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Exhibit AB-1Page 1 of 2
Consumers Energy
Electric Utility
Excess Deferred Taxes Detail By Segment
Tax Cuts and Jobs Act of 2017
Consumers Proposed Alternative Allocation Other Plant All Other Other Plant All Other
Ending Timing Excess Gross-Up Plant Diff Non-Protected Non-Protected Plant Diff Non-Protected Non-Protected Difference DFIT @ 14% @ 1.341056 ARAM 27 15 ARAM 27 10
(1) (2)=(1)*14% (3)=(2)*1.341056 (4) (5) (6) (7) (8) (9)ElectricMethod Life (Book/Tax Depreciation Difference) Protected/ARAM 6,153,043,322$ 861,426,065$ 1,155,220,593$ 1,155,220,593$ 1,155,220,593$263A Mixed Service Costs Unprotected 265,648,284 37,190,760 49,874,892 49,874,892$ 49,874,892$ Book Reserve Adjustment Unprotected 178,157,905 24,942,107 33,448,762 33,448,762 33,448,762
Capitalized Benefits Unprotected 82,778,059 11,588,928 15,541,402 15,541,402 15,541,402
Contributions in Aid of Construction Unprotected (150,152,526) (21,021,354) (28,190,812) (28,190,812) (28,190,812)$ Cost of Removal Unprotected (870,199,400) (121,827,916) (163,378,058) (163,378,058) (163,378,058)
ITC & Other Credits Unprotected 29,428,043 4,119,926 5,525,052 5,525,052 5,525,052
Net Capitalized Interest Unprotected (92,070,205) (12,889,829) (17,285,982) (17,285,982) (17,285,982)
Other Timing Differences Unprotected 128,001,550 17,920,217 24,032,015 24,032,015 24,032,015
Software Expense Unprotected 69,789,942 9,770,592 13,102,911 13,102,911 13,102,911
Total Plant Differences 5,794,424,974$ 811,219,496$ 1,087,890,773$
ElectricEmployee Benefits Unprotected 386,541,554$ 54,115,818$ 72,572,342$ 72,572,342$ 72,572,342
Other Unprotected (94,992,235) (13,298,913) (17,834,587) (17,834,587) (17,834,587)
Real & Personal Property Taxes Unprotected 198,168,384 27,743,574 37,205,686 37,205,686 37,205,686
Reserves Unprotected (50,553,979) (7,077,557) (9,491,400) (9,491,400) (9,491,400)
Securitized Costs Unprotected 279,596,536 39,143,515 52,493,646 52,493,646 52,493,646
State/Local Fed offset Unprotected ‐ (37,700,027) (50,557,847) (50,557,847) (47,762,287) 8,635,048 (11,430,608)
Total Other Differences 718,760,260$ 62,926,409$ 84,387,839$
Total Electric Excess Deferred Taxes By Category1 1,155,220,593$ (67,329,820)$ 84,387,839$ 1,107,458,306$ (200,219,804)$ 265,040,110$
Source: Consumer Response to HSC‐CE 31 and 32.1 Totals are used to develop annual amortizations.
Description
Exhibit AB-1Page 2 of 2
Consumers Energy
Gas Utility
Excess Deferred Taxes Detail By Segment
Tax Cuts and Jobs Act of 2017
Consumers Proposed Alternative Allocation Other Plant All Other Other Plant All Other
Ending Timing Excess Gross-Up Plant Diff Non-Protected Non-Protected Plant Diff Non-Protected Non-Protected Difference DFIT @ 14% @ 1.341056 ARAM 44 15 ARAM 44 10
(1) (2)=(1)*14% (3)=(2)*1.341056 (4) (5) (6) (7) (8) (9)GasMethod Life (Book/Tax Depreciation Difference) Protected/ARAM 2,941,141,631$ 411,759,828$ 552,192,988$ 552,192,988$ 552,192,988$ 263A Mixed Service Costs Unprotected 100,720,019 14,100,803 18,909,966 18,909,966$ 18,909,966$ Book Reserve Adjustment Unprotected 1,083,564 151,699 203,437 203,437 203,437
Capitalized Benefits Unprotected 17,843,656 2,498,112 3,350,108 3,350,108 3,350,108
Contributions in Aid of Construction Unprotected (64,205,704) (8,988,799) (12,054,482) (12,054,482) (12,054,482)$ Cost of Removal Unprotected (1,108,021,879) (155,123,063) (208,028,714) (208,028,714) (208,028,714)
ITC & Other Credits Unprotected 1,628 228 306 306 306
Net Capitalized Interest Unprotected (7,669,422) (1,073,719) (1,439,917) (1,439,917) (1,439,917)
Other Timing Differences Unprotected 32,016,837 4,482,357 6,011,092 6,011,092 6,011,092
Software Expense Unprotected 46,469,815 6,505,774 8,724,607 8,724,607 8,724,607
Total Plant Differences 1,959,380,145$ 274,313,220$ 367,869,390$
GasEmployee Benefits Unprotected 189,839,057$ 26,577,468$ 35,641,873$ 35,641,873$ 35,641,873
Gas Inventory Unprotected 145,041,349 20,305,789 27,231,200 27,231,200 27,231,200
Other Unprotected 121,846,104 17,058,455 22,876,343 22,876,343 22,876,343
Real & Personal Property Taxes Unprotected 83,745,137 11,724,319 15,722,969 15,722,969 15,722,969
Reserves Unprotected (30,800,620) (4,312,087) (5,782,750) (5,782,750) (5,782,750)
State/Local Fed offset Unprotected ‐ (12,956,013) (17,374,739) (17,374,739) (20,696,844) 8,302,948 (4,980,842)
Total Other Differences 509,671,027$ 58,397,931$ 78,314,895$
Total Gas Excess Deferred Taxes By Category1 552,192,988$ (184,323,598)$ 78,314,895$ 531,496,144$ (213,220,167)$ 127,908,308$
Source: Consumer Response to HSC‐CE 31 and 32.1 Totals are used to develop annual amortizations.
Description
Exhibit AB-2Page 1 of 2
MICHIGAN PUBLIC SERVICE COMMISSION
Consumers Energy CompanyCE Electric
Projected Tax Reform Regulatory Liability & Amortization
($000)
(a) (b) (c) (d) (e)
Plant Oth Plant All Total
Line No. Description Diff* 1 Diff1 Other1 Electric
1 Amortization Period ARAM 27 1023 Tax Reform Regulatory Asset (Liability) After Gross Up (1,107,458)$ 200,220$ (265,040)$ (1,172,279)$
45 Amortization Schedule
6 2020 (22,535)$ 6,180$ (22,087)$ (38,443)$ 7 2021 (28,939) 7,416 (26,504) (48,027)
8 2022 (30,136) 7,416 (26,504) (49,225)
9 2023 (34,076) 7,416 (26,504) (53,165)
10 2024 (35,373) 7,416 (26,504) (54,461)
11 2025 (35,552) 7,416 (26,504) (54,641)
12 2026 (35,599) 7,416 (26,504) (54,688)
13 2027 (38,255) 7,416 (26,504) (57,343)
14 2028 (40,980) 7,416 (26,504) (60,068)
15 2029 (42,589) 7,416 (26,504) (61,677)
16 2030 (43,963) 7,416 (4,417) (40,965)
17 2031 (44,411) 7,416 ‐ (36,995)
18 2032 (45,359) 7,416 ‐ (37,944)
19 2033 (47,063) 7,416 ‐ (39,648)
20 2034 (48,977) 7,416 ‐ (41,561)
21 2035 (43,010) 7,416 ‐ (35,594)
22 2036 (40,584) 7,416 ‐ (33,168)
23 2037 (27,993) 7,416 ‐ (20,578)
24 2038 (24,943) 7,416 ‐ (17,528)
25 2039 (24,142) 7,416 ‐ (16,726)
26 2040 (23,362) 7,416 ‐ (15,947)
27 2041 (23,253) 7,416 ‐ (15,837)
28 2042 (23,256) 7,416 ‐ (15,840)
29 2043 (23,308) 7,416 ‐ (15,892)
30 2044 (23,338) 7,416 ‐ (15,923)
31 2045 (23,240) 7,416 ‐ (15,824)
32 2046 (23,068) 7,416 ‐ (15,652)
33 2047 (22,982) 1,236 ‐ (21,746)
34 2048 ‐ 2056 (187,173) ‐ ‐ (187,173)
35 (1,107,458)$ 200,220$ (265,040)$ (1,172,279)$
* Subject to the normalization provisions of the Internal Revenue Code.1From Exhibit AB‐1, page 1
Exhibit AB-2Page 2 of 2
MICHIGAN PUBLIC SERVICE COMMISSION
Consumers Energy CompanyCE Gas
Projected Tax Reform Regulatory Liability & Amortization
($000)
(a) (b) (c) (d) (e)
Plant Oth Plant All Total
Line No. Description Diff* 1 Diff1 Other1 Gas
1 Amortization Period ARAM 44 1023 Tax Reform Regulatory Asset (Liability) After Gross Up (531,496)$ 213,220$ (127,908)$ (446,184)$
45 Amortization Schedule
6 2019 (2,742) 1,211 (3,198) (4,729)
7 2020 (9,118) 4,846 (12,791) (17,063)
8 2021 (9,365) 4,846 (12,791) (17,310)
9 2022 (9,503) 4,846 (12,791) (17,448)
10 2023 (9,175) 4,846 (12,791) (17,120)
11 2024 (9,024) 4,846 (12,791) (16,969)
12 2025 (9,645) 4,846 (12,791) (17,589)
13 2026 (9,898) 4,846 (12,791) (17,843)
14 2027 (9,419) 4,846 (12,791) (17,364)
15 2028 (9,387) 4,846 (12,791) (17,332)
16 2029 (9,952) 4,846 (9,593) (14,699)
17 2030 (10,369) 4,846 ‐ (5,524)
18 2031 (10,510) 4,846 ‐ (5,664)
19 2032 (10,962) 4,846 ‐ (6,116)
20 2033 (11,432) 4,846 ‐ (6,586)
21 2034 (11,993) 4,846 ‐ (7,147)
22 2035 (12,746) 4,846 ‐ (7,900)
23 2036 (13,532) 4,846 ‐ (8,687)
24 2037 (13,616) 4,846 ‐ (8,770)
25 2038 (13,706) 4,846 ‐ (8,860)
26 2039 (13,725) 4,846 ‐ (8,879)
27 2040 (13,708) 4,846 ‐ (8,862)
28 2041 (13,723) 4,846 ‐ (8,877)
29 2042 (13,781) 4,846 ‐ (8,935)
30 2043 (13,832) 4,846 ‐ (8,986)
31 2044 (13,817) 4,846 ‐ (8,971)
32 2045 (13,778) 4,846 ‐ (8,932)
33 2046 (13,735) 4,846 ‐ (8,890)
34 2047 (13,717) 4,846 ‐ (8,871)
35 2048 (13,701) 4,846 ‐ (8,856)
36 2049 ‐ 2063 (187,885) 71,477 ‐ (116,408)
37 (531,496)$ 213,220$ (127,908)$ (446,184)$
* Subject to the normalization provisions of the Internal Revenue Code.1From Exhibit AB‐1, page 2
Exhibit AB-3Page 1 of 3
($000)
S&P FFO/Debt - Electric"Significant" FR
Line Description 2017 2019 E ADIT Tax Amort Adjusted Bechmark
1 Adj. FFO $1,499,695 $1,567,357 $35,692 $1,531,6652 Total Debt $5,294,333 $6,822,858 $6,822,8583 FFO/Debt 28.3% 23.0% 22.4% 13% - 23%
S&P FFO/Debt - Total Company"Significant" FR
Line Description 2017 2019 E ADIT Tax Amort Adjusted Bechmark
4 Adj. FFO $1,529,992 $1,607,824 $48,372 $1,559,4525 Total Debt $7,429,573 $9,574,562 $9,574,5626 FFO/Debt 20.6% 16.8% 16.3% 13% - 23%
__________
Sources:Standard & Poor's: "Criteria: Corporate Methodology," November 19, 2013.Standard & Poor's: RatingsDirect: "Summary: Consumers Energy Co," December 21, 2018.* Tax Conversion factor was obtained from Consumers' Reseponse to HSC-CE-7a.________Note:
Based on the December 2018 S&P report, Consumers has an "Excellent" business profile and a "Significant" financial profile, and falls under the 'Medial Volatility' matrix, and a BBB+ bond rating.
Business RiskIntermediate Significant Aggressive
Excellent A A- BBBStrong A- BBB BBSatisfactory BBB BB+ BB-
S&P Business/Financial Risk Profile MetrixFinancial Risk Profile
2020 Adjusted*
Cash Flow Credit Metrics
Consumers Energy Company
2020 Adjusted*
E ADIT: Electric $48.027MM/1.341056: $35.692MM, and Total : ($48.027MM plus $17.063MM)/1.341056: $48,372MM
Exhibit AB-3Page 2 of 3
Line Description Dec. 2017 Dec. 2019
Cash Flow (Funds from Operations / Debt)1 Funds from Operations (FFO) (000) $1,424,572 $1,467,020
Rating Agency Adjustments2 Capitalized Interest (5,000) (5,000)3 Operating Lease Depreciation 14,740 14,7404 PPA Depreciation 82,070 82,0705 ARO Adjustment (2,200) (2,200)6 Pension & Other Expense 15,810 51,1947 Subtotal $105,420 $140,8048 Electric Allocation 71.3% 71.3%9 Adjustments - Electric $75,123 $100,337
10 FFO - Adjusted - Electric $1,499,695 $1,567,35711 Long Term Debt (000) $5,600,000 $7,091,00012 Current Portion of Cap. Leases 22,000 22,00013 Non-Current Portion of Cap. Leases & Fin. Obl. 91,000 91,00014 Notes Payable 170,000 325,000
Rating Agency Adjustments15 Operating Leases 68,480 68,48016 Surplus Cash (101,858) (81,874)17 PPA as Debt 992,800 992,80018 ARO as Debt 289,900 289,90019 Pension 205,468 665,32320 Accrued Interest 62,273 62,39421 Issuance Cost 29,509 48,53822 Subtotal 7,429,573 9,574,56223 Electric Allocation 71.3% 71.3%24 Total Debt - Adjusted - Electric $5,294,333 $6,822,85825 FFO / Debt 28.33% 22.97%
12 Months Ending
Consumers Energy Company
Cash Flow Credit MetricsStandard & Poor's
Exhibit AB-3Page 3 of 3
Line Description Dec. 2017 Dec. 201912 Months Ending
Consumers Energy Company
Cash Flow Credit MetricsStandard & Poor's
Debt Leverage (Total debt / Capital %)26 Preferred Stock (000) 37,315 37,31527 Common Stock 6,287,310 7,437,78228 Deferred Taxes 3,240,147 3,321,66029 Subtotal 9,564,771 10,796,75730 Electric Allocation 71.30% 71.30%31 Equity & Deferred Tax - Electric $6,815,882 $7,693,79832 Total Debt - Adj. - Electric (above) 5,294,333 6,822,85833 Total Capital - Adjusted - Electric $12,110,215 $14,516,65734 Debt / Total Capital 43.70% 47.00%
Debt / EBITDA35 EBITDA $1,506,177 $1,450,844
Rating Agency Adjustments36 Operating Lease Adjustment 20,000 20,00037 Securitized Interest (9,500) (9,500)38 Amortized Portion of Securitized Debt (25,000) (25,000)39 ARO Interest 23,000 23,00040 PPA Depreciation 82,070 82,07041 PPA Interest 69,450 69,45042 Pension (23,947) (94,161)43 Stock Compensation Expense 16,000 16,00044 Adjustment Subtotal 152,073 81,85945 Electric Allocation 71.30% 71.30%46 Adjustment Subtotal - Electric $108,367 $58,33347 EBITDA - Adjusted - Electric $1,614,544 $1,509,17748 Total Debt - Adjusted - Electric (from above) $5,294,333 $6,822,85849 Debt / EBITDA 3.3x 4.5x
For utilities that have credit ratings from the major credit rating agencies listed below,provide pro forma financial ratios for the year preceding the Test Year and the Test Yearincluding but not restricted to the ratios listed below. Calculate each ratio using themethodology used by each credit rating agency. Include the actual, pro forma, or actualplus pro forma financial statement or statements from which each ratio was calculated,in electronic spreadsheet format:Standard & Poor’s:a. Cash Flow (Funds from Operations / Debt %);b. Debt leverage (Total debt / Capital %); andc. Debt / EBITDA_________Source:
Consumers Electric Rate Case, Michigan Public Servcice Commission Cause No. U-20134, Attachment 108, Financial Metric Part III, 208.
Summary:
Consumers Energy Co.
Primary Credit Analyst:
Gabe Grosberg, New York (1) 212-438-6043; gabe.grosberg@spglobal.com
Secondary Contacts:
Rebecca Ai, New York + (212) 438-7278; rebecca.ai@spglobal.com
Matthew L O'Neill, New York (1) 212-438-4295; matthew.oneill@spglobal.com
Table Of Contents
Rationale
Outlook
Our Base-Case Scenario
Business Risk
Financial Risk
Liquidity
Group Influence
Ratings Score Snapshot
Issue Ratings--Recovery Analysis
Related Criteria
WWW.STANDARDANDPOORS.COM/RATINGSDIRECT DECEMBER 21, 2018 1THIS WAS PREPARED EXCLUSIVELY FOR USER CHRIS WALTERS.NOT FOR REDISTRIBUTION UNLESS OTHERWISE PERMITTED.
Exhibit AB-4 Page 1 of 8
Summary:
Consumers Energy Co.
Business Risk: EXCELLENT
Vulnerable Excellent
Financial Risk: SIGNIFICANT
Highly leveraged Minimal
a- a-bbb+
Anchor Modifiers Group/Gov't
Issuer Credit Rating
BBB+/Stable/A-2
Rationale
Business Risk: Excellent Financial Risk: Significant
• Lower-risk vertically integrated electric utility
operations and gas distribution operations.
• Above-average management of regulatory risk
compared to peers.
• Limited geographic and regulatory diversity with
operations concentrated in Michigan.
• Service territory with average economic growth.
• Large electric and natural gas customer base.
• We assess the company's financial measures using
our medial volatility table, reflecting the company's
lower-risk regulated electric and gas utility
operations and its effective management of
regulatory risk.
• Financial measures consistently reflect the higher
half of the range for its financial risk profile category.
• Elevated capital spending.
• Negative discretionary cash flow, indicating the
need for external funds.
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Exhibit AB-4 Page 2 of 8
Outlook: Stable
The stable rating outlook on Consumers Energy Co. and parent CMS Energy Corp. reflects S&P Global Ratings'
expectation that management will continue focusing on its core utility operations and reach constructive
regulatory outcomes to avoid any significant rise in business risk. The outlook also reflects our CMS Energy
base-case forecast level of adjusted funds from operations (FFO) to debt averaging around 16%, in line with the
current significant financial risk profile.
Downside scenario
We could lower ratings if the company's business risk profile weakens as a result of a decrease in regulatory
support or a material increase in non-utility operations. We could also lower ratings if core financial measures
consistently underperform our base-case forecast and remain consistently at less credit-supportive levels, including
adjusted FFO to total debt of less than 14%. This could occur if rate case outcomes are consistently weaker than
we expect, there is greater regulatory lag, or if capital spending increases and is primarily debt-financed.
Upside scenario
We could raise the ratings if the company's business risk profile remains robust and financial measures strengthen
and consistently exceed our base-case forecast, including adjusted FFO to total debt consistently over 18%.
Improved financial measures could occur through deleveraging, greater equity funding of capital investments, and
continuous cash flow support from rate case activity.
Our Base-Case Scenario
Assumptions Key Metrics
• Electric and gas rate increases and use of existing
regulatory mechanisms.
• Modest load growth.
• Average annual capital spending of about $2 billion
annually.
• Dividends of about $550 million annually.
• Moderately negative impact on cash flow impacts as
a result of the revised U.S. corporate tax code.
• All debt maturities refinanced.
• Our expectation that negative discretionary cash
flow will be debt financed.
2017A 2018E 2019E
FFO to debt (%) 25.1 21-24 20-23
Debt to EBITDA (x) 3.1 3-4 3-4
FFO cash interest coverage (x) 7.9 6-7 6-7
A--Actual. E—Estimated. FFO—Funds from
operations.
WWW.STANDARDANDPOORS.COM/RATINGSDIRECT DECEMBER 21, 2018 3THIS WAS PREPARED EXCLUSIVELY FOR USER CHRIS WALTERS.NOT FOR REDISTRIBUTION UNLESS OTHERWISE PERMITTED.
Summary: Consumers Energy Co.
Exhibit AB-4 Page 3 of 8
Business Risk: Excellent
Our assessment of Consumers Energy's business risk profile reflects the company's lower-risk electric and natural gas
utility operations. Consumers Energy is a vertically integrated utility that generates, transmits, distributes, and sells
electricity. It also sells, stores, and transports natural gas. Consumers Energy has about 8,455 megawatts of generation
capacity, of which about 40% is derived from gas, about 25% from coal, about 10% from pumped storage, about 10%
from oil, about 10% from nuclear, and about 5% from renewables. The company has been strategically reducing its
environmental risks through coal plant retirements and increasing the proportion of natural gas and renewables in its
portfolio. The Consumers Energy is a large utility serving about 1.8 million electric customers and about 1.8 million
natural gas customers throughout Michigan. In addition, about 80% of the company's electric customer revenue base
is residential and commercial, thus providing a stable cash flow and mitigating the company's exposure to industrial
cyclicality. Consumers Energy is a wholly owned subsidiary of CMS Energy and contributes about 95% of CMS
Energy's operations.
The Michigan Public Service Commission (MPSC) regulates Consumers Energy. We view the regulatory environment
in Michigan as above average compared to peers as demonstrated through the company's benefit from
forward-looking test years and various constructive rate mechanisms that enable it to generally earn their allowed
returns on equity and minimize regulatory lag. Recently, the company received an electric rate increase of about $72
million and a natural gas rate increase of about $11 million. In addition, the company recently filed a settlement to its
outstanding electric rate case stipulating a $24 million rate decrease, incorporating the impacts of tax reform and
agreed to stay out of an electric rate case until 2020. The company is also requesting a gas rate increase of about $229
million. We expect rate orders by third quarter 2019.
Financial Risk: Significant
We assess Consumer Energy's financial measures using our medial volatility table, reflecting the company's lower-risk
regulated electric and gas utility operations and its effective management of regulatory risk. Under our base-case
scenario, we expect financial measures that are consistent with the higher half of the range for the company's financial
risk profile category. Specifically, we expect FFO to debt of about 20%-23%.
Liquidity: Adequate
Consumers Energy has adequate liquidity in our view and could more than cover its needs for the next 12 months
even if consolidated EBITDA declined by 10%. We expect Consumers Energy's liquidity sources over the next 12
months to exceed its uses by more than 1.1x. Under our stress scenario, we do not expect the company would require
access to capital markets during the period to meet its liquidity needs. Our assessment also reflects the company's
stable cash flow, generally prudent risk management, sound relationships with banks, and a generally satisfactory
standing in the credit markets.
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Summary: Consumers Energy Co.
Exhibit AB-4 Page 4 of 8
Principal Liquidity Sources Principal Liquidity Uses
• Cash and liquid investments of about $250 million;
• Cash FFO of about $1.7 billion; and
• Credit facility availability of about $1.1 billion.
• Debt maturities, including outstanding commercial
paper, of about $400 million as of June 30, 2018;
• Maintenance capital spending of about $1.7 billion;
and
• Dividends of about $550 million.
Group Influence
Under our group rating methodology, we assess Consumers Energy to be a core subsidiary of CMS Energy, reflecting
our view that it is highly unlikely to be sold, plays an integral role to the overall group strategy, and possesses a
long-term commitment from senior management. As a result, we assess the issuer credit rating at Consumers Energy
as in line with CMS Energy's issuer credit rating.
Ratings Score Snapshot
Issuer Credit Rating
BBB+/Stable/A-2
Business risk: Excellent
• Country risk: Very low
• Industry risk: Very low
• Competitive position: Excellent
Financial risk: Significant
• Cash flow/Leverage: Significant
Anchor: a-
Modifiers
• Diversification/Portfolio effect: Neutral (no impact)
• Capital structure: Neutral (no impact)
• Financial policy: Neutral (no impact)
• Liquidity: Adequate (no impact)
• Management and governance: Satisfactory (no impact)
• Comparable rating analysis: Neutral (no impact)
Stand-alone credit profile : a-
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Summary: Consumers Energy Co.
Exhibit AB-4 Page 5 of 8
• Group credit profile: bbb+
• Entity status within group: Core (-1 notch from SACP)
Issue Ratings--Recovery Analysis
• We assign recovery ratings to first-mortgage bonds (FMBs) issued by U.S. utilities, which can result in issue ratings
being notched above an issuer credit rating on a utility depending on the rating category and the extent of the
collateral coverage. The FMBs issued by U.S. utilities are a form of secured utility bond (SUB) that qualify for a
recovery rating as defined in our criteria.
• The recovery methodology is supported by our expectation of 100% recovery for secured bondholders in utility
bankruptcies in the U.S. and our view that the factors that enhance recoveries (limited size of the creditor class and
the durable value of utility rate-based assets during and after a reorganization given the essential service provided
and the high replacement cost) will persist.
• Under our SUB criteria, we calculate a ratio of our estimate of the value of the collateral pledged to bondholders
relative to the amount of FMBs outstanding. FMB ratings can exceed an issuer credit rating on a utility by up to one
notch in the 'A' category, two notches in the 'BBB' category, and three notches in speculative-grade categories
depending on the calculated ratio.
• Consumer Energy's FMBs benefit from a first-priority lien on substantially all of the utility's real property owned or
subsequently acquired. Collateral coverage of more than 1.5x supports a recovery rating of '1+' and an issue rating
two notches above the issuer credit rating.
Related Criteria
• Criteria - Corporates - General: Reflecting Subordination Risk In Corporate Issue Ratings, Sept. 21, 2017
• General Criteria: Methodology For Linking Long-Term And Short-Term Ratings, April 7, 2017
• Criteria - Corporates - General: Methodology And Assumptions: Liquidity Descriptors For Global Corporate Issuers,
Dec. 16, 2014
• Criteria - Corporates - General: Corporate Methodology: Ratios And Adjustments, Nov. 19, 2013
• Criteria - Corporates - General: Corporate Methodology, Nov. 19, 2013
• Criteria - Corporates - Utilities: Key Credit Factors For The Regulated Utilities Industry, Nov. 19, 2013
• General Criteria: Methodology: Industry Risk, Nov. 19, 2013
• General Criteria: Group Rating Methodology, Nov. 19, 2013
• General Criteria: Country Risk Assessment Methodology And Assumptions, Nov. 19, 2013
• Criteria - Corporates - Utilities: Collateral Coverage And Issue Notching Rules For '1+' And '1' Recovery Ratings On
Senior Bonds Secured By Utility Real Property, Feb. 14, 2013
• General Criteria: Methodology: Management And Governance Credit Factors For Corporate Entities And Insurers,
Nov. 13, 2012
• General Criteria: Use Of CreditWatch And Outlooks, Sept. 14, 2009
WWW.STANDARDANDPOORS.COM/RATINGSDIRECT DECEMBER 21, 2018 6THIS WAS PREPARED EXCLUSIVELY FOR USER CHRIS WALTERS.NOT FOR REDISTRIBUTION UNLESS OTHERWISE PERMITTED.
Summary: Consumers Energy Co.
Exhibit AB-4 Page 6 of 8
• Criteria - Insurance - General: Hybrid Capital Handbook: September 2008 Edition, Sept. 15, 2008
Business And Financial Risk Matrix
Business Risk Profile
Financial Risk Profile
Minimal Modest Intermediate Significant Aggressive Highly leveraged
Excellent aaa/aa+ aa a+/a a- bbb bbb-/bb+
Strong aa/aa- a+/a a-/bbb+ bbb bb+ bb
Satisfactory a/a- bbb+ bbb/bbb- bbb-/bb+ bb b+
Fair bbb/bbb- bbb- bb+ bb bb- b
Weak bb+ bb+ bb bb- b+ b/b-
Vulnerable bb- bb- bb-/b+ b+ b b-
WWW.STANDARDANDPOORS.COM/RATINGSDIRECT DECEMBER 21, 2018 7THIS WAS PREPARED EXCLUSIVELY FOR USER CHRIS WALTERS.NOT FOR REDISTRIBUTION UNLESS OTHERWISE PERMITTED.
Summary: Consumers Energy Co.
Exhibit AB-4 Page 7 of 8
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Exhibit AB-4 Page 8 of 8
Exhibit AB-5Page 1 of 2
Residential ResidentialCommercial Secondary
Commercial Secondary
Commercial Secondary
Commercial Secondary Primary Primary Primary Primary Primary Primary Primary Primary Primary
Lighting & Unmetered
Lighting & Unmetered
Lighting & Unmetered
Lighting & Unmetered GSG
GPD GPD GPDGS GSD GPD GPD GPD GP GEI GEI GEI
Line Description Total RS RT GS GSD GEI GEI GP Vlt 1 Vlt 2 Vlt 3 GEI EIP Vlt 1 Vlt 2 Vlt 3 GML GUL GU-XL GU GSG(1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12) (13) (14) (15) (16) (17) (18) (19) (20) (21)
1 Total Rate Base ($000)1 10,668,437$ 5,203,993$ 22,778$ 1,615,541$ 1,222,053$ 51,918$ 102,909$ 296,668$ 408,394$ 344,509$ 1,111,265$ 51,331$ 22,788$ 5,544$ 14,742$ 70,884$ 5,010$ 93,766$ 12$ 18,234$ 6,098$
2 Percent of Total 100.00% 48.78% 0.21% 15.14% 11.45% 0.49% 0.96% 2.78% 3.83% 3.23% 10.42% 0.48% 0.21% 0.05% 0.14% 0.66% 0.05% 0.88% 0.00% 0.17% 0.06%
3 2020 Calculation C Amount2 (38,443,000)$ (18,752,241)$ (82,079)$ (5,821,495)$ (4,403,585)$ (187,083)$ (370,824)$ (1,069,022)$ (1,471,621)$ (1,241,414)$ (4,004,369)$ (184,968)$ (82,116)$ (19,979)$ (53,121)$ (255,427)$ (18,054)$ (337,881)$ (44)$ (65,705)$ (21,972)$ 4 2021 Calculation C Amount2 (48,027,000)$ (23,427,252)$ (102,541)$ (7,272,819)$ (5,501,417)$ (233,724)$ (463,273)$ (1,335,534)$ (1,838,502)$ (1,550,903)$ (5,002,675)$ (231,081)$ (102,587)$ (24,959)$ (66,364)$ (319,106)$ (22,555)$ (422,116)$ (55)$ (82,086)$ (27,450)$
5 10-Month Sales (MWh)3 26,172,629 9,655,942 44,647 2,822,120 2,811,583 80,444 201,953 977,761 2,942,742 1,908,604 4,062,153 161,764 1,207 37,167 46,240 213,459 14,571 98,766 11 68,158 23,337 6 Annual Sales (MWh)3 32,697,575 12,063,208 55,778 3,525,686 3,512,522 100,499 252,300 1,221,521 3,676,380 2,384,427 5,074,865 202,092 1,508 46,433 57,768 266,675 18,204 123,389 14 85,150 29,155
7 2020 Calculation C Rate ($ / kWh ) (0.00194)$ (0.00184)$ (0.00206)$ (0.00157)$ (0.00233)$ (0.00184)$ (0.00109)$ (0.00050)$ (0.00065)$ (0.00099)$ (0.00114)$ (0.06803)$ (0.00054)$ (0.00115)$ (0.00120)$ (0.00124)$ (0.00342)$ (0.00395)$ (0.00096)$ (0.00094)$ 8 2021 Calculation C Rate ($ / kWh ) (0.00194)$ (0.00184)$ (0.00206)$ (0.00157)$ (0.00233)$ (0.00184)$ (0.00109)$ (0.00050)$ (0.00065)$ (0.00099)$ (0.00114)$ (0.06803)$ (0.00054)$ (0.00115)$ (0.00120)$ (0.00124)$ (0.00342)$ (0.00395)$ (0.00096)$ (0.00094)$
Sources1 Docket No. U-20134. Exhibit A-16 (JCA-1) Schedule F-1. Uses 4CP 75%/0/25% production allocator.2 Gorman direct testimony at Exhibit AB-2, page 1.3 Credit A Filing. Docket No. U-20102, Settlement Agreement, Attachment A, page 1. Reflects total Bundled and Retail Open Access MWh.
10-Month sales volumes for each rate class are equal to the Annual Sales Volume x (2020 Calculation C Amount / 2021 Calculation C Amount).
CONSUMERS ENERGY COMPANYDevelopment of Calculation C - Electric
Exhibit AB-5Page 2 of 2
Line Description Total Residential GS-1 GS-2 GS-3 ST LT XLT(1) (2) (3) (4) (5) (6) (7) (8)
1 Total Rate Base ($000)1 5,468,042$ 3,839,751$ 479,835$ 510,072$ 102,645$ 152,126$ 119,824$ 263,789$
2 Percent of Total 100.00% 70.22% 8.78% 9.33% 1.88% 2.78% 2.19% 4.82%
3 2020 Calculation C Amount2 (4,729,000)$ (3,320,783)$ (414,982)$ (441,132)$ (88,772)$ (131,565)$ (103,629)$ (228,136)$ 4 2021 Calculation C Amount2 (17,063,000)$ (11,981,925)$ (1,497,323)$ (1,591,677)$ (320,303)$ (474,708)$ (373,910)$ (823,152)$
5 10-Months Throughput (MMcf)3 83,513 44,355 6,210 9,609 2,348 4,940 5,445 10,605 6 Annual Throughput (MMcf)3 301,329 160,042 22,407 34,671 8,472 17,825 19,648 38,264
7 2020 Calculation C Rate ($ / Mcf ) (0.07487)$ (0.06682)$ (0.04591)$ (0.03781)$ (0.02663)$ (0.01903)$ (0.02151)$ 8 2021 Calculation C Rate ($ / Mcf ) (0.07487)$ (0.06682)$ (0.04591)$ (0.03781)$ (0.02663)$ (0.01903)$ (0.02151)$
Sources1 Docket No. U-18424. Exhibit A-16 (LFS-2), Schedule F-1, page 3 of 6.2 Gorman direct testimony, Exhibit AB-2, page 2.3 Credit A filing. Docket No. U-20103, Exhibit A-2 (EAH-2), Schedule F-1, Page 1 of 5, line 27.
10-month throughput for each rate class is equal to the Annual Throughput x (2020 Calculation C Amount / 2021 Calculation C Amount).
CONSUMERS ENERGY COMPANYDevelopment of Calculation C - Gas
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