CMS » Topics » ELECTRIC BUSINESS UNCERTAINTIES

These excerpts taken from the CMS 10-K filed Feb 25, 2009.
ELECTRIC BUSINESS UNCERTAINTIES
 
Several electric business trends and uncertainties may affect our financial condition and future results of operations. These trends and uncertainties could have a material impact on revenues and income from continuing electric operations.
 
Electric Environmental Estimates: Our operations are subject to various state and federal environmental laws and regulations. Generally, we have been able to recover in customer rates our costs to operate our facilities in compliance with these laws and regulations.
 
Clean Air Act: We continue to focus on complying with the federal Clean Air Act and numerous state and federal regulations. We plan to spend $817 million for equipment installation through 2017 to comply with a number of environmental regulations, including regulations limiting nitrogen oxides and sulfur dioxide emissions. We expect to recover these costs in customer rates.
 
We plan to purchase additional nitrogen oxides emission allowances through 2010 at an estimated cost of $5 million per year. We also plan to purchase sulfur dioxide emission allowances, between 2013 and 2015, at an estimated cost ranging from $9 million to $27 million per year. We expect to recover emissions allowance costs from our customers through the PSCR process.
 
Clean Air Interstate Rule: In March 2005, the EPA adopted the CAIR, which required additional coal-based electric generating plant emission controls for nitrogen oxides and sulfur dioxide. The CAIR was appealed to the U.S. Court of Appeals for the District of Columbia. The court initially vacated the CAIR and the CAIR federal implementation plan in their entirety, but subsequently, the court changed course and remanded the rule to the EPA maintaining the rule in effect pending EPA revision. As a result, the CAIR still remains in effect, with the first annual nitrogen oxides compliance year beginning January 1, 2009. The EPA must now revise the rule to resolve the court’s concerns. The court did not set a timetable for the revision.
 
State and Federal Mercury Air Rules: In March 2005, the EPA issued the CAMR, which required initial reductions of mercury emissions from coal-based electric generating plants by 2010 and further reductions by 2018. A number of states and other entities appealed certain portions of the CAMR to the U.S. Court of Appeals for the District of Columbia. The U.S. Court of Appeals for the District of Columbia decided the case in February 2008, and determined that the rules developed by the EPA were not consistent with the Clean Air Act. The U.S. Supreme Court has been petitioned to review this decision.
 
In April 2006, Michigan’s governor proposed a plan that would result in mercury emissions reductions of 90 percent by 2015. The MDEQ is reviewing public comments made in response to a newly released mercury emissions reduction proposal. If this plan becomes effective, we estimate that the associated costs will be approximately $782 million by 2015.
 
Routine Maintenance Classification: The EPA has alleged that some utilities have incorrectly classified major plant modifications as RMRR rather than seeking permits from the EPA to modify their plants. We responded to information requests from the EPA on this subject in 2000, 2002, and 2006. We believe that we have properly interpreted the requirements of RMRR. In October 2008, we received another information request from the EPA under Section 114 of the Clean Air Act. We responded to this information request in December 2008.


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Consumers Energy Company
 
In addition to the EPA’s information request, in October 2008, we received a NOV for three of our coal-based facilities relating to violations of NSR regulations, alleging ten projects from 1986 to 1998 were subject to NSR review. We met with the EPA in January 2009 and have additional meetings scheduled. If the EPA does not accept our interpretation of RMRR, we could be required to install additional pollution control equipment at some or all of our coal-based electric generating plants, surrender emission allowances, engage in supplemental environmental programs or pay fines. Additionally, we would need to assess the viability of continuing operations at certain plants. We cannot predict the financial impact or outcome of this matter.
 
Greenhouse Gases: The United States Congress has introduced proposals that would require reductions in emissions of greenhouse gases, including carbon dioxide. We consider it likely that Congress will enact greenhouse gas legislation, but the form of any final bill is difficult to predict. These laws, or similar state laws or rules, if enacted, could require us to replace equipment, install additional equipment for emission controls, purchase allowances, curtail operations, arrange for alternative sources of supply, or take other steps to manage or lower the emission of greenhouse gases. Although associated capital or operating costs relating to greenhouse gas regulation or legislation could be material, and cost recovery cannot be assured, we expect to have an opportunity to recover these costs and capital expenditures in rates consistent with the recovery of other reasonable costs of complying with environmental laws and regulations.
 
In July 2008, the EPA published an Advance Notice of Proposed Rulemaking to present possible options for regulating greenhouse gases under the Clean Air Act, as well as to solicit comments and additional ideas. We submitted comments to the EPA on this issue in November 2008. In addition to the potential for federal actions related to greenhouse gas regulation, the State of Michigan has convened the Michigan Climate Action Council, a climate change stakeholder process. Michigan is also a signatory participant in the Midwest Governors Greenhouse Gas Reduction Accord process. We cannot predict the extent or the likelihood of any actions that could result from these state and regional processes.
 
Water: In July 2004, the EPA issued rules that govern existing electric generating plant cooling water intake systems. These rules require a significant reduction in the number of fish harmed by intake structures at existing power plants. The EPA compliance options in the rule were challenged before the U.S. Court of Appeals for the Second Circuit, which remanded the bulk of the rule back to the EPA for reconsideration in January 2007. In April 2008, the U.S. Supreme Court agreed to hear an industry challenge to the appellate court ruling in this case. A decision from the U.S Supreme Court is expected in the first half of 2009. The EPA is planning to issue a revised draft rule in 2009, following the court decision.
 
We estimate that capital expenditures to comply with these regulations will be approximately $128 million; however an unfavorable U.S. Supreme Court decision could increase expenditures significantly.
 
We will continue to monitor these developments and respond to their potential implications for our business, consolidated results of operations, cash flows, and financial position. For additional details on electric environmental matters, see Note 4, Contingencies, “Electric Contingencies — Electric Environmental Matters.”
 
Stranded Cost Recovery: In October 2008, the Michigan legislature enacted legislation that amended the Customer Choice Act and directed the MPSC to approve rates that will allow recovery of Stranded Costs within five years. In January 2009, we filed an application with the MPSC requesting recovery of these Stranded Costs through a surcharge on both full service and ROA customers. At December 31, 2008, we had a regulatory asset for Stranded Costs of $71 million.
 
Electric Rate Case: In November 2008, we filed an application with the MPSC seeking an annual increase in revenue of $214 million based on an 11 percent authorized return on equity. The filing seeks recovery of costs associated with new plant investments including Clean Air Act investments, higher operating and maintenance costs, and the approval to recover costs associated with our advanced metering infrastructure program. The Michigan legislation enacted in October 2008 generally allows utilities to self-implement rates six months after filing, subject to refund, unless the MPSC finds good cause to prohibit such self-implementation. We cannot predict the financial impact or outcome of this proceeding.


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Table of Contents

 
Consumers Energy Company
 
Palisades Regulatory Proceedings: We sold Palisades to Entergy in April 2007. The MPSC order approving the transaction required that we credit $255 million of excess sale proceeds and decommissioning amounts to our retail customers by December 2008. There are additional excess sales proceeds and decommissioning fund balances of $109 million above the amount in the MPSC order. The distribution of these funds is still pending with the MPSC.
 
For additional details on electric rate matters, see Note 4, Contingencies, “Electric Rate Matters.”
 
ELECTRIC
BUSINESS UNCERTAINTIES



 



Several electric business trends and uncertainties may affect
our financial condition and future results of operations. These
trends and uncertainties could have a material impact on
revenues and income from continuing electric operations.


 



Electric Environmental Estimates: Our operations are
subject to various state and federal environmental laws and
regulations. Generally, we have been able to recover in customer
rates our costs to operate our facilities in compliance with
these laws and regulations.


 



Clean Air Act: We continue to focus on complying
with the federal Clean Air Act and numerous state and federal
regulations. We plan to spend $817 million for equipment
installation through 2017 to comply with a number of
environmental regulations, including regulations limiting
nitrogen oxides and sulfur dioxide emissions. We expect to
recover these costs in customer rates.


 



We plan to purchase additional nitrogen oxides emission
allowances through 2010 at an estimated cost of $5 million
per year. We also plan to purchase sulfur dioxide emission
allowances, between 2013 and 2015, at an estimated cost ranging
from $9 million to $27 million per year. We expect to
recover emissions allowance costs from our customers through the
PSCR process.


 



Clean Air Interstate Rule: In March 2005, the EPA
adopted the CAIR, which required additional coal-based electric
generating plant emission controls for nitrogen oxides and
sulfur dioxide. The CAIR was appealed to the U.S. Court of
Appeals for the District of Columbia. The court initially
vacated the CAIR and the CAIR federal implementation plan in
their entirety, but subsequently, the court changed course and
remanded the rule to the EPA maintaining the rule in effect
pending EPA revision. As a result, the CAIR still remains in
effect, with the first annual nitrogen oxides compliance year
beginning January 1, 2009. The EPA must now revise the rule
to resolve the court’s concerns. The court did not set a
timetable for the revision.


 



State and Federal Mercury Air Rules: In March 2005,
the EPA issued the CAMR, which required initial reductions of
mercury emissions from coal-based electric generating plants by
2010 and further reductions by 2018. A number of states and
other entities appealed certain portions of the CAMR to the
U.S. Court of Appeals for the District of Columbia. The
U.S. Court of Appeals for the District of Columbia decided
the case in February 2008, and determined that the rules
developed by the EPA were not consistent with the Clean Air Act.
The U.S. Supreme Court has been petitioned to review this
decision.


 



In April 2006, Michigan’s governor proposed a plan that
would result in mercury emissions reductions of 90 percent
by 2015. The MDEQ is reviewing public comments made in response
to a newly released mercury emissions reduction proposal. If
this plan becomes effective, we estimate that the associated
costs will be approximately $782 million by 2015.


 



Routine Maintenance Classification: The EPA has
alleged that some utilities have incorrectly classified major
plant modifications as RMRR rather than seeking permits from the
EPA to modify their plants. We responded to information requests
from the EPA on this subject in 2000, 2002, and 2006. We believe
that we have properly interpreted the requirements of RMRR. In
October 2008, we received another information request from the
EPA under Section 114 of the Clean Air Act. We responded to
this information request in December 2008.





CE-24





Table of Contents





 




Consumers
Energy Company


 



In addition to the EPA’s information request, in October
2008, we received a NOV for three of our coal-based facilities
relating to violations of NSR regulations, alleging ten projects
from 1986 to 1998 were subject to NSR review. We met with the
EPA in January 2009 and have additional meetings scheduled. If
the EPA does not accept our interpretation of RMRR, we could be
required to install additional pollution control equipment at
some or all of our coal-based electric generating plants,
surrender emission allowances, engage in supplemental
environmental programs or pay fines. Additionally, we would need
to assess the viability of continuing operations at certain
plants. We cannot predict the financial impact or outcome of
this matter.


 



Greenhouse Gases: The United States Congress has
introduced proposals that would require reductions in emissions
of greenhouse gases, including carbon dioxide. We consider it
likely that Congress will enact greenhouse gas legislation, but
the form of any final bill is difficult to predict. These laws,
or similar state laws or rules, if enacted, could require us to
replace equipment, install additional equipment for emission
controls, purchase allowances, curtail operations, arrange for
alternative sources of supply, or take other steps to manage or
lower the emission of greenhouse gases. Although associated
capital or operating costs relating to greenhouse gas regulation
or legislation could be material, and cost recovery cannot be
assured, we expect to have an opportunity to recover these costs
and capital expenditures in rates consistent with the recovery
of other reasonable costs of complying with environmental laws
and regulations.


 



In July 2008, the EPA published an Advance Notice of Proposed
Rulemaking to present possible options for regulating greenhouse
gases under the Clean Air Act, as well as to solicit comments
and additional ideas. We submitted comments to the EPA on this
issue in November 2008. In addition to the potential for federal
actions related to greenhouse gas regulation, the State of
Michigan has convened the Michigan Climate Action Council, a
climate change stakeholder process. Michigan is also a signatory
participant in the Midwest Governors Greenhouse Gas Reduction
Accord process. We cannot predict the extent or the likelihood
of any actions that could result from these state and regional
processes.


 



Water: In July 2004, the EPA issued rules that
govern existing electric generating plant cooling water intake
systems. These rules require a significant reduction in the
number of fish harmed by intake structures at existing power
plants. The EPA compliance options in the rule were challenged
before the U.S. Court of Appeals for the Second Circuit,
which remanded the bulk of the rule back to the EPA for
reconsideration in January 2007. In April 2008, the
U.S. Supreme Court agreed to hear an industry challenge to
the appellate court ruling in this case. A decision from the U.S
Supreme Court is expected in the first half of 2009. The EPA is
planning to issue a revised draft rule in 2009, following the
court decision.


 



We estimate that capital expenditures to comply with these
regulations will be approximately $128 million; however an
unfavorable U.S. Supreme Court decision could increase
expenditures significantly.


 



We will continue to monitor these developments and respond to
their potential implications for our business, consolidated
results of operations, cash flows, and financial position. For
additional details on electric environmental matters, see
Note 4, Contingencies, “Electric
Contingencies — Electric Environmental Matters.”


 



Stranded Cost Recovery: In October 2008, the
Michigan legislature enacted legislation that amended the
Customer Choice Act and directed the MPSC to approve rates that
will allow recovery of Stranded Costs within five years. In
January 2009, we filed an application with the MPSC requesting
recovery of these Stranded Costs through a surcharge on both
full service and ROA customers. At December 31, 2008, we
had a regulatory asset for Stranded Costs of $71 million.


 



Electric Rate Case: In November 2008, we filed an
application with the MPSC seeking an annual increase in revenue
of $214 million based on an 11 percent authorized
return on equity. The filing seeks recovery of costs associated
with new plant investments including Clean Air Act investments,
higher operating and maintenance costs, and the approval to
recover costs associated with our advanced metering
infrastructure program. The Michigan legislation enacted in
October 2008 generally allows utilities to self-implement rates
six months after filing, subject to refund, unless the MPSC
finds good cause to prohibit such self-implementation. We cannot
predict the financial impact or outcome of this proceeding.





CE-25





Table of Contents





 




Consumers
Energy Company


 



Palisades Regulatory Proceedings: We sold Palisades
to Entergy in April 2007. The MPSC order approving the
transaction required that we credit $255 million of excess
sale proceeds and decommissioning amounts to our retail
customers by December 2008. There are additional excess sales
proceeds and decommissioning fund balances of $109 million
above the amount in the MPSC order. The distribution of these
funds is still pending with the MPSC.


 



For additional details on electric rate matters, see
Note 4, Contingencies, “Electric Rate Matters.”


 




EXCERPTS ON THIS PAGE:

10-K (2 sections)
Feb 25, 2009
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