ML20206F613
| ML20206F613 | |
| Person / Time | |
|---|---|
| Site: | Palisades, Big Rock Point File:Consumers Energy icon.png |
| Issue date: | 12/31/1998 |
| From: | Haskell N CONSUMERS ENERGY CO. (FORMERLY CONSUMERS POWER CO.) |
| To: | NRC OFFICE OF INFORMATION RESOURCES MANAGEMENT (IRM) |
| References | |
| NUDOCS 9905060191 | |
| Download: ML20206F613 (70) | |
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%A o A CMS Enetgy Company Palisa&s Nuclear Plant Tet 616 764 2276 27780 Blue Star Memorial Highway fax: 616 764 2490 Covert. MI 49043 Director, licensing April 30,1999 f
U.S. Nuciear Regulatory Commission ATTN: Document Control Desk Washington, DC 20555 k
i DOCKET 50555 - LICENSE DPR BIG ROCK POINT DOCKET 50-255 - LICENSE DPR PALISADES PLAET 1998 CONSUMERS ENERGY COMPANY ANNUAL REPORT in accordance with the requirements of 10 CFR 50.71(b), attached is the 1998 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.
T Nathan L. Haskell f-Director, Licensing
.CC Administrator, Region Ill, USNRC Palisades Project Manager, NRR, USNRC o"g-
\\
Big Rock Point Project Manager, NRR, USNRC NRC Resident inspector - Big Rock Point NRC Resident inspector-Palisades
)
. Attachment c..D \\ b
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h 0 M 155 l
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ATTACHMENT CONSUMERS ENERGY COMPANY BIG ROCK POINT DOCKET 50-155 l
PALISADES PLANT 4
DOCKET 50-255 1
1998 CONSUMERS ENERGY COMPANY ANNUAL REPORT l
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Operating Statistics Electric Gas i Utility Utilid Business Description CMS Energy's diversified Tweirth-largest imestor-owned electric company
- Fifth-lj in U.S.
- 1.6 mill Operations Integrate experience
- i.6 minion eiectric customer
- i30 hiil
- 7,200 megawatts of electric generating capacity amongl and skills to create a total 6ssm mues or transmission and distribution
- 25,txx)l international energy P P*""
i I
infrastructure company.
1998 Operating Highlights
- Deinered 40 billion kilowatt-hours of electricity
- 1)elner
. hided 23.000 new electrie customers
- Installa Achiesed excellent plant.nailabihty ot b6 pei-
- knpleti a
cent at fossil pl.mts. Si percent at Pahsades clioice !
- \\lalor I wales fn and (
1999 Outlook Ilegin implementing electric deregulation in
- Compe accordance with Michigan Public Service choice l Commission orders utilitie'
- Achiese electric reliability of less than 150
- lixpan<
outage minutes numbe)
- Increase generating plant availability to consud 87.4 percent
- Install!
of mai; i
(ll'1 H A I IN(.
NALI%
HI VI Ntli DF
?606 4g 57
.m 44H
? $15
?.446
- Includes CMS finergy's share of unconsohdated revenue.
% 97 98 96 97 98 96
- Before intercompany chmm# ions.
- Year.cnd 1998. Subsequent acquintions or m service dates have increawd net mdes to about 16,70lt
Independent Oil and Gas Exploration Gas i y
Power Production and Production Storg 1
P'*TI'
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g j
m
. i rgest gas disiribution company in U.S.
- Fifth-largest U.S. deseloper and operator of Among the 30 largest independent oil and gas
- Intered fon gas customers independent power projects around the world companies in the U.S.
- Procesl on cubic feet of working gas storage.
- Interests in 35 operating power plants totaling
- hiichigan's largest independent oil and gas
- Proces the largest in the U.S.
8,000 gross megawatts producer Michit niles of transmission and distribution
- 6,500 gross megawatts under development and
- Prosed reserves of 183 million net equivalent in construction barrels d 360 bdhon cubic feet of gas
- Completed Cl Merdo/a espansion and llegan gas producoon m lumsia, following Acqui:
1 27,000 new gasscruces upgrade mmplenon of pipehne consu ucnon Acqui ented pilot program to gne customers
- GMR Va,asi plant in inJh began opeianng
= Increavd od and ge produenon by ~un.nuo
(;as ai
'f gas suppber in 1 NS net equnalent banels nules i narkenng campaign produtcu record
- Won ughts to bmid 710 megawatt plant in llegan dn!hne hrsi ucl' m Cole d'imne Reach Apphance Seruce I'lans and Heating Abu Dhabi t first major eneigy prisati/ anon A nt rir ihng Solunons projeu m Umted Arab Emiratest 13s6 Rea h megawatt plant m India and 710 megawatt Comp plant in Mielugan
- Asquired 150 megawatts of generatmg capacuy in Vene/ucla e aggressisely for customers in pilot a llegin operation of the National Power Supply * !!egin construction of 2,500 tons / day
- Ilegin
>rograms operated by other Michigan plant in Thailand methanol plant in Equatorial Guinea pipelin
- Ilegin construction of 250 megawatt Neyveli
- Increase focus on U.S. onshore gas exploration
- Ilegin <
gas distribution system to increase plant in India and production opportunities in Texas, Trunki of customers and the volume of gas a llegin construction of 250 megawatts of gas-Oklahoma and Wyoming, to increase ChtS
- Contir ed fueled peaking units in hiichigan domestic gas reserves portin
'6,000 new gas services and 650 miles
- Ilegin construction of 710 megawatt cogenera-
- Drill exploratory wellin Cameroon northe tion plant in Michigan
- !!egin,
pipeliri u
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ansmiss 'n, Energy Marketing, International
- and Processing Services and Trading Energy Distribution t
m 20,000 miles of pipeline
- 7,000 customers
- Electricity sales of 4.2 billion g capacity of I billion cubic feet / day
- Energy management and energy procure-kilowatt-hours
, largest volume of natural gas in ment services for industrial and commercial
- 992,000 customers i
customers
- Distribution lines totaling nearly
- Ntarkets the products of other ChtS a0iliates 35JXK) miles Goldfields pipchne in Australia
- Sold about MO bdhon cubic feet of natural
- Acquired 63 peicent ou nership interest 100 pereeni of Continental Natural gas and 7.000 pganatt-hour 3 of electricity in first electric distribution prnalization lieritage Gas Senices. with 4,000
- Traded 22 nulhon barreh of crude oil and sold in Venezuela cas gathering pipchne 1.2 nullion b.irrels of natural gas liquids
- Catagua/es tilrarill named "Utiht) of the new gas processu,y peaks at the lhe
- Acquired ow nership interests in two encrp)
Year" by leading business magazine as plants marketing firmt Premstar Locrgy Canada
- Increased ow nership position m Entre Rios agreement to acquire the Panhandle and Enhne I necg> Solutions boutheasiern I Argentina) utility U.S L acquired the Penns)hania customers of es Enenal
- Completed 560 energy management seruces pro.iect s cration of 585-mile GasAtacama
- Continue competing for gas customers in
- Focus on privatizations in tirazil, n Argentina and Chile Stichigan, New Jersey, Illinois, Pennsylvania Venezuela, hforocco, Poland and Turkey cration of Panhandle Eastern, and other states as deregulation unfbids
- Improve operations in Venezuela by
- Gas and Trunkline LNG companies reducing technical energy losses, deseloping Tristate pipeline, trans-implementing training, eliminating
- anadian gas from Chicago to the operating redundancy and third-party
- ern U.S.
outsourcing astruction of Powder River flasin ystems
()PI H A f lN G GAN MAHki Tl O O P t FI A T I N (.
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To Our Shareholders:
The year 1998 was another good year for CMS Energy. While earnings increased significantly over 1997. they did not meet our expectations, due largely to warm winter weather and low oil prices.
Ilowever,1998 was an exceptional year of development for the future as
$6 billion of acquisitions and new "greenfield" projects were successfully secured.These projects involve more than S3.5 billion of CMS Energy invest-ment that will contribute greatly to our earnings growth over the next five years.
Net income in 1998 increased 17 percent to 5285 million, and earnings per share grew 11 percent to 52.65.
~
The common dividend was increased 10 percent to $1.32 annually-the sixth straight year of double-digit increases. This financial growth reflects strong performances by our utility and diversified energy busi-nesses. Pretax operating income from C ONSOL ID AT E D diversified energy operations
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increased 33 percent, even though our exploration and production 2as business sutTered from the lowest 224 oil prices in 13 years.
l In Michigan, where our i
wiiimm r. Mccormick Jr. chairman ans cro tright>.
Consumers Energy utility operates, Victor 1. E ryling President and C00 thft >
weather in 1998 was the warmest in
'7 more than 75 years. This dramatically reduced home heating sales and caused a 14 percent drop in total natural gas deliveries. Ilowever, electricity sales were strong, with deliveries increasing nearly 6 percent and operating earnings up 10 percent. That, and operational improve-E AHNING5 ments in both the gas and electric businesses, helped the utility increase pretax renssAn operating income nearly 3 percent.
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c 96 97 %
Acquisition Positions CMS Atop Midwest Market The single most important development for CMS Energy last year was the agreement to acquire the Panhandle Companies for S2.2 billion--a I
strategically important group of natural gas pipelines and related facilities.
The transaction wasjust completed in March of this year.
This purchase establishes CMS Energy as the premier energy company serving the Midwest. The 10,400 miles of gas pipeline connect CMS produc-tion, gathering and processing facilities in the Texas and Oklahoma Panhandle with our Michigan gas distribution and storage operations. The result is a seamless energy network that covers the entire energy spectrum, from the wellhead to the customer, from the Mid-Continent and South all umomos n n the way to the Midwest.
wam This diversity will give CMS Energy important advantages as the country's utility industry is deregulated. That enbrt is already underway m Michigan, where Consumers Energy is midway through a three-year natural un gas pilot program to test customer reaction.
Electric deregulation is also progressing in Michigan. In March of this year, the Michigan Public Service Commission issued a final order that phases in competition beginning this fall, while providing Consumers
'6 Energy with full recovery of its stranded costs. The transition culminates in 2002, when all customers will have the opportunity to shop among compet-ing electricity providers.
,",".nu.
Record Growth for Diversified Energy
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CMS Energy's nonutility energy business, of course, is already highly competitive. CMS Energy again in 1998 proved that it is an industry leader, "1
both in the U.S. and abroad.
New business development reached 56 billion of acquisitions and new projects, including about S3.5 billion of CMS Energy investment. In addition to the Panhandle acquisition already discussed, these new acquisitions and development projects by CMS Energy or CMS-led consortia include:
A Sl.6 billion,1,886 megawatt natural gas-fueled power plant and 96 97 ss liquefied natural gas facility to be built in Tamil Nadu, India.
A 5700 million,710 megawatt natural gas-fueled power plant and 50 million gallons / day desalination project to be built in Abu Dhabi, United Arab Emirates.
A S300 million 710 megawatt natural gas-fueled cogeneration plant that will serve all the electric and steam needs of Ford Motor Company and Rouge Steel Company at the Rouge complex in
Dearborn,
Michigan. Excess electricity will be sold in the Midwest market.
- 4. CMS E Nt HGY COnPOH ATION
A S250 million interest in the 860-mile Goldfields Gas Transmission Pipeline in Western Australia.
A S400 million methanol production plant in Equatorial Guinea, western Africa, now under construction.
The acquisition, for $153 million, of Continental Natural Gas, a Tulsa, Oklahoma-based gatherer and processor of natural gas, as well as fleritage Gas Services, a company specializing in gas gathering and processing.
The 563 million acquisition of SENECA, an electric utility serving Venezuela's Margarita Island. It has 90,000 customers and 150 megawatts of generating capacity.
PHITAM The 560 million acquisition of a 50 percent ownership in a 300 megawatt
- naT =
tN f' OMt coal-fueled cogeneration plant nearing completion in Thailand.
-o, CMS Energy's success and growth have been widely recognized in the ha~"a'""a' energy industry. The Edison Electric Institute honored CMS Energy last year as g
.q the single best perfbrmer in terms of total return to shareholders over the past
[$N five years, presenting its 1998 eel 100 index of Investor-Owned Utilities Award.
M; And Indepem/ent Diergy magazine honored CMS Energy as one of the Top Ten "2
Developers of 1998.
Outlook The Panhandle, Continental and Goldfields acquisitions will all contribute to earnings during 1999. The Thailand generating plant will begin operating, and we recently finished construction of tl e GMR Vasavi generating plant in India.
A 5 St f $
In addition, the GasAtacama pipeline and power project-one of the largest energy projects in the world during the last several years-has just been completed. The pipeline transports natural gas from Argentina across the Andes f;,
Mountains to Chile's copper mining region. There, it fuels a generating plant that
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Qy has a crucial price advantage in the energy-intensive copper industry.
4,gg As a result of all of these activities, we expect 1999 to be another year of us strong growth for CMS Energy.
None of the successes I have discussed here would be possible without the hard work of many talented and dedicated employees. We are proud of our 10,000 CMS people and the additional 2,500 partnership employees, and tSank them for their contributions.
Finally, we thank our lioard of Directors for their wise counsel and conti' - m mg support.
5 T%
f William T. McCormick Jr.
Clutirman aml Chief Executive Officer
.i/ arch 29, /999
CMS ENERGY A Diversified Energy Infrastructure Company.
CMS ENERGY OCCUPIES A UNIQUE PLACE IN Tile ENERGY INDUSTRY.
Our expertise is unmatched. It spans all fuels. It reaches across every stage, from exploration to transportation, production and distribution.
It stretches from start to finish-financing, developing and operating.
This diverse experience is coupled with a tightly focused strategy:
We concentrate our operations in strategic geographic growth regions with the political will and commitment to expand their economies and compete in the global marketplace. The biggest opportunities are in countries that have both a large unmet or fast-growing need for energy and a commitment to the infrastructure necessary to support development.
We target projects that provide growth opportunities for a number of our businesses, not just stand-alone projects.
We invest internationally with strong local partners and employ comprehensive risk management techniques.
nW e
- 6. CMS ENERGY CORPORATION
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North America CMS Energy provides a breadth of electricity and gas capabilities matched by few others in the United States.
The energy chain starts with CMS Energy's exploration and produc-tion business, CMS Oil and Gas. Already active in the U.S. Gulf Coast, the company has expanded its drilling focus into the Mid-Continent and the Rocky Mountain regions, which will provide new gas supplies for the Panhandle and Trunkline pipelines.
CMS Oil and Gas is already the largest natural gas producer in
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northern Michigan's Antrim shale fields. The company has developed spe-
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cial production techniques to tap this unconventional gas source.
The gas is processed at CMS-operated facilities that also serve other producers. The plants exceeded design capacity in 1998, peaking at 357 mil-omsumers cncryy lion cubic feet per day.
imprused its vecruime rcr/ arm.mce The company is using its Antrim expertise with unconventional gas j
u hile adamy a supplies to develop 500,000 acres in the Powder River Basin in Montana
!!CH' ( U110lllCr5 and Wyoming. Natural gas will b produced from fractured coal seams and
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I then will be directed into a new gat'tering system to be built aad owned by i
CMS Energy.
Strong Transportation Link to Markets CMS Energy's extensive gathering, processing, storage and transportation network moves natural gas from the Mid-Continent, Gulf Coast and Canada to markets throughout the Midwest and eastern U.S.
I Acquisition of the Panhandle Companies is an important addition.
Built in part to serve Consumers Energy, its pipeline system is already con-nected to the utility's gas distribution and storage system in Michigan.
Its operations complement CMS Energy's purchase of Continental l
Natural Gas and fleritage Gas Services earlier in 1998. These companies purchase, gather, process and market natural gas and natural gas liquids produced in Texas and Oklahoma.
- 8. (N5 E NE RGY CORPOR Ah0N
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l The proposed Tristate pipeline progressed in 1998, signing long-term transportation agreements for about two-thirds of its projected capacity. [ f Tristate will connect the Chicago area with Michigan and pipelines moving e { natural gas to eastern U.S. markets. c i Utility Operations t The cornerstone of CMS Energy's domestic operations continues to be oriwn br a Consumers Energy. The company provides electricity and natural gas to urong unnomy. 3.2 million customers throughout the state's Lower Peninsula. Lonwmcrs Energy.a clurric deliwrics Consumers Energy improved its operating performance again in 1998. increased Operating and maintenance expenses ranked among the lowest of the i o f>cr<cni. nation's large utilities. Gas leak response time-already an industry bench-mark-improved to an average of 27 minutes. Driven by a strong Michigan economy, electric deliveries rose 6 percent to 40 billion kilowatt-hours. The warmest winter weather since 1921 depressed the heating market and gas sales. Gas deliveries declined 14 percent to 360 billion cubic feet. i Consumers Energy successfully completed the lirst year of a pilot pro-l l gram that tests natural gas deregulation. The experiment lets a limited num-ber of customers shop elsewhere for their gas supply. Approximately 100,000 customers participated during 1998, the full amount allowed for the year. 7'he nonutitu3 in March 1999, the Michigan Public Service Commission issued gas transmissi"" a final order that phases in electrie deregulation. Beginning this fall, a system grew as a result of limited number of customers will be able to buy electricity from alternate acquisitions in suppliers. By 2002, all customers will be able to participate. the us Energy Production Consumers Energy's generating plants had excellent availability in 1998-86 percent at fossil plants and 81 percent at the Palisades nuclear plant.
- 12. CMS E NE RGY CORPOR AHON
I I A partnership led by CMS Energy's independent power generation business has started building the first large-scale power plant to be located in Michigan since 1990. This 710 megawatt plant will be located in
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at an automotive and steel manufacturing complex operated by Ford Motor and Rouge Steel. Excess electricity will be sold to industrial customers or utilities. The project includes a peaking turbine, scheduled to begin operating this summer. Elsewhere in the state, CMS Energy plans to add about 250 mega-watts of gas-fired peaking plants, Ibr use primarily in summer months. ~ ^ CMS Energy's existing independent power plants performed well last year. Its U.S. facilities total about 2,200 megawatts, with the majority of them located in the northeastern part of the country. Four of the plants set lifetime records fbr earnings and three set records for availability or capacity. The 1,370 megawatt Midland Cogeneration Venture also marked a cus I:,u rgy's '""'A r'i"0"* record year, setting a lifetime record Ibr earnings and averaging 99 percent sidiary wid nearly availability on its 1,240 megawatt contract to Consumers Energy. cfya,,j,,,c, as,n,y h clectriatr as the previous year. Energy Marketing and Services CMS Marketing, Services and Trading (CMS MST) dramatically increased the volumes of commodities marketed in 1998. The amount of electricity marketed increased eightfbid from the previous year to about 7,000 gigawatt-hours, enough to power Boston, Atlanta and Detroit for one year. Other volumes included 370 billion cubic feet of natural gas,22 million barrels of oil and nearly 1.2 million barrels of natural gas liquids. The energy services business grew substantially. with 560 energy services assignments performed. The company also made inroads into new markets in Canada, Pennsylvania and the southeastern U.S. CMS MST has been active in Pennsylvania's deregulated electricity market, and in 1998 acquired the assets of an energy marketing firm that has more than 300 commercial and industrial customers in the western part of the state.
- 13. CMS E NE RGY CORPOR ATION
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South America With its aggressive pursuit of energy privatization and important position in the 200 million population Mercosur market. Argentina has been a showcase for CMS Energy. GasAtacama, the $750 million pipeline and power plant project,is the most recent achievement. The pipeline carries, for the first time, nat-ural gas from northern Argentina's production fields,585 miles across the Andes Mountains to the Pacific coast of northern Chile. There, the gas fuels a CMS generating plant that will substantially lower the cost of elec-tricity to the region. The pipeline was built in just 14 months. The power plant's first unit will produce 355 megawatts; ultimately, the plant will be expanded to 740 megawatts. Customers include electrie dis-tribution utilities in the north and Minera Escondida, which is expanding operations to become the world's largest copper mine. Between 50 and 60 percent of the pipeline's capacity is already under contract. In addition to the power plant, gas customers include Chilean c.its Encrufsfirst gre entieldplant distribution company Chilquinta S.A., which is planning to build a natural jy smy3 3,,,jrg, gas distribution system in the region. c.its en3cnada. ran wellin CMS Energy also is part owner of the 3,100-mile Transportadora de ,,g,g g,gg, Gas del Norte (TGN), one of Argentina's primary high-pressure pipeline "/ "ecrati"n-systems. TGN expanded capacity by 17 percent in 1998 to 1.5 billion cubic feet per day. This spring, TGN will build a 270-mile pipeline connecting Argentina with Brazilian markets. It will be the first direct connection between pipeline systems in the two countries. TGN also supplies gas to CMS Energy's Mendoza generating plant. In 1998. CMS completed refurbishing the plant and doubling its capacity to 540 megawatts. Four turbines were converted to natural gas and a high-elliciency combined-cycle gas turbine was installed.
- 15. CMS E NE RGY CORPOR ATION
l l 1 I CMS Energy's other Argentine generating plants are operating well. Plentiful water helped the El Chocon and Arroyito hydro plants operate at almost full capacity for the first half of 1998. CMS Ensenada completed its first full year of operation, supplying steam and electricity to YPFs largest Argentine refinery. EDEERSA, CMS Energy's electrie distribution company about 3(X) miles northeast of Buenos Aires, improved its operating perfbrmance. Although a cold summer and warm winter slowed energy sales, operating elliciencies reduced the impact of weather. EDEERSA saved Si million by reducing purchased power costs. CMS Energy also completed its first full year of ownership interest in Brazilian electrie distribution companies Cataguazes and Energipe. Their operating and maintenance cost per customer outperfbrmed the aver-age 11razilian utility's cost by 38 percent. Cataguazes was named " Utility of the Year" by 3/odern liicctricity. The Trainr"riadora in recognition of commercial and technical performance and low energy de Gas del Norte losses. Energipe president Marcelo Silveira da Rocha was named the state ,,,p<fjyc j,, .irgenm,a hax of Sergipe's " Outstanding Executive of the Year" by a leading Brazilian busi-gron n by.'O pcri cnt ,jy,,. j yy, ness magazme. CMS Energy also purchased the Venezuelan electrie distribution company, SENECA. It senes over 90,000 customers on Margarita Island, which has a tourism-based economy. The utility acquisition included a 150 megawatt power plant. Venezuela holds promise Ihr the company's oil and gas exploration and production activities. Three newly completed wells in the Colon Block in western Venezuela helped push gross production in the block to more than 12,(X)0 barrels of oil per day. Performance in the Oriente Block in Ecuador was also outstanding. Production increased to 50.0(X) barrels of oil per day, limited by a lack of pipeline capacity, while production costs were held to 52.36 per barrel.
- 16. CNS E NE PGv ConPOH ADON
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a,.a.,.; '._.,.n..p,4 ..f.. J _. f15 _ w;.,-. y-,Q-., W -,' v.. e. y; i. ,'.,.,e j'g .. i,, 5_ =- *- '. '5 q 4% e, ,..y- ,,,,, } I t- .+ +. ' ..,.e g ) '4 +., ~.,. ' + Africa / Middle East CMS Energy became the leader in Middle East power development in 1998 when it won a bid to finance, build and operate the first major energy privati-zation project in the United Arab Emirates (UAE). Called Al Taweelah A-2, the project includes a 710 megawatt, natural gas-fueled plant, and a water desalination plant capable of producing 50 mil-tion imperial gallons of water per day. The first unit is expected to generate electricity in 2000. The project will help fill the UAE's soaring demand for water and electric power. CMS Energy already has built a reputation in the region for energy privatization with its success at the Jorf Lasfar power plant in Morocco. In b r its first full year of operating the plant, CMS Energy has improved availability, emeiency, coal unloading, environmental compliance and safety. Plant availability exceeded 91 percent. Construction to more than double { generating capacity is ahead of schedule and under budget. When the new units enter commercial operation in 2000, the 1,356 megawatt Jorf Lasfar The o,me/citan plant will provide about one-third of the country's total electricity supply. in Dmhiaprmida,d CMS Energy also completed a strategically important pipeline in ots Encrer unh em enmomical southern Tunisia. The 10(kmile pipeline provides, for the first time, an eco-nomical way to market production from CMS Energy-operated natural gas naturalrus and mn-and condensate fields in the Sahara Desert. With a capacity of 45 million cubic feet per day, the pipeline can handle more than three times current production levels. Late in 1998, CMS Energy successfully tested one new well in the region, and is drilling a second. l l
- 19. CMS E NE RGY COHPOR AliON k
CMS Energy's principal oil production in Africa is from an area olTshore of the Republic of Congo. The oil is pumped directly into a self-contained production vessel anchored at the site. The ship can store over i million barrels of oil, and otiloads directly onto other ships for trans-portation to market in 1998 Congo production totaled 1.5 million net barrels of oil equivalent, an increase of 2 percent; proved reserves totaled 18 million net barreis of oil equivalent. CMS began building a S400 million methanol plant in Equatorial Guinea; it is expected to begin operation in 2001. The plant will produce 2,500 metric tons of methanol per day, using existing natural gas reserves that are part of the Alba field operated by CMS Energy. Net production from the Alba tield in 1998 grew to 1 million barrels of oil equivalent and 200,000 barrels of liquefied petroleum gas. Asia / Australia j CMS Energy is the largest foreign energy developer in India, with two generating plants operating and two more in development. cats Energy The potential is enormous. India is already the world's sixth-largest wul co.own and energy consumer, and this market continues to expand despite the economic co-operate the 330 mcyawait sluggishness afrecting other parts of the region. Electric supply is about laAuradi thermal E "'C"' b*'** *
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po,cr plant in Ghana. nrcoedto The GVK Industries gas-fired plant, which CMS Energy completed begin ca.nunera tal in 1997, was India's first internationally-owned and operated power plant. operation in im The CMS-operated plant finished its first full year of operation in 1998. At year-end, CMS Energy began generating electricity ahead of schedule from its second plant, GMR Vasavi, in southeast India. Together, these plants total 435 megawatts of generating capacity. I 1
- 20. CMS ENE AGV CORPOR AllON l
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' - ~ - ; -s;- - Construction will begin this year at the 250 megawatt Neyveli plant in southern India. CMS will operate the lignite coal-fueled plant when it begins commercial operation in 2001. And at year-end, a CMS Energy-led consortium won a bid to build a 51.6 billion power and LNG gasification facility on India's east coast. It is the largest energy infrastructure project in the state of Tamil Nadu. It .ncludes an 1,886 megawatt gas-fueled plant and 2.5 million tons per year liquefied natural gas facility. Elsewhere in Asia, the 300 megawatt National Power Supply plant in Thailand will be completed tt ; spring. Located in an industrial park cast of f_ Bangkok,60 percent of the plant's capacity will be sold to the Electric Generating Authority of Thailand under long-term centract. The remainder, as well as process steam, will be sold to industrial park tenants. CMS also formed a partnership that purchased 88 percent of the 860-rhe Los knxplant mile Goldfields pipeline system in western Australia. The pipeline can deliver '" d " "'"#'" 88 million cubic feet per day of natural gas into the country's nickel and gold a< hieved worl<!-clan vreratinr ecr/ormance mining region. With production costs that are among the lowest in the world, In 194K these mines are expected to provide a steady gas market. The Goldfields sys-tem complements CMS Energy's 260-mile Parmelia pipeline, which was the first to bring natural gas to the Perth metropolitan area. The 2,000 megawatt Loy Yang plant completed a year of world-class performance. The plant established new lifetime standards in availability, capacity, forced outage rate and plant emissions. The Australian Environ-mental Protection Agency honored Loy Yang's environmental program with its highest recognition. And for the second straight year, the Australian National Safety Council gave the plant its highest rating. I t
- 22. CMS ENERGY CORPORATION
n Selected Unaudited Proportionate Data - i in Millions Years Ended December 31 1998 1997 1996 Operating revenue 5 6,358 $ 5,672 $4,809 Operating expenses 5.238 4,746 4,005 Pretax operating) income ~ I,120 926 804 Fixed charges (d 638 538 427 l Other income (expenses), net (24) (7) I j income before income taxes ' 458 381 378 Income taxes _ 173 137 154 Net income 5 2N5 5 244 5 224 ' Operating cash flow (b) ' $ 1,724 51,505 51,319 . (a) Thed charges include interest on long-term debt, preferred dividends. and Trust Preferred Securities' distributions less capitali:ed interest. (b) Pretax operating income plus depreciation and amorti:atwn. Because significant 50 percent or less owned investmente of international energy investments and $100 million (20 per-CMS Energy are not consolidated, CMS Energy believes that cent) associated with increases in cost related to the 1997 the discussion below of certain proportionate data enhances investments previously described. The $100 million increase an understanding and assessment of its results of operations. in fixed charges includes $33 million (33 percent) of interest The table above sets forth the major components of CMS charges associated with new international energy invest-Energy's net income for each of the last three years on a ments and an increase of $45 million (45 percent) in inter-proportionate accounting basis. Proportionate accounting est charges relating to Loy Yang and Jorf Lasfar. reflects CMS Energy's pro rata ownership interest in its energy Of the $863 million increase in 1997 operating revenue, . projects and investments. Except for certain industries, pro- $350 million (40 percent) is attributable to operating revenue portionate accounting is not in accordance with generally from investments in 1997 (Loy Yang, Jorf Lasfar and Texon). accepted accounting principles. The 5741 million increase in operating expenses includes a Of the 5686 million increase in 1998 operating revenue, $271 million (36 percent) increase in expenses for these same $169 million (25 percent)is attributable to operating revenue three 1997 investments. The $111 million increase in fixed from 1998 investments by the international energy distribution charges includes 560 million (54 percent) of interest charges i segment, and an increase of $161 million (23 percent) in rev-associated with Loy Yang and Jorf Lasfar, { enue associated with investments made in 1997 (CMS Gener-For further information, refer to the Management's ation's Loy Yang and Jorf Lasfar projects, and CMS MST's Discussion and Analysis. Texon acquisition). The 5492 million increase in operating expenses includes $123 million (25 percent) related to 1998 i n CMS ENERGY CORPORATION L1 r= Management *s Discussion and Analysis L CMS Energy Corporation (CMS Energy)is the parent holding company of Consumers o l Energy Company (Consumers) and CMS Enterprises Company (Enterprises), Consumers l is a combination electric and gas utility company serving the Lower Peninsula of Michigan and is the principal subsidiary of CMS Energy. Enterprises is engaged in several domestic and international energy-related businesses including: acquisition, development and opera-tion of independent power production facilities; oil and gas exploration and production; transmission, storage and processing of natural gas; energy marketing, services and trad-ing; and international energy distribution. Thie Annual Report contains forward-looking statements, as The increase in consolidated net income for 1998 over 1997 l defmed by the Private Securities Litigation Reform Act of 1995. resulted from increased earnings from the electric utility; inde-Where any such forward-looking statements include a statement pendent power production; natural gas transmission, storage l of the assumptions underlying forward-looking statements. and processing; and marketing, services and trading businesses. l CMS Energy cautions that, while such assumptions are believed Partially offsetting these increases were lower earnings from the - to be reasonable and are made in good faith, assumed results gas utility, exploration and production and international energy l almost always vary from actual results and differences between distribution businesses, the recognition of a $37 million loss assumed and actual results can be material. The type of ($24 million after-tax) for the underrecovery of power costs l assumptions that could materially affect the actual results are under the power purchase agreement between Consumers and discussed in the Forward Looking statements section in this the Midland Cogeneration Venture Limited Partnership (MCV Management's Discussion and Analysis. More specific risk Partnership), and higher interest expense. j, factors are contained in various public filings made by cms The increase in consolidated net income for 1997 over 1996 l Energy with the securities and Exchange Commission (sEC). resulted from increased income from the electric utility; inde-This Annual Report also describes material contingencies in the pendent power production; and natural gas transmission, stor. Notes to Consolidated Financial statements and the readers are age and processing businesses. Partially offsetting these increases encouraged to read such Notes, were lower incomes from the gas utility and exploration and production businesses, coupled with higher interest expensc. For further information, see the individual results of Results of. Operations operations for each cms Energy business segment in this Management's Discussion and Analysis. CMS ENERGY CONSOLIDATED EARNINGS in Afillions. Except Ikr Share Amounts CONSUMERS' ELECTRIC UTILITY . Years Ended December 31 1998* 1997 Change RESULTS OF OPERATIONS l I - Consolidated Net income. 5 2N5 -5244 5 41 Eleciric Pretax Operating Income: L Net income Attributable to Common Stocks: In Afillions cms Energy 272 229 43 Change Compared to Prior Year 1998 w 1997 1997 vs 1996 8 Earn n s Per Average Common Share: d o ts $40 55 cms Energy Lower power supply cost per k%h 20 L Basic - 2.65 2.39 .26 Rate increases and other l-Diluted 2.62 2.37 .25 non-commodity revenue (4) 1I Class q Operation and maintenance (3) 24 Basic and Diluted 1.56 1.84 (.28) General taxes, depreciation and other (10) (19) (a) includes the cumulative ejfect of an accounting changefor property Totalincrease (decrease)in pretax taxes which increased net income by $43 million or 5.40 per share-basic ope 7,,;ag,com, $43 $2g g anddiluted-for one of two classes of common stock of CAf5 Energy. par value 5 01 per share (Chis Energy Conumm Stock) and $12 million i or $.36 per share-basic and diluted-for one of two classes of common stock of CMS Energy. no par value (Class G Common Stock). r a4. CMS ENERGY CORPORATION u L7ectric Ddircries: Total electric deliveries in 1998 were 40 bil-ship; and (viii) Big Rock Point nuclear power plant decommis-lion kilowatt-hours (kWh), an increase of 6 percent over 1997. sioning issues and ongoing issues relating to the storage of spent The increase is primarily attributable to an increase in sales fuel and the operating life of Palisades nuclear power plant (Pal. between utility systems and a 3 percent increase in deliveries to isades). For detailed information about these trends or uncertain-ultimate customers. Total electric deliveries in 1997 were 38 bil-ties see Note 3," Uncertainties," incorporated by reference herein. lion kWh, an increase of 2 percent over 1996 deliveries. The increase in 1997 was the result of continued economic growth in CONSUMERS GAS GROUP Michigan and a i percent increase in deliveries to ultimate cus-RESULTS OF OPER ATIONS tomers, primarily within the industrial class. Gas Prelax Operating Income Power Supply Costs: Cost increases in both 1998 and 1997 la Afillio"3 over the prior periods reflect increased power purchases from Change Compared to Prior Year 1998 n 1997 1997 ss 1996 outside sources to meet increased sales demand. In addition, the sales $06) 5(13) 1998 cost increase reflects higher internal kWh generation to sa\\ cost]e ~ uce s e e, ret i meet the increased demand for electricity. The following table services activities I (9) quantifies the changes in electric power costs: Operation and maintenance (i) 24 General taxes, depreciation and other (10) (7) Years Ended In Afillions Totalincrease (decrease)in pretax December 31 1998 1997 Change 1997 1996 Change operating income $(27) 5(5) $1,175 51,139 $36 51,l39 51,087 552 Gas Delircries: System deliveries in 1998, including miscella-Consumers purchased $5 million of energy options to ensure a neous transportation, totaled 360 billion cubic feet (bef), reliable source of capacity during the summer months of 1998. a decrease of 60 bef or 14 percent compared to 1997. The As a result of weather conditions and fluctuations in the price decreased deliveries for 1998 compared to 1997 reflect warmer of electricity, some options were sold totaling $11 million dur. temperatures in 1998. System deliveries in 1997, including ing June. July, and August 1998. All of the remaining options miscellaneous transportation, totaled 420 bef, a decrease of have expired. The costs relating to the expired options and 28 ber or 6 percent compared to 1996. The decreased deliveries inconm received from the sale of options were reflected as for 1997 c pared to 1996 reflect warmer temperatures in 1997 purchased power costs. and the loss of an extra day for the 1996 leap year. Uncertainties: CMS Energy's financial position may be Cost of Gas SoM: The cost decrease for 1998 was the result of affected by a number of trends or uncertainties that have, or decreased sales and decreased gas prices. The cost decrease for CMS Energy reasonably expects could have, a material impact 1997 also was the result of decreased sales and lower gas prices on net sales, revenues, or income from continuing electric opera. Years Ended in Afillions tions Such uncertainties are: (i) environmental liabilities arising December 31 1998 1997 Change 1997 1996 Change from compliance with various federal, state and local environ- $%4 $694 $(130) $694 $730 $(56) mental laws and regulations, including potential liability or expenses relating to the Michigan Natural Resources and Envi-ronmental Protection Act and Comprehensive Environmental Uncertainties: CMS Energy's financial position may be affected Response, Compensatioa and Liability Act;(ii) capital expendi-by a number of trends or uncertainties that have, or CMS tures for compliance with the federal Clean Air Act, as Energy reasonably expects could have, a material impact on net sales r revenues r inc me fr m e ntinuing gas operations. amended (Clean Air.Act); (iii) suits by two independent power producers alleging antitrust violations and economic losses due Such uncertainties are: (i) potential environmental costs at a to special electric contracts signed by Consumers; (iv) cost number of sites, including sites formerly housing manufactured recovery relating to the natural gas-fueled, combined-cycle gas plant facihties:(ii) a statewide experimental gas transporta-cogeneration facility (MCV Facility) and nuclear plant invest-tion program; and (iii) implementation of a frozen gas cost ments and an experimental direct access program; (v) electric rec very and initiatives undertaken to protect against gas price industry restructuring;(vi) implementation of a frozen power increases. For detailed information about these uncertainties see supply cost recovery and initiatives to be undertaken to reduce Note 3, " Uncertainties," incorporated by reference herein. exposure to high energy prices:(vii) after-tax cash underrecov-eries associated with power purchases from the MCV Partner.
- 25. CMS ENERGY CORPORATION
f Management's Discussion Continued I lMOEPENDENT POWER PRODUCTION CMS Oil and Gas' net plant and property and deferred tax liabdity RESULTS OF OPERATIONS of $270 million and $95 million, respectively, and a $15 million Pretax Operating Income Pretax operating income for 1998 decrease in CMS Gas Transmissioils equity investment in Nitrotec. increased $48 million (50 percent) from the comparable period in 1997. This increase primarily reflects increased operating income NATURAL G AS TR ANSMISSION, STOR AGE AND PROCESSING from international plant earnings and fees, a $26 million gain on RESULTS OF OPER ATIONS the sale of two biomass project power purchase agreements, and Prcrax Operating Income: Pretax operating income for 1998 a $9 million gain on the sale of two biomass plants, partially oft. increased $6 million (22 percent) from the comparable period in set by higher net operating expenses and a scheduled reduction 1997. The increase primarily reflects a gain on the sale of Petal in the industry expertise service fee income earned in connection Gas Storage Company, a gain on the sale of Australian gas i with the 2,000 megawatt (htW) brown coal-fueled Loy Yang A reserves, and lower operating expenses, partially offset by a i power plant and an associated coal mine in Victoria, Australia decrease in earnings from international operations. Pretax operat-(Loy Yang). Pretax operating income for 1997 increased $28 mil. ing income for 1997 increased $10 million (59 percent) from 1996. lion (41 percent) from 1996, primarily reflecting increased inter-The increase primarily reflects income attributable to an Aus-national earnings, higher electricity sales by the MCV Facility, tralian pipeline acquired in 1997, higher income from domestic and the industry expertise service fee income earned in connec-and international operations, a larger restated loss from Nitrotec tion with Loy Yang in 1997, These increases were partially offset in 1996 subsequent to converting to the successf ul efforts method by the absence of certain 1996 nonrecurring gains, including the of accounting, and a gain on the sale of a portion of the Crescent l gain on the sale of a power purchase agreement. and Ames gas gathering systems and processing plant in Okla-homa. These increases were partially ofTset by the 1996 gain 1 OIL AND GAS EXFLOR ATION AND PRODUCTION resulting from the dissolution of the Moss Bluff Gas Storage RESULTS OF OPERATIONS Systems and Grand Lacs Limited Partnerships. Pretar Operating Income Pretax operating income for 1998 decreased $20 million (77 percent) from the comparable period MARKETING, SERVICES AND TRADING in 1997. This decrease is the result of lower oil prices and a gain RESULTS OF OPERATIONS in the prior period from the sale of CMS Oil and Gas Com-Pretax Operating Income Pretax operating income for 1998 pany's (CMS Oil and Gas) (formerly CMS NOM ECO Oil & increased $9 million from the comparable period in 1997. This Gas Co.) entire interest in oil and gas properties in Yemen, par-increase is the result of improved margins on electricity and gas tially offset by increased oil production, decreased exploration sales combined with increased electric and gas sales volumes, expenses, and decreased depreciation, depletion and amortiza-partially offset by additional operating costs relating to growth tion expenses. Pretax operating income for 1997 decreased objectives. Pretax operating income for 1997 decreased $7 mil- $7 million (21 percent) from 1996 as a result of lower oil and lion from the 1996 period. The dectme is a result of substan-gas prices, decreased gas production and higher operating tially higher than expected natural p 5 prices that severely i expenses. The decrease is partially offset by a gain on the sale restricted CMS Marketing, Services ad Trading Company's of the entire interest in oil and gas properties in Yemen and ability to achieve positive margins on Med price sales, and 33 percent higher oil production. higher than expected start-up costs Electric marketing volumes CMS Oil and Gas changed its method of accounting, efTective reached 6.9 million MW for the year ended December 31,1998 January 1,1998, for oil and gas operations from the full cost compared to 900,000 MW for the compareble period in 1997. method to the successful efTorts method. CMS Oil and Gas Gas managed and marketed for end users totaled 366 bef, believes that the successful efforts method will minimize asset 243 bef and 108 bef for the years ended December 31,1998, write-offs caused by periodic price swings, which may not be repre-1997 and 1996, respectively. sentative of overall or long-term markets, and will allow its results of operations to be more easily compared to other oil and gas M ARKET RISK INFORM ATION companies Nitrotec Corporation (Nitrotec),in which CMS Gas CMS Energy is exposed to market risk including, but not limited Transmission and Storage Company (CMS Gas Transmission) has to, changes in interest rates, currency exchange rates, and certain an equity investment, also elected to convert, effective January 1, commodity and equity prices. Derivative instruments including, 1998, from the full cost method of accounting to the successful but not limited to, futures contracts, swaps, options and forward efforts method of accounting. All prior period fmancial statements contracts may be used to manage these exposures Derivatives are presented have been restated to conform with successful efforts principally used to hedge market risks. accounting. The etTect, after tax, of the change in accounting method as of December 31,1997, was a reduction to retained earnings of $175 million for CMS Oil and Gas and $15 million for CMS Gas Transmission, primarily attributable to a decrease in
- 26. CMS ENERGY CORPORATION
I i %1anagement uses commodity futures contracts, options and Capital Resources and Liquidity swaps (which require a net cash payment for the di1Terence between a fixed and variable price) and oil swaps to manage CASH POSITION, INVESTING AND FINANCING commodity price risk. They also use forward exchange contracts ChtS Energy's primary ongoing source of operating to hedge certain receivables, payables and long-term debt relat-cash is dividends and distributions from subsidiaries. In 1998, ing to foreign investments. Management also uses equity invest-Consumers paid $241 million in common dividends. In Decem. ments in which CMS Energy or its subsidiaries hold less than a ber 1998, CMS Energy contributed $100 million of paid-in cap-20 percent interest. These commodity, fmancial and equity ital to Consumers. During 1998, Enterprises paid common instruments do not expose CMS Energy to material market risk, dividends and other distributions of $122 million to CMS During 1998, derivative trading activities were immaterial. Energy. CMS Energy's consolidated operating cash require-Management believes that any losses incurred on derivative ments are met by its operating and financing activities. instruments used as a hedge would be olTset by the opposite Operating Activities: CMS Energy's consolidated net cash movement of the underlying hedged item. provided by operating activities is derived mainly from the Intercs: Rate Risk: Management uses a combination of processing, storage, transportation and sale of natural gas; the fixed-rate and variable-rate debt to reduce interest rate expo-generation, transmission and sale of electricity; and the sale of sure. Interest rate swaps and rate locks may be used to adjust oil. Consolidated cash from operations totaled $516 million and i exposure when deemed appropriate, b sed upon market condi- $624 million for 1998 and 1997, respectively. The $108 million 3 tions. These strategies attempt to provide and maintain the low-decrease resulted from cash outflows related to increases in est cost of capital. The carrying amount of long-term debt was accounts receivable from and advances to afliliates, partially oft- $4.7 billion at December 31,1998 with a fair value of $4.7 bil. set by an increase in consolidated net income. CMS Energy uses lion. The fair value of CMS Energy's financial derivative instru-its operating cash primarily to expand its international busi-ments at December 31,1998, with a notional amount of nesses, to maintain and expand electric and gas systems of Con- $579 million, was $15 million, representing the amount that sumers, to pay interest on and retire portions of its long-term CMS Energy would have paid to terminate these agreements on debt, and to pay dividends. December 31,1998. Investing Activitics: CMS Energy's consolidated net cash Sensitivity Analysis: In accordance with SEC disclosure used in investing activities totaled $1.634 billion and $1.551 bil-requirements, CMS Energy performed a sensitivity analysis. The lion for 1998 and 1997, respectively. The increase of $83 million analysis assesses the potential loss in fair value, cash flows and primarily reflects increased capital expenditures for acquisitions, earnings based upon hypothetical increases and decreases in partially ofTset by decreased investments in partnerships and market interest rates. A hypothetical 10 percent adverse shift in unconsolidated subsidiaries (1997 included an approximately market rates in the near term would not have a material impact $500 million investment in Loy Yang). CMS Energy's 1998 on CMS Energy's consolidated financial position, results of expenditures for its utility and international businesses were operations or cash flows as of December 31,1998. Management $429 million and $1.271 billion, respectively, compared to does not believe that a sensitivity analysis alone provides an $371 million and $1.148 billion, respectively, during 1997. accurate or reliable method for monitoring and controlling risk. Financing Activities: CMS Energy's net cash provided by Therefore, CMS Energy and its subsidiaries rely on the experi-financing activities totaled $1.150 billion and $938 million for ence andjudgment of senior management and traders to revise 1998 and 1997, respectively. The increase of $212 million in net strategies and adjust positions as they deem necessary. Losses in cash provided by financing activities resulted from an increase excess of the amounts determined in the sensitivity analysis of $848 million in the issuance of new securities, partially could occur if market rates or prices exceed the 10 percent shift ofTset by increases in the retirement of bonds and other long-used for the analysis. The analysis assumes that the maximum term debt ($140 million) and the repayment of bank loans exposure associated with purchased options is limited to premi-($545 million). The following is a listing of new securities issued ums paid. The analysis assumes that the CMS Energy Trust Pre-during 1998. ferred Securities are not converted into CMS Energy Common Stock. If the conversion occurred, the '173 million of CMS Energy Trust Preferred Securities woula be discharged through the issuance of 4.2 million shares of CMS Energy Common Stock. The analysis also does not quantify short-term exposure I to hypothetically adverse price fluctuations in inventories. For a discussion of accounting policies related to derivative transactions, see Note 8. l
- 27. CMS ENERGY CORPORATION
Management's Discussion Continued in ofillions Distribution / Principal Month Issued Maturity Interest Rate Amount Use of Proceeds CMS Energy - GTNs d Series D
- 8 (li 6.8% > $ 122 General corporate purposes d
Series E ni 6.9% ' 34 General corporate purposes Extendible Tenor Rate Adjusted Securities /2i January 2005 7.(fW 180 Pay down borrowings Common Stock November N/A 4.5 shares 208 General corporate purposes 544 Coneurner s o Senior Notes ! February 2008 6.375 % 250 Pay down First Mortgage Bonds and general corporate purposes d Senior Notes > March 2018 6.875 % 225 Pay down First Mortgage Bonds and borrowings under credit facilities May 2008 6.2W* 250 Pay down First Mortgage Senior Notesol Bonds, long-term bank debt and general corporate purposes d d. Senior Notes > June 2018 6.5% > 200 Pay down First Mortgage Bonds and general corporate purposes Long Term Bank Debt May 2001-2003 6.05W 225 Pay down long-term bank debt Senior Notes"> October 2028 6.5% 150 Pay down long-term bank debt and general corporate purposes Totsi $1,844 (1) CAIS Energy General Term Notes' (GTNs) are issuedfrom time to time with varying maturity dates. The rate shown herein is a nighted average interest rate. (2) Afay be extemledfor an additionalseven years. (3) l'he Senior Notes are secured by Consumers' First Afortgage Bonds issued contemporaneously in a similar amount. (4) The interest rate may be reset in Afay 2003. (3) The interest rate will be reset in June 2005 (6) The interest rate is variable; weighted average interest rate upon originalissuance was 6.03 percent. In 1998, CMS Energy paid $129 million in cash dividends to In January 1998, a Delaware statutory business trust estab-holders of CMS Energy Common Stock anu $11 million lished by CMS Energy sold $180 million of certificates due in cash dividends to holders of Class G Common Stock. In January 15,2005 in a public offering. In exchange for those January 1999, the Board of Directors of CMS Energy declared proceeds, CMS Energy sold to the trust $180 million aggregate a quarterly dividend of S.33 per share on CMS Energy Com-principal amount of 7 percent Extendible Tenor Rate Adjusted mon Stock and 5.325 per share on Class G Common Stock, Securities due January 15,2005, which may be extended for an payable in February 1999, additional seven years. Net proceeds to CMS Energy from the In August 1998 CMS Energy filed a shelf registration state-sale totaled $176 million. ment for the issuance of $400 million of GTNs Series E. As of December 31,1998, CMS Energy had an aggregate in December 1998 CMS Energy filed two shelf registration $2.3 billion in securities registered for future issuance, including statements for the issuance of $1.5 billion of CMS Energy securities to be issued to permanently finance the acquisition, Common Stock and $400 million of senior and subordinated as described below, of Panhandle Eastern Pipe Line Company, debt securities. Trunkline Gas Company, Pan Gas Storaec Company, Panhan- ' mpany (Panhan-in January 1999, CMS Energy received net proceeds of die Storage Company and Trunkline Lts - i j. approximately $473 million from the sale of $480 million of die Companies). CMS Energy also ha: t-tillion senior 1 j senior notes. In February 1999, CMS Energy received net pro-credit facilities (Senior Credit Facilities), unsecured lines of ceeds of approximately $296 million from the sale of $300 mil-credit and letters of credit as sources of funds needed to lion of senior notes. Proceeds from these ofTerings were used to fulfill, in whole or in part, material commitments for capital repay debt and for general corporate purposes. expenditures. For detailed information, see "Short Term Other Investing aralFinancing Alatters: At December 31,1998, Financings" and " Capitalization"in Notes 4 and 6, respectively, the book value per share of CMS Energy Common Stock and incorporated by reference herein. Class G Common Stock was $19.61 and $11.46, respectively.
- 28. CMS ENERGY CORPORATION I
CMS Energy's Senior Credit Facilities consist of a Nevertheless, CMS Energy will continue to evaluate capital mar- $600 million three-year revolving credit facility and a fwe-year kets in 1999 as a potential source of financing its subsidiaries' $125 million term loan facility. Additionally, CMS Energy has investing activities. unsecured lines of credit and letters of credit in an aggregate CMS Energy estimates capital expenditures by business seg-amount of $216 million. These credit facilities are available to ment over the next three years as follows: finance working capital requirements and to pay for capital In Aldlions expenditures between long-term financings. At December 31, Years Ended December 31 1999 2000 2001 1998, the total amount utilized under the Senior Credit Facili-Consumers electrie operations'"* s 380 5 385 s 385 ties was $725 million, including $57 million of contingent oblig. Consumers gas operations 123 125 120 ations, and under the unsecured lines of credit and letters of wer {r ducti n 2 credit was $147 milhon. Natural gas transmission and storage 2,412 " 225 143 Consumers has Federal Energy Regulatory Commission International energy distribution 359 100 126 (FERC) authorization to issue securities and guarantees. Con. Marketing, services and trading 5 15 12 sumers has a credit facility, lines of credit and a trade receivable Other 10 sale program in place as anticipated sources of funds needed to 54.148 $1,450 51,175 fulfill, in whole or in part, material commitments for capital (a) These amounts include an attributedportion of Consumers' antici-expenditures as of December 31, I998. For detailed informa-PU'edeari'aieAre"di'ureslorP a"' and equi ment common to both the l P $".[.", #["# "[# 'jf7fj,,fj,j,,,,,,,j,,,,,jy,,,7j,,f,,,,,, 0 tion, see "Short-Term Financings"and " Capitalization"in f, p Notes 4 and 6, respectively, incorporated by reference herem. ditures possiNy required to comply with recently revised nationalair qual-CMS Energy and its subsidiaries must redeem or retire ity standanh under the Clean Air Act. Forfurther information. see Note 3. $762 million of long-term debt over the three-year period end. $$"[c"g'"$"## " #""^# #V" """"I## p ing December 2001. In addition, at December 31,1998, Con-sumers had a recorded liability to the U.S. Department of CMS Energy currently plans investments from 1999 to 2001: Energy (DOE) of $117 million, which Consumers must pay (i) for oil and gas expl oration and production operations, pri-upon the first dehvery of spent nuclear fuel to the DOE. marily in North and South America, olTshore West Africa and Current federallaw originally scheduled delivery of the fuel t North Africa;(ii) for independent power production operations occur in 1998; for additional information, see " Nuclear Fuel to pursue acquisitions and development of electric generating Cost"in Note 2. plants in the United States, Latin America, Asia, Australia, the On November 2,1998, ChtS Energy announced an agree-Pacific Rim region, North Africa and the h1iddle East;(iii) to j ment to acquire the Panhandle Companies from Duke Energy continue development of nonutility natural gas storage, gather-Corporation for a cash payment of $1.9 billion and existing ing and pipeline operations of CMS Gas Transmission, both Panhandle Companies debt of $300 million. The transaction domestic and international; (iv) to acquire, develop and expand was completed in March 1999, and will be accounted for under international energy distribution businesses; and (5) to provide the purchase method of accounting. gas, electric, oil and coal marketing, risk management and The acquisition of the Panhandle Companies initially was fin-energy management services throughout the United States and anced in part with bridge loan facilides necotiated with domestic eventually worldwide, banks and in part with approx _ <e' million of debt securities issued by the Panhandle Compames. CMS Energy expects to permanently finance the acquisition with existing Otitlook arrangements as well as the sale of approximately 5600 million of CMS Energy Common Stock and other CMS Energy securities. As the deregulation and privatization of the energy industry takes place in the United States and internationally, CMS Energy CAPITAL EXPENDITURES has positioned itself to be a leading international diversified CMS Energy estimates that capital expend.itures, meludm.g new lease commitments and investments in partnerships and uncon-eurgy c mpany acquiring, devel ping and operating energy " * * " " E" "E #"#4Y '# E" solidated subsidiaries, will total 56.8 billion over the next three markets. CMS Energy provides a complete range of international years. These estimates are prepared for planning purposes and
- # *"I
- "#TY#*E#
- ""#4Y I l
are subject to revision. This total inclades approximately 1 52.2 billion for the acquisition of the Panhandle Companies as described above. A substantial portion of the remaining capital expenditures is expected to be satisfied by cash from operations.
- 29. CMS ENERGY CORPORATION t
h Management's Discussion Continued f INTERNATION AL OPER ATIONS OUTLOOK orders which among other things identified the terms and tim-CMS Energy will continue to grow internationally by investing ing for implementing electric restructuring in Michigan. Con-in multiple projects in several countries as well as by developing sumers anticipates that it will discontinue application of SFAS 71 synergistic projects across its lines of business. CMS Energy for the generation segment of its business in the first quarter of i l believes these integrated projects will create more opportunities 1999 as Consumers is now preparing to implement electric cus-l and greater value than individual investments. Also, CMS tomer direct access. According to current accounting standards, Energy will achieve this growth through strategic partnering Consumers can continue to carry its generation-related regula-I where appropriate. tory assets or liabilities for the part of the business being dereg-CMS Energy seeks to minimize operational and financial ulated if deregulatory legislation or an MPSC rate order allows risks when operating internationally by working with local part-the collection of cash flows from its regulated transmission and ners, utilizing multilateral financing institutions, procuring distribution customers to recover these specific costs or settle political risk insurance and hedging foreign currency exposure obligations. A February 1998 MPSC order allows Consumers to where appropriate. fully recover its costs incurred by utilities in order to serve their customers in a regulated monopoly environment (Transition CONSUMERS' ELECTRIC UTILITY OUTLOOK Costs). At December 31,1998, Consumers had $259 million of Growth Consumers expects average annual growth of generation-related net regulatory assets recorded on its balance 2.4 p:rcent per year in electric system deliveries over the next sheet, and a net investment in generation facilities of $1.3 billion five years, absent the impact of restructuring on the industry included in electric plant and property. and its regulation in Michigan. Abnormal weather, changing l cconomic conditions, or the developing competitive market for CONSUMERS OAS GROUP OUTLOOK j i electricity may alTect actual electric sales in future periods. Growth: Consumers currently anticipates gas deliveries, includ-l Restructuring: Consumers' retail electric business is alTected ing gas customer choice deli'. cries (excluding transportation to by competition. To meet its challenges, Consumers entered into the MCV Facility and off-system deliveries), to grow at an aver-multi-year contracts with some of its largest industrial cus-age annual rate of between one and two percent over the next tomers to serw certain facilities. The Michigan Public Service five years based primarily on a steadily growing customer base. Commission (MPSC) has approved these contracts as part of Actual gas deliveries in future periods may be alTected by its phased introduction to competition. Certain customers have abnormal weather, alternative energy prices, changes in compet-the option of terminating their contracts early. itive conditions, and the level of natural gas consumption. Con-FERC final rules issued on April 24,1996 (Orders 888 and sumers also ofTers a variety of energy-related services to its 839), as amended, require utilities to provide direct access to the customers focused upon appliance maintenance, home safety, interstate transmission grid for wholesale transactions. Con-commodity choice and assistance to customers purchasing heat-sumers and The Detroit Edison Company (Detroit Edison) dis-ing, ventilation and air conditioning equipment. agree on the elTect of the orders on the Michigan Electric Power Restructuring: In December 1997, the M PSC approved Con-Coordination Center pool. Consumers proposes to maintain the sumers' application to implement a statewide three-year experi-benefits of the pool through at least December 2000, while mental gas transportation program, eventually allowing 300,000 Detroit Edison contends that the pool agreement should be ter. residential, commercial and industrial retail gas sales customers minated immediately..Among Consumers' alternatives in the to choose their gas supplier. For further information regarding event of the pool being terminated would bejoining an inde-restructuring of the gas distribution, storage and transportation pendent system operator. FERC has indicated this preference businesses currently conducted by Consumers and Michigan for structuring the operations of the electric transmission grid. Gas Storage Company (Consemers Gas Group), see "Uncer. For material changes relating to the restructuring of the tainties-Consumers Gas Group Matters-Gas Restructuring" I electric utility industry, see " Consumers' Electric Utility Rate in Note 3, incorporated by reference herein. Matters-Electric Restructuring"in Note 3, incorporated b) Other: EfTective January 1,1999, Consumers was allowed to reference herein. solicit Michigan Consolidated Gas Company (MichCon) and Electric Application of SFAS 71; Consumers applies utility SEMCO Energy Gas Company customers due to a three-year accounting standard, Statement of Financial Accounting Stan-experimental program ordered by the MPSC allowing cus-dards (SFAS) 71. At December 31,1998, Consumers believed tomers a choice of gas suppliers. As of February 8,1999. Con-that the generation segment of its business was still subject to sumers has signed up 650 of MichCon's customers and 300 of cost-based rate regulation due to legislative and regulatory SEMCO Energy Gas Company's customers. uncertainty about the status of Consumers' continuing obliga-tion to provide generation service to customers. Subsequent to . year end, Consumers received MPSC electric restructuring l
- 30. CMS ENERGY CORPORATION i
l L [ Other Matters The impact analysis phase includes the analysis, inventory, prioritization and remediation plan development for all technol-NEW ACCOUNTING nULES ogy essential to core business processes. The remediation phase in 1998, the American Institute of Certified Public Accountants involves testing and implementation of remediated technology. issued Statement of Position 98-1, Accometh - the Costs of A mainframe test en ironment was established in 1997 and a Compulcr Software Developed or Obtainedfi w/ Use, and test environment for network servers and stand-alone personal Statement of Position 98-5, Reporting on the ' Start Up computers was established in mid-1998. All essential corporate Activitics. These statements will be efTectise it ,. CMS business systems have been, or will be, tested in these test envi-Energy does not expect the application of thew standards to ronments. The compliance review phase includes the assembling materially affect its financial position, liquidity or results of of compliance documentation for each technology component j operations. Also in 1998, the Financial Accounting Standards as remediation elTorts are completed, and additional verification floard issued SFAS 133, Accountingfor Derivative Instruments testing of essential technology where necessary. The monitor-and1/cdging Activitics, which will be elTective in 2000, and the ing/ contingency planning phase includes compliance monitor. Emerging Issues Task Force published issue 98-10, Accounting ing to ensure that year 2000 problems are not reintroduced into for Energy Trading and Risk Management Activitics which will remediated technology, as well as the development of contin-be effective in 1999. CMS Energy is currently studying these new gency plans to address reasonably likely risk scenarios. standards and has not yet quantified the impacts of adopting State of Readiness: CMS Energy is managing traditional SFAS 133 or Issue 9810 on its financial statements and has not information technology (IT), which consists of essential busi-determined the timing of or method of adoption. Ilowever, ness systems such as payroll, billing and purchasing; and infra. SFAS 133 and Issue 98-10 will increase volatility in earnings and structure, including mainframe, wide aren network, local area other comprehensive income. networks, personal computers, radios and telephone systems. CMS Energy is also managing process control computers and YEAR 2000 COMPUTER MOOtFICATIONS embedded systems contained in buildings. equipment and CMS Energy uses software and related technologies throughout energy supply and delivery systems. its domestic and international businesses that the year 2000 date Essential goods and services for CMS Energy are electric change could alrect and, if uncorrected, could cause CMS fuel supply, gas fuel supply, independent electric power supplies, Energy to, among other things, delay issuance of bills or facilities, electronic commerce, telecommunications network reports, issue inaccurate bills, report inaccurate data, incur gen-carriers, financial institutions, purchasing vendors, and software crating plant outages, or create energy delivery uncertainties. In and hardware technology sendors. CMS Energy is addressing 1995, CMS Energy established a Year 2000 Program to ensure the preparedness of these businesses and their risk through the continued operation of its businesses at the turn of the cen-readiness assessment questionnaires, tury. CMS Energy's elTorts included dividing the programs The status of CMS Energy's Year 2000 Program by phase, requiring modification between critical and noncritical pro-with target dates for completion and current percentage com-grams. A formal methodology was established to identify criti-plete based upon software and hardware inventory counts as of I cal business functions and risk scenarios, to correct problems December 31,1998, is as follows: identified, to develop test plans and expected results, and to test I the corrections made. CMS Energy's Year 2000 Program involves an aggressive, comprehensive four-phase approach, including impact analysis, remediation, compliance review, and monitoring / contingency planning. Monitoring / Impact Compliance Contingency Analysis Remediation Review Planning (a) (l') (a) (b) (a) (b) (a) (b) Electric utility 3/98 100 % 6/99 78 % 6/99 66K 6/99 50% Gas utility 3/98 100 % 6/99 73 % 6/99 38 % 6/99 10% Independent power production 1/99 66 % 9/99 44% 9/99 304 9/99 10 % l Oil and gas 1/99 97% 9/99 80 % 9/99 20 % 9/99 20 % Natural gas transmission 1/99 50 % 9/99 75 % 9/99 25 % 9/99 5% Marketing, services and trading 1/99 77% 9/99 50 % 9/99 50 % 9/99 10 % Essential goods and services 6/99 56 % N/A N/A (c) (a) Target datefor completion. ib) Current percentage complete. (c) Contingency pismningfor essential goods and services is incorporated into contingency planningfor each segment presented
- 31. CMS ENERGY CORPORATION
F Management's Discussion Continued l h l Cost of Remediation: CMS Energy expenses spending for FOREIGN CURRENCY TR ANSL ATION software modifications as incurred, and capitalizes and amor. CMS Energy adjusts common stockholders' equity to reflect for-tizes the cost for new software e.nd equipment over its useful eign currency translation adjustments for the operation of long-life. The total estimated cost of the Year 2000 Program is term investments in foreign countries The adjustment is approximately $30 million. Costs incurred through December primarily due to the exchange rate fluctuations between the U.S. 31,1998 were approximately $16 million. CMS Energy's dollar and each of the Australian dollar and Brazilian real. From annual Year 2000 Program costs have represented approxi-January 1, l998 through December 31,1998, the change in the j mately 2 percent to 10 percent of CMS Energy's annual IT foreign currency translation adjustment totaled $40 million, net l budget through 1998 and are expected to represent approxi-of after-tax hedging proceeds. Although management currently l mately 25 percent of CMS Energy's annual IT budget in 1999, believes that the currency exchange rate fluctuations over the long l Year 2000 compliance work is being funded primarily from term will not materially adversely affect CMS Energy's fmancial operations. To date, the commitment of CMS Energy resources position, liquidity or results of operations, CMS Energy has to the year 2000 issue has not deferred any material IT projects hedged its exposure to the Australian dollar and the Brazilian which could have a material adverse atreet on CMS Energy's real. CMS Energy uses forward exchange contracts and collared financial position, liquidity or results of operations, options to hedge certain receivables, payables, long-term debt and Risk Assessment: CMS Energy considers the most reason-equity value relating to foreign investments.1he notional amount ably likely worst-case scenarios to be: (i) a lack of communi-of the outstanding foreign exchange contracts was $736 million cations to dispatch crews to electric or gas emergencies; (ii) a at December 31,1998, which includes $450 million and $250 mil-lack of communications to generating units to balance electri-lion for Australian and Brazilian foreign exchange contracts, cal load; (iii) power shortages due to the lack of stability of respectively. Subsequent to December 31,1998, the fair value of the electric grid; and (iv) a failure of fuel suppliers to deliver the Brazilian foreign exchange contracts increased significantly, as fuel to generating facilities. These scenarios could result in the Brazilian real weakened against the U.S. dollar. CMS Energy not being able to generate or distribute enough energy to meet customer demand for a period of time, which could result in lost sales and profits. as well as legal liability. Forward-Looking Statements Year 2000 remediation and tesung efforts are concentrating on these risk areas and will continue through the end of 1999. This Annual Report contains forward-looking statements as Contingency plans will be revised and executed to further mit-defmed by the IWate Securities Litigation Reform Act of 1995, i I igate the risks associated with these scenarios. The words " anticipates"" believes"" estimates,"" expects," Contingency Pkms: Contingency planning efTorts are " intends" and " plans," as well as variations of such words and currently underway for all business systems and providers of similar expressions, are intended to identify forward-looking state-essential goods and senices. Extensive contingency plans are ments that invohe risk and uncertainty. These statements are nec-already in place in many locations and are currently being essarily based upon various assumptions invohingjudgments with resised for reasonably likely worst-case scenarios related to year respect to the future including, among others, the ability to achieve 2000 issues. In many cases, Consumers already has arrangements operating synergies and rewnue enhancements; international, with multiple vendors of similar goods and senices so that in national, regional and local economic, competitive and regulatory the event that one cannot meet its commitments, others may be conditions and dewtopments; capital d financial market condi-able to. Current contingency plans provide for manual dispatch-tions, including cunency exchange controls ud interest rates; I ing of crews and manual coordination of electrical load balanc-wrather conditions; adverse regulatory or legastecisions, including ing and are being revised to provide for radio or satellite mironmental laws and regulations; the pace of deregulation of communications Coordinated contingency planning etTorts are me natural gas and electric industries; energy ma;kets, including l in progress with third parties to minimize risk to electric the timing and extent of changes in commodity prices for oil, coal, generation, transmission and distribution systems. natural gas, natural gas liquids, electricity and certain related prod-l Expedations CMS Energy does not expect that the cost of ucts; the timing and success of business development elTorts; these modifications will materially affect its financial position, potential disruption, expropriation or interruption of facilities or liquidity or results of operations. There can be no guarantee, operations due to axidents or political ewnts; nuclear power and l however that these costs, plans or time estimates will be other technological developments; and other uncertainties, all of l achieved, and actual results could differ materially. which are difficult to predict and many of which are bepnd the Because of the integrated nature of CMS Energy's business control of CMS Energy. Accordingly, while CMS Energy believes with other energy companies, utilities, jointly owned facilities that the assumed results are reasonable, there can be no assurance operated by other entities, and business conducted with suppli-that they will approximate actual results CMS Energy disclaims ers and large customers, CMS Energy may be indirectly any obligation to update or revise forward-looking statements, affected by year 2000 compliance complications. At this time, whether as a result of new information, futun: events or otherwise, c CMS Energy is unable to anticipate the magnitude of the oper-Certain risk factors are detailed from time to time in various public l ational or financial impact of year 2000 issues on CMS Energy. filings made by CMS Energy with the SEC.
- 32. CMS ENERGY CORPORATION
o Consolidated Statements of Income l l In Millions. Except Per Share Amounts i Years Ended December 31 1998 1997 1996 operating nevenue Electr.ic utility S2,606 52,515 $2,446 Gas utility 1,051 1,204 1,282 Independent power production'a> 277 16* 140 Natural gas transmission, Morage and processing'al 160 9. 53 Oil and gas exploration and production 63 93 130 Marketing, services and trading'a> 939 692 258 Other'a>- 45 13 15 5,141 4,781 4,324 1 , operating Expenses Operation Fuel for electric generation 159 319 312 Purchased power-related parties 573 599 589 Purchased and interchange power 584 265 202 Cost of gas sold 1,212 1,311 997 Other 763 719 742 3,491 3,213 2,842 Maintenance 176 174 178 Depreciation, depletion and amortization 484 467 427 (3cneral taxes 215 211 201 4.Wi 4,065 3,648 Pretax operating Electric utility 475 432 411 income (Loss) Gas utility 126 153 158 Independent power production 144 96 68 Natural gas transmission, storage and processing 33 27 17 Oil and gas exploration and production 6 26 33 Marketing, sers.ces and trading 4 (5) 2 Other (13) (13) (13) 775 716 676 other income Loss on MCV power purchases ~(37) j ~ IDeductions) - Accretion income 6 8 10 J Accretion expense (16) (17) (22) Other, net 1 (3) 1 (46) (12) (11) Fixed Charges Interest on long-term debt 3tX 273 230 Other interest 47 49 43 Capitalized interest (29) (13) (5) Preferred dividends 19 25 28 ' Trust Preferred Securities distributions 32 18 8 387 352 3M income esfore income Taxes 342 352 361 ~ income Taxes 100 108 137 Consolidated Net income before Cumulative Effect of Change in Accounting Principle 242 244 224 Cumulative Effect of Change in Accounting for Property Taxes, Net of $23 Tax 43 Consolidated Net income 5 285 5 244 5 224 ' Net income.Attributeble to Common Stocks CMS Energy 5 272 5 229 $ 210 Class G $ 13 5 15 5 14 Basic Earnings Per Average Common Share CMS Energy 5 2.65 5 2.39 $ 2.27 Class G S 1.56 5 1.84 5 1.82 Diluted Earnings Per Average Common Share CMS Energy 5 2.62 5 2.37 5 2.26 i Class G $ l.56 5 1.84 5 1.82 Dividends Declared Per Common Share CMS Energy 5 1.26 5 1,14 5 1.02 Class G S 1.27 5 1,21 5 1.15 j. (a) Does not include revenue associated with CMS' interests in unconsolidatedpartnerships. For 1998,1997 and 1996, that revenue totaled $76I million. l $621 million and $493 million, respectively, for independent power production: and $67 million, $31 million and $42 million, respectively, for natural gas transmusion, storage andprocessing; and $198 mdlion, $39 million and $22 million, respectively, for international energy distribution. which is ^ reported in Other For 1998 and 1997, that revenue totaled $291 million and$202 million, respectively,for marketing, services and trading The accompanying notes are an imegralpart of these statements,
- 33. CMS ENERGY CORPORATION I
m < Consolidated Balance Sheets In Millions December 31 1998 1997 ASSETS / . Plant and Property Electric $ 6,720 5 6,491 i (at cut) Gas. 2,701 2,528 Oil and gas properties (successful elTorts method) 670 545 Independent power production 518 122 Other 373 46 10,982 9,732 Less accumulated depreciation, depletion ' and amortization 5,213 4,849 3 5,769 4,883 ' Construction work-in-progress 271-261 6.040 5,144 . Investments independent power production 888 792 Natural gas transmission, storage and processing 494 241-International energy distribution 209 -255 First Midland Limited Partnership. 209 171 240 242 Midland Cogeneration Venture Limited Partnership Other-33 45 2,073 1,746 Current Assets Cash and temporary cash investments at cost, which approximates market 101 69 Accounts receivable and accrued revenue, less allowances of $13 in 1998 and $7 in 1997 720 495 Inventories at average cost Gas in underground storage' 99 87 l 219 197 Materials and supplies Generating plant fuel stock 43 . 35 Deferred income taxes 38 Prepayments and other 225 235 1,407 1.156 - Non current Asaete Nuclear decommissioning trust funds 557-486 - Postretirement benefits - 373 404- ' Abandoned Midland project 71 93 Other 789 479 1,790 1,462 Total Assets S 11,310 $ 9,508 The accompanying notes are an integralpart of these statements.
- 34. CMS ENERGY CORPORATION
V in Millions December 31 1998 1997 STOCKHOLDERS' INVESTMENT AND LIABILITIES capitatiration Common stockholders' equity $ 2,216 5 1,787 Preferred stock of subsidiary. 238 _238 Company-obligated mandatorily redeemable - Trust Preferred Securities of: Consumers Power Company Financing I/ai 100 100 Consumers Energy Company Financing 114 ' 120 120 . Company-obligated convertible Trust Preferred Securities of CMS Energy Trust 1(6 173 173 Long term debt. 4,726 3,272 - Non-current portion of capital leases 105 75 7,678 5,765 Current Liabilities - ' Current portion of long-term debt and capital leases 293 643. = Notes payable : 328-382 Accounts payable 501 398 Accrued taxes 272 272
- Accounts payable-related parties 79 -
80 Accrued interest ' 65 51 Power purchases 47 47 Accrued refunds 11 12 - Other 214 190 1,H10 2,075 . on current Liabilities Deferred income taxes 649-648 Postretirement benefits 489 514 Deferred imestment tax credit 135 131 Power pmthases. 121 133 Regulatory liabilities for income taxes, net 87 54 . Other 341 168 1,N22 1,668 Commitments and Contingencies (Notes 2,3 and 13) . Total Stockholders' investment and Liabilities $11,110 $ 9,508 _ a) The primary asset of Consumers nnver Company Financing iis $103 million principalamount of 8.36 percent subordinated dnferrable interest ( notes due 2015from Consumers The primary asset of Consumers Energy Company Financing 11is $124 million principal amount of 8.20 percent sub-ordinated deferrable interest notes due 2027from Consumers. Forfurther discussion, see Note 6 to the Coruolidated Financial Statements (b) As described in Note 6. the primary asset of CMS Energy Trust Iis $178 million principalvnwunt of 7.75 percent convertible subordmated deben. - tures due 2027from CMS Energy. l. ' 36. CMS ENERGY CORPORATION. j m i Consolidated Statements of Cash Flows in blillions Years Ended December 31 1998 1997 1996 Cash Flows From - Consolidated net income 5 285 $ 244 $ 224 Operating Activities Adjustments to reconcile net income to net cash provided by operating activities Depreciation, depletion and amortization (includes nuclear decommissioning of $51,550 arid $49, respectively) 484 467 427 i Deferred income taxes and investment tax credit 54 24 45 Capitallease and debt discoont amortization 51 44 41 Loss on MCV power purchases 37 Accretion expense 16. 17 22 Accretion income-abandoned Midland project (6) (8) (10) Undistributed earnings of related parties (95) (58) (55) Cumulative etTect of accounting change for property taxes (66) MCV power purchases Other (64) (62) (63) 6 (9) 27 1 Changes in other assets and liabilities (186) (35) (11) 1 Net cash provided by operating activities 516 624 647-. Cash Flowe From Capital expenditures (excludes Capital lease additions of Investing Activiiles 560, $1I and $31, respectively and DSM) (1,295) (678) (643) i investments in partnerships and unconsolidated subsidiaries (345) (830) (163) i Cost to retire property, net (83) (46) (31) 1 Other 32 (46) (47) j Acquisition of companies, net of cash acquired (20) Proceeds from sale of property 57 49 79 - Net cash used in investing activities (1,634) (1,551) (825) . Cash Flows From Proceeds from bank loans, notes and bonds 2,348 1.214 433 Financing Activities Issuance of Common Stock 269 224 95 Proceeds from Trust Preferred Securities 286 97 Retirement of bonds and other long-term debt (661) (521) (37) - Repayment of bank loans (574) (29) (256) Payment of Common Stock dividends (140) (119). (103) Increase (decrease) in notes payable, net (53) 49 -(8) Payment of capital lease obligations (36) (44) -(40) Retirement of Common Stock (3) (2) (1) Retirement of preferred stock (120) Net cash provided by fmancing activities 1,150 938 180 Nst increase in Cash and Temporary Cash investments 32 11 2 Cash and temporary cash investments Beginning of year - 69 58 56 End of year 5 101 5 69 5 58 The accompanying notes are an integralpart of these statements as. CMS ENERGY CORPORATION {. Consolidated Statements of Preferred Stock Optional Redemption Number ol Shares in Alillions December 31 Series Price 1998 1997 1998 1997 Consumers' Preferred Stock Cumulative, $100 par value, authorized 7,500,000 shares, with no mandatory redemption $4.16 $103.25 68,451 68,451 5 7 5 7 4.50 110.00 373,148 373,148 37 37 Consumers' Class A Preferred Stock Cumulative, no par value, authorized 16,000,000 shares, with no mandatory redemption - 2.08 25.00 4 8,000,000 8,000,000 194 194 Total Preferred Stock 5238 $238 (4 Redeemable beginning April 1,1999. The accompanying notes are an integralpart of there statements. Consolidated Statements of Common Stockholders' Equity Number of Shares, in Thousands in Alillions Years Ended December 31 1998 1997 1996 1998 1997 1996 Common Stock At beginning and end of period S I 1 1 Other Pald-in Capital-CMS Energy At beginning of period 100,792 G4,813 91,594 2,131 1,916 1,827 Common stock reacquired (72) (54) (32) (3) (2) (1) Common stock issued 7,383 6,031 3,248 324 217 90 Common stock reissued i 2 3 At end of period 108.104 100,792 94,813 2,452 2,131 1,916 Other Paid-in Capital-Class O At beginning of period 8i 19 7,877 7,619 136 lb 124 Common stock reacquired (1) (1) Common stock issued _ 05 343 258 6 7 5 At end of period W,453 8,219 7,877 142 136 129 Revaluation Capital. . At beginning of period (6) (6) (8) Change in unrealized investment-gain (loss)4 (3) 2 At end of period (9) (6) (6) Foreign Currency Translation At beginning of period (96) Change in foreign currency translation W (40) (96) - At end of period (136) (96) Retained Earnings (Deficit) At beginning of period ' (379) (504) (625) . Consolidated net income @ 285 244 224 Common stock dividends declared: CMS Energy (129) (109) (94) Class O (11) (10) (9) At end of period (234) (379) ($(M) Total Common Stockholders' Equity s 5 2,216 $ 1,787 $ 1,536 (4 Disclosure of Comprehensive income: Revaluation capital - unrealisedinsestment-gain (loss), net of tax of $2,50 and50, respectively 5 (3) 5-5 2 Foreign currency translation (til) (%) Consolidated net income 283 244 224 Total Consolidated Comprehensive income $ 242 $148 5 226 The accompanying notes are an integralpart of these statements.
- 37. CMS ENERGY CORPORATION
l Notes to Consolidated Financial Statements .1: conPORATE STRUCTUnE Change in Method of Accountingfor Property Taxes: During . CMS Energy Corporation (CMS Energy)is the parent holding the first quarter of 1998, Consumers implemented a change in company of Consumers Energy Company (Consumers) and the method of accounting for property taxes so that such taxes CMS Enterprises Company (Enterpriscs). Consumers, a combi-are recognized during the fiscal period of the taxing authority nation electric and gas utility company serving the Lower-for which the taxes are levied. This change better matches Peninsula of Michigan,is the principal subsidiary of CMS property tax expense with the services provided by the taxing Energy. Enterprises is engaged in seseral domestic and interna-authorities, and is considered the most acceptable basis of tional energy-related businesses including: acquisition, develop-recording property taxes. Prior to 1998, Consumers recorded ment and operation ofindependent power production facilities; property taxes monthly during the year following the assessment oil and gas exploration and production; transmission, storage, date (December 31). The cumulative effect of this one time - and processing of natural gas; energy marketing, senices and change in accounting increased other income by 566 million, trading; and international energy distribution. and earnings, net of tax, by $43 million or S.40 per share. The pro forma efTect on prior years' consolidated net income of 2: SUMMAnY OF SIGNIFICANT ACCOUNTING POLICIES retroactively recording property taxes as if the new method of AND OTHER MATTERS accounting had been in etTect for all priods presented is not Basis of Presentation: The consolidated financial statements material include CMS Energy Consumers and Enterprises and their Accretion Income and Evpense: In 1991, the Michigan Public majority owned subsidiaries The financial statements are Service Commission (MPSC) allowed Consumers to recover a prepared in conformity with generally accepted accounting prin-portion of its abandoned Midland investment over a 10-year ciples and use management's estimates where appropriate. Affili-period, but did not allow Consumers to earn a return on that ated companies (more than 20 percent but less than a majority amount. Consumers reduced the recoverable investment to the ownership interest) are accounted for by the equity method. present value of the future recoveries. During the recovery ' Change in Method of Accountingfor Investments in Oiland period, Consumers adjusts the unrecovered asset to its present Gas Properties: CMS Oil and Gas Company (CMS Oil and Gas) value. It reflects this adjustment as accretion income. Con-(formerly CMS NOMECO Oil & Gas Co.) elected to convert, versely, Consumers recorded a loss in 1992 for the present value effective January 1,1998, from the full cost method to the suc-of its estimated future underrecoveries of power costs resulting cessful efforts method of accounting for its investments in oil from purchases from the Midland Cogeneration Venture Lim-and gas properties. CMS Oil and Gas believes this accounting ited Partnership (MCV Partnership)(see Note 3). It now recog-change will more accurately present the results of its explo-nizes accretion expense annually to reflect the time salue of ration and development activities and minimize asset write ofTs money on the recorded loss. caused by periodic price swings, which may not be representa-Gas Inventory: Consumers uses the weighted average cost tive of overall or long-term markets. In addition, the Financial method for valuing working gas inventory. It records cushion Accounting Standards Board has stated a preference for the use gas, which is gas stored to maintain reservoir pressure for recov-of successful etTorts accounting. Nitrotec Corporation ery of working gas, in the appropriate gas utility plant account. (Nitrotec), in which CMS Gas Transmission and Storage Com-Consumers stores gas inventory in its underground storage - pany (CMS Gas Transmission) has an equity investment, also facilities, elected to convert, etTective January 1,1998, from the full cost Maintenance. Depreciation and Depletion: Consumers method of accounting to the successful efTorts method of charges property repairs and minor property replacements accountmg. Accordingly, all prior period financial statements to maintenance expense. Depreciable property retired or sold, presented have been restated to conform with successful efrorts plus cost of removal (net of salvage credits),is charged to accu-accounting. The effect, after tax, of the change in accounting mulated depreciation. Consumers bases depreciation provisions method as of December 31,1997, was a reduction to retained for utility plant on straight-line and units-of production rates ] earnings of $175 million for CMS Oil and Gas and $15 million approved by the MPSC. The composite depreciation rate for for CMS Gas Transmission, primarily attributable to a decrease electric utility property was 3.5 percent for 1998,3.6 percent in CMS Oil and Gas' net plant and property and deferred tax for 1997 and 3.5 percent for 1996. The composite rate for gas liability of $270 million and $95 million, respectively, and a i Sl5 million decrease in CMS Gas Transmission's equity invest-ment in Nitrotec.
- 38. CMS ENERGY COPPORATION
utility plant was 4.2 percent for 1998,4.1 percent for 1997 and Nuclear Plant Decommissioning: Consumers collected $51 mil-4.2 percent for 1996. The composite rate for other plant and lion in 1998 from its electric customers for decommissioning of property was 7.4 percent for 1998,8.2 percent for 1997 and its two nuclear plants. Amounts collected from electric retail 5.5 percent for 1996, customers and deposited in trusts (including trust earnings) CMS Oil and Gas follows the successful efforts method are credited to accumulated depreciation. In 1996 Consumers of accounting for its investments in oil and gas properties. received a decommissioning order from the MPSC that estimated CMS Oil and Gas capitalizes the costs of property acquisitions, decommissioning costs for Big Rock Point nuclear power plant successful exploratory wells, all development costs, and support (Big Rock) and Palisades nuclear power plant (Palisades) to be equipment and facilities when incurred. It expenses unsuccessful $344 million and $599 million (in 1998 dollars), respectively. exploratory wells when they are determined to be non-productive. Consumers filed with the MPSC in March 1998 site-specific CMS Oil and Gas also charges to expense production costs, decommissioning cost estimates for Big Rock and Palisades, overhead, and all exploration costs other than exploratory assuming that each plant site will eventually be restored to con-drilling as incurred. Depreciation, depletion and amortization of form with the adjacent landscape, and that all contaminated proved oil and gas properties is determined on a field-by-field equipment will be disassembled and disposed of in a licensed basis using the units-of-production method over the life of the burial facility. The revised estimated decommissioning costs for remaining proved reserves. Big Rock and Palisades are $304 million and $541 million (in Other nonutility depreciable property is amortized over its 1998 dollars), respectively. The decreases in cost from previous estimated usefullife; gains and losses are recognized at the time estimates are principally due to the Big Rock immediate disman-of sale. tiement and reductions in decommissioning costs. Consumers Nuclear Fuel Cost: Consumers amortizes nuclear fuel cost has determined that the current decommissioning surcharge will to fuel expense based on the quantity of heat produced for be sutlicient to provide for decommissioning of its nuclear plants electric generation. Interest on leased nuc' ear fuel is expensed and anticipates a new MPSC order in early 1999. After retire-as incurred. Under current federal law, as confirmed by court ment of Palisades, Consumers plans to maintain the facility in decision, the U.S. Department of Energy (DOE) was to begin protective storage if radioactive waste disposal facilities are not accepting deliveries of spent nuclear fuel by January 31,1998 available. Consumers willincur most of the Palisades decommis-for disposal. For fuel used after April 6,1983, Consumers sioning costs after the plant's Nuclear Regulatory Commission charges disposal costs to nuclear fuel expense, recovers them (NRC) operating license expires. When the Palisades' NRC through electric rates and remits to the DOE quarterly. Con-license expires in 2007, the trust funds are currently estimated sumers elected to defer payment for disposal of spent nuclear to have accumulated $719 million. Comumers estimates that at fuel burned before April 7,1983. At December 31,1998, Con-the time Palisades is fully decommissioned in the year 2046, the sumers had a recorded liability to the DOE of $117 million, trust funds will have provided $1.9 billion, including trust earn-including interest, which is payable upon the first delivery of ings, over this decommissioning period. At December 31,1998, spent nuclear fuel to the DOE. Consumers recovered through Consumers had an investment in nuclear decommissioning trust electric rates the amount of this liability, excluding a portion of funds of $376 million for Palisades and $181 million for Big Rock. interest. In January 1997, in response to the DOE's declaration Big Rock was closed permanently in 1997 because manage. that it would not begin to accept spent nuclear fuel deliveries ment determined that it would be uneconomical to operate in in 1998, Consumers and other utilities filed suit in federal court. an increasingly competitive environment. The plant was origi-A decision was issued by the court in late 1997 aflirming the nally scheduled to close on May 31,2000, at the end of the DOE's duty to take delivery of spent fuel, but was not specific plant's operating license. The MPSC has allowed Consumers to as to the relief available for failure of the DOE to comply. continue collecting decommissioning surcharges through Further litigation brought by Consumers and others in 1998 December 31,2000. Plant decommissioning began in 1997 and is intended to produce specific monetary relief for the DOE's may take five to ten years to return the site to its original condi-failure to comply. In January 1999, federal legislation was rein-tion. Consumers has spent $75 million for the decommissioning troduced in the flouse of Representatives to clarify the timing and withdrew $68 million from the Big Rock nuclear decommis-of the DOE's obligation to accept spent nuclear fuel and to sioning trust fund. direct the DOE to establish an integrated spent fuel manage-Reclawfications: CMS Energy has reclassified certain prior ment system that includes designing and constructing an year amounts for comparathe purposes. These reclassifications interim storage facility in Nevada. Similar legislation is did not alTect consolidated net income for the years presented. expected to be reintnxtuced in the Senate.
- 39. CMS ENERGY CORPORATION
Notes Continued Rclared Party Transactions: In 1998,1997 and 1996, Con-Foreign Currency Translation: Foreign currency translation sumers purchased $51 million, $51 million and $50 million, adjustments relating to the operation of CMS Energy's long-respectively, of electric generating capacity and energy from term investments in foreign countries are included in common affiliates of Enterprises. Afliliates of CMS Energy sold, stored stockholders' equity. For the year ended December 31,1998, the and transported natural gas and provided other services to the change in the foreign currency translation adjustment totaled MCV Partnership totaling $21 million, $21 million and $17 mil- $40 million, net of after-tax hedging proceeds. lion for 1998,1997 and 1996. For additional discussion of Other: For significant accounting policies regarding cash related-party transactions with the MCV Partnership and the equivalents, see Note 16; for income taxes, see Note 9; for exec-First Midland Limited Partnership (FMLP). see Notes 3 and utive incentive compensation, see Note 1I; and for pensions and
- 18. Other related-party transactions are immaterial.
other postretirement benefits, see Note 12. Utility Regulation: Consumers accounts for the etTects of regulation based on a regulated utility accounting standard 3: UNCEnTAINTIES Statement of Financial Accounting Standards (SFAS) 71. As a Consumers' Electrie Utility Contingencies result, the actions of regulators affect when revenues, expenses, Electric Environmental Matters: The federal Clean Air Act, as assets and liabilities are recognized. SFAS 121 imposes stricter amended (Clean Air Act), limits emissions of sulfur dioxide and criteria for retention of regulatory-created assets by requiring nitrogen oxides and requires emissions and air quality monitor-that such assets be probable of future recovery at each balance ing. Consumers currently operates within these limits and meets sheet date. Management believes these assets will be recovered, current emission requirements The Clean Air Act requires The following regulatory assets (liabilities), which include the Environmental Protection Agency (EPA) to periodically both current and non-current amounts, are reflected in the Con-review the effectiveness of the national air quality standards in solidated Balance Sheets. These costs are being recovered preventing adverse health effects, and in 1997 the EPA revised through rates over periods of up to 14 years. these standards. It is probable that the 1997 standards will result In M WAms in further limitations on small particulate-related emissions. Deceraber 31 199M 1997 in September 1998, based upon the 1997 standards, the EPA Postretirement benefits (Note 12) $ 397 5 429 Administrator signed final regulations requiring the State of Income taxes (Note 9) 148 172 Michigan to further limit nitrogen oxide emissions, Fossil-fueled Abandoned Midland project 71 93 emitters, such as Consumers' generating units, can anticipate a DS 1 cre re ost 2 6 reduction in nitrogen oxide emissions by 2003 to only 32 percent of Uranium enrichment facility 20 22 levels allowed for the year 2000. The State of Michigan has one other 38 28 year to submit an implementation plan. The State of Michigar. has Total regulatory assets 5754 5837 filed a lawsuit objecting to the extent of the required emission income taxes (Note 9) 5(235) 5(226) reductions It is unlikely that the State of Michigan will establish DSM-deferred revenue (24) (24) Consumers' nitrogen oxide emissions reduction target until mid-to-Total regulatory liabihties 5(299) 5(250) late 1999. Until this target is established, the estimated cost of compliance discussed below is subject to revision. If a court were Consumers anticipates that it will discontinue application of to order the EPA to adopt the State of Michigan's position, com-SFAS 71 for the generation segment of its business in the first pliance costs could be less than the preliminary estimated amounts quarter of 1999 as Consumers is now preparing to implement The preliminary estimate of capital expenditures to reduce electric customer direct access. nitrogen oxide-related emissions for Consumers' fossil-fueled Implementation of New Accounting Standards: In 1998 CMS generating units is approximately $290 million, plus $10 million Energy implemented SFAS 130, Reporting Comprehensive per year for operation and maintenance costs. Consumers antic-Income, SFAS 131 Disclosures about Segments of an Enterprise ip tes that these capital expenditures will be incurred between and RelatedInformation, and SFAS 132, Emplorers' Disclomers 1999 and 2003. Consumers may need an equivalent amount of cbout Pensions and Other Postretirement Benefirs. SFAS 130 capital expenditures and operation and maintenance costs to establishes standards for reporting and display of comprehen-c mply with the new small particulate standards. sive income and its components. Equity adjustments related to unrealized investment gains and losses (net of tax) and foreign currency translation, along with consolidated net incc me, com-prise comprehensive income. SFAS 131 and 132 require expanded disclosure concerning segments of an enterprise and pension and other postretirement benefits.
- 40. CMS ENERGY CORPORATION
Consumers' coal-fueled electric generating units burn low. Consumers' Electric Utility Hate Matters sulfur coal and are currently operating at or near the sulfur Electric Proceedings: In 1996, the MPSC issued a final order dioxide emission limits that will be effective in the year 20ml that authorized Consumers to recoser costs associated with the During the past few years, in order to comply with the Clean purchase of the additional 325 megawatts (MW) of the natural Air Act, Consumers incurred capital expenditures totaling gas-fueled, combined-cycle cogeneration facility (MCV Facility) $55 million to install equipment at certain generating units. capacity (see " Power Purchases from the MCV Partnership"in j Consumers estimates an additional $16 million of capital this Note) and to recover its nuclear plant imestment by expenditures for ongoing and proposed modifications at the increasing prospective annual nuclear plant depreciation remaining coal-fueled units to meet year 2000 requirements. expense by $18 million, with a corresponding decrease in fossil-Management believes that these expenditures will not materially fueled generating plant depreciation expense. It also established afTect Consumers' annual operating costs. an experimental direct-access program. Customers having a Under the Michigan Natural Resources and Environmental maximum demand of 2 MW or greater are eligible to purchase Protection Act, Consumers expects that it will ultimately incur generation services directly from any eligible third-party power investigation and remedial action costs at a number of sites. supplier and Consumers will transmit the power for a fee. The Nevertheless, it believes that these costs are properly recoserable direct-access program is limited to 134 MW of load. In accor-in rates under current ratemaking policies. dance with the MPSC order, Consumers held a lottery in April Consumers is a so-called potentially responsible party at 1997 to select the customers to participate in the direct access several contaminated sites administered under the Comprehensive rgram. Subsequently, direct access for a port;on of this 134 Environmental Response, Compensation and Liability Act MW began in late 1997. The program was substantially filled (Superfund). Superfund liability is joint and several; along with by mid-January 1999 and Consumers expects the remaining Consumers, many other creditworthy, potentially responsible amount to begin by the end of the first quarter of 1999. parties with substantial assets cooperate with respect to the In January 1998, the Michigan Court of Appeals (Court of individual sites. Based upon past negotiations, Consumers esti-Appeals) aflirmed an MPSC conclusion that the MPSC haa mates that its share of the total liability for the known Superfund statutory authority to authorize an experimental electric retail sites will be between $3 million and $9 million. At December 31, wheeling program. No retail wheeling has yet occurred pur-1998, Consumers has accrued the minimum amount of the range suant to that program. In October 1998, the Michigan Supreme for its estimated Superfund liability. Court issued an order granting Consumers' application for leave While decommissioning Big Rock, Consumers found that to appeal. A decision by the Michigan Supreme Court in this some areas of the plant have coatings that contain both inetals matter may be issued in mid-1999. and polychlorinated biphenyls. Consumers does not believe that Electric Restructuring: As part of ongoing proceedings relat-any facility in the United States currently accepts the radioac-ing to the restructuring of the electric utility industry in Michi-tive portion of that waste. The cost of removal and disposal is gan, the MPSC in June 1997 issued an order proposing that currently unknown. These costs will constitute part of the cost beginning January 1,1998 Consumers transmit and distribute to decommission the plant, and will be paid from the decom-energy on behalf of competing power suppliers to retail cus-missioning fund. Consumers is studying the extent of the conta-tomers. Further restructuring orders issued in late 1997 and mination and reviewing options. early 1998 provide for: (i) recovery of costs incurred by utilities Antitrust: In October 1997, two independent power producers in order to serve their customers in a regulated monopoly envi-sued Consumers in a federal court. The suit alleges antitrust ronment of $1.755 billion through a charge to all customers violations relating to contracts which Consumers entered into purchasing their power from other sources until the end of the with some of its customers and claims relating to power facili-transition period in 2007, subject to an adjustment through a ties The plaintiffs claim damages of $100 million (which a true-up mechanism;(ii) commencement of the phase-in of court can treble in antitrust cases as provided by law). Con-sumers has filed a motion to dismiss and is awaiting a court rul-ing on this motion. Consumers believes the lawsuit is without merit and will vigorously defend against it, but cannot predict the outcome of this matter.
- 41. CMS ENERGY CORPORATION
Notes Continued direct access in 1998;(iii) suspension of the power supply cost Under this program, customers buying electricity from recovery (PSCR) clause as discussed below; and (iv) all Consumers as traditionai customers will not have their rates customers to choose their power suppliers on January 1,2002. adjusted to reflect the actual costs of fuel and purchased and The recovery of costs of implementing a direct-access program, interchanged power during the 1998-2001 period. In prior preliminarily estimated at an additional 5200 million, would be years, any change in power supply costs was passed through resiewed for prudence and recovered via a charge approved by to Consumers' customers. In order to reduce the risk of high the MPSC. Nuclear decommissioning costs will also continue to energy prices during peak demand periods, Consumers is be collected through a separate surcharge to all customers purchasing energy options and contracting to tuy electricity in June 1998. Consumers submitted its plan for implement-during the months of June throu;;h Eapte4r 1999. Con. ing direct access to the MPSC. The primary issues addressed in sumers is planning to have sufficient generatbn and purchased the plan are: (i) the implementation schedule; (ii) the direct-capacity for a 16 percent to 21 percent reserve margin in order access senice options available to customers and suppliers; to provide reliable service to its electric service customers and to (iii) the process and requirements for customers and others to protect itself against unscheduled plant outages. Under certain obtain direct-access senice; and (iv) the roles and responsibili-circumstances, the cost of purchasing capacity and energy on ties for Consumers, customers and suppliers. In the plan, Con-the spot market could be substantial, sumers proposed to phase in 750 MW of retail customer load to customers purchasing their power from other sources over Other Consumers' Electric Utility Uncertainties the 1998-2001 period. Subsequent to year-end, Consumers The 3/idland Cogeneration lenture: The MCV Partnership, received MPSC electric restructuring orders which generally which leases and operates the MCV Facility, contracted to sell supported Consumers' implementation plan. Accordingly, electricity to Consumers for a 35-year period beginning in 1990 Consumers is now preparing to implement electric customer and to supply electricity and steam to The Dow Chemical Com-direct access. pany. Consumers, through two wholly owned subsidiaries, holds There are numerous appeals pending at the Court of Appeals the following assets related to the MCV Partnership and MCV relating to the MPSC's restructuring orders, including appeals Facility: (i) CMS Midland Inc., a subsidiary of Consumers, owns by Consumers. Consumers believes that the MPSC lacks statu. a 49 percent general partnership interest in the MCV Partnership; tory authority to mandate industry restructuring, and its appeal and (ii) CMS Midland Holdings Company, a subsidiary of is limited to this jurisdictional issue. CMS Energy cannot Consumers. holds, through FMLP, a 35 percent lessor interest predict the outcome of electric restructuring on CMS Energy's in the MCV Facility. financial position, liquidity or results of operations. In October 1998, Consumers initiated a process for the solic. Summarized Statements ofIncomefor C3fS Afidland and C3fS itation of bids to acquire Consumers' rights to 1,240 MW of Iloidings (unaudited): contract capacity and associated energy being purchased from In Millions December 31 199N 1997 1996 the MCV Partnership. Subsequent to year-end, Consumers signed a tentative long-term power sales agreement with PECO Pretas operating income $49 546 540 I "' ** *** * "d 'h I5 I4 II Energy Company. This transaction is subject to obtaining sat. Net income 5 14 532 529 isfactory rate-making and accounting treatment and regulatory rulings. In an order issued in 1998, the MPSC delayed its con-sideration of the bidding process until a definitive agreement Power Purcha.sesfrom the 3/CV Partnership Consumers' was signed (subject to resiew by the MPSC), but stated that annual obligation to purchase capacity from the MCV Partner-Consumers' approach offers a legitimate way to utihze indepen-ship is 1,240 MW through the termination of the PPA in 2025. dent market forces to determine the abme-market or stranded The PPA provides that Consumers is to pay a levelized average portion of Consumers' obligations under the Power Purchase capacity charge, based on the MCV Facility's availability, of Agreement (PPA) with the MCV Partnership. Consumers antic. 3.77 cents per kilowatt-hour (kWh), a fixed energy charge, and a ipates that its regulatory filing will be made with the MPSC for variable energy charge based primarily on Consumers' average consideration by the end of the first quarter of 1999. As a result of a 1998 MPSC order in connection with the electric restructuring program, Consumers' abihty to recover certain costs pursuant to the PSCR process was suspended.
- 42. CMS ENERGY CORPORATION
cost of coal consumed. Since January 1,1993, Consumers has In February 1998, the MCV Partnership filed a claim of been permitted by the MPSC to recover capacity charges aver-appent from the January 1998 and February 1998 MPSC orders aging 3.62 cents per kWh for 915 MW, plus a substantial portion in the electric utility industry restructuring. At the same time, of the fixed and variable energy charges. Since January 1,1996, the MCV Partnership filed suit in the U.S. District Court seek-Consumc s also has been permitted to recover capacity charges ing a declaration that the MPSC's failure to provide Consumers for the remaining 325 MW of contract capacity with an initial and the MCV Partnership a certain source of recovery of average charge of 2.86 cents per kWh increasing periodically to capacity payments after 2007 deprived the MCV Partnership of an eventual 3.62 cents per kWh by 2004 and thereafter. Because its rights under the Public Utilities Regulatory Policies Act of the MPSC has already approved recovery of this capacity, Con-1978. The MCV Partnership is seeking to prohibit the MPSC l sumers expects to recover these increases through an adjustment from implementing portions of the order. to the currently frozen PSCR level. This adjustment is currently Nuc/ car Matters: In January 1997, the NRC issued its under consideration by the MPSC. After September 2007, Systematic Assessment of Licensee Performance report for Pal-under the terms of the PPA, Consumers will only be required to isades. The report rated all areas as good. The NRC suspended pay the MCV Partnership capacity and energy charges that the the assessment process for all licensees in 1998. j M PSC has authorized for recovery from electric customers. Palisades' temporary on-site storage pool for spent nuclear j Consumers recognized a loss in 1992 for the present value of fuel is at capacity. Consequently, Consumers is using NRC-I the estimated future underrecoveries of power costs under the approved steel and concrete vaults, commonly known as " dry PPA based on MPSC recovery orders. At December 31,1998 casks," for temporary on-site storage. As of December 31,1998 and December 31,1997, the remaining after-tax present value Consumers had loaded 13 dry storage casks with spent nuclear of the estimated future PPA liability associated with the 1992 fuel at Palisades and plans to load five additional casks in 1999 loss totaled $110 million and $117 million, respectively. At pending approval by the NRC, In June 1997, the NRC approved December 31,1998, the undiscounted after tax amount associ-Consumers' process for unloading spent fuel from a cask previ-ated with this liability totaled $164 million. These after tax cash ously discovered to have minor weld flaws. Consumers intends underrecoveries are based on the assumption that the MCV to transfer the spent fuel to a new transportable cask when one Facility would be available to generate electricity 91.5 percent of is available - the time over its expected life. Historically the MCV Facility has Consumer 1 maintains insurance coverage against property operated above the 91.5 percent level. Accordingly,in 1998, damage, debris removal, personal injury liability and other risks Consumers increased its PPA liability by $37 million. Because that are present at its nuclear generating facilities. Consumers the MCV Facility was available 99.4 percent of the time in also maintains coverage for replacement power costs during pro-1998, Consumers has an accumulated unrecovered after-tax longed accidental outages at Palisades. Insurance would not shortfall of $10 million as of December 31,1998. If the MCV cover such costs during the first 17 weeks of any outage, but Facility was to be available to generate electricity at the would coser most of such costs during the next $8 weeks of the expected 91.5 percent level during the next five years, outage, followed by reduced coverage to 80 percent for two addi-Consumers' after-tax cash underrecoveries associated vith the tional years, if certain covered losses occur at its own or other PPA would be as follows. ' nuclear plants similarly insured, Consumers could be required to !n Millions pay maximum assessments of $15 million in any one year to 1999 2000 2001-2002 2003 Nuclear Electric Insurance Limited; $88 million per occurrence, Estimated cash under- $21 $20 $19 $18 limited to a maximum installment payment of $10 million per recoveries, net of tax $22 occurrence in any year; and $6 million if nuclear workers claim bodily injury from radiation exposure. Consumers considers the if the MCV Facility operates at availability levels atove possibility of these assessments to be remote. management's estimate over the remainder of the PPA, Con-sumers will need to recognize additional losses for futu e under-recoveries. For further discussion on the impact of the frozen PSCR, see " Electric Restructuring"in this Note. Manajement will continue to evaluate the adequacy of the contract lass liability considering actual MCV Facility operations an d the potential sale of the PPA. I 1
- 43. CMS ENERGY CORPORATION
LNotes Continued . The NRC requires Consumers to make certain calculations requirements, could affect the estimate of remedial action costs and report on the continuing ability of the Palisades reactor for the sites. Consumers defers and amortizes over a period of vessel to withstand postulated pressurized thermal shock events ten years, environmental clean-up costs above the amount cur-during its remaining license life, considering the embrittlement rently being recovered in rates. Rate recognition of amortization of reactor materials. In December 1996, Consumers received an expense will not begin until after a prudence review in a general interim Safety Evaluation Report from the NRC indicating that rate case. Consumers is allowed current recovery of $1 million the reactor vessel can be safely operated through 2003 before annually. Consumers has initiated lawsuits against certain insur-reaching the NRC's screening criteria for reactor embrittlement. ance companies regarding coverage for some or all of the costs Consumers believes that with fuel management designed to that it may incur for these sites. minimize embrittlement, it can operate Palisades to the end of its license life in the year 2007 without annealing the reactor Consumers Gas Group Matters vessel. Nevertheless, Consumers will continue to monitor the Gas Restructuring: In December 1997, the MPSC approved matter. Consumers' application to implement an experimental gas Commitmentsfor Coal Supplies: Consumers has entered into transportation program, which will extend over a three-year coal supply contracts with various suppliers for its coal-fired period, eventually allowing 300,000 residential, commercial and generating stations. Under the terms of these agreements, industrial retail gas sales customers to choose their gas supplier Consumers is obligated to take physical delivery of the coal in direct competition with Consumers. The program is volun-and make payment based upon the contract terms. Consumers' tary and participating natural gas customers are selected on a current contracts have expiration dates that range from 1999 to first-come, first-served basis, up to a limit of 100,000 per year, 2004. Consumers enters into long-term contracts for approxi. As of December 31,1998, more than 102,000 customers chose mately 50-75 percent of its annual coal requirements. In 1998 alternative gas suppliers, representing approximately 24.1 billion coal purchases totaled $246 million of which $16! million cubic feet (bc0 or gas load. Customers choosing to remain as (c0 percent of the tonnage requirement) was under long-term sales customers of Consumers will not see a rate change in contract. Consumers supplements its long-term contracts with their natural gas rates. This three-year program: (i) suspends spot-market purchases. Consumers' gas cost recovery clause, effective April 1,1998, establishing a gas commodity cost at a fixed rate of $2.84 per Consu nors Gas Group Contingencies thousand cubic feet (mc0;(ii) establishes an earnings sharing Gas EnvironmentalMatters: Under the Michigan Natural mechanism with customers if Consumers' carnings exceed Resources and Environmental Protection Act, Consumers certain pre-determined levels; and (iii) establishes a gas trans-expects that it will ultimately incur investigation and remedial portation code of conduct that addresses the relationship action costs at a number of sites, including some 23 sites that for-between Consumers and marketers, including its affiliated mar. merly housed manufactured gas plant facilities, even those in keters. In January 1998, the Michigan Attorney General, which it has a' partial or no current ownership interest. On sites Association of Businesses Advocating Tariff Equity and other where Consumers has received site-wide study plan approvals, it parties filed claims of appeal regarding the program with the will continue to implement these plans. It will also work toward Court of Appeals. closure of environmentalissues at sites as studies are completed. Consumers estimates its costs related to investigation and reme-dial action for all 23 sites between $48 million and $98 million, of which Consumers accrued a liability for 548 million. These - estimates are undiscounted 1998 costs. As of December 31. 1998, Consumers has an accrued liability of 548 million and a - regulatory asset for approximately the same amount. Any sig-nificant change in assumptions, such as remediation techniques, ' nature and extent of contamination, and legal and regulatory
- 44. CMS ENERGY CORPORATION
Consumers uses gas purchase contracts to limit its risk asso-CMS Energy has accrued estimated sosses for certain contin-ciated with gas price increases. It is management's intent to take gencies discussed in this Note. Resolution of these contingencies physical delivery of the commodity and failure could result in a is not expected to have a material adverse impact on CMS significant penalty for nonperformance. At December 31,1998 Energy's financial position, liquidity or results of onerations. Consumera had an exposure to gas price increases if the ulti-mate cost of gas was to exceed $2.84 per mcf for the following 4: SHORT.TEnM FIN ANCINGS volumes: 15 percent of its 199.equirements; 45 percent of its At December 31,1998, CMS Energy and a subsidiary had 2000 requirements; and 45 percent of its first quarter 2001 bridge loan facilities negotiated with domestic banks in an requirements Additional contract coverage is currently under aggregate amount of $1.9 billion. These facilities were specifi-review. The gas purchase contracts currently in place were con-cally available to finance CMS Energy's acquisition of the summated at prices less than $2.84 per mcf. The gas purchase Panhandle Companies, and had a term of six months from the contracts are being used to protect against gas price increases in date of acquisition. These facilities had aggregate average com-a three-year experimental gas r rogram where Consumers is mitment and usage fees of approximately 53 basis points on recovering from its customers $2.84 per mcf for gas. amounts committed and/or used. Commitmentsfor Gas Supplies: Consumers entered into gas At February 1,1999. Consumers had Federal Energy supply contracts and transportation contracts with various Regulatory Commission (FERC) authorization to issue or guar-suppliers for its natural gas business. These contracts have expi-antee through June 2000, up to $900 million of short-term ration dates that range from 1999 to 2003. Consumers' 1998 gas securities outstanding at any one time and to guarantee, through requirements totaled 210 bef at a cost of $565 milhon,70 per-1999, up to $25 million in loans raade by others to residents cent of which was under long-term contracts for one year or of Michigan for making energy-related home improvements, more. As of the end of 1998, Consumers had 85 percent of its Consumers also had remaining FERC authorization to issue 1999 gas requirements under such long-term contracts, and wil! through June 2000, up to $475 million and $425 million of long-supplement them with additionallong-term contracts and spot. term securities with maturities up to 30 years for retinancing market purchases. purposes and for general corporate purposes respectively. Consumers has an unsecured $425 million credit facility and Other Uncertainties unsecured lines of credit aggregating $130 million. These facili. CMS Generation Environmental Matters: CMS Generation Co. ties are available to tinance seasonal working capital require. (CMS Generation) does not currently expect to incur significant ments and to pay for capital expenditures between long-term capital costs, if any, at its power facilities to comply with cur-financings. At December 31,1998, a total of $215 million was rent environmental regulatory standards. outstanding at a weighted average interest rate of 5.8 percent, Capital Expenditures: CMS Energy estimates capital expen-compared with $377 million outstanding at December 31,1997, ditures, including investments in unconsolidated subsidiaries at a weighted average interest rate of 6.5 percent. In January and new lease commitments, of $4.148 billion for 1999, which 1999, Consumers renegotiated a variable-to-fiwd interest rate includes approximately $2.2 billion for the acquisition of the swap totaling $175 million in order to reduce the impact of Panhandle Eastern Pipe Line Company, Trunkline Gas Com-interest rate fluctuations. pany, Pan Gas Storage Company, Panhandle Storage Company Consumers also has in place a $500 million trade receivables and Trunkline LNG Company (Panhandle Companies), sale program. At December 31,1998 and 1997, receivables sold $1.450 billion for 2000, and $1.175 billion for 2001. For further under the program totaled $306 million and $335 million, respec-information, see Capital Resources and Liquidity-Capital tively. Accounts receivable and accrued revenue in the Consoh. Expenditures in the Management's Discussion and Analysis. dated Balance Sheets have been reduced to reflect receivables sold. Other As of December 31,1998, CMS Energy and Enter-prises have guaranteed up to $433 million in contingent obliga-tions of unconsolidated affiliates and related parties. In addition to the matters disclosed in this note, Consumers and certain other subsidiaries of CMS Energy are parties to certain lawsuits and administrative proceedings before various courts and governmental agencies arising from the ordinary course of business. These lawsuits and proceedings may involve personal injury, property damage, contractual matters, environmental issues, federal and state taxes, rates, licensing and other matters.
- 45. CMS ENERGY CORPORATION
r . Notes Continued - 6: LONG. TERM DEST Long-term debt consists of the following: In Afillions . December 31 Maturing / Expiring Interest Rate 1998 1997 First Mortgage Bonds 1998 to 2023 6.4% to 8.9% S 628 $ 1,255 Long-Term Bank Debt 2003 5.8% /a> 175 400 Senior Notes: CMS Energy 2000 to 2004 7.8% fa) 830 .830 Consumers 2008 to 2028 6.5%(a> 'I,075 Extendible Tenor Rate Adjusted Securities 2005* 7.0%'al 180 Senior Credit Facilities 2002 6.6% fa> 669 305 General Term Notes' 1999 to 2008 7.5% ra> 625 509 Series A to E . Pollution Control Revenue Bonds 2000 to 2018 5.2% /a/ 131 131 ' Term Loan Agreement-CMS Generation 1998 7.4% /a/ 91 Revolving Line of Credit 2003 ' 5.9%'a> 168 124 Nuclear Fuel Disposal /c1 5.1 % 'a> 117 111 ' Bank Loans and Other 1999 to 2014 7.7% ral 410 134 Principal Amount Outstanding 5,008 3,890 Current Amounts (258) (609) Net Unamortized Discount (24) (9) - Total Long-Term Debt $4,726 $3.272 (a) Represents the weightedaverage interest rate at December 31,1998. (h) Afay be extendedfor an adJitionalseven years. (c) Ataturity date uncertain (see Note 2). The scheduled maturities of long-term debt and improve-In January 1999, CMS Energy received net proceeds of ment fund obligations are as follows: $258 million in 1999, - approximately $473 million from the sale of $480 million of $408 million in 2000, $96 million in 2001, $1.306 billion in 2002 senior notes. In February 1999, CMS Energy received net pro-and $592 million in 2003. ceeds of approximately $296 million from the sale of $300 mil. lion of senior notes. Proceeds from these o!Terings were used to CMS Energy repay debt and for general corporate purposes. CMS Energy has $725 million of senior credit facilities consist-ing of a $600 nillion three-year revolving credit facility and a Consumers five-year $125 million term loan facility (Senior Credit Facili-Consumers issued a total of $1.075 billion of senior notes ties). Additionally, CMS Energy has unsecured lines of credit throughout 1998 at varying interest rates between 6.2 percent and letters of credit in an aggregate amount of $216 million. At and 6.875 percent, principal amounts between $150 million and December 31,1998, the total amount utilized under the Senior $250 million, and maturities from 2008 to 2028. The senior notes Credit Facilities was $725 million, including $57 million of con-are secured by Consumers First Mortgage Bonds issued contem-tingent obligations, and under the unsecured lines of credit and poraneously in similar amounts and one series of senior notes-letters of credit was $147 million. also is secured by an insurance policy. Consumers also issued in January 1998, a Delaware statutory business trust estab-long-term bank debt of $225 million in May 1998, maturing in liched by CMS Energy sold $180 million of certificates due Jan. 2001 to 2003, at an initial interest rate of 6.05 percent. Proceeds uary 15,2005 in a public olTering. In exchange for those from these issuances were used primarily to pay down $627 million proceeds, CMS Energy sold to the trust $180 million aggregate of First Mortgage Bonds and $450 million of long-term bank principal amount of 7 percent Extendible Tenor Rate Adjusted debt, as well as for general corporate purposes. Securities due January 15,2005, which may be extended for an additional seven years. Net proceeds to CMS Energy from the sale totaled $176 million. In August 1998, CMS Energy filed a shelf registration state-ment for the issuance of $400 million of General Term Notes' Series E. es. CMS ENERGY CORPORATION L.. Consumers secures its First Mortgage Bonds by a mortgage Consumers has 4.8 million shares of 8.2 percent Trust Preferred and lien on substantially all of its property Consumers' ability to Securities which were sold through Consumers Energy Com-issue and sell securities is restricted by certain provisions in its pany Financing II, a wholly owned business trust consolidated First hfortgage Bond Indenture, its Articles of incorporation and with Consumers. Net proceeds from the sale totaled $116 mil-the need for regulatory approvals to meet appropriate federal law. lion. Consumers formed both trusts for the sole purpose of Consumers'long-term pollution control revenue bonds are issuing the Trust Preferred Securities. Consumers' obligations secured by irrevocable letters of credit or First Mortgage with respect to the Trust Preferred Securities under the related Bonds, and an insurance policy. tax-deductible notes, under the indenture through which Con-sumers issued the notes, under Consumers' guarantee of the CMS Oil and Gas Trust Preferred Securities, and under the declaration by the CMS Oil and Gas has a $225 million revolving credit facility trusts, taken together, constitute a full and unconditional guar-that converts to term loans maturing from March 1999 through antee by Consumers of the trusts' obligations under the Trust March 2003. Preferred Securities. Under the provisions of its Articles of incorporation, 6: C A PITA LIZ ATIO N Consumers had $300 million of unrestricted retained earnings CMS Energy available to pay common dividends at December 31,1998. The authorized capital stock of CMS Energy consists of 250 In.lanuary 1999, Consumers declared and paid a $97 million million shares of CMS Energy Common Stock, one of two common dividend. classes of par value $.01 per share (CMS Energy Common Stock),60 million shares of Class G Common Stock, one of 7: EARNINGS PER JHARE AND DIVIDENDS two classes of no par value (Class G Common Stock), and 10 CMS Energy currently has two classes of common stock: million shares of CMS Energy Preferred Stock,5.01 par value. CMS Energy Common Stock and Class G Common Stock in November 1998, CMS Energy sold 4.5 million new shares (Common Stock). Earnings per share attributable to Common of CMS Energy Common Stock in a block trade. The net pro-Stock for the years ended December 31,1998,1997 and 1996 ceeds of approximately $208 million were used for general cor-include earnings of the gas distribution, storage and transporta-porate purposes. tion businesses currently conducted by Consumers and Michi. In December 1998, CMS Energy filed a shelf registration gan Gas Storage Company (Consumers Gas Group). The statement for theissuance of $1.5 billion of CMS Energy Com-allocation of earnings attributable to each class of common mon Stock, trust preferred securities and other securities which stock and the related amounts per share are computed by con-could be converted into CMS Energy Common Stock. sidering the weighted average number of shares outstanding. CMS Energy, through CMS Energy Trust 1, a wholly owned Earnings attributable to the outstanding shares of Class G business trust, sold 3.45 million units of 7.75 percent tax Common Stock (Outstanding Shares) are equal to Consumers deductible Trust Preferred Securities. The primary asset of CMS Gas Group net income multiplied by a fraction; the numerator Energy Trust I is $178 million principal amount of 7.75 percent is the weighted average number of Outstanding Shares during subordinated debentures issued by CMS Energy, which mature the period and the denominator is the weighted average number in 2027. These tax deductible Trust Preferred Securities are con-of Outstanding Shares and authorized but unissued shares of vertible into 4.2 million shares of CMS Energy Common Stock Class G Common Stock not held by holders of the Outstanding at a rate equivalent to a conversion price of $40.80 per share of Shares during the period. The earnings attributable to Class G CMS Energy Common Stock. Common Stock on a per share basis for 1998,1997 and 1996 Other Under its most restrictive borrowing arrangement at are based on 25.5 percent,24.5 percent, and 23.8 percent, December 31,1998, none of CMS Energy's consolidated net respectively, of the income of Consumers Gas Group. income was restricted for payment of common dividends. CMS Energy could pay $800 million in common dividends under its most restrictive debt covenant. Consumers. Consumers has 4 million shares of 8.36 percent Trust Preferred 2 Securities which were sold through Consumers Power Company Financing I, a wholly owned business trust consolidated with Consumers Net proceeds from the sale totaled $97 million.
- 47. CMS ENERGY CORPORATION
1 l I Notcs Continued 1998, ChtS Energy paid dividends of $.33 per share on ChtS Computation of Earnings Per Share: Energy Common Stock and 5.325 per share on Class G Common In Millions, Except Per Share Amounts Stock. In January 1999, the Board of Directors declared a quar-1998 1997 1996 terly dividend of 5.33 per share on ChiS Energy Common Stock Net incom. Aponcadie to enic and 5.325 per share on Class G Common Stock, which were paid and oiluted Earnings Per Share jg pgh7gg7y g ggg, Consolidated Net Ineome 5 285 5244 5 224 Net income Attributable to 8; RISK M AN AGEMENT ACllVITIES AND Common Stocks: DEntvATivEs in ANS ACTIONS CMS Energy-Basic Income 5 272 $229 $ 210 ChtS Energy and its subsidiaries use a variety of derivative P er" 5 ri i s or tax) 9 5 - instruments (derivatives), including futures contracts, swaps, 0p ons and forward contracts, to manage exposure to fluctua-CMS Energy-Diluted Income 5 281 $234 $ 210 tions m commodity prices, interest rates and foreign exchange Class G-rates To qualify for hedge accounting, derivatives must meet the Basic and Diluted Income 5 13 $ 15 5 14 following criteria: (i) the item to be hedged exposes the enterprise Aurap Common Shores outstandmg AppUcable to tbsie and olluted to price, interest or exchange rate risk; and (ii) the derivative Earnings Per Sharo reduces that exposure and is designated as a hedge. CMS Energy: Derivative instruments contain credit risk if the counter par-Average Shares-Basic 102.4 96.1 92.5 ties, including financial institutions and energy marketers, fail to Add con rsion of 7.75% Trust 3 3 _ perform under the agreements. ChtS Energy minimizes such risk Options-Treasury Shares 0.5 0.3 0.2 by performing financial credit reviews using, among other things, publicly available credit ratings of such counter parties Nonper-l Average Shares-Diluted 107.2 98.7 92.7 f rmance by counter parties is not expected to have a material l Class G: Average Shares adverse impact on Ch1S Energy's financial position, liquidity or Basic and Diluted 8.3 8.0 7.7 results of operations. Earnings Per Averaae Commodity Price Hedges: CMS Energy accounts for its com-Commun Shat? modity price derivatives as hedges, as defined above, and as such, CMS Energy: defers any changes in market value and gains and losses resulting I m se ments und th Wgd transadon is comph U DI ed 3 there was a loss of correlation between the changes Class G: Basic and Diluted 1.56 1.84 1.82 in (i) the market value of the commodity price contracts and (ii) the market price ultimately received for the hedged item, and Holders of Class G Common Stock have no direct rights in the impact was material, the open commodity price contracts w uld be marked to market and gains and losses would be recog-the equity or assets of Consumers Gas Group, but rather have l nized in the income statement currently. rights in the equity and assets of CMS Energy as a whole. In Consumers has entered into and will enter mto electric option the sole discretion of the CMS Energy Board of Directors c ntracts to ensure a reliable source of capacity to meet its (Board of Directors), CMS Energy may pay dividends exclu-sively to the holders of Class G Common Stock, exclusively to cust mers electric requirements and to hmit its risk associated with electricity price increases it is management's intent to take the holders of CMS Energy Common Stock, or to the holders physical delivery of the commodity. Consumers continuously of both classes in equal or unequal amounts. The Board of evaluates its daily capacity needs and sells the option contracts, if Directors has stated its intention to declare and pay dividends marketable, when it has excess daily capacity. Consumers' maxi-on the CMS Energy Common Stock based primarily on the mum exp sure ass ciated with these options is limited to premi-earnings and financial condition of CMS Energy. Dividends on ums paid, Class G Common Stock are paid at the discretion of the Board CMS Oil and Gas has one arrangement which is used to fix of Directors based primarily upon the earnings and financial the prices that CMS 0:1 and Gas will pay for gas supplied to the condition of Consumers Gas Group, and to a lesser extent, CMS Energy as a whole. h1CV Facility for the years 2001 through 2006 by purchasing the ec n mic equivalent of 10,000 million British thermal units In February and May 1998, CMS Energy paid dividends of (MMBtu) per day at a fixed price, escalating at 8 percent per year S.30 per share on CMS Energy Common Stock and 5.31 per share on Class G Common Stock. In August and November
- 48. CMS ENERGY CORPORATION
theicafter, starting at $2.82 per MMBtu in 2001. The settlement 9: mcout uxEs periods are each a one-year period ending December 31,2001 CMS Energy and its subsidiaries file a consolidated federal through 2006 on 3.65 million MMBtu. If the floating price, income tax return. Income taxes are generally allocated based essentially the then-current Gulf Coast spot price, for a period on each company's separate taxable income. CMS Energy and is higher than the fixed price, the seller pays CMS Oil and Gas Consumers practice full deferred tax accounting for temporary the difTerence, and vice versa. If a party's exposure at any time differences, but federal income taxes have not been recorded on exceeds 55 million, that party is required to obtain a letter of the undistributed earnings of international subsidiaries where credit in favor of the other party for the excess over $5 million CMS Energy intends to permanently reinvest those earnings. and up to $10 million. At December 31,1998, no letter of Upon distribution, those earnings may be subject to both U.S. credit was posted by either party to the agreement. As of income taxes (adjusted for foreign tax credits or deductions) and December 31,1998, the fair value of this contract reflected withholding taxes payable to various foreign countries. It is not payment due from CMS Oil and Gas of $14.5 million. practical to estimate the amount of unrecognized deferred A subsidiary of CMS Gas Transmission uses natural gas income taxes or withholding taxes on undistributed carnings. future contracts and CMS Marketing, Services and Trading CMS Energy used investment tax credit (iTC) to reduce cur. Company uses natural gas and oil futures contracts, options rent income taxes payable, and amortizes ITC over the life of and swaps (which require a net cash payment for the difference the related property. Any alternative minimum tax (AMT) paid between a fixed and variable price). generally becomes a tax credit that CMS Energy can carry for-Interest Rate Hedges: CMS Energy and some of its sub-ward indefinitely to reduce regular tax liabilities in future peri-sidiaries enter into interest rate swap agreements to exchange ods when regular taxes paid exceed the tax calculated for AMT, variable rate interest payment obligations to fixed rate obliga-The significar' components of income tax expense (benefit) tions without exchanging the underlying notional amounts. consisted of: These agreements convert variable rate debt to fixed rate debt In Millions to reduce the impact of interest rate fluctuations. The notional Years Ended December 31 199N 1997 1996 amounts parallel the underlying debt levels and are used to current income taxes measure interest to be paid or received and do not represent Federal and other 5 61 5 76 5 86 the exposure to credit lon The notional amount of CMS 8'* ","d I ""I -) 3 4 Energy's and its subsidiaries' interest rate swaps was $579 mil-g g g lion at December 31,1998. The difference between the Deferred income taxes amounts paid and received under the swaps is accrued and Federal 77
- 41 54 recorded as an adjustment to interest expense over the life of Foreign (7)
(7) the hedged agreement. 70 34 54 Foreign Exchange Hedges: CMS Energy uses forward exchange contracts and collared options to hedge certain Deferred ITC, net (16) (10) (10) receivables, payables, long-term debt and equity value relating $123 5108 5137 to foreign investments. The purpose of CMS Energy's foreign (a) Includes $23 millionfor 1998 change in property tax accounting currency hedging activities is to protect the company from the risk that U.S. dollar net cash flows resulting from sales to for-eign customers and purchases from foreign suppliers and the repayment of non-U.S. dollar borrowings as well as equity reported on the company's balance sheet, may be adversely atiected by changes in exchange rates. These contracts do not subject CMS Energy to risk from exchange rate movements because gains and losses on such contracts offset losses and gains, respectively, on assets and liabilities being hedged. The notional amount of the outstanding foreign exchange contracts was 5736 million at December 31,1998, which includes $450 mil-lion and $250 million for Australian and Brazilian foreign exchange contracts, respectively. Subsequent to December 31, 1998, the fair value of the Brazilian foreign exchange contracts increased significantly, as the Brazilian real weakened against the U.S. dollar.
- 40. CMS ENERGY CORPOR ATION k
v Notes Continued The principal components of CMS Energy's deferred tax 10: FIN ANCI AL INSTRUMENTS S assets (liabilities) recognized in the balance sheet are as follows: The carrying amounts of cash, short-term inve;tments and cur-In Millions rent liabilities approximate their fair values due to their short-December 31 199N 1997 term nature. The estimated fair values of long-term investments Property 5 (574) 5 (558) are based on quoted market prices or, in the absence of specific Unconsolidated investments (2N5) (263) market prices, on quoted market prices of similar investments ( ( r other valuation techniques. The carrying amounts of all long-Ab nd ned hii lan roject 3 Employee benefit obligations term investments in financial instruments approximate fair value. (includes postretirement benefits The carrying amount and fair values of long-term debt were of $141 and $155) IN2 195 $4,7 billion at December 31,1998 and $3.3 billion at Decem. AMT earryforward 134 147 ber 31,1997. Although the current fair value of the long-term Power purchases debt may ditTer from the current carrying amount, settlement of the reported debt is F a erally not expected until maturity. The s (649) 5 (610) carrying amount of preferred stock and Trust Preferred Securi-i $( $( ) ties was $631 million at December 31,1998 and $631 million at o e 8 December 31,1997, and the fair value was $631 million and s (M9) 5 (610) $632 million, respectively. The fair values of CMS Energy's off balance-sheet financial The actual income tax expense differs from the amount com-nstruments are based on the amounts estimated to terminate puted by applying the statutory federal tax rate of 35% t or settle the instruments. At December 31,1998, the fair value income before income taxes as follows: of CMS Energy's interest rate swap agreements, with a notional I" Millio"2 amount of $579 million, was $15 million, representing the Years Ended December 31 1998 1997 1996 amot.nl that CMS Energy would have to pay to terminate the before r erdd j agreements. The settlement of the interest rate swap agreements in 1998 did not materially affect interest expense. At December 31, Domestic s247 5222 5230 Foreign 57 47 22 1997, CMS Energy would have paid $13 million to terminate 304 269 252 the agreements. Also refer to Note 8 for a discussion of CMS Income tax expense 123'* 108 137 Oil and Gas' price hedging arrangements and their fair values. 427 377 389 Guarantees were $433 million and $543 million at December 31, Statutory federalincome tax rate s35% x 35% x 35% 1998 and 1997, respectively. Expeted income tax expeme 149 132 136 The amortized cost of Consumers' nuclear decommissioning Increase (decrease)in taxes from: investments, which are considered available-for-sale securities in Capitalized overheads previously accordance with SFAS 115, Accounting for certain Investments flowed through 5 5 5 in Debt and Equity Securities, was $425 million and $405 million P.. .ces m book and tax depreciation nreviously deferred 14 14 13 as of December 31,1998 and 1997, respectively. The unrealized impact of foreign taxes, tax rates gain, which is classified in accumulated depreciation, was and credits (5) 1 8 $132 million and $81 million as cf December 31,1998 and Undistributed earnings of [997, respectively. international subsidiaries (13) (10) (2) ITC amortization /djustaients (16) (10) (10) Section 29 Fuel Tax Credits (13) (13) (13) Other. net 2 (11) 5123 5108 5137 Effective tax rate 28.N% 28.6 % 35.4 % (a) Inchules $23 millionfor 1998 change in property tax accounting.
- 50. CMS ENERGY CORPORATION
i j 11: EXECUTIVE INCENTIVE COMPENSATION restricted CMS Energy Common Stock outstanding are subject Under CMS Energy's Performance incentive Stock Plan, to performance objectives. At December 31,1998 all of the restricted shares of Common Stock as well as stock options and 30,490 restricted shares of Class G Common Stock outstanding stock appreciation rights relating to Common Stock may be are subject to performance objectives. j granted to key employees based on their contributions to the Under the plan, stock options and stock appreciation rights successful management of CMS Energy and its subsidiaries. relating to Common Stock are granted with an exercise price Awards under the plan may consist of any class of Common equal to the closing market price on each grant date. Options are Stock. Certain plan awards are subject to performance-based exercisable upon grant and expire up to ten years and one month business criteria. The plan reserves for award not more than from date of grant. three percent of Common Stock outstanding on January I each The weighted average fair value of options granted for CMS year, less (i) the number of shares of restricted Common Stock Energy Common Stock was $6.43 in 1998, $6.38 in 1997, and awarded and (ii) Common Stock subject to options granted $6.94 in 1996. The weighted average fair value of options 4 1 under the plan during the immediately preceding four calendar granted for Class G Common Stock was $3.03 in 1998, $1.87 in years. Any forfeitures of shares previously awarded willincrease 1997 and $1.59 in 1996. Fair value is estimated using the Black-the number of shares available to be awarded under the plan. Scholes model, a mathematical formula used to value options At December 31,1998, awards of up to 681,603 shares of CMS traded on securities exchanges, with the following assumptions: Energy Common Stock and 138,780 shares of Class G Com-mon Stock may be issued Years Ended December 31 1998 1997 1996 Restricted shares of Common Stock are outstanding shares CMS Energy Common Stock Options Risk-free interest rate 5.45% 6.06 % 6.63% with full voting and disidend rights. These awards vest over five Expected stock-price volatility 15.93 % 17.43% 24.08 % years at the rate of 25 percent per year after two years. The Expected dividend rate s.33 5 30 $.27 restricted shares are subj.ect to achievement of specified levels of Expected option life (> cars) 4 5 5 total shareholder return and are subject to forfeiture if employ-class o common stock options ment terminates before vesting. If performance objectives are Risk-free interest rate 5.44 % 6.06 % 6.63 % exceeded, the plan provides additional awards. Restricted shares Expected stock-price volatility 2n.02% 18.05% 16.19 % dd d $' 9$ vest fully if control of CMS Energy changes, as defmed by the o fe ( plan. At December 31,1998,658,494 of the 861,744 shares of CMS Energy applies Accounting Principles Board Opinion 25 and related interpretations in accounting for the Performance Incentive Stock Plan. Since stock options are granted at market price, no compensation cost has been recognized for stock options granted under the plan. The compensation cost charged against income for restricted stock was $9 million in 1998, $6 million in 1997, and $2 million in 1996. If compensation cost for stock options had been determined in accordance with SFAS 123, Account-l ingfor Stock-Based Compensation. CMS Energy's consolidated net income and earnings per share would have been as follows: l l In Millions. Except Per Share Amounts Pro Forma As Reported Years Ended December 31 1998 1997 1998 1997 l Consolidated Net income S283 $242 S285 $244 l Net income Attributable to Common Stocks CMS Energy 270 228 272 229 Class G 13 14 13 15 l Earnings Per Average Common Share CMS Energy Basic 2.64 2.37 2.65 2.39 Diluted 2.61 2.35 2.62 2.37 Class G Basic and Diluted 1.54 1.81 1.56 1.84 i
- 51. CMS ENERGY CORPORATION
Notes Continued The status of the restricted stock granted to CMS Energy's key employees under the Performance incentive Stock Plan and options granted under the plan follows. Restricted 1 Stock Options Number Number Weighted-Average of Shares of Shares Exercise Price CMS Owrgy Common Stock. Outstanding at January 1,1996 517,447 1,592,000 $24.50 Granted 222,000 368,176 $30.55 Exercised or Issued (92,533) (231,550) $20.79 Forfeited (46,076) Expired (12,000) $32.88 Outstanding at December 31,1996 600,838 1,716,626 $26.24 Granted 366,360 ' 431,500 $35.91 Exercised or issued (159,405) (479,422) $26.54 Forfeited (59,582) Expired (2,987) $30.13 Outstanding at December 31,1997 748,211 1,665,717 $28.65 Granted 304,750 376,000 543.38 Exercised or Issued (185,217) (331,925) 527.69 Forfeited (6,000) Outstanding at December 31,1998 861.744 1,709.792 532.07 Class G Common mock: Outstanding at January 1,1996 6,924 10,000 $17.88 Granted 9,423 11,000 $17.88 ~ Outstanding at December 31 1996 16,347 21,000 $17.88 Granted 8,784 12,000 $20.24 i Exercised or issued (1,385) (5,000) $17.88 Forfeited (3,955) Outstanding at December 31,1997 19,791 28,000 $18.89 Granted 14,720 45,900 524.50 Exercised or issued (4,021) Outstanding at December 31,1998 30,490 73,900 522.37 ' The following table summarizes information about stock options outstanding at December 31,1998: Number Weighted. Weighted. Range of of Shares Average Average Exercise Prices Outstanding Remaining Life Exercise Price . CMS Erwrgy Common Stock- $17.13-$26.25 576,000 4.45 years $22.92 $27.25-535.94 755,292 6.11 years $33.40 $38.00-$44.06 378.500 9.64 years 413.34 $17.13-$44.06 1,709,792 6.33 years $32.07 Class O Common Stock: $17.88-$19.44 25,500 7.62 years $18.46 $23.31-524.50 48,400 9.60 years $24.44 $17.88-524.50 73,900 8.92 years $22.37
- 52. CMS ENERGY CORPORATION I_
l
- 12. nE TinCMENT DENEFIT!i CMS Energy and its subsidiaries provide retirement benefits under a number of difTerent plans, including certain health care and life insurance benefits under its postretirement benefit plans other than pensions for retired employees (OPEB), benefits to certain man-agement employees under its Supplemental Executive Retirement Plan (SERP), and benefits to substantially all its employees under a trusteed, non-contributory, defined benefit pension plan of Consumers and CMS Energy (Pension Plan), and a defined contribution 401(k) plan.
Amounts presented below for the Pension Plan include amounts for employees of CMS Energy and nonutility alliliates which were not distinguishable from the plan's total assets. li'eighted-Average Assumptions: Pension & SERP OPEB Years Ended December 31 1998 1997 1996 1998 1997 1906 Discount rate 7.(H)% 7.50 % 7.75 % 7 (Hn'. 7.50 % 7.75 % Expected long term rate of return on plan assets 9.25 % 9.25 % 9.25 % 7.(Hn' 7.00 % 7.00 % Rate of compensation increase: Pension-to age 45 5.25 % 5.25 % 5.50 % -age 45 to assumed retirement 3.75 % 3.75 % 4.00 % SERP 5.50 % 5.50 % 5.50 % Retiree health care costs at December 31,1998 are based on the assumption that costs would increase 6.5 percent in 1999, then decrease gradually to 5.5 percent in 2005 and thereafter. Net Pension Plan, SERP and OPEB costs consist of: In Afillions Pension & SERP OPEB Years Ended December 31 1998 1997 1996 1998 1997 1996 Service cost $ 27 5 26 $ 26 $ ll $ 10 $ 13 Interest expense 64 61 58 43 41 42 Expected return on plan assets (73) (70) (69) (18) (13) (6) Amortization of unrecognized transition (asset) (5) (5) (5) Amortization of prior service cost 4 4 5 Net periodic pension and postretirement benefit cost S 17 $ 16 $ 15 $ 36 $ 38 $ 49 The health care cost trend rate assumption significantly affects the amounts reported. A one percentage point change in the assumed health care cost trend assumption would have the following effects: In Afillkms One Percentage One Percentage Point IrArease Point Decrease EfTect on total service and interest cost components 59 5 (8) Effect on postretirement benefit obligation $92 $(76)
- 53. CMS ENERGY CORPORATION
Notes Continued i I 1 The funded status of CMS Energy's Pension Plan, SERP and OPEB plans is reconciled with the liability recorded at December 31 as follows: In Afillions Pension Plan SERP OPEB 1998 1997 1998 1997 1998 1997 Benefit obligation, January I 5792 $734 5 41 5 37 $ 582 5585 Sersice cost 25 24 2 2 II 10 Interest cost 60 59 3 3 43 41 Plan amendments (7) Actuarialloss (gain) 76 36 5 47 (21) Benefits paid (79) (61) (1) (1) (28) (26) Benefit obligation, December 31 H74 792 50 41 655 582 Plan assets at fair value, January 1 882 779 224 138 Actual return on plan assets 167 164 54 37 Company contribution 1 1 49 49 Actual benefits paid (79) (61) (1) (1) Plan assets at fair value, December 31 970 882'"> 327 224 Benefit obligation less than (in excess of) plan assets 96 90 (50) (41) (328) (358) Unrecognized net (gain) loss from experience ditTerent than assumed (176) (157) 10 5 (72) (83) Unrecognized prior service cost 31 35 1 2 Unrecognized net transition (asset) obligation (16) (22) Recorded liability $(65) $(54) $(39) $(34) 5(400) $(441) (a) Primarily stocks and bonds including $168 million in 1998 and $153 million in 1997 of ChiS Energy Common Stock. SERP benefits are paid from a trust established in 1988. recovery in utility rates (see Note 2, Utility Regulation). The SERP is not a qualified plan under the Internal Revenue Code, MPSC authorized recovery of the electric utility portion of and as such, earnings of the trust are taxable and trust assets these costs in 1994 over 18 years and the gas utility portion in are included in consolidated assets. At December 31,1998 and 1996 over 16 years. At December 31,1998, Consumers had a 1997, trust assets were $53 million and $44 million, respectively, recorded FERC regulatory asset and liability of $6 million. The and were classified as other noncurrent assets. The accumulated FERC has authorized recovery of these costs. benefit obligation for SERP was $31 million in 1998 and $25 mil. i lion in 1997. 13: LEASES Contributions to the 401(k) plan are it' vested in CMS Energy CMS Energy, Consumers, and Enterprises lease various assets, Common Stock. Amounts charged to expense for this plan were including vehicles, rail cars, aircraft, construction equipment, $18 million in 1998,520 million in 1997, and $18 million in 1996. computer equipment, nuclear fuel and buildings. Consumers' l Beginning January 1,1986, the amortization period for the nuclear fuel capital leasing arrangement expires in November Pension Plan's unrecognized net transition asset is 16 years and 2000, yet provides for additional one-year extensions upon 1I years for the SERP's unrecognized net transition obligation. mutual agreement by the parties. Upon termination of the lease, Prior service costs are amortized on a straight-line basis over the lessor would be entitled to a cash payment equal to its the average remaining service period of active employees. remaining investment, which was $72 million as of December 31, CMS Energy and its subsidiaries adopted SFAS 106, 1998. Consumers is responsible for payment of taxes, mainte-Employers' Accountingfor Postretirement Benefits Other Than nance, operating costs, and insurance. Anxionx elTective as of the beginning of 1992 and Consumers recorded a liability of $466 million for the accumulated transition obligation and a corresponding regulatory asset for anticipated
- 54. CMS ENERGY CORPORATION
E Minimum rental commitments under CMS Energy's non. development and management of electric, gas and other energy. cancelable leases at December 31,1998 were: related projects in the United States and internationally, includ. In Millions ing energy trading and marketing. CMS Energy's reportable Capital Operating segments are strategic business units organized and managed by leases Leases the nature of the products and ser ices each provides. The 1999 $ 46 $ 20 accounting policies of each reportable segment are the same as f those described in the summary of significant accounting policies. 2002 17 15 CMS Energy's management evaluates performance based on 1 2003 12 12 pretax operating income, Intersegment sales and transfers are 2004 and thereafter 9 89 accounted for at current market prices and are climinated in Total minimum lease payments 173 5171 consolidated pretax operating income by segment. Less imputed interest _,3_3 The Consolidated Statements of Income show operating Present value of net minimum lease payments 140 revenue and pretax operating income by reportable segment. Less current portion _ 35 Revenues from an international energy distribution business Noncurrent portion 5105 and a land development business fall below the quantitative thresholds for reporting. Neither of these segments has ever met j Consumers recovers lease charges from customers and any of the quantitative thresholds for determining reportable accordingly charges payments for its capital and operating segments. Other financial data for reportable segments and geo-q leases to operating expense. Operating lease charges, including graphic area are as follows: I charges to clearing and other accounts for the years ended December 31,1998,1997 and 1996, were $19 million, $10 mil. Reportable Segments lion and $8 million, respectively. In Millions Years Ended December 31 199N 1997 1996 Capital lease expenses for the years ended December 31, 1998,1997 and 1996 were $42 million, $43 million and $46 mil-D*P'eciati n, Depleti n and Amortization lion, respectively. Included in these amounts for the years ended $*,'*u di 9 8 1998,1997 and 1996 are nuclear fuel lease expenses of $23 mil-Independent power production 22 13 8 lion, $3l million and $25 million, respectively. Oil and gas exploration and production 3N 48 42 Natural gas transmission, storage 14: JOINTLY OWNED UTILITY FACILIT!ES Ma keting ri s and trading Consumers is responsible fbr providing its share of financing Other 7 2 I for thejointly owned utility facilities. The direct expenses of the 5 4N4 5 467 5 427 joint plants are included in Consumers' operating expenses The identifiable Assets following table indicates the extent of Consumers' investment in Electric utility M S 4
- 40 54,472 54,505 jointly owned utility facilities:
Gas utility
- 1,726 1,644 1,709 Independent power production 2,252 1,710 1,053 Oil and gas exploration and production 547 456 476 Natural gas transmission, storage Investment Deprecianon and processing 971 508 388 December 31 199N 1997 199N 1997 Marketing, services and trading 152 191 52 Campbell Unit 3-93.3 percent 5299
$314 5279 $265 Other 1,022 527 180 Ludington pumped storage plant-511.310 $9.508 58,363 51 percent 106 112 94 88 Capital Expendstures W Transmission lines-various 33 34 15 14 Electric utility 5 331 5 255 $ 310 Gas utility 114 116 137 15: REPORTABLE SEGMENTS Independent power production 462 704 142 O CMS Energy operates principally in the ibliowing six reportable 'N tu al gas a ion, stora e segments: electric utility; gas utility; independent power produc-and processing 573 115 136 tion; oil and gas exploration and production; natural gas trans7 Marketing, services and trading i 28 Other 76 201 66 ) mission, storage and processing; and energy marketing, services { 5 1.700 51,519 5 863 and trading. The electric utility segment consists of regulated activities I associated with the generation transmission and distribution of electricity in the State of Michigan. The gas utility segment . consists of regulated activities associated with the production, transportation, storage and distribution of natural gas in the State of Michigan. The other reportable segments consist of the 50 CMS ENERGY CORPORATION l LNotes Continued In Millions Changes in other assets and liabilities as shown on the Con-Yerrs Ended December 31 1998 1997 1996 solidated Statements of Cash Flows are described below: investments in Equity Methoa investees In Millions . Independent power production $ I,337 $1,205 3 683 Years Ended December 31 1998 1997 1996 N:tural gas transmission, storage 'and processing 494 241 225 Sale of receivables, net $ (29) $ 17 3 23 . Marketing, services and trading 25 26 - Accounts receivable (IN3) (160) (28) Other 217 274 85 Accrued revenue (5) 64 (82) Inventones M $ 2,073 $1,746 $ 993 Accounts payable 104 67 55 Earnings from Equity Method investeesM .89 $ 91 Other current assets and liabilities, net 126 (6) 25 Accrued refunds (1) 4 14) ( Independent power production $ 158 $ Natural gas transmission, storage Noncurrent defened amounts, net (156) (6) 10 and processing 9 4 3 M:rketing, services and trading 2 2 $(186) $(35) $(11) Other 2 8 8 5 171 $ 103 $ 102 17: EOUlTY METHOD INVESTMENTS Certain of CMS Energy's investments in companies, partner-Geographie Areasidi ships and joint ventures, where CMS Energy's ownership in its Pretax afliliates is more than 20 percent but less than a majority, are Operating Operating identifiable accounted for by the equity method. Consolidated net income Revenue income Assets includes undistributed equity earnings of $95 million in 1998, 1998 $58 million in 1997, and $55 million in 1996 from these invest- . United States $4,867 $ 702 $8,842 ments. The more significant of these investments are CMS l International 274 73 2,468 1997 Energy's 50 percent interest in Loy Yang, a 2,000 MW brown United States $4,576 $ 665 $7,872 coal-fueled power plant and coal mine in Australia, and CMS International 205 51 1,636 Energy's 50 percent interest in Jorf Lasfar, a 1,356 MW coal-1996 fueled power plant in Africa. Summarized combined financial ' United States $4,211 5 651 $7,668 nformation of CMS Energy's equity method investees follows, 1 International 113 25 695 cicept for the MCV Partnership, which is disclosed separately I (a) Amounts include an attributedportion of Consumers' other common in Note i8. assets to both the electric and gas utility businesses. (b) includes electric restructuring implementation plan, capitalleasesfor nuclearfuel and other assets and electric demand-slJe management costs Iacome Statement Data (naandited) (DSM) (see Consolidated Statements of Cash Rows). Amounts also in Millions include an attributedportion of Consumers' capitalexpendituresforplant y,,7, gag,g 9,,,,y,, 3 g gnyg
- 993 g99g and equipment common to both the electric and gas utility businesses.
. Statements ofIncome. Operating revenue $2,255 $1.603 $ 769 (c) These amounts are includedin operating revenue in the Consolidated Operating expenses 1,503 1,154 532 (d) Revenues are attributed to countries based on location of customers. op,7,,;,g ;,,,,, yg3 549 33y Other expense, net 409 271 91 16: SUPPLEMENTAL CASH. FLOW INFORM ATION Net income $ 343 $ 178 $ 146 For purposes of the Consolidated Statements of Cash Flows, all highly liquid investments with an original maturity of three months or less are considered cash equivalents Other cash flow Balance Sheet Data (unaudked) gctivities and noncash investing and financing activities were: December 31 1998 in Millions Yetts Ended December 31 1998 1997 1996 A*"* Current assets 5 646 3 642 Cash Transactions. Property, plant and equipment, net 6,7M3 6,304 Interest paid (net of amounts capitalized) -$313 $293 $240 Other assets 2,694 2,052 Income taxes paid (net of refunds) 64 67 82 Noncash Transactions $10.I23 $8,998 Nuclear fuel placed under capital leases $ 46 $ 4 $ 28 Liabilities and Equity Other assets placed under capital leases 14 7 3 Current liabilities $ 894 5 688 Common stock issued to acquire companies 61 Long-term debt and other noncurrent liabilities 6,341 5,678 Assumption of debt 88 Equity 2.97N 2.632 510,123 $8,998 es. CMS ENERGY CORPORATION !~ 18' SUMM AP12ED FIN ANCI AL INFOnM ATION OF SIGNIFIC ANT 19: SUBSEQUENT EVENT nELATED ENEnGY SUPPUEn In 1999, CMS Energy completed the acquisition of the Panhan-Under the PPA with the MCV Partnership discussed in Note 3, die Companies from Duke Energy Corporation for a cash pay. Consumers' 1998 obligation to purchase electric capacity from ment of $1.9 billion and existing Panhandle Companies debt of the MCV Partnership was 15.5 percent of Consumers' owned $300 million. The Panhandle Companies are primarily engaged and contracted capacity. Summarized financial information of in the interstate transportation and storage of natural gas. The the MCV Partnership follows: transaction will be accounted for under the purchase method of accounting. Statements of income (unaudited) The acquisition of the Panhandle Companies initially was in Alillions financed in part with bridge loan facilities negotiated with Years Ended December 31 1998 1997 1996 domestic banks and in part with approximately $800 million Operating revenue'd 5627 $652 $645 of debt securities issued by the Panhandle Companies. CMS Operating expenses 405 435 417 Energy expects to permanently finance the acquisition with existing arrangements as well as the sale of approxim A */ er x n e, et $600 million of CMS Energy Common Stock and othu CMS Net income before cumulative elTect of accounting change No 63 66 Energy securities. Cumulative effect of change in method The following unaudited pro forma combined selected finan-of accounting for property tax 15 - cial information assumes: (i) various restructuring, realignment j Net income 1 Hn $ 78 5 66 and elimination of activities between the Panhandle Companies and Duke Energy Corporaten prior to closing:(ii) adjustments Balance Sheets (unaudited) resulting from the acquisition; and (iii) Panhandle Companies j in Aldlions and CMS Energy financing transactions (except bridge financing December 31 1998 1997 fees) completed to facilitate the acquisition, as if the acquisition Asuts had occurred on January 1,1998. Unaudited pro forma amounts Current assets
- s 341 $ 362 for operating revenue, consolidated net income, basic earnings Plant, net I,773 1,820 per share and total assets were $5.6 billion, $319 million, $2.66 Other assets 173 169 and $13.8 billion, respectively.
$2.2N7 $2.351 Unt@ ties and Equety Current liabihties 5 204 $ 285 Noncurrent liabilities M I,725 1,789 Partners' equityM 358 277 52,2H7 $2.351 (a) Revenuefrom C<msumers totaled $$84 milli <m. $609 million and $598 millionfor 1998,1997 and 1996, respectively. (b) Receivablesfrom Camsumers totaled $49 mdhon and $54 million, at December 31,1998 and 1997, respectivcly (c) FAILP is the sole benepciary of an owner-trust that is the lessor in a l long-term directfinance lease with the lessee. AfCV Partnership. CAfS Iloidmgs holds a 46 4 percent ownership interest in FAILP At December 31.1998 and 1997, lease chligations of $1.41 billion and $1.52 billion. respectively. wre oued to the owner trust. CAIS Iloidmgs' share of the interest amiprincipalportionfor the 1998 lease payments was $$9 million 1 and $49 mdlion, respectively, andfor the 1997 lease payments was $62 million and $28 million, respectively. The lease payments service 5907 mil-tion and $1.016 million in nonrecourse debt outstanding as of December 31, J998 and 1997. respectively, of the owner-trust. FAfLP's debt is secured by the AlCV Partnership's lease obligations. assets. and operating revenues. For 1998 and 1997, the owm r-trust made debt payments (includmg interest) of $233 million and $192 million, respectively. ThfLP's earningsfor 1998.1997 and 19% were $23 million. $20 million and $17 milhon. respectively (d) CAfS Afidland's recordedinvestment m the AfCV Partnership includes capitali:ed interest, which is being amorti:ed to expense over the hfe ofits investment in the AICV Partnership. Covenants containedinfinancing agreements prohnbit the AlCV Partnershipfrom paying distributions until certainfinancial test requirements are met. Camsumers does not anticipate receiving a cash distribution in the nearfuture
- 57. CMS ENERGY COPPORATION
L F. l Report of Independent Public Accountants m t ' TO CMS ENERGY CORPORATION: We have audited the accompanying consolidated balance sheets and consolidated statements of preferred stock of CMS Energy Corporation (a Michigan corporation) and subsidiaries as of t December 31,1998 and 1997, and the related consolidated state-ments of income, common stockholders' equity, and cash flows for each of the three years in the period ended December 31 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to. express an opinion on these financial statements based upon our audits We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we phn and perform the audit to obtain reasonable assurance about whether the financial statements are free of material mis- - stnement. An audit includes examining, on a test basis, evi-dence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presenta-tion. We believe that our audits provide a reasonable basis for our opinion. In o0 opinion, the fmancial statements referred to above present fairly, in all material respects, the financial position of . CMS Energy Corporation and subsidiaries as of December 31, 1998 and 1997, and the results of their operations and their ' cash flows for each of the three years in the period ended - December 31,1998 in conformity with generally accepted accounting principles. = As discussed in Note 2 to the financial statements, eficctive January 1,1998. Consumers Energy Company, a wholly cwned subsidiary of CMS Energy Corporation, changed its method of accounting for property taxes. LAe ate ARTIIUR ANDERsEN LLP b Detroit. Michigan, l January 26,1999 (except with respect to the matters disclosed i in Note 3. " Consumers' Electric Utility Rate Matters," and j Note 19, as to which the date is March 29,1999). [ ) l
- 88. CMS ENERGY CORPORATION
Quarterly Financial and Common Stock Information I i in Stillions. Except Per Share Amounts 1998 (llnaudited) 1997 (Unaudited) Quarters Ended Starch 31 June 30 Sept. 30 Dec. 31 March 31 June 30 Sept.30 Dec. 31 Operating revenue 4 $1,374 $1.132 $1,286 $1,349 $1,295 $1,022 $1,030 $1,434 Pretax operating income @ $ 197 $ 188 $ 222 5 168 $ 204 $ 158 $ 178 $ 176 Consolidated net income 4 $ 88 $ 65 $ 81 $ 51 5 78 $ 47 $ 60 $ 59 Basic earnings (loss) per average common share:/4 j I CMS Energy 4 $.79 $.63 $.81 $.44 $.73 $.48 $.64 $.54 Class G $ 1.09 $,12 $ (.16) $.52 $ 1.18 $.16 $ (.21) $.70 Diluted earnings (loss) per average common share:'6 CMS Energy * $.77 $.62 $.80 $.44 $.72 $.48 $.63 $.54 Class G $ 1.09 $.12 $ (.16) $.52 $ 1.18 $.16 $ (.21) $.70 Dividends declared per common share: . CMS Energy $.30 $.30 $.33 $.33 $.27 $.27 5.30 $.30 Class G $.31 $.31 $.325 $.325 $.295 $.295 $.31 5.31 Common stock prices *> CMS Energy: High $ 47 % $ 47 h 5 44 % $ 50 % $ 34 % $ 35 % $ 38 % $ 44 M. Low $ 41 % $ 40'S $ 38 % $ 43 % $ 31 % $ 31 % $ 34 % $ 35'M. Class G: High $ 26 % $ 26 % F 25 % $ 26 % $ 19 % $ 19 % $ 22 $ 27 % Low- $ 22 % $ 23 % $ 21 % $ 23 % $ 17 % $ 17 % $ 19 $ 20 % (a) Amounts in thefirst quarter of1998 and I997 were res wafor comparative purposes. (b) The sum of the quarters may not eqwl the annualearnings per share due to changes in shares outstanding. (c)' Based on New York Stock Exchange-Composite transactions. i l. es. CMS ENERGY CORPORATION ,g p=, ' Selected Financial Information 199M 1997 1996 1995 1994 " Operating revenue (in milliond ($) 5,141 4,781 4,324 3,890 3,614 Consolidated net income (in millions) ($) 285 244 224 195 177 Average common shares outstanding (in thousands) ' CMS Energy 102,446 96,114 92,462 88.810 85,888 Class O H,333 8,015 7,727 7,511 Earnings per average common share CMS Energy-Basic - ($) 2.65 -2.39 2.27 2,16 2.07 -Diluted ($) 2.62 2.37 2.26 2.16 2.06 Class 0 -Basic and Diluted (5) 1.56 1.84 1.82 .38 Cash from operations (in millions) ($) 516 624 647 640 603 Capital expenditures, excludes capital lease additions and DSM (in millions) (5) I,295 678 643 508 575 Total assets (in millions) ($) 11,310 9,508 8,363 7,909 7,159 Long-term debt, excluding current maturitics (in millions) (S) 4,726 3,272 2,842 2,906 2,700 Noncurrent portion of capital leases (in milliom) (5) 105 75 103 106 108-Total preferred stock (in millions) ($) 238 238 356 356 356 Total Trust preferred Securities (in millions) ($) 393 393 100 Cash dividends declared per common share CMS Energy. ($) 1.26 1.14 1.02 .90 .78 Class G -(S) 1.27 1.21 1.15 .56 ' Market price of common stock at year-end CMS Energy (5) 48 % 44 % 33 % 29 % 22 % Class G ($) 25 % 27 % 18 % 18 % Book value per common share at year.end CMS Energy (5) 19.61-16.84 15.24 13.51 11.16 Class O (S) 11.46 10.91 11,38 10.60 Return on average common equity (%) 14.2 14.7 15.7 17.1 19.8 Return on assets ' (%) 5.5 5.6 5.4 5.2 5.0 Number of employees at year-end (full-time equivalents) ' 9,710 9.682 9,712 10,105 9.972 Electric Utility Statistics Sales (billions of kWh) 40.0 37.9 37.1 35.5 34.5 Customers (in thousands) 1,640 1,617 1,594 1,570 1,547 Average sales rate per kWh ' (t) 6.50 6.57 6.55 6.36 6.29 Cas Utility Statistics Sales and transportation dehveries (bef) 360 420 448 404 409 Customers (in thousands)W l 558 1,533 1,504 1,476 1,448 - Average sales rate per mcf (5) 4.56 4.44 4.45 4.42 4.48 International Energy-Related Statistics CMS Energy's share of unconsolidated independent power production revenue (in millions) (5) 761 621 493 497 385 Independent power production sales (millions of kWh) 19,017 13,126 7,823 7,422 6,216 CMS Energy's share of unconsolidated natural gas transmission, storage and processing revenue (in millions) ($) 67 51 42 26 7 CMS Energy's share of unconsolidated l marketing, services and trading revenue ($) 291 202 l Gas managed and marketed for end users (bef) 366 243 108 101 66 ~ Exploration and Production Statistica-Sales (millions of net equivalent barrels) 12.1 11.4 10.1 9.0 5.6 - Proved reserves (millions of net equivalent barrels) 182.6 152.0 133.5 124.5 108.0 Proved reserves added (millions of net equivalent barrels)*/ 42.7 29.8 18.7 25.6 29.0 Finding cost per net equivalent barrel *> (S) 3.35 2.38 2.94 5.06 5.92 " (a) Etcludes off. system transportation customers. - (b) Certain prior year amounts were restatedfor comparative purposes. so. CMS ENERGY CORPORATION L. Shareholder Information 1999 ANNU AL MEE 71NO: DIRECT DEPOSif AND AUTOMATIC INVESTMENT: CMS Energy's 1999 annual meeting is scheduled for 10:30 a.m. CMS Energy can deposit your dividends directly into your bank on May 28 at the
Dearborn Inn,
Dearborn,
Michigan. Proxy account. We also offer automatic investment from your bank material will be mailed in April, account to purchase CMS Common Stock and Class G Common Stock and keep your investment in CMS Energy growing. Please R:0:STERED 3HAREHOLDEnS: contact the Investor Services Department for more information. As of February 19,1999, the number of registered shareholders totaled 65,871 for CMS Energy Common Stock and 5,071 for ELIMIN ATING DUPLIC ATE M AILINGS: Class G Common Stock. To maintain more then one account, but eliminate duplicate mail-ings of annual and quarterly reports, send the labels from com-SH AREHOLDER CONTACTS: pany mailings to the Investor Services Department, indicating the Inquiries about stock ownership, stock purchase, change of names you wish to keep on the mailing list. (Dividend checks and i address, dividend payments, dividend reinvestment or the Stock proxy materials will continue to be sent to each account.) Purchase Plan may be directed to: Investor Services Department cONSOLIDAT "O ACCOUNTS: 212 W. Michigan Ave. To cons < wparate accounts into one account, contact the J Jackson, MI 49201 Investoi ocrvices Department. ($17) 788-1868 or send an E-mail to invest @cmsenergy.com ODTAINING REPORTS: For financial and operating information, please contact: Shareholders may obtain without charge and exclusive of Investor Relations Department exhibits: CMS Energy's Form 10-K and an audiocassette ) 212 W. Michigan Ave. recording of the annual report text. Please address all requests Jackso, MI 49201 to the Investor Services Department. (517) 788-2590 STOCK EXCHANGE LISTING: SloCK PURCH ASE PLAN; CMS Energy Common Stock is listed on the New York Stock Investers can buy shares of CMS Energy Common Stock and Exchange under the symbol CMS. Class G Common Stock is Class G Common Stock directly through the Corporation's listed under the symbol CPG. Stock Purchase Plan, with no brokerage commission or service TRANSFER AGENT, REGISTR AR AND PAYING AGENT: charge. Other plan features include dividend reinvestment, cer. tificate safekeeping, direct deposit of dividends, automatic Invest r Services Department,212 W. luichigan Ave., Jackson, investment, sab of shares and gifting of shares. For more infor-Michigan 49201 mation and a plan prospectus, please contact the Investor Ser-vices Department or click on the " Invest in CMS Energy" icon Follow CMS Energy on the Internet: at www.cmsenergy.com. http://www.cmsenergy.com STOCK OWNERSHIP: As a CMS Energy shareholder, you have the option of direct stock ownership or indirect stock ownership. Under direct stock ownership, the shares are registered in your name; you can pur-chase additional shares directly from the company with no com-missions or service charge; you enjoy the benefits of direct communication to and from CMS Energy; and you can partici-pate in the CMS Energy stock purchase plan. Under indirect stock ownership, your shares are held in " street name" by a bro-ker, and your dividend payments come through a broker rather than directly from CMS Energy (For more information on direct and indirect ownership, please contact the Investor Ser-vices Department for the brochure " Stock Ownership: What Every Investor Should Know.") [
- 01. CMS ENERGY CORPORATION I
Officers i CMS ENERGY John W. Clark,54 CMS OIL AND GAS CMS MARKETING, SERVICES William T. McCormick Jr.,54 Senior Wu Pmident' ^" "^ " Vietor J. Fryling 51 ' '"* *""'" N*"' Chainnan of the Boardand Chainnan of the Board YIctor J. Fryling,5l Chief Executive Officer Datid A. Mikelonis,50 Bradley W. Fischer,52 Senior Vice President and Victor J. Fryling,51 President and William W. Schhley,52 Geneml Counsel President and Chief Executive Ofpcer Executive Vice President Chief Operating Offcer Robert A.Fenech,51 William II. Stephens Ill,49 Alan M. Wright,53 Nuclear, Fo s."" " dm Executive Vice President, Daild B. Geyer,35 an Hy Senior Vice President and GeneralCounselandSecretary Vice President, OpnaHons Chief Financhd Officer Paul A. Do)le,47 f,f'"p,j "'f* Vice President, Engineering Royal P. Lefere Jr.,51 Rodger A. Kershner,50 Vice President Energy Senior Vice President and Retail Services General Counsel T. Rodney Dykes,42 Afanagement Services Dennis DaPra,56 Mu Pmident, Opaatu,ms J hn W. Clark,54 Vice President and Robert C. Olson,55 CMS ELECTRIC AND GAS Semor h,ce Press, dent, Controller Vice President-Communications Victor J. Fryling,51 EtP om"."" l Kenneth C. Emery, $l Chairman of the Board Rmes W. Cook 58 Vice President, Mark E. Stirl,44 e eEopment fg"hl,'a U " P "I '"'"" ' '*'"U" c Pe d T noto an International Electnc and Preston D. Ilopper,48 Carl L. English, $2 Gas Distribution CMS GENER ATION Senior Vice President Vice President. Victor J. Fryling,5l Corporate Performance and Electric Transmission Chainnan of the Board Ma Pmident, Chief Accounting Oj)icer and Distribution Rodney E. Boulanger,58 Distribution Operations John F. Drake,50 Thomas A. McNish,61 President and Ma Pmident. Vice President and Chief Executive OJ]icer lNTERN ATl0NAL OFFlCES 1iuman Resources Secretary Thomas W. Elward,50 MnR8 Pore-Aw.a Thomas A.McNish,61 Thomas J. Palmisano,48 Senior Vice President-Dasid W. M'**' 49 Vice President and Site Vice Preshlent Secretary Palisades Ma Pmi ent, Dnelopment Asset Afanagement trura L Mountcastle,42 Paul N. Preketes,49 Narendra K. Bhatia,63 Dearborn-Vice President, Planning Vice President, 'Ih' A *I'**~- Vice President, Engineering andinvestor Rehuions Gas Operations and C<mstruction " # "" " '"W "' Martin R. Walicki,48 Martin R. Walicki,48 William J. Ilaener,57 j Vice President, Corporate Vice President, Corporate CuS GAS Tn ANSuiSSION Vice President, Development Fmance and Treasurer Finance and Treasurer Ano STORAGE Victor J. Fr) ling,51 Vice President CONSUMERS ENERGY CMS EN 'RPRISES Chairman of the Board William T. McCormick Jr.,54 Doris F. Gahin,44 William J. Ilaener,57 I""d"" ~ Chairman of the Board Senior Vice President, President and AI'I'*IMIddI' I * Global Duclopment Chief Executive Officer Joseph P. Tomasik,44 Victor J. Fryling,51 Vice Chairman of the Board Belinda M. Foxworth,40 Ma Pmident, Doc /cpnunt Christopher A. llelms,45 "" ?""I'"' "" Paul A. Elbert,49 Executive Vice President and Deputy Genaal Counsel President of CAIS Panhandle U "*""' AI ~ Execnive Vice President and President and Chief M. Cliiford Lawrenson,38 Pipe Line y Executive Officer, Gas Vice President, yog, 9 goy,,,, $g Project Finance F,rancisco A. Mezzadri,62 David W. Joos,45 Vice President, Regional General Afanager Executive Mce President Theodore J. Yogel,46 Engineering, Operations and President and Chief Vice President, Taxes and and C<mstruction John M. McLaughlin Jr.,48 Executive Officer, Electric Tax Counsel "'"E""'"' Thomas L. Miller,43 Alan M. Wright,53 Martin R. Walicki,48 Vice President. Senior Vice President and Vice President, Corporate Business Analysis Chief Financial Of]icer . Finance and Treasurer
- 62. CMS ENERGY CORPORATION
l CMS Energy Board of Directors International Advisory Committee John \\l, Deutch, Institute Professor and former h Prosost. Massachusetts Institute of 'lechnology. 9 Iormerly Director of the CentralIntelhgence Agency; J U.S. Deputy Secretar) and l'ndersecretary of Defense; and Undersecretary of U.S Department of I nergy. f* fT f)' Iho+ as E. Donilon, Chairman of the Committee. partner with internationallaw firm of (TMelseny & M illiam T. Tieformick Jr.,54, Victor J. F r3 ng. 51, John M. Ikutch,60 1i N1 ers L.L.P l'ormerly Assistant Secretary of State 3 Chairman of the lloard and President and Chief institute Professor. for Pubhc AITairs, and Chief of Staff to the Secretary Chief Executive Otheer of Operating Otlicer of Massachusetts Institute of of State. CMS I nerg) and Chairman CMS I nergy and Technology Director of Arnold Kanter, a principal m the Scowcroft Group, of ( onsumers Energy. \\ ice Chairman of Citigroup inc., Schlumberger an internanonal consulting firm, and a Senior Fellow Director of llank One Consumers Energy. Ltd., ARIAD Pharmaceuticals at the R AND Corporation Iormerly Undersecretary Corporation, Rockwell Director since 1990. Inc., Raytheon Comp.my and of State for Pohtical AITairs. U.S. Department of International Corporation Cummms Engme Company State; and Special Assistant to the President for and Schlumberger Ltd. Inc. Director 19x6 1993 and National Security AIIairs. Director smce 1985. since 1997. gg. g pg. g. International ilusiness and Director of the Southeast Asia Ilusmess Program at t he l nisersity of Michigan Iounder and first Director of the y } I Unisersity's Center for International ilusiness Education. I ounder and ediur of 7hc Journalof .T; .bian Bunnen. %Inises Naim, editor of Ibreign />ohn, teaches at h( fY Johns llopkins and at IESA, a leadmg South American busmess school and pokey research center. James J. Duderstadt,56 Kathleen R. Flahert),47 Earl D. llolton,65 Formerly Senior Associate at the Carnegie President Emeritus and President and Chief Vice Chairman, Meijer ine., Endow ment for International Peace; Senior Adsiser Professor of Science and Operating Ollicer. WmStar Grand Rapids. Mich. to the President of the World flank; Ikan of ILSA; Engmeering. The Unisersity of Commumeations. Europe. Director of Meijer Inc. and Venezuela Mmister of Trade and Industry. Michigan, Ann Arbor, Mich. Director since 1995. and Steelease Inc. pc,,,.larnoff, President of the International Director of Unisys Corporation. Director since 1989 Adsisory Corporation. Formerly Undersecretary of Director since 1993. State for Puhtical Atrairs. U.S. Department of State; President of the Council on Ioreign Relations and Executne Director of the World Atlairs Council of Northern Cahfornia. Frank G. Wisner, Vice Chairman, liternal AITairs p' of American International Group, Inc. I ormerly Undersecretary of State for International Secunty AITairs. U.S. Department of State: and U.S. 'F Ambassador to /ambia. Egypt, the Phihrpines and India, retiring from the latter post in 1997 with the William U. Parfet,52. Pere) A. Pierre,60, Kenneth I.. Way,59 rank of Career Ambassador. Co-chairman. MPI Research, Professor of I lectncal Chairman and Chief Mattawan, Mich Director i ngmeering, Michigan State Esecutne Otlicer, Lear of Pharmacia & Upjohn Inc., Unisersity, East Lansing, Corporation. Director of Stry ker Corporation. Mich. Director of Old Kent Lear Corporation. ChnTrials Research Inc. I inancial Corporation. the Comerica Inc. and WESCO and S>bron International Whitman Education Group International Inc. Director Corporation. Director smce and Aerospace Corporation. since 1998 1991. Director since 1990. b Y Kenneth % hipple,64, John 15, Yasinsk), 59 Retired Executne Vice Chairman Chief President. Ford Motor L xecutise Otlicer and Company, Chairman of Ford President GenCorp, Motor Credit and President. Fairlawn. Ohio. Director Ford I inancial Sersices Group, of GenCorp. Director
Dearborn,
Mich. Director of smce 1994. Associates I irst Capital Corp. and Gahleo international, Inc. Director smee 1993.
M WWW World Headquarters Fairlane Plaza South Suite 11(X) 330 Town Center Drive
Dearborn,
MI 48126 f Principal Officea 1 Abu Dhabi, United Arab Emirates Ankara, Turkey Buenos Aires, Argentina Casablanca, Morocco Chennai, India llouston, Texas Jackson, Michigan London, England j Rio de Janeiro, tirazil Santiago, Chile Singapore Tulsa, Oklahoma Washington, DC l 1 l .}}