ML19326D292
| ML19326D292 | |
| Person / Time | |
|---|---|
| Site: | Midland |
| Issue date: | 05/19/1975 |
| From: | CONSUMERS ENERGY CO. (FORMERLY CONSUMERS POWER CO.) |
| To: | |
| Shared Package | |
| ML19326D290 | List: |
| References | |
| NUDOCS 8006090728 | |
| Download: ML19326D292 (17) | |
Text
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CONSUMERS POWER COMPANY guarterly Report for the First Quarter of 1975 Item 1 of the September 13, 1974 Request "Significant changes in Consumers Power Company's financial status, including operating costs, construction costs, and revenues."
Response
Information relating to this item is contained in the Company's STATINENT OF INCOME AND RETAINED EARNINGS and BAIANCE Sl!EET for the twelve months ended March 31, 1975 and the NOTES TO FINANCIAL STATINENTS. Copies of these documents are attached hereto as Appendix A.
Item 2 of the September 13, 1974 Request i
" Progress reports on new capital raised and all 1
rate increases granted your company."
.I
Response
No new capital was raised by Consumers Power Company during the first quarter of 1975 Information relating to recent rate increases which have been granted to the Company are detailed in Note 9 of the NOTES TO FINANCIAL STATDENIS, attached as Appendix A.
Further information regarding the Ccanpany's January 23, 1975 electric rate increase is contained in'the Company's prior submittal of March 17, 1975.
Item 3 of the September 13, 1974 Request 4
" Construction expenditures and sources of construction funds on a quarterly basis during the calendar year 1975."
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Response
Information relating to this item is contained in the STATD!ENT OF SOURCE FUNDS 1%R GROSS PROPE1UY ADDITIONS for the three months ended March 31, 1975 A copy of this document is attached hereto as Appendix B.
Remainder of the September 13, 1974 Request "In addition you should notify us of any changes in Consumers Power Company's quality control and quality assurance activities associated with the construction of the Midland Plant."
Response
During the first qaarter of 1975, Consumers Power Company's quality control and quality assurance activities remained unchanged. As previously reported by the Company on March 17, 1975, the curtailment of construction activities at the Midland Plant has caused Bechtel to make various manpower adjustments.
Such manpower adjust-ments will not detract from the quality or scope of the QC or QA effort at Midland.
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App =aM v A CONSUMERS POWER COMPANY STATEMENT OF INCCME AND FITAINED EARNINGS FOR THE TWEIXE MONTHS ENDED MARCH 31, 1975 OPERATING REVENUE:
(Notes 1 & 2)
Electric
$ 675,050,090 Gas 541,190,047 Steam 1,7 3,563
$1,217,90}2,500 Total operating revenue OPERATING EXPENSES AND TAXES:
Operation -
Purchased and interchange power
$ 146,239,796 Fuel used in electric generation 205,126,577 Cost of gas sold 348,072,694 Other 156,125,857 Total operation
$ 655,564,924 Main'tenance 55,437,662 Depreciation and amortisation 86,224,028 General taxes 64,867,461 Income taxes (Note 11) 25,049,288 Total operating expenses and taxes 31,067,143,363 Net operating inecme S 130,639,137 OTHER INCOME:
Allowance for funds used during construction (Notes 1 & 12) 23,761,290 Inccme frem subsidiaries (Notes 1 & 13) 7,893,240 Other 3,574,636 Net other income 35,229,166 INTEREST CHARGES:
Interest on long-term debt 89,653,471 Interest on notes payable 9,707,911 Other 4 7,347 3
Total interest charges 3
99,798,729 Net income S
66,269,574 DIVIDENDS ON PREFERRED NO PREFERENCE STOCK 26 h37,871 Net inccme after dividends on preferred stock 39,631,703 DIVIDENDS ON COMMON STOCK - DECLARED DURING THE PERIOD AT THE RATE OF 50.Op PER SHARE PER QUARTER 52,467,676 Balance to retained earnings (12,635,973)
Add -
Retained earnings March 31, 1974 as reported 233,371,662 Restatement for income tax effect of gain on reacquisition of long-term debt prior to March 31, 1974 (Note 14) 4,038,993 Restatement for unbilled revenue at March 31,1974 (Note 2) 27,121,921 RETAINED EARNINGS - March 31, 1975 (see balance sheet) 251 896,603 3
t The acccmpanying notes are an integral part of this statement.
A-2 CONSUMERS pnWER COtPANY T1A1ANCE SHEET MARCH 31. 1975 ASSETS STOCKHOLDENS' TNVFSTMENT AND LIABILITIES iffILITY P! ANT:
At original cost -
CAPITAUZATIGt:
Plant in service and held for future use -
Consson stockholders' equity -
Electric Common stock - $10 par value, authorized 32,500,000
$1,9&T,%93,%b shares, outstanding 26,330,438 (Notes 4 & 6)
$ 263,304,380 Gas 974,071,$h6 Capital in excess of par value (Note 6) 247,b72,ll5 Steam 3,303,585 Casmson to all departments 72.367.435 Retained earnings (Note 5)
$3,037,262.130 251.896.6i
)
$ 762,673,09b 14ssi Provision for accrued depreciation 726.934.653
$2,310.37/,477 Imss: Capital stock expense 8.841.855 Construction work in progress (Notes 3 & b) 489.9%.588 Total comon stockholders' equity
$ 753.831,243
$2.800.2t%.M5 OfMEN PHYSICAL PHOPERTY:
Preferred stock, c -1=tive, $100 par value, authorized At cost or less 5,000,000 stares (Notes 4 & 6) 2,733,$89 3k7,133,800 less: Accuamlated provision for accrued depreciation Preference stock, cumulative, $1 par value, authorized and amortization 5,000,000 shares, outstamiing 575,850 (Note 6) 575,850 (178.703)
Capital in excess of par value of preference stock 2.554.886 28.216.650 Total stockhotters' investment
$1,129,757,543 long-teria debt (Notes b & 7)
Wholly-owned subsidiaries 1.317,651.687 Michigan Cas Storage Company (Note 1) 20,599,885 Total capitalization
$2.447.409.230 Northern Michigan Exploration Company (Notes 1 & 13) 23,434,253 Other, at cost or less 1.063.033 45.077.17j CURRErf OBLIGATIONS EKPECTED '10 BE REFINANCED (Note %)
Notes payable, due within one year (average interest rate of 10.68%)
CURRENT ASSETS:
First mortgage bonds, 2-7/84 series due 1975
$ 133,500,000 Cash (Note 5) 86.324.000 23,612,b56
$ 219,824.000 -\\
Accrued utility revenue (Nate 2) 70,954,000 CURRErf WABILITIES:
Accounts receivable - less reserve of $871,718 111,005,084 (Excluding notes payable, due within one year)
Refundable income taxes (Note 11) 17,650,563 Current maturities and sinking 1'und - long-ters debt (Note 7) 1%,585,069 Materials and supplies, at average cost Accounts Jayable (includer $6,542,655 due to subsidiaries) 62,506,330 Wel stock Dividends declared 54,011,803 Accrued taxes 6,910,596 Other 33,162,895 Accrued interest 124,7$4,863 Cas in underground storage, at average cost 29,le33,660 Other 29,941,586 Property taxes - future period net 20,536,602 38.27?.5b6 Prepayment and other 3.h37.231 8 276.970.990
$ 363.&A.294 DEFERRED CREDITS AND RESERVES Preliminary construction costs of cancelled projects Deferred income taxes (Note 11)
Investment tax credit (Note ll)
$ 208,510,k11 being amortized (Note 3) 5,420,970 Other (Note 9) 44,683.367 Other deferred debits 16.183,645 35.977.033
$ Pl &A.615
$ 289.!?0.811
$3.233,325,031 g3,p33,32$,n33 The accompanying notes are an integral part of this statement.
A-3 Paga 1 of.ll NOTES TO FINANCIAL STATEMENTS (1)
SIGNIFICANT ACCOUNTING POLICIES Effective January 1,1973, the Company adopted the equity method of accounting for the investment in its wholly-owned subsidiaries, Michigan Gas Storage Company and Northern Michigan Exploration Com-pany, pursuant to Federal Power Commission Order No. 469 Under this method of accounting the Company's interest in the earnings of the subsidiaries is reflected currently in earnings and in the carrying value of the investments.
The Company provides depreciation on the basis of straight-line rates approved by the Michigan Public Service Commission (MPSC).
Composite depreciation rates were approximately 2 75% for electric property and 3 61% for gas property for the 12 months ended March 31, 1975 Effective January 1,1974, the Company changed its method of accounting to accrue revenues for service rendered but not billed at month end.
Prior to January 1, 1974, operating revenue was recognized at the time of monthly billings on a cycle basis.
(See Note 2.)
The Company makes annual contributions to the pension plan sufficient to cover current service costs, interest on unfunded prior t.rvice costs and amortization of prior service costs.
(See Note 10.)
Allowance for funds used during construction, included in other income, represents the estimated cost of funds applicable to utility plant in process of construction capitalized as a component of the cost of utility plant.
Under established regulatory practices, the Company is pennitted to earn a return on the capitalized cost of such funds and to recover the same in the rates charged for utility services.
(See Note 12.)
l (2)
CHANGE IN ACCOUNTING METHOD Prior to 1974, the Company followed the policy of not recording revenues relating to service rendered but not billed at the end of the accounting period since the changes in such unrecorded amounts from year to year were generally not significant.
Due to the accelerating increase in costs and rate levels, the disparity between costs and revenues as a result of this method of accounting has increased. Accordingly, effec-tive January 1,.1974, the Company changed to a preferable method of accounting to accrue the amount of unbilled revenues for services provided to the month end to more closely match costs and revenues.
The cumulative effect of the change on periods prior to the twelve months ended March 31, 1975 amounted to $27,121,921 after income taxes.
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Paga 2 of 11 NOTES TO FINANCIAL STATEMENTS (Contd)
(3) NUCLEAR GENERATDiG PLANTS The Palisades Nuclear Plant was shut down in August 1973 for repairs.
In the fall c.f 1974 the Plant resumed limited operation. Thereafter, other operating problems required further shutdown to pemit repairs.
In April 1975, the Plant resumed operation and has now achieved substantial power generation.
The Plant is currently operating under a 90-effective-full-power-day authorization from the Nuclear Regulatory Cemission (fomerly AEC) at the conclusion of which the Plant will be shut down temporarily for surveillance testing of its steam generators.
In August 1974, the Company filed suit in the U.S. District Court for the Western District of Michigan seeking not less than $300 million in past and future damages, together with equitable relief frem suppliers of com-ponents and design work for the Plant.
The suit is pending.
Construction work in progress includes $223,714,000 at March 31, 1975 related to the Midland Nuclear Plant.
The issuance of construction pemits by the Atomic Energy Comission (AEC), now Nuclear Regulatory Ccmission (NRC), in December 1972 was upheld by an Appeal Board of the AEC in May 1973 but has been appealed to the U.S. Court of Appeals for the District of Columbia Circuit. Construction, delayed since 1970, was resumed in June 1973 In December 1973, the AEC issued an order for the Ccmpany to show cause why all construction activity should not be suspended pending a showing that the Company is in compliance with the AEC's quality assurance regulations and that there is reasonable assurance that such ccepliance will continue throughout the construc-tion process. Following hearings, an Atomic Safety and Licensing Board of the AEC in September 1974 detemined the issues favorably to the Company's position. Certcin intervenors have appealed this detemina-tion to an Atomic Safety and Licensing Appeal Board of the NRC.
The matter is pending.
The Company has canceled plans to construct a two-unit, 2,300 megawatt nuclear power plant near Quanicassee, Michigan, which was scheduled for comercial operation in 1983 and 1985. The decision to cancel the
$1.4 billion project was based upon the currently prevailing market conditions for utility securities, the Ccapany's inadequate earnings, and the need for raising capital for other construction projects during the lengthy construction period required to build the Quanicassee Plant.
(See Note 4.) Total costs (excluding land costs and expenditures which may have value in connection with the future use of the site for a gen-erating plant) consisting of engineering, licensing expenses and other l
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2 A-5 Page 3 of 11 NOTES TO FINANCIAL STATEMENTS (Contd) preliminary work having no salvageable "alue and cancellation charges are expected to amount to approximately $12,600,000.
The Cm::pany has been authorized by the Michigan Public Service Commission to amortize such costs net of related income taxes to operations over c period of ten years.
( h)
CONSTRUCTION FROGRAM AND FINANCING RESTRICTIONS Difficulty in financing the Campany's planned construction program, new estimates of increased costs, and a reduction in projected load growth have forced the Campany to substantially reduce its five-year construc-tion program. After giving effect to reductions in the construction program, capital expenditures in 1975 are currently estimated to total
$241 million and total construction expenditures through 1979 are pres-ently estimated to approximate $2.h billion.
The reduction in the Company's planned construction program has resulted.in the cancella-tion of the Quanicassee Nuclear Plant as discussed in Note 3 and the curtailment of construction activity at other electric generating plants which will postpone their planned completion dates from one to three years.
The Company expects these reductions may have an adverse effect on the adequacy and reliability of energy supplies in the future.
Substantial commitments have been made with respect to the construction program in future years.
In order to finance the 1975 construction program and other current obli-gations expected to be refinanced of $219,824,000, it will be necessary for the Company to sell substantial additional securities, including the issuance of notes payable to banks, the smounts, timing and nature of which have not yet been determined.
The earnings coverage provisions of the Indenture covering the Company's First Mortgage Bonds require for the issuance of additional mortgage bonds, except for certain refunding purposes, minimum earnings' coverage, before income taxes, of at least two times pro formn annual interest charges on bonds. On the basis of this formula, ths pro forma coverage for the twelve months ended March 31, 1975 (computed including allow-ance for funds used during construction applicable to Electric Construc-tion, which, in the opinion of the Company's General Counsel, is properly so included) would be at least 2.15 times as compared with the require-ment of at least two times.
The Company's Charter requires for the issuance of additional shares of Preferred Stock specified earnings coverages, including minimum earn-ings coverage, after income taxes, of at least one and one-half times the pro forma annual interest charges on all indebtedness and preferred I
dividend requirements.
On the basis of this formula, the pro forma coverage for the twelve months ended March 31, 1975 (computed including
A-6 Prga h of 11 NOTES TO FINANCIAL STATEFINTS (Contd) allowance for funds used during construction applicable to Electric Con-struction, which, in the opinion of the Cc=pany's General Counsel, is properly so included) would be at least 1.29 times as compared with the require =ent of at least one and one-half times.
The amounts of addi-tional Preferred Stock which can be issued in future years will be con-tingent upon increases in earnings through rate increases or otherwise.
Cc= mon Stock of the Company may not be issued at less than 'ps.r value pur-suant to the Michigan Business Corporation Act.
The Company presently has arrangements with banks providing for short-term borrowings of up to $190,200,000, which are subject to periodic review.
Included in the $190,200,000 is a commitment with respect to the issuance of up to $20,000,000 of Bankers Acceptances to finance coal purchases.
In connection with various of these arrangements the Company is generally required to maintain average compensating balances with the banks, over an unspecified period of time, equal to 10% of the total line of credit plus 10% of the average borrowings outstanding, as determined from the bank's records after adjustment fer uncollected funds.
There are no legsl restrictions on the withdraval of these funds.
In addition, the company has issued commercial paper from time to time on a short-term basis, generally for periods of less than one month.
Average short-term borrowings outstanding for the 12 months ended March 31, 1975 amounted to $91,522,000, and the weighted average in-terest rate was 10.6&% excluding the effect of compensating balances.
The maximum amount outstanding at any one time was $152,200,000.
(5) LIMITATION ON DIVIDENDS At March 31, 1975, retained earnings in the amount of $97,56h,000 are not available for the payment of cash dividends on Co==on Stock under provisions of the Articles of Incorporation of the Company which, ex-cept under certain circumstances, prohibit the payment of Co==on Stock dividends in cash which would reduce the percentage of Common Stock equity to total capitali::ation below 25%.
There are also other re-strictions as to payment of dividends on Common Stock which, however, are presently less restrictive than the limitation mentioned above.
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A-7 Paga 5 of 11 NOTES TO FINANCIAL STATEMENTS (Contd)
(6)
PREFERRED STOCK AND PREFERENCE STOCK Preferred Stock is represented by:
Redemption Price Per Share March 31, 1975
$h.50 - 547,788 Shares Outstanding
$110.00
$ 54,778,800
$h.52 - 123 550 Shares Outstanding 104.725 12,355,000
$k.16 - 100,000 Shares Outstanding 103 25 10,000,000
$7.h5 - 700,000 Shares Outstanding 108.00 70,000,000
$7 72 - 700,000 Shares outstanding 108.00 70,000,000
$7 76 - 750,000 Shares Outstanding 109 19 75,000,000
$7.68 - 550,000 Shares Outstanding 108.00 55,000,000 Total Preferred Stock tah7,133,800 The Preferred Stock of the Company is redeemable as a whole or in part, at the option of the Company, at the above redemption prices plus accrued dividends to the date of rede=ption, except that prior to April 1,1978, July 1,1977, June 1,1978 and November 1,1978, the
$7.45, $7 72, $7 76 and $7.68 Preferred Stock, respectively, may not be redeemed through certain refunding operations.
The Company is required to endeavor to purchase and retire annually 4,000 shares of the $4.52 Preferred Stock at a price per share not to exceed $102 725 plus accrued dividends.
Such purchases of Pre-ferred Stock resulted in a net gain of $161,000 for the 12 months ended March 31, 1975 which was credited to capital in excess of par value.
In August 1974, the Company sold 600,000 shares of $6.00 Preference Stock, convertible into Common Stock on and after November 1,1974 at four shares of Common Stock for each chare of Preference Stock.
At March 31, 1975, 2,303,400 shares of Common Stock are reserved for conversion of Preference Stock. At May 12, 1975, 35,017 shares of Preference Stock had been converted for 140,068 shares of Common Stock.
A-8 Paga 6 of 11 NOTES TO FINANCIAL STATEMENTS (Contd)
(7)
LONG-TERM DEBT Long-tem debt at March 31, 1975 is represented by:
First Mortgage Bonds, secured by a mortgage and lien on substantially all property -
2-7/8% Series due 1975 86,324,000 8-3/h% Series due 1976 60,000,000 2-7/8%Seriesdue1977 24,010,000 3%-h-3/h% Series due 1981-1991 263,269,000 11-1/h%Seriesdue1982 50,000,000 11-3/85 Series due 199h 60,000,000 5-7/8%-6-7/8% Series due 1996-1998 247,550,000 7-1/2%-8-5/8% Series due 1999-2003 h70,000,000 Total First Mortgage Bonds
$1,261,153,000 Installment Sales Contracts Payable (Net of $h,150,682 held by trustee pending completion of construction) 69,549,318 Sinking Fund Debentures, h-5/8%, due 1994 37,000,000 Tem Bank Loan 50,000,000 Other 202,069 Unamorti::ed Net Debt Premium 661,369 Total
$1.h18,565,756 Deduct - Current Maturities and Sinking Fund -
First Mortgage Bonds Current Sinking Fund Requirement Included in Current Liabilities 13,783,000 Reacquired Securities for Satisfaction of Sinking Fund Requirement - But Not Yet Retired Sinking Fund Debentures 5,000 600,000 FirstMortgageBonds,2-7/8%,Seriesdue1975 86,324,000 Other 202,060
$ 100,914,069 Total Long-Tem Debt
$1,317,651,687 (8) NUCLEAR FUEL LEASE OBLIGATION The Ccmpany has executed a Nuclear Fuel Lease, dated as of November 19, 1974, whereby_the Lessor has acquired a 100% undivided interest in nuclear fuel which will be utilized at the Palisades Nuclear Plant.
The maximum amount which can be financed under the lease is $32,500,000 and the present amount financed 'is $32,087,000.
A-9 Paga 7 of 11 L
NOTES TO FINANCIAL STATEMENTS (Contd)
The fuel lease provides for a term ending on November 18, 1979, with pro-vision for one-year extensions from time to time to a date not later than November 19, 2029, subject to earlier termination in certain events.
The quarterly lease charges consist of a fuel factor computed on the basis of heat production plus interest costs and administrative fees and expenses incurred by the Lessor, and, in the event of termination of the fuel lease, an amount equal to the Lessor's remaining investment.
The Co=pany is also responsible for payment of taxes, maintenance, operating costs, risks of loss and insurance.
(9) RATE MATTERS
- 0. January 23, 1975, the MPSC authorized an increase in the Company's electric rates of approximately $66,231,000 on an annual basis which included an interim increase of $27,624,000 authorized September 16, 1974.
The Attorney General of the State of Michigan and the UAW-CAP have filed an appeal challenging the Commission's order and have re-quested that the rates approved therein be restrained and enjoined.
No action has been taken by the Court with respect to such request.
In November 1974, the Ccmpany submitted an application to the MPSC to in-crease its gas rates by not less than $54,157,000 annually and at the same time requested partial and interim relief in the amount of
$39,559,000 annually. Hearings on the Company's application commenced in January 1975 and the Staff of the MPSC has recommended that the Com-pany's gas rates be increased $41,430,000 on an annual basis and that interim relief be authorized in such amount.
The interim rate relief request is now pending before the MPSC for decision and the MPSC 's decision on final relief is expected later in 1975 Litigation is pending with respect to electric and gas rate increases which became effective in 1%9 and which are subject to refund relating to the reduction and elimination of the Federal income tax surcharge.
In March and April 1974, the Court ruled in favor of the MPSC with respect to the income tax surcharge issue and ordered the Company to refund approximately $24,543,000, together with interest thereon, to its electric and gas customers.
The Company has established a reserve stated net of related income taxes in the amount of $11,868,000, ap-proximately, and believes that the amount of such reserve is adequate to ec,ver the refund obligation, exclusive of interest charges which would accrue for the period from early 1970 to date of payment and which are presently not capable of determination.
The Company is appealing the Court orders of March and April 1974.
The litigation also involves a claim with respect to the legality of the electric rate increase, which became effective in 1969, en the grounds that the increased rates became effective by Court Order in October 1969, that the MPSC did not issue an order approving said rates until April 1970 and that as a re-sult, the electric rates charged during the period are subject to refund l
in an amount of approximately $7,763,000, plus interest charges which are presently not capable of determination, foi which no reserve has been provided.
A-lO Page 8 of 11 NOTES TO FINANCIAL STATEMENTS (Contd)
(10) FENSION FLAN The Company has a trusteed noncontributory pension plan under which full-time regular employees within specified age limits and periods of ser-vice are qualified to participate.
The contributions to the plan were
$15,582,000 for the 12 months ended March 31, 1975 Of this a=ount
$12,012,000 was charged directly to expense accounts with the remainder being charged to various construction, clearing and other accounts.
As of January 1, 197h, the date of the most recent actuary's report, the actuarially computed value of vested benefits was $168,200,000.
The market value of the assets of the plan 1sas $15h,500,000 at March 31, 1975 If the market value of the assets of the plan re-
=ain below the vested benefits, the actuarial method used in deter-mining the annual contribution will fund this amount over a period of years.
The enactment of the E=ployee Retirement Inccane Security Act of 1974 will not significantly increase the Company's future annual contribution since the Company's present plan generally conforms to minimum require-ments.
The unfunded prior service cost at January 1,1974, the date of the most recent actuary's report, amounted to approximately $21,569,000.
(11) INCOME TAX EXPDISE Income tax expense is made up of the following ccmponents:
March 31, 1975 Charged to utility operations -
Current Federal income taxss
$ 7,176,223 Current State income taxes.
'(15,500)
Deferred Federal income taxes, net 21,2k1,209 Deferred State income taxes, net 3,973,638 Charge equival'ent to investment tax credit, net (7,326,282)
Total (See Statement of Income)
$25,049,288 Charged to nonutility operations - current 1,634,369 Total
$26,683,657 For 197h the Compw/ had a net operating loss which. when carried back to prior years, results in a refund of approximately $17,651,000.
A-ll Pa:a 9 of 11 NOTES TO FINANCIAL STATEMENTS (Contd)
The Company utilizes liberalized depreciation and the " class life asset depreciation range system" for income tax purposes.
Income tax de-ferred due to the use of these methods is charged to income currently and credited to a reserve for deferred income taxes. As income taxes previously deferred become payable, the related deferrals are credited to income.
Certain costs, principally interest, capitalized in accordance with the provisions of the Uhifonn System of Accounts, are expensed for income tax purposes and the tax reduction resulting therefrom is reflected in the income statement currently as ordered by the Michigan Public Service Commission.
The investment tax credit and job development investment credit utilized as a reduction of the current year's income tax is deferred and amortized to operating expense over the life of the related property. As of December 31, 1974, the Company has unutilized investment tax credits of approximately $14,900,000.
The total income tax expense as set forth above produces an effective income tax rate of 27 3% for the 12 months ended March 31, 1975 The following schedule reconciles the statutory Federal income tax rate of 48% to such effective income tax rates.
March 31, 1975 Amount Rate Computed " expected" tax expense
$46,878,728 48.0%
Increase (reduction) in taxes resulting from:
Certain capitalized construction costs, principally interest, deducted currently for income tax purposes for which no de-ferred taxes are provided in accordance with the requirements of the MPSC (15,597,660)
(16.0)
State income taxes, net of Federal income tax benefit 2,749,910 2.8 Amortization of deferred investment tax credit (1,419,535)
(1.4) other miscellaneous items (5,927,786)
( 6.1)
Actual tax expense
$26.689,657 27.3%
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A-12 Page 10 of 11 NOTES TO FINANCIAL STATEMENTS (Contd)
(12) ALIDWANCE FOR FUNDS USED DURING CONSTRUCTION The allowance for funds used during construction is being capitalized at a rate of 8% in 1975 and was capitalized at 7-3/4% in 1974 Based on the Company's source of funds for gross property additions, and assuming that the cost of financing other than common equity financing was equiv-alent to the current cost of long-term and short-term debt (before income tax effect), preferred stock and other sources, available in each year, the estimated common equity component of the allowance for funds used during construction amounted to 119% of net income available for common stock for the 12 months ended March 31, 1975 (13) NORTHERN MICHIGAN EXPIORATION COMPANY Northern Michigan Exploration Company (Northern), a wholly-owned subsid-iary of the Company, is engaged in gas exploration programs in northern Michigan and the southern United States.
The Company's Board of Directors has authorized loans to Northern up to a maximum of $20,000,000 and has authorized a total common stock investment of $20,000,000.
Northern has filed an application with the Federal Power Commission (FPC) for approval to sell gas from certain offshore Louisiana properties to Consumers Power Company. Hearings on the matter are pending.
- However, during the interim period Northern has entered into two gas sales con-tracts with Trunkline Gas Company. The first, a 60-day Emergency Contract (effective April 1,1975), is followed by a one year Limited Term Sales Centract, both being contingent pending FPC approval of the contract with Consumers Power Capany.
Northern follows full cost accounting for financial reporting purposes including a policy of capitalizing interest costs related to properties in process of development.
Interest capitalized amounted to $1,942,000 for the 12 months ended March 31, 1975 Had these interest costs not been capitalized, the Company's net ine me would have been reduced ap-proximately $1,016,000 for the 12 months ended March 31, 1975.- Su==arized financial information of Northern is shown below.
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12 Months Ended March 31, 1975 Operating Revenues
$13,932,000 Net Income 5,556,000 At March 31, 1975 Gas and Oil Properties
$56,231,000 Total Assets 61,449,000 Stockholders' Investment 23,359,000 Production Payment 25,471,000
'h A-13
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Paga 11 of 11 r
NOTES TO FINANCIAL STATEMENTS (Contd)
(14) RESTATEMENTS Retained earnings at March 31, 1974 has been restated to eliminate
$4,038,993 in deferred income taxes provided in the years 1970, 1971 and 1972 applicable to the gain on reacquisition of long-term debt since such deferred taxes were not recognized by the Michigan Public Service Commission (MPSP) in setting the Company's rates for ntility service and such defer ed tax accounting has not been authorized by the MPSC as required by Federal Power Cc= mission Order No. 504, dated February 11, 1974 l
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Appendix B CONSUMERS POWER COMPANY STATEMENT OF SOURCE OF WNDS MR GROSS PROPERTY ADDITIONS 3 Months Ended Source of Funds for Gross Proterty Additions March 31,1975 Funds Generated From Operations:
Net Income After Dividends on Preferred and Preference Stock
$ 24,887,109 Principal Noncash Items Depreciation and Amortization Per Statement of Income 26,656,019 Charged to Other Accounts 1,077,209 Deferred Income Taxes, Net 8,703,923 Investment Tax Credit, Net 1,862,973 Allowance for Funds Used During Construction (7,272,043)
Undistributed Earnings of Subsidiaries (1,610.681)
$ 54,304,509 Less Dividends Declared on CoI:: mon Stock 13,116,919
$ 41,187,590 Funds Obtained From New Financing:
Net Proceeds From Installment Sales Contracts Payable
$ 1,420,413 Decrease in Other Long-Term Debt (115,279)
Increase i,n Notes Payable 15,000,000
$ 16,305,134 Other Sources (Uses) of Funds:*
Change in Net Current Assets and Current Liabilities (Excluding Obligations Expected To Be Refinanced)
Accounts Receivable
$(14,201,029)
Materials and Supplie.s 8,234,188 Gas in Underground Storage 29,098,094 Accounts Payable (64,670,284)
Accrued Taxes 20,607,157 Other 5,891,184
$(15,040,690)
Other, Net 1,171,079
$(13,869,611)
Total Funds for Construction From Above Sources
$43,623,113 Allowance for Funds Used During Construction 7,272,043 Gross Property Additions
$ 50,895,156
~j NRC O;TRIBUTION FOR PART 50 DOC', 7 MATE RI AL
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(TEMPORARY FORM)
.ONTROL NO: 5 5 9 Z.
FILE:
FROM:
Consumers Power Compank DATE OF DOC DATE REC'O LTR TWX RPT OTHER Jackson, Michigan, S H Howell 5-19-75 5-28-75 XXX TO:
ORIG CC OTHER SENT AEC PDR-vv Mr Giambusso one signed XX
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Ct. ASS UNCLASS PROPINFO INPUT NO CYS REC'D DOCKET NO:
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_ G0-329330 XXX DESCRIPTION:
ENCLOSURES:
Ltr per our 9-13-74 ltr....trans the Quar _terly Report, of Fidancial Info [or the following:
e
/
first quarter o f 1975...... *
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- PLANT N AA*.E: Midland 152.
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DICKER (E)
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/SALTZAMN GOSS!CK/ST AF F KNIGHT KASTNER E. GOU LBOURNE (L)
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' *AWLICKl BALLARD P. KREUTZER (E)
GIAMOUSSO SHAO SPANG LE R J. LEE (L)
_ PLANS BOYD STELLO M. M AIG RET (L)
_ MCDONALD MOORE (L)W HOUSTON ENVIRO S. REED (E)
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DENISE J. COLLI::s REGAN S. TEEh (L)
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