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CMS Energy Sprucing Up Portfolio - Analyst Blog

In a strategic, no less an environmental drive, Consumers Energy, the principal subsidiary of CMS Energy ( CMS ), has announced that it has undertaken a number of initiatives. These include the scrapping of plans for a proposed clean coal plant project near Bay city, Michigan. The energy utility also plans to suspend, by 2015, seven smaller units currently in operation besides making substantial environmental investments at its five major coal-fired units.

The company decided to cancel the coal plant project near Bay City due to reduced customer demand for electricity as a result of the recession and accompanying slow economic recovery. The Midwest market is also known to generate surplus. Moreover, in the event of cheaper natural gas prices, the prospect of a coal-fired plant seems less and less appealing. It may be recalled that in May 2010 the company had delayed the proposed development of the plant on similar grounds.

The company plans to suspend operations at three units at J.R. Whiting Generating Complex near Luna Pier, two at the B.C. Cobb Generating Plant in Muskegon, and two at the Karn-Weadock Generating Complex near Bay City by 2015.

CMS Energy plans to invest $1.6 billion under its environmental program which will create more than 2,000 construction jobs in Michigan. The company believes that the suspension and investment plan overall will give Michigan uncontaminated air by further reducing power plant emissions by 90%. However, it does not plan to make any investments in those seven units set for suspension. It is also not rigid with any of its present decision and is open to tweak its plans subject to market conditions and the final form and timing of federal and state environmental regulations.

In spite of the supposed suspension plans, the company believes that it has a balanced portfolio of energy resources that has enough power to meet the needs of its customers. Its portfolio consists of existing power plants, potential construction of new power plants, market purchases, energy efficiency, and an increasing mix of renewable energy resources.

As a part of the company's plan to invest approximately $6.6 billion in its utility operations through 2016, the company began construction of its first wind farm, the Lake Winds Energy Park, in Mason County in November. The facility has a generation capacity of 100-megawatt and is scheduled to begin operation in late 2012. The company is also developing a 150-megawatt Cross Winds Energy Park in Tuscola County which is expected to be in service late in 2015.

Overall, the company presents a strong growth story, given its stable electric and gas utility operations, favorable regulatory policies in Michigan, higher rates, strong balance sheet, and incremental dividend. However, we are concerned about the unfavorable macro backdrop, lower demand for electricity and pending regulatory cases. The company presently retains a short-term Zacks #3 Rank (Hold) that corresponds with our long-term Neutral recommendation on the stock.

Jackson, Michigan-based CMS Energy is the holding company of Consumers Energy Company (Consumers) and CMS Enterprises Company (Enterprises). Consumers is a electric and gas utility company that provides electricity and natural gas to Michigan's residents, and serves customers in all 68 counties of Michigan's Lower Peninsula. The company mainly competes with AES Corporation ( AES ).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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