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FORM 8-K
CURRENT REPORT
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED) OCTOBER 25, 2000
COMMISSION REGISTRANT; STATE OF INCORPORATION; IRS EMPLOYER
FILE NUMBER ADDRESS; AND TELEPHONE NUMBER IDENTIFICATION NO
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1-9513 CMS ENERGY CORPORATION 38-2726431
(A MICHIGAN CORPORATION)
FAIRLANE PLAZA SOUTH, SUITE 1100
330 TOWN CENTER DRIVE
DEARBORN, MICHIGAN 48126
(313) 436-9261
1-5611 CONSUMERS ENERGY COMPANY 38-0442310
(A MICHIGAN CORPORATION)
212 WEST MICHIGAN AVENUE
JACKSON, MICHIGAN
(517) 788-1030
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ITEM 5. OTHER EVENTS.
On October 25, 2000, CMS Energy Corporation issued a press release
announcing that the Michigan Public Service Commission (MPSC) issued orders
relating to Consumers Energy Company, CMS Energy's utility subsidiary,
authorizing securitization, expanding the gas customer choice program, and
authorizing certain accounting changes.
Securitization Order - Under the provisions of the securitization law
passed as a part of the "Customer Choice and Electricity Reliability Act",
Consumers filed an application seeking a financing order from the MPSC, and a
supplement to the application, in July 2000, to begin the securitization
process. The MPSC issued a financing order on October 24, 2000 authorizing
securitization of approximately $470 million in qualified costs (primarily
electric utility stranded costs) plus the expenses of the securitization.
Approximately $50 million of the annual costs saving effects of securitization
will offset, prospectively, the earnings impact of the 5% residential rate
reduction required by the Customer Choice and Electricity Reliability Act. This
portion of the cost savings will commence when Consumers' submits a written
acceptance of the securitization order. The order requires Consumers to apply
the remaining cost savings to the reduction of certain charges for
nonresidential and retail open access customers. The MPSC allowed prospective
recovery only of the 5% residential rate reduction's effect. Consumers estimates
that the disallowed portion of revenue recovery relating to the year 2000 5%
residential rate reduction may reduce CMS Energy's earnings by approximately
$.13 per share in 2000. Consumers will recover the expenses relating to the
issuance of the bonds through a securitization charge and a tax charge. These
charges are subject to an annual true-up until one year prior to the last
expected maturity date of the securitization bonds, and no more than quarterly
thereafter. The MPSC's order will not increase current electric rates for any of
Consumers' tariff customers.
Consumers anticipates that it will accept the MPSC's securitization
order and issue securitization bonds at the earliest by the end of the year
2000. As with other significant MPSC orders, the financing order is subject to
appeal by any party. During the appeal, the suspension of amortization of the
approved regulatory asset would cease, effective January 1, 2001, and would be
reestablished based on a schedule that is the same as the recovery of the
principal amounts of the securitized qualified costs. Ultimately, sale of
securitization bonds will be required for the full rate reduction offset to
continue over the term of the bonds.
Gas Accounting Order - In December 1997, the MPSC approved Consumers'
application to implement a gas customer choice pilot program. The program was
designed to encourage Consumers to minimize its purchased natural gas commodity
costs while providing rate stability for its customers. This pilot program
became effective on April 1, 1998. The pilot program ends on March 31, 2001.
This three-year pilot program, among other things, freezes gas distribution
rates at a delivered gas commodity price of $2.84 per Mcf through March 31,
2001. Recent significant increases in gas prices exposed Consumers to gas
commodity losses during the last year of the program. Consumers recorded a
regulatory liability of $45 million in the second quarter 2000 to reflect
estimated losses due to such increases in natural gas commodity prices. On
October 24, 2000, the MPSC approved Consumers' application to reclassify
recoverable, low-cost, base gas in Consumers' gas storage reservoirs. The MPSC
allowed Consumers to begin immediately to include the cost of its recoverable
base gas with higher cost purchased gas. The gas accounting order is expected to
eliminate the need for Consumers to recognize any further losses related to gas
commodity cost under-recoveries.
Gas Customer Choice Order - On October 13, 2000 and October 24, 2000,
the MPSC issued orders that adopted terms and conditions for providing permanent
gas customer choice programs for residential and commercial customers in
Michigan. The orders allow the expansion and extension of
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Consumers' voluntary gas customer choice pilot program scheduled to end on March
31, 2001. After that time, Consumers will no longer be subject to a frozen gas
commodity cost. Consumers will then return to a gas cost recovery mechanism such
that it will recover all prudently incurred natural gas commodity costs from its
customers. Under the permanent gas customer choice program, up to 600,000 of
Consumers' natural gas customers will be eligible to participate in the program
beginning April 1, 2001. By April 1, 2002, 900,000 gas customers will be
eligible to participate. All of Consumers' gas customers will be eligible to
select an alternate natural gas supplier beginning April 1, 2003. Consumers will
continue to transport and distribute gas to all customers.
On October 25, 2000, CMS Energy announced third quarter earnings of 51
cents per share, compared to 78 cents per share earned in the third quarter of
1999. Consolidated net income was $55 million compared to $83 million in the
third quarter of 1999. As a result of the securitization order discussed above,
the MPSC allowed prospective recovery only of the 5% residential rate reduction
on a prospective basis. Consumers estimates that the disallowed portion of
revenue recovery relating to the year 2000 5% residential rate reduction may
reduce CMS Energy's earnings by approximately $.13 per share in 2000. Therefore,
CMS Energy currently estimates year 2000 earnings at $2.37, confirms its year
2001 earnings estimate at $2.75 and confirms its estimated 10% growth rate
thereafter. In connection with its previously announced financial plan to
strengthen its balance sheet, CMS Energy issued 11 million shares of common
stock and intends to execute an initial public offering (IPO) of up to 49% of
its ownership in its oil and gas exploration and production subsidiary in the
first quarter of 2001 to raise approximately $800 million of cash and generate
about $450 million of equity. CMS Energy believes such actions will result in an
interest coverage ratio (calculated by dividing earnings before interest and
taxes, depreciation and amortization (EBITDA) by interest) of approximately 3.3x
in 2001. CMS Energy also believes that such actions will result in a net debt to
total capitalization percentage of approximately 63% in 2001.
While there is no assurance that this forecasted level of earnings and
growth will be achieved, this guidance and growth assumes, among other things,
the execution of the announced oil and gas exploration and production subsidiary
IPO discussed above, normal weather conditions, the absence of further earnings
losses due to the 5% residential rate reduction discussed above and the gas
distribution commodity losses discussed above, divestiture of non-performing
assets, new power plants becoming operational, new oil and gas production with
improved pricing, growth in liquefied natural gas cargoes and margins, return to
a gas cost recovery mechanism as discussed above and increased demand for
pipeline transportation. This guidance and growth also assumes, among other
things, higher purchased power costs caused by the lapse of the sale of power by
Consumers from the Midland Cogeneration Venture Partnership power purchase
agreement to PECO Energy Company, higher gas fuel costs for the independent
power production business, lower income due to the absence of earnings from the
assets sold under the asset sale program, lower total fixed charges, also due to
asset sales and equity financing, and a 10 million share increase in the average
number of shares outstanding.
In February 2000, CMS Energy announced its intention to sell its 50%
interest in Loy Yang A, a 2000 megawatt power plant and associated coal mine in
Victoria, Australia. The amount CMS Energy ultimately realizes from the sale of
Loy Yang A could differ materially from the approximately $500 million
investment amount currently reflected as an asset on the balance sheet. CMS
Energy, however, continues to evaluate various financial and accounting
alternatives for Loy Yang A by year-end, including continuing the sale process.
This document and the attached press releases contain "forward-looking
statements" that are subject to risks and uncertainties. The words
"anticipates", "believes", "estimates", "expects", "intends", and "plans", and
variations of such words and similar expressions, are intended to identify
forward looking statements.
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They should be read in conjunction with "Forward-Looking Statements Cautionary
Factors" in CMS Energy's and Consumers' Form 10-K, Item 1 (incorporated by
reference herein) that discusses important factors that could cause CMS Energy's
and Consumers' results to differ materially from those anticipated in such
statements. CMS Energy's presentation used in an October 26, 2000 conference
call to discuss third quarter results is available on the Internet at
www.cmsenergy.com.
ITEM 7. EXHIBITS.
(c) Exhibits:
99(a)-CMS Energy Slide Presentation at the 35th EEI Financial
Conference, October 30-31, 2000
99(b)-CMS Energy Major Earnings Variance Analysis.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrants have duly caused this report to be signed on their behalf by the
undersigned hereunto duly authorized.
CMS ENERGY CORPORATION
Dated: November 1, 2000 By: /s/ Alan M. Wright
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Alan M. Wright
Senior Vice President and
Chief Financial Officer
CONSUMERS ENERGY COMPANY
Dated: November 1, 2000 By: /s/ Alan M. Wright
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Alan M. Wright
Senior Vice President and
Chief Financial Officer
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INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
(c) Exhibits:
99(a)- CMS Energy Slide Presentation at the 35th EEI Financial
Conference, October 31, 2000.
99(b)- CMS Energy Major Variance Analysis.
