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1996 Annual Financial Rept CMS Energy
	ML20137F210
Person / Time
Site:	Palisades, Big Rock Point File:Consumers Energy icon.png
Issue date:	12/31/1996
From:	Bordine T, Mccormick W; CONSUMERS ENERGY CO. (FORMERLY CONSUMERS POWER CO.)
To:	; NRC OFFICE OF INFORMATION RESOURCES MANAGEMENT (IRM)
References
	NUDOCS 9704010010
	Download: ML20137F210 (60)
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l ConsumersEnergy A CMS Energy Cominny m g, syg,,

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March 25,1997 U.S. Nuclear Regulatory Commission i

ATTN: Document Control Desk Washington, DC 20555 DOCKET 50-155 - LICENSE DPR BIG ROCK POINT PLANT DOCKET 50-255 - LICENSE DPR PALISADES PLANT CONSUMERS ENERGY COMPANY 1996 ANNUAL REPORT In accordance with the requirements of 10 CFR 50.71(b), attached is the 1996 Consumers Energy Company's annual financial report, including the certified financial statements.

SUMMARY

OF COMMITMENTS This letter contains no new commitments and no revisions to existing commitments.

ME Thomas C. Bordine Manager, Licensing CC Administrator, Region Ill, USNRC

[

Project Manager, NRR, USNRC j6 NRC Resident inspector - Palisades gpN

) l 9704010010 961231 Attachment

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ATTACHMENT CONSUMERS ENERGY COMPANY BIG ROCK POINT PLANT DOCKET 50-155 PALISADES PLANT DOCKET 50-255 Consumers Energy Company 1996 Annual Repod

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i s Financial Highlights e e i ( in Afallions ExuptasNosed Percent Ihrrmber 31 1996 1995 Change Revenue Electric utility S2,446 52,277 7.4 Gas utility 1,282 1,195 7.3 Oil and gas exploration and production <a> 153 127 20.5 independent power production

542 535 1.3

{ Natural gas transmission, storage and marketing

350 213 64.3 Other*

36 18 1001 Total <aer^' S4,809 54,365 10.2 Consolidated revenue S4,333 $3,890 11.4 i Consolidated net income S 240 5 204 17.6 l Return on equity 15.2 % 15.9 % (4.4) Per common share Net income 5 2.45 5 2.27 7.9 Dividends declared S 1.02 5.90 13.3 Book value 517.02 $15.16 12.3 Market value (year end) 533.63 529.87 12.6 talBehne enters omynmv chmmattons. th)im tudes CAf$ lnergr's sharr ut unconwhdaard menue Protax Operating income 1 Ahthons ofIkJlars Electric UHHty Cas UtiHty independent OR and Gas Natural Gas operanons operesons Power Produenen Exp6eranen and wansanssion, Production storage and j Marketing l r. s E : s a e, i I 2 d A i 1 4 2 = 3 g 3 3 3 3 3 3 3 3 8 8 E E 5 0

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{ l i e e from left to nght. g Michast & Morris CMSEnergy Executive Hee President and Consumers Energy l PresidentandCEO Wimam T. McCorndck Jr. CMS Energy Ctannan and CEO Victor A FrWag l CMS Energy President and C00 i l l e ? l l 4 b3M _= i 1 } International Leadership continues government-dominated econ-urstrategy ofgrowth omy, CMS acquired an owner-l (( through international ship interest in EDEER S.A. l Shmholdm diversification is pro-Located in the growing province l ~ ducing solid results. ofEntre Rios, north ofBuenos I In 1996, these energy businesses Aires, this electric utility has ,2 l increased theiroperating earnings 223,000 customers and sales l by 35 percent and now contribute nearing I billion kilowatt-hours. l about 20 percent of the com-We are transforming the utility pany's total operating eamings. into a more customer-oriented and profitable ccmpany. i 1 lhe company,s m.ternational stature was honored last year by We're making significant strides Electricallibridmagazine, in our otherinternational busi-which presented CMS Energy nesses. Last year in India, for with its esteemed James A. example, we started up the GVK McGraw award for evolving Industries plant, the first interna-from a local electric and gas tionally owned independent utilby into an international power project in India to gener-energy company. ate electricity. We are com-pleting the acquisition and We believe CMS Energy's future i expansion of. he 1,320 t holds more of this exciting llars E g U M e V a t~ couro# # gnings h.CMNS#panding(,*1fe,where 3 it MS8"

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== N'h marketplace by creating has is its mnovative and dedi-h E"w $=,h I cated people and their ability to I CMS Marketing. Services and Uk M Trading Company.This business s Ive pr blems.Our 10,000 hf="*,Id incorporates our existing energy empkryces around the world hhik marketing operations,which in have played a major role in the success <. f this company. But @N 1996 provided customized fuel perhaps that is not surprising, purchasing services fora wide since 88 percent of them are also variety oflarge customers using mEe " shareholders. electricity, natural gas, oil and is saming widespread coal. Customers are located Their hard work and creativity - including throughout the U.S. and abroad. have helped us become a leading this article in me energy c mpany as we have ommlso pnwides a expanded operations around the comp?cte selection ofenergy gl be. It is a pleasure to work management ser ices that can with them. lower a business' energy costs. Ranging from optimizing a com-We also thank our Board of pany's energy use in plants and Directors, and especially our facilities, to fuel procurement retiring Director, Frank and comprehensive risk manage-Merlotti, for their valuable ment services,these activities advice and counsel as we search will focus on commercial and out new energy solutions for our industrial energy users. customers around the world. Our F, =.. Edge I Among CMS Energy's major competitive advantages are its MN breadth ofproject management William T. McCormick Jr. and operating capability from Chainnan andChiefErecutimOfficer wellhead to burner tip, and its March 11,1997 almost unique ability to provide O
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_ :!l 'k O'N i g, m v <, q, -m... _...m 4* g e 3: y. '? q'ce ,y, e " hif Ll D? *l)! i l Gas Utility Gil and Gas Exploration and Production j ... l Brilums of Cubu feer Alnllum of thollars Afsflums of her Altilum ofIkitars Equhulent Barrels M 409 M Ll$1 M $6 M m 79 .5 404 N 1.193 .5 N9 M 127 m 444 N 1.282 m 97 m l$3 =a.1m mimmpum einmmuums
fitlh-largest gas distribution company in U.S.

Among the 25 largest independent oil and gas companies in the U.S.

1.5 million gas customers

Michigan's largest independent oil and gas producer

130 billion cubic feet of working gas storage, among largest in the U.S.

Operations in 8 countries

Michigan's largest pas utihty in customers and geographic area

Prosed reserves of 123 million net equivalent barrels

More than 23,000 miles ofintrastate pipelines Gas utthty operations pros ide energy to 54 of the 68 counties in Produces oil and natural gas from more than 3,100 wc!!s around Michigan's Lower Peninsula the world

Achitwed highest dehveries eser - 448 billion cubic feet

Achieved all-time oil and natural as production records F

Added 28,000 new customers

Increased reser es by 11.4 milhon barrels of oil equis alent

Gas costs were lowest in Michigan

Completed construction of the hquid petroleum gas extraction plant in

Imprm ed gas leak response time Equatorial Guinea

llegan production of two additional fields in Colombia

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%L e J Independent Power Production Gas 11ransneission, Storage and Processing senereung cepecity opersent Rmnus* Asuts Opernung Rennw* set Alegamous Altihans of thollan Ahllwns of (Mlan %ftlhum nj lhallan M i IIB M 4tW M 90 M 20 06 l.4 K i SS $35 se "2 95m 42 96 - 1.533 96 s42 96 W 96 92
tmhuks als Fmm b slww of

lm tudo Ofs twv UMer af um emwhaned vrwnue un.nnwiedard ernseue

The nmth-largest U.S. des eloper and operator ofindependent p(mer

Ow ns interest m 15 U.S. natural gas facihties pmjects around the world

Owns largest interest in a major pipehne sy stem in Argentina

lias interests in 32 operatmg plants totaling 4.X)0 gross megaw atts

Owns 3.2 billion cubic feet of nattiral gas storage in the U.S.

Is in advanced desclopment of about 2,500 gross megawatts of projects
, Processes largest solume of natural gas in Michigan
Skilled m generatmg power using dis erse fuels and power technologies Prosides project management, desclopment, engmeeting imestment fluilds and operates natural gas pipelmes, and provides gas gathering, capital, management and operatmg sen ices for independent power processing. pipelme transportation and storage in the U.S. and Latm America.

Started up three new plants, totaling 333 gross megawans a 1.ed des clopment of the 930 kilometer Atacama pipelme from Argentina

Achiesed commercial operation of first internationally ou ned to Chile independent poner project in India Began expansion of the Transportadora de Gas del Norte pipcime

Signedjomt senture agreement with Ghana's Volta Riser Authority I" ^'EC"li"8

Ilegan construction of 128 megawatt YPF plant in Argentina

Established a new presence in Oklahoma by acquirmg about 1,900 miles of I
gas gathering lines
Acquired on nership in Nitrutec, speciahnng in gas separation technologies a Jorf Lasfar Units I and 2 begm full commercial production;

Contmue deselopment of Atacama pipehne Umts 3 and 4 begm construction

Construct three addstional Nitrotee gas processmg plants a llegin construction of Atacama power plant

Pursue new projects and pris atizations in Southeast Asia

Contmue CT Mendoza refurbishment and Latin America a Complete construction ofYPF plant
VM. !!!ni,,, ' " b kHf i am n g. ~ -- P 1 Energy Marketing, Services and Trading international Energy Distribution Cas Madeted for End Users Operating Revenue Sales
Bsilums et i ubre fett
%Ilwns viik>llars Bsllwns 01 Kslonsar-hour, N 66 M m 129 H k6 M 101 06 l'1 M 93 M 108 es 258 M 9N
rkrvenar nule> uf fNER $ 4. an byennne untm tn whuh cM5 squawian omnershsp miewst m Uaa 1996

More than 700 customers, including 30 major gas

Business segment formed in 1996 distributmn companies

Distributing electricity to 223.000 customers

Actnities in 18 states

Market territory located in Entre Rios Province, Argentma

Liectric marketmg dn ision in Argentina

Entre Rios' demand grou ing at more than 8 percent annually

Includes marketing for all CMS affiliates Otters packages of total energy solutions, from commodity International distnbution operations provide energy to customers in procurement and risk management, to complete energy the 55,000 square kilometer Entre Rios Province, Argentina management sen ices

Formed CMS Marketing, Seruces and Tradmg Company

Acquired an ownership interest in EDEER S.A.

Established market allianu 2th Marine Coal Company

Reorganized and impros ed EDEER S. A. operations

Marketed largest volume of energy in company *> history

Generated earnings in start-up year

Secured FLRC electric wholesale license

Introduced economic development program in sen ice territory

Ofter espanded s ariety of energy commodities, includmg natural gas,

Pursue additional prnatitations in Latin America and elsewhere oil, coal and electricity

Deselop resource and operatmg models for acquisitions

Increase use of rnk management tools to improve energy prices

Continue improsing operations at EDEER S A.
1
Widen spectrum of energy management sen ices oflered
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Increase solume ofgas marketed l
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1 I i c l l t l i l Th* W3*w cgenwam ventwo is ew international energy 539 million for 1996 up 30 per-j Nwth Answica's ingest natwal gas-companies can match cent from the previous year. i tu ied,constned-cyck owwating plant. the depth and breadth In 1996. we achies ed record-ofCMS Energ'y's i setting oil cnd gas production { h.....M!} 1.. experience and expertise in OU pMim med ,}f g w. 4 energy supply. l, 4 Y". 4.8 million barrels, and gas pro-
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gg' oil and natural gas exploration was 12 percent higher than 1995. ? { '^F' and production, power produe-3 y.p. Our 1996 year-end oil and gas 4 .i:- r tion, and natural gas transmission, 4 reserves totaled 123 million storage and processing -locate --l 3 ya
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the natural resources needed to percent from the previous year. generate energy, transport those commodities, build and operate charactented by a good balance power plants, and fuel them. in geography and commodity We are actise in 26 countries type. A full 61 percent of the around the uorld' resers es are in international kra-Oil and Gas Explorabon tions; 39 percent are domestic. and Production l'ifty-six percent of our reserves CMS NOMECO has interests in are oil; 44 percent are natural gas. more than 3,100 wells in eight We made some exciting progress countries around the world ~ ~ during 1996 with a promising Colombia. Ecuador, Vene/uela-The cw industries plant basa exploratory oil well in Congo. Congo, Equatorial Guinea, And our liquefied petroleum Tunisia. Yemen and the United b une ariunbirnanonany W gas extraction plant has been States. Actisities in those areas hi88 pendent peww pianno produced operating income of eenwate electricny in hidta.
- _~- -. e i e i I l I j j The Midland Cogeneration Venture is Dorth America's largest natural gas- ,g .,g g g, fueled, combmed-cycle generating plant. the depth and breadth In 19% we achiesed record-ofL\\lsI neres's settlny till and pas prodtlClltin e\\pericilce and c\\peltise !!! ) ed s olumes ()ll proddelion totaled encres stlppls. i j 4 N nllllioIl ha!Iels. alid pas pro-()Llr energ) slippl) htl thewes dtlClion of 29.4 bilholl cllhic l'eet illl and Ihllural p.ls s \\ploration I2 peicent higher l}Lin iV9.5 Mas ~ ' and prodttcllon. power prodtic-(lur 199h s ear-efld oil and pas llon. and flattil.ll e.ls tr.insin'wlon. ~ l
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ICserses totaled 12.I nllhon I M ne.rd)..J' ktorapC and proCening 16 Cite barrels ot~ oil eqtus a!cnt up I1 the natural resources needed to 4 a percent iloin the pres tous s car 'cenerate encres, transport those 4 l '~ I hose rescrs es continue to be i conunodities, build and operate characteri/ed by a potal balance power plants and f uel theni if t eclipI,lph) and colluthkht) e We are actn e in 26 countries i ts pe \\ lull 61 percent of the around ihe uoild j resers es are in international loca-011 and Gas Exploration tions.19 percent are doniestic. and Production i ilt)-si\\ percent of ot!! rescrses C\\l5 N()\\ll ( () has Interests in dIC OlI 44 percellt.tre natural pas nlore than.I.llH) uclls ni elpht g, colintries around the winid 3 y, g u on Id. cuMor, knuut k The CVK industries plant began e\\pl ratory oil well in ( onpo commercial operaten in 1996. It b .\\nd i>uf liquelied pc!rOletiin Tunisia. Yenien and the I nited is the inrst internationally owned pas e\\ traction plant has been St.ites \\ttn ities in those areas independent power plant to pnidated operating ins oInc til generate electricity in India. O
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- ' 7.. i et" 9Mit44tht.1W wt al fitedtpf4tiMIR inWiJ The CT plant in . yr ~.n. .n , e ~~- oa n a =" reewtilslunent whke wm y noors than double its baseload l h@; llg o l capacity to 506 nwgawatts.The ~ - x Transportadora de Gas detlierte l pipeline in Argentloa is be6ng expanded to transport gas to the CT Mendoza plant, as well as a j nundwr et ethw secations, i l I t completed and put on line in power project in India to gener- ~ Equatorial Guinea. ate electricity. i
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l. ate in the year, we made Our domestic utility-owned j
major production increases in plants demonstrated excellent { Colombia, Congo and performance in 1996. The avail-Equatorial Guinea.These ability of our fbssil-fuel units, increases, coupled w ith our for example, was the highest in plans to drill 200 development 28 years. And the Pahsades wells in Michigan's Antrim fbr-nuclear plant set a new produc-l mation, should boost production tion record. even further in 1997. l The Overseas Private Investment I Corporation (OPIC), an organi-p, pgm CMS Energy's electric generat, zation fbcusing on projects that i capacity totals 11,530 gross will generate U.S. exports and Through construction and .;awatts. Independent power support Americanjobs, has been ccouismen,cas in toes production accounts for supportive ofour international capandedns w ity ellbrts. CMS received commit-4,300 gross megawatts; the rest natural ses pipenne capacity ments fbr $525 million m is attributable to our utility oper. i,,,,,,,,%,,,,,,,, ation in the United States' fmancing or political risk insar-cubic feet per day, ance from OPIC lbr the Jorf Consumers Energy.This utility also owns 8,500 miles ofelectric Lasfar project, the La Plata 2 ~# transmission lines in Miel'igan. plant, and the CT Mendoza plant A/T s refurbishment. Our independent power produc-tion business contributed inThailand, CMS Generation k $68 million in operating income signed an agreement with AM ATA-EGCO Power Ltd. to in 1996, an increase of 48 per-cent over the previous year. provide operating and mainte-nance sers icc: for a 170 Three new plants began opera. tion: the 35 megawatt Genesee megawatt gas-fired, wmbined. plant in the U.S., the 60 megawatt cycle cogeneration plant.T!.is is plant in Jamaica, and the the first time we will provide p '/ z. 235 megawatt GVK Industries services to a plant in which we plant in India.The GVK have no ownership interest. industries plant is the first inter-g nationally owned independent
1 I i j \\ j { l l Congo OH opershons helped CMS reach new producuan records in 1996. i ^) c 5 CMS has an ownership 1 plant in Chile that will be built interest in three operating j by a consortium led by CMS l Generation. power plants in Uw Phmppines. The Transportadora de oas del j Norte pipeline, which has been a l positive contributor to earnings, l of the largest gas storage capaci. will be another springboard.This ties in the country. Argentine pipeline, of which The plant is under construction CMS is a 25 percent owner,is l near llangkok and is expected to Thejoint venture in Ghana spot-undergoing a $300 million j go into commercial operation in lights the business synergy we l carly 1998. are emphasiring, in which proj-gg g ects by one CMS company cre-l In the Republic of Ghana, CMS ate business for our other units. Atacarua Pipline i signed ajoint venture agreement In this case, CMS Generation is f with the Volta River Authority to handling the power project. If a { develop and manage energy natural gas pipeline is built to gas acr0SS Me Andes j infrastructure projects; this work fuel the plant, CMS Gas could potentially springboard Transmission and Storage will Argentina to Chilen into West Africa. The first proj-pursue that business. ect may be the 300 megawatt Takoradi thermal plant, which Many of these synergistic pro-expansion, so it can carry nat-is scheduled to enter commercial jects are focused in Argentina, g operation in the third quarter where CMS has invested nearly the country, including our CT of1997. $1 billion, making it one of the g p; largest U.S. energy investors in Pipelines to the Future Latin America. For example, CMS Gas Transmission and CMS owns more than 6,000 CMS Gas Transmission and Storage's 1996 operating earn-miles of gas pipelines for its Storage is a partner in a consor-ings increased 117 percent to transmission and gathering oper-tium to build the 930-kilometer $26 million. ations.This includes more than Atacama Pipeline, which would its investments in U.S. natural 1,000 miles of gas transmission carry natural gas across the gas facilities expanded to lines owned by Consumers Andes Mountains from Oklahoma with the purchase of Energy, which is the fillh-largest Argentina to Chile. The natural about 1,900 miles of gas gather-gas distribution company in the gas would be delivered to north-ing pipelines and two processing United States. We also has e one ern Chile's mining and industrial g; region, and would also fuel a planned 600 megawatt power h
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i Employees of Cenenners Energy keep eiscericity and j .- aeag emes =r u n-. I thes 3 mHllen custsteers. r p =... 6*-: \\ 0 in a changingindustry. ur electric and natural a century ofservice to Michigan. gas utility business is " Energy" reflects our growth a changing company into an innovative, full-service energy company,instead of a Deregulation will dramatically simple utility delivering alter the utility business in the a commodity. as pers wargenenes prinusemen United States, for customers as oneris,cass hocamm epnear ens well as utilities. Preparing for fast-approaching gas to be a crucialjob, and our """" airn. competition, our Michigan util-employees do it well. In ity is strengthening its market Michigan, we own and very suc-identity. On January 1,1997, cessfully operate more than Consumers Power changed its 57,000 miles ofelectric distribu-name to Consumers Energy, and tion lines and more than 22,000 introduced a modern new miles ofgas distribution lines. logo being incorporated by all Operating performance and
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electric reliability both contin- " Consumers" preserves the tra-ued to improve during 1996.The dition ofenergy excellence that we've developed over more than 0
l 4 cus Eawsr's tarpst subsmary, j i censumers towsy, adopted nn i .f J. n n .no m. s i. e -~~ g 'y*. h - b.tp position n for _ yyf-i AtWBIlf4Y l 4 f37:- e i W 1 -.t ,.s,. s. 4 l trestan at consmeers taney, l tacienne wildNfe protection f b'"",g, 4 a ns generatins pasnts.The ~ _ - I m: m.na n.nw w-h benents or naturat i gas-tueind 1! { [ average outage time dropped including a more efficient, accu-i 8 percent. rate and flexible computerized workload system that has low- ~ s. Consumers Energy continues to l i,,,,,,u,,,, % i ered emergency response time. be a strong and healthy utility m%' l business. Pretax operating earn-In many ways, we're running and gg g ings reached $555 million in lifting weights to get in shape for j gw, 1996, an 8 percent increase from the competitive environment 'tE j isogj prur the previous year. that's hurtling toward us: Yluter
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1 l g Natural gas deliveries reached a .Our operating and maintenance p record high of 448 billion cubic costs per customer are the i D43diQy.Q feet, and we added 28,000 new sixth-lowest in the country. N up'~-C'"' customers. Electric sales grew . We have reengineered our serv-j 'l - ~{j Q~-.2 4 percent in 1996 to a record I ~ ice processes to become more i ~... j 'd.s Z' 37.1 billion kilowatt-hours, and customer-responsive. ,, A, we added 24,000 new customers. ar~ M.A, - _' '~~-. .We have reduced stalling and - > ~. Our employees handled this j ~ %g growth with their customary emphasis on safety. For the .We have successfully applied l fourth straight year-and the computerized decision analysis i tenth year in the last 12 - the to improve service reliability i National Safety Council named while decreasing costs. Consumers Energy the safest We will test our competitive fit-uti'ity ofits size in the United ness with a voluntary pilot States. And the American Gas program - the local ABC news Association praised both our affiliate called it "a bold two-employee safety and our commu- ' ear experiment,,- that will v nity safety - awarding us bench-allow our customers in Bay mark status for our successful County, Michigan, to choose gas leak response strategies, their natural gas supplier.
l l As seneret menseer et toEER S.A., Frank Johneen is iseens cans Energy's suo-cesaw petvemenen et she Arganume eisctric suuty. M For customers who switch, of Buenos Aires. Argentina, has Consumers Energy will continue about 223,000 customers. to distribute the natural gas (for In November, we unveiled a a fee) and will maintam all pipes g program to errourage industrial The 40,000 customers in Bay and business growth in the m ansween,cass k County form a representative province of Entre Rios, where r-a-,is n.et cross-section ofour statewide EDEER S.A. is located. Titled e,see.e,,,,,e,,m, customer base.The choices " Discover the Diamond, w e,,,,,,,,, they make should help us iden-Discover Entre Rios," the pro-tify our strengths and weak-gram is based on economic nesses wellin advance of development efforts that CMS complete utility deregulation. has successfully spearheaded in We Consider the delivery In 1996, CMS took its electne of electricity and natural distribution skills"on the road" gas to be a CrUCialjob, and by forming a new imemanona business segment. We plan to par-ucipa1e m the p,ivaumson of our employees do.t well. i electric and gas distribution sys-tems around the world-as we the U.S. for more than 50 years. have already done forpower As growth occurs,the economic plants-and then create value by development efforts in Entre reengineering those companies. Rios could serve as a model for future programs throughout This business was launched last Latin America. spring, when CMS purchased an interest in Empresa Distribui-dora de Electricidad de Entre Rios (EDEER S.A.). This elec-tric distribution company, north 9
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+ny CMS Argentine customers 7 y \\cIllHp nJu nlalket appluneCs ! ale !asI )C II. M C ~' for brokered energy 6pclude Artes Graflcas Rooplatenses. l
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t .J 'l The company prints magannes, g g g, , - UnhQ Ink lepided pro \\ Iders of i telephone directories and udu gg-( uq uinels ullllu\\e llonie securil) lleluolk'= In other matertal. nlore cho e buttlk-) ulll n d - \\1hlq'A to d a [4 W then) in J lilitre stipllistle.ited, se(Urtly proJtiets and 2-4-hou! InorC conlple\\ Inarketplase inomforthp ser\\ lees lo pf epaf C loI this nulket. Our ( onsumers l nerp) also is doillestle u!1llt). ( oilsuntels e\\pltbrlHp orhef u;l) s to !c\\ erage l Ilery). Is Illrther strerigthening its c\\pertise in nontraditiorlal its retall nurket position w ith businesses i or c\\ ample. w e residenti;il and Sul.!!! commCT-haie e\\ tended traditltinal Hlete! elal cusionlCrs. lead l fly aetl\\ liies liitti a business that is also reading water stieters CCS Energy's on-stte engineers ()ur unuket positionmp now till two \\ lit hlpan t Illes pMner with customers like includes "\\ alue-adJed" products .ind ser\\ lees th.it f ocus on the ('\\15 \\larkenny. 5er\\ iees and W11ture industries in Michigan, comfort. con \\enience and safety T rading ( iirilpan) <( N1s \\1s I i. u.s.A., to make enersv savine of our customers \\1.uketed u tut h began oper anons m Improvements. under our llouseO'll brand .lanuary IW-'. is tot usmg on the these produt ts indude carbon larper conuneit ul and industrul nh'no\\'de alallib. alld ser\\ - Inaiket segments l he bustness Ic e in.pcetion and rep.llis liir conthl[ics niaf kenny c!hirts that O
1 ,. rp l ff W @ kJI I onmaria sei sw. = Ars=une pher==c=nca f f ,} canneny, pwchain brokeres eiscirtetty arma cus. i l ( b ,7 -- , g# systems, will be more thorough and far-reaching than those tra-g ditionally provided by a utility. l Uk Our energy specialists can also j handle a full spectrum of value-l 's added services such as fuel p conversions, equipment mamte-l nance and energy optimization. Our risk management and trad-1 ing experts can use financial had been operating separately m, natural gas, electncity, oil, pro-market tools to help our cus-j several CMS companies. pane and coal. It can negotiate tomers manage fluctuating f r related services such as stor-In 1996, these marketing opera-energy prices and keep their 8ge 8" "g 8" 8" p businesses competitive.This tions already provided cus- ~ tomized fuel purchasing services Energy Management Services arbitrage on behalfofcus-i for a wide variety ofcustomers. This company also proudes a
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complete selection ofenergy broad range ofrisk factors on a l Partnering with customers, managemenisenimsthatcan o,ii, s,,,,,, scc,,,,s, scs, helping them to be more '"?."b"'iac"'*"c'8vc"t"- po sibic energy price,. Utihties have traditionally competit,ive-th,is is the bundiedioyetherastandard CMS uST r, ins business with job of the energy company all-or-nothing package of a stafTthat has nearly 30 years ) energy and services for gas and ofelectricity, oil and natural gas of the future. eiect,ic cu, tome,s. ma,keting experience. voiumes marketed in 1996 include Our employees have experience CMS MST can unbundle those 213 billion cubic feet of natural sen'ing all sizes ofcustomers services and sell them either across a wide spectrum ofindus-independently orin new combi-oil; and 1,945 gigawatt-hours tries and institutions.These nations customized for each cus-g include small and large indus-tomer. Services, ranging from ~ trial facilities, schools, hospitals, comprehensive energy planning W Energy m electric utilities andlocal gas to managing a company's energy The company also has nearly distribution companies. 70 experts to provide specialized CMS MST will sell a diverse " E# #" on-site energy engineers who range of commod..ities, meluding 4
l l Our energy profondenals I are expert in provides customized fuel purchas-Ing services for a wWe variety of customers. g 1 - l f & g.'. l l [f.l / i CMS Marketing, services and g Wading efters customized fuel ^. energy management r-services d risk mana,enent, can be assigned either perma-customer's needs.They conduct nently or temporarily to a cus-walk-through energy analyses tomer's facility. and check for air leaks, steam ar.d heat losses, and excess For example, w hen one large water use (just one leak in a industnal customer negotiated a compressed air pipe can cost up new 10-year contract for elec-to $7,500 a year). s tricity, pnce was only one con-cern.The customer also needed Partnering with customers, reliable delivery to keep manu. helping them to be more compet-facturing processes running clk itive - this is thejob of the ciently. And quick, first-class energy cornpany of the future. service was important. Successful companies must do more than connect power lines When the contract took efTect a i and gas mains.The relationship- > year ago, seven energy engineers building professionals of CMS i got new work addresses - at the Marktting, Services and Trading customer,s manufacturing plants know how to build the strong across Michigan. relationships necessary to suc-These engineers helped the cus-ceed in the years ahead. , tomer achieve a tar;;eted 5 per-cent drop in energy use in 1996. Their work included identifying and implementing energy-saving measures, and ensuring proper equipment maintenance. Because our professionals work on-site during normal operations and during complete shutdowns, they thoroughly understand the O i.
~ n REanagensent's Discussion and Analysis cusco m c j l CMS Energy Corporation (CMS Energy)is the parent < This Annual Report contains forward-looking statements j as defined by the Private Securities Litigation Reform Act of holding company of Consumers Energy Company 1995, including (without limitation) discussions as to expec-tations, beliefs, plans, objectives and future financial perfor-(Consumers) and CMS Enterprises Company mance, or assumptions underlying or concerning matters discussed in this document.These discussions, and any other (Enterprises). Consumers, a combination electric and discussi ns contained in this Annual Report, except to the. ] extent they contain historical facts, are forward-looking and, accordingly, involve estimates, assumptions and uncertainties - 3 gas utility company serving the Lower Peninsula of - that could cause actual results or outcomes to ditTer maten,- ~ i ally from those expressed in the forward-looking statements. ) . Michigan,is the principal subsidiary of CMS Energy
In addition to certain contingency matters (and their respec-tive cautionary statements) discussed elsewhere in this j-
. Consumers' customer base includes a mix of residen-Annual Report, the Forward-Looking Information section I of this Management's Discussion and Analysis (MD&A) _ tial, commercial and diverstfled industrial customers, ' indicates some important factors that could cause actual ) results or outcomes to difTer materially from those addressed l l ' the 1:rgest segment of which is the automotive in the forward-looking discussions. j i 4 Industry. Enterprises is engaged in several domestic . [ Consolidated Eamings in Millions. EsceptIW Sharr Amounts Years Ended December 31 19 % 1995 ' Change ad International energy-related businesses includ-Consolidated Net Income - $240 $204 $ 36 3 I Net income Attributable to Ing: eli and gas exploration and production; acquisi. Common Stocks: CMS Energy 226-201 25' j tion, development and operation of Independent l Class G 14 3 11 j Earnings Per Average Common Share: power production facilities; energy marketing to CMS Energy 2.45 ~.27 .18 2 Class O 1,82 .38 1.44 ' utility, commercial and industrial customers; storage, Class G Shares were issued on July'21,1995. Pro forma net income attributable to CMS Energy's $.01 par value common - trin: mission and processing of natural gas; and stock (CMS Energy Common Stock) 2nd to CMS Energy's no 1 par value common stock (Class G Common Stock), which ] International energy distribution. . reflects the performance of the gas distribution, storage and transportation business currently conducted by Consumers and Michigan Gas Storage Company (Michigan Gas Storage), - assuming Class G shares were outstanding durinde entire period for the year ended December 31,1995, v A be $189 million and $15 million respectively. Pro mona earnings per share for the year ended December 31,1995 would be $2.14 and $1.93 for CMS Energy Common Stock and Class G Common Stock, respectively. The increase in consolidated net income for 1996 primar-ily reflects the favorable impact of an electric rate increase j and operating income resulting from a refund received by the Midland Cageneration Venture Limited Partnership (MCV Partnership) which provided a $6 million earnings benefit for -
aist o c e m CMS Energy. Earnings in 1996 also reflect increased electric expand its international businesses, maintain and expand its sales, gas deliveries and reunues from gas loaning activities. electric and gas utility systems, retire portions ofits long-Consolidated net income was also affected by increased term debt and pay dividends. earnings from CMS Gas Transmission and Storage Company's investing ActMiles (CMS Gas Transmission) 25 percent ownership interest in Net cash used m..mvesting activities totaled $841 million and Transportadora de Gas del Norte S.A. (TGN), a natural gas $ 1,016 million for 1996 and 1995, respectively. The decrease pipeline locnted in Argentina, and increased equity earnings of $175 milh.on pnmanly reflects the 1995 acquisition of resulting from the buy-out of a power purchase agreement involving a partnership m which CMS Generation Co. Hydra-Co Enterprises, Inc. (Hydra-Co), a subsidiary of CMS Generation and an increase in 1996 of proceeds from (CMS Generation) owns a 50 percent ownership interest. the sale of property. An increase in capital expenditures was i CMS Gas Transmission and CMS Generation a*e sub-i partially offset by a decrease in investments in partnerships sid,.. anes of Enterprises. The improved consolidated net and unconsolidated subsid..ianes during 1996. CMS Energy's income for 1995 over the 1994 level reflects mereased utility 1996 expenditures for u.s utility and international businesses electric sales and utility gas deh.venes, mereased electric were $447 million and $432 million, respectively. utility revenue as a result of the May 1994 rate increase, reversal oflosses previously recorded for gas utility contin-Financing ActMtles gencies (see Note 4), improved operating results fmm Net cash provided by financing activities totaled $180 million Consumers' interest in the Midland Cogeneration Venture and $311 million for 1996 and 1995, respectively. The net Facility, a natural gas-fueled, combined-cycle cogeneration decrease of $131 million primarily reflects an increase in the facility (MCV Facility), and the continuing growth of the repayment of bank loans, an increase in common stock international businesses. For further information, see the dividends and a reduction in proceeds from the issuance of individual results of operations sections of this MD&A. common stock.These changes were partially offset by increased proceeds from bank loans and notes as well as pro-Cash Postik,n, investing and Financing ceeds from the sale ofpreferrvd securities in 1996. CMS Energy's primary ongoing source ofoperating cash in 1996, CMS Energy filed shelf-registration statements is dividends from its subsidiaries. In 1996, Consumers with the Securities and Exchange Commission (SEC) for the paid $200 million in common dividends to CMS Energy. issuance and sale of up to $ 125 million of Series B General Consumers temporarily suspended its common dividends Term Notes' (GTNs) and $ 150 million Series C GTNs, with from mid-1995 until early 1996 to improve its capital struc-net proceeds to be used for general corporate purposes. On ture. In 1996, Enterprises paid common dividends and other December 31,1996, CMS Energy had issued and outstandm.g distributions ofS119 million to CMS Energy. $250 million of Series A GTNs and $103 mile..on of Series B Operatng ActMties GTNs with weighted-average interest rates of 7.7 percent and CMS Energy's consolidated operating cash requirements are 8.0 percent, respectively. met by its operating and financing activities. CMS Energy's Also in 1996, CMS Generation refinanced the $118 million consolidated cash from operations is derived mainly from bridge credit facility obtained in connection with the acquisi-Consumers' sale and transportation of natural gas, tion of Hydra-Co with a $110 million, five-year term loan. On Consumers' generation, transmission, and sale of electricity December 31,1996, $107 million was outstanding with a j and CMS NOMECO Oil & Gas coa (CMS NOMECO) sale weighted-average interest rate of 7.2 percent. CMS NOMECO j of oil and natural gas. CMS NOMECO is a subsidiary of replaced its $140 million revolving credit agreement with a Enterprises. Consolidated cash from operations totaled $225 million revolving credit agreement. On December 31, $661 million and $682 million for 1996 and 1995, respectively. 1996, $122 million was outstanding under the new agreemem The $21 million decrease includes increased electricity sales with a weighted-average interest rate of 6.2 percent, and gas deliveries; lower cash losses associated with the In 1996, CMS Energy declared and paid $94 million in Power Purchase Agreement (PPA); CMS NOMECO's cash dividends to holders of CMS Energy Common Stock and increased sales of oil and natural gas; and the timing of cash $9 million in cash dividends to holders of Class G Common f payments, receipts and recognition of revenues related to Stock. In July 1996, the Board of Directors of CMS Energy operations. CMS Energy uses its operating cash primarily to (Board of Diiectors) declared quarterly dividends of 5.27 per share on CMS Energy Common Stock and $.295 per share on O
M cusum cnmu. i I Class G Common Stock, representing an increase in the annu-through November 1998 for refinancing or refunding pur-alized dividend on CMS Energy Common Stock to $1.08 per poses Also in October 1996, Michigan Gas Storage entered share from the previous $.96 per share (a 12.5 percent into a $23 million secured, variable rate, seven-year term loan. increase) and an increas in the annualized dividend on Class CMS Energy is required to redeem or retire $1.9 billion of G Common Stock to $1.18 per share from the previous dividend long-term debt over the three-year period ending December of $ 1.12 per share (a 5.4 percent increase), in January 1997, the 1999. In addition, at December 31,1996, Consumers had a Board of Directors declared a quarterly dividend of $.27 per recorded liability to the U.S. Department of Energy (DOE) share on CMS Energy Common Stock and $.295 per share on of $ 106 million, which is to be paid prior to the first delivery Class G Common Stock, which were paid in February 1997. of spent nuclear fuel to the DOE. Delivery of the fuel had i in 1996, CMS Energy received net proceeds of $95 million originally been scheduled to occur in 1998 (see Note 2). Cash from the issuance of common stock.The issuance of 2.1 mil-provided by operating activities is expected to satisfy a sub-lion of those shares completed the remaining amount on a stantial portion of these debt retirements. Additionally, capital shelf-registration filing by CMS Energy with the SEC on markets will continue to be evaluated as a source of financing February 15,1995 covering the issuance of up to $200 million required debt retirements. of securities. Proceeds from the sale were used for general At December 31,1996 the book value per share of CMS corporate purposes ofCMS Energy. Energy Common Stock and Class G Common Stock was in 1996, CMS Energy filed a shelf-registration statement $17.02 and $11.19, respectively. with the SEC for the issuance and the sale of up to $500 mil-Electric Utility llesults of Operations lion of senior and subordinated debt securities. If securities Prriax Opemting income: are issued from this shelf-registration statement, the net pro-la udiu u ceeds will be used to invest in the business of CMS Energy and for its general corporate purposes. Initially, the net Change Compared to priorYear 1996 ss 1995 1995 vs 1994 proceeds may be used to refund or refinance a portion of sales (net aspecial contract discounts) s1 5 59 Series A GTNs, Series A Deferred Coupon Notes and Rate increases and other regulatory issues 50 9 Series B Deferred Coupon Notes. Operation and maintenance 2 (13) General tax and depreciation (13) (26) v Other investing and Financing Matters CMS Energy has available unsecured, committed lines of 1 Other Total chang 5 40 s 30 credit totaling $155 million and a $450 million Unsecured Revolving Credit Facility. At December 31,1996, CMS Electric Sales: Total electric sales in 1996 were 37.1 billion Energy had utilized a total of $178 million under these facili-kilowatt-hours (kWh), a 4.4 percent increase from the 1995 ties. CMS Energy will continue to evaluate the capital level as a result of economic growth. This increase in total markets in 1997 as a source of financing its subsidiaries' electric sales included a 1.7 percent increase in sales to ulti-investing activities and required debt retirements. mate customers. Total electric sales in 1995 were 35.5 billion Consumers has several unsecured. committed lines of kWh, a 3.0 percent increase from the 1994 level as a result of credit totaling $120 million and a $425 million working capi-economic growth and warmer summer temperatures. Tuit, tal facility available to meet short-term borrowing require-increase in total electric sales included a 4.2 percent increase ments to finance working capital and gas in storage, and to in sales to ultimate customers. The table below reflects elec-pay for capital expenditures between long-term financings. tric kWh sales by class ofcustomer for both periods: At December 31,1996, a total of $333 million was outstand-ing under these facilities. In October 1996, the Federal Energy Years Ended December 31 1996 1995 Change 1995 1994 Change Regulatory Commission (FERC) authorized the issuance of j Residential 10.9 10.7 .2 10.7 10.2 .5 j up to $900 million of short-term securities through 1998. Commercial 10.0 9.7 3 9.7 9.2 .5 An agreement is in place permitting the sales ofcertain Industnal 12.9 12.7 .2 12.7 12.3 .4 accounts receivable for up to $500 million. At December 31, Other 33 2.4 .9 2.4 2.8 (.4) 1996 and 1995, receivables sold totaled $318 millior and $295 million, respectively. In November 1996, the FERC Total sales 37.1 35.5 1.6 35.5 34.5 1.0 authorized the issuance of $500 million oflong-term securities O
CMS Ewy Coqmutwa IWer Costs: assessment of the future availability of the MCV Facility. If the MCV Facility operates at levels above management's Years Ended estimate over the remainder of the PPA, future losses will December 31 1996 1995 Change 1995 1994 Change need to be recognized over and above amounts previously $1,0N7 $970 $117 $970 $950- $20 recorded. Further, Consumers would experience greater The increases in both periods reflect greater power pur-amounts of cash underrecoveries than originally anticipated. chases from outside sources to meet increased sales demand. Management will continue to evaluate the adequacy of the accrued liability considering actual facility operations. Electric Rate Pmccedings: In February 1996, the MPSC /Wer Pwthasesfmm the MCVPartnership: Consumers' issued a partial final order in the retail electric rate case filed annual obligation to purchase contract capacity from the MCV in 1994, granting a $46 million annual increase in electric Partnen. hip under the PPA is 1,240 MW through the termina-retail rates and authorizing a 12.25 percent return on common tion of the PPA in 2025.The Michigan Public Service equity. Separate requests were before the MPSC to offer com-Commission (MPSC) allows Consumers to recover substan-petitive special rates to certain large qualifying customers and tially all payments for 915 megawatts (MW) ofcontract capac-to modify certain depreciation rates and practices. In ity purchased from the MCV Partnership.The MPSC order November 1996, the MPSC issued a final order in the allowing recovery was affirmed by the Michigan Court of Settlement Agreement which combined the separate requests. Appeals (Court ofAppeals) in March 1996. At the end of 1992, The rate increase and rate of return were not changed from Consumers recognized a loss for the present value of the esti-the partial final order and Consumers was authorized to accel-mated future underrecoveries af power purchases from the erate recovery ofits nuclear plant investment by charging MCV Partnership. $18 million of annual steam production plant depreciation in November 1996, the MPSC approved an agreement expense to the nuclear production depreciation reserve. (Settlement Agreement) proposed by Consumers and the Recovery of the additional 325 MW of MCV Partnership MPSC staff that addressed cost recovery for the remaining contract capacity charges was also approved (see Note 3). 325 MW of MCV Facility capacity. Beginning January 1 The Settlement Agreement also requires the establishment 1996, Consumers was permitted to recover an average capac-of a direct access program. Customers having a maximum ity charge of 2.86 cents per kWh for this power. The approved demand of at least 2 MW are eligible to purchase generation average capacity charge increased to 3.62 cents per kWh for ices directly from any eligible third-party power supplier. 65 MW of the 325 MW on November 1,1996, and for an The program is limited to 650 MW of sales, of which 410 MW additional 44 MW on January 1,1997. Cost recovery for the has already been filled by existing contracts: 140 MW may remaining 216 MW is based upon the escalation of the aver-be filled by either direct access customers or new special con-age capacity charge by three percent annually until it reaches tracts which Consumers has signed and submitted to the 3.62 cents per kWh in 2004, and remains at this ceiling rate MPSC for approval; and the remaining 100 MW must be through the end of the PPA contract. made available solely to direct access customers for at least j Consumers anticipates it will continue to experience cash 18 months. Rehearing petitions have been filed by Consumers underrecoveries associated with the PPA as shown below. and other interested parties. These after-tax cash underrecoveries totaled $41 million, Nuclear Matters: In January 1997, the Nuclear Regulatory $90 million and $61 million in 1996,1995 and 1994, respec-Commission (NRC) issued its Systematic Assessment of tively. For further information, see Note 3. Licensee Performance report for Palisades nuclear rower to una"" plant (Palisades), owned by Consumers. The rer rt rated all 1997 1998 1999 2000 2001 areas as good. unchanged from the previous assessment. Er.timated cash under-Consumers is required to make certain calculations and recoveries, net of tax $28 $23 $22 $21 $20 report to the NRC about the continuing ability of the Palisades E'#""" After considering the efTects of the Settlement Agreement, shock events during its remaining license life, in light of the Consumers believes that the original loss recorded in 1992 embrittlement of reactor vessel materials over time due to remains adequate.The amount of underrecoveries of power operation in a radioactis e environment. Based on continuing costs continues to be based, in part, on management's best 0
CMSEwo Corporatwn analysis of data from testing of similar materials, in Gas titility Results of Operations December 1996, Consumers received an interim Safety Pntax OpemtingIncome: Evaluation Report from the NRC indicating that the reactor 1.u,um, vessel can be safely operated through 2003, before reaching Change Compared to PriorYear 1996
s 1995 1995 vs 1994 the NRC's screening criteria for reactor embrittlement.
g,je, $ 19 512 Consumers believes that, with a change in fuel management Reversalin 1995 of gas contingency (23) 23 designed to minimize embrittlement, Palisades might be Recovery of gas costs and other issues 7 (4) operated to the end ofits license life in the year 2007 without Gas loaning activities 7 r.nnealing of the reactor vessel, but will continue to monitor Operations and maintenance (4) (9) the man' General taxes and depreciation (5) (7) Palisades
on-site storage pool for spent nuclear fuel is at Otb i
1 crpacity. Consequently, NRC-approved dry casks, which are Total change $2 516 steel and concrete vaults, are being used for temporary on-site storage. For funher information, see Note 15. Gas Deliveries: Total system deliveries, excluding trans-Electric Emimnmental Afatters: The Federal Clean Air Act port to the MCV Facility and other miscellaneous transporta-as amended in 1990 (Clean Air Act) significantly mereased the tion, increased 5.1 percent for 1996 compared to 1995 and environmental constraints that utilities will operate under in 6.5 percent for 1995 compared to 1994.The increased deliver-the future. While the Clean Air Acti provisions require that ies for each period reflect growth resulting from customer certain capital expenditures be made in order to comply with additions, conversions to natural gas from alternative fuels the amendments for nitrogen oxide reductions, generating and continued strength in the Michigan economy. The table units are currently operating at or near the sulfur dioxide emis-below indicates total system deliveries and the impact of sion limits that will be effective in the year 2000. Management weather. believes that annual operating costs will not be materially affected as a result of expenditures to comply. Years Ended la a,nm. ofch rn, December 31 1996 1995 Change 1995 1994 Change Under the Michigan Natural Resources and Emironmental Protection Act, Consumers expects that it will ultimately incur Weather-adjusted deliveries investigation and remedial action costs at a number of sites, j and believes that these costs are properly recoverable in rates. ( *i""C' '* 0 **** j Consumers is a so-called potentially responsible party at gr wth) 337 326 11 326 313 13 ) several sites being administered under the Comprehensive Impact of weather 15 9 6 9 1 8 Environmental Response, Compensation and Liability Act System deliveries (Superfund). In addition, there are numerous credit worthy, excludmg potentially responsible parties with substantial assets cooper-transport to MCV ating with respect to the individual sites. Based on current Partnership 352 335 17 335 314 21 information, management believes it is unlikely that the lia-1ransport to MCV bility at any of the known Superfund sites, individually or in Partnership 65 54 11 54 77 (23) total, will have a material adverse effect on CMS Energyi Ofr-system financial position, liquidity or results of operations. For fur-transportation 31 15 16 15 18 (3) ther information regarding electric environmental Total system matters, see Note 14. deliveries 448 404 44 404 409 t5) Simy Ibitage: A number oflawsuits have been filed against Consumers relating to the effect of so-called stray Cost ofGas Sold: voltage on certain livestock. As ofJanuary 1997,22 separate stray voltage lawsuits were awaiting trial court action, down Years Ended ecen I ange se from 30 lawsuits at December 31,1995, and 83 lawsuits at 5750 5674 576 5674 5662 512 December 31,1994. CMS Energy believes that the resolution 4 of the remaining lawsuits will not have a material impact on its financial position, liquidity or results of operations. O
CMS Ewy Corpomucm The cost increase for 1996 was the result ofincreased $6 million would be subject to refund. Consumers wil! con-saies and the re,ersal of a $23 million gas contract contin-tinue to oppose this view before the MPSC. gency during 1995. Gas Envimnmental Afatters: Consumers expects that it will ultimately incur investigation and remedial action costs Gas titility issues
* "" "E "##
Gas Rate Proceedings: In March 1996, the MPSC issued a manufactured gas plant facilities. Data available, and contin-fmal order decreasing gas rates by $12 million annually and ued internal review of these former manufactried gas plant authorizing an !!.6 percent return on common equity. sites, have resulted in an estimate for all costs related to inves-Consumers filed a petition for rehearing with the MPSC, tigation and remedial action of between $48 million and requesting reconsideration of certain issues. This petition was $98 million.These estimates are based on undiscounted I ?96 dem. d in June 1996 and the matter is now closed. e costs. At December 31,1996, Consumers has accrued a liaul-Consumers entered into a special natural gas transporta-ity for $48 million and has established a regulatory asset for tion contract with one ofits transportation customers in approximately the same amount. Any significant change m. response to the customer's proposal to bypass Consumers' l assumptions such as remediation technique, nature and extent l system in favor of a competitive alternative. The contract of contamination and regulatory requirements, could affect provides for discounted gas transportation rates in an efTort the estimate of remedial action costs for the sites. to induce the customer to remain on Consumers' system. In 1995, the MPSC approved the contract but stated that the clean-up costs, above the amount currently being recovered m. revenue shortfall created by the difference between the con-I rates, will be deferred and amortized over ten years. The order tract's discounted rate and the floor price of one of Consumers' authorizes carrent recovery of $ 1 million annually. Consumers MPSC-authorized gas transportation rates must be borne is continuing discussions with certain insurance companies by Consumers' shareholders. In 1995, Consumers filed an regarding coverage for some or all of the costs that may be appeal with the Court of Appeals, which is still pending, incurred for these sites. For further m. formation regarding claiming that the MPSC decision denies Consumers the environmental matters, see Note 14. opportunity to earn its authorized rate of return and is there-fore unconstitutional. Oil and Gas l'xploration and Production Gas Cost Recovery Afatters: In 1995, the MPSC issued an Prcrax Opemting Income: 1996 pretax operating income order regarding a $44 million (excluding interest) gas supply increased $9 million from 1993, primarily due to higher oil contract pricing dispute between Consumers and certain and gas prices and volumes, partially offset by the recognition intrastate producers. The order stated that Consumers was not of a $10 million gain from assignment and novation of a gas obligated to seek prior approval of market-based pricing provi-supply contract recorded in the first quarter of 1995.Pretax sions that were implemented under the contracts in question. operating income for 1995 increased $22 million from 1994, The producers subsequently filed a claim of appeal of the primarily due to higher sales volumes and oil sales prices, MPSC order with the Court ofAppeals. Consumers believes income attributable to the acquisitions of Walter International, the MPSC order correctly concludes that the producers' theo-Inc., and Terra Energy Ltd., oil and gas exploration and pro-ries are without merit and will vigorously oppose any claims duction companies, and increased gains from the assignments they may raise, but cannot predict the outcome of this issue. of gas supply contracts, partially offset by lower average mar-In the gas cost recovery reconciliation proceeding for the ket prices for gas. period April 1995 through March 1996, an issue has arisen CapitalExpenditures: Capital expenditures during questioning whether revenue from gas loaning (which was a 1996 relate primarily to the development of existing oil new business activity for Consumers) should, in whole or in and gas reserves. part, be immediately passed through to customers. The independent Power Pr,sduction Admim,strative Law Judge issued a proposal for decision in E'"."* E#'" "E "### January 1997 that agreed with the MPSC staff's position that increased $22 million from 1995, primarily reflecting a gain the gas loaning program uses storage assets ofConsumers and on the sale of a power purchase agreement by a partnership therefore recommended that 90 percent of the revenue should in which CMS Generation owns a 50 percent interest, a be refunded to customers. For the year ended December 31,1996, O
i custwo ca.n.oon gain on the sale of a partnership interest and increased three ofits combunica tarbines. CMS Generation holds a operating income resulting from a refund received by the 25.25 percent interest in GVK and operates the 235 MW MCV Partnership.Pretax operating income for 1995 plant. Construction is continuing on the combined-cycle increased $25 million, primarily reflecting higher capacity facility with an estimated total cost of $260 million. GVK has sales by the MCV Partnership, as well as additional equity received a Government ofIndia counter-guarantee of perfor-carnings by CMS Generation subsidiaries primarily due to mance of certain obligations under the power purchase agree-the liydra-Co acquisition. ment by the Andhra Pradesh State Electricity Board and CapitalExpend ums and Other: In 1996, CMS Generation, expects to complete fmancing early in 1997, through s subsidiary, commenced construction of the La Plata As ofJanuary 1,1997, Jamaica Private Power Company Cogeneration Plant, a 128 MW natural gas-fueled, combined-achieved commercial operation of the two diesel generators at cycle power plant in Buenos Aires Province, Argentina. its 60 MW diesel-fired independent power project in Kingston, Construction of the $ 110 million plant being built on the site Jamaica. CMS Generation, through a subsidiary, holds a of a petroleum refinery owned and operated by YPF S.A., 44 percent interest in Jamaica Private Power Company and a Argentinai largest oil company, is scheduled to be completed 60 percent interest in Private Power Operators Limited, which by the fall of1997. Also in 1996, CMS Generation increased will operate the plant. Construction on the balance of the its ownership interest in the project from 39 percent to 100 per-plant, including the 4 MW waste heat steam turbine, will be cent by purchasing the remaining 61 percent from a consortium complete in the first halfof1997. of Argentine investors. The Overseas Private Investment Corporation is expected to provide $75 million in non-recourse project financing for the facility. Putar OpemtingIncome: 1996 pretax operating income in 1996, CMS Generation, through a subsidiary, and an increased $14 million from 1995, reflecting new pipeline and affiliate of ABB Energy Venture, Inc. ( ABB) signed an agree-storage investments, primarily TGN, the continued growth of ment with Morocco's national utility, Office National de existing projects, gas marketed to end-users and the exchange ofownership interests in the Moss Bluff and Grands Lacs l'Electricit6, for the privatization, expansion and operation of the 1,320 MW Jorf Lasfar coal-fueled power plant located partnerships, as detailed below. In 1995, pretax operating southwest of Casablanca. The agreement covers the purchas income increased $5 million over 1994, reflecting growth and operation of two existing 330 MW electric generating from new pipeline investments and the continued growth of units and construction and operation of another two 330 MW existing projects and gas marketed to end-users. electric generating units by CMS Generation and ABB. CMS Capital Expenditums and Other: In 1996, CMS Gas Generation and AEB each will hold a 50 percent interest in Transmission acquired Petal Gas Statage Company, a natural the transaction. CMS Energy posted a $30 million conditional gas storage facility located in Forrest County, Mississippi. i letter of credit to ensure closing under the agreement, which egrovides up to 3.2 billion cubic is targeted for the first half of1997 and includes over $1 bil-feet per day of10-day storage service and has the capability lion in debt financing. Construction of the second two units ofbeing refilled in 20 days. will begin shortly thereafter. in 1996, CMS Gas Transmission acquired 32 percent of the common shares of Nitrotec Corporation, a proprietary gas In 1996, CMS Generation, through a subsidiary, increased its ownership interest in Centrales Termicas Mendoza (CTM) Nim WWin the development and commercialization of advanced carbon-to 81 percent, in 1996, CTM began a project to repower its based adsorption gas separation technologies. Nitrotec electric generating plant in Western Argentina's Mendoza recently received patents covering its helium removal process Province, CMS Generation currently plans to invest $ 185 mil-lion to refurbish and repower the facility resulting in an in 1996, CMS Gas Transmission sold its 50 percent owner-increase in the plant's available net output from 243 MW t ship interest in Moss Bluff Gas Storage Systems, a partnership 506 MW. Capital markets financing of $85 million is targeted that owns a gas storage facility, to its partner, Moss Bluff Hub for the first halfof1997. Partners, L.P. (MilP), and purchased the remaining 50 percent As of the first quarter of1997, GVK Industries, the devel-ownership interest in the Grands Lacs Limited Partnership, a oper of an independent power project in Jegurupadu, Andhra Pradesh, India (GVK), began generating electricity from all O
(M insp Corponmon e e marketing center for natural gas, from MHP. This transaction forward-looking statements include prevailing governmental resulted in CMS Gas Transmission receiving $26 million. policies and regulatory actions both domestic and international in 1996, Cherokee Gas Processing, a partnership of (including those of the FERC and the MPSC) with respect to CMS Gas Transmission and licritage Gas Services ofTulsa, rates, industry and rate structure, operation of nuclear power acquired the Crescent and Art es gas gathering systems and facilities, acquisition and disposal of assets and facilities, processing plant in Oklahoma for $3Onillion. A portion of the operation and construction of plant facilities, operation and Ames gas gathering system was subsequently sold in construction of natural gas pipeline and storage facilities, January 1997 for $8 million. CMS Gas Transmission and recovery of the cost of purchased power or natural gas, lieritage Gas Services have partnership interests in Cherokee decommissioning costs, and present or prospective wholesale of 82 percent and 18 percent, respectively. Cherokee had and retail competition, among others. The business and profit-acquired the adjacent Lucien gas gathering system and pro-ability of CMS Energy are also influenced by economic and cessing plant earlier in 1996, and has now integrated the geographic factors, including political and economic risks two operations.The Crescent system is providing operating (particularly those associated with international development synergies with the Lucien system, and has increased and operations, including currency fluctuation), changes in CMS Gas Transmission's presence in this important domes-environmental laws and policies, weather conditions, compe-tic gas-producing region. tition for retail and wholesale customers, pricing and trans-In 1996, CMS Gas Transmission, together with Empresa portation of commodities, market demand for energy, inflation, Nacional de Electricidad S.A., Chile's largest electricity capital market conditions, unanticipated development project generation and transmission company, became partners in delays or changes in project costs, and the ability to secure the Atacama Pipeline, an integrated $700 million project to agreement in pending negotiations (particularly for projects construct a 930 kilometer pipeline that will transport in development), among other important factors. All such natural gas across the Andes Mountains from Northern factors are difficult to predict, contain uncertainties that may Argentina to markets in Northern Chile. A 600 MW gas-materially affect actual results, and may be beyond the control fueled, combined-cycle generating plant is planned to be ofCMS Energy. built in two stages at the end of the pipeline in Chile by a Capital Expenditures: CMS Energy estimates that capital consortium including CMS Generation. Construction is expenditures, including new lease conunitments and invest-scheduled to begin in 1997, with gas transportation and plant ments in partnerships and unconsolidated subsidiaries, will operations expected in 1999. total $2.7 billion over the next three years. Cash generated by operations is expected to satisfy a substantial portion of capi-Intemational Energy Distribution tal expenditures. Nevertheless, CMS Energy will continue to Capital Expenditwrs: In 1996, a seven-company consortium evaluate capital markets m 1997 as a potential source of m which CMS Electric and Gas Company, a subsidiary of financing its subsidiaries' investing activities. CMS Energy Enterprises, holds a 40 percent interest, acquired 90 percent estimates capital expenditures by business segment over the of the outstanding shares of Empresa Distribuidora de next three years as follows: Electricidad de Entre Rios S.A. (EDEER S.A.), the electric distribution utility in Entre Rios Province, Argentina for Years Ended December 31 1997 1998 1999 $160 million. EDEER S.A. serves over 200,000 customers, primarily residential and commercial, in a 55,000 square Elect-ic utilityta) 5272 5275 5257 kilometer area. In 1996, the Entre Rios Province transferred Gas utilitytai 115 103 103 ownership and operating management of EDEER S.A. Oil and gas exploration and production 175 150 165 to the consortium. Independent power production 196 162 157 Natural gas transmission and storage i10 100 75 International energy distribution 120 100 100 Forward-looking information is included throughout this Marketing, services and trading 17 13 Annual Report. Material contingencies are also described in
3

7 the Notes to Consolidated Financial Statements and should he read accordingly.
""*""""'""""""""b"P"""*"W""*"""""P"*"P""'"P'"' dauru for plant and equtpment common to lunk the electnc and yan utd ry bunnesses Some important factors that could cause actual results or outcomes to difTer materially from those discussed in the O
1 l msNev cn== ] I l CMS Energy currently plans to invest 5450 million from senice areas; economic development competition between 1997 to 1999 in its oil and gas exploration and production oper-utilities; MPSC direct access programs and potential electric ations, primarily in North and South America, offshore West industry restructuring including regulatory decisions and new l Africa and North Africa. CMS Energy also plans to im est state or federallegislation. $515 million in its independent power production operations in 1996, the MPSC significantly reduced the rate subsi-from 1997 to 1999 to pursue acquisitions and development of dization of residential customers by large industrial and com-electric generating plants in the United States, mercial customers. In addition, in an effort to meet the Latin America, Southern Asia, the Pacific Rim region and challenge of competition, Consumers has signed long-term North Africa. Investments totaling $285 million from 1997 to sales contracts with some ofits largest industrial customers, 1999, relating to non-utility gas operations, are planned to con-including its largest customer, General Motors Corporation ] tinue development of natural gas storage, gathering and (General Motors). Under the General Motors contract, pipeline operations both domestically and internationally. Consumers will serve certain facilities at least five years and CMS Energy plans to invest $320 million from 1997 to 1999 serve other facilities at least ten years. Certain facilities will in its international energy distribution operations related to have the option of taking retail wheeling service (if available) international expansion. CMS Marketing, Senices and after the first three years of the contract. The MPSC approved Trading Company (CMS MST), a subsidiary of Enterprises, this contract in 1995, and has also approved long-term sales plans to invest $30 million from 1997 to 1999. CMS MST was contracts with other major customers representing a substan-formed during 1996 as part of CMS Energy's expansion and tial percentage of Consumers' industrial load deemed to have reorganization ofits energy marketing business. This restruc-viable cogeneration alternatives.These orders have been turing is expected to significantly improve CMS Energy's com-appealed by the Michigan Attorney General, petitive position in the energy marketplace throughout the U.S. The MPSC approved Settlement Agreement, among other and abroad. CMS MST will preside gas, electric, oil and coal things, opened up 240 MW ofload to competition. Consumers marketing, risk management and energy management senices believes it can compete for 140 MW ofload, while 100 MW is throughout the United States and eventually worldwide. reserved for 18 months for direct access on a lottery basis. These estimates are prepared for planning purposes and Consumers has negotiated special contracts suflicient to fill are subject to revision. the 140 MW ofload available under the Settlement Agreement. Electric Outlook: Consumers expects average annual These contracts were filed with the MPSC for approval. growth of two to three percent per year in electric system in January 1996, the Governor of the State of Michigan sales over the next five years, based on the current industry requested that the MPSC review the existing regulatory configuration in Michigan. Actual electric sales in future peri-framework governing Michigan business in order to improve ods may be affected by abnormal weather, changing eco-Michigan's business climate. After the filing of utility plans as nomic conditions, or the developing competitive market for requested by the MPSC earlier in 1996, and after discussions electricity. Consumers continues to work toward retaining its with many parties, in December 1996, the MPSC stafTissued current retail service customers by offering electric rates that a report recommending a phased-in program of direct access are competitive with those ofother energy prosiders, and by by electric customers (also known as customer choice) based improving reliability and customer communications. Con-on two fundamental principles.1) all customers should be eli-sumers is also taking steps to prepare for a future environment gible to participate in the emerging competitive market for in which open access is the predominant means by which retail electric supply; and 2) rates should not be increased for any j senice customers obtain their power requirements. customers and should be decreased where possible.The l Consumers' retail senice is affected by competition in report also recommends that, beginning in 1997, customers j several areas, including the potential installation of cogenera. would have the opportunity to select the power supplier of tion or other self-generation facilities by larger industrial their choice. All customers would be eligible to participate, customers; the formation of municipal utilities that would dis-but in the initial years the total amount would be limited to place retail service to an entire community; competition from 150 MW for 1997, increasing an additional 150 MW each year other utilities that offer flexible rate arrangements designed to through 2000. In 2001, all commercial and industrial cus-encourage movement of facilities or production to their tomers served at primary voltage would be eligible, and in 2004 all remaining customers would be eligible.This report O
CMS Ewzv Cwporwm also recommends recovery of electric utility transition costs senice, a substantial portion of $4 billion in costs that would (often referred to as stranded costs) from those customers be subject ta the securitization alternative would be paid by exercising a right to purchase power from generators other customers on bundled rates prior to getting choice, thus than traditional utility suppliers. Transition costs consist of allowing the transition cost to be charged only to direct access two elements: 1) energy supply costs that were incurred dur-customers to be limited to $1.8 billion if securitization does ing the regulated era that would not be competitive at market not occur. Securitization results in over a $200 million benefit prices if the electric industry is restructured; and 2) costs that per year to customers because the 15-year repayment period are incurred to facilitate the transition from regulated monop-of the bonds allows the cost reimbursement by the customer oly status to competitis e market status. The MPSC staff to be spread out over a longer period than without securitiza-report states that transition costs should include the following: tion and because securitization allows the costs being securi-
1) regulatory assets (see Note 19); 2) nuclear capital costs; tized to be financed at a lower rate.

3) contract capacity costs in power purchase agreements; Several of the elements of electric utility restructuring will

4) employee-related restructuring costs; and 5) other costs need to be addressed in legislation, including assurance of related to implementing restructuring.
full transition cost recovery, securitization of rate reduction The report also recommends that where possible, the bonds and generation deregulation. Consumers currently recovery of the transition costs would be funded through rate expects that electric utility restructuring will occur in a man-reduction bonds, a potential financing which has the dual ner consistent with the MPSC Staff Report, but cannot predict advantages of funding transition costs while simultaneously with certainty the timing of actual implementation, the extent reducing customer rates. Transition costs not recovered of customer choice, or resultant financial impacts. through rate reduction bonds would be recovered through a in April 1996, the FERC issued Orders 888 and 889 transition charge billed to direct access customers.The transi-(Order 888) and (Order 889), which require utilities to provide tion charge would begin when the customer takes airect open access to tho interstate transmission grid for wholesale access service and would continue through 2007. Customers transactions. Order 888 requires public utilities owning, con-not participating in the direct access program would be trolling, or operating transmission lines in interstate commerce charged bundled rates that include: 1) a base rate freeze; to file non-discriminatory open access tariffs that contain min-
2) suspension of the power supply cost recovery process dur-imum terms and conditions of non-discriminatory service; ing the transition period and establishment of a fixed level of allows utilities to charge their current conforming transmis-fuel and purchase power recovery; and 3) limited performance-sion rates or apply for new rates; and allows the full recovery based regulation of the transmission and distribution func.
of transition costs. Order 888 also requires that power pools tions in a manner which incorporates service standards restructure their ongoing operations and open membership to and allows for the Consumer Price Index less one percent industry participants. Order 889 requires that utilities establish adjustments on transmission and distribution rates through electronic systems to share information about available trans-the end of 2001. mission capacity and to separate their wholesale power mar-On March 7,1997, Consumers filed supplementary data keting and transmission operations functions. with the MPSC at its request. This data showed that Several FERC Order 888 and 889 requirements have been Consumers has approximately $1.8 billion of existing transi-implemented, including the filing with FERC of Consumers' tion costs which would be recovered by a transition charge to individual open access tarifT and the Joint Transmission TarifT be paid by direct access customers through 2007. Restructur-with The Detroit Edison Company (Detroit Edison) for trans-ing and implementation costs of $200 million would be mission service across the Consumers and Detroit Edison recovered by an implementation charge to direct access cus-transmission systems, separation of the wholesale merchant tomers. Alternatively,if the securitization approach is pursued function from the transmission function, implementation of and appropriate legislation is passed, the data indicate that the required Code of Conduct, unbundling of wholesale inter-significant customer benefits would result. The resulting secu-connection agreements and related issues. Consumers partici-ritization charge would be paid by all customers to service $4 pated in organizational discussions of a Midwest Independent billion of rate reduction bonds with a proposed 15-year term. System Operatur, of which Consumers is a member. Because of the phase-in schedule for retail direct access One issue related to FERC Orders 888 and 889 that is not resolved is the operation of the Michigan Electric Power Coordination Center. Currently, Consumers and Detroit O
custwo p c Edison have an agreement tojointly operate the Michigan current and potential customers that are using other fuels for Electric Power Coordination Center pool, which provides space and water heating, in addition, as air quality standards considerable savings to Michigan electric customers. continue to become more stringent, management believes that Consumers would propose to maintain the benefits of the pool greater opportunities exist for converting industrial boiler for its customers and open up the pool to other participants on load and other processes to natural gas. Consumers also plans a non-discriminatory basis. Detroit Edison seeks to terminate additional capital expenditures to construct new gas mains j the power pool agreement with Consumers effective April 30, that are expected to expand Consumers' system. Actual gas { 1997.The current Michigan Electric Power Coordination deliveries in future periods may be afTected by abnormal i Center agreement requires a four-year advance notice for ter-weather, ahernative energy prices, changes in competitive con-j mination. The FERC is expected to rule on this issue in 1997. ditions, and the level of natural gas consumption. In addition, ) The impact of the FERC decision on Consumers and its cus-Consumers has proposed to the MPSC a fixed gas price for tomers cannot be predicted. i recovery over a three-year period. Consumers is also ofTering Consumers currently applies the utility accounting a variety of energy related sen ices to its customers including ) standard, Statement of Financial Accounting Standards appliance maintenance, home safety, and home security. (SFAS) 71, that recognizes the economic effects ofrate regu-In October 1996, the MPSC issued an order requesting i lation and, accordingly, has recorded regulatory assets and Consumers and other local distribution companies whose liabilities related to its generation, tranuission and distribu-rates are regulated by the MPSC to develop pilot programs tion operations (see Note 19). If rate recovery of generation-that would allow any customers to purchase gas from other related costs becomes unlikely or uncertain, whether due to suppliers and have the gas transported through local j competition or regulatory action, this accounting standard pipelines. These pilot programs, which are to be implemented may no longer apply to Consumers' generation operations. in mid-1997 and last for two years, are intended to help the This change could result in either full recovery of generation-MPSC determine whether it is appropriate to allow all cus-related regulatory assets (net of related regulatory liabilities) tomers access to the competitive gas transportation market. or a loss, depending on whether Consumers' regulators adopt Based on a regulated utility accounting standard, SFAS 71, a transition mechanism for the recovery of all or a portion of Consumers is allowed to defer certain costs to the future and these net regulatory assets. Based on a current evaluation ~of record regulatory assets, based on the recoverability of those the various factors and conditions that are expected to impact costs through the MPSC's approval. Consumers has evaluated future cost recovery, Consumers believes that its regulatory its regulatory assets related to its gas business, and believes assets, including those related to generation, are probable of that sufficient regulatory assurance exists to proside for the future recovery. recovery of these deferred costs (see Note 19). At the SEC stafT's request, the Financial Accounting other Standards Board (FASB) is reviewing the accounting for New Accounting Standards: In 1996, the FASB issued closure and removal costs for long-lived assets, including SFAS l25, Accountingfor Transfers andServicing of decommissioning.The current electnc utth.ty mdustry accounting practices of recording the cost of removal as a FinancialAssets andExtinguishments ofLiabilities, which component ofdepreciation could be changed. The FASB's is effective for 1997 financial statements. In October 1996, the American Institute of Certified Public Accountants tentative decision meludes recognition of the cost of closure .Issued Statement of Position 96-1, Envimnmental and removal obligation as a liability based on discounted Remediation Liabilities, effective for 1997 financial state-future cash flows with the ofTset recorded as part of the cost of the plant asset. ments. CMS Energy does not expect the application of these statements to have a material impact on its financial posi-Gas Outlook: Consumers currently anticipates gas deh.ver-
t. ion, h.qmdity or results of operations.
ies to grow two percent per year (excluding transportation to the MCV Facility and off-system deliveries) over the next five years, assuming a steadily growing customer base. Addition-ally, Consumers has several strategies that will support increased load requirements in the future. These strategies include increased efTorts to promote natural gas to both -O
Consolidated Statements ofincome cusan c y on. 6 in Millkms, Except hr Share Amounts Years Ended December 31 1996 1995 1994 Operating Revenue Electric utility $2,446 $2,277 $2,189 Gas utility 1,282 1,195 1,151 Oil and gas exploration and production 130 108 78 Independent power production /al I40 96 46 Natural gas transmission, storage and marketing'a> 320 196 145 Other(al I5 18 5 Total operating revenue 1,333 3,890 3,614 Operating Expenses Operation Fuel for electric generation 296 283 306 Purchased power-related parties 589 491 482 Purchased and interchange power 202 196 162 Cost ofgas sold 997 824 785 Other 751 - 695 621 Total operation 2,835 2,489 2,356 Maintenance 178 186 192 Depreciation, depletion and amortization 441 416 379 Generaltaxes 202 196 184 Total operating expenses 3,656 3.287 3,111 Pretax Operating Electric utility 402 362 332 income (Loss) Gas utility 153 151 135 Oil and gas exploration and production 39 30 8 Independent power production 68 46 21 Natural gas transmission, storage and marketing 28 14 9 Other (13) (2) Total pretax operating income 677 603 503 Otherincome Accretion income (Note 2) 10 11 13 (Deductions) Accretion expense (Note 2) (22) (31) (35) Other, net i 10 19 Total other deductions (1I) (10) (3) Fixed Charges Interest on long-term debt 230 224 193 Other interest M 27 18 Capitalized interest (H) (8) (6) Preferred dividends 28 28 24 Preferred securities distributions (Note 8) 8 Net fixed charges 287 271 229 income Before incomeTaxes 379 322 271 income Taxes 139 118 92 Consolidated Het income $ 240 $ 204 $ 179 Net income Attributalde to Common Stocks - CMS Energy 5 226 $ 201 $ 179 Class G $ 14 3 Average Common Shares Outstanding-CMS Energy 92 89 86 Class G H 8 Eamings Per Average Common Share-CMS Energy $ 2.45 $ 2.27 5 2.09 Class G $ 1.82 $.38 Dividends Declared Per Common Share-CMS Energy 5 1.02 5.90 $.78 Class G $ 1.15 $.56 tal Does not anclude rrwnur associated with ChfS'mteursts in unconsohdaredpartnerships. For 1996,1993 and1994, that rrwnue totaled $4V3 muhem 54V7 mahon and $383 milhon, urspecttelv, fu mdependentpowerpmduction; and $42 mdhon. 526 milhon und 57 mahon, respectinly,je natum! gas Imnsmussnan, stomge.end marketmg. For IVV6. that rewnue sotaled 522 mdhamfw internanonalenergy dnstribunon. which is orported en Other. rhe ammpanynns notes are an integralpart of these statements O
Consolidated Balance Sheets CAf5 Energv Corporutwo i December 31 in Millwns Ir 6 1995 v ASSETS Plant and Property Electric (At Cost) Gas $6,333 $6,103 2,337 2,218 Oil and gas properties (full-cost method) Other I,140 1,074 94 105 9,904 9,500 Less accumulated depreciation, depletion and amortization (Note 2) 4,867 4,627 5,037 4,873 Construction work-in-progress 243 201 5,280 5,074 lirrestments Independent power production 318 275 Natural gas transmission, storage and marketing 233 193 First Midland Limited Partnership (Notes 3 and 20) 232 225 Midland Cogeneration Venture Limited Partnership (Notes 3 and 20) 134 103 Other 86 22 1,003 818 Current Assets Cash and temporary cash investments at cost, which approximates market 56 56 Accounts receivable and accrued revenue, less allowances of$10in 1996 and $4 in 1995 (Note 6) 373 296 Inventories at average cost Gas in underground storage 186 184 Materials and supplies 86 83 Generating plant fuel stock 30 37 Deferred income taxes (Note 5) 48 24 Prepayments and other _235 230 1,014 910 Non-current Assets Postretirement benefits (Note 12) 435 462 Nuclear decommissioning trust funds (Note 2) 386 304 Abandoned Midland project i13 131 Other 384 444 1,318 1,341 Tota 1 Assets 58,615 $8,143 The accompanyung notes arr an onregralsmrt of these statements i O
-.. _ ~ ChtSEarrgv Corporanon In Mdlions December 31 1996 1995 STOCKHOLDERS' INVESTMENT AND LIABluTIES Capitalization Common stockholders' equity $1,702 $1,469 Preferred stock of subsidiary 356 356 Company-obligated mandatorily redeemable preferred securities of Consumers Power Company Financing Ita> 100 Long-term debt (Note 7) 2.842 2,906 Non-current pordon of capital leases (Note 13) 103 106 i 5,103 4,837 Current Liab!!mes Current portion oflong-term debt and capital leases 409 207 Notes payable 333 341 Accounts payable 348 3% ] Accrued taxes 262 254 l Accounts payable-related parties 63 53 Power purchases (Note 3) 47 90 Accrued interest 47 45 Accrued refunds 8 22 Other 206 192 i 1,723 1,510 i Non-current Deferred income taxes (Note 5) 698 640 Liabilities Postretirement benefits (Note 12) 521 533 1 Power purchases (Note 3) 178 221 Deferred investment tax credits 161 171 Regulatory liabilities for income taxes, net (Notes 5 and 19) 66 44 Other _ 165 187 1,789 1,796 l Commitments and Contingencies (Notes 2,3,4,13,14 and 15) Total Stockholders' investment and Llahdities $8,615 $8,143 IM As desenbed in Note 8. the primary auer of Consumers nrwer Company Anancing iis 3103 methon pruncupal amount of8 36% subordmated snrerest notes due 2013pvm Consumen. I 0
Censolidated Statements of Cash Flows ,cus en,,,, ca,, t in Millwns Years Ended December 31 1996 1995 1994 Cash Flows From Consolidated net income 5240 $ 204 $179 OperatingActivilles Adjustments to reconcile net income to net cash provided by operating activities Depreciation, depletion and amortization (includes nuclear decommissioning depreciation of $49, $51 and $49, respectively) 441 416 379 Deferred income taxes and investment tax credit 46 75 56 Capital lease and debt discount amortization 41 61 73 Accretion expense (Note 2) 22 31 35 Accretion income-abandoned Midlandproject(Note 2) (10) (11) (13) Undistributed earnings of related parties (64) (53) (25) Powerpurchases (Note 3) (63) (137) (87) Other 20 7 3 Changes in other assets and liabilities (Note 17) (12) 89 12 Net cash provided by operating activities 661 682 612 Cash Flows From Capital expenditures (excludes capital lease additions j investing Activities of $31, $31 and $36, respectively and DSM) (Note 17) (659) (535) (575) Investments in partnerships and unconsolidated subsidiaries (163) (242) (52) Investments in nuclear decommissioning trust funds (49) (51) (49) Cost to retire property, net (31) (41) (38) 3 Acquisition ofcompanies, net ofcash acquired (20) (146) Deferred demand-side management costs (6) (9) (9) ) Proceeds from sale ofproperty 79 22 20 Other 8 (14) (6) Net cash used in investing activities (841) (1,016) (709) Cash Flows From Proceeds from bank loans, notes and bonds - 433 333 701 Firtancing Activttles Proceeds from preferred securities 97 Issuance ofcommon stock 95 160 30 Repayment of bank loans (256) (18) (473) Payment ofcommon stock dividends (103) (84) (67) Payment of capital lease obligations (40) (37) (35) Retirement of bonds and other long-term debt (37) (44) (279) Increase (decrease) in notes payable, net (H) 2 80 Retirement ofcommon stock (1) (1) (2) Issuance ofpreferred stock 193 i Net cash provided by financing activities 180 311 148 Net increase (Decrease) In Cash and Temporary Cash investments (23) 51 Cash and temporary cash investments Beginning ofyear 56 79 28 End ofyear 5 56 5 56 $ 79 The acevnpanying notes are an intryrolpart ofthese statements O
~ ~ _ _ _ _ _ _ _ _ Consolidated, Statements of P,eferred Stock cusrn e y -n-c 6 Optional Redemption Number of Shares In unium, i December 31 Series Price 1996 1995 1996 1995 l Consumers' i Preferred Stock Cumulative, $100 par ialue, authorized 7,500,000 shares, with no mandatory redemption $4.16 $103.25 68,451 68,451 5 7 $ 7 4.50 110.00 373,148 373,148 37 37 7.45 101.00 379,549 379,549 38 38 7.68 101.00 207,565 207,565 21 21 7.72 101.00 289,642 289,642 29 29 7.76 102.21 308,072 308,072 31 31 consumers' Class A Preferred Stock Cumulative, no par value, authorized 16,000,000 shares, with no mandatory redemption /a) 2.08 25.00 8,000,000 8,000,000 193 193 Total Preferred Stock $356 $356 (a) kedren,aMr begunmng AprdI.199V The accompanywg notes an an integmipart of these statementa l Consolidated Statements of Common Stockholders' Equity cus tn, cyme,- in Mdlions. Except Number ofShans i Other Retained Number Common Paid-in Revaluation Earnings ofShares Stock Capital Capital (Deficit) Total Baiance at January 1,1994 85,196,795 $1 $1,672 $(707) $ 966 Consolidated net income 179 179 Common stock: Dividends declared (67) (67) Reacquired (85,174) (2) (2) Issued 1,389,578 30 30 Reissued 33,350 1 1 Balance at December 31,1994 86,534,549 1 1,701 (595) 1,107 Consolidated net income 204 204 Common stock: Dividends declared: CMS EnerFy (80) (80) Class G (4) (4) Reacquired (21,514) (1) (1) i Issued: CMS Energy 5,039,019 126 126 Class G/a) 124 124 Reissued 41,447 1 1 Change in unrealised investment-loss (8) (8) Balance at December 31,1995 91,593,501 1 1,951 (8) (475) 1,469 Consolidated net income 240 240 Common stock: Dividends declared: CMS Energy (94) (94) Class G (9) (9) Reacquired (31,700) (1) (1) Issued: CMS Energy 3,248.225 90 90 { Class G'a) 5 5 Reissued 3,085 Change in unrealized investment-gain 2 2 Ealance at December 31,1996 94.813.111 51 $2.045 5 (6) 5(338) 51.702 tal Number ofCrun C common shares outstandnag-Balance st December 31.D95 7.618,602 lasued dunng 1996 257.R?2 Balance at December 31.1996 7.R76A74 rhe oce,mpanvmg notes are un integmlpart af these statements.
Notes to Consolidated Financial Statements ,cusz,cy Morporate Simcture plant account. Consumers stores gas inventory in its under-CMS Energy Corporation (CMS Energy) is the parent holding ground storage facilities. company of Consumers Energy Company (Consumers) and Maintenance, Depmciation andDepletion: Consumers' CMS Enterprises Company (Enterprises). Consumers, a com-property repairs and minor property replacements are charged bination electric and gas utility company serving the Lower a maintenance expense. Depreciable property retired or sold Peninsula of Michigan, is the principal subsidiary ofCMS plus cost of removal (net of salvage credits) is charged to accu-Energy. Consumers' customer base includes a mix ofresiden-mulated depreciation. Consumers bases depreciation provi-tial, commercial and diversified industrial customers, the largest sions for utility plant on straight-line and units-of-production segment of which is the automotive industry. Enterprises is rates approved by the MPSC. The composite depreciation rate engaged in several domestic and international energy-related for electric utility property was 3.5 percent for 1996,1995 and businesses including: oil and gas exploration and production; 1994. The composite rate for gas utility plant was 4.2 percent acquisition, development and operation ofindependent power for 1996,4.3 percent for 1995 and 4.2 percent for 1994. production facilities; energy marketing to utility, commercial The composite rate for other plant and property was 5.5 and industrial customers; storage, transmission and processing percent for 1996,4.9 percent for 1995 and 4.7 percent for 1994. of natural gas; and international energy distribution. CMS NOMECO Oil & Gas Co. (CMS NOMECO), a wholly owned subsidiary of Enterprises, follows the full-E" E'#'**E "
Basis offusentation: The consolidated fmancial statements
' E"*" ' '"'
" "E include CMS Energy, Consumers and Enterprises and their "E "
E
wholly owned subsidiaries.The fmancial statements are pre-pared m. conform.ity with generally accepted accounting prin-try-by-country basis. The capitalized costs in each cost center are bem.g amortized on an overall units-of-production method ciples and include the use of management's estimates. CMS Energy uses the equity method ofaccounting for investments based on total estimated proved oil and gas reserves. Other in companies and partnerships where it has more than a non-utihty depreciable property is amortized over its estimated 20 percent but less than a majority ownership interest and useful life; gains and losses are recognized at the time of sale. includes these results in operating income. For the years Nuclear fuel Cost: Consumers amortizes nuclear fuel cost ended December 31,1996,1995 and 1994, undistributed to fuel expense based on the quantity ofheat produced for equity earnings were $64 million, $53 million and $25 mil. electric generation. Interest on leased nuclear fuel is expensed i lion, respectively. as incurred. Under current federal law, as confirmed by court Accation Income andEgense: In 1991, the Michigan decision, the U.S. Department of Energy (DOE)is required to Public Service Commission (MPSC) ordered that Consumers begin accepting deh.venes of spe it nuclear fuel by January 31, i i could recover a portion ofits abandoned Midland investment 1998 for disposal, even if a permanent repository is not then over a 10-year period, but did not allow Consumers to earn a return on that amount, Consumers reduced the recoverabl the costs of DOE transport and disposal through fees based investment to the present value of the future recoveries, on electric generation by their nuclear plants. For fuel used During the recovery period, the unrecovered asset is adjusted aller April 6,1983, Consumers charges disposal costs to to its present value. This adjustment is reflected as accretion ecovers them through electric rates and income. Conversely, Consumers recorded a loss in 1992 for remits to the DOE quarterly. Consumers elected to defer pay-the present value ofits estimated future underrecoveries of ment for disposal of spent nuclear fuel burned before April 7, power costs resulting from purchases from the Midland 1983 until the first ofits spent fuel is delivered to the DOE. At Cogeneration Venture Limited Partnership (MCV Partnership) December 31,1996, Consumers has a recorded liability to the l (see Note 3), and now recognizes accretion expense annually DOE of $106 million, including interest, which is to be paid to reflect the time value ofmoney on the recorded loss. prior to the first delivery of spent nuclear fuel to the DOE. Consumers recovered through electric rates the amount of j Gas Inventory: Consumers uses the weighted average cost method for valuing working gas inventory. Cushion gas, this liability, excluding a portion ofinterest. In January 1997, in response to the DOE's declaration in December 1996 that it which is gas stored to maintain resenwir pressure'for recov-i leu fud delimies by the cry of working gas, is recorded in the appropriate gas utility date required by law, Consumers and other utilities filed suit in federal court. The utilities are seeking a declaration that O
l l custwv nam c l they are relieved of their obligation to remit their quarterly fee Reclassifications: CMS Energy has reclassified certain l payments to the DOE and are authorized to escrow any prior year amounts for comparative purposes. These reclassi-related fees collected from their customers, unless and until fications did not affect consolidated net income for the the DOE begins to accept spent nuclear fuel.The suit seeks years presented. ] an order requiring the DOE to develop a program to begin Related-Party Transactions: In 1996,1995 and 1994, acceptance of spent nuclear fuel by January 31,1998. Also in Consumers purchased $50 million, $53 million and $48 mil-1997, federal legislation was reintroduced to clarify the tim-lion, respectively, of electric generating capacity and energy ing of the DOE's obligation to accept spent nuclear fuel and from affiliates of Enterprises. Afliliates of CMS Energy sold, o direct the DOE to establish an integrated spent fuel man-stored and transported natural gas and provided other services agement system : bat includes designing and constructing an to the Midland Cogeneration Venture (MCV) totaling $ 17 mil-interim storage facility in Nevada. lion, $26 million and $22 million for 1996,1995 and 1994, Nuclear Plant Decommissioning: Consumers collected respectively. For additional discussion of related-party trans- $49 million in 1996 from its electric customers toward the actions with the MCV Partnership and the First Midland future decommissioning ofits two nuclear plants. In Limited Partnership (FMLP), see Notes 3 and 20. Other April 1996, Consumers received a decommissioning order related-party transactions are immaterial. from the MPSC which estimated deconunissioning costs for Revenue and fuel Costs: Consumers accrues revenue for l the Big Rock Point nuclear power plant (Big Rock) and the electricity and gas used by its customers but not billed at the l Palisades nuclear power plant (Palisades), both owned by end of an accounting period. Consumers accrues or reduces Consumers, to be $317 million and $548 million (in 1996 dol-revenue for any underrecovery or overrecovery of electric lars), respectively. The estimated decommissioning costs power supply costs and natural gas costs by establishing a cor-increased from previous estimates principally due to the responding asset or liability until it bills or refunds these dif-unavailability oflow-and high-level radioactive waste dis-ferences to customers following an MPSC order. posal facilities. Amounts collected from electric retail cus. Utility Regulation: Consumers accounts for the effects of tomers and deposited in trusts (including trust earnings) are regulation based on a regulated utility accounting standard, credited to accumulated depreciation. To meet Nuclear Statement of Financial Accounting Standards (SFAS) 71. i Regulatory Commission (NRC) decommissioning require-As a result, the actions of regulators affect when revenues, l ments, Consumers prepared site-specific decommissioning expenses, assets and liabilities are recognized. If all or a sepa-cost estimates for Big Rock and Palisades, assuming that rable portion of Consumers' operations becomes no longer each plant site will eventually be restored to conform with the subject to the provisions of utility regulation, a write-off of adjacent landscape, and that all contaminated equipment will related regulatory assets and liabilities would be required, be disassembled and disposed ofin a licensed burial facility. unless some form of transition cost recovery continues Afler the plants are retired. Consumers plans to maintain the through rates established and collected for Consumers' facilities in protective storage until radioactive waste disposal remaining operations. In addition, Consumers would be facilities are available. As a result, the majority of decommis-required to determine any impairment to the carrying costs of l sioning costs will be incurred afler each plant's NRC operat-deregulated plant and inventory assets. For further discussion, ing license expires. When Big Rock's and Palisades' NRC see Management's Discussion and Analysis (MD&A) licenses expire in 2000 and 2007, respectively, the trust funds Forward-Looking Information and Note 19. l are estimated to have accumulated $257 million and Other: For significant accounting policies regarding l $686 million, respectively, it is estimated that at the time the income taxes, see Note 5; for executive incentive compensa-I plants are fully decommissioned (in the years 2030 for Big tion, see Note 11; for pensions and other postretirement bene. Rock and 2046 for Palisades), the trust funds will have pro-fits, see Note 12; and for cash equivalents, see Note 17. vided $1 billion for Big Rock " I billion for Palisades, 3:The Midland Cogeneration Venture including trust earnings over this acommissioning period. The MCV Partnership, which leases and operates, a natural Based on this plan, Consumers believes that the current gas-fueled combm.ed-cycle cogeneration facility (MCV decommissiening surcharge will be sufficient to provide for Facility), contracted to sell electricity to Consumers for a decommissioning ofits nuclear plants. At December 31,1996, 35-year period beginning in 1990 and to supply electricity and Consumers had an investment in nuclear decommissioning steam to The Dow Chemical Company. Consumers, through trust funds of $386 million. O
,cusewv nma c two wholly owned subsidiaries, holds the following assets in November 1996, the MPSC approved an agreement related to the MCV Partnership and MCV Facility: 1) CMS (Settlement Agreement) proposed by Consumers and the Midland Inc., a subsidiary of Consumers (CMS Midland) MPSC stafTthat addressed cost recovery for the remaining owns a 49 percent general partnership interest in the MCV 325 MW of MCV Facility capacity. Beginning January 1, Partnership; and 2) CMS Midland lloldings Company, a sub-1996, Consumers was permitted to recover an average capac-sidiary of Consumers (CMS I toldings) holds, through the ity charge of 2.86 cents per kWh for this power. The approved FMLP, a 35 percent lessor interest in the MCV Facility. average capacity charge increased to 3.62 cents per kWh for SummarizedStatements offncomefor 65 MW of the 325 MW on November 1,1996, and for an CAfS Afidlandand CAIS1/oldings additional 44 MW on January 1,1997. Cost recovery for the { '"'6"'"" remaining 216 MW is based upon the escalation of the aver-Years Ended December 31 1996 1995 1994 age capacity charge by three percent annually until it reaches Pretax operating income $40 $35 $12 3.62 cents per kWh in 2004, and remains at this ceiling rate income taxes and other II 10 (1) through the end of the contract. Consumers anticipates it will Net income $29 $25 513 continue to experience cash underrecoveries associated with lbwer Purchasesfmm the AICVPartnership: Consumers' annual obligation to purchase contract capacity frou the 2m 2001 MCV Partnership under the power purchase agreement (PPA) is 1,240 megawatts (MW) through the termination of the PPA Estimated cash in 2025.The PPA provides that Consumers is to pay the MCV underrecoveries, Partnership a minimum levelized average capacity charge of net ftax $28 $23 $22 $21 $20 3.77 cents per kilowatt-hour (kWh), a fixed energy charge, After considering the efTects of the Settlement Agreement, and a variable energy charge based primarily on Consumers' Consumers believes that the original loss recorded in 1992 average cost of coal consumed. The MPSC allows Consumers remains adequate. The amount of underrecoveries of power to recover substantially all of the payments for its ongoing costs continues to be based, in part, on m:magement's best purchase of 915 MW ofcontract capacity. The MPSC order assessment of the future asailability of the MCV Facility. If allowing recovery was affirmed in March 1996 by the the MCV Facility operates at levels above management's esti. Michigan Court of Appeals (Court of Appeals). Consumers mate over the remainder of the PPA, future losses will need to is recovering capacity charges averaging 3.62 cents per kWh be recognized over and above amounts previously recorded. for 915 MW ofcapacity, the fixed energy charge, and the pre-Further, Consumers would experience greater amounts of scribed energy charges associated with the scheduled deliver-cash underrecoveries than originally anticipated. Manage-ies within certain hourly availability limits, whether or not ment will continue to evaluate the adequacy of the accrued those deliveries are scheduled on an economic basis. liability considering actual facility operations. Consumers previously recognized a loss in 1992 for the Ibwer Supply Cost Recovery Afatters Related to Ibwr present value of the estimated future underrecoveries of Purchasesfmm the AfCVPartnership: As part of the 1993 power costs under the PPA based on inanagement's assess-and 1994 plan case orders, the MPSC confirmed the recovery ment of the future availability of the MCV Facility and the ofcertain costs related to power purchases from the MCV j effect of the future power market on the amount, timing and Partnership. The Association of Businesses AdvocatingTariff price at w hich various increments of the capacity, above the Equity (ABATE) or the Michigan Attorney General (Attorney MPSC-authorized level, could be resold. At December 31 General) appealed these plan case orders to the Court of 1996 and 1995, the afler-tax present value of the PPA liability Appeals. In February 1996, the Court ofAppeals affirmed the totaled $147 million and $202 million, respectively. The MPSC's order in the 1993 plan case. reduction in the liability since December 31,1995 reflects As part ofits decision in the 1993 power supply cost recov-after-tax cash underrecoveries of $41 million along with ery reconciliation case issued in 1995, the MPSC disallowed $28 million related to the termination of power purchase a portion of the costs related to purchases from the MCV agreements, partially ofTset by aller-tax accretion expense of Partnership, and instead assumed recovery of those costs $14 million. The undiscounted aller-tax amount associated from wholesale customers. Consumers believed this was con-with the liability totaled $549 million at December 31,1996. trary to the terms of a 1993 MPSC order and appealed this b
CM5Ewu corrautum issue. The MCV Partnership and ABATE also filed separate January 1997 that agreed with the MPSC staff's position that appeals of this order. In November 1996, the Court ofAppeals the gas loaning program uses storage assets of Consumers affirmed the MPSC's order. Consumers and the MCV and therefore recommended that 90 percent of the revenue Partnership filed petitions for rehearing of the Court of should be refunded to customers. For the year ended Appeals opinion, which were denied in January 1997. December 31,1996, $6 million would be subject to refund. n n ue PPose M M d e W C. 4: Rate Matten In December 1996, the MPSC authorized Consumers to Electric Pmceedings: In February 1996, the MPSC issued a implement a pilot gas transportation program for 40,000 cus-partial fmal order m.the retail electric rate case filed in 1994, tomers m Bay County, Michigan.The pilot program will granting Consumers a $46 million annual m. crease m its elec-provide residential and small commercial customers the oppor-tric retail rates and authorizing a 12.25 percent return on com-tunity to purchase gas from suppliers other than Consumers for mon equity. Consumers also had separate requests before a tw& year period beginning April 1997. Consumers will retain the MPSC to offer competitive special rates to certain large its role as sole transporter and distributor of this gas. qualifying customers and to modify certam depreciation rates In 1993, the MPSC issued an order favorable to Consumers and practices. In November 1996, the MPSC issued a final l regarding a gas pricing disagreement between Consumers and ) order m.the Settlement Agreement which combm.ed the sepa-certain intrastate producers, which was affirmed onjudiciel rate requests.The rate increase and rate of return were not review by state courts. In December 1996, the U.S. Supreme changed from the partial final order and Consumers was Court denied the producers' request to review that decis. ion. In authorized to accelerate recovery ofits nuclear plant invest-early 1995, management concluded that the intrastate produc-ment by charging $18 mulion of annual steam production ers* pending appeals of the order would not be successful and, plant depreciation expense to the nuclear production depreci-accordingly, reversed a previously accrued contingency and ation reserve. Recovery of the additional 325 MW of MCV i recorded a $23 million (pretax) benefit. l Partnership contract capacity charges was also in 1995, the MPSC issued an order regarding a $44 million approved (see Note 3). (excluding interest) gas supply contract pricing dispute The Settlement Agreement also requires Consumers to between Consumers and certain intrastate producers. The establish a direct access program. Customers havm.g a maxi-order stated that Consumers was not obligated to seek prior mum demand of at least 2 MW are eligible to purchase gener-approval of market-based pricing provisions that were imple-ation services directly from any eligible third-party power mented under the contracts in question. The producers subse-supplier. The program is h. ited to 650 MW of sales, of which . m quently filed a claim of appeal of the MPSC order with the 410 MW has already been filled by existing contracts; Court ofAppeals. Consumers believes the MPSC order cor-140 MW may be filled by either direct access customers or rectly concludes that the producers' theories are without merit new special contracts which Consumers has signed and sub-and will vigorously oppose any claims they may raise, but mitted to the MPSC for approval; and the remaining 100 MW cannot predict the outcome of this issue. must be made available solely to direct access customers for at in December 1996, Consumers filed a request with the least 18 months. Rehearing petitions have been filed by MPSC to totally suspend the GCR clause and employ a fixed Consumers and other interested parties. price for recovery of gas costs for a period of three years end-Gas Pmceedings: In March 1996, the MPSC issued a final mg m March 2000. There would be no reconciliations and no order in a 1994 rate case, authorizing recovery of costs related reopenings for that period of time. In April 2000, a new GCR to postretirement benefits and former manufactured gas plant factor would be implemented. sites (see Note 12). Overall, however, the order decreased Resolution of the issues discussed in this note is not Consumers' gas rates by $12 million annually and authorized expected to have a material impact on CMS Energy's finan-an 11.6 percent return on common equity. cial position or results of operations. In the gas cost recovery (GCR) reconciliation proceedm.g for the period April 1995 through March 1996, an issue has 5: Income Taxes arisen questioning whether revenue from gas loaning (which CMS Energy and its subsidiaries (including Consumers) was a new business activity for Consumers) should, in whole file a consolidated federal income tax return. Income taxes or in part, be immediately passed through to customers. The are generally allocated based on each company's separate Administrative Law Judge issued a proposal for decision in O
I I CuS Eneray Carparuthm l e I taxable income. CMS Energy and Consumers practice full The actual income tax expense differs from the amount deferred tax accounting for temporary differences, but computed by applying the statutory federal tax rate to income federal income taxes have not been recorded on the undistrib-before income taxes as follows: uted earnings of foreign subsidiaries where CMS Energy
i. uai,-
intends to permanently reinvest those earnings. Years Ended December 31 1996 1995 1994 CMS Energy uses investment tax credits (lTC) to reduce Consolidated net income before current income taxes payable and defers and amortizes ITC preferred dividends $268 $232 $203 over the life of the related property. Any alternative minimum Income tax expense 139 118 92 tax (AMT) paid generally becomes a tax credit that can be a 350 2M carried forward indefmitely to reduce regular tax liabilities in future periods when regular taxes paid exceed the tax calcu-tatut ry federa e me tax rate x 35v. x 35Y. lated for AMT. Expected income tax expense 142 123 103 The significant components ofincome tax expense (bene. Increase (decicase)in taxes from: fit) consisted of: Foreign income taxes 6 3 Capitahzed overheads previously j ,, yy,, fi wedthrough 5 5 5 Yerrs Ended December 31 1996 1995 1994 Differences in book and tax depreciation Current income taxes 5 93 $ 43 $ 36 not previously deferred 6 6 7 Deferred income taxes 56 85 66 ITC amortization (10) (10) (10) Deferred ITC, net (10) (10) (10) Section 29 FuelTax Credits (13) (13) (8) 5139 $118 $ 92 Other. net 3 4 (5) 4 He principal components of CMS Energyi deferred tax $139 $118 $ 92 assets (liabilities) recognized in the balance sheet are as follows: 1 6: Short-Term Financings in ualw December 31 1996 1995 Consumers has Federal Energy Regulatory Commission (FERC) authorization to issue or guarantee up to $900 mil-Property 5 (621) $ (603) lion of short-term debt through 1998. Consumers has an unse-Unconsolidated investments (259) (266) cured $425 million facility and unsecured, committed lines of Postretirement benefits (Note 12) (165) (173) credit aggregating $120 million that are used to fmance sea-Abandoned Midland project (40) (46) sonal working capital requirements. At December 31,1996, a Employee benefit obligations (includes total of $333 million was outstanding at a weighted average i postretirement benefits of $167 interest rate of 6.3 percent, compared with $341 million out-End $175)(Note 12) 201 204 standing at December 31,1995, at a weighted average interest AMT carryforward 172 161 rate of 6.5 percent. Power purchases (Note 3) N2 112 Consumers has in place a $500 million trade receivables ITC carryforward 23 purchase and sale program. At December 31,1996 and 1995, Other (20) (28) receivables sold under the agreement totaled $318 million and 5 (650) $ (616) $295 million, respectively. Accounts receivable and accrued Gross deferred tax liabilities 5(1.715) $(1,698) revenue in the Consolidated Br. lance Sheets have been reduced Gross deferred tax assets 1.065 1.082 to reflect receivables sold. In 1996, Consumers entered into a 5 (650) $ (616) 5100 million swap agreement to hedge the variable rate expo-sure under the trade receivables purchase and sale program. He swap agreement terminates in November 1998. O
CMS Ewsy Corpmunun 7: Long-Term Debt and sale of up to $125 million CMS Energy Series B General At December 31,1996 and 1995,long-term debt consists of the Term Notes', with net proceeds to be used for general corpo-following: ate purposes. la ush""' Consumers December 31 Maturing / Expiring Interest Rate 1996 1995 First Mortgage Bonds: Consumers secures its first mortgage First Mortgage Bonds 1996 to 2023 5.875% to bonds by a mortgage and lien on substantially all ofits prop-7.375 % 51,305 51,34I erty. Consumers' ability to issue and self securities is Long-Term Bank Debt July 1999 6.0Wa> 400 400 restricted by certain provisions in its First Mortgage Bond Senior Deferred Indenture, its Articles ofIncorporation ( Articles) and the Coupon Notes 1997 and 1998 9.5% and need for regulatory approvals in compliance with appropriate 9.875Wa> 347 347 federal law. GeneralTerm Notes *: Long-Term Bank Debt: Consumers has a $400 million Series A 1997 to 2003 7.79a) 250 221 unsecured, variable rate, long-term loan. Series B 1999 to 2003 8.0Wa> 103 November 1998 to issue up to $500 million oflong-term Revenue Bonds 2000 to 2018 5 IWa> 131 131 secunties for the purposes of refmancing or refunding exist-Term Loan Agreement: ing long-term securities. cms Energy 2002 7.3Wa> 125 125 Consumers long-term pollution control revenue bonds CMS Generation 2001 7.2Wa> 107 g g Revolving Line of Credit 1999 6.2Wa> 122 112 Unsecured Revolving in October 1996, Michigan Gas Storage Company Credit Facility 1998 6.8Wa> 120 118 (Michigan Gas Storage), a subsidiary of Consumers, entered Nuclear Fuel Disposal (b> 5.lwa> 106 100 mto a $23 million secured, variable rate, seven-year term Bank Loans 1997 to 2006 7.4Wa> 102 177 gg g ggg,g interest rate of 6.0 percent. Principal Amount CMS h0MECO Outstandmg 3,221 3,076 In 1996, CMS NOMECO replaced its $ 140 million revolving Current Amounts (370) (161) credit agreement with a $225 million revolving credit agree-Net Unamortized ment which converts to term loans maturing from Discount (9) (9) March 1999 through March 2003. Total Long-Term Debt $2.842 $2.906 Senior serial notes amounting to $28 million, with a ,[ weighted average interest rate of 9.4 percent, were repaid in $NIc ] The scheduled maturities oflong-term debt and improve. full on August 10,1995. In connection with this early extin-ment fund obligations are as follows: $370 million in 1997, guishment of debt, CMS NOMECO incurred a $ 1.5 million $714 million in 1998, $845 million in 1999, $20 million in prepayment premium.The notes were retired with available 2000 and $195 million in 2001. proceeds from the bar:k credit line. CMS Generation CMS Energy in 1995, CMS Generation Co. (CMS Generation), a subsidiary in 1995, CMS Energy amended the terms ofits $400 million Unsecured Revohing Credit Facility, originally dated July 29, of Enterprises, entered into a one-year $ 118 million bridge 1994 and increased the amount to $450 million and extended credit facility for the acquisition of flydra-Co Enterprises, Inc. the termination date to June 30,1998. CMS Energy also of which $109 million remained outstanding as of December 31,1995. In 1996, CMS Generation refmanced this entered into a $ 125 million, seven-year Term Loan Agreement dated November 21,1995 (Term Loan Agreement). bridge facility with a $110 million, five-year term loan. In 1996, CMS Energy filed a shelf registration with the Securities and Exchange Commission (SEC) for the issuance O
cuse n c m v. 8:CapitaHastion of securities. Proceeds from the sale were used for general cor-gg porate purposes ofCMS Energy. "E""*"E#*#" Capita / Stock: In 1995, CMS Energy amended its Articles and authorized a new class ofcommon stock ofCMS Energy at December 31,1996, none of CMS Energy's consolidated net c me was res r payment deonunm MWs. (Class G Common Stock), which reflects the separate perfor-mance of the gas distribution, storage and transportation busi-consumets nesses of Consumers and Michigan Gas Storage (Consumers CapitalStock: In 1996, four million shares of 8.36 percent Gas Group). The pre-existing common stock (CMS Energy Trust Originated Preferred Securities were issued and sold Common Stock) continues to be outstanding and reflects the through Consumers Power Company Financing I, a business performance of all of the businesses of CMS Energy and its trust wholly owned by Consumers. Net proceeds from the subsidiaries, including the business of the Consumers Gas sale totaled $97 million. Consumers Power Company Group, except for the interest in the Consumers Gas Group Financing I was formed for the sole purpose ofissuing the attributable to the outstanding shares of the Class G Common Trust Originated Preferred Securities. Its primary asset is Stock (Outstanding Shares). The filing of the restated Articles $ 103 million principal amount of 8.36 percent unsecured sub-with the Michigan Department ofCommerce increased the ordinated deferrable interest notes issued by Consumers number of authorized shares of capital stock from 255 million which mature in 2015. Consumers' obligations with respect to shares to 320 million shares, consisting of250 million shares the Trust Originated Preferred Securities under the notes, of CMS Energy Common Stock, par value $.01 per share, under the indenture under which the notes have been issued, 60 million shares of Class G Common Stock, no par value, and under Consumers' guarantee of the Trust Originated 10 million shares ofPreferred Stock, par value $.01 per share. Preferred Securities, and under the declaration by the trust, CMS Energy filed a shelf-registration statement with the taken together, constitute a full and unconditional guarantee SEC on February 15,1995 covering the issuance of up to by Consumers of the trust s obligations under the Trust $200 million ofsecurities encompassing CMS Energy Originated Preferred Securities. Common Stock and Class G Common Stock (Common Other: Under the provisions ofits Articles at December 31, Stock), Preferred Stock of CMS Energy or of a special pur-1996, Consumers had $255 million ofunrestricted retained pose affiliate ofCMS Energy, and'or unsecured debt ofCMS earnings available to pay common dividends, Energy. In the third quarter 1995, CMS Energy received net CMS HOMECO proceeds of $123 million from the issuance of 7.52 million shares of Class G Common Stock at a price to the public of in 1995, CMS Energy acquired Walter International, Inc. $17.75 per share, n... lly representing 23.50 percent of the (Walter), an oil and gas exploration and production company, utia common stockholder's equity value attributed to the for $49 million, consisting of $27 million of CMS Energy Common Stock and $22 million in cash and assumed debt. Consumers Gas Group. All of the proceeds funded the capital programs and were used for general corporate purposes of Walter was merged with a wholly owned subsidiary of CMSNOMECO. CMS Energy. Imtially, such proceeds were used to repay a portion ofCMS Energy's indebtedness, none of which is In 1995, CMS Energy acquired 100 percent of the common attributable to the Consumers Gas Group. The issuance of stock ofTerra Energy Ltd. (Terra), an oil and gas exploration additional shares during 1996 and 1995 increased the com-and production company for $63 million. Terra has become a I mon stockholders' equity value attributable to the Consumers wholly owned subsidiary of CMS NOMECO. Gas Group, represented by the Outstanding Shares, to 24.24 percent and 23.73 percent as of December 31,1996 and 1995. in 1996, CMS Energy received net proceeds of $95 million from the issuance of common stock. The issuance of i 2.1 million of those shares completes the remaining amount on a shelf-registration filing by CMS Energy with the SEC on February 15,1995 covering the issuance of up to $200 million i ( O -T
l l c m t w o G n warum l l l 9:Eamings Per Share and DMdends lloiders of Class G Common Stock have no direct rights in Earnings per share attributable to Common Stock for the year the equity or assets of Consumers Gas Group, but rather have ended December 31,1996 reflect the performance of the rights in the equity and assets of CMS Energy as a whole. In Consumers Gas Group. Earnings per share attributable to the sole discretion of the Board of Directors of CMS Energy Common S%ck for the year ended December 31,1995 refleet ( Board of Directors), dividends may be paid exclusively to the pcfor nance of the Consumers Gas Group since initial the holders of Class G Common Stock, exclusively to the issuance e f Class G Common Stock during the third quarter holders of CMS Energy Common Stock, or to the holders 2995/1 he Class G Common Stock has participated in earn-of both classes in equal or unequal amounts. The Board of ings and dividends from its issue date. The allocation of Directors has stated its intention to declare and pay dividends earnings (loss) attributable to each class of common stock on the CMS Energy Common Stock based primarily on the and the related amounts per share are computed by consider-carnings and financial condition of CMS Energy. Dividends ing the weighted average number of shares outstanding. on Class G Common Stock are paid at the discretion of the Earnings (loss) attributable to Outstanding Shares are Board of Directors based primarily upon the earnings and equal to Consumers Gas Group net income (loss) multiplied financial condition of Consumers Gas Group, and to a lesser by a fraction; the numerator is the weighted average number extent, CMS Energy as a whole. of Outstanding Shares during the period and the denominator in February and May 1996, CMS Energy paid a dividend represents the weighted average number of Outstanding of $.24 per share on CMS Energy Common Stock and Shares and retained interest shares, shares not held by the 5.28 per share on Class G Common Stock, in August and holders of the Outstanding Shares, during the period. The November 1996, CMS Energy paid a dividend of $.27 per earnings attributable tc. Class G Common Stock on a per share on CMS Energy Common Stock and $.295 per share on share basis, for the year ended December 31,1996 and 1995, Class G Common Stock. In January 1997, the Board of are based on 23.79 percent of the income of the Consumers Directors declared a quarterly dividend of $.27 per share on Gas Group and 23.45 percent of the income of the Consumers CMS Energy Common Stock and 5.295 per share on Class G Gas Group since the initial issuance, respectively. Common Stock, which were paid in February 1997. Earnings per share for Class G Common Stock is omitted 10:Financia! Instruments from the statement ofincome for the year ended December 31, "E "**"I 1994, since Class G Common Stock was not part of the equity current liabilities approximate their fair values due to their structure of CMS E.nergy. For purpose of analysis, following "E#*
" " '"I" are pto forma data for the years ended December 31,1995 investments are based on quoted market prices or, in the and 1994 which give efTect to the issuance and sale of absence of specific market prices, on quoted market prices 7.52 million shares of Class G Common Stock (representing 23.50 percent of the equity attributable to Consumers Gas
"@ "E ** "" Group) on January 1,1994. instruments approximate fair value. a wum tmg a sw""*"" The carrying amount oflong-term debt was $2.8 billion P* P* and $2.9 billion at December 31,1996 and 1995, respectively, Actual Forma Forma Years Ended December 31 1996 1995 1994 dates. Although the current fair value of the long-term debt Consohdated Net income $ 240 $ 204 5179 f k d rying amount, settlement of Net income Attnbutable to Common Stocks the reported debt is generally not expected until maturity. CMS Energy 226 189 167 The carrying amount of preferred stock and securities was Class G 14 15 12 $456 million and $356 million at December 31,1996 and Average Common Shares Outstandmg 1995, respectively, and the fair value was $439 million and CMS Energy 92.462 88.810 85.888 $344 million on those dates. Class G 7.727 7.536 7.520 The fair values of CMS Energy's otT-balance-sheet finan- * # " ^ * '8 # """" " ** cial instruments are based on the amounts estimated to termi. WS Energy 52E $2.14 $W nate or settle the instruments. At December 31,1996, the fair Class G l.82 1.93 iA6 Oh a O
1 cusw carmn, v l 1 notional amount of $617 million, was $ 10 million, represent-CMS Energy's Executive Stock Option and Stock ing the amount that CMS Energy would have to pay to termi-Appreciation Rights Plan, an earlier plan approved by share-nate the agreements. The settlement of the interest rate swap holders, expired in 1995.110 wever, options and stock appreci- { agreements in 1996 did not materially effect interest expense. ation rights granted under this plan remain outstanding. At December 31,1995, CMS Energy would have paid $ 16 mil-Under both plans, for stock options and stock appreciation lion to terminate the agreements. Also refer to Note 14 for a rights, the exercise price on each grant date equaled the clos-discussion of CMS NOMECO's price hedging arrangements ing market price on the grant date. Options are exercisable and their fair values. Guarantees were $102 million and upon grant and expire up to ten years and one month from date $148 million at December 31,1996 and 1995, respectively. ofgrant. The status of the restricted stock granted to CMS The amortized cost of CMS Energy's nuclear decommis-Energy's key employees under the Performance Incentive sioning investments, which are considered available for sale Stock Plan and options granted under both plans follows. securities in accordance with SFAS 115, Accounting For Restricted Certain Im estments in Debt and Equity Securities, was Stock Options $351 million and $286 million as of December 31,1996 and Weighted-1995. The unrealized gain, which is classified m accumulated of"h o Sh s Excre se Price depreciation by Consumers, was $35 million and $18 million as of December 31,1996 and 1995. CMS Energy Common Stock: Outstanding at 11: Executive incentive Compensation January 1,1994 316,187 1,498,966 $ 23.61 Under CMS Energy's Performance incentive Stock Plan, Granted 133,500 273,000 $ 22.00 restricted shares of Common Stock of CMS Energy, stock Exercised or issued (39,361) (158,300) $ 15.64 options and stock appreciation rights may be granted to key Forfeited (79,970) employees based on their contributions to the successful man-Expired (123.000) $ 31.68 agement of CMS Energy and its subsidiaries. Awards under Outstanding at the plan may consist of any class of Common Stock of CMS December 31,1994 330,356 1,490,666 $ 23.50 Energy and are sisbject to performance-based business crite-Granted 253,337 304,000 $ 25.08 ria for certain plan awards. The plan reserves for award not Exercised or issued (43,939) (147,666) $ 14.52 more than three percent of CMS Energy's Common Stock Forfeited (22,307) outstanding on January 1 each year, less the number of shares Expired (55,000) $ 27.46 of restricted Common Stock awarded and of Common Stock Outstanding at subject to options granted under the plan during the immedi. December 31,1995 517,447 1,592,000 $ 24.50 ately preceding four calendar years. Any forfeitures are sub-Granted 222.000 368,176 5 30.55 ject to award under the plan. At December 31,1996, awards of Exercised or issued (92,533) (231,550) 5 20.79 up to 986,240 shares of CMS Energy Common Stock and 198,947 shares of Class G Common Stock may be issued. Restricted shares of Common Stock are outstanding shares with full voting and dividend rights. These awards vest over Outstanding at Dmnea 31, m6 6 m 38 1 H6.626 u6M five years at the rate of 25 percent per year after two years and are subject to achievement of specified levels of total share-Restricted shares of Class G Common Stock granted during holder return. Further, the restricted stock is subject to forfei-1996 and 1995 totaled 9,423 and 6,924, respectively. Options of ture if empk>yment tenninates before vesting. If performance Class G Common Stock granted at a price of $17.88 during objectives are exceeded, the plan provides additional awards. 1996 and 1995 totaled 11,000 and 10,000, respectively. Restricted shares vest fully if control of CMS Energy changes. as defined by the plan. At December 31,1996,541,088 shares of the 600,838 restricted shares of CMS Energy Common Stock outstanding are subject to performance objectives. At December 31,1996 all of the 16,347 restricted shares of Class G j Stock outstanding are subject to performance objectives. 0
l CMS Ewy Corpurutwo t The following table summarizes information about stock consolidated net income and earnings per share would have options outstanding at December 31,1996: been as follows:
""d'""l"'"***"*"'""""
Number Weighted-Weighted-Range of of Shares Average Average Pro Forma As Reported Exercise Prices Outstanding RemainingLife Exercise Price Years Ended December 31 1996 1995 1996 1995 $13.00 - $19.50 154,500 4.2 years $15.82 Consolidated Net income 5 239 $ 203 5 240 $ 204 519.51 - $29.00 851,450 6.5 years $23.59 Net income Attributable to $29.01 - $34.25 710.676 6.4 years $31.67 Common Stocks $13.00 - 534.25 1,716.626 5.2 years $26.24 CMS Energy 225 200 226 201 The weighted average remaining life of Class G Common Class G 14 3 14 3 Stock options is 9.2 years. Earnings Per Average The weighted average fair value ofoptions granted for Common Share CMS Energy Common Stock was $6.94 in 1996, $5.37 in 1995, CMS Energy 2.43 2.26 2.45 2.27 and $5.32 in 1994.The weighted average fair value ofoptions Class G 1.76 .34 1.82 .38 granted for Class G Common Stock was $1.59 in 1996 and $1.57 in 1995. Fair value is estimated using the Black-Scholes 12: Retirement Benefits model, a mathematical formula used to value options traded on Ibstrctirement Benefit Plans Other Than A>nsions: CMS securities exchanges, with the folk) wing assumptions: Energy and its subsidiaries provide certain health care and life insurance benefits for retired employees and their eligible Years Ended December 31 1996 1995 1994 dependents. Substantially all employees may become eligible CMS Energy Common Stock optioni for such benefits if they attain retirement status while working Risk-free interest rate 6.63 % 6.17 % 6.94 % for CMS Energy or its subsidiaries. CMS Energy and its sub-Expected stock-price volatility 24.08*'. 27.12 % 28.83 % sidiaries adopted SFAS 106, Employers 'Accountingfor Expected dividend rate 5.27 $.24 $.24 Ibstrrtirement Bemfits Other Than Pensions, efTective as of Expected option hfe 5 3 cars 5 years 5 years the beginning of 1992 and Consumers recorded a liability of $466 million for the accumulated transition obligation and a Class G Common Stock options corresponding regulatory asset for anticipated recovery in Risk-free interest rate 6.63 % 6.17% utility rates (see Note 19). CMS Energy's international sub-Expected stock-price volatility 16.19 % 16.19 % sidiaries expensed their accumulated transition obligation lia-Expected dividend rate 5.295 $.295 bility. The amount of such transition obligation is not material Expected option hfe 5 wars 5 years to the presentation of the consolidated financial statements or significant to CMS Energy's total transition obligation. The CMS Energy applies Accounting Principles Board MPSC authorized recovery of the electric utility portion of Opinion 25 and related interpretations in accounting for the these costs in 1994 over 18 years and the gas utility portion in Performance incentive Stock Plan. Since stock options are 1996 over 16 years. During 1995, the FERC granted granted at market price, no compensation cost has been rec. Consumers a waiver of a three-year filing requirement for ognized for stock options granted under the plan. The com-c st recovery with respect to its wholesale electric business. pensation cost charged against income for restricted stock At December 31,1996, Consumers had recorded a regulatory was $2 million in 1996, $3 million in 1995, and was less than asset and liability of $7 million. By early 1997, the FERC had $ 1 million in 1994. If compensation cost for stock options authorized recovery of these costs. CMS Energy funds the had been determined in accordance with SFAS No.123, benefits using external Voluntary Employee Beneficiary Aecountingjbr Stock-Based Compensation, CMS Energy's Associations, a legal entity, established under guidelines of i the Internal Revenue Code, through which the company can provide certain benefits for its employees or retirees. Funding ( of the benefits coincides with Consumers' recovery in rates. l l C 4
cusw cm,wum Retiree health care costs at December 31,1996 are based on SupplementalExecutiveRetirrmentPlan Certain man-the assumption that costs would increase 8.5 percent in 1997, agement employees qualify to participate in the Supplemental then decrease gradually to 6.0 percent in 2004 and thereafter. Executive Retirement Plan (SERP). SERP benefits, which The health care cost trend rate assumption significantly affects are based on an employce's years of service and earnings as the amounts reported. For example, a one percentage point defined in the SERP, are paid from a trust established and increase in each year's estimated health care cost assumption funded in 1988. Because the SERP is not a qualified plan would increase the accumulated postretirement benefit obliga-under the Internal Revenue Code, earnings of the trust are tion at December 31,1996 by $97 million and the aggregate of taxable and trust assets are included in consolidated assets. the service and interest cost components of net periodic postre-At December 31,1996 and 1995, trust assets were $30 million tirement benefit costs fbr 1996 by $ 11 million. and $28 million, respectively, and were classified as other Years Ended December 31 1996 1995 1994 ikfinedBen fit Pension Plan: A trusteed, non. Weighted average discount rate 7.75 % 7.50% 8.00 % contributory, defined benefit pension plan (Pension Plan) Expected long-term rate of return gg g g on plan assets 7.00 % 7.00 % 7.00 % on an employce's years of accredited service and earnings, Net postretirement benefit costs for the health care benefits as defined in the plan, during an e'aployee's five highest and life insurance benefits consisted of: years ofearnings. Because the pl m was fully funded, no con-tributions were made in 1996 and.'994. A contribution of g, $9 million was made in 1995. j - Years Ended December 31 1996 1995 1994 Service cost $ 13 $11 $13 Years Ended December 31 1996 1995 1994 Interest cost 42 40 41 Discount rate 7.75 % 7.50 % 8.00 % Actual return on assets (l4) (4) Rate ofcompensation increase 4.00 % 4.50 % 4.50 % Net amortization and deferral 8 1 Expected long-term rate of Net postretirement benefit costs $ 49 $48 $54 return on assets 9.25 % 9.25 % 9.25 % The funded status of the postretirement benefit plans is rec. Net Pension Plan and SERP costs consisted of: onciled with the liability recorded at December 31 as follows: u u num, i a udium, Years Ended December 31 1996 1995 1994 l i 1996 1995 Service cost $ 26 $ 23 $ 24 Actuarial present value of estimated benefits interest cost 58 56 51 i Retirees 5 330 $ 331 Actual return on plan assets (63) (168) 21 Eligible for retirement 66 46 Net amortization and deferral (6) 103 (85) Active (upon retirement) 190 200 Net periodic pension cost 5 15 $ 14 $ 11 i Accumulated postretirement benefit obligation 586 577 Plan assets (primarily stocks, bimds and money market investments) at fair value 138 78 Accumulated postretirement benefit obligation in excess of plan assets (448) (499) Unrecognized net (gain) loss from expenence different than assumed (36) 1 Unrecognized prior service cost 7 Recorded habihty $(477) $(498) The health care portion of the accumulated postretire-ment benefit obligation is $570 million and $562 million at December 31,1996 and 1995, respectively. O
i l l cung cwu. The funded status of the Pension Plan and SERP recon-scheduled to expire in November 1998 and provides for addi-ciled to the pension liability recorded at December 31 was: tional one-year extensions upon mutual agreement by the 1 parties. Upon termination of the lease, the lessor would be
i. umm, Pension Plan SERP entitled to a cash payment equal to its remaining investment, 1996 1995 1996 1995 which was $69 million as of December 31,1996. Consumers is responsible for payment of tares, maintenance, operating i
Actuarial present value of costs, and insurance. estimated benefits Minimum tental commitments under CMS Energy's non-Vested 5504 $496 5 21 5 20 cancelable leases at December 31,1996, were: Non-vested 72 74 1 I 1" umunu Accumulated benefit obligation 576 570 22 21 "P *
8 Provision for future pay increases 158 183 15 13 Leases Leases Projected benefit obligation 734 753 37 34 g
$ ag $9 Plan assets (primarily stocks and 199g 66 8 bonds, including $117 in 3999 14 7 1996 and SiO4 in 1995 in 2000 13 5 common stock of CMS 2001 11 5 ) Energy) at fair value 779 779 2002 and thereafter 14 29 Projected benefit obligationless than (in excess of) plan assets 45 26 (37) (34) 24 Less imputed interest Unrecognized net (gain) loss Present value of net minimum lease payments 142 frem experience different US""*"' P d" 3,9 Gan assumed (99) (69) 5 7 l Unrwognized prior service cost 39 43 2 2 Non-current portion $103 Unrecognized net Consumers recovers lease charges from customers and transition (asset) (27) (32) accordingly charges payments for its capital and operating Recorded liability 5t42) 5(32) 5(30) 5(25) leases to operating expense. Operating lease charges, includ-ing charges to clearing and other accounts for the years ended Beginning January 1,1986, the amortization period for the December 31,1996,1995 and 1994, were $8 million, $11 mil-Pension Plan's unrecognized net transition asset is 16 years and li n and $10 million, respectively. 11 years for the SERP's unrecognized net transition obligation. Capital lease expenses for the years ended December 31, Prior senice costs are amortized on a straight-line basis over 1996,1995 and 1994 were $46 mi!! ion, $46 million and the average remaining senice period of active employees. $43 million, respectively. Included in these amounts for the years Defined Contribution Plan: CMS Energy provides a ended 1996,1995 and 1994 are nuclear fuel lease expenses i defmed contribution 401(k) plan to all U.S. employees of $25 million, $25 million and $21 million, respectively. CMS Energy and its subsidiaries which are at least 80 percent owned and have adopted the plan. CMS Energy will match 14: commitments, contingencies and other at least one-half of the amount contributed by employees Em imnmenta/ Matters: Consumers is a so-called potentially up to 3% of their salary.These contributions to the plan are responsible party at several sites being adminit ned under the l invested in CMS Energy Common Stock. Amounts charged Comprehension Emironmental Response, Compensation and to expense for this plan were approximately $18 million in Liability Act (Superfund). Superfund liability isjoint and sev-1996 and $17 million in 1995 and 1994. eral and along with Consumers, there are numerous credit w rthy, potentially responsible parties with substantial assets 13: Leases emperating with respect to the individual sites. Based upon CMS Energy, Consumers, and Enterprises lease various past negotiations, Consumers estimates that its share of the i assets, including vehicles, rail cars, aircraft construction t tal liability for the known sites will be between $2 million equipment, computer equipment, nuclear fuel and buildings. and $9 million. At December 31.1996, Consumers has accrued Consumers' nuclear fuel capital leasing arrangement is $2 million for its estimated losses. O 1
,custwoc nwm n s i Under the Michigan Natural Resources and Environmental result of expenditures that will be made to comply with the Protection Act, Consumers expects that it will ultimately Clean Air Act. incur investigation and remedial action costs at a number of CapitalExpenditun>s: CMS Energy estimates capital sites, including some of the 23 sites that formerly housed expenditures, including investments in unconsolidated sub-manufactured gas plant facilities, even those in which it has a sidiaries and new lease commitments, of $965 million for partial or no current ownership interest. Consumers has pre-1997, $903 million for 1998 and $857 million for 1999. pared plans for remedial investigation / feasibility studies for Commitmentsfor Coaland Gas Supplies: Consumers has several of these sites. Four of the five plans submitted by entered into coal supply contracts with various suppliers for Consumers have been approved by the appropriate environ-its coal-fired generating stations. These contracts have expira-mental regulatory authority in the State of Michigan. Find-tion dates that range from 1997 to 2004. Consumers contracts ings for the two completed remedial investigations indicate for 60-70 percent ofits annual coal requirements which in that the expenditures for those two sites are likely to be less 1996 totaled $243 million (62 percent was under long-term than the amounts projected before the studies were performed. contracts). Consumers supplements its long-term contracts liowever, these findings may not be representative of all of with spot-market purchases to fulfill its coal needs. the sites. Data available and continued internal review have Consumers has entered into gas supply contracts with resulted in an estimate for all costs related to investigation various suppliers for its natural gas business. These con-and remedial action for all 23 sites of between $48 million tracts have expiration dates that range from 1997 to 2003. and $98 million. These estimates are based on undiscounted Consumers' 1996 gas requirements totaled 266 billion cubic 1996 costs. At December 31,1996, Consumers has accrued a feet (bef) at a cost of $747 million,80 percent of which was liability of $48 million and has established a regulatory asset under long-term contracts for one year or more. As of the for appmximately the same amount. Any significant change end of1996, Consumers had 35 percent ofits 1997 gas in assumptions, such as remediation technique, nature and requirements under such long-term contracts, and will sup-extent of contamination, and legal and regulatory require-plement them with additional long-term contracts and spot-ments, could affect the estimate of remedial action costs for market purchases. the sites. In accordance with an MPSC rate order issued in Other: As of December 31,1996, CMS Energy and March 1996, environmental clean-up costs above the amount Enterprises have guaranteed up to $102 million in contingent murrently being recovered in rates will be deferred and amor-obligations of unconsolidated affiliates and unrelated parties. tized over ten years. Rate recognition of amortization expense CMS NOMECO periodically enters into oil and gas price will not begin until after a prudence review in a general rate hedging arrangements to mitigate its exposure to price fluctu-case. The order authorizes current recovery of $ 1 million ations on the sale ofcrude oil and natural gas. As of annually Consumers is continumg discussions with certain December 31,1996, CMS NOMECO had contracts on insurance companies regarding coverage for some or all of the 13.8 bef ofgas for the delivery months ofJar.uary though costs that may be incurred for these sites. December 1997 at prices ranging from $1.92 to $2.80 per mil-The Federal Clean Air Act (Clear Air Act), as amended on lion British thermal unit (MMBru) and on 2.0 million barrels November 15,1990, contains provisions that limit emissions of oil at prices ranging from $ 19.50 to $22.90 per barrel. of sulfur dioxide and nitrogen oxides and require emissions CMS NOMECO paid $3 million for settlement ofJanuary monitoring. Consumers' coal-fueled electric generating units 1997 contracts on 1.6 befofgas. As of December 31,1996, the burn low-sulfur coal and are currently operating at or near the fair value of the remaining 1997 gas and oil contracts sulfur dioxide emission limits that will be effective in the year reflected a payment due by CMS NOMECO of $5 million. 2000. The Clean Air Act's provisions required Consumers to These arrangements are accounted for as hedges; accordingly, make capital expenditm es totaling $40 million to install gains or losses are deferred and recognized at such time as the equipment at certain geneauting units. Consumers estimates hedged transaction is completed. If there was a loss of corre-capital expenditures for in-process and proposed modifica-lation between the changes in (1) the market value of the tions at other coal-fired units to be an additional $35 million commodity price contracts and (2) the market price ultimately by the year 2000. Management believes that Consumers' received for the hedged item, and the impact was material, annual operating costs will not be materially affected as a the open commodity price contracts would be marked to O
CMS Ewy Corjautm market and gains and losses would be recognized in the fully supported Consumers' request and did not change the income statement currently. overall surcharge revenues collected from retail customers. CMS NOMECO also has one arrangement which is used to The MPSC ordered Consumers to file a report on the ade-fix the prices that CMS NOMECO will pay to supply gas for quacy of the surcharge revenues with the MPSC at three-year the years 2001-2006 by purchasing the economic equivalent intervals beginning in 1998. Consumers filed its decommis-of10,000 MMBtu per day at a fixed, escalated price starting at sioning plan for Big Rock with the NRC in 1995. $2.82 per MMBtu in 2001. The settlement periods are each a The NRC has approved the design of the spent fuel dry one-year period ending December 31,2001 through 2006 on storage casks now being used by Consumers at Palisades; 3.65 MMBtu. If the floating price, essentially the then current however, certain parties, inel uding the Attorney General. have Gulf Coast spot price, for a period is higher than the fixed petitioned the NRC to suspend Consumers' general license price, the seller pays CMS NOMECO the difTerence, ud vice to store spent fuel, claiming that Consumers' cask unloading versa. If a party's exposure at any time exceeds $5 million, that procedure does not satisfy NRC regulations. The NRC staff party is required to obtain a letter of credit in favor of the other has aviewed the petition and denied the request to suspend party for the excess over $5 million and up to $10 million. At Consumers' general license to store spent fuel. December 31,1996, the seller had arranged a letter of credit in Consumers has loaded 13 dry storage casks with spent CMS NOMECO's favor for $2.5 million. As of December 31, nuclear fuel at Palisades. In a review of the cask manufac- ) 1996, the fair value of this contract reflected $16 mill;on due to turer's quality assurance program, indications of minor flaws j the seller, representing the amount CMS NOMECO would in welds in the steel liner ofone of the loaded casks were have to pay to terminate the agreement. detected. Radiographic examinatisn of the casks has found all A number cflawsuits have been filed against Consumers other welds acceptable.The cask in which the minor flaws relating to the effect of so-called stray voltage on certain live-were detected continues to store spent fuel safely and there is stock. Claimants contend that stray voltage results when low-no requirement for its replacement. Nevemeless, Consumers level electrical currents present in grounded electrical plans to remove the spent fuel and insert it into a transportable systems are diverted from their intended path. Consumers cask. Bids are currently being taken for the design and fabri-maintains a policy ofinvestigating all customer calls regard-cation of the transportable cask. Consumers is monitoring an ing stray voltage and working with customers to address their investigation under way at another utility that also uses a dry concerns and has an ongoing program to modify the ground-storage cask system for spent nuclear fuel. The other utility ing of all customer services. As of January 1997, Consumers experienced an unexpected ignition of hydrogen gas follow-had 22 separate stray voltage lawsuits awaiting trial court ing the loading of a cask. Although the event caused no action, down from 30 lawsuits at Decembes 31,1995, and injuries or releases of radioactive material, and Consumers' 83 lawsuits at December 31,1994. procedures had already precluded a similar event, the NRC In addition to the matters disclosed in these note-has instructed utilities using the dry storage casks to take cer-Consumers and certain other subsidiaries of CMS Energy are tain additional precautions when loading or unloading casks. parties to certain lawsuiu and administrative proceedings Consumers maintains insurance coverage against property before various courts and governmental agencies arising from damage, debris removal, personal injury liability and other the ordinary course of business and involving personal injury, risks that are present at its nuclear generating facilities. This property damage, contractual matters, environmental issues, insurance includes coverage for replacement power costs dur-federal and state taxes, rates, licensing and other matters. ing prolonged accidental outages. Such costs would not be Estimated losses for certain contingencies discussed in covered by insurance during the firs' 21 weeks of any outage, this note have been accrued. Resolution of these contingencies but the major portion of such cost would be covered during is not expected to have a material impact on CMS Energy's the next twelve months of the r atage, followed by reduced financial position or results of operations. coverage to 80 percent for tv o additional years. If certain loss events occur at its own or o her nuclear plants similarly 15: Nuclear Matters insured, Consumers could iie required to pay maximum Consumers filed updated decommissiomng mformation with assessments of $23 million n any one year to Nu: lear Mutual the MPSC in 1995 which estimated decommissiom.ng costs Ltd. and National Electric lasurance Ltd.; $79 million per for Big Rock and Palin des. In April 1996, the MPSC issued an order in Consumers' nuclear decommissioning case, which C
1 ,cunnmy-s event under the nuclear liability secondary financial protec-17:51 ; M Cash Flowintonnation tion program, limited to $10 million per event in any one for purposes of the Statement of Cash Flows, all highly liquid year; and $6 million in the event of nuclear workers claiming investments with an original maturity of three months or less bodily injury from radiation exposure. Consumers considers are considered cash equivalents. Other cash flow activities the possibility of these assessments to be remote. and non-cash investing and fmancing activities for the years Consumers is required to make certain calculations and ended December 31 were: report to the NRC about the continuing ability of the Palisades i Mdw reactor vessel to withstand postulated pressurized thermal 3996 1995 1994 shock events during its remaining license life, in light of the Cash transactions embrittlement of reactor vessel materials over time due t Interest paid operation in a radioactive environment. Based on continuing (net ofamounts capitalized) $240 $207 $162 analysis of data from testing of similar materials, in income taxes paid (net of refunds) 82 34 36 December 1996, Consumers received an interim Safety i Evaluation Report from the NRC indicating that the reactor Non-cash transactions vessel can be safely operated through 2003, before reaching Nuclear fuelplaced under capitallease $ 28 5 26 5 21 I the NRC's screening criteria for reactor embrittlement
Other assets placed under capital leases 3
5 15 Consumers believes that, with fuel management designed t Common Stock issued to minimize embrittlement, Palisades might be operated to the acquire companies 90 end ofits license life in the year 2007 without annealing of Assumption of debt 20 the reactor vessel, but will continue to monitor the matter. Capitalleases refinanced 21 l 16: Jointly Dwned Utility Facilities Changes in other assets and liabilities as shown on the Consumers is responsible for providing its share of financ-Consolidated Statements of Cash Flows at December 31 are 1 ing for thejointly owned facilities. The following table indi-described below: cates the extent of Consumers' investment in jointly owned Jn Mahone utility facilities: 1996 1905 1994 in Mdhems Sale ofreceivables, net 5 23 $ 20 $(10) 1 December 31 1996 1995 Accounts receivable (28) (80) (15) Netimestment Accrued revenue (N2) (24) 20 l Ludington-51% 5116 $116 Inventories 43 (4) Campbell Unit 3-93.3% 329 332 Accounts payable 55 112 26 Transmission iinesaarious 35 33 Accrued refunds (13) (3) (3) Accumulateddepirciation Other current assets and liabilities, net 23 30 4 Ludington 5 84 $ 81 Non-current deferred amounts, net 10 (9) (6) Campbell Unit 3 252 238 S(12) $ 89 $ 12 Transmission lines 14 14 l 1 J O ~
cus tnery commam 18: Reportable Segments 19: Effects of the Ratemaking Process CMS Energy operates principaaly in the following five busi-The following regulatory assets (liabilities), which include ness segments: electric utility; gas utility; oil and gas explo-both current and non-current amounts, are reflected in the ration and production; independent power production; and Consolidated Balance Sheets. These assets represent probable natural gas transmission, storage and marketing, future revenue to Consumers associated with certain incurred The Consolidated Statements ofincome show operating costs as these costs are recovered through the ratemaking revenue and pretax operating income by business segment. process.These costs are being recovered through rates over Other segment information follows: periods of up to 16 years. An accounting standard, effective January 1996, requires in uaimo, Years Ended December 31 1996 1995 1994 impairment losses on long-lived assets to be recognized when an asset's book value exceeds its expected future cash flows Depreciation, depletion and amortization (undisc unted).The standard also imposes stricter criteria for Electric utihty 5 282 5 272 5 257 retention of regulatory-created assets by requiring that such Gas utility 87 83 76 assets & pdaW oUutumecovery nacMalance sheet Oil and gas exploration and production 55 52 41 date. There was no impact on financial position or results of independent power production H 4 2 perations upon adoption because management believes these j Natural gas transmission, storage aMs cwere e scusson, see NA and marketing 7 3 2 Forward-Looking information. l Other 2 2 1 l 5 441 5 416 5 379 l December 31 1996 1995 Postretirement benefits (Note 10) $ 460 5 487 Electric utilityra> 54,505 54,522 54,364 income taxes (Note 5) 158 176 Gas utihtytal 1,709 1,690 1,673 Abandoned Midland project 113 131 Oil and gas exploration and production 719 660 469 DSM-deferred costs 60 68 independent power production 1,053 840 536 Trunkline settlement 25 55 Natural gas transmission, storage Manufactured gas plant sites (Note 12) 47 47 and marketing 449 303 109 Power purchase contracts (Note 3) 44 l Other 180 128 227 Uranium enrichment facility 23 25 18.615 58,143 57,378 Ludington l'ish Settlement 14 Other IN 22 Capital expenditures /N Electric utility 5 310 5 328 5 35g Totai regulatory assets 5 918 51.055 Gas utility 137 126 134 Income taxes (Note 5) 5(224) 5(220) Oil and gas exploration DSM-deferred revenue (24) (25) l and productiono 88 168 115 Other (1) (1) Independent power production i42 239 29 Total regulatory habilities 5 (249) 5(246) Natural gas transmission, stor.ge i and marketmg i36 178 31 Other 66 14 5 5 879 51,053 5 672 ta) Amounts melude an artnbutedjmrnon of Consumeriother common auets to Imth the electrsc and gas utduv bus >nesses (bl facludes capualleasesfur nut leurfuel and other auen and electric Ikmandmde management (DSM1 cosa (see Statement of Cash iksy Amounu alw include an attnb-usedportwn of Consumers Tapaal expendnuwsforplant and equupment commun to both the electrsc and gas urdtrv bwneuen (c) includes common stod usuedfor asquusmons m IVV5 O
.,____..____m..___-- ..-,_.__.m ___m_.-_.___.. .~___-._.m.m. l i CMSEntry C.orporatwa l 20: Samunarlsed Pimensisiinsonneuse of 6 r. Under the PPA with the MCV Partnership discussed in Note 3, Consumers' 1996 obligation to purchase electric i capacity from the MCV Pannership was 15 percent of I Consumers' owned and contracted capacity. Summarized . financial information of the MCV Partnership follows: ' i f ' statenets ofincome in Millkms i i . Yeus Ended December 31 1996 1995 1994 l l Operating revenue /a) 5645- $618 $579 I . Operating expenses 417 336 '378 I Operating income 228 232 201 j Other expense, net 162 171 183 I i . Net income $ 66 5 61 5 18 j Balance Sheets I in Mans i I December 31 1996 1995 e Assets Current assets /h) 5 316 $ 257 l Property, plant and equipment, net 1,889 1,948 Other assets. 159 156 $2.364 $2.361 i Litbilities and Partners' Equity l Current liabilities 5 235 $ 219 Long-term debt and other non-eurtent liabilities M I,930 2,008 Partners' equityrd> 199 134 52,364 $2.361 I i fa) Rewnsepum Consumm ktaled $398 milhan. 3371 millwn and $334 millwnfor 1996, 199L and1994. respectiwly Ib) Recrisablespum Consumers wtaled 532 milhon and 348 million, et December JL { 1996 andlVVL respertswly. (c) FMLP k the sole beneficiary ofan owner aust that es the lessor in a long-erm dimt finance lease with the lessee, MCYnurtamhip. CMS fluidings holds e *6 4 percent own. I f ership interest in FMLP At December $1.1996 and 1991 lease ohhgations of $16 bdlwn wre omed k the omwer trust CMS fluidmgs ' share of the interest andprmcymtportion ? f>r the 1996 leasepayments mas $64 milhon and SH mahan, respecstwiv, andfu the . 1993 leasepayments nos $66 mulwn and $23 malmn, respecttwiv. The leasepayments serwce $1 I bdikm in nonsecourse debt outstandmg as ofDecember 31.1996 and 199L ofthe owner trust FMLP > debt is securrd by the MCV1%rtnership b lease ohhgatwas, assets, andoperatmg erwnues lbr 1996 and 1V91 the oueer-trust made debtpasenenn (includmg interrst)ofi192 mdhon. Id) CMS Midlandk recordedinmtment tn the MCVhurtnershsp includes capstaturd interest, maich is being amortaed M expense over the lyt ofits innstment in the MCVharmmhop. s - O f
W of W Putilic Accouritarits cust ca,,-tu. To CMS Energy Corporation: accounting principles used and significant estimates made We have audited the accompanying consolidated balance by management, as well as evaluating the overall financial sheets and consolidated statements ofpreferred stock of statement presentation. We believe that os audits provide a CMS Energy Corporation (a Michigan corporation) and sub-reasonable basis for our opinion. sidiaries as of December 31,1996 and 1995, and the related in our opinion, the fmancial statements referred to above consolidated statements ofincome, common stockholders' present fairly, in all material respects, the financial position of equity, and cash flows for each of the three years in the period CMS Energy Corporation and subsidiaries as of December 31, ended December 31,1996.These financial statements are the 1996 and 1995, and the results of their operations and their responsibility of the Company's management. Our responsi-cash flows for each of the three years in the period ended bility is to express an opinion on these financial statements Dt.cember 31,1996 in conformity with generally accepted based upon our audits. accounting principles. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance d d 4IP about whether the financial statements are free of material Arthur Andersen LLP misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the Detroit, Michigan fmancial statements. An audit also includes assessing the January 24,1997 Quarterly Financial and Common Stock information cust.,c e,a. In Millwns. Eurpt(W Shaw Amounts 1996 (Unaudited) 1995 (Unaudited) Quarters Ended March 31 June 30 Sept.30 Dec.31 March 31 June 30 Sept. 30 Dec. 31 Operating revenue 51,283 $938 5929 51,183 $ 1,117 $835 $869 $ 1,069 Pretax operating income 5 214 5156 5166 5 141 $ 206 $124 $149 $ 124 Consolidated net income 5 88 5 50 $ 58 5 44 $ 86 $ 33 $ 47 5 38 Earnings (loss) per average common share CMS Energy 5.83 $.54 5.65 $.43 $.99 $.37 5.54 $.37 Class G S 1.50 $.16 $(.28) $.44 $(.17) $.55 Dividends declared per common share CMS Energy 5.24 5.24 5.27 5.27 5.21 5.21 $.24 $.24 Class G $.28 5.28 5.295 5.295 S.28 $.28 Common stock prices'a' CMS Energy liigh 5 31% $31% $31% 5 33 % $ 24% $25% $26% $ 30 Low 527 % $ 28 5 29 5 30 $ 22% $22% $23% $ 26 Class G liigh 5 20 $19% 518% 5 19% $18% $ 18% Low $ 17% $17% $16% 5 17% $16% $ 17% ta) Based on hem kra semi Enhange - Composere transactiums O E
P3 ',"'"?"""** 1996 1995 1994 1993 1992 . Operating revenue (in millions) ($) 4,333 3,890 3,614 3,476 3,142 Consolidated net income (loss) (in millions) ($) 240 204 179 155 (297) Average common shares outstanding (in thousands) CMS Energy 92,462 88,810 85,888 81,251 79,877 Class G 7,727 7,511 Earnings (loss) per average common share CMS Energy ($) 2.45 2.27 2.09 1.90 (3.72) Class G ($) 1.82 .38 Cash from operations (in millions) ($) 661 682 612 484 456 Capital expenditures, excludes capital lease additions and DSM (in millions) ($) 659 535 575 550 487 Total assets (in millions) ($) 8,615 8,143 7,378 6,958 6,842 Long-term debt, excluding current maturities (in millions) ($) 2,842 2,906 2,709 2,405 2,725 Non-current portion of capital leases (in millions) ($) 103 106 108 115 98 Total preferred stock (in millions) ($) 356 356 356 163 163 Total preferred securities (in millions) ($) 100 Cash dividends declared per common share CMS Energy ($) 1.02 .90 .78 .60 .48 Class G ($) 1.15 .56 Market price ofcommon stock at year-end CMS Energy ($) 33% 29% 22% 25% 18 % Class G ($) 18% 18% Book value per common share at year-end CMS Energy ($) 17.02 15.16 12.78 1133 9.09 Class G (S) 11.19 10.56 Return on average common equity (%) I5.2 15.9 17.3 18.3 (33.2) Return on assets (%) 53 4.7 4.5 (2.3) Number of common shareholders at year-end 55,708 59,983 63,628 66,795 70,801 Number ofemploye.:s at year-end (full-time equivalents) 9.712 10.105 9,972 10.013 9,971 Electric Utility Statistics Sales (billions ofkWh) 37.1 35.5 34.5 32.8 31.6 Customers (in thousands) 1,594 1,570 1,547 1,526 1,506 Average sales rate per kWh (t) 6.55 6.36 6.29 6.28 5.82 Gas Utility Statistles Sales and transportation Viveries (bef) 448 404 409 411 384 Customers (in thousandsya> 1,504 1,476 1,448 1,423 1,402 Average sales rate per mcf ($) 4.45 4.42 4.48 4.46 4.55 Electric and Gas Non-Utility Statistics CMS Energy's sharc of unconsolidated independent power production revenue (in millions) ($) 493 497 385 334 284 Independent power production sales (millions of kWh) 7,823 7,422 6,216 5,019 4,057 CMS Energy's share of unconsolidated natural gas transmission, storage and marketing revenue (in millions) ($) 42 26 7 3 4 G:s marketed for end-users (bef) 108 101 66 60 45 Exploration and Production Statistics Sales (net equiv. MMbbis) 9.7 8.9 5.6 5.0 4.6 Proved reserves (net equiv.MMbbis) 122.6 111.2 93.3 69.8 70.9 Proved reserves added (net equiv. MMbbis) 21.1 26.8 29.0 3.9 15.0 Finding cost per net equiv. bbi ($) 2.94 5.06 5.92 4.97 4.88 ta) Excludes ofsystem sowportatum customers O
Share,holderinformation cusi.,c,r,-- e 1997 Annual Meeting: Consolidating Accounts: CMS Energy Corporation's 1997 annual meeting is scheduled To consolidate separate accounts into one account, contact for 10:30 a.m. on May 27 at the
Dearborn Inn,
Dearborn,
the Investor Senices Department. Michigan. Proxy material will be mailed in April. Shareholder Contacts: Stock Purchase Plan: Inquiries about stock ownership, change of address, dividend Investors can buy shares of CMS Energy common stock and payments, dividend reinvestment, or the Stock Purchase Plan Class G common stock directly through the Corporation's may be directed to: Stock Purchase Plan with no brokerage commission or serv-Investor Services Department (517)788-1868 ice charge. Other plan features include dividend reinvestment, 212 W. Michigan Ave. certificate safekeeping, direct deposit of dividends, automatic Jackson, MI 49201 investment, sale of shares and gifting of shares. For more information and a plan prospectus, please contact the Investor For financial and operating informa. ion, please contact: Services Department (517 788-1868). Investor Relations Department (517)788-2590 212 W. Michigan Ave. Stock Ownership: Jackson,MI 49201 As a CMS Energy shareholder, you have the option ofdirect stock ownership or indirect stock ownership. Under direct Octaining Reports: 1 stock ownership, the shares are registered in your name; you Shareholders may obtain without charge and exclusive enjoy the benefits of direct communication to and from of exhibits: CMS Energy's Form 10-K; a Financial and CMS Energy, and you can participate in the CMS Energy Statistical Supplement to the Annual Report; and an audio i Stock Purchase Plan. Under indirect stock ownership, your cassette recording of the annual report text. Please address shares are held in " street name" by a broker. (For more infor-all requests to the Investor Senices Department. mation on direct and indirect ownership, please contact the Investor Services Department for a copy of the brochure, CMS Energy common stock is h.sted on the NewYork Stock " Stock Ownership: What Every Investor Should Know.") Exchange under the symbol CMS. Class G common stock Direct Deposit and Automatic investment: is listed under the symbol CPG. CMS can deposit your dividends directly into your bank Transfer Agent, Registrar and Paying Agent: account. We also offer automatic investment from your bank Investor Services Department,212 W. Michigan Ave., account to purchase CMS common stock and Class G Jackson, Michigan 49201 common stock and keep your investment in CMS Energy growing. Please contact the Investor Senices Department for Trustee, CMS Energy Senior Deferred Coupon Notes: more information (517 788-1868). NBD Bank,611 Woodward Ave., Eliminating Duplicate Mallings: To maintain more than one account, but eliminate duplicate Trustee, CMS Energy General Term Notes: mailings of annual and quarterly reports, send the labels The Chase Manhattan Bank,450 West 33rd St., from company mailings to the Investor Services Department, New York, NewYork 10001-2697 indicating the names you wish to keep on the mailing list. (Dividend checks and proxy materials will continue to be sent to each account.) O
=. l CMS Ewy Cepwatwn l l CMS Energy Alan E Wright,51 CMS NOMECO 00 & Gas Co. CMS Gas Transmission WMiam T. McConnick Jr.,52 Seni r Vice President and yi,g,, y y,,g,,, 49 and Storage Chairman of the Board and Chief FinancialOmcer Chairman of the Board vloter A Frynne,49 ChicfExecutive Omcer John E Cemet,52 Garden L Wright,54 Chairman of the Board vinter A Fryens,49 Semor Vice Pres, dent, President and Wunsa A lisener,55 i President and Commumcations ChiefExecutive Omcer President and l ChiefOperating Omcer David A. RNkelents,48 Wunem H.Stephens M,47 Chief Executive Oflicer Michael G. Marris,50 SemorVice President and Executive Vice President John D. Kah===, 56 i Executive Vice President General Counsel and General Counsel Vice President, Engineering, Alan K Wright,51 Robert A. Fenech,49 Paul L Geiger,54 Operations and Construction Senior Vice President, Senior Vice President, Vice President, Themes L MNier,41 Chief Financial Omcer Nuclear, Fossil and Secretary and Treasurer Vice President, and Treasurer liydro Operations Business Analysis Rehmt A.Dunn,50 Rodger A. Kerehner,48 Dennis DePro,54 Vice President, Exploration aseren R.Wauski,46 Senior Vice President and Vice President and Controller g,g,,, g, ,, 49 Vice President, Finance l General Counsel Kenneth C. Emery,49 Vice President, Operations, Karl R.Willheid,40 John W. Clark,52 Vice President, Africa and Middle East Vice President Senior Vice President' InformationTechnology Communications and Operations Services N'h8 L Redmond Jr.,40 CMS Marketing, Services Vice President, Operations, and Tradin' James E Cesk,56 Carl L English,50 Western Hemisphere / Senior Vice President, Vice President, Southeast Asia
h' A E'F8"I' 49 Technology and Development Electric Transmission Chairman of the Board and Distribution CMS Generation Co.
IsachaelE IIstris,50 Senior Vice President, Derls F.GeMa,42 Victor A Feyung,49 President and Planning and Accounting Vice President Chairman of the Board Chief Executive Omcer and Treasurer John F. Broke,48 Rodney L Boulenger,56 Wuuse E Schivisy,50 Vice President, John L n===4 49 President and Executive Vice President and Human Resources Vice President, Chief Executive Officer ChiefOperating Omcer Retail Services Themes A. IAcIliek,59 Ilaren K. sheile,61 Robert D. Gebhant,37 Vice President and Secretary Thomas A. MolNah,59 Vice President, Vice President, Vice President Engineering and Construction Energy Marketing Lauro L Iseunionstie,40 a d Secretary themes K Eheerd,48 David B.Geyer,33 Vice President, Investor Relations Robert A Ilichsteen,57 Vice President, Operations Vice President, Vice President, Fossil and Asset Management Risk Management Consumers Energy and Hydro Operatimis Bounde E Fanswik,38 Reyel P. m Jr.,49 WNumm T. Mocennick Jr.,52 Themes A Palmisano,46 Vice President Vice President, Energy Chairman of the Board Site Vice President, and Gencral Counsel Management Services Vister A Fryling. 49 Palisades John E mphum J,,,46 CMS Electric and Gas Vice Chairman of the Board Paulli. Preksles,47 Vice President, 1 49 Michael E. Iserris,50 Vice President, Administration, Planning g President and Gas Operations and Development Chief Executive Omcer David V.Voigt,61 Joacph P.sesnesik,42 REchael G. Mervis,50 President Paul A. Elbert,47 Vice President, Vice President, Executive Vice President and PowerTransactions Development, Europe, Frank Johnson,49 f ChiefOperating Omcer, 0 international Offices Natural Gas Iserne R.Wouoki,46 Energy Distribution and David E Jees,43 Vice President, Finance General Manager of Asie-Siegspen' David E Weever,47 EDEER S.A. V Executive Vice President and Vice President, Asia e ChiefOperating Omcer, j Electric IJMr Amass-Seenseh j Frenelece A. as.-.a.t,60 3 Regional General Manager [ chse-sosNape J f Pedro A tiereies,46 Country General Manager 4 O
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ML20137F210

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ML20137F210

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