CMS Energy could completely exit the wholesale natural gas and power marketplace; however, the company already has terminated speculative trading, CEO Ken Whipple said Monday. And, to prevent questionable business practices going forward, CMS will require all employees to complete an ethics program.

The Dearborn, MI-based company announced the findings Monday of an internal investigation that was completed last week. The report, completed by a special committee of the board of directors, found no additional sham or “round-trip” energy trades other than the ones CMS acknowledged last spring. Investors reacted positively to the news, sending the company’s depleted share price up 52 cents to close the day at $8.66.

“Round-trip trading by CMS Marketing, Services and Trading was an ill-considered, inappropriate marketing practice that is unacceptable,” said Whipple. “We have already taken a number of steps recommended by the special committee to prevent any reoccurrence of this practice, including the termination of speculative trading and revisions to CMS Energy’s risk management policy. CMS Energy will rapidly implement the remaining recommendations of the special committee.”

The round-trip scandal, which has turned the entire merchant sector completely on its head, last spring forced the resignation of long-time Chairman and CEO William T. McCormick, along with Tamela Pallas, CEO of CMS-Marketing, Services and Trading (MST) unit (see Daily GPI, May 28 ).

Since the brouhaha erupted, companies announcing they would end speculative trading (besides Enron Corp.) include three former “who’s who” marketers: American Electric Power, Aquila Inc. and Dynegy Inc. Others, including El Paso Corp., Calpine Corp., Duke Energy, UBS Warburg, Mirant, Williams, Reliant Resources Inc. and Allegheny Energy all are reportedly suffered huge losses within their energy trading arms since the beginning of the year.

CMS publicly acknowledged that it had conducted several round-trip trades with Dynegy and Reliant Resources, and then appointed the special committee. The final report was approved by the board and independent outside counsel late last week.

“The facts previously reported by the company about round-trip trading at the Houston-based subsidiary are essentially consistent with the findings of the special committee,” CMS said in a written statement.

“The special committee also concluded, based on an extensive investigation, that the round-trip trades were undertaken to raise CMS Marketing, Services and Trading’s profile as an energy marketer with the goal of enhancing its ability to market its services. The committee found no apparent effort to manipulate the price of CMS Energy stock or affect energy prices.”

CMS noted that the Securities and Exchange Commission, Department of Justice, the Commodity Futures Trading Commission, and the Federal Energy Regulatory Commission are continuing to scrutinize round-trip trading, and it said it would continue to cooperate with the investigations.

The special committee recommendations adopted by the board include the following:

Two new members also will be added to the board to enhance its experience and expertise. Since the scandal surfaced last May, CMS has made substantial changes in its top management structure . Whipple was appointed chairman and CEO following the resignation of William T. McCormick. S. Kinnie Smith Jr. joined the company as vice chairman and general counsel in June, and Thomas Webb became CFO in August.

Separately, CMS said it is conducting an internal review of the natural gas trade information provided by two subsidiaries — CMS-MST and the Tulsa-based CMS Field Services — to energy industry publications that compile and report index prices. “A preliminary analysis indicates that some employees provided inaccurate information in the voluntary reports,” it said in a written statement. “The company will take appropriate personnel disciplinary actions.” It added that it has stopped providing the information to the publications.

In 2000 and 2001, round-trip trades represented most of CMS’s activity, according to the report. Trading in 2001 fell by 79.3 million MWh to 31 million MWh excluding round-trip trades. In 2000, the round-trip trades totaled 29.6 million MWh; excluding them, volume was 8.3 million MWh.

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