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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1993
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
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Commission Registrant; State of Incorporation; IRS Employer
File Number Address; and Telephone Number Identification No.
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1-9513 CMS ENERGY CORPORATION 38-2726431
(A Michigan Corporation)
Fairlane Plaza South, Suite 1100
330 Town Center Drive
Dearborn, Michigan 48126
(313)436-9261
1-5611 CONSUMERS POWER COMPANY 38-0442310
(A Michigan Corporation)
212 West Michigan Avenue
Jackson, Michigan 49201
(517)788-1030
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Registrant Title of Class on Which Registered
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CMS Energy Common Stock, $.01 par value New York Stock Exchange
Corporation
Consumers Power Listed on inside cover
Company
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrants (1) have 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 Registrants were required to file such reports), and (2) have been
subject to such filing requirements for the past 90 days.
Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrants' knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ X ]
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Consumers Power Company securities registered pursuant to Section 12(b) of
the Act:
FIRST MORTGAGE BONDS:
5-7/8% Series due 1996
6-7/8% Series due 1998
6-5/8% Series due 1998
7-1/2% Series due 2001
7-1/2% Series due June 1, 2002
PREFERRED STOCK - Cumulative
$100 par value:
$4.16 Series $7.68 Series
$4.50 Series $7.72 Series
$7.45 Series $7.76 Series
All securities listed above are registered on the New York Stock Exchange.
The aggregate market value of the voting stock of CMS Energy Corporation
held by non-affiliates, was $1,942,392,566 based on the closing sale price
of $22-3/4 per share for the 85,379,893 common shares, $.01 par value,
outstanding on February 28, 1994. CMS Energy held all 84,108,789
outstanding common shares, $10 par value, of Consumers Power Company, and
the market value of the voting preferred stock of Consumers, held by non-
affiliates, was $142,550,827 based on the closing sale price shown below.
Aggregate market value of Consumers' voting stock held by non-affiliates.
Transaction
Number Shares ----------------------
Type of Stock Outstanding Price/Share Date Market Value
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(2/28/94)
Preferred:
$4.16 68,451 $58 1/05/94 $ 3,970,158
4.50 373,148 60 2/23/94 22,388,880
7.45 379,549 96-1/2 2/22/94 36,626,479
7.68 207,565 97-1/2 2/23/94 20,237,588
7.72 289,642 99 2/22/94 28,674,558
7.76 308,072 99-1/2 2/28/94 30,653,164
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Total 1,626,427 $142,550,827
========= ============
Documents incorporated by reference:
The Registrants' proxy statements relating to the 1994 annual meetings of
shareholders to be held May 27, 1994, are incorporated by reference in
Part III, except for the organization and compensation committee report
contained therein.
3
CMS ENERGY CORPORATION
and
CONSUMERS POWER COMPANY
ANNUAL REPORTS ON FORM 10-K
TO THE SECURITIES AND EXCHANGE COMMISSION
FOR THE YEAR ENDED DECEMBER 31, 1993
This combined Form 10-K is separately filed by CMS Energy Corporation and
Consumers Power Company. Information contained herein relating to each
individual registrant is filed by such registrant on its own behalf.
Accordingly, except for its subsidiaries, Consumers Power Company makes no
representation as to information relating to any other companies
affiliated with CMS Energy Corporation.
TABLE OF CONTENTS
Page
PART I
Item 1. Business 9
Item 2. Properties 32
Item 3. Legal Proceedings 40
Item 4. Submission of Matters to a Vote of Security Holders 46
PART II
Item 5. Market for CMS Energy's and Consumers' Common Equity
and Related Stockholder Matters 47
Item 6. Selected Financial Data 47
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 47
Item 8. Financial Statements and Supplementary Data 48
Item 9. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure 144
PART III
Item 10. Directors and Executive Officers of CMS Energy
and Consumers 144
Item 11. Executive Compensation 144
Item 12. Security Ownership of Certain Beneficial Owners and
Management 144
Item 13. Certain Relationships and Related Transactions 144
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K 144
4
GLOSSARY
Certain terms used in the text and notes are defined below.
ABATE . . . . . . . . . . . . . Association of Businesses Advocating
Tariff Equity
ALJ . . . . . . . . . . . . . . Administrative Law Judge
AMT . . . . . . . . . . . . . . Alternative minimum tax
ANI . . . . . . . . . . . . . . American Nuclear Insurers
Articles. . . . . . . . . . . . Articles of Incorporation
Attorney General. . . . . . . . The Michigan Attorney General
bcf . . . . . . . . . . . . . . Billion cubic feet
Capacity Charge Order . . . . . A May 7, 1991, Michigan Court of Appeals
order dealing with issues in MPSC Case
No. U-8871, and others, concerning among
other things, the amount of additional
capacity needed by Consumers, the
applicable avoided capacity charges and
the allocation of capacity in Consumers'
electric system
CERCLA. . . . . . . . . . . . . Comprehensive Environmental Response
Compensation and Liability Act
Clean Air Act . . . . . . . . . Federal Clean Air Act as amended on
November 15, 1990
CMS Debentures. . . . . . . . . CMS Energy debentures in the principal
amount of $1.4 billion issued on March
12, 1990 in exchange for the outstanding
capital stock of CMS Midland, MDC and MGL
CMS Energy. . . . . . . . . . . CMS Energy Corporation
CMS Gas Marketing . . . . . . . CMS Gas Marketing Company, a subsidiary
of Enterprises
CMS Gas Transmission. . . . . . CMS Gas Transmission and Storage Company,
a subsidiary of Enterprises
CMS Generation. . . . . . . . . CMS Generation Co., a subsidiary of
Enterprises
CMS Generation S. A.. . . . . . CMS Generation S. A., a subsidiary of
CMS Generation
CMS Holdings. . . . . . . . . . CMS Midland Holdings Company, a
subsidiary of MGL
CMS Midland . . . . . . . . . . CMS Midland Inc., a subsidiary of MGL
Consumers . . . . . . . . . . . Consumers Power Company
Court of Appeals. . . . . . . . Michigan Court of Appeals
Detroit Edison. . . . . . . . . The Detroit Edison Company
DNR . . . . . . . . . . . . . . Michigan Department of Natural Resources
DOE . . . . . . . . . . . . . . U. S. Department of Energy
Dow . . . . . . . . . . . . . . The Dow Chemical Company
DSM . . . . . . . . . . . . . . Demand-side management
EMF . . . . . . . . . . . . . . Electric and magnetic fields
Energy Act. . . . . . . . . . . Energy Policy Act of 1992
Enterprises . . . . . . . . . . CMS Enterprises Company, a subsidiary of
CMS Energy
EPA . . . . . . . . . . . . . . Environmental Protection Agency
FASB. . . . . . . . . . . . . . Financial Accounting Standards Board
FERC. . . . . . . . . . . . . . Federal Energy Regulatory Commission
FMLP. . . . . . . . . . . . . . First Midland Limited Partnership
FPC . . . . . . . . . . . . . . Federal Power Commission
GCR . . . . . . . . . . . . . . Gas cost recovery
Huron . . . . . . . . . . . . . Huron Hydrocarbons, Inc., a subsidiary of
Consumers
Indentures. . . . . . . . . . . Indenture pursuant to which the Notes are
issued, including the First Supplemental
Indenture and Second Supplemental
Indenture thereto
Independent Cogenerators. . . . Ten small power and cogeneration
developers who signed a settlement
proposal on July 7, 1992, as revised in
September 1992
ITC . . . . . . . . . . . . . . Investment tax credit
kW . . . . . . . . . . . . . . Kilowatt
kWh . . . . . . . . . . . . . . Kilowatt-hour
mcf . . . . . . . . . . . . . . Thousand cubic feet
MCV . . . . . . . . . . . . . . Midland Cogeneration Venture
MCV Bonds . . . . . . . . . . . Collectively, senior secured lease
obligation bonds and subordinated secured
lease obligation bonds issued in
connection with the leveraged-lease
financing of the MCV Facility, and tax-
exempt PCRBs
MCV Facility. . . . . . . . . . A natural gas-fueled, combined cycle
cogeneration facility operated by the MCV
Partnership
MCV Partnership . . . . . . . . Midland Cogeneration Venture Limited
Partnership
MDC . . . . . . . . . . . . . . MEC Development Corp., a subsidiary of
MGL
MGL . . . . . . . . . . . . . . Midland Group, Ltd., a subsidiary of
Consumers
Michigan Gas Storage. . . . . . Michigan Gas Storage Company, a
subsidiary of Consumers
MMbbls. . . . . . . . . . . . . Million barrels
MMBtu . . . . . . . . . . . . . Million British thermal unit
MMCG. . . . . . . . . . . . . . Michigan Municipal Cooperative Group
MOAPA . . . . . . . . . . . . . MOAPA Energy Limited Partnership, a
wholly owned affiliate of CMS Generation
MPSC. . . . . . . . . . . . . . Michigan Public Service Commission
MW. . . . . . . . . . . . . . . Megawatts
MWRC. . . . . . . . . . . . . . Michigan Waste Resources Commission
NEIL. . . . . . . . . . . . . . Nuclear Electric Insurance Ltd.
NML . . . . . . . . . . . . . . Nuclear Mutual Ltd.
NOMECO. . . . . . . . . . . . . NOMECO Oil & Gas Co., a wholly owned
subsidiary of Enterprises
North Michigan. . . . . . . . . North Michigan Land & Oil Corporation
Notes . . . . . . . . . . . . . Collectively,
Series A Notes. . . . . . . . Series A Senior Deferred Coupon Notes
of CMS Energy due October 1, 1997
Series B Notes. . . . . . . . Series B Senior Deferred Coupon Notes
of CMS Energy due October 1, 1999
NPDES . . . . . . . . . . . . . National Pollutant Discharge Elimination
System
NRC . . . . . . . . . . . . . . Nuclear Regulatory Commission
O&M . . . . . . . . . . . . . . Other operation and maintenance expense
Order 636 . . . . . . . . . . . Orders affecting interstate gas
pipelines, including Order 636A and 636B
issued by the FERC in 1992, known also as
the Restructuring Rule
Oxford. . . . . . . . . . . . . The Oxford Energy Company
Palisades . . . . . . . . . . . Palisades nuclear plant, owned by
Consumers
Panhandle . . . . . . . . . . . Panhandle Eastern Pipeline Company
PCB . . . . . . . . . . . . . . Polychlorinated biphenyls
PCRB. . . . . . . . . . . . . . Pollution control revenue bond
Pension Plan. . . . . . . . . . The trusteed, non-contributory, defined
benefit pension plan of Consumers and
CMS Energy
PFD . . . . . . . . . . . . . . Proposal for Decision
Plateau . . . . . . . . . . . . Plateau Resources Ltd., a former
subsidiary of Consumers
PPA . . . . . . . . . . . . . . The Power Purchase Agreement between
Consumers and the MCV Partnership with a
35-year term commencing in March 1990
ppm . . . . . . . . . . . . . . Parts per million
PSCR. . . . . . . . . . . . . . Power supply cost recovery
PUHCA . . . . . . . . . . . . . Public Utility Holding Company Act of
1935
PURPA . . . . . . . . . . . . . Public Utility Regulatory Policies Act of
1978
Qualifying Facility . . . . . . A facility that produces electricity or
steam and electricity and meets the
ownership and technical requirements of
PURPA. Electric utilities are required
to purchase the electric capacity and
energy made available by a Qualifying
Facility at the purchasing utility's
avoided cost.
Revised Settlement Proposal . . The request for approval of a settlement
proposal to resolve MCV cost recovery
issues, PURPA issues and court remand as
filed with the MPSC on July 7, 1992 and
amended on September 8, 1992
SEC . . . . . . . . . . . . . . Securities and Exchange Commission
Secured Credit Facility . . . . $220 million Secured Revolving Credit
Facility dated November 30, 1992
SERP. . . . . . . . . . . . . . Supplemental Executive Retirement Plan
Settlement Order. . . . . . . . MPSC Order issued March 31, 1993 in MPSC
Case Nos. U-10127, U-8871 and others, and
the rehearing order issued May 26, 1993
Settlement Parties. . . . . . . The proponents of the Revised Settlement
Proposal: Consumers, the MPSC staff and
the Independent Cogenerators
SFAS. . . . . . . . . . . . . . Statement of Financial Accounting
Standards
Superfund . . . . . . . . . . . Comprehensive Environmental Response,
Compensation and Liability Act
Trunkline . . . . . . . . . . . Trunkline Gas Company
Union . . . . . . . . . . . . . Utility Workers of America, AFL-CIO
UST . . . . . . . . . . . . . . Underground storage tanks
Voluntary Employee Beneficiary
Association . . . . . . . . . A legal entity, established under
guidelines of the Internal Revenue Code,
through which the company can provide
certain benefits for its employees or
retirees
8
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9
PART I
ITEM 1. BUSINESS.
GENERAL
CMS Energy
CMS Energy, incorporated in Michigan in 1987, is the parent holding
company of Consumers and Enterprises. Consumers, a combination electric
and gas utility company serving most of the Lower Peninsula of Michigan,
is the largest subsidiary of CMS Energy. Consumers' customer base
includes a mix of residential, commercial and diversified industrial
customers, the largest of which is the automotive industry. Enterprises
is engaged in several non-utility energy-related businesses including:
1) oil and gas exploration and production, 2) development and operation of
independent power production facilities, 3) gas marketing services to end-
users, and 4) transmission and storage of natural gas. For further
information about subsidiary operations, see Item 1. BUSINESS.
SUBSIDIARIES. CMS Energy is exempt from registration under PUHCA, see
Item 1. BUSINESS. CMS ENERGY AND CONSUMERS REGULATION.
CMS Energy's consolidated operating revenue in 1993 was derived
approximately 61 percent from sales of electric energy, approximately 37
percent from sale, transportation and storage of natural gas, and
approximately 2 percent from oil and gas exploration and production
activities. Consumers' consolidated operations in the electric and gas
businesses account for the major share of CMS Energy's total assets,
revenue and income. CMS Energy's share of unconsolidated non-utility
electric generation and gas transmission revenue for 1993 was $337
million.
Consumers
Consumers was incorporated in Michigan in 1968 and is the successor to a
corporation of the same name which was organized in Maine in 1910 and
which did business in Michigan from 1915 to 1968.
Consumers is a public utility serving almost 6 million of Michigan's 9
million residents in 67 of the 68 counties in Michigan's Lower Peninsula.
Industries in Consumers' service area include automotive, metal, chemical,
food and wood products and a diversified group of other industries.
Consumers' consolidated operating revenue in 1993 was derived
approximately 64 percent from its electric business and approximately
36 percent from its gas business. Consumers' retail rates and certain
other aspects of its business are subject to the jurisdiction of the MPSC.
Consumers has five direct subsidiaries. For further information about
subsidiary operations, see Item 1. BUSINESS. SUBSIDIARIES.
BUSINESS SEGMENTS
CMS Energy conducts its principal operations through the following five
business segments: electric utility operations; gas utility operations;
oil and gas exploration and production operations; independent power
production; and gas transmission and marketing. Consumers or subsidiaries
of Consumers are engaged in two segments: electric operations and gas
operations. Consumers' electric and gas businesses are regulated utility
operations.
Consumers
Electric Utility
Operations Consumers generates, purchases, transmits
and distributes electricity and renders
electric service in 61 of the 68 counties
in the Lower Peninsula of Michigan. Prin-
cipal cities served include Battle Creek,
Flint, Grand Rapids, Jackson, Kalamazoo,
Muskegon, Saginaw and Wyoming.
Consumers
Gas Utility
Operations Consumers purchases, transports, stores,
and distributes gas and renders gas
service in 40 of the 68 counties in the
Lower Peninsula of Michigan. Principal
cities served include Bay City, Flint,
Jackson, Kalamazoo, Lansing, Pontiac and
Saginaw, as well as the suburban Detroit
area. Consumers' wholly owned subsidiary,
Michigan Gas Storage, is engaged in the
transportation and storage of natural gas
in interstate commerce.
CMS Enterprises
CMS Generation
Independent Power
Production CMS Generation, a wholly owned subsidiary
of Enterprises, invests in, develops,
converts and/or constructs and operates
non-utility power generation plants both
domestically and internationally.
CMS Generation currently has ownership in-
terests in power plants in Michigan, Cali-
fornia, Connecticut, New York and
Argentina.
CMS Enterprises
NOMECO
Oil and Gas Exploration
and Production NOMECO, a wholly owned subsidiary of
Enterprises, and subsidiaries of NOMECO
are engaged in the exploration for and
production of oil and natural gas in
Michigan and 12 other states, the Gulf of
Mexico, Australia, Colombia, Ecuador,
Equatorial Guinea, New Zealand, Papua New
Guinea, Thailand and Yemen. NOMECO has 11
active wholly owned subsidiaries which are
engaged in the exploration, development
and operation of oil and gas interests and
rights.
CMS Enterprises
Gas Transmission
and Storage Enterprises has two subsidiaries which
participate in non-utility natural gas
businesses, including transportation,
treating, storage and marketing.
FINANCIAL INFORMATION
CMS Energy
For information with respect to operating revenue, net operating income
(loss) and assets and liabilities attributable to all of CMS Energy's
business segments, refer to its Consolidated Financial Statements and to
the Notes to Consolidated Financial Statements for the year ended
December 31, 1993, in Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA,
which is incorporated herein by reference.
Consumers
For information with respect to the operating revenue, net operating
income (loss) and assets and liabilities attributable only to Consumers'
business segments, refer to its Consolidated Financial Statements and to
the Notes to Consolidated Financial Statements for the year ended Decem-
ber 31, 1993, in Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA,
which is incorporated herein by reference.
EMPLOYEES
CMS Energy
As of February 28, 1994, CMS Energy and its subsidiaries had 9,874 full-
time employees and 294 part-time employees for a total of 10,168
employees.
Consumers
As of February 28, 1994, Consumers and its subsidiaries had 9,434 full-
time employees and 277 part-time employees for a total of 9,711 employees.
This total includes 4,212 full-time operating, maintenance and
construction employees of Consumers who are represented by the Union. A
new collective bargaining agreement was negotiated between Consumers and
the Union which became effective on June 1, 1992 and, by its terms, will
continue in full force and effect until June 1, 1995.
SIGNIFICANT DEVELOPMENTS CONCERNING MCV COST RECOVERY ISSUES
The MCV Partnership was formed in January 1987 by subsidiaries of
Consumers and Dow to convert a portion of Consumers' abandoned Midland
Nuclear Plant into a natural gas-fueled, combined cycle cogeneration
facility. The MCV Facility has been certified as a Qualifying Facility
under PURPA. CMS Energy, certain other affiliates and the other partners
in the MCV Partnership made certain contingent undertakings related to the
MCV Partnership's sale and leaseback transaction. These included, but
were not limited to, indemnifications related to tax matters and a
commitment to extend a $10 million standby working capital facility to the
MCV Partnership. In addition, CMS Energy and certain of its affiliates
undertook certain indemnifications related to environmental matters
regarding the site. Consumers' current interests in the MCV Partnership
and the MCV Facility are discussed more fully in Note 3 of the Notes to
Consolidated Financial Statements.
In 1987, Consumers signed a PPA with the MCV Partnership for the purchase
of up to 1,240 megawatts of capacity for a 35-year period beginning with
the MCV Facility's commercial operation in March 1990. Consumers' cost
recovery from its electric customers for the amount of capacity purchased
by Consumers from the MCV Partnership, the price paid by Consumers for
that capacity and associated energy, and the method of rate recovery for
those purchases had been at issue before the MPSC and the Michigan
appellate courts since Consumers' first attempt to recover those costs in
its annual power supply cost recovery proceedings. Because the MPSC
consistently denied Consumers full recovery of the costs it incurred for
its purchases from the MCV Partnership, Consumers incurred significant
ongoing annual losses. On March 31, 1993, the MPSC issued an Opinion and
Order on a Revised Settlement Proposal, which had been submitted by
Consumers, CMS Energy, the MPSC Staff, and ten qualifying facility
developers, approving it with certain modifications. For a discussion of
the Revised Settlement Proposal as approved by the MPSC's March 31, 1993
Order, see Note 3 of the Notes to Consolidated Financial Statements, which
is incorporated by reference herein. With Consumers' acceptance of the
MPSC's decision on the Revised Settlement Proposal, the uncertainties
surrounding Consumers' cost recoveries related to its purchases from the
MCV Partnership were resolved to a sufficient degree that Consumers
effected a quasi-reorganization as of December 31, 1992 in which
Consumers' accumulated deficit was eliminated against other paid-in
capital. Following this quasi-reorganization Consumers resumed paying
dividends in 1993. The quasi-reorganization is more fully described in
Note 7 of the Notes to Consolidated Financial Statements.
A dispute has arisen between the MCV Partnership and Consumers relating to
the impact of the order on the fixed energy charge payment, currently approx-
imately 7 percent of the charges for capacity and energy, called for in the
PPA and Consumers' ability to exercise its rights under the regulatory out
provision based on the issuance of the Settlement Order. In accordance
with the dispute resolution provisions set out in the PPA, an arbitrator
acceptable to both parties has been selected and the arbitration of this
dispute has commenced. Consumers is unable to predict the outcome of such
arbitration proceedings or of any possible settlement of the issues
underlying this dispute. On March 4, 1994, the lessors of the MCV
Facility filed a lawsuit in federal district court against CMS Energy,
Consumers and CMS Holdings relating to the MCV Partnership's failure to
object to the Settlement Order in light of Consumers' interpretation of
the Settlement Order, which is the subject of the arbitration between the
MCV Partnership and Consumers. While CMS Energy and Consumers believe
this lawsuit to be without merit, they are unable to predict the outcome
of this action. For a discussion of the arbitration proceedings and the
lawsuit filed by the lessors, see Note 3 of the Notes to Consolidated
Financial Statements and Item 3. LEGAL PROCEEDINGS, which are
incorporated by reference herein.
CONSUMERS ELECTRIC UTILITY OPERATIONS
Consumers had approximately 1.5 million electric customers at December 31,
1993. Electric system energy sales by Consumers in 1993 totaled 31.66
billion kWh, a 3.8 percent increase from 1992. Electric operating revenue
in 1993 was $2.077 billion, an increase of 11.5 percent from 1992. A peak
demand of 6,226 MW was achieved in August 1993, representing an increase of
4.8 percent from the peak achieved in 1992 predominantly as a result of
warmer than normal weather and improved industrial sales. Consumers'
reserve margin was approximately 21 percent in 1993 and 19 percent in
1992, based on weather adjusted peaks.
Including the Ludington pumped storage facility, in which it has a 51
percent ownership and capacity entitlement, Consumers owns and operates 28
electric generating plants with an aggregate net demonstrated capability
available to Consumers, as of 1993 for summer conditions, of 6,299 MW.
See Item 2. PROPERTIES, CONSUMERS ELECTRIC UTILITY PROPERTIES.
Consumers' electric generating plants are interconnected by a transmission
system which is itself interconnected at a number of locations with
transmission facilities of unaffiliated systems, including those of other
utilities in Michigan, Ohio, Indiana and Canada. These interconnections
permit a sharing of the reserve capacity of the systems. This allows
mutual assistance during emergencies and substantially reduces investment
in utility plant facilities. Consumers also contracts to purchase power
from a number of other agencies and companies for future years. The most
significant of these contracts currently is the PPA.
Consumers' customer base includes a mix of residential, commercial, and
diversified industrial customers, the most important of which is the
automotive industry. However, Consumers' electric operations are not
dependent upon a single customer, or a few customers, the loss of any one
or more of which would have a material adverse effect on its financial
condition. Consumers' electric operations are seasonal to the extent that
peak demands occur in winter due to shorter days and colder temperatures,
and in summer due to warmer temperatures and the use of air conditioners
and other cooling equipment. Peak demands for 1993 were 5,262 MW in the
winter and 6,226 MW in the summer. For sales by customer class, see Item
1. CONSUMERS CONSOLIDATED REVENUE AND SALES BY BUSINESS SEGMENT.
Fuel
Consumers has five generating plants which utilize coal as a fuel source
and which constitute 77 percent of its baseload capacity. These plants
combined to produce a total of 16,520 million kWhs in 1993 requiring
approximately 7 million tons of coal. Consumers has long-term contracts
covering approximately 68 percent of its coal requirements for 1994.
Consumers' coal requirements not under long-term contract and any portion
of coal under long-term contract which is not delivered must be supplied
through short-term agreements or spot purchases. Consumers' coal
inventory as of December 31, 1993, amounted to approximately 45 days'
supply.
Consumers currently owns and operates two nuclear power plants, Palisades,
near South Haven, Michigan and Big Rock Point, near Charlevoix, Michigan.
In 1993, the combined net generation of these plants was 3,938 million
kWhs. Consumers has contracted for all of its nuclear fuel for 1994 and
ninety percent for 1995. Consumers currently has two contracts for
uranium concentrates which have quantity flexibility sufficient to cover
up to approximately 60 percent of its requirements. The larger of these
two contracts is valid through 1995, with options to extend the term
through 1997. Consumers intends to purchase the balance of its 1995 and
1996 concentrates requirements in the spot market. Consumers has
contracts for nuclear fuel services, including conversion to and
enrichment of uranium hexafluoride and fabrication of nuclear fuel
assemblies. The conversion contract remains in effect until June 1996. The
enrichment contract covers 100 percent of the requirements until 1996, then
70 percent until 2000. The fabrication contracts remain in effect for the
next three Palisades reloads and through the end of the operating license for
Big Rock Point. These contracts are with major private industrial
suppliers of nuclear fuel and related services and with the U. S.
government.
Karn Unit 4, a 638 MW oil fired electric generating unit located in
Essexville, Michigan was modified to burn natural gas in 1993. This unit
has the capability to generate electricity using oil or natural gas or a
combination of both. The unit's maximum capability using natural gas is
375 MW. When using natural gas, the company believes full load can be
achieved by over-firing with oil.
14
As shown below, Consumers generates electricity principally from coal and
nuclear fuel.
Power Generated
(Millions of kWhs)
1993 1992 1991 1990 1989
------ ------ ------ ------ ------
Coal 16,520 17,024 16,500 16,427 17,550
Oil (a) 238 206 194 287 453
Gas (a) 110 12 16 8 21
Nuclear (b) 3,938 5,093 5,340 3,406 4,025
Hydro 489 490 518 478 406
Net Pumped
Storage (c) (394) (393) (406) (354) (346)
------- ------- ------- ------- -------
Total Net
Generation 20,901 22,432 22,162 20,252 22,109
======= ======= ======= ======= =======
(a) 1993 reflects the conversion of Karn Unit 4 to a dual fuel
capability enabling the unit to burn natural gas or oil or a combination
of both, having previously only burned oil.
(b) During 1993, an extended outage resulted in reduced generation
at the Palisades nuclear facility. See Note 4 to Consumers Notes to
Consolidated Financial Statements which are incorporated by reference
herein.
(c) Represents Consumers' share of net generation from the Ludington
pumped storage plant. This facility pumps water into a storage pond using
electricity generated during off-peak hours, in order to later generate
electricity during peak demand hours.
The cost of all fuels consumed, shown below, fluctuates with the mix of
fuel burned.
Fuel Consumed
(Cost Per Million Btu)
1993 1992 1991 1990 1989
------ ------ ------ ------ ------
Coal $1.60 $1.62 $1.61 $1.65 $1.80
Oil 2.90 2.73 2.96 3.25 2.95
Gas (a) 3.13 4.73 4.58 6.11 (b) 2.82
Nuclear .40 (c) .38 .62 .67 .62
All Fuels (d) 1.39 1.33 1.36 1.50 1.59
(a) Includes combustion turbines and Karn 4.
(b) 1989 reflects significant refunds from gas suppliers.
(c) An increase in operating cycles from twelve to eighteen months
beginning in 1992 resulted in a significant reduction in nuclear fuel
costs.
(d) Weighted average fuel costs.
Under the Nuclear Waste Policy Act of 1982, the federal government is
responsible for the permanent disposal of spent nuclear fuel and high-
level radioactive waste beginning not later than 1998. On February 17,
1994, the DOE stated that its General Counsel has concluded that the DOE
does not have a legal obligation to accept spent nuclear fuel absent an
operational facility. Until the DOE actually accepts the fuel and waste
for storage, the generators and owners must provide for its storage. The
DOE has begun exploring possible options to offset a portion of the costs
associated with continued on-site storage after 1998. The Palisades plant
added two dry casks in 1993 which provide for the storage of 48 spent fuel
assemblies. Eleven additional casks are scheduled to be loaded in 1994
which will yield a full core discharge reserve capability for the 1995
Palisades refueling outage. The full core discharge is necessary to
complete the requirements of this outage. The thirteen dry casks expand
the total storage capacity for spent fuel by 312 assemblies. This will
accommodate normal spent fuel discharge until the year 2000.
The Big Rock Point plant has the capacity to accommodate normal spent fuel
discharge through 1999, with a full-core reserve through 1996.
CONSUMERS GAS UTILITY OPERATIONS
Consumers supplies natural gas to approximately 1.4 million customers in
40 of the 68 counties in Michigan's Lower Peninsula. It owns gas
transmission and distribution mains and other gas lines, compressor
stations and facilities, storage rights, wells and gathering facilities in
several fields in Michigan. Consumers and its wholly owned subsidiary,
Michigan Gas Storage, store gas during the warmer months of the year for
use in the colder months when demand is higher. Consumers' gas operations
are not dependent upon a single customer, or a few customers, the loss of
any one or more of which would have a material adverse effect on its
financial condition.
Consumers' gas operations are seasonal to the extent that peak demand
occurs in winter due to colder temperatures. Consumers' consolidated gas
operating revenue was $1.160 billion in 1993, an increase of 3 percent
from 1992. The all-time record 24 hour send-out of natural gas for
Consumers was 3,100,000 mcf on January 19, 1994, which Consumers considers
to be the peak-day transportation and distribution capacity of the system.
Deliveries of gas by Consumers, and from other sellers, to ultimate
customers including the MCV Partnership totaled 411 bcf in 1993. See
Item 1. BUSINESS. CONSUMERS CONSOLIDATED REVENUE AND SALES BY BUSINESS
SEGMENT.
Consumers Gas Supply
In 1993, Consumers purchased approximately 85 percent of its required gas
supply directly from producers under long term contracts. Trunkline,
Consumers primary gas supplier, supplied 41 percent of the overall
requirement. Consumers current supply contract with Trunkline runs until
November 1, 1994; however, firm transportation associated with this
contract continues until November 1, 1997. Of Consumers remaining gas
supply requirements purchased under long term contract, 15 percent came
from Michigan producers and 29 percent from various other producers and
non-affiliated marketing companies in the United States and Canada. The
remaining 15 percent of Consumers 1993 gas supply requirements were met by
purchases on the spot market.
Consumers' remaining firm transportation agreements are with Panhandle,
ANR Pipeline Company and Great Lakes Gas Transmission Company. These
agreements are utilized by Consumers to transport its required gas
supplies to market and to replenish its storage fields. Consumers' other
firm transportation agreement with Trunkline extends through February
1996. Consumers' two firm transportation agreements with Panhandle both
extend through March 1995. Consumers has six firm transportation
agreements with ANR Pipeline Company. The first and third largest of
these contracts extend through October 2003, the second largest extends
through October 1999, and the remaining two contracts extend through
December 2001 and 2002. Consumers' firm transportation agreement with
Great Lakes Gas Transmission Company extends through March 2004. In
total, Consumers' firm transportation arrangements amount to almost 90
percent of Consumers' total gas supply requirements. The balance of
Consumers' required gas supply is transported on interruptible contracts.
These contracts are with the same companies mentioned in conjunction with
firm capacity. The amount of interruptible capacity and the utilization
thereof is primarily a function of the price for such service and the
availability and price of the spot supplies to be purchased and
transported. Consumers' utilization of interruptible transportation is
generally in off-peak summer months and after its firm capacity has been
fully subscribed.
CONSUMERS INDEPENDENT POWER PRODUCTION
Two of Consumers' indirect subsidiaries own interests in the MCV Part-
nership and the MCV Facility, an independent power project. See Note 3 of
the Notes to Consolidated Financial Statements.
CMS ENERGY INDEPENDENT POWER PRODUCTION
Enterprises' subsidiary, CMS Generation, invests in, develops, converts
and/or constructs and operates non-utility power generation projects.
CMS Generation currently has ownership interests in 403 MW of owned
operating capacity in eight power plants in Michigan, California,
Connecticut, New York and Argentina.
In 1991, CMS Generation reduced the carrying cost of its investment in the
Oxford, certain loans to Oxford, and Oxford-related properties to
management's estimate of net realizable value, resulting in after-tax
losses of $31 million. In July 1993, CMS Generation, Oxford, and Oxford
Energy Inc. signed an Amended and Restated Asset Acquisition and
Settlement Agreement which was subsequently confirmed by the Bankruptcy
Court of the Southern District of New York and was executed in October
1993. The execution of this agreement did not have a material impact on
the consolidated financial statements of CMS Energy.
CMS ENERGY OIL AND GAS EXPLORATION AND PRODUCTION
NOMECO is an oil and natural gas producer with activities in Michigan and
12 other states, the Gulf of Mexico and eight foreign countries. In 1993,
it produced approximately 1.9 MMbbls of oil, condensate, and plant
products and approximately 18.5 bcf of gas compared to 1.7 MMbbls and 17.6
bcf in 1992.
During 1993 NOMECO participated with a working interest in drilling wells
as follows:
Type of Number of Number of Success
Well Wells Successful Wells Ratio
--------
Gross Net Gross Net Gross Net
----- --- ----- --- ----- ---
Exploratory 7 1.8 -- -- -- --
Development 13 2.0 12 1.9 92% 95%
-- --- -- ---
Total 20 3.8 12 1.9 60% 50%
== === == ===
These numbers do not include NOMECO's participation in Devonian Antrim
Shale gas wells in northern Michigan, where NOMECO had drilled 27 wells
with a 74 percent success rate.
A NOMECO subsidiary, NOMECO Ecuador Oil Company, is a member of a
consortium in which it has a 14 percent working interest in Block 16 of
the Oriente Basin of Ecuador. Two exploratory wells were completed in
1987. During 1988 and 1989, three more exploratory wells resulted in
discoveries. Appraisal wells were drilled and tested with positive
results on two of the discoveries and development began in 1992. This
$700 million project should lead to production in the first half of 1994.
Total production from the block is expected to commence at 30,000 barrels
per day and increase to a maximum of 55,000 barrels per day by the end of
1994 as new wells are brought on line. The successful exploratory and
appraisal program in Ecuador has allowed NOMECO to increase its foreign
oil reserves by 24.4 MMbbls. Ecuador now represents approximately one-
third of the total of NOMECO's proven oil and gas reserves on an
equivalent barrel basis. See Item 2. PROPERTIES, CMS ENERGY OIL AND GAS
EXPLORATION AND PRODUCTION PROPERTIES.
CMS ENERGY GAS TRANSPORTATION AND STORAGE
CMS Energy's subsidiary, Enterprises, through its subsidiaries develops,
owns and manages natural gas pipeline, storage and treating facilities and
markets natural gas to end users.
SUBSIDIARIES
CMS Energy
CMS Energy has two principal subsidiaries: Consumers and Enterprises.
Consumers
Consumers' principal subsidiaries include Huron, Michigan Gas Storage and
MGL.
Huron was formed for the purpose of participating in a partnership which
leases the Marysville gas reforming plant.
Michigan Gas Storage is engaged in the storage of natural gas for
Consumers and the transportation of natural gas for Consumers and others.
MGL was formed in 1988 for the purpose of participating in financing
transactions associated with the MCV Partnership. MGL has three
subsidiaries through which it has so participated: CMS Holdings,
CMS Midland, and MDC.
Enterprises
Enterprises' principal subsidiaries include NOMECO, CMS Generation,
CMS Utility Services, CMS Gas Marketing and CMS Gas Transmission.
NOMECO is engaged in exploration for and production of oil and natural gas
in Michigan and 12 other states, the Gulf of Mexico and eight foreign
countries. NOMECO has 11 active wholly owned subsidiaries and is a
partner in one general partnership.
CMS Generation is engaged in the development of and investment in
cogeneration and other independent power generation projects throughout
the world. CMS Generation has 27 subsidiaries.
CMS Utility Services is engaged in providing utility-related products and
credit management services. CMS Utility Services has one subsidiary:
CMS A/R Services, Inc.
CMS Gas Marketing markets natural gas to customers in several states.
CMS Gas Transmission transports, treats and stores natural gas and has
seven subsidiaries: CMS Antrim Gas Company, CMS Arkoma Pipeline Company,
CMS Grands Lacs Holding Company, CMS Gulf Coast Storage Company,
CMS Jackson Pipeline Company, CMS Saginaw Bay Company and CMS Saginaw Bay
Lateral Company.
19
CMS ENERGY CONSOLIDATED REVENUE AND SALES BY BUSINESS SEGMENT
Revenue For Years Ended December 31 In Millions
1993 1992 1991
------ ------ ------
Electric Utility Operations
Residential $ 718 $ 644 $ 650
Commercial 620 561 554
Industrial 635 551 531
Other 75 80 84
------ ------- -------
Total System Sales 2,048 1,836 1,819
Intersystem Sales 29 27 30
------ ------- -------
Total 2,077 1,863 1,849
------ ------- -------
Gas Utility Operations
Residential 803 781 742
Commercial 232 226 215
Industrial 55 55 58
Other 14 16 17
Transportation 56 48 29
------ ------- -------
Total 1,160 1,126 1,061
------ ------- -------
Oil and Gas Exploration
and Production Operations 77 70 50
------ ------- -------
Independent Power Production (a) 21 (8) (9)
------ ------- -------
Gas Transmission and Marketing
Operations
Marketing 130 82 36
Transmission 12 7 6
------ ------- -------
142 89 42
------ ------- -------
Other Operations 5 6 5
------ ------- -------
Total $3,482 $3,146 $2,998
====== ======= =======
(a) Does not include CMS Energy's share of unconsolidated independent
power production revenues. See Item 8. FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA, CMS Energy, Selected Financial Information.
Sales For Years Ended December 31
1993 1992 1991
------ ------ ------
Electric Utility Sales (Millions of kWhs)
Residential 10,066 9,733 9,997
Commercial 8,909 8,652 8,692
Industrial 11,541 10,831 10,692
Other 1,142 1,292 1,311
------ ------ ------
Total System Sales 31,658 30,508 30,692
Intersystem Sales 1,106 1,093 1,121
------ ------ ------
Total 32,764 31,601 31,813
====== ====== ======
Gas Utility Sales and Deliveries (bcf)
Residential 175 167 157
Commercial 56 54 50
Industrial 14 13 15
Transportation 166 150 140
---- ----- -----
Total 411 384 362
==== ===== =====
Oil & Gas Exploration and Produc-
tion Sales (net equiv. MMbbls) 5.0 4.3 3.7
20
CONSUMERS CONSOLIDATED REVENUE AND SALES BY BUSINESS SEGMENT
Revenue For Years Ended December 31 In Millions
1993 1992 1991
------ ------ ------
Electric Operations
Residential $ 718 $ 644 $ 650
Commercial 620 561 554
Industrial 635 551 531
Other 75 80 84
------ ------ ------
Total System Sales 2,048 1,836 1,819
Intersystem Sales 29 27 30
------ ------ ------
Total 2,077 1,863 1,849
====== ====== ======
Gas Operations
Residential 803 781 742
Commercial 232 226 215
Industrial 55 55 58
Other 14 16 17
Transportation 56 48 29
------ ------ ------
Total 1,160 1,126 1,061
------ ------ ------
Other Operations 6 (11) (2)
------ ------ ------
Total $3,243 $2,978 $2,908
====== ====== ======
Sales For Years Ended December 31
1993 1992 1991
------ ------ ------
Electric Sales (Millions of kWhs)
Residential 10,066 9,733 9,997
Commercial 8,909 8,652 8,692
Industrial 11,541 10,831 10,692
Other 1,142 1,292 1,311
------ ------ ------
Total System Sales 31,658 30,508 30,692
Intersystem Sales 1,106 1,093 1,121
------ ------ ------
Total 32,764 31,601 31,813
====== ====== ======
Gas Sales and Deliveries (bcf)
Residential 175 167 157
Commercial 56 54 50
Industrial 14 13 15
Transportation 166 150 140
----- ----- -----
Total 411 384 362
===== ===== =====
CMS ENERGY AND CONSUMERS REGULATION
CMS Energy, Consumers and their subsidiaries are subject to regulation by
various federal, state, local and foreign governmental agencies, including
those specifically described below.
Michigan Public Service Commission
Consumers is subject to the jurisdiction of the MPSC, which regulates
public utilities in Michigan with respect to retail utility rates,
accounting, services, certain facilities, the issuance of securities and
various other matters. For information about Consumers' pending MPSC
matters, see Item 3. LEGAL PROCEEDINGS. The MPSC also has or will have
rate jurisdiction over several limited partnerships in which CMS Gas
Transmission has ownership interests. These partnerships own or will own
and operate intrastate gas transmission pipelines.
Nuclear Regulatory Commission
Under the Atomic Energy Act of 1954, as amended, and the Energy
Reorganization Act of 1974, Consumers is subject to the jurisdiction of
the NRC with respect to the design, construction and operation of its
nuclear power plants. Consumers is also subject to NRC jurisdiction with
respect to certain other uses of nuclear material. With respect to
Palisades, the NRC fined Consumers $50,000 in September of 1993
and again on February 9, 1994. On February 15, 1994, the NRC
announced it would be conducting a diagnostic evaluation of Palisades.
For further discussion on the diagnostic evaluation see Note 2 of the
Notes to Consolidated Financial Statements, which is incorporated by
reference herein.
Federal Energy Regulatory Commission
FERC has rate jurisdiction over three independent power projects in which
CMS Generation has an ownership interest which are Qualifying Facilities
under PURPA: HL Power Company, Grayling Generating Station Limited
Partnership, and Genesee Power Station Limited Partnership.
The FERC has jurisdiction over Consumers' subsidiary, Michigan Gas
Storage, as a natural gas company within the meaning of the Natural Gas
Act. The FERC jurisdiction relates, among other things, to the
acquisition, operation and disposal of assets and facilities and to
service provided and rates charged by Michigan Gas Storage. Under certain
circumstances, the FERC also has the power to modify gas tariffs of
interstate pipeline companies. Certain aspects of Consumers' gas business
are also subject to regulation by the FERC including a blanket
transportation tariff pursuant to which Consumers can transport gas in
interstate commerce.
In 1992, the FERC issued Order 636 which makes a number of significant
changes to the structure of the services provided by interstate natural
gas pipelines. The order called for the commencement of individual
interstate pipeline cases leading to implementation of restructuring for
the 1993-94 winter heating season. Consumers is a significant purchaser of
gas from an interstate pipeline (Trunkline) and is a major transportation
customer of a number of pipelines. Through a settlement approved by the
FERC and MPSC, Consumers will be allowed recovery of transition costs
incurred in connection with the Trunkline restructuring. Michigan Gas
Storage, as an interstate pipeline, commenced restructuring proceedings to
comply with the rule. On July 6, 1993, the FERC accepted Michigan Gas
Storage's compliance filing effective November 1993. Consumers does not
believe that such restructuring will have a significant impact on its
financial position or results of operations.
Certain aspects of Consumers' electric operations are also subject to
regulation by the FERC, including compliance with the FERC's accounting
rules and regulations applicable to "public utilities" and "licensees",
the transmission of electric energy in interstate commerce and the rates
and charges for the sale of electric energy at wholesale, the sale or
merger of owners of certain facilities, the construction, operation and
maintenance of hydroelectric projects and the issuance of certain securi-
ties, as provided by the Federal Power Act.
In November 1992, Consumers, the Attorney General, DNR, and other state
and federal officials signed a settlement agreement related to the
relicensing of 11 of the 13 Consumers hydroelectric generating facilities
for which the licenses were to expire at the end of 1993. Temporary
license extensions have been granted to these facilities until new
licenses are issued by the FERC, which is expected to occur in mid-1994.
These conventional hydroelectric facilities constitute approximately one
percent of Consumers owned generating capacity. The agreement, if
approved by FERC, will relicense the generating facilities through
December 2023. The license issued by the FPC, the predecessor to FERC,
to Consumers and Detroit Edison for the Ludington pumped storage plant
extends to the year 2019. For information about various lawsuits
involving the Ludington plant, see Item 3. LEGAL PROCEEDINGS.
Consumers has an effective open-access interconnection service schedule on
file with the FERC for wholesale wheeling transactions. In February 1992,
Consumers also filed a separate but complementary open-access transmission
tariff that makes both firm and non-firm transmission service available to
eligible utilities, including investor-owned utilities, Qualifying
Facilities constructed under PURPA, independent power producers, municipal
and cooperative utilities. In an order issued on April 30, 1992, the FERC
accepted the filing, effective May 2, 1992, subject to refund, and ordered
a hearing before an ALJ related primarily to the level of the rates in the
tariff. In September 1993, the ALJ issued an initial decision that if
affirmed by the FERC would, among other things, compel reductions of the
tariff rates ranging from 25 percent to 65 percent. On November 1, 1993,
Consumers filed exceptions with the FERC seeking reversal of the rate
reductions proposed in the ALJ's initial decision. As of December 31,
1993, the amount of firm transmission service currently subject to the
tariff is 23 MW. At the rates proposed by Consumers, the revenues for
providing service for the 23 MW would be approximately $663,000 annually.
Securities and Exchange Commission
Both CMS Energy and Consumers are subject to the periodic reporting,
disclosure and other requirements of the Securities Exchange Act of 1934,
as well as applicable provisions of the Securities Act of 1933.
In addition, CMS Energy is a public utility holding company which is
exempt from registration under the provisions of the PUHCA. However, in
December 1991 the Attorney General and a coalition of municipal utilities
asked the SEC to revoke CMS Energy's status as an exempt holding company
and to require it to register under PUHCA. CMS Energy is opposing this
request and believes it will maintain its current exemption from
registration under PUHCA. See Item 3. LEGAL PROCEEDINGS.
CONSUMERS AND CMS ENERGY INSURANCE
Consumers is a member of NML, which provides insurance coverage against
property damage to members' nuclear generating facilities. Consumers
maintains $500 million of primary property damage insurance from NML at
each of its operating nuclear plants, Big Rock Point and Palisades,
covering all risks of physical loss, subject to certain exclusions and
deductibles. Consumers also is a member of NEIL and obtains excess
property damage insurance in the amount of $1.45 billion from coverage
from NEIL and additional excess property damage insurance in the amount of
$450 million from ANI. These nuclear property insurance policies cover
decontamination, debris removal and direct property loss. The NEIL II
policy for Palisades also covers much of the premature decommissioning
costs due to an accident which are not already funded and part of the
remaining book value of the plant. The NEIL II and ANI policies insure
the Palisades plant only. For any loss over $100 million, stabilization
and decontamination expenses must be satisfied before other claims
proceeds are received from the insurers. Under all these policies,
Consumers retains the risk of loss with respect to its nuclear plant
facilities to the extent the loss is within the policy deductibles
($1 million for Palisades and $250,000 for Big Rock Point) or exclusions
or exceeds the combined property damage policy limits ($2.4 billion for
Palisades and $500 million for Big Rock Point) at either location. In the
event of covered losses at its own or any other member's nuclear facility
or facilities, Consumers would be subject to assessments under the NML and
NEIL II policies which could total approximately $15 million in any one
policy year. Consumers has also procured from NEIL coverage entitled
NEIL I which would partially cover the cost of replacement power during
certain prolonged accidental outages of the Big Rock Point or Palisades
units. Such cost would not be covered by the insurance during the first
21 weeks of any outage, but the major portion of such cost would be
covered during the next 12 months of the outage, followed by a reduced
level of coverage for a period up to two additional years. Consumers
would be subject to a maximum assessment under the replacement power
insurance of approximately $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.
Consumers 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 plant) with
respect to Consumers' liability to others for injuries and off-site
property damage due to the nuclear hazard at such facilities. Such
insurance and financial protection covers Consumers up to the aggregate
limits of liability established by the Price-Anderson Act, which are
presently $544.4 million for Big Rock Point and approximately $9.4
billion for Palisades. 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. Consumers would be subject to a maximum assessment of
$75.5 million per occurrence (adjusted for inflation; plus a 5 percent
surcharge if claims and legal costs exceed the financial protection limit)
in the event of a nuclear incident at certain nuclear facilities, limited
to a maximum installment payment of $10 million per occurrence in any
year. Consumers also maintains insurance under a master worker program
that covers tort claims for bodily injury caused by the nuclear hazard to
workers who began their nuclear related employment after January 1, 1988.
The policies contain a $200 million nuclear industry aggregate limit and
could subject Consumers to a maximum assessment of up to $6.4 million in
the event of claims thereunder.
Property insurance is also maintained on CMS Energy's and Consumers' non-
nuclear facilities and operations. Conventional (non-nuclear) property,
boiler and machine insurance is maintained on buildings, equipment,
boilers, machinery, and gas stored underground. The applicable policies
insure the full replacement value of all major operating locations.
However, the insurance policies are subject to standard terms, conditions,
exclusions and coverage limits similar to those of other companies with
similar facilities and operations. Consumers maintains deductibles
ranging from $500,000 to $1,000,000 on plant and facility losses.
CMS Energy's and Consumers' non-nuclear public liability insurance
policies provide a $125 million policy limit, with a $500,000 deductible.
Other policies include $125 million of excess workers' compensation
insurance, subject to the $500,000 deductible; $125 million of fiduciary
and employee benefit liability insurance, subject to the $500,000
deductible; $10 million of crime insurance coverage subject to a $100,000
deductible; $50 million (offshore) and $20 million (onshore) of oil and
gas well blow-out insurance subject to a $500,000 deductible; and $225
million of aircraft insurance for corporate aircraft.
CMS Energy and Consumers are not insured with regard to certain risks,
most notably the overhead electric transmission and distribution system
equipment. Consumers continues to explore the availability of reasonably
priced insurance to cover this exposure. Consumers has no insurance for
flood or earthquake damage to its underground gas and electrical equipment
because it believes that these properties are not subject to large
earthquake and flood risks. Consumers has also not obtained insurance for
flood and earthquake property damage at its nuclear plants because it
believes that the protective systems built into these plants and the low
probability of an event of this type at the location of these plants makes
such insurance unnecessary. In addition, Consumers' insurance coverages
do not extend to certain environmental clean-up costs, such as claims for
air pollution, some past PCB contamination and for some long-term storage
or disposal of pollutants. See "Consumers and CMS Energy Environmental
Compliance" section below.
Insurance policy terms, limits and conditions are subject to change during
the year as policies are renewed; however, CMS Energy and Consumers
believe that they and their subsidiaries are adequately insured for the
various risk exposures of incident to their respective businesses.
CONSUMERS AND CMS ENERGY ENVIRONMENTAL COMPLIANCE
Consumers and CMS Energy and their subsidiaries are subject to regulation
with regard to environmental quality, including air and water quality,
zoning and other matters, by various federal, state and local authorities.
Management believes that the responsible administration of its energy
resources includes reasonable programs for the protection and enhancement
of the environment.
Consumers has installed electrostatic precipitators to remove particulates
from stack emissions at electric generating plants, converted electric
generating units to burn cleaner fuels, worked with others to use coal ash
in place of topsoil to grow vegetation and prevent erosion and as a
substitute for asphalt in road shoulders, worked with local, state and
national organizations to enhance certain of Consumers' lands for the
benefit of wildlife, provided recreational access to its lands, worked
with universities and other institutions on projects to propagate threat-
ened or endangered species, and made financial contributions to a variety
of environmental enhancement projects.
Capital expenditures by Consumers for environmental protection additions
were approximately $31 million in 1993 and are estimated to be
approximately $48 million in 1994.
Air use permits are required under federal and state law for certain
Consumers' and CMS Generation's affiliates' sources of air emissions.
These laws require that certain affected facilities control their sources'
air emissions. Permits for Consumers' affected steam electric generating
facilities and other affected sources of air emissions have been issued by
the Michigan Air Pollution Control Commission pursuant to a delegation of
authority from the EPA under the federal Clean Air Act and Michigan Air
Pollution Act, as amended. Consumers believes that it is in substantial
compliance with all air use permits.
Included in the 1990 amendments to the federal Clean Air Act are
provisions that limit emissions of sulfur dioxide and nitrogen oxides and
require enhanced emissions monitoring. All of Consumers' coal-fueled
electric generating units burn low-sulfur coal and are presently operating
at or near the sulfur dioxide emission limits which will be effective in
2000. Beginning in 1995, certain coal-fueled generating units will
receive emissions allowances (all of Consumers coal units will receive
allowances beginning in 2000). Based on projected emissions from these
units, Consumers expects to have excess allowances which may be sold or
saved for future use.
The Clean Air Act's provisions also require Consumers to make capital
expenditures estimated to total $14 million for installation of continuous
emission monitoring systems at affected units, and approximately $10
million to install a low nitrogen oxide burner system at one coal-fired
unit. Consumers estimates capital expenditures for possible modifications
at other coal-fired units based on proposed nitrogen oxide regulations to
be an additional $50 million by the year 2000. Consumers expects final
nitrogen oxide regulations to be issued by early 1994. Management
believes that Consumers annual operating costs will not be materially
affected.
The relative costs of compliance by Consumers should be less than that
experienced by other utilities that have not been previously subject to
stringent air quality restrictions. Consumers will seek to recover costs
of complying with new environmental legislation in future rates.
CMS Energy believes that CMS Generation's projects are in substantial
compliance with the 1990 amendments.
The CERCLA or Superfund lists sites for environmental cleanup on the
National Priorities List. The EPA notifies parties who may have some
liability for such cleanup. Along with a number of other credit-worthy,
potentially responsible parties, Consumers has received notice for several
sites, and may receive notice in the future for other sites to be added to
the National Priorities List. Based on its level of involvement with the
sites and the involvement and credit worthiness of other parties with the
sites, Consumers believes that it is unlikely that its liability at any of
the known CERCLA sites, individually or in total, will have a material
adverse effect on its financial condition or results of operations.
In 1990, the State of Michigan passed amendments to its Environmental
Response Act. Effective July 1991, this law established a state program
similar to the federal CERCLA, though broader in scope. Under this law,
Consumers expects it will ultimately incur costs at a number of sites,
including several of the 23 sites that formerly housed manufactured gas
plant facilities at one time operated by Consumers, even those in which it
has a partial or no current ownership interest. It is expected that in
most cases, other parties with current or former ownership interests will
also be considered liable under the law and may be required to share the
costs of any site investigations and remedial actions. There is limited
knowledge of manufactured gas plant contamination at these sites at this
time. However, Consumers is continuing to monitor this issue.
In addition, at the request of the DNR, Consumers prepared work plans for
remedial investigation/feasibility studies for three of these sites. Work
plans for remedial investigation/feasibility studies for four other sites
have also been prepared. The purpose of a remedial
investigation/feasibility study is to define the nature and extent of
contamination at a site and to determine which of several possible
remedial action alternatives, including no action, may be required under
the Environmental Response Act. The DNR has approved two of the three
plans for remedial investigation/feasibility studies submitted and is
currently reviewing the one remaining. The cost to conduct one of the
approved studies will be approximately $250,000 based on bids received.
Although the actual cost of conducting the remaining two remedial
investigation/feasibility studies will not be known until bids are
received from contractors, Consumers currently estimates the total cost of
conducting the three studies submitted to the DNR to be less than $1
million.
The timing and extent of any further site investigation and remedial
actions will depend, among other things, on requests received from the DNR
and on future site usage by Consumers or other owners. Under the current
schedule, Consumers anticipates the first remedial
investigation/feasibility study would be completed in mid-1994. Consumers
believes the results of the remedial investigation/feasibility studies
will allow management to estimate a range of remedial cost estimates for
the sites under study. Based on Consumers' knowledge of other utility
remedial actions, remediation costs for Consumers for these sites may be
substantial. In 1993, the MPSC addressed the question of recovery of
investigation and remedial costs for another Michigan gas utility as part
of that utility's gas rate case. In that proceeding, the MPSC determined
that prudent investigation and remedial costs could be deferred and
amortized over 10-year periods and prudent unamortized costs can be
included for recovery in the utility's rate cases. The MPSC stated the
length of the period may be reviewed from time to time, but any revisions
would be prospective. Consumers believes costs incurred for both
investigation and any required remedial actions would be recoverable from
its gas customers under established regulatory policies and accordingly
are not likely to materially affect its financial position or results of
operations.
Consumers has engaged in an aggressive testing and removal program for
USTs. Since 1985, Consumers and its subsidiaries have reduced the number
of regulated UST systems from approximately 256 to 48. At 98 of the sites
from which UST systems were removed there had been hydrocarbon releases,
either from tank system leaks or from spillage on the surface during
transfer of contents to or from the tanks. Company response activities
have resulted in DNR closure agreements of 52 of those releases. The
remaining releases are at various stages of completion. It is estimated
that about $5 million remains to be spent to complete these response
activities. The Michigan Underground Storage Tank Financial Assurance Act
provides a fund to help pay for the cost of response activities associated
with leaking USTs. To qualify for these funds, an owner or operator must
be in compliance with UST regulations. A substantial portion of future
costs for UST response activities at the release sites and a portion of
the costs already incurred may be eligible for reimbursement from this
fund. During 1993, Consumers was reimbursed $807,400 by this state fund.
Like most electric utilities, Consumers has PCB in some of its electrical
equipment. Although it has been unlawful to manufacture or sell PCB or
PCB contaminated equipment since the 1970's, its continued use in
preexisting electrical equipment is lawful. Consumers has engaged in a
number of programs to reduce the risk of exposure to the environment from
possible PCB spills. These included such actions as removing PCB
capacitors outside of substations, draining large transformers and
refilling them with non-PCB mineral oil, removing PCB equipment which was
found to pose a risk to food supplies or animal feed, and other such
programs. Consumers still has a substantial number of PCB capacitors in
substations. It has approximately 459,000 untested distribution
transformers. By regulation, unless the PCB level is known, transformers
are presumed to be PCB-contaminated. There may also be PCB in certain
other types of equipment. Based upon results of sampling in 1985, it is
thought that about 1 percent of the pole-top transformers had over 500 ppm
of PCB, and about 12 percent had from 50 to 500 ppm. Those percentages
should decline over time with the retirement of older equipment and its
replacement with non-PCB equipment. From time to time there are
accidental releases from such equipment. Consumers typically spends less
than $1 million per year for all clean up and disposal of debris and
equipment from PCB releases.
NPDES permits allow the discharge of certain substances from Consumers'
facilities and pipeline construction projects pursuant to state water
quality standards and federal effluent limitation guidelines. NPDES
permits for discharges from all of Consumers' major operating steam
electric generating facilities and for certain discharges from Consumers'
other facilities, including the Ludington pumped storage plant and
pipeline construction projects, have been issued by the State of Michigan
pursuant to a delegation of authority from the EPA under the Federal Water
Pollution Control Act of 1972, as amended. Consumers believes that it is
in substantial compliance with the NPDES permits.
The cooling water intake structures of both new and existing steam
electric power plants are required by law to reflect the "best technology
available for minimizing adverse environmental impact." The staff of the
DNR concluded in 1976 and 1978 that the existing cooling water intake
structures at the Karn, Weadock and Cobb plants and Campbell Units 1 and 2
do not reflect the "best technology available for minimizing adverse
environmental impact." Until permit conditions impose additional
requirements, their effects on the operating expenses and operations of
these facilities cannot be determined.
In 1980, the staff of the DNR notified Consumers of its opinion that the
thermal component of the discharge of several plants has adverse effects
on certain aquatic species. The MWRC made no findings in this regard.
The opinion of the DNR staff is subject to confirmation in the future by
findings of the replacement of the MWRC as provided in the State of
Michigan Executive Order 1991-31. Executive Order 1991-31 provides that
DNR Staff decisions are subject to confirmation, initially, by the
Director of the new DNR, and finally, by the Natural Resources Commission.
Until the DNR's opinion has been confirmed and additional requirements
imposed, its effects on the operating expenses and operations of these
facilities cannot be determined.
The possibility that exposure to electric and magnetic fields (EMFs)
emanating from power lines and other electric sources may result in
adverse health effects has been a subject of increased public,
governmental and media attention. The EPA has stated that information is
currently insufficient to determine whether a cause-and-effect
relationship exists between EMF and certain health risks. Currently,
there is no Michigan or federal regulation of transmission lines with
regard to EMF.
CONSUMERS AND CMS ENERGY COMPETITION
Electric Competition
The electric utility operations of Consumers are regulated at the
wholesale and retail level. The wholesale utility operations of Consumers
are regulated by the FERC while the retail utility operations are
regulated by the MPSC. Competitors in the electric utility operations of
Consumers must also be similarly regulated or specifically exempted from
such regulation. CMS Energy's non-utility electric generation businesses
are exempt from MPSC regulation and compete in the non-utility power
market with other non-utility energy companies that are similarly exempt.
The electric utility industry has experienced retail load competition in
recent years from cogeneration and self-generation as discussed below.
The electric utility industry is now also experiencing increased
competition in the wholesale power markets. The factors driving this
trend include the enactment of PURPA, the enactment of the Energy Act and
increased transmission access. These initiatives provide both
opportunities for Consumers in competing for new customers and potential
risks because of alternative energy supplies available to existing
customers. CMS Energy is similarly faced with expanded opportunities and
competition for customers in the non-utility electric generation market.
PURPA created a special type of independent power producer that, providing
the requirements of qualifying facility status are met and all other other
aspects of the utility's requirements and the power offered are otherwise
equal, are entitled to sell their production to a utility. Under PURPA,
qualifying facilities are generally exempt from the federal and state
regulation imposed on electric utilities. Similarly, the Energy Act was
designed, among other things, to foster competition in the wholesale
market by facilitating the ownership and operation of generating
facilities by "exempt wholesale generators" (which may include independent
power producers as well as affiliates of electric utilities) and
authorizing the FERC under certain conditions to order utilities which own
transmission facilities to provide wholesale transmission services to or
for other utilities and other entities generating electric energy for sale
or resale. In addition, the Energy Act allows independent power producers
exemptions from the application of much of the regulation imposed on
electric utilities. One effect of the foregoing exemptions from
regulation has been to encourage investment in wholesale power production
facilities which through MPSC mandated bidding procedures will compete
with Consumers to build generation to meet Consumers needs for new
generation. These independent power producers also provide competition
for CMS Energy in the non-utility electric generation market both
domestically and internationally.
Some of Consumers' larger industrial customers are exploring the
possibility of constructing and operating their own on-site generating
facilities. Consumers is actively working with these customers to develop
rate and service alternatives that are competitive with self-generation
options. Under the retail rates authorized by the MPSC, Consumers
industrial and commercial customer rates are structured such that rates
paid by residential customers are kept at levels lower than they would
otherwise be through subsidization by the industrial and commercial
customers. As part of its current electric rate case, Consumers has
requested that the MPSC reduce the level of rate subsidization of
residential customers by commercial and industrial customers so as to
improve rate competitiveness for its largest customers. On March 4, 1994,
the ALJ issued a proposal for decision that recommended an immediate
reduction of 50 percent of such subsidization as compared with Consumers
proposal of phasing in a 60 percent reduction over 3 years.
In addition, a number of municipalities distribute electricity within
their corporate limits and some of these generate all or a portion of
their requirements. These municipalities and various rural electric
cooperative corporations serve a significant number of retail customers in
or adjacent to areas served by Consumers.
Consumers has on file with the FERC an open-access transmission tariff
which enables any electric utility (defined in such tariff to include
independent power producers) to use Consumers' integrated transmission
system for the transmission of capacity and energy produced and sold by
such electric utility or by third parties. Other similar open-access
transmission tariffs have been made effective by the FERC for several
large utility companies or systems and more open-access transmission
tariffs are anticipated. These developments produce increased marketing
opportunities for utility systems such as Consumers and expose the
Consumers' system to loss of wholesale load or reduced revenues due to
possible displacement of Consumers' wholesale transactions by alternative
suppliers with access to Consumers' primary areas of service. Because
wholesale transactions by Consumers generated less than 2 percent of Consumers
1993 revenue from electric operations, Consumers does not believe that
this potential loss is significant.
Gas Competition
Competition with respect to Consumers' gas operations has a longstanding
history, as gas has traditionally competed with other fuels such as coal
and oil. The passage of the Natural Gas Policy Act of 1978 resulted in
gas supplies no longer being curtailed, with competition subsequently
arising between alternative suppliers of gas. Consumers responded to
these developments by offering gas transportation and storage services to
customers that chose to acquire their gas supplies from some other
supplier. Because Consumers' earnings from its gas operations are not
primarily dependent on gas purchased and resold to its customers, but
rather on owning and operating its gas distribution, storage and
transportation facilities, Consumers has not suffered any significant
losses as a result of such competition, nor does it believe that such
losses are likely.
CMS Energy's non-utility interstate and intrastate gas operations face
competition from other gas transportation companies for new opportunities.
The marketing segment faces strong competition for business in all its
markets.
29
EXECUTIVE OFFICERS
As of March 18, 1994
CMS Energy
Name Age Position Period
---- --- -------- ------
William T. McCormick, Jr. 49 Chairman of the Board and
Chief Executive Officer of
CMS Energy 1987-Present
Chairman of the Board of
Consumers 1992-Present
Chairman of the Board and
Chief Executive Officer
of Enterprises 1988-Present
Chairman of the Board and
Chief Executive Officer
of Consumers 1985-1992
S. Kinnie Smith, Jr. 63 Vice Chairman of the Board
and General Counsel of
CMS Energy 1992-Present
Vice Chairman of the Board
of Consumers 1988-Present
Vice Chairman of the Board
of Enterprises 1989-Present
President and General
Counsel of CMS Energy 1988-1992
Vice Chairman of the Board
and General Counsel
of CMS Energy 1987-1988
Vice Chairman of the Board
and General Counsel
of Consumers 1987-1988
Victor J. Fryling 46 President of CMS Energy 1992-Present
President of Enterprises 1993-Present
Vice Chairman of the Board
of Consumers 1992-Present
President and Chief
Financial Officer of
Enterprises 1992-1993
Executive Vice President
and Chief Financial
Officer of CMS Energy
and Consumers 1988-1992
Senior Vice President and
Chief Financial Officer
of CMS Energy and Consumers 1987-1988
John W. Clark 49 Senior Vice President of CMS
Energy 1987-Present
Senior Vice President of
Consumers 1985-Present
Alan M. Wright 48 Senior Vice President and
Chief Financial Officer
of CMS Energy 1992-Present
Senior Vice President and
Chief Financial Officer
of Consumers 1993-Present
Senior Vice President and
Chief Financial Officer
of Enterprises 1993-Present
Senior Vice President,
Chief Financial Officer and
Treasurer of Consumers 1992-1993
Vice President and Treasurer
of Consumers 1991-1992
Vice President - Finance of
Entergy Corporation 1989-1991
Vice President - Finance of
Entergy Services 1987-1991
Preston D. Hopper* 43 Vice President, Controller
and Chief Accounting
Officer of CMS Energy 1992-Present
Vice President and Controller
of Enterprises 1992-Present
Vice President and Controller
of CMS Energy 1991-1992
Vice President and Controller
of ANR Pipeline Co. 1983-1991
Michael G. Morris* 47 President and Chief Executive
Officer of Consumers 1994-Present
Executive Vice President and
Chief Operating
Officer of Consumers 1992-1994
Executive Vice President of
Consumers 1988-1992
President and Chief Operating
Officer of Colorado
Interstate Gas Company 1987-1988
Executive Vice President of
ANR Pipeline Company 1986-1988
David A. Mikelonis* 45 Senior Vice President and
General Counsel of
Consumers 1988-Present
Vice President and General
Attorney of Consumers 1986-1988
* In April 1993 the Board of Directors designated the Senior Officers of
CMS Energy, its Controller, the President of Enterprises, the President of
Consumers and the General Counsel of Consumers as Executive Officers of
CMS Energy for purposes of the Securities Exchange Act of 1934.
The present term of office of each of the officers extends to the first
meeting of CMS Energy's Board of Directors after the next annual election
of Directors (scheduled to be held May 27, 1994).
There are no family relationships among executive officers and directors
of CMS Energy.
Consumers
Name Age Position Period
---- --- -------- ------
William T. McCormick, Jr. 49 See the information under CMS
Energy's Officers Section above,
incorporated herein by reference.
S. Kinnie Smith, Jr. 63 See the information under CMS
Energy's Officers Section above,
incorporated herein by reference.
Victor J. Fryling 46 See the information under CMS
Energy's Officers Section above,
incorporated herein by reference.
Michael G. Morris 47 See the information under CMS
Energy's Officers Section above,
incorporated herein by reference.
John W. Clark 49 See the information under CMS
Energy's Officers Section above,
incorporated herein by reference.
Paul A. Elbert 44 Senior Vice President of
Consumers 1991-Present
Vice President of Consumers 1988-1991
Plant General Manager,
Karn-Weadock Complex of
Consumers 1986-1988
David A. Mikelonis 45 See the information under
CMS Energy's Officers Section
above, incorporated herein by
reference.
Alan M. Wright 48 See the information under
CMS Energy's Officers Section
above, incorporated herein by
reference.
David W. Joos 40 Senior Vice President of
Consumers 1994-Present
Vice President of Consumers 1990-1994
Dennis DaPra** 51 Vice President and Controller
of Consumers 1991-Present
Director of Financial and
Regulatory Reporting of
Consumers 1984-1991
** In April 1993, Consumers' Board of Directors designated the Senior
Officers of Consumers and its Controller as Executive Officers of
Consumers for purposes of the Securities Exchange Act of 1934.
The present term of office of each of the officers extends to the first
meeting of Consumers' Board of Directors after the next annual election of
Directors (scheduled to be held May 27, 1994).
There are no family relationships among executive officers and directors
of Consumers.
32
ITEM 2. PROPERTIES.
CHARACTER OF OWNERSHIP
The principal properties of CMS Energy and its subsidiaries are owned in fee,
except that most electric lines and gas mains are located, pursuant to ease-
ments and other rights, in public roads or on land owned by others. The
statements under this item as to ownership of properties are made without
regard to tax and assessment liens, judgments, easements, rights of way,
contracts, reservations, exceptions, conditions, immaterial liens and encum-
brances, and other outstanding rights. None of these outstanding rights
impairs the usefulness of such properties.
Substantially all of Consumers' properties are subject to the lien of its
First Mortgage Bond Indenture.
CONSUMERS ELECTRIC UTILITY PROPERTIES
Consumers' electric generating system consists of five fossil-fueled
plants, two nuclear plants, one pumped storage hydroelectric facility,
seven gas combustion turbine plants and 13 hydroelectric plants.
33
1993 Summer Net 1993 Net
Demonstrated Generation
Name and Location Size and Year Capability (Thousands
(Michigan) Entering Service (Kilowatts) of kWhs)
Coal Generation
J H Campbell - West Olive 3 Units, 1962-1980 1,346,300 (a) 7,400,192
D E Karn - Essexville 2 Units, 1959-1961 515,000 3,272,247
B C Cobb - Muskegon 2 Units, 1956-1957 296,000 1,713,317
J R Whiting - Erie 3 Units, 1952-1953 310,000 2,013,913
J C Weadock - Essexville 2 Units, 1955-1958 310,000 2,120,296
--------- -----------
Total 2,777,300 16,519,965
--------- -----------
Oil/Gas Generation
D E Karn - Essexville 2 Units, 1975-1977 1,276,000 336,864
--------- -----------
Ludington Pumped Storage 6 Units, 1973 954,700 (b) (394,339) (c)
--------- -----------
Nuclear Generation
Palisades - South Haven 1 Unit, 1971 755,000 3,513,191
Big Rock Point -
Charlevoix 1 Unit, 1962 67,000 424,851
--------- -----------
Total 822,000 3,938,042
--------- -----------
Gas/Oil Combustion Turbine
Generation 7 Plants, 1966-1971 395,300 11,698
--------- -----------
Hydro Generation 13 Plants,1907-1949 73,800 489,229
--------- -----------
Total Owned Generation 6,299,100 20,901,459
===========
Plus Purchased and Inter-
change Power Capacity 1,223,000 (d)
---------
Total 7,522,100
=========
(a) Represents Consumers' share of the capacity of the Campbell Plant Unit 3, net of 6.69 percent (ownership interests
of the Michigan Public Power Agency and Wolverine Power Supply Cooperative, Inc.).
(b) Represents Consumers' share of the capacity of the Ludington pumped storage plant. Consumers and Detroit Edison
have 51 percent and 49 percent undivided ownership, respectively, in the plant, and the capacity of the plant is
shared accordingly.
(c) Represents Consumers' share of net pumped storage generation. This facility electrically pumps water during off-
peak hours for storage to later generate electricity during peak-demand hours.
(d) Includes purchased power capacity from the MCV Facility totaling 1,023 MW.
34
Consumers' electric transmission and distribution lines owned and in
service are as follows:
Structure Sub-Surface
(Miles) (Miles)
Transmission
345,000 volt 1,137 -
138,000 volt 3,246 4
120,000 volt 19 -
46,000 volt 4,066 9
23,000 volt 31 7
------ -----
Total transmission 8,499 20
Distribution
(2,400-24,900 volt) 50,359 4,756
------ -----
Total transmission and
distribution 58,858 4,776
====== =====
Consumers owns substations having an aggregate transformer capacity of
36,249,290 kilovoltamperes.
CONSUMERS GAS UTILITY PROPERTIES
Consumers' gas distribution and transmission system consists of
20,768 miles of distribution mains and 1,084 miles of transmission lines
throughout the Lower Peninsula of Michigan. Consumers owns and operates
five compressor stations with a total of 116,070 installed horsepower.
Consumers' gas storage fields, listed below, have an aggregate certified
storage capacity of 241.5 bcf:
Total Certified
Field Name Location Storage Capacity (bcf)
Overisel Allegan and Ottawa Counties 64.0
Salem Allegan and Ottawa Counties 35.0
Ira St Clair County 7.5
Lenox Macomb County 3.5
Ray Macomb County 66.0
Northville Oakland, Washtenaw and
Wayne Counties 25.8
Puttygut St Clair County 16.6
Four Corners St Clair County 3.8
Swan Creek St Clair County .6
Hessen St Clair County 18.0
Lyon - 34 Oakland County .7
35
Michigan Gas Storage owns and operates two compressor stations with a
total of 46,600 installed horsepower. Its transmission system consists of
547 miles of pipelines within the Lower Peninsula of Michigan.
Michigan Gas Storage's gas storage fields, listed below, have an aggregate
certified storage capacity of 117 bcf:
Total Certified
Field Name Location Storage Capacity (bcf)
Winterfield Osceola and Clare Counties 75.0
Cranberry Lake Clare and Missaukee Counties 30.0
Riverside Missaukee County 12.0
Consumers' gas properties also include the Marysville gas reforming plant,
located in Marysville, Michigan. Huron entered into a partnership
with PanCanadian Petroleum Company and CanStates Investments to use the
expanded capacity of the underground caverns at the Marysville plant for
commercial storage of liquid hydrocarbons. On February 1, 1994 PanCanadian
Petroleum Company purchased CanStates Investments. In addition, Consumers
and Novacor Hydrocarbons, Inc. are partners in a partnership to use certain
hydrocarbon fractionation facilities at the plant.
CMS ENERGY OIL AND GAS EXPLORATION AND PRODUCTION PROPERTIES
NOMECO has carried on a domestic oil and gas exploration program since
1967. In 1976, NOMECO entered its first venture outside the United
States.
Net oil and gas production by NOMECO for the years 1991 through 1993 is
shown in the following table.
Thousands of barrels of oil and millions of
cubic feet of gas, except for reserves
1993 1992 1991
Natural gas (a) 18,487 17,578 14,714
Oil and condensate (a) 1,716 1,417 1,260
Plant products (a) 186 291 283
Average daily production (b)
Oil 5.6 4.9 4.1
Gas 62.3 59.2 50.5
Reserves to annual production ratio
Oil (MMbbls) 19.1 22.6 21.9
Gas (bcf) 10.9 11.8 13.0
(a) Revenue interest to NOMECO
(b) NOMECO working interest (includes NOMECO's share of royalties)
36
The following table shows NOMECO's estimated proven reserves of oil and gas for the years 1991 through 1993.
Total Worldwide United States International
Oil Gas Oil Gas Oil Gas
(MMbbls) (bcf) (MMbbls) (bcf) (MMbbls) (bcf)
Proven Developed and
Undeveloped Reserves
December 31, 1990 19.5 172.1 5.6 167.9 13.9 4.2
Revisions and other changes 0.4 6.5 0.2 6.4 0.2 0.1
Extensions and discoveries 9.7 24.3 0.4 24.3 9.3 -
Purchases of reserves 0.2 3.0 0.2 3.0 - -
Production (1.3) (14.7) (1.1) (14.5) (0.2) (0.2)
----- ------ ----- ------ ----- -----
December 31, 1991 28.5 191.2 5.3 187.1 23.2 4.1
Revisions and other changes 0.8 (20.4) 0.2 (20.1) 0.6 (0.3)
Extensions and discoveries 7.4 45.4 0.1 44.7 7.3 0.7
Purchases of reserves 1.0 9.9 0.2 6.8 0.8 3.1
Production (1.6) (17.6) (1.1) (17.4) (0.5) (0.2)
----- ------ ----- ------ ----- -----
December 31, 1992 36.1 208.5 4.7 201.1 31.4 7.4
Revisions and other changes 0.4 7.2 (0.4) 7.1 0.8 0.1
Extensions and discoveries 0.1 2.9 0.1 2.9 - -
Purchases of reserves - 1.7 - 1.7 - -
Production (1.9) (18.5) (1.0) (18.2) (0.9) (0.3)
----- ------ ----- ------ ----- -----
December 31, 1993 34.7 201.8 3.4 194.6 31.3 7.2
===== ====== ===== ====== ===== =====
Proven Developed Reserves
December 31, 1990 18.8 155.5 4.9 151.3 13.9 4.2
December 31, 1991 25.9 188.0 5.1 183.9 20.8 4.1
December 31, 1992 31.7 205.0 4.5 198.8 27.2 6.2
December 31, 1993 31.2 200.0 3.3 193.4 27.9 6.6
Equity Interest in Proven
Reserves of Pecten Yemen
December 31, 1993 1.5 - - - 1.5 -
37
The following table shows NOMECO's undeveloped net acres of oil and gas
leasehold interests at December 31.
Net Acres
1993 1992
Michigan 77,672 120,740
Louisiana (a) 37,295 39,226
Texas (a) 8,083 10,411
North Dakota 5,635 -
Indiana 5,034 715
Other states 2,184 2,581
------- ---------
Total domestic 135,903 173,673
------- ---------
Thailand 188,000 188,000
Yemen 120,563 -
Papua New Guinea 96,825 63,220
Equatorial Guinea 83,334 83,334
Ecuador 69,160 69,160
New Zealand 602 1,544
China (b) - 589,334
------- ---------
Total international 558,484 994,592
------- ---------
Total 694,387 1,168,265
======= =========
(a) Includes offshore acreage.
(b) Acreage excluded at year-end 1993 as part of an agreement with the
state oil company to discontinue its current exploration program because
it has been unsuccessful.
CONSUMERS OTHER PROPERTIES
CMS Midland owns a 49 percent interest in the MCV Partnership which was
formed to construct and operate the MCV Facility. The MCV Facility has
been sold to five owner trusts and leased back to the MCV Partnership.
CMS Holdings is a limited partner in the FMLP, which is a beneficiary of
one of these trusts. CMS Holdings' indirect beneficial interest in the
MCV Facility is 35 percent.
Consumers owns fee title to 1,140 acres of land in the City and Township
of Midland, Midland County, Michigan, occupied by the MCV Facility. The
land is leased to the owners of the MCV Facility by five separate leases,
each leasing an undivided interest and in the aggregate totaling 100
percent, for an initial term ending December 31, 2035 with possible
renewal terms to June 15, 2090.
Consumers owns or leases three principal General Office buildings in
Jackson, Michigan and 53 Regional and other field offices at various
locations in Michigan's Lower Peninsula. Of these, two of the General
Office buildings and eleven of the Regional and other field offices are
leased. Also owned are miscellaneous parcels of real estate not now used
in utility operations.
CMS ENERGY OTHER PROPERTIES
Various subsidiaries of CMS Generation own interests in independent power
plants, including a 50 percent partnership interest in a 30 MW wood waste-
fueled power plant near Susanville, California; a 50 percent partnership
interest in a 54 MW coal and wood waste-fueled power plant in Filer City,
Michigan; a 50 percent partnership interest in a 34 MW wood waste-fueled
power plant in Grayling Township, Michigan; a 50 percent interest in a 26
MW tire burning power plant near Sterling, Connecticut; a 50 percent
interest in a wood waste-fueled power plant in Lyons Falls, New York; an
18.6 percent interest in a consortium which owns an 88 percent interest in
a 50 MW fossil-fueled plant in San Nicolas, Argentina; a 25 percent
interest in a consortium which owns a 59 percent interest in two
hydroelectric power plants, with a total of 1,320 MW of capacity, on the
Limay River in western Argentina; and a 50 percent ownership interest in a
18 MW wood waste-fueled power plant near Chateaugay, New York.
CMS Gas Transmission owns a 75 percent interest in a general partnership
which owns and operates a 25-mile, 16-inch natural gas transmission
pipeline in Jackson and Ingham Counties, Michigan; owns a 24 percent
limited partnership interest in the Saginaw Bay Area Limited Partnership
which owns 125 miles of 10-inch and 16-inch natural gas transmission
pipeline in north-central Michigan; owns a 44 percent limited partnership
interest in a partnership that owns certain pipelines of 20 and 12 miles
interconnected to the Saginaw Bay Area Limited Partnership facilities;
owns a 60 percent interest in a partnership that owns and operates a
natural gas treating plant in Otsego County, Michigan; and owns 100
percent interest in 41 miles of gas transmission pipeline in Otsego and
Montmorency Counties, Michigan.
CMS Energy, through certain subsidiaries owns approximately 6,000 acres of
undeveloped land in Benzie and Manistee Counties, Michigan, approximately
53 acres of undeveloped land in Muskegon County, Michigan, and
approximately 300 acres in undeveloped land in Emmet County, Michigan.
CONSUMERS CAPITAL EXPENDITURES
Capital expenditures during 1993 for Consumers and its subsidiaries
totaled $509 million for capital additions and $52 million for demand-side
management programs. These capital additions include approximately
$31 million for environmental protection additions. Of the $509 million,
$265 million was incurred for electric utility additions, $126 million for
gas utility additions, $58 million for capital leases (see Note 14 to
Consumers' Consolidated Financial Statements incorporated by reference
herein), and $60 million for other additions and capital investments.
In 1994, capital expenditures are estimated to be $513 million for capital
additions and $40 million for demand-side management programs. These
capital addition estimates include approximately $48 million related to
environmental protection additions. Of the $513 million, $290 million
will be incurred for electric utility additions, $98 million for gas
utility additions, $73 million for capital leases, and $52 million for
other additions and capital investments.
CMS ENERGY CAPITAL EXPENDITURES
Capital expenditures during 1993 for CMS Energy and its subsidiaries
totaled $714 million for capital additions and $52 million for demand-side
management programs. These capital additions include approximately $31
million for environmental protection additions. Of the $714 million,
$509 million was incurred by Consumers as discussed above. The remaining
$205 million in capital additions include $81 million for oil and gas
exploration, $110 million for independent power production and $14 million
for gas transmission and marketing.
In 1994, capital expenditures are estimated to be $752 million for capital
additions and $40 million for demand-side management programs. This
capital addition estimate includes approximately $48 million related to
environmental protection additions. Of the $752 million, $513 million
will be incurred by Consumers as discussed above. The remaining $239
million in capital additions will be incurred as follows: $117 million
for oil and gas exploration, $84 million for independent power production
and $38 million for gas transmission and marketing.
40
ITEM 3. LEGAL PROCEEDINGS
Consumers and some of its subsidiaries and affiliates are parties to
certain routine lawsuits and administrative proceedings incidental to
their businesses involving, for example, claims for personal injury and
property damage, contractual matters, income taxes, and rates and
licensing. Reference is made to the Notes to the Consolidated Financial
Statements included herein for additional information regarding various
pending administrative and judicial proceedings involving rate, operating
and environmental matters.
The Attorney General, ABATE, and the MPSC Staff typically intervene in
MPSC proceedings concerning Consumers. Unless otherwise noted below,
these parties have intervened in such proceedings. For many years, almost
every significant MPSC order affecting Consumers has been appealed.
Appeals from such MPSC orders are pending in the Michigan Court of Appeals
and the Michigan Supreme Court. Consumers is vigorously pursuing these
matters. Under Michigan civil procedure, parties may file a claim of
appeal with the Michigan Court of Appeals which serves as a notice of
appeal. The grounds on which the appeal is being made are not set forth
until a later date when the parties file their briefs.
1. Electric Rate Case Proceedings
A. Appeal of MPSC Orders Related to the Abandoned Midland Nuclear
Plant Investment
In November 1983, Consumers filed an electric rate case with the MPSC
which sought recovery of its investment in the abandoned portion of the
Midland nuclear plant. This case was separated into two phases in
September 1984: a financial stabilization phase, MPSC Case No. U-7830,
Step 3A, and a prudence phase, MPSC Case No. U-7830, Step 3B. Numerous
orders were issued in these cases, including one issued in 1985 in the
financial stabilization phase which contained certain conditions to
Consumers' receiving financial stabilization rate relief.
On May 7, 1991, the MPSC issued final orders in both Step 3A and Step 3B
proceedings in which, among other things, the MPSC ruled that Consumers
could recover approximately $760 million of the $2.1 billion of abandoned
Midland investment. Consumers, as well as the Attorney General and ABATE,
among others, filed applications for rehearing with the MPSC of the May 7
Orders in Step 3A and Step 3B. which were all denied by the MPSC.
Several parties, including Consumers, have appealed the MPSC
determinations in these orders to the Court of Appeals. The Attorney
General and ABATE primarily disagree with the standard used by the MPSC to
determine the amount of investment that is recoverable by Consumers from
its electric customers, contending that recovery should not be allowed for
utility assets that have not been placed in service. Consumers disagrees
with the date the MPSC determined it would have been prudent for Consumers
to abandon construction of the Midland nuclear facility and the reduction
in recoverable investment that resulted from this determination. All
briefs have been filed in these appeals. Oral argument has not yet been
scheduled on the Step 3B appeals; oral argument was held on the Step 3A
appeal in December 1993.
B. Appeal of 1991 General Electric Rate Case Order
On May 7, 1991, the MPSC issued an order in Case No. U-9346, a general
electric rate case the MPSC ordered Consumers to file in response to a
complaint filed by ABATE. On July 1, 1991, the MPSC issued another order
in this proceeding modifying the May 7 Order. These orders, together with
the other orders discussed in paragraph A above, reduced Consumers'
electric retail rates by an annual amount of approximately $73 million.
Certain aspects of the May 7, 1991 and July 1, 1991 electric rate case
orders were appealed by the Attorney General, ABATE, and the Michigan
Association of Home Builders. The appeals of the Attorney General and the
Michigan Association of Home Builders have both been dismissed. ABATE's
appeal, which primarily seeks a reduction in the rates authorized by the
MPSC, remains pending. Briefs have been filed in the ABATE appeal and
oral argument was held in December 1993.
C. 1993 Electric Rate Case
On May 10, 1993, Consumers filed an application with the MPSC seeking an
increase in its base electric rates (MPSC Case No. U-10335). As a result
of the new statutory federal tax rate and interest rate savings resulting
from the refinancing of certain long-term debt, Consumers subsequently
revised its requested electric rate increase to approximately $133 million
in 1994 while its requested electric rate increase for 1995 remained at
$38 million. In their initial brief, the MPSC Staff recommended
approximately $98 million in annual rate relief beginning in 1994. The
MPSC Staff also recommended a lower return on electric common equity
(11.75 percent compared with Consumers' proposal of 13.25 percent), and using
a projected actual equity ratio in the projected capitalization structure
rather than a target ratio. The MPSC Staff did not support Consumers'
request for additional rate relief for 1995 as part of this proceeding,
but did support Consumers' rate design proposal to significantly reduce
the level of cross-subsidization of residential customers' rates by
commercial and industrial customers.
A PFD was issued in this case on March 4, 1994. In the PFD the ALJ
recommended a rate increase in 1994 of approximately $83 million with no
incremental increase in 1995 to be granted as part of this proceeding.
The ALJ adopted MPSC Staff's recommendation of an 11.75 percent return on
common equity and the use of 1994 projected actual capital structure rather
than the target structure proposed by Consumers. The PFD rejected a proposal
made by Consumers through which returns above the authorized level would
be shared with customers, but recommended the implementation of a
performance incentive proposal Consumers had initially proposed with some
modifications. The PFD also recommended the adoption of the cross-
subsidization reduction proposed by Consumers modified so that
subsidization would be immediately reduced by 50 percent in 1994 rates rather
than the phased-in 20 percent per year over a three year period reduction
proposed by Consumers.
Exceptions to the PFD are due March 18 with replies to exceptions due
April 1. The PFD is not binding on the MPSC. An order of the MPSC will
be issued sometime thereafter.
D. 1986 Proceedings - Palisades Outages
The Palisades nuclear plant was out of service for maintenance from May
1986 until April 1987. In the 1986 PSCR reconciliation case decided
December 22, 1988, the MPSC disallowed recovery of $22.4 million of
replacement power costs associated with the 1986 portion of this outage
and refunds to the customers were made. In an appeal filed in 1989 and
now pending decision by the Court of Appeals, Consumers is challenging the
adequacy of the MPSC's findings supporting the disallowance. Oral
arguments were held in December 1993 and in March 1994 the Court of
Appeals affirmed the MPSC order in a per curiam opinion.
2. Settlement Proposals Relating to Consumers' Purchases from the MCV
Partnership
On March 31, 1993, the MPSC issued the Settlement Order which approved
with modifications the Revised Settlement Proposal filed by Consumers, the
MPSC Staff and 10 small power and cogeneration developers. The scope of
the Settlement Order included three major components: 1) treatment of
cost recovery issues regarding the PPA, 2) resolution of PURPA issues
raised by certain developers of Qualifying Facilities that had wanted
contracts with Consumers, and 3) resolution of the remand to the MPSC
ordered by the Court of Appeals in the Capacity Charge Order. In December
1992, Consumers recognized an after-tax loss of $343 million for the
present value of estimated future underrecoveries of power costs under the
PPA as a result of the Settlement Order. On May 26, 1993, the MPSC denied
petitions filed by the Attorney General, ABATE, MMCG and a small project
developer which requested a rehearing of the Settlement Order by the MPSC.
ABATE and the Attorney General have filed claims of appeal of the
Settlement Order and the May 26, 1993 MPSC order with the Court of
Appeals. Briefs have been filed with the Court of Appeals on this matter
but oral argument has not yet been scheduled. In their respective briefs
in opposition to the Settlement Order, ABATE and the Attorney General
essentially reiterate the arguments they made before the MPSC in their
petitions for rehearing. The substance of ABATE's and the Attorney
General's arguments is that the MPSC exceeded its authority in approving
the Revised Settlement Proposal as modified by the Settlement Order and
the rates established thereby are not just and reasonable and lack
evidentiary support. ABATE and the Attorney General also contend that the
MPSC's procedures for the hearing on the Revised Settlement Order violated
due process and denied ABATE and the Attorney General a fair hearing. In
defense of the Settlement Order, the Independent Cogenerators, Consumers
and the MPSC argue in their respective briefs to the Court of Appeals that
the determinations of the MPSC in the Settlement Order are lawful and
reasonable and that the Attorney General and ABATE have failed to meet the
statutory burden of proof minimally necessary for the Court of Appeals to
find otherwise.
In accordance with the terms of the Settlement Order, appeals of MPSC
orders relating to MCV cost recovery issues in Consumers' 1990, 1991 and
1992 PSCR cases that had been pending before the Court of Appeals and the
Michigan Supreme Court have been withdrawn.
3. MPSC Case No. U-10029 - Intrastate Gas Supply
In November 1991, Consumers filed with the MPSC Case No. U-10029 seeking
several kinds of relief with respect to a contract with one of Consumers'
intrastate gas suppliers, North Michigan, including lowering a contract
price. North Michigan filed an objection with the MPSC and in July 1992
filed a collateral case in Federal Court seeking an injunction to block
the MPSC case. On April 8, 1993, the Federal Court dismissed Northern
Michigan's suit. An appeal of the Federal Court's decision is pending in
the U.S. Sixth Circuit Court of Appeals.
On February 8, 1993, the MPSC issued an order granting Consumers' request
to lower the price to be paid North Michigan under its contract. In March
1993, North Michigan filed an appeal of the MPSC's February 8, 1993 order
with the Court of Appeals. In July 1993, consistent with the MPSC's
February 8, 1993 Order, Consumers notified North Michigan that it planned
to terminate the contract in November 1993. In early October 1993, North
Michigan sought to have the Court of Appeals stay Consumers' cancellation
of the contract. The Court of Appeals denied this request in late October
1993 and Consumers terminated its contract with North Michigan effective
November 1, 1993. If the MPSC order is overturned, Consumers would have
to pay North Michigan higher contract costs for purchases in 1993 which
may not be authorized by the MPSC for recovery from Consumers' customers.
Should North Michigan obtain a favorable decision on all of the issues on
appeal, including Consumers' termination of the contract in 1993,
Consumers' total remaining exposure would be $24 million, for which
Consumers previously accrued a loss. Consumers cannot predict the outcome
of this appeal.
4. Palisades Plant - Spent Nuclear Fuel Storage
In April 1993, the NRC amended its regulations, effective May 7, 1993, to
approve the design of the dry spent fuel storage casks to be used by
Consumers at Palisades. In May 1993, the Attorney General and certain
other parties commenced litigation to block Consumers' use of the storage
casks, alleging that the NRC had failed to comply adequately with the
National Environmental Policy Act. As of February, 1994, the courts have
declined to prevent such use and have refused to issue temporary
restraining orders or stays. Several appeals related to this matter are
now pending at the U.S. Sixth Circuit Court of Appeals. As of mid-August
1993, Consumers has loaded two dry storage casks with spent nuclear fuel
and expects to load additional casks in 1994 prior to Palisades' 1995
refueling outage.
5. CMS Energy's Exemption Under the Public Utility Holding Company Act
of 1935
CMS Energy is exempt from registration under PUHCA. In December 1991, the
Attorney General and the MMCG filed a request with the SEC for the
revocation of CMS Energy's exemption. In January 1992, CMS Energy
responded to the revocation request affirming its position that it is
entitled to the exemption. In April 1992, the MPSC filed a statement with
the SEC that recommended that the SEC impose nine conditions on CMS
Energy's exemption. The suggested conditions would (1) preclude CMS
Energy's making non-utility investments without prior SEC approval;
(2) prohibit CMS Energy's subsidiaries from making any upstream loans
without prior SEC approval; (3) prohibit CMS Energy from pledging
Consumers' assets as security without prior SEC approval; (4) prohibit the
sale or transfer of utility securities or assets by CMS Energy without SEC
concurrence; (5) prevent Consumers paying other than "normal" dividend;
(6) require that all contracts and leases over $500,000 annual cost be
filed with the SEC and MPSC; (7) require that access to the books and
records of CMS Energy, its affiliates and their joint ventures, be
provided to the SEC and the MPSC; (8) establish complaint procedures, with
penalty provisions for addressing challenges to CMS Energy's compliance
with the conditions; and (9) require that all pleadings filed with the SEC
relating to the conditions be served contemporaneously on the MPSC. On
July 9, 1993, the Attorney General submitted to the SEC a response to the
MPSC's statement opposing the MPSC's recommendations and reiterating his
argument that CMS Energy should not be allowed an exemption under PUHCA.
On July 12, 1993, the MMCG submitted to the SEC a reply to CMS Energy's
January 1992 response to the revocation request. On September 30, 1993,
CMS Energy responded to the Attorney General's and the MMCG's July
submissions. CMS Energy also contemporaneously submitted comments on the
MPSC's April 1992 statement. In its response to the Attorney General and
MMCG, CMS Energy again refuted the allegations made by the Attorney
General and MMCG regarding CMS Energy's exemption, noting in particular
that the matters complained of by the Attorney General and MMCG have all
been addressed and resolved in proceedings before other regulatory and
judicial authorities, primarily at the State level, with the Attorney
General and MMCG participating. In its comments on the MPSC's April 1992
statement, CMS Energy updated events from the time the MPSC statement was
filed during which the substantive issues underlying the MPSC's
recommendations were resolved.
Should the SEC revoke CMS Energy's current exemption from registration
under PUHCA, CMS Energy could either become a registered holding company
or be granted a new exemption, possibly subject to conditions similar to
those recommended by the MPSC. Registration under PUHCA could require
divestment by CMS Energy of either its gas utility or electric utility
business by some future date following registration. As a registered
company, CMS Energy could also be precluded from engaging in businesses
that are not functionally related to its utility operations; in addition,
SEC approval would be required for the issuance of securities by CMS
Energy and its subsidiaries. If divestiture of Consumers' gas utility or
its electric utility business ultimately were required, the effect on
Consumers and CMS Energy would depend on the method of divestitures and
the extent of the proceeds received, which cannot now be predicted.
CMS Energy is vigorously contesting the revocation request and believes it
will maintain the exemption. There has been no action taken by the SEC on
this matter.
6. Ludington Pumped Storage Plant
In September 1993, the Court of Appeals overturned the dismissal of a
lawsuit filed by the Attorney General in September 1986 seeking damages
from Consumers and Detroit Edison for alleged injuries to fishing
resources due to the operation of the jointly owned Ludington Pumped
Storage Plant. In his 1986 complaint, the Attorney General had sought
$147.9 million (including interest) in damages for past injuries and
approximately $89,000 per day for future damages, subject to adjustment
based on the adequacy of the barrier net installed at the plant and other
changed conditions. In a second lawsuit, filed in 1987, the Attorney
General had also sought to have the plant's bottom lands lease agreement
with the State declared void. The Court of Appeals' September 1993 ruling
upheld the lower court's dismissal relating to the breach of claim, but
would allow the Attorney General to continue his lawsuit for damages
against Consumers and Detroit Edison, limiting the recovery of potential
damages to those occurring not more than 3 years before filing the lawsuit
in 1986. On October 14, 1993, the Court of Appeals made minor
modifications to its opinion. Consumers and Detroit Edison have filed an
application for leave to appeal with the Michigan Supreme Court seeking a
reversal of the September 1993 Court of Appeals' Order and have the trial
court's dismissal of the damages claim affirmed. The Attorney General
filed a brief in opposition to Consumers' and Detroit Edison's application
and also filed an application with the Michigan Supreme Court seeking
reversal of the Court of Appeals' rulings as to the lease claims and the
statute of limitations holding. The decision to grant or deny these
applications is pending at the Michigan Supreme Court.
7. Stray Voltage Lawsuit
Consumers experienced an increase in complaints during 1993 relating to
so-called stray voltage. Claimants contend that stray voltage results
when small electrical currents present in grounded electric systems are
diverted from their intended path. Investigation by Consumers of prior
stray voltage complaints disclosed that many factors, including improper
wiring and malfunctioning of on-farm equipment can lead to the stray
voltage phenomenon. Consumers maintains a policy of investigating all
customer calls regarding stray voltage and working with customers to
address their concerns including, when necessary, modifying the
configuration of the customer's hook-up to Consumers. On October 27,
1993, a complaint seeking certification as a class action suit was filed
against Consumers in a local circuit court. The complaint alleged that in
excess of a billion dollars of damages, primarily related to production by
certain livestock owned by the purported class, were being incurred as a
result of stray voltage from electricity being supplied by Consumers.
Consumers believes the allegations to be without merit and has vigorously
opposed the certification of the class and this suit. On March 11, 1994,
the court decided to deny class certification for this complaint and to
dismiss, subject to refiling as separate suits, the October lawsuit with
respect to all but one of the named plaintiffs.
8. Gas Supplier Dispute
On September 1, 1993, Consumers commenced gas purchases from Trunkline
under a continuation of prior sales agreements at a reduced price compared
to prior gas sales. Some of Consumers' direct gas suppliers, who have
their contract price tied to the price Consumers pays Trunkline, have
claimed that the reduced Trunkline gas cost is not a proper reference
price under their contracts with Consumers. To date, four suppliers have
filed lawsuits, one in Canada, making these charges and seeking open
pricing and/or renegotiation of the pricing provision for their contracts,
and also seeking damages for breach of contract. Consumers is disputing
these claims and has sought declaratory and other relief on this issue in
Michigan courts against nine suppliers. Certain of the suppliers also
allege that, absent successful renegotiation, they have the right to
terminate their supply contracts with Consumers and have involved the MCV
Partnership in the litigation claiming termination rights with respect to
the MCV Partnership's supply contracts that were negotiated during the
same period. Consumers has reached an agreement in principle to settle
with three of the suppliers. Consumers cannot predict the outcome of this
matter.
Additionally, three of these direct gas suppliers of Consumers made
filings with the FERC in Trunkline's Order 636 restructuring case seeking
to preclude Trunkline's ability to make the sales to Consumers which
commenced on September 1, 1993. Consumers and Trunkline vigorously
opposed these filings and in December 1993, the FERC issued an order
which, among other things, allowed Trunkline to continue sales of gas to
Consumers under tariffs on file with the FERC.
9. Arbitration Proceedings Between Consumers and the MCV Partnership
A dispute has arisen between the MCV Partnership and Consumers relating to
the impact of the Settlement Order on the fixed energy charge payment
called for in the PPA and Consumers' ability to exercise its rights under
the regulatory out provision based on the issuance of the Settlement
Order. In accordance with the dispute resolution provisions set out in
the PPA, an arbitrator acceptable to both parties has been selected and
the arbitration of this dispute has commenced. Consumers is unable to
predict the outcome of such arbitration proceedings or of any possible
settlement of the issues underlying this dispute. The lessors of the MCV
Facility have filed a lawsuit in federal district court against CMS
Energy, Consumers and CMS Holdings. It alleges breach of contract, breach
of fiduciary duty and negligent or fraudulent misrepresentation relating to
the MCV Partnership's failure to object to the Settlement Order in light
of Consumers' interpretation of the Settlement Order, which is the subject
of an arbitration between the MCV Partnership and Consumers. The action
alleges damages in excess of $1 billion and seeks injunctive relief
relative to Consumers' payments of the fixed energy charge. CMS Energy
and Consumers believe that at all times they and CMS Holdings have
conducted themselves properly and that the action is without merit. They
also believe that a significant portion of the alleged damages represent
fixed energy charges in dispute in the arbitration. CMS Energy and
Consumers are unable to predict the outcome of this action.
10. 1991 Gas Rate Settlement
On December 19, 1991, the MPSC approved a settlement in Case No. U-10037
concerning Consumers' gas rates which had been entered into by Consumers
and the MPSC Staff. The settlement provides that Consumers is required to
make certain expenditures for gas operation and maintenance activities in
1992, and provides for refunds if these expenditure levels are not met, or
if Consumers' gas earnings exceed certain levels. Both the Attorney
General and ABATE opposed approval of the settlement agreement and ABATE
sought rehearing of the December 19, 1991 Order. On April 15, 1992, the
MPSC denied the rehearing request. Both ABATE and the Attorney General
have appealed the MPSC's order. On March 10, 1994, the Court of Appeals
issued a per curiam opinion affirming the MPSC order.
11. Investigative Demand
On July 17, 1991, the Attorney General served a civil investigative demand
upon Consumers and CMS Energy indicating that the Attorney General was
investigating "possible violations" of the Michigan Antitrust Reform Act
by CMS Energy and Consumers and certain of their affiliates, primarily in
connection with potential acquisitions and dealings with electric
generating companies including the MCV Partnership. CMS Energy and
Consumers do not believe any violations of such Act have occurred. The
Attorney General has not taken any action on this matter since 1991 and
Consumers and CMS Energy believe that this investigation is no longer
being pursued.
12. Environmental Matters
On September 23, 1993, the EPA filed an administrative complaint against
Consumers under Superfund and the Emergency Planning and Community
Right-to-Know Act. The complaint alleges, after release of a certain
hazardous substance at its J. H. Campbell coal-fired electric generating
plant, that Consumers did not immediately notify the appropriate
governmental authorities of the release as soon as Consumers had knowledge
of the release. The complaint proposes penalties aggregating $100,000.
Consumers is disputing these allegations.
In addition, Consumers is subject to various federal, state and local laws
and regulations relating to the environment. Consumers has been named as
a party to several actions involving environmental issues. However, based
on its present knowledge and subject to future legal and factual
developments, CMS Energy and Consumers believe that it is unlikely that
these actions, individually or in total, will have a material adverse
effect on their financial condition. See Item 1. BUSINESS. CONSUMERS
AND CMS ENERGY ENVIRONMENTAL COMPLIANCE.
13. Retail Wheeling Proceedings
In September 1992, in response to an application filed by ABATE, the MPSC
issued an order commencing a joint contested case proceeding to consider
experimental wheeling tariffs for Consumers and Detroit Edison. ABATE's
proposal is that for an experimental period of five years utility
customers with maximum demands of 5,000 kW or more be eligible for the
retail wheeling tariff. Under the proposal, 60 megawatts of Consumers'
load and 90 MW of Detroit Edison's load would be subject to displacement
by retail wheeling. Consumers and Detroit Edison each opposed the
proposed experimental retail wheeling tariff while the MPSC Staff cited
concerns with the impact of the retail wheeling proposals on utility
planning and procurement practices as well as regarding certain
jurisdictional issues. In the PFD issued in August 1993, the ALJ
determined that the MPSC could not order utilities to provide retail
wheeling services and expressed concern regarding the proper pricing for
this service should a utility voluntarily agree to provide the service.
14. Wholesale Wheeling Proceedings
Consumers has an approved open-access interconnection service schedule on
file with the FERC for wholesale wheeling transactions. In 1992,
Consumers also filed a separate but complementary open-access transmission
tariff that would make both firm and non-firm transmission service
available to eligible power generators, including investor-owned
utilities, facilities that meet the ownership and technical requirements
under PURPA, independent power producers, municipal and cooperative
utilities. The FERC accepted the filing, effective May 2, 1992, subject
to refund, and ordered a hearing before an ALJ. In September 1993, the
ALJ issued an initial decision that would compel reductions of the tariff
rates ranging from 25 percent to 65 percent. On November 1, 1993,
Consumers filed exceptions with the FERC seeking reversal of the rate
reductions proposed in the ALJ's initial decision. As of December 31,
1993, the amount of firm transmission service currently subject to the
tariff is 23 MW.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS.
CMS Energy
None in the fourth quarter of 1993 for CMS Energy.
Consumers
None in the fourth quarter of 1993 for Consumers. However, at a special
meeting held on January 31, 1994, the shareholders of Consumers approved
the creation of a new class of stock, Class A preferred stock. The stock
vote taken on the matter was as follows:
For Against Abstain Total
--- ------- ------- -----
Common and
Preferred Stock 84,611,652 103,849 38,072 84,753,573
Preferred Stock 502,863 103,849 38,072 644,784
47
PART II
ITEM 5. MARKET FOR CMS ENERGY'S AND CONSUMERS' COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS.
CMS Energy
Market prices for CMS Energy's common stock and related security holder
matters are contained herein in Item 8, CMS Energy's Quarterly Financial
and Common Stock Information, which is incorporated by reference herein.
Number of common shareholders at February 28, 1994 was 66,250.
Consumers
Consumers' common stock is privately held by its parent, CMS Energy, and
does not trade in the public market. In May, August, November and
December 1993, Consumers paid $57 million, $21.5 million, $33.5 million
and $21 million cash dividends, respectively, on its common stock.
ITEM 6. SELECTED FINANCIAL DATA.
CMS Energy
Selected financial information is contained in Item 8, CMS Energy's
Selected Financial Information which is incorporated by reference herein.
Consumers
Selected financial information is contained in Item 8, Consumers' Selected
Financial Information which is incorporated by reference herein.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
CMS Energy
Management's discussion and analysis of financial condition and results of
operations is contained in Item 8, CMS Energy's Management's Discussion
and Analysis which is incorporated by reference herein.
Consumers
Management's discussion and analysis of financial condition and results of
operations is contained in Item 8, Consumers' Management's Discussion and
Analysis which is incorporated by reference herein.
48
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Index to Financial Statements:
CMS Energy Page
Selected Financial Information 51
Management's Discussion and Analysis 53
Consolidated Statements of Income 64
Consolidated Statements of Cash Flows 65
Consolidated Balance Sheets 66
Consolidated Statements of Long-Term Debt 68
Consolidated Statements of Preferred Stock 69
Consolidated Statements of Common Stockholders' Equity 70
Notes to Consolidated Financial Statements 71
Report of Independent Public Accountants 96
Quarterly Financial and Common Stock Information 97
Consumers Page
Selected Financial Information 101
Management's Discussion and Analysis 102
Consolidated Statements of Income 112
Consolidated Statements of Cash Flows 113
Consolidated Balance Sheets 114
Consolidated Statements of Long-Term Debt 116
Consolidated Statements of Preferred Stock 117
Consolidated Statements of Common Stockholder's Equity 118
Notes to Consolidated Financial Statements 119
Report of Independent Public Accountants 142
Quarterly Financial Information 143
49
CMS Energy Corporation
1993 Financial Statements
50
(This page intentionally left blank)
51
Selected Financial Information CMS Energy Corporation
1993 1992 1991 1990 1989
- -----------------------------------------------------------------------------------------------------------------
Operating revenue (in millions) (a) ($) 3,482 3,146 2,998 3,028 3,004
Net income (loss) (in millions) (b) ($) 155 (297) (276) (494) 312
Average common shares outstanding
(in thousands) 81,251 79,877 79,988 81,339 82,131
Earnings (loss) per average
common share (b) ($) 1.90 (3.72) (3.44) (6.07) 3.80
Cash from operations (in millions) ($) 484 468 559 377 834
Construction expenditures, excludes
assets placed under capital
leases (in millions) (a) ($) 548 487 353 425 470
Total assets (in millions) ($) 6,964 6,848 6,194 7,917 8,614
Long-term debt, excluding
current maturities (in millions) ($) 2,405 2,725 1,941 3,321 3,210
Non-current portion of capital
leases (in millions) ($) 115 98 68 68 79
Total preferred stock (in millions) ($) 163 163 163 156 187
Preferred stock with mandatory
redemption (in millions) ($) - - - - 10
Cash dividends declared per
common share ($) .60 .48 .48 .42 .10
Market price of common stock
at year-end ($) 25-1/8 18-3/8 18-3/8 27-7/8 38
Book value per common share at
year-end ($) 11.33 9.09 13.28 17.36 23.97
Return on average common equity (%) 18.3 (33.2) (22.4) (29.4) 17.2
Return on assets (%) 4.5 (2.3) (0.6) (3.2) 6.6
Number of common shareholders
at year-end 66,795 70,801 72,729 76,348 81,131
Number of employees at year-end
(full time equivalents) 10,013 9,971 9,212 9,484 9,790
Electric utility statistics
Sales (millions of kWh) (c) 32,764 31,601 31,813 31,743 31,375
Customers (in thousands) 1,526 1,506 1,492 1,475 1,453
Average sales rate (cents/kWh) 6.28 5.82 5.73 5.89 5.55
Gas utility statistics
Sales and transportation
deliveries (bcf) (d) 389 364 339 333 303
Customers (in thousands) 1,423 1,402 1,382 1,362 1,338
Average sales rate ($/mcf) 4.46 4.55 4.58 4.64 4.75
- -----------------------------------------------------------------------------------------------------------------
52
Selected Financial Information (Continued) CMS Energy Corporation
1993 1992 1991 1990 1989
- -----------------------------------------------------------------------------------------------------------------
Electric and gas non-utility statistics
CMS Energy's share of unconsolidated
independent power production
revenue (in millions) ($) 334 284 246 197 7
Independent power production
sales (millions of kWh) 5,019 4,057 3,342 3,233 90
Gas transmission and marketing
revenues (in millions) ($) 142 89 42 30 21
Gas marketed for end-users (bcf) 60 45 23 16 11
Exploration statistics
Sales (net equiv. MMbbls) 5.0 4.3 3.7 3.5 3.3
Proven reserves (net equiv. MMbbls) 69.8 70.9 60.3 48.2 36.9
Proven reserves added (net equiv.
MMbbls) 3.9 15.0 16.0 14.7 9.4
Finding cost ($/net equiv. bbl) ($) 4.97 4.88 6.58 5.52 8.16
- -----------------------------------------------------------------------------------------------------------------
(a) Certain prior year amounts were restated for comparative purposes.
(b) Amount in 1991 included an extraordinary loss of $14 million, after tax or $.18 per average
common share.
(c) Includes intersystem electric sales.
(d) Excludes off-system transportation services.
53
CMS Energy Corporation
Management's Discussion and Analysis
CMS Energy is the parent holding company of Consumers and Enterprises.
Consumers, a combination electric and gas utility company serving most of
the Lower Peninsula of Michigan, is the principal subsidiary of
CMS Energy. Consumers' customer base includes a mix of residential,
commercial and diversified industrial customers, the largest of which is
the automotive industry. Enterprises is engaged in several non-utility
energy-related businesses including: 1) oil and gas exploration and
production, 2) development and operation of independent power production
facilities, 3) gas marketing services to utility, commercial and
industrial customers, and 4) storage and transmission of natural gas.
Consolidated 1993 Earnings
Consolidated net income for 1993 totaled $155 million or $1.90 per share,
compared to net losses of $297 million or $3.72 per share in 1992 and $276
million or $3.44 per share in 1991. The increased net income reflects the
Settlement Order related to power purchases from the MCV Partnership.
Earnings also reflect record-setting utility electric sales and gas
deliveries and additional earnings from the growth of non-utility
businesses.
Cash Position, Financing and Investing
CMS Energy's primary ongoing source of operating cash is dividends from
its principal subsidiaries. Consumers effected a quasi-reorganization as
of December 31, 1992, which allowed it to resume paying common dividends
(see Note 7 to the Consolidated Financial Statements). Consumers paid
$133 million in common dividends in 1993 and declared a $16 million common
dividend in January 1994 from 1993 earnings. CMS Energy also received
cash dividends of $11 million from its non-utility subsidiaries.
CMS Energy paid $49 million in cash dividends to common shareholders
compared to $38 million in 1992. The $11 million increase reflects an
annual increase of $.24 per share commencing third quarter 1993.
CMS Energy's consolidated cash requirements are met by its operating and
financing activities. In 1993 and 1992, CMS Energy's consolidated cash
inflow from operations was derived mainly from Consumers' sale and
transportation of natural gas and its sale and transmission of electrici-
ty, and from NOMECO's sale of oil and natural gas. Consolidated cash from
operations for 1993 primarily reflects Consumers' record-setting electric
sales and gas deliveries and reduced after-tax cash shortfalls resulting
from Consumers' purchases of power from the MCV Partnership.
During 1992, CMS Energy's cash from operations decreased as compared to
1991 primarily due to higher operational expenditures and reduced electric
rates. In 1991, CMS Energy generated cash primarily from its consolidated
operating and investing activities, including $859 million of net proceeds
from the sale of a majority of the MCV Bonds.
Over the last three years, CMS Energy has used its consolidated cash to
fund its extensive utility construction expenditures, to improve the
reliability of its utility transmission and distribution systems and to
expand its non-utility businesses. It also has used its cash to retire
portions of long-term securities and to pay cash dividends.
Financing Activities
In October 1993, CMS Energy issued 4.6 million shares of common stock at a
price of $26 5/8. The net proceeds of $119 million were used to reduce
existing debt and for general corporate purposes. During 1993, Consumers
significantly reduced its future interest charges by retiring
approximately $51 million of high-cost outstanding debt and refinancing
approximately $573 million of other debt at lower interest rates. In
November 1993, NOMECO amended the terms of its loan agreement and
increased the amount to $110 million. For further information, see Note
7.
Investing Activities
Capital expenditures (excluding assets placed under capital leases of $58
million), deferred DSM costs and investments in unconsolidated
subsidiaries totaled $708 million for 1993 as compared to $525 million in
1992. CMS Energy's expenditures for its utility, independent power
production, oil and gas exploration and production, and gas transmission
and marketing business segments were $503 million, $110 million, $81
million and $14 million, respectively.
In December 1993, Consumers sold $309 million of MCV Bonds it held and
used the net proceeds to temporarily reduce short-term borrowings and
ultimately plans to reduce long-term debt and to finance its construction
program.
Outlook
CMS Energy estimates that capital expenditures, including DSM, new lease
commitments and investments in unconsolidated subsidiaries, will total
approximately $2.2 billion over the next three years.
In Millions
Years Ended December 31 1994 1995 1996
---- ---- ----
Electric and gas utility $553 $461 $471
Oil and gas exploration and production 117 90 100
Independent power production 84 99 98
Gas transmission and marketing 38 40 45
---- ---- ----
$792 $690 $714
==== ==== ====
CMS Energy is required to redeem or retire approximately $796 million of
long-term debt during 1994 through 1996. Cash generated by operations is
expected to satisfy a substantial portion of these capital expenditures
and debt retirements. Additionally, CMS Energy will evaluate the capital
markets in 1994 as a source of financing its subsidiaries' investing
activities.
CMS Energy filed a shelf registration statement with the SEC in January
1994 covering the issuance of up to $250 million of unsecured debt
securities. The net proceeds will be used to reduce the amount of
CMS Energy Notes outstanding and for general corporate purposes. In
October 1993, Consumers received MPSC authorization and is proceeding to
issue $200 million of preferred stock in 1994.
Consumers has several other available sources of credit including
unsecured, committed lines of credit totaling $165 million and a $470
million working capital facility. Consumers has FERC authorization to
issue or guarantee up to $900 million in short-term debt through
December 31, 1994. Consumers uses short-term borrowings to finance
working capital, seasonal fuel inventory, and to pay for capital
expenditures between long-term financings. Consumers has an agreement
permitting the sales of certain accounts receivable for up to $500
million. As of December 31, 1993 and 1992, receivables sold totaled $285
million and $225 million, respectively. On February 15, 1993, Consumers
increased the level of receivables sold to $335 million. In February
1994, Consumers called or redeemed approximately $101 million of first
mortgage bonds (see Note 7).
Electric Utility Operations
Comparative Results of Operations
Electric Pretax Operating Income: The improvement in 1993 pretax
operating income compared to 1992 reflects an increase of $126 million
relating to the resolution of the recoverability of MCV power purchase
costs under the PPA and increased electric system sales of $45 million,
partially offset by higher costs to improve system reliability. The 1992
decrease of $66 million from the 1991 level primarily resulted from an
increased emphasis on system reliability improvements and decreased
electric rates resulting from the full-year impact of a mid-1991 rate
decrease.
Electric Sales: Electric system sales in 1993 totaled a record 31.7
billion kWh, a 3.8 percent increase from 1992 levels. In 1993,
residential and commercial sales increased 3.4 percent and 3.0 percent,
respectively, while industrial sales increased 6.5 percent. Growth in the
industrial sector was the strongest in the auto-related segments of
fabricated and primary metals and transportation equipment. Electric
system sales in 1992 totaled 30.5 billion kWh, essentially unchanged from
the 1991 levels.
Power Costs: Power costs for 1993 totaled $908 million, a $31 million
increase from the corresponding 1992 period. This increase primarily
reflects greater power purchases from outside sources to meet increased
sales demand and to supplement decreased generation at Palisades due to an
extended outage. Power costs for 1992 totaled $877 million, a $17 million
decrease as compared to 1991.
Operation and Maintenance: Increases in other operation and maintenance
expense for 1993 and 1992 reflected increased expenditures to improve
electric system reliability.
Depreciation: The increased depreciation for 1993 reflects additional
capital investments in plant. The 1992 increase resulted from higher
depreciation rates, increased amortization of abandoned nuclear investment
and increased nuclear plant decommissioning expense.
Electric Utility Rates
Power Purchases from the MCV Partnership: Consumers is obligated to
purchase the following amounts of contract capacity from the MCV
Partnership under the PPA:
1995 and
Year 1993 1994 thereafter
- ---- ----- ----- ----------
MW 1,023 1,132 1,240
Since 1990, recovering capacity and fixed-energy costs for power purchased
from the MCV Partnership has been a significant issue. Effective January
1, 1993, the Settlement Order allowed Consumers to recover from electric
retail customers substantially all of the payments for its ongoing
purchase of 915 MW of contract capacity from the MCV Partnership,
significantly reducing the amount of future underrecoveries for these
power costs. ABATE and the Attorney General have filed claims of appeal
of the Settlement Order with the Court of Appeals.
Prior to the Settlement Order, Consumers had recorded losses for
underrecoveries from 1990 through 1992. In December 1992, Consumers
recognized an after-tax loss of $343 million for the present value of
estimated future underrecoveries of power costs under the PPA as a result
of the Settlement Order, based on management's best estimates regarding
the future availability of the MCV Facility, and the effect of the future
wholesale power market on the amount, timing and price at which various
increments of the capacity above the MPSC-authorized level could be
resold. Except for adjustments to the above loss to reflect the after-tax
time value of money through accretion expense, no additional losses are
expected unless actual future experience materially differs from
management's estimates. The after-tax expense for the time value of money
for the $343 million loss is estimated to be approximately $24 million in
1994, and various lower levels thereafter, including $22 million in 1995
and $20 million in 1996. Although the settlement losses were recorded in
1992, the after-tax cash underrecoveries associated with the Settlement
Order were $59 million in 1993. Consumers believes there is and will be a
market for the resale of capacity purchases from the MCV Partnership above
the MPSC-authorized level. If Consumers is unable to sell any capacity
above the current MPSC-authorized level, future additional after-tax
losses and after-tax cash underrecoveries could be incurred. Estimates
for the next five years if none of the additional capacity is sold are as
follows:
After-tax, In Millions
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
Expected cash underrecoveries $56 $65 $62 $61 $ 8
Possible additional under-
recoveries and losses (a) $14 $20 $20 $22 $72
(a) If unable to sell any capacity above the MPSC's authorized level.
The PPA, while requiring payment of a fixed energy charge, contains a
"regulatory out" provision which permits Consumers to reduce the fixed
energy charges payable to the MCV Partnership throughout the entire
contract term if Consumers is not able to recover these amounts from its
customers. Consumers and the MCV Partnership have commenced arbitration
proceedings under the PPA to determine whether Consumers is entitled to
exercise its regulatory out regarding fixed energy charges on the portion
of available MCV capacity above the current MPSC-authorized levels. An
arbitrator acceptable to both parties has been selected. If the
arbitrator determines that Consumers cannot exercise its regulatory out,
Consumers would be required to make these fixed energy payments to the MCV
Partnership. The arbitration proceedings will also determine who is
entitled to the fixed energy amounts for which Consumers did not receive
full cost recovery during the years prior to settlement. As of December
31, 1993, these amounts total $26 million. Although Consumers intends to
aggressively pursue its right to exercise the regulatory out, management
cannot predict the outcome of the arbitration proceedings or any possible
settlement of the matter. Accordingly, losses were recorded prior to 1993
for all fixed energy amounts at issue in the arbitration. In December
1993, Consumers made an irrevocable offer to pay through September 15,
2007, fixed energy charges to the MCV Partnership on all kWh delivered by
the MCV Partnership to Consumers from the contract capacity in excess of
915 MW, which represents a portion of the fixed energy charges in dispute.
Consumers made the offer to facilitate the sale of the remaining MCV Bonds
in 1993.
The lessors of the MCV Facility have filed a lawsuit in federal district
court against CMS Energy, Consumers and CMS Holdings. It alleges breach
of contract, breach of fiduciary duty and negligent or willful
misrepresentation relating to the MCV Partnership's failure to object to
the Settlement Order in light of Consumers' interpretation of the
Settlement Order, which is the subject of an arbitration between the MCV
Partnership and Consumers. The action alleges damages in excess of $1
billion and seeks injunctive relief relative to Consumers' payments of the
fixed energy charge. CMS Energy and Consumers believe that at all times
they and CMS Holdings have conducted themselves properly and that the
action is without merit. They also believe that a significant portion of
the alleged damages represent fixed energy charges in dispute in the
arbitration. CMS Energy and Consumers are unable to predict the outcome
of this action. For further information regarding power purchases from
the MCV Partnership, see Note 3.
PSCR Matters: Consumers began a planned refueling and maintenance outage
at Palisades in June 1993. Following several required, unanticipated
repairs that extended the outage, the plant returned to service in early
November. Recovery of replacement power costs incurred by Consumers
during the outage will be reviewed by the MPSC during the 1993 PSCR
reconciliation of actual costs and revenues to determine the prudency of
actions taken during the outage and any associated delays. Net
replacement power costs were approximately $180,000 per day above the cost
of fuel incurred when the plant is operating.
The Energy Act imposes an obligation on the utility industry, including
Consumers, to decommission DOE uranium enrichment facilities. Consumers
currently estimates its payments for decommissioning those facilities to
be $2.4 million per year for 15 years beginning in 1992, escalating based
on an inflation factor. Consumers believes these costs are recoverable
from its customers under traditional regulatory policies.
Electric Rate Case: Consumers filed a request with the MPSC in May 1993
to increase its electric rates. Subsequently, as a result of changed
estimates, Consumers revised its requested electric rate increase to $133
million annually based on a 1994 test year. Consumers also requested an
additional annual electric rate increase of $38 million based on a 1995
test year. In March 1994, an ALJ issued a proposal for decision that
recommended Consumers' 1994 final annual rate increase total approximately
$83 million, and that the incremental requested 1995 increase not be
granted at this time. The ALJ's recommendation included a lower return on
electric common equity, reflected reduced anticipated debt costs due to
the projected availability of more favorable interest rates and proposed a
lower equity ratio for Consumers' projected capitalization structure. The
ALJ did, however, generally support Consumers' rate design proposal to
significantly reduce the level of subsidization of residential customers
by commercial and industrial customers and generally supported a
performance incentive which Consumers also supported. For further
information, see Note 4.
Electric Conservation Efforts
In October 1993, Consumers completed the customer participation portion of
several incentive-based DSM programs which were designed to encourage the
efficient use of energy, primarily through conservation measures. Based
on the MPSC's determination of Consumers' effectiveness in implementing
these programs, Consumers' future rate of return on electric common equity
may be adjusted either upward by up to one percent or downward by up to
two percent, for one year following reconciliation hearings with the MPSC.
Consumers believes it will receive an increase on its return on common
equity based on having achieved all of the agreed upon objectives (see
Note 4).
Electric Capital Expenditures
CMS Energy estimates capital expenditures, including DSM and new lease
commitments, related to its electric utility operations of $396 million
for 1994, $324 million for 1995 and $332 million for 1996.
Electric Environmental Matters and Health Concerns
The 1990 amendment of the federal Clean Air Act significantly increased
the environmental constraints that utilities will operate under in the
future. While the Clean Air Act's provisions will require Consumers to
make certain capital expenditures in order to comply with the amendments
for nitrogen oxide reductions, Consumers' generating units are presently
operating at or near the sulfur dioxide emission limits which will be
effective in the year 2000. Therefore, management believes that
Consumers' annual operating costs will not be materially affected.
In 1990, the State of Michigan passed amendments to the Environmental
Response Act, under which Consumers expects that it will ultimately incur
costs at a number of sites, even those in which it has a partial or no
current ownership interest. It is expected that in most cases, parties
other than Consumers with current or former ownership interests may also
be considered liable under the law and may be required to share in the
costs of any site investigations and remedial actions. CMS Energy and
Consumers believe costs incurred for both investigation and any required
remedial actions would be recoverable from electric utility customers
under established regulatory policies and accordingly are not likely to
materially affect their financial positions or results of operations.
Consumers is a so-called "Potentially Responsible Party" at several sites
being administered under Superfund. Along with Consumers, there are
numerous credit-worthy, potentially responsible parties with substantial
assets cooperating with respect to the individual sites. Based on
information currently known by management, Consumers and CMS Energy
believe that it is unlikely that their liability at any of the known
Superfund sites, individually or in total, will have a material adverse
effect on their financial positions or results of operations.
Electric Outlook
Consumers expects economic growth, competitive rates and other factors to
increase the demand for electricity within its service territory by
approximately 1.8 percent per year over the next five years. For the near
term, Consumers currently plans a reserve margin of 20 percent and expects
to fill the additional capacity required through long- and short-term
power purchases. Long-term purchased power will likely be obtained
through a competitive bidding solicitation process utilizing the framework
established by the MPSC in 1992. Capacity from the MCV Facility above the
levels authorized by the MPSC may be offered by Consumers in connection
with the solicitation.
A recent NRC review of Consumers' performance at Palisades showed a
decline in performance. Management believes that an increased emphasis on
internal assessments will improve performance at Palisades. To provide
NRC senior management with a more in-depth assessment of plant
performance, the NRC has initiated a diagnostic evaluation team inspection
at Palisades. The inspection will be a broad-based evaluation of all
aspects of nuclear plant operation and management which is expected to
commence in March 1994, with results of the evaluation expected to be
available in May 1994. The outcome of this evaluation cannot be
predicted. Similar reviews conducted at nuclear plants of other utilities
in recent years have in some cases resulted in increased regulatory
oversight or required actions to improve plant operations, maintenance or
condition.
Consumers is currently collecting $45 million annually from electric
retail customers for the future decommissioning of its two nuclear plants.
Consumers believes these amounts will be adequate to meet current
decommissioning cost estimates. For further information regarding nuclear
decommissioning, see Note 2.
Consumers' on-site storage pool at Palisades is at capacity, and it is
unlikely that the DOE will begin accepting any spent nuclear fuel by the
originally scheduled date in 1998. Consumers is using NRC-approved dry
casks, which are steel and concrete vaults, for temporary storage.
Several appeals relating to NRC approval of the casks are now pending at
the U.S. Sixth Circuit Court of Appeals. If Consumers is unable to
continue to use the casks as planned, significant costs, including
replacement power costs during any resulting plant shutdown, could be
incurred.
Consumers has experienced an increase in complaints in 1993 relating
primarily to the effect of so-called stray voltage on certain livestock.
A complaint seeking certification as a class action suit has been filed
against Consumers alleging significant damages, primarily related to
certain livestock, which Consumers believes to be without merit (see Note
12).
Some of Consumers' larger industrial customers are exploring the
possibility of constructing and operating their own on-site generating
facilities. Consumers is actively working with these customers to develop
rate and service alternatives that are competitive with self-generation
options. Although Consumers' electric rates are competitive with other
regional utilities, Consumers has on file with the FERC two open access
interconnection tariffs which could have the effect of increasing
competition for wholesale customers. As part of its current electric rate
case, Consumers has requested that the MPSC reduce the level of rate
subsidization of residential customers by commercial and industrial
customers so as to further improve rate competitiveness for its largest
customers.
The MPSC has completed a hearing on a proposal by ABATE to create an
experimental retail wheeling tariff. Certain other parties have proposals
in support of retail wheeling under development. In August 1993, an ALJ
recommended that the MPSC reject the proposed experiment. An MPSC order
is expected early in 1994.
Gas Utility Operations
Comparative Results of Operations
Gas Pretax Operating Income: For 1993, pretax operating income increased
$38 million compared to 1992, reflecting higher gas deliveries (both sales
and transportation volumes) and more favorable regulatory recovery of gas
costs related to transportation. During 1992, gas pretax operating income
increased $45 million from the 1991 level, essentially for many of the
same reasons as the current period.
Gas Deliveries: Gas sales and gas transported in 1993 totaled 410.6 bcf,
a 6.9 percent increase from 1992. In 1992, gas sales and gas transported
totaled 384.1 bcf, a 6.1 percent increase from 1991 deliveries.
Gas Utility Rates
Consumers currently plans to file a request in 1994 with the MPSC to
increase its gas rates. The request would include, among other things,
costs for postretirement benefits computed under SFAS 106, Employers'
Accounting for Postretirement Benefits Other than Pensions. A final order
should be received approximately nine to twelve months after the request
is filed.
Certain of Consumers' direct gas suppliers have contract prices tied to
the price Consumers pays Trunkline for its gas. The Trunkline contract
covers gas deliveries through October 1994 and is at a price reduced in
September 1993. Some of Consumers' direct gas suppliers have claimed that
the reduced Trunkline gas cost is not a proper reference price under their
contracts with Consumers and that their contracts are terminable after a
12-month period. Consumers is disputing these claims.
In 1992, the FERC issued Order 636, which makes a number of significant
changes to the structure of the services provided by interstate natural
gas pipelines to be implemented by the 1993-94 winter heating season.
Consumers is a significant purchaser of gas from an interstate pipeline
(Trunkline) and is a major transportation customer of a number of
pipelines. Management believes that Consumers will recover any transition
costs it may incur and such restructuring will not have a significant
impact on its financial position or results of operations.
In July 1993, Michigan Gas Storage submitted a notice of rate change with
the FERC to revise its operation and maintenance expenses for 1993 and
update plant costs to reflect the addition of approximately $27 million of
new plant additions in 1993 and began collecting the revised rates subject
to refund and a hearing in February 1994. Hearings or settlement
conferences will follow. For further information regarding gas utility
rates, see Note 4.
Gas Capital Expenditures
CMS Energy estimates capital expenditures, including new lease
commitments, related to its gas utility operations of $99 million for
1994, $88 million for 1995 and $81 million for 1996.
Gas Environmental Matters
Under the Environmental Response Act, Consumers expects that it will
ultimately incur costs at a number of sites, including some of the 23
sites that formerly housed manufactured gas plant facilities, even those
in which it has a partial or no current ownership interest. It is
expected that in most cases, parties other than Consumers with current or
former ownership interests may also be considered liable under the law and
may be required to share in the costs of any site investigations and
remedial actions. There is limited knowledge of manufactured gas plant
contamination at these sites at this time. However, Consumers is
continuing to monitor this issue.
In addition, at the request of the DNR, Consumers prepared plans for
remedial investigation/feasibility studies for three of these sites. Work
plans for remedial investigation/feasibility studies for four other sites
have also been prepared. The DNR has approved two of the three plans for
remedial investigation/feasibility studies submitted and is currently
reviewing the one remaining. Consumers currently estimates the total cost
of conducting the three studies submitted to the DNR to be less than $1
million.
The timing and extent of any further site investigation and remedial
actions will depend, among other things, on requests received from the DNR
and on future site usage by Consumers or other owners. Under the current
schedule, Consumers anticipates the first remedial
investigation/feasibility study would be completed in mid-1994. Consumers
believes the results of the remedial investigation/feasibility studies
will allow management to estimate a range of remedial cost estimates for
the sites under study, which may be substantial. In 1993, the MPSC
addressed the question of recovery of investigation and remedial costs for
another Michigan gas utility as part of that utility's gas rate case. In
that proceeding, the MPSC determined that prudent investigation and
remedial costs could be deferred and amortized over 10-year periods and
prudent unamortized costs can be included for recovery in the utility's
rate cases. CMS Energy and Consumers believe costs incurred for both
investigation and any required remedial actions would be recoverable from
gas utility customers under established regulatory policies and
accordingly are not likely to materially affect their financial positions
or results of operations.
Gas Outlook
In 1993, Consumers purchased approximately 85 percent of its required gas
supply under long-term contracts, and the balance on the spot market.
Trunkline supplied approximately 41 percent of the total requirement.
Consumers expects gas supply reliability to be ensured through long-term
supply contracts, with purchases in the short-term spot market when
economically beneficial. Management believes that Consumers' ability to
purchase gas during the off-season and store it in its extensive
underground storage facilities will continue to help provide customers
with low-cost, competitive gas rates.
Consumers anticipates growth in gas deliveries of approximately 0.6
percent per year over the next five years. Management believes that
environmental benefits, along with the federal requirements included in
the Energy Act, create an opportunity for growth in the natural gas
vehicle industry.
Oil and Gas Exploration and Production
Pretax Operating Income
1993 pretax operating income decreased $4 million from 1992, primarily
reflecting lower average market prices for oil and $10 million of
international write-offs, partially offset by higher gas and oil sales
volumes and higher average market prices for gas. 1992 pretax operating
income decreased $7 million from 1991, primarily due to lower average
market prices for oil, partially offset by increased oil and gas sales
volumes.
Capital Expenditures
During 1993, CMS Energy's oil and gas exploration and production capital
expenditures were $81 million. Most expenditures were made to develop
existing proven reserves -- oil reserves in Ecuador which will start
production in 1994 and Antrim Shale gas in northern Michigan.
CMS Energy currently plans to invest $307 million over the next three
years in its oil and gas exploration and production operations. These
anticipated capital expenditures primarily reflect continued development
of Ecuador oil and Antrim Shale gas and reserve acquisitions.
International focus will remain on Latin America and the Pacific Rim
region.
Independent Power Production
Pretax Operating Income
1993 pretax operating income increased $21 million, primarily reflecting
the addition of new electric generating capacity and improved equity
earnings and operating efficiencies. CMS Energy's ownership share of
sales and revenues increased 24 percent and 18 percent, respectively, over
the prior year.
Capital Expenditures
In 1993, capital expenditures were $110 million, including investments in
unconsolidated subsidiaries. These expenditures were primarily used to
obtain ownership interests in an additional 309 MW of owned operating
capacity or a 40 percent increase from December 31, 1992.
In April 1993, CMS Generation acquired a 50 percent interest in the
Lyonsdale cogeneration plant, a 19 MW power plant in upstate New York.
CMS Generation has invested $9 million in the project and additional
investments relating to this project are expected to be immaterial.
In May 1993, a consortium including CMS Generation purchased an 88 percent
share in the 650 MW San Nicolas power plant near Buenos Aires, Argentina.
As of December 31, 1993, CMS Generation's share of the consortium is 18.6
percent and it has provided notice to exercise its option to increase its
share to 21 percent. The plant sells power under long-term contracts to
two utilities and Argentina's electric grid system. CMS Generation has
invested $21 million in the partnership through December 31, 1993 and
plans to invest approximately $3 million in 1994 in exercising its option.
In June 1993, CMS Generation was involved in the formation of Scudder
Latin American Trust for Independent Power as a lead partner. The fund,
which has investment commitments of $25 million from each of the four lead
partners, will invest in electric generation and infrastructure resulting
from the development of new power generating capacity. CMS Generation has
contributed $.5 million through December 31, 1993 and estimates
contributions of up to $11 million in 1994.
In July 1993, an investment company including CMS Generation S. A.
acquired the rights to a 59 percent ownership interest in two
hydroelectric power plants on the Limay River in western Argentina. These
plants have a total generating capacity of 1,320 MW. The remaining
interest in the project is to be held 39 percent by the Argentine
provincial government and 2 percent by the plant employees.
CMS Generation S.A. has a 25 percent ownership interest in the investment
company. The investment company secured a 30-year concession under a
government privatization program and in August 1993, began operating these
power plants. CMS Generation S.A. entered into letter of credit
agreements to support the acquisition. As of December 31, 1993,
CMS Energy had approximately $41 million of guarantees relating to this
agreement which were reduced to less than $15 million in January 1994.
CMS Generation has invested $64 million in equity and loans and plans to
invest up to an additional $2 million in 1994.
CMS Generation has a 50 percent ownership interest and has invested,
through the Oxford/CMS Development Limited Partnership, $7 million in the
Exeter waste tire-fueled/electric generation facility near Sterling,
Connecticut. Based on a financial restructuring completed in 1993,
CMS Generation may be obligated to invest up to an additional $2 million.
The 26.5 MW Exeter facility has a capacity of processing 10 million waste
tires per year and sells its capacity and energy to Connecticut Light and
Power Company under a long-term agreement.
Effective November 1, 1993, CMS Generation acquired a 50 percent ownership
interest in an 18 MW wood waste-fueled electric generation facility
located near Chateaugay, New York for approximately $5 million and became
the operator March 1, 1994. The facility sells its entire electric output
to New York State Electric and Gas Corporation under a long-term power
purchase agreement. CMS Generation expects no additional investment
relating to this project.
CMS Energy currently plans to invest $281 million relating to its
independent power production operations over the next three years,
primarily in domestic and international subsidiaries and partnerships.
CMS Generation is involved with partnerships that have signed power
contracts to construct power plant facilities capable of producing a total
of 885 MW of operating capacity in Michigan, Tamil Nadu, India, and two
projects in Batangas, Philippines. CMS Generation will also pursue
acquisitions in Latin America, southern Asia and the Pacific Rim region.
Gas Transmission and Marketing
Pretax Operating Income
1993 pretax operating income increased $2 million over 1992, reflecting
earnings growth from existing and new gas transportation projects and
increased natural gas marketed. In 1993, 60 bcf was marketed compared to
45 bcf in 1992.
Capital Expenditures
During 1993, CMS Energy's non-utility gas companies made capital
expenditures of $14 million and formed two marketing partnerships which
will provide natural gas marketing services throughout the Appalachian
region of the United States and in Chicago and northern Illinois.
In November 1993, CMS Gas Transmission acquired an existing $4 million gas
gathering system in the Antrim Shale region of Michigan's Lower Peninsula,
which was placed into service in December 1993. CMS Gas Transmission
began an $11 million expansion of its carbon dioxide processing facility,
with completion expected in March 1994. In December 1993, they signed a
letter of intent to invest $18 million to acquire 50 percent ownership in
an existing 5 bcf high deliverability salt cavern storage facility on the
Gulf Coast of Texas.
CMS Energy currently plans to invest $123 million over the next three
years relating to its non-utility gas operations. These investments would
reflect the significant expansion of certain northern Michigan gas
pipeline and carbon dioxide removal plant facilities. It will continue to
pursue development of natural gas storage, gas gathering and pipeline
operations both domestically and internationally and work toward the
development of a Midwest "market center" for natural gas through strategic
alliances and asset acquisition and development.
Other
Other Income: The 1993 other income level reflects lower Midland-related
losses than experienced in 1992. The 1992 loss included a $343 million
charge related to the Settlement Order. The 1991 loss included $294
million related to an MPSC order received in 1991 that allowed Consumers
to recover only $760 million of remaining abandoned Midland investment.
Fixed Charges: Fixed charges for 1993 increased $22 million from 1992 and
primarily reflect debt outstanding with higher rates of interest in 1993.
The significant decrease in fixed charges in 1992 from 1991 primarily
reflects Consumers' program aimed at significantly reducing its debt and
the refinancing of debt at lower interest rates.
Public Utility Holding Company Act Exemption: CMS Energy is exempt from
registration under PUHCA. However, the Attorney General and the MMCG have
asked the SEC to revoke CMS Energy's exemption from registration under
PUHCA. On April 15, 1992, the MPSC filed a statement with the SEC
recommending that CMS Energy's current exemption be revoked and a new
exemption be issued conditioned upon certain reporting and operating
requirements. If CMS Energy were to lose its current exemption, it would
become more heavily regulated by the SEC; Consumers could ultimately be
forced to divest either its electric or gas utility business; and
CMS Energy would be restricted from conducting businesses that are not
functionally related to the conduct of its utility business as determined
by the SEC. CMS Energy is opposing this request and believes it will
maintain its current exemption from registration under PUHCA.
64
Consolidated Statements of Income CMS Energy Corporation
In Millions,
Except Per Share Amounts
Years Ended December 31 1993 1992 1991
- ---------------------------------------------------------------------------------------------------------------
Operating Revenue Electric utility $2,077 $1,863 $1,849
Gas utility 1,160 1,126 1,061
Oil and gas exploration and production 77 70 50
Independent power production 21 (8) (9)
Gas transmission and marketing 142 89 42
Other 5 6 5
---------------------------------
Total operating revenue 3,482 3,146 2,998
- ---------------------------------------------------------------------------------------------------------------
Operating Expenses Operation
Fuel for electric generation 293 305 308
Purchased power - related parties 467 460 442
Purchased and interchange power 148 112 144
Cost of gas sold 801 749 693
Other 570 554 514
---------------------------------
Total operation 2,279 2,180 2,101
Maintenance 206 203 172
Depreciation, depletion and amortization 365 348 283
General taxes 193 184 181
---------------------------------
Total operating expenses 3,043 2,915 2.737
- ---------------------------------------------------------------------------------------------------------------
Pretax Operating Electric utility 286 154 220
Income (Loss) Gas utility 147 109 64
Oil and gas exploration and production 3 7 14
Independent power production 5 (16) (18)
Gas transmission and marketing 7 5 4
Other (9) (28) (23)
---------------------------------
Total pretax operating income 439 231 261
- ---------------------------------------------------------------------------------------------------------------
Income Taxes 92 22 25
- ---------------------------------------------------------------------------------------------------------------
Net Operating Income 347 209 236
- ---------------------------------------------------------------------------------------------------------------
Other Income Income from contractual arrangements (MCV Bonds) 32 34 119
(Deductions) Accretion income (Note 4) 14 15 24
Accretion expense (Note 3) (36) - -
Loss on MCV power purchases - settlement (Note 3) - (520) -
Write-down of abandoned Midland project costs (Note 4) - - (398)
Other income taxes, net 17 168 119
Other, net 15 9 (15)
---------------------------------
Total other income (deductions) 42 (294) (151)
- ---------------------------------------------------------------------------------------------------------------
Fixed Charges Interest on long-term debt 204 169 274
Other interest 24 35 68
Capitalized interest (5) (3) (5)
Preferred dividends 11 11 10
---------------------------------
Net fixed charges 234 212 347
- ---------------------------------------------------------------------------------------------------------------
Net Income (Loss) Before Extraordinary Item 155 (297) (262)
Extraordinary Item, Early Redemption of Debt, Net - - (14)
---------------------------------
Net Income (Loss) $ 155 $ (297) $ (276)
===============================================================================================================
Average Common Shares Outstanding 81 80 80
===============================================================================================================
Earnings (Loss) Per Average Common Share Before Extraordinary Item $ 1.90 $(3.72) $(3.26)
Loss Per Average Common Share From Extraordinary Item - - (.18)
---------------------------------
Earnings (Loss) Per Average Common Share $ 1.90 $(3.72) $(3.44)
===============================================================================================================
Dividends Declared Per Common Share $ .60 $ .48 $ .48
===============================================================================================================
The accompanying notes are an integral part of these statements.
/TABLE
65
Consolidated Statements of Cash Flows CMS Energy Corporation
In Millions
Years Ended December 31 1993 1992 1991
- ----------------------------------------------------------------------------------------------------------------
Cash Flows From Net income (loss) $ 155 $(297) $(276)
Operating Activities Adjustments to reconcile net income (loss) to
net cash provided by operating activities
Depreciation, depletion and lease amortization 341 338 311
Nuclear decommissioning 54 50 15
Debt discount amortization 36 12 3
Deferred income taxes 66 (177) (150)
Deferred investment tax credit (10) (8) 36
Accretion expense (Note 3) 36 - -
Accretion income - abandoned Midland
project (Note 4) (14) (15) (24)
MCV power purchases - settlement (Note 3) (84) - -
Loss on MCV power purchases - settlement (Note 3) - 520 -
Loss on equity investments and loans to affiliates - 6 56
Write-down of abandoned Midland project costs - - 398
Changes in other assets and liabilities (Note 14) (87) 37 160
Other (9) 2 30
---------------------------
Net cash provided by operating activities 484 468 559
- ----------------------------------------------------------------------------------------------------------------
Cash Flows From Construction expenditures (excludes assets placed under
Investing Activities capital leases of $58 in 1993, $69 in 1992 and
$27 in 1991)(Note 14) (548) (487) (353)
Investments in partnerships
and unconsolidated subsidiaries (108) (12) (33)
Investments in nuclear decommissioning trust funds (54) (50) (15)
Deferred demand-side management costs (52) (26) -
Cost to retire property, net (32) (14) (18)
Sale of subsidiary (Note 2) (14) - -
Other (4) (1) (3)
Reduction of investment in MCV Bonds and
MCV Partnership (Note 3) 322 10 877
Proceeds from sale of property 1 12 5
Proceeds from Bechtel settlement - 46 -
---------------------------
Net cash provided by (used in)
investing activities (489) (522) 460
- ----------------------------------------------------------------------------------------------------------------
Cash Flows From Proceeds from bank loans, notes and bonds (Note 7) 676 607 207
Financing Activities Issuance of common stock 132 - -
Increase (decrease) in notes payable, net 44 (493) 371
Retirement of bonds (Note 7) (645) (12) (606)
Repayment of bank loans (192) (1) (805)
Payment of common stock dividends (49) (38) (38)
Payment of capital lease obligations (26) (36) (41)
Retirement of common and preferred stock (3) (1) (35)
---------------------------
Net cash provided by (used in)
financing activities (63) 26 (947)
- ----------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Cash and Temporary Cash Investments (68) (28) 72
Cash and temporary cash investments
Beginning of year 123 151 79
---------------------------
End of year $ 55 $ 123 $ 151
================================================================================================================
The accompanying notes are an integral part of these statements.
66
Consolidated Balance Sheets CMS Energy Corporation
ASSETS In Millions
December 31 1993 1992
- -----------------------------------------------------------------------------------------------------------
Plant and Property Electric $5,347 $5,076
(At Cost) Gas 1,862 1,749
Oil and gas properties (full-cost method) 845 768
Other 294 256
----------------
8,348 7,849
Less accumulated depreciation, depletion and amortization (Note 2) 4,022 3,775
----------------
4,326 4,074
Construction work-in-progress 257 252
----------------
4,583 4,326
- -----------------------------------------------------------------------------------------------------------
Investments First Midland Limited Partnership (Notes 3 and 16) 213 208
Independent power production 115 36
Midland Cogeneration Venture Limited Partnership (Notes 3 and 16) 67 68
Other 26 26
----------------
421 338
- -----------------------------------------------------------------------------------------------------------
Current Assets Cash and temporary cash investments at cost, which
approximates market (Note 3) 55 123
Accounts receivable and accrued revenues, less allowances
of $4 in 1993 and $5 in 1992 (Note 6) 149 183
Inventories at average cost
Gas in underground storage 228 204
Materials and supplies 74 70
Generating plant fuel stock 41 37
Deferred income taxes (Note 5) 17 -
Investment in MCV Bonds (Note 3) - 322
Prepayments and other 219 230
----------------
783 1,169
- -----------------------------------------------------------------------------------------------------------
Non-current Assets Postretirement benefits (Note 10) 491 466
Nuclear decommissioning trust funds (Note 2) 165 111
Abandoned Midland project (Note 4) 162 175
Trunkline settlement (Note 4) 86 116
Other 273 147
----------------
1,177 1,015
----------------
Total Assets $6,964 $6,848
===========================================================================================================
67
CMS Energy Corporation
STOCKHOLDERS' INVESTMENT AND LIABILITIES In Millions
December 31 1993 1992
- -----------------------------------------------------------------------------------------------------------
Capitalization Common stockholders' equity $ 966 $ 727
(Note 7) Preferred stock of subsidiary 163 163
Long-term debt 2,405 2,725
Non-current portion of capital leases 115 98
----------------
3,649 3,713
- -----------------------------------------------------------------------------------------------------------
Current Liabilities Current portion of long-term debt and capital leases 368 132
Notes payable 259 215
Accounts payable 171 201
Accounts payable - related parties 46 47
Accrued taxes 233 258
MCV power purchases - settlement (Note 3) 82 81
Accrued interest 40 50
Accrued refunds 28 77
Deferred income taxes (Note 5) - 21
Other 189 188
----------------
1,416 1,270
- -----------------------------------------------------------------------------------------------------------
Non-current Postretirement benefits (Note 10) 540 503
Liabilities Deferred income taxes (Note 5) 509 349
MCV power purchases - settlement (Note 3) 391 439
Deferred investment tax credits 191 201
Trunkline settlement (Note 4) 86 116
Regulatory liabilities for income taxes, net (Note 5) 6 62
Other 176 195
----------------
1,899 1,865
----------------
Commitments and Contingencies (Notes 2, 3, 4, 11 and 12)
Total Stockholders' Investment and Liabilities $6,964 $6,848
===========================================================================================================
The accompanying notes are an integral part of these statements.
68
Consolidated Statements of Long-Term Debt CMS Energy Corporation
In Millions
December 31 1993 1992
- ---------------------------------------------------------------------------------------------------------------
First Mortgage Bonds Series (%) Due
13-7/8 1993 $ - $ 4
5-7/8 1996 36 36
6 1997 50 50
8-3/4 1997 5 11
8-3/4 1998 248 250
6-5/8 1998 45 45
6-7/8 1998 43 43
9-1/8 1998 5 8
7-5/8 1999 48 48
8-1/4 1999 - 55
8-7/8 1999 200 200
8-5/8 2000 - 50
7-1/2 2001 57 57
8-1/8 2001 - 57
7-1/2 2002 62 62
7-1/2 2002 43 43
6-3/8 2003 300 -
8-5/8 2003 - 75
9 2006 - 60
8-7/8 2007 - 85
8-5/8 2007 - 100
9 2008 - 68
7-3/8 2023 300 -
--------------------
1,442 1,407
Long-Term Bank Debt 469 500
Senior Deferred Coupon Notes 466 466
Pollution Control Revenue Bonds 131 133
Bank Loans 115 244
Nuclear Fuel Disposal 90 88
Senior Serial Notes 45 50
4-5/8% Debentures 26 26
Tax Exempt Bonds 22 -
Other 13 13
--------------------
Principal Amount Outstanding 2,819 2,927
Current Amounts (333) (93)
Net Unamortized Discount (81) (109)
--------------------
Total Long-Term Debt $2,405 $2,725
===============================================================================================================
The table below shows maturities and improvement fund obligations for long-term debt:
LONG-TERM DEBT MATURITIES AND OBLIGATIONS In Millions
First Mortgage Improvement Long-Term Senior Deferred
Bonds Fund Bank Debt Coupon Notes Other Total
- --------------------------------------------------------------------------------------------------------
1994 $ 91 $9 $188 $ - $ 45 $333
1995 - 8 188 - 30 226
1996 36 8 93 - 116 253
1997 50 8 - 172 37 267
1998 336 7 - - 32 375
========================================================================================================
The accompanying notes are an integral part of these statements.
69
Consolidated Statements of Preferred Stock CMS Energy Corporation
Optional
Redemption Number of Shares In Millions
December 31 Series Price 1993 1992 1993 1992
- -----------------------------------------------------------------------------------------------------------------
Consumers' Preferred Stock
Cumulative, $100 par value,
authorized 7,500,000 shares,
with no mandatory redemption $4.16 $103.25 68,451 68,451 $ 7 $ 7
4.50 110.00 373,148 373,148 37 37
7.45 101.00 379,549 379,549 38 38
7.68 101.00 207,565 207,565 21 21
7.72 101.00 289,642 289,642 29 29
7.76 102.21 308,072 308,072 31 31
--------------
Total Preferred Stock $163 $163
=================================================================================================================
The accompanying notes are an integral part of these statements.
70
Consolidated Statements of Common Stockholders' Equity CMS Energy Corporation
In Millions,
Except Number of Shares
Other Retained
Number Common Paid-in Earnings
of Shares Stock Capital (Deficit) Total
- ----------------------------------------------------------------------------------------------------------------
Balance at January 1, 1991 80,745,032 $1 $1,565 $(164) $1,402
Net loss (276) (276)
Common stock dividends declared (38) (38)
Net gain on retired stock 1 1
Reissuance of affiliate's
preferred stock (2) (2)
Common stock reacquired (1,067,697) (30) (30)
Common stock reissued 147,050 3 3
- ----------------------------------------------------------------------------------------------------------------
Balance at December 31, 1991 79,824,385 1 1,537 (478) 1,060
Net loss (297) (297)
Common stock dividends declared (38) (38)
Common stock reacquired (9,101) (1) (1)
Common stock reissued 150,438 3 3
- ----------------------------------------------------------------------------------------------------------------
Balance at December 31, 1992 79,965,722 1 1,539 (813) 727
Net income 155 155
Common stock dividends declared (49) (49)
Common stock reacquired (97,442) (3) (3)
Common stock issued 5,135,726 132 132
Common stock reissued 192,789 4 4
- ----------------------------------------------------------------------------------------------------------------
Balance at December 31, 1993 85,196,795 $1 $1,672 $(707) $ 966
================================================================================================================
The accompanying notes are an integral part of these statements.
71
CMS Energy Corporation
Notes to Consolidated Financial Statements
1: Corporate Structure
CMS Energy is the parent holding company of Consumers and Enterprises.
Consumers, a combination electric and gas utility company serving most of
the Lower Peninsula of Michigan, is the principal subsidiary of
CMS Energy. Consumers' customer base includes a mix of residential,
commercial and diversified industrial customers, the largest of which is
the automotive industry. Enterprises is engaged in several non-utility
energy-related businesses including: 1) oil and gas exploration and
production, 2) development and operation of independent power production
facilities, 3) gas marketing services to utility, commercial and
industrial customers, and 4) transmission and storage of natural gas.
2: Summary of Significant Accounting Policies and Other Matters
Basis of Presentation
The consolidated financial statements include CMS Energy, Consumers and
Enterprises and their wholly owned subsidiaries. CMS Energy eliminates all
material transactions between its consolidated companies. CMS Energy uses
the equity method of accounting for investments in its companies and
partnerships where it has more than a 20 percent but less than a majority
ownership interest and includes these results in operating revenue. For
the years ended December 31, 1993, 1992 and 1991 equity earnings (losses)
were $17 million, $(6) million, and $(8) million, respectively.
Gas Inventory
Consumers uses the weighted average cost method for valuing working gas
inventory. Cushion gas, which is gas stored to maintain reservoir
pressure for recovery of working gas, is recorded in the appropriate gas
utility plant account. Consumers stores gas inventory in its underground
storage facilities.
Maintenance, Depreciation and Depletion
Property repairs and minor property replacements are charged to
maintenance expense. Depreciable property retired or sold plus cost of
removal (net of salvage credits) is charged to accumulated depreciation.
Consumers bases depreciation provisions for utility plant on straight-line
and units-of-production rates approved by the MPSC. In May 1991, the MPSC
approved an increase of approximately $15 million annually in Consumers'
electric and common utility plant depreciation rates. The composite
depreciation rate for electric utility property was 3.4 percent for 1993
and 1992 and 3.3 percent for 1991. The composite rate for gas utility
plant was 4.4 percent for 1993 and 4.3 percent for 1992 and 1991.
NOMECO follows the full-cost method of accounting and, accordingly,
capitalizes its exploration and development costs, including the cost of
non-productive drilling and surrendered acreage, on a country-by-country
basis. The capitalized costs in each cost center are being amortized on an
overall units-of-production method based on total estimated proven oil and
gas reserves.
The composite rates for Consumers' common property, NOMECO's other
property, and other property of CMS Energy and its subsidiaries were 4.5
percent in 1993, 4.7 percent in 1992 and 4.1 percent in 1991.
New Accounting Standards
In November 1992, the FASB issued SFAS 112, Employers' Accounting for
Postemployment Benefits, which CMS Energy adopted January 1, 1994.
CMS Energy pays for several postemployment benefits, the most significant
being workers compensation. Because CMS Energy's postemployment benefit
plans do not vest or accumulate, the standard did not materially impact
CMS Energy's financial position or results of operations. For new
accounting standards related to financial instruments, see Note 8.
Nuclear Fuel, Decommissioning and Other Nuclear Matters
Consumers amortizes nuclear fuel cost to fuel expense based on the
quantity of heat produced for electric generation. Interest on leased
nuclear fuel is expensed as incurred. Under federal law, the DOE is
responsible for permanent disposal of spent nuclear fuel at costs to be
paid by affected utilities under various payment options. However, in a
statement released February 17, 1994, the DOE asserted that it does not
have a legal obligation to accept spent nuclear fuel without an
operational repository. The DOE is exploring options to offset the costs
incurred by nuclear utilities in continuing to store spent nuclear fuel on
site. For fuel burned after April 6, 1983, Consumers charges disposal
costs to nuclear fuel expense, recovers it through electric rates and
remits it to the DOE quarterly. Consumers has elected to defer payment
for disposal of spent nuclear fuel burned before April 7, 1983 until the
spent fuel is delivered to the DOE. As of December 31, 1993, Consumers
has recorded a liability to the DOE of $90 million, including interest, to
dispose of spent nuclear fuel burned before April 7, 1983. Consumers has
been recovering through electric rates the amount of this liability,
excluding a portion of interest. Consumers' liability to the DOE becomes
due when the DOE takes possession of Consumers' spent nuclear fuel, which
was originally scheduled to occur in 1998.
In April 1993, the NRC approved the design of the dry spent fuel storage
casks now being used by Consumers at Palisades. In May 1993, the Attorney
General and certain other parties commenced litigation to block
Consumers' use of the storage casks, alleging that the NRC had failed to
comply adequately with the National Environmental Policy Act. As of mid-
February 1994, the courts have declined to prevent such use and have
refused to issue temporary restraining orders or stays. Several appeals
relating to this matter are now pending at the U.S. Sixth Circuit Court of
Appeals. Consumers loaded two dry storage casks with spent nuclear fuel
in 1993 and expects to load additional casks in 1994 prior to Palisades'
1995 refueling. If Consumers is unable to continue to use the casks as
planned, significant costs, including replacement power costs during any
resulting plant shutdown, could be incurred.
Consumers currently estimates decommissioning costs (decontamination and
dismantlement) of $208 million and $399 million, in 1993 dollars, for the
Big Rock Point and Palisades nuclear plants, respectively. At December
31, 1993, Consumers had recorded $171 million of decommissioning costs and
classified the obligation as accumulated depreciation. In January 1987,
Consumers began collecting estimated costs to decommission its two nuclear
plants through a monthly surcharge to electric customers which currently
totals $45 million annually. Consumers expects to file updated
decommissioning estimates with the MPSC on or before March 31, 1995.
Amounts collected from electric retail customers are deposited in trust.
Trust earnings are recorded as an investment with a corresponding credit
included in accumulated depreciation. The total amount of the trust will
be available for decommissioning Big Rock Point and Palisades at the end
of their respective license periods in 2000 and 2007. Consumers believes
the amounts being collected are adequate to meet its currently estimated
decommissioning costs and current NRC requirements.
In November 1993, Palisades returned to service following a planned
refueling and maintenance outage that had been extended due to several
unanticipated repairs. The results of an NRC review of Consumers'
performance at Palisades published shortly thereafter showed a decline in
performance ratings for the plant. Management believes that an increased
emphasis on internal assessments will improve performance at Palisades.
In order to provide NRC senior management with a more in-depth assessment
of plant performance, the NRC has initiated a diagnostic evaluation team
inspection at Palisades. The inspection will be a broad-based evaluation
of all aspects of nuclear plant operation and management. The evaluation
is expected to commence in March 1994, with results of the evaluation
expected to be available in May 1994. The outcome of this evaluation
cannot be predicted. Similar reviews conducted at nuclear plants of other
utilities in recent years have in some cases resulted in increased
regulatory oversight or required actions to improve plant operations,
maintenance or condition.
Plateau Resources Ltd.
In August 1993, Consumers sold its ownership interest in Plateau to U. S.
Energy Corp. As a result of the sale, approximately $14 million of
Plateau's cash and cash equivalents, other assets and liabilities,
including certain future decommissioning, environmental and other
contingent liabilities were transferred to U. S. Energy Corp. In view of
prior write-offs, this transaction did not result in any material gains or
additional losses.
Reclassifications
CMS Energy and the MCV Partnership (see Note 16) have reclassified certain
prior year amounts for comparative purposes. These reclassifications did
not affect the net losses for the years presented.
Related-Party Transactions
In 1993, 1992, and 1991, Consumers purchased $52 million, $36 million and
$26 million, respectively, of electric generating capacity and energy from
affiliates of Enterprises. Affiliates of CMS Energy sold, stored and
transported natural gas and provided other services to the MCV Partnership
totaling approximately $27 million, $21 million and $19 million for 1993,
1992 and 1991, respectively. For additional discussion of related-party
transactions with the MCV Partnership and the FMLP, see Notes 3 and 16.
Other related-party transactions are immaterial.
Revenue and Fuel Costs
Consumers accrues revenue for electricity and gas used by its customers
but not billed at the end of an accounting period. Consumers also accrues
or reduces revenue for any underrecovery or overrecovery of electric power
supply costs and natural gas costs by establishing a corresponding asset
or liability until Consumers bills these unrecovered costs or refunds the
excess recoveries to customers after reconciliation hearings conducted
before the MPSC.
Utility Regulation
Consumers accounts for the effects of regulation under SFAS 71, Accounting
for the Effects of Certain Types of Regulation. As a result, the actions
of regulators affect when revenues, expenses, assets and liabilities are
recognized.
Other
For significant accounting policies regarding cash equivalents, see Note
14; for income taxes, see Note 5; and for pensions and other
postretirement benefits, see Note 10.
3: The Midland Cogeneration Venture
The MCV Partnership, which leases and operates the MCV Facility,
contracted to supply electricity and steam to The Dow Chemical Company and
to sell electricity to Consumers for a 35-year period beginning in March
1990. At December 31, 1993, Consumers, through its subsidiaries, held the
following assets related to the MCV: 1) CMS Midland owned a 49 percent
general partnership interest in the MCV Partnership; and 2) CMS Holdings
held through the FMLP a 35 percent lessor interest in the MCV Facility.
In late 1993, Consumers sold its remaining $309 million investment in the
MCV Bonds.
Power Purchases from the MCV Partnership
Consumers is obligated to purchase the following amounts of contract
capacity from the MCV Partnership under the PPA:
1995 and
Year 1991 1992 1993 1994 thereafter
- ---- ----- ----- ----- ----- ----------
MW 806 915 1,023 1,132 1,240
During 1992 and 1991, the MPSC only allowed Consumers to recover costs of
power purchased from the MCV Partnership based on delivered energy at
rates less than Consumers paid for 840 MW in 1992 and 806 MW in 1991. As
a result, Consumers recorded after-tax losses of $86 million in 1992 and
$124 million in 1991.
On March 31, 1993, the MPSC approved, with modifications, the Revised
Settlement Proposal which had been co-sponsored by Consumers, the MPSC
staff and 10 small power and cogeneration developers. These parties
accepted the Settlement Order and the MCV Partnership confirmed that it
did not object to its terms. ABATE and the Attorney General have filed
claims of appeal of the Settlement Order with the Court of Appeals.
The Settlement Order determined the cost of power purchased from the MCV
Partnership that Consumers can recover from its electric retail customers
and will significantly reduce the amount of future underrecoveries for
these power costs. Effective January 1, 1993, the Settlement Order
allowed Consumers to recover substantially all of the payments for its on-
going purchase of 915 MW of contract capacity from the MCV Partnership.
Capacity and energy purchases from the MCV Partnership above the 915 MW
level can be competitively bid into Consumers' next solicitation for power
or, if necessary, utilized for current power needs with a prudency review
and a pricing recovery determination in annual PSCR cases. In either
instance, the MPSC would determine the levels of recovery from customers
for the power purchased. The Settlement Order also provides Consumers the
right to remarket all of the remaining capacity to third parties.
The PPA requires Consumers to pay a minimum levelized average capacity
charge of 3.77 cents per kWh, a fixed energy charge and a variable energy
charge based primarily on Consumers' average cost of coal consumed. The
Settlement Order provided Consumers two options for the recovery that
could be used for capacity charges paid to the MCV Partnership. Under the
option selected, Consumers is scheduling deliveries of energy from the MCV
Partnership whenever it has energy available up to hourly availability
limits, or "caps," for the 915 MW of capacity authorized for recovery in
the Settlement Order. Consumers can recover an average 3.62 cents per kWh
capacity charge and the prescribed energy charges associated with the
scheduled deliveries within the caps, whether or not those deliveries are
scheduled on an economic basis. Through December 31, 1997, there is no
cap applied during on-peak hours to Consumers' recovery for the purchase
of capacity made available within the 915 MW authorized. Recovery for
purchases during off-peak hours is capped at 80 percent in 1993, 82
percent in 1994 and 1995, 84 percent in 1996 and 1997, increasing to 88.7
percent in 1998 and thereafter at which time the 88.7 percent cap is
applicable during all hours. For all economic energy deliveries above the
caps to 915 MW, the option also allows Consumers to recover 1/2 cent per
kWh capacity payment in addition to the corresponding energy charge.
In December 1992, Consumers recognized an after-tax loss of $343 million
for the present value of estimated future underrecoveries of power costs
under the PPA as a result of the Settlement Order. This loss included
management's best estimates regarding the future availability of the MCV
Facility, and the effect of the future wholesale power market on the
amount, timing and price at which various increments of the capacity above
the MPSC-authorized level could be resold. Except for adjustments to the
above loss to reflect the after-tax time value of money through accretion
expense, no additional losses are expected unless actual future experience
materially differs from management's estimates. Because the calculation
of the 1992 loss depended in part upon estimates of future unregulated
sales of energy to third parties, a more conservative or risk-free
investment rate of 7 percent was used to calculate $188 million of the
total $343 million after-tax loss. The remaining portion of the loss was
calculated using an 8.5 percent discount rate reflecting Consumers'
incremental borrowing rate as required by SFAS 90, Regulated Enterprises-
Accounting for Abandonments and Disallowances of Plant Costs. The after-
tax expense for the time value of money for the loss is estimated to be
approximately $24 million in 1994, and various lower levels thereafter,
including $22 million in 1995 and $20 million in 1996. Although the
settlement losses were recorded in 1992, the after-tax cash
underrecoveries, including fixed energy charges, associated with the
Settlement Order were $59 million in 1993. Consumers believes there is
and will be a market for the resale of capacity purchases from the MCV
Partnership above the MPSC-authorized level. However, if Consumers is
unable to sell any capacity above the current MPSC-authorized level,
future additional after-tax losses and after-tax cash underrecoveries
could be incurred. Consumers' estimates of its future after-tax cash
underrecoveries and possible additional losses for the next five years if
none of the additional capacity is sold are as follows:
After-tax, In Millions
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
Expected cash underrecoveries $56 $65 $62 $61 $ 8
Possible additional under-
recoveries and losses (a) $14 $20 $20 $22 $72
(a) If unable to sell any capacity above the MPSC's authorized level.
The undiscounted, after-tax amount of the $343 million loss was $789
million. At December 31, 1993, the after-tax present value of the
Settlement Order liability had been reduced to $307 million, which
reflects after-tax cash underrecoveries related to capacity totaling $(54)
million, after-tax accretion expense of $23 million and a $(5) million
adjustment due to the 1993 corporate tax rate change (see Note 5).
The PPA, while requiring payment of a fixed energy charge, contains a
"regulatory out" provision which permits Consumers to reduce the fixed
energy charges payable to the MCV Partnership throughout the entire
contract term if Consumers is not able to recover these amounts from its
customers. In connection with the MPSC's approval of the Revised
Settlement Proposal, Consumers and the MCV Partnership have commenced
arbitration proceedings under the PPA to determine whether Consumers is
entitled to exercise its regulatory out regarding fixed energy charges on
the portion of available MCV capacity above the current MPSC-authorized
levels. An arbitrator acceptable to both parties has been selected. If
the arbitrator determines that Consumers cannot exercise its regulatory
out, Consumers would be required to make these fixed energy payments to
the MCV Partnership even though Consumers may not be recovering these
costs. The arbitration proceedings will also determine who is entitled to
the fixed energy amounts for which Consumers did not receive full cost
recovery during the years prior to settlement. Although Consumers
believes its position on arbitration is sound and intends to aggressively
pursue its right to exercise the regulatory out, management cannot predict
the outcome of the arbitration proceedings or any possible settlement of
the matter. Accordingly, losses were recorded prior to 1993 for all fixed
energy amounts at issue in the arbitration. As of December 31, 1993,
approximately $20 million has been escrowed by Consumers and is included
in Consumers' temporary cash investments. In December 1993, Consumers
made an irrevocable offer to pay through September 15, 2007, fixed energy
charges to the MCV Partnership on all kWh delivered by the MCV Partnership
to Consumers from the contract capacity in excess of 915 MW, which
represents a portion of the fixed energy charges in dispute. Consumers
made the offer to facilitate the sale of the remaining MCV Bonds in 1993.
The lessors of the MCV Facility have filed a lawsuit in federal district
court against CMS Energy, Consumers and CMS Holdings. It alleges breach
of contract, breach of fiduciary duty and negligent or willful
misrepresentation relating to the MCV Partnership's failure to object to
the Settlement Order in light of Consumers' interpretation of the
Settlement Order, which is the subject of an arbitration between the MCV
Partnership and Consumers. The action alleges damages in excess of $1
billion and seeks injunctive relief relative to Consumers' payments of the
fixed energy charge. CMS Energy and Consumers believe that at all times
they and CMS Holdings have conducted themselves properly and that the
action is without merit. They also believe that a significant portion of
the alleged damages represent fixed energy charges in dispute in the
arbitration. CMS Energy and Consumers are unable to predict the outcome
of this action.
PSCR Matters: Consistent with the terms of the Settlement Order,
Consumers has withdrawn its appeals of various MPSC orders issued in
connection with the 1992, 1991 and 1990 PSCR cases. Consumers also agreed
not to appeal any MCV-related issues raised in future orders for these
plan cases and related reconciliations to the extent those issues are
resolved by the Settlement Order. Consumers made refunds, including
interest, of $69 million in 1993 and $29 million in 1992 to customers for
overrecoveries in connection with the 1991 and 1990 PSCR reconciliation
cases, respectively. These amounts were included in losses recorded prior
to 1993. In 1992, Consumers recovered MCV power purchase costs consistent
with the MPSC's 1992 plan case order, and does not anticipate that any
MCV-related refunds will be required.
4: Rate Matters
Electric Rate Case
Consumers filed a request with the MPSC in May 1993 to increase its
electric rates. Subsequently, as a result of changed estimates, Consumers
revised its requested electric rate increase to $133 million annually
based on a 1994 test year. Consumers also requested an additional annual
electric rate increase of $38 million based on a 1995 test year.
Consumers' request included increased future expenditures primarily
related to capital additions, DSM programs, operation and maintenance,
higher depreciation and postretirement benefits computed under SFAS 106,
Employers' Accounting for Postretirement Benefits Other than Pensions.
The filing also proposed experimental incentive provisions that would
either reward or penalize Consumers, based on its operating performance.
In addition, Consumers would share any returns above its MPSC-authorized
level with customers in exchange for the ability to earn not lower than
one percentage point below its authorized level.
In March 1994, an ALJ issued a proposal for decision that recommended
Consumers' 1994 final annual rate increase total approximately $83
million, and that the incremental requested 1995 increase not be granted
at this time. The ALJ's recommendation included a lower return on
electric common equity, reflected reduced anticipated debt costs due to
the projected availability of more favorable interest rates and proposed a
lower equity ratio for Consumers' projected capitalization structure. The
ALJ did, however, generally support Consumers' rate design proposal to
significantly reduce the level of subsidization of residential customers
by commercial and industrial customers and generally supported the
performance incentive but not the shared return mechanism discussed above.
Abandoned Midland Project: In July 1984, Consumers abandoned construction
of its unfinished nuclear power plant located in Midland, Michigan, and
subsequently took a series of write-downs. In May 1991, Consumers began
collecting $35 million pretax annually for the next 10 years and is
amortizing the assets against current income over the recovery period
using an interest method. Amortization for 1993, 1992 and 1991 was $28
million, $28 million and $18 million, respectively.
Consumers was not permitted to earn a return on the portion of the
abandoned Midland investment for which the MPSC was allowing recovery.
Therefore, under SFAS 90, the recorded losses described above included
amounts that reduced the recoverable asset to the present value of future
recoveries. During the remaining recovery period, part of the prior losses
will be reversed to adjust the unrecovered asset to its present value and
is reflected as accretion income. An after-tax total of approximately $35
million of the prior losses remains to be included in accretion income
through April 2001. Several parties, including the Attorney General, have
filed claims of appeal with the Court of Appeals regarding MPSC orders
issued in May and July 1991 that specified the recovery of abandoned
investment.
Electric DSM: As a result of settlement discussions regarding DSM and an
MPSC order in July 1991, Consumers agreed to spend $65 million over two
years on DSM programs. Based on the MPSC's determination of Consumers'
effectiveness in implementing these programs, Consumers' future rate of
return on common equity may be adjusted either upward by up to 1 percent
or downward by up to 2 percent. This adjustment, if implemented, would be
applied to Consumers' retail electric tariff rates and be in effect for
one year following reconciliation hearings with the MPSC that are expected
to be initiated in the first quarter of 1994. The estimated revenue
effects of the potential adjustment range from an $11 million increase to
a $22 million decrease. Consumers believes it will receive an increase on
its return on common equity.
On October 1, 1993, Consumers completed the customer participation portion
of these programs and as part of its current electric rate case has
requested MPSC authorization to continue certain programs in 1994.
Consumers has also requested recovery of DSM expenditures which exceeded
the $65 million level. Consumers is deferring program costs and
amortizing the costs over the period these costs are being recovered from
its customers in accordance with an accounting order issued by the MPSC in
September 1992. The unamortized balance of deferred costs at December 31,
1993 and 1992 was $71 million and $25 million, respectively.
PSCR Issues
Consumers began a planned refueling and maintenance outage at Palisades in
June 1993. Following several required, unanticipated repairs that
extended the outage, the plant returned to service in early November.
Recovery of replacement power costs incurred by Consumers during the
outage will be reviewed by the MPSC during the 1993 PSCR reconciliation of
actual costs and revenues to determine the prudency of actions taken
during the outage. Any finding of delay due to imprudence could result in
disallowances of a portion of replacement power costs. Net replacement
power costs were approximately $180,000 per day above the cost of fuel
incurred when the plant is operating.
The Energy Act imposes an obligation on the utility industry, including
Consumers, to decommission DOE uranium enrichment facilities. Consumers
currently estimates its payments for decommissioning those facilities to
be $2.4 million per year for 15 years beginning in 1992, escalating based
on an inflation factor. Consumers believes these costs are recoverable
from its customers under traditional regulatory policies. As of December
31, 1993, Consumers' remaining estimated liability was approximately $34
million. Consumers has a regulatory asset of $34 million for the expected
recovery of this amount in electric rates.
GCR Issues
In connection with its 1991 GCR reconciliation case, Consumers refunded
$36 million, including interest, to its firm sales and transportation rate
customers in April 1992. Consumers accrued the full amount for this refund
in 1991.
The MPSC issued an order during 1993 that approved an interim settlement
agreement for the 12 months ended March 31, 1993. As a result of the
settlement, Consumers refunded in August 1993, to its GCR and
transportation customers, approximately $22 million, including interest.
Consumers previously accrued amounts sufficient for this refund.
The MPSC, in a February 1993 order, provided that the price payable to
certain intrastate gas producers by Consumers be reduced prospectively.
As a result, Consumers was not allowed to recover approximately $13
million of costs incurred prior to February 8, 1993. In 1991, Consumers
accrued a loss sufficient for this issue. Future disallowances are not
anticipated, unless the remaining appeals filed by the intrastate
producers are successful.
In 1992, the FERC approved a settlement involving Consumers, Trunkline and
certain other parties, which resolved numerous claims and proceedings
concerning Trunkline liquified natural gas costs. The settlement
represents significant gas cost savings for Consumers and its customers in
future years. As part of the settlement, Consumers will not incur any
transition costs from Trunkline as a result of FERC Order 636. In
November 1992, Consumers had recorded a liability and regulatory asset for
the principal amount of payments to Trunkline over a five-year period and
a regulatory asset. On May 11, 1993, the MPSC approved a separate
settlement agreement that provides Consumers with full recovery of these
costs over a five-year period. At December 31, 1993, Consumers' remaining
liability and regulatory asset was $116 million.
Other
Certain of Consumers' direct gas suppliers have contract prices tied to
the price Consumers pays Trunkline for its gas. On September 1, 1993,
Consumers commenced gas purchases from Trunkline under a continuation of
prior sales agreements. The current contract covers gas deliveries
through October 1994 and is at a reduced price compared to prior gas
sales. Some of Consumers' direct gas suppliers have claimed that the
reduced Trunkline gas cost is not a proper reference price under their
contracts with Consumers and that their contracts are terminable after a
12-month period. Consumers is disputing these claims. Additionally,
three of these direct gas suppliers of Consumers have made filings with
the FERC in Trunkline's Order 636 restructuring case seeking to preclude
Trunkline's ability to make the sales to Consumers which commenced on
September 1, 1993. Consumers and Trunkline vigorously opposed these
filings and in December 1993, the FERC issued an order which, among other
things, allowed Trunkline to continue sales of gas to Consumers under
tariffs on file with the FERC.
Estimated losses for certain contingencies discussed in this note have
been accrued. Resolution of these contingencies is not expected to have a
material impact on the financial statements.
5: Income Taxes
CMS Energy and its subsidiaries (including Consumers) file a consolidated
federal income tax return. Income taxes are generally allocated to each
subsidiary based on each subsidiary's separate taxable income. In 1992,
CMS Energy implemented SFAS 109, Accounting for Income Taxes. Deferred
tax assets and liabilities are classified as current or noncurrent based
on the classification of the related asset or liability, for all temporary
differences. Consumers began practicing full deferred tax accounting for
temporary differences arising after January 1, 1993 as authorized by a
generic MPSC order. The generic order reduces the amount of regulatory
assets and liabilities that otherwise could have arisen in future periods
by allowing Consumers to reflect the income statement effect in the period
temporary differences arise.
CMS Energy uses ITC to reduce current income taxes payable and defers and
amortizes ITC over the life of the related property. The AMT requires
taxpayers to perform a second separate federal tax calculation based on a
flat rate applied to a broader tax base. AMT is the amount by which this
"broader-based" tax exceeds regular tax. Any AMT paid generally becomes a
tax credit that can be carried forward indefinitely to reduce regular tax
liabilities in future periods when regular taxes paid exceed the tax
calculated for AMT.
On August 10, 1993, the Omnibus Budget Reconciliation Act of 1993
increased the statutory federal tax rate from 34 percent to 35 percent
effective January 1, 1993. The cumulative effect of this tax rate change
has been reflected in CMS Energy's financial statements.
The significant components of income tax expense (benefit) consisted of:
In Millions
Years Ended December 31 1993 1992 1991(a)
- ----------------------- ------- ------ --------
Current federal income taxes $ 19 $ 39 $ 13
Deferred income taxes 67 (177) (143)
Deferred income taxes - tax rate change (1) - -
Deferred ITC, net (10) (8) 36
------- ------ ------
$ 75 $(146) $ (94)
======= ====== ======
Operating $ 92 $ 22 $ 25
Other (17) (168) (119)
------- ------ ------
$ 75 $(146) $ (94)
======= ====== ======
(a) The 1991 provision for income taxes was before an extraordinary item
that had related deferred income taxes of approximately $7 million.
The principal components of CMS Energy's deferred tax assets (liabilities)
recognized in the balance sheet are as follows:
80
In Millions
December 31 1993 1992
- ----------- ------- --------
Property $(580) $ (521)
Unconsolidated investments (194) (128)
Postretirement benefits (Note 10) (180) (167)
Abandoned Midland project (Note 4) (57) (60)
Employee benefit obligations (includes
postretirement benefits of
$182 and $168) (Note 10) 204 189
MCV power purchases - settlement (Note 3) 165 177
AMT carryforward 110 83
ITC carryforward (expires 2005) 48 52
Other (8) 5
------- --------
$ (492) $ (370)
======== ========
Gross deferred tax liabilities $(1,571) $(1,416)
Gross deferred tax assets 1,079 1,046
-------- --------
$ (492) $ (370)
======== ========
The actual income tax expense (benefit) differs from the amount computed
by applying the statutory federal tax rate to income before income taxes
as follows:
In Millions
Years Ended December 31 1993 1992 1991
------- ------- -------
Net income (loss) before preferred
dividends and extraordinary item $ 166 $(286) $(252)
Income tax expense (benefit) 75 (146) (94)
------- ------- -------
241 (432) (346)
Statutory federal income tax rate x 35% x 34% x 34%
-------- ------- -------
Expected income tax expense (benefit) 84 (147) (118)
Increase (decrease) in taxes from:
Capitalized overheads previously
flowed through 5 5 35
Differences in book and tax depreciation
not previously deferred 6 9 8
ITC amortization and utilization (12) (11) (9)
Other, net (8) (2) (10)
------- ------- -------
$ 75 $ (146) $(94)
======= ======= =======
6: Short-Term Financings
Consumers has authorization from the FERC to issue or guarantee up to $900
million of short-term debt through December 31, 1994. Consumers has a
$470 million facility that is used to finance seasonal working capital
requirements and unsecured, committed lines of credit aggregating $165
million. As of December 31, 1993, $235 million and $24 million were
outstanding at weighted average interest rates of 4.0 percent and 3.9
percent, respectively. Further, Consumers has an established $500 million
trade receivables purchase and sale program. As of December 31, 1993 and
1992, receivables sold under the agreement totaled $285 million and $225
million, respectively. On February 15, 1994, Consumers increased the
level of receivables sold to $335 million.
7: Capitalization
CMS Energy
Capital Stock: CMS Energy's Articles permit it to issue up to 250 million
shares of common stock at $.01 par value and up to 5 million shares of
preferred stock at $.01 par value. Under its two and one-half year
Secured Credit Facility and Indenture pursuant to which the Notes are
issued, CMS Energy is permitted to pay as dividends on its common stock an
amount not to exceed the total of its net income and any proceeds received
from the issuance or sale of common stock as defined in the Indentures and
$40 million, provided there exists no event of default under the terms of
the Secured Credit Facility or Indentures. The same formula applies to
limits available to repurchase or reacquire CMS Energy stock for either
the payment of dividends or repurchase of stock. In October 1993,
CMS Energy issued an additional 4.6 million shares of common stock at a
price of $26 5/8. The net proceeds of $119 million were used to reduce
existing debt and for general corporate purposes.
Long-Term Debt: In October 1992, CMS Energy received proceeds of $130
million and $219 million from the issuance of Series A and Series B Notes,
respectively. Interest will accrue and increase the principal to the face
value of $172 million for the Series A Notes and $294 million for the
Series B Notes through October 1, 1995. After such date, interest will be
paid semi-annually commencing April 1, 1996, at a rate of 9.5 percent per
annum for the Series A Notes and 9.875 percent per annum for the Series B
Notes. In November 1992, CMS Energy entered into a $220 million Secured
Credit Facility. As of December 31, 1993, $18 million was outstanding at
a weighted average interest rate of 5.7 percent. The Notes and Secured
Credit Facility are secured by a pledge of stock of Consumers,
Enterprises, and NOMECO. Additionally, under the terms of the Secured
Credit Facility, CMS Energy may only have outstanding, at any one time, an
aggregate of $130 million of unsecured debt except for debt issued to
refinance existing debt. The establishment of the Secured Credit Facility
and the proceeds from the Notes, net of underwriting expenses, were used
to retire the $410 million one-year secured revolving credit facility.
CMS Energy filed a shelf registration statement with the SEC in January
1994 covering the issuance of up to $250 million of unsecured debt
securities. The net proceeds will be used to reduce the amount of
CMS Energy Notes outstanding and for general corporate purposes. The
unsecured debt securities may be offered from time to time on terms to be
determined at the time of the sale.
Consumers
Capital Stock: As of December 31, 1992, Consumers effected a quasi-
reorganization, an elective accounting procedure in which Consumers'
accumulated deficit of $574 million was eliminated against other paid-in
capital. This action had no effect on CMS Energy's consolidated financial
statements. As a result of the quasi-reorganization and subsequent
accumulated earnings, Consumers paid $133 million in common stock
dividends in 1993 and also declared from 1993 earnings a $16 million
common stock dividend in January 1994. Consumers has authorization from
the MPSC and is proceeding to issue $200 million of preferred stock in
1994.
First Mortgage Bonds: Consumers secures its first mortgage bonds by a
mortgage and lien on substantially all of its property. Consumers' ability
to issue and sell securities is restricted by certain provisions in its
First Mortgage Bond Indenture, Articles and the need for regulatory
approvals in compliance with appropriate state and federal law. In
September 1993, Consumers issued, with MPSC approval, $300 million of 6
3/8 percent first mortgage bonds, due 2003 and $300 million of 7 3/8
percent first mortgage bonds, due 2023. Consumers used the net proceeds
from the bond issuance to refund approximately $515 million of higher
interest first mortgage bonds and the balance to reduce short-term
borrowings. Unamortized debt costs, premiums and discounts and call
premiums on the refunded debt totaling approximately $18 million were
deferred under SFAS 71, and are being amortized over the lives of the new
debt.
In February 1994, Consumers issued a call for redemption totaling
approximately $10 million. Consumers also fully redeemed two issues of
first mortgage bonds totaling approximately $91 million. These
redemptions completed Consumers' commitment to the MPSC, under the 1993
authorization to issue first mortgage bonds, to refinance certain long-
term debt.
Long-Term Bank Debt: Under its long-term credit agreement at December 31,
1993, Consumers was required to make 10 remaining quarterly principal
payments of approximately $47 million. As of December 31, 1993, the
outstanding balance under this credit agreement totaled $469 million with
a weighted average interest rate of 4.0 percent. In January 1993,
Consumers entered into an interest rate swap agreement, exchanging
variable-rate interest for fixed-rate interest on the latest maturing $250
million of the then remaining $500 million obligation under its long-term
credit agreement.
Other: Consumers has a total of $131 million of PCRBs outstanding with a
weighted average interest rate of 4.2 percent as of December 31, 1993.
Consumers classifies $101 million of PCRBs as long-term because it can
refinance these amounts through irrevocable letters of credit expiring
after one year.
In June 1993, Consumers entered into loan agreements in connection with
the issuance of approximately $28 million of adjustable rate demand
limited obligation refunding revenue bonds, due 2010, which are secured by
an irrevocable letter of credit expiring in 1996. These bonds bear an
initial interest rate of 2.65 percent. Consumers also entered into loan
agreements in connection with the issuance of $30 million of 5.8 percent
limited obligation refunding revenue bonds, due 2010, secured by a
financial guaranty insurance policy and certain first mortgage bonds of
Consumers. Proceeds of these issues were used to redeem on August 1, 1993
in advance of their maturities, approximately $58 million of outstanding
PCRBs.
NOMECO
As of December 31, 1993, NOMECO had total debt outstanding of $122
million. Senior serial notes amounting to $45 million with a weighted
average interest rate of 9.4 percent are outstanding from a private
placement. In November 1993, NOMECO amended the terms of its revolving
credit agreement and increased the amount to $110 million. At December
31, 1993, $72 million was outstanding at a weighted average interest rate
of 4.7 percent. NOMECO also has $5 million outstanding under other credit
agreements.
Enterprises
As of December 31, 1993, MOAPA had $22 million of Clark County, Nevada,
tax-exempt bonds outstanding with an interest rate of 3.35%. These bonds
are backed by a letter of credit guaranteed by CMS Energy. If the letter
of credit is not extended past its current expiration date of June 1,
1994, the bonds could be redeemed with the funds held in a trust account.
These funds are invested in certificates of deposits and included in other
noncurrent assets. The bonds were issued in 1990 for the purpose of
providing partial funding for the development of a tires-to-energy solid
waste disposal and resource recovery facility. In December 1993, the
Nevada Public Service Commission rejected the power purchase agreement
between MOAPA and the Nevada Power Company and subsequently rejected
MOAPA's motion for rehearing.
8: Financial Instruments
Cash, short-term investments and current liabilities approximate their
fair value due to the short-term nature of those instruments. The
estimated fair value of long-term investments is based on quoted market
prices where available. When specific market prices do not exist for an
instrument, the fair value is based on quoted market prices of similar
investments or other valuation techniques. All long-term investments in
financial instruments approximate fair value. The carrying amount of
long-term debt was $2.4 billion and $2.7 billion and the fair value of
long-term debt was $2.6 billion and $2.8 million as of December 31, 1993
and 1992, respectively. Although the current fair value of the long-term
debt, which is based on calculations made by debt pricing specialists, may
be greater than the current carrying amount, settlement of the reported
debt is generally not expected until maturity. The fair value of
CMS Energy's off-balance sheet financial instruments is based on the
amount estimated to terminate or settle the obligation. The fair value of
interest rate swap agreements was $6 million and $1 million and
guarantees/letters of credit was $96 million and $56 million as of
December 31, 1993 and 1992, respectively (see Notes 7 and 12).
On January 1, 1994, CMS Energy adopted SFAS 115, Accounting for Certain
Investments in Debt and Equity Securities, requiring accounting for
investments in debt securities to be held to maturity at amortized cost;
otherwise debt and marketable equity securities would be recorded at fair
value, with any unrealized gains or losses included in earnings if the
security is held for trading purposes or as a separate component of
shareholders' equity if the security is available for sale. The
implementation of this standard did not materially impact CMS Energy's
financial position or results of operations.
In May 1993, the FASB issued SFAS 114, Accounting by Creditors for
Impairment of a Loan, effective in 1995, requiring certain loans that are
determined to be impaired be measured based on the present value of
expected future cash flows discounted at the loan's effective interest
rate, the loan's observable market price or the fair value of any
collateral for a secured loan. CMS Energy does not believe this standard
will have a material impact on its financial position or results of
operations.
9: Executive Incentive Compensation
Under CMS Energy's Performance Incentive Stock Plan, restricted shares of
common stock of CMS Energy, stock options and stock appreciation rights
may be granted to key employees based on their contributions to the
successful management of CMS Energy and its subsidiaries. The plan
reserves for award not more than 2 percent of CMS Energy's common stock
outstanding on January 1 each year, less the number of shares of
restricted common stock awarded and of common stock subject to options
granted under the plan during the immediately preceding four calendar
years. Any forfeitures are subject to award under the plan. As of
December 31, 1993, awards of up to 447,686 shares of common stock may be
issued.
Restricted shares of common stock are outstanding shares with full voting
and dividend rights. Performance criteria were added in 1990 based on
CMS Energy's total return to shareholders. Shares of restricted common
stock cannot be distributed until they are vested and the performance
objectives are met. Further, the restricted stock is subject to
forfeiture if employment terminates before vesting. If key employees
exceed performance objectives, the plan will allow additional awards.
Restricted shares vest fully if control of CMS Energy changes, as defined
by the plan.
Consumers' Executive Stock Option and Stock Appreciation Rights Plan, an
earlier plan approved by shareholders, remains in effect until all
authorized options are granted or September 25, 1995. As of December 31,
1993, options for 43,000 shares remained to be granted.
Under both plans, for stock options and stock appreciation rights, the
exercise price on each grant date equaled the closing market price on the
grant date. Options are exercisable upon grant and expire up to 10 years
and one month from date of grant. The status of the restricted stock
granted under the Performance Incentive Stock Plan and options granted
under both plans follows:
Restricted
Stock Options
---------- ----------------------------
Number Number Price
of Shares of Shares per Share
----------- --------- ---------------
Outstanding at
January 1, 1991 212,500 1,162,216 $ 7.13 - $34.25
Granted 97,000 194,000 $ 21.13 - $21.13
Exercised or Issued (34,437) (65,125) $ 7.13 - $16.00
--------- ---------- ---------------
Outstanding at
December 31, 1991 275,063 1,291,091 $ 7.13 - $34.25
Granted 101,000 215,000 $ 17.13 - $18.00
Exercised or Issued (37,422) (21,000) $ 13.00 - $16.00
Canceled (15,375) (50,000) $ 20.50 - $33.88
--------- ---------- ---------------
Outstanding at
December 31, 1992 323,266 1,435,091 $ 7.13 - $34.25
Granted 132,000 249,000 $ 25.13 - $26.25
Exercised or Issued (54,938) (152,125) $ 7.13 - $21.13
Canceled (84,141) (33,000) $ 20.50 - $33.88
--------- ---------- ---------------
Outstanding at
December 31, 1993 316,187 1,498,966 $ 7.13 - $34.25
========= ========== ===============
10: Retirement Benefits
Postretirement Benefit Plans Other Than Pensions
CMS Energy and its subsidiaries adopted SFAS 106 effective as of the
beginning of 1992. The standard required CMS Energy to change its
accounting for the cost of health care and life insurance benefits that
are provided to retirees from a pay-as-you-go (cash) method to a full
accrual method. CMS Energy's non-utility subsidiaries expensed their
accumulated transition obligation liability. The amount of such
transition obligation is not material to the presentation of the
consolidated financial statements or significant to CMS Energy's total
transition obligation. Consumers recorded a liability of $466 million for
the accumulated transition obligation and a corresponding regulatory asset
for anticipated recovery in utility rates.
Both the MPSC and FERC have generally adopted SFAS 106 costs for
ratemaking purposes provided costs recovered through rates are placed in
external funds until they are needed to pay benefits. The MPSC's generic
order allows utilities three years to seek recovery of costs and provides
for recovery from customers of any deferred costs incurred prior to the
beginning of rate recovery of such costs. Consumers anticipates
recovering its regulatory asset within 20 years. As discussed in Note 4,
Consumers has requested recovery of the portion of these costs allocated
to the electric business. In late 1994, Consumers plans to request
recovery of the gas utility portion of these costs. CMS Energy plans to
fund the benefits using external Voluntary Employee Beneficiary
Associations. Funding of the health care benefits would begin when
Consumers' rate recovery based on SFAS 106 begins. A portion of the life
insurance benefits have previously been funded.
As of December 31, 1993, the actuary assumed that retiree health care
costs increased 10.5 percent in 1994, then decreased gradually to 5.5
percent in 2000 and thereafter. The health care cost trend rate
assumption significantly affects the amounts reported. For example, a 1
percentage point increase in each year would increase the accumulated
postretirement benefit obligation as of December 31, 1993 by $75 million
and the aggregate of the service and interest cost components of net
periodic postretirement benefit costs for 1993 by $9 million.
For the years ended December 31, 1993 and 1992, the weighted average
discount rate was 7.25 percent and 8 percent, respectively, and the
expected long-term rate of return on plan assets was 8.5 percent. Net
periodic postretirement benefit cost for health care benefits and life
insurance benefits was $51 million in 1993 and $50 million in 1992. The
1993 and 1992 cost was comprised of $13 million and $11 million for
service plus $38 million and $39 million for interest, respectively.
The funded status of the postretirement benefit plans is reconciled with
the liability recorded at December 31 as follows:
In Millions
1993 1992
------- -------
Actuarial present value of estimated benefits
Retirees $ 282 $ 265
Eligible for retirement 54 50
Active (upon retirement) 190 177
------- -------
Accumulated postretirement benefit obligation 526 492
Plan assets (premium deposit fund) at fair value 4 4
------- -------
Projected postretirement benefit obligation
in excess of plan assets (522) (488)
Unrecognized prior service cost (39) (39)
Unrecognized net loss 41 33
------- -------
Recorded liability $(520) $(494)
======= =======
CMS Energy's postretirement health care plan is unfunded; the accumulated
postretirement benefit obligation for that plan is $514 million and $482
million at December 31, 1993 and 1992, respectively. Consumers'
regulatory asset is $510 million and $485 million at December 31, 1993 and
1992, respectively.
Supplemental Executive Retirement Plan
Certain management employees qualify under the SERP. Benefits are based on
the employee's service and earnings as defined in the SERP. In 1988, a
trust from which SERP benefits are paid was established and funded.
Because the SERP is not a qualified plan under the Internal Revenue Code,
earnings of the trust are taxable and trust assets are included in
Consumers' consolidated assets. As of December 31, 1993 and 1992, trust
assets at cost (which approximates market) were $18 million and $16
million, respectively, and were classified as other non-current assets.
Defined Benefit Pension Plan
A trusteed, non-contributory, defined benefit Pension Plan covers
substantially all employees. The benefits are based on an employee's years
of accredited service and earnings, as defined in the plan, during an
employee's five highest years of earnings. Because the plan is fully
funded, no contributions were made for plan years 1991 through 1993.
Years Ended December 31 1993 1992 1991
- ----------------------- ----- ----- -----
Discount rate 7.25% 8.5% 8.5%
Rate of compensation increase 4.5% 5.5% 5.5%
Expected long-term rate of return on assets 8.75% 8.75% 8.75%
Net Pension Plan and SERP costs consisted of:
In Millions
Years Ended December 31 1993 1992 1991
- ----------------------- ------ ------ ------
Service cost $ 19 $ 19 $ 18
Interest cost 50 48 48
Actual return on plan assets (92) (36) (88)
Net amortization and deferral 34 (20) 29
------ ------ ------
Net periodic pension cost $ 11 $ 11 $ 7
====== ====== ======
The funded status of the Pension Plan and SERP reconciled to the pension
liability recorded at December 31 was:
In Millions
Pension Plan SERP
-------------- -------------
1993 1992 1993 1992
----- ----- ----- -----
Actuarial present value of
estimated benefits
Vested $ 471 $ 349 $ 16 $ 11
Non-vested 56 49 - -
----- ----- ----- -----
Accumulated benefit obligation 527 398 16 11
Provision for future pay increases 138 177 8 6
----- ----- ----- -----
Projected benefit obligation 665 575 24 17
Plan assets (primarily stocks and
bonds, including $87 in 1993 and
$64 in 1992 in common stock
of CMS Energy) at fair value 692 631 - -
----- ----- ----- -----
Projected benefit obligation less than
(in excess of) plan assets 27 56 (24) (17)
Unrecognized net (gain) loss from
experience different than assumed (56) (76) 7 2
Unrecognized prior service cost 45 49 1 1
Unrecognized net transition
(asset) obligation (44) (49) 1 1
Adjustment to recognize minimum
liability - - (1) -
----- ----- ----- -----
Recorded liability $ (28) $ (20) $ (16) $ (13)
====== ====== ====== =====
Beginning January 1, 1986, the amortization period for the Pension Plan's
unrecognized net transition asset is 16 years and 11 years for the SERP's
unrecognized net transition obligation. Prior service costs are amortized
on a straight-line basis over the average remaining service period of
active employees.
In 1991, certain eligible employees accepted early retirement incentives.
The incentives consisted of lump-sum cash payments and increased pension
payments. The pretax cost of the incentives was $25 million. Also in
1991, portions of the projected benefit obligation were settled which
resulted in a pretax gain of $25 million that offset the early retirement
costs.
11: Leases
CMS Energy, Consumers, and Enterprises lease various assets, including
vehicles, aircraft, construction equipment, computer equipment, nuclear
fuel and buildings. Consumers' nuclear fuel capital leasing arrangement
was extended an additional year and is now scheduled to expire in November
1995. The maximum amount of nuclear fuel that can be leased increased
from $55 million to $70 million. Consumers further increased this amount
in early 1994 to $80 million. The lease provides for an additional
one-year extension upon mutual agreement by the parties. Upon termination
of the lease, the lessor would be entitled to a cash payment equal to its
remaining investment, which was $57 million as of December 31, 1993.
Consumers is responsible for payment of taxes, maintenance, operating
costs, and insurance.
Minimum rental commitments under CMS Energy's non-cancelable leases at
December 31, 1993, were:
In Millions
Capital Operating
Leases Leases
------- ---------
1994 $ 43 $ 9
1995 64 8
1996 16 3
1997 15 3
1998 13 3
1999 and thereafter 26 22
----- -----
Total minimum lease payments 177 $ 48
=====
Less imputed interest 27
-----
Present value of net minimum lease payments 150
Less current portion 35
-----
Non-current portion (a) $115
=====
(a) In January 1994, Consumers amended its nuclear fuel lease to include
fuel previously owned at Big Rock Point. This is estimated to increase
the non-current portion of capital leases by approximately $6 million.
Consumers recovers these charges from customers and accordingly charges
payments for its capital and operating leases to operating expense.
Operating lease charges, including charges to clearing and other accounts
as of December 31, 1993, 1992 and 1991, were $18 million, $15 million and
$15 million, respectively.
Capital lease expenses for the years ended December 31, 1993, 1992 and
1991 were $34 million, $47 million and $51 million, respectively.
Included in these amounts for the years ended 1993, 1992 and 1991, are
nuclear fuel lease expenses of $13 million, $17 million and $24 million,
respectively.
12: Commitments, Contingencies and Other
Ludington Pumped Storage Plant Litigation
In 1986, the Attorney General filed a lawsuit on behalf of the State of
Michigan in the Circuit Court of Ingham County, seeking damages from
Consumers and Detroit Edison for alleged injuries to fishery resources
because of the operation of the Ludington Pumped Storage Plant. The state
sought $148 million (including $16 million of interest) for past injuries
and $89,000 per day for future injuries, with the latter amount to be
adjusted upon installation of "adequate" fish barriers and other changed
conditions.
In 1987, the Attorney General filed a second lawsuit alleging that
Consumers and Detroit Edison have breached a bottomlands lease agreement
with the state and asked that the lease be declared void. This complaint
was consolidated with the suit described in the preceding paragraph. In
1990, both of the lawsuits were dismissed on the basis of federal
preemption. In 1993, the Court of Appeals overturned the dismissal, as to
damages, effectively allowing the state to continue its damages lawsuit
against Consumers and Detroit Edison, but generally affirmed the lower
court's ruling as to the breach of lease claim. The Court of Appeals'
ruling also limited any potential damages to those occurring no earlier
than 1983. Consumers, Detroit Edison and the Attorney General have filed
an application for leave to appeal with the Michigan Supreme Court.
Consumers and Detroit Edison are seeking to have the trial court's
dismissal of the damages claim affirmed.
Each year since 1989, Consumers and Detroit Edison have complied with FERC
orders by installing a seasonal barrier net from April to October at the
Ludington plant site. The FERC is now considering whether the barrier net
(along with other actions by Consumers, including contributions to state
fish-stocking programs) would be a satisfactory permanent solution.
Environmental Matters
Consumers is a so-called "Potentially Responsible Party" at several sites
being administered under Superfund. Along with Consumers, there are
numerous credit-worthy, potentially responsible parties with substantial
assets cooperating with respect to the individual sites. Based on
information currently known by management, Consumers and CMS Energy
believe that it is unlikely that their liability at any of the known
Superfund sites, individually or in total, will have a material adverse
effect on their financial positions or results of operations.
The State of Michigan in 1990 passed amendments to the Environmental
Response Act that established a state program similar to the federal
Superfund law, though broader in scope. Under this law, Consumers expects
that it will ultimately incur costs at a number of sites, including some
of the 23 sites that formerly housed manufactured gas plant facilities,
even those in which it has a partial or no current ownership interest. It
is expected that in most cases, parties other than Consumers with current
or former ownership interests may also be considered liable under the law
and may be required to share in the costs of any site investigations and
remedial actions. There is limited knowledge of manufactured gas plant
contamination at these sites at this time. However, Consumers is
continuing to monitor this issue.
In addition, at the request of the DNR, Consumers prepared plans for
remedial investigation/feasibility studies for three of these sites. Work
plans for remedial investigation/feasibility studies for four other sites
have also been prepared. The purpose of a remedial
investigation/feasibility study is to define the nature and extent of
contamination at a site and to determine which of several possible
remedial action alternatives, including no action, may be required under
the Environmental Response Act. The DNR has approved two of the three
plans for remedial investigation/feasibility studies submitted and is
currently reviewing the one remaining. The cost to conduct one of the
approved studies will be approximately $250,000 based on bids received.
Although the actual cost of conducting the remaining two remedial
investigation/feasibility studies will not be known until bids are
received from contractors, Consumers currently estimates the total cost of
conducting the three studies submitted to the DNR to be less than $1
million.
The timing and extent of any further site investigation and remedial
actions will depend, among other things, on requests received from the DNR
and on future site usage by Consumers or other owners. Under the current
schedule, Consumers anticipates the first remedial
investigation/feasibility study would be completed in mid-1994. Consumers
believes the results of the remedial investigation/feasibility studies
will allow management to estimate a range of remedial cost estimates for
the sites under study. Based on Consumers' knowledge of other utility
remedial actions, remediation costs for Consumers for these sites may be
substantial. In 1993, the MPSC addressed the question of recovery of
investigation and remedial costs for another Michigan gas utility as part
of that utility's gas rate case. In that proceeding, the MPSC determined
that prudent investigation and remedial costs could be deferred and
amortized over 10-year periods and prudent unamortized costs can be
included for recovery in the utility's rate cases. The MPSC stated the
length of the period may be reviewed from time to time, but any revisions
would be prospective. Consumers and CMS Energy believe costs incurred for
both investigation and any required remedial actions would be recoverable
from utility customers under established regulatory policies and
accordingly are not likely to materially affect their financial positions
or results of operations.
Included in the 1990 amendments to the federal Clean Air Act are
provisions that limit emissions of sulfur dioxide and nitrogen oxides and
require enhanced emissions monitoring. All of Consumers' coal-fueled
electric generating units burn low-sulfur coal and are presently operating
at or near the sulfur dioxide emission limits which will be effective in
2000. Beginning in 1995, certain coal-fueled generating units will
receive emissions allowances (all of Consumers' coal units will receive
allowances beginning in 2000). Based on projected emissions from these
units, Consumers expects to have excess allowances which may be sold or
saved for future use.
The Clean Air Act's provisions require Consumers to make capital
expenditures estimated to total $74 million through 1999 for completed,
in-process and possible modifications at coal-fired units based on
existing and proposed regulations. Management believes that Consumers'
annual operating costs will not be materially affected.
The EPA has asked a number of utilities in the Great Lakes area to
voluntarily retire certain equipment containing specific levels of
polychlorinated biphenyls. Consumers believes that it is largely in
compliance with the EPA's petition. Consumers is continuing to study the
request and has been granted an extension for responding until March 30,
1994.
Capital Expenditures
CMS Energy estimates capital expenditures, including investments in
unconsolidated subsidiaries, DSM and new lease commitments, of $792
million for 1994, $690 million for 1995 and $714 million for 1996.
Public Utility Holding Company Act Exemption
CMS Energy is exempt from registration under PUHCA. However, the Attorney
General and the MMCG have asked the SEC to revoke CMS Energy's exemption
from registration under PUHCA. In 1992, the MPSC filed a statement with
the SEC recommending that CMS Energy's current exemption be revoked and a
new exemption be issued conditioned upon certain reporting and operating
requirements. If CMS Energy were to lose its current exemption, it would
become more heavily regulated by the SEC; Consumers could ultimately be
forced to divest either its electric or gas utility business; and
CMS Energy would be restricted from conducting businesses that are not
functionally related to the conduct of its utility business as determined
by the SEC. CMS Energy is opposing this request and believes it will
maintain its current exemption from registration under PUHCA.
Other
As of December 31, 1993, CMS Energy and Enterprises have guaranteed up to
$90 million in contingent obligations of unconsolidated affiliates of
Enterprises' subsidiaries.
NOMECO has hedged its gas supply obligations in the years 2001 through
2006 by purchasing the economic equivalent of 10,000 MMBtu per day at a
fixed, escalated price starting at $2.82 per MMBtu in 2001. The
settlement periods are each a one-year period ending December 31, 2001
through 2006 on 3.65 MMBtu. If the "floating price," essentially the then
current Gulf Coast spot price, for a period is higher than the "fixed
price," the seller pays NOMECO the difference, and vice versa. If a
party's exposure at any time exceeds $2 million, that party is required to
obtain a letter of credit in favor of the other party for the excess over
$2 million, to a maximum of $10 million. At December 31, 1993, the seller
had arranged a letter of credit in NOMECO's favor for $10 million. NOMECO
also periodically enters into oil and gas price hedging arrangements to
mitigate its exposure to price fluctuations on the sale of crude oil and
natural gas. As of December 31, 1993, the fair value of these hedge
arrangements was not material.
Consumers experienced an increase in complaints during 1993 relating to
so-called stray voltage. Claimants contend that stray voltage results
when small electrical currents present in grounded electric systems are
diverted from their intended path. Investigation by Consumers of prior
stray voltage complaints disclosed that many factors, including improper
wiring and malfunctioning of on-farm equipment, can lead to the stray
voltage phenomenon. Consumers maintains a policy of investigating all
customer calls regarding stray voltage and working with customers to
address their concerns including, when necessary, modifying the
configuration of the customer's hook-up to Consumers. A complaint seeking
certification as a class action suit was filed against Consumers in a
local county circuit court in 1993. The complaint alleges the existence
of a purported class that has incurred damages of up to $1 billion,
primarily to certain livestock owned by the purported class, as a result
of stray voltage from electricity being supplied by Consumers. Consumers
believes the allegations to be without merit and intends to vigorously
oppose the certification of the class and this suit.
In addition to the matters disclosed in these notes, Consumers and certain
other subsidiaries of CMS Energy are parties to certain lawsuits and
administrative proceedings before various courts and governmental
agencies, arising from the ordinary course of business involving personal
injury and property damage, contractual matters, environmental issues,
federal and state taxes, rates, licensing and other matters.
The ultimate effect of the proceedings discussed in this note is not
expected to have a material impact on CMS Energy's financial position or
results of operations.
13: Jointly Owned Utility Facilities
Consumers is responsible for providing its share of financing for jointly
owned facilities. The following table indicates the extent of Consumers'
investment in jointly owned utility facilities:
In Millions
December 31 1993 1992
- ----------- ---- ----
Net investment
Ludington - 51% $114 $112
Campbell Unit 3 - 93.3% 349 360
Transmission lines - various 32 33
Accumulated depreciation
Ludington $ 74 $ 71
Campbell Unit 3 210 199
Transmission lines 11 10
14: Supplemental Cash Flow Information
For purposes of the Statement of Cash Flows, all highly liquid investments
with an original maturity of three months or less are considered cash
equivalents. Other cash flow activities and non-cash investing and
financing activities for the years ended December 31 were:
In Millions
1993 1992 1991
------ ------ ------
Cash transactions
Interest paid (net of amounts capitalized) $193 $203 $325
Income taxes paid (net of refunds) 32 19 21
Non-cash transactions
Nuclear fuel placed under capital lease $ 28 $ 30 $ 6
Other assets placed under capital leases 30 39 21
Capital leases refinanced 42 - -
Assumption of debt - 15 -
Changes in other assets and liabilities as shown on the Consolidated
Statements of Cash Flows at December 31 are described below:
In Millions
1993 1992 1991
------ ------ ------
Sale of receivables, net $ 60 $ 25 $ -
Accounts receivable 22 6 118
Accrued revenue (48) 88 7
Accrued refunds (48) (143) 102
Inventories (32) 23 (8)
Accounts payable (31) 20 (70)
Tax Reform Act refund reserve - - (77)
Other current assets and liabilities, net (19) 46 (20)
Non-current deferred amounts, net 9 (28) 108
------ ------ ------
$ (87) $ 37 $ 160
======= ====== ======
15: Reportable Segments
CMS Energy operates principally in the following five business segments:
electric utility, gas utility, oil and gas exploration and production,
independent power production, and gas transmission and marketing.
The Consolidated Statements of Income show operating revenue and pretax
operating income by business segment. Other segment information follows:
In Millions
Years Ended December 31 1993 1992 1991
--------- -------- ------
Depreciation, depletion and amortization
Electric utility $ 241 $ 230 $ 172
Gas utility 73 76 70
Oil and gas exploration and production 45 38 33
Independent power production 2 2 2
Gas transmission and marketing 1 1 -
Other 3 1 6
-------- ------- --------
$ 365 $ 348 $ 283
======== ======= ========
Identifiable assets
Electric utility (a) $ 4,027 $3,812 $3,399
Gas utility 1,443 1,387 1,186
Oil and gas exploration and production 398 364 334
Independent power production 488 333 321
Gas transmission and marketing 75 60 45
Other 533 892 909
--------- ------- -------
$ 6,964 $6,848 $6,194
========= ======= =======
Capital expenditures (b)(c)(d)
Electric utility (e) $ 365 $ 353 $ 213
Gas utility 127 86 61
Oil and gas exploration and production 81 68 71
Independent power production 110 12 18
Gas transmission and marketing 14 6 17
Other 69 69 33
--------- ------- -------
$ 766 $ 594 $ 413
========= ======= =======
(a) Includes abandoned Midland investment of $162 million, $175 million
and $287 million for 1993, 1992 and 1991, respectively.
(b) Includes capital leases for nuclear fuel and other assets (see Note
14).
(c) Includes equity investments in unconsolidated partnerships of $108
million for 1993, $12 million for 1992 and $33 million for 1991.
(d) Certain prior year amounts have been adjusted for comparative
purposes.
(e) Includes DSM costs of $52 million for 1993 and $26 million for 1992.
16: Summarized Financial Information of Significant Related Energy
Supplier
Under the PPA with the MCV Partnership discussed in Note 3, Consumers'
1993 obligation to purchase electricity from the MCV Partnership was
approximately 14 percent of Consumers' owned and contracted capacity.
Summarized financial information of the MCV Partnership is shown below:
Statements of Income
In Millions
Years Ended December 31 1993 1992 1991
- ----------------------- ------ ------ ------
Operating revenue (a) $ 548 $ 488 $ 425
Operating expenses 362 315 278
------ ------ ------
Operating income 186 173 147
Other expense, net (189) (190) (186)
------ ------ ------
Net loss $ (3) $ (17) $ (39)
====== ====== ======
Balance Sheets
In Millions
December 31 1993 1992
- ----------- ------ ------
Assets
Current assets (a) $ 181 $ 165
Property, plant and equipment, net 2,073 2,124
Other assets 146 147
------ ------
$2,400 $2,436
====== ======
Liabilities and Partners' Equity
Current liabilities $ 198 $ 189
Long-term debt and other non-current liabilities (b) 2,147 2,189
Partners' equity (c) 55 58
------ ------
$2,400 $2,436
====== ======
(a) Revenue from Consumers totaled $505 million, $444 million and $384
million for 1993, 1992 and 1991, respectively. As of December 31, 1993,
1992 and 1991, $44 million, $38 million and $33 million, respectively,
were receivable from Consumers.
(b) FMLP is a beneficiary of an owner trust that is the lessor in a
long-term direct finance lease with the lessee, MCV Partnership.
CMS Holdings holds a 46.4 percent ownership interest in FMLP (see Note 3).
At December 31, 1993 and 1992, lease obligations of $1.7 billion were owed
to the owner trust of which FMLP is the sole beneficiary. CMS Holdings'
share of the interest and principal portion for the 1993 lease payments
was $63 million and $16 million, respectively, and for the 1992 lease
payments was $65 million and $12 million, respectively. The lease payments
service $1.2 billion and $1.3 billion in non-recourse debt outstanding as
of December 31, 1993 and 1992, respectively, of the owner-trust whose
beneficiary is FMLP. FMLP's debt is secured by the MCV Partnership's lease
obligations, assets, and operating revenues. For 1993 and 1992, the
owner-trust whose beneficiary is FMLP made debt payments of $172 million
and $166 million, respectively, which included $10 million and $8 million
principal and $25 million and $26 million interest, respectively, on the
MCV Bonds held by MEC Development Corporation during part of 1991 and by
Consumers through December 1993.
(c) CMS Midland's recorded investment in the MCV Partnership includes
capitalized interest, which is being amortized to expense over the life of
its investment in the MCV Partnership.
96
Arthur Andersen & Co.
Report of Independent Public Accountants
To CMS Energy Corporation:
We have audited the accompanying consolidated balance sheets and
consolidated statements of long-term debt and preferred stock of CMS
ENERGY CORPORATION (a Michigan corporation) and subsidiaries as of
December 31, 1993 and 1992, and the related consolidated statements of
income, common stockholders' equity, and cash flows for each of the three
years in the period ended December 31, 1993. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of CMS
Energy Corporation and subsidiaries as of December 31, 1993 and 1992, and
the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1993 in conformity with generally
accepted accounting principles.
As discussed in Note 5 to the consolidated financial statements, effective
January 1, 1992, the Company changed its method of accounting for income
taxes. Additionally, as discussed in Note 10 to the consolidated
financial statements, effective January 1, 1992, the Company changed its
method of accounting for postretirement benefits other than pensions.
ARTHUR ANDERSEN & Co.
Detroit, Michigan,
January 28, 1994.
97
Quarterly Financial and Common Stock Information CMS Energy Corporation
In Millions,
Except Per Share Amounts
1993 (Unaudited) 1992 (Unaudited)
Quarters Ended March 31 June 30 Sept. 30 Dec. 31 March 31 June 30 Sept. 30 Dec. 31
- ----------------------------------------------------------------------------------------------------------------
Operating revenue (a) $1,046 $742 $758 $936 $973 $681 $618 $874
Pretax operating income (a) $168 $82 $101 $88 $113 $56 $38 $24
Net income (loss) $72 $24 $32 $27 $51 $14 $10 $(372)
Earnings (loss) per average
common share $.90 $.30 $.40 $.30 $.64 $.17 $.13 $(4.66)
Dividends declared per
common share $.12 $.12 $.18 $.18 $.12 $.12 $.12 $.12
Common stock prices (b)
High $20-7/8 $25-1/2 $27-1/2 $27-1/8 $22-3/4 $21-7/8 $17-1/2 $18-3/8
Low $18-3/8 $21-3/4 $24-7/8 $23 $17-7/8 $14-7/8 $15-1/4 $16-3/4
- ----------------------------------------------------------------------------------------------------------------
(a) Amounts in 1992 and March 31, 1993 were restated for comparative purposes.
(b) Based on NYSE - Composite transactions.
98
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99
Consumers Power Company
1993 Financial Statements
100
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101
Selected Financial Information Consumers Power Company
1993 1992 1991 1990 1989
Operating revenue (in millions) (a) ($) 3,243 2,978 2,908 2,968 2,960
Net income (loss) (in millions) (b) ($) 198 (244) (249) (382) 352
Net income (loss) after dividends
on preferred stock (in millions) ($) 187 (255) (260) (393) 334
Cash from operations (in millions) ($) 404 483 376 476 839
Capital expenditures (excludes assets
placed under capital leases)
(in millions) (a) ($) 451 411 279 339 408
Total assets (in millions) ($) 6,551 6,596 5,986 7,700 8,212
Long-term debt, excluding
current maturities (in millions) ($) 1,839 2,079 1,846 2,944 3,036
Non-current portion of capital
leases (in millions) ($) 106 88 57 56 79
Total preferred stock (in millions) ($) 163 163 163 168 187
Preferred stock with mandatory
redemption (in millions) ($) - - - - 10
Number of preferred shareholders
at year-end 7,037 7,376 7,616 7,991 8,712
Book value per common share at
year-end ($) 15.28 14.64 17.67 20.46 25.16
Return on average common equity (%) 14.8 (18.8) (16.2) (20.5) 17.2
Return on assets (%) 4.7 (0.2) (0.6) (2.3) 7.1
Number of employees at year end
(full time equivalents) 9,567 9,531 8,933 9,209 9,577
Electric statistics
Sales (millions of kWh) (c) 32,764 31,601 31,813 31,743 31,375
Customers (in thousands) 1,526 1,506 1,492 1,475 1,453
Average sales rate (cents/kWh) (cents) 6.28 5.82 5.73 5.89 5.55
Gas statistics
Sales and transportation
deliveries (bcf) (d) 389 364 339 333 303
Customers (in thousands) 1,423 1,402 1,382 1,362 1,338
Average sales rate ($/mcf) ($) 4.46 4.55 4.58 4.64 4.75
(a) Certain prior period amounts were restated for comparative purposes.
(b) Amount in 1991 included an extraordinary loss of $14 million, after tax.
(c) Includes intersystem electric sales.
(d) Excludes off-system transportation services.
102
Consumers Power Company
Management's Discussion and Analysis
Consumers is a combination electric and gas utility company serving most
of the Lower Peninsula of Michigan, and is the principal subsidiary of
CMS Energy, an energy holding company. Consumers' customer base includes
a mix of residential, commercial and diversified industrial customers, the
largest of which is the automotive industry.
Consolidated 1993 Earnings
Consolidated net income after dividends on preferred stock totaled $187
million in 1993, compared to net losses of $255 million in 1992 and $260
million in 1991. The increased net income reflects the Settlement Order
related to power purchases from the MCV Partnership. Earnings also
reflect record setting electric sales and gas deliveries.
Cash Position, Financing and Investing
Consumers' operating cash requirements are met by its operating and
financing activities. In 1993 and 1992, Consumers' cash from operations
mainly resulted from its sale and transportation of natural gas and its
sale and transmission of electricity. Cash from operations for 1993
primarily reflects record-setting electric sales and gas deliveries and
reduced after-tax cash shortfalls resulting from Consumers' purchases of
power from the MCV Partnership.
During 1992, Consumers' cash from operations increased as compared to 1991
primarily due to lower interest charges resulting from reduced levels of
debt, partially offset by higher operating expenditures and reduced
electric rates. In 1991, Consumers generated cash primarily from its
consolidated operating and investing activities, including $859 million of
net proceeds from the sale of a majority of the MCV Bonds.
Over the last three years, Consumers has used its cash primarily to fund
its extensive construction expenditures and to improve the reliability of
its transmission and distribution systems. Consumers has also used its
cash to retire portions of long-term debt and to pay cash dividends.
Financing Activities
As a result of the 1992 quasi-reorganization (see Note 7 to the
Consolidated Financial Statements), and subsequent accumulated earnings,
Consumers paid $133 million in common stock dividends during 1993 and
declared a $16 million common stock dividend in January 1994 from 1993
earnings.
During 1993, Consumers significantly reduced its future interest charges
by retiring approximately $51 million of high-cost outstanding debt and
refinancing approximately $573 million of other debt at lower interest
rates. For further information, see Note 7.
Investing Activities
Capital expenditures (excluding assets placed under capital leases of $58
million) and deferred demand-side management costs totaled $503 million in
1993 as compared to $437 million in 1992. These amounts primarily
represent capital investments in Consumers' electric and gas utility
segments. In December 1993, Consumers sold $309 million of MCV Bonds it
held and used the net proceeds to temporarily reduce short-term borrowings
and ultimately plans to reduce long-term debt and to finance its
construction program.
Outlook
Consumers estimates that capital expenditures, including demand-side
management and new lease commitments, related to its electric and gas
utility operations will total approximately $1.5 billion over the next
three years.
In Millions
Years Ended December 31 1994 1995 1996
---- ---- ----
Consumers
Construction (including DSM) $474 $425 $391
Nuclear fuel lease 46 4 45
Capital leases other than nuclear fuel 27 27 28
Michigan Gas Storage 6 5 7
---- ---- ----
$553 $461 $471
==== ==== ====
Consumers is required to redeem or retire approximately $741 million of
long-term debt during 1994 through 1996. Cash generated by operations is
expected to satisfy a substantial portion of these capital expenditures
and debt retirements.
Consumers has several other available sources of credit including
unsecured, committed lines of credit totaling $165 million and a $470
million working capital facility. Consumers has FERC authorization to
issue or guarantee up to $900 million in short-term debt through
December 31, 1994. Consumers uses short-term borrowings to finance
working capital, seasonal fuel inventory and to pay for capital
expenditures between long-term financings. Consumers has an agreement
permitting the sales of certain accounts receivable for up to $500
million. As of December 31, 1993 and 1992, receivables sold totaled $285
million and $225 million, respectively. On February 15, 1994, Consumers
increased the level of receivables sold to $335 million.
In October 1993, Consumers received MPSC authorization and is proceeding
to issue $200 million of preferred stock in 1994. In February 1994,
Consumers called or redeemed approximately $101 million of first mortgage
bonds.
At December 31, 1993, Consumers' capital structure consisted of
approximately 32 percent common equity, 4 percent preferred stock, and 64
percent long- and short-term debt (including capital leases and notes
payable). Consumers' long term goal is to achieve and maintain a capital
structure consisting of approximately 37 percent common equity, 8 percent
preferred stock and 55 percent debt. Management expects to achieve this
structure through debt reductions, accumulated earnings, the issuance of
new preferred stock and equity investments from CMS Energy.
Electric Utility Operations
Comparative Results of Operations
Electric Pretax Operating Income: The improvement in 1993 pretax
operating income compared to 1992 reflects an increase of $126 million
relating to the resolution of the recoverability of MCV power purchase
costs under the PPA and increased electric system sales of $45 million,
partially offset by higher costs to improve system reliability. The 1992
decrease of $66 million from the 1991 level primarily resulted from an
increased emphasis on system reliability improvements and decreased
electric rates resulting from the full-year impact of a mid-1991 rate
decrease.
In Millions
1993 1992
Over Over
(Under) (Under)
1992 1991
------ ------
Sales growth $ 34 $ 11
Weather 11 (16)
Resolution of MCV power cost issues 126 -
Other regulatory issues 5 (13)
O&M, general taxes and depreciation (a) (44) (48)
----- -----
Total change $132 $(66)
===== =====
(a) Largely caused by Consumers' system reliability improvement program.
Electric Sales: Electric system sales in 1993 totaled a record 31.7
billion kWh, a 3.8 percent increase from 1992 levels. In 1993,
residential and commercial sales increased 3.4 percent and 3.0 percent,
respectively, while industrial sales increased 6.5 percent. Growth in the
industrial sector was the strongest in the auto-related segments of
fabricated and primary metals and transportation equipment. Electric
system sales in 1992 totaled 30.5 billion kWh, essentially unchanged from
the 1991 levels.
Electric Sales Millions of kWh
1993 1992 1991
------ ------ ------
Residential 10,066 9,733 9,997
Commercial 8,909 8,652 8,692
Industrial 11,541 10,831 10,692
Sales for resale 1,142 1,292 1,311
------ ------ ------
System sales (a) 31,658 30,508 30,692
====== ====== ======
Total customers (000) 1,526 1,506 1,492
====== ====== ======
(a) Excludes intersystem exchanges of power with other utilities through
joint dispatching for the economic benefit of customers. The level of
intersystem sales has been essentially unchanged during each of the last
three years.
Power Costs: Power costs for 1993 totaled $908 million, a $31 million
increase from the corresponding 1992 period. This increase primarily
reflects greater power purchases from outside sources to meet increased
sales demand and to supplement decreased generation at Palisades due to an
extended outage. Power costs for 1992 totaled $877 million, a $17 million
decrease as compared to 1991.
Operation and Maintenance: Increases in other operation and maintenance
expense for 1993 and 1992 reflected increased expenditures to improve
electric system reliability.
Depreciation: The increased depreciation for 1993 reflects additional
capital investments in plant. The 1992 increase resulted from higher
depreciation rates, increased amortization of abandoned nuclear investment
and increased nuclear plant decommissioning expense.
Electric Utility Rates
Power Purchases from the MCV Partnership: Consumers is obligated to
purchase the following amounts of contract capacity from the MCV
Partnership under the PPA:
1995 and
Year 1993 1994 thereafter
- ---- ----- ----- ----------
MW 1,023 1,132 1,240
Since 1990, recovering capacity and fixed-energy costs for power purchased
from the MCV Partnership has been a significant issue. Effective
January 1, 1993, the Settlement Order allowed Consumers to recover from
electric retail customers substantially all of the payments for its
ongoing purchase of 915 MW of contract capacity from the MCV Partnership,
significantly reducing the amount of future underrecoveries for these
power costs. ABATE and the Attorney General have filed claims of appeal
of the Settlement Order with the Court of Appeals.
Prior to the Settlement Order, Consumers had recorded losses for
underrecoveries from 1990 through 1992. In December 1992, Consumers
recognized an after-tax loss of $343 million for the present value of
estimated future underrecoveries of power costs under the PPA as a result
of the Settlement Order, based on management's best estimates regarding
the future availability of the MCV Facility, and the effect of the future
wholesale power market on the amount, timing and price at which various
increments of the capacity above the MPSC-authorized level could be
resold. Except for adjustments to the above loss to reflect the after-tax
time value of money through accretion expense, no additional losses are
expected unless actual future experience materially differs from
management's estimates. The after-tax expense for the time value of money
for the $343 million loss is estimated to be approximately $24 million in
1994, and various lower levels thereafter, including $22 million in 1995
and $20 million in 1996. Although the settlement losses were recorded in
1992, the after-tax cash underrecoveries associated with the Settlement
Order were $59 million in 1993. Consumers believes there is and will be a
market for the resale of capacity purchases from the MCV Partnership above
the MPSC-authorized level. If Consumers is unable to sell any capacity
above the current MPSC-authorized level, future additional after-tax
losses and after-tax cash underrecoveries could be incurred. Estimates
for the next five years if none of the additional capacity is sold are as
follows:
After-tax, In Millions
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
Expected cash underrecoveries $56 $65 $62 $61 $ 8
Possible additional under-
recoveries and losses (a) $14 $20 $20 $22 $72
(a) If unable to sell any capacity above the MPSC's authorized level
The PPA, while requiring payment of a fixed energy charge, contains a
"regulatory out" provision which permits Consumers to reduce the fixed
energy charges payable to the MCV Partnership throughout the entire
contract term if Consumers is not able to recover these amounts from its
customers. Consumers and the MCV Partnership have commenced arbitration
proceedings under the PPA to determine whether Consumers is entitled to
exercise its regulatory out regarding fixed energy charges on the portion
of available MCV capacity above the current MPSC-authorized levels. An
arbitrator acceptable to both parties has been selected. If the
arbitrator determines that Consumers cannot exercise its regulatory out,
Consumers would be required to make these fixed energy payments to the MCV
Partnership. The arbitration proceedings will also determine who is
entitled to the fixed energy amounts for which Consumers did not receive
full cost recovery during the years prior to settlement. As of December
31, 1993, these amounts total $26 million. Although Consumers intends to
aggressively pursue its right to exercise the regulatory out, management
cannot predict the outcome of the arbitration proceedings or any possible
settlement of the matter. Accordingly, losses were recorded prior to 1993
for all fixed energy amounts at issue in the arbitration. In December
1993, Consumers made an irrevocable offer to pay through September 15,
2007, fixed energy charges to the MCV Partnership on all kWh delivered by
the MCV Partnership to Consumers from the contract capacity in excess of
915 MW, which represents a portion of the fixed energy charges in dispute.
Consumers made the offer to facilitate the sale of the remaining MCV Bonds
in 1993.
The lessors of the MCV Facility have filed a lawsuit in federal district
court against CMS Energy, Consumers and CMS Holdings. It alleges breach
of contract, breach of fiduciary duty and negligent or willful
misrepresentation relating to the MCV Partnership's failure to object to
the Settlement Order in light of Consumers' interpretation of the
Settlement Order, which is the subject of an arbitration between the MCV
Partnership and Consumers. The action alleges damages in excess of $1
billion and seeks injunctive relief relative to Consumers' payments of the
fixed energy charge. CMS Energy and Consumers believe that at all times
they and CMS Holdings have conducted themselves properly and that the
action is without merit. They also believe that a significant portion of
the alleged damages represent fixed energy charges in dispute in the
arbitration. CMS Energy and Consumers are unable to predict the outcome
of this action. For further information regarding power purchases from
the MCV Partnership, see Note 3.
PSCR Matters: Consumers began a planned refueling and maintenance outage
at Palisades in June 1993. Following several required, unanticipated
repairs that extended the outage, the plant returned to service in early
November. Recovery of replacement power costs incurred by Consumers
during the outage will be reviewed by the MPSC during the 1993 PSCR
reconciliation of actual costs and revenues to determine the prudency of
actions taken during the outage and any associated delays. Net
replacement power costs were approximately $180,000 per day above the cost
of fuel incurred when the plant is operating.
The Energy Act imposes an obligation on the utility industry, including
Consumers, to decommission DOE uranium enrichment facilities. Consumers
currently estimates its payments for decommissioning those facilities to
be $2.4 million per year for 15 years beginning in 1992, escalating based
on an inflation factor. Consumers believes these costs are recoverable
from its customers under traditional regulatory policies.
Electric Rate Case: Consumers filed a request with the MPSC in May 1993
to increase its electric rates. Subsequently, as a result of changed
estimates, Consumers revised its requested electric rate increase to $133
million annually based on a 1994 test year. Consumers also requested an
additional annual electric rate increase of $38 million based on a 1995
test year. In March 1994, an ALJ issued a proposal for decision that
recommended Consumers' 1994 final annual rate increase total approximately
$83 million, and that the incremental requested 1995 increase not be
granted at this time. The ALJ's recommendation included a lower return on
electric common equity, reflected reduced anticipated debt costs due to
the projected availability of more favorable interest rates and proposed a
lower equity ratio for Consumers' projected capitalization structure. The
ALJ did, however, generally support Consumers' rate design proposal to
significantly reduce the level of subsidization of residential customers
by commercial and industrial customers and generally supported a
performance incentive which Consumers also supported. For further
information, see Note 4.
Electric Conservation Efforts
In October 1993, Consumers completed the customer participation portion of
several incentive-based demand-side management programs which were
designed to encourage the efficient use of energy, primarily through
conservation measures. Based on the MPSC's determination of Consumers'
effectiveness in implementing these programs, Consumers' future rate of
return on electric common equity may be adjusted either upward by up to 1
percent or downward by up to 2 percent, for one year following
reconciliation hearings with the MPSC. Consumers believes it will receive
an increase on its return on common equity based on having achieved all of
the agreed upon objectives. For further information, see Note 4.
Electric Capital Expenditures
Consumers estimates capital expenditures, including demand-side management
and new lease commitments, related to its electric utility operations of
$396 million for 1994, $324 million for 1995 and $332 million for 1996.
Electric Environmental Matters and Health Concerns
The 1990 amendment of the federal Clean Air Act significantly increased
the environmental constraints that utilities will operate under in the
future. While the Clean Air Act's provisions will require Consumers to
make certain capital expenditures in order to comply with the amendments
for nitrogen oxide reductions, Consumers' generating units are presently
operating at or near the sulfur dioxide emission limits which will be
effective in the year 2000. Therefore, management believes that
Consumers' annual operating costs will not be materially affected.
In 1990, the State of Michigan passed amendments to the Environmental
Response Act, under which Consumers expects that it will ultimately incur
costs at a number of sites, even those in which it has a partial or no
current ownership interest. It is expected that in most cases, parties
other than Consumers with current or former ownership interests may also
be considered liable under the law and may be required to share in the
costs of any site investigations and remedial actions. Consumers believes
costs incurred for both investigation and any required remedial actions
would be recoverable from its electric customers under established
regulatory policies and accordingly are not likely to materially affect
its financial position or results of operations.
Consumers is a so-called "Potentially Responsible Party" at several sites
being administered under Superfund. Along with Consumers, there are
numerous credit-worthy, potentially responsible parties with substantial
assets cooperating with respect to the individual sites. Based on
information currently known by management, Consumers believes that it is
unlikely that its liability at any of the known Superfund sites,
individually or in total, will have a material adverse effect on its
financial position or results of operations.
Electric Outlook
Consumers expects economic growth, competitive rates and other factors to
increase the demand for electricity within its service territory by
approximately 1.8 percent per year over the next five years. For the near
term, Consumers currently plans a reserve margin of 20 percent and expects
to fill the additional capacity required through long- and short-term
power purchases. Long-term purchased power will likely be obtained
through a competitive bidding solicitation process utilizing the framework
established by the MPSC in 1992. Capacity from the MCV Facility above the
levels authorized by the MPSC may be offered by Consumers in connection
with the solicitation.
A recent NRC review of Consumers' performance at Palisades showed a
decline in performance. Management believes that an increased emphasis on
internal assessments will improve performance at Palisades. To provide
NRC senior management with a more in-depth assessment of plant
performance, the NRC has initiated a diagnostic evaluation team inspection
at Palisades. The inspection will be a broad-based evaluation of all
aspects of nuclear plant operation and management which is expected to
commence in March 1994, with results of the evaluation expected to be
available in May 1994. The outcome of this evaluation cannot be
predicted. Similar reviews conducted at nuclear plants of other utilities
in recent years have in some cases resulted in increased regulatory
oversight or required actions to improve plant operations, maintenance or
condition.
Consumers is currently collecting $45 million annually from electric
retail customers for the future decommissioning of its two nuclear plants.
Consumers believes these amounts will be adequate to meet current
decommissioning cost estimates. For further information regarding nuclear
decommissioning, see Note 2.
Consumers' on-site storage pool at Palisades is at capacity, and it is
unlikely that the DOE will begin accepting any spent nuclear fuel by the
originally scheduled date in 1998. Consumers is using NRC-approved dry
casks, which are steel and concrete vaults, for temporary storage.
Several appeals relating to NRC approval of the casks are now pending at
the U.S. Sixth Circuit Court of Appeals. If Consumers is unable to
continue to use the casks as planned, significant costs, including
replacement power costs during any resulting plant shutdown, could be
incurred.
Consumers has experienced an increase in complaints in 1993 relating
primarily to the effect of so-called stray voltage on certain livestock.
A complaint seeking certification as a class action suit has been filed
against Consumers alleging significant damages, primarily related to
certain livestock, which Consumers believes to be without merit (see
Note 12).
Some of Consumers' larger industrial customers are exploring the
possibility of constructing and operating their own on-site generating
facilities. Consumers is actively working with these customers to develop
rate and service alternatives that are competitive with self-generation
options. Although Consumers' electric rates are competitive with other
regional utilities, Consumers has on file with the FERC two open access
interconnection tariffs which could have the effect of increasing
competition for wholesale customers. As part of its current electric rate
case, Consumers has requested that the MPSC reduce the level of rate
subsidization of residential customers by commercial and industrial
customers so as to further improve rate competitiveness for its largest
customers.
The MPSC has completed a hearing on a proposal by ABATE to create an
experimental retail wheeling tariff. Certain other parties have proposals
in support of retail wheeling under development. In August 1993, an ALJ
recommended that the MPSC reject the proposed experiment. An MPSC order
is expected early in 1994.
Gas Utility Operations
Comparative Results of Operations
Gas Pretax Operating Income: For 1993, pretax operating income increased
$37 million compared to 1992, reflecting higher gas deliveries (both sales
and transportation volumes) and more favorable regulatory recovery of gas
costs related to transportation. During 1992, gas pretax operating income
increased $45 million from the 1991 level, essentially for many of the
same reasons as the current period.
In Millions
1993 1992
Over Over
(Under) (Under)
1992 1991
------ ------
Sales growth $ 7 $ 14
Weather 10 6
Regulatory recovery of gas cost 12 48
O&M, general taxes and depreciation 8 (23)
------ ------
Total change $ 37 $ 45
====== ======
Gas Deliveries: Gas sales and gas transported in 1993 totaled 410.6 bcf,
a 6.9 percent increase from 1992. In 1992, gas sales and gas transported
totaled 384.1 bcf, a 6.1 percent increase from 1991 deliveries.
Gas Deliveries Bcf
1993 1992 1991
----- ----- -----
Residential 174.9 166.7 157.2
Commercial 55.9 53.4 50.2
Industrial 13.9 13.5 14.5
Other .2 .2 .2
----- ----- -----
Gas sales 244.9 233.8 222.1
Transportation deliveries 70.5 66.4 61.5
Transportation for MCV 73.4 63.5 55.0
Off-system transportation service 21.8 20.4 23.4
----- ----- -----
Total deliveries 410.6 384.1 362.0
===== ===== =====
Total customers (000) 1,423 1,402 1,382
===== ===== =====
Gas Utility Rates
Consumers currently plans to file a request in 1994 with the MPSC to
increase its gas rates. The request would include, among other things,
costs for postretirement benefits computed under SFAS 106, Employers'
Accounting for Postretirement Benefits Other than Pensions. A final order
should be received approximately nine to twelve months after the request
is filed.
Certain of Consumers' direct gas suppliers have contract prices tied to
the price Consumers pays Trunkline for its gas. The Trunkline contract
covers gas deliveries through October 1994 and is at a price reduced in
September 1993. Some of Consumers' direct gas suppliers have claimed that
the reduced Trunkline gas cost is not a proper reference price under their
contracts with Consumers and that their contracts are terminable after a
12-month period. Consumers is disputing these claims.
In 1992, the FERC issued Order 636, which makes a number of significant
changes to the structure of the services provided by interstate natural
gas pipelines to be implemented by the 1993-94 winter heating season.
Consumers is a significant purchaser of gas from an interstate pipeline
(Trunkline) and is a major transportation customer of a number of
pipelines. Management believes that Consumers will recover any transition
costs it may incur and such restructuring will not have a significant
impact on its financial position or results of operations.
In July 1993, Michigan Gas Storage submitted a notice of rate change with
the FERC to revise its operation and maintenance expenses for 1993 and
update plant costs to reflect the addition of approximately $27 million of
new plant additions in 1993 and began collecting the revised rates subject
to refund and a hearing in February 1994. Hearings or settlement
conferences will follow. For further information regarding gas utility
rates, see Note 4.
Gas Capital Expenditures
Consumers estimates capital expenditures, including new lease commitments,
related to its gas utility operations of $99 million for 1994, $88 million
for 1995 and $81 million for 1996.
Gas Environmental Matters
Under the Environmental Response Act, Consumers expects that it will
ultimately incur costs at a number of sites, including some of the 23
sites that formerly housed manufactured gas plant facilities, even those
in which it has a partial or no current ownership interest. It is
expected that in most cases, parties other than Consumers with current or
former ownership interests may also be considered liable under the law and
may be required to share in the costs of any site investigations and
remedial actions. There is limited knowledge of manufactured gas plant
contamination at these sites at this time. However, Consumers is
continuing to monitor this issue.
In addition, at the request of the DNR, Consumers prepared plans for
remedial investigation/feasibility studies for three of these sites. Work
plans for remedial investigation/feasibility studies for four other sites
have also been prepared. The DNR has approved two of the three plans for
remedial investigation/feasibility studies submitted and is currently
reviewing the one remaining. Consumers currently estimates the total cost
of conducting the three studies submitted to the DNR to be less than $1
million.
The timing and extent of any further site investigation and remedial
actions will depend, among other things, on requests received from the DNR
and on future site usage by Consumers or other owners. Under the current
schedule, Consumers anticipates the first remedial
investigation/feasibility study would be completed in mid-1994. Consumers
believes the results of the remedial investigation/feasibility studies
will allow management to estimate a range of remedial cost estimates for
the sites under study, which may be substantial. In 1993, the MPSC
addressed the question of recovery of investigation and remedial costs for
another Michigan gas utility as part of that utility's gas rate case. In
that proceeding, the MPSC determined that prudent investigation and
remedial costs could be deferred and amortized over 10-year periods and
prudent unamortized costs can be included for recovery in the utility's
rate cases. Consumers believes costs incurred for both investigation and
any required remedial actions would be recoverable from gas utility
customers under established regulatory policies and accordingly are not
likely to materially affect its financial position or results of
operations.
Gas Outlook
In 1993, Consumers purchased approximately 85 percent of its required gas
supply under long-term contracts, and the balance on the spot market.
Trunkline supplied approximately 41 percent of the total requirement.
Consumers expects gas supply reliability to be ensured through long-term
supply contracts, with purchases in the short-term spot market when
economically beneficial. Management believes that Consumers' ability to
purchase gas during the off-season and store it in its extensive
underground storage facilities will continue to help provide customers
with low-cost, competitive gas rates.
Consumers anticipates growth in gas deliveries of approximately 0.6
percent per year over the next five years. Management believes that
environmental benefits, along with the federal requirements included in
the Energy Act, create an opportunity for growth in the natural gas
vehicle industry.
Other
Other Income: The 1993 other income level reflects lower Midland-related
losses than experienced in 1992. The 1992 loss included a $343 million
charge related to the Settlement Order. The 1991 loss included $294
million, related to an MPSC order received in 1991 that allowed Consumers
to recover only $760 million of remaining abandoned Midland investment,
and a $92 million loss related to the cancellation of the CMS Debentures.
Public Utility Holding Company Act Exemption: CMS Energy is exempt from
registration under PUHCA. However, the Attorney General and the MMCG have
asked the SEC to revoke CMS Energy's exemption from registration under
PUHCA. On April 15, 1992, the MPSC filed a statement with the SEC
recommending that CMS Energy's current exemption be revoked and a new
exemption be issued conditioned upon certain reporting and operating
requirements. If CMS Energy were to lose its current exemption, it would
become more heavily regulated by the SEC; Consumers could ultimately be
forced to divest either its electric or gas utility business; and
CMS Energy would be restricted from conducting businesses that are not
functionally related to the conduct of its utility business as determined
by the SEC. CMS Energy is opposing this request and believes it will
maintain its current exemption from registration under PUHCA.
112
Consolidated Statements of Income Consumers Power Company
In Millions
Years Ended December 31 1993 1992 1991
Operating Revenue Electric $2,077 $1,863 $1,849
Gas 1,160 1,126 1,061
Other 6 (11) (2)
---------------------------------
Total operating revenue 3,243 2,978 2,908
---------------------------------
Operating Expenses Operation
Fuel for electric generation 293 305 308
Purchased power - related parties 467 460 442
Purchased and interchange power 148 112 144
Cost of gas sold 678 673 677
Other 516 492 471
---------------------------------
Total operation 2,102 2,042 2,042
Maintenance 203 201 169
Depreciation, depletion and amortization 316 307 242
General taxes 187 179 174
---------------------------------
Total operating expenses 2,808 2,729 2,627
---------------------------------
Pretax Operating Electric 286 154 220
Income (Loss) Gas 146 109 64
Other 3 (14) (3)
---------------------------------
Total pretax operating income 435 249 281
Income Taxes 116 51 48
---------------------------------
Net Operating Income 319 198 233
---------------------------------
Other Income MCV Bond income 32 34 45
(Deductions) Dividends from affiliates 16 16 13
Accretion income (Note 4) 14 15 24
Accretion expense (Note 3) (36) - -
Loss on MCV power purchases - settlement (Note 3) - (520) -
Write-down of abandoned Midland project costs (Note 4) - - (398)
Income from contractual arrangements (Note 16) - - 129
Loss on exchange of related party debentures (Note 16) - - (125)
Other income taxes, net 25 178 123
Other, net 1 (1) 33
---------------------------------
Total other income (deductions) 52 (278) (156)
---------------------------------
Interest Charges Interest on long-term debt 152 150 249
Other interest 22 15 64
Capitalized interest (1) (1) (1)
---------------------------------
Net interest charges 173 164 312
---------------------------------
Net Income (Loss) Before Extraordinary Item 198 (244) (235)
Extraordinary Item, Early Redemption of Debt, Net - - (14)
---------------------------------
Net Income (Loss) 198 (244) (249)
Preferred Stock Dividends 11 11 11
---------------------------------
Net Income (Loss) after Dividends on Preferred Stock $ 187 $ (255) $ (260)
=================================
The accompanying notes are an integral part of these statements.
113
Consolidated Statements of Cash Flows Consumers Power Company
In Millions
Years Ended December 31 1993 1992 1991
Cash Flows From Net income (loss) $ 198 $ (244) $ (249)
Operating Activities Adjustments to reconcile net income (loss) to
net cash provided by operating activities
Depreciation, depletion and amortization 292 298 275
Nuclear decommissioning 54 50 15
Deferred income taxes 59 (172) (173)
Deferred investment tax credit (9) (7) 33
Accretion expense (Note 3) 36 - -
Accretion income - abandoned Midland project (Note 4) (14) (15) (24)
MCV power purchases - settlement (Note 3) (84) - -
Loss on MCV power purchases - settlement (Note 3) - 520 -
Write-down of abandoned Midland project costs - - 398
Income from contractual arrangements - - (129)
Loss on exchange of related party debentures - - 125
MCV Bond income - - (42)
Changes in other assets and liabilities (Note 14) (125) 50 121
Other (3) 3 26
-------- -------- --------
Net cash provided by operating activities 404 483 376
-------- -------- --------
Cash Flows From Capital expenditures (excludes assets placed under
Investing Activities capital leases of $58 in 1993, $69 in 1992 and
$27 in 1991) (Note 14) (451) (411) (279)
Investments in nuclear decommissioning trust funds (54) (50) (15)
Deferred demand-side management costs (52) (26) -
Cost to retire property, net (32) (14) (18)
Sale of subsidiary (Note 2) (14) - -
Other (2) (1) (2)
Proceeds from Midland-related assets (Note 3) 322 10 1,024
Proceeds from sale of property 1 12 5
Proceeds from loan to affiliate - 50 -
Proceeds from Bechtel settlement - 46 -
-------- -------- --------
Net cash provided by (used in) investing activities (282) (384) 715
-------- -------- --------
Cash Flows From Proceeds from bonds (Note 7) 644 - -
Financing Activities Increase (decrease) in notes payable, net 44 (79) (40)
Retirement of bonds (Note 7) (640) (12) (606)
Payment of common stock dividends (133) - (75)
Repayment of bank loans (31) - (310)
Payment of capital lease obligations (24) (35) (38)
Payment of preferred stock dividends (11) (11) (11)
Retirement of other long-term debt (1) - -
Proceeds from bank loans - 60 -
Retirement of preferred stock - - (4)
-------- -------- --------
Net cash used in financing activities (152) (77) (1,084)
-------- -------- --------
Net Increase (Decrease) in Cash and Temporary Cash Investments (30) 22 7
Cash and temporary cash investments
Beginning of year 70 48 41
-------- -------- --------
End of year $ 40 $ 70 $ 48
======== ======== ========
The accompanying notes are an integral part of these statements.
114
Consolidated Balance Sheets Consumers Power Company
ASSETS In Millions
December 31 1993 1992
Plant (At original cost) Electric $5,347 $5,076
Gas 1,837 1,728
Other 253 228
---------------------
7,437 7,032
Less accumulated depreciation, depletion
and amortization (Note 2) 3,550 3,348
---------------------
3,887 3,684
Construction work-in-progress 248 252
---------------------
4,135 3,936
---------------------
Investments Stock of affiliates (Note 16) 291 291
First Midland Limited Partnership (Notes 3 and 17) 213 208
Midland Cogeneration Venture Limited
Partnership (Notes 3 and 17) 67 68
Other 6 6
---------------------
577 573
---------------------
Current Assets Cash and temporary cash investments at cost,
which approximates market (Note 3) 40 70
Accounts receivable and accrued revenue, less allowances
of $4 in 1993 and $5 in 1992 (Note 6) 110 142
Accounts receivable - related parties 12 11
Inventories at average cost
Gas in underground storage 228 204
Materials and supplies 73 70
Generating plant fuel stock 41 37
Deferred income taxes (Note 5) 17 -
Investment in MCV Bonds (Note 3) - 322
Prepayments and other 205 217
---------------------
726 1,073
---------------------
Non-current Assets Postretirement benefits (Note 10) 485 460
Nuclear decommissioning trust funds (Note 2) 165 111
Abandoned Midland project (Note 4) 162 175
Trunkline settlement (Note 4) 86 116
Other 215 152
---------------------
1,113 1,014
---------------------
Total Assets $6,551 $6,596
=====================
/TABLE
115
Consumers Power Company
STOCKHOLDERS' INVESTMENT AND LIABILITIES In Millions
December 31 1993 1992
Capitalization (Note 7) Common stockholder's equity
Common stock $ 841 $ 841
Paid-in-capital 391 391
Retained earnings since December 31, 1992 54 -
---------------------
1,286 1,232
Preferred stock 163 163
Long-term debt 1,839 2,079
Non-current portion of capital leases 106 88
---------------------
3,394 3,562
---------------------
Current Liabilities Current portion of long-term debt and capital leases 355 123
Notes payable 259 215
Accounts payable 148 174
Accounts payable - related parties 49 47
Accrued taxes 171 232
MCV power purchases - settlement (Note 3) 82 81
Accrued interest 39 48
Accrued refunds 28 77
Deferred income taxes (Note 5) - 24
Other 183 184
---------------------
1,314 1,205
---------------------
Non-current Liabilities Postretirement benefits (Note 10) 527 494
Deferred income taxes (Note 5) 485 329
MCV power purchases - settlement (Note 3) 391 439
Deferred investment tax credit 190 199
Trunkline settlement (Note 4) 86 116
Regulatory liabilities for income taxes, net (Note 5) 6 62
Other 158 190
---------------------
1,843 1,829
---------------------
Commitments and Contingencies (Notes 2, 3, 4, 11 and 12)
Total Stockholders' Investment and Liabilities $6,551 $6,596
=====================
The accompanying notes are an integral part of these statements.
116
Consolidated Statements of Long-Term Debt Consumers Power Company
In Millions
December 31 1993 1992
- ---------------------------------------------------------------------------------------------------------------
First Mortgage Bonds Series (%) Due
13-7/8 1993 $ - $ 4
5-7/8 1996 36 36
6 1997 50 50
8-3/4 1997 5 11
8-3/4 1998 248 250
6-5/8 1998 45 45
6-7/8 1998 43 43
9-1/8 1998 5 8
7-5/8 1999 48 48
8-1/4 1999 - 55
8-7/8 1999 200 200
8-5/8 2000 - 50
7-1/2 2001 57 57
8-1/8 2001 - 57
7-1/2 2002 62 62
7-1/2 2002 43 43
6-3/8 2003 300 -
8-5/8 2003 - 75
9 2006 - 60
8-7/8 2007 - 85
8-5/8 2007 - 100
9 2008 - 68
7-3/8 2023 300 -
--------------------
1,442 1,407
Long-Term Bank Debt 469 500
Pollution Control Revenue Bonds 131 133
Nuclear Fuel Disposal 90 88
4-5/8% Debentures 26 26
Other 12 12
--------------------
Principal Amount Outstanding 2,170 2,166
Current Amounts (321) (85)
Net Unamortized Discount (10) (2)
--------------------
Total Long-Term Debt $1,839 $2,079
===============================================================================================================
The table below shows maturities and improvement fund obligations for long-term debt:
LONG-TERM DEBT MATURITIES AND OBLIGATIONS In Millions
First Mortgage Improvement Long-Term
Bonds Fund Bank Debt Other Total
- -----------------------------------------------------------------------------------------------------------
1994 $ 91 $9 $188 $ 33 $321
1995 - 8 188 1 197
1996 36 8 93 102 239
1997 50 8 - 1 59
1998 336 7 - 2 345
===========================================================================================================
The accompanying notes are an integral part of these statements.
117
Consolidated Statements of Preferred Stock Consumers Power Company
Optional
Redemption Number of Shares In Millions
December 31 Series Price 1993 1992 1993 1992
- -----------------------------------------------------------------------------------------------------------------
Preferred Stock
Cumulative, $100 par value,
authorized 7,500,000 shares,
with no mandatory redemption $4.16 $103.25 68,451 68,451 $ 7 $ 7
4.50 110.00 373,148 373,148 37 37
7.45 101.00 379,549 379,549 38 38
7.68 101.00 207,565 207,565 21 21
7.72 101.00 289,642 289,642 29 29
7.76 102.21 308,072 308,072 31 31
--------------
Total Preferred Stock $163 $163
=================================================================================================================
The accompanying notes are an integral part of these statements.
118
Consolidated Statements of Common Stockholder's Equity Consumers Power Company
In Millions,
Except Number of Shares
Other Retained
Number Common Paid-in Earnings
of Shares Stock Capital (Deficit) Total
Balance at January 1, 1991 84,108,789 $841 $ 864 $ 16 $1,721
Net loss (249) (249)
Cash dividends declared:
Common stock (75) (75)
Preferred stock (11) (11)
Increase in preferred stock
of affiliate (Note 16) 100 100
Net gain on retired stock 1 1
--------------------------------------------------------------------
Balance at December 31, 1991 84,108,789 841 965 (319) 1,487
Net loss (244) (244)
Preferred stock dividends declared (11) (11)
Quasi-reorganization (Note 7) (574) 574 -
Balance at December 31, 1992 84,108,789 841 391 - 1,232
Net income 198 198
Cash dividends declared:
Common stock (133) (133)
Preferred stock (11) (11)
--------------------------------------------------------------------
Balance at December 31, 1993 84,108,789 841 $ 391 $ 54 $1,286
====================================================================
The accompanying notes are an integral part of these statements.
119
Consumers Power Company
Notes to Consolidated Financial Statements
1: Corporate Structure
Consumers is a combination electric and gas utility company serving most
of the Lower Peninsula of Michigan, and is the principal subsidiary of
CMS Energy, an energy holding company. Consumers' customer base includes
a mix of residential, commercial and diversified industrial customers, the
largest of which is the automotive industry.
2: Summary of Significant Accounting Policies and Other Matters
Basis of Presentation
The consolidated financial statements include Consumers and its wholly
owned subsidiaries. Consumers eliminates all material transactions between
its consolidated companies. Consumers uses the equity method of accounting
for investments in its companies and partnerships where it has more than a
20 percent but less than a majority ownership interest.
Gas Inventory
Consumers uses the weighted average cost method for valuing working gas
inventory. Cushion gas, which is gas stored to maintain reservoir
pressure for recovery of working gas, is recorded in the appropriate gas
utility plant account. Consumers stores gas inventory in its underground
storage facilities.
Maintenance, Depreciation and Depletion
Property repairs and minor property replacements are charged to
maintenance expense. Depreciable property retired or sold plus cost of
removal (net of salvage credits) is charged to accumulated depreciation.
Consumers bases depreciation provisions for utility plant on straight-line
and units-of-production rates approved by the MPSC. In May 1991, the MPSC
approved an increase of approximately $15 million annually in Consumers'
electric and common utility plant depreciation rates. The composite
depreciation rate for electric utility property was 3.4 percent for 1993
and 1992 and 3.3 percent for 1991. The composite rate for gas utility
plant was 4.4 percent for 1993 and 4.3 percent for 1992 and 1991. The
composite rate for other plant and property was 4.7 percent for 1993, 5.8
percent for 1992 and 3.7 percent for 1991.
New Accounting Standards
In November 1992, the FASB issued SFAS 112, Employers' Accounting for
Postemployment Benefits, which Consumers adopted January 1, 1994.
Consumers pays for several postemployment benefits, the most significant
being workers compensation. Because Consumers' postemployment benefit
plans do not vest or accumulate, the standard did not materially impact
Consumers' financial position or results of operations. For new
accounting standards related to financial instruments, see Note 8.
Nuclear Fuel, Decommissioning and Other Nuclear Matters
Consumers amortizes nuclear fuel cost to fuel expense based on the
quantity of heat produced for electric generation. Interest on leased
nuclear fuel is expensed as incurred. Under federal law, the DOE is
responsible for permanent disposal of spent nuclear fuel at costs to be
paid by affected utilities under various payment options. However, in a
statement released February 17, 1994, the DOE asserted that it does not
have a legal obligation to accept spent nuclear fuel without an
operational repository. The DOE is exploring options to offset the costs
incurred by nuclear utilities in continuing to store spent nuclear fuel on
site. For fuel burned after April 6, 1983, Consumers charges disposal
costs to nuclear fuel expense, recovers it through electric rates and
remits it to the DOE quarterly. Consumers has elected to defer payment
for disposal of spent nuclear fuel burned before April 7, 1983 until the
spent fuel is delivered to the DOE. As of December 31, 1993, Consumers
has recorded a liability to the DOE of $90 million, including interest, to
dispose of spent nuclear fuel burned before April 7, 1983. Consumers has
been recovering through electric rates the amount of this liability,
excluding a portion of interest. Consumers' liability to the DOE becomes
due when the DOE takes possession of Consumers' spent nuclear fuel, which
was originally scheduled to occur in 1998.
In April 1993, the NRC approved the design of the dry spent fuel storage
casks now being used by Consumers at Palisades. In May 1993, the Attorney
General and certain other parties commenced litigation to block Consumers'
use of the storage casks, alleging that the NRC had failed to comply
adequately with the National Environmental Policy Act. As of mid-February
1994, the courts have declined to prevent such use and have refused to
issue temporary restraining orders or stays. Several appeals relating to
this matter are now pending at the U.S. Sixth Circuit Court of Appeals.
Consumers loaded two dry storage casks with spent nuclear fuel in 1993 and
expects to load additional casks in 1994 prior to Palisades' 1995
refueling. If Consumers is unable to continue to use the casks as
planned, significant costs, including replacement power costs during any
resulting plant shutdown, could be incurred.
Consumers currently estimates decommissioning costs (decontamination and
dismantlement) of $208 million and $399 million, in 1993 dollars, for the
Big Rock Point and Palisades nuclear plants, respectively. At December
31, 1993, Consumers had recorded $171 million of decommissioning costs and
classified the obligation as accumulated depreciation. In January 1987,
Consumers began collecting estimated costs to decommission its two nuclear
plants through a monthly surcharge to electric customers which currently
totals $45 million annually. Consumers expects to file updated
decommissioning estimates with the MPSC on or before March 31, 1995.
Amounts collected from electric retail customers are deposited in trust.
Trust earnings are recorded as an investment with a corresponding credit
included in accumulated depreciation. The total amount of the trust will
be available for decommissioning Big Rock Point and Palisades at the end
of their respective license periods in 2000 and 2007. Consumers believes
the amounts being collected are adequate to meet its currently estimated
decommissioning costs and current NRC requirements.
In November 1993, Palisades returned to service following a planned
refueling and maintenance outage that had been extended due to several
unanticipated repairs. The results of an NRC review of Consumers'
performance at Palisades published shortly thereafter showed a decline in
performance ratings for the plant. Management believes that an increased
emphasis on internal assessments will improve performance at Palisades.
In order to provide NRC senior management with a more in-depth assessment
of plant performance, the NRC has initiated a diagnostic evaluation team
inspection at Palisades. The inspection will be a broad-based evaluation
of all aspects of nuclear plant operation and management. The evaluation
is expected to commence in March 1994, with results of the evaluation
expected to be available in May 1994. The outcome of this evaluation
cannot be predicted. Similar reviews conducted at nuclear plants of other
utilities in recent years have in some cases resulted in increased
regulatory oversight or required actions to improve plant operations,
maintenance or condition.
Plateau Resources Ltd.
In August 1993, Consumers sold its ownership interest in Plateau to U. S.
Energy Corp. As a result of the sale, approximately $14 million of
Plateau's cash and cash equivalents, other assets and liabilities,
including certain future decommissioning, environmental and other
contingent liabilities were transferred to U. S. Energy Corp. In view of
prior write-offs, this transaction did not result in any material gains or
additional losses.
Reclassifications
Consumers and the MCV Partnership (see Note 17) have reclassified certain
prior year amounts for comparative purposes. These reclassifications did
not affect the net losses for the years presented.
Revenue and Fuel Costs
Consumers accrues revenue for electricity and gas used by its customers
but not billed at the end of an accounting period. Consumers also accrues
or reduces revenue for any underrecovery or overrecovery of electric power
supply costs and natural gas costs by establishing a corresponding asset
or liability until Consumers bills these unrecovered costs or refunds the
excess recoveries to customers after reconciliation hearings conducted
before the MPSC.
Utility Regulation
Consumers accounts for the effects of regulation under SFAS 71, Accounting
for the Effects of Certain Types of Regulation. As a result, the actions
of regulators affect when revenues, expenses, assets and liabilities are
recognized.
Other
For significant accounting policies regarding cash equivalents, see
Note 14; for income taxes, see Note 5; and for pensions and other
postretirement benefits, see Note 10.
3: The Midland Cogeneration Venture
The MCV Partnership, which leases and operates the MCV Facility,
contracted to supply electricity and steam to The Dow Chemical Company and
to sell electricity to Consumers for a 35-year period beginning in March
1990. At December 31, 1993, Consumers, through its subsidiaries, held the
following assets related to the MCV: 1) CMS Midland owned a 49 percent
general partnership interest in the MCV Partnership; and 2) CMS Holdings
held through the FMLP a 35 percent lessor interest in the MCV Facility.
In late 1993, Consumers sold its remaining $309 million investment in the
MCV Bonds.
Power Purchases from the MCV Partnership
Consumers is obligated to purchase the following amounts of contract
capacity from the MCV Partnership under the PPA:
1995 and
Year 1991 1992 1993 1994 thereafter
- ---- ----- ----- ----- ----- ----------
MW 806 915 1,023 1,132 1,240
During 1992 and 1991, the MPSC only allowed Consumers to recover costs of
power purchased from the MCV Partnership based on delivered energy at
rates less than Consumers paid for 840 MW in 1992 and 806 MW in 1991. As
a result, Consumers recorded after-tax losses of $86 million in 1992 and
$124 million in 1991.
On March 31, 1993, the MPSC approved, with modifications, the Revised
Settlement Proposal which had been co-sponsored by Consumers, the MPSC
staff and 10 small power and cogeneration developers. These parties
accepted the Settlement Order and the MCV Partnership confirmed that it
did not object to its terms. ABATE and the Attorney General have filed
claims of appeal of the Settlement Order with the Court of Appeals.
The Settlement Order determined the cost of power purchased from the MCV
Partnership that Consumers can recover from its electric retail customers
and will significantly reduce the amount of future underrecoveries for
these power costs. Effective January 1, 1993, the Settlement Order
allowed Consumers to recover substantially all of the payments for its
ongoing purchase of 915 MW of contract capacity from the MCV Partnership.
Capacity and energy purchases from the MCV Partnership above the 915 MW
level can be competitively bid into Consumers' next solicitation for power
or, if necessary, utilized for current power needs with a prudency review
and a pricing recovery determination in annual PSCR cases. In either
instance, the MPSC would determine the levels of recovery from customers
for the power purchased. The Settlement Order also provides Consumers the
right to remarket all of the remaining capacity to third parties.
The PPA requires Consumers to pay a minimum levelized average capacity
charge of 3.77 cents per kWh, a fixed energy charge and a variable energy
charge based primarily on Consumers' average cost of coal consumed. The
Settlement Order provided Consumers two options for the recovery that
could be used for capacity charges paid to the MCV Partnership. Under the
option selected, Consumers is scheduling deliveries of energy from the MCV
Partnership whenever it has energy available up to hourly availability
limits, or "caps," for the 915 MW of capacity authorized for recovery in
the Settlement Order. Consumers can recover an average 3.62 cents per kWh
capacity charge and the prescribed energy charges associated with the
scheduled deliveries within the caps, whether or not those deliveries are
scheduled on an economic basis. Through December 31, 1997, there is no
cap applied during on-peak hours to Consumers' recovery for the purchase
of capacity made available within the 915 MW authorized. Recovery for
purchases during off-peak hours is capped at 80 percent in 1993, 82
percent in 1994 and 1995, 84 percent in 1996 and 1997, increasing to 88.7
percent in 1998 and thereafter at which time the 88.7 percent cap is
applicable during all hours. For all economic energy deliveries above the
caps to 915 MW, the option also allows Consumers to recover 1/2 cent per
kWh capacity payment in addition to the corresponding energy charge.
In December 1992, Consumers recognized an after-tax loss of $343 million
for the present value of estimated future underrecoveries of power costs
under the PPA as a result of the Settlement Order. This loss included
management's best estimates regarding the future availability of the MCV
Facility, and the effect of the future wholesale power market on the
amount, timing and price at which various increments of the capacity above
the MPSC-authorized level could be resold. Except for adjustments to the
above loss to reflect the after-tax time value of money through accretion
expense, no additional losses are expected unless actual future experience
materially differs from management's estimates. Because the calculation
of the 1992 loss depended in part upon estimates of future unregulated
sales of energy to third parties, a more conservative or risk-free
investment rate of 7 percent was used to calculate $188 million of the
total $343 million after-tax loss. The remaining portion of the loss was
calculated using an 8.5 percent discount rate reflecting Consumers'
incremental borrowing rate as required by SFAS 90, Regulated Enterprises-
Accounting for Abandonments and Disallowances of Plant Costs. The after-
tax expense for the time value of money for the loss is estimated to be
approximately $24 million in 1994, and various lower levels thereafter,
including $22 million in 1995 and $20 million in 1996. Although the
settlement losses were recorded in 1992, the after-tax cash
underrecoveries, including fixed energy charges, associated with the
Settlement Order were $59 million in 1993. Consumers believes there is
and will be a market for the resale of capacity purchases from the MCV
Partnership above the MPSC-authorized level. However, if Consumers is
unable to sell any capacity above the current MPSC-authorized level,
future additional after-tax losses and after-tax cash underrecoveries
could be incurred. Consumers' estimates of its future after-tax cash
underrecoveries and possible additional losses for the next five years if
none of the additional capacity is sold are as follows:
After-tax, In Millions
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
Expected cash underrecoveries $56 $65 $62 $61 $ 8
Possible additional under-
recoveries and losses (a) $14 $20 $20 $22 $72
(a) If unable to sell any capacity above the MPSC's authorized level
The undiscounted, after-tax amount of the $343 million loss was $789
million. At December 31, 1993, the after-tax present value of the
Settlement Order liability had been reduced to $307 million, which
reflects after-tax cash underrecoveries related to capacity totaling $(54)
million, after-tax accretion expense of $23 million and a $(5) million
adjustment due to the 1993 corporate tax rate change (see Note 5).
The PPA, while requiring payment of a fixed energy charge, contains a
"regulatory out" provision which permits Consumers to reduce the fixed
energy charges payable to the MCV Partnership throughout the entire
contract term if Consumers is not able to recover these amounts from its
customers. In connection with the MPSC's approval of the Revised
Settlement Proposal, Consumers and the MCV Partnership have commenced
arbitration proceedings under the PPA to determine whether Consumers is
entitled to exercise its regulatory out regarding fixed energy charges on
the portion of available MCV capacity above the current MPSC-authorized
levels. An arbitrator acceptable to both parties has been selected. If
the arbitrator determines that Consumers cannot exercise its regulatory
out, Consumers would be required to make these fixed energy payments to
the MCV Partnership even though Consumers may not be recovering these
costs. The arbitration proceedings will also determine who is entitled to
the fixed energy amounts for which Consumers did not receive full cost
recovery during the years prior to settlement. Although Consumers
believes its position on arbitration is sound and intends to aggressively
pursue its right to exercise the regulatory out, management cannot predict
the outcome of the arbitration proceedings or any possible settlement of
the matter. Accordingly, losses were recorded prior to 1993 for all fixed
energy amounts at issue in the arbitration. As of December 31, 1993,
approximately $20 million has been escrowed by Consumers and is included
in Consumers' temporary cash investments. In December 1993, Consumers
made an irrevocable offer to pay through September 15, 2007, fixed energy
charges to the MCV Partnership on all kWh delivered by the MCV Partnership
to Consumers from the contract capacity in excess of 915 MW, which
represents a portion of the fixed energy charges in dispute. Consumers
made the offer to facilitate the sale of the remaining MCV Bonds in 1993.
The lessors of the MCV Facility have filed a lawsuit in federal district
court against CMS Energy, Consumers and CMS Holdings. It alleges breach
of contract, breach of fiduciary duty and negligent or willful
misrepresentation relating to the MCV Partnership's failure to object to
the Settlement Order in light of Consumers' interpretation of the
Settlement Order, which is the subject of an arbitration between the MCV
Partnership and Consumers. The action alleges damages in excess of $1
billion and seeks injunctive relief relative to Consumers' payments of the
fixed energy charge. CMS Energy and Consumers believe that at all times
they and CMS Holdings have conducted themselves properly and that the
action is without merit. They also believe that a significant portion of
the alleged damages represent fixed energy charges in dispute in the
arbitration. CMS Energy and Consumers are unable to predict the outcome
of this action.
PSCR Matters: Consistent with the terms of the Settlement Order,
Consumers has withdrawn its appeals of various MPSC orders issued in
connection with the 1992, 1991 and 1990 PSCR cases. Consumers also agreed
not to appeal any MCV-related issues raised in future orders for these
plan cases and related reconciliations to the extent those issues are
resolved by the Settlement Order. Consumers made refunds, including
interest, of $69 million in 1993 and $29 million in 1992 to customers for
overrecoveries in connection with the 1991 and 1990 PSCR reconciliation
cases, respectively. These amounts were included in losses recorded prior
to 1993. In 1992, Consumers recovered MCV power purchase costs consistent
with the MPSC's 1992 plan case order, and does not anticipate that any
MCV-related refunds will be required.
4: Rate Matters
Electric Rate Case
Consumers filed a request with the MPSC in May 1993 to increase its
electric rates. Subsequently, as a result of changed estimates, Consumers
revised its requested electric rate increase to $133 million annually
based on a 1994 test year. Consumers also requested an additional annual
electric rate increase of $38 million based on a 1995 test year.
Consumers' request included increased future expenditures primarily
related to capital additions, demand-side management programs, operation
and maintenance, higher depreciation and postretirement benefits computed
under SFAS 106, Employers' Accounting for Postretirement Benefits Other
than Pensions. The filing also proposed experimental incentive provisions
that would either reward or penalize Consumers, based on its operating
performance. In addition, Consumers would share any returns above its
MPSC-authorized level with customers in exchange for the ability to earn
not lower than one percentage point below its authorized level.
In March 1994, an ALJ issued a proposal for decision that recommended
Consumers' 1994 final annual rate increase total approximately $83
million, and that the incremental requested 1995 increase not be granted
at this time. The ALJ's recommendation included a lower return on
electric common equity, reflected reduced anticipated debt costs due to
the projected availability of more favorable interest rates and proposed a
lower equity ratio for Consumers' projected capitalization structure. The
ALJ did, however, generally support Consumers' rate design proposal to
significantly reduce the level of subsidization of residential customers
by commercial and industrial customers and generally supported the
performance incentive but not the shared return mechanism discussed above.
Abandoned Midland Project: In July 1984, Consumers abandoned construction
of its unfinished nuclear power plant located in Midland, Michigan, and
subsequently took a series of write-downs. In May 1991, Consumers began
collecting $35 million pretax annually for the next 10 years and is
amortizing the assets against current income over the recovery period
using an interest method. Amortization for 1993, 1992 and 1991 was $28
million, $28 million and $18 million, respectively.
Consumers was not permitted to earn a return on the portion of the
abandoned Midland investment for which the MPSC was allowing recovery.
Therefore, under SFAS 90, the recorded losses described above included
amounts that reduced the recoverable asset to the present value of future
recoveries. During the remaining recovery period, part of the prior
losses will be reversed to adjust the unrecovered asset to its present
value. and is reflected as accretion income. An after-tax total of
approximately $35 million of the prior losses remains to be included in
accretion income through April 2001. Several parties, including the
Attorney General, have filed claims of appeal with the Court of Appeals
regarding MPSC orders issued in May and July 1991 that specified the
recovery of abandoned investment.
Electric Demand-side Management: As a result of settlement discussions
regarding demand-side management and an MPSC order in July 1991, Consumers
agreed to spend $65 million over two years on demand-side management
programs. Based on the MPSC's determination of Consumers' effectiveness
in implementing these programs, Consumers' future rate of return on common
equity may be adjusted either upward by up to 1 percent or downward by up
to 2 percent. This adjustment, if implemented, would be applied to
Consumers' retail electric tariff rates and be in effect for one year
following reconciliation hearings with the MPSC that are expected to be
initiated in the first quarter of 1994. The estimated revenue effects of
the potential adjustment range from an $11 million increase to a $22
million decrease. Consumers believes it will receive an increase on its
return on common equity based on having achieved all of the agreed upon
objectives.
On October 1, 1993, Consumers completed the customer participation portion
of these programs and as part of its current electric rate case has
requested MPSC authorization to continue certain programs in 1994.
Consumers has also requested recovery of demand-side management
expenditures which exceeded the $65 million level. Consumers is deferring
program costs and amortizing the costs over the period these costs are
being recovered from its customers in accordance with an accounting order
issued by the MPSC in September 1992. The unamortized balance of deferred
costs at December 31, 1993 and 1992 was $71 million and $25 million,
respectively.
PSCR Issues
Consumers began a planned refueling and maintenance outage at Palisades in
June 1993. Following several required, unanticipated repairs that
extended the outage, the plant returned to service in early November.
Recovery of replacement power costs incurred by Consumers during the
outage will be reviewed by the MPSC during the 1993 PSCR reconciliation of
actual costs and revenues to determine the prudency of actions taken
during the outage. Any finding of delay due to imprudence could result in
disallowances of a portion of replacement power costs. Net replacement
power costs were approximately $180,000 per day above the cost of fuel
incurred when the plant is operating.
The Energy Act imposes an obligation on the utility industry, including
Consumers, to decommission DOE uranium enrichment facilities. Consumers
currently estimates its payments for decommissioning those facilities to
be $2.4 million per year for 15 years beginning in 1992, escalating based
on an inflation factor. Consumers believes these costs are recoverable
from its customers under traditional regulatory policies. As of December
31, 1993, Consumers' remaining estimated liability was approximately $34
million. Consumers has a regulatory asset of $34 million for the expected
recovery of this amount in electric rates.
GCR Issues
In connection with its 1991 GCR reconciliation case, Consumers refunded
$36 million, including interest, to its firm sales and transportation rate
customers in April 1992. Consumers accrued the full amount for this refund
in 1991.
The MPSC issued an order during 1993 that approved an interim settlement
agreement for the 12 months ended March 31, 1993. As a result of the
settlement, Consumers refunded in August 1993, to its GCR and
transportation customers, approximately $22 million, including interest.
Consumers previously accrued amounts sufficient for this refund.
The MPSC, in a February 1993 order, provided that the price payable to
certain intrastate gas producers by Consumers be reduced prospectively.
As a result, Consumers was not allowed to recover approximately $13
million of costs incurred prior to February 8, 1993. In 1991, Consumers
accrued a loss sufficient for this issue. Future disallowances are not
anticipated, unless the remaining appeals filed by the intrastate
producers are successful.
In 1992, the FERC approved a settlement involving Consumers, Trunkline and
certain other parties, which resolved numerous claims and proceedings
concerning Trunkline liquified natural gas costs. The settlement
represents significant gas cost savings for Consumers and its customers in
future years. As part of the settlement, Consumers will not incur any
transition costs from Trunkline as a result of FERC Order 636. In
November 1992, Consumers had recorded a liability and regulatory asset for
the principal amount of payments to Trunkline over a five-year period and
a regulatory asset. On May 11, 1993, the MPSC approved a separate
settlement agreement that provides Consumers with full recovery of these
costs over a five-year period. At December 31, 1993, Consumers' remaining
liability and regulatory asset was $116 million.
Other
Certain of Consumers' direct gas suppliers have contract prices tied to
the price Consumers pays Trunkline for its gas. On September 1, 1993,
Consumers commenced gas purchases from Trunkline under a continuation of
prior sales agreements. The current contract covers gas deliveries
through October 1994 and is at a reduced price compared to prior gas
sales. Some of Consumers' direct gas suppliers have claimed that the
reduced Trunkline gas cost is not a proper reference price under their
contracts with Consumers and that their contracts are terminable after a
12-month period. Consumers is disputing these claims. Additionally,
three of these direct gas suppliers of Consumers have made filings with
the FERC in Trunkline's Order 636 restructuring case seeking to preclude
Trunkline's ability to make the sales to Consumers which commenced on
September 1, 1993. Consumers and Trunkline vigorously opposed these
filings and in December 1993, the FERC issued an order which, among other
things, allowed Trunkline to continue sales of gas to Consumers under
tariffs on file with the FERC.
Estimated losses for certain contingencies discussed in this note have
been accrued. Resolution of these contingencies is not expected to have a
material impact on the financial statements.
5: Income Taxes
Consumers and its subsidiaries file a consolidated federal income tax
return with CMS Energy. Income taxes are generally allocated to each
company based on each company's separate taxable income. Consumers'
accrued federal income tax benefits from CMS Energy were $49 million and
$3 million as of December 31, 1993 and 1992, respectively. In 1992,
Consumers implemented SFAS 109, Accounting for Income Taxes. Deferred tax
assets and liabilities are classified as current or noncurrent based on
the classification of the related asset or liability, for all temporary
differences. Consumers began practicing full deferred tax accounting for
temporary differences arising after January 1, 1993, as authorized by a
generic MPSC order. The generic order reduces the amount of regulatory
assets and liabilities that otherwise could have arisen in future periods
by allowing Consumers to reflect the income statement effect in the period
temporary differences arise.
Consumers uses ITC to reduce current income taxes payable and defers and
amortizes ITC over the life of the related property. The AMT requires
taxpayers to perform a second separate federal tax calculation based on a
flat rate applied to a broader tax base. AMT is the amount by which this
"broader-based" tax exceeds regular tax. Any AMT paid generally becomes a
tax credit that can be carried forward indefinitely to reduce regular tax
liabilities in future periods when regular taxes paid exceed the tax
calculated for AMT.
On August 10, 1993, the Omnibus Budget Reconciliation Act of 1993
increased the statutory federal tax rate from 34 percent to 35 percent
effective January 1, 1993. The cumulative effect of this tax rate change
has been reflected in Consumers' financial statements.
The significant components of income tax expense (benefit) consisted of:
In Millions
Years Ended December 31 1993 1992 1991(a)
- ----------------------- ------- ------ --------
Current federal income taxes $ 41 $ 52 $ 58
Deferred income taxes 61 (172) (166)
Deferred income taxes - tax rate change (2) - -
Deferred ITC, net (9) (7) 33
------- ------ ------
$ 91 $(127) $(75)
======= ====== ======
Operating $ 116 $ 51 $ 48
Other (25) (178) (123)
------- ------ ------
$ 91 $(127) $(75)
======= ====== ======
(a) The 1991 provision for income taxes was before an extraordinary item
that had related deferred income taxes of approximately $7 million.
The principal components of Consumers' deferred tax assets (liabilities)
recognized in the balance sheet are as follows:
In Millions
December 31 1993 1992
- ----------- ------- --------
Property $ (518) $ (458)
Unconsolidated investments (184) (129)
Postretirement benefits (Note 10) (178) (165)
Abandoned Midland project (Note 4) (57) (60)
Employee benefit obligations (includes
postretirement benefits of
$178 and $165) (Note 10) 200 186
MCV power purchases - settlement (Note 3) 165 177
AMT carryforward 64 51
ITC carryforward (expires 2005) 48 49
Other (8) (4)
------- --------
$ (468) $ (353)
======= ========
Gross deferred tax liabilities $(1,319) $(1,228)
Gross deferred tax assets 851 875
-------- --------
$ (468) $ (353)
======== ========
The actual income tax expense (benefit) differs from the amount computed
by applying the statutory federal tax rate to income before income taxes
as follows:
In Millions
Years Ended December 31 1993 1992 1991
------- ------- -------
Net income (loss) before extraordinary item $ 198 $(244) $(235)
Income tax expense (benefit) 91 (127) (75)
------- ------- -------
289 (371) (310)
Statutory federal income tax rate x 35% x 34% x 34%
-------- ------- -------
Expected income tax expense (benefit) 101 (126) (105)
Increase (decrease) in taxes from:
Capitalized overheads previously
flowed through 5 5 35
Differences in book and tax depreciation
not previously deferred 6 9 8
ITC amortization and utilization (10) (10) (7)
Affiliated companies' dividends (6) (5) (5)
Other, net (5) - (1)
------- ------- -------
$ 91 $(127) $ (75)
======= ======= =======
6: Short-Term Financings
Consumers has authorization from the FERC to issue or guarantee up to $900
million of short-term debt through December 31, 1994. Consumers has a
$470 million facility that is used to finance seasonal working capital
requirements and unsecured, committed lines of credit aggregating $165
million. As of December 31, 1993, $235 million and $24 million were
outstanding at weighted average interest rates of 4.0 percent and 3.9
percent, respectively. Further, Consumers has an established $500 million
trade receivables purchase and sale program. As of December 31, 1993 and
1992, receivables sold under the agreement totaled $285 million and $225
million, respectively. On February 15, 1994, Consumers increased the
level of receivables sold to $335 million.
7: Capitalization
Capital Stock
As of December 31, 1992, Consumers effected a quasi-reorganization, an
elective accounting procedure in which Consumers' accumulated deficit of
$574 million was eliminated against other paid-in capital. The fair
values of Consumers' assets and liabilities at the date of the quasi-
reorganization were determined by management to approximate their carrying
values and no material adjustments to the historical bases were made.
This action was approved by Consumers' Board of Directors and did not
require shareholder approval. As a result of the quasi-reorganization and
subsequent accumulated earnings, Consumers paid $133 million in common
stock dividends in 1993 and also declared from 1993 earnings a $16 million
common stock dividend in January 1994. Consumers has authorization from
the MPSC and is proceeding to issue $200 million of preferred stock in
1994.
First Mortgage Bonds
Consumers secures its first mortgage bonds by a mortgage and lien on
substantially all of its property. Consumers' ability to issue and sell
securities is restricted by certain provisions in its First Mortgage Bond
Indenture, Articles and the need for regulatory approvals in compliance
with appropriate state and federal law. In September 1993, Consumers
issued, with MPSC approval, $300 million of 6 3/8 percent first mortgage
bonds, due 2003 and $300 million of 7 3/8 percent first mortgage bonds,
due 2023. Consumers used the net proceeds from the bond issuance to
refund approximately $515 million of higher interest first mortgage bonds
and the balance to reduce short-term borrowings. Unamortized debt costs,
premiums and discounts and call premiums on the refunded debt totaling
approximately $18 million were deferred under SFAS 71, and are being
amortized over the lives of the new debt.
In February 1994, Consumers issued a call for redemption totaling
approximately $10 million. Consumers also fully redeemed two issues of
first mortgage bonds totaling approximately $91 million. These
redemptions completed Consumers' commitment to the MPSC, under the 1993
authorization to issue first mortgage bonds, to refinance certain long-
term debt.
Long-Term Bank Debt
Under its long-term credit agreement at December 31, 1993, Consumers was
required to make 10 remaining quarterly principal payments of
approximately $47 million. As of December 31, 1993, the outstanding
balance under this credit agreement totaled $469 million with a weighted
average interest rate of 4.0 percent. In January 1993, Consumers entered
into an interest rate swap agreement, exchanging variable-rate interest
for fixed-rate interest on the latest maturing $250 million of the then
remaining $500 million obligation under its long-term credit agreement.
Other
Consumers has a total of $131 million of PCRBs outstanding with a weighted
average interest rate of 4.2 percent as of December 31, 1993. Consumers
classifies $101 million of PCRBs as long-term because it can refinance
these amounts through irrevocable letters of credit expiring after one
year.
In June 1993, Consumers entered into loan agreements in connection with
the issuance of approximately $28 million of adjustable rate demand
limited obligation refunding revenue bonds, due 2010, which are secured by
an irrevocable letter of credit expiring in 1996. These bonds bear an
initial interest rate of 2.65 percent. Consumers also entered into loan
agreements in connection with the issuance of $30 million of 5.8 percent
limited obligation refunding revenue bonds, due 2010, secured by a
financial guaranty insurance policy and certain first mortgage bonds of
Consumers. Proceeds of these issues were used to redeem on August 1, 1993
in advance of their maturities, approximately $58 million of outstanding
PCRBs.
8: Financial Instruments
Cash, short-term investments and current liabilities approximate their
fair value due to the short-term nature of those instruments. The
estimated fair value of long-term investments is based on quoted market
prices where available. When specific market prices do not exist for an
instrument, the fair value is based on quoted market prices of similar
investments or other valuation techniques. All long-term investments in
financial instruments, except as shown below, approximate fair value.
Although the current fair value of the long-term debt, which is based on
calculations made by debt pricing specialists, may be greater than the
current carrying amount, settlement of the reported debt is generally not
expected until maturity. The estimated fair values of Consumers'
financial instruments are as follows:
In Millions
Years Ended December 31 1993 1992
- ----------------------- ----------------- -----------------
Carrying Fair Carrying Fair
Amount Value Amount Value
Investment in stock
of affiliates $ 291 $ 323 $ 291 $ 303
Long-term debt 1,839 1,984 2,079 2,123
The fair value of Consumers' off-balance sheet financial instruments is
based on the amount estimated to terminate or settle the obligation:
In Millions
Years Ended December 31 1993 1992
---------- ----------
Fair Value Fair Value
Interest rate swaps (Note 7) $ 5 $ -
Guarantees 7 7
On January 1, 1994, Consumers adopted SFAS 115, Accounting for Certain
Investments in Debt and Equity Securities, requiring accounting for
investments in debt securities to be held to maturity at amortized cost;
otherwise debt and marketable equity securities would be recorded at fair
value, with any unrealized gains or losses included in earnings if the
security is held for trading purposes or as a separate component of
shareholders' equity if the security is available for sale. The
implementation resulted in an increase in assets of $30 million in January
1994 with a corresponding increase in stockholders' equity of $20 million,
net of tax.
In May 1993, the FASB issued SFAS 114, Accounting by Creditors for
Impairment of a Loan, effective in 1995, requiring certain loans that are
determined to be impaired be measured based on the present value of
expected future cash flows discounted at the loan's effective interest
rate, the loan's observable market price or the fair value of any
collateral for a secured loan. Consumers does not believe this standard
will have a material impact on its financial position or results of
operations.
9: Executive Incentive Compensation
Consumers participates in CMS Energy's Performance Incentive Stock Plan.
Under the plan, restricted shares of common stock of CMS Energy, stock
options and stock appreciation rights may be granted to key employees
based on their contributions to the successful management of CMS Energy
and its subsidiaries. The plan reserves for award not more than 2 percent
of CMS Energy's common stock outstanding on January 1 each year, less the
number of shares of restricted common stock awarded and of common stock
subject to options granted under the plan during the immediately preceding
four calendar years. Any forfeitures are subject to award under the plan.
As of December 31, 1993, awards of up to 447,686 shares of common stock
may be issued.
Restricted shares of common stock are outstanding shares with full voting
and dividend rights. Performance criteria were added in 1990 based on
CMS Energy's total return to shareholders. Shares of restricted common
stock cannot be distributed until they are vested and the performance
objectives are met. Further, the restricted stock is subject to
forfeiture if employment terminates before vesting. If key employees
exceed performance objectives, the plan will allow additional awards.
Restricted shares vest fully if control of CMS Energy changes, as defined
by the plan.
Consumers' Executive Stock Option and Stock Appreciation Rights Plan, an
earlier plan approved by shareholders, remains in effect until all
authorized options are granted or September 25, 1995. As of December 31,
1993, options for 43,000 shares remained to be granted.
Under both plans, for stock options and stock appreciation rights, the
exercise price on each grant date equaled the closing market price on the
grant date. Options are exercisable upon grant and expire up to 10 years
and one month from date of grant. The status of the restricted stock
granted under the Performance Incentive Stock Plan and options granted
under both plans follows. The number of shares presented also includes
shares for employees of CMS Energy and non-utility affiliates.
Restricted
Stock Options
---------- ----------------------------
Number Number Price
of Shares of Shares per Share
----------- --------- ---------------
Outstanding at
January 1, 1991 212,500 1,162,216 $ 7.13 - $34.25
Granted 97,000 194,000 $ 21.13 - $21.13
Exercised or Issued (34,437) (65,125) $ 7.13 - $16.00
--------- ---------- ---------------
Outstanding at
December 31, 1991 275,063 1,291,091 $ 7.13 - $34.25
Granted 101,000 215,000 $ 17.13 - $18.00
Exercised or Issued (37,422) (21,000) $ 13.00 - $16.00
Canceled (15,375) (50,000) $ 20.50 - $33.88
--------- ---------- ---------------
Outstanding at
December 31, 1992 323,266 1,435,091 $ 7.13 - $34.25
Granted 132,000 249,000 $ 25.13 - $26.25
Exercised or Issued (54,938) (152,125) $ 7.13 - $21.13
Canceled (84,141) (33,000) $ 20.50 - $33.88
--------- ---------- ---------------
Outstanding at
December 31, 1993 316,187 1,498,966 $ 7.13 - $34.25
========= ========== ===============
10: Retirement Benefits
Postretirement Benefit Plans Other Than Pensions
Consumers adopted SFAS 106 effective as of the beginning of 1992. The
standard required Consumers to change its accounting for the cost of
health care and life insurance benefits that are provided to retirees from
a pay-as-you-go (cash) method to a full accrual method. Accordingly,
Consumers recorded a liability of $466 million for the accumulated
transition obligation and a corresponding regulatory asset for anticipated
recovery in utility rates.
Both the MPSC and FERC have generally adopted SFAS 106 costs for
ratemaking purposes provided costs recovered through rates are placed in
external funds until they are needed to pay benefits. The MPSC's generic
order allows utilities three years to seek recovery of costs and provides
for recovery from customers of any deferred costs incurred prior to the
beginning of rate recovery of such costs. Consumers anticipates
recovering its regulatory asset within 20 years. As discussed in Note 4,
Consumers has requested recovery of the portion of these costs allocated
to the electric business. In late 1994, Consumers plans to request
recovery of the gas utility portion of these costs. Consumers plans to
fund the benefits using external Voluntary Employee Beneficiary
Associations. Funding of the health care benefits would begin when
Consumers' rate recovery based on SFAS 106 begins. A portion of the life
insurance benefits have previously been funded.
As of December 31, 1993, the actuary assumed that retiree health care
costs increased 10.5 percent in 1994 then decreased gradually to 5.5
percent in 2000 and thereafter. The health care cost trend rate
assumption significantly affects the amounts reported. For example, a 1
percentage point increase in each year would increase the accumulated
postretirement benefit obligation as of December 31, 1993 by $75 million
and the aggregate of the service and interest cost components of net
periodic postretirement benefit costs for 1993 by $9 million.
For the years ended December 31, 1993 and 1992, the weighted average
discount rate was 7.25 percent and 8 percent, respectively, and the
expected long-term rate of return on plan assets was 8.5 percent. Net
periodic postretirement benefit cost for health care benefits and life
insurance benefits was $51 million in 1993 and $49 million in 1992. The
1993 and 1992 cost was comprised of $13 million and $10 million for
service plus $38 million and $39 million for interest, respectively.
The funded status of the postretirement benefit plans is reconciled with
the liability recorded at December 31 as follows:
In Millions
1993 1992
------- -------
Actuarial present value of estimated benefits
Retirees $ 281 $ 264
Eligible for retirement 54 50
Active (upon retirement) 187 175
------- -------
Accumulated postretirement benefit obligation 522 489
Plan assets (premium deposit fund) at fair value 4 4
------- -------
Projected postretirement benefit obligation
in excess of plan assets (518) (485)
Unrecognized net loss from experience
different than assumed 8 -
------- -------
Recorded liability and regulatory asset $ (510) $ (485)
======= =======
Consumers' postretirement health care plan is unfunded; the accumulated
postretirement benefit obligation for that plan is $510 million and $478
million at December 31, 1993 and 1992, respectively.
Supplemental Executive Retirement Plan
Certain management employees qualify under the SERP. Benefits are based on
the employee's service and earnings as defined in the SERP. In 1988, a
trust from which SERP benefits are paid was established and funded.
Because the SERP is not a qualified plan under the Internal Revenue Code,
earnings of the trust are taxable and trust assets are included in
Consumers' consolidated assets. As of December 31, 1993 and 1992, trust
assets at cost (which approximates market) were $16 million and $14
million, respectively, and were classified as other non-current assets.
Defined Benefit Pension Plan
A trusteed, non-contributory, defined benefit Pension Plan covers
substantially all employees. The benefits are based on an employee's years
of accredited service and earnings, as defined in the plan, during an
employee's five highest years of earnings. Because the plan is fully
funded, no contributions were made for plan years 1991 through 1993.
Amounts presented for the Pension Plan include amounts for CMS Energy and
non-utility affiliates, which are not distinguishable from nor are they
significant when compared with the plan's total amounts.
Years Ended December 31 1993 1992 1991
- ----------------------- ----- ----- -----
Discount rate 7.25% 8.5% 8.5%
Rate of compensation increase 4.5% 5.5% 5.5%
Expected long-term rate of return on assets 8.75% 8.75% 8.75%
Net Pension Plan and SERP costs consisted of:
In Millions
Years Ended December 31 1993 1992 1991
----- ----- -----
Service cost $ 19 $ 19 $ 18
Interest cost 49 47 48
Actual return on plan assets (92) (36) (88)
Net amortization and deferral 34 (20) 28
----- ----- -----
Net periodic pension cost $ 10 $ 10 $ 6
===== ===== =====
The funded status of the Pension Plan and SERP reconciled to the pension
liability recorded at December 31 was:
In Millions
Pension Plan SERP
------------- -------------
1993 1992 1993 1992
----- ----- ----- -----
Actuarial present value of
estimated benefits
Vested $ 471 $ 349 $ 12 $ 10
Non-vested 56 49 - -
------ ------ ----- -----
Accumulated benefit obligation 527 398 12 10
Provision for future pay increases 138 177 5 5
------ ------ ----- -----
Projected benefit obligation 665 575 17 15
Plan assets (primarily stocks and
bonds,including $87 in 1993 and
$64 in 1992 in common stock
of CMS Energy) at fair value 692 631 - -
------ ------ ----- -----
Projected benefit obligation less than
(in excess of) plan assets 27 56 (17) (15)
Unrecognized net (gain) loss from
experience different than assumed (56) (76) 5 2
Unrecognized prior service cost 45 49 - 1
Unrecognized net transition
(asset) obligation (44) (49) 1 1
------ ------ ------ -----
Recorded liability $ (28) $ (20) $ (11) $(11)
====== ====== ====== =====
Beginning January 1, 1986, the amortization period for the Pension Plan's
unrecognized net transition asset is 16 years and 11 years for the SERP's
unrecognized net transition obligation. Prior service costs are amortized
on a straight-line basis over the average remaining service period of
active employees.
In 1991, certain eligible employees accepted early retirement incentives.
The incentives consisted of lump-sum cash payments and increased pension
payments. The pretax cost of the incentives was $25 million. Also in
1991, portions of the projected benefit obligation were settled which
resulted in a pretax gain of $25 million that offset the early retirement
costs.
11: Leases
Consumers leases various assets, including vehicles, aircraft,
construction equipment, computer equipment, nuclear fuel and buildings.
Consumers' nuclear fuel capital leasing arrangement was extended an
additional year and is now scheduled to expire in November 1995. The
maximum amount of nuclear fuel that can be leased increased from $55
million to $70 million. Consumers further increased this amount in early
1994 to $80 million. The lease provides for an additional one-year
extension upon mutual agreement by the parties. Upon termination of the
lease, the lessor would be entitled to a cash payment equal to its
remaining investment, which was $57 million as of December 31, 1993.
Consumers is responsible for payment of taxes, maintenance, operating
costs, and insurance.
Minimum rental commitments under Consumers' non-cancelable leases at
December 31, 1993, were:
In Millions
Capital Operating
Leases Leases
------- ---------
1994 $ 40 $ 7
1995 57 6
1996 16 2
1997 15 2
1998 13 2
1999 and thereafter 26 21
----- -----
Total minimum lease payments 167 $ 40
=====
Less imputed interest 27
-----
Present value of net minimum lease payments 140
Less current portion 34
-----
Non-current portion (a) $106
=====
(a) In January 1994, Consumers amended its nuclear fuel lease to include
fuel previously owned at Big Rock Point. This is estimated to increase
the non-current portion of capital leases by approximately $6 million.
Consumers recovers these charges from customers and accordingly charges
payments for its capital and operating leases to operating expense.
Operating lease charges, including charges to clearing and other accounts
as of December 31, 1993, 1992 and 1991, were $8 million, $12 million and
$12 million, respectively.
Capital lease expenses for the years ended December 31, 1993, 1992 and
1991 were $32 million, $44 million and $48 million, respectively.
Included in these amounts for the years ended 1993, 1992 and 1991, are
nuclear fuel lease expenses of $13 million, $17 million and $24 million,
respectively.
12: Commitments and Contingencies
Ludington Pumped Storage Plant Litigation
In 1986, the Attorney General filed a lawsuit on behalf of the State of
Michigan in the Circuit Court of Ingham County, seeking damages from
Consumers and Detroit Edison for alleged injuries to fishery resources
because of the operation of the Ludington Pumped Storage Plant. The state
sought $148 million (including $16 million of interest) for past injuries
and $89,000 per day for future injuries, with the latter amount to be
adjusted upon installation of "adequate" fish barriers and other changed
conditions.
In 1987, the Attorney General filed a second lawsuit alleging that
Consumers and Detroit Edison have breached a bottomlands lease agreement
with the state and asked that the lease be declared void. This complaint
was consolidated with the suit described in the preceding paragraph. In
1990, both of the lawsuits were dismissed on the basis of federal
preemption. In 1993, the Court of Appeals overturned the dismissal, as to
damages, effectively allowing the state to continue its damages lawsuit
against Consumers and Detroit Edison, but generally affirmed the lower
court's ruling as to the breach of lease claim. The Court of Appeals'
ruling also limited any potential damages to those occurring no earlier
than 1983. Consumers, Detroit Edison and the Attorney General have filed
an application for leave to appeal with the Michigan Supreme Court.
Consumers and Detroit Edison are seeking to have the trial court's
dismissal of the damages claim affirmed.
Each year since 1989, Consumers and Detroit Edison have complied with FERC
orders by installing a seasonal barrier net from April to October at the
Ludington plant site. The FERC is now considering whether the barrier net
(along with other actions by Consumers, including contributions to state
fish-stocking programs) would be a satisfactory permanent solution.
Environmental Matters
Consumers is a so-called "Potentially Responsible Party" at several sites
being administered under Superfund. Along with Consumers, there are
numerous credit-worthy, potentially responsible parties with substantial
assets cooperating with respect to the individual sites. Based on
information currently known by management, Consumers believes that it is
unlikely that its liability at any of the known Superfund sites,
individually or in total, will have a material adverse effect on its
financial position or results of operations.
The State of Michigan in 1990 passed amendments to the Environmental
Response Act that established a state program similar to the federal
Superfund law, though broader in scope. Under this law, Consumers expects
that it will ultimately incur costs at a number of sites, including some
of the 23 sites that formerly housed manufactured gas plant facilities,
even those in which it has a partial or no current ownership interest. It
is expected that in most cases, parties other than Consumers with current
or former ownership interests may also be considered liable under the law
and may be required to share in the costs of any site investigations and
remedial actions. There is limited knowledge of manufactured gas plant
contamination at these sites at this time. However, Consumers is
continuing to monitor this issue.
In addition, at the request of the DNR, Consumers prepared plans for
remedial investigation/feasibility studies for three of these sites. Work
plans for remedial investigation/feasibility studies for four other sites
have also been prepared. The purpose of a remedial
investigation/feasibility study is to define the nature and extent of
contamination at a site and to determine which of several possible
remedial action alternatives, including no action, may be required under
the Environmental Response Act. The DNR has approved two of the three
plans for remedial investigation/feasibility studies submitted and is
currently reviewing the one remaining. The cost to conduct one of the
approved studies will be approximately $250,000 based on bids received.
Although the actual cost of conducting the remaining two remedial
investigation/feasibility studies will not be known until bids are
received from contractors, Consumers currently estimates the total cost of
conducting the three studies submitted to the DNR to be less than $1
million.
The timing and extent of any further site investigation and remedial
actions will depend, among other things, on requests received from the DNR
and on future site usage by Consumers or other owners. Under the current
schedule, Consumers anticipates the first remedial
investigation/feasibility study would be completed in mid-1994. Consumers
believes the results of the remedial investigation/feasibility studies
will allow management to estimate a range of remedial cost estimates for
the sites under study. Based on Consumers' knowledge of other utility
remedial actions, remediation costs for Consumers for these sites may be
substantial. In 1993, the MPSC addressed the question of recovery of
investigation and remedial costs for another Michigan gas utility as part
of that utility's gas rate case. In that proceeding, the MPSC determined
that prudent investigation and remedial costs could be deferred and
amortized over 10-year periods and prudent unamortized costs can be
included for recovery in the utility's rate cases. The MPSC stated the
length of the period may be reviewed from time to time, but any revisions
would be prospective. Consumers believes costs incurred for both
investigation and any required remedial actions would be recoverable from
its customers under established regulatory policies and accordingly are
not likely to materially affect its financial position or results of
operations.
Included in the 1990 amendments to the federal Clean Air Act are
provisions that limit emissions of sulfur dioxide and nitrogen oxides and
require enhanced emissions monitoring. All of Consumers' coal-fueled
electric generating units burn low-sulfur coal and are presently operating
at or near the sulfur dioxide emission limits which will be effective in
2000. Beginning in 1995, certain coal-fueled generating units will
receive emissions allowances (all of Consumers' coal units will receive
allowances beginning in 2000). Based on projected emissions from these
units, Consumers expects to have excess allowances which may be sold or
saved for future use.
The Clean Air Act's provisions require Consumers to make capital
expenditures estimated to total $74 million through 1999 for completed,
in-process and possible modifications at coal-fired units based on
existing and proposed regulations. Management believes that Consumers'
annual operating costs will not be materially affected.
The EPA has asked a number of utilities in the Great Lakes area to
voluntarily retire certain equipment containing specific levels of
polychlorinated biphenyls. Consumers believes that it is largely in
compliance with the EPA's petition. Consumers is continuing to study the
request and has been granted an extension for responding until March 30,
1994.
Capital Expenditures
Consumers estimates capital expenditures, including demand-side management
and new lease commitments, of $553 million for 1994, $461 million for 1995
and $471 million for 1996.
Public Utility Holding Company Act Exemption
CMS Energy is exempt from registration under PUHCA. However, the Attorney
General and the MMCG have asked the SEC to revoke CMS Energy's exemption
from registration under PUHCA. In 1992, the MPSC filed a statement with
the SEC recommending that CMS Energy's current exemption be revoked and a
new exemption be issued conditioned upon certain reporting and operating
requirements. If CMS Energy were to lose its current exemption, it would
become more heavily regulated by the SEC; Consumers could ultimately be
forced to divest either its electric or gas utility business; and
CMS Energy would be restricted from conducting businesses that are not
functionally related to the conduct of its utility business as determined
by the SEC. CMS Energy is opposing this request and believes it will
maintain its current exemption from registration under PUHCA.
Other
Consumers experienced an increase in complaints during 1993 relating to
so-called stray voltage. Claimants contend that stray voltage results
when small electrical currents present in grounded electric systems are
diverted from their intended path. Investigation by Consumers of prior
stray voltage complaints disclosed that many factors, including improper
wiring and malfunctioning of on-farm equipment, can lead to the stray
voltage phenomenon. Consumers maintains a policy of investigating all
customer calls regarding stray voltage and working with customers to
address their concerns including, when necessary, modifying the
configuration of the customer's hook-up to Consumers. A complaint seeking
certification as a class action suit was filed against Consumers in a
local county circuit court in 1993. The complaint alleges the existence
of a purported class that has incurred damages of up to $1 billion,
primarily to certain livestock owned by the purported class, as a result
of stray voltage from electricity being supplied by Consumers. Consumers
believes the allegations to be without merit and intends to vigorously
oppose the certification of the class and this suit.
In addition to the matters disclosed in these notes, Consumers and certain
of its subsidiaries are parties to certain lawsuits and administrative
proceedings before various courts and governmental agencies, arising from
the ordinary course of business involving personal injury and property
damage, contractual matters, environmental issues, federal and state
taxes, rates, licensing and other matters.
The ultimate effect of the proceedings discussed in this note is not
expected to have a material impact on Consumers' financial position or
results of operations.
13: Jointly Owned Utility Facilities
Consumers is responsible for providing its share of financing for the
jointly owned facilities. The following table indicates the extent of
Consumers' investment in jointly owned utility facilities:
In Millions
December 31 1993 1992
- ----------- ---- ----
Net investment
Ludington - 51% $114 $112
Campbell Unit 3 - 93.3% 349 360
Transmission lines - various 32 33
Accumulated depreciation
Ludington $ 74 $ 71
Campbell Unit 3 210 199
Transmission lines 11 10
138
14: Supplemental Cash Flow Information
For purposes of the Statement of Cash Flows, all highly liquid investments
with an original maturity of three months or less are considered cash
equivalents. Other cash flow activities and non-cash investing and
financing activities for the years ended December 31 were:
In Millions
1993 1992 1991
------ ------ ------
Cash transactions
Interest paid (net of amounts capitalized) $177 $176 $308
Income taxes paid (net of refunds) 90 6 30
Non-cash transactions
Nuclear fuel placed under capital lease $ 28 $ 30 $ 6
Other assets placed under capital leases 30 39 21
Capital leases refinanced 42 - -
Assumption of debt - 15 -
Return of Midland related assets (Note 16) - - (92)
Increased value of investment in Enterprises'
preferred stock (Note 16) - - 100
Changes in other assets and liabilities as shown on the Consolidated
Statements of Cash Flows at December 31 are described below:
In Millions
1993 1992 1991
------ ------ ------
Sale of receivables, net $ 60 $ 25 $ -
Accounts receivable 19 30 66
Accrued revenue (48) 91 7
Inventories (32) 24 (8)
Accounts payable (25) 21 (83)
Accrued refunds (48) (143) 102
Tax Reform Act refund reserve - - (77)
Other current assets and liabilities, net (59) 38 (56)
Non-current deferred amounts, net 8 (36) 170
------ ------ -----
$(125) $ 50 $ 121
======= ====== ======
15: Reportable Segments
The Consolidated Statements of Income show operating revenue and pretax
operating income by segments. These amounts include earnings (losses) from
investments accounted for by the equity method of $6 million, $(10)
million and $(2) million for 1993, 1992 and 1991, respectively. Other
segment information follows:
In Millions
Years Ended December 31 1993 1992 1991
- ----------------------- ------ ------ ------
Depreciation, depletion and amortization
Electric $ 241 $ 230 $ 172
Gas 73 76 70
Other 2 1 -
------ ------ ------
$ 316 $ 307 $ 242
====== ====== ======
Identifiable assets
Electric (a) $4,027 $3,812 $3,399
Gas 1,443 1,387 1,186
Other (b) 1,081 1,397 1,401
------ ------ ------
$6,551 $6,596 $5,986
====== ====== ======
Capital expenditures (c)
Electric (d) $ 365 $ 353 $ 213
Gas 127 86 61
Other 69 67 32
------ ------ ------
$ 561 $ 506 $ 306
====== ====== ======
(a) Includes abandoned Midland investment of $162 million, $175 million
and $287 million for 1993, 1992 and 1991, respectively.
(b) Reclassified 1992 and 1991 to include independent power production,
which is no longer significant enough for Consumers to report separately.
Also, other was reduced by the sale of $309 million of MCV Bonds (see
Note 3).
(c) Includes capital leases for nuclear fuel and other assets (see
Note 14).
(d) Includes DSM costs of $52 million for 1993 and $26 million for 1992.
16: Related-Party Transactions
Consumers has an investment of $250 million in 10 shares of the preferred
stock of Enterprises, an affiliate company of Consumers. Prior to a 1991
amendment to Enterprises' Articles, it was to have redeemed on July 1,
1991 and in each of the next four years, two shares of its preferred stock
held by Consumers at a redemption price equal to $25 million per share.
Because of the amendment, the dividend rate increased and the first
mandatory redemption date became August 1, 1997. The asset value and other
paid-in capital of Consumers were increased $100 million as a result of
the amendment. In addition, Consumers has an investment in approximately
3 million shares of CMS Energy common stock totaling $42 million at
December 31, 1993. As a result of these two investments, Consumers
received dividends on affiliates' common and preferred stock totaling $16
million in 1993 and 1992 and $13 million in 1991.
In March 1990, Consumers' subsidiary, MGL and Consumers' parent,
CMS Energy, entered into an agreement where MGL exchanged its investment
in several subsidiaries that held Midland-related assets for
CMS Debentures issued by CMS Energy. Consumers recorded the earnings on
the CMS Debentures as income from contractual arrangements. In December
1991, the subsidiaries were returned to Consumers and the CMS Debentures
were cancelled to comply with various regulatory and court orders. On
July 27, 1991, Consumers stopped recording income on the CMS Debentures
when it became probable the return would be required. The return resulted
in a net after-tax loss of approximately $92 million because the book
value of the subsidiaries was less than the CMS Debentures' book value.
Consumers purchases a portion of its gas from an affiliate, NOMECO. The
amounts of purchases for the years ended 1993, 1992 and 1991 were
$3 million, $3 million and $20 million, respectively. In 1993, 1992 and
1991, Consumers purchased $52 million, $36 million and $26 million,
respectively, of electric generating capacity and energy from affiliates
of Enterprises. Consumers and its subsidiaries sold, stored and
transported natural gas and provided other services to the MCV Partnership
totaling approximately $14 million for 1993, 1992 and 1991, respectively.
For additional discussion of related-party transactions with the MCV
Partnership and the FMLP, see Notes 3 and 17. Other related-party
transactions are immaterial.
17: Summarized Financial Information of Significant Related Energy
Supplier
Under the PPA with the MCV Partnership discussed in Note 3, Consumers'
1993 obligation to purchase electricity from the MCV Partnership was
approximately 14 percent of Consumers' owned and contracted capacity.
Summarized financial information of the MCV Partnership is shown below:
Statements of Income
In Millions
Years Ended December 31 1993 1992 1991
- ----------------------- ------ ------ ------
Operating revenue (a) $ 548 $ 488 $ 425
Operating expenses 362 315 278
------ ------ ------
Operating income 186 173 147
Other expense, net (189) (190) (186)
------ ------ ------
Net loss $ (3) $ (17) $ (39)
====== ====== ======
Balance Sheets
In Millions
December 31 1993 1992
- ----------- ------ ------
Assets
Current assets (a) $ 181 $ 165
Property, plant and equipment, net 2,073 2,124
Other assets 146 147
------ ------
$2,400 $2,436
====== ======
Liabilities and Partners' Equity
Current liabilities $ 198 $ 189
Long-term debt and other non-current liabilities (b) 2,147 2,189
Partners' equity (c) 55 58
------ ------
$2,400 $2,436
====== ======
(a) Revenue from Consumers totaled $505 million, $444 million and $384
million for 1993, 1992 and 1991, respectively. As of December 31, 1993,
1992 and 1991, $44 million, $38 million and $33 million, respectively,
were receivable from Consumers.
(b) FMLP is a beneficiary of an owner trust that is the lessor in a
long-term direct finance lease with the lessee, MCV Partnership.
CMS Holdings holds a 46.4 percent ownership interest in FMLP (see Note 3).
At December 31, 1993 and 1992, lease obligations of $1.7 billion were owed
to the owner trust of which FMLP is the sole beneficiary. CMS Holdings'
share of the interest and principal portion for the 1993 lease payments
was $63 million and $16 million, respectively, and for the 1992 lease
payments was $65 million and $12 million, respectively. The lease payments
service $1.2 billion and $1.3 billion in non-recourse debt outstanding as
of December 31, 1993 and 1992, respectively, of the owner-trust whose
beneficiary is FMLP. FMLP's debt is secured by the MCV Partnership's lease
obligations, assets, and operating revenues. For 1993 and 1992, the
owner-trust whose beneficiary is FMLP made debt payments of $172 million
and $166 million, respectively, which included $10 million and $8 million
principal and $25 million and $26 million interest, respectively, on the
MCV Bonds held by MEC Development Corporation during part of 1991 and by
Consumers through December 1993.
(c) CMS Midland's recorded investment in the MCV Partnership includes
capitalized interest, which is being amortized to expense over the life of
its investment in the MCV Partnership.
142
Arthur Andersen & Co.
Report of Independent Public Accountants
To Consumers Power Company:
We have audited the accompanying consolidated balance sheets and
consolidated statements of long-term debt and preferred stock of CONSUMERS
POWER COMPANY (a Michigan corporation and wholly owned subsidiary of CMS
Energy Corporation) and subsidiaries as of December 31, 1993 and 1992, and
the related consolidated statements of income, common stockholder's
equity, and cash flows for each of the three years in the period ended
December 31, 1993. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
Consumers Power Company and subsidiaries as of December 31, 1993 and 1992,
and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1993 in conformity with
generally accepted accounting principles.
As discussed in Note 5 to the consolidated financial statements, effective
January 1, 1992, the Company changed its method of accounting for income
taxes. As discussed in Note 10 to the consolidated financial statements,
effective January 1, 1992, the Company changed its method of accounting
for postretirement benefits other than pensions. Additionally, as
discussed in Note 7 to the consolidated financial statements, the Company
effected a quasi-reorganization on December 31, 1992.
ARTHUR ANDERSEN & Co.
Detroit, Michigan,
January 28, 1994.
143
Quarterly Financial Information Consumers Power Company
In Millions
1993 (Unaudited) 1992 (Unaudited)
Quarters Ended March 31 June 30 Sept. 30 Dec. 31 March 31 June 30 Sept. 30 Dec. 31
Operating revenue (a) $987 $681 $702 $873 $941 $644 $576 $817
Pretax operating income (a) $156 $74 $101 $104 $116 $53 $34 $46
Net income (loss) $78 $26 $45 $49 $63 $23 $8 $(338)
Preferred stock dividends $3 $3 $3 $2 $3 $3 $3 $2
Net income (loss) after
preferred stock dividends $75 $23 $42 $47 $60 $20 $5 $(340)
(a) Amounts in 1992 and March 31, 1993 were restated for comparative purposes.
144
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE.
CMS Energy
None for CMS Energy.
Consumers
None for Consumers.
PART III
(ITEMS 10., 11., 12. and 13.)
CMS Energy
CMS Energy's definitive Proxy Statement, except for the organization and
compensation committee report contained therein, is incorporated by
reference herein. See also Item 1. BUSINESS for information pursuant to
Item 10.
Consumers
Consumers' definitive Proxy Statement, except for the organization and
compensation committee report contained therein, is incorporated by
reference herein. See also Item 1. BUSINESS for information pursuant to
Item 10.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
AND REPORTS ON FORM 8-K.
(a)(1) Financial Statements and Reports of Independent Public Accountants
for CMS Energy and Consumers are listed in Item 8 in the Index to
Financial Statements, and are incorporated by reference herein.
(a)(2) Financial Statement Schedules and Reports of Independent Public
Accountants for CMS Energy and Consumers are listed after the
Exhibits in the Index to Financial Statement Schedules, and are
incorporated by reference herein.
(a)(3) Exhibits for CMS Energy and Consumers are listed after Item (c)
below and are incorporated by reference herein.
(b) Reports on Form 8-K for CMS Energy and Consumers.
CMS Energy
Current reports dated September 29, 1993, as amended by Form 8-K/A,
Amendment No. 1, dated October 22, 1993, and dated December 10,
1993 covering matters reported pursuant to Item 5. Other Events.
and Item 7. Financial Statements and Exhibits., and current
reports dated December 28, 1993 and March 4, 1994 covering matters
reported pursuant to Item 5. Other Events.
Consumers
Current reports dated September 21, 1993 and December 10, 1993
covering matters reported pursuant to Item 5. Other Events. and
Item 7. Financial Statements and Exhibits., and dated December 28,
1993 and March 4, 1994 covering matters reported pursuant to
Item 5. Other Events.
(c) Exhibits, including those incorporated by reference (see also
Exhibit volume).
145
The following exhibits are applicable to CMS Energy and Consumers except
where otherwise indicated "CMS ONLY":
CMS Energy
and Consumers
Exhibit Numbers
- ---------------
(1)-(2) - Not applicable.
(3)(a) (CMS ONLY) - Articles of Incorporation of CMS Energy
Corporation, as Amended. (Designated in CMS
Energy Corporation's Form S-8 dated
June 30, 1989, File No 1-9513, as Exhibit
(4).)
(3)(b) (CMS ONLY) - Copy of the By-Laws of CMS Energy Corporation.
(3)(c) - Restated Articles of Incorporation of
Consumers Power Company.
(3)(d) - Copy of By-Laws of Consumers Power Company.
(4)(a) - Composite Working Copy of Indenture dated as
of September 1, 1945, between Consumers Power
Company and Chemical Bank (successor to
Manufacturers Hanover Trust Company), as
Trustee, including therein indentures
supplemental thereto through the Forty-third
Supplemental Indenture dated as of May 1,
1979. (Designated in Consumers Power
Company's Registration No 2-65973 as
Exhibit (b)(1)-4.)
Indentures Supplemental thereto:
Consumers
Power Company
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 end Dec 31,
1981, File
No 1-5611 (4)(b)
51st 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)
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)
63rd 04/15/87 Form 10-Q for
quarter ended
June 30, 1987
File No 1-5611 (4)(f)
64th 06/15/87 Form 10-Q for
quarter ended
June 30, 1987
File No 1-5611 (4)(g)
65th 02/15/88 Form 8-K dated
Feb 18, 1988
File No 1-5611 (4)
66th 04/15/88 Form 10-Q for
quarter ended
March 31, 1988
File No 1-5611 (4)(d)
67th 11/15/89 Reg No 33-31866 (4)(d)
68th 06/15/93 Reg No 33-41126 (4)(c)
69th 09/15/93 Form 8-K dated
September 21,
1993 File No
1-5611 (4)
(4)(b) (CMS ONLY) - Indenture between CMS Energy Corporation and
NBD Bank, National Association, as Trustee.
(Designated in CMS Energy's Form S-3
Registration Statement filed May 1, 1992, File
No. 33-47629, as Exhibit (4)(a).)
First Supplemental Indenture dated as of
October 1, 1992 between CMS Energy Corporation
and NBD Bank, National Association, as
Trustee. (Designated in CMS Energy's Form 8-K
dated October 1, 1992, File No. 1-9513, as
Exhibit (4).)
Second Supplemental Indenture dated as of
October 1, 1992 between CMS Energy Corporation
and NBD Bank, National Association, as
Trustee. (Designated in CMS Energy's Form 8-K
dated October 1, 1992, File No. 1-9513, as
Exhibit (4).)
(5)-(9) - Not applicable.
(10)(a) - Credit Agreement dated as of May 1, 1989 among
Consumers Power Company, the Co-Managers, as
defined therein, the Banks, as defined
therein, the Lenders, as defined therein, and
Citibank, NA, as Agent, and the Exhibits
thereto. (Designated in Consumers Power
Company's Form 10-Q for the quarter ended
March 31, 1989, File No 1-5611, as
Exhibit (19).)
Letter amendment dated as of December 11,
1991. (Designated in Consumers Power
Company's Form 10-K for the year ended
December 30, 1991, File No. 1-5611, as Exhibit
(3)(d).)
(10)(b) (CMS ONLY) - Amended and Restated Credit Agreement dated as
of November 30, 1992 as Amended and Restated
as of October 15, 1993, among CMS Energy
Corporation, the Banks, the Co-Agents, the
Documentation Agent and the Operational Agent,
all as defined therein, and the Exhibits
thereto.
(10)(c) - Employment Agreement dated as of August 1,
1990 among Consumers Power Company, CMS Energy
Corporation and William T. McCormick, Jr.
(Designated in CMS Energy Corporation's Form
10-K for the year ended December 31, 1990,
File No 1-9513, as Exhibit (10)(c).)
(10)(d) - Employment contract effective as of March 1,
1987 among CMS Energy Corporation, Consumers
Power Company and S. Kinnie Smith, Jr.
(Designated in Consumers Power Company's
Form 10-K for the year ended December 31,
1987, File No 1-5611, as Exhibit (10)(g).)
(10)(e) - Employment Agreement effective as of June 15,
1988 among Consumers Power Company, CMS Energy
Corporation and Victor J. Fryling.
(Designated in Consumers Power Company's
Form 10-K for the year ended December 31,
1988, File No 1-5611, as Exhibit (10)(i).)
(10)(f) - Employment Agreement dated May 26, 1989
between Consumers Power Company and Michael G.
Morris. (Designated in Consumers Power
Company's Form 10-K for the year ended
December 31, 1990, File No 1-5611, as
Exhibit (10)(f).)
(10)(g) - Employment Agreement dated May 26, 1989
between Consumers Power Company and David A.
Mikelonis. (Designated in Consumers Power
Company's Form 10-K for the year ended
December 31, 1991, File No. 1-5611, as Exhibit
10(h).)
(10)(h) - Employment Agreement dated May 26, 1989 among
Consumers Power Company, CMS Energy
Corporation and John W. Clark. (Designated in
CMS Energy Corporation's Form 10-K for the
year ended December 31, 1990, File No 1-9513,
as Exhibit (10)(f).)
(10)(i) - Employment Agreement dated March 25, 1992
between Consumers Power Company and Alan M.
Wright. (Designated in Consumers Power
Company's Form 10-K for the year ended
December 31, 1992, File No. 1-5611, as Exhibit
10(j).)
(10)(j) - Employment Agreement dated March 25, 1992
between Consumers Power Company and Paul A.
Elbert. (Designated in Consumers Power
Company's Form 10-K for the year ended
December 31, 1992, File No. 1-5611, as Exhibit
10(k).)
(10)(k) - Consumers Power Company's Executive Stock
Option and Stock Appreciation Rights Plan
effective December 1, 1989. (Designated in
Consumers Power Company's Form 10-K for the
year ended December 31, 1990, File No 1-5611,
as Exhibit (10)(g).)
(10)(l) - CMS Energy Corporation's Performance Incentive
Stock Plan effective as of December 1, 1989.
(Designated in CMS Energy Corporation's
Form 10-K for the year ended December 31,
1990, File No 1-9513, as Exhibit (10)(h).)
(10)(m) - CMS Deferred Salary Savings Plan effective
January 1, 1994.
(10)(n) - Consumers Power Company's Annual Executive
Incentive Compensation Plan effective February
1993, as amended March 1994.
(10)(o) - Consumers Power Company's Supplemental
Executive Retirement Plan effective
November 1, 1990.
(10)(p) - Senior Trust Indenture, Leasehold Mortgage and
Security Agreement dated as of June 1, 1990
between The Connecticut National Bank and
United States Trust Company of New York.
(Designated in Midland Cogeneration Venture
Limited Partnership's Form S-1 filed November
23, 1990, File No 33-37977, as Exhibit 4.1.)
Indenture Supplemental thereto:
Supplement No. 1 dated as of June 1, 1990.
(Designated in Midland Cogeneration Venture
Limited Partnership's Form S-1 filed November
23, 1990, File No 33-37977, as Exhibit 4.2.)
(10)(q) - Collateral Trust Indenture dated as of June 1,
1990 among Midland Funding Corporation I,
Midland Cogeneration Venture Limited
Partnership and United States Trust Company of
New York, Trustee. (Designated in CMS Energy
Corporation's Form 10-Q for the quarter ended
June 30, 1990, File No 1-9513, as
Exhibit (28)(b).)
Indenture Supplemental thereto:
Supplement No 1 dated as of June 1, 1990.
(Designated in Midland Cogeneration Venture
Limited Partnership's Form S-1 filed
November 23, 1990, File No 33-37977, as
Exhibit 4.4.)
(10)(r) - Amended and Restated Investor Partner Tax
Indemnification Agreement dated as of June 1,
1990 among Investor Partners, CMS Midland
Holdings Corporation as Indemnitor and CMS
Energy Corporation as Guarantor. (Designated
in CMS Energy Corporation's Form 10-K for the
year ended December 31, 1990, File No 1-9513,
as Exhibit (10)(v).)
(10)(s) - Environmental Agreement dated as of June 1,
1990 made by CMS Energy Corporation to The
Connecticut National Bank and Others.
(Designated in CMS Energy Corporation's Form
10-K for the year ended December 31, 1990,
File No 1-9513, as Exhibit (10)(y) and
Form 10-Q for the quarter ended September 30,
1991, File No 1-9513, as Exhibit (19)(d).)**
(10)(t) - Indemnity Agreement dated as of June 1, 1990
made by CMS Energy Corporation to Midland
Cogeneration Venture Limited Partnership.
(Designated in CMS Energy Corporation's
Form 10-K for the year ended December 31,
1990, File No 1-9513, as Exhibit (10)(z).)**
(10)(u) - Environmental Agreement dated as of June 1,
1990 made by CMS Energy Corporation to United
States Trust Company of New York, Meridian
Trust Company, each Subordinated Collateral
Trust Trustee and Holders from time to time of
Senior Bonds and Subordinated Bonds and
Participants from time to time in Senior Bonds
and Subordinated Bonds. (Designated in CMS
Energy Corporation's Form 10-K for the year
ended December 31, 1990, File No 1-9513, as
Exhibit (10)(aa).)**
(10)(v) - Amended and Restated Participation Agreement
dated as of June 1, 1990 among Midland
Cogeneration Venture Limited Partnership,
Owner Participant, The Connecticut National
Bank, United States Trust Company, Meridian
Trust Company, Midland Funding Corporation I,
Midland Funding Corporation II, MEC
Development Corporation and Institutional
Senior Bond Purchasers. (Designated in
Midland Cogeneration Venture Limited
Partnership's Form S-1 filed November 23,
1990, File No 33-37977, as Exhibit 4.13.)
Amendment No 1 dated as of July 1, 1991.
(Designated in Consumers Power Company's Form
10-K for the year ended December 31, 1991,
File No. 1-5611, as Exhibit (10)(w).)
(10)(w) - Power Purchase Agreement dated as of July 17,
1986 between Midland Cogeneration Venture
Limited Partnership and Consumers Power
Company. (Designated in Midland Cogeneration
Venture Limited Partnership's Form S-1 filed
November 23, 1990, File No 33-37977, as
Exhibit 10.4.)
Amendments thereto:
Amendment No 1 dated September 10, 1987.
(Designated in Midland Cogeneration Venture
Limited Partnership's Form S-1 filed November
23, 1990, File No 33-37977, as Exhibit 10.5.)
Amendment No 2 dated March 18, 1988.
(Designated in Midland Cogeneration Venture
Limited Partnership's Form S-1 filed November
23, 1990, File No 33-37977, as Exhibit 10.6.)
Amendment No 3 dated August 28, 1989.
(Designated in Midland Cogeneration Venture
Limited Partnership's Form S-1 filed November
23, 1990, File No 33-37977, as Exhibit 10.7.)
Amendment No 4A dated May 25, 1989.
(Designated in Midland Cogeneration Venture
Limited Partnership's Form S-1 filed November
23, 1990, File No 33-37977, as Exhibit 10.8.)
(10)(x) - Request for Approval of Settlement Proposal to
Resolve MCV Cost Recovery Issues and Court
Remand, filed with the Michigan Public Service
Commission on July 7, 1992, MPSC Case No. U-
10127. (Designated in CMS Energy
Corporation's and Consumers Power Company's
Forms 10-K for the year ended December 31,
1991 as amended by Form 8 dated July 15, 1992
as Exhibit (28).)
(10)(y) - Settlement Proposal Filed on July 7, 1992 as
Revised on September 8, 1992 by Filing with
the Michigan Public Service Commission.
(Designated in CMS Energy Corporation's and
Consumers Power Company's Forms 8-K dated
September 8, 1992 as Exhibit (28).)
(10)(z) - Michigan Public Service Commission Order Dated
March 31, 1993, Approving with Modifications
the Settlement Proposal Filed on July 7, 1992,
as Revised on September 8, 1992. (Designated
in CMS Energy Corporation's and Consumers
Power Company's Forms 10-K for the year ended
December 31, 1992 as Exhibit (10)(cc).
(10)(aa) - Unwind Agreement dated as of December 10, 1991
by and among CMS Energy Corporation, Midland
Group, Ltd., Consumers Power Company, CMS
Midland, Inc., MEC Development Corp. and CMS
Midland Holdings Company. (Designated in
Consumers Power Company's Form 10-K for the
year ended December 31, 1991, File No. 1-5611,
as Exhibit (10)(y).)
(10)(bb) - Stipulated AGE Release Amount Payment
Agreement dated as of June 1, 1990, among CMS
Energy Corporation, Consumers Power Company
and The Dow Chemical Company. (Designated in
Consumers Power Company's Form 10-K for the
year ended December 31, 1991, File No. 1-5611,
as Exhibit (10)(z).)
(10)(cc) - Parent Guaranty dated as of June 14, 1990 from
CMS Energy Corporation to MCV, each of the
Owner Trustees, the Indenture Trustees, the
Owner Participants and the Initial Purchasers
of Senior Bonds in the MCV Sale Leaseback
transaction, and MEC Development. (Designated
in Consumers Power Company's Form 10-K for the
year ended December 31, 1991, File No. 1-5611,
as Exhibit (10)(aa).)**
(11)-(12) - Not applicable.
(13) - Not Applicable.
(14)-(20) - Not applicable.
(21)(a) (CMS ONLY) - Subsidiaries of CMS Energy Corporation.
(21)(b) - Subsidiaries of Consumers Power Company.
(22) - Not applicable.
(23) - Consents of experts and counsel.
(24) - Powers of Attorney.
(25)-(28) - Not applicable.
*Five copies of this exhibit have been signed by, or on behalf of, each of
five Owner Participants. With regard to each of the agreements, each copy
is substantially identical in all material respects except as to the
parties thereto. Therefore, pursuant to Instruction 2, Item 601(a) of
Regulation S-K, CMS Energy Corporation and Consumers Power Company are
filing a copy of only one such document.
** Obligations of only CMS Holdings and CMS Midland, second tier
subsidiaries of Consumers, and of CMS Energy but not of Consumers.
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.
153
Index to Financial Statement Schedules
Schedule Page
V Property, Plant and Equipment
1993, 1992 and 1991:
CMS Energy Corporation 154
Consumers Power Company 157
VI Accumulated Depreciation, Depletion and
Amortization of Property, Plant
and Equipment
1993, 1992 and 1991:
CMS Energy Corporation 160
Consumers Power Company 163
VIII Valuation and Qualifying Accounts and Reserves
1993, 1992 and 1991:
CMS Energy Corporation 166
Consumers Power Company 167
IX Short-Term Borrowings
1993, 1992 and 1991:
CMS Energy Corporation 168
Consumers Power Company 169
X Supplementary Income Statement Information
1993, 1992 and 1991:
CMS Energy Corporation 170
Consumers Power Company 171
Report of Independent Public Accountants
CMS Energy Corporation 172
Consumers Power Company 173
Schedules other than those listed above are omitted because they are
either not required, not applicable or the required information is shown
in the financial statements or notes thereto.
Columns omitted from schedules filed have been omitted because the
information is not applicable.
154
CMS ENERGY CORPORATION
Schedule V - Property, Plant and Equipment
Year Ended December 31, 1993
(Millions of Dollars)
Balance at Balance at
Beginning Additions Other Changes End of
Classification of Period at cost Retirements Add (Deduct) Period
- ---------------------------------------------------------------------------------------------------------
Electric Utility
Consumers Power Company:
Intangible $ 2 $ - $ - $ - $ 2
Steam production 1,363 22 13 1 (a) 1,373
Nuclear production 665 53 5 (5) (a) 708
Nuclear fuel 195 4 - - 199
Nuclear fuel under capital lease 148 28 - - 176
Hydro production 170 13 1 - 182
Other production 37 - - - 37
Transmission 685 22 5 (1) (a) 701
Distribution 1,682 157 16 - 1,823
General 61 8 - - 69
Capital leases 55 41 (b) 35 (9) (a) 52
Plant held for future use 13 12 - - 25
--------------------------------------------------------------
Total electric utility 5,076 360 75 (14) 5,347
--------------------------------------------------------------
Gas Utility
Consumers Power Company:
Intangible 2 - - - 2
Natural gas production 9 - - - 9
Underground storage 169 4 - - 173
Transmission 178 15 2 - 191
Distribution 1,117 73 7 - 1,183
General 26 5 - - 31
Capital leases 16 7 (b) 13 - 10
Plant held for future use 142 1 - - 143
--------------------------------------------------------------
1,659 105 22 - 1,742
Michigan Gas Storage Company 69 27 1 - 95
--------------------------------------------------------------
Total gas utility 1,728 132 23 - 1,837
--------------------------------------------------------------
Other
NOMECO Oil and Gas Company 768 81 - (4) (a)(c) 845
Consumers Power Company - Other 147 40 - 3 (a) 190
Consumers Power Company - Capital leases 81 24 (b) 42 - 63
CMS Generation Company 2 2 - 11 (d) 15
CMS Energy Corporation 13 - - (1) (e) 12
Jackson Pipeline Company 10 - - - 10 (f)
CMS Arcadia Land Management Company 8 - - - 8
Antrim Limited Partnership 8 - - - 8 (f)
CMS Gas Transmission Company 3 4 - - 7 (f)
CMS Utility Services, Inc. 4 - - - 4
Other 1 1 - - 2
--------------------------------------------------------------
Total other 1,045 152 42 9 1,164
--------------------------------------------------------------
Total plant 7,849 644 140 (5) 8,348
--------------------------------------------------------------
Construction Work in Progress
Consumers Power Company 248 (3) - 1 (a) 246
Antrim Limited Partnership - 9 - - 9
Michigan Gas Storage Company 4 (2) - - 2
--------------------------------------------------------------
252 4 - 1 257
--------------------------------------------------------------
Total plant including work
in progress $8,101 $ 648 $ 140 $ (4) $8,605
==============================================================
(a) Reclassifications of accounts (d) Plant additions due to acquired ownership
(b) Refinanced: Electric $22, Gas $5 and Other $15 (e) Lease amortization
(c) Write-off of prediscovery foreign expenditures (f) Non-utility gas plant and property
155
CMS ENERGY CORPORATION
Schedule V - Property, Plant and Equipment
Year Ended December 31, 1992
(Millions of Dollars)
Balance at Balance at
Beginning Additions Other Changes End of
Classification of Period at cost Retirements Add (Deduct) Period
- ----------------------------------------------------------------------------------------------------------
Electric Utility
Consumers Power Company:
Intangible $ 2 $ - $ - $ - $ 2
Steam production 1,355 22 11 (3) (a) 1,363
Nuclear production 619 48 2 - 665
Nuclear fuel 191 4 - - 195
Nuclear fuel under capital lease 118 30 - - 148
Hydro production 165 5 - - 170
Other production 37 - - - 37
Transmission 660 29 7 3 (a) 685
Distribution 1,569 130 11 (6) (b) 1,682
General 54 7 - - 61
Capital leases 40 22 8 1 (a) 55
Plant held for future use 13 - - - 13
--------------------------------------------------------------
Total electric utility 4,823 297 39 (5) 5,076
--------------------------------------------------------------
Gas Utility
Consumers Power Company:
Intangible 2 - - - 2
Natural gas production 14 - 4 (1) (a) 9
Underground storage 168 1 - - 169
Transmission 178 3 3 - 178
Distribution 1,050 62 (4) 1 (a) 1,117
General 23 3 - - 26
Capital leases 25 3 12 - 16
Plant held for future use 141 1 - - 142
--------------------------------------------------------------
1,601 73 15 - 1,659
Michigan Gas Storage Company 65 4 - - 69
--------------------------------------------------------------
Total gas utility 1,666 77 15 - 1,728
--------------------------------------------------------------
Other
NOMECO Oil and Gas Company 702 68 - (2) (c) 768
Consumers Power Company - Other 120 31 3 (1) (a) 147
Consumers Power Company - Capital leases 74 14 7 - 81
CMS Energy Corporation 14 - - (1) (d) 13
Jackson Pipeline Company 10 - - - 10 (g)
Antrim Limited Partnership - 8 - - 8 (g)
CMS Arcadia Land Management Company 8 - - - 8
CMS Utility Services, Inc. 4 - - - 4
CMS Gas Transmission Company - 3 - - 3 (g)
CMS Generation Company - - - 2 (e) 2
Other 1 1 1 - 1
--------------------------------------------------------------
Total other 933 125 11 (2) 1,045
--------------------------------------------------------------
Total plant 7,422 499 65 (7) 7,849
--------------------------------------------------------------
Construction Work in Progress
Consumers Power Company 190 59 - (1) (f) 248
Antrim Limited Partnership 4 (4) - - -
Michigan Gas Storage Company 2 2 - - 4
--------------------------------------------------------------
196 57 - (1) 252
--------------------------------------------------------------
Total plant including work
in progress $7,618 $ 556 $ 65 $ (8) $8,101
==============================================================
(a) Reclassifications of accounts (e) Plant additions due to acquired ownership
(b) Sale of facilities to Michigan Public Power Agency (f) Write-off of PSI transmission line
(c) Write-off of prediscovery foreign expenditures (g) Non-utility gas plant and property
(d) Lease amortization
156
CMS ENERGY CORPORATION
Schedule V - Property, Plant and Equipment
Year Ended December 31, 1991
(Millions of Dollars)
Balance at Balance at
Beginning Additions Other Changes End of
Classification of Period at cost Retirements Add (Deduct) Period
- ----------------------------------------------------------------------------------------------------------
Electric Utility
Consumers Power Company:
Intangible $ 2 $ - $ - $ - $ 2
Steam production 1,357 9 11 - 1,355
Nuclear production 508 113 2 - 619
Nuclear fuel 191 - - - 191
Nuclear fuel under capital lease 112 6 - - 118
Hydro production 165 - - - 165
Other production 37 - - - 37
Transmission 656 13 1 (8) (a) 660
Distribution 1,490 95 15 (1) (a) 1,569
General 40 13 - 1 (a) 54
Capital leases 40 8 8 - 40
Plant held for future use 13 - - - 13
--------------------------------------------------------------
Total electric utility 4,611 257 37 (8) 4,823
--------------------------------------------------------------
Gas Utility
Consumers Power Company:
Intangible 2 - - - 2
Natural gas production 17 - 1 (2) (a) 14
Underground storage 166 5 2 (1) (b) 168
Transmission 178 1 1 - 178
Distribution 1,009 45 4 - 1,050
General 22 1 - - 23
Capital leases 27 2 4 - 25
Plant held for future use 142 - 1 - 141
--------------------------------------------------------------
1,563 54 13 (3) 1,601
Michigan Gas Storage Company 65 - - - 65
--------------------------------------------------------------
Total gas utility 1,628 54 13 (3) 1,666
--------------------------------------------------------------
Other
NOMECO Oil and Gas Company 639 71 - (8) (c) 702
Consumers Power Company - Other 101 13 2 8 (a) 120
Consumers Power - Capital leases 71 11 8 - 74
CMS Energy Corporation 14 1 - (1) (d) 14
Jackson Pipeline Company 10 - - - 10 (e)
CMS Arcadia Land Management Company 8 - - - 8
CMS Utility Services, Inc. 3 1 - - 4
Other - - - 1 (a) 1
--------------------------------------------------------------
Total other 846 97 10 - 933
--------------------------------------------------------------
Total plant 7,085 408 60 (11) 7,422
--------------------------------------------------------------
Construction Work in Progress
Consumers Power Company 224 (33) - (1) (a) 190
Antrim Limited Partnership - 4 - - 4
Michigan Gas Storage Company 1 1 - - 2
--------------------------------------------------------------
225 (28) - (1) 196
--------------------------------------------------------------
Total plant including work
in progress $7,310 $ 380 $ 60 $ (12) $7,618
==============================================================
(a) Reclassifications of accounts (d) Lease amortization
(b) Northville base gas removal (e) Non-utility gas plant and property
(C) Write-off of prediscovery foreign expenditures
157
CONSUMERS POWER COMPANY
Schedule V - Property, Plant and Equipment
Year Ended December 31, 1993
(Millions of Dollars)
Balance at Balance at
Beginning Additions Other Changes End of
Classification of Period at cost Retirements Add (Deduct) Period
Electric Utility
Consumers Power Company:
Intangible $ 2 $ - $ - $ - $ 2
Steam production 1,363 22 13 1 (a) 1,373
Nuclear production 665 53 5 (5) (a) 708
Nuclear fuel 195 4 - - 199
Nuclear fuel under capital lease 148 28 - - 176
Hydro production 170 13 1 - 182
Other production 37 - - - 37
Transmission 685 22 5 (1) (a) 701
Distribution 1,682 157 16 - 1,823
General 61 8 - - 69
Capital leases 55 41 (b) 35 (9) (a) 52
Plant held for future use 13 12 - - 25
---------------------------------------------------------------
Total electric utility 5,076 360 75 (14) 5,347
---------------------------------------------------------------
Gas Utility
Consumers Power Company:
Intangible 2 - - - 2
Natural gas production 9 - - - 9
Underground storage 169 4 - - 173
Transmission 178 15 2 - 191
Distribution 1,117 73 7 - 1,183
General 26 5 - - 31
Capital leases 16 7 (b) 13 - 10
Plant held for future use 142 1 - - 143
---------------------------------------------------------------
1,659 105 22 - 1,742
Michigan Gas Storage Company 69 27 1 - 95
---------------------------------------------------------------
Total gas utility 1,728 132 23 - 1,837
---------------------------------------------------------------
Other
Consumers Power Company
Capital leases 81 24 (b) 42 - 63
Other 147 40 - 3 (a) 190
---------------------------------------------------------------
Total other 228 64 42 3 253
---------------------------------------------------------------
Total plant 7,032 556 140 (11) 7,437
---------------------------------------------------------------
Construction Work in Progress
Consumers Power Company 248 (3) - 1 (a) 246
Michigan Gas Storage Company 4 (2) - - 2
---------------------------------------------------------------
Total Construction Work in Progress 252 (5) - 1 248
---------------------------------------------------------------
Total plant including work
in progress $7,284 $ 551 $ 140 $ (10) $7,685
===============================================================
(a) Reclassifications of accounts
(b) Refinanced: Electric $22
Gas 5
Other 15
----
$42
====
158
CONSUMERS POWER COMPANY
Schedule V - Property, Plant and Equipment
Year Ended December 31, 1992
(Millions of Dollars)
Balance at Balance at
Beginning Additions Other Changes End of
Classification of Period at cost Retirements Add (Deduct) Period
Electric Utility
Consumers Power Company:
Intangible $ 2 $ - $ - $ - $ 2
Steam production 1,355 22 11 (3) (a) 1,363
Nuclear production 619 48 2 - 665
Nuclear fuel 191 4 - - 195
Nuclear fuel under capital lease 118 30 - - 148
Hydro production 165 5 - - 170
Other production 37 - - - 37
Transmission 660 29 7 3 (a) 685
Distribution 1,569 130 11 (6) (b) 1,682
General 54 7 - - 61
Capital leases 40 22 8 1 (a) 55
Plant held for future use 13 - - - 13
---------------------------------------------------------------
Total electric utility 4,823 297 39 (5) 5,076
---------------------------------------------------------------
Gas Utility
Consumers Power Company:
Intangible 2 - - - 2
Natural gas production 14 - 4 (1) (a) 9
Underground storage 168 1 - - 169
Transmission 178 3 3 - 178
Distribution 1,050 62 (4) 1 (a) 1,117
General 23 3 - - 26
Capital leases 25 3 12 - 16
Plant held for future use 141 1 - - 142
---------------------------------------------------------------
1,601 73 15 - 1,659
Michigan Gas Storage Company 65 4 - - 69
---------------------------------------------------------------
Total gas utility 1,666 77 15 - 1,728
---------------------------------------------------------------
Other
Consumers Power Company
Capital leases 74 14 7 - 81
Other 120 31 3 (1) (a) 147
---------------------------------------------------------------
Total other 194 45 10 (1) 228
---------------------------------------------------------------
Total plant 6,683 419 64 (6) 7,032
---------------------------------------------------------------
Construction Work in Progress
Consumers Power Company 190 59 - (1) (c) 248
Michigan Gas Storage Company 2 2 - - 4
---------------------------------------------------------------
Total Construction Work in Progress 192 61 - (1) 252
---------------------------------------------------------------
Total plant including work
in progress $6,875 $ 480 $ 64 $ (7) $7,284
===============================================================
(a) Reclassifications of accounts
(b) Sale of facilities to Michigan Public Power Agency
(c) Write-off of PSI transmission line
/TABLE
159
CONSUMERS POWER COMPANY
Schedule V - Property, Plant and Equipment
Year Ended December 31, 1991
(Millions of Dollars)
Balance at Balance at
Beginning Additions Other Changes End of
Classification of Period at cost Retirements Add (Deduct) Period
Electric Utility
Consumers Power Company:
Intangible $ 2 $ - $ - $ - $ 2
Steam production 1,357 9 11 - 1,355
Nuclear production 508 113 2 - 619
Nuclear fuel 191 - - - 191
Nuclear fuel under capital lease 112 6 - - 118
Hydro production 165 - - - 165
Other production 37 - - - 37
Transmission 656 13 1 (8) (a) 660
Distribution 1,490 95 15 (1) (a) 1,569
General 40 13 - 1 (a) 54
Capital leases 40 8 8 - 40
Plant held for future use 13 - - - 13
---------------------------------------------------------------
Total electric utility 4,611 257 37 (8) 4,823
---------------------------------------------------------------
Gas Utility
Consumers Power Company:
Intangible 2 - - - 2
Natural gas production 17 - 1 (2) (a) 14
Underground storage 166 5 2 (1) (b) 168
Transmission 178 1 1 - 178
Distribution 1,009 45 4 - 1,050
General 22 1 - - 23
Capital leases 27 2 4 - 25
Plant held for future use 142 - 1 - 141
---------------------------------------------------------------
1,563 54 13 (3) 1,601
Michigan Gas Storage Company 65 - - - 65
---------------------------------------------------------------
Total gas utility 1,628 54 13 (3) 1,666
---------------------------------------------------------------
Other
Consumers Power Company
Capital leases 71 11 8 - 74
Other 101 13 2 8 (a) 120
---------------------------------------------------------------
Total other 172 24 10 8 194
---------------------------------------------------------------
Total plant 6,411 335 60 (3) 6,683
---------------------------------------------------------------
Construction Work in Progress
Consumers Power Company 224 (33) - (1) (a) 190
Michigan Gas Storage Company 1 1 - - 2
---------------------------------------------------------------
Total Construction Work in Progress 225 (32) - (1) 192
---------------------------------------------------------------
Total plant including work
in progress $6,636 $ 303 $ 60 $ (4) $6,875
===============================================================
(a) Reclassifications of accounts
(b) Northville base gas removal
160
CMS ENERGY CORPORATION
Schedule VI - Accumulated Depreciation, Depletion, and Amortization
of Property, Plant and Equipment
Year Ended December 31, 1993
(Millions of Dollars)
Additions
Balance at charged to Retirements, Balance at
Beginning costs and Removal Costs Other Changes End of
Classification of Period expenses and Salvage Add (Deduct) Period
- ----------------------------------------------------------------------------------------------------------
Electric Utility
Consumers Power Company:
Intangible $ 1 $ - $ - $ - $ 1
Steam production 704 32 18 - 718
Nuclear production 161 30 8 - 183
Nuclear decommissioning trust 111 47 - 7 (a) 165
Nuclear fuel 188 5 - (1) (b) 192
Nuclear fuel under capital lease 111 10 - - 121
Hydro production 73 3 5 - 71
Other production 32 1 - - 33
Transmission 236 18 5 - 249
Distribution 643 75 30 - 688
General 15 3 1 - 17
Capital leases 16 28 35 - 9
--------------------------------------------------------------
Total electric utility 2,291 252 102 6 2,447
--------------------------------------------------------------
Gas Utility
Consumers Power Company:
Intangible 1 - - - 1
Natural gas production 9 - - - 9
Underground storage 55 3 - - 58
Transmission 105 8 1 - 112
Distribution 604 52 13 - 643
General 9 1 - - 10
Capital leases 8 8 13 - 3
Plant held for future use 139 3 - - 142
--------------------------------------------------------------
930 75 27 - 978
Michigan Gas Storage Company 52 1 2 - 51
--------------------------------------------------------------
Total gas utility 982 76 29 - 1,029
--------------------------------------------------------------
Other
NOMECO Oil and Gas Company 422 45 - (1) (b) 466
Consumers Power Company 75 68 41 (28) (c) 74
CMS Utility Services, Inc. 2 1 - - 3
CMS Energy Corporation 1 - - - 1
Jackson Pipeline Company 1 - - - 1
Antrim Limited Partnership - 1 - - 1
Other 1 - 1 - -
--------------------------------------------------------------
Total other 502 115 42 (29) 546
--------------------------------------------------------------
Total provision for accumulated
depreciation, depletion and
amortization $3,775 $ 443 $ 173 $ (23) $4,022
==============================================================
(a) Decommissioning trust funds
(b) Write-off of foreign drilling expenditures
(c) Reclassifications of accounts
161
CMS ENERGY CORPORATION
Schedule VI - Accumulated Depreciation, Depletion, and Amortization
of Property, Plant and Equipment
Year Ended December 31, 1992
(Millions of Dollars)
Additions
Balance at charged to Retirements, Balance at
Beginning costs and Removal Costs Other Changes End of
Classification of Period expenses and Salvage Add (Deduct) Period
- ----------------------------------------------------------------------------------------------------------
Electric Utility
Consumers Power Company:
Intangible $ 1 $ - $ - $ - $ 1
Steam production 689 32 15 (2) (a) 704
Nuclear production 136 29 4 - 161
Nuclear decommissioning trust 62 44 - 5 (b) 111
Nuclear fuel 185 5 - (2) (a) 188
Nuclear fuel under capital lease 95 16 - - 111
Hydro production 72 3 2 - 73
Other production 31 1 - - 32
Transmission 218 17 1 3 (a)
(1) (c) 236
Distribution 598 69 22 (2) (a) 643
General 12 3 - - 15
Capital leases 18 6 8 - 16
--------------------------------------------------------------
Total electric utility 2,117 225 52 1 2,291
--------------------------------------------------------------
Gas Utility
Consumers Power Company:
Intangible 1 - - - 1
Natural gas production 9 3 - (3) (a) 9
Underground storage 52 3 - - 55
Transmission 105 5 1 (4) (a) 105
Distribution 557 49 2 - 604
General 9 1 1 - 9
Capital leases 14 6 12 - 8
Plant held for future use 129 10 - - 139
--------------------------------------------------------------
876 77 16 (7) 930
Michigan Gas Storage Company 51 1 - - 52
--------------------------------------------------------------
Total gas utility 927 78 16 (7) 982
--------------------------------------------------------------
Other
NOMECO Oil and Gas Company 387 37 - (2) (d) 422
Consumers Power Company 63 47 8 (27) (a) 75
CMS Utility Services, Inc. 1 1 - - 2
CMS Energy Corporation 1 - - - 1
Jackson Pipeline Company - 1 - - 1
Other 1 1 1 - 1
--------------------------------------------------------------
Total other 453 87 9 (29) 502
--------------------------------------------------------------
Total provision for accumulated
depreciation, depletion and
amortization $3,497 $ 390 $ 77 $ (35) $3,775
==============================================================
(a) Reclassifications of accounts
(b) Decommissioning trust funds
(c) Sale of property to Michigan Public Power Agency
(d) Write-off of foreign drilling expenditures
162
CMS ENERGY CORPORATION
Schedule VI - Accumulated Depreciation, Depletion, and Amortization
of Property, Plant and Equipment
Year Ended December 31, 1991
(Millions of Dollars)
Additions
Balance at charged to Retirements, Balance at
Beginning costs and Removal Costs Other Changes End of
Classification of Period expenses and Salvage Add (Deduct) Period
- ----------------------------------------------------------------------------------------------------------
Electric Utility
Consumers Power Company:
Intangible $ 1 $ - $ - $ - $ 1
Steam production 662 36 10 1 (a) 689
Nuclear production 120 22 6 - 136
Nuclear decommissioning trust 47 12 - 3 (b) 62
Nuclear fuel 181 5 - (1) (a) 185
Nuclear fuel under capital lease 74 21 - - 95
Hydro production 68 4 - - 72
Other production 30 1 - - 31
Transmission 205 15 1 (1) (a) 218
Distribution 562 61 24 (1) (a) 598
General 12 1 1 - 12
Capital leases 21 5 8 - 18
--------------------------------------------------------------
Total electric utility 1,983 183 50 1 2,117
--------------------------------------------------------------
Gas Utility
Consumers Power Company:
Intangible 1 - - - 1
Natural gas production 11 1 1 (2) (a) 9
Underground storage 51 3 2 - 52
Transmission 100 5 1 1 (a) 105
Distribution 519 47 9 - 557
General 7 1 - 1 (a) 9
Capital leases 13 6 5 - 14
Plant held for future use 120 9 - - 129
--------------------------------------------------------------
822 72 18 - 876
Michigan Gas Storage Company 51 1 1 - 51
--------------------------------------------------------------
Total gas utility 873 73 19 - 927
--------------------------------------------------------------
Other
NOMECO Oil and Gas Company 362 33 - (8) (c) 387
Consumers Power Company 57 33 7 (20) (a) 63
Other 2 1 - - 3
--------------------------------------------------------------
Total other 421 67 7 (28) 453
--------------------------------------------------------------
Total provision for accumulated
depreciation, depletion and
amortization $3,277 $ 323 $ 76 $ (27) $3,497
==============================================================
(a) Reclassifications of accounts
(b) Decommissioning trust funds
(c) Write-off of foreign drilling expenditures
163
CONSUMERS POWER COMPANY
Schedule VI - Accumulated Depreciation, Depletion and Amortization
of Property, Plant, and Equipment
Year Ended December 31, 1993
(Millions of Dollars)
Additions
Balance at charged to Retirements, Balance at
Beginning costs and Removal Costs Other Changes End of
Classification of Period expenses and Salvage Add (Deduct) Period
Electric Utility
Consumers Power Company:
Intangible $ 1 $ - $ - $ - $ 1
Steam production 704 32 18 - 718
Nuclear production 161 30 8 - 183
Nuclear decommissioning trust 111 47 - 7 (a) 165
Nuclear fuel 188 5 - (1) (b) 192
Nuclear fuel under capital lease 111 10 - - 121
Hydro production 73 3 5 - 71
Other production 32 1 - - 33
Transmission 236 18 5 - 249
Distribution 643 75 30 - 688
General 15 3 1 - 17
Capital leases 16 28 35 - 9
---------------------------------------------------------------
Total electric utility 2,291 252 102 6 2,447
---------------------------------------------------------------
Gas Utility
Consumers Power Company:
Intangible 1 - - - 1
Natural gas production 9 - - - 9
Underground storage 55 3 - - 58
Transmission 105 8 1 - 112
Distribution 604 52 13 - 643
General 9 1 - - 10
Capital leases 8 8 13 - 3
Plant held for future use 139 3 - - 142
---------------------------------------------------------------
930 75 27 - 978
Michigan Gas Storage Company 52 1 2 - 51
---------------------------------------------------------------
Total gas utility 982 76 29 - 1,029
---------------------------------------------------------------
Other
Consumers Power Company 75 68 41 (28) (b) 74
---------------------------------------------------------------
Total other 75 68 41 (28) 74
---------------------------------------------------------------
Total provision for accumulated
depreciation, depletion and
amortization $3,348 $ 396 $ 172 $ (22) $3,550
===============================================================
(a) Decommissioning trust funds
(b) Reclassifications of accounts
164
CONSUMERS POWER COMPANY
Schedule VI - Accumulated Depreciation, Depletion and Amortization
of Property, Plant, and Equipment
Year Ended December 31, 1992
(Millions of Dollars)
Additions
Balance at charged to Retirements, Balance at
Beginning costs and Removal Costs Other Changes End of
Classification of Period expenses and Salvage Add (Deduct) Period
Electric Utility
Consumers Power Company:
Intangible $ 1 $ - $ - $ - $ 1
Steam production 689 32 15 (2) (a) 704
Nuclear production 136 29 4 - 161
Nuclear decommissioning trust 62 44 - 5 (b) 111
Nuclear fuel 185 5 - (2) (a) 188
Nuclear fuel under capital lease 95 16 - - 111
Hydro production 72 3 2 - 73
Other production 31 1 - - 32
Transmission 218 17 1 3 (a)
(1) (c) 236
Distribution 598 69 22 (2) (a) 643
General 12 3 - - 15
Capital leases 18 6 8 - 16
---------------------------------------------------------------
Total electric utility 2,117 225 52 1 2,291
---------------------------------------------------------------
Gas Utility
Consumers Power Company:
Intangible 1 - - - 1
Natural gas production 9 3 - (3) (a) 9
Underground storage 52 3 - - 55
Transmission 105 5 1 (4) (a) 105
Distribution 557 49 2 - 604
General 9 1 1 - 9
Capital leases 14 6 12 - 8
Plant held for future use 129 10 - - 139
---------------------------------------------------------------
876 77 16 (7) 930
Michigan Gas Storage Company 51 1 - - 52
---------------------------------------------------------------
Total gas utility 927 78 16 (7) 982
---------------------------------------------------------------
Other
Consumers Power Company 63 47 8 (27) (a) 75
---------------------------------------------------------------
Total other 63 47 8 (27) 75
---------------------------------------------------------------
Total provision for accumulated
depreciation, depletion and
amortization $3,107 $ 350 $ 76 $ (33) $3,348
===============================================================
(a) Reclassifications of accounts
(b) Decommissioning trust funds
(c) Sale of property to Michigan Public Power Agency
165
CONSUMERS POWER COMPANY
Schedule VI - Accumulated Depreciation, Depletion and Amortization
of Property, Plant, and Equipment
Year Ended December 31, 1991
(Millions of Dollars)
Additions
Balance at charged to Retirements, Balance at
Beginning costs and Removal Costs Other Changes End of
Classification of Period expenses and Salvage Add (Deduct) Period
Electric Utility
Consumers Power Company:
Intangible $ 1 $ - $ - $ - $ 1
Steam production 662 36 10 1 (a) 689
Nuclear production 120 22 6 - 136
Nuclear decommissioning trust 47 12 - 3 (b) 62
Nuclear fuel 181 5 - (1) (a) 185
Nuclear fuel under capital lease 74 21 - - 95
Hydro production 68 4 - - 72
Other production 30 1 - - 31
Transmission 205 15 1 (1) (a) 218
Distribution 562 61 24 (1) (a) 598
General 12 1 1 - 12
Capital leases 21 5 8 - 18
---------------------------------------------------------------
Total electric utility 1,983 183 50 1 2,117
---------------------------------------------------------------
Gas Utility
Consumers Power Company:
Intangible 1 - - - 1
Natural gas production 11 1 1 (2) (a) 9
Underground storage 51 3 2 - 52
Transmission 100 5 1 1 (a) 105
Distribution 519 47 9 - 557
General 7 1 - 1 (a) 9
Capital leases 13 6 5 - 14
Plant held for future use 120 9 - - 129
---------------------------------------------------------------
822 72 18 - 876
Michigan Gas Storage Company 51 1 1 - 51
---------------------------------------------------------------
Total gas utility 873 73 19 - 927
---------------------------------------------------------------
Other
Consumers Power Company 57 33 7 (20) (a) 63
---------------------------------------------------------------
Total other 57 33 7 (20) 63
---------------------------------------------------------------
Total provision for accumulated
depreciation, depletion and
amortization $2,913 $ 289 $ 76 $ (19) $3,107
===============================================================
(a) Reclassifications of accounts
(b) Decommissioning trust funds
166
CMS ENERGY CORPORATION
Schedule VIII - Valuation and Qualifying Accounts and Reserves
Years Ended December 31, 1993, 1992 and 1991
(Millions of Dollars)
Balance at Charged Charged to Balance
Beginning to other at End
Description of Period Expense Accounts Deductions of Period
- ---------------------------------------------------------------------------------------------------------------
Accumulated provision for
uncollectible accounts
(substantially all
Consumers Power Company):
1993 $5 $ 9 - $10(a) $4
1992 $5 $11 - $11(a) $5
1991 $4 $17 - $16(a) $5
Reserve for rights to
additional MCV Bonds:
1993 - - - - -
1992 $366 - - $366 -
1991 $366 - - - $366
(a) Accounts receivable written off including net uncollectible amounts of $8 in 1993, $10 in 1992, and
$15 in 1991 charged directly to operating expense and credited to accounts receivable.
167
CONSUMERS POWER COMPANY
Schedule VIII - Valuation and Qualifying Accounts and Reserves
Years Ended December 31, 1993, 1992 and 1991
(Millions of Dollars)
Balance at Charged Charged to Balance
Beginning to other at End
Description of Period Expense Accounts Deductions of Period
- ---------------------------------------------------------------------------------------------------------------
Accumulated provision for
uncollectible accounts:
1993 $5 $ 9 - $10(a) $4
1992 $5 $11 - $11(a) $5
1991 $4 $17 - $16(a) $5
Reserve for rights to
additional MCV Bonds:
1993 - - - - -
1992 $366 - - $366 -
1991 - - $366(b) - $366
Reserve for rights to
additional CMS Energy
Debentures:
1993 - - - - -
1992 - - - - -
1991 $236 - - $236 -
(a) Accounts receivable written off including net uncollectible amounts of $8 in 1993, $10 in 1992, and $15 in
1991 charged directly to operating expense and credited to accounts receivable.
(b) Rights to additional MCV Bonds were transferred to Consumers Power in December, 1991 from MEC Development
Corp.
168
CMS ENERGY CORPORATION
Schedule IX - Short-Term Borrowings
Years Ended December 31, 1993, 1992 and 1991
(Millions 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-Term Borrowings of Period Rate Period Period Period
- ----------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1993
Consumers Power Company:
Bankers' acceptance drafts $ - - $219 $ 65 3.9%
Bank advances 235 4.0% $394 $143 4.0%
Committed bank lines 24 3.9% $165 $ 69 3.8%
----
$259
====
Year Ended December 31, 1992
CMS Energy Corporation:
Credit Agreement - - $414 $357 5.4%
Consumers Power Company:
Bankers' acceptance drafts $115 4.2% $149 $ 68 4.3%
Bank advances 35 4.2% $181 $ 32 4.4%
Committed bank lines 65 4.6% $215 $ 84 4.3%
----
$215
====
Year Ended December 31, 1991
CMS Energy Corporation:
Credit Agreement $414 6.5% $450 $ 23 7.1%
Consumers Power Company:
Bankers' acceptance drafts 73 5.7% $201 $ 61 6.2%
Bank advances 181 5.7% $181 $122 7.5%
Committed bank lines 40 6.5% $212 $ 78 6.7%
----
294
----
Jackson Pipeline Company:
Note payable - - $ 10 $ 4 9.1%
$708
====
169
CONSUMERS POWER COMPANY
Schedule IX - Short-Term Borrowings
Years Ended December 31, 1993, 1992 and 1991
(Millions 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-Term Borrowings of Period Rate Period Period Period
- ----------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1993
Consumers Power Company:
Bankers' acceptance drafts $ - - $219 $ 65 3.9%
Bank advances 235 4.0% $394 $143 4.0%
Committed bank lines 24 3.9% $165 $ 69 3.8%
----
$259
====
Year Ended December 31, 1992
Consumers Power Company:
Bankers' acceptance drafts $115 4.2% $149 $68 4.3%
Bank advances 35 4.2% $181 $32 4.4%
Committed bank lines 65 4.6% $215 $84 4.3%
----
$215
====
Year Ended December 31, 1991
Consumers Power Company:
Bankers' acceptance drafts $ 73 5.7% $201 $ 61 6.2%
Bank advances 181 5.7% $181 $122 7.5%
Committed bank lines 40 6.5% $212 $ 78 6.7%
----
$294
====
170
CMS ENERGY CORPORATION
Schedule X - Supplementary Income Statement Information
Years Ended December 31, 1993, 1992 and 1991
(Millions of Dollars)
Charged to Expense
------------------------------------------
Item(a) 1993 1992 1991
- -------------------------------- -------- -------- --------
Real and personal property taxes $139 $137 $128
Royalties 46 42 49
(a) "Other items" are either less than 1% of total operating revenue or are disclosed in the Consolidated
Statements of Income.
171
CONSUMERS POWER COMPANY
Schedule X - Supplementary Income Statement Information
Years Ended December 31, 1993, 1992 and 1991
(Millions of Dollars)
Charged to Expense
-------------------------------------------
Item (a) 1993 1992 1991
- -------------------------------- ---- ---- ----
Real and personal property taxes $138 $136 $128
(a) "Other items" are either less than 1% of total operating revenue or are disclosed in the Consolidated
Statements of Income.
172
Arthur Andersen & Co.
Report of Independent Public Accountants
To CMS Energy Corporation:
We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements included in CMS Energy Corporation's
1993 Annual Report to shareholders incorporated by reference in this Form
10-K, and have issued our report thereon dated January 28, 1994. Our
audit was made for the purpose of forming an opinion on those basic
consolidated financial statements taken as a whole. The schedules listed
in Item 14(a) are the responsibility of the Company's management and are
presented for purposes of complying with the Securities and Exchange
Commission's rules and are not part of the basic consolidated financial
statements. These schedules have been subjected to the auditing
procedures applied in the audit of the basic consolidated financial
statements and, in our opinion, 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.
Detroit, Michigan,
January 28, 1994.
173
Arthur Andersen & Co.
Report of Independent Public Accountants
To Consumers Power Company:
We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements included in Consumers Power
Company's 1993 Annual Report to shareholders incorporated by reference in
this Form 10-K, and have issued our report thereon dated January 28, 1994.
Our audit was made for the purpose of forming an opinion on those basic
consolidated financial statements taken as a whole. The schedules listed
in Item 14(a) are the responsibility of the Company's management and are
presented for the purpose of complying with the Securities and Exchange
Commission's rules and are not part of the basic consolidated financial
statements. These schedules have been subjected to the auditing
procedures applied in the audit of the basic consolidated financial
statements and, in our opinion, 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.
Detroit, Michigan,
January 28, 1994.
174
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, CMS Energy Corporation has duly caused this Annual
Report to be signed on its behalf by the undersigned, thereunto duly
authorized, on the 18th day of March 1994.
CMS ENERGY CORPORATION
By William T. McCormick, Jr.
----------------------------
William T. McCormick, Jr.
Chairman of the Board
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Annual Report has been signed below by the following persons on behalf of
CMS Energy Corporation and in the capacities and on the 18th day of March
1994.
Signature Title
- -------------------------------------- -----------------------------------
(i) Principal executive officer:
Chairman of the Board,
Chief Executive Officer
William T. McCormick, Jr. and Director
- -------------------------------------
William T. McCormick, Jr.
(ii) Principal financial officer:
Senior Vice President and
A M Wright Chief Financial Officer
- -------------------------------------
Alan M. Wright
(iii) Controller or principal
accounting officer:
Vice President, Controller
P. D. Hopper and Chief Accounting Officer
- -------------------------------------
Preston D. Hopper
(iv) A majority of the Directors
including those named above:
Director
- -------------------------------------
James J. Duderstadt
175
Signature Title
- ------------------------------------- -----------------------------------
Victor J. Fryling Director
- -------------------------------------
Victor J. Fryling
Earl D. Holton* Director
- -------------------------------------
Earl D. Holton
Lois A. Lund* Director
- -------------------------------------
Lois A. Lund
Frank H. Merlotti* Director
- -------------------------------------
Frank H. Merlotti
W. U. Parfet* Director
- -------------------------------------
William U. Parfet
Percy A. Pierre* Director
- -------------------------------------
Percy A. Pierre
T. F. Russell* Director
- -------------------------------------
Thomas F. Russell
S. Kinnie Smith, Jr.* Director
- -------------------------------------
S. Kinnie Smith, Jr.
Director
- -------------------------------------
Robert D. Tuttle
Kenneth Whipple* Director
- -------------------------------------
Kenneth Whipple
John B. Yasinsky* Director
- -------------------------------------
John B. Yasinsky
* By Thomas A. McNish
-------------------------------
Thomas A. McNish, Attorney-in-Fact
176
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Consumers Power Company has duly caused this Annual
Report to be signed on its behalf by the undersigned, thereunto duly
authorized, on the 18th day of March 1994.
CONSUMERS POWER COMPANY
By William T. McCormick, Jr.
---------------------------------
William T. McCormick, Jr.
Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Annual Report has been signed below by the following persons on behalf of
Consumers Power Company and in the capacities and on the 18th day of March
1994.
Signature Title
- ------------------------------------- -----------------------------------
(i) Principal executive officer:
President and
Michael G. Morris Chief Executive Officer
- -------------------------------------
Michael G. Morris
(ii) Principal financial officer:
Senior Vice President and
A M Wright Chief Financial Officer
- -------------------------------------
Alan M. Wright
(iii) Controller or principal
accounting officer:
Vice President and
Dennis DaPra Controller
- -------------------------------------
Dennis DaPra
(iv) A majority of the Directors
including those named above:
Director
- -------------------------------------
James J. Duderstadt
177
Signature Title
- ------------------------------------- -----------------------------------
Victor J. Fryling Director
- -------------------------------------
Victor J. Fryling
Earl D. Holton* Director
- -------------------------------------
Earl D. Holton
Lois A. Lund* Director
- -------------------------------------
Lois A. Lund
William T. McCormick, Jr. Director
- -------------------------------------
William T. McCormick, Jr.
Frank H. Merlotti* Director
- -------------------------------------
Frank H. Merlotti
W. U. Parfet* Director
- -------------------------------------
William U. Parfet
Percy A. Pierre* Director
- -------------------------------------
Percy A. Pierre
T. F. Russell* Director
- -------------------------------------
Thomas F. Russell
S. Kinnie Smith, Jr.* Director
- -------------------------------------
S. Kinnie Smith, Jr.
Director
- -------------------------------------
Robert D. Tuttle
Kenneth Whipple* Director
- -------------------------------------
Kenneth Whipple
John B. Yasinsky* Director
- -------------------------------------
John B. Yasinsky
*By Thomas A. McNish
--------------------------------
Thomas A. McNish, Attorney-in-Fact