A Capital-Intensive Business: Interview with CMS Energy Assistant Treasurer, Beverly Burger

CMS Energy is a US holding company with a Michigan-based gas and electric utility, Consumers Energy, as its principal subsidiary. The company has recently celebrated two anniversaries; 2011 marked 125 years since it was first established as a utility company and this year it has been 65 years since CMS Energy was first publicly traded on the New York Stock Exchange (NYSE). CMS Energy has about 7,500 employees and the utility serves around three million electricity and gas customers throughout Michigan. Through another subsidiary, CMS Enterprises, the company is also engaged in independent power generation, primarily in Michigan.

Today’s CMS is a leaner operation than a decade ago, when growing financial problems forced the company to embark on divesting itself of its non-US assets. In earlier years, CMS Energy had invested extensively in foreign operations, power plants and distribution companies. At one time, it owned all or part of businesses in more than 25 countries around the world. The company had African operations in Morocco, Equatorial Guinea and the Congo, a Middle East presence in United Arab Emirates (UAE) and Saudi Arabia, and businesses in Asia. In Latin America, CMS Energy had operations in Argentina, Chile and Brazil, oil and gas assets in Venezuela and Ecuador, and an electricity distribution company on Margarita Island, Venezuela.

“Many of these were challenging countries in which to do business, due to cultural differences and in some cases significant political risk,” says the company’s assistant treasurer, Beverly Burger, who joined CMS Energy in 1995 and has held her current position for 13 years. However, a process of asset sales over the period 2002 to late 2007 saw the company steadily sell off its overseas businesses in a ‘back to basics’ strategy to focus on its Michigan utility and, in the process, mitigate its financial and political risks.

As CMS Energy was beginning to gear up its international expansion programme when she first joined the company, Burger’s work has changed significantly over the years. “In the early years it was focused largely on foreign treasury operations and ensuring that the overseas companies we acquired were integrated into our cash operations,” she says. “The work primarily included helping them with their banking structure, forecasting cash needs and operational procedures. In recent years, the focus has shifted very much to streamlining treasury operations and maintaining strong bank relationships.”

The company’s subsequent series of divestitures had almost wrapped up when the world financial crisis and liquidity crunch suddenly began to impact the power sector in 2007. “CMS’s treasury department was proactive in shoring up liquidity as the crisis approached and negotiated bank credit facilities, so that excess liquidity was available,” says Burger. “Revolving credit facilities were set up that the company could draw on and repay.”

CMS Energy has also followed a relatively conservative investment policy in recent years, sticking to its core business rather than reinvesting in new areas such as the exploration and development of shale gas and tar sands.

Banking Risk

At the recently-held Association for Financial Professionals (AFP) annual conference, this year held in Miami, Florida, Burger was particularly interested in the sessions on banking-related topics. She anticipates that the increased regulatory requirements imposed by new legislation such as Dodd-Frank and Basel III inevitably means that banks will require a higher return on their capital, making funding for corporates more problamatic.

“Companies such as CMS will need to find equitable ways of sharing their banking fees and we are looking at ways in which we can better spread our business across our various banks,” she says. “We maintain strong relationships with regional banks in Michigan and the Midwest, but also work with large money centre US banks and global banks. The latter group has challenges on return models,  as compared to their US peers, as their cost of capital is significantly higher – although the implementation of Dodd-Frank is set to reduce that difference.

“In recent years, it has been possible for companies to take advantage of extremely low interest rates in the debt capital markets. This has made it attractive to execute long-term financing strategies and require less dependence on bank funding. CMS Energy has been to the capital markets for the financing of its long-lived assets, but still maintains a good amount of liquidity through its banking relationships.”

As she notes, companies operating in the energy sector are typically very capital intensive. Most utilities have huge capital budgets to improve or maintain their existing plants, comply with new environmental regulations and develop energy projects. This requires those in the sector to be ever vigilant in ensuring that they get the most attractive financing possible in a low interest rate environment.

Adding to the task for those located in the US is the fact that the public service commissions review and pass judgment on all requests from utility companies for proposed rate increases. “They can restrict a utility’s ability to pass on higher prices and even decline any request if they believe that the utilities haven’t provided a quality service at the lowest cost possible,” says Burger. She also shares the concerns of her peers, both at home and elsewhere in the world, over the potential impact of the impending US ‘fiscal cliff’, adding that the US political arena currently dominates the economic outlook.

“Many US companies aren’t currently investing or hiring staff as they first want to know what the next four years are likely to bring in the way of regulations,” she says. “Michigan’s economy has improved, due partly to the effect that it was among the first to feel the impact of the crisis because of its reliance on the automobile industry. Consequently it has also been able to emerge relatively quickly from the trough. The beginning of the recovery was already evident in 2010, so we’re now nearly three years into it.

“Looking beyond our shores, the world has an increasingly globalised economy so US treasurers have a number of concerns that include the implications of the eurozone crisis and the impact on commodity prices, inventory and sales, their business relationships with banks and their ability to attract investors,” Burger adds. Having the ability to learn more about these issues at this year’s conference has, she believes, been beneficial.

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