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Contingencies And Commitments | 12 Months Ended
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Dec. 31, 2015
Contingencies And Commitments | 4:C ontingencies and C ommitments CMS Energy and Consumers are involved in various matters that give rise to contingent liabilities. Depending on the specific issues, the resolution of these contingencies could negatively affect CMS Energy’s and Consumers’ liquidity, financial condition, and results of operations. In their disclosures of these matters, CMS Energy and Consumers provide an estimate of the possible loss or range of loss when such an estimate can be made. Disclosures that state that CMS Energy or Consumers cannot predict the outcome of a matter indicate that they are unable to estimate a possible loss or range of loss for the matter. CMS Energy Contingencies Gas Index Price Reporting Litigation: CMS Energy, along with CMS MST, CMS Field Services, Cantera Natural Gas, Inc., and Cantera Gas Company, have been named as defendants in four class action lawsuits and one individual lawsuit arising as a result of alleged inaccurate natural gas price reporting to publications that report trade information. Allegations include price-fixing conspiracies, restraint of trade, and artificial inflation of natural gas retail prices in Kansas, Missouri, and Wisconsin. The following provides more detail on the cases in which CMS Energy or its affiliates remain as parties:
| · |  | In 2005, CMS Energy, CMS MST, and CMS Field Services were named as defendants in a putative class action filed in Kansas state court, Learjet, Inc., et al. v. Oneok, Inc., et al. The complaint alleges that during the putative class period, January 1, 2000 through October 31, 2002, the defendants engaged in a scheme to violate the Kansas Restraint of Trade Act. The plaintiffs are seeking treble damages, statutory full consideration damages consisting of the full consideration paid by the plaintiffs for natural gas purchased during the period, costs, and attorneys’ fees.
| · |  | In 2007, a class action complaint, Heartland Regional Medical Center, et al. v. Oneok, Inc. et al., was filed as a putative class action in Missouri state court alleging violations of Missouri antitrust laws. The defendants, including CMS Energy, CMS Field Services, and CMS MST, are alleged to have violated the Missouri antitrust law in connection with their natural gas reporting activities during the period January 2000 through October 2002. The plaintiffs are seeking treble damages, costs, and attorneys’ fees.
| · |  | In 2006, a class action complaint, Arandell Corp., et al. v. XCEL Energy Inc., et al., was filed in Wisconsin state court on behalf of Wisconsin commercial entities that purchased natural gas between January 1, 2000 and October 31, 2002. The defendants, including CMS Energy, CMS ERM, and Cantera Gas Company, are alleged to have violated Wisconsin’s antitrust statute. The plaintiffs are seeking full consideration damages, treble damages, costs, interest, and attorneys’ fees.
| · |  | In 2009, a class action complaint, Newpage Wisconsin System v. CMS ERM, et al., was filed in circuit court in Wood County, Wisconsin, against CMS Energy, CMS ERM, Cantera Gas Company, and others. The plaintiff is seeking full consideration damages, treble damages, costs, interest, and attorneys’ fees.
| · |  | In 2005, J.P. Morgan Trust Company, N.A., in its capacity as trustee of the FLI Liquidating Trust, filed an action in Kansas state court against CMS Energy, CMS MST, CMS Field Services, and others. The complaint alleges various claims under the Kansas Restraint of Trade Act. The plaintiff is seeking statutory full consideration damages for its purchases of natural gas in 2000 and 2001, costs, and attorneys’ fees.
After removal to federal court, all of the cases described above were transferred to a single federal district court pursuant to the multidistrict litigation process. In 2010 and 2011, all claims against CMS Energy defendants were dismissed by the district court based on FERC preemption. Plaintiffs filed appeals in all of the cases. The issues on appeal were whether the district court erred in dismissing the cases based on FERC preemption and denying the plaintiffs’ motions for leave to amend their complaints to add a federal Sherman Act antitrust claim. The plaintiffs did not appeal the dismissal of CMS Energy as a defendant in these cases, but other CMS Energy entities remain as defendants. In 2013, the U.S. Court of Appeals for the Ninth Circuit reversed the district court decision. The appellate court found that FERC preemption does not apply under the facts of these cases. The appellate court affirmed the district court’s denial of leave to amend to add federal antitrust claims. The matter was appealed to the U.S. Supreme Court, which in 2015 upheld the Ninth Circuit’s decision. The cases have been remanded back to the federal district court. These cases involve complex facts, a large number of similarly situated defendants with different factual positions, and multiple jurisdictions. Presently, any estimate of liability would be highly speculative; the amount of CMS Energy’s reasonably possible loss would be based on widely varying models previously untested in this context. If the outcome after appeals is unfavorable, these cases could negatively affect CMS Energy’s liquidity, financial condition, and results of operations. Bay Harbor: CMS Land retained environmental remediation obligations for the collection and treatment of leachate, a liquid consisting of water and other substances, 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. In 2012, CMS Land and the MDEQ finalized an agreement that established the final remedies and the future water quality criteria at the site. CMS Land completed all construction necessary to implement the remedies required by the agreement and will continue to maintain and operate a system to discharge treated leachate into Little Traverse Bay under an NPDES permit issued in 2010. CMS Land is presently working with the MDEQ to renew this permit, which requires renewal every five years. Until a new permit is issued, CMS Land is authorized to continue operating under the existing permit. Various claims have been brought against CMS Land or its affiliates, including CMS Energy, alleging environmental damage to property, loss of property value, insufficient disclosure of environmental matters, breach of agreement relating to access, or other matters. CMS Land and other parties have received a demand for payment from the EPA in the amount of $8 million, plus interest. The EPA is seeking recovery under CERCLA of response costs allegedly incurred at Bay Harbor. These costs exceed what was agreed to in a 2005 order between CMS Land and the EPA, and CMS Land has communicated to the EPA that it does not believe that this is a valid claim. The EPA has filed a lawsuit to collect these costs. At December 31, 2015, CMS Energy had a recorded liability of $58 million for its remaining obligations. CMS Energy calculated this liability based on discounted projected costs, using a discount rate of 4.34 percent and an inflation rate of one percent on annual operating and maintenance costs. The undiscounted amount of the remaining obligation is $74 million. CMS Energy expects to pay the following amounts for long-term liquid disposal and operating and maintenance in each of the next five years:
In Millions
| 2016 | 2017 | 2018 | 2019 | 2020 |
CMS Energy |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Long-term liquid disposal and operating and maintenance costs |  | $ | 6 |  | $ | 5 |  | $ | 5 |  | $ | 5 |  | $ | 4 |
CMS Energy’s estimate of response activity costs and the timing of expenditures could change if there are changes in circumstances or assumptions used in calculating the liability. Although a liability for its present estimate of remaining response activity costs has been recorded, CMS Energy cannot predict the ultimate financial impact or outcome of this matter. Equatorial Guinea Tax Claim: In 2002, CMS Energy sold its oil, gas, and methanol investments in Equatorial Guinea. The government of Equatorial Guinea claims that CMS Energy owes $152 million in taxes, plus significant penalties and interest, in connection with the sale. The matter is proceeding to formal arbitration. CMS Energy has concluded that the government’s tax claim is without merit and is contesting the claim, but cannot predict the financial impact or outcome of the matter. An unfavorable outcome could have a material adverse effect on CMS Energy’s liquidity, financial condition, and results of operations. Consumers Electric Utility Contingencies Electric Environmental Matters: Consumers’ operations are subject to environmental laws and regulations. Historically, Consumers has generally been able to recover, in customer rates, the costs to operate its facilities in compliance with these laws and regulations. Cleanup and Solid Waste: Consumers expects to incur remediation and other response activity costs at a number of sites under the NREPA. Consumers believes that these costs should be recoverable in rates, but cannot guarantee that outcome. Consumers estimates that its liability for NREPA sites for which it can estimate a range of loss will be between $3 million and $5 million. At December 31, 2015, Consumers had a recorded liability of $3 million, the minimum amount in the range of its estimated probable NREPA liability. Consumers is a potentially responsible party at a number of contaminated sites administered under CERCLA. CERCLA liability is joint and several. In 2010, Consumers received official notification from the EPA that identified Consumers as a potentially responsible party for cleanup of PCBs at the Kalamazoo River CERCLA site. The notification claimed that the EPA has reason to believe that Consumers disposed of PCBs and arranged for the disposal and treatment of PCB-containing materials at portions of the site. In 2011, Consumers received a follow‑up letter from the EPA requesting that Consumers agree to participate in a removal action plan along with several other companies for an area of lower Portage Creek, which is connected to the Kalamazoo River. All parties, including Consumers, that were asked to participate in the removal action plan declined to accept liability. Until further information is received from the EPA, Consumers is unable to estimate a range of potential liability for cleanup of the river. Based on its experience, Consumers estimates that its share of the total liability for known CERCLA sites will be between $3 million and $8 million. Various factors, including the number of potentially responsible parties involved with each site, affect Consumers’ share of the total liability. At December 31, 2015, Consumers had a recorded liability of $3 million for its share of the total liability at these sites, the minimum amount in the range of its estimated probable CERCLA liability. The timing of payments related to Consumers’ remediation and other response activities at its CERCLA and NREPA sites is uncertain. Consumers periodically reviews these cost estimates. A change in the underlying assumptions, such as an increase in the number of sites, different remediation techniques, the nature and extent of contamination, and legal and regulatory requirements, could affect its estimates of NREPA and CERCLA liability. Ludington PCB: In 1998, during routine maintenance activities, Consumers identified PCB as a component in certain paint, grout, and sealant materials at Ludington. Consumers removed part of the PCB material and replaced it with non‑PCB material. Consumers has had several communications with the EPA regarding this matter. Consumers cannot predict the financial impact or outcome of this matter. CCRs: In April 2015, the EPA published a final rule regulating CCRs, such as coal ash, under the Resource Conservation and Recovery Act. In September 2015, the MDEQ submitted a draft plan to the EPA in which it declared its intent to explicitly regulate these facilities under state laws, and the EPA responded, confirming that it agreed with the MDEQ’s regulatory approach. Accordingly, Consumers recorded a $68 million increase to its coal ash disposal ARO liability and a corresponding increase to plant, property, and equipment that will be amortized over the remaining lives of the facilities. For additional details on the ARO liability, see Note 11, Asset Retirement Obligations. Consumers Gas Utility Contingencies Gas Environmental Matters: Consumers expects to incur remediation and other response activity costs at a number of sites under the NREPA. These sites include 23 former MGP facilities. Consumers operated the facilities on these sites for some part of their operating lives. For some of these sites, Consumers has no present ownership interest or may own only a portion of the original site. At December 31, 2015, Consumers had a recorded liability of $114 million for its remaining obligations for these sites. This amount represents the present value of long-term projected costs, using a discount rate of 2.57 percent and an inflation rate of 2.5 percent. The undiscounted amount of the remaining obligation is $129 million. Consumers expects to pay the following amounts for remediation and other response activity costs in each of the next five years:
In Millions
| 2016 | 2017 | 2018 | 2019 | 2020 |
Consumers |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Remediation and other response activity costs |  | $ | 14 |  | $ | 19 |  | $ | 11 |  | $ | 14 |  | $ | 19 |
Consumers periodically reviews these cost estimates. Any significant change in the underlying assumptions, such as an increase in the number of sites, changes in remediation techniques, or legal and regulatory requirements, could affect Consumers’ estimates of annual response activity costs and the MGP liability. At one of the MGP sites, Consumers is waiting for a local agency to make certain decisions on work being carried out adjacent to the site. Depending on the outcome, the agency’s decisions could impact Consumers’ remediation strategy and result in an increase in its cost estimates in 2016. Pursuant to orders issued by the MPSC, Consumers defers its MGP-related remediation costs and recovers them from its customers over a ten-year period. At December 31, 2015, Consumers had a regulatory asset of $146 million related to the MGP sites. Consumers estimates that its liability to perform remediation and other response activities at NREPA sites other than the MGP sites could reach $3 million. At December 31, 2015, Consumers had a recorded liability of less than $1 million, the minimum amount in the range of its estimated probable liability. Guarantees Presented in the following table are CMS Energy’s and Consumers’ guarantees at December 31, 2015:
In Millions
|  |  | Maximum |  | Carrying |
Guarantee Description | Issue Date | Expiration Date | Obligation |  | Amount |
CMS Energy, including Consumers |  |  |  |  |  |  |  |  |  |
Indemnity obligations from stock and asset sale agreements 1 | Various | Indefinite |  | $ | 143 |  |  | $ | 7 |
Guarantees 2 | Various | Indefinite |  |  | 51 |  |  |  | - |
Consumers |  |  |  |  |  |  |  |  |  |
Guarantee 2 | July 2011 | Indefinite |  | $ | 30 |  |  | $ | - |
| 1 |  | The se obligations arose from stock and asset sale agreements under which CMS Energy or a subsidiary of CMS Energy indemnified the purchaser for losses resulting from various matters, primarily claims related to taxes. CMS Energy believes the likelihood of material loss to be remote for the indemnity obligations not recorded as liabilities.
| 2 |  | At Consumers, this obligation comprises a guarantee provided to the DOE in connection with a settlement agreement regarding damages resulting from the DOE’s failure to accept spent nuclear fuel from nuclear power plants formerly owned by Consumers. At CMS Energy, the guarantee obligations comprise Consumers’ guarantee to the DOE and CMS Energy’s 1994 guarantee of non-recourse revenue bonds issued by Genesee. For additional details on this guarantee, see Note 19, Variable Interest Entities.
Additionally, in the normal course of business, CMS Energy, Consumers, and certain other subsidiaries of CMS Energy have enter ed into various agreements containing tax and other indemnity provisions for which they are unable to estimate the maximum potential obligation. The current carrying value of these indemnity obligations is less than $1 million. CMS Energy and Consumers consider the likelihood that they would be required to perform or incur substantial losses related to these indemnities to be remote. Other Contingencies Michigan Sales and Use Tax Litigation: In 2010, the Michigan Department of Treasury finalized a sales and use tax audit of Consumers for the period from October 1997 to December 2004. It determined that Consumers’ electric and natural gas distribution equipment was not eligible for an industrial-processing exemption and therefore was subject to the use tax. Consumers paid the tax for the period from 1997 through 2004 and filed a claim in the Michigan Court of Claims disputing the tax determination. Consumers has continued to apply the industrial-processing exemption for the years subsequent to 2004. In December 2015, Consumers and the Michigan Department of Treasury reached a settlement agreement under which the Michigan Department of Treasury will refund to Consumers the majority of use tax that Consumers paid on electric distribution equipment for the period from October 1997 through December 2004. Accordin gly, Consumers will receive $37 million, which comprises a $19 million refund of taxes paid, a $12 million refund of interest paid, and $6 million of interest owed to Consumers. In December 2015, Consumers recorded a $12 million reduction in other interest expense and $6 million in interest income. The taxes paid were originally capitalized as a cost of the equipment. Therefore, Consumers recorded the $19 million tax refund as a reduction in plant, property, and equipment. Consumers also recorded an additional $5 million reduction in g eneral t axes for the elimination of a loss contingency previously recorded for this matter. The parties further agreed to continue to meet to reach agreement on a reasonable method of apportionment relating to Consumer s’ natural gas system for the period from October 1997 to December 2004 and to Consumers’ electric and natural gas distribution equipment for the period from January 2005 to December 2014. Other: In addition to the matters disclosed in this Note and Note 3, Regulatory Matters, there are certain other lawsuits and administrative proceedings before various courts and governmental agencies arising in the ordinary course of business to which CMS Energy, Consumers, and certain other subsidiaries of CMS Energy are parties. These other lawsuits and proceedings may involve personal injury, property damage, contracts, environmental matters, federal and state taxes, rates, licensing, employment, and other matters. Further, CMS Energy and Consumers occasionally self-report certain regulatory non‑compliance matters that may or may not eventually result in administrative proceedings. CMS Energy and Consumers believe that the outcome of any one of these proceedings will not have a material negative effect on their consolidated results of operations, financial condition, or liquidity. Contractual Commitments Purchase Obligations: Purchase obligations arise from long-term contracts for the purchase of commodities and related services, and construction and service agreements. The commodities and related services include long-term PPAs, natural gas and associated transportation, and coal and associated transportation. Related party PPAs are between Consumers and certain affiliates of CMS Enterprises. Presented in the following table are CMS Energy’s and Consumers’ contractual purchase obligations at December 31, 2015 for each of the periods shown:
In Millions
| Payments Due |
| Total | 2016 | 2017 | 2018 | 2019 | 2020 | Beyond 2020 |
CMS Energy, including Consumers
Total PPAs |  | $ | 9,947 |  | $ | 999 |  | $ | 1,027 |  | $ | 969 |  | $ | 1,003 |  | $ | 995 |  | $ | 4,954 |
Other |  |  | 2,200 |  |  | 904 |  |  | 580 |  |  | 251 |  |  | 111 |  |  | 63 |  |  | 291 |
Consumers
PPAs |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
MCV PPA |  | $ | 3,003 |  | $ | 335 |  | $ | 345 |  | $ | 277 |  | $ | 321 |  | $ | 296 |  | $ | 1,429 |
Palisades PPA |  |  | 2,327 |  |  | 342 |  |  | 352 |  |  | 363 |  |  | 374 |  |  | 387 |  |  | 509 |
Related party PPAs |  |  | 977 |  |  | 82 |  |  | 82 |  |  | 82 |  |  | 85 |  |  | 87 |  |  | 559 |
Other PPAs |  |  | 3,640 |  |  | 240 |  |  | 248 |  |  | 247 |  |  | 223 |  |  | 225 |  |  | 2,457 |
Total PPAs |  | $ | 9,947 |  | $ | 999 |  | $ | 1,027 |  | $ | 969 |  | $ | 1,003 |  | $ | 995 |  | $ | 4,954 |
Other |  |  | 1,908 |  |  | 870 |  |  | 551 |  |  | 224 |  |  | 83 |  |  | 34 |  |  | 146 |
MCV PPA: Consumers has a 35‑year PPA that began in 1990 with the MCV Partnership to purchase 1,240 MW of electricity. The MCV PPA, as amended and restated, provides for:
| · |  | a capacity charge of $10.14 per MWh of available capacity
| · |  | a fixed energy charge based on Consumers’ annual average baseload coal generating plant operating and maintenance cost, fuel inventory, and admi nistrative and general expenses
| · |  | a variable energy charge based on the MCV Partnership’s cost of producti on when the plant is dispatched
| · |  | a $5 million annual contribution by the MCV Partnership to a renewable resources program
| · |  | an option for Consumers to extend the MCV PPA for five years or purchase the MCV Facility at the conclusion of t he MCV PPA’s term in March 2025
Capacity and energy charges under the MCV PPA were $282 million in 2015, $300 million in 2014, and $278 million in 2013. Palisades PPA: Consumers has a PPA expiring in 2022 with Entergy to purchase all of the capacity and energy produced by Palisades, up to the annual average capacity of 798 MW. For all delivered energy, the Palisades PPA has escalating capacity and variable energy charges. Total capacity and energy charges under the Palisades PPA were $352 million in 2015, $302 million in 2014, and $338 million in 2013. For further details about Palisades, see Note 10, Leases. Other PPAs: Consumers has PPAs expiring between 201 6 and 2036 with various counterparties. The majority of the PPAs have capacity and energy charges for delivered energy. Capacity and energy charges under these PPAs were $347 million in 2015, $354 million in 2014, and $345 million in 2013.
Consumers Energy Company [Member] |
Contingencies And Commitments | 4:C ontingencies and C ommitments CMS Energy and Consumers are involved in various matters that give rise to contingent liabilities. Depending on the specific issues, the resolution of these contingencies could negatively affect CMS Energy’s and Consumers’ liquidity, financial condition, and results of operations. In their disclosures of these matters, CMS Energy and Consumers provide an estimate of the possible loss or range of loss when such an estimate can be made. Disclosures that state that CMS Energy or Consumers cannot predict the outcome of a matter indicate that they are unable to estimate a possible loss or range of loss for the matter. CMS Energy Contingencies Gas Index Price Reporting Litigation: CMS Energy, along with CMS MST, CMS Field Services, Cantera Natural Gas, Inc., and Cantera Gas Company, have been named as defendants in four class action lawsuits and one individual lawsuit arising as a result of alleged inaccurate natural gas price reporting to publications that report trade information. Allegations include price-fixing conspiracies, restraint of trade, and artificial inflation of natural gas retail prices in Kansas, Missouri, and Wisconsin. The following provides more detail on the cases in which CMS Energy or its affiliates remain as parties:
| · |  | In 2005, CMS Energy, CMS MST, and CMS Field Services were named as defendants in a putative class action filed in Kansas state court, Learjet, Inc., et al. v. Oneok, Inc., et al. The complaint alleges that during the putative class period, January 1, 2000 through October 31, 2002, the defendants engaged in a scheme to violate the Kansas Restraint of Trade Act. The plaintiffs are seeking treble damages, statutory full consideration damages consisting of the full consideration paid by the plaintiffs for natural gas purchased during the period, costs, and attorneys’ fees.
| · |  | In 2007, a class action complaint, Heartland Regional Medical Center, et al. v. Oneok, Inc. et al., was filed as a putative class action in Missouri state court alleging violations of Missouri antitrust laws. The defendants, including CMS Energy, CMS Field Services, and CMS MST, are alleged to have violated the Missouri antitrust law in connection with their natural gas reporting activities during the period January 2000 through October 2002. The plaintiffs are seeking treble damages, costs, and attorneys’ fees.
| · |  | In 2006, a class action complaint, Arandell Corp., et al. v. XCEL Energy Inc., et al., was filed in Wisconsin state court on behalf of Wisconsin commercial entities that purchased natural gas between January 1, 2000 and October 31, 2002. The defendants, including CMS Energy, CMS ERM, and Cantera Gas Company, are alleged to have violated Wisconsin’s antitrust statute. The plaintiffs are seeking full consideration damages, treble damages, costs, interest, and attorneys’ fees.
| · |  | In 2009, a class action complaint, Newpage Wisconsin System v. CMS ERM, et al., was filed in circuit court in Wood County, Wisconsin, against CMS Energy, CMS ERM, Cantera Gas Company, and others. The plaintiff is seeking full consideration damages, treble damages, costs, interest, and attorneys’ fees.
| · |  | In 2005, J.P. Morgan Trust Company, N.A., in its capacity as trustee of the FLI Liquidating Trust, filed an action in Kansas state court against CMS Energy, CMS MST, CMS Field Services, and others. The complaint alleges various claims under the Kansas Restraint of Trade Act. The plaintiff is seeking statutory full consideration damages for its purchases of natural gas in 2000 and 2001, costs, and attorneys’ fees.
After removal to federal court, all of the cases described above were transferred to a single federal district court pursuant to the multidistrict litigation process. In 2010 and 2011, all claims against CMS Energy defendants were dismissed by the district court based on FERC preemption. Plaintiffs filed appeals in all of the cases. The issues on appeal were whether the district court erred in dismissing the cases based on FERC preemption and denying the plaintiffs’ motions for leave to amend their complaints to add a federal Sherman Act antitrust claim. The plaintiffs did not appeal the dismissal of CMS Energy as a defendant in these cases, but other CMS Energy entities remain as defendants. In 2013, the U.S. Court of Appeals for the Ninth Circuit reversed the district court decision. The appellate court found that FERC preemption does not apply under the facts of these cases. The appellate court affirmed the district court’s denial of leave to amend to add federal antitrust claims. The matter was appealed to the U.S. Supreme Court, which in 2015 upheld the Ninth Circuit’s decision. The cases have been remanded back to the federal district court. These cases involve complex facts, a large number of similarly situated defendants with different factual positions, and multiple jurisdictions. Presently, any estimate of liability would be highly speculative; the amount of CMS Energy’s reasonably possible loss would be based on widely varying models previously untested in this context. If the outcome after appeals is unfavorable, these cases could negatively affect CMS Energy’s liquidity, financial condition, and results of operations. Bay Harbor: CMS Land retained environmental remediation obligations for the collection and treatment of leachate, a liquid consisting of water and other substances, 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. In 2012, CMS Land and the MDEQ finalized an agreement that established the final remedies and the future water quality criteria at the site. CMS Land completed all construction necessary to implement the remedies required by the agreement and will continue to maintain and operate a system to discharge treated leachate into Little Traverse Bay under an NPDES permit issued in 2010. CMS Land is presently working with the MDEQ to renew this permit, which requires renewal every five years. Until a new permit is issued, CMS Land is authorized to continue operating under the existing permit. Various claims have been brought against CMS Land or its affiliates, including CMS Energy, alleging environmental damage to property, loss of property value, insufficient disclosure of environmental matters, breach of agreement relating to access, or other matters. CMS Land and other parties have received a demand for payment from the EPA in the amount of $8 million, plus interest. The EPA is seeking recovery under CERCLA of response costs allegedly incurred at Bay Harbor. These costs exceed what was agreed to in a 2005 order between CMS Land and the EPA, and CMS Land has communicated to the EPA that it does not believe that this is a valid claim. The EPA has filed a lawsuit to collect these costs. At December 31, 2015, CMS Energy had a recorded liability of $58 million for its remaining obligations. CMS Energy calculated this liability based on discounted projected costs, using a discount rate of 4.34 percent and an inflation rate of one percent on annual operating and maintenance costs. The undiscounted amount of the remaining obligation is $74 million. CMS Energy expects to pay the following amounts for long-term liquid disposal and operating and maintenance in each of the next five years:
In Millions
| 2016 | 2017 | 2018 | 2019 | 2020 |
CMS Energy |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Long-term liquid disposal and operating and maintenance costs |  | $ | 6 |  | $ | 5 |  | $ | 5 |  | $ | 5 |  | $ | 4 |
CMS Energy’s estimate of response activity costs and the timing of expenditures could change if there are changes in circumstances or assumptions used in calculating the liability. Although a liability for its present estimate of remaining response activity costs has been recorded, CMS Energy cannot predict the ultimate financial impact or outcome of this matter. Equatorial Guinea Tax Claim: In 2002, CMS Energy sold its oil, gas, and methanol investments in Equatorial Guinea. The government of Equatorial Guinea claims that CMS Energy owes $152 million in taxes, plus significant penalties and interest, in connection with the sale. The matter is proceeding to formal arbitration. CMS Energy has concluded that the government’s tax claim is without merit and is contesting the claim, but cannot predict the financial impact or outcome of the matter. An unfavorable outcome could have a material adverse effect on CMS Energy’s liquidity, financial condition, and results of operations. Consumers Electric Utility Contingencies Electric Environmental Matters: Consumers’ operations are subject to environmental laws and regulations. Historically, Consumers has generally been able to recover, in customer rates, the costs to operate its facilities in compliance with these laws and regulations. Cleanup and Solid Waste: Consumers expects to incur remediation and other response activity costs at a number of sites under the NREPA. Consumers believes that these costs should be recoverable in rates, but cannot guarantee that outcome. Consumers estimates that its liability for NREPA sites for which it can estimate a range of loss will be between $3 million and $5 million. At December 31, 2015, Consumers had a recorded liability of $3 million, the minimum amount in the range of its estimated probable NREPA liability. Consumers is a potentially responsible party at a number of contaminated sites administered under CERCLA. CERCLA liability is joint and several. In 2010, Consumers received official notification from the EPA that identified Consumers as a potentially responsible party for cleanup of PCBs at the Kalamazoo River CERCLA site. The notification claimed that the EPA has reason to believe that Consumers disposed of PCBs and arranged for the disposal and treatment of PCB-containing materials at portions of the site. In 2011, Consumers received a follow‑up letter from the EPA requesting that Consumers agree to participate in a removal action plan along with several other companies for an area of lower Portage Creek, which is connected to the Kalamazoo River. All parties, including Consumers, that were asked to participate in the removal action plan declined to accept liability. Until further information is received from the EPA, Consumers is unable to estimate a range of potential liability for cleanup of the river. Based on its experience, Consumers estimates that its share of the total liability for known CERCLA sites will be between $3 million and $8 million. Various factors, including the number of potentially responsible parties involved with each site, affect Consumers’ share of the total liability. At December 31, 2015, Consumers had a recorded liability of $3 million for its share of the total liability at these sites, the minimum amount in the range of its estimated probable CERCLA liability. The timing of payments related to Consumers’ remediation and other response activities at its CERCLA and NREPA sites is uncertain. Consumers periodically reviews these cost estimates. A change in the underlying assumptions, such as an increase in the number of sites, different remediation techniques, the nature and extent of contamination, and legal and regulatory requirements, could affect its estimates of NREPA and CERCLA liability. Ludington PCB: In 1998, during routine maintenance activities, Consumers identified PCB as a component in certain paint, grout, and sealant materials at Ludington. Consumers removed part of the PCB material and replaced it with non‑PCB material. Consumers has had several communications with the EPA regarding this matter. Consumers cannot predict the financial impact or outcome of this matter. CCRs: In April 2015, the EPA published a final rule regulating CCRs, such as coal ash, under the Resource Conservation and Recovery Act. In September 2015, the MDEQ submitted a draft plan to the EPA in which it declared its intent to explicitly regulate these facilities under state laws, and the EPA responded, confirming that it agreed with the MDEQ’s regulatory approach. Accordingly, Consumers recorded a $68 million increase to its coal ash disposal ARO liability and a corresponding increase to plant, property, and equipment that will be amortized over the remaining lives of the facilities. For additional details on the ARO liability, see Note 11, Asset Retirement Obligations. Consumers Gas Utility Contingencies Gas Environmental Matters: Consumers expects to incur remediation and other response activity costs at a number of sites under the NREPA. These sites include 23 former MGP facilities. Consumers operated the facilities on these sites for some part of their operating lives. For some of these sites, Consumers has no present ownership interest or may own only a portion of the original site. At December 31, 2015, Consumers had a recorded liability of $114 million for its remaining obligations for these sites. This amount represents the present value of long-term projected costs, using a discount rate of 2.57 percent and an inflation rate of 2.5 percent. The undiscounted amount of the remaining obligation is $129 million. Consumers expects to pay the following amounts for remediation and other response activity costs in each of the next five years:
In Millions
| 2016 | 2017 | 2018 | 2019 | 2020 |
Consumers |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Remediation and other response activity costs |  | $ | 14 |  | $ | 19 |  | $ | 11 |  | $ | 14 |  | $ | 19 |
Consumers periodically reviews these cost estimates. Any significant change in the underlying assumptions, such as an increase in the number of sites, changes in remediation techniques, or legal and regulatory requirements, could affect Consumers’ estimates of annual response activity costs and the MGP liability. At one of the MGP sites, Consumers is waiting for a local agency to make certain decisions on work being carried out adjacent to the site. Depending on the outcome, the agency’s decisions could impact Consumers’ remediation strategy and result in an increase in its cost estimates in 2016. Pursuant to orders issued by the MPSC, Consumers defers its MGP-related remediation costs and recovers them from its customers over a ten-year period. At December 31, 2015, Consumers had a regulatory asset of $146 million related to the MGP sites. Consumers estimates that its liability to perform remediation and other response activities at NREPA sites other than the MGP sites could reach $3 million. At December 31, 2015, Consumers had a recorded liability of less than $1 million, the minimum amount in the range of its estimated probable liability. Guarantees Presented in the following table are CMS Energy’s and Consumers’ guarantees at December 31, 2015:
In Millions
|  |  | Maximum |  | Carrying |
Guarantee Description | Issue Date | Expiration Date | Obligation |  | Amount |
CMS Energy, including Consumers |  |  |  |  |  |  |  |  |  |
Indemnity obligations from stock and asset sale agreements 1 | Various | Indefinite |  | $ | 143 |  |  | $ | 7 |
Guarantees 2 | Various | Indefinite |  |  | 51 |  |  |  | - |
Consumers |  |  |  |  |  |  |  |  |  |
Guarantee 2 | July 2011 | Indefinite |  | $ | 30 |  |  | $ | - |
| 1 |  | The se obligations arose from stock and asset sale agreements under which CMS Energy or a subsidiary of CMS Energy indemnified the purchaser for losses resulting from various matters, primarily claims related to taxes. CMS Energy believes the likelihood of material loss to be remote for the indemnity obligations not recorded as liabilities.
| 2 |  | At Consumers, this obligation comprises a guarantee provided to the DOE in connection with a settlement agreement regarding damages resulting from the DOE’s failure to accept spent nuclear fuel from nuclear power plants formerly owned by Consumers. At CMS Energy, the guarantee obligations comprise Consumers’ guarantee to the DOE and CMS Energy’s 1994 guarantee of non-recourse revenue bonds issued by Genesee. For additional details on this guarantee, see Note 19, Variable Interest Entities.
Additionally, in the normal course of business, CMS Energy, Consumers, and certain other subsidiaries of CMS Energy have enter ed into various agreements containing tax and other indemnity provisions for which they are unable to estimate the maximum potential obligation. The current carrying value of these indemnity obligations is less than $1 million. CMS Energy and Consumers consider the likelihood that they would be required to perform or incur substantial losses related to these indemnities to be remote. Other Contingencies Michigan Sales and Use Tax Litigation: In 2010, the Michigan Department of Treasury finalized a sales and use tax audit of Consumers for the period from October 1997 to December 2004. It determined that Consumers’ electric and natural gas distribution equipment was not eligible for an industrial-processing exemption and therefore was subject to the use tax. Consumers paid the tax for the period from 1997 through 2004 and filed a claim in the Michigan Court of Claims disputing the tax determination. Consumers has continued to apply the industrial-processing exemption for the years subsequent to 2004. In December 2015, Consumers and the Michigan Department of Treasury reached a settlement agreement under which the Michigan Department of Treasury will refund to Consumers the majority of use tax that Consumers paid on electric distribution equipment for the period from October 1997 through December 2004. Accordin gly, Consumers will receive $37 million, which comprises a $19 million refund of taxes paid, a $12 million refund of interest paid, and $6 million of interest owed to Consumers. In December 2015, Consumers recorded a $12 million reduction in other interest expense and $6 million in interest income. The taxes paid were originally capitalized as a cost of the equipment. Therefore, Consumers recorded the $19 million tax refund as a reduction in plant, property, and equipment. Consumers also recorded an additional $5 million reduction in g eneral t axes for the elimination of a loss contingency previously recorded for this matter. The parties further agreed to continue to meet to reach agreement on a reasonable method of apportionment relating to Consumer s’ natural gas system for the period from October 1997 to December 2004 and to Consumers’ electric and natural gas distribution equipment for the period from January 2005 to December 2014. Other: In addition to the matters disclosed in this Note and Note 3, Regulatory Matters, there are certain other lawsuits and administrative proceedings before various courts and governmental agencies arising in the ordinary course of business to which CMS Energy, Consumers, and certain other subsidiaries of CMS Energy are parties. These other lawsuits and proceedings may involve personal injury, property damage, contracts, environmental matters, federal and state taxes, rates, licensing, employment, and other matters. Further, CMS Energy and Consumers occasionally self-report certain regulatory non‑compliance matters that may or may not eventually result in administrative proceedings. CMS Energy and Consumers believe that the outcome of any one of these proceedings will not have a material negative effect on their consolidated results of operations, financial condition, or liquidity. Contractual Commitments Purchase Obligations: Purchase obligations arise from long-term contracts for the purchase of commodities and related services, and construction and service agreements. The commodities and related services include long-term PPAs, natural gas and associated transportation, and coal and associated transportation. Related party PPAs are between Consumers and certain affiliates of CMS Enterprises. Presented in the following table are CMS Energy’s and Consumers’ contractual purchase obligations at December 31, 2015 for each of the periods shown:
In Millions
| Payments Due |
| Total | 2016 | 2017 | 2018 | 2019 | 2020 | Beyond 2020 |
CMS Energy, including Consumers
Total PPAs |  | $ | 9,947 |  | $ | 999 |  | $ | 1,027 |  | $ | 969 |  | $ | 1,003 |  | $ | 995 |  | $ | 4,954 |
Other |  |  | 2,200 |  |  | 904 |  |  | 580 |  |  | 251 |  |  | 111 |  |  | 63 |  |  | 291 |
Consumers
PPAs |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
MCV PPA |  | $ | 3,003 |  | $ | 335 |  | $ | 345 |  | $ | 277 |  | $ | 321 |  | $ | 296 |  | $ | 1,429 |
Palisades PPA |  |  | 2,327 |  |  | 342 |  |  | 352 |  |  | 363 |  |  | 374 |  |  | 387 |  |  | 509 |
Related party PPAs |  |  | 977 |  |  | 82 |  |  | 82 |  |  | 82 |  |  | 85 |  |  | 87 |  |  | 559 |
Other PPAs |  |  | 3,640 |  |  | 240 |  |  | 248 |  |  | 247 |  |  | 223 |  |  | 225 |  |  | 2,457 |
Total PPAs |  | $ | 9,947 |  | $ | 999 |  | $ | 1,027 |  | $ | 969 |  | $ | 1,003 |  | $ | 995 |  | $ | 4,954 |
Other |  |  | 1,908 |  |  | 870 |  |  | 551 |  |  | 224 |  |  | 83 |  |  | 34 |  |  | 146 |
MCV PPA: Consumers has a 35‑year PPA that began in 1990 with the MCV Partnership to purchase 1,240 MW of electricity. The MCV PPA, as amended and restated, provides for:
| · |  | a capacity charge of $10.14 per MWh of available capacity
| · |  | a fixed energy charge based on Consumers’ annual average baseload coal generating plant operating and maintenance cost, fuel inventory, and admi nistrative and general expenses
| · |  | a variable energy charge based on the MCV Partnership’s cost of producti on when the plant is dispatched
| · |  | a $5 million annual contribution by the MCV Partnership to a renewable resources program
| · |  | an option for Consumers to extend the MCV PPA for five years or purchase the MCV Facility at the conclusion of t he MCV PPA’s term in March 2025
Capacity and energy charges under the MCV PPA were $282 million in 2015, $300 million in 2014, and $278 million in 2013. Palisades PPA: Consumers has a PPA expiring in 2022 with Entergy to purchase all of the capacity and energy produced by Palisades, up to the annual average capacity of 798 MW. For all delivered energy, the Palisades PPA has escalating capacity and variable energy charges. Total capacity and energy charges under the Palisades PPA were $352 million in 2015, $302 million in 2014, and $338 million in 2013. For further details about Palisades, see Note 10, Leases. Other PPAs: Consumers has PPAs expiring between 201 6 and 2036 with various counterparties. The majority of the PPAs have capacity and energy charges for delivered energy. Capacity and energy charges under these PPAs were $347 million in 2015, $354 million in 2014, and $345 million in 2013.

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