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(MedPage Today) -- Insurers can impose this form of prior authorization for Part B drugs next year
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(MedPage Today) -- Hospitals unhappy to lose higher reimbursements
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(MedPage Today) -- Authorized under ACA to support coverage for less-healthy individuals
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(MedPage Today) -- CMS hopes to have a regulation out by year's end, administrator says


CMS Energy (NYSE: CMS) is an electric utility and natural gas distributor that operates in Michigan. While the company both produces and distributes electricity, it buys its natrual gas from suppliers in Canada and then stores and delivers it. The company serves nearly 6.5 million of Michigan's 10 million residents.[1]

After several years of losses, the company has taken steps to restructure its business. In 2007, it sold its only nuclear power plant as well as the majority of its international assets. The revenues generated from this were used in large part to pay down part of the company's debt. Despite these steps, the company still faces significant obstacles. Even after applying proceeds from the sale, the company still had over $5B in debt at the end of 2007. Moreover, the restructuring has served to make CMS more dependent on coal as a fuel source. In 2007, CMS Energy generated 90.1% of its power from coal.[2] Between March 2007 and March 2008, coal prices from two benchmark sources rose: 93% for coal from central Appalachia and 64% for coal from the Powder River Basin of Wyoming.[3]. Although CMS' contracts with coal producers shield it from fluctuations in coal prices in the short-run, the company will be adversely affected if prices remain high for a prolonged period. In addition, coal will become more expensive as a fuel source, as pending regulation aimed at reducing emissions from coal fired power plants becomes law. CMS Energy estimates that it will have to spend $845 million through 2015 to comply with the Environmental Protection Agency's (EPA) proposed regulations on fossil fuels.

Business Financials

CMS Energy is an energy holding company. Its main subsidiary is Consumers, which is the regulated utility that delivers electricity and natural gas to Michigan. Consumers’ assets and revenue comprise a vast majority of CMS Energy’s totals; in 2007 Consumer’s operating revenue was $6.064 billion compared to a total of $6.464 billion for CMS Energy [4].

Consumers provides electricity to residential, commercial, and industrial customers; 5% of its revenues come from delivering electricity to the automotive industry [5]. In its natural gas segment, Consumers purchases the natural gas primarily from U.S and Canadian providers and then transports, stores, and resells it.

Operating Revenues Breakdown [6] (in $millions)
2005 2006 2007
Electric Utility 2,695 3,302 3,443
Gas Utility 2,483 2,373 2,621
Enterprises 693 438 383
Other 8 13 17
Total 5,879 6,126 6,464

Net Income (Loss) Breakdown [7] (in $millions)
2007 2006 2005
Electric Utility 196 199 153
Gas Utility 87 37 48
Enterprises (391) (227) (217)
Corporate Interest and Other (30) (153) (135)
Discontinued Operations (89) 54 57
Net Loss to Common Stockholders (227) (90) (94)

From 2005 to 2007, CMS Energy saw a significant increase in revenues and operating income. Much of this was due to increases in the rate base set by the Michigan Public Service Commission.[8]. In addition, CMS Energy has sold its nuclear power plant and nearly all of its international assets, particularly within CMS Enterprises, visible by the decline in Enterprises’ revenues in the same time frame. The nuclear power plant was sold in order to improve cash flow, reduce risk, and increase financial flexibility.[9].The international assets were sold primarily to pay down debt.[10]. By the end of 2007, over $1.491 billion worth of assets had been sold and of this amount, $650 million was invested in Consumers to pay down debt[11]. The increase in net loss from 2006 to 2007 was primarily due to the termination of contracts and the loss of earnings from the international businesses[12].

Financial Data [13] (in $millions)
2005 2006 2007
Operating Revenue 5,879 6,126 6,464
Operating Income (345) (54) 1
Net Loss Available to Common Stockholders (94) (90) (227)

Key Trends/Forces

Rising Coal Prices

In 2007, 19,863 kWh of power were generated by CMS Energy. 17,903 kWh came from Coal[14] As of March 2008, coal from central Appalachia had risen 93 percent in price and coal from the Powder River Basin of Wyoming had risen 64 percent from the previous year.[15] Both sources of coal are regarded as benchmarks for the United States. With over 90% of power generated from coal, a significant change in the price of coal will have an effect on profitability. Although in 2007 CMS had many coal contracts that have locked in lower prices, there is the potential risk of the suppliers experiencing financial problems and refusing to honor the contracts. CMS Energy would be forced to find new contracts at higher prices as fossil fuel prices rise.

Fossil Fuel Regulations will significantly impact CMS

With over 90% of power generated from coal, CMS is particularly susceptible to environmental regulations on fossil fuels. The Environmental Protection Agency has proposed regulations which Consumers estimates will cost $835 million to comply with through 2015. In addition, Consumers estimates it will have to spend an additional $480 million through 2015 to comply with the State of Michigan's proposed regulations on mercury [16] . Consumers has been adapting to new laws by using modern equipment that will burn cleaner fuels and installing equipment to reduce emissions, in order to have cleaner coal.

Michigan Weather Patterns Influence Energy Usage

CMS Energy is at the whim of weather, particularly due to the company's concentration in a relatively small area of the U.S.: Michigan. Typically, warmer weather in the summer and colder weather in the winter will bode well for business, since air conditioning and heating will increase. However, global warming will unpredictably impact revenues in the future. For instance, in 2007 CMS attributed an increase of $14 million in electricity revenues to favorable weather [17] and attributed an increase of $10 million in natural gas revenues to colder temperatures[18] . However, these patterns are relatively unpredictable year to year.

Rate Base Regulation Directly Influences Profits

The Michigan Public Service Commission(MPSC) regulates the rate base of CMS Energy. The rate base is a value that a utility is allowed to earn a certain rate of return on. The rate of return iis determined by regulatory commission and is typically based on operating costs and sometimes capital expenditures. This system is in place to ensure the utility charges fair prices, since utilities generally have monopolies in their areas. In 2007, the MPSC approved a $70 million rate increase for electricity[19] . It also approved an annual increase of $50 million to the rate base for natural gas; however, this was significantly below the requested $88 million[20] . In February 2008, CMS requested a $91 million base rate increase for natural gas[21] .


Due to the fact that CMS Energy's main subsidiary, Consumers, is a utility, CMS has little competition. Utilities are typically monopolies because they require immense capital expenditures, such as power lines and power plants, and it would be inefficient if many companies existed in the same area and all built separate facilities. Utilities are regulated to ensure that they are charging fair prices and in exchange they are immune from monopoly laws.

However, some companies that are minimally competitive and also provide power to adjacent territories include Exelon, American Electric Power, and DTE Energy Holding

Comparison to Competitors
CMS Energy Exelon American Electric Power DTE Energy Holding
Operating Revenues (FY 2007, USD Million) 6,464 [22] 18,916[23] 12,101[24] 8,506[25]

Market Share

Nearly 6.5 million of Michigan's 10 million total residents purchase natural gas and electricity from Consumers. All 68 counties in Michigan's lower Peninsula are served by Consumers. [26]


  1. CMS Energy's 2007 10-k (Pg 11)
  2. CMS Energy's 2007 10-k (Pg 14)
  3. New York Times, Clifford Krauss. An Export in Solid Supply.
  4. CMS Energy's 2007 10-k (Pg 11)
  5. CMS Energy's 2007 10-k (Pg 12)
  6. CMS Energy's 2007 10-k (CMS-97)
  7. CMS Energy's 2007 10-k (CMS-6)
  8. CMS Energy's 2007 10-k (Pg CMS-11, Pg CE-9)
  9. CMS Energy's 2007 10-k (Pg CMS-5)
  10. CMS Energy's 2007 10-k (Pg CMS-5)
  11. CMS Energy's 2007 10-k (Pg CMS-5)
  12. CMS Energy's 2007 10-k (Pg CMS-6)
  13. CMS Energy's 2007 10-k (CMS-35)
  14. CMS Energy's 2007 10-k (Pg 14)
  15. New York Times, Clifford Krauss. An Export in Solid Supply.
  16. CMS Energy's 2007 10-k (Pg 19)
  17. CMS Energy's 2007 10-k (Pg CMS-9)
  18. CMS Energy's 2007 10-k (Pg CE-10)
  19. CMS Energy's 2007 10-k (Pg CMS-29)
  20. CMS Energy's 2007 10-k (Pg CMS-30)
  21. CMS Energy's 2007 10-k (Pg CMS-64)
  22. CMS Energy's 2007 10-k (Pg CMS-2)
  23. Exelon's 2007 10-k (Pg 90)
  24. American Electric Power's 2007 10-k
  25. DTE Energy Holding's 2007 10-k (Pg 30)
  26. CMS Energy's 2007 10-k (Pg 11)
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