ML20206P411
| ML20206P411 | |
| Person / Time | |
|---|---|
| Site: | Palisades, Big Rock Point, 05000000 |
| Issue date: | 04/16/1987 |
| From: | Buckman F CONSUMERS ENERGY CO. (FORMERLY CONSUMERS POWER CO.) |
| To: | NRC OFFICE OF ADMINISTRATION & RESOURCES MANAGEMENT (ARM) |
| References | |
| NUDOCS 8704210176 | |
| Download: ML20206P411 (148) | |
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@NN C0llSum8IS power U"$1% maamsArs P=a=== General offices: 1945 West Parnall Road, Jackson, MI 49201 (517) 788-1217 April 16, 1987 10 CFR $50.80 U.S. Nuclear Regulatory Commission ATTN: Document Control Desk Washington, D.C. 20555 RE: Big Rock Point Nuclear Plant Op. Lic. DPR-6 (Docket No. 50-155) Palisades Nuclear Plant Op. Lic. DPR-20 (Docket No. 50-255) On May 6,1987, the shareholders of Consumers Power Company ("CPCo") will vote on a proposed restructuring plan by which CPCo will become a wholly-owned subsidiary of a new holding company, CMS Energy Corporation (the " Holding Company"). If CPCo shareholders approve the plan, the proposed restructuring is expected to take place on or about May 22, 1987. The restructuring will have no significant effect upon the management, operation and financing of CPCo's nuclear facilities. In a similar instance, involving Iowa Electric Light and Power Company, your staff took the position that such a restructuring requires the Commission's consent under Section 184 of the Atomic Energy Act and 10 CFR $50.80. We believe that in a case such as ours, where there is no real change in de facto ownership, management or operational control, these provisions should not apply. However, in view of the timing of the planned restructuring, we ask that you either give your consent to the proposed action or disclaim jurisdiction. 1. Description of Restructuring If CPCo's shareholders approve the restructuring plan, the common stock of CPCo will be converted in a merger, on a share-for-share basis, into common stock of the Holding Company. The outstanding shares of CPCo preferred and preference stock will continue to be outstanding securities of CPCo. The CPCo Board of Directors will continue in that capacity in addition to serving as the Board of Directors for the Holding Company. It is contemplated that at some point after the restructuring, CPCo will transfer certain of its non-utility subsidiaries to a subsidiary of the Holding Company in exchange for shares of preferred stock in that Holding Company subsidiary. CPCo will continue to operate its natural gas and electric utility businesses and will retain ownership of certain regulated subsidiaries. Ob 8704210176 870416 PDR ADOCK 05000155 I PDR
2 The restructuring is more' fully described in the enclosed Prospectus for CMS Energy Corporation and Proxy Statement for Consumers Power Company, dated March 18,1987 (hereinafter referred to as " Attachment A"). 2. Effect on Financial Resources of CPCo The proposed restructuring will not reduce the funds available to CPCo to carry out activities under its operating licenses for the Big Rock Point and Palisades Plants. Utility operations will be the primary source of revenue and income for CPCo, and will also constitute the majority of the Holding Company's earning power for the foreseeable future. The Federal Energy Regulatory Commission will continue. to regulate CPCo's wholesale electric rates and natural gas storage and transportation rates. .The Michigan Public Service Commission will retain jurisdiction over retail electric and natural gas rates. See Attachment A, p 16. As of December 31, 1986, the net assets of CPCo (excluding investments in sub-sidiaries) represented approximately 925 of the consolidated net assets of CPCo and its subsidiaries. See Attachment A, p 17. The anticipated transfer of non-utility subsidiaries by CPCo would decrease CPCo's consolidated operating revenues, as of December 31, 1986, by less than 25. CPCo will retain its ability to meet future capital requirements by the issuance of debt and other securities. Thus, no significant change in the amount of revenues, the source of funds, or the ability to obtain the funds necessary to operate CPCo's nuclear power plants will result from the restructuring. To assist you in reviewing the financial aspects of the restructuring, there is enclosed, as Attachment B, a copy of CPCo's Annual Report on Form 10-K for the year ended December 31, 1986. 3 Effect on CPCo Management The restructuring will have no significant effect on the management of CPCo utility operations. The Chairman, President and Chief Executive Officer of CPCo is also the Chairman, President and Chief Executive Officer of the Holding Company. CPCo's Vice President, Nuclear Operations, will retain responsibility for nuclear operations, reporting to CPCo's Execu-tive Vice President, Energy Supply, who in turn will continue to report to the Chairman, President and Chief Executive Officer of CPCo. Officer responsibilities at the Holding Company level will have no direct effect on nuclear operations. See Attachment A, p 22. 4. Citizenship of Licensee The proposed restructuring will not result in CPCo becoming owned, controlled or dominated by an alien, a foreign corporation, or a foreign government. The present common shareholders of CPCo will, in the re-structuring, become the common shareholders of the Holding Company in the C -
p-w 3 I same proportion in which they currently hold CPCo common stock. The Holding. Company will become the sole holder of the common stock of CPCo. CPCo is and will remain a Michigan corporation. The Holding Company, incorporated on February 26, 1987, is also a Michigan corporation. In addition, the makeup of the Board of Directors of the Holding Company is the same as the Board of Directors of CPCo. Based on the above factors, we conclude that the proposed restructuring will not affect the qualifications of CPCo as a holder of the operating licenses for the Big Rock Point and Palisades Plants, and that the proposed restructuring is otherwise consistent with applicable provisions of law and the Commission's regulations and orders. Accordingly, you are respectfully requested to consent to the proposed action, or in the alternative to decline jurisdiction, as soon as practicable prior to the planned May 22, 1987 restructuring date. Please advise the undersigned if there is anything CPCo can do to assist you in accommodating this request. We will promptly advise you of the results of the shareholder vote on May 6, 1987. 1 STATE OF MICHIGAN) i ) ss. l COUNTY OF JACKSON) The undersigned hereby affirms to the best of his knowledge and be-lief that the information contained in the foregoing application is truthful and accurate as of the date hereof. ~ Frederick W. Buckman, Vice President' Consumers Power Company Subscribed and sworn to before me this /bday of April, 1987. ( ) bird /M Notary Public, Jackson County, Michigan My Commission Expires: de h, 5/,/9ff CC: Region III Resident Inspector (s) EIalNE E. BUEIIRER Nm Nauc, Joa,, c.,,,,,, uw, I My comm;,% rn,;,,, og, 33, 3,,, l l I l
Attachment A Consumets Power William T. McC rmick, Jr. Chauman & CEO messas enesness General Ofhces 212 West Michegan Avenue. Jackson. MI 49201 (517) 788 160o March 18.1987 To the Shareholders of Consumers Power Company: ( The annual meeting of shareholders of Consumers Power Company will be held on May 6.1987, to elect a Board of Directors. to ratify the appointment of independent accountants, to act upon a proposed corporate restructuring in which Consumers will become a subsidiary of a new holding company named " CMS Energy Corporation" (" Holding Company"), and to transact such other business as may properly come before the meeting. Your Board of Directors unanimously believes that the proposed restructuring into a holding company system is beneficial because it will more clearly separate Consumers utihty and nonutility businesses, facilitate the reorganization and enhancement of Company assets accommodate more easily the growth of each current subsidiary, provide financial flexibikty and facihtate capital allocation and managerial accountabihty. To accomphsh the restructunng. Holding Company has been organized. It is proposed that outstanding shares of Consumers Common Stock be converted in a merger, on a share-for-share basis, into shares of Holding Company Common Stock. As a result, the holders of Consumers Common Stock will become the owners of Holding Company Common Stock, and Holding Company will become the owner of the Consumers Common Stock. The outstanding shares of Consumers Preferred Stock and Preference Stock will continue to be outstanding securities of Consumers after the merger. As permitted by a recent amendment to Michigan law. Holding Company's Articles of Incorporation provide for certain hmitations on the habihty of directors as described under " Comparative Shareholders' Rights - Limitations on Director Liabihty." in addition, it is contemplated that at some point following the merger. Consumers will transfer ownership of certain of its nonutihty subsidianes to another subsidiary of Holding Company named " CMS Enterpnses Company." As a result of that transfer. CMS Enterpnses would own all of the outstanding stock of Northern Michigan Exploration Company. Conar Corporation. Selective Collection Services, Inc., Utihty Systems. Inc.. CMS Cogeneration Co. and CMS Engineering Co, and Consumers would own preferred stock of CMS Enterpnses. I If the restructuring is effected, it will not be necessary for you to turn in your Consumers Common Stock certificates in exchange for Holding Company Common Stock certificates. The certificates for Consumers Common Stock you now hold will automatically represent shares of Holding Company Common Stock. New certificates bearing the name " CMS Energy Corporation" will be issued in the future as certificates for presently outstanding shares of Consumers Common Stock are presented for transfer. Even if you now expect to attend the annual meeting. please sign. date and return the accompanying proxy in the enclosed addressed. postage-paid envelope (You may revoke your proxy at any time before it is exercised, provided that you so notify the Secretary of Consumers in wnting before it is exercised ) Sincerely. Wilham T. McCormick. Jr.
l 1 @pewsmus Censumes Power mammarf PNSERE55 CALL AND NOTICE OF ANNUAL MEETING OF SHAREHOLDERS May 8,1987 To the Shareholders of Consumers Power Company: f The annual meeting of shareholders of CONSUMERS POWER COMPANY is called and will be held on Wednesday, the 6th day of May 1987, at 10:00 A.M. Eastern Daylight Saving Time, at the Jackson Community College. George E. Potter Center. 2111 Emmons Road. Jackson. Michigan, for the purpose of: (1) Electing a Board of Directors: (2) Approving an Agreement and Plan of Merger, a copy of which is attached as Exhibit A to the accompanying Proxy Statement, pursuant to which CMS Merging Corporation, a subsidiary of CMS Energy Corporation (" Holding Company"), will be merged into Consumers, with the result that Consumers will become a subsidiary of Holding Company, and the holders of Consumers Common Stock will become the holders of Holding Company Common Stock. as described in the accompany. ing Proxy Statement; (3) Ratifying the appointment of Arthur Andersen & Co.. independent public accountants. to audit the financial statements of the Company for the year ending December 31.1987; and transacting such other business as may properly come before the meeting. There will be presented to the meeting the annual report to the shareholders for the year 1986, including financial statements. a copy of which has been furnished to you. The Board of Directors has fixed March 9,1987 as the record date for the determination of shareholders entitled to notice of and to vote at the meeting. Preferred Shareholders of all series and Common Share-holders will be entitled to vote on all matters that come before the meeting. There are no matters to be voted on by the Preference Shareholders. All shareholders are cord. ally invited to attend the annual meeting. The Board of Directors requests that you sign and date the enclosed prog and return it in the enclosed envelope which requires no postage if mailed in the United States. By order of the Board of Directors. Thomas A. McNish. Secretary Consumers Power Company 212 West Michigan Avenue Jackson, Michigan 49201 March 18,1987 [l h, r: w 4 V. (
0r PROXY STATEMENT FOR CONSUMERS POWER COMPANY PROSPECTUS FOR CMS ENERGY CORPORATION s common stock ~\\ \\ a This Prospectus, including the Proxy Statement forming a part hereof, has been prepared in connection with the issuance of shares of Common Stock. s.01 par value. of CMS Energy C6rporation, a Michigan corporation (" Holding Company"). upon the consummation of the proposed merger of CMS Merging Corporation, a Michigan corporation (" Merging Corp."), a wholly owned subsidiary of Ho(ding Company into and with Consumers Power Company, a Michigan corporation (" Consumers"). j l At the effective time of such merger, each share of Consumers Common Stock. $10.00 par value. will automatically be converted into and, without action on the part of the holder thereof, become one share of Common Stock. s.01 par value, of Holding Company. The difference in par value will not affect the market value of such stock; but will result in substantial savings in franchise fees to the corporation. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AN COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEOUACY OF PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY iS A CRIMINAL OFFENSE. > The executive offices of Holding Company are located at 212 West Michigan Avenue. Jackson Michigan 49201. and its telephone number at such address is (517) 788-1030. The date of this Prospectus and Proxy Statement is March 18.1987. / e i I J L
AVAILABLE INFORMATION I Act") and in accordance therewith is obligated to file reports and other information with the Securities and Consumers is subject to the informational requirements of the Secunties Exchange Act of 1934 (~1934 Exchange Commission ("SEC") relating to Consumers business. financial condition and other matters. Informa-tion as of particular dates concerning the directors and officers of Consumers, their remuneration, options granted to them. the principal holders of Consumers Common Stock. Preference Stock and Preferred Stock and any material interests of such persons in transactions with Consumers, is required to be disclosed in proxy statements distnbuted to Consumers shareholders and filed with the SEC. The periodic reports, proxy statements and other information filed with the SEC by Consumers and referred to herein can be inspected and copied at the public reference facilities maintained by the SEC at 450 Fifth Street N.W., Washington. D.C. 20549 and at the following regional offices of the SEC: 219 South Dearborn Street. Room 1204. Chicago. Illinois 60604; and 26 Federal Plaza. Room 1028. New York. New York 10278. Copies of such material can be obtained from the SEC's Public Reference Section at 450 Fifth Street. N.W. Washington. D C. 20549 at presenbed rates. In addition. reports proxy statements and other information concerning Consumers can be inspected at the offices of the New York Stock Exchange. 20 Broad Street. New York, New York 10005, and the Midwest Stock Exchange. 440 South LaSalle Street. Chicago. Illinois 60605. on which certain secunties of Consumers are listed. Holding Company will become subject to the same informational requirements as Consumers following the merger desenbed in this Prospectus and Proxy Statement. and will file reports, proxy statements and other information with the SEC in accordance with the 1934 Act. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The following documents have been filed by Consumers with the SEC pursuant to the 1934 Act and are incorporated herein by reference and made a part of this Prospectus and Proxy Statement:
- 1. Consumers Annual Report on Form 10-K for the fiscal year ended December 31.1986.
- 2. Consumers Current Report on Form 8 K dated January 27.1987.
All documents filed by Consumers with the SEC pursuant to Sections 13(a).13(c).14 or 15(d) of the 1934 Act subsequent to the date of this Prospectus and Proxy Statement and pnor to the date of the annual meeting of shareholders of Consumers shall be deemed to be incorporated herein by reference and made a part of this Prospectus and Proxy Statement from the date of filing of such documents Consumers hereby undertakes to provide without charge to each person to whom a copy of this Prospectus and Proxy Statement has been delivered. on the written or oral request of any such person a copy of any or all of the documents referred to above which have been or may be incorporated in this Prospectus and Proxy Statement by reference other than exhibits to such documents. Requests should be directed to Thomas A. McNish. Secretary. Consumers Power Company. 212 West Michigan Avenue. Jackson. Michigan 49201, telephone- (517) 788-1030. E __ ___ j t _
This Prospectus and Proxy Statement incorporates documents by reference which are not presente herein or delivered herewith. These documents are available upon request from Thomas A. McNish Consumers Power Company, 212 West Michigan Avenue, Jackson, Michigan 49201, telephone: In order to ensure timely delivery of the documents, any request should be received by April 28 788 1030. 1987. No person has been authorized to give any information or to mtko any representation not con this Prospectus and Proxy Statement in connection with the offer contained in this Prospectus an Statement, and, if given or made, such information or representation must not be relied upon as h authonted. Neither the delivery of this Prospectus and Proxy Statement nor any distribution of shares of Holdin Company Common Stock made hereunder shall, under any circumstances, create any implicatio has been any c.hange in the affairs of Consumers or Holding Company since the respective dat information is given herein. REGISTRATION STATEMENT This Prospectus and Proxy Statement is a prospectus delivered in comphance with the Securitie 1933, as amended (~1933 Act"), with respect to the shares of Common Stock of Holding Company Company Common Stock") offered hereby. A Registration Statement under the 1933 Act has been the SEC, with respect to the shares of Holding Company Common Stock offered hereby. As permitted rules and regulations of the SEC. this Prospectus and Proxy Statement omits certain information co the Registration Statement on file with the SEC. The omitted information can be inspected and cop above-described pubhc reference facihties maintained by the SEC. 4 0 6 I lii 9 0
'T get TABLE OF CONTENTS Page Summary of Restructuring Proposal 1 Introduction 5 Nominees for Election as Members of the Board of Directors................. 5 Board of Directors and Committees 9 Compensation of Directors 10 Executive Ccmpensation and Other Transactions.......................... 11 C ha nges in Executive Of ficers.......................................... 11 Special Compensation Plan 11 Employees' Savings Plan 12 Executive incentive Compensation Plan 12 Executive Salary Deferral Program 12 Executive Stock Option and Stock Appreciation Rights Plan 13 P e n s i o n Pl a n s........................................................ 14 Corporate Restructunng Plan 14 Reasons for the Restructunng i3 Vo t e R e q u i r e d........................................................ 16 Merger Agreement 16 Transfer of Certain Subsidianes to CMS Enterposes....................... 17 Dividend Policy 17 Treatment of Preferred and Preference Stock 18 Amendment or Termination 19 Rights of Dissenting Shareholders 19 Ef fectiveness of the Restructunng....................................... 21 Exchange of Stock Certificates 21 Regulation of Holding Company 21 Fed e r al Ta x C o n se q u e nc e s............................................ 22 Listing of Holding Company Common Stock.............................. 22 Management ......................................................... 22 Holding Company Capital Stock ........................................ 23 23 Comparative Shareholders' Rights E m pl o y e e B e n e fi t Pl a n s................................................ 26 Transfer Agent and Registrar ........................................... 26 Consumers Common Stock Market Prices and Dividends................... 26 LegalOpinions....................................................... 26 Ratification of the Appointment of Auditors ................................ 27 ....................................... 27 1988 Proxy Statement Information OtherMatters.......................................................... 27 Exhibit A - Agreement and Plan of Merger I Exhibit C - Provisions of the Michigan Business Corporation Act Relating A-1 Exhibit B - Articles of incorporation of CMS Energy Corporation B1 to Rights of Dissenting Shareholders........................... C1 av E
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SUMMARY
OF RESTRUCTURING PROPOSAL O The following summary is intended only to highlight certain information contained elsewhere in this Prospectus and Proxy Statement and is qualified in its entirety by reference to the more detailed infor-mation appearing elsewhere herein. PROPOSED RESTRUCTURING Holding Company has been organized to become the holding company for, and the direct owner of. Consumers and a newly formed subsidiary of Holding Company named " CMS Enterprises Company" (" CMS Enterprises"). The formation of the parent holding company structure will be achieved by the r merger of another newly formed subsidiary of Holding Company. CMS Merging Corporation (" Merging Corp "). into Consumers. In the merger. the holders of Consumers Common Stock will become the holders of Holding Company Common Stock and Holding Company will become the sole holder of Consumers Common Stock. Following the merger, the stock of certain of Consumers subsidiaries will be transferred to CMS Enterprises See " Transfer of Certain Subsidianes to CMS Enterpnses." Holders of Consumers Preferred and Preference Stock will continue to hold such stock following the merger. See " Treatment of Preferred and Preference Stock." The following diagrams illustrate the corporate structure of Consumers and its subsidiaries before the above-described merger and following the merger and the contemplated subsequent transfer of subsidiaries w I l O
i e I ~ PRESENT STRUCTURE l CONSUMERS POWER COMPANY l I I y u.cn.a.n c.i sio,.g. co,no.nv l l cus ENERGY CORPORArlON l 4 ei.... R. ,c., t.m...e l l No,in.,n u.cn...n E. .on como.n,- H q cos En,.,,,,,,, com,.,, l l l Con., Co,Do,. tion cms Mergeng Co,por.tvon ) Hu,on Hyd,oC.rbons. Inc q cus u....n.,nc j j s...,~ co i.c,>on s.,-..- H q 1.. nc l l cos ca..n.....on co H Te,noco li. loc l l cms Enginee,ing Co H cos u....n E.. m.nu,. l l ut.., s,.i.m.aec H , y vEc o....com., co,, l PROPOSED STRUCTURE l CMS ENERGY CORPORATION l 1 I l l CONSUMERS POWER COMPANY l l cms ENTERPRISES COMPANY l H u cn...n c., si... co,no.n, j H Nonn.,n u.cn...,E.,o,.i.oncomo.,. l H Pi.te.u Resou,ces L m.ier l H con., corpo, i.on l H Nu,on *,d,oc.,no,s. inc l H sei ci,v coii.ci,on services. inc l H cus u.orano inc l H cus cog. ,,,,o, co l H temoco i. inc l H cus Ena,n...no co l H temoco b. Inc l H ut.i.e svaremi. inc l H cus M.oi.no Eav.pment. tid l H MEc Dev.toom.nt coep l N 'Subsidianes omitted 4; a 2 'M6 0 t i f i
'R d QRt, HANGE OF CERTIFICATES It will not be necessary for shareholders to turn in their certificates for Consumers Common Stock in exchange for certificates for Holding Company Common Stock. The certificates which presently represent outstandmg shares of Consumers Common Stock will automaticaffy represent shares of Holding Company Common Stock following the effectiveness of the merger. New certificates bearing the name " CMS Energy Corporation" will be issued in the future if, and as, certificates for presently outstanding shares of Consumers Common Stock are presented for transfer. STOCK EXCHANGE USTINGS Holding Company will apply to list its Common Stock on the New York and Midwest Stock Exchanges. It is expected that such listings will become effective on the effective date of the merger, subject to the rules of such Exchanges. See " Corporate Restructuring Plan - Listing of Holding Company Common Stock." REASONS FOR THE RESTRUCTURING The Board of Directors of Consumers unanimously believes that the proposed restructuring will more clearly separate its utihty and nonutihty businesses, facihtate the reorganization and enhancement of Company assets, accommodate rnore easily the growth of each current subsidiary, provide financial flexibility, and facihtate capital allocation and managerial accountabihty See " Corporate Restructunng Plan - Reasons for the Restructuring." VOTE REQUIRED Only holders of shares of Consumers Common Stock and Preferred Stock at the close of business on March 9,1987 (" Record Date") will be entitled to notice of and to vote at the annual meeting. As of December 31.1986, there were 84,126.673 shares of Consumers Common Stock and 4.446.338 shares of Consumers Preferred Stock outstanding. The favorable vote of the holders of a majority of the outstanding shares of Consumers Common Stock and Preferred Stock, voting together as a single class, is required to approve the Agreement and Plan of Mergar, as is the favorable vote of the holders of a majority of the outstanding shares of Consumers Preferred Stock voting as a separate class. See " Corporate Restructuring Plan - Vote Required." TAX CONSEQUENCES it is intended that the conversion of Consumers Common Stock into Holding Company Common Stock in the merger will not be taxable under federal income tax laws, and it is a condition for the merger to become effective that Consumers receive either an opinion of counsel or a ruling from the Internal Revenue Service satisfactory to the Board of Directors of Consumers with respect to the tax I consequences of the merger. Consumers has received a ruhng from the internal Revenue Service with respect to certain tax consequences. See " Corporate Restructunng Plan - Federal Tax Consequences." 3 E t ~ t u
l I e_ l most series of Consumers Preferred Stock do not have any dissenters' rights in connection with the l ) RIGHTS OF DISSENTING SHAREHOLDERS I The holders of Consumers Common Stock all but one series of Consumers Preference Stock merger. However. holders of shares of the 89.25. $9.00. 89.70 and $8.625 Series of Consumers Preferred Stock and the $85.00 Series of Consumers Preference Stock do have dissenters
- rights. Any such holders who exercise such dissenters
- rights and comply with the procedural requirements of the Michigan Business Corporaton Act will be entitled to receive the " fair value" of their shares if the merger is effected. Any such holders electing to exercise their right of dissent must file with Consumers before or at the annual meeting on May 6,1987, a written objection to the approval of the Agreement and Plan of Merger and mu:t not vote for its approval. See " Corporate Restructuring Plan - Rights of Dissenting Shareholders" and Exhibit C.
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l time before it is exercised, provid INTRODUCTION The Board of Directors sohcits your proxy for use at this annual meeting. The shares represented by your proxy will be voted if the pro.<y is signed and returned poor to the meeting. You may revoke your proxy at any ~~ Company" or Consumers") in wnting before the proxy is exercised. As of December 31.1986, the Company's outstanding Common Stock ($10 par value) and Preferred Stock ($100 par value) consisted of 84,126.673 shares of Common Stock and 4.446.338 shares of Preferred Stock. Holders of Preferred and Common Stock are entitled to 1 vote for each share and shareholders have cumulative voting rights for the election of directors. that is, holders of Common and Preferred shares are entitled to as many votes as equal the number of shares held multiplied by the r' umber of directors to be elected, and they may cast all of such votes for a single nominee or distribute them among any two or more nominees as they choose. Shares represnted by proxies will be voted for the election of the nominees hsted herein (the proxy holders reserve the cignt to distribute their votes among nominees as such proxy holders may deem appropriate). CEDE & CO.. nominee for The Depository Trust Company. 55 Water Street. New York. New York 10041. was the record owner of 45.877.994 shares of Common Stock. representing 52.1% of the Company's outstanding Common Stock and was the record owner of 1.849.460 shares of Preferred Stock. representing 41.6% of the Company's outstanding Preferred Stock as of December 31.1986. The Company has been advised that none of those shares are owned beneficially by CEDE & CO. but are held for the account of many different brokerage firms, banks and other institutions. To the knowledge of management, no other person owns of record or beneficially more than 5% of any class of the Company's outstanding voting securities as of December 31.1986. NOMINEES FOR ELECTION AS MEMBERS OF THE BOARD OF DIRECTORS The nominees for directors of the Company who will also be directors of the Holding Company and in both cases will hold office until the next annual meeting or until their successors are elected and quahfied. are the following. and unless a shareholder withholds authonty to vote for the election of directors as provided in the proxy. the proxy will be voted for the listed nominees. The Board of Directors has no reason to believe that the persons named will not be available but in the event any nominee is unable to serve. the proxy will be voted for a substitute nominee designated by the Board of Directors. Mr. Merlotti is being nominated for the first time and the other nominees are presently serving as directors. P John M. Deutch, 48, is Provost of Massachusetts Institute of Technology (MIT). Cambndge. Massachusetts. Previously, he served as Dean of Science MIT from 1982-1 k. 1985. He served on the President's Commission on Strategic forces dunng 1983. He is Ii[i k' a directcr of the Perkin-Elmer Corporation and Science Apphcations. Inc. He was first elected a director in 1986. Shares of Common Stock beneficially owned: 2.600 'M S i l B i C. k \\ vv f. r l L
9 T l ( Robert E. Dewer,64. has served as Chairman of the Executive and Finance Committees .m p j?T % of K mart Corporation. Troy, Michigan, a general merchandise retail chain, since 1980. -O He is a director of K mart Corporation. Comerica. Inc. and Comerica Bank-Detroit N.A. He was first elected a director in 1980. [ Shares of Common Stock beneficially owned: 2.758 .e ,/ Richard M. Gillett, 63. has served as Chairm.3n of the Board of Old Kent Financial Corporation. Grand Rapids, Michigan, a bank holding company, since 1972. He is a director of Old Kent Financial Corporation. Ball Corporation, and American Information Technologies Corporation (Ameritech). He was first elected a director in 1967. m\\ yy Shares of Common Stock beneficially owned. 5.020 y ie.a. William N. Hubbard, Jr.,67. retired as President of The Upjohti Company on October 1. 1984. He had been President of The Upjohn Company, a pharmaceutical and chemical manufacturer. Kalamazoo. Michigan, since 1974. He is a director of The Upjohn Company and Johnson Controls. Inc. He was first elected a director in 1978. ,D Shares of Common Stock beneficially owned.13.128 k Lois A. Lund, 59. is a Professor. College of Human Ecology; Michigan State University. East Lansing. Michigan. Previously, she served as Dean. College of Human Ecology. Michigan State University. from 1973-1985. She was first elected a director in 1983. Shares of Common Stock beneficially owned: 922 M s b L,., 6 i I t i -.-.-_._,.y r-.._.,--,_w,m ,.-,.-.,.,c.
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L 4g William T. McCormick, Jr., 42. has served as Chairman of the Board. President and Chief Executive Officer of the Company since November 1985. Prior to that time, he had held the following positions at American Natural Resources Company (ANR): President. Chairman of the Board and Chief Executive Officer in 1985; President and Chief Operatin(, Officer from 1982-1985. He is a director of NBD Bancorp. Inc. and A-N ' National Bank of Detroit. He was first elected a director in 1985. UW. Shares of Common Stock beneficially owned: 26.063 $A Don T. McKone,65. has served as Chairman of the Board since 1980 and was Chief Executive Officer from 1980-1986 of Trinova Corporation (formerly Libbey-Owens Ford Company). Maumee. Ohio, a diversified corporation. He is a director of NBD Bancorp. C. inc.. National Bank of Detroit. Ohio Citizens Bank. Ashland Oil. Inc., and Champion Spark Plug Company. He was f.rst elected a director in 1974. i [ __4 Shares of Common Stock beneficially owned: 1.411 i i! \\ l Frank H. Merlotti,60. has served since 1980 as President and Chief Operating Officer of Steetcase Inc.. Grand Rapids. Michigan, a manufacturer of office furniture. He is a .,e*-t c. director of Citizens Research Council of Michigan. Old Kent Financial Corporation. Laser i:, Alignment, and Oliver Products. q
- Shares of Common Stock beneficially owned
- 100
%} 1 L' -JS Paul S. Mirabito, 71. retired as Chairman of the Board of Burroughs Corporation on t.A f December 31.1980. He is a director of Unisys Corporation and VHC Ltd. He was first c ?) elected a director in 1979. Shares of Common Stock benehcially owned: 2.023 e 1 ~ y I h 7 .. w p a b T -e,
.E p-' 7 Joseph F. Paquette, Jr., 52. was elected Vice Chairman of the Board of the Company F i in February 1987 and has previously served as Executive Vice President and Chief B 1;Jx-4, Financial Officer since May 1986. Prior to that time, he had been Vice President. Finance and Accounting Department at Philadelphia Electnc Company since 1978. He was first elected a director in 1987. Shares of Common Stock beneficially owned: 767 Ed m m Thomas F. Russell, 61, has served since 1976 as Chairman of the Board and Chief fRM Executive Officer of Federal-Mogul Corporation. Detroit. Michigan, a diversified corpora-I tion. He is a director of Federal-Mogul Corporation. Comerica. Inc.. Comerica Bank-Detroit N.A.. A. O. Smith Corporation, and Cross & Trecker Corporation. He was first
- b >fy elected a director in 1986.
.L if t'7M Shares of Common Stock beneficially owned: 2.674 wk S. Kinnie Smith, Jr., 56. was elected Vice Chairman of the Board and General Counsel E of the Company in Februa y 1987. Prior to that time. he had held the following posi-tions at The Coastal Corporation and its subsidiaries: Senior Vice President and Director since 1985; Vice Chairman and General Counsel of American Natural Resources neo Company from 1984. He was a partner of Sidley & Austin from 1964 to 1984. He is a director of Michigan National Corporation. Michigan National Bank, and J. L. Clark i Manufacturing Company He was first elected a director in 1987. l Shares of Common Stock beneficially owned: 1.000 i Q* "~~3D Robert D. Tuttle, 61. has served since 1985 as Chairman of the Board and Chief Executive Officer of Sealed Power Corporation. Muskegon. Michigan, a diversified ~, g manufactunng company. Prior to that, he had been elected President and Chief Executive BEL Officer in 1984 and President and Chief Operating Officer in 1980. He is a director of J Sealed Power Corporation. Woodhead Industries. Inc.. Little Rapids Corporation. Walbro 7 Corporation. FMB Corporation and Shaw Walker Company. He was first elected a director in 1986. Shares of Common Stock beneficially owned: 600 i' _a. G
i G + e As of December 31,1986. the directors and officers as a group totaling 33 persons beneficially owned 174.422 shares of Common Stock, which is less than.20% of the outstanding shares of Common Stock of the Company. Shares shown as beneficially owned by Messrs. Merlotti and Smith are as of February 19, 1987. Shares shown as beneficially owned by the incumbent directors include the number of shares repre-sented by their respective interests in the Directors' Deferred Compensation Plan and the Directors' Special Compensation Plan. Shares shown as beneficially owned by Mr. McCormick and by all officers of the Company as a group include the number of shares represented by their respective interests in the Employees' Savings Plan. the Executive incentive Compensation Plan, and the Special Compensation Plan. In addition. an officer of the Company beneficially owned 313 shares of the Company's $4.52 Preferred Stock. BOARD OF DIRECTORS AND COMMITTEES The Board of Directors met 13 times during 1986. All incumbent directors a.ttended more than 75% of the board and assigned Lommittee meetings during their service in 1986. AUDIT COMMITTEE Members: Robert E. Dewar (Chairman). John M. Deutch. William N. Hubbard. Jr.. Lois A. Lund and Thomas F. Russell Meetings during 1986: 3 This committee meets with representatives of the independent public accountants from time to time during the year and after the completion of the annual audit of the Company's financial statements to review and discuss such audit, internal controls and other appropriate matters; reviews the activities of the internal Audit Department. reviews the relationship of the Company's independent public accountants with the Company insofar as they perform nonaudit services; and reviews and recommends to the Board of Directors the appointment of independent public accountants. NOMINATING COMMITTEE Members: Paul S. Mirabito (Chairman). William N. Hubbard. Jr.. Don T. McKone and Thomas F. Russell Meetings dunng 1986: 3 This committee conducts a continuing study of the size. structure, composition and compensation of the board. seeks out possible candidates to fill board positions, aids in attracting qualified candidates to the board; recommends annually prior to the solicitation of proxies, a slate of qualified candidates for election to the board at the annual meeting and, in case of a vacancy on the board, a candidate to fill that vacancy; reviews periodically and recommends to the board modifications. as appropriate, to the director tenure policy; and determines from time to time criteria for selection and retention of board members. The committee considers shareholders' recommendations of nominees for election to the Board of Directors, which are accompanied by the consent of each of the recommended nominees to act as a director. Shareholders should send their written recommendations of nominees to: Mr. Thomas A. McNish Corporate Secretary Consumers Power Company. 212 West Michigan Avenue. Jackson, Michigan 49201. ? e 9 9 i tj ~ g: i L'
ORGANIZATION AND COMPENSATION COMMITTEE Members: Don T. McKone (Chairman). Robert E. Dewar. Richard M. Gillett. Paul S'. Mirabito and Robert D. Tuttle + Meetings during 1986: 6 h This committee reviews the executive organization of the Company from time to time; reviews from time to time the salaries and other compensation of all the officers of the Company; monitors the development of personnel for availability to fill key management positions as vacancies occur; establishes goals annually for the Executive incentive Compensation Plan; reviews and approves the incentive compensation payment schedule; reviews and approves grants under the Executive Stock Option and Stock Appreciation Rights Plan; and reports to the Board of Directors with respect to the committee's recommendations. EXECUTIVE COMMITTEE Members: William T. McCormick. Jr. (Chairman). Robert E. Dewar. Richard M Gillett. Don T. McKone and Paul S. Mirabito Meetings during 1986: 2 This committee exercises the power cnd authority of the Board of Directors as may be necessary during the intervals between meetings of the Board of Directors, subject to such limitations as are provided by law or by resolution of the board. COMPENSATION OF DIRECTORS Directors who are not officers of the Company currently receive an annual retainer fee of $15.000 and $750 for attendance at each board or committee meeting. Committee chairmen receive $1.000 for attendance at each committee meeting. One-half of the amounts deferred under the Company's Special Compensation Plan in 1984,1985 and 1986 were paid in January 1987 and the remaining one-half will be paid in January 1988 based on the value of such amounts as though they had been invested in shares of Common Stock of the Company. Retainer and attendance fees are set by the Board of Directors. Directors are reimbursed for expenses incurred in attending board or committee meetings. Directors who are officers of the Company do not receive retainers or meeting fees for service on the board or as a member of any board committee. Pursuant to a Directors' Deferred Compensation Plan. a director of the Company who is not an employee of the Company may at any time prior to a calendar year in which a retainer and fees are to be earned. elect to irrevocably defer payment for that year, through written notice to the Company, of all or half of any of the retainer and fees which would otherwise be paid to the director, to a time following the director's retirement from the Board of Directors Any amount deferred will either (a) accrue interest at the prime rate set by Citibank. N A., or (b) be treated as if it were invested as an optional cash payment in the Company's Dividend Reinvestment and Common Stock Purchase Plan. Accrued amounts will be distributed in a lump sum or in five annual installments in cash or, if option (b) above is chosen by the director, in cash or Common Stock of the Company Messrs. Hubbard and Russell and Dr. Lund participated in the Directors' Deferred Compensation Plan in 1986. Outside directors with a minimum of five years' service on the board who retire at age 6? or later will receive monthly retirement payments equal to the monthly retainer at the time of retirement. Tnese payments will continue for a period of time equal to their years of service on the board. All benefits will cease at the death of the retired director. The Company offers optional life insurance coverage, business-related travel accident insurance. and health care insurance. and pays the prerniums associated with participation by directors L ~ O G
EXECUTIVE COMPENSATION AND OTHER TRANSACTIONS The following table sets forth all cash compensation paid to each of the five most highly compensated executive officers and to all executive officers as a group. for services in all capacities to the Company and its subsidiaries during 1986: Name of Individual or Capacities Cash Number of Persons in Group in Which Served Compensation (a) William T. McCormick. Jr. Chairman of the Board. President $ 400.000 and Chief Executive Officer J a m e s B. Fa t a h ee............................... Vice Chairman of the Board 215.000 (Until October 1.1986) Jack W. Reynolds Executive Vice President 169.500 Stephen H. Howell Executive Vice President 164.373 Jo se p h F. Pa q uette. Jr.......................... Chief Financial Officer 146.667 All executive officers as a group (including the individuals named a bove) totaling 2 5 persons........................................... $ 2.927.421 (a) includes amounts deferred in 1986 under the Company's Special Compensation Plan. Employees' Savings Plan and the Executive Salary Deferral Program. For a brief description of such Plans. please see the following pages CHANGES IN EXECUTIVE OFFICERS Under a five-year employment agreement. Mr. McCormick's annual rate of cash compensation beginning January 1,1987 will be at a rate of no less than $400.000 annually through October 31,1990. The agreement also provides for payments to Mr. McCormick if, during its term. he becomes disabled, his service should be terminated, or if there is a change of control and his responsibilities are changed. The Company also provides term insurance on his life payable to his designated beneficiary. Mr. Falahee resigned as Vice Chairman of the Board on October 1.1986, and retired from the service of the Company on January 1 1987. Mr. Walter Bons retired as Executive Vice President of Finance on June 1.1986. Mr. Paquette was elected Executive Vice President and Chief Financial Officer on May 7.1986 and Vice Chairman of the Board on February 19. 1987. Mr. S. Kinnie Smith. Jr. was elected Vice Chairman of the Board on February 19. 1987. Employment contracts provide for payments to Mr. Paquette and Mr. Smith if. during the contract terms, they become disabled or their services should be terminated. SPECIAL COMPENSATION PLAN As a cash conservation measure, the cash compensation for all nonunion employees of the Company. including officers. was reduced in amounts ranging from 3% up to 20% for the Chairman of the Board. President and Chief Executive Officer, effective October 1.1984 through December 31.1986. To provide an incentive for officers and other eligible employees to remain with the Company a Special Compensation Plan was established. Under this Plan. the Company has credited to the special account of each eligible employee the amount of the general salary reduction and certain merit. promotional and other increases to which the employee became entitled. Such credited amounts were converted to units based on the closing market price i [. b e-
of the Company's Common Stock on the last business day of the credit period. In January 1987. ehgible employees received a distribution from such special account in the form of cash, shares of the Common Stock of the Company, or a combination thereof. One-half of the units were distributed in January 1987 and the remaining one-half will be distributed in January 1988 unless the eligible employees have elected to have the units distributed at certain later times. Starting with the first full pay period in 1987, the Company stopped crediting the special accounts and resumed an all cash salary program. 4, Y EMPLOYEES
- SAVINGS PLAN Officers of the Company, together w'th other eligible employees, may participate in the Employees' Savings e'.
Plan of Consumers Power Company, which Plan was approved by the shareholders in 1962. Under the Plan. an eligible employee may (1) contribute up to 6% of regular salary. (2) elect to have regular salary reduced by up to 9% and the Company will deposit such amount for the employee, and (3) contribute up to an additional 10% of regular salary (the total cannot exceed 16%) for investment by an Investment Manager in (a) guar-anteed investment contracts. or (b) selected common stock issued by other than the Company, or (c) Con-sumers Common Stock or other securities convertible into such Common Stock, or a combination thereof. In addition. the Company makes a contnbution equal to 50% of the amount contributed by each of its partici-pating employees (or on behalf of each participating employee), the maximum Company contribution being 3% of the employee's regular salary. The Company contribution must be invested in Consumers Common Stock or other securities convertible into such Common Stock. Under this provision, in 1986 $23.968 was contributed for the executive officers named above and $40.507 was contnbuted for all other persons who were executive officers during 1986. as a group. During 1986, the National Bank of Detroit was the Trustee of the Employees' Savings Plan. Directors who are not employees of the Company are not ehgible to participate EXECUTIVE INCENTIVE COMPENSATION PLAN An Executive incentive Compensation Plan was adopted by the Company's Board of Directors in 1975. pursuant to which annual incentive compensation may be awarded to officers and key employees, at the discretion of the Board of Directors, based on the success of the Company and such individuals in meeting goals estabhshed for the preceding year. Two primary factors are considered in the evaluation - the Company's earnings and the Company's abihty to mairdain or lower the relationship of its gas and electric rates to the rates of other major investor-owned utihties. In 1986. no incentive compensation was paid to the executive officers or any other officers or key employees. EXECUTIVE SALARY DEFERRAL PROGRAM in November 1986, the Company adopted a voluntary deferral arrangement under which officers of the Company could elect to defer receipt of current salary until 1988 or after retirement. The deferred amount would accrue interest at the prime rate set by Citibank. N A. In 1986. Messrs. McCormick and Paquette and another officer of the Company elected to defer a portion of their salary. 12 ~ l V. W r k b lm
l s
1
(e) To provide for the taking of testimony by deposition.
(f) To regulate the course of the proceeding.
(g) To issue subpoenas, when a written request is made by any of the p'arties, requiring the attendance and testimony of any witness and the production of evidence including books.
1 records, correspondence, and documents in the possession of the witness or under his or her control, at a hearing before the referee or at a deposition convened pursuant to sub-division (e), in case of a refusal to comply with a subpoena, the party on whose behalf the
- ?
j subpoena was issued may file a petition in the court for an order requinng comphance. ~% l (2) The amount and manner of payment of the referee's compensation shall be determined by agreement between the referee and the parties, subject to the court's allocation of such compensation between the parties at the end of the proceeding pursuant to equitable principles, notwithstanding Section 769. (3) The referee shall do all of the following: (a) Make a record and reporter's transcript of the proceeding. (b) Prepare a report including proposed findings of fact and conclusions of law. and a recommended judgment. (c) File the report with the court, together with all original exhibits and the reporter's transcript of the proceeding. (4) Unless the court provides for a longer period, not more than 45 days after being served with notice of the fahng of the report described in subsection (3), any party may serve written objections to the report upon the other party. Application to the court for action upon the report and objections to the report shall be made by motion upon notice. The court, after hearing, may adopt the report may receive further evidence, may modify the report, or may recommit the report to the referee with instructions. Upon adoption of the report judgment shall be entered in the same manner as if the action had been tried by the court and shall be subject to review in the same manner as any other judgment of the court. Section 769: COSTS AND EXPENSES; DETERMINATION; ASSESSMENT AGAINST CORPORATION OR DIS-SENTERS; EXPENSES; ITEMS INCLUDED; ATTORNEY FEES OF DISSENTERS; PAYMENT OF SUMS DUE DIS-SENTERS. (1) 'he costs and expenses of the proceeding shall be determined oy the court and shall be assessed against the corporation, except that any part of the costs and expenses may be apportioned and assessed, as the court may determine, against any dissenting shareholders who are parties to the proceeding if the court finds that their refusal to accept the corporate offer was arbitrary, vexatious or otherwise not in good faith. The expenses shallinclude reasonable compensation for and reasonable expenses of the appraiser, but shall exclude the fees and expenses of attorneys for and experts employed by any party unless the court. in its discretion awards such fees and expenses. In exercising discretion as to payment of the attorney fees of dissenting shareholders. the court s, hall consider any of the following: (a) that the fair value of the shares as determined materially exceeds the amount which the corporation offered to pay; (b) that no offer was made by the corporation; and (c) that the corporation failed to institute the special proceeding within the period specified therefor. C-4 1i Is
(2) Within 60 days after final determination of the proceeding. the corporation shal 9 senting shareholder the amount found to be due him, upon surrender of the certific shares. Section 770: ACOUIRED SHARES BECOMING TREASURY SHARES: MERGE [ Shares acquired by the corporation upon payment of the agreed value therefor or the final order, shall become treasury shares or be canceled as provided in Se of a merger or consolidation. they may be held and disposed of as the plan of merge i,j ' otherwise provides. his nght to receive payment for his shares excludes the e that the right of the shareholder to bring or maintain an a such corporate action will be or is unlawful or fraudulent as to him is not excluded. i e C-5 i i l I
Attachment B SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 1 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) 0F THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1986 Commission file number 1-5611 CONSUMERS POWER COMPANY l (Exact name of Registrant as specified in its charter) 1 MICHIGAN 38-0442310 (State or other jurisdiction of (I.R.S. Employer __ incorporation or organization) Identification No.) 212 WEST MICHIGAN AVENUE, JACKSON, MICHIGAN 49201 1 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (517) 788-1030 Securities registered pursuant to Section 12(b) of the Act: Securities registered pursuant to Section 12(b) of the Act are listed on the back of this cover page. Securities registered pursuant to Section 12(g) of the Act: NONE Indicate by check nark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Aggregate market value of the voting stock held by non-affiliates of Registrant - $1,836,948,674 For detail see back of this cover page. Common stock, $10 par value, number of shares outstanding as of February 24, 1987 - 84,126,673 Number of shares issued - 88,065,039, including 3,938,366 shares not entitled to vote Documents incorporated by reference: (1) Certain information in the Registrant's Annual Report to shareholders for 1986 incorporated by reference in Parts I, II and IV. (2) The Registrant's proxy statement relating to the 1987 annual meeting of shareholders to be held May 6, 1987, incorporated by reference in Part III. RP0285-0010K-TE05
Securities registered pursuant to Section 12(b) of the Act: FIRST MORTGAGE BONDS: 4-1/2% Series due 1988 7-5/8% Series due 1999 7-1/2% Series due 4-5/8% Series due 1989 11-1/2% Series due 2000 October 1, 2002 4-5/8% Series due 1990 8-5/8% Series due 2000 8-5/8% Series due 2003 4-5/8% Series due 1991 8-1/8% Series due 2001 9-3/4% Series due 2006 11-3/8% Series due 1994 7-1/2% Series due 2001 9 % Series due 2006 5-7/8% Series due 1996 7-1/2% Series due 8-7/8% Series due 2007 6-7/8% Series due 1998 June 1, 2002 8-5/8% Series due 2007 6-5/8% Series due 1998 9 % Series due 2008 PREFERRED STOCK - Cumulative PREFERENCE STOCK - Cumulative $100 par value: $1 par value: $4.50 Series $7.72 Series $2.43 Series $4,02 Series $4.52 Series $7.76 Series $2.23 Series $3.78 Series $4.16 Series $7.68 Series $2.50 Series $3.60 Series $7.45 Series $3.85 Series $4.40 Series $3.98 Series COMMON STOCK - $10 par value All securities listed above are registered on the New York Stock Exchange and common stock is also registered on the Midwest Stock Exchange. l Aggregate market value of the voting stock held by non-affiliates of Registrant: Number Shares Transaction Type of Stock Outstanding Price / Share Date Market Value (2/24/87) COMMON 84,126,673 $17-5/8 2/24/87 $1,482,732,612 PREFERRED: $4.50 547,788 $49 2/24/87 26,841,612 4.52 71,550 69 2/05/87 4,936,950 4.16 100,000 47 2/23/87 4,700,000 7.45 700,000 81 2/24/87 56,700,000 7.72 700,000 82-3/4 2/24/87 57,925,000 7.76 750,000 84 2/24/87 63,000,000 7.68 550,000 82-3/4 2/24/87 45,512,500 9.25 240,000 24,000,000 9.00 400,000 40,000,000 9.70 90,000 9,000,000 8.625 216,000 21,600,000 Total $1,836,948,674
- Sold at private placement; therefore, no transactions. Valued for this cal-culation at par value of $100 per share.
RP0285-0010K-TE05
CONSUMERS POWER COMPANY ANNUAL REPORT ON FORM 10-K TO THE SECURITIES AND EXCHANGE COMMISSION FOR THE YEAR ENDED DECEMBER 31, 1986 The enclosed Form 10-K for the year 1986 is composed of certain consolidated financial statements included in Consumers Power Company's (the " Company" or " Registrant") Annual Report to shareholders and additional schedules and information concerning the Company and its operations. The-Annual Report to shareholders is attached hereto but not filed herewith, except for the financial statements and schedules and other information specifically incorporated herein by reference. The additional information concerning the Company and its subsidiaries and their operations included in Form 10-K should be used in conjunction with those portions of the Company's 1986 Annual Report to shareholders which are incorporated into this Form 10-K by reference. A copy of the 1986 Annual Report to shareholders has been sent to shareholders entitled to vote at the annual meeting of shareholders to be held May 6, 1987. TABLE OF CONTENTS Item No. in Form 10-K Page 1. Business.................... 1 A. General............ 1 B. General Problems of the Industry. 1 C. Outlook for the Company................ 1 D. Electric Service. 2 1. Midland Plant 3 2. Operating Nuclear Plants.. 5 a. Palisades Plant 6 b. General Matters. 6 E. Elec tric Fizel Supply.................. 7 F. Gas Service...................... 8 1. Gas Supply......... 8 2. Gas Costs..................... 10 3. Recovery of Power Supply and Gas Costs.. 11 G. Revenue by Class of 3ervice.. 12 H. Insurance. 13 I. Employees............ 14 J. Regulation....................... 15 1. Michigan Public Service Commission.... 15 2. Nuclear Regulatory Commission........... 15 3. Federal Energy Regulatory Commission........ 15 4. Environmental Requirements........ 16 K. Legislation and Ballot Issues. 19 L. Executiva Officers of Registrant. 20 RP0285-0010K-TE05
Item No. in Form 10-K Page 2. Properties.... 22 A. Character of Ownership................. 22 B. Electric Preparties.................. 23 C. Gas Properties. 24 D. Other Properties.. 25 E. Construction Program. 25 F. Subsidiaries. 26 ummmmme 1. NOMECO...... 28 2. Plateau. 28 3. Storage Company.................. 29 1 3. Legal Proceedings. 30 A. Legal Proceedings......... 30 B. Other Matters.... 35 4. Submission of Matters to a Vote of Security Holders.. 35 5. Market for Registrant's Common Equity and Related Stockholder Matters.. 36 6. Selected Financial Data.. 36 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.. 36
{
8. Financial Statements and Supplementary Data........ 36 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure. 36 10. Directors and Executive Officers of the Registrant. 36 11. Executive Compensation......... 36 12. Security Ownership of Certain Beneficial Owners and Management........................ 36 13. Certain Relationships and Ra'.ated Transactions. 36 14 Exhibits, Financial Statement Schedules and Reports on Forn 8-K....................... 37 RP0285-0010K-TE05
PART I ITEM 1. BUSINESS. A. General The Company was incorporated in Michigan in 1968 and is the suc-cessor to a corporation of the same name which was organized in Maine in 1910 and which did business in Michigan from 1915 to 1968. The Company is a public utility engaged in the generation, purchase, transmission, distribution and sale of electricity, and in the purchase,, production, storage, transmission, distribution and sale of gas, in the Lower Peninsula of the State of Michigan. The population of the Company's service area is approximately 6 million. Industries in the Company's service area include automotive, metal, chemical, food and wood products and a diversified group of other industries. The Company's consolidated operating revenue in 1986 was derived approximately 57% from the electric business, approximately 41% from the gas business and the remainder from other sources. B. General Problems of the Industry 4 The Company experiences problems common to tne electric and gas utility industries in general, including resistance to rate increases. As a gas distributor, the Company is also affected by the decreased price of oil and increased competition for industrial sales. Given the sizable number of phase-in plans and disallowances of costs of newly completed generating plants, full recovery by electric utilities of costs associated with bringing these plants on line has become the exception rather than the rule. Further, while certain juris-dictions have authorized recovery over a period of years of all or a portion of a utility's investment in an abandoned plant, many of these jurisdictions have not allowed a return on such investment during the amortization period. Changes (to be effective January 1, 1988) have been enacted in an accounting standard that would require a utility's invest-ment in an abandoned plant to be carried on its books at an amount equal to the present value (calculated at the utility's incremental borrowing rate) of the probable future revenues expected to be received from that investment. (See " Midland Plant".) C. Outlook for the Company Investors' concerns over recovery of funds expended for the Midland nuclear plant led to the Company's loss of access to the capital markets in 1984 which, in turn, resulted in the cessation of constnuction at Midland in July 1984 In 1985 the Company's short-term liquidity problem
2 was eased by the Company's entering into agreements with certain tanks to restructure approximately $1.2 billion in debt over a 6-year period and to provide financing over the same period for seasonal gas and fuel in-ventories, and by financial stabilization rate relief granted by the Michigan Public Service Commission ("MPSC") in the annual amount of $94 million (later reduced to $91 million) over the same period. See " Legal Proceedings". The Company's prospects have improved recently due to its successful efforts to reduce its financing costs, improved control of its operating expenses and the anticipated conversion of the Midland plant. Continued improvement is dependent upon a number of factors including adequate gas and electric rates and energy sales levels, the timing and amount of any recovery of the Company's abandoned Midland investment through rates, the effect of any additianal write-downs of its abandoned Midland investment (see " Midland Plant" and " Legal Proceedings"), the, successful recovery of its investment in the Midland Cogeneration Venture arrangements and the effect of the Tax Reform Act of 1986 upon the Company's rates. As part of its plan to remain competitive, the Company will recommend to its shareholders in connection with its annual meeting Hay 6,1987 that the Company be reorganized into a holding company. This restructuring would increase the Company's financial flexibility and segregate its regulated and non-regulated businesses. D. Electric Service The Company renders electric service in 61 of the 68 counties in the Lower Peninsula of Michigan. Principal cities served are Battle Creek, Bay City, Flint, Grand Rapids, Jackson, Kalamazoo, Muskegon, Pontiac, Saginaw and Wyoming. The Company owns and operates electric generating plants with aggre-gate net demonstrated capability as of December 31, 1986 of 6,512,100 kilowatts. kor the summer of 1986 the net demonstrated capability of the Com-pany's interconnected system was 5,963,500 kilowatts (after a sale of 319,600 kilowatts and seascoal equipment decatings of 180,000 kilowatts) to serve an actual maximum demand of 5,127,000 kilowatts. This all-time record maximum demand occurred on July 17, 1986. The Company's electric generating plants are interconnected by a transmission system operating at from 138,000 to 345,000 volts. This transmission system is also interconnected at a number of locations with transmission facilities of unaffiliated systems. The Company has an electric coo'rdination agreement with The Detroit Edison Company (" Detroit Edison") which provides for the coordination of planning and operation of the interconnected electric systems of the par-ties, the rendering of mutual assistance during emergencies and maximum practical economy in providing the electric power requirements of each system.' There are five 138,000-volt and four 345,000-volt interconnections
3 between the systems. These interconnections permit a sharing of the re-serve capacity of the two systems and a substantial reduction in invest-ment in plant facilities for each company. Pursuant to an order of the MPSC, the Company has in effect certain emergency electrical procedures to be implemented in the event of short-term or long-term fuel or gener-ating capacity shortages. The procedures include automatic and manual load chedding, voltage reduction, requests for voluntary curtailment, interruptible and emergency load management tariff provisions, and manda-tory curtailment of electric demand of certain nonresidential customers. The Company has an agreement with Detroit Edison for interconnections linking the power systems of the Company and Detroit Edison with the power systems of Ontario Hydro, Indiana & Michigan Electric Co., Northern Indiana Public Service Co. and Toledo Edison Co., providing for mutual assistance during emergencies, improved reliability of bulk power supply and the effecting of economies by coordinated development and exchange of power. The Company maintains interconnections and interchanges power with the Municipals and Cooperatives Pool, the Michigan South Central Power Agency and the cities of Lansing and Holland. The Company also purchases power from a number of other agencies and organizations and has contracts to purchase power in the future from other companies. The Company is a member of the East Central Area Reliability Coordi-nation Agreement group of utilities from which it purchases power fecm time to time as needed. During the recent years of economic recession, utilities in this gr wp, most of which are in neighboring service areas, have had large amounts of coal-fired energy available for sale to the other members of the group due to the availability of generating capacity beyond the needs of the!* own customers. As the economy grows this avail-ability is expected to decline. The power purchased from the Midland Cogeneration Venture is expected to insulate the Company from many of the effects of such declining supply in the 1990's. Without such power, the Company could be required to purchase power from other utilities which, if such power is in short supply, might prove expensive for the Company and its customers. 1. Midland Plant The Midland plant was originally designed as a nuclear facility to provide 1,357 megawatts of capacity for the Company's electric system and to furnish process steam service to The Dow Chemical Company ("Dow"). Following unsuccessful negotiations in the first half of 1984 as to the future of the Midland plant with various parties to the Company's current electric rate proceeding who were opposed to the completion of the project, and in view of the related continuing lack of access to the capital markets, on July 16, 1984 the Company's Board of Directors voted to* halt the project. _. 4
4 In April 1986 the Company concluded a study of various options for the Midland project and recommended that Midland Unit 1 be converted to a natural gas-fueled, combined-cycle generating plant. In June 1986 the Company abandoned components of the Midland project that would be unusable in the gas conversion. Of the $3 7 billion Midland investment currently reflected on the Company's books, the Company is seeking to recover $2.1 billion of its investment in abandoned facilities from its retail elec-tric customers in a pending rate case. (See " Legal Proceedings".) The Company plans to seek recovery of $63 million of its abandoned investment from its wholesale electric customers. The Company's management is unable at this time to predict the level of any amounts of its abandoned Midland investment that may be recovered through electric rates, including whether a return may be allowed, but expects that a decision by the MPSC on the Company's request for partial and immediate rate relief may be made in 1987 and that a decision on final rate relief may be made in 1988. In September 1986 Dow and the Company announced that they had agreed on preliminary, general terms under which they would work together to resolve all differences between the two companies and to convert a portion of ths Midland plant to a natural gas-fueled, combined-cycle cogeneration plant. In January 1987 the two companies announced that they had entered into a partnership intended to complete the new facility and had resolved all litigation between them. The new facility, the Midland Cogeneration Venture ("MCV"), is expected to qualify as a cogeneration facility under the Federal Public Utility Regulatory Policies Act. The facility could provide approximately 1,300 megawatts of electric capacity and is expected to begin generating electricity and steam by early 1990 and to obtain full capacity by the end of 1990. The new facility would supply the electric and steam requirements of Dow's Michigan division Midland plant, and electricity to the Company's customers. As part of the partnership arrangements, wholly-owned subsidiaries of the Company have received general partnership interests in the MCV, and will receive cash up to $102 million and notes and/or a special limited partnership interest in the MCV, for the transfer of approximately $1.5 billion of Midland assets. Completion of the new facility is contingent upon the satisfactory resolution of a number of significant matters, some of which are not within the Company's control. These matters include fuel supply arrange-ments, regulatory approvals, arrangements for debt and remaining equity financing for the MCV, the continuation of a reasonable avoided cost rate, and release by June 1, 1987 of the $1.5 billion of Midland assets from the lien of the Company's First Mortgage Bond Indenture. To complete the facility, approximately $600 million of new funds is expected to come from construction debt financing by the MCV and from additional equity contributed by MCV partners. Under the existing financial stabilization rate orders, the Company must limit its cash expenditures for the facility to no more than $50 million and must obtain the cash from other than " ratepayer" funds. At commercial operation, a wholly-owned subsidiary of the Company is expected to own 49 percent of the project, with Dow and other partners holding the remaining interest.
5 In October 1986 the Department of Energy (" DOE") issued an order granting the Company a permanent exemption from certain prohibitions of the Powerplant and Industrial Fuels Use Act. This exemption permits the MCV to fusi the new facility at Midland with natural gas. In December 1986 the Financial Accounting Standards Board issued Statement of F;nancial Accounting Standards ("SFAS") 90, Regulated Enterprises - Accounting for Abandonments and Disallowances of Plant Costs, an amendment of SFAS 71. SFAS 90 requires a utility to recognize the present value of those future revenues expected to result from the regulators' inclusion of the cost of a plant in allowable costs for rate purposes when abandonment becomes probable. If the carrying amount of the abandoned plant exceeds that present value, a loss would be recog-nized. SFAS 90 is effective in 1988 unless a company is actively seeking modifications to existing agreements that contain a restrictive clause that would be violated by the application of SFAS 90. In that case, a company may elect to delay effectiveness for one year. Applying 3FAS 90 to the Company in January 1988, and assuming full recovery of the Company's abandoned portion of its Midland investment over 15 years and a return on this investment at the weighted cost rate for debt and preferred and preference stock, the Company estimates its loss, after tax, would be $190 million. Making the same assumptions except that no return is allowed, the Company estimates its loss, after tax, would be $480 million. Additional losses, when probable and reasonably estimable, would be recognized if either disallowances of portions of the abandoned Midland investment occur and/or portions of the Midland investment transferred to the MCV are not placed in commercial operation. However, if the Company is successful in recovering portiens of its investment from contractors involved in the Midland project, the losses could be reduced. If significant portions of the Midland investment are not recovered through the ratemaking process, through the MCV or otherwise, the adverse effect on the Company's financial position could be significant. For further information with respect to the Midland plant, the Com-pany's pending electric rate case, its capitalization, capital requirements and litigation involving Midland, see " Legal Proceedings" and Notes 2, 3, 5 and 7 to the company's consolidated Financial Statements on pages 25, 26 and 29 of its 1986 Annual Report to shareholders. The Consolidated Financial Statements, including the Notes thereto and Report of Independent Public Accountants, on pages 20 through 34 of such Annual Report are incorporated by reference herein. 2. Operating Nuclear Plants The Company operates the Big Rock Point nuclear plant near Charlevoix, Michigan and the Palisades nuclear plant near South Haven, Michigan. l
6 a. ' Palisades Plant The Company's license to operate the Palisades plant is pro-visional in nature and will continue in effect until the U.S. Nuclear Regulatory Commission ("NRC") acts on the Company's pending appli-cation for a full-term, 40-year operating license. Because of cor-rosion problems first experienced in 1973, the Company routinely inspects and tests the Palisades steam generator tubes during re-fueling and maintenance outages. The Company will reassess the status of the tubes during the next refueling outage, currently scheduled for late 1988. The Company is not now able to predict if or when the steam generators may need to be replaced. The Palisades plant has been out of service for maintenance since May 1986 and is expected to be returned to service in spring 1987. The recovery of the replacement power costs attributable to this outage is expected to be challenged and ultimate recovery will be decided in a future MPSC case. (See " Legal Proceedings".) b. General Matters Under the Nuclear Waste Policy Act of 1982 (the "Act"), the federal government has the responsibility to provide for the perma-nent disposal of spent nuclear fuel and for high-level radioactive waste, beginning not later than January 1, 1998. However, in January 1987, the DOE proposed to Congress a revised schedule which would delay the operation of a permanent disposal facility to 2003 but would provide for temporary storage at a federal facility in 1998. Also under the Act, the generators and owners of high-level radio-active waste and spent nuclear fuel have the primary responsibility to provide and pay for the interim storage of such waste and spent fuel, and the federal government must expedite the effective use of existing storage facilities and the addition of n'eeded new storage capacity at each reactor site. (For a discussion of the Company's liabilities under the Act, see Note 5 to the company's Consolidated Financial Statements at page 28 of the 1986 Annual Report to share-holders.) To provide sufficient interim storage at the Palisades plant, new fuel storage racks are scheduled to be installed at a total cost of approximately $3 7 million. The new racks will provide additional storage locations and permit consolidation of the stored fuel. The Company has asked the NRC to approve the design specifications of the new racks and issue an appropriate amendment to the Palisedes plant's operating license. A subsequent amendment will be sought to permit consolidation of the stored fuel. Without consolidated stor-age, the spent fuel pool can accumulate normal spent fuel discharge through 1994, with a loss of full core reserve in 1990. With con-solidated storage, full core reserve will be maintained through 1998. The Big Rock Point plant has the capacity to accommodate such normal discharge through 1999 with a full core reserve through 1995
f. 7 l E. Electric Fuel Sucoly Approximately 51% of the Company's owned generating capability (ex-cluding pumped storage) depends upon. coal as a fuel source and requires approximately 7 million tons of coal anneally. The Company has long-term i coal contracts covering approximately 70% of its coal requirements during '987. These long-term contracts provide for base period deliveries through 1987 and, in some instances, through 2001 (not considering options to extend some agreements). The sulfur content of the contract coal ranges from 0.6% to 2.4% by weight. Approximately 5.4 million tons per year of ~ coal containing 1% or less sulfur are available under long-ters, contracts from mines located in eastern Kentucky and.75 million cons per year of p coal containing more than 1% sulfur are available under long-term contract from a mine located in Ohio. The Company's coal requirements not under long-term contract and that quantity of coal under long-term centract ll which is not delivered must be supplied through short-term agreements or spot purchases, ] m l As of December 31, 1986 the Company's coal inventory at its railroad- [ supplied electric generating plants amounted to approximately 60 days' supply, and its coal inventory at its B. C. Cobb plant, which is supplied s by lake carrier, amounted to approximately 123 days' supply. Changes in environmental requirements could adversely affect cost and availability ) of coal supplies. At the present time a maximum annual supply of approxi-mately 4.0 million tons of coal with a sulfur content of 15 'or less for use at the D. E. Karn plant, Units 1 and 2, the J. C. Weadock plant, Units 7 and 8, the Whiting plant and the B. C. Cobb plant, is under long-j term contract. The Company also has available under contract approximately .75 million tons of high-sulfur coal for use at its J. H. Campbell plant, Units 1 and 2, through June 1987. The Company has under long-term contract a maximum annual supply of approximately 1.4 million tons of coal which meets the requirements of the Environmental Protection Agency (" EPA") for use at its J. H. Campbell plant. Unit 3 (See " Environmental Requirements".) Oil constituted less than 2% (on a Stu basis) of the fuel used for the generation of electricity in 1986. Facilities are available if needed to burn considerably more oil. The Company believes adequate supplies are available to reet projected requirements for 1987. For a discussion of a significant dispute concerning an oil supply eentract with Union Carbide Corporation, see " Legal Proceedings". The Company currently has an inventory of uranium concentrates suffi-cient to supply its needs through 1990. The Company has contracts for nuclear fuel services, including conversion to and enrichment of uranium hexafluoride and fabrication of nuclear fuel assemblies, for the Big Rock-Point and Palisades plants. These contracts cover requirements for a minimum of the next three years, and in the case of enrichment, cover re-quirements through the year 2013 These contracts are with major private industrial suppliers of nuclear fuel and related services and with the U.S. government. In the nuclear industry generally there is insufficient capacity for the long-term storage of spent, nuclear fuel and new arrangements for storage or other disposition of spent fuel are or will become necessary. lEEE (See " Operating Nuclear Plants-General Matters". )
6 As shown in the following table, the overall cost of all fuels cen-sumed has fluctuated since 1982, primarily due to the mix of fuel burned. Cost per Million Btu Percentage of Fuel Consumed Fuel Consumed Based on Total Stu Burned 1986 1985 f984 1983 1982 1986 1985 1984 1983 1982 Coal $1.88 $1 92 $1 97 $2.06 $2.13 90.1 70.8 91.0 76.0 74.9 011 3 14 6.51 6 39 6 33 7 36 2.0 5 1.0 .7 1.0 cas 5.47 5 32 5.56 5.03 3 77 .1 .1 .2 .1 9 Nuclear * .97 .85 1.01 .70 .67 7.8 28.6 7.8 23.2 23.2 All Fuels $1.84 $1.64 $1.05 MM MMMMM F. Gas Service The Company renders gas service in 40 of the 68 counties in the Lower Peninsula of Michigan. Principal cities served are Bay City Flint, Jackson, Kalamazoo, Lansing, Pontiac, Royal Oak, Saginaw and Warren. The Company also serves a number of suburban communities near Detroit. The Company owns gas transmission and distribution mains and other gas lines, compressor stations and facilities, and storage rights, wells and gathering facilities in several fields in Michigan. The Company and Michigan Gas Storage Company (" Storage Company"), a wholly-owned sub-sidiary of the Company, store a portion of their respective gas supplies in the warmer months of the year for use in the colder conths of the year. The peak-day transmission and distribution system capacity is 2,800,000 thousand cubic feet ("Mcf"). The all-time record maximum daily sendout of natural gas for the Company was 2,558,000 Mer on January 10, 1982. 1 Cas Supply The Company's primary gas suppliers are Panhandle Eastern Pipe Line Company (" Panhandle") and Trunk 11ne Gas Company ("Trunkline"). For 1986 the Company received 66% of its gas supply from Trunkline, 1% from Panhandle U The costs of nuclear fuel consumed reflect zero salvage value and a provision for perpetual storage of spent nuclear fuel.
9 through Storage Company, 17L from Michigan fields, 11 from offshore tracts of Northern Michigan Exploration Company ("NCMEC0"), a wholly-owned sub-sidiary of the Company, and 135 from purchases on the spot market. The enactment of the Natural Gas Policy Act ("NGPA") in 1978 created incentives which increased the supplies of natural gas available from producers and which even more markedly increased the cost of natural gas in the United States. Eracerbatir.g these cost increases for the Company was the introduction into its system of a supply of high-priced liquified natural gas (" LNG") late in 1982 when Trunkline commenced importation of LNG from Algeria. In 1983, customer demand for gas supply decreased dramatically in the Company's service area resulting in the Company having considerably less demand for natural gas than the minimum amounts required to be taken under the pipelines' tariffs (75% of contracted delivery) approved by the Federal Energy Regulatory Commission ("FERC"). In 1983 and 1984 the Company took action at the FERC seeking to be relieved of its variable cost minimum bill obligations under its gas supply contracts with its pipeline suppliers, Trunkline and Panhandle, and succeeded in having such obligations substantially reduced. A generic rulemaking on the subject of minimum bills resulted in the promulgation on June 1, 1984 by the FERC of rules substantially reaffirming the mini-l zum bill relief obtained earlier by the Company in the Trunkline and Panhandle proceedings; however, pipelines appealed such FERC action to the courts, claiming error in the FE9C's modification of minimum bill obligations without a hearing. The United States Court of Appeals for the District of Columbia Circuit, in August 1985, unanimously affir=ed the FERC's decision in virtually all respects. Petitions for rehearing were denied in October 1985 and petitions for a writ of certiorari were denied in April 1986. On October 9, 1985 the FERC issued Order No. 436 which changed its regulations governing the sale and transportation of natural gas by inter-state papelines. Under the portion of the order relating to transporta-tien, interstate pipelines which elect to participate will be obligated to transport gas for all who request such service on a non-discriminatory basis. Firm sales customers of the participating pipelines must be offered the option of either reducing their firm sales entitlements or of con-verting those entitlements to firm transportation service, by up to 25 percent per year for four years. In Order No. 436, the FERC deferred action on a proposal designed to allocate low cost "old gas" to the pipe-lines' firm historical customers. Order No. 436-A, issued on December 12, 1985, extended a phase-in of the contract demand adjustment provisions from four to five years. An interstate pipeline's customer would be permitted to consart or reduce its contract demand up to 155 the first year, up to 301 the second year, up to 50% the third year, up to 755 the fourth year, and up to 1001 the fifth year.
10 On February 14, 1986 the FERC issued Order No. 436-8 which extended the timing of new transportation arrangements under Section 311 of the NGPA through June 30, 1986, without triggering the contract demand reduction / conversion option. The trigger date had been February 15, 1986. On June 27, 1986 the FERC further extended the contract demand reduction / conversion waiver through December 31, 1986 and on December 8, 1986 granted a further extension through April 30, 1987. l On November 19, 1985 the DOE filed a proposal with the FERC to change the current "old gas" pricing structure. The proposal seeks to eliminate vintaging and replace the current myriad of "old gas" ceiling prices with a single ceiling price. In addition, the proposal would establish incen-tive prices for certain categories of old gas. On June 6, 1986 the FERC issued Order No. 451 which established a new ceiling price for regulated gas under sections 104 and 106 of the NGPA. The order also implemented a procedure permitting negotiations between pipelines and producers. In addition to the FERC proceedings mentioned in the preceding para-graphs, various other rate and rate-related proceedings involving Trunkline and Panhandle tariffs to which the Company is subject are pending before the FERC, including the Trunkline LNG proceedings described in the fol-lowing section. The Company has gas purchase contracts with several producers, in-cluding NOMECO, in the northern Michigan area and has placed in service pipelines to transport gas purchased in this area to its integrated gas transmission system. Although receipt of natural gas by the Company in the future is not assured, in 1986 the Company received approximately 109 million cubic feet of natural gas per day from this area. The Company also received in 1986 approximately 5 million cubic feet per day of gas from producers near Mason, Michigan and approximately 6 million cubic feet per day from NOMECO's offshore Louisiana production. In 1974 the Company completed the construction of a gas reforming plant at Marysville, Michigan for converting natural gas liquids into gas. The Marysville gas reforming plant presently is " mothballed" and the Company is recovering its investment in the plant, amortized through rates over a period of approximately 10 years, but with no return on its investment. 2. Cas Costs Since the late 1970s, natural gas costs generally, and specifically the wholesale rates of the Company's pipeline suppliers Trunkline and Panhandle, have significantly increased. These increases have resulted primarily from two factors: the passage in 1978 of the NGPA, which decon-trolled some categories of natural gas and permitted cost escalation at higher-than-inflation rates for,other categories; and the commencement of deliveries to Panhandle and Trunkline in the fall of 1982 of significant quantities of gas obtained from Canada and liquefied natural gas (" LNG") obtained from Algeria. Those factors and general rate increases, com-bined with the increasing competition from oil, conservation, warmer weather and other factors, resulted in a substantial reduction in the Company's gas send-out.
11 Total On-System Gas Send-Out in Bef 1987 Est. 1986 1985 1984 1111 1982 Sales 246 242 268 281 278 298 Transportation _11 _10 14 2 Total 279 272 282 283 278 298 The cost to Trunkline of the Algerian LNG and the large percentage of Trunkline's overall supply represented by the LNG had a deleterious effect on Trunkline's overall cost of gas. This circumstance, together with the ample supplies of gas currently available nationwide and de-creasing confidence in the Algerian LNG as a secure long-term supply led the Company, various ogher Trunkline customers and state agencies to file various petitions, protests and complaints in 1982 and 1983 with the Economic Regulatory Administration (" ERA") and the FERC seeking to have Trunkline's license and certificate authorizations for the LNG project suspended or revoked. In December 1983 Trunkline announced that it was temporarily suspending importation from Algeria of the LNG, and in July 1986 Trunkline entered into a settlement agreement with Sonatrach, the Algerian national oil and gas company, with respect to the arbitration proceedings resulting from such suspension of importation. (See " Legal Proceedings".) 1 As described above, the Company's gas costs rose significantly after the passage of the NGPA although they have declined in recent years. Average Cost per Mcf of Gas Purchased and Produced 1987 Est. 1986 1985 1984 1181 1982 $3 47 83 39 $4.00 $3 57 $4.03 $3 14 3 Recovery or Power Supply and Gas Costs Because natural gas costs comprise approximately three-fourths of the Company's overall cost of serving its gas customers and power supply costs are approximately one-half of the operating cost of providing elec-tric service, management believes that provision must be made to allow the Company to reflect any changes in cost of gas.and power supply costs in the Company's retail rates on a timely basis. In 1982 the Governor of Michigan signed into law 1982 Public Act No. 304 ("Act 304") which abolisned all automatic adjustment clauses, but allowed the MPSC to authorize new gas and power cost recovery mechanisms. The MPSC has determined that Michigan utilities may put in effect the new cost recovery mechanisms permitted by Act 304 The new mechanisms are termed the Gas Cost Recovery ("GCR") clause and the Power Supply Cost Recovery ("PSCR") clause. Among other things, the GCR and PSCR mechanisms require a utility to forecast the costs and sources of gas, and of fuel and purchased power, on both an annual and 5-year basis. Act 304 provides for notice and a hearing on such costs and sources before the MPSC for the purpose of evaluating
i 12 their reasonableness and prudence, and requires the MPSC to enter an order which would approve, disapprove or amend such costs for a future 12-month period. Utilities would then incorporate the approved costs in their rates. Annual cost reconciliation hearings would also be held. Overrecoveries must be refunded, and underrecoveries of prudently-incurred costs can be collected, in each case with interest. MPSC hearings under the procedures specified by Act 304 were first commenced in December 1982 and have been conducted annually since that time. In.the GCR proceeding involving recovery of 1986 gas ecsts, the MPSC Staff and intervenors raised a question as to the prudence of certain of the Company's gas purchasing practices and, in a PSCR proceeding involving reconciliation of 1982 power costs, the prudence of an extended outage of the Palisades nuclear plant was questioned. (See " Legal Proceedings". ) G. Revenue by Class of Service Years Ended December 31 (Thousands of Dollars) 1986 1985 1984 Electric utility revenue Residential 8 579,747 8 541,056 $ 528,413 Commercial 497.153 470,380 452,194 Industrial 623,176 611,176 599,759 Interdepartmental and other 19,952 19,604 17,909 Other Resale 40,182 38,984 41,686 Miscellaneous 15,702 16,043 18,504 31,775,912 $1,697,243 31,658,465 Gas utility revenue Residential 8 836,057 8 935,738 8 871,092 Commercial 278,966 314,623 308,057 Rate MC/AD-2/AD-3 Commercial 2,730 867 4,386 Industrial 117,101 247,120 257,273 Rate MC/AD-2/AD-3 Industrial 4,766 2,126 24,547 Interdepartment and other 4,512 10,541 20,621 Transportation Gas 25,370 11,776 1,531 Miscellaneous 17,623 10,46T 20,607 $1,287,125 31,533,256 $1,508,114 Other revenue 45,377 3 67,829 68,991 Total Consolidated Operating Revenue $3,108,414 $3,298,328 33,235,570
13 H. Insurance The Company is a member of Nuclear Mutual Limited ("NML"), which provides insurance coverage against property damage to members' nuclear generating facilities. The Company maintains $500 million of primary property damage insurance from NML at each of its operating nuclear plants, Big Rock Point and Palisades, and $100 million of such insurance at its Midland plant, covering all risks of physical loss, subject to certain exclusions and deductibles. The Company would be subject to a maximum assessment of approximately $25 million in any one policy year in the event of covered losses at its own or any other member's nuclear facility or facilities. With the creation of a partnership to convert the Midland plant to a natural gas-fueled cogeneration plant, the NML policy covering the Midland nuclear planc will be allowed to expire March 31, 1987. The Midland portion of the maximum policy-year assessment under the NML poli-cies is approximately $2.4 million. 1 The Company is also a member of Nuclear Electric Insurance Limited ("NEIL"), from which it has procured and maintains excess property damage insurance for the Palisades plant in the amount of $610 million in excess of the primary coverage of $500 million, subject to certain exclusions. The Company maintains a similar policy of excess property damage insurance for the Palisades plant from private insurance pools in the amount of $50 [ L million in excess of $500 million. The Company would be subject to a maximum assessment under the NEIL excess policy of approximately $8 million in any one policy year in the event of covered losses at its own or any other member's nuclear facility or facilities. The NEIL excess property damage insurance covers decontamination and clean-up expense before it is available to cover direct losses to property. The Company retains the risk of loss with respect to its nuclear plant facilities to the extent the loss is within the policy deductibles or exclusions or exceeds the property damage policy limits at any location. The property damage insurance policy limits exceed the insurable value of the property located at the Palisad'es and Big Rock Point facilities, respectively. The Company regards the property damage insurance coverage available to cover potential decontamination and clean-up expense in the event of a major accident at the Big Rock Point and Palisades plants to be adequate to cover any credible occurrence, but this result is not assured. The Company has also procured from NEIL insurance which would partially cover the cost of replacement power during certain prolonged accidental outages of the Big Rock Point and Palisades units. Such cost would not be covered by the insurance during the first six months of any outago, but the major portion of such cost would be covered during the next twelve months of the outage, followed by a reduced level of coverage for a period up to an additional year. The Company would be subject to a maximum assessment :nder the replacement power insurance of approximately $3 3 million in any one policy year in the event of covered losses at its own or any other member's nuclear facility or facilities.
.i 'u The Company maintains nuclear liability insurance and other forms of financial protection (including an agreement of government indemnity under the Price-Anderson Act, applicable to the Big Rock Point pland that will cover the Company's liability to others for injuries and off-site property damages due to the nuclear hazard at such facilities, up to the limits of liability established by the Price-Anderson Act. Part of such financial protection consists of a mandatory industry-wide program under which owners of nuclear generating facilities could be assessed in the event of a nuclear incident at any of such facilities. The Company would be subject to a maximum assessment of $5 million in the event of a nuclear incident at certain nuclear facilities, limited, in the event of two or more nuclear incidents, to a maximum assessment of $10 million in any year. However, in the event of more than two such incidents in any year, any assessment in excess of $10 million would be payable in the succeeding year or years. The Company has been advised by its insurers i-- that it appears that the primary nuclear liability insurance is adequate to cover all reported Three Mile Island-related claims and expenses. The Company is, however, unable to predict whether additional claims will result in any assessment against the Company under the Price-Anderson Act. The Price-Anderson Act will expire in August 1987 unless Congress extends it in its current or revised form. In addition to the policies insuring the Company's nuclear facilities described above, the Company also maintains insurance on its other fa-cilities and operations. Company property is insured under a blanket policy covering all fa-cilities with a limit which the Company believes to be adequate to cover any credible loss occurrence. This policy is. subject to certain condi-tions, exclusions and deductibles. The most notable property exclusion is the Company's transmission and distribution lines and equipment. Due to restrictive insurance narkets this type of insurance is unavailable or if available is subject to unacceptable policy conditions. This problem has been experienced by other utility companies in recent years. The Company insures against personal injury and property damage claims arising out of its operations. The Company participates with several other utility companies in member-owned insurance companies, including Associated Electric and Gas Insurance Services, and Energy Insurance Mutual. The Company believes its interests are adequately insured by these liability insurance policies. However, there is no assurance that because of policy exclusions or exhaustion of policy limits all claims would be ultimately insured. I. Employees As of December 31, 1986, the Company had approximately 10,350 full-time employees. Some 4,163 operating, maintenance and construction en-ployees are represented by the Utility Workers Union of America, AFL-CIO (" Union"). The current cc11ective bargaining agreement between the Com-pany and the Union became effective on September 1, 1986 and expires September 1, 1989
i t . / 6 J. Reaulation The Company is subject to regulation by various federal, state and local agencies. The principal agencies and matters affecting the Company
- currently before them are more specifically described below.
'1. Michisan Public Service Commission The Company is subject to the jurisdiction of the MPSC which has general power of supervision and regulation of public utilities in Michigan with respect to retail utility rates, accounting, services,.certain fa-cilities, ascertainment of values, the. issuance of securities and various other matters. (See " Legal Proceedings". ), In 1979 the Michigan Supreme Court held that the MPSC had jurisdiction over the issuance of certain securities
- by Storage Company. In the opinion of counsel for the Company, the Com-'
pany's subsidiaries are not subject to the jurisdiction of the MPSC with respect to rates, accounting, services. facilities or ascertainment of values. 2. Nuclear Regulatory Commission Under the Atomic Energy Act of 1954 and the Energy. Reorganization Act of 1974, the Company is subject to the jurisdiction of the NRC bith re-spect to the design, construction and operation of its nuclear power plants and the Company and Plateau Resources Limited (" Plateau"), a wholly-owned subsidiary of the Company, are subject to NRC jurisdiction with respect to certain other uses of nuclear materials. (See " Operating Nuclear Plants" and " Legal Proceedings".) 3 Federal Eneray Reaulatory Commission The FERC has jurisdiction over ' Storage Company and NOMECO as natural gas companies within the meaning of the Natural Gas Act ("NCA"), which jurisdiction relates, among other things, to the acquisition, operation and disposal of assets and facilities and to service provided and rates charged by Storage Company, and to the field prices charged by-NCMECO as a producer. Under certait "c:psstances, the FERC also has the power under the NGA and the NGPA to dify gas sales tariffs of interstate pipeline companies. The DOE is.42 ed with jurisdiction to establish and review priorities for curtailment of natural gas in instances of shortage of supply, while the FERC,has jurisdiction to establish and enforce cur-tailments. Panhandle (through Storage Company) and Trunkline provide the major portion of the Company's gas supply. The effect of DOE and FERC
- regulations, present or future, upon the Company's gas supply and opera-tions cannot be determined although such effect may be materially adverse.
Certain aspects of the Company's gas business are subject to regulation by the FERC, such as the incremental pricing of natural gas to industrial users of gas as provided in the NGPA. Certain aspects of the Company's electric business are also subject to regulation by the FERC, including compliance with the FERC's rules and regulations respecting accounting applicable to "public utilities" and " licensees," the transmission of electric energy in interstate commerce
4 16 and the rates and charges for the sale of such ener'gy at wholesale, the sale or merger of certain facilities, the construction, operation and maintenance of hydro ~ electric projects, and the issuance of certain se-curities, as provided by the Federal Power Act ("FPA"). The Company has accepted licenses from the Federal Power Commission ("FPC") (FERC's predecessor) authorizing the continued operation and maintenance of all 13 of its conventional hydroelectric projects, which licenses expire no earlier than 1993 except for a license for one small project which is operating under an annual license. The Company and Detroit Edison have I accepted from the FPC a license extending to the year 2019 to construct, operate and maintain the Ludington pumped storage plant. The FPA provides that if a new license for a hydroelectric project is not issued to the original licensee upon expiration of the original license, a new license may be issued to a new licensee or the United States may take over the project, upon paying se7erance damages, if any, and the amount of the original licensee's " net investment" in the project but not in excess of the fair value thereof. 4. Environmental Reauirements The Company and its subsidiaries are subject to regulation with re-gard to environmental quality, including air and water quality, :ening and other matters, by various federal, state and local authorities. The i Company and its subsidiaries are' attempting to insure that their facili-ties meet applicable environmental regulations and standards. However, it is not presently possible to forecast the ultimate effect of environ-mental quality regulations upon the existing,and proposed facilities and operations of the Company and its subsidiaries. Moreover, developments in these and other areas may require the Company or its subsidiaries to modify, supplement, replace or cease operating existing equipment and facilities, and may delay or impede construction and operation of new facilities, at costs which could be substantial and beyond their ability to finance. For many years the Company has followed an environmental protection program which has included reforestation along Michigan rivers and the siting of electric generating plants and transmission lines with con-sideration for the impact of such facilities upon the environment. In more recent years the program has included installation of electrostatic precipitators to remove particulates from smoke emissions.at electric generating plants and conversion of electric generating units to burn cleaner fuels. In 1979, the Michigan Air Pollution and Control Commission ("MAPCC") approved agreements providing for five-year extensions, until January 1, 1985, of the date by which the Company's J. H. Campbell Plant Units 1 and 2 and B. C. Cobb Plant would be required to comply with MAPCC regu-lations which require power plants to use fuel with a sulfur content of 1$ or less. The extension agreements were also approved by the EPA as revisions to the Michigan State Implementation Plan (" SIP") for air
17 quality. In 1983, the MAPCC denied the Company's request for a further extension of the date by which the Company's B. C. Cobb Plant would be required to use fuel with a sulfur content of 1% or less. Since January 1, 1985, therefore, the Company has been burning fuel at the B. C. Cobb Plant with a sulfur content of 15 or less. In 1984, the MAPCC approved an agreement providing for a three-year extension, until January 1,
- 1988, of the date by which,the Company's J. H. Campbell Plant Units 1 and 2 must use fuel with a sulfur content of 15 or less. The Campbell Plant is now being operated in accordance with the extension agreement. The EPA approved the extension as a revision to the Michigan SIP on January 12, 1987.
In 1981, the States of New York and Maine filed petitions pursuant to Section 126 of the Federal Clean Air Act asking the EPA to find that the attainment and maintenance of federally mandated ambient air quality standards in their respective states is impeded by sulfur dioxide emis-sions originating in several midwestern states, including Michigan, and specifically from the J. H. Campbell Plant and B. C. Cobb Plant. The EPA denied these petitions in December 1984 Several states have petitioned the United States Court of Appeals for the District of Columbia Circuit ("D.C. Circuit") for review of the EPA's denial of the petitions. The Midwest Utility Group, of which the Company is a member, and which was formed to defend against these interstate pollution claims, has inter- .vened in this proceeding. Oral argument was held in December 1985 and the matter is pending. On July 26, 1985 the United States District Court for the District of Columbia ("D.C. District") ordered the EPA to require states to impose acid deposition controls to cure alleged health and welfare problems in Canada pursuant to Section 115 of the Federal Clean Air Act. The Utility Air Regulatory Group ("UARG") (of which the Company is a member) and the EPA appealed the D.C. District's decision to the D.C. Circuit. On September 18, 1986 the D.C. Circuit reversed and re-manded the case to the D.C. District with instructions to dismiss. The D.C. Circuit held that EPA could. not be forced to issue SIP notices which would ultimately cause the termination or restriction of the operation of many utilities and manufacturers without formal rulemaking, notice and comment procedures. On October 31, 1986 New York and fourteen other plaintiffs asked the D.C. Circuit for rehearing. The D.C. Circuit denied requests for rehearing on November 24, 1986. National Pollutant Discharge Elimination System (" NPDES") permits re-strict the discharges from the Company's facilities pursuant to state water quality standards and federal effluent limitation guidelines. NPDES permits for all major operating steam electric generating facilities of the Company, and the Ludington pumped storage plant, have been issued by the Michigan Water Resources Commission ("MWRC") pursuant to a delegation of authority from the EPA under the ' Federal W' ter Pollution Control Act a of 1972, as amended ("FWPCA"). The Company believes that it is in full compliance with the NPDES permits. Consideration of the Company's most recent request for a reissuance of the NPDES permit for the Ludington pumped storage plant has been deferred by the MWRC and is discussed fur-ther below.
19 Over the years, there has been some loss of fish through the opera-tion of the Ludington pumped storage plant which is jointly owned by the Company (515) and Detroit Edison (495). The Company attempted to negotiate an agreement for the mitigation of such losses with the staff of the Michigan Department of Natural Resources ("MDNR"). However, the U.S. Fish and Wildlife Service, Michigan United Conservation Clubs ("MUCC") and the National Wildlife Federation ("NWF") objected to the proposed agreement. NWF also opposed the reissuance of the NPDES permit for the plant and on November 22, 1985, filed a suit against the Company in the United States District Court for the Western District of Michigan under the Federal Clean Water Act. The suit claims that the turbine generating water released from the plant contains dead fish and other organisms and constitutes the discharge of pollutants which is not authorized by an NPDES permit. The suit seeks an injunction and damages of $10,000 per 1 day of alleged violations. The case has been submitted for decision on cross motions for summary judgment. As a conseq'uence of the litigation commenced by the NWF, the MWRC has deferred consideration of the reissuance of the NPDES permit for the facility. On June 26, 1986, MUCC and NWF filed a petition and a notion to inter-vene before the FERC, seeking (1) to compel the Company and Detroit Edison to prepare certain studies under the plant's license, (ii) the preparation of an environmental impact statement, (iii) a hearing and revocation of the license or an order requiring installation of fish protection devices, (iv) modification of operating procedures, and (v) other mitigation. On August 11, 1986, pursuant to a FERC staff request, the Company and Detroit Edison filed with the FERC, for its approval, a plan for the mitigation of fish losses resulting from the operation of the Ludington plant. On September 3, 1986, the Michigan Attorney Ceneral filed a lawsuit on behalf of the State of Michigan in the Circuit Court for Ingham County seeking damages from the Company and Detroit Edison for alleged injuries to fishery resources as a result of operation of the plant. The State seeks $147,914,650 (including $15,847,998 interest) for past injuries and $89,412.60 per day for future injuries, with the latter amount to be adjusted upon installation of " adequate" fish barriers and other changed conditions. An answer to the lawsuit was filed with the court on behalf of both defendants on September 25, 1986. The parties are presently engaged in discussions which could result in a settlement of this suit and the related complaint by the State of Michigan pending before the FERC. On September 5,1986, the State of Michigan filed a complaint with the FERC, asking the FERC to require the Company and Detroit Edison to conduct studies to determine the " ongoing" effects of the Ludington fa-cility on the fishery resources in the project area, to study and then to construct, operate and maintain fish barriers at the Ludington facility, to provide public fishing and recreational access in or away from the project area and to revoke or suspend the Federal Power Act license for the facility if the foregoing are not done within time limits to be deter-mined by the FERC.
19 For new. steam electric power plants, standards of performance estab-lished pursuant to federal law require achievement of effluent limitations that necessitate the application of the "best available demonstrated control technology." The standards for cooling water. intake structures of both new and existing plants are required to reflect the "best tech-nology available for minimizing adverse environmental impact.". The. Staff of the MDNR is of the opinion, based on demonstration studies, that the ~ existing cooling water intake structures at the Karn, Weadock, Campbell Units 1 and 2 and Cobb plants do not reflect the "best technology avail-able for minimizing adverse environmental impact." The effects of these findings on the operating expenses and operations of these facilities are presently undefined but could be substantial. In the opinion of the MDNR Staff, the existing cooling water 4ntakes at the Big Rock Point plant and Palisades plant reflect the "best technology available for minimizing adverse environmental impact." In' June 1980 the Staff of the MDNR notified the Company that, based on demonstration studies, it is of the opinion that the thermal component of the discharge of the Karn and Weadock plants has adverse effects on certain species in its plume. The MWRC has made no findings in this i regard. If the opinion of the MDNR Staff is confirmed in the future by findings of the MWRC, the effects of such findings on the operating ex-- penses and operations of these facilities could be substantial. K. Legislation and Ballot Issues A public interest group circulated a constitutional initiative, a'imed largely at new generating plants,'which was to be placed on the ballot in-Michigan's 1986 general election. The initiative provided, among other things, that utility property can only be recognized in fixing rates "to the extent of its economic usefulness." Under the proposal, the cost of generating plants placed in service after January 1, 1964 would not be ~ relevant in fixing electric rates. Instead, the impact on rates of such a plant would be determined by assuming that the plant had not been built and that customer requirements would be met by some alternative means (such as purchased power). From among such alternatives, the least costly would be selected, and rate levels would be based on that ' cost. In Manage-ment's view, the terms of the initiative would have been subject to various legal challenges. The initiative was never placed on the ballot due to i rulings by the Michigan courts that defects in gathering signatures barred the initiative from being placed on the ballot. [ .1 l l
20 L. Ex cutivi Officers Of Regietr'nt-As Of December 31, 1986 Effective Date of Election to I Name Age Position Present Position William T. McCormick, Jr. 42 Chairman of the Board.- President and Chief Executive Officer and November 1, 1985 Director. St: phen H. Howell 54 . Executive Vice President October 1, 1980-Jsocph F. Paquette, Jr.* 52 Executive Vice President May 7, 1986 Jtek W. Reynolds '63 Executive Vice President March 4,' 1981 -Jshn W. Clark 41 Senior Vice President November 16, 1985 Charles F. Brown 61 Vice President October 3, 1984 Frsderick W. Buckman 40 Vice President February 1, 1986 Jcaes W. Cook 46 Vice President March 1, 1977 Russell B. DeWitt 62 Vice President July 11, 1979 Blche 0. Fisher, Jr. 42 Vice President August 6, 1986 Victor J. Fryling 38 Vice Presid, ant February 5, 1986 Richard M. Griswold 55 Vice President and August 6, 1986 Treasurer and Assistant Secretary Gordon L. Heins 57 Vice President July 11, 1979 Raynard C. Lincoln, Jr. 52 Vice President December 10, 1974 David A. Mikalonis 38 Vice President and February 5, 1986 General Attorney Robsrt J. Odlevak 53 Vice President March 1, 1978 Hamilton M. Robichaud 50 Vice President December 4, 1985 H. B. W. Schroeder 39 Vice President -November 16, 1985' Samusi N. Spring 59 Vice President and Controller August 2, 1978 Roy A. Wells, Jr. 51 Vice President June 5, 1985 Thomas A. McNish 49 Secretary and Assistant Treasurer October 3, 1984 (On February 19, 1987, Joseph F. Paquette, Jr. was elected Vice Chairman of the' Bscrd of Directors and S. Kinnie Smith, Jr. was elected Vice Chairman of the Board of Directors and General Counsel. RP0285-0010K-TE05
21 The present term of office of each of the officers extends to the first meeting of the Company's Board of Directors after the next annual election of Directors (scheduled to be held May 6, 1987). Mr. Charles R. Bilby retired as Vice President on February 1,1986. Mr. Walter R. Boris resigned as Executive Vice President and as a Director on April 1,1986 and retired from the service of the Company on June 1, 1986. Mr. Lawrence B. Lindemer retired as Senior Vice President and General Counsel on September 1,1986. Mr. James B. Falahme resigned as Vice Chairman of the Board and as a Director on October 1, 1986 and retired from the service of the Company on January 1, 1987. Mr. James W. Cook resigned as Vice President as of February 4, 1987. As of December 31, 1986, each of the officers named in the table above, except Massrs. McCormick, Paquette, Clark, Robichaud, Buckman and Fryling, had been employed by the Company for more than five years. Prior to joining the Company in November 1985, Mr. McCormick had been President, Chairman and Chief Executive Officer of American Natural Resources Company ("ANR") and had held other executive positions with ANR. Prior to joining the Company in May 1986, Mr. Paquette had been Vice President, Finance and Accounting, of the Philadelphia Electric Company since 1978. Prior to joining the Company in November 1985. Mr. Clark had been Vice President of Communications of the American Gas Association. He also had held senior public affairs positions in the U.S. Environmental Protection Agency and U.S. Department of Energy. Prior to joining the Company in December 1985, Mr. Robichaud, an attorney, was Vice President. Personnel and Administration for American Natural Resources Venture-Management Company, an ANR subsidiary. He had been with ANR since 1969. Prior to joining the Company in February 1986 Mr. Buckman had been President of Delian Corporation, an engineering consulting firm, and had previously been with the Company, serving in various technical and managerial capacities from 1970 to 1983. Prior to joining the Company in February 1986, Mr. Fryling had been Vice President of Investor Relations of the Coastal Corporation of Houston, Texas, and from 1983 to 1985 was Director of Investor Relations for ANR. Prior to election to the positions shown above, the following officers held other positions with the Company since January 1,1982: Mr. Brown was Region General Manager (Central Region); Mr. Wells was Executive Manager of General Services and served in a series of prior management assignments including the Company's environmental activities, Corporate Planning and the Midland Project Quality Assurance; Mr. Schroeder was Federal Legislative Director-in the Company's Washington office; Mr. Mikelonis was a senior attoeney; Mr. Fisher was Executive Director, Finance and served in a series of management assign-ments; Mr. Griswold was Treasurer and Assistant Secretary; and Mr. McNish was Director of Funded Benefit Plans and Assistant Secretary. There are no family relationships among executive officers of the Company. RP0285-0010K-TE05
22 ITEM 2. PROPERTIES. A. Character of Ownershio The statements under this item as to ownership of properties are made without regard to leases (except as disclosed with respect to oil and gas exploration and production), tax and assessment liens, judgments, easements, rights of way, contracts, reservations, exceptions, conditions,. immaterial liens and encumbrances, and other outstanding rights affecting such properties. The following information is given as of December 31,. 1986. The el'actric lines and gas mains are located'on or under public highways, streets, alleys or lands, except where they-are located on or under property owned by the Company or occupied by it under easements or other rights. These easements and rights are deemed by the Company to be adequate for the purposes for which they are being used. Generally,'where payments therefore are minor in amount, no examinations of underlying titles as to the rights of way for transmission or distribution lines or mains have been made. First mortgage bonds are secured by a mortgage and lien on substantially all property. The restructured bank-related debt is secured by a second mortgage on assets subject to the lien of the First Mortgage Bo'nd Indenture. AR0257-0213A-FI01
23 B. Electric Properties ~1986 Summer 1986 Net Net Demonstrated Generation Name and Location (Michigan) Capability (Thousands of of Station (Kilowatts) Kilowatthours) Conventional steam plarts Coal generation J H Campbell - West olive 1,313,300* 8,320,753 J C Weadock - Essexville 250,000 1,661,901 D E Karn - Essexville 515,000 3,447,805 1 J R Whiting - Eria-310,000 1,279,333 8 C Cobb - Muskagon. 390,000 2,022.649 Total coal generation- -2,778,300 18,252,441 Oil generation D E Karn - Essexville 1,266,000 188,001 Total oil generation 1,266,000 188,001 Total conventional steam plants 4,044,300 18,440,442 Nuclear steam plants Big Rock Point - Charlevoix 69,000 505.740 Palisades - South Haven 734,000 -789.956 Total nuclear plants 803.000 1,295,696 Ludington Pumped Storage 954,700** (538,299)*** Cas turbine plants Thetford - Flint 198,000 4,984 Caylord - Gaylord 65,000 2,271 B E Morrow - Comstock 23,000 541 Straits 1 - Machinaw City 11,000 127 Campbell A - West Olive 17,000 l',009 Weadock A - Essexville 16,000 290 Whiting A - Erie 17,000 850 Total gas turbine plants 347,000 10,072 Hydro plants i Hardy - Oxbow 32,400 128,826 Tippy - Wellston 21,000 71,820 j Hodenpy1l-Mesick-18,400 51,217 Others (10 plants) 62,3C0 294,564 Total nydro plants 134,100 546,427 Total owned generation 6.283.100 19,754,338 Less purchased and inter-change power capacity 319,600 Total 5,963,500 l AR0287-0213A-FIO1
2h
- Includes the Company's share of the capacity of the Campbell plant Unit 3, net of 4.80% (undivided ownership interest of the Michigan Public Power Agency) and net of 1.807, (undivided ownership interest of Wolverine Power Supply Cooperative, Inc.).
- Represents the Company's share of the capacity of the Ludington pumped storage plant. The Company and Detroit Edison have 51% and 49% undivided ownership, respectively, in the plant, and the capacity of the plant is shared accordingly. Agreements are in effect providing for the purchase by Commonwealth Edison Company of one-sixth of the plant's capacity until August 1988.
- Represents the Company's share of net pumped storage generation.
- Represents the Company's share of the capacity of the Ludington pumped storage plant. The Company and Detroit Edison have 51% and 49% undivided ownership, respectively, in the plant, and the capacity of the plant is shared accordingly. Agreements are in effect providing for the purchase by Commonwealth Edison Company of one-sixth of the plant's capacity until August 1988.
Electric transmission and distribution lines owned and in service are as follows: l Structure Trench Miles Miles Total Miles Transmission 345,00Q volt 1,117 1,117 138,000 volt 3,197 3,197 ) 120,000 volt 21 21 46,000 volt 4,063 9 4,072 41,600 volt 11 11 1 23,000 volt 38 7 45 Total transmission 8,447 16 8.463 Total distribution (2,400-24,900 volt) 47,710 3,559 51,269 i Total transmission & distribution 56,157 3515 59,732 g The Company owns substations having an aggregate transformer capacity of 33,976,233 kilovoltamperes. The status of the Company's Midland project is discussed in Item 1. C. Cas Properties As of December 31, 1986, the Company's gas properties included a gas distribution and transsiation system, compressor stations located at the Company's storage fields sad along the gas transmission lines, and the Marysville gas reforming plant, located in Marysville, Michigan, of which a portion is currently mothballed. A subsidiary, Huron Hydrocarbons, Inc., has entered into a partnership to expand the capacity of the underground caverns at the Marysville plant for commercial storage of liquid hydrocarbons. In addition, the Company and Polysar Hydrocarbons, Inc. have formed a AR0287-0213A-FIO1
k l 12 5 ' j partnership intended to use a portion of the plant's fractionating equipment. The gas distribution and transmission systems consist of 18,797 and 1,140 miles of gas mains, respectively, throughout the Lower Peninsula of the State of Michigan. The Company owns and operates five compressor stations with a total of 116,070 installed horsepower. Listed below are the Company's gas storage fields with an aggregate storage capacity el 240,817,000 Mcf: Certified Field Name Location Storane Capacity (Mcf) Overisel Allegan County 64,000,000 Salem Allegan County 35,000,000 Ira St Clair County 7,500,000 Lenox Macomb County 3,500,000 Ray Macomb County 66,000,000 Northville Oakland, Washtenaw and Wayne Counties 25,310,000 Puttysut St Clair Count.y 16,600,000 Four Corners St clair County 3,780,000 Swan Creek St Clair County 650,000 Hessen St clair County 17,977,000 D. Other Properties The Company occupies three principal Ceneral Office buildings in Jackson, Michigan and 54 Region and District Offices at various locations in the Lower Peninsula. Of these, two of the General Office buildings and 14 of the Region and District Offices are leased. (See Note 6 to the Company's Consolidated Financial Statements on Page 29 of its 1986 Annual Report to shareholders.) Also owned are miscellaneous parcels of real l estate not now used in utility operations. E. Construction Proeram During 1986 the Company and its subsiditries incurred construction expenditures of approximately $191 million, including- $6 million for environmental protection additions. Of the $191 million construction program, approximately iL $99 million was incurred for electric additions (including $2 million for nuclear fuel), $47 million for gas additions, $33 million for NOMECO additions, and $12 million for miscellaneous and.other additions. The Company and its subsidiaries estimate their construction expenditures at $975 million (exclusive of $105 million for nuclear fuel) of "hich $183 million is for 1987. -The for the period 1987-1991, w company's portion is $795 million for the period 1987-1991, of which AR0287-0213A-FIO1 . - ~ - -.
26 $147 million is for 1987. The Company's portion reflects essential. activities only and assumes no new generating plant construction, and no major life extension of existing units. In addition, under the financial stabilization rate orders, the company is permitted to spend up to $50 million on the MCV..NOMECO's portion is $175 million for the period' 1987-1991, of which $35 million is for 1987. The $183 million 1987 estimate includes approximately $11 million related to environmental protection additions. Of the $183 million, approximately $95 million will be incurred for electric additions, $42 million for gas additions, $35 million for NOMECO's additions, and $11 million for miscellaneous and other additions. F. Subsidiaries The following are wholly-owned subsidiaries of the Company: CMS Comeneration Co., a Michigan corporation, was formed in 1986 for the purpose of assisting companies attempting to develop economically feasible cogeneration projects. CMS Enaineerina Co., a Michigan corporation, was formed in 1986 for the purpose of offering design, engineering project management and related construction services to natural gas utilities, natural gas exploration and production companies, and other energy businesses. CMS Midland Equipment. Ltd., a Michigan corporation, was formed in 1986 to be engaged as owner and operator of package boilers in connection with the Midland Cogeneration Venture Limited Partnership. However, it no longer contemplates engaging in the business originally planned. CMS Midland. Inc., a Michigan corporation, was formed in 1986 to be engaged as a general partner in the Midland Cogeneration Venture Limited Partnership. Conse Corocration, a Michigan corporation, was formed to support research and development in promising new applications in the energy field. Consumers power Finance. N.V., was organized in the-Netherlands Antilles in March 1982 to obtain financing from sources outside the United States to support activities of the Company and its subsidiaries. However, it has baen inactive since its organization, and it is in the process of being dissolved. Huron Hydrocarbon's. Inc., a Michigan corporation, is partici-pacing with others in the leasing or rental of the Marysville gas reforming plant underground storage space for liquid hydrocarbons and other related revenue producing activities. .AR0287-0213A-FIO1 1
27 f MEC Development Coro., a Michigan corporation, was formed in 1986 to be engaged as an investor-in. power plants and owner.of Midland plant assets in connection with the Midland Cogeneration Venture Limited Partnership. Michiman Cas Storaae Company, a Michigan corporation, is~ engaged in the purchase of gas from an interstate pipeline supplier, ~in the transmission and storage of gas, and in the sale of gas to the Company. Northe n Michigan Ezoloration Company, a Michigan corporation, is engaged in exploration for and production-of oil and natural gas. - i NOMECO has six wholly-owned subsidiaries which are engaged in the exploration,' development and operation of oil and gas interests and~ rights: NOMECO Latin America, Inc., Cascades Oil Colombia, Inc. and NOMECO New Zealand Exploration Company, Michigan corporations; NOMECO Oil & Cas Canada, Inc., a Canadian corporation; and Yonan Holdings Pty. Ltd. and Nomeco-Command N.L., Australian corporations. NOMECO.has a seventh wholly-owned subsidiary, Cascades Chemical Company, a Michigan corpora-tion, which is engaged in marketing oil field chemicals in Michigan. An eighth subsidiary, NOMECO International Oil Ltd., is in the process of being dissolved. A ninth subsidiary, NOMECO Exploration Canada, Inc., was dissolved in January 1987. 4 Plateau Resources Limited, a Utah corporation, was formed to engage in exploration for and the development, purchase and sale of uranium. In February 1979 Canyon Homesteads, Inc., a Utah corporation, was formed as a wholly-owned subsidiary of Plateau to develop housing facilities for Plateau's mine and mill workers and for other purposes. In 1984 Plateau suspended operations because of the depressed market for uranium concentrates and the shutdown of the Midland nuclear project. Selective Collection Services. Inc., a Michigan corporation, is engaged in a special collection service for past-due service bills. It ~ was recently expanded in order to market its services outside the State of Michigan and enlarge its market base to other industries. Temoco I. Inc., a Michigan corporation, was formed in 1986 to be engaged as a general partner in the Midland Cogeneration Venture Limited Partnership during the partnership formation period. Temoco II. Inc., a Michigan corporation, was formed in 1986 to be engaged as a general partner in the Midland Cogeneration Venture Limited Partnership during the partnership formation period. Utility Systems. Inc., a Michigan Corporation, is engaged in a central call system service which notifies utility owners of buried gas, electric, water and tale .ne lines when excavation or other work may affect those lines. I 36 it entered into a research and development agreement with Itron, Inc., a subsidiary of the Washington Water Power Company, to develop and market a radio field operations system. AR0287-0213A-FI01
29 1. NOMECO NOMECO has carried on an oil and gas exploration program in the Lower Peninsula of Michigan for almost two decades, and has varying interests in oil and gas leases on lands covering approximately 371,000 acres. Such leases authorize exploration for oil and gas and provide for-i landowners' royalties. NOMECO owns all or part of the working-interest in 246 oil or gas wells in several fields in Michigan. NOMECO participated with others in the exploration ~and develop-ment of 20,000 acres in four tracts in offshore Louisiana, and NOMECO's net participation therein is 2,000 acres. Six production platforms have been set on the four tracts and production is continuing. In 1986 NOMECO supplied the Company with approximately 5 million cubic feet _of gas per day from these tracts. NOMECO is participating with others in the exploration of 182,000 oil and gas leasehold acres in the United States outside the State-of Michigan. In addition, under exploratory agreements with other operators, NOMECO has an interest in petroleum permits in Australia,' Canada, Colombia, Ecuador and New Zealand. Due to the drop in oil prices in early 1986 and the continued uncertainty in the oil industry, NOMECO estimates its 1987 construction program at $35 million. Its 1986 and 1985 programs were approximately $33 million and $65 million, respectively. NOMECO estimates that its 1987 net production will consist of approximately 1,700,000 barrels of oil and approximately 12,400,000 Mcf of gas. Net oil and gas production by NOMECO for the years 1982 through 1986 is shown in the following table: 1986 1985 1984 1983 __ 1982 Oil-Barrels 1,897,000 1,855,000 1,756,000 1,657,000 1,544,000 Cas-Mcf 11,273,000 8,937,000 9,017,000 8,802,000 10,824,000 2. Plateau Plateau owns or has under lease 10,840 acres in Utah, consisting of unpatented and currently nonproducing mining claims and a small number of state leases. Because of the depressed market for uranium concentrates, Plateau suspended all operations in March 1984. In 1984 after the shutdown of the Midland nuclear project, Plateau's uranium assets were written down by approximately $85 million and Plateau's management offered Plateau's uranium assets for sale. In 1985 Plateau had an additional ^ write-down of approximately $38 million. Although uncertainty still-exists, management believes that the $10 million carrying value of AR0287-0213A-FIO1
29 Plateau's uranium assets does not materially exceed their net realizable ' value. 3. Storaae company Storage Company holds title to gas storage fields located in the Lower Peninsula of Michigan which have an aggregate storage capacity of 117,000,000 Mcf: Certified Storage Field Name Location Capacity (Mcf) Winterfield Osceola and Clare Counties 75,000,010 Cranberry Lake Clare and Missaukee Counties 30,000,000 -Riverside Missaukee County 12,000,000 It owns and operates two compressor stations with 46,600 installed horsepower. Its transmission system consists of 562 miles of pipelines within the State of Michigan. i l l 1 AR0287-0213A Fill P t n. ,,-e n, -.-a- , ~.
30 ITEM 3 LEGAL PROCEEDINGS A. Legal' Proceedings For more than fifteen years, the Michigan Attorney General (" Attorney General") has appealed virtually every MPSC rate order affecting the Company. More recently, other' intervening parties have also appealed such rate orders. Consequently, many appeals from MPSC orders are pending in the Ingham County Circuit Court (" Circuit Court"), the Michigan Court of Appeals, and the Michigan Supreme Court. These include litigation involving, among other things: the financial stabilization rate orders; alleged overcollections under the fuel cost adjustment clause in the Company's tariffs until 1982; replacement power costs atcributable to Palisades nuclear plant outages extending beyond 90 days; alleged imprudent operation and unlawful pass-through in 1978 and 1979 of Marysville Gas Reforming Plant feedstock and operating costs; the September 1983 and August 1984 orders authorizing the Company to increase its gas rates; the April 1982 and August 1984 orders authorizing the Company to increase its electric rates; and the rate design aspect of various orders. In addition, the Company and some of its subsidiaries are parties to certain routine law-suits and administrative proceedings incidental to their business involving, for example, claims for personal injury and property damage, contractual matters, environmental issues, income taxes, rates, licensing and other mat-ters. The Ccapany is vigorously pursuing these matters. The significant litigation and proceedings involving the Company, in addition to those described elsewhere in this report, are described below. (a) The Company's pending electric rate case before the MPSC, which requests recovery of its investment in the abandoned portion of the Midland plant, was separated into two phases in September 1984: a financial stabili-zation phase and a prudency phase. On August 24, 1985, financial stabilization rate relief in the annual amount of $94 million for a period of six years became effective, subject to certain conditions that the Company must continue to meet. As contemplated by the orders authorizing financial stabilization rate relier, in March 1986 the MPSC reduced the financial stabilization rate relief to $91 million to reflect the receipt of net proceeds from the dis-position of Midland nuclear fuel. Hearings began in September 1986 in the prudency phase. In that phase, the Company now requests interim rate relief in the additional annual amount of $85.9 million and final rate relief in the additional annual amount of $94.1 million. The requested rate relief reflects a recovery over 15 years of the Company's $2.1 billion abandoned Midland investment, together with a return during the amortization period at the weighted cost rate for debt and preferred and preference stock but with no return on the common equity por-tion. The total rate relief reflects an increase of 10.45 above existing clectric rates. The Attorney General is attempting to appeal the administrative law judge's denial of a motion to dismiss the proceedings, on the grounds that recovery of any investment in a project which has never been used and useful is precluded by law. (See Note 7 to the Company's Consolidated Financial Statements on page 29 of its 1986 Annual Report to shareholders.)
-~ _ J 31 (b) In F therfl980 the Company and Union Carbide Corporation (" Union Carbide") ent- '.nto a long-term contract for the purchase and sale, through-1987, of 10,0c. rrels per day of Canadian residual fuel oil for the Com-pany's Karn plano. Following a substantial rise in the price of Canadian residual fuel oil, the Company invoked the. force majeure provisions of the contract and ceased taking delivery of the oil. On May 13 -1982 the MPSC directed that the Company " cease taking deliveries" under the. contract in excess of quantities requireo for the economic operation of the Karn plant. That directive remained in effect until stayed by the Circuit Court on June 10, 1982. In August 1984, the Circuit Court granted summary judgment to Union Carbide, holding that the MPSC had exceeded its authority. On July 8, 1986, the Michigan Court of Ap' peals reinstated the May 13, 1982 order of the MPSC. The Court of Appeals stated that the contract in question "... is and always has been subject to limitation or abrogation by the Commission in the public interest." Union Carbide, the Company and the MPSC all applied for leave to appeal the Court of Appeals ruling to the Michigan Supreme Court.. The Michigan Supreme Court granted Union Carbide and the Company leave to appeal but denied the cross appeal by the MPSC. In July 1982 Union Carb'ide filed suit against the Company in the United States District Court for the Eastern District of Michigan (;istrict Court"), alleging, among other things, that the Company's refusal to accept and pay for the contract minimum quantities of residual fuel oil since December 31, 1981 constitutes a breach of the contract. In its suit, Union Carbide claims damages in an unspecified amount exceeding $162.5 million. In August 1982, Union Carbide notified the Company that it was cancelling the long-term contract and reserving its remedies for breach and repudiation of the contract. In September 1982 the Company filed its answer and counterclaim. In its answer, among other things, the Company denied that it was in breach of the contract. Rulings on pretrial motions have reduced the issues to be i presented at trial and limited the damages Union Carbide is entitled to claim. On September 6,1986, the District Court issued a memorandum opinion and l order that, among other things, (1)- provisionally granted the Company's Motion - for Partial Summary Judgment against Union Carbide on the basis that the MPSC's order of May 13, 1982 operates as a force majeure with respect to events after the date of that order; and (ii) holds in abeyance all further federal court proceedings in the case until the Michigan Supreme Court deals j with the Michigan Court of Appeals decision that upheld the MPSC order. (c) As described on page 4 under " Business - Electric Service - Midland i Plant", on January 27, 1987 the Company and Dow announced that they had entered l into a partnership arrangement intended to convert a-portion of the Midland plant to a natural gas-fueled, combined-cycle cogeneration plant, and that they had resolved all litigation between the two companies. On January 27, 1987, pursuant to the stipulation of the parties, an order was entered in the Circuit Court for Midland County dismissing, with prejudice, Dow's complaint against the Company and the Company's counterclaim against Dow. (d) A number of the Company's shareholders have filed suits, including i class-action and derivative suits, against the Company, certain of its past I and present directors and others alleging, variously, violations of federal j securities acts, mismanagement and breach of contract. l
- 32 During the. period from November 1983 through December 1984, more - than a dozen suits were filed by certain shareholders who purchased the Com-pany's Common Stock, Preferred Stock and Preference Stock during 1982 and 1983, and in connection with the Company's Dividend Reinvestment and Common Stock Purchase Plan. The suits variously name as defendants the Company, certain of its past and present directors.and others, ' including Morgan - Stanley & Co. Incorporated, individually and as representative of defendant. classes consisting of the underwriters who participated in public offerings ~ of the Company's Common Stock in February, June and October 1983 and Preferenco Stock-in September.and October 1982 and January 1983. ' A second consolidated amended and supplemental class-action complaint was filed in the District Court in June 1985 under which twelve shareholders' suits were consolidated and Bechtel Power. Corporation, the Company's principal contractor on the Midland. project, was named as an additional defendant. Two of the suits are pt-oceeding as individual actions and _ six of the suits have been certified as class actions. Certification has been sought as to two of the remaining ~ four proposed class actions. The Company and Morgan Stanley have answered the pending complaint and the Company has filed a motion for partial summary judgment and partial dismissal. Generally, the complaints allege that the Company artificially inflated the market price of its publicly-traded securittes by withholding information and disseminating misleading information regarding the Midland plant construction schedule, cost estimates, inspection delays and design and construction deficiencies, as well as the Company's financial condition, including statements regarding income, and operations, in registration state-ments, prospectuses and other documents. Plaintiffs variously seek unspeci-fled monetary damages, attorneys fees, interest and costs under the Securities Act of 1933, the Securities Exchange Act of 1934 and the common law. On February 6,1987, certain shareholders of the Company filed a derivative suit against the Company and certain of its present and former directors in the District Court. The complaint is essentially similar to-complaints filed in 1984 and dismissed by the District Court in July 1986 for failure of plaintiffs to first demand that the Company consider their claims ~ for relief. In August 1986, plaintiffs served such a demand on the Company's Board of Directors. Following consideration by a newly-created Advisory Committee of the Board, on November 5,1986 the Board of Directors determined that assertion of the claims would not be in the best interest of the Company. In their February 1987 complaint, plaintiffs allege, among other things, violations of Section 14(a) of the Securities Exchange Act of 1934, breach of fiduciary duty, mismanagement and waste, principally in connection with the construction of the Midland nuclear plant. Plaintiffs seek to have certain charter amendments approved by shareholders declared null and void, an equitable trust established for certain awards granted under the Company's Executive Incentive Compensation Plan, unspecified monetary damages, costs and fees. The Company may be required to indemnify the individual defendants and the underwriters in connection with the shareholder litigation. A, -,w.o y.y,-,-.--w - -. - +, ,---y -,i.,--w-m,- ,w-wm,1- --,,,--re. w y.gw9 --+4 ,,.7
33 (e) Several appeals involving issues relating to the Company's Marysville gas reforming plant were taken from MPSC orders granting gas rate relief in a proceeding resulting from applications filed by the Company in March 1978 and January 1980. The two applications were consolidated in a reopened proceeding following the Company's. announced intention to " mothball" its Marysville plant. In April.1983 the MPSC issued a final order in the reopened pro-i ceeding that, among other things, denied the Company a return on its invest-ment in the Marysville plant of-approximately $100 million, but authorized - the investment to be amortized through rates over a period of approximately. 10 years. The MPSC also authorized. recovery.in rates of ongoing surveillance costs of approxigately $3 million per year..and a recovery over five years of approximately $5 million in mothballing costs. In May 1983 the Attorney General appealed the April 1983 order to the Circuit Court alleging that the MPSC improperly authorized the recovery in rates of amortization of the plant, and the mothballing and surveillance The Attorney General also alleges that operation of the Marysville costs. plant in 1978 and 1979 was unreasonable and imprudent, and that the MPSC erred in failing to order refunds of amounts previously included in rates, or reflected in purchased gas adjustment charges, with respect to the Company's ownership and operation of the Marysville plant. In two separate appeals, industrial customers alleged similar error and, in addition, claimed entitle-ment to refunds on the grounds that the rate levels set by the April 1983 order for industrial customers were lower than those authorized by a February T981 order granting interim rate relief. During this locked-in period,,the Company collected from its commercial and industrial customers approximately $13.9 million more pursuant to the interim rates than would have been collected had the final rates been in effect. (f) The Company has been authorized by MPSC orders issued in July 1983 1 and October 1983, respectively, to utilize mechanisms created by the Michigan legislature in 1982 Public Act No. 304 to recover its prudently-incurred cost of gas and of fuel and purchased power on a reasonably current basis. The mechanisms involve annual hearings to establish appropriate GCR factors and appropriate PSCR factors, and annual reconciliation of GCR costs and re-i coveries and PSCR costs and recoveries. The Attorney General has anpealed both orders to the courts claiming that 1982 Public Act No. 304 is uncon-stitutional because it fails to provide the MPSC suitable standards. The Attorney General has also appealed to the courts MPSC orders (1) autnorizing i 1983 and 1984 GCR and PSCR factors and (ii) reconciling 1983 GCR costs and recoveries and PSCR costs and recoveries. In each appeal, error is claimed' I in either authorizing collection of, or permitting ultimate recovery of, unreasonable or imprudent costs. j In a reconciliatian-hearing involving 1984.PSCR costs, an issue has been raised as to the prudency of the Company's management of an extended outage of the Palisades Nuclear Plant in 1984 and of the increased purchased power costs that were occasioned by that outage. The Company's position is j that recovery of all replacement power costs should be permitted; however, f other participants have claimed that recovery of up to $37 3 million of such costs should be disallowed. I t 0 o e ww -. - - - - - - -.-----,-i.- e-e. -w----m--- r -e-
3L In a hearing regarding 1986 GCR factors, the MPSC Staff took the position that payment by the Company for intrastate gas production of amounts in excess of the lowest incremental cost of gas available from an interstate pipeline is imprudent and that the Company should not be permitted to recover such excess payments from its customers. On January 27, 1987 the MPSC issued an order upholding the Staff's position. The order held that while the con-tracts were prudent when entered, the Company should have renegotiated the price downward to reflect changing market conditions. The Company has ap-pealed the order, but if the appeal is unsuccessful, a substantial disallow-ance in 1986 gas costs could be ordered in the 1986 GCR reconciliation. (g) Approximately 68% of the gas purchased in 1986 for sale to the Com-pany's customers was purchased by the Company from interstate pipeline sup-pliers regulated by the FERC, namely Trunkline, a wholly-owned subsidiary of Panhandle, and Storage Company. In turn, Storage Company has a FERC-approved cost-of-service tariff pursuant to which it sella gas purchased from its sole supplier, Panhandle, to its sole customer, the Company. The Company is the ultimate purchaser of approximately 75% of all gas sold by Trunk 11ne. Trunkline. LNG Company (" TLC") supplies natural gas to Trunk 11ne. Trunkline LNG had a long-term contract with the national oil and gas company of Algeria ("Sonatrach") to purchase Algerian LNG. In September 1982 the Company, the State of Michigan and other customers of Trunkline filed various pleadings with the FERC and the ERA' asking that the agencies find that the Trunkline-Algerian LNG project is no longer in the public interest and to suspend Trunkline's authorization to import the LNG. These proceedings were subsequently found " moot" by the agencies when, in December 1983, Trunkline announced that it had temporarily suspended the purchases of Algerian LNG. As a consequence of the suspension of LNG purchases, Sonatrach and the LNG transporters invoked arbitratins proceedings against Trunkline claiming damages totaling approximately $20 billion for breach of contract. In July 1986 Panhandle announced agreements to settle all claims pending in the arbi-tration proceedings. The settlements resulted in the recognition by Panhandle of a net after-tax charge to its earnings in the second quarter of 1986 of $468 million. The Company and other Trunkline customers in a pending Trunkline rate case before the FERC (Docket No. RP81-85-000) have taken the position that Trunk 11ne should not be permitted to pass on to them any awards or settle-ments associated with the arbitration proceedings. By a letter dated February 10, 1987, Trunk 11ne notified its customers that Trunkline believed that, of the total cost of the LNG settlements, $196 million represented a discharge of take-or-pay exposure which was " subject to recovery in future Trunkline rates." The letter also purported to " serve as notice that Trunkline has been notified by TLC that it is awaiting the initial decision by the FERC Administrative Law Judge in Docket No. RP81-85-000 before deciding the manner in which it will recover, or seek to recover, the above take-or-pay settlement costs." On February 17, 1987 the initial decision was issued in the proceeding by the presiding Administrative Law Judge. The initial decision found that Trunkline had not been imprudent in renegotiating in 1982 the price to be paid by Trunkline to Sonatrach for LNG, in order to induce performance by Sonatrach of its obligation to commence LNG deliveries. However, the initial decision also held that costs incurred by Trunkline in settling the Sonatrach arbitra-tion proceedings could not be passed along to T.runkline customers until the { FERC had, following review in a separate proceeding, allowed such pass-through.
6 E 9 35 (h) In August 1986 the MPSC approved a gas rate settlement agreement entered into by the Company and the MPSC staff that has lowered the Company's natural gas rates. The agreement was the result of discussions arising from - the MPSC staff's concern that the Company's natural gas distribution earnings . level was above that authcrized in the Company's last gas rate proceeding. concluded in August 1984. During the twelve-month period beginning September 1 1986, the Company's gas rates were decreased $16 million. On September 25, 1986 and October 22,1986, _the Attorney General and a' group of industrial customers, respectively, filed complaints with the MPSC seeking a reduction in the Company's gas rates in the annual amount of $48 million in lieu of the l $16 million reduction. Hearings are be'ing held on the. complaints, i l-(i) For a description of environmental claims against the Company with respect to air quality standards and to the operation of the Ludington pumped storage plant, see " Business-Regulation-Environmental Requirements" _on pages 17 and 18 herein, which descriptions are incorpora'ted by reference herein. The Company's management cannot predict what effect the ultimate resolution of the litigation and proceedings described above will have upon the Company's financial position or results of operations. If substantial losses are incurred in connection with these matters, there could be a ma-terial adverse effect on the Company. B. Other Mhtters The Securities and Exchange Commission is conducting a private investi-gation in respect of the Company into possible violations of _the federal securities laws related to disclosures regarding the Midland nuclear plant construction schedule and related matters. ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None in the fourth quarter of 1986. i l =-
l 26 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. Market price of the Company's common stock and related security hsider matters are incorporated by reference to Page 35 of the Company's 1986 Annual Report to shareholders, which information is incorporated herein. For a discussion of the restrictions that materially limit the Company's ability to pay cash dividends on its common stock, see Note 5 to the Company's Consol-idated Financial Statements on Page 26 of its 1986 Annual Report to thareholders, which information is incorporated herein. ITEM 6. SELECTED FINANCIAL DATA. Selected financial data are incorporated by reference to Page 35. of the Company's 1986 Annual Report to shareholders, which information is incor-i porated herein. ITEM 7. MANAGEMENI'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Management's discussion and analysis of financial condition and rcsults of operations are incorporated by reference to Pages 16 to 19 of the Ccapany's 1986 Annual Report to shareholders, which pages are incorporated harein. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. Consolidated financial statements, together with the report thereon of Arthur Andersen & Co dated February 4, 1987, and supplementary data are incorporated by reference to Pages 20 to 35 of the Company's 1986 Annual R: port to shareholders, which pages are incorporated herein. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. PART III i (ITEMS 10., 11., 12. AND 13.) The Company will file definitive copies of its Proxy Statement with the Commission, pursuant to Regulation 14A, which Statement has been incorpo-rcted by reference. (See also " Item 1.L. Executive Officers of Registrant", for information pursuant to Item 10.) RP0285-0010K-TE05
p. 37 p-PART IV 3 ITEM 14. ' EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON. FORM 8-K. (a) Consolidated Financial Statements. 1 l The following consolidated statements are as of December 31 1986 and-1985 or for each of the three years in the~ period ended December 31, 1986: I Page-Consolidated Statement of Income Consolidated Statement of Changes in Financial Position Consolidated Balance Sheet Consolidated Statement of Capitalization Consolidated Statement of Common Stockholders' Equity. Notes to Consolidated Financial Statements Report of Independent Public Accountants
- Refer to Pages 20 to 34 of the Company's 1986 Annual Report to shareholders 1
which pages are incorporated by reference herein. The following sche'dules are for escia of the three years in the period ended December 31, 1986:** Pase(s) II - Amounts Receivable from Related Parties and Underwriters, Promoters and Employees Other than Related Parties 44 V - Property, Plant and Equipment 45 thru 47 VI - Accumulated Depreciation l Depletion and Amortization of Property, Planc, and Equipment 48 thru 50 VIII - Valuation and Qualifying Accounts and Reserves 51 IX - Short-Ters Borrowings 52 thru 54 j X - Supplementary Income Statement Information 55 l 1
- The following schedules.are omitted as not applicable or not required:
I, III, IV, VII, II, XII, XIII and XIV. (b) Reports on Fors 8-K. J. 1 None in fourth quarter of 1986.- i- [ (c) Exhibits, Including Those Incorporated by Reference. ~ j 4 RP0285-0010K-TE05 = -.. - - - -. -..
I 38 Exhibit Number A - Annual Report on Form 11-K covering Employees' Savings Plan of Registrant for the year ended December 31, 1986. (1)-(2) - Not applicable. (3)(a) - Composite Articles of Incorporation of the Registrant. (Designated in Form 10-Q for quarter ended September 30, 1984, File No. 1-5611, as Exhibit (4)(a).) (3)(b) - Certificates Giving Acquired Issued Shares Status of Authorized and Unissued Shares, filed: Dated as of File Reference Exhibit 08/28/69 Reg No 2-37326 2(c) 04/22/70 Reg No 2-37326 2(c) 08/23/71 Reg No 2-44136 2(d) 09/13/72 Reg No 2-45643 2(c)-1 (3)(c) - Copy of By-Laws of the Registrant. (Designated in Registration No. 2-60884 as Exhibit (b)(6).) (4)(a) - Composite Working Copy of Indenture dated as of September 1,1945. between the Registrant and Manufacturers Hanover Trust Company (successor to Citibank F A.), as Trustee, including thereir indentures supplemental thereto through the Forty-third Supplemental Indenture dated as of May 1, 1979. (Designated in Registration No 2-65973 as Exhibit (b)(1)-4.)- Indentures Supplemental thereto: Sup Ind/ Dated as of File Reference Exhibit 44th 11/15/79 Reg No 2-65973 (b) (1)-7 45th 01/15/80 Reg No 2-68900 (b)(1)-5 46th 01/15/80 Reg No 2-69704 (4)(b) 47th 06/15/80 Form 10-K for year end Dec 31, 1980, File No 1-5611 (4)(b) 48th 03/15/81 Reg No 2-73741 (4)(b) 49th 11/01/81 Reg No 2-75542~ (4)(b) 50th 03/01/82 Form 10-K for year and Dec 31, 1981, File No 1-5611 (4) (b) Sist 08/10/82 Reg No 2-78842 (4)(f) 52nd 08/31/82 Reg No 2-79390 (4)(f) 53rd 12/01/82 Reg No 2-81077 (4)(f) RP0285-0010K-TE05 i i
29 Exhibit Number Sup Ind/ Dated as of File Reference Exhibit 54th_ 05/01/83 Reg No 2-84172 (4)(e) 55th 09/15/83 Reg No 2-86751 (4)(e) 56th 10/15/83 Reg No 2-87735 (4)(e) 57th 03/01/84 Reg No 2-89215 (4)(e) 58th 07/16/84 Form 10-Q for quarter ended June 30, 1984, File No 1-5611 (4)(f) 59th 10/01/84 Reg No 2-93438 (4)(c) 60th 06/01/85 Form 10-Q for quarter ended June 30, 1985 File No. 1-5611 (4)(f) 61st 10/15/86 Reg No 33-9732 (4)(e) (5)-(9) - Not applicable. (10)(a) - Restructuring Credit Agreement dated as of June 1, 1985 between the Registrant, the Managers, as defined therein, the Banks, as defined therein, and Citibank, N. A., as Agent, and the Exhibits thereto, (Designated in Form 10-Q for quarter ended June 30, 1985, File No 1-5611, as Exhibit (4)(g)), as amended by Letter Agreement dated as of August 1.1985, (Designated in Forn 8-K dated August 24, 1985, File No 1-5611, as Exhibit (4)(c)) and Letter Agree-i ment dated as of June 19, 1986, (Designated in Form 10-Q l for quarter ended June 30, 1986. File No 1-5611, as Exhibit (19)(a)). (10) (b) - Mortgage and Security Agreement dated as of June 1, 1985 from Registrant to Citibank, N. A., as Mortgagee. (Designated in Form 10-Q for quarter ended June 30, 1985, File No 1-5611, as Exhibit (4)(h).) (10)(c) - Revolving Credit and Acceptance Facility Agreement dated as of June 1, 1985 among the Registrant, Michigan Gas Storage Company, the Banks as defined therein and Citibank, N. A., as Agent, and the Exhibits thereto, (Designated in Form 10-Q for quarter ended June 30, 1985 File No 1-5611, as Exhibit (4)(1)), as amended by Letter Amendment dated as of June 1,1985 and Letter Agreement dated as of August 1,1985, (Designated in Forn 8-K dated August 24, 1985. File No 1-5611, as Exhibit (4)(f)) and Letter Agreement dated as of June 19,1986, (Designated in Form 10-Q for quarter ended June 30, 1986 File No 1-5611, as Exhibit (19)(b)). (10)(d) - The Registrant's Executive Stock Option and Stock Apprecia-tion Rights Plan, effective September 25, 1985. (Designated in Form 10-K for. the year ended December 31 - 1985 File No 1-5611, as Exhibit (10)(d).) RP0285-0010K-TE05
i LO Exhibit Number i (10)(e) - Employment Agreement dated November 6,1985 between the Registrant and William T. McCormick, Jr. (Designated in Form 10-K for the year ended December 31, 1985 File No 1-5611, as Exhibit (10)(e).) (10)(f) - Stock Option and Stock Appreciation Rights Plan and Agreement dated September 25, 1985 between the Registrant and William T. McCormick, Jr. (Designated in Form 10-K for the year ended' December 31, 1985, File No 1-5611, as Exhibit (10) (f).) (10)(g) - CMS Transfer Agreement dated as of January 27, 1987 among Consumers Power Company, CMS Midland, Inc. and Midland Cogeneration Venture Limited Partnership, filed pursuant to Rule 24 b-2 of Securities Exchange Act of 1934 (10)(h) - MDC Transfer Agreement dated as of January 27, 1987 among Conctmers Power Company, MEC Development Corporation and Midland Cogeneration Venture Limited Partnership, filed pursuant to Rule 24 b-2 of Securities Exchange Act of 1934.. (10)(1) - Employment contract dated June 12, 1986 between the Registrant and Joseph F. Paquette, Jr. (11)-(12) - Not applicable. (13) - 1986 Annual Report to Shareholders. (14)-(21) - Not applicable. (22) - Subsidiaries of the Registrant. (23) - Not applicable. (24) Consent of experts and counsel. (25) Power of Attorney. (26)-(29) Not applicable. Exhibits listed above which have heretofore been filed with the Securities and Exchange Commission pursuant to various acts administered by the Commission, and which were designated as noted above, are hereby incorporated herein by reference and made a part hereof with the same effect as if filed herewith. RP0285-0010K-TE05
L1 Peport of Independent Public Accountants To Consumers Power Company: In connection with our examinations of the consolidated financial statements included in Consumers Power Company's 1986 Annual Report to share-holders and incorporated by reference in this Form 10-K, we have also examined the schedules listed in Item 14(a). Our examinations of the consolidated financial statements were made for the purpose of forming an opinion on those l statements taken as a whole. The schedules are presented for purposes of complying with the Securities and Exchange Commission's rules and are not part of the basic consolidated financial stateaants. These schedules have been subjected to the auditing procedures applied in the examinations of the basic consolidated financial statements. In our opinion, subject to the effect on the schedules of such adjustments, if any, as might have been required if the outcome of the uncertainties discussed in our report on the consolidated financial statements were known, the schedules referred to above fairly state in all material respects the financial data required to be set forth therein in relation to the basic consolidated financial statements taken as a whole. Arthur.Andersen & Co. ARTHUR ANDERSEN & CO. Detroit, Michigan, February 4,1987. EXPERTS Statements contained in Part I under " Item 3. Legal Proceedings." as to matters of law and legal conclusions, have been reviewed by Judd L. Bacon, Esq, Assistant General Counsel for the Company, and such statements are made on his authority as an expert. RP0285-0010K-TE05
L2 l SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securi-ties Exchange Act of 1934, Registrant has duly caused this Annual Report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 4th day of March 1987. Consumers Power Conrany Registrant By William T. McCormick, Jr. William T. McCormick, Jr. Chairman of the Board and President Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report has been signed below by the following persons en' behalf of the Registrant and in the capacities and on the dates indicated. Signature Title Date (1) Principal executive officer: Chairman of the Board and President William T. McCormick, Jr. and Director March 4, 1987 (William T. McCormick, Jr.) (ii) Principal financial officer: Vice Chairman of the Board of Directors and Joseph F. Paquette, Jr.* Director March 4,~1987 (Joseph F. Paquette, Jr.) (iii) Controller or principal accounting officer: Vice President S. N. Spring and Controller March 4, 1987 (S. N. Spring) (iv) A majority of the Directors including those named above: ) i t RP0285-0010K-TE05
h3 Signature Title Date John M. Deutch Director March 4, 1987 (John M. Deutch) Robert E. Dewar Director March 4, 1987 4 -(Robert E. Dewar) R. M. Gillett Director March 4, 1987 (Richard M. Gillett) W. N. Hubbard, Jr. Director March 4,.1987' ~ ~ (W. N. Hubbard, Jr.) Lois A. Lund Director March 4, 1987 = ~ ~'7i ois A. Lund) L Dr T. McKone* Director March 4, 1987 { Don T. McKone) Paul S. Mirabito Director March 4, 1987 (Paul S. Mirabito) T. F. Russell Director March 4, 1987 (Thomas F. Russell) 1 S. Kinnie Smith, Jr. Director March 4, 1987 (S. Kinnie Smith, Jr.) Robert D. Tuttle* Director March 4, 1987 (Robert D. Tuttle)
- By R. M. Griswold (R. M. Griswold, Attorney-in-fact) 1 RP0285-0010K-TE05 I
l.
I} Lk CONSLHERS POWER COMPANY AND SUBSIDIARIES Scheduie II - Amounts Receivable from Related Parties and Underwriters, Promoters and Employees Other than Related Parties Years Ended December 31, 1986, 1985 and 1984 (Thousands of Dollars) Balance at Deductions Beginning Amounts Amounts Balance at End of Period Name of Debtor (a) of Period Additions Collected Written Off Current Not Current 1986 John Doran $171 $171 1985 John Doran $171 $171 1984 John Doran $171 $171 (a)The note is secured by a first mortgage on the Australian residence of an employee of NOMECO, a wholly owned subsidiary of the Company. The principal is due no later than six months after the employee ca ses to be employed by NOMECO, while the interest is paid currently. The note has a principal amount of $175,000 in Australian currency with an interest rate of 5%. ST1286-0941A-TM23-FI01
.~ h5 CONSUMERS Pot,TR COMPANT A.D SCBSIDIARIES V Schedule V - Property, Plant, and Equipment Year Ended December 31, 1986 (Thousanda of Dollars) Other Changes - Salance at Add (Deduct) - Balance at 8eginning Additions Describe End of Classification of Period at Cost Retirements (Note) Period IIZCTRIC UTIU TT Consumers Power Company: Istantible 1,978 121 3 2,096 Steam production 1.349,045 '8,796 1,810 (20)(a) 1,356,011 Nuclear production-440,468 6,734 1,082 7 (a) 446,127 Nuclear fuel 227,766 37,393 6 (a) 265,165 Hydro production 161,633 251 39 (73)(a) 161,772 Other production 36,382 15 2 49 36,485 Transmission 609,757 8,027 1,280 (123)(a) 616,381 Distribution. 1,155,360 60,359 9,039 (9)(a) 1,206,671 Genersl 33,719 836 1,281 (98)(a) 33,176 Capital leases 16,369 3,343 22 (146)(a) (3,005)(b) 16,539 Plant held for future use 23,641 1 (75)(a) 23,567 Total electric utility $4,056,118 $126.013 $14,6L $ (3,536) $4,163,990 CAS UTIU TT Ccesumers Power Company: 11 tangible 1,610 24 4 1,630 Nitural ass production 17,401 68 252 (8)(a) 17,209 Underground storage 150,237 5,711 166 (4)(a) 155,778 Transmission 176,492 1,282 679 (930)(a) 176,165 Distribution 815,608 37,407 2,786 92 (a) 850,321 General 15.320 272 652 (5)(a) 14,935 Capital leases 10,100 1,089 (995)(b) 10,194 Plant held for future use 155,151 (277)(a) (11,927)(c) 142,947 31,341,919 5 45,853 $ 4.539 $(14,054) ni,369,179 Michigan Gas Storage Company 62,690 284 14 5 62,960 Total gas utility 31,604,609 L 46,137 $ 4,553 $(14.054) ut,432,139 OTHER 1 Ctasumers Power Company 83,094 $ 10,004 $ 1,770 $ 4,238 (a) j (5,745)(b) 1 (3,661)(d) - 86,160 1 Northern Michigan Exploration Company 395,655 43,190 (1,410)(e) (3.206)(f) (9,406)(3) 424,823 Plateau Resources I.iaited 8,848 51 8,899 Selictive Collection Services, Inc. 345 208 $53 Utility Systems, Inc. 27 3 30 Total other $ 487,969 5 53.456 $ 1,770 l;(19,190) $ 520.465 Total plaat $5,948,696 h225.606 $20,928 n(36,780) $6,116,594 CONSTRUCTION WORE IN PROGRESS Consumers Power Company $ 103,838 $(24,881) (322)(a) 78,635 Northern Michigen Erploration Company 14,641 (10,302) 4,339 MicMaan Gas Storage Company 57 272 329 $ 118,536 $(34,911) (322) 83,303 Total plant includia.g work in progress M M 120.92e t h7. ton g (a) Reclassifications of accounts (d) Sale of steam utility assets (b) Amortization of capital leases (e) Sale of reserves (c) Contribution of the underground (f) Write-off of prediscovery foreign expenditures storage caverna and other miscel-(g) Contribution of oil and gas properties to a - laneous assets at the Marysville foreiga joint venture gas reforming plant site to a partnership. ST1286-0928A-TM23-FI01 l I
L6 CONSUMERS POWER COMPANY AND SUBSIDIARIES Schedule V - Property, Piant, and Equtpoent Year Ended December 31, 1985 (Thousands of Dollars) Other Changes - Balance at Add (Deduct) - Balance at 'Beginning Additions Describe End of Classification of Period at Cost Retirements (Note) Period EI.ECTRIC UTILITY Consumers Power Company: Intangible 1,973 6 (1)(a) $ 1,978 Steam production 1,347,001 3,161 335 (782)(a) 1,349,045 Nuclear production 434,098 6,362 23 (a) (15)(b) 440,448 Nuclear fuel 106,583 4,086 (232)(a) 117,329 (c) 227,766 Hydro production 161,746 4 (117)(a) 161,633 Other production 36.383 (1)(a) 36,382 Tranasission 614,899' 2,465 2.991 (642)(a) (3,974)(b) 609,757 Distribution 1,108,797 52,271 5,733 55 (a) (28)(b) 1,155,360 General 33,934 341 507 (53)(a) 33,719 Capital leases 15.319 3,015 29 367 (a) (2,303)(d) 16,369 Plant held for future use 23.512 634 (23) (528)(a) 23.641 Total electric utility $3.884.249 5 72.345 9.5is 5 109.098 $*.050.118 GAS UTILITY Consumers Tower Company: Intangible 665 $ 950 5 1,610 Natural gas production 18,201 31 917 86 (a) 17,401 Underground storati 152,334 371 1,627 (572)(a) (273)(e) 150,237 Transmission 176.199 1,694 978 (423)(a) 176,492 Distribution 786,243 32,180 2,912 97 (a) 815,605 General 15,576 64 339 15 (a) 15,320 Capital leases 10,307 161 102 530 (a) (796)(d) 10,100 Plant held for future use 155.434 (1) (284)(a) 155.151 1.314.963 35.455 6.879 (1.620) 1.3 1.919 Michigan Gas $torage Company 62,364 4 6 90 62.690 Total gas utility
- 1.377.327 35.8L1 6.969 (1.620)
' 1.40*.009 OTHER Consumers Power Company 80,293 $ 3,556 3 925 3,713 (a) (3,543)(d) 83,094 Northern Michigan Emploration Company 322,144 74,021 344 (f) (858)(s) 395,655 Plateau Resources Lisited 54,567 1 720 (45,000)(h) 8,848 Selective Collection Services Inc. 167 178 (a) 345 Utility Systems, Inc. 10 17 27 Total other $ 457.181 5 77.595 l.645 5 (45.162) -87.909 Total plant $5.718.757 $ 185.411 5 18.188 5 62.316 $5.968.o96 CONSTRUCTION WORK IN PROGRESS Consumers Power Company 76,737 $ 29,547 (1,371)(a) (954)(b) 14,673 (c) (14,794)(1) $ 103,838 Northern Michigan Exploration Company 24,012 (9,371) 14,641 Michigan Gas Storage Company 205 (148) 57 5 100.954 5 20.028 Total plaat including work ta 5 (2.4*6) $ 118.536 progress M M N 1 to Do M (a) Reclassification of accounts (f) Joint ownership adjustment (b) Reclassification of Midland costs (3) Write-off of prediscovery foreign expenditures (c) Repurchase of leased nuclear fuel (h) Write-dova of uranium assets (d)Amortiration of capital leases (i) Sale of nuclear fuel (e) Depletion of Marsac Creek Field ST0286-0261A-TM21-TM35
h7-CONSUMERS PohTR COMPANY AND SUSSIDIARIES Schedule V - Property, Plaat, and Equipment Tear Ended December 31, 1984 (Thousands of Dollars) Other Changes - Salaace at Add (Deduct) - Balance at Seginnin8 Additions Describe End of Classification of Period at cost Retirseents (Note) Period 4 ELECTRIC UTILITY Consumers Power Company: Istangible 1.941 33 1 1,973 Steam production 1,346,713 2,577 1.617 (672)(a) 1,347,001 helear production 415.315 19,067 215 (69)(a) 434,098 Naclear fuel 102,995 4,998 (115)(a)- (1,295)(b) 106,583 Hydro production 161,687 86 23 (7)(a) 161,746 36,383 Other production 36,373 20 to Transmission 615,856 394 2,620 1,269 (a) .1,108,797 614,899 Distribution 1,067,701 49.171 8.040 (35)(a) General 34,949 326 1,000 (337)(a) 33,938 Capital leases-3,344 21,426 (7,682)(b) (1,769)(c) 15.319 Plant held for future use 27,191 19 1 (1,836)(a) (742)(b) (1.119)(d) 23.512' Total electric utility. 53.814.065 $ 98.117 sir 3TC _s (ie.-o9) s3.585.2e9 4 GAS U71LITY Consumers Power Company: Intangibie 388 $ 279 2 .665 Natural gas production 25,839 22 417 8 (931)(a) (6.312)(a) 18,201 Underground storase ~ 150,175 5,142 1,839 (91)(a) (1,049)(f) 152,338 Traassiss ion 175,047 2,838 566 (1,120)(a) 176,199 Distrtt'ution 771,629 29,327 2,651 (1,741)(a) (10.321)(3) 786,243 - General 16,261 133 751 (67)(a) 15,576 (1,141)(c) Capital leases 531 596 10,321 (g) 10,307 Plant held for future use 156.125 (7) (684)(a) 155.434 .l.295.990 38.330 W (13.,36 51.316,963 Michigan Gas Storage Company 62.6-L 259 308 L29 '(b) 62.36. Total gas utility 1.358.*3L 38.589 M (13..65 51.377.327 OTxEn Consumers Power Company 73,102 $ 9,038 $ 700 3,280 (a) (4,427)(c) 80,293 Northern Michigan Exploration Company 287,976 34,194 (26)(1) 322,144 Plateau ssources Limited 131,621 2,017 179 (78,892)(j) 54,567 a Mich. Utility Collection Serv. Co. lac. 107 60 167 Utility Systems Inc. 10 10 Total other $ 492.816 $ 4$,309 ) 479 (80.065) a.5 7.181 Total plant $5.665.318 $182 Als $20 937 $ (107.e39) $5.718.757 CONSTRUCTION WORK IN PROGRESS Consumers Power Company $3,276,141 $494.112 (1,220)(a) (3,682.726)(b) (6,275)(k) (3,295)(1) 76,737 Michigan Gas Storage Company 174 31 205 Northern Michigaa Exploration Company 9,928 14.084 24,012 Plateau Resources Limited 849 8 (857)(a)- 0 M $l3.o96.373) $ 100.956 Total plant including work in progress M M M t h 102 otti 11.119 111 (a) Reclassification of accounts and functions. (g)Saie and leaseback of gas meters. (b)Reclassificattoa of Midland costa. (b) Sale of property. (c) Amortization of capital leases. (i) Joint ownership credits. (d) Write-of f of Quasicassee costs. (j) Write-doen, of uranium assets (e) Sale of production fields. (k) Sale of transatssion lines. (f) Depletion of Marsac Creek Field. (1) Sales of nuclear fuel. I
CONSt#IERS Fonder ConpANY AND SUBSIDIARIES Schedule VI - Accumulited DeprdtU 65[Dep55Uen, and Amort int i5 ei Property, Plant, and Equigeert Year Ended Decesher 31, 1986 (thousands of Dollars) _Ady ttens Charged to other Changes - Balance at Conseildated Add (Deduct) - Salance at Beginning Statement Other (AddiQons)_Dedujcleme Describe End of Description of Perig _of laceae Accounts Retirements Removal Cosy _ Salvage _ (Note} , Period El.ECTRIC UflLITT Censumess Pouer Campany: Intangible 487 3 63 3 547 Steam production 465,850 43,768 1,811 $ 575 $ (17) (42)(a) 507.207 Nuclear production 101.076 13,668 8,090 196 (28) 5 (a) 113,484 Nuclear fuel 158,241 $l2,935 (I,485)(a) 169,695 Nydre production 51,281 3,393 70 II (s) '54,615 Other production 22,979 1,522 58 1 (6)(a) 24.443 Transmission 161,966 10.042 I.244 450 ' (432) 28 (a) 170,854 Destethetion 420,532 38,922 9,039 4,609 (l.095) (8)(a) 446,893 General 14,432 893 33 1,274 33 (194) (II)(a) 14,234 riant held for future..e 32 22 Total electric utility j l_,.}96,8 73 $312.388 ]Qu968 _jl4,582_ $5.824 $(I.759) 1(1,508) (h502,006 GAS UTII.lTT Consumers Feuer Campany: Intangible 262 IIS 4 376 Natural gas production 9,976 699 253 $ 25 $ (93) 10,490 Underground storaSe 38,509 2,524 til ISO (9) 40,771 Transmission 82,945 4,227 677 96 (28) (182)(a) 86.285 Distribution 360,296 34,481 2,782 2,973 (220) .I (a) 389,243 General 8.313 465 55 653 40 (13) 8,153 Plant held for future use 76,283 80,234 (12)(a)' j T(@iS23)(b) 79 110 _14 Eis,,912 J76,553 _f 5h748 L 55 .i 4,540_ $3.2M $ (%3) 6.7:3) !)6 Michigan cas Storage Company _h8,500 _{ 318 ., 135
- 4.554
$3.2M $ ( %3) .8 (6.786) $ 664,5}{. $ _ 49,314 Total gas utility 625.053 $ 53.466 'i OTHER Censumers Feuer Campany 21,964 $ I,850 8 429 $ III $ (314) 26 (a) (2,106)(c) 21,306 Northere Michigan Emploration Company 209.193 46,243 (23)(a) (3,163)(d) (5,745)(e) 246,505 other 911 197~ 8 8 429 $ 121 $ (184) J Q holl) l_268ht Total other $ 232,054 8 48.290 1 128 Utility and oth-r property accumulated depreciaties, depletmea, an4 amortisaties {2254.018 $214,067 _[g,lil ,_ [l!,565 ' _lhl79 f(2 2%) J{L9,235)' lh43M8} a Noeutility property ac a mulated depreciatlee 724 I _) 85 209 (a L [. 849 Total provisten for accumulated depre-riation, depletten, and amortisation 82a31salia J28tatiL J ue163 _812.Mt. _ ltal L II3.3M1 J(12,93H_ 13.$M.333 y (a)Reclassificaties of accounts and functions (D (b) Contribution of the underground storage caveres and other miscellencess assets at the Marysville gas reforming plant site to a partnership (r) Sale of steam utility assets (d) Write-off of prediscovery foreign empenditures (c)Centribution of oil and gas properties to a foreign joint venture
CONSUMERS POW R COMPANY AND SUBSIDIARIFS Sibedule VI - Accumulated DepreilitI R b Tyletion, and Amortisation of Property, Plant, and Equipment Year Ended December 31, 1985 (Thousands of Dollars) Additions Charmed to Other Changes -- Balance at feise) DateT ~ Add (Deduct) - Balance at ~ Beginalag Stateneet Other (Additieas) Deductions Describe End of Description of Period _of laceae Accounts Betirements temoval Comis Salvage _ (Note) Peried _ ELECTRIC IfflLITY Consumers Feuer Cearany: lataesible 438 $ 56 487 Steam producties 422.02b 43,478 $ 364 $ 139 $ (94) $ '760 (a) 45,850 Nuclear production 87,990 13,285 143 (II)- 3 (a) 101,076 Nuclear fuel 79,409 $17,349 (6,040)(a) 67,523 (b) 158,248 i Nydre production 47,909 3,391 17 5 3 (a) 51,281 Other production 21,496 1,522 43 4 (a) 22,979 Transmission 154,502 10,332 2,940 371 (1,479) (1,036)(a) 861, % 6 Distribution 391,165 37,377 5,727 3,785 (I.M7) 35 (a) 420,532. 4 General 14,464 888 33 510 II (6) (438)(a) 14,432 Plant held for future mae 63 3tMd 12 Total electric utility H,2_19,4{} {~iT6 l W ID~)H Q((i MH [Q' il Mi)& CAS ITTILITY Consumers Pover Ceepany: latansible 305 $ (38) 5 262 Natural gas production 9,621 1,24 917 $ 33 $ (39) 9.976 Underground storage 37,091 2.526 l,637 89 (18) $ 600 (a) 38,509 Transmission 78,324 5.866 977 84 (43) (IST)(e) 82,985 Distribution 332.5 4 32,952 2.982 2,498 (242) (1)(a) 360,2 % Ceneral 8,203 459 57 337 ' (12) (SI)(a) 8,313 Plant held for future use 65 979 7 1,,63 7 1,,234 10 1 16 213 fir T'M 85 EED - TET .71TQ 44 566 57 15,,ii4 338 5 nichisaa cas storage Campany 7U 175 fir Total gaa utility i7 k if6 53,9j9[ . loi 7 F0" 7 55 - V)5 Q Q{ -304 T2$,,6M oTNES Consumers Pomer' Company 20.086 I,829 6 $ 496 $ 12 $ (36) $. 515 (a) 21,964 Northere Michigan Emploration Company 175,758 34,315 (2) (24)(a) (858)(c) 209.193 Plateau Besources Limited 7.139 939 470 (78)(a) (6.700)(d) 8 30 Other 42 59 lol Total other Q 3,025 C(( 6 $ ME $ - " 12 j'-(38) [Q,H5L l 232,68J Utility and other property accumulated depreciation, depletion, and amortisation (2,0_02,E2 {,20 5,3J 3 [H,5_46 [M,399 [W (Q,459) 153, % 6 j2,251018 Nomutility property accumulated depreciation { 585 [ l $ 138(ej } 724 Total provision for accumulated depre-clatiea, depletten, ead a.ortization - 32a992a191 8391.J3L HlaMI 3114321 Ita2_et f(3.Mt] .IM.lH _.. 6242MJt2 E (a) Reclassification of accounts and functions (b)kepurchase of leased nuclear fuel (c) Write-of f of prediscovery foreign espenditures (d) Write-doun of uranium assets
M CoustefR$ fot4R CCHPANT ANs SUBSIDIAAfES Se bedule VI - Accumeleted serveriet tee, Qieties',' e J 5eertis t les ei Property, PIset, and Ege6pecet e fees Ended Desember 31, H84 (Thessade of 1.ellare s addsesen Char - Add (sed.rt ) - selease et GeisliJs JJ~ ged to Othee Cn.een -
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test entos st at-et ot a=, FtCee aif ' 'i@y)_,)]Mif _Ealypse., g Adde t s.es sed.cs seee acus sbe End es ae.c g st* 8"_ ?!_fn eed ! Jet. -
- Pime,
___,_.g set el Persed El.ECTRIC WTILITT Ceasemees Poses Ceepomys lateegible 334 49 2 431 Steen product tem 3ee,826 43,544 2,%5 $ 253 $ (82) 154 (a) 422,028 uneseer prweeteem is,s26 I3,eS4 284 3r (22) 43 (e) e7,99e m,x teer teet 34,4sl $6.447 (I,4e9Hal 89,4e9 sydee prod et6ee 44,s3r 3.3e6 22 3 18 (e) 47,999 Other produetten 19,90s 0,122 i 14 le IS (e) 21,496 1somemession 146.132 18,220 1,649 $75 (252) (290)(a) 154,542 86 st e 6beties M4.B21 35,825 0,00b 4,278 (3,574) 5 (e). ' 391,465 seeeral 38,539 til 32 997 2 (5) (3,964)(e) B4,464 eiset neid eer este, ese w p_J Jul Jrig mig _a_15,4a+L msg Totei eini.e. etnist, IT IIou awa um 63 CAS gritLITY Caesmeere reser Campeays met..t iu. int - i4,6.es m 2 m ei.ae cred ti-e i.ns air (9:(.i (s *ensi 9,62 twessesed storese 37,009 t,945 9.837 $ 26 37,091 Trassed es tee II,258 P 979 567 75 $ (62) (326)(a) 70,324 Sist e 6 bet 8ee 305,734 30.755 2,649 2,597 (MG) 255 (e) 332,546 General 8,533 465 $ $9 749 (8) (II3)(s) 8,203 rios neid so sete.e e.e ss rs2 ie 2m 1228-TJJ3 H3 .~_I4.M4L) 332.Wi rit. n,m 3+1;,N3 3L.iii Di
- 4) pel 73 iis ad i
s) lii Total saa etelity '53eM [Mg ~ ll [ 3L44 [@ 3D [M C 19$645 n.u.as s.e se....e Coe,se, i einFa Ceesseers r<eser Campeev 15,474 $ 4.I,835. 7 $ 433 4 $ (13) $ 3,194 (a) 20,006 posthese N begae Espierettee Company 145,818 ,286 394 (0) (9,843)(c) 171.758 Plateen Beseneres Limited 6,427 t,824 526 264 (17e)(d) 7,139 Other 14 28 _lJ,4Q 4 $ (21) M2067 { L2el, 42 Telet other CQ( ]MM $ ' 13) _li
- tality and other propesty accommleted deprettaties, depleties, sad ement isat see 15,833.085
$205,222 $4.724 _j28.988 Jo l} lt4d18) .(194,524) 12,e82,322 e Manet ality propesty occumulated d,p,w ietsee L m 6 _3 s - J 2rs p} -g ses Total prootstem fee ocemulated depre-es.u a. de, set tee,.e4 emett anteen 41.822.2t$ 330.DJ 81JI3 SI6.6182 - JL14.3431 ILatieNi vs.te-.e#.: 4,see e4.>.edened pi.e4 <e.t a 1.!!! wo-Depregiattee, deplettee, see aeostiset tee M J4M (elEce Isese f tras los of arremet e and fonct gene (b) Sale of psedurgies $6elde (t) Write-ett of predlocevery ferrlae e'Peaditoree id) Write-dass et eenelen sesets
.i 51 CONSUMERS POWER COMPANY AND SUBSIDIARIES-Schedule VIII - Valuation and Qualifying Accounts and Reserves' Years Ended December 31, 1986, 1985 and 1984-(Thousands of Dollars) Balance at Charged Balance Beginning. to at End'of. Description of Period Expense Deductions . Period 1 Accumulated provision for uncol-lectible . accounts i (substan-tially all Consumers Power Company): 1986 $5,857 $ 6,957 $ 8,105(a) $4,709 1985 $6,976 $ 6,766-S 7,885(a) $5,857 1984 $8,246 $10,659 $11,929(a) $6,976 (a) Accounts receivable written off including net uncollectible amounts of $7,988,000 in 1986, $7,657,000 in 1985 and $11,733,000 in 1984 charged directly to operating expense and credited to accounts receivable. } 4 ST1286-0941B-TM23-FIO1 l'
52 CONSUMERS POWER COMPANY AND SUBSIDIARIES Schedule IX - Short-Tern Borrowings Year Ended December 31, 1986 (Thousands of Dollars) 'Maximus Average , Weighted (Daily) (Daily) (Daily) Average Weighted Amount Amount Interest Balance Average Outstanding Outstanding Rate Category of Aggregate-at End -Interwst. During the During the During the Short-Tern Borrowinas of Period Rate Period Period Period C4nzumers Power Company: Bankers' acceptance drafts $154,723 7.1% $240,538 $76,298 7.4% Bank advances 135,000 7.4% $135,000 $13,230 8.5% Trunkline Gas C(opany-(retroactive production costs) $ 37,336 $16,327 4.9% Other 91 $289,814 Michigan Gas Storage Company: Bankers' acceptance drafts $ 29,852 $ 1,606 9.2% Bank advances $ 6,000 $ 1,266 7.9% P:nhandle Eastern Pipe Line i Company (retroactive production costs) $ 7,085 $ 3,009 4.9% 3 O ST1286-0928C-TM23-FIO1 ~
e. m t 53 CON 3UMERS POWER COMPANY AND SUBSIDIARIES Schedule II - Short-Tern Borrowings-Year Ended' December 31, 1985 (Thousands of Dollars)- Weighted Maximum Average (Daily) (Daily). _ Daily) Average. ( Weighted Amount Amount Interest Balance Average Outstanding Outstanding Rate - Category of Aggregate at End Interest During.the .During the During thei Short-Ters Borrowinas of Period Rate Period Period-Period Consumers Power Company: Bankers' acceptance drafts $ 74,164 9.3% $ 74,164 $10,638~ .9.2% Bank advances $ 45,000 $ 2,367 9.8% Trunkline Gas Company (retroactive production costs) 37,336 4.9% $ 44,694 $ 4,163 5.0% Credit Agreement with Principal Gas Supplier $240,000 $37,589 10.6% Oakway II, Inc.(b) $ 28,944 $18,635 9.8%- Oakway IV, Inc.(b) $145,705~ $93,810 - 10.0% $111,500 Michigan Gas Storage Company: Bankers' acceptance drafts S 29,852 8.9% $ 29,852 $ 5,783 9.2% Bank advances $ 2,000 11'. 9.8% Panhandle Eastern Pipe Line Company (retroactive production costs) 7,085 5.0% $ 8,503 780 5.0% $ 36,937 Northern Michigan Exploration Company: Note payable (c) $ 8,210 $ 1,650 10.6% M (a) (a)At December 31, 1985, $18,170,357 was also outstanding under a trade note to Trunkline, which was repaid in January 1986. (b) Effective August 24, 1985, these loans became restructured bank debt, classified as long-term debt. (c) Effective April 15, 1985, NOMECO entered into a revolving credit agreement, classified as long-tern debt. ST0286-0538A-FIO1 1 .~,
l 5h CONSUMERS POWER COMPANY AND SUBSIDIARIES Schedule IX - Short-Tern Borrowings Year Ended December 31, 1984-(Thousands of Dollars) Weighted Maximum Average (Daily) (Daily) (Daily) Average Weighted Amount Amount Interest Balance Average Outstanding Outstanding Rate Category of Aggregate at End Interest During the During the During the Short-Ters Borrowinas of Period Rate Period Period Period ) Cecumers Power Company: Crsdit Agreement with Principal Gas Supplier $240,000 10.L% $240,000 $ 42,918 11.8% Netes payable $ 45,000 423 10.5% Orkway II, Inc. 28,944 11.3% $ 28,944 $ 24,706 13.3% 0:kway IV, Inc. 145,705 9.9% $154,092 $147,093 12.2% $414,649 Michigan Gas Storage Company: Cr:dit Agreement with Principal Gas Supplier $ 99,457 $ 25,185 12.3% Nstes payable $ 46,800 $ 8,461 10.6% Bankers' acceptance drafts $ 34,777 $ 4,029 9.9% N:rthern Michigan Exploration Company: Nste payable $ 3,050 11.5% $ 6,500 267 11.7% 1!tl2.d21 ST0185-0024C-TM23-FICI L
55 CONSUMERS POWER COMPANY AND SUBSIDIARIES Schedule X - Supplementary Income Statement Information Years Ended December 31, 1986, 1985 and 1984 (Thousands of Dollars) Charmed to Expense Item (a) 1986 1985 1984 Real and personal property taxes (substantially all Consumers Power Company) $109,285 $104,016 $99,430 Royalties $39,852 $28,269 $26,678 (a)"Othei items" are either less than 1% of total operating revenue or are disclosed in the Consolidated Statement of Income. ST1286-0941C-TM23-FI01 l l
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ABOUT THE COVER CONTENTS Consumers Power Companyis proud of flame will be extinguished and moved 2 Leuer to shareholders I i its important contributions to the into the Capitol museum as a permanent 4 Midland cogeneration venture development of Michigan,which is exhibit. 6 Electric operations celebrating its 150th year of statehood in A plaque on the monument reads: TI,e s[aylcas operations i 1987. For the last 100 of those 150 years, Alichigan Sesquicentenniat Kame is a 12 Communications and Employee Relations Consumers Power has provided much of symbol of tbe life and the bope that u as 14 Preparing for the Future the energy that powered Michigan's present uithin thepeople of this state 16 Management's Discussion and Analysis 20 consolidated statement of income progress. Iland-in-hand, they grew into arben ue entered the Union 150 years 21 lida ratement d aangean the eighth-largest state and one of the ago. It represents thefeelings, optimism country's largest combination natural gas and tbe spirit the citizens experiencedon 22 consolidated Balance sheet and electric utilities. Serving 6 million of becoming a state in 1837. Since then the 23 consolidated statement of capitalization the state's 9 million residents, the fre still burns bright, ever kindled by the 24 consolidated statement of common Company will continue playing an dreams ofa better tomorrore. Designed Stockholders' Equity 24 Notes to Consohdated Financial Statements i important role in the progress of and donated by Consumers Potter Michigan. Companyfor thepeople ofAlichigan. f, G",g# '"0',k 'fj,^"""" " 7 To commemorate that relationship between energy and Michigan's lF ^ 35 Quanerly Financial and common stock information economic growth, Consumers Power has V 36 Directors and oscers presented the state with the P sesquicentennial monument shown on - =M the cover. Atop the monument is a gas. M^ s# burning torch, particularly appropriate because Consumers Power is the eighth-largest gas distribution company in the U.S. The torch will light the Capitol lawn in Lansing throughout 1987. Then the Tile COMPANY 1987 ANNUAL MEETING Consumers Power Companyis The annual meeting will be held at to a Michigan's largest public utility. The a.m. Jackson time on Wednesday, May 6, fM Company traces its origin to the Jackson 1987, at the George E. Potter Center, ( \\_ 7 'Lg Electric Light Works, founded in 1886 in Jackson Community College,2111 N 4 Jackson, Mich., where the Company still Emmons Road, Jackson, Mich. A notice of i M' o( 1 maintains its headquarters. meeting, proxy statement and proxy will V The Company provides electric and/or be mailed to shareholders in March 1987. j natural gas service in 67 of the 68 The prompt return of signed proxies will counties in Michigan's Lower Peninsula be appreciated. and serves some 6 million people-two of every three Michigan residents. The Company has two major subsidiaries. Northern Michigan / [. Exploration Company (NOMECO) explores for, acquires and sells oil and consumers rou er company smes almost 6 natural gas, and has both U.S. and foreign minion o#>e 9 maison resuents in ukbtgan 's operations. Michigan Gas Storage lo"er Peninsula its smice area ishaded) Company purchases gas from interstate
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"""8'" pipelines, stores and transports gas, and sells gas to Consumers Power.
Consumers Power Company and Subsidiaries OPERATING HIGHLIGHTS D/illions ofDollars. Evcept Per Sbare Data) 1986 1985 1984 1983 1982 ) Met income (loss) $178 $(270) $221 $348 $281 Met income (loss) avaihble to common shareholders $65 $(390) $100 $248 $203 Iarnings (loss) per average common share $.74 $(4.42) $1.14 $3.12 $3.16 Operating revenue $3,108 $3,298 $3,236 $2,974 $2,731 funds from operations $538 $403 $272 $218 $217 l Average number of commut shares outstanding (thousands) FS,005 88,065 87,8&t ,9,470 64.210 l Capital expenditures (including AFUDC) $191 $206 $690 $973 $921 leturn on assets 6.7% 2.1% 6.5% 7.6% 7.4% Return on average common equity 3.4% (17.2%) 4.3% 11.9 % 11.5% Electric statistics Sales (millions of kWh) 27,977 27,486 26,920 25,767 24,612 Customers (thousands) 1,400 1,383 1,367 1,355 1.344 Average sales rate (</kWh) 6.29 6.12 6.09 5.78 5.79 Gas statistics Deliveries (Bcf) 268 279 277 273 292 Customers (thousands) 1,251 1,221 1,198 1,181 1,168 Average sales rate ($/Mcf) 5.21 5.71 5.36 5.04 4.11 Exploration statistics Sales (net equiv MMbbb 3.8 3.4 3.3 32 3.3 Proven reserves (net equiv MMbbh 19.9 19.1 17.6 17.6 17.1 Proven reserves added (net equiv MMbbi) 4.6 4.9 3.3 3.6 2.8 l'inding cost ( $ per net equiv bbl) 7.09 13.27 17.58 11.65 16.50 ASSET MIX at Dec 31.1986 EARNINGS (LDS$1 PER Assets $8 6 Bdten AVERAGE COMMON SMARE skam 4 80 _ __ CASH FLOW FROM OPERAT60NS 31e it sa Im PER AVERAGE COMMON SHARE ansm W W f 3, ,,4 m ~ 74 M E-m x~ 4 00 (1 801 l mesed f themed Abendemed 3.80 (2 80) W hoveshneet 8 78 gesture 17M 21h 2.80 (3 801 i b.ag (4 80) (4.42) e (Sml tes2 les3 1984 toes 19e4 let! 1983 1984 1985 Itte {
TO OUR SHAREHOLDERS One word captures 1986 for Consumers preference dividends by $65 million from The recovery of the balance of the Power Company: progress In earnings, in 1985 levels. Company's hiidland investment is still at I operations, in improving fmancial health Midland Moves Forward issue. The hiichigan Public Senice j and in resolving the Slidland issue, there The substantial fmancial progress was Commission is holding hearings on the was substantial and encouraging surpassed by even more important Company's request for recovery of $2.1 progress. Shareholders benefited greatly developments involving the idled billion of htidiand assets that are not l from our progress; Consumers Power's Alidland project. During 1986 the usable in the hiidland conversion. Based i common stock was the 17th-best Company achieved broad public upon the pace of the hearings to date, a performing stock out of 1,575 issues decision on interim rate relief could traded on the New York Stock Exchange jg gjggfggg g ggggggy come during mid 1987,with a final r for 1986, and the best performing utility decision in the second half of 1988. The stock, increasing in value by 1083 BCO#0#1y CO#fl##eS f0 outcome of these deliberations will be percent. expand,if willdepe#d imponant to the Company. The Company reversed its large earnings BFe#I#Ofe#po#lhe Relations Improve loss of 1985 with net income after 6#Bfgy We pf0 Fide. 51uch of our success with the Slidland preferred and preference dividends of Cogeneration Venture can be credited to $65 million, or 78 per average common improved communications and to share. The turnaround reaccted higher acceptance of its proposal to convert the rebuilding relations with many important electricity sales and success in lowering blidland nuclear plant into a natural gas-groups: customers, regulators, political both operating expenses, and debt and fueled, combined cycle cogeneration leaders, business, labor, irivestors and other senior capital costs. facility. An important impetus to that employees. This has been and continues Our fmancial strategy to restructure the suppon nas the agreement reached with to be particularly important because Company's balance sheet has been The Dow Chemical Company to become t provides a foundation for working panicularly successful. During 1986 the a partner in the project, which will be beuer with those we sene, and for Company reduced its debt and preferred known as the Slidland Cogeneration Snding cooperative solutions that and preference stock by $455 million. Venture. This project puts to use $1.5 benefa all panies. That, plus the refmancing of high-cost billion of htidland assets that previously As hiichigan's healthy economy debt and falling interest rates, reduced wm non performing. continues to expand, it will depend even interest costs and preferred and more upon the energy we provide. In 1986,219 new plants and businesses pened in our service territoiy, while
- m. - -
ym . _ _wamA .t Eg another 86 enlarged their operations. t This growth created nearly 14,000 jobs. jg ] Sales Set Record 1 se +N Panly as a result of this growth,1986 was the third consecutive year in which + f., ., d!, - [g Consumers Power set a record for ( ~ electricity sales. Our customers used 28 p a billion kilowatt-hours of electricity in b P 1986, a 1.8 percent increase over 1985. Over the last four years, sales have increased nearly 14 percent. In 1986 a d requests for new electricity hookups f increased a healthy 18 percent over 1985. d l 6 William T. hicCormick Jr. 2
74C per share earnings The number of requests for newgas a Aggress /Fe The tremendous economic and lookups increased even more,by 22 fe8###Cl#g competitive pressures bufeting our hercent over 1985. Ilowever, natural gas unwilling to prepare for the changing, industry threaten those companies deliveries were down from 1985 levels. M Mid/##d-The Company has encouraged its larger i. Cagenerat/cn ; i increasingly competitive times. Ilowever, history shows that during periods of ndustrial and commercial customers to ). Ventyre; structural change in an industry, there are ] [( j significant opponunities for companies )urchase their own gas supplies to take ldvantage of less costly gas on the spot parket.The result has been a trend f,ggy ggfppfgg, , p Bexible enough to take advantage of ggfygggg,;*. o + d them. I believe that CMS Energy ' ward increasing natural gas ransportation volumes and lower sales F- . a _wd Corporation can provide the structure to olumes. take advantage of those opponunities. large utility producing its own power. In Afanagement Changes psms rmCC COMMON SToCn 1986 Consumers Power served 241 Also at the annual meeting,one new outside nominee for the board of La*= customers per employee, far better than the U.S. industry average. Also in 1986, directors will be presented to a the National Safety Council honored shareholders. Frank Merlotti is president Consumers Power for having the best and chief operating oEcer of Steelcase, m safety record of any large combination gas Inc. flis experience in Michigan business and electric utility in the U.S. will help us continue our 6nancial These accomplishments marked strong recovery. progress for a company that stood near Finally, I would like to acknowledge the I bankruptcy after halting Midland Company's loyal and dedicated i construction in 1984. But as encouraging employees, w ho have been instrumental as they are, these improvements are only in the Company's progress during these di$ cult times. Thanks are also due to milestones on the road to full recovery. ac ,= ne those alued o&cers who retired in 1986. Meeting the Challenge Jim Falahee was a 36-year veteran of the We are positioning ourselves to operate Consumers Power also took advantage of in a dramatically changing industry that Company and most recentlyits vice chairman; Walt Boris was executive vice xcess gas supplies in the marketplace by will be far more competitive than ever ugmenting its long term sources of before. At our May 6,1987, annual president of finance and corporate affairs; upply with lower cost spot market meeting, shareholders will be asked to Larry Lindemer was senior vice president urchases to help reduce gas costs for our help the Company prepare for these and general counsel. WeI k to 1987 with anticipation snd ustomers. challenges and opponunities by c n6dence that we will contmue c - lates tre Competitive approving formation of a holding The Company successfully maintained company called CMS Energy Corporation steady path to full fmancial recover y ompetitive rates for natural gas and (about which detailed information lectricity. Our continuing abilit to do appears later in this repon). Sm.ccrely, a will be a key ingredient of a succesful The holding company will provide a yture in a more competitive marketplace. corporate structure more appropriate to gg theCompany hadthe highestemployee an increasingly competitive environment reductivity level in the natien of any in the utility industry. The new structure W 11 am T. McCormick Jr. will enhance the Company's fmancial Chairman of the Board and flexibility and facilitate investment Chief Executive 0$cer opponunities in its existing business as well as in non-regulated, energy related Feb.28,1987 industries. 3
~ # #"##""###'"#"# EIDLAND COGENERATION VENTURE .. Is put work. The Company achieved a breakthrough Legal Dispute Ends last year in its efforts to make productive The pannership agreement signed by i . Energy Supply Soluffon-use of its Midland assets. On Sept.17 theCompanyand Dowmarked theendof Consumers Power and The Dow the lengthy legal dispute between the Chemical Company announced an two corporations stemming from the [ m End to legala agreement in principle to work together project's unsuccessful nuclear phase. [^ IfSpute to complete the facility as a natural gas-Consumers Power will contribute $1.5 [b.Preres techselepy fueled, combinedqcle cogeneration billion of its useful Midland assets in facility. The Michigan Public Service exchange for equity panicipation and [ . x Commission (MPSC) removed obstacles interest-bearing notes tualing $1.27 [ to the Company's plan on Oct. 22. The billion. Almost all of the estimated $600 [. w _ a m d, two corporations executed' closing million needed to convert Midland is documents for the plan in January 1987 expected to come from coastruction debt Consumers Power will be both an equity fmancing and equity cash investments 'T" "" owner and a lender to the venture. A made in the pannership. a% Consumers Power subsidia vill own 49 Design and engineering are scheduled a percent of the project,with a Dow for completion in 1987,with construction 1. Chemical subsidiary and other as yet targeted to begin in 1988. Current plans unnamed equity partners holding the call for 1,300 megawatts (MW) to be ai remaining interest. Consumers Power placed in senice in late 1990. The will purchase about 80 percent of the converted plant's maximum output will g,,]p [j.- plant's energy output for resale to its be sufficient to power a city of p]-[4 customers. The plant also will supply 900,000 people. steam and electricity to Dow Chemical's oL1 = ] l !"il-[ Michigan division facilities, located ~ ~ [ adjacent to the Midland plant. = aut! rd [l d i t ) y,--_-__ -Eld F .saj.___._ u.%,~ w a.,_,:awg J {j{1 4 _ m. y V 3 :.g_f Q f .h g . QJ k se d.[C . = c 1 / "i "u.3 1 - f "T J Drexel Burnham Lambert Inc. has beerj l ,d selected as the fmancial adviser for the ! formation, structure and fmancing of the' t E I. i Midland Cogeneration Venture. Dow [\\ ^ ~ d Engineering and Fluor Daniel of Chicag ~ 7 f%a g ~' '1y
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] have been asked ro submit bids for desigrd wc;p j and construction of the cogeneration - 92 MC " ' D ~ j fac lity. It is anticipated that the proven ~ 1 technology to be utilized and the short ~ j,#$f,,,f. construction period required will allow m FMr - the M Mised Li = re.nnan Copeneration 1 mmWGA41 PR354f 55 ygggg7,, a a .- ~
} the ventere to be completed with fixed demand for electricity output during the Company's alreadyinadequate ! cost and performance guarantees by the 1986, which dropped its reserve margin reserve margin. ! contractor, so that there will be minimal to 16 percent of peak demand. That is Studies Show Need
- construction risks assumed by the venture well below the 20 to 25 percent level A number of research studies during the i partners.
generally accepted as prudent by the past three years have found evidence of l Much-Needed Energy utility industry and the 51PSC. an increasing need for electric power in , The Midland plant will provide much. Michigan's expanding economy. Studies
- needed generating capacity to power M/d/and W/// pf0F/de by Consumers Power, the Michigan Public Senice Commission staff, the l Michigan's economic growth. Current gygg,gggggg i market demand for electricity is already state's Energy Administration, the Rand I straining the Company's existing generaf/#gCapaC/lyla Corporation,'the Michigan Electric Power
' generating system. 90Wer M/Ch/gB#'S Conference and the Michigan State Peak demand on the Consumers Power econom/c growth, Chamber of Commerce have all i system has risen about 1,000 megawatts-concluded that the state will need l about 2 percent annually-during the substantial new supplies of electricity in Consumers Power projects that its peak I period 1975 to 1986. The increases in the coming decade.The Midland demand will continue to grow at about 2 I demand occurred despite generally rising Co m e \\' m i e moa percent nnuallyint the early 1990s. nuisas m md nd
- energy prices, substantial conservation F dure new gener Ung C Pachy to meet th{is growth would funher reduce effons and two major recessions. The
! Company established an all-time peak . -wn..,,.,,,,,y l The Midla:d conversion - V rill utilize. $1.5 billi:n ~ c:rth tf eq ipine:t - nifb ' Lireadf ,,,, gg I: stalled, including this f,. -~ m. T I1:rbine. - gm, ( I s 9 1 e ,m w. 5 f. e ~4 e ',
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ELECTRIC OPERATIONS In 1986 Consumers Power experienced requests were 26 and 19 percent ahead of sticinic sAtts snowris a third consecutive year of record 1985, respectively. FWamam 19824986 m138% 33% electricity sales within its senice area, The Company maintained its and all indications point to continued competitiveness in electric rates during = _ _ _ _ _ _ growth in Michigan's demand for power. 1986, both in cost and through innovative nr The Company's electric operations, price structures for certain agricultural n_"' _ m _ " " which serve 1.4 million customers in 61 and industrial uses. As 1987 began, of Michigan's Lower Peninsula counties, Consumers Power's industrial rates were generated $1.8 billion in revenue during 13 percent below those ofits largest 1986. competitor in Michigan,while its The Company's sales for the entire year residential rates were 17 percent lower. totaled 28 billion kilowatt hours, up 1.8 Consumers Fower's residential rates were percent from 1985. In addition, peak below the average rates for the United i. demand reached a new record onJuly 17, States, the East North Central Region and when Consumers Power delivered an Michigan. average of 5,127 megawatts during a one-High Efficiency ~ ~ ~ ~ hour period,6 percent higher thar 'he Consumers Power runs one of the most previous record set in 1985. A reu. e$cient generating operations in the g,,, winter peak of 4,582 megawatts was electric indusuy. Based on 1985 data, its experienced Dec.10. fossil-fuel generating plants ranked second most e$cient in the U.S., tee 8 MAnMT Pn0HLE according to the 1986 survey of the Clean-Air Program Electnc 28 0 BAon kwn country's 100 largest electric utilities Consumers Power is seeking low. cost, conducted by Electric light and Potter e&cient technclogy to minimize pollution emissions. Campbell Unit 1 is 1986 was the third the site of a major pollution-control --m expenment designed to remove p_1 Consecul/Fe year or poiiu,,nts mo,e escien,iy f,om,he ou, ~ N record electr/C/lf gases of coal combustion. The project, \\ sales, andrequests for which began in September 1986 and will \\ new hookups rose. c ntinue through mid 1987,is being conducted under a $2 million contract from the U.S. Department of Energy's magazine. The Company's fossil.u nit heat Pittsburgh Energy Technology Center. rate has ranked among the top four in if successful, the system could be each of the last four years. IIeat rate is a expanded to serve entire power plants. ', measure of the amount of thermal energy The experimental sptem requires less required to produce a given amount of water, produces less residue and allows power. The lower the heat rate, the more lower anti-pollution equipment costs c wm nam e5cient the generating unit. than other pollution removal methods. Consumers Power's total generating Ultimately, it could save utilities and Hookups Soar Requests for new hookups totaled system, including its two nuclear plants, their customers millions of dollars. 18,135, an 18 percent increase from 1985. r nked ninth nationally m fuel e$ciency Some of the greatest growth in demand in the 1986 survey. The Company's occurred in the south central and western Campbell complex at Port Sheldon on areas of Michigan,where new service L ke Michigan was ranked fifth among individual fossil fuel facilities. 6
1 1 o Record annual-sales l Big Rock Record endangered. Consumers Power personnel ' The Company's Big Rock Point nuclear
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at the dams worked under extremely hazardous conditions during the < plant gained distinction for setting a new a i e Strong custempert .] emergency to regulate the water How and ] record output in 1986. The facility's 1986
- output of 505,740 megawatt hours broke greyth j
save tb dams. ! its 1967 record of 501,168 megawatt. ii ~; i hours. In addition to record output, , gggpg(fffyg gggg _ j d wwnEcimcsERMCEN00KUPS employees achieved the best radiation ji safety performance in Big Rock Point's h a? _ .j i 24 year history. t , One record the Company encountered Um.Awhamad 'm iun. l during 1986 was unanticipated and ' unwanted. IIeavy rains during mid' The extremely heavy and September.ind the resulting Hoods unprecedented Hooding, at levels caused widespread damage in Michigan's calculated to occur only once every 200 l Lower Peninsula. In addition, Consumers years, threatened to breach the liardyand use
- Power's hydroelectric facilities on the Croton dams. If the dams had failed, i Muskegon River were endangered by downriver communities would have been high water for several days at the peak of l the storms.
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l l NATURAL GAS OPERATIONS Consumers Poweris the country's Diversified Supplies The agreements allow Consumers Power eighth largest gas distribution company, The Company also took advantage of to take further advantage of spot market as measured by the number of customers declining natural gas wellhead prices last purchases from ANR Pipeline as well as served. The Company's suburban Detroit year by making judicious spot market the Company's traditional suppliers, Metra Region,if viewed as a separate purchases and lining up additional long-Panhandle Eastern Corporation and unit, would be the 21st-largest gas term supplies of low cost gas. Thirteen Trunkline Gas Company. distribution company, with 620,000 percent of the Ccmpany's system supply Price reductions announced by customers. was purchased on the spot market in Consumers Power's suppliers throughout 1986. the year contributed to savings projected ,g In November Consumers Power signed NaMal Gas 268 Pd (Wo new pipeline contracts to diversify its The Company /S sources of supply. Consumers Power /#Cf63SlH9 llS contracted with Michigan Consolidated Gas Company for firm pipeline capacityof tranSp0flal/0# Of gas ~* 125 million cubic feet of natual gas per /Of OUSl0MerS Who day to be delivered via the ANR Pipeline purchage gfrecffy on k Company. An additional 125 million fgg gppf gggggf, p cubic feet per day of pipeline capacity is N' -- available on an interruptible basis under this transportation agreement. to total $182 million for the 12 months The Company also arranged with ANR beginning Sept.1,1986. Those savings s Pipeline Company to connect directly to translate into an estimated 12-month its pipeline system near IIolland, Mich., reduction of $89 on the average providing approximately 100 million residential gas space-heating customer's l ' [ cubic feet per day more of bill. interconnection capacity. Rates Competitive The Company's ability to take advantage n..w.a m of the currently favorable natural gas Consumers Power provides natural gas prices helped keep its rates competitive. in 40 of the 1.ower Peninsula's 68 4:sismshukg,kse g er gg 4 .7._. nka ~ * " *,. counties, an area of 13,000 square miles with a population of 3.8 million. The Company operates more than 1,400 18 ^ miles of high pressure transmisson j yp - p pipeline, plus more than 16,000 miles of wg 3 j individual service lines and so ne 18,000 ( resamese j. ? i miles of distribution mains. teser as L, / Deregulation of the natural gas pipeline past,is sen : industry has provided Consumers Power N# and other distribution companies with d T opportunities to develop alternative gas ~ supply purchasing strategies that help I l hold down costs and minimize rates for t 4 l the Company's more than 1.2 million gas b g l ct stomers. f i y n I ..a s.. <., A g .. a-m,
~ o Strong c:st:mer ' . growth As 1987 began, Consumers Power's p e OlFM8/6 Cat /0# Of ; typical residential bill was 8 percent Requests for new hookups m. 1986 .SWPg,8 below that charged byits largest e totaled 21,880, up 22 percent from 1985. 20ichigan competitor. Its t pical Y This brisk growth is increasing as we Cndustrial bill was 15 percent lower. The p a Compet/tw.er#fesj j move into 1987. Company's rates also compare favorably [1 Consumers Power's strategy to maximize to those charged by other utilities [ m SAS ffa# Sport Sal #8; the utilization of its assets has found
- throughout the nation.
[ '$f8W application at its Marysville facility. The Company's wholly owned subsidiary, Consumers Power directly sold its [- y q s sustomers 238 billion cubic feet (bcf) of gj IIuron Ilydrocarbons, Inc., entered into a 'a pannership to expand the capacity of matural gas during 1986, down 9.9 percent gir saw Jrom the previous year's total of 265 bcf. seven of its nine underground caverns at Nuch of the sales decrease in 1986 was Marvsville for commercial storage of G sdeliveredtocustomers-thetotalof due to large customers purchasing gas 1 quid hydrocarbons. The facility's storage hirectly from producers, with Consumersg s transported for others and gas sold capacity was expanded from 1.8 million directly-decreased 3.9 percent in 1986 barrels to 5 million barrels. Power becoming the transponer rather due to warmer weather and the loss of han the seller of the gas The Companvis In addition, plans call for the Company s me dual fuel industrial customers conomically indifferent to whether it and Polysar Ilydrocarbons Inc., a b&ause of lowcr oil prices. Canadian firm, to use a ponion of the lls gas or transpons gas for its ustomers. Marysville fractionating equipment to The decline in sales volume was largely process liquid hydrocarbons Polysar will Eset by increased volume from store in the facility's caverns. onsumers Power's expansion of gas ansportation-moving natural gas r customers who purchase on the spot.g7Ag EEOUESTS FOR -a ~~ NEW SAS SERVICE N00KUPS km hj jh. t v k j [J l i ~ a g- ,,,, g, w
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i ~ps- [g. 7,- - J (3 a4 y m parket from other sources. Under 285 i m y $parate transportation and storage !4; 3.L.' iontracts, Consumers Power transported F i 'g Y,' %) bcf of natural gas during 1986, up 106 L [ percet, / om its 1985 volume. The y, t c [~ {l Company transponed an additional 32 bcf Q if gas for three other Michigan utilities. Transponation volume during 1987 is
- nticipated to continue to grow.
9
l NORTHERN MICHIGAN EXPLORATION COMPANY Northern hiichigan Exploration muutneomscosis equivalent barrels, equating 6 thousand Company (N05fECO),the Company's
- 'd cubic feet of gas to one barrel of oil. Oil largest subsidiary, drills for and produces a________
oil and natural gas in hiichigan and 11 and condensate reserves declined 9 percent to 6.9 million barrels; natural gs other states, plus Canada, Australia, New reserves increased 13 percent to 78.2 Zealand, Colombia and Ecuador. During billion cubic feet. During the same 1986 the company was particularly period, total capital expenditures um successful in adding U.S. reserves in declined to $33 million, about 50 percent California, Texas, Louisiana and below the 1985 level. This resulted in a n. hiichigan. u_ finding cost of $7.09 per equivalent in New Zealand, N05fECO saw positive barrel,which is low byindustry results from its joint venture with the government of New Zealand, that ~~ ~ ' - - 4 ~ experience. Oil Prices Fall country's national oil company, and five A worldwide oversupply contributed to o New Zealand and Australian firms. A fall of oil prices from $28 a barrel in early N0hlECO's first discovery well in New 1986 to a low of about $10. At year end, Zealand was rested at 29 million cubic prices were in the range of $15. In feet per day and 1,400 barrels per day of 191 the presious year. But the company addition, natural gas prices declined condensate. A second discovery was had its best results m seven years as on average about 15 percent last year. l awaiting completion at year end. measured on afinding costbasis--a Good Results c lculation of the reserves added Asmuh ofIcweroiland gas prices,in ] 1986 N051ECO experienced a net loss d The company had very positive results in per dollar of exploration and $1 million after 14 consecutive years of devel Pment cost. its limited exploration and development profitable operations. Total revenue efforts. N05tECO drilled substantially During 1986, N05f ECO m. creased its fewer wells during 1986-73 versus t t I reserves 4 percent to 19.9 million declined to $71.3 million,21 percent below the 1985 level of $89.8 million. w......., 'd .- s (N (f a:{ ~ g y f ng j n v --W) f f*
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a Gas prices The magnitude of NOMECO's loss was market forced NOMECO to cut operating minimized by rigorous cost-cutting measures, conservative financing ,gg,,gs sg7,,y cosa during 1986, and is reduced capital spending allowed the company to utilize practices and a favorable reserve base. As l cash How to decrease its $18 million debt a result, the loss was concentrated in the "OIIIII88888#88888 to $11 million by year-end 1986. first half of the year. NOMECO returned q As it enters its 20th year, NOMECO to profitability in the second half of 1986, L a ##58/F#S #f0W l plans to continue to control its spending a performance that is expected to j while putting emphasis on areas where it continue in 1987. k; j its exploration efforts, the company will j has a proven track record. In addition to Gas Sales Grow f r: The exploration company experienced a L' ' u.wmd attempt to increase reserves through 26 percent increase in its natural gas sales attractive acquisitions. in 1986, with production totaling 11.3 billion cubic feet. Oil and condensate
- 0MECO's cost-cutting helped restore sales rose 2 percent to 1.9 million barrels.
pr0// lab ///ty /# seCOnd hall Of 1986. The adverse conditions of the energy I IIIGIILIGIITS 1housands ofDollars, Evcept Per Share Data 1986 1985 198i Total revenues $71,298 $89 771 $90,107 ' Net income (loss) $(976) $13,445 $10,569 Cash dividends paid $6,161 $5,000 $1,500 Earnings (loss) per share $(.07) $ 92 f.72 Return on equity (7.5)% 10% 9% Return on capital .6% 10% 9% internal cash flow $47,906 $57,086 $57,830 Capital expenditures $32,888 $64,998 $58,013 Total assets $200,993 $216,531 $181,111 Sales Gas (MMcf) 11,273 8,937 9,017 Oil and condensate (Mbbl) 1,897 1,855 1,756 Natural gas liquids (Mbbl) 297 320 331 Averageprices Gas ( $/Mcf) 3.26 3.84 3.63 Oil ($/ Bbl) 15.42 26.50 28.60 Resenes Gas (Bcf) 78.2 69.1 57.1 Oil and condensate (MMbbl) 6.9 7.6 8.1 Wells drilled 73 191 168 Success ratio 33% 49% 43% Gross acreage 66,176,000 32,824,000 23,733,000 Net acreage 4,363,000 3.682.000 ' 2.673.000 11
COMMUNICATIONS AND EMPLOYEE RELATIONS A public utility must communicate The access gained and the issues As Michigan began preparing for its effectively with many constituencies to do discussed with these audiences were pan 150th year of statehood, which it its business. This is especially true of of the implementation of the Company's celebrates in 1987, the basic message Consumers Power, because it is first-ever, comprehensive Company employees carried was this: Stichigan's largest utility and because it communications plan. The plan was Consumers Power is the state's largest faces public policy challenges that will designed to support the Company's utility and has powered Michigan's have vi:al impacts on the future energy primary goals of restoring its financial progress for 100 of the state's first 150 needs of Stichigan. health and positively resolving the years. This century.long pannership Although the Company has always Midland issue as soon as practicable. needs to be maintained so that Michigan strived to maintain an open line of can enjoy continued economic gromh; a communications with various audiences, Managegrent "hgg strong, healthy Consumers Power is 1986 saw renewed effons to reach out to gjffygfjy gjjgjpgggg eswmial to a strong, healthy Stichigan. all who would listen. the Once-Widespread " Powering Michigan's Progress" has Communications Expand been added to the corporate logo to The newConsumers Powermanagement h0Sf///fy Of underscore the Company's commitment had a di8icult communications challenge g0Fernment Off/Cla/S to promoting economic growth in our in 1986, but also had an extraordinary ggg gjggjggg state. This is the job Consumers Power communications opponunity because it fBSidenfS f0 Ward the has done for the past 100 of Michigan's was staning with a clean state of programs 150 years, and will do m the future. and plans. A diverse group of important Company."-NeW T0/k This message was delivered to service opinion leaders were informed of the I/MeS. clubs, retirees, local government officials, imponance of putting Midland to work customer groups and other audiences. for Michigan and the Company's plan to A key component of the plan was the Management briefmgs of key business do so,in addition to other issues of inclusion of a number of the Company's and political leaders throughout mutual concern. At the same time, the employees in the communications Michigan and in Washington were Company moved to greatly improve effon-something employees at all levels supplemented by other Company officials communications with its more traditional responded to enthusiastically. meeting with their counterpans in audiences. business and labor throughout the state. Meanwhile, virtually every Michigan media outlet was personally briefed on . _. ~ 1C_.. ....-_m_,w_,.j. _ the Company's problems. plans and W "9~ . a + -n - - ~r 7 fd programs; reporters and editors were k[@ periodically updated on the Company's
- ( i.
progress toward resolution of the e& ^'h--- M dland issue. +' $y Consensus Forms ELECTRIC Z-- y J p This comprehensive effon to make the UTILITIES ~ ~ d aw fs rest ring the Company's linancial c p t. [ y; health and putting Midland to work for 1 ( 3 e Michigan has resulted in a clear
- h W L
- l consensus among the state's business, pJ.M.E.G.3LM Q b.
Q] political and labor leaders to move g E.Ed.?E E R E ! n fmward. More than 120 supportive
- IEiEEEEEd k N$5Ei55 f' editorials, including editorials in all the "n
state's major daily newspapers, appeared
- Mh.r ~EECI.,.d. i E
1 ~ ~ 6{ in 1986 endorsing the Midland a w r .b $NCb5555?55E$E55 2,C.E_h'.E_L.T! 555:E51W i .~ .e. m ~ w .ym, v. w.__ g -3 y .~a.,. .w ~. 12
T a P0wering Michigan's Pr0gress But much work remains tobedone.The achieve high levels ofindividual l performance, thereby assisting in the Company will continue its new communications commitment across the a lInproved feldf/04s'. j achievement of Company shareholder ' With CO#stif###Cles full scope of its operations. Our F
- j and customer objectives.
customers and government leaders-and 1 To conserve cash, the base salaries of + especially our shareholders-must L a CO#s## sus (0/) , ~j our employees were reduced in October understand the Company's plans and h M/d/A#d 19H and receipt of subsequent raises programs in order to support them. [ ,,[. employees sacrificed in pocket salary I deferred. As a result, our salaried 7 Much of the Company's success can be [F ~ increases for almost three years. As k ? credited to our skilled and dedicated employees. In spite of the economic [hiu. dj, previously scheduled, all salaries and constraints on the Company, our raises were restored to full levels effective employees have performed efhciently, Incentive Compensation Plan by Jan.1,1987, and deferred salaries are serving more customers than ever, w hile increasing the number of key employees, being returned to employees. employee levels decreased from 10,813 at with rewards linked to net income, rate New Labor Pact ] year-end 1985 to 10,618 at year end 1986. relationships with other utilities and The Company also negotiated a new Employee Steps Taken individual performance goals. This three-year contract with the Utility ) , Our employees are a valuable asset. provides incentives for the participants to During 1986 we initiated a number of programs that will enhance our ability to e -.. g . perform as a Company through the efforts 1. 'of our employees. J888 consumers.now plan is ingenious j Action was taken to reinforce the paF-smis - g-a 1 for performance concept. For example, !we expanded the Annual Executive (3 ISM E, COMMENT 8M M $513fm
- q..w.
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- on em me= >====-= oar g? ;: (,.[, g; YYf
?IMS5Ell 44_ y _. A m_ 1 Workers Unnn of America (AFL-CIO) covering 4.200 operations, maintenance and construct;on employees. We were pleased to restve the matter quickly to ,p the mutual h* nefit of the Company and our unionize. employees. The contract g was overwhelmingly ratified in June and l
- ) '.
went into effect Sept.1. ~ v y ' g e In our continu ng effort to ensure the q safe operation of our nuclear facilities, a 1 G Fitness for Duty program was initiated that provides for periodic drug testing of I of all employees who have unescorted ge#p e access to nuclear facilities. This is in 6 addition to an existing program that allows drug testing of current employees v g for cause and of new job applicants. R U
PREPARING FOR THE FUTURE iIncreased cash Economic and competitive forces are Standard & Poor's, Moody's Investors 110W dramatically changing the utilityindustry. Service and Duf & Phelps all upgraded Consumers Power is reshaping itself both their ratings of Consumers Power debt [, j .q financially and structurally so it can during the second half of the year. respond rapidly and innovatively to the The improvements brought Consumers b O industry changes, and take advantage of Power substantially closer to having i new opponunities that it anticipates will investment grade tatings for its securities, ( 'a#ff CWpWIS$f occur in a restructured industry. and provide an opponunity to issue I' N j ?)$D future debt at lower interest rates. J$N l r'PRCT OF THE REDUCTION Good Cash Flow .si % gg*%pg," \\' m MTEREST AND Cash flow, from operations totaled $538 PREFERRED / PREFERENCE DM0ENOS million in 1986, with $191 million spent " " "j on construction. Cash How is expected to with investors. The results have been an m,,,,,,,, improve funher in 1987 and consolidated increased understanding of Company ,~ construction expenditures have been strategies and a better appreciation of budgeted at about $183 million. Consumers Power as an investment Consumers Power was able during 1986 opponunity. to reduce its long term debt by $282 This efort was highlighted by the million, or about 8 percent, and Company's presentation to the New York =___ subsidiaries reduced their long-term debt Society of Security Analysts, a prestigious by $7 million. In addition, the Company Wall Street professional organization, retired $173 million in high-cost Oct. 29 in New York City. Company m preferred and preference stock. These officers had an opponunity to inform an - (L refmancing efforts, which benefited from audience of approximately 200 m ]g the decline in interest rates during 1986, members-the second-largest audience j also produced a net reduction of $58 to attend a utility presentation in the d million in the Company 3 interest costs Society's history-of the strategies that Consumers Power plans to implement. CMS Energy Corp. will Their remarks were also available to Consumers Power is restructuring its pf0Five an operating investon across the country on cable balance she
- by implementing
" "'" " E SilUClHTB (#0Te financial program to replace high cost networks. debt and preference stock with lower cost Sullah/610 3 Chang /#g Structural Change debt, much like individuals refinance Ull//ly 6#Fif0##16#f, In the spring of 1987, the Company will i their home mongages. This has had a recommend to shareholders formation of positive impact on net income and cash flow, and has resulted m upgraded debt for the year. Preferred and preference a holding company named CMS Energy dividends decreased $7 million. Corporation, which will provide an j ratings and a perception of financial improvement by the financial community. Current plans call 'or Consumers Power paanng sauctum m te suWe to a to refinance and redeem additional changing utility environment. securities during 1987 St ckholders will be asked to approve the Investor Program change at the annual meeting on May 6. The Company expanded its investor relations program during 1986 with a full. dedged effort to improve communications 14
If the proposalis approved by PRmE RANGE OF COMMON STOCK
- stockholders, Consumers Power would
- /" *"
become the largest subsidiary of the n
- parent holding company. The principal 3
priority within the new corporate i.
- i.,
structure would be to continue to provide l reliable electric and gas service to our E 5 utilitycustomers as efficientlyas possible. -U- ,,, - g,,, These utility activities would continue to 7 E. W_ EE { be regulated by the Michigan Public s -\\ W Service Commission. 4% l Ilolders of Consumers Power common, l stock would become holders of CMS ' as ~ muc. WiFr ~ sic"mmon ~T =c un n I nergy common stock on a share-for. E share exchange basis. IIolders of Consumers Power preferred and ] preference stock would continue to hold 1 that stock. It is anticipated that the P- - - e '- '* N ' 4,. . _. c... I y / g $; W holding company would retain the ticker e ~ 4;. symbol " CMS" that currently represents [ Consumers Power on the New York and [. Midwest stock exchanges. cms ENERay coRronAmN The holding company would establish a I second subsidiary to manage the E# { conium e aav sad Omer C Company's non utility businesses. ,,,_,,ing,,,,j,,,,,, Mpgi - jf'}? 'D N 4-W. , LONG-TER3 DEET AND PREFERRED / b' PREFERENCE STOCK OuTITANDING .. WW a twem m e em wemse ' ' s staudare. I w q,m,, t' eaude,sses Eb 8 j Jansuuntampinam.,j4 y. im-gi,; -. p Q
- M..
Vij m 9% 4 898 'a [L1 gai;ig N _m a 1_ j pj The separation of utility from non utility Potential diversification of non-utility am [,: ] businesses would provide opportunities activities would be concentrated in [g i b to structure the Company's assets to meet energy-related areas that utilize expertise + t. o [ [ an increasingly competitive environment currently existing within Consumers [gl 6i 11 and to enhance shareholder value. It also Power. would offer the potential for improving the corporation's fmancial flexibility, and would provide non utility operations the m,,,'*,,s use of a wider variety of fmancing techniques than is suitable for utility operations. 15 l
Consumers Power Company and Subsidiaries MANAGEMENT'S DISCUSSION AND ANALYSIS RESUI.TS OF OPERATIONS Electric Utility Operations Gas Utility Operations Overview In 1986 net operating income increased In 1986 net operating income decreased The Company had net income in primarily due to increased sales. Net primarily due to lower gas deliveries. Net 1986 of $178 million. Net income after operating income decreased in 1985 primarily operating income increased 33 percent in dividends on preferred and preference stock because of higher income taxes. Income taxes 1985, primarily because of revenue resulting was $65 million, or $.74 per average common increased in 1985 due to increased operating from a 6nal rate order issued in August 1984 income before income taxes and the loss of Cas Retenue andSaks share. Earnings in 1986 re8ect increased elect city sales, improved control of the Midland interest expense deductions d Components of operating revenue variances which are now re8ected as part of 'Other operating expenses. reduced pension income (Deductions)" on the Consolidated expense, decreased interest expense and Statement of Income. decreased preference stock dividends, (Dollars in Millions) partially offset by reduced gas deliveries and a nece Retenue and Sales ~ 86A 5 85/84 net loss from an oil and gas exploration Components of operating revenue variances Sales $(28) (11)% 8-subsidiary The Company reduced pension were: expense by applying in 1986 a new Increase (Decrease) From Prior Year an na. accounting standard on emploiers' (Dollars in Millions) } accounting for pension costs, w hich improved 86/85 85/84 Gas cost 1 earnings by f.08 per average common share. Sales $38 48% $27 70 % recovery (234) (95) (21) (84) In 1985 the Company had a net loss after Tarif rates 93 238 Other 7 3 (10) (40) dividends on preferred and preference stock i of f 390 million.or $ 4.42 per average common cosfrec share.The net loss resulted from the ~ 41 52 (79) (203) er Other (2) (5) Natural gas sales decreased 9.9 percent in following items: (1) a write down of certain Midland nuclear fuel and certain Midland $79 100% $39 100 % 1986 and 4.5 percent in 1985, primarilydue to facilities of $331 million after tax ($376 a Federal Energy Regulatory Commission Sales increased 1.8 percent in 1986 and 2.1 (FERC) decision that allows customers to per shareh I2) a $65 million increase in percent in 1985. Commercial sales increased purchase gas directly from suppliers. The Midland related deferred taxes ( f.73 per 4.1 percent in 1986 and 3.4 percent in 1985. FERC decision, however, has resulted in an shareh t 3) a write down of uranium assets by An August 1984 interim order granted rate increase in transportation gas volumes. Gas Plateau Resources 1.imited ( Plateau), a relief in the annual amount of $137 million. subsidiarv, of $21 million after tax (f.23 per delivered to customers, which includes gas pyy.er Costs transported for end users, decreased 3.9 shareh and (i) net earnings of $27 million (l 30 per share) An increase of $37 million in 1986 power percent in 1986 and increased.7 percent in The 1984 earnings of f1.14 per average costs included a $29 million increase due to 1985. The 1986 decrease was due to warmer common share included $149 million of ncreased prices and an 18 million increase weather and the loss of some customers Midland related allowance for funds used due to increased sales. The average variable having dual fuel capability because of lower during construction recorded prior to theJuly og per kilowatt hour (kWh) generated il prices. The decrease in tariff rate revenue 198i shutdown of the Midland project' increased to 183 cents from 1.67 cents. The in 1986 resulted from a reduction in rates of increase was the result of a mix of more fossil $16 million over the 12 month period pan ally offset by a f 16 million af ter tn wn.te-down of Plateau's uranium assets. and less nuclear generation due to the beginning Sept.1,1986. The increase in tariff extended outage at the lower cost Palisades rate revenue in 1985 resulted from a 6nal rate nuclear plant. The average cost per kWh rder in August 1984 granting an additional purchased decreased to 2.60 cents from 3 01 increase in the annual amount of $75.1 cents due to the availability of lower cost million. purchased power on the spot market. In 1985 total power costs decreased $63 million due to the increased operation of the lower cost Palisades plant, partially offset by increased sales. l l 16 L
T -- Cost ofGas Sold Interest Charges (Excluding AFUDC) refinancings and its debt and preference stock The 1986 decrease of $230 million was the The interest expense decrease in 1986 reduction program. In 19862 major use of the result of a $133 million decrease due to primarily redects reduced interest of $28 Company's internal cash was to reduce its reduced unit costs and a $97 million decrease million on the restructured bank debt due to debt and preference stock outstanding. due to lower sales. Reduced unit costs are the repayments and lower interest rates, reduced in addition to improved internal cash Bow. result of lower prices from major suppliers interest of $21 million for smaller reserves for in January 1987 the Company took a major and the increased use of spot market customer refunds, and reduced interest of f 18 step toward regaining its Gnancial health by purchases. In 1985 the cost of gas sold million due to first mortgage bond entering into a pannership with The Dow decreased due to lower sales, partially ofset redemptions. The decrease was partially offset Chemical Company (Dow) intended to by higher supplier prices. by interest on first mongage bonds issued in convert a portion of the Company's Midland October 1986. nuclear project into a gas fueled, combined. AMRAGE COST OF GAS MOLD of first mongage bonds issued in October Cogeneration \\,enture (MC\\ ). The amnal nw *-,sm,, 1981, larger reserves for customer refunds and MCV arrangements involve approximately 6nancing costs on Midland nuclear fuel $1.5 billion of the Company's existing l m capitalized prior to July 1984. The increase investment in the Midland project. Recovery lm was panially offset by a decline in shon term of the Company's remaining investment in ] interest rates and payments of the restructured Midland will be determined in hearings m bank debt. before the Michigan Public Service m--- Dividends on Preferred and Commission (MPSC), which began in Preference Stock September 1986. m. Preferred and preference stock dividends Internal Cash Flow decreased $7 million in 1986. The decrease Rdles was primarily due to the Company's The amount of additional cash from electric ( ,~ ^ redemption of some of its high cost rates depends largely upon the level of preference stock during the last half of 1986. recovery of the Company's abandoned Midland investment. In August 1985, after the FINANCIAL CONDITION Company had met certain conditions imposed Overview of 1986 by the MPSC, Gnancial stabilization rate relief for six years became effective. Continuation of in 1986 operating activities continued t this rate relief, in the current annual amount provide the major source of cash for the a of $91 million,is contingent upon continued Company. Internal cash Row improved compliance with the condnions. One primary considerably due to continued fmancial condition requires the Company to repay $1.9 stabilization rate relief, reduced Snancing billion of its fixed obligations over six years. costs, increased electricity sales and internal The financial stabilization rate orders cash savings (including the improved control anticipate that the Company will generate Other Operating Income of operating costs). The reduced financing internal cash savings of approximately $575 The 1986 decrease reflects reduced costs resuhed from the Company's 1986 million over six years. The Company's 1986 operating income of Nonhern Michigan annual 6ling demonstrating compliance with Expieration Company (NOMECO), an oil and the conditions in 1985 was approved by the gas exploration subsidury, due to the general MPSC. decline in oil and gas prices and additional depletion expense of $10.2 million ($5.5 million after taxes) for write downs of cenain foreign assets. In 1985 other operating income increased due to a decrease in depletion expenses of NOMECO. The decrease resulted from 198i expenses of $9 9 million related to the write-downs of certain foreign assets. 17
Consumers Power Company and Subsidiaries MANAGEMENT'S DISCUSSION AND ANALYSIS In September 1986 the 51PSC began and certain preference stock with $178 $1 billion. The Tax Reform Act of 1986 (TRA) hearings on the Company's request to recover million of lower cost bonds. The Company includes several provisions that will afect the over 15 years its abandoned Atidland also used internally generated funds to Company's future tax position, including 2 investment of $2.1 billion, and a return on purchase some of its outstanding long term reduction in the corporate income tax rate, that investment at the weighted cost rate for debt and preference stock. In 1986 the repeal of the investment tax credit (ITC), a debt and preferred and preference stock with Company repaid $168 million of its new depreciation system, a reduction in ITC no return on the common equity ponion. The restructured bank debt; redeemed at par $68 carryforwards, a new corporate alternative Company believes that the atidland project million ofits 12.10% 6rst mongage bonds due minimum tax, an increase in the depreciable was planned responsibly and costs were in January 1987 and its $75 million issue of lives of utility property and changes in tax incurred prudently, reasonably and in good 16% 6rst mongage bonds due in 1992; accounting for various iteras, including the faith. The Company is seeking partial and redeemed long term debt and preference and uxation of unbilled revenue. ) immediate rate relief in the additional annual preferred stock to satisfy sinking fund The htP5C recently issued an order that amount of $85.9 million and 6nal rate reliefin requirements of $45 million; redeemed 3 calls for hearings to determine the impact of the additional annual amount of $94.1 million shares or $80 million of its $ 4.40 the TRA on all hiichigan utilities, including million. The total rate relief redects an preference stock; and made other the Company. The Company's revenues re8ect increase of 10.4 percent above existing miscellaneous net reductions of $19 million. current and deferred tax amounts at a 46 electric rates. The Company expects that a The total net reductions of long term debt, percent rate. Because the Company is not g decision by the AtPSC on the Company's preference stock and preferred stock were currently paying federal income taxes, any request for panial rate relief may be made in $282 million, $161 million and $12 million, revenue reduction ordered by the 51PSC to mid 198', and that a decision on 6nal rate respectively. The subsidiaries reduced long-redect the efects of the TRA would not relief may be made in the second half of 1988. term debt an additional $7 million. In 1987 correspond to a reduced tax obligation. It wholly ou ned subsidiaries of the Company the Company plans to continue its program to would, however, reduce the amount of cash have received general partnership interests in refmance or reduce a substantial amount ofits available for Company operations. Financial the 5tCV, and uill receive cash up to $102 high cost securities. stabilization rate relief (see " Rates" section) (r million and notes and/or a special limited Sales assumed the Company would minimize its R partnership interest in the StCV, for the A sustained growth in electricity sales over future tax obligations. Accordingly, the transfer of $1.5 billion of Slidland assets. A the past several years has contributed to the Company will argue that any revenue subsidiary of Dow has contributed $115 Company's improved cash 80w position. redu ction should be offset by a correspondmg million in cash to the stCV to receive a Electricity sales in 1986 established a new increase in fmancial stabilization revenue in minority interest as a limited panner. At record, an increase of 1.8 percent over 1985, order to maintain the same internal cash dow. commercial operation, a w holly owned and new electric hookup requests increased If re8ected in rates, the TRA's reduction in subsidiary of the Company is expected to own 18 percent. The Company projects electricity the corporate tax rate would also reduce 19 percent of the project, with Dow and other sales to grow at a 1.6 percent annual growth' future levels of deferred tax amounts. Because panners holding the remaining interest. rate over the next 6ve rears due to increases deferred tax amounts have provided a Construction of the facility is anticipated to be n residential and commercial sales. significant source of zero cost funds for the completed in 1990 at an additional cost of Gas dehveries in 1986 decreased 3.9 percent Company, any reduction in deferred tax approximately $600 milhon. from 1985 due primarily to warmer weather amounts wiH cause a shift in the Company's The Company agreed to a settlement with and lower oil prices, w hile new gas hookup mix of funds for capital expenditures from the St PSC staff which reduced gas rates by $16 requests increased 22 percent. Gas deliveries zer cost funds to more expensive sources of million over the 12 month period beginning are expected to grow at a 1.2 percent annual funds Sept.1,1986. The reduction was due to the growth rate over the next 6te years due to Cnder a proposed accounting standard, htPSC suffs concern that the Company's growth in all sectors and the return of some deferred uxes would be recorded based on earnings level was higher than that authorized dual fuel customers. the tax rate expected during the period when in the Company's last gas rate proceeding. the taxes become payable. Cnder this The Alichigan attorney general is seeking an approach, existing deferred ut amounts additional reduction in gas rates of $32 As a result of the abandonment by the would be adjusted at the time changes are millior. Company ofits unusable Ahdland in estment, made in tax rates. llowever, for public utilities the Company wiH not pay any federal income that have existing deferred tax amounts HnancialRestructuring l taxes for 1986 and will have a tax net The Company decreased its 6nancing costs opeuting loss carr> forward of approximately TRA requires that the adjustment be made "I in 1986 primarily by ref nancing high cost securities and reducing its outsunding over the remaining life of the property. capiul in 1986 the Company took advanuge Ceruin other deferred ut amou nts of a public ~ of improsed market conditions by replacing utility are required to be reduced effective l $100 milhon of 18% first mortgage bonds w it h the reduction in the ux rate conuined in 18
l l the TRA. Should this reduction be re8ected in Proceeds from the Company's October 1986 Michigan and the anticipated Midland rates,it would have a negative efect on cash issue of $178 million of 10%% first mortgage conversion, the Company's fmancial position How. bonds were used to redeem $100 million of is expected to continue to improve in 1987. The efect of the TRA on the Company will 18%% first mortgage bonds, all of the Moreover, the Company believes that the not be known until the MPSC hearings are Company's 8t00 preference. stock and part of same forces that produced deregulation in the concluded and fmal orders have been issued. its $3.98 preference stock. The Company has gas industry are now active in the electric Final orders are expected by the third quarter received authority from the MPSC to issue in industry. The Company plans to aggressively of1987. 1987 and 1988 not more than $500 million of compete in this changing utility environment otherInternal Cash Sarings long term debt to be used only to purchase and is well positioned to do so. As part of its As a result of the fmancial stabilization rate and retire the Company's higher cost plan to remain competitive, the Company will orders, the Company has reduced its securities. The Company is considering a sale recommend to its shareholders that the operation and maintenance expenses and its and leaseback of a generating plant that, if Company be reorganized into a holding construction expenditures to essential c mpleted, would provide an alternative company. This restructuring would increase activities. Further, the satisfactory resolution s urce f funds to make some or all of these the Company's 6nancial 8exibility and of the costly litigation with Dow concerning purchases. The Company is also considering segregate its utility and non utihty the Midland plant will reduce legal expenses restructuring its present obligations under the businesses. in 1987. Restructuring Credit Agreement (RCA). No The continued receipt of fmancial new equity fmancings are anticipated in 1987 subilization rate relief and the timing and or 1988. amount of the recovery through rates of $2.1 Ises souncts ANO UsEs OF Various provisions in the Company's First billion of its abandoned Midland investment mes mmemamns Mongage Bond Indenture, Restated Articles continue to be ofimporunce to the Company. of Incorporation, RCA and Michigan law flowever, the efects of these could be restrict the Company's ability to sell reduced to the extent that the Company is securities. The Company currently anticipates successful in recovering portions of its TQ that it could issue 6rst mortgage bonds in investment from contractors involved in the 1987 or 1988 under its authority from the Midland project. Also ofimportance are the ~~ MPSC without violating these restrictions. rate treatment of the TRA and the efect of a t%=. Construction Expenditures new accounting standard that the Company
- OU Construction expenditures of the Company believes will require the write down in 1988 u-(,,,,,,
and its subsidiaries (exclusive of nuclear fuel) f its abandoned Midland investment to the m are estimated at $183 million for 1987 and present value of its probable future revenue. 1187 million for 1988. The two year estimate Although the wTite dow n will not affect cash
- 7 for nuclear fuel is $22 million. These 8 w,it may prevent the payment of cash estimates re8ect only essential activities, such dividends on preference and common stock as providing safe service, meeting new and restrict the Company's fmancial 8exibility.
,E a customer requests and keeping existing in addition, ahhough the Company has m s ((,,,, generating plants opeuting properly. The entered into the MCV arrangements, recovery Company plans to fund these expenditures Ithe $1.5 billion in Midland assets mc = ' " ~ with internally genented funds. In addnion, c nnected with the MCV arrangements is under the 6nancial stabilization rate orders, dependent on a numhet of signi6 cant matters, hternal Financings the Company is permitted to spend up to $50 s me of which are not within the Company's The Company and Michigan Gas Storage miUion on the MCV. c ntml These indude regulatory approvals, I "8 '""" "'*"I '* PP Y ""8"*""' 8 I Company, a subsidiary, have a six year, short Outlook the continuation of a reasonable avoided cost term revolving credit and accepunce facility Because of the Company's successful efforts rate and construction 6nancing arrangementt agreement (RCAFA) that w as executed in to reduce its cost of capiul, its cost control As descnbed in the notes to the consolidated August 19H5. Debt capacity under the RCAFA program, the ules growth potential in 6nancial surements, these matters and other was increased to $ mo million in 1986 The RCAFA provides the flexible credit needed to contingencies could have a material adverse 6 nance seasonal gas and fuel msentories and efect on the Company's Enancial condition, for other working capiul needs. During 1986 long term liquidity and fmancial 8exibility. the maximum aruount borrowed under the RCAFA was approximately $290 million. 19
Consuraers Power Company and Subsidiaries CONSOLIDATED STATEMENT OF INCOME Years Ended December 31 Thousands, Except PerWre Amounts 1986 1985 1984 OPERATING REVENUE Electric utility $1,775,912 $1,697,243 11,658,465 Gas utility 1,287,125 1,533,256 1,508,114 Other 45,377 67,829 68,991 Total operating revenue $3,108,414 $3,298,328 $3,235,570 OPERATING EXPENSES AND TAXES Fuel for electric generation $ 361,879 $ 372,226 $ 357,872 Purchased and interchange power 266,723 219,397 296,649 Cost of gis sold 801,388 1,031,183 1,053,093 Other 425,988 435,754 430,443 Total operation expenses $1,855,978 $2,058,560 $2,138,057 Maintenance 142,566 145,929 136,463 Depreciation, depletion and amortization 214,067 201,333 206,44i General taxes 172,639 166,855 158,280 income taxes 244,994 235,929 105,847 Total operating expenses and taxes $2,630,244 $2,808,606 $2,743.091 NET OPERATING INCOME (LOSS) l Electric utility $ 358,311 8 340,928 8 379,333 Gas utility 120,557 136,454 102,979 Other (698) 12,340 10,167 Total net operating income $ 478,170 $ 489,'22 $ 492,479 OTIIER INCOME (DEDUCTIONS) Non operating income taxes, net $ 94,409 $ 219,558 8 76,633 Trite down of Midland nuclear project costs (487,737) Write down of uranium assets (38,300) (84,574 Allowance for other funds used during construction 67,822 Other, net 3,650 3,596 26,589 Total other income (deductions) $ 98,059 $ (302,885) $ 81,470 INTEREST CIIARGES Interest on long term debt $ 376,969 8 405,450 $ 380,187 Other 22,011 53,759 59,914 Allowance for borrowed funds used during construction (595) (2/m) (86,210 Net interest charges $ 398,385 $ 656,609 $ 355,891 NET INCOME (1.055) $ 177,844 $ (269,772) $ 221.058 DIVIDENDS ON PREFERRED AND PREFERENCE STOCK 112,792 119,776 121,246 NET INCOME (I.055) ALTER DIVIDENDS ON PREFERRED AND PREFERENCE STOCK $ 65,052 $ (3H9.5 68) $ 99.814 A\\TRAGE NL'MBER Of COMMON SilARES OUTSTANDING 88,005 88,065 87,884 EARNINGS (I.055) PER AVERAGE COMMON SIIARE $.74 f f 4 42) $1.14 The accompan)ing notes are an integral part of this statement. 20
Consumers Power Company and subsidiaries
- CONSOLIDATED STATEMENT OF CHANGES IN FINANCIAL POSITION i Years Ended December 31 Thousanas ofMars 1986 1985 1981
- CAsil PROVIDED BY l Operations l Net income (loss)
$ 177,844 $(269,772) $ 221,058 i Depreciation, depletion and amortization 227,209 218,880 213,174 l Deferred income taxes, net 195,165 1,939 41,503 l Deferred investment tax credit, net (7,306) (23,538) 14,356
- Allowance for other funds used during construction (67,822)
Trite down of Midland nuclear project costs 487,737 . Write down of uranium assets 38,300 84,574 $ 592,912 $ 453,546 $ 506,813 Working Capital Sources (Uses) Accounts receivable 5,818 $ (8,592) $ 32,997 Accrued revenues 57,876 (71,134) 42,020 Gas in underground storage (20,978) 56,066 (72,223) Generating plant fuel stock 9,937 (3,610) (665) Accounts payable (10,884) (7,517) 9,491 Accrued taxes 6,616 614 (708) Deferred income taxes (39,326) 42,435 (29,690) Revenue reserved for refund 22,042 (65,217) 22,051 Other. net (16,808) 124,802 46,466 $ 14,293 $ 67,827 $ 49,739 Financing Activities Common stock $ 13,472 Preference stock 53,000 first mortgage bonds 178,000 185,000 Notes payable 340,871 166,607 256,939 Ilank loans 15,350 Capitalleases 5,716 (228) 30,263 sale and leaschxk of nudear fuel 14,96 3,295 Other 3,455 5.330 41,338 $ 528,042 $201,H53 $ 583,307 Financial stabilliation Revenue Rescried $ 96,693 $ 29,693 ' Other, Net $ 27,581 $ (73,434) $ (15,4:3) Total cash provided $1,257,521 $ 679,485 $1,12 8,676 CAsil USED FOR Reduction of notes payable $ 217,664 $ 240,000 $ 92,975 Retirement of debt and equit) secunties 667,843 22H,055 106,418 Treasury sta k 752 Dnidends 112,792 119,776 215,628 Constration expenditures (after deducting allowance for other funds used during construction) 190,695 205,839 622.628 Total cash used $1,189,746 $ 793,6'O $1,035,4 69 Increase (decrease) in cash and temporary cash investments $ 67,775 $i114,185) $ H9.027 The accompanying notes are an integral part of this statement. 21
Consumers Power Company and Subsidiaries CONSOLIDATED BALANCE SHEET December 31 Thousands ofDollars 1986 1985 ASSETS Plant ( At Original Cost) Electric utihty $4,163,990 $ 6,056,118 Gas utility 1,432,139 1,406/>09 other 520,465 487,969 $6,116,594 $5,968,696 Less provision for accumulated deprecunon 2,436,332 2,251,742 $3,680,262 $3,693,95 i Construction work in progress 83,303 118,536 $3,763,565 83,812, 3 ) Midland Project (See Notes 2 and 7) $3,674,278 $3,673,950 Current Assets Cash $ 11,259 $ 11,594 Temporary cash invntments at cost, w hkh approximates market 70,666 2,556 Accounts receivable, less resenes of $ 6,'09 in 1986 and $5,857 in l';85 267,416 273,236 Accrued revenues 206,939 266,815 Gas in underground storage, at average cost 245,211 224,233 Generating plant fuel stock, at average cost 63,102 71039 Matenals and supplies, at average cost 87,151 91,883 Prepayments and other 183,164 128,360 $1,134,908 $1,069,69 6 Deferred Dehlis and Non current Assets $ $7,992 $ 58,6(4) Total awets $8,630,743 $8.616,596 ) STOCKil0LDERS' INVESTMENT AND IIABILITIES Capitalliation Common ex-kholders' eqmty $1,936,005 11,893,612 Preference stock 466,820 627,700 Preferred en k 444,634 456,834 Long term debt 3,253,472 3,576,765 Non current obhgations under capital leases 31,927 29,915 $6,132,858 $6,586,836 l Current Liabilities Current portion of long term debt and capital leases $ 263,483 $ 225,663 Accounts payable 217,274 228,158 Notes payable 289,814 166,607 Accrued tnes 204,869 198,253 Deferred inerne tan 125,696 165,022 Accrued laternt 115,665 132,191 Rnenue rew r rd for refund 61,779 39,737 Other 120 870 108#t) 1 $ 1,399,430 $1,26 6,691 Deferred Credits and Non current flabilities Deferred income tnes $ 720,695 8 525,530 Deferred irarstment in credit 116,225 123,531 financial 3ts >ihntion revenue resenrd 124,386 29,693 Other 137,149 86,513 $ 1,098,455 $ 765,267 Constru(noa wmmitments, litigation and other wnnngencies (Notes 2,16,7 and 11) Total ex kholdet v imntment and lubihtiei $8,630,743 88,611,596 The a(compinyirg potes are an integral p,irt of this statement
Consumers Power Company and Subsidiaries CONSOLIDATED STATEMENT OF CAPITALIZATION December 31 1986 1985 1986 1985 Shares outstanding Thousands ofDollars COMMON STOCKIIOLDERS' EQUITY 88,006,786 88,065,039 $1,936,005 $1,891662 PREFERENCE STOCK-Cumulative, $1 par value, authorized 40Jmfm shares With mand.itory redemption. $85D0 $1,0ixhuted value 7,200 10,H00 7,200 $ 10,Hoo 3 HS 27,50 suted value 1,800,000 1,H00,000 49,500 49,500 6.02 27.50 stated value 2,000,000 2,000,000 55,000 55J)00 3.78 27.50 stated value 2,000,000 2,000,000 55,000 55,000 3 98 26 stated value 870,000 1,900,000 22,620 49,400 4 00 25 suted value 2,000,000 50/m $ 189,320 $ 269,700 Without mandatory redemption: $2.43 $25 suted value 2,000,000 2/m,000 $ 50,000 $ 50/m 2 23 25 stated value 2,000,000 2,000J)00 50,000 50Jm 1 50 25 suted value 1,600,000 I/m/m 40,000 40,000 3h1 27.50 suted value 3,000,000 3J)00,000 82,500 H2,500 6.60 2',50 suted value 2,000,000 3Jn)Jm 55,000 82,500 4 40 26 50 suted value 2,000Jm 53J)oo $ 277,500 $ 358/ m PREFERRED STOCK -Cumulatne, $100 par value, authorized 7,5'x)/)00 shares Wuh mandatory redempoon: $ 6.52 75,550 '9,550 7,555 8 7,955 9 25 240,000 256,000 24,000 25,600 9 00 400,000 425pK) 40,000 42,500 j 9.'0 95,000 1003m 9,500 10/x)0 8625 288,000 360/m 28,800 36jm $ 109,855 $ 122,055 Wuhout mandatory redemption 84.50 547,788 567,788 $ 54,779 I 54,7'9 4 16 100,000 100/W 10,000 10,000 '. 4 5 700,000 '00Jm 70,000 70J)no ' '2 700,000 700Jm 70,000 70/ m ' '6 750,000 750/ m 75,000 75J m ' 68 550,000 550/ m 55,000 55Jm 10NG TER%I DEBT _$_}}$'E9_ I 33M'9 first mongage bonds $2,402,738 $2,515,596 Restrudured bank debt 826,737 992,7H6 awullment ules contracts. avenge interest r ce H 23, 179,370 1H16H5 6%, smking i und Debentures due 1996 29,200 29,H00 Other 80,497 H 6,lio $3,516,542 fiH06p)5 Lew Current nuiunnes of first mortgage bonds 69,067 21928 Nnking fund for first mongage bonds,ind debenturn 20,924 21592 Current nutunties of rntruuured bank debt 156,231 166,192 Current nutunrics of insullment uln wntraus 4,315 4,315 o other current matunun 2,215 2H9 l'namonized nei debt discount 10,338 10,666 $3,253,472 115?6,765 OBIIGAT10N5 0NDER CAPITAL I EA51.5 $ 42,678 $ 36J)02 Irw Current pornon of capiulleases 10,751 7,06' $ 31,927 8 29,915 Toul upiuhtanon $6,132,858 $6,58 6.H36 T he xcompanying notn are an integr.il pan of ihn suremeot 23
Consumers Power Company and %bsidiaries CONSOLIDATED STATEMENT OF COMMON STOCKHOLDERS' EQUITY Other Treasury Number of Common Paid in Retained
- Stock, Thousands ofDollan shares Stock Capital Earnings at Cost Total BALANCE ATJANUARY l.1986 86,915,196
$869,152 $769,541 8626.H04 $2,263a97 Net income 221,058 221,058 Cash disidends declared. Preferred (34,656) (31,656) Preference (H6,588) (H6,583) Common (94.384) (96,384) sto(k issued for: Dividend Reinvestment and Common Sim k Purchase Plan 979,163 9,791 1,H i9 11,660 Employee sto(k Ownership Plan 31,2n0 312 20 332 Employees' Savings Plan 139,500 1,395 104 1,499 Net gain on reacquired stmk 625 625 Expenses of issuing addnional sto(L (687) (687) DALANCE AT DECDlRER 31,1986 M,n65,039 $M0,650 $771,452 $ 630,234 $2.282,336 Net loss (269,772) (269,772) Cash dnidends declared. Preferred ( 3 6,2'0) (34,270) Preference (H5,506) (H5,5n6) Net gain on reacquired stmk 856 H54 BALANCE AT DECDlHER 31,1985 Mp65,039 lMO,650 $772,306 $ 2 6n,686 $1,H93,662 g Net inwme 177,866 177,H 6 6 4 Cash dnidends dedared Preferred (33,204) (33,206) Preference (79,5M) (79,5M) Net g.iin (Ims) on reacquired sim k I,905 (23,862) (21,937) Treasury simk reacquired (H2,28') (lp61) (1361) Treasury sta k reiwurd through Executne sim k option Plan 26,03i 309 309 DALANCE AT DECDlHER 31,1986 88,006,786 $880,650 $774,211 $ 281,896 $ (752) $1,936,005 The accompanying notes are an integral part of this surement. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1.Significant Accounting Policles
- crenues utilny plant cmt The corresjunding (redit is Consolidation Pollry The Company a(crues resenues for senices added to other income (equity funds) and The accompansing consohdated fmancial rendered to customen but not hilled at month deducted from interest t harges (borrowed steemenn indude the accounts of end. Resenues include the recovery of funds) on the Consohdred surement of Consumen Power Company (the Company) electric power supply cosa and g.n cmts, income. On July 16,1986, the Company and in subsiduty companies, whit h are all subject to annual reconcibanon hearings dncontinued capiuhnng AFUDC and wholly owned. The Company and its condutted by the StP5C. Any over termery or financing cosa on the Shdland project subsidunes are referred to as "the und.cr recmery of these costs is recorded as J Maintenance, Deprrriation and Compamet" These suremenn exdude all current hability or awet untd such time as the Dcpletion intercompany amounts, en ept intercompany costs are refunded or billed to customers The Company charges repain and minor profin in gas inventory, w hn h are allowed by Allou anccfor 1unds Used During propeny repin emenn to maintenante the raemaking pohcies of the sinhigan Construction (.lf CDC) expense. Property retired or dnpmed of in Public senice Comminion (51bC) l'nder unhty regulatory practices, the cmt the normal counc of bminess is c harged to of financing construction proje(ts is added to 2l
}
M the prosision for accuinulated depreciation, level that would have been atuined if the The Company studied various options for less net salvage credas. Salvage received from accumulation of funds had surted at the the Midland project and,in April 1986, sales of any abandoned Midland assets beginning of the planti hfe. The Company recommended that Midland l' nit I be reduces the Company's imestment in believes that any addaional, unfunded converted to a natual gas fueled, combined Midland. decommiwioning cmts, w hi(h couhl be gcle gercuting plant. InJune 1986 the Deprecianon pnnisions for unhty plant are sigmficant, wuuld be recmerable thniugh Company abandoned the componenn of the based on sinight line and umts of prm!udion adiustmenh of rates charged to in customen. Midland project that would be unusable in utes apprmed by the MPSC. The comp (wne Nuclear fuel Cost the gas convenion. Of the $3 ' bdlion depreciation ute in 1941985 and 198-6 wa' Nudear fuel cost is amonized to fuel Midland imestment currently reflected on the 3 0 percent for electric utihty plant expense on the basis of the quannty of heat Company's books, the Company is seeking to Composite depreciation utn for gas unhty produced for electric generation. l'nder the reemer $11 billion of in imestment in plant were 3 8 percent in 1986 and 4 n percent Nuclear 4 Jste Pohey Act of 1982 ( Ad), the abandoned facihties Inim its reuil electric in 1985 and 198L Der inment of Energy (DOE) has the (uwmers in a pendmg rate case hee Note 7). l Nonhern Michigan Exploration Company responubihty for the enge and dipal of The Company plans to seek recovery of $63 1NOMI:CO), an oil and gas nplootion spent nuclear fuel. The prmcipal amount of miUion of in abandoned invntment from in yubsidiary, follows the full cost method of the Companyi lubihty for spent nuclear fuel w holoale clearinushuners. Tte Companyi accounting Capaali/cd od and gas burned prior to April *,1983, b $ 4 U million. management is unable at this time to predict exphintion and deselopment cosa are of this amount,160 6 mdhon has been either the level of any amounh of in abandoned !cpleted on the unib of pnxlucnon methal recmered from cuwmers or is bemg Midland imntment that may be recovered yhile other plant is deprecuted uunX recosered under MPsC authorization, and the through cleane utes, includmg whether a istuight hne utet The cominue urn for remaining li' mdhon has been requested return may be 2U05 ed. Cut the Company jNOMI: CON plant, the Company % common from the MhC. for fuel burned after Apnl 7, expeas that a dechion by the MhC on the
- plant, and other subsidunn' plant were 1983, the Ad pnnido for an assessment of Compann request for panial and immedute approumately 8.9 percent m 19Wi,13 one mdl per kdow.ut hour of net nudear ute dief may be nude in the middle of 198',
percent in 1985 and 8 i percent in 1988 generation Thnamount ncharged tonudear and th n a dcasion on fmal rate rehef may be jihne ratn refled NOMEC0% wnte dowm of fuel expeme and recosered through clearic nude in the second half of 1988 toreign imntmenn of $10 2 mdhon,8 9 inJanuary 198' the Company and Dow ran mdhon and 19 9 nulhon in 19% 1985 and "I Intestment Errtudedfnim # ate Base 198 #, respninely heiga ion letween the two companin and had in nunagement s opmion, the Compimn in Apnl 1983 the Mhc exduded the entered into a pannenhip intended to com en prmnion for anumulated deprnianon h M"'II" Ed' '"I"rming plant from ute b.nc, a non,on of the Midland plant into a natual reasonaN) adequate to (mer deprnunon on but ontered that the invntment be arr ed in g.n fueled, combmed gde cogenconon ihe ongmal cmt of pbnt " plant held for future use" and permitted facihty, the Midhnit Cogeneution Venture Pf"" m' ""U ""' (MCV) The new I.nihty,expeded to quahfy Nuclear l'lant lkrommissioning Costs merapproximately loyean. At Dec 31,19Wh under the Federal Pubhc Ltihnn Regulatory Nnt e I,mo the Compan) h.n not been the net invnnnent was $52 mdhon inmenng mRlear plant danmmlulonmg I N I' " 1mh m th retall elatric Din BeginningJan I,19C, the Company lus been authon/ed by The Midland plant was onginally dnigned eintnc apaaty and n espnted to begin the MhC to mlin t decomminioning msb as a nudear faalu) to prmide IF genconng elednt uy and eam by lee m brough a monthl) sun harge on (ustomen'
- "8d*'"""I apal ny for the Companyi The new fauluy wouhbupply the clutric and dk 1hne funih wdi be dcInned m trmt.n ekonc s)*m and to furnnh pnicos ueam wam requiremenn of Dowi Ma higan equired by the MhC order authon/mg the senar to De Dow Chennal Company auuon Midland plant and electriuty to the unharge lhe surdurge h beed upon ow L On July h 1980 the buni of Companyhuvomen As pan of the umuted decomnuwiomng msh m 19C danton authon/ed nunaganent to shut pannentup arungenwna, w holly owned folbn of IW mdhon and $ lon mdhon for the down the Midland projed. In Dnember 194 subsidurin of the Company lute rnened ihg Hm k Pomt and Palnadn plann, the Company i harged earnings for a pornon gencol pannenhip interna in the MCV, and opntnely. and h bonl upon ceruin ollh imotment in t eruin Midland nudcar w ill recch e ash op to lin2 million and noin numpoons.n to renuinmg pbnt hfe, fuel and a n.nn MnHand facduin. The preux an@or a sju bl Innued pannenhip iruenst nfbnon and fund earnmg, wnte down was im8 nulhon The after t.n in the MCV, for the tramfer of $13 bilhon of A Nudear Regubtory Commbuon propmal une down w n iW nuHion or 13 '6 per Midbnd auen I
"b Aould require J utiht) to a(Lumulate J }!ccommnuonmg fund euher w ohin five J ean "P"n the suhtu tory n solunon of a number br one third of a pbnti renummg opennng of ugndant nunen sonw of whk h an* not ht eme pennt, w ha hner h grever, to the w ufun the Conyunyi connoh Thne indude 25 g
Consumers Power Cnmpany and subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS fuel supply arungements, regulatory million. Making the same assumptions except August 1985 the Company, Michigan Gas approvah, arrangements of 6nancing for the that no return is allowed, the Compaay Storage Company ( Gas Storage), w hich is a AICV, the continuation of a reason.ible evimates its low, after ux, would be liHn subsidury, and 13 banks executed a six year, avoided cost rate, and release byJune 1,19C, million. short term remhing credit and accepunce of the $1.5 bdlion of Midland. men from the Addnional lowes, when pnibable and facihty agreement (RCArA that is used to lien of the Company % riot Mortgage Bond reason.ibly evinuble, would be recogni/ed if 6 nance seasonal gas and fuel imentories and indenture (Indenturet To complete the eitherdisallowancesof portionsof the for other working capiul requirementt facility, approximately $600 million of new abandoned hhdland intevment occur and/or During 1986 the RCAFA was amended and funds b expeued to come from conuruction portions of the Midland investment currently pnnides a (redit limit of lino debt 6nancing by the MCV and from tunsferred to the MCV are not placed in million. Bank borrowings and banken' additional partnert Under the exnnng commerdalopeution Howeser,if the aneptant es under the RCArA are limited to. fmancial subili/.uion r.ne order, the Company is succewful in recmering portions bornming base w hit h equah the sum of HS Company mug hnut us cash expendnures for of in inveument fnnn contraton intohed in percent of " eligible" accounn receivable plus the facilny to no more than fin milhon and the Midland project, the lowes o>uld be '$ percent of "chgible" imentories. The muy obum the ash from other than reduced. bornmings under thiugreement are secured ratepayer funds At commercial oper.nion, a If signifiant portions of the Midland by a first prionty suurity interest in the wholly owned subsidury of the Company n imestment are not reonered through the receivables and natural gas, oul and oil expnted to own 69 penent of the proiet t, raremaking pnrew, through the MCV or inventones of the Company and Gas Storage. w nh Dow and other partnen hokhng the otherw he, the adver e effnt on the l'nder the RCAFA, the Com[uny giurantees remaining interen. CompanyN 6nancial pmition and resuhs of G,n StoogeN obhgationt At Dec,31,1986, in odoter 1986 the DOE iwued an order opconom couh! be signi6 ant bee Note 5 L oursundmg obhgations under thh agreemen granong the Company a pernunent
- 3. Capital Requirements were $290 nellion at an.ncoge interest ute exempoon from cerum prohibitions of the of 3, s eNoteiforunainotherternnand ne Com;uny and in subsidunes evimate e
Powerplant and Indmtrul fueh LNe Au. Thi' that oinuruuh m ep ndnureu ici condinons of the NCAFA. exemption lrrnun the MCY to fuel the new' null on (exdusne of fini nnihon for nudear 5, Capitalliation fxihty at Midland s th natuul ga' fueh for the penod 19C-1991, of u his h ilH3 If signinant poniom of the Midland in December Pf the fmanti.il Aoounung mdhon b W 19C h' Compapprhon is ime4 ment are not recmered bee Notes 2 and sundards Ik urd mued surement of I mandal l'95 mdhon for the perimi 19C-1991, of
- 7) or if subsuntial lowes are in(urred in Accounung Sundards RfAM 90, w hit h fli' nulhon k for 19C. The conneuion w nh other contingendes, the Repdated fnterpn4n-L entingfor Co m s portion refleus ewential aunnics Com;un)N fmandal integnt) cou!d be
,@andonments and Aallon anc et of /'lant only anbumn no na generating plant thre.nened. Thn couhl pnx!uce such Costs, an amendment of sfAs 'l srAs 9n (ongnanon, and no nutor hfe cuenuon of oimequencn as.nigmhant regnuion on or reymrn a unlity to rewgni/c the prnent ethong unnt in addmon, under the Gnandal ehmnudon of the Compann abiht) to inue ulue of those future rntquo expeded t" gabdi/hn ute orden. de Cmgag b & N or m p(M dmd$h m m rnuit from the regularon' ndusion of the penmned 'o siend up to fin nullion on the durchoklen, a requirement to immeduidy cost of a plant in allowable wvs for ute MCV n-du Cape muumd dead pur;wn when abandonment becom" proluble if the arr)ing amount of the Vmom prm niom m the Com;unyi the imp.ntment of the Compann abilny to indemure, Reqated Annin of inoirponnon proude ade(pute vnice to cu tomen in the abandoned plant ewenh that prnent ulue,' MrudeA da' Requ mnng 6 da h' low w ou kt be rro ignl/ed sf As 90 h elico n e Ap mmiRW MMd p bwum %,w in 1988 unlew a oim;un) n,n snely seekmg the Com pan)i abihty to sdl sn unun Under moihtiatiom to nnung agreemenn dut &. 0""4""! '("""d"n sim k h.n a lin jur the mov reura tne prm nio i, w hk h k 9 ; 3 ',"ij " '," # '" "' oinum a restrione dame that woukt be conumed in the RCA at Dec. 31,1986, the giolated by the apphanon of sfA% 90 in thu T he Com;uny lus not iuid a ush dn idend on "4"" " " ' " '" """ I. ase, a onnjuny nu) eled to deby conunon um k unu Ihe ihird qtuner of 1986 "" " P"" dieunenew for enc scar bonds for purpmn other than refund,,gs The Inund il subih/.nion r.ne orden prolub Apph mg sf As 90 to the Conyun) m 19xH, the ju>tnent of ush dnidends on conunon "U "*k"""I'"Id4l9% d"d ""*'""IY and awoming full rn mery of Ihe Comiuni s P afundoned pornon of in \\hdimd imeument U" C""'lun) h.n authort/ anon from the " token" dn identh therraher unid $ 19 hdhor mer lhean and a return on ihn imotment fedealincrg) Reguluon Conuniwinn of the Corniunps hml ohhg nions b reluld .it the w *lghtol oiq ute for (lebt and iiNimW yMIMnemMem Wk M qbmandmbnW F preferred and preferent e um k. the Conyuny '""" Eh "" "' h"I"n Dn 31,198 in hahh " Un&r the RCA and the RCAfA, the niinuin in low, aher t n, w onkl be I plo ' k'"l""Y *dY ""i dnlue ash dal&nds on oilti iith Mc 4 k carher IIun jjn I,1988 l (unlev the MISC h.n authon/ed an earher 3,
payment ), and only after the principal amount preference stock. I'nder Michigan la, cash long. Term Debt of the restructured debt has been reduced by dividends on preferred stock may be paid out First Mongage Bonds $500 million Until the principal amount has of " surplus," which at Dec. 31,1986, was $1.5 First mortgage bonds are secured by a been reduced by an additional $250 million, billion. mongage and lien on substantially all the Company may only declare such At the Company's option, all or part of its property of the Company. In 1986 the dividends to the extent of $1 for each $3 of preference and preferred stock may be Company redeemed, at a 3 percent premium, additional debt paid. Under the most redeemed, either at a 6xed price or at $ 100 million ofits 184% 6tst mongage bonds. restrictive provnion of the Company's Artides progressively decreasing prices. Certain issues and 4 ;ndenture, at Dec. 31,1986, retained are subject to restrictions that prohibit First Mortgage Bonds Dcm t 31 earnings of $56 million out of total retained redemptions with funds raised from the seriesN Due 1986 1985 l earnings of $282 milhon could not be issuance of securities ranking prior to or on 4 g 9 , g93 dntributed as cash dnidends on common panry with the repurchased stock and having 34 1987 12,576 12,576 stock. a lower interest or dnidend rate. 12%, 1987 68,342 At Dec. 31,1986, approximately 5 mdhon In August 1986 the Company redeemed 3 4n 1988 27,243 27,213 shares of common sta k were reserved for million shares or $80.5 million of its $1.40 13 4 1988 24,500 24,500 various stak plans. The Company did not preference stock for $95.7 million. In 3 issue new shares in 1986 or 1985 for any of November and December 1986, the Company 16 02 1989 80,000 H0,000 these plans. redeemed 1,030Ao shares or $ 26 8 million of 16 32 1989 50,000 50,000 Preference and Preferred Stock its $3 98 preference stock for $289 million, 18 % 1989 100,000 l'nder the Company's Articles, at Dec. 31, and 2 mdlion shares or $50 million ofits $ 6 00 34 1990 20,755 20,755 1986, retained cirnings of $ 61 mdlion out of preference st (k for $56 8 million. Included fy I 3 total retained earnings of $282 million could in the redemptions of the 13.98 and Il.00 35 399 3g,479 33,479 not be dninbuted as cash dnidends on preference stock were 1986 mandatory 13 40 1992 50,000 50,000 redemptions amounting to $5.1 mdkon. 16 % 1992 75,000 r-134 1993 20,000 20,000 L Preference and Preferred Stock 11% 1996 36,000 39#)0 F Repurchase and Rederuption Icatures 15 17) 85,000 85#N) ( N I I Repurc hases at Companfs Ophon, Mandatory Redemptions Price Price 9i 1996 46,750 51,600 (l:xcludmg Restrktions Annual (Exduding 10 % 1996 178,000 Accrued Ellective in Effect Number Accrued First Dnidenda Through Through of shares Diudends) Redemption 6% 1998 46,159 46'159 Preference. 6% 1998 43,444 43,446 94 17)8 20,020 2I/>80 $8W) 81,025 00 sept.1987 None 3ho $1pM 00 Oct.1986 7% lyp) 47,45$ 47,45$ j Hs 30 l$ Aptd 17)4 Aptd 17)O 100M o 2730 May 1985 Hy 17)9 $ 6,$99 5 6,$99 3 98 28.'$ Oct 1710 None 100#M 26 40 Nov.1985 10 % 177) 67,600 72,800 8% M4 50,W 50/00 4 02 31 52 Aug 198* Aug 1987 10094 27.50 sept.1987 I 3 78 31 28 sept 198' vpt 198' 100 9 o 27.50 Oct.1987 g
- 2. t i 26 00 Aug 1711 None gg 2001
$7,4 33 57,413 2 23 26 50 Ott 198' None 74 2002 62,398 62,398 2 50 26 75 July 1988 None 74 2002 43,393 43,393 ' 1.10 Dec.198? Dec 1987 H% 2003 75,000 75pm 3 60 4 9 2(o6 60,000 6090 6 60 3190 Nov 1988 Nog 19Y _ _. _. _ 94 2006 60,000 60910 Preferred _..._ _ _ _ _. - _ _ Mi 2007 85,000 8590 8% 2m7 100,000 100AM $ 4 52 8 106725 None Nonc 19 0 $ 102.725 Ap011942 9 2m3 75,000 74 9 )0 9 25 107 00 Mm h 198' Mm h 198' 16po Im 00 Apil 1982 10 % 2m9 100,000 100pn 9m 10'00 Mm h 1988 Mm h 1988 h90 100 m April 1981 12 % 2010 75,000 75Mn 12 4 2010 100,m 1009 0 9 'O lo' 00 Dec 1989 Dec 1989 $90 10000 Jan1986 H 629 10300 Dec 198? None 72 9 o Fo 00 Jan1986 . ie iio. N. l'irst mortgage i 16 103 2$ None Nont' gg g 9g gg
- 7. li 10100 None None lesshonds
' '2 103m June 198' Nonc reaquired for 7 '6 loi 31 May 1988 None $tnking fund 9,416 6,750 , ' 68 10 4 h0 Ott 1988 Nonc $ 2,402,738 $2315396
Consumers Power Company and subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Additional first mortgage bonds secure $25 of the bank related debt have not been Company used $37 million received from the million of the Company's obligations under increased. At Dec. 31,1986, $289 mdlion of disposal of Midland nuclear fuel to prepay its installment sales contracts and $71 million the restructured debt had a fixed interest rate obligations under the RCA. of tht Company's obligations under the RCA. aseraging 13 3 t, and $536 milhon had The Company is considering restructuring To satisfy the 1985 " maintenance lloating internt rates ranging from 6.7% to its present obligations under the RCA, which de6ciency" incurred under the Company's H't, with an average rate of 7.51 may result in different terms and conditions. Indenture, the Company depwited $66 The rntrudured bank related debt is Other million with the 6rst mortgage bond trustee secured by a second mongage on assets in June 1983 the Company contracted to (Trusteet The cash was used to parnally subject to the Een of the Indenture; a second have the DOE dispwe of nuclear fuel burned redeem at par the 16% 6rst mongage bonds lien on the receivables and natural gas, coal pr or to April 7,1983, and later agreed to At Dec. 31,1986, the Company had a and oil inventorin of the Company and Gas make a single lump sum payment to the DOE " maintenance deficieng" of $56 million, Storage; and the pledge of $?1 million of first for suc h dhpoul bef are dehvering the fuel to which wdi be used to partially redeem at par mongage bonds of the Company and the it. Deinery is expected to begin no eather in 198? the 12% hrst mortgage bonds due in outstanding shares of common sto(k of than 1998 and the payment will be equal to 2013, using the ume pnxedure. The NONIECO. All rntruuured debt that wa' the original liabihty of i n 4 3 mdlion plus Company hn aho announced that it plans to prn iously sn ured connnun to be sn ured by accrued interest from Apnl 7,1983, redeem at par approumately $26 mdlion of the ume property-compounded quanctly thereafter at the the 15't hnt mongage bonds due in 1994. The RCA and the RCAFA contain terms and prenihng 13 week Trenury Bill rates. At Under in indenture, the Company ha condaions that require the Company to Dec. 31,1986, the Company 3 habilay was cenain sinking fund obhganons, indudmg an maintain suthcient cah flow to meet all cash $60 milhon and t he fourth quaneri preuihng obligation to deposit w nh the Trustee by requiremenn and that limit the incurrence of rate wn 5 36% ou. I of each year through 1988 ca h and/or new debt, the payment of cnh dnidenth, the At Dec. 31,1986, N05tECO owed li t,3 bonds equal 101 percent of the total principal ule or dnpmal of awen and the makmg of million at H't internt under a $50 mdhon amount of att fini mangage bond' imestmentt iloth the RCA and the RCAfA loan agreement w ith sneral banks secured by authennated twfore the precedmg Jan. I, indude, among other default prm nions, a cenain domnne od and gn propertiet The except refundmg senn in 1989 the amount prondon w hereby the lender could require mnimum amount auitable under the of the obhgation t hangn to an amount equal immedure payment of the rniruoured debt, agreement (129 5 milhon at Dec. 31,1986) to I percent ot the pnnupal amount of all 6nt interol and other amounn payable, if cen.un urin beed upon od and gn rner n and mongage bonds oubranding on the n entuu ur w hk h. in the renonable opimon pncn on June 30,198', the rnohing (redit prnedmg Jan I that hne sus b 2 of the "maprity banks" would hkely (1) loam com en to term loam that are payable in requirement, in addaion, a $wo.noo sinkmX uuse the rnenun audable to the Company 36 monthly imtallmenn through June 3a, fund depmn h due for the 4% smking fund to be imuthuent to asure in ongoing 1990 l'nder the terms of the agreement, debenturn by s pt I of exh) car. hnandal uabihty, t 2 ) rnuh in the Company )arly cnh dnidend paymena to the e lhe Company hn rn rned authont) from being unable to repay borrowings u kn due. Company are rntrided to the greater of 60 the itPsc to inue in 198' and 1988 not more or (3) rnuh in the Company bemg unable to percent of net pro 6a for the four prnedmg than iWo nulhon of long term debt to be perform, or the banks king unable to quanen or $10 milhon t hmued to 100 ined to redeem other higher (mi sn unon of enforte, any loan dmument 1he RCA aho per(ent ol net profin) Net pro 68, a dc6ned the Compiny~ requirn prepi)menn from the net pnneeds in the agreement, are not reduced by Rntruuured Debt of the ulc of tertain aoctund the lwuam e of npensn for the hnt quader loH6 wrue l'nder the RCA, w ha h beame clicaise in certain debt. Through Dn ember 1986, the dow m of Austrahan ud and gu internn, or by August 1985, the Company rntruuured in non ush prednuner) foreign npenditurn bank related debt of Jpproumately $12 for 1986 the Company rnened $6 2 riulhon bdhon for repay ment mer a penod of sit from NO\\tLCO n ash daidendt ihn wn tan Quarterly pnnop.d pa)mena under the the mutmum amount permuted by the net RCA range from $ 48 nuthon to It' nulhon prohn restnolon of the agreement. and are u heduled through July 1991 l'nder the RC A. the 6nterni tatc opnonund nurgun 28
l 1 plve Year Maturities and Annual 51nking fund Requirements of Long term Debt Certain of the Company's capital lease end Redeemable Preference and Preferred Stock, including Mandatory obligations have been accounted for as Dedemptions olerating leases. If these leases had been December 31,1986 Thousands ofDollars capiulized, the efect on expense would not Restructured other Sinking Preference Preferred be matnial. Addaional leased awets (net of Ilank Debt Maturities rued stock Mock Total accumulated amonization) that would have been recorded at Dec. 31,1986 and 1985, 1987 1156.231 1 75,$'6 $30,910 $16f0 $12,211 $289,408 wne lD12 million and l49.2 million, 1988 168,52l 67,570 30,9 to 14,650 12.211 293.695 resped vely. The related long term li.ibihties 1989 l'i'58 156,638 35,520 10,850 12.211 388.977 recorded uould have been $32 9 million and 1990 188 9 ) 10,8'i 35,520 10.850 12.211 287,455 $ 60.2 milhon, respectively, and the related !!991 148.226 8 L'13 25.520 10.850 5.011 266.318 current obligations wouhl h.ne been l'.3 In 198619.4 million of fira mongage bonds and i 6 million of debentures were purchased to million and $9.0 million, respectively. AS partially s.itMy 198' requiremenn, required by an accounting sundard, in G. Capital and Operating 1. cases The Company (harges lease paymenn for January 1987 the Company recognized these The Companies h.ne unous leasing obhgations under capiul or operatmg lease, leases as capitalleases. arrangemenn for a nudear tummg center, to opeuting expense. Opconng lease
- 7. Rate Matters schides, construuion equipment, computer paymenn, net of sublease renuls and The Companyi electric rate case requeving equipment, buddmp.tnd other awen indudmg (harges to dearing and other recosery of in ins egment in the abandoned The Company le des two of us genent orlu e accounn, were Ii3 mdlion, 86' million and ponion of the Midland plant. pending before
'hudJmp The innulierms of the leases $ 5 6 milhon for t he > ean ended Dec. 31,1986, the MPSC, wanepauted into two phaws in expire in 20n),ihere are two fne year renew al 1985 and 198 L respectnely, of whit h $2 6 September 1981 a 6nancial subdization opnonnub co to exalanon dauses and a mdhon in 1985 and $5 mdhon in 1986 were phase and a prudency phase. On Aug. 26, i third fne lear renewal opnon at the then fair conungent upon usage. 1985, fmancul Mahdiation rate relief in the market renut ulue At the espiranon of the Capiul lease pa>menn for the Sean ended annual amount of $96 million for a period of h.nic or any renewal inm, the Company has Dec. 31 conmt of the following sis 3 ears became effeune, sub co to ceruin i the option to purduse the bmhhne at their Thmsamluflk4/an condmons that the Company must continue then fair market alue. T he annual renuh are 1986 1985 to meet. As contemplated by the orden subico to quadrennial est alanon and Amwn/miom y w $9N lhid authoniing 6nandal vahditanon rate rehef, currend).ipprounute li nulhon The Imac4 g nw 5,926 18482 in Marc h P,86 the MPsc reduced the f nandal Company b reqmred to pay ines. subditation ute rehef to 1)I mdlion to maintenant e, insurant e and of her opeuting Toul apaal lose refled the recopt of net proceeds from the
- 109, expenw
$ 19.671 $20!6 dnpson of Midland nudcar fuel. The Mmimum renul conunamenn under non Company muu apply to the M Psc for approul onerlable Ic.ncs at Dec 41.19%. are i roivroes unda apiul leaws.u Dec. 31 as to the approprute dngminon of other net 7/moam/s oflbilan pro (reds from the ule or uluge of the J "*. Capual operanng Timoan.lu//hdlan Midland planund irom htigation releed io in 1 cases
- Lease, 1986 1985 convrudion.
pj8' l15 ~n l Jtw,, Grow aswn in Odokr 19% the MhC found that the pp8 16 n% 2n 8'9 Liednc unhty $23,576 $2n.315 Company had mmphed dunng 1985 w uh the i999 3 go g g,,9 Gas unhty 12,651 11,%I condinons of the hnandal gabih/ anon ute Um 69,4 l' im other 30,393 l',134 omen future hannp w dl be hehl on the annual mmplunt e repons that the Company PMI ts28 16.605 Toul grow anca $66,620 169,n12 muy iononue to hie. If the MhC determmes 1992 and thereaker
- 8. m In4 24 4 lee Auumul.ned dm die Cg.my tus laded to remain in luul nunimum le.ne aniornanon omplunt e w nh thc hnatu ul labih/ anon pJ)menn 8bhh2 8202.51i llednc unkt) 7,037 1965 fue or&n, dwn by du k nm 4 du MN ll.cw Amount orden the ute inacaw would termuure. In reprewntmg mtere9 1999 the nent the t&(t on the Companti l
sa -n m.67. 8%2 an.maai na.n wmaa b, menmn) Prewnt uhle of nel mmimum lease gg ggg g paymenn $626'8 rewned unn! foul Shdland ree rehri h Icw Current pornon 10.*51 den d b de My %w. Nont urrent pi>rthin f $1.92* 29
Consumers Power Company and Subsidiaries NOTES TO CONSOUDATED FINANCIAL STATEMENTS x_: lleanngs began in September 1986 in the calh for heanngs to determine the impact of other informaion on the Plan follows: prudency phase of the pending electric rue the TRA on all Shchigan uninies, induding Number Price Range case athlrnsing Midland. In that phne, the the Company. of slurn per Share Company now requesa partial and immedine For 15 yean, the anorney general has oubunding at rate relief in the addition.il annual amount of appealed virtually nery MPSC rae order j' g g ggg 1819 milhon and hnal rme rehrf in the affectmg the Company. More recently, other WnM 3'8 M N in W addnional annual amount of l'11 I mdhon. intenenmg parties hne aho appealed such Exercised (21.03 o 17.120 $89 The rapintn! rate rehef redetts a recovery are ordert Consequently, many appeals of oser 15 years of in 12.1 bdlion abandoned MPSC onters are pendmg in the Ingham Oubundmg at Mulland imc4 ment, together wnh a return County Circuit Court, the Mi< higan Court of Dec 4.19*i M'M during the amornimion penod at the Appeak and the Mahigan supreme Court.
- 9. Retirement Benellts weighted cou ree for debt and preferred and These indude htigmion imuhing, among preference Mix k wah no return on the other thingt the hnancial subdintion ree
& Cqua qmMead h-and hfe insurance Irnefia for their retired common niuny Imrtion The tool rue rehef orden, allegn! mercolln Hons under the fuel emplo)cet Thne bencha are pnnided reReus an inacase of to i penent above cost ad arment dause in the Companyi g g, etanng eintric rxet tanth untd 1982, replxement power costs l he M a higan storney genent iunempong minbuuNe to Paliudes nudear plant ouuge' prenuums are bned on benefin paid The Gnym wgm h med th-to appeal the adnunntrane law pidge i niendmg beyond 90 day s, alleged imprudent l & by expensing the premiunn as paid. denalof a monon todnmm the pnxenhne, operaion and unlawfut p.m through in 19 H on the grounds slut recmcry of any .md 19'9 of cosh of Mar >wdle gn reforming The amounn expensed for 19%,1985 and p ,, g g, g, g gg invntment in a prmet t that hn nner been plant feedsta and operamg cosh, the uwd and uwful is prnluded by Law; September 19H3 and Augu41986 orden """""I""
- 9 "" "
"#""'#"I""" in Augun 19*ithe Mhc approsnt a gn authonnng the Company to int rene in gn " ' I* """" E " rue wulement agreement entered into by the ratn, the Apnl 1982 and Augun 1984 onten Company and the MhC surf the hn lowerni authonnng the Com;uny to inaene its """""'""'#""8"""""'"!'" the Companyi nauul gn ruet T.he elcone rmo, and the rue doign epnt of emploien The Pemion Man pnah!cs "* "" "# ** f "F" F#" ' agreement wn the reudt of dismuom unom orden The Company a ugoromly arking from the Mhc uad u oncern that the purunng thew nunen ante un(ww an cumngulunngthe "I##' "W"" I "" " """ "# Compan)3 nauol putninbunon ennmgs I crene of Ihe prnent Molland releed ."* I"" ' " " " N " I '"
- " '" I""
inel wn alwac itut authon/nt m ihe untertannn, nurugemeni cannot prnt,(t Com;un)3 lni gn rac pnwenhng a fut c#ni the ulonute rewlunon of ihne amounn anrun for penuon openw for the condudnlin Augmt p>86 Dunng the 12 nunen w dl hne upon the Com;un)N Int in pm the Comlun) ihanged us ""'""*P"""'" '"' " " "N momh penod begmmng s pt 1,19%,Ihe hnant ul gx moon or reuila of operatiom e pur} Wet As J reuilt of ihn Llunge and Companyi gn ran were dn renn! 114 H, Isecutive Simk Option and 5tmk fnoaNe inu 4mem gnmth Panion Man nulhon 1he anorney geneul tus hlnl J Appredation Righta plan "*""#'"N'"'""'"'"'"'""'"I compinnt wnh the MhC serkmg a rnininon in Apnl l,>% the t.ompan> nturchohlen benda for both a nu and n ornt nnphign in the Compann gn ratn m the - nual gg.d an im miu N4 Whon md WNympmn@9mynhW amount of I W nulhon m heu of i. e llri M4 Ammoon R@n Nm iMM br M M k% Immm SW NmW nulkon rnlm non, and harnp ne brind nuiugement rmployn Awanh under the knenue Cixle ihnrfore, the Com;uns thd brht on the anornet genrol uompbmr Mm m in dw lom of mnunon M gnom u g, a meum u !6 cu m ln ()tlidTr 19% the Mtitrney grneral hicil w nh awot urni 44 apprn unon nghh 1he and don not phm m nuke nontobonon br tomplunh wuh the Mi,sc nkmg thu orden Mm p Mn du y m Wo dem 4 the hmp I I be inuni rnluong the Compin), go and ( ompann 5onunon 44 nuy be bsunt lhe Com;uny aho tus a supplemenul ein ini utn to refin i the rlin ta ommenung unda dw Hamn dw pm i pM pM i wMM Mann h N m Mm s Jm 1. I >M, of Ihe in Rrform Ao of 19% l T he eten be pf k e on ca h grant dMe opuh nurugement anplown Dendn se luwd (INAl em the Utmpin)I g n Ud clnIrk i Igw nur(et pr.ie on the dMe of gant At Dn on the emplogn' wnke md nrmngs a rnrnue rnpmemenn the comphnna alleg" R pm O AuM remmn d 44 &gy m p q p m, q g n 3 m dut the rfin I w di be to rnim e the anno d g " wne nd br 0 Hm h@um pW GAM g am gma my and dnuh rnenue inpuremenn b) Om Con m FMuwd m Wmmt Go
- u. M y m emy wy %4 approum ud) 1.., nulhon md 1,8 nulhon.
durn of nuommon 44 lot the l,im rnpcondy the complann h ne not been ju)mena se nude ihrn dy b) the Comluny w heduln! for hanng in Dnember 19% the o renn d onplo)n, onhnt kni fu unn Ai Mhc luont m order on us own monon Hut Der H, w pronin ndt oMg Hion wa approunutd> fo nulhon
l During the third quarter of 1986, the 10, Income Tas Expense of that NOL will be used to o!Let 1986 taxable Company adopted the new accounting The Companies file a consolidated federal income and will result in a refund of Randard for emplorers' accounting for income ux return. For income tax purposes, approximately 8250,000 The remaining NOL ynsions for both plans, retroactive toJan 1, the Companies use hberalized depreciation will be carned forward for up to 15 years and )986, w hich had the impact of increasing net methods that include the class life awet uill be recognited as it is used. The actual lncome by $ nH per average common share. depret iation range syvem and the accelerated 1985 tat net operating loss was carned back to )pplying the new accounting sundard in the cost recovery system. offset 1986 uuble income and resulted in a .hird quaner required the revatement of the refund of $3 3 million. The Companies have a us net operating loss
- onsohdated fmancial quemenh for the firn
( N01.) (q forw ud for P/86 of gpmximately The non operating inmme tax credns result so quanen of 1986 $1 bdhon as a result of the abandonment of pnmanly from interest deductions relating to l Net pension m4 for 1986 in(ludes the the unuuble Midbnj investment. A ponion the Midland project, the 1985 wnte down of (ollowing componenh (in thouunds); the Midland imestment, and the 1985 and knice cost i 13,937 Components of Income Tax Expense I9 ""
- "' I """I"
- 8"C"'
nteren coM 47.90' ThomandufDvtlars %ctual return on pbn auch (84.629) Yean Ended December 31 1986 19H5 1984 feumortizaytn and deferol 26,n6' hedcol inmme taxes kreda) $ 2,052 $ (4,465) $ 3,065 ket pension cost i U82 I)rferred income tater Current - At crued reven ie' $(2$,768) $ 39,169 f(21,711) Cerum awumphons used to takubte vnsion mmponenh were. 'Tecul romfvnunon (13,117) Other, net (441) 3.M (3,9'9) ) mount rate tu, late of compenunon int rease 5.5 % $(39,326) $ 42,435 f(29,6 itpetted long term ute of return Non t urrent - M NCU N$h A((ejeraged deprp(;jggg, deplpgjgg jgj Penuon rywmc for 194 and 198 6 wa amonizanon - 123 3 nulkon ami lii H nulhon. rnpettiscly Deferred in current } ear $ 40,062 1 38,Mii j 43,n96 n 19M t h mgn m a tuanal awumpui m Rnerul of poor )ean' deferrals (22,696) U2,9*9) (15.532) r0cumg an awumed int rene m the rue of Net opconna lown $,igo
- g,i393
$$, g9 menment return and a reduced work force Midland phot, nel 212,701 (23,196) /nrrded nel penuon cyrme by $11 Mnibnd nu(Irar fuel dnpoul 60 R9% hdhon 1he 1986 lwnuon cyvn e reflet b unte down of uramum auch (17,615) (3MS)H he asumpnom and iou mrihod reywed by hnandal suhih/Mion (63,159) 0 3,659) he nrw aaounung sondard I mon ewful nplounon m'b 8,729 10,6'2 6.299 dt Jin I,19M, Hung a * $l Juumed rate of % mmpenuhon [g,g37) (4g4g) {997) eturn.the Atuarull) mmputed prnent phrr,not_ g g9Q ]~}} ^ ' {' (3,6HI) 02) M MM don of se4cd Atumubted hent hh were
- 26 6 nulhon and non stued aiumuleed
~ ~- ~ -- - -- -- - --- rnefib wcre l t'.i nulhon ]hr phn Jorg g h (7,30(y) $123,98{j14,$}6 ' nrt an I,19M, were 1595 M nulhon I"UI '"' "*" h t " Pome $150,985 l 16f t 3 29.216 O orahnM $2 6 6,996 I!R929 lini M47 1he funded 4 uus and amounn remgm/ed P n the Comohd ued lubnic shere a Dec 31. Non geren)g. (96,409) Ul?M8) (76 M O n, se hn thouundil Toul mmme ut ryense $150,9H5 l 16f t i 29 21 e puun d prnent ulor of lwncfit of hginom [ An umulerd trued Ilien and non grurd beneIn obhe moni i 162 non fk i lY I l bN dan jut h alIlir Lilne t[rlmirl! Mi5 k9 ahd hi+ndt intludmg J $2M nulhon m mmmon 404 k of the ( omp mp
- n'9 0
'bn J"t h greater Ib in [rt $'t (Ud ITnt Ill obbg alon l )I,H65 ntnogm/ed twi lou rnuhmg from mrreni ) car eywnent e Men ni from tha anumed 6/nl lenuunna untnogm/ed nel gun from apphing the son hr f in 19% (10 i'O 'enuon hibihn en oenied m the ( omohdued lubnir shcrt i #62 on 31
Consumers Power Cornpany and subsidiarie NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Statutory I'ederalIncome Tax Rate Reconciled to the Effective Income Tax Rates th.it it consider the claims in their prior 1986 1985 1984 complaint. In Nnember 1986 the hturd of directon unanimously determined that the Statutory federal mcome in ote 46.0% h6 0)% 46m, Increase (decrene) in tnes from claimnouki not be in the best interesh of the Comluny, and denied the request. In Afl'DC and other mdited, capiulu.ed construction cosh (,7) (13) (.472 ) g, g, I @ NadsaN Capitah/ed oserhexh previously flowed ihn> ugh 52 n Diferences in book and tn depreciation and amornnnon, not suit euentially simil.ir to the previously hied previously deferred 1.5 33 18 Trunkhne G.n Company Other, net (.9)_ pad M m (qb, a subsiduty ofion (Panh$ndle) (l9) I1 1:Renne inoime in utn 45.9% 6% 'l % h the principal supplier of natural gn to the Compan)1 The Comluny h the ulumate punhaer of appnmnuiety one fulf of all ga Imestment in credd (ITC ) used to redute L'nion Carbale. T he Company he sold by Trunkhne, and Trunkhne pnnides current income ines paphle is deferred and succewfully averted the MISC order a enher dircoly or indirntly more than 6n amonized user the hfe of the releni property, force maieure defense in the Umon Carbale penent of the Com[unt s reymremenn. etcept th.it for certan subsidunes, ITC n a fedeal o)un suit The Mahipn Supreme Trunkhne lud tuntaded to pun hne all of reduction to ino>me tn expense in the lear Court ha gunted apphcanons for lene t" the pmf anotha Panlundle subsiduty, in whi(h it is used At Dec. 31,1986, the total appeal the Court of Appeak action fded by the Trunkhne LNG Com;uny, whu h,ud in turn amount of unused ITC wa IM mdhon, of Com[unv and I nion C,irhide. contoded to part hoe from unatrxh lihe whah $4 mdhon relates to Midland Ot A numN r of sturehok!cn who punhent n.uional od.ind gn com;unt of Algenal the these,imounn, under the prouuons of the the Gimpang (ommon, preferente and hquehed nMuul ps t LMi) equiulent of 2 3 l TRA,1232 mdhon is sub ni to reduuions of preinred not k dunng 1982 and 1983 hne i trilhon t ubic feet of nauul gn mer a 2n tear l'i penent m exh of the 3can 198' and hled dan.u non suas aganst the Com;uny, pomd 1N ndeumninInmum(s nb 4 1988,if not usnl m 19C The balintc wdl (erum of Ihe Cmqung dirnton and otnen the LNG o no, aber the LNG bepn arriung in espue donng 19'h 2ml uho [u.oopacd m pubhc offenne of the 1)nenh r 1982muwd da Com;unp coq At I)cc. 31,19+i, the net amount of Com;unp sad and in (onnntion w nh the of ps bunnew subwamuHynd the t umulalne intome IJ1 tilfung different es for Compan) s !)n hiend Reilnestment.ind g g 4,g ggg,q ,g winch defored meome inn hne not been Conunon %k Punhne Plan some of the befon the MC.md the !)01: Amg the prouded n 142' nulhon una aho name Un htel Power Corponnon TmnMnx s kew to met th LNG h-
- 11. litigation and Other j un brek t he Conqunp pn nolul t ontr.a tor n,Med for the Midland noint.n a defendant 1he Contingencic, i
In !)n ember 1983 frunkhnc LNG Conqum coini unb aHw, rnaaH), dut the t in 1980 the Comium enterrd mio a long suspended in punhan of the Algerun LN1 term iontra1 hr reudIul furl od w ah I mon C"*I"") '" " "") " A"d d # ""'k I"'" As J tomequem e, %narx h and the LNG C arbute Corpoonon A dnpute arose letw een "I " ' P""" "' " """ hi tamponen unoked arhtunon prm enhnp ng intoon nion and ewenuiunng wn o the jurun a to thnr respn tne ohhg nion agung 1runkhne LNG for breA h ol(ontrat ""'I"
- 4 '"I"'""""n n prang the underIhe tontrni InJuh 1992 Umon In Jul) 19+i Panh nulle annount ed C. unde inqumed unt in inleul(non and MnD nd pinu and Ondom;unp hund4 dumed danugn m an umpeohed amount
'""'hoon in nw4 anon 4 neinenn, agreemenh to seule all daum pendmg in th arboonon prncedmp 1he wulemeno nicedmg $162 i null.on for t rew h of P'"'I""'n and en dot unwnh and en rnuhed h the rewgnalon M Pantundle of '"nw o e suds, dut Daluel anW and woirAt in Augua 19H2 L mon Carbn!c net ahn in ih uge to in canune in the 'U'8"S "'""d"k""d* I"f t he i noched ihe Comlun) ilut H w a t am chnphe sn und paa d PMi W $ ex nulW s omt ni and rnen mg in remedin for bres h I"'"I"") U# E"mian) aan dut cA h of Ironkkne i n nonhed in t u4 omen tfut it "# '"ml nnn ag ung n n w nhout innH and i of thewntud Inihamwertothemmplunt, lehnn $p4 nulhon of the wulement amongother dunp Ihe Conqum demed dut nuend, to w ige a ugorous Mnse. Oihn amounn are sub nt to reu6cn in future i ^ " " ' h H h in he h h of NW Wntthi Ruhnp on Comjun) and u omo a'nuon. aurg"4 lrunkhne rMn h h the pnmon ol the preni d monom h n e redm nithe ksun to he Comium and othrt Trunkhne untomen in prnrnini a trul.nnilununt the dunign gnro@ dut the anuon ha a lad Onu' enthng t runkhne r ur ine h fore the ll Rt I' mon tahde o enotint to timn In a dunci to the Umjun) and nutuntoMn' h Out Trunkhoe should not bc twrnaued to wpnoc but relred auton,Ihe Malopn ' "L"" d d ' "I ""'"""'# ""'"I h" "I"" A "' N p io on to ihem an) aw anh roulong fronuhe Umrt itf A[;Wih h n uphrbl a l9N order til MhtrathH ph4 cnhnp the MPT thrnong the Compan to tene dnnnunt w nhout pnMa c doc to id unnas' (he Pahudo omlear plant ha heen out o takmg deinenn un Irr die motud w uh Lnlow to faq dround dut du Conl""' sen a e for m nnten nu r sou c Ma) In mmb!rt the dunn in Augmt 1% pinnoth u ned a dem and on the hunt of dunton
11 The reemery of the replacement untcruintin, nunagement cannot predat adserse effect on the Company. pimer (mh attnbuuhle to this ouuge h what effect the ulomate toolution of thne
- 12. Segments of Business expeaed to be (hallenged in a future \\lbC nunen w dl h.ne upon the Company
The Conwhda:ed sutement of income case. The Company n unaNe to predwt the fmancial pminon or roula of operationt If shows Operaung Roenue and Net Opeuting amount of own that miy be diullowed. subsuntial hnsn are incurred in conneuion income by segmentt Ceruin other segment In september 194 the Company fded wah with thne nunen, there couhl be a nuterial information is as follows the MbC in apphcation for approul of a Gas Cost Neon cry t GCR ) Plan and proposed GC R TIwamb ofMars Yean En December M W M M I.nton for 19% A3 permuted by law,in the absence of an Mhc order, the Company Depreciation depletion and amorti/ation bdled in reud oNoinen for lo npeded Lledric unhry $ 113,255 8 111,16? I 110,632 19% g.n (ma in Jantury 198' the Mhc G.a unkt) 56,335 5 4,'on 51,435 'nsued an opimon and order on the Other 46,477 3$.426 41,377 Company % GC R l'lan for 19% Dnpue haung $ 214,067 $ 2nl 4H $ 206.6 4 6 hpprmed mme intosute gaoupply cosa ir. <her prot redingt in in opinion and order D*"N ** ** I ' he MBL. h.n tiken the pmaion that the Lletincutihty $ 184,007 $ 164,322 8 5%,299 t Compaq failed ta demomtrate reamnaNe G.n unhty ' Anons uken to renegoture in mtusute Other ' 63,676 6 6,* %H 46,058 i (2,689) 6,H 49 4,490 suppl) contrach to ohuln lower prRn lhe $ 204,998 l 20.929 l !OS.NI gmpanynpns,~pramcordmana , mmh _m, hehno that lb 19% gMosh were
- 1. learn unha
$2,979,471 12#5.9nn 82.H65,099 jre.nonaNy and prudenil) m( urred anti shouhl G.n unhty I,146,80$ I,030 nn2 1,ln2.259 he full) rn meraNe it wdl aho athante that Oihen bi 4,506,467 6.* l H.692 5,2'nM6 p.mnon in ihe 19% rnonohanon. a -- - ~ -
- pn(ceding m ahn h adu d imb tother than
$N.6 40,' 43 $$616396 $1218.2 64 j - 7 !proin nono are truewed for teamiuhlenns (omtrut non njendourn t h rw t str, it the Compan) th 'n (14 4 pro all in Midland mRicar priint l i b l1 i ihn nutter, the Compam s lowohl he lin trw unha 99,228 912'6 114M0 subsoniul l ut t urrent!) n nol dcternuruble G.n unhi) 47,217 in.M6 41,192 Pbtcau Remunn 1.nnaed I rlateiu h a Other 4 6,2$0 66,*u9 wholk ouned subudur) w n organued for JH,*% g 390,695 i 2 nim 39 i 6M2$n the aupmmon. nplounon and dnelopmCn kw AlrDC tha 6' 822 of propenin for the nunmg. nulhng and ute '>f tirintilm in 1984 plltr.iti visponded $ 190.699 $ 2os M9 8 622 62H ijyraili4n bn une til the deptreed in Irhti t a llIn idne lasn JHd I'ther itirlwirate nl Tines) tif the Ulmpin),4rc ab4 ated lo srKWenh In h ir ur in tu m t e int enir lin ahd t he dub b 'w n d l .h t t)rdint t' wllh the Jitl'unung retplirrinenh tillhe MbC and die IMC ihe %dland proin t As a rnuh. thicau i t hdrnludn D ' hdhon for PMi and 194 and it 2 bdhon for 198 6 for the M dbnd proint uunnnn inch were unnen down to llo nullD>n AlthiHigh une fit onn still nnh, nunigement Ithnn th u the urn mg ulue 13.Julntly On ned l'Illity I'lante 0;ratmg nivmn of the phnu are slured of ihne am h don not noten dh nited Ihe tompins s pornom ai Dn 31,19% b) ihe Compan) and the (o ownen in the their nei trah/ d le i due and 194 are ume uno as the ow nenhlp interna O wunng njrmn on the Conwhd ned in ad.hnon to lhe minen dntlosed m ihne imhagton l ooict ihe romp un a pun too n un bw una pumped Campbell sutement ol ini ome int lude the Compan)1 md adononu nne prounhngs arnmg m the stooge I'mt 4 'I"'" "I ' h"C " PC"'"
- irdin 10 t t 'Une id lillsilH % l't !!'rt' s at b tti s g.
g ourn and gmanmenol agt non unoh mg-M i il n 93 h for n neph; tI nna hir pt tu aul injun and g g pn 'pt'i n d on If t's. L i $ntral to ll flullen g g couronmrnul innet on ome nu ( run
- yg g,3.g g g,g uns lushngihe In ou n of n pl n rment powrr Amed HM unh annbulible to the P.dn ein ounge m 4
.ggg % Iw o. ht ruung and other m mon pg g 9 pg, Ho we of the prcu nt Mollmd trlned iyg g 4;, 9, g 33 m..
AnTitute ANDICItSICN & CO. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS nr.rumr, >iicniou To Consumers Poner Company: We hae eumined the consohdated balance from its electric reud customers and intends the Company's song term viabihty,includmg sheet and sutement of capiulization of to seek recosery of the remaining abandoned the amount of rate rehef associated with the CONSUhtLRS POWER COStPANY (a costs from its a holesale electnc customen. abandoned components of the Company's %!ic higan corp >ution) and subsidiaries a of Also as dncussed in Note 2, a recently klidland project and exposure to has December 31,19#3 and 1985, and the related relened 6nnial act ounting sundard will contingencies ahith could result in a consolidated sutements of income, common require a wnte down in the carrying ulue of sigm6 cant restriction on or ehmination of the stoc kholder( equity and changes in fmancial the abandoned ponion of the Slidland proic(t Company 3 abdity to iwue debt or to pay cash position for enh of the three yean in the when the sundard becomes efective in 19M dn idends to in shareholden or a rcquirement period ended December 31,19Wt Our if sign 6 ant ponions of the slidland to immediately repay the Company's euminations were made in accordance with imestment are not recmered through the restructured debt. The accompan)ing generally aucpted audding sundards and, raremaking pnicen, through the SICV or 6nancut surements do not indude any accordmgly,induded such tests of the otherwoe, the adverse effect on the adjustments relanng to the recuserabihty of accounnng records and suth other auditing Company's 6nancial painon and resula of recorded asset amounn or the amounts and pnwedures as we considered necewary in the operations could be ugmficant. (lawifiation of habdmes that might be circumsun(et As dncuwed in Notes 7 and 11, the necewary should the Company be unable to At December 31,19% the balne sheet Company is imohed in numerous legal meet wheduled debt paymenn or cononue includes an awet of appniumately H 7 pnweedmgdefore urious couns and opconng in the normal counc. bdhon relatmg to the Company's stidland gos ernmenul agenoes, relaimg to contrx tual la our opimon, subnt to the c#eti of such propt As dixuwed in Notes 2 and 7, dnputes, shareholder ( suta, rate loues, ad mimenn,if any, as might hae tren i comtnation of the prop t un stopped in income ines and other matten klanagement required if the outcome of the untenainties 198L In A[nl 19% after studying in optiom, annot predat w hat edett the ultimate docuurd in the pretedmg pangraphs *ere the Company recommended that a ponion of resolution of these manen will hne upon the known, the 6nantul sutements trferred to the propt be comrned to a natual gn Companyi 6nancul pnalon or resuln of abmc present fairly the 6nancial paulon of { fueled, combmed ode generanng plant. In opennont if subsunnat lowes are incurred Comumen Power Compan) and solnidiaries June 19% the Company abandoned in connettion with these nunen, there (oukt a of Dnemtwr 31,19Wund 19M, and the comp >nenn of the Shdland propt that be a nutetul aihene cint on the Company. resuks of their operatiom and thanges in wouhl be unmable in the go comenion As dix uned in Notes 2. $ and 7, dunng 6nandal p aition for ex h of ihe ihree )can in opnon in Jamary 19C, the Company and 194 the Company wn gunted ute rehef the penod ended Dnrmher 31,19% in The Dow thenual Company annount ed that under the fuunt ul subilvanon phne of in conformay w uh gent rally au cpted they had entered into an agreement to Midland ute ine, and bank related debt of accounung prinoples whis h (escrpt for the mmplete the futual gn fue!cd, combmed approunutely $12 bdhon we restnatured dunge w oh w ha h we com ur,in auounting ode geneunng plant n a mgenrouon for repnment mer m )eart fly mnunumg to for pemlon mst a disuued in Note 9) were lAlbty. As part of the arrangeineno,the retene finarnial stahdifatn,1) rate rehrf Jnd Jpphed on J Oimntent bnIs Company wdi tumfer il 5 bdhon of shdland at hinmg forci nted resuks. the Company auen to the shdland Cogeneration Venture should har sulbient osh flow to meet m g 4g ,/ ( t suu ine ampan) is sm6mg io nmer , hen ienn 6noui nma, newnn. 111 bdhon of in imnunrnt in the sigmfn ant unt erumon soll emt reginhng lebnory 6. PW abandoned p4rnon of the Nhdland propi $i
Consumers Power Company and Subsidiaries BELECTED FINANCIAL INFORMATION Thousands oflMlars, Evcept l'er kre Arnounts t986 1985 1986 1983 1982 Total operating revenue $3,108,414 $3,298,328 $3,235,570 $2,973,691 $2,731,081 Net income (loss) $177,844 $(269,772) $221,058 $367,766 $280,549 Net income (loo) after dn idends on preferred and ( preference stak $65,052 f(389,548) $99,814 1268,110 $202,785 Earnings (lose per aserage common share $,74 f(4 42) $l.14 $312 83 16 Total awets $8,630,743 $8,614,596 $9,218,214 $8387,709 $7,595,323 I.ong term debe, enluding current matunnes $3,253,472 $3,576,745 83,389,0 to $3,275,406 82,906,986 Non current obhgations under capiul leaws $31,927 $29,915 $297,395 $11,825 Preferred and preferente simL with mandatary redempnon $299,175 $391,755 $ 605,860 $ 116,0$$ $ 620,555 Cash dnidends paid per common share $1.08 $2.66 $2.44 flook value per common share $22.00 $21.50 $25 92 $26 04 $26 87 $UARTERLY FINANCIAL AND COMMON STOCK INFORMATION Quarters Ended j 1986(Unaudned) 1985(Unaudned) Mart h 31 June 30 sept. 30 Dec.31 Marc h 31 June 30 sept. 30 Dec.31 Total operatmg resenue uxwo $ 1,02',900 $612,1(4 $m,143 $8'2,285 $ 1p)8,386 $635,737 $632,659 $ 931,746 roul net operaung income Um) $163.329 1101,'96 $111,ln2 $121,965 $165,568 $93,3'O $111,137 $139/47 pet income Ilose om) $66.212 125,270 13',223 851,139 163.679 87,725 822.929 f(361,105) ] Net inoime (low) after dnidends on preferred Jfid preferent e stat k OMin) l $ l,%) l(l 290) lt *85 $25,997 $33,$82 l(22,250) $(6.949) l(393,931) f arnmg5 dow) per aserage comtnon share $ 39 $( n5) f in 8 30 $ 38 f( 25) $Lns) f(167) 1:ommon sim k prh es (4) thgh fli 116 114'. 117 % $7 88 % 18 i $8% low IN tilu IA $124 sis $6's $6s $64 141 lused on NN Compne transatnons l he t ommon stm k ol the tompani n Inted on the New iork and hlwnhtot k eu hangn ihe Company had appnnimately l309akommon shareholden of reiord as of Det 31,19*i availabillty of itegmrts Slm kholden nuy ohtain w it hool t harge, md culume of ethihin, sestral repora preparcd b) t he Company. 'I hese int hule; lhe 1980 f orm 10 K Annual Report hird nh the setunno and i:tdunge
- ommtwion, a linandal and slanstial Illpp!CWent to the 1980 AHnual Rrport osenng 19'61986, and,t owette Clording of the 198h Ann 0Jl l(rport lett jlf sharCholdfr$ wIlh Impaired ibion flere addrew all requna for ihne lcporb lo 't honus A Sh Nkh, set rility, l:onsumen Power Comluny,212 Wol lit higan Astnue,jat kwn, $lk h 49201 l
l l 35 1
DIRECTORS AND OFFICERS T_ = Board Don T. AlcKone,65 g - ~ ~ Z of Chairnun of the Board " ~ ^ Directors Trinova Corporanon, A John 31. Deutch, d slaumee. Ohio -9 Provost. 5tassachusetts Institute Paul S. Stirahito, 'l [ E = of Technology, Direttor, tlnisys Corporation t Cambridge, Mass. Former Chairman of the Ikurd, [ M Robert E. Dewar,66 Bu roughs Corpor.ition, p Chairnun of the Executise and Detroit. Mit h. [ _=- - i Finance Comminees Joseph F. Paquette Jr., $2' K mart Corporation Detroit, Shch. Vice Chairnun of the Board = Richard 31. Gillett,63 and Chief fmancial Ollicer M Chairman of the Board of the Company, 3 Old Kent Enuncial Corpoution. J.k kson. Mit h. j Grand Rapids, Nht h. Thomas F. Russell,62 7 W. N, ilubbard Jr. 31.D.,6-Chairnun of the B urd and 3 Dire (tor and former Pre,ident Chief becutive O!!icer T The l'pjohn Company, federal Mogul Corporation. -E Kalamuoo. Mi(h. Detroit, Mah w b g = I.ois A. I.und, Ph.D.,59
- 5. Kinnie Smith,46' Profewor College of flunun Vite Chairnun of the Board and W
tcolog3 Ger.cral Counsel of the Company, Mahigan Sute t'nisetsuy. Jat kson. M a h. __4 East Linsmg. Ma h Robert D. Tuttle,61 ) M William T. AlcCormick Jr., #2 Cluirnun of the Biurd and "E Cluirnun of the Board. Chiel he(utne Oh er Chief het utne O!! iter.ind ScJled Power Corporation. '"#"# "' A '" #" l"h" A'' ^ 0#'d
- Preudent of the Comp.un' Muskegon. Mit h.
Hid%rd ildham.llsrarmid. Ioniund, Robert JJt kmn. Ma h Tuttle vandtisg H,/ ro rtpH Rihrd eum I ""'d' #1m M lbn 11( A0ne, l'ard.thrahito.
- lleont : H!m h ard m lebnon he Kohs rt ik n ar Aotpn tured areJmepb l'a.juette and Arnnte smnb b, ecutise Ofi1cer' lap t,> rt@t jad ka;noik u,ph n umn
.m = 4illiam T. AlcCormick Jr.,,2 Ulham.il cormid.fobn cla+ /#,ph ra,pu tre duirnun of the B.uid.Chict L' *m n Ain"ic Smnh het utne Ohcr Jod l'rcudent M Joseph F. Paquetie Jr.,il ] Vue Lluirnun of the B,urd.ind Chiel I ount ul Oh er ME
- 5. Kinnie smith, %
5 Vae Cluirnun of the B<urd and 6 General Counsel %ttphen ll. Ilon ell, h I secuine Vn e Preudem,incrgy M Dntnbunon M Jak W. Hey nolds,6 6 __5 het utne Vn e President. I ntry) %gl3lsl) John W. (lark, #2 semor \\ n e l'trudent, e 6 Communn anom J -M
Officers Northern Michigan General Offices Chsries F. Brown,61 Exploration 212 West hiichigan Avenue Vice President, Customer Services Company Officers Jackson, hiich. 49201 and Marketing Richard J. Burgess,55 Telephone (517) 788 0550 Frederick W. Buckman,40 President and Chief Executive Vice President, Nuclear Operations Of5cer Jussell B. DeWitt,63 R. John P. Doran,40 Stock Listing Vice President, Energy Supply Vice President, Australia. Consumers Power Company stock 1enices New Zealand is listedon the New York and Blake O. Fisher Jr.,43 Robert A. Dunn,40 hiidwest stock exchanges under Vice President, Finance Vice President, Exploration the symbol Chis. VictorJ. Fryling,39 Paul E. Geiger,44 Vice President, Planning and Vice President, Secretary and Investor Relations Treasurer ,g p Richard M. Griswold,55 William T. McCormick Jr.,42 Preferred Stock Vice President and Treasurer Chairman of the Board Consumers Power Company Gordon L IIcins,57 William 11. Stephens III,37 212 West hiichigan Avenue Vice President, Fossil and llydro Vice President, Land and Legal Jackson, Mich. 49201 Operations Gordon L Wright,4 6 Raynard C. Lincoln Jr., $2 Vice President, Operations Vice President, Distribution Registrar operations Common, Preference and { Fhomas A. McNish,49 Michigan Gas Preferred Stock secretary Storage Company Comerica Bank Jackson, N.A. David A. Mikelonis,38 Officers 265 West Michigan Avenue Vice President and General Richard M. Griswold,55 Jackson, Mich. 49201 \\ttorney Treasurer and Assistant Secretary Robert J. Odlevak,53 William T. McCormick Jr.,42 Vice President, Gas Chairman of the Board Trustees Bo fransmission/ Fuel supply Thomas A.McNish,49 ',ga 97, llamilton M. Robichaud,50 Secretary and Assistant Treasurer Company vice President,iluman Resources Robert J. Odlevak,53 600 Fifth Avenue II.B.W. Schroeder,39 Vice President New York, N.Y.10020 Vice President, Governmental
- 0. K. Petersen, 58 Sinking Fund Debentures dairs General Counsel United States Trust Company of samuel N. Spring,59 Jack W. Reynolds,66 New York vice President and Controller President 45 Wall Street Roy A. Wells,il Samuel N. Spring,59 New York, N.Y.10005 cice President, General senices Contioller Transfer Agent and Paying Agent First Mortgage Bonds National Bank of Detroit PO Box 1774 Detroit, Mich. 48232
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