ML20116B237

Annual Rept 1984. Annual Financial Statements for Woolverine Power Supply Cooperative,Inc Encl

ML20116B237
Person / Time
Site:	Fermi
Issue date:	12/31/1984
From:	Heidel C, Jens W, Mccarthy W DETROIT EDISON CO.
To:	Harold Denton Office of Nuclear Reactor Regulation
References
NE-85-0663, NE-85-663, NUDOCS 8504250154
Download: ML20116B237 (69)

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FINANCIAL HIGHLIGHTS TABLE OF CONTENTS Percent The Meaning of a Theme Page i...l etter to Shareholders:

1984 1983 (Decrease)

Striving for Excellence is more than Operating Revenues

$2.498,205.000

$2.309.658.000 8.2 the theme of this report. It is a com-mitment to our shareholders and Earnings for Common Stock

$297.778.000

$266.008.000 11.9 ourselves.

Earnings per Common Share

$2.20

$2.21 (0.5)

Page 4... Striving for Excellence in Serving the Customer: Providing reli-Common Shares Outstanding ( Averagel 135.230.827 120.274.269 12.4 able customer service with adequate Dividends Paid per Share

$ 1.68 S1.68 generating capacity remains an abso-lute "must" for Detroit Edison.

Gross Utility Plant

$9.752.346.000

$8.845.779.000 10.2 Page 8...Strivin4 for Excellence in Capitalization

$7.119.438.000

$6.645.304.000 7.1 Managing the Business: The measure

jfyTu"nt ebuj Salesof ElectricityikWh-Thousands) 35.887.000 34.299.000 4.6 se i ntly System Capability at Time of Peak (kW) 9.271.000 7.810.000 18.7 while providing effective, reliable service.

System Peak Demand ikW) 7.350.000 7.063.000 4.1 Page 12...Strivs.ng for Excellence in Electric Customers at Year End I.776.000 1.766.000 0.6 Financial Aflairs: Progress in i 984 in-cluded revenues, sales and earnings up and capital spending down dramatically.

Page 16... Striving for Excellence ln Working with Ihe Community; A company should be part of the communities it serves, in as many ways as possible. Detroit Edison prides itself on being a good neighbor.

Page 20... Striving for Excellence in Planning for the Future: Detroit Edison's long-range strategic planning includes ensuring enough electricity for all customer needs-now and in the future.

Page 2*l...Tinancial Statements About the cover:

Man-made light blends softly with the sunset at Detroit Edison's new Belle River plant -a key unit in the Com-pany's long-range program to provide modern, adequate generating facilitles nowand for the future.

,[3l[ ff E At Detroit Edison " Striving for Excellence" m:ans trying to achieve the highest l

level of performance possible in everything we do.

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Therefore. Striving for Excellence is more than the theme of this report. It is

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You, as shareholders, expect us to make intelligent decisions to maximize

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optimum balance between spending and results-in other words, to be

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'i cost effective, to get what we pay for and to pay only for what produces

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. i f i,'.{,.L value in line with pre-determined objectives. That adds up to excellence.

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Our customers expect the same of us, because cost-effectiveness normally Cg.3

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to keep rates as low as possible.

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Our employes want us to excel. too. by giving them the tools - effective and e

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sensitive management as well as physical tools - to enable them to perform

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their jobs to the standard of safety and excellence we expect of them. They l

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also expect to be compensated fairly and treated with dignity.

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Finally. the communities we serve expect us to be good citizens under the f( N- _

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munities better places to live and work. ultimately it will also benefit our

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7. x.7-considered earnings per share, and in that respect we ended 1984 at The bottom line of theshareholder's definition of excellence is normally pr~. 2

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just about the same level as 1983 - $2.20 vs. $2.21 in 1983. However, i

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$298 million. The slight reduction in earnings per share resulted from overall earnings for common stock were up by 11.9 percent to a record l

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,c'/. @;i an additional 15 million shares outstanding, on average, in 1984

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s Revenues rose 8.2 percent to a record $2.5 billion as a result of a 4.6 e?

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percent rise in kilowatthour sales, plus rate increases. Sales were the 7i -

fourth-highest in our history despite the fact that the area economy still has not fully regained the heights it achieved, in terms of Q

automobile and steel production, in the late 1970's.

4r % @y An important factor in our 1984 sales performance was Detroit 4j LM 2yA./O(f' Edison's continued leadership in helping attract new business to s

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waiter tMcC^[,M,r'd and Southeastern Michigan, in helping persuade businesses already g1 Cgy$cutive M**'

located here to remain and expand, and in helping make the area charles M more attractive to business and industry generally.

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r Among our more recent activities in mind that increased costs for -

ggbtrIVing for Excellence of this type has been the addition environmental protection repre-is H! Orc thdH lhe lhCH!C 0[,

of six highly skilled professionals to sent an additional burden to our i

an already active Economic Devel-customers - particularly industrial INf 5 report. If I5 6 (OlHHillHICHf j opment Department to work with customersin the automotive and

!O poll-dHd lo OUTSCIPPS. 77 h county and municipaldevelop-steel industries, for example, which ment agencies as well as directly already are at a competitive disad-with individual businesses.

vantage to foreign producers.

We also have developed several when the public health and safety special" incentive" rates to en-are at stake, we clearly spend what courage outside industries to is necessary for protection. But locatein Southeastern Michigan where we already are complying and to encourage those already with regulations more stringent here to broaden their operations.

than those in other states-as here Activities such as hosting the 1983 in Michigan-we feelan obligation Congress on the Economic Future to make, on behalf of our custom-of the Great I.akes States, and serv-ers, our case for reasonablelimits ing as an active founding partnerin to environmentalcosts.

the Greater Detroit / Southeast Michigan Business Attraction and Expansion Council,also have con-ggWebel,. eve lhal 6 6eu, ig 9

tributed significantly to the improv-900d (orporale ond individual ed business climatein Michigan-(IlirCHS* IPc help IHIIfr0Pc and to expanded business for Detroit Edison.

COHIHHinilE25 [Or bolh Our5CIVC5 Detroit Edison is committed to dild Olbers. "

excellence in all ofits operations.

Frequently this requires a difficult We are committed to excellence in search for the optimum balance our relations with the communities among competing pressures. For we serve. Frequently this involves, example,we strive diligently to as described later in this report, minimize theimpact of our opera-extraordinary activities by both the tions on the environment, but keep Company and its employesin sup-port of community efforts. We believe that by being good corpo-ggWe have dercioped 5pecial iHccHlive' ratc5 rate and individual citizens. we help 10 CHCont'Gge indH5Erial Cl Sl0HICr5 l0 50Cale Ill 1vland 9

er re no Southeastern Michigan.

and those who may be attracted to 4

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i "We view att prosteins and issues as the area in the future. In the pro-cess. we build mutual trust and (NAIICU0c5 IVhiCN, properly handled, WIll understanding between ourselves nsake Detroit Edison a beller conipany. H and the communities-something we believe is essential.

Throughout our operations we when the 1973 oil embargo and Having adequate generating capac-I strive to use the latest, most effi-other developments led to reduc-ity is just one of many issues your cient, state-of-the-art equipment tionsin the demand for electricity Company has anticipated and dealt l

and systems to achieve our goals.

and other forms of energy, we can-with in itslong years of efficient Utilities,like many other older or celled three of the projected units operations and strategic planning.

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- traditional businesses, often are but proceeded with the rest. The We do not have all the answers.

thought of as " smokestack" indus-last two will be in operation in 1985.

But we do have the determination tries as opposed to the newer "hi-providing an adequate supply of to excel-to strive for excellence.

4 tech" enterprises. However, as the electricity to carry Southeastern We believe part of that determina-descriptions and photographs Michigan to the frontier of the next tion must be to view all problems throughout this report demon-century.

and issues as challenges which.

strate, modern technology is an Occasionally, we and other utilities pr perly handled.will make Detroit

, tegraland essential part of our have been accused of building too Edison a better company forits m

operations,n virtually every de-shareholders,its customers. its i

many power plants. However, the l

partment and activity.

electric utility industry historically empi yes and the communities

,it serves.

j Finally, planning for the future is an has needed a reserve capacity area in which nothing but excel-above peak demand to provide fence can be tolerated. We pioneer-reliable service and to enable us to ed the concept of strategic plan-maintain our equipment, which ning among utilities and we review.

-except for scheduled maintenance-update and fine-tune our plan receives full-time heavy-duty use.

annually. Our planning capability in terms of actual experience, this '

reserve margin has made it possible.

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for our industry to avoid power short-r lanlillig for the [ninre 15 l

ages more than 99 percent of the an area ill IPhich nothing hnl time. For a public utility, the unfor-eX(ellence can be roterated. >> 1 siveabie sin is to be unabie to serve - for lack of generating capacity led to a long-range power plant or any other reason-so that people construction and modernization can live safely and comfortably; program which included new gen-industry can continue to provide jobs, erating units-all but one nuclear products and services, and our or coal-fired - totalling 8.4 million schools and cultural institutions can kilowatts of new capacity.

make people's lives more fulfilling.

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l Tne worst ice storm in five years hit much of southeastern Michigan on New Year's Day of 1985. During the next week. Detroit Edison repair crews worked around the clock to restore service to 130.000 homes, schools and I

businesses darkened and chilled by ice damage to power lines.

As soon as the storm struck, the Company began broadcasting frequent radio warnings to stay away from fallen wires. No accidents or injuries were reported.

After the storm, a suburban Detroit flower store marquee read:

" Electricity is Creat. Our Thanks to Edison Crews."

f This kind of quick action during the first week of 1985 was typical of the type of service Detroit Edison customers have come to expect and receive in the Company's 82 years. Detroit Edison has an exceptional customer service record and works hard to maintain and improve it. In customer service, as in all other aspects of its operations. the objective is excellence.

Aside from storm repairs Detroit Edison offers services ranging from special rates which in many cases help customers control their own electric bills, to aid for the needy. The Company has made it possible for customers to pay their bills by telephone and credit card, and has installed drive-through windows at some custcmer offices. Further. Detroit Edison con-ducts or participates in a broad range of programs intended to prevent power shutoffs when customers are not immediately able to pay their bills.

One area where the Company endeavors to provide good customer service is in the reading of meters. Despite the difficulty of the job. despite occa-x sional labor problems and despite bad weather and the inaccessibility py" of some meters, we have increased our individual readings and will continue to do so. This means better customer satisfaction and fewer time-consuming inquiries and complaints.

Detroit Edison continues to help its customers use electricity wisely. It leads all Michigan utilities in performing low-cost home energy audits, with 185.000 completed through 1984. The Company examines individual homes and shows the owners how they can save on their energy costs through insulation. sealing leaks and other techniques. The audits were extended in February 1985 to commercial customers-mainly small businesses and y

apartment buildings-under a new Business Energy Management Program.

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In a continuing effort to communicate regularly with its customers. Detroit

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Edison publishes a quarterly news review called " Customer Currents" and uneman charles crosena in 1984 inserted a note in bills thanking more than a million residential and

,,3[,'# N[,8jrlrth commercial customers for their good payment records. The response to both has been excellent.

New Year's ice storm. Afwe.

Customer relations representative Mary Wells-Rucker (left) provides a customer with energy assistance.

But of course the basicingredient into lower power costs. Further.

-the prime test of excellence-in the plant uses low-sulfur coal, proviJing first-rate electric service which makes it possible to meet is seeing that all customers-pre-Michigan's stringent clean-air sent and future-have enough requirements.

power for their business and per-The Belle River Power Plant also sonal requirements.

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One way to ensure that is to have new facility went into commercial g

modern, efficient and reliable facil-operation August 1.1984,and y)-

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ities. Detroit Edison has those quickly exceeded the high goals M

throughout its system -especially that had been established for its J

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" availability"- a key efficiency P-a broad post-World War 11 power gauge and one in which the Com-plant construction and moderniza-pany's overall system excels

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tion program which is now all but (see page 10).

complete. The program is vital to the Fermi 2. the Company's first nucle-e.

economic growth of Southeastern ar power plant, expects to receive

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permission early in 1985 to test-I Four of the Company's latest gen-operate at low power and then will erating units comprise the Monroe load 764 fuelassemblies contain-N' Power Plant, one of the largest ing 15 million uranium fuel pellets.

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coal-burning facilities in the world.

Into the plant's 769-ton reactor. lin Two other units will make up the one year. just three of those 15 mil-j Belle River Power Plant near St.

lion peIIets can generate as much Clair; one unit is in commercial electricity as a dozen barrels of oil operation now and the other will or three and a half tons of coal!)

be in mid 1985. Still another is the When Fermi 2 receives authoriza-Fermi 2 nuclear power plant also tion for full-power operation later i

scheduled to begin commercial in 1985 it will be capable of provid-l operation in 1985.

ing 1.1 million kilowatts of elec-The Monroe Power Plant is large.

tricity-about the same as the two efficient and environmentally Belle River units combined but

" clean." In 1981 and '82 - the last below the 3-million-kilowatt capac-years for which industry figures are ity of the Monroe plant. The only available-it generated more elec-other Detroit Edison facility larger tricity than any other U.S. power than Fermi 2 and Belle River is the Customer representatin Vanessa Danicls (abow; af a new drie-J plant. Operating with high avail-six-unit St. Clair Power Plant, which through storion for bill ragments. orrosile raac. afar A octroit ability and output volume resultsin has a capacity of almost 1.4 million

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need ro csrimate rourr usage.

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Preparatory to fuel loading. Fermi 2 successfully underwent a long series of preoperational tests and passed a rigid series of inspections required by the Nuclear Regulatory Commission INRC). Among them was the review of emergency prepared-ness. for which the NRC awarded the Company a top grade of one and said the plant "dernonstrated good coordination. training and knowledge needed to mitigate a nuclear emergency 1 in that con-nection. the Monroe County Com-mission approved in December a

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county radiological emergency e*'

response plan, thus meeting

,w Y2 another requirement for NRC licensing. A lanuary 6th review of e

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Free Press called Fermi 2 a success for the beleaguered U.S. nuclear power industry.'

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--"2-Together. Monroe Belle River. Fermi

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2 and the Company's other power plants will have the ability to gener-l ate almost 10.6 million kilowatts of electricity and help ensure present

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Tne measure of a Company's management is its abmty to run tne business et-ficiently - to save every dollar possible without sacrificing the tools needed to deliver a product on time, in sufficient quantity and with effective, reliable service.

Essential to business and management success is a loyal, careful, highly motivated work force of the type Detroit Edison has possessed for many years. Again in 1984, management emphasis on safety and job enrichment paid handsome dividends: 183 company units representing almost half of Detroit Edison's work force finished a year or more with no lost work days due to injuries, and employes achieved their best year for attendance since the Company started its present record system in 1971. Almost 30 percent of all Detroit Edison employes had no absences during 1984!

These qualities proved vital during a severe test of managerial ingenuity and employe adaptability in mid-1984, when an honest disagreement with one of our labor unions led to a 46-day strike. Top management mobilized some 2,000 supervisory and administrative employes from all parts of the Company to keep the power plants going, with many of the " recruits" working 12 hours1.388889e-4 days <br />0.00333 hours <br />1.984127e-5 weeks <br />4.566e-6 months <br /> a day at jobs totally new to them. However, because of adequate contingency planning, which included carefully devised training courses, as well as the leadership of both corporate and on-site manage-ment, these substitute employes performed remarkably well and electricity flowed without interruption throughout the strike.

Detroit Edison management has continually taken steps to streamline and modernize operations in a broad range of Company activities.

In 1984, for instance, we:

• Signed new long-term contracts at favorable prices with Bethlehem Steel (10 years) and the U. S. Department of Energy (30 years) for low-sulfur coal and uranium enrichment services respectively to fuel our power plants.

Also completed was a new 10-year agreement with Conrail to haul the Beth-lehem coal from West Virginia to our Monroe Power Plant.

• Became the first company to use all-aluminum railroad cars to carry low-sulfur coal from Montana to Superior. Wisconsin, for trans-shipment by boat to Detroit Edison plants. The lighter cars each can carry eight more tons than steel cars and will save the Company about $1.5 million a year in J

freight charges.

• Signed important new agreements with our two major unions covering the next several years-with the Utility Workers Union of America until 1987, and with the International Brotherhood of Electrical Workers until 1988.

Instr:ector Dean lohnson (left) and contract consultant William Richardson examine a train-ing grid at the Fermi 2 control room simulator topposite page). Left; President Charles Heidel inspects Vermi 2 wsth security c(ficer William Ferich.

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• Began modernizing two facilities

• Operated our power generating 7[

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critical to etficient power-load man-system at an average ~ availability' j

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agement - the System Operation of 92.X0 percent -above both our

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Center ISOClin downtown Detroit 1983 experience and our 19X 1 cor-

~.i and the Michigan Electric Power porate objectise of 91..! percent.

Coordination Center in Ann Arbor Availability reached an a!!-time which Detroit Edison operates joint-daily record of a noarly perfect

)

,s

ly with Consumers Power Com-99.37 percent on June 18.1981.

g pany The new SOC equipment will and a weekly peak of 96 3X per-increase the Company s ability to cent June 17-2 3. Later last summer.

i control and monitor the produc-on August 7. the system met a tion and distribution of electricity.

peak demand of 7. 3 5 million kilo-y

• Mosed decisively to reduce grow _

watts of electricity - second only to the all-time record of 7 3M milhon i

ing health-care costs. Transferring administration of a portion of the produced on July 15.1977.

Detroit Edison employe health-

• Similarly. achieved a new Com-care plans outside the Company pany record for thermal etficiency saved $2 1 million in 1981. and in power plant operations and held C

added administratise changes in average 198.1 f uel costs at the 198 3 1983 should result in another sig-lesel and only 5.5 percent above nificant savings in addition. the those for 1980. Contributing to Company conducts an on-going these performances were the in-educational program to instruct creasing system availability men-employes in the most economical tioned above and continued max-use of health-care benefits: this is imum use of our highest-ef ficiency.

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of particular importance because lowest-f uel-cost generating units

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~2 starting in 1985, employes will pay

• Instituted new purchasing pro-g a portion of future increases in the cedures to evaluate t he performance j

j cost of health-care coserage of vendors serving the Company.

f

• Expanded the scope of the Com-

• Introduced new programs to im-I pany's new subsidiary. lJtility Tech-prose the skills of high-potential nical Services. Inc. IlJTSL interna-employes and prepare them for tionally with sale of services to Ihe more demanding managerial re-People ~s Republic of China to im-sponsibilities in the f uture. T hese prove the etficiency of electrical programs are part of a broad em-

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generating facilities in Sichuan playe training curriculum w hich Province. IJT S also completed a during 1981 had about 7.500 men f

number of additional transactions and women -almost three-fourths j,

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in the lJnited States.

of the work force-taking specially e

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work more efficiently.

ment for the first time since 1979.

• Developed and conducted a spe-

• Instituted many power plant im-7 cial orientation program to increase provements, including construc-ihc (lM

'n e r women employes" interest in appren-tion-ahead of schedule and t

tice lineman positions: 35 women below budget-of a new flue gas T

applied for openings.

conditioning system at Monroe to

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• Adopted advanced legal prac.

meet a Michigan standard limiting i h.hj\\M tices and proceduresin the claims the sulfur content of coal to one g4g area to protect the Company and percent by the end of 1984:a new its shareholders by avoiding litiga-unit digital boiler control system at

, NUM tion where possible and contesting River Rouge which will save $180.000

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unfair compensation awards by a year in fuel costs, and a new coal

1. W' juries. In specific cases the Com-mill house atTrenton Channel.

pany initiated actions to hold down

• Designed and built a unique " test-

y fue; transport costs and contest un-loop" apparatus to facilitate chemi-warranted fuel-contract increases.

cal cleaning of power plant boilers.

• Improved the operation ofits The system was used successfully Shareholder Services Department at Monroe and Belle River in 1984

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to achieve speedier resolution of with savings exceeding $100.000.

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stockholder concerns.

Vital to and concurrent with these f((g. g a ;.

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• Expanded corporate economic and many other activities are broad i

development activities which seek management initiatives to chart Mt J

to attract new businesses to South-the Company's present and future

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eastern Michigan and to persuade courses. They include ongoing and

,f existing businesses to remain in constantly updated programs to

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li the area and, where possible, monitor revenues and earnings: to

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hold down costs and budget judi-

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"il by Detroit Edison's activitiesin this ciously; to ensure continued 1 %. c. c

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p ^s regard contributed to a six percent orderly management succession:

y business growth in Southeastern to maintain our generation and Michigan in 1984, and Company transmission facilities at state-of-

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i economists predict a further two the-art levels, and to keep long-f.....

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percent growth in 1985 and a drop range corporate planningin tune 1.i with both internaland external g_.-

r forces impacting our business.

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room at the Michigan Electric Power Coordination termine the degree of excellence

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~, Centerin Ann Arbor.Below: Engineering technician we achievein all our operations.

orpositepage,above: A birdseyeviewof thecontror

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Michael Sienkscwscz at Ferms 2. Thus page. above-Education director Carlton Stewart leads a business systems seminar for emplongs. Below:

Startup engineer Dan Estes inspects equipment at Belle River Unit 2.

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a Once again in n984. Detroit edison recorded new nighs for revenues and totaf earnings on common stock. At the same time, it moved a year closer to completion of a power plant construction program that has continued virtually uninterrupted since the end of World War 11: winding up this program will provide significant relief from future capital spending.

Contributing to the Company's favorable financial performance were the highest kilowatthour sales since 1979, plus rate increases control and re-duction of operating and maintenance budgets. higher ratings for corpor-ate securities and an improved local state and national economy.

Despite a 46-day strike in June and July - during which electrical output continued without interruption - 1984 earnings of $298 million on common stock outran the 1983 total by 11.9 percent and were the highest on record.

Per-share earnings on common stock were $2.20 compared with $2.21 the previous year. The slight drop reflected an increase in the average number of shares outstanding from 120 million in 1983 to 135 million in 1984.

Total revenues were $2.5 billion, up 8.2 percent from 1983, on sales of 35.9 billion kilowatthours of electricity, which were 4.6 percent higher than those for 1983. The year-earlier totals were $2.3 billion in revenues and 34.3 billion kilowatthours in sales.

The 1984 return on common equity, at 12.9 percent, compared with 13 per-capitalExp.gtures wmons@W cent the previous year and remained below the 15 percent authorized by the ed.

Michigan Public Service Commission (MPSC).

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Capital spending continued a gradual decline in 1984, reaching $938 million compared with $1.015 billion in 1983 and $1.135 billion in 1982. With most power plant construction finished spending should dip to about $500 l

million in 1985 and below that in future years. further strengthening the Company's cash position and lessening the need for both external financing and future rateincreases.

External financing totaled $505.4 million in 1984, compared with $882.3 million the previous year. It was aided by improved ratings of Company securities from Duff and Phelps. Inc.,in June and from Standard and Poor's Corporation in August.

'i i

llama s The total consisted of $16.3 million in pollution control bonds in February, N

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June and October: $376.7 million in unsecured term notes in April. May and t

87 October, including $31.7 million as the final borrowing under the $1.2-billion a6 82 Belic River project financing, and a combined $112.4 million in common 81 9

C) stock sales under the Dividend Reinvestment and Common Share Purchase Plan and the Employes' Savings Plans.

Opposite paae A computer reflects the studious face of (:nancial analyst Donald Keller.

I3

The Company's Dividend Reinvest-1984 Financing Earnings per Share worrani ment and Common Share Purchase 2.50 Plan open to allshareholders.

Non$h Am t C r y

' " " " " ' ~ ' * " " * ' " " '

continued to be popular in 1984 an with 93.600 shareholders par-Min %ds ticipating at year's end. That was

' rebruary and June s 6.1 i1.49%

I_-

million of the totalin reinvested lgrj j+

31.4 percent of those eligible to Pollution Control Bonds

' 50 participate. Investments under the october 10.2 11.64 plan totaled $98 million, with $85 Unsnared Term Notes l3.90 dividends and SI3 million in cash c May 25*

investments.

october -

200 14.22 o~

77 78 79 80 81 82 83

- 84

.. Belle River Project Detroit Edison common stock per-Financing.

' ;31.7*

formed welllatein 1984, hitting a Common stock six-year peak of $16.125 per share

( Dividend Reinvestment on December 18. It closed at $16 at

. and Employes' Savings Plans.

An important financing develop-Ye r. Send-18.615,314 shares; i12.4 ment occurred in November 1984 when the Company arranged with The Company is stillawaiting a final Total S505.4 MPSC decision on its main rate vaneo=.

30 domesticand foreign commer-cialbanks to restructure the $1.2_

c se, filed in July 1983. The Com-billion Belle River financing-the p ny requested rate incteases Company'slargest single outstand-totaling $969 million. with most of ing obligation. It was agreed that it to be effective with the coming Distribution of Ownership of Detroit Edison Common Stock intocommercialserviceof the

$300 million in loan repayments yoecember 31.i984i would be shifted from 1985 to Fermi 2 Power Plant and Units I l

1989, and thatinterest rates would and 2 of the Belle River Power g

l be reduced when Fermi 2 received Plant. We were granted an inten,m individuals i19.134' 29.765.503 Michigan 117.507 51.110.80 increase of $183 million coincident loint Accounts i14.113 -34.874.317 Florida :

19.289 6.921.02:

1 itslow-powerlicenseand again with the start of Belle River Unit i Trust Accounts 8.064 3.946.749 California :

14.542 5.229.02I h

I 269 ' 49.386.369 ork i.

5 t on T e Company w I ene i b commercial operation last August Nginees u

about $50 million in reduced in-

1. We still are seeking the remain-Foundations 294 177.827 ohio

.. 58.955 17.009.35 8.176

' 2.073.os terest charges over the remaining ing portion of the rateincrease,

others -

2.28i 19.i38.951 B

n her States term of the financing.

request, associated primarily with

. coo {tries -

829 301.17 the commercial operation of the Total

- 244.199 139.081.562 Total 244.199 139.081.56 Dividends paid in 1984 on common Fermi 2 and Belle River 2 units.

l stock remained at $1.68 per share.

Both are scheduled to begin com-Interest expense totaled $432.2 mercial operation in 1985 and we million, compared with S407.1 mil-anticipate a final decision on the lion in 1983.

rate case prior to that time.The 14

j MPSC staff has recommended a Europe and Japan have provided final totalincrease of $784 million

$600 million or one-third of a total tal Electric BINS Doct) including the amount granted on of $1.8 billion of term bankloans sookwh/ month.forselectedcities asof December 3.1984 an interim basis.

required to finance such Company

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transactions as the Belle River Last July, the projected cost of Fermi 2 wasinCreased s300 million project and nuclear fuel purchases.

$69.78 53 99 to $3.375 billion, while the esti-In January 1985, the Michigan 53.99 mate for Belle River was reduced Court of Appeals unanimously

-50.75 another $25 million to $1.925 bil-upheld a $35.4-million interim rate

! ion. The Belle River projection had increase granted the Company in 44,4, been reduced earlier from a high 1978. dismissing a request by the d ' 'U#

of $2.15 billion.

Michigan Attorney General that the increase not be allowed. How-The Company continues to develop saa ever,in May 1984 the Michigan new rates for industrial customers, Supreme Court in effect aff,rmed a 37.32 i

following significant success with I wer court order vo,iding collec-gg g.]

.33.23 an Economic Redevelopment Rate tion by the Company in 1976 of 31.66 approved by the MPSC in January

$1. n n in revenus m ney to 27.52 1984. Since then, sales of electricity 26'7 to two steel companies alone-m unt, w.th interest, to $29.3 mil-i McLouth and Great Lakes-have h.ao li n, representing a reduction of 12 so

-40 50 60 70 '

resulted in $7.5 million in additional cents per common share from 1984 revenues for Detroit Edison. Ad-

"'d e Inings.

ditionally, our major steel customers I

are installing new equipment that In a national competition, the 1983 l

will increase our " load significantly.

Detroit Edison Annual Report was l

Shareholders in Dividend Reinvestment u/wusando including two new galvanizing lines selected by the National Associa-and a continuous caster system, tion of Investors Corporation as 20 00% Percrat#shauwers the best for large utilities.

E Naader#skarrWers In September 1984, Detroit Edison

'S 33% ~ 38% -

Chairman Walter J. McCarthy, Jr.,

and Vice Chairman Ernest L.

so Grove, Jr., visited banks in six Euro-25s pean cities as part of an investor iss i6s relations program to maintain a continuing relationship with banks 33%

l presently providing the Company l

20 with significant loans. They also wanted to become better acquaint-ed with other important European 77 7s -

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Detroit Edison believes it is important for a company to be part of tne commun-ities it serves, in as many ways as possible.

i Not just by paying taxes, or joining the Chamber of Commerce, but by sup-porting worthwhile community endeavors and encouraging its employes to 1

do the same.

This is important because Detroit and Southeastern Michigan represent cur home and our place of business as much as they do those of our 1.8 million

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customers. In fact, our 11.000 employes are also customers. As an electric D,

utility, we are wedded to the area and we want to see it prosper economi-

-: x cally and socially.

L

• That's why Detroit Edison employes contributed a record $1.2 million to i

the United Foundation and United Way in 1984, and the Company added l

another $468.000 for a total of almost $1.7 million.

^

• It's why 135 Company men and women hold elective or appointive public offices in their communities and many cthers contribute money-through a corporate program - to improve the political process.

• It's why the Company employs Isiah Thomas, all-star basketball player t

with the Detroit Pistons, to " preach" electrical safety to people of all ages and why we will turn his talents and credibility in 1985 to a campaign against drug use by young people.

i

• It's why Detroit Edison vehicles and their crews serve as " Eyes and Ears" I

for law-enforcement officials in organized community efforts to combat crime, why the Company sponsors many school and public programs-aim-ed mainly at children - to teach electrical and general safety habits and why it conducts annual competitions for school children who write essays and slogans. create posters and draw cartoons about electrical safety and I

receive prizes for winning entries.

• It's why the Company contributes to many charitable and cultural activi-l ties throughout its service area. and sponsors such educational programs j

as " Sesame Street" on public television and a year-long series on FM radio l

titled "Mr. Edison's Marvelous Memory Machine." covering the first 40

(

years of recorded sound.

• It's why employes in divisions, plants. offices. warehouses and laborato-I ries throughout the Detroit Edison system donate clothing. food, money I

and toys to underprivileged persons-not only at Christmas but throughout f

the year -and why they host parties and other activities for the needy, the l

Detroit Edison school safety coordinator Chevis Spratt handicapped and the infirm.

torposite page) conducts one of 93 safety presentations made by Detroit Edison in Southeastern Michigan schools during 1984. Abow Oakland I

Division customer representatives Narda Noelke and Darrell Dimmett collect l

provisions for a Pontiac shelter for abused women and children. Below: Three of j

many young visitors to Detroit Edison's Ann Arbor Art Fair safety exhibit.

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• It's why the Company sponsors The Detroit Edison employe. Speaker l

Christmastime holiday lighting con-Corps-168 strong-provides movies.

tests and year-round neighbor-speeches and slide presentations

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j hood beautification competitions on subjects ranging from wise use 1

to promote community pride and of energy to the environment, ad-enhance the appearance of the dressingschools. churches clubs l

areas it serves. and why it also and other organizations.

provides free security lighting pro-i I

grams for some communities and is-The schools also are provided with sues free holiday lighting tips for all.

free programs on electrical safety called S.A.F.E.-for Safety Aware-

• It's why Detroit Edison sponsor-l ness for Electricity-in which a ed its "Say Yes to Youth" program Company spokesperson uses ani-for the second year in 1984 hiring g

m ted exhibits to demonstrate safe 151 young persons from low-income use of electric power. In 1984.

families throughout its serice area 2l.000 children in 93 schools par-for summer jobs and paychecks.

t,cipated in the demonstrations:

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i In addition to programs applying the totals since the program began i

to the Company's service area in 1975 are 275.000 children in l

generally. Detroit Edison and its 1.600 schools.

l employes team up to participate in individual community activities as Perhaps nothingis more important well. Among these in 1984 were to Detroit Edison communities in Port Huron's"Centennialof Light."

the long run than economic devel-

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observing the 100th anniversary of opment, because with new indus-electriclighting in the Thumb area, tries and new jobs. fewer social CM g and fairs and art shows in Ann service programs and contribu-h, W Arbor. Howell. Trenton, Monroe tions will be required as people are and Sandusky.

better able to stand on their own Detroit Edison employes help feet. During 1984. Detroit Edison's energy conservation groups and economic development program -

i historical societies. They work with already the most extensive private environmentalists, service organi-effort in the state - expanded sig-j zations. chambers of commerce, nificantly with the addition of six community and four-year colleges.

full-time specialists to work with business groups, social service area businesses and agencies to agencies, hospitals, food and attract new industries to South-blood banks, libraries. area devel-eastern Michigan and persuade opment authorities. women's and enterprises already located here to 7

men's clubs. youth groups and remain and expand.

senior citizen organizations.

18 I

-7' In 1984 the Company worked with

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more than 350 businesses and help-ed generate an additional 7.500 jobs throughoutits service area.

Companies newlylocatedin South-

)

eastern Michigan during the year included a Japaneseiron works. an Ohio food processor, an Illinois galvanizing firm and rubber-molding operation, and a New York fabrics manufacturer. Not coincidentally,

$9 these development effortsalso in-creased our power sales by 238 mil-lion kilowatthoursin 1984.

Through the Greater Detroit / South-D east Michigan Business Attraction

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and Expansion CouncilIBAEC). of 4

which Detroit Edison is a founding member, the Company worksin F

close partnership with the Greater

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Detroit Chamber of Commerce.

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the Southeast Michigan Councilof Governments ISEMCOG)and the Michigan Department of Com-a.%

s merce toimprove businessin its 4?n%Y_W service area.

Both Detroit Edison andits em-playes take seriously the "public" in public utility. This helps explain

(

the spirit behind a broad range of community enterprises-from l

contributing to worthy causes to Left afwe: scuing a baskd for safdy at a Detroit Edison exhibit.

Volunteering for publicservice, l

Below: Detroit Edison specialists loscph Vord, right. and Charlotte Irom helping the disadvantaged Mahoney discuss the Company's economic development program i

tyith Oxford Township supervisor William Offer at theannual to creating new jobs throuSh i.'

t mening of the Michigan Township Association. Above: Linemen economicdevelopment.

Gasper Gelardi (in truckl and Melvin Brown tell two youngsters how toawiddangeraspartof theCompany*s Egesand Ears it is out way of striving for excel-crime fighting work. Var right: Ewnomic development consultant lencein our dealings with the Robert Baldwin. left. confers with controller 1. R. Milliken at communities we serve.

NationalGalvanizing. Inc.. in Monroe.

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Tnere is a debate in progress about whether the united states will have enouen P]

electric power in the future if more power plants aren't built-and quickly.

There is no debate at Detroit Edison. The Company has taken steps to see P^h that there is enough electricity in Southeastern Michigan now and in the future. That was the reason for the power plant construction and moderni-

~~

zation program that has prot. ceded - virtually uninterrupted - since the end of World War 11 and has been pushed to completion despite strict regu-lation, unprecedented inflation and crippling recessions that slowed the program and escalated its price.

The newest plants-principally Monroe, Belle River and Fermi 2 -are the y

result of long years of careful strategic planning. The Company develops g'

five-year strategic plans for all phases of its operation, then updates them yearly as the business environment changes. This year - 1985 - the plan is undergoing an extensive 10-year review.

Without such planning, there could be no excellence-except by accident.

It takes other initiatives, too, that look to the future - to better ways of doing what we're doing now, and to altogether new approaches to achieving our goals.

Most importantly, it takes vision - the kind demonstrated in the CompLny's proposal that the public be brought into the process of power plant plan-ning, and that regional electric utilities join forces to operate expensive and complicated nuclear power plants, thus reducing the need for a conplete, expert organization for each utility or plant.

Detroit Edison displays the same vision in its technology - engineering, research and, most recently, sale of these skills to other companies through a new subsidiary called Utility Technical Services, Inc. As noted on page 10, UTS already has sold its services as far afield as China.

s g

The formal strategic planning process at Detroit Edison involves all elements of the Company. The result is a highly efficient and modern production system; carefully devised cost controls that control expenses without sacrificing quality or productivity, and advanced personnel practices that reward employe performance and dedication and provide for systematic

^__

career development for men and women with further potential.

Research - far-reaching but always pertinent to the business -is vital to any t

company, and particularly to a public utility. We must, and do, strive constantly for safer, more efficient, more cost-effective ways of making and delivering electricity.

In ur I boratory and field research, for example:

opposite page; senior engineer wanda Pretti-Pavletta prepares soil samples for chemical analysis at the Company's Engineering Research Laboratory.

Left and above-Personnel store nuclear fuel and 21 otherwise show they're " ready" for commercial operation at Fermi 2.

• We have shifted the emphasis in

• We are building a plasma torch move to another part of the state.

our electric vehicle program from application facility at the Warren region or country aslocal condi-passenger cars to commercial vans Service Center to transfer know-tions change so their efforts are and trucks. Under a new U.S. De-ledge of plasma arc technology to directed to improving the welfare partment of Energy (DOE) con-customers with processes that of their home territories.

tract, we will evaluate the operat-could benefit from this advanced it is that way with Detroit Edison.

Ing performance and market method of producing heat from We like Detroit and Michigan. They potential of a recently developed electricity. Electricity-to-heat effi-have lasting economic, social and General Motors electric van. Suc-ciencies exceeding 90 percent are environmental strengths that bode cessful evaluations could lead to routinely attainable with plasma well for the long pull. New plants i

the van's introduction in local and torches. At such elevated tempera-and shopping centers and office national marketsin the near future.

tures, industrial compounds of all buildings are sprouting up through-types can be reduced to elemental out the area. The auto industry - so form, making the plasma torches key to Southeastern Michigan -

very valuable in processes such as just completed its best sales year metal melting, hazardous waste since 1979.

g.$

1[

destruction, precious metal recov-People and companies are betting

,a"

'~'

eryandceramic powderproduction.

their money and reputations on

~cn $5

• Weareimplementingsystems the City of Detroit. The Millender

.n @'

g -

^

V <%l/"j y

b and techniques to protect electrical Center. General Motors' new Ham-

,..t:

/

'?

equipment against lightning: creat-tramck/ Detroit assembly plant.

q; ing systems and models to better A new $40-million office complex measure load factors for power for the Burroughs Corporation.

plants, and using more reliable Hundreds of other construction transformers, better safety switches.

and renovation projects.

and advanced methods for fiber-The December issue of Money. an I

opticinspect,on of turbines, finite investment magazine published by i

element analysis of heat exchang-Time Inc., listed Detroit, along with g7*

ers, and diagnos,is of the vibration of New York. Los Angeles, Boston 7j rotating machinery in power plants.

and San Francisco, as having an

• [~

In their forward planning, electric

" upbeat downtown." and lauded utilities are particularly susceptible the city's " positive attitude toward to the whims of their economic.

development."

physical and social environments Change and progress are impera-

>=

because they are " locked" int tive. They help point the way to specific service areas. They cannot excellence.

Schedule coordinator Matthew Hogan helps keep electricity flowing at the Michigan Electric Power Coordination Centerin Ann Arbor.

22

I-The consolidated financial statements of The Detroit Edison Company and subsidi-ary companies have been prepared by management in conformity with generally accepted accounting principles, based upon currently available facts and circum-stances and management's best estimates and ludgments of known conditions. It is the responsibility of management to assure the integrity and objectivity of such financial statements and to assure that these statements fairly report the Company's financial position and the results of its operations.

To meet this resrsiH!!ty, management maintains a high standard of record keeping and an effective system of internal controls, including an extensive program of internal audits, written administrative policies, and procedures to assure the -

selection and training of qualified personnel.

These financial statements have been examined by the Company's independent accountants, Price Waterhouse, whose report appears on this page. Their examina-tion was conducted in accordance with generally accepted auditing standards which include a review of internal controls, as well as such other procedures they deem 4

necessary to provide reasonable assurance as to the fairness of the Company's financial statements and to enable them to express an opinion thereon.

The Board of Directors, through its Audit Committee consisting solely of outside directors, meets with Price Waterhouse, representatives of management and the i

internal auditors to review the activities of each and to discuss accounting. auditing i

and financial matters and the carrying out of responsibilities and duties of each group. Price Waterhouse has full and free access to meet with the Audit Committee to i

discuss their examination results and opinions, without management representa-tives present. to allow for complete independence.

k, Ernest L Grove. Jr.

Walter J. McCarthy. fr.

Vice Chairrnan of the Board and Chairrnan of the Board and Chief Financialofficer Chief Executive officer 1)FKV _

200 RENAlssANCE CENTER DETRolT. MICHIGAN 48243 ak11N Rl5C February 15,1985 To the Board of Directors and Shareholders of The Detroit Edison Company In our opinion, the statements appearing on pages 24 through 40 of this report present fairly the financial position of The Detroit Edison Company and its subsidiary companies at December 31,1984 and 1983, and the resuks of their operations and the changes in their financial position for each of the three years in the period ended December 31,1984 in conformity with generally accepted accounting principles consistently applied. Our examinations of these statements were made in accor-dance with generally accepted auditing standards and accordingly included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances.

A tnt Y/s.s/e ss 2.(

The Detroit Edison Company and subsidiary companies Year Ended December 31 1984 1983 1982

(!40asands)

Operating Revenues Electric (Note 1)

$2,439,835

$2.260.021

$2.078,965 Steam 58,370 49.637 44,289 Total Operating Revenues

$2.498,205

$2.309.658

$2,123,254 Operating Expenses Operation expense Fuel S 700,789

$ 676.409 S 718,431 Other power supply 184,740 128,921 74,654 Other operation expense 403,616 374.164 372.767 Maintenance expense 203,945 187,769 170,974 Provision for depreciation (Note 1) 190,420 171,940 161.430 Provision for taxes (Notes I and 2)

Taxes other than income 144.471 142.743 118.537 income taxes 131,459 145.559 96,912 Total Operating Expenses S1,959,440

$1.827.505

$1.713.705 Operating income S 538,765

$ 482.153

$ 409.549 Other income and Deductions Allowance for other funds used during construction (Note I)

$ 130,350

$ 92.750 47.995 Other income and deductions 1,829 7,877 (4,820)

Income taxes (Note 2)

(112) 15.487) 1.155 Total Other Income and Deductions S 132,067

$ 95.140 44,330 income Before Interest Charges S 670,832 S 577.293

$ 453.879 Interest Charges Long-term debt S 399,448 S 351,854 S 331.469 Amortization of debt discount, premium and expense (Note I) 2,19I 2,131 2.006 Other 30,592 53.088 59.779 Allowance for borrowed funds used during construction (credit) (Note 1)

(163,336)

(194,402)

(194.076)

Net Interest Charges S 268.895 S 212.671

$ 199.178 Net Income S 401,937

$ 364,622 S 254.701 Preferred and Preference Stock Dividend Requirements 104.159 98.614 73.245 Earnings for Common Stock

$ 297.778

$ 266.008

$ 181.456 Common Shares Outstanding-Average 135,230,827 120.274,269 103,585.9I5 Earnings Per Share S

2.20 2.21 1.75 24 (See accompanying Notes to Consolidated Financial Statements)

The Detroit Edison Compaq and subsidianpompanies Year Ended December 31 F1nancial Resources Provided 1984 1983 1982 Operations W'ousanal Net income S 401,937

$ 364,622

$ 254.701 Items not affecting working capital Depreciation 190.420 171.940 161.430 Deferred income taxes and investment tax credit-net 127,436 135.603 94.471 Amortization of property losses and unrecovered plant costs (Note 5) 12.231 10.449 3.454 Allowance for other funds used during construction (Note I)

(130,350)

(92.750)

(47.995)

Other (5,286) 744 (2.940)

Financial resources provided by operations S 596.388

$ 590.608

$ 463.121 External Financing Sale of common stock I12.040 261,179 185,792 issuance of common stock on conversions of convertible cumulative preferred stock. 5 %% series 2.286 3.624 7,969 Sale of preference stock 1i3,537 211,935 Belle River Project Financing (Note 9) 331.686 266,899 346.698 Funds received from Trustees: Collateralized pollution control revenue bonds, installment sales contracts andloan agreements 40.170 36,I8 I 99.810 issuance of unsecured promissory notes 344.754 159.949 109,481 increase (decrease) in short-term borrowings 2,000 (233,933) 94,563 Other Sources Change in obligations under capital leases (Note 10) 14,010 9.292 Sale to MPPA of an ownership interest in the Belle River Project (Note 3) 337,053 Increase (decrease) in accumulated rate refunds, with interest 32,215 (24.855) 14,516 Other-net (18,832)

(3.734)

(1,140)

Total

$ 1.456,717

$1.515.800

$1,532.745 Financial Resources Used Plant and equipment expenditures S 938.004

$1.014.568

$ 1.13 5,045 Allowance for other funds used during construction (Note 1)

(130,350)

(92,750)

(47,995)

S 807.654

$ 921,818

$ 1,087,050 Change in net property under capital leases (Note 10) 14.010 9.292 Dividends on common, preferred and preference stock 332,344 306,073 252.652 Conversions of convertible cumulative preferred stock, 5% % series 2.291 3.626 7.982 Repayment of advances from Cooperative 50.000 Repayment oflong-term debt 370,070 256,925 116,460 Redemption of redeemable preferred and preference stock 6.221 5.363 6,415 increase (decrease) in components of working capital *

(75,873)

I2.703 12.186 Total

$1,456,717

$1.515.800

$1.532.74 5 Changes in Components of Working Capital increase (decrease) in current assets Cash and temporary cash investments

$(40,331)

$ 42.693

$ 3.101 Accounts receivable 10.I16 26.297 19.144 inventories 42.414 (21.826) 13.372 Other (2.004)

(3.613) 2.318

$ 10.195

$ 43.551

$ 37.935 (Increasel decrease in current liabilities Accounts payable

$(35.681)

$ 4.028

$ (375)

Property. generaland income taxes (5.086)

(25.153)

(10.143)

Interest (39.7521 3.645 3.085 Other (5.549)

(13.3681 (18.316)

$(86.068)

$(10.8481

$(25.749) 25 increase (decreasel in components of working capital *

$(75.873)

$ 12.703

$ I2 I86

• Excluding short-term borrowings current maturities of long-term debt. current obligations under capitalleases and preferred and preference stock sinking fund requirements.

(see accompanying Notes to Consolidated Financial Statements.)

Tiw Detroit Edison Conspany and sutsidiary contpanies December 31 1984 1983 (thousands l Assets Utility Properties (Notes I,3 and 10)

Plant in service and held for future use Electric

$6,299,292

$5,284,767 Steam 58.112 55,573

$6,357,404

$5,340,340 Less: Accumulated depreciation (1,676,178)

(I,525,209)

$4,681,226

$3,815,131 Construction work in progress 3,394,942 3,505,439 Net utility properties

$8,076,I68

$7,320,570 26,517 10.241 Property under capitalleases Less: Accumulated amortization (3,215)

(949) 23,302 9,292 Net property under capitalleases Totalowned andleased properties

$8,099,470

$7,329,862 Other Property and investments investment in coal supply 2,800 3,I50 Non-utility property and other 33,518 37,298 36,318 40,448 Current Assets Cash (Note 4) 3,719 6,902 Temporary cash investments (at cost, approximating market value) 8,000 45,148 Customer accounts receivable (less allowance for uncollectible accounts of $ 16,000,000) 201,882 192.9I5 Other accounts receivable 49,936 48,787 inventories (at average cost)

Fuel 313,884 281.295 Materials and supplies i19,509 109,684 Prepayments 2,427 4,431

$ 699,357

$ 689,162 Deferred Debits Unamortized debt expense (Note 1) 29,329

$- 29,512 Accumulated deferred income taxes (Note 1) 16,047 16,805 Extraordinary property losses and unrecovered plant costs (Note 5) 71.593 83,824 Other 17,900 I I,805

$ 134.869

$ 14I.946 Total

$8,970,014

$8,201,418 26 (See accompanying Notes to Consolidated Financial statements.l

11bt Detro Edison Compny and subsidiary companies December 3I 1984 1983 Liabilities Capitalization Common stock-SIO par value, I 60.000.000 shares authorized: I 39.081.562 and i 30.334,944 shares outstanding.

respectively (894.227 and 1,025.857 shares. respectively, reserved for conversion of preferred stock) (Note 6)

$ 1.390.816

$1,303,349 Premium on common stock 512,401 484,375 Common stock expense (47,370)

(46,92 ll Retained earnings used in the business 524,151 454,558 Total common shareholders' equity

$2.379.998

$2.195.36i Non-redeemable preferred stock (Note 6) _

245,963 248.253 Redeemable preferred stock (Note 71 206.088 212.292 Non-redeemable preference stock (Note 6) 287,432 287.433 Redeemable preference stock (Note 71 154,685 159.527 Long-term debt (Notes 8 and 91 3,845.272 3.542.438 Total Capitalization

$7,119,438

$6.645.304 Other Noncurrent Liabilities Obligations under capitalleases (Note 10) 20,025 7,776 Accumulated rate refunds. with interest 58,408 26.193 78.433 33.969 Current Liabilities Bank loans (Note 4) 2.000 Long-term debt due within one year (Note 81 116.185 70.070 Preferred and preference stock sinking fund requirements due within one year (Note 71 5,750 720 Obligations under capital leases due within one year (Note 10) 3,277 1,516 Accounts payable 219.959 184,278 Property and general taxes 220.159 209.632 income taxes 10,363 15.804 Interest 93,778 54,026 Dividends payable 84.3 %

81.165 Payrolls 53,674 45,514 Other 26.996 32.838

$ 836,537

$ 695.563 Deferred Credits Accumulated deferred income taxes (Note ll

$ 713,295

$ 624,990 Accumulated deferred investment tax credits (Note I) 210,2 I I I71.838 Other 12,100 29,754

$ 935,606

$ 826.582 Commitments and Contingencies (Notes 3.10. I I and 12)

Total

$8,970,014

$8.201.118 27

. (See accompanying Notes to Consolidated Financial Statementsj

The Detroit Edison Company and subsidiary companies Premium Retained Common Stczk on Common Earnings S10 Par Common Stock Used in the Shares Value Stock Expense Business (dollarsin thousandsi Balance at December 3 I,1981 95,089,212

$ 950.892 $366.025 $(35,492) $393,960 issuance of Common Stock Public offerings (4.25 million shares in February I 982 and 6 million shares in September 1982) 10.250.000 $ 102,500 $ 23.031 $ (4,496) $

Dividend Reinvestment and Common Share Purchase Plan 5,623,286 56.233 8,786 (262)

Conversion of convertible cumulative preferred stock, S h % series 430.319 4,303 3.845 (l78)

Gain on preference stock purchased and retired 1,002 Repurchase of common shares (1,418)

(14)

(3)

Net income 254,701 Cash dividends declared Common stock-$1.68 per share il 78.090)

Cumulative preferred and preference stock

• 174.562)

Balance at December 31,1982 I I I,391,399

$1 II3,9I4 $402,686 $(40,428) $396,009 Issuance of Common Stock Public offerings (6 million shares in March 1983 and 5.95 million shares in December 1983)

I1,950.000

$ I19,500 $ 53,794 $ (5,748) $

Dividend Reinvestment and Common Share Purchase Plan 6.427,824 64,278 24,292 (489)

Employes* Savings Plans 364.624 3,646 1,73i Conversion of convertible cumulative preferred stock,5M% series 201,097 2,011 1.694 (81)

Gain on preference stock purchased and retired 178 Expense of increase in authorized number of common shares (175)

Net income 364,622 Cash dividends declared Common stock-$1.68 per share (206,817)

Cumulative preferred and preference stock *

(99.256)

Balance at December 31,1983 130.334,944

$1.303,349 $484,375 $(46.921) $454,558 Issuance of Common Stock Dividend Reinvestment and Common Share Purchase Plan 7,577,594 75.776 $ 22,612 $

(398) $

Employes* Savings Plans 1,037,720 10.378 3,672 Conversion of convertible cumulative preferred stock, 5 M% series i31,304 1,313 1,024 (5 ll Gain on preferred and preference stock purchased and retired 7I8 Net income 401.937 Cash dividends declared Common stock-$1.68 per share (228.218)

Cumulative preferred and preference stock

• I104.126)

Balance at December 31,1984 139.081.562

$1,390.816 $512.401 $(47.370) $524.151

• At established rate for each series.

28 (See accompanying Notes to Consolidated Financial Statementsj

The Detrdt Edison Company and subsidiary companies Date of December 3I Issuance 1984 1983 Cumulative Preferred Stock - $100 Par Value Authorized - 9,000,000 shares: Outstanding - 4.628,163 and 4,681,580 shares, respectively (3,539,827 shares unissued)

Non-Redeemable Preferred Stock (Note 6) 5 %% convertible series, 159.083 and I 82,500 shares, respectively October 1967

$ I 5,908 '

S I8.250 9.32% series,499.080 shares October 1970 49,908 49,908 7.68% series,500,000 shares March 1971 50,000 50,000 7.45% series,600.000 shares November 1971 60,000 60,000 7.36% series,750.000 shares December 1972 75,000 75,000 Non-redeemable preferred stock expense (4,853)

(4,905)

Total Non-Redeemable Preferred Stock

$245,%3

$248.253 Redeemable Preferred Stock (Note 7) 9.72% series,475,000 shares and 500,000 shares, respectively December 1978

$ 47,500

$ 50.000 9.72% series 95,000 and 100,000 shares, respectively January 1979 9,500 10,000 9.60% series,355,000 shares October 1979 35,500 35,500 9.60% series. 295,000 shares January 1980 29,500 29,500 12.80% series,400,000 shares May 1980 40,000 40,000 13.50% series,250 000 shares December 1980 25,000 25,000 15.68% series 250,000 shares June 1981 25,000 25.000 Redeemable preferred stock sinking fund requirement due within one year (3,250)

Redeemable preferred stock expense (2,662)

(2,708)

Total Redeemable Preferred Stock

$206,088

$212,292 Cumulative Preference Stock - $1 Par Value Authorized - 30,000,000 shares: Outstanding - 18,599,980 and 18,728,800 shares, respectively (11,400,020 shares unissued)

Non-Redeemable Preference Stock (Note 6)

$2.28 series. 2,000,000 shares December 1977

$ 2,000

$ 2,000

$3.42 series. 3,000,000 shares October 1982 3,000 3,000

$3.40 series 2,250.000 shares December 1982 2.250 2,250

$3.12 series,750,000 shares February 1983 750 750

$3.13 series. 2.600,000 shi.res May 1983 2.600 2,600

$3.24 series, 1,400.000 shares September 1983 1,400 1.400 Premium on non-redeemable preference stock 288,000 288.000 Non-redeemable preference stock expense (12,568)

(12,567)

Total Non-Redeemable Preference Stock

$287,432

$287,433 Redeemable Preference Stock (Note 7)

$2.75 series, 1,499,980 and 1,528.880 shares, respectively July 1975

$ I,500

$ 1,529

$2.75 series B. 1,500.000 and 1,599,920 shares, respectively.

December 1975 1,500 1.600

$4.12 series. 2,000,000 shares lanuary 1982 2,000 2,000

$4.00 series, 1,600,000 shares April 1982 1.600 1,600 Premium on redeemable preference stock 158,399 161,491 Redeemable preference stock sinking fund requirement due within one year (2,500)

(720)

Redeemable preference stock expense (7,814)

(7.973)

Total Redeemable Preference Stock

$ 154,685 S I 59.527 29 (see accompanying Notes to Consolidated Financial statements.1

The Detroit Edison Company and subsidiary companies December 31 1984 1983 (thousands l General and Refunding Mortgage Bonds Series l. 2 % %, due 3/l/85 35,000 35,000 Series N,2 % %, due 3/15/84 39,995 Series P 4%% due8/15/87 66,325 66,325 Series O,4 %%, due 6/l/89 37,695 37,695-Series R,6%, due 12/1/96 100,000 100.000 Series S 6.4% due 10/1/98 150,000 150,000 Series T,9%, due 12/1/99 75,000 75,000 Series U,9.15%, due 7/l /00 75,000 75,000 Series V 8. I 5%, due 12/I 5/00 100,000 100.000 Series X,8% %, due 6/I 5/01 100,000 100,000 Series Y,7 %%, due i I/I 5/01 60,000 60,000 Series Z,7 %%, due I/15/03 100,000 100.000 Series AA,9% %, due 5/I/04 100,000 100.000 Series DDP Nos. 6-9. 8% to 9 % %, due i I/1/85-1 I /l/95 (Series D-Monroe) 10.305 i1,105 Series EE, I I %%, due 12/15/00 40,000 40,000 Series FFR Nos. 6-14,6.75% to 8.5%, due 2/1/85-2/1/01 (Series E and E-1977-Superior) 43,100 43,600 Series GGP Nos. 5-7, Nos. I l-22: 5% to 8%%, due 6/15/85-6/15/96 (Series F and F-1977-St. Clair) 37,915 39,110 Series HH,10%% due 7/l 5/06 50,000 50,000 Series llP Nos. 4-7, Nos. 9-22; 5.6% to 7%, due 3/l/85-3/l /05 (Series G and G-1979-Harbor Beach) 3,565 3,640 Series llP Nos. 4-8, 5.6% to 7 % E due 3/l /85-3/l/05 (Series H and H-1979-Trenton) 6,485 6,620 Series KKP Nos. 4-8, 5.6% to 7 % % due 3/l /85-3/l/05 (Series I and 1-1979-Monroe) 14,065 14,360 Series LLP Nos. 4-7 Nos. 9-15: 5.6% to 6.7% due 3/I /85-3/I /9 I (Series I and 1-1979-Detroit) 7,845 8.480 Series MMP,6% % and MMP No. 2,7 % % due 2/15/97 (Series K and K-1979-River Rouge) 5,065 5.210 Series NNP Nos. 4-7, Nos. 9-2 I: 5.4% to 7% due 7/l/85-7/l /97 (Series L and L-1979-River Rouge) 44,975 46,300 Series OOP Nos. 4-18,5% to 7 % % due 10/1/85-10/1/07 ISeries M and M-1979-St. Clair) 17,835 18,210 Series PP,9% % due 6/15/08 70,000 70.000 Series QQP Nos. 3-19,5.8% to 9 %% due 6/l/85-6/l/94 (Series N and N-1980-Detroit) 12.770 13,210 Series RR. 9.8% due 10/15/08 70,000 70,000 Series SS,10%% due 3/I 5/99 I50,000 150,000 Series TTP Nos. 2-15,5,95% to 7%% due 7/l/85-7/l/09 ISeries O-St. Clair) 3,745 3,800 Series UU,10% % due 9/l 5/09 100,000 100,000 1980 Series A, i 2 % % due I/1/87 50,000 50,000 1980 Series B,12 % % due 4/I/00 100,000 100.000 1980 Series CP Nos.1-25, 7 % % to i 2.8% due 8/l 5/85-8/l 5/07 (Series P and P-1981-St. Clair) 35,000 35,000 1980 Series DP Nos.1-11, 7 % % to 10% due 8/15/85-8/15/10 (Series O-Monroe) 10,750 10,750 1981 Series AP Nos.1-16,9% % to 12 % % due I I/I/86-5/l/22 (Series R, R-1982 and R-1983-St. Clair) 124,000 124,000 1984 Series AP,10%% due 10/1/02 (Series Y-River Rouge) 2,400 1984 Series BP,10% % due 10/1/14 (Series Z-Monroe) 7.750 Less: Unarnortized net discount (2,669)

(2,803)

Funds on deposit with Trustee (2,549)

(28.489)

Arnount due within one year (54,685)

(45,970)

Total General and Refunding Mortgage Bonds (carryforward to page 3 Il

$ 1.956,687

$1.975,148 30 (see accompanying Notes to Consolidated Financial statements.)

The Detroit Edison Compan artipbsidianj companies 4

December 31 1984

'1983 (thousands)

Total General and Refunding Mortgage Bonds (from page 30)

$ 1,956.687

$ 1,975,148 Installment Sales Contracts (Pollution Control Revenue Bonds)

Monroe County Bonds Series A. A-198I and A-1982. 5.1 % to I 5% due 6/I/85-6/I/I 2

$ I30,000

$ 131.000 Monroe County Bonds Series B,6.9% to 7%%. due 5/l/85-5/l/04 19.550 20.050-St. Clair County Bonds Series C. 7.75%, due 7/15/84

'2,600 Less: Amount due within one year (I,500)

(4.100)

$ 148.050

$ 149.550 Loan Agreements (Pollution Control Revenue Bonds)

Pollution Bond Refunding Projects. 9 % % to i I % %, due 6/l 5/95-6/15/07 10,535 4.435 Less: Funds on deposit with Trustee (9) 10.535 4.426 Unsecured Promissory Notes Belle River Project Financing, due 1/1/86-10/1/89 (Note 9)

$ 1,200,000

$1,168.314 Variable interest rates, due 7/l/84 20.000 Variable interest rates, due 4/25/86 60,000 Variable interest rates, due 5/2/86. 3/18/87 and 3/18/88 100.000 75,000 Variable interest rates, due I / I 5/90 50,000 50.000' Fixed interest rate through 4/10/89 variable thereafter, due 4/l 5/9 I 45.000 Rxed interest rate, due 6/14/85 50,000 50.000 Fixed interest rate, due 6/28/85 10.000 10.000 Fixed interest rate, due 10/I/86 200,000 Fixed interest rate, due 8/I 8/89 60.000 60.000 Fixed interest rate, due 4/25/91 15.000 Less: Amount due within one year (60.000)

(20.000)

$ 1,730.000

$1.413.314 Total Long-Term Debt INotes 8 and 9)

$3.845.272

$3.542.438 31 (see accompanying Notes to Consolidated Financial statements.)

.a.

Tne Detnit Edson Company and su6sesry companies ferred from the income statement to construction work in progress ln' the ~

balance sheet. nis accounting procedure is intended to remove the effect of Industry Segment-The Detroit Edison Company I" Company") is a public the cost of financing construction activity from the income statement. Under utility engaged in the generation, purchase, transm.ssion, distribution and current ratemaking practice, the cash recovery of AFUDC, as well as other sale of electric energy.

costs of construction, occurs when completed projects are placed in service Regulation-The Company is subject to regulation by the Michigan Public 'and related depreciation is authorized to be recovered through customer Service Commission ("MPSC"l and the Federal Energy Regulatory Commis.

rates.

sion ("FERC") with respect to accounting matters and maintains its accounts The Company capitalized AFUDC at 9.94% from January 1,'1982 through in accordance with Uniform Systems of Accounts prescribed by these March 31,1983 and 10.73% from April I,1983 through December 31,1984, except for AFUDC related to the Belle River Project Financing for which the agencies.

actual interest and commitment fees were capitalized ISee Note 9). In Prindples Applied in Consolidation-The Consolidated Financial Statements accordance with MPSC requirements, these composite AFUDC rates are include the accounts of all subsidiary companies, all of which are wholly-equal to the overall rate of return authorized in electric rate orders. Also, owned.

pursuant to an M PSC order AFU DC is not recorded on construction work in Revenues - Revenues are recorded when customers are billed. Customers are progress relating to pollution control facilities for fossil-fueled power plants, billed monthly on a cycle basis. Revenues include the recovery of fuel and except for such expenditures financed under the Belle River Project Financ-purchased power costs. Act No. 304 of the Michigan Public Acts of 1982, ing Agreement.

effective January 1,1983, requires the Company to seek MPSC approval of In accordance with FERC accounting requirements, the Consolidated annual plans detailing anticipated fuel and purchased power costs and Statement of Changes in Financial Position is not adjusted to remove the setting forth monthly Power Supply Cost Recovery Factors and provides for borrowed funds component of AFUDC of $163.3 million. $194.4 million and 100% recovery of fuel and purchased power costs, subject to annual recon-

$194.1 million for 1984,1983 and 1982, respectively. Total AFUDC for both ciliation hearings. Any over or under recovery of these costs is recorded in borrowed and other funds amounted to $293.7 million. $287.2 million and the Consolidated Balance Sheet pending the results of such hearings.

S242.1 million for 1984,1983 and 1982, respectively. AFUDC amounted to 99%,108% and 133% of earnings for Common Stock for 1984.1983 and Employes' Retirement Plan and Other Postrefirement Benefits - See Note 13.

1982, respectively.

Property. Depreciation, Retirement and Maintenance-Utility properties are recorded at original cost. For financial statement purposes the annual Income Taxes-For federal income tax purposes, the Company computes provision for depreciation is calculated on the straight-line remaining life depreciation using accelerated methods and shorter depreciable lives.

method by applying annual rates approved by the MPSC to the average of Deferred income taxes are provided for timing differences between book year-beginning and year-ending balances of depreciable property by pri-and taxable income as authorized by the MPSC. Investment tax credits t

mary plant accounts. For major new generating units, the first year's utilized are deferred and amortized over the estimated composite service depreciation expense is calculated on a monthly basis commencing with the life of the related property. See Note 2.

month in which the unit is placed into commercial operation (Belle River Unit No. I on August 1.1984). Annual depreciation provisions expressed as a Capitali:alion-Discount. Premium and Expense-Discounts or premiums and percent of average depreciable property were 3.31%. 3.38% and 3.37% for expenses related to the issuance of long-term debt are amortized over the 1984,1983 and 1982, respectively, in general, the cost of properties retired lives of the issues. Capital stock expense related to that portion of preferred in the normal course of business is charged to accumulated depreciation.

and preference stock redeemed is written-off against the gain on reacquired Expenditures for maintenance and repairs are charged to expense and the capital stock included in premium on common stock.

cost of new property installed which replaces property retired is charged t Extraordinary Property Losses and Unrecowred Plant Costs - See Note 5.

property accounts.

Allowance for Funds Used Durim) Construction ("AFUDC")- AFUDC. a non-oper-Resfalements-In 1984, the Company began recording certain capital leases ating non-cash item, is defined in the FERC Uniform System of Accounts to and obligations on the balance sheet. with retroactive application to 1983 include "the net cost for the period of construction of borrowed funds used (see Note 10). Also, in 1984, in accordance with FERC Order No. 390, for construction purposes and a reasonable rate on other funds when so noncurrent obligations under capital leases and accumulated rate refunds, used." AFUDC involves an accounting procedure whereby the approximate with interest, have been classified as other noncurrent liabilities. Therefore, interest expense and the cost of other (common, preferred and preference restatements of the appropriate Consolidated Balance Sheet accounts have shareholders' equity) funds applicable to the cost of construction are trans-been made to conform to the financial statement presentation in 1984.

32

$1.7 billion and $1.4 billion respectively. The tax effect of these amounts not provided for currently will be recorded when such taxes become payable Total income tax expense as a percent of income before tax was less than the and are recovered from customers.

statutory federal income tax rate for the following reasons:

Investment tax credit carryforwards of approximately $308 million at December 31.1984 are available to offset future years' tax liabilities as Percent at income Before Tax permitted by law. Such credits, if unused. expire over the period 1995 1984 1983 1982 through 1999.

Income tax statutory rate 46.0%

46.0 %

46.0 %

AFUDC II 8.46 (14.61 116 0) indirect construction costs (2.4 12.11 I2.31 Interest on nuclear fuelfinancing i1.7 (l.31 12.11 The Company's portion of jointly-owned utility plant at December 31,1984 is Depreciation 3.1 2.3 2.8 as follows:

Other-net (1.9)

( 1.0)

(l.1)

Totalincome tax expense 24.7%

29.3%

27.3%

Ludington

~

Pumped Components ofincome taxes were as follows:

storage Belle Riverill Fermi-2 In-service date 1973 198412) 84 83 1 82 Undivided ownershipinterest 49%

13)

(4)

(thousandsl Investment (millions)

$168.3

$ 1.042.4

$2.74 5.6 Operating expenses Accumulated depreciation imillionsi S 37.8 30.2 Current income taxes s

3,4 I I

$ i4.685

$ 646 Deferred income taxes-net Borrowed funds component of AFUDC 36.724 56.783 55.299 II) includes Belle River Unit No.1. facilities used in common with Unit No. 2. facilities used Depreciation 49.I36 35.175 34.838 jointly by the Belle River and st. Clair Power Plants and certain transmission lines.

Indirect construction costs 8.684 11.612 9.847 (21 Unit No. I and facilities used in common with Unit No. 2 were placed in service on August 1.

Deferred fuel refund I l.288 1984. Certain coal handling facilities used iointly by the Belle River and St. Clair Power Plants sale to MPPA of an ownership interest were placed in service in 1976 and 1977. The transmission lines were placed in service in in the Belle River Project 131.4961 various years between 1960 and 1981.

Amortization of property losses and

13) The Company's undivided ownership interest is 62.78% in Unit No. I. 81.39% in facilities unrecovered plant costs (4.817)

(4.208 11.599) used jointly by Belle River and st. Clair Power Plants. 49.59% in certain transmission lines Other 45 I)

(2.56sl (2.368p and at least 70% in facilities used in common with Unit No. 2.

" 0" 89.676 76.s89 96.017

'"'N"e' d Ludington Pumped Storage-Operation, maintenance and other expenses of

"~"

U 43.667 58.829 4.179 Amortized (5.295) 14.5441 13.930, the Ludington Pumped Storage Plant are shared by the Company and 38.372 54.28s 249 Consumcm Power Company in proportion to their respective investments in the plant. The Company's share of these expenses is included in other Total 131.459 14 s.s s9 96.912 operat!On and maintenance expense m the Consolidated Statement of Other income and deductions income.

Current 725 758 640 BeIIe River-in 1983, the Company sold to Michigan Public Power Agency Deferred-net c6:36 4.729 i t.7951 I"MPPA") an undivided ownership interest in Belle River Unit No. I and Total i12 s.487 i t.1 ssi facilities to be used in common by Belle River Unit No. I and Belle River Unit Totalincome taxes

.s131.571 sl S t.046 s95.757 No. 2, and certain other related facilities. The Company retains control of

~~

~

construction and operation of the facilities.

The Company defers income taxes for the borrowed funds component of At the time of sale. M PPA made an initial payment to the Company of $345 AFUDC and indirect construction costs which are deducted currently for million corresponding to MPPA's share of accumulated costs, including federal income tax purposes. In accordance with MPSC requirements.

AFUDC to that date, and has made monthly construction payments in deferred income tax accounting is not followed for such construction costs proportion to its various ownership interests, excluding AFUDC. At Decem-relating to Fermi-2. interest on nuclear fuel financing Isee Note 10) and ber 31,1984. MPPA's investment consisted of $342.3 million for Unit No. I certain other current income tax deductions.

and common facilities. $27.9 million for certain coal handling and transmis-The cumulative net amount of income tax timing differences for which sion facilities and $16.2 million for coal inventories and other non-cap-deferred taxes h:ive not been provided at December 31,1984 and 1983 are italized costs.

33

Commercial operation of Unit No. I began on August I.1984, and MPPA is commercial operation and declining by 6 2/3% cach year ther after. The entitled to 37.22 % of the capacity and energy from that unit and is currently costs for the buyback of power will be based on the Cooperative's plant-responsible for the same percentage of the operation and maintenance related investment in the project. interest costs incurred by the Cooperative expenses for Unit No. I and common facilities. When Unit No. 2 goes into (plus 1%) and certain other costs such as fuel, depreciation and operation commercial operation. MPPA will be entitled to 18.61% of the capacity and and maintenance expenses. Buyback payments to the Cooperative are energy of the entire plant and will be responsible for the same percentage of currently estimated at $69.8 million. $133.9 million. $117.9 million. $108.7 the plant's operation and maintenance expenses. The Company is obligated million and $99.6 million for 1985,1986.1987.1988. and 1989, respectively.

to provide MPPA with backup power when either unit is out of service.

See Note II.

The Company began obligatory purchases of MPPA's capacity and energy entitlements ("buyback") at the commercial operation date and will con-tinue to do so for up to eleven years, initially at 100% through 1990, with declining amounts thereafter.The cost for the buyback of power is based on MPPA's plant-related Investment in the Belle River project. interest costs As described below, at December 31.1984, the Company had total short-incurred by M PPA (plus 2.5 %) and certain other costs such as fuel, deprecia-term credit arrangements of $394.2 million under which $2.0 million of tion and operation and maintenance expenses. Buyback payments to M PPA borrowings were outstanding.

were $32.1 million for 1984 and are currently estimated at $76.1 million.

The Company had bank lines of credit of $300.1 million of which $5.1 S71.0 million. $70.5 m,llion, $69.2 million and $68.3 million for 1985.1986, million required compensating balances. $231.5 million had commitment i

1987.1988 and 1989. respectively.

fees in lieu of compensating balances. $62.0 million had both commitment See Note II.

fees and compensating balances and SI.5 million did not require compen-Fermi-2-In 1977, the Company sold an undivided ownership interest in sating balances or commitment fees. In support of lines of credit requiring Fermi-2 to Wolverine Power Supply Cooperative. Inc. (" Cooperative"). The compensating balances, the Company maintained bank balances which Company is obligated to complete construction promptly and retains con-during 1984 averaged $3.4 million in Company accounts. None of these trol over construction and operation of the facility. Under certain circum-balances is subject to usage or withdrawal restrictions. Commitment fees stances. should the Company delay construction of the unit. it may be paid in lieu of compensating bank balances for 1984 were $1.8 million.

obligated to supply the Cooperative with its entitlement of electricity other-Substantially all borrowings are at rates below the banks' prime lending wise expected to have been generated after the anticipated completion rates.

date and may have to indemnify the Cooperative for additional construction The Company has a nuclear fuel financing arrangement under which costs resulting from the delay. Under other circumstances. the Cooperat,ve Renaissance Energy Company (" Renaissance"), an unaffiliated company.

i rnay demand that the Company repurchase its interest at the cost of its raises funds. subject to the satis: action of certain conditions to purchase nucle r fuel nd to lend to the Company, pursuant to a separate Loan Te perative made an initial payment to the Company at the time of Agreement, for general corporate purposes for periods not to exceed 270 sale equal to 20% of construction expenditures, including AFUDC. and days. Renaissance may issue letter of credit-backed commercial paper became obligated to make monthly progress payments of 20% of construc-icurrently limited to 45 days maturity) or borrow from participating banks tion expenditures. excluding AFUDC.

on the basis of promissory notes limited to 270 days' maturity. To the extent in March 1984. the Company and the Cooperative agreed to limit the the maximum amount of funds available to Renaissance (currently $259 Cooperative's maximum investment in plant. nuclear fuel and materials and milli n)is n t needed by Renaissance from time to time to purchase nuclear supplies to S426.9 million. S24.3 million and $3.0 million, respectively.

fuel. such funds may be loaned to the Company pursuant to the Loan Expenditures for plant projects in progress at the time the plant investment limitation was reached in March 1984 are being completed solely with funds Agreement. At December 31.1984. $69.1 million was available to the Com-p ny under such Loan Agreement. See Note 10.

provided by the Company. In addition, the Company will provide funds for the completion of any project commenced within a period of up to two years The Company has a $25.0 million credit arrangement restricted to bank-after the plant begins commercial operation. The Cooperative's ownership ers acceptances.

interest in the plant will decline as the proportion of its investment to the totalinvestment declines.

The parties will share electricity generated and plant operation and maintenance expenses in proportion to their respective investments in plant at various dates. The Company will have certain obligations to provide Amortization of extraordinary property losses and unrecovered plant costs replacement power to the Cooperative when the unit is out of service.

commences when recovery of such costs is authorized by accounting and The Company will be obligated to purchase the Cooperative's capacity ratemaking orders of the MPSC. A return on investment is provided only for and energy entitlements for up to sixteen years following the commercial the unamortized extraordinary property losses. Information relating to operation of Fermi-2. initially at 100% through the first full calendar year of these items is as follows:

34

unamortized None of the shares of the $3.42 Series. $3.40 Series. S3A2 Series. $3.13 Balance Series or $3.24 Series Preference Stock may be redeemed through certain Amortization December 3 i refunding operations prior to January 15,1988. January 15,1988. January 15.

Period Total 1984 1983 1988. July 15.1988 and October 15.1988, respectively, at an effective cost

%,g, less than that indicated by the original dividend rate.

Apart from MPSC approval and the requirement that Common. Preferred Extraordinary Property Imes and Preference Stock be sold for at least par value, there are no legal hyiNs$E

!82 !

$6 restrictions on the issuance of additional authorized shares of such stock.

8 8

Unrecovered Plant Costs Enrico Fermi Unit No. 3 1977-1986 6.810 1.362 2.043 Greenwood Unit Nos. 2 and 3 1983-1993 71.282 58.808 65.936 s100,201 s71.593 s33,824 The following redeemable series of Preferred and Preference Stock are entitled to the benefit of sinking funds lprovided that no dividend arrearages exist) providing for the annual redemption of shares at stated per share prices, plus accrued dividends, commencing on dates indicated:

The Company has a Dividend Reinvestment and Common Share Purchase Non-cumulative Plan under which record holders of its Common. Preferre

^"""

shares and its regular employes may, through the automat,d and Preference t?o ic remvestment of Commencing Nu r

Per sae Redeemable series on of shares share in Any Year cash dividends and monthly optional cash payments, purchase Common Stock from the Company. The price of new issue shares purchased with Preferred Stock reinvested cash dividends is equal to 95 % of. and in the case of optional cash 9.72 %

l-15-85 30.000 sloo 30.000 payments is equal to 100% of, the average of the high and low prices on the 9.60%

l&i 5-85 32.5 m im 32.5m*

New York Stock Exchange on the pricing date. The Company has the right to 12.80 %

7-1 F86 20.000 100 20 m amend. suspend. modify or terminate the Plan at any time.

l3y llll:87

[

The Convertible Cumulative Preferred Stock. 51/2% Series, is convertible into Common Stock. The conversion price was $17.79 per share at Decem.

Preference Stod ber 31.1984. He numbers of shares converted during 1984.1983 and 1982

$2.75 7-1980 imm 25 ime were 23.417, 37.072 and 81.605, respectively. De number of shares of h2js Series s l;l7 8

2 Common Stock reserved for issuance upon conversion and the conversion 34 oo

4. 5 87 80.000 25 120.000 price are subject to further adjustment in certain events. The Convertible Cumulative Preferred Stock, 51/2 % Series. may be redeemed at any time in

• Not to exceed 220.000 cumulative additional shares.

whole or in part at the option of the Company at $100 per share. plus accrued dividends.

The following numbers of shares were purchased for application to sinking De following series of Preferred and Preference Stock, which are not fund requirements:

redeemable pursuant to sinking fund requirements, are redeemable solely at the option of the Company at stated per share redemption prices. plus 1984 1983 1982 accrued dividends:

Preference stock, s2.75 Series 28.900 I I 4.500 156.600 Decreasing Prior on and Preference stock. $2.75 Series B 99.920 100.000 100.000 Non-Redeemable series From To To After Preferred stock. 9.72% series 30.000 Preferred stock 9.32 %

s104 10 15-86 s101 10 15-86 7.68 %

103 4-15-86 101 4-15-86 In the event that a payment due under requirements of a sinking fund for 7.45%

103 11-15-86 IOi 11-15-86 any series of redeemable Preferred or Preference Stock is not made, no 7.36 %

102.50 12-I-87 10!

12-I-87 dividend shall be paid (other than a dividend paid in junior stock) or Preference Stock declared or other distribution made upon any Junior stock (Common and s2.28 26.50 1-15-88 25.25 l-15-93 Preference Stock in the case of Preferred Stock, and Common Stock in the s3.42 28.42 1-15-88 25.25 l-15-98 case of Preference Stock) until such payment is made.

s3.40 28.40 1-15-88 25.25 l-15-98

%e combined aggregate annual amounts of redemption requirements at s3.12 28.00 1-15-88 25.00 1-15-98 December 31.1984 for all series of redeemable Preferred and Preference sN

!si 2 $5 Stock are $5.8 million. $13.3 million. $27.8 million. $27.8 million and $27.8 i

1 8

million in 1985,1986,1987,1988 and 1989, respectively.

35

~. - __g,,..

y.,

.c The following series of Preferred and Preference Stock. which are interest rates and maturity dates corresponding to those of the tax-extmpt '

redeemable pursuant to sinking fund requirements, may also be redeemed bonds: accordingly, the Company's liabilities for such collateral

• zed bonds.-

'a at the option of the Company at stated per share redemption prices, plus aggregating $387.6 million and $383.4 million at December 31.1984 and -

r accrued dividends:

1983, respectively, are included in General and Refunding Mortgage Bonds in the Consolidated Statement of Long-Term Debt.

Decreasing Prior on and The weighted average interest rates on Unsecured Promissory Notes for.

Redeemable Series From To To After 1984 and 1983 (excluding the Belle River Project Financing, see Note 9) were Preferred stock 13.1% and 11.8%. respectively.

9.72 %

s105.80 I-15-89 s10I l-15-94 9.60 %

107.00 10-15-89 101 10-15-94 12.80 %

112.80 7-15-85 100 7-15-95 n.50%

13.50 i-15-86 too I-15-90

%e Company has an agreement with a group of commercial banks fora $1.2 -

15.68 %

109.80 7-15-85 100 7-15-89 billion project financing relating to Beiie River Unit No. I and facilities to be used in common with Belle River Unit No. 2 (" Belle River Project Financing" Preference Stock s2.75 26.95 7-15-85 25.25 7-15-90 or " Agreement"). Under the Agreement, the Company has periodically s2.75 series s 26.95 I-15-86 25.25 l-15-9 :

borrowed against capital expenditures incurred in connection with the s4.12 29.15 i-15-87 25 25 l-15-97 project, including interest charges and commitment fees. In March 1984.the -

s4.00 29.00 4-i s-87 25.25 4-15-97 maximum of $1.2 billion of borrowings under this agreement was reached.

Quarterly cash payments of interest commenced in April 1984. The Com--

pany may prepay borrowings at any time without penalty. In November None of the shares of the Cumulative Preferred Stock. 9.60% Series, 1984, the Agreement was amended to shift the repayment originally sched-t 12.80% Series.13.50% Series or 15.68% Series may be redeemed through uled for 1985 to 1989. His was accomplished through the issuance of $300 certain refunding operations prior to October 15.1989. July 15.1985. Janu-rnilli n f I ng-term unsecured promissory notes due in four quarterly ary 15.1986 and July 15.1986. respectively, at an effective cost less than that installments commencing January 1.1989, the entire pr,oceeds of which were -

indicated by the original dividend rate. None of the shares of the Cumulative used to prepay the four quarterly installments of prmcipal of $75 million -

Preference Stock. S4.12 Series or $4.00 Series may be redeemed through each originally scheduled to begm January 1,1985. Quarterly repayment of s L

certain refunding operations prior to January 15.1987 and April 15.1987.

the long-term notes is now scheduled to begin January 1.1986. The Agree..

respectively, at an effective cost less than that indicated by the original ment contains a number of covenants, mcluding an agreement by the.

dividend rate

• Company not to pledge or sell any of its assets except in the ordinary course of business and except for the sale or conveyance to one or more utilities of undivided interests in generating plants; and not to create certain liens on its We Company's 1924 Mortgage and Deed of Trust, as amended. I" Mort--

assets. For 1984.1983 and 1982, interest and commitment fees of $152.7 -

gage"), the lien of which covers substantially all of the Company's milli n. $120.3 million and $116.1 million, r ive. are included.in inter-)

properties, limits the amount of additional General and Refunding Mort-

. estc arges.o setby $64.2 million. $110.3 milion an $115.4 million respec -

h ff Sage Bonds (Megage Bonds) which may be issued on the basis of tively, included in the borrowed funds component of AFUDC. %e difference

' property additions, an earnings test provision and Mortgage Bond retire-ments. At December 31.1984, approximately $3.0 billion principal amount.

and the amount included in the yment feesincluded in interest charges In 1983 Mween interest and cornm rcacd funds component of AFUDC.

of additional Mortgage Bonds could have been issued on the basis of L relates primarily to the debt outstanding on the portion of Belle River Unit property additions, after taking into account the effect of the earnings test No. I and common facilities sold to MPPA (see Note 3). In 1984, this

~ provision of the Mortgage and assuming an Interest rate of 13.5% on any difference relates to both the sale to MPPA and to the beginning of commer -

such additional Mort e Bonds. In addition, at December 31.1984 cial operation of Belle River Unit No. I on August 1.1984. The weighted approximately $228.3 lion principal amount of Mortgage Bonds could.

average interest rates for 1984 and 1983 were 12.8% and 11.6%. respectively.

have been issued on the basis of Mortgage Bond retirements.

Long-term debt maturities consist of $l16.2 million. $614.3 million, $471.4 -

million. S379.8 million and $429.6 million in 1985,1986.1987.1988 and.

1989. respectively. Maturities for 1986 through 1989 each include repay-Rentalexpenses were $38.0 million $36.1 million and $34.5 million for 1984.'

ments of $300 million under the Belle River Protect Financing. See Note 9.

1983 and 1982. respectively.

Agreements have been signed with certain municipalities and municipal Future minimum lease payments under long-term noncancellable leases, agencies, under which the municipalities and agencies isssed tax-exempt consisting of nuclear fuel ($310.7 million computed on a projected units of bonds to finance certain Company projects. He Company is obligated to production basis, plus current interest). lake vessels ($l10.1 million), locomo-make payments sufficient to meet the principal and interest due on the tives and coal cars ($52.9 million), office space ($64.7 million) and comput-ers. vehicles and other equipment ($50.4 million) at December 31.1984 are -

bonds. To secure the Company's obligations under most of these agree- -

ments, the Company has iscued Mortgage Bonds with principal amounts, as follows:

36

imahonsi

amations, AFUDC relating to MPPA's interest from the date of sale in 1983) is $1.925 billion (including approximately $500 million of AFUDC): and. through

' N_

39 %

y December 31.1984. actual expenditures were $1.842 billion (including $479 9

million of AFUDCL The Company's portion of the current estimated cost of 1987 773 Remaining years 242 7 g

7.,33 3 the Belle River units is $1.575 billion (including approximately $417 million of AFUDC): and. through December 31.1984, the Company has expended

$1.495 billion (including $396 million of AFUDC) on its undivided ownership The Company has a heat purchase contract with Renaissance (see Note 41 interest in these units. Belle River Unit No. I began commercial operation on which provides for the purchase by Renaissance for the Company of up to August 1.1984 and Belle River Unit No. 2 has an estimated commercial S259 million of nuclear fuel. Title to the nuclear fuel is held by Renaissance.

operation date of July 1985. See Note 3.

Subject to the continued availability of funds to Renaissance to purchase The current project estimate for Fermi-2. including the undivided owner-such fuel. the Company's obligation to make quarterly payments under the ship interest of the Cooperative (other than AFUDC relating to its interest heat purchase contract will not commence until the consumption of nuclear from the date of sale in 1977). is $3.375 billion (including approximately fuel begins. Renaissance's investment in nuclear fuel was $189.9 million and

$867 million of AFUDC and assuming June 1985 commercial operationi:

S14 7.5 million at December 31.1984 and December 31.1983 respectively.

and through December 31.1984, actual expenditures were $3.171 billion Effective lanuary I 1984, in accordance with Statement of Financial (including $759 million of AFUDC). The Company's portion of the current Accounting Standards ("FAS"l No. 71. " Accounting for the Effects of Certain project estimate for Fermi-2 is $2.948 billion (including approximately $848 Types of Regulation". the Company began recording capital leases for million of AFUDC): and. through December 31.1984, the Company has which the inception date is after December 31.1982. Accordingly balance expended $2.744 billion (including S740 million of AFUDC) on its undivided sheet assets and liabilities at December 31.1984 include certain property ownership interest in this unit. See Note 3.

and related obligations under capital leases. The Consolidated Balance in connection with its capital expenditure program, the Company has Sheet at December 31.1983 has been restated to include capital leases with entered into purchase commitments of approximately $663 million at an inception date in 1983. By 1987. as permitted by FAS No. 71, the December 31.1984. The Company has also entered into substantial long-Company will record capital leases for which the incepticn date is on or range fuel supply commitments.

before December 31.1982. In addition. the change in obligations under capital leases and the change in net property under capital leases are Contingencies-The Company has experienced and in the future may experi-classified as Financial Resources Provided and Financial Resources Used in ence some of the problems confronting the electric utility industry in gen-the Consolidated Statement of Changes,m Financial Position.

eral, such as difficulty in obtaining sufficient return on invested capital Had all eligible leases been accounted for as capital leases. assets at through timely and adequate rate increases: low levels of funds generated December 31.1984 and 1983 would have mcluded additional property internally for construction; the effects of significant cash commitments and under capital leases. less accumulated amortization, of $306.6 million and extended construction periods for generating units; additional expendi-

$275.8 million, respectively. Also, liabilities at December 31.1984 and 1983 tures and delays due to efforts to comply with changing environmentallaws would have included additional noncurrent liabilities under capital leases of and regulations: increased operation and maintenance expenses: unantici-

$105.4 million and $116.3 million. respectively, and additional current ha-pated reduction in load growth; inability or unwillingness of joint-owners of bilities iincluding nuclear fuel obligationst under capital leases of $201.2 generating units to honor commitments: dilution of common shareholders' equity due to the issuance of substantial numbers of common shares at de FA o'. 7.

ort za n f eased assets is modified so that the prices below book value; and increased political activities by consumer int total of interest on the obligation and amortization of the leased asset is eo tr ction of a nuclear generating unit exposes a utility to addi-equal to the rental expense allowed for ratemaking purposes. Net income is not affected by capitalization of leases.

tional significant problems including increased and changing regulatory.

For ratemaking purposes. the MPSC treats all leases as operating leases.

safety, environmental and design requirements and public opposition.

resulting in difficulties and delays in obtaining the necessary permits and licenses for commercial operation which, together with increased costs of capital. have resulted in total project costs being significantly higher than originally estimated and construction periods which have typically Commitments-The Company is nearing the completion of a major capital extended well beyond originally planned completion dates.

expenditu-e program, included in this program are Belle River Unit Nos. I

%e final steps prior to the receipt of an operating license for a nuclear and 2 ilow sulfur coal generating units having a nominal rating of 650 MW generating unit permitting fuel load and low-power testing are complicated each) and Fermi-2 la nuclear generating unit having a nominal rating of and all aspects require final Nuclear Regulatory Commission I"NRC")

1.100 MW).

approval. De Company has been responding to a series of N RC requests for The current project estimate for the Belle River units, including the information in connection with this final approval process and believes it will undivided ownership interest of the MPPA in Belle River Unit No. I and be able to successfully make all required demonstrations to the NRC.

facilities to be used in common with Belle River Unit No. 2 tother than Although this process has resulted in delays in securing an operating license 37 I

C for Fermi-2. the Company believes that it will be able ta obtain an operating -

x

.a f.""

r -

license and place the unit into commercial operation...

_.. cr.

De Company is unable to determme precisely when it will be able to MPSC Elerfric Rate Cast - In 1983. the Company filed an electric raee case with bring Fermi-2 into commercial operation. The Company previously ~

the MPSC requesting an annual revenue increase of approximately $969 announced an earliest estimated commercial operation date for Fermi-2 of million which included the anticipated placing into commercial operation of -

June 1985 which is no longer attainable. The in achieving the earliest Fermi-2 and Belle River Unit Nos. I and 2. ".

i estimated commercial operation date will in an increase in total '

In June 1984. the MPSC authorized an interim electric rate increase in the.

p opect costs of approximately $30 million per month, a substantial portion annual amount of $l82.9 million effective with the commercial operation of.

of which would be AFUDC.

Belle River Unit No. I. which occurred on August 1.1984...

Ownership of an operating nuclear generating unit subjects a company to in 1984, the Michigan Attorney General, various other intervenors and the additional risks. The Company is insured as to its interests in Fermi-2 under MPSC Staff filed their cases with the MPSC addressing final rate relief. The -

- property damage insurance provided by American Nuclear insurers Staff's case, as set forth in its reply brief, supports an annual revenue

("ANI"). Under the ANI insurance policies. $500 million of composite pri-increase of $784 million, including any interim relief granted. which gives.

mary coverage and $85 million of excess coverage is provided for decon-effect to proposed disallowances tresulting from the MPSC's prudency tamination costs, debris removal and repair andior replacement of -

review of construction expenditurest of $40 million for the Belle River-

-I property. The Company pays annual premiums for this coverage and is not Project and of the return on $365 million of total project costs for Fermi-2 liable for retrospective assessments. When fuel load occurs. the Company (based upon the previous cost estimate of $3.075 billion). The Staff's case.

plans to obtain additional excess property damage insurance Ithe maximum would allow the recovery through depreciation of the $365 million of project l

additional coverage currently available is $475 million) through Nuclear costs. A Staff report on Fermi-2 stated that the Company must be held e

Electric insurance Limited I"NEIL"). which would provide total property accountable for costs related to fuel load delays after December 1983 and damage insurance of $1.06 billion 1S500 million of composste primary cover-that a further disallowance may be considered since fuel load did not occur age. S85 million of excess coverage and $475 million of maximum additional by June 1984. In addition, another Staff witness submitted testimony recom-coverage). In addition. the Company will obtain coverage for fuel costs mending that the MPSC only consider Fermi-2 plant costs of $2.323 billion associated with plant outages through NEIL Under the NEIL coverages. the Icompared to the Company's current project estimate of $3.375 billion Company could be liable for maximum retrospective assessments of up to -

assuming lune 1985 commercial operationi for ratemaking purposes.

i approximately $17 million per year if losses were to exceed accumulated The Staff also presented an alternative recommendation for final rate funds available to NEIL relief of $784 million which would provide an initial annual revenue increase When Fermi-2 is licensed to operate by the NRC, the Company will be of $594 million ibased upon the reply brief). including any interim relief I

required to comply with the Price-Anderson Act under which public liability granted, and a deferred increase of $190 million. This proposed rate moder-

[

for a nuclear incident is currently limited to SI60 million of private insurance ation plan would phase in the cash recovery of a portion of the net income plus deferred premium charges of $5 million which may be levied for each requirement associated with Fermi-2 and Belle River Unit No. 2. Under this nuclear unit licensed to operate Ibut not more than $10 million per year per alternative proposal, there would be an annual deferral Iin declining nuclear uniti. On December 31.1984, there were 92 licensed nuclear units in amounts) for the first four years of the projects' commercial operation.

the United States. Thus. deferred premium charges in the aggregate amount based upon the Staff's characterization of certain capacity as "unrequired".

of $460 million could be levied against all owners of licensed nuclear units in with the deferred amount, including return, being recovered through reve-i the event of a nuclear incident. Accordingly, public liability for a single nues over the subsequent twelve years. Return on the amount deferred nuclear incident is currently limited to $620 million 15160 million of private would be allowed at the Company's overall rate of return as approved in the insurance and $460 million of deferred premium chargest case. Under this alternative proposal, the maximum cumulative deferral.

To the extent that insurable claims for replacement power, property including return, would be approximately $250 million.

damage. decontamination. repair and replacement and other costs and The Company believes that no portion of the new generating capacity is expenses arising from a nuclear incident at Ferrai-2 exceed the policy limits "unrequired", and all project costs incurred were reasonable and prudent.

of insurance or to the extent such insurance becomes unavailable in the Accordingly, any proposed disallowances will be vigorously opposed. If it is future. the Company will retain the risk of loss as a self insurer. Although the titimately determined that a return on a portion of project costs is dis-l Company has no reason to anticipate a serious nuclear incident at Fermi-2. if allowed, total and per share earnings for Common Stock will be reduced such an incident did happen it could have a material but presently undeter-over the period of time the plant remains in service. Should any project minable adverse impact on the Company's financial position.

costs be determined not to be recoverable through customer rates, total when generating units are completed and placed into commercial opera-and per share earnings may be reduced over the period of time that the 7

tion. certain regulatory authorities have. in some cases, required rate mod-plant remains in service and/or may be reduced in the period of such eration plans. the effect of which has been to defer to later years recognition determination.

in rates of a portion of the cost of the generating unit. In some cases.

The record in this case has been closed. Briefs and reply briefs have been '

i regulatory authorities have not allowed portions of the cost of units to be filed and the Company awaits a Proposal for Decision by the Administrative included in rate base or to be recovered through rates. See Note 12.

Law Judge.

38

While it is unable to predict the ultimate outcome of the matters raised in ber 31.1984. The accrual of these amounts in 1984 reduced total and per connection with the electric rate case. the Company believes that, although share earnings for Common Stock by $15.8 million and $0.12 respectively.

no assurance can be given, the ultimate resolution appropriate proceedmgs. w,ll not have a maten,of these matters.afterall i

ai adverse effect on its Fuel Cost Recovery - In 1979. the Michigan Attorney General requested orders nn ncialposWon.

from the Ingham County Circuit Court and the MPSC prohibiting the Com-any from charging. over the period 1980 through the first quarter of 1985.

In January 1985. in light of emerging issues in the public utility industry. the approximately $30 million under the fuel cost adjustment clause. These Financial Accounting Standards Board added to its agenda a project to charges relate to certain costs resulting from the renegotiation of a contract amend or interpret FAS No. 71. " Accounting for the Effects of Certain Types with Decker Coal Company. In 1980. the Circuit Court denied the requested of Regulation". Issues that are likely to be addressed include accounting for relief and remanded the case to the MPSC. In 1983, the MPSC issued a final rate moderation plans, the accounting treatment of disallowances of certain order which dismissed the Attorney General's complaint. The Attorney costs related to operating plants and the accounting for abandoned con-General appealed the order to the Ingham County Circuit Court.

struction projects. The Company is unable to predict how amendments to or interpretation of standards governing the accounting for these matters Sicant heating Rafe Case Appeal-in December 1984, the Michigan Supreme might differ from what it believes to be current generally accepted account.

Court decided to hear an appeal challenging a 1970 MPSC order granting an ing principles ~

increase in steam heating rates. If it is ultimately determined that the Company must refund all or a portion of the approximately $8.1 million Deferred Fuel Cost Refund-In May 1983, the Michigan Supreme Court denied collected plus interest of an estimated $13.6 million at December 31.1984, the Company's motion for a rehearing of a deferred fuel cost matter, such amounts refunded would reduce earnings for Common Stock in the thereby requiring a refund of $23.5 million of revenues collected to recover period of such determination (approximately $11.7 million at December 31.

1975 deferred fuel costs and a restatement of earnings for 1975, with 1984I.

corresponding reductions in retamed earnings used in the business at December 31.1975 and subsequent periods. Interest. preliminarily deter-mined. of $23.2 million reduced total and per share earnings for Common Stock for 1983 by $12.5 million and $0.10 respectively.

In September 1983. the MPSC issued an order directing the Company to Empfopes' Retirement Plan -The Company has a trusteed and noncontributory refund the S23.5 million of revenues previously collected, with interest defmed benetit retirement plan covering all employes who have completed preliminarily determined of $23.2 million. Accordingly, the Company six months of service. The Company s policy is to fund pension cost annually refunded portions of the S23.5 million with interest and deposited funds s it accrues based on the actuarial cost of the Plan. Unfunded prior service with a trustee sufficient to refund the remaining balance.

c st is amortized over forty years and thirty years (for costs relating to in June 1984, the MPSC issued a final order directing the Company to amendments to the Plan after April I 19761. as appropriate, and net experi-refund $19.1 million of interest. Since the preliminary interest of $23.2 ence gains and losses are amortized over fifteen years. Cost to the Company million refunded by the Company exceeded that required by the order, the to fund the plan was $35.7 million. S41.3 million and $39.9 million for 1984.

Company believes that it has no further refund obligation. Because the 1983 and 1982. respectively. Effective January I.1984, the Company preliminary interest was stipulated to by the Company, the excess amount changed the actuan,al funding method used m determining pension cost refunded cannot be recovered from customers.

fr m the entry age r.ormal cost method to the projected unit credit method.

In lanuary 1985, the Michigan Attorney General and the Association of in addition, the Company changed the, terest rate used in determ, mg m

m Businesses Advocating Tariff Equity filed an appeal with the Ingham County pension cost from 6% m 1983 to 7% in 1984. Pension cost for 1984 was Circuit Court which challenged the MPSC's method of determining interest.

reduced approximately $5.4 million as a result of these changes.

A comparison of the actuarial present value of accumulated Plan benefits.

Rafe Refund-In 1976. pursuant to a temporary order of the Ingham County determined using an interest rate of 10% and net assets available for Circuit Court the Company collected revenues of $13.7 million, subject to benefits at December 31.1983 and 1982, the latest dates for which actuanal refund, which increased total and per share earnings for Common Stock by information is available is as follows:

approximately S7.1 million and $0.14. respectively. In 1981. the Ingham December 3:

County Circuit Court issued a final opinion and order concluding that there i983 i982 was insufficient evidence to support the collection of the additional $13.7 gg million of revenue. In 1983, the Michigan Court of Appeals affirmed the Actuarial present value of accumulated Plan benefits ludgment of the Ingha m County Circuit Court and the Company sought leave vested s322.875 s306.oSo to appeal to the Michigan Supreme Court. In 1984, the Michigan Supreme Nonvested 2i.ie7 18.494 Court denied the Company's request for leave to appeal, which denial had Total s344.o42 s324.544 the effect of affirming the final opinion and order of the Ingham County Circuit Court. Subject to appropriate proceedings, the Company expects to Net assets available for Plan benefits s454.258 s379.652 refund the $13.7 million plus interest of an estimated $15.6 million at Decem-39

C

&n

,q;

' Other PWstretirement Benefits-In addition to providing pension benefits, the.

Consondated statement of income Company provides certain postretirement health care and life insurance.

Ad,usted for Changes in Specific Prices ICurrent Costl Year Ended December 31.1984.

benefits. Substantially all of the Company's employes will become eligible laillens of awraer 1984 Mearst for such benefits if they reach retirement age while still working for the Earnings for Common Stock. as Reported in Company. These benefits, as well as similar benefits for active employes. are the Historical cost Statement of income

$298 provided principally through insurance companies and other organizations Additional Depreciation Expense (299) whose premiums are based on the benefits paid during the year. The Earnings for Common stock Adiusted for Company recognizes the cost of providing these benefits as the premiums Changesin Specific Prices are recorded, increase in Specific Prices of Net Utility Plant *..

$ 1Il 328 Effect of increase in the General Price Level 1562)

Adjustment of Net Utility Plant to Net Recoverable Amount 238 y934 y933

,93y Reduction of Purchasing Power Loss through Debt Hnancing 208-Cost to the Company of providing health care and Net Change in Common Shareholders' Equity

$2II lifeinsurance benehts to activeand retired employesithousandst

$38.795

$41.612 S34.298 Average number of active employes 10.965 Ii.I44 I l.176

• At December 31. l984. the current cost of utility plant, net of accumulated depreciation. was Average number of retired employes 3.288 3.259 3.197

$ 14.0 billion. while historical cost or net amount recoverable through depreciation was $8.1 billion.

General-The current cost data reflect changes in the specific prices of utility plant from the date such plant was acquired to the present. as measured by -

the Handy-Whitman Index of Public Utility Construction Costs ("Index").

l984 ouarter Ended Earnings for Common Stock Adjusted for Changes in Specific Prices-Adiustment of Mar. 31 June 30 sept. 30 Dec. 31 the historical cost statement of income to arrive at earnings for Common itswasa Js.rucpr rersnarceawantsi Stock adjusted for changes in specific prices was limited to depreciation Operating Revenues

$620.021

$54%669

$682.750

$645.765 expense. In accordance with procedures specified in FAS No. 33.

Operating income 124.478 100.209 164.012 150.066 Estimated utility plant was determined under this method by applying the Net income 100.975 74.265 123.143 103.554 Index to the historical cost of utility plant by vintage year. Depreciation Earnings for Common Stock 74.846 48.226 97.071 77.635 expense was then determined for the adjusted amounts of utility plant by Earnings Per Share 0.57 0.36 0.71 0.56 applying the same composite depreciation rate used to compute the histor-ical amount of depreciation expense.

Since the higher depreciation expense under the current cost method is 1983 Ouarter Ended n t t x deductible. income taxes were not adjusted from the amount shown uar. i s lune 30 sept. 30 Dec.ii in the Company's historical cost statement of income.

artwasands. ruert per skarr anwuntsi Fuel inventories and the cost of fuel used in the generation of electricity Operating Revenues

$546.157 5528.016

$656.377

$579.108 were not restated from their historical costs. Regulation provides for the Operating income 113.547 l 10.220 140.13 118.255 current recovery of fuel expense. Materials and supplies inventories were Net income 85.227 67.299 113.460 98.636 not restated since they are not a cost of generating electricity and the Earnings for Common Stock 62.390 42.899 88.269 72.450 amounts involved are insignificant.

EarnmgsIYr Share 0.55 0.36 0.72 0.58 Adjustment of Net Utility Plant to Net Recowrable Amount - Under current ratemak-ing policies prescribed by the MPSC and the FERC. only the historical cost of utility plant is recoverable through depreciation charges as part of the cost of service billed to customers. Therefore, the excess of the cost of utility plant adjusted for changes in specific prices is not presently recoverable in The following supplementary information is supplied in accordance with the rates as depreciation. In accordance with the requirements of FAS No. 33.

requirements of FAS No. 33. " Financial Reportin and Changing Prices." as the amount of this excess that accrued as a result of changing prices during amended. FAS No. 33 addresses aspects of an inffationary environment i.e..

1984 is reflected as an adjustment to net recoverable amount.

the effects of changes in the specific prices of certain assets used by the Reduction of Purchasing Power Loss through Debt Financing-Since the Company Company ithe " current cost" method). It is an attempt to display the -

owed net monetary liabilities during a period in which the general purchas-approximate economic effects of inflation and should be considered an ing power of the dollar declined, the Company experienced an economic estimate of those effects rather than a precise measure.

gain in purchasing power. All assets and liabilities other than utility plant, as 40

The Detroit Edison Company and subsidiary companin well as amounts applicable to preferred and preference stock. were treated This analysis should be read in conjunction with the Consolidated Financial as monetary items. Preferred and preference stock were treated in the sa me Statements and accompanying Notes thereto, contained herein.

manner as long-term debt. The gain in purchasing power which results from the Company's use of debt financing is strictly an economic concept. The Consolidated Statement of Income Company cautions readers that such gains will never be realized and there_

General-Throughout the three-year period, the Company experienced fore vill not contribute to cash flow.

increased operating expenses and increased costs of capital associated with Summary-The regulatory process limits the amount of depreciation fin ncing capital expenditures. Recessionary conditions existed throughout expense recoverable through revenues to the historical cost of the Com.

the Company's service area during 1982, marked by significant reductions in pany's investment in utility plant. Such amount produces cash flows which industrial activity, increased unemployment and customer energy conserva-are inadequate to replace such property in future years or to preserve the tion, which resulted in lower kilowatthour ("kWh") sales to customers, purchasing power of common equity capital invested. As a result, the However 1983 and 1984 showed improved business and economic condi-Company must rely on the capital markets to provide necessary financial tions and higher kWh sales. particularly in the commercial and industrial resources. thus further exposing the Company to the effects of inflation in sectors.

the form of increased financing costs. The Company, therefore incurs a Although rate increases were received during this period, they were significant purchasing power loss which is expenenced by the common shareholdu and can be overcome on!y as a result of adequate rate relief in neither timely nor adequate to permit the Company a reasonable oppor-the regulatory process.

tunity to earn the rates of return on common equity authorized by the MPSC.

Operating Rewnues-Approximately 97% of the Company's operating reve-nues are subject to the jurisdiction of the MPSC. with the remaining 3%

subject to the lurisdiction of the FERC.

Operating revenues increased in each year due to the following factors:

Five-Year Comparison of Selected Supplementary Financial Data

• Estimated increase Year Ended December 3i (Decreasel From Prior Year 1984 1983 1982 1981 1980 1984 1983 1982 I"

N Rate increases and the recovery of fuel Earnings for Common Stock and net purchased power costs

$ 66

$ 53

$166 As Reported

$ 298 s 266 $ 181 $ 177 $ 138 Kilowatthour sales 105 144 199)

Adjusted for Changes in Specific Prices 111 13 4)

(i18)

(94)

(1021 Other-net 18 il1) 2 Earnings Per Common Sh; e As Reported S 2.20 $ 2.21 $ l.75 $ 2.02 $ 1.75 Adjusted for Changes in Specific Prices (0.01)

(0.28)

(1.14)

(1.07)

(1.29)

Operating revenues include the following MPSC authorized electric rate Increase in Specific Prices of increases:

Net Utility Plant over funder) the Increase In the General Price Level

$ (234) $ 65 $ (82) $ (1691 $ (543)

Annual Revenues-Milhons Reduction of Purchasing Power Loss Interim includ ginterim through Debt Financing

$ 208 $ 196 $ 180 $ 370 $ 496

$ 96.! (Nov.19801

$253.4 (July 1981)

Net Assets (Conimon Shareholders' Equity)

!4 5.2 (July 1982) 203.4 (Mar.1983) at Year-End 182.9 Ijune 1984)

As Reported S 2.380 $ 2.195 $ l.872 $l.675 $ l.514 Adiusted for Changes in Specific Prices after The lune 1984 interim electric rate increase became effective in August Adiustment to Recoverable Amount 2.347 2.250 1.991 1.852 1.822 1984 coincident with the commercial operation of Belle River Unit No. I.

Operating revenues realized from rate increases are dependent upon actual levels of kWh sales and billing demands (requirements for electrical

• All data adjusted for changing prices are stated in average 1984 do!!ars.

power measured in kilowatts).

41

' The Detroit Editon Company and subsidiaro companies Changesin kWh sales were as follows:

cost to operate Belle River. Unit No. l..which commenced commercial increase tDecreasel From Prior Year

. operation on August 1.1984. and renewed participation in the Electric' 19s4 1983 1982 Power Research Institute. Maintenance expense increased due primarily to Residential (l.06%

3.2%

11.91 %

higher labor and material costs and continuing efforts to maintain or; fr5s**di U

IN iiQ improve the availability and efficiency of all generating equipment. while the '

Taal 4.6%

7.2 %

to oi%

1984 increase also reflects the costs associated with the commercial opera-tion of Belle River Unit No.1. Depreciation expense increased as a result of The 1982 decline in total kWh sales was due primarily to reduced industrial higher depreciation rates approved by the MPSC effective in August 1981.

activity, particularly on the part of automotive and automotive-related man-and increases in depreciable property including the addition of Belle River -

ufacturers and suppliers. and continuing customer energy conservation' Unit No. I in 1984 (see Note 11. Taxes other than income taxes increased due -

The 1983 and 1984 increases in commercial and industrial sales were due to higher payroll and property taxes and in 1983 to an increase in Michigan :

primarily to improved business and economic conditions with maior Single Business Tax reflecting an increase in the taxable base. Higher prop.

increases in sales to steel, automotive and automotive-related customers.

erty taxes in 1984 reflect the commercial operation of Belle River Unit No.1.

with 1983 kWh sales also reflecting warmer summer weather.

in August 1984. Income taxes increased in 1982 as a result of the deferral of Operating revenues also include a decrease of $13.7 million in 1984 due t taxes as authorized by the MPSC effective in August 1981 on certain ;

a court ordered refund of revenues collected in 1976. See Note 12.

indirect construction costs and a portion of the borrowed funds component Operating Expenses-Operating expenses increased in each year. Fuel of AFUDC. partially offset by lower pretax income. Income taxes increased expense increased in 1982 due primarily to the higher cost of coal consumed in 1983 due primarily to higher pretax income income taxes decreased in reflecting increases in coal miners' wages. mine safety and reclamation costs 1984 due to lower deferred taxes on the borrowed funds component of and coal freight rates, and decreased in 1983 due primarily to decreased AFUDC resulting from commercial operation of Belle River Unit No. l.

generation, coal freight rate tariff refunds and increased consumption of partially offset by an increase in pretax income. See Notes I and 2.

coal. the Company's lowest cost fuel. Fuel expense increased in 1984 due Other income and Deducticns - The net loss in 1982, after federal income taxes.

primarily to increased generation reflecting higher kWh sales to customers.

The average cost per ton of coal consumed for 1982.1983 and 1984 was was due to the write-off of the assets of a wholly-owned non-utility subsidiary

$42.26. $42.09 and $41.96, respectively. Coal as a percent of total fuel company involved in a uranium mining venture and expenses related to consumed in 1982.1983 and 1984 was 95.4% 97.4% and 97.8%. respec-November 1982 Michigan ballot issues.

tively. Other power supply expense decreased in 1982 due to increased Costs of Capital-Interest on long-term debt, preferred and preference stock sales of energy (in September 1982, delivery of energy commenced under dividend requirements and dividends on common shares outstanding an agreement to sell 650 megawatts of generating capacity and associated increased due primarily to the issuance of securities to finance the Com-energy to General Public Utilities Corporation through l990) and decreased pany's capital expenditure program and to a lesser extent. to refund purchases reflecting increased generation and lower kWh sales to custom-maturing security issues. The increase in interest on long-term debt was.

ers. and increased in 1983 due to increased purchases of energy at lower partially offset by lower interest rates in 1982 and 1983. Other interest unit prices and higher kWh sales to customers. Other power supply expense expense increased in 1982 due primarily to higher levels of short-term increased in 1984 due primarily to the purchase of MPPA's capacity and borrowings, partially offset by lower interest rates. Other interest expense energy entitlements beginning August I.1984 (see Note 31. and lower sales decreased in 1983 due to lower levels of short-term borrowings and lower.

of energy to General Public Utilities Corporation. Despite continuing strin-Interest rates. partially offset by interest on the deferred fuel cost refund -

gent cost control measures by the Company, other operation expense (see Note 12). Other interest expense decreased in 1984 due to lower levels increased due primarily to higher labor and employe benefit costs and of short term borrowings, partially offset by higher interest rates and inter-general inflationary increases. The 1982 increase included higher expenses est on the court ordered refund of revenues collected in 1976 (see Note 12).

relating to the Michigan Residential Conservation Service Program and The average interest rate for short-term borrowings decreased from 13.8%

higher uncollectible expense including $8.8 millicn for McLouth Steel Cor-in 1982 to 10.4% in 1983 and increased to 11.7% in 1984.

poration. as a result of bankruptcy proceedings. The 1983 increase included the write off of fuel oil conversion projects at two peaker sites, partially Earnings for Common Stock and Earnings Per Shart - Earnings for Common Stock -

offset by a decrease in uncollectible expense. Both the 1983 and 1984 - increased in each year due to rate increases and, in 1983 and 1984. to higher increase included amortization of unrecovered plant costs relating to Green.

Whde-nartially offset by increased operating expenses in spite of' wood Unit Nos. 2 and 3 (see Note 5) while the 1984 increase included the. ' continuing stringent cost control by the Company. Despite the increases in 42

earnings for Common Stock, earnings per share declined in 1982 and 1984 1986.1987.1988 and 1989. respectively.

and were reduced in 1983 as a result of substantial increases in the average Short-term borrowings are incurred to finance the Company's capital number of common shares outstanding.

expenditure program and to refund maturing long-term debt. pending the Earnings for Common Stock include AFUDC. a non-operating non-cash receipt of proceeds from unsecured long-term bank borrowings and the sale item. consisting of the net cost of borrowed funds used for construction of debt and equity securities, and to meet other interim cash requirements, purposes and a reasonable rate on other funds when so used. AFUDC The Company had temporary cash investments of $8.0 million at December increased in 1982 due to capitalization of interest and commitment fees 31.1984. The Company had short-term credit arrangements of approx-applicable to the Belle River Project Financing Isee Note 9) and further imately $394.2 million at December 31.1984 under which $2.0 million was increased in 1983 and 1984 due to additional capital expenditures and an outstanding at December 31.1984. Any material disruption in the securities increase in the AFUDC rate in April 1983 lin recognition of increasing costs of markets or any other circumstance that might significantly delay or restrict capitall. In 1983, additional capital expenditures on the Belle River project the Company's access to long-term debt or equity financing would increase were substantially offset by the sale to MPPA and lower interest rates. In reliance on short-term borrowings and, depending on the circumstances.

1984. the increase in AFUDC was substantially offset by the commercial could adversely affect the Company's financial condition.

operation of Belle River Unit No.1. AFUDC amounted to 133%.108% and The Company's obgective is to achieve a capstal structure of approximately 99% of earnings for Common Stock for the years 1982.1983 and 1984, 35% common shareholders' equity.10-15% preferred and preference stock respectively. Accordingly. earnings available for dividends on Common and 50-55% long-term debt. The ratio of common shareholders' equity to Stock are dei.;r.Jwnt in part upon sources other than current operating total capitalization increased slightly from 33.0% at December 31.1983 to income. See Note I.

33.4% at December 31.1984 due primarily to the issuance of 8.746.618 Return on average common equity was 10.1%.13.0% and 12.9% for 1982.

additional common shares and the increase in net income in 1984. The ratio 1983 and 1984. respectively, as compared with the 14.0% return authorized of p,;'-.iwd and preference stock to total capitalization declined from by the MPSC through March 1983 and 15.0% thereafter 13.7% at Dec;.T.ber 31.1983 to 12.6% at December 31.1984 due primarily to

,- and=W h SImet theincreasesincommonshareholders equityandlong-termdebt.Theratio of long-term debt to total capitalization increased from 53.3 % at December Plant in service increased and construction work in progress decreased 31.1983 to 54.0% at Dec cc.ber 31.1984 due primarily to increases in primarily as a result of the transfer of the cost of Belle River Unit No. I upon the commencement of commercial operation on August 1.1984.

borrowings through unsecured promissory notes. Until the Company com-pletes its maior construction program and receives associated rate s inyddley and Capital a====-ces increases from the MPSC. common shareholders equity may remain below External financmg provided 98%. 88% and 84% of capstal w%..ditures 35M;h. requirements for Mnancing are expected to decrease lexcluding total AFUDCI in 1982,1983 and 1984. respectively. I.ow levels of and a common shareholders' equity ratio above 35 % is likely, internal cash generation are expected to continue until Fermi-2 and Bene The Company has entered into a number of agreements which have River Unit No. 2. now under construction. are placed in service and rates are decreased Rs need h @ W d e in capkal mah h authorized by the MPSC allowing the Company capstal recovery and return Cornpany b a SL2 h protect agreement we Wn % h h on the investment in these units. See Nose 12 for a rate moderation plan construction of Belle River Unit No. I and facilities to be used in common proposed by the MPSC Staff which would phase in the cash recovery of a e e h Unk Na 2. In MM M. & R2 h maxhum d portion of the net income requirement associated with Ferrni-2 and Bene borrowings under this agreement was reached (see Note 91. In 1977, the Company sold an undivided ownership interest in Fermi-2 to the Coopera-n Bene

• • P""

] pp Cash for capstal expendstures from 1985 to 1989 are esti-qe mated to be approximately $1.3 ben 6on lezcluding approximately $l46 mil-lion of AFUDC). The Company's 20 year construction program had the Company has also entered into leases for computers, cars. trucks, unit highest level of w3. 7 mures in 1982: lower capital requerements are trains lake vessels and buildings and has a nuclear fuel financing arrange-expected in future years. In 1985, the Company expects cash requirements See Notes 4* 10.11 and 12*

for capstal m3.;c.ditures of approximasely $392 minion (excluding approx-imately $133 nuNeon of AFUDC).

IndIntion Cash requireements for long term debt maturities and curmalatswe pre-The Company has been and will continue to be impacted by an inflationary ferred and

'...;e stock sinking fund i--;

• _

e are $122.0 minion.

economy.See Note 15.

$627.6 meNeon. $499.2 minion $407.6 minion, and $457.4 minion in 1985.

43

The Detront Ekon Centpany and subsidiary companies 1984 1983 1982 Operating itevenues Electric

$2.439.835 S2.260.028 S2.078.965 Steam 58.370 49.637 44.289 Total Operating Revenues

$2.498.205

$2.309.6X

$2.123.254 Operating E.xpenses Operation Expense Fuel

$ 700,789 S 676.409 S 718.431 Other power supply I84.740 I28.921 74.654 Other operation expense 403.616 374.164 372.767 Maintenance expense 203.945 187.769 170.974 Prmision for deprecation 190.420 l71.940 16f 430 Prmision for taxes Taxes other than income I44.47I 142.743 I I8.537 income taxes 131.459 145.559 96.912 Tot.al Operating Expenses

$ 1.959.440

$ 1.827.505

$ 1.713.705 Operating income

$ 538.765 S 482.853

$ 409.549 Other Income and Deductions Alkmance for funds used during construction S

S ARowance for other funds used during construction 130,350 92.750 47.995 Other kmne and deductions I.829 7.877 14.820)

(5.487) 1.155 Income taxes ll12)

S 95.140 S 44.330 TotalOther income and Deductions

$ 132.067_

Income Before taterest Charges S 670,832 S 577.293

$ 453.879 Interest Charges Long-term debt

$ 399.448 S 351.854

$ 331.469 Amortization of debt discount. premium and expense 2.198 2.131 2.006 Other 30.592 53.088 59.779 Allowance for borrowed furids used during construction (credst) ti63.3361 (194.402)

(194.076)

Net interest Charges S 268.895

$ 212 678 S 199.178 Net tacome

$ 401.937

$ 364.622 S 254.701 Preferred and Preference Stock Dividend Requirements 104.159 98.614 73.245 Earnings for Common Stock

$ 297.778 S 266.008

$ 181.456 Common shares Outstanding-Arerage 135.230 827 120.274.269 103.585.915 Earnings Per Share 2.20 2.21 S

1.75 Dtvidends Dedared Per Share of Common Stock I.68 1.68 l.68 Ratio of Earnings to nxed Charges (SEC Basist 2.19 2.22 1.85 Ratio of Earnings to nxed Charges and Preferred and Preference Stock Dividend Requirements (SEC Basisi 1.67 1.67 1.49 44

m-7-.g

/

~ l ' i: _

1988 1980 1979 1978 1977 1976 1975' 1974 Ehl S2ftl.217 51.776.364

$1.667.679

$1.561.296

$:.423.909 -

$1.241.883

$1.052.061

. $ 888.301 42.840 36.150 30 832 28.546 27.012 24.284 18.719 17.158

$2 054.057 S t.812.514

$1.698.518 SI.589.842 S t.450.92 8 S t.266.167

. $1.070.780

$ 898.459

$ 689.165 5 670.186 5 647.620

$ 580.869

$ 538.325

$ 477.231

$ 471.873

$ 342.398 139.981 107.767

%.502 158.098 108.648 88.350 19.4641' (2.1881 333.440 290.566 266.410 235.720 203.300 179.867 160.224 -

I42.789 -

164.978 133.270 I28.600 124.804 110.736 100.577 91.253-150.240 I4I.948 129.644 115.325 102.304 93.875 89.240

. 68.816 84.885 '

i 117.224 115.520 99.552 98.488

%.597 94.234

. 76.365 74.382 64.388 17.012 54.706 56.686 66.717 35.940 24.398 27.751 -

l SI A59 416 S1.4 % 199 SI.423 034

$1.362.990

$1.226.627

$l.070.074 -

$ 903.889 '

S 738.903

$ 394.641 5 316.315 5 275.477 5 226.852

$ 224.294

$ 196 093 S 166.898

$ IM.556 i

S S

S 49.833

$ 43.463 -

' $ ' 37.561 i

39.198 38.8I5 38.323 32.273 23.750 t9.50lp 692 3.664 2.371 4.82I I.728 2.412

- 5.829 l

4.771 16698 11.5541 11.228)

II.7001 451 11.353)-

13.2800 S

34.668

$ 38.838

$ 40 433

$ 33.4I6 -

$ 26.871

$ 52.012 5 44.522 S 40.110 5 429.309 5 355.153 5 315.910 S 260.268 5 251.165.

$ 248,105

$ 211.4 8 3

$ 206.666 S 290.045

$ 211.857

$ 167.585

$ 140.288

'S 129.078

$ 124.992~

$ ' I 16.267

$ 102.672 I.853 1.776 I.644 1.403 I.339 1.084

. 945 618 37.025 19.662 13.823 5.298 1.959 2.404 8.420 14.124 -

1833.% 71 166.7081 143.171) 111.5906 (25.7261 S 194.956 S I66.587 5 139.88I S I13.199 5 106.650

$ 128.480

$ 125.632-

$ 117.414 5 234.353 S 188.566

$ 176.029

$ 146.869

$ 144.515

$ 119.625

$ 85.781:

'S ' 89.252 57.566 58.037 43.457 38.056 34.095 34.589 26.463 23.759 5 17A787 S 137.529

$ 132.572 S 108.813

$ 110.420 85.036

$ 59.318

$ 65.493 87.473.581 78.780.863 69.848.484 61.898.763-55.202.974 51.277.789 48.120.898 44.922.938 2.02 I.75 l.90 1.76 S

2.00 1.66 S

I.23-S I.46.

S I.64 I.60 S

1.60 I.52 l.4675-S 8.45 1.45 l.45 I.84 1.90 2.17 2.28 2.48 2.I 3 I.85 2.01 1.53 1.53 I.69

.I.75 8.85 1.6I 1.45 I.59 s-e.

A

.T, 45 I

TTre Detroit Edison Compny and subsdary commnies 1984 1983 1982 Operatinginewenues Residential-Dectric

$ 758.124 S 741.399 S 676.37C.

(ttwasamist Commerdal-Dectric 570.082 513.292 473.498 Industnal-Dectnc 919.490 8I8.660 754.238 Other 250.509 236.307 219.148 Total

$2.498.205

$2.309.658

$2.123.254 Sales Residential 10.150 10.256 9.940 Im ammsof& M )

Commerdal 6.850 6.479 6.252 Industrial 16.324 15.162 13.758 Other 2.563 2.402 2.052 Total 35.887 34.299 38.995 E3ectric Customers Resuiential I.629.668 1.621.172 1.619.369 (prar en.h Commercial 142.395 140.403 139.376 Industrial 2.246 2.253 2.239 Other I.885 I.878_

1.827 Total I.776.194 I.765.706 I.762.8 I I Average Annual Use Per Itesidential Customer (kWhl 6.253 6.332 6.I33 Amerage Annual Bill Per Residential Customer

$467 03 S457.74

$417.33 Averageltevenue Per kWh Residential 7.47c 7.23c 6.80c Commercial 8.32 7.92 7.57 Industnal 5.63 5.40 5.49 Capitanzation I.ong-Term Debt

$3.8 35.272

$3.542.438

$3.2 3 8.649 lifwasandsl Preferred! Preference Stock 894.168 907.505 802.423 Cortmon Shareholders' Equity 2.379.998 2.195.36I i.872.18 I Total

$7.119.438

$6.64 5.304

$5.893.253 Capitalization long-Term Debt 54.0 53.3 54.6 lpercano Preferred / Preference Stock 12.6 I 3.7 13.6 Common Shareholders' Equity 33.4 33.0 3 I.8 Total 100.0 100.0 100.0 Common Stock Data Earnings Nr Share

$2.20

$2.21 S t.75 Div.dend Paid Fer Share

$ 1.68

$ 1.68 S t.68 Payout

'6%

76 %

96%

shares Outstanding-Average 135.230.827 120.274.269 103.585.915 Return on Average Common Equity 12.87 %

13.03%

10.14 %

Book Value Per Share

$16.9i

$16.63 SI6.60 Market Price High

$16%

Sf6

$13%

tow

$lI%

$13 Sil MisceHaneous Financial Data Average Interest Rate on Long-Term Debt 9.9%

9.5%

9.5 %

Average Dividend Rate on Preferred / Preference Stock I I.6%

1 I.6%

i 1.3%

tong-Term Debt Obligations and Redeemable Preferred and Preference Stock OutstandingIThousandst

$4.343.674

$4.027.029 53.792.982 Total Assets lThousands)

$8.970.0 84

$8.201.418

$7.645.856 Gross Utility PlantIThousandst

$9.752.346

$8.845.779

$8.252.570 Net Utility Plant IThousandst

$8.076.168

$7.320.570

$6.824.058 Capital Expenditures tThousandst

$ 938.004

$1.014.568 S t.135.04 5 MisceRaneous Operating Data System Capability at Year End-MW 8.898 8.162 7.762 System Capability at Time of Feak-MW 9.27I 7.810 8.569 System Feak Demand-MW 7.350 7.063 6.394 Reserve Margin at Tirne of Peak 26.8%

10.6 %

34.0 %

System Load Factor 60.2 %

60.2 %

61.7%

Heat Rate-Bru Per kWh 9.990 10.040 10.060 Fuel Cost-c Nr Mi!! ion Btu 190.6c 190.2c 193.8C 46 Number of Employes at Year End II.136 11.152 11.208

1981 1980 1979 1978 1977 1976 1975 1974 5 642.301 5 583.701 5 524.6I3

$ 497,988 5 464.906 S 408.828

$ 366.381 S 297.072 436 868 382.018 345.576 313.673 291.220 254.363 218.474 183.732 763.167 658.051 647.438 618.404 539.469 463.174 363.732 307.353 211.721 188.744 180.884 166.777 155.326 139.802 122.193 110.302

$2.054.057 SI.812.514

$ 1.698.511 SI.589.842 S t.450.92 8 SI.266.167

$ 1.070.780 S 898.459 10.134 10.394 10.274 10.386 10.385 10.105 9.989 9.584 6.310 6.265 6.251 6.073 6.027 5.802 5.610 5.590 15.47I I5.472 17.960 18.354 17.9I5 I7.253 15.036 I6.419 2.107 2.104 2.406 2.335 2.287 2.I68 1.784 1.819 34.022 34.235 36.891 37.148 36.614 35.328 32.419 33.412 1.C 24.161 1.623.162 I.622.768 I.600.988 1.579.607 1.560.669 I.54I 98I I.526.562 138.830 136.983 135.788 127.634 118.942 118.107 117.373 117.648 2.305 2.293 2.264 2.201 2.I26 2.0I 8 1.93I I.849 8.82I I.750 1.713 I.675 I.648 1.589 f.546 1.524 1.7 7.117 1.764.188 f.762.533 1.732.498 1.702.323 1.682.383 1.662.831 1.647.583 6 243 6.408 6.402 6.529 6.616 6.518 6.514 6.330

$395.66 S359.86

$3:6.92 S313.08 S296.20

$263.71

$238.90 SI96.2I 6.34c 5.62c 5.I Ic 4.79c 4.48C 4.05c 3.67c

3. loc 6.92 6.10 5.53 5.16 4.83 4.38 3.89 3.29 4.93 4.25 3.60 3.33 3.01 2.68 2.42 1.87

$2.753.978 S2.450.457

$2.069.518 S t.843.036

$ 1.738.185 S t.681.998 SI.573.077

$1.542.542 603.I61 591.346 510.748 494.691 448.892 412.699 418.312 324.534 If 75.385 1.5l4.169 f.387.768 1.241.401 1.118.065 1.004.124 926.920 903.980 55/132.524

$4.555.972 S3.968.034

$3.579.128

$3.305. I 42

$3.098.821

$2.918.309

$2.771.056 54.7 53.8 52.1 58.5 52.6 54.3 53.9 55.7 12.0 13.0 12.9 13.8 I 3.6 I 3.3 14.3 11.7 33.3 33.2 35.0 34.7 33.8 32.4 31.8 32.6 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

$2.02 St.75 S1.90

$1.76

$2.00

$ 1.66

$1.23

$l.46

$ 1.62

$1.60

$ 1.58

$1.52

$ 1.45

$1.45

$1.45

$ 1.45 80%

91%

83 %

86 %

73%

87%

I18 %

99 %

C7.473.581 78.780.863 69.848.484 61.898.763 55.202.974 51.277.789 48.120.898 44.922.938 11.I2 %

9.47%

10.01 %

9.26%

10.50 %

8.79 %

6.33 %

7.32 %

Sl 7.47 SI 7.85 Sl8.46

$18.62 518.67 Sl8.40

$18.66

$19.62

$12%

$13h

$15%

S16 %

$18

$15%

$14 %

Sl8

$10%

$10

$l2%

$13 %

SIS %

Sl3

$ 8%

S 7%

9.4%

9.0%

8.5 %

7.7%

7.5 %

7.6%

7.5 %

7.4 %

9.8%

9.5 %

9.0%

8.8%

8.6%

8.4%

8.3 %

7.3 %

S3.182.033

$2.809.976

$2.332.200

$2.096.540 S t.888.740 S t.793.340

$ 1.770.340

$1.556.535 56.117.903

$5.751.801

$5. I 56.138

$4.641.602 S4.141.713

$3.838.969

$3.623.504 S3.450.875

$7.139.790 S6.213.495

$5.660.023

$5.102.843 S4.481.885

$4.209.699

$3.934.752

$3.765.369

$5.8 42.997 S5 026.245 S4.190.829 S4.140.521

$3.608.509

$3.414.558

$3.221.932

$3.120.348 5 % 4.261 S 644.540

$ 591.389 5 642.676 S 383.458 5 297.240 S 248.186 S 399.918 8.221 8.234 8.964 8.591 8.745 8.965 8.780 8.708 8.458 8.531 8.877 8.984 8.751 8.999 8.556 8.689 7.171 6.703 6.829 7.312 7.381 6.613 6.467 6.614 17.9 %

27.3%

30.0 %

22.9 %

18.6%

36.1%

32.3 %

31.4%

58.4 %

63.1%

66.2%

62.3 %

60.7%

65.5 %

61.8%

62.1%

10.060 10.I40 10.280 10.330 10.360 10.250 10.190 10.140 190.Sc 178.3 C 163.4c I 49.0c 130.2c 120.8c 110.1C 89.3c I I.024 10.789 10.908 10.729 9.953 9.579 9.567 10.035 47

The Detrat Edison Company and subsidiary ampanies The Company's Common Stock is listed only on the New York Stock At December 31.1984.139.081.562 shares of the Company's Common Exchange, which is the principal market for such stock. The following table Stock were outstanding. These shares were held by a total of 244.199 indicates the reported high and low sales prices of the Company's Common shareholders.

Stock on the Composite Tape and dividends paid per share for each quar-The amount of future dividends will depend upon the Company's earnings terly period during the past two years:

Iwhich in turn are dependent, among other things upon levels of kilowat-thour sales and timely and adequate rate relief). capital requirements.

Divaends Price Range Paid financial Condition and other factors.

Calendar Quarter High Low Per Share 1983 First

$15 %

Sl3

$0.42 Second 15 %

13%

0.42 Third 15 13 0.42 Fourth 16 13 %

0.42 1984 First 14 %

12 %

0.42 Second 13 %

11 %

0.42 Third 14 %

12 %

0.42 Fourth 10 %

13 %

0.42 Annual Meeting Corporate Address Registrars of Stock Detroit Edison Bradford Trust Company The 1985 Annual Meeting of Shareholders will be held at 10 a.m. EST ceneral offices 67 Broad street Monday. April 22. at the Henry and Edsel Ford Auditorium in Detroit.

2000second Avenue New York. New York l0005 Shareholders will be asked to elect members of the Board of Directors and Detroit. Michigan 48226 iPreferred. Preference and Commong ratify reappointment of Price Waterhouse as independent accountants for Telephone:1313: 237-8000 Comerica Eank-Detroit the Company.

Independent Accountants 211 West Fort Street At the 1984 meeting, on April 23.14 members were reelected to the Board fg,],f c,,,,,

of Directors for one-year terms. They included Otis M. Smith, a retired Detroit. Michigan 48243 Nat nk troit General Motors Corporation officer elected to the Board on December 20 6,,

,d 1983, and installed April 1.1984.

Copiesof Form 10-K.Securitiesand Exchange Detroit. Michigan 48232 in other voting at the 1984 meeting, shareholders overwhelmingly defeated Commission Annual Report. are available. (Preferredand Preference) a proposal to halt further development, planning and construction of Requests should be directed to:

Common Stock nuclear power plants, specifically Fermi 2. and a proposal to change the y g

• • S'*'"

Listed on the New York Stock Exchange N*

name of Detroit Edison to Michigan Edison Company.

The Detroit Edison Company 2000Second Avenue Unlisted trading on the Boston. Cincinnati. Mid-Detroit, Michigan 48226 west. and Philadelphia Stock Exchanges.

Transfer Agents Bradford Trust Company 67 Broad Street New York. New York 10005 Charles A. Babcock Ronald I. Gdowski trene C. Kata Sophia 1. Koziatek Kathryn L Westman 2000second Avenue 4g Detroit, Michigan 48226

Boardd WendeE W. Anderson. pr.

Chairman of the Board and Chief Executive Officer. Bundy Corporation iManufacturer of steel tubing, flexible hose and engineered plastic products)

Directors Malcohn Carron. S.I.

President. University of Detroit High School Charles T.Flaher m Chairman and Presadent. National Bank of Detroit David M. Cates Professor of Botany and Director of Biological Station. University of Michigan Edward J. Giblin Retired Chairman and Chief Executive Officer. Ex-CelIO Corporation IManufacturer of diversified industrial products)

Ernest L Grove. Ir.

Vice Chairman of the Board and Chief Financial Officer. The Detroit Edison Company Charles M.Heidel President and Chief Operating Officer. The Detroit Edison Company Patricia Shontz Longe Economist: Professor of Business Administration. University of Michigan Walter 1. McCarthy. ir.

Chairman of the Board and Chief Executive Officer. The Detroit Edison Company Frank Merriman Dairy Farmer Dean E. Richardson Chairman of the Board and Chief Executive Officer. Manufacturers National Bank of Detroit Louis H. Roddis, fr.

Consulting Engineer Alan E. Schwartz Senior Partner. Honigman Miller Schwartz and Cohn iAttorneys at law)

Otis M. Smith Retired Vice President. General Motors Corporation Committers Audit Executive Nominating Nuclear Review Organization and Retirement Fund Review ofthe Edward I. Giblin.'

Walter 1. McCarthy, fr.*

Alan E. Schwartz

• Louis H. Roddis. Jr.'

Compensation Patricia Shontz Longe

• Boardd Patricia Shontz longe" Malcolm Carron. S 1 CharlesT. Asherina David M. Cates" Wendell W. Anderson. fr.*

Wendell W. Anderson. Ir."

E'"I#'5 Malcolm Carron. S.]

Ernest L Grove. Ir.

WendellW. Anderson.fr.

Patricia Shontz Longe Edward 1. Giblin" David M. Cates Dean E. Richardson Charles M. Heidel David M. Gates Frank Merriman Charles T. Fisher ill Edward I. Giblin Frank Merriman Charles M. Heidel Frank Merriman Ernest L. Crove. Jr.

Dean E. Richardson Patricia Shontz Longe Dean E. Richardson Otis M. Smith Alan E. Schwartz Frank Merriman Alan E. Schwartz Otis M. Smith Energy Resources Finance Planning Dean E. Richardson

• Frank Merriman*

Malcolm Carron. S 1

• Chairman Wendell W. Anderson, fr."

CharlesT. Asher til "Vice Chairman David M. Cates Edward I. Giblin Charles M. Heidel Ernest L Grove, fr.

louis H. Roddis. jr.

Patricia Shontz Longe Alan E. Schwartz OffK' ers Walter I. McCarthy. fr.

Chairman of the Board and Chief Executive Officer john E. Lobbia Vice President-Unancia! Services Charles M. Heidel President and Chief Operating Officer Claybourne Mitchell. fr.

Vice President-Planning and Research Ernest L Grove. Jr.

Vice Chairman of the Board and Chief Financial Officer lames B. Oliver Vice President-Employe Relations Leon S. Cohan Senior Vice President and General Counsel William K. Pence Vice President-Operations Burkhard H. Schneider Group Vice President Donald I. Plzzimenti Vice President-Community and Governmental Affairs Harry Tauber Group Vice Presulent SaulI. Waldman Vice President-Public Affairs ilAllard R. Holland Vice President O. David whidden Vice President-Corporate Planning (retired December 3 I,1984)

Wayne H. lens Vice President-Nuclear Operations Kathryn L Westman Secretary folen W. Johnson, fr.

Vice President-Hnance Leslie L Loomans Treasurer M. lane Kay Vice President-Administration Ronald W. Cresens Controller Robert C. Kirkby Vice President-Engineering and Construction Arnold J. Benes General Auditor I. Philip Lenihan Vice President-Marketing and Customcr Relations

M.,. -

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y y

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Nuc! ear Operations Detroit bw r.

Edison EnWi:*3 W ga.

April 15, 1985 NE-85-0663 Mr. Harold Denton Director of Nuclear Reactor Regulation U. S. Nuclear Regulatory Commission Washington, D.C. 20555

Reference:

Fermi 2 NRC License No. NPF-33

Subject:

Detroit Edison Annual Financial Reports In accordance with 10CFR50.71(b), attached please find ten (10) copies of the annual financial reports for Detroit Edison and the Wolverine Power Supply Cooperative.

If you should have any questions, please contact Mr. O. K.

Earle at (313) 586-4211.

Sincerely,

(

hiM Attachment cc:

Mr. P. M. Byron Mr. M. D. Lynch Mr. B. J. Youngblood USNRC Document Control Desk Washington, D.C. 20555 i

e, i

fD

1984 l

FINANCIAL REPORT i

l Wolverine Power Supply Cooperative, Inc.

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C0NTENTS I

Pages Auditor's Report 1

Financial Statements:

E Balance Sheets 2

Statements of Revenue and Expense 3

Statements of Patronage Capital and Other Equities 4

I Statements of Changes in Financial Position 5

Notes To Financial Statements 6-10 E

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h 1

COOPERO & LYO R AN D casmneo eveue accountants a -a

.a. n - or COOptme & LYS4ANO (INTERNANNAb)

To the Board of Directors and Members of Wolverine Power Supply Cooperative, Inc.:

We have examined the balance sheets of Wolverine Power Supply Cooperative, Inc. as of December 31, 1984 and 1983, and the related statements of revenue and expense, patronage capital and other equities and changes in financial position for the years then ended.

Our examinations were made in accordance with generally accepted auditing standards and, accordingly, included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances.

g In our opinion, the financial statements referred to 3

above present fairly the financial position of Wolverine Power Supply Cooperative, Inc. as of December 31, 1984 and 1983, and the results of its operations and changes in its financial position for the years then ended, in conformity with generally accepted accounting principles applied on a consistent basis.

g

g. w & & a.

f r

l Niles, Michigan February 22, 1985 9

l 1

MICHIGAN 46, NEWAYGO WOLVERINE POWER SUPPLY COOPERATIVE, INC.

BALANCE SHEETS, as of December 31, 1984 and 1983 1984 1983 ASSETS AND DEFERRED DEBITS Utility plant, at cost (Notes A, B, C, G, and H):

Electric plant in service

$102,464,903

$ 90,473,731

[

Construction work in progress 744,138,266 652,862,385 E'

846,603,169 743,336,116 Less, Accumulated depreciat: ion and amortization 32,621,985 30,108,784 Net utility plant 813,981,184 713,227,332 Other property and investments, at cost:

Investments in associated organizations (Note D) 4,704,606 4,872,620 I

Current assets:

Cash, general 568,222 552,175 Tem porary cash investments 5,454,672 Cash, REA construction fund 227,326 303,870 Accounts and interest receivable 5,350,338 4,938,870 g

Materials and supplies (Note A) 6,986,545 6,806,407 E

Prepayments 170,119 155,007 f

l Total current assets 18,757,222 12,756,329 Deferred debits 83,416 I

Total assets and deferred debits

$837.443.012

$730.939.697 The accompanying notes are a part of the financial statements.

I 1

2

s.

fi 1984 1983 EQUITIES, LIABILITIES AND DEFERRED CREDITS Equities:

Memberships 1,400 1,400 Patronage capital 7,912,563 5,222,248 Other equities 2,874,671 2,256,450 Total equities 10,788,634 7,480,098

]

Long-term debt (Note G):

REA mortgage notes 51,186,334 51,941,591 Federal Financing Bank notes 763,356,492 635,556,000 Accrued interest 17,706,888 Total long-term debt 814,542,826 705,204,479 Current liabilitie ll Short-term borrowings (Note E) 5,369,627 q

Advances payable to members (Note F) 3,971,500 4,096,500 Accounts payable 4,234,322 4,491,227 Refunds payable to members (Note I) 1,193,681 1,798,269 Taxes and wages payable 1,607,784 1,467,990 l

i Accrued vacation and sick leave 504,246 480,464 272 Accrued interest 230,934

198,

'I Total current liabilities 11,742,467 17,902,349 l

Daferred credits 369,085 352,771 C:mmitment (Note H)

Total equities, liabilities and deferred credits

$837.443.012

$730.939.697

)

1 l

I STATEMENTS OF REVENUE AND EXPENSE for the years ended December 31, 1984 and 1983 1984 Percent of Operating Amount Revenue Operating revenue

$50,356,505 100.0 Operating expenses:

Power generation:

Operation 9,912,636 19.7 Maintenance 731,112 1.5 Purchased power 24,467,777 48.6 Transmission expense:

Operation 754,526 1.5 Maintenance 335,808

.7 Distribution expense:

Operation 139,375

.3 Maintenance 111,975

.2 Administrative and general.

Operation 2,045,009 4.1 Maintenance 54,131

.1 l

Depreciation and amortization (Notes A and C) 2,788,005 5.5 Taxes 1,820,329 3.6 Interest on long-term debt 1,822,508 3.6 Other interest charges 2,661,547 5.3 Other deductions 85,939

.1 Total operating expenses 47,730,677 94.8 Operating margins 2,625,828 5.2 Non-operating margins:

Interest and other income 612,340 1.2 ccpital credits 70,368

.1 Net margins

$ 3.308.536 6.5 I

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

I 3

E

-i I

I 1983 Percent of I

Operating Increase Amount Revenue (Decrease)

$50,052,946 100.0 303,559 11,713,187 23.4 (1,800,551) 1 319,521 2.6 (588,409) 22 627,464 45.2 1,840,313 672,086 1.3 82,440 421,732

.8 (85,924) 112,388

.2 26,987 70,296

.2 41,679 1,788,702 3.6 256,307 78,497

.2 (24,366) 2,603,157 5.2 184,848 1,554,871 3.1 265,458 1,766,275 3.5 56,233 2,548,840 5.1 112,707 85,615

.2 324 47,362,631 94.6 368,046 2,690,315 5.4 (64,487) 356,917

.7 255,423 597,773 1.2 (527,405)

$ 3.645.005 7.3

$ (336.469) l I

\\

p STATEMENTS OF PATRONAGE CAPITAL AND OTHER EQUITIES for the years ended December 31, 1984 and 1983 PATRONAGE CAPITAL 1984 1983 Balance, beginning of year

$ 5,222,248

$ 3,049,762 Operating margins transferred 2,690,315 2,172,486 Balance, end of year S 7.912.563

$ 5.222.248 Patronage capital assigned S 7.912.563

$ 5.222.248 t

OTHER EQUITIES 1984 1983 Balance, beginning of year

$ 2,256,450 783,931 Operating margins 2,625,828 2,690,315 Transferred to patronage capital (2,690,315)

(2,172,486)

.Non-operating margins 612,340 356,917 Capital credits 70,368 597,773 Balance, end of year

$ 2.874.671

$ 2.256.450 The accompanying notes are a part of the financial statements.

4

l STATEMENTS OF CHANGES IN FINANCIAL POSITION for the years ended December 31, 1984 and 1983 Source and Use of Working Capital 1984 1983 r

Funds were provided by:

From operations:

Net margins 3,308,536 3,645,005 Items not requiring (providing) working capital:

Depreciation and amortization 2,942,816 2,826,875 (Increase) decrease in CFC patronage capital credits, net 459,782 (74,578)

Total from operations 6,711,134 6,397,302 Advances from REA and Federal Financing Bank 129,062,000 121,102,000 17,706,888 Increase in accrued interest, long-term Increase in deferred credits 16,314 14,175 12,530,572 Decrease in other investments Decrease in deferred debits 83,416 732,552 Total source 135,872,864 158,483,489 Funds were used for:

Extension and replacement of plant 103,696,668 167,472,312 l

Principal payments on long-term debt 1,979,785 2,015,012 Decrease in deferred interest 36,980 44,415 Decrease in accrued interest, long-term 17,706,888 Purchase of CFC capital term certificates 291,768 336,039 Total use 123,712,089 169,867,778 I'

Increa'se (decrease) in working capital 12,160,775 (11,384,289)

Working capital (deficiency),

I beginning of year (5,146,020) 6,238,269 y

Working capital (deficiency),

end of year S

7.014.755 S (5.146.020)

The accompanying notes are a part of the financial statements.

l ll l

ll l

5 l

1 1

Changes in Composition of Working Capital 1984 1983 Increase (Decrease)

Current assets:

Cash, general 16,047 233,197 E

Temporary cash investments 5,454,672 (621,859)

Cash, REA construction fund (76,544)

(14 411)

Accounts and interest receivable 411,468 (446 884)

Materials and supplies 180,138 (1,364,371)

~

Prepayments 15,112 (320,628) 1 Increase (decrease) in l

current assets 6,000,893 (2,534,956)

Current liabilities:

Short-term borrowings (5,369,627) 5,369,627 i

Advances payable to members (125,000) 2,025,000 Accounts payable (256,905)

(423,799)

I Refunds payable to members (604,588) 1,798,269 Taxes and wages payable 139,794 79,253

[ ']~"

Accrued vacation and sick leave 23,974 (49,472) r Accrued interest 32,470 50,455 Increase (decrease) in I

current liabilities (6,159,882) 8,849,333 R

Increase (decrease) in working capital

$ 12.160.775 S(11.384.289)

La 5

t

F.

NOTES TO FINANCIAL STATEMENTS for the years ended December 31, 1984 and 1983 E

I Note A:

ACCOUNTING POLICIES.

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

effect on the financial statements.

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

Depreciation and Amortization of Utility Plant -

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

I Inventory Valuation - Materials and supplies are stated I

at average unit cost, which is not in excess of market.

Construction Period Interest - The cost of construction work in progress includes the actual coat of funds borrowed to finance the construction of the Fermi #2 Nuclear Power Plant.

The Cooperative incurred total interest costs of $80,482,739 and $69,962,655 of which $75,998,684 and $65,647,540 has been capital-ized during the years ended December 31, 1984 and 1983, respectively.

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

Therefore, no provision for federal income tax has been made.

t 6

NOTES TO FINANCIAL STATEMENTS, Continued for the years ended December 31, 1984 and 1983 i

Note B:

UTILITY PLANT.

The electric plant in service consists of the following at I

December 31, 1984 and 1983:

1984 1983 Intangible plant 640,215 639,387 Production plant 38,095,207 37,963,852 I

Transmission plant 49,318,371 40,016,690 Distribution plant 11,766,405 10,163,763 General plant 2,644,705 1,690,039

$102.464.903

$90.473.731 I

Major classes of construction work in progress consist of the following as of December 31, 1984 and 1983:

1984 1983 Enrico Fermi Nuclear Unit 2

$738,750,351

$645,192,733 Other construction 5,387,915 7,669,652

$744.138.266

$652.862.385 Note C:

DEPRECIATION AND AMORTIZATION.

Depreciation and amortization for the years ended December 31, 1984 and 1983 were charged as follows:

1984 1983 Charged to operations

's as an expense

$2,788,005

$2,603,157

'{

Capitalized in electric plant in service 154,811 223,718 E

Total depreciation and amortization

$2.942.816

$2.826.875 1

1 7

NOTES TO FINANCIAL STATEMENTS, Continued for the years ended December 31, 1984 and 1983 I

Note D:

INVESTMENTS IN ASSOCIATED ORGANIZATIONS.

The investments in associated organizations consist of the l

following as of December 31, 1984 and 1983:

1984 1983 1

National Rural Utilities Cooperative Finance Corporation:

Capital term I

certificates (CTC)

$2,856,095

$2,564,327 Patronage capital credits 1,833,850 2,293,632 l

Other 14,661 14,661

$4.704.606

$4.872.620 1

1 Note E:

SHORT-TERM BORROWINGS.

1 Short-term borrowings consists of an unsecured line-of-4 credit with the National Rural Utilities Cooperative advances of $55,000,000, Finance Corporation, whereby$12,000,000 for general

$43,000,000 for Fermi 2 and operations, are available until February 15, 1985.

On that date only the $12,000,000 relating to general operations was renewed and is available until February 14, 1986.

Interest on advances is determined monthly by CFC, currently 10.75%.

I Note F:

ADVANCES PAYABLE TO MEMBERS.

The Cooperative has an arrangement with its members to receive advances against their monthly power bills.

The advances are interest bearing using the General Motors Acceptance Corporation 30-59 day commercial paper rate computed and payable on the twentieth day of each month.

There is no stated maturity date or repayment schedule.

'I I

8

T NOTES TO FINANCIAL STATEMENTS, Continu d i

h for the years ended December 31, 1984 and 1983 Note G:

LONG-TERM DEBT.

i Long-term debt consists of the following as of December 31, g

1984 and 1983:

Rural Electrification Administration mortgage notes i'

bearing interest at 2% and 5% per annum.

The notes are l

payable in equal installments to the year 2016.

Federal Financing Bank notes, guaranteed by the Rural Electrification Administration and bearing interest at I

8.896%-13.71% per annum.

The rate of interest will be redetermined by the bank at each change of maturity date.

Accrued interest as of December 31, 1983 of l

$17,706,888 is classified as long-term since additional advances were used to pay this liability.

All advances made under Federal Financing Bank notes, l

issued prior to October 1, 1983, have a seven year deferment before the repayment of principal is required.

The final principal payment of all loans is I

established when the notes are issued.

At the time of each advance, the Cooperative can select an initial maturity date for that advance of not less than two I

years or more than seven years.

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

The total period of the e

initial maturity date and extensions cannot exceed a j

maximum of seven yeara.

After the maximum seven year maturity, the advances are to be repaid according to the Federal Financing Bank guidelines.

Maturity dates of all advances made under Federal Financing Bank notes, issued after October 1,1983 are determined by REA based on the project's commercial operation date.

All advances under these notes are to repaid according to Federal Financing Bank guidelines.

l All notes issued prior to October 1, 1983 are 34 year l.

mortgage notes and all notes issued after October 1, i

1983 are 30 year mortgage notes.

)

All assets are pledged as collateral for long-term debt to lq the Rural Electrification Administration of the United l

States of America and the Federal Financing Bank.

E Maturities based on the terms of the debt instruments for II4 each of the next five years are as follows:

REA Federal Financing Bank 1985 -

$1,853,000

$360,775,000 1986 -

1,803,000 358,816,492 1987 -

1,798,000 43,765,000

-l 1988 -

1,745,000 1989 -

1,783,000 ll 9

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NOTES TO FINANCIAL STATEMENTS, Concluded for the years ended December 31, 1984 and 1983 Note H:

COMMITMENT.

The Cooperative and the Detroit Edison Company are participating under an agreement for the construction and operation of the Enrico Fermi Nuclear Unit 2.

Under the the Cooperative's portion of the construction agreement costs is limited to $426.9 million, (this excludes capitalized interest costs).

This cap is effective regardless of how long it takes to complete the construction.

However, the Cooperative's ownership interest will be reduced to reflect its ultimate proportion of total plant investment.

The Cooperative's ownership interest is approximately 17% as of December 31, 1984.

The Cooperative has capitalized through December 31, 1984, $738,750,351 and anticipates

$85,000,000 of remaining costs until the unit's scheduled operational date of late 1985.

The Cooperative has a binding agreement with Detroit Edison Company in which Detroit Edison is obligated to purchase the excess energy generated related to the Cooperative's i

portion.

The Cooperative believes these revenues will be sufficient to offset the effect of the additional interest and depreciation costs recognized.

Note I:

REFUNDS PAYABLE TO MEMBERS.

The refunds payable to members consists of amounts under a new Michigan statute, Power Supply Cost Recovery Clause, whereby estimated power cost for a 12-month period will be billed by the Cooperative to its members each month at a fixed rate.

Following the close of the 12-month period, a reconciliation of actual power cost to estimated power cost will determine the under or over-collection with the appropriate amount being collected or refunded to the members.

As of December 31, 1984 and 1983, the Cooperative had i

overcollected $1,193,681 and $1,798,269, respectively, which is refundable to its members.

J Note J:

RETIREMENT PLAN.

Retirement plan benefits for substantially all employees are provided through participation in a retiremene and security program and savings plan for employees of the National Rural Electric Cooperative Association and its member systems.

Contributions for the retirement and security program were approximately $195,200 in 1984 and

$149,000 in 1983.

Contributions for the savings Ian programwereapproximately$101,600in1984and$$11,600 in 1983.

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