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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 10-K

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2013

OR

o  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from_____to_____

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act:  None

Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

CMS Energy Corporation:  Yes x  No o  Consumers Energy Company:  Yes x  No o

Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

CMS Energy Corporation:  Yes o  No x  Consumers Energy Company:  Yes o  No x

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

CMS Energy Corporation:  Yes x  No o  Consumers Energy Company:  Yes x  No o

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files).

CMS Energy Corporation:  Yes x  No o  Consumers Energy Company:  Yes x  No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

CMS Energy Corporation:  Large accelerated filer x  Accelerated filer o  Non-Accelerated filer o  Smaller reporting company o

(Do not check if a smaller reporting company)

Consumers Energy Company:  Large accelerated filer o  Accelerated filer o  Non-Accelerated filer x  Smaller reporting company o

(Do not check if a smaller reporting company)

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

CMS Energy Corporation:  Yes o  No x  Consumers Energy Company:  Yes o  No x

The aggregate market value of CMS  Energy voting and non-voting common equity held by non-affiliates was $7.253 billion for the 266,947,124 CMS Energy Common Stock shares outstanding on June 28, 2013 based on the closing sale price of $27.17 for CMS Energy Common Stock, as reported by the New York Stock Exchange on such date.

There were 267,207,862 shares of CMS Energy Common Stock outstanding on January 9, 2014, including 1,091,320 shares owned by Consumers Energy Company.  On January 9, 2014, CMS Energy held all voting and non-voting common equity of Consumers.  Documents incorporated by reference in Part III:  CMS Energy’s proxy statement and Consumers’ information statement relating to the 2014 annual meeting of stockholders to be held May 16, 2014.

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CMS Energy Corporation

Consumers Energy Company

Annual Reports on Form 10-K to the Securities and Exchange Commission for the Year Ended

December 31, 2013

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GLOSSARY

Certain terms used in the text and financial statements are defined below.

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FILING FORMAT

This combined Form 10-K is separately filed by CMS Energy and Consumers.  Information in this combined Form 10-K relating to each individual registrant is filed by such registrant on its own behalf.  Consumers makes no representation regarding information relating to any other companies affiliated with CMS Energy other than its own subsidiaries.  None of CMS Energy, CMS Enterprises, nor any of CMS Energy’s other subsidiaries (other than Consumers) has any obligation in respect of Consumers’ debt securities and holders of such debt securities should not consider the financial resources or results of operations of CMS Energy, CMS Enterprises, nor any of CMS Energy’s other subsidiaries (other than Consumers and its own subsidiaries (in relevant circumstances)) in making a decision with respect to Consumers’ debt securities.  Similarly, none of Consumers nor any other subsidiary of CMS Energy has any obligation in respect of debt securities of CMS Energy.

FORWARD-LOOKING STATEMENTS AND INFORMATION

This Form 10-K and other written and oral statements that CMS Energy and Consumers make may contain forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995.  The use of “might,” “may,” “could,” “should,” “anticipates,” “believes,” “estimates,” “expects,” “intends,” “plans,” “projects,” “forecasts,” “predicts,” “assumes,” and other similar words is intended to identify forward-looking statements that involve risk and uncertainty.  This discussion of potential risks and uncertainties is designed to highlight important factors that may impact CMS Energy’s and Consumers’ businesses and financial outlook.  CMS Energy and Consumers have no obligation to update or revise forward-looking statements regardless of whether new information, future events, or any other factors affect the information contained in the statements.  These forward-looking statements are subject to various factors that could cause CMS Energy’s and Consumers’ actual results to differ materially from the results anticipated in these statements.  These factors include, but are not limited to, the following, all of which are potentially significant:

·                 the impact of new regulation by the MPSC or FERC and other applicable governmental proceedings and regulations, including any associated impact on electric or gas rates or rate structures;

·                 potentially adverse regulatory treatment or failure to receive timely regulatory orders affecting Consumers that are or could come before the MPSC, FERC, or other governmental authorities;

·                 changes in the performance of or regulations applicable to MISO, Michigan Electric Transmission Company, pipelines, railroads, or other service providers that CMS Energy, Consumers, or any of their affiliates rely on to serve their customers;

·                 the adoption of federal or state laws or regulations or changes in applicable laws, rules, regulations, principles, or practices, or in their interpretation, including those related to energy policy and ROA, the environment, regulation or deregulation, health care reforms (including the Health Care Acts), taxes, accounting matters, and other business issues that could have an impact on CMS Energy’s or Consumers’ businesses or financial results, including laws or regulations regarding climate change and air emissions and potential effects of the Dodd-Frank Act and related regulations on CMS Energy, Consumers, or any of their affiliates;

·                 potentially adverse regulatory or legal interpretations or decisions regarding environmental matters, or delayed regulatory treatment or permitting decisions that are or could come before the MDEQ, EPA, and/or U.S. Army Corps of Engineers, and potential environmental remediation costs associated with these interpretations or decisions, including those that may affect Bay Harbor or Consumers’ RMRR classification under NSR regulations;

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·                 changes in energy markets, including availability and price of electric capacity and the timing and extent of changes in commodity prices and availability of coal, natural gas, natural gas liquids, electricity, oil, and certain related products;

·                 the price of CMS Energy common stock, the credit ratings of CMS Energy and Consumers, capital and financial market conditions, and the effect of these market conditions on CMS Energy’s and Consumers’ interest costs and access to the capital markets, including availability of financing to CMS Energy, Consumers, or any of their affiliates;

·                 the investment performance of the assets of CMS Energy’s and Consumers’ pension and benefit plans and the discount rates used in calculating the plans’ obligations, and the resulting impact on future funding requirements;

·                 the impact of the economy, particularly in Michigan, and potential future volatility in the financial and credit markets on CMS Energy’s, Consumers’, or any of their affiliates’ revenues, ability to collect accounts receivable from customers, or cost and availability of capital;

·                 changes in the economic and financial viability of CMS Energy’s and Consumers’ suppliers, customers, and other counterparties and the continued ability of these third parties, including third parties in bankruptcy, to meet their obligations to CMS Energy and Consumers;

·                 population changes in the geographic areas where CMS Energy and Consumers conduct business;

·                 national, regional, and local economic, competitive, and regulatory policies, conditions, and developments, including municipal bankruptcy filings;

·                 loss of customer demand for electric generation supply to alternative energy suppliers;

·                 federal regulation of electric sales and transmission of electricity, including periodic re-examination by federal regulators of CMS Energy’s and Consumers’ market-based sales authorizations in wholesale power markets without price restrictions;

·                 the impact of credit markets, economic conditions, and any new banking regulations on EnerBank;

·                 the availability, cost, coverage, and terms of insurance, the stability of insurance providers, and the ability of Consumers to recover the costs of any insurance from customers;

·                 the effectiveness of CMS Energy’s and Consumers’ risk management policies, procedures, and strategies, including strategies to hedge risk related to future prices of electricity, natural gas, and other energy-related commodities;

·                 factors affecting development of electric generation projects and distribution infrastructure replacement and expansion projects, including those related to project site identification, construction material pricing, availability of qualified construction personnel, permitting, and government approvals;

·                 factors affecting operations, such as costs and availability of personnel, equipment, and materials, unusual weather conditions, catastrophic weather-related damage, scheduled or unscheduled equipment outages, maintenance or repairs, environmental incidents, equipment failures, and electric transmission and distribution or gas pipeline system constraints;

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·                 potential disruption to, interruption of, or other impacts on facilities, utility infrastructure, or operations due to accidents, explosions, physical disasters, war, or terrorism, and the ability to obtain or maintain insurance coverage for these events;

·                 changes or disruption in fuel supply, including but not limited to rail or vessel transport of coal and pipeline transport of natural gas;

·                 potential costs, lost revenues, or other consequences resulting from misappropriation of assets or sensitive information, corruption of data, or operational disruption in connection with a cyber attack or other cyber incident;

·                 technological developments in energy production, storage, delivery, usage, and metering, including Smart Energy and the success of its implementation;

·                 the impact of CMS Energy’s and Consumers’ integrated business software system and its operation on their activities, including utility customer billing and collections;

·                 adverse consequences resulting from any past or future assertion of indemnity or warranty claims associated with assets and businesses previously owned by CMS Energy or Consumers, including claims resulting from attempts by foreign or domestic governments to assess taxes on past operations or transactions;

·                 the outcome, cost, and other effects of legal or administrative proceedings, settlements, investigations, or claims;

·                 restrictions imposed by various financing arrangements and regulatory requirements on the ability of Consumers and other subsidiaries of CMS Energy to transfer funds to CMS Energy in the form of cash dividends, loans, or advances;

·                 earnings volatility resulting from the application of fair value accounting to certain energy commodity contracts or interest rate contracts;

·                 changes in financial or regulatory accounting principles or policies, including a possible future requirement to comply with International Financial Reporting Standards, which differ from GAAP in various ways, including the present lack of special accounting treatment for regulated activities; and

·                 other matters that may be disclosed from time to time in CMS Energy’s and Consumers’ SEC filings, or in other publicly issued documents.

All forward-looking statements should be considered in the context of the risk and other factors described above and as detailed from time to time in CMS Energy’s and Consumers’ SEC filings.  For additional details regarding these and other uncertainties, see Item 1A. Risk Factors; Item 8. Financial Statements and Supplementary Data, MD&A — Outlook; and Item 8. Financial Statements and Supplementary Data, Notes to the Consolidated Financial Statements — Note 2, Regulatory Matters and Note 3, Contingencies and Commitments.

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PART I

ITEM 1. BUSINESS

GENERAL

CMS ENERGY

CMS Energy was formed as a corporation in Michigan in 1987 and is an energy company operating primarily in Michigan.  It is the parent holding company of several subsidiaries, including Consumers, an electric and gas utility, and CMS Enterprises, primarily a domestic independent power producer.  Consumers serves individuals and businesses operating in the alternative energy, automotive, chemical, metal, and food products industries, as well as a diversified group of other industries.  CMS Enterprises, through its subsidiaries and equity investments, is engaged primarily in independent power production and owns power generation facilities fueled mostly by natural gas and biomass.

CMS Energy manages its businesses by the nature of services each provides, and operates principally in three business segments:  electric utility, gas utility, and enterprises, its non-utility operations and investments.  Consumers’ consolidated operations account for substantially all of CMS Energy’s total assets, income, and operating revenue.  CMS Energy’s consolidated operating revenue was $6.6 billion in 2013, $6.3 billion in 2012, and $6.5 billion in 2011.

For further information about operating revenue, operating income, and identifiable assets and liabilities attributable to all of CMS Energy’s business segments and operations, see Item 8. Financial Statements and Supplementary Data, CMS Energy’s Selected Financial Information, Consolidated Financial Statements, and Notes to the Consolidated Financial Statements.

CONSUMERS

Consumers has served Michigan customers since 1886.  Consumers was incorporated in Maine in 1910 and became a Michigan corporation in 1968.  Consumers owns and operates electric distribution and generation facilities and gas transmission, storage, and distribution facilities.  It provides electricity and/or natural gas to 6.5 million of Michigan’s 10 million residents.  Consumers’ rates and certain other aspects of its business are subject to the jurisdiction of the MPSC and FERC, as described in “CMS Energy and Consumers Regulation” in this Item 1.

Consumers’ consolidated operating revenue was $6.3 billion in 2013, $6.0 billion in 2012, and $6.3 billion in 2011.  For further information about operating revenue, operating income, and identifiable assets and liabilities attributable to Consumers’ electric and gas utility operations, see Item 8. Financial Statements and Supplementary Data, Consumers’ Selected Financial Information, Consolidated Financial Statements, and Notes to the Consolidated Financial Statements.

Consumers owns its principal properties in fee, except that most electric lines and gas mains are located below public roads or on land owned by others and are accessed by Consumers through easements and other rights.  Almost all of Consumers’ properties are subject to the lien of its First Mortgage Bond Indenture.  For additional information on Consumers’ properties, see Consumers Electric Utility — Electric Utility Properties and Consumers Gas Utility — Gas Utility Properties in the “Business Segments” section of this Item 1.

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In 2013, Consumers served 1.8 million electric customers and 1.7 million gas customers in Michigan’s Lower Peninsula.  Presented in the following map is Consumers’ service territory:

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BUSINESS SEGMENTS

CONSUMERS ELECTRIC UTILITY

Electric Utility Operations:  Consumers’ electric utility operations, which include the generation, purchase, distribution, and sale of electricity, generated operating revenue of $4.2 billion in 2013, $4.0 billion in 2012, and $3.9 billion in 2011.  Consumers’ electric utility customer base consists of a mix of residential, commercial, and diversified industrial customers in Michigan’s Lower Peninsula.

Presented in the following illustration is Consumers’ 2013 electric utility operating revenue of $4.2 billion by customer class:

Consumers’ electric utility operations are not dependent on a single customer, or even a few customers, and the loss of any one or even a few of Consumers’ largest customers is not reasonably likely to have a material adverse effect on Consumers’ financial condition.

In 2013, Consumers’ electric deliveries were 37 billion kWh, which included ROA deliveries of four billion kWh, resulting in net bundled sales of 33 billion kWh.  In 2012, Consumers’ electric deliveries were 38 billion kWh, which included ROA deliveries of four billion kWh, resulting in net bundled sales of 34 billion kWh.

Consumers’ electric utility operations are seasonal.  The consumption of electric energy typically increases in the summer months, due primarily to the use of air conditioners and other cooling equipment.

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Presented in the following illustration are Consumers’ monthly weather-adjusted electric deliveries (deliveries adjusted to reflect normal weather conditions) to its customers, including ROA deliveries, during 2013 and 2012:

Consumers’ 2013 summer peak demand was 8,509 MW, which included ROA demand of 556 MW.  For the 2012-2013 winter period, Consumers’ peak demand was 5,845 MW, which included ROA demand of 461 MW.  As required by MISO reserve margin requirements, Consumers owns or controls, through long-term contracts, capacity required to supply most of its projected firm peak load and necessary reserve margin for summer 2014.  Consumers expects to acquire the balance of its 2014 requirements through MISO’s forward capacity auction scheduled to be conducted in April 2014.

Electric Utility Properties:  Consumers’ distribution system consists of:

·                 422 miles of high-voltage distribution radial lines operating at 120 kilovolts or above;

·                 4,259 miles of high-voltage distribution overhead lines operating at 23 kilovolts, 46 kilovolts, and 69 kilovolts;

·                 18 miles of high-voltage distribution underground lines operating at 23 kilovolts and 46 kilovolts;

·                 55,996 miles of electric distribution overhead lines;

·                 10,210 miles of underground distribution lines; and

·                 substations with an aggregate transformer capacity of 24 million kVA.

Consumers is interconnected to the interstate high-voltage electric transmission system owned by Michigan Electric Transmission Company, LLC, a non-affiliated company, and operated by MISO.  Consumers is also interconnected to neighboring utilities and to other transmission systems.

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At December 31, 2013, Consumers’ electric generating system consisted of the following:

1   Represents each plant’s electric generation capacity during the summer months.

2  Represents Consumers’ share of the capacity of the J.H. Campbell 3 unit, net of the 6.69-percent ownership interest of the Michigan Public Power Agency and Wolverine Power Supply Cooperative, Inc.

3  Subject to a successful Securitization transaction, Consumers plans to retire these seven smaller coal-fueled generating units by April 2016.  For further information, see Item 8. Financial Statements and Supplementary Data, MD&A – Outlook, “Consumers Electric Utility Business Outlook and Uncertainties – Balanced Energy Initiative.”

4  B.C. Cobb 1-3 were coal-fueled units that were retired and subsequently converted to gas-fueled units.  B.C. Cobb 1-3 were placed back into service in the years indicated and mothballed beginning in April 2009.  Subject to a successful Securitization transaction, Consumers plans to retire these units by April 2016.

5  Represents Consumers’ 51-percent share of the capacity of Ludington.  DTE Electric holds the remaining 49-percent ownership interest.

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6  Represents Consumers’ share of net pumped-storage generation.  The pumped-storage facility consumes electricity to pump water during off-peak hours for storage in order to generate electricity later during peak-demand hours.

7  Includes purchases from the MISO energy market, long-term purchase contracts, and seasonal purchases.

8  Includes 1,240 MW of purchased contract capacity from the MCV Facility and 778 MW of purchased contract capacity from Palisades.

9  Includes 2,381 GWh of purchased energy from the MCV Facility and 6,915 GWh of purchased energy from Palisades.

Consumers’ generation capacity is a measure of the maximum electric output that Consumers has available to meet peak load requirements.  As shown in the following illustration, Consumers’ 2013 generation capacity of 8,603 MW, including purchased capacity of 2,619 MW, relied on a variety of fuel sources:

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Electric Utility Supply:  Over the last five years, Consumers’ electric supply came from the following sources:

1   Represents Consumers’ share of net pumped-storage generation.  The pumped-storage facility consumes electricity to pump water during off-peak hours for storage in order to generate electricity later during peak-demand hours.

2   Includes purchases from long-term purchase contracts.

3   Includes purchases from the MISO energy market and seasonal purchases.

During 2013, Consumers purchased 49 percent of the electricity it provided to customers through long-term PPAs, seasonal purchases, and the MISO energy market.  Consumers offers its generation into the MISO energy market on a day-ahead and real-time basis and bids for power in the market to serve the demand of its customers.  Consumers is a net purchaser of power and supplements its generation capability with purchases from the MISO energy market to meet its customers’ needs during peak demand periods.

At December 31, 2013, Consumers had unrecognized future commitments (amounts for which liabilities, in accordance with GAAP, have not been recorded on its balance sheet) to purchase capacity and energy under long-term PPAs with various generating plants.  These contracts require monthly capacity payments based on the plants’ availability or deliverability.  The payments for 2014 through 2032 are estimated to total $12.1 billion and to range from $917 million to $1.1 billion annually for each of the next five years.  These amounts may vary depending on plant availability and fuel costs.  For further information about Consumers’ future capacity and energy purchase obligations, see Item 8. Financial Statements and Supplementary Data, MD&A – Capital Resources and Liquidity and Note 3, Contingencies and Commitments – Contractual Commitments.

During 2013, 46 percent of the energy Consumers provided to customers was generated by its four coal-fueled generating sites, which burned nine million tons of coal and produced a combined total of 15,951 GWh of electricity.

In order to obtain the coal it needs, Consumers enters into physical coal supply contracts.  At December 31, 2013, Consumers had contracts to purchase coal through 2015; payment obligations under these contracts totaled $163 million.  Consumers’ rail-supplied coal contracts have fixed prices with the exception of one contract, which is for the purchase of coal through 2014 and contains market-based pricing.  Consumers’ vessel-supplied coal contracts have fixed base prices that are adjusted monthly to reflect changes to the fuel cost of vessel transportation.  At December 31, 2013, Consumers had

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79 percent of its 2014 expected coal requirements under contract, as well as a 24-day supply of coal on hand.

In conjunction with its coal supply contracts, Consumers leases a fleet of rail cars and has transportation contracts with various companies to provide rail and vessel services for delivery of purchased coal to Consumers’ generating facilities.  Consumers’ coal transportation contracts expire through 2014; payment obligations under these contracts totaled $227 million.

During 2013, four percent of the energy Consumers provided to customers was generated by gas-fueled generating sites, which burned 12 bcf of natural gas and produced a combined total of 1,415 GWh of electricity.

In order to obtain the gas it needs, Consumers’ electric utility purchases gas from the market near the time of consumption, at prices that allow it to compete in the electric generation market.  For D.E. Karn, units 3 and 4, and the Zeeland plant, Consumers purchases gas from the market and transports the gas to the facilities on a firm basis.  For its smaller combustion turbines, Consumers’ electric utility purchases and transports gas to its facilities as a bundled-rate tariff customer of either the gas utility or DTE Gas.

The cost of all fuels consumed, shown in the following table, fluctuates with the mix of fuel used.

Electric Utility Competition:  Consumers’ electric utility business is subject to actual and potential competition from many sources, in both the wholesale and retail markets, as well as in electric generation, electric delivery, and retail services.

A Michigan statute enacted in 2000 allows Consumers’ electric customers to buy electric generation service from Consumers or from alternative electric suppliers.  The 2008 Energy Law revised the statute by limiting alternative electric supply to ten percent of Consumers’ weather-adjusted retail sales for the preceding calendar year.  At December 31, 2013, Consumers’ electric deliveries under the ROA program were at the ten-percent limit and alternative electric suppliers were providing 787 MW of electric generation service to 310 ROA customers.

In December 2013, a bill was introduced to the Michigan House of Representatives that, if enacted, would revise the 2008 Energy Law by removing the ten-percent limit and allowing all of Consumers’ electric customers to take service from alternative electric suppliers.  Presently, the proportion of Consumers’ electric deliveries under the ROA program and on the ROA waiting list is 25 percent.  The bill also proposes to deregulate electric generation service in Michigan within two years.  No definitive action has been taken on this bill or on a similar bill introduced to the Michigan Senate in February 2013.  The Senate bill, if enacted, would revise the 2008 Energy Law and allow customers on the ROA program waiting list to take service from alternative electric suppliers.  The Senate bill also proposes an increase in the cap of six percentage points per year from 2014 through 2016.

Consumers is unable to predict the outcome of these legislative proposals.  In addition, the Michigan legislature has conducted hearings on the subject of energy competition.  If the ROA limit were increased or if electric generation service in Michigan were deregulated, it could have a material adverse effect on Consumers’ financial results and operations.

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Consumers also has competition or potential competition from:

·                 industrial customers relocating all or a portion of their production capacity outside of Consumers’ service territory for economic reasons;

·                 municipalities owning or operating competing electric delivery systems; and

·                 customer self-generation.

Consumers addresses this competition by monitoring activity in adjacent areas and compliance with the MPSC’s and FERC’s rules, by providing non-energy services and value to customers through Consumers’ rates and service, and by offering tariff-based incentives that support economic development.

CONSUMERS GAS UTILITY

Gas Utility Operations:  Consumers’ gas utility operations, which include the purchase, transmission, storage, distribution, and sale of natural gas, generated operating revenue of $2.1 billion in 2013, $2.0 billion in 2012, and $2.3 billion in 2011.  Consumers’ gas utility customer base consists of a mix of residential, commercial, and diversified industrial customers in Michigan’s Lower Peninsula.

Presented in the following illustration is Consumers’ 2013 gas utility operating revenue of $2.1 billion by customer class:

Consumers’ gas utility operations are not dependent on a single customer, or even a few customers, and the loss of any one or even a few of Consumers’ largest customers is not reasonably likely to have a material adverse effect on Consumers’ financial condition.

In 2013, deliveries of natural gas, including off-system transportation deliveries, through Consumers’ pipeline and distribution network, totaled 352 bcf, which included GCC deliveries of 63 bcf.  In 2012, deliveries of natural gas, including off-system transportation deliveries, through Consumers’ pipeline and distribution network, totaled 329 bcf, which included GCC deliveries of 49 bcf.  Consumers’ gas utility operations are seasonal.  Consumers injects natural gas into storage during the summer months for use

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during the winter months when the demand for natural gas is higher.  Peak demand occurs in the winter due to colder temperatures and the resulting use of natural gas as a heating fuel.  During 2013, 53 percent of the natural gas supplied to all customers during the winter months was supplied from storage.

Presented in the following illustration are Consumers’ monthly weather-adjusted gas deliveries (deliveries adjusted to reflect normal weather conditions) to its customers, including GCC deliveries, during 2013 and 2012:

Gas Utility Properties:  Consumers’ gas distribution and transmission system consists of:

·                 26,819 miles of distribution mains;

·                 1,661 miles of transmission lines;

·                 seven compressor stations with a total of 150,027 installed and available horsepower; and

·                 15 gas storage fields with an aggregate storage capacity of 309 bcf and a working storage capacity of 143 bcf.

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Gas Utility Supply:  In 2013, Consumers purchased 66 percent of the gas it delivered from U.S. producers and 10 percent from Canadian producers.  The remaining 24 percent was purchased from authorized GCC suppliers and delivered by Consumers to customers in the GCC program.  Presented in the following illustration are the supply arrangements for the gas Consumers delivered to GCC and GCR customers during 2013:

Firm transportation or firm city-gate contracts are those that define a fixed amount, price, and delivery time frame.  Consumers’ firm gas transportation contracts are with ANR Pipeline Company, Great Lakes Gas Transmission, L.P., Panhandle, and Trunkline.  Under these contracts, Consumers purchases and transports gas to Michigan for ultimate delivery to its customers.  Consumers’ firm gas transportation contracts expire through 2017 and provide for the delivery of 47 percent of Consumers’ total gas supply requirements.  Consumers purchases the balance of its required gas supply under firm city-gate contracts and through authorized suppliers under the GCC program.

Gas Utility Competition:  Competition exists in various aspects of Consumers’ gas utility business.  Competition comes from GCC and from alternative fuels and energy sources, such as propane, oil, and electricity.

ENTERPRISES SEGMENT – NON-UTILITY OPERATIONS AND INVESTMENTS

CMS Energy’s enterprises segment, through various subsidiaries and certain equity investments, is engaged primarily in domestic independent power production and the marketing of independent power production.  The enterprises segment’s operating revenue was $181 million in 2013, $183 million in 2012, and $204 million in 2011.

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Independent Power Production:  At December 31, 2013, CMS Energy had ownership interests in independent power plants totaling 1,135 gross MW or 1,034 net MW.  (Net MW reflects that portion of the gross capacity relating to CMS Energy’s ownership interests.)  Presented in the following table are CMS Energy’s interests in independent power plants at December 31, 2013:

The operating revenue from independent power production was $17 million in 2013, $16 million in 2012, and $17 million in 2011.  CMS Energy’s independent power production business faces competition from generators, marketers and brokers, and utilities marketing power in the wholesale market.

Energy Resource Management:  CMS ERM purchases and sells energy commodities in support of CMS Energy’s generating facilities and continues to focus on optimizing CMS Energy’s independent power production portfolio.  In 2013, CMS ERM marketed 11 bcf of natural gas and 3,596 GWh of electricity.  Electricity marketed by CMS ERM was generated by independent power production of the enterprises segment and unrelated third parties.  CMS ERM’s operating revenue included in income from continuing operations in CMS Energy’s consolidated financial statements was $164 million in 2013, $167 million in 2012, and $187 million in 2011.

OTHER BUSINESSES

EnerBank:  EnerBank is a Utah state-chartered, FDIC-insured industrial bank providing unsecured consumer installment loans for financing home improvements.  EnerBank’s operating revenue included in income from continuing operations in CMS Energy’s consolidated financial statements was $64 million in 2013, $57 million in 2012, and $46 million in 2011.

CMS ENERGY AND CONSUMERS REGULATION

CMS Energy, Consumers, and their subsidiaries are subject to regulation by various federal, state, local, and foreign governmental agencies, including those described in the following sections.

FERC

FERC has exercised limited jurisdiction over several independent power plants and exempt wholesale generators in which CMS Enterprises has ownership interests, as well as over CMS ERM, CMS Gas Transmission, and DIG.  Among other things, FERC has jurisdiction over acquisitions, operations, and disposals of certain assets and facilities, services provided and rates charged, conduct among affiliates, and limited jurisdiction over holding company matters with respect to CMS Energy.  FERC, in connection with NERC and with regional reliability organizations, also regulates generation owners and operators, load serving entities, purchase and sale entities, and others with regard to reliability of the bulk power system.  FERC regulates limited aspects of Consumers’ gas business, principally compliance with FERC capacity release rules, shipping rules, the prohibition against certain buy/sell transactions, and the price-reporting rule.

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FERC also regulates certain aspects of Consumers’ electric operations, including compliance with FERC accounting rules, wholesale rates, operation of licensed hydroelectric generating plants, transfers of certain facilities, corporate mergers, and issuances of securities.

MPSC

Consumers is subject to the jurisdiction of the MPSC, which regulates public utilities in Michigan with respect to retail utility rates, accounting, utility services, certain facilities, certain asset transfers, corporate mergers, and other matters.

The Michigan Attorney General, ABATE, the MPSC Staff, and certain other parties typically participate in MPSC proceedings concerning Consumers.  The Michigan Attorney General, ABATE, and others often appeal significant MPSC orders.

Rate Proceedings:  For information regarding open rate proceedings, see Item 8. Financial Statements and Supplementary Data, MD&A — Outlook and Notes to the Consolidated Financial Statements — Note 2, Regulatory Matters.

OTHER REGULATION

The U.S. Secretary of Energy regulates imports and exports of natural gas and has delegated various aspects of this jurisdiction to FERC and the DOE’s Office of Fossil Fuels.

The U.S. Department of Transportation Office of Pipeline Safety regulates the safety and security of gas pipelines through the Natural Gas Pipeline Safety Act of 1968 and subsequent laws.

EnerBank is regulated by the State of Utah and the FDIC.

ENERGY LEGISLATION

CMS Energy, Consumers, and their subsidiaries are subject to various legislative-driven matters, including Michigan’s 2008 Energy Law.  This law requires that at least ten percent of Consumers’ electric sales volume come from renewable energy sources by 2015, and includes requirements for specific capacity additions.  The 2008 Energy Law also requires Consumers to prepare an energy optimization plan and achieve annual sales reduction targets through at least 2015.  The targets increase annually, with the goal of achieving a six percent reduction in customers’ electricity use and a four percent reduction in customers’ natural gas use by December 31, 2015.  The 2008 Energy Law also revised a Michigan statute by limiting alternative energy supply to ten percent of Consumers’ weather-adjusted retail sales of the preceding calendar year.  For additional information regarding Consumers’ renewable energy and energy optimization plans and electric ROA, see Item 8. Financial Statements and Supplementary Data, MD&A — Outlook, “Consumers Electric Utility Business Outlook and Uncertainties.”

CMS ENERGY AND CONSUMERS ENVIRONMENTAL COMPLIANCE

CMS Energy, Consumers, and their subsidiaries are subject to various federal, state, and local regulations for environmental quality, including air and water quality, solid waste management, and other matters.  For additional information concerning environmental matters, see Item 1A. Risk Factors and Item 8. Financial Statements and Supplementary Data, Notes to the Consolidated Financial Statements — Note 3, Contingencies and Commitments.

Consumers has recorded a significant liability for its obligations at a number of MGP sites.  For additional information, see Item 1A. Risk Factors and Item 8.  Financial Statements and Supplementary Data, Notes to the Consolidated Financial Statements — Note 3, Contingencies and Commitments.

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Air:  Consumers continues to install state-of-the-art emissions control equipment at its electric generating plants.  Consumers estimates that it will incur expenditures of $507 million from 2014 through 2018 to comply with present and future federal and state environmental regulations that will require extensive reductions in nitrogen oxides, sulfur dioxides, particulate matter, and mercury emissions.  Consumers’ estimate may increase if additional or more stringent laws or regulations are adopted or implemented regarding greenhouse gases, including carbon dioxide.

Solid Waste Disposal:  Costs related to the construction, operation, and closure of solid waste disposal facilities for coal ash are significant.  Consumers’ solid waste disposal areas are regulated under Michigan’s solid waste rules.  Consumers has converted all of its fly ash handling systems to dry systems.  All of Consumers’ ash facilities have programs designed to protect the environment and are subject to quarterly MDEQ inspections.  The EPA has proposed new federal regulations for ash disposal areas.  Consumers preliminarily estimates that it will incur expenditures of $204 million from 2014 through 2018 to comply with future regulations relating to ash disposal, assuming ash is regulated as a non-hazardous solid waste.

Water:  Consumers uses significant amounts of water to operate and cool its electric generating plants.  Water discharge quality is regulated and administered by the MDEQ under the federal NPDES program.  To comply with such regulation, Consumers’ facilities have discharge monitoring programs.  The EPA is developing new regulations related to cooling water intake systems that likely will be finalized in early 2014.  Consumers does not presently expect to incur any major expenditures to comply with future regulations relating to cooling water intake systems through 2018.  Significant expenditures could be required beyond 2018, but until a rule is final, any potential expenditures are difficult to predict.  Consumers also expects the EPA to issue final federal regulations for wastewater discharges from electric generating plants in 2014.  Consumers’ preliminary estimate of expenditures to comply with these expected regulations is $131 million from 2014 through 2018.

For further information concerning estimated capital expenditures related to air, solid waste disposal, and water see Item 8. Financial Statements and Supplementary Data, MD&A — Outlook, “Consumers Electric Utility Business Outlook and Uncertainties — Electric Environmental Estimates.”

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INSURANCE

CMS Energy and its subsidiaries, including Consumers, maintain insurance coverage generally similar to comparable companies in the same lines of business.  The insurance policies are subject to terms, conditions, limitations, and exclusions that might not fully compensate CMS Energy or Consumers for all losses.  A portion of each loss is generally assumed by CMS Energy or Consumers in the form of deductibles and self-insured retentions that, in some cases, are substantial.  As CMS Energy or Consumers renews its policies, it is possible that some of the present insurance coverage may not be renewed or obtainable on commercially reasonable terms due to restrictive insurance markets.

CMS Energy’s and Consumers’ present insurance program does not cover the risks of certain environmental cleanup costs and environmental damages, such as claims for air pollution, damage to sites owned by CMS Energy or Consumers, and some long-term storage or disposal of wastes.

EMPLOYEES

Presented in the following table are the number of employees of CMS Energy and Consumers:

1     Excluding seasonal employees, 7,460 at December 31, 2013 and 7,503 at December 31, 2012.  There were no seasonal employees at December 31, 2011.

2     Excluding seasonal employees, 7,114 at December 31, 2013 and 7,183 at December 31, 2012.  There were no seasonal employees at December 31, 2011.

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CMS ENERGY EXECUTIVE OFFICERS (AS OF FEBRUARY 1, 2014)

There are no family relationships among executive officers and directors of CMS Energy.  The term of office of each of the executive officers extends to the first meeting of the Board of Directors of CMS Energy after the next annual election of Directors of CMS Energy (scheduled to be held on May 16, 2014).

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CONSUMERS EXECUTIVE OFFICERS (AS OF FEBRUARY 1, 2014)

There are no family relationships among executive officers and directors of Consumers.  The term of office of each of the executive officers extends to the first meeting of the Board of Directors of Consumers after the next annual election of Directors of Consumers (scheduled to be held on May 16, 2014).

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AVAILABLE INFORMATION

CMS Energy’s internet address is www.cmsenergy.com.  Information contained on CMS Energy’s website is not incorporated herein.  All of CMS Energy’s annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed pursuant to Section 13(a) or 15(d) of the Exchange Act are accessible free of charge on CMS Energy’s website.  These reports are available soon after they are filed electronically with the SEC.  Also on CMS Energy’s website are its:

·                 Corporate Governance Principles;

·                 Codes of Conduct:

·     CMS Energy Corporation/Consumers Energy Company Board of Directors Code of Conduct — January 2013, and

·     CMS Energy Corporation/Consumers Energy Company Employees Code of Conduct and Guide to Ethical Business Behavior 2014;

·                 Committee Charters (including the Audit Committee, the Compensation and Human Resources Committee, the Finance Committee, and the Governance and Public Responsibility Committee); and

·                 Articles of Incorporation (and amendments) and Bylaws.

CMS Energy will provide this information in print to any stockholder who requests it.

Any materials CMS Energy files with the SEC may also be read and copied at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549.  Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330.  The SEC also maintains an internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.  The address is www.sec.gov.

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ITEM 1A. RISK FACTORS

Actual results in future periods for CMS Energy and Consumers could differ materially from historical results and the forward-looking statements contained in this report.  Factors that might cause or contribute to these differences include, but are not limited to, those discussed in the following sections.  CMS Energy’s and Consumers’ businesses are influenced by many factors that are difficult to predict, that involve uncertainties that may materially affect results, and that are often beyond their control.  Additional risks and uncertainties not presently known or that management believes to be immaterial may also adversely affect CMS Energy or Consumers.  The risk factors described in the following sections, as well as the other information included in this report and in other documents filed with the SEC, should be considered carefully before making an investment in securities of CMS Energy or Consumers.  Risk factors of Consumers are also risk factors of CMS Energy.  All of these risk factors are potentially significant.

CMS Energy depends on dividends from its subsidiaries to meet its debt service obligations.

Due to its holding company structure, CMS Energy depends on dividends from its subsidiaries to meet its debt service and other payment obligations.  Consumers’ ability to pay dividends or acquire its own stock from CMS Energy is limited by restrictions contained in Consumers’ preferred stock provisions and potentially by other legal restrictions, such as certain terms in its articles of incorporation and FERC requirements.  At December 31, 2013, under its articles of incorporation, Consumers had $662 million of unrestricted retained earnings available to pay common stock dividends.  If sufficient dividends were not paid to CMS Energy by its subsidiaries, CMS Energy might not be able to generate the funds necessary to fulfill its payment obligations, which could have a material adverse effect on CMS Energy’s liquidity and financial condition.

CMS Energy has indebtedness that could limit its financial flexibility and its ability to meet its debt service obligations.

At December 31, 2013, CMS Energy, including Consumers, had $7.7 billion aggregate principal amount of indebtedness.  Consumers had $4.6 billion aggregate principal amount of indebtedness at December 31, 2013.  CMS Energy and its subsidiaries may incur additional indebtedness in the future.

The level of CMS Energy’s present and future indebtedness could have several important effects on its future operations, including, among others:

·                 a significant portion of CMS Energy’s cash flow from operations could be dedicated to the payment of principal and interest on its indebtedness and would not be available for other purposes;

·                 covenants contained in CMS Energy’s existing debt arrangements, which require it to meet certain financial tests, could affect its flexibility in planning for, and reacting to, changes in its business;

·                 CMS Energy’s ability to obtain additional financing for working capital, capital expenditures, acquisitions, and general corporate and other purposes could become limited;

·                 CMS Energy could be placed at a competitive disadvantage to its competitors that are less leveraged;

·                 CMS Energy’s vulnerability to adverse economic and industry conditions could increase; and

·                 CMS Energy’s future credit ratings could fluctuate.

CMS Energy’s ability to meet its debt service obligations and to reduce its total indebtedness will depend on its future performance, which will be subject to general economic conditions, industry cycles, changes in laws or regulatory decisions, and financial, business, and other factors affecting its operations, many of which are beyond its control.  CMS Energy cannot make assurances that its business will continue to

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generate sufficient cash flow from operations to service its indebtedness.  If CMS Energy were unable to generate sufficient cash flows from operations, it could be required to sell assets, which might require regulatory approval, or obtain additional financing.  CMS Energy cannot ensure that additional financing will be available on commercially acceptable terms or at all.

CMS Energy and Consumers have financing needs and could be unable to obtain bank financing or access the capital markets.  Potential disruption in the capital and credit markets could have a material adverse effect on CMS Energy’s and Consumers’ businesses, including the availability and cost of short-term funds for liquidity requirements and their ability to meet long-term commitments.  These consequences could have a material adverse effect on CMS Energy’s and Consumers’ liquidity, financial condition, and results of operations.

CMS Energy and Consumers may be subject to liquidity demands under commercial commitments, guarantees, indemnities, letters of credit, and other contingent liabilities.  Consumers’ capital requirements are expected to be substantial over the next several years as it invests in the Smart Energy program, construction or acquisition of power generation, environmental controls, decommissioning of older facilities, and other electric and gas infrastructure to upgrade delivery systems.  Those requirements may increase if additional laws or regulations are adopted or implemented.

CMS Energy and Consumers rely on the capital markets, particularly for publicly offered debt, as well as on bank syndications, to meet their financial commitments and short-term liquidity needs if sufficient internal funds are not available from Consumers’ operations and, in the case of CMS Energy, from dividends paid by Consumers and its other subsidiaries.  CMS Energy and Consumers also use letters of credit issued under certain of their revolving credit facilities to support certain operations and investments.

Longer term disruptions in the capital and credit markets as a result of uncertainty, changing or increased regulation, reduced alternatives, or failures of significant financial institutions could adversely affect CMS Energy’s and Consumers’ access to liquidity needed for their respective businesses, as could Consumers’ inability to obtain prior FERC authorization for any securities issuances, including publicly offered debt, as is required under the Federal Power Act.  Any disruption or inability to obtain FERC authorization could require CMS Energy and Consumers to take measures to conserve cash until the markets stabilize or until alternative credit arrangements or other funding for their business needs can be arranged.  These measures could include deferring capital expenditures, changing CMS Energy’s and Consumers’ commodity purchasing strategy to avoid collateral-posting requirements, and reducing or eliminating future share repurchases, dividend payments, or other discretionary uses of cash.

CMS Energy continues to explore financing opportunities to supplement its financial plan.  These potential opportunities include refinancing and/or issuing new debt, preferred stock and/or common equity, commercial paper, and bank financing.  Similarly, Consumers plans to seek funds through the capital markets, commercial lenders, and leasing arrangements.  Entering into new financings is subject in part to capital market receptivity to utility industry securities in general and to CMS Energy’s and Consumers’ securities in particular.  CMS Energy and Consumers cannot guarantee the capital markets’ acceptance of their securities or predict the impact of factors beyond their control, such as actions of rating agencies.  If CMS Energy or Consumers is unable to obtain bank financing or access the capital markets to incur or refinance indebtedness, or is unable to obtain commercially reasonable terms for any financing, there could be a material adverse effect on its liquidity, financial condition, and results of operations.

Certain of CMS Energy’s securities and those of its affiliates, including Consumers, are rated by various credit rating agencies.  Any reduction or withdrawal of one or more of its credit ratings could have a material adverse impact on CMS Energy’s or Consumers’ ability to access capital on acceptable terms and maintain commodity lines of credit, could make its cost of borrowing higher, and could cause CMS Energy or Consumers to reduce its capital expenditures.  If it were unable to maintain commodity

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lines of credit, CMS Energy or Consumers might have to post collateral or make prepayments to certain of its suppliers under existing contracts.  Further, since Consumers provides dividends to CMS Energy, any adverse developments affecting Consumers that result in a lowering of its credit ratings could have an adverse effect on CMS Energy’s credit ratings.  CMS Energy and Consumers cannot guarantee that any of their present ratings will remain in effect for any given period of time or that a rating will not be lowered or withdrawn entirely by a rating agency.

There are risks associated with Consumers’ significant capital investment program planned for the next five years.

Consumers’ planned investments include the Smart Energy program, construction or acquisition of power generation, gas infrastructure, environmental controls, decommissioning of older facilities, and other electric and gas investments to upgrade delivery systems.  The success of these capital investments depends on or could be affected by a variety of factors that include, but are not limited to:

·                 effective pre-acquisition evaluation of asset values, future operating costs, potential environmental and other liabilities, and other factors beyond Consumers’ control;

·                 effective cost and schedule management of new capital projects;

·                 future changes in commodity and other prices;

·                 future operational performance;

·                 future changes in environmental, legislative and regulatory requirements; and

·                 regulatory cost recovery.

Consumers cannot predict the impact that any of these factors could have on the success of its capital investment program.  It is possible that adverse events associated with these factors could have a material adverse effect on Consumers’ liquidity, financial condition, and results of operations.

Electric industry legislation in Michigan, coupled with increased competition in gas and electric markets, could have a material adverse effect on CMS Energy’s and Consumers’ businesses.

The 2008 Energy Law, among other things, limits alternative electric supply to ten percent of Consumers’ weather-adjusted retail sales of the preceding calendar year.  Lower natural gas prices due to a large supply of natural gas on the market, coupled with low capacity prices in the electric supply market, are placing increasing competitive pressure on the cost of Consumers’ electric supply.  Presently, Consumers’ electric rates are above the Midwest average, while the ROA level on Consumers’ system is at the ten-percent limit and the proportion of Consumers’ electric deliveries under the ROA program and on the ROA waiting list is 25 percent.  Bills have been introduced to the Michigan House of Representatives and the Michigan Senate to raise or remove the ROA limit.  The House bill also proposes to deregulate electric generation service in Michigan within two years.  In addition, the Michigan legislature has conducted hearings on the subject of energy competition.  If the ROA limit were increased or if electric generation service in Michigan were deregulated, it could have a material adverse effect on Consumers’ financial results and operations.

In 2013, Michigan’s governor instituted a process to prepare a series of reports addressing energy efficiency, renewable energy, the electricity market and ROA, and other subjects.  The process was designed to help the governor and other lawmakers determine the state’s next steps regarding energy policies.  Following a series of public hearings, the chairman of the MPSC and Michigan’s Energy Office Director released four reports summarizing the information gathered.  In December 2013, the governor outlined several key goals for Michigan’s energy policy, including reducing the state’s reliance on coal, increasing the use of renewable energy and natural gas, and improving energy affordability and reliability while protecting the environment.

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Other new legislation or interpretations could change how the businesses of CMS Energy and Consumers operate, impact Consumers’ ability to recover costs through rate increases, or require CMS Energy and Consumers to incur additional expenses.

CMS Energy and Consumers are subject to rate regulation, which could have an adverse effect on financial results.

CMS Energy and Consumers are subject to rate regulation.  Consumers’ electric and gas rates are set by the MPSC and cannot be increased without regulatory authorization.  Consumers is permitted by the 2008 Energy Law to self-implement rate changes six months after a rate filing with the MPSC, subject to certain limitations.  If a final rate order from the MPSC provides for lower rates than Consumers self-implemented, Consumers must refund the difference, with interest.  Also, the MPSC may delay or deny implementation of a rate increase upon showing of good cause.

In addition, Consumers’ plans for making significant capital investments, including modifications to meet new environmental requirements and investment in the construction or acquisition of power generation, could be affected adversely or could have a material adverse effect on Consumers if rate regulators fail to provide timely rate relief.  Regulators seeking to avoid or minimize rate increases could resist raising customer rates sufficiently to permit Consumers to recover the full cost of modifications to meet environmental requirements and other prudent investments.  In addition, because certain costs are mandated by state requirements for cost recovery, such as resource additions to meet Michigan’s renewable resource standard, regulators could be more inclined to oppose rate increases for other requested items and investments.  Rate regulators could also face pressure to avoid or limit rate increases for a number of reasons, including failure of Michigan’s economy to improve sufficiently or diminishment of Consumers’ customer base.  In addition to potentially affecting Consumers’ investment program, any limitation of cost recovery through rates could have a material adverse effect on Consumers’ liquidity, financial condition, and results of operations.

Orders of the MPSC could limit recovery of costs of providing service including, but not limited to, environmental and safety related expenditures for coal-fueled plants and other utility properties, regulatory assets, power supply and natural gas supply costs, operating and maintenance expenses, additional utility-based investments, sunk investment in mothballed or retired generating plants, costs associated with the proposed retirement and decommissioning of facilities, depreciation expense, MISO energy and transmission costs, costs associated with energy efficiency investments and state or federally mandated renewable resource standards, Smart Energy program costs, or expenditures subject to tracking mechanisms.  These orders could also result in adverse regulatory treatment of other matters.  For example, the orders could prevent or curtail Consumers from shutting off non-paying customers, could prevent or curtail Consumers from self-implementing rate changes, could prevent or curtail the implementation of a gas revenue mechanism, or could require Consumers to refund previously self-implemented rates.

FERC authorizes certain subsidiaries of CMS Energy to sell electricity at market-based rates.  Failure of these subsidiaries to maintain this FERC authority could have a material adverse effect on CMS Energy’s and Consumers’ liquidity, financial condition, and results of operations.

The various risks associated with the MPSC and FERC regulation of CMS Energy’s and Consumers’ businesses, which include the risk of adverse decisions in any number of rate or regulatory proceedings before either agency, as well as judicial proceedings challenging any agency decisions, could have a material adverse effect on CMS Energy’s and Consumers’ liquidity, financial condition, investment plans, and results of operations.

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Utility regulation could have a material adverse effect on CMS Energy’s and Consumers’ businesses.

Utility regulation has changed dramatically in the last two decades and could continue to change over the next several years.  These changes could have a material adverse effect on CMS Energy’s and Consumers’ liquidity, financial condition, and results of operations.

CMS Energy and Consumers are subject to, or affected by, extensive federal and state utility regulation.  In CMS Energy’s and Consumers’ business planning and management of operations, they must address the effects of existing and proposed regulations on their businesses and changes in the regulatory framework, including initiatives by federal and state legislatures, regional transmission organizations, utility regulators, and taxing authorities.  Adoption of new regulations by federal or state agencies, or changes to present regulations and interpretations of these regulations, could have a material adverse effect on CMS Energy’s and Consumers’ liquidity, financial condition, and results of operations.

There are multiple FERC-related matters that could impact utility regulation.  These include matters relating to electric industry restructuring, asset reclassification, and gas pipeline capacity matters.  CMS Energy and Consumers cannot predict the impact of these utility matters on their liquidity, financial condition, and results of operations.

Periodic reviews of the values of CMS Energy’s and Consumers’ assets could result in impairment charges.

CMS Energy and Consumers are required by GAAP to review periodically the carrying value of their assets, including those that may be sold.  Market conditions, the operational characteristics of their assets, and other factors could result in recording impairment charges for their assets, which could have an adverse effect on their stockholders equity and their access to additional financing.  In addition, CMS Energy and Consumers may be required to record impairment charges at the time they sell assets, depending on the sale prices they are able to secure and other factors.

CMS Energy and Consumers could incur significant costs to comply with environmental requirements.

CMS Energy and Consumers are subject to costly and increasingly stringent environmental regulations.  They believe that environmental laws and regulations related to their operations will continue to become more stringent and require them to make additional significant capital expenditures for emissions control equipment, CCR disposal, cooling water intake equipment, effluent treatment, and PCB remediation.  Present and reasonably anticipated state and federal environmental statutes and regulations, including but not limited to the Clean Air Act, the Clean Water Act, the Resource Conservation and Recovery Act, and CERCLA, will continue to have a material effect on CMS Energy and Consumers.

In 2013, 96 percent of the energy generated by Consumers came from fossil-fuel-fired power plants, with 88 percent coming from coal-fueled power plants.  CMS Enterprises also has interests in fossil-fuel-fired power plants and other types of power plants that produce greenhouse gases.  In June 2013, President Obama issued his Climate Action Plan.  The Climate Action Plan, which is to be implemented by the EPA, will regulate greenhouse gas emissions from both new and existing electric generating units.  Federal environmental laws and rules and international accords and treaties could require CMS Energy and Consumers to install additional equipment for emission controls, purchase carbon emissions allowances, curtail operations, invest in non-fossil-fuel-fired generating capacity, or take other significant steps to manage or lower the emission of greenhouse gases.

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The following risks related to climate change and emissions could also have a material adverse impact on CMS Energy’s and Consumers’ liquidity, financial condition, and results of operations:

·                 litigation originated by third parties against CMS Energy, Consumers, or their subsidiaries due to CMS Energy’s or Consumers’ greenhouse gas or other emissions;

·                 impairment of CMS Energy’s or Consumers’ reputation due to their greenhouse gas or other emissions and public perception of their response to potential environmental regulations, rules, and legislation; and

·                 extreme weather conditions, such as severe storms, that may affect customer demand, company operations, or assets.

Consumers plans to retire seven smaller coal-fueled electric generating units and three smaller gas-fueled electric generating units by April 2016, subject to a successful Securitization transaction.  Once the facilities and equipment on these sites are taken out of service, Consumers may encounter previously unknown environmental conditions that will need to be addressed in a timely fashion with state and federal environmental regulators.

CMS Energy and Consumers expect to collect fully from their customers, through the ratemaking process, expenditures incurred to comply with environmental regulations, but cannot guarantee this outcome.  If Consumers were unable to recover these expenditures from customers in rates, it could negatively affect CMS Energy’s and/or Consumers’ liquidity, results of operations, and financial condition and CMS Energy and/or Consumers could be required to seek significant additional financing to fund these expenditures.

For additional information regarding compliance with environmental regulations, see Item 1. Business, CMS Energy and Consumers Environmental Compliance and Item 8. Financial Statements and Supplementary Data, MD&A – Outlook, “Consumers Electric Utility Business Outlook and Uncertainties.”

CMS Energy’s and Consumers’ businesses could be affected adversely by any delay in meeting environmental requirements.

A delay or failure by CMS Energy or Consumers to obtain or maintain any necessary environmental permits, approvals under the MISO tariff, or approvals to satisfy any applicable environmental regulatory requirements or install emission control equipment could:

·                 prevent the construction of new facilities;

·                 prevent the continued operation and sale of energy from existing facilities;

·                 prevent the suspension of operations at existing facilities;

·                 prevent the modification of existing facilities; or

·                 result in significant additional costs that could have a material adverse effect on their liquidity, financial condition, and results of operations.

CMS Energy and Consumers expect to incur additional significant costs related to remediation of legacy environmental sites.

Consumers is presently monitoring or remediating 23 former MGP sites.  Consumers is working collaboratively with the MDEQ to agree upon executable remediation plans.  About one-third of the 23 sites have been remediated to the extent possible and are now being monitored.  The MDEQ established a provision for a “No Further Action” status for these sites and others like them in 2010.  Consumers has received the “No Further Action” designation for one of these sites as of December 31, 2013.  The remaining sites are being actively remediated through excavation, treatment at the site, containment, and/or natural reduction; two of these sites require complex remediation plans due to the involvement of surface water.

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CMS Energy and Consumers expect to incur additional significant costs related to the remediation of these former MGP sites.  Based upon prior MPSC orders, Consumers expects to be able to recover the costs of these cleanup activities through its gas rates, but cannot guarantee that outcome.

In addition, CMS Energy 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.  CMS Energy has signed agreements with the EPA and the MDEQ relating to Bay Harbor.  If CMS Energy were unable to meet its commitments under these agreements, or if unanticipated events occurred, CMS Energy could incur additional material costs relating to its Bay Harbor remediation obligations.

Consumers also expects to incur remediation and other response activity costs at a number of other sites under NREPA and CERCLA.  Consumers believes these costs should be recoverable in rates, but cannot guarantee that outcome.

CMS Energy and Consumers could be affected adversely by legacy litigation and retained liabilities.

In 2002, CMS Energy notified appropriate regulatory and governmental agencies that some employees at CMS MST and CMS Field Services appeared to have provided inaccurate information regarding natural gas trades to various energy industry publications which compile and report index prices.  CMS Energy has cooperated with the DOJ’s investigation regarding this matter.  CMS Energy is unable to predict the outcome of the DOJ investigation or the amount of any fines or penalties that may be imposed and what effect, if any, the investigation will have on CMS Energy.

CMS Energy, CMS MST, CMS Field Services, Cantera Natural Gas, Inc., and Cantera Gas Company were named as defendants in various lawsuits arising as a result of alleged false natural gas price reporting.  Allegations included manipulation of NYMEX natural gas futures and options prices, price-fixing conspiracies, and artificial inflation of natural gas retail prices in Kansas, Missouri, and Wisconsin.  CMS Energy cannot predict the outcome of the lawsuits or the amount of damages for which CMS Energy may be liable.  It is possible that the outcome in one or more of the lawsuits could have a material adverse effect on CMS Energy’s liquidity, financial condition, and results of operations.

The agreements that CMS Energy and Consumers enter into for the sale of assets customarily include provisions whereby they are required to:

·                 retain specified preexisting liabilities, such as for taxes, pensions, or environmental conditions;

·                 indemnify the buyers against specified risks, including the inaccuracy of representations and warranties that CMS Energy and Consumers make; and

·                 make payments to the buyers depending on the outcome of post-closing adjustments, litigation, audits, or other reviews, including claims resulting from attempts by foreign or domestic governments to assess taxes on past operations or transactions.

Many of these contingent liabilities can remain open for extended periods of time after the sales are closed.  Depending on the extent to which the buyers might ultimately seek to enforce their rights under these contractual provisions, and the resolution of any disputes concerning them, there could be a material adverse effect on CMS Energy’s or Consumers’ liquidity, financial condition, and results of operations.

In 2002, CMS Energy sold its oil, gas, and methanol investments in Equatorial Guinea.  The government of Equatorial Guinea claims that CMS Energy owes $142 million in taxes, plus significant penalties and interest, in connection with the sale and has requested arbitration.  CMS Energy is vigorously contesting the claim, and cannot predict the financial impact or outcome of this matter.  It is possible that the outcome of this matter could have a material adverse effect on CMS Energy’s liquidity, financial condition, and results of operations.

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CMS Energy’s and Consumers’ energy sales and operations are affected by seasonal factors and varying weather conditions from year to year.

CMS Energy’s and Consumers’ utility operations are seasonal.  The consumption of electric energy typically increases in the summer months, due primarily to the use of air conditioners and other cooling equipment, while peak demand for natural gas occurs in the winter due to colder temperatures and the resulting use of natural gas as heating fuel.  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.  Accordingly, CMS Energy’s and Consumers’ overall results in the future may fluctuate substantially on a seasonal basis.  Mild temperatures during the summer cooling season and winter heating season could have a material adverse effect on CMS Energy’s and Consumers’ liquidity, financial condition, and results of operations.

Consumers is exposed to risks related to general economic conditions in its service territories.

Consumers’ electric and gas utility businesses are affected by the economic conditions impacting the customers they serve.  If the Michigan economy becomes sluggish or declines, Consumers could experience reduced demand for electricity or natural gas that could result in decreased earnings and cash flow.  In addition, economic conditions in Consumers’ service territory affect its collections of accounts receivable and levels of lost or stolen gas, which in turn impact its liquidity, financial condition, and results of operations.

CMS Energy and Consumers are subject to information security risks, risks of unauthorized access to their systems, and technology failures.

In the regular course of business, CMS Energy and Consumers handle a range of sensitive security and customer information.  CMS Energy and Consumers are subject to laws and rules issued by various agencies concerning safeguarding and maintaining the confidentiality of this information.  A security breach of CMS Energy’s and Consumers’ information systems could involve theft or the inappropriate release of certain types of information, such as confidential customer information or, separately, system operating information.  These events could disrupt operations, subject CMS Energy and Consumers to possible financial liability, damage their reputation and diminish the confidence of customers, and have a material adverse effect on CMS Energy’s and Consumers’ liquidity, financial conditions, and results of operations.

CMS Energy and Consumers operate in a highly regulated industry that requires the continued operation of sophisticated information technology systems and network infrastructure.  Despite implementation of security measures, CMS Energy’s and Consumers’ technology systems are vulnerable to being disabled, to failures, to cyber crime, and to unauthorized access.  Such events could impact the reliability of electric and gas generation and delivery and also subject CMS Energy and Consumers to financial harm.  Cyber crime, which includes the use of malware, computer viruses, and other means for disruption or unauthorized access against companies, including CMS Energy and Consumers, has increased in frequency, scope, and potential impact in recent years.  While CMS Energy and Consumers have not been subject to cyber crime incidents that have had a material impact on their operations to date, their security measures in place may be insufficient to prevent a major cyber attack in the future.  If CMS Energy’s and Consumers’ technology systems were to fail or be breached, CMS Energy and Consumers might not be able to fulfill critical business functions, and sensitive confidential and proprietary data could be compromised, which could have a material adverse effect on CMS Energy’s and Consumers’ liquidity, financial condition, and results of operations.

A variety of technological tools and systems, including both company-owned information technology and technological services provided by outside parties, support critical functions.  The failure of these technologies, or the inability of CMS Energy and Consumers to have these technologies supported,

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updated, expanded, or integrated into other technologies, could hinder their business operations and materially adversely affect their liquidity, financial condition, and results of operations.

CMS Energy’s and Consumers’ businesses have safety risks.

Consumers’ electric and gas delivery systems, power plants, gas infrastructure, wind energy equipment, and energy products and the independent power plants owned in whole or in part by CMS Energy could be involved in accidents that result in injury or property loss to customers, employees, or the public.  Although CMS Energy and Consumers have insurance coverage for many potential incidents (subject to deductibles and self-insurance amounts that could be material), depending upon the nature or severity of any incident or accident, CMS Energy or Consumers could suffer financial loss, damage to its reputation, and negative repercussions from regulatory agencies or other public authorities.

CMS Energy’s and Consumers’ revenues and results of operations are subject to risks that are beyond their control, including but not limited to natural disasters, terrorist attacks or related acts of war, hostile cyber intrusions, or other catastrophic events.

The impact of natural disasters, severe weather, wars, terrorist acts, cyber intrusions, pandemics, and other catastrophic events on the facilities and operations of CMS Energy and Consumers could have a material adverse effect on their liquidity, financial condition, and results of operations.  A terrorist attack on physical infrastructure or a major natural disaster could result in severe damage to CMS Energy’s and Consumers’ assets beyond what could be recovered through insurance policies.  Hostile cyber intrusions, including those targeting information systems as well as electronic control systems used at the generating plants and for the electric and gas distribution systems, could severely disrupt business operations and result in loss of service to customers, as well as significant expense to repair security breaches or system damage.  Terrorist attacks or acts of war could result in the disruption of power and fuel markets that could increase costs or disrupt service.  Widespread outages in Consumers’ systems as a result of storms, floods, or other natural disasters could result in a prolonged loss of service to customers and significant expense to repair system damages.  An outbreak of a pandemic could disrupt business operations and result in the loss of service to customers, as well as have a material adverse effect on CMS Energy’s and Consumers’ liquidity, financial condition, and results of operations.  There is a risk that regulators could assess Consumers’ preparedness or response as inadequate and take adverse actions as a result.