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CMS ENERGY CORP - 10-K - Management's Discussion and Analysis of Financial Condition and Resultsof Operations

Source: 
Edgar Glimpses

This Management's Discussion and Analysis of Financial Condition and Results of Operations 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; CMS Enterprises, primarily a domestic independent power producer and marketer; and EnerBank, an industrial bank located in Utah. 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 primarily residential, commercial, and diversified industrial customers. CMS Enterprises, through its subsidiaries and equity investments, is engaged in domestic independent power production, including the development and operation of renewable generation, and the marketing of independent power production. EnerBank provides primarily unsecured, fixed-rate installment loans throughout the U.S. to finance home improvements. CMS Energy and Consumers manage their businesses by the nature of services each provides. CMS Energy operates principally in four business segments: electric utility; gas utility; enterprises, its non­utility operations and investments; and EnerBank. Consumers operates principally in two business segments: electric utility and gas utility. CMS Energy's and Consumers' businesses are affected primarily by: •regulation and regulatory matters •state and federal legislation •economic conditions •weather •energy commodity prices •interest rates •their securities' credit ratings COVID-19 Pandemic CMS Energy and Consumers continue to respond to the public health emergency caused by the COVID­19 pandemic by instituting and maintaining measures consistent with guidance provided by local, state, and federal agencies. CMS Energy and Consumers maintain over 60 departmental business continuity plans; these plans were reviewed and enhanced in early 2020 to ensure readiness for the COVID-19 pandemic. CMS Energy and Consumers continue to take steps to protect the safety of employees, customers, and contractors, and have executed their business continuity plans to ensure the continued delivery of critical energy services. Additionally, CMS Energy and Consumers have mitigated the potential impact of the pandemic on their liquidity by completing financing transactions and reducing the need for additional external funding. The COVID­19 pandemic is a continually evolving situation. As a result of the pandemic, Consumers has experienced a decline in electric deliveries to commercial and industrial customers, offset partially by an increase in deliveries to residential customers. It has also experienced increased uncollectible accounts and workforce-related expenses, among other cost increases directly attributable to the pandemic. Consumers anticipates that these trends will continue in the near term. In April 2020, the MPSC issued an 52 -------------------------------------------------------------------------------- Table of Contents order authorizing Consumers to defer incremental uncollectible accounts expense associated with the pandemic. Additionally, EnerBank anticipates it could experience slower lending growth, higher loan write-offs, and increased loan modifications in the future as a result of the pandemic. The companies cannot predict the long-term impact of the pandemic on their business, results of operations, financial condition, capital investment program, liquidity, and cash flows. More detailed discussion of the near-term impacts of and future uncertainties related to the COVID­19 pandemic can be found in Item 1A. Risk Factors and throughout this Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. The Triple Bottom Line CMS Energy's and Consumers' purpose is to achieve world class performance while delivering hometown service. In support of this purpose, the companies employ the "Consumers Energy Way," a lean operating model designed to improve safety, quality, cost, delivery, and employee morale. CMS Energy and Consumers measure their progress toward the purpose by considering their impact on the "triple bottom line" of people, planet, and profit, which is underpinned by performance; this consideration takes into account not only the economic value that the companies create for customers and investors, but also their responsibility to social and environmental goals. The triple bottom line balances the interests of the companies' employees, customers, suppliers, regulators, creditors, Michigan's residents, the investment community, and other stakeholders, and it reflects the broader societal impacts of the companies' activities. [[Image Removed: cms-20201231_g8.jpg]] Consumers' Sustainability Report, which is available to the public, describes the company's progress toward world class performance measured in the areas of people, planet, and profit. People: The people element of the triple bottom line represents CMS Energy's and Consumers' commitment to their employees, their customers, the residents of local communities in which the companies do business, and other stakeholders. The safety of employees, customers, and the general public is 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. Over the last ten years, Consumers' OSHA recordable incident rate has decreased by over 53 percent. In response to the COVID-19 pandemic, CMS Energy and Consumers have issued a response plan that is focused on the health, safety, and well-being of their co-workers, customers, and communities. CMS Energy and Consumers have aligned with safety and health guidelines from the CDC, OSHA, and the Michigan Department of Health and Human Services in order to protect their employees, customers, 53 -------------------------------------------------------------------------------- Table of Contents and contractors to ensure the continued delivery of critical energy services. To align with, and in addition to, these guidelines, CMS Energy and Consumers have: •secured the supply chain necessary to provide front-line workers with appropriate personal protective equipment and cleaning supplies •worked with local health departments and hospital systems to begin administering vaccinations to essential front-line employees •when necessary, sequestered employees with critical roles at generating plants, gas compression facilities, and electric control rooms •implemented a paid self-quarantine requirement for employees who are exhibiting symptoms of COVID-19 or who have come into contact with a person suspected to have COVID-19 •prohibited business-related international travel and instituted a mandatory ten-day work remote period for employees who return from personal travel to heavily impacted areas •required employees to work remotely when possible •when necessary, reduced service at 13 direct payment offices to drop box and drive-through services only •initially adjusted work to focus on emergent and critical activities such as electric outages, gas leaks, and other public safety and reliability work; as work restrictions have gradually lifted in Michigan, the companies have resumed normal work with safety measures in place •contracted a chief medical officer to guide the companies' response and provide rapid support and supplies for the workforce •limited access to company facilities, enhanced cleaning protocols, and established a mask-wearing policy •offered additional paid leave to employees to alleviate child care-related burdens and implemented other interim workforce policies to offer flexibility and reduce employee concerns In response to the pandemic, CMS Energy and Consumers initially suspended shut-offs of service for non-payment and extended payment protection plans for low-income and senior customers. CMS Energy and Consumers slowly began resuming shut-offs of service for non-payment in late July 2020 for commercial and industrial customers and in October 2020 for residential customers. CMS Energy and Consumers remain committed to assisting customers impacted by the pandemic. During 2020, Consumers provided $12 million to help Michigan residents and small businesses who had experienced difficulty paying their energy bill due to the pandemic. Additionally, in December 2020, Consumers donated another $3 million to agencies that provide energy bill assistance to low-income households. CMS Energy and Consumers also place a high priority on customer value and on providing a hometown customer experience. Consumers' customer-driven investment program is aimed at improving safety and increasing electric and gas reliability, which has resulted in measurable improvements in customer satisfaction. Central to Consumers' commitment to its customers are the initiatives it has undertaken to keep electricity and natural gas affordable, including: •replacement of coal-fueled generation and PPAs with a cost-efficient mix of renewable energy and energy waste reduction and demand response programs •targeted infrastructure investment to reduce maintenance costs and improve reliability and safety •supply chain optimization •information and control system efficiencies •employee and retiree health care cost sharing •workforce productivity enhancements 54 -------------------------------------------------------------------------------- Table of Contents In addition, Consumers' gas commodity costs declined by 66 percent from 2010 through 2020, due not only to a decrease in market prices but also to Consumers' improvements to its gas infrastructure and optimization of its gas purchasing and storage strategy. These gas commodity savings are passed on to customers. Planet: The planet element of the triple bottom line represents CMS Energy's and Consumers' commitment to protect the environment. This commitment extends beyond compliance with various state and federal environmental, health, and safety laws and regulations. Management considers climate change and other environmental risks in the companies' strategy development, business planning, and enterprise risk management processes. CMS Energy and Consumers continue to focus on opportunities to protect the environment and to reduce their carbon footprint. As a result of actions already taken by CMS Energy and Consumers, the companies have: •decreased their combined percentage of electric supply (self-generated and purchased) from coal by 21 percentage points since 2015 •reduced carbon dioxide emissions by over 35 percent since 2005 •reduced the amount of water used to generate electricity by over 30 percent since 2012 •reduced landfill waste disposal by over 1.5 million tons since 1992 •reduced methane emissions by 17 percent since 2012 Additionally, over the last 20 years, Consumers has reduced its sulfur dioxide, nitrogen oxide, particulate matter, and mercury emissions by over 90 percent. Presented in the following illustration are Consumers' reductions in these emissions (Consumers began tracking mercury emissions in 2007): [[Image Removed: cms-20201231_g9.jpg]] 55 -------------------------------------------------------------------------------- Table of Contents The 2016 Energy Law: •raised the renewable energy standard to 12.5 percent in 2019 and 15 percent in 2021; Consumers met the 12.5-percent requirement in 2019 and 2020 with a combination of newly generated RECs and previously generated RECs carried over from prior years •established a goal of 35 percent combined renewable energy and energy waste reduction by 2025; Consumers has achieved 25 percent combined renewable energy and energy waste reduction through 2020 •authorized incentives for demand response programs and expanded existing incentives for energy efficiency programs, referring to the combined initiatives as energy waste reduction programs •established an integrated planning process for new generation resources In 2019, the MPSC approved the IRP that Consumers filed in 2018, which details its Clean Energy Plan. Under its Clean Energy Plan, Consumers will meet the requirements of the 2016 Energy Law using its clean and lean strategy, which focuses on increasing the generation of renewable energy, helping customers use less energy, and offering demand response programs to reduce demand during critical peak times. Further, Consumers plans to replace its coal-fueled generation predominantly with investment in renewable energy, which will enable Consumers to meet and exceed the 2016 Energy Law renewable energy requirements and fulfill increasing customer demand for renewable energy. The Clean Energy Plan will also allow Consumers to achieve a breakthrough goal of at least 50 percent combined renewable energy and energy waste reduction by 2030. In February 2020, Consumers announced a goal of achieving net-zero carbon emissions from its electric business by 2040. This goal includes not only emissions from Consumers' owned generation, but also emissions from the generation of power purchased through long-term PPAs and from the MISO energy market. Consumers expects to reduce carbon emissions of its owned generation by more than 90 percent from its 2005 levels by 2040 through execution of its Clean Energy Plan. The remaining emissions will be offset through alternative measures including, but not limited to, carbon sequestration, landfill methane emission capture, and large-scale tree planting. 56 -------------------------------------------------------------------------------- Table of Contents Presented in the following illustration is Consumers' 2020 capacity portfolio and its future capacity portfolio as projected in the IRP. This illustration includes the effects of purchased capacity and energy waste reduction and uses the nameplate capacity of renewable energy sources: [[Image Removed: cms-20201231_g10.jpg]] In September 2020, Michigan's Governor signed an executive order creating the Michigan Healthy Climate Plan, which outlines goals for Michigan to achieve economy-wide net-zero greenhouse gas emissions and to be carbon neutral by 2050. The executive order aims for a 28-percent reduction below 2005 levels of greenhouse gas emissions by 2025. Consumers has already surpassed the 28-percent reduction milestone for its owned electric generation and previously announced, in February 2020, a goal of achieving net-zero carbon emissions from its electric business by 2040. In addition to Consumers' efforts to reduce the electric utility's carbon footprint, it is also making efforts to reduce the gas utility's methane footprint. In 2019, Consumers released its Methane Reduction Plan, which set a goal of net-zero methane emissions from its natural gas delivery system by 2030. Consumers plans to reduce methane emissions from its system by about 80 percent by accelerating the replacement of aging pipe, rehabilitating or retiring outdated infrastructure, and adopting new technologies and practices. The remaining emissions will be offset by purchasing and/or producing renewable natural gas. 57 -------------------------------------------------------------------------------- Table of Contents Additionally, to advance its environmental stewardship in Michigan and to minimize the impact of future regulations, Consumers announced the following five­year targets during 2018: •to reduce its water use by one billion gallons; since 2017, Consumers reduced its water usage by over 880 million gallons cumulatively •to enhance, restore, or protect 5,000 acres of land; since 2017, Consumers enhanced, restored, or protected over 4,600 acres of land cumulatively •to reduce the amount of waste taken to landfills by 35 percent; compared to 2017, Consumers reduced its waste to landfills by 54 percent in 2020 CMS Energy, through CMS Enterprises, continues to pursue further opportunities for the development of renewable generation projects. In July 2020, CMS Enterprises purchased an ownership interest in Aviator Wind, a 525-MW wind generation project in Coke County, Texas. The project was completed and became operational in September 2020. CMS Energy and Consumers are monitoring numerous legislative, policy, and regulatory initiatives, including those to regulate greenhouse gases, and related litigation. While CMS Energy and Consumers cannot predict the outcome of these matters, which could have a material effect on the companies, they intend to continue to move forward with their clean and lean strategy. Profit: The profit element of the triple bottom line represents CMS Energy's and Consumers' commitment to meeting their financial objectives and providing economic development opportunities and benefits in the communities in which they do business. CMS Energy's and Consumers' financial strength allows them to maintain solid investment-grade credit ratings and thereby reduce funding costs for the benefit of customers and investors, to preserve and create jobs, and to reinvest in the communities they serve. In 2020, CMS Energy's net income available to common stockholders was $755 million, and diluted EPS were $2.64. This compares with net income available to common stockholders of $680 million and diluted EPS of $2.39 in 2019. In 2020, the benefits from gas and electric rate increases and lower operating and maintenance expenses were offset partially by higher depreciation and property taxes reflecting higher capital spending, lower gas sales due primarily to unfavorable weather, and higher donations. A more detailed discussion of the factors affecting CMS Energy's and Consumers' performance can be found in the Results of Operations section that follows this Executive Overview. Consumers has experienced a decline in electric deliveries to commercial and industrial customers as a result of the COVID-19 pandemic. Over the next five years, Consumers expects weather-normalized electric and gas deliveries to remain stable relative to 2020. This outlook reflects the effects of energy waste reduction programs offset largely by modest growth in electric and gas demand. 58 -------------------------------------------------------------------------------- Table of Contents Performance: Impacting the Triple Bottom Line CMS Energy and Consumers remain committed to achieving world class performance while delivering hometown service and positively impacting the triple bottom line of people, planet, and profit. During 2020, CMS Energy and Consumers: •realized over $100 million in cost reductions by leveraging the Consumers Energy Way and through other initiatives •named a Chief Diversity Officer responsible for setting and monitoring the companies' diversity, equity, and inclusion strategy •completed a 90-mile gas pipeline construction project to upgrade gas pipelines and infrastructure throughout three Michigan counties •announced a new parental leave policy for employees, allowing six months of paid leave to mothers and four months of paid leave to a nonbirthing parent •pledged to join five other energy companies in facilitating the construction of a Midwest electric vehicle charging network CMS Energy and Consumers will continue to utilize the Consumers Energy Way to enable them to achieve world class performance and positively impact the triple bottom line. Consumers' investment plan and the regulatory environment in which it operates also drive its ability to impact the triple bottom line. Investment Plan: Consumers expects to make capital investments of $25 billion over the next ten years. Over the next five years, Consumers expects to make significant expenditures on infrastructure upgrades and replacements and electric supply projects. While it has a large number of potential investment opportunities that would add customer value, Consumers has prioritized its spending based on the criteria of enhancing public safety, increasing reliability, maintaining affordability for its customers, and advancing its environmental stewardship. Consumers' investment program is expected to result in annual rate-base growth of six to eight percent. This rate-base growth, together with cost-control measures, should allow Consumers to maintain affordable customer prices. 59

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Table of Contents Presented in the following illustration are planned capital expenditures of $13.2 billion that Consumers expects to make from 2021 through 2025:

[[Image Removed: cms-20201231_g11.jpg]] Of this amount, Consumers plans to spend $10.0 billion over the next five years to maintain and upgrade its gas infrastructure and electric distribution systems in order to enhance safety and reliability, improve customer satisfaction, reduce energy waste on those systems, and facilitate its clean energy transition. The gas infrastructure projects comprise $5.3 billion to sustain deliverability, enhance pipeline integrity and safety, and reduce methane emissions. The electric distribution projects comprise $4.7 billion to strengthen circuits and substations, replace poles, and interconnect clean energy resources. Consumers also expects to spend $2.4 billion for new clean generation, which includes investments in wind, solar, and hydro electric generation resources, and $0.8 billion for other electric supply projects. In response to the COVID­19 pandemic, Consumers has rescheduled some capital investment projects, but has not made any changes to its long-term capital investment program at this time. Regulation: Regulatory matters are a key aspect of Consumers' business, particularly rate cases and regulatory proceedings before the MPSC, which permit recovery of new investments while helping to ensure that customer rates are fair and affordable. Important regulatory events and developments not already discussed are summarized below. •2019 Gas Rate Case: In December 2019, Consumers filed an application with the MPSC seeking an annual rate increase of $245 million, based on a 10.5 percent authorized return on equity and a projected twelve-month period ending September 30, 2021. In May 2020, Consumers reduced its requested annual rate increase to $229 million. In September 2020, the MPSC approved a settlement agreement authorizing an annual rate increase of $144 million, based on a 9.9 percent authorized return on equity. As part of that agreement, Consumers agreed not to file a new gas rate case prior to December 2021. The MPSC also approved the continuation of a revenue decoupling mechanism, which annually reconciles Consumers' actual weather-normalized non-fuel revenues with the revenues approved by the MPSC. 60 -------------------------------------------------------------------------------- Table of Contents •2020 Electric Rate Case: In February 2020, Consumers filed an application with the MPSC seeking an annual rate increase of $244 million, based on a 10.5 percent authorized return on equity and a projected twelve-month period ending December 31, 2021. In July 2020, Consumers reduced its requested annual rate increase to $230 million. In December 2020, the MPSC approved an annual rate increase of $90 million, based on a 9.9 percent authorized return on equity. This increase reflects a $36 million refund to customers of regulatory tax liabilities associated with the remeasurement of Consumers' deferred income taxes as a result of the TCJA; excluding the impacts of this refund, the order resulted in a $126 million increase in annual rates. The order also approved the recovery of $13 million associated with Consumers' deferral of depreciation and property tax expense and the overall rate of return on distribution-related capital investments exceeding certain threshold amounts. Additionally, the order approved the method of recovering amounts earned under the financial compensation mechanism approved by the MPSC in Consumers' IRP. This mechanism allows Consumers to earn a return on payments made under PPAs approved by the MPSC after January 1, 2019. Looking Forward CMS Energy and Consumers will continue to consider the impact on the triple bottom line of people, planet, and profit in their daily operations as well as in their long-term strategic decisions. Consumers will continue to seek fair and timely regulatory treatment that will support its customer-driven investment plan, while pursuing cost-control measures that will allow it to maintain sustainable customer base rates. The Consumers Energy Way is an important means of realizing CMS Energy's and Consumers' purpose of achieving world class performance while delivering hometown service. 61 -------------------------------------------------------------------------------- Table of Contents Results of Operations CMS Energy Consolidated Results of Operations In

Millions, Except Per Share Amounts

Years Ended December 31 2020 2019 2018 Net Income Available to Common Stockholders $ 755 $ 680 $ 657 Basic Earnings Per Average Common Share $ 2.65 $ 2.40 $ 2.33 Diluted Earnings Per Average Common Share $ 2.64 $ 2.39 $ 2.32 In Millions Years Ended December 31 2020 2019 Change 2019 2018 Change Electric utility $ 554 $ 509 $ 45 $ 509 $ 535 $ (26) Gas utility 261 233 28 233 169 64 Enterprises 36 33 3 33 34 (1) EnerBank 58 49 9 49 38 11 Corporate interest and other (154) (144) (10) (144) (119)

(25)

Net Income Available to Common Stockholders $ 755 $ 680 $ 75 $ 680 $ 657 $ 23 62

-------------------------------------------------------------------------------- Table of Contents Presented in the following table are specific after-tax changes to net income available to common stockholders for 2020 versus 2019: In Millions Year Ended December 31, 2019 $ 680 Reasons for the change Consumers electric utility and gas utility Electric sales $ 16 Gas sales

(39)

Electric rate increase, including return on higher renewable capital spending

19

Gas rate increase

105

Lower distribution, transmission, generation, and compression expenses

21

Lower corporate and IT expenses

20

Lower OPEB expenses

19

Lower service restoration costs

16

Gain on sale of electric transmission assets in 2020, net of voluntary gain sharing1

10

Higher depreciation and amortization (36) Higher donations (22) Voluntary revenue refund2 (21) Higher property tax, reflecting higher capital spending

(21)

Absence of 2019 gain on sale of electric transmission assets, net of voluntary gain sharing (13) Other (1) $ 73 Enterprises 3 EnerBank 9 Corporate interest and other (10) Year Ended December 31, 2020 $ 755 1See Note 3, Regulatory Matters and Note 22, Asset Sale and Exit Activities. 2See Note 3, Regulatory Matters. For specific after-tax changes to net income available to common stockholders for 2019 versus 2018, see Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations-Results of Operations-CMS Energy Consolidated Results of Operations, in the Form 10­K for the fiscal year ended December 31, 2019, filed February 6, 2020 . Consumers Electric Utility Results of Operations Presented in the following table are the detailed changes to the electric utility's net income available to common stockholders for 2020 versus 2019 (amounts are presented pre-tax, with the exception of income tax changes): 63

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Table of Contents

In Millions Year Ended December 31, 2019 $ 509 Reasons for the change Electric deliveries1 and rate increases Rate increase, including return on higher renewable capital spending

$ 26 Higher sales due primarily to favorable weather and sales mix, offset partially by lower deliveries to commercial and industrial customers

24

Higher energy waste reduction program revenues 19 Voluntary revenue refund2 (16) Lower other revenues (6) $ 47 Maintenance and other operating expenses Lower service restoration costs

21

Lower corporate and IT expenses

17

Gain on sale of transmission assets in 2020, net of voluntary gain sharing3

14

Lower distribution, transmission, and generation expenses

13

Higher mutual insurance distribution

7

Higher energy waste reduction program costs

(19)

Absence of 2019 gain on sale of transmission assets, net of voluntary gain sharing

(17)

Absence of favorable 2019 litigation settlement

(8)

Retention benefits related to D.E. Karn4

(10)

Voluntary separation plan expenses

(6)

Lower maintenance and other operating expenses

13

25 Depreciation and amortization Increased plant in service, reflecting higher capital spending (26) General taxes Higher property tax, reflecting higher capital spending (12) Other income, net of expenses Lower OPEB expenses 13 Higher donations (19) Higher other income, net of expenses 2 (4) Interest charges (4)

Income taxes Lower tax expense due primarily to research and development tax credits5

7

Higher production tax credits attributable primarily to Cross Winds® Energy Park

7

Higher electric utility pre-tax earnings (7) Lower other income taxes 12 19 Year Ended December 31, 2020 $ 554

1Deliveries to end-use customers were 35.4 billion kWh in 2020 and 36.8 billion kWh in 2019. 2See Note 3, Regulatory Matters.

64 -------------------------------------------------------------------------------- Table of Contents 3See Note 3, Regulatory Matters and Note 22, Asset Sale and Exit Activities. 4See Note 22, Asset Sale and Exit Activities. 5See Note 14, Income Taxes. For detailed changes to the electric utility's net income available to common stockholders for 2019 versus 2018, see Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations-Results of Operations-Consumers Electric Utility Results of Operations, in the Form 10­K for the fiscal year ended December 31, 2019, filed February 6, 2020 . 65 -------------------------------------------------------------------------------- Table of Contents Consumers Gas Utility Results of Operations Presented in the following table are the detailed changes to the gas utility's net income available to common stockholders for 2020 versus 2019 (amounts are presented pre-tax, with the exception of income tax changes): In Millions Year Ended December 31, 2019 $ 233 Reasons for the change Gas deliveries1 and rate increases Rate increase $ 141 Lower sales due primarily to unfavorable weather

(73)

Voluntary revenue refund2

(12)

Disallowance of incremental gas purchased during the Ray Compressor Station fire3

(7)

Lower energy waste reduction program revenues (3) Higher other revenues 20 $ 66 Maintenance and other operating expenses Lower distribution, transmission, and compression expenses

15

Lower corporate and IT expenses

10

Lower energy waste reduction program costs

3

Voluntary separation plan expenses

(4)

Lower maintenance and other operating expenses 3 27 Depreciation and amortization Increased plant in service, reflecting higher capital spending (22) General taxes Higher property tax, reflecting higher capital spending (16) Lower other general taxes 2 (14) Other income, net of expenses Lower OPEB expenses 12 Higher donations (11) Lower other income, net of expenses (4) (3) Interest charges (19) Income taxes Higher gas utility pre-tax earnings

(7)

Lower tax expense due primarily to research and development tax credits4 1 Higher other income taxes (1) (7) Year Ended December 31, 2020 $ 261

1Deliveries to end-use customers were 283 bcf in 2020 and 313 bcf in 2019. 2See Note 3, Regulatory Matters.

66 -------------------------------------------------------------------------------- Table of Contents 3See Note 4, Contingencies and Commitments-Consumers Gas Utility Contingencies. 4See Note 14, Income Taxes. For detailed changes to the gas utility's net income available to common stockholders for 2019 versus 2018, see Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations-Results of Operations-Consumers Gas Utility Results of Operations, in the Form 10­K for the fiscal year ended December 31, 2019, filed February 6, 2020 . Enterprises Results of Operations Presented in the following table are the detailed after-tax changes to the enterprises segment's net income available to common stockholders for 2020 versus 2019: In Millions Year Ended December 31, 2019 $ 33

Reason for the change Higher earnings due primarily to improved receivables management and DIG operations

$ 11

Income tax benefit due to restoring previously sequestered alternative minimum tax credits1

4 Absence of 2019 gain on sale of transmission equipment (12) Year Ended December 31, 2020 $ 36 1See Note 14, Income Taxes. For detailed after-tax changes to the enterprises segment's net income available to common stockholders for 2019 versus 2018, see Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations-Results of Operations-Enterprises Results of Operations, in the Form 10­K for the fiscal year ended December 31, 2019, filed February 6, 2020 . EnerBank Results of Operations Presented in the following table are the detailed after-tax changes to EnerBank's net income available to common stockholders for 2020 versus 2019: In

Millions

Year Ended December 31, 2019 $ 49 Reason for the change Higher earnings due primarily to growth in consumer lending $ 25 Implementation of new credit losses standard1

(16)

Year Ended December 31, 2020 $ 58 1See Note 2, New Accounting Standards. For detailed after-tax changes to EnerBank's net income available to common stockholders for 2019 versus 2018, see Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations-Results of Operations-EnerBank Results of Operations, in the Form 10­K for the fiscal year ended December 31, 2019, filed February 6, 2020 . 67 -------------------------------------------------------------------------------- Table of Contents Corporate Interest and Other Results of Operations Presented in the following table are the detailed after-tax changes to corporate interest and other results for 2020 versus 2019: In Millions Year Ended December 31, 2019 $ (144) Reasons for the change Absence of 2019 accrual for legacy legal obligation $ 22

Income tax benefit due to restoring previously sequestered alternative minimum tax credits1

5 Higher fixed charges due to higher debt (16) Loss on early extinguishment of debt (12)

Absence of 2019 tax benefits recognized as a result of asset sales

(4) Other (5) Year Ended December 31, 2020 $ (154) 1See Note 14, Income Taxes. For detailed after-tax changes to corporate interest and other's net income available to common stockholders for 2019 versus 2018, see Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations-Results of Operations-Corporate Interest and Other Results of Operations, in the

Form 10­K for the fiscal year ended December 31, 2019, filed February 6, 2020 .

68 -------------------------------------------------------------------------------- Table of Contents Cash Position, Investing, and Financing At December 31, 2020, CMS Energy had $185 million of consolidated cash and cash equivalents, which included $17 million of restricted cash and cash equivalents. At December 31, 2020, Consumers had $35 million of consolidated cash and cash equivalents, which included $15 million of restricted cash and cash equivalents. Operating Activities Presented in the following table are specific components of net cash provided by operating activities for 2020 versus 2019: In Millions CMS Energy, including Consumers Year Ended December 31, 2019 $ 1,790 Reasons for the change Higher net income 70 Non­cash transactions1 135

Higher contributions to postretirement benefit plans, primarily to pension plans

(702) Favorable impact of changes in core working capital,2 due primarily to extended payment terms for vendors in 2020 and higher vendor payments in 2019, offset partially by lower customer receipts due to lower electric and gas deliveries 50 Unfavorable impact of changes in other assets and liabilities, due primarily to higher property tax payments, a payment to settle litigation, and higher energy waste reduction spending in excess of collections, offset partially by the absence of 2019 refunds to customers related to the TCJA and self-implemented electric rates (67) Year Ended December 31, 2020 $ 1,276 Consumers Year Ended December 31, 2019 $ 1,601 Reasons for the change Higher net income 73 Non­cash transactions1 194

Higher contributions to postretirement benefit plans, primarily to pension plans

(683) Favorable impact of changes in core working capital,2 due primarily to extended payment terms for vendors in 2020 and higher vendor payments in 2019, offset partially by lower customer receipts due to lower electric and gas deliveries 40 Unfavorable impact of changes in other assets and liabilities, due primarily to higher property tax payments and higher energy waste reduction spending in excess of collections, offset partially by lower income taxes payments to CMS Energy and the absence of 2019 refunds to customers related to the TCJA and self-implemented electric rates (7) Year Ended December 31, 2020 $ 1,218 1Non­cash transactions comprise depreciation and amortization, changes in deferred income taxes and investment tax credits, bad debt expense, and other non­cash operating activities and reconciling adjustments. 2Core working capital comprises accounts receivable, notes receivable, accrued revenue, inventories, accounts payable, and accrued rate refunds. 69 -------------------------------------------------------------------------------- Table of Contents For specific components of net cash provided by operating activities for 2019 versus 2018, see Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations-Cash Position, Investing, and Financing-Operating Activities, in the Form 10­K for the fiscal year ended December 31, 2019, filed February 6, 2020 . Investing Activities Presented in the following table are specific components of net cash used in investing activities for 2020 versus 2019: In Millions CMS Energy, including Consumers Year Ended December 31, 2019 $ (2,816) Reasons for the change Higher capital expenditures (213)

Changes in EnerBank notes receivable, reflecting growth in consumer lending

(256) Lower purchases of notes receivable by EnerBank 326 Higher proceeds from sale of EnerBank notes receivable in 2020 130 Lower proceeds from sale of transmission equipment in 20201 (39) Other investing activities 1 Year Ended December 31, 2020 $ (2,867) Consumers Year Ended December 31, 2019 $ (2,137) Reasons for the change Higher capital expenditures (85) DB SERP investment in note receivable - related party (5) Lower proceeds from sale of transmission equipment in 20201 (19) Year Ended December 31, 2020 $ (2,246) 1See Note 22, Asset Sale and Exit Activities For specific components of net cash used in investing activities for 2019 versus 2018, see Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations-Cash Position, Investing, and Financing-Investing Activities, in the Form 10­K for the fiscal year ended December 31, 2019, filed February 6, 2020 . 70 -------------------------------------------------------------------------------- Table of Contents Financing Activities Presented in the following table are specific components of net cash provided by financing activities for 2020 versus 2019: In Millions CMS Energy, including Consumers Year Ended December 31, 2019 $ 1,008 Reasons for the change Higher debt issuances 1,028 Higher debt retirements (725) Lower borrowings of certificates of deposit at EnerBank (215) Higher repayments under Consumers' commercial paper program (83)

Higher issuances of common stock, primarily the settlement of equity forward sale contracts

241 Higher payments of dividends on common stock (31) Higher debt prepayment costs (51)

Proceeds from the sale of membership interest in VIE to tax equity investor

417 Contribution from noncontrolling interest 31 Other financing activities (1) Year Ended December 31, 2020 $ 1,619 Consumers Year Ended December 31, 2019 $ 508 Reasons for the change Higher debt issuances 961 Higher debt retirements (545) Higher repayments under Consumers' commercial paper program (83) Borrowings from CMS Energy 307 Lower stockholder contribution from CMS Energy (25) Higher payments of dividends on common stock (45) Higher debt prepayment costs (35) Other financing activities, primarily higher debt issuance costs (8) Year Ended December 31, 2020 $ 1,035 For specific components of net cash provided by financing activities for 2019 versus 2018, see Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations-Cash Position, Investing, and Financing-Financing Activities, in the Form 10­K for the fiscal year ended December 31, 2019, filed February 6, 2020 . 71 -------------------------------------------------------------------------------- Table of Contents Capital Resources and Liquidity CMS Energy uses dividends and tax-sharing payments from its subsidiaries and external financing and capital transactions to invest in its utility and non­utility 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 debt covenants and articles of incorporation and potentially by FERC requirements and provisions under the Federal Power Act and the Natural Gas Act. For additional details on Consumers' dividend restrictions, see Item 8. Financial Statements and Supplementary Data-Notes to the Consolidated Financial Statements-Note 5, Financings and Capitalization-Dividend Restrictions. For the year ended December 31, 2020, Consumers paid $637 million in dividends on its common stock to CMS Energy. Consumers uses cash flows generated from operations and external financing transactions, as well as stockholder contributions from CMS Energy, to fund capital expenditures, retire debt, pay dividends, and fund its other obligations. Consumers also uses these sources of funding to contribute to its employee benefit plans. CMS Energy and Consumers expect to have sufficient liquidity to fund their commitments despite potential material uncertainties that may impact their cash management and financing strategies as a result of the COVID­19 pandemic. CMS Energy and Consumers rely on the capital markets to fund their robust capital plan and those markets have faced significant strain. CMS Energy and Consumers have mitigated the potential impact of the pandemic on their liquidity by completing financing transactions and reducing the need for additional external funding. For more information on CMS Energy's and Consumers' financing transactions, see Item 8. Financial Statements and Supplementary Data-Notes to the Consolidated Financial Statements-Note 5, Financings and Capitalization. Barring any sustained market dislocations or disruptions, CMS Energy and Consumers expect to continue to have ready access to the financial and capital markets and will continue to explore possibilities to take advantage of market opportunities as they arise with respect to future funding needs. If access to these markets were to diminish or otherwise become restricted, CMS Energy and Consumers would implement contingency plans to address debt maturities, which could include reduced capital spending. The COVID­19 pandemic is a continually evolving situation and CMS Energy and Consumers cannot predict the ultimate impact it will have on their debt covenants, business, results of operations, financial condition, capital investment program, liquidity, and cash flows. CMS Energy will make a change in method of tax accounting in its 2020 tax return to take advantage of IRS tax guidance that allows certain costs to maintain, replace, or improve electric assets to be deducted as repairs for tax purposes. Under this guidance, the costs can be deducted immediately rather than capitalized and depreciated over a 20-year period. This change will allow CMS Energy to claim accelerated one-time federal tax deductions of approximately $975 million upon initial adoption, with favorable ongoing annual deductions thereafter, placing CMS Energy in a net operating loss carryforward position until 2023. In 2020, CMS Energy entered into an equity offering program under which it may sell shares of its common stock having an aggregate sales price of up to $500 million in privately negotiated transactions, in "at the market" offerings, through forward sales transactions, or otherwise. CMS Energy has entered into forward sales transactions under this program, which allow CMS Energy to either physically settle the contracts by issuing shares of its common stock at the then-applicable forward sale price specified by the agreement or net settle the contracts through the delivery or receipt of cash or 72 -------------------------------------------------------------------------------- Table of Contents shares. CMS Energy may settle the contracts at any time through their maturity dates, and presently intends to physically settle the contracts by delivering shares of its common stock. For more information on these forward sale contracts, see Item 8. Financial Statements and Supplementary Data-Notes to the Consolidated Financial Statements-Note 5, Financings and Capitalization-Issuance of Common Stock. At December 31, 2020, CMS Energy had $532 million of its revolving credit facility available and Consumers had $1.1 billion available under its revolving credit facilities. CMS Energy and Consumers use these credit facilities for general working capital purposes and to issue letters of credit. An additional source of liquidity is Consumers' commercial paper program, which allows Consumers to issue, in one or more placements, up to $500 million in the aggregate in commercial paper notes with maturities of up to 365 days at market interest rates. These issuances are supported by Consumers' revolving credit facilities. While the amount of outstanding commercial paper does not reduce the available capacity of the revolving credit facilities, Consumers does not intend to issue commercial paper in an amount exceeding the available capacity of the facilities. At December 31, 2020, there were no commercial paper notes outstanding under this program. For additional details on CMS Energy's and Consumers' secured revolving credit facilities and commercial paper program, see Item 8. Financial Statements and Supplementary Data-Notes to the Consolidated Financial Statements-Note 5, Financings and Capitalization. Certain of CMS Energy's and Consumers' credit agreements contain covenants that require CMS Energy and Consumers to maintain certain financial ratios, as defined therein. At December 31, 2020, no default had occurred with respect to any financial covenants contained in CMS Energy's and Consumers' credit agreements. CMS Energy and Consumers were each in compliance with these covenants as of December 31, 2020, as presented in the following table: Credit Agreement Limit Actual CMS Energy, parent only Debt to Capital1 < 0.70 to 1.0 0.58 to 1.0 Consumers Debt to Capital2 < 0.65 to 1.0 0.49 to 1.0 1Applies to CMS Energy's revolving credit agreement and term loan credit agreement. In April 2020, amendments to these agreements changed the required financial covenant from a leverage ratio to a capitalization ratio. 2Applies to Consumers' revolving credit agreements and letter of credit agreement. 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's and Consumers' present level of cash and expected cash flows from operating activities, together with access to sources of liquidity, are anticipated to be sufficient to fund the companies' contractual obligations for 2021 and beyond. CMS Energy is also required both by law and by contract to provide financial support, including infusing additional capital, to ensure that EnerBank satisfies mandated capital requirements and has sufficient liquidity to operate. With its self-funding plan, EnerBank has exceeded these requirements historically and exceeded them as of December 31, 2020. In addition, EnerBank has access to contingent funding sources, including the Discount Window and a $50 million uncommitted federal funds line of credit. Each month, EnerBank pledges a subset of its eligible loans to the Federal Reserve to ensure a seamless 73 -------------------------------------------------------------------------------- Table of Contents borrowing capability should the need arise. At December 31, 2020, there were no outstanding borrowings under EnerBank's contingent funding sources. Contractual Obligations: Presented in the following table are CMS Energy's and Consumers' contractual obligations. 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, leases, and other financing. In Millions Payments Due Less Than

One One to Three Three to Five More Than Five December 31, 2020

Total Year Years Years Years CMS Energy, including Consumers Long-term debt $ 15,272 $

1,486 $ 1,748 $ 1,493 $ 10,545 Interest payments on long-term debt

12,563 499 962 880 10,222 Finance leases and other financing 183 36 40 30 77 Operating leases 52 10 6 2 34 AROs 1,971 43 62 50 1,816 Deferred investment tax credit 115 5 10 10 90 Environmental liabilities 118 7 40 19 52 Long-term payables 37 6 23 3 5 Purchase obligations Total PPAs 8,898 1,057 1,522 1,516 4,803 Other1 3,179 1,391 1,136 370 282 Total contractual obligations $ 42,388 $

4,540 $ 5,549 $ 4,373 $ 27,926 Consumers Long-term debt

$ 8,197 $

364 $ 682 $ 363 $ 6,788 Interest payments on long-term debt

6,677 281 559 522 5,315 Finance leases and other financing 183 36 40 30 77 Operating leases 43 8 6 2 27 AROs 1,908 43 62 50 1,753 Deferred investment tax credit 115 5 10 10 90 Environmental liabilities 61 3 32 11 15 Purchase obligations PPAs MCV PPA 2,815 349 698 705 1,063 Palisades PPA 517 398 119 - - Related-party PPAs2 318 58 116 97 47 Other PPAs 5,248 252 589 714 3,693 Total PPAs $ 8,898 $ 1,057 $ 1,522 $ 1,516 $ 4,803 Other1 2,605 1,333 984 284 4 Total contractual obligations $ 28,687 $

3,130 $ 3,897 $ 2,788 $ 18,872

1Long-term contracts for the purchase of commodities and related services, and construction and service agreements. The commodities and related services include natural gas and coal and associated transportation. 2Long-term PPAs from certain affiliates of CMS Enterprises.

74 -------------------------------------------------------------------------------- Table of Contents CMS Energy and Consumers also have recognized non­current liabilities for which the timing of payments cannot be reasonably estimated. These items, which are excluded from the table above, include regulatory liabilities, deferred income taxes, workers' compensation liabilities, accrued liabilities under renewable energy programs, and other liabilities. Retirement benefits are also excluded from the table above. For details related to benefit payments, see Item 8. Financial Statements and Supplementary Data-Notes to the Consolidated Financial Statements-Note 12, Retirement Benefits. Off-Balance-Sheet Arrangements: CMS Energy, Consumers, and certain of their subsidiaries 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. Additionally, CMS Energy has entered into forward sales contracts to sell its common stock in order to invest in its utility and non-utility businesses; as of December 31, 2020, these contracts have an aggregate sales price of $58 million, maturing through 2022. For additional details on the companies' indemnity and guarantee arrangements, see Item 8. Financial Statements and Supplementary Data-Notes to the Consolidated Financial Statements-Note 4, Contingencies and Commitments-Guarantees. For additional details on letters of credit and CMS Energy's forward sales contracts, see Item 8. Financial Statements and Supplementary Data-Notes to the Consolidated Financial Statements-Note 5, Financings and Capitalization. Capital Expenditures: Over the next five years, Consumers expect to make substantial capital investments. Consumers may revise its 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 Consumers' estimated capital expenditures, including lease commitments, for 2021 through 2025: In Billions 2021 2022 2023 2024 2025 Total Consumers Electric utility operations $ 1.4 $ 1.8 $ 1.6 $ 1.5 $ 1.6 $ 7.9 Gas utility operations 1.1 1.2 1.1 1.0 0.9 5.3 Total Consumers $ 2.5 $ 3.0 $ 2.7 $ 2.5 $ 2.5 $ 13.2 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; Item 1A. Risk Factors; Item 8. Financial Statements and Supplementary Data-Notes to the Consolidated Financial Statements-Note 3, Regulatory Matters; and Note 4, Contingencies and Commitments. Consumers Electric Utility Outlook and Uncertainties Clean Energy Plan: In 2019, the MPSC approved the IRP that Consumers filed in 2018, which details its Clean Energy Plan. Through its Clean Energy Plan, Consumers expects to reduce carbon emissions of its owned generation by more than 90 percent from its 2005 levels by 2040 and eliminate the use of coal to generate electricity by 2040. The Clean Energy Plan provides the foundation for Consumers' goal to achieve net-zero carbon emissions from its electric business by 2040. Under this net-zero goal, Consumers plans to eliminate the impact of carbon emissions created by the electricity it generates or purchases for customers. Consumers is required to file a new IRP by June 2021. 75 -------------------------------------------------------------------------------- Table of Contents Specifically, the Clean Energy Plan provides for: •the retirement of the D.E. Karn 1 & 2 coal-fueled generating units, totaling 460 MW, in 2023 •the potential retirement of the J.H. Campbell 1 & 2 coal-fueled generating units, totaling 540 MW, in 2031 or earlier Under the Clean Energy Plan, Consumers will replace the capacity to be retired with: •increased demand response programs •increased energy efficiency •increased renewable energy generation •conservation voltage reduction •increased pumped storage Consumers will competitively bid new capacity and at least 50 percent of the new capacity will be built and owned by third parties; the remainder will be owned and operated by Consumers. In support of its Clean Energy Plan, Consumers issued requests for proposals in September 2019 and July 2020, each to acquire up to 300 MW of new capacity from projects to be operational in Michigan's Lower Peninsula by May 2023. Specifically, Consumers solicited offers to enter into PPAs with or purchase solar generation projects ranging in size from 20 MW to 150 MW and to enter into PPAs with PURPA qualifying facilities up to 20 MW. Any contracts entered into as a result of the request for proposals would be subject to MPSC approval. As a result of the 2019 request for proposals, in December 2020, Consumers entered into a 25-year PPA under which it will purchase 140 MW of renewable capacity, energy, and RECs from a solar generating facility to be constructed in Calhoun County, Michigan. The facility is expected to be operational in 2022. Also, in January 2021, Consumers entered into an agreement to purchase a solar generating facility under development in Michigan, with capacity of up to 150 MW. Consumers expects to take full ownership and begin commercial operation of the project in 2022. Both of these agreements are subject to MPSC approval. Renewable Energy Plan: The 2016 Energy Law raised the renewable energy standard to 15 percent in 2021, with an interim target of 12.5 percent in 2019. Consumers met the interim target for 2019 and demonstrated its compliance in the 2019 renewable energy cost reconciliation that the MPSC approved in February 2021. Consumers is required to submit RECs, which represent proof that the associated electricity was generated from a renewable energy resource, in an amount equal to at least the required percentage of Consumers' electric sales volume each year. Under its renewable energy plan, Consumers expects to meet its renewable energy requirement each year with a combination of newly generated RECs and previously generated RECs carried over from prior years. Under Consumers' renewable energy plan, the MPSC has approved the acquisition of up to 525 MW of new wind generation projects and authorized Consumers to earn a 10.7 percent return on equity on any projects approved by the MPSC. Specifically, the MPSC has approved the following: •purchase and construction of a 150-MW wind generation project in Gratiot County, Michigan; the project became operational in December 2020 •purchase of a wind generation project under development, with capacity of up to 166 MW, in Hillsdale, Michigan; Consumers expects to take full ownership and begin commercial operation of the project in early 2021 76 -------------------------------------------------------------------------------- Table of Contents In December 2020, Consumers entered into an agreement to purchase a wind generation project under development, with capacity of up to 201 MW, in Gratiot County, Michigan. Consumers expects to take full ownership and begin commercial operation of the project in 2022. The agreement is subject to MPSC approval. The MPSC also approved the execution of a 20-year PPA under which Consumers will purchase 100 MW of renewable capacity, energy, and RECs from a 149-MW solar generating facility to be constructed in Calhoun County, Michigan; the facility is expected to be operational in 2022. Electric Customer Deliveries and Revenue: Consumers' electric customer deliveries are seasonal and largely dependent on Michigan's economy. The consumption of electric energy typically increases in the summer months, due primarily to the use of air conditioners and other cooling equipment. In addition, Consumers' electric rates, which follow a seasonal rate design, are higher in the summer months than in the remaining months of the year. As a result of the COVID-19 pandemic, Consumers has delayed implementation of a summer peak time-of-use rate for electric residential customers, originally planned to begin in June 2020. The summer peak time-of-use rate will allow customers to take advantage of lower-cost energy during off-peak times during the summer months. Customers could reduce their electric bills by shifting their consumption from on­peak to off­peak times. The MPSC approved delaying implementation of the summer peak time-of-use rate to 2021, recognizing that more customers may be at home during the pandemic and may not have the same opportunities to manage peak power consumption. In response to the COVID­19 pandemic, Michigan's Governor issued various executive orders requiring all non-essential businesses to close temporarily and Michigan residents to stay home during the period from March 23, 2020 to June 8, 2020. Subsequent executive orders gradually eased restrictions. In October 2020, the Michigan Supreme Court issued an opinion that limits the governor's authority to issue executive orders relating to the COVID-19 pandemic. Subsequently, the Michigan Department of Health and Human Services issued emergency orders maintaining and then increasing restrictions on indoor gatherings. Most recent orders have resulted in stepped-up enforcement of remote work in lieu of in-person work when possible and restrictions on certain entertainment venues and indoor dining at restaurants. Presently, most businesses are now open at limited capacity and with safety measures in place. During the period from April 1, 2020 through December 31, 2020, a period covering the majority of the pandemic to date, weather-normalized electric deliveries were approximately five percent lower than deliveries during the same period in 2019, due mainly to a decline in deliveries to commercial and industrial customers of approximately 13 percent. This decline, however, was offset partially by an increase of approximately seven percent in deliveries to residential customers. Consumers cannot predict the long-term impact of the COVID-19 pandemic. In response to the pandemic, Consumers initially suspended shut-offs of service for non-payment and extended payment protection plans for low-income and senior customers. Consumers slowly began resuming shut-offs of service for non-payment in late July 2020 for commercial and industrial customers and in October 2020 for residential customers. Consumers has experienced and anticipates it will continue to experience increased uncollectible accounts in the near term, but cannot predict the long-term impact of the pandemic on Michigan's economy or its customers. 77 -------------------------------------------------------------------------------- Table of Contents Over the next five years, Consumers expects weather-normalized electric deliveries to remain stable relative to 2020. This outlook reflects the effects of energy waste reduction programs and appliance efficiency standards offset largely by modest growth in electric demand. Actual delivery levels will depend on: •energy conservation measures and results of energy waste reduction programs •weather fluctuations •Michigan's economic conditions, including utilization, expansion, or contraction of manufacturing facilities, population trends, and housing activity Electric ROA: Michigan law allows electric customers in Consumers' service territory to buy electric generation service from alternative electric suppliers in an aggregate amount capped at ten percent of Consumers' sales, with certain exceptions. At December 31, 2020, electric deliveries under the ROA program were at the ten­percent limit. Of Consumers' 1.9 million electric customers, fewer than 300, or 0.02 percent, purchased electric generation service under the ROA program. The 2016 Energy Law established a path to ensure that forward capacity is secured for all electric customers in Michigan, including customers served by alternative electric suppliers under ROA. The new law also authorized the MPSC to ensure that alternative electric suppliers have procured enough capacity to cover their anticipated capacity requirements for the four-year forward period. In 2017, the MPSC issued an order establishing a state reliability mechanism for Consumers. Under this mechanism, beginning June 2018, if an alternative electric supplier does not demonstrate that it has procured its capacity requirements for the four-year forward period, its customers will pay a set charge to the utility for capacity that is not provided by the alternative electric supplier. All alternative electric suppliers have demonstrated that they have procured their capacity requirements through the MISO planning year beginning June 1, 2023. During 2017, the MPSC issued orders finding that it has statutory authority to determine and implement a local clearing requirement, which requires all electric suppliers to demonstrate that a portion of the capacity procured to serve customers during peak demand times is located in the MISO footprint in Michigan's Lower Peninsula. In 2018, the Michigan Court of Appeals issued a decision that the MPSC does not have statutory authority to implement such a requirement for individual alternative electric suppliers. In April 2020, the Michigan Supreme Court issued a unanimous opinion reversing the Court of Appeals' decision and determined that the 2016 Energy Law authorizes the MPSC to implement a local clearing requirement on individual alternative electric suppliers. The Michigan Supreme Court remanded the case to the Court of Appeals to consider a procedural challenge previously undecided by the Court of Appeals; this challenge concerns the process that the MPSC used in 2017 to consider a local clearing requirement and does not affect the substance of the MPSC's authority to implement a local clearing requirement for future planning periods. In April 2020, ABATE filed a motion for rehearing of the Michigan Supreme Court's decision; the Michigan Supreme Court denied ABATE's motion in May 2020. In June 2020, the Michigan Court of Appeals issued a letter resubmitting the case for its consideration of the Michigan Supreme Court's remand of the procedural issue. In December 2020, the Michigan Court of Appeals issued a decision in response to the Michigan Supreme Court's procedural remand upholding the MPSC's procedure for determining capacity obligations of electric providers under the 2016 Energy Law. The Michigan Court of Appeals also held that the 2016 Energy Law's provision for the MPSC to implement a local clearing requirement does not constitute an unlawful delegation of the Michigan Legislature's authority. In September 2020, ABATE and another intervenor filed a complaint against the MPSC in the U.S. District Court for the Eastern District of Michigan challenging the constitutionality of a local clearing requirement. The complaint requests the federal court to issue a permanent injunction prohibiting the MPSC from implementing a local clearing requirement on individual electric providers. In 78 -------------------------------------------------------------------------------- Table of Contents December 2020, Consumers filed a motion to intervene and defend the local clearing requirement in that federal litigation; this motion was granted in January 2021. Electric Rate Matters: Rate matters are critical to Consumers' electric utility business. For additional details on rate matters, see Item 8. Financial Statements and Supplementary Data-Notes to the Consolidated Financial Statements-Note 3, Regulatory Matters and Note 4, Contingencies and Commitments. Depreciation Rate Case: In July 2020, Consumers filed a depreciation case related to Ludington, requesting to increase depreciation expense, and its recovery of that expense, by $17 million annually. In February 2021, the MPSC approved a settlement agreement that decreases depreciation expense by $9 million annually based on December 31, 2019 balances. The new depreciation rates will be reflected in rates determined in Consumers' next-filed electric rate case. PSCR Plan: Consumers submitted its 2021 PSCR plan to the MPSC in September 2020 and, in accordance with its proposed plan, self-implemented the 2021 PSCR charge beginning in January 2021. In January 2021, Consumers filed an amendment to its plan with the MPSC and will self-implement a new 2021 PSCR charge beginning in May 2021. Electric Environmental Outlook: Consumers' operations are subject to various state and federal environmental laws and regulations. Consumers estimates that it will incur capital expenditures of $260 million from 2021 through 2025 to continue to comply with RCRA, the Clean Water Act, the Clean Air Act, and numerous state and federal environmental 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. Air Quality: Multiple air quality regulations apply, or may apply, to Consumers. CSAPR, which became effective in 2015, requires Michigan and many other states to improve air quality by reducing power plant emissions that, according to EPA computer models, contribute to ground-level ozone and fine particle pollution in other downwind states. In 2016, the EPA finalized new ozone season standards for CSAPR, which became effective in 2017. In October 2020, in response to a court-ordered remand due to litigation, the EPA proposed a revised CSAPR rule to reflect updated emission reductions from electric generating units in 12 states, including Michigan. The EPA intends to finalize the rule by March 2021, and has made provisions for program implementation by May 2021, with continued emission reductions through 2024. Consumers is evaluating its emission compliance strategy for existing units based on the proposed number of allowances allocated to Michigan for 2021 through 2024. In 2012, the EPA published emission standards for electric generating units, known as MATS, based on Section 112 of the Clean Air Act. Under MATS, all of Consumers' existing coal-fueled electric generating units were required to add additional controls for hazardous air pollutants. Consumers met the deadline for five coal-fueled units and two oil/gas-fueled units it continues to operate and retired its seven remaining coal-fueled units. In addition, in May 2020, the EPA finalized changes to the supporting analysis used to enact MATS, but did not make any changes to the MATS regulations. These changes do not impact Consumers' MATS compliance strategy because, if the MATS regulations were repealed, Consumers would then be required to comply with the Michigan Mercury Rule, which has similar requirements to MATS. In addition, Consumers must comply with emission limits in its renewable operating permits, which have similar emission requirements to MATS. In 2015, the EPA lowered the NAAQS for ozone. The 2015 ozone NAAQS made it more difficult to construct or modify power plants and other emission sources in areas of the country that have not met the 2015 ozone standard. In 2018, the EPA designated certain areas of Michigan as not meeting the ozone standard. None of Consumers' fossil-fuel-fired generating units are located in these areas. Additionally, 79 -------------------------------------------------------------------------------- Table of Contents the State of Michigan has convened industry workgroups to seek implementation and control strategy ideas for statewide compliance of the 2015 ozone standard. In August 2020, the EPA proposed to retain the 2015 NAAQS for ozone without revision, and finalized this regulatory decision in December 2020. Consumers does not expect that any litigation involving NAAQS for ozone will have a material adverse impact on its generating assets. Consumers' strategy to comply with air quality regulations, including CSAPR, NAAQS, and MATS, as well as its legal obligations, involved the installation and operation of emission control equipment at some facilities and the suspension of operations at others; however, Consumers continues to evaluate these rules in conjunction with other EPA and EGLE rulemakings, litigation, executive orders, treaties, and congressional action. This evaluation could result in: •a change in Consumers' fuel mix •changes in the types of generating units Consumers may purchase or build in the future •changes in how certain units are used •the retirement, mothballing, or repowering with an alternative fuel of some of Consumers' generating units •changes in Consumers' environmental compliance costs Greenhouse Gases: There have been numerous legislative and regulatory initiatives at the state, regional, national, and international levels that involve the potential regulation of greenhouse gases. Consumers continues to monitor and comment on these initiatives and to follow litigation involving greenhouse gases. In 2015, the EPA finalized new rules pursuant to Section 111(b) of the Clean Air Act to limit carbon dioxide emissions from new electric generating units, as well as modified or reconstructed electric generating units. New coal-fueled units would not be able to meet this limit without installing carbon dioxide control equipment using such methods as carbon capture and sequestration. In 2018, the EPA proposed a revised Section 111(b) regulation to replace the 2015 standard rule limiting carbon dioxide emissions from new electric generating units, citing limited availability and high costs of carbon capture and sequestration equipment as reasons to change the 2015 rule. The revised Section 111(b) regulation would require new coal-fueled generating units to meet a highly efficient steam cycle performance standard. If finalized, Consumers does not expect this proposal to change its existing environmental strategy. In 2019, the EPA finalized the Affordable Clean Energy rule. The rule requires individual states to evaluate coal­fueled power plants for heat­rate improvements that could increase overall plant efficiency. The evaluations to be performed by the State of Michigan may require Consumers to make heat-rate improvements at its J.H. Campbell plant beginning in the mid­2020s. However, the D.C. Circuit Court of Appeals vacated and remanded this rule to the EPA in January 2021. Consumers cannot evaluate the potential impact of the remand until the EPA acts and any additional appeals are extinguished. In 2015, a group of 195 countries, including the U.S., finalized the Paris Agreement, which governs carbon dioxide reduction measures beginning in 2020. While the U.S. withdrew from the Paris Agreement, it has taken the necessary steps to rejoin the Paris Agreement in 2021. At this time, Consumers does not expect any adverse changes to its environmental strategy as a result of these events. In September 2020, Michigan's Governor signed an executive order creating the Michigan Healthy Climate Plan, which outlines goals for Michigan to achieve economy-wide net-zero greenhouse gas emissions and to be carbon neutral by 2050. The executive order aims for a 28-percent reduction below 2005 levels of greenhouse gas emissions by 2025. Consumers has already surpassed the 28-percent reduction milestone for its owned electric generation and previously announced, in February 2020, a goal 80 -------------------------------------------------------------------------------- Table of Contents of achieving net-zero carbon emissions from its electric business by 2040. The order directs EGLE to develop and oversee an action plan for achieving these goals. In addition, the Governor established the Council on Climate Solutions, an advisory group of key stakeholders to be appointed by the Governor that will assist EGLE in implementing the plan. These goals are aspirational in nature and any changes in law or regulation to achieve these goals would need to be approved by Michigan Legislature or the relevant regulatory agency. The MPSC has requested comments from utilities and other stakeholders on how the Governor's goal should be incorporated into future IRP filings. Consumers does not expect any adverse changes to its environmental strategy as a result of these events. While Consumers cannot predict the outcome of changes in U.S. policy or of other legislative or regulatory initiatives involving the potential regulation of greenhouse gases, it intends to continue to move forward with its Clean Energy Plan, its present net-zero carbon reduction goal, and its emphasis on supply diversity. Consumers will continue to monitor regulatory and legislative activity and related litigation regarding greenhouse gas emissions standards that may affect electric generating units. Increased frequency of severe weather events, including those due to climate change, could materially impact Consumers' facilities, energy sales, and results of operations. Consumers is unable to predict these events or their financial impact; however, Consumers evaluates the potential physical impacts of climate change on its operations, including increased storm activity, increased rainfall, and higher lake and river levels. Consumers is taking steps to mitigate these risks as appropriate. Litigation, international treaties, executive orders, federal laws and regulations (including regulations by the EPA), and state laws and regulations, if enacted or ratified, could ultimately require Consumers to replace equipment, install additional emission control equipment, purchase emission allowances or credits, curtail operations, arrange for alternative sources of supply, mothball or retire facilities that generate certain emissions, pursue energy efficiency or demand response measures more swiftly, 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. CCRs: In 2015, the EPA published a final rule regulating CCRs under RCRA. The final rule adopts minimum standards for beneficially reusing and disposing of non­hazardous CCRs. The rule establishes new minimum requirements for site location, groundwater monitoring, flood protection, storm water design, fugitive dust control, and public disclosure of information, including any groundwater protection standard exceedances. The rule also sets out conditions under which CCR units would be forced to cease receiving CCR and non­CCR wastewater and initiate closure based on the inability to achieve minimum safety standards, meet a location standard, or meet minimum groundwater standards. Consumers has aligned with EGLE on closure plans for each of its unlined ash ponds to ensure coordination between federal and state requirements. The unlined ash ponds have ceased operation and, where applicable, have been replaced with double-lined ash ponds or concrete tanks. Significant closure work has been completed at the remaining ash ponds. Due to litigation, many aspects of the 2015 CCR rule have been remanded to the EPA, which has resulted in various new rulemakings. These new rulemakings are now in litigation. Continued litigation will add uncertainty around requirements for compliance and state permit programs. Separately, Congress passed legislation in 2016 allowing participating states to develop permitting programs for CCRs under RCRA. In 2018, the Michigan Legislature adopted a permitting program, which requires the EPA's authorization. This program should reduce costly, duplicative oversight over CCRs and provide local oversight to CCR issues unique to Michigan. In April 2020, EGLE submitted a regulatory package for Michigan's permit program to the EPA for its review. Federal rulemaking challenges may delay EPA approval of the Michigan permitting program. 81 -------------------------------------------------------------------------------- Table of Contents Consumers has aligned with EGLE on closure plans for all of its coal ash disposal sites, including those subject to the EPA's 2015 CCR rule, and adjusted its recorded ARO accordingly. Consumers has historically been authorized to recover in electric rates costs related to coal ash disposal sites. Water: Multiple water-related regulations apply, or may apply, to Consumers. The EPA regulates cooling water intake systems of existing electric generating plants under Section 316(b) of the Clean Water Act and the corresponding rules that were revised in 2014. The rules seek to reduce alleged harmful impacts on aquatic organisms, such as fish. In 2018, Consumers submitted to EGLE for approval all required studies and recommended plans to comply with Section 316(b), but has not yet received final approval. In 2015, the EPA released its final effluent limitation guidelines for steam electric generating plants. These guidelines, which are presently being litigated, set stringent new requirements for the discharge from electric generating units into surface waters. The EPA published a final rule in October 2020, with an effective date of December 2020, revising the 2015 guidelines related to the discharge of certain wastewater streams from electric generating units. The rule also allows for extension of the compliance deadline from the end of 2023 to the end of 2025, upon approval by EGLE through the NPDES permitting process. Consumers does not expect any adverse changes to its environmental strategy as a result of these revisions to the rule. In recent years, the EPA and the U.S. Army Corps of Engineers have proposed rules redefining "Waters of the United States," which defines the scope of federal jurisdiction under the Clean Water Act, and other changes to the Clean Water Act regulations. For example, the EPA recently finalized a rule repealing the 2015 definition of "Waters of the United States" and, in January 2020, released a rule with its new definition. The new definition narrows the scope of federal jurisdiction and reduces the frequency of dual jurisdiction in states with authority to regulate the same waters; Michigan is one such state. Consumers does not expect adverse changes to its environmental strategy as a result of the new definition, which is presently being litigated in multiple jurisdictions. Many of Consumers' facilities maintain NPDES permits, which are renewed every five years and are vital to the facilities' operations. Failure of EGLE to renew any NPDES permit, a successful appeal against a permit, a change in the interpretation or scope of NPDES permitting, or onerous terms contained in a permit could have a significant detrimental effect on the operations of a facility. Other Matters: Other electric environmental matters could have a material impact on Consumers' outlook. For additional details on other electric environmental matters, see Item 8. Financial Statements and Supplementary Data-Notes to the Consolidated Financial Statements-Note 4, Contingencies and Commitments-Consumers Electric Utility Contingencies-Electric Environmental Matters. Retention Incentive Program: In October 2019, Consumers announced a retention incentive program to ensure necessary staffing at the D.E. Karn generating complex through the anticipated retirement of the coal-fueled generating units. Based on the number of employees that have chosen to participate, the aggregate cost of the program through 2023 is estimated to be $35 million. Consumers expects to recognize $8 million of retention benefit costs in 2021; this expense will be deferred as a regulatory asset. In its order in Consumers' 2020 electric rate case, the MPSC approved deferred accounting treatment for these costs. For additional details on this program, see Note 22, Asset Sale and Exit Activities. 82 -------------------------------------------------------------------------------- Table of Contents Consumers Gas Utility Outlook and Uncertainties Gas Deliveries: Consumers' gas customer deliveries are seasonal. The peak demand for natural gas typically occurs in the winter due to colder temperatures and the resulting use of natural gas as heating fuel. The impact of the COVID-19 pandemic on weather-normalized gas deliveries during 2020 was not material. Consumers has experienced and anticipates it will continue to experience increased uncollectible accounts in the near term, but cannot predict the long-term impact of the pandemic on Michigan's economy or its customers. Over the next five years, Consumers expects weather-normalized gas deliveries to remain stable relative to 2020. This outlook reflects modest growth in gas demand offset by the predicted effects of energy efficiency and conservation. Actual delivery levels from year to year may vary from this expectation as a result of: •weather fluctuations •use by power producers •availability and development of renewable energy sources •gas price changes •Michigan economic conditions, including population trends and housing activity •the price of competing energy sources or fuels •energy efficiency and conservation impacts Gas Rate Matters: Rate matters are critical to Consumers' gas utility business. For additional details on rate matters, see Item 8. Financial Statements and Supplementary Data-Notes to the Consolidated Financial Statements-Note 3, Regulatory Matters and Note 4, Contingencies and Commitments. GCR Plan: Consumers submitted its 2021-2022 GCR plan to the MPSC in December 2020 and, in accordance with its proposed plan, expects to self-implement the 2021-2022 GCR charge beginning in April 2021. Gas Pipeline and Storage Integrity and Safety: In October 2019, PHMSA published a final rule that expands federal safety standards for gas transmission pipelines. To comply with the rule, Consumers will incur increased capital costs to install and remediate pipelines as well as increased operating and maintenance costs to expand inspections, maintenance, and monitoring of its existing pipelines. The requirements in the regulation took effect July 1, 2020, with various implementation phases over numerous years. In February 2020, PHMSA finalized an interim rule it had published in 2016; this rule established minimum federal safety standards for underground natural gas storage facilities. To comply with the rule, Consumers incurred increased capital and operating and maintenance costs to expand inspections, maintenance, and monitoring of its underground gas storage facilities. Although associated capital or operating and maintenance costs relating to these regulations could be material and cost recovery cannot be assured, Consumers expects to recover such costs and capital expenditures in rates consistent with the recovery of other reasonable costs of complying with laws and regulations. Consumers will continue to monitor gas safety regulations and continue implementation of the American Petroleum Institute's Recommended Practice 1173, Pipeline Safety Management Systems. This program minimizes gas system asset- and performance-related risks by ensuring that there are policies, procedures, work instructions, forms, and records in place to streamline adoption and deployment of any existing or future regulations. 83 -------------------------------------------------------------------------------- Table of Contents Gas Environmental Outlook: Consumers expects to incur response activity costs at a number of sites, including 23 former MGP sites. For additional details, see Item 8. Financial Statements and Supplementary Data-Notes to the Consolidated Financial Statements-Note 4, Contingencies and Commitments-Consumers Gas Utility Contingencies-Gas Environmental Matters. Greenhouse Gases: Consumers is making voluntary efforts to reduce its gas utility's methane emissions. In 2019, Consumers released its Methane Reduction Plan, which set a goal of net-zero methane emissions from its natural gas delivery system by 2030. Under its Methane Reduction Plan, Consumers plans to reduce methane emissions from its system by about 80 percent by accelerating the replacement of aging pipe, rehabilitating or retiring outdated infrastructure, and adopting new technologies and practices. The remaining emissions will be offset by purchasing and/or producing renewable natural gas. In September 2020, Michigan's Governor signed an executive order creating the Michigan Healthy Climate Plan, which outlines goals for Michigan to achieve economy-wide net-zero greenhouse gas emissions and to be carbon neutral by 2050. The executive order aims for a 28-percent reduction below 2005 levels of greenhouse gas emissions by 2025. These new goals could have an impact on Consumers' gas business over the long term. For additional details on the executive order, see Consumers Electric Utility Outlook and Uncertainties-Electric Environmental Outlook. There is increasing interest at the federal, state, and local levels involving potential regulation of greenhouse gases or its sources. Such regulation, if adopted, may involve requirements to reduce methane emissions from Consumers' gas utility operations and carbon dioxide emissions from natural gas customer use. No such measures apply to Consumers at this time. Consumers continues to monitor these initiatives and comment as appropriate. Consumers cannot predict the impact of any potential future legislation or regulation on its gas utility. Consumers Electric Utility and Gas Utility Outlook and Uncertainties Energy Waste Reduction Plan: The 2016 Energy Law authorized incentives for demand response programs and expanded existing incentives for energy efficiency programs, referring to the combined initiatives as energy waste reduction programs. The 2016 Energy Law: •extended the requirement to achieve annual reductions of 1.0 percent in customers' electricity use through 2021 and 0.75 percent in customers' natural gas use indefinitely •removed limits on investments under the program and provided for a higher return on those investments; together, these provisions effectively doubled the financial incentives Consumers may earn for exceeding the statutory targets •established a goal of 35 percent combined renewable energy and energy waste reduction by 2025; Consumers has achieved 25 percent combined renewable energy and energy waste reduction through 2020 Additionally, the MPSC has approved the recovery of demand response costs and an associated financial incentive based on demand response target performance. Under its energy waste reduction plan, Consumers provides its customers with incentives to reduce usage by offering energy audits, rebates and discounts on purchases of highly efficient appliances, and other incentives and programs. The COVID­19 pandemic may impact Consumers' ability to execute energy efficiency programs effectively and, accordingly, could affect Consumers' ability to exceed its statutory savings targets and earn the maximum energy waste reduction incentive for 2021. Consumers cannot predict the ultimate financial impact of the pandemic on its 2021 energy waste reduction incentive. 84 -------------------------------------------------------------------------------- Table of Contents Enterprises Outlook and Uncertainties CMS Energy's primary focus with respect to its enterprises businesses is to maximize the value of generating assets, its share of which represents 1,480 MW of capacity, and to pursue opportunities for the development of renewable generation projects. In July 2020, CMS Enterprises purchased an ownership interest in Aviator Wind, a 525-MW wind generation project in Coke County, Texas. The project was completed and became operational in September 2020. Of the project's 525-MW nameplate capacity, 420 MW has been committed under long-term PPAs. For additional details, see Item 8. Financial Statements and Supplementary Data-Notes to the Consolidated Financial Statements-Note 21, Variable Interest Entities. The enterprises segment's assets may be affected by environmental laws and regulations. The 2015 ozone NAAQS made it more difficult to construct or modify power plants and other emission sources in areas of the country that have not met the 2015 ozone standard. In 2018, the EPA designated certain areas of Michigan as not meeting the ozone standard. The enterprises segment's DIG plant located in Dearborn, Michigan is in one such area and, as a result, would be subject to additional permitting restrictions in the event of any future modifications. For additional details regarding the new ozone NAAQS, see Consumers Electric Utility Outlook and Uncertainties-Electric Environmental Outlook. Trends, uncertainties, and other matters related to the enterprises segment that could have a material impact on CMS Energy's consolidated income, cash flows, or financial position include: •investment in and financial benefits received from renewable energy and energy storage projects •changes in energy and capacity prices •severe weather events and climate change associated with increasing levels of greenhouse gases •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, or practices, or in their interpretation •indemnity and environmental remediation obligations at Bay Harbor, including an inability to renew an NPDES permit •obligations related to a tax claim from the government of Equatorial Guinea •representations, warranties, and indemnities provided by CMS Energy in connection with previous sales of assets For additional details regarding the enterprises segment's uncertainties, see Item 8. Financial Statements and Supplementary Data-Notes to the Consolidated Financial Statements-Note 4, Contingencies and Commitments. EnerBank Outlook and Uncertainties EnerBank is a Utah state-chartered, FDIC-insured industrial bank providing primarily unsecured, fixed-rate installment loans throughout the U.S. to finance home improvements. The carrying value of EnerBank's loan portfolio was $2.9 billion at December 31, 2020. The 12-month rolling average net default rate on loans held by EnerBank was 1.1 percent at December 31, 2020. For additional details regarding EnerBank's loan portfolio, see Item 8. Financial Statements and Supplementary Data-Notes to the Consolidated Financial Statements-Note 8, Notes Receivable. EnerBank's loan portfolio was funded primarily by certificates of deposit of $2.8 billion at December 31, 2020. With its loan portfolio funded by certificates of deposit, EnerBank has not had to rely 85 -------------------------------------------------------------------------------- Table of Contents on access to the financial and capital markets in order to fund loan growth during the COVID-19 pandemic. As a result, EnerBank has experienced market share gains as new customers have transitioned from less financially stable competitors. Accordingly, EnerBank has experienced increased lending growth in recent months and expects this trend to continue during 2021. Over the next five years, EnerBank expects lending growth of approximately seven percent annually. For additional details regarding EnerBank's capital and liquidity, see Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations-Capital Resources and Liquidity In response to the COVID-19 pandemic, and consistent with FDIC guidance, EnerBank offered new payment accommodations for current qualifying customers. EnerBank cannot predict the longer-term impacts of the pandemic, but could experience slower lending growth, higher loan write-offs, and increased loan modifications. Other Outlook and Uncertainties Employee Separation Program: In December 2019, CMS Energy and Consumers announced a voluntary separation program for non-union employees. For the year ended December 31, 2020, CMS Energy and Consumers recorded an after-tax charge of $9 million related to the program, under which 140 employees accepted and were approved for early separation. As a result of the program, CMS Energy and Consumers expect to benefit from future cost savings, as employee staffing levels will be better matched to workload demand, which reflects the companies' ongoing workforce productivity improvements. Union Contracts: The UWUA represents Consumers' operating, maintenance, construction, and customer contact center employees. The USW represents Zeeland plant employees. The UWUA and USW agreements expired and new agreements were ratified in 2020. The new agreements ratified in 2020 provide the following: •three-percent pay increases to operating, maintenance, and construction employees and the same annual increase through 2024 •three-and-a-half-percent pay increases to customer contact center employees •three-percent pay increases to Zeeland Plant employees and the same annual increase through 2024 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 Item 8. Financial Statements and Supplementary Data-Notes to the Consolidated Financial Statements-Note 3, Regulatory Matters and Note 4, Contingencies and Commitments. 86 -------------------------------------------------------------------------------- Table of Contents Critical Accounting Policies and Estimates The following information is important to understand CMS Energy's and Consumers' results of operations and financial condition. For additional accounting policies, see Item 8. Financial Statements and Supplementary Data-Notes to the Consolidated Financial Statements-Note 1, Significant Accounting Policies. 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, stock-based compensation, the effects of regulation, indemnities, contingencies, and AROs. 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. 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 in earnings. Contingencies: CMS Energy and Consumers make judgments regarding the future outcome of various matters that give rise to contingent liabilities. For such matters, they record liabilities when they are considered probable and reasonably estimable, based on all available information. In particular, CMS Energy and Consumers are participating in various environmental remediation projects for which they have recorded liabilities. The recorded amounts represent estimates that may take into account such considerations as the number of sites, the anticipated scope, cost, and timing of remediation work, the available technology, applicable regulations, and the requirements of governmental authorities. For remediation projects in which the timing of estimated expenditures is considered reliably determinable, CMS Energy and Consumers record the liability at its net present value, using a discount rate equal to the interest rate on monetary assets that are essentially risk-free and have maturities comparable to that of the environmental liability. The amount recorded for any contingency may differ from actual costs incurred when the contingency is resolved. For additional details, see Item 8. Financial Statements and Supplementary Data-Notes to the Consolidated Financial Statements-Note 4, Contingencies and Commitments. Derivative Instruments: CMS Energy and Consumers account for certain contracts as derivative instruments. If a contract is a derivative and does not qualify for the normal purchases and sales exception, it is recorded on the consolidated balance sheets at its fair value. At CMS Energy, if the derivative is accounted for as a cash flow hedge, unrealized gains and losses from changes in the fair value of the derivative are recognized in AOCI and subsequently recognized in earnings when the hedged transactions impact earnings. If the derivative is accounted for as a fair value hedge, changes in the fair value of the derivative and changes in the fair value of the hedged item due to the hedged risk are recognized in earnings. For the FTRs at Consumers, changes in fair value are deferred as regulatory assets or liabilities. The criteria used to determine if an instrument qualifies for derivative accounting or for an exception from derivative accounting are complex and often require judgment in application. Changes in business strategies or market conditions, as well as a requirement to apply different interpretations of the derivative accounting literature, could result in changes in accounting for a single contract or groups of contracts, 87 -------------------------------------------------------------------------------- Table of Contents which could have a material impact on CMS Energy's and Consumers' financial statements. For additional details on CMS Energy's and Consumers' derivatives and how the fair values of derivatives are determined, see Item 8. Financial Statements and Supplementary Data-Notes to the Consolidated Financial Statements-Note 6, Fair Value Measurements. 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. For additional details, see Item 8. Financial Statements and Supplementary Data-Notes to the Consolidated Financial Statements-Note 14, Income Taxes. Pension and OPEB: CMS Energy and Consumers provide retirement pension benefits to certain employees under non­contributory DB Pension Plans, and they provide postretirement health and life benefits to qualifying retired employees under an OPEB Plan. 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 •expected long-term rate of return on plan assets •rate of compensation increases •expected 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 costs (credits) and cash contributions through 2023 for the DB Pension Plans and OPEB Plan. Actual future costs and contributions will depend on future investment performance, discount rates, and various factors related to the participants of the DB Pension 88 -------------------------------------------------------------------------------- Table of Contents Plans and OPEB Plan. CMS Energy and Consumers will, at a minimum, contribute to the plans as needed to comply with federal funding requirements. In Millions DB Pension Plans OPEB Plan Cost (Credit) Contribution Cost (Credit) Contribution CMS Energy, including Consumers 2021 $ 17 $ - $ (113) $ - 2022 7 - (113) - 2023 (8) - (107) - Consumers1 2021 $ 19 $ - $ (105) $ - 2022 10 - (105) - 2023 (5) - (99) - 1Consumers' pension and OPEB costs are recoverable through its general ratemaking process. Lowering the expected long-term rate of return on the assets of the DB Pension Plans by 25 basis points would increase estimated pension cost for 2021 by $7 million for both CMS Energy and Consumers. Lowering the PBO discount rates by 25 basis points would increase estimated pension cost for 2021 by $5 million for both CMS Energy and Consumers. Pension and OPEB plan assets are accounted for and disclosed at fair value. Fair value measurements incorporate assumptions that market participants would use in pricing an asset or liability, including assumptions about risk. Development of these assumptions may require judgment. For additional details on postretirement benefits, including the fair value measurements for the assets of the DB Pension Plans and OPEB Plan, see Item 8. Financial Statements and Supplementary Data-Notes to the Consolidated Financial Statements-Note 12, Retirement Benefits. Unbilled Revenues: 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 natural 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. For additional information on unbilled revenues, see Item 8. Financial Statements and Supplementary Data-Notes to the Consolidated Financial Statements-Note 16, Revenue. New Accounting Standards There are no new accounting standards issued but not yet effective that are expected to have a material impact on CMS Energy's or Consumers' consolidated financial statements. Item 7A. Quantitative and Qualitative Disclosures About Market Risk 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 mitigate 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 89 -------------------------------------------------------------------------------- Table of Contents the direction of an executive oversight committee consisting of certain officers and a risk committee consisting of those and other officers and business managers. The following risk sensitivities illustrate the potential loss in fair value, cash flows, or future earnings from financial instruments, 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. Long-Term Debt: CMS Energy and Consumers are exposed to interest-rate risk resulting from issuing fixed-rate and variable-rate debt 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. Presented in the following table is a sensitivity analysis of interest-rate risk on CMS Energy's and Consumers' debt instruments, which includes the effects of interest-rate swaps (assuming an adverse change in market interest rates of ten percent): In Millions December 31 2020 2019 Fixed-rate financing-potential loss in fair value CMS Energy, including Consumers $ 634 $ 558 Consumers 372 355 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 immaterial for both CMS Energy and Consumers at December 31, 2020 and 2019, assuming an adverse change in market interest rates of ten percent. Notes Receivable: CMS Energy is exposed to interest-rate risk resulting from EnerBank's fixed-rate installment loans. EnerBank provides primarily unsecured, fixed-rate installment loans throughout the U.S. to finance home improvements. Presented in the following table is a sensitivity analysis of interest-rate risk on EnerBank's notes receivable, which includes the effects of interest-rate swaps (assuming an adverse change in market interest rates of ten percent): In Millions December 31 2020 2019

Notes receivable-potential loss in fair value $ 77 $ 61

The fair value losses for CMS Energy in the above table could be realized only if EnerBank's loans were sold to other parties. The annual earnings exposure related to variable-rate interest receipts at EnerBank was immaterial at December 31, 2020 and 2019. For additional details on financial instruments, see Item 8. Financial Statements and Supplementary Data-Notes to the Consolidated Financial Statements-Note 7, Financial Instruments. 90

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Table of Contents Item 8. Financial Statements and Supplementary Data Index to Financial Statements

CMS Energy Consolidated Financial Statements 92 Consolidated Statements of Income 92 Consolidated Statements of Comprehensive Income 93 Consolidated Statements of Cash Flows 94 Consolidated Balance Sheets 96 Consolidated Statements of Changes in Equity 98 Consumers Consolidated Financial Statements 100 Consolidated Statements of Income 100 Consolidated Statements of Comprehensive Income 101 Consolidated Statements of Cash Flows 102 Consolidated Balance Sheets 104 Consolidated Statements of Changes in Equity 106 Notes to the Consolidated Financial Statements 107 1: Significant Accounting Policies 107 2: New Accounting Standards 110 3: Regulatory Matters 111 4: Contingencies and Commitments 117 5: Financings and Capitalization 124 6: Fair Value Measurements 131 7: Financial Instruments 134 8: Notes Receivable 135 9: Plant, Property, and Equipment 138 10: Leases and Palisades Financing 142 11: Asset Retirement Obligations 147 12: Retirement Benefits 149 13: Stock-Based Compensation 159 14: Income Taxes 163 15: Earnings Per Share-CMS Energy 167 16: Revenue 168 17: Other Income and Other Expense 172 18: Cash and Cash Equivalents 172 19: Reportable Segments 173 20: Related-Party Transactions-Consumers 177 21: Variable Interest Entities 178 22: Asset Sale and Exit Activities 180 23: Quarterly Financial and Common Stock Information (Unaudited) 181 Reports of Independent Registered Public Accounting Firm 182 CMS Energy 182 Consumers 186 91

-------------------------------------------------------------------------------- Table of Contents CMS Energy Corporation Consolidated Statements of Income In Millions, Except Per Share Amounts Years Ended December 31 2020 2019 2018 Operating Revenue $ 6,680 $ 6,845 $ 6,873 Operating Expenses Fuel for electric generation 375 493 528 Purchased and interchange power 1,492 1,496 1,613 Purchased power - related parties 64 75 81 Cost of gas sold 577 769 836 Maintenance and other operating expenses 1,403 1,448 1,417 Depreciation and amortization 1,048 992 933 General taxes 359 333 303 Total operating expenses 5,318 5,606 5,711 Operating Income 1,362 1,239 1,162 Other Income (Expense) Interest income 4 7 11 Interest income - related parties 7 - - Allowance for equity funds used during construction 6 10 6 Income from equity method investees 5 10 9 Nonoperating retirement benefits, net 118 91 90 Other income 6 4 2 Other expense (62) (13) (48) Total other income 84 109 70 Interest Charges Interest on long-term debt 483 439 412 Interest expense - related parties 12 9 - Other interest expense 68 75 49 Allowance for borrowed funds used during construction (2) (4) (3) Total interest charges 561 519 458 Income Before Income Taxes 885 829 774 Income Tax Expense 133 147 115 Net Income 752 682 659 Income (Loss) Attributable to Noncontrolling Interests (3) 2 2 Net Income Available to Common Stockholders $ 755

$ 680 $ 657

Basic Earnings Per Average Common Share $ 2.65 $ 2.40 $ 2.33 Diluted Earnings Per Average Common Share 2.64 2.39 2.32

The accompanying notes are an integral part of these statements.

92 -------------------------------------------------------------------------------- Table of Contents CMS Energy Corporation Consolidated Statements of Comprehensive Income In Millions Years Ended December 31 2020 2019 2018 Net Income $ 752 $ 682 $ 659

Retirement Benefits Liability Net loss arising during the period, net of tax of $(4), $(3), and $(1)

(15) (7) (4)

Settlement arising during the period, net of tax of $- for all periods

1 - -

Prior service credit adjustment, net of tax of $- for all periods

(1) - (1)

Amortization of net actuarial loss, net of tax of $1 for all periods

5 3 4

Amortization of prior service credit, net of tax of $-, $-, and $(1)

(1) (2) (1)

Derivatives

Unrealized loss on derivative instruments, net of tax of $(2), $(1), and $-

(4) (3) (2) Reclassification adjustments included in net income, net of tax of $- for all periods 2 1 - Other Comprehensive Loss (13) (8) (4) Comprehensive Income 739 674 655

Comprehensive Income (Loss) Attributable to Noncontrolling Interests

(3) 2 2 Comprehensive Income Attributable to CMS Energy $ 742

$ 672 $ 653

The accompanying notes are an integral part of these statements.

93 -------------------------------------------------------------------------------- Table of Contents CMS Energy Corporation Consolidated Statements of Cash Flows In Millions Years Ended December 31 2020 2019 2018 Cash Flows from Operating Activities Net income $ 752 $ 682 $ 659 Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization 1,048 992 933 Deferred income taxes and investment tax credits 170 150 182 Bad debt expense 90 67 54 Other non­cash operating activities and reconciling adjustments (22) (58) 22 Postretirement benefits contributions (712) (10) (252)

Cash provided by (used in) changes in assets and liabilities Accounts and notes receivable and accrued revenue

(12) 45 15 Inventories 28 44 14 Accounts payable and accrued rate refunds 54 (69) 22 Other current and non­current assets and liabilities (120) (53) 54 Net cash provided by operating activities 1,276 1,790 1,703

Cash Flows from Investing Activities Capital expenditures (excludes assets placed under finance lease) (2,317)

(2,104) (2,074) Increase in EnerBank notes receivable (657) (401) (307) Purchase of notes receivable by EnerBank (17) (343) (225) Proceeds from DB SERP investments - - 146 Proceeds from sale of EnerBank notes receivable 197 67 - Proceeds from sale of transmission equipment 58 97 - Cost to retire property and other investing activities (131) (132) (146) Net cash used in investing activities (2,867) (2,816) (2,606) Cash Flows from Financing Activities Proceeds from issuance of debt 3,179 2,151 2,767 Retirement of debt (2,010) (1,285) (1,870) Increase in EnerBank certificates of deposit 416 631 513 Decrease in notes payable (90) (7) (73) Issuance of common stock, net of issuance costs 253 12 41 Payment of dividends on common and preferred stock (467) (436) (407) Debt prepayment costs (59) (8) (36)

Proceeds from the sale of membership interest in VIE to tax equity investor

417 - - Contribution from noncontrolling interest 31 - - Other financing costs (51) (50) (61) Net cash provided by financing activities 1,619 1,008 874

Net Increase (Decrease) in Cash and Cash Equivalents, Including Restricted Amounts

28 (18) (29)

Cash and Cash Equivalents, Including Restricted Amounts, Beginning of Period

157 175 204 Cash and Cash Equivalents, Including Restricted Amounts, End of Period $ 185 $ 157 $ 175 94

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Table of Contents In Millions Years Ended December 31 2020 2019 2018

Other Cash Flow Activities and Non­cash Investing and Financing Activities

Cash transactions Interest paid (net of amounts capitalized) $ 549 $ 498 $ 458 Income taxes paid (refunds received), net (58) (58) (123) Non­cash transactions Capital expenditures not paid 141 170 158

The accompanying notes are an integral part of these statements.

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Table of Contents CMS Energy Corporation Consolidated Balance Sheets ASSETS In Millions December 31 2020 2019 Current Assets Cash and cash equivalents $ 168 $ 140 Restricted cash and cash equivalents 17 17

Accounts receivable and accrued revenue, less allowance of $29 in 2020 and $20 in 2019

863 886 Notes receivable, less allowance of $32 in 2020 and $33 in 2019 275 242 Accounts receivable - related parties 19 17 Inventories at average cost Gas in underground storage 353 399 Materials and supplies 155 140 Generating plant fuel stock 68 66 Deferred property taxes 332 305 Regulatory assets 42 33 Prepayments and other current assets 112 86 Total current assets 2,404 2,331 Plant, Property, and Equipment Plant, property, and equipment, gross 27,907 25,390 Less accumulated depreciation and amortization 7,953 7,360 Plant, property, and equipment, net 19,954 18,030 Construction work in progress 1,085 896 Total plant, property, and equipment 21,039 18,926 Other Non­current Assets Regulatory assets 2,653 2,489 Accounts and notes receivable, less allowance of $91 in 2020 and $- in 2019 2,631 2,281 Investments 70 71 Other 869 739 Total other non­current assets 6,223 5,580 Total Assets $ 29,666 $ 26,837 96

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Table of Contents LIABILITIES AND EQUITY In Millions December 31 2020 2019 Current Liabilities Current portion of long-term debt, finance leases, and other financing $ 1,506 $ 1,130 Notes payable - 90 Accounts payable 671 622 Accounts payable - related parties 7 13 Accrued rate refunds 20 35 Accrued interest 106 104 Accrued taxes 457 437 Regulatory liabilities 151 87 Other current liabilities 156 186 Total current liabilities 3,074 2,704 Non­current Liabilities Long-term debt 13,634 11,951 Non-current portion of finance leases and other financing 56 76 Regulatory liabilities 3,744 3,742 Postretirement benefits 152 674 Asset retirement obligations 553 477 Deferred investment tax credit 115 120 Deferred income taxes 1,863 1,655 Other non­current liabilities 398 383 Total non­current liabilities 20,515 19,078

Commitments and Contingencies (Notes 3 and 4)

Equity

Common stockholders' equity Common stock, authorized 350.0 shares; outstanding 288.9 shares in 2020 and 283.9 shares in 2019

3 3 Other paid-in capital 5,365 5,113 Accumulated other comprehensive loss (86) (73) Retained earnings (accumulated deficit) 214 (25) Total common stockholders' equity 5,496 5,018 Noncontrolling interests 581 37 Total equity 6,077 5,055 Total Liabilities and Equity $

29,666 $ 26,837

The accompanying notes are an integral part of these statements.

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Table of Contents

CMS Energy Corporation Consolidated Statements of Changes in Equity In Millions,

Except Number of Shares in Thousands and Per Share Amounts

Number of Shares Years Ended December 31 2020 2019 2018 2020 2019 2018 Total Equity at Beginning of Period $ 5,055 $ 4,792 $ 4,478

Common Stock

At beginning and end of period 3 3 3 Other Paid-in Capital At beginning of period 283,864 283,374 281,647 5,113 5,088 5,019 Common stock issued 5,609 710 1,554 265 35 59 Common stock repurchased (216) (181) (224) (13) (10) (10) Common stock reissued 12 8 423 1 - 20 Common stock reacquired (329) (47) (26) (1) - - At end of period 288,940 283,864 283,374 5,365 5,113 5,088 Accumulated Other Comprehensive Loss At beginning of period (73) (65) (50) Retirement benefits liability At beginning of period (69) (63) (50) Cumulative effect of change in accounting principle - - (11) Net loss arising during the period (15) (7) (4) Settlement arising during the period 1 - - Prior service credit adjustment (1) - (1) Amortization of net actuarial loss 5 3 4 Amortization of prior service credit (1) (2) (1) At end of period (80) (69) (63) Derivative instruments At beginning of period (4) (2) - Unrealized loss on derivative instruments (4) (3) (2) Reclassification adjustments included in net income 2 1 - At end of period (6) (4) (2) At end of period (86) (73) (65) 98

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Table of Contents

In Millions, Except

Number of Shares in Thousands and Per Share Amounts

Number of Shares Years Ended December 31 2020 2019 2018 2020 2019 2018 Retained Earnings (Accumulated Deficit) At beginning of period (25) (271) (531) Cumulative effect of change in accounting principle (51) - 8 Net income attributable to CMS Energy 755 680 657 Dividends declared on common stock (465) (434) (405) At end of period 214 (25) (271) Noncontrolling Interests At beginning of period 37 37 37 Impact of purchase and consolidation of VIE 101 - - Sale of membership interest in VIE to tax equity investor 417 - - Contribution from noncontrolling interest 31 - - Income (loss) attributable to noncontrolling interests (3) 2 2 Distributions and other changes in noncontrolling interests (2) (2) (2) At end of period 581 37 37 Total Equity at End of Period

$ 6,077 $ 5,055 $ 4,792

Dividends declared per common share

$ 1.63 $ 1.53 $ 1.43

The accompanying notes are an integral part of these statements.

99 -------------------------------------------------------------------------------- Table of Contents Consumers Energy Company Consolidated Statements of Income In Millions Years Ended December 31 2020 2019 2018 Operating Revenue $ 6,189 $ 6,376 $ 6,464 Operating Expenses Fuel for electric generation 286 375 407 Purchased and interchange power 1,454 1,470 1,587 Purchased power - related parties 64 75 83 Cost of gas sold 568 754 819 Maintenance and other operating expenses 1,224 1,275 1,287 Depreciation and amortization 1,023 975 921 General taxes 349 322 295 Total operating expenses 4,968 5,246 5,399 Operating Income 1,221 1,130 1,065 Other Income (Expense) Interest income 3 5 8 Interest and dividend income - related parties 5 5 2 Allowance for equity funds used during construction 6 10 6 Nonoperating retirement benefits, net 112 85 83 Other income 5 3 2 Other expense (43) (13) (30) Total other income 88 95 71 Interest Charges Interest on long-term debt 299 277 276 Interest expense - related parties 12 9 - Other interest expense 11 15 16 Allowance for borrowed funds used during construction (2) (4) (3) Total interest charges 320 297 289 Income Before Income Taxes 989 928 847 Income Tax Expense 173 185 142 Net Income 816 743 705 Preferred Stock Dividends 2 2 2 Net Income Available to Common Stockholder $ 814 $

741 $ 703

The accompanying notes are an integral part of these statements.

100 -------------------------------------------------------------------------------- Table of Contents Consumers Energy Company Consolidated Statements of Comprehensive Income In Millions Years Ended December 31 2020 2019 2018 Net Income $ 816 $ 743 $ 705

Retirement Benefits Liability Net gain (loss) arising during the period, net of tax of $(3), $(3), and $2

(9) (8) 6

Amortization of net actuarial loss, net of tax of $1, $-, and $-

1 1 2

Investments

Unrealized loss on investments, net of tax of $- for all periods

- - (1)

Reclassification adjustments included in net income, net of tax of $- for all periods

- - 1 Other Comprehensive Income (Loss) (8) (7) 8 Comprehensive Income $ 808 $ 736 $ 713

The accompanying notes are an integral part of these statements.

101 -------------------------------------------------------------------------------- Table of Contents Consumers Energy Company Consolidated Statements of Cash Flows In Millions Years Ended December 31 2020 2019 2018 Cash Flows from Operating Activities Net income $ 816 $ 743 $ 705 Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization 1,023 975 921 Deferred income taxes and investment tax credits 177 37 123 Bad debt expense 33 29 29 Other non­cash operating activities and reconciling adjustments (30) (32) 13 Postretirement benefits contributions (690) (7) (242)

Cash provided by (used in) changes in assets and liabilities Accounts and notes receivable and accrued revenue

(46) 8 (26) Inventories 26 40 15 Accounts payable and accrued rate refunds 45 (63) 12 Other current and non-current assets and liabilities (136) (129) (101) Net cash provided by operating activities 1,218 1,601 1,449

Cash Flows from Investing Activities Capital expenditures (excludes assets placed under finance lease) (2,170)

(2,085) (1,822) Proceeds from DB SERP investments - - 106 DB SERP investment in note receivable - related party (5) - (106) Proceeds from sale of transmission equipment 58 77 - Cost to retire property and other investing activities (129) (129) (149) Net cash used in investing activities (2,246) (2,137) (1,971) Cash Flows from Financing Activities Proceeds from issuance of debt 1,954 993 2,106 Retirement of debt (1,086) (541) (1,193) Decrease in notes payable (90) (7) (73) Increase in notes payable - related parties 307 - - Stockholder contribution 650 675 250 Payment of dividends on common and preferred stock (639) (594) (533) Debt prepayment costs (43) (8) (20) Other financing costs (18) (10) (24) Net cash provided by financing activities 1,035 508 513

Net Increase (Decrease) in Cash and Cash Equivalents, Including Restricted Amounts

7 (28) (9)

Cash and Cash Equivalents, Including Restricted Amounts, Beginning of Period

28 56 65 Cash and Cash Equivalents, Including Restricted Amounts, End of Period $ 35 $ 28 $ 56 102

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Table of Contents In Millions Years Ended December 31 2020 2019 2018

Other Cash Flow Activities and Non­cash Investing and Financing Activities

Cash transactions Interest paid (net of amounts capitalized) $ 305 $ 279 $ 287 Income taxes paid 51 132 156 Non­cash transactions Capital expenditures not paid 130 160 143

The accompanying notes are an integral part of these statements.

103 --------------------------------------------------------------------------------

Table of Contents Consumers Energy Company Consolidated Balance Sheets ASSETS In Millions December 31 2020 2019 Current Assets Cash and cash equivalents $ 20 $ 11 Restricted cash and cash equivalents 15 17

Accounts receivable and accrued revenue, less allowance of $29 in 2020 and $20 in 2019

828 827 Accounts and notes receivable - related parties 18 9 Inventories at average cost Gas in underground storage 353 399 Materials and supplies 149 135 Generating plant fuel stock 67 63 Deferred property taxes 332 305 Regulatory assets 42 33 Prepayments and other current assets 68 73 Total current assets 1,892 1,872 Plant, Property, and Equipment Plant, property, and equipment, gross 26,757 24,963 Less accumulated depreciation and amortization 7,844 7,272 Plant, property, and equipment, net 18,913 17,691 Construction work in progress 1,058 879 Total plant, property, and equipment 19,971 18,570 Other Non-current Assets Regulatory assets 2,653 2,489 Accounts receivable 25 29 Accounts and notes receivable - related parties 105 102 Other 753 637 Total other non-current assets 3,536 3,257 Total Assets $ 25,399 $ 23,699 104

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Table of Contents LIABILITIES AND EQUITY In Millions December 31 2020 2019

Current Liabilities Current portion of long-term debt, finance leases, and other financing

$ 384 $ 221 Notes payable - 90 Notes payable - related parties 307 - Accounts payable 636 593 Accounts payable - related parties 7 20 Accrued rate refunds 20 35 Accrued interest 72 67 Accrued taxes 458 481 Regulatory liabilities 151 87 Other current liabilities 104 118 Total current liabilities 2,139 1,712 Non-current Liabilities Long-term debt 7,742 7,048 Non-current portion of finance leases and other financing 56 76 Regulatory liabilities 3,744 3,742 Postretirement benefits 112 622 Asset retirement obligations 530 474 Deferred investment tax credit 115 120 Deferred income taxes 2,094 1,864 Other non-current liabilities 311 304 Total non-current liabilities 14,704 14,250

Commitments and Contingencies (Notes 3 and 4)

Equity

Common stockholder's equity Common stock, authorized 125.0 shares; outstanding 84.1 shares in both periods

841 841 Other paid-in capital 6,024 5,374 Accumulated other comprehensive loss (36) (28) Retained earnings 1,690 1,513 Total common stockholder's equity 8,519 7,700 Cumulative preferred stock, $4.50 series 37 37 Total equity 8,556 7,737 Total Liabilities and Equity $

25,399 $ 23,699

The accompanying notes are an integral part of these statements.

105 -------------------------------------------------------------------------------- Table of Contents Consumers Energy Company Consolidated Statements of Changes in Equity In Millions Years Ended December 31 2020 2019 2018 Total Equity at Beginning of Period $ 7,737 $ 6,920 $ 6,488

Common Stock

At beginning and end of period 841 841 841 Other Paid-in Capital At beginning of period 5,374 4,699 4,449 Stockholder contribution 650 675 250 At end of period 6,024 5,374 4,699 Accumulated Other Comprehensive Loss At beginning of period (28) (21) (12) Retirement benefits liability At beginning of period (28) (21) (24) Cumulative effect of change in accounting principle - - (5) Net gain (loss) arising during the period (9) (8) 6 Amortization of net actuarial loss 1 1 2 At end of period (36) (28) (21) Investments At beginning of period - - 12 Cumulative effect of change in accounting principle - - (12) Unrealized loss on investments - - (1) Reclassification adjustments included in net income - - 1 At end of period - - - At end of period (36) (28) (21) Retained Earnings At beginning of period 1,513 1,364 1,173 Cumulative effect of change in accounting principle - - 19 Net income 816 743 705 Dividends declared on common stock (637) (592) (531) Dividends declared on preferred stock (2) (2) (2) At end of period 1,690 1,513 1,364 Cumulative Preferred Stock At beginning and end of period 37 37 37 Total Equity at End of Period $ 8,556 $ 7,737 $ 6,920

The accompanying notes are an integral part of these statements.

106 -------------------------------------------------------------------------------- Table of Contents CMS Energy Corporation Consumers Energy Company Notes to the Consolidated Financial Statements 1: Significant Accounting Policies 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, EnerBank, 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. Contingencies: CMS Energy and Consumers record estimated liabilities for contingencies on 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 environmental remediation projects in which the timing of estimated expenditures is considered reliably determinable, CMS Energy and Consumers record the liability at its net present value, using a discount rate equal to the interest rate on monetary assets that are essentially risk-free and have maturities comparable to that of the environmental liability. CMS Energy and Consumers expense legal fees as incurred; fees incurred but not yet billed are accrued based on estimates of work performed. Debt Issuance Costs, Discounts, Premiums, and Refinancing Costs: Upon the issuance of long-term debt, CMS Energy and Consumers defer issuance costs, discounts, and premiums and amortize those amounts over the terms of the associated debt. Debt issuance costs are presented as a direct deduction from the carrying amount of long-term debt on the balance sheet. Upon the refinancing of long-term debt, Consumers, as a regulated entity, defers any remaining unamortized issuance costs, discounts, and premiums associated with the refinanced debt and amortizes those amounts over the term of the newly issued debt. For the non­regulated portions of CMS Energy's business, any remaining unamortized issuance costs, discounts, and premiums associated with extinguished debt are charged to earnings. Derivative Instruments: 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 for one or more of the following reasons: •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 •they cannot be net settled due in part to the absence of an active market for the commodity 107 -------------------------------------------------------------------------------- Table of Contents Consumers also uses FTRs to manage price risk related to electricity transmission congestion. An FTR is a financial instrument that entitles its holder to receive compensation or requires its holder to remit payment for congestion-related transmission charges. Consumers accounts for FTRs as derivatives. Additionally, CMS Energy uses interest rate swaps to manage its interest rate risk on certain long-term debt and notes receivable transactions. 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. At CMS Energy, if the derivative is accounted for as a cash flow hedge, unrealized gains and losses from changes in the fair value of the derivative are recognized in AOCI and subsequently recognized in earnings when the hedged transactions impact earnings. If the derivative is accounted for as a fair value hedge, changes in the fair value of the derivative and changes in the fair value of the hedged item due to the hedged risk are recognized in earnings. For the FTRs at Consumers, changes in fair value are deferred as regulatory assets or liabilities. For details regarding CMS Energy's and Consumers' derivative instruments recorded at fair value, see Note 6, Fair Value Measurements. EPS: 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 nonvested stock awards and forward equity sales. CMS Energy computes the effect on potential common stock using the treasury stock method. 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 15, Earnings Per Share-CMS Energy. 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. Investment Tax Credits: Consumers amortizes its investment tax credits over the life of the related property in accordance with regulatory treatment. CMS Energy's non­regulated businesses use the deferral method of accounting for investment tax credits. Under the deferral method, the book basis of the associated assets is reduced by the amount of the credit, resulting in lower depreciation expense over the life of the assets. Furthermore, the tax basis of the assets is reduced by 50 percent of the related credit, resulting in a net deferred tax asset. CMS Energy recognizes the tax benefit of this basis difference as a reduction to income tax expense in the year in which the plant reaches commercial operation. 108 -------------------------------------------------------------------------------- Table of Contents 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 account for RECs and emission allowances as inventory and use the weighted-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 classify these amounts within other assets on their consolidated balance sheets. CMS Energy and Consumers evaluate inventory for impairment as required to ensure that its carrying value does not exceed the lower of cost or net realizable value. MISO Transactions: MISO requires the submission of hourly day-ahead and real-time bids and offers for energy at locations across the MISO region. CMS Energy and Consumers account for MISO transactions on a net hourly basis in each of the real-time and day-ahead markets, netted across all MISO energy market locations. CMS Energy and Consumers record net hourly purchases in purchased and interchange power and net hourly sales in operating revenue on their consolidated statements of income. They record net billing adjustments upon receipt of settlement statements, record accruals for future net purchases and sales adjustments based on historical experience, and reconcile accruals to actual expenses and sales upon receipt of settlement statements. 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 authority for which the taxes are levied. The deferred property tax balance represents the amount of Consumers' accrued property tax that will be recognized over future governmental fiscal periods. Renewable Energy Grant: In 2013, Consumers received a renewable energy cash grant for Lake Winds® Energy Park under Section 1603 of the American Recovery and Reinvestment Tax Act of 2009. Upon receipt of the grant, Consumers recorded a regulatory liability, which Consumers is amortizing over the life of Lake Winds® Energy Park. Consumers presents the amortization as a reduction to maintenance and other operating expenses on its consolidated statements of income. Consumers recorded the deferred income taxes related to the grant as a reduction of the book basis of Lake Winds® Energy Park. Other: For additional accounting policies, see: •Note 8, Notes Receivable •Note 9, Plant, Property, and Equipment •Note 11, Asset Retirement Obligations •Note 12, Retirement Benefits •Note 14, Income Taxes •Note 15, Earnings Per Share-CMS Energy •Note 16, Revenue •Note 18, Cash and Cash Equivalents •Note 21, Variable Interest Entities 109 -------------------------------------------------------------------------------- Table of Contents 2: New Accounting Standards Implementation of New Accounting Standards ASU 2016­13, Measurement of Credit Losses on Financial Instruments: This standard, which was effective on January 1, 2020 for CMS Energy and Consumers, provides new guidance for measuring and recognizing credit losses on financial instruments. The standard applies to financial assets that are not measured at fair value through net income as well as to certain off­balance-sheet credit exposures. CMS Energy and Consumers were required to apply the standard using a modified retrospective approach, under which the initial impacts of the standard are recorded through a cumulative-effect adjustment to beginning retained earnings on the effective date. The standard required an increase to the allowance for loan losses at EnerBank. Prior to the standard, the allowance reflected expected credit losses over a 12­month period, but the new guidance requires the allowance to reflect expected credit losses over the entire life of the loans. As a result, CMS Energy recorded a $65 million increase to its expected credit loss reserves on January 1, 2020, with the offsetting adjustment recorded to retained earnings, net of taxes of $14 million. The standard also requires an increase in the initial provision for loan losses recognized in net income for new loans originated in 2020 and beyond. The adoption of this standard resulted in a $21 million reduction to CMS Energy's income before income taxes for the year ended December 31, 2020. For further information on EnerBank's loans and the related allowance for loan losses see Note 8, Notes Receivable. At Consumers, the standard applies to the allowance for uncollectible accounts, but did not result in any significant changes to the allowance methodology and did not have a material impact on Consumers' consolidated financial statements. ASU 2020-04, Facilitation of the Effects of Reference Rate Reform on Financial Reporting: This standard, which was effective as of March 12, 2020 for CMS Energy and Consumers, provides optional guidance intended to ease the potential burden in accounting for the expected discontinuation of LIBOR as a reference rate in the financial markets. The guidance can be applied to modifications made to certain contracts to replace LIBOR with a new reference rate. The guidance, if elected, will permit entities to treat such modifications as the continuation of the original contract, without any required accounting reassessments or remeasurements. The guidance will also facilitate the continuation of hedge accounting for derivatives that may have to be modified to incorporate a new rate. The guidance is effective through December 31, 2022. CMS Energy and Consumers presently have various contracts that reference LIBOR and they are assessing how this standard may be applied to specific contract modifications. 110 -------------------------------------------------------------------------------- Table of Contents 3: Regulatory Matters Regulatory matters are critical to Consumers. The Michigan Attorney General, ABATE, the MPSC Staff, and certain other parties typically participate in MPSC proceedings concerning Consumers, such as Consumers' rate cases and PSCR and GCR processes. These parties often challenge various aspects of those proceedings, including the prudence of Consumers' policies and practices, and seek cost disallowances and other relief. The parties also have appealed significant MPSC orders. Depending upon the specific issues, the outcomes of rate cases and proceedings, including judicial proceedings challenging MPSC orders or other actions, could negatively affect CMS Energy's and Consumers' liquidity, financial condition, and results of operations. Consumers cannot predict the outcome of these proceedings. There are multiple appeals pending that involve various issues concerning cost recovery from customers, the adequacy of the record of evidence supporting the recovery of Smart Energy investments, and other matters. Consumers is unable to predict the outcome of these appeals. Regulatory Assets and Liabilities Consumers is subject to the actions of the MPSC and FERC and therefore 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 non­regulated businesses. 111 -------------------------------------------------------------------------------- Table of Contents Presented in the following table are the regulatory assets and liabilities on Consumers' consolidated balance sheets: In Millions December 31 End of Recovery or Refund Period 2020 2019 Regulatory assets Current Energy waste reduction plan incentive1 2021 $ 34 $ 33 Deferred capital spending2 2021 6 - Other 2021 2 - Total current regulatory assets $ 42 $ 33

Non-current

Postretirement benefits3 various $ 1,231 $ 1,130 Costs of coal-fueled electric generating units to be retired2 various 678 667 Securitized costs2 2029 221 247 ARO4 various 216 191 MGP sites4 various 120 130 Unamortized loss on reacquired debt4 various 108 70 Energy waste reduction plan incentive1 2022 42 34 Energy waste reduction plan4 various 16 10 Demand response program4 various 10 1 COVID-19 costs accounting deferral4 various 4 - Other various 7 9 Total non-current regulatory assets $ 2,653 $ 2,489 Total regulatory assets $ 2,695 $ 2,522 Regulatory liabilities Current Income taxes, net 2021 $ 105 $ 65 Reserve for customer refunds 2021 28 2 Voluntary transmission asset sale gain share 2021 14 17 Other 2021 4 3 Total current regulatory liabilities $ 151 $ 87 Non-current Cost of removal various $ 2,245 $ 2,126 Income taxes, net various 1,419 1,510 Renewable energy grant 2043 49 52 ARO various 11 26 Renewable energy plan 2028 9 17 Other various 11 11 Total non-current regulatory liabilities $ 3,744 $ 3,742 Total regulatory liabilities $ 3,895 $ 3,829 1These regulatory assets have arisen from an alternative revenue program and are not associated with incurred costs or capital investments. Therefore, the MPSC has provided for recovery without a return. 2The MPSC has historically authorized and Consumers expects the MPSC to authorize a specific return on these regulatory assets. 112 -------------------------------------------------------------------------------- Table of Contents 3This regulatory asset is included in rate base, thereby providing a return. 4These regulatory assets represent incurred costs for which the MPSC has provided, or Consumers expects, recovery without a return on investment. Regulatory Assets Energy Waste Reduction Plan Incentive: The energy waste reduction incentive mechanism 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. In November 2020, the MPSC approved a settlement agreement authorizing Consumers to collect $34 million during 2021 as an incentive for exceeding its statutory savings targets in 2019. Consumers recognized incentive revenue under this program of $34 million in 2019. Consumers also exceeded its statutory savings targets in 2020, achieved certain other goals, and will request the MPSC's approval to collect $42 million, the maximum performance incentive, in the energy waste reduction reconciliation to be filed in 2021. Consumers recognized incentive revenue under this program of $42 million in 2020. Deferred Capital Spending: In January 2019, the MPSC approved a settlement agreement in Consumers' 2018 electric rate case, which provided deferred accounting treatment for distribution-related capital investments exceeding certain threshold amounts. Thus, for actual capital spending above the threshold amounts detailed in the settlement agreement, Consumers has deferred as a regulatory asset the associated depreciation and property tax expense as well as the debt component of the overall rate of return on such spending. Postretirement Benefits: As part of the ratemaking process, the MPSC allows Consumers to recover the costs of postretirement benefits. Accordingly, Consumers defers the net impact of actuarial losses and gains, prior service costs and credits, and settlements associated with postretirement benefits as a regulatory asset or liability. The asset or liability will decrease as the deferred items are amortized and recognized as components of net periodic benefit cost. For details about settlements and the amortization periods, see Note 12, Retirement Benefits. Costs of Coal-fueled Electric Generating Units to be Retired: In June 2019, the MPSC approved the settlement agreement reached in Consumers' IRP, under which Consumers plans to retire the D.E. Karn 1 & 2 coal-fueled electric generating units in 2023. Under Michigan law, electric utilities have been permitted to use highly rated, low-cost securitization bonds to finance the recovery of qualified costs. In 2019, Consumers removed from total plant, property, and equipment an amount representing the projected remaining book value of the two coal-fueled electric generating units upon their retirement, and recorded it as a regulatory asset. Until securitization, the book value of the generating units will remain in rate base and receive full regulatory returns in general rate cases. In December 2020, the MPSC issued a securitization financing order authorizing Consumers to issue securitization bonds in order to finance the recovery of the remaining book value of the two coal-fueled electric generating units upon their retirement. An intervenor has appealed the order, contending that it should not have to pay the securitization surcharge. Securitized Costs: In 2013, the MPSC issued a securitization financing order authorizing Consumers to issue securitization bonds in order to finance the recovery of the remaining book value of seven smaller 113 -------------------------------------------------------------------------------- Table of Contents coal-fueled electric generating units that Consumers retired in 2016 and three smaller natural gas-fueled electric generating units that Consumers retired in 2015. Upon receipt of the MPSC's order, Consumers removed the book value of the ten units from plant, property, and equipment and recorded this amount as a regulatory asset. Consumers is amortizing the regulatory asset over the life of the related securitization bonds, which it issued through a subsidiary in 2014. For additional details regarding the securitization bonds, see Note 5, Financings and Capitalization. ARO: The recovery of the underlying asset investments and related removal and monitoring costs of recorded AROs is approved by the MPSC in depreciation rate cases. Consumers records a regulatory asset and a regulatory liability for timing differences between the recognition of AROs for financial reporting purposes and the recovery of these costs from customers. The recovery period approximates the useful life of the assets to be removed. MGP Sites: Consumers is incurring environmental remediation and other response activity costs at 23 former MGP facilities. The MPSC allows Consumers to recover from its natural gas customers over a ten-year period the costs incurred to remediate the MGP sites. Unamortized Loss on Reacquired Debt: Under regulatory accounting, any unamortized discount, premium, or expense related to debt redeemed with the proceeds of new debt is capitalized and amortized over the life of the new debt. Energy Waste Reduction Plan: The MPSC allows Consumers to collect surcharges from customers to fund its energy waste reduction plan. The amount of spending incurred in excess of surcharges collected is recorded as a regulatory asset and amortized as surcharges are collected from customers over the plan period. The amount of surcharges collected in excess of spending incurred is recorded as a regulatory liability and amortized as costs are incurred. Demand Response Program: In the IRP and in general electric rate cases, the MPSC has approved the recovery of demand response costs. Consumers annually files a reconciliation with the MPSC to review actual demand response costs against amounts approved. The method of recovery of demand response costs will be determined in a future rate case. COVID­19 Costs Accounting Deferral: In April 2020, the MPSC issued an order authorizing Consumers to defer uncollectible accounts expense incurred beginning March 24, 2020 that are in excess of the amount used to set existing rates. Regulatory Liabilities Income Taxes, Net: Consumers records regulatory assets and liabilities to reflect the difference between deferred income taxes recognized for financial reporting purposes and amounts previously reflected in Consumers' rates. This net balance will decrease over the remaining life of the related temporary differences and flow through income tax expense. The majority of the net regulatory liability recorded related to income taxes is associated with plant assets that are subject to normalization, which is governed by the Internal Revenue Code, and will be returned to customers over the remaining book life of the related plant assets, the average of which is 44 years for gas plant assets and 27 years for electric plant assets. For additional details on deferred income taxes, see Note 14, Income Taxes. Reserve for Customer Refunds: In December 2020, the MPSC issued an order authorizing Consumers to refund $28 million voluntarily to utility customers. Consumers is required to submit another filing by the end of February 2021 proposing an appropriate method for making this refund. 114 -------------------------------------------------------------------------------- Table of Contents Voluntary Transmission Asset Sale Gain Share: In October 2020, Consumers completed a sale of the electric utility's remaining transmission equipment to METC. In December 2020, Consumers filed an application with the MPSC requesting approval to share voluntarily half of the gain from the sale with electric utility customers; this application was approved by the MPSC in February 2021. Consumers will share the gain through an offset to additional spending in 2021 or through a bill credit to electric utility customers in 2022. As a result, Consumers deferred $14 million of the gain in December 2020. In September 2019, Consumers completed a sale of a portion of its electric utility's substation transmission equipment to METC. In December 2019, Consumers filed an application with the MPSC requesting approval to share voluntarily half of the gain from the sale with customers; this application was approved by the MPSC in April 2020. As a result, Consumers deferred $17 million of the gain in December 2019 and shared that gain with customers in 2020. Cost of Removal: The MPSC allows Consumers to collect amounts from customers to fund future asset removal activities. This regulatory liability is reduced as costs of removal are incurred. The refund period of this regulatory liability approximates the useful life of the assets to be removed. Renewable Energy Grant: In 2013, Consumers received a $69 million renewable energy grant for Lake Winds® Energy Park, which began operations in 2012. This grant reduces Consumers' cost of complying with Michigan's renewable portfolio standard and, accordingly, reduces the overall renewable energy surcharge to be collected from customers. The regulatory liability recorded for the grant will be amortized over the life of Lake Winds® Energy Park. Renewable Energy Plan: Consumers has collected surcharges to fund its renewable energy plan. Amounts not yet spent under the plan are recorded as a regulatory liability, which is amortized as incremental costs are incurred to operate and depreciate Consumers' renewable generation facilities and to purchase RECs under renewable energy purchase agreements. Incremental costs represent costs incurred in excess of amounts recovered through the PSCR process. Consumers Electric Utility 2020 Electric Rate Case: In February 2020, Consumers filed an application with the MPSC seeking an annual rate increase of $244 million, based on a 10.5 percent authorized return on equity and a projected twelve-month period ending December 31, 2021. In July 2020, Consumers reduced its requested annual rate increase to $230 million. In December 2020, the MPSC approved an annual rate increase of $90 million, based on a 9.9 percent authorized return on equity. This increase reflects a $36 million refund to customers of regulatory tax liabilities associated with the remeasurement of Consumers' deferred income taxes as a result of the TCJA; excluding the impacts of this refund, the order resulted in a $126 million increase in annual rates. The order also approved the recovery of $13 million associated with Consumers' deferral of depreciation and property tax expense and the overall rate of return on distribution-related capital investments exceeding certain threshold amounts. Additionally, the order approved the method of recovering amounts earned under the financial compensation mechanism approved by the MPSC in Consumers' IRP. This mechanism allows Consumers to earn a return equal to Consumer's weighted-average cost of capital on payments made under PPAs approved by the MPSC after January 1, 2019. The order authorizes Consumers to recover $3 million, beginning in January 2021, for incentives earned and to be earned on PPA payments during 2019 through 2021. Consumers accounts for this program as an alternative-revenue program that meets the criteria for recognizing revenue related to the mechanism as payments are made on MPSC-approved PPAs. Consumers recognized revenue under this mechanism of $1 million in 2020. 115 -------------------------------------------------------------------------------- Table of Contents Consumers is also authorized in the order to replace the current net metering tariff with a new distributed generation tariff, pursuant to the 2016 Energy Law. The new distributed generation tariff is consistent with other distributed generation tariffs already approved by the MPSC and will reduce the subsidies paid by non-distributed generation customers under the current net metering program. Consumers Gas Utility 2019 Gas Rate Case: In December 2019, Consumers filed an application with the MPSC seeking an annual rate increase of $245 million, based on a 10.5 percent authorized return on equity and a projected twelve-month period ending September 30, 2021. In May 2020, Consumers reduced its requested annual rate increase to $229 million. In September 2020, the MPSC approved a settlement agreement authorizing an annual rate increase of $144 million, based on a 9.9 percent authorized return on equity, effective October 1, 2020. As part of that agreement, Consumers agreed not to file a new gas rate case prior to December 2021. The MPSC also approved the continuation of a revenue decoupling mechanism, which annually reconciles Consumers' actual weather-normalized non-fuel revenues with the revenues approved by the MPSC. This reconciliation would start in October 2021 and continue until the MPSC resets rates in a subsequent rate case. Additionally, the MPSC authorized Consumers to accelerate: •the refund of a regulatory liability associated with the unprotected, non­property-related excess deferred income taxes resulting from the TCJA; Consumers was previously authorized to refund this through 2029 •the flow-through of certain income tax benefits associated primarily with the cost of removal of gas plant assets placed in service before 1993; Consumers was previously authorized to refund this through 2025 Under the settlement agreement approved by the MPSC, these benefits, which total $84 million, will now be passed through to customers by September 2022. For additional details, see Note 14, Income Taxes. Power Supply Cost Recovery and Gas Cost Recovery The PSCR and GCR ratemaking processes are designed to allow Consumers to recover all of its power supply and 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 PSCR and GCR billing charges monthly in order to minimize the underrecovery or overrecovery amount in the annual reconciliations. Underrecoveries represent probable future revenues that will be recovered from customers; overrecoveries represent previously collected revenues that will be refunded to customers. Presented in the following table are the liabilities for PSCR and GCR overrecoveries reflected on Consumers' consolidated balance sheets: In Millions December 31 2020 2019 Liabilities PSCR overrecoveries $ 5 $ 33 GCR overrecoveries 15 2 Accrued rate refunds $ 20 $ 35 116

-------------------------------------------------------------------------------- Table of Contents PSCR Plans and Reconciliations: In October 2020, the MPSC issued an order in Consumers' 2018 PSCR reconciliation, authorizing recovery of $2.0 billion of power costs and authorizing Consumers to reflect in its 2019 PSCR reconciliation the underrecovery of $28 million. In April 2020, the MPSC issued an order in Consumers' 2019 PSCR plan authorizing the 2019 PSCR charge that Consumers self-implemented beginning in January 2019. In March 2020, Consumers filed its 2019 PSCR reconciliation, requesting full recovery of $1.9 billion of power costs and authorization to reflect in its 2020 PSCR reconciliation the overrecovery of $21 million. Consumers submitted its 2020 PSCR plan to the MPSC in September 2019 and, in accordance with its proposed plan, self-implemented the 2020 PSCR charge beginning in January 2020. GCR Plans and Reconciliations: In September 2020, the MPSC issued an order in Consumers' 2018-2019 GCR reconciliation, authorizing recovery of $0.6 billion of gas costs and authorizing Consumers to reflect in its 2019-2020 GCR reconciliation the underrecovery of $11 million. The MPSC disallowed the recovery of $7 million in incremental gas purchases related to the Ray Compressor Station fire. For additional details, see Note 4, Contingencies and Commitments-Consumers Gas Utility Contingencies. In June 2020, Consumers filed its 2019-2020 GCR reconciliation, requesting full recovery of $0.5 billion of gas costs and authorization to reflect in its 2020-2021 GCR reconciliation the underrecovery of $1 million. In September 2020, the MPSC approved a settlement agreement in Consumers' 2020-2021 GCR plan authorizing the 2020-2021 GCR charge that Consumers self-implemented beginning in April 2020. 4: Contingencies and Commitments CMS Energy and Consumers are involved in various matters that give rise to contingent liabilities. Depending on the specific issues, the resolution of these contingencies could negatively affect CMS Energy's and Consumers' liquidity, financial condition, and results of operations. In their disclosures of these matters, CMS Energy and Consumers provide an estimate of the possible loss or range of loss when such an estimate can be made. Disclosures that state that CMS Energy or Consumers cannot predict the outcome of a matter indicate that they are unable to estimate a possible loss or range of loss for the matter. CMS Energy Contingencies Gas Index Price Reporting Litigation: CMS Energy, along with CMS MST, CMS Field Services, Cantera Natural Gas, Inc., and Cantera Gas Company, were named as defendants in four class action lawsuits filed in Kansas, Missouri, and Wisconsin and one individual lawsuit filed in Kansas; these lawsuits arose as a result of alleged inaccurate natural gas price reporting to publications that report trade information. Allegations included price-fixing conspiracies, restraint of trade, and artificial inflation of natural gas retail prices. In 2016, CMS Energy entities reached a settlement with the plaintiffs in the Kansas and Missouri class action cases for an amount that was not material to CMS Energy. In 2017, the federal district court approved the settlement. In 2019, CMS Energy and the plaintiffs in the remaining Kansas individual lawsuit and the Wisconsin class action lawsuit engaged in settlement discussions and CMS Energy recorded a $30 million liability at December 31, 2019 as the probable estimate to settle the two cases. The parties executed a settlement 117 -------------------------------------------------------------------------------- Table of Contents agreement in the Kansas case in February 2020, and that case is now complete. In the Wisconsin case, a settlement agreement was approved in August 2020 and that case is now complete. Bay Harbor: CMS Land retained environmental remediation obligations for the collection and treatment of leachate at Bay Harbor after selling its interests in the development in 2002. Leachate is produced when water enters into cement kiln dust piles left over from former cement plant operations at the site. In 2012, CMS Land and EGLE finalized an agreement that established the final remedies and the future water quality criteria at the site. CMS Land completed all construction necessary to implement the remedies required by the agreement and will continue to maintain and operate a system to discharge treated leachate into Little Traverse Bay under an NPDES permit, which was valid through September 2020. CMS Land submitted a renewal request for the permit in April 2020. CMS Land is allowed to continue operating under the previous NPDES permit until a response is received from EGLE. At December 31, 2020, CMS Energy had a recorded liability of $45 million for its remaining obligations for environmental remediation. 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. The undiscounted amount of the remaining obligation is $57 million. CMS Energy expects to pay the following amounts for long-term leachate disposal and operating and maintenance costs in each of the next five years: In Millions 2021 2022 2023 2024 2025 CMS Energy Long-term leachate disposal and operating and maintenance costs $ 4 $ 4

$ 4 $ 4 $ 4

CMS Energy's estimate of response activity costs and the timing of expenditures could change if there are changes in circumstances or assumptions used in calculating the liability. 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. Equatorial Guinea Tax Claim: In 2002, CMS Energy sold its oil, gas, and methanol investments in Equatorial Guinea. The government of Equatorial Guinea claims that, in connection with the sale, CMS Energy owes $152 million in taxes, plus substantial penalties and interest that could be up to or exceed the amount of the taxes claimed. In 2015, the matter was proceeding to formal arbitration; however, since then, the government of Equatorial Guinea has stopped communicating. CMS Energy has concluded that the government's tax claim is without merit and will continue to contest the claim, but cannot predict the financial impact or outcome of the matter. An unfavorable outcome could have a material adverse effect on CMS Energy's liquidity, financial condition, and results of operations. Consumers Electric Utility Contingencies Electric Environmental Matters: Consumers' operations are subject to environmental laws and regulations. Historically, Consumers has generally 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. Consumers estimates that its liability for NREPA sites for which it can estimate a range of loss will be between $2 million and $4 million. At December 31, 2020, Consumers had a recorded liability of $2 million, the minimum amount in the range of its estimated probable NREPA liability, as no amount in the range was considered a better estimate than any other amount. 118 -------------------------------------------------------------------------------- Table of Contents Consumers is a potentially responsible party at a number of contaminated sites administered under CERCLA. CERCLA liability is joint and several. In 2010, Consumers received official notification from the EPA that identified Consumers as a potentially responsible party for cleanup of PCBs at the Kalamazoo River CERCLA site. The notification claimed that the EPA has reason to believe that Consumers disposed of PCBs and arranged for the disposal and treatment of PCB-containing materials at portions of the site. In 2011, Consumers received a follow-up letter from the EPA requesting that Consumers agree to participate in a removal action plan along with several other companies for an area of lower Portage Creek, which is connected to the Kalamazoo River. All parties, including Consumers, that were asked to participate in the removal action plan declined to accept liability. 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 known CERCLA sites will be between $3 million and $8 million. Various factors, including the number and creditworthiness of potentially responsible parties involved with each site, affect Consumers' share of the total liability. At December 31, 2020, Consumers had a recorded liability of $3 million for its share of the total liability at these sites, the minimum amount in the range of its estimated probable CERCLA liability, as no amount in the range was considered a better estimate than any other amount. The timing of payments related to Consumers' remediation and other response activities at its CERCLA and NREPA sites is uncertain. Consumers periodically reviews these cost estimates. A change in the underlying assumptions, such as an increase in the number of sites, different remediation techniques, the nature and extent of contamination, and legal and regulatory requirements, could affect its estimates of NREPA and CERCLA 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 part of the PCB material and replaced it with non­PCB material. Consumers has had several communications with the EPA regarding this matter, but cannot predict the financial impact or outcome. MCV PPA: In 2017, the MCV Partnership initiated arbitration against Consumers, asserting a breach of contract associated with the MCV PPA. Under this PPA, Consumers pays the MCV Partnership a fixed energy charge based on Consumers' annual average baseload coal generating plant operating and maintenance cost, fuel inventory, and administrative and general expenses. The MCV Partnership asserts that, under the Clean Air Act, Consumers should have installed pollution control equipment on coal-fueled electric generating units years before they were retired. The MCV Partnership also asserts that Consumers should have installed pollution control equipment earlier on its remaining coal-fueled electric generating units. Additionally, the MCV Partnership claims that Consumers improperly characterized certain costs included in the calculation of the fixed energy charge. In January 2019, an arbitration panel issued an order concluding that the MCV Partnership is not entitled to any damages associated with its claim against Consumers related to the Clean Air Act; the majority of the MCV Partnership's claim, which estimated damages and interest in excess of $270 million, was related to this dismissed claim. In November 2020, the MCV Partnership and Consumers signed a settlement agreement resolving all outstanding disputes between the parties, and filed the settlement and associated agreements with the MPSC for approval. Once those are approved, the parties will dismiss this matter with prejudice. If settlement is not approved, the arbitration panel will issue an order. Consumers believes that the MCV Partnership's claims are without merit, but cannot predict the financial impact or outcome of the matter. Underwater Cables in Straits of Mackinac: Consumers owns certain underwater electric cables in the Straits of Mackinac, which were de-energized and retired in 1990. Consumers was notified that some of 119 -------------------------------------------------------------------------------- Table of Contents these cables were damaged as a result of vessel activity in 2018. Following the notification, Consumers located, inspected, sampled, capped, and returned the damaged retired cables to their original location on the lake bottom, and did not find any substantive evidence of environmental contamination. After collaborating with the State of Michigan, local Native American tribes, and other stakeholders, Consumers submitted a permit application and removal work plan with EGLE and the U.S. Army Corps of Engineers in December 2019 for partial removal of all Consumers-owned cables. In March 2020, EGLE issued a permit for the removal work and, as a result, Consumers recorded an ARO liability of $5 million for the cost to remove partially its cables. Removal work was completed in September 2020. Consumers recovers the cost of recorded AROs through MPSC-approved depreciation rates. Consumers Gas Utility Contingencies Gas Environmental Matters: Consumers expects to incur remediation and other response activity costs at a number of sites under 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, 2020, Consumers had a recorded liability of $56 million for its remaining obligations for these sites. This amount represents the present value of long-term projected costs, using a discount rate of 2.57 percent and an inflation rate of 2.5 percent. The undiscounted amount of the remaining obligation is $61 million. Consumers expects to pay the following amounts for remediation and other response activity costs in each of the next five years: In Millions 2021 2022 2023 2024 2025 Consumers Remediation and other response activity costs $ 3 $ 9 $ 23

$ 10 $ 1

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. Pursuant to orders issued by the MPSC, Consumers defers its MGP-related remediation costs and recovers them from its customers over a ten-year period. At December 31, 2020, Consumers had a regulatory asset of $120 million related to the MGP sites. Consumers estimates that its liability to perform remediation and other response activities at NREPA sites other than the MGP sites could reach $3 million. At December 31, 2020, Consumers had a recorded liability of less than $1 million, the minimum amount in the range of its estimated probable liability, as no amount in the range was considered a better estimate than any other amount. Ray Compressor Station: On January 30, 2019, Consumers experienced a fire at the Ray Compressor Station, which resulted in the Ray Storage Field being off­line or operating at significantly reduced capacity, which negatively affected Consumers' natural gas supply and delivery capacity. This incident, which occurred during the extreme polar vortex weather condition, required Consumers to request voluntary reductions in customer load, to implement contingency gas supply purchases, and to implement a curtailment of natural gas deliveries for industrial and large commercial customers pursuant to Consumers' MPSC curtailment tariff. The curtailment and request for voluntary reductions of customer loads were canceled as of midnight, February 1, 2019. Consumers investigated the cause of the incident, and filed a report on the incident with the MPSC in April 2019. In response, the MPSC issued an order in 120 -------------------------------------------------------------------------------- Table of Contents July 2019, directing Consumers to file additional reports regarding the incident and to include detail of the resulting costs in a future rate proceeding. The compressor station is presently operating at full capacity. In September 2020, the MPSC disallowed the recovery of $7 million in incremental gas purchases related to the fire. In January 2021, the MPSC denied Consumers' petition for a rehearing challenging this disallowance. Consumers will file an appeal of the MPSC's denial with the Michigan Court of Appeals. Consumers could also be subject to disallowances of costs associated with the repair and modification of the Ray Compressor Station. At December 31, 2020, Consumers had incurred capital expenditures of $17 million to restore and modify the compressor station. In May 2020, the MPSC approved an administrative settlement agreement between Consumers and the MPSC Staff, which resulted in a $10,000 civil penalty in connection with the fire. Consumers may also be subject to various claims from impacted customers and claims for damages. At this time, Consumers cannot predict the outcome of these matters or other gas-related incidents and a reasonable estimate of a total loss cannot be made, but they could have a material adverse effect on Consumers' results of operations, financial condition, or liquidity, and could subject Consumers' gas utility to increased regulatory scrutiny. Guarantees Presented in the following table are CMS Energy's and Consumers' guarantees at December 31, 2020: In Millions Guarantee Description Issue Date Expiration Date Maximum Obligation Carrying Amount CMS Energy, including Consumers Indemnity obligations from purchase of VIE1 September 2020 indefinite $ 349 $ - Indemnity obligations from stock and asset sale agreements2 various indefinite 153 2 Guarantee3 July 2011 indefinite 30 - Consumers Guarantee3 July 2011 indefinite $ 30 $ - 1In conjunction with the purchase of its interest in Aviator Wind Equity Holdings, CMS Enterprises assumed certain indemnity obligations that protect the associated tax equity investor against losses incurred as a result of breaches of representations and warranties provided by Aviator Wind Equity Holdings and its subsidiaries. These obligations are generally capped at an amount equal to the tax equity investor's capital contributions plus a specified return, less any distributions and tax benefits it receives, in connection with its membership interest in Aviator Wind. CMS Enterprises would recover 49 percent of any amounts paid to the tax equity investor from the other owner of Aviator Wind Equity Holdings. Additionally, Aviator Wind holds insurance coverage that would partially protect against losses incurred as a result of certain failures to qualify for production tax credits. For further details on CMS Enterprises' ownership interest in Aviator Wind Equity Holdings, see Note 21, Variable Interest Entities. 2These obligations arose from stock and asset sale agreements under which CMS Energy or a subsidiary of CMS Energy indemnified the purchaser for losses resulting from various matters, primarily claims related to taxes. The maximum obligation amount is mostly related to the Equatorial Guinea tax claim discussed in the CMS Energy Contingencies section of this Note. CMS Energy believes the likelihood of material loss to be remote for the indemnity obligations not recorded as liabilities. 121 -------------------------------------------------------------------------------- Table of Contents 3This obligation comprises a guarantee provided by Consumers to the U.S. Department of Energy in connection with a settlement agreement regarding damages resulting from the department's failure to accept spent nuclear fuel from nuclear power plants formerly owned by Consumers. Additionally, in the normal course of business, CMS Energy, Consumers, and certain other subsidiaries of CMS Energy have entered into various agreements containing tax and other indemnity provisions for which they are unable to estimate the maximum potential obligation. The carrying value of these indemnity obligations is $1 million. 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 3, Regulatory Matters, there are certain other lawsuits and administrative proceedings before various courts and governmental agencies, as well as unasserted claims that may result in such proceedings, arising in the ordinary course of business to which CMS Energy, Consumers, and certain other subsidiaries of CMS Energy are parties. These other lawsuits, proceedings, and unasserted claims may involve personal injury, property damage, contracts, environmental matters, federal and state taxes, rates, licensing, employment, and other matters. Further, CMS Energy and Consumers occasionally self-report certain regulatory non­compliance 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 and potential claims will not have a material negative effect on their consolidated results of operations, financial condition, or liquidity. Contractual Commitments Purchase Obligations: Purchase obligations arise from long-term contracts for the purchase of commodities and related services, and construction and service agreements. The commodities and related services include long-term PPAs, natural gas and associated transportation, and coal and associated transportation. Related-party PPAs are between Consumers and certain affiliates of CMS Enterprises. Presented in the following table are CMS Energy's and Consumers' contractual purchase obligations at December 31, 2020 for each of the periods shown: In Millions Payments Due Total 2021 2022 2023 2024 2025 Beyond 2025 CMS Energy, including Consumers Total PPAs $ 8,898 $ 1,057 $ 791 $ 731 $ 784 $ 732 $ 4,803 Other 3,179 1,391 871 265 199 171 282 Consumers PPAs MCV PPA $ 2,815 $ 349 $ 340 $ 358 $ 376 $ 329 $ 1,063 Palisades PPA 517 398 119 - - - - Related-party PPAs 318 58 58 58 58 39 47 Other PPAs 5,248 252 274 315 350 364 3,693 Total PPAs $ 8,898 $ 1,057 $ 791 $ 731 $ 784 $ 732 $ 4,803 Other 2,605 1,333 777 207 154 130 4 122

-------------------------------------------------------------------------------- Table of Contents MCV PPA: Consumers has a PPA with the MCV Partnership giving Consumers the right to purchase up to 1,240 MW of capacity and energy produced by the MCV Facility. The PPA was amended during 2020 and is pending MPSC approval. The amended and restated MCV PPA provides for: •an extension of the termination date from March 2025 to May 2030 •a capacity charge of $10.14 per MWh of available capacity through March 2025 and $5.00 per MWh of available capacity from March 2025 through the termination date of the PPA •a fixed energy charge of $6.30 per MWh for on-peak hours and $6.00 for off-peak hours •a variable energy charge based on the MCV Partnership's cost of production for energy delivered to Consumers •a $5 million annual contribution by the MCV Partnership to a renewable resources program through March 2025 Capacity and energy charges under the MCV PPA were $298 million in 2020, $318 million in 2019, and $353 million in 2018. Palisades PPA: Consumers has a PPA expiring in 2022 with Entergy to purchase virtually all of the capacity and energy produced by Palisades, up to the annual average capacity of 798 MW. For all delivered energy, the Palisades PPA has escalating capacity and variable energy charges. Total capacity and energy charges under the Palisades PPA were $403 million in 2020, $395 million in 2019, and $375 million in 2018. For further details about Palisades, see Note 10, Leases and Palisades Financing. Other PPAs: Consumers has PPAs expiring through 2040 with various counterparties. The majority of the PPAs have capacity and energy charges for delivered energy. In addition, CMS Energy and Consumers account for several of their PPAs as leases. Capacity and energy charges under these PPAs were $327 million in 2020, $336 million in 2019, and $350 million in 2018. See Note 10, Leases and Palisades Financing for more information about CMS Energy's and Consumers' lease obligations. 123 -------------------------------------------------------------------------------- Table of Contents 5: Financings and Capitalization Presented in the following table is CMS Energy's long-term debt at December 31: In Millions Interest Rate (%) Maturity 2020 2019 CMS Energy, including Consumers CMS Energy, parent only Senior notes 5.050 2022 $ - $ 300 3.875 2024 250 250 3.600 2025 250 250 3.000 2026 300 300 2.950 2027 275 275 3.450 2027 350 350 4.700 2043 250 250 4.875 2044 300 300 $ 1,975 $ 2,275 Term loan facility variable 1 2021 200 - Junior subordinated notes2 4.750 2050 500 - 3.750 2050 400 - 5.625 2078 200 200 5.875 2078 280 280 5.875 2079 630 630 $ 2,010 $ 1,110 Total CMS Energy, parent only $ 4,185 $ 3,385 Consumers 8,197 7,322 CMS Enterprises, including subsidiaries Term loan facility variable 3 2025 85 92 EnerBank Certificates of deposit 1.621 4 2021-2028 2,805 2,389 Total principal amount outstanding $ 15,272 $ 13,188 Current amounts (1,486) (1,111) Unamortized discounts (33) (27) Unamortized issuance costs (119) (99) Total long-term debt $ 13,634 $ 11,951 124 -------------------------------------------------------------------------------- Table of Contents 1At December 31, 2020, the interest rate on the balance of this term loan facility was 0.600 percent, based on an interest rate of one-week LIBOR plus 0.500 percent. 2These unsecured obligations rank subordinate and junior in right of payment to all of CMS Energy's existing and future senior indebtedness. 3A subsidiary of CMS Enterprises issued non­recourse debt to finance the acquisition of a wind generation project in Northwest Ohio. The interest rate for the debt is three-month LIBOR plus 1.500 percent through October 2022 and three-month LIBOR plus 1.750 percent thereafter. At December 31, 2020 and 2019, the interest rate was 1.754 percent and 3.445 percent, respectively. The same subsidiary of CMS Enterprises entered into interest rate swaps with the lending banks to fix the interest charges associated with the debt, at a rate of 4.702 percent through October 2022 and 4.952 percent thereafter. Principal and interest payments are made quarterly. For information about the interest rate swaps, see Note 6, Fair Value Measurements. 4The weighted-average interest rate for EnerBank's certificates of deposit was 1.621 percent at December 31, 2020 and 2.445 percent at December 31, 2019. EnerBank's primary deposit product consists of brokered certificates of deposit with varying maturities and having a face value of $1,000. Presented in the following table is Consumers' long-term debt at December 31: 125

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Table of Contents In Millions Interest Rate (%) Maturity 2020 2019 Consumers First mortgage bonds 3.770 2020 $ - $ 100 2.850 2022 - 375 5.300 2022 - 250 0.350 2023 300 - 3.375 2023 325 325 3.125 2024 250 250 3.190 2024 52 52 3.680 2027 100 100 3.390 2027 35 35 3.800 2028 300 300 3.180 2032 100 100 5.800 2035 175 175 3.520 2037 335 335 4.010 2038 215 215 6.170 2040 50 50 4.970 2040 50 50 4.310 2042 263 263 3.950 2043 425 425 4.100 2045 250 250 3.250 2046 450 450 3.950 2047 350 350 4.050 2048 550 550 4.350 2049 550 550 3.750 2050 300 300 3.100 2050 550 550 3.500 2051 575 - 3.860 2052 50 50 4.280 2057 185 185 2.500 2060 525 - 4.350 2064 250 250 variable 1 2069 76 76 variable 1 2070 134 - variable 1 2070 127 - $ 7,897 $ 6,961 Tax-exempt revenue bonds variable 2035 - 35 1.800 2 2049 75 75 $ 75 $ 110 Securitization bonds 3.250 3 2025-2029 4 225 251 Total principal amount outstanding $ 8,197 $ 7,322 Current amounts (364) (202) Unamortized discounts (29) (23) Unamortized issuance costs (62) (49) Total long-term debt $ 7,742 $ 7,048 126

-------------------------------------------------------------------------------- Table of Contents 1The variable-rate bonds bear interest quarterly at a rate of three-month LIBOR minus 0.300 percent, subject to a zero-percent floor (zero percent at December 31, 2020). The holders of these variable-rate bonds may put them to Consumers for redemption on certain dates prior to their stated maturity, including dates within one year of December 31, 2020. 2The interest rate on these tax­exempt revenue bonds will reset on October 1, 2024. 3The weighted-average interest rate for Consumers' securitization bonds issued through its subsidiary, Consumers 2014 Securitization Funding, was 3.250 percent at December 31, 2020 and 3.220 percent at December 31, 2019. 4Principal and interest payments are made semiannually. Financings: Presented in the following table is a summary of major long-term debt issuances during the year ended December 31, 2020: Principal (In Millions) Interest Rate Issuance Date Maturity Date CMS Energy, parent only Term loan facility1 $ 300 variable February February 2021 Junior subordinated notes2 500 4.750 % May June 2050 Junior subordinated notes3 400 3.750 % November December 2050 Total CMS Energy, parent only $ 1,200 Consumers Term loan facility $ 300 variable January January 2021 First mortgage bonds 575 3.500 % March August 2051 First mortgage bonds 525 2.500 % May May 2060 First mortgage bonds 134 variable May May 2070 First mortgage bonds 127 variable October October 2070 First mortgage bonds 300 0.350 % December June 2023 Total Consumers $ 1,961 Total CMS Energy $ 3,161 1In December 2020, CMS Energy repaid $100 million of this facility and, in February 2021, amended the facility by extending its maturity date to November 2021. 2These unsecured obligations rank subordinate and junior in right of payment to all of CMS Energy's existing and future senior indebtedness. On June 1, 2030, and every five years thereafter, the notes will reset to an interest rate equal to the five-year treasury rate plus 4.116 percent. 3These unsecured obligations rank subordinate and junior in right of payment to all of CMS Energy's existing and future senior indebtedness. On December 1, 2030, and every five years thereafter, the notes will reset to an interest rate equal to the five-year treasury rate plus 2.900 percent. 127

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Table of Contents Presented in the following table is a summary of major long-term debt retirements during the year ended December 31, 2020:

Principal (In Millions) Interest Rate Retirement Date Maturity Date CMS Energy, parent only Senior notes1 $ 300 5.050 % December March 2022 Total CMS Energy, parent only $ 300 Consumers First mortgage bonds $ 100 3.770 % April October 2020 First mortgage bonds 250 5.300 % June September 2022 First mortgage bonds 375 2.850 % September May 2022 Term loan facility 300 variable December January 2021 Total Consumers $ 1,025 Total CMS Energy $ 1,325 1CMS Energy retired these senior notes at a premium and recorded a loss on extinguishment of $16 million in other expense on its consolidated statements of income. In July 2020, Consumers purchased, in lieu of redemption, $35 million of variable-rate tax-exempt revenue bonds due April 2035. At December 31, 2020, Consumers held the variable-rate tax-exempt revenue bonds and may remarket the bonds or replace them with debt instruments of an equivalent value. In September 2020, proceeds from the sale of a Class A membership interest in Aviator Wind to a tax equity investor and additional contributions from the Class B membership interest (of which CMS Enterprises owns 51 percent) were used to retire $492 million of debt assumed through the purchase of the VIE. For more information, see Note 21, Variable Interest Entities. First Mortgage Bonds: Consumers secures its first mortgage bonds by a mortgage and lien on substantially all of its property. Consumers' ability to issue first mortgage bonds is restricted by certain provisions in the First Mortgage Bond Indenture and the need for 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: Consumers is required to maintain FERC authorization for financings. Its current authorization terminates on July 31, 2022. Any long-term issuances during the authorization period are exempt from FERC's competitive bidding and negotiated placement requirements. Securitization Bonds: Certain regulatory assets held by Consumers' subsidiary, Consumers 2014 Securitization Funding, collateralize Consumers' securitization bonds. The bondholders have no recourse to Consumers' assets except for those held by the subsidiary that issued the bonds. Consumers collects securitization surcharges to cover the principal and interest on the bonds as well as certain other qualified costs. The surcharges collected are remitted to a trustee and are not available to creditors of Consumers or creditors of Consumers' affiliates other than the subsidiary that issued the bonds. 128 -------------------------------------------------------------------------------- Table of Contents Debt Maturities: At December 31, 2020, the aggregate annual maturities for long-term debt for the next five years, based on stated maturities or earlier put dates, were: In Millions 2021 2022 2023 2024 2025 CMS Energy, including Consumers Long-term debt CMS Energy, parent only $ 200 $ - $ - $ 250 $ 250 Consumers 364 28 654 332 31 CMS Enterprises, including subsidiaries 7 8 9 10 51 EnerBank 915 572 477 325 244 Total CMS Energy $ 1,486 $ 608 $ 1,140 $ 917 $ 576 Consumers Long-term debt $ 364 $ 28 $ 654 $ 332 $ 31 Credit Facilities: The following credit facilities with banks were available at December 31, 2020: In Millions Letters of Credit Expiration Date Amount of Facility Amount Borrowed Outstanding Amount Available CMS Energy, parent only June 5, 20231 $ 550 $ - $ 18 $ 532 CMS Enterprises, including subsidiaries September 25, 20252 $ 39 $ - $ 39 $ - September 30, 20253 18 - 8 10 Consumers4 June 5, 2023 $ 850 $ - $ 7 $ 843 November 19, 2022 250 - 1 249 April 18, 2022 30 - 30 - 1During the year ended December 31, 2020, CMS Energy's average borrowings totaled $1 million with a weighted-average interest rate of 1.888 percent. 2This letter of credit facility is available to Aviator Wind Equity Holdings. For more information regarding the acquisition of Aviator Wind Equity Holdings, see Note 21, Variable Interest Entities. 3Under this facility, $8 million is available solely for the purpose of issuing letters of credit. Obligations under this facility are secured by the collateral accounts with the lending bank. There were no borrowings under this facility during the year ended December 31, 2020. 4Obligations under these facilities are secured by first mortgage bonds of Consumers. During the year ended December 31, 2020, Consumers' average borrowings totaled less than $1 million with a weighted-average interest rate of 1.425 percent. Short-term Borrowings: Under Consumers' commercial paper program, Consumers may issue, in one or more placements, investment-grade commercial paper notes with maturities of up to 365 days at market interest rates. These issuances are supported by Consumers' revolving credit facilities and may have an aggregate principal amount outstanding of up to $500 million. While the amount of outstanding commercial paper does not reduce the available capacity of the revolving credit facilities, Consumers 129 -------------------------------------------------------------------------------- Table of Contents does not intend to issue commercial paper in an amount exceeding the available capacity of the facilities. At December 31, 2020, there were no commercial paper notes outstanding under this program. In December 2020, Consumers renewed a short-term credit agreement with CMS Energy, permitting Consumers to borrow up to $350 million. For more information on the intercompany credit agreement between CMS Energy and Consumers, see Note 20, Related-Party Transactions-Consumers. Dividend Restrictions: At December 31, 2020, payment of dividends by CMS Energy on its common stock was limited to $5.5 billion under provisions of the Michigan Business Corporation Act of 1972. Under the provisions of its articles of incorporation, at December 31, 2020, Consumers had $1.6 billion of unrestricted retained earnings available to pay dividends on its common stock 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, dividends from Consumers on its common stock would not be limited to amounts in Consumers' retained earnings. Any decision by Consumers to pay dividends on its common stock in excess of retained earnings would be based on specific facts and circumstances and would be subject to a formal regulatory filing process. For the year ended December 31, 2020, Consumers paid $637 million in dividends on its common stock to CMS Energy. Capitalization: The authorized capital stock of CMS Energy consists of: •350 million shares of CMS Energy Common Stock, par value $0.01 per share •10 million shares of CMS Energy Preferred Stock, par value $0.01 per share Issuance of Common Stock: In 2018 and 2020, CMS Energy entered into equity offering programs under which it may sell, from time to time, shares of CMS Energy common stock. Under both programs, CMS Energy may sell its common stock in privately negotiated transactions, in "at the market" offerings, through forward sales transactions, or otherwise. During 2018 and 2019, CMS Energy entered into forward sales contracts having an aggregate sales price of $250 million, the maximum allowed under the 2018 program. In 2020, CMS Energy settled the forward contracts under this program by issuing 4,879,022 shares of common stock at a weighted-average price of $48.86 per share, resulting in net proceeds of $238 million. Under the 2020 program, CMS Energy may sell shares of its common stock having an aggregate sales price of up to $500 million. Presented in the following table are details of CMS Energy's forward sales contracts under this program at December 31, 2020: Forward Price Per Share Contract Date Maturity Date Number of Shares Initial December 31, 2020 September 15, 2020 December 31, 2021 846,759 $ 61.04 $ 60.53 December 22, 2020 June 22, 2022 115,595 61.81 61.81 These contracts allow CMS Energy to either physically settle the contracts by issuing shares of its common stock at the then-applicable forward sale price specified by the agreement or net settle the contracts through the delivery or receipt of cash or shares. CMS Energy may settle the contracts at any time through their maturity dates, and presently intends to physically settle the contracts by delivering shares of its common stock. 130 -------------------------------------------------------------------------------- Table of Contents The initial forward price in the forward equity sale contracts includes a deduction for commissions and will be adjusted on a daily basis over the term based on an interest rate factor and decreased on certain dates by certain predetermined amounts to reflect expected dividend payments. No amounts are recorded on CMS Energy's consolidated balance sheets until settlements of the forward equity sale contracts occur. If CMS Energy had elected to net share settle the contracts as of December 31, 2020, CMS Energy would have been required to deliver 6,666 shares. Preferred Stock of Subsidiary: Consumers' preferred stock is traded on the New York Stock Exchange under the symbol CMS-PB. Presented in the following table are details of Consumers' preferred stock at December 31, 2020 and 2019: Optional Redemption Number of Shares Par Value

Price Number of Shares Authorized Outstanding Cumulative, with no mandatory redemption

$ 100 $ 110 7,500,000 373,148 6: 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, 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. 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. 131

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Table of Contents 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 recorded at fair value on a recurring basis:

In Millions CMS Energy, including Consumers Consumers December 31 2020 2019 2020 2019 Assets1 Restricted cash equivalents $ 17 $ 17 $ 15 $ 17 CMS Energy common stock - - - 1 Nonqualified deferred compensation plan assets 23 18 18 14 Derivative instruments 1 1 1 1 Total assets $ 41 $ 36 $ 34 $ 33 Liabilities1 Nonqualified deferred compensation plan liabilities $ 23 $ 18 $ 18 $ 14 Derivative instruments 17 8 - - Total liabilities $ 40 $ 26 $ 18 $ 14 1All assets and liabilities were classified as Level 1 with the exception of derivative contracts, which were classified as Level 2 or Level 3. Restricted Cash Equivalents: Restricted cash equivalents consist of money market funds with daily liquidity. For further details, see Note 18, Cash and Cash Equivalents. Nonqualified Deferred Compensation Plan Assets and Liabilities: The nonqualified deferred compensation plan assets consist of mutual funds, which are valued using the daily quoted net asset values. CMS Energy and Consumers value their nonqualified deferred compensation plan liabilities based on the fair values of the plan assets, as they reflect the amount owed to the plan participants in accordance with their investment elections. CMS Energy and Consumers report the assets in other non­current assets and the liabilities in other non­current 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. CMS Energy's and Consumers' derivatives are classified as Level 2 or Level 3. The derivatives classified as Level 2 are interest rate swaps at CMS Energy, which are valued using market-based inputs. CMS Energy uses interest rate swaps to manage its interest rate risk on certain long­term debt obligations and certain notes receivable at EnerBank. A subsidiary of CMS Enterprises uses floating-to-fixed interest rate swaps to reduce the impact of interest rate fluctuations associated with future interest payments on certain long­term variable-rate debt. The interest rate swaps are accounted for as cash flow hedges of the future variability of interest payments on debt with a notional amount of $85 million at December 31, 2020. Gains or losses on these swaps are initially reported in other comprehensive income (loss) and then, as interest payments are made on the hedged debt, are recognized in earnings within other interest expense on CMS Energy's consolidated statements of income. The amount of losses recorded in other comprehensive loss was $6 million for the 132 -------------------------------------------------------------------------------- Table of Contents year ended December 31, 2020, $4 million for the year ended December 31, 2019 and $2 million for the year ended December 31, 2018. There were no material impacts on other interest expense associated with these swaps during the years presented. The fair value of these swaps recorded in other liabilities on CMS Energy's consolidated balance sheets totaled $9 million at December 31, 2020 and $5 million at December 31, 2019. CMS Energy also has other interest rate swaps that economically hedge interest rate risk on debt, but that do not qualify for cash flow hedge accounting; the amounts associated with these swaps were not material for the years presented. EnerBank uses fixed-to-floating interest rate swaps to manage interest rate risk exposure associated with changes in the fair value of certain long­term fixed­rate loans. The interest rate swaps qualify as fair value hedges of long­term, fixed­rate notes receivable with a notional amount of $134 million at December 31, 2020 and 2019. The fair value of these interest rate swaps recorded in other liabilities was $6 million at December 31, 2020 and $1 million at December 31, 2019. CMS Energy is adjusting the carrying value of the hedged notes receivable for the change in their fair value due to the hedged risk. For the year ended December 31, 2020, CMS Energy recorded a $5 million loss within operating revenue for the change in the fair value of the interest rate swaps and a $5 million gain within operating revenue for the change in the carrying value of the hedged notes receivable notes. Amounts recognized within operating revenue for the year ended December 31, 2019 were immaterial. The majority of derivatives classified as Level 3 are FTRs held by Consumers. Due to the lack of quoted pricing information, Consumers determines the fair value of its FTRs based on Consumers' average historical settlements. There was no material activity within the Level 3 categories of assets and liabilities during the years presented. 133 -------------------------------------------------------------------------------- Table of Contents 7: Financial Instruments Presented in the following table are the carrying amounts and fair values, by level within the fair value hierarchy, of CMS Energy's and Consumers' financial instruments that are not recorded at fair value. The table excludes cash, cash equivalents, short-term financial instruments, and trade accounts receivable and payable whose carrying amounts approximate their fair values. For information about assets and liabilities recorded at fair value and for additional details regarding the fair value hierarchy, see Note 6, Fair Value Measurements. In Millions December 31, 2020 December 31, 2019 Fair Value Fair Value Level Level Carrying Amount Total 1 2 3 Carrying Amount Total 1 2 3 CMS Energy, including Consumers Assets Long-term receivables1 $ 17 $ 17 $ - $ - $ 17 $ 20 $ 20 $ - $ - $ 20 Notes receivable2 2,887 3,248 - - 3,248 2,500 2,652 - - 2,652 Securities held to maturity3 28 29 - 29 - 26 26 - 26 - Liabilities Long-term debt4 15,120 17,512 1,249 14,178 2,085 13,062 14,185 1,197 11,048 1,940 Long-term payables5 33 35 - - 35 30 32 - - 32 Consumers Assets Long-term receivables1 $ 17 $ 17 $ - $ - $ 17 $ 20 $ 20 $ - $ - $ 20 Notes receivable - related party6 107 107 - - 107 103 103 - - 103 Liabilities Long-term debt7 8,106 9,801 - 7,716 2,085 7,250 8,010 - 6,070 1,940 1Includes current portion of long-term accounts receivable of $12 million at December 31, 2020 and $13 million at December 31, 2019. 2Includes current portion of notes receivable of $275 million at December 31, 2020 and $242 million at December 31, 2019. For further details, see Note 8, Notes Receivable. 3These investment securities consist primarily of mortgage-backed securities and Utah Housing Corporation bonds held by EnerBank. There were $1 million of unrealized gains in 2020 and no unrealized gains or losses in 2019. 4Includes current portion of long-term debt of $1.5 billion at December 31, 2020 and $1.1 billion at December 31, 2019. 134 -------------------------------------------------------------------------------- Table of Contents 5Includes current portion of long-term payables of $6 million at December 31, 2020 and $1 million at December 31, 2019. 6Includes current portion of notes receivable - related party of $7 million at December 31, 2020 and 2019. For further details on this note receivable, see Note 8, Notes Receivable. 7Includes current portion of long-term debt of $364 million at December 31, 2020 and $202 million at December 31, 2019. The effects of third-party credit enhancements were excluded from the fair value measurements of long-term debt. The principal amount of CMS Energy's long-term debt supported by third-party credit enhancements was $35 million at December 31, 2019. The entirety of this amount was at Consumers. DB SERP Securities: In 2018, CMS Energy and Consumers sold available-for-sale investment securities held within the DB SERP, receiving proceeds of $142 million, $103 million of which was related to Consumers. 8: Notes Receivable Presented in the following table are details of CMS Energy's and Consumers' notes receivable: In Millions December 31 2020 2019 CMS Energy, including Consumers Current EnerBank notes receivable, net of allowance for loan losses $ 275

$ 242

Non­current

EnerBank notes receivable, net of allowance for loan losses 2,612

2,258 Total notes receivable $ 2,887 $ 2,500 Consumers Current DB SERP note receivable - related party $ 7 $ 7 Non­current DB SERP note receivable - related party 100 96 Total notes receivable $ 107 $ 103 EnerBank Notes Receivable EnerBank notes receivable are primarily unsecured, fixed-rate installment loans provided throughout the U.S. to finance home improvements. EnerBank records its notes receivable at cost, less an allowance for loan losses. Authorized contractors pay fees to EnerBank to provide borrowers with same-as-cash, zero interest, or reduced interest loans. Unearned income associated with the loan fees, which is recorded as a reduction to notes receivable on CMS Energy's consolidated balance sheets, was $128 million at December 31, 2020 and $134 million at December 31, 2019. During 2020, EnerBank purchased portfolios of secured and unsecured consumer installment loans with a principal value of $90 million. During 2020, EnerBank completed sales of notes receivable with a principal value of $246 million and recorded gains of $6 million. 135 -------------------------------------------------------------------------------- Table of Contents EnerBank utilizes FICO scores as a key credit quality indicator when underwriting new loans and in assessing the credit exposures in its loan portfolio. The score is determined at the time of a borrower's application and is generally not updated since the average duration of loans is about two years. At December 31, 2020, 86 percent of EnerBank's loans had a FICO score rating between good and excellent. At December 31, 2020, 97 percent of EnerBank's loan portfolio was originated within the past five years. The allowance for loan losses at December 31, 2020 reflects expected credit losses over the entire lifetime of the loan portfolio. EnerBank estimates the allowance by using the "weighted-average remaining maturity" methodology for their term loans, and the "probability of default and loss given default" methodology for their same-as-cash loans. These methodologies consider historical loan loss experience, prepayment expectations, and credit quality indicators. EnerBank considers current and projected economic conditions, and other reasonable and supportable forecast information to determine if adjustments to the allowance are necessary. The allowance is increased by the provision for loan losses and decreased by loan charge­offs net of recoveries. Loan 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. Presented in the following table are the changes in the allowance for loan losses: In Millions Years Ended December 31 2020 2019 Balance at beginning of period $ 33 $ 24 Effects of new accounting standard1 62 - Provision for loan losses 60 38 Charge-offs (39) (35) Recoveries 7 6 Balance at end of period $ 123 $ 33 1The allowance for loan losses at December 31, 2019 reflected expected credit losses over a 12-month period. On January 1, 2020, in accordance with ASU 2016-13, Measurement of Credit Losses on Financial Instruments, the allowance for loan losses was adjusted to reflect expected credit losses over the life of the loan. Additionally, EnerBank recorded $3 million for expected credit losses related to unfunded loan commitments. For further details, see Note 2, New Accounting Standards. Loans that are 30 days or more past due are considered delinquent. The balance of EnerBank's delinquent loans was $32 million at December 31, 2020 and $33 million at December 31, 2019. At December 31, 2020 and 2019, EnerBank's loans that had been modified as troubled debt restructurings were immaterial. In response to the COVID-19 pandemic, and consistent with FDIC guidance, EnerBank offered new payment accommodations for current qualifying customers. At December 31, 2020, EnerBank had not experienced increased delinquent loans, charge-offs, or increased loan modifications due to the COVID-19 pandemic. EnerBank did not make any material adjustments to their allowance for loan losses at December 31, 2020 due to the COVID-19 pandemic. EnerBank cannot predict the longer-term impacts of the pandemic, but could experience slower lending growth, higher loan write-offs, and increased loan modifications. EnerBank issues loan commitments to meet customer-financing needs. These commitments are agreements to provide credit as long as certain conditions are met and expire after 120 days. EnerBank uses the same credit policies in making these commitments as it uses for loans. EnerBank had $348 million of off-balance-sheet unfunded loan commitments at December 31, 2020, and had recorded a liability of $6 million for expected credit losses on those commitments. 136 -------------------------------------------------------------------------------- Table of Contents EnerBank has entered into interest rate swaps on $134 million of its loans (notes receivable). For information about interest rate swaps, see Note 6, Fair Value Measurements. DB SERP Note Receivable - Related Party The DB SERP note receivable - related party is Consumers' portion of a demand note payable issued by CMS Energy to the DB SERP rabbi trust. The demand note bears interest at an annual rate of 4.10 percent and has a maturity date of 2028. 137 -------------------------------------------------------------------------------- Table of Contents 9: Plant, Property, and Equipment Presented in the following table are details of CMS Energy's and Consumers' plant, property, and equipment: In Millions Estimated Depreciable December 31 Life in Years 2020 2019 CMS Energy, including Consumers Plant, property, and equipment, gross Consumers 3 - 125 $ 26,757 $ 24,963 Enterprises Independent power production1 3 - 40 1,112 403 Other 3 - 5 1 2 EnerBank 1 - 7 37 22 Plant, property, and equipment, gross $ 27,907 $ 25,390 Construction work in progress 1,085 896 Accumulated depreciation and amortization (7,953) (7,360) Total plant, property, and equipment2 $ 21,039 $ 18,926 Consumers Plant, property, and equipment, gross Electric Generation 22 - 125 $ 6,376 $ 5,942 Distribution 20 - 75 9,130 8,519 Transmission 46 - 75 - 113 Other 5 - 50 1,326 1,258 Assets under finance leases and other financing3 323 326 Gas Distribution 20 - 85 5,702 5,235 Transmission 17 - 75 2,003 1,752 Underground storage facilities4 27 - 75 1,046 987 Other 5 - 50 817 797 Assets under finance leases3 13 14 Other non-utility property 3 - 51 21 20 Plant, property, and equipment, gross $ 26,757 $ 24,963 Construction work in progress 1,058 879 Accumulated depreciation and amortization (7,844) (7,272) Total plant, property, and equipment2

$ 19,971 $ 18,570

1A significant portion of independent power production assets are leased to others under operating leases. For information regarding CMS Energy's operating leases of owned assets, see Note 10, Leases and Palisades Financing. 2Consumers' plant additions were $2.0 billion for the years ended December 31, 2020 and 2019. Consumers' plant retirements were $220 million for the year ended December 31, 2020 and $380 million for the year ended December 31, 2019. Consumers plans to retire the D.E. Karn 1 & 2 coal-fueled electric generating units in 2023. Accordingly, in 2019, Consumers removed from total plant, property, and 138 -------------------------------------------------------------------------------- Table of Contents equipment $667 million, representing the projected remaining book value of the two units upon their retirement, and recorded it as a regulatory asset. For additional details, see Note 3, Regulatory Matters. 3For information regarding the amortization terms of Consumers' assets under finance leases and other financing, see Note 10, Leases and Palisades Financing. 4Underground storage includes base natural gas of $26 million at December 31, 2020 and 2019. Base natural gas is not subject to depreciation. Intangible Assets: Included in net plant, property, and equipment are intangible assets. Presented in the following table are details about CMS Energy's and Consumers' intangible assets: In Millions December 31, 2020 December 31, 2019 Amortization Accumulated Accumulated Description Life in Years Gross Cost1 Amortization Gross Cost1 Amortization CMS Energy, including Consumers Software development 1 - 15 $ 883 $ 577 $ 882 $ 529 Rights of way 50 - 85 197 57 180 55 Franchises and consents 5 - 50 16 10 16 9 Leasehold improvements various2 10 7 9 7 Other intangibles various 28 16 27 15 Total $ 1,134 $ 667 $ 1,114 $ 615 Consumers Software development 3 - 15 $ 856 $ 568 $ 869 $ 521 Rights of way 50 - 85 197 57 180 55 Franchises and consents 5 - 50 16 10 16 9 Leasehold improvements various2 10 7 9 7 Other intangibles various 25 16 26 15 Total $ 1,104 $ 658 $ 1,100 $ 607 1Consumers' intangible asset additions were $69 million for the year ended December 31, 2020 and $67 million for the year ended December 31, 2019. Consumers' intangible asset retirements were $65 million for the year ended December 31, 2020 and $193 million for the year ended December 31, 2019. 2Leasehold improvements are amortized over the life of the lease, which may change whenever the lease is renewed or extended. Capitalization: CMS Energy and Consumers record plant, property, and equipment at original cost when placed into service. The cost includes labor, material, applicable taxes, overhead such as pension and other benefits, and AFUDC, if applicable. Consumers' plant, property, and equipment is generally recoverable through its general ratemaking process. With the exception of utility property for which the remaining book value has been securitized, mothballed utility property stays in rate base and continues to be depreciated at the same rate as before the mothball period. When utility property is retired or otherwise disposed of in the ordinary course of business, Consumers records the original cost to accumulated depreciation, along with associated cost of removal, net of salvage. CMS Energy and Consumers recognize gains or losses on the retirement or disposal of non­regulated assets in income. Consumers records cost of removal collected from customers, but not spent, as a regulatory liability. 139 -------------------------------------------------------------------------------- Table of Contents Software: CMS Energy and Consumers capitalize the costs to purchase and develop internal-use computer software. These costs are expensed evenly over the estimated useful life of the internal-use computer software. If computer software is integral to computer hardware, then its cost is capitalized and depreciated with the hardware. AFUDC: Consumers capitalizes AFUDC on regulated major construction projects, except pollution control facilities on its fossil-fuel-fired power plants. AFUDC represents the estimated cost of debt and authorized return-on-equity funds used to finance construction additions. Consumers records the offsetting credit as a reduction of interest for the amount representing the borrowed funds component and as other income for the equity funds component on the consolidated statements of income. When construction is completed and the property is placed in service, Consumers depreciates and recovers the capitalized AFUDC from customers over the life of the related asset. Presented in the following table are Consumers' average AFUDC capitalization rates: Years Ended December 31 2020 2019 2018 Electric 6.9 % 6.4 % 6.9 % Gas 5.7 5.8 5.9

Assets Under Finance Leases and Other Financing: Presented in the following table are further details about changes in Consumers' assets under finance leases and other financing:

In Millions Years Ended December 31 2020 2019

Consumers

Balance at beginning of period $ 340 $ 309 Additions - 26

Net retirements and other adjustments (4) 5 Balance at end of period

$ 336 $ 340 Assets under finance leases and other financing are presented as gross amounts. Consumers' accumulated amortization of assets under finance leases and other financing was $254 million at December 31, 2020 and $239 million at December 31, 2019. Depreciation and Amortization: Presented in the following table are further details about CMS Energy's and Consumers' accumulated depreciation and amortization: In Millions Years Ended December 31 2020 2019 CMS Energy, including Consumers Utility plant assets $ 7,841 $ 7,269 Non-utility plant assets 112 91 Consumers Utility plant assets $ 7,841 $ 7,269 Non-utility plant assets 3 3

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

140 -------------------------------------------------------------------------------- Table of Contents 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 2020 2019 2018 Electric utility property 3.9 % 3.9 % 3.9 % Gas utility property 2.9 2.9 2.9 Other property 9.8 10.0 10.1 CMS Energy and Consumers record property repairs and minor property replacement as maintenance expense. CMS Energy and Consumers record planned major maintenance activities as operating expense unless the cost represents the acquisition of additional long-lived assets or the replacement of an existing long-lived asset. Presented in the following table are the components of CMS Energy's and Consumers' depreciation and amortization expense: In Millions Years Ended December 31 2020 2019 2018 CMS Energy, including Consumers Depreciation expense - plant, property, and equipment $ 902 $ 842 $ 778 Amortization expense Software 116 121 127 Other intangible assets 4 3 3 Securitized regulatory assets 26 26 25 Total depreciation and amortization expense $ 1,048 $ 992 $ 933 Consumers Depreciation expense - plant, property, and equipment $ 881 $ 827 $ 768 Amortization expense Software 112 119 125 Other intangible assets 4 3 3 Securitized regulatory assets 26 26 25 Total depreciation and amortization expense $ 1,023 $

975 $ 921

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

In Millions

2021 2022 2023 2024 2025 CMS Energy, including Consumers Intangible asset amortization expense $ 120 $ 115 $ 100 $ 89 $ 86 Consumers Intangible asset amortization expense $ 115 $ 111 $ 97 $ 86 $ 85 141 -------------------------------------------------------------------------------- Table of Contents Jointly Owned Regulated Utility Facilities Presented in the following table are Consumers' investments in jointly owned regulated utility facilities at December 31, 2020: In Millions, Except Ownership Share J.H. Campbell Unit 3 Ludington Other Ownership share 93.3 % 51.0 % various Utility plant in service $ 1,743 $ 489 $ 381 Accumulated depreciation (822) (188) (107) Construction work in progress 12 78 12 Net investment $ 933 $ 379 $ 286 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. 10: Leases and Palisades Financing Lessee CMS Energy and Consumers lease various assets from third parties, including coal-carrying railcars, real estate, service vehicles, and gas pipeline capacity. In addition, CMS Energy and Consumers account for several of their PPAs as leases. CMS Energy and Consumers do not record right-of-use assets or lease liabilities on their consolidated balance sheets for rentals with lease terms of 12 months or less, most of which are for the lease of real estate and service vehicles. Lease expense for these rentals is recognized on a straight-line basis over the lease term. CMS Energy and Consumers include future payments for all renewal options, fair market value extensions, and buyout provisions reasonably certain of exercise in their measurement of lease right-of-use assets and lease liabilities. In addition, certain leases for service vehicles contain end-of-lease adjustment clauses based on proceeds received from the sale or disposition of the vehicles. CMS Energy and Consumers also include executory costs in the measurement of their right-of-use assets and lease liabilities, except for maintenance costs related to their coal-carrying railcar leases. Most of Consumers' PPAs contain provisions at the end of the initial contract terms to renew the agreements annually under mutually agreed­upon terms at the time of renewal. Energy and capacity payments that vary depending on quantities delivered are recognized as variable lease costs when incurred. Consumers accounts for a PPA with one of CMS Energy's equity method subsidiaries as a finance lease. 142

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Table of Contents Presented in the following table is information about CMS Energy's and Consumers' lease right-of-use assets and lease liabilities:

In Millions, Except as Noted CMS Energy, including Consumers Consumers December 31 2020 2019 2020 2019 Operating leases Right-of-use assets1 $ 34 $ 47 $ 28 $ 40 Lease liabilities Current lease liabilities2 9 9 7 8 Non-current lease liabilities3 25 37 21 32 Finance leases Right-of-use assets $ 65 $ 71 $ 65 $ 71 Lease liabilities4 Current lease liabilities 7 6 7 6 Non-current lease liabilities 53 60 53 60 Weighted-average remaining lease term (in years) Operating leases 19 17 18 14 Finance leases 12 12 12 12 Weighted-average discount rate Operating leases 3.9 % 3.8 % 3.8 % 3.7 % Finance leases5 1.8 % 1.9 % 1.8 % 1.9 % 1CMS Energy's and Consumers' operating right-of-use lease assets are reported as other non­current assets on their consolidated balance sheets. 2The current portion of CMS Energy's and Consumers' operating lease liabilities are reported as other current liabilities on their consolidated balance sheets. 3The non­current portion of CMS Energy's and Consumers' operating lease liabilities are reported as other non­current liabilities on their consolidated balance sheets. 4Includes related-party lease liabilities of $25 million, of which less than $1 million was current, at December 31, 2020 and December 31, 2019. 5This rate excludes the impact of Consumers' pipeline agreements and long-term PPAs accounted for as finance leases. The required capacity payments under these agreements, when compared to the underlying fair value of the leased assets, result in effective interest rates that exceed market rates for leases with similar terms. 143 -------------------------------------------------------------------------------- Table of Contents CMS Energy and Consumers report operating, variable, and short-term lease costs as operating expenses on their consolidated statements of income, except for certain amounts that may be capitalized to other assets. Presented in the following table is a summary of CMS Energy's and Consumers' total lease costs: In Millions Years Ended December 31 2020 2019 CMS Energy, including Consumers Operating lease costs $ 10 $ 11 Finance lease costs Amortization of right-of-use assets 6 6 Interest on lease liabilities 17 18 Variable lease costs 94 95 Short-term lease costs 17 16 Total lease costs $ 144 $ 146 Consumers Operating lease costs $ 9 $ 9 Finance lease costs Amortization of right-of-use assets 6 6 Interest on lease liabilities 17 18 Variable lease costs 94 95 Short-term lease costs 16 16 Total lease costs $ 142 $ 144

Presented in the following table is cash flow information related to amounts paid on CMS Energy's and Consumers' lease liabilities:

In Millions Years Ended December 31 2020 2019 CMS Energy, including Consumers Cash paid for amounts included in the measurement of lease liabilities Cash used in operating activities for operating leases $ 11 $ 11 Cash used in operating activities for finance leases 17 18 Cash used in financing activities for finance leases 6 7

Consumers

Cash paid for amounts included in the measurement of lease liabilities Cash used in operating activities for operating leases

$ 9 $ 9 Cash used in operating activities for finance leases 17 18 Cash used in financing activities for finance leases 6 7 144

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Table of Contents Presented in the following table are the minimum rental commitments under CMS Energy's and Consumers' non-cancelable leases:

In Millions Finance Leases December 31, 2020 Operating Leases Pipelines and PPAs Other Total CMS Energy, including Consumers 2021 $ 10 $ 17 $ 5 $ 22 2022 4 14 5 19 2023 2 13 5 18 2024 1 13 3 16 2025 1 13 1 14 2026 and thereafter 34 66 11 77 Total minimum lease payments $ 52 $ 136 $ 30 $ 166 Less discount 18 103 3 106 Present value of minimum lease payments $ 34 $ 33 $ 27 $ 60 Consumers 2021 $ 8 $ 17 $ 5 $ 22 2022 4 14 5 19 2023 2 13 5 18 2024 1 13 3 16 2025 1 13 1 14 2026 and thereafter 27 66 11 77 Total minimum lease payments $ 43 $ 136 $ 30 $ 166 Less discount 15 103 3 106 Present value of minimum lease payments $ 28 $ 33 $ 27 $ 60

Lessor

CMS Energy and Consumers are the lessor under power sales and natural gas delivery agreements that are accounted for as leases. CMS Energy has power sales agreements that are accounted for as operating leases. In addition to fixed payments, these agreements have variable payments based on energy delivered. For the year ended December 31, 2020, lease revenue from these power sales agreements was $148 million, which included variable lease payments of $93 million. For the year ended December 31, 2019, lease revenue from these power sales agreements was $174 million, which included variable lease payments of $119 million. 145 -------------------------------------------------------------------------------- Table of Contents Presented in the following table are the minimum rental payments to be received under CMS Energy's non­cancelable operating leases: In Millions December 31, 2020 2021 $ 54 2022 48 2023 43 2024 43 2025 44 2026 and thereafter 18

Total minimum lease payments $ 250

Consumers has an agreement to build, own, operate, and maintain a compressed natural gas fueling station through December 2038. This agreement is accounted for as a direct finance lease, under which the lessee has the option to purchase the natural gas fueling station at the end of the lease term. Fixed monthly payments escalate annually with inflation. In December 2018, Consumers and a subsidiary of CMS Energy executed a 20­year natural gas transportation agreement, related to a pipeline owned by Consumers. This agreement is accounted for as a direct finance lease and will automatically extend annually unless terminated by either party. The effects of the lease are eliminated on CMS Energy's consolidated financial statements. Minimum rental payments to be received under Consumers' direct financing leases are $1 million for each of the next five years and $18 million for the years thereafter. The lease receivable was $10 million as of December 31, 2020, which does not include unearned income of $13 million. Minimum rental payments to be received under CMS Energy's direct finance lease are less than $1 million for each of the next five years and $10 million for the years thereafter. The lease receivable was $5 million as of December 31, 2020, which does not include unearned income of $5 million. Palisades Financing In 2007, Consumers sold Palisades to Entergy and entered into a 15-year PPA to purchase virtually all of the capacity and energy produced by Palisades, up to the annual average capacity of 798 MW. Consumers accounted for this transaction as a financing because of its continuing involvement with Palisades through security provided to Entergy for the PPA obligation and other arrangements. Palisades has therefore remained on Consumers' consolidated balance sheets and Consumers has continued to depreciate it. At the time of the sale, Consumers recorded the sales proceeds as a financing obligation, and has subsequently recorded a portion of the payments under the PPA as interest expense and as a reduction of the financing obligation. Total amortization and interest charges under the financing were $14 million for the year ended December 31, 2020, $15 million for the year ended December 31, 2019, and $16 million for the year ended December 31, 2018. At December 31, 2020, the Palisades asset and financing obligation both had a balance of $16 million. 146 -------------------------------------------------------------------------------- Table of Contents Presented in the following table are the minimum Palisades PPA payments included in the financing obligation: In Millions December 31, 2020 2021 $ 14 2022 3 Total minimum payments $ 17 Less discount 1 Financing obligation $ 16 Less current portion 13 Non-current portion $ 3 11: 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. 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 associated with the closure of certain gas wells that have an indeterminate life. CMS Energy and Consumers have not recorded liabilities for assets that have immaterial cumulative disposal costs, such as substation batteries. CMS Energy and Consumers calculate the fair value of ARO liabilities using an expected present-value technique that reflects assumptions about costs and inflation, and uses a credit-adjusted risk-free rate to discount the expected cash flows. CMS Energy's ARO liabilities are primarily at Consumers. 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: Company and ARO Description In-Service Date Long-Lived Assets CMS Energy, including Consumers Closure of coal ash disposal areas various Generating plants coal ash areas Gas distribution cut, purge, and cap various Gas distribution mains and services Asbestos abatement 1973 Electric and gas utility plant Closure of renewable generation assets various Wind and solar generation facilities Gas wells plug and abandon various Gas transmission and storage

Consumers

Closure of coal ash disposal areas various Generating plants coal ash areas Gas distribution cut, purge, and cap various Gas distribution mains and services Asbestos abatement 1973 Electric and gas utility plant Closure of renewable generation assets various Wind and solar generation facilities Gas wells plug and abandon various Gas transmission and storage

No assets have been restricted for purposes of settling AROs.

147 -------------------------------------------------------------------------------- Table of Contents Presented in the following tables are the changes in CMS Energy's and Consumers' ARO liabilities: In Millions ARO Liability ARO Liability Company and ARO Description 12/31/2019 Incurred Settled Accretion Cash Flow Revisions 12/31/2020 CMS Energy, including Consumers Consumers $ 474 $ 46 $ (41) $ 23 $ 28 $ 530 Renewable generation assets 3 19 - 1 - 23 Total CMS Energy $ 477 $ 65 $ (41) $ 24 $ 28 $ 553 Consumers Coal ash disposal areas $ 166 $ - $ (24) $ 6 $ - $ 148 Gas distribution cut, purge, and cap 231 1 (5) 13 - 240 Asbestos abatement 34 - - 2 - 36 Renewable generation assets 21 24 - 1 28 74 Gas wells plug and abandon 22 16 (7) 1 - 32 Cable under Straits of Mackinac1 - 5 (5) - - - Total Consumers $ 474 $ 46 $ (41) $ 23 $ 28 $ 530

1 For further details, see Note 4, Contingencies and Commitments-Consumers Electric Utility Contingencies.

In Millions ARO Liability ARO Liability Company and ARO Description 12/31/2018 Incurred Settled Accretion Cash Flow Revisions 12/31/2019 CMS Energy, including Consumers Consumers $ 428 $ 55 $ (37) $ 21 $ 7 $ 474 Gas treating plant and gas wells 1 - (1) - - - Renewable generation assets 3 - - - - 3 Total CMS Energy $ 432 $ 55 $ (38) $ 21 $ 7 $ 477 Consumers Coal ash disposal areas $ 179 $ - $ (27) $ 7 $ 7 $ 166 Gas distribution cut, purge, and cap 205 22 (8) 12 - 231 Asbestos abatement 33 - (1) 2 - 34 Renewable generation assets 11 10 - - - 21 Gas wells plug and abandon - 23 (1) - - 22 Total Consumers $ 428 $ 55 $ (37) $ 21 $ 7 $ 474 148

-------------------------------------------------------------------------------- Table of Contents 12: Retirement Benefits Benefit Plans: CMS Energy and Consumers provide pension, OPEB, and other retirement benefits to employees under a number of different plans. These plans include: •non­contributory, qualified DB Pension Plans (closed to new non­union participants as of July 1, 2003 and closed to new union participants as of September 1, 2005) •a non­contributory, qualified DCCP for employees hired on or after July 1, 2003 •benefits to certain management employees under a non­contributory, nonqualified DB SERP (closed to new participants as of March 31, 2006) •a non­contributory, nonqualified DC SERP for certain management employees hired or promoted on or after April 1, 2006 •a contributory, qualified defined contribution 401(k) plan •health care and life insurance benefits under an OPEB Plan DB Pension Plans: Participants in the pension plans include present and former employees of CMS Energy and Consumers, including certain present and former affiliates and subsidiaries. Pension plan trust assets are not distinguishable by company. Effective December 31, 2017, CMS Energy's and Consumers' then-existing pension plan was amended to include only retired and former employees already covered; this amended plan is referred to as DB Pension Plan B. Also effective December 31, 2017, active employees were moved to a newly created pension plan, referred to as DB Pension Plan A, whose benefits mirror those provided under DB Pension Plan B. Maintaining separate plans for the two groups allows CMS Energy and Consumers to employ a more targeted investment strategy and provides additional opportunities to mitigate risk and volatility. In September 2020, CMS Energy and Consumers determined it was probable that 2020 lump-sum payments to retired employees under DB Pension Plan A would exceed the plan's service cost and interest cost components of net periodic cost for the year. These lump-sum payments constitute pension plan liability settlements; once such settlements meet the service and interest cost threshold, recognition in earnings is required. As a result, in accordance with GAAP, CMS Energy, including Consumers, performed a remeasurement of DB Pension Plan A as of August 31, 2020 and recognized a settlement loss of $36 million; $35 million of this amount was recognized by Consumers and deferred as a regulatory asset. At December 31, 2020, CMS Energy, including Consumers, recognized an additional settlement loss of $10 million for the period September 1, 2020 to December 31, 2020; $10 million of this amount was recognized by Consumers and deferred as a regulatory asset. CMS Energy and Consumers will amortize the regulatory asset over nine years. DCCP: CMS Energy and Consumers provide an employer contribution to the DCCP 401(k) plan for employees hired on or after July 1, 2003. The contribution ranges from five percent to seven percent of base pay, depending on years of service. Employees are not required to contribute in order to receive the plan's employer contribution. DCCP expense for CMS Energy, including Consumers, was $33 million for the year ended December 31, 2020, $30 million for the year ended December 31, 2019, and $26 million for the year ended December 31, 2018. DCCP expense for Consumers was $31 million for the year ended December 31, 2020, $28 million for the year ended December 31, 2019, and $25 million for the year ended December 31, 2018. 149 -------------------------------------------------------------------------------- Table of Contents DB SERP: The DB SERP is a nonqualified plan as defined by the Internal Revenue Code. DB SERP benefits are paid from a rabbi trust established in 1988. The trust assets are not considered plan assets under ASC 715. DB SERP rabbi trust earnings are taxable. Presented in the following table are the fair values of trust assets, ABO, and contributions for CMS Energy's and Consumers' DB SERP: In Millions Years Ended December 31 2020 2019 CMS Energy, including Consumers Trust assets $ 146 $ 143 ABO 159 149 Contributions 8 - Consumers Trust assets $ 107 $ 104 ABO 115 107 Contributions 5 - DC SERP: On April 1, 2006, CMS Energy and Consumers implemented a DC SERP and froze further new participation in the DB SERP. The DC SERP provides participants benefits ranging from five 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 $11 million at December 31, 2020 and $8 million at December 31, 2019. DC SERP assets are included in other non­current assets on CMS Energy's and Consumers' consolidated balance sheets. CMS Energy's and Consumers' DC SERP expense was $2 million for the years ended December 31, 2020 and 2019, and $1 million for the year ended December 31, 2018. 401(k) Plan: The 401(k) plan employer match equals 100 percent of eligible contributions up to the first three percent of an employee's wages and 50 percent of eligible contributions up to the next two percent of an employee's wages. The total 401(k) plan cost for CMS Energy, including Consumers, was $30 million for the year ended December 31, 2020, $28 million for the year ended December 31, 2019, and $27 million for the year ended December 31, 2018. The total 401(k) plan cost for Consumers was $29 million for the year ended December 31, 2020, $27 million for the year ended December 31, 2019, and $26 million for the year ended December 31, 2018. OPEB Plan: 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 disability retirement under the DB Pension Plans or are disabled and covered by the DCCP and who 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 6.50 percent in 2021 and 6.75 percent in 2020 for those under 65 and would increase 7.00 percent in 2021 and 7.25 percent in 2020 for those over 65. The rate of increase was assumed to decline to 4.75 percent by 2027 and thereafter for all retirees. 150 -------------------------------------------------------------------------------- Table of Contents Assumptions: Presented in the following table are the weighted-average assumptions used in CMS Energy's and Consumers' retirement benefits plans to determine benefit obligations and net periodic benefit cost: December 31 2020 2019

2018

CMS Energy, including Consumers Weighted average for benefit obligations1 Discount rate2 DB Pension Plan A 2.73 % 3.37 % 4.48 % DB Pension Plan B 2.41 3.17 4.32 DB SERP 2.40 3.15 4.32 OPEB Plan 2.69 3.32 4.42 Rate of compensation increase DB Pension Plan A 3.70 3.50 3.50 DB SERP 5.50 5.50 5.50 Weighted average for net periodic benefit cost1 Service cost discount rate2,3 DB Pension Plan A 3.44 % 4.55 % 3.85

%

DB SERP 3.46 4.58 3.83 OPEB Plan 3.57 4.63 3.93 Interest cost discount rate2,3 DB Pension Plan A 2.92 4.08 3.39 DB Pension Plan B 2.74 3.93 3.24 DB SERP 2.74 3.94 3.26 OPEB Plan 2.88 4.03 3.35 Expected long-term rate of return on plan assets4 DB Pension Plans 6.75 7.00 7.00 OPEB Plan 6.75 7.00 7.00 Rate of compensation increase DB Pension Plan A 3.50 3.50 3.50 DB SERP 5.50 5.50 5.50 1The mortality assumption for benefit obligations was based on the Pri-2012 Mortality Table for 2020 and 2019 and the RP-2014 Mortality Table for 2018, with improvement scales MP-2020 for 2020, MP-2019 for 2019, and MP-2018 for 2018. The mortality assumption for net periodic benefit cost was based on the Pri-2012 Mortality Table for 2020 and the RP-2014 Mortality Table for 2019 and 2018, with improvement scales MP-2019 for 2020, MP-2018 for 2019, and MP-2017 for 2018. 2The 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' DB Pension Plans and OPEB Plan and the yields on high-quality corporate bonds rated Aa or better. 3CMS Energy and Consumers have elected to use a full-yield-curve approach in the estimation of service cost and interest cost; this approach applies individual spot rates along the yield curve to future projected benefit payments based on the time of payment. 4CMS 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 151 -------------------------------------------------------------------------------- Table of Contents 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 the assets of the DB Pension Plans was 6.75 percent in 2020. The actual return (loss) on the assets of the DB Pension Plans was 13.6 percent in 2020, 21.0 percent in 2019, and (6.7) percent in 2018. Costs: Presented in the following table are the costs (credits) and other changes in plan assets and benefit obligations incurred in CMS Energy's and Consumers' retirement benefits plans: In Millions DB Pension Plans and DB SERP OPEB Plan Years Ended December 31 2020 2019 2018 2020 2019 2018 CMS Energy, including Consumers Net periodic cost (credit) Service cost $ 50 $ 41 $ 48 $ 16 $ 14 $ 17 Interest cost 83 103 95 33 41 34 Settlement loss 1 - - - - - Expected return on plan assets (191) (162) (149) (100) (88) (97) Amortization of: Net loss 95 50 76 15 26 15 Prior service cost (credit) 1 1 3 (56) (62) (67) Settlement loss 2 - - - - - Net periodic cost (credit) $ 41 $ 33 $ 73 $ (92) $ (69) $ (98) Consumers Net periodic cost (credit) Service cost $ 49 $ 40 $ 47 $ 15 $ 13 $ 16 Interest cost 78 97 88 31 40 33 Expected return on plan assets (181) (153) (139) (93) (82) (91) Amortization of: Net loss 90 47 73 15 26 16 Prior service cost (credit) 1 1 3 (54) (61) (65) Settlement loss 2 - - - - - Net periodic cost (credit) $ 39 $ 32

$ 72 $ (86) $ (64) $ (91)

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 for DB Pension Plan A and the OPEB Plan and over the average remaining life expectancy of participants for DB Pension Plan B. For DB Pension Plan A, the estimated period of amortization of gains and losses was eight years for the year ended December 31, 2020, and nine years for the years ended December 31, 2019 and 2018. For DB Pension Plan B, the estimated period of amortization of gains and losses was 19 years for the year ended December 31, 2020, and 20 years for the years ended December 31, 2019 and 2018. For the OPEB Plan, the estimated amortization period was nine years for the year ended December 31, 2020, and ten years for the years ended December 31, 2019 and 2018. Prior service cost (credit) amortization is established in the year in which the prior service cost (credit) first occurred, and is based on the same amortization period for all future years until the prior service cost 152 -------------------------------------------------------------------------------- Table of Contents (credit) is fully amortized. CMS Energy and Consumers had new prior service costs for DB Pension Plan A in 2020. The estimated period of amortization of these new prior service costs is eight years. CMS Energy and Consumers had new prior service credits for OPEB in 2018. The estimated period of amortization of these new prior service credits is nine years. CMS Energy and Consumers determine the MRV for the assets of the DB Pension Plans 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. 153 -------------------------------------------------------------------------------- Table of Contents Reconciliations: Presented in the following table are reconciliations of the funded status of CMS Energy's and Consumers' retirement benefits plans with their retirement benefits plans' liabilities: In Millions DB Pension Plans DB SERP OPEB Plan Years Ended December 31 2020 2019 2020 2019 2020 2019 CMS Energy, including Consumers Benefit obligation at beginning of period $ 2,973 $ 2,512 $ 150 $ 140 $ 1,165 $ 1,045 Service cost 50 41 - - 16 14 Interest cost 79 98 4 5 33 41 Plan amendments 24 - - - - - Actuarial loss 355 1 476 1 16 15 39 1 110 1 Benefits paid (215) (154) (10) (10) (48) (45) Benefit obligation at end of period $ 3,266 $ 2,973 $ 160 $ 150 $ 1,205 $ 1,165 Plan assets at fair value at beginning of period $ 2,546 $ 2,247 $ - $ - $ 1,509 $ 1,280 Actual return on plan assets 371 453 - - 182 273 Company contribution 700 - 10 10 1 - Actual benefits paid (215) (154) (10) (10) (47) (44) Plan assets at fair value at end of period $ 3,402 $ 2,546 $ - $ - $ 1,645 $ 1,509 Funded status $ 136 2 $ (427) 2 $ (160) $ (150) $ 440 $ 344 Consumers Benefit obligation at beginning of period $ 109 $ 101 $ 1,120 $ 1,004 Service cost - - 15 13 Interest cost 3 4 31 40 Actuarial loss 12 11 37 1 106 1 Benefits paid (7) (7) (45) (43) Benefit obligation at end of period $ 117 $ 109 $ 1,158 $ 1,120 Plan assets at fair value at beginning of period $ - $ - $ 1,410 $ 1,197 Actual return on plan assets - - 169 255 Company contribution 7 7 1 - Actual benefits paid (7) (7) (45) (42) Plan assets at fair value at end of period $ - $ - $ 1,535 $ 1,410 Funded status $ (117) $ (109) $ 377 $ 290 1The actuarial loss for 2020 and 2019 for the DB Pension Plans was primarily the result of lower discount rates and lower interest rates used to calculate the value of lump-sum payments. The actuarial loss for 2020 and 2019 for the OPEB Plan was primarily the result of lower discount rates. 2The total funded status of the DB Pension Plans attributable to Consumers, based on an allocation of expenses, was $138 million at December 31, 2020 and $(408) million at December 31, 2019. 154

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Table of Contents Presented in the following table is the classification of CMS Energy's and Consumers' retirement benefit plans' assets and liabilities:

In Millions December 31 2020 2019 CMS Energy, including Consumers Non-current assets DB Pension Plans $ 136 $ 104 OPEB Plan 440 344 Current liabilities DB SERP 10 10 Non-current liabilities DB Pension Plans - 531 DB SERP 150 140 Consumers Non-current assets DB Pension Plans $ 138 $ 109 OPEB Plan 377 290 Current liabilities DB SERP 7 7 Non-current liabilities DB Pension Plans - 517 DB SERP 110 102

The ABO for the DB Pension Plans was $2.9 billion at December 31, 2020 and $2.6 billion at December 31, 2019. At December 31, 2019, the PBO and ABO for one of the defined benefit pension plans exceeded plan assets; presented in the following table is information related to that plan:

In Millions December 31 2019 CMS Energy, including Consumers PBO $ 1,736 ABO 1,398 Fair value of plan assets 1,205 155

-------------------------------------------------------------------------------- Table of Contents 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 3, Regulatory Matters. In Millions DB Pension Plans and DB SERP OPEB Plan December 31 2020 2019 2020 2019 CMS Energy, including Consumers Regulatory assets Net loss $ 1,194 $ 1,114 $ 254 $ 308 Prior service cost (credit) 29 8 (246) (300) Regulatory assets $ 1,223 $ 1,122 $ 8 $ 8 AOCI Net loss (gain) 120 105 (10) (6) Prior service cost (credit) 1 - (6) (8) Total amounts recognized in regulatory assets and AOCI $ 1,344 $ 1,227 $ (8) $ (6) Consumers Regulatory assets Net loss $ 1,194 $ 1,114 $ 254 $ 308 Prior service cost (credit) 29 8 (246) (300) Regulatory assets $ 1,223 $ 1,122 $ 8 $ 8 AOCI Net loss 47 36 - - Total amounts recognized in regulatory assets and AOCI $ 1,270 $ 1,158 $ 8 $ 8 Plan Assets: Presented in the following tables are the fair values of the assets of CMS Energy's DB Pension Plans and OPEB Plan, by asset category and by level within the fair value hierarchy. For additional details regarding the fair value hierarchy, see Note 6, Fair Value Measurements. In Millions DB Pension Plans December 31, 2020 December 31, 2019 Total Level 1 Level 2 Total Level 1 Level 2 CMS Energy, including Consumers Cash and short-term investments $ 115 $ 115 $ - $ 44 $ 44 $ - U.S. government and agencies securities 150 - 150 66 - 66 Corporate debt 540 - 540 493 - 493 State and municipal bonds 11 - 11 17 - 17 Foreign corporate bonds 41 - 41 33 - 33 Mutual funds 971 971 - 640 640 - $ 1,828 $ 1,086 $ 742 $ 1,293 $ 684 $ 609 Pooled funds 1,574 1,253 Total $ 3,402 $ 2,546 156

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Table of Contents In Millions OPEB Plan December 31, 2020 December 31, 2019 Total Level 1 Level 2 Total Level 1 Level 2 CMS Energy, including Consumers Cash and short-term investments $ 33 $ 33 $ - $ 9 $ 9 $ - U.S. government and agencies securities 18 - 18 10 - 10 Corporate debt 64 - 64 71 - 71 State and municipal bonds 2 - 2 2 - 2 Foreign corporate bonds 5 - 5 5 - 5 Common stocks 66 66 - 55 55 - Mutual funds 807 807 - 713 713 - $ 995 $ 906 $ 89 $ 865 $ 777 $ 88 Pooled funds 650 644 Total $ 1,645 $ 1,509 Cash and Short-Term Investments: Cash and short-term investments consist of money market funds with daily liquidity. U.S. Government and Agencies Securities: 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 are valued based on quoted market prices. Corporate Debt: Corporate debt investments consist of investment grade bonds of U.S. issuers from diverse industries. These securities are valued based on quoted market prices, when available, or yields available on comparable securities of issuers with similar credit ratings. State and Municipal Bonds: State and municipal bonds are valued using a matrix-pricing model that incorporates Level 2 market-based information. The fair value of the bonds is 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. Foreign Corporate Bonds: Foreign corporate debt securities are valued based on quoted market prices, when available, or on yields available on comparable securities of issuers with similar credit ratings. Common Stocks: Common stocks in the OPEB Plan consist of equity securities that are actively managed and tracked to the S&P 500 Index. These securities are valued at their quoted closing prices. Mutual Funds: Mutual funds represent shares in registered investment companies that are priced based on the daily quoted net asset values that are publicly available and are the basis for transactions to buy or sell shares in the funds. Pooled Funds: Pooled funds 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. These funds primarily consist of U.S. and foreign equity securities, but also include U.S. and foreign fixed-income securities and multi-asset investments. Since these investments are valued at their net asset value as a practical expedient, they are not classified in the fair value hierarchy. 157 -------------------------------------------------------------------------------- Table of Contents Asset Allocations: Presented in the following table are the investment components of the assets of CMS Energy's DB Pension Plans and OPEB Plan as of December 31, 2020: DB Pension Plans OPEB Plan Equity securities 55.0 % 50.0 % Fixed-income securities 34.0 30.0 Multi-asset investments 11.0 20.0 100.0 % 100.0 % CMS Energy's target 2020 asset allocation for the assets of the DB Pension Plans was 53 percent equity, 35 percent fixed income, and 12 percent multi-asset investments. The goal of this target asset allocation was 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. Multi-assets are diversified across absolute return investment approaches and global tactical asset allocation, such as inflation protected securities, real estate investment trusts, commodities, currency, and preferred stock. CMS Energy uses annual liability measurements, quarterly portfolio reviews, and periodic asset/liability studies to evaluate the need for adjustments to the portfolio allocation. CMS Energy established union and non­union VEBA trusts to fund future retiree health and life insurance benefits. These trusts are funded through the ratemaking process for Consumers and through direct contributions from the non­utility subsidiaries. CMS Energy's target 2020 asset allocation for the health trusts was 50 percent equity, 30 percent fixed income, and 20 percent multi-asset investments. CMS Energy's target asset allocation for the life trusts was 42 percent equity, 28 percent fixed income, and 30 percent multi-asset investments. The goal of these target allocations was 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 plans. Equity investments are diversified mostly across the S&P 500 Index, with lesser allocations to the S&P SmallCap Index and Foreign Equity Funds. Fixed-income investments are diversified across investment grade instruments of government and corporate issuers. Multi-assets are diversified across absolute return investment approaches and global tactical asset allocation, such as inflation protected securities, real estate investment trusts, commodities, currency and preferred stock. CMS Energy uses annual liability measurements, quarterly portfolio reviews, and periodic asset/liability studies to evaluate the need for adjustments to the portfolio allocation. Contributions: Presented in the following table are the contributions to CMS Energy's and Consumers' DB Pension Plans and OPEB Plan: In Millions Years Ended December 31 2020 2019 CMS Energy, including Consumers DB Pension Plans $ 700 $ - OPEB Plan 1 - Consumers DB Pension Plans $ 682 $ - OPEB Plan 1 - Contributions comprise required amounts and discretionary contributions. Neither CMS Energy nor Consumers plans to contribute to the DB Pension Plans or OPEB Plan in 2021. Actual future 158 -------------------------------------------------------------------------------- Table of Contents contributions will depend on future investment performance, discount rates, and various factors related to the participants of the DB Pension Plans and OPEB Plan. CMS Energy and Consumers will, at a minimum, contribute to the plans as needed to comply with federal funding requirements. 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: In Millions DB Pension Plans DB SERP OPEB Plan CMS Energy, including Consumers 2021 $ 191 $ 10 $ 52 2022 188 10 54 2023 184 10 56 2024 182 10 57 2025 182 10 58 2026-2030 890 46 299 Consumers 2021 $ 181 $ 7 $ 50 2022 178 7 52 2023 175 7 53 2024 173 7 55 2025 172 7 56 2026-2030 845 32 286 Collective Bargaining Agreements: At December 31, 2020, unions represented 41 percent of CMS Energy's employees and 44 percent of Consumers' employees. The UWUA represents Consumers' operating, maintenance, construction, and customer contact center employees. The USW represents Zeeland plant employees. The UWUA and USW agreements expired and new agreements were ratified in 2020. These union contracts expire in 2025. 13: Stock-Based Compensation CMS Energy and Consumers provide a PISP to officers, employees, and non­employee directors based on their contributions to the successful management of the company. The PISP has a ten-year term, expiring in May 2030. In 2020, all awards were in the form of restricted stock or restricted stock units. The PISP also allows for unrestricted common stock, stock options, stock appreciation rights, phantom shares, performance units, and incentive options, none of which was granted in 2020, 2019, or 2018. Shares awarded or subject to stock options, phantom shares, or performance units may not exceed 6.5 million shares from June 2020 through May 2030. CMS Energy and Consumers may issue awards of up to 6,477,579 shares of common stock under the PISP as of December 31, 2020. Shares for which payment or exercise is in cash, as well as shares that expire, terminate, or are canceled or forfeited, may be awarded or granted again under the PISP. All awards under the PISP vest fully upon death. Upon a change of control of CMS Energy or termination under an officer separation agreement, the awards will vest in accordance with specific officer 159 -------------------------------------------------------------------------------- Table of Contents agreements. If stated in the award, for restricted stock recipients who terminate employment due to retirement or disability, a pro-rata portion of the award will vest upon termination, with any market-based award also contingent upon the outcome of the market condition and any performance-based award contingent upon the outcome of the performance condition. The pro-rata portion is equal to the portion of the service period served between the award grant date and the employee's termination date. The remaining portion of the awards will be forfeited. All awards for directors vest fully upon retirement. Restricted shares may be forfeited if employment terminates for any other reason or if the minimum service requirements are not met, as described in the award document. Restricted Stock Awards: Restricted stock awards for employees under the PISP are in the form of performance-based, market-based, and time-lapse restricted stock. Award recipients receive shares of CMS Energy common stock that have dividend and voting rights. The dividends on time-lapse restricted stock are paid in cash or in CMS Energy common stock. The dividends on performance-based and market-based restricted stock are paid in restricted shares equal to the value of the dividends. These additional restricted shares are subject to the same vesting conditions as the underlying restricted stock shares. Performance-based restricted stock vesting is contingent on meeting at least a 36-month service requirement and a performance condition. The performance condition is based on an adjusted measure of CMS Energy's EPS growth relative to a peer group over a three-year period. The awards granted in 2020, 2019, and 2018 require a 38-month service period. Market-based restricted stock vesting is generally contingent on meeting a three-year service requirement and a market condition. The market condition is based on a comparison of CMS Energy's total shareholder return with the median total shareholder return of a peer group over the same three-year period. Depending on the outcome of the performance condition or the market condition, a recipient may earn a total award ranging from zero to 200 percent of the initial grant. Time-lapse restricted stock generally vests after a service period of three years. Restricted Stock Units: In 2020, 2019, and 2018, CMS Energy and Consumers granted restricted stock units to certain non­employee directors who elected to defer their restricted stock awards. The restricted stock units generally vest after a service period of one year or, if earlier, at the next annual meeting. The restricted stock units will be distributed to the recipients as shares in accordance with the directors' deferral agreements. Restricted stock units do not have voting rights, but do have dividend rights. In lieu of cash dividend payments, the dividends on restricted stock units are paid in additional units equal to the value of the dividends. These additional restricted stock units are subject to the same vesting and distribution conditions as the underlying restricted stock units. No restricted stock units were forfeited during 2020. 160

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Table of Contents Presented in the following tables is the activity for restricted stock and restricted stock units under the PISP:

CMS Energy, including Consumers Consumers Weighted-Average Weighted-Average Number of Grant Date Fair Value Number of Grant Date Fair Value Year Ended December 31, 2020 Shares per Share Shares per Share Nonvested at beginning of period 1,186,962 $ 44.56 1,138,182 $ 44.57 Granted Restricted stock 512,326 45.56 490,346 45.53 Restricted stock units 15,074 49.76 14,409 49.70 Vested Restricted stock (551,897) 30.98 (532,833) 31.04 Restricted stock units (15,234) 49.24 (14,517) 49.50 Forfeited - restricted stock (329,874) 51.22 (314,056) 51.22 Nonvested at end of period 817,357 $ 51.68 781,531 $ 51.73 CMS Energy, including Year Ended December 31, 2020 Consumers Consumers Granted Time-lapse awards 106,520 101,439 Market-based awards 123,246 118,011 Performance-based awards 123,246 118,011 Restricted stock units 13,405 12,800 Dividends on market-based awards 17,937 17,152 Dividends on performance-based awards 17,505 16,736 Dividends on restricted stock units 1,669 1,609

Additional market-based shares based on achievement of condition

71,678 68,857 Additional performance-based shares based on achievement of condition 52,194 50,140 Total granted 527,400 504,755 CMS Energy and Consumers charge the fair value of the restricted stock awards to expense over the required service period and charge the fair value of the restricted stock units to expense immediately. For performance-based awards, CMS Energy and Consumers estimate the number of shares expected to vest at the end of the performance period based on the probable achievement of the performance objective. Performance-based and market-based restricted stock awards have graded vesting features for retirement-eligible employees, and CMS Energy and Consumers recognize expense for those awards on a graded vesting schedule over the required service period. Expense for performance-based and market-based restricted stock awards for non­retirement-eligible employees and time-lapse awards is recognized on a straight-line basis over the required service period. The fair value of performance-based and time-lapse restricted stock and restricted stock units is based on the price of CMS Energy's common stock on the grant date. The fair value of market-based restricted stock awards is calculated 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 valuation of the market-based restricted stock awards was based on the three-year U.S. Treasury yield at the award grant date. 161 -------------------------------------------------------------------------------- Table of Contents Presented in the following table are the most significant assumptions used to estimate the fair value of the market-based restricted stock awards: Years Ended December 31 2020 2019 2018 Expected volatility 14.2 % 14.9 % 16.7 % Expected dividend yield 2.4 2.8 2.8 Risk-free rate 1.6 2.5 2.1 Presented in the following table is the weighted-average grant-date fair value of all awards under the PISP: In Millions Years Ended December 31 2020 2019 2018 CMS Energy, including Consumers Weighted-average grant-date fair value per share Restricted stock granted $ 45.56 $ 43.57 $ 26.49 Restricted stock units granted 49.76 50.35

41.77

Consumers

Weighted-average grant-date fair value per share Restricted stock granted $ 45.53 $ 43.57 $ 26.51 Restricted stock units granted 49.70 51.15

42.01

Presented in the following table are amounts related to restricted stock awards and restricted stock units: In Millions Years Ended December 31 2020 2019 2018 CMS Energy, including Consumers Fair value of shares that vested during the year $ 22 $ 26 $ 27 Compensation expense recognized 11 22

17

Income tax benefit recognized 3 1

1

Consumers

Fair value of shares that vested during the year $ 21 $ 25 $ 26 Compensation expense recognized

10 21 16 Income tax benefit recognized 3 1 1 At December 31, 2020, $18.5 million of total unrecognized compensation cost was related to restricted stock for CMS Energy, including Consumers, and $17.7 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 two years. 162 -------------------------------------------------------------------------------- Table of Contents 14: Income Taxes CMS Energy and its subsidiaries file a consolidated U.S. federal income tax return as well as a Michigan Corporate Income Tax return for the unitary business group and various other state unitary group combined income tax returns. Income taxes are allocated based on each company's separate taxable income in accordance with the CMS Energy tax sharing agreement. Presented in the following table is the difference between actual income tax expense on continuing operations and income tax expense computed by applying the statutory U.S. federal income tax rate: In Millions, Except Tax Rate Years Ended December 31 2020 2019 2018 CMS Energy, including Consumers Income from continuing operations before income taxes $ 885 $ 829 $ 774 Income tax expense at statutory rate 186 174 163 Increase (decrease) in income taxes from: State and local income taxes, net of federal effect 46 48 46 TCJA excess deferred taxes1 (35) (31) (26) Production tax credits (28) (20) (14) Accelerated flow-through of regulatory tax benefits2 (13) (13) (39) Research and development tax credits, net3 (11) (2) (11) Refund of alternative minimum tax sequestration4 (9) - - Other, net (3) (9) (4) Income tax expense $ 133 $ 147 $ 115 Effective tax rate 15.0 % 17.7 % 14.9 % Consumers Income from continuing operations before income taxes $ 989 $ 928 $ 847 Income tax expense at statutory rate 208 195 178 Increase (decrease) in income taxes from: State and local income taxes, net of federal effect 47 53 51 TCJA excess deferred taxes1 (35) (31) (26) Accelerated flow-through of regulatory tax benefits2 (13) (13) (39) Production tax credits (19) (12) (12) Research and development tax credits, net3 (11) (2) (11) Other, net (4) (5) 1 Income tax expense $ 173 $ 185 $ 142 Effective tax rate 17.5 % 19.9 % 16.8 % 1In December 2017, Consumers remeasured its deferred tax assets and liabilities at the new federal tax rate enacted by the TCJA and recorded a net $1.6 billion regulatory liability. As a result of an order received in September 2019, Consumers began refunding these excess deferred taxes to customers. In September 2020, the MPSC approved a settlement agreement in Consumers' 2019 gas rate case including Consumers' request to accelerate the amortization of its regulatory liability associated with the unprotected, non­property-related excess deferred income taxes resulting from the TCJA. Consumers will increase its TCJA amortization to fully refund this regulatory liability during the period October 2021 through September 2022 instead of the previous amortization schedule through 2029. 2In 2013, the MPSC issued an order authorizing Consumers to accelerate the flow-through to electric and gas customers of certain income tax benefits associated primarily with the cost of removal of plant placed 163 -------------------------------------------------------------------------------- Table of Contents in service before 1993. Consumers implemented this regulatory treatment beginning in 2014, with the electric portion ending in 2018 and the gas portion expected to continue through 2025. In September 2020, the MPSC approved a settlement agreement in Consumers' 2019 gas rate case including Consumers' request to accelerate the amortization of this income tax benefit to fully amortize the balance during the period October 2021 through September 2022 instead of the previous amortization schedule through 2025. 3In March 2020, CMS Energy finalized a study of research and development tax credits for tax years 2012 through 2018. As a result, in 2020, CMS Energy, including Consumers, recognized a $9 million increase in the credit, net of reserves for uncertain tax positions. Of this amount, $8 million was recognized at Consumers. Also, in March 2018, Consumers finalized a study of research and development tax credits for the tax years 2012 through 2016. As a result, CMS Energy and Consumers recognized an $8 million increase in the credit, net of reserves for uncertain tax positions, at that time. 4In January 2020, the IRS issued a decision restoring alternative minimum tax credit refunds sequestered in years prior to 2018. As a result, in 2020, CMS Energy recognized a $9 million income tax benefit for sequestered amounts related to its 2017 tax return. CMS Energy received the refund in April 2020. Presented in the following table are the significant components of income tax expense on continuing operations: In Millions Years Ended December 31 2020 2019 2018 CMS Energy, including Consumers Current income taxes Federal $ (35) $ (31) $ (67) State and local (2) 28 - $ (37) $ (3) $ (67) Deferred income taxes Federal 115 97 112 State and local 60 32 58 $ 175 $ 129 $ 170 Deferred income tax credit (5) 21 12 Tax expense $ 133 $ 147 $ 115 Consumers Current income taxes Federal $ 3 $ 107 $ 6 State and local (7) 41 13 $ (4) $ 148 $ 19 Deferred income taxes Federal 115 (10) 60 State and local 67 26 51 $ 182 $ 16 $ 111 Deferred income tax credit (5) 21 12 Tax expense $ 173 $ 185 $ 142 164

-------------------------------------------------------------------------------- Table of Contents Presented in the following table are the principal components of deferred income tax assets (liabilities) recognized: In Millions December 31 2020 2019 CMS Energy, including Consumers Deferred income tax assets Tax loss and credit carryforwards $ 483 $ 239 Net regulatory tax liability 372 385 Reserves and accruals 62 43 Total deferred income tax assets $ 917 $ 667 Valuation allowance (1)

(2)

Total deferred income tax assets, net of valuation allowance $ 916

$ 665 Deferred income tax liabilities Plant, property, and equipment $ (2,287) $ (2,033) Employee benefits (364) (172) Securitized costs (53) (59) Gas inventory (24) (32) Other (51) (24) Total deferred income tax liabilities $ (2,779) $ (2,320) Total net deferred income tax liabilities $ (1,863) $ (1,655) Consumers Deferred income tax assets Net regulatory tax liability $ 372 $ 385 Tax loss and credit carryforwards 216

20

Reserves and accruals 24

24

Total deferred income tax assets $ 612 $ 429 Deferred income tax liabilities Plant, property, and equipment $ (2,230) $ (1,995) Employee benefits (365) (178) Securitized costs (53) (59) Gas inventory (24) (32) Other (34) (29) Total deferred income tax liabilities $ (2,706) $ (2,293) Total net deferred income tax liabilities $ (2,094)

$ (1,864)

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 on CMS Energy's and Consumers' consolidated financial statements. 165 -------------------------------------------------------------------------------- Table of Contents Presented in the following table are the tax loss and credit carryforwards at December 31, 2020: In Millions Gross Amount Tax Attribute Expiration CMS Energy, including Consumers Federal net operating loss carryforwards $ 747 $ 157 None State net operating loss carryforwards 1,241 78 2030 Local net operating loss carryforwards 346 3 2024 - 2040 General business credits 245 245 2026 - 2040 Total tax attributes $ 483 Consumers Federal net operating loss carryforwards $ 505 $ 106 None State net operating loss carryforwards 1,026 61 2030 General business credits 49 49 2027 - 2040 Total tax attributes $ 216 CMS Energy has provided a valuation allowance of $1 million for the local tax loss carryforward. CMS Energy and Consumers expect to utilize fully their tax loss and credit carryforwards for which no valuation allowance has been provided. It is reasonably possible that further adjustments will be made to the valuation allowances within one year. As a result of a provision in the TCJA, as amended by the CARES Act, CMS Energy recovered all of its remaining alternative minimum tax credits in 2020. CMS Energy utilized $7 million of these credits on its 2019 consolidated tax return, and received the remaining $69 million through a cash refund. Presented in the following table is a reconciliation of the beginning and ending amount of uncertain tax benefits: In Millions Years Ended December 31 2020 2019 2018 CMS Energy, including Consumers Balance at beginning of period $ 23 $ 19 $ 14 Additions for current-year tax positions 1 1 1 Additions for prior-year tax positions 3 3 4 Reductions for prior-year tax positions (2) - - Balance at end of period $ 25 $ 23 $ 19

Consumers

Balance at beginning of period $ 34 $ 28 $ 21 Additions for current-year tax positions 1 1 2 Additions for prior-year tax positions 4 5 5 Reductions for prior-year tax positions (8) - - Balance at end of period $ 31 $ 34 $ 28 If recognized, all of these uncertain tax benefits would affect CMS Energy's and Consumers' annual effective tax rates in future years. A trial is anticipated in 2021 with the Michigan Tax Tribunal related to the methodology of state apportionment for Consumers' electricity sales to MISO. A favorable outcome 166 -------------------------------------------------------------------------------- Table of Contents of the court case or a potential settlement could result in a tax benefit of up to $9 million in the next 12 months. CMS Energy and Consumers recognize accrued interest and penalties, where applicable, as part of income tax expense. CMS Energy, including Consumers, recognized no interest or penalties for the years ended December 31, 2020, 2019, or 2018. The amount of income taxes paid is subject to ongoing audits by federal, state, local, and foreign tax authorities, which can result in proposed assessments. CMS Energy's federal income tax returns for 2017 and subsequent years remain subject to examination by the IRS. CMS Energy's Michigan Corporate Income Tax returns for 2013 and subsequent years remain subject to examination by the State of Michigan. 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, 2020 were adequate for all years. 15: Earnings Per Share-CMS Energy Presented in the following table are CMS Energy's basic and diluted EPS computations based on net income: In Millions, Except Per Share Amounts Years Ended December 31 2020 2019 2018 Income available to common stockholders Net income $ 752 $ 682 $ 659 Less income (loss) attributable to noncontrolling interests (3) 2 2 Net income available to common stockholders - basic and diluted $ 755 $ 680 $ 657 Average common shares outstanding Weighted-average shares - basic 285.0 283.0 282.2 Add dilutive nonvested stock awards 0.7 0.7 0.7 Add dilutive forward equity sale contracts 0.6 0.6 - Weighted-average shares - diluted 286.3 284.3 282.9 Net income per average common share available to common stockholders Basic $ 2.65 $ 2.40 $ 2.33 Diluted 2.64 2.39 2.32 Nonvested Stock Awards CMS Energy's nonvested stock awards are composed of participating and non­participating 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 nonvested stock awards are considered participating securities. As such, the participating nonvested stock awards were included in the computation of basic EPS. The non­participating securities accrue stock dividends that vest concurrently with the stock award. If the recipient forfeits the award, the stock dividends accrued on the non­participating securities are also forfeited. Accordingly, the non­participating awards and stock dividends were included in the computation of diluted EPS, but not in the computation of basic EPS. 167 -------------------------------------------------------------------------------- Table of Contents Forward Equity Sale Contracts CMS Energy has entered into forward equity sale contracts. These forward equity sale contracts are non­participating securities. While the forward sale price in the forward equity sale contract is decreased on certain dates by certain predetermined amounts to reflect expected dividend payments, these price adjustments were set upon inception of the agreement and the forward contract does not give the owner the right to participate in undistributed earnings. Accordingly, the forward equity sale contracts were included in the computation of diluted EPS, but not in the computation of basic EPS. For further details on the forward equity sale contracts, see Note 5, Financings and Capitalization. 16: Revenue Presented in the following tables are the components of operating revenue: In Millions Year Ended December 31, 2020 Electric Utility Gas

Utility Enterprises1 EnerBank Consolidated CMS Energy, including Consumers Consumers utility revenue

$ 4,348 $ 1,809 $ - $ - $ 6,157 Other - - 81 - 81 Revenue recognized from contracts with customers $ 4,348 $ 1,809 $ 81 $ - $ 6,238 Leasing income - - 148 - 148 Financing income 11 6 - 262 279 Consumers alternative-revenue programs 29 14 - - 43 Consumers revenues to be refunded (16) (12) - -

(28)

Total operating revenue - CMS Energy $ 4,372 $ 1,817 $ 229 $ 262 $ 6,680 Consumers Consumers utility revenue Residential $ 2,109 $ 1,232 $ 3,341 Commercial 1,444 337 1,781 Industrial 570 46 616 Other 225 194 419 Revenue recognized from contracts with customers $ 4,348 $ 1,809 $ 6,157 Financing income 11 6 17 Alternative-revenue programs 29 14 43 Revenues to be refunded (16) (12) (28) Total operating revenue - Consumers $ 4,372 $ 1,817 $ 6,189

1Amounts represent the enterprises segment's operating revenue from independent power production and its sales of energy commodities.

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Table of Contents In Millions Year Ended December 31, 2019 Electric Utility Gas

Utility Enterprises1 EnerBank Consolidated CMS Energy, including Consumers Consumers utility revenue

$ 4,407 $ 1,922 $ - $ - $ 6,329 Other - - 74 - 74 Revenue recognized from contracts with customers $ 4,407 $ 1,922 $ 74 $ - $ 6,403 Leasing income - - 174 - 174 Financing income 9 5 - 221 235 Consumers alternative-revenue programs 23 10 - - 33 Total operating revenue - CMS Energy $ 4,439 $ 1,937 $ 248 $ 221 $ 6,845 Consumers Consumers utility revenue Residential $ 1,988 $ 1,316 $ 3,304 Commercial 1,502 372 1,874 Industrial 669 51 720 Other 248 183 431 Revenue recognized from contracts with customers $ 4,407 $ 1,922 $ 6,329 Financing income 9 5 14 Alternative-revenue programs 23 10 33 Total operating revenue - Consumers $ 4,439 $ 1,937 $ 6,376

1Amounts represent the enterprises segment's operating revenue from independent power production and its sales of energy commodities.

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Table of Contents In Millions Year Ended December 31, 2018 Electric Utility Gas

Utility Enterprises1 EnerBank Consolidated CMS Energy, including Consumers Consumers utility revenue

$ 4,528 $ 1,882 $ - $ - $ 6,410 Other - - 92 - 92 Revenue recognized from contracts with customers $ 4,528 $ 1,882 $ 92 $ - $ 6,502 Leasing income - - 160 - 160 Financing income 10 5 - 157 172 Consumers alternative-revenue programs 23 16 - - 39 Total operating revenue - CMS Energy $ 4,561 $ 1,903 $ 252 $ 157 $ 6,873 Consumers Consumers utility revenue Residential $ 2,049 $ 1,284 $ 3,333 Commercial 1,545 367 1,912 Industrial 674 55 729 Other 260 176 436 Revenue recognized from contracts with customers $ 4,528 $ 1,882 $ 6,410 Financing income 10 5 15 Alternative-revenue programs 23 16 39 Total operating revenue - Consumers $ 4,561 $ 1,903 $ 6,464 1Amounts represent the enterprises segment's operating revenue from independent power production and its sales of energy commodities. Electric and Gas Utilities Consumers Utility Revenue: Consumers recognizes revenue primarily from the sale of electric and gas utility services at tariff-based rates regulated by the MPSC. Consumers' customer base consists of a mix of residential, commercial, and diversified industrial customers. Consumers' tariff-based sales performance obligations are described below. •Consumers has performance obligations for the service of standing ready to deliver electricity or natural gas to customers, and it satisfies these performance obligations over time. Consumers recognizes revenue at a fixed rate as it provides these services. These arrangements generally do not have fixed terms and remain in effect as long as the customer consumes the utility service. The rates are set by the MPSC through the rate-making process and represent the stand-alone selling price of Consumers' service to stand ready to deliver. •Consumers has performance obligations for the service of delivering the commodity of electricity or natural gas to customers, and it satisfies these performance obligations upon delivery. Consumers recognizes revenue at a price per unit of electricity or natural gas delivered, based on the tariffs established by the MPSC. These arrangements generally do not have fixed terms and remain in effect as long as the customer consumes the utility service. The rates are set by the MPSC through the rate-making process and represent the stand-alone selling price of a bundled product comprising the commodity, electricity or natural gas, and the service of delivering such commodity. 170 -------------------------------------------------------------------------------- Table of Contents In some instances, Consumers has specific fixed-term contracts with large commercial and industrial customers to provide electricity or gas at certain tariff rates or to provide gas transportation services at contracted rates. The amount of electricity and gas to be delivered under these contracts and the associated future revenue to be received are generally dependent on the customers' needs. Accordingly, Consumers recognizes revenues at the tariff or contracted rate as electricity or gas is delivered to the customer. Consumers also has other miscellaneous contracts with customers related to pole and other property rentals, appliance service plans, and utility contract work. Generally, these contracts are short term or evergreen in nature. Accounts Receivable and Unbilled Revenues: Accounts receivable comprise trade receivables and unbilled receivables. CMS Energy and Consumers record their accounts receivable at cost less an allowance for uncollectible accounts. The allowance is increased for uncollectible accounts expense and decreased for account write-offs net of recoveries. CMS Energy and Consumers establish the allowance based on historical losses, management's assessment of existing economic conditions, customer payment trends, and reasonable and supported forecast information. CMS Energy and Consumers assess late payment fees on trade receivables based on contractual past-due terms established with customers. Accounts are written off when deemed uncollectible, which is generally when they become six months past due. CMS Energy and Consumers recorded uncollectible accounts expense of $33 million for the year ended December 31, 2020, and $29 million for the years ended December 31, 2019 and 2018. At December 31, 2020, Consumers had deferred $4 million of uncollectible accounts expense as a non-current regulatory asset. For additional information, see Note 3, Regulatory Matters. 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 natural 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 and accrued revenue on CMS Energy's and Consumers' consolidated balance sheets, were $437 million at December 31, 2020 and $426 million at December 31, 2019. Alternative­Revenue Programs: Consumers accounts for its energy waste reduction incentive mechanism and financial compensation mechanism as alternative-revenue programs. Consumers recognizes revenue related to the energy waste reduction incentive as soon as energy savings exceed the annual targets established by the MPSC and recognizes revenue related to the financial compensation mechanism as payments are made on MPSC-approved PPAs. For additional information on these mechanisms, see Note 3, Regulatory Matters. Consumers does not reclassify revenue from its alternative-revenue program to revenue from contracts with customers at the time the amounts are collected from customers. Revenues to Be Refunded: In December 2020, the MPSC issued an order authorizing Consumers to refund $28 million voluntarily to utility customers. For additional information, see Note 3, Regulatory Matters. 171 -------------------------------------------------------------------------------- Table of Contents 17: Other Income and Other Expense Other income was not significant for any of the periods presented. Presented in the following table are the components of other expense at CMS Energy and Consumers: In Millions Years Ended December 31 2020 2019 2018 CMS Energy, including Consumers Other expense Donations $ (35) $ (3) $

(13)

Civic and political expenditures (5) (6)

(6)

Loss on reacquired and extinguished debt (16) - (16)

All other (6) (4)

(13)

Total other expense - CMS Energy $ (62) $ (13) $ (48) Consumers Other expense Donations $ (33) $ (3) $ (13) Civic and political expenditures (5) (6)

(6)

All other (5) (4)

(11)

Total other expense - Consumers $ (43) $ (13) $

(30)

18: Cash and Cash Equivalents Presented in the following table are the components of total cash and cash equivalents, including restricted amounts, and their location on CMS Energy's and Consumers' consolidated balance sheets: In

Millions

December 31 2020

2019

CMS Energy, including Consumers Cash and cash equivalents $ 168 $

140

Restricted cash and cash equivalents 17

17

Cash and cash equivalents, including restricted amounts $ 185 $ 157 Consumers Cash and cash equivalents $ 20 $

11

Restricted cash and cash equivalents 15

17

Cash and cash equivalents, including restricted amounts $ 35 $ 28

Cash and Cash Equivalents: Cash and cash equivalents include short-term, highly liquid investments with original maturities of three months or less. Restricted Cash and Cash Equivalents: Restricted cash and cash equivalents are held primarily for the repayment of securitization bonds and funds held in escrow. Cash and cash equivalents may also be restricted to pay other contractual obligations such as leasing of coal railcars. These amounts are classified as current assets since they relate to payments that could or will occur within one year. 172 -------------------------------------------------------------------------------- Table of Contents 19: 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. 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 operating 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. CMS Energy The segments reported for CMS Energy are: •electric utility, consisting of regulated activities associated with the generation, purchase, distribution, and sale of electricity in Michigan •gas utility, consisting of regulated activities associated with the purchase, transmission, storage, distribution, and sale of natural gas in Michigan •enterprises, consisting of various subsidiaries engaging in domestic independent power production, including the development and operation of renewable generation, and the marketing of independent power production •EnerBank, a Utah state-chartered, FDIC-insured industrial bank providing primarily unsecured, fixed-rate installment loans throughout the U.S. to finance home improvements CMS Energy presents corporate interest and other expenses and Consumers' other consolidated entities within other reconciling items. Consumers The segments reported for Consumers are: •electric utility, consisting of regulated activities associated with the generation, purchase, distribution, and sale of electricity in Michigan •gas utility, consisting of regulated activities associated with the purchase, transmission, storage, distribution, and sale of natural gas in Michigan Consumers' other consolidated entities are presented within other reconciling items. 173 -------------------------------------------------------------------------------- Table of Contents Presented in the following tables is financial information by segment: In Millions Years Ended December 31 2020 2019 2018 CMS Energy, including Consumers Operating revenue Electric utility $ 4,372 $ 4,439 $ 4,561 Gas utility 1,817 1,937 1,903 Enterprises 229 248 252 EnerBank 262 221 157 Total operating revenue - CMS Energy $ 6,680 $ 6,845 $ 6,873 Consumers Operating revenue Electric utility $ 4,372 $ 4,439 $ 4,561 Gas utility 1,817 1,937 1,903 Total operating revenue - Consumers $ 6,189 $ 6,376 $ 6,464 CMS Energy, including Consumers Depreciation and amortization Electric utility $ 739 $ 713 $ 682 Gas utility 283 261 239 Enterprises 20 14 8 EnerBank 5 3 4 Other reconciling items 1 1 - Total depreciation and amortization - CMS Energy $ 1,048 $ 992 $ 933 Consumers Depreciation and amortization Electric utility $ 739 $ 713 $ 682 Gas utility 283 261 239 Other reconciling items 1 1 - Total depreciation and amortization - Consumers $ 1,023 $ 975 $ 921 CMS Energy, including Consumers Income from equity method investees1 Enterprises $ 5 $

10 $ 9

Total income from equity method investees - CMS Energy $ 5 $

10 $ 9 CMS Energy, including Consumers Interest charges Electric utility $ 217 $ 213 $ 209 Gas utility 102 83 79 Enterprises 7 7 2 EnerBank 56 59 32 Other reconciling items 179 157 136 Total interest charges - CMS Energy $ 561 $

519 $ 458

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In Millions Years Ended December 31 2020 2019 2018 Consumers Interest charges Electric utility $ 217 $ 213 $ 209 Gas utility 102 83 79 Other reconciling items 1 1 1 Total interest charges - Consumers $ 320 $ 297 $ 289 CMS Energy, including Consumers Income tax expense (benefit) Electric utility $ 115 $ 134 $ 109 Gas utility 58 51 33 Enterprises (4) 2 2 EnerBank 17 16 12 Other reconciling items (53) (56) (41) Total income tax expense - CMS Energy $ 133 $ 147 $ 115 Consumers Income tax expense Electric utility $ 115 $ 134 $ 109 Gas utility 58 51 33 Total income tax expense - Consumers $ 173 $ 185 $ 142 CMS Energy, including Consumers Net income (loss) available to common stockholders Electric utility $ 554 $ 509 $ 535 Gas utility 261 233 169 Enterprises 36 33 34 EnerBank 58 49 38 Other reconciling items (154) (144) (119)

Total net income available to common stockholders - CMS Energy

$ 755 $ 680 $ 657 Consumers Net income (loss) available to common stockholder Electric utility $ 554 $ 509 $ 535 Gas utility 261 233 169 Other reconciling items (1) (1) (1)

Total net income available to common stockholder - Consumers

$ 814 $ 741 $ 703 CMS Energy, including Consumers Plant, property, and equipment, gross Electric utility2,3 $ 17,155 $ 16,158 $ 16,027 Gas utility2 9,581 8,785 7,919 Enterprises 1,113 405 412 EnerBank 37 22 25 Other reconciling items 21 20 17

Total plant, property, and equipment, gross - CMS Energy $ 27,907

$ 25,390 $ 24,400

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Table of Contents In Millions Years Ended December 31 2020 2019 2018 Consumers Plant, property, and equipment, gross Electric utility2,3 $ 17,155 $ 16,158 $ 16,027 Gas utility2 9,581 8,785 7,919 Other reconciling items 21 20 17 Total plant, property, and equipment, gross - Consumers $ 26,757 $ 24,963 $ 23,963 CMS Energy, including Consumers Investments in equity method investees1 Enterprises $ 70

$ 71 $ 69

Total investments in equity method investees - CMS Energy $ 70

$ 71 $ 69 CMS Energy, including Consumers Total assets Electric utility2 $ 15,829 $ 14,911 $ 14,079 Gas utility2 9,429 8,659 7,806 Enterprises 1,276 527 540 EnerBank 3,109 2,692 2,006 Other reconciling items 23 48 98 Total assets - CMS Energy $ 29,666 $ 26,837 $ 24,529 Consumers Total assets Electric utility2 $ 15,893 $ 14,973 $ 14,143 Gas utility2 9,477 8,706 7,853 Other reconciling items 29 20 29 Total assets - Consumers $ 25,399 $ 23,699 $ 22,025 CMS Energy, including Consumers Capital expenditures4 Electric utility5 $ 1,281 $ 1,162 $ 865 Gas utility5 885 971 958 Enterprises 108 5 246 EnerBank 5 8 10 Other reconciling items 1 1 2 Total capital expenditures - CMS Energy $ 2,280 $ 2,147 $ 2,081 Consumers Capital expenditures4 Electric utility5 $ 1,281 $ 1,162 $ 865 Gas utility5 885 971 958 Other reconciling items 1 1 2 Total capital expenditures - Consumers $ 2,167

$ 2,134 $ 1,825

1Consumers had no significant equity method investments. 2Amounts include a portion of Consumers' other common assets attributable to both the electric and gas utility businesses.

176 -------------------------------------------------------------------------------- Table of Contents 3Costs related to coal-fueled electric generating units to be retired in 2023 were removed and recorded as a regulatory asset in June 2019. For additional details, see Note 3, Regulatory Matters. 4Amounts include assets placed under finance lease. 5Amounts include a portion of Consumers' capital expenditures for plant and equipment attributable to both the electric and gas utility businesses. 20: Related-Party Transactions-Consumers Consumers enters into a number of transactions with related parties in the normal course of business. These transactions include but are not limited to: •purchases of electricity from affiliates of CMS Enterprises •payments to and from CMS Energy related to parent company overhead costs 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 is Consumers' expense recorded from related-party transactions for the years ended December 31: In Millions Description Related Party

2020 2019 2018 Purchases of capacity and energy Affiliates of CMS Enterprises $ 64 $ 75 $ 83

Amounts payable to related parties for purchased power and other services were $13 million at December 31, 2020 and $26 million at December 31, 2019. Accounts receivable from related parties were $16 million at December 31, 2020 and $8 million at December 31, 2019. In 2018, CMS Energy and Consumers sold the DB SERP debt securities and CMS Energy issued a demand note payable to the DB SERP rabbi trust. The portion of the demand note attributable to Consumers was recorded as a note receivable - related party on Consumers' consolidated balance sheets at December 31, 2020 and December 31, 2019. For additional details about the note receivable - related party, see Note 8, Notes Receivable. In December 2018, Consumers and a subsidiary of CMS Energy executed a 20­year natural gas transportation agreement, related to a pipeline owned by Consumers. For additional details about the agreement, see Note 10, Leases and Palisades Financing. Consumers owned no shares of CMS Energy common stock at December 31, 2020 and CMS Energy common stock with a fair value of $1 million at December 31, 2019. In December 2020, Consumers renewed a short-term credit agreement with CMS Energy, permitting Consumers to borrow up to $350 million. As of December 31, 2020, $307 million was outstanding under the agreement with an interest rate of 0.042 percent. 177 -------------------------------------------------------------------------------- Table of Contents 21: Variable Interest Entities In July 2020, CMS Enterprises purchased a 51-percent ownership interest in Aviator Wind Equity Holdings. At that time, Aviator Wind Equity Holdings owned 100 percent of Aviator Wind, a 525-MW wind generation project being developed and constructed in Coke County, Texas. Of Aviator Wind's 525-MW nameplate capacity, 420 MW has been committed under long-term PPAs. Aviator Wind became operational in September 2020 and, at that time, Aviator Wind Equity Holdings sold a Class A membership interest in Aviator Wind to a tax equity investor, BHE Renewables, LLC, a subsidiary of Berkshire Hathaway Energy Company. Aviator Wind Equity Holdings retained a Class B membership interest in Aviator Wind. Earnings, tax attributes, and cash flows generated by Aviator Wind are allocated among and distributed to the membership classes in accordance with the ratios specified in the associated limited liability company operating agreement; these ratios change over time and are not representative of the ownership interest percentages of each membership class. Since Aviator Wind's income and cash flows are not distributed among its investors based on ownership interest percentages, CMS Enterprises allocates Aviator Wind's income (loss) among its investors by applying the hypothetical liquidation at book value method. This method calculates each investor's earnings based on a hypothetical liquidation of Aviator Wind at the net book value of its underlying net assets as of the balance sheet date. The liquidation tax gain (loss) is allocated to each investor's capital account, resulting in income (loss) equal to the period change in the investor's capital account balance. CMS Enterprises then receives 51 percent of the earnings, tax attributes, and cash flows that were allocated to Aviator Wind Equity Holdings. Aviator Wind Equity Holdings and Aviator Wind represent VIEs. In accordance with the associated limited liability company operating agreement, the tax equity investor is guaranteed preferred returns from Aviator Wind. However, CMS Enterprises manages and controls the operating activities of Aviator Wind Equity Holdings and, ultimately, Aviator Wind. As a result, CMS Enterprises is the primary beneficiary of Aviator Wind Equity Holdings and Aviator Wind, as it has the power to direct the activities that most significantly impact the economic performance of the companies, as well as the obligation to absorb losses or the right to receive benefits from the companies. CMS Enterprises consolidates Aviator Wind Equity Holdings and Aviator Wind and presents the Class A membership interest and 49 percent of the Class B membership interest in Aviator Wind as noncontrolling interests. No gain or loss was recognized upon initial consolidation of Aviator Wind Equity Holdings and Aviator Wind. 178 -------------------------------------------------------------------------------- Table of Contents Presented in the following table are the carrying values of the VIEs' assets and liabilities included in CMS Energy's consolidated balance sheets: In Millions December 31 2020 Current Cash and cash equivalents $ 7 Accounts receivable 5 Prepayments and other current assets 1 Non-current Plant, property, and equipment, net 692 Total assets1 $ 705 Current Accounts payable $ 3 Non-current Asset retirement obligations 19 Total liabilities $ 22 1Assets may be used only to meet VIEs' obligations and commitments. Other VIEs: CMS Energy has variable interests in T.E.S. Filer City, Grayling, Genesee, and Craven. While CMS Energy owns 50 percent of each partnership, it is not the primary beneficiary of any of these partnerships because decision making is shared among unrelated parties, and no one party has the ability to direct the activities that most significantly impact the entities' economic performance, such as operations and maintenance, plant dispatch, and fuel strategy. The partners must agree on all major decisions for each of the partnerships. Presented in the following table is information about these partnerships: Name Nature of the Entity Nature of CMS Energy's Involvement T.E.S. Filer City Coal-fueled power generator

Long-term PPA between partnership and Consumers

Employee assignment agreement Grayling Wood waste-fueled power generator

Long-term PPA between partnership and Consumers

Reduced dispatch agreement with Consumers1 Operating and management contract Genesee Wood waste-fueled power generator

Long-term PPA between partnership and Consumers

Reduced dispatch agreement with Consumers1 Operating and management contract Craven Wood waste-fueled power generator Operating and management contract 1Reduced dispatch agreements allow the facilities to be dispatched based on the market price of power compared with the cost of production of the plants. This results in fuel cost savings that each partnership shares with Consumers' customers. 179 -------------------------------------------------------------------------------- Table of Contents The creditors of these partnerships do not have recourse to the general credit of CMS Energy or Consumers. Consumers has not provided any financial or other support during the periods presented that was not previously contractually required. CMS Energy's investment in these partnerships is included in investments on its consolidated balance sheets in the amount of $70 million as of December 31, 2020 and $71 million as of December 31, 2019. 22: Asset Sale and Exit Activities Asset Sale: In October 2020, Consumers completed a sale of the electric utility's remaining transmission equipment to METC. In December 2020, Consumers filed an application with the MPSC requesting approval to share voluntarily half of the gain from the sale with electric utility customers; this application was approved by the MPSC in February 2021. As a result, during 2020, Consumers recorded a regulatory liability of $14 million and recognized a pre-tax gain of $14 million within maintenance and other operating expenses on its consolidated statements of income. For additional details on the sharing of the gain with customers, see Note 3, Regulatory Matters. Exit Activities: Under its Clean Energy Plan, Consumers plans to retire the D.E. Karn 1 & 2 coal-fueled electric generating units in 2023. For additional details on Consumers' plans to recover the remaining book value of the two units upon their retirement, see Note 3, Regulatory Matters. In October 2019, Consumers announced a retention incentive program to ensure necessary staffing at the D.E. Karn generating complex through the anticipated retirement of the coal-fueled generating units. Based on the number of employees that have chosen to participate, the aggregate cost of the program through 2023 is estimated to be $35 million. In its order in Consumers' 2020 electric rate case, the MPSC approved deferred accounting treatment for these costs; Consumers will begin deferring these costs as a regulatory asset in 2021. As of December 31, 2020, the cumulative cost incurred and charged to expense related to this program was $16 million; an amount of $3 million has been capitalized as a cost of plant, property, and equipment. Presented in the following table is a reconciliation of the retention benefit liability recorded in other liabilities on Consumers' consolidated balance sheets: In Millions Years Ended December 31 2020 2019 Retention benefit liability at beginning of period $ 4 $ - Costs incurred and charged to maintenance and other operating expenses 13 3 Costs incurred and capitalized 2 1 Costs paid or settled (8) - Retention benefit liability at the end of the period1

$ 11 $ 4

1Includes current portion of other liabilities of $3 million at December 31, 2020 and $2 million at December 31, 2019.

180 -------------------------------------------------------------------------------- Table of Contents 23: Quarterly Financial and Common Stock Information (Unaudited) In Millions, Except Per Share Amounts 2020 Three Months Ended March 31 June 30 September 30 December 31 CMS Energy, including Consumers Operating revenue $ 1,864 $ 1,443 $ 1,575 $ 1,798 Operating income 368 273 369 352 Net income 243 137 210 162 Income (loss) attributable to noncontrolling interests - 1 (8) 4 Net income available to common stockholders 243 136 218 158 Basic earnings per average common share1 0.86 0.48 0.76 0.55 Diluted earnings per average common share1 0.85 0.48 0.76 0.55 Consumers Operating revenue $ 1,744 $ 1,330 $ 1,450 $ 1,665 Operating income 329 246 338 308 Net income 235 160 230 191 Preferred stock dividends - 1 - 1 Net income available to common stockholder 235 159 230 190

1The sum of the quarters may not equal annual EPS due to changes in the number of shares outstanding.

In Millions, Except Per Share Amounts

2019

Three Months Ended March 31 June 30 September 30 December 31 CMS Energy, including Consumers Operating revenue $ 2,059 $ 1,445 $ 1,546 $ 1,795 Operating income 359 218 351 311 Net income 213 94 207 168 Income attributable to noncontrolling interests - 1 - 1 Net income available to common stockholders 213 93 207 167 Basic earnings per average common share1 0.75 0.33 0.73 0.59 Diluted earnings per average common share1 0.75 0.33 0.73 0.58 Consumers Operating revenue $ 1,943 $ 1,334 $ 1,429 $ 1,670 Operating income 328 175 319 308 Net income 226 98 213 206 Preferred stock dividends - 1 - 1 Net income available to common stockholder 226 97 213 205

1The sum of the quarters may not equal annual EPS due to changes in the number of shares outstanding.

181 -------------------------------------------------------------------------------- Table of Contents Report of Independent Registered Public Accounting Firm To the Board of Directors and Stockholders of CMS Energy Corporation Opinions on the Financial Statements and Internal Control over Financial Reporting We have audited the accompanying consolidated balance sheets of CMS Energy Corporation and its subsidiaries (the "Company") as of December 31, 2020 and 2019, and the related consolidated statements of income, comprehensive income, changes in equity and cash flows for each of the three years in the period ended December 31, 2020, including the related notes and financial statement schedules listed in the index appearing under Item 15 (collectively referred to as the "consolidated financial statements"). We also have audited the Company's internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO. Basis for Opinions The Company's management is responsible for these consolidated financial statements, 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 the Company's consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. 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. 182 -------------------------------------------------------------------------------- Table of Contents Definition and Limitations of Internal Control over Financial Reporting 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. Critical Audit Matters The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Accounting for the Effects of New Regulatory Matters As described in Note 3 to the consolidated financial statements, the Company is a utility and must apply regulatory accounting when its rates are designed to recover specific costs of providing regulated services. Under regulatory accounting, the Company records regulatory assets or liabilities for certain transactions that would have been treated as expense or revenue by a non-regulated business. As of December 31, 2020, the Company has recognized a total of $2,695 million of regulatory assets and $3,895 million of regulatory liabilities. As described by management, there are multiple participants to rate case proceedings who often challenge various aspects of those proceedings, including the prudence of the Company's policies and practices. These participants often seek cost disallowances and other relief and have appealed significant decisions reached by the regulators. The recovery of regulatory assets and the settlement of regulatory liabilities are contingent upon the outcomes of rate cases and regulatory proceedings. The principal considerations for our determination that performing procedures relating to management's accounting for the effects of new regulatory matters is a critical audit matter are (i) the high degree of auditor judgment and subjectivity applied to evaluate management's assessment of the potential outcomes and related accounting impacts associated with pending rate case proceedings, (ii) in some cases, the significant audit effort necessary to assess contrary evidence from various parties involved in rate case proceedings, and (iii) the significant audit effort necessary to evaluate audit evidence related to the recovery of regulatory assets and the settlement of regulatory liabilities. 183 -------------------------------------------------------------------------------- Table of Contents Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management's assessment of regulatory proceedings, including the probability of recovering incurred costs and the related accounting and disclosure impacts. These procedures also included, among others, obtaining and evaluating the Company's correspondence with regulators, evaluating the reasonableness of management's assessment regarding whether recovery of regulatory assets and settlement of regulatory liabilities is probable and evaluating the sufficiency of the disclosures in the consolidated financial statements. Procedures were performed to evaluate the regulatory assets and liabilities, including those subject to pending rate cases, based on provisions and formulas outlined in rate orders, other regulatory correspondence, or application of relevant regulatory precedents. /s/ PricewaterhouseCoopers LLP Detroit, Michigan February 11, 2021 We have served as the Company's auditor since 2007. 184

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(This page intentionally left blank) 185 -------------------------------------------------------------------------------- Table of Contents Report of Independent Registered Public Accounting Firm To the Board of Directors and Stockholder of Consumers Energy Company Opinions on the Financial Statements and Internal Control over Financial Reporting We have audited the accompanying consolidated balance sheets of Consumers Energy Company and its subsidiaries (the "Company") as of December 31, 2020 and 2019, and the related consolidated statements of income, comprehensive income, changes in equity and cash flows for each of the three years in the period ended December 31, 2020, including the related notes and financial statement schedule listed in the index appearing under Item 15 (collectively referred to as the "consolidated financial statements"). We also have audited the Company's internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO. Basis for Opinions The Company's management is responsible for these consolidated financial statements, 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 the Company's consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. 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. 186 -------------------------------------------------------------------------------- Table of Contents Definition and Limitations of Internal Control over Financial Reporting 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. Critical Audit Matters The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Accounting for the Effects of New Regulatory Matters As described in Note 3 to the consolidated financial statements, the Company is a utility and must apply regulatory accounting when its rates are designed to recover specific costs of providing regulated services. Under regulatory accounting, the Company records regulatory assets or liabilities for certain transactions that would have been treated as expense or revenue by a non-regulated business. As of December 31, 2020, the Company has recognized a total of $2,695 million of regulatory assets and $3,895 million of regulatory liabilities. As described by management, there are multiple participants to rate case proceedings who often challenge various aspects of those proceedings, including the prudence of the Company's policies and practices. These participants often seek cost disallowances and other relief and have appealed significant decisions reached by the regulators. The recovery of regulatory assets and the settlement of regulatory liabilities are contingent upon the outcomes of rate cases and regulatory proceedings. The principal considerations for our determination that performing procedures relating to management's accounting for the effects of new regulatory matters is a critical audit matter are (i) the high degree of auditor judgment and subjectivity applied to evaluate management's assessment of the potential outcomes and related accounting impacts associated with pending rate case proceedings, (ii) in some cases, the significant audit effort necessary to assess contrary evidence from various parties involved in rate case proceedings, and (iii) the significant audit effort necessary to evaluate audit evidence related to the recovery of regulatory assets and the settlement of regulatory liabilities. 187 -------------------------------------------------------------------------------- Table of Contents Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management's assessment of regulatory proceedings, including the probability of recovering incurred costs and the related accounting and disclosure impacts. These procedures also included, among others, obtaining and evaluating the Company's correspondence with regulators, evaluating the reasonableness of management's assessment regarding whether recovery of regulatory assets and settlement of regulatory liabilities is probable and evaluating the sufficiency of the disclosures in the consolidated financial statements. Procedures were performed to evaluate the regulatory assets and liabilities, including those subject to pending rate cases, based on provisions and formulas outlined in rate orders, other regulatory correspondence, or application of relevant regulatory precedents. /s/ PricewaterhouseCoopers LLP Detroit, Michigan February 11, 2021 We have served as the Company's auditor since 2007. 188

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