ML20030A332

Annual Financial Rept 1971

ML20030A332
Person / Time
Site:	Big Rock Point File:Consumers Energy icon.png
Issue date:	12/31/1971
From:	CONSUMERS ENERGY CO. (FORMERLY CONSUMERS POWER CO.)
To:
References
NUDOCS 8101090292
Download: ML20030A332 (32)

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On February 2, the Board Consumers Power Company of Directors requested the Annual Report 1971 Chairman of the Board to 212 West Michigan Avenue, Jackson, Michigan 49201 assume additional duties as president for an interim per-iod, in succession to the late Contents Page James H. Campbell. The The Management Letter 1 Board took this action to James H. Campbell-An Appreciation 3 comply with Michigan law, 1971 and Consumers Power Company 4 and to allow time for un-Special Report: A Clean Environment and What it Costs 16 hurried selection of a new Electric System 19 president. Natural Gas System 20 Auditors' Report 22 Statement of Source of Funds for Gross Property Additions 22 Statement of income 23 Balance Sheet 24-25 Statement of Retained Eamings 26 Notes to the Financial Statements 26-27 Financial Summary,1971-61 28-29 Electric and Gas Operating Ccmparison,197161 30-31 A Company Directors. Officers. Divisions and Managers 32 Q %li g Annual Meeting, Transfer Agents, and Registrars inside U Un Back Cover pmiv.w r:,-~m-mmm-~~m-- nr.~~-~. mx. n 4yn m mvm~ - p .~ INCREASE H*ghl*ghtS oR (DECREASE) P i i 19n ovtR mo 1961 Growth since 1981 [' Ei Dectric Revenue, $ 364,230,000 $, 29,326,000, 3.186,399,000 ~w_ _c _. ts% r y.. ~, iE Tota 10perating Reve.W l$ 5",617,0D0.; $ e 12.217,000 $ ll4,6ss.000 p50% _ Gas Revenue ,$ 288,E'1,000. A_ .. ~,, _. m n ~ $ 302,056,000 Y; ? ~1, [ 3 41,627,000

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!. cost cf Fueillied in Dectric cenerasan 5 84,206,2 0 .$ 13,266,000.

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$ no.4 nmo r 12.s36=. 150mm; gas; Tsn mtMi p% [F" Totat Payroti inciuding constructen 3 130 s73,ono $ it.642,000 $ s7,473,000 t.}PaiiU u @ M W is mr#$%en ~ "I hu8suc5 sie t l $ o,052d :$ 4mm p p ~37 c ,( Eam{ngs per share of common Stock-Average (Adjusted) -$ 2.59 ~$- (.26) ; ' $ 1.74 P3% i,689,076,000 ] 9,810,763.000 *7)E [L o tasn oividends raid per share on conmen stock (Aajustedts. 'r, ~ 2.as l'; ?' P C # $ " 1.18 { j:- batthou sa4'sO 25,495,753.000 . h - k b -",' Peak Load--Kilcwatts'.hp.3,$$1,8t5 j%.219',000 '.Q,1,948,000 h% E aecace-* c h e c (Sum r saw ~' 2.sasa e i unimum24hourwurecassenawtomcubicrecorE2,241,nos.j. -c is ~ 1 cas sa!es o,000 cubic reetL,n333.874,oos..gl23,s30,000 3.;.3 ,[,i 130,9s4,000 C iss% r, occa customers ' i,n2,m 30,2m 885.8m ~ ~. c= cust-i _.. i79.soO, m_ 2s.400 _ . 562,900 _ ' ss% F(. ~ g( - ~ ,gs mi, r#cor $2,$M,W.000 ' $ M ss6,0% SU06,519,000 m.4-~ 114% a 4.u. ~ .. = p , e,- s y y :r, w a %, a; w a ;.lW,,j.n'. % s' * ?<*- + '*h + N 4 h,^ e ~ v'., r s ~ ,s., ~ ~ Mand Wb',';.m.u%,,;,,.JM M;ui,:as um.4% wMiaw. +

I '!hD hj h u#A [ A. H. AYMOND qy DO8f [ry g Chairman of the Board ~W 5: and President Fellow i .a mmh - N Shareholders This letter is a departure from the usual Management plants. No full scale system has been adequately Letter to Shareholders. Instead of concentrating on demonstrated which will remove sulfur dioxide from revenues, net income and earnings per share-all of the combustion process; and coal with a naturally which will be found conveniently summarized on the low sulfur content is far too limited to meet next page-this letter will share with you some of demands. Moreover, there exists a near total the problems confronting your Company, and absence of control technology with respect to the what can be done to solve them. removalof oxides of nitrogen. Without being gloomy, or excessively pessimistic, An obvious alternative to fossil fuels is nuclear it must be said that the difficulties of contir ing energy. It is clean, safe and economical. But nuclear to provide reliable supplies of electricity and power is being resisted on many fronts by an natural gas to the people of the Un%;f States are activist minority which insists-against overwhelming almost unbelievable. And 1971 brought its share of evidence to the contrary-that nuclear plants are these difficulties to Consumers Power Company dangerous, that they threaten radioactive effects and the areas of Michigan which it serves. on unborn generations, and that they will have When one contemplates the future, the prospective harmful effects on the environment. Thus, difficulties assume truly awesome proportions. development of nuclear power-which is and must Some of these arise from shortages in available fuels. be the one major hope of meeting future energy Some arise from ill-considered legislation and needs-is being discouragingly hindered. Intervention unrealistic regulation. Some arise f rom a basic is causing frustrating defays in the licensing conflict of interest between those who need and process, postponing construction of new plants, demand more energy, and those who-for reasons of and even preventing the operation of plants private philosophy or beliefs-would impose arbitrary previously completed under strict Government limitations on others, regardless of their needs. safety regulations, and the delays cost millions of As a public utility, whose business is regulated dollars each month, by the Michigan Public Service Commission, The situation is little better in terms of natural gas. Consumers Power Company is expected to serve all There continues to be a nationwide shortage of this who desire service, at rates authorized by the premium fuel; not because there is a lack of it, Public Service Commission. In an earlier day, this underground, but because more than 15 years of worked reasonably well. Indeed, in the middle 1960's, unreakstic pricing at the wellhead by the Federal the Company was even able to make rate reductions Power Commission effectively discouraged while, at the same time, investing in new plants, prospecting for new reserves. This shortage has paying higher wages to its employees and providing caused producers and pipe lines, including those realistic dividends to those who invested in providing gas to Consumers Power Company, to curtail thei-de'iveries. This, in turn, has forced the business, As the business grew, the Company was able to distribution utilities, including Consumers Power, achieve economies through the use of larger and to impose restrictions on commercial and more efficient plants and other means, and thus industrial customers. to keep its rates down. Over the years-as customers Consumers Power Company has taken vigorous used more and more energy-the unit cost dropped action to obtain new gas supplies, with encouraging in comparison to what a kilowatthour or a cubic foot success to date. Details about this will be found in the of gas had cost customers 10, or 15, or 20 years Gas Operations Section of this Annual Report to previously. Unhappily for all concerned, the day Shareholders. of cheap energy is gone. In the future, higher rates Nevertheless, after developing a significant discov-must prevail, both for electricity and natural gas. ery at great cost, the Company now is confronted with This must happen if Michigan as a state, and the regulatory obstacles. Its wholly owned subsidiary, nation as a whole, are to have adequate energy Northern Michigan Exploration Company, has made resuurces for an industrialized society. application to the Federal Power Commission for a The reasons for this are many. There is a certificate to have a pipehne supplier trarsport newly-nationwide shortage of oil and gas with which to discovered gas f rom Louisiana to Michigan. But the generate electricity. The one fossil fuel available in application is being opposed by several distributors. adequate supply is coal, but when one takes into Their claim, essentially, is that it is unf air for the consideration today's environmental requirements customers of Consumers Power Company to benefit limiting stack emissions of sulfur dioxide and oxides from the Company's initiative and resourceful of nitrogen, coalis unsuitable for new generating prospecting for new gas supplies. Instead, they argue 1

y .r that these supplies should be made available to all tomorrow, there will not be sufficient energy when comers on the basis of need, including those who did inose demands are made. Without higher rates. and nothing to help themselves, without adequate earnings, Michigan s utilities will But the most perplexing and frustrating problem be unable to obtain as a reasonable cost the of all is that involving the rates which the Company enormous amounts of new capital that are required may charge for its services, to do the job. It should be remembered that electricity As noted earlier, the Company is expected to serve is the one commodity of which it can be said: its customers with electricity and natural gas "If there isn't enough, there isn't any." After whenever they want it, and in whatever quantities utility service deteriorates past the reductior, of they desire. Month by-month, and year by year, the voltage, it proceeds to the blackout stage for number of c ostomers iricreases, and so does the particular customers, communities, counties,

1. amount of energy required by most customers.

and regions. There is no turning back. Greater under standing by the public is essential, To meet these demands, and to be ready for much not only in matters of rates and finandng but also in greater demands in the foreseeab'e future, the encouraging more sensible legislation and regulatory Company must expand its facilities. It must build decisions, new plants to supply increased demands. It must An example of how hastily-enacted laws may build also to replace old and obsolete facilities. produce unpredictable chaos may be seen in recent Finally, it must build to maintain en adequate reserve cour' decisions relating to the National Environmental of equipment, to protect against interrupted service Policy Act.These decisions have held that no new in event of unplanned, unexpected failure of a power plant may be brought into full service-even major unit on the system. one completed and ready for operation-until there This building program is unending. It goes on, has been an exhaustive review of potential year after year, at ever greater cost. In 1972, the environmental effects. This review may take a year Company has budgeted more than $383 million for for completion. Meanwhile, no power-or very limited new construction; and, through 1976. the anticipated power-can be generated by the new plar.t. need for additionalinvettment exceeds $2 billion. In the East Central Area Reliability region,if no new At least 65 percent of this must be raised by the plants become operational for 12 months, there will sale of new securities. be a serious shortage in reserve capacity in the To raise these huge amounts of new capital, a summer of 1972, and an extremely critical reserve public utility like Consumers Power Company must situation in the winter of 1972 73. In Michigan. there be able to show a reasonable rate of return on its could be large scale power interruptions beginning as existing investment. There is no msgL about this, early as this summer. It requires only that rates established by the Michigan For a graphic illustration of what this could mean, Public Service Commissior Se sufficient to meet the one has only to contemplate the effect on Britain of costs of doing business-recognizing the inflation the prolonged coal miners' strike. that has taken place-and still leave enough after it is to be hoped that the coming year will bring taxes for a fair return to those who have invested greater awareness by everyone of the stakes involved. in the Company. Given that awareness, there is no doubt that Unfortunately, the relationship between the rates a Michigan's energy utilities can meet the challenges of utility may charge for its service, and its ability to the future. In doing so they can help make the raise needed capital for expansion, is not well long. term prospects of Michigan very bright, indeed. understood by the public, nor by some regulatory commissions, Michigan's included. They do not seem Sincerely, to understand that delays of more than a year in granting rate relief-and then predicating such relief on outdated cost experience and a rate of return below that of other comparable utilities-A. H. AYMOND can jeopardize a utility's ability to, attract capital Chairman of the Board and Presiden and continue to render good service. A case in point is Consumers Power Company's February 16,1972 electric rate case filed in August,1970. Although the Company submitted abundant evidence showing 1971 IN BRIEF a need for nearly $36 milhon annually m additional electric revenues, the Public Service Commission e Total Operating Revenues: 5651.6 million, com. 16 months later, in December,1971, allowed only pared to $610.0 million in 1970. $10.6 million. The Company promptly put this. e Net income: $71.8 million, compared to $72.8 increase in ef fect; but it has asked the Commission million in 1970. to rehear the order because of its madequacy. Meanwhile, the Company is being severely penalized = Earnings: $2.69 per average share of common by these unrealistic rates, stock outstanding, compared to $2.95 in 1970. What is urgently needed is greater understanding a Sales of Electricity: 20.5 billion kilowatthours, for and awareness of the overriding importance to which the Company received $364.2 million. Michigan and its people of adequate and reliable a Sales of Natural Gas: 333.9 billion cubic feet, for energy supphes. Without energy, everything stops' which the Company received $286.1 million, mcluding improvement of the environment. Without continuing expansion to meet the needs of a Revenue from Sale of Steam Heat: $1.3 million. 2

Y i 1 I ,r, w 1 iN,$h M' $h&l kh \\me ,g 9 gyn ,g n. } k 4 3 ps .1 sb > - mu. JAMES HOBART CAMPBELL 1910-1972 AN APPRECIATION Consumers Power Company and the utility world as Colonel. He immediately rejoined Consumers Power a whole lost an outstanding leader January 24,1972, Company as assistant to the Division Manager of the when James H. Campbell, the Company's president Grand, Rapids Division. and chief operating officer, r%ed suddenly of a heart He became Division Manager in Grand Rapids in attack. He was 61 years old. July 1947. Two years later, he was transferred to He had been president of the Company for more Jackson as assistant to the president. He was elected than 11 years, having succeeded tlie late Dan E. Karn a vice president of the Company in April 1950, and - became a member of the Mard of directors in 1952. on May 1,1960, following the latter's retirement. He was elected senior vice president in April 1956, His death came as a cmt shock to all who knew him. His passing is a great loss, to Consumers Power and became president and chief operating officer Company, to the State of Michigan, and to a nation May 1,1960. He was an early advocate of nuclear power, and whose utility industry recognized him as an articulate helped to lead Consumers Power Company into this and thoughtful spokesman. He was an unusually new field with construction of the Big Rock Point gifted man, whose warmth and good humor made nuclear plant in 1962. He also was a vice president him a valued friend. and a member of the board of trustees of the Power He had wide. ranging interests, and was a long-time student of American history, especially the rcle Reactor Development Company, owner and operator played by the American Indian. His associates knew of the Enrico Fermi nuclear reactor near Monroe, him as a man generous with his time, one who always Michigan. His responsibilities included membership was ready to hsten to a colleague's problems, and to on the executive and financial committees of PRDC. He was a member of the Edison Electric Institute's help in solving them. He was particu:arly concerned policy committee on atomic power, and a past chair-with the safety and welfare of Consumers Power man of the board of the National Association of Elec-employees, both on and off the job. tric Companies. He also had served as a member of He was born in Jackson, Michigan, October 18, 1910, the son of Mr. and Mrs. Birum G. Campbell, the boacd af directors of the American Gas Associa-Sr. His father was for many years Division Manager tion. The Atomic Industrial Forum, Inc., elected him to at Pontiac. its board of directors; and he served as a Forum vice After his graduation from Purdue University with J a Bachelor of Science degree in mechanical engi-president. Among his other memberships were the American neering, James H. Campbell joined Consumers Power Nuclear Society, the Purdue Research Foundation, Company's Lansing Division as a power and lighting the Detroit Press Club Foundation, and the board of sales engineer in 1933. In 1939, he was awarded an advisors of the Memorial Phoenix Project of the Alfred P. Sloan fellowship, and took a year of gradu-ate study at the Massachusetts Institute of Tech-University of Michigan. He also was active in many civic and charitable organizations, and was an early nology. Thereafter, he went to Youngstown, Ohio, as a sponsor of the Michigan United Fund. Survivors include Mrs. Campbell, the former Jane power sales engineer for the Ohio Edison Company. Hewett of East Lansing, Michigan; three sons, Bruce During World We he served in the Army of the United St> February 1942 until January H., James B., and Scott R. Campbell; and four grand. 1946, leaving...e Army with the rank of Lieutenant children. 3 m

w 1 Consumers Power Company &1971 2 Ask almost anyone in Michigan which of allindustries he con-siders the most essential, and his answer will be the automobile i industry. In Los Angeles, until recently at least, the reply was aero-space. In Gary, Indiana, the respondent still says, steel. All of these answers are wrong. In an industrialsociety the most essential industry is energy. Without it, everything stops. When energy utilities are not allowed to grow, nothing else can grow. It is like flipping off the future switch. George Bush Future Builders I i i e =

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? FuInanClal a Consumers Power Company Among all the 50 states, Michigan is In a separate case, the Company filed with the one of the most highly industrialized. Public Service, Commission on April 30,1971, for permission to increase its rates for natural gas its more than e. ht m.ll. ion people-service. ln subsequent presantations, the Company ig i and the farms, factories, businesses introduced evidence showing a deficiency of on costs prevailiryg and services on which they depend- $24,174,000 annually based,t demonstrated a in October,1971. Moreover, i are dependent in turn on reliable and pred.: table deficiency of $31,220,000 annually, plentiful sources of energy. Anyone on the basis of new and higher rates to be charged doubting this has only to switch off by pipeline suppliers of gas. Bec use of pressing need for higher rates, the the electricity, or contemplate the Company asked on December 21,1971. for partial diff.icult.ies that would result from an and immediate relief in the amount of 59,070,000 interruption in delivery of natural gas. annually.The Commission granted an interim increase of $6,500,000, effective December 23, pendmg a final decision in the case. The fabric of an indus,rialized society is totally in January,1972, the Company filed for further dependent upon energy. interim rehef in the amount of $7,433,000, in Visually, this energy is symbolized by power anticipation of an increase in wholesale rates, then plants, transmission and distribution lines, pipelines scheduled for Fetaruary 17,1972. and compressor stations, an i fuel supplies. However, Before the Commission could act, however, the all of the physical plant used m the production and Federal" freeze" on all utility rates took effect. distribution of energy depends on an unseen but This deferred the pipeline price rise and also the essential element: money for capital investment. Company's interim relicf until after the Price Consumers Power Company illustrates this need Commission reaches a determination on future for capital. In 1972 the Company will have to spend supervision of utility rate regulation. more than $383 million for expansion and Final determination of the Company's gas rate case improvement of its facilities for serving more than is expected in the spring. 1,600,000 customers with electricity and natural gas. Meanwhile, the average cost of coal per ton for Over the five-year period 1972 through 1976, the generating electricity rose by 17 percent between Company sees the necs sity for spending over the end of 1970 and the end of 1971. $2 billion to meet anticipated growth in The system average cost of gas per thousand customer demand. cubic feet rose from 37.24# in 1970 to 38.79c in Obviously, the Company cannot generate capital of 1971, and is expected to reach 43.74g in 1972. this map-,de from internal sources. The bulk of Taxes other than those on income have risen from the funos, must be obtained from investors, either $39,062,000 in 1970 to $43,873,000 in 1971, by selling additional common or preferred stock, or an increase of 12 percent, reflecting both debt issues, or combinations of these securities. inflation and growth. For exa nple, an analysis of the source of funds As r:oted, the Company raised an aggregate of for gross property additions as shown on page 22 $190,000,000 in 1971 by the sale of new securities. of this report indicates that of the $253,845,000 On April 15, the Company sold 700,000 shares of expendeo for new construction in 1971, only preferred stock, $100 par value, carrying a dividend $90,730,000 was generated internally. New rate of $7.45 per share. On August 10, the Company securities in the amount of $190,000,000 were sold sold $60,000,000 principal amount of its First to further finance the construction program and to Mortgage Bonds,8%% Series due August 1,2001, repay short term borrowings made for that purpose, at a cost of 8.204% to the Company. Finally, on Consumers Power Company applied to the November 8, the Company scid another $60,000,000 j Michigan Public Service Commission for rate relief issue of First Mortgage Bonds, the 7%% Series in its electric business in August,1970, requestint due November 1,2001, at a cost to the an annual increase in revenues of $28,500,000. Company of 7.415%. In subsequent hearings, the Company presented in 1972, it is presently expected that new abundant evidence in support of the need for securities in the aggregate amount of $260,000.000 an annual increase of $35,900,000. will need to be sold. As in the case of the securities On December 14,1971-16 months later-the, sold in 1971, the proceeds will be used to provide Commission authorized the Company to merease its in part the funds required for construction or to electric rates by $10,559,400 at 9vally. While this repay short term borrowings made in connection rate increase has been put into ette.t. the Company's with the Company's interim financing. mariagement regards it as being completely unrealistic and utteil, inadequate, and has fihd for a rehearing in the matter. 5

Construction The construction program of a utility supplying electricity and natural gas is 'one classic example of the effects of inflation. Costs go up, up, and up. But, a utility cannot avoid expansion -or inflation--by sticking to a " comfortable" sales volume, and limiting construction to meet that need. It must build, enlarge, modernize, and continually replace worn out equipment if it is to meet growing demands of its customers and provide good service. In an earlier time, one person out of every three Moreover, with the national shortage of natural in Michigan lived on a farm. Energy requirements gas, it has been necessary to turn to supplements usually could be met with windmills, waterwheels, that involve costly investments. At Marysville, l or the muscles of domestic animals. Michigan, the Company has begun construction of Today, fewer than one person in 20 stilllives and the nation's first gas reforniing plant, to produce works on a farm and, more than likely, that farm gas from liquid hydrocarbon feedstock supplied is mechanized. Thus, just about all of us today by pipeline from the Canadian province of Alberta. depend on industry and commerce for our livelihood, By tha time it is completed in 1973, the Marysville and for everything we require in our daily lives. plant will cost more than $70 million. Details of this Energy is the most important central ingredient in project as well as ga:; exploration will be found in maintaining an industrial society, the Gas Operations Section of this report. Michigan's swelling population has steadily As noted in the preceding section on financing, I required vastly larger and more costly electric the Company expects to spend more than generating plants to serve it. The B. C. Cobb plant $383 million for construction projects in 1972. near Muskegon, completed in 1957 with 530,000 Of this, $280 million wlIl involve electric facilities. l kilowatts capability, required an investment of The electric project nearest completion is the $67 million. The Palisades nuclear plant near pumped storage hydroelectric plant being South Haven, with initial capacity of 700,000 constructed jointly near Ludington, Michigan, by kilowatts, is expected to cost $179 million by the Consumers Power Company and The Detroit Edison time cooling towers and other environmental Company. This facility will pump water from Lake protective equipment are installed. The twin reactor Michigan during off peak hours, and store it in a Midland nuclear plant, designed to provide up to huge reservoir atop a bluff overlooking four million pounds of industrial steam per hour Lake Michigan. At the times of peak demand, water and more than 1.3 million kilowatts of electrical will be released to flow down through six turbine generating capacity when it is completed, is budgeted generators. At maximum output, the plant will be to cost $556 million. Meanwhile, the lead time able to generate more than 1.8 million kilowatts. required from decision to build through design, Asphalting of the reservoir is approximately engineering, construction, final government 30 percent complete, and work on the powerhouse approvals, and placing in service has increased from structure about 70 percent complete. Pumpingis seven years when Midland was announced in 1969 scheduled to begin toward the end of 1972, with to approximately 10 years in the case of a plant now pla'ined commercial operation of the first unit early under study for on Saginaw Bay.possible construction at Quanicassee, in 1973 and completion of the project in 1974., Total cost of the plant and associated transmission On the gas side of the business, the cost of lines is expected to be about $376 million, of which prospecting for oil and natural gas, of proving Consumers Power Company's share is $192 million. discoveries and developing new wells, and Meanwhile, work is progressing on two additional constructing pipelines, also has risen spectacularly generating units at the Dan E. Karn plant near as exploration has gone deeper and deeper into Essexville, Michigan. Each of these will be oil fired, the earth and further and further offshore in and will have a capability of 660,000 kilowatts. the Gulf of Mexico. The first unit is planned for test operation in the 6 N '+>e- -- -- mewgems m-meene e ee MW MEh

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~ p~ e eq w n, u n 'N w 7 3.. y r 5: Electricity ~ Consumers Power Company Growing demand for power is a measure of the fundamental reliance of Mich:gan on electricity. Operating a major system such as that of Consumers Power Company requires constant reassessment of customers' future needs and the technology needed to meet them. It also requires employing every skill to maintain reliable service in a period when new plants are becoming steadily more difficult to bring into service. fall of 1974, and the second in late 1975. Cost of For Consumers Power Company, and for the the two units including associated transmission Michigan power pool,1971 was a difficult year. facilities is expected to exceed $245 million. Consumers Power Company and The Detroit Construction at the site of the Company's Edison Company-principal members of the power proposed Midland nuclear plant was halted in pool-had counted on having 700,000 kilowatts November,1970, af ter it became evident that of capacity available throughout the year from interNention by opponents would greatly pro!ong the Consumers Power's nuclear electric generating process of obtaining a construction permit. On-s% station at Palisades,35 miles west of Kalamazoo. construction remains in suspension pending further instead, the plant stocd idle awaiting the issuance hearings and decisions by the U.S. Atomic Energy of an operating license. Commission. The forecast now is that a construction in consequence, Consumers Power Company was permit may be granted by early autumn of 1972. forced to protect its ebetric customers with large Initial fuel loading, therefore, will have been delayed amounts of electric energy purchased either from about three years behind schedule, its pool partner, The Detroit Edison Company, or The Company's Palisades nuclear plant also has from utilities in Canada or in neighboring states. been the target oi intervenors. After months of in each of the 12 months, the Company operated at frustrating litigation, the Company agreed in March, times with a negative reserve on its own system. 1971, to construct two large, induced-draft, Nevertheless, service was maintained. closed-cycle ccoling towers, and to install additional Fven after a comprcmise with intervanors was equipment to insure essentially zero release of liquid agreed to, under which the Company will add cooling radioactive wastes. Management considered these towers and supplementary equipment to control additions were mandatory in order to permit timely liquid radioactive wastes, tta license continued to be withheld. This was due first to unexpected operation of the plant through withdrawal of controversy over the saf aty of emergency core cooling opposition. The added cost of these installations will systems, not simply at Palisades but in all nuclear be about $29 million, and they will add approximately $5 million annually to carrying plants throur;hout the nation. That delay was charges and operating and replacement power followed by uncertainty surrounding environmental considerations, after a Federal court ruled against costs of the Palisades plant. the U.S. Atomic Energy Commission in a separate and unrelated case.The court held that the A.E.C. had not complied with a Federallaw requiring consultation with other agencies followed by judgments on possible environmental effects of nuclear olants. In March,1971, the A.E.C. authorized loading of nuclear fuel to permit testing of the nuclear steam supply system. In November,1971, the A.E.C. J followed this with a license permitting operation of the plant at 20 percent of thermal capacity. First commercial generation of power synchronized 7

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..; 51, 1% /L 7 x;;., go.~ Consumers Power Company c to the Company's electric system eventually was built jointly by the Commonwealth Edison Company achieved on December 31. As this Annual Report of Chicago and the Tennessee Valley Authority. went to press, hearings had been completed and a The plant's location, while yet undecided, most decision was pending on the Company's application likely will be near Knoxville, Tennessee. The breeder ta operate the plant at 60 percent capacity. Further reactor is expected to increase the recovery of hearings are to be scheduled on the Company's usable nuclear fuels by 25 times with minimal impact application to operate the plant at full capacity. on the environmer;t, and thus extend significantly Looking to the early 1980's, the Company has the nation's reser ves of fissionable materials. begun preliminary studies for a large new generating The Company endad the year with 1,112,607 plant at Quanicassee, on the southernmost point of electric customers in 67 counties of Michigan's lower Saginaw Bay. The greater part of this site has been peninsula; an increase of 30,165 or 2.8 percent owned by the Company since 1956, having been compared to 1970. There were 994,529 residential, purchased in expectation that it might be used for a 109,727 commeicial and 7,572 industrial major g3nerating plant. Environm :ntal studies are electric customers. being cor. l cted at the site, coincident with Tije Company's customers used naarly 20.5 conceptual oesign work, if it is decided to build a billion kilowatthours in 1971, up nearly 9 percent nuclear plant, preliminary plans envision the over 1970 and electric revenue amounted to possibdity of two reactors, capable together of $364,230,000, an increase of 8.8 percent. However, producing enough steam to generate 2.3 million the substantial increase in kilowatthours was kilowatts. This would be equivalent to more than attributable in part to the lengthy automotive half the Company's entire generating capacity at the strike in 1970, which depressed electric sales end of 1971. Estimated cost of the Quanicassee in that year. facility would approach $1 billion. A new record 24. hour sendout of 72,146,000 During 1971, some 46 miles of 345 kV kilowatthours was established on December 22, transmission lines were energized, providing a 1971, as well as a record one-hour peak demand of stronger power supply network. 3,667,380 kilowatts the same day. Both records Five gas turbine peaking units also were added were exceeded early in 1972. On January 25. a to the system, bringing the Company's demonstrated new one-hour peak demand of nearly 3,700,000 generating capability to 3,829,000 kilowatts. kilowatts was established; and on January 26, Meanwhile, the Company joined witn other a new 24 hour sendout record of 73,849,470 kilowatthours was set. electric light and power systems in a research and development project with vast implications for the future. This is the construction of the nation's first large demonstration plant utilizing a nuclear breeder reactor. This type of reactor will produce more fissionable material than it consumes by converting some of its low. grade uranium into plutonium during operation. The plutonium, in turn, can be used for additional power generation. The U.S. Atomic Energy Commission has announced that the demonstration plant will be 8

Natural Gas The natural gas shortage throughout the nation is acute, but aggressive exploration and development activities promise some relief for Michigan in 1972, with more thereafter. Through its exploration subsidiary, the Company in 1971 participated in productive drilling in Michigan, Louisiana and the Gulf of Mexico. The Company also negotiated successfully for additional supplies from new discoveries in Michigan, and started building the nation's first synthetic natural gas plant. The efforts of Consumers Power Company to daily from northern Michigan, beginning in early overcome deficiencies in gas supply might well be 1972. In addition, another 10 million cubic feet daily described by the slogan of a well known auto rental is expected shortly from newly discovered fields in firm. The Company tried harder. And succeeded. Ingham County, in southern Michigan, where the in addition to its wide ranging exploration efforts, Company has contracted with the producer, Mobil the Company contracted for long-term supply of Oil Corporation. By the autumn of 197A the liquid hydrocarbons f rom Alberta, Canada, and Company hopes to be receiving an estimated began construction of the nation's first plant to 70 million cubic feet daily from newly discovered convert this liquid feedstock into synthetic Michigan fields. In southern Louisiana, NoMECo is associated with natural gas. Quintana Production Company in development of a These measures were made necessary by a critical shortage in the nation's available supplies substantial portion of the South Gibson gas field, of natural gas. So serious is the shortage that the which was discovered in 1970. The acreage under Company's principal suppliers were forced in the development has estimated reserves available to spring of 1970 to give notice that they no longer NoMECo of 260 billion cubic feet, and a potential of could meet contractual deliveries. Thus, the delivering up to 60 million cubic feet daily. Company found it necessary immediately thereafter NoMECo has entered into a contract with Trunkline to ask authorization of the Michigan Public Gas Company under which Trunkiine agrees to Service Commission to restrict future sales of natural transport Fas from the South Gibson field to Michigan. This arrangement, however,is contingent gas until more supplies became available. on approval of the Federal Power Commission. in consequence, for the first 10 months of 1971 the Company limited the addition of new customers Reference to intervention by several gas distributors, principally to residential users. No additional seeking to block this approval, will be found in industrial or commercial customers were accepted, the Legal Affairs Section. other than those to whom previous commitments in 1971, NoMECo participated with Quintana in had been made. drilling discovery wells in southern Louisiana, one in Meanwhile, however, the Company mounted the North Freshwater Bayou Field, and another in intensive efforts to find more gas, its wholly-owned the Cherokee Field. NoMECo and Quintana also are subsidiary, Northern Michigan Exploration Company part%ating in one other exploratory project in (NoMECo), undertook an aggressive program of southern Louisiana. exploratory drilling, both alone and in associatic.n In offshore exploration in the Gulf of Mexico, with others. The results to date are encouraging. NoMECo is associated with several other companies in the Kalkaska area of Michigan's lower in a group headed by Sun Oil Company. During 1971,14 exploratory wells were driffed to evaluate peninsula, NoMECo has half ownership with Amoco certain of the n.ne tracts under lease involving Production Company in a gas well, and 100 percent ownership of two oil wells which also produce gas. 45,000 und" a acres. Twelve of these wells, New transmission lines were constructed in 1971 testing five tracts, reached their objectives; and to bring gas to the Company's distribution system six wells, on four tracts, were successful. from these discoveries, as well as the discoveries As a result of these discoveries, the group is of other producers. As a result, the Comp:,cy expects contracting for an 18 well production platform, to to receive more than 10 million cubic feet of gas be installed next autumn. Drilling of developmerit 9

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y ,N E y) y* I [*; 4 NT Legal Affairs Consumers Power Company wells is expected to begin in the autumn. The p;oblems of government regulation: Meanwhile, another important step was taken in Can the Palisades plant be operated? 1971 when the Company contracted for a 470 million gas reforming plant, to be built at Can the Midland nuclear plant be Marysville, near Port Huron, Michigan, for built? Will adequate raw increases be prod,uction of gas by the catalytic rich gas process, approved ? When will the pay bcard Liquid feedstock from Canada-25.000 barrels clarify wage and salary regulat ons ? i daily the first year, and 40,000 to 50,000 barrels daily thereafter-will be delivered over a 15 year Day in, day out, the Company's legal period starting in 1973. These liquid hydrocarbons activities illuminate the problems of will be stored in caverns formed in underground the business, particulerly the two most salt formations adjacent to the reforming plant. The facility is expected to begin delivering serious-gett.mg plants into operat. ion 100 million cubic feet per day of pipeline quality gas ... and obtaining adequate rates. in 1973, equal to about 10 percent of the Company's present gas supplies. In 1974, compietion of the plant will bring its output up to Americans live in a highly competitive world. about 210 million cubic feet daily. And they must have adequate supplies of energy at With prospect of additional gas from northern reasonable cost if they are to maintain the nation's and southern Michigan, as well as from Louisiana, viability in that competitive world. Yet regulatory and the reforming plant under construction, the agencies tend to ignore economics, and are Company was able to return to the Michigan Public reluctant to grant rate increases sufficient to allow the Service Commission in October,1971, with a energy industries to attract the capital necessary request to modify the restrictions of a year earlier. for continued expansion. Moreover, unrealistic The Commission approved a flexible priority system government procedures often delay the construction which will permit the Company to maintain a balance of urgently needed energy facilities, or result in between future gas supphes and demands of questionable requirements that substantially customers. increase their cost. These modifications permit the Company to Consumers Power Company regards itself as an continue to provide gas service to all residential early and continuing leader among all utilities in customers; to honor most of the 2,900 applications protecting the environment. But it also believes pending for service to commercial and industrial that a better enviror. ment must be achieved users; to permit most existing commercial and reali}tically, with concern for a proper balance industrial customers to fully utilize existing gas between environmental goals and the critical need equipment; and to accept new small commercial for expanded energy resources. and industrial customers. For the Company,1971 was a year in which delay The Company continued active participation in and uncertainty prevailed. When the year had the TARGET research program of the American Gas ended, the Palisades nuclear plant operating Association, exploring new energy concepts based license issue summed it up. on the fuel cell using natural gas to produce The electric rate case and the gas rate case also electricity. The original unit was developed for the pointed up the problems of uncertainty, as did the Apollo Space Program. A field test power plant fuel frustrating attempts to overcome the delays in cell is to be installed in mid 1972 in Flint, Michigan. obtaining authorization from the Atomic Energy The Company ended 1971 serving 879,535 Commission to start building a nuclear plant natural gas customers in 40 counties of Michigan's at Midland. lower peninsula. These included 815,872 residential. The complexity of the latter proceeding was 57,476 commercial, and 6.187 industrial customers. further compounded by a group of municipalities Among residential users,734,481. heat their and REA generating and transmission cooperatives. homes with natural gas. They petitioned to intervene on antitrust grounds, An all time record 24-hour sendout of natural gas contending that, if the plant is to be built, they was recorded February 2,1971, when 2.241 billion are entitled to buy a certain guaranteed portion cubic feet were ddivered to the Company's of the plant or its output. Moreover, they seek more customers. This, in turn, was exceeded in January, favorable interconnecting arrangements, and 1972 with a 24 hour peak sendout of 2.283 demand that power purchased from others be billion cubic feet. delivered to them over the Company's transmission in total,333.9 billion cubic feet of gas were lines. consumed during the year, an increase of 7.6 percent The obvious purpose of this action is to gain over 1970. Gas revenues were $286,091,000 for discriminatory and unreasonable advantages. the year, up 4.5 percent over 1970. This the Company is resisting, contending that there 10 l m 4- .a e e '= --id>+

Shareholders has been no violation of antitrust laws. Consumars Power Company stock is , Here's how it was at year end 1971, including owned by residents of all 50 states and significant occurrences of early 1972: 34 foreign countr.ies, but more than 60 -The Palisades nuclear plant is licensed for 20 percent thermal operation and is producing percent of all shareholders live in limited amounts of power for the system. It is. Michigan. Shareholder records were expected to be licensed for full power operatior. computerized.m 1971, and a new later this year, following further hearings. Automatic Dividend Reinvestment The Midland plant is expected to be licensed for construction in 1972, following a continuation of Service was begun for common hearings o,n the environmental effects of the plant shareholders

• and other issues. Recently, the A.E.C. regulatory staff,in a draft environmental statement, concluded that the Midland nuclear plant-both f rom the At year.end, Company common stock was registered environmental and economic points of view-in 96,540 names, as compared with 93,879 is preferable to any possible afternative.

one year earlier. The Company had a total of 16,939 Licensing delays thus far put initial fuel loading at preferred shareholders, an increase of 2,826 from the plant three years behind schedule. year.end 1970, reflecting the issue of additional Intervention on the part of several distributors pre, erred shares during 1971. Some /5,700 stock f occurred early in 1972 in the rnatter of obtaining registrations are in the names of residents of Federal Power Commission approval to transport Machigan. newly discovered gas from Louisiana to Michigan Individuals and joint accounts, frequently husband via facilities of Trunkline Gas Company, a subsidiary and, wife, represent 89 percent of all common stock of Panhandle Eastern Pipe Line Company.These registrations. Among the remainder are insurance other customers of the pipeline companies involved companies, banks, trust companies, educational have iderposed objection on the ground that the and charitable institutions, investment trusts, additional supplies of gas made available thrcugh pension funds, security firms, estates and trustees. Company ef forts sho ild be divided among all About one. third of the Company's employees are customers of the pipelinas, including those that Consumers Power shareholders. have made no effort to improve their own supply. The Company's Annual Meeting of Shareholders This is a position clearly not in keeping with basic was held in Jackson on April 13,1971. Of all classes standards of fair play and the principles of our entitled to vote,82.36 percent were represented economic system, and one that hopefully the in person or by proxy. F.P.C. wilI not accept. Cont:nuing its modernization program, the The Company, as reported in the Financial Sectica of this repo't, has suffered-and continues Compani converted its shareholder records to electronic data processing durir';; 1971. Preparing to suffer-severe hardship by reason of unrealistic dividend checks and other re:ords by computer regulation that prevents it from earning a now 3dds greater flexibility and efficiency in satisfactory return on its investment. The Company maintaining shareholder accounts. continues to press for adequate rate relief in both .A new serge providing for automatic its electric and gas business. For 1972, the need reinvestment of co.nmon stock dividends for is for forward looking regulation whir.h takes into common shareholders desiring it was initiated account the critical importance of permitting through First National City Bank, New York, adequate earnings for Michigan's utilities if they are New York. The service is designed for all common to continue the expansion required to meet the shareholders, large or small, and provides a requirements of their customers in the 1970's. convenient and low cost way for shareholders to increase their holdings in common stock of the Company. At year end approximately 7,000 common shareholders had subscribed to the service. Cash dividends of $2.00 per share declared and paid on common stock totaled $48,067,676 in 1971, and were paid at the rate of 50c per share on February 20. May 20, August 20 and November 20. Preferred stock dividends declared in 1971 amounted to $7,107,903. 11

Employees The longest work stoppage in the Company's history ended in a new three-year Warking Agreement with the 'approximately 5,300 Operating, Maintenance, and Construction employees who are represented by the Utility Workers Union of America. Throughout the strike, electric and gas system operations were continued without interruption by nonunion employees. The late spring and summer of 1971 brought the in July the Utility Workers Union petitioned the longest strike in the Company's history. National Labor Relations Board for an election, Members of the Michigan Council, Utility Workers seeking representation of Office and Technical Union of America, walked off the job May 12 and employees in the Company's Saginaw Division. remained on strike for 112 days. They returned to The NLRB ruled that the Saginaw Division work cn Scptember 1 at the direction of the Union's constituted an appropriate bargaining unit, ar,d national officers, who then submitted to the ordered an election to be held on August 18. membership for ratification a proposed three year Saginaw's Office and Technical employees tejvted Working Agreement.The Working Agreement, Union representation by a vote of 120 to 20. which was largely what the Company had offered The 140 votes cast represented 91 percent of the the Union on May 12, except for some modifications 154 employees eligible to vote. recommended by Federal mediators on August 5, The Company ended 1971 with a total of 11,861 was ratified by the membership by a vote of employees, compared to 11,957 at the end of 1970. 3,579 in favor and 726 opposed. Until November 14,1971, Operating, MANAGEMENT CHANGES Maintenance, and Construction employees were paid under the economic provisions of the expired As noted on Page 3 of this report, the Company was Working Agreement because of the Federal griev'ed on Janua:y 24,1972, to lose its presirient and price. wage freeze which had been instituted on chief operating officer, James H. Campbell, through August 15,1971. In November however, Phase 11 price wage controls permitted..nplementation deat's bY a heart attack' of the new Work;ng Agreement. In April,1971. Donald J. Porter left the Company's The new agreement, which runs through Board of Directors m accordance with the Board's August 31,1974, provides for a 479 to 49e per hour retirement policy. Mr. Porter, whois president of Porter-increase in wages through June 18,1972: an Hadley Company of Grand Rapids, had served as a average increase of about 32C an hour for the next member of the Board since 1956, and had made many 12 months, ending June 17,1973; and another increase averaging about 32g per hour for the contributions to the Company's programs during the remainder of the agreement period. period of his service. The new agreement includes one and one hall On January 6,1971, Brigadier General James A. additional paid days off, including one holiday McDivitt, U.S. Air Force, joined the Company's Board (Veterans' Day), and further improvements in the of Directors. GeneralMcDivittis manager of the Apollo Company s Pension Plan. The latter is subject to approval by the Company's shareholders at the Program, based o.n Houston, Texas. He o.s the son of 1972 Annual Meeting. James A. McDivitt, Sr., retired associate engineer of Wage increases a id additional benefits, the Company, and Mrs. McDivitt. substantially equal to those of fered to the Union The Company was saddened by the deaths in 1971 on May 12, were placed in etfect ior Office and of Robert H. Lawlor, former Lansing Division Manager. Technical employees an the_ late spryng. Additional increases werre made ef fective in med. November in who had been placed on indefinite leave for illness in accordance tith terms of the Federal wage 1970; and Herbert L Ziegenbein, former manager of guidelines. the Central Division, who had retired in 1963. 12

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A Clean Environment & What R Costs Michigaw people want their air, water and land kept clean. Consumers Power is helping, both by continuing its long-establisned program of Anvironmental protection in its operations, and by playing a leading role as a supplier of the energy that is essential in virtually all phases of pollution control. But controlling pollution is costing money... and if will cost a lot more. For Consumers Power, a major issue m 1971 was the neej for environmental improvement, and have environmental protection. demanded that something be done about it. For industry, environmental protection comes in This has produced an irenic situation. Energy two parts. Part One is the question: Are you harming suppliers, whose contributions to air and water the enQrdn~m'ent (f Michigan [ Pkt Two reads: pollution are relatively small, have become the How are you helpi,titoive the problems? targets of environmental activists whosa What was it fike wherrthe i;tility companies of catch. slogan is: "All power pollutt s.".nsted of America got the whole thing going? Utility men being permitted-even encourageu-to suppe the chose an area of the country and invested their electncity and natural gas that will be needed to money and skills in developing electric, gas, transit, overcome pollution, they are being hampered and communication, and steam services. Hopefully, hamstrung at every turn. the business would make a picfM return the capi'al This is not altogether surprising. Utilities, to investors, and pay dividends. Some aid, and being highly visible, make inviting targets. some didn't. But the system surv;ved because it But it is frustrating. worked; and because it providM cvices that were Consumers Power Compariy, as one of the essential to a growing America. nation's major suppliers of electricity and natural During those years of growth-in Michigan, gas, thinks a lot about Michigan's tomorrow. it must do so, because a utility cannot pack up, say, from 1356 onward-no or.e considered environmental quality to be a pressing problem. and rnove elsewhere. It is part of Michigan and The reason was simple. There were fewer people, thus its management can justly explain its concern fewer industries, and fewer waste products. about the future by pomting out: "After all, we five here, too." Moreover, the plants and factories of that day were far smaller in size than the industrial giants of Now, let's take Parts One and iwo of The issue. the 1970's, and were scattered over a vast Part One: Are you harming the environment 01 agricultural area. Michigan? Early production of electricity caused no harmful in practically all areas of concern, Consumers effects, apart from a few electric power lines. Power Company has tried to be a leader in making Electricity was generated, for the most part, with changes-using the best available technology f alling water; and its production actually led to to do so. This foref ront progress is an expression environmental improvement. Power companies of a deep abiding concern for providing the best bought hundreds of miles of cutover riverlands possible service at reasonable cost while considering and planted millions of trees to protect the the impact of operations on the air, water and 8 watersheds and thus safeguard the flowage on earth around Company facilities. j which the generators depended. The Company's environmental protection program In the period of rapid industrial expansion of dates back almost fifty years as respects the first the twentieth century, the needs of a growing conservation and reforestation efforts along Michigan population continued to overshadow environmental rivers in which the Company had hydroelectric l considerations. But today, the ground rules are interests. Then, as now, plant and transmission line l different. There are vastly more people demanding siting took into account the considerations of natural vastly more goods and services. In the process, resources and nearby communities. Of course, by Ereat environmental pressures have resulted; today's standards, environmental protection efforts among them enormous problems of human and then were not nearly as intensive as they are now. i,3dustrial wastes. Belatedly, the people of Michigan, in those earlier times, and indeed until recently, and of the nation as a whole, have come to realize the primary consideration of utilities and 16

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..m... :. Consumers Power Company a regulatory agencies was the providing of service included are the James H. Campbell plant, west of at the lowest possible cost to the consumer. Grand Rapids, and the Dan E. Karn plant, Today, costs for environmental protection fall into near Bay City. Conversion of 10 generating units to burn cleaner three general categories: first is the cost of a converting and operating facilities to meet new and fuels has been going forward. Four units of the changing environmental demands; second is the B. E. Morrow plant, near Kalamazoo, now burn oil or additional expense of building and maintaining new natural gas depanding upon available supply; six facilities so they are responsive to current generating units at the J. C. Weadock plant are being environmental requirements; and third is the converted to burn oil. Several older plants totaling about 160,000 cost of research to develop even better ways af a doing the first and second. kilowatts of capacity are being retired as quickly as in capital construction, the Company's replacement power is available. In this regard, the environmental efforts in 1972 are estimated to have 80,000-kilowatt Saginaw River plant was shut down a price tag of $34,700,000. early in 1972. Future costs necessarily will depend upon = Selectio1 of fuels for lower ash and low sulfur government rc ;uirements that are stillin a state of content wi'l involve significant costs in years to come. flux and also on technological developments. = Research is aimed at achieving the cleanest burn However, in the five years 1972-1976, the Company possible f rom all fuel sources. Removal of unwanted expects to invest at least $250,000,000 for elements principally sulfur,is the subject of joint environmental protection. studies viell underway. Unfortunately, a commercial Predictable categories and estimated costs process with the rehability and performance to meet include: national standards recently established for new coal fireJ plants by the Environmental Protection Air Quality improvement Program, Agency has not yet been demonstrated.Thus,it is 1972-1976 - 589,600,000 uncertam whether th. Company can use high sulfur a Conversion to the best available smoke contre' coal that is available in quantity. For this reason, equipment is proceeding at several electric the Company is not planning any new coal fired generating stations built before 1960. Already genertting plants until technology exists that will installed and operating are electrostatic permit their operation within existing regulations. precipitators at the B. C Cobb plant, near Muskegon; similar preupitators with efficiencies Water Quality Protection Program, 1972-1976 - 5128,900,000 up to 99 percent went into service in 1971 on Units 7 and 8 at the J. C. Weadock plant near a Electric and natural gas facilities do not pollute Bay City, water if care is taken to build the facilities properly Work will start in 1972 on installation of and to install the usual protective equipment for precipitators at the J. R. Whiting plant near Erie, handling of sewage and drainage. with completion planned in 1973. All of these plants a Water used for steam making purposes at electric originally were built with mechanical dust collecting generating plants is treated to make it as pure as equipment with efficiencies in the 80-85 percent possible and is kept in a closed cycle system. Condenser cooling water is handled in a variety of range. Newer plants are improving efficiencies in ways depending upon the plant location and the a particulate removal, with new controls and source of the water. Some new plants are designed adjustments to the electrostatic precipitators being to have ponds or croling towers to permit warm made to meet State and Federal emission standards. water to dissipate its best into the atmosphere 17

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w .y ~ Q74 P" MM L.[!.y Consumers Power Company z before being reused or returned to its source. = Electric and gas transmissi]n construction = For more than 50 years, the Company has planning includes the surrounding areas This cooperated with State and Federal agencies in sometirnes means building a longer ar"* more protection of fish life. At hydroelectric dams, fish costly line to bypass a community or an area have been stocked and fish dipped to transfer them rich in natural resources. over dams. River flow is kept at agreed upon rates Now, Part Two: How are you helping solve the to enhance the propagation of fish below dams, problems? The list here could be even longer than the one Land improvement Program, above, but it doesn't have to be. Let two statements 1972-1976 - $ 32,200,000 cover it: = More than 22 million trees have been planted on First: The Company's gas exploration and Company-owned riverlands along more than 700 development program is well on its way to making miles of shoreline. These riverlands are open to the perhaps the single most significant contribution to public for canoe stopover 5, picnicking, hiking, air quality control in the State of Michigan by hunting, fishing and camping at specified campsites. finding and developing the gas reserves that will = A broad. scale research effort is underway to find help to keep Michigan's skies clean in the future. ways of marketing and using fly ash collected at Second: Within its service area, it is very difficult, generating plants by precipitator equipment. Starting if not impossible, to identify any method of pollution with a few tons in 1967, the Company has sold control that does not involve the use of electric power 120,000 tons, mainly for construction projects. Supplied by the Company. New and expanded Fly ash is an integral part of the concrete used sewage treatment plants require electricity to at all recently constructed Company plants. operate. Recycling waste glass and paper, or junked a Gas explorations by the Company's subsidiaryin auto bodies, appliances and other metal, for reuse northera Michigan are conducted to have minimum takes large amounts of electric energy. And the impact on the environment, and well sites are examples go on. replanted following drilling operations, in point of fact, the United States Patent Office = The Company has been a leader in beautification said it al, when it reported that during a one year of electric and gas utility facilities, and period en led February 16,1971, a total of 579 undergrounding of electric f acilities. A number of patents we re granted, of which 290 in some way years before new subdivisions were requireo to have dealt with the nation's environmental problems. underground electric service, the Company How many of those 290 ideas required electricity inaugurated one of the most liberal programs n the to make th em work? country, designed to encourage home develop 3rs and Every sir gle one. homeowners to install underground service. in Michigan, the Company is investing in re search e and study projects devoted to determining tb2 environmental profiles of potential plant sites, and the projected effects of future plant operations. . On a natio,al basis, the Company, with the electric and gas industries,is involved in a number of research projects aimed at environmental protection; for example, a fuel cell that burns natural gas and can be used as a clean, quiet source of electric power for large structures or substations. 18

f UPPER PENINSUL.A & % OF MICHIGAN (( N. ELECTRIC SYSTEM ~ Op -{v u )[._q'- Area served by Consurnc.. Poua v ~ .x shown in white 4 ( D Nuclear Plant ') ' a b saa tw ca .'*[ ECoal-Fired Nant ~, t ~)SIRA: B Gas-Fired Plant TS v f G Peaking Plant t r-- s g H. G Hydro Plant A Primary Substation sig ned Poin: -t. ri,n3 Transmission Line s j A r g I 46.000 Volts

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l PLANT ADDITIONS AND IMPROVEMENTS 1961-1971 GAS REVENUE 1961-1971 ELECTRIC REVENUE 1961-1971 270 333 360 ]l 240 ll t 210 270 - 7 r 18 0- +i l 30 - 150 II--180 - r 240 l -- -- 120 r- - l-p i ll 270 90 - - 210 l ' I E 60 - r- - l; l 240 r p --- ] ( ! 3 30 - -- H l,. L 8 i i L_,_, 0 210 I L f ( 61 62 63 64 6566 67 68 69 70 71 i E OTHER r > i f f f t i E GAS E ELECTRIC 150 1-18 0 - - - - - f- --y r-r-GAS AND ELECTRIC CUSTOMERS 1961-1971 i t 5 ; 1200 t p p e i ( 150 - -k - '- 1000 L I I , l 1100 12 0 - r-- r t I i [ [ ~ f 12 0 - 900 - - - r t 800 - - - 7 f 90 - U 700 - - 90 - 600 - - l ~ 500 - 60 - i E '[ l [ f i i 400 -. - l 2 I i t f ,f i i p, 300 - 30 - n $200_ q q 30 - t F-t i t s 2 100 - g g f 0-E 0 -- 0 61 62 63 64 65 66 67 68 69 70 71 61 62 63 64 6566 67 6869 70 71 61 62 63 64 65 66 6768 69 70 71 E ELECTRIC CUSTOMERS E OTHER E OTHER E GAS CUSTOMERS E INDUSTRIAL AND COMMERCIAL E INDU! TRIAL M OTHER RESIDENTIAL E COMMERCIAL E RESIDENTIAL USING GAS E RESIDENTIAL FOR SPACF HEATING P00R ORIGINM e .e.

'.M DE RS EN Oc CO. rROIT, MICHIG AN l To the Board of Directors, Consumers Power Company: We have examined the balance sheet of CONSUMERS POWER COMPANY (a Michigan corporation) as of December 31,1971, and the related statements of income, retained earnings and source of funds for gross property additions for the year then ended. Our examination was made in accordance with generally accepted L lg standards, and accordingly included such tests of the accounting records and such other auditing procedures as we cor.sidered necessary in the circumstances. We have previously examined and reported on the financial statements for the preceding year. In our opinion, the accompanying financial statements.*ferred to above present fairly the fir,ancial position of Consumers

• Power Company as of December 31,1971, and the results of i3 operations and the source of funds for gross property additions for the year then ended, in ccaformity with generally accepteC accounting principles applied on a basis consistent with that of the preceding year.

h Detroit, Michigan, g, j February 3,1972. Statement of Source of Funds Consumers Power Company for Gross Property Additions FOR THE YEARS ENDED DCEMBER 31,1971 AND 1970 YEAR ENDED DECEMBER 31 SOURCE OF PP.'0'; FOR GROSS PROPERTY ADDITIONS: 1971 1970 Funds generated from operations: Net income after dividends on preferred stock. . 5 64,671,856 5 69,315,16! Add-Expenses not requiring current outlay of funds-Depreciation and amortization (Note 5)- 58,210,389 55,603,057 Per statement of income 6,402,060 6,162,050 Charged to other accounts. 14,300,164 10,221,539 Deferred income taxes, net....... 5,751,207 448,537 investment tax credit, net $149,335,676 $141,755,370 Less-48,067,676 46,802,749 Dividends declared on common sinck.... Retirement of long term debt and preferred stock. 10.538,000 9,43S,000 T E730,000 $ 85,514,621 funds obtained from new financing: Issuance of common stock $ 33.660,779 issuance of preferred stock. 70,000,000 Issuance of first mortgage bonds. 120,000,00!1 110,000,000 increase (decrease)in other long-term debt. (4,239,197) 12,729,846 increaw (decrease) in notes payable. (36,500,000) 12,600,000 $168,990,625 $149,260,803 .os obtained from other sources: Increase in reserve fur possible rate refunds (Note 3). $ 7,277,749 $ -4,406,36S Change in net current assets and current liabilities. 7,018,363 (15,140,247) 3,558,501 2,174.758 Other, net 5 17,854,613 $ (8,559,121) Increase in investment in Northern Michigan Exploration Company (Note 2) (4,000.000) (4,000.000) $ 13,854.613 $ (12.559.121) GROSS PROPERTY ADDITIONS. $253,845,416 $241,946.125 ( ) Denotes deduction. l The accompanying notes are an mtegral part of this statement 13 i ;; i ; c : ii:!O{g;*!' .a'~ i 4 -2 j ' 'i 22 d fi g s )# !) } b b J i k li

Statement of income Consumers Power Company FOR THE YEARS ENDED DECEMBER 31.1971 AND 1970 YEAR ENDED DECEMBER 31 1871 1970 OPERATING REVENUE (Note 3): $364,229,770 $334,904,154 Electric Gas 286,091,455 273,873,680 1,295,562 1,211,671 Steam ~$651,616,807 ~ $609,989,505 Total operating remiue. OPERATING EXPENSES AND TAXES: Operation- $ 41,860,127 5 19,330,636 Purchased and interchanged power fuel consumed in electric generation. 84,206,180 70,939,536 130,410,662 117,874,862 Cost of gas sold. 122,509,544 116.644,190 Other. $378,986,513 $324,789,224 Total operation 31,512,272 32,817,757 Maintenance. 58,210,389 55,608,057 Depreciation and amortization (Note 5) 43,872,856 39,062.263 General taxes..... 14,468,669 38,823,836 federal income taxes. 3,064,885 4,786,793 State income taxes 14,300,164 10,221,539 Provision for deferred income taxes, net Charge equivalent to investment tax credit, net 5,751,207 448,537 $550,166,955 5506.55S.006 Total operating expenses and taxes... $101,449,852 5105,431,499 Net operating income OTHER INCOME: $ 21,861,822 $ 14,108,197 Allowance for funds used during construction (Note 1)........ 1,897,500 1,650,000 Dividends from Michigan Gas Storage Company.......... Gain on reacquisition of long-term debt 1,269,352 1,074,465 888,645 529,497 Other, net $ 25,908,319 $ 17,362,159 Net other income. INTEREST CHARGES: $ 53,829,383 $ 44,773,732 Interest on long term debt 1,749,029 3,188.317 Other interest charges Total interest charges 5 55,578,412 5 47,962,049 Net income 5 71,779,759 5 72,831,609 DMDENDS ON PREFERRED STOCK 7.107,413 3,516,422 Net income after dividends on preferred stock. $ $4,671,856 5 69,315,187 EARNINGS PER SHARE OF COMMON STOCK BASED ON AVERAGE SHARES OUTSTANDING (24,033,838 shares in 1971 and 23,506,780 shares in 1970). $2.69 $2.95 The actompanying notes are an integral part of this statement 23

Beicn o Shrt s. at December 31,1971 and 1970 a December 31 Assets 1971 1970 UTILITY PLANT: At original cost-Plant in service and held for future use- ~ Electric. $1,378,231,709 $1,288,260,565 Gas. 742,720,828 719,087,937 Steam 3,810,054 4,206,666 Common to all departments. 56,562,810 52,855,923 $2,181,325,401 $2,064,411,091 Less-Provision for accrued depreciation 555,882,271 512,073,215 $1,625,443,130 $1,552,337,876 Construction work in progress (Note 1)...... 395,581,463 278,939,450 $2,021,024,593 $1,831,277,326 OTHER PHYSICAL At cost or less -less provision for accrued depreciation of PROPERTY: $363,593 in 1971 and $366,286 in 1970,. 2,892,576 5 3,019,66S INVESTMENTS. Who!!y owned subsidiaries, at cost-Michigan Gas Storage Company. $ 16,205,186 $ 16,205,186 Northern Michigan Exploration Company (Note 2). 10,000,000 6,000,000 Other, at cost or less. 646,863 '7,052 $ 26,852,049 $ 22,342,238 CURRENT Cash. $ 11,970,016 $ 10,221,930 ASSETS: Accounts receivable,less reserves of $565,291 in 1971 and $526,949 in 1970. 51,126,728 45,349,804 42,839,352 43,269,506 Materials and supplies, at average cost i Gas in underground storsge, at average cost. 27,315.957 23,314,313 29,898,435 20,974,500 Prepayments and other............. 5 163,150,488 $ 143,130.073 1,634,726 3,006,939 OTHEPc Deferred debits. i $2,215,554,4J2 $2,003,376.244 i The accompanying notes are SA integral part of this statement. I 24 4 l t 1

C nsumers Pawcr Cnmp:ny i., December 31 Stockholders' investment and Liabilities i,73 1970 CAPITAllZATION: Common stockholders' equity-Common stock, $10 par value, authorized 32,500,000 shares, $ 240,338,380 $ 240,338,380 outstanding 24,033,838 shares. 209,037,913 208,904,434 Capital in excess of par value (Note 7) 195,599,260 178,995,080 Retained earnings (Note 7) $ 644,975,553 $ 628,237,894 4,992,521 3,964,115 Less-Capital stock expense ...... $ 639,983,032 5 624,273,779 Total common stockholders' equity Preferred stock, cumulative, $100 par value, authorized 148,333,800 78,733,800 2,500,000 shares (Note 7).. $ 788,316,832 5 703,007,579 Total stockholders' investment 1,027,600,049 923,177,246 Long term debt (Note 8) $1,815,916,881 $1,626,184,825 Total capitalization. $ 19,000,000 $ 55,500,000 NOTES PAYABLE: Due within one year... .. $ 16,291,625 $ 13,924,813 CURRENT LIABILITIES Current maturities and sinking fund-long-term debt (Note 8) 78,903,003 60,508,945 (excluding notes payable Accounts payable... 55,023,692 58,601,466 due within one year)- Accrued taxes 16,450,686 9,645,706 Accrued interest, 15,357,298 12,306,596 Other. 5 122.026,304 $ 154,987,526 DEFERRED Investment tax credit, being amortized over life of the CREDITS: related property $ 27,920,811 $ 22,169.604 3,476,155 1,483.677 Other.................. 5 31,396,966 $ 23,653,281 RESFRVES: Deferred income taxes. $ 129,571,395 $ 115,271,231 Other (Note 3). 12.678,729 6,311,664 $ 142.250,124 $ 121,582,895 4 l 4 ... $ 24,964,157 $ 21,467,717 l OTHER: Contributions in ::id of construction $2.215.554,432 $2,003,376,244 i The accompanying notes are an htegral part of this statement. 25 ? Y'

1 St:tzm:nt cf R:tcinno demings Consumora Pcwcr C mp:ny FOR THE YEARS ENDED DECEMBER 31,1971 AND 1970 1971 1970 RETAINED EARNINGS-Beginning of year. $178,995,080 $156,482,642 ADD-Net income after dividends on preferred stock. 64,671,856 69,315,187 $243,666,936 5225,797,829 DEDUCT-Cash dividends on common stock declared and paid in the amount of $2.00 per share in 1971 and 1970 48,067,676 46,802,749 a-RETAINED EARNINGS--End of year (Note 7). $195,599,260 $178,995,080 The accompanying notes are an integral part of this statement. Notes to the Financial Statemerits 1 Construction work in progress at December 31,1971 Includes $166,180,000 related to the Palisades Nuclear Plant including fuel and $54,224,000 related to the Midland Nuclear Pli,t. With respect to the Palisades Plant, a license perr.itting operation of the plant at 20 percent of thermal capacity was received from the U.S. Atomic Energy Commission (A) C)in November 1971 following protracted hearings and litigation which began in June 1970. Commercial generation of powe r was achieved in testing operations in December 1W1. Proceedings are now in progress before the AEC to obtain an operatirg license at 60 percent of thermal capacity with further hearings on the Corrgany's application for an operating license expec'ed to result in full operation in 1972. Pending full operation, the Company is continuing to capitalize interest during constrect on and other costs which would normally be charged to operations. The monthly amounts capitalized in 1971 were approom itely $850,000 and $250,000, respectively. With respect to the Midland Plant, hearings an the Company's application for a construction permit which began in December 1970 have been delayed as a result of iltervention by a number of associations and persons opposing the issuance of a construction permit and by extensive rule changes by the AEC. Construction at the site of the proposed Midland Plant was halted in November 1970 after it became evident that intervention by opponents would greatly prolong the process of obtaining a construction permit and remains in suspension pending further hearings and decisions by the AEC. The Company expects to have a construction permit in 1972; however,in the event the plant is not completed at the Midland site but the Company is able to utilize elsewhere the design work, equipmert and materials purchased, the Company may not be able to recover up to $9,000,000 primarily related to site costs. 2 Northern Michigan Dploration Company (Northern), a whollyowned subsidiary of the Company,is engaged in gas exploration programs in northern Michigan and the southern United States. At December 31,1971 the Company's investment in Northern consisted of $6,000,000 in common stock and $4,000,000 in notes. The Company's Board of Directors has au9erized loans to Northern up to a maximum of $10,000,000 and has authorized a total common stock investment of $8,000,000. In addition, the Company has advanced $5,000,000 to Northern under a contract for the right to purchase gas produced from certain onshore Louisiana wells. In accordance with the terms of the contract, this amount is expected to be applied against the cost of future gas deliveries and against certain development expenses. 3 During 1971, the Company had hearings pending before the Michigan Public Service Commission (MPSC) to increase its electric and gas rates by approximately $28,500,000 and $31,000,000, respectively, on an annual basis. On December 14, 1971, the Company was authorized to increase its electric rates approximately $10,559,000 and the Company has applied for a rehearing on the basis the amount approved was inadequate. Pending completion of the hearings on the application for an increase in gas rates, on December 23,1971 the Company was authorized to increase its rates on an interim basis by approximately $6,500,000, principally to cover an increase in the cost of gas of approximately $6,100,000 which became effechve November 14,1971. Such increased gas rates are subject to refund. The electric and gas rate increases are subject to re/iew by the Federal Price Commission. In January,1972, the Company filed for further interim relief in the amount of $7,44000, based upon increases in the wholesale cost of gas scMd to go into effect in February,1972. However, on l Feb aary 10,1972, subsequent to the date of the Auditors' Report, the f rice Commission announced that rate increases by l privately owned public utihties are prohibited until March 10,1972, or until the Price Commission further implements changed l regulations which may result from public hearings scheduled for late february,1972, whichever occurs first. Litigation is pending with respect to electric and gas rate increases which became effective in 1%9 and which are subject l to refunds relating to the reduction and elimination of the Federal income tax surcharge in 1970. In connection therewith, the l ~ Company has excluded from revenues $14,971,000 for 1971 and $9,189,000 for 1970 and established a reserve stated net of related mcome taxes in the amount of $11,684,000 at December 31,1971. As a result of the December 1971 authorizations by the MPSC to increase electric and gas rates effective December 14, and December 23,1971, respectively, it is unlikely that there will be any refund obligations arising subsequent to these dates even though petitions for rehearing of the order granting an electric rate increase are now pending before the Commission, and, accordingly, as of the date of said authorizations, the Company has discontinued providing additional amounts to the reserve for possible refunds. Litigation is also pending with respect to the legality of the electric rate increase which became effective in 1%9 because the increased rates became effective by court order in October 1969 and the MPSC did not issue an order approving said rates until April 1970. As a result the electnc rates charged during the period are subject to refund in an amount of approximately $7,000,000, for which no reserve has been provided. 4 The Company has a trusteed noncontributory pension plan under which full-time regular employees within specified age limits and peri ds of service are qualified to participate. The contributions to the plan were $10.575,000 in 1971 and $9.195,000 26 t -.n--- -~.. s~

i.e *.CC. 3. C.:.: en.cunis $8,127,000 in 1571 and $6,940,000 Lt 1970 were charged Crectly to expense accounts with the remcinder bM chargtd to various construction, clearing and other accounts. The contr0utions include current service costs, interest on unfunded prior service costs and amortuation of prior service costs. The unfunded prior service cost at June 30, 1971 amounted to $1,300,000. The Company proposes to make substantial changes in the pension plan effective July 1,1971. These proposed changes, which are subject to shareholder and governmental approvals, would substantia!!y increase the Company *t :ontributions to the plan and its hability for unfunded prior service costs. 5 The Company follows the practice of providing depreciation onthe basis of straight line rates approved by the Michigan Public Service Commission. Composite depreciation rates were approximately 2.95% in 1971 and 1970 for electric property and 3.00% in 1971 and 3.05% in 1970 for gas property. 6 Capital expenditures for property additions in 1972 are estimated to total $383,000,000. Total construction expenditures over the five years ending December 31,1976 are presently estimated to exceed $2,000,000,000. Substantial commitments have been made with respect to capital expenditures in future years. D' center 31 3 e RED 7 Preferred stock is represented by: WD PER SHARE $4.50-547,788 Shares Outstanding. $110.00 $ 54,778.800 Q 778,800 $4.52-135,550 Shares Outstanding. 104.725 13,555,000 13,t55,000 $4.16-100,000 Shares 0utstanding. 103.25 10,000.000 10,000,000 108.00 70,000,000 $7.45-700,000 Shares Outsunding. Total preferred stock. $148,333,800 $78,733,800 At December 31,1971 retained earnings in the amount of $11.125,035, equiva!ent to $7.50 per share of preferred stock out. standing, is not avaihbie for payment of cash dividends on common stock. The preferred stock of the Company is redeemable as a whole or in part, at the option of the Company, at the above redemption prices plus accrued dividends to the date of redemption, except that prior to April 1,1978 the $7.45 Preferred Stock may not be redeemed through certain refunding operations. The Company is required to endeavor to purchase and retire annually 4,000 shares of the $4.52 Preferred Stock at a price per share not to exceed $102.725 plus accrued dividends. Such purchases of preferred stock in 1971 resulted in a net gain of $133,479 which was credited to capitalin excess of par value. Decenter 31 g 1.ongterm debt is represented by: 1971 1970 First Mortgage Bonds- $ 86,324,000 $ 86,324,000 2%% Series due 1975. 60,000,000 60,000.000 8%% Series due 1976. 24,010,000 24,010,000 2%% Series due 1977. 39,000.000 39.000.000 3%% Series due 1981. 24.075,000 24,075,000 3% Series due 1984 40,000.000 40,000.000 4% Series due 1986 25,000,000 25,000,000 3%% Series due 1987. 244,000 246.000 4%% Series due 1987. 36,859,000 40,000,000 4%% Series due 1988. 4%% Series due 1989. 32,565.000 35.000,000 30,000,000 30,000,000 3% % Series due 1990. 32,146,000 34.000.000 4%% Series due 1990. 4%% Series due 1991. 38,744,000 40,000,000 5%% Series due 1996. 59,000.000 59,000.000 6% Series due 1997 78,550,000 79,400,000 55,000.000 55.000.000 6%% Series due 1998 6%% Series due 1998. 55,000,000 55,000,000 7%% Series due 1999. 50,000,000 50,000.000 8%% Series due 1999. 55,000,000 55,000,000 8%% Series due 2000. 50,000,000 50,00C ")00 8%% Series due 2001. 80,000,000 i 60,000.000 7%% Series due 2001. ~ Total First Mortgage Bonds $ 95D17,000 $881,055.000 Sinking Fund Debentures,4%%, due 1994 38,800,000 39,400.000 Other. 13,574,674 16,647,059 $1,043,891,674 $937,102,059 Deduct-Current maturities and sinking fund included in current liabilities- $ 10,738,000 $ 9,538,000 l First Mortgage Bonds Sinking Fund Debentures 600,000 600.000 4,953.625 3,786.813 l Other. $76T291,625 $ 13.924.8Il i l Total long-term debt $1,027,600,049 $523,177,246 } l \\ I ,L

Fin:ncicI Sumanry1971-1961 1971 1970 1%9 1968 STATEMENT Operating Revenue OF Electric. $ 364,229,770 $ 334,904,154 $ 307,999,678 $ 286.245,62 INCOME Gas 286,091,455 273,873,680 240,535,782 217,681,85 DMA Steam Heating. 1,295,582 1,211,671 1,239,386 1,191,51 Operating Revenue Deductions. Except Taxes. 6 8.70s.174 413215.038 358 185289 320.195.81 Taxes federalIncome inz. 14.448.169 38.823.836 41.022226 49260.38 StateIncome Tax. 3.064.185 4286.193 4.071.324 4.859.45 Deferredlocome Tax (Net). 14.200.164 10221.539 10.962.051 9.901.48 investment Tax Credit (Net). f 751,207 448.537 3.416.145 3.395.60 Other. 43.872,814 39.062263 37.058.195 31.167.80 Net Operating income Electric 59,843,411 62,778,612 62,598,806 57,034,60 Gas 41,683,374 40,779,643 32,651,237 28,870,9? Steam Heating. (76,933) (126,756) (391,027) (167,41 Allowance for Funds Used During Construction. 21,861,822 14,108,197 8,421,185 4,891,48 Other income. 4,046,497 3,253,962 2,401,181 1,914 5C Interest Charges 65.571.412 47J62.049 38.721239 29.987.62; Net income. 71,779,759 72,831,609 66,S50,343 62,555.65 Cash Dividends Declared On Preferred Stock. 1.107.903 3.516.422 3.534,500 3.548.05 48.067.176 46.802.749 32.446293 9) 43.137.34. On Common Stock Earnings Retained. 16,604,180 22,512,438 30,979,450 15,871,25 Common Stock, Unadjusted. See Footnote (1) Average Shares Outstanding 24,033,838 23,506,780 22,768,900 22,670,77 Earnings per Share. 2.69 $ 2.95 2.79 2.6' Cash Dividends Paid per Share. 2.00 $ 2.00 1.90 1.9 Common Stock, Adjusted, See Footnote (1) Average Shares Outstanding 24 o33,838 23,506,780 22,768,900 22,670,77 j Earnings per Share. 2.69 $ 2.95 2.79 2.6 2.00 $ 2.00 1.90 1.9 Cash Dividends Paid per Share..... Allowance for funds Used During Construction .91 $ .60 .37 .2: per Share BALANCE Utility Plant. $2,576,906,864 $2,343,350,541 $2,125,445,053m $1,924,082,75( SHEET Accrued Depreciation. 555,882,271 512,073,215 473,217,730'5) 427,774,32' DATA Plant Investment per Employee 217,259 195,981 182,583:5) 171,4S: Capitalization, See footnote (2) l Common Stockholders' Equity. $ 639,983,032 $ 624,273,779 $ 568,726,600 $ 537,643,40: 1 Preferred Stock. 148,333,800 78,733,800 79,133,800 79,533,8 % 1,027,600,049 923,177,246 810,585,400 714,627,SD: Longterm Debt......... Totat Capitalization. KeI5,916,881 $1~626,184,825 Ti~458,445,800 $1,331,80'i,~10) Capitalization Ratios-%, See Footnote (2) 39.0 40.t Common Stockholders' Equity. 35.2 38.4 Preferred Stock. 8.2 4.8 5.4 6I Longterm Debt. 58.6 56.8 55.6 531 (1) f/; mrnon Stock. IJnedjusted, figures do not reflect any adjustment to provlously reported f dures for the 2 for i stock spt,t in April 1962 or for the 10% Comrnon Stock dividend 4 sued April 1967. The Common Stock. Adjusted. figures reflect these adjustments-rf Total Capitehast6on and Common Stockholders

• Equity data shown above for 1964 and pric? years have t,een restated to reflect the deduction of expense pertaining to stock lasues prov6ously reported as a deferred detdt.

CB) Fourth quarterfy dividend formetty declared in Decemt,er doctored in January.1970. e

s

• A d,

) 122 1966 1%5 1964 1963 1962 1%1 $ 270,086,001 $ 257,833,579 $ 239,991,443 $ 221,738,649 $ 209,202,898 $ 198,857,361 $ 186,399,427 205,882,426 188,927,810 172,321,289 153,779,511 142,115,564 131,395,598 114,655,299 1,213,020 1,138,878 937,113 882,058 944,005 976,696 1,001,675 200.603.516 280.364.645 256.581.178 231)S4332 220.071,186 206. 0 9,817 189.100.637 C486J66 48.883.101 47.406213 432 99.441 39J16.596

27) S3.678 33.732.041 7J12.510 6.813232 6.190.110 1.920.315 1,105,571 6399382 12 48.992 4 055.825 2.158.151 2.585234 IJJ9263 2.174210 IJ66.029 29.468285 26,038.103 23.055.001 21.199.959 19,868.033 172 43.455 16.921249 58,851,897 55,851,252 52,346,746 47,767,645 44,715,036 41,906,814 39,573,111 31,093,939 27,807,461 25,168,901 22,387,564 19,366,352 18,635,125 15,558,320 (70,991)

(15,778) (83,538) (68,901) (54,617) (75,246) (18,949) 2,555,367 2,332,530 635,545 365,927 332,660 1,990,245 1,879,517 1,011,948 2,126,096 2,293,794 1,461,839 1,741,544 1,188,622 1,314,986 24.918.662 20.912345 18379219 17J00.925 18.417.451 18280.896 17J18.470 68,523,498 67,178,716 61,882,229 54,013,149 47,683,524 45,264,664 40,408,515 3,567.016 3.584.565 3.614.036 3.629259 3.655.648 3.665.595 3.633.453 41.999.843 29.078.S28 27.540283 33.609204 302 60.152 27.542.109 15.411.656 21 956,639 24,515,623 20,727,910 16,774,686 13,767,724 14,056,960 11,303,406 22,628,901 20,567,560 20,555,589 20,330,016 20,094,050 19,608,383 9,568,115 2.87 3.09 2.83 2.48 2.19 2.12 3.84 1.90 1.90 1.775 1.60 1.475 3 1.40 2.60 22,628,901 22,624,316 22,611,148 22,363,018 22,103,455 21,569,221 21,049,853 ,4 2.87 2.81 2.58 2.25 e 1.99 1.93 1.74 1.86 1.73 1.61 1.45 1.34 1.27 1.18 i$ .11 .10 .03 .02 .02 .09 .09 $1,742,150,612 $1,619,668,027 $1,482,250,832 $1,384,203,322 $1,329,744,266 $1,284,320,741 $1,206,518,804 398,061,576 364,653,544 330,308,291 302,318,407 273,316,827 245,831,001 219.227,665 160,759 154,283 148,477 141,940 136,608 131,833 131,809 i'$ 516,861,795 $ 494,483,584 $ 468,976,284 $ 445,022,760 $ 421,589,507 $ 394,398,888 5 368,248,909 i 79,962.581 80,363,340 80,764,100 81,164,860 81,565,619 81,966,379 82,367,138 612,015,900 538,169,000 478,657,000 486,591,691 457,187,082 493,062,773 489,337,064

(1} 08,840 276Kil3,015,924 K02Ef,39K384 K012,779,311

$ 960,342,208 $ 969,428,040 NR3,111 42.8 44.4 45.6 43.9 43.9 40.7 39.2 ) 6.6 7.2 7.9 8.0 8.5 8.5 8.8 50.6 48.4 46.5 48.1 47.6 50.8 52.0 a p cab o to re I re unds r e we n 1963 and 9 m t r em y f. 1969 er rest t d l."."fc;l*L*'a."4".',*e'/ /"'2'.".'l"'*a"4R

• a'0'!";*,"J.' ","!,";e'"a:,*.**"#2J"c1***d:

includ ng the effect of applicable income taxes. sion's system of accounts. M ~ l

**"""C" 4 %'**"""' S:ctria cnd Ocs 1871 1870 1981 1970 1969 Op rcting C mp ri n 1971-1961 electric revenue Residential. $141,1',819 6.0 77.0 $133,131,799 $119,293,93 Commercial. 95,839,344 92 121.4 87,727,018 76,246,49 Industrial 118,617,428 15.7 116.8 102,501,526 98,132,47-Interdepartmental and Other. B.561,662 7.5 108.6 6,101,767 5,320,22 ~,125,053 9.9 100.2 $T294MJI6 $298,998,12 5362 ~~ Total Sales to Ultimate Consumers. Power Pool. 7,778,805 16.8 135.8 6,661,084 5,567,95 Other Resale. Reserve for Po:sible Rate Refund.... % 9.745) (9,367,949) 58.0 ~M0335 905 9.2 95.7 $T30,ls3,W9 $304,'66,05 ~ Total Dectric Sales Revenue. Miscellaneous Electric Revenue. 3,693,861 (21.6) 66.6 4,710,705 3,433,59 $13' 90{f5T [3[i7,999,61. Total Electric Revenue. $364,229,770 8.8 95.4 4 2 electric sales Residential. 6,328,749 6.7 87.4 5,931,840 5,54CIC 4,349,075 8.0 136.5 4,027,215 3,673.7 (1,000 kilowatthours) Commercial........ 8,972,723 11.1 114.6 6,073,913 8,57s,3! Industrial......... Interdepartmental and Other.... 223,849 7.3 64.0 203.526 191,9?, TotalSales to Ultimate Consumers. ~15,87(,39$ 9.0 108.5 ~18,241,494 17,993,31 Power Pool 621,357 9.9 1233 565,183 489 05 Other Resale. ~C495T753 9.0 108.9 18,8063 17 _18,U s.E 2 Total Electric Sales. s peak load Kilowatts 3,867,380 6.4 88 2 3,448,345 3,377,27 3,643,485 23 43.7 3,560,086 3,411,0i generating capacity Kilowatts heat rate Btu of Fuel per Net Kilowatthour Generated 10,248 13 5.9

.0,120 9,94 elect'ic customers End of Period 1,112,607 2.8 25.6 IJ82,442 1,057,73 electric residential Annual Kilowatthours Used.

8,467 3.9 49.9 6,222 5,95 customer Revenue per Kilowatthour Used 2.23t (.4) (5.5) 2.24c 2.15 averages Annual Revenue. $144.18 33 41.5 $139.64 $128.0 gas revenue Residential $154,419,444 2.9 142.8 $150,050,935 $133,77EU Using Gas for Home Heating.... 5.906,707 (10.7) (43.1) 6,614.752 6,07,7! Other. Industrial and Commercial-firm 114,346,614 8.0 212.5 105.831,351 93,710,75 -Interruptible 7,088,705 154.5 2,785 379 Interdepartmental and Other (1). 6,944,951 (14.2) 200.1 8,094,530 3,07935 375,958 (17.7) 456.805 795.4; Resale.......... Reserve for Possible Rate i<efund. (5,603,017) 71.9 (3,258,764) Total Gas Sa!es Revenue. $283,479 30 4.7 151.1 M7076'25.033 $237,465.E Miscellaneous Gas Revenue 2,612,093 (19.6) 48 8 3,248.642 3,065_9[ Total Gas Revenue. $286,091,455 4.5 149.5 $273,873.6Tli $240,535,75 S gas sales and statistics Residential 138,223,553 2.8 115.0 134,435,759 129,060.27 (1,000 cubic feet) Using Gas for Home Heating.. 3,225,088 (13.6) (55.5) 3,733,980 3,997,0E Other.... 160,436,844 9.6 203.9 146,405,893 139,497,14 Industrial arid Commercial-Firm -Interruptible 15,913,473 152.6 6,298,930 15,262,159 (17.5) 130.9 18,507,065 7,214,92 Interdepartmental and Other (1). % 2,331 1,992,39 Resale 812.394 (15.6) Total Gas Sales. ~33f803Il 7.6 155.0 ? ^ 343,958 ~281,761,81 Net to Storage. 9,882,117 (28.9) 683 13,896,516 10,937,19 Unbilled,l.ost and Company Use. 5,211,174 (46.6) 122.9 9,765,675 9,548.26 Total Gas Purchased and Produced. ~j4(96if,802 4.5 150.8 33 [006,149 302,247,27 maximum 24-hour 2,241,000 8.1 165.7 2,074,000 1,7F 00 gas sendout (1,000 Cubic Feet)....... gas customers End of Period 879,535 3.0 563 854,117 830,0 residential Number-End of Period. 734,481 3.9 1033 706,580 675R 193 (1.0) 2.1 195 IE customers Average Annual Mcf Used.. using gas for Average Revenue per Mcf Used. 111.72c .1 13.0 lll.62c 103E $21539 (13) 15.2 $218.12 $203 home heating Average Annual Revenue (1) includes intrecompany sales of goe to the electric department for use in generating electricity in years 1971.1970.1969,1968.1965,1962, and 1961. 1

II 1968 lh 1966 1965 1963 1962 1961 $1',988,430 $102,138,339 5 97,033,110 $ 92,266,607 $ 89,427,891 5 85,334,132 $ 82,884,470 $ 79,727,171 69,952,5 % 64,073,608 60,286,010 55,636,401 52,431,943 48,849,529 46,237,915 43,291,862 91,018,176 85,387,765 84,042,956 77,918,003 70,290,252 65,182,252 60,682,708 54,718,983 ? 4,849,742 4,497,443 4.143,604 3,883,767 3,666,062 3,453,244 3,343,702 3,145,774 ~ 6,09ff55 1245,505,650 1229,70T,778 $2TS,816148 Y202,819,i3T $193,148,795 $180,883,790 ~ ~ $25 5 $275,808,944 2,504,458 5,515,600 4,081,741 2,% 2,550 4,912,924 4,662,499 4,412,239 4,116,623 3,845,597 4,187,933 3,740,699 3,298,695 ~fi9T6T,'745 $207,007,D90 $1%,889,494 $184,182,485 $283,2202B $266,27525I $253,999,660 $236,783,951 3,019,298 3,810,747 3,833,919 3,207,492 2,076,904 2,195,808 1,967,867 2.216,942 $286.2W624 $270,086,001 $25T833T79 $239,991,443 $221,738,649 $209,202,898 $198,857,361 $186,399,427 ~ 5,090,536 4,677,682 4.394,426 4,051,505 3,839,862 3,647,764 3,530,776 3,376,511 3,388,705 3,053,439 2,826,722 2,539,873 2.340,920 2,143,567 2,000,412 1,838,741 8,lM,063 7,496,857 7,353,814 6,643.212 5,797,370 5,299,805 4,846,180 4,180,726 186,707 181,586 171,802 159,324 149,239 141,795 141,747 13C,$'O 16,7100TI 15,409,56T 14,741,764 13,393,914 72',T27,391 li~232,93i 10,519,115 ~ 9,532,51f 411,697 932,307 723,239 526,283 428,902 406,721 404,006 375,790 334,933 370,657 328,777 278,252 t' 17,610,6TO 16,748,592 ~15,874,009 14,295,987 12,462,374 ~ll303,'58F 10,847,892 9,810,763 3,179,715 2,941,030 2,860,410 2,570,040 2,374,910 2,217,405 - 2,038,155 1,948,350 3,371,686 3,307,684 2,922,684 2,852,684 2,790,064 2,791,564 2,792,664 2,534,992 9,804 9,838 9,805 9,555 9,463 9,433 9,631 9,675 i.- 1,031,917 1,002,706 979,095 954,477 931,791 911,671 898,862 885,832 5,609 5,298 5,096 4,824 4,677 4,530 4,443 4,315 2.16r 2.18r 2.21r 2.28r 2.33t 2.34r 2.35t 2.36c $121.18 $115.69 $112.53 $109.87 $108.92 $105.% 5104.31 $101.89 o $123,150,734 $117,697,394 $108,704,823 $ 99,775,009 $ 89,412,353 $ 81,997,119 $ 75,065,216 5 63,601,515 6,329,202 6,854,687 7,157,020 7,680,330 8,209,016 9 450,577 10,171,957 10,387,623 83,103,782 76,436,579 69,079,432 61,603,815 53,157,491 47,851,767 43,225,914 36,595,988 325,558 272,109 258,660 394,490 252.837 255,241 547,350 2,314,246 1,337,476 861,357 443,072 680,446 533,070 462,579 1,157,305 ll214.246,752 $202,122,126 $185,643,007 $170,134,090 $151,56d.767 $140,017,283 $130,167,742 $112,899,372 3,435,100 3,760,300 3,2M,803 2,187,199 2,214,744 2,098,281 1,227,856 1,755,927

• $217,681,852

$205,'8,82,426 $188J27,g $172,321,289 $153,779,511 $1_42,115,564 $131,395,598 $114,655,299

. 120,256.312 115,315,155 106,199,355 97,565,207 86,516,607 79,332,2 0 72,941,582 64,303,774 P

4,215,239 4,592,474 4,733,021 5,094,559 5,428,669 6,405,305 6,845,467 7,241,954 l 125,896,465 115,096,882 104,281,134 92,737,550 78,035,901 69,076,501 62,013,406 52,797,012 482.506 363,134 345,884 794,297 329,956 320,268 1,290,972 6,611,019 3,620,014 2222,554 997,531 1,617,358 1,239,896 1,034,768 2,519,009

~25Il70,536 ~237,~59ff99~

~216,556,923 197,808,971 171,551,024 ~ 616filT 145,610,436 130,953,759 15 - d i 6,204,577 8,525,693 (3,106,249) 327,920 9,748,391 5,322,355 7,305,514 5,872,391 2,338,405 j 12,648,538 11,325,387 9,875,156 7,175,045 3,891,118 6,354,454 3,857,019 ~139,164,555 ~ 23,3K832 1205,311,936 185,190,533 167,845,920 156,772,% 9 fit 33'3] ~237,441,279 2 .( 1,690,584 1,488,000 1,477,302 1,275,076 1,077,722 1,140,880 982,434 843,543 ~798,331 764,903 734,947 697,011 659,151 621,112 590,633 562,897 641,681 604,124 569,353 526,788 483, % 3 438,298 400,668 361,335 194 198 194 194 188 191 193 189 2 102.41r 102.07c 102.36c 102.26e 103.35r 103.36c 102.91t 98.91f i $198.23 $201.69 $198.68 $198.02 $194.22 $196.95 $198.73 $187.01 i m-====.=c.a== - - ~~~

C:mp:ny Dircct:rs Csmp:ny Offic rs

• A H.AYMOND
• A H.AYMOND Chairman of the Board and President of the Company Chairman of the Board and,' resident.

Jackson, Michigan Chief Executive Officer j ROBERT P. BRIGGS

• JAMES H. CAMPBELL (deceased January 24,1972)

Commissioner of Financialinstitutions, State of Michigan President, Chief Operating Officer Lansing, Michigan HARRY R. WALL

• JAMES H. CAMPBELL (deceased January 24,1972)

Senior Vice President, Electric Operations President of the Compaay JOHN B. SIMPSON Jackson, Michigan Senior Vice President, Gas Operations and General Services

2. E. NEWTON CUTLER, JR.

RUSSELL C. YOUNGDAHL Senior Vice President of First National City Bank Senior Vice President, Generating Plant Engineering and Construction. New York, New York Electric Construction, Personnel, Purchasing and Stores, and LEE D. FERDEN Land and Rightof Way Farmer BIRUM G. CAMPBELL Chesaning, Mich.igan Vice President, Marketing DANIEL M. FITZ-GERALD W. ANSON HEDGECOCK Chairman of the Board and Chairman of the Vice President, Divisions and Customer Service Executive Corr'ruttee of The Wickes Corporation Saginaw, Michigc1 RALPH C. BRETTING ce President, Personnd RICHARD M. GlLLETT President and Chief Executrve Officer of FLOYD C. FISHER Old Kent Bank and Trust Company Vice President, General Services Grand Rapids, Michigan WALTER R. BOR!S JOHN F. GORDON Vice President, Finance Director, General Motors Corporation W. JACK MOSLEY Birmingham, Michigan Vice President, Bulk Power Resources FRANK HAMILTON ROMNEY WHEELER Former First Vice President of Bankers Trust Company Vice President, Public Relations New York, New York JOHN W. KLUBERG " BRIGADIER GENERAL JAMES A. MC DIVITT Vice President and Controller, Accounting and Rates U.S. Air Force, Manager of Apollo Spacecraft Program HAROLD P. GRAVES Houston, Texas Vice President and General Counsel C. S. HARDING MOTT PAUL A. PERRY President and Trustee of the Chrles Stewart Mott Foundation Secretary Flint, Michigan HERBERT J. PALMER

• • • DONALD J. PORTER Treasurer, President of Porter-Hadley Company Grrnd Rapids, Michigan Divisions and Managers (Heduarters cities in parentheses) rman of he Board of Kellogg Company Battle Creek, Michigan Battle Creek Division (Battle Creek) GORDON W. HOWARD DR. E. GIFFORD UPJOHN Bay City Division (Bay City) LOWELL L SHEPARD Kalamazoo, Mich{iganDirector, The Up chn Company Central Division (Alma) RALPH HAriN
• Mr. Aymond was elected president of the Company February 2.1972. in Grand Rapids Division (Grand Rapids)GORDON L CARSON

1. Ue)*Ia#' N 2Y,'1N2 Jackson Division (Jackson) A. FRANK BREWEP d

nu "Generet ucoivitt was erected to the Kalamazoo Division (Kalamazoo) WILLIAM A. HOLTGREIVE " 5

1. Porte e tr the Board April 13,1971.

Macomb Division (East Detroit) GEORGE L MAYHEW Muskegon Division (Muskegon) C. THOMAS BAYLIS Northwest Division (Traverse City) BOB D. HILTY Pontiac Division (Pontiac) JOHN G. G0ENSE Saginaw Division (Saginaw) STANLEY M. JURRENS South Oakland Division (Royal Oak) WILFRED L WHITFIELD West Wayne Division (Livonia) JAMES P. THOMAS 32 s I 't

. -.. ~.... - - -. -. -..... Annual Meeting The annual meeting of shareholders of Consumers Power Company will be held in Jackson, Michigan this spring, and all shareholders are cordially invited to attend. Formal notice of the meeting along with proxy material will be mailed to shareholders. ~~ N AfloN AL CuTDoot. it AvtL flLM f E 511v AL " TEDDY" AW ARD j Transfer Agents m:,;rit".;;rr @Jil:I6EYri-1 Common and 2. t Preferred Stock: 6 i Consumers Power Company I Jackson, Michigan 49201 i ( I Agentsof the Company g 300 Park Avenue l }, ,i New York,New York 10022 l 4 l Consumers Power Company common

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? stockislisted for trading on the f/ [' New York, Midwest and Detroit stock l y e aa e E exchanges; preferred stock is listed

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a on the New York and Detroit ' l9. i :l3.. ' y exchanges. j j For the second consecutive year, Consumers Reg. trars is Power has received the Theodore Roosevelt Award f or environmental motion picture pro. Preferred Stock: duction. The Company's film, No Deposit, City Bank and Trust Company,NA No Return, was judged the best ecology Jackson, Michigan 49201 ) film of 1971 in the National Outdoor-Travel Film Festival conducted by the Michigan First NationalCity Bank Outdoor Writers Association. The film de-New York,New York 10015 scribes Michigan's overall concern with en-vironrnental quality, and the roie of technol-ogy in combatting pollution. In 1970, the Company was presented with the Teddy" Common Stock: award for The River That Came Back, a film The National Bank of Jackson that documents the rebirth of the Au Sable River watershed following near destruction Jackson, Michigan 49201 in the logging era. Both films run 28% min-First NationalCity Bank utes, in color, and are available for group New York, New York l0015 showings wherever the Company supplies electric or gas service.

u w pwi ; - a# - ' q?:;.3 Q ~ ' ~ ~ 9 A p.-1 tL x p.:'t. \\ Q" 'm. p 3ftpM ' 4 ' ~ m,6g ~ u m a., w m Consumers Power Company 'As a matter of shareholder interest and concern, the following excerpts are re-printed from the November 1971 issue of The Morgan Guaranty Survey: "What will it take to double present power out-the quality of the industry. put this decade and to double it again in the "What industry executives say is needed now 1980s 7 The Federal Power Commission esti-is a forward-looking view by regulators-basing mates that the electric power industry by 1990 rate needs of utilities on forecasts of capital will have to add 225 new facilities-164 nuclear-programs, revenues, and expenses. Above all, it power plants and 91 fossil-fuel. And this does will be vital for regulators, in looking ahead, to not include hydroelectric power, gas-turbine see to it that future revenues and earnings of emergency power generators, nor does it take the companies will be sufficient to generate into account the modernizing of existing facil-the internal funds and support the external ities. All told, the price tag for this expansion financing that will be needed if the enormously in the power industry is estimated at $350 billion. increased power requirements of this country " Meeting such power needs quite obviously in the years ahead are to be satisfied. will be a tall order. It will take many things- "It is encouraging to see that regulator / com-enlightened regulation, a balancing of the needs rpissions are beginning to take such a forward of the consumer and the needs of the environ-look. Recently the California Utilities Commis-ment, and, above all, a healthy and viable sion approved rate increases for Southern Cali-electric power industry. fornia Edison based largely on the estimated "The last of these-a financially healthy in-needs of that company at the end of the year dustry-very likely may require changes in the 1972. Acceptance of the year 1972 as a ' test year' traditional regulatory mechanism. Utility in-must be considered an important breakthrough. dustry officials and members of regulatory com- " People in meny parts of the country in the missions increasingly are coming around to the past year or two have experienced the irritation view that traditional rules of regulation are of power shortages. Air conditioners have gasped becoming obsolete. and expired in the midst of sweltering heat. TV l' "The key lies in the rate-making process. The sets have flickered and faded. Office buildings standard procedure in setting utility rates is to have had to dim their lights and restrict the use establish costs of doing business for a utility in of elevators. But more is at stake than such a

• test year *-usually a year that is already re-temporary inconveniences. An expanding and corded history. The trouble is that such cost technologically advanced society such as this figures are outdated even before rate proceed.

country's, dedicated to raising the level of living ings begin, in the past, when costs and opera-of allits people, cannot do so without expanding tional problems of utilities changed only slowly, its electric power capacity. And that, in turn, such ' historic

• standards could work reasonably will require the restoration of a financially well. But operating conditions-from soaring strong private power industry, for it is on private costs to confrontations with protest groups-power companies that this nation depends for l

dramatica"y have changed the character and three quarters of its power needs." i. F M *- h.==@ W-" 4i e @M* MM 9Me9 -e}}