10-QPeriod: Q1 FY2006

CMS ENERGY CORP Quarterly Report for Q1 Ended Mar 31, 2006

Filed May 3, 2006For Securities:CMSCMS-PCCMSACMSCCMSD

Summary

CMS Energy Corporation reported a net loss of $27 million, or $0.12 per diluted share, for the first quarter of 2006, a significant decline from the $150 million net income, or $0.74 per diluted share, recorded in the same period of 2005. This downturn was primarily driven by substantial mark-to-market losses in the Enterprises segment, particularly related to the MCV Partnership's long-term gas contracts and financial hedges, which swung from gains in the prior year to losses in the current quarter. Additionally, warmer weather negatively impacted the Gas Utility segment's performance due to lower deliveries. Despite the consolidated loss, the Electric Utility segment showed resilience, with a slight decrease in net income to $29 million from $33 million, supported by rate increases and the return of customers to full-service rates. However, the overall financial performance was heavily weighed down by the Enterprises segment's challenges, including the ongoing reevaluation of the MCV Facility due to high natural gas prices and the related derivative impacts. The company continues its strategy to reduce parent company debt and manage working capital challenges.

Key Highlights

  • 1Net loss of $27 million for Q1 2006, a decrease from $150 million net income in Q1 2005.
  • 2Diluted loss per share of $0.12 in Q1 2006, compared to diluted earnings per share of $0.74 in Q1 2005.
  • 3Significant negative impact from mark-to-market adjustments at the MCV Partnership and CMS ERM in the Enterprises segment.
  • 4Electric Utility segment income decreased slightly to $29 million, supported by rate increases and customer returns.
  • 5Gas Utility segment income decreased to $37 million due to warmer weather and lower deliveries.
  • 6The company continues to focus on reducing parent company debt and managing working capital.
  • 7A settlement agreement was reached for ERISA class action lawsuits, subject to court approval, involving a $28 million payment from the insurer.

Frequently Asked Questions

The primary driver was the substantial mark-to-market losses recorded in the Enterprises segment, particularly from the MCV Partnership's long-term gas contracts and financial hedges. These losses represented a significant swing from the gains reported in the prior year's comparable period.

The Electric Utility segment saw a slight decrease in net income to $29 million, supported by rate increases and customer returns. The Gas Utility segment's performance declined, with net income falling to $37 million, primarily due to warmer weather leading to lower deliveries.

CMS Energy is focused on reducing parent company debt and is working to manage working capital challenges, which are exacerbated by higher natural gas prices and lags in cost recovery.

The company is involved in several legal matters, including an ERISA class action lawsuit for which a settlement has been proposed. Regulatory matters include ongoing reviews by the Michigan Public Service Commission (MPSC) concerning rates and cost recovery.