1     Bay Harbor

Other Specific Bay Harbor Pages to Review:

Bay Harbor Company L.L.C.ownership in 1994

Bay Harbor Property Ownership

This page contains information regarding Bay Harbor.  The page is laid out as follows:

January 12, 2005 SEC Form 8-K filing that establishes a $45 million environmental liability

General background information

Unanswered questions

Information regarding CMS first involvement in Bay Harbor

Information from Bay Harbor website

Information from SEC Form 10-Q re abandonment of interest

Property ownership records from Emmet County

SEC Form 8-k filed January 12, 2005.  Section on Bay Harbor:

"Item 8.01. Other Events.

Bay Harbor

Certain subsidiaries of CMS Energy Corporation ("CMS Energy") participated in the development of Bay Harbor, a residential/commercial real estate project developed on the site of a discontinued cement plant and quarry operation near Petoskey, Michigan. In the various agreements to develop Bay Harbor, CMS Land Company, a subsidiary of CMS Energy ("CMS Land") and CMS Energy made certain indemnifications to various parties for environmental conditions. CMS Energy has since sold its interests in Bay Harbor, but on September 3, 2004, the Michigan Department of Environmental Quality (the "MDEQ") issued a Notice of Noncompliance ("NON") directed to certain CMS Energy subsidiaries and other parties that had participated in Bay Harbor and had entered into an Administrative Agreement and Covenant Not To Sue ("CNTS") with the State of Michigan in 1994.

In the sale agreement, CMS Land abandoned all interests and rights in Bay Harbor but retained the responsibilities it and CMS Energy had under the previous environmental indemnifications and the CNTS. One such responsibility deals with the construction, operation and maintenance of a pH-lowering treatment facility at Bay Harbor that collects and treats "seep water" from one of several pre-existing cement kiln dust ("CKD") piles. The "seep water" has a high pH level and requires treatment before the water can be discharged into the City of Petoskey sewer system. While the pH treatment facility was out of service for a number of months in 2004 to address maintenance issues, and to resolve issues with the City of Petoskey, the MDEQ found higher than acceptable levels of pH along the shore of Little Traverse Bay and issued the NON. The treatment facility resumed operation in September 2004.

In addition, the United States Environmental Protection Agency (the "EPA") has issued a General Notice of Potential Liability under Section 107(a) of the Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA") and has requested information pursuant to Section 104 of CERCLA. Follow up meetings with the EPA to discuss potential response activities and the potential entry of an administrative order of consent have been held and are scheduled in the future. CMS Energy filed a formal response to the Section 107(a) notice on December 6, 2004. CMS Energy plans to file a formal response to the Section 104 information request on or before January 24, 2005. CMS Energy has also presented plans to the MDEQ and the EPA to undertake a study concerning separate "seeps" that are not currently subject to a water collection and treatment facility. In addition, CMS Energy has submitted a proposed plan to undertake immediate response activities, which is under discussion at the MDEQ and the EPA.

The regulatory agencies have advised the parties that they have reached an understanding to split jurisdiction, under which the EPA would regulate immediate response activities and the MDEQ would regulate a final response. In the event that a suitable consent order is not negotiated, the EPA could issue a unilateral order under CERCLA requiring that remedial work (both interim and final) be performed, or alternatively, the EPA could elect to perform the work and seek damages, potentially including treble damages, from the parties. The MDEQ could also elect to prosecute an enforcement action pursuant to its statutory authority and the previously issued NON.

Several parties have issued demand letters to CMS Land and CMS Energy claiming breach of the indemnification provisions, making requests for payment of their expenses related to the NON, and/or claiming damages to property or personal injury with regard to the matter. CMS Energy responded to the indemnification claim by stating that it had not breached its indemnity obligations, it will comply with the indemnities, it has restarted the pH treatment facility and it has responded to the NON. CMS Energy will defend vigorously any property damage and personal injury claim.

Based on initial preliminary studies, CMS Energy has identified several remediation options. The estimated potential capital and near-term expenditures for these options range from $25 million to $40 million, with continuing yearly operating and maintenance expenses ranging from $0.8 million to $1.6 million. Final remediation and resulting claims against third parties for reimbursement of remediation costs could increase or decrease these amounts. CMS Energy estimates that it will record a liability for its obligations associated with this matter in the amount of $45 million, with a resultant charge to its income statement of $29 million, net of deferred income taxes, in the fourth quarter of 2004, reflecting CMS Energy’s current best estimate of both the capital and near-term costs as well as the present value of continuing future operating costs.

An adverse outcome of this matter could, depending on the size of any indemnification obligation or liability under environmental laws, have a potentially significant adverse effect on CMS Energy’s financial condition and liquidity and could negatively impact CMS Energy’s financial results.

CMS Energy cannot predict the ultimate cost or outcome of this matter."

General Background Information

Depending on the source of information, CMS Land, a subsidiary of CMS Energy Corporation, invested in Bay Harbor  in 1993 or 1994.  CMS Land abandoned its 50% ownership interest in 2002.  According to SEC documents:

"In October 2002, CMS Land executed a settlement agreement abandoning its 50% ownership interest in Bay Harbor Company, LLC, a real estate development company located in the northwestern region of Michigan's lower peninsula. The settlement agreement requires CMS Land to pay $16 million to Bay Harbor in consideration for certain indemnities and past liabilities assumed by Bay Harbor. CMS Land's investment in Bay Harbor at September 30, 2002 was $9 million."

At the 2003 Shareholders' Meeting I asked Mr. Whipple if Mr. McCormick or any officer or Board of Director member purchased property in Bay Harbor at below the market value at date of purchase.  As I recall the response, it was, I don't know. 

Below I list some information from Emmet County records.  I still don't know the answer to my question. You will note that the sale price of the property purchased by Mr. McCormick is listed as $0.  That may or may not be the actual purchase price as the initial contract was by land contract.   These are current ownership records and others may have purchased property and disposed of it.  I assume the Michael G. Morris is the same Michael G. Morris who was elected Executive Vice President of CMS Energy Corporation effective January 1, 1996 and was a former member of the Board of Directors.   

Recently, I asked the Company the following questions, but I do not believe I will receive a response: 

What CMS entity(s) were the original members of Bay Harbor?

What percentage did each own?

What amount did CMS Land or any affiliate originally invest in Bay Harbor?

List all additional investments, dividends received and any returns of investment.  Reconcile the above information to the $9 million investment at September 30, 2002. 

What were the earnings, or losses recorded by Bay Harbor during each year of ownership by CMS Land or other affiliate?

What indemnities were assumed by Bay Harbor?  Identify and state dollar amount of each.

What liabilities were assumed by Bay Harbor?  Identify and state dollar amount of each.

What was the purchase price of land purchased by Mr. McCormick at Bay Harbor?   How was the purchase price paid?

Why did CMS abandon its interest versus selling its interest?

Given that CMS abandoned its investment of $9 million and paid Bay Harbor $16 million, what was the gain or loss recorded by CMS Land or any affiliate in 2002?

Is Mr. McCormick or any BOD member a current or former member of Bay Harbor?

Information regarding what appears to be CMS Energy first involvement with Bay Harbor

From the SEC Form 10-k for the year ended December 31, 1993.  "CMS Energy, through certain subsidiaries, owns....and approximately 300 acres in undeveloped land in Emmet County, Michigan."

From the SEC Form 10-k for the year ended December 31, 1994.  "CMS Energy, through certain subsidiaries, owns a 50 percent interest in Bay Harbor Limited Liability Company a resort development in Emmet County, Michigan, …"

Information from the Bay Harbor website:

The History of Bay Harbor

For over 100 years mining operations and a massive cement plant had scarred over 1,200 acres and five miles of Lake Michigan shoreline on Little Traverse Bay. After ceasing operations in the 1960's, the cement plant had been abandoned for 35 years, leaving a moonscape of chromium brick, asbestos, coal and 2.5-million cubic yards of kiln dust.

David V. Johnson and Victor International Assume Full Ownership of Bay Harbor

BAY HARBOR, Mich., October 16, 2002 – David V. Johnson and Victor International Corporation have announced they have assumed sole operating control of Bay Harbor, a luxury residential and retail resort community, under an agreement with CMS Energy Corp. Johnson’s company becomes the sole owner of Bay Harbor, as part of CMS’ strategy to focus on its core energy business. The announcement was made by David V. Johnson, chairman of Victor International Corporation.

“CMS and I have enjoyed a highly successful relationship in the development of Bay Harbor,” Johnson said. “I appreciate all they have contributed to Bay Harbor, and I respect their decision to focus on the energy business and to provide me with the opportunity to continue the management and leadership of the Bay Harbor resort community."

Information from the SEC Form 10-Q for the quarter ended September 30, 2002:

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

                              WASHINGTON, DC 20549

                                     FORM 10-Q

     [ X ]       QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

                     OF THE SECURITIES EXCHANGE ACT OF 1934

                FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2002

"CORPORATE OUTLOOK 

In October 2002, CMS Land executed a settlement agreement abandoning its 50% ownership interest in Bay Harbor Company, LLC, a real estate development company located in the northwestern region of Michigan's lower peninsula. The settlement agreement requires CMS Land to pay $16 million to Bay Harbor in consideration for certain indemnities and past liabilities assumed by Bay Harbor. CMS Land's investment in Bay Harbor at September 30, 2002 was $9 million."

"3:   ASSET DISPOSITIONS 

In October 2002, CMS Land executed a settlement agreement abandoning its 50% ownership interest in Bay Harbor Company, LLC, a real estate development company located in the northwestern region of Michigan's lower peninsula. The settlement agreement requires CMS Land to pay $16 million to Bay Harbor in consideration for certain indemnities and past liabilities assumed by Bay Harbor. CMS Land's investment in Bay Harbor at September 30, 2002 was $9 million."

Information from Emmet County online records:

General Information for Parcel 52-18-10-110-110

General Information for Parcel 52-18-10-110-104

General Information for Parcel 52-18-10-110-105

General Information for Parcel 52-18-03-405-121

General Information for Parcel 52-18-02-365-103