CMS ponders future of energy trading business

Michigan-based CMS Energy may exit the energy trading business after it found that round-trip trades were undertaken by the company to raise CMS Marketing, Services and Trading's profile with existing and potential clients.

The Securities and Exchange Commission, US Department of Justice, the Commodity Futures Trading Commission and the Federal Energy Regulatory Commission are currently investigating CMS' round-trip trades. Round-trip trades take place when two parties buy and sell contracts at the same price to inflate the size of their trading books.

CMS Energy said it would continue to co-operate with the investigations, but stressed that its internal investigation by its own 'special committee' found no apparent effort to manipulate the price of CMS stock or impact energy prices through the use of round-trip trades.

But CMS also said it had found evidence that some employees had provided inaccurate natural gas pricing information in voluntary reports to energy pricing services. CMS said it would take appropriate disciplinary actions against personnel and has also stopped providing pricing information to the publications.

As a result of the company’s findings, CMS said it would expand the responsibilities of its chief risk officer to assess not only financial risk, but also legal and business risk. The company added that it would prohibit former Arthur Andersen auditors, who worked on CMS accounts, from future involvement in CMS audits. Other CMS recommendations included the appointment of a corporate compliance officer to ensure compliance with all applicable laws and regulations.

“Round-trip trading by CMS Marketing, Services and Trading was an ill-considered, inappropriate marketing practice that is unacceptable,” said Ken Whipple, CMS chairman and chief executive. “We have already taken a number of steps recommended by the special committee to prevent any reoccurrence of this practice, including the termination of speculative trading and revisions to CMS Energy's risk management policy," he added.

Whipple said CMS Energy plans to rapidly implement the remaining recommendations made by the special committee.