CMS Energy Corp
CMS Energy Corporation
CMS Energy Corporation
330 Town Center Drive
Dearborn, Michigan 48126
Fax: (313) 436-9225
CMS Energy Corporation is a diversified energy concern with utility and nonutility operations. Its principal subsidiary, Consumers Power, provides electricity and natural gas for much of Michigan’s lower peninsula, excluding Detroit. Non-utility assets include an exploration and production firm, NOMECO Oil & Gas; holdings in independent power production facilities such as the Midland Cogeneration Venture; and companies involved in natural gas transportation, storage, and marketing.
CMS was established in 1987 as a holding company for Consumers Power, but its roots can be traced to independent Michigan gas and electric companies in the late 1800s. In the 1850s, 1860s, and 1870s groups of merchants in Kalamazoo, Pontiac, Jackson, and four other Michigan towns created the state’s first gas-lighting companies. In the 1880s Michigan’s electric lighting businesses began taking shape. First was the Grand Rapids Electric Light and Power Company. Organized by William Powers, it completed one of the world’s first hydroelectric systems in July 1880.
By the late 1880s gas and electric lighting operations were ripe for rationalization and consolidation. The man who brought order to the situation was W.A. Foote. Foote, a young miller from Adrian, Michigan, saw the earliest hydroelectric plants and observed the potential of electricity for lighting streets and houses. With his younger brother J.B. Foote, an engineer, W.A. Foote built hydroelectric companies first in Adrian and then in Jackson, Michigan.
In Jackson, he and his partner Samuel Jarvis, who ran an iron works and built the machines Foote needed, organized Jackson Electrical Light Works and beat the already ensconced competition by installing the town’s first street lights. Foote and Jarvis soon repeated their success in Battle Creek, Albion, and other Michigan towns. Capital was often short but W.A. Foote had a knack for convincing wealthy people to invest in his company.
Among his projects was a series of dams on the Kalamazoo River. In 1896 Foote visited the Kalamazoo River and saw its potential for hydroelectric energy, but whether the electricity would travel 24 miles from the dam to the town was questionable. Consulting with his brother J.B. and engineer George Stecker, Foote decided to build. The completion of the first of these dams, the Trowbridge, coincided with one of Foote’s many takeovers. This time it was Kalamazoo Electric Company, the name of which he soon changed to Kalamazoo Valley Electric.
Foote often made competitors his allies. In the late 1890s, George Erwin, a Michigan real estate broker, bought up the dam-building rights to the Muskegon River and tried to get J.B. Foote to build a dam there. W.A. Foote squelched that deal but then bought a third of Erwin’s partnership, and in 1906 built the Rogers Dam for Erwin and his associates. Foote sold the electricity to the Grand Rapids-Muskegon Water Power Electric Company, of which he had lately become a director.
During these years, the demand for electricity was exploding, especially due to the electric streetcar, which appeared on the scene in the early 1890s. Foote not only sold electricity for streetcars, he and his companies often held substantial shares of them.
Foote also controlled interurbans, electric train lines that ran between cities. Although Foote’s first interurban from Jackson to Ann Arbor, Michigan, was a failure, he eventually controlled circuits from Jackson to Battle Creek and Battle Creek to Kalamazoo.
In 1904 Foote consolidated his properties into Commonwealth Power Company, headquartered in Jackson. In total, he had 2,472 electric and gas customers.
In 1905, while seeking financing for dams on the Au Sable River in Michigan, Foote met representatives of an investment banking firm, Hodenpyl-Walbridge & Company, with whom he decided to establish a large utility holding company. Because of regulatory difficulties, the merger could not be consummated in the state of Michigan. Instead, in 1910 they incorporated a new Maine company, Commonwealth Power Railway & Light Company. It would act as an umbrella company for Foote’s Consumers Power—itself organized to be a holding company for his electric concerns in Michigan—as well as Hodenpyl- Walbridge’s Michigan Light Company and a number of smaller concerns.
The merger enabled Foote to build six dams on the Au Sable. The new dams and their power transmission lines allowed Foote to establish an integrated power system for Michigan. Previously, power had been directed to a specific community. Now, with the aid of a young innovator named Timothy A. Kenney, Foote was able to effect an essentially modern system of central switching.
The merger also brought two important new players into the picture. George Hardy became Anton G. Hodenpyl’s partner after Hodenpyl and Henry D. Walbridge parted ways, and Bernard Capen Cobb, Walbridge’s protege, became chairman of Hodenpyl-Hardy’s electric, gas, and transportation properties. After Foote’s death in 1915, Cobb became president of both Commonwealth Power Railway & Light and Consumers Power and another Hodenpyl-Walbridge man, C.W. Tippy, became Consumers Power’s general manager.
World War I expanded demand for electricity while severely depleting capital and personnel. At Michigan Light new, automated gas processes increased output. At Consumers the war’s credit squeeze meant the company had to be rescued by loans from the War Finance Corporation. After the war, Consumers abandoned flat rates in favor of metering, or charges based on the number of rooms, motors, or lights. Rates also standardized statewide.
In the early 1920s capital remained tight. Hodenpyl-Hardy had Consumers Power workers sell preferred shares of Consumers Power to customers. At $95 a share, the stock would pay a $7 dividend. After a brief postwar recession and a devastating 1922 ice storm, business rebounded. Michigan’s industry grew and a new gas-powered water heater buoyed consumer demand. Between 1921 and 1929 the number of gas customers rose from 60,291 to 162,590 while electric customers increased from 130,421 to 296,030.
The 1920s were also a period of consolidation and acquisition. In 1922 Consumers Power and Michigan Light merged under a single management. In succeeding years Consumers bought a variety of large and small utilities around Michigan. Among these were Thornapple Gas and Electric, Southern Michigan Light and Power, Lansing Fuel and Gas, Charlotte Gas, and Citizens Electric Company of Battle Creek.
The company’s passenger rail business was losing customers to automobiles and buses. In 1924 Cobb divided Commonwealth Power Railway and Light into two companies, Commonwealth Power Corporation and Electric Railway Securities Company. The latter was set up to liquidate the railway properties.
In the late 1920s Commonwealth Power went through several corporate reorganizations which were preceded by a giant acquisition. In 1928 Cobb gained control of Southeastern Power & Light Company, which did business in Alabama, Mississippi, Georgia, and part of Florida. In the same year Hodenpyl-Hardy & Company joined with Stevens & Wood, an engineering and construction firm that controlled Penn-Ohio Edison Company, to create Allied Power & Light Corporation as a holding company for Commonwealth Power & Light and Penn-Ohio Edison. In the process of creating Allied, Hodenpyl-Hardy went out of business, and Cobb became chairman of Allied. This new structure was covered by yet another corporate shell, The Commonwealth & Southern Corporation (C&S), which in 1929 joined Commonwealth Power, Southeastern Power & Light, and Penn-Ohio Edison. This time Cobb became president and chairman of Commonwealth & Southern and several other companies.
The early 1930s brought management changes both at Consumers Power and at Commonwealth & Southern. In 1932 B.C. Cobb resigned from the presidency of Consumers Power and was replaced by Timothy A. Kenney, who had earlier designed the company’s dispatching system. In October 1933 Charles Tippy, the company’s general manager, died in a car accident. Dan E. Karn, Tippy’s assistant, took his place. In January 1933 B.C. Cobb resigned from the presidency of Commonwealth & Southern and was replaced by future Republican presidential candidate Wendell Willkie.
Through the 1930s Willkie sold the public on electric power, fought the drive for government-owned utilities, and worked to rid Commonwealth & Southern’s board of super-holding-company representatives who were trying to join all of the United States’s electric companies under a giant holding company. Willkie boosted consumption by selling electric appliances. As an incentive, he pioneered the “objective” rate, which lowered the kilowatt-hour price to customers who used more energy.
During Willkie’s tenure, the Tennessee Valley Authority (TVA) encroached on Commonwealth & Southern’s territories, and the Public Utility Holding Company Act of 1935 pronounced what was ultimately Commonwealth & Southern’s death sentence by prohibiting utility holding companies whose systems were not contiguous and interconnected. Because the TVA and C&S competed head to head in the South, Willkie challenged the TVA in court and on the speaking platform, but C&S eventually had to sell some of its properties to the TVA.
The TVA issue propelled Willkie into national politics and in 1940 he left Commonwealth & Southern to run for U.S. president. His replacement was Justin R. Whiting, a lawyer who had helped liquidate Consumers Power’s streetcar business and later worked for some of Commonwealth & Southern’s backers. Whiting was to preside over the breakup of Commonwealth & Southern but before this could be effected, World War II intervened. In Michigan, even before the war, the demand for electricity was tremendous. Dan Karn and his assistant general manager, Wilson Arthur, did their best to meet requirements but personnel and capital were too scarce to add any capacity.
When the war ended, the C&S breakup again became an issue. After wrangling for years about the exact method to use, on July 15, 1949, each share of C&S preferred was exchanged for 2.8 shares of Consumers Power common, 0.55 of a share of Central Illinois Light, common, and $1 in cash. The remaining assets went to C&S’s common shareholders. Consumers Power was now an independent entity with Whiting as its president.
After the war, Michigan experienced a huge boom both in population and industry. Dan E. Karn became president of Consumers Power in 1951, and by 1955 the company had again doubled its customer base—788,00 electric and 427,000 gas—and was stretching its capacity.
To meet the electric demand, Consumers Power built three new steam plants. Michigan was not self-sufficient in natural gas supplies, so Consumers Power bought from Panhandle Eastern Pipe Line Company and stored supplies for peak demand in disused underground shafts. For this purpose, in 1946 Consumers Power established Michigan Gas Storage Company.
The availability of cheap natural gas and the expansion of new homes made gas Consumers’s biggest product. In 1955, however, the price of gas went up, and Consumers was not allowed to pass costs on to the customer. By the end of the 1950s it had 858,000 electric and 559,000 gas customers.
In 1960 Alphonse H. Aymond became chief executive officer of Consumers Power, and J.H. Campbell became president. Aymond, a financing expert, had seen the breakup of Commonwealth & Southern. Campbell, an engineer, had spent his life with utilities and was interested in nuclear power.
Although 1960 profits declined in proportion to revenue, Consumers was essentially in good shape. Aided by expansion in the residential and industrial belt around Detroit, gas revenues increased nearly fourfold between 1950 and 1961 to $100.8 million. Its electric business showed a 110% gain to $180 million.
Much of the 1960s was devoted to securing reliable sources of gas and electricity. In 1962 Consumers opened an experimental nuclear facility at Big Rock, Michigan. In 1963 it acquired underground storage facilities and ten oil and gas fields from Panhandle Eastern. In 1966 it announced plans for a $93 million nuclear power plant called Palisades, on Lake Michigan. The same year a power pool with four other utilities was formed to ensure reliability during peak demand.
In 1967 the company began a two-unit nuclear plant at Midland, Michigan. Scheduled to be completed in 1975 at an estimated cost of $267 million, the nuclear plant was plagued by cost overruns, opposition by environmentalists, quality problems, and capital shortages. An early critic of the plant was Midland resident Mary Sinclair. Over the years, Sinclair intervened in licensing hearings on the project, alleging many safety problems and instances of shoddy workmanship, and causing Consumers Power to make many expensive alterations.
Also in 1967 Consumers Power formed Northern Michigan Exploration Company (NOMECO) to prospect for natural gas and other hydrocarbons in the northern part of Michigan’s lower peninsula. This subsidiary would prove increasingly important as it branched out into offshore and foreign exploration.
As it neared completion, the Palisades nuclear power plant began having problems. The Sierra Club and fishing groups charged that the plant would pollute the neighboring lake, and Consumers had to install $15 million of pollution control equipment before the Atomic Energy Commission (AEC) would license it. After its completion in December 1971, at a cost of $188 million—double the original price—the plant was plagued by breakdowns. In the mid-1970s, Consumers Power filed a $300 million suit charging Bechtel Power Cooperation and several other contractors on the project with various abuses.
In the 1970s Consumers was beset by additional regulatory difficulties and cost overruns. In 1973 the company suspended construction at Midland because of what the AEC saw as inadequate welding inspection procedures. The same year a synthetic gas plant at Marysville, Michigan, was completed $70 million over budget. The gas and oil Marysville produced cost $2 more per gallon than gas and oil from the pipeline.
As Midland costs mounted, Consumers sought rate increases. State regulators blamed the company for cost overruns and refused to raise rates. Earnings became depressed, and the company could not raise money in the capital markets. The utility had to abandon plans for two additional nuclear units, cut almost $850 million from its construction spending plans for the next five years, and cut 540 employees from its work force of 11,500.
In 1977 John D. Selby, a nuclear engineer, replaced A.H. Aymond as chief executive officer. Aymond remained as chairman. The management change, however, did not reverse the nuclear situation. In 1977 it was discovered that portions of the Midland plant were sinking. In 1979 the Nuclear Regulatory Commission fined Consumers Power $450,000 for safety violations at the Pallisades reactor. In 1980 Bechtel, the main contractor at Midland, submitted a new estimate boosting the total price from $1.67 billion to $3.1 billion. In 1983 Dow Chemical Co., which was to be Midland’s prime customer, canceled its contract to buy steam from the plant and sued Consumers Power for negligence.
Consumers Power finally abandoned Midland in 1984, after investing $4.1 billion on the project. Selby who had risen to chairman, had also become a lightning rod for critics, and that summer Roger Fischer, chief of staff of the Michigan Public Service Commission, called for Selby’s resignation.
The Midland situation had destroyed the company’s credit standing. Strapped for cash and with no rate increase in sight, it could not pay its bills. Some banks claimed Consumers was in default on loans but the utility disputed the claims.
In March 1985 Selby retired. In reaction, the Michigan Public Service Commission agreed to give Consumers higher rates if it would pledge not to resume Midland construction, restructure its debt, promise not to declare bankruptcy, and agree not to pay more than token dividends.
In November 1985, Consumers Power named William T. McCormick Jr. as its new chief executive officer. In 1987 he strengthened the company’s financial integrity by reincorporating it as CMS Energy Corporation, a holding company with utility (Consumers Power) and nonutility (NOMECO Oil & Gas) assets. The same year, he banded together with six other partners, including Dow Chemical, to form the Midland Co-generation Venture (MCV). MCV, in which CMS has a 49% stake, used some of Midland’s abandoned nuclear assets to create a 1,300-megawatt gas and electricity plant.
In October of 1987 McCormick agreed to place the Palisades nuclear plant into a joint venture with Bechtel Power and Westinghouse Electric. The transaction, if ever consummated, would yield CMS at least $450 million, much more than the plant’s $311 million book value. The transaction still awaited regulatory approval in the early 1990s. In addition, he set up CMS Gas Marketing to take advantage of CMS’s extensive experience with natural gas.
By 1989 McCormick’s efforts began to pay off. Upon the cogeneration plant’s completion, CMS gained $1.5 billion in a sale and leaseback of the Midland site to the cogeneration venture. In the wake of the cogeneration venture’s success—the first conversion of its kind—CMS set up CMS Generation Company to convert other abandoned nuclear power plants into conventional fuel-powered facilities.
In November 1989, CMS reestablished its common stock dividend. Under McCormick, Consumers Power had become the leanest major utility in the United States, with an average of 283 customers served per employee. At its fossil-fueled plants, efficiency was among the top in the nation and the National Safety Council named it the safest major electric and gas utility.
In 1990 CMS finally wrote off the losses from the Midland plant taking a pretax charge of $657.2 million, giving it a fourth-quarter loss of $604.2 million, or $7.42 a share. For the entire year the net loss was $493.4 million, or $6.07 a share. Company officials expected no further significant losses from the plant. On the positive side, CMS’s nonutility operations grew in 1990, although utility operations continued to make up the bulk of sales.
Consumers Power Company; CMS Enterprises Company; CMS Gas Company.
Bush, George, Future Builders: The Story of Michigan’s Consumers Power Company, New York, McGraw-Hill Book Company, 1973; Ernshwiller, John, “Losing Power: How a Thriving Utility Became a Sagging One After Its Giant Step,” The Wall Street Journal, October 8, 1974.
CMS Energy Corporation
CMS Energy Corporation
330 Town Center Drive, #1100
Dearborn, Michigan 48126
Fax: (313) 441-0402
Sales: $4 billion
Stock Exchanges: New York
SICs: 4911 Electric Services; 4923 Gas Transmission and
Distribution; 1311 Crude Petroleum and Natural Gas; 6719
CMS Energy Corporation is a diversified energy company with businesses engaged in electric and gas utility operations. The company’s primary subsidiary, Consumers Power Company, is Michigan’s largest utility and the fourth largest gas and electric utility in the United States. In addition to its regulated utility business, CMS is one of the world’s top independent power producers with ownership interests in 31 power plants on three continents. Through its subsidiary, CMS Nomeco, CMS is also a producer of oil and natural gas with over 1,000 active wells in eight countries.
CMS Energy’s main subsidiary, Consumers Power Company, holds an important place in the history of the power industry in the United States. Founded in 1910 through a merger of a variety of gas, electric and electric trolley companies, Consumers Power was at the forefront of the development of the large utilities that marked the business world of the turn of the century. By the 1960s, Consumers Power had established itself as an old, dependable, solid utility company. As the largest utility in Michigan, the company had paid regular and substantial dividends for some 50 years.
Although when Consumers was founded, hydro power had been the main energy source in Michigan, by the 1950s coal-powered turbines were delivering 80 percent of the state’s power. It was Consumers Power’s efforts to develop alternate sources of electric power that would land the company on the verge of bankruptcy and would lead to the founding of CMS Energy. The period after World War II was one of optimism for American industry and science; nuclear power appeared poised to become the pollution-free, cheap energy source of the future. Consumers Power was quick to jump on the nuclear bandwagon, building first an experimental nuclear plant at Big Rock, Michigan, and then the much larger commercial Palisades plant. In spite of technical difficulties in the operation of the Big Rock plant and serious cost overruns in the construction of Palisades, in 1970 Consumers embarked on the construction of a third nuclear reactor at Midland, Michigan. The Midland facility was originally scheduled to open in 1975 at a cost of about $500 million. Nine years and $3.5 billion later, Consumers Power pulled the plug on the still unfinished plant.
The Midland debacle plunged Consumers Power into a state of crisis. Stock prices plummeted from a high of $55 before Midland to only $5.00 a share in 1985. Income, which had already been dwindling, now fell to a net loss of $270 million. Financial analysts were suggesting that bankruptcy might be the most attractive option for the beleaguered utility. To make matters worse, Dow Chemical had made massive investments in the ill-fated plant in an agreement to buy excess steam to be used in its chemical processing. The giant chemical company was now suing Consumers Power, alleging mismanagement and a cover-up on the part of the utility. The Michigan Public Service Commission, the regulatory agency that oversees utility rates, authorized an emergency $99 million rate increase fearing that bankruptcy of Michigan’s largest utility would wreak havoc with the already suffering Michigan economy. The commission was reluctant, however, to let rate payers bear the full burden of the Midland fiasco, and Consumers was faced with the need for massive reorganization to deal with its huge debt burden.
In 1985, Consumers Power hired William T. McCormick, Jr. to head the reorganization of the troubled company. McCormick, who held a doctorate in nuclear physics from MIT, had extensive experience dealing with regulators and politicians from years spent as a lobbyist in Washington. This experience would be crucial in the new CEO’s handling of the Consumers Power reorganization.
McCormick’s first move was to create a holding company for Consumers Power. In May 1987, shareholders of Consumers Power approved a reorganization plan in which shares of Consumers common stock were converted into shares of CMS Energy Corp. common stock, and Consumers Power became a subsidiary of the new energy company. The creation of CMS Energy offered several advantages to the utility. Charges of mismanagement had severely damaged the reputation of the 75-year-old firm, and McCormick felt that starting afresh with a new name and management team could only improve investor confidence. More importantly, the new energy corporation could expand into non-regulated energy related ventures without putting its regulated utility business at risk. McCormick moved quickly to cut costs and free up cash to retire preference stock and to refinance the company’s crippling debt load. By 1987, the new management had succeeded in paying off or refinancing some $3 billion in debt, reducing CMS’ fixed charges by $67 million.
It was McCormick’s solution for the Midland plant fiasco that would prompt both the most plaudits and the most controversy for the newly born energy corporation. It was clear that it would be impossible to salvage the nuclear capacity of the project but even with the new cost cutting plan and rate hikes it would be equally unrealistic to expect to recover from the burden of taking the $3.6 billion loss that abandoning the project would entail. “Some people jumped all over us for suggesting anything other than abandoning the plant,” McCormick stated in a 1988 article in Forbes, “but we projected we would need additional capacity by the early 1990s when we could get the cogeneration plant into operation, and everyone realized that it would be senseless to throw these usable assets away.” Under McCormick’s plan the non-nuclear facilities of the plant would be converted to a gas-fired 1,370 megawatt cogeneration plant, salvaging about $1.5 billion worth of existing facilities. Of course completing the conversion would cost an additional $500 million but McCormick had a solution for raising these funds.
McCormick managed to convince Dow Chemical that they should once more join forces and operate the new Midland project as a joint venture. The cogeneration plant would provide steam for Dow’s processing needs and electricity to be sold to CMS’subsidiary, Consumers Power. Dow Chemical, along with a number of smaller companies with a vested interest in the survival of the plant, was to control 51 percent of the newly formed Midland Cogeneration Venture. CMS Energy, in turn, swapped $1.5 billion of abandoned Midland assets for a 49 percent interest in the cogeneration facility plus $1.2 billion in notes. CMS’ equity in the venture was deliberately kept below 50 percent so that the the new power plant would be governed by the federal Public Utilities Regulatory Policy Act (PURPA), which gave independent power producers certain advantages in selling power to utilities provided they were not more than 50 percent-owned by a public utility. Under PURPA, public utilities were required to buy power from the independents for the avoided cost of producing this power by the utility itself, which would usually entail a higher price than would be attainable on the wholesale market. Part of the agreement between CMS and its Midland partners specified that Consumers would buy the bulk of Midland’s power at this higher PURPA rate, thereby securing a market for the cogeneration project’s energy. More importantly, McCormick planned to use the cash generated by the notes to fund CMS’ investment in its non-regulated energy business.
By 1987, with reduced costs and the non-cash credits from Midland, CMS’ earnings rebounded to $262 million. Investors, charmed by McCormick’s innovative ideas and persuasive rhetoric, returned to the CMS fold and stock prices once again rose to almost $40 by 1989. But not everyone was happy with the new plans for Midland. Regulators who had already bailed out the company by agreeing to large rate hikes were angered that the cash from the Midland deal was to be used to grow CMS through diversification rather than to be passed on to subsidiary Consumers Power and its customers. CMS’ use of PURPA to allow Consumers to pay higher-than-market rates for the cogeneration plant’s energy also came under fire by the Michigan Public Service Commission, which would agree to let Consumers pass on the higher PURPA costs to its customers for only about half of the energy that Consumers had already agreed to buy from the Midland venture. To make matters worse, an industrial coalition calling itself ABATE was also determined to block the higher rates and appealed in federal court to strip Midland of its qualification to operate under PURPA.
After seven years of lawsuits, countersuits, and appeals by CMS, its partners in the Midland Cogeneration Venture, ABATE, the Michigan Public Service Commission, and the Michigan Attorney General, many of the issues surrounding the Midland plant still remained unresolved. The Michigan Public Service Commission’s limits on recoverable costs, as well as rulings reducing recoverable write-offs of the abandoned nuclear facilities at Midland, saw CMS posting substantial losses for three years in a row from 1990 through 1992. With shrunken dividends and an uncertain future investors once again shied away from CMS stock and share price dropped to only $15.
In 1993, CMS Energy finally reached an agreement with the Michigan Public Service Commission that would allow Consumers to recover from its rates 915 of the 1,240 megawatts of energy the company had agreed to buy annually from the Midland partnership. This compromise, although still under appeal by ABATE, finally allowed CMS to emerge from the Midland quagmire and to once again become a profitable enterprise. Record electric sales by Consumers, as well as a boom in foreign independent power production, boosted CMS’ revenues to $3.6 billion in 1994. The resolution of a host of regulatory issues allowed net income to return to $179 million although this was still short of pre-1990 levels.
In spite of the troubles with the Midland venture, CMS Energy stuck to their plan of diversification, albeit at a slower pace than McCormick would have liked had the cash from Midland been forthcoming. Back in the 1960s, Consumers Power had created a subsidiary, the Nomeco Oil and Gas Company, to manage the development of oil and gas reserves needed to operate Consumers’ utility business. With only eight employees, Nomeco was originally intended only to build domestic reserves of oil and gas for the company’s use and was not envisioned as a revenue producer. As part of McCormick’s new vision for the company, CMS expanded the mandate of this subsidiary to include significant independent production of oil and gas to be sold on the open market for immediate earnings. By the early 1990s the subsidiary had producing wells in the United States, Australia, Colombia, Equatorial Guinea, and New Zealand with proven reserves of 60 million net equivalent barrels and almost 100 employees. As the resolution of Midland related disputes began to free up cash in the mid-1990s, CMS was able to further expand its oil and gas production, acquiring four gas and oil production companies in Michigan, Africa and Colombia, and beginning production in the huge oilfields of Ecuador. By 1995 proven reserves had almost doubled to 113 million barrels, and revenue from Nomeco was close to $90 million.
In the late 1980s, CMS formed two subsidiaries, CMS Gas Marketing and CMS Gas Transmission and Storage, to take advantage of Consumers Power’s expertise in gas procurement and handling. These service-based companies were one of the early successes of CMS’ program of expansion, making a respectable $4 million in net income on revenues of $42 million by 1991. The opening of the Grands Lacs Market Center in St. Clair, Michigan, in 1994 was a important step for CMS as it would provide a major storage and exchange point for buyers and sellers through the United States and Canada. CMS’ gas service companies would continue to contribute substantially to CMS’ recovery in the mid-1990s, with revenues reaching $145 million by 1994.
One of McCormick’s most ambitious plans for CMS Energy was the development of its independent power production business. McCormick believed that the power industry in the United States was moving inexorably towards less regulation and more competition, and he was determined to put CMS Energy at the forefront of this movement. A subsidiary, CMS Generation, was founded in 1986 with the aim of furthering the independent power production business. CMS’ cash flow problems of the late 1980s and early 1990s severely restricted the growth of this business sector, however, as the heavy investment needed to acquire or build new plants was simply not available. To make matters worse, one of the few investments the new subsidiary was able to make was Oxford Energy Co., a tire burning power plant that went bankrupt in 1992, costing CMS $31 million. It was not until 1993 that CMS Generation was able to produce even modest revenues for its parent company, with its acquisition of a New York waste wood burning electricity plant as well as its first foreign plant in Argentina. It would be this foreign investment that would finally pay off for CMS’ independent power unit.
Growth in the domestic independent power production sector was much slower than analysts like McCormick had predicted, with 1994 estimates coming in at only about one percent annually through the year 2020. International markets, however, surged in the mid-1990s. Many countries in Latin America, Asia, and Eastern Europe were faced with power shortages yet could not afford to expand and run their own generating systems. Governments began to look at large American and European power companies as potential partners in building their power infrastructures. With limited competition in these markets, returns on investment could be up to double those in the domestic power market.
In 1994, CMS entered this market on a large scale, founding new joint projects in Argentina, the Philippines, India, and Morocco. Revenues doubled from the previous year and, even more importantly, high rates of return meant that net income from these operations quadrupled from 1993. At $20 million, this income represented the largest contribution to CMS’ bottom line from the company’s non-utility businesses. 1994 was also an important year on the domestic front for CMS Generation as they began the process of acquiring HYDRA-CO, the independent power subsidiary of Niagara Mohawk Power, although earnings from this acquisition would not be incorporated into CMS finances until the following year. The addition of HYDRA-CO’s plants would bring CMS Generation’s total number of U.S. plants to 25, making CMS one of the nation’s top five independent power producers. In spite of the serious problems of the 1980s and early 1990s, by 1995 CMS seemed poised to emerge as an important player on the international energy scene.
Consumers Power Co., NOMECO Oil & Gas Co., CMS Generation Co., CMS Gas Marketing, CMS Gas Transmission and Storage.
Bush, George, Future Builders: The Story of Michigan’s Consumers Power Company, New York: McGraw-Hill, 1973.
Cook, James, “So Near, But Maybe Not So Far,” Forbes, September 19, 1988, pp. 128-130.
Egan, John, “Out of the Briar Patch,” Financial World, October 29, 1991, p. 26.
Maher, Tani, “Power Games,” Financial World, October 3, 1989, pp. 30-31.
Mitchell, Russell, “Dow and Consumers Power are Lovey-Dovey Again,” Business Week, October 27, 1986, p. 90.
——, “The $4 Billion White Elephant on Bill McCormick’s Back,”
Business Week, June 9, 1986, p. 64.
Norman, James R., “Reined In,” Forbes, August 16, 1993, p. 70. Tice, David W., “Less There Than Meets the Eye: A Hard Look at CMS Energy’s Financials and Earnings,” Barron’s, October 16, 1989, pp. 15, 20-24.
——, “Risky Venture: A Utility’s Cogeneration Project Still Has Woes Aplenty,” Barron’s, October 21, 1991, pp. 24, 38.
Whitman, Martin J., “Virtues of Bankruptcy: For Nuclear Utilities, There May be Many,” Barron’s, May 6, 1985, pp. 16-18, 43-45.
Woodruff, David, “Plugging into the Power Surge Abroad,” Business Week, August 15, 1994, pp. 100, 102.