is a New York corporation formed to hold partnership interests in various power projects.
05
IPP Investment Partnership (51%)
06
Craven County Wood Energy Limited Partnership (0.01% LP)
04 Honey Lake I L.P. (1%)
04 Honey Lake Energy II, L.P. (1%)
04 IPP Investment Partnership (49%)
05
Craven County Wood Energy Limited Partnership (0.01% LP)
04 New Bern Energy Recovery, Inc.
05
04
05
04
New Bern Energy Recovery, Inc. is a Delaware corporation formed to participate as a General Partner in the Craven County Wood
Energy limited partnership formed to construct, operate and own a wood−fired electric generating facility in Craven County,
North Carolina.
Craven County Wood Energy Limited Partnership (5% GP)
Oxford/CMS Development Limited Partnership (99% LP)
Exeter Energy Limited Partnership (48% LP)
Sterling Wind LLC
Sterling Wind LLC is a Delaware limited liability company formed to own wind power projects in Connecticut.
Exhibit 23.1
Consent of Independent Registered Public Accounting Firm
We hereby consent to the incorporation by reference in the Registration Statement on Forms S−8 (No. 333−152800) and S−3 (Nos. 333−153353 and
333−155293) of CMS Energy Corporation of our report dated February 24, 2011 relating to the financial statements, financial statement schedules, and the
effectiveness of internal control over financial reporting, which appears in this Form 10−K.
/s/ PricewaterhouseCoopers LLP
Detroit, Michigan
February 24, 2011
Exhibit 23.2
Consent of Independent Registered Public Accounting Firm
We hereby consent to the incorporation by reference in the Registration Statement on Form S−3 (No. 333−153353−03) of Consumers Energy Company of
our report dated February 24, 2011 relating to the financial statements, financial statement schedule, and the effectiveness of internal control over financial
reporting, which appears in this Form 10−K.
/s/ PricewaterhouseCoopers LLP
Detroit, Michigan
February 24, 2011
Exhibit 24.1
February 24, 2011
Mr. Thomas J. Webb
Mr. James E. Brunner
Ms. Catherine M. Reynolds
CMS Energy Corporation
One Energy Plaza
Jackson, MI 49201−2276
CMS Energy Corporation is required to file an Annual Report on Form 10−K for the year ended December 31, 2010 with the Securities and Exchange
Commission within 60 days after the end of the year.
We hereby make, constitute and appoint each of you our true and lawful attorney for each of us and in each of our names, places and steads to sign and
cause to be filed with the Securities and Exchange Commission said Annual Report with any necessary exhibits, and any amendments thereto that may be
required.
Very truly yours,
/s/ D. W. Joos
/s/ Philip R. Lochner, Jr.
David W. Joos
/s/ Merribel S. Ayres
Philip R. Lochner, Jr.
/s/ M. T. Monahan
Merribel S. Ayres
/s/ Jon E. Barfield
Michael T. Monahan
/s/ John G. Russell
Jon E. Barfield
/s/ Stephen E. Ewing
John G. Russell
/s/ K. L. Way
Stephen E. Ewing
/s/ Richard M. Gabrys
Richard M. Gabrys
Kenneth L. Way
/s/ John B. Yasinsky
John B. Yasinsky
Exhibit 24.2
February 24, 2011
Mr. Thomas J. Webb
Mr. James E. Brunner
Ms. Catherine M. Reynolds
Consumers Energy Company
One Energy Plaza
Jackson, MI 49201−2276
Consumers Energy Company is required to file an Annual Report on Form 10−K for the year ended December 31, 2010 with the Securities and Exchange
Commission within 60 days after the end of the year.
We hereby make, constitute and appoint each of you our true and lawful attorney for each of us and in each of our names, places and steads to sign and
cause to be filed with the Securities and Exchange Commission said Annual Report with any necessary exhibits, and any amendments thereto that may be
required.
Very truly yours,
/s/ D. W. Joos
/s/ Philip R. Lochner, Jr.
David W. Joos
/s/ Merribel S. Ayres
Philip R. Lochner, Jr.
/s/ M. T. Monahan
Merribel S. Ayres
/s/ Jon E. Barfield
Michael T. Monahan
/s/ John G. Russell
Jon E. Barfield
/s/ Stephen E. Ewing
John G. Russell
/s/ K. L. Way
Stephen E. Ewing
/s/ Richard M. Gabrys
Richard M. Gabrys
Kenneth L. Way
/s/ John B. Yasinsky
John B. Yasinsky
Exhibit 31.1
CERTIFICATION OF JOHN G. RUSSELL
I, John G. Russell, certify that:
1.
I have reviewed this annual report on Form 10−K of CMS Energy Corporation;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a−15(e) and 15d−15(e)), and internal control over financial reporting (as defined in Exchange Act Rules 13a−15(f) and
15d—15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most
recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over financial reporting; and
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal
control over financial reporting.
5.
Dated: February 24, 2011
By: /s/ John G. Russell
John G. Russell
President and
Chief Executive Officer
Exhibit 31.2
CERTIFICATION OF THOMAS J. WEBB
I, Thomas J. Webb, certify that:
1.
I have reviewed this annual report on Form 10−K of CMS Energy Corporation;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a−15(e) and 15d−15(e)), and internal control over financial reporting (as defined in Exchange Act Rules 13a−15(f) and
15d—15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most
recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over financial reporting; and
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal
control over financial reporting.
5.
Dated: February 24, 2011
By /s/ Thomas J. Webb
Thomas J. Webb
Executive Vice President and
Chief Financial Officer
Exhibit 31.3
CERTIFICATION OF JOHN G. RUSSELL
I, John G. Russell, certify that:
1.
I have reviewed this annual report on Form 10−K of Consumers Energy Company;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a−15(e) and 15d−15(e)), and internal control over financial reporting (as defined in Exchange Act Rules 13a−15(f) and
15d—15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most
recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over financial reporting; and
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal
control over financial reporting.
5.
Dated: February 24, 2011
By: /s/ John G. Russell
John G. Russell
President and
Chief Executive Officer
Exhibit 31.4
CERTIFICATION OF THOMAS J. WEBB
I, Thomas J. Webb, certify that:
1.
I have reviewed this annual report on Form 10−K of Consumers Energy Company;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a−15(e) and 15d−15(e)), and internal control over financial reporting (as defined in Exchange Act Rules 13a−15(f) and
15d—15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most
recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over financial reporting; and
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal
control over financial reporting.
5.
Dated: February 24, 2011
By /s/ Thomas J. Webb
Thomas J. Webb
Executive Vice President and
Chief Financial Officer
Exhibit 32.1
Certification of CEO and CFO Pursuant to
18 U.S.C. Section 1350,
as Adopted Pursuant to
Section 906 of the Sarbanes−Oxley Act of 2002
In connection with the Annual Report on Form 10−K of CMS Energy Corporation (the “Company”) for the annual period ended December 31, 2010 as filed
with the Securities and Exchange Commission on the date hereof (the “Report”), John G. Russell, as President and Chief Executive Officer of the Company,
and Thomas J. Webb, as Executive Vice President and Chief Financial Officer of the Company, each hereby certifies, pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes−Oxley Act of 2002, that, to the best of his knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ John G. Russell
Name:
Title:
Date:
John G. Russell
President and
Chief Executive Officer
February 24, 2011
/s/ Thomas J. Webb
Name:
Title
Date:
Thomas J. Webb
Executive Vice President and
Chief Financial Officer
February 24, 2011
Exhibit 32.2
Certification of CEO and CFO Pursuant to
18 U.S.C. Section 1350,
as Adopted Pursuant to
Section 906 of the Sarbanes−Oxley Act of 2002
In connection with the Annual Report on Form 10−K of Consumers Energy Company (the “Company”) for the annual period ended December 31, 2010 as
filed with the Securities and Exchange Commission on the date hereof (the “Report”), John G. Russell, as President and Chief Executive Officer of the
Company, and Thomas J. Webb, as Executive Vice President and Chief Financial Officer of the Company, each hereby certifies, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes−Oxley Act of 2002, that, to the best of his knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ John G. Russell
Name:
Title:
Date:
John G. Russell
President and
Chief Executive Officer
February 24, 2011
/s/ Thomas J. Webb
Name:
Title
Date:
Thomas J. Webb
Executive Vice President and
Chief Financial Officer
February 24, 2011
Exhibit 99.1
CMS ENERGY CORPORATION
STOCK PURCHASE PLAN
1
TABLE OF CONTENTS
ARTICLE I — Definitions
ARTICLE II — Participation
ARTICLE III — Dividend Reinvestment and Stock Purchase
ARTICLE IV — Safekeeping Services for Deposited Common Stock
ARTICLE V — Sale of Account Shares; Gift or Transfer of Account Shares
ARTICLE VI — Eligible Securities
ARTICLE VII — Treatment of Accounts
ARTICLE VIII — Certificates and Fractional Shares
ARTICLE IX — Concerning the Plan
ARTICLE X — Administration of the Plan
ARTICLE XI — Plan Account
ARTICLE XII — Miscellaneous Provisions
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8
10
10
11
12
14
14
15
16
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As of December 1, 2010, CMS Energy Corporation, a Michigan corporation (the “Corporation”), hereby amends and restates its CMS Energy Corporation
Stock Purchase Plan, as previously amended and restated effective November 12, 2008 (the “Plan”):
The purpose of the Plan is to provide interested investors and holders of common stock of the Corporation a convenient, economical means of increasing
their investment in the Corporation through (i) regular investment of cash dividends paid, (ii) optional cash investments and/or (iii) initial cash investments
in shares of the Corporation’s Common Stock.
ARTICLE I — DEFINITIONS
The terms defined in this Article I shall, for all purposes of this Plan, have the following respective meanings:
Account
The term “Account” shall mean, as to any Participant, the account maintained by the Administrator evidencing (i) the shares (and/or fractional shares) of
Common Stock (a) purchased through the Plan and/or (b) deposited by such Participant into the Plan pursuant to Section 4.1 hereof, and credited to such
Participant and (ii) cash held in the Plan pending investment in Common Stock for such Participant.
Account Shares
The term “Account Shares” shall mean all shares (and/or fractional shares) of Common Stock credited to the Account of a Participant by the Administrator,
which shall include shares deposited into the Plan pursuant to Section 4.1 hereof.
Administrator
The term “Administrator” shall mean the individual (who may be an employee of the Corporation), bank, trust company or other entity (including the
Corporation) appointed from time to time by the Corporation to act as Administrator hereunder.
Authorization Form
The term “Authorization Form” shall mean the documentation that the Administrator (i) shall require to be completed and received prior to an investor’s
enrollment in the Plan pursuant to Section 2.2 or 2.3 hereof or a Participant’s changing his options under the Plan pursuant to Section 7.1 hereof, and
(ii) may require to be completed and received prior to an optional cash investment pursuant to Section 2.4 hereof.
Automatic Investment Authorization Form
The term “Automatic Authorization Form” shall mean the documentation that the Administrator may require to be completed and received prior to an
optional cash investment pursuant to Section 2.4 hereof.
CMS Energy Common Stock
The term “CMS Energy Common Stock” shall mean common stock, $.01 par value, of the Corporation.
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Common Stock
The term “Common Stock” shall include (i) CMS Energy Common Stock, or (ii) any other class of common stock issued by the Corporation.
Corporation
The term “Corporation” shall mean CMS Energy Corporation.
Corporation Share Purchase Price
The term “Corporation Share Purchase Price,” when used with respect to newly issued shares of Common Stock, shall mean the average of the high and low
sale prices, of that Common Stock computed to three decimal places, as reported on the NYSE Composite Tape for the Trading Day preceding the purchase
date.
Direct Deposit Authorization Form
The term “Direct Deposit Authorization Form” shall mean the documentation that the Administrator shall require to forward non−reinvested Dividends to
the Participant’s pre−designated bank, savings or credit union account pursuant to Section 7.7 hereof.
Dividend
The term “Dividend” shall mean cash dividends paid on Common Stock.
Dividend Payment Date
The term “Dividend Payment Date” shall mean a date on which a cash dividend on shares of Common Stock is paid.
DRS
The term “DRS” shall mean the Direct Registration System.
Eligible Securities
The term “Eligible Securities” shall mean those securities of the Corporation and its Subsidiaries, whether issued prior to, on or after the date hereof, set
forth in Section 6.1 hereof, and such other securities the Corporation may designate, in its sole discretion, pursuant to Section 6.2 hereof.
Employee
The term “Employee” shall mean all employees (including part−time employees but excluding temporary and contract employees) of the Corporation and
its subsidiaries.
Exchange Act
The term “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder.
Foreign Person
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The term “Foreign Person” shall mean a Person that is a citizen or resident of, or is organized or incorporated under, or has its principal place of business in,
a country other than the United States, its territories and possessions.
Independent Agent
The term “Independent Agent” shall mean an agent independent of the Corporation who satisfies applicable legal requirements (including, without
limitation, the requirements of Regulation M promulgated under the Exchange Act) and who has been selected by the Corporation, pursuant to Section 10.6
hereof, to serve as an Independent Agent for purposes of making purchases and sales of Common Stock under the Plan.
Investments
The term “Investments” shall mean the deposit of Common Stock into the Plan, initial payments or optional payments to purchase Common Stock through
the Plan. (These can be automatic deductions from bank accounts, personal checks, money orders and other forms of U.S. funds payable to CMS Stock
Plan.)
Investment Date
The term “Investment Date” shall mean at least weekly (generally on Wednesday), the first and 16th day of each month (or as soon as practicable
thereafter), and as soon as practicable after each Dividend Payment Date.
Market Share Purchase Price
The term “Market Share Purchase Price,” when used with respect to shares of Common Stock purchased in the open market, shall mean the weighted
average purchase price per share of the aggregate number of shares of each class purchased in the open market for an Investment Date (excluding any
related brokerage commissions). The Corporation will pay all related brokerage commissions and service fees, however, the Participant will be responsible
for all applicable taxes.
Market Share Sales Price
The term “Market Share Sales Price,” when used with respect to shares of Common Stock sold under the Plan, shall mean the weighted average sales price
per share (less brokerage fees and commissions, any related service charges and any transfer taxes) of the aggregate number of shares of each class sold in
the open market for the relevant period.
Maximum Amount
The term “Maximum Amount” shall mean $250,000 per class of Common Stock per calendar year.
Minimum Dividend Reinvestment Requirement
The term “Minimum Dividend Reinvestment Requirement” shall mean the mandatory reinvestment of ten percent of any Dividend paid on Common Stock
held in the Plan.
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NYSE
The term “NYSE” shall mean the New York Stock Exchange.
Participant
The term “Participant” shall mean a participant in the Plan.
Person
The term “Person” shall mean any individual, corporation, partnership, limited liability company, joint venture, association, joint−stock company, trust,
estate or unincorporated organization.
Plan
The term “Plan” shall mean the CMS Energy Corporation Stock Purchase Plan.
Request Form
The term “Request Form” shall mean the documentation that the Administrator shall require to be completed and received prior to a Participant’s (i) sale of
Account Shares pursuant to Section 5.1 hereof, (ii) gift or transfer of Account Shares pursuant to Section 5.2 hereof, (iii) withdrawal of whole Account
Shares pursuant to Section 7.2 hereof (unless such Participant will be the record holder of such Account Shares after withdrawal), (iv) termination of
participation in the Plan pursuant to Section 7.3 hereof, and (v) safekeeping of shares pursuant to Section 4.1 hereof.
Statement of Account
The term “Statement of Account” shall mean a written statement prepared by the Administrator and sent to each Participant which reflects (i) current
transactions completed under the Plan, (ii) the number of Account Shares credited to such Participant’s Account at the date of such statement, (iii) the
amount of cash, if any, credited to such Participant’s Account pending investment at the date of such statement and (iv) such additional information
regarding such Participant’s Account as the Administrator may determine to be pertinent to the Participant.
Trading Day
The term “Trading Day” shall mean any day on which trades are reported on the NYSE.
A pronoun or adjective in the masculine gender includes the feminine gender, and the singular includes the plural, unless the context clearly indicates
otherwise.
ARTICLE II — PARTICIPATION
Section 2.1. Participation. Any Person, whether or not a record holder of Common Stock, may elect to participate in the Plan; provided, however, that if
such Person is a Foreign Person, he must provide evidence satisfactory to the Administrator that his participation in the Plan would not violate local laws
applicable to the Corporation, the Plan or such Foreign Person.
An election by a Person to participate in the Plan shall be made by completing and returning to the Administrator an Authorization Form and (i) electing to
have
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Dividends on Eligible Securities of which such Person is the record holder invested in the appropriate class of Common Stock pursuant to Section 2.2
hereof, (ii) depositing certificates representing Common Stock of which such person is the record holder into the Plan pursuant to Section 4.1 hereof or
(iii) making an initial Investment pursuant to Section 2.3 hereof.
Any Person who has met such requirements and has made and not revoked such election is herein referred to as a “Participant.” A Participant may elect to
participate in any or all of the forms of investment provided in Sections 2.2 through 2.4 hereof by submitting an Authorization Form designating such
election to the Administrator; provided, however, that a Participant may elect to make optional Investments pursuant to Section 2.4 hereof or utilize the
Plan’s safekeeping services provided in Section 4.1 hereof by submitting to the Administrator a completed optional Investment stub attached to a Statement
of Account in lieu of an Authorization Form.
Section 2.2. Dividend Reinvestment. In addition to the Minimum Dividend Reinvestment Requirement, a Participant may elect to have all or a portion
(greater than the Minimum Dividend Reinvestment Requirement) of any Dividend on his Common Stock invested in shares (and/or fractional shares) of the
appropriate class of Common Stock to be credited to his Account in lieu of receiving such Dividend directly. Any Dividends payable on CMS Energy
Common Stock will be invested only in CMS Energy Common Stock. If the shareholders authorize, and the Corporation issues, shares of any additional
class or classes of Common Stock, any Dividend payable upon such class or classes will be invested only in the same class of Common Stock. That portion
of the Dividends received on shares of Common Stock not reinvested in Common Stock will be sent to the Participant by check in the manner otherwise
associated with payment of such Dividends or by electronic direct deposit if the Participant has elected the direct deposit option provided in Section 7.7
hereof.
Section 2.3. Initial Investment. A Person not already a Participant may become a Participant by making an initial Investment of at least $250 per class of
Common Stock and accompanied by a completed Authorization Form. (This $250 minimum will be waived if a Person enrolls for automatic investment of
at least $50 per month for five months.) A Person, who is already a registered shareholder of Common Stock, may become a Participant by completing and
returning an Authorization Form. Other than automatic deductions, payments shall be received by personal check or money order payable to CMS Stock
Plan. Automatic investment instructions for an initial Investment must be received 10 days prior to the last business day of the month. Such payment will be
invested in the class of Common Stock indicated on the Authorization Form, provided, however, that if no class of Common Stock is indicated on the
Authorization Form, the initial Investment will be invested in CMS Energy Common Stock. An Employee not already a Participant may become a
Participant by electing payroll deductions and completing an employee payroll deduction authorization form authorizing payroll deductions of at least $6.25
per pay period for employees paid weekly and at least $12.50 per pay period for employees paid semi−monthly.
Section 2.4. Optional Investments. A Participant may elect to make cash payments at any time or from time to time, to the Plan, by personal check or money
order payable to CMS Stock Plan, or through automatic deductions from an account at a bank or other financial institution (generally, but not limited to, the
last banking day of each month) for investment in Common Stock pursuant to Section 3.4 hereof; provided, however, that any Participant who elects to
make optional Investments pursuant to this Section 2.4 must invest at least $25 for any single investment and may not invest more than the Maximum
Amount. For purposes of determining whether the Maximum Amount has been reached, initial Investments shall be counted as optional Investments. A
Participant may elect to purchase any class of Common Stock by making
7
such optional Investments, but each single investment must be at least $25 per class of Common Stock. Optional Investments will be applied to the currently
held class of Common Stock unless otherwise indicated. If the Participant holds more than one class of Common Stock, and no designation is made, the
funds will be applied to CMS Energy Common Stock. Participants can elect automatic deductions of optional Investments by completing and returning the
Automatic Investment Authorization Form at least 10 days before the end of the month.
ARTICLE III — DIVIDEND REINVESTMENT AND STOCK PURCHASE
Section 3.1. Dividend Reinvestment. The Minimum Dividend Reinvestment Requirement, as well as any Dividends as to which reinvestment has been
elected by a Participant, shall be paid to the Administrator or its nominee on behalf of such Participant. Dividends shall be reinvested, at the Corporation’s
election, in either (i) newly issued shares of Common Stock purchased from the Corporation, or (ii) shares of Common Stock purchased in the open market.
Section 3.2. Dividend Reinvestment in Newly Issued Shares. Dividend reinvestment in newly issued shares of Common Stock shall be governed by this
Section 3.2. On an Investment Date with respect to which the Corporation elects to issue new shares to the Plan in order to effect the reinvestment of
Dividends, the Corporation shall issue to the Administrator upon the Corporation’s receipt of the funds described in (a) below, for crediting by the
Administrator to the Account of a Participant, a number of shares (and/or fractional shares rounded to three decimal places) of Common Stock equal to
(a) the amount of any Dividends paid to the Administrator on behalf of such Participant since the preceding Investment Date plus the amount of any
Dividends paid to the Administrator on behalf of such Participant on such Investment Date divided by (b) the Corporation Share Purchase Price with respect
to the Investment Date. Such shares shall be issued or sold to, and registered in the name of, the Administrator or its nominee as custodian for such
Participants. No interest shall be paid on Dividends held pending reinvestment pursuant to this Section 3.2.
Section 3.3. Dividend Reinvestment in Shares Purchased in the Open Market. Dividend reinvestment in shares of Common Stock purchased in the open
market shall be governed by this Section 3.3. On an Investment Date with respect to which the Corporation elects to effect reinvestment of Dividends in
shares of Common Stock purchased in the open market, the Administrator shall (if it is an Independent Agent), or shall cause an Independent Agent to,
apply the amount of any Dividends paid to the Administrator on behalf of the Participants since the preceding Investment Date plus the amount of any
Dividends paid to the Administrator on behalf of the Participants on such Investment Date to the purchase of shares of Common Stock in the open market.
Purchases in the open market pursuant to this Section 3.3 and Subsection 3.4.2 hereof may be, but are not required to be, made on the applicable Investment
Date and should be completed as soon as practicable thereafter, or at a later date as necessary or advisable under applicable law, including without limitation
any federal securities laws. Open market purchases pursuant to this Section 3.3 and Subsection 3.4.2 hereof may be made on any securities exchange on
which the Common Stock is traded, in the over−the−counter market or by negotiated transactions, and may be upon such terms and subject to such
conditions with respect to price and delivery to which the Independent Agent (including the Administrator if it is also an Independent Agent) may agree.
With regard to open market purchases of shares of Common Stock pursuant to this Section 3.3 and Subsection 3.4.2 hereof, none of the Corporation, the
Administrator (if it is not also serving as the Independent Agent) or any Participant shall directly or indirectly have any authority or power to control,
influence or direct the time, amounts, manner or price at which shares of Common Stock may be
8
purchased, the markets on which such shares are to be purchased (including on any securities exchange, in the over−the−counter market or in negotiated
transactions) or the selection of the broker or dealer (other than the Independent Agent) through or from whom purchases may be made, except that the
timing of such purchases must be made in accordance with the terms and conditions of the Plan. For the purpose of making, or causing to be made,
purchases of shares of Common Stock pursuant to this Section 3.3 and Subsection 3.4.2 hereof, and sales of Account Shares pursuant to Section 5.1 hereof,
the Independent Agent shall be entitled to commingle each Participant’s funds with those of all other Participants and to offset purchases of shares of
Common Stock against sales of shares of Common Stock to be made for Participants, resulting in a net purchase or a net sale of shares. The number of
shares (and/or fractional shares rounded to three decimal places) of Common Stock that shall be credited to a Participant’s Account with respect to an
Investment Date to which this Section 3.3 applies shall be equal to (a) (i) the amount of any Dividends paid to the Administrator on behalf of such
Participant since the preceding Investment Date plus (ii) the amount of any Dividends paid to the Administrator on behalf of such Participant on such
Investment Date divided by (b) the Market Share Purchase Price with respect to such Investment Date. Such shares shall be registered in the name of the
Administrator or its nominee as custodian for the Participants. No interest shall be paid on Dividends held pending reinvestment pursuant to this Section 3.3.
Section 3.4. Optional and Initial Investments. Any optional and initial Investments received by the Administrator from a Participant by noon on the
Investment Date shall be made, beginning on such Investment Date, in either (i) newly issued shares of Common Stock in the manner provided in
Subsection 3.4.1 hereof, or (ii) Common Stock purchased in the open market in the manner provided in Subsection 3.4.2 hereof. Optional and initial
Investments not received by the Administrator by noon on the Investment Date need not be invested on such Investment Date; provided, however, that any
such optional and initial Investments not invested on such Investment Date shall be invested beginning on the next succeeding Investment Date. No interest
shall be paid on optional and initial Investments held pending investment pursuant to this Section 3.4.
Subsection 3.4.1 Newly Issued Shares. On an Investment Date with respect to which the Corporation elects to issue new shares of Common Stock to the
Plan in order to effect the investment of optional and initial Investments, the Corporation shall issue to the Administrator upon the Corporation’s receipt of
the funds described in (a) below, for crediting by the Administrator to the Account of a Participant, a number of shares (and/or fractional shares rounded to
three decimal places) of Common Stock equal to (a) the amount of any optional and/or initial Investments received by the Administrator from such
Participant since the preceding Investment Date (including any amounts received from such Participant on the preceding Investment Date that were not
invested on the preceding Investment Date as set forth in Section 3.4 hereof) divided by (b) the Corporation Share Purchase Price with respect to the
Investment Date. Such shares shall be issued or sold to, and registered in the name of, the Administrator or its nominee as custodian for the Participants.
Subsection 3.4.2 Shares Purchased in the Open Market. On an Investment Date with respect to which the Corporation elects to effect the investment of
optional and initial Investments in shares of Common Stock purchased in the open market, the Administrator shall forward to the Independent Agent funds
equaling (i) the amount of any optional and/or initial Investments received by the Administrator from Participants since the preceding Investment Date
(including any amounts received from Participants on the preceding Investment Date that were not invested on the preceding Investment Date as set forth in
Section 3.4 hereof) for purchase of Common Stock in
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the open market. Such purchases shall be made in the manner set forth in this Article III. Such shares shall be registered in the name of the Administrator or
its nominee as custodian for the Participants.
Subsection 3.4.3 Request to Stop Investment. If a written request to stop an optional or initial Investment is received by the Administrator from a
Participant by noon of the Investment Date, any optional or initial Investments from such Participant then held by the Administrator shall not be used to
purchase Common Stock and shall be returned to such Participant. If such a request is not received by the Administrator by noon of the Investment Date,
any such optional and/or initial Investments shall be used to purchase shares of Common Stock for such Participant’s Account.
ARTICLE IV — SAFEKEEPING SERVICES FOR DEPOSITED COMMON STOCK
Section 4.1. Deposited Common Stock. A Participant may elect to have certificates representing shares of Common Stock of which the Participant is the
record holder deposited into the Plan by completing a Request Form and delivering such certificates and Request Form to the Administrator. Shares of
Common Stock so deposited shall be transferred into the name of the Administrator or its nominee and credited to the depositing Participant’s Account.
Dividends paid on shares of Common Stock deposited into the Plan pursuant to this Section 4.1 will be reinvested in the same manner as shares of Common
Stock purchased under the Plan and credited to a Participant’s account. If no other shares of Common Stock are credited to the Participant’s Account, the
Dividends will be fully reinvested unless a completed Authorization Form designates a different election pursuant to Section 2.2 hereof.
Section 4.2. Withdrawal of Common Stock Deposited Pursuant to Section 4.1. Shares of Common Stock deposited pursuant to Section 4.1 hereof may be
withdrawn from the Plan pursuant to Section 7.2 hereof.
ARTICLE V — SALE OF ACCOUNT SHARES; GIFT OR TRANSFER OF ACCOUNT SHARES
Section 5.1. Sale of Account Shares. A Participant may request, at any time, that all or a portion of his Account Shares be sold by delivering to the
Administrator a completed Request Form to that effect. The Administrator (if it is not also an Independent Agent) shall forward such sale instructions to the
Independent Agent as soon as practicable once each week. (The intent is to forward sale instructions to the Independent Agent once each week.) The
Independent Agent shall generally make such sales weekly or as soon as practicable (in accordance with stock transfer requirements and federal and state
securities laws) after processing such sale instructions. As soon as practicable following the receipt of proceeds from such sale, the Administrator shall mail
by First Class Mail to such Participant at his address of record a check in an amount equal to (a) the Market Share Sales Price multiplied by (b) the number
of his Account Shares sold.
If instructions for the sale of shares of Common Stock on which Dividends are being reinvested are received by the Administrator on or after the record date
relating to a Dividend Payment Date but before the Investment Date, and (i) if the Participants’ sale instructions cover less than all of the shares of Common
Stock credited to their Accounts, the sale will be processed as described above in the immediately preceding paragraph, the Dividends will be invested and
the newly purchased shares will be credited to their Accounts or (ii) if the Participants’ sale instructions cover all
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of the shares of Common Stock credited to their Accounts, the sale instructions will be processed and a check for the Dividend will be provided.
With regard to open market sales of Account Shares pursuant to this Section 5.1, none of the Corporation, the Administrator (if it is not also serving as the
Independent Agent) or any Participant shall directly or indirectly have any authority or power to control, influence or direct the time, amounts, manner or
price at which shares of Common Stock may be sold, the markets on which such shares are to be sold (including on any securities exchange, in the
over−the−counter market or in negotiated transactions) or the selection of the broker or dealer (other than the Independent Agent) through or from whom
sales may be made, except that the timing of such sales must be made in accordance with the terms and conditions of the Plan.
Section 5.2. Gift or Transfer of Account Shares. A Participant may elect to transfer (whether by gift, private sale or otherwise) ownership of all or a portion
of his Account Shares to the Account of another Participant or establish an Account for a Person not already a Participant by delivering to the Administrator
a completed Request Form to that effect or a stock assignment (stock power), acceptable to the Administrator.
Account Shares transferred in accordance with the preceding paragraph shall continue to be registered in the name of the Administrator as custodian and
shall be credited to the transferee’s Account. If the transferee is not already a Participant, an Account shall be opened in the name of the transferee and the
transferor shall, if he/she so chooses, designate an initial level of reinvestment of dividends on those Account Shares greater than the Minimum Dividend
Reinvestment Requirement. The Administrator shall deliver a Statement of Account to such transferee showing the transfer of such Account Shares into his
Account. The transferor may request that the Administrator deliver to such transferee a gift certificate. The transferor may request that the Administrator
send the gift certificate directly to such transferee or request that the Administrator deliver such gift certificate to the transferor for personal delivery to the
transferee. The Administrator shall comply with any such request of a transferor relating to Statements of Account and/or gift certificates as soon as
practicable following receipt of such request.
If a completed request for transfer with regard to shares of Common Stock credited to a Participant’s Account on which Dividends are being reinvested is
received by the Administrator on or after the record date relating to the Dividend Payment Date but before the Investment Date, the Dividends will be
invested in Common Stock through the Plan, and (i) if the Participant’s transfer instructions cover less than all of the shares of Common Stock credited to
his Account, the transfer will be processed as described above in the immediately preceding paragraph and the newly purchased shares of Common Stock
will be credited to the transferor’s Account or (ii) if the Participant’s transfer instructions cover all of the shares of Common Stock credited to his Account,
the transfer instructions will be processed following the Investment Date.
ARTICLE VI — ELIGIBLE SECURITIES
Section 6.1. Eligible Securities. Common Stock of the Corporation shall be Eligible Securities.
Section 6.2. Additional Eligible Securities. The Corporation may from time to time or at any time designate other debt or equity securities of the
Corporation and its
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subsidiaries as Eligible Securities by notifying the Administrator in writing of the designation of such securities as Eligible Securities.
ARTICLE VII — TREATMENT OF ACCOUNTS
Section 7.1. Changing Plan Options. A Participant may elect to change his Dividend reinvestment levels by delivering to the Administrator written
instructions or a new Authorization Form to that effect. To be effective for a Dividend payment, the Authorization Form must be received by the
Administrator by the business day prior to the record date relating to such Dividend. If the Authorization Form is not received by the Administrator by the
business day prior to the record date relating to such Dividend, such instructions shall not become effective until after such payment date. The shares of
Common Stock purchased from the reinvestment of such Dividend shall be credited to the Participant’s Account. After the Administrator’s receipt of
effective option changing instructions, Dividends as to which the reinvestment election has been revoked will be paid in cash or by direct deposit to the
Participant’s designated direct deposit account, if such Participant has elected the direct deposit option pursuant to Section 7.7 hereof.
Section 7.2. Right of Withdrawal. A Participant may, at any time or from time to time, withdraw from the Plan all or any part (other than fractions) of his
Account Shares by delivering to the Administrator (i) appropriate written withdrawal instructions to that effect, if such Participant will be the record holder
of such Account Shares after withdrawal or (ii) a completed Request Form or a stock assignment (stock power) to that effect, if the Participant will not be
the record holder of such Account Shares after withdrawal. Subject to the limitations described in the immediately following paragraph, as soon as
practicable following the Administrator’s receipt of (i) appropriate withdrawal instructions or (ii) a completed Request Form or a stock assignment (stock
power), as the case may be, which indicates the Participant’s desire to withdraw certain of his whole Account Shares, the Administrator shall mail by First
Class Mail to the Participant at his address of record, or to the address of any Person that the Participant designated, certificates representing such
designated Account Shares or, if requested by the Participant, transfer such designated Account Shares to the DRS.
If a completed request for withdrawal with regard to shares of Common Stock credited to a Participant’s Account on which Dividends are being reinvested
is received by the Administrator on or after the record date relating to the Dividend Payment Date but before the Investment Date, and (i) if the Participant’s
withdrawal instructions cover less than all of the shares of Common Stock credited to his Account, the withdrawal will be processed as described above in
the immediately preceding paragraph, the Dividends will be invested in Common Stock through the Plan, and the newly purchased shares of Common Stock
credited to his Account or (ii) if the Participant’s withdrawal instructions cover all of the shares of Common Stock credited to his Account, the withdrawal
instructions will be processed and checks for the Dividends and for the sale of any fractional shares will be provided.
Withdrawal of Account Shares shall not affect reinvestment of Dividends on the shares withdrawn unless (i) the Participant is no longer the record holder of
such shares, (ii) such reinvestment is changed by the Participant by delivering to the Administrator written instructions or an Authorization Form to that
effect pursuant to Section 7.1 hereof or (iii) the Participant has terminated his participation in the Plan.
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Other than transfers pursuant to Section 5.2 hereof, shares of Common Stock credited to a Participant’s Account may not be pledged or assigned.
Section 7.3. Right of Termination of Participation. If a Participant’s Request Form indicates the Participant’s desire to terminate his participation in the
Plan, the Administrator shall treat such request as a withdrawal of all of such Participant’s whole Account Shares pursuant to Section 7.2 hereof. The
Administrator, in addition to mailing certificates representing all whole Account Shares or transferring Account Shares to DRS, if any, pursuant to
Section 7.2 hereof, shall mail by First Class Mail to the Participant at his address of record checks for an amount equal to the sum of (i) the amount of cash
credited to such Participant’s Account pending investment in Common Stock and (ii) the cash value of any fractional shares of Common Stock credited to
his Account. Such fractional shares shall be valued at the closing price on the NYSE for the trading day immediately preceding the date of termination.
Section 7.4. Stock Splits, Stock Dividends and Rights Offerings. Any shares or other securities representing stock splits or other non−cash distributions on
Account Shares shall be credited to such Participant’s Account. Stock splits, combinations, re−capitalizations and similar events affecting the Common
Stock shall, as to shares credited to Accounts of Participants, be credited to such Accounts on a pro rata basis.
In the event of a rights offering, a Participant shall receive rights based upon the total number of whole shares of Common Stock credited to his Account.
Section 7.5. Shareholder Materials; Voting Rights. The Administrator shall send or forward to each Participant all applicable proxy solicitation materials,
other shareholder materials or consent solicitation materials. Participants shall have the exclusive right to exercise all voting rights respecting Account
Shares credited to their respective Accounts. A Participant may vote the Account Shares credited to their respective Account in person or by proxy. A
Participant’s proxy card shall represent all Account Shares and shares of Common Stock of which he is the record holder. Account Shares shall not be voted
unless a Participant or the proxy votes them.
Solicitation of the exercise of Participants’ voting rights by the management of the Corporation and others under a proxy or consent provision applicable to
all holders of Common Stock shall be permitted. Solicitation of the exercise of Participants’ tender or exchange offer rights by management of the
Corporation and others shall also be permitted. The Administrator shall notify the Participants of each occasion for the exercise of their voting rights or
rights with respect to a tender offer or exchange offer within a reasonable time before such rights are to be exercised. Such notification shall include all
information distributed to the shareholders of the Corporation by the Corporation regarding the exercise of such rights.
Section 7.6. Statements of Account. As soon as practicable after any Account transaction or activity, the Administrator shall send to the Participant a
Statement of Account reflecting (i) current transactions completed under the Plan, (ii) the number of Account Shares credited to such Participant’s Account
at the date of such statement, (iii) the amount of funds, if any credited to such Participant’s Account pending investment at the date of such statement and
(iv) such additional information regarding such Participant’s Account as the Administrator may determine to be pertinent to the Participant. As soon as
practicable following a sale of Account Shares by a Participant, the Administrator shall deliver a confirmation to such Participant.
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Section 7.7. Direct Deposit Option. A Participant may elect to have any Dividends on Account Shares not being reinvested in Common Stock pursuant to
the Plan paid by electronic direct deposit to the Participant’s pre−designated bank, savings or credit union account. To receive such direct deposit of funds, a
Participant must complete, sign and return a Direct Deposit Authorization Form to the Administrator. Direct deposit will become effective as soon as
practicable after receipt of a completed Direct Deposit Authorization Form. A Participant may change his designated direct deposit account by delivering
written instructions or a completed Direct Deposit Authorization Form to the Administrator.
ARTICLE VIII — CERTIFICATES AND FRACTIONAL SHARES
Section 8.1. Certificates. A Participant may, at any time or from time to time, request in writing to receive a certificate for all or a portion of his whole
Account Shares and upon such request the Administrator shall promptly mail such certificate (in any event, within ten business days of the receipt of such
written request) by First Class Mail to such Participant at his address of record; provided, however, that upon the mailing of such certificate the shares of
Common Stock represented by such certificate shall no longer be Account Shares but shall remain reinvestment Eligible Securities (except to the extent
such Participant has elected not to have Dividends reinvested in Common Stock pursuant to the Plan).
Section 8.2. Fractional Shares. Fractional shares of Common Stock shall be credited to Accounts as provided in Article III hereof; provided, however, that
no certificate for fractional shares shall be distributed to any Participant at any time; and provided, further, that the Corporation shall issue and sell only
whole shares of Common Stock to the Administrator in respect of Dividends reinvested in, and purchases made by the Administrator hereunder of, newly
issued shares.
ARTICLE IX — CONCERNING THE PLAN
Section 9.1. Suspension, Modification and Termination. The Corporation may at any time and from time to time, at its sole option, suspend, modify, amend
or terminate the Plan, in whole, in part or in respect of Participants in one or more jurisdictions; provided, however, no such amendment shall decrease the
Account of any Participant or result in a distribution to the Corporation of any amount credited to the Account of any Participant. Upon complete
termination of the Plan, the Accounts of all Participants (or in the case of partial termination of the Plan, the Accounts of all affected Participants) shall be
treated as if each such Participant had elected to terminate his participation in the Plan pursuant to Section 7.3 hereof, except that any fraction of a share of
Common Stock shall be valued as of the trading date immediately preceding the date on which the Plan is terminated. The Administrator shall promptly
send each affected Participant notice of such suspension, modification or termination.
Section 9.2. Rules and Regulations. The Corporation may from time to time adopt such administrative rules and regulations concerning the Plan as it deems
necessary or desirable for the administration of the Plan. The Corporation shall have the power and authority to interpret the terms and the provisions of the
Plan and shall interpret and construe the Plan and reconcile any inconsistency or supply any omitted detail in a manner consistent with the general terms of
the Plan and applicable law.
Section 9.3. Costs. All costs of administration of the Plan shall be paid by the Corporation. The Participants will bear the cost of any brokerage
commissions, any
14
related service charges and applicable taxes incurred in connection with open market sales of shares of Common Stock made under the Plan. The
Corporation shall pay any brokerage commissions and charges incurred in connection with any purchase of shares of Common Stock made under the Plan.
Any applicable taxes incurred in connection with such open market purchase shall be borne by the Participants.
Section 9.4. Termination of a Participant. If a Participant does not have at least one whole Account Share, the Participant’s participation in the Plan may be
terminated by the Corporation, in its sole discretion, upon written notice to such Participant by mail at his address of record. Additionally, the Corporation,
in its sole discretion, may terminate any Participant’s participation in the Plan after written notice mailed in advance to such Participant at his address of
record. Upon such termination, the Account of such Participant shall be treated as if he had elected to terminate his participation in the Plan pursuant to
Section 7.3 hereof, except that any fraction of a share of Common Stock shall be valued as of the trading date immediately preceding the date on which such
Participant’s participation is terminated.
ARTICLE X — ADMINISTRATION OF THE PLAN
Section 10.1. Selection of an Administrator. The Administrator shall be appointed by the Corporation. The Administrator’s appointment to serve as such
may be revoked by the Corporation at any time. The Administrator may resign at any time upon reasonable notice to the Corporation. In the event that no
Administrator is appointed, the Corporation shall be deemed to be the Administrator for purposes of the Plan. The Corporation is presently the
Administrator.
Section 10.2. Compensation. The officers of the Corporation shall make such arrangements regarding compensation, reimbursement of expenses and
indemnification of the Administrator and any Independent Agent as they from time to time deem reasonable and appropriate.
Section 10.3. Authority and Duties of Administrator. The Administrator shall have the authority to undertake any act necessary to fulfill its duties as set
forth in the various provisions of the Plan. Upon receipt, the Administrator shall deposit all Dividends, optional and initial Investments in a segregated bank
account. The Administrator shall maintain appropriate records of the Accounts of Participants.
Section 10.4. Liability of the Corporation, the Administrator and Any Independent Agent. The Corporation, the Administrator and any Independent Agent
shall not be liable for any act done in good faith, or for the good faith omission to act in administering or performing their duties with respect to the Plan,
including, without limitation, any claim of liability arising out of failure to terminate a Participant’s Account upon such Participant’s death prior to receipt
of notice in writing of such death, or with respect to the prices at which shares are purchased or sold for a Participant’s Account and the times when such
purchases and sales are made, or with respect to any loss or fluctuation in the market value after the purchase or sale of such shares.
Section 10.5. Records and Reports. The Administrator shall keep appropriate records concerning the Plan, Accounts of Participants, purchases and sales of
Common Stock made under the Plan and Participants’ addresses of record and shall send Statements of Account and confirmations to each Participant in
accordance with the provisions of Section 7.6 hereof.
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Section 10.6. Selection of Independent Agent. Any Independent Agent serving in such capacity pursuant to the Plan shall be selected by the Corporation,
and the Administrator and the Corporation, or either of them, shall, subject to the provisions of Section 3.3 hereof, make such arrangements and enter into
such agreements with the Independent Agent in connection with the activities contemplated by the Plan as the Administrator and the Corporation, or either
of them, deem reasonable and appropriate.
ARTICLE XI — PLAN ACCOUNT
Section 11.1. Creation of the Plan Account. The Corporation shall establish a non−interest bearing segregated account(s) at a financial institution(s)
organized under the laws of the United States or any state, which financial institution(s) must have assets in excess of $250,000,000.
Section 11.2. Requirements of the Plan Account. The Plan account must be held for the benefit of the Participants, and cannot be subject to any liens, any
creditor claims, or any other claims against the Corporation. Furthermore, the Plan account cannot be subject to bankruptcy proceedings if the Corporation
files for bankruptcy under federal or state law. All Dividends, optional Investments and initial Investments shall be promptly transmitted by the
Administrator to the Plan account (together with all Dividends, optional Investments and initial Investments deposited therein from time to time).
ARTICLE XII — MISCELLANEOUS PROVISIONS
Section 12.1. Controlling Law. This Plan shall be construed, regulated and administered under the laws of the State of Michigan.
Section 12.2. Acceptance of Terms and Conditions of Plan by Participants. Each Participant, by completing an Authorization Form and as a condition of
participation herein, for himself, his heirs, executors, administrators, legal representatives and assigns, approves and agrees to be bound by the provisions of
this Plan and any subsequent amendments hereto, and all actions of the Corporation and the Administrator hereunder.
Section 12.3. Direct Registration. The Corporation participates in DRS. Participants may choose to have their direct registration/book−entry shares
electronically delivered to or from their brokerage accounts. Participants participating in the DRS can authorize their broker/dealer to request electronic
movement of their book−entry shares. To effect such transactions, brokers will need to include the following information: The CMS account number; social
security or taxpayer identification number; the registered name(s) on the DRS account and the number of DRS shares to be delivered. The Corporation will
honor such requests from any broker participating in the DRS.
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IN WITNESS WHEREOF, execution is hereby effected.
ATTEST:
CMS ENERGY CORPORATION
/s/ Catherine M. Reynolds
By: /s/ John G. Russell
Secretary
President and Chief Executive Officer
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