Due primarily to unusually warm first quarter weather, increased electric utility power supply costs related to the Palisades nuclear plant outage, and continued weak economic conditions, CMS Energy Corp. posted first quarter operating net income of $96 million ($0.72 per share), compared to first quarter 2001 operating net income of $108 million ($0.84 per share). Despite the fall-off, CMS reaffirmed its earnings per share (EPS) guidance for operating net income for the full year. The company also reported that it has closed on two previously announced asset sales.

“Although these first quarter operating results are 14% below last year’s operating EPS, they are consistent with our plan to position us to achieve our annual targeted operating net income of $2.00 to $2.05 per share before the impacts of the Argentine issues,” said CFO Alan M. Wright in a conference call last week.

The company acknowledged that the operating net income excludes the effect of economic problems and changes in law in Argentina and gains or losses on asset sales. Consolidated reported net income for the quarter was $399 million ($2.92 per share), compared to $109 million ($0.85 per share) in the first quarter of 2001. The increase was attributed primarily to a gain on the sale of oil and gas reserves and production in Equatorial Guinea in January 2002.

The company indicated that the actions of the Argentine government negatively affected reported first quarter earnings by $0.15 per share, and estimated an additional impact for the remainder of 2002 of $0.13-18 per share. In addition, effective April 30, CMS changed its functional currency in Argentina for accounting purposes for its TGN pipeline and Argentine generating assets from the U.S. dollar to the Argentine peso. The company said the change results in a reduction of equity on the balance sheet of $430 million, principally as a result of a currency translation adjustment. CMS said it expects that this non-cash write down, which represents about 80% of the book value of these investments, along with other factors, will substantially eliminate the risk of future material balance sheet impacts associated with the Argentine investments.

CMS Energy’s operating revenue totaled $2.5 billion during the quarter, versus $2.9 billion in the first quarter of 2001 due to decreased electric and natural gas utility sales and natural gas transmission revenues resulting from near record warm winter weather and continued weak economic conditions.

CMS Energy’s utility business, Consumers Energy, contributed operating net income of $77 million for the first quarter, down from $88 million in the first quarter of 2001. First quarter total electricity deliveries were 9.2 billion MWh, down from 10 billion MWh during the same period last year. Natural gas deliveries were 149 Bcf, down from 160 Bcf in the first quarter last year. The company said that the benefit of interim natural gas rate relief received in December 2001 was offset by first quarter temperatures that were 11% warmer than last year’s first quarter.

CMS Energy’s natural gas transmission business posted first quarter operating net income of $33 million, down from $45 million in the same period last year, due to lower earnings from the liquefied natural gas (LNG) business and decreased gas transmission earnings due to warmer winter weather.

“The lower earnings at Trunkline’s Lake Charles, LA, LNG import terminal are the result primarily from the fixed rate on the BG contract…versus last year’s spot rate,” Wright said. CMS inked a 22-year contract in May 2001 giving United Kingdom-based BG Group all of the current uncommitted capacity at Lake Charles (see NGI, May 21, 2001). The contract, which took effect in January 2002, gives BG Group the right to 5.1 Bcf of uncommitted vaporization and storage capacity. After another one of CMS’s contracts expire in August 2005, BG’s stake will rise to 6.3 Bcf.

The company’s energy marketing, services and trading segment posted an increase in net income in the first quarter of $3 million due to increased earnings from its CMS Viron energy performance contracting business. The segment contributed $7 million in the first quarter, up from $4 million in the same period last year.

CMS Oil and Gas Co., the exploration and production business, broke even for the first quarter, a decrease from $3 million of operating net income during the same period last year, after deducting a $310 million net gain on the sale of its Equatorial Guinea oil and gas reserves. Increased gas prices were offset by lower oil prices and reduced production due to the sale. Independent power production operating net income in the first quarter totaled $42 million, up from $27 million in the same period last year, due to higher earnings from its Jorf Lasfar power plant in Morocco and lower steam costs at its Dearborn Industrial Generation plant.

After the company’s earnings release Wednesday, CMS Energy reported a flurry of activity regarding the sale of assets. CMS Oil and Gas Co. said that it has closed on the previously announced sale of CMS Energy’s coalbed methane holdings in the Powder River Basin of Wyoming and Montana to Fort Worth-based XTO Energy for $101 million. Proceeds from the sale — which was first announced in early April (see NGI, April 15) — will be used to reduce debt and improve CMS Energy’s consolidated balance sheet, the company said.

CMS Energy also reported that its principle subsidiary, Consumers Energy, has closed on the sale of its electric transmission system for approximately $290 million in cash to a limited partnership whose general partner is Washington, D.C.-based Trans-Elect. First announced in October 2001, the sale marks the first time in the United States in which a utility company has sold its electric transmission system to an independent transmission company.

Included in the sale was approximately 5,400 miles of 345 kV and 138 kV transmission lines, facilities and associated easement grants serving Consumers’ entire electric service territory located throughout most of Michigan’s Lower Peninsula.

Michigan’s electric restructuring law requires the state’s major electric utilities to either divest their electric transmission systems or turn over operating control to an independent entity by Dec. 31, 2001. The Michigan Public Service Commission (MPSC) authorized the anticipated sale of the transmission system in a Dec. 4, 2000 order. The Federal Energy Regulatory Commission accepted a letter of compliance from Consumers Energy late last month, clearing the way for completion of the transaction.

With the closing of the transmission sale, CMS Energy said it has received approximately $2.4 billion of cash from asset sales, securitization proceeds and proceeds from LNG monetization out of its $2.9 billion program to improve its balance sheet.

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