January 19, Dear Ms. Kale:

Transcription

1 A CMS Energy Company January 19, 2018 Ms. Kavita Kale Executive Secretary Michigan Public Service Commission 7109 West Saginaw Highway Post Office Box Lansing, MI General Offices: LEGAL DEPARTMENT One Energy Plaza Jackson, MI Tel: Fax: (517) (517) CATHERINE M REYNOLDS Senior Vice President and General Counsel *Washington Office: 1730 Rhode Island Ave. N.W. Tel: (202) MELISSA M GLEESPEN Suite 1007 Vice President, Corporate Washington, DC Fax: (202) Secretary and Chief Compliance Officer Writer s Direct Dial Number: (517) Writer s Address: bret.totoraitis@cmsenergy.com SHAUN M JOHNSON Vice President and Deputy General Counsel H Richard Chambers Kelly M Hall Eric V Luoma Assistant General Counsel Ashley L Bancroft Robert W Beach Don A D Amato Robert A. Farr Gary A Gensch, Jr. Gary L Kelterborn Chantez P Knowles Mary Jo Lawrie Jason M Milstone Rhonda M Morris Deborah A Moss* Mirče Michael Nestor James D W Roush Scott J Sinkwitts Adam C Smith Theresa A G Staley Janae M Thayer Bret A Totoraitis Anne M Uitvlugt Aaron L Vorce Attorney Re: Case No. U In the matter, on the Commission s own motion, to consider changes in the rates of all of the following Michigan rate-regulated electric, steam, and natural gas utilities to reflect the effects of the federal Tax Cuts and Jobs Act of 2017: Alpena Power Company, Consumers Energy Company, Detroit Thermal, LLC, DTE Electric Company, DTE Gas Company, Indiana Michigan Power Company, Northern States Power Company, Upper Peninsula Power Company, Upper Michigan Energy Resources Corporation, Wisconsin Electric Power Company, Presque Isle Electric & Gas Co-Op, Michigan Gas Utilities Corporation, and SEMCO Energy Gas Company. Dear Ms. Kale: Enclosed for electronic filing, in the above-captioned case, please find the Comments of Consumers Energy Company. This is a paperless filing and is therefore being filed only in a PDF format. Sincerely, Bret A. Totoraitis fl

2 S T A T E O F M I C H I G A N BEFORE THE MICHIGAN PUBLIC SERVICE COMMISSION In the matter, on the Commission s own motion, ) to consider changes in the rates of all of the ) following Michigan rate-regulated electric, ) steam, and natural gas utilities to reflect the effects ) of the federal Tax Cuts and Jobs Act of 2017: ) ALPENA POWER COMPANY, CONSUMERS ) ENERGY COMPANY, DETROIT THERMAL, LLC, ) DTE ELECTRIC COMPANY, DTE GAS COMPANY, ) INDIANA MICHIGAN POWER COMPANY, ) Case No. U NORTHERN STATES POWER COMPANY, ) UPPER PENINSULA POWER ) COMPANY, UPPER MICHIGAN ENERGY ) RESOURCES CORPORATION, ) WISCONSIN ELECTRIC POWER COMPANY, ) PRESQUE ISLE ELECTRIC & GAS CO-OP, ) MICHIGAN GAS UTILITIES CORPORATION, and ) SEMCO ENERGY GAS COMPANY. ) ) A. Introduction COMMENTS OF CONSUMERS ENERGY COMPANY On December 27, 2017, the Michigan Public Service Commission ( MPSC or the Commission ) issued an Order in the above-captioned case ( the Order ). The Order states that Michigan rate-regulated electric, steam, and natural gas utilities shall: 1. Apply regulatory accounting treatment for all impacts resulting from the Tax Cuts and Jobs Act ( TCJA ) beginning January 1, 2018; 2. Submit by January 19, 2018 the impacts of the TCJA on revenue requirements effective January 1, 2018; and 3. Outline by January 19, 2018 the preferred method to flow any benefits of the TCJA to customers. Consumers Energy Company ( Consumers Energy or the Company ) appreciates the opportunity to submit these written comments on the impacts of the TCJA in order to help all interested parties understand its complexities as well as to address the Commission s desire that all utilities account for these changes in a similar manner. B. Overview Of The TCJA On December 22, 2017, the enactment of the TCJA made sweeping changes to the federal tax landscape for businesses. Determining the estimated effects of these co

3 significant changes on Consumers Energy and its customers by the date required by this Order is a challenge due to the complexity of these changes. However, in general, customer rates currently in place will be materially affected in three ways: 1. By the reduction in the federal corporate income tax rate from 35 percent to 21 percent starting January 1, 2018; 2. By the return of the one-time effects of the remeasurement of deferred tax liabilities from 35 percent to 21 percent ( Excess Deferred Taxes ); and 3. By the remeasurement of pre-existing regulatory tax assets and liabilities due to the change in tax gross-up from the federal tax rate change. The major changes to the corporate tax system that impact utility businesses like Consumers Energy are discussed below and the applicable sections of the enacted tax bill ( P.L ) have been referenced. Tax Rate Under prior law corporations were taxed at a rate of 35 percent. Under new law corporations will be taxed at a rate of 21 percent effective January 1, Interest Expense Under prior law there was no limitation on the deduction of interest expense. Under new law corporate taxpayers are generally limited in deducting interest expense that does not exceed 30 percent of taxable income before interest, taxes, and tax depreciation ( Adjusted Taxable Income or ATI ). 2 Utility companies however are specifically exempted from this provision and will continue to be able to fully deduct all interest expense. Bonus Depreciation / Asset Expensing Under prior law corporate taxpayers including utility companies were generally allowed 40% bonus depreciation in 2018, 30% bonus depreciation in 2019, and thereafter bonus depreciation was not available. Under new law the prior bonus depreciation rules are eliminated effective September 28, 2017 and replaced with new asset expensing rules. 3 Those asset expensing rules allow corporations to deduct 100 percent of the cost of capital assets in the first year they are placed in service for tax purposes. However, utility companies are prohibited from taking bonus depreciation or asset expensing effective September 28, Section 13001, P.L , Tax Cuts and Jobs Act 2 Section 13301, P.L , Tax Cuts and Jobs Act 3 Section 13201, P.L , Tax Cuts and Jobs Act 4 Section 13201(d), P.L , Tax Cuts and Jobs Act co

4 Normalization Under prior law, normalization provisions required that any federal tax benefits related to the remeasurement of deferred taxes from certain plant assets (i.e. depreciation method and life differences versus book accounting) be returned to customers no faster (i.e. normalized) than the remaining average life of the assets. Two methods were available to utilities to normalize the return of these Excess Deferred Taxes to customers: the Average Rate Assumption Method ( ARAM ) and the Reverse South Georgia Method ( RSGM ). The normalization provisions described above are maintained under the new law and continue to be required. 5 Therefore any return of federal Excess Deferred Taxes on plant assets more quickly than under ARAM or RSGM would result in a normalization violation. This violation would result in the loss of the utility s ability to continue to take accelerated tax depreciation, as well as an increase in tax equal to the amount of the Excess Deferred Taxes returned to customers faster than allowed under ARAM or RSGM. 6 C. Accounting Principles Governing Changes In Tax Law Or Rates Financial Accounting Standards Board Accounting Standards Codification ( ASC ) 740 states, Deferred tax liabilities and assets shall be adjusted for the effect of a change in tax laws or rates (ASC ). The deferred income tax effects of the change in tax laws or rates are required to be recorded in the period of enactment as either income tax expense or benefit (ASC ) or as a regulatory asset or liability for regulated entities applying the principles of ASC 980 (ASC ), with recovery from, or refund to, customers in the future authorized by the regulator. D. Regulatory Policy For Accounting For Changes In Tax Law Or Rates As stated previously, ASC 980 directs regulated entities with assurance of future recovery or a refund requirement to defer the net income effects of a change in tax laws or rates in the period of enactment by offsetting the remeasurement of the deferred income tax accounts with regulatory assets or regulatory liabilities. In its Order in Case No. U from 1993, the Commission set forth its general policy in accounting for income taxes for ratemaking and accounting purposes. The tenets of this policy can be summarized as follows: 1. Deferred income tax accounting is the preferred method of accounting (as opposed to a cash basis method); 2. The assurance of recovery of any regulatory assets resulting from the remeasurement of deferred taxes; and 3. The requirement to return to customers any regulatory liabilities resulting from the remeasurement of deferred taxes. 5 Section 13001(d), P.L , Tax Cuts and Jobs Act 6 Section 13001(d)(4), P.L , Tax Cuts and Jobs Act co

5 This Commission policy of deferring the net income effects of a change in tax law or rates by requiring the recording of regulatory assets or liabilities has been expressly affirmed in numerous cases. For example, with the enactment of the Tax Reform Act of 1986 ( TRA 1986 ) 7 the federal corporate income tax rates went from 46 percent to 34 percent. As a result, the deferred federal income tax liabilities of most utilities were reduced. The bulk of these deferred tax liabilities related to book and tax basis differences of property, plant, and equipment. In order to assure an orderly recognition in utility ratemaking of the effect of the tax rate reduction, this one-time deferred tax adjustment (Excess Deferred Taxes) was recorded as a regulatory liability and has been returned to customers through general rates over the life of the property, plant, and equipment. In 2009, the Commission once again affirmed the application of this policy with respect to the enactment of the Michigan Business Tax ( MBT ), which replaced the Michigan Single Business Tax. 8 And finally in its 2012 Order in Case No. U-16794, the Commission once again confirmed its preferred approach for handling the effects of a change in tax law. In that case which addressed the enactment of the Michigan Corporate Income Tax ( MCIT ), the Commission authorized the establishment of a regulatory asset to assure recovery of the establishment of deferred tax liabilities for the enactment of the MCIT. This long-standing consistently applied regulatory policy conforms to generally accepted accounting principles ( GAAP ), results in fair and reasonable ratemaking, is widely used in other utility ratemaking jurisdictions, avoids unintended windfalls or detriments caused solely by the enactment of tax law changes, and should continue to be affirmed by the Commission. E. Estimated Impact Of 21 Percent Tax Rate From The TCJA On Base Rate Revenue Requirements For Consumers Energy s electric utility business, recalculating the Company s total tax expense using the reduced federal tax rate of 21 percent results in an estimated reduction in the jurisdictional revenue requirement of $120 million. See Exhibit 1 for the supporting schedules calculating this reduction in revenue requirement. For Consumers Energy s natural gas utility business, recalculating the Company s total tax expense using the reduced federal tax rate of 21 percent results in an estimated reduction in the jurisdictional revenue requirement of $52 million. See Exhibit 2 for the supporting schedules calculating this reduction in revenue requirement. It should be noted that these estimated tax savings for electric and gas customers above do not include any impacts of the amounts separately discussed in Sections F or G. 7 The Commission addressed the effect of TRA 1986 in its June 30, 1987 Order in Case No. U-8638 and related utility specific cases (e.g., U-8680 and U-8681 (Consumers Energy), U-8683 (Detroit Edison), and U-8684 (Michigan Consolidated Gas Company)). 8 See for example Case Nos. U and U (Consumers Energy Company), U (Detroit Edison Company), U (Michigan Consolidated Gas Company), and U (SEMCO Energy Gas Company). co

6 F. Estimated Impact Of The TCJA On Deferred Taxes As previously stated, book accounting under ASC 740 requires that the impacts of a tax law change be recorded in the period of enactment. As a result, the Company is currently going through the process to remeasure its deferred taxes as of December 31, Consumers Energy will therefore not know the final amount of this adjustment until it files its 2017 year-end financial statements via Form 10-K with the Securities and Exchange Commission ( SEC ). Based on deferred tax balances as of September 30, 2017 the Company estimates that there could be a one-time reduction in net deferred tax liabilities of approximately $1.5 billion. It should be noted however that this estimate is based on projected activity for To the extent that the Company s 2017 tax return filed in the third quarter of 2018 is different than this estimate, this estimated one-time deferred tax adjustment could change. G. Estimated Impact Of The TCJA On Pre-Existing Regulatory Tax Assets And Liabilities In addition, the Company has certain regulatory tax assets and liabilities for prior tax law changes that were required to be revalued as well due to the enactment of the TCJA. Some examples of these pre-existing regulatory tax assets and liabilities are related to the enactments of the MBT and MCIT, as well as for the tax benefits associated with cost of removal accrued on pre-1993 asset vintages that are being returned to customers. It should be noted that regulatory assets and liabilities to recover or refund income taxes must be grossed-up on a pre-tax basis to account for the impact of tax on tax. For example, assume for illustrative purposes that as a result of a new state income tax, a regulated utility must establish $100 million of a deferred income tax liability. In accordance with Commission precedent, this $100 million of deferred taxes would be offset by the establishment of a regulatory asset for an equal amount. However, if the utility were to recover the $100 million through rates, the additional revenue would be taxed at the new combined federal and state rate of percent. This would result in the utility only recovering $75 million rather than the full $100 million. Therefore, as previously stated, regulatory assets and liabilities related to income taxes must be grossed-up on a pretax basis. In order to properly recover $100 million, the utility would need to establish a regulatory tax asset of $134 million [$100 million / (1 25.4% statutory tax rate)]. See Exhibit 3 for support of the estimated annual impact to all regulatory tax assets and liabilities as a result of the enactment of the TCJA. 9 Calculated as follows: [21% federal rate + (5.57% combined state rate x (1 21% federal rate))]. co

7 H. Total Estimated Impact Of The TCJA On Consumers Energy s Base Rate Revenue Requirement In summary, the total estimated impacts (in millions) to current electric and gas revenue requirements from the change in tax law under the TCJA are as follows: Item Electric Gas Annual Change in Rate from 35% ($120) ($52) to 21% Annual Change to Pre-Existing $4 $3 Regulatory Tax Assets and Liabilities Total Annual Impact (in Millions) ($116) ($49) I. Recommended Methods For Flowing Benefits Of The Revenue Requirement Adjustments Associated With TCJA To Customers As demonstrated by these comments, calculating the customer revenue requirement impacts of the TCJA is highly complex. However the Company recognizes the significant customer impacts of the change in tax law and the impact to the State of Michigan. Consumers Energy s recommendations on how to flow the benefits of the Company s reduced revenue requirement resulting from TCJA to its customers are based on the following guiding principles: 1. Sufficient time should be afforded to Michigan utilities to accurately calculate the customer impacts given the complexity and timing of the law change; 2. Once accurately determined, the significant benefits of the tax law change should flow to the customers of Michigan as soon as practicable and in accordance with federal tax law; 3. The benefits of the tax changes should flow to customers in a levelized manner that does not create large annual rate fluctuations for customers or cash flow volatility for investors; and 4. Michigan utilities should strive to treat the impacts of the tax law changes uniformly. Based on these guiding principles, the Company recommends the following overall methodology to address the customer impacts from TCJA: 1. There should be a separate proceeding to address the manner and timing of returning the one-time benefits from the remeasurement of deferred taxes (Excess Deferred Taxes) from 35 percent to 21 percent; 2. A negative bill surcharge should temporarily be put in place to reflect the revenue requirement impacts of all tax law changes other than Excess Deferred Taxes; and 3. The negative bill surcharge should continue until base rates are reset to reflect the tax law changes. co

8 Consumers Energy further addresses the application of the overall methodology to its electric and gas utility businesses below. Electric Methodology First, Consumers Energy should be allowed time to accurately calculate the rate impacts of the tax law change. As stated previously, the Company is required to account for all of the effects of a tax law change in its financial statements in the year of enactment (2017). Therefore, Consumers Energy will know with more accuracy the full effects of the tax law change once this has been completed. The Company currently expects to complete its accounting for year end 2017 and issue its Form 10-K with the SEC by the end of February Second, the Company recommends that there be a separate proceeding to address the manner and timing of returning the one-time benefits from the remeasurement of deferred taxes from 35 percent to 21 percent (i.e. the return of Excess Deferred Taxes). As stated in Section B, the normalization requirements in the new tax law govern how federal Excess Deferred Taxes related to certain plant differences are returned to customers. But there are numerous other types of deferred tax changes in which utilities and the Commission have discretion in how they flow to customers. Given the Company s desire to not create large rate fluctuations from year to year and the complexity of options available, we recommend a separate proceeding to determine the best method to return Excess Deferred Taxes. Consumers Energy anticipates that such a proceeding could be concluded no later than the end of calendar The annual customer rate impacts as determined by the order would be incorporated into a pending or subsequently filed electric case as appropriate. Third, the Company recommends that the final determination of the revenue requirement impact for the electric business should be made only after the Commission issues its final order in Case No. U Otherwise, the revenue requirement impacts of tax changes would be based exclusively on self-implemented rates that would no longer be in effect going forward and would misstate the actual revenue requirement impact to the electric business. If the Company is required to calculate the revenue requirement impact to the electric business before the final order in Case No. U-18322, it would then need to be recalculated once the final order is issued in order to accurately reflect the revenue requirement impacts of the TCJA on the Company s electric business. Fourth, once the final order in Case No. U is issued, the Company would determine the annual impacts to revenue requirement from: (1) the reduction in tax rate from 35 percent to 21 percent; and (2) changes in pre-existing regulatory assets and liabilities. Consumers Energy proposes that this net amount would be calculated, allocated to the appropriate customer classes, and prospectively start being flowed to customers as a negative bill surcharge (the Annual Negative Surcharge ) within 60 days of the final order in Case No. U being issued. Consumers Energy also proposes that this negative bill surcharge would be flowed to customers on a volumetric basis until base rates are reset at a 21 percent federal tax rate. co

9 Fifth, the Company recommends that there be a second negative bill surcharge to catch-up for the actual customer benefits of the TCJA for the months January 2018 through the date that the first negative bill surcharge is implemented (the Catch-Up Negative Surcharge ). The Company proposes that this second negative bill surcharge should be calculated and implemented one month following the implementation of the first negative bill surcharge. Consumers Energy further recommends that this catch-up flow to customers on a volumetric basis by the end of calendar Sixth, the Company currently expects to file an application and accompanying support requesting the expedited approvals necessary to implement the Annual Negative Surcharge and the Catch-Up Negative Surcharge as recommended. In order to simplify the effects of the TCJA for customers, the Company proposes that the Commission authorize combining the Annual Negative Surcharge and the Catch-Up Negative Surcharge into one negative surcharge for billing purposes. Gas Methodology First, Consumers Energy should be allowed time to accurately calculate the rate impacts of the tax law change. Consumers Energy will know with more accuracy the full effects of the tax law change once it has been accounted for in its 2017 financial statements that it expects to file with the SEC by the end of February Second, the previously recommended separate rate proceeding would address the manner and timing of returning the one-time benefits from the remeasurement of deferred taxes from 35 percent to 21 percent. The annual customer rate impacts as determined by the order would be incorporated into a pending or subsequently filed gas case as appropriate. Third, the Company would determine the annual impacts to revenue requirement from: (1) the reduction in tax rate from 35 percent to 21 percent; and (2) changes in pre-existing regulatory assets and liabilities. Consumers Energy proposes that this net amount would be calculated, allocated to the appropriate customer classes, and prospectively start being flowed to customers as a negative bill surcharge within 60 days of the issuance of its Form 10-K with the SEC (the Annual Negative Surcharge). The Company also proposes that this negative bill surcharge would be flowed to customers on a volumetric basis until base rates are reset at a 21 percent federal tax rate. It should be noted however that this negative bill surcharge will need to be recalculated and adjusted once an order is received in Case No. U to reflect the impact of the federal tax rate change on the results of that case. Fourth, like proposed for the electric business, the Company recommends that there be a second negative bill surcharge to catch-up for the actual customer benefits of the TCJA for the months January 2018 through the date that the first negative bill surcharge is implemented (the Catch-Up Negative Surcharge). The Company proposes that this second negative bill surcharge should be calculated and implemented one month following the implementation of the first negative bill surcharge. Consumers Energy further recommends that this catch-up flow to customers on a volumetric basis by the end of calendar co

10 Fifth, the Company currently expects to file an application and accompanying support requesting the expedited approvals necessary to implement the Annual Negative Surcharge and the Catch-Up Negative Surcharge as recommended. In order to simplify the effects of the TCJA for customers, the Company proposes that the Commission authorize combining the Annual Negative Surcharge and the Catch-Up Negative Surcharge into one negative surcharge for billing purposes. K. Conclusion In accordance with this Order, the Company has: 1. Established regulatory tax assets and liabilities as of December 31, 2017 to record the one-time and ongoing impacts of the TCJA; 2. Provided a preliminary estimate of the customer impacts of the TCJA as summarized in Section H; and 3. Recommended a thoughtful and balanced approach in Section I of how to flow the benefits of the tax law changes to customers. Consumers Energy respectfully requests that the Commission consider these comments. Dated: January 19, 2018 Respectfully submitted, CONSUMERS ENERGY COMPANY co

11 EXHIBIT 1

12 Consumers Energy Company Exhibit 1 Electric TCJA Impact on Current Rates Page 1 of 4 (000) U U Self Implemented Self Implemented Jurisdictional Jurisdictional Jurisdictional Difference Line Description Amount (35% FIT Rate) Amount (21% FIT Rate) c-b Source (a) (b) (c) (d) (e) 1 Rate Base $ 10,289,206 $ 10,289,206 $ - U Exhibit: A-7 (JRF-5) 2 Adjusted Net Operating Income (1) 522, ,631 68,869 Exhibit 1, Page 2 Line 12 3 Overall Rate of Return 5.08% 5.75% Line 2 / Line 1 4 Required Rate of Return 6.00% 6.00% Exhibit 1, Page 3 Line 10 5 Income Required 617, ,029 - Line 1 * Line 4 6 Income Deficiency/ (Sufficiency) 94,268 25,398 (68,869) Line 5 - Line 2 7 Revenue Multiplier Exhibit 1, Page 4, Line 7 8 Revenue Deficiency/ (Sufficiency) (2) 154,379 34,223 (120,157) Line 6 * Line 7 9 Revenue Requirement of Pre-Existing Tax Assets and Liabilities (24,805) (20,409) 4,396 Exhibit 4, Page 1 10 Total Revenue Deficiency / Sufficiency 129,575 13,814 (115,761) Line 8 + Line 9 (1) (2) Excludes net operating income impact of pre-existing tax assets and liabilities Excludes revenue deficiency impact of pre-existing tax assets and liabilities

13 Consumers Energy Company Exhibit 1 Electric Net Operating Income Page 2 of 4 (000) U U Jurisdictional Jurisdictional Self Implementation Self Implementation Line Description 35% FIT Rate 21% FIT Rate (a) (b) (c) (d) 1 Jurisdictional Net Operating Income (Self Implementation at 35% FIT Rate) $ 537,908 2 Federal Taxable Income 207, ,188 3 Temporary Tax Differences 284, ,110 4 Total (Line 2 + Line 3) 491, ,298 5 FIT Rate 35% 21% 6 Tax on Total (1) 171, ,173 7 Jurisdictional Factor Jurisdictional Tax on Total (1) 172, ,304 9 Increase in Jurisdictional Net Operating Income 68, Jurisdictional Net Operating Income (21% FIT Rate) 606, Net Operating Income Impact of Pre-Existing Regulatory Tax Assets and Liabilities 15, Net Operating Income Excluding Impact of Pre-Existing Regulatory Tax Assets and Liabilities 591,631 (1) Tax on Total does not include Adjustments to Deferred Taxes related to Pre-Existing Regulatory Tax Assets and Liabilities

14 Consumers Energy Company Exhibit 1 Electric Capital Structure and Cost Rates U Self-Implementation Page 3 of 4 (000) 13-Month % of % of Weighted Cost Average Permanent Total Cost Permanent Total Line Description ($000) Capital Capital Rate Capital Capital (a) (c) (d) (e) (f) (g) (h) 1 Long Term Debt $ 5,880, % 36.39% 4.82% 2.25% 1.75% 2 Preferred Stock 37, % 0.23% 4.50% 0.01% 0.01% 3 Common Equity 6,647, % 41.14% 10.10% 5.34% 4.16% 4 Permanent Capital 12,565, % 7.61% 5 Total Short Term Debt 160, % 3.55% 0.04% 6 Deferred FIT 3,339, % 0.00% 0.00% Deferred JDITC/ITC 7 Long Term Debt 43, % 4.82% 0.01% 8 Preferred Stock % 4.50% 0.00% 9 Common Equity 48, % 10.10% 0.03% 10 Total Capitalization $ 16,158, % 6.00%

15 Consumers Energy Company Exhibit 1 Computation of the Revenue Multiplier Page 4 of 4 Line Description Amount Source (a) (b) (c) 1 Income Base - Before Taxes Michigan Corporate Income Tax Line 1 * 5.898% MCIT Rate 3 City Income Tax Line 1 * 0.16% CIT Rate 4 Federal Income Tax Base Line 1 - Line 2 - Line 3 5 Federal Income Tax Line 4 * 21.00% FIT Rate 6 Income Base - After Taxes Line 4 - Line 5 7 Revenue Multiplier Line 1 / Line 6

16 EXHIBIT 2

17 Consumers Energy Company Exhibit 2 Gas TCJA Impact on Current Rates Page 1 of 8 (000) U U Order Order Difference Line Description Amount (35% FIT Rate) Amount (21% FIT Rate) c-b Source (a) (b) (c) (d) (e) 1 Rate Base $ 4,304,494 $ 4,304,494 $ - U (1) 2 Adjusted Net Operating Income (2) 229, ,078 31,437 Exhibit 2, Page 2 Line 10 3 Overall Rate of Return 5.33% 6.07% Line 2 / Line 1 4 Required Rate of Return 5.97% 5.97% U (1) 5 Income Required 256, ,795 - Line 1 * Line 4 6 Income Deficiency/ (Sufficiency) 27,154 (4,282) (31,437) Line 5 - Line 2 7 Revenue Multiplier Exhibit 1, Page 4, Line 7 8 Revenue Deficiency/ (Sufficiency) (3) 44,469 (5,771) (50,240) Line 6 * Line 7 9 Revenue Requirement of Pre-Existing Tax Assets and Liabilities (15,258) (12,554) 2,704 Exhibit 4, Page 2 10 Total Revenue Deficiency / Sufficiency 29,211 (18,325) (47,536) Line 8 + Line 9 11 TCJA Impact on U IRM Revenue Requirement (1,776) Exhibit 2, Page 3 12 U TCJA Impact (4) (49,312) Line 10 + Line 11 (1) (2) (3) U Order Dated July 31, 2017, Page 107 Excludes net operating income impact of pre-existing tax assets and liabilities Excludes revenue deficiency impact of pre-existing tax assets and liabilities (4) Exludes TCJA Impact of excess deferred taxes

18 Consumers Energy Company Exhibit 2 Gas Net Operating Income Page 2 of 8 (000) U U Order Order Line Description 35% FIT Rate 21% FIT Rate (a) (b) (c) (d) 1 Net Operating Income (Order at 35% FIT Rate) $ 238,958 2 Federal Taxable Income (65,318) (65,318) 3 Temporary Tax Differences 289, ,867 4 Total (Line 2 + Line 3) 224, ,549 5 FIT Rate 35% 21% 6 Tax on Total (1) 78, , Increase in Net Operating Income 31,437 8 Net Operating Income (21% FIT Rate) 270,395 9 Net Operating Income Impact of Pre-Existing Regulatory Tax Assets and Liabilities 9, Net Operating Income Excluding Impact of Pre-Existing Regulatory Tax Assets and Liabilities 261,078 (1) Tax on Total does not include adjustments to deferred taxes related to pre-existing regulatory tax assets and liabilities

19 Consumers Energy Company Exhibit 2 TCJA Impact on U IRM Revenue Requirement Page 3 of 8 (000) Line Description Amount Source (a) (b) (c) 1 U IRM Revenue Requirement - Order 21% Tax Rate $ 16,690 Exhibit 3, page 4 2 U IRM Revenue Requirement - Order 18,466 Exhibit 3, page 6 3 TCJA Impact on U IRM Revenue Requirement (1,776) Line 1 - Line 2

20 Consumers Energy Company Exhibit 2 U IRM Revenue Requirement - Order 21% Tax Rate Page 4 of 8 (000) SUMMARY Line Description Distribution Transmission Total Source (a) (b) (c) (d) (e) 2018 Capital Investment 1 EIRP - Distribution 70,032 70,032 U Order (1) 2 EIRP - Transmission 4,968 4,968 U Order (1) 3 Pipeline Integrity - Transmission 29,560 29,560 U Order (1) 4 Pipeline Integrity - Transmission Operated by Distribution 3,712 3,712 U Order (1) 5 Transmission Enhancement for Deliverability and Integrity (TED-I) - - U Order (1) 6 Asset Relocation - Decision Analysis Mains & Services 37,407 37,407 U Order (1) 7 Total Incremental Capital Investment 111,151 34, ,679 Sum Lines 1-6 (1) U Order Dated July 31, 2017 REVENUE REQUIREMENT - SUMMARY 8 Return on Investment 8,252 2,563 10,816 Line 15 9 Depreciation Expense 3, ,029 Line Property Tax Expense 1, ,845 Line AFUDC Offset Line Total Revenue Requirement 13,006 3,684 16,690 Sum Lines 8-11

21 Consumers Energy Company Exhibit 2 U IRM Revenue Requirement - Order 21% Tax Rate Page 5 of 8 (000) CALCULATIONS Line Description Distribution Transmission Total Source (a) (b) (c) (d) (e) 13 Total Incremental Capital Investment 111,151 34, ,679 Line 7 14 Pre-Tax Rate of Return 7.42% 7.42% 7.42% Line Return on Investment 8,252 2,563 10,816 Line 13 x Line Total Incremental Capital Investment 111,151 34, ,679 Line 7 17 Depreciation Rate 3.01% 1.98% Line 26, Line Depreciation Expense 3, ,029 Line 16 x Line Total Incremental Capital Investment 111,151 34, ,679 Line 7 20 Property Tax Rate 1.27% 1.27% 1.27% Line Property Tax Expense 1, ,845 Line 19 x Line AFUDC Not Applicable 23 Revenue Factor Line AFUDC Offset Line 22 x (Line 23) Fixed Charge/Revenue Factors 25 Pre-Tax Rate of Return 7.42% Order U Depreciation Rate - Distribution 3.01% U WP-JRF Depreciation Rate - Transmission 1.98% U WP-JRF Property Tax Rate 1.27% U Exhibit A-64 (BJV-1) 29 Revenue Factor Exhibit 2, Page 1

22 Consumers Energy Company Exhibit 2 U IRM Revenue Requirement - Order Page 6 of 8 (000) SUMMARY Line Description Distribution Transmission Total Source (a) (b) (c) (d) (e) 2018 Capital Investment 1 EIRP - Distribution 70,032 70,032 U Order (1) 2 EIRP - Transmission 4,968 4,968 U Order (1) 3 Pipeline Integrity - Transmission 29,560 29,560 U Order (1) 4 Pipeline Integrity - Transmission Operated by Distribution 3,712 3,712 U Order (1) 5 Transmission Enhancement for Deliverability and Integrity (TED-I) - - U Order (1) 6 Asset Relocation - Decision Analysis Mains & Services 37,407 37,407 U Order (1) 7 Total Incremental Capital Investment 111,151 34, ,679 Sum Lines 1-6 (1) U Order Dated July 31, 2017 REVENUE REQUIREMENT - SUMMARY 8 Return on Investment 9,607 2,984 12,591 Line 15 9 Depreciation Expense 3, ,029 Line Property Tax Expense 1, ,845 Line AFUDC Offset Line Total Revenue Requirement 14,360 4,105 18,466 Sum Lines 8-11

23 Consumers Energy Company Exhibit 2 U IRM Revenue Requirement - Order Page 7 of 8 (000) CALCULATIONS Line Description Distribution Transmission Total Source (a) (b) (c) (d) (e) 13 Total Incremental Capital Investment 111,151 34, ,679 Line 7 14 Pre-Tax Rate of Return 8.64% 8.64% 8.64% Line Return on Investment 9,607 2,984 12,591 Line 13 x Line Total Incremental Capital Investment 111,151 34, ,679 Line 7 17 Depreciation Rate 3.01% 1.98% Line 26, Line Depreciation Expense 3, ,029 Line 16 x Line Total Incremental Capital Investment 111,151 34, ,679 Line 7 20 Property Tax Rate 1.27% 1.27% 1.27% Line Property Tax Expense 1, ,845 Line 19 x Line AFUDC Not Applicable 23 Revenue Factor Line AFUDC Offset Line 22 x (Line 23) Fixed Charge/Revenue Factors 25 Pre-Tax Rate of Return 8.64% Order U Depreciation Rate - Distribution 3.01% U WP-JRF Depreciation Rate - Transmission 1.98% U WP-JRF Property Tax Rate 1.27% U Exhibit A-64 (BJV-1) 29 Revenue Factor U Exhibit A-9 (JRF-47)

24 Consumers Energy Company Exhibit 2 U Ordered Cost of Capital Adjusted for 21% Tax Rate Page 8 of 8 (000) Amount % of % of Annual Total Weighted Line Description ($000) Sub Total Total Capital Cost Weighted Cost Cost of Debt Pretax (a) (b) (c) (d) (e) (f) (g) (h) 1 Long Term Debt $ 5,543, % 36.21% 4.74% 1.72% 1.72% 1.72% 2 Preferred Stock 37, % 0.24% 4.50% 0.01% 0.01% 3 Common Equity 6,319, % 41.27% 10.10% 4.17% 5.62% 4 Permanent Capital 11,900, % 5 Short Term Debt 172, % 2.09% 0.02% 0.02% 0.02% 6 Customer Deposits 30, % 7.00% 0.01% 0.01% 0.01% 7 Other Interest - Bearing Accounts 20, % 3.25% 0.00% 0.00% 0.00% 8 Deferred Taxes 3,132, % 0.00% 0.00% 0.00% Deferred JDITC/ITC 9 Long Term Debt 25, % 4.74% 0.01% 0.01% 0.01% 10 Preferred Stock % 4.50% 0.00% 0.00% 11 Common Equity 28, % 10.10% 0.02% 0.03% 12 Total Capitalization $ 15,311, % 5.97% 1.77% 7.42%

25 EXHIBIT 3

26 Consumers Energy Company Exhibit 3 Electric TCJA Impact on Pre-Existing Regulatory Tax Assets and Liabilities Page 1 of 2 (000) U U Self Implementation Self Implementation Line Description 35% FIT Rate 21% FIT Rate Difference (a) (b) (c) (d) Federal 1 FAS 109 $ 867 $ Investment Tax Credit Amortization (3,341) (3,341) 3 Pre-1993 Property Reg Tax Liability Amortization (25,534) (25,534) 4 Reg Tax Asset Amort-Transmission Assets U ,059 1,059 5 Repealed Medicare Subsidy Benefit 2,944 2,944 State 6 FAS AFUDC-Equity Flow-Through Reversal Deferred - Amortization of Regulatory Asset Per U Deferred - Amortization of MCIT Transition Regulatory Asset 7,255 7,255 Local 9 Deferred - Amortization of Regulatory Asset Total Included in U Self-Implementation (15,127) (15,127) 11 Jurisdictional Factor Jurisdictional Included in U Self-Implementation (15,146) (15,146) 13 Revenue Multiplier Jurisdictional Revenue Requirement (24,805) (20,409) 15 Jurisdictional Revenue Requirement Impact of TCJA 4,396

27 Consumers Energy Company Exhibit 3 Gas TCJA Impact on Pre-Existing Regulatory Tax Assets and Liabilities Page 2 of 2 (000) U U Line Description 35% FIT Rate 21% FIT Rate Difference (a) (b) (c) (d) Federal 1 Pre-1993 Property Reg Tax Liability Amort $ (13,249) $ (13,249) 2 FAS 109 (374) (374) 3 Investment Tax Credit Amortization (597) (597) 4 Repealed Medicare Subsidy Benefit 1,329 1,329 State 5 FAS AFUDC-Equity Flow-through Reversal Deferred - Amort of Reg. Asset per U ,191 1,191 7 Deferred - Amort of MCIT Transition Asset 2,177 2,177 Local 8 Deferred - Amortization of CIT Regulatory Asset Total Included in U Order (9,317) (9,317) 10 Revenue Multiplier Revenue Requirement Impact (15,258) (12,554) 12 Revenue Requirement Impact of TCJA 2,704