ML20033F739
| ML20033F739 | |
| Person / Time | |
|---|---|
| Site: | Palisades, Big Rock Point, Midland File:Consumers Energy icon.png |
| Issue date: | 12/31/1989 |
| From: | Mcnish T CONSUMERS ENERGY CO. (FORMERLY CONSUMERS POWER CO.) |
| To: | Harold Denton Office of Nuclear Reactor Regulation |
| References | |
| NUDOCS 9003300147 | |
| Download: ML20033F739 (29) | |
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- a. v i;? !.. D consumers iye Power T A McNish M
Secretary a
maam u n m aass:
90 !.%R 25 P B : 5 o General officos: 212 West %,nigen Avenue, Jacksort MI 49201 * (617) 788 1030 March 22, 1990 l
l-Dockets No. 50-155, 50-255 50-329, 50-330
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Nuclear Regulatory Commission Att Mr. Harold R. Denton Director of the Office of Nuclear Reactor Regulation Washington, DC 20555 1989 ANNUAL REPORTS Gentlemen:
In conformity with the requirements of Paragraph 50.71(b) of 10 CFR Part 50, enclosed are 10 copies of the Consumers Power Company 1989 annual financial report.
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C Thomas A. McNish TAM /maf P
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9003300147 900322 Dt PDR ADOCK 05000155 PDC 00:
l OC0390-0007A-EX03 A CMS GVE7?GYCOMPANY
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ll Consumers Power Company 1989 Annual Report
1990 Annuel Meeting General Offices The annual meeting of CPCo will be held at 10:30 a.m.
212 West Michigan Avenue Eastern Daylight Time on Friday, April 27,1990, at the Jackson, Mich. 49201 George E. Potter Center, Jackson Community College, Telephone (517) 788 0550 2111 Emmons Road, Jackson, Mich. A notice of meeting, proxy statement and proxy will be mailed to shareholders in March 1990. The prompt return of signed proxies will be appreciated.
.......b.-'.W.
The Company
- Trustees, Omsumers Powet Gimpany (CPCo) is the principal First Mortgage Bonds o
subsidiary of CMS Energy Corguration CPCo is Manufacturers Hanover Trust Company j
Michigan's largest public utility and America's fourth.
450 West 33rd Street largest combination utility. CPCo provides elecirwity New York, N.Y 1(KKil and/or natural gas servue m 67 of the 68 counties in Sinking Fund Debentures Michigan's lower Pemnsula and serves 6 milhon people, United States Trust Company of New York
- r. bout two-thirds of Michigan's tenidents c y,ggy,g New York, N Y.1(KK)5 Stock Listing Omsumers Power Company preferred stock Transfer Agent and Paying Agent, is listed on the New York Simk Exchange Registered First Mortgage Bonds under the symtxd CMS A through H Consumers Power Company 212 West Michigan Avenue Tr:nsfer Agent and Registrar, lackson, Mich 49201 Preferred Stock Consumers Power Gimpany Transfer Agent and Paying Agent.
212 West Michigan Avenue First Mortgage Bearer Bonds Jackson, Mich 49201 Nanonal Bank of Detroit PO Box 1774 Detroit, Mich 482;2 MANAGEMENTS DISCUSSION AND ANALYSl8 Ctrporate Structure aurcinin inmme mninbutal $107 million and $60 milhon, in 1987, CMS Energy Corporation (CMS I nergy >
respnnvely The 1988 carnmp increase reflects increased became the parent mmpany of Gmsumers Power electru Sales and gas deliveries, dureused preferrnt and Company (Gmsumers) and CMS Enterprises Company preferen(c stak divalends, inurased tapitahred interest (Enterprises) Enterprises then uquired all of the related to constrmoon of the MCV and the abseme of the common stock of certain of Consumers' wholly owned 1987 refund of clntrn revenue The improved earning subsidiaries in exchange for preferrni simk of Ernerprnes were parnally offset by mcreased other operanon and Enterprises is the major subsithary for non regulaird mamtenarne expenses and the abserxe of the 1987 ber efit operating busmesses Under the holdmg company mmert, f rom the new mmme tax law the utihty and non utility businesses are each auountable in January 1988, Ginsumers apphed the provmons of for their own emnomic resources and capital msts Statemeni of Fmanual Auounting Standards (SFAS) 90, RegulateJ I:ntertrues Auountrng for Abandonrnenn Results of Operations and Duallousu ci of Plant Costi, to as abandoned SI ^h 90 *SS *PP 'd 'C""d'tively by M'dld"d **'**"
h Overview Net income af ter dividends on preferred stott in 1989 renanng the hnanual Statenienn from June 1986 ahe increased to $334 milhon Capitahzed mterest on the date of abandonment) through Detember 1987 Consumers
ote dow n its abaraloned Midland nuclear mvestment to Midland Cogeneranon Venture (MCV) mntributed
$116 million to act income, an m reuse of $9 nuthon oser refini the pnibabilny that no return wiu be allowed on the invesunent This auounung reflects a non-cash loss 1988 Continued apphcanon of the accountmg standard on plant abandonments pnxluced non4 ash acaenon mcome that n reuond to earninp in penuds subsequent to the of $60 n-illinn after federal inwme taxes Net mmme in lou pnuid as acoenon uxome For funher discussion of the wnte-down, see Note I to the musolidated finarxial 1989 improval due to record clntrn sales and irureased
~
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gas deliveries, along with lower finanang costs, deocased preferral stock dnidends and the absena of 1988 Consuinen had 1987 nu inunne af ter preferred and regulatory costs The mucase m net mmme was tempered P'CI"C"" ""'ck dn.idends of $2e miunin The 1987 by the absence of a 1988 Michipn Smgle Busmess Tax carninp inacase n Unn (apnalized mterest, adopoon of the auonnung uandards on plant abandonments and refund and higher other operation expenses
'ntome taxes inacased eletun sales, and deocased Consumers had 1988 net mcome af ter dividends on preferred stock of $289 milhon Capitahzed mierest and opuanng and hnanung (osa 1
A Electric Utility Oper:tions
$27 million related to settlement of a Union Carbide Corp in 1989, electric net o;erating income dureasni 51ightly Irwsuit, partially offset by increased electric sales The i
despite trcord kilowatt hour (LWh) sales improved sales, average cost of fuel per kWh generated decreased to which reficct the strength of Michigan's trornittiy, colder 165 (ents frorn 169 cents, excludmg the Union Carbide weather in the fourth quarter of lo89, and intreasal settlement. The svunge wst per LWh purchased durcased market saturanon of household apphances were more than to 2 21 cents from 2 27 (ents offset by higher other ogeration expenses in 1988, electra net operating mcome remamed unstant, primardy due to Gas Utility Operations higher kWh sales, offset by higher operstmg expenses Gas net operating inwme in 1989 dnreased shghtly despite higher natural gas dehvenes The durease was Elutrk Retraue and Sales pnmarily due to higher other operation and maintenance The mmpt nents of electra operatmg revenue increased expenses in 1988, gas net operanng inwmc mcreased, or (deocased) from the prior year as shown m the table pnmarily due to increased natural gas deliseries below Gas Retsnue and Sales in Millions The components of gas operaung revenue mcreased or
% of
% of Idarcased) from the poor year as shown m the table Iolal Total below-80/88 Change 88/87 ChanDe Sales
$ 20 35 % $ 41 137%
Power supply cost recovery 9
16 35 117 in Millions Tariff rates ill lll 7
23
% el
% of Other Oncluding Pontiac sales) 29 61 (53) (177; Total Total g gy Q e,[
I 30 l@%
80/06 Change 88/87 Change
= = - ~""
== "
==
Sales 8 15 36 % 5M 22 %
The mcrease m 1989 cluttu operating revenue Gas cost recovery 18 81 11571 98 72 pnmarily reflects higher LWh sales and the absence of
,[tanon ws o
1988 regulatory msts f lectrn operanng revenue mcreased g
Other B
19 6
4 in 1988 due to higher LWh sales, but was offset by lost 3M (IM 5137
===
-====
100 %
sales attributable to the Ottober 1987 sale of the Ponnat distribuuon system The tanff rate revenue mcrease for The 1989 and 1988 murases n sales and transportation 1988 tellects the absen(e of the 1987 refund ordered by fees refint improved gas dehveries The 1989 durcase in the Mich:gan Pubin Secvge Commission iMPSC), parnally tanff rate revenue reficas approximsely one month of offset by a rate reduction due to the lower interal reduced gas rates as ordered by the MP3C The MPSC statutory tax rate order requirni Consumers to reduce its annual gas rates Electru sales itureused i 4 penent m 1939 despite and charges by $28 4 milhon The 1988 reduction in tanff significantly cooler summer weather Steadil) growmg rate revenue refints redu(nl gas rates due to a lower demand from all maior customer classes pushed Interal mwmc tax rate, partially offset by a $16 millsori Consumers to nme monthly electru sendout rnords and rate rnlucnon that ended Sept 1,1987 an all time sendour rewrd for the year in 1989, in 1989, ;04 bilhon cubic feet (bef) of gas were commercial LWh sales inucased 41 percent, w hile dehvered, this includes gas sales and gas transported for residennal and industrial sales mcreased I 4 penent and end users Gas delivenes mcreased 5 6 percent aue to 3 percent, respectivelv Electru sales in 1988 ukabng coldn winin tempnatures and a healthy MKhigan Pontiac sales s intreased 5 2 percent from 1987 nonow (.. Jebned to customus in M8 macased Commercial, residennal and industnal sales mcreased 5 8, 11.2 percent due to the strong econom6c climate m 6 0 and 4 I percent, respntnely Mghan and a return to nonnai winen tempaarures The effect of weather on Consumers' gas dehvenes is Power Costs show n below Power costs for 1989 macased $14 mdhon This reflects increasal electra sales and mcreased volumes of more
--jggg-39gg - igg 7 expensive purchased and mcerchange power The average Actual avera0e temperature PF) 45.6 47 4 49.8 aist of fuel per LWh generated durcased to 162 cents Normal avrap kmpvatuu M M
U2 W
from 1.65 (ents The aserage wst per LWh purchased Estimated increase (decreasel increased to 2 31 cents from 2 21 (ents Power wsts decreased $28 milhon m 1988 This reficas Delivery volumes (bcf 11.4 (0 3)
(23 51 a $35 milhon decrease for d,scononued Ponnat purchases Net income imillions)
_810.3 5f0 p
$[19 4j and the absence of a non-recurrmg 1987 cost of 2
~.
Cort of Gas Scdd t2nefits from the abandoned Midland nuclear project, The $65 milhon durease in cost of gas sold for 1989 lower mientory levels and other worLieg (spital changes was the resuk of a $95 milln>n dutcase due to lower have prm idal gusitne cash flow ouppher prnes, offset by a $30 milhon mcrease due to Sales higher gas sales The average cost of gas sold per thousand cubn teet tmci) durcased to $3 06 from $; 4s Ilectra sales in (unsumers' system mcreased The 1988 irnrease of $99 milhon was the resuh of a l 4 perani oser 1988 New electrn mstalianons totaled
$58 milhon mcrease due to higher sales and a $41 mdhon 20,m m 1989 and 20,534 m 1988 Sales have mcreased increase due to higher suppher costs in 1984, the average 10 2 pettent since ) ear-end 1986 af ter adjusting for the cost of gas sold per mcf unreased to $ 3 45 from $t27 salt of the Ponnu servue 'crntury Consumers projects avei.gt annual clntru sales growth of nearly 2 percent interest Charges for the next 10 years The 1989 mterest expense decrease reflects $35 milhon M delnt-nes m 1989 rose 5 6 percent over 1988 to of dnreased meerest due to first mortgage bond W bdhon cubn fen Nanies have risen an average of retirements, and dnreased mterest on potential aistomer 41 m m mr w 1986 md a mid m p refunds The dareau was partially offset by mterest on nearly 6 perant durmg the next five years New gas new first mortgage tunds asued Capitahred mierest on d
d WM m 1989 M WW s N MCV assets resultat m an addinonal $ 14 nulhon reduction to interest charges Rares Interest expense m 1988 reflects $36 milhon of reduad After the shutdow n of the Midland nuclear proint, the interest due to hrst mortgage tund retirements The MPM ordned Consumers to mtrease ns rates, thereby deucase w as largely offset by $29 milhon of mterest on providmg fmanual stabihzanon rait relief The current new hrst mortgage tunds issued, and $' mdhon of amhonrW annual hnanual staNhranon rate rehef a m(reased a terest on potent al customer refunds and notes g,9 mdhon wNck ahbough nm rnordW as revenue, payable Gipitahzed mierest on the MCV refints one prm edes tush Smte August 1985, (unsumers has (ollnted addnional month of (apaahred interest in 1988 sersus roximatel) $418 milhon of f manaal stabihration rate a
I987 rehef Ginsumus esumaics that n wdl have colleoed the Dividends on Preferred and Preference Stock ennre amount of authonred hnanual stahihrenon rate The 1989 dnreau of $7 mdhon reflects the mnonued rehef. torahng $510 milhon, by Iksember 1990 As a resuh of MPM orders, Linsumers has made retirement of Consumers' preferred stot L in 1988, preferrnl and preferena stock dnidends decreased several dntra.nd gas ref unds For replaament power
$50 milhon primarily due to the retaement of all wsts attnbutable io the P.hsades nudear plant outage Gmsumeri preferena sto(L f rom Ma) 1986 untd April 19b7 and other asues, Consumers refunded $49 5 nulhon dunng 1989 For asues Liquidity and Capital Resources rdated to gas supply msts foi 198h 1987 and 1988, onsumus refun ed anothm $% 7 mdhon m 1989 in a Consumers mntmues to generate signifnant tash from rdated gas supph tou inann. Consumus refunded its normal operatmp actiunes, $6% muhon in 1989,
$ 10 5 indhon in,lanuan mi
$690 milhon m 1988, and $6M milhon m 1987, net of In addnion to rate refunds. Ginsumers has made several capitahied mtetest Consumeri (ash f rom operanons n rate reductions As a resuh of a gas rate order issued m generated primerdy from the sak and transportanon of Ibember 1989, Consumers reduud us gas rates by natural gas and the sale of dectrnay to us customers
$28 4 nullion annually Also. during 198? Consumers Consumers has used as cash pnmardy to retire or refinana its long term securities and short term reduced its electra rates b5 $7 6 mdhon and gas rates by borrowmps, and to pay for as wsts m m.untaming and
$241 mdhon per year improvmg as plant and equipment Sah of Acmunts Rnckable Consumers (ash flow muld further benef n if a To supplenwtu as nut rnalb generated cash flow and to completes the planned transfer of us Pahsades nudcar plant to the Pabsades Generanng Compan) <pb(,
proside Mr othn workmg capnal requaements, (unsumers has purchase and sales agreements permitting Operating the sales ot us rnenables for up m $200 milhon Higher elecinc sales and gas dehvenes finatxial outstatxting at any one nme As of year ends 1989 and stabihzation rate rehet, sales of auounts recenabk, tax 1985.$150 mdhon of reun ables sold remained to be u dln ted 3
F6nancing were $230 million. These amounts represent amtinued Consumers has supplemented its cash from operations efforts by Consumers to increase its customer base, and to with long-and short-term terrowings and other improve and maintain the efficiency of its energy finmcings Most of this cash has been use I to refinana generation and distribution systems long term debt, to retire preferral stock and to pay off Consumers' capital expenditures are estimated et other short term borrowings in each of the last threc
$371 milhon for 1990 and $343 million for 1991 These years, Consumers' long-term tx>rrowings and capital costs amounts reflect aists associated with the replacement have steadily declined steam generators at Consumers' Palisades nuclear plant.
bat-8ern Seca'rities These expenditures should te funded entirely with cash from operations in May 1989, Consumers obtained a long term bank credit agreement for $750 million a hich refinanced existing debt. The agreement reduces Consumers' Outlook borrowing costs, removes the snond snortgage on its Consumers believes its financial condition and operating property and defers its repayment schedule results should continue to improve as a result of Consumers has MPSC approval through 1990 to issue anticipated recovery of a portion of its investment in the tot more than $300 million of long term debt for the abandoned Midland project, a>st control measures purpose of refunding other higher cost swurities in (including the positive effects of a 1989 carly retirement November 1989, Consumers issued $200 milhon of its arxemive program on operation and maintenance first mortgage twnds at 8 7/89I Under the terms of its expensesh the planned transfer of the Palisades nuclear First Mortgage hond Indenture, Consumers could have plant and the continued growth of Michigan's nonomy.
issued another $6% milhon of first omrtgage londs at However, two major uncertainties facing Consumers are Dec 31,1989 the amount and timing of recovery of its investment m During 1989, Consumers retired $143 I milhon of its the abandonal Midland project and the loss, if any, that preferred stock. On Jan 1,1990, Consumers retired an Consumers may incur in connection with its agreements additional $10 5 million of preferred stock Over the last sell assets to the Midland Cogeneration Venture t
three years, Gmsumers has retired more than Limited Partnership (MCV Partnership) and to purchase
$700 million of its preferred and preference stock capacity from the MCV Regarding the abandoned Midland protect investment, Wrt.serm brrowings Consumers beheves some loss of the $2.1 bilhon it is Consumers has approval from the Federal Energy seeking to recover from its retail electric customers over Regulatory Commission (FERC) to issue or guarantee up 15 years is probable, however, it is not able to estimate to $800 million of short term debt on or before Dec. 31, the amount The MPSC staff has filed testimony 1990 Under a separate approval from the FERC, concludmg ther Consumers should recover $1.3 bilhon of Gmsumers may issue up to $750 million of unsecured its investment in the abandoned Midland project over a domestic commercial paper, which is backed by bank 10 year period, with rm return or, its unrecovered letters of credit as part of the $750 million bank credit investment (see Note 5) Consumers has already collected agreement (see atove) approximatel) $418 million of financial stabilization rate Consumers has several sources of short term financings rehef revenue which the MPSC has ordered set aside to be Consumers' immediate sources are a $200 milhon offset against any re,overy allowed for the investment in European commercial paper program, $360 milhon in the abandoned Midland project Consumers is currently committed and uncommicted imes of credit, and a authorized to collect $79 million annually for financial
$150 milbon Revolving Discounted Draf t Facility stabilization revenue. Unless this case is settled, a decision (RDDF) The RDDF replaced G3nsumers' Revolving on final rate rehef is unlikely before the end of 1990 Credit and Acceptance Facility Agreement (RCAFAL 1r Under its agreement to purchase power from the MCV has icwer restrictive provisions than the RCAFA and will Partnership, Consumers is obligated to purchase be used to fmance Gmsumers' seasonal working capital 806 megawatts (MT) of contract capacity from the MCV requirements.
l Partnership in 1990, increasing to 1,240 MT in 1995 and l
Other thereafter, and has agreed to pay the MCV Partnership a Gmsumers has extended its nuclear fuel lease for two minimum leseUzed average capa<,ity charge of 3 77 cents i
per kWh for contract capacity and up to 4.15 cents per years and had approximately $35 million of nuclear fuel kWh for contract capacity if the courts later rule that a remainmg under the lease at Dec 31, 1989.
higher charge is appropriate Invssting With respect to the purchase of capacity from the MCV Gmsumers' capital expenditures for 1989 excludmE Partnership, in January 1989, the MPSC issued an order lease amounts and capitalized interest were $234 million, that estabbshed an average capacity charge of 3 77 cents an increase of l' percent from the 1988 level of per kTh for the purchase of capacity from cogenerators
$199 milhon in 1987. comparable capital expenditures and small power producers Gmsumers has not accepted the order and is appeahng it and a number of related 4
u
orders to the Michigen Court of Appels The MPSC, these matters end other contingencies could have e i
however, issued an order on rehearmg m Dnemter 1989 matenal adverse effnt on Consumers' financial condition, reaffirming provisions of the January order that set an long term hquidity and fmanual flexibihty.
average upuity charge of T 77 cents per LWh as the The other mapot initiative Consumers has in progress is appropriate average capaaty charge for the MCY The the transfer of its Palisades nuclear plant Under MPSC removed an earher hmitation on the amount of agreements with Ikechtel, Consumers would transfer its capacity supphed by any one pro st As a result, Pahsades nudear plant to the PGC bechtcl Consumers Consumers could initially include m its rates the punhase and a third mvestor would te the equity partiopants l'or of more capacity from the MCV Partnership than its oct assets, Consumers would rneive a common stock previously allowed by the MPSC At the same time, the eqmt) mierest in PGC, cph and possibly sutordinated MPSC ordered that capacity payments for gas-fueled debt or preferred stock m PGC The spht terween cash projects such as the MCV be backloaded by 40 penent and debt or preferred stock cannot te determined at this The recovery of upacity charge payments would begm m nme 1990, comcidmg with the commeroal operation of the Other uixertamnes f aung Consumers include new MCV at 2.26 cents ger kWh and escalatmp over environmental laws temg umudered by Congress and a 171/2 years Recovery of additional capaaty charges for new auountmg standard on pot-reutement tenefits teing up to 1,240 MW of contract capauty whnh Consumers (onudered by the Fmanaal Anounting Standards 14aard hos agreed to purchase from the MCV Partnership m il ASib years subsnjuent to 1991 would te the subint of further Propisals are bemg considerni by Congress that could proceedings before the MPSC, unless Consumers intemify exnting environmental restrictions on emissions determmes to sell the addinonal apauty to a third party from (unsumers a Aburmng eintrk generating plants To clarify the MITs mtent and to avoid a loss in Such plants m Mahigan are already subject to some of the power punhased from the MCV durmg the first seven most sinngent air quahty restricoons m the United States years of the Power Purchase Agreement, Consumers filed Additional air quahey restnct ons could rniuire Consumers for ancillary rehef relatal to implementanon of the order to make additional upital nvestments and incur increased The filing requestn! that the MPSC determme that the operstmg costs to mmply But more significantly, a backloadmg te limited to 10 years instead of the propned nanonal m>t-sharmg would force Michigan 171/2 years mrrently unludn! m the order eintra users to help pay for emisuon reduction programs On Feb 22,19Wh the MPSC derned Consumers' hhng m other states Comumers n helpmg to shape these end reaff rmed its thember 1989 ordet (ensumers has propnals so that its customers do tiot pay twKe for appealed the thember 1989 order, mcludmg as right to meetmg air quahty tequirements newver a levebred average tapaaty chargt of 415 (ents The I ASB has propisnl a new auounting standard that per kWh induded m the exisung Power Purchase would require a (hange m auountmg for post-retirement Agreement tenefits other than penuons f rom a pay as-yeu-go (cash)
If the MPSC s deonon on thn issue n not overturned method to an aurual mt ttuxi beginning in 1992 As a on appeal, the Decemler order would reduce the ulue of resuh, recorded obhganons and expenses would te the assets being held for transfer to the MCV Partnership irarcased Tin amount of increase would depend on and, accordingly, would nquire (unsumers to rnord an prminons of the fmal standard and future regulatory ef ter tax write down of approximately $240 milhon Also.
t reat ment Under the proposal, eny unfunded accumulated if the MPSCs dniuon a not merturned on appeal, obbganon would te aurued over future pernxis.
Consumers would te nyuired to remrd cumulame aher-Consumers teheves that mcreased competition will te a tax losses of $2M million for power purchased from the dominant f actor in the electrk and gas utihty businesses MCV dunng the f rst seven years of the Power Purchast Approval by Congress of a proposed amendmcot to the Agreement Pubin Unhty Holding Company Act of 19% (PUHCA)
The assets being held for transfer to the MCV would allow unregulated wholesale generators of electricity Partnership are expntal to tw sold pusi poor to the to enter the market The proposed amendment would commercial operanon of the MCV, whah n expected m exempt these mdependent p>wer pnxlucers (IPPs) from the first quarter of 199(t for at least $12 bilhon of notes most forms of rate regulanon from the MCV Partnership li has not been deoded how The IPPs are tuommg ugnifKant sources of new the proceeds f rom any notes sale wi l be utitued, however, electra pmer generanon m the United States, and l
further reduction of debt is a pissibihty being mnsidered (cosumers' affibates are nuking and expect to continue to The timing and the amourit of rnovery through rates make signifnant mvestments m thn type of electrn generanon. sub ect to adopuun of the propned cf $2.1 billion mvestment m the al andoned Midland i
project, and a sataf actory resolunon of the amounts p nd amendment to PUHCA for capaaty from the MCV Partnership remam of s nal Consumers is organamp and restructuring to take importance to Consumers As described n the notes to adv.intage of ttie f ututt diention of the electrK and gas the fmanaal statemer:ts, the unsamf actory resolunon of unhty busmesses 5
[ Consuraers Power Company l E U III tws twee Nember 31 8TATERENT8 0F 1000 1988 1987 EE Electric 81.722.120
$1.065,229
$1.635.235 Gas 1.104.020 1.236.873 1.099.769 Other 80 55 334 m
1otal operating revenue 2.018.036 2.902.157 2.735.338 Operating Espenses and Temos Operation Fuel for electric generation 367.026 361.073 381.663 Purchased and interchange power 233.000 217.812 225.671 Cost o' gas sold 726.002 791.209 ti9?.684 Other 4N.010 _ 423.973 396.587 Total operation 1.787.744 1.794.067 1.696.605 Maintenance 160.083 161,310 125.860 Depreciation, depletion and amortization 104.603 187.517 182.024 General taxes 17d.902 158.362 150.475 income taxes 147.303 143.864
_ 140.886 Total operating expenses and taxes, __
!.467.006 2.445.120 2.295.850_
list Operettag ineene (Lasel M
Electric 330.647 343 834 34).838 Gas 100.401 113.715 96.059 Other 1.323
($12)
(409)
Total net operating _ income 440.771 457.037 439.488 Other income (Osduettene)
Abaridoned Midland project-accretion 80.204 90.405 89.946 Dividends from affiliates 10.330 10.000 5.000 Non-operating income taxes. net 128.6301 (10.991) 7.450 Other, net 10.320) _
(16.895) 19.151 Total other income
_ C2.003 72.519 121.547 Interset Charges Interest on long-term debt 303.002 329.012 336.716 Other interest 32.010 48.521 41.294 Capitalized interest J76.644]_
(161,957)
(139 424)
Net interest charges
_ 100.320 215.576 _ 238.586 Net income before cumulative effect of change in accounting for income taxes 362.126 313.980 322.449 Cumulative etiect of change in accounting for income taxes (3.070) liet insene 362.126 313.980 319.379 Dividends en Prolerred sad Preterenca Steek 18.421
_25.320 _
74.836 list incese After Olvidends en Prolerted and Proleresse Steet 8 333.706
$ 288.660
$ 244.543
=
1he accompanymg notes are an mte0f al part of these statements m
3 m
6 sm-mussmi iei is--
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t l Consumer: Power Company)
In %usannn) 80 TED STATE 18EllT8 0F e,,,,,,,, % gr -
- im i30s ig7 y,,,,,,,,,o,g,,,,,,,
CA8tl FLOWS ge; income 8 ne, ire s 333 gen s sig.379 Adjustments to reconcile net mcome to not cash provided by operatin0 activities Depreciation. depletion and amortitation (including nuclear tuel amortization) 140 m 230,886 224.806 Deterred income taxes and mvestment tax credit, net 168.988 150.527 1St,020 Financial stetslization revenue 5,821 97 057 96,226 Abandoned Midland project - accretion 100,204)
(90 405)
(8B M6)
Cumulative ettect of accountmo change 3,070 Other 7,866 611 (19.979)
Changes in assets and habilities which provided cash, exclusive of changes shown separately 73,229.
149,642 125,654 Net cash prcvided by operstmp activities 881,821
, _ 852.278 793.291 Cash Flows tree Finens6ng Activli6es Proceeds Bank loans 738.874 783,000 Boncs 187.708 316.028 247.938 Notes payable, net 172.430 Sale and leaseback of nuclear fuel 50.784 Payments Bank loans (183,0 51 (824.738)
Bonds 1378.122)
(371.408)
(340.127)
Preferred anc preference stock tilt. Mal (166.751)
(451.041)
Notes paytble, net 168.6081 (175.393)
Capitat leases (31,8741 (17.949)
(16.503)
Dividends on preferred and preference stock (21212)
(26.845)
(76.507)
Nel cash used by financmq activities _._ _ j462ML _{391.534)
(507,629)
Cash Flows tree inveeUng Wvities Capital expenditures (mcludmg capitalized interest of $175.644 in 1989 $161.957 in 1988 and $139 424 in 1987) 1400 403)
(360.944)
(360,364)
Proceeds from see of property 13.ON 6.186 30.956 Cost of property retirements, net (12,8 5)
(14.700)
(10.905)
_ b6 g _
l Loan to related party Net cash used for investing activities
_ _ _ _j406.DBS)
(339.458)
(340.40_3) liet increase lDecreasel in Cash end Tentperary Cash investiments l86.MT) 91.286 (54,741)
Cash and temporary cash mvestments Begmning of year
_ 113.838 _
22,352 77,003 End ofyear 8 27371
$,113.638
$ 22.352 Changes la Assets and Liabilities Wh6ch Prev 64ed Cash. Enclusive el Changes Shown leparately Sale of receivables net 8
371
$ 50.000
$ 100,000 Accounu receivable 142,31!1 (19.652) 38,024 Accrued revenues 110,252)
(12.603) 32,360 inventories f4.Dif 72.108 19.953 Accounts payable 67,N7 (25.750)
(15.227)
Other current assets and liabilities 46.501 56.512 611 Net non-current deterred amounts
. 7.447 _ _ 29,027 (50.076) 8 73.229
$ 149.642 5 125.654
-====
=. = - = = =.
- = -.= = = = = -
The 8Cr0mDanying holes 4:4 an misf gl pari Oi these statemenit 7
[ Ce,nsumers Power Company l 00B84USATED
""8f,$,,
o, twreuu w BAL.ANCE 8HEET8 Plant (At origmal cost) lem 1988 etdc 88
$4.418.300
$4.318.502 Otner 1.676.897 1.534.004 141.3N 149.473 Less accumulated depreciation, depletion and amortization 8.133.878 6.001.979 2.844.W 2.484.567 Constructirn work-m-progress 3.400.078 3.517,412 100.743 67.475 3.807.819 3.584.087 Abendened Blidland Project (Notes 1 and 2) _ _. _ _ _ _ _ _... _ _
Asasts le be Transferred to Ill4 tend Caponerst6en Venture (Nott 3) l.468.812 1.361.541 levoetsents 1.774.038 1.614.475 Midland C9 generation Venture Limned Partnership (Notes 1 and 3) 190.910 171.525 CMS Enterprises preferred stock (Note 1)
CMS Energy common stock (Note 1) 140.1b1 149.101 Other 48A37 50.268 14.!!3 5.822 402.771 376.716 Curreal Assets Cash and temporary cash mvestments at cost, which approximates market 27AFI 113.638 Accounts receivable and accrued revenues, less allowances of $3.552 in 1989 and $3.463 in 1988 (Note 8)
Note receivable from related party (Note 4) 343.043 281,850 Inventories at average cost 6F 820 Gas in underground storaDe Materials and supphes 175.834 198.490 Generatin0 plant fuel stock 64.842 62.020 Frepayments and other 38.701 42.884 137.774 _
118.268 blI' Regulatory assets (Note 1)
Other 423.718 427.431 81.445 73.908 606.181 501.339
[stel_ Assets
.=
88.579.908
$8.258.108 8
{ Consumers Power Company }
8T9CENGLDER8' INVE8tlRENT AND LLAllLIT6E8 on treuuns December 3r iIII 1988 Coeltallastnes (Note 9)
Common stockholder's equity 82.118.N4
$1.75B.154 Preterred stock 176.036 329.654 Long term debt 8.038.176 229.151 Non<urrent portion of capitalleases 78.164 61.630 6.408.000 5.130.589 Current Liebilities Current portion of long-term debt and capital leases 124.942 394.586 Accounts payable
!st M 175.123 Notes p&yable
!!8 8 NE Accrued taxes
!!6.477 204.466 Deterred incorne taxes 141.600 Accrued refunds 104.lbf 75.1 2 Accrued interest 06.148 102.b63 Preterred stock 10.471 Other 193 2 161.534 1.346.320 1.400.602 llen-surrent Liabilit6es Deterred income taxes iN1.302 1.032.963 Deterred investment tax credit 264.706 239.066 Financial stabilization revenue (Note o 408,402 317.671 Other 113.300 _
129.217 1.827.978 1,718.917 Commitments and contingencies (Notes 1. 2. 3. 4. 5, 7.12 and 13) intel Itsekbelders' investment and Llobilit6es 88.579.006 58.25810B The 3CCompanymg hotn art en mtegral part of these statements 9
l Consumers Power Company ]
C0N800 BATED Fast Worto.oe sono, an rnous,es; 8TATENENT8 0F M"t3' -
InB 1968 _, gne Ji _.
INS 128
/in thous,es/
LONS TERM DEBT senes N oue totat first mortgage bonds s2.144.629 s2.305ms 4 ')/8 1989 8
5 18.969 Retinanced bank debt 746.372 783.000 16 02 1989 80.000 Pollution controf revenue 16 32 1989 50 000 bonds 141.100 144.040 3-1/4 1900 20.7 %
20.755 Nuclear tuel disposal 74.194 68.188 46/8 1990 13.932 13.931 4-5/8% debentures 26.000 25.600 4-6/8 1991 18.004 18.084 Other 6.208 7.288 15 IMI 28.479 3B.479
[31138.1C 57333.141
~
9 1992 160.000 150.000 Current amounts 13 7/8 1993 16.000 20.000 First mortgage bonds 101.1981 (332.825) 16-3/8 1994 100.000 Pollution controf revenue 6-7/8 1996 36.836 35 843 bonds it 020)
(1.990) 6-7/8 1996 23.600 28 "4 Other
,, l13)
J444) 10-3/8 1996 160.000 o 6.000
_193)I13l1b[__(335259J 6
1997 60.206 50286 Idet unamortized discount 18.
(8.731) 83/4 1997 21.300 24.040 Total long". term debt
$3.~ 387125
' 0
$Ellii931' 96/8 1997 100.000 100.000 83/4 1998 260.000 250.000
- 1. First mortgage bonds are secured by a mortgaDe and 85/8 1998 46.218 45.218 hen on substantially all of Consumers' property 57/8 1908 43.066 43.055 91/8 1998 16.0a0 16.700
- 2. Pollution control revenue bonds are outstanding at 76/8 1999 47.4 %
47.455 various interest rates At Dec 31.1989. the weighted 8-1/4 1999 64.600 54.599 averaDe interest rate was 7 2 percent interest char 0es 8-7/8 1999 200.000 on the habikty for nuclear fuel disposal accrue at the 10 6/8 1999 36.400 46.800 13-week Treasury Dill rate At Dec 31.1989. the 8-6/8 2000 60.000 50.000 interest rate was B 1 percent 71/2 2001 67.184 57.164 41/8 2001 67.413 57 413
- 3. The table below shows maturities and sinkin0 fund or 71/2 2002 62.174 62 174 improvement fund obhgations for lon0-term debt 71/2 2002 4P.700 42.760 86/8 2003 76 000 75.000 Long Term Debt llisturities and Obligation 9
2006 00.000 60.000 smung or 9-3/4 2006 80.000 60.000 Rehnanced irnprovement un Thous,Ws/
86/8 FN7 IM 100.NC Debt fund Other total 8-7/8 2007 86.000 85.000
[ _~~ ~ ' gsf g i$,'gf~ ' $ 93.315 3990 9
2006 76.000 75.000 p
1991 19.730 21.518 41.248 143/8 2000 100.000 100.000 1992 93.750 19.330 153.944 267.024 12 3/8 2010 50,149 1993 187.500 19.330 7.954 214.784 82
= 444_;629 J23025 6
187.500 19.330 32.N9 23W
. = =
=
The accompanym0 notes s't an mtegral part of these stessments 10
( Consumers Power Company l CON 8OLIDATED n,,,'7,'l yy,,,,, S,,,
y,i rwsaress 8TATEMEN18 0F
%.w m
~ ~ s.,,e,~~~
price ~~~
isse 1988~ ~ ~ ~ ~ ~
19e8 PREFERRED STOCK Preierred id ~
~
isso Cumulative. 5100 par value, authorized 7.500.000 shares With mandatory rcoemption
$4 52
$104 725 67.860 8
$ 6.755 9 70 107 00 80.000 8.000 14 766 Without mandatory redemption 54 50
$110 00 307.828 544.380 30.783 54.439 4 16 103 25 86.831 95.900 8.003 9.590 7 45 101 00 410.084 668 500 4128 66.850 7 72 101 00 307.34F 612.000 30.7M 61.200 7 76 102.21 334.6t!
730.700 33.461 73.070 7 68 101 00 223.966 497.500
!!JO6 49.750 176.036 314.899 Tetel Preterred Pack 8176.036 5329.654 the accompanyme notes are an integrai part of these statements Iln Thousards)
Number of Common Paid Earni s 8TATEMENTS OF tic,i namn., e, sna,,,
sna,,,
sioci cap,ini
<o,ticii, ietai COMMON saiance et January 1.1987 88.006.786 5880.068
$774 041
$(394.046) 51.260.063 8TOCKH0L0ER'S Net income 319.379 319,379 EQUITY Cash dividends declared Preferred (31.609)
(31.609)
Preference (43.227)
(43.227) 1ransfer due to holdin0 company formation (3.956.2506 (39.563) 39.563 Net loss on retired stock 18.615 (48.182)
(29.567)
Stock reacquired (1,403.300)
(14.0331 (8.851)
(22.884)
Stock reissued 8.000 80 37 117 Consumers Power stock converted to CMS Eryergy stock 1.453.553 14.536 8.983 23.519 Balance et December 31.1987 64 108 789 841.08B 632.388 (197.685) 1.475,791 Net income 313.980 313.980 Cash dividends declared Preterred (25.320)
(25.320)
_-_. Net loss on reti, red stock 6.220
__(12.517)_ _ _ j6 293 Balance at December 31,1988 84 108.789 841.008 838 606 78 458 1.758.154 het income 352.126 352.126 Cash dividends declared Preferred (18.421)
(18 ~21)
. Ne_t gain on retired stock 24 505 24.505 Balance at December 31.1989 64.108.789 8841.008 8863.113 8412.163 82.116.364 The accompanying holei afe an mlegral part of these Eldlements 11
.ww._
1907E8 T9 CONSOLC0ATEB HNANCIAL STATECENTS 1.
Summary of Significant Accounting Policies income Taxes Corporate Erstructuring in January 1987, Ginsurners adopted SI AS 96, in May 1987 CMS 1,nergy Corpiranon iCMS 1.nerg) >
Auonnteng for lowrw 7aus, w hich rntuires the hability lecome the parent holding company of Consumers Power methtd of auountmp for inwme taxes Under SI AS 96, Company (Consumers) and CMS Enterprnes Company (unsumers enorded addnional deferred tax habihties for (Enterpriacs) in June 1987 I.nterprises acquired from all temporar) differetxc5 previously " flowed through" and Consumers all of the comrnon sto(L of Northern Michigan rnorded a wrresponding regulatory assei basmi pon Expkiration Company (NOMILO) and certam other non.
rnovery from utilny customers w hen the ".apora :
utihty subsidiaries of Gmsumers in exchange for preferrcJ differences reverse Under the liabihn method, deferred stock of Enterprises The restructuring did not 'esult in tan habihnes are adlusted for enacted tax rate changes any (hange m the ow nership of Ginsunu rs' preferred Auordmgl), the adopnon of SI AS % incressad earnmgs stock or of its debt securnies for 1987 b) $1H milhon f or ratemakmg purpnes, the MKhigan Publit Service Constdidatius Limnmsson < MPSci does not enornin m rates the The consobdated fmanual staiements mdude the addnional deferred taxes rnorded under the habihty enounts of Consurners and as wholly ow ned sulmdianes metini (unsumers beheves utday rates will be mcreased All matenal transacnons between wnsohdated wmparues to reu ver the m(rease m taxes when these temporary are ehminated The equit) methat of auuuntmg n used dilferernes reverse for insestments m unnpanies and partnerships w hen less than a maiority ownership uiteresi exists and ugnifnant Re rsue and Fuel Costs but not wntrolhng mfluerne n excrusnl mer thest-Gmsumets aurues resenue for eintnury and pas umi invegments b) its custorners but not bdled at month end (unsumers aho aurues or reduces revenue for un) under-rtwvery or Acwusting Changes mer rnoverg of clectrn power supply wsts and natural Accountmg for Abandonments gas wus wnh the estabinhment of a wtrespondmg asset in January 1988, (unsumers unplemented Statement of or habihty until these wsts are enher refunded or bdled Finandal Auounnny Standards iSFASi % Inp/ared to tusioniers The final aditunistrative determinatiori of Enterproei - An onnieng for Abandonnanti,,nd the amount of rewsen is the subiect of annual Dhallouances of Plant Coist w hKh required a wr.
dow n rnonohation hearmgs mnduoed before the MPSC of the rewrded amount of as abandoned Midland mvestment as a resuh or Gmsumers assessment that n Staistenante, Depreciation and Depktion will not be allowed to eatn a return on the irnestment In Progwrt) repairs arid nunor propert) replaccinents are talculaimg the SFAS 90 wrne-down, Lonsumers assumed charged to mamtenarar eigenw Depreuable pwperty full recovery of as mvestment mer a 1% year gwriid retned or sold i nct of at ) salvage treditsi is charged to beginnmg in mid 1989, and discounted the expated f uture accumulaird deprnianon Salvage arnoutits from the revenue using an muernental borrowitig rate of abatidoned MidlatiJ proico awets iniute the Midland 101/2 per(ent This w rnedow n a bemg amortued to m s est ment carrungs m subsequent pernds as aurenon inwme Depreuation prosisions for unhty plant are based on Consumers has resiewed ns ongmal assumpoons used straight kne and units-of-productiori rates apptoved by the to rnord as SFAS 90 wrne-down and thanges whnh M PS( The wmimat depreuanon rate for eintre utih:3 might affect those assumpoons Those changes mtlude plant w as 4 0 pertent for 19H9,1988 and 1987 The tatt-a potential settlemerit of (lairns arising tiut of bethtel for gas utility plant was 4 9 percent hu the same years Power Girporanon's t hnhech work on the former Midland nudcar proint, the effuts of the mduuon of a Nudear Plant Duominissioning Costs portion of the abandoned Midland proin' m rates charged in Januan IT Lonsumers began solinting to its elcaric w holesale customers, and the ef feu of a Jewnumsuotung (osts, based on assumed wsts of delay to mid 1990 of a decmon resolv ng the case in
$150 mdhon for the big Rak Pomt and Palnades nudear which Consumers is seekmg to rnover its abandoned plants through a monthly surtharge on its electnt Midland msestment Ginsumers beheses thai under thest cus romers bdis Thu surcharge revenue n required to be changed assumpoons. the amount of as SI AS 90 wnte Jeposned m trust down remains adequate :ser Note 2i Howeser, it upm The Ntulcar Regularon (umnusuon i NRCi has usued further review Consumers were to wntlude that the cast final regulanons that requne ow ners of nudear reauors to would not be resobed untd the end of 1990. (urnumers demonstrait bg July 2n 1990. that adequate funds wdl be would be required to rewrd an addnional SF AS 90 after.
as adable for nudear gewt r plant dnornminioning This tax wnte-dow n of approximaid) $24 nulhon, w hwh would ma) require an mtreast in the present level of fundmg be amortued to carrungs as aurenon mcome mer the demmmnsionmg trusa by M nth A l, IML subsequent pernh Ginsumers must aho hie u nh the MPS(, a repirt 12
summarizing its current estimate of cchts t$ decomminion During 198h Cc nsurtwrs p rchased and theired 244,940 its nuclear power plants Managernent telieves that any shares of its preferred stock from an affiliate. Also, in additional, unfunded danmmissioning auts, which could 1989, Consumers sold land to subsidiaries of CMS Energy te significant, would te recoverable through a@ustments and has a long term note rativable for $7.9 million at of electric rates Dec 31,1989 Other related-party transactioru are immaterial Nawlear Feel Cost N"l##8N'i'"'
Nuclear fuel cost is amortized to fuel expenu on the basis of the quantity of heat praiuced for electric Certain prior yeu amounts have teen reclauified for generation Under federal law, the Department of Energy mmpunive pwposes Tlew reclusifications had no effect
""'*'*C"**'
(DOE) is responsible for permanent disposal of gent nuclear fuel A liability to the DOE of $44.3 mdlion plus
- 2. he hndM Midland P@
interest has teen recorded to dispow of spent nuclear fuel The Midland plant wu originally designed as a nuclear burned prior to April 7,1983. This amount is teing facility to provide Consumers 1,357 megawatts (MW) of recovered under MPSC authorization Disposal costs for generating c.pacity for its electric system and to furnish fuel burned on and after April 7,1983 are charged to process steam to The Dow Chemical Company (Dow). In nuclear fuel experne, recovered through electric rates and July 1984, Consumers' Board of Directors authorized remitted to the DOE on a current basis management to shut down wnstruction of the Midland nuclear project Non-earning Assess Consumers studied various options for the Midland in April 1983, the MPSC ordered that the Marysville project and, in April 1986, concluded that the preferable ga reforming plant te held for future use and permitted option was conversion of certain of the Midland facilities recovery of the undepreonted investment over into a natural gas fueled, combined-cycle generating plant approximately 10 years, but excluded the plant from (see Note 3) In June 1986, Consumers abandoned the Consumers' rate base in a Decemter 1989 gas rate order, components of the Midland project that would tw the MPSC reaffirmed the 10-year amortiution period, but unusable in the gas conversion and took an abandonment directed Consumers, in its next rate case, to submit a loss for tax purposes in January 1988, Consumers comprehensive study establishing the economics of and recorded an abandonment lou for acrounting purposes the need for producing synthetic natural gas at the retroactive to June 1986 (we Note 1)
Mzrysville gas reforming plant in the future At Dec. 31' Consumers is seeking to remver $21 billion of 1989, the remaining net investment was $31 million, abandoned Midland assets from its retail electric customers which is expected to be recovered by 1993 For a over 15 years An additional $64 million of abandoned discussion of the abandoned Midland project, we Notes 2 Midland asuts ne allocable to Consumers' wholesale and S-customers (see Note 5)
Consumers telieves it is probable that some costs Relmsed Party Transactions alkicated to its retail electric customers will te disallowed Consumers has provided services, including accounting, by the MPSC as imprudently incurred, but cannot engineering and other services to the Midland renonably estimate the amount of any such diullowance.
Cogeneration Limited Partnership (MCV Partnership) As bsws will be recognized if complete recovery of the a result, accounts receivable with the MCV Partnership abandoned Midland investment is not ordered by the were $1.9 milhon and $5.2 million at Dec 31,1989 and MPSC or agreed to by the various parties in a settlement 1988, respectively. Also, a second tier subsidiary of of the M,dland proceeding, or when future losses are Consumers plans to transfer to the MCV Partnership probable and reasonably estimable.
Midland related assets having a took value of approximately $22.4 million to settle an obligation related 3.
The Midland Cogeneration Venture to the issuance of pollution control revenue bonds The in January 1987, the MCV Partnership was formed to transfer is expected to occur before commercial operation wnvert a portion of the Midland plant into a natural gas-of the Midland Cogeneration Venture (MCV) and no later fueled, combined cycle cogeneration facility. The MCV, than Dec. 31,1990 Other related party transactions with expected to tegin commercially producing electricity and the MCV Partnership are discussed in Note 3 steam in the first quarter of 1990, is desi ned to generate F
Consumers purchases a portion of its gas from 1,370 MW of electricity at full power. The MCV NOMECO, the principal operating subsidiary of Partnership has contracted to supply the electricity and Enterprises The amounts of such purchases for the years steam requirements of Dow's Michigan Division Midland ended 1989,1988 and 1987 were $25 milli i, $23 million plant, and electricity to Consumers for resale to its and $24 milhon, respectively. Consumers holds at year end customers 1989 approximately 3 4 million shares of CMS Energy The MCV Partnership has obtained commitments from common stock and received in 1989 and 1988 $10 million gas supplers for the MCV's initial annual fuel of dividends on Enterprises' preferred stock it holds requirements and long term firm transportation services from interstate natural gas pipeline transporters 13
CMS Midi:nd, Inc. (CMS Midland), a scamd iier Permanent fmanong is under wnsideration in the form subsMisry of Coruumers, has a 49 perant voting interest of a sale and leaseteck arrangement of the MCV facility in the MCV Partnership, and at mmmeroal operation is A subsidiary of CMS i nergy is contemplating bnuming a entitled to an allocation of the MCV Partnership's cash 35 percent parncipant m the lessor group. CMS Midland distributiota and tax tenehts of sporoximately 49 percent will retam a 49 penent votmg interest in the VV in June 1988, new partters made imtial cash equity Partnership contributions to the MCV Partnership totaling $24 million The Power Purchne Agreement, as amended, terween u p:rt of total equity commitments of $240 million Consumers and the MCV Partnership provides for an Payment of the balarxe is due on or before commercial annual levchred average capacity charge of 4.15 cents per operation of the MCV and is subject to completion of the kWh, based on an estimate of Consumers' avoided capuity MCV on or before ths 31, 1990, satisfactory resolution of cost for a new coal-fired generating plant, and an energy tax and certain regulatory matters, and other conditions charge basul on the avoidni cost of energy for Consumers CMS Energy has agreed to protect certain partners againsi existmg wal-firni plant The total energy charge for 1990 loss of certain tax benefits CMS Energ) also made is estimatal to average approximately 2 25 (ents per kWh.
arrangements to support MCV Partnership revenue m the Under the Power Purchase Agreement, Consumers would event of certam adverse contingencies punhase 806 MW of capacity from the MCV Partnership in the June 1988 Construct on and Term loan in 1090, mcreasing to 1,240 MW in 1995 and thereafter Agreement (MCV loan Agreement), a group of banks However, bnause the MPSC ho rmt yet approved the (MCV Itanks) agreed to provide up to $650 million of recovery of the 415 (ents per kWh charge, Consumers senior bank debt to f nan (c MCV (ompletion The MCV ha agreed in an amendment to the Power Purchase loan Agreement grants the MCV Banks a secunty interest Agreement to pay the MCV Partnership a minimum in all assets of the MCV Partnership to secure repayment levchrni average capacity charge of 3 77 crnts per kWh of the debt The MCV Banks also have a accurity intes at for wntrao capaaty for 17 l/2 years until remvery of a in the Midland assets to le transferred to the MCV higher charge is deuded by the courts Psttnership and a security interest m shares of On ikx 21,1989, the MPSC issued an order on Consumers' sewnd-tier subsidiaries, CMS Midland and reheanng, reaffirming its Januar* 1989 determination that MEC Development Corp (MIK) CMS Energy agrent to a levehaal average capaat) (harge of 3 77 cents per kWh, lend up to $50 million to the MCV Partnership on a with (crtam variations bued on fuel type and m service subordinated basis to fmante any unantiapatal daic, should be apptored for (ogenerators arid small construction mst overruns and to proude workmg capital, power producers The MPSC also contmuni its earlier if necessary No loan or provision of workmg capital has approval of 1,160 MW of new capaary (irwiuding MCV) been made to date.
for addmon to Consumers' system by the end of 1997, In September 1989, the MCV Partnership and MIX exclusive of waste to cnergy projects However, the MPSC resched an agreement with respnt to the prmapal removed an earher limitanon on capacity supplied by any amount of the notes (MCV Notes) to be issued by the one prolect This would permit Consumers to purchase MCV Partnership in exchange for the transfer by MIK of more tapauty, up to 870 MW, from gas-fueled facihties spproximately $15 bilhon of Midland assets to the MCV such as the MCV The prenous limit for purchnes from Psrtnership Under this agreement, the MCV Notes will the MCV was 638 MW At the same time, the MPSC te issued m four series Priority Semor, Senior, Jumor and ordered that capaaty payments for projeas fueled by Junior Pollution Control Revenue Ikmds Sub ca to certain natural gas or oil be backloaded by 40 percent Thus, the i
adjustments, the aggregate principal amount of the MCV average capacity charge would stari m 1990 at 2 26 cents Notes will te approximately $1.2 billion Such adjustments per kWh and estalate over 17-1/2 years After include an upward ed ustment if the MCV Notes are 17-1/2 years, the nerage capacity charge would be i
issued later than Jan 5,1990 A semnJ upward 3 '? (ents per kWh for the balance of the 35-year term of adjustment would result m greater recmery of the value the Power Purchase Agreement Rn'overy of additional of Midland usets bemg held for transfet in exchange for capacity charges for up to 1,240 MW of amtract capacity the MCV Notes if the approved average (apacity charge is w;uch Consumers has agreed to purchase from the MCV greater than 3.77 (ents per kilowart-hour (kWh), up to Partnership in years subsequent to 1991 would be the approximately $13 bilhon if the hrial approved average subsett of further pnneedings before the MPSC, unless capacity charge is 415 cents per kWh Consumers determines to sell the additional capacity to a The amount of the MCV Notes to be received wntmues third party to be subject to further limitations under the MCV loan To (lanfy the MPSC's mtent and to avoid a loss for Agreement, and the agreement rea(hed between MIX and power purchased from the MCV dunng the hrst seven the MCV Partnership n also subject to approval by the years d the Power Punhase Agreement, Consumers filed MCV Banks However, the MCV Partnership beheves that a monon for anullary relief related to implementation of in the event these restnctions are not otherwise removed, the lhxember 1989 order The monon, among other the MCV loan Agreement can be replaced by permanent thmgs, requested that the MPSC pmvide for the financing that will ehmmate these restncuons 40 penent backloathng over 10 years instead of 14
w,,,,,,,
171/2 yezr5 This would have allowed Gmsumers under hsve also mmmitted to provide up to $20 milbon euh in SFAS 92, Regslased roscr;nses - Accommersg for Phase exchange for preferred stock for capital improvements in Pless, to match its purchased power costs and revenue during the first seven years af ter the transfer if sufficien; during the rea>very period-funds are not otherwise available for unh pt rgue On Febsuary 22,1990, the MPSC denied Gmsumers' Consumers would aise commit to leasmg up to motion and reaffirmed its Dnemter 1989 order
$90 milhon of nuclemi fuel to PGC for a maximum of five Consumers has appealed the Decemter 1989 order, years including its right to recover a levelized average (apacity At closing, Gmsumers would rneive $100 milhon m chtrge of 415 cents per kWh included in the exit, ting cash from IWhtel as part of the settlement Of this Power Purchase Agreement amount, $50 milhon has teen plued in extow subject to if the MPSC's decision on this issue is not overturned the closing of the transfer of the plant to PGC CMS on appeal, the Dnemte order would redtae the value of Energy has terrowed $55.8 milhon, which ircludes the assets teing held for transfer to the MCV Partnership accumulated interest, of the escrow funds at the prevailing by approximately $%0 million te(ause under the prime interest rait-egtnments with the MCV Partnership, the MCV Notes The eurow was estabhshed teouse of a wntmgent would te rniuced to approximately $12 billion with no repayment obligation whkh arises if closmg does not take upward adjustment This would require Q nsumers to place Ginsumers has obtained a f 50 million irrevocable record an after-tax write down of these assets of letter of aedit expiring in IMember 1990 to assure approximately $240 million Also, if the MPSC 5 decision repayment to itechtel in the event closmg does not occur.
is not overturned on appeal, Gmsumers would be required Upon closmg, G nsumers would pay IWhtel $9 milhon to record cumulative after-tax loues of $284 million for for previous construcuon billmps G nsumers would power purchased from the MCV during the first seven operate the Palisades plant for at kust three years under a years of the Power Purchase Agreement wntract with 10C Gmsumers has entered into a long-Gmsumers does not believe that any write down of the term wntract to purchase 100 perant af the electrairy value of the assets being held for transfer to the MCV m generated by the plant through the year 20%
exchange for MCV Notes is appropriate at this time The plant transfer to PGC is subint to the sat #sfactory tecause of the potential for full remvery of the took value resolution of a number of signifwant matters, some of through the opgellate process, and tecause the amount of whnh are not within Consumers' control They include any possible reduction still cannot be reasonably estimated federal regulatory approval regardmg the rate PGC can charge Gmsumers for electr. city, Consumers' authority at 4.
The Palisades Nuclear Plant the state level to pass through the purchased power cost in IMember 1988, Pahsades Generating Gimpany to n3 retail electric customers, the transfet of the (PGC), a Michigan wrporation, was formed as part of an dnommissioning cost habihty, plant outages-NRC arrangement terween Gmsumers and l\\echtel that would approval, and satisfactory financing, wntractual and other also settle claims arising out of thhtel's work on the arrangements If for any reason rSe closing does not occur, former Midland nuclear project The arrangement Gmsumers has the option to settle as dnpute wnh contemplates that Gmsumers will transfer the Palisades ikhtel and rneive $100 milhon, less $9 milhon for naclear plant at.d certain related assets to PGC at their pretmus wnstruction bilhngs, or to return to IWhtel the book value at the time of closmg Gmsumers hat duided
$50 milhon transferred m estrow and assert its claims to replue the plant's steam generators durmg the through legal action refueling outage scheduled to begin in the f all of 1990, with liechtel's engmeering and wnstruction assistance Net 6.
Rate Matters assets to be conveyed to PGC at the slosing would include For many years, almost every significant MPSC rate the took value associated with the steam generator order affecting Gmsumers has been appealed by replacement and other improvements Consumers meervemng parties in Dnsumers' rate proceedings currently estimates that the net auets at closing will be Gmsumers is vigorously.iefendmg its interests in all approximately $495 million pending appeals Under the agreements. Consumers would receive a 44 percent common stock equity mierest m 10C, valued Elutric Rare Case - Afidland Prudence at $40 million, and Itechtel and a third mvestor would As dncussed in Note 2, Ginsumers is seekmg to recover contribute $50 milhon to PGC for the remain ng wmmon its investment in the abandoned portion of the Midland stock equity interests It is proposed that the balance of plant in that case, Consumers a requesting final rate the initial capitalization of PGC would be m the form of rehef for the abandoned Midland propect in the annual senior debt, some of which may be held by Gmsumers amount of $208 million, or an addinonal $129 million following the closing until permanent senior debt alove the $79 million presently authorized by the MPSC financing is arranged To the extent that the proceeds for fmancial stabilization rate rehef Consumers' request receivea by PGC for ns common stock and for as semor reflects a recovery over 15 years of the $21 bilhon debt at closing are msuffnient to pay the purchase pnce abandoned Midland imestment, with a return durmg the of the plant, PGC will nsue suturdmated debt or amornration permd at the weighted wst rate foi debt and preferred sto<k to Consumers G nsumers and IWhtel preferred and preferetxe stock and no returr, on wmmon 15
equity. The MPSC staff hzs recommended recovery of with Midland relsted inierest (octs, pending a final rate
$1,3 billion of the Midland project over 10 years, with no order in the Midland prudence case. The MPSC staff has return on the investment. If this MPSC staff position ultimately prevails, there could be an after tax loss of recommended that this amount be refunded to customers.
opproximately $455 million. Other intervenors have filed Gas Rase Case Order testimony with various positions ranging from no recovery in December 1989, the MPSC ordered Consumers to and refund of financial stabilization rate relief revenue to reduce its rates and charges for gas service by recovery of $733 million. The trial record has ck> sed and
$28.4 million annually. The reduction for sales service was briefing is scheduled to be completed by April 19,1990, effective for service rendered after Dec. 7,1989. The new when the case will be ready for the issuance of the charges for transportation service were effective Feb.1, administrative law judge's (ALJ) proposal for decision.
1990. Consumers and two intervenors have filed Unless this case is settled, a & cision on final rate relief is appkations for rehearing with the MPSC.
unlikely before the end of 1990.
Gas Cost Recosery (GCR) trbolesale Electric Rases In August 1989, the MPSC approved a settlement In Dnember 1989, the Federal Energy Regulatory agreement which required Consumers to refund Commission (FERC) approved a seven year settlement
$36.7 million to Consumers' gas customers during which allowed Consumers to charge new electric rates to September 1989. The refund is related to Consumers' its wholesale customers beginning in January 1990 The intrastate gas supply costs for 1986,1987 and 1988 and new rates include recovery of and a return on 50 p.rcent certam interstate gas supply costs for the same years. In of the $64 million of abandoned Midland assets allocable another settlement agreement approved by the MPSC, ta Consumers' wholesale customers. The remaining assets Consumers refunded $10.5 million during January 1990 of hsve been written off unrefunded balances from Consumers' 1988 GCR reconciliation case. Still unresolved from 1988 are issues Fixascial Stabilization Rase Relief relating to other interstate gas supply costs. The MPSC Since August 1985, Consumers has been collecting financial stabilization rate relief revenue. Consumers staff has recommended a disallowance of approximately
$10 million.
believes that the entire amount of the rate relief, in the 1989 GCR plan case, the ALJ has recommended estimated at $510 million, will be collected by December a gas supply mix different from that proposed and 1990. Currently this revenue amounts to $79 million implemented by Consumers which, if adopted by the annually. Certain parties before the MPSC are trying to MPSC, would result in a disallowance of approximately stop these collections The MPSC held a hearing on
$35 million for firm supply purchases. The entire issue of Feb. 21,1990 to addres; motions filed by the Association gas supply mix will be addressed in the 1989 GCR of Businesses Advocating Tariff Equity to discontinue reconciliation proceeding, with a final determination fintncial stabilization rate relief. Consumers opposes these expected in 1990 or 1991.
efforts.
In its financial stabilization orders, the MPSC required Pouvr Supply Cost Reco vry (PSCR)
Consumers to comply with certain conditions and to The Palisades plant was out of service for maintenance reserve the financial stabilization revenue for use as a from May 1986 until April 1987. A disallowance of possible offset against any recovery allowed in the
$199 million for power costs attributable to the 1986 pending Midland prudence case. Fadure to comply with portion of this outage and to or.her issues was refunded in certain conditions under the rate relief orders could result February 1989. For power costs attributable to the 1987 in discontinuation of financia: stabilization revenue, p rtion of the Palisades plant outage and to other issues, thereby delaying further recovery of the abandoned the MPSC in August 1989 ordered Consumers to refund Midland project. At Dec. 31,1989 Consurners had
$19.6 million during October 1989. This refund has also reserved $408.5 million of financial stabilization revenue been made. The MPSC also denied Consumers recovery of for use as an offset
$38.5 million which it paid to Union Carbide Corp. for Electric Rase Case settling a breach of contract suit. Consumers has appealed in March 1989, :he MPSC ordered Consumers to make the MPSCs August 1989 order. The MPSC has reopened a complete electric rate case filing that incorpora ed any the 1986 and 1987 PSCR cases for the limited purpose of reconsidering the capacity factor used for computing the potential recovery of the abandoned Midland project. The refund made in these cases Potential disallowances of MPSC order also concluded that the issue of continued approximately $10 million, based on the MPSC staff's collection of financial stabilization rate relief should be addressed in this rate case. Consumers filed the rate case recommendation, may be ordered if a higher capacity factor is ultimately determined by the MPSC.
in October 1989, requesting an annual increase of in September 1989, Consumers filed with the MPSC its
$229 million. Intervenor filings are due June 1,1990.
PSCR projections for 1990. Included were costs for new Tax Reform Act (TRA) Troceedings electric generating capacity from cogeneration and small As part of the orders issued in the TRA proceedings-power projects scheduled to be completed in 1990, Consumers continues to collect, under bond and subject to including the MCV. The MPSC ordered Consumers to refund with interest, $217 million annually associated implement beginning in January 1990, a temporary PSCR factor that excludes the MCV capacity on the grounds that 16
pow 2r supply contracts for qualifying facilities under the Public Utility Regulatory Policies Act, such as the MCV, should not be recoverable until the projects providing that capacity begin commercial operation The MPSC further ordered that l-any capacity and energy charges from qualifying facilities be consistent with the rate and hmitations discussed in Note 3 Consumers has implemented the PSCR factor consistent with the order and has reserved its right to continue to contest the order in the courts. The actual cost recovery allowed for purchased capacity and fuel costs will be determined in the 1990 PSCR reconciliation case expected to be decided in late 1991 or in 1992 Imses for certain contingencies discussed in this footnote have been aurued.
6.
Income Texas CMS Energy and its subsidiaries (including Ccmsumers) file a consolidated federal income tax return income taxes are generally allocated to each subsidiary based on its separate taxable amount.
Provision for Consumers' income taxes consists of.
(In Thousands) 1989 1988 1987 Vears Ended December 31 Current iederal income taxes 8 18.945 _ _ _$_ 4.328 _ _ _ $ _ j584j Deterred income taxes Property differences 30.353 19.355 26.341 Deterred in current year Reversal of prior years' deterrats (19.5131 (15.544)
(16.008)
(12,1081 (21.687)
(46.407)
Accrued revenues 138.943 171.815 173.530 Midland plant, net 3.718 1.509 (14.567)
Property taxes
'W (534) 14.116 Pension costs t,;. 4 54 332 47.399 Capitalized interest Financial stabilization revenue (30.8631 M 3i (38 478; (6.8501 04044i (3.058)
Operating reserves 386 10.468 11.096 Special compensation 16 (B.795)
(7.694)
Alternative minimum tax
_9.179L _ _ _(7,299)
(
Jt3.706) _
Other, net Total deterred income taxes
__ 154.683 _ _ 138.971 154.084
.. _ _.1_5_6. )__ __._. _ (4.951)
Deterred investinent tax credit (lTC). net
. _ _._2.903 (4
_a 8 175.932 5 154.855 5 133 436 8 147.393
$ 143.864 5 140.886 Operatin0 Non operating
_28.530 _ _ _10.991 _ _ _ _ _ 7 450)
(
8 175332 5 154.855 5 133.436
= = = = = = = = = = = = =. = = = =
a (in Tnovsands)
The principal componenes of Consumers' deferred tax 1987 liability are temporary differences related to acceletated years Ended December J[
_1980
_ _1988 Net income before depreciation, construction overheads and Midland related
'j preferred and preference items.
ITC used to reduce current income taxes payable is Pr((oYt0r mcome 8
deferred and amortized over the life of the related taxes 175.932 154.855 133 436 property. At Dec. 31,1989, the total amount of unused 52BhrA dB35 d55.885 ITC was $173 million. These amounts expire during Statutory federalincume 1994-2004 tax rate
- 34% _
x n _ _
40%
The Alternative Minimum Tax (AMT) system aeated Expected ir.come tax by the 1986 TRA requires taxpayers to perform a separate expense 179.540 159.404 182,354 4
Imase mciease) m federal tax calculation based on a flat rate applied to a tax broader tax base. The greater nf either the regular tax or P op t dittercnces 6.900 5.8%
9.399 the AMT is paid. The amount by which tne AMT exceeds impact of tax rate the regul.r tax is a tax credit that can be carried forward reduction (22.737) m indefinitely to reduce regular tax liabilities in future TRA refund order 122 517)
=
Otrtet net
_ J t o.5881__ (10_445, J13.063)
==
periods when regular taxes paid exceed the calculated AMT. At Dec. 31,1989, the tax AMT carry forward was
.___ __8..lY5.93C5154155 __ 5133 436 approximately $16 million.
Ettective tax rate 33 %
33 %
29 3 %
As described in the following table, the actual income
~ ~ ~~~~~
~~ ' ~ ~
~ ~ ~ ~
tax expense differs from the amount which was computed by applying the statutory federal income tax rate to income before income taxes:
a 17
^i
7.
Capit-l Expenditures First Afortgage Bonds Estimated capital expenditures, including capital lease Various provisions in Consumers' indenture and amounts, are $1.8 billion for the period 1990-1994, of Articles, state and federal law, and the need for regulatory which $371 million and $343 million are for 1990 and appioval restrict its ability to sell securities. Under the 1991, respecovely most restrictive provisions, at Dec. 31,1989, Consumers 8.
Short Terrn Financings could issue $646 millica, principal amount of first Consumers has approval from the FERC to issue and mortgage bonds Gmsumers has approval from the MPSC sell or guaranter up to $800 million of short term debt on to issue up to $300 milhon of long-term debt through 1990 to redeem other higher-cost securities of Consumers or before Dn 31,1990 Consumers replaced its $300 milhon Revolving Credit Pollution Control Rercour Bonds and Acceptante Facility Agreement with a $150 million in April 1988, Consumers refinanced $67.7 million of short-term Revolving Discounted Draft Facility (RDDF) pollution control revenue bonds with variable rate demand The RDDI, which will be used for finming Consumers' pollution control revenue refunding bonds in order to seasonal working capital requirements, is for two years, lower interest rates and retire outstanding coupons on the with two one-year extensions At Dec 31,1989, old debt, The demand debt is lassified as a kmg term
$108 mdlion was outstanding under the RDDF at a obligation because Consumers has the ability to refinance weighted average interest rate of 9 percent.
this obligation through an irrevocable letter of credit Consumers has entered into $200 million of committed expiring in May 1993 lines of credit and has $100 million available in uncommitted lines of credit At Dec. 31,1989, Gmsumers Rrfinanced Debt had horrowed $55 million under the uncommitted lines of 10 May 1989, Consumers entered into a $750 million crecht The weighted average interest rate of these long term bank credit agreement which refinanced existing borrowings was 9.6 percent debt. The credit agreement extended the repayment Consumers has a $200 million European commercial schedule to 16 equal quarterly principal payments starting paper program At Dec. 31,1989, $42.8 million was in August 1992, and removed the second mortgage on outstanding under this program at a weighted average Consumers' property. At Dec. 31,1989, the refinanced interest rate of 9 percent.
debt totaled $746 million with a weighted average interest Consumers has agreements for the sale of accounts rate of 10 percent receivable on an ongoing basis, with limited recourse, in an amount not to exceed $200 million. New receivables 10, Executive incentive Compensation are soki under the agreements as collections reduce CMS Energy has a Performance incentive Stock Plan previously sold receivables. At Dec 31,1989 and 1988 Man for key employees Under the Plan, shares of receivables sold under the agreemenu totahng restricted common stock of CMS Energy, stock options
$150 million each year remained to be collected and stock appteciation rights covering shares of common smck may be granted to key employees bascd on their 9,
Capitalization contributions to the sunessful management of CMS Capital Stock Energy, Consumers and Enterpnses There are reserved While the fmancial stabilization rate rehef order is in for award under the Plan not more than two percent of effect, Consumers is permitted to pay only "toker" CMS Energy's common stock outstanding on January 1 dividends on common stock until it has returned to each year, less the number of non forfeited shares of
" financial healthT Before any w ite-downs for non restricted common sunk warded and of common stock recove y of the abandonal Midlani assets or losses related subject to non-forfeited options granted under the Plan to the MCV, Consumers had approximately $395 million during the immediately preceding four calendar years As of retained earnings available at Dec. 31,1989, to pay of Dec 31,1989, awards of up to 849,199 shares of cash dividends on its common stock Consumers had common stock may be issued During 1989 and 1988, CMS approximately $23 bilhoo available at Dec. 31,1989, to Energy awarded 59,750 and 78,000 shares of restricted pay cash dividends on its preferred stock.
common suxk, respecovely.
On Jan 1,1900, Consumers redeemed at a prereinm Restricted shares of common stock are outstaning 70,000 shares of its $9 70 preferred stock and 34,70$
shares with full voting and dividend rights. Restrictions shares of its $432 preferred stock These two issues were are determined by the Organization and Compensation Consumers' last preferred shares with mandatory Committee (Committee) of CMS Energy's Board of redemption features.
7 18 0
Directors. Shares of restricted common stock cannot be established in 1989. The SERP amounts presented for F
distributed until vested, as determined by the Committee.
years prior to 1989 include insignificant amounts for CMS The unvested portion is subject to forfeiture if Energy and Enterprises Benefits are based on the employment terminates Restricted awards vest fully if employee's service and earnings as defined in the SERP.
control of CMS Energy changes, as defined by the Plan In 1988, a trust was established and partially funded Consumers' Executive Stock Option and Stock Because the SERP is not a qualified plan under the Appreciation Rights Plan, an earlier plan approved by Internal Revenue Code, earnings of the trust are taxable shareholders in April 1986, remains in effect until all and trust assets are included in the consolidated assets. At authorized options are granted, and thereafter until the Dec 31,1989 and 1988, Gmsumers' trust assets at cost, remaining outstanding awards are exercised, expire or were approximately $8 5 million and $7.2 million, terminate. At Dec. 31,1989, options for 43,000 shares respectively.
remained to be granted Under both plans, the exercise price on each grant date Drfiard 13taefit Pension Plan equals the closing market price on the date of grant A trusteed non-contributory defined benefit pension Options are exercisable ugun grant and expire up to plan (Pension Plan) covers substantially all employees 10 years and one month from date of grant.
The Pension Plan provides benefits based on the The status of the options granted under both plans employee's years of accredited sersi(e and earnings, as follows defined in the plan, during the employee's five highest Number Pnce years of earnings Because of the full funding limitation of of Shafes per Share the Internal Revenue Code, no contributions were made Outstanding at Jan 1,1967 553.966 5 7 431600 for plan years 1987 through 1989. Amounts presented for GranMd 273.000
$13.00 $17.50 the Pension Plan include CMS Energy and Enterprises, Exerctied (31.000)
$ 8 54$12 50 which are not distinguishable from the aggregate amounts Outstaneng at Dec 31. 1987 795.966 5 713 $17.50 and are not significant.
Granted 311.000
$17 00-521.25 Exercised (163.000)
$ 713-$16_00 Significant Assumptions Gutstandmg at Dec. 31 blBB 943.966 5 713 $2125 Assumptions used to calculate Pensum Plan and SERP Granted 365.500
$28 25-$34 25 amounts were:
Exercised (234.750)
$ 71342125
_ 1980 1988 _ 1987 Canceled (22,000)
$20 54533 88 Discouni rate 8.5%
85%
85%
5 7.13 Rate of compensation increase 5.5%
55%
5.5%
1.0 52J16
===_.__-834.25 Expected long-term rate of Outstanding at Dec. 31.1900
- 11. Retirement Benefits Post-retirtuent Health Care and Ufe Insurance llenefits Pension Costs Consumers provides health care and life insurance Net Pension Plan and SERP msts consisted of-benefits for its retirees through insurance mmpanies, the
]
costs are based on benefits paid. The benefit costs are 1980 recognized by expensing them as they are incurred The C05 3
I I
amounts expensed for 1989,1988 and 1987 were $17 2 c,
g million, $15 6 mdhon and $11.8 milhon, respectnely Actual return on plan Supplemental Executive Retirement Plan Nefa o'rtization and Certam management exploytes quahfy under the deterral 104.635 35.050 (6.487)
Supplemental Executive Retirement Plan (SERP) Prior to
~
Net persion cost
's 2,724 5 3775 5 2.637 1989, CMS Energy, Consumers and Enterprises
==
= =
participated in the same SERP Separate plans were Funded Status The funded status of the Pension Plan and SERP reconciled to the pension habihty recorded at Dec ' 1 was.
(In Thousands)
Pension Plan SERP 1900 1988 1989 1988 Actuarial present value of estimated benefits Accumulated benefit obhgation 5 435.010
$ 458.271
$ E.053
$ 6.769 1.201 Provision for future pay mereases 1_41.330 127.726
_ 2.617 Projected benefit obhgation 576.340 585.997 8.470 7.970 Plan assets (primarily stocks and bonds including $98 milhon in 1989 and
$52 milhon in 1988 in common stock of CMS Energy) at tair market value 740.737
_ _ 700,0_10_ _ _ _ _
Projected benefit obhgation less than (in excess of) plan assets 164.397 114.013 18.4701 (7.970)
Unrecognized net (gain) loss resulting from expenence ditterent from tnat assumed (143.773)
(51 790) 367 (359)
Unrecognized poor service cost 34,258 801 1 061 Rtmaining unrecognized net transition (asset) obhgation. Jan 1.1986 181.402)
(103 156) 2.448 3.269
_ _ _8361_
l Adpstraent to recognize minimum habihty
. _ _ __1
__ __ $ (26.5201 Sj40.933# _ ${5.684l
$132 Recoped pension habikty _
i9
In 1989 and 1988, the octuarial present value of Minimum rentel commitments under non carnetable estimated vested benefits was $386.2 million and $4061 leases at Dec. 31,1989 were.
million, respectively, under the Pension Plan and $14 million and $6.6 million, respectively, under the SERP.
Capital Ope a ng The rr irtization period for the unrecognized net leases Leases transition asset is 16 years, and 11 years for the 1990
$ 41.090
$10.895 unrecognized net transition obligation.
1991 41.865 10.086 The Pension Plan's unrecognized prior service reflects 1992 17,737 9,239 improvements in benefits granted in 1989 In 1989, the 1993 14,205 8123 vesting period for the plans was reduced to five years. In 995 and thereafter 1
1989 and 1987, partions of the projected benefit obligation were settled The settlements resulted in pretax Total mmimum lease payments 142.277
$70,385 gains for 1989 and 1987 of approximately $35 milhon and Less imputed interest 32 186
$39 million, respectively.
Present value of net mimmum lease payments 109.791 Early Retirement less current portion
_ 31,627 in 1989 and 1987, certain ehgible employees accepted Non-current portion 5 78 164 eetly retirement incentives The incentives consisted of lump-sum cash payments and increased pension payments Consumers recovers these charges from customers and The pretax cost of the incentive. for 19"9 and 1987 were accordingly charges payments for its capital and operating approximately $31 milhon and $29 million, respectively leases to operating expense Operating lease charges, including charges to clearing and other accounts, were $12 Other million at Dec 31,1989 and 1988 and $13 million at Consumers' consolidated payroll was $3911 milhon, Dec 31,1987.
$371.7 million and $\\78 7 milhon in 1989,1988 and 1987 Capital lease expenses for the yeais ended Dec. 31 respectively.
were
- 12. Leases (In Thousands) iggg iggg igg 7 Consumers lease various assets, including a nuclear Amortaation 831.874
$17,948
$18.503 training center, vehicles, construction equipment. computer Inwrest 10.206 9.104 10,300 equipment, nuclear fuel and buildings Consumers has a nuclear fuel leasing arrangement that Total cap!tal lease expense 842,079
$2770 28.803 is scheduled to expire in November 1991. The lease provides for a one-year extension upm mutual agreement Capital lease amounts at Dec 31 were by the parties at least 30 days before the expiration date.
(/n Thousands)
The lease is subject to earher termination upon the 1988 cccurrence of certain events Up n termination of the Groys assets lease, the lessor would he entitled to an amount equal to Gas 26,717 29.175 its remaining investment The lessor's remaining Other 88.199 80,644 investment at Dec 31, 1989, was approximately $35 Total Oross assets 106,328 II189 million. Monthly lease charges consist of a fuel factor, which is based on heat production plus interest costs and L
ac umulated amortuation administrative fees, and expenses incurred by the lessor' Gas 10 %
13,826 Consumers is responsible for payment of taxes, Other 27,31 39.031 maintenance, operating costs, risks of loss and insurance Net assets 859I $'15 95 Consumers leases two of its general office buildings
~==
~~========-
The initial terms of the leases expire m 2003; there are two five-year renewal options subject to escalation clauses
- 13. Litigation and Other Contingencies end a third five-year renewal option at the then fair-If sigmficant portions of the abandoned Midland market rental value. At the expiration of the basic or any investment are not recovered, or if probable revenues of renewal term, Consumers has the option to purchase the the MCV Partnership or probable proceeds from the sale buildings at the then fair market value The annual rentals of the MCV Notes do not support full recmery of the Midland assets held for transfer, or d substantial losses are subject to escalation every four years, and currently are approximately $3 milhon Consumers pays the taxes, are incurred either to support MCV Partnership revenues, for disallowances of purchases of capacity from the MCV maintenance, insurance and other operating costs on these buildings by Consumers, or in connection with other contingencies (see Notes 2 3 and 5 n the result coulJ he a significant 20
restriction on or chmination of CMS Energy's and 3 Consumers 51 ercent and Detro t Edison Consumers' ability to issue debt or to pay cash dividends (49 percent) In its complaint, the state seeks $147.9 on common sinck, a requirement to immediately repay milhon (including $15.8 milhon of interest) for past Consumers' refinanced debt and the impairment of injuries and approximately $89,000 per day for future Consumers' abihty to provide adequate service to its iniuries, with the latter amount to be adjusted upon customers installation of " adequate" fish barriers and other changed Due to Midland reined uncensinties management conditions The parties base engaged in discussions to cannot predict whether the ultimate resolution of any of resolve this suit and a related complaint by the State of the following matters will significantly impact Consumers' Michigan pending before the FERC, but have not agreed financial posinon or results of operations on a resolution Previously scheduled anal dates have beer ad ourned i
Sharcholders' lewsuits in Novemtwr 1987, the Mnhigan attorney general filed A number of shareholders w ho purchased Consumers' a second lawsuit alleging that Consumers and Detroit common, preferred and preference stotL during 1982 and Edison have breached a bottomlands lease agreement with 1983 have filed class action suits against Consumers, the state by unreasonably interfering with public use of certam of Consun ers' directors, and others w ho adjacent waters and by violating certain laws and participated m pubhc offermgs of Consumers' stock and regulations and terms of the plant's FERC luense. The the Consumers Dividend Reinvestment and Cnmmon complaint asks the circuit court to declare the lease Stock Purchase Plan A trial is scheduled to begin m 1990 breached and void The companies have answered the While Consumers believes there is no merit to the complamt, whah has been consohdated with the suit complaints, and intends to wage a vigorous defense if the described in the precedmg paragraph case goes to tnal, it nevertheless mtends to explore in Septeinber 1988, the FERC ordered installation of a options to settle the case temporary barrier net at the 1.udmgron plant site During Derivatne suits filed by other shareholders against April 1989, Cuosumers and D-troit Edison mstalled the Consumers and certam directors primarily allege that the net at an estimated hrst-year cost of $15 milhon in directors breached their dunes to Consumers and as October 1989, the net was removed for the wmter, a new shareholders by certain acts of mismanagement mvoking net will tw mstalled durmg the spring of 1990 the Midland nucleat proiect Limited discovery for the plaintiff s, permitted by a 1987 order, has been (ompleted Other Consumers and the mdisidual defendants have filed a in addioon to the matters disclosed m these notes, motion to termmate the action Oral arguments on the Consumers is party to certam lawsuits and admin strative motion were conducted before the U S Magistrate m proceedmps, ansing f rom the ordinary course of bu=iness August 1988 before sanous courts and gmernmental agencies, involving personal miury and proper;y damage, contractual matters, ledington Pumped Storage Plant environmental issues, rates, inensing and other matters in September 1986, the Michigan attorney general fded a lawsuit on behalf of the State of Michigan in arcun
- 14. Reportable Segments court, seekmg damages f rom Consumers and The Detron The Consohdated Statements of income show operatmg Edison Company (Detrou Ednon) for alleged iniunes to revenue and net operating mcome by segments Other fishery resources as a result of the operation of the information follows Ludmgton Pumped Storage Plant which is puntly ow ned (In Thousands)
Years Ended December 31 1989 1988 1987 Oepreciation. deplehon and amortization Electnc 8 134.996 5 128,740 5 125.296
~
Gas 61.415 58.669 56,639 Other 172 108 89
=.= -
= _ _ =..
=
8 196.583 5 187.517 5 182.024
- = = = =
Operating income taxes Electnc 8 106.750 5 102.416 5 113.528 Gas 43.072 41.958 28.338 Other 12.4291
_._ 510!
(980)
(
8 147.393 5 143.864_._
5 140.886 Identifiable assets Electnc 83.326.161 53.274.330
$3.316.300 Gas 1.031.634 1.051 761 1.077.739 Cogeneration 1.988.451 1 786.764 1.619.471 Other(a) 2.233.740 2.145.203
.._1 981.542-88.579.986
$8.258.108 57.995.052
~-=
= _ _..
Capital expenditures Electnc
$ 164.901 5 136.841 5 110.856 Gas 41.990 51 015 46.054 Other(bl 202.602 173 088
._ 212 454.
8 409 493 5 360 944 5 369.364 tabcludes $15 bilhon for 1989 31 4 billion for 1988 and $' 3 bilhon for 1987 of abandoned %diand proiect costs tbilncludes capitahied interest of $176 milhon for 1989 $162 milhon for 1988 $139 milhori for 19U 21
_.. o.x.,
- 15. Jcintly Owned Utility Plants presentation to provide information on cash flows from G)nsumers' share of operating expenses in jointly operating, financing and investing activities For purposes owned electric generating plants is included in the of this statement, all highly liquid investments with an Consolidated Statements of Income. The followmg table original maturity of three months or less are considered indicates Consumers' percentage ownership interest and cash equivalents the extent of its investment in these plants.
Other cash flow activities and non-cash financing activities for the years ended Ikc 31 were Campbell December 31 Ludington Unit 3 (In Thousands)
Undivided ownership interest
$10%
93.3%
1900 1988 1637 interest aid (net of amounts Net investment 1000) capita zed) 8100.196
$202,013
$250.128 1000 8124.770 8303.018 income taxes paid 1988 127.849 409.160 (refunded) 17.128 14.148 (3.685)
Accumulated depreciation 1000)
Non-cash 1989 54.504 157,613 Additional capital j988.__ ___ _
51.327 _ _ 141 323 leases ____ __ 20.310 63358 16.223 2
- 16. Supplemental Cash Flow Information The 1988 cash payment for income taxes includes a in December 1988, Consumers implemented SFAS 95, paymem of $8 miuson for the 1987 tax year Stairment of Carh flou r, which replaces the statement of Dunng U,W Gmsumers acquired preferred smck of changes in financial position with a statement of cash Emerpnses in exchange for aH of the conunon su(k of flows Prior years have been conforrrel to the current tenain subsidiaries valued at 8149 million 22
REPORT OF EDEPENDENT PUBUC ACCOUNTANTS o
i Ta Consumers Power Company:
As discussec in Notes 1,2 and 5, the Company decided We have audited the accompanying consolidated balance to complete the Midland project as a natural gas-fueled, sheets and consolidated staternents of long term debt and combined. cycle generating plant and abandoned preferred stock of CONSUMERS POWER COMPANY ca components of the project unusable in the gas conversion Michigan corporation and wholly owned subsidiary of The consohdated balance sheet as of Ikcember 31, 1989, CMS Energy Corp > ration) and subsidiaries as of includes $1.457 bblion related to the abandoned Midland December 31,1989 and 1988, and the related consolidated project This amount is substantially in excess of amounts ststements of income, mmmon stockholder's equity, and recommended by the Michigan Public Service Commission cash flows for each of the three years in the period ended (MPSC) staff If the MPSC staff pisition ultimately December 31,1989 These mnsolidated financial prevails, there muld be an after tax write-down of statements are the responsibility of the Company's approximately $455 million The Company beheves it is management. Our responsibility is to upress an opinion probable that some costs will te disallowed by the MPSC on these consolidated financial statements based upon our as imprudently incurred, but cannot reasonably estimate audits the amount of any such disallowance losses will be We conducted our audits in accordance with generally recognized if complete recovery of the abandoned Midland accepted auditing standards Those standards require that investment is not ordered by the MPSC or agreed to by we plan and perform the audits to obtain reasonable the various parties in a settlement of the Midlano assurance about whether the consolidated financial proceeding, or when future losses are probable and statements are free of material misstatement An audit reasonably estimable.
includes examinmg. on a test basis, evidence supporting As of December 31, 1989, the Company's investment in the amounts and disclosures m the consolidated financial the MCV Partnership and the related assets to be statements An audit also includes assessing the accounting transferred to the "CV Partnership were approximately principles used and significant estimates made by
$191 milhon a-774 bilhon, respectively. As discussed management, as well as evaluating the overall financial in Note 3, ti ny has agreed to purchase 806 MW ststement presentauon We believe that our audits provide of capacity fro 4CV Partnership in 1990, increasing a reasonable basis for our opinion to 1,240 MW in IW5 and thereaf ter at an average in our opinion the consolidated financial statements capacity charge of 415 cents per kWh, subject to a referred to above present fairly, in all material respects, minimum guaranteed average capacity charge of L77 cents the financial position of Consumers Power Company as of per kWh The probability of recovery of the Company's December 31,1989 and 1988, and the results of its MCV investments is primarily dependent upon capacity operations and its cash flows for each of the three years charges approved by the MPSC. In December 1989, the in the period ended December \\l,1989 in conformity MPSC reaffirmed previous orders establishing a levelized with generally accepted accounting principles.
capacity charge of 3.77 cents per kWh, backloaded over As discussed in Note 1 to the consohdated financial 17-1/2 years. The Compar.y filed a motion with the statements, the Company, effective January 1,1987, MPSC seeking ancillary relief from the December order, changed its method of accounting for income taxes to request 10-year backloading to permit phase-in l Consumers Power Company l SELECTED 3 n,wm a
a w
a m3 FINANCIAL operating revenue (a) 8 2,916.836
$2.902,157
$2.735.338
$3,066.164
$3.235.657 lidORMATION Net mcome (ioss) before cumulative effect of change in accountmg for income taxes (a) 8 362.126
$ 313.980
$ 322.449
$ (498.098)
$ (269.772)
Cumulative effect of change in accounting for income taxes 5 (3.070)
Net income (loss)(a) 8 362.126
$ 313,980
$ 319.379
$ (498.098)
$ (269.772)
Net income (loss) after dividends on preferred and preference stock (a) 8 333.706
$ 288.660
$ 244.543
$ (610.890)
$ (389.548)
Total assets (a) 8 8,579.906
$8.258.108
$7.995.052
$7.577.479
$8.580180 Long term debt. excludmg current maturities 8 3.036.125
$2.989.151
$3.161.657
$3.245.845
$3.558315 Non-current portion of capital leases 8 78.164 5 61.630
$ 59.667
$ 62,254 5 66 768 Preferred and preference stock with mandatory redemption 8 10.471 14.755
$ 74.505
$ 299.175 _ $ 391755 (alAm0unts m IW &nd 1H feheC1 festatements made m IW related ?O hie implemenlahon of het ACC0untmg lidPdardi 00 mCome idaes and plant 40andonments 23
eccounting under Statement of Financial Accounting As discussed in Note 13, if significznt portions of the Standards No 92. In February 1990. the MPSC denied the abandoned Midland project are not recovered through the Company's motion and reaffirmed the thember order ratemaking process or if probable revenues of the MCV The Compatiy has appealed the thember order, including Partnership or probabic proceeds from the sale of the the right to pursue a capacity charge of 415 (ents per MCV Notes to te received in exchange for assets to be kWh if the MPSC s decision on this issue is not transferred to the MCV Partnership do not support full overturned on a, peal, the thember order would reduce recovery of the Midland investments or if substantial the value of the assets to le transferred to the MCV losses are incurred either to support MCV Partnership Partnership and would require the Company to record an revenues, for disallowances of purchases of capacity from after tax write down of these assets of approximately the MCV, or in connection with other contingencies, the
$240 million in addition, the Company would be required result could be a significant restriction on or elimination to record mmulative af ter-tax losses of $2M million for of the Company's ability to issue debt or to pay cash power purchased from the MCV during the first seven dividends on common stock, and a requirement to years of the Power Purchase Agreement as a result of the immediately repay the Company's refinanced debt. The MPSC ordering backloading over 17 l/2 years The accompanying consolidated financial statements do not Company does not bel. eve that any write-down of the include any adjustments th.. might be necessary should value of the assets being held for transfer to the MCV in the Company be unable to continue operating in the exchange for MCV Notes e appropriate at this time normal course.
because of the potential for full recovery of the book value through the appellate pnicess, and because the amount of any gussible reduction still cannot be reasonably estimated As discussed in Notes 5 and 13, the Company is N - -h involved m numerous legal and administrative prmeethngs before various courts and governmental agencies, mcluding Arthur Andersen & Co the MPSC Because of the present Midland-related Iktroit, Michigan uncertainties, management cannot prethct whether or not February 22,1990 the ulumate resolution of these matters will have a significant impact upon the Company s finanaal gusition j
or results of operations l
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I l Cen4umers Power Company l QUARTERLY
- ""5 Eaod FINANCIAL m iunauditen n) isca tunaudit.onni
"" "'#"sandso March 31 June 30 Sept 3n Dec 31 March 31 June 30 Sept 30 Dec 31 INFORMATION l Operating revenue
$911.695 $598,M0 $558 495 $848,106 $906.546 $564,552 $578,986 $852,073 Net operating income
$143.393 $ 96.324 5 99.472 $110.582 $131.402 $ 98.470 $107.713 $119.452 Net income
$116 797 5 73,188 $ 79.038 $ 83.103 $ 88.494 $ 61.887 $ 76,588 8 87,011 Dividends on preferred and preference stock 5 5.433 $ 4.989 5 4.769 $ 3.230 $ 624 $ 6.275 5 6.157 5 5.954 I
Net income after dividends l
on preferred and preference
{
stock
$111.364 $ 68.199 $ 74.269 $ 79.873 $ 81.560 $ 55.612 $ 70.431 $ 81.057 (a)The f0uftfi quarter of tW) feflects reserves related to State r80uiatory issues and iltigation (bilhe fourth quarter of 19M reflects a reserve feiated to a state re00iatory issue 24 l
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Board of Directors William T. McCormick Jr.
45, Chairman of the Board and Chief Executive Officer of CMS Energy and Consumers S. Kinnie Smith Jr.
- 59. President of CMS Energy and Vice Chairman of the Board of Consumers John M. Deutch, Ph.D.
- 1. Provost, Massachusetts Institute of Technology. Cambridge Mass Robert E. Dewar
- 67. Former Chairman of the Board and Chief Executive Officer, K mart Corporation, Troy. Mich Richard M. Gillett
- 66. Former Chairman of the Board. Old Kent Financial Corp., Grand Rapids, Mich Earl D. Holton
- 56. President and Chief Operating Officer. Meijer Inc, Grand Rapids. Mich William N Hubbard Jr., M D
- 70. Director and former President, The Uplohn Company, Kalamazoo, Mich Lois A Lund, Ph D
- 62. Professor, College of Human Ecology. Michigan State University. East Lansing, Mich Don T. McKone
- 68. Chairman of the Board. TRINOVA Corporation, Maumee. Ohio Frank H Merlotti
- 63. President and Chief Executive Othcer. Steelcase incorporated. Grand Rapids, 1
Mich s
Thomas F Russell 65, Chairman of the Board, Federal Mogul Corporation, Detroit, Mich Robert D Tuttle
- 64. Chairman of the Board, SPX Corporation. Muskegon, Mich s
Executive Officers William T. McCormick Jr 45, Chairman of the Board and Chief Executive Officer S. Kinnie Smith Jr.
59, Vice Chairman of the Board Frederick W. Buckman
- 43. President and Chief Operating Othcer Victor J. Fryling 42, Executive Vice President and Chief Financial Othcer Michael G Morns 43, Executive Vice President, Natural Gas and Marketing John W Clark 45, Senior Vice President, Communications Gordon L Heins 60 Senior Vice President, Energy Supply Raynard C. Lincoln Jr.
- 55. Senior Vice President, Energy Distribution David A. Mikelonis 41 Senior Vice President and General Counsel y
Other CPCo Officers Kenneth C. Bottonan
- 41. Vice President, Information Services and Technology
- 2 Paul A Elbert
- 40. Vice President, Marketing, Rates and Wholesale Power Transactions
- Biake 0. Fisher Jr.
46, Vice President, Finance and Treasurer
- David P. Hoffman 45, Vice President, Nuclear Operations David W. Joos
- 36. Vice President. Energy Supply Services
- Thomas A. McNish 52, Secretary and Assistant Treasurer Robert J. Nicholson
- 50. Vice President, Fossil and Hydro Operations
- 1 Robert J Odlevak 56, Vice President. Gas Supply and Transmission Hamilton M. Robichaud
- 53. Vice President. Human Resources H.B.W. Schroeder
- 42. Vice President. Governmental Aff airs Samuel N. Spong
- 62. Vice President and Controller David V. Voigt
- 54. Vice President. Distribution Operations
- Assumed current position in January 1990
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PAID mammamessmasarm Consumers Power Company Consumers Power Company. 212 West Michigan Avenue Jackson. Michigan 49201
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