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
"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,"