The round-trip energy marketing scandal claimed another victim Friday, after CMS Energy Corp. announced the resignation of William T. McCormick as chairman and CEO. The Dearborn, MI-based company’s board of directors will establish a special committee of independent directors in the next week to investigate “matters surrounding round-trip trades” conducted by the CMS Marketing, Services and Trading (CMS-MST) unit, and in turn, the company plans to amend “as soon as practical” its 2001 10-K to restate its financial statements for 2000 and 2001 to eliminate all revenue and expense related to the wash trades.

The unexpected news, made the same day that CMS held its annual shareholders meeting, followed the resignation just a week before of Tamela Pallas, CEO of CMS-MST (see NGI, May 20), in the continuing aftermath of revelations that CMS engaged in numerous round-trip trades with other energy marketers to boost volume, and in some cases, revenue (see related story). The board’s special committee on the round-trip transactions plans to retain outside counsel to assist in the investigation.

In its amended 10-K statement, CMS said it expects to simultaneously eliminate approximately $1 billion of revenue and expense from round trip-trades in 2000. The company previously reclassified 2001 financial statements to eliminate $4.2 billion of revenue and expense, which included $3.3 billion of previously reported revenue and expense from round-trip power trades. The other $900 million of revenue and expense, which was reclassified, resulted from an incomplete round-trip gas trade, CMS said. The restatement also will adjust the year-end 2001 balance sheet for offsetting receivable and payable amounts of $122 million related to round-trip trades, and will restate 2001 revenue and expense of $5 million inadvertently missed in the 2001 restatement, according to CMS.

CMS said it is also “exploring the feasibility of extinguishing those round-trip trades that remain open positions on its books. Extinguishing these open positions will have no impact on earnings or cash flow.”

CMS said it is cooperating with an investigation of round-trip trading by the Securities and Exchange Commission (SEC), with “another trading partner.” The trading partner was not announced, but CMS said that all of its round-trip trades were conducted with Dynegy Corp. and Reliant Resources Inc. Dynegy is already being investigated by the SEC for a natural gas sale in 2001. Reliant has restated its earnings from last year, and said it also would re-amend those statements as well as amend income statements for 1999 and 2000 related to round-trip transactions.

“CMS Energy has received or is aware of a number of shareholder class action lawsuits,” it said in a statement. It also has “received a subpoena from the U.S. Attorney’s Office for the Southern District of New York related to round-trip trading and understands it will receive a subpoena from the U.S. Attorney’s Office in Houston, which also is investigating these matters.”

In a conference call with investors and analysts Friday, COO David Joos said that “at this time,” the CMS-MST unit was “operating fine.” Although he said there was nothing specific to talk about, the company may consider a joint partner or a partner for a “long-term basis” at some point. “We’re not going to do anything that hurts our progress at the parent level. We’ll continue to look at our options here.”

In fact, most of the questions concerned the company’s Argentina operations. Argentina, which has been hit by economic uncertainty in the past few months, remains in CMS’s future, said Joos. CFO Al Wright added that the country would need economic and regulatory stability before CMS considered “exiting” its operations there.

Wright explained that CMS was committed to sell up to 10 global assets this year as it trims its debt. “We will move to operate in fewer and fewer countries,” Wright said. He did not detail what was included in the portfolio for sale. The integrated utility, which is the parent of Consumers Energy, is the 12th largest electric utility in the country, with 1.7 million customers. It also is the fifth largest gas utility in the United States, with 1.6 million customers.

When asked about credit ratings, Wright said that it was a “tough question” to know whether CMS would obtain an upgrade in the near term. “The agencies have been very supportive of our company,” said Wright. “They are focusing on our momentum going forward and our continuing commitment to [reduce] debt. So far, so good.” He also added that the company had “no abnormal costs” for the first quarter.

After accepting McCormick’s resignation, the board elected Kenneth Whipple, 67, as chairman and CEO. Whipple, who lives in Dearborn, was executive vice president of Ford Motor Co. and president of Ford Financial Services from 1988 until his retirement in 1999. From 1997 to 1998 he was chairman and CEO of Ford Motor Credit Co. He has previously served as chairman and CEO of Ford of Europe Inc., from 1986 to 1988.

Whipple earned a bachelor’s degree in business and engineering from the Massachusetts Institute of Technology. He is a director of AB Volvo and a trustee of 13 JP Morgan Chase mutual funds. He has been a director of CMS since 1993. CMS shareholders also re-elected 11 incumbents to the board of directors at its annual meeting Friday.

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