ML20042F090
| ML20042F090 | |
| Person / Time | |
|---|---|
| Site: | Fermi  |
| Issue date: | 12/31/1989 |
| From: | Lobbia J DETROIT EDISON CO. |
| To: | |
| Shared Package | |
| ML20042F086 | List: |
| References | |
| NUDOCS 9005070214 | |
| Download: ML20042F090 (44) | |
Text
{{#Wiki_filter:. _ _ _ _ _ _ _ _ _ _ - _ - _ _ _ _ _ -- _ ____ _ _ - _-_ __ ____ - __ _ ________- - ___ - - _ __ i NCREWSIN@ T SHAREHOLDER VALUE BY PROVIDING SUPER 1OR CUSTOMER VALUE 1989 ANNUAL REPORT l
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[ iDetroitEdisonemployesutre ,' % fiQC h ~ involtedin hundreds ofefforts. .
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Operating Revenues 53,203,031l0001,, . , . .+ , . ,000 %, S$3,102l172 f ;3.3 Q_'J w
.,,. . oq p Income (Loss) Defore Cumulative Effect of Accounting Changes 1$425,951,000M, . , . , .$(235J34i000);,.., V Weyp
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Common Shares Outstanding (Average) 146,816,363 1'146J6h458:)" . W ' _ a( >la Sg Dividends Paid per Share ! $1.68 ? - g$i687 V M .Q e e :2;4 R,_ . . Gross Utility Plant $11,024,368,000 ? $10,766,755,000 & - Capitalization $7,330,253,000 l $6,881,697,000 l 16.5 i };} w Sales of Electricity (kWh-Thousands) '.40,585,000' L40,'958',000: ,
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, 4 i System Capability at Time of Peak (kW) 9,942,000 %0,038,000
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C 4 System Peak Demand (kW) .8,704,000, 9,133,000: ..7(4,7)..
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4 4 Electric Customers at Year-End 1,905,000 JL882,0001 . L2 g m I ,* m . . ,-
i T@ @URSHAREHOLDERS i l etniit Edison tras among Ihe nation 's top-performing utilities in 1989. Durn on conunon stock, including dividend incnase among electric utilities in Ihe Doiv fones Utilities Average. The stock closed at $25.38 at year-end-within 50 cents of the December f!yQGQBfQQf: ) f I!{ 12 peak vi $25.8: which repn.sented a W?w
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h&a 19mear high ny compari>on. the . 3' < s [;-. - o : y.; , pyg highest 1988 price was $17.50.
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The record $1.2-billion increase in L i N+:. p' .. e ' market value and the incn ased confi- .x . 5; = kn 3 , . 4 f dence m Detroit Edison bv ihe _ [ ~ f 1 financial conununitu n sisted innn e - cp * .
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M ?" o 1 unproved pertirrmance in keu areas . sN Q .f l h '%, 'q : y , }g 1 and from the resolution of maw, ~.' g M eh f uncertainties that had faced the com-f., - ^
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eny rerun 2 power plant .s operatwn and fy,y g g p gsg g d w ppipe,eps performance have unproved markedly
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~d_,,ong,~n,i- ,~ndcr tie cont,a and u,,p-d n,-gc,-t , ,,, ,c,,d,u,g from a serws of strategic imtiatives have taken root.
Du r management deeply appreciates the patience and support shown bu shareholders during the difficult years of Fernu 2 's constructunt. testuig and ratemaking challenges. which were exacerbated by energu crise, and bu et onounc ret e~swns ti'lt especiallu hard in Ahchigan. Tbuch imancial stewardship enabled us to mamtam the common stock divulend then, and unproved performance and prospects for a brighter future permit u, now to increase the iheulend bv an annual rate of 10 cents per share
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All,a oc ettort< are focu8ed on contunung to increa,e ,hareholder value. That han become a tashionable term to some ut the bumme's woch! these daus-so much so that one recent busmers su rveu raiseti the tjuestion whether buildnig sluireholder value has become realitu or rust corporate rhet<>ric. l 1
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At Detroit Edisori, as the*therne and substance of this annual report suggest, Ihe n'ality of ou r cornrnit-ltletll to illcreaSing shareholder value
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? btl 9,930 etnpIvyCs working togethCr lo providC the essCnlial element of shareholder value-superior cus-tonter valuC-lhnnigh sert' ice, teattlwork, caring alld pCrfortnance.
This improved value can be seen L ill our f511atlCialPCrfort!!ancC last
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1l ear, WNell earnUlys _for coninion stock n' bounded sharply to $388.9 In the Northwest Air-lines control tower at rnillion, or $2.65 per share. That conipared with a 1988 loss of $428.6 rnillion, or $2 92 per share. Detroit Metropolitan result!ng f rom after tax write-offs of $968 rnillion due to the Fermi 2 rate-case settlernent ul December Airport, Walter J. McCarthy, Jr., center, 1988 and to Michigan Public Service Connnission disallowances in an earlier Fermi 2 rate case. chairrnan and chief exec-But unproved 1989 carnirigs also resulted from strong sales and lower costs. A total of 40.6-billion utive officer, and John E. Lobbia, right, president kilowatthou rs (k Wh > were sold to a record 1.9-million customers. Sales were less than 1 percent below and chief operating ;939 ,,3 ;, ,(; g g4g; 3.g gg g,g y, ,, . p; ,, , ,, , officer, join Wayne
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County Executive Revenues f rom 1989 sales reached an all-time higli of $3 2 bilhon, up 3 3 percent tntm the Edward 11. McNamara in
. $ T l bt!!!on ul 1988 reviewing electruc supply irnprovernents made by Although the weather was more normal m 1989, continuing economic expansion in Southeastern Detroit Edison at the airport. (See page 7J US"H '0"NHH'd W'U' ^#"'ungiu aggn nuuMing and sales efforts bu Detnnt Dhson.
contributed to new monthhi sales records m six of the uear's 12 months, reconi monthly peak demands Ill ill!!c of the nloliths and a record wintCr pCak, All of our efforts arefocused The most meenswe cost-contna pn.gnun m the company s historu on continuing to increase continued with clo,e ,crutum ot operatmn and maintenance expen,e-sllarelloider value. capital openditures and staft levels which currentlu arc at their lowest pomt m 12 uears peritaps the mo,t v:,ible ~ umbo l of the compam, ,1989 tu rnaround wa, the unproved performance and operatwn of Fernu 1 1 2
2m1r2~ The plant produced more than five-billion dtusmuurc The most visible syinbol of wh of electricity most ofit durins an ===- the 1989 turnaround was the uninterrupted ws-day run; was removed ,,muman.
.tDEETEh improvedperformance and fnun the Nuclear Regulatory comnusswn 's m, operation of Fermi 2. <NRc u list of plants requiring svecial atten- ==" "
--mmmm twn; received its best-ever performance MMMM rating (nnn the NRC; successfully completed its first scheduled refueling outage; and set a M EEE memmas_m plant record for employe safety G. tilenge in the years ahead is not only to continue this ammmmm m aman n* cord of achievenient, but to iniprove on !! iTEMGMEEM Although 1989 will be a tough act to follow, programs are in place designed to continue the 6?
impwvement in Ihe value of shareholder investment in Ihe company While some utilities " "*"" aiElm m b have opted forgrowth through broad and rapid diversification outside the energy field, our
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intention is to stick to the h1 sics of providing energy products arul sen* ices of superior value. Mn 16n in these times ofincreasing energy choices for ou r commercial and utdustrial customers, we immamm n 6 amu believe we will serve ou r shan' holders best If on r customers contvine to view us as thetr supplier of Cholce. anmema
~ll) that Cnd, a series of sinltegic corporate niiliatives, called Oct roit Edison l09d, is foCusiliq '
ar W _me on aggressive cost-reduction, seeking revenur increases ni targeted markets. responding M'
-1Emr rapidhi to customer needs. and managing change in ou r own structure and culture to help us M mENEhn respond better bu 1994 mtem Retent retirements mchule those of \ ice Chatrman and Chiet Fmancial Officer Ernest L.
Gwee, JL . and Senwr bcc Pn'siden! Burkhard Il bchneidet. Their contributions and m , dedicatwn have been mstrumental to ou r achievements ami are deephi appreciated. #MU mrMHilmr Their ,uccessors-arul other nientbers o+ the new iniinagentent teani still evolving-are 'WV aMEEL1 taced with a broad arrau of regulatoru and legi,latwe is<nes. includmg competition, possible - indust o u rest ructu rmy and potentiallu costlu encinnunental legislatwn. s g ggg;g t
.I.he members of this team- along with all the ether men and women of Detroit Edison-are 1M 7m, sgtm comnnttea to deahng with the8e is,ue, m waus which n!! contmue to make Detroit Edison a j_,
rewanhnq meestment. l ' February 2k 1990 -
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AN EMPL0YE C0MMiTMENT
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hen it cornes to electricitti, custonter valut rneans di .t ys to different people. To the niulti-billion-dollar global rnariufacturer, it incans reliable $j{f 3 $ %& g+ Ml . Service with no assenibitl-line power interruptions and rates that keep its pn> ducts contpetitive To the fast-food chain, it nicaris a n quick service hookup To the horneowner, it incans respect for his or her prvperty and environnierstal cleanhness in nearbt; power plants. .
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lb all of thern, it nican.s an electric cornpanu sintplt/ caring about and respondir;g to their needs-through a friendhi voice at the other end of the phone line; long hours worked to reston'stortn 't(fected service; new rates, processes or technologies which better rneet business needs: or inaybe just the thoughtfulness of closing a backyard gate after the pneter is read. l'or Detroit f dison, irnproving the value of the service custorners recewe for thet r energu dollars rneans all of Ihese arul enore. The "more" includes tearnwork inside the contpanu and among the companti Its custorners and others who can help And it includes perfornlGnce-bu 9,950 CniploUes dCdicated to delivering all of the . . . . . - . . . (C h e 0 W T W E C A K /'. .
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diverse ingrnbents that spell superior cust,mier value. The Company and Awrey Bakeries Cook Up unique Energy-Conservation Project Whu the stress on customer valuc^' Because in an increasingly competitive and tough business environmem we know that if ou r Thanks to Detroit Edison, Awrey Bakeries Inc. of Livonia is in a lot of hot water-but isn t complaining. customers receive superior value in ihe. service, ou r sharehehlets That's because its hot water is being put to good use as part of a unique energy-conservation project being will rn elve superior value f rom their investments tested in cooperation with Detroit Edison. While Awreyisawell-knownlocalretailsupplierof Follownig are tu3t a tem of the hundred3 of cAamples of how baked goods, its nationwide institutional food service is the bakery's mainstav. According to Betty Jean
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Detroit f.dison entploves combmed service, teninwork, caring and Awrey, director, Public Relations, frozen Danish rolls are the hattest-or coldest-items. perfortnance to dehper customer value in 1989.
,'We supply frozen baled goods to institutional customers in all 50 states, under any of several brand SE R WME other Detroit Edison customers 4
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5 l "The application of heat recovery technology can Detroit Edison was doing a little math of its own. I apply to almost every commercial and industrial cus- When the final tally was in, Ralph Paschke, account tomer we have, 'said Willard R. Holland, senior vice executive, Wayne Monroe Division, and several asso-president, Energy Marketing and Distribution "With ciates could report things differently. thousands of such customers, our company could "Cogenerators were telling Awrey that having its realize great marketing potential from the project own electric energy supply would save it $450,000 while at the same time helping our customers con- over five years," Paschke said. "However, our figures serve energy. indicated that cogeneration would cost Awrey
" Projects like the one with Awrey are great exam- $650,000 more in total operating costs over the same ples of how shareholder value can be increased by period. That's a differentialof more than a million providing superior customer value in all its forms.' dollars."
The pilot project with Awrey represents part of an The availability of Detroit Edison's interruptible important "save" for Detroit Edison As late as primary supply rate made cogeneration uneconom-December 1988, the bakery was senously considering ical. The new rate saves Awrey 16.5 percent on its producing its own electricity through cogeneration. electric bill. According to Robert Awrey, chairman of the board. "The Detroit Edison people gave us good informa-his firm had been looking for ways to control operat- tion and ideas that made our decision rather obvious,' ing costs to remain competitive, "and energy is a Robert Awrey said. substantial portion of those costs ' Not only was a valuable account saved, but in the "Our overriding goalis to stay independent, and process the heat-recovery test project originally pro-that must be done from a position of competttive posed in May 1987 was re-evaluated, creating a strength," he said. challenging marketing opportunity for Detroit Edison l While various cogeneration firms were tempting and a new, economical and efficient hot water system Awrey with cost saving estimates tor changing to gas, for Awrey. l 5
In pursuing the project, the utility found a way for Ninichuk, senior engineer, Detroit Edison's Market- 4 Awrey to make productive, cost-effective use of ing Technical Serv ces. } wasted energy. The energy-conservation test willlast for at least l "When looking at the energy- conservation alter- three years. If successful, it could save Awrey about natives available to a customer " said Robert Luke, a $40,000 per year in total production costs. supervisor in Detroit Edisor.'s Customer Options unit, "one of the first opportunities evaluated in the study is the potential for recovering heat f rom equipment ,, g4.g 944gg4 , he p i us of attention was the four air com- { "hgg,gg j pressors used to drive the bakery's production processes and control its internal environment. Production of today's sophisticated automobile The compressors must be cooled during operation engines has shifted focus from the foundries of yester-In the past, tap water had been drawn in continually day to the complexities of computerized manuf acturing. for once-through cooling and disposal. Consequently, involved are the micro-tolerances and macro-efficien- , a lot of potentially usefut heat and water had literally cies of space-age automotive designs-keys to helping { gone down the drain. American automakers meet both foreign and domestic Under the conservation project being tested, an competition. industrial electric heat pump works to cool water that's But when electrical quality and supply problems used over and over in a closed-k>op system. In the confuse or shut down the computers and robots that process, the heat extracted from the water is inten- controi production equipment, production slows. [ sified by the heat pump and used to heat water for fewer engines come off the assembly line and Detroit various uses. Having this water available means less Edison's phones start ringing. work for the plant's gas fired boiler. " Recovery from a power outage or power-related {
"The heat pump heat-recovery system also helps problem is costly in a system as complicated as ours,"
{ Awrey offset some gas, water and sewage charges said Jon R. Smith, senior electricai engineer in Gen- ! while impros ing its overall ef ficiency " said Juhan eral Motors' (GM) Livonia Engine Plant. "The total ( manufacturing rhythm is broken.' l [$j p l R..amd
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GM' 950,00$ square foot Livonia facility employs i 1,200 people and is the automaker's sole production facility for 4.5-liter V-8 engines for Cadillac's DeVille, Detroit Edison Seville, Eldorado and Allanie models. associate eng/neer Ibwer supply reliability wui ixcome even more 108ePE 9ans.ak,
- crucial as GM upgrades certain products for the 1991 modelyear. I'/#' '"0"N8'8 8 GM Livonia had experienced 21 electric-service dis-GeneralMotors cam-ruptions since 1985-from both known and unknown 4g g shaftproduction line causes, its concems about the problem were brought g -
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' to light when Ernest L. Grove, Jr., Detroit Edison's %3 ff' ' Jon R. Smith and vice chairman and chief financial officer, now retired, gg g *-
g jgy met with Livoma Engine Plant Manager Thomas ypv,c
. Stephens as part of the utility's Executive Contact Pr ram.The oalof the amis toshare plans Thomas W. Diliberti. They analyzed sensitive prod uc-aircraf t operations, Metro handles more than a [
tion equipment and the utility's own equipment in the ' thousand aircraft landings and takeoffs each day. area over a five-month period in an effort to isolate the Annual passenger traffic has doubled in the last five
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years 1o 20 million and is expected to double again by E r en orengineerin Detroit the ear 2 Edison's Technical and Engineering Services area, monitored the delicately controlled equipment t plex economy, Metro's performance and timing
- _ establish electrical supply standards and tolerances' depend heavily on electricity. Without it, the airport According to Cheryl A. Murphy, the plant's man-cannot function and the region could virtually grind to
, ufacturing engineer, the expertise brought to bear on a halt the plant's power-supply problems was reassuring. Detroit Edison lines crews and a team of six com-it was good to know that people in these special-ized fields were available at Detroit Edison, rather pany departments learned those lessons firsthand last summer, when they had to find ways to install the than our having to assemble resources from the out-equipment for additional crucially needed electricity. side and manage the study ourselves, , she said. They not only met the airport's operational and finan- , the study eventually determmed that most of the c al needs, but also helped retain about $2.5 million of
- plant's power-supply problems had resulted from annual revenue for Detroit Edison-helping maintain automatic switching of equipment to compensate for shareholder value-and provided the area with a sig-unavoidable power outages, and to automatic switch-nificant economicboost.
mg of Detroit Edison's capacitor equipment t I The latter was attested to by Wayne County Exec-maintam adequate voltage les els. Those problems utive Edward H. McNamara, who said that by helping 3- o r as sno tei gconsideredisa Sou east rn I c i n. proposal to upj;rade the plant's electnc supply from TWoplly goesback to the fallof1988, . 40,000 volts to 120,000 volts, which would help when officials of Wayne County-which owns and
'mprove power quality throughout the plant. When operates the airport-considered installing 6,000 kilo-1991 model year equipment is mstalled, the addittor.al watts (kW) of cogeneration at the airport. They needed production is expected to increase electrical use at the to ncreasecapxityand toreduceoperatingexpenses.
. facility by 64 percent and Detroit Edison revenues Detroit Edison specialists analyzed the airport's from sales to the facility by 42 percent. needs, what the projected cogeneration system would do to meet those needs as well as to help the airport's budget, and what the loss in revenue would mean to
; 3 ei p tM rLYINc on an& shadoks.
Their solu tion was for the company to add a large, Mr Edim Cum WentHigh and low to serve Detroit Metro Airport mw transformer at the airport substation to supple-ment the two existing transformers. For busy international terminals like Detroit Metro- The installation of the new transformer was com-politan Airport, on-time performance and split. pleted in August 1989, allowing the airport to boost its second timing are crucial. As the nation's 14th largest airport in terms of passengers and 13th busiest for
*/
T h use of electricity to 10,000 kW-an increase of about ._ 70 percent. .- Lloyd Clapper, senior governmental account exec- y. 1 utive, Ntajor Accounts, said the transformer and j. related transmission facilities will result in a gain of ;
$1 million per year in revenues from 4,000 kW of new load, and the retention of $2.5 million annually in revenues that would have been lost to 6,000 kW of because airport officials naturally had to give first pri-rity t the airlines," Weiss said. "We had to work cogeneration.
at und their schedules, which meant most of our "Also, by completmg the job as quickly as we did,, I Clapper said, "we probably gained an additional w rk had to be done in the middle of the night and on wedends.
$350,000 in revenues from load that was being kept off line by the county antil the third transformer was "Even though we couldn't always get the time we wanted, we completed the job in about five weeks, installed. Finally, we created a lot of good will with the county , instead of the eight weeks originally projected.
Ha'rold E Weiss, general supervisorin Operations. Airp rt officials also recognized the significance Wayne-Monroe Lines, knows all too well the difficul- f the accomplishment They wrote to Walter J. NicCarthy, Jr., chairman and chief executive officer,
>:es involved in connecting the 9,000 feet of under-pr ising Detroit Edison for a iob well done.
ground cable through 21 manholes at the airport I Weiss handled the scheduling and coordination of Each crew member and employe in volved in the pr ject sports a T-shirt that describes the job: "We the 40 employes from the Trombly, Plymouth. New-
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port and Ecorse service centers who worked on the job.The rebuilding of Metro substation and installa-And they did. tion of the new transformer were accomplished in record time by System Maintenance and Modification.
" Gaining access to the manholes-many of which were beneath runways and taxiways-was dif ficult 8
i ADWSAfETy 7i own equipment. ~1nstead," he said, " Detroit Edison ( .
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spent the next four hours checking things out. They
! Ile/ ping Coms, larmers and 1
flectricity Work 7egether were great. Three guys. A cold day They didn't have to do it. " Farmers in Detroit Edison's service area have com- To prevent such potentially costly problems is one petitive pressures too, just like the company's big reason Detro;t Edison expanded its agricultural out-manufacturing customers. That means they have to do reach program m l989. Working with Michigan State things as economically as possible. ' ' Technological innovations in a vanetv of motors R.
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and farm equipment-all powered by eiectricity-play * - j
}f a major role in helping them do just that. .k e ,l [jid < :f }
l Sometimes there's a catch, however. Mike VanGor-don, Detroit Edison's agribusiness account executive. ggy h} 7f j ~
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says that "while the increased use of electricity by
.?, , T$ 7 t 4C farmers is good news for Detroit Edison, the installa- -
j p$ ! tion and maintenance of electrical farm equipment can ; y' sometimes lead to a problem for the f armer." ( , , sg For example, Christopher Sullivan of Dexter was .
~% 9 having trouble with his cows at milking time. Thev F 'q = 4 y f.
were hesitant to enter the milking parlor and became $ *
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.f milking equipment. Less milk means lower productiv- y ,3 .c 4 c v ity for Sulhvan, which puts him at a competitive j -
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Following a routine inspection of the Sullivan farm, ! l ;
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k.j Duayne Crouch, a representative of the Michigan Milk A .{ ~l g 49, v ,, Producers Association, suspected the problem was g ,. ;y a w W ) neutral-to-earth voltage (NEV), also known as stray ;
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voltage. :......_.s . .. 1 _M ' 'dJ' NEV results from low-level electncal current flow- Sandusky High Universitv (MSU). the company launched the Teach. ing into the earth f rom a grounded conductor. It may School teacher ing Electr'fication i in Agribusiness Classes in High pass through people and ammals when they come in Robert Miller, sec-Schools pmgram in two service-area high schools. contact with metal objects connected to the grounded man m Pm SSor iA8n ura ondfmm left, mdstars. NEWin't handh. . ,Neven detectable by nqneenng a na na mc gnized expert on teaches electrifica-NEV, worked with Detroit Edison s VanGordon to p - ~
- a , ut a ,s ularly dairy cows-develop and implement the program.
H n t students in I
. .be se et Dev may expenence it d"dKr'1 " *,SS l m - - -
To date, company farm-safety training programs l vi cometn,tu,nWtMth m % such objects as . have reached more than 700 dairy and crop farmers classroom program tan , feedesadudngequipment or drinking- - electriciens and elect-ical contractors. inspectors. deeeloped by uggestion. Sullivan called Ron Detroit Edison and 1 c W"Y""4200 anotner havmg received the company s liter-"# "" "8.rib Mason, general supervisor of customer service in the #d"
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ature on f arm safetv. company s Ann Arbor Division. i Sa d Surbrook: "I don't know of another power U"I"8NM l
"Our new company guidelines give NE\. calls top supplier in the United States that has done more than priority from trained personnel Mason said. So Detroit Edison to look out for the farmers' best inter-within two hours we had customer field servicemen ests in this issue.
James Kessler. Kenneth Huff and Robert Armstrong at 1 Sullivan's farm.' Accordmg to Kessler, the most important thmg the 'R servicemen do is hsten "We always try to remember MEhEE.N:D4tKS$ EMOM %St""'x that these f armers know their cows as well as vou and i "(([ "Ik]7["h[, know our own children," he said. I The three-man team. using the company's step-by- On October 19,1984. nearly three inches of snow step NEV mspection process. determmed that the dropped on Southeastern Michigan hith most leaves NEV problem was caused bs a change in the electrical still on the trees this wet early autumn snowfall service that had been installed in Sulhvan's milking weighed down branches. entangling them with power parlor knes "Once we identified the source, the problem was The resultmg power out ages affected nearly 40,000 quickly corrected ' Kessler said Detroit Edison customers. None, however, was in the Since it was his winng problem, Sulhvan hadn't southeast section of Oakland Countv's Rochester Hills. expected Detroit Edison to look at anythmg beyond its l l 9 i i
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'n Why? Ntonths earlier, Detroit Edison had piloted opportunity to test his theory.
an innovative tree removal and replacement program in July 1989, after gaining the support of Mayor I in that area that balanced the need for safe, reliable Ireland and her staff, Detroit Edison began removing electric service with a commitment to protect the various species of trees growing near power lines m environment and people's needs for aesthetically the heavily wooded southeast section of Rochester pleasing neighborhoods. Hills. None of these targeted trees came under the Under the program, the company removed all fast- city's tree-preservation ordinance. For each " weed" growing, so-called " weed" trees growing near power tree removed, Detroit Edison provided a free redbud lines. For each such tree removed, the company pro- or flowering crab tree. vided the customer with a free replacement tree that "In the past," Mayor Ireland said. "the only time would never grow high enough to reach power lines. the city would get involved is when a line-clearance
" Residents here are tree-sensitive," said Rochester crew was in a resident's yard and the resident was Hills Mayor Bilhe M. Ireland. Like other Oakland upset. We were braced for a storm of protest, but ) County commumties. the city has responded to the resident calls numbered only about 60 and most wishes of its citizens by enacting a tree-preservation merely wanted more information about the program. '
ordinance Mayor Ireland said a large part of the program's However, safety and reliability of electricity can be success could be traced to joint city-company commu-endangered by tree branches that come in contact with nication efforts that kept residents informed about the power lines as a result of normal tree growth, high program and to Therese E. Jacob, an Oakland Division winds or storms. line-clearance investigator.
, " Removing trees, even for safety and reliability Jacob served as the division's liaison with l reasons, is not something the company takes hghtly,' Rochester Hills for the four-month effort. She was said Maurice L Vermeulen, manager, Oakland Divi- available to respond to questions at all hours either sion. The company spends about $21 million annually from the desk assigned to her at City Hall or from a on a hne-clearance program w hich emphasizes pre- mobile telephone when she was in the field monitor-vention by trimming to provide a mmimum of four ing the work crews.
years of safe clearance or, when necessarv. removing trees near power hnes This program not only helps . imp.ove customer safety and electric service rehabil- , f ity; it is also cost-effective by avoidmg the potentially It & l higher costs or storm restoration j lohn F Donahue. lr~ general toman of hne clear-i ance in the company's Oakland Division, had telt for [ , g h years that a comprehensive tree-replacement prograra
! would be benef cial Rochestei Hills provided an ideal
! 10
( a "Sh'e handle'd the few complaints we received with - understanding and came up with solutions that were Efficient Plant Operatiobicans satisfactory to the res4 dents involved," Mayor Ireland (conomy, SafetyandReliability said. Besides the customer good will and environmental Providing superior customer va)ue is more than offer-benefits achieved, the program already has paid for - ing outstanding servicGrough teamwork in a caring itself-another plus for shareholder value, manner. It also means performing efficiently at all -
"The tree-replacement program cost about 54,000 levels of the company so that major operational sav-more than it would have cost for trimming alone," ings can be passed on to shareholders in the form of said James F. Connelly, director of lines in the Oakland higher earnings and to customers in the form of fair Division. "The difference is about what it costs when rates.
we have a power outage, and we made that up when For the 3,300 employes at the company's seven we didn't have any power outages in the test area fossil-fueled plants and one nuclear plant, perform. following the October snowstorm." ance means giving customers what they want when Perhaps the best endorsement of the program came they want it-safe, reliable and fairly priced electricity. from a Rochester Hills resident who sent a letter to In 1989, these employes did just that, setting Detroit Edison in November 1989. 'Thank you," it numerous performance records in the process. read, "for cutting down our tree." It was signec' in "You don't have to have face-to-face contact with crayon," Love, Anthony, age 5 " customers to give them superior value," said Frank E. Agosti, senior vice president, Power Supply. "Every-thing we do affects the price and quality of the Ad e B.RalphSylvia,seniorvicepresident, h#[h SP d' Nuclear Generation: "That applies to nuclear as well-whether through fuel purchases, operations or main-On a cool fall evening in September, Laurice Azoury tenance. Everything affects the customer." of Grosse Ibinte Woods needed help. Electric power Record monthly electricity demands occurred in all in half her home had gone out; yet her bed ridden but three months of 1989-and all were met success-grandraother, Elizabeth Housey, depended for com- fully by the company. Those demands included an all-fort on an electric hospital bed and electric air-flow time record winter peak of 6,675 megawatts on mattress. December 20. Azoury called Detroit Edison, and learned that it Other 1989 milestones: was a particularly busy evening for customer service M Systemavailability-theamountof timetheplants employes. They told her it might involve a two-hour were available to produce electricity-averaged 86.36 wait, percent. Also, the overall heat rate for the company's Azoury described what followed in a ietter to seven fossil-fueled plants-another measure of effi-Detroit Edison. ciency-set a 26-year record.
"I explained the situation concerning my grand. ta TheMonroePowerPlantwasthesecond-largest mother," she wrote, "and was told you would do your producer of electricity among all U.S. coal-fired l best to get here quickly. lmagine my surprise and plants in 1988, the last year for which national data are delight when a service man arrived in only 10 min- available.
utes! Even though it was time for him to go off-duty, G Fermi 2 also was a top performer during its first full he spent a good hour looking for the problem." year of commercia! operation in 1989, producing more Customer serviceman Roger Wood traced the prob- than five-billion kilowatthours of electricity. tem to the house's wiring system. An electrician n Fermi 2wasremovedfromthelistof plantsconsid-solved the problem the next day. In the interim, ered by the Nuclear Regulatory Commission (NRC) to heavy duty extension cords were hooked up to other require special attention. parts of the house to keep electrical equipment operat. e TheNRC'sannualreviewof Fermi 2inMarchwas ing and Azoury's grandmother comfortable, the best since the plant received its operating license Helping customers who have special needs is an in 1985, important part of Detroit Edison's service. For exam. E Injury-freeworkperformancereducedhealth care ple, during storms the company gives restoration costs a nd improved productivity. The company priority to its nearly 180 customers who depend on reduced its lost-workday-incidence rate by 60 percent. port epppegt, ar.d ned uiarity,to near fermi 2 employes worked more $an five-Inillion er _ fac8ltlessucfm sopitalsandf , hairs since Masch'$87 withMadost-Wirkday ih 1 me %j hM M k IEmployes at hiaiim"m"pany's f6ds94delkants e d thre4 millibn hours withoMinstmarkd g
're'sggre to tipNausenstgrvMsouryandjJ specially weelsd tOnde sur{heifaili f
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notherwascMnfMiebecausfdvas@her89th " y,eardh @ M:cImpanyimddiMnBlictricW In tutepn /wsd. M 20# birthday. 5 Stringent environmental protection controls on air, water, noise and toxic and hazardous waste quality 11
continued, with the company's investment totaling $2 Despite the slight drop in kilowatthour sales, reve-billion since 1971. One result: a 63-percent reduction nues in 1989 rose 3.3 percent to a record $3.2 billion as in sulfur dioxide emissions from power plants since previously approved rate increases, related to comple-1974. Another result; an innovatwe chemical waste tion of the Fermi 2 power plant, added $109 million in treatment approach at the Monroe Power Plant, which revenues. ik(
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j reduced sludge by 75 percent, saves the company Modest f uture increases scheduled under these af more than $350,000 annually. and earned an environ- Fermi 2 rate orders, combined with the company's mental excellence award f rom the Michigan agreement not to seek additional base rate increases g& 7 Department of NaturalResources. through 1993, assure Detroit Edison customers of rela-f Whether setting electricity production records, tively stable rates during the coming years. This working safely or protecting the environment Detroit should help large electricity users plan their produc-Edison power plant employes have set even higher tion schedules as well as help the state retain and goals in the 1990s to become "best in class" in key attract mdustry to the area. performance measures and Iurther enhance sha-g holder value. N
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Fill AMMISJ4F%W _ . . .. ^ " - ' . .* . . p Total Common Stock Return . y increases % in 1989 { - --
" 3 improved customer value, resolution of ratemaking s .m C E and other regulatory uncertainties. tight cost controls g h and successfully targeted marketing efforts all con-I'_E tributed to a 56-percent increase in the total return on lf common stock in 1984 MM i [ The $1.2 billion increase in market value f ar out-
' On the expense side, continuing cost controls and I g performed the industry as a whole. The compcny s accountabihty systems are holding down operation I performance and prospects did not go unnoticed by and maintenance (O&M) expenses, including fuel and l l the financial community as several major brokerage purchased power, while completion of a major power i
l [ tirms began to recommend the company's stock even J plant construct.on and modernization program, j as the price achieved a 19-year high of more than $25 ( JI ; which had proceeded virtually uninterrupted since per share.
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l l14 [ I . the end of World War 11. has reduced capital spending ll ll l l l The company's rapid return to f mancial stabihty. requirements to levels now being covered entirelv by ~ l l III following the first loss in its history in 1988 was sup-internal cash generation, making costly new financing illjlll!,1l l ported by strong sales, which yielded record unnecessary. jl l l[ revenues, new control and accountabilitv systems. O&M expenses of just under $ 1.8 billion, including i l Jij j q which led to greater productivity and lower operation f uel purchases, were virtually unchanged from 1988. j llplh l; expenses, and reduced requirements for preferred while capital expenditures increased only 3.3 percent l l Iglll' i; an.i preference stock dividends and debt service. l during 1989 to $243 million.
] jl"i Earnings for common stock totaled $388 9 million.
Among specific cost-reduction measures in 1989 [lii i lJ ll qi or $2 65 per share, compared with the 1988 loss of was the Contract Portfolio Reformation Program, lll i ll l l[ $428+ million, or $232 per share The loss had which resulted in $24 million in coal purchase savmgs. llll di ; resulted f rom an accountmg change and large write-Contributing to these savings were the renegotiation lll l ql j offs due to disallowances of certain Fermi 2 and of coal and transportation agreements. aggressive and [ Iil ( l Greenwood Unit I costs-Salesof 40.6-billion kilowatthours(kWh)in 1984 efficient plant performance from using more lower-l q cost Western low-sulfur coal, and sale of some coal ( l l [lq ! came within 1 percent of 1988's record performance of inventories and their replacement with lower-cost
' l 41-bilhon LWh which was aided by extremely hot purchases ! l summer weather.
l Among other cost saving activities during 1989: l l g fhis strong performance was led by sales in the a Bank borrowings were reduced, based on f avorable l lij g_ commercial sector. which increased by 2.4 percent to projections for internal cash generation and the com-I i p 8 6-bilhon kWh. reflecting the continued boom in J pony's generally improved financial condition. Lines l lg office buildmg and shopping center constructton of credit were reduced frora $325 million to $200 mil-Industrial sales ot 18A billion kWh were down 1 ~ liom and $525 million of bank revolving credit was l percent f rom 1988 as automobile and steel production retunded The company continued to reduce itslevel dipped toward year-end. Residential sales of 11.5-bil-of short-term indebtedness through the sale of $200 p lion kWh experienced the same 17-percent dechne-milhon of its accounts receivable. The sale was made at with an merease in the number of customers of tset bv a variable cost comparable to the company's other lower average use per customer. due largely to the short-term borrowings and in lieu of selling mortgage significantiv cooler summer. bonds. In addition, lower bank fees were negotiated
-- a mem-mime- mm m mm , e i m --n .m sum-is . rumi4'ni=p m l -l m rim de l pi . . .
and lower-eost commercial paper was substituted for .g;g 74 , g 7 .., , 7 7 pg g some bank loans, saving $1.5 million annually. g:'.;y' :)y f.'77 y E 5 'g *;p - % J4dn 4 8 Insurance and other hability costs were reduced by ? f.7 . 3 # % f j JE i U ' ~~~ ~ ~ 1 "% ~ . . " , S t%
$2.5 million without a reduction in coverage, due to
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7 levelin 12 years and down 844, or nearly 8 percent, in * ' s k just the past three years. The Corporate Redeploy-ment Program continued in 1989 as 103 emploves
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- s , ie Also contributing significantly to the company's financial progress is the internal drive to become a
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more cost effective producer of electncity. A key ele-Detroit Edison com-ment in what amounts to the beginning of a major managerial and organizational techniques, was imple-cultural change in the company is Detnnt lahson 1994,
, ,g ,g mented in 1988 in the Power Supply organization. The which is a dynaHe amalgamation of 14 initiatives system contributed to cash-flow improvements total- reached a high of focused on aggressively reducmg costs, targeting ing $60 million in 1989 and is now being adapted to $2187in 1989, marketplace ef forts and changing the way employes other major company components. consistently approach their jobs. R In February 1990 the company completed the $540- outperformed the An early product of Detnut f1hson 19W is the Share- million purchase of the remaining interest in Fermi 2 holder Value improvement Program. implemented in Dmdones Utilities held by the Wolverine Power Suppiv Cooperative, 1989 to make employes more accountable for their #'" " "
Inc.. making Detroit Edison the sole owner of the
&c!sions and actions and reward them tor achievmg plant. The purchase was financed tt rough issuance of N' F"'-
organizational and corporate goals. Among the objec- general and refunding mortgage bonds. tives of this " pay-for performance" program are Together, the broad array of improvements being higher pei-share eai nings, improved customer ser- implemented by Detroit Edison willlead to a company vice and greater operatmg efficiencies and more streamlined and flexible in its operations, more I productivity. Begun with some 400 management responsive to its customers and the marketplace in employes in 1989, the program was extended in 1o90 general. less vulnerable to changing extet nal forces, to cover all 6,000 non-represented employes. and with a more productive work force. The rrsult M Additionally, a Management ControlSystem should be enhanced value for shareholders, custom- ~ ! concept, incorporating the latest technologies and ers and the employe team. l V
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c , Consolidated Statement ofincome Year Ended December 31 (Thousands) 1989 1988 1987-Operating Revenues Electric $ 3,171,456 $ 3,070,724 $ .2,825,910 Steam 31,575 31,448 30,821 TotalOperating Revenues 5 3,203,031 $ 3,102,172 $ 2,856,731 i Operating Expenses ' Operation Fuel $ 820,765 $ ' 846,678 $ 813,376 Other power supply 142,240 146,773 47,814-Other operation 514,017 521,152 441,046 Maintenance 291,365 275,610 245,736 t Depreciation and amortization 364,554 325,423 237,325 , Deterred Fermi 2 depreciation (35,234) (44,143) - Taxes other then income 225,763 212,656 179,308
- Income taxes 129,626 89,944 159,488 TotalOperating Expenses $ 2,453,096 $ 2,374,093 $ 2,124,093 OperatingIncome $ 749,935 $ 728,079 $ .732,638 Other income and Deductions Allowance for other funds used during construction $ -
$ 1,663 $. 136,452 Deferred Fermi 2 return 107,169 134,264 -
Otherincome and deductions 675 (789) (3,435) - Income taxes 843 (769) 663-Disallowed plant costs - (875,372) - Accretion income 50,188 25,866 - Income taxes - disallowed plant costs and accretion income (17,047) 225,171 - Net OtherIncome and Deductions $ 141,828- $ (489,966) . $ 133,680 Income Before Interest Charges $ 891,763 ,$ . 238,113 $ 866,318-Interest Charges Long-term debt S 444,204 $ 451,415 5 417,474 Amortization of debt discount, premium and expense 4,368 4,593 3,626 Other 20,980 20,663 23,459 Allowance for borrowed funds used during construction (credit) (3,740) (3,224) (133,215) Net Interest Charges $ 465,812 $ 473,447 $ 311,344 , Income (Loss) Before Cumulative Effect of Accounting Changes $ 425,951 $ (235,334) $ 554,974 l Cumulative Effect for Years Prior to 1988 of Accounting Changes i for (Notes 4 and 5): Disallowed plant costs and abandonments l (net of income taxes of $111,257,000) - (344,147) - i Unbilled revenues (net of income taxes of $40,912,000) - 61,367 - Property taxes (net of income taxes of $101,306 000) - 139,288 - Net income (Loss) $ 425,951 $ (378,826) $. 554,974 Preferred and Preference Stock Dividend Requirements 37,018 49,757 78,240 Earnings (Loss) for Common Stock (Note 5) $ 388,933 $ (428,583) $ 476,734 Common Shares Outstanding- Average 146,816,363 146,761,458 146,729,292 , l Earning,s (Loss) Itr Share i Belore cumulative effect of accounting changes $2.65 $(1.95) $3.25 l Cumulative effect for years prior to 1W8 of accounting changes for: l Disallowed plant costs and ab 61 mments - (2.34) - l Unbilled revenues - 0.42 - Property taxes - 0.95 - Earnings (Loss) Ihr Share (Note 5) $2.65 $(2.92) $3.25 (See accompanying Notes to Consolidated Financial Statements.) 15
o Consolidated Balance Sheet December 31(Thousands ASSETS Utility Properties Plant in service Electric $ 10,893,234 $ 10,611,077 i Stcam 59,456- 58,999
$ 10,952,690 $ 10,670,076 Less: Accumulated depreciation and amortization (2,787,815) (2,463,111)
$ 8,164,875 - $ 8,2%,965 ,
Construction workin progress 63,046 : 89,547- t Nuclear fuel - 8,632 7,132 Net utility properties S 8,236,553 $ 8,303,644 Property under capitalleases $ 271,058 $ 265,615 Nuclear fuel under capitallease 404,807 373,791
$' 675,865 -$ 639,406 Less: Accumulated amortization (234,337) (172,916)
Net property under capitalleases 5 441,528 $ 466,490 Total owned and leased properties $ 8,678,081 $ 8,770,134_ Other Property and Investments Non-utility property $ 9,739 $ 9,557 investments and special funds 41,092 31,165 Nuclear decommissioning trust funds 5,825 2,667
$ 56,656 $ 43,389 Current Assets Cash $ 6,664 $ 3,647 Temporary cash investments (at cost, approximating market value) 9,000 -
Customer accounts receivable and unbilled revenues (less allowance for
. uncollectible accounts of $19,000,000 and $16,000,000, respectively) 197,139 366,682 Other accounts receivable 58,629 31,526 Inventories {at average cost)
Fuel 176,201 234,499 Materials and supplies '147,553 149,567 Prepayments and other 7,279 6,925
$ 602,465 $ 792,846 Deferred Debits Unamortized debt expense $ 50,913 $ 43,988 Accumulated deferred income taxes 196,399 192,860 Unrecovered plant costs 20,183 25,332 Fermi 2 phase-in plan 320,810 178,407 Other 24,092 13,337
$ 612,397 $ 453,924 Total $ 9,949,599 $ 10,060,293 (See accompanying Notes to Consolidated Financial Statements.)
t 16
y
'E
. 4
- Consolidated Balance Sheet December 31(Thousands) 1989 1988 ,
LIABILITIES i Capitalization Common stock-$10 par value,160,000,000 shares authorized; 146,859,569 and 146,783,212 shares outstanding, respectively (522,524 and 598,926 shares, respectively, reserved for conversion of preferred stock) $ 1,468,596 $ 1,467,632 Premium on common stock 552,501 551,907 Common stock expense (47,742) (47,712) Retained earnings used in the business 396,705 254,922 Total common shareholders' equity _ $ 2,370,060 $ 2,226,949 : Cumulative preferred stock-$100 par value,9,000,000 shares authorized; 3,379,537 and 3,455,629 shares outstanding, respectively (3,539,827 ; shares unissued) ; Non redeemable preferred stock 239,495 240,824 :' Redeemable preferred stock . 86,484 92,667 - Cumulative preference stock-$ 1 par value, 30,000,000 shares authorized; 3,380,180 and 3,780,180 shares outstanding, respectively (26,619,820 and 26,219,820 shares unissued, respectively) Non redeemable preference stock 47,891 47,891 Redeemable preference stock 25,318 34,830 Long term debt 4,561,005 4,238,536 ' Total Capitalization $ 7,330,253 $ 6,881,697 Other Non-Current Liabilities Obligations under capitalleases $ 131,358 $ 139,153
. Accumulated rate refunds, with interest 2,627 -
$ 133,985 $ 139,153 Current Liabilities Short term borrowings Bank loans S -
$ 17,000 i Commercial paper - 212,325 Amounts due within one year
! Long-term debt 168,789 595,815 , Preferred and preference stock 13,750 13,750 Obligations under capitalleases 310,170 327,337 Accounts payable 229,604 192,799 l , l Property and general taxes 41,512 39,872 f Income taxes 8,328 9,421
- l. Interest 105,975 102,378
( Dividends payable 70,782 71,193 l Payrolls 59,332- 60,925 l MPSC-ordered refunds, with interest - 10,239 Other 40,183 43,315 5 1,048,425 $ 1,696,369 Deferred Credits Accumulated deferred income taxes $ 1,065,329 $ 989,729 Accumulated deferred investment tax credits 333,003 318,674 Other 38,604 34,671
$ 1,436,936 $ 1,343,074 Commitments and Contingencies (Notes 2,6,13 and14)
Total $ 9,949,599 $ 10,060,293 (See accompanying Notes to Consolidated Financial Statements.) i 17
e a' f Consolidated Statement of Cash Flows Year Ended December 31(Thousands)
-1989 1988 1987 ,
1 Operating Activities . Net income (Loss) $ 425,951 $ (378,826) $ 554,974 1 Adjustments to recor.cile net income (loss) to net cash from operating activities: Cumulative effect for years prior to 1988 of accounting changes for: Disallo.wed plant costs and abandonments - net - 344,147 - , Unbill,d revenues and property taxes - net - (200,655) - Disallowed rhat costs - 875,372 - Accretion income (50,188) (25,866) - Depreciation and amortization 364,554 325,423 237,325-Deferred Fermi 2 depreciation anci return (142,403) -(178,407) - Deferred income taxes and investment tax credit - net 86,516 (137,522) .99,050 Amortization of property losses and unrecovered plant costs 7,128 7,128 9,708 Allowance for other funds used during construction - (1,663) (136,452) ; Sale of account; receivable and unbilled revenues 200,000 - - Other (713) (26,789) 24,189 Changes in current assets and liabilities:* Custome wounts receivable and unbilled revenues (30,457) (60,687). 16,577 Other accounts receivable (27,103) 11,054 .(13,283) Inventories 59,003 386 2,892 MPSC-ordered refunds, with interest (10,239) (23,080)- 22,688 Accounts payable 34,829 3,659 (12,028) Taxes payable 489 (251) 13,209 ! Interest payable 3,597 2,469 14,292 l Other (4,829) 12,091 6,746 I Net cash from operating activities $ - 916,135 $ 547,983 $ 839,887 Investing Activities Plant and equipment expenditures S (242,973). $ (235,127) $ (709,084) Purchase from Cooperative - Fermi 2 - (4,121) (116,173) Allowance for other funds used during con-truction - 1,663 136,452 Changes in current assets and liabilities
- 3,093 (8,890) (521)
Other (18,836) (16,539) (14,955) Net cash used for investing activities $ (258,716) $ (263,014) $ (704,281) Financing Activities issuance of unsecured promissory notes $ 50,046 $ 201,924 $ 525,000 Sale of general and refunding mortgage bonds 296,460 - 1,292,812 i Funds received from Trustees: Installment sales contracts and loan agreements 228,265 7,300 7,740 Inerease (decrease) in short-term borrowings (229,325) 229,325 (104,656) Repayment oflong term debt (679,965) (247,975) (1,256,427) ; Redemption of preferred and preference stock (16,250) (283,250) (114,148) Dividends on common, preferred and preference stock (284,024) (304,106) (328,351) l Other (10,609) (24,001) (20,884) ; Net cash (used for) from financing acti at es S (645,402) $ (420,783) $ 1,086 Net Increase (Decrease) in Cash and Temporar y Cash Investments S 12,017 $ (135,814) $ 136,692 i Cash and Temporary Cash Investments at Beginning of the Period 3,647 139,461 2,769 l Cash and Temporary Cash Investments at End of the Period $ 15,664 $ 3,647 $ 139,461 i L Supplementary Cash Flow Information Interest paid (excluding interest capitalized) $ 453,739 $ 466,721 $ 282,451 income taxes paid 59,541 10,813 59,757 ( New capitallease obligations 36,459 57,638 49,672 For purposes of the consolidated financial statements, the Company considers investments purchased with a maturity of three months or less to be temporary cash investments. l %cludes cumulative offect for years prior to 1988 of accountmg changes. (See accompanying Notes to Consolidated Financial Statements.) 18
a
-4 4 m uvasa wesson kniaWin3ja?& inne @
Consolidated Statement of Common Shareholders' Equity Premium Retained Common Stock on Common Earnings
$10 Par Common Stock Used in the i Shares Value Stock Expense Business .a (Dollars in Thousands) ']
Balance at December 31,1986 146,699,431 $1,466,994 $551,254 $(47,680) $745,835 -3 issuance of common stock on 5, i conversion of convertible cumulative i preferred stock,5%% series 52,434 525 408 (20) y Premium and expense associated with j preferred and preference stock .; redeemed (28,270) ; Net income 554,974 -l Cash dividends declared Common stock - $1.68 per share (246,518) j Cumulative preferred and - preference stock * (77,517) ! Balance at December 31,1987 146,751,865 $1,467,519 $551,662 $(47,700) $948,504 I Issuance of common stock on i conversion of convertible cumulative preferred stock,5%% series 31,347 313 245 (12) . Premium and expense associated with ' preferred and preference stock i i redeemed (19,905) Net locs (378,826) ! Cash dividends declared Common stock - $1.68 per share (246,564) Cumulative preferred and preference stock * (48,287) Balance at December 31,1988 146,783,212 $1,467,832 $551,907 $(47,712) $254,922 Issuance of common stock on conversion of convertible cumulative preferred stock,5%% series 76,357 764 594 (30) Expense associated with preferred and preference stock redeemed (556) Net income 425,951 i Cash dividends declared Common stock - $1.68 per share (246,667) Cumulative preferred and preference stock * (36,945) Balance at December 31,1989 146,859,569 $1,468,596 $552,501 $(47,742) $396,705
*At established rate for each series.
i (See accompanying Notes to Consetidated Financial Statements.) l l l 19
4 8 l % w wrr:en @semvow;eswem penum l L Notes to Consolidated '
' TinancialStatements ym g . ' <
_ : a-1 4y -7 - 3.3% for 1989,1988 and 1987. In general, the cost of properties retired in the normal course of business is charged to accumulated SignificantAccountingPolicies depreciation. Expenditures for maintenance and repairs are ind ustry Segment-The Detroit Edison Company (" Company") charged to expense, and the cost of new property installed, which replaces property retired, is charged to property accounts. is a regulated public utility engaged in the generation, purcnase, transmission, distribution and sale of electric energy. Deferred Ferm12 Depreciation and Return-An h1PSC-autho-rized phase-in plan for Fermi 2, which was effective on January 24, Regulation-The Company is subject to regulation by the hiichi-gan Public Service Commission ("MPSC") and the Federal Energy 1988, provides for gradual rate increases in the early years of plant peration rather than a one-time substantial rate increase which RegulatoryCommission("FERC")with res ect toaccounting w uld be provided by conventional ratemaking. SFAS No. 92, matters and maintains its accounts in accor[ance with Uniform bystems of Accounts prescribed by these agencies. As a regulated RegulatedEnterpnses AccountingforPhase-mPlans, permits entity, the Company meets the criteria of Statement of Financial the capytalization of costs deferred for future recovery under a Phasean plan. In December 1988, the hiPSC amended the Fernu,2 - Accounting Standards ("SFAS") No. 71, " Accounting for the standard Phase-m loatoScmgtheplanmcomphancewithSFASNo.92 Effects of Certain Types of Regulation." recognizes the ratemaking process which results in dif This accountinferences and the in ompany then adopted SFAS No. 92. In accordance with the application of generally accepted accounting principles the Ferm,2: rate phase-m plan, the Company recorded non-cash inc me items of deferred depreciation ($35.2 milhon m 1989 and between regulated and non-regulated businesses. Such dif-
$44.1 milhon m, 1988) and deferred return ($107.2 milhon m, 1989 ferences concern mainly the time at which various items enter into the determination of net income in order to follow the principle of and $Gl.3 milhon m 1988). Deferred depreciation is that portion of matching costs and revenues. depreciation expense not covered m current rates. Deferred return ts the accrual of carrying charges on Fermi 2 costs not covered m Principles Applied in Consolidation-The Consolidated Finan- current rates. See Note 3.
cialStatementsincludetheaccountsof allsubsidiarycompanies, allof whichare wholly-owned. Inc me Taxes-Deferred income taxes are provided for timing differences between book and taxable income to the extent Revenues-The Company recorded revenues for 1987 as custom- authorized by the h1PSC. For federalincome tax purposes, the ers were billed on a monthly cycle basis. Effective January 1,1988, Company computes depreciation using accelerate d methods and the Company changed its method of accounting to record unbilled shorter depreciable lives. Investment tax credits utilized are defer-revenues for electric and steam heating services provided after red and amortized over the estimated composite service life of the cycle billings through month-end in order to better match reve- related property. See Note 8. nues with expenses. See Note 5. Revenues for 1988 and 1987 also included the recoveryof fueland purchased owercosts, subject AH wance for Funds Used During Construction ("AFUDC")- to annual Power Supply Cost Recovery ("PSbR") reconciliation AFUDC, a non-operating non-cash item, is defined in the FERC hearings conducted by the N1PSC. Any over or under recovery of Unif rmSystemof Accountstoinclude"thenetcost for the these costs was recorded m the Consolidated Balance Sheet pend-period of construction of borrowed funds used for construction ing the results of such hearines. The h!PSC's order of December purposes and a reasonable rate on other funds when so used." 27,1988 temporarily suspended the PSCR Clause effective Janu- AFUDC mvolves an accountmg procedure whereby the approxi-ary 1,109 through December 31,1992. See Note 3. mate interest expense and the cost of other (common, preferred and preference shareholders' equity) funds applicable to the cost Property Taxes-Effective January 1,1988, the Company changed of construction are transferred f rom the income statement to con-its method of accounting for property taxes so that such taxes are struction work in progress in the balance sheet. The cash recovery accrued monthly during the fiscal pen,od of the applicable taxing of AFUDC, as well as other costs of construction, occurs only authority. This is considered the most acceptable basis of provid- when completed projects are placed in service and related ing for property taxes. Prior to January 1,1988, the Company depreciation is authorized to be recovered through customer rates. accrued property taxes monthly during the calendar year ending See Note 3. on the assessment date (December 31). See Note 5. The Company capitalized AFUDC at 9.65% in 1989,10.18% in Property, Depredation, Retirement and Maintenance-Utility 1988 and 10.3% in 1987. In accordance with MPSC requirements, j properties are recorded at origmal cost. The annual provision for the composite AFUDC rate is equal to the overall rate of return 4 depreciation is calculated on the straight line remaining life authorized in electric rate orders. In accordance with FERC accounting requirements, the Consolidated Statement of Cash
]
method by applying annual rates approved by the hlPSC to the 1' average of year beginning and year-ending balances of deprecia. Flows is not adjusted to remove the borrowed funds component of ble property by primary plant accounts. For major generating AFUDC of $3.7 million, $3.2 million and $133.2 million for 1989, units, the first year's depreciation expense is calculated on a 1988 and 1987, respectively. Total AFUDC for both borrowed and , monthly basis commencing with the month in which the unit is other funds amounted to $3.7 million, $4.9 million and $269.7 placed into commercial operation. Provision for depreciation of million for 1989,1988 and 1987, respectively. Fermi 2 was 2.63% of average depreciable property for 1989 and 1988, except for $300 million being amortized over 10 years com-mencing in 1989. See Note 3. Provision for depreciation of all other utility plant, as a percent of average depreciable property, was 1 20
O e Accretion income-In accordance with SFAS No. 90, " Regulated From time to time the NRC considers taking enforcement or Enterprises Accounting for Abandonments and Disallowances of other action against the Company as a result of alleged technical Plant Costs," the Company records a non-cash return (accretion and procedural violations at the plant. Enforcement action has income) on certain plant costs which have been discounted to resulted in fines against the Company of $250,000 for 1988 and recognize an MPSC disallowance of a return on the investment. $175,000 for 1987. The Company recorded $33.'l million and $16.8 million of net During 1989 and the period from commercial operation af ter-tax accretion income in 1989 and 1988, respectively. ' tbrough December 31,1988, Fermi 2 has been available for system See Note 4. Power generation 63.7% and 57.2% of the time, respectively The Capitalization-Discount, Premium and Expense-The discount, plant's capacity factor (measured by the amount of power pro-premium and expense related to the issuance of long-term debt are duced as compared to full power capability ) was >4.6% and 45.2%, amortized over the life of each issue. capi tal stockPremium and respectively, durmg these same periods. Fermi 2 plant availability expense relaied to redeemed preferred and preference stock is and capacity factors were affected in 1989 and 1988 bs both sched-uled (15 anci 7 weeks, respectively) and forced (4 anci 14 weeks, written off first agamst the accumulated net gain on reacquired capital stock mcluded in premium on common stock and subse- respectivelv) shutdowns and power level restrictions necessitated quently against retained earnings used in the business. by mechanical difficulties. The first refueling outage for Fermi 2 commenced September 5, Unrecovered Plant Costs-Amortization of unrecovered plant 1989 and the plant was returned to service December 16,1989. costs commences when recovery of such costs is authorized by During the outage, approximately one-third of the fuelin the accounting and ratemakmg orders of the MPSC. No return on reactor was replaced, plant modifications installed, and preventive investment is provided for unrecovered plant costs. See Note 4. and corrective maintenance performed on plant equipment. The Company is amortizing costs of $713 million associated with . . the abandoned Creenwood Unit Nos. 2 and 3 over the period Dec mmiss. mng-The NRC regulates nuclear plant decommis-1983-1993. The unamortized balances at December 31,1989 and si ning The MPSC has jurisdiction over the recovery of costs of 1988 were $20 2 million and $25.3 million. respectively. decommissioning nuclear power plants. In January 1987, the MPSC issued an order authonzmg the establishment ot a $100 Leases-See Note 13. million External Trust Fund (in 1987 dollars) to finance the decom-Employes' Retirement Plan and Other Postretirement Benefits- missioning of Fermi 2. The order approves surcharges on See Note 15. customer bills commencing with the commercial operation of Fermi 2 and extending over the life of the plant. The Company is currently collecting estimated Fermi 2 decommissioning costs M.4_Z n. . .. .. ' . . . .. .- through a rate surcharge under which approximately $3 million is fermi 2 collected annually. Effective in July 1990, an NRC rule will require G.eneral-Fermi 2 a nuclear generating unit having a capabihty decommissioning funding based upon a site-specific estimate or a rating of 1093 Mh. began commercial operation on January 23, predetermined NRC formula. The currently authorized surcharge 1988.1 his unit represents approximately 31% of the Company's will not provide adequate funding under the new NRC rule, but total assets.11% of total operation and maintenance expenses and the Company believes increases in decommissionmg costs will be 10% of the C,ompany s summer net rated capabihtv. substantially recovered in rates charged to customers. At December 31/1989, Wolverine Power Supply Cooperative, Nuclear Fuel Disposal Costs-The Company has a contract with Inc. rCooperative") held an 11.198% interest in the facilitv. The ' the United States Department of Energy (" DOE") for the future Company has agreed to purchase the Cooperative's Fermi 2 storage and disposal of spent nuclear fuel f rom Fermi 2. Under the owneuhip mterest in February 1040 for approximatelv $540 mil. terms of the contract, the Company makes quarterly pay ments to lion $513 million for plant $25 million for nuclear fuel and $2 the DOE based upon a current fee of 1 mill per kilowatthour milhon for materials and suppliest The Company willissue its applied to the Fermi 2 net generation. The spent nuclear ft.el General and Refundmg Mortgage Bonds as payment of the pur. disposal cost is included as a component of the Company's nuclear chase priu, and such Mortgage Bonds will b" held by the United f uel expense. 5t ees of America. Rural Electrification Admmistration. guarantor Contingencies-Ownership of an operating nuclear generating of the Cooperative's Fermi 2 related debt. The Mortgage Bonds unit subjects the Company to significant additional risks. N uclear will bear interest at the rate carried by the Cooperative's Fermi 2-plants are highly regulated by a number of governmental agencies related debt. which is approximately 8% The MPSC has autho-concerned with public health and safetv as well as the environ-rued the issuance of the Mortgage Bonds associated with the 1990 ment, and consequentiv, are subject to' greater risks and scrutiny Fermi 2 purchase. than conventional fossi -fueled plants. See Notes 3 and 4 for a discussion of the MPSC's treatment of The Company is insured as to its interest in Fermi 2 under Fermi 2 protect costs of S4 858 bilhon (including the purchase of propertv damage insurance provided by Nuclear Mutual Limited the Cooperative's interest in 1990). ' ("NML' ). Nuclear Electric Insurance Limited ("NEIL") and Amer-Licensing and Operation-The Nuclear Regulatorv Commission ican Nuclear Insurers ("AN!"). The NML and NEIL insurance ("NRC") maintams junsdiction over tne hcensmg ;md operation of policies provide $500 milhon of composite primarv coverage and Fermi 2. $975 milhon of excess coverage, respectively, for decontamination 21 =
a .#
, a costs, debris removal and repair and/or replacement of property. Fermi 2 be modified to comply with S FAS No. 92. On December Under the NML and NEIL policies, the Company could beliable 27,1988, the MPSC issued an order approving a settlement agree-for maximum retros ment among the Company, MPSC staff, Michigan Attorney $35 million per loss,pective assessments of up to General approximatelyif
("AG") and otherany oneloss should exceed the intervenors. acl funds available to NML or NEIL An additional $560 million of The 1988 order increased the Company's base rates by $29.5 excess coverage is provided by ANI for which the Company pays million annually, effective January 1,1989. The order indicated an annual premium and is not liable for retrospective assessments. that an overall rate of return of 9.65%, which reflects a return on Accordingly, the combined limits provide total property damage common cquity of 13% (as compared to the prior 14%) and a ; insurance of $2.035 billion. The Company is also insured by NEIL common equity capital structure ratio of 34%, is just and reason- j~ for replxement power costs associa*ed with accidental plant out- able, in addition the order (1) amended the htPSC's authorized ages, phase-in plan for Fermi 2 in order to comply with the provisions of As required by federallaw, the Company maintains $200 mil. SFAS No. 92, (2) transferred the collection of $159 million of reve-tion of public liability insurance for a nuclear incident. Further, nue ($151.7 million MPSC jurisdictional) f rom the PSCR Clause to under the Price-Anderson Amendments Act of1988, deferred base rates, effective January 1,1989, for capacity buybacks from premium charges of $63 million may be levied against each the Company's jointiv-owned Fermi 2 and Belle River power ; licensed nuclear facilrty, but not more than $10 million per year per plants, (3) transferred a court-ordered $12.1 million annual sur-facility. On December 31,1989 there were 1141icensed nuclear charge to base rates effective January l,1989 and (4) suspended facilities in the United States. Thus, deferred premium charges in the PSCR Clause for the four year period January 1,1989 through the aggregate amount of approximately $7.2 billion could be levied December 31,1992. against all owners of licensed nuclear Iacilities in the event of a The order provides for a five-year moratorium on base rate nuclear incident. Accordingly, public liability for a single nuclear changes, through December 31,1993, with exceptions for pre-incident is currently limited to approximately $7.4 billion. viously authorized rate increases (the Fermi 2 phase-in plan) and To the extent that insurable claims for replacement power, prop- for federal income tax law or regulation changes, new acid rain ! erty damage, decontamination, repair and replacement and other legislation and new cogeneration legislation that would increase or ; costs and expenses arising from a nuclear incident at Fermi 2 decrease costs by $5 million (1983 dollars adjusted by the Con- l exceed the policy limits of insurance, or to the extent such insur- sumer Price Index, "CP!") or more annually. , ance becomes unavailable in the future, the Company will retain A new expense stabilization procedure, applicable to approx- j the risk ofloss. Although the Company has no reason to anticipate imately $750 million of Company operation and maintenance a serious nuclear incident at Fermi 2, if such an incident did expenses, permits rates to be adjuded for the effects ofinflation. l ' happen it could have a material but presently undeterminable Under this procedure, a surcharge or credit will be implemented adverse impact on the Company's financial position. on January 1 of each of the years 1990 through 1992 to offset annual increases or decreases in operation and maintenance expenses. L RateMatters This surcharge or credit will be adjusted each January I based on the annual change in the CPI for the preceding 12-month period October 1 through September 30, as follows: A General-The Company is subject to the general regulatory juris-diction of the hlPSC, which, from time to time, issues its orders CPI Change Adjustment to Dase ! pertaining to the Company's conditions of service, rates and , i recovery of certain costs idcluding the costs of generating facilities. 0% - 2% None j 2% - 8% 80% of change in excess of 2% i 1986 Rate Order-In April 1986, an hlPSC order disallowed $397 htore than 8% 100% of change in excess of 8% plus 4.8% million of Fermi 2 project costs ($327 million applicable to the Company's portion of the plant) based on a 1983 cost estimate of
$3.075 billion which subsequently increased. This order estab. Pursuant to a December 1989 h1PSC order, an expense stabiliza- j lished a five-year $404.2 million rate phase-in plan for Fermi 7 tion procedure surcharge was approved for implementation on l which became effective on January 24,1988 following attainment ja nuary 1,1990. Such surcharge will increase annual revenues by 4 of commercial operation and which was subsequentl approximately $27 million. i and extended to seven years. See "1988 below. Rate In Order"Set y amended forth below is a summary of the Company's scheduled rate
- l. addition, the April 1986 order required the removal of the Com. increases and other rate changes for the period 1988-1994, exclud-
, pany's 795 hlW oil-fueled Greenwood Unit No.1 from rate base, ing surcharges. This summary includes the increases authorized { l upon the commercial operation of Fermi 2, until the conclusion of as part of the Fermi 2 phase-id plan. ' ] subsequent proceedings before the h1PSC to determine the need j for this unit for reliability or economic reasons. j 1988 Rate Order-In 1987, the Company requested increased rates from the htPSC in the annual amount of $298 million to reflect a I
$1.7 billion increase in Fermi 2 project costs. The proceeding also i included a request that the hlPSC authorized phase-in plan for j l
. 4
.a a l
if found to be reasonable and prudent, the major investment will i
^BaIe" Rat Iae Annual Cumulative be included in rate base. Under the performance standard, effec- l,
-Year inercases(a) Changes (b) Amounts Amounts tive January 1,1993, a disallowance of net meremental replace- j guaijyns; ment power cost will be imposed for the amount by which the i 1988 $ 68.4 $ - $ 68.4 5 68.4 Fermi 2 three-year rolling average capacity factor is less than the ! 1989 1%2 0.5 104.7 173.1 greater of either the average of the top 50% of U.S. boiling water 1990 76.8 13.4 90.2 263.3 reactorsor50% 1991 81.9 7,7 89.6 352.9 While the order restricts the Company's ability to have certain 1944 1023
' (c) 3 6.7 1
future costs reflected in rates, the Company believes it will be able to continue to operate effectively within the constramts of the i (c) (c) t (a) The $68.4 million increase became effective on January 24,1988 with order without any significant adverse effects on the Company, other increases scheduled to become ef fective on January l of each The order also provides that if nuclear operations at Fermi 2 applicable year as authorized by the MPSC's December 27,1988 crder. permanently cease, the remaining net rate base investment (b) Principally jurisdictional portion of utihzation of Fermi 2 and Belle amount shall be removed from rate base and amortized in rates, River capacity bu backs. These are known future expense reductions w e without return, over ten years with such amortization not to themse ves would have reduced customer rates under the exceed $290 million per year. In this event, unamortized amounts of deferred depreciation and deferred return, recorded in the bal-(c)under$70.8themillion MPS 'srehuired Decemberunder theorder, 27,1988 amended Fermi be incibded as 2 hase-in a cost of planance will, sheet under the phase-m plan prior to the removal of Fermt 2 service component in the determination of the rate adjustment in 1994 from rate base, will continue to be amt rtized, with a full return on and beyond, so that all amounts deferred are recovered during the such unamortized balances, so that all amounts deferred are < period ending no later than December 31,1998. recovered during the period ending no later than December 31, ! 1998. Also, amortizatton in rates of the $300 million and $513 The amended MPSC Fermi 2 phase-in plan granted $527.1 million investments in Fermi 2, as described in the preceding l million of rate increases and other rate changes for Fermi 2 to be paragraphs, would continue, phased in over a seven-year period. During the phase-in period, A summary of the ratemaking treatment of the Company's the Company is recording related non-cash items ofincome Fermi 2projectcosts(includingthepurchaseof theCooperative's consisting of deferred depreciation and deferred return totaling interestin1990)is as follows:
$506 5 million (annual deferrals for the first five years of commer-cial operation of Fermi 2 as follows: $178.4 million in 1988, $142.4 Fermi 2 Project Costs million in 1989, $104.2 million in 1990, $63.2 million in 1991 (Mahons) ,
and $18.3 million in 1992), with these deferred amounts amor- In rate base, with recovery and return $3,018 ; tized to operating expense as the cash recovery of the deferred Amertized over 10 years with no return 300 amounts is realized through revenues during the period endmg Amortized over 19 years, with associated interest 513 December 31,1998. Written-off by the Company ($327 million disallowed in accordance with the December 27,1988 order, $700 million of in MPSC order of April 1986 and $700 million Fermi 2 costs is included in rate base for ratemaking purposes, disau wed in MPsCordmf Deceinbu m) im27 D 'I " 858
$700 million was written off by the Company, and $300 million is being amortized ratably over 10 years with no return on the invest- i ment. See Note 4-The Compan 's investment in its 795 MW Greenwood oil-fired See Note 4 for a summary of the manner in which the Company accounted for the disallowances shown above unit is excluded from rate base through December 31,1993. See Note 4.
The February 1990 purchase by the Company of the Cooper- sN,0 J% A .6 f] ,".[ '-$11 A m i fg.i]) ative's ownership interest in Fermi 2, estimated at $513 million, is Accountingfor Disallowances of Plant Costs to be treated as a regulatory asset with a 19-year principal amor-tization and associated interest at 8% The debt incurred in in December 1986, the Financial Accounting Standards Board connection with this purchase and the associated interest are to be ("FASB") issued SFAS No. 90 which, among other things, excluded from the calculation of the Ccmpany's overail return on "9"#s any disallowed costs of a recently completed plant to be investment, recogmzed as a loss when such a disallowance becomes probable During the period January 1,1989 through December 31, 2003' and a reasonable estimate of the disallowance can be made. If part the order established a cap on Fermi 2 capital additions of $25 f the cost is disallowed indirectly (such as a disallowance of return j million per year, cumulative, adjusted by the CPI, a cap on Fermi 2 n mvestment on a portion of the plant), an equivalent amount of l non fuel operation and maintenance expenses at the level e- cost shall be deducted from the reported cost of the plant and sented by the Company in its economic study provided in e rate mc gnizedasaloss. case, adjusted by the CPI, and a capacity factor performance stan- In 1988, the Company adopted SFAS No. 90 and recorded net dard based on a three-year rolling average commencingin 1991. af ter-tax losses totaling $968 mihton, or $6.60 per share ($344 For a major capitalinvestment of $200 million or more, the Com- " "' 'S2 34 ershare,cumulativeeffectatJanuary1,1988for P pany shall apply to the MPSC for prior approval. If approved, and vm pri r t 1988 and a $624 milhon, or $4.26 per share, charge to 23
, e 1
1 1 income in 1988 which is net of accretion income of $17 million, or The effect of the change in accounting was to increase earnings for
$0.11 per share). These losses reflect the MPSC's ratemaking treat- common stock by $82.4 million (50.56 per share) of which an ment f or costs incurred in the construction of the Fermi 2 and Belle increase of $61.4 million ($0.42 per share) represents the River Power Plants and the removal of Greenwood Unit Ne,1 cumulative effect of the change at January 1,1988, and an increase
- from ratebase, as shown below, of $21.0 million ($0.14 per share) represents an increase in earn-ings fortheyear1988.
Property Taxes- As discussed in Note 1, effective January 1,1988, ' I' D[ ,*"d f *,' (("', the Company changed its method of accounting for property taxes gg,,,g so that such taxes are accrued monthly during the fiscal penod of Fermi 2-No recovery or return, the applicable taxing authority. The effect of the change in - , per April 1986($327 milhon)and accounting was to increase earnings for common stock by $165.6 December 1988 ($700 million) million ($1.13 per share) of which an increase of $139.3 million ', MPSC orders $(1,027) $242 9785) ($0.95 per share) represents the cumulative effeet of the change at Fenni 2-Recovery ($300 million) January 1,1988, and an increase of $26.3 million ($0.18 per share) '
$ ith no r t rn r ""7be'r ee NPresents an increase in earnings for the year 1988. ' 1988 MPSC order (14I) 48 (43) Pr9 Forma Amounts-The following table shows pro forma Greenwood Unit No.1-Removed amounts assuming that the Company applied accounting from rate base ($280 million) from changes for SFAS No. 90, unbilled revenues and property January 1988 through December 31,1993 with no return, per April taxes retroactivel7: !
1986 and December 1988 MPSC orders (153) 52 (101) 1988 1987 Other-Belle River Ibwer Plant costs As Reported: mmus<md4 disallowed in 1985, the abandonment $(378,826) $554.974 Net income (Loss) ' of Greenwood Unit Nos. 2 and 3 in Earnings (Loss) For Common Stock $(428.583) $476,734 1980 (see Note 1), and other-net (9) 3 (6) Earnings (Loss)IVr Share $ (2.92) $ 3.25 . Total $(l.330) $345 $(985) Pro Forma Amounts: less: Accretion income resulting f rom Net Income (Loss) $(235,3M) $529,414 losses due to discounting 26 (9) 17 Earnings (Loss) For Common Stock $(285,091) 5451,174 Net Total $(1.3N) $336 Si9]68 Earnings (Loss) Per Share $ (1.95) $ 3.07 l Alkrated to: Income in 1988 I i Disallowed plant costs $ (875) $2M $1 64l) 1,
)
Accretion income 26 (9)
$ (849 $223 $(62n-fointiv-Owned I Cumulac.e effect for years p7or UtilityPlant !
i to 1988 (453) 111 (344) The Company's portion of jointly-owned utility plant is as follows: ! Net dal $(1,304) $336 $(968) ; Ludington Pumped The losses for Greer. wood Unit No.1, for the abandoned R uni 2 BeHe Rim Storage I Greenwood Unit Nos.hnd 3, and for a portion of Fermi 2 are In-servke date 1988 1984-1985 1973 l recorded as a disexmt (reduction) of the Company's investment in Undivided ownership interest 88.802 %
- 49%
invesimmt (millions) $3,233.5 $1,021.7 $168.4 l these units. lites net af ter-tas losses, due to discounting, total ,
~ $198 million and such amount will be restored to net income over Accumulated depreciation andarn nizati n(rnini ns) $ 18u $ 165.1 $ 54.3 the period 19861998 as the Company records a non-cash return j ,
(accretion inc0r te) on its investments in these units. *Th'C 81.39 % o"fthe portion of the facilities applicable to Belle River u jointly by the Belle River and St. ClairIbwer Plants,49.59% in certain 'i transrnission lines and at least 70% in facilities used in common with NO!t Unit No. 2. 4 Accounting Changts l in 19S8 Ferm12-From January 24,1988, the effective date of the rate I SFAS No. 90-See Note 4. increase ass ciated with Fermi 2, through 1989, the Company purchased 100% of the Cooperative s Fermt 2 capacity and energy SFAS No.92-See Notes 1 and 3. entitlement. The cost for the buyback of power is based on the l Unbilled Revenues-As discussed in Note 1, effective January 1, Cooperative's total debt service (interest and amortization of prin-1988, the Company changed its method of accounting for reve. cipal) and certain other costs such as fuel and operation and nues to record an estimate of revenues for electric and steam maintenance expenses. Duyback payments to the Cooperative heating service rendered and unbilled at the end of each month. 24- [ a
l l l were $88.8 million and $102.4 million in 1988 and 1989, respec- p,,,,,, ,, ,,,,,, g t,,,, 3,,,,, 7,, t tively. In addition, the Cooperative has agreed to purchase 1** 1*8 1*7 capacity and energy from the Company,12.5 Mn for 1989 increas-ing annually to 135 MW by the year 2010 and continuing at that statutory income tax rate x0% (34.0)% 40 0 %
't' d level through the year 2025. See Note 2 for a discussion of the D(5a" tn N!* t' ents - m t Company 5 planned purchase of the Cooperative's ownership Deferred Ferm12 depreciation .
interestin February 1990. and trturn (6.8) (10.1) - Belle River-The Michigan Public Power Agency ("MPPA") has fndSrNconstructioncosts $$$ $$l (!$! an undivided ownership interest in Belle River Unit No.1 and investment tax credit-amortised (1.8) (2.0) (1.3) facilitie s used in common by Belle River Unit No.1 and Belle River Depreeation 5.9 5.6 2.6 Unit No. 2, and certain other related facilities. MPPA is entitled to Other-net 0.1) 0.5 1.4 Effective income tax rate 25.5 % (21.5)% 22.3 % 18.61% of the capacity and energy of the entire plant and is responsible for the same percentage of the plant's operation and , mamtenance expenses and capitalimprovements. The Company is obligated to provide MPPA with backup power when either unit Components of income taxes were applicable to the following: , is out of service. in 1984, followirg commercial operation of Belle River Unit No. 1989 1988 1987 1, the Company began contractual purchases of MPPA's capacity crhousands) and energy entitlement. Such purchases are to continue for up to operating expenses eleven years, at 100% through 1990, with declining amounts there- current 5 61,811 5 39,199 5 62,267 after through 1994. The cost for the buyback of power is based on Deferred-net MPPA's plant related investment, interest costs incurred by MPPA Bormwed funds component of
^
on their original project financing plus 2.5% and certain other costs such as depreciation and operation and maintenance Dep c on kh' 1! 1!h. 5 pwp,,,yi,xe, 3,851 0 4,686) - expenses. Buyback payments to MPPA were $73.5 million, $72.6 Unbined revenues 0 0,922) (12,269) (6,799) , million and $71.3 million for 1987,1988 and 1989 respectively, and Al.ernative minimum tax 10,832 567 (69,356) j are currently estimated at $71.0 million, $63.1 million, $55.3 mil. Fermi 2 capitalized labor and , lion, $13.7 million and $6.7 million for 1990,1991,1992,1993 and 1994, respectively. gn if,7,[c'"nstruction costs Uncollectible accounts (3,422) 3,679
!$)
(4,741) ; cont bu onsin aid of Ludington Pumped Storage-Operation, maintenance and other ~ expenses of the Ludington Pumped Storage Plant are shared by Amortization of property losses the Company and Consumers Power Company (" Consumers")in and unrecovered plant costs (2,464) (2,464) (3,671) Other (5,o93) (837) 4,408 proportion to their respective interests in the plant. See Note 14. 53,486 67,516 69,745 j Investment tax credit-net 1 N:'! ' Utilized 24,892 (7,140) 36,479 l
^"*"d **'"
SaleofAccountsReceivable ?"* " "*" ? *' andUnbilledRevenues Total 129,626 89,944 159,488 On February 28,1989, the Company entered into a five year Other income and deductions program for the sale of $200 million of the Company's accounts current (460) 1.081 (2.492) Defed-ne (383) (312) 1,829 receivable and unbilled revenues. The sale was accomplished by mal (844 769 (66M an assignment of an undivided ownership interest in the Com, Di'*II **d PI"" **"d i pany's customer accounts receivable and unbilled revenues. At "" *# December 31,1989, customer accounts receivable and unbilled Iu$?nt (2,036) (37,216) - i revenues on the Consolidated Balance Sheet have been reduced Deferred-net by $200 million reflecting the sale. All costs associated with the Disallowed plant costs 23,971 (182,717) -
^ 9, 86 regram are being charged to other operation expense in the gyn$n" num N) _-
onsolidated Statement orincome. in,,,,,,n, ,,, ,,,ai, _,mo,,i,,a _ 04,324) -
)
Total 17,047 (225,171) - N 1 , e Cumulative effect of accountingchanges f Deferred-net i income Tales Disallowed plant costs and Totalincome tax expense as a percent of income (loss)before tax was less than the statutory federalincome tax rate for the Unbtu"ed reIe*n"u$s Property taxes 2
'k 101,306 I
followingreasons: Total - 30,961 - Totalincome taxes $145 1 830 50 03,497) $158,825 25 .! t l
In accordance with MPSC requirements, deferred income tax required to recompute its tax liability at the then current tax rate accounting was not followed for the borrowed funds component of and adjust the Accumulated Deferred income Ta x asset and lia-
, AFUDC and indirect construction costs relating to Fermi 2, nor is it bility amounts in the Consolidated Balance Sheet. In addition, followed for interest on nuclear fuel financing (see Note 13) and SFAS No. % requires that the Con:pany record additional defer-certain other current income tax deductions, red income taxes ior temporary differences not previously in 1985, the MPSC ordered that, for accounting and ratemaking recognized. Temporary differences include the timing differences purposes, the accumulated deferred income taxes related te indi- discussed above ($2.3 billion and $2.2 billion at December 31,1989 rect construction costs and the borrowed funds component of and 1988, respectively) and all other existing differences that will AFUDC for Belle River Unit No.1 and common plant be amortized result in taxable or deductible smounts in future years. SFAS No.
to income over a five-year period rather than over the life of the % requires the recognition of an asset to the extent that such plant. Such credits to income amounted to $24 million for each of additional deferred income taxes are associated with probable the years 1989,1988and 1987, future revenue from eustomers. The Company expects that when The amended Fermi 2 phase in plan requires the Company to SFAS No. %is adopted, it will not have a material effect on net record additional deferred income tax expense related to deferred income, depreciation totaling $33.5 million ($11.8 million in 1988, 59.4 million in 1989,56.9 million b 1990, $4.2 million in 1991 and $1.2 million in 1992). with these amounts amortized to income over the period endingDecember 31,1998. Short Term Credit Arrangements The cu mulative net amounts of income tax timing differences andBorrowings for which deferred taxes have not been provided at December 31, As described below, at December 31,1989, the Com nyhad total 1989 and 1988 are $2.3 billion and $2.2 billion, respectively. The tax short term credit arrangements of $303.4 million under which no , effect of then amounts not provided for currently willbe recorded ' borrowings wereoutstanding. when such taxes become payable and are recovered from customers. The Company had bank lines of credit of $200 million all of i investment tax credit carryforwards of approximately $101 mil-which had commitment fees in lieu of compensating balances, lion are available to offset future years tax liat ilities as permitted Commitment fees incurred in 1989 for bank lines of credit were by law. Such credits, if unused, expire over the period 1998 50.7 mi!! ion. The Company uses bank lines of credit to support the As auth ired by the hiPSC, deferred income taxes are uance c mmu a aper,euroc mmercia paper, bankers'
"##"I'""##' "" #" #" A '
recorded for tax credits generated under the Alternative Minimum "E' #9 "' E*"U*8 w.thebanks prime 1 Tax ("AMT") system created by the federal Tax Reform Act of 1986 *$n; n ate ("TRA"). The AMT system te uires the C90any to perform a The Company has a nuclear fuel financing arrangement under separate tax calculatmn, m ad ition to the regular tax calculat,on* i which Renaissance Energ Company (" Renaissance"), an unaffili-usmg a 20% tax rate applied to an AMT base. The Company is raises fun s to purchase nuclear fuel and to lend to reqmred to pa the greater of either the regular tax or the tax ated company,for general corporate purposes. the Company calculated un cr the AMT system. The amount by which the AMT exceeds the regular tax represents a tax credit that can be carried ssue commercial paper or borrow from participating banks on the i i basis of promissory notes. To the extent the maximum amount of ! fo7 ward indefinitely. After all mvestment tax credit carryforwards funds available to Renaissance (currently 5400 million)is not are used, the AMT credits can be used to reduce regular tax needed b Renaissance from time to time to purchase nuclear fuel, liabilities whenever such liabil! ties exceed AMT liabilities. The Company's current income tax liability for 1987 and 1989 was such fun s may beloaned to the Compan ' pursuant to a separate i Loan Agreement. At December 31,1989, 103.4 million was avail. determmed under the AMT method resultmg m an AMT credit carryforward of approximately S79 million at December 31,1989. able to the Company under such Loan Agreement. See Note 13. l t in December 1987, the FASB issued SFAS No. 96 " Accounting for income Taxes." The Company anticipates adopting the provi- j r sions of SFAS No. 96 on a prospective basis in 1992. SFAS No. 96 1 l establishes financial accounting and reporting standards for the { effects of income taxes that result from an enterprise's activities during the current and preceding years, it requires an asset and liability approach for financial accounting and reporting for income taxes. When SFAS No. % is adopted, the Company will be I 26' ________j
On October 15,1988, the Company redeemed 2,600,000 shares of $3.13 Series and 1,400,000 shares of $3.24 Series, $1 par value Cormon Stock and Non-Redtemable Cumulat .Pc PreferredandlYrferenceStock . Preference issues, at a price ofStock,
$27.17 ancconstitutinf527.25 per share, Non redeemable Cumulative Preferred and Preference Stock out. The Company's $2.28 Series Preference Stock is redeemable standing at December 31was: solely at the option of the Company at the stated per share redemption price of $25.75, plus accrued dividends, prior to Janu-Date of louance 1989 1988 ary 15,1993 and $25.25 per share, plus accrued dividends, on and mwuwurs; afterJanuary 15,1993, NtwRedeemable heferred Stock Apart from MPSC approval and the requirement that Com.
5%% convertible series, mon, Preferred and Preference Stock be sold for at least par value,
$arY,r"chiiv$y october 1967 5 9,296 5 10,655 there are no legal restrictions on the issuance of additional autho-9.32% series,499,080 shares october 1970 49,908 49,408 rlzed 6 hares of such stock.
7.t#b series. 500,(KK) shares March 1971 50,(KK) 50,(KK) 7.45% series,600,000 shares November 1971 60,(KK) 60,(K10 7.36% series,750,(K10 shares December 1972 75,(KK) 75,000 sti"Se r "l$' '" (4.709) (4,739) Redermable Cumulative lyeferred and Preference Stock Redeemable Cumulative Preferred and Preference Stock outstand-Nf$r'"[sN$*** 5:!33 495 5:40.824- ingat December 31was: Non-Redeemable Preference stock
$2.28 series,2,(KK),000 shares December 1977 6 2,000 $ 2,(KK)
Premium on non redeemable Date of issuance 1989 1988
. preference stock 48,000 48,000 mmusamis)
Non-redeemable preference Redeemable Preferred Stock stock espense _ (2,109) (2,109) 9,72% series,375,000 and Tc4al Non. Redeemable 400,000 shares, Preference Stock $_472 891 5 41 891 respectively December 1978 $37,500 540,000 9.72 b series,75,000 and 80,000 shares, The Convertible Cumulative Preferred Stock,51/2% Series, is respectively January 1979 7,500 8,000 m series,266,250 and convertible into Common Stock. The conversion price was $17.79 per share at December 31,1989. The number of shares converted ;)((is iy october 1979 26,625 28.400 during 1989,1988 and 1987 were 13,592,5,581 and 9,334, respec. 9.60% series,221,250 and tively. The number of shares of Common Stock reserved for 236,000 shares, respectively January 1980 22,125 23,600 issuance upon conversion and the conversion price are subject to R' " further adjustment in certain events. The Convertible Cumulative du [nIn'c (6,250) (6,250) Preferred Stock,51/2% Senes, may be redeemed at any time in Redeemable preferred stock whole or in part at the option of the Company at $100 per share, expense (1.016) (1,083) plus accrued dividends. Total Redeemable The Company's 9.32% Series,7.68% Series,7.45% Series and Preferred stock 586,484 592,667 7.36% Series Preferred Stock are redeemable solely at the option of Redeemable Preference stock the Company at a per share redemption price of $101, plus accrued $2.75 series, 580,180 and 780,180 shares, dividends On January 15,1988, the Company redeemed all of the out- 52Nr 800.000 and standing shares of certain series of its $1 par value Preference 1,000,000 shares, Stock, as follows: 3,000,000 shares of $3.42 Series at $27.35 per respectively December 1975 800 1,000 share,2,250,000 shares of $3.40 Series at $27.35 per share and Premium on redeemable 750,000 shares of $3.12 Series at $27.00 per share. g,7,',k' ",able prNerence stock i due within one year (7,500) . (7,500) Redeemable preference stock expense (1.686, (2,174) TotalRedeemable Preference stock 525,318 $34J30_ 27 -
. . j J
The following redeemable reries of Preferred and Preference The following series of Preferred and Preference Stock were i Stock are entitled to the benefit of sinking funds (provided that no redeemed at the option of the Company: ! dividend arrearages exist) providing for the annual redemption of shares at stated per share prices, plus accrued dividends: Price Numtwr Per of Redeemable Series Date Share Shares Cumulative Preferred Stoc.k,13.50% Series 1-1588 $104.05 200.000 Option to Preference Stock, $4.00 Series 4 15-87 27.41 1,600,(xx) , Redeem Preference Stock, $4.12 Series 1 1587 27.85 1,750,000 Annual !Yice Addnional Number IYr Shares in Redeemable Series of Shares Share Any Year The combined aggregate annual amounts of redemption Preferred Stock requirements at December 31,1989 for all series of redeemable 9.72 % 30,000 $100 30,000 Preferred and Preference Stock are $14 million for 1990 and $11 9.60 % 32,500 100 32,500* million for each of the years 1991 through 1994, Preference Stock
$2.75 100,000 25 100,(XX)
$2.75 Series B 100,000 25 100,02n i
*Not to exceed 220,000 cumulative additional shares.
Long TermDebt The following numbers of shares were purchased for applica. Long-term debt outstanding at December 31 was: tiontosinking fund requirements: Interest 1989 1988 1987 Rate 1989 1988 Preferred Stock,9.72% Series 30,(XX) - 58,980 (TIwusands) Pr;ferred Stock,9.60% Senes 32,500 32,500 32,500 General and Refunding Mortgage Bonds PreIIrred Stock,13.50% Series - - 50,000 Series Q, due 6/1!89 4%% $ - $ 37,695 Series R, due 12/1/% 6 100,000 100,000 Preference Stock, $4.12 Series - - 250,000 Series S, due 10/1/98 6.4 150,000 150,000 I Preference Stock, $2.75 Series 200,000 200,00') 200,000 I Series T, due 12/1/99 9 75,000 75,000 Pr:ference Stock, $2.75 Series B 200,000 200,000 200,000 Series U, due 7/1/00 9.15 75,000 75,000 Series V, due 12/15!00 8.15 100,000 100,000 in the event that a payment due under requirements of a sink-ing fund for any senes of redeemable Preferred or Preference
$'N,'due11)1$1 Series 2, due 1/15/03 7%
100,000
$N 100,(xx) t Stock is not made, no dividend shall be paid (other than a divi- Series AA, due 5/1/N 9'is 100,000 100,000 i dend paid in junior stock) or declared or other distribution made Series EE, due 12/15!97 11 % 20,000 25,000 :
S' upon any junior stock (Common and Preference Stock in the case of Preferred Stock, and Common Stock in the case of Preference 3 [Q"'6 N/I Series RR, due 10/15/08 9 9.8 70,000 70,(XX)
' Stock)until such payment is made, Series SS, due 1>i5/99 10% 100,000 110,000 The following. series of Preferred and Preference Stock, which Series UU, due 9/15/09 10% 100,000 100,(xx) tre redeemable pursuant to sinking fund requirements, may also be redeemed at the optton of the Company at stated per share yge'B d" 4'l'97g d e 5 ll92 1985 Series B due 6/1'92 b
11.25 b8$ 50,000 50,000 redemption prices, plus accrued dividends: 1986 Series A, due 4!15/16 9% 200,000 200,0tX) - 1986 Series B, due 8115/16 9% 100,000 100,000 1986 Series C, due 12/15'16 9% 200,000 200,000 Decreasing Prior On and 1987 Series A, due 2/15/17 9 300,000 300,000 Redeemable Series From To To After 1987 Series D, due 4/15/97 8% 175,000 175,000 l Preferred Stock 1987 Series C, due 4/15/14 9% 225,000 225,000 9.72 % $102.90 11594 $101 11594 1987 Series D, due 8/15!92 9% 250,000 2;0,0tX) 9.60% 104 00 101594 101 10 15-94 1987 Series E, due 8115!% 10 % 150,000 150,000 l Preference Stock 1987 Series F, due 6/15!93 9% 200,000 200,000
$2.75 26.10 7-1590 25.25 7-15-90 1989 Series A, due 7i1/19 9% 300,0tX) -
i $2.75 Series B 26.10 1 15-91 25.25 11591 less: Unamortized net discount (14.418) (11,491) Arnount due within one year (19,150) (56,845) { $3,468,232 $3,199,459 1 28 l
l l Interest Tax-Exempt Revenue Bond Obligations-Agreements have been l Rate' 1989 19 4 signed with certain municipalities, municipal agencies and state (Thounds) authorities under which tax exempt bonds were issued to finance T:x Eumpt Revenue Bond Obligations certain Company projects or to refund maturing issues. The Com-Inst:11 ment sales contracts (secured
*" ' pany is obligated to make payments sufficient to meet the J c[en$r2.7dNnd ng$Nr'tgage Principal and interest due on the bonds. To secure the Company's Bonds) obligations under certain of these agreements, the Company has city of Detroit, issued Mortgage Bonds with principal amounts, interest rates and 8% I 8' I - 5 maturity dates corresponding to those of the tax exempt bonds, CiUy'ofIl$tNr DIach, due3'1/90 3/1/05 6.99 3,190 3,265 Payments made on the tax exempt revenue bond obligations City of River Rouge, secured by Mortgage Bonds automatically discharge correspond-due 2/15!90 10/1/02 6.95 45,090 46,560 ingMortgage Bond obligations.
cit of superior, The Company has obtained insurance for certain of its tax-d 1/90 IIDI 8.10 39,800 40,500 exempt obligations. Such insurance arrangements provide for the duc3/1/90 315/05 7.04 5,810 5,945 funding of escrow accounts in the amount of $80 million in the county of Monroe, event that a prescribed debt ratio is exceeded. due 31 8.12 162,780 57,750 1g1/ 9 Long Term Debt Maturities-ln 1990,1991,1992,1993 and 1994, . due6/15!90 5/1/2'2 10.27 203,920 207,035 long-term debt maturities consist of $172 million, $93 million, $404 Ins: Unamortised net discount (425) (460) million, $310 million and $45 mt!! ion, respectively. Funds on deposit with Trustec (4,353) (112) Amount due within >- . - one year (10,530) (11,980) 5 453,412 5 361,838_ N#3f8 installment sales contracts Future minimum lease payments under long-term noncancellable coungMg., , , ,3 , 33 leases, consisting of nuclear fuel ($428 million computed on a Less: Funds on deposit with Projected units of production basis), lake vessels ($78 millbn), Trustee (2,124) - locomotives and coal cars ($76 million), office space ($45 million) Amount due within and computers, vehicles and other equipment ($62 million) at one year (2,140) 0,wo) December 31,1989are as follows: 5 426,336 5 312,240 Loan Agreements (Millions) (Millions) > lbilution Bond Refundmg Projects, 5 53,025 5 43,075 Il I due 2/15!94 8'15/09 8.64 5 932,773 5 717,153 1992 79 Remaining years 263 4 Unsecured Promissory Notes Total 5689
%riable interest rates, due3/31!90 4!15/91 9.08 % 5 171,9ti9 5 676,924 Fixed interest rates, due 6'2R'90- 1113!93 10.12 125,000 170,000 The Company has a heat purchase contract with Renaissance Less: Amount due within one year (136.969) (525,000) which provides for the purchase by Renaissance for the Company 5 160,000 $ 32t924 of up to $400 million of nuclear fuel, subject to the continued Totat Long-Term Debt $4261,005 54,238,536 availability of funds to Renaissance to purchase such fuel, Title to
- Weighted average interest rate at December 31,1989 for Tax Exempt the nuclear fuelis held by Renaissance. The Company makes Revenue Bond Obligations and Unsecured Promissory Notes, quarterly payments under the heat purchase contract based on the consumption of nuclear fuel for the generation of electricity.
Renaissance's investment in nuclear fuel was $292 million and The Company's 1924 Mortgage and Deed of Trust (" Mort- $309 million at December 31,1989 and 1988, respectively. The gage"), the hen of which covers substantially all of the Company's decrease in 1989 from 1988 of $17 million includes additions of $31 properties, provides for the issuance of additional bonds (1) based million (purchases of $10 million and capitalized interest of $21 upon property additions, combined with an earnings test provi- million)less $48 million for the amortization of nuclear fuel con-sion, or (2) based upon retirements of previously issued bonds. At sumed in1989. December 31,1989, approximately $2.4 billion principal amount of Under SFAS No. 71, amortization ofleased assets is modified additional Mortgage Bonds could have been issued on the basis of so that the total of interest on the obligation and amortization of (1) above, assuming an interest rate of 10% on any such additional the leased asset is equal to the rental expense allowed for ratemak. Mortgage Bonds. At December 31,1989, approximately $144 mil- ng purposes. For ratemaking purposes, the MPSC has treated all lion of additional bonds could have been issued on the basis of leases as operating leases. Net income is not affected by capitaliza-bond retirements. tion ofleases. 29 '
w l Rentalex the Company is involved in litigation dealing with the numerous nuclear fuel)penses were $106
, $103 million (including million
$57 million (including for nuclear fuel) $58aspects million for of its business operations and such litigation is not and $45 million for 1989,1988 and 1987, respectively. expected to have a material effect on the Company's financial positionorresultsofoperations.
See Note 2 for a discussion of contingencies related to Fermi 2. CommitmentsandContingencies C mmitments-TheCompanyh 9senteredintopurchasecommit- 7,p,,,,,g,,y,,,,,,py,,,,g9gg,,pg,g,,,;,,,,,,g,,,7;g, g ments of approxnnately $342 milhon at December 31,1989. The Companyhasalsoentcredintosubstantiallong termfuelsupply Employes' Retirement Plan-The Company has a trustced and commitments, noncontributory defined benefit retirement plan (" Plan") cover-Combustion Engineering, Inc. (" Combustion") has con- ing all eligible employes who have completed six months of i structed the Detroit Resource Recovery Facility in the City of service. The Plan provides retirement benefits based on the Detroit. The facility, which began commercial operation in 1989, is employe's years of benefit service, average final compensation and fueled by municipal solid waste, and is producing steam and age at retirement. The Company's policy is to fund pension cost electricity. The Company has entered into a 20-year Energy Pur- calculated under the projected unit credit actuarial cost method, chase Agreement with Combustion for the purchase of steam and provided that this amount is at least equal to the minimum fund-electricity. The Company is seeking to negotiate an addendum to mg requirement of the Employee Retirement income Security Act , the Energy Purchase Agreement to reduce the rate to be paid for of 1974, as amended, and is not greater than the maximum amount steam. deductible for federal income tax purposes. The Company is oper-See Notes 2 and 6. ating under the IRS full funding limitation and, therefore, did not make a contribution to the Plan in 1987,1988 and 1989 and does C:ntingencies-in September 1986, the AG, asserting a claim as a not expect to make a contribution to the Plan in 1990.
" trustee" on behalf of the peo le of the State of Michigan and the Net pension cost included the following components:
Michigan Natural Resources ommission, filed a lawsuit against the Company and Consumers, as co-owners of the Ludington l*9 1%8 157 Pumped Storage Plant ("Ludington"). The Company is a 49% co-G """d" M owner of Ludington.The suit alleged violations of the Michigan Environmental Protection Act and the common law for claimed service cost benefits carned during the period $ 15,142 $ 16,032 $ 16,564 aquatic losses. The lawsuit claims past damages (including inter-on projected benefit est) of approximately $148 million and future damages (from the time of the filing of the lawsmt)in the amount of approximately I"gb h'a Actual return on Plan assets (150,708) (52,264) (89.651)
$89,500 per day (of which 49% would be applicable to the Com- Net deferral and amortization:
pany). An answer was filed denying liability. On November 10, Merralof net gain (loss)during 1987, the AG filed an additionallawsuit in this matter seeking to current period 81,387 (14.597) 28,8 % declare void or voidable the lease to certain state-owned land on Amortization of unrecognized prior which portions of the plant are coastructed. Both matters remain service cost m 65 - pending before the Ingham County Circuit Court. Amortization of unrecognized net asset resulting from initial In 1986, two environmental organizations requested FERC to l
- PPh '*" " "# "# H#
! withdraw the Ludington license or provide some mitigation for Net pension cost $ 1,049 - $ 1.983 $ 5.816 fish mortality. On September 30,1988, FERC ordered Consumers and the Ccmpany to install a temporary barrier net, designed by the Michigan Department of Natural Resources ('lMDNR"), Assumptions used in determinin8 net Pension cost are around the plant to protect fish on an mterim baas until perma- "5 ;ggj ** nent measures could be developed. The companies installed a , temporary barrier net in April 1989 (at a cost to the Company of 1*' 1*7 1*8
- $544,000) and then began a monitoring program. The companies i
kh 69.0 are row evaluating the barrier net as a proposed permanent meas- fnc", ,",7,7f$ture compensation levels k l ure, riowever, a study released by Consumers on September 8, Expected long-term rate of return on Plan assets 9.5 9.5 1988 estimmed the costs of alternative permanent fish protection l measures to be between $38 million and $200 million. At this time, the Company is un able to determine what the total costs will be to maintain the temput y barrier net and develop permanent measures. The Company believes that the outcome of the litigation dis-cussed above will not have a material effect on its financial position or results of operations. In addition to the matters reperted herein, l
The following table reconciles the funded Status of the Plan to 444
- - - - ~ '
the liability recorded in the Company's Consolidated Balance SurPl ementary Quarterly Tinanctallnformatton (Unaudited) Sheet: 1980 Quarter Ended December 31 Mar. 31 June 30 Sept. 30 Det. 31 1** *** (Thousands. c1 cept ger share amounts)
@"'"'# "d' ' 5 790,121 5 758,445 5 861,752 $ 792,713 Operating Revenues PlIn assets at fa.ir value, primarily equity securities $467,176 5754,476 Operating income 187,531 178,679 218,330 165,395 tra actuarial present value of tenefit obligations: Net income 102,748 %,133 139,494 87,576 Ac umulated benefit obligation, including vested Earnings for benefits of 5616,800,000 and $526,243,000 643,566 551,433 93,379 Common Stock 86,806 130,286 78,462 Increase in f uture compensation levels 102,568 94,172 Earnings Nr Share 0.64 0.59 0.89 0.53 Projected benefit obligation 146 134 645 6m_05 Pl;n assets in acess of projected benefit obhgation 121,042 113,871 1988 Quarter Ended Unrecognized net asset resulting from inittal a pplication (55,823) (60,330) Mar. 31 June 30 Sept. 30 Dec. 31 Unrecognized net gain (81,167) (62,185) G"'usands, except ivr sha rr sinou nts)
Unrecogniicd prior service cost 7,100 845 Operating Revenues $ 751,704 5 721.853 5 867,917 5 760,698 Liability recorded as Other Deferred Credits in the Operating income 166,076 151,880 225,442 1k4,681 Consolidated Balance Sheet $ff48)_$_(7 799) t Income (loss) Before i Cumulative Effeet of Accounting Changes 7,669 7A445 145,948 (462,396) Assum7:fons used in determining projected benefit obligations Cumulative Effect for ; areas follows: Years Prior 101988 of I Accounting Changes (Net ofIncome Taxes) (143,492) - - - December 31 jygg Net income (loss) (135,823) 73,445 145,948 (462,39n) 3933 Discount rate Earnings (loss) for ! 8.5% 9.5% Common Stock (149,739) 60,510 Increase in future compensation levels 133,129 (472,483) 5.0 5.5 Earnings (loss) Nr Share ! Before Cumulative Effeet The unrecognized net asset at date of initial application is being of AccountingChanges (0.04) 0.41 0.91 (3.22) i amorti2ed over approximately 15.4 years, which is the average Cumulative Effect for remaining service period of employes at January 1,1987, Years Prior to lus of Accountmg Changes (0.98) - - - in addition to the Plan, the Company has several supplemental non-qualified, non-contributory, unfunded retirement benefit Earnings (t, ss)Per Share (1.02) 0.41 0.91 (3.22) plans for certain management employes, ; Other Postretirement Benefits-The Company provides certain The 1988 fourth quarter loss reflects the write-off of Fermi 2 and postretirement health care and life insurance benefits for retired Greenwood Unit No.1 plant costs of $561 million, partially offset employes. Substantially all of the Company's employes will by a decrease in book depreciation expense of $24 million, pur-become eligible for sucfi benefits if they reach retirement age while 8". ant to the December 27,1988 MPSC order and m accordance still working for the Company. These benefits, as well as similar with SFAS No.90. See Notes 3 and 4. benefits for active employes, are provided principally through insurance companies and other organizations whose premiums are based on the benefits paid during the year. The Company recognizes the cost of providing these benefits as the premiums are paid. i 1989 1988 1987 fThousands) Cost to the Company of providing health ; care andlife insurance twnefits to I employes Active employes 541,323 538,891 $35,952 Retired employes 15,694 13,090 13.483 Total 557,017 551,981 552,435 31
9 4 Af:nagernent 's Discussiort and A nalusis of Financial Condition and Results of Operations Thb discussion and analysis should be read in conjunction with Consolidated Statement ofincome the Consolidated Financial Statements and accompanying Notes Operating Revenues-Total operating revenues changed in each thereto, contained herein. year due tothefollowing factors: Earnings (Loss) for Common Stock and Earnings (loss) Per Share increase Total and per share Earnings for Common Stock increased for the (Decrea'eWrom Prior Year year 1989, as compared with a loss for 1988. The loss for 1988 1*' 1*8 1987 resulted from an accounting change and the write-off of certain M** plant costs disallowed by the Michigan Public Service Commission Dase Rate Changes ("MPSC"). Also contributing to higher earnings for 1989 were $rg,mA jl9 $ $ $ (b@ ' increased rates implemented in January 1989 as part of the Fermi m n (20) phase-in plan, higher accretion income resulting from the dis. ly Cost Recovery Clauw counting of certain losses recorded in 1988, lower operation Nwer Su7 net (fuel an purchased power 9cost) 120 (68) expenses, lower interest charges and lower preferred and prefer- , kWh sales (1) 74 83 ence stock dividend requirements. Unbilled revenue (23) 29 - Other net 7 6 (R) In 1988, the Company adopted Statement of Financial Account. ing Standards ("SFAS") No. 90, " Regulated Enterprises-u al sm 52e 53
~
Accounting for Abandonments and Disallowances of Plant Costs," and recorded net after tax losses totaling $968 million, or A December 1988 MPSC rate order amended the Fermi 2 phasoin $6.60 per share ($344 million, or $2.34 per share, cumulative effect plan and granted $527.1 million of rate increases and other rate at January 1,1988 for years prior to 1988 and a $624 million, or changes for Fermi 2 to be phased in over the seven year period 54.26 per share, charge to income in 1988 which is net of accretion 19881994. The order also provided for a moratorium on other base income of $17 million, or $0.11 per share). These losses reflect the rate changes for the five-year period 1989-1993, an expense sta-MPSC's ratemaking treatment for costs incurred in the construc- bilization procedure which permits rates to be adjusted annually tion of the Fermi 2 and Eclle River Ibwer Plants and the removal of for the years 1990-1992 for the effects of inflation and a suspension Greenwood Unit No.1 from rate base. In addition, the Company of the Ibwer Supply Cost Recovery ("PSCR") Clause for the four-adopted, through recognition of the cumulative effeet at January 1, year period 1989-1992. The Company expects the PSCR Clause to 1988, changes in accounting for unbilled revenues and property be temstated beginning January 1,1993. taxes which increased total and per share earnings for common Changesin kWh saleswere as follows: stock by $201 million and $1.37, respectively, and partially offset increase thelosses recorded. (o,c, case) rrom Prior ivar Earnings in 1987 were supported significantly by the Allowance 3989 ings ing7 for Funds Used During Construction ("AFUDC") for Fermi 2 while Residential (1.7)% 5.3% 6.1% the unit was under construction. Higher kilowatthour ("kWh") Commercial 2.9 5.6 5.0 sales, lower other operation and mamtenance expenses and lower Industrial (1.7) 4.7 5.7 preferred and preference stock dividend requirements also con- Total (0.9) 3.7 38 tributed to higherearningsin1987. As a result of the above factors, return on average total common favorable business and economic conditions existed throughout shareholders' equity was 16.8% in 1989, (15.9)% in 1988 and 16.7% the Company's service area during the three-year period; how-in 1987. The 1989 return was higher than the return of 13% pro- ever, business expansion slowed in the fourth quarter of 1989 as ' vided for in a December 1988 MPSC rate order primarily because automobile and steel production declined toward year end, total common shareholders' equity was reduced significantly by reflecting plant shutdowns and weak automotive sales. For the the write-offs of plant costs recorded in 1988. fourth quarter of 1989, industrial sales were down five percent from the same period a year ago. The increases in industrial sales in 1987 and 1988 were due to increased sales to automotive, auto-motive-related and steel customers. The decrease in industrial sales in 1989 was due primarily to lower sales to automotive, - automotive related and steel customers, partially offset by higher sales to other industrial customers. The increases in commercial sales were due to continued growth in the number of customers. The increases in residential sales in 1987 and 1988 were due to increases in the number of customers and warmer summer weather, with record-breaking 1988 summer temperatures, result-ing in higher kilowatthour use per customer. The decrease in residential sales in 1989 was due primarily to cooler summer 32
]
Average unit costs for 1987 and 1989 reflect declining fuel prices, j werher. Total sales for 1990 are anticipated to remain at approx-imately the same level as experienced in 1989. Higher residential while the increase for 1988 reflects the buyback of Fermi 2 genera-and commercial sales are expected to offset the decline in indus- tion from the Wolverine Power Supply Cooperative, Inc. - trial sales which began in 1989 and is expected to continue into (" Cooperative"). See Note 6. The 1989 decrease also reflects 1990. greater use of lower cost Western low sulfur coal andimproved The Company is forecasting average long term sales growth operating performance of the Company's generating umts. between 1 and 1.4 percent per year. The Company expects to meet Because market conditions have changed and the Company is able near term demand for energy by the return to service, subject to to purchase coal at prices lower than some existing long-term - environmental regulations, of plants currently in extended cold contracts, the Company is buying out fuel supply contracts when.
- standby and economy reserve units when energy demand and everitis prudent and economic.
consumption requirements provide economic justification. How- Other operation expense decreased in 1987 due primarily to ever, the Company f aces continuing, and possibly increasing lower labc,r, pension and uncollectible expenses, partially offset by competition from cogenerators and independent power pro- higher employe and public liability insurance expenses and the ducers. Current laws rec luire the Company to purchase the write-off of power plant site studies. Other operation expense electrical output of certam non utility compames at a price increased in 1988 due primarily to the cost of operating Ferm12 approved by the MPSC. Current and proposed Federal Energy which commenced commercial operation in January 1988 and Regulatory Commission ("FERC") and legislative activities would expenses related to a voluntary separation plan which provides for further encourage the development of generating facilities by the early retirement of certain employes. Other operation expense independent power producers. Electric energy eventually pro- decreased in 1989 due primarily to lower expenses related to the duced by these other sources could result in displacement or loss voluntary separation plan and thelower cost of operating Fermi 2. of sales made by the Company; however, it could also become a These decreases were partially offset in 1989 by service fees and means of providing needed future capacity. expenses associated with the sale of acccunts receivable and unbilled revenues, i Operating Expenses-Operating expenses decreased in 1987, but , increasedin1988 and1989. Maintenance expense decreased in 1987 due to the improved Fuel and other power supply expense changed in each year due availability of generating equipment, partially offset by higher tothe followingfactors: storm expense. Maintenance expense increased in 1988 d ue pn- > marily to expense associated with the commercial operation of increase Ferm12, partially offset by lower fossil fuel production mainte-(twcrea e> Froin Prior year nance. Maintenance expense also increased in 1989 due primarily 1989 1988 1987 to higher fossil fuel prod uction maintenance (primarily at Monroe (Millions) Power Plant) and nuclear production maintenance due to the first Net system output $(12) $ 36 $ 33 scheduled refueling and maintenance outage at Fermi 2. Aver:ge unit cost (21) 99 (99) Depreciation and amorti?.ation expense increased due to Other 3 (3) (5) increases in plant in service, including the addition of Fermi 2 in Total h30) $132 51711 1988. Taxes other than income taxes increased due to higher Michi-Net system output and average unit costs for the th'ree-ye r period Single Business Tax, higher property taxes in 1988 and 1989 g an were as follows: resulting from the commere:al operation of Fermi 2 and higher payrolltaxesin1988and1989. 1989 1988 1987 jncome taxes increased in 1987 due primarily to higher pretax mmusands ofMcgauwrrhours) inecme and filed return and audit adjustments, partially offset by the effects of a low er federalincome tax rate under the TR A. rdwer[1 Foss tant generation 41,181 41.925 44,139 4,612 1,193 Income taxes decreased in 1988 due primarily tolower pretax Nuclear 3,756 ncome and the effects of a lower federalincome tax rate under the Purchtsed and net interchange power 12,o89) (1,430) (2,971) TRA. Income taxes increased in 1989 due primarily to higher ! Net system output 43,7N 44,251 42.361 pretax income. The effective income tax rate has increased from Aver:ge Unit Cost ($1Megawatthour) $20.72 $21.19 $18.95 22.3% in 1987 to 25.5% in 1989. See Notes 1 and 8. AFUDC, a non-operating non-cash item, consists of the net cost of borrowed funds used for construction purposes and a reasonable rate on other funds when so used. AFUDC increased in 1987 due to additional capital expenditures for Fermi 2 AFUDC decreased in 1988 and 1%9 when AFUDC for the Fermi 2 invest-ment was discontinued effec 6]anuary l,1988. AFUDC [ amounted to 57% of Earnings for Common Stock in 1987. Future l annual amounts of AFUDC are expected to approximate the 1989 level. See Note 1. I' 1 33
. e .
Deferred Fermi 2 depreciation and return, non-cash items of approved by the MPSC in December 1988 resulted in additional income, were recorded beginning with the implementation of the revenues related to Fermi 2, commencing January 1,1989, as Fermi 2 phase in plan on January 24,1988. The annual amounts described in Note 3. The commercial operation of Fermi 2 com-deferred will decrease in each year through 1992. See Notes 1 pleted the Company's power plant construction program. The and 3. Company has no current plans for additional generating plants. Accretion income, a non cash item of income, was recorded The C'ompany generates substantial cash flows from operating beginning in January 1988 in order to restore to income, over the activities as shown in the Consolidated Statement of Cash Flows. period 1988-1998, losses recorded due to discounting indirect dis- Net cash from operating activities is the Company's primary allowances of plant costs. The level of accretion income recorded source of liquidity and was $840 million in 1987, $548 million in increased in 1989, as a result of additional Fermi 2 losses recorded 1988 and $916 million in 1989. Net cash from operating activities in December 1988, has changed due primarily to changes in net income and, in 1989, Other income and deductions include a contribution of $5 mil- to the sale of accounts receivable and unbilled revenues. lion in 1987 to a charitable foundation. Net cash used for investing activities was $704 million in 1987, Interest expense on long term debt increased in 1987 and 1988 $263 million in 1988 and $259 miflion in 1989. Net cash used for due to the issuance of new securities, partially offset by refunding investing activities was higher in 1987 due to higher plant and of maturing securities and early repayment of Belle River project equipment expenditures and purchases from the Cooperative of a financing obligations in 1987. Interest expense on long-term debt portion of its ownership interest in Fermi 2. Net cash used for decreased in 1989 due to the early repayment of certain securities mvesting activities was lower in 1988 and 1989 due to a lower level and the refunding of maturing securities, partially offset by the of plant and equipment expenditures resulting from the comple- t issuance of new securities. tion of the Company's power plant construction program. Other interest expense decreased in 1987 and 1988 primarily as Net cash from financing activities of $1 million in 1987 was due a result of lower interest on refunds to customers, partially offset to more than $1.6 billion of debt financing which, when combined by increased interest due to higher levels of short-term borrow- with internally generated funds, covered capital expenditures of ings. The average interest rate for short term borrowings was 7.1% $709 million andpermitted early repayment of the balance of $825 for 1987, 7.9% for 1988 and 9.5% for 1989. million of the project financing for the Belle River Ibwer Plant, and Preferred and preference stock dividend requirements the repayment of maturing debt and redemption of higher cost decreased due to optional and mandatory redemptions of out- preferred and preference stock. Net cash used for financing standing shares. activities was $421 million in 1988 and $MS million in 1989. With the completion of the Company's power plant construction pro-Crnsolidated Balance Sheet gram, debt financing in 1988 and 1989 was used for optional and Customer accounts receivable and unbilled revenues decreased mandatory redemption of higher cost long term debt and pre-due to the sale of $200 million of the Company's accounts receiv- ferred and preference stock. Dividends on preferred and able and unbilled revenues under a five year program entered into preference stock decreased during the three year in February 1989. redemption of preferred and prefeience stock. pe Fuel inventories decreased due to lower fuel prices and lower Funds generated internally after payment of dividends on com-quantitylevels. mon, preferred and preference stock were 70% 128% and 169% of The Fermi 2 phase-in plan, recorded as deferred debits, capital expenditures (excluding total AFUDC) in 1987,1988 and increased due to the recording of non cash income items of defer- 1989, respectively. The higher levels of internal generation of red depreciation and deferred return in accordance with the funds result priniarily from increases in net income in 1987 and MPSC authorized phase-in plan for Fermi 2. These deferred 1989 and lower capital expenditures beginning in 1988, amounts will be amortized to operating expense as the cash recov- Cash requirements for capital expenditures from 1990 to 1994 ery of the deferred amounts is realized through revenues during are estimated to be approximately $1.4 billion (excluding approx-the period ending December 31,1998. imatelv $27 million of AFUDC). In 1990, cash requirements for Other deferred debits increased due to the recording in 1989 of capital expenditures are estimated at $245 million (excluding $4 $ 14.3 million of buyout costs for fuel supply contrxts. These million of AFUDC). The Company expects to meet the cash deferred amounts will be amortized to f uel expense to match costs requirements for capital expenditures from internal cash genera-with savings reali7ed under the replacement tuel supply contracts. tion. These projections do not include any expenditures for new generating plant, for the Company's 1990 planned purchase of the Liquidity and Capital Resources Cooperative's remaining undivided ownership interest in Fermi 2 The Company's liquidity has improved since the commercial oper- or for expenditures required as a result of changes to existing ation of Fermi 2 as a result of rate increases and lower levels of environmental regulations. capitalexpenditures. A rate phase-in plan for this unit became The Company has agreed 'o purchase the Cooperative's efIective on January 24,1988. Also, a rate case settlement remaining ownership interest in Fermi 2 in February 1990 for approximately $540 million ($513 million for plant, $25 million for nuclear fuel and $2 million for materials and supplies). The Com-pany will issue its General and Refunding Mortgage Bonds, which M
i. j ~ s ( , . L l-I will bear interest at the rate carried by the Cooperative's Fermi 2 mandatory redemptions of outstanding shares. The Company wel~ed debt of approximately SE as payment of the purchase expects to attain its capital structure objectives with future earn-price. See Note 2 ings and the redemption of certain debt securities prior to In 1989, Presicient George Bush proposed comprehensive scheduled maturity wheneconomic, a nendments to the Clean Air Act of 1970. Subsequent bills in the The ratio of earnings to fixed charges for 1989,1988 and 1987 - H iuse of Representatives and Senate focused attention on acid was 2.14,0.05 and 2.54, respectively. The ratio of earnings to fixed ram, urban ozone and hantdous air pollutants. The acid rain charges and preferred and preference stock dividend require-pn visions would require significant reductions in sulfur dioxide ments for 1989,1988 and 1987 was 1.95, 0.04 and 2.09, respectively, and nitrogen oxides emissions. No clean air legislation was These ratios increased in 1987 and 1989 due to an increase in - ena ted by Congress in 1989; however, if the present proposals are carnings before taxes based on income, but decreased in 1988 due ens ted intolaw, additional annual expenditures of from $135 to the write-offs of disallowed plant costs. milh m to $380 million would be necessary, beginning in the late Although the TRA resulted in a reduction in the federal income 1990 t to meet the proposed requirements. At this point, the_ tax rate, the cash requirements for the Company's income tax Company is unable to predict the likelihood of any clean air legis- liabilities have increased significantly in 1989 and are expected to lation being enacted, or what provisions such legislation may remain at an increased level over the next few years principally contai1. because of the alternative minimum tax and a reduction in the The Company's internal cash generation is expected to be suffi- amount of available investment tax credits that the Company can cient to meet scheduled long-term debt maturities and preferred utilize. See Note 8. 3 and pre erence stock redemption requirements which are approx- The Company has obtained insurance for certain of its tax-imately FIS6 million, $104 million,5415 million, $321 million, and exempt obligations. Such insurance arrangements provide for the
$56 millim for 1990,1991,1992,1993 and 1994, respectively. These funding of escrow accounts in the amount of $80 million in the g cash regt irements do not include annual principal payments of event that a prescribed debt ratio is exceeded, t $19 millia i beginning in 1990 for mortgage bonds to be issued to purchase the Cooperative's remaining undivided ownership inter- I"fl8tI8" est in Ferm12. The Company has been and will continue to be impacted by an The Corepany had short-term credit arrangements of approx. inflationary economy. Although the current inflation rate is rela-imately $3m 4 million at December 31,1989 under which no tively low, its compound effect through time is significant, borrowings were outstanding (the Company had $9 million in primarily in its effect on the Company's ability to replace its invest.
temporary ca ih investments at December 31,1989). The Company ment in utility plant. has substantidly reduced its short term credit arrangements The regulatory process limits the amount of depreciation because of redcced financing needs resulting from the completion expense recoverable through revenues to the historical cost of the l of its power pla st construction program. Company's investment in utility plant. Such amount produces The Compan vs objective is to achieve a capital structure of cash flows which are inadequate to replace such property in future approximately 40 % common shareholders' equity,5-10% pre- years or to preserve the purchasing power of common equity ferred and prefen nce stock and 50-55% long term debt. The capitalinvested. Company's capitai structure ratios (excluding amounts of long- The cost of fuel used in the generation of electricity, the Com-term debt and prefered and preference stock due within one year) pany's single largest expense, is subject to increase due to price wereas follows: escalationprovisionsintong termcoalcontracts.TheMPSC's December 1988 order suspends, for the four year period January December 31 1,1989 through December 31,1992, the PSCit Clause which pro-1989 1988 1987 vided forthecurrent recover ff l d h d d Common Shareholders' Eq aity 32.3 % 32.4 % 35.9% . interchangepowerexpense.yo ue an purc ase an netHowever, it Preferred and Preference Stoi 5.5 6.0 6.4 stableduringthe four-Long-Term Debt 62.2 61.6 57.7 expenses Pursuant towill be relatively's December the MPSC 1988 order, year perio a new expense i 1M0% 100 0% 100.0 % stabilization procedure applicable to approximately S750 million of l Cornpany operation and maintenance expenses, permits rates to be adjusted for the effects of inflation. Under this procedure, a As a percent of total capitalizat on, common shareholders' equity surcharge or credit will be implemented on January 1 of each of the decreased andlong term debt n.ereased due toa significant years 1990 through 1992 to offset annual increases or decreases in increase in long-term debt finan ings in 1987 and the write-offs of operation and maintenance expenses. Pursuant to a December disallowed plant costs m 1988. n e ratio of preferred and prefer, 1939 MPSC order, a surcharge estimated to increase annual reve- i ence stock to total capitalization h is decreased due to optional and nues by $27 million was approved for implementation on January 1,1990. See Note 3. t 35-
l \
- ComparatiPe Results of l Operations 1
1989 1988 1987 1986 ; Operating Revenues l ' Ilectric 53,171,456 $3,070,724 $2,825,910 $2,832,945 Steam 31,575 31,448 30,821 36,339 Total operating Revenues $3,203,031 53,102,172 $2,856,731 52.869.284 Operating Lapenses Operation Fuel 5 820,765 $ 646,678 $ 813,376 $ 741,206 Other power supply 142,240 146,773 47,814 191,126 Other operation 514,017 521,152 441,046 459,534 i Maintenance 291,365 275,610 245,736 258,655 1 Depreciation and amortization 364,554 325,423 237,325 232,240 Deferred Fermi 2 depreciation 05,234) (44,143) - - Taws other than income 225,763 212,656 179,308 177,381 Income tases 129,626 89.944 159.488 126.596 Total Operating Espenses 52,453,096 52,374,093 $2,124.093 52,186,738 Operating income 5 749,935 5 728,079 5 732,638 5 682,546 Other income and Deductions Allowance for other f unds used during construction 5 - 5 1,663 $ 136,452 $ 117,069 Deferred Fermi 2 return 107,169 134,264 - - Other income and deductions 675 (789) (3,435) (16,869) Income taxes 843 (769) 663 8,827 Disallowed plant costs - (875,372) - - Accreti(m income 50,188 25,866 - - Income taws - disallowed plant costs and accretion income (17,047) 225,171 - - Net Other income and Deductions 5 141,828 5 (489.966) 5 133,680 5 109,027 income Before Interest Charges 5 891,763 5 238,113 5 866.318 5 791.573 Interest Charges txmg-term debt $ 441,204 $ 451,415 $ 417,474 $ 399,429 Amortization of debt discount, premium and expense 4,368 4,593 3,626 2,721 Other 20,980 20,663 23,459 41,410 Allowance for borrowed funds used during construction (credit) 0,740) (3,224) (133,215) (129,082) Net Interest Charges 5 465,812 5 473,447 5 311,344 5 314,478 Income (Loss) Before Cumulative Effect of Accounting Changes 5 425,951 5(235,334) $ 554,974 $ 477,095 Cumulative Effect for Years Prior to1988 0f Accounting Changes fort Disallowed plant costs and abandonments (net ofincome laws of $111,257,000) - (344.147) - - Unbilled revenues (net of income taws of $40,912,000) - 61,367 - - Property taws (net of income taws of $ 101,306 000) - 139,288 - - Net lucome (Loss) $ 425,951 $ (378,826) $ 554,974 $ 477,095 IYeferred and Preference Stock Dividend Requirements 37,018 49,757 78,240 98,803 Earnings (Loss) for Common Stock 5 388,933 5 (428,583) 5 476,734 5 378,292 Common Shares Outstanding-Average 146,816,363 146,761,458 146,729,292 146,643,377 Earnings (Loss)lYr Share llefore cumulative effect of accounting changes $ 2.65 * (1.95) $ 3.25 $ 2.58 Cumulative effect for years prior to 1988 of accounting changes for: Disallowed plant costs and abandonments $ - 5 (2.34) 5 - Unbilled revenues 5 -
$ 0.42 5 -
5 - Property taws $ - 5 0,95 $ - 5 - Earnings (Loss)ltr Share $ 2.65 5 (2.92) 5 3.25 5 2S Dividends Declared IVr Share of Common Stock $ 1.68 $ 1.68 $ 1.68 5 1.68 Ratio of Earnings to fixed Charges (SLC Basis) 2.14 0.05 2.54 2.29 Ratio of Earnir gs to Fixed Charges and Preferred and Preference Stock Dividend Requirements (SEC Basis) 1.95 0.N 2.09 1.81 l '36
a . 1985 1984 1983 1982 1981 1980 1979 (Thousands) 52,738,356 52,439,835 52,260,021 52,078, % 5 52,011,217 51,776,364 51,667,679 49.801 58,370 49.637 44,289 42.840 36,150 30,832 52,788,157 52.498,205 52,309,65B $2,123,254 52,054,057 51,812 514 $1,698311 5 785,110 5 700,789 5 676,409 5 718,431 5 689,165 5 670,116 5 647,620 1 % ,918 1M,740 128,921 74,654 . 139,981 107,767 %,502 422,133 403,616 374,164 372,767 333,440 290,566 266.410 250,798 203,945 187,769 170,974 164,978 133,270 128,6(X) 218,502 190,420 171,940 161,430 150,240 141,948 129,644 175,556 144,471 142,743 118,537 117,224 115,520 99,552 l 124,939 131,459 145,559 %,912 M,388 37,012 54,706 52,173,956 51,959,440 51.827,505 51,713,705 51,659,416 51,496,199 51,423,034 5 614,201 5 538,765 5 482,153 5 409,549 5 394.641 5 316,315 5 275,477 5 113,225 5 130,350 $ 92,750 5 47,995 5 39,398 5 38,815 5 38,323 (5,240) 1,829 7,877 (4,820) (9,501) 692 3,664 1,642 (112) (5,487) 1,155 4,771 (669) (1,554) 5 109,'6'27 5 132,067 5 95,140 5 44,330 5 34.668 5 38,838 5 40.433 5 723.828 5 670.832 5 577,293 5 453,879 5 429,309 5 355,153 5 315,910 5 401,272 5 399,448 5 351,854 5 331,469 5 290,015 5 211,857 5 167,585 2,502 2,191 2,131 2,006 1,853 1,776 1,644 15,642 30,592 53,088 59,779 37,025 19,662 13,823 (133,103) (163,336) (194,402) (194,076) (133.%7) (66,708) (43,171) 5 286.313 5 268.895 5 212.f,71 5 199,178 5 194,956 - 5 166.587 5 139,831
$ 437,515 5 401,937 5 364,622 5 254,701 5 234,353 $ 188,566 5 176,029 5 437,515 5 401,937 5 364,622 5 254,701 5 234,353 5 188,566 5 176,029 103,264 1N.159 98.614 73,245 57,566 51,037 43,457 5 334,251 5 297,778 5 266,008 5 181,456 5 176,787 5 137,529 5 132,572 143,183,133 135,230,827 120,274.269 103,585,915 87,473,581 78,780,863 69,848,484 5 2.33 5 2.20 5 2.21 5 1.75 5 2.02 5 1.75 5 1,90 5 _
5 - 5 - 5 - 5 - 5 - 5 - 5 - 5 - 5 - 5 - 5 - 5 - 5 - 5 - 5 - 5 - 5 - 5 - 5 - 5 - 5 2.33 5 2.20 5 2.21 5 1.75 5 2.02 5 1.75 5 1.90 5 1.68 5 1.68 5 1.68 5 1.68 5 1.64 5 1.60 5 1.60 2.28 2.19 2.22 1.85 1.84 1.90 2.17 1.75 1.67 1.67 1.49 1.53 1.53 1.69 37
l Statistical Review 1989 1988 1987 1986 I Operating Revenues (Thousands) Residential - Electric $ 1,013,677 $ 984,689 d) 90538 5 &%E Commercial - Electric 828,106 760,040 701,275 693,071 Industrial - Electric 1,171,389 1,139,778 1,056,906 1,063,551 Other 189,859 217,665 193,342 232,457 Total 5 3,203,031 5 3,102,172 5 2,856.731 $ 2.869,284 Sales (Alillions of kWh) Residential 11,524 11,723 11,134 10,492 Commercial 8,552 8.310 7,873 7,50l Industrial 18,762 19,080 18,225 17,240 Other 1,747 1,MS 2.260 2.807 Total 40,585 40,958 39,492 38.040 Electric Customers (Year End) Residential 1,738,494 1,718,835 1,697,326 1,664,226 Commercial 162,255 158,850 155,216 148,987 Industrial 2,671 2,592 2,507 2,384 Other 1,925 1,917 1,919 1,896 Total 1,905,345 1,882,194 1,856,968 '1,817,493 Average Annual Use IYr Residential Customer (kWhl 6,668 6,866 6,635 6,350 Average Annual HillIYr Residential Customer $586.50 $576.70 $539.44 5532.74 Average Revenue IYr kWh Residential 8.80c 8.40c 8.13c 8.39c Commercial 9.68 9.15 8.91 9.24 Industrial 6.24 5.97 5.80 6.17 Capitalization (Ihousands) long-Term Debt 5 4,561,005 5 4,238,536 5 4,693,687 $ 3.6%569 Prelerred' Preference Stock 399,188 416,212 521,894 742,273 Common Shareholders' Equity 2,370,060 2.226,049 2.919,985 2.716.403 Total 5 7,330,253 $ 6.881,697 $ 8,135.566 5 7,115.245 Capitalisation (IVr(ent) Eong-Term Debt 62.2 61.6 57.7 51.4 Preferred' Preference Stock $.5 6.0 ' 6.4 10.4 Common Shareholders' Equity , 32.3 32.4 35.9 38.2 Total 100.0 100.0 100.0 100.0 Common Stock Data Earnings (las)lYr Share $2.65 $(2.92) $3.25 $2.58 Dnidend Paid IYr Share $1.68 $1.68 $1.68 $ 1.68 Payout 63 % -% 52 % 65 % Shares Outstandmg - Average 146,816,363 146,761,458 146,729,292 146,643,377 Return on Average Common Equity 16.75 % (15.91)% 16.69 % 14.09 % ikiok Value IYr Share $16.07 $15.10 $19.75 $18.34 hlarket Price fligh $25'in $17% $19 $19% low $17% $12 $12% $15h Miscellaneous Iinancial Data Average Interest Rate on Long Term Debt 9.5% 9.6% 9.5% 9.2% Average Dividend Rate on Preferred Preference Stock 8.8% 8.9% 10.7 % 11.5 % Long-Term Debt Obligations and Redeemable Preferred and Preference Stock Outstanding (Thousands) $ 5,028,961 5 5,148,498 $ 5.232,662 $ 4J74.495 Total Assets (Thousands) $ 9,949,599 $10,060,293 $11,158.214 $10,377,125 Gross Utilitv Plant (Thousands) $11,024,368 $10,766,755 $11,893,418 $11,062,449 Net Utility Ilant (Thousands) $ 8,236,553 5 8,303,644 $ 9,682,875 $ 9.034,716 Capital Expenditures (Thousande $ 242,973 $ 235,127 $ 709.084 5 645,1 % Miscellaneous Operating Data , System Capat@ty at Year End - htW 10,081 10,004 9,164 9,070 l System Capability at Time of IYak - htW 9,942 10,038 9,020 9,199 System IVak Demand - htW 8,704 9,133 8,427 8,050 Reserve klargin at Time ofIVak 14.2 % 9.9% 7.0% 14.3 % System Load Factor 57.3 % 55.2% $7.4% 57.9 % 1Icat Rate - Dtu lYr LWh 9,940 9,990 10,060 10,000 Fuel Cost - c IVr h1illion Btu 169.2c 173.8c 172.9c 189.2c Number of Emploves at irar End 10,254 10.614 11,221 10.967 38
4 . l 1985 1984 1983 1982 1981 1980 1979 t
$ F27,210 $ 758,124 5 741,399 $ 676,370 $ 642,301 $ 583,701 5 524,613 651.559 570.082 513,292 473,498 436.868 382,018 345,576 1,034.374 919,490 818,660 754.238 763,167 658,051 647,438 275.014 250.509 236.307 219,148 211.721 188.744 180.8M
$ 2,788,157 $2.498.205 $2,309.658 $2.123,254 $2.054,057 $1.817.514 $1.698.511 i
10,077 10,150 10,256 9,940 10,134 10,394 10,274 7,130 6.850 6,479 6,252 6,265 6.310 6,251 16,613 16,324 15,162 13,751 15,471 15,472 17,960 2.875 2.563 2.402 2.052 2.107 2,1N 2.406 36.695 35,887 34.299 31,995 34.022 34,235 36.891 1,642,981 1,629.668 1,621,172 1,619,369 1,623,162 1.624.161 1,622,768 144,942 142,395 140,403 139,376 138,830 136,983 135,788 2,314 2,246 2,253 2.239 2,293 2.305 2.264 1,883 1,885 1,878 1,827 1,821 i 1.750 1.713 1,792.120 1,776.194 1,765,706 1,762.811 1,767.117 1,764.188 1.762.533 6,165 6,253 6.332 6,133 6.243 6.408 6,402 5 506.06 $467.03 $457.74 $417.33 $395.66 $359.86 $326.92 8.21c 7.47c 7.23e 6.80c 6.Ne 5.62c 5.11e 9.14 8.32 7,92 7.57 6.92 6.10 5.53 6.23 5.63 5.40 5.49 4.93 4.25 3.60
$ 3,770,863 $3,845,272 $3,542.438 $3,218,649 $2,753,978 $2.450,457 $2,069,518 879.497 894.168 907,505 802.423 603,161 591,346 510,748 2.588.025 2.379,998 2.195,361 1.872.181 1,675.385 1,514,169 1,387,768
$ 7.238.385 $7.119.438 $6,645.304 $5,893,253 $5 032,524 $4,555.972 $3,968,034 52.1 54.0 53.3 54.6 54.7 53.8 52.1 12.1 12.6 13.7 13.6 12.0 13.0 12.9 35.8 33.4 33.0 31.8 33.3 33.2 35 0 100 0 100.0 100.0 100.0 100.0 100.0 100.0
$2.33 $2.20 $2.21 %1.75 $2.02 $1.75 $1.90
$L68 $1.68 $1.68 $1.68 $1.62 $1.60 $1.58 i 72 % 76 % 76 % 96 % 80 % 91 % 83 % 1 143.183,133 135,230.827 120,274,269 103,585,915 87,473,581 78,780,863 69,848,484 i 13.31 % 12.87 % 13.03 % 10.14 % 11.12 % 9.47 % 10.01% i
$ 17.47 $16.91 $16.63 $16.60 $17.47 $17.85 $18.46
$1TS $16% $16 $13% $12% $13% $15% 4
$14 $11% $13 $11 $10'in $10 $12%
9.9% 9.9% 9. % 9.5% 9.4% 9.0% 8.5% 11.6 % 11.6 % 11.6 % 11.3 % 9.8% 9.5% 9.0% i
! 4,731.589 $4.460.381 $4.155,329 $3,792,982 $3,182,033 $2.809,976 $2,332,200 *
$ 9.863,760 $9,276,614 $8,477,218 $7,645,856 $6.617,903 $5,751,801 $5,156.138
$10.466.039 $9,752,346 $8,845,779 W,252,570 $7,139.790 $6,213,495
$ 8.612,890 $5,660,023
$8,076,168 $7,320.570 $6,824.058 $5,842,997 55,026,245
$ 710.699 $4.590.829
$ 938.004 $1.014.568 $1,135.N5 $ 964.261 5 644,540 $ 591.389 i 9,296 8,898 8,162 7,762 8,221 9,367 8.2M 8,964 9,271 7,810 8,569 8,531 8.458 8.877 7,172 7.350 7,063 6,394 7,171 6,703 6,829 30.6 % 26.1 % 10.6 % 34.0 % 17.9 % 272% 30.0 %
63.3 % 60.2 % 60.2 % 61.7 % 58.4 % 63.1 % 66.2 % 9.990 9.990 10.040 10,060 10.060 10,140 10,280 202.0c 190.6c 190.2c 193.8c 190.5c 178.3c 163.4c : 11.086 11.136 11,152 11.208 10,789 11.024 10,908 I i 39'
=
Aliscellaneous Corporate Data Market for the Company's Common Equity and Related Distribution of Ownership of Shareholder Matters Detroit Edison Common Stock The Company's Common Stock is listed on the New York (Decenkr31,1989) Stock Exchange, which is the principal market for such 77, o, o,n,,, stock, and effective September 12,1989, the Midwest Stock owners shares Exchange, Inc. "1 he following table mdicates the reported Indinduals 92.377 24,075,129 high and low sales prices of the Company s Common Stock joint Accounts 85,943 30,000,444 on the Composite Tape of the New York $tock Exchange and Trust Accounts 7,461 4,080,092 Nominees 109 74,933,111 dividends paid per share for each quarterly period during Instnutions and Foundations 234 116,182 the past twoyears'. Brokers and Security Dealers 20 17,603 Dividends Others 1,252 13,637,008 Price Range. Paid Total 187,396 146.859,569 Calendar Quarter High low IVr Share State and Country:
- 1989 First 518 % $17% 50.42 Owners Shares Second 21% 17 % 0.4.
0.42 Michigan 87,710 40,612,794 Third 22 % 20% 0.42 Florida 13,178 5,222.998 Fourth 25% 22% ' Cahfornia 11,267 3,707,805 1988 First 15% 12 % O.42 0.42 New York 9,688 76,479,691 Second 14 % 12 Third 15W 13 0.42 Illinois 8,552 2,937,303 Ohio 6,508 1,955,354 fourth 17W 14 % 0.42 44 0ther States 49,811 15,757,568 At December 31,1989, there were 146,859,569 shares of Foreign countries 682 186,056 the Company's Common Stock outstanding. These shares Total 187.396 146.859,569 were held by a total of 187,3% shareholders. The amount of future dividends will depend upon the Company's earnings, financial condition and other factors. Annual Meetingof Shareholders tions at the 1990 Annual Meeting because of the By-Laws age The 1990 Annual Meeting of Shareholders will be held at restriction. As reported above, Mr. Ernest L. Grove, Jr., Vice 9:30 a.m. Detroit time Monday, April 23, at The Detroit Chairman of the Board, retired October 1,1989. Edison Company General Offices,2000 Second Avenue, Corporate Address Detroit. Shareholders will be asked to elect members of the The Detroit Edison Company ~ Board of Directors and to ratify the appointment of Price 2000 Second Avenue. Detroit, Michigan 48226 Waterhouse as independent accountants for the Company. Telephone:(313)237 8000 At the April 24,1989, Annual Meeting,14 members were Independent Accountants re-ek cred te the Board of Directors. All directors were PriceWaterhouse elected to one-year terms. Shareholders overwhelmingly 200 Renaissance Center, Detroit, Michigan 48243 defeated a proposal regarding nuclear waste disposal. Form 10-K Officer Retirements Copies of Form 10-K, Securities and Exchange Commission Walter J. McCarthy, Jr., will retire from the positions of Annual Report, are available. Chairman of the Board and Chief Executive Officer of Requests should be directed to: Detroit Edison on May 1,1990, af ter serving the Company Susan M. Deale for more than 26 years. He is a nominee for re-election as a Secretary director at the1990 AnnualMeeting. The Detroit EdisonCompany Ernest L. Grove, Jr., Vice Chairman of the Board and 2000 Second Avenue, Detroi~t, Michigan 48226 Chief Financial Officer, retired on October l,1989, after TransferAgents more than 14 years of Company service. The Detroit Edison Company Burkhard II. Schneider, Genior Vice President, retired on 2000 Second Avenue, Detroit, Michigan 48226 Charles A. Babcock Elaine M. Godfrey February 1,1990, afier more than 40 years of Company Susan M. Beale So hieJ.Koziatek
"" ** I# "##8 f er Changes The following officers have been elected since the 1989 Q.,',"ro t E onCompa -
Annual Meetmg: Frank E. Agosti, Senior Vice President; 2000 Second Avenue, Detroi , Michigan 48226 Leslie L. Loomans, Vice President and Treasurer; and (Preferred, Preference and Common Stock) Robert V. Nicolson, Vice President Fuel Supply. Common Stock Director Retirements L sted on the New York Stock Exchange and the Mr. Frank Merriman, a director since 1976, and Mr. Louis H. Midwest Stock Exchange Roddis, Jr., a director since 1983, will not stand for rc ek c-Symbol- DTE 40
4 Directors and Officers
'M i Terence E. Adderley President and Chief Executive Officer, Kelly Services, Inc. (A provider of temporary help, business services and home care services)
Wendell W. Anderson,Jr. Retired Chairman of the Board and Chief Executive Officer, Bundy Corporation (Manufacturer of steel tubing, flexible hose and enginected plastic products) ] Lillian Bauder President, Cranbrook Educational Community j i David Bing Chairman and Chief Executive Officer. Bing Steel, Inc. (A steel service center) David M. Gates Professor of Botany, University of Michigan John E. Lobbia President and Chief Operating Officer, The Detroit Edivan Company Patricia Shontz Longe Economist; Senior Partner, The Longe Company ( An economic consulting and investment firm) WalterJ. McCarthy, Jr. Chairman of the Board and Chief Executive Officer, The Detroit Edison Company i Frank Merriman Dairy Farmer (not standing for re election) Eugene A. Miller Chairman, President and Chief Executive Officer of Comerica, Inc., and Chairman and Chief Executive Officer of Comerica Bank Detroit Dean E. Richardson Chairman of the Board, Manufacturers National Corporation and Chairman of the Executive Committee of Manufacturers National Bank of Detroit (retiring from these positions effective Aprill, b90) 1 Louis 11. Roddis, Jr. Consulting Engineer (not standing for re-election) Alan E. Schwartz Senior Partner, Honigman Miller Schwartz and Cohn (attorneys at law) Otis M. Smith of Counsel to Lewis, White and Clay (attorneys at law) and retired Vice President, General Motors Corporation
. o .
s i Audit Executive Nominating Organization and Otis M. Smith
- Walter J. McCarthy, Jr
- Alan E. Schwartz
- Compensation Lillian Bauder Lillian Bauder WendellW. Anderson,Jr. WendellW. Anderson,Jr.*
David Bing John E. Lobbia David M. Gates Terence E. Adderley" Patricia Shontz Longe Frank Merriman Patricia Shontz Longe Frank Merriman Dean E. Richardson Dean E. Richardson Frank Merriman Eugene A. Miller Alan E. Schwartz Otis M. Smith Dean E. Richardson Alan E. Schwartz l Energy Resources Finance Nuclear Review Retirement Fund Review i Plannlng Dean E. Richardson
- Louis H. Roddis, Jr.* Patricia Shontz Longe' WendellW. Anderson,Jr."
! Frank Merriman* Patricia Shontz Longe" David M. Cates" ( WendellW. Anderson,Jr." TerenceE. Adderley Patricia Shontz longe David M. Gates l David Bing Lillian Bauder Frank Merriman Otis M. Smith David M. Gates Eugene A. Miller
- Chairman John E. Lobbia Alan E. Schwartz "vice chairman Louis 11. Roddis, Jr.
Walter J. McCarthy, Jr. Chairmanof the Board and Chief Ronald W. Gresens Vice President and Controller ! ExecutiveOfficer M. Jane Kay VicePresident-Administration John E. Lobbia President and Chief OperatinS Leslie L. Loomans Vice President and Treasurer i Officer Robert V.Nicolson Vice President-FuelSupply ~ Leon S.Cohan Senior Vice President and William S. Orser Vice President-Nuclear GeneralCounsel Operations Frank E. Agosti Senior Vice President S. Martin Taylor Vice President-Community and Willard R.11olland SeniorVice President Governmental Affairs B. Ralph Sylvia Senior Vice President SaulJ. Waldman Vice President-Public Affairs Stanley G. Catola Vice President-Nuclear Susar. M. Beale Secretary I Engineering and Services Frederick S. Karwacki General Auditor Malcolm G. Dade, Jr. Vice President-Human Resources 41
Detroit
- BULK RATE Edisor) =~=m%. U.S. POSTAGE
. Auslyg 4y PAID
- Detrat Edson l
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