ML19329E958
| ML19329E958 | |
| Person / Time | |
|---|---|
| Site: | Midland |
| Issue date: | 07/29/1974 |
| From: | Hurt B US ATOMIC ENERGY COMMISSION (AEC) |
| To: | Anthony Giambusso US ATOMIC ENERGY COMMISSION (AEC) |
| Shared Package | |
| ML19329E955 | List: |
| References | |
| NUDOCS 8006190721 | |
| Download: ML19329E958 (7) | |
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. UNITED STATES J gg-7/ '(,
ATOMIC ENERGY COMMISSION UM'y&
WASmNGTON. D.C. M545
'"g' JUI. 2 9 1274 A. Giasbusso Deputy -Dircctor for Reactor Projects Directorate of Licensing CONSU:!ERS PCWER COMPANY:
MIDLAND U:[ITS 1 AND 2 - DOCKET NOS.
50-329 and 50-330
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1974 Reference 1s made to your letters of May 29 and June 12, to Consumers Power Company. requesting current information on the company's financial. condition and financial plans for the purpose of determining its financial cualifications with respect to the Midland facilities.
Analysis of the co:pany's responses indicated that a meeting between the Staff and the company's financial experts tould accelerate the examinaticn of the co pany's financial cualifications.
The secting was heldt on July 25 at'the Esthesda offices.
3ased on i-f;rmation presented by the company at the meeting and its responses to your requests for financial data, together with data generally available to the financial analyst, we have concluded that Consumers Power Company,has reasonable assurance of obtaining ne re e e n.ena.2=cw;-
n eny.inne enn n n,. m. a none m wr. inn a:
the subject facility, i
As stated in the attached financial anal sis, the cos;any's
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construction prcGra including.ne subj ect facility recuire.' a level of earnin~t substantially higher thia. current e arnin ;.-
if adequate amounts of capital are to be obtained fro: outsido financing and internal sources.
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- . i 7 ',s Bruce 2.' '-furt Electric Utility Specialist Office of Antitrust & Indemni;y Directorate of Licensing a
Attachment
.CC: D. Vassallo, L:L'fR 1-1 L. Engle, L:L'elR 2-3 S.
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- FINANCIAL ANA12 SIS I.-
l Based' on our ' review of the financial information presented by Consumers-Power Company and-considerationlof the financial data generally available to the financial analyst, we have con-cluded that Consurers Power Company has reasonable assurance
- of' obtaining the~ funds necessary to continue and complete construction of the Midland Units 1 and 2.
However, the ccm-pany will require higher earnings at levels which will result in sufficient interrally generated funds and which will permit external. financing of its construction progra and its opera-tional-rcquirements at reasonable cost.
Our conclusion-is based on the following fccts and consider-ations:
- 1. -
Coh:truction of the cubj: t facility vill bc finan::d an integral part of the applicant's total construction pro 5 ram.
Such financing is obtained from internally generated funds (retained earnings plus depreciation,. tax deferrals, and other non-cash iters), fro: sale of debt and equity securities, ~and from short-ter: bank loans.
The applicant's construction e~ cenditures for 1974 are estimated.at.4360.3 million after giving effect to a l
retrenchment program.which eliminated approximately 360.0 million from the-1974 construction budget.
Construction expen'ditures for 1972 and 1973 arounted to.3373.1 million and.$360.9 million, respectively, and are therefore greater G
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than ' Ithe propose ('1974.expendit; ares.
Internally generated i
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fands1provided 25% and 315 of:the funds recuired for the 7
During the n
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. 1972 and 1973 construction expenditures.
I' twelve cont'ha ended'Xay 31, 1974, the corresponding figure is computed at 26% and is comparable to the 25% contribution-made.by internally generated funds to total construction.
expenditures in 1972, although lo.ter than the 1973 contri-ibution~of 31% and accordingly indicative of the greater reliance presently bein5 assigned to outside financing.
The subject facility required construction expenditures of
$104.1 aillion prior to 1974; will require $101.0 million for.1974, or 23% of total 1974 construction expenditures; and $734.9 million after 1974.
Total construction expen-
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citures Ior tne years iv74-73 ace estiaatec to avera.3e
$440.0.million each year.
During the past 5-year period (1969-73) construction expanditures averaged.3235.3 111 ion
' each year.
This upward novement in estimated construction expenditures will require higher levels of earnings and g
greater anounts of outside financing.
I 2
The earnings coverage provisions of the applicant's irden-ture covering its Tirst Mortgage bonds require for the issuance of additional nortgage bonds, except for certain
-refunding purposes, ninimum earnings coverage before incone s
. taxes of two times pro forma annual interest charges on bonds.
For the twelve conths onded Xay'31, 1974, the 4
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(q coveraSe'.is computed at.2.01 versus the required 2.00.
Higher earnings will be required if. additional cortgage bonds.are to be issued in the future.
3.
In ' April 1974 the applicant submitted an application to the Michigan.Fublic Service.cocaission to 1.ncrease its electric rates by not less than $ 2.2 million annually and 37 at the sane time requested partial and interim relief in the amount of.054.7 annually..
The application for the
$72.2 million rate increase is in the hearing stage which is 50% complete.
If the partial and interia relief of of 354.7 annually had been in effect during the twelve months ended June 30, 1974,. earnings available for common stock would have increased from $47.0 million to $73.9
=1,llion accuring a not Fedcral and : tate incc a tan rate of' 50.9%.
Annual dividend requirements of $52.5 =illion
($2 por average coanon share outstanding) would have resulted in a payout 7atio of 71$,.which is identical to
.the average payout ratio recently experienced by forty electric utilities each, like the applicant, with operat-ins revenues'over $170.0 million.
. 4.
On June 27, 1974 the applicant reported earnings of 41.79
- per share of common stock outstanding for the tuelva months ended May 31, 1974 compcred with d2.77 for the sste period ended.May 31, 1973.
The applicant's board of directors on June 25, 1974 declared the ragalar quarterl'
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dividend;of 50%'per common share.
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Continuance of the annual dividend rate of $2.00 per cohnon share is necessary if equity capital is to.be obtained on
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econoalc-terms.
F. eduction of the dividend rate would louer the'carket value of the'applicans common ' stock a 1 render the sale of additional conson stock extremely difficult.
IThe' applicant's earnings available for co=non stock amounted to $47.0 tillion for the twelve months ended May 31, 1974 versus annual dividend requirements of 352.5 million based' on an annual dividend rate of $2,00 per average common chares of 26,233,633.
Adjusting the $47.0 million for non-cach items'(depreciation and amortization, deferred income taxes,
. investment tax credit, allowance for funds used during con-struction, ana unalstrioutec carnings or cuosidlaries) results in cash earnings of O'146.3 million or $94.3 million
'above the :352.5 =1111cn of cc::on dividends based on an annual rate of 02.00 per share.
If the adjustment for depre--
clation and amortization (037. 3.21111on) is exc' aded, the cash earnings would be 459.5 million or 47.0 21111on above the
$52.5 million of common dividends on an annual basis.
2ased on ce'orted earnings for the'. twelve months ended June 30, p
1974, similar types-of calculations would indicate cash
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earnin53 of $134.6 aillion (056.3 million excluding the i-adjustment'for. depreciation and amortication) versus 452.5
.cillion of coccon' dividends on an annual basis.
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The record offthe applicant's operations during 1971-73
-shows that operating revenues l'ncreased fro: 3651.6 tillion J--
in 1971 to 3335.0 million in 1973; net incoce. increased fros 371.3 million to 080.9 11111on; and net investment in
~ utility plant increased frc: 22,021.0 million to $2,604.6 million.
However, the number of tines total interest charSes.were earned declined from 2.3 to 2,1.
Moody's Investora Service rates the Applicant's first mortgage bonds as A (upper medium grade. bonds), reflecting a down-ward revision as of July 9, 1974 from Aa (high grade bonds).
The Applicant's current Dun & 3radstreet ratin5 is 5A1, the -
highest rating.
More recent data based on the twelvo conths ended June 30, 1973 and June 30, 1974 laulcatch t1at operatino revenues increased from $793.3 million'for the twelve months ended June 30, 1973 to 0925.5 111 ion for the tuelve months ended June 30, 1974; net operating incore declined from 3124.7 million to 3119.5 million; net.incone fell from $35.4 million to 369.5 million; and income available for common stock declined from 371.2 million (J2.77 per average conson share outstanding) to 3,47.0 sillion ($1.79 per average common share. outstanding).
However, as noted above, the applics.nt's cash carnings are greater than its annual dividend'recuirements.
A sunnary analysis reflecting various ratios and other pertinent data is. attached.
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CONSUMERS - POWER COMPAN'I L
~FIHAUCIAL A:!ALYSIS DOCKEI' NOS. 50-329-c.nd 50-330 (dollars in uillions)
Calendar Year Ended December 31 19/3 1972 19'i i
Long-term oebt 01,222.3 31,132.5 31,0'29.2 Utility plant (net) 2,604.6.
2,323.4 2,021.0 Ratio - debt-to fixed plant
.47 49
.51 Utility plant (net) 2,604.6 2,323.4 2,021.0 Capitalization 2,300.7 2,066.9 1,817.5 Ratio of net plant to capitalizatidn 1.13 1.12 1.11 Stockholders' equity 1,078.4 934.4 788.3 Total assets 2,844.8 2,530.6 2,217.8 Proprietary ratio
.38
.,37
.36 Earnings available to common ecuity 63.1 66.9 64.7 Average co::ron equity 723.6 678.2 632.1 Rate.of earnings on average common equity
- 8. 7l;
- 9. 9ls 10.25 liet income 80.9
- 78.2 71.3 Stockhoicers' equity 1,075.4 934.4 788.3
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Rate of Eceni.ios e.. atcckMI ;r3' c@i ty
- 7. 57:
0.4's 9.1%
Utility operating 'inccme 124.7 114.1 101.4 Average utility plant (net) 2,444.5 2,172.2 1,925.2 Return'an avg. utility plant (net) 5.14 5.35 5.35 t!et income before. total interest charges 154.9 143.4 127.4 Total interest charges 74.0 65.3 55.6 fio, of times total interest charges earned 2.1 2.2 2.3 t;et inccme 80.9 73.2 71.8 Utility ~ operating revenues 835.0 750.5 651.6 fiet inccue ratio
.10
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.11 Oper. exp., depr., taxes other than income 665.6 596.8 512.6 Utility operating revenues 835.0 750.5 651.6 Operating ratio
.80
.80
.79 "
Utility plant (gross) 3,219.1 2,'914.9 2,576.9
-Utility-operating revenues 835.0 750.5 051.6 Ratio of. plant investment to revenues 3.86 3.88 3.95 1973 1972
' Capitalization:
Amount s
Amount Long-term debt 31,222.3 53.1,1 01,132.5
- 54. C Preferrea stock 347.6 1
_7_30. S.._)5. I 217.9 to :
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Cokmon' stock a surplus-Total h
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r:cody's isord. Rating:.i L oun. & tiradstreet Credit Rating: SA1
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