Consumers 2023 Securitization Funding LLC

Consumers 2023 Securitization Funding LLC: 2023 Annual Report Summary for Investors

For investors seeking to understand Consumers 2023 Securitization Funding LLC, this summary offers a clear and concise overview of its activities and financial health for the fiscal year ended December 31, 2023. This information is based on its SEC 10-K filing. As a Special Purpose Vehicle (SPV) – essentially a dedicated financial entity – it plays a crucial role in helping its parent, Consumers Energy Company (part of CMS Energy), secure financing through securitization.

1. Business Overview Consumers 2023 Securitization Funding LLC issues bonds backed by specific assets to raise capital for its parent, Consumers Energy Company. It does this by "securitizing" – essentially converting into marketable securities – future revenues from a regulatory tariff approved by the Michigan Public Service Commission. This financing structure allows Consumers Energy to obtain capital at potentially lower costs. As an SPV, the LLC's performance hinges on the consistent cash flow from these underlying assets and its ability to meet its bond payment obligations.

2. Financial Performance Unlike traditional operating companies, the LLC does not generate typical revenue or profit. Instead, its financial statements focus on cash flows from securitized assets and obligations to bondholders. Since the LLC was established in 2023, year-over-year financial performance comparisons are not applicable for this reporting period.

• Securitized Assets: The LLC's primary assets are the rights to receive payments from the designated regulatory tariff.

3. Risk Factors Investors should note that the LLC does not have publicly traded stock; investment is solely in its debt securities. Key risks include:

• Performance of Underlying Assets: The primary risk involves reduced cash flows from the securitized regulatory tariff. This could stem from unforeseen changes in energy consumption patterns, significant customer defaults on utility bills, or challenges in the collection process by the servicer.
• Servicer Performance: Consumers Energy Company's ability to effectively collect payments and manage the securitized assets is critical. Operational issues, financial distress, or failure to comply with servicing standards by Consumers Energy Company could impact the LLC's cash flows.
• Regulatory and Legal Risks: Changes in energy regulations, utility tariffs, or the legal framework governing the securitized assets (such as the specific securitization statute) could negatively impact their value or cash flow. Specifically, any legislative or regulatory action that alters the designated tariff or the ability to collect it poses a significant risk.
• Interest Rate Risk: Although the bonds have fixed interest rates, changes in broader market interest rates could affect the bonds' valuation in the secondary market.
• Prepayment Risk: The servicer may optionally prepay the bonds under certain conditions. This could lead to reinvestment risk for bondholders if market interest rates have declined, meaning they might have to reinvest funds at a lower rate.

4. Management's Discussion and Analysis (MD&A) Management discusses the LLC's ability to generate sufficient cash flow from the securitized assets to meet its debt service obligations and maintain required reserves. In fiscal year 2023, the LLC successfully collected payments from the underlying regulatory tariff. These collections remained strong and consistent, meeting or exceeding projections. No significant delinquencies or shortfalls occurred in the designated revenue stream.

The LLC met all scheduled interest and principal payments on its Series 2023 bonds throughout the fiscal year, demonstrating robust cash flow management and adherence to the securitization agreement. As the servicer, Consumers Energy Company effectively managed payment collection from the securitized assets, ensuring a steady flow of funds to the LLC and compliance with established servicing criteria.

6. Future Outlook The future performance of Consumers 2023 Securitization Funding LLC directly depends on the ongoing operational and financial health of Consumers Energy Company and the consistent performance of the securitized assets. The LLC will continue to manage bond obligations and ensure compliance with all servicing criteria and regulatory requirements for securitization transactions.

No significant strategic shifts are anticipated for the LLC, as its purpose remains focused on its securitization function. The regulatory environment, especially regarding utility tariffs and energy policy in Michigan, remains a key external factor. It influences underlying asset performance and the stability of securitized cash flows. The LLC will continue to monitor compliance with the specific securitization order and related regulations.

7. Competitive Position As a Special Purpose Vehicle established solely to securitize specific regulatory assets and issue bonds, Consumers 2023 Securitization Funding LLC does not operate in a competitive market. Therefore, it has no competitive position in the traditional sense. Its performance depends instead on the underlying securitized assets and their governing regulatory framework.

8. Management and Governance The LLC's leadership team, largely appointed in late 2023, comprises individuals who also hold senior positions at Consumers Energy Company and CMS Energy. This structure ensures close alignment with the parent company's operations and strategic objectives.

In November 2023, key appointments included Jason M. Shore as President, CEO, CFO, and Treasurer. The LLC does not compensate its executive officers; their primary compensation comes from the parent companies. This reinforces the SPV's specialized, pass-through role. An independent manager, Albert J. Fioravanti (appointed December 2023), receives an annual fee of $3,500. This ensures independent oversight and compliance with securitization requirements.