ML20009A839

Annual Financial Rept 1980

ML20009A839
Person / Time
Site:	Fermi
Issue date:	07/06/1981
From:	Cummings T NORTHERN MICHIGAN ELECTRIC COOPERATIVE, INC.
To:
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ML20009A836	List: ML20009A835 ML20009A839
References
NUDOCS 8107140329
Download: ML20009A839 (30)

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Northern Michigan Electric Cooperative, Inc.

Boyne City, Michigan 1980 hD DO OOO 1 I PDR ,

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2 TABLE OF CONTENTS Board of Directors . . . . . . . .2 Chairman's Message . . . . . . . 4 General Manager's Report . . . . 5 N.M.E.C. Computer . . . . . . 7 Average Cost for Coal and Oil . . . . . . . 8 Number of Customers Served, Electric Sales to Cooperatives . . . 8 Electric Revenues, Cost of Electric Service, Wages . 9 Fuel Costs, Purchased Power, Taxes, Plant Additions . 9 J.H. Campbell Facility . . . 10 Cur Domestic Fuel Supply . . . . 12 Facts About Fermi . 13 Fir.oncial Report . . . 14 Comparative Summary of Electrical Operations 1971 1980 15 Balance Sheet - Assets . 20 Balance Sheet - Liabiiities . . . . . . 21 Statement of Operations . . 22 Statement of Patronage Capital . 23 Statement of Changes in Financial Position . . 24 Notes to Consolidated Financial Statements . 26 Staff and Attorney . . 29 1980

! Board of Directors l

CHERRYLAND RUR AL ELECTRIC COOPER ATIVE ASSOCIATION

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PHILIP COLE, M AN AGER Number of cuswmers served 16,944

,, ,, ,, at u. ,. Miles of line 1.796

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MICH AEL O'ME AR A, M AN AGER Nomoer of customers v 'd 23,490 4 j 3,568 s: -

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h I began serving on the Narthern Board in 1973, so now have completed eight years of service.

I'm sure you all remember the cr; sis of that year, the oil embargo and resulting higher Encourage them to become better members prices. Our growth forced us into construction by becoming better educa:ed and more acquainted programs at a time when prices of materials, with your cooperatives program. This is where our right-of-way. no all other facets of the program strength lies, so promote membership participa-were increasing at a rapid rate. Northern, like tion whcce you can.

everyone else was forced '.o increase rates in We have seen some evidence of conservation order to meet continuing obligations, but in over the last year that leads us to believe that our spite of all of this, the electricity sold to ou5 electrical load growth in the future may not be Members is still one of the best barga, ins avail- as great as it was in the past. This does not, how-able. ever, subtract from the value or importance of the The year 1980 was a culmination of a decade of committed energy developments that Northern l probleros. We encountered higher fuel costs, has underway. In this period of double-digit in- '

higher freight rates, higher money costs, rigid flation, these projects should be completed at a environmental requirements and an inflationary cost lower than new projects started today.

economy. In spite of these obstacles, we com- As we look forward we do so anticipating many pleted those tasks that enabled us to provide the roblems. With the help of our statewide associa-power needed by our member systems. tion, R EA staf f, NR ECA, and CFC, we will meet In the very nature of your power supplier lies these challenges. ]

the answer to the Rural Electric program. This As Chairman of the Board, I want to thank my is where the bulk of the rural elactric money is fellow directors, the management, and all em-spent today. Supplying the most economical ployees of Northern for their contribution that I energy available to our member systems is our made the achievements of 1980 possible.

main concern at Northern, however, we as directors, should not forget our responsibility human Cummings, Jr.

Chairman of service to our consumer members. This is )

what makes rural electrics unioue and that is why we must continually encourage all members to take part in the various rural electric coop-erative activities. In re ent years many new members who know nothing about our program have been moving into our service areas.

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General Manager's Report Recently updated Power Requirement Studies rep-resent the backbone of G&T plann:ng. Because Northern's approved PRS .s outdateo md too op-timistic, the Rural Electrif: cation Adm listration U97 l informed us they would have dif ficulity approving '

A the Campbell lli Project. Af ter arduous negotiations, U4 NMEC/WEC agreed to submit feasibility studies Jt t

which utilized a compound growth rate of three j';s' M[

(3%) percent. The use of this extremely conserva- J' tive rate did result in feasibility being established y' for Campbell lli resulting in REA approval. This illustrates that even af ter the most careful analysis, ,',.

a valuable project can be lost forever if an approved ,,

l current Power Requirement Study is not ava able f M for use in the planning process. Ncrthern's Board  ?

and Management would strongly urge ine distri-bution systems, as a matter of policy, to annually prepare Power Requirement Studies. Outsida the benefits accruing to the distribution cooperatives own use, such a policy would immeasurably assist Northern in its long range planning. arrangement to commence with the date of com-Northern concluded its current negotiations with mercial operation and we have also requested that Consumers Power Company by purchasing ten (10) Detroit Edison sell, on an equalized basis, a por-

. meaawatts of the Campbell lli coal fired generating tion of their transmission system. Detroit Edison has requested cooperatives to advance $50,000,000

! unit. During 1981, Northern will take two (2) MW and sell eight (8) MW back to Consumers Power. as advance payments on the Fermi 11 project. The We will recapture one (1) MW per year and sell the p rties have agreed in prixiple to the various pro-posals. Verbal permission to proceed was received remainder until 1989 when Northern will take its full share. Ten (10) MW of transmission capacity in fr m REA at a meeting of all parties. Legal and en-the Consumers Power system has been purchased gineering are attempting at this time to iron out i under the equalized transmission concept. Trans. differences.

l mission part;cipation enables Northern to avoid Cooperative's etforts to construct a 10 megawatt wheeling charges and will result in lower transmission lead-acid battery plant have been ef fectively expense. thwarted by the Attorney General's intervention The Fermi ll deficiency loan in the amount of in the related financing hearings. Feasibility for

$101,337,756 was authorized by the Michigan Pub- this project was heavily dependent on the availability lic Service Commission on November 25,1980. of five (5%) percent financing from the REA In-l Northern's application for authorization was filed sured Loan Program in the amount of $2,000,000 January 2,1980. The time delay in receiving author- and, of course, the use of Fermi 11 energy for l

ization was occasioned by interventions from the charging purposes. Future availability of five (5%)

Public Interest Research Group in Michigan financing for generation and transmission purposes l (PIRGIM) and th( Attorney General. Conserva- will be determined by agreement between Congress tively, we estimate the cost of these interventions and this Administration. Management is unable be-to exceed $3,400,000 as of December 31,1980. cause of this cloud to determine at this time if its Unfortunately, the cost will continue to accelerate ultimate recommendation would have bwn to pro-t because of legal expenses associated with our de- ceed with SBEED. The financing hearings are con-fense in that the aforementioned parties appealed tinuing with the hope this source of financing will to the courts the f avorable Commission decision. again be definitely available.

Detroit Edison and NMEC/WEC have commenced During the year, in conjunction with Packaging negotiations on several irrportant matters concern- Corporation of America, preliminary studies were ing Fermi 11 which this report must mention. Coop- prepared that indicated the envisioned co-genera-eratives have requested a slippage in the sell back tion project was feasible. The main parameters of

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this project were to construct a 30 MW wood fired it impossible to do more than speculate as to purchase generating plant and sell waste heat in the form of quantities at this time. Timely completion of a process steam to PCA with PCA furnishing all of Power Requirement Study will allow Northern to the wood required for fuel. Despite the attractive actively pursue these alternatives, results, PCA has determined it does not wish t The rate increase requested in late 1980 became pursue the matter further at this time' ef fcctive April 1,1981. For the first time, the Com-During the remainder of this century, only two sig- mission approved a Northern rate request intact, nificant generating plants are scheduled for con- This unusual occurence will preclude the necessity struction in Michigan. The City of Lansing proposes of Northern filing for rate relief in 1981.

to build a 150 MW to 250 MW plant at its Erickson The examinatien of a proposed merger between location and Detrost Edison is proceeding with con' Northern and Wolverine by a Committee composed struction of its Belle River Units 1 and 2 which are of distribution cooperative directors is continuing.

676 megawatts each. Northern has expressed its in' Monthly meetings have resolved numerous problems, terest in participation in these units to the named The committee will be issuing its recommendations utilities. We have been informed our decision must in this regato ;uring 1981; be made regarding the Lansing Plant by September, 1981. It is impossible for Northern to have the nec. The continuing frustrations by unreasonable law essary information compiled by that date. Conse- and regulation are burdensome to us all. The North-ern staf f wishes to express its appreciation to the quently, we have asked Lansing to consider offering Directors and Distribution Managers for their assis-a unit power option to Northern together with a request for a slipoace in ti,e September,1981 date tance and support during these very tryirig times. ,

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to February,198'2. Detroit Edison has agreed to Working together is the cooperative key to success, use the Fermi contract as a building block for par-Clyde L. Johnson ticipation in Belle Fiver even though Northern finds

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L During 1980, the above Hewlett Packard computer with associated equipment was installed to enable processing magnetic tape metering data from distribution substations.

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l Electric Revenues Fuel Costs Revenues from the sale c' flectric energy in 1980 Coal purchased in 1980 for the ndvance Steam totaled $21,468,596, up 11.9% over 1979. Part Plant totaled 132,264 tons with a total cost of of the increase can be attributed to increases in $5,973,912. The average unit cost increasec.] from fuel and purchased power costs, and sale of $1.69 to $1.78 per million BTU or 5% during Campbell capacity and energy to Consumers the year. The price per gallon paid for fuel oil Power Company, however member cooperative was 86.00d at the beginning of the year and had kilowatt hour sales increased 1.5% over 1979. increased to 101.10d per gallon by the years end.

During 1980 member cooperatives purchased

$20,432,735 in electric energy which represented 8.5% dollar increase in their purchases over the previous year.

During the past ten years, the number of kilowat:

hours sold to member cooperatives has almost doubled. In 1971 our sales to members amounted Purchased Power to 273 million kilowatt hours while in 1980 they The cost of purchased power decreased $530,728 reached 503 million kilowatt hours, an increase in 1980 with the price of such power averaging of 84%. 34.5 mills per kilowatt hours. This is an increase f 3.4 mills per kilowatt over 1979 costs. Mest The trend or rising fuel and purchased power s incmm was due to Ngk fuel adjust-costs continued in 1980. Application of the fuel ses W N ,n-and purchased power adjustment charge caused

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the average price per kilowatt hour to members to reach 40.7 mills, an increase of 7% over the The primary sources of our purchased power 1979 cost. was f rom the City of Lar. sing and Detroit Edison Company. Jointly, they supplied 48% of the cooperative's total energy requirements.

Cost of Electr.ic Serv. ice The average cost of electric service was 38.2 mills per KWH in 1979. In 1980, this cost was 40.7 mills per KWH, representing a 6.5% increase for 1980. Ta)(es The total cost of electric service in 1980 was Tax expense in 1980 totaled $603,399, an in-

$21,583,688, an increase over 1979 of 11.5% crease of 7% over 1979. $b23,491 was for pro-in cost, comnared to an increase of only 1.5% perty taxes and $79,908 for employment taxes.

in the total number of kilowatt hours sold. 73% These taxes totaled 3% of the total cost of elec-of 1980 electric costs was for fuel and purchased tric service f or 1980.

power,13% for wages, materials, supphes and 14% for depreciation, taxes, interest and main-tenance.

Wages Plant Additions Gross wages earned in 1980 were $1,361,475, Total utility plant additions in 1980, including an incrc= of $118,646 over 1979 gross wages the Fermi li project amounted to $39,123,991 a amounting to $1,242,829. S1,196,262 of 1980 26% increase in total utility plant.

wages were charged as operating and maintenance During tne year, two new substations were com-costs, $155,368 capitalized and $9,845 were pleted and seventeen miles of 69,000 volt line charged to other accounts. was completed.

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J.H. CAMPBELL UNIT NO. 3 COAL FIRED FACILITY FACT SHEET PLnt Built By: Con:umers Power Company i

Major Contractors:

Design and Construction Townsend and Bottum, Inc., Ann Arbor, Michigan Design Engy, Procurement I and Ex pediting S"n"~. Conunonwealth Associates, Inc., Jackson, Michigan Steam Generator: Foster Wheeler Ermrgy Coop" ..u. ' i vingston, NJ Turbine Generator. General Electr c Company, t henectari ,NY l

Plant Location: On Lake Michigan m Port She! don Townstup,11 miles south of Grand Haven,35 nules west of Grand Rapids Northern Michigan Electric I Cooperatice Ownership: 1.2G5 of plant or approximately 10MWE l Construction Started: February,1974 Completion Date: September 16,1980 )

Generator Electric Output: 770 MWE f Type of Fuel: Low sulfur coal, not to exceed one percent suller by content Source of Fuel: Coal mines in Eastern Kentucky Boiler Thermal Output: G,000,000 / /hr. steam Other Uses of Site: Units 1 and 2 of Campbell Plant in operation, generating 265.000 and 385,000 kdowatts of electricity, respectively 1 Source of Water Used for (

Coolant: Lake Michigan l

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J. H. Campbell Unit No. 3 CHRONOLOGY January,1976 - Main plant excavation started August,1976 - Base slab pour started (boiler and turbine building)

November,1976 - Chimney foundation started February,1977 - Structural steel erection started March,1977 - Erection of chimney shell started June,1977 - Turbine pedestal completed l

September,1977 - Chimney shell completed i December,1977 - Generator stator set in place - Boiler erector mobilized April,1978 - Offshore portion of circulating water system started l June,1978 - Turbine - Generator installation started January,1979 - Plant heating system (auxiliary boiler) placed in service September,1979 - Boiler hydrostatic test completed October,1979 - First coal delivery January,1980 - First boiler fire with oil June,1980 - Unit synchronized MAJOR EQUIPMENT Steam Generator - Foster Wheeler - 6,000,000 lb/hr. 10050F.,2620 PSjG Turbine Generator - General Electric - 770,000 KW Building- Roof elevation from ground 268 feet 400 ft. x 400 f t. square at ground level

i Our Domestic Fuel Supply Government and industry agree that in the near ments. Importing greater amounts of petroleum future, only two domestic resources can be ex. products poses a serious threat to our nation's panded to help meet our rising demand for energy: cconomy and security.

coal and uranium. Hydro power furnishes less than five percent of l Coal is our most abundant natural fuel, poten- our total energy now and most suitable water-tially, it could provide much of our energy for ways have been dammed. Supplemental sources several hundred years. Environmental and other such as solar, geothermal, tidal and wind power restrictions on its mining, transportation, and can contribute relatively little to increasing needs.

combustion, however, severely limit its increased Uranium used in today's light water reactor gen-use especially at power plants. Coal has many erating station will last for decades. Breeder re-other valuable applications, as a liquified fuel for actors wnich create more fuel than they consume transportation, as a raw material for plastics, while producing energy could extend this re-chemicals and med_i cines. source for centuries. j Oil and gas production will remain relatively con- To bridge the gap between dwindling supplies of

, stant, but cannot grow to fill increasing require- our traditional fo;sil fuels and the essentially un-limited fuels of the future, we must rely increas-ingly on electricity generated from uranium at nuclear energy plants, pagg ' - MTg7g A{ tr" r

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wnership: Detroit Edison (80%, Co-op's (20%)

Facts About Fermi Plant operated L <: Detroit Edison in February,1977, a 20 percent ownership in- Architect Enguieer: Detroit Edison terest in Fermi ll was sold by Detroit Edison Anticipated plant life: 40 years to Northern Michigan Electric Cooperative Nuclear reactor manufacturer: General Electric Co., San Jose, California (11.22%) and Wolverine Electric Cooperative (8.78%). The three companies will share the Turbirie generator manufac.turer: English Electric, Ltd., Staf ford, U.K.

plants output consistent with their respectiva Construction manager: Dan,el i Construction Co.,

interests.

Greenville, South Carolina Fermi 11 Key Dates wo,k Force. Construction. average 825 i Plans for prcject announced: July 26,1968. Construction, peak 2,100 Application for AEC (now NRC) construction permit Operational Total 125 submitted: April 29,1909 Type of fuel: Uranium Oxide enriched U-235 Construction permit issued: September 26,1972 Total fuel weight: 164 tons l Site preparation work started: Late 1969 Materials: Volume of concrete 300,000 cubic Construction started: October,1970 yards.

Reactor vessel delivered: July,1974 Steel: 20,000 tons Generator delivered: July,1976 Electric wire: 750 miles l

Cooperative projected completion date: July,1983 Conduit: 40 miles General Information: Method of rcoling condenser water: Closed cycle with two natural draf t cociing towers.

Electric generation capacity:1,100,000 Kilowatts j

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f and Statement of Revenue and Expense of the Me cooperative. These statements audited by Donald R. Breadon of Traverse City, Michigan reflect inat for the calendar year 1980, operations pro-duced a (joss) in margins of ($115,092) and rion-operating margins totaled $40,670.

$19,773 of non-operating margins represents pat-rorr>ge capital issued by the National Rural Util-ities Cooperative Finance Corporation ("CFC").

Ncrthern is a participating member of the Na-tional Rural Utilities Cooperative Finance Corporation ("CFC") purchased $125,673 in C FC capital ter m certiiicates in 1980. The current investment totals $897,035 The cooperative's rrojected total investment in capital term certifi-cates through i984 is $1,402,842.

During 1980, the cooperative received R.E.A.

insureu loan fund advances of $1,621,000 to finance construction of approved loan projects.

In addition, $29,959,000 of R.E.A. guaranteed loans were advanced to finance the Fermi 11 pro-ject and $404,000 in guaranteed loans to finance transmission projects.

Substantial progress was achieved on Fermi ll nuclear generating station during the year. During 1980, Southern Engineering Company has report-ed to the cooperative on construction progress and cost monitoring of the Fermi ll project and Campbell lil project. Their reports address topics such as cost reporting systems, contracts rele-vant to f uel acquisition for the plants and con-struction progress on these projects.

Harold E. Beldo

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COMPARATIVE

SUMMARY

OF ELECTRICAL OPERATIONS 1971 1980 i

(MILLS PER KWH) 1980 1979 1978 1977 197G 1975 1974 1973 1972 1971 Tctal Operating Revenue (1) 40.7 37.8 34.0 30.4 31.4 29.0 25.3 18.3 16.8 15.8 Operating Costs:

Pioduction Expense (2) 32.6 31.2 27.9 25.2 25.2 23.4 19.6 13.3 11.2 9.8 Transmission Expense .9 .8 .9 .6 .7 .6 .7 .8 .6 .7 Other Adm. & General Expense 1.5 1.3 1.2 1.4 1.2 1.0 .9 .7 .7 .7 Depreciation & Amort. 2.0 1.8 1.7 1.5 1.5 1.5 1.6 1.6 1.7 1.8 Taxes 1.1 1.1 1.0 .9 .9 .9 .9 .9 .9 1.0 Interest 2.8 2.0 1.6 1.4 1.2 1.3 1.1 .9 1.0 1.1 TOTAL OPERATING COSTS 40.9 38.2 34.3 31.0 30.7 28.7 24.8 18.2 16.1 15.1 Net Operating Margin (Loss) (.2) (.4) (.3) (.6) .7 .3 .5 .1 .7 .7 (1) Member Cooperative Sales 40.7 38.0 34.5 30.8 31.4 28.9 25.3 18.3 16.7 16.0 Wholesale and Other 41.9 33.4 25.5 24.3 26.7 30.3 27.2 16.8 18.9 8.8 (2) Generated Power-Cost of Fuel Sterm Generation 22.3 22.3 20.4 18.2 17.8 16.6 10.0 7.0 6.8 6.3 Internal Combustion 96.8 48.7 34.3 42.1 34.9 34.8 33.4 23.4 17.1 14.4 Purchased Power Cost 34.6 31.1 29.0 24.8 24.8 23.1 27.1 18.0 14.0 16.0

COMPARATIVE

SUMMARY

OF ELECTRICAL OPERATIONS 1971-1980 ELECTRICITY GENERATED AND PURCHASED-IN THOUSANDS OF KILOWATT HOURS 1980 1979 1978 Generated 262,512 181,539 243,347 Purchased for System 290,221 339,295 267.320 552,740 520,834 510,667 ELECTRIC SALES -

IN THOUSANDS OF KILOWATT HOURS s Member Sales 502,505 495,018 471.489 24,929 12.317 25,274 Wholesale and Other 527.434 507,33% M 4

ELECTRICAL SALES TO MEMBER COOPERATIVES-IN THOUSANDS OF KILOWATT HOURS 5

Cherryland Rural Electric Cooperative, Ass'n. 128,868 125.049 117,005 Presque Isle Electric Cooperative, Inc. 132,471 134.9 % 133,443 241,166 23',,011 221,041 Top O' Michl gen Rural Electric Company 502,505 y;,0_18

. 4M MAXIMUM KILOWATT DEMAND AT MEMBER DEllVERY POINTS 101,348 101,309 99,861 ANNUAL LO/ 4D FACTOR PERCENT MEMBER COOPERATIVES 56 56 54 LINE LOSSES PERCENT 4.6 2.6 2.7 l

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COMPARATIVE

SUMMARY

OF ELECTRICAL OPERATIONS 1971-1980 1977 1976 1975 1974 1973 1972 1971 253,491 281,412 310,365 288,730 290.850 294,580 267,608 247,675 192.531 129.575 124,186 92,887 50,885 28,595 501 166, 473,943 4M 4M 383 R g 3 29 444,737 438,169 404,510 383,762 354,407 324,285 272,980 33.239 9,297 12,714 3,435 12,088 6,557 5,209 g

4 447,466 4_17t2224_ M M 3 330,842 278,189 106,753 103,185 93,658 88,087 84,462 75,707 63,894 l

129,067 129,266 123,120 120,915 116,265 111,830 98,534 208,917 205,718 187,732 174,760 153.680 13G,748 110,552 1 44 S 37 438,169, 4ESE 383,762 3M 324 285, 2M 100,153 91,472 86,898 82,828 75,749 70,752 63,598 51 55 53 53 53 52 49 4.6 5.6 5.2 6.2 4.5 4.2 6.1 l

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i COMPARATIVE

SUMMARY

OF ELECTRICAL OPERATIONS 1971 1980 1980 1979 1978 1977 ELECTRIC ENERGY SALES Member Cooperatives -20.432,735 18,817,402 16,246,253 13,712.248 Wholesale and Other 1,035,861 360,142 645,356 808.975 TOTAL OPERATING REVENUES 21,468,596 19,177,544 16,891,609 14,521,223 OPERATING EXPENSES Operation Expense - Generated Power 6,679,079 4,69;,040 5.628,937 5,389,864 Operation Expense - Purchased Power 10,026,172 10,556,900 7,737,500 6,144,278 Operation Expense - Transmission 318,865 317,381 244,001 212,151 Other Admin. & General Expenses 798,775 640,810 545,867 664,000 Maint. Expense - Generated Power 481,349 560,963 485 542 485,663 Maint. Expense Transmission 154,139 89,592 174,068 82,687 Maint. Expense - General Plant 19,848 27,395 41,975 33,418 Depreciation & Ame uzation 1,035,561 899,238 850,928 715,040 Taxes 603,399 564,036 499,937 428,784 Interest on Long Term Debt 13,632,796 9,235,453 6,822,288 4,279,591 Less interest charged to const. (12,481,391) (8,450,340) (6,112,28W (3,661,306)

Other Interest 315.096 225,398 97.991 33.557 TOTAL COST OF ELECTRICAL SERVICE 21,583,688 19,357,866 17,016,754 14,807,727 (115,092) (180,322) (125,145) (286,504)

GAIN (LOSS) IN OPERATING MARGINS NON OPERATING MARGINS 40,671 130,237 601.148 165.232 (74;422) (50,085) 476,003 (121,272)

GAIN (LOSS) IN TOTAL MARGINS

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J 1976 1975 1974 1973 1972 1971 13,776,658 11,697.592 9,691.622 6,491,195 5,431,332 4,358,507 247.795 384.840 93.271 202.793 123.799 46.036 l 14,024,453 12,082,432 9,784,893 6,693,988 5,555,131 4,404,543 5,910,629 6,344,738 3,963,109 2,939,425 2,757,483 2,144,558 4,768,538 2.991,890 3,369,138 1,fi74,092 713,540 456,085 i 185,646 135,636 118,067 81,058 73,175 80,022 497,785 402.046 323,148 237,114 224.424 190,261 596,799 414,952 259,175 254,754 230,243 125,215 137,075 106,131 164,438 220,568 106,017 102,589 23,649 23,674 16,006 12,922 20,164 12,969 672,121 626,986 607,732 592,960 568,506 511,410 380,570 398,910 359,930 321,252 312,628 288,719 487,944 368,757 339,933 332,001 331,364 313,830 (1,947) (11,197) 48.440 162.616 75.776 15.294 817 965 13,709,196 11,976,336 9.596,452 6.681.440 5.336,414 4,215,426 315,257 106,096 188,441 12,548 218,717 189,117 22.147 11.584 17.263 6.156 5.410 1,192

! 337,404 117,680 205,704 18.704 224,127 190,309 i

MICHIGAN 47 CHEBOYGAN NORTHERN MICHIGAN ELECTRIC COOPERATIVE, INC.

BOYNE CITY, MICHIGAN BALANCE SHEET ASSETS December 31, 1980 1979 UTILITY PLANT:

Electric plant in service $33,230,136 $30.815,865 Construction work in progress 155,750,020 119,040,300 Electric plant acquisition adjustment 89.988 89.988 189,070,144 149,946,153 Less accumulated depreciation and amortization 11.448.352 10.357.830 NET UTILITY PLANT 177.621.792 139.588.323 INVESTMENTS:

Investments in associated organizations 1,775,846 1,630,400 Nonutility property, net of accumulated depreciation 6.623 6.857 TOTAL INVESTMENTS 1.782 469 1.637.257 CURRENT ASSETS:

Cash 110,928 116,811 Cash, restricted for construction 741,889 156,222 Accounts receivable 1,960,998 1,986,022 Materials and supplies G,097,351 5,152,431 Prepayments 113.176 185.649 TOTAL CURRENT ASSETS 7.597.135 9.030.342 DEFERRED CHARGES 180.982 97.145

$188,615,585 $148.919.860 See accompanying summary of accounting policies and notes to financial statements.

i Li ABILITIES December 31, 1980 1979 EQUITIES AND MARGINS:

Memberships $ 600 $ 600 Patronage capital 2,006,602 2,006,602 Other equities 167,190 241,612 TOTAL EOUlTIES AND MARGINS 2.174,392 2.248,814 LONG TERM DEBT:

Mortgage notes to:

Rural Electrification Administration 27,395,937 26,715,231 a Federal Financing Bank 145,052,000 114,689,000 Breeder Reactor Corporation 26.487 26,487 TOTAL LONG TERM DEBT 172,474,424 141,430,718 CURRENT LIABILITIES:

Notes payable to National Rural Utilities Cooperative Finance Corporation 11,399,018 2,700,uN)

Accounts payable 1,831,413 1,813,682 Accruals:

Taxes 520,370 490,422 Interest 60,435 69,610 Other 155,533 166.814 TOTAL CURRENT LI ABILIT15S 13.966,769 5.240,328

$188,615,585 $148,919,860 I

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MICHIGAN 47 CH6BOYGAN NORTHERN MICHIGAN ELECTRIC COOPERATIVE, INC, BOYNE CITY, MICHIGAN STATEMENTS OF OPERATIONS Year ended December 31, 1980 1979

$21,468,596 $19,177,544 OPERATING REVENUES AND PATRONAGE CAPITAL OPERATING EXPENSES:

Steam power generation:

Operation 6,419,319 4,319,457 Maintenance 385,202 395,712 Hydraulic power generation:

Operation 66,485 62,408 Maintenance 7,281 32,485 Other power generation:

Operation 193,275 309,176 Maintenince 88,866 132,766 Purchased power 10,026,172 10.556,000

. Transmission:

Operation 228,970 230,069 Maintenance 125,440 50,991 Distribution:

Operation 80,158 75,51.4 Maintenarce 28,699 $ ,601 Consumer accounts 11,737 1' 799 Administrative and general 798,775 640,810 General plant maintenance 19,848 27,395 Depreciation and amortization 1.035,561 899,238 Taxes 603,399 564,037 Interest:

Long-term .

839,370 781,333 Intermediate loan 12,793,426 8,454,120 Interest charged to construction (12,481,391) (8,450,343)

Other interest ._ 315.096 225,398 21,583.688 19,357,866 Operating margins (deficit) (115,092) (180,322)

NONOPERATING MARGINS:

43,423 132,235 Interest and dividend income (2,753) (1,998)

Other nonoperating loss Nonoperating margins 40,670 130,237 NET MARGINS (DEFICIT) ($ 74,422) ($ 50,085)

See accompanying summary of accounting policies and notes to financial statements l

MICHIGAN 47 CHEBOYGAN NORTHERN MICHIGAN ELECTRIC COOPERATIVE, INC.

BOYNE CITY, MICHIGAN STATEMENTS OF OTHER EQUITIES Year ended December 31, 1980 1979 BALANCE, at beginning of year $241,612 $291,697 ADD (DEDUCT):

Nonoperating margins for the year 40,670 130,237 Operating deficit for the year (115.092) (180,322)

BALANCE,at end of year $167,190 $241,612 STATEMENT OF PATRONAGE CAPITAL Year ended December 31 Patron:ge capital consisted of: 1980 1979 Assignable $ $

Assigntd 2.006.602 2.006.602 Totti 2,006,602 2,006,602 See accompanying summary of accounting policies and notes to financial statements.

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MICHIGAN 47 CHEBOYGAN NORTHERN MICHIGAN ELECTRIC COOPERATIVE, INC.

BOYNE CITY, MICHIGAN STATEMENT OF CHANGES IN FINANCIAL POSITION Year ended December 31, 1980 1979 FUNDS WERE PROVIDED BY:

Net margins (deficit) before provision for depreciation and amortization of (1980

$1,071,305 ; 1979 - $935,879) $ 996,883 $ 885,794 Advances from REA and FFB 31,984,000 36,460,000 Material returned to stock from retirements 10,724 79,420 Decrease in deferred charges 125,556 32,991,607 37,550,770 FUNDS WERE USED FOR:

Extension and replacement of plant, net Repayment of lang-term debt to REA - 39,102,640 34,626,795 principt when due Decrease in deferred interest 915.948 799,403 increase in investments 24,346 24,346 Decrease in deferred credits 145,212 216,185 Plant removal costs 12,858 60,755 Increase in deferred charges 83,837 40,284,841 35,727,484 INCREASE IN WORKING CAPITAL ($ 7,293,234) $ 1,823,286 l

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1 MICHIGAN 47 CHEBOYGAN I NORTHERN MICHIGAN ELECTRIC COOPERATIVE, INC.

BOYNE CITY, MICHIGAN STATEMENT OF CHANGES IN FINANCIAL POSITION (Continued) l l

Year ended Dr .anber 31, !

1979 1980 CHANGES IN WORKING CAPITAL ITEMS:

Increase (decrease) in current assets: j Cash ($ 5,883) $ 48,174 Cash, restricted 585,667 ( 19,589) i 369,276 Accounts receivable ( 19,024)

Materials 4.nd supplies 944,920 970,178 Prepayments ( 72.473) ( 57,509) 1.433,207 1.310.5*0_ l l

Decrease (increase) in current liabilities:

Notes payable 8,699,018 ( 500,000)

Acccunts payabie 17,731 ( 823,943)

Accruals 9,692 _1,836.699 8.726,441 512,756 INCREASE (DECREASE) IN WORKING CAPITAL ($ 7.293,234) $g See accornpanying summary of accounting policies and notes to financial statements.

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4 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31,1980 AND 1979

1. Summary of significant policies:

Accounts receivable System of accounts All accounts receivable are considered by management The accounting records of the Cooperative conform to to be collectible accordingly, no provision for uncol.

the Uniform System of Accounts prescribed by the lectible accounts has been provided.

Federal Energy Regulatory Commission modified for electric borrowers of the Rural Electrification Materials and supplies Administration. Operating materials and supplies are valued at average cost.

Electric revenues and fuel costs Electric revenues are recorded monthly as of the date 2. December 31, meters are read and accounts are billed.

1980 1979 Intangible plant S 43,445 43,445 Fuel costs are charged to product. ion expense Steam production plant 10,396,296 10,313,020 as fuel is consumed. 917,012 916,643 Hydraulic prod. plant Other power prod, plant 2,655,572 2,570,957 Plant additions and retirements The cost of additions to electric plant in service rep-3 resents the origmal cost of the contracted services, g M9 m 669 direct labor and material, interest on construction loans Electric plant in where applicable and indirect charges for engineering, 33,230,136 30,815,865 service supervision and simdar overhead items. Maintenance gg and repairs of property, replacements and renewals of 155,750,020 119,040,300 in progress items determined to be less than units of property are Electric plant acqu-charged to mainterance expense. For property replaced isition adjustment 89.988 89.988 or renewed, the original cost plus removal cost,less salvage is charged to accumulated provision for depre-Electric plant $.189,070,144 $149,946,153 clation. The cost of related replacements and renew-als is added to electric plant. Contributions in aid of Major classes of constn.ction wo-k in progress at the construction are credited to the applicable plant year and consisted of:

accounts. December 31, 1980 1979 Depreciation Detroit Edison-FermiII144,315,518 114,673,177 -

- Provision has bee , made for depreciation on a straight Consumers Power line basis at annual rates as follows: Campbell 111 7,300,078 Other Construction 4,134,424 4,367,123

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Franchises and consents 4 00%

Steam prod. plant <omp. rate 3.10% $155,750,020 $119,040,300 Hydraulic production plant 2.00%

' 3. Long term debt Other production plant 3.00 7.00%

Mortgage notes payable to REA are represented by Trans. plant-composite rate 2.75%

note instruments payable to the United States of Distribution plant-composite rate 2.88%

America bearing interest at the rate of 2-5%. All assets Power operated equipment 10.00-33.00%

are pledged as collateral for this debt. The notes are for Other general plant 2.00- 10.00%

i 35 year periods each, and principal and interest install-Investments in associated organizations ments are due quarterly in amounts of approximately The investments in associated organizations referred to $475,000 each.

in the financial statement were as follows:

It is estimate mat instaHments of U,W,000 payaW 1980 1979

• thin the next twelve months will include $1,000,000 in National Rural Utilities Finance Corporation .

pnnespel. The notes are scheduled to be fully repaid at Capital Term Certificates vari us times fr m October,1984 to March,2012. Un-897,035 771,362 advanced loan funds of $9,261,974 are available to the Patronage Capital Certificates P"* *" ****"** * "' *"'

873,980 854,207 Other 4.831 4.831 ficati n Admm.' istrat *" ion.

TOTAL $1,775,846 $1,630,400-

On February 8,1977, Northern Michigan Electric Co- 6. Patronage capital and other equities operative, Inc. concluded negotiations for the purchase Patronage capital consisted of:

cf 11.22 percent of the Enrico Fermi 11 Nuclear Energy December 31, Generating Facility, owned by Detroit Edison Comp-1980 1979 any, located in Monroe County, Michigan. Long term AssignaWe financing arrangements were made in 1978 with the 2,006,602 Assigned 2,006,602 Federal Financing Bank through the United States Department of Agriculture for $127,873,000. Of the 2.006,602 2,006.602 TOTAL proceeds from the loan, $122,905,000 are for the En- " -

rico Fermi 11 and the balance being used for other plant Other Equities (Deficit) additions. Amounts unadvanced at December 31,1980 were $4,593,000. The amounts are advanced from time to time as required and at varying interest rates.

Amounts have been advanced from August 10,1978 December 31, through December 31,1980, maturing on August 10, 1980 1979 1980 through December 31,1982, at interest rates of Nonoperating margins, 8.260 percent to 14.348 percent. The cooperative has net 173,088 247,510 arranged aoditional long-term financing with the Fed- Capital gains (losses),

eral Financing Bank for $101,337,7. , maturing at incurred prior to 1979 (5,898) (5.898) varying times and interest rates.

During 1972, the Board of Directors authorized the ex. TOTAL $167,190 $241,612 penditure of $52,973 for participation in the Liquid Metal Reactor Demonstration Program, to be paid in

7. On August 15,1980, the Cooperative agreed to pur-ten equal annual installments. There were five mstall-diase 1.26% ownership or approximately 10 mega-ments remaining at December 31,1980, watts in Consumers Power James H. Camptell ill generating plant. After the plant began generation,

4. Line of ciedit agreement the Cooperative realized electrica! power sales during Tha Cooperative has established a line of credit for the year of $629,683 or approximately 2.93% of short term financing, with NRUCFC for $12,000,000.

their total power sales. The total sales to nonmembers At December 31,1980 the amount owed N RUCFC were $1,035,860 or approximately 4.83% of under such agreement is $3,500,000. g , g ,,

S. Pension plan Pension benefits for substantially all employees are provided through participation in the Retirement and Security Program of the National Rural Electric Cooperative Association. Pension costs were approx.

imately $79,500 in 1979 and $87,800 in 1980.

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l rT Breac on 8t Holly, P.C. l r, ir CERTIFIED PUBLIC ACCOUNTANTS February 20, 1981 Board of Directors Northern Michigan Electric Cooperative, Inc.

Boyne City, Michigan We have examined the balance sheets of Northern Michigan Electric Cooperative, Inc. as of December 31, 1980 and 1979, and the related statements of operations, other equities, and changes in financial position for the years then ended. Our examination was sade in accordance with generally accepted auditing standards and, accordingly, included s1:h tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances.

In our opinion, the financial statements mentioned above present fairly the financial position of Northern Michigan Electric Cooperative, Inc. at December 31, 1980 and 1979, and the results of operations and changes in its financial position for the years then ended, in conformity with generally accepted accounting principles applied on a consistent basis.

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DONALD R. BREADON, C.P.A.

DENNIS L HOLLY C.P.A. 153M EAST FRONT e TRAVERSE CITY, MICHIGAN 49684 m TELEPHONE- (616) 946-8930

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ROBERT J. HOLZSCHU ' '

RICH ARD D. LOVE

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ROBERT C. KLEVORN i ATTORNEY .

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WOLVERIAE ELECTRIC COOPERATIVE l

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. , ? pv 1980 ANNUAL REPORT

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r Cover Photoquphs:

Top: Wolverine's Claude Van Dyke Geneuting Plant, near Burnips, Michigan. This plant includes several diesel gerieratons and a 23,000 hilountt combined-cycle gas twtbine.

Cente.t: Wolverine's Marting Lake Distribution Substation, nest Battyton, Michigan. This substation supplies Tri-County Electric Cooperative a,t 12,470 volts from a 69,000 volt transmission line, and has a capaelty of 3750 kVA.

Bottom: Wolverine's 138,000 volt transmission line bebceen LeRoy and South Boardman. This transmission Line ptesently operates a,t 69,000 volts, and inter-connects Wolverine with Northern Michigan Electric CoopeActive.

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TABLE OF CONTENTS Page Board of Directors 1 Personnell 2-3 Member Cooperatives 4 President's Message 5-6 Manager's Report 7-8 Generation & Purchase Power Costs 9 Net Generation & Purchases 10 Energy Sales to Menhers 11 Energy Production 12 Auditors Report 13 Balance Sheet 14 a, 14 b Statements of Revenue & Expense 15 a, 15 b Statements of Patronage Capital and Other Equities ( Deficit) 16 Statements of Changes In Financial Position 17 l Notes to Financial Statements 18-22 l

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B0ARD 0F 'D1 RECT 0RS WILLARD HAENKE President . . . . . . . . . . . . . . . Blanchard, Michigan

! CLARE SilULL Vice- President . . . . . . . . . . . . . lia rt , Michigan

• JOHN TYNDALL Secretary . . . . . . . . . . . . . . . . Branch, Michigan

• DONALD HARMON Secretary . . . . . . . . . . . . . . . Branch, Michigan l BURTON SCOTT Treasurer . . . . . . . . . . . . . . . . Evart, Michigan CARL FORTELKA Director . . . . . . . . . . . . . . . Iloxeyville, Michigan WILLIAM CHAPIN Director . . . . . . . . . . . . . . . Blanchard, Michigan

! .iOSEPli FAIRCilILD Director . . . . . . . . . . . . . . . liesperia, Michigan t

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

• Donald liarmon was appointed Secretary on September 19, 1980.

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0FFICE PERS0NNEL l

MANAGER . . . . . . . . . . . . . . . . . . . . . . . . . John N. Keen ASSISTANT MANAGER . . . . . . . . . . . . . . . . . . . . James 0. Wood ASSISTANT TO THE MANAGER . . . . . . . . . . . . . . . . Norman Newby 0FFICE MANAGER , . . . . . . . . . . . . . . . . . . . Esther Brower ACCOUNTANT . . . . . . . . . . . . . . . . . . . . . . . Walter Garcia ACCOUNTANT . . . . . . . . . . . . . . . . . . . . . . . Roselyn Hopper RECEPTIONIST . . . . . . . . . . . . . . . . . . . . . . Beverly Adams TRANSMISSION . . . . . . . . . . . . . . . . . . . . . Robert O. Gray TRANSMISSION . . . . . . . . . . . . . . . . . . . . . William Zuidema TRANSMISSION ~ . . . . . . . . . . . . . . . . . . . . . Harley Jaques TRANSMISSION ... . . . . . . . . . . . . . . . . . . . Dean Biship MAINTENANCE FOREMAN . . . . . . . . . . . . . . . . . Richard Ar.:old CONSULTANTS:

LEGAL . . . . . . . . . . . . . . . . . . . . . . . . Daniel D. Hesslin ENGINEERING . . . . . . . . . . . . . . . . . . . . . Daverman Associates C. P. A'S . . . . . . . . . . . . . . . . . . . . . . Cooper & Lybrand 2

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PLANT PERS0NNEL BURNIPS PLANT SCOTTVILLE PLANT Henry Kaumeyer, Chief Operator Terry Kuiper, Chief Operator Hubert Niemchick Gary D. Rogers John L. Wilson C. G. Luce Robert Force Thomas Story Maurice McBride Michael Terryn Bert J. Wiersma Glen Robinson Kenneth Slagter VESTABURG PLANT Michael Chase Blaine St. Peter Richard Bigelow, Chief Operator Jack R. Thompson Richard Modrow HERSEY PLANT Michael Bigelow Richard Bradley Delbert Roggow, Chief Operator Elwood Mitchell Richard F. Brissette Edwin K. Kersey DISPATCH OFFICE Gary L. Jaques Willis Zimmerman Neil Anderson Kenneth Roggow Jerry Taber John Oehrli Rex Thompson Keith Tissue Earl D. Jacobs Jeffrey Arnold

' PORTLAND PLANT RIGHT-OF-WAY-DEPARTMENT i Eugene Snitgen Pete Ratcliffe Merel Peterson Glen Merrill 3

DIRECTORY OF MEMBER COOPERATIVES f

0 & A ELECTRIC TRI-COUNTY ELECTRIC Newaygo, Michigan Portland, Michigan Kenneth Bumstead, Manager Vernor Smith, Manager Carl Johnson James Clarke Lzon Ford Wayne Swiler Pate Boss Carl Morton Burton Scott Keith Sackett Constance Dukes. Peter Ondrus Don Marsh Willard Haenke Carl Fortelka William Chapin Louis Ghent G orge Telsma, Jr.

WESTERN MICHIGAN ELECTRIC OCEANA ELECTRIC Scottville, Michigan Hart, Michigan Frank Anderson, Manager Robert Frederiksen, Manager Donald Harmon Clare Shull Robert Hasenbank J. Kenneth Fairchild John Tyndall Philip L. Paine Merel Wood Clyde Ackley Harold Hansen Mary C. Hawley Robert Thurow Mathew Kokx

( Gordon L. Lohman I

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PRESIDENT' S MESSAGE It is with pleasure that I welcome you to Wolverine's Annual Meeting, and 1

share with you, throughout this report some of the activitics this past year.

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.

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 Hersey, Tustin and llartwick line. The low hid was submitted ,

by Newark Electronics in the-amount of $117,425.00.

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We also took bids for the right-of-way clearing on the Bass Lake to Wolf Lakt line as well as the transmission line construction. Nelson Tree Service was the successful hidder for the right-of-way c1 caring in the amount of $55,768.00

< and Clifton Engineering Company was the low bidder for the Bass Lake to Wolf l

Lake transmission line in the amount of $242,881.38.

I 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 t

! in the amount of $79,226,000.

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

We greatly appreciate the splendid cooperation and assistance from the I

managers of our distribution members and their employees, as well as the employees of Wolverine.

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N Willard llaenke, President E

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A MANAGER'S REPORT 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 aur departments. S. Donald King retired from the cooperative in April, 1980. Robert Grev 'ns promoted 4

to Superintendent of Transmission and William Zuidema was promoted to substation technician. Harley Jaques was added to our line department. Due to the increased work load in the accounting department it was necessary to add another person. Roselyn Hopper was promoted from her secretarial position to assist in the accounting department and Beverly Adams was hired as our new secretary.

During the last several years we have been investigating the feasibility of alternate energy sources, one alternate being the use of " Waste Wood".

This project was throughly investigated and as of September, 1980 we decided we should not pursue this project any further due to the resistance 4

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 l 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 l

j cost", therefore, this could be a great advantage to the overall cost of energy

-delivered to the system.

l l 7 l

l

Construction and double digit inflation during the past several 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 ^2tober 1, 1980. The rate increase amos.. red 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 sources rather than to generate it from our own existing facilities.

This.past year we completed all the right-of-way-procurement for the Hastings to Vermontville line which is approximately 22 miles long. Right-of-way for approximately cwelve miles of line for the Bass Lake to Wolf Lake was completed

- and as of this date the Ludington to Lake County Itae is about 95% completed.

- Approximately 99% of the right-of-way procurement nas been procured for the I Howard City to Pierson line.

I i

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

4 Chester 3,750 Crawford 5,000 Eaton Rapids 3,750 Grand Ledge 2,000 liartwick 5,000 llastings 3,750 j Odessa 3,750 Otsego 2,500 Tustin 3,750 Vermontville 2,000 Wayland 3,750 Wolf Lake 2,500 White C1ord 5,000 The Merger committee met throughout the year and while some progress has been made, there are st ill many details to he, worked out.

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

l I

ohn N. Keen, Manager 8

1

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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 f

t 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 l

Fowler 8,340,000 4,064,400 Casnovia 6,138,000 13,615,400 Hersey 4,858,800 2,922,000 Hartwick 9,574,200 17,309,200 Morley 2,542,500 3,273,600 Hersey 7 697,500 7,787,500 odessa 6,508,000 8,553,000 Lincoln .,019,500 7,878,600 Pierson 4,065,600 6,419,600 Morley 4,404,000 4,226,800 Portland 5,663,300 6,887,500 Pierson 3,735,800 6,689,400 t

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 *Hastings 7,293,600 6,883,200 *0tsego 3,932,000

(( *Martiny 4,669,200 4,927,200 l

• Plains Road *?aris

• Vermontville 3,465,600 *Middleville 3,614,400

}

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

• Grand Ledge 6,172,200 j

• Lebanon 3,443,400 88,399,600 148,781,100 GCEANA ELECTRIC COOPERATIVE 1

1970 1980 WESTERN MICHIGAN ELECTRIC COOPERATIVE Hart 7,836,000 7,247,200 1970 1980 Rodgers 6,780,600 9,812,600 i

Shelby 6,420,600 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 l

Fountain 2,317,400 7,601,400 *Hesperia 6,084,000

, Scottv111e 5,454,900 6,894,900 *Weare 3,983,400 i Star Lake 3,825,000 6,510,200 35,742,000 56,899,200 Victory 6,156,000 8,897,400 j 25,936,500 45,169,700 i Total KWH sold to members.in 1980 394,092,300 Total KWH sold to members in 1970 224,400,400 t

• New substations since 1970 Difference 169,691,900 i

ENERGY PR0 DUCTION GENERATED MWH Burnips 159,515.5 Hersey 10,663.3 Portland 368.6 Vestaburg 9,670.3 Scottville 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 MWH 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 Northern Michigan 5,794.5 Northern Michigan 2,555.9 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 of Traverse 1,035.1 City of Traverse 473.5 Conalco 3,147.0 Consumers Power Co. (0,109.9 Detroit Edison Co. 88,519.5 37,112.2 City of Lansing 138,771.7 Conalco 1,214.0 280,833.5 ENERGY SALES MWH T0 MEMBERS Tri-County Electric Cooperative 148,781.1 0 & 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

~~

35.8 12

COOPERS & LY B R A N D

. C f f'tilf lf D l't at4e Hi ACCOt s N T A N T *L A MEMBER FORM OF COOPERS & LYBRAND (INTERNATtONAL)

Board of Directors Wolverine Electric Cooperative, Incorporated Big Rapids, Michigan We have examined the balance sheets of Wolverine Electric Cooperative, Incorporated as of December 31, 1980 and 1979, and the related tatements 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, includedisuch tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances.

As shown in the financial statements, the Cooperative incurred a net margins deficit.of $707,860 during the year ended December 31, 1980, and as of that date, the Cooperative's current liabilities exceeded its current assets by $6,428,552 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 Cooperative may be unable to continue in existence. The financial statements 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 necessary should the Cooperative be unable to continue in existence.

In our opinion, subject to the effects on the 1980 4 -financial s tatements of such adjus tments , if any, as might have been recuired had the outcome of the uncertainty about the recoverability and classification of recorded asset amounts and the amounts and classification of liabilities referred to in the preceding paragraph been known, the financial statements referred i

to above present fairly the financial position of Wolverine Electric Cooperative, incorporated as of December 31, 1980 and 1979 and the resultc of its operations and the changes in its financial position for the years then ended, in conformity with generally accepted accounting principles applied on a consictent basis .

0 09 +> V ,

Nilec.)4Lchigan\j February l? 1981 13

_ _ . . _ . _ _ . _ _ - _ , . . - _ . ~ , - - _ _ . . .

MICHIGAN 46, NEWAYGo WOLVERINE ELECTRIC COOPERATIVE, INCORPORATED 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)blectric plant ir service 281 $ 31,042,463 Construction work in progress (Note G) $.31,253,428 91,261,3's/

Electric plant acquisition adjustments 119,202, 378,741 378,741 150,834,450 122,682,601' Less, Accumulated provision for depreciation and amortization (Notes A and C) 12,620,157 12,118,029 Utility plant (net) 138,214,293 110,564,572 10 thor 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 205,427 165,256 Notas receivable 35,690 13,690 1,768,580 1,574,247

Current assets:

. Cash, general 151,341 780,935 Cash, REA construction fund 283,428 178,533 Accounts and interest receivable 160 2,715,389 Materials and supplies (Note A) 3,277,407 1,559,913 Prepayments 2,072,491 153, 110,462 5,937,827 5,345,232 iDeferred debits (Note A) 688,060 -

Total assets and deferred debits $146,608,760 $117,484,051 The accompanying notes are a part of the financial statements.

i 14a l

1980 1979 EQUITIES,-LIABILITIES AND DEFERRED CREDITS Equities:

Memberships $ 400 $ 400 Patronage capital 503,768 503,768 other equities (deficit) (2,033,174) (1,325,314)

(1,529,006) (821,146) long- te rm deb t :

REA mortgage notes (Note D) 21,780,293 21,343,717 Federal Financing Bank notes (Note E) 113,788,000 90,270,000 135,568,293 111,613,717 Current liabilities :

Note payable, CFC, 1k-1/4% ,

unsecured 8,309 2,168,o65 Accounts payable 3,098,430 ,658 576,183 Taxes and wages payable 593,909 3,462,307 Accrued vacation and sick leave 311,994 275,744 Accrued interest 52,388 49,977 12,366,379 6,532,276 Daferred credits 203,094 159,204 Total equities, liabilities and deferred credits $1h6,608,760 $117,484,051 14b

7 STATEMENTS OF REVENUE AND EXPENSE

'for the years ended December 31, 1980 and 1979 1 1980 Percent of Amount Revenue Operating reverx.es ' $18,054,571 100.0 Oparating 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:

Operation 129 .2 Maintenance 44,498 32, .2 Administrative and general:

Operation 682,974 3.8 Maintenance 3,249 -

Depreciation and amortization (Note C) 903,292 5.0-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)

Non-operating margins :

Interest revenues 30,565 .2 Settlement of litigation (Note I) - -

Non-operating mcrgins 30,565 .2 Capital credits, CFC 30,950 .2 Net margins (deficit) $ (707,860) (3 9)

The accompanying notes are a part of the financial statements.

i Il il l

~

l 1979 Percent of Increase Amount Revenue (Decrease) 815,153,973 100.0 $2,900,598 6,712,266 44.3 352 368 197,718 1.3 34 416 5,161,110 3h.1 2,406,590 175,638 1.2 36,434 83,596 .6 22,848 47,501 3 (3,372) 20,957 .1 11,541 625,900 4.1 57,07h 3,141 - 108 826,h5h 5.5 76 838 502,610 3.3 124,,802 612,69h h.o 54,490 328,735 2.2 351,489 15,298,320 101.0 3,525,626 (1hh,347) (1.0) (625,028) 36,121 .2 (5,556 217.327 1.3 (217,327 253,448 1.6 (222,883) ,

91,682 .7 (60,732) 3 200,783 1.3 $ (908,6h3) 15 h

STATEMEITI'S OF PATRONAGE CAPITAL AND OTHER EQUITIES (DEFICIT) for the years ended December 31, 1980 and 1979 (Note J)

PATRONAGE CAPITAL 1980 1979 Ealance, beginning and end of year $ 503,768 $ 503,768 Patronage capital summary:

Assignable $ 503,768 $ 503,768 OTHER EQUITIES (DEFICIT) 1980 1979 Operating margins:

Balance, beginning of year $(1,325,314) $(1,526,097)

Operating margins (deficit) for the year (769,375) (144,347)

Non-operating margins for the year 30,565 253,448 Capital credits, CFC 30,950 91,682 Balance, end of year $(2,'>33,174) $il,325,314)

The accompanying notes are a part of the financial statements.

16

STATEMENTS OF CHAliGES IN FINANCIAL POSITION for the years ended December 31, 1980 and 1979 Source and Application of Working Capital 1980 1979 Funds were provided by:

From operations:

Net margins $ (707,860) $ 200,783 Add (deduct)(deficit) working capital:

, Items not requiring Depreciation and amortization (Note C) 9h8,823 835,753 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 1

Funds were used for:

Extension and replacement of plant 564 144 860 Principal payments on long-term debt when due 28,834,,917 26,730,804 820, Increase in other investments 40,171 35,304 Decrease in deferred interest 20,507 20,507 Increase in deferred debits 722,460 -

Increase in notes receivable 22,000 -

Purchase of CFC capital term certificates and other investments 101,212 98,923 Total use 30,305,411 27,706,398 Net' decrease in working capital (5,2hl,508) (23,964)

Working capital (deficit), beginning of year (1,187,0h4) (1,163,080)

Working capital (deficit), end of year $(6,428,552) $(1,187,044)

Changes in Composition of Working Capital 1980 1979 Increase (Decrease)

Current assets:

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

Cash, REA' construction fund 104,895 (1}3,945)

Accounts receivable 561,771 --3, 11 Materials.and supplies 512,494 54 Prepayments h3,029 251, 52, 64 Increase in current assets 592,595 157,143 l Current liabilities:

Note payable, CFC 6,141,365 (h85,507):

Accounts payable 525) 585,979 Taxes and wages payable (477,602 131, 51,760 Accrued vacation and sick leave 36,250 25,089 Accrued interest 2,311 3,786 Increase in current liabilities 5,834,103 181,107 Decrease in working capital  ?(5,2hl,508) B (23,964).

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

17 l

NOTES To FIdANCIAL STATEENTS for the years ende- December 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 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 no t in exces s o f market .

Construction Period Interest - The cost of 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 Coouerative incurred total interest costs of $11,24'3,h20 and $7,606,885, of which

$9',896,012 and.$6,665,456 was capitalized during the years .ded 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 Power Plant 20,091 -

$9,896,012 $6,665,h56 Federal Income Taxes - The Cooperative is exempt from federal income taxes under Section 501(c)(12) of the Internal Revenue Code. Therefore, no provision for federal income tax has been made.

Deferred Debits - The deferred debits represent contributions in aid of construction for a gasline l

l built to supply the Hersey generation plant and t preliminary research costs incurred on a wood chip burning generation plant . Management has concluded that they will not construct the generation plant.

' The contribution in aid of construction is being amortized over 36 months and the research costs over 46 months . The following is a summary of deferred debits at December 31, 1980, and amo2tized costs for the year then ended:

Deferred Debits -

Amortization Contribution in aid of construction ohh $1h,400 Research costs $2h5,416 hh3, 20,000 Totals $688,060 $3h,hoo 18

NOTES TO FINANCIAL STATEMDFI'S, Continued for the years ended December 31, 1980 and 1979 Note B: UTILITY PLAIE.

The electric plant in service consists of the following:

1980 1979 Intangible p3 ant $ 18,455 $ 18,455 Production plant 12,279,066 12,435,611 Transmission plant .15,259,371 14,887,985 Distribution plant 3,251,130 222,746 General plant h45,259 3,477,666

$31,253,281 $31,042,463 Wote C: DEPRECIATION AND AMORTIZATION.

Depreciation and amortication were charged as follows :

1980 1979 Charged to operations as an expense $903,292 $826,454 Charged to clearing accounts 45,531 9,299 Total depreciation and amortization $948,823 $835,753 No te D: IONG-TERM DEBT - REA MORTGAGE NOTES.

l Long-term debt consists of 35-year Rural Electrification

. Administration notes bearing interest at 2% and 5% per annum. The notes are payable in equal installments plus L

current interest to the year 2013 The current repayment i requirements approximate an $840,000 payment on principal and deferred interest and $640,000 for current interest.

Advance payments of $12,180 are available to meet these requirements. Utility plant in the amount of $30,789,567 is pledged as collateral on the long-term debt.

.19

NOTES TO FINANCIAL STATEMENTS, Continued for the years ended December 31, 1980 and 1979 Note E: IDNG-TERM DEET - FEDERAL FINANCING BANK NOTE.

The Federal Financing Bank note is guaranteed by the Rural i

Electrification Administration and bears interest at a rate to be determined by the bank at the date of each advance. The rate of interest will be redetermined by the bank at each change of maturity date.

At the time of each advance, the Cooperative must designate 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 maturity period, including extensions of any advance, cannot exceed a maximum of seven years. The Cooperative may convert these obligations to 34-year maturities at any time after the end of the calendar 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 obligations .

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

Initial Maturity Dates Interest Rates Amount 1981 9.0235 to 11.781% $ 25,533,000 1982 8.005% to 15.090% 88,255,000 To t a:. $113,788,000 20 l i

NOTES TO FINANCIAL STATEMENTS, Continued for the years ended December 31, 1980 and 1973 Noto F: INVESTMENTS IN ASSOCIATED ORGANIZATIONS.

The investments in associated organizations consist of the following:

1980 1979 National Rural Utilities Cooperative Financing Co rpo ration:

Capital term certificates (CFC) $ 789,774 $ 688,567 Patronage capital credits 816 703,866 Other investments 734,873 2, 2,8 68

$1,527,463 $1,395,301 The Cooperative has subscribed to Cooperative Financing 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 financing from CFC in the future. Cost of certificates approximate market value.

Note G: CONTRACTUAL OBLIGATION.

On February 8,1977 the Cooperative entered into an agreement 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 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 Company in which Detroit Edison is obligated to purchase the excess energy generated related to the Cooperative's portion o f Fermi No . 2. The Cooperative feels these revenues will be sufficient to offset the effect of the additional interest and depreciation costs recognized.

21

NOTES TC FINANCIAL STATEMENTS, Concluded for the years ended December 31, 1980 and 1979 Note H: JOINT VENTURE IN CAMPBELL #3 POWER 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 the plant which has invested0.63 represents anp% ownership. The inves t-ment is included in Construction work in progress at December 31, 1980, and will be transferred to Electric 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 of revenue and expense at December 31, 1980.

Note I: SETTLEMENT OF LITIGATIOU.

The Cooperative received its share of a suit taken to the Justice Depsrtment and the Nuclear Regulatory Commission, and settled out of court with Consumers Power Company in relation to the Cooperative's desire to purchase a portion of the Midland nuclear Power Plants No. 's 1 and 2. The total revenue recognized during the year ended December 31, 1979, was determined as follows:

Cooperative's share of settlement $248,507 Less, Legal and engineering costs incurred relating to the case during the year ended December 31, 1979 31,180 Net revenue from settlement $217,327 Note J: RESTATEMENT OF EQUITIES.

Patrona6e Capital and Other Equities as disclosed in the equities section of the balance sheet at December 31, 1979, have been restated to conform with the Cooperative's by-laws and Rural Electrification Administration requirements.

22

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l Directors and Officers l Board of Mendell H. Andernon, Jr. Chairman of the Boani and Chief Executne Officer, Bundy Corporation Derectors (Manufacturer of steel tubing, flexible home and plastic components)

Malcolm Carron, N.J. Chancellor,l'nnrrsity of Detroit Charles T.11mher ill President, National Bank of Detroit Desid M. Gates Professor of Botany and Director of Biological Station. Unnersity of Michigan Edward J. Giblin Chairman and Chid Executhe Officer. Ex-Cell-O Corporation iManufacturer of dhersified industrial products)

Ernent L. Grose, Jr. Vice Chairman of the Board and Chief Financial Officer, The Detruit Edison Company Dasid B. liarper President. Gateway National Bank Charles M. IIcidel 13ecuthe Vice President-operetions. The Detroit Edison Company George M. Ilolley, Jr. Retired Industrialist Patricia Shontz Longe Economist: Professor of Business Administration. Unhersity of Michigan Malter J. McCarthy, Jr. President and Chief Operating Officer,lhe Detruit Edison Company Hilliam G. Meene Chairman of the Board and Chief Executhe Officer. The Detroit Edison Comptny Frank Merriman Dairy Farmer Dean E Itichardson Chairman of th e Board and Chief Executise Officer, Manufacturers National Bank of Dettuit Alan E. Schwartz Senio- Partner, lionigman Miller Schwartz and Cohn (Attorneys at lawl

[ommittees Esecuth e F1 nance Audit Compennation offhe William G. Meese, Chainnan Dean E. Richardson. chasnnan Charles T. Fisher 111. Orainnan Edward J. Giblin. Chainnan Walter J. McCarthy, Jr. Dasid B. liarper Edward J. Giblin Alan E. Schwartz Board of Directors Charles T. Fisher 111 Malcolm Carron. 5 J. Malcolm Carron. S.J. Mendell W. Anderwn. Jr.

Edward J. Giblin Charles T. Fisher Ill George M. Ilolley. Jr. Frank Meniman Ernest L Grtne. Jr. Ernest L Grtne. Jr. Patricia Shontz I.onge Dean E. Hichanison Geor6e M. llolley, Jr. Patricia Shontz temge Patricia Shontz longe Walter J. McCanhy, Jr.

Dean E. Richardson William G. Meese Alan E. Schwartz Alan E. Schwanz Nominating and Energy llenourcen lietirement I-und Organtiation George M. Ilolley Jr., Chasnnan He'IP"'

Alan E. Schwartz, Chainnan Frank Merriman Patricia Shontz tamge, chainnan uendell W. Anderson, Jr.

Edward J. Giblin M endell W. Anderson. Jr.

Frank Merriman Edward J. Giblin Daud M. Gates Dean E. Richardson charles M. Ileidel Ernest L Grme. Jr.

Walter J. McCanhy. Jr. Dasid B. liarper I

Ogicers utiliam G. Meene Chairman of the Board and Chief Executhe Officer Halter J. McCarthy, Jr. Pmsident and Chief Operating Officer Ernent 1. Grene, Jr. Vice Chairman of the Board and Chief Financial O!"icer Charles M. IIeldel Executhe Vice President-Operations Itobert H. I undgren Executhe Vice President--Administration Leon 8. Cohan Senior Vice President and General counsel Ma}ne 11. Jens Vice President-Nuclear Operations John H. Johnmon, Jr. Vice President-Finance M. Jane hay Vice President-Employe Relations Frank M. Echoe Vice President and Secretary Clayhourne Mitchell, Jr. Vice President-Planning and Research Hurkhard II. Schneider Vice President-Disisions liarry Tauber Vice President-Engineering and Construction llohert O. Magner Vice President-Rates and Financial Evaluation O. Dasid whiddon Vice President-operations John C. Kennedy Treasurer Hilliam A. Banne Controller Arnold J. Benen General Auditor

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. < oniim n al aiu t abu ncian t < it ou r ti .ssil f uels Fir ancial Ilighlights i

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Cm cr 1 Pert ent I),m n tim n !)ct r u t a t t ugh t pi < a u f , ,m lIlt l'eds(' i nll)l f s s t\ *' Ilisl1la\ E d IIIe' t ll1 t i 11 !!\

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I )e t r i o t tclN in is i ionnutteil ti> me" tint

( y o r atirig He s enin s $ 1,M l 2.514,000 51 h4M 511000 67 the nemis of it s i ustomer s m the i en in r $s bo( r on n uin 5tv n L $ 13"',521000 v 1.12 572 (HIO 37 \ e.u s a he.n l l I,u'utas ln t I < o i t t u i .1 s!i.n e $ 1.75 51 40 7" (;ontenth

( n ul o in V i .u c s ( h it st.u uling \\ et age 7%,7MO MH3 2 \1cssage t< > sh at c hi m rs 64 M lM IM-1 12 M 1 H e\ e n i a c s I ar tungs .uul I \lierise s ,

1)" ah tu!s l'a u l l n r sh.n e $ 1.60 513M 13 0 l in.nu mg .u ul sh.u eh< >hler llata l

(!im I t 1}it s I'la r i t $6,213,4195,000 5 Hate \r in ities 55 hhD 02.3 (100 4M lo ( ajutal } yn rulitut e Ptwam

( .y o t ali/ at e i $ 4,5 H% ,64 5.000 v.i 'IMO 707 000 11M l .' H ese.u v h ane l ( i msen at u m Pr i c a m s l sahs il I h , !! n it s k\\ II- l ip nisa!H is 34,235,000 .ih M4100() 1 & ()r gani/atu en aiul ( t o-] n u a t e \ttait s t

~2 10 \1a p a 1 egal I)m elialunent s si sh r ri ( ajialuhti at Iune<it Peak L\\ M 531,000 X V" 000 39 17 I i na ne ial statenu nts I il \larlagenu rit s l)N lis sn in ,it ( y n r at o nis l

s\ sle T i l's d I )e n ta r u l k\\ H,703,000 h M2'l000 lM in Hist 4 o n al statisto s I ie i t r ia ( inst..rtists at ie at i 11(I 1,764,000 l Th.i(l(HI il 1 11 senoe \re a aiitj \taj, I

l l

To Our Fellow Shareholders February 23,1981

- , The year 1980 was an eventful period of significant accomplishment in e  ! the face of serious challenges to management's ability to cope with a L l combination of adven,e economic problems.

/ *

The recession, which began in mid-1979 in our senice area, mached s >

near depression levels in tenns of its impact on automotive manufac-

• turers, their suppliers, the Detroit community and the Company.The

' resulting substantially lower kilowatthour sales, down 7.2% from 1979, when combined with continuing double-digit inflation and record high interest rates, represented a serious problem for the Company.

T In spite of the severe impact of these economic difticulties, the Com-pany was nevertheless able to achieve the following results in 1980:

• A record level of revenues of more than $1.8 billion.

• Total operation and maintenance expensas held to $1.2 billion, up only 5.5% from 1979 despite inflation of about 13%.

A record level of earnings for common stock of $137.5 million, although earnings per share of $1.75 were down 7.9% from the $1.90 earned in 1979 because of an increase of 12.8% in the average number of common shares outstanding.

• A record level of capital expenditures of $644.5 million required for new power plants and other facilities to meet our customers' future electric power needs.

• A record level of $630.4 million of new capital raised to help finance the capital emenditure program.

• Completieri ci the unique $800 million Belle River Project Financing Chairman Meese President AlcCarthy arrangement with banks to help assure the orderly construction vice chairman Grme and cGmpletion on schedule of the Company's Belle Iliver Power Plant.

• Power plant performance maintained at superior levels to help minimize fuel expense and cus 'mers' bills.

Restoration of senice pmmptly and efficiently after the most severe summer wind and rain storm in the Company's history.

• Alichip.c Public S.cnice O .nmission approval of substantial rate increases in partial recognition of inflationary increases in the Company's costs of operation.

We are pleased that we were able to achieve these results under these adverse circumstances and restore earnings to an upward trend during the last half of 1980. While we shall continue our aggressive efforts to seek rate increases required to prosidc a reasonable return on your investment in the Company's common stock, the following other steps have been taken which we believe will also contribute to im-proved future operations and earnings:

• In an effort to improve and diversify the industrial base of our ser-vice area, we have intensified our actisities, in cooperation with state and local agencies, to attract new industry to Southeastern Alichigan. A plastics production plant, food processing facilities and a gasohol plant are among those seriously considering locating in our senice area.

• Stringent cost control measures have continued, with a sirtual freeze on hiring new employes and deferral or cancellation of construction projects whenever possible.The major project termination was the Greenwood Nos. 2 and 3 nuclear units, 1 2

l discussed later in this report. The eliminition of this $4 billion commitment from our capital expenditure program allows us to

concentrate our efforts and resources on the completion of the Fermi No. 2 nuclear unit and the two coal-firrd Belle Hiver units.

Our researth and development program is directed to discovering new ways to consene energy and to use it wisely and to finding new ways in which electricity can become the accepted form of energy through such promising devices as the electric heat pump and electric car. In light of the electric car's potential and concen-tration of automobile manufacturing in Detroit, Detruit Edison is taking an active role in encouraging its development, as discussed later in this report.

• An extensive power plant maintenance program is continuing, with a goal of increasing both efficiency and availability of our generating equipment. This enables us to generate the maximum amount of electricity through the use of lower cost coal-fired equipment which benefits the customer through lower energy costs and benefits the Company thmugh rdgher mfenues pro ided by the A1PSC under its power plant system availability incentive provision.

• As part of our continuing effort to find new, more efficient ways to improve operations and customer senice, a computerized materials management system was placed in 9 Ace in 1980, with full operation scheduled for 1981.Through one computer data base, this new system will control the irquisitioning, purchase, delivery, invoicing and payment of 350,000 transactions processed each year.

Despite the adverse effects of the current recession on the economy of our senice area, major new industrial and commerrial develop-ments, including three significant auto industr expansions, are continuing. General Alotors has announced plans to build two new automobile assembly plants, one in a redevelopment area of Detroit and adjoining flamtramck for the Cadillac A10 tor Division and another in Orion Township for the Pontiac Alotor Division.The third major addition is a new assembly plant by Volkswagen in Sterling licights, resulting from the conversion of an idle Federal government facility.

Developments such as these will help improve the economy of our senice area and will add to our future sales of electricity.

These are only a few of the many programs and developments cur-rently under way. With the support and cooperation of a dedicated and productive work force of about 10,800 employes, we will continue to find new and better ways to meet future challenges. We remain committed to meeting our obligation to our shareholders and custom-ers and to assuring an adequate and reliable supply of electricity for Southeastern Alichigan.

Sincerely, b {

.- 4<_. -

Walter J. \lcCarthy. Jr. William G.11eese President Chairman of the Board and and Chief operating officer Chief Executhe officer Ement L Grove Jr.

vice Chainnan of the Board and Chief nnancial officer The accompanying report was prepared and submitted by order of the Board of Directors.

3 J

Hevenues Increase as industries, with decmases fmm last -

, Sales Decline Fe"r f 2 25 *"d 27 25> **Pe -

tively. Although decmases during the -

(*

• A Ilevenues at New Illgh last 'several months of the year have Revenues for 1980 reached a nnv moderated somewhat, mcovery by > l  ?

record level of more than $1.8 billion, these industries still continues to be an increase of $114 million, or 6.7%, relatively slow. While customer lI I W over 1979. With kilowatthour sales acceptance of the new lines of down for the year, this ine case was smaller, higher gas mileage can 4

\5-,a made possible by higher rates author- seems to be generally good, extmmely r ,

r ized by the Alichigan Public Senice high interest rates continue to deter l Comrr%sion and by the recovery of people fmm financing the purchase of -

i incmased fuel costs through the fuel new automobiles. As pointed out in ' ,

and pumhased power clauses in the another part of this report, each of Company's rate schedule. the major manufacturers now pmduces a significant portion of

( S>

Kilowatthour Sales Sharply Lower ,,

The severe wcession, which began in these new, smaller cars in Detmit , g, our senice area in mid-1979, con. Edison's senice ama. Recovery of the j tinued to depmss sales of electricity, industry is extremely important to us i and, indeed, to the whole State of l Total sales of 34.2 billion kilowatt- \

hours were 7.2% under the 36.9 billion Alichigan and the Nation.

kilowatthours sold in 1979. This is the Earnings Per Share Decline second consecutive year sales decreas- Although earnings for common stock ed, with 1979 sales 0.7% below 1978. reached a new record of $137.5 mil- cost contml program. In spite of infla-Residential sales of 10.4 bi!! ion lion, up 3.7% over 1979, earnings per tion, total operation and maintenance a

kilowatthours were 1.2% higher than sham were lower during 1980 because expenses were held to $1.2 billion, an l 1979. This small incmase reflected the of the greater number of shares increase of only 5.5% over 1979.

, positive effect of a somewhat warmer outstanding. On a per share basis, Operation and maintenance expenses,

! summer than 1979 and sales to new earnings for the year were $1.75, down excluding fuel and purchased power, I customers added in 1980. The 7.9% fmm the $1.90 earned in 1979. increased 73% during the year.

number of kilowatthours used per The average number of common Despite lower kilowatthour sales, ,

average customer was almost the shares in 1980 was 78.8 million, an the total cost of fuel and purchased same as 1979, mainly as a result of power incmased during the year increase of 8.9 million shares over continued conservation efforts by our 1979. This increase resulted from the because of higher unit fuel prices.

e customers. The average residential two public sales of common stock, Expressed in terms of heat value per I customer used 6,408 kilowatthours shares sold through the Dividend unit of energy, the cost of all fuels during the year, an increase of six Reinvestment and Co,nmon Share rose from 163.4c per million Btu in kilowatthours over 1979. Pumhase Plan and shares issued as a 1979 to 1783C in 1980, an increase of Commercial sales were slightly msult of the continuing conversion of 9.1%. Fortunately, the cost of fuel higher in 1980, with sales of 6.3 billion the 5%% Convertible Preferred Stock reflected in our customers' bills is in ,

}

kilowatthours showing an increase of into common shares. fluenced by the type of fuel used. In 0.2% over 1979. Commercial sales have Dh-idend Level Unchanged 1980 over 90% of our kilowatthour incmased for each of the past six generation was met wMi coal-fired The Company paid its 287th consecu- units, the highest ratio in many years.

years, reflecting the effect of new or tive quanerly dividend on January 15, expanded office ht, Idiags and mtail with the cost of coal less than half 1981. Because of the effect of the re-businesses. The on y year in which cession, the common stock disidend that of oil, the benefits to our cus-sales to these cust< mers declined was for 1980 was held at the $1.60 rate es-tomus am substandal l during 1974, following the OPEC oil Alaintenance expenses for the year tablished in 1979. The combination of "*" 3133.3 million, an increase of embargo and the resulting energy continuing double-digit inflation, sub-conservation and recession. ,e $4.7 milh.on, or 3.6%, over 1979. The

g gg ules The greatest impact from the and more shares outstanding have I rgest pan of this increase was current recession has been on the in- been very difTicult to overcome even ass ciated with power plant mainte-dustrial class, with sales of 15.5 bilhon n nee. Power pl nt vail bility kilowatthours, down 13.9% fmm 1979. th lude mte incmases. \\'e am c ntinued to be very good, averaging of the need to innease 84.48% for 1980, only slightly lower Lower sales volumes were especially

, i levels to suppon mgulu j evident m the automotive and steel dividend increases,in order to pmvide than the record level of 86.01%

achieved in 1979. Our plants contin returns sufficient to offset the effect of to be maintamed m good condition. ,

inflation on the incomo received by our shareholders and to continue to ,, ggg )

attract investors to our Company. Since income for tax purposes was Expenses Tightly Controlled lower in 1980. income taxes were also Operation and maintenance expenses lower. As a msult, total taxes charged have been held as low as possible to operations of $152.5 million were through an extensive and continuing $1.7 million, or 1.1% lower than in t l 4

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vem sold throughout the year with the commitment fee pryable on $11.6 million were c=h p:yments, thmugh the Dividend Reinvestment the tinused portion of the borrowing. which purchase shtres at the market md Common Sharc Purchase Plan. Repayment of the loans will begin price. No senice or other charge is Two unsecumd financings wem also no later than January 1,1985, with added to the price paid by the bompleted in 1980,$50 n illion with quarterly payments of $50 million. shareholder, since all operating costs

!wo New York banks in January and The Company also has the option to are borne by the Company. Any de $800 million Belle River Project be gin repayment at an earlier date, shareholder who wishes to enmll in Financing in Alay. In 1980 $212.7 was with no penalty for early repayment. the plan may obtain an enrollment bormwed unde- the Belle River The financing was designed to pro- card and pmspectus by writing to Project Financing. side an assured soume of funds for Detmit Edison, Box 380-A, Detmit, I the project during the construc- Alichigan 48232.

1980 Finr.ncing tion period, when large sums of money, which must be financed from Shareholders Increase cost to I

nye or secuiity cme company

~

conventional market funds, are also The number of shamholders of the ,

ind Amount (After ' required for the Fermi No. 2 and Belle Company continues to increase, with klonth sold IN!allions) Expensest 234,689 at year-end. This is an increase R er No. 2 unih Remment of the f 3,183 shamholders, or 1.4% over a

"" M ."""#" s so 13 0% loan, during a later period of much July ' too 12 s t lower anticipated constmction and year ag .The sale of new shares dur-

'nsecured Term Notes financing mquirements, is expected to ing the year, plus gmwth through be financed through the sale of regular ;narket purchases, contributed b""'o$cemtwr 2N.7- '* 'h'* I"C " "*

• ottuhon control aonds mortgage bonds.

Aupt 40.1 10.0 L A large number of shareholders Future Financing Large continue to hold relatively few shares, i"" 4o 33.3 g with over 79% of all shareholders De' emtwr 25 13 es The Company's extensive capital ex-mmon sr ck penditure prYgram, coupled with the owning 300 shares or less. It is also obn$1 rEshto"o need to meet maturity and sinking significant that about 52% of our shares) 25 fund payments on debt, prefermd shareholders reside in Alichigan, with stock and prefemnce stock, will re. many of these being Detmit Edison 3Nss sUeI" 33 i customers.

rotai 5s30 4 quire large amounts of external financing over the next several years. As we market new shares, we find Bonuwin- m, der the Belle mver Pmieci nnancing It is presently estimated that more that many shares are purchased by than $600 million in external funds current shamholders and customers 5800 Atillion Belle Hiver Project will be required in 1981, including in Alienigan.This solid base of Financing Completed amounts expected to be borrowed support is appreciated.

In Alay, an agreement was reached under the Belle River Project with a group of 29 U.S. and foreign Distribution of ownership of Financing and amounts expected to Detroit Edison Common Stock, Unks to finance the cost of Belle be mah. zed thmugh the Dividend December 31,1980 River Unit No. I and those facilities Rem, vestment and Common Share ned in common with Belle River Unit Purchse Plan.The amount of outside "

No. 2 This financing, unique because financing is expected to be even Owners shares af its mnovative design and magni- greater in 1982 and 1983. The amounts Indidduals 114.41s 2ss34.071 tude, is the largest pmiect financing and timing ofissues of securities in Joint Accants 1 asse 28.271.s3s af this type arranged for an investor. . . Tms Accounts 7.s81 3.232 53 1981 have not been determmed at this Nominees eso 23.4s4 644 awned electn.c utility. The group of time, and will depend on market institutions and banks is led by Citibank, N.A. and I" "d'" "" ** 8'868 conditions at the time and the Birclays Bank International Limited, maintenance of a balanced capital with Citibank acting as agent for eIu"ri ~ Dealers s3 35s.188 stmetum thmughout the period. mhem 2.903 27734s7 the banks. Total 234.sss 84.o32.s3s The initial borrowing under the Dividend Heinvestment By state and country credit agreement was made upon is Significant ownen shares

' ompletion of the arrangement on The Company's Dividend Reinvest.

~

Alichigan 121.953 39.235.913 hlay 13,1980. This drawdown of $99.5 ment and Common Share Purchase Plan continues to be very popular Ql' nu 8

NN fnillion represented the pmiect ex- New York 12rs 17,9s7,518 pcnditures which had been made to with our shareholders and provides a Illinois 10,373 2,913.208 pate, including capitalized interest.

Hubsequent drawdowns took phce on substantial amount of funds to the Company. At year-end a to!al of

'j"jther 4 states Foreign Countries 45 833 12 247 308 b monthly basis in 1980 and future 41,200 shamholders, or 16% of those Total 234 s89 84.032 s18 drawdowns will take place thmugh- eligible to do so, were participating in out the unit's construction period. the plan. Total funds invested during rotal bornming undt r the agreement the year were $35.1 million, an is limited to $800 million, including increase of $40.8 million, or 44.4%

the interest and committeent fee over 1979. Of this amount 523.5 nhich will be capitalized aad fi- million repmsented reinvested div-nanced as part of the borrowing. idends, which qualify for the Interest on the loan is based on a purchase of stock at a 5% discount iloating rate tied to the prime rate, fmm market price. The remaining 7

M:ny Hat] Activities requ:sted to become effective Jtnutry 1,1980. In that case a negotiated Underway 1,1981, sinm it was ness yt have settlement, agreed to by the Company the higher rates in effect for the entire and the wholesale customers, was ace Major Rate Case Completed year if the Company wem to have any cepted by the Federal Energy Regu-A final order in the Company's major opportunity to earn the rate of return latory Commission on January 17, electric rate case, filed on De ember Presently authorized by the A!PSC. 1980. Curter.? negotiations with the 14,1978, was issued by the Michigan The finalincrease of $146 million wholesale customers have resulted id Public Service Commission on Manh was mquested to cover a higher au- an agreement to incmase rates by an l 14,1980. This rate ortler granted an thorized rate of return, higher depre- additional $5.8 million, effective Alay j (dditional $75E million over the $56.9 clation rates, amortization of the costs 1,1981. This settlement is pending be million interim increase granted by associated with the decision not to fore the FERC for approval.

the Commission in mid-1979, for a construct the proposed Greenwood Customer Concern Important total increase of $132.7 million. Nos. 2 and 3 nuclear units and the ef- Throughout the Company's history, The final order included the major fect of an order issued by the AIPSC various programs have been in effect feItures recommended in the Admin. in a generic proceeding concerning which are aimed at priniding good istrative Law Judge's pruposal for construction work in p4 ogress. customer service. In recent years, the decision, as mported to you in last IIearings began in July,1980 and emphasis has shifted to methods of ye r's Annual Report. The A!PSC pro. were concluded in November,1980.

conselvation, bill payment counsel-

[ vided for a continuation of the oper. An interim incmase of $96.1 milhon ling, assistance to senior citizens and ttion and maintenance indexing and was granted by the A!PSC on other energy assistance matters. In

{ th's power plant system generating November 6,1980. Although less than addition to ongoing programs frum availability incentive provisions, both the first interim increase requested by pdor yen several new senices were of which wem adopted in prior rate the Company, the Commission action initiated in 1980. These include:

cares.The authorized rate of return did recognize the ur6ent need to . Television, radio and newspaper on average common equity was main, ffset at least in part the effects of messages, using mal-life examples

! ttined at 135% ie same level as in high inflation and interest rates on such as a laid off worker, hospitalized the last two rate cases. In addition, the Company's ability to adequately person or senior citizen, show the Commission's order provides for serve its customers. The Company is customers how help with an electric monthly reading of all customer me- pmsently awaiting a final decision by bill is available to those who need it.

tzrs, a change from the pdor system of the Commission. Various Company television com-estimating customer usage on alter- Other Rate Increases Granted merefals aimed at avoiding senice inte months. Under the operation and mainten- cut-offs, bill payment counseling, etc.,

ance expense indexing procedum, have as an inset a person repeating New Rate Case Filed and Interim Increase Granted established by the AIPSC in its the message in sign language for Since the general rate increase September,1978 rate order, the Com- those who have hearing prublems.

granted by the A!PSC on Afarch 14, Pany was permitted to increase rates

• In cooperation with the Alichigan 1980 was less than the amount re. $32.7 million, effective February 1, Consolidated Gas Company, tuu quired by the Company and was 1980, based upon an increase of energy assistance centers have been received after a long delay, the Com- 12.04% in the Consumer Price Index. opened in the City of Detroit to help pany was not in a position to earn a Under this same program, another customers in applying for energy as-fdr and adequate return on its in- increase of $39.2 million was granted sistance funds, arrange for partial vestment in 1980. It was, themfore, effective February 1,1981, based upon payment of utility bills, obtain energy necessary to apply for a further in- an increase of 12.69% in the CPI. Information or receive counseling on cmase, which was done on April 30, Under the AIPSC power plant energy related matters.

1980. The total increase requested system generating availability incen- Company representatives am was $463 million, based on a tF ' pruvision, an increase of $12.4 present at twu Neighborhood Senice three-step increase. The first interim 8 'ali n was made effective on June Centers, operated by the City of increase of $155 million, based on a 10,1980. This incmase was based or. Detroit, to provide customers assis-l 1980 test year, was requested as early the achievement of a record power tance with any utility questions or as possible in 1980. The second Pl ant availability of 86.01% for 1979. problems.

interim increase of $162 million, Under the AIPSC provision, availability

• To assist those who are deaf or based on a 1981 test year, was above 85% entitles the Company to have speech problems, a device has I

earn an additional one-half of one been installed in our Detroit Division l percent return on common equity ct.stomer telephone center to allow i above the authorized level of 13.5%. them to communicate with the l During the year, the AIPSC also Company. The device transmits word; approved rate increases applicable to over telephone lines, allowing anyorie the Company's steam heating with similar equipment in their home customers and allowed the recovery to carry on a " conversation" with us of increased fuel costs through the in a written form on a sideo screen or fuel and purchased power clauses in typed on paper.

the Company's rate sche +de. These new senices are the latest in Rates to the Compa .y's seven a series of steps in our "lielp Us, Help wholesale for rem ;ustomers were You" communication program which increased $4.2 milla,a, effective April began in 1979.

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7ermi and Helle Iliver ditional safety-mlated systems This is the third consecutive year in Costs Increase and In-Serdce required by the Nuclear Hegulatory which peak demand has decreased, Dzten Del:yed Commission and those mcommended after reaching a record high of A combination of factors ha esulted by Detroit Edison's own safety iniew 7,381,000 kilowatts in 1977.

in significant cost inemases and c'mumittee, the in-senice date has Pmsent forecasts indiuto lightly delayed in-senice dates for both the been delaved to at least November, lower long-term gmwth in emand l'enni nuclear and the Belle River 1983. The' costs required for the many than had been expected pru ;ously, coal fired power plants. While such changes and the 20-month delay have The estimatod compound annual rate increasca can be expected in today's increased the estimate of the plant's of gnnvth in peak demand is 2.3%,

inflationary economy and with the cost to $1.8 billion. using 1978 as a base year, as com-ver-increasing cost to meet mom Belle Hiver Units No. I and 2, with a pared to 2.8% forecast a year ago.

stri.1 gent safety and pollution contml rating of 675 A1W each and designed requirements, the increases place a to burn low-sulfur coal, were delaved Severe Hind Storm Strikes significant additional financing hur- from Alarch,1984 and 1985, respec- liigh winds and heasy rain, causing den on the Company. With a limited tively, to July,1984 and 1985. A the most severe summer stonn m the amount of funds for construction com'plete ndiew of the project, based Company's history, stmek the suburbs available from operations, any cost on engineering and design data west and southwest of Detroit on the inemases must be met by increasing which were not complete when the rning of July 16,1980. Detroit the amounts and frequency of prior estimate was prepamd, inemased Edison facilities over an 800-squam external financing. the total cost of the project from $1.37 nule am wem snewly damaged Enrico Fenni No. 2 a 1,100 A1W billion to $1.85 billion. About 35 sul) stations and 200 dis-nuclear unit, was previously sched. tribution cirem,ts, sening over 300,000 uled for senice in Alarch,1982, and &eenwood Nuthar Units customers, wem out of senice. Top-I "" """'#""

.was expected to cost a total of $1.3 pled trees and other hazards blocked n am 0, the dem. .mn not access to stmets and downed lines, ibillion.As a msult of the manychanges to e nstm t on nw od making mstoration efTorts dillicult.

hhich must be made to meet the ad-Nos. 21nd 3 nuclear umts was an- Atore than 500 utility poles wem bro-y , ~3 7'~,

nounced. This decision was based on ken, including 12 steel towers which r

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several factors, including uncer- fell. About 8,000 spans of wire, the tainty about licensing and other equivalent of 700 miles of overhead

.M governmental policies, the poor state lines, were down. By the next morn-of the economy and capital markets ~

ing,347 Company line crews and 154 and the uncertainty that the pmject contract crews were at work in the cculd be completed within curmnt damaged area. Assistance from other cost estimates.

utilities was requested, and a total of The Gwenwood units were still in 101 crews fmm Cleveland Electric the early design stages. In fact, the Illuminating, Toledo Edison, Ohio e, project had been virtually inactive Edison and Commonwealth Edison smcc the 1979 accident at the Three soon began working along with Com-Atile Island plant in Pennsylvania. pany and contract crews on 16-hour Total engineering and licensing shifts.

cost , including intemst, incurred for As this restoration effort was under-the Greenwood nuclear units were way, a second stonn hit the ama on

_ - about $71 million. Application was Jul'y 20,1980, causing outages to an f g 3 made to the A1PSC in April for ap- ad[litional 15,000 customers. At this

$ ggh Q,p ,, proval to defer these costs as a charge po nt a total fome of over 5.300 against income until the costs can be workea restore senice.

i considered for rate making treatment Total re:.s tion costs chargeable

] and recovemd thmugh customer bill-to operations were appmximately $9.7 i ings over a 60-month period. Ilearings million. An application is pending

_JJ.p: r , oegan in December and are continuing. befom the AIPSC requesting appmval

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~ Peak Demand Lower to amortize these costs, which have Peak electrical demand on the Com- been deferred as a charge against in-

, pany's system was 6,703.000 kilowatts come, over a five-year period for

- in 1980, a decrease of 1.8% from 1979. accounting and ratemaking purposes.

4 New Generating Units Expendu .res Actual Estimated to Date Estimated Earliest t 12!31 '801 Total Cost Completion Plant Size Fuel IN!illionsi 1%1illionst Date Enrien Fermi Unit No 2* 1.100 Ntw Nuclear $1 104 $1800 1983 Ikile Hhrr Unit Nos. i a 2 675 11W ca Coal 292 1.8 '. ' 1984.1985

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a h2 These vehicles are used mainly for de- electric cars te Detmit 1;dison, both and cost of charging.

liveries in the Downtown Detruit ama. fe the standpoint of electric energy In addition tt the pr.) grams lx lag Aluminum Line Trucks Used  ! aired fm charging batteries and canied out within the Company, we Oser the past several years, extensn. e imfactun of are also t pioring cooperative etTorts testmg has been done with thesel- utomobiics to our senice area, the with potential m mufacturers of elec-Company is taking a very active mle mwe vd s , trucks with aluminum tdc s.egu cies.

bo&cs. '.'.ese tests have pmven verv '

in its development. Dust Contrelled at St. Clair successful, with the following The Company purchased its first W th some homes as close as 200 feet advantages rvalized: rumh m dectric car in 19,, arul has to the unloading equignnent and coal Diesel fuel is more economical dded two mom since then ta enable storage areas of ttm St. Clair power than gasoline for powering the vehicle. us to equim bas,c i infonnat,on i rela- plant, dust control has been a matter The appmximately 25% less tive to its capabilities. All responsibil- of continuing concem. With the plant weight because of the aluminum body ity for data collection, testing, demon- nmv burning about three million tons further reduces fuel consumption. ' strations etc. has been centralized of western low-sulfur coal a year, The lower weight allows the trucks within the Company to insure a com- harulling and storing the coal without to meet winter weight restrictions on plete and well-documented pmgram. carating a dust pmblem is not a sim-

citain Alichigan roads. The Company's We have also begun a conunumcation ple task, l'our major operations had icavier tmeks arv pmhibited fann u's- p gr designed to m, form the pub' to be considered: the coal unloading ng some mads duiing winter months. lic and prepare them for such a prod- point; storage areas; the handling

• Alaintenance intervals have been uct ulwn h is inarleted system used to tran3 port coal; and xtended because of the lower weight. U* Company will soon have ,m the ash removal system. 't he following Thirty-one of these tmeks are in use operation a complete electn,e veluele major impmvements wem made:

broughout our system, with another semce center in Downtown Detmit,

. A new belt scraper system, de-en on order for future deliverv.'

to be used for maintenance, battery signed to remove dust ch.ngmg to the testing, researth and other functions belt, was installed.

'lectric Carn Offer Aluch Potential relating to electric vehicles. . Conveyor belt seals wem modified lecognizing the future importance of As part of a U.S. Department of in an etTort to eliminate dust which would othenvise pass thmugh to the atmosphem at these points.

• An extensive water spraying system to keep dust from blowing about was installed on the conveyor belt ar.d in the ship's storage hold.

• An car 1h henn was constructed near the coal storage area to help shield nearby rvsidential areas. Trees were also planted in these areas.

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• Portions of the coal piles werv A. y..,, -

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' covervd with a misture of mulched straw and asphalt to contain the dust

$ which would othemise blow oft.

• A special 10.000 gallon water wagon regularly sprays water on both the coal storage piles and the various xp -

tn g .

roads within the storage arva.

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• A 30-foot chute is used to feed w--+ coal into the plant, replacing the prior Energy electric vehicle demonstration g'y program, the Company will soon be system wherv the coal merely fell free and was exposed to the wind.

s receising 24 electric cars. Sis of the . A special foam, which resembles A cars will be used as par 1 of the pool 1] shasing cream, is used as a wetting

] car fleet, two for security patmis and agent at 3everal locations.

1' the remaining 16 will be leased to Throughout this program, meetings employes for their personal use. A were hehl with nearby rvsiAnts to six-month lease agreement will be keep them informed of progrvss being signed with each employe chosen for made. The St. Clair project is just the program. This agreement will another example of the many efforts detail the monthly cost to be paid by of the Company to carry on its the employe, the employe's responsi- business in a sensitive manner consis-bility for data collection and irgular :nt with concern for the erwimnment.

visits to a central operation center for checking and senice. Each employe's home will be specially wirvd for battery chan;ing so that pertinent data can be collected as to duration 13

Organization cnd in authorized preferred and are to be commended for this pmfemnce shams. acconipHslunent.

Corporate Affairs Employe Development Important Minority Efforts Centinue Director and Officer Changes As part of the Company's Manage- Although hiring was restricted in 1980 At the Annual Aleeting of Shamhold- ment and Pmfessional Development every eRort was made to continue m, held in Detroit on April 28,1980, Pmgram, a nniew has been made of our commitraent to increase minoritis thirteen incumbent directors wem all management and supenisory and women in our work force. With re-clected for a period of one year. positions to detennine that potential this elTort it was possible to make Two new diactors, David M. Gates, replaecments are available. All levels some impmvements in both categories DireWr of the Biological Station and of supenision participated. This IP with minorities comprising 15.7% of Pines or of Botany at the University view not only enabled us to determine year-end employes and women 16.4L

' A11.aigan and Charles A1. Ileidel, future needs in each ama, but also Executive Vice President-Operations at provided an inventory of empl-yes IIcalth and Personal Problem Detmit Edison, wem also elected to qualified to meet these needs. Ashistance for Employes serve on the Board for the coming Detroit Edison received the 1980 Efforts relating to employe health ye r. These two new directors fill the Employer Award from the Detroit pmgrams and employe ass!starce  :

dimctor vacancies cmated by the m- Chapter of the American Society for with personal problems werv ex- )

timment of John R. Ilamann and Training and Development. Thia panded in 1980. Employes hau been .

Kenneth D. Nichols, who reached man- mcognition was provided for encouraged to take responsibility for datory mtimment age. Atr. Ilamann, outstanding support in the their own good health thmugh former Vice Chairman of the Board, development of human resources. educational pmgrams and lectums hid been a Director since 1975 and a The basis for the award was the on such subjects as heart disease, Company employe since 1936. Mr. Company's recently implemented diabetes, high blood pmssure,

" Initial Professional Development alcoholism and cancer, Nichols, a mtired U.S. Army Alajor General, had sened on the Board Program. Under this three-year The Company pmgram to assist since 1962. The Company appreciates program, new employes, primarily employes with personal problems the many years of outstanding senice college graduates, are prepared for that could interfere with job per-both gentlemen prmided. more msponsible and sophisticated fonnance was also mom active.

At the Board of Directors meeting assignments in various areas of the Counsel is pmvided to employes in in January,1980, Mr. Ernest L. Grove, Company. areas intohing mental health, drug Jr. was elected Vice Chairman of the For a number of years, the Com- abuse, alcoholism and family or Board elTective February 1,1980, to pany has used advanced training marital pmblems. uhen necessary, replace Mr. Itamann, who retimd on methods for developing the technical mferrals are made to pmper thtt date. Mr. Grove, previously Senior skills of non-supenisory employes. community agencies for further Executive Vice President-Finance, will Mainly self-instructional procedures assistance.

continue as the Company's chief require minimal instructor input, thus These pmgrams are not only finmcial ot3cer. reducing both training time and cost. beneficial to employes, but to the At the Oc ibe51980 Board of Dime- n'ith the recent completion of a new Company as well. IIcalthy employes tors meeting, Mr. Robert O. u'agner Technical Training Center, training am more pmductive and contribute wts named Vice President-Hates and functions are now largely consolidated to improved Company operations.

Financial Evaluation. Ile was pnxi- in one building fonnerly used nor cus- Union ihntract Henegotiated ously Assistant Vice President-Rates tomer < rice actisities.There am a In August the Company negotiated a

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and Financial Evaluation. numb rr o other programs canied out new three-vear contract with local 17 n a mgular basis, aH designed to Wuer I of the International Bmtherhood of More Shares Authorized pmpam m em oyes to nmet futum Electrical n'orkers, covering about 750 At the annual meeting common ,

aHenges by improving their skills.

shareholders also approved incmases employes in overhead lines and Employcm Decreanc related areas. The contract, ratified by in the number of authorized shams of In siew of the depressed sales the union on August 25,1980, extends common stock fmm M million to 125 million, the number of authorized experienced by the Company and the agreement to August,1983.

p r economic conditions in our Although the settlement was within shares of preferred stock from 6 senice area, nonnal cost contml Federal wage-price guidelines, it million to 9 million and the number nevertheless adds significantly to the of authorized shares of preference measures have been tightened even stock from to million to 20 million. further, including continuing strict Company's labor cost. A wage control of all hiring and replacement increase in each year of the contract, At special meetings of preferred continuation of the full cost oflising and pmference shareholders held on of employes. As a result, at the end of 1980 the number of employes was adjustment, increased early retire-November 13,1980, the two groups 10.789 a decrease of 119 since the ment benefits, impmved health, granted their approval of the increase enc? ,a 1979. dental and vision care insurance Qe total work force is presently at coverage and increased vacations a hwel which is 3.5% below the were all part of the package. To help number of employes ten years ago. offset some of these inemases, the This smaller number of employes is new contract pnnides the opportun-operating a system with 34.3% greater ity to make productisity gains in sev-generating capability and sening eral areas. There was also agreement 15.4% more customers. Our employes to form a joint committee to study prc 14

ductivity aiul working relatioriships in

, order to make turther imprmements Another three-y ear contract ( os er-sng about 3 300 employes in the con-ptruction mamtenance and opera- # #go %cu sions areas expurs in lune 1981 PN 4Ooo

• 1 hese employ es belong to 1.ocal 223 of the t ~tility w or kers t nion of Tmerica

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( 7 o;r;,g ,, n

..nnual Heports Min Awards W 'l ;

• For the third consecutise year Detmit -

Edison s Annual Report to Share-holders non a Nicholson Award in rompetition sponsored by the National Association of Ins estment Clubs I he anard is based on V eilectiseness in providing pertinent -  %

information to meet the needs of the indindual ins estor _

A

'i he 1979 Heport rvcened an award as the best annual report for a large electnc utiht3 in the central rvgion of f: .; g ,

the countn Because of the large " 7R '

number of utility reports entervd the ' ' 9 TI groups nerv split between large and small utilities and into three national regions Judges rated reports on finan-rial data chairman s letter manage-ment s analy sis of the busine.ss read-ithihty and attractiseness of the report itnd e\plicit and under5 tandable

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note 5 to the financial staternents T op F at h of the last t hree s ears the ( om-I he N All' is a grisup with alnivist ~.+f, panss Annual Repons has won awards

,000 ciuhs throuynomi ine couni,3 a

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with a tt>tal ()t os er 30 000 members '

""" 'd ""n er Plant Opnator \tu hael F Ihe award is named atter George -\ F eile. < het b mtormation on a Greenwood

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Nicholson Jr w ho helped founsi the Pow er Plet i omputer u hu h monitor s the NAIC oser 23 wars ago oper anon of the generaung unn or as sub-l)etroit Edidon s Annual Report is - ""*'"'"O """"'" "'" ""d' prepared entirels uithin the $$1**N

• he i r amma and Des elopmeni spe< iahst

• ' " H""'"'""'"d'""d"d"d""""'""'""

Compa ny in contrast to many firms tsir lu >u er pla nt < >per atiirs at the new lerh-w hich hiri < > tit sicle agerit ies w hii nn ai i r aimnx ( enir, specialize in tius field to prepare their

1. # ' " " " " " '" h " ' " " ' " ' " " ' I"" ""d ivI >o rt s ()nis the Iinnting for u hn h E

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Patr o k \1 F iigan.s nght make r epau s t.i a t he ( <itupain c h ies niit h.n e tacihties '

. . i'" h,(h s oltace hoe suiti h usins a as pass as done outside the ( ompany .

u stem u hn h de e refes the suoih but g .; k re g is lu'uer A m me t n < 4 ugh th. h ne b 1_i

Legal Efforts and in a substantial manction of Protect the Company outstanding contractor claims.

• The Company successfully Active Legal and Community and opposed in the counts an attempt by Governmental Affairs Efforts the Alichigan Attorney General and a The year 1980 was one of extraor- consumers gmup to block our 1980 dinary legal activity and important financing pmgram by challenging the achievements, including the following: Alichigan Public Senice Commission's

• Court approval was obtained for authorization for the Company to settlement of the employment issue its securities during the year.

discrimination case, atter nine years The Alichigan Court of Appeals of litigation, lifting the court order dismissed the challenge and also which had imposed severe restric- dismissed a later request for a tions on the Company's employment delayed appeal. The appeal is pres-practices. ently before the Alichigan Supmme

• The Company won dismissal in Court.

a in an era of progressively larger the United States Court of Appeals of a major class action lawsuit seeking verdicts in public liability cases, we over $75 million in damages. The have been able, thmugh intensive court rejected the claim that a 1972 legal activity, to maintain an excep-Company pmspectus did not pmp- tional record of resohing a large erly disclose the eIIect on earnings of number of those cases against the certain accounting items, and sup- Company on a very masonable basis.

• In hard-fought actions before the ported the Company's legal position by dismissing the suit. Interstate Commen e Commission

• The United States Supreme Court and the Courts, the Company won re-agmed to review a legal challenge to funds of over $9 million in fmight the Atontana severance tax, a rates that Detroit Edison had paid to challenge mounted under the Ic 9 der- ship coal by rail from Alontana.

ship of Detmit Edison against a tax Some of the important community which could cost the Company and and governmental alTairs its customers over a billion dollars developments include:

over the next 20 years.

• A major etTort which resulted in

• The Company successfully settled the Hailroad Deregulation 11111 being a number of lawsuits against man- written in such a way that Detmit ufacturers of equipment which we Edison customers may avoid millions claimed was defective.The settle- of dollars of increases in freight rates ments included significant cash over the next twenty years.

payments, technical impmvements

• Significant positive congressional and other commemial benefits. '1he action on bills which, if ultimately Company also negotiated several con- passed, will put a reasonable limit on struction contract disputes on state severance taxes, saving the favorable terms which resulted in the Company and its customers reimbursement of expenses incurred hundreds of millions of dollars.

due to deficient construction work

• Obtaining community appmval of some $83 million in pollution control mvenue bonds.

• IIelping obtain legislative approval for the extension of a state law insming the validity of securities which are under challenge.

• Alaintaining excellent relation-ships with the many local communities in which the Company's facilities are located and in which the Company serves customers.

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' ' i m' t +.'e l Consolidated Financial Statements 4

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{ Heport ist innependent h a < iu nta n t' 17 I

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( unsidulaimi statenient ist ( haiges in I irhou ht! Pi mit H en gy

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( innsi ahdatml staternent r at ( < >rnnuiti shar chi dslet s ! quits 33 innsolulated statenn nt of ( ninulain e Pf efm trd and Pn terrni e sta n k g .s

( inisi dulaimi statenirni ist l a ilig I crin t h ht jg Notes tsi ( c o m didatml l inani Lil stati inclits j,y Responsibility for Financial Statements t he consolulated financial stateicents ot Ihe neiroit ninn ois as well as sui h other pnu edun s the3 deem Edison Company and subsuhary companies base been necessai) to pnnide n asonable assurance as to the prepared by management in conformit3 with generally f airness oi the Compan3 s finannal statements arut to arrepted arrounting prinnples based upon currently enable lhem to c.spiess an opinion thereon asailable t' arts and circumstances and management s best t he lioant of I)irectors through its Tudit ('omnuttee estimates and judgments of known conditions it is the meets uith the nulepeinlent arniuntants re p rese n t a t is es responsthility of management to assun' the integnty and ist management arul t he internal atu htors t< > n*siew the obl ertnity of such titlancial statements aini to assun' that artis ities ist e.H h and tii (lisi uss ao tiunting aluliting and these statements f airly report the financial paisition of the tin.i'erial niatters atul flu' rar:3 ng i out of respainsihihties Company and the results of its oper ations anti duties of cai h group Price u ater house A ('o hate l'o meet this responsibilit3 managenn nt niaint.uns a lull :rul f ree an ess to meet with the Ttuht Comnuttee to high standant of recon! keeping atul an ellertne sy stem thsruss then exannnation results and opinions. without of mternal controls mehnling an extensise program oi management r epr esentatu es pi esent to allow lin internal audits u ntten adnunistratn e policies. and nunplete irulependence procedures to assun the selection and triuning of qlalified personnel lhese finannal statements hase been esamined h3the Con uany s independent accountants Price Waterhouse h- '

& ('o w hose report appears belon I heir eranunation I i nest I taine n u dh.un n \tm u

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was c.nulurted in arronlance with geni rally an epted auttting statulants w hich incl' ale a resien of internal atui i ho I i n oo n na t ito, m (

.i r o l hn.i i u ion i stin er Report of Independent Accountants

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4 111 i H( ll l sih lilt, s\ D t illCI']l H .Il%C i cnn o.n is eni l (i llle lhiarf f til 1)lrf1'linh alui 5llareluihteih (11 t he 1)etroit I.dison ( ompany in our opnuon the statements appeanng on pages 18 genci alls .u repted as i a .unting pi nu iples ninsistently through 31 of this report pr esent f airl.s the finannal apl>lini tlui exanunatnois < >t t hese statements w ere position of l he lletiott I.dison i tuupan) and its m.ule iti ai n u dant e u ith ge ner ally .u a epted auditmg subsidiary nunp.unes at 1)n ember 31 1980 and 1979 si. nut.u ds and .u e of dmgls in huled such tests of the and the results til t hen < >peratu nis and t he ( hangesin an a n mt uig n, i n tls .n u! sin li i st hel ain ht mg pi tired ul es their tinannal position tot each of t he t hree s cars ie t h" as ui < i msulercil nei c.ssars ni t he i u n unstances penod ended I)erember 31 19Xn ni i ontoi nuts w ith /

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The lh truit Edison Company and nutssidiary companies .

Consolidated Statelnent of Inconne Yaae .ded Decemler 31 1980 1979 _ 1978 f iThousandsl

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Operating Ilevenues E,lectric $ 1,776,3d4 $ 1.667,679 $1,561,296 Steau_ 38,150 30.832 28.546

$1,812,514 $ 1,638,511 $1,581).8 42 Total Operating llevenues a

Operating Expenses Operation expense l'uel $ 670,116 5 647,320 $ 580.861) 107,767 96,502 158,098 Other poner supply Other operation expense 290,566 266,410 235,720 133,270 128,660 124,804 Maintenance expense l'rosision for depneciation (Note 1) , 141,94M 129.644 115.325 l'nwision for taxes (Notes 1 and 7)

Taxes, other than incorne 115,520 99,552 31,488 (307) 5,063 4.671 Current incorne taxes Deferred income taxes-net 39,159 40.359 27,980 Investnient tax credit-net . _ (21,840) 9.284 24.035 Total Operating Expenses $ 1,196,199 $1.423 034 $1.362.990 Operating Incorne S 316.315 $ 275.477 $ 226.852 Other Incorne and Deductions Allowance for other funds used during construction (Note 11 s 38,815 $ 38.323 $ 32.273 Other incorne and deductions 692 3.664 2,371 Incorne taxes (Note 7) (669) (1.5541 11.228)

S 3M.M'IM $ 40,433 $ 33.416 Total Other Income and Deductions Incorne liefore Interest Charges S 355,153 $ 315.910 _$ 260.268 Interest Chargen S 211,857 $ 167,585 $ 140,288 long-terin debt 1,644 1,403 Amoriization of debt discount, presniurn and expense 1,776 19,662 13.823 5,298 Other.

Allowance for horroned funds used during construction (credit) (Note 1) . (66,70M) (43,171l W3.590)

Net Interest Charges S 166,5M7 $ 139.881 $ 113.3911

$ 18M,566 $ 176,029 $ 146,869 Net inconne Prvferred and l'refeirnce Stock Dividend llequirements 51,037 43,457 38.056 Earnings for Cornmon Stock S 137,529 $ 132.572 $ 108.813 Cornanon Shares outstanding-Average 78,780,863 69.848,484 61.898.763 Earnings Per Share $ 1.75 $ 1.90 $ 1.76 t5cc acrompanying Notes to Consolidated financial Statements) t

The Detnnt Ldmin Company avid subsidiary companies Consolidated Statelnent of Changes in Financial Position near Ended Det ember 31 l' O 1979 1973 n housanda l'inancial liesources I rmided:

Net income $ 1 MM,566 $176,029 $146,869 liems not alTecting working capital:

1)epreciation 141,94M 129,644 115,325 I)eferrvd income taxes-net 59,176 41,777 28,910 investment tax c:rdit-net . (2 t h40) 9.284 24.035 Allowance for other funds used during constniction (Note 1) , (38315) 138,323) (32,2731 Other . 1,9M2 3,129 1785)

Financial nsoutres pnnkled by operations $331,017 $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 14M,773 247,131 137,442 15elle Iliver Project Financing (Note 61 212,729 - -

Sale of prefem d stock 93,660 35.024 59,158 Sale of unsecured pnnnissory notes 49,956 - -

Sale of common stock 109.022 110,554 97,478 Issuance of conunon stock on consersions of convertible cumulative preferred stock,5%% series MAM3 16,442 13,220 Sale of capitalized costs relating to nuclear fuel (Note 91 - 9,526 --

Other-net 6A142 (1841 (2,113 3)

Total $990h05 $779,480 $630,429 l'inancial licsources t' sed:

Plant and equipment expenditures $644,234 $588,473 $639,494 Investment in fuel supply through subsidiaries 306 2,9 111 3,182 Total capital expenditures SM4,540 $591/589 $642,676 Allowance for other funds used during constmetion (Note 1) , (3Mbl5) (38,3231 132.2731

$605,725 $553.066 $610,403 I)ividends on conunon, preferird and preference stock 179,159 156.661 133,441 Conversions of convertible cumulative preferred stock,5%% series M,055 16,469 13,223 Nuen( tion or reclassification of long-term debt and prvference stock 69,200 65,695 78,700 Storm damage costs (Note 13) 9,712 12,783 -

Increase Idecrease) in working capital

• I 1M,954 (25,194) (205,33M Total $990M05 $779,480 $G30,429

• Analpis of rhangen in umking rapital increase (derreasel in runrnt assets:

Cash $ 3,7112 5 ti6M5i 5 41 7011

'lemporary rash ifnesiments - -

IM513 41 Arrounts sereisable 32,fl5!) 111332 24 280 Im entories . 49,8H1 69 191 31,393 flermerable fuel rosts . - -

11.1066 Perpasments . 12 H201 2 fMil 616

$ M3,5tl2 5 SM 235 5 131652 t ,

linrreaset derrease in ruiTent liabilities; short-term bonunings s 77,124 St 91.706! $ 633.224) long-tenn debt due within one year . 1IAM151 15.505 177.20m Preten nce stm L sinking fund requirrment due within one year . 1,356 I2.4606 -

Arrounts payable 82.M321 22.185 130.11 M1 Pn>perty. general and inrome tages . (14.55H6 111.4911 (5 23tl Other 144.705l IIS 4621 127.9131

$ 33.3H2 St83 42m Si173 6M61 Increase (dergrasci in working rapital $ 11_M,!)34 5,25 194: 51205 33Mi ISee arrompanying Miles to Ciensolidated iinancial 5taternents.)

1!!

lhe Detmit Ediaan Company and subsidiary companics Consolidated Balance Sheet December 31 1980 1979 n housands)

Assets l'tility Properties (Notes 1,9 and 161 Plant in senice and held for future use

$4,590497 $4.397,250 Electric . . .

44,169 41,964 Steam . .. .

$4,634,666 $4,439,214 (1,187,250) (1,069,194)

Less: Accumulated depreciation . . . . .

$3447416 $3,370.020 Construction work in progress .

1,578.829 1.220.809

$5,026,245 $4,590.829 Other Property and Investments

$ 4,200 $ 4,550 Investment in coal supply .

Non-utility property and other . 14.052 12,082

$ 18,252 $ 17,232 Current Assets

$ 6.226 $ 2,434 Cash (Note 2)

Customer accounts mccivable tiess allowance for uncollectible accounts of $8,800,000 and $7,500,000, respectively) 176,490 152,248 17,286 8,569 Other accounts receivable . , .

Inventories (Note 1) 260,112 224,472 Fuel .

88,033 74,212 Materials and supplies 1415 1,415 llecoverable fuel costs (Note 10) 2,767 5,387 Prepayments .

$ 552,329 $ 468,737_

Deferred Debits Unamorti/.ed debt expense $ 20,186 $ 19,072 Actumulated deferred income taxes (Note 1) . 8,549 9.458 101,116 22,945 Extraordinary property losses (Note 13) 15,009 17,750 Other.

$ 144,860 $ 69,225

$5,741,686 $5,146,023 Total i5cc arrompanying Notes to Consohdated Financial 5tatements1 20

December 31 IDM0 1979 -

flhousands)

Liabilitics Capitalization i Conunon stock-$10 par value, 125,000.000 and 85,000,000 shams authorized, respectively; 84,032.618 and 74,459,897 shares outstanding, respectively (1,817,472 and 2,142,764 sharvs, respectively, mserved for conversion of prefermd stock) (Note 3) . $ 840,326 $ 744,599 Premium on common stock . . 341,739 316,314 Conunon stock expense . .. . . .. . (31,5&H (27,346) -

Hetained earnings used in the business . . 376.281 366,874 _

Total common shareholders' equity . $ 1,526,842 $1,400,441 Cumulative prefermd stock-$100 par value, 9,000,000 and 6,000,000 shares authorized, rvspectively; 4.630,2M and 3,767,560 sharts outstanding, respectively; 3,789.827 and 1,734,827 shares unissued, respectively (Notes 3 and 4)

Non-mdeemable preferred stock . . . . . 267,682 276,038 Redeemable preferred stock . . . . 187,839 94,182 Cumulative preference 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 prefemnce stock . 47,896 47,906 Hedeemable preference stock . 87,929 92,622 fong-tenu debt (Notes 5 and 6) . . 2,450457 2,069,518 1 Total Capitalization .. $4,568,645 $3,980,707 Current Liabilities Short-tenn hommings (Note 2)

Commercial paper $ -

$ 20.284 Ilank loans 46,000 75,500 --

Tntst demand notes 17,092 20,000 Protnissory notes 4,000 28,432 Long-tenu debt due within one year (Note 5) 64,200 63,195 Preference stock sinking fund requirement due within one year (Note 4) . 1,104 2,460 Accounts payable 147,365 144,513 Property and general taxes . . 167,927 151,932 Income taxes 15488 16,927 Intetyst 54,654 46,729 Dividends payable 46,770 41,156 f Paylulls . 31,015 29,830 ,

Other. . 41,322 31,341

$ 636,937 $ 672.299

~

Deferred Credits Accumulated defenvd income taxes (Note 1) . $ 401.789 $ 340,513 Accumulated defenvd investment tax credits (Note 1) 110,852 132,692 Other. . 23463 19.812

$ 536,104 $ 493,017 Connmitments and Contingencies (Notes 9,10,11,12,13,14 and 15)

Total $5,741,686 $5,146,023 '

ISee arrompanying Notes to Consohdated hnancial statementd 21

lhe th-truit hhson Company and subsidt.uy companies Consolidated Staternent of Common Shareholders' Equity Premium lietained Conunon Stock on Common Earnings

$10 Par Common Stock Used in the Shares Value Stock Expense Ilusiness*

1 Dollars in Thousands) llalance at December 31,1977 59.201,021 $592.040 $225.379 $(20,759) $334,078 Issuance of Conunon Stock:

5,000.000 50.000 31,875 (2,787)

Public otTering (August 19781.

Dividend lleinvestment and Common 1,146,980 11.470 6,232 (1011 Sham Purrhase Plan Conversion of convertible cumulative prefermd stock,5%% series . 590.889 5,909 7,606 (296) 146,869 Net income Cash disidends declared:

(95,3421 Common stock - $1.52 per share Cumulative preferred and 138.099) prefemnce stock" Italance at December 31,197M 65.941,890 $659,419 $271 p"' $l23.943) $347,506 issuance of Common Stock:

Public offering Wuly 1979) 6,000.000 $ 60,000 $ 29,250 $ (2,972)

Dividend Heinvestment and Common Sham Purchase Plan 1,750.333 17,504 6,836 1631 Conversion of convertible cumulative prefer 1rd stock,5%% series . 767,654 7,676 9,133 (368)

Gain on pmference stock purchased and retimd 3

$176,029 Net income Cash disidends declared:

Common stock - $1.60 per share (112.628)

Cumulative prefermd and (44,033) preference stock" Italance at December 31,1979 74,459.897 $744,599 $316,314 $127,346) $366,874 issuance of Common Stock:

Public otTerings (4 million shares in Alay 1980 and 2.25 million shams in December 1980) . 6.250.000 $ 62,500 $ 15.031 $ (3,379)

Dividend lleinvestment and Common Share Purchase Plan 2.933,75ti 29,337 5,731 11991 Conversion of convertible cumulative preferred stock,5%% series . 388,965 3,890 4,333 (180)

Gain on preference stock purchased and retired 330 Expense of increase in authorized number of common shares . (400)

$ 188,566 Net income Cash disidends declared:

(127,952)

Common stock - $1.60 per sham Cumulative prefermd and N preference stock ** _

(51,207) llalance at December 31,19MD 84,032,618 $840,326 $341,739 $131,504) $376.281

• si4 mx11xx) tvstricted as to pavment of common dnidends.

'At established rate for e.ach senes.

isce at companying Notes to Consolidated hnancial statements) 22

1hc t>etruir blimn company and sutmidiary corupanies

, Consolidated Statement of Cumulative Preferred and Preference Stock Atonth of th remher 3:

Issuance 19MO 1117 9 ri housainist Non-Hedeernable l' referred Stock (Note 31 5%% convertible series, 381,124 and 463.480 shares, trspectively October 1967 $ 38,112 $46348 932% series, 499.080 sharts October 1970 49,90M 49.908 7.68% series. 500,000 shares Atarth 1971 50,000 50,000 7.45% series, 600,000 shares Novernber 1971 60,000 60,000 7.36% series, 750.000 shares . Decernber 1972 75,0tM) 75,000 Non-redecinable prefertrd stock expense (5.33M) (5,218)

Total Non-fledeernable Paferird Stock $267,sM2 $276.038 Hedectuable Preferred Stock (Nme 4) 9.72% series, 600,000 sharrs *

$ 60,000 $ 60,000 9.60% series, 650.000 shares and 355,000 shares, respectively 65,000 35,500 12.80% series, 400.000 shairs Alay 1980 40,000 -

13.50% series, 250.000 shares Decernber 1980 25,000 -

Iledecinable preferred stock expen_ (2,161) (1,318)

Total liedeernable Preferred Stock $ 1 M7,M3!i $ 114.182 Non Hedectuable l' reference Stock (Note 3)

$2.28 series, 2.000.000 shares Decernber 1977 $ 2,000 $ 2,000 Piriniurn on non redeernable preference stock . 4M,000 48.000 Non-redeernable preferrnce stock expense (2,104) f 2.0114)

Total Non-lledeernable Preferrnce Stock . $ 47,896 $ 47.906 Iledeernable Preference Stock (Note 4)

$2.75 series, 1,844,180 and 1,998,400 shairs, respectively July 1975 $ 1,M44 $ 1,998

$2.75 series ll, 1.899.920 and 2.000,000 shares, respectively Decernber 1975 1,900 2,000 Pirrniurn on redeernable preferrnce stock . M9.858 95.962 Iledecinable preference stock sinking fund requircinent due within one year (1,104) (2.460) liedecinable preference stock expense (4,569) (4.878)

Total lledeernable Preference Stock $ 87,929 $ 92.622

• aio noo shan,1550 million) issued in th remher 1978 and 100 000 shares isto millioni i.ssued in January 1979.

• • 355 000 shairs 1535 5 million) issued in October 1979 and 291000 shares (529 5 million! issued in January 19MO 45ee anoriipany1 rig Notes to cotisolidated firiaticial staternierits.1

+

23

lhe Detroit blison Company anti substiary rompanien Consolidated Statement of Long-Term Debt December 31 19M0 1979 General and liefundinJg %Iortgage Hond" nmunit.i (substantially all pruperty subject to tien of N1ortgage)

Series I,2%L due 9/1/82 . $ 59,975 $ 59.975

.. 35,000 35,000 Series J,2%L duc 3/1/85 39,995 39,995 Series N,2%L duc 3/15/84 . . .

Series 0,3%E due 5/15/80 .

. . . .. - 59,795 66,325 66,325 Series l',4%L due 8/15/87 .

. . . . 37,695 37,695 Series Q 4%E due 6/1/89 .

100,000 It)D,000 Series H,6% duc 12/1/96 .

150AMM) 150,000 Series 5,6 4 L, due 10/1/98 .

Series T,9% due 12/1/99 . . 754)oo 75,000 75,000 75,000 Series U,9.15% due 7/1/00 . . . .

100,000 100,000 Series V,8.15% duc 12/15/00 . . . . .

Series X,8%L due 6/15/01 . .

100,000 100.000

. . 60,000 60.000 Series % 7%L duc 11/15/01 . .

Series /,,7%L duc 1/15/03 . . . . .

100,000 100.000 100,000 100.000 Series AA.11%E due 5/1/04 .

50,000 50,000 Series CC,12%E due 1/15/82 . .

13,505 14,305 Series I)Di' Nos. 2-9,7.25% to 9%E duc 11/1/81-11/1/95 (Series D-Alonrue) .

40,000 40,000 Series EE,11%E due 12/15/00 . . .

Series ITil Nos. 2-14,5.75% to 8.5% due 2/1/81-2/1/01 (Series E and E-1977-Superior) 45,100 45.600 42,300 42,300 Series GGl' Nos.1-22,4.4% to 8%L due 6/15/81-6/15/96 (Series F and F-1977-St. Clair) .

50,000 50,000 Series lill,10%L due 7/15/06 .

Series 111' Nos.1-22,5% to 7% duc 3/1/82-3/1/05 (Series G and G-1979-Ilarbor lleach) . 3,750 3,750 6,M50 6,850 Series JJi' Nos.1-8,5% to 7%L due 3/1/82-3/1/05 (Series 11 and ll-1979-Trrnton) ,

Series KKl' Nos.1-8,5% to 7%E due 3/1/82-3/1/05 (Series I and 1-1979-Alonroel . 14,890 14,890 Series 1.1.l* Nos.1-15,5% to 6.7% duc 3/1/82-3/1/111 (Series J and J-1979-Detnut) . 8#50 8,850 Series NIN118. 6%L and X1N11' No. 2,7%E duc 2/15/97 (Series K and K-1979-Hiver Houge) . 5430 SA30 Series NNI' Nos.1-21,43% to 7% due 7/1/82-7/1/97 (Series L and L-1979-Hiver Houge) 47,950 47,950 Series 001' Nos.1 18,4.4% to 7%E due 10/1/82-10/1/07 (Series N1 and N1-1979-St. Clair) IM,MMO 18,880 70,000 70,000 Series l'I',9%E due 6/15/08 Series QQl' Nos.1-19,5.6% to 9%L due 6/1/83-6/1N4 (Series N and N-1980-Detroit) . 13,650 9.300 70,000 70,000 Series Hit. 935 due 10/15/08 . .

150AMM) 150,000 Series SS,10%E thne 3/15/91) 3,M00 3,800 Series TI P Nos.1-15,5><5% to 7%L due 7/1/84-7/1/09 ISeries 0-St. Clair) 100,000 100,000 Series UU.10%L due 9/15/01) .

11180 Series A.12%L due 1/1/87 50A)00 -

1980 Series 11,12ML due 4/1/00 100,000 -

1980 Series CI' Nos.1-12,7%% to 10L due 8/15/85-8/15/07 (Series l'-St. Clair) 25A)00 -

1980 Series UP Nos.1-11,7%% to 10% due 8/15/85-8/15/10 (Series Q-X1onroc) 10,750 -

(2,674) (2,781H I.ess: Unarnortized net discount (9AM3) (1,238) l'unds on deposit with Trustee Arnount due within one year (2,100) (61.095)

$2,025,M7M $1,845.568 Installinent Sales Contracts N1onroe County llonds Series A,4.9% to 5%E due 6/1/81-6/1/03 $ 434MM) $ 44,000 21,550 22.050 N1ongue County Bonds Series B,6.4% to 7%E due 5/1/81-5/1/04 St. Clair County llonds Series C,7ML due 7/15/81-7/15/84 4400 5,000 (2,10(H (2,100) 1.ess: Arnount due within one year

$ 66,M50 $ 68.950 l'nsecured l'rornissory Notes

$ 212,729 $ -

llelle Itiver Project l'inancing (Note 61 155 AM)0 155,000 Variable interrst rates, duc 1981,1983 and 1984 12ised interrst rates, duc 1/2/82 (11 % % lirst iguarter of 1980 and 11% thereafterl 50A100 -

1. css: Arnount due within i,ne year (604)04) -

$ 357,729 $ 155.000 Total Long-Terrn Debt INotes 5 and 61. $2450457 $2.069.518 isce ai rompanying Notes to consolutated f inam ial statementd 24

i lhe Detn>it blimn company anti autmi&ary companies Notes to Consolidated Financial Statements Note 1-Significant Accounting Policies: taxes which am capitalized in the books or from additional Industry Segment- 'T he Detroit Edison Company (" Corn- straight-line income tax depreciation rvsulting from the dif-pany") is a public utility engaged in the generation, pur- ference between income tax guideline rms and book rates.

chase, transmission, distribution and sale of electric energy. Afichigan Single 13usiness Tax-Pursuant to ordem of the llegulation-The Company is subject to regulation by the A1PSC, no pmvision is made for defenvd AUchigan single Alichigan Public Senice Conunission (" A1PSC") and the Fed- business tax arising fmm the cu tunt deduction of capital cral Energy Hegulatory Commission ("FEHC") with respect to acquisition expenditums which arv capitalized and depre-accounting matterm and maintains its accounts in accor- clated in the books.

dance with the Uniform Systems of Accounts prescribed by Allmvancefir Funds Used During Construction-The allow-these agencies. ance for funds used during constniction ("AFUDC"), a non-Principles Applied in Consolidation-The consolidated ac- operating non-cash item, is defined in the FERC Unifonn counts include those of all subsidiary companies, all of System ofAccounts as the net cost for the period of constme-which are wholly-owned. tion of bornnved funds used for constmetion purposes and lievenues-Hevenues are recorded as billed to customers. a reasonable rate on other funds when so used.

As authorized by the AIPSC, the Company makes monthly AFUDC is an accounting procedure whereby the approx-

~

purrhased and net interchange power bi0ing adjustments imate intemst npense and cost of other (preferred.pmfer-to rvcover costs which are appmved by the MPSC following ence and common shareholders' equityl funds applicable to monthly hearings. Recovery of costs is limited to 90% of the cost of construction are transferred from the income

~

changes in both Company system fuel costs and net pur- st tenwnt to constmction work in progress in the balance chased pmver costs. Annual hearings am conducted by the sheet.This accounting procedum is intended to remove the A1PSC to detennine whether adjustments will be ma[le to elin't of tim cost of Snam ing construction activity fmm the customer bills to otTset the over-recovery, if any, of energy inmnm statement, and rvsults in tmating such cost in the costs arishg from fluctuations in billing lag factors. The s nm m nner as charges to constmetion for labor, employe Company's policy is to rvserve the temporary net over- benefit costs. property taxes and matenal csts. Under cur-recovery of energ'y costs arising from fluctuations in billing rent ratemaking practice, the cash recovery of AFUDC, as lag factors whici will be adjusted in subsequent months. well as other costs of constmetion. occurs when completed The temporary net under-recovery of these energy costs is pmjects are placed in senice and the related depreciation is not accmed because subsequent recoveries are dependent muected in customer rates.

upon MPSC authorization. The AFUDC rates for borTuwed and other (equity) funds were established by the Company consistent with the Employes'llerirement Plan-See Note 8- ruethodology set fonh in the FEHC Unifonn System of Ac-Property, Depreciation, Plant fletirement and Mainte- counts. The Company capitalized AFUDC at the following nance-Utility and non-utility propedies are recorded at rates: 1980-9% etTective January 1,1980 and 9 4% efTective 1 original cost and rost. respectively, and the annual pmvision June 1,1980 except for AFUDC rvlated to the Belle Hiver for depreciation is calculated on the straight-line rvmaining Pmject Financing which was capitalized at the actual life method for financial statement purposes.The composite amount thervof (see Note 6): 1979-8M%; 1978-8%.

perventage of annual provision for depreciation to average The allowance for other funds used during construction depreciable pmpeny was 3.20 L for 1980 and 1979 and 3.15% in the Consolidated Statement of Changes in Financial Posi-for 1973. In general, the cost of pmperties retired in the tion excludes the allowance for bonuwed funds used during nonnal course of business is charged to accumulated depre- constmetion of $66.7 million for 1980, $43.2 million for 1979 ciation. Expenditures for maintenance and repairs are and $33.6 million for 1978 in accordance with accounting charged to expense, and the cost of bettennents and new requimments of the FEHC. The total allowance for both bor-property installed uhich replaces property retired is rowed and other funds used during construction amounted charged to proper 1y accounts. to $105.5 million for 1980, $81.5 million for 1979 and $65.9

'" 11I"" I"" 1970' Income Ta3cs-The Company pnnides for deferred income AFUDC amounted to 77%,61% and 61% of earnings for taxes when authorized by orders of the MPSC.

• Ihe Company follows the nonnalization method of ac- Cmumon Stock for 1980,1979 and 1978, mspectively.

counting which pnnides for income taxes deferred to futum Inventory Valuation-inventories am stated at average cost.

years because of accelerated amortization, liberalized de- Extraordinarv Property losses-See Note 13.

~

preciation, shorter depreciation periods used under the class life asset depreciation range system, recoverable fuel Note 2-Compensating Balances and Short-Term costs and extraordinary pmpeny losses, and amortizes the Horrowings:

investment tax civdit to income over the estimated corn- At December 31,1980, the Company had bank lines of credit posite senice life of the pmpedy m.olved. See Note 7. aggrrgating $200.1 million pursuant to which interim financ-The Company does not pmside for defenvd income taxes ing was available, of which $19.6 million of these lines of arising fmm cunvnt deduction ofitems such as interest and credit requirvd compensating balances, $117.5 million had 25

comrtitinent fees in lieu of cornpensating balances and $63.0 Decivasing Pdor on and

$"

• I"'" I" T" #"

inillion had both commitment fees and cornpensating bal-N on-HedeeniaMe ances. In support of the lines of cardit requiring compensat-Pirfened stuik intg balances, the Cornpany inaintained bank balances which 9325 sto7 10-ts-n3 $i01 10-15-86 during 1980 averaged $3.5 million in Cornpany accounts and 7 sn s os 4 15-s1 1on 4 is-as

$15 million in the accounts of construction contractors. 7.45% 106 taas st tot I M s-ns None of these balances are subject to usage or withdrawal 7365 105 12- 1-a2 to 12- -s7 N""-""'h""'h*

restrictions. Comruitment fees in lieu of compensating bank Picfen nce Moi k l>alances for 1980 amounted 1o $2.1 million. At December 31, 2730 ts-n3 2525 1a5 93 522n.

1980 unused lines of ctrdit werv $137.0 In!!! ion. None ofIhe shairs of the $2.28 Series Prrfemnce Stock may llank loans are available at the banks' prime lending rate. he redeemed through cer1ain refunding operations prior to Temporary arrangements have been made for up to $116 January 15,1983.

million of bommings through the above bank lines of credit Char $ges in non-redeemable Preferred and Preference at rates below the banks' prime rates. Commetrial paper is Stock expenses were due to the increase in the authorized issued on a discount basis at pmvailing market rates. Trust number of shares of Pirfenrd and Preferrnce Stock, oiTset by demand notes have variable interrst rates based on the high- conversions of the Convertible Cumulative Preferred Stock, est rate adopted by General Motons Acceptance Coq > oration 5%% Series.

on its30-180 day commercial paper bonuwings.

In 1979, the Company also entered into a nuclear fuel Note 4-iledectuable Curnulative Preferred financing and emdit arrangement Isee Note 91. Pending use and Preference Stock:

Um series of enwl ami Pmfemnce Stod wMeh am m-of the errdit arrangement for nuclear fuel financing, the deeniable 1mrsuant to sinung fund meluiminents inay also Company is permitted to issue pmmissav notes for general corporate purposes. At December 31,1950, $19.3 million of be mdecined at dm opdon of the Company at the following per sham mdenipdon prkes, plus accrued disidends:

the nuclear fuel credit arrangement was available forborrow-ing for general corporate ]pposes, under which $4 million D"'"'**i"8 PH"' "".*I

• """ "'"' " I" #"

of pnnnissory notes were outstanding.

See Note G for infonnation on the llelle Iliver Project ,"

Financing. 9 72% 510'#72 1 15-84 slot M s-94 Note 3-Cornmon Stock and Non-lledectuable 9 60% no oo 10-15-n4 tot 10-15-94 12aos 112 a0 715-as too 7 15-95 Curnulative Preferred and Preference Stock:

iss naso i.is-as im 1.i 5 90 The nnnpany has a Dividend Ib investment and Common nedeemable Sham Purchase Plan under w'.W record holders of its pn,ryn.nc, go, g Common, Pmfermd and Prefe n ace shares and its regular s2 73 . 2s 9s 7.is-ns 2525 71590 employes may, through the automatic reinvestment of cash s2 5 sedes n . 27.75 1. is-n i 25 2s 1 15-91 dividends and monthly optional cash payments of fnnu $20 None of the shares of the Cumulative Pmft rred Stock, to $5.000, purt base Conunon Stock from the Company.The 0.72% Series,9 60% Series,12.80% Series and 13.5o% Series or price of newly-issued sharrs purchased with reinvested shams of the $2.75 Series 15 Prvference Stock may be re-cash dividends will be crpial to 95% of, and in the case of deemed through certain refunding operations prior to optional cash payments will be equal to 100% of, the average January 15,1984, October 15,1989, July 15,1985, January 15, of the high and low prices on the New York Stock Exchange 198G and January 15,1981, respectively.

on the pricing date,w hich will be the dividend payment date The redeemable series of Preferred and Preference Stock in the case of rvinvested dividends and the last business day are entitled to the benefit of sinking funds (provided that no of the month in the case of optional cash payments. 'Ihe dividend anvarages existi providing for the annual redemp-Company has the right to amend, suspend. modify or termi- tion of shares at the following per share prices, plus accrued nate the Plan at any time, dividends, commencing on the dates indicated below:

'I he Convertible Cumulative Preferred Stock,5%% Series,is Non-cumulauve convertible into Commmi Stock.The conversion price was option to nedeem

$29.97 per share at December 31,1980 and was adjusted to Annual Pdce Addiuonal C"ninienc- Nunibe Per sham in

$20.42 per share etTective January 21,1981. 'Ihe number of ^""

shares converted during 1980, l979 and 1978 was 82,356, nedermable 168,373 and 135.187, respectively. The number of shares of Pn fened sroi k Common Stock reserved for issuance upon conversion and 9 72s . 1-15-85 3o 000 $100 30 000 the cornersi on price are subject to further adjustment in 9 60% . 10-15-8s 32.300 100 32.300*

certain events. The Convertible Cumulative Preferred Stock, 12 aos . 7 15-8s 20.000 im 20 mo 335 5 - 3'3587 5" * "" "

5%% Series, may be redeemed at any time in whole or in part

, nedeemable at the option of the Company at $100 per share, plus accrued Pn4 m nce e divideads. 32.73 73330 100.000 25 100.000 The series of Preferred and Preference Stock redeemable s2.73 senes a 1-1s-81 100.000 25 too ooo solely at the option of the Company air rrdeemable at the 'Not to eu red 220 000 total adihtio"al Shan a-following per share redemption prices, plus accrued in 1979 the Company began purchasing shairs of $2.75 dividends: Series Preferrnce Stock on the open market. During 1979, 26

1.600 shairs were purchased and throughout 1980, an addi- excludes llelle Iliver Project l'inancing unsecunni pmmis-tional 98.400 shan's of $2.75 Series Prefervnce Stock were sory notes due Alay 1,1982), $81.9 million in 1983, $69.9 purthased. These shares were applied toward the sinking million in 19M and $256.1 million in 1985 (which includes fund tvquin ment due on July 15.1980. $200 million for the llelle liiver Pruject l'inancingl. See Notes Also, thruughout 1980 the Company purchased on the 6 and 9. ,

open market 55.820 shares of $2.75 Series Pn ference Stock and 100.080 shares of $2.75 Series il Prefervnce Stock. These ole eHe m' ect Mnancing sharts will be applied towant the $2.75 Series sinking fund In Alay 1980 t Company enten d into an agtvement with a n quirement due on July 15,1981 and the $2.75 Series 11 gnmp of commercial banks for an $800 million project sinking fund requirements duc on January 15,1981 and 1982. fin ncing arrangement relating to Beh 11iser Unit No.1 and ,

respectively. facilities to be used in conunon with llelle Iliver Unit No.2 in the edent that a payment is not made that is due under i"Ilelle Iliver Project l'inancing"). Under this arrangement, the requirvments of a sinking fund for any series of the cunvntly limited to $400 million under existing I'EHC bor-redeemable Prvfenvd and Prefen nce Stock, no disidemi nming authority, the Company bom)ws against capital ex-

. hall be paid tother than a disidend paid in junior stock) or penditures incurred in connection with the project includ- .

declarrd or other distribution made upon any junior stock ing interest charges f at interrst rates which vary with the (Pivference and Common Stock in the case of Prvfenvd Stock changes in the prime ratel and commitment fees (at the rate and Common Stock in the case of Preference Stock) until of 0.5% of the unused ponion of the commitmentsi. Until such payment shall have been made. A1PSC appmval can be obtained for long-tenn unsecured The combined aggn gate annual amount of redemption promissory notes, bonuwings are being made under on-requirrments forall series of redeemable Preferred and Pref- secun d prumissory notes due Alay 1,1982.Once such A1PSC en nce Stock for the next five years are $5.0 million in 1981 approval has been obtained and long-term unsecurvd prorn-through 19M and $11.3 million in 1985. issory notes have been issued, amortization will begin Changes in redeemable Prefenvd and P.vfen nce Stock January 1,1385, with $50 million n payable each consecutive expenses wert due to the issuance of additional shares of calendar q'iarter thervafter. 'Ihe Company may prepay bor-Prefem d Stock, o!Iset by the purchase of shares of $2.75 rowings pursuant to this transaction at any time without Series and $2.75 Series Il Prefen nce Stock to meet sinking penahy. Consummation of periodic bornmings is subject to fund requirrments the satisfaction of cenain conditions. The agreement con-tains a number of covenants, including an agreement by the Note 5-lamg-Term Debt: ~

Company not to pledge or sell any of hs assets except in the Agn ements have been signed with certain municipalities, m'dimhw of him ud escept for the sale or con-3 under uluch the muryicipalities have issued tax-exemps -

m om m mm Witit s of edivided in n m in bonds to finance cedam facilities of the Company and the generating plants; and not to cIvate cenam. h. ens on its .

Company is obligated to make payments sutlicient to meet assets. As of December 31,1980, the C,ompany made borro v-the principal and interest due on the bonds.To secure the .

ings and had accrued inteirst and corninitment fees totaling Company's obligations under such agtvements, the Com-

$m Mili hh n nt. I'or 1980. intentst and pany has issued (;eneral and Hefunding Atortgage lionds nminnent fees of $16.3 million arv included in interest

("Alongage Ilonds") with principal amounts, intervst rates charges, offset by an equal amount included in the bomnved and maturity dates corresponding toIhose of the taverempt -

funds component of Al.UDL..

bonds; acconh.ngly, the Company's liabilities in respect of such collateralized bonds, aggregating $260.7 million and Note 7 Income Taxem

$221.9 million at December 31,1980 and 1979, tyspectisely' Tod iMome tas expense as a percent of income before tax are included in General and Refunding Alor1 gage ilands in was less than the statutory federal income tax rate for the the Consolidated Statement of IAmg-Term Debt.

following reasons:

Interest on the $155 million Unsecurvd Pnnnissory Notes duc 1981,1983 and 19M is adjusted quarterly; the rates are Penrni of incmne Before Tas variable based on the participating banks' Inime rate for ismo i979 1978 commer'CiaI custorners. The weighted average interesi rates eaer.i income .. . .iuiory r.ie 4..os 4e os 4&os on these notes for 1980 arul 1979 were 16.2% and 13.6L Allowance for funds used respectjvely. dunng ronmu' Hon 121.31 ,16.11 n ~> 4l On the b' asis of property additions and bond retiivments, '""'""'""""d"'"d'"*- #' ' "

Depn riation . 3.5 44 45 an estimated $1.1 billion principal amount of bonds could suchigan inmme in . usi e u have been issued underthe Alortgage and Deed of Tmst and niher--net . a4.si is si r2 o>

tenus of certain of the Unsecurvd Promissory Notes at De- Toi.i income s.: empen=c . [s[7h 24 n 283%

cember 31,1980. Under the morv restrictive carnings test pnnisions of the supplementalindenture errating the Series In 1975 the State of Alichigan enacted a " single business I Alongage llonds and assuming an intervst rate on any tar" effective January 1,1976 and repealed the corporate additional indebtedness of 15 L, approximately $377 million income tax. The A1PSC ontered that the accumulated bal-principal amount of the Company's Atortgage llonds could ances of deferred Alichigan income taxes at December 31, have been issued at December 31,1980. 1975 he written olT as civdits to income over the five-year IAmg-telm debt maturing in the period 1981 ttuuugh 1985 period 1976 through 1980 for accounting and ratemaking consists of $M2 million in 1981, $166.5 million in 1982 (w hich purposes.

27

Components of income t.xes wem as follows: . The intemst rate used tu determine the actuarial present i vear Ended December 3: value of accumulated plan benefits was 101This rate is the inno 1979 at78 appmximate interest rate as of the valuation date for long-

" ""58"d5' tenn government bonds with an average maturity approxi-

- current income Tax,,

rederal cunent . . s (307: $ So63 $ 5,246 mately equal to the average maturity of the liabilities for -

Federal-Recmerable fuel costs . - - 14891 accmed benefits. The interest rate used for funding pur .

• hiichigan-Recowrabne fuel costs . - - 1866 poses is diffewnt fa,m that used for the determination of the s (3o7> $ tos3 $ 4 672 present value of accrued benefits because the rate used for funding purposes is designed to be consistent with the infla-

, F [" lion allowance provided in other assumptions used to pm-htarch 1976 storm damage costs . $ (I,071) $ (1,0711 $ (1,0711

]

j April 1979 stonn damage costs . .

- SA80 - . ject futum benefits.

July 1980 stonn damage costs . 4,488 - -

! creenwood t; nit Nos. 2 and 3 Note 9-Leases- l abandonment loss .. ., 24,77: - -

Hental expenses were as follows:

Depredation . . . . 33,538 33,493 26,693 Year Ended December 31 Amonization of pollution contrul Iano 1979 1978 facilities . f t.2111 8.095 4.455 IThousands}

Sale of 20% interest in Enrico 1,818

$33,153 $29.037. $25345 Fermi tJnit No. 2. . 870 1 094 Other~ , . . 3,333 12.9131 504 Futum minimum lease payments under long-term non-hiichigan . . . (4,339) 14.2191 14.219) Cancellabic leases, consisting oflake vessels ($144.5 million),

j s so,ise _ $ 40.359 $ 27,980 locomotives and coal car 3 ($93.5 million), office space ($44.8 million) and computers, vehicles and other equipment ($41.7 tIl . .s - $ 13.091 $ 27.270 million) at December 31,1980 are:

Reduction due to tax loss j 'canyback to s377 . (ls.443) -. -

t %lillions) (Alillions)

Amonized .. 43,398) 13307.) (3 235) 1981 $32.1 1986-199') . $ 77.4 Sf 3t A40) $ 9284 $ 24.035 1982 . . 28.9 1991-1995 . 51.2 Other Income and Deductions 1983 . 262 1996-2000 42.8 Federal cunent . . . .S ess $ 136 $ 298 19s4 . 23 7 Remaining years 21Ji Federal defened . . 17 3.418, 930 1985 . 20.7 Total . $324.5 S SSs $ 1.554 $ 1.228 Total Federal and hiichigan . In addition to the leases described above, on January 23, income Taxes . .. . s 37,eal $ 56.260 $ 57.914 1979, the Company entered into a nuclear fuel financing and heat pumhase contract with Renaissance Energy Company Investment tax cmdit can3 fonvards aggmgate approxi.

IN*'";sance"), an unaffiliated company, which provides mately $145 million at December 31,1980.

for the financing of up to $90 million of nuclear fuel.dimul-Nots 8-Ernployes' R .irement Plan: taneously, the Company sold to Renaissance its capitalized ,

i 'The Company has a tmsteed and noncontributory mtire- costs of $9.5 million mlating to nuclear fuel. Under the heat -

ment plan covering all mgular employes who have com- purchase contract Renaissance will purchase nuclear fuel j- pleted six months of senice.The Company's policy is to fund and make allother miated payments. Title to the nuclear fuel pension cost annually as it accrues. Accmals am based on will be held by Renaissance. During the period that the the actuarial cost of the plan. Unfunded prior senice cost is nuclear fuel is generating heat, the Company will make quar-amortized over fonyyears and thinyyears (for costs mlating terly payments to Renaissance for the cost of fuel consumed to amendments to the plan after April 1,1977), as appropri- during the quarter plus all other costs of Renaissance. Re-ate, and net experience gains and losses am amonized over naissance's investment in nuclear fuel totaled approx-

. fifteen years.The plan was amended on April 24,1978,by imately $70.7 million at December 31,1980.

shareholders

• approval, to proside that benefits to be paid to The Company does not capitalize those leases which am panicipants who retim after September 1,1978 be incmased defined as capitalleases by Statement of Financial Account-by changing the pementage of average final compensation ing Standartis ("FAS") No.13," Accounting for Leases", be- 1 allowed for each year of senice from 1.2% to 1.3% which cause the MPSC tmats all leases as operating leases for L msulted in an annual cost increase of appmximatelv $2.5 ratemaking purposes. Ilowever, had such leases been ac-I million effective January 1,1979. Cost to the Company to counted for as capital leases, balance sheet assets at De-

~

2 fund the plan was $32.5 million for 1980, $28.8 million for cember 31,1980 and 1979 would have included leased prop-1979 and $23 0 million for 1978.The comparison of accu % arty under capital leases, less accumulated amortization, of

, lated plan benefits and plan net assets presented b, W W03.3 million and $200.6 million, mspectively. Also, balance based on an actuarial valuation as of December O h deet liabilities at December 31,1980 and 1979 would have q .i included long-term obligations under capitalleases of $204.2 Actuadal present value of accumulated plan benefits:

.million and $199.5 million, respectively, and current obliga-vested . . $217.73: tions under capitalleases of $11.6 million and $10.9 million, Nomested . 13 377 nqcclively. The charges to expense for amonization and Total . ,. $231.108 interest related to such capital leases would have exceeded Net assets available for benefits $214.954 the rental expense actually recorded for 1980,1979 and 1978 l 28 i .-. -. - -

l 1

l by $2.r % lion, $1.8 million and $1.8 million, respectively. an order authorizing the Company to ce!!ect not more than The effect on net income is indetenninable since neither the an additional $13.8 million thmugh December 31,1976.This leased pmperty and capital lease obligations nor the in- ortler was temporarily stayed by the Michigan Court of Ap-creased expenses have been included in the ratemaking peals on June 2,1976. On September 30,19 6, the Court of pmcess which determines the Company's operating rev- Appeals vacated the stay. EITective November 1,1976, a tem-enues and rate of return. porary surcharge was applied to electric customer billings which resulted in the collection of mvenues of $13.7 million, Not310-Hecoverable Fuel Costs: subject to refund, thmu6h December 31,1976, pursuant to On January 1, FM, the Company changed its method of the Court's order. A trial was held in July 1977 and the accounting for changes in fuel costs recoverable from cus-Company is awaiting a decision on the merits.

tomers by defening recognition to *he period in which such On December 28,1979, the Michigan Attorney General costs were recoverable under the fuel cost adjustment f led compla%ts with the Ingham County Circuit Court and clauses. In February 1973, the MPSC directed the Company the MPSC mjuesting orders pmbibiting the Company fmm to resise the method of computing its fuel cost adjustment charging, <,.er the period 1980 through the first quarter of clauses by effectively eliminating any fuel cost billing lag 1985, appnnimately $30 million under the fuel cost adjust-caused by changes in fuel costs occurring on and after Feb-rnent clause.These charges relate to certain costs resulting ruary 4,1975. In February 1975, the Company applied to the from the renegotiation of the Company's contract with MPSC for an accounting and ratemaking order allowing re-Decker Coal Company, which reduced the tonnage ofcoal to covery of $26 million of accumulated fuel costs deferwd as of be delivered between January 1,1979 and December 31,1984 Febmary 3,1975. In December 1975, the MPSC issued an and incavased the cost per ton over the same period. On order denying the recovery of such accumulated deferred January 2,1980, the Ingham Coun:y Circuit Court denied the fuel costs. In September 1976, the Ingham County Circuit requested svlief and remanded the case to the MPSC. The Court pennitted the Company to recover such accumulated MPSC consolidated the matter with hearings on reconcilia-defermd fuel costs, by use of temporary surcharges, over a tion of the fuel and purrhased power adjustment clauses.

twelve-month period beginning October 1,1976. The Com-IIcarings have been conducted and have been completed pany' applied the surcharges and recovervd, subject to re-subject to a decision by the Michigan Attorney General to fund, $23.5 milliora of such costs. The Michigan Court of request further cross-examination.

Appeals then ruversed the 1976 Circuit Court decision and See Note 13.

affinned the original December 1975 order of the MPSC. In November 1978, the Michigan Supreme Court granted the Company leave to appeal the 1978 adverse decision of the Note 13-Extraordinary Property Isosses:

Michigan Court of Appeals which would have required re- Th -miM Mmm hudim mq' lose -

, 7gggg fund of the mvenues collected to recover 1975 defened fuel n emami costs. Because of this action by the Michigan Supreme Court, ,3,o 3373 no refunds have been made. In February 198C, the Michigan m m m nae Supreme Court mmanded the case to the MWC for specific neing Amonimr findings with respect to fuel cost adjustment clause billings Marth 1976 sto"m . .S 3, 62 s 5.395

. for the months of Febmary, Mamh, April and May of 1975.

Endro Fn mi er it No. 3 4,0M6 4 767 Pmecedings am continuing before the MPSC. If the Michigan N"' "d"8 ^*""b

• Apnl 197" Stom: 12,7M3 12,783 Supreme Court should ultimately determine that such costs m1v isso stonn . 9.7:2 -

should not have been reemered through customer billings en enmxi enit Nos. 2 and 3 ri,373 -

a..d must he refunded, the total and per share amounts of sion, sin s22su carnings for Common dtock for the year 1975 would be reduced by approximately $12.7 million and $0.27, mspec- am 9 smm ice an wind stonn t$11.2

, sts o tively, and restated to $39.3 million and $1.23, respectivelv, '

with' conysponding reductions in irtained earnings used in ".u lion) and pmject costs of the cancelled Enrica Fermi Unit the business at December 31,1975 and subsequent years.

" " "" "N"*" * * "F"U"N

• penses as a cost of senice over a five-year period ending in Note 11--Conninitments: 1982 and a ten-year period ending in 1986, respectively, as in connection with its continuing capital expenditum pro. authorized by the MPSC.

gram, the Company has entered into purchase commit. Severe stonns in April 1979 and July 1980 caused extensive ments which amounted to appmximately $1.8 billion at De. damage to the Company's transmission and distribution cember 31,1980. The Company has also entervd into sub. system. The Company filed separate applications with the stantial long-range fuel supply commitments. MPSC seeking accounting and ratemaking orders which would pennit recovery and amortization of the 1979 ($12.8 Note 12-Hate Mattery,: millioni and 1980 ($9.7 million) storm senice restoration On April 28,1976, the Company appealed to the Ingham costs over 60-month periods. IIcarings with respect to the County Cirruit Court the MPSC's Marvh 30,1976 rate order, 1979 and 1980 storm damage applications concluded on which granted an inervase in electric rates of $62.4 million January 4,1980 and December 23, 1980, rvspectively. By annually, on the gmunds that the relief granted was un- order dated December 30,1980, the MPSC authorized the reasonable and unlawful. On May 19,1976, the Court issued amortization, over a 60-month period, of the 1979 stonn 29

I

, dirnige costs with amonization to commence simultane- See Note 10 for legal pmceedings relating to recoverable ously with an amortization schedule, as yet not established, fuel costs.

with respect to the 1980 storm.The AtPSC denied the Com-pany's mquest for ratemaking treatment of the 1979 storm colts, such denial being without prejudice to raising such Note 15-Sale to Cooperatives:

j On February 8,1977, the Company sold a 20% undivided istue in a ratemaking proceeding.The Company has defer-wuership intemst in its Enrico Fenni Unit No.2 to Nonhern red costs of the stonns and has not reflected such costs in Alichigan Electric Cooperative, Inc. and Wolverine Electric

, cunent operating expenses.The Company believes that the Cooperative, Incorporated rCooperatives**l. The Coopera-recovery of such costs through customer rates will be au-tises made an initial payment to the Company at that time thorized in the final order of the Company's current rate

~

equal to 20% of constmction expenditures, inclusive of case.

AFUDC, and are obligated to make monthly progmss pay-On Marth 24,1980, the Company decided not to construct Gmenwood Nuclear Unit Nos. 2 and 3. Pmject costs incurmd ents of 20% of subsequent construction expenditures, ex-

' clusive of AFUDC. As of December 31,1980, total payments of for these units amounted to approximately $71 million,

$190.9 million had been received fmm the Cooperatives. See excluding land. The federal income tax effect related to the Note 16.

, deduction in 1980 of the abandonment loss has been re-

%e agmements miadng io that sale prmide, among other I corded and the related deferred tax liability of approximatelv

~

things, that the Company will exercise control over con--

$25 million is included in accumulated defermd income struction and operation of the facility, the parties will share taxes. On April 7,1980, the Company filed an application ,

electricity generated and the costs of plant operations,  !

with the MPSC for authority to defer the pmject costs until m intenance and capital improvements in proportion to i such costs can be considered in a ratemaking proceeding.

their ownership interests and the Company will have certain f The Company is seeking recovery of these costs in account-

~

obligations to pmvide replacement power to the Coopera-ing and raternaking proceedings which would, if granted, tives when the umt is out of senice. l permit amonization and recovery through customerbillings The Company is obligated to complete construction of of such project costs over a 60-month period. Cross- Enrico Fermi Unit No.2 promptly, but if the Company delays examination of Company witnesses commenced on De-constmetion of the unit because more economical sources cember 15,1980 and is continuing. If full recovery and amor-f p wer are available or because the Company decides that tization over some period are not ultimately appmved after it does not then require the additional capacity,it would be all appropriate proceedings, such unrecovered pmject bligated to supply each Cooperative with its entitlement of costs, less applicable federal income taxes, would mduce dectricky odwrwise expected to have been generated after earnings for Common Stock by up to $46 million in the the anticipated completion date and would have to indem-I period of such determination.

nify the Cooperatives for additional constmction costs re-Nob 14-Litigatiers: sulting from the delay. If such delay extends to fiveyears, the The Company and ' vo unions which repmsent cenain ofits Cooperatives may demand that the Company repurchase j emphiyes wem named as defendants in two actions alleging theirinterests at the cost of theirinvestment.The Company racial disenmmation against a class of past and present would not be liable for any delays in completion resulting black employes and certain rejected black applicants for fmm a default in payments by a Cooperctive and may buy employment (Stamps, et al v The Detrtyit Edison Company, et g

,g gg g7  ; y al and Equal Employment Opportumty Commissmn v The ,30 gays Detroit Edison Company, et al, filed in 1971 and 1972, mspec- From the anticipated completion date through 1990, the tively). Following a consolidated trial of these actions, the Company will be obligated to purthase pan of the Coopera-District Court for the Eastern District of Michigan found, in tives, entitlement to the output of the um.t and has a right of l 1973, that the Company and the two unions had engaged in fint refusal to purchase the balance.

. illegal racial discnmmation. Themafter, a senes of appeals were taken by the parties during which the Company reached agreement with plaintiffs as to two settlements of Note 16-Jointly-Owned Utility Plant:

. these actions and the parties to these actions stipulated that The Company and Consumers Power Company rConsum-an appeal by the defendants to the United States Court of em") are co-owners of the Ludington Pumped Storage Plant i Appeals for the Sixt h Circuit be held in abeyance pending ihe which was placed into senice in 1973.The Company has a

, outcome of settlement negotiations. In September 1980, the 49% undividut owncmhip interest and Consumers the other

- District Court approved the settlement with respect to the 51%. The Company's investment at December 31,1980 and employe class which settlement pmvides for the distribution 1979 in utility plant in senice was $168.3 million and $167.9 of a fund of $4.25 million and the payment of $250,000 in million, respectively, and the accumulated depmciation at l December 31,1980 and 1979 was $24.5 million and $21.2 attomeys' fees. In December 1980, the District Court ap-

preved the settlement with respect to the trjected applicant million, respectively. Operation, maintenance and other ex-l' class which settlement prmides for the distribution of a fund penses of the plant are shared by the Company and Con-of $850,000. Absent substantive employe clan appeals, dis- sumem,49% and 51L respectively.The Company's share of tribution of all settlement amounts will commence in 1981 these expenses is included in other operation and mainte-

! and continue thmughout the year.The settlement amounts nance expense in the Consolidated Statement of Income.

hive been accrued by the Company. The Company and two Cooperatives am co-owners of the l

} 30 L

1 l

1 1

l Enrico Fermi Unit No. 2, a nuclear unit undet enstmetion. CompIny's investment at December 31,1980 and 1979 in l M3 Note 15. The Comp;ny has an 80% undivicini ownership constmetion work in progress was $913.5 million and $721.6 int:reit and the two Cooperatives the remaining 20L The million, respectively.

N:te 17-Supplementary Quarterly Financial Information (Unaudited):

1980 Quaner Ended 1979 Quader Ended Marrh 31 June 30 Sept.30 Dec.31 11 arch 31 June 30 Sept y Dec.31 (Thousands) IThousandsl Opertting Resenues . $431396 $425.453 $474.321 $481.344 Operating Revenues . $432.514 $422332 $436 949 $406.716 Operating income 65,710 75,398 86.452 88,755 Operating Income 66.577 65.644 71.910 71.346 Net Income . 34,412 41,650 56,382 56.122 Net Income . 45.387 43.504 44.643 42.495 Ermings for Eamings for Common Stock . 22.400 29,151 43.138 42.840 Common Stock . 34,623 32.726 33.967 31.256 E;mings Per 5h w 030 0.38 0.54 0.52 Earnings Per Share 0.52 0.49 0.47 0.42 Note 18--Supplementary Information Concerning the Effects of Changing Prices (Unaudited): changing prices on the operations of business enterprises.

The following supplementary information is supplied in ac- The Company believes it is important for financial state-cordince with the requirements of FAS No. 33, " Financial ment users to develop an understanding of the mom sig-Reporting and Changing Prices". FAS No.33 deals with two nificant impacts ofinflation. Ilowever, the Company advises diff: rent aspects of an inilationary environment: (1) the ef- readers that the data adjusted for changing prices have been fects of general inflation, i.e., the decline in the purchasing determined in accordance with experimental techniques power of the dollar (the " constant dollar" method) and prescribed by FAS No. 33. It is an attempt to display the (2)the effects of changes in the specific prices of certain approximate economic effects of inflation and should be essets used by the Company (the " current cost" method). considered an estimate of those effects rather than as a The Financial Accounting Standards Board has taken this precise measure. The supplementasy information should dual approach because there is presently no consensus on therefore be viewed with caution as should any other which method of reporting better portrays the efTects of hypothetical data.

Consolidated Statement of Income Adjusted for Changing Prices iear Ended December 31,1980 Adjusted for As Reported in the Adjusted for Changes in Primary Statements General Inflation

• Specific Prices

• IHistorical Costi (Constant Dollarsl ICunent Costsi iMillions)

Oper5 ting Revenues . $1.812 $ 1.812 $ 1,812 Operating Expenses iExcluding Depreciation) . 1.354 1,354 1,354 Prmision for Depreciation (Note B) 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 Before Interest Charges . 355 199 136 Intirest Charges . 166 166 166 Net Income . 189 33** (301 Prefened and Preference Stock Disidend Requirements . 51 51 51 E/.rnings for Commcv Stock $ 138 $ (181 $ 18 11 Increae in Specific Prices of Net l'tility Plant *** $ 763 Adjustment of Net Utility Plant to Net Pecoverable Amount (Note C) $ 1407) 87 Effect of Increase in the General Price tevel 11.1 %

Excess of Increase in the General Price Ixvel over the increase in Specific Prices of Net l'tility Plant after Adjustment to Net Recoverable Amount . 1344)

Reduction of Purthasing Power loss through Debt Financing (Note D) - 394 394 Net Effect on Common Shareholders' Equity $ (13p $ 50

• Average 1980 dollars.

"If the tdjustment of net utility plant to net recoverable amount of $407 million were reflected.and no s ecognition was given to the $394 million reduction of purchasing power loss through debt financing, net income adiusted for general inflation would have been a loss of $374 million.

• • • At December 31,1980 the current cost of utility plant, net of accumulated depreciation, was $9.816 million, while historical cost or net amount recoverable thmugh depnriation was $5.026 million.

31

Five-Year Comparison cf Selected Supplementary Finsncial Data' Year Ended Decemtwr 31 1980 1979 1978 1977 1976 iMillional OperLting Rewnues:

As Reported . $1 A12 $1.698 $1.590 $1,451 $1,266 Adiusted for General InGation . . 1 A12 1,928 2,008 1,973 1.832 Net Income:

As Reported . $ 189 $ 176 $ 147 $ 145 $ 120 Adjusted for General InGation . 33 61 NA NA NA Adjusted for Changes in Specine Pdces , (30) (16) NA NA NA Eamings for Common Stock:

As Reported . $ 138 $ 133 $ 109 $ 110 $ 85 Adjusted for General InGation . (18) 12 NA NA NA Adjusted for Changes in Specine Prices , (81) 1661 NA NA NA Eamings Per Common Share:

As Reported . $ 1.75 $ 1.90 $ 1,76 $ 2.00 $ 1.66 Adjusted for General In0ation . . to.23) 0.17 NA NA NA Adjusted for Changes in Specinc Pdces . (1.03) (OSH NA NA NA Excess of Increase in the General Price Irval owr the Increase in Specine Pdces of Net Unhty Plant after Adjustment to Net Recoverable Amount . $ (344) $ (402) NA NA NA Reduction of Purchasing Power Loss through Debt Financing . $ 394 $ 428 NA NA NA 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 Pdces after Adjustment to Recmerable Amount . 1r458 1,5M 1,524 1.499 1,439 Cash DMdends Declared Per Common Share:

As Reported . $ 1.00 $ 160 $ 132 $ 1.4675 $ 1.45 Adjusted for General Inflation . 1.80 182 1.92 2.00 2.10 Market Pdce Per Common Share at Year-End:

As Reported . $10% $ 12% $ 13% $ 16% $ 15%

Adjusted k,c General InGation . . 10 % 13 % 17 % 22 % 22 %

Consumer Pdce Index (1967= 1001:

Awrage . 246.8 217.4 195.4 181.5 170.5 Ytar-End 258.4 229.9 202.9 186.1 174 3

'All data adjusted for changing prices are stated in awrage 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 Ne. 33 and would have been costly and difficult to prepase. In the future, one year's comparative data will be added each year.

Note A-General:

j . The data adjusted for general inflation represent historical to anive at net income adjusted for general inflation and

costs stated in terms of dollars of the same general purchas- changes in specific prices was limited to depreciation ex-ing power (constant dollars), as measured by the average pense. In accordance with pmcedures specified in FAS No.

level of the Consumer Price Index for all Urban Consumers 33, revenues and all expenses other than depmeiation were (CPI-U) for 1980.This method is intended to measure income considered to reflect the current average price level for the after giving recognition to the cost of maintaining the pur- year and accordingly remain unchanged from those chasing power of the dollam invested in utility plant. amounts shown in the Company's primary financial state-The current cost data reflect changes in the specific prices ments.

of utility plant from the date such plant was acquired to the Estimated utility plant was determined under both present, as measured by the llandy-whitman Index of Public methods by applying the indexes specified above to the Utility Constmction Costs.This method is intended to mea- historical cost of utility plant by sintage year. Depreciation sure income after giving recognition to the cost of maintain- expense was then determined for the adjusted amounts of ing the capability of the Company's system o pmvide elec- utility plant by applying the same composite depreciation tric sersice at current price levels. rate used to compute the historical amount of depreciation The difference between cunent cost data and the data expense shown in the Company's primary financial state-adjusted for general inflation results fmm specific prices of ments.

utility plant increasing more or less rapidly than prices in Fuel inventories and the cost of fuel used in the generation l

general. of electricity were not restated fmm their historical costs.

Note B--Net Income Adjusted for Changing Prices

Regulation limits the recovery of fuel expense throu6h ad-Adjustment ofitems in the historical cost income statement justments in basic rate schedules or thmugh the operation j 32 l

of fuel adjustment billing clauses, which include 90% of the cmssed at a rate greater than the rate of general inflation.

changes in fuel inventory costs. For this reason, fuel inven. The gain in purchasing power discussed presiously which tories are etTectively monetary assets. Ataterials and supplies results from the Company's substantial use of debt financing inventories were not restated since they am not a cost of is strictly an economic concept. The Company cautions generating electricity and the amounts involved are insig- readers that such gains will never be realized and therefore nificant. As with fuel inventories, materials and supplies do not contribute to cash flow or distributable income.The inventories have been treated as monetary assets. See Note regulatory prucess limits the Company to recovery of only D. the actual embedded interest cost of capital provided through debt financing.Thus, any gain in purchasing power Nzt3 C-Adjustment of Net Utility Plant to Net resulting from the use of debt financing is passed on to Hec v:rsble Amount: customers through reduced rates.

Under current ratemaking policies prescribed by the A1PSC Since a substantial portion of the Company's investment l and the FERC, only the historical cost of utility plant is in utility plant was financed through debt, any purchasing l

recoverable through depreciation charges as part of the cost power gain resulting from the use of debt can only be of senice billed to customers. Therefore, the excess of the realized if depmciation on that portion of the inflation ad-cost of utility plant adjusted for both general inflation and justed cost of utility plant financed with debt wem recover-changes in specific prices is not presently recoverable in able as part of the cost of senice billed to customers.There-rates as depmciation. In accordance with the requirements fore, to properly reflect the economics of rate regulation, the of FAS No. 33, the amount of this excess that accrued as a Company believes that the economic gain in purchasing msult of changing prices during 1980 is reflected as an ad- power related to debt should be considered an offset to the justment to net recoverable amount.

economic loss experienced as a result of regulatory restric-tions related to the recovery of depmeiation on the historical N ts D-Heduction of Purchasing Power Loss through cost of utility plant.

Debt Financing

Since the higher depmciation expenses under constant During periods of infiran, the holding of monetary c.3 sets dollar or current cost accounting are not tax deductible, such as cash and accounts mceivable results in a loss of income taxes included in the accompanying data adjusted general purchasing power because such items will purchase for changing prices were not adjusted faom those amounts less at a future date. Alternatively, the holding of monetary shown in the Company's primary financial statements.

liabilities such as long-term debt results in a gain of general Thus, the Company's effective tax rate under both the con-purchasing power because the amount of money requimd to stant dollar and current cost methods exceeds the statutory ultimately settle the liabilities represents dollars of di- rate of 46% Such a tax policy effectively results in a tax on minished purchasing power. shareholders' investment in the Company.

Since the Company owed net monetaryliabilities during a The constar't dollar data, because they am developed period in which the general purchasing power of the dollar using the bmad based CPI-U, are not necessarily representa-declined ti.e., during a period of inflation), the Company tive of the effects of inflation on the Company. However, a experienced an economic gain in purchasing power. All primary value of constant dollar data is that they pmvide a assets and liabilities other than utility plant, as well as common basis for comparison that can be particularly useful amounts applicable to preferred and preference stock, were in trend analysis. The accompnying summary of selected treated as monetary items. Preferred and preference stock financial data, for example, shows that operating revenues wem treated in the same manner as long-term debt since for the five-year period 1976 thmugh 1980 increased 43L If they are treated as such for ratemaking purposes and be- each year were restated in average 1980 constant dollars, cause these shamholders have invested in the Company operating revenues for the same period would decrease 1%

primarily for the dividends which am paid at a fixed rate, and which indicates that the growth in operating revenues is the not primarily in order to maintain ti.e purrhasing power of result of inflation rather than increased volume, since total their original investment. kilowatthour sales in 1980 wem actually 3% lower than in 1976 due to the severe recession.

Note E-Discussion and Analysis of Financial Data In summary, the regulatory pmcess limits the amount of Adjuxtcd for Changing Prices: depreciation expense mcoverable thmugh revenues to the The accompanying statement ofincome adjusted for chang- historical cost cf the Company's investment in utility plant.

ing prices mveals a significant decrease in reported net in- Such amount pmduces cash flows which are inadequate to come when depreciation expense is adjusted for eithergen- mplace such property in future years or to preserve the eral inflation or changes in specific prices. Theoretically, purrhasing power of common equity capitalinvested. As a these decreases indicate that cun+nt revenues are not suffi- result the Company must increasingly mly on the capital cient to either maintain the purchasing power of the Com- markets to provide necessary financial resources, thus pany's invested capital or to mplace, at the assumed price further exposing the Company to the effects of inflation in levels, the portion ofits existing pmductive capacity used up the form of increased financing costs. The Company, there-during the year.The decrease in net income of 116% under fore, incurs a significant purchasing power loss which is the current cost method compamd to the 83% decrease experienced by the common shareholder and can be over-under the constant dollar method points out the fact that the come only as a result of adequate rate reliefin the regulatory cost of the Company's investment in utility plant has in- pmcess.

33

The Detroit Edmon Company and subsidiary companies M: nag;m:ntb Discussi::n cnd Analysis cf Fin':ncial C:ndition cnd Resulta cf Operztion:

Consolidated Staternent of Int orne Operating Expemsen-Operating expenses inemased during the three Cencral--thmughout the thme-year period. the Company everienced 3rars ended December 31,198u, as did the total cost per kilow atthour soki.

increase i operating espenses erllecting the effects of intlation, and high Fuel espense incrrased during this period due primanly to the higher costs co+ ts of caintal associated with its contmuing capital espenditurr pmgram of all fuels con 3umed resulting fmm gnater use of higher cost low-sulfur Also, twginning in mid-1979 and thnsugtu3ut 1980. recessionary conditions coals to comply with emironmental rrquirements. United Aline hrkers esisted througimut much of the Company's senice arva. maried by tv- contract wage incmases. mine rrclarnation costs. r nst fmight rate incerases, duced industnal arthity. related employv layoffs and continued energv other escalations anit significant oil pnce incrra ses. Coal consumption at consenation which rrsulted in substantially lower kilowatthour sales to the Company's electric generating plants. as a percent ge of total fuel customers.

consumed. was apprusimately 82% 86%. and 90% in 1978.1979. and 1980.

Although rate increa es werv rr reh ed di aring this three-y ear period. they mspectively, and the aserage cost per ton of coal consumed was $28.52, wem neither timely nor adequate to permit the Company to earn its author- 533 35 and $37.72, respecthely. Increased h.gher cost generation from oil-imi rate of return on common equity. firwl units u as netrssary in 1978 due to the coal mineri strike. A significant Operating itesenuem-Approximately 97% of the Company's operating increase in other power supply expense occurtrd in 1978 as a trsuit of nwenues am subject ta the jurisdiction of the NtI5C.with the mmaining 3% seserr winter weather, the coal miners sinke and higher costs of purchased subiert to the jurisdiction of the FERC. power. Other power supply espense decreased in 1979 and 1980. as com-Operating nnrnues increased in each of the last three3 ears due primanly pared to 1978. due to a ryduction in purchased powerand incmased sales of to rate incrrases, re enues recched under the fuel and purrhased power energv to other utihties. rytlecting incrrased Company generation and adjustment billing clauses u hit h wen

• in effect throughout the period. and declines in kilowatthour sales. Other operation espense increased due a 1.5% increase in kilowatthour sales in 1978 The estimated significance of primanly to higher labor and employe benefit costs. general inflationary I I

these facton is shown in the fulltming table: increases in other costs and accmals for settlements of twu cases which f.stimated incrrase invohed claims of employment discrimms tion isee Note 14 to Consolidated IDecreasel From Prior Year Financial Statementst Ntaintenance expense incrvased due primarily to 19M0 1979 1978 higher labor and material costs and continuing effons to impnne the Mlliong asailability and efficiency of all generating equipment. Degurciation ex-Rate increases and fuel and purrhased pense inema3ed as a result of higher composite depreciation rates ap-5120 5136 pnnwi tw the NtISC effecth e in September 1978 and an incrrase in depreci-pimvr adlustment billing (lauses . $tho mal W 16 able pmpeny, including Gmenwood Unit No. I which was placed into Kilowatthour sales . senice in 1979. Taxes other than income incerased due to increased prop-Other-net . 17 16' 113 eny taxes. payn;H taxes and the Niichigan single business tax. 6ce Note 7 to SII4 5109 ~5139

~~

Consolidated Iinancial 5tatements for components of income tases and a mconcihation of the federal income tax statu.ory rate with total income tai Rate incmases authorized by the AfPSC include 586 8 miHion annually espense3 Cunrnt income taxes and imestment tas cmdits dectrased in effective in deptember 1978 tincluding interim of $35 4 million in Febniary 1980 to negath e amounts because the Company will trpon a loss for federal I978) and 5132 7 miUion annually effecthe in Alan h 1980 tincludinginterim income las purposes in 1980 as a result of claiming an abandonment loss for of 556 9 million effectis e in July 1979 w hen Greenutx>d Unit No I was placed the costs ass (x iated with Grrennomi Unit Nos. 2 and 3 isee Note 13 to into wnicel F.ffecthe in Nmember 1980. the N!PSC authorized an interim Consolidated Financial Statementst 1he loss for federal income tas pur-annual rate incerase of $961 million in the Company's pending application poses in 1980 will be canied back to 1977 and will trsult in a reduction in the for an incrrase in rates Rate incmases in 1979 and 1980 also include billing amount of imestment tax crechts prmiously claimed by the Company.

sunOarges under the Atl5C,other operation and maintenance espense Defenrd income tases inemased in 1980 due primarily to trconting the indesing and the system generating asailabihty incentise pnnisions. The defenvd tas lialnhty of approsimately $25 million related to the Gree"w ot d rate incerase amounts authorized by the Ntf5C am based on the resperthe abandonment loss. which has been defenrd for financial typorting pur-test yean generning the Company's rate cases; honmer, rmenues actually poses. The 542 million crrdit adiustment to defenrd Niichigan income maliicd depend upon Imels of kilowatthour sales. tases in each of the thmeyeam ended Dec ember 31,1980 ishown in Note 7 to in 1978 rmenues rm ehed under the fuel and purchased power adjust-Consolidated Financial Statements < usU not be recorded in 1981 because ment billmg clauses nerv incrrased by the reemery of 90% of the signifi_

the Company has completed amor1ization of the accumulated balances of cantly higher fuel and pun hased pow er costs incunrd in the fint quarter of defenrd Whigan Wmna mas as unlerrd by the %115C.

1978 as a result of the coal miners stnke, smerr winter weather and weather-triated coal handling problems.

Coats of Capital-Interest on long-tenu debt. pmfenrd and perferrnce stock dnidend requirrments and dhidends on common sharrs outstand-During 1979 the Company eywrienced a 0 7% reduction in kilowatthour sales swith industrial sales down 21%. rrsidential sales down 1.1% and ing incerased due primarily to the issuance of additional securities at higher interrst and dnidend rates to finance the Company's continuing capital commercial sales up 2 951 due to trduced industrial acthity trflecting expendituie pmgram and. to a lesser estent. rrfunding of maturing secunty slowdowns in autornotht* and automothe Irlatal at thities. crusler than issues at higher cmts of capital Intemst on lo v tenn debt has also in-normal weather during the air conditioniag season, mild w eather atlecting crrased due to higher interrst iates on the $155 rmilion t'nsecured Promis-heating sales and customer consenation_

sory Notes whit h are adjusted quarterly based on the prime rate Other Kilowatthour sales in 1980 decirased 7.2% ruith industrial sales down interest espense has incrrased due primarily to higher Im els of short-ter.Ti 1.5 90 rrsidential sales up 12% and commerrial sales up 0 2 %L 1he decline in sales trflects rrduced iridustiial at thity, particularly on the part of horTuwings at higher inteerst rates. The awrage interrst rate for short-term horTuwings incmased from 8 4 % in 1978 to 12 0% in 1979 arid 151% in 1980.

automothe and automothe-related manufat turrIY with automothe prm dut tion down significantly from 1979 laels. other trcessionary conditions Isarnings for Common Stock-hilight of the forrgoing camings declined in the Company 's nenn e arra and continued customer consen ation. lhe for 1978 as the Company esperienced lower than anticipated grTmth in kilowatthour sales. inadequate and delayed rate incirases and higher ini rcase in residential kilowatthour sales in 1980 rvflects an increase m residential rustomers. w armer summer wother w hich increased rustomer operating eymnses t he impnnement in carnings for 197% despite lower use of air-cotuhtioners and dehumidihers and rolder fall weather which kilowatthour sales. was due primarily to increased operating frwnues incrrased a ustomer use of furnaces and other heating equipr&nt. resuhing imm rate increases. In 1980 earnings for common stot A increased 34

despite lower kilowatthour sales and incmases in operating expenses and and increased working capital requimments tespecially fuel inventories) fintncid rosts. llown er. earnings per sham declined due to the substantial and capital costs tinterest and disidendW have cmated increasing cash increase in the average number of common shams outstanding needs which hase had to be met to a greater degree through external Earnings for common stock include AR'DC, a non-operating non-cash sources. Internally generated cash tiow pmsided 20% 23% and 15% of capital item, consisting of the net cost of bormwed funds used for cous. uction expenditures icxcluding total AFUDCI in 1978.1979 and 1980, respectively, purposes and a reasonable rate on other funds when so used. AWDC with the balance being pro ided by external financing Internalcash genera-incrmsed due to inemases in the AFUDC rate tin recognition of inemasing tion at the 15% to 20% h% el is expected to continue during the periods when costs ofcapitalt additional construction work in pmgress erpenditums and the largest expenditures for the Fermi and Belle River pmver pla7ts am erpitalization of the actualinterest expense and commitment fees applica- scheduled. and cash needs for total capital expenditures fmm 1981 to 1985 ble to the 7elle Rher Project Financing arrangement entered into in Nig are estimated to appmximate 53.1 billion tercluding 50.6 billion of AFUDCk 1980. AFUDC amounted to 61% 61% and 77% of camings for common s'ock including expenditures expected to average about 20% of annual totals to in 1978.1979 and 1980. respectively. See Note I to Consolidated Fina icial meet pollution control regulations. In 1981. the Company expects capital Statements. expenditures lexcluding AFUDCI of appmiimat%. Om million and approx-Return on average common equity was 9.16%. 9 91% and 9.394 for 1978, imately $645 million of external financing lincluding approximately $265 1979 and 1980. mspectively. as compamd with the 13.50% return authorized million under its Belle Riser project financing arrangementt The sale of by the MPSC since May 1977 substantial amounts of debt and equity securities. which is dependent Consolidated Balance Sheet upon receipt of periodic financing authority fmm the M PSC. will be required Increses in total assets and total liabilities are due primarily to expendi-. for the Company to meet its short and long range cash needs. When the tures for and external financing of the Company's continuing capital ex- Fenm. No. 2 and Belle River units are in senice, cash flow fmm operations is penditure pmgram. expected to incmase.

Electric plant in senice was increased by 5381 million in 1979. with a in addition to its continuing needs for long-term debt and equity funds, corresponding decrease in construction work in pmgress, when Green- shon-tenn bonuwings am used as a pan of nonnat day-to-day operations wood Unit No.1. an oil-fired generating unit, was placed into senice. an to meet interim cash needs for capital projects. pending periodic Constmction work in pmgress was decreased by 571 million in 1980. with a mduction or repayment thmugh long-term financing. At December 31.1980, corresponding increase in extraordinary pmperty losses as a result of the the Company had bank lines of credit aggregating appmiimately $219 decision not to construct Gmenwood hnit Nos. 2 and 3. million. Any mateaal dismption in the securities markets or any other At December 31. 1980, non-utility property and other deferred debits circumstance the might significantly delay or restrict the Company's ac-included appmiimately S4 million for 5t. Clair Energv Corporation t"$CE") cess to long-te..n debt or equity financing would increase reliance on and appmximately $12 million for n'ashtenaw Energy Corporation rut.C"), shon-tenn bormaings and, depending on the circumstances, could ad-both of which am wholly-owned subsidiaries of the Company.5CE is a 51% umly affect the Company's financial condition, msult in delays or suspen-partner in the mining of coal. 'I he pannen. hip discontinued mining oper- sion of mai r construction projects, an%ould in the future adversely affect

"""I""'

ations in June 1978 and a purchase agreement for cenain coal pmpenies has been rescinded. Legal pmceedings in this matter am continuing. WEC %e Company plans to cany out a nnandng pmgram to achieve a c'.pital has a 79% undisided interest in certain uranium mining claims and leases. stmetum objective of approximately 50%-55% long-tenn debt.10%-15% pre-Uranium mining operations werv tenninated in November 1979 due to the fer'md and preferrnce stock, and 35% common equity. Considering the large high mining costs encountered. uT.C plans to resume mining operations number of common shares that must be sold to achine and maintain this u hen the curmnt depmssed market price for uranium irtnrm es and mining ratio, and currently depressed common stock prices, common equity may operations tecome economical. mmain below the 35% goal over the next smeralyeam. uhen the present Customer accounts receivable mflect 30.0 and 35.2 dass of rmenues major power plant constmetion program is complete.1 external needs for outstanding at December 31,1979 and 19MO, respectively. Cncollectible a anal m s am exF to decrease and a common equity ratio above expense increa3ed fmm 563 million in 1978 and 1979 to 58I million in 1900. 35L and a debt ratio closer to 50%. am hkely.

rvflecting higher unemplovment and rvcessionary conditions in the Com-In onler to pmside a speci ic source of funds to finance Belle Rher Unit pany's senice area. No.1 and the common facilities for Unit No. 2. an $800 million project Materials and supplies inventories have inemased due to longer lead financing -rrangement with a number of banks was completed in 1980.

times on reordering certain stock items, additional spam pans and oper- nder tNs 6:andng anangement, funds am drawn down on a rnanthly ating supplies to ? port the Company s capital rapenditure and mainte- basis as require I for constmction. Itepayment of the loans iincluding inter-nance pmgrams and higher unit prices rrtlecting the effects of inflation. est ami comuutment fees which are now being capitalizedi will begin not Fuel inte ories have inemased duc to higher inventory quantities of fuel at later than Jantiary 1,19M5 at the rate of $50 million per quaner, with higher u .t prices. mfun&ng expected thmugh sales of &neral and Hefunding Mortgage Thet apany's long-term debt to total capitalization ratio incmased from Bonds.

52 0% at Decemiwr 31.19791o 53.6% at December 31,1980. rvilecting a higher A portion of capital needs bare been met thmugh leases for such equip-proportion of external financing thmugh long-term nebt bormwings in ment as computers cars. trucks. unit trains. lake sessels and buildings.

19L0. including the Belle River Project Financing a:Tangement. Common mbar fud Gnamtg of up to $w mWon. mmu4 an agmement uhemby shamholders' equity dermased from 35.2% at December 3 t,1979 to 33 M at "Pdunents will be made as the fuel is consumed. was completed in 1979.

December 3t,1980, notwithstanding the issuance of 9.572.721 additional e Company has also sold 20 % of the capacity ofits pmposed Fermi plant common shares in 1980. to two Michigan cooperatis es. with the cooperatives agreeing to bear 20% of Accumulated defened investment tax cmdats decreased at December 31, construction costs of that plant.

1980 due primanly to the decision not to construct Grrenwood t' nit Nos 2 and 3. which rrsulted in a reduction of investment tax ctrdits presiousiv '

inflation claimed by the Company. 'I he Companys business and operations bas e been and wili continue to be impacted by a highly inflationciv economy. 5ee Note 18 to Consolidated I.lquidity arul Capital Hehources Financial 5tatements for infonnation conceming the appmximiste etTects of in the past smeralyears. the Company's large capital expenditum pmgram intiation on the Company.

35

The Detroit Edison Company and subsidiary companies Comparativa Result 3 d Operzti:na 1980 1979 1978 1977 Operating Rewnues

$ 1,776,364 $ 1.667.679 $ 1.561296 $ 1.423.909 Electric . 27,012 36,150 30,832 28.546 Steam _

$ 1,812,514 $ 1,698.511 $ 1,589E42 $ 1.450 921 Total Operating Revenues Operating Expenses Operation expense $ 538,325 8 670,116 $ 647,620 $ 580,869 Fuel . ,

107,767 96,502 158,098 108.648 Other power supply 203,300 290,566 266.410 235.720 Other operation expense 110,736 133,270 128.600 124E M Maintenance expense .

141,948 129.644 115,325 102.304 Prmision for depreciation Prmision for taxes 96.597 115.520 99,552 91.488 Taxes, other than income 1,334 (307) 5,063 4.671 Curtent income taxes . 27,980 14,787 59,159 40,359 DeferTed income taxes-net 50,596 (21,8401 9.284 24 035 Investment tax credit-net

$ 1,496,199 $ 1.423.034 $ 1.362,990 $ 1.226.627 Total Operating Expenses

$ 316,315 $ 275.477 $ 226 852 $ 224.294 i Operating income Other income and Deductions $ -

Allowance for funds used during construction . -

Allowance for other funds used during 38415 38,323 32273 23.750 construction . 4,821 692 3.664 2.371 Other income and deductions 11.700) 1869) (1,554l 112281 income taxes .

33.416 $ 26,871

$ 38,838 $ 40 433 $

Total Other Income and Deductions .

$ 355,153 $ 315.910 $ 260268 $ 251,165 Income Before Interest Charges .

Intirest Charges $ 129,078

$ 211,857 $ 167,585 $ 140.288 Long-term debt .

Amortization of debt d'.scount, premium 1,339 1,776 1.644 1,403 and expense - 1,959 19,662 13.823 5298 Other Allowance for bormwed funds used 125,726)

(66,708) (43.1711 133390i during construction tcredit)

$ 166,587 $ 139 881 $ 113399 $ 106 650 Net Interest Charges .

Net Income Before Cumulative Effect nf a

$ 188.566 $ 176.029 $ 146E69 $ 1 4515 Change in Bihing Practice Cumulative effect to October 1,1973 of a change in billing practice, net of - -

income taxes of $6.063.000 .

$ 188.566 $ 176.029 $ 146369 $ 144.515 Net income .

Preferred and Preference Stock 34.095 51,037 43.457 38 056 Dividend Requirements

$ 132.572 $ 108 813 $ 110,420 F2.mings for Common Stock $ 137,529 69848.484 61.898.763 55 202,974 Common Shares Outstanding-Awrage . 78,780,863 1.90 $ 1.76 $ 2 00 E .mings Per Share $ 1.75 5 Diddends Declared Per Share of 5 1.4675

$ 1.60 $ 1.60 $ 1.52 Common Stock .

Ratio of Eamings to Fixed Charges 2.48 1.90 2.17 228 IS E.C. Basis)

Ratio of Earnings to Fixed Charges and Prefened and Preference Stock Dividend 1A5 1.53 1.69 1.71 Requirements (S.E.C. Basis) is) 1975 eamings for common stock, camings per share, ratio of eamings to fixed charges, and ratio of earnings to fixed charges and preferred and preference stock diddend requirements will be restated to $59 3 million. $123,135 and 1.45, respectively, if certain defened fuel cost revenues are ultimately required to be refunded. See Note 10 of Notes to Consolidated Financial Statements.

Ibl includes camings per share of $014 for cumulative effect to October 1.1973 of a change in billing practice, net of income taxes.

(c) Before cumulative effect to October 1,1973 of a change in billing practice.

36

1976 1975 1974 1973 1972 1971 1970 flhousands)

$ 1,241A83 $ 1.052,061 5' 881,301 $ 738,216 $ 659.148 $ 585,324 5 518.632 24284 18.719 17,158 14.919 14,443 13.872 10 626

$ 1.266.167 $ 1.070.780 S 898.459 5 753.135 $ 673,591 $ 599.196 $ 529.258

$ 477,231 5 445,437 5 342,398 $ 218,150 $ 197,016 $ 187,323 $ 145,725 88350 19,464) (2,1181 20.830 9,985 15,177) 5.046 179A67 160.224 142,789 134.266 129,296 123.691 114.559 ~

100.577 91.253 61.816 56.556 52.065 49,877 48.687 93.875 89.240 84385 72,967 63.532 56,898 50.076 M234 76,363 74382 65,720 56.636 53.702 46,383 3,467 389 3,992 7,194 5348 3,781 16,250 28,379 29,785 26,187 21,968 22,660 13382 10,222 4.094 7.987 (2.4281 7.583 7.299 6.793 583

$ 1.070 074 $ 891.216 $ 731,903 $ ' 605.234 $ 543 337 $ 490.270 $ 437,533

$ 196.093 $ 179564 $ 166.556 $ 147.901 $ 129,754 $ 108.926 $ 91,725

$ 49.833 $ 43,463 $ 37,561 $ 36.520 $ 39395 26,823

$ $ 16.760 1,728 2.412 5,829 2413 97 (5231 (2041 1 451 11 3531 (3 280) (1.1621 122)

I 331 179 i $ 52 012 3 44.522 5 40.110 $ 37.771 $ 39.470 $ 26 631 $ 16 735

$ 248.105 $ 224 086 $ 206 666 $ 185.672 $ 169224 $ 135357 $ 108.460

$ 124.992 $ 116.267 $ 102.672 $ M.627 $ 70,244 $ 58.964 $ 40.913 1.0M 945 618 455 394 351 229 2.4M 8.420 .14,124 6,043 3.434 1.700 4.667

$ 128.480 $ 125.632 $ 117.414 $ 91.125 $ 74 072 5 61.015 $ 45 809

$ 119.625 $ 98.454 $ 89.252 5 M547 $ 95,152 $ 74.542 $ 62.651 5385 - - -

$ 119.625 $ 98.454 $ 89.252 $ 100,132 $ 95,152 5 74.542 $ 62,651 34 589 26.463 23 759 23.762 18.488 13 385 6.105

$ 85 036 $ 71.991(al $ 65 493 $ 76370 $ 76.664 ,$ 61.157 $ 56.546 31.277,789 48.120 A98 44.922.938 40.028,797 36.701 A34 33.767,445 30,138387

$ 1.66 $ 1.50i a l . $ 1.46 $ 1.91rbi $ 2.09 $ 1.81 $ 1.88

$ 1.45 $ 1A5 $ 1.45 $ 1.45 $ 1.40 $ 1.40 $ 1.40 2.13 2.05!al 2.01 2.44ic) 2.74 2.59 2.92

%?P 1.61- 1.60+ a l 1.59 1A0lc) 2.06 2.02 2.46

{

37

The Detroit Edison Company snd subsidiary companies St:;.ti:tical Review 19MO 1979 1978 1977 Operating Hevenues (Thousands) $ 497,988 5 464,906 S 5M3,701 5 524 613 Retidential-Electri . 313,673 291.220 383 alm 345.576 Commercial-Electric . 611.404 539.469 65MD51 647A38 Industrial-Electric . 180384 166.777 155326 1MM,744 Other $1,589E42 $1 A50.921

$1,M12,514 $1.698.511 Total .

Sales (%tillions of kMh) 10,394 10.274 10,386 10,385 Residential . 6.073 6.027 6,265 6.231 Commercid . 17,960 18354 17,915 I5472 Industrial . 2.335 2287 2.1&& 2.406 Other 37,148 36 614 34,235 36,891 Total .

Electric Customers (Year End) 1,823.162 1.622.768 1.600.988 1.579.607 Heridential . 127,634 118.942 136.983 135.788 Commercial . 2.201 2.126 2,293 2.264 Industrial . 1.675 1.648 1,750 1.713 Other 1,702323 1,764,1MM 1,762.533 1.732A98 Total .

Atrage Annual Use 6.523 6.616 640M 6.402 Per Residential Customer ikMh) .

$326.32 $313.08 $296.20 Anrage Annual Bill Per Hesidential Customer $359.88 Average Herenue Per Kuh 4.79c 4.48c 5.82c 5.11C Residential . 5.16 433 6.10 533 Commercial . 3.33 3.01 4.25 3 60 Industrial .

Capitalization (Thousands) $2.069,518 $1,843.036 $1.738.185 Long-Term Debt . $2450457 591,348 510.7M 3 494.691 448.892 Preferred / Preference Stoch . 1.254 074 1.130.738 1,528A42 1.400.441 Common Shareholders' Equity .

$4,56M,&85 $3 980.707 $3.591.801 $3.317.815 Total .

Capitalization (Percent) 513 52.4 53.8 52.0 Long-Term Debt . 13 3 13.5 13.0 123 Preferted/ Preference Stock . 34.9 34.1 33.4 35.2 Common Shareholders' Equity .

100.0 100.0 100.0 100.0 Total .

Common Stock Data $1.76 $2.00 31.75 $1.90 Etmings Per Share $1.45 s t.Ge $138 $1.52 DMdends Paid Per Share . 86% 73%

91% 83%

Payout 61898.763 55202.974 7M,7M0,883 69E48 484 Shares Outstanding-Average . 1038%

9.3S% 9.91% 9.164

% Earned on Average Common Equity . $18.88 S iM.00 $18 63 $18E1 Book Value Per Share

%!nket Price 16 % 18 13 % 15 %

liigh 13 % 15 %

10 12 %

Low.

Miscellaneous Financial Data 85% 7.7% 7.5%

9.0%

Aserage Interest Rate on long-Term Debt 8.8 % 86%

9.5% 9.0%

Avera6e DMdend Rate en Preferred / Preference Stock .

Long Term Debt Obligations and Redeemable Preferred $1.888.740 32.M09 978 $2,337.200 $2 096.540 and Preference Stock Outstanding iThousands) .

$5,741M8 $5146.023 $4 631.487 $4.132.724 Total Assets (Thousands! . $5.102.843 $4.481385

$8.213495 $5.660 023 Gross l'tility Plant iThousands) . $4,140.521 $3 608.509 85,028,245 $4.590.829 Net Ltility Plant IThousands! $ 642.676 $ 383 458 Capital Expenditures rlhousandst , s a44.540 $ .191,389 Miscellaneous Operating Data 8 591 8.745 M.234 8.964 system Capability at Year End-N1W . 8 984 8 751 M.531 8.877 System Capability at Time of Peak-N!W 7.312 7.381 6.703 6 829 System Peak Demand-Atw . 22.9% 18.6%

27.3% 30.0%

Reserve 51argin at Time of Peak 60.7%

63.1% 66.2% 62.3%

System Load Factor . 10.7,30 10.36C 10 140 to 280 11 eat Rate-Btu Per kuh . 149 0c 130 2, l 17M.3C 163 4c Fuel Cost-c Per Stillion Btu . 10.729 9.953 10,7M9 10.908 Number of Employes at iear Lnd 38

1 l l l

1976 1975 1974 1973 1972 1971 1970

$ 40.828 $ 366.381 3 297,072 $ 261.166 $ 236,957 $ 213J24 $ 193.540 254,363 218474 183J32 160 686 145351 132.644 124A63 463,174 363132 307.333 247.891 215,968 1MA30 156,357 139A02 122.193 110 302 83392 74;J15 67.998 54 498

$1,266,167 $1,070J80 $ 898A59 $ 753.135 $ 673.591 $ 599,196 $ S29.258 10.105 9,989 9.5M 9548 9,309 8302 8314 5.802 5.610 5.590 5.907 5,513 5.169 5,030 17,253 15.036 16.419 17.687 16.224 14,654 13JF9 3.168 1184 1 A19 1A52 1309 1.950 2D65 35,328 32A19 33412 35,194 32.855 30.575 29.178

. 1.560.669 1,541,981 1.526.562 1,499.524 1470458 1 A37J20 1,410,104 118.107 117.373 117.648 117,060 116.957 116.098 115,677 3.018 1.911 lb49 1J81 1.686 1.612 1.522 1,589 1.546 1.524 1435 1.323 1.283 1.229 1.682.383 1.662.831 1,647.583 1,619A00 1,590.424 1.556J13 1.528.532 6,518 6,514 6330 6.560 6.400 6,183 5.931

$26371 $238.90 $196.21 $175J6 $162.91 $150.13 $ 1.'48.06 i 4.05c 3.67c 3.10c 2.63c 2.55c 242c 233C 438 3.89 329 250 2.64 2r 2AE 2.68 2A2 137 1.40 133 1.26 1.14

$1.681.9C . $1.573.077 $1,542.542 $1,331700 $1,193.522 $1.094,965 $ 935A38 412.699 418.312 324.534 324,809 324,895 249J78 142.872 1.016197 939.593 903.980 854.982 77M26 690 028 601,300

$3.111,494 $2.930,982 $2771,056 $2.511.491 $2,20s,013 $2.034171 $1.680.030 54.1 53J 551 53.0 51J 53.8 55 7 132 14.2 11 7 13.0 14.1 12 3 8.5 327 32.1 32.6 34.0 34.2 33.9 353 100.0 100.0 100.0 100.0 100.0 100.0 100.0

$146 $130 $1.46 $1.91 $2.09 $1Al $1A8

$1A5 $1A5 $2 45 $1.45 $1.40 $1A0 .1 A0 87% 97% 99% 76 % 67% 77% 75%

51,277J89 48.120 898 44.922.938 40.028797 36J01.834 33767,445 30.138 47 8.65% 7.68% 732% 9A0* 10.57% 936% 9.91%

$10.64 $18.92 $19.62 $19.86 $1912 $19.16 $18 85 15 % 14 % 18 21 % 22 % 23 % 23 %

13 8% 7% 15L 194 19 4 17%

7.6% 7.5% 7.4% 6.9% 63% 62% 5.9%

84% B3% 73% 7.3% 73% 73% 7.0%

$1J93.340 $1.77034J $1,556,535 $1.351.485 $1.194 965 $1.095 A65 $ 936,358 23A57,332 $3 649 940 ,,3450.875 $3.052342 $2J51.248 $2394.080 $1,98 8.078

$4,309 699 $3.934152 S'tJ65.369 $3,439.667 $3.09J.551 $2517.596 $2312353

$3414,558 $3.221,932 $3.120 348 $2340.954 $2,536709 $2.195 019 $1 A28.696

$ 297,240 $ 241,186 $ 399,918 $ 390.915 5 405.628 $ 423.220 $ 352.412 8.965 8.780 8701 7J21 6.538 6,539 6.132 8 999 8.556 8 689 8.536 7,110 6.970 6.317 6.613 6A67 6 614 6.935 6D49 5.986 5.465 36.1% 32?% 31A% 23.1% 17.5% 16.4% 15.6%

65.5% 61.8% 62.1% 62 3 % 67A% 63.7% 66 6%

10 250 10.190 10,140 10.150 10.310 10.500 10,510 120EC 110.1c 89.3c 53.5C 492c 45.0c 38.tc 9,579 9.567 10.035 10304 10.902 11309 11,176 39

The Detmit Edison Compmy and subsidiary compmies M rkat for tha C:mpany'c C mmon Stock cnd Related Security H:ld:r Matt:ra The Company's Common Stock is listed only on the New At December 31,1980,84,032,618 shares of the Company's York Stock Exchange, which is the principal market for such Common Stock were outstanding.These shares were held by stock.The following table indicates the reported high and a total of 234.689 shareholders, based upon the number of low sales prices of the Company's Common Stock on the record holders as of that date.

Composite Tape and dividends paid per share for each quar- The amount of retained earnings of the Company at De-terly period during the past two years: cember 31,1980 was $376.3 million, of which $14 million was restricted under a covenant relating to the Company's Gen-D d""d* eral and Refunding Atortgage Bonds, Series 1, as to payment of dividends and other distributions, except dividends pay.

"d

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able in Common Stock.The amount of future dividends will depend upon the Companys earmngs (which in tum are second. 15 % 13 % 0.40 Third 15 % 13 % 0.40 dependent, among other things, upon levels of kilowatthour Founh . 15 % 12 4 0.40 sales and timely and adequate rate reliefh capital require-1980 First 13 % 10 % 0.40 ments, financial condition and other factors.

Second. 13 % 11 % 0.40 Third 13 4 11 % 0.40 Fourth . 12 4 10 0 40 Miscellaneous Corporate Data Corporate Address Registrars of Stock Detroit Edison Bradford Trust Company General Offices Two Broadway 2000 Second Avenue New York, New York 10004 Detroit, Alichigan 48226 (Preferred, Preference and Common)

Telephone: (313) 237-8000 National Bank of Detroit 611 Woodward Avenue Independent Accountants Detroit, Alichigan 48232 r-ice Waterhouse &, Co. (Preferred and Preference) 7.00 Henaissance Center The Detroit Bank and Trust Company detroit, Alichigan 48243 211 West Fort Street Detroit, Alichigan 48231 Forni 10-K (Commord Copies of Fonn 10-K, Securities and Exchange Commission Annual Common Stock Heport, are available. Requests Listed on the New York Stock should be directed to: Exchange.

Frank AI. Kehoe Vice President and Secretary Unlisted trading on the Eoston, The Detroit Edison Company Cincinnati. Alidwest, and Philadelphia 2000 Second Avenue Stock Exchanges.

Detroit Alichigan 48226 New York Stock Exchange Symbol

-DT E.

Transfer Agents Bradford Trust Company Two Broadway New York, New York 10004 Charles A. Babcock Honald J. Gdowski trene C. Kata Frank Al. Kehoe 2000 Second Avenue Detroit Alichigan 48226 40

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