ML19345G863
| ML19345G863 | |
| Person / Time | |
|---|---|
| Site: | Fermi, 05000452, 05000453  |
| Issue date: | 04/21/1981 |
| From: | DETROIT EDISON CO. |
| To: | |
| Shared Package | |
| ML19345G856 | List: |
| References | |
| NUDOCS 8104220544 | |
| Download: ML19345G863 (44) | |
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EXHIBIT F PROSPECTUS e
j-2,250,000 S11 ares The Detroit Edison Company COMMON STOCK
- ($10 par value) 4 The Company's outstanding Common Stock is listed on the New York Stock E.rchange.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COSthilSSION NOR HAS THE COSISilSSION PASSED UPON THE ACCURACY CR ADEQUACY OF THIS PROSPECTUS. ANY REPRESEN.
TATION TO THE CONTRARY IS A,CRDilNAL OFFENSE.
PRICE $11% A SHARE Underwriting Price to Discounts and Proceeds to Puldie '
Commissions (1)
Company (2)
S11.125
$0.320
$10.G05 Per Share.
$25,031,230 S1,170,000
$23,8G1,230 Total..
(1) The Comtany has agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act of 1933.
(2) Prfore deduction of extenses estimated at $130/M tayable by the Comtany..
The shares of Common Stock are offered, subject to prior sale, when, as and if accepted by the Underwriters, and subject to approval of their calidity by Tf*hite & Case, counsel for the Under-writers, by Leon S. Cohan, Esq., Senior Vice President and General Counsel of the Company, and by Sullican & Cromwell, special counsel for the Company. It is e.rpected that delivery of the shares scill be made on or abouta December 10.1980 at the office of.Vordon Stanley & Co. Incorporated.
55 Water Street, New 1*ork. N.Y. against payment therefor in New York funds.
MORGANSTANLEY& CO.
E. F. HUTTON & COMPANY INC.
incorporated r
Deecmber 4,1030
No persons have been authorized to giw any information or to make any representations other than those contained or incorporated in this Prospectus and, if given or made, such information or representations must not be relied upon as hasing been authorized. This Prospectus does not con-stitute an offer to sell or solicitation of an offer to buy any securities other than those to which it relates, or an offer or solicitation with respect to those securities to which it relates to any person in any jurisdiction where such oller or solicitation would be unlawful The delivery of this Prospectus at any time does not imply that the infonnation contained or inwrporated herein is correct as of any time sulsequent to its date.
ADDITIONAL INFORMATION The Detroit Edison Company (' Company") is subject to the informational requirements of the 1931 ('19M Act") and in accordance therewith files reports and other Securities Exchange Act of information with the Securities and Exchange Commission ("SEC"). Infonnation, as of particular dates, concerning directors and officers, their remuneration and certain other benefits, and any material interest of such persons in transactions with the Company is disclosed in the Company's proxy statements distributed to shareholders of the Company and filed with the SEC. Such reports, proxy statements and other information concerning the Company can be inspected and copied at the public reference facilities of the SEC at Hoom 6101, 1100 L Street, N.W., Washington, D.C.; Room Room 1100, 1223, Everett McKinley Dirksen Building. 219 South
Dearborn Street,
Chicago. Illinois:
Federal Building, 20 Federal Plaza, New York, New York; and Suite 1710. Tishman Building,10960 Wilshire Boulevard, I.os Angeles, California; and copies of such material can he obtained from the Public Reference Section of the SEC at 20 North Capitol Street, Washington, D.C. 20519, at prescribed Such riaterial can also be inspected at the offices of the New York Stock Exchange, 20 Broad rates.
Street, New York, New York. The address of the Company's principal executive offices and its tele-phone number are 2000 Second Avenue, Detroit, Michigan 4S226 and (313) 237-S000.
INCORPOllATION OF CEllTAIN DOCUMENTS BY REFERENCE The following documents and information, heretofore filed with the SEC pursuant to the 1931 Act, are hereby incorporated in this Prospectus by reference:
The Company's Annual Report on Form 10-K for the year ended December 31,1979.
1.
The Company's Quartedy Reports on Form 10-Q for the quarters ended March 31, 1950, 2.
June 30.1950 and September 30. 1950, and Current Reports on Form S-K dated August 25, 1950 and September 25,19S0.
The Companyi definitive proxy statements, dated March 24,19S0 in connection with its 3.
Annual Meeting of Shareho!]ers hehl on April 2S,1950 and dated October 9,19SO in connection with its Special Meetings of Preferred and Preference Shareholders held on November 13,1950.
All documents filed by the Company pursuant to Section 13,14 or 15(d) of the 1934 Act after the date hereof and prior to the termination of the offering of the Common Stock offered hereby FAdditional Conunon Stock") shall he dei med incorporated herein by reference and a part hereof from the date of filing of such documents.
Certain infonnation contained herein summarizes, is based upon, or refers to information con-tained in one or more incorporated documents; accordindy, such infonnation is qualified in its entirety by reference to such documents and should he read in conjunction therewith.
'Ibe Company hereby undertakes to prmide without charge, upon the written request of any person to whom a copy of this Prospectus has been delisered, a copy of any or all of the documents referred to above which are incorporated herein by reference, other than exhibits to such documents.
Written requests shouhl be directed to Frank M. Kehoe, Vice President and Secretary, The Detroit Edison Company,2000 Second Asenue, Detroit, Michigan 4S226.
IN CONNECTION WITII T111S OFFERING, Tile UNDERWRITERS MAY OVERALLOT OR EFFECT T11ANSACTIONS WIIICII STABILIZE OR M AINTAIN TIIE MARKET PRICE OF Tile COMPANTS COMMON STOCK AT A I EVEL ABOVE TII AT WIIICII MIGIIT OTIIERWISE PREVAIL IN TIIE OPEN MARKET. SUCil TRANSACTIONS MAY BE EFFECTED ON Tile NEW YORK STOCK ENCIIANCE OR ANY OT11ER STOCK ENCIIANGE ON WillCII THE COMMON STOCK HAS BEEN ADMITTED TO TRADING PRIVILEGES, IN file OVER TIIE-COUNTER MARKET OR OTilEllWISE. SUCll STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME, 2
Wl E
SUAIAIARY INFORAIATION The follotting material is qualified in its entirety by the information and financial statements appearing elsetchere in this Prospectus and in the documents and information incorporated herein by reference.
TIIE OFFERING Securities Offered 2,250,000 shares of Common Stock, $10 par value; 81,540,044 shares outstanding as of October 31,19S0.
Common Stock Dividends
.IIolders of record on December 18,19S0 of the shares offered hereby will be entitled to a quarterly dividend of $0.40 per share to be payable on January 15,1981.
Indicated Annual Dividend
$ 1.tX)
Common Stock Prices:
Reported Ranges-1979
$15% - 12%
-19S0 (lst Quarter) 13 % - 107/s (2nd Quarter) 13 % - 11 %
(3rd Quarter) 13 % - 11 %
(4th Quarter through December 3,19S0) 12 % - 11 Reported Last Sale on NYSE-December 3,19SO 11 %
Book Value per Common Share-October 31,19S0:
Actual
$18.29 Pro Forma
$18.08 SELECTED FINANCIAL INFORA1ATION (Thousands, except per share amounts and percentages)
Twelve fon a
Year Ended December 3!,
it'naudited) 1979 1978 1977 1976 197s Income Summary:
Operating Revenues. $1,753,431 $1,693,511 $1,559,842 $1,450,921 $1,266,167 $1,070,780 Earnings for Common Stock S 127,697 $ 132,572 $ 103,813 $ 110,420 $ 85,036 $ 71,991(a)
Earnings l'er Share S
1.65 $
1.90 $
1.76 S 2.00 $
1.66 ' $
1.50(a)
Dividends Declared Per Common Share $
1.60 $
1.60 $
1.52 $ 1.4675 $
1.45 $
1.45 october 31.1980 (Unaudited)
", of Adjusted Capitalization Sununary:
- '"at
^*Adi"" *
"adaha='aa*
Lcng-Term Debt (principally.\\!ortgage Bonds)(c) $2,415,599
$2,429,9G1 53.4 %
Redeemable Preferred an.1 Preference Stock (c) 250,S47 275,672 6.0 Non-Redeemable Prefened and Preference Stock 316,841 316,841 7.0 Common Shareholders' Equity 1.505,054 1,528,7S5 33.6 Total
$4,4SS,311 S4,551.262 100.0 %
(a) 1975 total and per share earnings for Common Stock will be restated to $59.3 million and
$1.23 respectivelv, if certain deferred fuel cost revenues are ultimatelv required to be refunded.
See Note 10 of Notes to Consolidated Financial Statements in the Cornpanv*s Annual Feport on
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Form 10-K, incorporated herein bv reference. Tne report (incorporated herein by reference) of Plice Waterhouse & Co., independent accolmtants, with respect to 1975 is subicet to the t 'ects, if any, of the outcome of this matter.
(b) Reflects the proposed issuances of the Additional Common Stock and $25 million of Preferred Stock in December 1950 and an additional borrowing in November 1950 of $14.4 million under the Belle River Projec+ Financing.
(c) Excludes amounts due within one vear aggregating 561.2 million of long-term debt and
$1.0 million of Preference Stock sinking fund requirements.
3
TIIE COAIPANY J
The Company is a regulated public utility engaged in the generation, purchase, transmtssmn, -
distribution and sale of electric energy in a 7,600 square mile service area in southeastern hiichigan
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with a population of approximately five millien persons. The Company's service area comprises about 13% of Afichigan's total land area, but accounts for over one-half of its population, electric energy consumption and industrial capacity.
During the twelve months ended October 31,19SO, sales to the Company's approximately 2,300 industrial customers accounted for 30To of total operating revenues, with approximately one-third of industrial resenues attributable to automotive manufacturers; saics to the approximately 1.6 million residential customers accounted for approximately 32Tc of total operating revenues; and the balance of total operating revenues we, derived from sales to approximately 136,000 commercial customers (21Tc), including oilices and retail outlets, and to approximately 2,500 municipal, steam, wholesale and other customers (11To). The Company's 30 largest industrial custo ners accounted for approximately 23rc of total operating revenues, with no one customer accounting for more than 5Fe.
The Company's generation w as approximately 89% coal-fired during the period.
l USE OF PROCEEDS The net proceeds from the sale of the Additional Common Stock offered hereby (estimated at approximately $23.7 million after underwriting discounts and commissions and estimated expenses) will be used to reduce short.tenn borrowings (other than approximately $20 million of trust demand notes held by iiduciaries) incurred primarily in connection with the Company's capital expenditure program. The Company also p oposes to issue and sell privately, in December 19S0, $25 million of Preferred Stock ('New Preferred Stock") and will apply the net proceeds from such sale to further reduce short. term borrowings. It is estimated that iust prior to the issuance of the Additional Common Stock and the New Preferred Stock, short-term borrowings will aggregate approximately
$72.4 million (including approximately $20 million of trust demand notes). The sales of Additional Common Stock and New Preferred Stock are separate transactions and are not contingent on each other.
See Capital Expenditure Program and Financing-Financing".
CAPITAL ENPENDITURE PROGRAh! AND FINANCING Capital Expenditure Program The Company estimates that 19S0 capital expenditures (including $107.5 million of allowance for I
both borrowed and other funds used during construction, "AFDC") will aggregate approximately I
$634.7 million of which $526.1 million had been expended as of October 31, 1950. The Company's 19S1 capital expenditure program is expected to require expend rures of approximately $875.0 million (including $157.3 million of AFDC). Such program involves pmposed expenditures for construction of Belle River Unit Nos. I and 2 ($355.0 million); the Company's portion of Enrico Fermi Unit No. 2
($185.0 million); hionroe fuels and emissions project ($95.0 million); other production " projects
($50.0 million); conversion of St. Clair Unit No. 6 from high-sulfur to low-sulphur coal ($27.8 million);
other envimnmental contml and protection facilities ($12.1 million); transmission and distribution facilities ($75.1 million); and miscellaneoux construction and general construction overheads ($69.0 million).
The Company's five-year projections for 19SI-1955 contemplate capital expenditures approxi-mating $3.7 billion (including $0.6 billion of AFDC). The following table summarizes actual expend-4 i
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itures through October 31, 1950, total estimated expenditures and the estimated earliest completion dates for the major generating units in the Company's construction program.
Expenditures ( Atillions)
Estimated Actual Est: mated Estimated Nominal Through.
After Earliest Net October October Estimated Completion
- P_lant, Capability 31.1950 31,19 0 Totals Dates
( AtW)
Enrico Fermi Unit No. 2 (nuclear) 1,100
$1,067
$ 733
$1,S00 1983 i
Belle River Unit Nos. I and 2 (coal) 675 ea.
250 1,600 1,850 19M,1985 Enrico Fermi. The es'imated capability and expenditures for Enrico Fermi Unit No. 2 include the 20%' interest of two hiichigan cooperatives (other than AFDC relating to their interests from s
the date of sale to the cooperatives). For information with respect to the transaction with the cooperatives, see the Company's Annual Report on Form 10-K incorporated herein by reference.
In August 19S0 the Company announced a revised total estimated cost for Enrico Fermi Unit No. 2 of $1.8 billion (the prior estimate was $1.3 billion) as a result of continuing inflationary pressures on construction costs, design and engineering modifications required by the Nuclear Regula-tory Commission ("NRC*), higher costs resulting from the delay in completion date from 19S2 to 19S3, and an increase in AFDC. In addition, the Company revised its estimate of the portion of Enrico Fermi Unit No. 2 which is completed from 50% to 75%.
The Company is in the process of resolving outstanding licensing questions with respect to the Fermi unit with the NRC staff and is giving consideration to those requirements made expressly applicable to near-term operating units, such as the Fermi unit, under the terms of an Action Plan issued by the NRC following that Commission's review of the Three Afile Island nuclear accident.
Further, the Company is working closely with various Alichigan state and local officials in the development of an emergency plan as required by :ceently passed legislation. Such emergency plan will be reviewed by the Federal Emergency Afanagement Agency and will be passed upon by the NRC during operating license proceedings for the Fenni unit.
Belle Ricer. In September I9SO the Company announced a revised total estimated cost for Belle River Unit Nos. I and 2 of $1.S5 biljon (the prior estimate was $1.371 billion) as a result of 1
design and cost revisions, contmuing inflationary pressures and an increase in AFDC.
I r
Construction plans, schedules and budgets, both for the Enrico Fenni and Belle River units, as well as with respect to other construction projects, are subject to continuing review and have been and are expected to be revised from time to time as engincering and construction work proceeds and in light of load forecasts, financial conditions, licensing and other regulatory delays and develcpments, legislative developments, changing environmental standards, the necessity or feasibility of converting imits to different fueh, and the availability and costs of labor and materials. To the extent con-struction projects are not completed, prior expenditures and possible penalties, which could be substantial might be charged against operations, and the reliability of future service could be j
adversely affected. See 'Certain Developments ~ for information on the Company's decision not to construct its previously proposed Greenwood Nuclear Unit Nos. 2 and 3.
Financing During the first eleven months of 1950, the Company raised external funds of approximately SM7.0 million through the iuuance of an aggregate of $50 million of Unsecured Promissory 5
Notes, $100.1 million of General and Refunding Afortgage Bonds, $69.5 million of Preferred Stock,
$50.5 million of Common Stock (including $34.0 million thmugh the Dividend Reinvestment and Common Share Purchase Plan) and borrowiras aggregating $190.9 million under the Belle lliver Pmject Financing (discussed below).
The Company's ability to complete its Enrico Fermi and Belle Hiver units and other significant capital pmjects and reliability of future service depend upon the availability of substantial amounts of external funds, significant and timely additional rate increases, and receipt of periodic financing authority from the Alichigan Public Service Commission ("Af PSC") as to long-term borrowings and equity securities and fmm the Federal Energy Hegulatory Commission ("FEHC") as to short. term borrowings.
The Company is required to obtain AlPSC appmval for. the type and amount of its securities
)
issues (other than certain short-tenn obligations). On July 20, 1979, the Company filed an j
application with the A1PSC for authorization of external debt and equity financing of up to $625 i
million (including the Additional Common Stock offered hereby). By order issued April 1,1950, the AlPSC granted the authority requested by the Company. On April 21,10SO, the Afichigan Attorney General and Alichigan Citizens Lobby (" Appellants"), intervenors in the proceedings before the AlPSC, jointly filed a petition for certiorari and an application for leave to appeal the April I, 19S0 order with the Alichigan Court of Appeals, wind filings were dismissed by the Court of Appeals for failure to file a proper application for leave to appeal. Appellants then filed with the Court of Appeals a " delayed application or application for rehearing" and a motion for a stay of the Nf PSC's order, which pleadings were dismissed by the Court on June 11, 1980. On July 1,1980, Appellants filed an Application for Leave to Appeal with the Alichigan Supreme Court; the Company and the N1PSC flied Answers on July 21,1950 and July 30,1950. respectively, opposing the Application.
During the pendency of the legal proceedings described above, the Company has issued four million shares of Common Stock, 400,000 shares of Preferred Stock and $100 million of General and Refunding Afortgage Bonds based upon the authority granted by the 51PSC's order of April 1,19S0.
In the opinion of General Counsel of the Company, the pendency of legal proceedings does not aficct the April 1,19S0 51PSC order, unless and until that order is expressly stayed, suspended, vacated, modified or otherwise held to be invalid. Such counsel is further of the opinion that if, at the time of issuance of securities, an order of the AlPSC is in full force and effect and no stay or suspension of such order has been entered by a court or the AlPSC, any later decision staying, suspending, vacating, modifying or otherwise holding invalid such order subsequent to the issuance of securities will not aficet the validity of such securities.
The Company has an agreement with a group of conuncreial banks for an $s00 million project financing arrangement relating to Helle River Unit No. I and facilities to be used in conunon with Helle Hiver Unit No. 2 (" Belle River Project Financing"). Under this arrangement, currently limited 1
l to $100 million under existing FEHC bormwing authority, the Company borrows against capital expenditures incurred in connection with the pmject, including interest charges and commitment fees, with each borrowing being pursuant to variable rate unsecured pmmissory notes due hiay 1,1982 imtil NiPSC appmval cm he obtained. Once such AlPSC approval has been obtained and long-term l
unsecured pmmissory notes have been issued, amortization will begin January 1,19S5, with $50 million repayable each musecutive calendar quarter thereafter. The Company may prepay borrowings pursuant to this transaction at x- +" without penalty. Consummation of periodic borrowings is i
subject to the satisfaction of cerD" wnditions. The agreement contains a variety of covenants, including an agreement by the Company not to pledge or sell any of its assets except in the ordinary course of business and except for the sale or conveyance to one or more utilities of undivided interests in generating plants; and not to create certain liens on its assets. As of November 30,19S0, the Company had hormwed $190.9 million under this arrangement.
]
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At October 31,1950, the Company had regular short-term bank credit arrangements aggregating
$219. I million, of which $S9.0 million was outstanding.
INTE'UM RESULTS Results for the interim periods shown below are unaudited but, in the opinion of the Company, include all adjustments (which include only normal recurring adjustments, other than as related to the decision not to construct Greenwood Nuclear Unit Nos. 2 and 3 as discussed under "Certain Developments") necessary to a fair statement of such amounts. Results for an interim period are not necessarily indicative of results that may be expected for any other interim period or for the fiscal year as a whole-(Unaudited)
Ten Nfonths Twelve Afonths Ended October 31, Ended October 31, 1950 1979' 1980 1979 (Thousands, except per share amounts)
Operating Revenues
$1,431,630
$1,426,710
$1,753,431
$1,697,261 Operating Expenses (in:!udes income taxes of 523,324, $47,561, $30,46S and $61,206, respec-titelv )
1,229,120 1,200,956 1,451,198 1,425,618 Operat'ng Income
$ 252,510
$ 225,754
$ 302,233
$ 271,613 AFDC (borrowed and other funds)
$ 81,353
$ 63,478
$ 97,374
$ 80,851 Net income
$ 147,032
$ 145,531
$ 177,479
$ 177,195 Earnings for Common Stock
$ 101,874
$ 109,749
$ 127,697
$ 134,8S2 Common Shares Outstanding-Average 78,036 6S,939 77,427 63,426 Earnings Per Share
$1.34
$1.59
$1.65
$1.97 Dividends Declared Per Common Share
$1.20
$1.20
$1.60
$1.58 Earnings per share of $1.65 for the twelve months ended October 31,19SO were down $0.25 from carnings per share of $1.90 for the year ended December 31, 1979 and down $0.32 from earnings per share of $1.97 for the same period a year ago. Results were affected by lower kilowatthour sales; higher operating expenses reflecting the effects of inflation; higher interest expense as a result of increases in long-term debt, higher interest rates and increased short-term borrowing levels; increased i
preferred stock dividend requirements; and a substantial increase in the average number of common shares outstanding. These factors were offset, in part, by rate increases granted by the MPSC. For the twelve months ended October 31,19so, otal kilowatthour sales were down 8.37o from the same period a year earlier, with industrial sales down 15.4Tc, residential sales up 0.77o and commercial sales up 0.1%
Earnings per share of $1.34 for the ten months ended October 31,19SO were down $0.25 from carnings per share of $1.59 for the ten months ended October 31, 1979 due primarily to the factors described in the preceding paragraph. For the ten months ended October 31,1950, total kilowatthour sales were down S.7Fc from the same period a year earlier, with industrial sales down 10.2Tc, commer-cial sales down 0.2To and residential sales up 0.97c. The decline in sales reflects reduced industrial activity, particularly on the part of automotive and automotive-related manufacturers, with automotive l
production down significantly from the same period a year ago, other recessionary conditions in the Company's service area and continued customer conservation. The increase in residential sales in the IMO period reflects wa,.ner summer weather which increased customer use of air-conditioners and dehumidifiers and colder fall weather which increased customer use of furnaces and other heating equipment.
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1 1
Net income and earnings for Common Stock reflect AFDC, a non-operating non-cash item, conshting 'of the net cost of borrowed funds used for construction purposes and a reasonable rate i
on other funds when so used. _AFDC increased, and hence net income and earnings for Common l
Stock were favorably affected, in the 1950 periods due to increases (in recognition of increasing costs l
of funds) in the AFDC rate from 8%% to 9% effective January 1,19S0 and to 9%% effective June 1, j
1950, and increased construction work in progress expenditures. Also, the Company is capitalizing i.
the actual interest expense and commitment fees applicable to the Belle River Project Financing (see " Capital Expenditure Program and Financing-Financing"). AFDC amounted to 80% and 76% of earnings for Common Stock for the ten months and twelve months ended October 31,19S0, respectively.
The Company expects that kilowatthour sales in 19S0 will be lower than in 1979 in view.
of plant shutdowns and slowdowns by automotive and automotive-related manufacturers, related j
employe layoffs and continued conservation by residential and other customers. Further reductions
}
in industrial activity and adverse economic conditions in the Company's service area could occur
~
j and affect the Company if inflationary and recessionary pressures continue to affect automotive and l
automotive-related 'Nnufacturers to an increasing degree. Given the recessionary conditi(ens in its service area and mflationary increases in fuel, operating and interest costs, the Company does not expect that 1950 earnings will equal those for 1979.
)
See "Certain Developments" for information on the Company's main electric rate case, the July 10,1950 severe wind and rain storm and for possible adverse financial effects of the decision not to construct its previously proposed Greenwood Nuclear Unit Nos. 2 and 3.
Consolidated financial statements for the five years ended December 31, 1979 and unaudited j
consolidated financial statements and information for the interim periods ended Alarch 31,19S0, June 30,19S0 and September 30,19S0, and for certain comparative interim periods, including related L
discussions and analyses by Afanagement of factors affecting operations, are contained, respectively, in the Company's Annual Report. on Form 10 K and Quarterly lleports on Form 10-Q, which j
documents are incorporated in this Prospectus by reference and are available upon written request.
4 (See page 1) i.
CERTAIN DEVELOP.\\IEXTS 1
j As discussed in "Part II, item S.' in the Company's Quarterly Reports on Form 10-Q for the j
quarters ended Alarch 31, r50 and Sep*.uber 30, 1950, on April 30, 1950 the Company filed an application with the AIPSC seeking authe y to increase its electrie rates and charges in the approsi-mate amount of S163 nullion annually (including interim relief) based on a 19SI test year. Among i
other things, the Company stated in its application that its financial condition is 'still very poor' when raeasured by fixed charge coverage. return on common equity, earnings per share, common stock market
. value in relation to book value, and quality ratings on senior securities, and is " declining again under the j.
intensive continuing pressure of unchecked double-digit in0ation, record levels of short-term and long-term interest rates, and sharp increases in other costs." Contemporaneously, the Company filed motions i
for 1950 interim relief of approximately $155 million annually based on a 19S0 test year, and for i
1951' interim relief, as of January 1.19S1, of an ' additional S162 million annually. Effective No-
' vember 7,1950, the AIPSC authorized an interim annual revenue increase of $96.1 million. The.\\1PSC Staff recommended final rate relief of $1715 million based on a projected 1981 test year. The Company filed rebuttal testimony which asserted that the.\\1PSC Staif case wouhl support an annual 8
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i
revenue deficiency of $350 million. On November 19,1950, the Company renewed its motion for 1981 interim relief. The MPSC Staff opposed the motion and the Administrative Law Judge denied the request for a hearing on such renewed motion and closed the record. On November 25,19S0, the.
Company Eled an appeal to the MPSC renluesting that a hearing date be set for its motion for 19S1 interim relief.
' On March 24, 1980, the Company decided not to construct two proposed' nuclear units (1,200 MW each, both of which were in the early developmental stages) (the "Greemvood Units").at its Creenwood Energy Center, which decision is discussed 'mder " Item 1-Business, Capital Expen.
3 diture Program and : Financing" in the Company's Annual Report on Form '10 K. Approximately
~ $71 million has been accumulated as costs associated with the Greenwood Units. This amount excludes costs of land, but includes approximately $19 million capitalized as AFDC and approxi-mately $500,000 of payroll taxes, pensions, etc., which were deducted for federal income. tax -
purposes in prior years. The Company expects to realize a reduction of federal income taxes in 1980 in the approximate amount of $24 nillion as-a result of claiming an abandonment loss for the costs associated with the Greenwood Units. On April 7,19S0, the Company filed an application with the MPSC seeking authority to defer, amortize and re<:over through the ratemaking process over a
[
60-month period the project costs, exchiding land, associated with the Greenwood Units. Cross-examination of Company witnesses is scheduled to commence on December 15, 1950. If the MPSC-does not approve recovery and amortization over some period, the costs of the Greenwood Units (excluding land), less applicable federal income taxes, would reduce earnings for Common Stock by approximately $50 million in the period of such determination.
On July 16,19S0, a severe wind and rain storm caused extensive damage to the Company's distribution and transmission system in Wayne and Washtenaw Counties. Costs incurred for restoration of customers' service amounted to approximately $9.7 million, after reduction for capital-ized costs. The Company has applied to the MPSC for an accounting and ratemaking order which, if granted, vrould permit recovery and amortization of auch costs over a 60-month period. Cross-examination of Company witnesses was completed on November 12,19S0. Pending resolution of this matter, the Company has deferred such costs and has not reflected them in current operating expenses.
The Company's 1981 external funds rcquirements are $620 million (including S72 million for -
refundings). The Company expects to meet these requirements through the issuance of S340 million of debt and equity securities (including $41 million through the Dividend Heinvestment and Com-i mon Share Purchase Plan
~ Plan") and $250 million under the Helle River Project Financing (see
" Capital Expenditure Pogram and Financing-Financing"). On July 29,19SO the Company filed an application with the MPSC (see " Item S-Other Materially Inqiortant Events" in the Company's Quarterly lleport on Form 10-Q for the quarter ended June 30,10S0) for authorization of such I'mancing, exclusive of the $44 million under the Plan which is separately authorized. In the same application the Company requested additional authority for the issuance of $100 million of debt securities for refundings in January 19S2, long-term unsecured promissory notes in connection with-the Belle River Project Financing and up to SS00 milFon aggregate principal amount of is General t
and Refunding Mortgage llands to provide for the refunding of such long-ter;n Helle Hiver Project Financing unsecured promissory notes during the years 1985-68. Two r.arties have been granted intervention. Croswexamination of the Company witnesses was wmpleted on November 26,19$0.
'Ile Company's Annual Report on Form 1G-K and Quarteriv Reports on Form 10-Q, incorporated herein by reference, contain information with respect to certa developments in the Company's affairs that have occurred since its fiscal year ended December 31, 1979 and are available upon written request. -(See page 2.)
9
t DESCRIPTION OF CONIAION S'IOCK The following description relating to the Company's capital stock contains summaries of certain provisions of the Company's New York and Alichigan charters and certain instruments under which outstanding indebtedness of the Company has been issued, copies of which are exhibits to the 5
Registration Statement and reference to which exhibits is hereby made for a detailed description of the provisions thereof summarized below.
The authorized capital stock of the Company consists of nine million shares of Cumulative Pre-ferred Stock, $100 par value (* Preferred Stock"),20 million shares of Cumulative Preference Stock, i
$1 par value (" Preference Stock") and 125 million shares of Common Stock, $10 par value (" Common Stock"). Unissued shares of the Preferred and Preference Stock may be issued in series created by the Board of Directors, which in creating any such series will determine, among other things, the divi-dend rate, liquidation preferences, a 3d redemption, sinking fungand conversion provisions, if any.
Dividend Rights and Restrictions Subject to the following restrictions, dividends may be paid on the Common Stock frora funds legally available therefor, when and as declared by the Board of Directors.
So long as any shares of Preferred or Preference Stock are outstanding, no dividend may be declared or other distribution made up m any junior stock (defined to include Common Stock) other than a dividend in junior stock, nor may any junior stock of the Company be acquired (except by exchange for or through application of an amount not in excess of the proceeds of sale of junior stock) by the Company or any subsidiary thereof (as defined), unless, in each case, the full cumulative dividends on aH outstanding shares of the Preferred and Pre erence Stock have been paid or provided f
for and the Company has made all payments, if any, then or theretofore due under the requirements of all sinking funds, if any, for the Preferred or Prefercnce Stock.
The amount of retained earnings of the Company at October 31,1950 was $3S1.5 million, of which $14 million was restricted under covenants relating to the Company's long-term indebtedness as to payment of dividends and other distributions, except dividends in Common Stock. As set forth under " Interim Results", AFDC (a non operating non-cash item), as a percentage of earnings for Common Stock, amounted to 80re and 76Te for the ten months and twelve months cnded October 31, 1950, respectively. Accordingly, the Company's Common Stock dividends are being derived substantially from sources other than current operating income. The amotmt of future dividends will aepend upon the Company's earnings (which in turn are dependent, among other things, upon levels of kilowatthour sales and timely and adequate rate relief), capital requirements, financial condition and other factors.
The Company pr'esently expects that the dividends paid on Common Stock in 19S0 will not be, and a portion of Common Stock dividends paid in 1981 may not be, taxable to recipients as ordinary income for federal income tax purposes, but will be treated as a return of capital reducing the tax basis of the shares on which such dividends are paid.
i Voting Rights The holders of the Common Stock are entitled to vote in the electien of directors and in other matters as provided by law or the charter documents of the Company. The holders of Common Stock are entitled to one vote for each share held and may cumulate their votes in the election of directors for whom they are entitled to vote.
The Preferred and Preference Stock are non-voting, except that while four quarterly dividends of either are in arrears, in whole or in part, the holders thereof, voting separately as a class, are each entitled to elect two additional members of the Board of Directors. In addition, the Company must
{
10
~
secure the approval of the holders of certain percentages of Preferred and Preference Stock prior to effecting various changes in its capital structure and prior to effecting certain other' transactions.
t Liquidation Hights Upon any involuntary liquidation, dissolution or winding up of the Company, holders of all series of the Preferred Stock are entitled to receive $100 per share and holders of each series of Preference Stock are entitled to receive the amount fixed by the Board of Directors in authorizing such series, and upon any voluntary liquidation, dissolution or winding up, holders of each series of Preferred and Preference Stock are entitled to receive an amount equal to the price applicable at the time, as fixed by the Board of Directors in authorizing such series, in each case together with the amount of any.
accrued and unpaid dividends and before any distribution to holders of junior stock.
-After satisfaction of the preferential rights of the Preferred and Preference Stock, holders of the Common Stock are entitled to receive pro rata all remaining assets available for distribution to shareholders.
Dividend Reinvestment and Common Share Purchase Plan
- The Company has a Dividend Reinvestment and Common Share Purchase. Plan under which record holders of Preferred Stock, Preference Stock and Common Stock and its regular employes may, i
through automatic reinvestment of cash dividends and monthly optional cash payments of from $20 to
- $5,000, purchase Common Stock from the Company. The price of newly-issued shares purchased with reinwsted cash dividends is 95% of the average market price on the New York Stock Exchange on each dividend payment date. The purchase price of newly-issued shsres acquired through optional cash payments is 100% of the average market price on the last day of each month. The Company has the
}
right to amend, suspend, modify or terminate the Plan at any time.
I Miscellaneous The outstanding shares of Common Stock are, and the Additional Common Stock offered hereby, when duly issued and paid for, will be, in the opinion of General Counsel of the Company, validly issued, fully paid and non-assessable.
Iloiders of Common Stock have no pre-emptive rights.
The Company's outstanding Common Stock is listed on the New York Stock Exchange. The shares oIIered hereby are bein:; listed subject to notice of issuance on such Exchange.
i The Company and Bradford Trust Company are transfer agents. The registrars are Bradford
[
Trust Company and The Detroit Bank & Trust Company.
1 l
11
. ~.,, - - - - - - -, -
-v-n
-y
,n,
.n UNDERWRITEIIS i,
Under the terms of and subject to the conditions contained in an Underwriting Agreement dated December 4,19S0, the Underwriters named below have ' severally agreed to. purchase, and the Company has agreed to sell to each Underwriter, severally,.the respective number of shares.of ;
.\\dditional Common Stock set forth below.
i Number Number Name of Shares Name of Shares Alorgan Stanley & Co. Incorporated 250,250 Elkins & Co.
5,000 i
E.F. Ilutton & Company Inc.
2S6,250 Eppler, Guerin & Turner, Inc.
7,500' Advest, Inc, 10,000
- Equitable Securities Corporation
'I,000 '
American occurities Cerporation 5,0no Evans & Co. Incorporated 1,000
' Anderion & Strudwick, Incorporated.
2,000 Fahnestock & Co.
7,500 A EJ Ames & Co. Incorgrated 2,000 -
Ferris & Company, Incorporated 3,000 Arnhold and S. Bleichroeder, Inc.
['
Arthun, Lestrange & Short 7,500 First Albany Corporation 2.000 1,000 The First Boston Corporation 00.000 Ash;on & Co.
5,000 First Investors Corporation
" 3,000 Atlantic Capital Corporation 10,000 First of Alichigan Corporation
_48 000 Bache IIalsey Stuart Shiehls Incorporated 48S00 Folger Nolan Fleming Douglas Incorporated 7,500 I
Bacon, Whipple & Co.
10,000 Foster & Starshall Inc.
7,500 i
Bobert W. Baird & Co. Incorporated 10,000 Frechling & Co.
2,000 llaker, Watts & Co.
1,000 Cradison & Company Incorporated
- 2.000 ;
Barclay, Douglas & Co,'Inc.
1,000
. Cnmtal & Co.
5,000 flateman Ei<.hler, Ifill Bichards Incorporated 10,000 IIanifen Imhoff Inc.
1,000 t
j Ceorre K. Baum & Comrany, Incorporated 1,000 Bemaid IIerold & Co., Inc.
1,000 t
Bear, Steams & Co.
48,000 Iterzfeld & Stern 5,000 l
Sanford C. Bernstein & Co., Inc.
5,000 J. J. B. Ililliard, W. L. Lyons, Inc.
7,500 L
Birr, Wilson & Co., Inc.-
3,000 Iloward, Weil, Labonisse, Friedrichs William Blair & Company 10,000 I"'"rporated 5,000 The Illinois Company Incorporated 3,000 Blunt Ellis & Locui Incorprirated 10.000
[*[g *'e' '["'
'* /
I th Eastman Pair e Webber Incorporated 60,000 anney M ntgomery Scott Inc.
7,500 2
1 J. C. firadford & Co., Incorporated 10,000 Alex.! Brown & Sons
'32,000 Jesup & Lamont Secuntws Co., Inc.
2,000 o
n, ane, Space, Smith & Co., Inc.
3,000 K. J. Umwn & Co., Inc.
1,000 q
Johnston, Lemon & Co. Incorporated 7,500 j
Iltnns, Nordeman. Rea & Co.
5,000 Edwani D. Jones & Co.
5,000 Burgess & I.eith bcurporated 2,000 Josephthal & Co. Incorporated 5,000 dder I abaly & Co. Incorporated 4
f e
ic C
htIhcreenawalt & Co.
5,000 Kirkpatrick, Pettis, Smith, Polian Inc.
2,000 la.
The Chicago Corporation 3,000 I-uknburg, Thalmann & Co. Inc.
7,500 La law' Adams & Peck Inc.
l 3,000 Chiles, lleider & Co., Inc.,
1,000 B. C. Chrhtopher & Compmy 3,000 D" I' b***** Inc rporated 3.000 Lazard Freres & L,o.
48,000 Colin, lhichtin Co.
2,000 1
j Cowen & Company 3,000 Legg 3fason Wood Walker, Incorporated 7,500 L
Craigie Incorporated 2,000 nahers Kuhn Loeb Incorporated 60,000
^
man I~
Crowell, Weedon & Co.
7,500
. a Inmp ratM 2p00
, llennett, AtcDonak! & Co.
32,000 a
i
- Dain Bosworth Incorporated 10,000 Dain Securities America Inc.
5,000
- E#"Y 10A00 Aterrill Lvnch, Pierce, F,enner & Smith D. A. Dasidson & Co., In orgurated 2,000 Incorporated 60,000 Daus, Skaggs & Co., Inc.
2,000 The 5filwaukee Company 3,000 B. C. Dickinson & Co.
2,000 Stontgomery Securities 5,000 Ddlon, Bead & Co. Inc.
4S,000 Sim>re & Schley, Cameron & Co.
3,000 Doft & Co., Inc.
3.000 Alorgan, O!mstead, Kennedy & Gardner Dominion Securities Inc.
2,000 Incorporated 2,000 Donahlson. Luflin & Jenrette Atoseley, Itallgarten, Estabrook &
hecurities Corporation 4S 000 Weeden Inc.
10,000 Dresel Burnham Lambert Incorporated 48.000 Neuberger & Berman 3,000 F. Eberstadt & Co., Inc.
7,500 Newhard Cook & Co. Incorporated 3,000 A. C. Edwards & Sons, Inc.
32,000 The Nikko Securities Co. International, Inc.
5,000 12
' Number J
~ Number Name-of Shares Name of Shares -
Nomura Securities International, Inc.-
7,500
. Smith Barney, Ilarris Upham & Coi.
,48,000 The Ohio Company..
- 10,000 Incorporated Olde & Co. Incorporated -
3,000 Smith, Ifague & Co.,'Incorporatal 7,500 Oppenheimer & Co., Inc....
32,000-Smith, Atoore & Co; 1,000 Parker /Ilunter Incorporated 5.000 Stern Brothers & Co..
. 3,000 Peninsular Securities Company 3,000.
Stifel, Nicolaus & Company Incorporated,
3400 Piper, Jaffraya k !!apwood Incorporated 10,000.
Stis & Co.. Inc.
- 1,000 1 Prescott, Ball & Turhen 10,000 Sutro & Co. Incorporated
' 7,500 Primus Investment Company 5,000 Thomson AlcKinnon Securities Inc.
32,000 Haffensperger. IIaghes & Co. Incorporated
~ 2,000 Traub and Company, Inc..
~
10,000 2,000 -
Hauscher Pierce Refsnes, Inc..
10,000 Tucker, Authony & R. L Day, Inc.
Raymond, James & Aswiciates, Inc.'
1,000 Underwood.-- Neuhaus & Co., Incorporated 5,000
. Robertson, Cohnan, Stephens & Woodman -
5,000 Verem & Company Inc..
- 1,000 -
,The Robinson-Ilumphrey Company, Inc.
10,000 Edward A..Viner & Co., Inc..
1,000 '
Hodman & Remhaw, Inc.
5,000 Wagenseller & Farst, Inc.
-5.000' Wm. C. Honey & Co.
'32,000 Warburg Paribas Becker incorporated -
48,000 Hotan Alasle Inc.
10,000
-Wedbush, Noble, Cmke, Inc.
2,000
. L F. Bothulnld, Unterberg, Towbin
' 48.000.
Weinrich
- Zitzmann
- Whitehead Inc..
(I,000 R. Rowland & Co. Incorporated 5,000
' Wertheim & Co., Inc.
'43,000 Sallin, Wekh & Co., Incorporatal 2,000 -
- Wheat. First Securities,' Inc.
10,000 -
Scherck, Stein & Franc, Inc.
1,000.
Dean Witter Reynolds Inc.
60,000 Scott & Stringfellow, Inc.
2,000 ymd Gundy Incmporated--
3,000 ;
ian aichi Intern tional ( America), Inc..
5,000 II. B. Shaine & Co., Inc.
7,500 t
Shearxin Loeb Rhoades Inc.
48.000
. Total 2,250.000 lhe Underwriting' Agreement provides' that the several obligations of the Underwriters' are
' subject to certain conditions precedent, and that the Underwriters will be obligated to take and pay-for all of the shares of Additional Common Stock if any are takeni 1
The Underwriters propose to offer part of the shares directly to the public at the' public o!Tering price set forth on the cover page hereof and part to certain dealers at a l rire which represe 3ts a-i concession of 3St a share under the public offering price, and any Underwriter may allow and such dealers may reallow a concession not in excess of 15e a share to certain other dealers who enter into a Dealer Agreement.
l 13
EXPERTS The consolidated financial shtements included in the Company's Annual Report on Form 10-K for the year ended December 31,1979 and in the definitive proxy statement dated October 9,19S0, which are incorporated in this Prost,ectus by reference, have been so incorporated in reliance on the report of Price Waterhouse & Co., independent accountants, given on the authority of said firm as experts in auditing and accounting.
The statements made in the Company's Annual lleport on Form 10-K and Quarterly Reports on Form 10-Q (which are incorporated herein by reference), as to matters of Alichigan law with respect to regulation and environmental matters and as te legal conclusions attributable to General Counsel of the Company with respect to litigation, and the statements made herein under the caption
' Description of Common Stock" (except insofar as such statements specify the amounts of AFDC and retained earnings of the Company) and as to matters of Alichigan law and legal conclusions attrioutable to General Counsel of the Company under the caption " Capital Expenditure Program and Financing-Financing", have been reviewed by Leon S. Cohan, Esq., Senior Vice President and Cenual Counsel of the Company, and have been made in reliance upon his opinion an(i upon his authority as an expert.
LEGAL OPINIONS The validityof the AdditionalCommon Steck offered hereby will be passed upon for the Company by Leon S. Cohan, Esq., Senior Vice President and General Counsel of the Company, and by Sullivan
& Cromwell,125 Ilroad Street, New York, N.Y.10001, special counsel for the Company, and for the Underwriters by White & Case, Ii Wall Street, New York, N.Y.10005; except that matters of Alichigan law and legal conclusions will be passed upon only by Leon S. Cohan, Esq. and matters of New York law will not be passed upon by him. Sullivan & Cromwell and White & Case will rely upon Leon S.
Cohan, Esq. as to matters of Alichigan law and legal conclusions.
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EXHIBIT F SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended Commission file number December 31, 1980 1-2198 THE DETROIT EDISON COMPANY (Exact name of registrant as specified in its charter)
New York and Michigan 38-0478650 (States of incorporation)
(I.R.S. Emplover Identification No.)
2000 Second Avenue, Detroit, Michigan 48226 (Address of principal executive offices)
(Zip code)
Registrant's telephone number, including area code:
(313) 237-8000 Securitics registered (only on the New York Stock Exchange) pursuant to Section 12(b) of the Act:
Common Su>ck, $10 par value -at Alarch 9, 1981, 85,051,422 shares, substantially all hcid by nonaffiliates, were outstanding, with an aggregate market value based upon the closing price on the New York Simk Exchange of approximately S978,091,353.
Preferred Stock (all series except the 9.609 and 13.50%), cumulative, $100 par value Preference Stock (all series), cumulative, $1 par value General and Refunding Alortgage Bonds (Series I, J, N, R-V, X-AA, CC, EE and Illi only)
Securities registered pursuant to Section 12(g) of the Act:
None (Title of class)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes DD No O Incorporation by Reference Certain information in the Company's definitive proxy statement dated Alarch 23,1981, in connection with its Annual hieeting of Shareholders to be held on April 27, 1981, has been incorporated herei'n by reference in Part I, Item 4 and Part III, Items 9 and 10 hereof.
TABLE OF CONTENTS Page Definitions.
2 Part I - Items I and 2 - Business and Properties..
3 General 3
Capital Expenditure Program and Financing...
3 Capital Expenditures.
3 Financing...
5 Sale to Cooperatises 6
Properties.
7 Fuel Costs and Supply 8
Coal...
8 Oil 10 Nuclear 10 Regulation....
10 10 Niichigan Public Service Commission
.\\tKhigan Utility Irgislation.
1I Federal Energy Regulatory Commission II National Energy Irgislation II Ensironmental Statters.
12 Air.
12
\\ Vater 14
\\Vastes
. 15 Employes and Executise Officers.
15 Employes.
15 Executive Officers.
16 Rates 16 Certain Operating Statistics 18 Item 3 - Irgal Prrxecdings 19 Item 4 - Security Ownership cf Certain Benefidal Owners and Afanagement 20 Part II - Item 5 - %Iarket for the Registrant s Common Stock and Related Security
~
IIolder.\\ tatters.
21 Item 6-Selected Financial Data.
21 Item 7 - htanagement's Dixussion and Analpis of Financial Condition and Results of Operations.
21 Consolidated Statement of Income 21 General 21 Operating Resenues 22 Operating Expenws
.. 22 Costs of Capital.
23 Earnings for Common Stock 23 Consolidated Balance Sheet 24 Liquidity and Capital Resources 24 Inflation 25 Item 8-Financial Statements and Supplementart Data..
. 26 Part 111 - Item 9-Directors and Executise Officers of the Registrant 51 Item 10- Nianagement Remuneration and Transactions 51 Pa rt IV - Item Il - Exhibits, Financial Statement Schedules and Rep >rts on Form 8.K 52 Signatures 62 1
DEFINITIONS The following abbreviations used in the text and notes are defined below:
Abbewistion Terus AFUDC
..... Allowance for Funds Used During Construction (both borrowed art:1.
other funds)
AG..........
Alichigan Attorney General Burlington.......... Burlington Northern Railroad Company.
The Detroit Edisor-Company or Registrant Consumers............ Consumers Power Company Cooperatives......... Northern Afichigan Electric Cooperative, Inc. and Wolverine Electric Cooperative, incorporated j
C PI-U.....
... Consumer Price Index for All Urban Consumers Decker............
Decker Coal Company DNR...
Alichigan Departmer.t of Natural Resources EPA....
Environmental Protection Agency ERA......
...... Department of Energy's Economic Regulatory Administration FAS..........
Statement of Financial Accounting Standards FERC.
Federal Energy Regulatory Commission ICC
...... Interstate Commerce Commission kWh.....
.......... Kilowatthour AIAPCC
. Alichigan Air Pollution Control Commission Afortgage.......... The Company's Afortgage and Deed of Trust, dated as of October 1, 1924, as amended and supplemented by various supplemental indentures Afortgage Bonds The Company's General and Refunding 5fortgage Bonds AlPSC............. Alichigan Public Service Commission AfW....
Afegawatt AfWRC...
Stichigan Water Resources Commission NEBC..
National Energy Board of Canada Note Notes to Consolidated Financial Statements N PbES.....
.. National Pollutant Discharge Elimination Ssstem NRC....
. Nuclear Regulatory Commission Plan.
.. The Company's Dividend Reinvestment and Common Share Purchase Plan REA Rural Electrification Administration Renaissance..
... Renaissance Energy Company, an unaffiliated company
.. St. Clair Energy Corporation, a wholly. owned subsidiary of the SCE..
Company WEC..
Washtenaw Energy Corporation, a wholly-owned subsidiary of the Company 2
T PART I Items 1 and 2 -Business and Properties, General The Detroit Edison Company, incorporated in New York in 1903 and in 5fichigan in 1967,is a public utility engaged in the generation, purchase, ttansminion, distribution and sale of electric energy in a 7,600 square mile service area in soutneastern Stichigan with a population of approximately five million persons. During 1980, approximately 98% of the Company's revenues was derived from its electric service, with the balance attributable to steam service. For further
~
information on financial results of the Company's operations, see Item 6-Selected Financial Data, item 7 - hianagement's Discussion and Analysis of Financial Condition ar.1 Results of I
Operations and item 8-Financial Statements and Supplementary Data.
The Company's service area comprises about 13% of Alichigan's total land area, but accounts for over one-half of its population, electric energy consumpaon and industrial capacity.
The Company provides electric energy to approximately 2,300 industrial customers. Principal industries served include wholesale and retail trade, automobile and other transportation equip-ment, steel, chemical, cement, paper and plastics industries and manufacturers and fabricators of machinery and other metal products. Sales to industrial customers accounted for 36% of total operating revenues in 1980, with approximately one-third of industrial revenues attributable to automotive manufacturers. The Company's 30 largest industrial customers accounted for approx-imately 23% of total operating revenues, with no one customer accounting for more than 5%.
The Company's 1.6 million residential customers, approximately one-fourth of whom are in Detroit, reside in urban and rural areas, including an extensive shoreline along the Great Lakes and connecting waters. Detroit ranks high among the nation's major cities in hourly wages, per capita income and home ownership. During 1980, sales to residential customers accounted for approximately 32% of the Company's total operating revenues.
The balance of the Company's 1980 operating revenues was derived from sales to approxi-mately 137,000 commercial customers (21%), including offices and small business outlets, and to approximately 2,500 municipal, steam, wholesale and other customers (11%).
Capital Expenditure Program and Financing in order to meet forecasted demands for electric ser ice, the Company has been engaged in a continuing long-range construction program. This program is expected to increase the summer net rated capability of 8,377 MW by approximately 2,200 afW upon completion of Enrico Fermi Unit No. 2 and Belle River Unit Nos. I and 2. Based on the current load forecast and planned generating capability, which excludes certain units in reserve status (998 AtW), the Company estimates that its summer peak reser e margin, expressed as a percentage of projected peak demand, will be approximately 22% in both 1981 and 1982.
The Company's ability to complete its Enrico Fermi and Belle River Units and other significant capital projects and the reliability of future service depend upon the availability of substantial amounts of external funds, significant and timely additional rate increases (see " Rates"), and receipt of periodic financing authority from the AIPSC as to long-term borrowings and equity securities and from the FERC as to short-term borrowings. See item 7 - Stanagement's Discussion and Analysis of Financial Condition and Results of Operations," Liquidity and Capital Resources".
Capital Expenditures. The Company's 1981 capital expenditure program currently contemplates total expenditures of $875.0 million (including AFUDC of approximately $157.3 million). Such program involves proposed expenditures for construction of the Company', portion of Enrico Fermi Unit No. 2 ($185.0 million): Belle River Unit Nos. I and 2 ($355.0 million); Alonroe fuels and emissions project (595.0 million); other production projects (556.0 million); conversion of St.
Clair Unit No. 6 from high-sulfur to low-sulfur coal ($27.8 million); other environmental 1
3 1
i
]
r control and protection facilities ($12.1 million); transmission and distribution facilities ($74.4 million); and miscellaneous construction and general construction overheads ($69.7 million).
Capital expenditures (including AFUDC) were $297 million, $383 million, $613 million, $591 million and $645 million in 1976 through 1980, respectively.
The Company's five-year projections for 1981-1985 contemplate capital expenditures ap-proximating $3.7 billion (including AFUDC of approximately $0.6 billion). The following table summarizes actual expenditures through December 31,1980, total estimated expenditures (includ-
[
ing AFUDC) and estimated earliest completion dates for the major generating units in the j
Company's construction program.
(Minions)
Actual Estlanated Estiamated Through Aher Earliest Nominal December 31 December 31 Estiamated Completion Plant Rating 1990 1990 Totale Dates (MW)
Enrico Fermi Unit No. 2 (nuclear)(a) 1,100
$ 1,104
$ 696
$ 1,800 1983 llelle River Unit Nos. I and 2 (low-sulfur coal).
675 ca.
292 1,558 1,850 1984, 1985 (a) Reflects 100% of nominal rating and expenditures, including the 20% interest of the Cooperatives (other than AFUDC relating to their interests from the date of sale to the Cooperatives). See " Sale to Cooperatives" In August 1980 the Company announced a revised total estimated cost for Enrico Fermi Unit No. 2 of $1.8 billion (the prior estimate was $1.3 billion) as a result of continuing inflationary pressures on construction costs, design and engineering modifications requiied by the NRC, higher costs resulting from the delay in completion date from 1982 to 1983, and an increase in AFUDC. In addition, the Company revised its estimate of the extent of completion of Enrico Fermi Unit No. 2 from 80% to 75%.
Prior to receiving an operating license fi>r Enrico Fermi Unit No. 2, the Company must comply with various requirements and instructions contained in an Action Plan issued by the NRC subsequent to the Three Afile Island nuclear accident. In addition to resolving outstanding licensing questions with the NRC, the Company has initiated detailed design work to implement new NRC requirements, including the construction of expanded training and emergency facilities, and certain changes in the plant's safety and cooling systems planned as a result of an internal review of these systems and NRC requirements.
The construction permit fi>r Enrico Fermi Unit No. 2 expires on December 31,1981, and the Company plans to file a request fi>r an extension of such permit shortly. NRC regulations provide that a properly filed request for an extension of a construction permit continues such permit until such time as the extension request is acted upon by an. NRC.
New emergency plans are being prepared by the Company and 5fonroe County, hiichigan based on new requirements. These plans must be reviewed by the State of Alichigan, the Federal Emergency Af anagement Agency and the NRC prior to the issuance of an operating license fi>r Enrico Fermi Unit No. 2.
In September 1980 the Company announced a revised total estimated cost for llelle River Unit Nos. I and 2 of $1.85 billion (the prior estimate was $1.371 billion)as a result of design and cost revisions, continuing inflationary pressures and an increase in AFUDC.
Construction plans, schedules and budgets, both fi>r the Enrico Fermi and llelle River Units, as well as with respect to other construction projects, are subject to continuing review and have been and are expected to be revised from time to time as engineering and construction work proceeds 4
and in light of load forecasts, financial conditions, licensing and other regulatory delays and developments, legislative developments, changing ensironmental standards, the necessity or feasi-bility of conserting units to different fuels, and the availability and costs of latur and materials.
With respect to major generating units, industry experience in recent years has shown that revisions to construction plans, schedules and budgets generally invohe later, rather than earlier, completion dates and higher, rather than lower, costs. To the extent construction projects are not completed, prior expenditures and possible penalties, which could he substantial, might be charged against operations. and the reliability of future service could be adversely affected.
See Note 13 for information on the Ccmpany's decision not to construct its presiously proposed Greenwood Nuclear Unit Nos. 2 and 3.
Financing. During 1950, the Company raised external funds of approximately $659.9 million through the issuance of an aggregate of $50 million of Unsecured Promissorv Notes, $190.1 million of Nfortgage Bonds, $91.5 million of Preferred Stock, $112.6 million of Common Stock (induding $35.1 million through the Plan) and borrowings aggregating $2123 million under the Belle Riser Project Financing (discussed below). The Company intends to complete the financing of its 19S0 capital -xt>enditures with the issuance of $25 million of Preferred Stock and 1.25 million shares of Common Stock for which registration statements have been filed with the Securities and Exchange Commission. Certain of the alute securities were issued during the pendency of litigation concerning the N!PSC order authorizing such securities oce Item 3 - Legal Proceedings).
On Afarch 18,1981, the Company completed arrangements for a $100 million two-year bank term loan with an option to extend for a period of five years, subject to 5tPSC appr ival, and with covenants similar to those contained in the Belle River Project Financing (discussed below).
During the balance of 1981, the Company's external funds requirements are approximately
$605 million (induding $69 million for refundings). The Company expects to meet these require-ments through $265 million under the Belle Riser Project Financing (discussed bek)w) and through long-term financing consisting of $190 millim of Common Stock (including $44 milli <m through the Plan). $90 million of Preferred or Preference Stock and $60 millkm of Afortgage B<mds. On July 29.1950, the Company filed an ap. plication with the.\\tPSC for authorization of such long-term financing exclusise of the $44 milbe under the Plan, which is separately authorized by the NiPSC. In the same application the Company requested additional authority for the issuance of
$100 million of debt securities for refundings in January 1952. up to $e00 million of long-term unsecured promissory notes in connecti<m with the Belle Riser Project Financing and a corres-pmding aggregate principal amount of 5fortgage Bonds to provide for the refunding of such long-term Belle Riser Project Financing unsecured promissory notes during the years 1955-85.
The 5tPSC Staff and intersenors in these proceedings did not file dirnt cases and the rnord has been closed. The Company is awaiting a decision. The nature. amount and timing of indisidual issues will depend upon market and other conditions prevailing at the time.
The Company has an agretment with a group of commercial banks for a $1 billion (increased in Alarch 1981 from $8W) million) project financing arrangement relating to Belle Riser Unit No.
I and facilities to be used in common with Belle Riser Unit No. 2 (TBelle Riser Project Financing").
Under this arrangement, currently limited to $400 milNn under existing FERC lorrowing authority, the Company borrows against capital expenditures incurred in connation with the project. including interest charges (at interest rates which vary with the changes in the prime rate) and commitment fees (at the rate of 0.5% of the unused portion of the commitment 4. Until Nil 5C approsal can be obtained for kmg. term unsecured promimry notes, borrowings are being made under unsecured promissory note due.\\ta) 1,1982. Once such SIPSC approval has been obtained and long-term unsecured promiwory notes hase been issued, amortization will begin January 1, 1985, with $62.5 million repnable each consecutise calendar quarter thereafter until repaunent is completed. The Company may prepay borrowings pursuant to this transa<.ti< n at any time without penalty. Consummation of periodic borrowings is subjnt to the satisfaction of certain conditions.
5
The agreement contains a number of covenants, including an agreement by the Company not to pledge or sell any of its assets except in the ordinary course of business and except for the sale or conveyance to one or more utilities of undivided interests in generating plants; and not to create certain liens on its assets. As of Af arch 13,1981, the Company had borrowed $271.3 million under this arrangement.
During 1980, shareholders approved increases in the number of authorized shares of Common Stock from 85 million to 125 million, the number of authorized shares of Preferred Stock from 6 million to 9 million and the number of authorized shares of Preference Stock from 10 million to 20 million. Apart from SIPSC approval and the requirement that the authorized Preferred Stock, Preference Stock or Common Stock be sold for at least par value, there are no legal restrictions on the issuance of additional shares of such stock. The par value of the Common Stock is $10 per share, and the closing sale price on the New York Stock Exchange on Afarch 9,1981 was reported to have been $11%. The Company's Afortgage limits the amount of additional Afortgage Bonds which may be issued on the basis of property additions, Afortgage Bond retirements and earnings test provisions. At February 28, 1981, approximately $1.1 billion principal amount of 5fortgage Bonds could have been issued on the basis of property additions, after taking into account the effect of requirements under certain of the Company's Unsecured Promissory Notes that currently restrict approximately $342 million of property additions from being used as a basis for issuing 5fortgage Bonds. However, under the most restrictive earnings test provisions of the 5fortgage and assuming an interest rate of 16% on any additional Afortgage Bonds, approximately $543 million principal amount of Afortgage Bonds could have been issued at February 28,1981. Also, at February 28,1981, $61.6 million principal amount of Afortgage Bonds could have been issued on the basis of Afortgage Bond retirments.
At December 31,1980, the Company had short-term credit arrangements aggregating $219.4 million, under which 567.1 million was outstanding. In February 1981, the Company increased its short-term credit arrangements by entering into a separate $25 million Bankers' Acceptance agreement, with borrowings based on purchases of Canadian residual oil.
Sale to Cooperatives in 1977, the Company sold a 20% undivided ownership interest in its Enrico Fermi Unit No. 2 to the Cooperatives. The Cooperatives made an initial payment to the Company at the time of sale equal to 20% of construction expenditures, inclusive of AFUDC, and are obligated to make monthly progress payments of 20% of subsequent construction expenditures, exclusive of AFUDC.
The agreements relating to that sale provide, among other things, that the Company will exercise control over construction and operation of the facility, the parties will share electricity generated in proportion to their ownership interests and the Company will have certain obligations to provide replacement power to the Cooperatives when Enrico Fermi Unit No. 2 is out of service.
The Company is obligated promptly to complete construction of Enrico Fermi Unit No. 2, but if the Company delays construction because more economical sources of power are available or because the Co..,any decides that it does not then require the additional capacity, it would be obligated to supply each Cooperative with its entulement of electricity otherwise expected to have been generated after the anticipated completion date and would have to indemnify the Coopera-tives for additional construction costs resulting from the delay. If such delay extends to fise years, the Cooperatives may demand that the Company repurchase their interests at the cost of their insestment. The Company would not be liable for any delays in completion resulting from a default in payments by a Cooperative and may buy out a Cooperative's investment if such a default continues for 150 days.
After completion of construction, each of the parties will be obligated to pay its pro rata share of plant operation and maintenance costs and capital improvements. The Company may withhold electricity generated from any Cooperatise defaulting on any ofits obligations but will be obligated 6
to give appropriate cred" if such capacity is otherwise used. From the anticipated completion date through 1990, the Company will be obligated to purchase part of the Cooperatives
- entitlement to the output of Enrico Fermi Unit No. 2 and has a right of first refusal to purchase the balance. The.
Company will be required to provide transmission service at the Cooperatives
- expense, and agreements between the Cooperatives and Consumers have been arranged for deliveries from the Company's service area to the Cooperatives.
l For purposes of financing the purchase of the 20% undisided interest in Fermi Unit No. 2, the l
Cooperatives entered into a borrowing arrangement with the United States Government through the REA. In August 1977, the SIPSC granted the Cooperatives authority to issue long. term-securities in the aggregate approximate amount of $241 million in connection with the REA l
arrangement. In January 1980, the Cooperatives applied to the 51PSC for additional long-term financing authority in the aggregate amount of $181 million to cover their portion of remaining construction costs of the Enrico Fermi Unit No. 2. In an order issued on November 25,1980, the 51PSC granted the Cooperatives the authority requested. On December 15, 1980, the AG filed an appeal with the Stichigan Court of Appeals requesting that the matter be remanded to the SfPSC for further evidentiary proceedings as to the economics of the participation of the Cooperatives in l
the Enrico Fermi Unit No. 2 Project. The AG also requested a stay of the 5f PSC's order, which was denied on January 8,1981. An Application for Delayed Appeal has also been filed by an l
unsuccessful intervenor in the proceedings before ae StPSC. The Cooperatives have indicated in pleadings filed with the Court of Appeals that a failure to secure long-term financing authority from the 51PSC with respect to their portion of Enrico Fermi Unit No. 2 might result in defaults on their obligations to the Compan;. The Cooperatives have commenced borrowings thmugh the REA based upon the.\\tPSC's November 25,1980 order.
As of December 31, 1980, total payments of $190.9 million had been received from the l
Cooperatis es.
Properties The following table summarizes the summer net rated capability of electric department generating facilities as of December 31,1980. See " Capital Expenditure Program and Financing" proposed generating facilities included in the Company's construction for information on program.
t 3tW) l Fossil-fueled, steam-electric.
6,930 I
529 Peaking units..........
918 Pumped storage Total Capability..
..... 8.377*
- Excludes certain units in reserse status (998 AlW).
Summer net rated capabilities of generating units in service are based on periodic load tests, and change depending on operating experience, the physical condition of units and environrr.cntal control limitati<ms. Con <,truction and operation of completed and proposed units are subject to receipt of certain permits, licenses and governmental approvals. See " Environmental Statters" concerning delays in receiving certain operating approvals in connection with the Afonroe Units.
Pumped storage capacity represents the Company's 49% inter st in the Ludington Pumped Storage Plant which has six units with a total capability of 1,872 AlW. Commonwealth Edison Company has contracted to purchase one-third of the Ludington Plant's capability to August 7,1983 and one-sixth for an additional five years. See Note 16.
The Company's present generation is approximately 90% from coal-fired units. The four Afonroe Units and a Unit at each of the Trenton Channel and St. Clair Plants account for 3,913 51W of the Company's 6.004 SIW of coal-fired summer net rated capability. The Afonroe Units generated approximately 49% of the Company's total 1980 power plant generation.
7 i
i r
i 4
r The peak demand on the Company's system to date was 7,381' AlW in July 1977 as compared j
to a peak demand of 6,703 AiW in July 1980.
The Company and Consumers are parties to an Electric Coordination Agreement providing i
for emergency assistance, coordination of operations and planning for bulk power supply, with energy interchanged at 9 interconnections. The Company also interchanges electric energy over
- 9 intenonnecdons with The Toledo Edison Company, Indiana & Alichigan Electric Company, Northern Indiana Public Senice Company. Ontario flydro, the Ford Afotor Company, the Public Lighting Department of Detroit and the City of Wyandotte. The Company has a power inter- -
~
change agreement for area coordination with Consumers, The Toledo Edison Company, In' diana
& Afichigan Electric Company, Northern Indiana Public Senice Company and Commonwealth 4
Edis<m Company.
The composite age of all plant in service at December 31,1980 was about 12 years. Gross property additions and retirements from January 1,1976 through December 31,1980 aggregated
$2,545 million and $111 million, respectively. The Company's electric generating plants are i
interconnected by a transmission system operating at from 24 to 345 kilovolts and through 84 transmission stations. As of December 31,-1980, electric energy was being distributed in the Company's senice area through 553 substations over 2,740 distribution circuits.
Substantially all of the Company's properties and franchises are subject to the lien of the j
Afortgage.
t i
l Fuel Costs and Supply The Company is experiencing substantial and continuing increases in the cost of electric depart-ent fuel consumed as shown in the following table. The Company recovers 90% of fuel cost increases
. rough operation of a fuel cost adjustment clause approved by the afPSC. See Note 12.
I Average Cost Per Ton of Coal 3
4 or Per Bau I
Percentage Equivalent i
Cents Per of Total Ton of Coal higilon Bau Fuel Consumed Consummed Att All 3
Coal 00 Gas Fuela Coal. OH Gas Coat Fuele j
1976.
99c 228c 163< 12!r 794 13% 84 $23.21
$28.37
{
1977.,
104 266 193 130 82 14 4
24.27 30.44 1978.
124 274 205 149 82 14 4
28.52 34.63 l
1979.-
143 307 233 163 66 10 4
33.35 39.42 l
1980..
159 347 285 17e 90 7
3 37.72 42.78 i
Coal. The Company's present generating capability is primarily dependent upon coal. The Company estimates that it will require an aggregate of 540 million tons over the next thirty-five years for its coal-fired generating units, consisting of 418 million tons for those presently in
- operation and 122 million tons for those included in the Company's construc. tion program. The i
Company currently has long-term contracts, with price escalation provisions, providing for delisery of approximately 312 million tons having a maximum sulfur content ranging from 0.55% to 4.5%
and averaging 1.39, with expiration dates for such contracts' ranging from late 1986 through 2003. The Company expects. to acquire the balance of its requirements through additional long-term contracts or under short-term agreements. long-tern commitments are expected to j
provide in excess of 85% of foreseeable coal requirements. The higher sulfur content coal is presently being burned in power plants which can meet sulfur oxide emission standards by blending with lower sulfur coals. The Company expects to continue blending such higher sulfur i
coa.s with low-sulfur coals in order to satisfy environmental requirements. There can be no f
assurance, however, that the coal supply available to the Company will meet increasingly stringent i
emission standards or obviate the need for installation of additional control technologies. Further, j
coal supplies and prices, particularly low-sulfur, could be affected by environmental and other j
requirements, including legislation regulating strip mining. See " Environmental Atatters" 1
I 8
i
l l
l The Company is a party to long-term contracts prosiding for delisery of approximately 899 of its a>al requirements for 19*l. The balan(c must be obtained under short. term agreements which may be at higher o>sts.
The Company is a party to a contract with Decker for the purchase of large quantities of Stontana low-sulfur coal which is transported by rail and take vessel. During the life of this contract, which extends to 2003, annual shipments are expected to represent approximately 479 l
of the Company's estimated coal requirements. See "Emironmental Statters" and Note 12.
l The N1ontana Coal Seseran(e Tas, first imposed in 1975, is a graduated severance tax of up to 304 of the salue of coal produced in Nfontana. Re.isions of the seserance tax hase increawd the total taxes on Nfomana coal at the mine to approximately 399 of the current contract price. The Companyi contract with Duker requires the Company to reimburse Decker for payments of this tax. The O>mpany he made payments of such tas under protest. The Company and ten other utihties are engaged in continuing legal proceedings seeking a judicial declaration that the severance tax in unconstitutional. Folk 2 wing the disminal by both the Nfonvana District Court and the Supreme Court of 51ontana of proceedings against the State of Stontana, this matter is now I
pending before the U.S. Supreme Court.
'I he EllA is authorized under prescribed conditions to alk>cate asailable supplies of low.
sulfur (oal on a priorits basis. The Company cannot predut whether the ERA will exercise such authoritt and, if it does, the etfeu upon the Companyi operations.
In February 1979, Burlington impned a new taritf which increved freight rates charged the Company for the transp>rtation of coal from N!ontana. In Nmember 1979. Burlington impned a diesel f uel suuhar ge. The Company petitioned the ICC for relief with respect to the tariff increase and the fuel surcharge. The ICC reinstated the prelitigation tariff, found the fuel surcharge to be unt w ful, and required Burlington to refund to the Company the exceu of charges collected. In
\\piil 19*0 Burlington refunded approximately $10.3 million to the Company. In October 1930.
Burlington refunded approsimately $900100 in fuel charges to the Company. He Company has repaid approximately $1.8 millkm of its Burlington refunds to a concern that shared in the transportation onts now in dispute. In Starch 1990. Burlington appealed the ICCN ruling with respett to the tariff nueee to the United States Court of Appeak for the Sixth Circu t FSisth CircuitT In Septemter 1940. Burlington appealed the ICCi ruhng with resput to the diesel fuel suo.harge to the United States Cinu:t Court of Appeah for the District of Columbia. The Sixth Circuit he requested briefs as to the impact of the Staggers Rail Act of 1950, discuwed bek>w. on the treight rate poxecdings. If the Burlington appeak are succewful, the Comp.my may be requiied to return all or a p>ttion of the refunds to Burlington, and tramportation onts of N1ontana t oal may inocee.
The Staggers Rail Act of 1930 became effectise on October 1.1950. This legida: ion prmides.
among other thmgs, that the ICC cannot consider nor may shippers iequest an imestigation of, rail canier tariffs that are leu than 1609 of a railroadi resenues to variable costs. In addition, the statute authorizes carriers to enter into tariff contracts with shippers, unless such contracts unduly impair the ability of a carrier to meet common carrier oblicatiom. Substantially all coal utiliied by the Comparn is shipped by rail under a number of tarif ft The Company is in the prmess of resiewing all tariffs appbcable to its rail shipments to determine in the case of each applicable tarif f the relatiombip of that tariff to the applicable rail carrieri resenues to variable costs. The ICC is in the pr:xess of preparing regulations which will set forth the method to be utiliied in determining resenues to variable ants. The Company, at this time, is unable to predict what ef fut this legislation will uhimateh hue upon its operations.
With the United N!ine Workeri contract expiring Ntarch 27,1981, the Company is prepar:ng for the pmibihty of a oial mines s strike. On April 1.1981. the Compmy will hae a minimum of an SS-dn supply of coal on hand beed on normal rates of ainsumption. Under emergency pro < edu r es established hs the N!PSC. the Company has deseloped a plan which is espnted to estend the 30-day out supph to let six monthe 9
See item 3 - Legal Proceedings.
j Oil. The Company receives virtually all of its residual oil, used principally by Greenwmxl Unit No.1, from Sunoco. Inc 's facility in Sarnia Ontario, Canada under a long-term contract which expires in 1984. As a result of reduced electrical demand, the need for generation supplied by Greenwood Unit No. I diminishedin 1980.The Company sold 2.1 million barrels of residualoilin 1980 which was deemed to be in excess of requirements.
The Canadian government is currently licensing and limiting, to an increasing degree, the amount of exports of petroleum products and is imposing taxes and minimum prices on exports, notwithstand-ing previously contracted prices. The price is subject to monthly changes as established by the NEBC and is expected to increase. An export permit has been granted by the NEBC permitting residual oil shipments to the Company of up to 7.1 million barrels annually through 1982. There can be no assurance, however, that the export permit will remain intact or be renewed. The Company may be required to obtain residual od under short-tenn agreemer.ts or new long-term agreements, which may be at higher costs, if the Canadian export permit is revoked or not renewed.
The Company purchases No. 2 oil from domestic sour (es. The Company expects that the recer.t decontrol of domestic oil prices and the elimination of the federal oi! entitlement program will increase the price of lxnh residual oil and No. 2 oilin the near future. The Company is uncer tain of thelong-tea m price and availability of both types of oil that could result from oil price decontrol.
Nrulear. As described under " Capital Expenditure Program and Financing", the Company is constructing its Enrico Fermi Unit No. 2 nuclear facility. The Company has made arrangements to obtain uranium concentrates and related services for the comersion, enrichment and fabrication of uranium bearing materials. These arrangements will provide about 6 million pounds of uranium concentrates. This material will be sufficient to provide fuel for the first core and 9 reloads for Enrico Fermi Unit No. 2, which would satisfy the fuel requirements for such facility for approximately the first 10 years of cominercial operation. Spent fuel will be stored on site until reprocessing is again permitted in the United States or until disposal can be arranged. Planned storage capability will accommodate 8 to 10 years of spent fuel after the commencement of commercial operation. For infi>rmation on nuclear fuel financing, see Note 9.
See item 3 - Legal Proceedings.
Regulation Afichigan Public Smice Comminion. The Company is subject to regulation by the AlPSC with respect to its electric, steam and industrial steam rates, charges and conditions of service, the issuance of securities (other than short-term obligations), accounting and various other matters.
On Alarch 14,1980 the AtPSC issued an order which, in essence, reaffirmed its policy on the treatment of construction work in progress for ratemaking purposes. The order continues the inclusion of the cost of construction work in progress in rate base and the requirement of an offset by AFUDC, except that no AFUDC of fset will be applied to construction work in progress relating to pollution control facilities on fiassil-fueled power plants. The order also establishes the rate to be utilized in computing AFUDC amounts as the equivalent of the allowable overall rate of return as determined by the Af PSC (presently 9.259), states that AFUDC capitalization shall not be com-pounded and allows the inclusion as a cost of servic e of the effect of the normalization of income tax deferrals telated to indirect construction costs which are deductible currently for federal income tax purposes and which qualify for AFUDC treatment (this treatment as it relates to production plant projects is allowed only for new production plant projects). The actual rate implications of this order will be determined in the Company's currently pending main electric rate case.
On October 16,1979, the AlPSC ordered that hearings be (onducted to receise comments and proposals on the issue of the establishment and financing of de(ommissioning funds for the purpose of insuring the availability of funds to decommission nuclear power plants at the time the decommissioning necessity arises. Proceedings are continuing and a resolution of this issue is not expected before late 1981.
10 l
l
On December 30,1980, the 51PSC issued an order directing the Company to implement a Residential Conservation Senice Program in accordance with a state plan for such senice which was submitted to and approsed by the U.S. Department of Energy pursuant to and in compliance with provisions of the National Energy t'onservation Policy Act (discussed below) and the Energy Security Act. The order provides for hearings to determine a cost recovery surcharge for program development and operation, and requires that the senice be implemented no later thanJune 29,1981.
The service, which is available to all residential customers, provides for an on-site inspection and analysis of domestic energy use by individual customers, and includes information reg arding various energs conservation and renewable resource measures w hich,ifinstalled, may reduce energy consump-tion. The Company is also required to provide assistance in arranging for installation and financing of such measures, must inspect a specified number of such installations, and must assist customers in resobing any complaints which may arise a< a result of such installations.
On hch 6,1978, the Compmy filed an application with the AfPSC for authority to change its accounting for revenues from its fuel and purchased power adjustment billing clauses to better match resenues and costs. The Company proposed in this application to record an estimate of the resenue to be billed or the amount to be returned to its customers due to the 51PSC prescribed lay correction feature in such clauses in the same month that the associated costs are incurrea.
Although the propcsed accounting change is not expected to have a material effect on earnings on an annual basis, it may base a significarn effect on interim earnings. On February 20,1980, the SIPSC authorized the accounting change, subject to the receipt of a favorable ruling from the Internal Resenue Senice.
Michigan Ut lity Legulation. In January 1960, the Speaker of the Afichigan House of Representa-tives established a Utilities Reform Task Force comprised of members of the House of Representa-tives, representatises of consumer groups, utilities, gosernment agencies and others. This task force is meeting weekly to examine proposed legislative reforms concerning, among other things, forecasting and planning for additional generation and transmission, power plant siting, intervenor funding, rates under himd, fuel adjustment clauses and utility shutoffs. It is anticipated that legislation on all of these issues will l'e drafted and introduced sometime during the current legislative session.
On 5f ay 29,19S0, Alichigan enacted legislation which mandates a lifeline rate structure for residential electric senice prosided by the Company. This legislation requires the 51PSC to develop, by Af ay 29,1981, rates for residential customers which will establish lifeline blocks and will maintain, to the extent practicable, an electric utility's resenues from residential customers as the amount collected immediately prior to the restructuring. Initial rates for the lifeline blocks are to be at least 159 lower than the average energy charge immediately before the rate restructuring and the rates for the highest blocks are to be not less than the present value of the estimated average cost per kWh of the next major source of electrical power that is being projected for addition to a utility system. The SIPSC is conducting hearings with respect to lifeline rate restructuring.
Federal Enugi Regulatory Comminion. The Company is subject to the general jurisdiction of the FERC with respect to accounting, sales for resale in interstate commerce, levels of short. term obligations and other matters. The Company is currently submitting fuel resource and conserva-tion reports to the FERC. De elec ric transmission facihties of the Company, interconnected with those of Ontario Hydro at the Canadian border, are subject to safety regulation by various departments of the United States government and to a pennit administered by the ERA. The transmission of electric energy to Ontario Hydro over such interconnections i, subject to regulation by the FERC and the ERA.
National Energy Legulation. The National Energy Conservation Policv Act consists of a variety of mandatory conservation requirements and conservation incentises and assistance programs di-rected toward consumers, business, and federal, state and k> cal governments. Public utilities are required to assist residential customers who undertake the financing and installation of energy conservation improsements. Direct federal weatherization and conservation grants are authorized i1
for low income families and multifamily housing projects. The Department of Energy is required to establish mandatory energy efficiency standards for 13 types of electrical appliances and is given discretionary authority to establish standards for other appliances.
Title 1 of the Public Utility Regulatory Policies Act deals with retail regulatory provisions. It contains requirements for mandatory consideration and possible implementation of (1) certain ratemaking standards for cost of service, declining block rates, timeof-day rates, seasonal rates, interruptible rates, and load management techniques, (2) certain other standards for master-me ering, automatic adjustment clauses, information to consumers, procedures for termination of electric service, and advertising expenses, and (3) lifeline rae s, among other things. The Company addressed the ratemaking standards in its currently pending main electric rate case. The balance of the standards have been, or are being, considered in generic proceedings pending before the 31PSC. (Lifeline rates are discussed above.) Title 11 of the Act deals with wholesale electric rates and ser ice. It expands thejurisdiction of the FEPC to issue wheeling and interconnection orders, imposes restrictions on the use of fuel adjustment :md purchased power clauses, creates a new regulatory framework for the purchase and sale of eergy by co-generation facilities and other small power producers, and provides for assistance anc. funding of intervenors, among other things.
Environmental Matters The Company, in common with other electric utilities, is subject to applicable permit require-ments and to increasingly stringent federal, state and local standards covering, among other things, particulate and gaseous stack emission limitations, the discharge of pollutants, including heated cooling water into lakes and streams, and the handling and disposal of waste material. Through 1980 the Company had expended approximately $1.4 billion, and approximately $273 million is included in the Company's 1981 capital expenditure budget for environmental protection. While the Company is unable to estimate total expenditures which ultimately may be related to environmental considerations,it estimates that approximately $208 million and $158 million will be spent in 1982 and 1983, respectively, subject to further changes in levels of construction and revisions in regulatory standards.
The Company expects it will be increasingly difficult and costly to obtain the premium fuels and equipment necessary to meet environmental regulations. See " Fuel Costs and Supply" Further developments may require the Company to modify, supplement replace equipment and or facilities and change operating procedures and fuels, may delay or impede construction and operation of new facilities and may require the cessation of operations at some existing facilities, at costs which could be substantial.
Air. The Company's operations are subject to environmental regulations of the State of N!ichigan and Wayne County as discussed below. Under the Federal Clean Air Act of 1970, as amended, the EPA has the authority to adopt and implement additional regulations in support or in substitution of state and local enactments where the EPA deems such enactments to be deficient in relation to the regulations adopted under the Act.
The State of Niichigan, pursuant to EPA regulations, has separately designated Af acomb, Oakland, Wayne and Afonroe Counties, where the great majority of the Company's generating facilities are situated, as air quality maintenance areas because of their potential for exceeding national ambient air quality standards. As prosided by EPA regulations, the State has formulated a program to mamtain national standards in the designated areas.
In addition, the Clean Air Act Amendments of 1977 include, among other things provisions requiring prevention of "significant deterioration" of existing ambient air quality in areas in which air quality is better than applicable standards; requiring the installation of " reasonably available control technologies" on existing emission sources in non-attainment areas; limiting construction of new emission somtes in non-attainment areas; resising previous standards of performance applic-12
able to new emission sources and by requiring new electric utility steam generating units to achieve such standards by application of the best available control technology (which has the effect of requiring flue gas desulfurization); and requiring the EPA to impose non. compliance penalties for failure of a source to comply with an applicable implementation plan. The amount of non-compliance penalties must be not less than the equivalent of the capital cost of compliance and debt service over a normal amortization peiiod, not to exceed 10 years, operation and maintenance costs foregone as a result of non-compliance. and any additional economic value to a company resulting from a delay in compliance, with credit for expenditures made to bring a source into compliance.
In January 1980, the DNR adopted administratise rules under the Stichigan Air Pollution Control Act which further reduce allowable particulate emiss:
limits. By July 1,1981, the Company is required to install pollution control equipment on exhaust syster serving material handling systems and nduce the allowable particulate emissions from stoia.-tired boilers. The DNR has also adopted rules which regulate fugitive dust and may require the installation of additional pollution control equipment.
The Company's plants in Wayne County (aggregate summer net rated capability of 1,586 SIW) are subject to the concurrent jurisdiction of the Air Pollution Control Division of the Wayne County llealth Department and the State of Stichigan, and their respective air pollution control regulations. In situations where the State and County regulations are not identical, the more restrictive of the two is applicable in Wayne County. Si..< e the County's regulations governing the control of sulfur dioxide emissions are more restrictive than the State's regulations, the County's regulations apply. Ilowever, recently proposed revisions to Wayne County's regulations would provide some relief from the existing limits in the regulations. The Company is continuing to seek further modilication to the proposed revisions of the tegulations. In the event the Company's plants in Wayne County are required ultimately to adhere to the more restrictive limit for sulfur dioxide emissions, the Company may be required to install more costly pollution control equip-ment, convert to other fuels or restrict o; erations on affected units.
1 revised air pollution control Wayne County is also considering the adoption of a new regulation, which includes many provisions more restrictive than state and federal requirements.
If implemented, major modifications may be required at existing Wayne County facilities State of hiichigan regulations presently limit the sulfur content in fuel (or restrict Ifur-dioxide emissions to an equivalent level) to 1.0%, except in the case of Port fluron which is. ~4.
In April 1976, the Company submitted a compliance plan to AIAPCC for its Ntonroe Plant (3,000 5tW), which indicated that compliance with the 1% sulfur limit could not be achieved within the time speciRed in the existing Ntonroe performance contract. In Alay 1977, SIAPCC approved a consent order which reduced, in stages, the allowable sulfui content to 2.3% by January 1,1980.
Under the consent order, the 2.3% limit is permissible until 1985, at which time the 1% limit would become effective. In December 1979, the EPA approved the state implementation plan requested by the NIAPCC for the Alonroe Plant. Through 1980 the Company had expended $287 million for environmental protection on the current Alonroe fuels and emissions project and currently contemplates additional expenditures of $95 million for environmental protection in 1981. Further substantial expenditures will be required in order to reach the 1% sulfur in fuel limit.
ti Alonroe Unit Nos.1,2, 3 and -1 are operating under permits to install issued by SIAPCC and applications for operating permits have been filed.
The Company has determined that St. Clair Unit No. 6 (270 NtW)is unable to comply with the State's 20% opacity limit while operating in compliance with the particulate emission limit. As provided in State regulations, the Company has obtained the approvals (in the form of a consent order) of the AI APCC, the DNR and the EPA to operate the unit at specified levels in excess of the 20% opacity limit uatil December 31, 1981. As part of such consent order, the Company has 13
agreed to install a new precipitator on St. Clair Unit No. 6. The program has received all the necessary approvals for indusion in the state implementation plan.
l The Company's compliance program also inchides the conversion, where practicabic, from l
high-sulfur coal to low-sulfur coal. Some units will require additional particulate removal equip-ment, and new units utilizing low-sulfur coal will require high efficiency particulate removal equipment. In August 1973, the Company entered into a contract to purchase 150-200 million tons of 5fontana coal to be delivered over a 26-year period starting in 1976, with a sulfur content of not more than 0.55%. The contract has been extended until 2003 and has nominally 171 million tons remaining. See " Fuel Costs and Supply" for information regarding the Company's cost of coal and possible limitations on the availability of low-sulfur coal.
The Afichigan Legislature is considering amendments to the Afichigan Air and Water Pollution Control Acts, which would, if implemented, significantly increase industrial surveillance fee charges for air and water discharge The current statutory fees are $8,000 and $9,000 per facility for air and water surveillance, respectively. The Company presently pays fees in the approximate amount of $250,000. Passage of those amendments may increase the fees by several million dollars annually.
l Proposed revisions to the Federal Clean Air Act, as amended, dealing with the conversion of sulfur oxide and nitrogen oxide emissions (" acid rain") may be reviewed by Congress in 1981.
l These emissions are alleged to cause acidification of lakes and subsequent loss or extinction of fish populations. Additionally, a Atemorandum of Understanding, entered into between the United l
States and Canada, commits the two countries to the development of study and action programs to attempt to solve the acid rain phenomena. As a result of the proposed statutory amendments and negotiations between the United States and Canada. regulatory restraints may be imposed which could require additional controls, the cost of which cannot be presently determined, on existing power plants.
Water. NPDES permits issued by the AlWRC pursuant to delegation by the EPA under the Federal Water Pollution Control Act Amendments of 1972 for the Company's 13 power plants expired in 1979. The Company has submitted complete renewal applications and under applicable laws regulating administrative proceedings, the expired permits will remain effective until new permits are issued or denied. With respect to existing facilities and plants, the 1972 Amendments require achievement of effluent limitations by at least the "best practicable control technology currently available" by July 1,1977 and, if necessary to meet more stringent State water quality or other standards, by higher levels of controls and, as amended by the Clean Water Act of 1977, will require that certain additional levels of control oser various pollutants be achieved in 1984 and 1987. Pursuant to this activity, the EPA recently proposed new effluent limits for power plants.
These limits, if promulgated, would require additional wastewater treatment modifications and facilities to be installed by July 1, 1984. The Company cannot estimate the cost for such modifications or facilities until such limits are determined.
The Company is required to demonstrate that the cooling water intake structures at all of its facilities reflect the "best technology available for minimizing adverse environmental impact". The Company has filed such demonstrations and the DNR staff has initially rejected those relating te the St. Clair, Conners Creek and Delray Plants, requesting additional information. The staff has made a formal initial decision about the intake at the Company's Afonroe Plant but has not requested additional information on alternative intake technok>gies. In the event of a final adverse decision by the AlWRC, the Company will be required to install additional control technologies to further minimize impact. The State may require the Company to pay damages for unavoidahlc losses of fish even after installing such equipment or where a final decision is reached that existing intakes reflect the appropriate technology.
The Company was required under its Stonroe Plant NPDES permit to demonstrate that l
thermal discharge does not cause an adverse environmental impact on Lake Erie. Such demonstra-14 I
tion was submitted to the MWRC and subsequently approved in October 1976. The demonstration has been under redew by the EPA which indicated that it was tmable to concur in the acceptability of the deomonstration until additional information had been provided with respect to the cooling water intake effects of the plant. Additional information was submitted, but it is unknown what impact this matter will have on the current permit renewal proceedings.
A proposal has been submitted to the Department of Interior by a local conservation group which requests th:..t a large area of the Monroe Harbor, includ;r-the Monroe Plant site, be designated a marine sanctuary under the provisions of the Federai. farine Protection, Research, and Sanctuaries Act of 1972. In the esent that such a designation is made, the Company's Monroc Plant may be subject to further environmental restrictions.
The Michigan Wetland Protection Act, passed in 1979 and enforced by the DNR. requires prior approval for certain activities conducted on wetlands.. While the Company cannot predict the future impact of this legislation, it may affect further building ar d the expansion of existing facilities in areas determined to be wetlands.
l Wastes. The Michigan Solid Waste and Hazardous Waste Management Acts and the Federal Resource Conservation and Recovery Act impact on the Company's handling, storage and disposal of its waste materials. Pursuant to regulations promulgated under the Federal Resource Conserva-tion and Recosery Act, on August 15, 1980, the Company filed with the EPA Notifications of Hazardous Waste Activity which identified locations where the Company generates wastes that may be deemed hazardous under such regulations. These Notifications constituted interim authoriza-tion for the Company to continue to generate such wastes. Additionally, the Company has requested treatment and storage facility status for 10 sites. The cost associated with meeting this status is unknown at this time i~cause the regulations governing these facilities are incomplete.
The Company has applied for disposal site licenses for 4 of its facilities under the Michig,an Solid Waste Management Act. These applications have not, as yet, been acted upon by the State.
However, these facilities were licensed under a prior statute, which licenses expired September 1, 1979.
In December 1980, a decision by the Circuit Court of Appeals for the District of Columbia remanded to the EPA reconsideration of certain requirements relating to the use of PCB's (polychlorinated biphenyls) in transformers and capacitors under the Federal Toxic Substances Control Act. This decision, which could require replacement of most equipment containing PCB, has been stayed pending completion of a study by the end of 1981. Such study may form the basis of new EPA rulemakings on this environmental issue. The immediate effect of this decision is increased Company maintenance and recordkeeping on affected equipment.
1 1
Employes and Executive Officers Employes. The Company has approximately 10,800 full. time employes: their average length ot service with the Company approximates 15.6 years. Of these, about 4,250 hourly. rated operating, maintenance and construction employes are represented by unions under collective bargaining agreements expiring in June 1981 as to approximately 3,500 employes and in August 1983 as to approximately 750 employes.
i l
15
i Exectaive Officers.
Presamt Position Naane g'
Present Position
- Held Mace -
Willian G..\\feese
..... 64 Chairman of the Board and Chief Executive Officer 4-21-75 Walter J..\\fcCarthy, Jr....
55 President and Chief Operating Officer 4-23-79 Ernest I Grove, Jr..... 56 Vice Chairman of the Board and Chief Financial Officer 2-1-80 Charles Af. lieidel.......
55 Executive Vice President-Operations 2 1-77 Robert W. Lundgren 63 Executive Vice President-Administration 11 1-74 l_ eon S. Cohan.
51 Senior Vice President and General Counsel 4-23-79 Wayne II. Jens.
59 Vwe President - Nuclear Operations l-1-80 John W. Johnson, Jr.
57 Vice President - Finance 10- 1-78 Af. Jane Kay.........
55 Vice President - Employe Relations 12-1-78 Frank 51. Kehoe......
61 Vice President and Secretary 4-23-79 Claylmrne Afitchell, Jr..
58 Vice President-Planning and Research I-1-80 Burkhard H. Schneider.. 56 Vice President - Divisions 4 23-79 Harry Tauber....
.... 57 Vice President-Engineering and Construction 4 23-79 Robert O. Wagner.... 61 Vice President-Rates and Financial Evaluation Il-l-80 O. David Whiddon 61 Vice President-Operations 4-24-78 John C. Kennedy 64 Treasurer 3-15-71 William A. Basse.......
58 Controller 10- 1-78 Arnold J. Benes.
..... 59 General Auditor Il-1-68
- As of Af arch 1,1981.
All of the abose officers have been employed by the Company in one or more management capacities during the past five years. Under the Company's By-Laws, the officers of the Company are elected annually by the Board of Directors at a meeting held for such purpose, each to serve
.or one year or until their respective successors are chosen and qualified.
Rates The following table summarizes major electric rate proceedings before the AlPSC sinceJanuary 1,1976.
Rate Increases Requested Rate tnereaws Granted (Annual Revenues Mittions)
(Annual Revenues. Millions)
Final Interim (including Interhn)
$177.9 (April 1975)
)-
$ 62.4 (Af ar.1976) 130.6 (.Niay 1976) 22.9 (Jan.1977) 65.3 (Afay 1977) 122.3 Ouly 1977) 35.4 (Feb.1978) 86.8 (Sept. 1978) 4 166.1 (Dec.1978) 56.9 Ouly 1979) 132.7 (Star.1980) 462.7 (April 1980) 96.1 (Nov.1980)
The above calculations of rate increases granted are ba;-d on the respective test years governing the Company's rate cases; however, revenues actually realized depend upon levels of kWh sales. With the exception of the Alay 1977 order, all final rate orders, as well as certain other i
relatively minor rate orders, are the subject of pending appeals. Interrenors and appellants include i
the AG. governmental units and others. The Company is currently collecting revenues based on the rates authorized in Nosember 1980, as adjusted for the surcharge authoriied under the other operation and maintenance expense indexing plan (discussed below) and as modified by the system generating availability incentive prosision (also discussed below).
16 r
t On Alarch 14, 1980, the A!PSC issued an order granting the Company an increase in annual electric resenues of $132.7 million, including the $56.9 million interim increase effective on July 5, 1979. The order was based on a seturn on common equity of 13.54 and an overall rate of return of 9.25%. The order reaffirmed the indexing system relative to the Company's other operation and maintenance expense, fuel cost adjustment clause, purchased and net interchange power clause system generating availability incentise provision and optional senior citizen's rate estab-lished in prior AIPSC orders. The order established a lifeline residential rate stated to be consistent with the criteria of the Public Utility Regulatory Policies Act and ordered monthly meter reading for residential customers.
On April 30, 1980, the Company filed an application with the SIPSC seeking authority to in-crease its electric rates and charges in the approximate amount of $163 million annually (includ-l ing interim relief) based on a projected 1981 test year. Among other things, the Company stated in its application that its financial condition is "still serv poor" w hen measured by fixed charge cmer-age, return on common equity, earnings per share, common stock market value in relation to bond value, and quality ratings on senior securities, and is " declining again under the intensise continuing pressure of unchecked double-digit infhtion, record levels of short-term and lor.g-term interest rates, and sharp increases in other costs". Contemporaneous!y, the Company filed motions for 1960 interim relief of approximately $155 million annually based on a 1950 test year, and for 1981 interim relief, as of Januan 1.1981, of an additional $162 million annually. Effectise Nmember 7,1950, the 51P5C authorized an interim annual resenue increase of $96.1 million.
Certain industrial intenenors base applied to the StPSC for rehearing and reconsideration of the order granting the Company interim rate relief. The NIPSC Staff recommended final rate relief of
$186 million based on a projected 1981 test year. The Company filed rebuttal testimony which asserted that the.\\lPSC Staff case would support an annual revenue deficiency of $350 million. On December 16, 1950, the MPSC affirmed a ruling of the Administratise law Judge denying the Company's motion for 1981 interim relief. On January 8,1981, the Company filed a motion for reconsideration and rehearing of the MPSC's order denying 1951 interim relief.
Pursuant to the system generating availability incentive prmision, the Company receised an order from the NIPSC, effect ie June 6,1979, which increased its authorized return on common equity by 0.259. This increa < provided for $5.9 million in additional revenues to be collected mer the following 12-month p-riod. Based or the Company's system generating availability for the year 1979, the Company received an order, effective June 10.1950, authorizing a 0.5% increase in its return on common equity to be collected mer a 12-month period and prmiding for a revenue incre se of approximately 512.4 million above currently authorized rates. Based on 1980 generat-ing availability, the Company expects to receise an order in June 1981 authorizing $6.6 million in additional resenues atxne the lesel authorized in its last rate order. This increase represents a 0.254 increase in authorized return on common equity abme the current authorized level to be cullected mer a 12. month period.
Commencing with February 1980 billings, the Company was authorized to collect by surcharge over a 12. month period an additional 532.7 million under the other operation and maintenance expense indexing plan. Commencing with February 1981 billings, the Company was authorized to collect by surcharge mer a 12-month period an additional 539.2 million under the mdexing plan.
Pursuant to authorization by the FERC, rates to the Companis wholesale for resale customers were increased by $1.2 million effectne Apnl 1,1980. On Januan 12,1981, the Company filed an application with the FERC requesting a further increase in wholesale for resale customer rates. A settlement agreement has been reached stipulating an increase in rates of $5.8 million, effectise May 1,1981 subject to FERC approval, and stipulating that further increees may not be placed into ef fect prior to December 1,1982.
On August 8.1930. the Ct npany receised an order from the MPSC authorizing a $2.6 million im rease in revenues for its district steam heating operations. The order also prmided for an other operation and maintenance expense indexing adjustment similar to that prmided nor its electric 17
operations, and requires the Company to submit studies concerning the economics of its steam heating system which are to be reviewed with the hiPSC Staff and any interested parties peddically, By AIPSC order issued February 10, 1981, the Company was authorized to collect an additional $0.9 million through the other operation and maintenance expense indexing surcharge.
The August 1980 order also provides a moratorium for rate increases until July 1,1982.
A 1%% late payment charge on any overdue bill was authorized by the hlPSC on January 31, 1981 applicable to certain residential customers, This charge is the same as presently applicable tc the Company's commercial and industrial customers.
See " Fuel Costs and Supply"," Regulation", Item 7 - Afanagement's Discussion and Analysis of Financial Condition and Results of Operations and Notes 10 and 12.
CERTAIN OPERATING STATISTICS Year Ended December 31 1980 IMS IM8 1977 1976 Source of Electric Energy (thousands of kWh):
Generated 32,983,000 35,347,429 33,478,911 34,107,701 33,438,611 Purchased and net interchange,
4,148,314 4,245,072 6,451,302 5,130,213 4,607,117 Total Output,
37,131,314 39,592,501 39,930,213 39,237,914 38,045,728 losses and Company use.
(2,896,199)
(2,701,471)
(2,781,896)
E 2,623,618)
(2,717,715)
Total Electric Energy Sold,
34.235,115 36.891,030 37,148,317 36,614.296 35,328,013 Total Cost Per kWh Sold 4.26e 3.78v 3.59e 3.28t 2.95c Sales:
Electric (thousands of kWh):
hsidential..
10,393,593 10,273,768 10,385,668 10,384,883 10,105,004 Commercial.
6,264,696 6,250,972 6,072,673 6,027,162 5,802,336 Industrial.
15,472,050 17,959,793 18,353,998 17,915,472 17,2F',076 Sales for resale.
1,250,839 1,563,787 1,522,134 1,511,865 1,426,474 Municipal and other 853,937 842,710 813,844 774,914 741,123 Total Electric Sales,
34,235,115 36,891,030 37,148,317 36.614.296 35,328,013 Steam Service (thousands of lbs.),
4,918,603 5,253,558 5,470,606
- 5. 799h93 6 267,657 Operating hvenues (thousands):
Electric-Residential.
. $ 583,701
$ 524,613
$ 497,988
$ 464,906
$ 408,828 Commercial,
382,018 345,576 313,673 291,220 254,363 Industrial.
658,051 647,438 611,404 539,469 463,174 Sales hr resale 55,880 57,965 54,443 47,789 39,947 Municipal and other 96,714 92,087 83,788 80,525 75,571 Total Electric Revenues,
$1,776,364
$1.667,679
$1,561,296
$1,423.909
$1,241,883 Steam 36,150 30,832 28,546 27,012 24,284 Total Operating Revenues,
$ 1,812,514
$ 1,698.511
$ 1,589.842
$ 1,450,921
$ 1,266,167 Customers (end of period):
Electric-hsidential.
1,623,162 1,622,768 1,600,988 1,579,607 1,560,669 Commercial.
136,983 135,788
- 27,634 118,942 118,107 Industrial.
2,293 2,264 2,201 2,126 2,018 Other.
1,750 1,713 1,675 1,648 1,589 Total Electric,
1,764,188 1,762,533 1,732,498 1,702,323 1,682,383 Steam 757 796 836 865 913 Average Charge Per kWh:
Residential,
5.62r 5.11e 4.7w 4.48<
4.05t Commercial.
6.10 5.53 5.16 4.83 4.38 Industrial.
4.25 3.60 3.33 3.01 2.68 Average Annual Use Per Residential Customer ikWh) 6,408 6,402 6,529 6,616 6,518 System Imad Factor.
63.1%
66 n 62.34 60.7%
65.5%
18
l Item 3 -Legal Proceedings.
The Company is required to obtain StPSC approval for the type and amount of its securities issues (other than certain short-term obligations). By its order of April 1,1980, the AIPSC authorized external debt and equity financing of up to $625 million for the Company's 1980 capital expenditure program and refunding obligations. Interrenors in the proceedings before the AIPSC appealed the April 1,1980 order to the Stichigan Court of Appeals, which Court dismissed the appeal and refused to grant the intervenors' motion for a stay of the hiPSC's order. In July 1980, the interrenors filed an Application for Lease to Appeal with the Stichigan Supreme Court, which Application has not been ruled upon by the Supreme Court. During the pendency of these legal proceedings, the Company issued 6.25 mi!! ion shares of Common Stock, 650,000 shares of Preferred Stock and $100 million of Afortgage Bonds based upon the authority granted by the hf PSC's April 1,1980 order. Section 460.301 of the.\\fichigan Compiled Laws provides, in part, that " Stocks, bonds... issued pursuant to an order of the commission [.\\tPSC] shall be binding in acconiance with their terms notwithstanding that the order of the commission is later vacated, modified, or otherwise held to be invalid unless.. : (a) operation of the order of the commission
[5f PSC] has been stayed or suspended by the reviewing court before issuance...". At no time was the April 1,1980 51PSC order stayed or suspended.
In Alay 19/9, on behalf of a purported class of ratepayers, se ral residential customers of the Company filed a complaint with the $1PSC alleging that the Company had overcollected in excess l
of $20 million from residential customers as a result of estimating practices utilized in rendering j
monthly billings based on bi-monthly meter readings. In June 1%, the A!PSC dismissed the complaint; and in July 1980, the plaintiffs filed suit in the C.cuit Court for Wayne County, l
Alichigan alleging damages in the amount of $30 million. In September 1980, the Court granted a Afotion for Summary judgment filed by the Company. Following a denial of their Afotion for Rehearing, in January 1981, the plaintiffs filed an appeal with the Af:chigan Court of Appeals. As a result of an order, dated Af arch 14, 1980, of the AlPSC, the Company has implemented a monthly meter reading program. The Company's previous bi-monthly meter reading program was approved by the htPSC, and the Company believes that its bi-monthly meter readings were reasonable and proper.
WEC holds a 79% undisided interest in certain uranium mining claims and leases in the State of Wyoming, referred to as the Kay cee Properties. Und. r the terms of a Joint Operating Agreement, U.S. Energy Corp. ("USE") has been designated the operator of the Kaycee Properties; and under the terms of a 5 fining Agreement and Escrow Agreement, a 21% undivided interest in the Kaycee Properties is being held in escrow for USE pending the delivery to WEC on or before November 30,1981 of 250,000 pounds of milled uranium concentrates. The mining claims are administered by the U.S. Bureau of Land 5fanagement ("EL51"). In November 1980, the BLN1 notified WEC that the mining claims had been deemed abandoned and void due to a failure to file certain required annual documentation. WEC has appealed the BLAl's determina.
tion to the U.S. Board of Land Appeals. In the interim, the mining claims covered by the Kaycee Properties have been claimed by USE and/or its employes. WEC expects to recover these claims through legal proceedings instituted against USE and certain of its employes in the United States District Court for the City and County of Cheyenne and the State of Wyoming seeking a judicial declaration that the mining claims, if any, held by USE and/or its employes are held for the benefit of WEC and further seeking a determination that USE is not entitled to a 21% interest in the Kaycee Properties as a result of an anticipatory breach of USE's agreement to deliver uranium concentrates in November 1981. The Company is not relying on the recovery of uranium from the Kaycee Properties to meet fuel requirements for Enrico Fermi Unit No. 2. Through December 31, 1980, WEC had invested approximately $12 million in the Kaycee Properties.
SCE is a partner with The Hanover Group. Inc. ("Ilanmer") in a partnership for the mining k
of coal on properties subject to coal leases located in eastern Kentucky acquired in 1977 from Titus Frederick under a purchase agreement. Certain defects were discovered in the title to the partnership's coal properties; and in 1979 SCE instituted proceedings in the United States District 19
Court for the Eastern District of Kentucky seeking dissolution aad final accounting of the partnership, recission of the purchase agreement and damages. Frederick counterclaimed seeking
$14 million. the unpaid balance of the purchase price for the properties. On Oaober 20,1980, SCE's motion for summary judgment was granted rescinding the purchase agreement and dismissing Frederick's counterclaim and the time for appeal with respect to this ruling has expired.
The Court ordered SCE and llanover to tender title to the coal leases to the Court and Frederick was ordered to deposit $2 million with the Court on or before Nosember 17, 1980. ' Title documents were tendered in a timely fashion but Frederick failed to deposit the $2 million. On December 18, 1980, the Court entered a second order for deposit of $2 million. Frederick failed to comply with the order. On February 9,1981, the Court entered an order which prosides that SCE and Hanover are reliesed of any obligation to return the coal properties to Frederick, all claims of SCE and llanoser against Frederick (except for indemnity and contribution related to third party claims) are dismissed and Frederick is prevented from asserting any claims against SCE and Hanover. SCE and Hanover have entered into an agreement which provides that SCE will transfer its interest in the properties to Hanover and that Hanover will operate the coal properties without recourse to SCE and subject to roya, myments to SCE not to exceed $6 million. The Company does not presently rely on these coal properties for any part of its present or future coal requirements. Through December 31,1980, SCE had irnested approximately $4 million in these Kentucky properties.
See items I and 2 - Business and Properties, " Fuel Costs and Supply, Gnal for information with respect to litigation involving Burlington and the Afontana Coal Seserance Tax.
See Notes 10,12 and 13 for information relating to rate proceedings.
See Note 14 for information relating to employment discrimination litigation.
The Company, in the ordinary course of its business, is invol ed in a number of suits and controversies, including claims for personal injuries and property damages and matters intohing zoning ordinances and other regulatory matters. As of December 31, 1980, the Company was named as defendant in 221 lawsuits intohing claims for personal injuries and property damages and had been adsised of 61 other potential claims not evidenced by lawsuits.
From time to time the Company has paid nominal penalties wmch were administratively assessed by the U.S. Coast Guard, U.S. Department of Transportation under the Federal Water i
Pollution Control Act, as amended, with respect to minor accidental oil spills from the Company's power plants into navigable waters of the United States. Payment of such penalties represents full disposition of these matters. See items 1 and 2 - Business and Properties, " Environmental Statters" for informati<m with respect to certain other environmental proceedings.
Item 4 -Security Ownership of Certain Beneficial Owners and Management.
Information regarding ownership of equity securities is hereby incorporated herein by refer-ence to the heading "Afanagement Ownership of Company Equity Securities" on page 5 of the Company's definitive proxy statement dated afarch 23, 1981, in connection with its Annual Niceting of Shareholders to be held April 2",1981.
a j
i I
}
3 20 4
,-me
PART II Item 5-Market for the Registrant's Comneon Stoch and Related Security Holder Matters.
The Company's Common Stock is listed only on the New York Stock Exchange, which is the principal market for such stock. The following table indicates the reported high and low sales prices of the Company's Common Stock on the Composite Tape and dividends paid per share for each quarterly period during the past two years:
Meads Price Range Paid Calendar Quarter g
g Per Share 1979 First..
$15% $13%
$0.38 15 %
13 %
0.40 Second Third 15 %
13 %
0.40 15 %
12 %
0.40 Fourth 13 %
10 %
0.40 1980 First Second 137/s 11 %
0.40 Third 13 %
11%
0.40 Fourth 12 %
10 0.40 At Af arch 9, 1981, 85,051,422 shares of the Company's Common Stock were oustanding. The number of record holders as of that date was 241,850.
The amount of retained eainings of the Company at December 31,1980 was $376.3 million, of which $14 million was restricted under a covenant relating to the Company's General and Refunding.\\fortgage Bonds, Series 1, as to payment of dividends and other distributions, except dividends payable in Common Stock. The amount of future dividends will depend upon the Company's earnings (which in turn are dependent, among other things, upon levels of kWh sales and timely and adequate rate relief), capital requirements, financial condition and other factors.
Item 6-Selected Financial Data.
Year Ended December 31 19AO 1979 11r78 1977 1976 iThousands)
Operating Revenues.
. $1,812,514 $ 1,698,511 $ 1,589,842 $ 1,450,921 $ 1,266,167 Net income.
.$ 188,566 $ 176,029 $ 146,869 $ 144,515 $ 119,625 Earnings for Common Stock.
.$ 137,529 $ 132,572 $ 108,813 $ 110,420 $
85,036 Earnings Per Common Share 1.75 $
1.90 $
1.76 $
2.00 $
l.66 Dividends Declared Per Share u Common Stock 1.60 $
1.60 $
1.52 $
1.4675 $
1.45 At year-end:
Total Assets.
. $5,741,686 $5,146,023 $4,631,487 $4,132.724 $3,857,332 fong-Term Debt Obligations and Redeemable Preferred and Preferente Stuk Outstanding. $2.809,976 $2,332,200 $2,096,540 $ 1.888.740 $ 1,793,340 Item 7-Management's Discussion and Analysis of Financial Condition and Results of Operations.
Consolidated Statement of Income General. Throughout the three-year period, the Company experienced increased operating expenses reflecting the effects of inflation, and high costs of capital associated with its continuing capital expenditure program. Also, beginning in mid.1979 and throughout 1980, recessionary conditions existed throughout much of the Company's service area, marked by reduced industrial 21
1 activity, related employe layoffs and continued energy conservation, which resulted in substantially lower kWh sales to customers.
Although rate increases were received during this three-year period, they were neither timely nor adequate to permit the Company to earn its authorized rate of return on common equity.
Operating Revenues. Approximately 97% of the Company's operating revenues are subject to the jurisdiction of the AtPSC, with the remaining 3% subject to the jurisdiction of the FERC.
Operating revenues increased in each of the last three years due primarily to rate increases, revenues received under the fuel and purchased power adjustment billing clauses which were in effect throughout the period, and a 1.5% increase in k W h sales in 1978. The estimated significance of these factors is shown in the following table:
Essinated increase (Decrease) From Prior Year 1990 1979 1978 (Millions)
Rate increases and fuel and purchased power adjustment billing clauses
$180
$120
$136 (83)
(5) 16 Kilowatthour sales.
17 (f4 (13)
Other - net
$114
$109
$139 Rate increases authorized by the AlPSC include $86.8 million annually effective in September 1978 (including interim of $35. I million in February 1978) and $132.7 million annually effective in Alarch 1980 (including interim of $56.9 million effective in July 1979 when Greenwood Unit No. I was placed into service). Effective in November 1980, the AtPSC authorized an interim annual rate increase of $96.1 million in the Company's pen' ling application for (m increase in rates. Rate increases in 1979 and 1980 also include billing surcharges under the AIPSC other operation and maintenance expense indexing and the system generating availability incentive provisions. The rate increase amounts authorized by the.\\lPSC are based on the respective test years governing the Company's rate cases; however, revenues actually realized depend upon levels of kWh sales.
h.1978, revenues received under the fuel and purchased power adjustment billing clauses were increased by the recovery of 90% of the significantly higher fuel and purchased power costs incurred in the first quarter of 1978 as a result of the coal miners strike, severe winter weather and weather-related coal handling problems.
During 1979, the Company experienced a 0.7% reduction in kWh sales (with industrial sales down 2.1%, residential sales down 1.1% and commercial sales up 2.99) due to reduced industrial activity reflecting slowdowns in automod"e and automotive-related activities, cooler than normal weather during the air conditioning season, mild weather affecting heating sales, and customer conservation.
in 1980, kWh sales decreased 7.2% (with industrial sales down 13.9%, residential sales up 1.2% and commercial sales up 0.2%). The decline in sales reflects reduced industrial activity, particularly on the part of automotive and automotive-related manufacturers, with automotive production down significantly from 1979 levels, other recessionary conditions in the Company's service area and continued customer conservati(m. The increase in residential kWh sales in 1980 reflects an increase in residential customers, warmer summer weather which increased customer use of air-conditioners and dehumidifiers and colder fall weather which increased customer use of furnaces and other heating equipment.
Operating Expernes. Operating expenses increased during the three years ended December 31, 1980, as did the total cost per kWh sold. Fuel expense increased during this period due primarily to the higher costs of all fuels consumed resulting from greater use of higher cost low-sulfur coals 22
f to comply with environmental requirements, United hiine Workers contract wage increases, mine j
reclamation costs, coal freight rate increases, other escalations and significant oil price increases.
Coal consumption at the Company's electric generating plants as a percentage of total fuel consumed, was approximately 82%, 86%, and 90% in 1978,1979, and 1980, respectively, and the aserage cost per ton of coal consumed was $28.52, $33.35 and $37.72, respectively. Increased higher cost generation from oil-fired units was necessary in 1978 due to the coal miners strike. A significant increa<e in other power supply expense occurred in 1978 as a result of severe winter weather, the coal miners strike and higher costs of purchased power. Other power supply expense decreased in 1979 and 1980, as compared to 1978, due to a reduction in purchased power and increased sales of energy to other utilities, reflecting increased Company generation and declines in kWh sales. Other operation expense increased due primarily to higher labor and employe benefit costs, general inflati(mary increases in other costs and accruals for settlements of two cases l
which involved claims of employment discrimination (see Note 14). 51aintenance expense increased due primarily to higher labor and material costs and continuing efforts to improve the availability i
and efficiency of all generating equipment. Depreciation expense increased as a result of higher i
composite depreciation rates approved by the SIPSC effective in September 1978 and an increase in depreciable property, including Greenwood Unit No. I which was placed into ser ice in 1979.
Taxes other than income taxes increased due to increased property taxes payroll taxes and the Stichigan single business tax. (See Note 7 for components of income taxes and a reconciliation of the federal income tax statutory rate with total income tax expense.) Current income taxes and investment tax credits decreased in 1980 to negative amounts because the Company will report a loss for federal income tax purposes in 1980 as a result of claiming an abandonment loss for the costs associated with Greenwood Unit Nos. 2 and 3 (see Note 13). The loss for federal income tax purposes in 1980 will be carried bxk to 1977 and will result in a reduction in the amount of investment tax credits previously claimed by the Company. Deferred income taxes increased in 1980 due primarily to recording the deferred tax liability of approximately $25 million related to the Greenwood abandonment loss, which has been deferred for financial reporting purposes. The
$4.2 million credit adjustment to deferred Alichigan income taxes in each of the three years ended December 31,1980 (shown in Note 7) will not be recorded in 1981 because the Company has completed amortization of the accumulated balances of deferred 5fichigan income taxes as ordered by the SIPSC.
Costs of Capital Interest on long-term debt, preferred and preference stock dividend require-ments and dividends on common shares outstanding increased due primarily to the issuance of additional securities at higher interest and dividend rates to finance the Company's continuing capital expenditure program and, to a lesser extent, refunding of maturing security issues at higher costs of capital. Interest on long-term debt has also increased due to higher interest rates on the $155 million Unsecured Promissory Notes, which are adjusted quaiterly based on the prime rate. Other interest expense has increased due primarily to higher lesels of short-term borrowings 3
at higher interest rates. The average interest rate for short-term borrowings increased from 8.4%
j in 1978 to 12.0% in 1979 and 15.1% in 1980.
Earnings for Common Stock. In light of the foregemg, earnings declined for 1978 as the i
Company experienced lower than anticipated growth in kWh sales, inadequate and delayed rate 3
increases and higher operating expenses. The improsement in earnings for 1979, de pite lower i
kWh sales. was due primarily to increased operating revenues resulting from rate increases. In 1980, earnings for common stock increased despite lower kWh sales and increases in operating expenses and financial costs. However, earnings per share declined due to the substartial increase in the aserage number of common shares outstanding.
Earnings for common stock include AFUDC, a non operating non-cash item, consisting of the net cost of borrowed funds used for construction purposes and a reasonable rate on other funds when so used. AFUDC increased due to increases in the AFUDC rate (in recognition of increasing cias of capital), additional construction work in progress expenditures and capitalization of the actual interest expense and commitment fees applicable to the Belle River Project Financing 23
.~
arrangement entered into in Afay 1980. AFUDC amounted to 61%,61% and 77% of earnings for common stock in 1978,1979 and 1980, respectively. See Note 1.
Return on average common equity was 9.16%, 9.91% and 9.39% for 1978,1979 and 1980, respectively, as compared with the 13.561 return authorized by the.Nf PSC since Slay 1977.
Consolidated Balance Sheet increases in total assets and total liabilities are due primarily to expenditures for and external financing of the Company's continuing capital expenditure program.
Electric plant m service was increased by $381 million in 1979, with a corresponding decrease in construction work in progress, when Greenwomi Unit No.1, an oil-fired generating unit, was placed into service. Construction work in progress was decreased by S71 million in 1980, with a corresponding increase in extraordinary property losses as a result of the decision not to construct Greenwomi Unit Nos. 2 and 3.
At December 31,1980, non-utility property and other deferred debits included approximately
$4 million for SCE and approximately $12 million for WEC, imth of which are wholly-owned subsidiaries of the Company. SCE is a 51% partner in the mining of coal. The partnership discontinued mining operations in June 1978 and a purchase agreement for certain coal properties has been rescinded. Legal proceedings in this matter are continuing. WEC has a 79% undivided interest in certain uranium mining claims and leases. Uranium mining operations were terminated in November 1979 due to the high mining costs encountered. WEC plans to resume mining operations when the current depressed market price for uranium improves and mining operations become economical. See item 3 - Legai Proceedings.
Customer ecounts receivable reflect 30.0 and 35.2 days of revenues ontstanding at December 31,1979 and 1380, respectively. Uncollectible expense increased from $6.8 million in 1978 and 1979 to S8A million in 1980, reflecting higher unemployment and recessionaq conditions in the Company's service area.
.\\taterials and supplies inventories have increased due to longer lead times on reordering certain stock items, additional spare parts and operating supplies to support the Company's capital expenditure and maintenance programs and higher unit prices reflecting the effects of inflation.
Fuel inventories have increased due to higher inventory quantities of fuel at higher unit prices.
The Company's long-term debt to total capitalization ratio increased from 52.09 at December 31,1979 to 53.6% at December 31, 1980, reflecting a higher proportion of external financing through long-term debt borrowings in 1980, including the Belle River Project Financing arrange-ment. Common shareholders' equity decreased from 35.2% at December 31,1979 to 33A% at December 31,1980, notwithstanding the issuance of 9,572,721 addition < common shares in 1980.
Accumulated deferred investment tax credits decreased at December 31,1980 due primarily to the decision not to construct Greenwood Unit Nos. 2 and 3, which resulted in a reduction of investment tax credits previously claimed by the Company.
Liquidity and Capital Resources in the past several years, the Company's large capital expenditure program and increased working capital requirements (especially fuel inventories) and capital costs (interest and dividends) hase created increasing cash needs which hase had to be met to a greater degree through external Internally generated cash flow provided 20%, 239 and 159 of capital expenditures sou rces.
(ex luding total AFUDC) in 1978,1979 and 1980, respectively, with the balance beNg provided by external financing. Internal cash generation at the 15% to 209 level is expened to continue durir g, the periods when the largest expenditures for Enrico Fermi Unit No. 2 am' the Helle River Units are scheduled, and cash needs for total capital expenditures from 1981 to 1985 are estimated to approximate S3.1 billic. (excluding 50.6 billion of AFUDC), including expenditures 24 I
expected to aserage about 20% of annual totals to meet pollution control regulations. In 1981, the Company expects capital expenditures (excluding AFUDC) of approximately $718 million and approximately $645 million of external financing (including approximately $265 million under its Belle Riser project financing arrangement). The sale of substantial amounts of debt and equity securities, which is dependent up< n receipt of periodic financing authority from the SIPSC, will be required for the Company to meet its short and long range cash needs. When Enrico Fermi Unit No. 2 and the Belle Riser Units are in service, cash flow from operati<ms is expected to increase.
In addition to its continuing needs for long-term debt and equity funds. short-term borrowings are used as a part of normal day-to-day operations and to meet interim cash needs for capital projects, pending periodic reduction or repayment through long-term financi 4g. At December 31, 1980, the Company had lines of credit asc ;egating approximately $219 m liion. Any material disruption in the securities markets or any other circumstance that might s gnificantly delay or restrio the Company's access to long-term debt or equity financing would increase reliance on short-term borrowings and, depending on the circumstances could adversely affect the Companfs financial condition, result in delays or suspension of major construction projects, and could in the future adsersely affect service.
The Compan3 plans to carry out a financing program to achiese a capital structure objectise of approximately 501-559 fong-term debt. 109-159 preferred and preference stock. and 359 common equity. Considering the large number of common shares that must be sold to achiese and maintain this ratio. and currently deprewed common stock prices, common equity may remain below the 359 goal oser the next seseral years. When the present major power plant construction program is completed, external needs for additional funds are expected to decrease and a common equity ratio abose 359, and a debt ratio closer to 509. are likely.
In order to proside a specific source of funds to finance Belle Riser Unit No. I and the common facilities for Unit No. 2, an 5800 million project financing arrangement with a number of banks was completed in 1950. Under this financing arrangement, funds are drawn down on a monthly basis as required for construction. Repay ment of the loans tincluding interest and commitment fees which are now being capitalized) will begin not later than January 1,1935 at the rate of $50 million per quarter, with refunding expected through sales of.\\lortgage Bonds.
A portion of capital needs hase been met through leases for such equipment as computers.
cars, trucks, unit trains, lake sessels and buildings. Nuclear fuel finar:cing of up to $90 million, through an agreement whereby repayments will be made as the fuel is consumed, was completed in 1979. The Company has also sold 209 of the capacity of its propowd Enrico Fermi Unit No. 2 to two Alichigan Cooperatises, with the Cooperatives agreeing to bear 209 of construction (osts of that plant.
See items 1 and 2 - Businew and Properties ~ Capital Expenditure Program and Financing.
Inflation The Companfs business and operations base been and will continue to be impacted by a highly inflationary emnomy. See Note 18 for information concerning the approximate effects of inflation on the Company.
k I
Item 8 -Financial Statements and Supplementary Data.
The following consolidated financial statements are included herein:
Page Report of Independent Accountants 2e Conso'idated Statement of Income 28 Consolidated Statement of Changes in Financial Position....
29 Convilidated Balance Sheet.
30 Conwlidated Statement of Common Shareholders' Equity 32 Conwlidated Statement of Cumulatise Preferred and Preference Stock 33 Conwlidated Statement of 12mg-Term Debt...
34 Notes to Consolidated Financial Statements....
35 Schedule V - Property. Plant and Equipment.
55 Schedule VI-Accumulated Depreciation, Depletion and Amortization of Property, Plant and Equipment.
57 Schedule VIII-Valuation and Qualif ing Accounts 58 3
Schedule IX - Short. Term Borrowings.
59 Schedule X -Supplementary income Statement Imormation....
60 NOTE:
All other schedules and portions of included schedules are omitted because they are not applicable or the required information is shown in the consolidated financial statements or notes thereto.
The Company's individual financial statements have been omitted since the Company is primarily an operating company and all subsidiaries included in the consolidated financial state-ments being filed. in the aggregate, do not hase minority equity interests anWor indebtedness to any person other than the Company or its conwlidated subsidiaries in amounts which together exceed 5 percent of the total assets as shown in the December 31,1980 consolidated balance sheet.
t i
26
REPORT OF INDEPENDENT ACCOUNTANTS To the lloard of Directors and Shareholders of Tilt del Roll-EntsoN CostPANY In our opinion, the consolidated financial statements listed in the preceding index present fairly the financial 1mition of The Detroit Edison Company and its subsidiary companies at December 31,1980 and 1979, and the results of their operations and the changes in thnr financial prition for each of the three years in the period e nded December 31,1980, in conformity with generally accepted nccounting principles consistent y applied. Our examinations of these state-ments were made in accordance wi'h generally accepted auditing standards and accordingly included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances.
PRICE WATERilOUSE & CO.
Detroit, Michigan February 13, 1981 I
27 L
TIIE DETROIT EDISON COMPANY AND SUBSIDIARY COMPANIES CONSOLIDATED STATEMENT GT INCOME Year Ended Decessher 31 1980 1979 1978 rrbousande)
OPERATING REVENUES Elec t ric.............................................. $1,776,364 $ 1,667,679 $ 1,561,296 Steam...
36,150 30,832 28,546 Total Operating Revenues..................... $1.812.5 8;t $ 1,698,511 $ 1,589,842 OPERATING EXPENSES Operation expense Fuel..............
............................ $ 6 7 t.1 16 $ 647,620 $ 580,869 Other power supply..............................
107,767 96,502 158,098 Other operation expense........
2"J,566 266,410 235,720 5f aintenance expense.........................
133,270 128,600 124,804 Provision for depreciation (Note 1)....
141,948 129,644 115.325 Provision for taxes (Notes 1 and 7)
Taxes, other than income.
115,520 99,552 91,488 Current income taxes..
(307) 5,063 4,671 Deferred income taxes-net.............
59,159 40,359 27,980 Investment tax credit-net..
(21,840) 9,284 24,035 Total Operating Expenses
......... $ 1,496,199 $ 1,423,034 $ 1,362,990 Operating Income.
.... $ 316,315 $ 275,477 $ 226,852 OTilER INCOhfE AND DEDUCTIONS Allowance for other funds used during construction (Note 1).
38,815 $
38,323 $
32,273 Other income and deductions.
692 3,664 2,371 Income taxes (Note 7)....
(669)
(1,554)
(1,228)
Total Other income and Deductions.............. $
38.838 $
40.433 $
33,416 Income Before Interest Charges............... $ 355,153 $ 315,910 $ 260,268 INTEREST CliARGES Long-term debt..
......................... $ 21 1,85 7 $ 167,585 $ 140,288 Amortization of debt discount, premium and expense..
1,776 1,644 1,403 Other.
19,062 13,823 5,298 Allowance for borrowed funds used during construction (66,708)
(43,171)
(33,590)
(credit) (Note 1).........
Net interest Charges 166,587 $ 139,881 $ 113,399
$ 188,566 $ 176,029 $ 146,869 NET INCONIE.
Preferred and Preference Stock Dividend Requirements...
51,037 43,457 38,056 EARNINGS FOR COAfhf0N STOCK...
137,529 $ 132.572 $ 108.813 CO.Nf 5f0N SIIARES OUTSTANDING-AVERAGE 78,780,863 69,848,484 61,898.763 1.75 $
1.90 $
l.76 EARNINGS PER SilARE (See accompanying Notes to Consolidated Financial Statements) l 28
THE DETROIT EDISON COMPANY AND SUBSIDIARY COMPANIES CONSOLIDATED STATEMENT OF CHANGES IN FINANCIAL POSITION Year Emded Demeber 38 tese sets sets (Thoessado)
FINANCIAL RESOURCES PROVIDED:
Net Income.
$188,566 8 176,029 8 146,869 Items not affectmg working capital-Depreciation....
141,948 129,644 115,325 Deferred income taxes-net.
59,176 41,777 28,910 Investment tax credit-net....
(21,840) 9.284 24.035 Allowance for other funds used durmg construction (Note 1).
(38.815)
(38,323)
(32.273)
Other.
1.982 3,129 (785)
Financial resources provided by operations 3331,017 3 321,540 $ 282,081 Funds received from Trustees:
Collateralized pollution control bonds.
30,963 37,947 41.867 Installment sales contracts.
1,500 2,116 Sale of general and refunding mortgage bonds 148.773 247,131 137,442 Belle River Project Financing (Note 61 212.729 Sale of preferred stock...
93,660 35,024 59,158 Sale of unsecured promissory notes.
49,956 Sale of common stock..
109.022 110.554 97,478 lasuance of common stock on conversions of convertible cumulative preferred stock, 5%% series 8.043 16,442 13.220 Sale of capitalized costs alatmg to nuclear fuel (Note 9).
9,526 Other-net..
6.642 (184i 42.933)
Total.
$990.805 $ 779,480
$ 630.429 FINANCIAL RESOURCES USED:
Plant and equipment expenditures.
$644,234 8 588,473 $ 639,494 Investment in
'l supply through subsidiaries.
306 2.916 3,182 Total capita.xpenditures
$644,540 $ 591,389 $ 642,676 Allowance for other funds used during construction (Note 1).
(38.815)
(38.323)
(32.273)
$605,725 8 553,066 8 610,403 Dividends on common, preferred and preference stock 179,159 156.661 133,441 Conve sions of convertible cumulative preferred stock,5%4 series.
8,055 16.469 13,223 Redemption or reclassification of long term debt and preference stock..
69.200 65.695 78,700 Storm damage costs tNote 13) 9,712 12,783 Increase (decr Me) in workMg capital *.
118.954 (25,1941 (205.338)
Total.
$990.805 $ 779.480
$ 630.429
- ANALYSIS OF CHANGES IN WORKING CAPITAL:
Increase (decrease) in current assets:
Cash.
8 3,792
$ (1,685) $ (1,701)
Temporary cash investments.
185,134)
Accounts receivable.
32.959 (11,332) 24.280 Inventories.
49,461 69,191 31,393 Recoverabie fuel costa (1,106)
Prepayments (2,620) 2,061 616 8 83,592 3 58.235
$ (31,652)
(Increase) decrease in current liabilities:
Short. term borrowings...
.. $ 77,124 $ (91,706) $ (33,224)
Long 'erm debt due within one year.
(1,005) 15,505 (77,2001 Preference stock sinking fund requirement due within one year 1,356 (2,460)
Accounts payable.
(2,852) 22,185 (30,118)
Property, general and income taxes.
(14.556)
(11,491)
(5,231)
Other.
(24,705)
(15,46n
- 27,213)
$ 35.362 3 883,429) $1173.686)
Increase (decrease) in working capital.
$118,954 8 425.1941 $1205,338)
(See accompanying Notes to Consolidated Financial Statements) 29
F f
t THE DETROIT EDISON COMPANY AND SUBSIDIARY COMPANIES CONSOLIDATED BALANCE SHEET ASSETS Doeomber SI sees sero UTILITY PROPERTIES (Notes 1, 9 and 16)
Plant in sersice and heki for future use Electric
................................. $ 4.590.4 9 7 $ 4,397,250 Steam........................................................
44.169 41.964
$4,634,666 $4.439,214 Irss: Ac cumulated depr eciation............................ f l.187.254 ' (1.069.194) 53,447,416 $3,370,020 Construction work in progren.
1.578.829 1.220,809
$5.026.245 $4,590.M29 i
OTHER PROPERTY AND INVESTMENTS Imestment in coal supply 4.200 $
4,550 Non utility property and other.....
14.052 12.682 18.252 $
17.232 CURRENT ASSETS Cash (Note 2)....
6.226 $
2,434 Customer accounts receivable (less allowance for uncollectibic accounts of $8.800,000 and $7.500.000, respectisely) 176,490 152.248 Other accounts receivable 17.286 8.569 l
Imenturies (Note 1)
Fuel....
260.112 224,472 88,033 74.212 Materials and supplies..........,...
1,415 1.415 l
Recoserabic fuel unts (Note 10) i Prepa)ments..................
2.767 5.387
$ 552.329 $ 468.737 I
l DEFERRED DElllTS
/
20.186 $
19.072 Unamortiied debt expense...
Accumu ated deferred income taxes (Note 1)....................
8.549 9.458 l
Extraordinary property lunes (Note 13).
101,116 22.945 Other..............................................
15.009 17.750
$ 144.860 $
69.225 Tota l................................................... $ 5.7 4 1.6 86 $5.146.023 (See accompanying Notes to Consolidated Financial Statements) 30
THE DETROIT EDISON COMPANY AND SUBSIDIARY COMPANIES CONSOLIDATED BALANCE SHEET LIABILITIES Deceusher 31 less 1979 CAPIT NLIZATION Common stock - $10 par value, 125,000.000 and 85,000,000 shares authorized, respectisely; 81,032,618 and 74,459,897 shares outstand-ing, respectively (1,817,472 and 2,142,761 shares, respectively, reserved for conversion of preferred stock) (Note 3)............ $ 840,326 $ 744,599 Premiu m on conunon stock....................................
311,739 316.314 Cominon stock expense.
(31,501)
(27,316)
Retained earnings used in the business...
37fi,281 366,874 Total common shareholders' equity........................., $ 1,526,812 $ 1,400,141 Cumulative preferred stock -$100 par value, 9,000,000 and 6.000,000 shares authoriied, respectively; 4,630,204 and 3,767,560 shares out-standing, respectively; 3,789,827 and 1,734,827 shares unissued, res[xctively (Notes 3 and 4)
Non redeemable preferred stock............
267,682 276,038 Redeemable preferred stak..............
187,839 94,182 Cumulative pre fer ence stock - $ 1 par value, 20,000,000 and 10,000,000 shares authorized, respectively; 5,744,100 and 5,998,400 shares outstanding, respectively (Notes 3 and 4)
Non-redeemable preference stock 47,896 47,906 Redeemable preference stock 87,929 92.622 Long term debt (Notes 5 and fi)...
2,450.457 2.069,5_18 1
Total Capitalitation
............. $ 1,568.615 $3,980,707 CURRENT LI AllILITIES Short term borrowings (Note 2)
Commercial paper..
20,284 llank loans...
16,000 75,500 Trust demand notes 17,092 20,000 Promissory notes..
4,000 28,432 Long-term debt due within one year (Note 5).
61,200 63,195 Preference simk sinking fund requirement due within one year (Note 4) 1,101 2,460 Accounts payable..
147,365 114,513 Property and general taxes..
167,927 151,932 Income taxes..
15,488 16,927 Interest.
51,651 46,729 Disidends payable.
46,770 11,156 Payrolls.
31,015 29.830 l
Other 41.322 31,341
{
S 636,937 $ 672.299 DEFERRED CREDITS Accumulated deferred income taxes (Note 1)................ $ 4 01,7 89 $ 310,513 Accumulated deferred investment tax credits (Note 1)
I10.852 132,692 Other 23,163 19,812
$ 53ti.101 _$ 493,017 CONINilTNIENTh AND CONTINGENCIES (Notes 9, 10, 11, 12, 13, 14 and 15) t Total
. $5.741,686 $5,14fi,023 (See accompanying Notes to Consolidated Financial Statements) 31
THE DETROIT EDISON COMPANY AND SUBSIDIARY COMPANIES CONSOLIDATED STATEMENT OF COMMON SHAREHOLDERS' EQUITY Presolum Hetained p,
g,,,g ar-Commion Earninne
$10 Par Cominion Neock Used in the Mhares Value Miock Espense Huainess'
<th,llars in Tliousanden llAI.ANCE AT DECE.\\lllER 31, 1977. 59,201,021
$592,010 $225,379 $(20,75'.9 $33 !.078 luuarne of Common St<xk:
Public of fering (August 1978)...
5.000,000 50,000 31,875 (2,787)
Diviilemi Revinvestinent azul Cornanon Sluie Puntiuse Plan.. 1,116,980 11,170 6,232 (101)
Conscrsion of convertible (umula-tive picferreil stock, 5%% series.
590,889 5,90-)
7,606 (296)
Net in< ome....
110,869 Cash eliviileruls <lecl.ncil:
Common sim L - $1.52 per shaic..
(95.312)
Cumulatise ineferic<l aint pref er eth e stock"......
(38.09'O IIAl ANCE AT DECENillER 31, 1978. (i5.911,890 $659A 19 $271.092 $(23,913) $317.506 lunaruc of Common Stixk:
Pnhlic oife ing (juIy I979).....
6,000,000 $ 60.000 $ 29,250 $ (2,972)
Divielenil Reinvestment azul Common Shane Pn < hase Plan I,750,353 17,508 6.836 (63)
Consension of convertible tumula-tisc prel'etical sim k, 5%G scricy.
767,651 7,676 9,133 (368)
Gain on picfencin e sim k purc hasc.!
aiul a ct i s cil................
3 Net inconne.
$ 176.029 Cash aliviilemts <lc< larcil:
Common stoc k - $1.60 per shaie.
(112.62H)
Cutnulative preferical anul pa cier cine st<x-k"..
(l1,033)
IIAl.ANCE AT DECENillER 31, 1979 7-1 159,897 $711,599 $316.31 1 $(27,316) $366,871 luuzm<c of Common Stu k:
Pt.blic of ferings (l anillion shares in
.\\tay 1980 arul 2.25 million shairs in De(cinher 1980).
6,250,000 $ 62,500 $ 15,031 $ (3,379)
Disi<lemi Reimestment arul Cominun Shaic Puic hase Plan.
2,933,756 29,337 5,731 (1910 Conversion of <omestihic cumula-tive pref ericil sim k, 5%% scrics.
388,W 3,890 1,333 (180)
Gain on prefeir:Ke sim k purtlusc<l i
aint retir c<!....
330 Expense of increase in authorisc<l nurnber of common shaies.
(10(4 Net income
$ 188,566 Cash <lisi<lemis <!cclarcti:
Common sim L - $1.60 per shait,
(127,952)
Cumulatisc picietic<l atul i
picfrient e stm k" (51,207)
IIAi.ANCE AT DECENillER 31, 1980 81.032,t118 $810,326 $311,739 $(31.50 0 $376,281
- $11,000.000 sestricteil as to pay nent of common <lisi<le uls.
l
" At establishe<l rate for ca< h series.
(See auompanying Notes to Consoli<tateil Financial Staternents) 32 l
THE DETROIT EDISON COMPANY AND SUBSIDIARY COMPANIES CONSOLIDATED STATEMENT OF CUMULATIVE PREFERRED AND PREFERENCE STOCK II Month of g
s,y y
u.c.
th omandet NON.REDEEhlAllLE PREFERRED STOCK (Note 3) 5%% convertible series. 381.124 and 463,480 shares, respectisely October 1967
$ 38,112 $ 46,348 9.32% series. 499,080 sha res....
October 1970 49,908 49,908 7.68% series, 500,000 shares.............. Alarch 1971 50,000 50/)00 7.459 series, 600,000 shares......
Nosember 1971 60.000 60.000 7.369 series, 750.000 shares.
December 1972 75,000 75.000 Non-redeemable preferred stock expense...
(5.338)
(5.218)
Total Non. Redeemable Preferred Stock.
$267.682 $276.038 REDEE5 FABLE PREFERRED STOCK (Note 4) 9.72% series, 600,000 shares...
$ 60,000 $ 60,000 9.609 series. G50,000 shares and 355,000 shares, respectively 65.000 35,500 12.80% series, 400.000 shares......
W) 1980 40,000 13.50% series, 250,000 shares December 1980 25,000 l
Redeemable preferred stock expense.......
(2.161)
(1.318) l Total Redeemable Preferred Stock
$ 187.839 $ 94.182 NON-REDEEMABLE PREFERENCE STOCK (Note 3) i
$2.28 series, 2.000,000 shares.
December 1977
$ 2,000 $ 2.000 l
Premium on non-redeemable preference stock..
48.000 48.000 l
Non. redeemable preference stock expense.
(2.104)
(2.094) l Total Non. Redeemable Preference Stock.
$ 47.896 $ 47.906 REDEE5 FABLE PREFERENCE STOCK (Note 1) l
$2.75 series. 1,844,180 and 1,998,400 shares, r espectis ely.
. July 1975 1,8 14 $ 1,998
$2.75 series 11,1,899,920 and 2.000,000 shares, respectively.
December 1975 1,900 2,000 Premium on redeemable preference stock.
89,858 95,962 Redeemable preference stock sinking fund requirement due within one year...
(1,104)
(2,460)
Redeemable preference stock expense..
(4.569)
(4.878) l Total Redeemable Preference Stock......
$ 87.929 $ 92.622 l
- 500.000 shares ($50 million) issued in December 1978 and 100.000 shares ($10 million) issued in January 1979.
" 355,000 shares ($35.5 million) issued in October 1979 and 295,000 shares ($29.5 million) issued t
in January 1980.
(See accompanying Notes to Consolidated Financial Statements) 33
THE DETROIT EDISON COMPANY AND SUBSIDIARY COMPANIES CONSOLIDATED STATEMENT OF LONG-TERM DEBT Decessber 31 E
E (nousands)
GENERAL AND REFUNDING MORTGAGE BONDS (substantially all property subject to lien of Mortgagei Series I, 2%%, due 9'1!82,
$ 59,975 8 59,975 Series J, 2%%, due 3/1/85..
35,000 35,000 Series N. 244, due 3/15,84.
39.995 39,995 Series 0,3%%, due 5/15c80 59,795 Series P, 4%4, due 8/1587 66,325 66,325 Series Q, 4%4, due 6/1/89,
37,695 37,695 Series R, 64, due 12/1/96.
100,000 100,000 Series S, 6.44, due 10/1/98.
150,000 150,000 Series T, 94, due 12'1/99.
75,000 75,000 Series U, 9.15%, due 7/1;00.
75,000 75,000 Series V, 8.15%, due 12/15/00.
100,000 100,000 Series X, 8%4, due 6/15'01.
100,000 100,000 Series Y, 7%4, due 11/1501 60,000 60,000 Series Z 7%%, due U15'03.
100,000 100,000 Series AA, 9%%, due $/1'04.
100,000 100,000 Series CC,12%%, due 1/1582.
50,000 50,000 Series DDP Nos. 2-9, 7.25% to 9%%, due 11/1/8111/1/95 (Series D-Monroe) 13,505 14,305 Series EE,11%%, due 12/15'00.
40,000 40,000 Series FFR Nos. 2-14, 5.754 to 8.5%, due 2/1/812/1/01 (Series E and E-1977-Superiort.
45,100 45,600 Series GGP Nos.122, 4.4% to 844, due 6/15'81415.96 (Series F and F.1977-St. Clairt 42,300 42,300 Series HH,10%%, due 7/15'06.
50,000 50,000 Series IIP Nos.1-22, 54 to 7%, due 3/1/82-3/1'05 (Series G and G-1979-Harbor Beacht.
3,750 3,750 Series JJP Nos.1-8, 54 to 7%%, due 3/1/82-3/1t)5 (Series H and H-1979-Trenton) 6,850 6.850 Series KKP Nos 1-8, 5% to 7%%, due 3/1/82-3/1/05 (Series I and 1-1979-Monroe).
14,890 14,890 Series LLP Nos.1-15, 5% to 6.7%, due 3/1/82-3/1/91 (Series J and J-1979-Detroit).
8,850 8,850 Series MMP,6%%, and MMP No. 2,7%%, due 2/1597 (Series K and K.1979-River Rouge).
5,430 5,430 Series NNP Nos.1-21, 4.8% to 7%, due 7/1'82-7/1,97 (Series L and Ir1979-River Rouget 47,953 47,950 Series OOP Nos.118,4.4% to 7%%, due 10/1/82-10/1S7 (Series M and M-1979-St. Clair).
16,880 18,880 70,000 70,000 Series PP, 9%%, due 6/1508.
Series QQP Nos.119, 5.6% to 9%%, due 6/1.83-6/1/94 (Series N and N-1980-Detroit).
13,650 9,300 70,000 70,000 Series RR, 9.8%, due 10/1508.
Series SS,10%%, due 3/15/99.
150,000 150,000 Series 'ITP Nos. 115, 5.85% to 7%%, due 7'1/84-7/1/09 (Series O-St Clair).
3,800 3,800 Series UU,10%4, due 9/1509 100,000 100.000 50,000 1980 Series A,12%%, due 1/1/87.
1980 Series B,12%%, due 4/1/00.
100,000 1980 Series CP Nos.112, 7%% to 10%, due 8/15/85-8/1547 (beries P-St. Clair).
25,000 1980 Series DP Nos.111, 7%% to 10%, due 8/15/85-8/15/10 (Series Q-Monroe).
10,750 less: Unamortized net discount.
(2,674)
(2,789) f unds on deposit with Trustee.
(9,043)
(1,238)
Amount due within one year.
(2,100) 161,095) f 2 025,878
$ 1,845.568 INSTALLMENT SALES CONTRAC75
$ 43,000
$ 44,000 Monroe County Bonds Series A, 4.9% to 5%%, due 6/1/81-6/143 Monroe County Bonds Series B,6.4% to 7%%, due 5/1/81-5/1/04 21,550 22,050
,/
St. Clair County Bonds Series C, 7%%, due 7/15/817/15'84 4,400 5,000 less: Amount due within one year.
42,100!
< 2,100)
$ 66,850
$ 68,950 UNSECURED PROMISSORY NMES Belle River Project Financing (Note 6)
$ 212,729 Variable interest rates, due 1981,1983 and 1984.
155,000 155,000 Fixed intewst rates, due 1/2.82 (11h% first quarter of 1980 and 11% thereafter),
50,000 less: Amount due within one year.
(60,000)
$ 357,729
$ 155,000 g
Total Long-Term Debt (Notes 5 and 6).
7 32,450,457
$2.069,518 I
(See accompanying Notes to Consolidatg1 Financial Statements) 34 8
4 l
)
THE DETROIT EDISON COMPANY AND SUBSIDIARY COMPANIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1 -Significant Accounting Policies:
Indu3rry Segment -The Company is a public utility engaged in the generation,' purchase, transmission, distribution and s;de of electric energy.
Regulation -The Company is subject to regulation by the htPSC and the FERC with respect to accounting matters and maintains its accounts in accordance with the Uniform Systems of Accounts prescribed by these agencies.
l Principles Applied in ConwIidation -The consolidated accounts include those of all subsidiary companies, all of which are wholly-owned.
Revenues - Revenues are recorded as billed to customers.
As authoriicd by the SIPSC, the Company makes monthly purchased and net interchange power billing adjustments to recoser costs which are approved by the AlPSC following monthly hearings. Recovery of costs is limited to 90% of changes in Imth Company system fuel costs and net purchased mwer costs. Annual hearings are conducted by the SIPSC to determine whether i
(
adjustments will be made to customer bills to offset the over-recovery, if any, of energy costs arising l
from fluctuations in billing lag factors. The Company's policy is to reserve the temporary net I
over-recovery of energy costs arising from fluctuations in billing lag factors which will be adjusted in subsequent months. The temporary net under-recovery of these energy costs is not accrued because subsequent recoveries are dependent upon 51PSC authorization.
Employes* Retirement Plan - See Note 8.
l Proports. Orpreciation, Plant Retirement and Maintenance - Utility and non-utility properties are recorded at original cost and cost, respectisely, and the annual provision for depreciation is calculated on the straight-line remaining life method for financial statement purposes. The l
composite percentage of annual provision for depreciation to average depreciable property was 3.20% for 1980 and 1979 and 3.15% for 1978. In general, the cost of properties retired in the normal course of business is charged to accumulated depreciation. Expenditures for maintenance and repairs are charged to expense, and the cost of betterments and new property installed which replaces property retired is charged to property accounts.
Income Taxes -The Company prosides for deferred income taxes when authorized by orders I
of the AlPSC.
The Company follows the normalization methext of accounting which provides for income taxes deferred to future years lxcause of accelerated amortiration, liberalized depreciation, shorter depreciation periods used under the class life asset depreciation range system, recoverable fuel costs and extraordinary property losses, and amortires the investment tax credit to income over the i
l estimated composite scarice life of the property involsed. See Note 7.
The Company does not provide for deferred income taxes arising from current deduction of items such as interest and taxes which are capitalized in the books or from additional straight-line
(
income tax depreciation resulting from the difference between income tax guideline rates and lumk rates.
Michigan Single Bminen Tax - Pursuant to orders of the AtPSC, no provision is made for deferred Alichigan single business tax arising from the current deduction of capital acquisition expenditmes which are capitalized and depreci.ned in the Ixmks.
Allowance for Funds Used During Construction - AFUDC, a non-operating non-cash item, is defined in the FERC Uniform System of Accounts as the net cost for the period of construction of borrowed funds used for construction purposes and a reasonable rate on other funds when so used.
35 L
l J
i THE DETROIT EDISON COMPANY AND SUBSIDIARY COMPANIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
AFUDC is an accounting procedure whereby the approximate interest expense and cost of other (preferred, preference and common shareholders' equity) funds appikable to the cost of construction are transferred from the income statement to construction work in progress ;n the balance sheet. This accounting procedure is intended to remove the effect of the cost of financing construction activity from the income statement, and results in treating such cost in the same manner as charges to construction for labor, employe benefit costs, property taxes and material costs. Under current ratemaking practice, the cash recovery of AFUDC, as well as other costs of construction, occurs when completed projects are placed in service and the related depreciation is reflected in customer rates.
The AFUDC rates for borrowed and other (equity) funds were established by the Company consistent with the methodology set forth in the FERC Uniform System of Accounts. The Company capitalized AFUDC at the following rates: 1980-9% effective January 1,1980 and 9%% effective June 1,1980 except for AFUDC related to the Belle River Project Financing which was capitalized at the actual amount thereof (see Note 6); 1979-8%%; 197F - 8%.
The allowance for other funds used during construction in the Consolidated Starcment of Changes in Financial Position excludes the allowance for borrowed funds used during construction of $66.7 million for 1980, $43.2 million for 1979 and $310 million fc,r 1978 in accordance with accounting requirements of the FERC. The total allowance for both borrowed and other funds used during construction amounted to $105.5 million for 1980, S81.5 million for 1979 and $65.9 I
million for 1978.
AFUDC amounted to 779,61% and 61% of earnings for Common Stock for 1980,1979 and i
1978, respectisely.
Intentory Valuation -Inventories are stated at average cost.
Extraordinary Property Lours - See Note 13.
Note 2 - Compensating Balances and Short-Term Borrowings:
At December 31, 1980, the Company had bank lines of credit aggregating S200.1 million pursuant to which interim financing was available, of which $19.6 million of these lines of credit required compensating balances, SI17.5 million had commitment fees in lieu of compensating balances and $63.0 million had both commitment fees and compensating balances. In support of the lines of credit requiring compensating balances, the Company mair.tained bank balances which during 1980 averaged S3.5 million in Company accounts and $1.5 million in the accounts of construction contractors. None of these balances are subject to usage or withdrawal restrictions.
Commitment fees in lieu of compensating bank balances for 1980 amounted to $2.1 million. At December 31, 1980 unused lines of credit were $137.0 million.
Bank loans are available at the banks' prime lending rate. Temporary arrangements have been made for up to $116 million of borrowings through the abose bank lines of credit at rates below t
the banks' prime rates. Commercial paper is issued on a discount basis at prevailing market rates.
Trust demand notes have variable interest rates based on the highest rate adopted by General Motors Acceptance Corporation on its30-180 day commercial paper borrowings.
In 1979, the Company also entered into a nuclear fuel financing and credit arrangement (see Note 9). Pending use of the credit arrangement for nuclear fuel financing, the Company is permitted to issue promissory notes for general corporate purposes. At December 31,1980, $19.3 million of the nuclear fuel credit arrangement was available for borrowing for general corporate purposes, under which 54 million of promissory notes were outstanding.
See Note 6 for information on the Belle River Project Financing.
36
THE DETROIT EDISON COMPANY AND SUBSIDIARY COMPANIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Note 3 -Common Stock *, Non Redeemable Cumulative Preferred and Preference Stock:
The Company has a D cend Reinvestment and Common Share Purchase Plan under which record holders of its Common, " referred and Preference shares and its regular employes may, through the automatic reinvestment of cash dividends and monthly optional cash payments of from $20 to $5,000 chase Common Stock from the Company. The price of newly-issued shares purchased A reinvested cash dividends will be equal to 95% of, and in the case of optional cash payments will be equal to 100% of, the average of the high and low prices on the New York Stock Exchange on the pricing date, which will be the dividend payment date in the case of teinvested dividends and the last business day of the month in the case of optional cash payments. The Company has the right to amend, suspend, modify or terminate the Plan at any time.
The Convertible Cumulative Preferred Stock,5%% Series, is convertible into Common Stock.
The conversion price was $20.97 per share at December 31,1980 and was adjusted to S20.42 per share effective January 21, 1981. The number of shares converted during 1980,1979 and 1978 was 82,356,168.373 and 135,187, respectively. The number of shares of Common Stock reserved for issuance upon conversion and the conversion price are subject to further adjustment in certain events. The Convertible Cumulative Preferred Stock,5%% Series, may be redeemed at any time in whole or in part at the option of the Company at $100 per share, plus accrued dividends.
The series of Preferred and Preference Stock redeemable solely at the option of the Company are redeemable at the following per share redemption prices, plus accrued dividends:
Decreasing Prior On and Series From To To After Non-Redeemable Preferred Stock 9.329
$107 10-15-83
$101 10-15-86 7.689 106 4 15-81 101 4-15-86 7.459 106 11-15-81 101 11-15-86 7.369 105 12 1-82 101 12-1-87 Non-Redeemable Preference Stock
$2.28 27.30 1-15-83 25.25 1 15-93 None of the shares of the $2.28 Series Preference Stock may be redeemed through certain refunding operations prior to January 15, 1983.
Changes in non-redeemable Preferred and Preference Stock expenses were due to the increase in the authorized number of shares of Preferred and Preference Stock, offset by conversions of the Convertible Cumulative Preferred Stock, 5%% Series.
37 i
THE DETROIT EDISON COMPANY AND SUBSIDIARY COMPANIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Note 4 - Redeemable Cumulative Preferred and Preference Stock:
The series of Preferred and Preference Stock which are redeemable pursuant to sinking fund requirements may also be redeemed at the option of the Company at the following per share redemption prices, plus accrued dividends:
Decreasing Prior On and Series From To To Aner Redeemable Preferred Stock 9.72 %
$109.72 1-15-81
$101 1-15-91 I10.00 10-15-81 101 10-15-91 9.60%..
I12.80 7-15-85 100 7-15-95 12.80%.......
I13.50 1-15-86 100 1-15-90 13.50 %
Redeemable Preference Stock
$2.75 26.95 7-15-85 25.25 7-15-90 27.75 1-15-81 25.25 l-15-91
$2.75 Series il...
None of the shares of the Cumulative Preferred Stock, 9.72% Series, 9.60% Series,12.80%
Series and 13.50% Series or shares of the $2.75 Series Il Preference Stock may be redeemed through certain refunding operations prior to January 15, 1981, October 15,1989, July 15,1985, January 15,1986 and January 15, 1981, respectively.
The redeemable series of Preferri and Preference Stock are entitled to the benefit of sinking funds (provided that no dividend arrearages exist) providing for the annual redemption of shares at the following per share prices, plus accrued dividends, commeccing on the dates indicated below:
Non-Cumuistive Option to Redeem Annual Price Additional Number Per Shares in Series Commencing on of Shares Share Any Year _
Redeemable Preferred Stock 1-15-85 30,000
$100 30,000 9.72 %
10-15-85 32,500 100 32,500*
9.60 %
12.80 %
7-15-86 20,000 100 20,000 13.50 %
1-15-87 50,000 100 Redeemable Preference Stock
$2.75 7-15-80 100,000 25 100,000
$2.75 Series 11 1-15-81 100,000 25 100,000 l
l
- Not to exceed 220,000 total additional shares.
s in 1979 the Company began purchasing shares of $2.75 Series Preference Stock on the open market. During 1979,1,600 shares were purchased and throughout 1980, an additional 98,400 shares of $2.75 Series Preference Stock were purchased. These shares were applied toward the sinking fund requirement due on July 15, 1980.
Also, throughout 1980 the Company purchased on the open market 55,820 shares of $2.75 Series Preference Stock and 100,080 shares of $2.75 Series 11 Preference Stock. These shares will be applied toward the $2.75 Series sinking fund requirement due on July 15,1981 and the $2.75 Series 11 sinking fund requirements due on January 15,1981 and 1982, respectively.
in the event that a payment is not made that is due under the requirements of a sinking fund l
for any series of the redeemable Preferred and Preference Stock, no dividend shall be paid (other l
38 i
THE DETROIT EDISON COMPANY AND SUBSIDIARY COMPANIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) than a dividend paid in junior stock) or declared or other distribution made upon any junior stock (Preference and Common Stock in the case of Preferred Stock and Common Stock in the case of Preference Stock) until such payment shall hase been made.
The combined aggregate annual amount of redemption requirements for all series of redeem-able Preferred and Preference Stock for the next five years are $5.0 million in 1981 through 1984 and $11.3 million in 1985.
Changes in redeemable Preferred and Preference Stock expenses were due to the issuarce of additicmal shares of Preferred Stock, offwt by the purchase of shares of $2.75 Series and $2.75 Series B Preference Stock to meet sinking fund requirements.
Note 5-Long-Term Debt:
Agreements have been signed with certain municipalities, under which the municipalities have issued tax-exempt bonds to finance certain facilities of the Company and the Company is obligated to make payments sufficient to meet the principal and interest due on the bonds. To s(cure the Company's obligations under such agreements, the Company has issued Mortgage Bonds with principal amounts, interest rates and maturity dates corresponding to those of the tax-exempt bonds; accordingly, the Company's liabilities in respect of such collateralized bonds, aggregating
$260.7 million and $221.9 million a: December 31,1980 and 1979. respectively, are induded i'i General and Refimding Mortgage Bonds in the Consolidated Statement of lamg-Term Debt.
Interest on the $155 million Unsecured Promissory Notes due 1981,1983 and 1984 is adjuued quarterly; the rates are variable based on the participating banks' prime rate for commercial customers. The weighted aserage interest rates on thew notes for 1980 and 1979 were 16.29-and 13.6%, respectisely.
On the basis of property additions and bond retirements, an estimated $1.1 billion principal amount of bonds could hase been issued under the Mortgage and Deed of Trust and terms of certain of the Unsecured Promissory Notes at December 31, 1980. Under the more restrictive earnings test provisions of the supplemental indenture creating the Series 1 Mortgage Bonds and assuming an interest rate on any additional indebtedness of 159, approximately $377 million principal amount of the Company's Mortgage Bonds could have been issued at December 31, 1980.
tamg-term debt maturing in the period 1981 through 1985 consists of $64.2 million in 1981,
$166.5 million in 1982 (which excludes Belle River Project Financing unsecured promissory notes due May 1,1982), $81.9 million in 1933, $69.9 million in 1984 and $256.1 million in 1985 (which includes $200 million for the Belle Riser Project Financing). See Notes 6 and 9.
Note 6-Belle River Project Financing:
In May 1980 the Company entered into an agreement with a group of commercial banks for an $800 million project financing arrangement relating to Belle River Unit No. I and facilities to be used in common wi h Belle River Unit No. 2 CBelle Riser Project Fm^ ancing"). Under this t
arrangement, currently limited to $400 million under existing FERC borrowing authority, the Company borrows against capital expenditures incurred in connection with the project, induding interest charges (at interest rates which vary with the changes in the prime rate) and commitment fees (at the rate of 0.5% of the unused portion of the commitraents). Until MPSC approval can be obtained fcc long. term unsecured promissory notes, borrowir gs are being made under unsecured q
promissory notes due May 1,1982. Once such MPSC approul has been obtained and long-term f
unsecured pomissory notes hase been issued, amortization w0i begin January 1,1985, with $50 million repayable each consecutive calendar quarter thereafter. The Company may prepay borrow-ings pursuant to this transaction at any ti.ne without penalty. Consummation of periodic borrow-39
l THE DETROIT EDISON COMPANY AND SUBSIDIARY COMPANIES
)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) l ings is subject to the satisfaction of certain conditions. The agreement contains a number of l
mvenants, induding an agiecment by the Company not to pledge or sell any ofits assets except in the ordinary course of business and except for the sale or conveyance to one or more utilities of undivided iniciests in generating plants; and not to create certain liens on its assets. As of December 31, 1980, the Company made borrowings and had accrue 1 interest and conunitment fees totaling $212.7 million under thh arrangement. For 1980, interest ami conunitment fees of
$16.3 million are included in interest charges, offset by an equal amount included in the bor: owed funds mmponent of AFUDC.
1 Note 7-Income Taxes:
Total income tax expense as a percent ofincome before tax was less than the statutory federal income tax rate for the following reasons:
l Percent of Incosne Before Tas tono sp79 1978 Federal income tax statutory rate.
16.0 %
16.0 %
18.0 %
Allowance for funds used duiing construction............... (21.5)
(16.1)
(15.1)
Construction overhead costs.
(l.9)
( 1.7)
(-1.7)
Depreciation 3.5
- 1. l 1.5 (1.9)
(1.8)
(2.1)
Alichigan income tax Other - net (1.5)
(3.6)
(2.0) 16.7 %
21.2%
28.3%
Total inwme tax expense......................
l l
In 1975 the State of Niichigan enacted a " single business tax" ef fective Januaiy 1,1976 and l
repealed the corporate income tax. The 51PSC ordered that the accumulated balances of deferred Stichigan income taxes at December 31,1975 be written of f as credits to income over the lhe-year period 1976 through 1980 for accounting and ratemaking purposes.
I l
1 1
1
~
l i
10
THE DETROIT EDISON COMPANY AND SUBSIDIARY COMPANIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Components of income taxes were as follows:
Year Ended December 31 isse im ms
('thousande)
Current income Taxes Federal current.
(307) $ 5.063 $ 5.216 Federal-Recoverable fuel costs...................
(489) 51ichigan - Recoverable fuel costs.
(86)
$ (307) $ 5.063 $ 4,671 Deferred income Taxes-Net Federal 51 arch 1976 storm damage costs
$ (1,071) $ (1,071) $ (1,071)
April 1979 storm damage costs.........,........
5,880 J uly 1980 storm damage costs.............
4,468 Greenwood Unit Nos. 2 and 3 abandonment loss...
24,771 Depreciation................
32,529 33,493 26,693 Amortization of gmilution control facilities (1,211) 8,095 4,455 Sale of 20% interest in Enrico Fermi Unit No. "
670 1,094 1,618 Other.
3,222 (2,913) 501 Alichigan (4,219)
(4.219)
(4,219
$ 59.159 $40,359 $27.980 investment Tax Credit - Net Utilized.
$13,091 $27,270 Reduction due to tax loss carryback to 1977 (19,442)
Amortized (2.398)
(3,807)
(3.235)
$(21.840) $ 9.284 $24,035 Other income and Deductions Federal current 652 $
136 $
298 Federal de.' erred..
17 1,418 930 669 $ 1,554 $ 1,228 Total Federal and NIichigan income Taxes
$ 37.681 $56.260 $57.914 Investment tax credit carryforwards aggregate approximately $145 million at December 31, 1980.
Note 8-Employes* Retirement Plan:
The Company has a trusteed and noncontributory retirement plan covering all regular employes who have completed six months of service. The Company's policy is to fund pension cost annually as it accrues. Accruals are based on the actuarial cost of the plan. Unfunded prior service cost is amortired over forty years and thirty years (for costs relating to amendments to the plan after April 1,1977). as appropriate, and net experience gains and losses are amortiied over fifteen
> cars. The plan was amended on April 24, 1978, by shareholders' approval, to provide that benefits to be paid to participants who retire after September 1,1978 he increased by changing the percentage of average final compensation allowed for each year of service from 1.2% to 1.3%,
which resulted in an annual cost increase of approximately $2.5 million effective January 1,1979.
Cost to the Company to fund the plan was $32.5 million for 1980, $28.8 million for 1979 and 41 L
THE DETROIT EDISON COMPANY AND SUBSIDIARY COMPANIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
$23.0 million for 1978. The comparison of accumulated plan benefits and plan net assets presented below is based on an actuarial valuation as of December 31, 1979:
crhous d.>
Actuarial present value of accumulated plan benefits:
Vested
$217,731 Nomested.
13.377 Total.........
$231.108 Net assets available for benefits......
$214.954 The interest rate used to determine the actuarial present value of accumulated plan benefits 10%. This rate is the approximate interest rate as of the valuation date for long. term was government bonds with an average mar ;rity approximately equal to the average maturity of the liabilities for accrued benefits. The interest rate used for funding purposes is different from that used for the determination of the present value of accrued benefits because the rate used for
{
funding purposes is designed to be consistent with the inflation allowance provided in other assumptions used to project future benefits.
Note 9-leases:
Rental expen es were as follows:
Year Ended Deceanber 31 19HO lir19 IFIS (Thousands:
$33,153
$29,037
$25,845 Future minimum lease payments under long. term non-cancellable leases, consisting of lake vessels ($144.5 million), locomotives and coal cars ($93.5 million), office space ($44.8 million) and computers, vehicles and other equipment ($11.7 million) at December 31,1980 are:
(MHHons) 1981
$ 32.1 28.9 1982.....
26.2 1983..
23.7 1984..
l 1985.
20.7 77.4 l
1986-1990.
51.2 1991-1995.
42.8 l
1996-2000...
21.5 Remaining years.
$324.5 Total.
in addition to the leases described above, on, January 23.1979, the Company entered into a t
nuclear fuel financing and heat purchase contract with Renaissance which provides for the financing of up to $90 million of nuclear fuel. Simultaneously, the Company sold to Renaissance its capitalized costs of $9.5 million relating to nuclear fuel. Under the heat purchase contract, Renaissance will purchase nudear fuel and make all other rela:cd payments. Title to the nudear fuel will be held by Renaissance. During the period that the nuclear fuel is generating heat, the Company will make quarterly payments to Renaissance for the cost of fuel consumed during the quarter plus all other costs of Renaissance. Renaissance's investment in nuclear fuel totaled approximately $70.7 million at December 31, 1980.
l l
42 i
THE DETROIT EDISON COMPANY AND SUBSIDIARY COMPANIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
The Company does not capitalize those leases which are defined as capital leases by FAS No.
- 13. " Accounting for Leases", because the SIPSC treats all leases as operating leases for ratemaking purposes. Iloweser, had such leases been accounted for as capital leases, balance sheet assets at December 31,1980 and 1979 would have included leased property under capital leases, less accumulated amortization, of $203.3 million and $200.6 million, respectively. Also, balance sheet liabilities at December 31,1980 and 1979 would have included long-term obligations under capital leases of $201.2 million and $199.5 million, respectisely, and current obligations under capital leases of $11.6 million and $10.9 million, respectively. The charges to expense for amortization and interest related to such capital leases would have exceeded the rental expense actually recorded for 1980,1979 and 1978 by $2.5 million, $1.8 million and $1.8 million, reapectively. The effect on net income is indeterminable since neither the leased property and capital lease obligations nor the increased expenses base been included in the ratemaking process which determines the Companis operating revenues and rate of return.
Note 10- Recoverable Fuel Costs:
On January 1,1974, the Company changed its method of accounting for changes in fuel costs recoserable from customers by deferring recognition to the period in which such costs were recoserable under the fuel cost adjustment clauses. In February 1975, the 51PSC directed the Company to revise the method of computing its fuel cost adjustment clauses by effectively eliminating any fuel cost billing lag caused by chnges in fuel costs occurring on and after February 4,1975. In February 1975, the Company applied to the StPSC for an accounting and ratemaking order allowing recosery of $26 millior of accumulated fuel costs deferred as of February 3,1975. In December 1975, the 51PSC issued an order denying the recovery of such accumulated deferred fuel costs. In September 1976, the Ingham County Circuit Court permitted the Company to recover such accumulated deferred fuel costs, by use of temporary surcharges, over a twelve-month period beginning October 1,1976. The Company applied the surcharges and recovered, subject to refund, $23.5 million of such costs. The Stichigan Court of Appeals then reversed the 1976 Circuit Court decision and affirmed the original December 1975 order of the AlPSC. In November 1978, the Alichigan Supreme Court granted the Company leave to appeal the 1978 adserse decision of the Afichigan Court of Appeals which would hase required refund of the revenues collected to recover 1975 deferred fuel costs. Because of this action by the Afichigan Supreme Court, no refunds base been made. In February 1980, the 5fichigan Supreme Court remanded the case to the 51PSC for specific findings v.ith respect to fuel cost adjustment clause billings for the months of February, 5farch, April and.\\f ay of 1975. Proceedings are continuing before the 5fPSC. If the 5fichigan Supreme Court should ultimately determine that such costs should not hase been recovered through customer billings and must be refunded, the total and per share amounts of earnings for Common Stock for the year 1975 would be reduced by approximately $12.7 million and $0.27, respectively, and restated to $59.3 million and $1.23, respectively, with corresponding reductions in retained earnings used in the business at December 31, 1975 and subsequent years.
Note 11 - Commitments:
In connection with its continuing capital expenditure program, the Company has entered into purchase commitments which amounted :o approximately $1.8 billion at December 31,1980.The Company has also entered into substantial long-range fuel supply commitments.
Note 12 - Rate Matters:
On April 28, !976, the Company appealed to the Ingham County Circuit Court the 51PSC's 5f arch 30,1976 rate order, which granted an increase in electric rates of $62.4 million annually, on the grounds that the relief granted was unreasonable and unlawful. On Stay 19,1976, the 43
THE DETROIT EDISON COMPANY AND SUBSIDIARY COMPANIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Court issued an order authorizing the Company to collect not more than an additional $13.8 million through December 31,1976. This order was temporarily stayed by the Alichigan Court of Appeals on June 2,1976. On September 30,1976, the Court of Appeals vacated the stay. Effective November 1,1976, a temporary surcharge was applied to electric customer billings which resulted in the collection of revenues of $13.7 million, subject to refund, through December 31, 1976, pursuant to the Court's order. A trial was held in July 1977 and the Company is awaiting a decision on the merits.
On December 28,1979, the AG filed complaints with the Ingham County Circuit Court and the AfPSC, requesting orders prohibiting the Company from charging, over the period 1980 through the first quarter of 1985, approximately $30 million under the fuel cost adjustment clause. These charges relate to certain costs resulting from the renegotiation of the Company's contract with Decker, which reduced the tonnage of coal to be delivered between January 1,1979 and December 31,1984 and increased the cost per ton over the same period. On January 2.1980, the Ingham County Circuit Court denied the requested relief and remanded the case to the AlPSC.
The AIPSC consolidated the matter with hearings on reconciliation of the fuel and purchased power adjustment clauses. Ilearings have been conducted and have been completed subject to a decision by the AG to request further cross-examination.
See Note 13.
Note IS-Extraordinary Property lesses:
The unamortized balances of extraordinary property losses are as follows:
December 31 1920 1979 (T'nousands)
Being Amortized:
Starch 1976 Stor m...
3,162 $ 5.395 4,086 4,767 Enrico Fermi Unit No. 3 Not Being Amortized:
12,783 12,783 April 1979 Storm.............
9,712 July 1980 Storm....
71.373 Greenwood Unit Nos. 2 and 3
$ 101.116 $22.945 Costs of the Afarch 1976 severe ice and wind storm ($11.2 million) and project costs of the cancelled Enrico Fermi Unit No. 3 ($6.8 million) are being amortized to operating expenses as a cost of service over a five-year period ending in 1982 and a ten. year period ending in 1986, respectively, as authorized by the 31PSC.
Severe storms in April 1979 and July 1980 caused extensive damage to the Company's transmission and distribution system. The Company filed separate applications with the SIPSC seeking accounting and ratemaking orde s which would permit recovery and amortization of the 1979 ($12.8 million) and 1980 ($9.7 million) storm service restoration costs oser 60-month periods.
ficarings with respect to the 1979 and 1980 storm damage applications concluded on January 4, 1980 and December 23, 1980, respectively. By order dated December 30, 1980, the 51PSC authorized the amortization, over a 60-month period, of the 1979 storm damage costs with amortization to commence simultaneously with an amortization schedule. as yet not established, with respect to the 1980 storm. The StPSC denied the Company's request for ratemaking treatment of the 1979 storm costs, such denial being without prejudice to raising such issue in a ratemaking proceeding. The Company has deferred costs of the storms and has not reDected such 44
THE DETROIT EDISON COMPANY AND SUBSIDIARY COMPANIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) costs in current operating expenses. The Company believes that the recovery of such costs through customer rates will be authorized in the final order of the Company's current rate case.
On Afarch 24, 1980, the Company decided not to construct Greenwood Nuclear Unit Nos. 2 and 3. Project costs incurred for these units amounted to approximately $71 million, excluding land. The federal income tax effect related to the deduction in 1980 of the abandonment loss has been recorded and the related deferred tax liability of approximately $25 million is included in accumulated deferred income taxes. On April 7,1980, the Company filed an application with the MPSC for authority to defer the project costs until such costs can be considered in a ratemaking proceeding. The Company is seeking recovery of these costs in accounting and ratemaking proceedings which would, if granted, permit amortization and recovery through customer billings of such project costs over a 60-month period. Cross-examination of Company witnesses com-menced on December 15, 1980 and is continuing. If full recovery and amortization over some period are not ultimately approved after all appropriate proceedings, such unrecovered project costs, less applicable federal income taxes, would reduce earnings for Common Stock by up to $46 million in the period of such determination.
Note 14-Litigation:
The Company and two unions which represent certain of its employes were named as defendants in two actions alleging racial discrimination against a class of past and present black employes and certain rejected black applicants for employment (Stomps, et al v The Detroit Edison Company, et al and Equal Employment Opportunity Commhsion v The Detroit Edison Company, et al, filed in 1971 and 1972, respectively). Following a consolidated trial of these actions, the District Court for the Eastern Distric* of Michigan found, in 1973, that the Company and the two unions had engaged in illegal racial discrimination. Thereafter, a series of appeals were taken by the parties during which the Company reached agreement with plaintiffs as to two settlements of these actions and the parties to these actions stipulated that an appeal by the defendants to the United States Court of Appeals for the Sixth Cir,mit be held in abeyance pending the outcome of settlement negotiations. In September 1980, the District Court approved the settlement with respect to the employe class which settlement provides for the distribution of a fund of $4.25 million and the payment of $250,000 in attorneys' fees. In December 1980, the District Court approved the settlement with respect to the rejected applicant class which settlement provides for the distribution of a fund of $850,000. Absent substantive employe class appeals, distribution of all settlement amounts will commence in 1981 and continue throughout the year. The settlement amounts have been accrued by the Company.
See Note 10 for legal proceedings relating to recoverable fuel costs.
Note 15-Sale to Cooperatives:
On February 8,1977, the Company sold a 209 undivided ownership interest in its Enrico Fermi Unit No. 2 to the Cooperatises The Cooperatives made an initial payment to the Company at that time equal to 20% of construction expenditures, inclusive of AFUDC, and are obligated to make monthly progress payments of 20% of subsequent construction expenditures, exclusive of AFUDC. As of December 31,1980, total payments of $190.9 million had been received from the Cooperatives. See Note 16.
The agreements relating to that sale provide, among other things, that the Company will exercise control over construction and operation of the facility, the parties will share electricity generated and the costs of plant operations, maintenance and capital improvements in proportion to their ownership interests and the Company will have certain obligations to provide replacement power to the Cooperatives when the unit is out o service.
r 45
THE DETROIT EDISON COMPANY AND SUBSIDIARY COMPANIES l
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
'Ihe Company is obligated to complete construction of Enrico Fermi Unit No. 2 promptly, but if the Company delays construction of the unit because more economical sources of power are asailable or because the Company decides that it does not then require the additional capacity, it would be obligated to supply each Cooperatise with its entitlement of electricity otherwise expected to hase been generated after the anticipated completion date and would base to indemnify the Cooperatises for additional (onstruction costs resulting from the delay. If such delay extends to fise yean. the Cooperatises may demand that the Company repurchase their interests at the cost of their insestment. The Company would not be liable for any delays in completion resulting from a default in pasments by a Cooperatise and may buy out a Cooperatise's investment if such a default (ontinues for 150 days.
From the anticipated completion date through 1990, the Compans will be obligated to purchase part of the Cooperativei entitlement to the output of the unit and has a right of first refusal to purchase the balance.
Note 16
, Jointly-Owned Utility Plant:
t he Company and Consumen are ce>-ow ners of the Ludmgton Pumped Storage Plant which was placed into senice in 1973. The Compam has a 49'i undnided ownership interest and Comumers the other 519. The Compam's im estment at December 31.1930 and 1979 in utility plant m sonice was $163.3 million cnd S167.9 million, respectisely. and the accumulated deprecia-tion at De(ember 31,1980 and 1979 was $21.5 million and $21.2 milhon, respectisels. Operation, maintenance and other expenses of the plant are shared by the Company and Comumers,199 and 519, respectisels. The Company's share of these expenses is included in other operation and maintenance expense in the Consolidated Statement of Income.
The Company and two Cooperatises are (o. owners of the Enrico Fermi Unit No. 2, a nuclear unit under construction. See Note 15. The Company has an 809 undisided ownership interest and the two Cmperatises the remaining 209. The Company's insestment at December 31,1990 and 1979 in construction work in progrew was $913.5 million and $721.6 million, respectisely.
Note 17 - Supplementary Quarterly Financial Information (Unaudited):
tiro Quarter Ended March 31 June 30 Sept. 30 Dec. 31 i n ou..m d.i Operating Resenues
$ 431.396 $ 425.453 $ 474.321 $ 481,344 Operating income.
65,710 75.393 86,452 86,755 Net Income.
34,412 41.650 56,3 = 2 56.122 Earnings for Common 5tock.
22,400 29.151 43.138 42.840 Earnings Per Share 0.50 0.38 0.54 0.52 11C9 Quarter Ended Marrb 31 June 30 Sept.30 Dec. 31 inou ndo Operating Resenues
$432,514 $422.332 $ 436,949 $ 406.716 Operating income.
66.577 65.644 71,910 71,346 Net income.
45,357 43,501 41.643 42,495 Earnings for Common Stock.
34,623 32,726 33.967 31,256 Earnings Per Share 0.52 0.49 0.47 0.42 Note 18 - Supplementary Information Concerning the Effects of Changing Prices (Unaudited):
The following supplementan information is supplied in accordance with the requirements of FA5 No. 33. " Financial Reporting and Changing Prices" FAS No. 33 deals with two different 46
THE DETROIT EDISON COMPANY AND SUBSIDIARY COMPANIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) aspects of an innationary environment: (1) the effects of general inflation, i.e., the decline in the purchasing power of the dollar (the " constant dollar" method) and (2) the effects of changes in the specific prices of certain assets used by the Company (the " current cost" method). The Financial Accounting Standards lloard has taken this dual approach because there is presently no (onsensus on which method of reixirting better portrays the effect of changing prices on the operations of business enterprises.
The Company believes it is important for financial statement users to develop an understand-ing of the more significant impacts of inflation. However, the Company advises readers that the data adjusted for changing prices have been determined in accordance with experimental techniques prescribed by FAS No. 33. It is an attempt to display the approximate economic effects ofinflation and should be considered an estimate of those effects rather than as a precise measure.
The supplementary information should therefore be viewed with caution as should any other hypothetical data.
Year Ended December Jt,19MO Consolidated Statement of Income Adjusted Adjusted for Changing Prices As Reported Adjusted for in the for Changes in Primary General Specific Stateunents inflation
- Prices *
(Historical IConstant (Current Cost)
Dollars)
Costs)
(Mi!Hons)
Operating Revenues.
$ 1,812
$ 1,812
$ 1,812 Operating Expenses (Excluding Depreciation) 1,354 1,354 1,354 Provision for Depreciation (Note 11).
142 298 361 Total Operating Expenses.
1,496 1,652 1.715 Operating income 316 160 97 Other Income and Deductions.
39 39 39 income liefore Interest Charges.
355 199 136 Interest Charges 166 166 166 Net income.
189 33**
(30)
Preferre.1 and Prefercnce Stock Dividend Reqcirements..
51 51 51 Earnings for Common Stock..
$ 138
$ (18)
S (81)
Increase in Specific Prices of Net Utility Plant *
$ 763 Adjustment of Net Utility Plant to Net Recoverable Amount (Note C)
Effect of increase in the General Price level....
$ (407) 87 (1.194)
Excess of Increase in the General Price level over the Increase in Specific Prices of Net Utility Plant after Adjustment to Net Recoverable Amount (344)
Reduction of Purchasing Power loss through Debt ?inancing (Note D) 394 39i Net Ef fect on Common Shareholders' Equity S (13)
S 50
- Average 1980 dollars.
- If the adjustment of net utility plant to net recoverable amount of $407 million were nellected, and no recognition was given to the $394 million reduction of purchasing power lo through debt financing, net income adjusted for general inflation would have been a loss of $374 million.
- At December 31,1980, the current cost of udlity plant, net of accumulated depreciation, was
$9.816 million, while historical cost or net amount recoverable through depreciation was
$5.026 million.
47 e
THE DETROIT EDISON COMPANY AND SUBSIDIARY COMPANIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Five-Year Comparison of Selected Supplementary Financial Data' Year Ended Decessber 31 les0 1979 1978 1977 1976 4 Minional Operating Revenues:
As Reported.
$ 1,812 $ 1.698 $ 1,590 $ 1.451 $ 1,266 Adjusted for General Inflation 1,812 1,928 2,008 1.973 1.832 Net income:
$ 189 $ 176 $ 147 $ 145 $ 120 As Repmted...
Adjusted for General Inflation...
33 61 NA NA NA Adjusted for Changes in Specific Prices...
(30)
(16)
NA NA NA Earnings for Common Stock:
.$ 138 $ 133 $ 109 $ 110 $
85 As Reported......
(18) 12 NA NA NA Adjusted for General Inflation Adjusted for Changes in Specific Prices...
(81)
(66)
NA NA NA Earnings Per Common Share:
. $ 1.75 $ 1.90 $ 1.76 $ 2.00 $ 1.66 As Reported....
(0.23) 0.17 NA NA NA Adjusted for General Inflation
.. (1.03)
(0.94)
NA NA NA Adjusted for Changes in Specific Prices.
Excess of increase in the General Price Level over the Increase in Specific Prices of Net Utility Plant after Adjustment to Net Recmerable Amount.
. $ (314) $ (402)
NA NA NA Reduction of Purchasing Power Loss through Debt
$ 391 $ 428 NA NA NA Financing.
Net Assets (Common Shareholders' Equity) at Year.End:
As Reported
$ 1,527 $ 1,400 $ 1,254 $1,131 $ 1.017 Adjusted for either General inflation or Changes in Specific Prices after Adjustment to Recov.
erable Amount.
1,458 1,501 1,524 1,499 1,439 Cash Dividends Declared Per Common Share:
$ 1.60 $ 1.60 $ 1.52 $1.4675 $ 1.45 As Reported.
1.60 1.82 1.92 2.00 2.10 Adjusted for General Inflation.
.Nf arket Price Per Common Share at Year-End:
$ 10% $ 12% $ 13% $ 16% $ 15%
As Reported..
10 %
13 %
17%
22%
22 %
Adjusted for General InDation Consumer Price Index (1967= 100):
246.8 217.4 195.4 181.5 170.5 Average 258.4 229.9 202.9 186.1 174.3 Year.End
- All data adjusted for changing prices are stated in average 1980 dollars except for market price per common share at year-end which is stated in December 1980 dollars.
NA - Not Available. These data are not required to be presented by FAS No. 33 and wculd have been costly and difficult to piepare. In the future, one year's comparative data will be added each year.
+
48
1 THE DETROIT EDISON COMPANY AND SUBSIDIARY COMPANIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Note A-General:
The data adjusted for general inflation represent historical costs stated in terms of dollars of the same general purchasing power (constant dollars), as measured by the average level of the CPI-U for 1980. This method is intended to measure income after gising recognition to the cost of maintaining the purchasing power of the dollars invested in utility plant.
The current cost data reflect changes in the specific prices of utility plant from the date such plant was acquired to the present, as measured by the llandy-Whitman Index of Public Utility Comtruction Costs. This method is intended to measure income after giving recognition to the cost of maintaining the capability of the Companfs system to provide electric service at current price lesels The difference between current cost data and the data adjusted for general inflation results from specific prices of utility plant increasing more or less rapidly than prices in general.
Note B -Net Income Adjusted for Changing Prices:
Adjustment of items in the historical cost income statement to arrive at net income adjusted for general inflation and changes in specific prices was limited to depreciation expense. In accordance with procedures specified in FAS No. 33, revenues and all expenses other than depreciation were comidered to reflect the current average price lesel for the year and accordingly remain unchanged from those amounts shown in the Company's primary financial statements.
Estimated utility plant was determined under both methods by applying the indexes specified alme to the historical cost of utility plant by vintage year. Depreciation expense was then determined for the adjusted amounts of utility plant by applying the same composite depreciation rate used to compute the historical amount of depieciation expense shown in the Company's primary financial statements.
Fuel inventories and the cost of fuel used in the generation of electricity were not restated from their historical costs. Regulation limits the recovery of fuel expense through adjustments in basic rate whedules or through the operation of fuel adjustment billing clauses, which include 90%
i the changes in fuel imentory costs. For this reason, fuel inventories are effectively monetary assets. Af aterials and supplies inventories were not restated since they are not a cost of generating electricity and the amounts involved are insignificant. As with fuel inventories, materials and supplies imentories have been treated as monetag assets. See Note D.
Note C-Adjustment of Net Utility Plant to Net Recoverable Amount:
Under current ratemaking policies prescribed by the MPSC and the FERC, only the historical cost of utility plant is recoverable through depreciation charges as part of the cost of sersice billed to customers. Therefore, the excess of the cost of utility 1lant adjusted for both general inflation and changes in specific prices is not presently recmerable in rates as depreciation. In accordance with the requirements of FAS No. 33, the amount of ~ bis excess that accrued as a result of changing prices during 1980 is reflected as an adjustme 4 to net recoverable amount.
Note D-Reduction of Purchasing Power Loss through Lebt Financing:
During periods of inflation, the holding of mon <.tary assets such as cash and accounts receivable results in a loss of general purchasing powei because such items will purchase less at a future da'e. Alternatively, the holding of monetary liabilities such as long. term debt results in a gain of general purchasing power because the amount of money required to ultimately settle the liabilities represents dollars of diminished purchasing power.
49
THE DETROIT EDISON COMPANY AND SUBSIDIARY COMPANIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Since the Company owed net monetary liabilities during a period in which the general purchasing power of the dollar declined (i.e., during a perimi of inflation), the Company experienced an economic gain in purchasing power. All assets and liabilities other than utility plant, as well as amounts applicable to preferred and preference stock, were treated as monetary items. Preferred and preference stock were treated in the same manner as long-term debt since they are treated as such for ratemaking purposes and because these shatchulders have invested in the Company primarily for the dividends which are paid at a fixed rate, and not primarily in order to maintain the purchasing power of their original investment.
Note E-Discussion and Analysis of Financial Data Adjusted for Changing Prices:
The accompanying statement of income adjusted for changing prices reveals a significant decrease in reported net income when depreciation expense is adjusted for either general inflation or changes in specific prices. Theoretically, these decreases indicate that current revenues are not sufficient to cither maintain the purchasing power of the Company's invested capital or to replace, at the assumed price levels, the portion of its existing productive capacity used up during the > car.
The decrease in net income of 116% under the current cost method compated to the 83%
decrease under the constant dollar method points out the fact that the cost of the Company's investment in utility plant has increased at a rate greater than the rate of general inflation.
The gain in purchasing power discussed previously which results from the Company's substan-tial use of debt financing is strictly an economic concept. The Company cautions readers that such gains will never be realized and therefore do not contribute to cash flow or distributable income.
The regulatory process limits the Company to recovery of only the actual embedded interest cost of capital provided through debt financing. Thus, any gain in purchasing ]mer resulting from the use of debt financing is passed on to customers through reduced rates.
Since a substantial portion of the Company's investment in utility plant was financed through debt, any purchasing power gain resulting from the use of debt can only be realized if deprecia-tion on that portion of the inflation adjusted cost of utility plant financed with debt were recoverable as part of the cost of service billed to customers. Therefore, to properly reflect the economics of rate regulation, the Company believes that the economic gain in purchasing power related to debt should be considered an offset to the economic loss experienced as a result of regulatory restrictions related to the recovery of depreciation on the historical mst of utility plant.
Since the higher depreciation expenses under constant dollar or current cost accounting are not tax ded ntible, income taxes included in the accompanying data adjusted for changing prices were not adjusted from those amounts shown in the Company's primary financial statements.
Thus, the Company's effective tax rate under both the constant dollar and current cost methods exceeds the statutory rate of 46%. Such a tax [mlicy effectively results in a tax on shareholders' investment in the Company.
The constant dollar data, because they are developed using the broad based CPI-U, are not necessarily representative of the effects ofinflation on the Company. Ilowever, a primary value of constant dollar data is that they provide a common basis for comparison that can be particularly useful in trend analysis. The accompanying summary of selected financial data, for example, shows that operating revenues for the five-year period 1976 through 1980 increased 43%. If each year were restated in average 1980 constant dollars, operating revenues for the ume period would decrease 1%, which indicates that the growth in operating revenues is the result ofinflation rather than increased volume, since total kilowatthour sales in 1980 were acntally 3% lower than in 1976 due to the severe recession.
50
THE DETROIT EDISON COMPANY AND SUBSIDIARY COMPANIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Concluded)
In summary, the regulatory prom. "mits th e amount of depreciation expense recoverable' through revenues to the historical cco "f ;. Cor pany's investment in utility plant. Such amount produces cash flows which are inadequa'e te cplace such property in future years or to presene the purchasing power of common equit) capital invested. As a result the Company must increas-ingly rely on the capital markets to provide neu ssary financial resources, thus further exposing the Company to the effects of inflation in the foret af increased financing costs. The Company, therefore, incurs a significant purchasing power loss which is experienced by the common shareholder and can be overcome only as a result of adequate rate reliefin the regulatory process.
PART III Item 9-Directors and Executive Officers of the Registrant.
Infoimation regarding the Company's executive officers is hereby incorporated herein by reference to Items I and 2-Business and Properties, "Employes and Executive Officers" on pages 15-16 hereof; and information reFa d w diretors is hereby incorporated herein by reference to the heading " Nominees" on pages 2-4 cf the Company's definitive proxy statement dated Afarch 23,1981, in connection with its Annual \\ieeting of Shareholders to be held on April 27, 1981.
Item IO -Management Re'nuneration and Transactions.
Information regarding "Alanagement Remuneration" and " Transactions with Associates of Directors" is hereby incorporated herein by reference to such headings on pages 6-8 and 8-9 respectively, of the Company's definitive proxy statement dated hfarch 23, 1981, in connection with its Annual hfecting of Shareholders to be held April 27,1981.
51
PARTIV Item 11-Eskibits, Financial Statement Schedules and Reports on Form 8 K, (a)(1) Financial Statements.
See Item 8-Financial Statemer.** and Supplementary Data.
(2) Financial Statement Schedules.
See item 8-Financial Statements and Supplementary Data.
(3) Exhibits.
(i) Exhibits filed herewith.
EaMWt Meanber 10-1
- Written description of key employe deferred compensation arrange-ment.
10-2
- Directors' Deferred Annual Retainer Plan.
10-3
- Amendment, dated as of January 1,1981, to Credit and Term loan Agreement, dated as of 5f ay 12,1980.
10-4
-Credit Agreement dated as of 5farch 18,1981.
Il-1
- Primary and Fully Diluted Earnings Per Share of Common Stock.
(ii) Exhibits incorporated herein by reference.
3(a)
- By-Laws of the Company, as amended February 1,1980 (Exhibit 1-A-107 to Registration No. 2 67659).
4(a)
- Restated Certificate of incorporation of the Company (New York) dated July 24,1978 (Exhibit 1-A-56 to Registration No. 2-62206).
4(b)
-Certificate of Amendment of the Certificate of incorporation of the Company (New York) with respect to the 9.72% Series Cumulative Preferred Stock (Exhibit 1-A-98 to Rgistration No. 2 63052).
4(c)
-Certificate of Amendment of the Certificate of incorporation of the Company (New York) with respect to the 9.60% Series Cumulative Preferred Stock (Exhibit 5-A-103(A) to Registration No. 2-66157).
4(d)
-Certificate of Amendment of the Certificate of Incorporation of the Company (New York) with respect to the 12.80% Series Cumulative Preferred Stock (Exhibit 1-A 105 to Registration No. 2-67658).
4(e)
-Certificate of Amendment of the Certificate of incorporation of the Company (New York) dated Af ay 21,1980 with respect to an increase in authorized Common Stock (Exhibit 1-A-108 to Registration No.
2-68310).
4(f)
-Certificate of Amendment of the Certificate c,f Incorporation of the Company (New York) dated November 24, 1980 with respect to in-creases in authorized Preferred and Preference Stock (Exhibit 4-10 to Registration No. 2-69934).
4(g)
-Certificate of Amendment of the Certificate of incorporation of the Company (New York) with respect to the 13.50% Series Cumulative Preferred Stock (Exhibit 4-12 to Registration No. 2-70578).
4(h)
- Restated Articles of incorporation of the Company (Afichigan) dated July 24,1978 (Exhibit 1-A-97 to Registration No. 2-62206).
52
mawhos Museher 4(i)
-Certificate Containing Resolution of the Board of Directors of the Company Establishing and Designating the 9.72% Series Cumulative l
Preferred Stock (5fichigan) (Exhibit 1-A-99 to Registration No.
2-63052).
4(j)
-Certificate Containing Resolution of the Board of Directors of the Company Establishing and Designating the 9.60% Series Cumulative Preferred Stock (Siichigan)(Exhibit No. 5-A-104(A) to Registration No.
2-66157).
4(k)
-Certificate Containing Resolution of the Board of Directors of the Company Establishing and Designating the 12.80% Series Cumulative l
Preferred Stock (Stichigan) (Exhibit 1-A-106 to Registration No.
2-67658).
l 4(1)
-Certificate of Amendment to the Articles of Incorporation of the l
Company (5fichigan) dated 5f ay 21,1980 with respect to an increase in authorized Common Stock (Exhibit 1-A-109 to Registration No.
2-68310).
4(m)
-Certificate of Amendment to the Articles of Ir..orporation of the Company (5fichigan) dated November 24, 1980 with respect to in-i creases in authorized Preferred and Preference Stock (Exhibit 4-11 to Registration No. 2-69934).
j 4(n)
-Certificate Containing Resolution of the Board of Directors of the Company Establishing and Designating the 15.50% Series Cumulative Preferred Stock (5fichigan) (Exhibit 4-13 to Registration No. 2-70578).
I 4(o)
-5fortgage and Deed of Trust dated as of October 1,1924 between the Company and Bankers Trust Company as Trustee (Exhibit B I to Registration No. 2-1630) and indentures supplemental thereto dated as of dates indicated below and filed as exhibits to the filings as set forth below:
December 1,1940 Exhibit B-14 to Registration No. 24609 September 1,1947 Exhibit B-20 to Registration No. 2-7136 5farch 1,1950 Exhibit B-22 to Registration No. 2-8290 November 15, 1951 Exhibit B-23 to Registration No. 2-9226 5tarch 15,1954 Exhibit 4-B 27 to Registration No. 2-10724 August 15, 1957 Exhibit 3-B-30(A) to Registration No. 2-65362 June 1,1959 Exhibit 3-B 31(A) to Registration No. 2-65362 December 1,1966 Exhibit 2-B-32 to Registration No. 2-25S64 October I,1968 Exhibit 2-B-33 to Registration No. 2-30096 December 1,1969 Exhibit 2-B-34 to Registration No. 2 35291 July 1,1970 Exhibis 2-B 35 to Registration No. 2-37585 December 15, 1970 Exhibit 2-B-36 to Registration No. 2-38832 June 15,1971 Exhibit 2-B-37 to Registration No. 24 0550 November 15,1971 Exhibit 2-B-38 to Registration No. 2-42160 January 15, 1973 Exhibit 2-B-39 to Registration No. 24 6595 5 fay 1,1974 Exhibit 2-B-40 to Registration No. 2 50773 January 15, 1975 Exhibit 2-B-42 to Registration No. 2-52523 November I,1975 Exhibit 2-B-44 to Registration No. 2-55027 December 15, 1975 Exhibit 2-B43 to Registration No. 2-55027 February 1,1976 Exhibit 3-F-233(A) to Registration No. 2-65362 June 15,1976 Exhibit 2-B-45 to Registration No. 2-56680 July 15,1976 Exhibit 2-B-46 to Registration No. 2 56680 February 15, 1977 Exhibit B47(A) to Registration No. 2-65362 53
saww Member March 1,1977 Exhibit 1 F-260 to Registration No. 2-58669 June 15,15/7 Exhibit B-48(A) to Registration No. 2-65362 July I,1977 Exhibit 2-B-49 to Registration No. 2 58369 October 1,1977 Exhibit 2-B-50 to Registration No. 2-58369 June 1,1978 Exhibit 2 r 51 to Registration No. 2-61613 October 15, 1978 Exhibit 2-B-:,2 to Registration No. 2-62684 March 15,1979 Exhibit 2-B 53 to Registration No. 2-61176 July 1,1979 Exhibit 2 B-54(A) to Registradon No. 2-65362 September I,1979 Exhibit 2-B-55 to Registration No. 2-65362 September 15, 1979 Exhibit 2-B-56 to Registration No. 2 65362 January 1,1980 Exhibit 2-B-57 to Registration No-2 66157 April 1,1980 Exhibit 2-B-58 to Form 10-Q for quarter ended June 30,1980 (Pe No.1-2198)
August 15, 1980 Exhibit 4-1 to Form 10-Q 'or quarter ended September 30,1980 (File No.1-2198) 10(a)
-Credit and Term loan Agreement, dated as of May 12,1980 (Exhibit 5-F-320 to Registration No. 2-67659).
(b) No tcports on Form 8-K were filed during the last quarter of the period covered by this report.
54
THE DETROIT EDISON COMPANY AND SUBSIDIARY COMPANIES SCHEDULE V -PROPERTY, PLANT AND EQUIPMENT (a)
Other Changee -
Balance at Transfers Balance at Beginalag of Addedone Betwsen End of Classificatiwb>
Period At Cost Redressente Accounta Period YEAR 1990 nhousande)
Utility Properties Electric:
l Steam pmduction
$2,199,378
$253,229
$ (4,227) $
36
$2,448,416 Nuclear production,.
285,781 26,138 (18,150ge) 293,769 Hydraulic production.
167,9 1 394 (64) 168,271 Other production.
56,868 357
'i7.225 Transmission.
767,572 28,543 (2,506) 1,550 (d) 815,159 Distribution.
1,110,554 76,589 (12,300)
(287Hd) 1,174.556 General.
165,009 17,636 (1,602)
(34) 181,009 Construction costa undir,tributed,
Total electric plant.
798.917 238,562 (52,872 He) 984,607 35,572,020
$641,448
$t 20,699) $169,757)
$6,123,012 Steam plant 43.665 2,560 (108)
(7) 46,110 Total Utility Properties -The Detroit Edison Company $5,615,685
$644,008
$(20,807) $(69,764)
$6,169,122 Midwest Energy Resources Company 44,338 113 (78) 44,373 Tots! Utility Properties.
$5,660,023
$644,121
$420,885) Si69,764)
$6,213,495 Non Utility Properties:
'Ihe Detroit Edison Company.
2,084 8
111 (76) $
225 2,344 The Edison Illuminating Company of Detroit 191 2
(75) 118 Washtenaw Energy Corporation 17 (12) 5 Total Non-Utility Pmperties.
2,292 3
113
$ (163) $
225 3
2,467 Total Property, Plant and Equipment.
$5.662,315
$644,234
$121,048) Si69,539)
$6,215,962 YEAR 1979 Utility Properties:
Electric:
Steam production
$1,765,247
$ 440,322 8 (5,273) 8 (918'
$2,19E578 Nuclear production.
237,703 48,073 2P3,781 Hydraulic production.
167,933 17 (9i 16?,941 Other production.
55,912 1,069 (113) 56 V8 Transmiss' a.
Distribution.
752,321 35,993 (2,570) 1,828 (e) 787,572 1,045,251 75,727 (9,176)
(1,248He) 1,110.554 General.
156,283 12,502 (3,763)
(13) 165,009 Constructios costa undistributed 826.098 (27,181) 798,917 Total electric plant.
$5,006,748
$586,527
$<20,904 ) $ (351)
$5,572,020 Steam plant 42,408 1,850 153 (746xf) 43,665 Nuclear fuel 9,485 41 (9.526Mg)
Total Utility Properties - The Detroit Edison Company $5,058,641
$588,418
$<20,751) $(10,623)
$5,615,685 Midwest Energy Resources Lompany.
44,202 136 44,338 Total Utility Properties.
$5,1028
$588.551
$420,751) $(10,623)
$5,660,023 Non-Utility Properties:
The Detroit Edison Company.
1,358 (76)
$ (224) $ 1,026 8
2,084 The Edison 111uminating Company of Detroit.
422 (5)
(226) 191 Washtenaw Energy Corporation 17 17 Total Non-Utility Properties.
1,797 3
(81)
$ 1224) $
800 2,292 Total Property, Plant and Equipment.
$5,104,640
$588,473
$(20,975) $ (9,823)
$5,662,315 55
THE DETROIT EDISON COMPANY AND SUBSIDIARY COMPANIES SCHEDULE V -PROPERTY, PLANT AND EQUIPMENT (a)-(Concluded)
Other Changes -
Balance at Transfers Balance at Beginning of Additions Between End of Classification (b)
Period At Cost Retiressents Accounts Period (Thousands)
YEAR 1978 Utility Properties:
Electric-Steam production
$1,620,190
$ 151,993
$ (7,014) $
78
$1,765,247 Nuclear production..
189,330 48,373 237,703 Hydraulic production.
167,942 262 (262)
(9) 167,933 Other production.
50,421 5,491 55,912 Transmission.
723,157 29.566 (2,811) 2,409 (h Ki) 752,321 Distribution.
987,094 66,909 (8,461)
(291Hi) 1,045,251 General.
141,188 16,549 (1,407)
(47) 15S,283 Construction costs undistributed 513,487 312,611 826,098 Total electric plant.
$4,392,809
$631,754
$(19,955) $ 2,140
$5,006,748 Steam plant 41,068 1,744 (357)
(47) 42,408 Nuclear fuel 3,892 5,593 9,485 Total Utility Properties-The Detroit Edison Company $4,437,769
$ 639,091
$(20,312) $ 2,093
$5,058,641 Midwest Energy *tesources Company.
44,116 91 (5) 44,202 Total Utility Properties.
$4,481,885
$ 639,182
$(20,317) $ 2.093
$5,102,843 Non-Utility Properties:
The Detroit Edison Company.
1,444 76
$ (162) $
1,358 The Edison Illuminating Company of Detroit.
338 228 (1)
(143xjl 422 Essex County Light & Power Company, Limited 181 (181)
Washtenaw Energy Corporation 3
(6) 20 17 St. Clair Energy Corporation 22 5
(7)
(20)
Total Non. Utility Properties.
1,985 312
$ (357) $ (143) 1,797 Total Property, Plant and Equipment.
$4,483,870
$ 630g
$r20,674) $ 1,950
$5,104,640 (a) See Note I for description of depreciation policy followed by the Company.
(b) Accounts are classified in conformity with the uniform systems of accounts prescribed by the
.\\tPSC and the FERC, accordingly, these accounts include construction work in progiess which is classified separately in the Consoliciated Balance Sheet.
(c) Greenwood Unit Nos. 2 and 3 costs transferred to deferred debit account.
(d) Includes $1,483,000 for equipment transferred to plant accounts from materials and supplies inventory.
(c) Includes $486,000 for equipment transferred to plant accounts from materials and supplies inventory.
(f) Includes $(556,000) reversal of a prior year's addition.
(g) Sale of capitalized costs relating to nuclear fuel.
(h) Includes $(271,000) for FERC compliance audit adjustments.
(i) includes $2,364,000 for equipment transferred to pbnt accounts from materials and supplies inventory.
(j) Includes $(143,000) for transfers of assets sold.
56
THE DETROIT EDISON COMPANY AND SUBSIDIARY COMPANIES SCHEDULE VI-ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT Other Additions Changes -
Balance at Charged to Transfers Balance at Beginning Costs and Between End of Description of Period Expenses Retirements Reserves Period (Thousands)
YEAR 1980 Utility Properties:
The Detroit Edison Company... $ 1,064,827 S140,735 $(23,864)
$ 1,181,698 Niidwest Energy Resources Company 4,367 1,263 (78) 5,552 Total Utility Properties.
. $ 1,069,194 $141,998 $(23,942)
$ 1,187,250 Non ',tility Properties - Washtenaw Energy Corporation 6
2 (6) 2 Total Accumulated Depreciation.
. S1,069,200 $ 142,000 S(23,94H)
S-
$ 1,187,252 YEAR 1979 Utility Pmperties:
The Detroit Edison C(m.pany S 959,208 $ 128,515 S(22,896)
$ 1,064,827 Niidwest Energy Resources Company 3,114 1,253 4,367 Total Utility Properties.
. S 962,322 $ 129,768 $(22,896)
$1,069,194 Non-Utility Pro pe rties - b ash tenaw Energy Corporation 2
4 6
Total Accumulated Depreciation.
S 962,324 S129,772 S(22,896)
S-
$ 1,069,200 YEAR 1978 Utility Properties:
The Detroit Edison Company S 871,521 $ 114.215 $(26,097)
S(431)(a)
S 959,208 N!idwest Energy Resources Company 1,855 1,260 (I) 3,114 Total Utility Properties S 873,376 $ 115,475 S(26,098)
S(431)
$ 962,322 Non-Utility Properties:
St. Clair Energy Corporation.
2 3
(2)
(3)
Washtenaw Energy Corporation 1
(2) 3 2
Total Non-Utility Properties. S 2 S 4 S (4)
S-S 2
Total Accumulated Depreciation S 873,378 $ 115.479 $(26,102)
$(431)
S 962,324 (a) FERC compliance audit adjustment.
57
THE DETROIT EDISON COMPANY AND SUBSIDIARY COMPANIES SCHEDULE VIII-VALUATION AND QUALIFYING ACCOUNTS l
Additions Balance at Balance BeginnLgr Charged to Charged at End of Costa and to Other of Descriptian Period Expensee Accounta Deductions Period (Thousands)
YEAR 1980 Allowance for uncollectible accounts (shown as deduction from accounts receivable on bal-ance sheed
$7.500
$ 8,350
$358ia) $(7,408)(b) $8,800 YEAR 1979 Allowance for uncollectible accounts (shown as deduction from accounts receivable on bal-ance sheet)
$6,600
$6,778 $323a) $(6,200Kb) $7,500 YEAR 1978 Allowance for uncollectible accounts (shown as deduction from accounts receivable on bal-ance sheet)
$5,500
$6,789
$373a) $(6,062)(b) $6,600 (a) Collection of accounts previously written off.
(b) Uncollectible accounts written off.
58
THE DETROIT EDISON COMPANY AND SUBSIDIARY COMPANIES SCHEDULE IX-SHORT-TERM BORROWINGS(a)
Maslanman Average Weighted Annount Annount Ave 43se Balance Weighted Outstanding O " ^- ' ; Interest Rate Category of Aggregate atEnd Average Durtag the Durlag the During the Sho+ term Borrowings of Period laterest Rate Period (b)
Period (e)
Per6ed(d)
(Thousande)
YEAR 1980 Commercial Paper.
$69,7i5 $28,204 15.99 %
llank Loans.
$46,000 21.35 %
$80,000 $21,378 16.29%
Trust Demand Notes
$17,092 17.30%
$20,000 $19,602 12.83 %
Promissory Notes..
.... $.,000 21.17 %
$27,222 $15,234 14.81 %
YEAR 1979 Commercial Paper..
. $20,284 14.74 %
$34,669 $11,186 12.83 %
Bank 1.oans.
$75,500 15.30 %
$75,500 $21,681 12.57 %
Trust Demand Notes
$20,000 13.73 %
$20,000 $19,769 11.34 %
Promissory Notes...
$28,432 15.33 %
$78,793 $32,156 11.74 %
YEAR 1978 Commercial Paper.
$ 10,946 10.94 %
$37,351 $ 6,068 8.85%
Bank Loans..
$22,000 11.41 %
$23,000 $ 3,042 8.91%
Trust Demand Notes
.. $ 19,564 10.76 %
$20,000 $19,696 3.20%
(a) See Note 2 for information regarding terms of each category of aggregate short. term borrow-ings.
(b) Represents maximum amount outstanding for each category of aggregate short-term borrow-ings at various months-end. During 1980,1979 and 1978, aggregate short. term borrowings reached a month.end maximum of $186.4 million, $144.1 million and $56.0 million, respec-tively.
(c) Average short-term borrowings are the sum of dollar-days of borrowings divided by actual days in the year. For 1980,1979 and 1978, aggregate short-term borrowings averaged $84.4 million,
$84.8 million and $28.8 million, respectively.
(d) Average interest rates are determined by dividing actual interest accrued by average short-term borrowings. For 1980,1979 and 1978, interest rates for aggregate short-term borrowings averaged 15.19.12.0% and 8.4%, respectively.
59
THE DETROIT EDISON COMPANY AND SUBSIDIARY COMPANIES SCHEDULE X-SUPPLEMENTARY INCOME STATEMENT INFORMATION Taxes other than payroll and income taxes, charged to operating expenses, were as follows:
Year Ended Decesaber 3 isso ine ins (Thousands)
Local property
$ 94,311 $81,393 $77,392 Michigan single business,
6,540 4,690 3,021 Miscellaneous.
1,481 1,788 1,602 Total.
. $102,332 $87.871 $82,015 I
60
EXHICIT 111 PRIMARY AND FULLY DILUTED EARNINGS PER SHARE OF COMMON STOCK Year Emded Deceanher 31 Leos ggs 1gs es%=eende>
PRIMARY:
Ea rnings for Common Stock....................... $137,529 $132,572 $108,813 Weighted average number of common shares outstanding (a).
78,781 69,848 61,899 Earnings per share of Commor. Stock based on weighted aserage number of shares outstanding 1.75 $
1.90 $
1.76 FULLY DILUTED:
Ea rnings for Common Stock.......................... $137,529 $132,572 $108,813 Convertible preferred stock dividends...
2.293 _ 3,005 3,785
$ 139,822 $135,37{ $112,598 Weighted average number of common shares outstanding (a).
78,781 69,848 61,899 Conversion of convertible preferred stock........
2,000 2,592 3,117 80,781 72,440 65,016 Earnings per share of Common Stock assuming conversion of outstanding convertible preferred stock....
1.73 $
1.87 $
1.73 (a) Based on a daily average.
61 J
SIGNATURES to the requirements of Section 13 of the Securities Exchange Act of 1934, the Pursuant Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Tile DETROIT EDISON COMPANY (Registrant)
/s/ FRANK M. KEHOE gy Frank M. Kehoe, Vice President and Secretary Date: March 23,1981 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated:
/s/ CHARLES M. IIEIDEL
/s/ WENDELL W. ANDERSON, JR.
By g,
Wendell W. Anderson, Jr., Director Charles M. Ileidel. Director
/s/ GEORGE M. IIOLLEY, JR.
/s/ WILLI AM A. BASSE Bv g'
William A. Basse, George M. Ilolley, Jr., Director Controller
/s/ PATRICIA SHONTZ LONGE By P tricia Shontz Longe, Director
/s/ MALCOLM CARRON, S.J.
Bv
~
Malcolm Carron, S.J., L)irector
/s/ WALTER J. McCARTilY, JR.
3' Walter J. McCarthy, Jr.,
/s/ Cil ARLES T. FISIIER 111 President, Chief Operating Officer 3
Charles T. Fisher 111, Director and Director
/s/ DAVID M. GATES
/s/ WILLI AM G. MEESE By B y.
David M. Gates, Director William G. Meese, Chairman of the Board, Chief Executive Officer
/s/ EDWARD J. GIBLIN and Director Edward J. Giblin, Director
/s/ FRANK MERRIMAN
/s/ ERNEST L. GROVE, JR.
By I. rank Merriman, Director BV Ernest L Grove, Jr.,
Vice Chairman of the Board,
/s/ DEAN E. RICli ARDSON Chief Financial Officer gy and Director Dean E. Richardson, Director
/s/ ALAN E. SCllWARTZ
/s/ DAVID B. II Akt'ER gy gy David B. liarper, Director Alan E. Schwartz,1)irector Date: March 23,1981 62
1 i
l CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Prospectus constituting part of the Registration Statement on Form S-16 (No. 2-68310) of The Detroit Edison Company of our report dated February 13, 1981 appearing on page 27 of this Form 10-K.
PRICE WATERHOUSE & CO.
March 23,1981 Detroit, Michigan 63
EXilIBIT F a
PRELIMINAR Y PROSPECTUS s a: e C~5 issued January 16, I981 4 ~g.
.E w
m ie*
1,250,000 shares as:
.i n t~1 The Detroit Edison Conipany aian Ei.E CO3DION STOCK A x *.
($10 par value)
"3E j3=
$I
. x
$f The Cornpany's outstanding Cornanon Stock is listed on the Neic York Stock Exchange.
D o
E. 5 o:
3 ;}
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES j;E AND EXCHANGE COhthflSSION NOR HAS THE COhthflSSION PASSED UPON 5l~
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESEN.
g}Q TATION TO THE CONTRARY IS A CRikflNAL OFFENSE.
A ;i!.
~ a EE=
g5; PRICE $
A SHARE
- -2 25*
E$$
i at 3 Underscriting eI:
Prics to Discounts and Proceeds to u5i Public Commissions (1)
Company (2)
[a55 2 y ii Per Share S
S S
&. $ n.'Total.
S S
S (1) The Comtany 1:as agreed t3 indemnify the (*nder:.riters against ccriain liabilities, including liabilities smder the i E *.
Securitics Act of 193L
.X I $
(2) llefore deduction of extenses estimated at $1301% rayab!r by the Company.
E m
22*
~
ZEI The shares of Common Stock are ofered, subject to prior sale, ichen, as and if accepted by the f}j Underteriters, and subject to approval of their validity by li*hite f Case, counsel for the Under-2l}
reriters, by Leon S. Cohan, Esq., Senior Vice President and (lencrat Counsel of the Company, and 2
by Sullivan f Cromicell, special counsel for the Company. It is expected that delivery of the shares
,3y
- 3g trill be made on or about F<bruary
,1981 at the ofice of.11 organ Stanley f Co. Incorporated, fa;
.5.T TVater Street, Nete York, N.Y. against payment therefor in Netc York funds.
=
252 e-
". Ii 3,
511 MORGAN STANLEY & CO.
E. F. HUTTON & COMPANY INC.
&;h incorporated
- a=E2 s-Ji a
E.; a n,
- a 2
- ya Ja n n,r ry 1981 l
No persons have been authorized to give any information or to make any representations other than those contained or incorporated in this Prospectus and, if given or made, such information or representations must not be relied upon as having been authorized. This Pro relates, or an offer or solicitation with respect to those securities to which it relates to any person in any jurisdiction where such offer or solicitation would be unlawful. The delivery of this Prospectus at any time does not imply that the information contained or incorporated herein is correct as of any I
time subsequent to its date.
ADDITIONAL INFOR.1ATION
\\
The Detroit Edison Company (-Company") is subject to the informational requirements of the Securities Exchange Act of 1934 (*1934 Act) and in accordance therewith files reports and other information with the Securities and Exchange Commission ("SEC"). Information, as of particular dates, concerning directors and officers, their remuneration and certain other benefits, and any material interest of such persons in transactions with the Company is disclosed in the Company's proxy statements distributed to shareholders of the Company and filed with the SEC. Such reports, proxy statements and other infonnation concerning the Company can be inspected and copied at the public reference facilities of the SEC at Room 610L 1100 L Street, N.W., Washington, D.C., Room 122s, Everett N!cKinley Dirksen lluilding, 219 South
Dearborn Street,
Chicago, Illinois; Room 1100, Federal Buildinu,26 Federal Phza, New York, New York; and Suite 1710. Tishman Building,10960 Wilshire Boulevard, Los Angeles, California; and copies of such material can be obtained from the Public Reference Section of the SEC at 500 North Capitol Street, Washington, D.C. 20H9, at prescribed Such material can also be inspected at the offices of the New York Stock Exchange, 20 Broad Street, New York, New York. The address of the Company's principal executive offices and its tele-rates.
phone number are 2000 Second Avenue, Detroit, Niichigan 4S226 and (313) 237-5000.
INCORPORATION OF CERTAIN DOCUAIENTS BY REFERENCE The following documents and infonnation, heretofore filed with the SEC pursuant to the 1931 Act, are hereby incorporated in this Prospectus by reference:
The Company's Annual Report on Fonn 10.K for the year ended December 31.1979.
L 31,1950, The Company's Quarterly Reports on Form 10-Q for the quarters ended Alarch 2.
and Current Reports on Fonn S-K dated August 25,19SO June 30,19%0 and September 30. 1950, and September 25,19S0.
The Company's definitive proxy statements, dated Af arch 24,19SO in cormection with its 3.
Annual NIceting of Shareholders held on April 28,19S0 and dated October 9,1950 in connection with 13,1950.
its Special Nicetings of Preferred and Preference Shareholders held on Novembcr All doenments filed by the Company pursuant to Section 13,14 or 15(d) of the 1931 Act after the date hereof and prior to the termination of the offering of the Common Stock offered hereby rcference and a part hereof FAdditional Common Stock") shall be deemed incorporated herein '~
from the date of filing of such documents.
Certain information contained herein smnmarizes, is based upon, or refers to information con-tained in one or more incorporated documents; accordingly, such infonnation is qualified in its entirety by reference to such documents and should be read in conjunction therewith.
The Company hereby undertakes to prmide without charge, upon the written request of any person to whom a copy of this Prospectus has been delivered, a copy of any or an of the documents referred to above which are incorporated herein by reference, other than exhibits to such documents.
Written requests should be directed to Frank. f. Kehoe, Vice President and Secretary, The Detroit
\\
Edison Company,2000 Second Asenue, Detroit, Stichigan 4S226.
IN CONNECTION WITII TIIIS OFFERING, TIIE UNDERWRITERS Nf AY OVERALLOT OR EFFECT TRANSACTIONS WIIICII STABILIZE OR AIAINTAIN TIIE 51ARKET PRICE OF T CONIPANTS CONINION STOCK AT A LEVEL ABOVE TIIAT WIIICII. flCIIT OTIIERWISE
\\
PREVAIL IN TIIE OPEN. f ARKET. SUCII TRANSACTIONS AfAY BE EFFECTED ON TIIE
\\
NEW YORK STOCK ENCIIANGE OR ANY OTIIER STOCK ENCIIANGE ON WIllCII TIIE CO. tNION STOCK IIAS BEEN ADNIITFED TO TRADING PRIVILEGES, IN TIIE OVER-TIIE.
\\
COUNTER NIARKET OR OTIIERWISE. SUCII STABILIZING, IF CO. f AfENCED, AIAY BE
\\
DISCONTINUED AT ANY TINfE.
2 bl
SDI.5fARY INFOR.51ATION The follouin material is qualif cd in its entirety by the infor. nation and financial statements appearin clwu here in this Prospectus and in the documents and information incorporated herein by referem c.
THE OFFERING Securities Offered
.150Vf) shares of Common Stock, 510 par value. 51.667 3 38 shares outstandin; as of Nosember 30, 1950.
Common Stock Dividends A quarterly dividend of 50A0 per share wa paid on January 15, 1931. The indicated annual divdend i., 51.60. The Company portion of 1951 dividends may be presently expects that a Correnon Stock Prices:
Repmted Hannes - 1950 513% - 10
-1951 ( throuch Januan 14 )
512
--10%
lleported Last Sale on NYSE-January 14. 1951 511 Hook Value per Common Share-Novcmber 30,1950:
Actual 517.91 Pro Forma 517h3 SELECTED FINANCIAI. INFOH51ATION (Thouunds, esce pt per share arnounts and percentages)
T=ehe d'ZM"".d.'i n,
_ _. _ _h'M*d ')*""b" 21 -
d u maa me im var r,n.
ras Income bilot:nar):
Operating Revenues 51,779,199 51,ff35.511 51.559.512 SIA71921 51.2 % 167 Sl.070.7 9 Earnings for Conanon $tock 5 130.$15 5 132,372 5 105.513 5 110,420 5 53.036 5 71.991( a )
Earninus Per Share 5
145 5 1 90 5 1.76 5 200 5 1.ffi 5 1.50i a )
Dhidends Declared Per Common Share 5 IfAl 5 1.60 5 1.52 5 1.4675 5 1A3 5 IA3 hember 30. reo L maud;ted i ed Adjeted w"s Capitalization Su:.cnar:, :
4*i A%d+
.< n u -a o Long-Term Debt (principally.1 ort:a:;e Bonds 1i e i 52A13303 52.464,9 %
53.6 7 5
Redeemable Preferred and Preference Stock (c i 250.560 300,21S 6.5 Non-Redeemable Prefened and Preference Stock 316.031 316,031 6.9 Common Shareholders' Equity 1,479.210 1.316.224 33 0 Total 51 A71 F_6 S t.5'BA30 lo0XI (a) 1975 total and per share earnings for Common Stock will be restated to 539.3 milbor$ and l
Sill. respectiveh, it certain deferred fuel cost res enues are ultimatelv required to be refunded.
See Note 10 of Notes to Concolidated Financial Statements in the Comoanv's Annual Report on Fonn 10-K. incorporated herein by r(ference. He report fincorporated herein bv reference) of i
19 ice Waterhouse & Co.. independent accountants, with respect to 1973 is subjc(t to the effects, if..nt, of the outcome of this matter.
!b1 lie!!etts the issuana s of 523 million of Preferred Stock and 22WMC shares of Common Stock in December 19% additional borrowines accrecatin; 531.7 million in December IW) and January 1951 under the Belle Eiser Project Financin; and the proposed issuances of $25 mi!Lon of preferred 5tuk and the Additional Common Stock offered hereby in February 1951.
(c) Excludes amounts due within one sear accrecatin: 5GI 2 million of lon:-term debt and t
$1.3 milhon of Preference Stock sinking fund r(quirements.
3 k
a
/
E_
f The Company is a regulated public utilit, enga m %: generation, purchase, transmission, distribution and sale of electric energy in a 7,600 square mi e service area in southeastern Alichigan with a population of approximately five million persons. "he Company's service area comprises about 13rc of hiichigan's total land area, but accounts fa over one-half of its population, electric energy consumption and industrial capacity.
During the twelve months ended November 30, 1950, sales to the Company's approximately 2.300 industrial customers accsanted for 36Fc of total operating revenues, with approximately one-third of industrial resenues attributable to automotise manufacturers; sales to the approximately 1.6 million residential customers accounted for approximately 32rc of total operating revenues; and the balaace of total operating revenues was derived from sales to appt 2ximately 137.000 commercial customers (21rc ), including offices.md retail outlets. and to approximately 2,500 municipal, steam, wholesale and other customers (llr ). The Company's 30 largest industrial customas accounted for c
approdmately 23rc of total operating revenues, with no one customer accounting for more than 3rc.
The Company's generaticn was approximately $9Cc coal-fired during the period.
USE OF PROCEEDS The net proceeds from the sale of the Additional Common Stock effered hereby (estimated at approximately 5 million after underwriting discounts and commissions and estimated expenses) will be used to reduce short-term barrowings (other than approximately 520 million of trust demand notes held by fiduciaries) incurred primarily in connection with the Company's capital expenditure program. The Company also proposes to issue and sell publicly, in February 1951, S25 million of Preferred Stock FNew Preferred Stock") and will apply the net proceeds from such sale to further reduce short. term borrowings. It is estimated that just prior to the issuance of the Additional Common Stock and the New Preferred Stock, short-term borrowings will at regate in excess of 8100 million (including approximately 520 mill:on of trust demand nctes). The sales of Additional Common Stock and New Preferred Stock are sepante transactions and are not contingent on each other.
See Capital Expenditure Program and Financing-Financing".
CAPITAL ENPENDITURE PROGRA%f AND FINANCING Capital Expenditure Program The Company estimates that 1950 capital expenditures (including $107.5 million of allowance for both borrowed and other funds used during construction, "AFDC') will aggregate approximately 56R7 million, of which 5575.0 million had been expended as of November 30,19S0. Tlw Company's 1951 capital expenditure program is expected to recluire expenditures of approximately 5S750 million (including $157.3 million of AFDC). Such program involves proposed expenditures for construction of Belle River Unit Nos. I and 2 (5355.0 million); the Company's portion of Enrico Fermi Unit No. 2
($155.0 million); hionroe fuels and emissions project (595.0 million); other production projects
( $56.0 million ); conversion of St. Clair Unit No. 6 from high-sulphur to Hulphuc coal ($27.S million); other environmental control and protection facilities (S12.1 million); transmissien and dis-tribution facilities (s74.7 million); and miscellaneous construction and ceneral construction o,erheads
( $69.4 million ).
The Company'.s fise-year projections for 1951-1955 contemplate capital expenditures approxi-mating $3.7 billion (including 50.6 billion of AFDC). The following table summarizes actual expend-4 l
I stures through November 30,1950, total estimated expenditures and the estimated earliest comp!etion dates for the major generating units in the Company's construction program.
Expenditures (Millions)
Estimated Actual Estimated Estimated Nocanal Through After Earliest Net No ember Nm ember Estimated Completion P! ant Capability 30.1950
.?O.1950 Totals
_ Dates (MW)
Enrico Fermi Unit No. 2 (nuclear) 1.100 51.053 s 717 51,500 19s3 Ilclle River Unit Nos. I and 2 (coal) 675 ea.
266 1,551 1,550 1951,1955 Enrico Fcrmi. The estimated capability and expenditures for Enrico Fermi Unit No. 2 include the 20'2 interest of two Alichigan cooperatives (other than AFDC relating to their interests from the date of sale to the cooperatives). For information with respect to the transaction with the woperativts, see Certain Developments".
~
In August 1950 the Company announced a revised total estimated cost for Enrico Fermi Unit No. 2 of $1.S billion (the prior estimate was $1.3 billion) as a result of continuing inflationary pressures on construction costs, design and engineering modiScations required by the Nuclear Regula-tory Commission ( NBC"), higher costs resulting from the delay in completion date from 1952 to 1953, and an increase in AFDC. In addition, the Company revised its estimate of the portion of Enrico Fermi Unit No. 2 which is completed from 50re to 75Fe.
The Company is in the process of resoking outstanding licensing questions with respect to the Fermi unit with the NRC staff and is giving consideration to those requirements made expressly I
applicable to near. term operating units, such as the Fermi unit, under the terms of an Action Plan issued by the NRC following that Commission's review of the Three hii!e Island nuclear accident.
Further, the Company is working closely with various Afichigan state and local ofBcials in the development of an emergency plan as required by recently passed legislation. Such emergency plan will be reviewed by the Federal Emergency Afanagement A;ency and will be passed upon by the NRC during operating license proceedings for the Fermi unit.
Belle Ricer. In September 1950 the Company announced a revised total estimated cost for Belle River Unit Nos. I and 2 of $1.55 billion (the prior estimate was.$1.371 billion) as a result of desicn and cost revisions, continuing inflationary pressures and an increase in AFDC.
Construction plans, schedules and budgets, both for the Enrico Fermi and Belle River units, as well as with respect to other construction projects, are subject to continuing review and have been and are espected to be revised from time to time as engineering and construction work proceeds and in light of load forecasts, financial conditions, licensing and other reculatory delays and developments, Icgislatise developments, changing environmental standards, the necessity
' feasibility of converting i
units to different fuels, and the availability and costs of lab md 4..< ils. To the extent con-struction projects are not completed, prior expenditures antt possible ynalties, which could be substantial, mitht be charged against operations, and the reliability of future service could be adversely affected. See "Certain Developments' for information on the Company's decision not to construct its previously proposed Greenwood Nuclear Unit Nos. 2 and 3.
Financing Durin: 1950. the Company raised esternal funds of approximately $631.9 million through the issuance of an aggregate of $50 million of Unsecured Promissory Notes, $100.1 million of General 5
and Refunding Afortgage Bonds, 691.5 million of Pieferred Stock, 8112.6 million of Common Stock (including $33.1 million throuch the Dividend Reinvestment and Common Share Purchase Plan) and borrowings aggregating $20Lj.7 million Imder the Belle River Pmject Financing (discussed below).
The Company's 1951 external funds requirements are 5620 million (including $72 million for refund-ings). See ~Certain Developments".
The Company's ability to complete its Enrico Fermi and Belle River units and other significant capital projects and reliability of future service depend upon the availability of substantial amounts of extemal funds, significant and time'v additional rate increases, and receipt of periodic financing authority from the Aliebigan Public Service Cor.unission (".\\!PSC") as to long-term borrowings a nd e<piity securities and from the Federal Ener y Reculatory Commission ("FERC") as to short-tenn borrowings.
The Company is required to obtain AIPSC appmval for the type and amount of its securities issues (other than certain short-term oblications ).
On July 26, 1979. the Company fi!cd an application with the NIPSC for authorization of external debt and equity financing of up to 5623 million (including the Additional Common Stock offered hereby). By order issued April 1,1950, the. fichican the N!PSC granted the authority requested by the Company. On April 21, 1950,
\\
Attorney General and Niichigan Cituens Lobby (" Appellants"), interrenors in the pmecedings before the.\\!PSC, jointly filed a petition for certiorari and an application for leave to appeal the April '
1950 order with the Alichigan Court of Appeak, which filings were dismissed by the Court of Appeals for faihire to file a proper application for leave to appeal. Appellants then filed with the Comt of Appeals a " delayed application or application for rehearing" and a motion for a stay of the.\\f PSC's order, which pleadings were dismissed by the Court on June 11, 1950 On July 1.1950, Appellants filed an Application for Lean to Appeal with the Alichican Supreme Court; the Company and the NIPSC fded Answers on July 21,1950 and July 30,1950, respectively, opposing the Applit ation.
During tl. pendenes of the lecal proceedines described above, the Company has issued 6.25 million shar.s of Common Stock. 630,000 shares of Preferred Stock and $100 million of General and Refunding.\\fortgage Bonds based upon the authority granted by the 5tPSC's order of April 1,19S0.
In the opinion of General Counsel of the Company, the pendency of lecal proceedings does not affect the April 1.1950.\\lPSC order, unless and until that order is expressly stayed, suspended, vacated, modified or otherwise held to be invalid. Such counsel is further of the opinion that if, at the time of issuance of securities, an order of the N!PSC is in full force and effect and no stay or suspension of such order has been entered by a court or the ifPSC, any later decision stayinu. suspendine. vacating, modifying or otherwise holding invalid such order subsequent to the issuance of securities will not affect the validity of such securities.
'lhe Company has an acreement with a troop of c(numercial banks for an 5s00 million pmject financing arrancement relating to Helle River Unit No. I and facilities to be ut d in common with Belle River Unit No. 2 (" Belle River Project Financin;"). Under this arrangement, currently limited to $100 million under existin; FERC borrowing authority, the Company borrows acainst capital expenditures incurred in connection with the project, including interest charges and commitr
- fees, with each borrowinc being pursuant to variable rate unsecured promissory notes due Afay. 1952 until NIPSC appmval can be obtained. Once such NIPSC approval has been obtained and long-tenn unsecured promissorv notes have been issued, amortization will begin January 1,1953, with 530 million repayable cach omsecutive calendar quarter thereafter. The Company may prepay borrowings pursuant to this transaction at any time without penalty. Consummation of periodic borrowings is subject to the satisfaction of certain conditions. The acreement contains a variety of covenants, including an acreement by the Compay not to pledge or sell any of its assets except in the ordinarv course of business and except for the sale or conveyance to one or more utilities of undivided interests in generatinc plants: and not to create certain liens on its assett As of January 13.19%l. th" Company had borrowed 5227.3 million under this arrangement.
6
At Novcmber 30,1950, the Company had regular short-term bank credit arrancements accregating 5219.4 million.of which 550.9 million was outstanding.
INTERIM RESULTS Results for the interim periods shown below are unaudited but, in the opir. ion of the Company, include all adjustments (which include only normal recurring adjustments, other than as related to the decision not to construct Greenwood Nuclear Unit Nos. 2 and 3 as discussed under "Certain Developments") necessary to a fair statement of such amounts. Results for an interim period are not necessarily indicative of results that may be expected for any other interim period or for the fiscal year as a whole.
((*naudited)
Elesen 31onths Twelve 5fonths Ended Nosember 30, Ended Noumber 30, 1950 1979 1950 1979 (Thousands, euept per share amounts )
Operating Revenues 51.637,639 51,Ya6.971 81,779.199 51.692.299 Operating Expenses (includes income taxes of 527.622. 550 952. 531.376 and 533.507, rc spec-tiult )
1 335.553 126.637 1.471.9W 1,420.591 Operating Income 5 232.076 5 250,334 5 307,219 5 271,700 AFDC (borrowed and other funds) 5 94334 5 71.517 5 100.950 5 51,214 Net Income 5 163.327 5 160.151 5 151,175 5 !!4.513 Earnings for Common Stock 5 115.7%3 5 120.535 5 130.515 5 131.519 Common Shares Outstanding-Average 75.355 69.422 75.026 69.123 Earnings Per Share 51.52 51.74 51.65 81.90 Dividends Declared Per Common Share 51.60 S1.60 51.60 51.60 Earnings per share of 51.63 for the twehe months ended November 30, 1950 w ere dow n 50.22 frem earnincs per share of 51.90 for both the year ended December 31, 1979 and the same period a year aco. Results were affected by lower ki!owatthour sales; hither operating expenses reflecting the tifects of inflation, hicher interest expense as a result of increases in long-term debt, higher intere,t rates and increast d short-term borrowing Ictels; increased preferred stock dividend require-ments, and a substantial increase in the average number of common shares outstandine. These factors were offset. in part. by rate increases tranted by the MPSC. For the twelve months ended November 30,1950 total kilowatth.)ur sa!cs wuc down 5.0'E from the same period a year earlier, with industrial sa!es dawn 13.19. commercial sales down 0.19 and residential sales up 1.19.
Earnint, per share of 51.52 for the elesen months ended November 30, 1950 were down 50.22 from earnings per share of 51.71 for the eleven months ended November 30. 1979 due primarily to the faciocs described in the prueding par igraph. For the elesen months ended Nosember 30,19W, total kilow atthour sales w ere down $ 1' c f rom the same period a year earlier, with industrial sales dow n 15.29, commercial sales dow n 0.19 and residential sales up 1.07. The decline in sales reflects reduced industrial actisity, particularly on the part )f automotive and automotive-related manu-fatturers. with automotise production down sicruficantly from the same period a year ago, other recessionary conditions in the Company's sersice area and continued customer conservaten. The increase in residential sales in the 1950 period reflects warmer summer weather which increased customer use of air conditioners and dehumidifiers and colder fall weather which increased cu>tomer use of furna es and other heating equipment.
7
Net income and earnings for Common Stock reflect AFDC, a non-operating non-cash item, consisting of the net cost of borrowed funds used for construction purposes and a reasonable rate on other funds when so used. AFDC increased, and hence net income and earnings for Common Stock were favorably affected, in the 1950 periods due to increases (in recognition of increasing costs of funds) in the AFDC rate from $%9 to 97c effective January 1,1950 and to 9%% effective June 1, 1950, and increased construction work in progress expenditures. Also, the Company is capitalizing the actual interest expense and commitment fees applicable to the Belle River Project Financing (see " Capital Expenditure Program and Financing-Financing"). AFDC amounted to 79% and 77% of earnings for Common Stock for the eleven months and twelve months ended November 30, 1950, respectively. The Company's Common Stock dividends are being derived substantially from sources other than current operating income.
Kilowatthour sales in 1950 were lower than in 1979 as a result of plant shutdowns and slowdowns by automotise and automotive-related manufacturers, related employe layoffs and con-tinued conservation by residential and other customers. Futher reductions in industrial activity and adserse economic conditions in the Company's service area could occur and affect the Company if inflationary and recessionary pressures continue to affect automotive and automotive-related manufacturers to an increasing decree. The Company's 1950 earnings per share will be less than eanings per share for 1979.
See "Certain Deselopmenti' for information on the Company's main electric rate case, the 1979 and 1950 sesere storms and for possible adverse financial effects of the decision not to construct its presiously proposed Greenwood Nuclear Unit Nos. 2 and 3.
Consolidated financial statements for the five years ended December 31, 1979 and unaudited consolidated finandal statements and information for the interim periods ended Afarch 31, 1950, June 30,1950 and September 30,1950, and for certain comparative interim periods, including related discussions and analyses by Afanagement of factors affecting operations, are contained, respectively, I
in the Company's Annual Report on Form 10-K and Quarterly Reports on Form 10-Q, which documents are incorporated in this Prospectus by reference and are available upon written request.
( See page 2.)
CERTAIN DEVELOPNIENTS As discussed in Part II, Item 5." in the Company's Quarterly Reports on Form 10-Q for 1950, on April 30,1950 the Company filed an application with the N!PSC seeking authority to irrease its j
electric rates and char:es in the approximate amount of $163 million annually (including interim relief) based on a 1951 test year. Among other things, the Company stated in its application that its financial condition is "still very poor" when measured by fixed charge coverage, return on common i
equity, camings per share, common stock market value in relation to book value, and quality ratings I
on senior securities, and is " declining again under the intensive continuing pressure of unchecked double-digit inflation. record levels of short-term and long-term interest rates, and sharp increases in other costs". Contemporaneously, the Company filed motions for 1950 interim relief of approximately
$1."G million annually based on a 1950 test y car and for 1951 interim relief, as of January 1,1951. of an additional 5162 mdlion annually. Effective November 7,1950, the 51PSC authorized an interim annual revenue increase of 596.1 million. Certain industrial interrenors have applied to the 51PSC for rehearing and reconsideration of the order tranting the Compant interim rate relief. The NIPSC Staff recommended final rate relief of $156 million based on a projected 1951 test year. The Company filed rebuttal testimony which asserted that the AIPSC Staff case would support an annual revenue defi-8
ciency of 5150 million. On December 16,1950, the MPSC affirmed a riding of the Admiristrative Law Judge denying the Company's motion for 1951 interim relie f. On January 8,1951, the Company filed a motion for reconsideration and rehearing of the MPSC's order denying 1951 interim relief.
On March 21, 1950, the Company decided nut to wnstruct two proposed nuclear units (1,200 MW each, both of which were in the early devdopmental stages) (the ' Greenwood Units") at its Cretnwood Energy Conter, which decision is discussed under ' Item 1-Business, Capital Expen-diture Program and Financing" in the Company's Annual lleport on Form 10-K. Approximately
$71 million has been accumulated as costs associated with the Gr(enwood Units. This amount excludes costs of land, but includes approximately S19 million capitalized as AFDC and approxi-mately $500.000 of payroll taxes, pensions, etc., which were deducted for federal income tax purposes in prior years. The Company expects to realize a reduction of federal income taxes in 1950 in the approximate amount of $21 million as a result of claiming an abandonment loss for the cmts associated with the Greenwood Units. On April 7,1950, the Company filed an application with the MPSC seeking authority to defer, amortize and recover through the ratemaking process over a 60-month period the project msts, excluding land, associated with the Greenwood Units. Cross-examination of Company witnesses commenced on December 15, 1950 and is continuing. If the MPSC does not approve recoverv and amortization over some period, the costs of the Greenwood Units (excluding land), less applicable federal income taxes, would reduce earnings for Common Stock by approximately 550 million in the period of such determination.
As discussed in Note 11 of Notes to Consolidated Financial Statements in the Company's Annual Report on Form 10-K and in "Part II, item 5." of the Company's Quarterly Reports on Form 10-Q for the quarters ended June 30,1950 and September 30, 1950, severe storms in April 1979 and July 1950 caused extensive damage to the Company's transmission and distribution system. The Company filed separate applications with the MPSC seeking accounting and ratemaking orders which would permit reev,ery and amortization of the 1979 ($12.S million) and 1c59 (59.7 million) storm service restora-tion costs over 60-month periods. IIcarings with respect to the 1979 and 1950 storm damage applica-tions concluded on January 4,1950 and December 23, 1950, respectively. By order dated December 30,1950, the MPSC authorired the amortization, over a 60. month period, of the 1979 storm damage costs with amortization to commence simultaneously with an amortization schedule, as yet not estab-lished, with respect % the 1950 storm. The MPSC denied the Company's request for ratemaking treat-ment of the 1979 stor.n costs, such denial being without prejudice to raising such issue in a ratemaking proceeding. The Company has deferred costs of the storms and has not reilectcd such costs in current operating expenses. The Company belicves that the recovery of such costs through customer rates will be authorized in the final order of the Company's current rate case discussed above.
The Company's 1951 external funds requirements are $620 million (inchtding S72 million for reftmdings). The Company expects to meet these requirements through the issuance of $310 million of debt and equity securities (including $41 million through the Dividend lleinvestment and Com-mon Share Purchase Plan
- Plan") and $250 million under the Belle River Project Financing (see
" Capital Espenditure Program and Financing-Financing"). On July 29, 1950 the Company filed an application with the MPSC (see *ltem S-Other Materially Irr.portant Events" in the Company's Quarterly lleport on Form 10-Q for the quarter ended June 30, 1950) for authorization of such financing, exchisive of the Sil million under the Plan which is separately authorized. In the same application the Company requested additional authority for the issuance of $100 million of debt securities for i %ndings in January 1952, up to $S00 million of long-term unsecured promissory notes in connectio.. wit's the Belle Rivtr Project Financing and a corresponding aggiegate principal amount of its Generr.1 anc. Hefunding Mortgage Bonds to provide for the refunding of such long. term Belle Ilive-Project Financing unsecured promissorv notes during the years 195'i-W Cross examination of the Company witnesses was completed on November 26, 1950. The intersenors in these proceedings did not fde direct cases.
9
(
As discussed in "Part I, Item 5-Legal Proceedings" of the Company's Annual Report on Form 10-K, in October 1973, the United States District Court for the Eastern District of Alichigan found that the Company had engaged in illegal racial discrimination. Following a series of appeals, the Company reached agreement with the plaintiffs in the litigation as to two proposed settlements (each of which was contingent upon judicial approval of the other) with respect to the claims of certain rejected applicants for employment and certain past and present employes of the Company. On September 22,1950, the District Court approved the settlement with respect to employes which settle-ment provides for the distribution of a fund of S t.25 million and the payment of $250,000 in attorneys' fees. On December 19, 1950, the District Court approved the settlement with respect to rejected applicants for employment which settlement provides for the distribution of a fund of $550,000.
Absent substantive employe class appeals with respect to the employe class settlement, the Company expects that distribution cf all settlement funds will conunence in the fire <piarter of 19st and continue throughout the year. These settlement amounts were accrued in 197S and 1979.
As discused in "Part I, item I-Sale to Cooperatives" of the Company's Annual lleport on Form 10-K, the Company has sold a 207 undivided interest in Enrico Fermi Unit No. 2 to Northern Alichigan Electric Cooperative Inc. and Wolverine Electric Cooperative, Incorporated (" Cooper-atives"). In January 1950, the Cooperatives applied to the AIPSC for additional long-term financing authority in the aggregate amount of $151 million to cover their portion of remaining construction costs of the Fermi Unit. In an Order issued on November 25, 1950, the AIPSC granted the Cooper-atives the authority requested. On December 15,1950, the Alichigan Attorney General filed a " Claim of Appeal or in the Alternative Application for Leave to Appeal" with the Alichigan Court of Appeals requesting that the matter be remanded to the h!PSC for further evidentiary proceedings as to the economics of the participation of the Cooperatins in the Fermi Project. The Attorney General also requested a stay of the NIPSC's Order, which was denied on January 8,19SI. An Application for De%yed Appeal has aho been filed by an unsuccessful intervenor in the proceedings before the 51PSC. The Cooperatives have indicated in pleadings filed with the Court of Appeals that a failure to secure long-term financing authority from the AIPSC with respect to their portion of the Fermi Unit might result in defaults on their obligations to the Company.
The Company's Annual lleport on Form 10-K and Quarterly lleports on Form 10-Q, 'ncorporated herein by reference, contain information with respect to certain developments in the Companis affairs that have occurred since its fiscal year ended Decen+er 31, 1979 and are available upon written request. (See page 2.)
DESCRIPTION OF COAISION STOCK The following description relating to the Company's capital stock contains summaries of certain provisions of the Company's New York and Alichigan charters and certain instruments imder which ontstandmg indchtedness of the Company has been issued, copies of which are exhibits to the llegistration Statement and reference to which exhibits is hereby made for a detailed description of the prmisions thereof stunmarized below.
The authorized capital stock of the Company consists of nine million shares of Cumulative Pre-ferred Stock, $100 par value (" Preferred Stock"),20 million shares of Cumulative Preference Stock,
$1 par value (" Preference Stock") and 125 million shares of Common Stock, $10 par value (* Common Stock"). Unissued shates of the Preferred and Preference Stock may be issued in series created by the lloard of Directors, which in creating any such series will determine, among other things, the divi-dend rate, liquidation preferences, and redemption, sinking fund and conversion provisions, if any.
10
Dividend Rights and Restrictions Subject to the following restrictions, dividends may be paid on the Common Stock from funds legally available therefor, when and as declared by the lloard of Directors.
So long as any shares of Preferred or Preference Stock are outstanding, no dividend may be declared or other distribution made upon any junior stock (defined to include Common Stock) other than a dividend in junior stock, nor may any junior stock of the Company be acquired (except by exchange for or through application of an amount not in excess of the proceeds of sale of junior stock) by the Company or any subsidiary thereof (as defined), unless, in each case, the full cumulative dividends on all outstanding shares of the Preferred and Preference Stock have been paid or provided for and the Company has made all payments, if any, then or theretofore due under the requirements of all sinking fimds, if any, for the Preferred or Preference Stock.
The amount of future dividends will depend upon the Company's earnings (which in turn are dependent, among other things, upon levels of kilowatthour sales and timely and adequate rate relief),
capital requirements, financial condition and other factors.
Voting Rights The holders of the Common Stock are entitled to vote in the election of directors and in other matters as provided by law or the charter documents of the Company. The holders of Common Stock are entitled to one vote for each share held and may cumulate their votes in the election of directors for whom they are entitled to vote.
The Preferred and Preference Stock are non-voting, except that while four quarterly dividends of either are in arrears, in whole or in part, the hohlers thereof, voting separately as a class, are cach entitled to elect two additional members of the lloard of Directors. In addition, the Company must secure the approval of the holders of certain percentages of Preferred and Preference Stock prior to effecting various changes in its capital structure and prior to cifecting certain other transactions.
Liquidation Rights Upon any involuntary liquidation, dissolution or winding up of the Company, holders of all series of the Preferred Stock are entitled to receive $100 per share and holders of each series of Preference Stock are entitled to receive the amount fixed by the lloard of Directors in authorizing such series, and upon any vohmtary liquidation, dissohition or winding up, holders of each series of Preferred and Preference Stock are entitled to receive an amount equal to the price applicable at the time, as fixed by the lloard of Directors in authorizing such series, in each case together with the amount of any accrued and unpaid dividends and before any distribution to holders of junior stock.
After satisfaction of the preferential rights of the Preferred and Preference Stock, holders of the Common Stock are entitled to receive pro rata all remaining assets available for distribution to sharehoklers.
Dividend Reinvestment and Common Share Purchase Plan The Company has a Divi &nd Heinvestment and Conunon Share Purchase Plan under which record hohlers of Preferred Stock, Preference Stock and Common Stock and its regular employes may, through automatic reinvestment of cash dividends and monthly optional cash payments of from $20 to 53,000, purchase Common Stock from the Company. The price of newly issued shares purchased with reinvested cash dividends is 959 of the average market price on the New York Stock Exchange on each dividend payment date. The purchase price of newly-issued shares acquired thmugh optional cash payments is 100% of the average market price on the last day of each month. The Company has the right to amend suspend, modify or terminate the Plan at any time.
11 a
Miscellaneous The outstanding shares of Common Stock are, and the Additional Common Stock offered hereby, when duly issued and paid for, will be, in the opinion of General Counsel of the Company, validly issued, fully paid and non-assessable.
IIolders of Common Stock have no pre. emptive rights.
The Company's outstanding Common Stock is listed on the New York Stock Exchange. The shares offere<1 hereby are being listed subject to notice of issuance on such Exchange.
The Company and Bradford Trust Company are transfer agents. The registrars are Bradford Trust Company and The Detroit Bank & Trust Company.
UNDERWRITERS Under the terms of and subject to the conditions contained in an Underwriting Agreement dated January
,19S1, the Underwriters named below have severally agreed to purchase, and the Com-pany has agreed to sell to each Underwriter, severally, the respective number of shares of Additional Common Stock set forth below.
Number Number Name of Shares Name of Shares Aforgan Stanley & Co. Incorporated 195,500 Nf anley, Bennett, AlcD<mahl & Co.
20,000 E. F. Ilutton & Company Inc.
195,500 hicDanald & Company 5,000 Bache IIalsey Stuart Shields Incorporated 35,000 Aterrill Lynch, Pierce, Fenner & Smith InWporated 44,000 Bear, Stearns & Co.
35,000 The Ohio Company 5,000 Blunt Ellis & Locui Incorporated 5,000 Blyth Eastman Paine Webber Incorporated 41,000 Olde & Co. Incorporated 3,000 Alex. Brown & Sons 20,000 Oppenheimer & Co., Inc.
20,000 Buys-AlacGregor, hiacNaughton.
Peninsular Securities Company 3.000 Greenawalt & Co.
3.000 Prescott, Ball & Turben 5.000 Dillon, Read & Co. Inc.
35,000 Primus Investmer.t Company 3,000 Donaldson, Lufkin & Jenrette Securities L. F. Rothschild, Unterberg, Towbin 35,000 Corporation 35.000 Wm. C. Roney & Co.
20,003 Drexel Burnham Lambert Incorporated 35,000 R. Rowland & Co., Incorporated 3,000 A. C. Edwards & Sons, Inc.
00,000 II. B. Shaine & Co., Inc.
5,000 Fahnestock & Co.
5,000 Shearson Loeb Rhoades Inc.
35,000 The First Boston Corporation 44,000 Smith Barney, IIarris Upham & Co.
First of hiichigan Corporation 35,000 Incorporated 35,000 Cradtsun & Company Incorporated 3,000 Smith, IIague & Co., Incorporated 5,000 Johnson, Lane, Space, Smith & Co., Inc.
3,000 Thomson AfcKinnon Securities Inc.
20,000 Edward D. Jones & Co.
3,000 Warburg Paribas Becker Incorporated 35,000 Kidder, Peabody & Co. Incorporated 35,000 Wertheim & Co., Inc.
35,000 Lazard Frires & Co.
35,000 Dean Witter Reynolds Inc.
4 L000 Legg Alason Wood Walker, Incorporated.
5,000 Total 1.250.000 Lehman Brothers Kuhn Loeb Incorporated 44,000 The Underwriting Agreement provides that the several obligations of the Underwriters are subject to certain conditions precedent, and that the Underwriters will be obligated to take and pay for all of the shares of Additional Common Stock if any are taken.
The Underwriters propose to offer part of the shares directly to the public at the public offering price set forth on the cover page hereof and part to certain dealers at a price which represents a concession of e a share under the public offering price, and any Underwriter may allow and such dealers may reallow a concession not in excess of e a share to certain other dealers who enter into a Dealer Agreement.
12 s
ENPERTS
'Ile con olidated Enancial statements included in the Company's Annual Report on Form 10.K for the par ended December 31.19 9 and in the deEnitive pray statement dated October 9,1950, which are incorporated in this Prospectus by reference, have been so incorporated in reliance on the report of Price Waterhouse & Co., independent accountants. civen on the authority of said Erm as experts in auditin; and accounting.
The statements made in the Company's Annual Report on Form IfLK and Quarterly Reports on Form 10.Q (which are incorporated herein by reference), as to matters of.\\!! chi;2n law with respect to re ulation ar.d environmental matters and as to legal conclusions attributable to General Counsel of the Company with respect to litig2 tion, and the statements made herein under the caption hrip: ion of Common Stock" and as to matters of Michi:an law and le al conclusions attributable to Gereral Counsel of the Company under the captim ~ Capital Expenditure Pro: ram and Financing
- Finar.cirq, have been reviewed by Leon S. Cohan. Esq, Senior Vice President and General Counsel of the Company. and have been made in rdiance upon his opinion and upon his authcrity as an expert.
LEGAL OPINIONS The salidityo! the AdditionalComnion Stock offered hereby will be passed upon for the Comp:ny by Lecn S. Cohan. Esq.. Senior Vice President and General Caunsel cf the Company, and by Sulliun
& CromwdL 123 Broad Street New York. N.Y.10ml, special counsel for the Company, and for the Underwriters by White & Case,14 Wall 5:reet, New York, N.Y.10W3; except that matters of Michi:2n law and Ie:al conclusions wdl be passed upon only by Leon S. Cohan, Esq. and matters of New York law will not be passed upon by him. Su!Iivan & Cromwell and White & Case will rely upon Leon S.
Cohan, Esq. as to matters of Michican law and legal conclusions.
l 13
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