ML19345G864

Annual Financial Rept 1980

ML19345G864
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Site:	Fermi
Issue date:	04/21/1981
From:	WOLVERINE POWER SUPPLY COOPERATIVE, INC. (FORMERLY
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EXHIBIT F lilOLVERIAE ELECTRIO COOPERATIVE BIG RAPID /, mlCHIGRA p.y;;m.

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A s,m 1980 AnnURL REPORT

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Cover Photographs:

Top: Wolverine's Claude Van Dyke Geneuting Plant, near Burnips, klichigan.

This piant includes seveltat diesel geneutors and a 23,000 kiiountt combined-cycle gas twtbine.

Center: Wolverine's Marting Lake Distribution Substation, near Bartyton, klichigan.

This substation supplies Tri-County Electric Cooperative at 12,470 volts from a 69,000 volt %)tansnission line, and has a capacity of 3750 kVA.

Bottom: Wolverine's 138,000 volt titansnission Line beheeen LeRoy and Sowth Boardman.

This transnission line l

presently opeAates at 69,000 volts, and inter-connects Wolverine with Northern klichigan Electric CoopeAative.

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i TABLE OF CONTENTS Page E

Board of Directors 1

Personnell 2-3 Member Cooperatives 4

President's Message 5-6 Manager's Report 7-8 Generat100 6 Purchase Power Costs 9

P Net Generation & Purchases 10 Energy Sales to Members 11 l

Energy Production 12 E

Auditors Report 13 c

g Balance Sheet 14 a, 14 b Statements of Revenue & F:< pense 15 a, 15 b l

Statements of Patronage Capital and Other Equities ( Deficit) 16 Statements of Changes in Financial Position 17 Notes to Financial Statements 18-22 I

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BOARD 0F DIRECTORS i

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i WILLARD HAENKE Blanchard, Michigan President i

I CLARE SHULL Hart, Michigan Vice-President 5

• JOHN TYNDALL I

Secretary Branch, Michigan j

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• DONALD HARMON Branch, Michigan Secretary.

BURTON SCOTT Evart, Michigan Treasurer CARL FORTELKA Hoxeyville, Michigan Director I

WILLIAM CHAPIN Director Blanchard, Michigan i

I JOSEPH FAIRCHILD I

Director Hesperia, Michigan o

I John Tyndall resigned his position as Secretary on September 19, 1980.

Donald Harmon was appointed Secretary on September 19, 1980.

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OFF1CE PERSONNEL MANAGER.

. John N. Keen ASSISTANT MANAGER.

. James 0. Wood ASSISTANT TO THE MANAGER

. Norman Newby 0FFICE MANAGER.

Esther Brower I

Walter Garcia ACCOUNTANT.

ACCOUNTANT.

Roselyn Hopper RECEPTIONIST.

Beverly Adams I

TRANSMISSION Robert O. Gray TRANSMISSION William Zuidema TRANSMISSION Harley Jaques TRANSMISSION Dean Biship MAINTENANCE FOREMAN Richard Arnold CONSULTANTS:

i.EGAL Daniel D. Hesslin ENGINEERING Daverman Associates C. P. A'S.

Cooper & Lybrand I

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I PLANT PERSONNEL I

BURNIPS PLANT SCOTTVILLE PLANT Henry Kaumeyer, Chief Operator Terry Kuiper, Chief Operator Hubert Niemchick Gary D. Rogers John L. Wilson C. G. Luce I

Robert Force Thomas Story Maurice McBride Michael Terryn Bert J. Wiersma I.

Glen Robinson Kenneth Slagter VESTABURG PLANT Michael Chase Blaine St. Peter Richard Bigelow, Chief Operator I

Jack R. Thompson Richard Modrow HERSEY PLANT Michael Bigelow I

Richard Bradley Delbert Roggow, Chief Operator Elwood Mitchell I

Richard F. Brissette Edwin K. Kersey DISPATCH OFFICE Gary L. Jaques Willis Zimmerman Neil Anderson I

Kenneth Roggow Jerry Taber John Ochtli Rex Thompson i

Keith Tissue Earl D. Jacobs Jeffrey Arnold PORTLAND PLANT RIGHT-OF-WAY-DEPARTMENT Eugene Snitgen Pete Ratcliffe Merel Peterson I

Glen Merrill i

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DIRECTORY OF MEMBER COOPERATIVES E

O & A ELECTRIC TRI-COUNTY ELECTRIC Newaygo, Michigan Portland, Michigan I

Kenneth Bumstead, Manager Vernor Smith, Manager I

Carl Johnson James Clarke Leon Ford Wayne Swiler I

Pete Boss Carl Morton Burton Scott Keith Sackett Constance Dukes Peter Ondrus Don Marsh Willard Haenke I

Carl Fortelka William Chapin Louis Ghent George Telsma, Jr.

I WESTERN MICHIGAN ELECTRIC OCEANA ELECTRIC I

Scottville, Michigan Hart, Michigan Frank Anderson, Manager Robert Frederiksen, Manager

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Donald Harmon Clare Shull Robert Hasenbank J. Kenneth Fairchild

'g John Tyndall Philip L. Paine l g Merel Wood Clyde Ackley Harold Hansen Mary C. Hawley l g Robert Thurow Mathew Kokx Gordon L. Lohman

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I PRESIDENT' S MESSACE It is with pleasure that I welcome you to Wolverine's Annual Meeting, and share with you, throughout this report some of the activities this past year.

I The year 1980 was a year of many problems.

Inflation increased our operating costs, fuel costs esculated, increased regulatory restrictions and environmental impacts of line construction all contributed to a change in the previous trends in the cost of electricity.

The availability of the energy and the costs of that energy to our customers depends on the policies followed by our national government, state and local jurisdiction.

I This past year we closed out our contract with Clifton Engineering Company in the amount of $444,660.60 for the Burnips to Wayland line. We took bids for the construction of adding one circuit breaker in the 69kV switching station for the liersey, Tustin and llartwick line. The low bid was submitted by Newark Electronics in the amount of $117,425.00.

E We also took bids for the right-of-way clearing on the Bass Lake to Wolf Lake line as well as the transmission line construction.

Nelson Tree Service was the successful bidder for the right-of-way clearing in the amount of $55,768.00 I

and Clifton Engineering Company was the low bidder for the Bass Lake to Wolf Lake transmission 1ine in the amount of $242,881.38.

Due to the three mile incident and the N.R.C.'S new requirements, it was necessary to make a design change in Fermi II which in part delayed the start up time.

It was necessary for us to increase our share of the budget in the amount of $79.226.000 I

E 5

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I We obtained ownership of 5 megawatts in Campbell III which went into commercial operation in September, 1980.

I We greatly appreciate the splendid cooperation and assistance from the managers of our distribution members and their employees, as well as the employees of Wolverine.

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i MANAGER'S REPORT l

This will mark the 31st Anniversary of your Cooperative.

I am sure all of you are aware of the drastic changes during these thirty one years.

This past year we made some changes in several of our departments.

S. Donald King retired from the cooperative in April, 1980.

Robert Gray was promoted to Superintendent of Transmission and William Zuidema was promoted to substation technician.

liarley.laques was added to our line department.

Due to the I

I increased work load in the accounting department it was necessary to add I

another person.

Roselyn llopper was promoted from her secretarial position to assist in the accounting department and Beverly Adams was hired as our new secretary.

During the last neveral years we have been investigating the feasibility l

of alternate energy sources, one alternate being the use of " Waste Wood".

throughly investigated and as of September, 1980 we This project was decided we should not pursue this project any further due to the resistance I

of fire wood users and the increasing costs of the project.

I We are pursuing another alternate source of energy which is the Lead Acid Battery Storage Plant, which will be capable of being charged during off peak hours and will assist our system during the peaking hours "off peak hours are the lowest product or purchase power cost,on peak is the highest cost", therefore, this could be a great advantage to the overall cost of energy delivered to the system.

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I construction and double digit inflation during the past sevetal years has created a tremendous burden in attempting to stabilize wholesale power costs.

It was necessary to apply for a general rate increase which was granted to us by the Michigan Public Service Commission effective October 1, 1980. The rate increase amounted to approximately 9%.

With the increased price of fuel oil and natural gas prices, we have found it was more feasible to increase the amount of purchase power from our various soura s rather than to generate it from our own existing facilities.

This past year we completed all the right-of-way procurement for the llastings to Vermontville line which is approximately 22 miles long.

Right-of-way for approximately twelve miles of line for the Bass Lake to Wolf Lake was completed and as of this date the Ludington to Lake County line is about 95% completed.

Approximately 99% of the right-of-way procurement has been procured for the lloward City to Pierson line.

Our future plans are to convert the following substations from 44 kV to 69 kV.

I Chester 3,750 Crawford 5,000 Eaton Rapids 3,750 Grand Ledge 2,000 Hartwick 5,000 llastings 3,750 I

Odessa 3,750 Otsego 2,500 g

Tustin 3,750 Vermontv111e 2,000 E

Wayland 3,750 Wolf Lake 2,500 White Cloud 5,000 I

The Merger committee met throughout the year and while some progress has been made, there are st ill many details to be worked out.

In closing I would like to thank each and every one for their continued support.

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h h ohn N. Keen, Manager g

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u SALES LOSSES WET GEN. & PURCHASES I

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200 150 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 i

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M ENERGY SALES T0 MEMBERS TRI-COUNTY ELECTRIC COOPERATIVE O & A ELECTRIC COOPERATIVE 1970 1980 1970 1980 Altona 8,958,600 15,901,200 Allendale 3,439,800 7,441,200 Chester 7,627,500 6,315,300 Baldwin 6,955,200 12,391,200 Crawford 1,656,000 11,172,600 Brohman 4,597,200 8,785,800 Eaton Rapids 6,091,500 7,340,300 Burnips 3,642,000 7,128,000 Fowler 8,340,000 4,064,400 Casnovia 6,138,000 13,615,400 lie rsey 4,858,800 2,922,000 llartwick 9,574,200 17,309,200 Morley 2,542,500 3,273,600 liersey 7,697,500 7,787,500 Odessa 6,508,000 8,553,000 Lincoln 3,019,500 7,878,600 Pierson 4,065,600 6,419,600 Morley 4,404,000 9,226,800 Portland 5,663,300 6,887,500 Pierson 3,735,800 6,689,400 Vestaburg 11,572,200 14,146,200 Tustin 3,210,000 5,663,100 Weidman 11,854,000 13,696,000 Wayland 11,397,600 6,402,400 Westphalia 8,661,600 10,335,600 White cloud 6,511,500 13,156,500

• Greenbush 6,087,600

• llastings 7,293,600

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• Martiny 6,883,200

• 0tsego 3,932,000

• Plains Road 4,669,200

• Paris 4,927,200

• Vermontville 3,465,600

• Middleville 3,614,400

• Stevenson 7,032,600 74,322,300 143,242,300

• Grand Ledge 6,172,200

• Lebanon 3,443,400 88,399,600 148,781,100 OCEANA ELECTRIC COOPERATIVE 1970 1980 WESTERN MICHIGAN ELECTRIC COOPERATIVE Hart 7,836,000 7,247,200 1970 1980 Rodgers 6,780,600 9,812,600 Shelby 5,420,600 8,517,600 Bass Lake 3,758,400 8,760,600 Silver Lake 6,235,200 10,512,000 Eden 3,424,800 6,505,200 Walkerville 8,469,600 10,742,400 Fountain 3,317,400 7,601,400

• Hesperia 6,084,000 Scottville 5,454,900 6,894,900

• Weare 3,983,400 Star Lake 3,825,000 6,510,200 35,742,000 56,899,200 Victory 6,156,000 8,897,400 25,936,500 45,169,700 Total KWH sold to members in 1980 394,092,300 Total KWH sold to members in 1970 224,400,400

• New substations since 1970 Difference 169,691,900

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I ENERCY PR0 DUCTION GENERATED MWH Burnips 159,515.5 IIersey 10,663.3 Portland 368.6 I

Vestaburg 9,670.3 Scottv111e 6,101.8 Campbell III 6,928.0

=

193,247.5 I N T E R C 11 A N G E W I T 11 NON-MEMBERS DELIVERED TO MWH RECEIVED FROM MWil Miller Dairy Farms 7.3 Miller Dairy Farms 1,111.8 City of Hart 10,449.6 City of Hart 2.4 Lowell Light & Power 9,721.4 Lowell Light & Power 329.4 l

Northern Michigan 5,794.5 Northern Michigan 2,555.9 I

City of Zeeland 1,774.2 City of Zeeland 4,656.4 City of Grand Haven 5,183.1 City of Grand Haven 3,089.0 City ot' Traverse 1,035.1 City of Traverse 473.5 Conalco 3,147.0 Consumers Power Co.

'.0,109.9 I

Detroit Edison Co.

88,519.5 17,11?.2 City of Lansing 138,771.7 Conalco 1,214.0 l

l Er 280,833.5 ENEP GY SALES MWH T0 MEMBERS Tri-County Electric Cooperative 148,781.1 0 6 A Electric Cooperative 143,242.3 Oceana Electric Cooperative 56,899.2 Western Michigan Electric Cooperative 45,169.7 394,092.3 Consumers Power Company 5,813.5 399,905.8 I

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I COOPERS & LY B R A N D I

< r o m.. n.... n... Ac ro..N AN rs

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COOPE RS 8. LYSRAND ltNTERNATION AL)

Board of Directors Wolverine Electric Cooperative, I

Incorporated Big Rapids, Michigan We have examined the balance sheets of Wolverine I

Electric Cooperative, Incorporated as of December 31, 1980 and 1979, and the related ctatements of revenue and expense, patronage capital and other equities (deficit), and changes in financial position for the years then ended.

Our examinations were made in accordance with generally accepted auditing stand-ards and, accordingly, included such tests of the accounting I

records and such other auditing procedures as we considered necessary in the circumstances.

As shown in the financial statements, the Cooperative I

incurred a net margins deficit of $707,860 during the year ended December 31, 1980, and as of that date, the Coocerative's current liabilities exceeded its current assets by to,428,552 and its total liabilities exceeded its total assets by $1,529,006.

These factors, and the imminent maturity of debt as described in Notes D and E to the financial statements, indicate that the I

Cooperative may be unable to continue in existence.

The financial statementc do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be I

necessary should the Cooperative be unable to continue in existence.

In our opinion, subject to the effec ts on the 1980 financial statements of such adjustments., if any, as might have l

been recuired nad tne outcome of the uncertainty about the I

recovernbility and classification of recorded acset amounts and the amounts and classification of liabilities referred to in the preceding paragraph been known, the financial statements referred to above present fairly tne financial position of Wolverine I

Electric Cooperative, incorporated as of Lecember 31, 1980 and 1979. and the resultc of it: operations and the changes in its g

financial position for the years then ended, in conformity with l

! g generally accepted accounting principles applied on a l

concictent basis.

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s Nil- \\"chigan9 Feb ruary 1?. l?ni I

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I MICHIGAN 46, NEWAYGO g

WOLVERINE ELECTRIC COOPERATIVE, INCORPORATED 5

BALANCE SHEETS, as of December 31, 1980 and 1979 1980 1979 ASSETS AND DEFERRED DEBITS Utility plant, at cost (notes A, B, D and H):

$.31,253,428

$ 31,042,463 Electric plant in service 281 Construction work in progress (Note G) 119,202, 91,261,397 Electric plant acquisition adjustments 378,741 378,741 Loss, Accumulated provision for depreciation and amortization (Notes A and C) 12,620,157 12,118,029 g

Utility plant (net) 138,214,293 110,564,572 Othsr property and investments, at cost:

Investments in associated organizations (Note F) 1,527,463 1,395,301 Other investments, at cost, which approximates market value 205, 27 165, 56 Notes receivable 35, 90 13, 90 1,768,580 1,574,247

Current assets:

g Cash, general 151,341 780,935 5

Cash, REA construction fund 283,428 178,5'3 160 2,715,389 1

Accounts and interest receivable Materials and supplies (Note A) 3,277,407 2,072, 913 Prepayments 153,491 1,559,462

110, 5,937,827 5,345,232 l

Deferred debits (Note A) 688,060 Total assets and deferred debits

$146,608,760

$117,484,051 I

The accompanying notes are a part of the financial statements.

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1980 1979 EQUITIES, LIABILITIES AND DEFERRED CREDITS I

Equities:

Memberships 400 400 I

Patronage capital 503,768 503,768 Other equities (deficit)

(2,033,174)

(1,325,314)

(1,529,006)

(821,146)

Long-term deb t :

REA mortgage notes (Note D) 21,780,293 21,343,717 Federal Financing Bank notes (Note E) 113,788,000 90,270,000 g

135,568,293 111,613,717 Current liabilities :

i Note payable, CFC, 14-1/4%,

unsecured 8,309, 30 2,168,o65 l

Accounts payable 3,c98, 58 3,

6,183 Taxes and wages payable 593,909 2,307 I

Accrued vacation and sick leave 311,994 275,744 Accrued interest 52,388-49,977 12,366,379 6,532,276 Deferred credits 203,094 159,204 I

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Total equities, liabilities and deferred credits

$146,608,760

_$117,484,051 l I I I I

14b

STATDIENTO OF REVENUE AND EXPENSE g

for the years ended December 31, 1980 and 1979 I

1980 Percent of Amount Revenue l

Operating revenues

$18,054,571 100.0 Operating expenses:

Other power generation:

Operation 7,064,634 39 1 Maintenance 232,134 1.3 Other power supply:

Purchased power 7,567,700 41 9 Transmission expense:

Operation 212,072 1.2 Maintenance 106~444

.6 Distribution expense:

44,498 129

.2 Operation 22,

.2 Maintenance Administrative and general:

Operation 682,974 3.8 Maintenance 3,249 Depreciation and amortization (Note C) 903,292 50 Taxes 627,412 35 Interes t on long-term debt 667,184 3.7 Other interest charges 680,224 3.8 Total operating expenses and interest 18,823,946 104.3 operating margins (deficit)

(769,375)

(4.3) g Non-operating margins:

Interest revenues 30,565

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5 Settlement of litigation (Note I)

Non-operating margins 30,565

.2 Capital eredits, CFC 30,950

.2 Net margins (deficit)

(707,860)

(3 9) g<

I The accompanying notes are a part of the financial statements.

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1979 Percent of Increase Amount Revenue (Decrease)

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$15,153,973 100.0

$2,900,598 I

6,712,266 44.3 352,368 197,718 1.3 34,416 5,161,110 34.1 2,406,590 I

175,638 1.2 36,434 83,596

.6 22,848

'E E7,501 3

(3,372) 5 20,957

.1 11,541 625,900 h1 57,074 I

3,141 108 826,h5h 55 76,838 I

502,610 3.3 124,802 612,694 h.0 54, 90 328,735 2.2 351, 89 15,298,320 101.0 3,525,626 (14h,3h7)

(1.0)

(625,028) 36,121

.2 (5,556) 217.327 1.h (217,327) g 253,hh8 1.6 (222,e83) l 91,682 7

(60,732) 200,733 1.3

$ (908,6h3)

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STATEMENTS OF PATE0?IAGE CAPITAL AND OTHER EQUITIES (DEFICIT) for the years ended December 31, 1980 and 1979 (Note J)

I PATE0NAGE CAPITAL IBalance,beginningandend of year 3

503,768 503,768 Patronage capital summary:

Assignable 3

503,768 503,768 I

OTHER EQUITIES (DEFICIT)

IOperatingmargins:

Balance, beginning of year

$(1,325,314) $(1,526,097)

Operating margins (deficit)

I for the year (769,375)

(144,347)

Non-ocerating marginc for

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the year 30,565 253,448 Capital credits, CFC 30,950 91,682 Ealance, end of year 1(2,033,174) $(1,325,314)

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The accompanying notes are a part of the financial statements.

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STATEMENTS OF CHANGES IN FINANCIAL POSITION for tha years ended Dece.mber 31, 1980 and 1979 g

Source and Application of Working Capital 1980 1979 Funds were provided by:

I From operations:

Net margins (deficit) 3 (707,860) i 200,783 Add (deduct), Items not requiring working capital:

I Depreciation and amortization (Note C) 948,823 835,753 Deferred compensation 43,890 31,580 Increase in CFC patronage capital credits (30,950)

(91,682)

Total from operations 253,903 976,434 Advances from Federal Financing Bank 23,518,000 25,533,000 Advances from REA 1,292,000 1,172,000 Decrease in restricted funds 1,000 Total source 25,063,903 27,682,434 Funds were used for:

860 564,144 26,730,804 28,834,917 Extension and replacement of plant

820, I

Principal payments on long-term debt when due Increase in other investments 40,171 35,304 Decrease in deferred interest 20,507 20,507 722,460 I

Increase in deferred debits Increase in notes receivable 22,000 Purchase of CFC capital term certificates and other investments 101,212 98,923 I

Total use 30,305,h11 27,706,398 Net decrease in working capital (5,241,508)

(23,964)

Working capital (deficit), beginning of year (1,187,0h4)

(1,163,080)

Working capital (deficit), end of year t(6,428,552) $(1,187,044) l Changes in Composition of Working Capital 1980 1979 I

Increase (Decrease)

Current assets:

Cash, general (629,594) 3 (456,541)

Cash, REA construction fund 104,895 (G3,945)

Accounts receivable 561,771

-3,g11 Materials and supplies 512,49h 251',8 4 Prepayments h3,029 52 Increase in current assets 592,595 157,143 1 E Current liabilities:

5 Note payable, CFC 6,141,305 (485,507) 525) 585,979 Accounts payable (h77,602 Taxes and wages payable

131, 51,760 g

i g Accrued vacation and sick leave 36,250 25,089 l

Accrued interest 2,411 3,786 Increase in current liabilities 5,834,103 181,107 I

ecrease in working capital D

I(5,2hl,508) 3 (23,964)

The accompanying notes are a part of the financial ctatements.

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NOTES TO FINANCIAL STATEMENTS for ths years end d D;ccmber 31, 1980 and 1979 Note A:

ACCOUNTING POLICIES.

The following is a summary of the accounting policies adopted by the Cooperative which have a significant I

effect on the financial statements.

The policies conform to generally accepted accounting principles and have been consistently applied.

Depreciation and Amortization of Utility Plant -

Provision for depreciation and amortization is computed using the straight-line method.

Inventory Valuation - Materials and supplies are stated at average unit cost, which is I

no t in excess o f market.

Construction Period Interest - The cost of I

construction work in progress includes the actual cost of funds borrowed to finance the construction of the Fermi #2 Nuclear Power Plant and the Campbell #3 Fossil Fuel Power Plant.

The Cooperative incurred total interest costs of $11,243,420 and $7,606,885, of which I

$9',896,012 and $6,665,456 was capitalized during the years ended December 31, 1980 and 1979, respectively, for the two plants as follows:

1980 1979 Fermi #2 Nuclear Power Plant

$9,875,921

$6,665,456 Campbell #3 Fossil Fuel I

Power Plant 20,091 39,896,012

$6,665,456 g

Federal Income Taxes - The Cooperative is exempt from federal income taxes under Section 501(c)(12) of

' a the Internal Revenue Code.

Therefore, no provision g

for federal income tax has been made.

2 I Deferred Debits - The deferred debits represent contributions in aid of construction for a gasline i

built to supply the Hersey generation plant and

! g preliminary research costs incurred'on a wood chip 5

burning generation plant.

Management has concluded that they will not construct the generation plant.

The contribution in aid of construction is being I

amortized over 36 months and the research costs over 46 months.

The following is a summary of deferred debits at December 31, 1980, and amortized costs for the year then ended:

Deferred Debits Amo rtization Contribution in aid I

1245,416

$1h,400 0hh of construction

uc3, 20,000 Research costs Totals

$688,C60

$34,h00 I

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I ITOTES TO FINANCIAL STATEMEUTS, Continued for the years ended December 31, 1980 and 1979 I

No te B:

UTILITY PLET.

The electric plant in service consists of the following:

1980 1979 Intangible plant 18,455 18,455 Production plant 12,279,066 12,435,611 Transmissien plant 15,259,371 14,887,985 I

222,746 Distribution plant 3,251,130 3,477,666 General plant h45,259 l

331,253,281

$31,042,463 Note C:

DEPRECIATION AND AMORTIIATION.

Depreciation and amortication were charged as follows:

1980 1979 I

Charged to operations as an expense

$903,292

$826,454 Charged to clearing accounts 45,531 9,299 Total depreciation and arortization 19h8,823

$835,753 I

No te D:

LO:IG-TERM DEST - REA 50RTGAGE NOTES.

Long-t erm debt consists of 35-year Rural Electrification Adminis t ration notes bearing interest at 2dJ and 5% per annum.

The notes are payable in equal installments plus I

current interest to the year 2013.

The current repayment recuirements approximate an $8h0,000 payment on principal and deferred interest and $640,000 for current interest.

I Ad'zance rayments of $12,180 are available to meet these requirement s.

Utility plant in the amount of $30,789,567 is pledged as collateral on the long-term debt.

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IiOTES TO FIIIANCIAL STATEMENTS, Continued for the years ended December 31, 1980 and 1979 I

I Note E:

IDIIG-TERM DEBT - FEDERAL FIITAIICIITG BANK IOTE.

I The Federal Financing Bank note is guaranteed by the Rural Electrification Administration and bears interest at a rate to be determined by the bank at the date of each I

The rate of interest will be redetermined by advance.

the bank at each change of maturity date.

At the time of each advance, the Cooperative must designate I

an initial maturity date for that advance of not less than two nor more than seven years.

Extensions of the initial maturity date are available, however, not to be less than two years in length.

The total matarity period, including extensions of any advance, cannot exceed a maximum of seven years.

The Cooperative may convert these obligations to 3h-year maturitier at any time af ter the end of the calendar I

year in which the advance was made and up to seven years after'the advance.

After the maximum seven year maturity, the advances must be repaid or converted to 34-year I

o bligat ions.

Advances as of December 31, 1980 consist of the following:

Initial Maturity Dates Interest Rates Amount 1981 9 0235 to 11.7815

$ 25,533,000 1982 8.005% to 15.090%

88,255,000 Total

$113,788,000 I

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NOTES TO FINANCIAL STATEMENTS, Continuad for the years ended December 31, 1980 and 1979 I

I No te F:

INVESTMEUTS IN ASSOCIATED ORGANIZATIONS.

I The investments in associated organizations consist of the following:

1980 1979 g

National Rural Utilities Cooperative Financing I

Corpo ration:

Capital term certificates (CFC) 789 774 688,567 Patronage capital credits 734,,816 703,866 Other investments 2,873 2,868

$1,527,463

$1,395,301 The Cooperative has subscribed to Cooperative Financing

'I Corporation (CFC) capital term certificates for which a payment of $116,000 is due in 1981.

Subscriptions to CFC capital term certificates are required to obtain long-term I

financing from CFC in the future.

Cost of certificates approximate market value.

fiote G:

CONTRACTUAL OBLIGATION.

On February 8,1977 the Cooperative entered inco an agreement I

with the Detroit Edison Company to participate in 8.78% of the construction costs and operations of Enrico Fermi Nuclear Unit No. 2.

The Cooperative's share of the I

construction costs to date are approximately $113,875,000.

The Cooperative's share of the remaining costs to complete construction are estimated at $75,000,000 by Cooperative management.

The unit is tentatively scheduled to be operational in 1984 The Cooperative has a binding agreement with Detroit Edison I

Company in which Detroit Edison is obligated to purchase the excess energy generated related to the Cooperative's l

portion o f Fermi No. 2.

The Cooperative feels these l

revenues will be sufficient to offset the effect of the i

additional interest and depreciation costs recognized.

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I NOTES TC PI:iA ICIAL STATDE::T3, Concluded for the years ended December 31, 1980 and 1979 Note H:

JOINT VENTURE IN CAMPEELL #3 POhTR PLANT.

On August 15, 1980, the Cooperative entered into a joint venture with Consumers Power Company for the ownership and operation of the Campbell #3 Fossil Fuel Power Plant.

roximately $3,660,000 in The Cooperative has invested app % ownership.

the plant which represents 0.63 The inves t-ment is included in Construction work in progress at December 31, 1980, and will be transferred to Electric I

plant in service upon approval and funding by the Rural Electrification Administration.

Each participant provides its own financing for the project.

The Cooperative's share of direct expenses are included in the statement I

of revenue and expense at December 31, 1980.

Note I:

SETTLDEUT OF LITIC,ATIOH.

The Cooperative received its share of a suit taken to the Justice Department and the Nuclear Regulatory Cocmission, and settled out of court with Consumers Power Company in relation to the Cooperative's desire to purchase a portion of the Midland :uclear Power Plants No. 's 1 and 2.

The I

total revenue recognized during the year ended December 31, 1979, was deter =ined as follows:

Cooperative's share of settlement

$2h8,507 Less, Legal and engineering costs incurred relating to the case during the year ended recember 31, 1979 31,180 Net revenue from settlement

$217,327 l

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Note J:

REETATDEIC OF EOUITIES.

Patronage capital and Other Equities as disclosed in the equities section of the balance sheet at Eecember 31, 1979, nave been restated to conform with the Cooperative's by-laws and Eural Elec trification Adminis tration requirements.

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EXHIBIT C Question 6 Describe the aspects of its regulatory environment including, but not limited to, the following: prescribed treatment of allowance for funds used during construction; rate base (original cost, fair value, other); accounting for deferred income taxes and investment tax credits; fuel adjustment clauses in effect or proposed; his-torical, partially projected, or fully projected test year.

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1 Answer to Ouestion 6.

AFUDC l

As stated in the Annual Report to the shareholders under Notes to Consolidated Financial Statements, "The allowance for funds used during construction ("AFUDC"), a non-opera ting 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 upon other funds when so used."

The AFUDC rate used for the period January 1,1980 through May 31, 1980 was established by Management decision based on studies of the source of construction funds used and the cost applicable to these funds. The rate used in calc.ating the cost of funds used during construction was 97. starH.ng on January 1, 1980.

The rate was increased to 9.257. on June 1,1980 as the result of an order by the MPSC in Case No. U-5281.

In that opinion and order, the Commission found that the AFUDC rate should be the same as the subject utility's overall rate of return.

The amount of AFUDC is determined in the following manner:

(a) The allowance base consists of substantially all con-struction expenditures (other than accumulated AFUDC pre-viously capitalized and certain taxes).

The base also does not include equipment purchases requiring little or no labor to install, retentions, or work orders issued under blanket release procedures and which typically are completed in less than 30 days.

(b) The current monthly allowance is computed by applying a

~ rate which is of 1/12 of the annual rate to a base that is the average of the prior month ending balance and the estimated current month ending balance.

This computation is adjusted to actual in the next succeeding month.

(c) The allowance computation period extends from the date of first activity, through the period of active construction until the facility is placed in service.

The above procedure was applied in the computation of AFUDC except for the AFUDC related to the Belle River Project Financing which was capitalized at the actual amount thereof (see Note 6 of Notes to Consolidated Financial Statements in the 1980 Annual Report to Share-holders filed in response to Question 5).

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i Form of Rate Base To determine a form of rate base, in Rate Case No. U-4570 the Commission applied statute MCLA 460.557, which provides in perti-nent part "In determining the proper price, the commission shall consider and give due weight to all lawful elements properly to be considered to enable it to determine the just and reasonable price to be fixed for supplying electricity, including costs, reasonable return on the fair value of all property used in the Service........"

Interpreting the above statute the Commission concluded that, "the utilization of a net utility plant rate base constitutes the most appropriate technique for determining rate base. Based upon the facts before the Commission, a net utility plant rate base, con-sisting of the original cost of the property net of accumulated depreciation, is most likely to result in a reasonable return on the " fair value of all property used in the service".

As the result of MPSC Case No. U-5281 (Generic Hearings concerning AFUDC and other items) the treatment of the construction work in progress (CWIP) portion of rate base has changed. In that order, the MPSC found that an AFUDC offset to CWIP was just and proper for all CWIP except that CWIP which pertains to pollution control projects for fossil fueled plants. In the Detroit Edison Company's current Case No. U-6488 before the MPSC, the interpretation of the principles prescribed in Case No. U-5281 as applied to rates and cost of service is currently pending.

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e Deterred Taxes and Investnent Tax Credits Pursuant to orders of the NPSC, the Company follows the normalization method of accounting which provides for income taxes deferred to future years because of accelerated amortization, liberalized depre-ciation, shorter depreciation periods used under the class life asset depreciation range system, extraordinary property losses, and amortizes the investment tax credit to income over the estimated composite ser-vice life of the property involved.

The Company does not provide for deferred incoce taxa.s arising from current deduction of itees such as interest and taxes which are capitalized in the books or from additional straight-line income tax depreciation re-sulting from the difference between income tax guideline rates and book rates.

Fuel Adiusteent Clause The Company presently has a fuct clause which is made up of two parts -

an automatic fuel cost adjustment and a Purchase Power and Interchange clause. The automatic fuel clause covers 90% of any increase or decrease in cost from an established base and operates with a lag between booking fuel expenses and revenues of about 90 days with a lag correction factor.

Operating along with the automatic fuel charge is a Purchase and Inter-change Power clause which recognizes 907. of the increases or decreases from an established base in the ecnthly cost of electrical power purchased or sold. Monthly hearings are held to determine the appropriate adjust-ment for purchased and interchange power. The purchased power clause also incorporates a lag correction factor.

Test Period The Detroit Edison Company utilizes a fully projected test year for rate-making purposes. The use of a fully projected test year was first i=ple-mented in Case No. U-5108 before the MPSC in its opinion and order dated May 27, 1977. The rates currently in effect for the electric departcent customers of The Detroit Edison Company result from an MPSC order in Case No. U-6006 issued on March 14, 1980 which used a fully projected test 3.ar for the 12 months ending Dece=ber 31, 1979.

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i Other Developm nts Systen Availability Incentive In Case No. U-5108, dated May 27, 1977, the MPSC instituted a system availability incentive provision to encourage i= prove =ent in the availability of The Detroit Edison Company's electric operating units. An indexing system was established which annually adjusts upwards, downwards, or remains constant the utility's rate of return depending upon the percentage of ti=e that its generating units are available for service.

O & M Indexine System The MPSC, in its opinion and order in Case No. U-5502, dated Septe=-

ber 28, 1978, established an automatic annual change to certain opera-tions and =aintenance expenses in accordance with changes in the national all-co==odities Consu=ers Price Index. Those expenses subject to the indexing system would be operations and =aintenance expenses less fuel, purchased power, and production =aintenance expenses, referred to col-1ectively as "Other 0 & M Expense".

This syste= has not, in the Co=pany's opinion, operated adequately in reflecting increased costs for those expenses covered under the index-ing plan. In its current proceeding before the hPSC, Case No. U-6f.88, the Co=pany has proposed =odifications to this system. A decision in this case is pending.

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ATTACK:E*;T TO?. IT P' l;~i.

7 RATE DEVELOT::~;;TS Electric Gas 5:ea.

U-6006 None U-6103 Granted Test year utilized Avg. 12 mo. '79 12 e, 6-30-78 Annual amount of revenue increase requested-test year basis (000's)

$166,109

$6,900 Date petition filed 12-14-78 4-17-79 Annual amount of revenue increase all ouec'-

test year basis (000's)

$132,772

$2,577 Percent increase in revenues allowed 8.1 8.5 i

Date of final order 3 14-80 8-8-80 Effective date 3-15-80 8-9-80 Rate base finding (000's)

$4,370,113

$26,819 Construction work in progress included in Rate base (000's)

$1,155,812 Rate of return on rate base authorized 9.25 6.04 Rate of return on comon equity authorized 13.50 Revenue Effect (000's)

Awunt received in year granted

$97,756 1,232 Aaount received in subsequent year (If not available, annualize amounts received in year graated) l Pendino Reauests U-6488 Nor.e l

Test year utilized Avg. 12 mo. '80 Amount (000's)

$462,738 Percent increase 22.9 Date petition filed 4-30-80 Date by which decision must be issued 1-30-81 (1)

Rate of return on rate base requested 10.98 Rate of return on common equity requested 15.0 hoount of rate base requested

$4,999,437 Amunt of construction work in progress requested for inclusion in rate base

$1,420,837 f

(1) On February 18, 1981 the MPSC wrote a letter to the Governor of Michigan explaining the 9 month statutary period could not be upheld due to the complexity of this case.

Note: Approximately 977. of The Detroit Edison Company's electric sales are subject to the rules and regulations of the Michigan Public Service Commission (MPSC)

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with the remainder subject to the rules and regulations of the Federal Energy Regulatory Commission. The above Rate Developments relate to casts under MPSC jurisdiction.

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