Ann de Rouffignac
OGJ Online
CMS Energy Corp. got some favorable breaks from the Michigan Public Service Commission Wednesday when it received approval to securitize $469 million in stranded electricity assets and received the right to average current higher gas costs with cheaper stored gas in its gas distribution business.
CMS will issue bonds by the end of the year to cover the $469 million. The Dearborn, Mich.-based utility will service the bonds through a .0025�/kw-hr charge that will be included in all end user bills. The first estimate several years ago of stranded costs had been $1.8 billion, says Dan Bishop, CMS spokesman.
But gas prices have doubled this year. As a result, CMS� Palisades nuclear power plant is less likely to be considered a stranded asset once competition starts. That reduces the company's overall estimate of its stranded costs.
Under the securitization process, CMS will refinance expensive debt and equity with less expensive debt. The charge for the bond servicing will be fully offset by equivalent reductions in current charges on customers� electric bills.
The decision to approve the $469 million in stranded costs removes the last major uncertainty facing CMS in the restructuring of Michigan's electricity industry.
�We are not seeking any more stranded costs rulings,� says Bishop.
With respect to CMS's gas operations, the commission will allow CMS to reclassify a portion of natural gas in underground storage, reducing significantly any adverse earnings impact from high gas costs.
�This is important because one of the recent earnings overhangs related to CMS has been the ultimate resolution of this issue,� says Fred Schultz, analyst with Raymond James & Associates, Houston. �By switching to a weighted average cost, it mitigates the impacts of rising gas costs to the Consumers (CMS) gas distribution business for both this year and early 2001.�
Without a favorable ruling on this gas issue, Consumers Energy (CMS) earnings would have been hurt, says Schultz.
The gas commodity charge is set at $2.84/Mcf until April 2001 for all of the company�s gas distribution customers who didn�t participate in the customer choice program, says Bishop. After that date, a new gas recovery factor must be approved by the state commission to recover gas commodity costs from default customers.
�We will file a new gas cost recovery factor proposal later this year,� Bishop says.
Bishop did not elaborate on how the gas cost recovery factor will function. It is unclear if CMS will hedge gas purchases on behalf of default customers in the forward markets or if the structure of the gas recovery factor will mean the company can simply pass through the cost to customers.
