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CMS Eyes Panhandle as Secret Weapon for Growth

CMS Eyes Panhandle as Secret Weapon for Growth

Amid the merger frenzy that has gripped the energy industry this week, CMS Energy Chairman and CEO William McCormick said he doesn't envision his company - whose goal is to be the third largest energy concern in the world - being swallowed up by a competitor. Instead, he sees CMS Energy continuing in its aggressive role as a buyer of assets.

"Up until now, we have been the acquirer," he said, referring to the company's recent purchases of Panhandle Eastern Pipeline, Trunkline Gas, midstream gas companies and assets, oil and gas reserves and power plants in the U.S. "And we would expect that that would continue." But, he conceded, "one never knows in the future what will happen."

In the past three years, CMS Energy has more than doubled its energy asset base in U.S. and foreign markets to $15 billion from $7 billion, and has set its sights on $18 billion by 2003. "We're not trying to become big just to become big. We're trying to become bigger to become better," McCormick said, adding that his company is "pretty selective" in its choice of acquisitions. "We feel today we're already competitive with the biggest and best in the world."

CMS Energy has grown from a Michigan-based electric and gas utility into a global diversified energy concern - whose asset base include gas pipelines, storage facilities, midstream operations, exploration and production, energy marketing and trading, power generation and international operations. In addition to the U.S. and Canada, it has energy properties in South America, Europe, Africa, the Middle East, Asia and Australia.

Domestically, CMS Energy is counting on the 3.1 Bcf/d Panhandle/Trunkline system - which McCormick referred to as a "terrific asset" - to provide a "platform" for growth in the gas and power markets in the years ahead. President and COO Victor Fryling called it the "spinal cord" that connects the company's assets in its Michigan market area with production and gathering in Oklahoma and Texas, provides it with the ability to supply gas-fired generation up and down the pipeline's system, makes "low-cost" Michigan storage accessible to new markets, and opens up new markets for its marketing and trading services.

"...[W]e think that it's a great thing to kind of hang ornaments on as we grow going forward with power production and marketing," Fryling told energy reporters during a press briefing in Washington D.C. on Wednesday. CMS Energy purchased the 10,400-mile Panhandle/Trunkline system from Duke Energy last March for $2.2 billion. McCormick is particularly optimistic that the pipeline system will be a "key supplier" of gas to the new generation facilities planned for the Midwest market.

He further said CMS Energy is looking to the Tristate Pipeline and Guardian Pipeline projects to further augment its growth. The Tristate project, in which CMS owns a 67% interest, would supply between 0.3-1 Bcf/d to the U.S. Northeast market via a Chicago-to-Canada route. The Guardian project, where CMS has a one-third interest, would deliver 750 MMcf/d into the capacity-constrained Wisconsin market.

The Tristate project has run into problems at the Federal Energy Regulatory Commission, causing it to lag behind competitor Vector Pipeline in the race to serve Northeast gas loads. But McCormick remains undeterred. "First of all, we think Tristate will get built. We have had a disagreement with the FERC on some procedural and technical matters. The fact of the matter is that we believe that FERC should continue to act to allow a marketplace to determine which project is best. And that means that our project ought to be allowed to go forward. We think FERC will allow it..."

The estimated cost of the two pipeline projects is $630 million. But that's only a fraction of the $10 billion worth of energy projects in which CMS Energy is currently involved, according to the company. It put the company's share of the funding for the projects at $5.7 billion.

On the electric front, McCormick said that even though CMS Energy and Detroit Edison plan to bring on an additional 900 MWs of generation capacity, "it's still going to be a really.....tight situation in the Midwest this summer." And, he expects the situation to continue at least for another two to three years.

He's equally as pessimistic about the availability of transmission capacity. "One of the biggest problems we've got in my judgment is the fact that transmission needs expansion. Everybody's focusing on RTOs, ISOs, transcos and all that. But the mere fact that you have those is not going to change the transmission capacity one iota."

He said federal lawmakers need to enact transmission siting legislation that would enable utility companies to build transmission lines more quickly. Also, he noted there needs to be "proper incentives" for people to invest in transmission projects. "My own personal feeling is that our regulators at the federal level particularly aren't really focusing on these two issues," McCormick said.

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