NEW YORK, May 15 (Fitch) Fitch Ratings has assigned an 'A - ' rating to Consumers
Energy Co.'s $425 million issuance of 3.95% First Mortgage Bonds due May 15,
2043. Proceeds will be used to redeem $200 million of 6.00% First Mortgage Bonds
due 2014, and $225 million of 5.00% First Mortgage Bonds due 2015. The notes
will rank on parity in right of payment with all existing and future secured
debt. The Rating Outlook for Consumers Energy is Stable.
Stable Outlook: Consumers Energy's rating and Stable Outlook reflect the
utility's stand-alone financial profile. Low-risk regulated electric and gas
utility operations deliver predictable cash flows due largely to supportive
regulatory treatment in Michigan. Consumers Energy is the primary source of cash
flow to CMS Energy Corp. (IDR 'BB+', Positive Outlook).
Key Rating Drivers:
--Strong financial metrics;
--Constructive regulatory treatment;
--Large capital investment plan;
--Manageable re-financing needs.
Strong Financial Metrics: Fitch expects financial metrics to remain healthy
relative to guidelines for the risk profile and rating category, with forecasts
for EBITDA-to-interest to range between mid-5 times (x) in the near term and
debt-to-EBITDA to remain near 3.0x. FFO metrics are forecast to weaken from
current levels as the positive benefits associated with bonus depreciation end,
and with the up-tick in utility capital spending.
Supportive Regulatory Treatment: The inclusion of rate design components to
mitigate regulatory lag, as well as forward test years, supports a stable
utility credit profile. Consumers' electric and gas rate plans include an
automatic power supply cost recovery mechanism and a gas cost recovery mechanism
to facilitate timely recovery of commodity costs. Base rate orders are filed by
the utility annually, and are determine within 12 months of the filing date.
Interim rates can be self-implemented within six months of filing date, unless
otherwise directed by the MPSC, and are subject to a true-up or refund.
Electric Rate Case Settled; Gas Pending: In a signal of continued regulatory
support, Consumers Energy has agreed to a partial settlement of its September
2012 electric rate filing with the Michigan Public Service Commission (MPSC). On
March 19, 2013 Consumers Energy was allowed to self-implement $110 million. The
permanent rate increase was $89 million and the utility will refund the
difference to customers. The authorized ROE remains at 10.3%. Consumers filed
its annual gas rate case with the MPSC on Feb. 1, 2013 for a rate increase of
$49 million based on a 10.5% ROE. The utility can implement interim rates as of
Aug. 1, 2013. Fitch expects Consumers will continue to file new rate cases
annually, particularly in consideration of high levels of capital investment.
Large Capex Plan: Consumers Energy could spend up to $7 billion over the next
five years on capital investments, including construction of the Thetford
Natural Gas-fired Plant. The utility is expected to file a Gas Plant Certificate
of Necessity in the second half of 2013, with an order effective 2014.
Construction would start thereafter, with the majority of spending in 2015 and
2016, and commercial operation in 2017. Fitch's rating assumes the company will
earn a competitive return on its utility investment, and timely recovery of
related costs is a key driver for ratings stability during this capital
intensive period. Fitch's forecast assumes a balanced capital structure,
including incremental new debt at the utility.
Sufficient Liquidity: Consumers Energy's stand-alone bank credit capacity is
$650 million. The utility has executed a $500 million bank facility which
expires in December 2017, and a $150 million bank facility that expires in April
2017. Available credit at March 31, 2013 was $648 million. An additional $250
million of account receivable credit is also available.
Manageable Debt Re-financing Need: Debt maturities include $200 million due in
2014; $275 million due in 2015; $350 million due in 2016; and, $350 million due
in 2017. Fitch considers the re-financing risk as low and views access to the
capital markets as unrestricted.
--Execution of a large capital investment plan and related capital funding needs
limits positive rating action at this time.
--An adverse regulatory order that negatively impacts the financial position of
Consumers Energy could place pressure on ratings.
Fitch Ratings, Inc.
One State Plaza
New York, NY 10004
Media Relations: Brian Bertsch, New York, Tel: +1 212-908-0549, Email:
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Corporate Rating Methodology', Aug. 8, 2012;
--'Rating North American Utilities, Gas and Water Companies', May 16, 2011;
--'Recovery Ratings and Notching Criteria for Utilities', Nov. 13, 2012;
--'Parent and Subsidiary Rating Linkage', Aug 8, 2012.
Applicable Criteria and Related Research
Corporate Rating Methodology
Rating North American Utilities, Power, Gas, and Water Companies
Recovery Ratings and Notching Criteria for Utilities
Parent and Subsidiary Rating Linkage
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