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CMS to Invest $750M in Nat Gas Plant

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Consumers Energy, a subsidiary of CMS Energy Corporation (CMS), intends to build a 700 megawatt (“MW”) new natural gas-fired power plant in Genesee County. The estimated cost of the project is $750 million.

Located, in Thetford Township, about 20 miles northeast of Flint, post completion, the major new natural gas-fired power plant would be able to serve a community of about 445,000 people.

The company expects to begin the construction in 2015 and come online by 2017. The project will likely create 600 construction jobs. Post construction, the proposed power plant is expected to create 30 operating jobs.

Currently, Consumers Energy owns the 272-acre Thetford Township site. The site is interconnected with high-volume natural gas delivery and high-voltage power transmission lines. This would be the tenth natural gas-fired power plant in township. It already has nine smaller natural-gas fired combustion turbine units.

However, development of the plant entirely depends on an air permit from the Michigan Department of Environmental Quality (“MDEQ”), a certificate of necessity from the Michigan Public Service Commission (“MPSC”) and appropriate financing. The company has already filed for the air permit application with MDEQ for two combined cycle units at the Thetford site - one for the current unit and the other for the development of a second unit later. It expects to file a certificate of necessity application with the MPSC in 2013.

The investment of $750 million would be an addition to the investment of $6.5 billion, which the company had previously announced to invest in its utility operations through 2017.

The major new natural gas power plant will not only help the company to add profits, but will also meet the energy needs of Consumers Energy's customers over the next 20 years under the Balanced Energy Initiative program. The company will use modern technology to meet the demand of its 1.8 million electric customers.

The company seems to be focusing on the well-being of its customers. The company is making major investments for creating jobs while boosting the state's economy. Apart from making substantial investments to improve the environment, it is continuously trying to aggressively manage its costs. Despite the construction of a new power plant, it plans to hold the average base rate increases at or below the rate of inflation for the next five years. Overall, this would increase the market value of the company.

Like CMS Energy, other electricity provider Calpine Corp. (CPN) is also busy in making huge investments for the benefit of its customers. Recently, Calpine completed the acquisition of an 800 megawatts natural gas-fired, combined-cycle power plant located in Bosque County, Texas for $432 million plus adjustments, or $540 per kilowatt.

Jackson, Michigan-based CMS Energy is the holding company of Consumers Energy Company (Consumers) and CMS Enterprises Company (Enterprises). Consumers Energy is a electric and gas utility company that provides electricity and natural gas to Michigan’s residents, and serves customers in all 68 counties of Michigan’s Lower Peninsula. Enterprises, through its subsidiaries and equity investments, is engaged primarily in independent power production.

CMS Energy presents a strong growth story, given its stable electric and gas utility operations favorable regulatory policies in Michigan, higher rates, and incremental dividend. However, we remain concerned due to the unfavorable macro backdrop, lower demand for electricity and pending regulatory cases. The company presently retains a short-term Zacks #3 Rank (Hold) that corresponds with our long-term Neutral recommendation on the stock.

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