ML20009F569
| ML20009F569 | |
| Person / Time | |
|---|---|
| Site: | Midland |
| Issue date: | 07/31/1981 |
| From: | CONSUMERS ENERGY CO. (FORMERLY CONSUMERS POWER CO.) |
| To: | |
| Shared Package | |
| ML20009F568 | List: |
| References | |
| NUDOCS 8107310313 | |
| Download: ML20009F569 (112) | |
Text
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J 1
!O i
l JEFORE THE l
UNITED STATES NUCLEAR REGULATORY COMMISSION
{
Docket No 50-329 Docket No 50-330 4
i In the Matter of CONSUMERS POWER COMPANY APPLICATION FOR REACTOR CONSTRUCTION PERMIT AND opt. DATING LICENSE l
for the MIDLAND PLANT l
Units No 1 and 2 21
' O miO381-0443a131 REVISION 2 - JULY 1981
'8107310313 810722 PDR ADOCK 05000329 A-PDR 3
I l
l O
OPERATING LICENSE APPLICATION GENERAL INFORMATION TABLE OF CONTF5fS Page No 1.
NAME OF APPLICANT.
1 2.
ADDRESS OF APPLICANT I
3.
DESCRIPTION OF BUSINESS OF APPLICANT 1
4.
CORPORATE DATA 2
5.
LICENSES APPLIED FOR 5
6.
FINANCIAL QUALIFICATIONS 6
7.
RADIOLOGICAL EMERGENCY RESPONSE PLANS.
6
.i 8.
COMPLETION DATES 7
9.
REGULATORY AGENCIES.
7 10.
TRADE AND NEWS PUBLICATIONS.
8 11.
RESTRICTED DATA.
8 12.
COMMUNICATIONS 9
APPENDIX A -
SUMMARY
OF ANNUAL GPERATING COSTS APPENDIX B - ESTIMATED DECOMMISSIONING COSTS APPENDIX C - FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) 2 0F THE SECURITIES EXCHANGE ACT OF 1934 APPENDIX D - FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 or 15(d) 0F THE SECURITIES EXCHANGE ACT OF 1934 APPENDIX E - BASIS FOR COMPLETION DATE EXTTNSION APPENDIX F - TRADE AND NEWS PUBLICATIONS O
miO381-0443a131 REVISION 2 - JULY 1981
I BEFORE THE UNITED STATES NUCLEAR REGULATORY COMMISSION Docket No 50-329 Docket No 50-330 In the Matter of CONSUMERS POWER COMPANY Application for Reactor Construction Permit and Operating License for Midland Plant Units No 1 and 2 21 GENERAL INFORMATION i
j 1.
NAME OF APPLICANT a
Consumers Power Company (hereinafter called " Applicant")
2.
ADDRa ' 0F APPLICANT l
l 212 West Michigan Avenue Jackson, Michigan 49201 3.
DESCRIPTION OF BUSINESS OF APPLICANT Applicant is a public utility engaged in the generation, purchase, transmission, distribution and sale of electricity, and in the purchase, 2l storige, transmission, distribution and sale of natur.1 gas.
Applicant also supplies steam service in one community. Applicant owns and operates electric generating plants with aggregate net demonstrated 2l capability of 6,647,800 kilowatts as of December 31, 1980. Construction miO381-0443 131 1
REVISION 2 - JULY 1981
O of the Midland Units will add 1,262,000 kilowatts (net capability) to the Applicant's generating capacity. Applicant renders electric service to approximately 1,328,000 separately billed customers in an area of approximately 27,800 square miles in the Lower Peninsula of the State of Michigan.
Applicant has either intercoanection, purchase and interchange power, or mutual emergency assistance agreements with the Detroit Edison Company j
and the Hydroelectric Power Commission of Ontario. These agreements provide coordination for planning and operating the interconnected 2
electric systems and improved reliability of bulk power supply.
Applicant has agreements with several other major electric utilities operating in Michigan, Ohio, Indiana and Illinois providing for
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interconnection servic.s and other transactions. Applicant maintains interconnections with the Michigan Municipals and Cocperatives Power Pool and the Cities of Lansing and Holland, Michigan. Applicant also purchases power from the Dow Chemical Company, Wolverine Power l
Cooperative, Edison Sault Electric Company, Mi.chigan State University, and Mid-State Service Company, all in Michigan.
l 4.
CORPORATE DATA l
l l
Applicant is incorporated under the laws of, and operates solely within j
the State of Michigan. Applicant's principal office is at 212 West i
Michigan Avenue, Jackson, Michigan. The names and addresses of its directors and principal officers, all of wnom are citizens of the United States are as follows:
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. REVISION 2 - JULY 1981
O Name Position Business Address Alphonse H Aymond Director Aymond. Sullivan & Schwartz 2
800 Harris Bldg - 7th Floor 180 West Michigan Avenue Jackson, MI 49201 Walter R Boris Executive Vice President Consumers Power Company and Director Jackson, MI 49201 E Newton Cutler, Jr Director Lindsley Road New Vernon, NJ 07976 Robert E Dewar Director K Mart Corporation 3100 West Big Beaver Road 2
Troy, MI 48084 James B Falahee Vice Chairman of the Board Consumers Power Compaay Jackson, MI 49201 Richard M Gillett Director Old Kent Financial Corporation One Vandenberg Center Grand Rapids, MI 49502 h
Martha W Griffiths Director Griffithe & Griffiths PO Box 407 Romeo, MI 48065 Jo'n W Hannon, Jr Director Bankers Trust Company a
PO Box 318 Church Street Station New York, NY 10015 2l Dr William N Hubbard, Director The Upjohn Company Jr Kalamazoo, MI 49001 Don T Mcfone Director Libbey-Owens-Ford Company 811 Madison Avenue Toledo, OH 43695 Paul S Mirabito Director Burroughs Corporation Burroughs Place Detroit, MI 48232 2
John D Selby Chairman of the Board, Consumers Power Company President and Chief Jackson, MI 49201 Executive Officer John C Suerth Directo 4030 Shorewood Drive Fremont, MI 49412 a
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REVISION 2 - JULY 1981
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Name Position Business Address Robert B White Director Citibank, NA 399 Park Avenue 2l New York, NY 10043 Russell C Youngdahl Executive Vice President Consumers Power Company and Director Jackson, MI 49201 Stephen H Howell Executive Vice President Jackson, MI 49201 2l Jack W Reynolds Execative Vice President Jackson, MI 49201 Lowell L Shepard VLee President Jackson, MI 49201 Raynard C Lincoln Vice President Jackson, MI 49201 Charles R Bilby Vice President Jackson, MI 49201 Robert J Fitzpatrick Vice President Jackson, MI 49201 Lawrence B Lindemer Vice President and General Counsel Jackson, MI 49201 James W Cook Vice President Jackson, MI 49201 Maclay D Gwina Vice President Jackson, MI 49201 abert J Odlevak Vice President Jackson, MI 49201
.iamuel N Spring Vice President.ad 2
Controller Jackson, MI 49201 Russell B Dewitt Vice President Jackson, MI 49291 Gordon L Heins Vice President Jackson, MI 49201 Paul A Perry Secretary Jackson, MI 49201 Richard M Griswold Treasurer Jackson, MI 49201
'l Applicant is not owned, controlled or dominated by an alien, a foreign corporation, or foreign government, and is filing this application on its own behalf and not as the agent or representative of any other person.
A miO381-0443a131 4
REVISION 2 - JULY 1981
5.
LICENSES APPLIED FOR f
Applicant requests a Cla,ss 103 operating license for each of the two Midland Units, to be effective for a period of forty (40) years fr~m date 2l of operating license issuance.
Construction Permits CPPR-81 and CPPR-82 were issued for Midland Plant Units 1 and 2, respectively, on December 15, 1972, and were amended on 2l May 23, 1973 and October 20, 1980.
Applicant also requests such additional source, special nuclear and by-product material licenses as may be necessary or appropriate to, or in connection with or.ncidental to, the possession, use or operation of Midland Plant Units 1 and 2, including, but not limited to; a license h(,j pursuant to 10 CFR Part 70 to receive, own, store, possess and transfer special nuclear material and to use such special auclear material as reactor fuel.
Midland Units 1 cnd 2 will generate electrical energy for Applicant's integrated electric system and will generate process steam for the Midland, Michigan chemical plant complex of The Dow Chemical Company.
Applicant expects to operate each of the two reactors initially at a core output of 2,452 MWt, although the core of each reactor may be capable of an output of 2,552 MWt.
With both cores operating at 2,452 MWt the two 2l units will have a combined gross capability of approximately 1,357 0
electrical megawatts and 4 x 10 lb/hr of process steam. The facilities are described in detail in the Final Safety Analysis Report which is a
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part of this application.
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miO381-0443a131 5
REVISION 2 - JULY 1981 i
l 1
l 6.
FINANCIAL QUALIFICATIONS 2
Estimated costs of operstion of the Midland Units for the years 1983 through 1988 are attached hereto as Appendix A.
Estimated costs of permanently shutting the facilities down and maintairing them in a safe condition are attached as Appendix B.
Copies of Applicant's Annual Report (Form 10-K) for the fiscal year ende d December 31, 1980 and Quarterly Report (Form 10-Q) for the quarter ende6 March 31, 1981 submitted to the Securities and Exchange Commission are attached hereto as Appendices C and D, respectively.
7.
RADIOLOGICAL EMERGENCY RESPONSE PLANS Consumers Power Company, the State of Michigan and the counties of Midland, Saginaw and Bay have upgraded or are upgrading the offsite 2
radiological emergency response plans in a coordinated effort to ensure that adequate protective measures are taken in the event of a radiological emergency at the Midland Nuclear Power Plant. Midland, Saginaw and Bay counties are the major local government entities which lie either wholly or partially within the 10-mile plume exposure pathway Emergency Planning Zone (EPZ). The radiological emergency response plans for these counties are under development and will be provided by amendment to the application. The State of Michigan is the only state government which lies within the 50-mile ingestion pathway EPZ. The State of Michigan radiological emergency response plan has been revised to meet the requirements of 10 CFR 50, Appendix E and has been submitted to the Federal Emergency Management Agency for review and approval via O
miO381-0443a131 6
REVISION 2 - JULY 1981 l
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the Palisades Docket (50-255, License DPR-20). The Michigan Plan will also be submitted as part of the Midland Application by amendment.
8.
COMPLETION DATES Ths presently scheduled date for commencement of fuel loading of Unit 1 is December 1983, and the presently scheduled commercial operation date for Unit 1 i-aly 1984. The presently scheduled date for commencement of fuel loading of Unit 2 is July 1983, and the presently scheduled commercial operation date for Unit 2 is December 1983. An NRC order dated November ' 7,1978 extended the construction completion dates as follows:
2 "IT IS HEREBY ORDERED THAT the latest completion dates for' Construction
/
Permits No CPPR-81 and CPPR-82 are extended from December 1, 1978, and
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December 1, 1979, to October 1, 1982, and October 1, 1981 for Units 1 and 2, respectively."
Applicant requests that Construction Permit CPPR-81 be amended to change the earliest and latest dates for completion of Midland Plant Unit I from
" October 1, 1981 and October 1, 1982" to " December 1, 1983 and Dacember 1, 1984", respectively. Applicant requests that Construction Permit CPPR-82 be amended to chanee the earliest and latest dates for completion of Midland Plant Unit 2 from " October 1, 1980 and October 1, 1981" to " July 1, 1983 and July 1, 1984", respectively. A statement of good cause far the requested extensions is attached as Appendix E.
9.
REGULATORY AGENCIES Regulatory agencies that have jurisdiction over the rates and services j'~'g incident to the proposed activity are:
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miO381-0443a131 7
REVISION 2 - JULY 1981
O Michigan Public Service Commission PO Box 30221 Lansing, Michigan 48909 2l Federal Energy Regulatory Commission 825 North Capitol Street Washington, DC 20426 2l10.
TRADE AND NEWS PUBLICATIONS 2!
Trade and news publications which circulate within the area in and n.cr MidlanC, Michigan, and elsewhere in the State of Michigan, and which Applic nt considers appropriate to give reasonable notice of the application to those municipalities, private utilities, public bodies and cooperatives that might have a potential interest in the facility, are listed in Appendix F.
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2 11.
RESTRICTED DATA This application does not contain any Restricted Data or other defense info rma tion. Applicant agrres that it will not permit any individual to have access to Restricted Data until the Civil Services Commission shall have made an investigation and report to the Nuclear Regulatory Commission on the character, associations and loyalty of such individual, f
and the Nuclear Regulatory Commission shall have determined that permitting such person to have access to Restricted Data will not endanger the common defense and security.
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miO381-0443a131 8
REVISION 2 - JULY 1981 l
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12.
COMMUNICATIONS All communications pertaining to this application should be sent to:
2 Mr James W Cook Vice President Consumers Power Company 2l 1945 W Parnall Road Jackson, MI 49201 In addition, it is requested that copies of each communication be sent to:
Mr Paul A Perry Secretary Consumers Power Company 212 W Michigan Ave;ue Jackson, MI 49201 Judd L Baron, Esq 4
O Managing Attorney Consumerit Power Company 212 W Michigan Avenue l
Jackson, Michigan 49201 Michael I Miller, Esq i
Isham, Lincoln & Beale Suite 4200, One First National Plaza Chicago, IL 60670 i.
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1 miO381-0443a121 9
REVISION 2 - JULY 1981
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APPENDIX A
SUMMARY
OF ELECTRIC ENERGY A'INUAL PRODUCTION COSTS INITIALFIVEYEARSOFOPERATIONANDLEp)LIZEDANNUALCOSTS (FUTURE DOLLARS $x10 Levelized(
Item 1984(*) 1985 1986 1987 1988 1989 Annual O&M
$ 39
$ 60
$ 66
$ 72
$ 78
$ 85
$120 Fuel 70 54 68 70 74 81 122 Insurance 6
9 10 11 12 13 19 Taxes 70 93 93 93 93 93 93 2
Depreciation 3
4 4
4 4
4 4
Total
$188
$220
$241
$250
$261
$276
$358 O
(*) Assumes commercial operation dates of December 1983 for Unit 2 and July 1984 for Unit 1.
(
Levelized over plant operating life.
O miO381-0443b131 REVISION 2 - JULY 1981
1 i
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APPENDIX B ESTIMATED DECOMMISSIONING AND REFf0 RATIO: COSTS ("
(Millions of 1984 Dotlars)
Activity Estimate Mobilization, Demobilization and Temporary Facilities 4.8 Supplies, Power, Contractor Services, Nuclear Insurance 23.6 Equipment 5.4 Staff Labor 33.2 Demolition Sarvices 54.9 Disposal (Radioactive Waste) 46.6 Overheads 16.3 Subrotal Decommissioning
$184.8 i
, Diesel-Generator, Administration, Service
...cc and Circulating Water Structures Demolition 8.9 Site Specific Restoration 41.9 Rounding (0.6)
(R'-)
Total Decommissioning, Demolition and Site Restoration
$235.0 (a) Prompt remaval/ dismantling based on the following studies:
R I Smith, G J Konzek and W E Kennedy, Jr, Technology, Safe.cy and Costs of Decommissioning a Reference Pressurized Water Reactor Power Station, NUREG/CR-0130 (June 1978) Battelle Pacific Northwest Laboratory, Prepared for U S Nuclear Regulatory Commission.
W J Manion and T S LaGuardia, An Engineering Evaluation of Nuclear Power Reactor Decommissioning Alternatives (November 1976), National Environmental Studies Project, Atomic Industrial Forum, Inc O)
(%J miO381-0443:131 REVISION _ - JULY 1981
APPENDIX C SECURITIES AND EXCHANGE COM Washington, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) 0F THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1980 Commission file number 1-5611 CONSUMERS POWER COMPANY
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(Exact name of registrant as specified in its charter)
MICHIGAN 38-0442310 (State er other jurisdiction of (1.R.S. Employer incorporation or organization)
Identification No.)
l r
212 WEST MICHIGAN AVENUE, JACKSON, MICHIGAN 49201 (Address of principal executive offices)
(Zip Code)
Registrant's telephone number, including area code 517 - 788-1030 Securities registered pursuant to Section 12(b) of the Act:
Securities registered pursuant to Section 12(b) of the Act are
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listed on the back of this cover page.
Securities registered pursuant to Section 12(g) of the Act:
NONE Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securitics Exchange Act of 1934 during the preceding 12 months (or for such shorter period that J.:a registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes X
No Aggregate market value of the voting stock held by non-affiliates of registrant - $1,254,537,000 For detail see back of this cover page.
Common stock, $10 par value, number of shares outstanding as of February 27, 1981 57,726,00~
Documents incorporated by reference:
(1) The registrant's Annual Report to shareholders for 1980, incorporated by reference in Part II.
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(2) The registrant's proxy statement, dated March 6,-1981, relating to the 1981 annual meeting of shareholders to be held April 14, 1981, incorporated by reference in Parts I and III.
rp0379-0110a-06 L
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Securities registered pursuant to Section 12(b) of the Act:
FIRST MORTGAGE BONDS:
11-1/4% Serics due 1962 6-5/8% Series due 7-1/2% Series due 4-1/2% Series duc 1988 October 1, 1998 October 1, 2002 4-5/8% Series due 1989 7-5/8% Series due 1999 8-5/8% Series due 2003 4-5/8% Series due 1990 8-5/8% Series due 2000 9
, Series due 2006 4-5/8% Series due 1991 11-1/2% Series due 2000 9-3/4% Series due 2006 11-3/8% Series due 1994 8-1/8% Series due 2001 8-7/8% Series due 2007 5-7/8% Series duc 1996 7-1/2% Series due 8-5/8* Series due 6-7/8% Series due 1998 November 1, 2001 October 15, 2007 7-1/2% Series due 2002 9
% Series due September 15, 2008 PREFERRED STOCK - $100 par value:
PREFERENCE STOCK - $1 par value:
i S4.50 Series
$7.72 Series
$5.50 Series
$2.50 Series f
$4.52 Series
$7.76 Series
$2.43 Series
$3.85 Series
$4.16 Series
$7.68 Series
$2.23 Series
$3.98 Series COMMON STOCK - $10 par value All securities listed above are registered on the New York Stock Exchange and common stock is also registered on the Midwest Stock Exchange.
Aggregate market value of the voting stock held by non-affiliates of registrant:
Number Shares Transaction Type of Stock Outstanding Price / Share Date Market Value (2/27/81)
COMMON 57,726,945
$16 3/4 3/ 5/81 S 966,52o,329 I
PREFERRED:
$4.50 547,788 30 3/ 5/81 16,433,640 4.52 99,550 50 2/23/81 4,977,500 4.16 100,000 28 1/L 2/26/81 2,850,000 7.45 700,000 47 1/4 3/ 5/81 33,075,000 7.72 700,000 51 3/ 5/81 35,700,000 7.76 750,000 51 2/25/81 38,250,000 7.68 550,000 1
1/2 2/25/81 28,325,000 l
9.25 320,000 32,000,000 e
9.00 500,000 50,000,000 9.70 100,000 10,000,000 8.625 360,000 36,000,000 Total
$1,254,537,469
- Sold at private placement, therefore, no transactions. Valued for this calculation at par value of $100 per shara O
rp0379-0110a-06 l
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CONSUMERS POWER COMPANY ANNUAL REPORT FORM 10-K TO THE SECURITIES AND EXCHANGE COMMISSION FOR THE YEAR ENDED DECEMBER 3'.,
1980 The enclosed Form 10-K for the year 1980 is composed of certain financial statements and schsdules included in Consumers Power Company's
(" Reg' t") Annual Report to shareholders and additional information con-cerning Registrant and its cperations. The Annual Report to shareholders is attached hereto but not filed herewith, except for the financial statements and schedules and other information specifically incorporated herein by ref-erence. The additional information concerning Registrant and it: operations' included in Form 10-K should be used in ccajunction with those portions of Registrant's 1980 Annual Report to shareholders which are incorporated into this Form 10-K by reference. A copy of the 1980 Annual Report to shareholders has been sent to shareholders entitled to vote at the annual meeting of shareholders to be held April 14, 1981.
TABLE OF CONTENTS
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Item No. in Form 10-K Page 1
Business 1
2 Properties 17 3
Legal Proceedin s 24 4(a)
Security Owrerst 'p of Certain Beneficial Owners and Management 38 4(b)
Executive Officers of Registrant 39 5
Market for the Registrant's Common Sr,<
and Related Security Holder Matters 40 6
Selected Financial Data 40 7
Management's Discussion and Analysis of Financial Condition and Results of Operations 40 8
Financial Statements and Supplementary Data 41 9
Directors and Execctive Officers of the Registrant 41 10 Management Remuneration and Transactions 41 11 Exhibits, Financial Statement Schedules and Reports on Form 8-K 41
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rp0379-0110a-06
V PART I ITEM 1.
BUSINESS.
(a) General Registrant was incorporated in Michigan in 1968 and is the successor to a corporation of the same name which was organiz d in Maine in 1910 and which did business in Michigan from 1915 to 1968.
Registrant is a public utility engaged in the generation, pur-chase, transmission, distribution and sale of electricity, and in the purchase, production, storage, transmission, distribution and sale of gas, in the Lower Peninsula of the State of Michigan. Registrant also supplies steam service in one community. The population of the territory i
served is estimated to exceed 5,300,000.
The industries and the terri-tories served by Registrant include automobile and automobile equipment, primary metals, chemicals, fabricated metal products, pharmaceuticals, machinery, oil ref*n!na, payr and paper products, food products and a diversified group of other industries. Registrant's consolidated oper-ating revenue in 1980 was derived approximately 55% from the electric business and 4 4 from the gas business and about 2% from othur sources.
b
(,j General Problems of the Industry Registrant has been experiencing problems common to the utility industry in general, including the difficulty and length of time reqaired in obtaining an adequate return on invested capital (see Item 3.
Legal Proceedings.), restrictions on operations and increased costs..ad delays attributable to inflation and environmental considerations (see Regula-tion - Compliance With Environmental Requirements, Regulation - Nuclear Regulatory Commission, and Item 3.
Legal Proceedings.), the necessity of obtaining substantial amounts of outside capital to finance construction programs, and delays in construction and operating problems with respect to new large generating units (see Regulation - Nuclear Regulatory Com-i mission, Item 3.
Legal Proceedings. and Notes 2 and 3 to Consolidated Financial Statements on Page 13 c: Registrant's Annual Report to share-holders, which Notes are incorporated herein). Events at Metropolitan Edison Company's Three Mile Island Unit 2 Nuclear Plant-("TMI") near
'aarriaburg, Pennsylvania, have af fected Registrant's nuclear generating plants (see Regulation - Nuclear Regulatory Commission, Ite-2.
Preper-ties. and Item 3.
Legal Proceedings.).
See also Item 7.
P iagement's Discussion and Analysis of Financial Condition and Results of 7perations..
Electriu cervice Registrant renders electric service in Michigan in an area of approximately 27,800 square miles, having a population of approximately
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3,300,000.
Principal cities served are Battle Creek, Eay City, Flint,
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Grand Rapids, Jackson, Kalamazoo, Muskegon, Pontiac, Saginaw and Wyoming.
rp0379-0110a-06 1
O Registrant owns and cperates electric generating plants with aggregate not demonstrated capability as of December 31, 1980 of 6,836,800 kilowatts and, as shown under Item 2.
Properties., is con-structing an additional plant which will add 1,357,000, ilowatts (nameplate rating) to Registrant's g(nerating c, city For the summer of 1981 the net demonstrated e pability er Reg-istrant's interconnected system is expected to be 6,185,000 kilowatts (after the net sale of 273,000 kilowatts) to serve a projected maximum demand of 4,400,000 kilowatts. The maximum net demand on the inter-connected system was 4,588,000 kilowatts, which occurred on September 11, 1978.
Registrant's electric generating plants are interconnected by a transmission system operating at from 138,000 to 345,000 volts.
This transmission system is also interconnected at a number of locations with transmission facilities of unaffi'2ated systems.
Registrant has an riectric con-dination agreer mt with The i
Detroit Edison Company ("Dccroit Edison") which provides for the coordi-nation of planning and operation of the interec'nected electric systems of the parties, the rendering of mutual assista..ee during emergencies and the effecting of the maximum practical economy in providing the electric power requirements of ea~.h system. There are five 138,000-volt and four 345,000-volt interconnections between the systems. These in t e rco:.nec-tions permit a sharing of the reserve cap.acity of the two sy' tems and a substantial reduction in investment in plant facilities for each company.
Pursuant to an order of the Michigan Public Service Commission ("MPSC"),
Registrant has in effect certain emergency electrical procedures to be implemented in the event of short-term or long-term fuel or generating capacity shortages.
The procedures include automatic and manua? load shedding, voltage reduction, requests for voluntary certa 11 cant, interruptible and emergency load management tariff provisions, and mandatory curtailment of electric demand of certain nonresidential customers.
Registrant has an agreement with Detroit Edison and Ontario Hydro for interconnections linking the power systems of Registrant and i
Detroit Edison with the power system cf Ontario Hydro and also providing for mutual assistance during emergencies, improved reliability of bulk power supply and the effecting of economies by coordinated development and exchange of power. Two 230,000-volt and two 345,000-volt intercon-nections have been estr.blished under the agreement.
Registrant has agreements with several other major electric utilities operating in Michigan, Ohio, Indiana and Illinois that provide for
.erconnection services and other transactions.
In Michigan, Reg.strant maintains interconnections and interchanges power with the Michigan Municipals and Cooperatives Power Pool and the cities of Lansing, Holland and Hillsdale.
In Michigan, Registrant also purchases power from The Dow Chemical Campany ("Dow"), Wolverine Power Corporation, Edison Sault Electric Company, Michigan State Cniversity and Mid-State Service Company.
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Midland Plant The Atomic Energy Commission ("AEC") issued construction permits for the Midland Nuclear Plant in December 1972. Thereafter intervenors appealed the granting of the permits.
In July 1976 the US Court of Appeals for the District of Columbia Circuit ("D C Court of Appeals") remanded the orders granting construction permits for the plant to the US Nuclear Regulatory Commission ("NRC") for reconsideration of certain issues. On April 3, 1978 the US Supreme Court reversed the D C Court of Appeals' decision, remanding only that portion concerning the environmental impact of waste disposal and other nuclear fuel cycle issues. With respect to a re!ated licensing case involving snother utii tty, the US Supreme Court Stated that the administrative proceedings conc rning the environmental mpact of waste disposal and other nuclear fuel cycle issues should be reviewed by the D C Court o.
Appeals to determine whether the NRC's rule concerning such environmental impact was adequately supported by the rulemaking record. The NRC promulgated a final fuel cycle rule which became effective September 4, 1979 and announced that it will conduct a new generic waste disposal proceeding (see also Item 3.
Legal Proceedings.).
In an order issued in November 1978 the NRC stated that the environmental effects of radon emissions in the uranium fuel cycle are to g-"s be considered in the Midland Plant construction permit proceedings. A
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number of cases, including Registrant's case on remand from the US Supreme Court, are pending before the D C Court of Appeals for decision under onc or more aspects of the NRC's fuel cycle rule. Registrant believes that further review of the nuclear fuel cycle rule will not invalidate the construction permits for the Midland Plant. As a result of the US Supreme Court's decision, further proceedings, if any, on the matters remanded by the D C Court of Appeals are not expected to have any materially adverse effects on Registrant's investment in and oncitments with respect to the Midland Plant.
Investment in the Midland Plant, a twin-unit facility designed to generate 1,357 megawatts for Registrant's electric system and to furnish process steam service to Dow, was $1.57 billion at December 31, 1980.
Because of the TMI accident, the NRC has been concentrating its resources towards handling TMI issues; therefore, consideration of con-struction permits and operating licenses, icluding Registrant's appli-cation for Midland Plant operating licenses, has been delayed. Based on estimates of the effects of licensing delays and expected design revi-sions as a result of licensing requirements, many of which resulted from the TMI Sccident, and certain other licensing assumptions, Registrant estimates that Midland Plant Unit '2 will be in commercial operation for electric service in December 1983 and Unit I will be in commercial operation for process steam service and electric service in July 1984, and that the Midland Plant will cost approximately $3.1 billion. Regis-trant's decision to continue design and construction of the plant assumes
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that necessary regulatory approvals will be obtained. Registrant is s__
vigorously pursuing efforts to identify and favorably resolve matters that could cause delays and cost increases. There can be no assurance, however, that further delays and further cost increases will not occur.
rp0379-0110a-06 3
O If commercial operation of the plant for process steam service to Dow cannot begin until after December 31, 1984, Dow would have the right to terminate its agreement with Registrant for such service; however, Dow would be obligated to pay an amount estimated to range from $218 million at December 31, 1980 to $430 million if the plant were completed at a cost of $3.1 billion. Should Dow terminate the agreement for such cause, the remaining portion of the investment in equipment allocable to the process steam service, estimated to range from $157 million at December 31, 1980 to $310 million if the plant were completed at a cost of $3.1 billion, may not be salvageable.
In May 1978 the NRC published a notice that Registrant's appli-cation for facility operating licenses for both units at the Midland Plant had been docketed for review. The notice provided an opportunity for hearing by Registrant or by any other person whose interest may be affected.
In August 19'8 an NRC Atomic Safety and Licensing Board
("ASLB") ordered that a hearing be held on the application. The State of Michigan has been admitted to the proceeding as an interested. state, and two individuals have been admitted as parties. The operating license proceeding has been cons olidated with the foundation soils proceeding (see next paragraph) with respect to the issues being litigated in the latter proceeding.
On December 6, 1979 the NRC issued an order which, if made ef-fective, would modify Registrant's construction permits for the Midland Plant to prohibit remedial construction work undertaken to correct certain foundation soils problems at the Midland Plant, discovered in Aigust 1978, pending Registrant's submittal of an amendment to its license application for the Midland Plant seeking approval for such work and pending issuance of an amendment to the construction permits autho-rizing such work.
On December 19, 1979 Registrant filed an amendment to its application for construction permits and operating licenses for the plant, seeking NRC approval for the remedial action prohibited by the NRC's December 6, 1979 order.
In addition, on December 26, 1979 Regis-trant requested a hearing with respect to the NRC's orde, thereby de-laying the order's effectiveness, and on March 14, 1980 the NRC issued a notice that a hearing will be held before an ASLB at a time and place ~
be specified.
Prehearing ca ferences were held in the matter in September 1980 and January 1981. Certain individuals have been permitted to intervene in the proceeding. The Staff of the NRC has raised an issue in the proceeding as to whether the seismic criteria applicable to the Midland Plant should be made more stringent. As part of the December 6, 1979 order, the NRC also issued two notices of violation, citing Regis-trant for raveral noncompliances, including an alleged material false statement ir 'egistrant's license application for the plant, all related to the founc on soils problem. Registrant is unable to determine at this time whether these matters will result in further delay in initial operation of the Midland Plant or further increases in plant costs.
O rp0379-0110a-06 4
OV Gas Service Registrant renders gas service in Michigan in an area of l
approximately 12,900 square miles having a population of approximately 3,800,000.
Principal cities served ~are Bay City, Flint, Jackson, Kalamazoo, Lansing, Pontiac, Royal Oak, Saginaw and Warren. Registrant k
also serves a number of suburban communities near Detroit.
Registrant owns gas transmission and dis ribution mains and other gas lines, compressor stations and facilities, and storage rights, wells and gathering facilities in several fields in Michigan. Registrant and Michigan Gas Storage Company, a wholly-owned subsidiary of Regis-trant, store a portion of their respective gas supplies in the warmer months of the year for use in the colder months of the year.
The peak-day transmission and distribution system capacity is in excess of 2,800 million cubic feet. The maximum daily sendout of I
natural gas for Registrant was 2,410 million cubic feet on January 3, 1979.
Subsidiaries The following are wholly-owned subsidiaries of Registrant:
I Northern Michigan Exploration Company (" Northern") is engaged in exploration for and production of oil and natural gas.
Plateau Resources Limited (" Plateau"), a Utah corporation, is engaged in exploration for and purchase, mining, milling and sale of uranium.
In February 1979 Canyon Homesteads, Inc. (" Canyon"), a Utah corporation, was formed as a wholly-owned subsidiary of Plateau to r
develop housing facilities for Plateau's mine and mill workers and for other purposes.
Michigan Gas Storage Company (" Storage. Company") is engaged in the purchase, transmission and storage of gas and in the sale to Registrant of gas from an interstate pipeline supplier.
Michigan Utility Collection Service Co. Inc. is engaged in a special collection service for past-due utility service bills.
(b) Electric Fuel Supply Approximately 49% of Registrant's owned generating capability (excluding pumped storage) depends upon coal as a fuel source and re-quires approximately 7 million tons of coal annually. Registrant has long-term coal contracts covering 73% of its coal requirements during 1981. These long-term contracts provide for base period' deliveries through 1983 and, in some instances, through 1999 (including options for renewal under some agreements). The sulfur content of the contract coal ranges from 0.6% to 3.0% by weight. Approximately 3.5 million tons per.
year of coal containing 1% or less sulfur are available under long-term contracts from mines located in eastern Kentucky and 1.7 million tons per rp0379-0110a-06 5
\\
O year of coal containing more than 1*. sulfur are under long-term contract from a mine located in Ohio. Tle remaining long-term contract coal supplies are from mines in Illirois and western Kentucky. Registrant's coal requirements not under lon<;-term contract and that quantity of coal under long-term cont.ract which is not delivered must be supplied through short-term agreements or spot purchases.
As of January 31, 1981 Registrant's coal inventory at its railroad-supplied electric generating plants amounted to approximately 60 days' supply, and its coal inventory at its B C Cobb Plant, which is suppiled by lake carrier, amounted to approximately 130 days' supply.
Future changes in governmental requirements, and labor (the potential work stoppage by the United Mine Workers Union on March 27, 1981 would adversely affect Registrant's coal supply) and equipment problems pertaining to the coal industry could adversely affect cost and avail-abil!*y of coal supplies. Registrant has under long-term lease 900 cul cars which will alleviate problems of car shortage in the future.
At cae present time an annual supply of approximately 2.0 million tons of coal with a sulfur content of 1% or less for use at the D E Karn Plant, Units 1 and 2, the J C Weadock Plant, Units 7 and 8, the Whiting Plant and the Cobb Plant, is under long-term contract. Approval has been obtaincd to burn a blend of approximately 65% high-sulfur coal and 35%
low-su'. fur coal to arrive at an annual maximum sulfur content of 2.5*, by weight at the Cobb Plant for the years 1980 through 1984.
Registrant has negotiated long-term contracts for the supply of the high-sulfur and low-sulfur coal requirements for the Cobb Plant for that period. Registrant has entered into long-term contracts for an annual supply of approx-imately 1.5 million tons of coal which meets the requirements of the Environmental Protection Agency (" EPA") for use at its J H Campbell Plant, Unit 3, which went into service in September 1980.
In connection with Registrant's generating units which burn petroleum products, Registrant is importing two types of residual fuel oil from Canada. Registrant imported approximately 5.5 million barrels in 1980 and expects to import approximately 5.5 million barrels in 1981.
Canadian export licenses and US import licenses are required to be re-newed from time to time and the receipt of such licenses is not necessar-ily assured.
Long-term export licenses from the National Energy Board of Canada permit the exportation to Registrant of one type of residual fuel oil through 1981 and the other type of residual fuel oil through August 1982. Registrar.t has a long-term contract through 1987 to purchase from 10,000 to 19,000 barrels per day of the second type of Canadian residual oil and a long-term contract ending on December 31, 1982 to purchase 5,500 barrels per day of the first type of residual fuel oil, both to be burned at the Karn Plant. The Canadian government began curtailing exports of crude oil in January 1973 and has announced that further curtailments can be expected and that it expects to end exports of light crude oil entirely in 1981. These curtailments should not have any adverse effect on Registrant's residual fuel oil deliveries. See also Gas Supply.
Canadian export taxes applicable to the residual fuel oil imported by Registrant were revised after July 1, 1980. The Canadian rp0379-0110a-06 6
l'V) export tax for one type of residual fuel oil increased from $9.10 per barrel to $13.45 per barrel (Canadian dollars) from October 1, 1980 through February 1981. A second type of residual fuel oil imported by Registrant is taxed partly at the $13.45 per barrel rate and partly at a higher rate applicable to partially process ed oil.
From October 1
[
through February 1, 1981 the average rate applicabic to this second type
)
of oil increased from $14.60 to $16.02 per barrel (Canadian dollars).
If the export tax rates remain unchanged, during the 12 months beginning i
February 1, 1981, approximately $49 million ($41 million in US dollars) will be paid in Canadian export taxes for the exportation to the United States of the first type of residual fuel oil, and approximately $29 million ($24 million in US dollars) will be paid in Canadian export taxes for the exportation to the United States of the second type of residual fuel oil.
Registrant has contracts for the supply of nuclear fuel, in-cluding uranium ore concentrates, conversion to and enrichment of the uranium hexafluoride and fabrication of nuclear fuel assemblies, for the Big Rock Point and the Palisades Nuclear Plants. The contracts cover
(
requirements for a minimum of the next four years, and in the case of enrichment, cover requirements through the year 2000. These contracts are with Plateau (see Item 2.
Properties.), with major private indus-trial suppliers of nuclear fuel and related services and with the US gov-ernment. The pres mt unavailability of capacity for reprocessing spent
(N
(,)
nuclear fuel will necessitate new arrangerents for storage or other dis-position of spent fuel, which may be at substantial additional cost to the Registrant. At the Big Rock Point Plant spent fuel storage capacity is sufficient to last until November 1982 and is planned to be increased to last through 1992, assuming normal spent fuel discharge and a full core reserve. Registrant has requested NRC approval of a proposed amendment to the Big Rock Point Plan. operating license to allow the increase in storage capacity. Certain parties have been granted leave to intervene in the proceeding. See Item 3.
Legal Proceedings. The cost of the increase is estimated at $1,800,000.
Registrant has been autho-rized by the NRC to expand spent fuel storage capacity at the Palisades Plant to an amount which will assure adequate storage to accommodate normal spent fuel discharge through 1987, with a full core reserve. The cost of,this expansion, which is now in progress, is estimated at
$5,100,dOO.
Registrant also has contracts for all segments of the nuclear fuel supply chain for the initial and some of the reload cores for the Midland Plant. These include contracts for the supply of uranium ore concentrates for the first four years of plenned operation of each unit, conversion to uranium hexafluoride for the initial cores, enrichment of the uranium hexafluoride through the year 2000, and fabrication of the nuclear fuel assemblies for the first six years of planned operation of each unit. No contractual arrangements have been made for reprocessing and reconversion of the opent initial core fuel assemblies expected to be
,-_ }
discharged from the Midland Plant in 1987. The availability and price of
\\~ d such reprocessing and reconversion and the availability and price of further reload fuel supplies and services cannot be accurately predicted at this time. There is adequate on-site storage capac1;y at the Midland rp0379-0110a-06 7
~
O Plant to accommodate normal spent fuel discharge through 1991, with a full core reserve for one unit.
Registrant's cost of fuel has increased substantially in recent years as shown in the following table:
Cost per Million Btu Percentage of Fuel Consumed
(
Fuel Consumed Based on Total Btu Burned 1980 1979 1978 1977 1976 1980 1979 1978_ 1977 1976 Coal
$1.72 $1.43 $1.28 $1.10 $1.01 65.3 58 5 53.6 54.1 58.5 Oil 4.21 3.09 2.60 2.56 2.35 16.2 21.1 27.5 16.1 20.0 Gas 2.55 2.36 2.02 1.92 1.54 3.0 2.5 3.6 2.8 5.0 Nuclear
.50
.36
.31
.18
.46 15.5 17.9 15.3 27.0 16.5 All Fuels 1.96 1.61 1.52 1.11 1.22 100.0 100.0 100.0 100.0 100.0 The costs of nuclear fuel consumed in 1976 reflect an assumed value for residual uranium. The probability of recycling residual plutonium and uranium in the future has become speculative because of governmental, environmental and other opposition to the reprocessing of spent nuclear fuel and to the use of recycled plutonium as a fuel mate-rial.
Substantially all of the nuclear fuel costs for 1976 reflect a zero salvage value for both residual plutonium and uranium, as well as a 'ditional future costs to be incurred in perpetual storage of spent nuclear fuel.
In 1977 the MPSC issued an order which for the first time determined that Registrant may not recover through the fuel cost adjust-ment clause ("FCAC") incr(ases in nuclear fuel costs attributable to changes, made outside of t'
context of a rate case, in assumptions regarding residual uranium value and costs of reprocessing or disposal of q
spent nuclear fuel. Accordingly, in 1977 Registrant reinstated its assumptions with respect thereto consistent with those effective in its prior rate order and also adjusted currcntly for expenses recorded in 1976 to reflect thesc assumptions. The increased nuclear fuel costs for 1976 reflect the decision made to replace the entire Palisades Plant fuel core during the first half of 1976.
(See Note 11 to Consolidated Financial Statements on Page 17 of Registrant's Annual Report to shareholders which Note is incorporated herein.)
Gas Supply For 1980 Registrant received 59% of its gas supply from Trunkline Gas Company ("Trunkline"), a wholly-owned subsidiary of Panhandle Eastern Pipe Line Company (" Panhandle"), 23% from Panhandle through Storage Company, 16% from Michigan fields and 2% from offshore tracts of Northerr.
Gas is furnished by Trunkline to Registrant pursuant to a con-tract providing for the delivery of approximately 255 billion cubic feet of natural gas per year.
Storage Company presently has a contract with Panhandle providing for the delivery of approximately 93 billion cubic feet of gas per year.
Substantially all the gas purchased from Panhandle by Storage Company is, in turn, sold by Storage Company to Registrant.
rp0379-0110a-06 8
O Since 1971 Registrant and Storage Company have experienced curtailments from their respective pipeline suppliers. These curtailments aggregated approximately 2 billion cubic feet (1% of contract entitlement) in 1980.
Effective March 1, 1980, Panhandle and Trunkline lifted all curtailments until further notice. The curtailments imposed by the pipeline companies are affected by proceedings before the Federal Energy Regulatory Com-g mission ("FERC"), and orders issued in such proceedings determine the curtailment procedures and af fect the severity of the curtailments placed into effect by the pipeline companies. See Item 3.
Legal Proceedings.
In recent years, Panhandle and Trunkline have applied to regu-latory authorities and received several increases in their wholesale gas rates.
Any increase in such whc'esale rates to Storage Company is passed on to Registrant under Storage Ccn, av's cost of service rates approved under the Natural Gas Act.
Registrant currently recovers substantially all of any such additional expense incurred by reason of wholesale gas rate increases through the operation of purchased gas adjustment clauses contained in its retail rate schedules for gas service.
In order to protect service to its existing customers and to limit new customer requirements to the gas supply available, Registrant has been following a gas allocation program authorized by the MPSC.
Under such program, during the period June 1, 1975 through September 5, 1977, Registrant issued permits for use of gas only for new residential O
uses.
On September 6, 1977 Registrant commenced the issuance of permits for small (6,600 cubic feet per hour or less), new commercial and indus-trial gas use.
In ingest 1978 Registrant commenced issuing permits for any new commercial or industrial gas use, except for that of boilers, kilns and electric generating equipment utilizing more than 50,000 cubic faet per hour. Registrant is unable to predict whether it will be re-quired in the future to cease adding any new customers of any class of service or to curtail gas service to its existing firm customers.
Such actions are dependent upon the extent of future curtailments on the part of the pipeline suppliers and the receipt of additional natural gas supplies from the sources of supply hereinafter described. The MPSC has approved a curtailment program for existing firm gas customers, to be incoked if it becomes nece sary.
Registrant has gas purchase contracts with several producers, including Northern, in the northern Michigan area and has placed in service pipelines to transport gas purchased in this area to its inte-grated gas transmission system. Although Registrant is not assured as to future periods, in 1980 Registrant received approximately 115 million l
cubic feet of natural gas per day from this northern Michigan area, including approximately 20 million cubic feet per day from Northern.
Registrant also received in 1980 approximately 15 million cubic feet per day of gas frvm producers near Mason, Michigan and approximately 15 million cubic feet per day from Northern's offshore Louisiana production.
)
In April 1974 Registraat completed the construction of a gas
,,/
reforming plant at Marysville, Michigan for converting natural gas 11-quids into gas. On September 5, 1979, Registrant announced its intention to " mothball" the Marysville Gas Reforming Plant for an indefinite period rp0379-0110a-06 9
O of time.
Because of increased supplies of natural gas, it is anticipated that this will not result in any adverse effect on the ability of Registrant to serve its natural gas customers. Registrant anticipates that the gas supply from the Marysville Plant will again be required sometime in the mid-1980s, at which time the plant will be reactivated.
See Item 3.
Legal Proceedings.
Employees Registrant has approximately 12,000 employees, of whom about 4,860 operating, maintenance and construction employees are represented by the Utility Workers Union of America, AFL-CIO (" Union").
The current collective bargaining agreement between Registrant and the Union was reached on September 1, 1980 and expires September 1, 1983.
Regulation Compliance With Environmental Requirements. Registrant and its subsidiaries, Northern, Storage Company, Plateau and Canyon, 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. Registrant and its subsidiaries are attempting to insure that their facilities meet applicable environmental regulations i
and standards. However, it is not presently possible to forecast the ultimate effect of environmental qualitj regulations upon the existing and proposed facilities and operations of Registrant and its subsid-laries. Moreover, developments in these and other areas may require Reaistrant or its subsidiaries to modify, supplement, replace or cease operating existing equipment and facilities, and may delay or impede construction and operation of new facilities at costs which could be substantial.
See Item 3.
Legal Proceedings.
For many years Registrant has followed an environmental protec-tion program which has included reforestation along Michigan rivers and the siting of electric generating plants and transmission lines with consideration for the impact of such facilities upon the environment.
In more recent years the program has included installation of electrostatic precipitators to remove particulates from smoke emissions at electric generating plants and conversion of electric generating units to burn cleaner fuels. The program through 1981 includes, among other things, adding new controls and modifying previously installed plant precipi-tators; utilization of coal with low-sulfur content; and construction of cooling ponds or other facilities to cool condenser water at a new generating plant before it is reused.
Pursuant to the terms of performance contracts entered into with the Michigan Air Pollution Control Commission ("MAPCC") in 1973, Registrant on January 1,1980 completed the conversion of D E Karn Units 1 and 2 and J C Weadock Units 7 and 8 to allow utilization of low-sulfur (less than 1%) rather than high-sulfur coal.
In 1979, the MAPCC approved agreements providing for further extensions, until January 1, 1985, of the date by which Registrant's J H Campbell Plant Units 1 and 2 and B C Cobb Plant must comply with MAPCC regulations which in general
{
rp0379-0110a-06 10
O
\\s_/
would require the use of fuel with a sulfur content of 1% or less. The Campbell and Cobb Plants are now being opcrated in accordance with the extension agreements. Under the Federal Clean Air Act, the extension agreements must also be approved by the EPA as revisions to the Michigan State Implementation Plan (" State Plan") for air quality. The Campbell agreement was approved effective January 23, 1981. Although the State of New York made no comments during the time limits prescribed for such comments, it filed a petition dated January 16, 1981 requesting the EPA to reconsider its final action regarding the J H Campbell Plant extension agreement, based on an allegation that the Campbell Plant contributes to acid rain in the State of New York. Registrant is taking the position that the petition should be dismissed on both prceedural and factual grounds.
On February 20, 1981 the State of Ne.c York petitioned the D C i
Court of Appeals for review of the EPA action which approved the resised State Plan for the J H Campbell Plant.
Although it has not yet formally approved the Cobb extension agreement, the EPA has assured Registrant in writing that it expects to approve the agreement and does not intend to enforce the unrevised State Plan while it is reviewing the agreement so 4
long as the plant is operated in accordance with the agreement. The State of New York has submitted a late pleading asking the EPA not to approve the Cobb extension agreement based on an allegation that the Cobb Plant contributes to acid rain in the State of New York. Further, the 4
State of New York has notified the EPA and Registrant that it intends to bring a legal action for the purpose of compelling the EPA to force Reg-
)
istrant to utilize low-sulfur coal at the Cobb Plant.
If EPA approval of the agreement is not obtained and no other appropriate actions are taken
'~'
by the EPA or Registrant, Registrant could become subject to substantial penalties under the Federal Clean Air Act.
Since the publication of 4
final EPA regulations in 1980, an additional " noncompliance penalty" equivalent to the amount of money saved by a source because of its non-compliance could be imposed for the violation of any requirement of the
, State Plan. See Item 3.
Legal Proceedings.
4 Registrant's capital expenditures for environmental control facilities are estimated to be $108,855,000 in 1981 and $86,905,000 in 1982.
In 1973, the EPA delegated to the State of Michigan respon-sibility for processing applications and issuing National Pollutant Discharge Elimination System (" NPDES") permits under the Federal Water Po11ation Lintrol Act Amendments of 1972. NPDES permits fe; all major operating steam electric generating facilities of Registiant, and the Ludington Pumped Storage Plant, have been issued by the Michigan Water Resources Commission ("MWRC").
The permits restrict or will restrict the discharges from Registrant's facilities pursuant o state and federal water quality standards and federal effluent guidelines. The steam gen-erating plant permits and the permit for a major nas compressor station of Storage Company require Registrant to conduct studies concerning certain effluent limitations. All of the permits except the Ludington permit allow demonstrations to show that existing restrictions are adequate or that additional restrictions are unnecessary. Because the extent and effect of restrictions upon the operation of Registrant's facilities will depend in significant measure upon the outcome of the rp0379-0110a-06 11
O d aonstration studies required or permitted by the NPDES permits, Registrant is unable to forecast at this time the ultimate effects upon Registrant's facilities of the requirements under the Federal Water Pollution Control Act and state law.
However, such ef fects upon Registrant's operating expenses and the operation of its facilities could ba material.
For existing plants, federal law required achievement of effluent limitations that necessitated the ap;!ication of the "best practicable control technology currently available" by Tuly 1, 1977.
Registrant is now in full compliance with the statute and permits thereunder. By July 1, 1984, existing plants and facilities must meet additional effluent limitations on the discharge of two classes of pollutants:
toxic and conventional.
In addition, limitations on dis-charges of a third class of pollutants, nonconventional pollutants, must be achieved within three years of their promulgation by the EPA but in no 4
case later than July 1, 1987.
The cost of complying with these addi-tional discharge limitations could be substantial.
For new steam electric power plants, standards of performance established pursuant to federal law require achievement of effluent limi-tations that necessitate the application of the "best available demon-strated control technology." The standards for cooling water intake structures of both new and existing plants are required to reflect the "best technology available for minimizing adverse environmental impact."
The Staf f of the MWRC is of the opinion, based on demonstration studies, that the existing cooling water intake structures at the Karn, Wendock, Campbell, Morrow, and Whiting Plants do not reflect the "best technology available for minimizing adverse environmental impact." The effects of these findings on the operating expenses and cperations of these facil-ities are presently undefined but could be material.
In April 1980 the Staf f of the MWRC recommend 2d to the MWRC that the MWRC determine that the cooling water intake of the Whiting Plant has not been demonstrated to reflect the "best technology available for minimizing adverse envi-ronmental impact." The MWRC directed that the matter be referred to a hearing of ficer of the Michigan Department of Natural Resources ("DNR").
Hearings began in October 1930. The outcome of this proceeding is in doubt.
See item 3.
Legal Proceedings.
In the opinion of the MWRC Staff, the existing cooling water intakes at the Big Rock Point Nuclear Plant and Palisades Nuclear Plc.c reflect the "best technology available for minimizing adverse environmental impact."
Registrant believes the intake structure constructed as part of Campbell Plant Unit 3 will also meet this requirement.
In November 1975 the EPA issued regulations under the Federal Vater Polletion Control Act requiring cach state to develop and iy,lement a water quality management program, incorporating an anti-degradation policy. Registrant is presently unable to forecast the ultimate effect that these regulations may have upon its operations.
Parties other than Registrant have challenged these regulations in the federal courts.
1 rp0379-0110a-06 12
A) iU Michigan Public Service Commission. Registreat is subject to the jurisdiction of the MPSC which has general power or supervision and regulation of public utilities in Michigan with respect to retail utilit5 rates, accounting, services, certain facilities, ascertainment of valres, the issuance of securities, and various other matters. Storage Company, Northern, Plateau and Canyon are not, in the opinion of the General Counsel for Registrant, subject to the jurisdiction of the MPSC with respect to rat., accounting, services, facilities or ascertainment o' values.
In 1979 the Michigan Supreme Court issued an opinion holding that the MPSC had jurisdiction over the issuance of securities by Stort.ge Company.
Federal Energy Regulatory Commission. The FERC has juris-diction over Storage Company and Northern as natural gas companies within the meaning of the Natural Gas Act, which jurisdiction relates, among other things, to the acquisition and operation of assets and facilities and to tes charged by Storage Company. The FERC also has jurisdiction over the field p:. ices charged by Northern as a producer, under the Nat. ural Gas Act and the Natural Gas Policy Act.
Under certain circum-stances, the FERC also has the porer under the Natural Gas Act and the Natural Gas Policy Act to modify gas sales contracts of interstate pipe-line companies. The Department of Energy (" DOE") is vested with juris-diction to establish and review priorities for curtailment of natural gas in instances of shortage of srpply, while the FERC has jurisdiction to p)
(
establish and enforce curtailments. Panhandle (through Storage Company)
\\
and Trunkline provide the major portion of Registrant's gas supply. The effect of DOE and FERC regulations, present or future, upon Registrant's gas supply and operations cannot be determined although such effect may be materially adverse. See Item 3.
Legal Proceedings.
Certain aspects of Registrant's gas business are subject to regulation by the FERC, such as the incremental pricing of natural gss to industrial users of gas as provided in the Natural Gas Policy Act.
Effective January 1, 1980, pursuant to regulations promulgated under th' Natural Gas Policy Act, Registrant commenced passing on higher gas costs t.horized by the Natural Gas Policy Act to its large industrial ooiler fuel customers.
Certain aspects of Registrant's electric business are subject to regulation by the FERC, including compliance with the FERC's rules and regulations respecting accounting applicable to "public utilities" and
" licensees," the transmissio. of electric energy in interstate commerce and the rates cnd charges fc,r the sale of such energy at wholmle, the construction, operation and maintenance of hydroelectric projects, and the issuance of certain securities, as provided by the Federal Power Act.
Registrant has accepted licenses authorizing the continued operation and maintenance of a number of its constructed hydroelectric projects, which licenses expire in 1993 except for one license for one small project which expires in 1981. Registrant and Detroit Edison have accepted from the Federal Power Commission ("FPC") a license extending to the year 2019 to construct, operate and maintain the Ludington Pumped Storage Plant.
The Federal Power Act provides that if a new license for a hydroelectric q,)
p:', ject is not issued to the original licensee upon expiration of the original license, a new license may be issued to a rew licensee, or the United States may take over the project, upon paying severance damages, rp0379-0110a-06 13
O if any, and the amount of the original licensee's " net investment" in the project but not in excess of the fair value thereof.
Nuclear Regulatory Commission. Under the Atomic Energy Act of 1954 and the Energy Reorganization Act of 1974, Registrant is subject to the jurisdiction of 1.he NRC with respect to the design, construction and operation of its nuclear power plants and with respect to certain other usca of nuclear materials. See Midland Plant and Item 3.
Legal Proceedings.
Registrant's NRC licanse to operate the Palisades Nuclear Plant is provisional in nature and will continue in effect until the NRC acts on Registrant's pending application for a full-term, 40 year operating license. To date, approximately 3,700 of the plant's 17,000 steam gen-erator tubes have been plugged because of damage from various forms of corrosion. Additional tube plugging and coa;equent reductions in the plant's electrical output are possible.
Registrant plans to cont :nue to evaluate the need for steam generator modifications at the plant, and is currently zaable tc predict the likelihood or extent of any such future steam generator modifications.
However, on Jan,ary 3, 1979 Registrmt requested NRC review and approval of a proposal to replace the steam gen-erators at the plant, a request entailing issuance of an amendment to ;he plant's operating license.
In an order Issued July 23, 1979, an ASLB i
granted the Great Lakes Energy Alliance's request for intervention and issued a notice that a hearing will '
conducted in this proceeding.
See Item 3.
Legal Proceedings.
The NRC has approved a program in which its technical staff is making a systematic safety evaluation of a number of older nuclear power facilities including Registrant's Big Rock Point and r 11sades Plants to a
determine and document the degree to which they meet current licensing requirements for new plants. The review will evaluate each plant to determine whether deviations from current NRC requirecants are acceptable or whether changes in design or procedures are required. This program could possibly result in modifications to or shutdowns or outages or deratings of the Big Rock Point and Palisades Plants, to an extent which cannot be determined at thic time.
Ef%ctive August 1, 1977, the NRC's indemnity for public lia-bility coverage under the Price-Anderson amendments to the Atomic Energy Act began to be supported by a mandatory industry-wide program under which owners of nuclear generating facilities could be assessed in the event of nuclear incidents.
Based on the number of Registrant's reactors presently in service, Registrant would be subject to a maximum assessment pursuant to the Price-Anderson amendments of $5,000.000 in the event of a nuclear incident at any nuclear facility, limited, in the event of two or more naclear incidents. to a maximum payment of $10,000,000 in any year.
Regist: ant does not believe that the TMI accident, discussed below, will result in any assessment against Registrant under the Price-Anderson amendments.
Registrant is a member of Nuclear Mutual Limited, established
)
to provide insurance coverage against property damage to members' nuclear J
rp0379-0110a-06 14
A t
i G
generating facilities. Registrant would be subject te a maximum annual arsessment of approximately $30,700,000 in the event of losses.
(TMI was not insured by Nuclear Mutual Limited at the time of the March 28, 1979 accident.) The property damage insurance from Nuclear Mutual Limited maintained by Regis*zant is in the maximum amount available from such insurer, presently $375,000,000, or, in the case of the Big Rock Point Plant, the insurable value of the facility, which is less. Registrant retains the risk of loss to its nucitar plant facilities to the extent the insurable value exceeds $375,000,000 at any location. Registrant regards this risk to be acceptable because of the very low probabilities of occurrence believed to be associated with incidents which could give rise to losses in excess of the insurance. Registrant believes that its-practice in this regard is consistent with that of other utilities similarly situated.
Registrant is a member of Nuclear Eicctric Insurance Limited
("NEIL"), established to provide insurance coverage against the extra expense incurred in obtaining replacement power during prolonged acci-dents 1 outages of members' nuclear generating facilities. Registrant would be subject to a maximum annual assessment of approximately
$8,740,000 in the event of an insured accident at a member's nuclear facility. Registrant would retain risk of loss for any such extra ex-pense incurred during the first six months of an accidental outage after
("'}
which Registrant would he able to recover for a period of 12 months
(,/
$2,000,000 per week or, in the case of Big Rock Point Plant, $225,000 per week, which is Registrant's estimate of 90% of the extra expense that would be incurred. For an additional 12 months the amount recovetable by the Registrant for any such extra expense would be halved. NEIL was established after the TMI accident.
On March 28, 1979 events occurred at TMI near Harrisburg, Pennsylvania, which developed int o a nuclear accident that took several days before plant conditions were stabilized. This accident and sub-sequent investigatjar-resulted in a reexamination of safety standards, equipment and operating, maintenance and emergency procedures for nuclear generating units. As a result of Registrant's review of the TMI accident and pursuant to NRC instructions, Registrant is making several modifi-cations to its Midland Plant, which is of a type and design generally similar to TMI.
(See Midland Plant and Item 3.
Legal Proceedings. and Note 2 to Consolidated Financial Statements on Page 13 of Registrant's Annual Report to shareholders, which Note is incorporated herein.)
Registrant has also made several modifications to its Palisades Plant, which is of a different design but a similar type to TMI. Minor modifi-cations have also been made to the Registrant's Big Rock Point Plant, which is a boiling water reactor.
Pursuant to recently issued NRC requirements, additional modifications to both the Palisades and Big Rock Point Plants are being madd.
In addition, Registrant is continuing to discuss these modifications and tFe methods to be used to apply the lessons learned from the TMI accident with the NRC and with the vendors
()T of the Palisades and Big Rock Point reactors. The NRC has also issued
\\s-new requirements for normal and emergency plant operations. Registrant has made changes in its administrative and operating procedures at its Palisades and Big Rock Point Plants to comply with the new requirements.
rp0379-0110a-06 15
O The NRC and several other federal and stete governmental enti-ties are reexamining the safety, operating procedures and regulatory control of nuclear facilities as a result of the TMI accident.
Regis-trant is unable accurately to predict what effect, if any, their efforts and public concern and publicity concerning the TMI accident will have upon Registrant'a facilities and operations, its ability to raise new capital, or upon the cost of such capital.
Economic Regulatory Administration. The Economic Regulatory Administration (" ERA") within the DOE has assumed jurisdiction in matters previously before the Federal Energy Administration ("FEA").
The FEA as-serted jurisdiction with respect to the use and/or allocation of natural gas, natural gas liquids, coal, crude oil, residual fuel oil and refined petroleua products produced in or imported into the United States. On January 28, 1981 crude oil and refined petroleum products, including natural gas liquids and residual fuel oil, were exempted from price and allocation controls adopted pursur o the Emergency Petroleum Allocation Act of 1973, as amendeo.
see Item 3.
Legal Proceedings.
O O
rp0379-0110a-06 16
p)
\\v (c) Revenue by Class of Service Revenue for the year 1980 (thousands of dollars):
Electric revenue:
Residential
$ 434,842 Commercial 333,572 Industrial 442,751 Interdepartmental and other 14,967 Other resale 38,258 Miscellaneous 9,175
$1,273,565 Gas revenue:
Residential
$ 508,820 Industrial and commercial 439,979 Interdepartmental 14,489 Other resale 17,176 Miscellaneous 5,920
$ 986,384 Other revenue 44,034 7-~
Total operating revenue
$2,303.383 1
'\\#
Segment Information Segment information is incorporated by reference to the Consolidated Statement of Income on Page 8 and Note 10 on Page 17 of Registrant's Annual Report to shareholders which Statement and Note are incorporated herein.
ITEM 2.
Pi IRTIES.
Character of Ownership The statements under this itam as to ownership of properties are made wit *out regard to leases (except as disclosed with respect to oil and gas exploration and production), tax and assessment liens, judgments, easement 4, rights of way, contracts, reservations, exceptions, sonditions, 'mmaterial liens and encumbrances, and other outstanding rights affecting such prop-erties. The following information is given as of December 31, 1980.
The electric lines and gas mains of Registrant are located on or under public highways, streets, alleys or lands, except where they are located on or under property owned by Registrant or occupied by it under easements or other rights. These easements and rights are deemed by Registrant to be
(}
adequate for the purposes for which they are being used. Generally, where
(_,/
payments therefor are minor in amount, no examinations of underlying titles as to the rights of way for transmission or distribution lines or mains have been made.
rp0379-0110a-06 17
O Electric Properties Generating statistics for each plant are set forth in the table below:
1980 Not Net Demonstrated Generation Name and Location (Michigan)
Capability (Thousands of of Station (Kilowatts)
Kilowatthours)
Conventional steam plants:
J H Campbell - West Olive 1,272,500*
4,349,948 J C Weadock - Essexv111e 499,000 1,804,540 D E Karn - Essexville 1,763,000 6,064,106 J R Waiting - Erie 310,000 1,936,601 B C Cobb - Muskegon 483,000 2,509,818 B E Morrow - Comstock 114,000 173,4B Total conventional steam plants 4,441,500 16,838,457 Nuclear steam p'. ants:
Big Rock Point - Charlevoix 63,000 404,381 Palisades - South Haven
_ 740,000 2,333,026 Total nuclear plants 803,000 2,737,407 Ludington Pun. ped Storage 954,700**
1,159,301 Gas turbine plaats:
Thetford - Flint 278,000 150,888 Gaylord - Gaylord 97,000 45,322 B E Morrow - Comstock 38,000 22,381 Straits 1 - Mackinaw City 28,000 5,806 Campbell A - West Olive 21,000 2,455 Weadock A - Essexv111e 21,000 8,859 Whiting A - Erie 21,000 2,344 Total gas turbine plants 504,000 238,055 Hydro plants:
Hardy - Oxbow 32,400 79,813 Tippy - We11ston 21,000 51,737 Hodenpyl - Mesick 18,400 36,474 Others (10 plants) 61,800 215,386 Total hydro plants 133,e00 383,410 Total all stations 6,835,800 21,356,630
- Includes Registrant's share of the capacity of Campbell Plant Unit 3, net of 4.80% (undivided ownership interest of the Michigan Public Power Agency) and net of 1.89% (under contract to be sold to two transmission and generation cooperatives).
O rp0379-0110a-06 18
- Represents Registrant's snare of the capacity of the Ludington Pumped Storage Plant. Registrant and Detroit Flison have 51% and :49% undivided ownership, respectively, in the plant and the capacity of the plant is shared accordingly. Agreements are in ef fec:t providing for the purchase by Commonwealth Edison Company of one-third of the plant's capacity until August 1983 and one-sixth of the plant's capacity thereafter until August 1988.
i Electric transmission and distribution lines owned and in service are as fo11c.. :
Pole Miles Cable Miles Total Miles Transmission:
1,864 345,000 volt 1,864 3,531 138,000 volt 3,531 120,000 volt 24 24 46,000 volt 4,276 8
4,284 13 41,600 volt 13 23,000 volt 54 3
57 Total transmission 9,762 11 9,773 Distribution (Under 22,000 volt) 46,415 5,303 51,718 Total transmission and distribution 56,177 5,314 61,491 Registrant owns substations having an aggregate transformer capacity of 10,004,217 kilovoltamperes.
Gas Properties As of December 31, 1980 Registrant's gas property consisted of:
the Marysville Gas Reforming Plant, located in Marysville, Michigan, on which the mothballing is 90% complete; a gas distribution and transmission system; and compressor stations located at Registrant's storage fields and along the gas transmission lines.
i The gas distribution and transmission systems consist of 17,719 and 1,339 miles of gas mains, respectively, throughout the Lower Peninsula of the State of Michigan. Registrant owns and operates five compressor stations with l
96,910 installed horsepower.
O N-)
rp0379-0110a 36 19
O Listed below are Registrant's gas storage fields with an aggregate storage capacity of 243,07,000 thousand cubic feet (Mcf):
Certified Field Name Location Storage Capacity (Mcf)
Overisel Allegan County 64,000,000 Salem Allegan County 35,000,000 Ira St Clair County 7,500,000
!.enox Macomb County 3,500,000 Ray Maco.ob County 66,000,000 Northville Oakland, Washtenaw and Wayne Counties 22,412,000 Puttygut St Clair Coun y 16,600,000 Four Corners St Clair County 3,780,000 Swan Creek St Clair County 650,000 Hessen St Clair County 17,980,000 Marsac Creek St Clair County 5,675,000 Other Properties Regist ant occupies three General Office buildings in Jackson, Michigan and 60 Region and District Offices at various locations in the Lower Peninsula. Of th(se, two of the General Of fice buildings and 15 of the Region and District Offices are leased.
(Also see Note 5 to the Consolidated Financial Statements on Page 15 of Registrant's Annual Report to shareholders, which Note is incorparated herein.) Also owned are miscellaneous parcels of real estate not now used in utility operations.
Construction Program Reference is made to Note 3 to Consolidated Financial Statements on Page 13 of Registrant's Annual Report to shareholders, which Note is incorporated herein.
During 1980 the Registrant and its subsidiaries incurred gross property additions of $739,532,000, including approximately $93,000,000 for environmental protection additions. The 1980 program included costs for con-struction of two major projects as follows:
O rp0379-0110a-06 20
O
\\. l Estimated Project and Year of Estimated Location Features Operation Total Cost (b)
Midland Plant Two nuclear fueled 1983-84(a)
$3,100,000,000(a)
(Midland, Michigan) units with ageregate nameplate rating of about 1,357,000 kilowatts (estimated cost $1,739 per kilowatt (a)) and 4,050,000 pounds per hour of process steam J H Campbell Plant, One coal-fired unit at Began commercial $ 590,000,000 Unit 3 (Port existing plant site operation Sheldon, Michigan) to add approximately September 26, 770,000 kilowatts 1980 (nameplate rating)
(estimated cost $796 per kilowatt) of capacity (a) Reference is made to Note 2 to Consolidated Financial Statements on Page 13 of Registrant's Annual Report to shareholders, which Note is incorporated herein.
(b) Estimated costs are subject to review and change from time to time to reflect changes in schedule, inflation rates, additions to or changes in license conditicas u>d regulations and other factors. Costs (in thousands of dollars including dollars related to anticipated participation in the Campbell Plant Unit 3 by other parties) have been incurred or are scheduled to be incurred as follows:
Estimated Prior to 1980 1980 After 1980 Midland Plant
$1,263,454
$307,325
$1,529,221 J H Campbell Plant 485,093 93,850 11,057 The 1980 construction program included $401,175,000 for the Midland Plant and the J H Campbell Unit 3 and $338,357,000 for other facilities, in-cluding other electric production facilities, power supply projects, electric transmission and distribution facilities, gas supply lines, gas production, transmission and distribution facilities, general, miscellaneous and steam additions, and subsidiaries' construction programs. Of this $338,357,000,
.)
$216,609,000 was incurred for electric additions including $71,491,000 for nuclear fuel, $63,138,000 for gas additions and $58,610,000 for general, miscellaneous and steam additions, including subsidiaries' additions.
rp0379-0110a-06 21
Registrant and its subsidiaries propose to incur construction costs for property additions in 19P1, including approximately $109 million for environmental protection Mditions, in an estimated amount of $666 million, not of leased nuclear fuel. Of this $666 million, it is estimated $562 mil-lion will be incurred for electric additions, $55 million for gas additions and $49 million for general, miscellaneous and steam additions, including additions of Registrant's subsidiaries.
Reference is made to Item 3.
Legal Proceedings, and to Note ; 4.o Consolidated Financial Statements on Page 13 of Registrant's Annual Report to shareholders, which Note is incorporated herein.
Subsidiaries Northera. Northern has carried on an oil and gas exploration program in the northern part of the Lower Peninsula of Michigan f ar the past several years, and has varying interests in oil and gas leases on lands covering approximately 391,000 acres in that area.
Such leases authorize exploration for oil and gas and provide for landowners' royalties. Northern owns all or part of the working interest in 137 oil (
ga,t.-'Is in several fields in northern Michigan.
Further drilling and development will be re-quired in som> of the fields in which these wells ara located, and additional exploration is planned in northern Michigan at an estimated cost of $4e million for the 1981-1985 period.
Northern is also participating with others in the exploration and development of 20,000 acres n four tracts
. of fshore Louisiana and Northern's net partic ipat ion therein is 2,0^0 acre, It is estimated that an additional 44,000,000 will be spent for exploration and development in the 1981-1983 period.
Four prcduction platforms have been set on three of the tracts and production has commenced.
Drilling has been finished and com-pletion is in progress on a fifth platform on one of these tracts.
Drilling is in progress from a sixth platform installed on one additional tract.
Northern supplies Registrant with approximately 16 million cubic feet of gas per day from these trac *s.
Northern is part icipating with others in the exploration of approximately 850,000 acras in various prospects in the United States outside the State of Michigan.
In addition, under exploratory agreements with other operators, Northern has an int. rest in petroleum concessions in Australia, the country of Belize and the Kingdom of Tcnga.
Northern's geologis.s and petroleum engincors estimated, as of January 1, 1981, that Northern held working interests in prospects which amounted to ?pproximately 8 million barrels of proven oil reserves as well as approximately 62 billion cubic feet of proven gas reserves.
In 1980 the net ince=e of Northern provided 7.6*, of the net income of Registrant.
No reports have been filed with any regulatory agencies which include total oil or gas reserves attributable to Northern.
Northern estimates that its 1981 net production will consist of approximately 1,380,000 barrels of oil and approximately 10,460,000 Mcf of gas.
rp0379-0110a-06 22
For the years 1976 through 1980 net oil and gas production of Northern is sh e in the following table:
1980 1979 1978 1977 1976 Oil - Barrels 1,470,000 1,437,000 1,347,000 1,319,000 1,337,000 Gas - Mcf 11,451,000 10,600,000 13,900,000 15,949,000 16,984 000 7
Plateau. Plateau owns or has under lease or option 77,500 acres in Nevada, Colo-ado and Utah. The property consists primarily of unpatented and currently nonproducing mining claims in Utah. However, a small portion is comprised of state leases and fee lands.
Because of the dramatic decrease in the market price of ursnium concentrates during 1980, Plateau has suspended virtually all activities outside the Henry Mountains area of Garfield County, 4
Utah, with corresponding reductions in staff and in property positions.
Plateau has a tentative agreement to sell to Minatome Corporation 911 of its Paradox Basin area properties which consist of approximately 35,000 acres located in San Juan Cctaty, Utan and Mentrose County, Colorado. Negotiations are in progress and the agreement is expected to be completed in early 1981.
On September 21, 1979 the NRC issued a license for a uranium processing fac.11ty near Shootaring Canyon in the Henry Mountains area of Utah. As of December 31, 1980 construction work on the project was 90% complete and engineering work was 100% complete. The processing facility will be usei prtrrarily to process uranium ore mined from Plateau's ewn properties. The f.
facility, which is being constructed by Mountain States Mineral Enterprises,
(
Inc, was nearly complete and ready for testing by the end of February 1981 but work sas suspended as of March 7, 1981, except for work within the tailings area. The work was suspended to facilitate long-term financing of the facility and because of the depressed state of the uranium market, and because of certain disputes with Mountain States Mineral Enterprises, Inc.
The suspension is expected to be in effect for approximately six months.
In February 1979 Plateau formed a wholly-owned subsidiary, Canyon, in Utah to provide housing and community services for Plateau's mine and mill workers.
In May 1979 Registrant entered into an agreement for the purchase of uranium concentrates with Plateau pursuant to which Plateau agreed to sell and Registrent agreed to purchase at least 4,000,000 pounds of contained U 038 I"
U03 8 c ncentrates over an eight-year period. The purchase price for the U,08 concentrates delivered under the agreement will consist of the higher of the
" market price" (as defined in the agreement) or 110% of Plateau's " cost of production" (as defined in the agreement), subject to certain adjustments and exceptions. There is no assurance that Registrant will be able to recover from its customers any amounts paid Plateau for U 03 8 concer.trates which exceed the " market price" (as determined by the MPSC). Any U 03 8 concentrates pro-duced by Plateau in excess of the contracted quantities must be offered first to Registrant at a price to be negotiated between Registrant and Plateau at that time.
Registrant anticipates that the agreement will be modified during 1981 to modify quantity and delivery terms.
Becausa of delays in construction h
and operation of the Midland Plant, Registrant denires to reduce near-term V
deliveries. Plateau desires to increase the term of the agreement and the total quantities of uranium concentrates to be delivered.
rp0379-0110a-06 23
As of December 31, 1980 Registrant had a net investment of
$38 million.n Plateau. As of December 31, 1980, Plateau's plant investment was $82 miliion and Plateau had invested approximately $3.4 million in Canyon.
i orage Company Storage Company holds title to gas storage fields located in the Lower Peninsula of Michigan which have an aggregate st ; rage capacity of 117 000,000 Mcf:
s Certified Field Name Location Storage Capacity (Mcf)
Winterfield Osceola and Clare :. aunties 75,000,000 Cranberry Lake "lare County 30,000,000 Riverside hissaukee County 12,000,000 It owns and operates two compressor stations with 46,600 installed horsepower.
ITEM 3.
LEGAL PROCEEDINGS.
(m) On December 14, 1977 a claim for refund to customers amounting to approximately $7,76:s,000 plus interest charges with respect to electric rates placed in effect in October 1969 by court order but not approved by the MPSC until April 20, 1970 was denied by the Ingham County Circuit Court ("Cir-cuit Court").
On February 20, 1979 the Michigan Court of Appeals (" Court of Appeals") affirmed the Circuit Court's action, and on March 12, 1979 the Attorney General of Michigan (" Attorney General") petitioned the Michigan Supreme Court for leave to appeal the Court of Appeals' action. The Michigan Supreme Court granted leave to appeal and directed the parties to brief the issue of whether Registrant should be required to refund the rates collected under bond and subject to refund. Briefing has been completed and oral argument was held before the Michigan Supreme Court in January 1980. The Michigan Supreme Court has not yet decided the case.
(b) On April 24, 1978 the Court of Appeals affirmed actions taken by the Circuit Court with respect to an order issued by the MPSC on July 21, 1975. The July 1975 order resulted from an application by Registrant for authority to ameno the FCAC in Registrant's electric tariffs to reflect, among other things, changes in purchased and interchange power cost.
The order re-manded and consolidated the proceeding with Registrant's then pending electric rate proceeding (see following paragraph).
Alleging, among other things, that Registrant had overrecovered more than $12,789,000 of FCAC revenue (through application of FCAC adjus:ments to all kilowatthours sold, whether genera :ed or purchased), the Attorney General appealed the order to the Circuit Court, and requested that Registrant be restrained from recovering through the FCAC (1) revenues which exceed Registrant's increased cost of fuel burned by Registrant and (ii) higher fuel costs incurred as the result of Registrant's
" unnecessary" renegotiation of ;oal purchase contracts. On February 27, 1976 the Attorney General amended his appeal to allege, among other things, that during the period January 1974 through November 1975 the FCAC had raised Registrant's rates $103,000,000 higher than the increased cost of fuel burned rp0379-0110a-06 24-
O V
by Registsant. The amount was based on an error in an MPSC Staff repcrt which was later corrected to change the $103,000,000 tu J,12,881,000.
The Attorney General's amended complaint also contained allegations that (i) during the period February 1975 through November 1975, Registrant's FCAC operated so as to raise its electric rates $57,700,000 higher than the increased cost of fuel burned by Registrant, and (ii) during the same period, Registrant's FCAC operated so as to raise Registrant's electric rates $17,200,000 more than the sum of (a) the cost of fuel burned by Registrant and (b) the estimated cost of the fuel expense portion of power purchased by Registrant from others. Regis-trant believes that if the amounts in clauses (i) and (ii) in the preceding sentence were calculated on a basis consistent with the corrected MPSC Staff report, they would be $9,893,000 and $4,739,000, respectively.
In early 1977 the Circuit Court granted a motion by Registrant for accelerated judgment on the grounds that tbc July 1975 order was not final. The Court of Appeals' April 1978 opinion found the Circuit Court's actions proper because "all issues raised" in the proceeding were before the Circuit Court in the proceed-ing described in the following paragraph (c).
(c) Several appeals are pending before the Circuit Court of matters arising from an order issued by the MPSC on April 12, 1976 which authorized Registrant to increase its electric rates in the annual amount of $33,977,000.
The order also (i) found that Registrant's existing FCAC had not resulted in any overrecoveries of cost by Registrant, (ii) authorized a purchased power adjustment clause ("PPAC") which operates, after notice and hearing, to pass 3
through to customers 90% of monthly increases and decreases in such costs, (iii) replaced the existi:-g FCAC with one which permits only 90% of monthly increases and decreases in such costs to be automatically passed through to customers and (iv) ordered " reconciliation" hearings which would result in refunds to customers of amounts collected through operation of the two clauses in excess of 90% of the amounts actually expended for fuel and purchased and interchange power over and above the basing points in the clauses. On May 12, 1976 Registrant appealed the order, requesting that it be granted additional rate relief in the arnual amorat of approximately $41,600,000. On May 12, 1976 the Attorney General appealed the order requesting, among other things, that: a refund be ordered of all amounts collected in excess of the rates in effect prior to April 1976; the monthly PPAC hearing procedures and any purchased power adjustment charges resulting therefrom be enjoined; and the MPSC be directed to investigate alleged "overcollection" under Registrant's l
FCAC. Registrant and the Attorney General appealed the first monthly order to l
the Circuit Court and the Attorney General has appealed each of the subsequent
[
monthly orders which authorized a positive PPAC cdjustment in Registrant's electric rates. Through Deceiber 31, 1980 Registrant had cc)1ccted revenues authorized by positive PPAC adjustments of approximately $218,276,000. On January 16',
1981 the Circuit Court issued an opinion dismissing that portion of the Attorney General's appeal which challenged the validity of the PPAC hearing procedures and adjustment charges resulting from such procedures, and dismissing that portion of Registrant's appeal which challenged the reduction of purchased power expense in the two PPAC monthly hearings when Registrant's nuclear generating plants had been out of service for periods in excess of 90 days. Certain other issues remain to be decided by the Circuit Court.
In
)
orders issued following the first two of the monthly PPAC hearings, the MPSC authorized PPAC expense adjustments in Registrant's rates, after reducing such expense to reflect the cost of power purchased to replace generation from rp0379-0110a-06 25 i
Registrant's nuclear generating plants to the extent such plants had been out of service for periods in excess of 90 days. More recently the MPSC has allowed the recovery o'
'AC expense even though it was attributable to generating plant outa,, extending for periods beyond 90 days (see following paragraph).
The Pali ' des Nuclear Plant was out of service from early September 1979 until latr
(
1980 for refueling and maintenance, for inspections and reviews in connection with certain alleged license violations, and for nodifi-cations necessary to meet NRC seismic and other requirements. The Palisades Plant outage resulted in increases in Registrant's costs for replacement 7
powe, calculated by Registrant (net of offsetting nuclear fuel cost) to be approximat :ly $7.5 million per month.
In PPAC orders issued in February, March, April, May, June and July 1980, for the cost months of December 1979 and January, February, March, April and liay 1980, respectively, the MPSC did not disallow the recovery of any replacement power costs attributable to the Palisades Plant outage.
On May 13, 1980 the Attorney General petitioned the MPSC for rehear:ng of its April 1980 PPAC order for the cost month of February 1980. The Attorney General alleged that the Palisades Plant was shut down in February 1980 for the reason, in whole or in part, that Registrant had vio-lated NRC safety regulations and requested, among other thirgs, that the MPSC:
(a) determine that the effect of the Palisades Plant outage on Registrant's PPAC expense for the month of February 1980 was $10,487,000 rather t'aan the
$6,679,70t determined by the MPSC in its April 1980 PPAC order; (b) redeter-mine the PPAC expense for February 1980 eliminating the PPAC expense occa-sioned by the plant outage; (c) cancel, revoke and ret.cind Registrant's PPAC; and (d) order Registrant to refund all amounts collected pursuant to the PPAC adjustment authorized by the MPSC's April 1980 PPAC order. The Attorney General's pe,tition was denied on August 8, 1980. On June 27, 1980 the Attor-ney General appealed the MPSC's May 1980 PPAC order for the cost month of March 1980 to the Circuit Court requesting relief similar to that sought in his petition for rehearing of the April 1980 PPAC order. Similarly, on July 14, and August 25, 1980 the Attorney General appealed the MPSC's June and July 1980 PPAC orders to the Circuit Court.
And on September 8, 1980 tne Attorney General appealed an MPSC order dated August 8, 1980 on reconciliation of July-December 1979 fuel and purchased and net interchange power axpenses.
The Attorney General claimed, among other things, that upon reconciliation.
the MPSC should have disallowed expenses incurred by Registrant as a result of the shutdown of the Palisades Plant during the month of December 1979.
(d) On January 23, 1975 the MPSC issued an order increasing Regis-trant's electric rates $66,231,000 on an annual basis. The Attorney General and UAW-CAP appealed the order to the Circuit Court, requesting that such rate j
incr,ase be rastrained and enjoined during the pendency of the litigation. At issue in the 'itigation are electric rates collected during the period January 1975 through April 1976.
On February 2, 1981 the Circuit Court dismissed the appeal for lack of progress.
(e) On January 13, 1978 the Court of Appeals rejected an em rgency appeal taker. on December 23, 1977 by the Attorney General of a Decer,ber 6, 1977 Circuit Court temporary injunction allowing Registrant to collec.t approx-imately S10,900,000, under bond and subject to refund, from its customers in the billing month of December 1977 through operation of Registrant's PPAC.
rp0379-Olloa-06 26
r n
The Circuit Court acted because the temporary incapacity of one of the three MPSC Commissioners had resulted in the failure of the MPSC to issue any order following the PPAC hearings for that billing month. The Circuit Court has not yet issued a final order.
(f) On January 31, 1977 Registrant filed an.pplication with the MPSC requesting authority to increase its rates for the sale of electricity.
On July 31, 1978 the MPSC issued an order authorizing an increase in Regis-trant's return on common equity for its electric business from 12.75% to 13.50% und authorized Regf.strant to increase its rates for the sale of elec-tricity $54,998,000, on an annual basis, which includes an interim electric rate increase in an artuil amount of $15,212,000 granted in March 1978 which had previously been placed in effect under bond and subject to refund. An 4
appeal be the Attorney General of the March interim rate order is currently pending before the Circuit Court. The July 1978 order also denied applica-tions for rehearing,of the interim rate order which had been filed by certain industrial custom us who had requested that interim ra'te design be changed so that all classes of customers would pay an equal percentage surcharge and had further requested refunds of any amounts paid in excess of such equal percen-tage surcharge. The MPSC's July 1978 order also provided for a Consumer Price Indexing System (" Indexing System") pursuant to which Registrant will annually (in February) adjust its rates to reflect a percentage increase or decrease in the Other Operations o:.d Maintenance Expense base in its rates equal to the annual increase or decretse (during the preceding 12 months, ending each
,,_s1 August) of the Consumer Price Index. On August 30, 1978 the Attorney General
!\\~ /
and an industrial customer appealed certain aspects of the MPSC's July IS/8 order, including the Indexing System and the " system availability incentive provision" (see paragraph (g) below), to the Circuit Court.
On January 29, 1979, in accordance with the Indexing System, the MPSC authorized an increase in Registrant's electric rates by tb amount of approximately $12,279,000 for the 12 months 'ueginning February
,19 to reflect changes in the Consumer Price Index occurring between August 1>77 and August 1978. On February 7, 1979 the Attorney General appealed the MPSC's January 29, 1979 Indexing System order to the Circuit Court. On January 8, 1980 the MPSC issued an order increasing Registrant's electric rates by the amount of approximately $20,283,000 for the 12 months beginning February 1980 to reflect changes in the Consumer Price Index occurring between August 1978 and August 1979. On February 7, 1980, the Attorney General and Dow appealed the MPSC's January 8, 1980 order to the Circuit Court. On January 30, 1981 the MPSC issued another order increasing Registrant's electric rates by the amount of approximately $23,950,000 for the 12 months beginning February 1981 to reflect changes in the Consumer Price Index occurring between August 1979 and August 1980. On Februtry 13: 1981, the Attorney General appealed the January 30, 1981 order to the Circuit Court. These three appeals are pending before the Circuit Court.
On October 26, 1978 the Attorney Genera.
.d a motion requesting that such proceeding be reopened to reduce Registr-rates to reflect the f-~g reduction from 48% to 46% in the federal income 1 plicable to corpora-(' ')
tions. The MPSC did not act on the motion.
Howe. a, en January 3, 1979 the MPSC requested that Registrant furnish the :L 7 "itt information regarding the net impact of changed federal tax laws and further requested that Registrant rp0379-011]a-06 27
make application to reduce its rates to reflect such changes.
In response co such request Registrant made application on January 11, 1979 to reduce its electric rates $1,665,000 on an annual basis, which reduction was ordered by the MPSC on January 29, 1979. Registrant did not make a similar filing with respect to its gas business because Registrant's current gas rate proceeding is pending before the MPSC.
In its July 1978 electric rate order, the MPSC also determined that it was appropriate that:
(1) owners of single-family residences and duplexes should be classified as ";esidential" customers, (ii) owners of centrally-metered, multiple-family dwellings with three to four residences should (at their option) be classified as either " residential" or " general service" (com-mercial) customers, and (iii) owners of centrally-metered, multiple-family dwe' lings with 'ive or more resicences should be classified as " general service" customers. Under Registrant's tariffs, some apartment owners would, if classified as " residential," receive service at a lower rate than that at which they received service as " general service" customers. On August 31, 1978 certain intervenors in the electric rate proceeding (" Apartment Owners"),
discussed above, appealed the MPSC's July 1978 order to the Circuit Court claiming, among other things, that the order was unconstitutional and that it prescribed rates for some residential uses (namely centre 11y-metered apart-ments) which were different from those prescribed for other (singly-metered and four-family-or-less) residential uses.
In June 1979 the Circuit Court denied the Apartment Owners' request for injunctive relief and refused to require sequestration or segregation of the amounts in dispute during the pendency of the proceeding. The Circuit Court did not, however, ru!c on the question of whether the Apartment Owners could maintain their appeal as a class action, or on the ultimate question of whether residential end use mandates the classification of multiple-family dwellings with five or more apartments as " residential." Registrant is unable to predict the outcome of this proceeding but is advised that the total exposure of Registrant, should the Apartment Owners' appeal succeed, may be as high as $1,000,000 per year in lost revenue, commencing in July 1978.
(g) The July 1978 order discussed in paragraph (f) above also established a " system availability incentive provision" pursuant to which the authorized return on Registr>nt's common equity would be increased (or decreased) by specified amounts if Registrant's electric generating plants were available for the production of electricity during any calendar year at i
more (or less) than specified levels. The provisions of the availability incentive system have been reexamined in subsequent rate cases and changed where the MPSC found it appropriate.
In an order issued August 19, 1980, the MPSC found that Registrant's electric generating plants had been available during calendar year 1979 between 80.1 and 85.0% of the time and, accordingly, authorized Registrant to increase its authorized rate of return on common equity by an increment of.25 percentage point through the imposition of a surcharge of.246 mill per kWh on all metered males for the 12-month period commencing August 20, 1980. The surcharge is designed to collect approx-imately $6,000,000 in revenue. On September 18, 1980 the Attorney General appealed the MPSC's August 19, 1980 order to the Circuit Court.
The matter is pending before the Circuit Court.
rp0379-0110a-06 28
.= - -.
O (h) On January 23, 1978 the MPSC, acting on an application pending since November 27, 1974, authorized Registrant to increase its rates for the sale of natural gas $10,995,000, on an annual basis, in addition to interim gas rate increases in the annual amounts of $29,194,000 and $4,928,000 granted in June 1975 and March 1977, respectively, which had previously been placed in effect under bond and subject to refund. The January 1978 order also estab-lished a purchased jas adjustment clause ("PGAC") reconciliation procedure e
which requires ref tnds in the event of overrecoveries but does not provide for i
the collection of underrecoveries. On February 22. 1978 Registrant appealed the MPSC's January 1978 PGAC reconciliatien procedure determination ^o the Circuit Court. The matter is pending before the Circuit Court.
(1)
In March 1978 Registrant filed an application with the MPSC requesting an increase in its rates for the sale of gas of not less than
$76,200,000 on an annual basis. On July 10, 1978 the MPSC issued an order granting Registrant partial and immediate gas rate relief in the annual amount of $19,885,000 under bond and subject to refund. On August 9, 1978 the Attor-ney General appealed the MPSC's interim rate order to the Circuit Court. On June 27, 1979 the MPSC issued an order in the proceeding autnorizing an in-crease in Registrant's gas rates of $29,162,000 on an annual basis, inclusive of an interim increase granted ir July 1978. The MPSC's June 1979 order affirmed the interim increase and discharged the bond which Registrant had posted in connection tht :ewith.
In July 1979 several intervenors in the proceeding, including the Attorney General, appealed the MPSC's June 1979 order to the Circuit Court. The appeals alleged, among'other things, that the Marysville Gas Reforming Plant was no longer "used and useful" in providing gas service to Registrant's customers, and that the MPSC's June 1979 order had erred in (a) affirming the July 1978 interim increase, (b) including Regis-trant's investment in the Marysville Plant in the rate base upon which rates were established and (c) recognizing as proper operating expenses Marysville Plant depreciation, feedstock cost and operating and maintenance ("O&M")
expense.
Injunctive relief was also sought, including a reduction in Regis-trant's gas rates by the amount of.Marysville, Plant O&M expense recognized by the MPSC's June 1979 order.
On September 5, 1979 Registrant announced its intention to
" mothball" its Marysville Plant. On September 6, 1979 the MPSC issued an order reopening the gas rate proceeding and directing Registrant to file j
additional testimony regarding the effect of mothballing the Marysville Plant on the rates established by the June 1979 order. On September 7, 1979 the Circuit Court ordered Registrant to reduce its rates $11,212,000 annually, the Marysville Plant O&M expense reflected in the June 1979 order.
(The other issues raised in the appeals of the MPSC's June 1979 order are pending before i
the Circuit Court.) On September 21, 1979 Registrant filed testimony with the MPSC indicating that the effect of the Marysville Plant mothballing on the rates established by the June 1979 order would be to reduce the annual revenue requirement found by that order by the amount of $23,914,000, inclusive of the
$11,212,000 Marysville Plant O&M costs.
On October 2, 1979 the MPSC issued an order reducing Registrant's
\\
gas rates by the annual amount of $23,914,000, inclusive of the $11,212,000 Marysville Plant O&M costs, and ordering hearings to proceed to ascertain whether further rate reductions would be appropriate. On November 2, 1979 the rp0379-0110c-06 29
i O'
Attorney General petitioned the MPSC for rehearing of the October 2, 1979 order.
The Attorney Gen:ral alleged that (a) the reduction of Registrant's gas rate; mandated by the order should be retroactive to June 27, 1979 and the difference ir revenue that would result from such retroactive effectiveness should be refunded with interest; (b) Registrant should be required to refund the revenue difference attributable to the difference between the gas rates authorized in the July 10, 1978 interim order and those authorized by the October 2, 1979 order; (c) Registrant should be required to refund with interest all moneyr it has collected pursuant to purchased gas adjustments during the years 5/8 and 1979 resulting from the inclusion of feedstock costs for the Marysville Plant and the calculation of said purchased gas cdjust-ments; and (d) Registrant should be required to file a bond to guarantee refunds with interest of revenues attributable to any dif ference between gas rates ultimately ordered in the reopened proceeding and those charged pursuant to the MPSC orders dated July 10, 1978, June 27, 1979 and October 2, 1979.
On August 19, 1980 the MPSC issued an order denying the Attorney General's application for rehearing of the MPSC's October 2, 1979 order reducing rates.
On September 18, 1980 the /dtorney General appealed both the MPSC's October 2, 1979 order reduc:ag rates and the MPSC's August 19, 1980 order denying application for rehearing to the Circuit Court.
The appeal is pending before the Circuit Court.
In the Marysville Plant hearing ordered by the MPSC's action of October 2, 1979, the MPSC Staff bis taken the position that Registrant should not be allowed to earn a return on its not investment of approximately $104 million in the Marysville Plant, but should be allowed to amortize or "depre-ciate" such investment in utility cost of service over a period ending in 1938. Two industrial intervenors have taken the position that the Marysville Plant is no longer "used and usefu}" in providing utility service and should Ea eliminated r~ rom the rate base and cost of service. The Attorney General has taken the position that Registrant should have ceased operation of the i
Marysville Plant and removed it from the rate base no later than Gctober 1, 1977. On that theory, a witness for the Attorney General has recommended that Registrant make refunds to its customers, reflecting the reduced cost of service and revenue requirement which would have existed had the Marysville Plant not operated, of up to $239 elllion.
Registrant has taken the position that the Marysville Plant should L. treated as plant held for future use, in which event Registrant would be allowed a return on its net investment in the facility. The only lawful alternative to treatment of the Marysville Plant as plant held for future use, in Registrant's view, is to treat Registrant's net investment as an extraordinary property loss.
In the event it is so treated, Registrant's position is that Regist' ant is entitled to amortize the loss in cost of service and to receive a return on the unamortized portion of the loss.
On January 25, 1980 Registrant filed an application with the MPSC requesting an increase in its rates for the sale of gas of not less than
$76,d71,000 on an annual basis..
In the applicaticn, Registrant asked the MPSC to either consider its request in a new gas rate proceeding or in the reopened phase of the prior gas rate proceeding. On March 7, 1980 the MPSC issued an order denying Registrant authority nn file a new rate proceeding, but permit-ting Registrant to supplement the record in the prior gas rate proceeding on a rp0379 -0110a-06 30 l
s i J
limited basis.
In response to the March 7 order, Registrant filed an appli-cation with the MPSC on May 5, 1980 requesting an increase in its rates for the sale of gas of not less than $129,171,000 on an annual basis, and seeking a lesser amount on partial and immediate rate relief. On February 10, 1981 the MPSC issued an order granting Registrant a partial and immediate rate increase of $76,736,000, on an ar.aual basis, under bond and subject to refund.
(j) On January 29, 1979 Registrant filed an application with the MPSC seeking increases in its retail electric rates to reflect increased costs of doing business and the anticipated placement in service of J H Campbell Plant Unit 3.
On August 8, 1980 the MPSC issued an order increasing Registrant's electric rates $70,278,000 on an annual basis, inclusive of an interim rate increase granted in November 1979, and authorizing a further increase (to be implemented by means of a surcharge of 3.78 mills per kWh on all metered sales) in Registrant's electric rates in the annual amount of
$97,452,000, under bond and subject to refund, un the date that Campbell Plant Unit 3 reached commercial operation status. The August 8, 1980 order further provided that further hearings would be held after the date of commercial operation of Campbell Plant Unit 3 to " verify and modify" the new rates.
Campbell Plant Unit 3 went into commercial operation on September 26, 1980, at which time Registrant commenced applying the surcharge provided for in the August 8, 1980 order to the bills of Registrant's customers. During September 1980, several commercial and industrial intervenors appealed the MPSC August 8, 1980 order to the Circuit Court, alleging errors in the area of rate
-s (s) design, including error in implementing the rate increase attributable to the commercial operation of Campbell Plant Unit 3 by means of a uniform surcharge to all metered sales. This litigation is pending before the Circuit Court.
On September 5, 1980 Registrant filed an application with the MPSC for rehearing of the August 8, 1980 order, alleging that the design of certain industrial rates provided for in the order was such that an underrecovery of revenues in the annual amount of approximately $6.3 million would result. On September 8, 1980 the Attorney General filed an application with the MPSC for rehearing of the August 8, 1980 order, alleging numerous grounds for error, including adoption in the order of improper levels of fuel and purchased power expense. On September 29, 1980 Registrant filed an answer to the Attorney i
General's application for rehearing in which Registrant indicated that it would not oppose the granting of a rehearing to the Attorney General for the limited purpose of determining appropriate current fuel and purchased power expense. On October 17, 1980, the MPSC granted partial rehearing. Regis-trant's petition for rehearing to address the alleged error in industrial rate design was granted. The Attorney General's request for rehearing was granted only with respect to his allegation that fuel and purchased power costs were improperly determined. Hearings have been held and by order issued December 30, 1980, the industrial rates were redesigned as requested by Registrant. The MPSC kept the matter of the fuel and purchased power expense under advisement.
The calculations in (n) through (j) pertaining to amounts of rate relief granted or requested are based on the test yaars governing the respec-
')
tive rate cases, and revenues actually realized depend upon actual unit sales of electricity and gas.
rp0379-0110a-06 31
O (k) Effective January 1, 1978, in connection with its FCAC and PPAC, Registrant began to record as revenue the differences between actual FCAC and PPAC expenses billable in subsequent periods under such clauses, which include a three-month lag, and the amounts billed currently. The dif-ferences (lag correction) were previously not recorded until billed or cred-ited due to uncertainty with respect to the disposition of such amounts in the event Registrant's adjustment clauses were changed pursuant to a general j
rate order or otherwise. The accounting, which is a modification of the cal-culation of unbilled revenue, provides a better matching of revenues with related costs and is based upon an MPSC order issued May 1, 1978, in Case No U-5609, which permitted the modification and expressed the MPSC's expectation that a future change in the FCAC and PPAC would provide for the working out of the lag correction. On May 31, 197f, the Attorney General filed an application with the MPSC asking for a rehearing of the May 1, 1978 order.
(1) On April 14, 1978 Registrant filed an application with the MPSC seeking authority to amend the PGAC in Registrant's tariffs to more appropri-ately reflect Registrant's book cost of gas.
On August 21, 1979 the MPSC issued an order revising the PGAC in Registrant's tariffs. On September 20, 1979 the Attorney General and two industrial customers filed petitions for rehearing of the MPSC's August 1979 order, alleging that the amounts spent by Registrant for feedstock for the Marysville Plant were " unnecessary and im-prudent" and citing purported MPSC precedent for excluding " excessive" manu-factured gas costs from the rates charged customers. On November 27, 1979 the MPSC issued an order denying such petitions and commenting that the issues raised by the petitioners as to Marysville feedstock costs and their inclusion in the PGAC could be raised in Registrant's reopened gas rate proceeding. On December 27, 1979 the Attorney General appealed the denial of his petition and the matter is currently pending before the Circuit Court.
(See also para-graph (i) above.)
(m) On December 11, 1979 Registrant filed an application with the MPSC requesting authority to issue and sell $250,000,000 of long-term debt, 1,000,000 shares of preferred stock, 4,000,000 shares of preference stock, and 8,500,000 shares of common stock.
The Attorney General and several "public interest" groups have intervened in opposition to the request.
In a partial final order issued May 10, 1980, the MPSC authorized the issue and sale of
$75,000,000 principal amount of Registrant's First Mortgage Bonds, the pro-ceeds to be used to refund a like amount of Registrant's First Mortgage Bonds maturing on July 1, 1980.
In a second partial final order issued August 8, 1980, the MPSC authorized the issue and sale of up to 2,000,000 shares of preference stock and up to 4,000,000 shares of common stock. A motion for a third partial final order is pending. On August 18, 1980 the Attorney General and another intervenor filed motions to dismiss the case.
(n) On December 29, 1980 Registrant filed three applications with the.d?SC requesting authority (i) to issue and sell $336,521,000 of long-term or irdrmediate debt, 8.5 million shares of common stock and 4 million shares of p bjerence stock; (ii) to issue and sell $38,479,000 of First Mortgage Bonds, to enter into installment sales contracts in connection with
$59,000,000 rnd $12,500,000 principal amounts of Pollution Centrol Revenue Bcnds, and to issue and sell unsecured long-term notes, to mature on rp0379-0110a-06 32
[
O December 31, 1988, to refund $175,000,000 of short-term notes maturing on December 31, 1982; and (iii) to increase the credit available under two existing nuclear fuel leasing arrangements from $50,000,000 to $75,000,000 and from $60,000,000 to $100,000,000, respectively, and to enter into a third nuclear fuel leasing arrangement in the amount of $140,000,000. On February 18, 1981 the MPSC issued an order, ex parte, authorizing Registrant i
to issue and sell $38,479,000 principal amount of First Mortgage Bonds, solely for the purpose of refunding a like amount of First Mortgage Bonds maturing on April 1, 1981, and authorizing Registrant to enter into installment sales contracts in connection with the issue and sale of $59,000,000 and $12,500,000 principal amounts of Pollution Control Revenue Bonds. On March 11, 1981, the Attorney General appealed the MPSC's February 18, 1981 order to the Court of Appeals.
(o) The MPSC approved sales of gas to Registrant by Michigan Consolidated Gas Company, a gas distribution company operating in Michigan, as follows: August 26, 1974 - 12.2 billion cubic feet ("Bcf") at a price of $.87 per Mcf; April 24, 1975 - 2.6 Bcf at a price of $.87 per Mcf plus purchased gas adjustment; and January 3, 1977 - 10.0 Bcf at a price of $1.17 per Mef plus purchased gas adjustment. On September 25, 1974, May 23, 1975, and February 2, 1977, respectively, the Attorney General appealed the UPSC orders to the Circuit Court, requesting that Registrant be restrained from charging its customers approximately $4,000,000, $1,000,000 and $3,700,000 with regard to the respective sales. No action has been taken by the Circuit Court gs
-( )
relative to any of these appeals and the suits are pending.
(p) The Conservation Manager of the Geological Survey has ordered a Unitization Agreement pertaining to certain natural gas production in Vermillion Blocks 320 and 321, in offshore Louisiana. Under the proposed Unitization Agreement, a group in which Registrant's subsidiary, Northern, is participating would be entitled to only 31.86% of production, retroactive to November 14, 1975.
Because the group has produced and is producing more than 31.86% of the gas produced, the effect of the order would be to create a contingent liability on Northern's part of approximately $2,820,000 as of December 31, 1980. Such liability will increase by approximately $40,000 per month until it is finally determined whether the percentage of production assigned to the group is as large as it should be and whether the Geological Survey has the power to impose this unitization. The group appealed to the Director of the Geological Survey, who affirmed the order of the Consi'vation Manager. The group requested that the Director modify his decision ani filed an appeal with the Board of Land Appeals, US Department of the Interior. The Board of Land Appeals remanded the matter to the Director for reconsideration and issued an order staying implementation of the unitization plan pending such reconsideration.
(q)
In March 1976 the FPC issued an order in a Trunkline proceeding approving a permanent curtailment plan (reflecting a settlement agreement among Trunkline's customers) which assigned equal weight to er.d-use and to contract demand factors.
In July 1977 the FPC issued an order in a Panhandle f'~N proceeding making permanent a curtailment plan based on five end-use cate-(
gories. Storage Company has not submitted any proposed curtailment plan to the FPC or the FERC.
rp0379-0110a-06 33
O (r) Approximately 82*. of the gas purchased in 1980 for sale to Registrant's customers was purchased by Registrant from interstate pipeline suppliers regulated by the FERC, namely Trunkline and Storage Company.
In turn, Storage Company has a FERC approved cost-of-service tariff pursuant to which it sells gas purchased from its sole supplier, Panhandle, to its sole customer, Registrant. During 1980, substantial increases in the cost of gas purchased from both Trunkline and (through Storage Company) Panhandle occurred.
Pursuant to purchase gas adjustment clauses in Registrant's retail gas tariffs, Registrant expects to recover substantially all of such increases in cost of gas from its retail gas customers.
(s) Reference is made to Item 1.
Business. Midland Plant. which is incorporated herein by reference.
(t) Registrant's license from the NRC to operate the Palisades Nuclear Plant is provisional in nature and will continue in effect until the NRC acts on Registrant's pending application for a full-term, 40-year oper-ating license.
On January 3, 1979 Registrant requested NRC review and approval of a proposal to replace the steam generators at the Palisades Plant, a request entailing issuance of an amendment to the plant's operating 11canse.
In an order issued July 23, 1979, an NRC ASLB granted the Great Lakes Energy Alliance's request for intervention and issued a notice that a hearing will be conducted in this proceeding.
See Item 1.
Business. Regulation. Nuclear Regulatory Commission.
In November 1979 evidence of minute cracks was detected in three discs of a turbine rotor supplied by Westinghouse Electric Corporation
(" Westinghouse") at Registrant's Palisades Plant. Similar deterioration has been detected in turbines manufactured by Westinghouse for use at other nuclear generating facilities.
An increased frequency of turbine inspectlon will be used to detect any change in crack size.
In addition, Registran'; has determined that the discs evidencing deterioration may have to be replaced at some time in the future.
It is estimated that the cost of a replacement rotor will be $6,500,000.
Registrant is unable at this time to determine the total cost of necessary turbine repair. Registrant has determined that this loss will not be compensated by insurance.
(u)
In December 1972 the AEC amended the Big Rock Point Nuc;aar Plant operating license to authorize the use of a full core loading of mixed-oxide nuclear fuel containing plutonium as well as uranium. The trensition to the use of such fuel was planned to extend cver a period of several years, with a few fuel assemblies having been installed in 1973 and with greater use of :uch fuel to occur in 1974 and later years.
In March 1973 an organization began suit in the US District Court for the Western District of Michigan
(" Western District Court") to prevent the use of such mixed-oxide fuel at the Big Rock Point Plant.
In June 1974 the Western District Court ordered the lawruit held in abeyance pending completion of the AEC proceeding on the amendment.
In March 1975 the NRC ordered the administrative hearing held in abeyance until its further ordar. The NRC initiated a generic rulemaking hearing un the environmental et fects of the use of mixed-oxide fuel ("GESM0")
which was terminated in December 1977 as a result of the adoption by the rp0379-0110a-06 34
I l
- l. -~
federal g nernment of a policy disfavoring nuclear fuel reprocessing and the ccmmercial use of plutonium in significant quantities. The termination of the rulemaking proceeding was appealed to the US Court of Appea? s for the Third Circuit.
In an opinion filed April 19, 1979 the IS Court of Appeals for the Third Circuit upheld the termination of the GESMO rulemaking. Registrant, with other utilities, is a party to litigation pending in the US Court of Appeals for the Second Circuit concerning the licensing of uses of mixed-oxide fuel, and such litigation may be mooted. Registrant's ability to utilize small quantities of plutonium in mixed-oxide fuel as authorized prior to December 1972 has not been precluded by the new United States policy, the NRC proceedings, or related court p.oceedings. However, the inability to use mixed-oxide fuel in Registrant's nuclear generating plants in full core-load quantities has sd stantially increased Registrant's expense for nuclear fuel.
(v) By submittals of April 23, 1979 and June 26, 1979, Registrant requested NRo approval of a proposed amendment to the Big Rock Point Nuclear Plant operating license to allow the addition of storage racks to the Plant's spent fuel pool to increase the storage capacity from 193 to 441 feel assem-blies, in order to permit continued operation past November 1982 in the event off-site spent fuel storage or disposal is not made available.
By order dated January 18, 1980 an NRC ACLB granted certain petitions for leave to intervene in the proceeding in opposition to the amendment, and public hearings will be held. The question of whether an environmental impact statement must be a ordered by the ASLB, has been
-~)
prepared in connection with the request, certified to the Atomic Safety and Licensing Appeal Board for decision.
(
(w) On November 4, 1979 and January 6, 1980, during two separate outages of Registrant's Big Rock Point Plant, two individuals requested that the NRC order Registrant to delay a restart of the Big Rock Point Plant until certain alleged safety questions were resolved.
Since it did not receive the first petition 5efore the plant was returned to service, the NRC gave notice on i
December 4, 1979 that it is treating the petition as a request for an order to show cause why the operating license for the plant should not be suspended pending resolution of the issues raised. The petition is being treated as a request for action under Title 10 of the Code of Federal Regulations, Sec-cion 2.206, upon which action will be taken "within a reasonable time."
On March 5, 1980 the NRC Staff notified the petitioners that their January 6 petition would be consolidated with their November 4 petitlen for consider-ation. The NRC Staff also concluded that there was sufficient assurance of safety to permit the plant to continue operating pending final disposition of the issues raised. On April 1, 1980 the Concerned Citizens for the Charlevoix Area requested that the Big Rock Point Plant be shut down immediately because, they contended, the plant does not meet minimal NRC requirements relating to containment integrity. On June 26, 1980 the NRC issued a notice that the request was also being treated under 10 CFR 2.206.
On December 18, 1980, the NRC's Director of Nuclear Reactor Regulation denied all of the aforementioned petitions. Pursuant to 10 CFR 2.772, the NRC extended until February 27, 1981 the time in which it must decide whether to review the Director's decision regarding the November 4, 1979 and January 6, 1980 petitions.
By order effective January 26, 1981, the NRC declined to review the Director's decision kN,)
regarding the April 1, 1980 petition.
rp0379-0119a-06 35
O (x) On Octobet 18, 1979 the NRC issued a notice announcing that it is conducting a generic proceeding to reassa s its degree of confidence that radioactive wastes produced by nuclear ?
tties will be sa'ely disposed of, to determine when any such disposal will ne available, and whether such wastes can be safely stored until they are safely disposed of.
In its notice, the NRC stated that during the generic proceeding the safety implications and environmental impacts of radioactive waste storag* on site for the duration of a license will continue to be subjects for adjufication in individual facility licensing proceedings. The NRC decided that duriag the generic proceeding, the issues being considered in the generic. proceeding should not he addressed in individual licensing proceedings. Registrant is a participant in the generic proceeding.
(y) On December 21, 1979, at the request of Registrant, the Office of General Counsel of the DOE issued an interpretation +. hat a portion of the feedstock utilized in Registrant's Marysville Plant should ptoperly have been included in the Entitlements Program. On May 27, 1980 the Of fice of General Counsel of the DOE denied a petition for reconsideration submitted on behalf of Ashland Oil, Inc, Clark Oil and Refining Corp, and Energy Cooperative, Inc, and a petition for reconsideration submitted on behalf of Amoco Oil Company.
In August 1980, Registrant was able to complete its filings with the DOE.
On the basis of those filings Registrant has received approximately $12,000,000 through operation of the Entitlements Program.
It is anticipated that the money received by Registrant, as a result of retroactive inclusion in the Entitlements Program to June 1976 and attributab'a to feedstock which was processed into synthetic natural gas, will flow through to its natural gas customers through operation of its purchased gas adjustment clause.
(z)
In January 1972 the US Equal Employment Opportunity Cominission
("EEOC") charged Registrant and the Union with violation of Title VII of the 1964 Civil Rights Act alleging discrimination against Negroes and females in matters of hiring, promotion, training, compensation, membership, referral representation and other terms and ccaditions of employment.
An investigation was conducted and an ex parte decision. was rendered by the EEOC finding reasonable cause to believe that Registrant discriminated against females and that the Union failed to equally represent females. EEOC proposed a concil-iation agreement be negotiated with Registrant as a means of correcting the alleged discrimination.
In late 1976 an agreement was reached betwc-a Registrant and tne EEOC subject to the concurrence of the Union, but the Union did not concur.
It is Registrant's understanding that during the summer of 1977 the EEOC terminated its efforts to reach a conciliation agreement.
(aa)
In 1978, the MAPCC approved five year extensions, until January 1, 1985, of the date by which Registrant's J H Campbell Plant Units 1 and 2 and B C Cobb Plant must comply with an MAPCC regulation which requires power plants to use fuel with a sulfur content of 1% or less.
In August 1919, a consultant retained by Registrant revealed that an error had been made in the entering of information into the consultant's computer and that the error had resulted in incorrect information being furnished to the MAPCC regarding the two extension requests.
The effect of the error on the two extensions was than evaluated by Registrant and the MAPCC. No changes were made in the extension agreement for the Cobb Plant, and on December 10, 1979 the agreement was submitted to the EPA for approval as a revision to the State Plan for air rp0379-0110a-06 36
/N
,l 1
- V quality. The agreement for the Campbell 1iant, which had been previously submitted to the EPA for approval, was also allowed to stand, and the EPA proposed in the November 19, 1979 Federal Register to approve the agreemer.i.
On December 18, 1979, the MAPCC approved a modification to the Campbell 2
agreement in which Registrant agreed to reduce the 24-hour daily average of sulfur content of coal burned at the plant from 3.8% tv 3.6%.
In response to this action, the EPA on April 22, 1980 reopened the public comment period on l
the Campbell agreement for 30 days.
In the December 24, 1980 Federal Register, the EPA announced its approval, effective January 23,1981, of the Campbell extension agreement. The State of New York filed a petition dated January 16, 1981 with the EPA requesting that the EPA recoraider its final action regarding the Campbell extension agreement. On February 20, 1981 the State of New York petitioned the D F Court of Appeals for review of the EFA
-action which approved the revised State Plan for the Campbell Plant. The EPA has given Registrant written assurances that it expncts to approve the Cobb extension agreement. The EPA has stated that, while it is reviewing the agreement as a revision to the State Plan, it does not intend to enforce the 4
unrevised State Plan so lang as Registrant operates in accordance with the terms of the extension.
If EPA approval of the agreement for the Cobb Plant is not obtained and no other appropriate actions are taken by the EPA or Registrant, Registrant could become subject to penalties under the Federal Clean Air Act.
By petition datad January 16, 1981 the State of New York requested that the EPA disapprove the Cobb e* Pension agreement.
4(x--)
(bb) By letter dated Decembec 26, 1980, the State of New York notified Registrant of its intent to sue Registrant after 60 days for its alleged failure to comply with regulations of the DNR established pursuant to the requirements of the Federal Clean 6.r Act, with respect to S02 emission limits at Registrant's B C Cobb Plant. Registrant is unable at this time to estimate the possible loss, if any, unich Registrant may incur by the reason of or the ultimate outcome of thi mctter.
(cc) In April 1980 the Staf f of the MWRC recommended to the MWRC that it determine that the cooling water intake of Registrant's J R Whiting Flant has not been demonstrated to reflect the best technology available for minimizing adverse environmental impact in accordance with Section 316(b),
PL 92-500, 33 USCA 1251 et seg, as amended. The MWRC directed that the matter be referred to a hearing officer of the DNR.
The hearing officer scheduled a hearing which began in October 1980 on the issue of whether the cooling water intake at Registrant's J R Whiting Plant reflects the best technology available for minimizing adverse environ-mental impact. The outcome of this proceeding is in doubt.
If the outcome is adverst to Registrar.t, Registrant could be required to invest additional amounts, which could be substantial, to achieve compliance.
(dd) On March 3, 1978 Registrant filed a suit in Jackson County Circuit Court against certain insurers alleging it is en-itled to insurance coverage in the amount of $1,500,000 for losses incurred in January 1977 as
("'N tnw result c: damage to the boiler's economizer at Registrant's D E Karn Plant
( )
Unit 4 which was under construction at that time.
The defendant insurers removed the suit to the US District Court for the Eastern District of Michigan
(" Eastern District Court"), but the Eastern District Court remanded the case rp0379-0110a-06 37
O back to the Jackson County Circuit Court. Defendant insurers petitioned the Eastern District Court to reconsider its remand but their petition for recon-sider.. ion was denied. The suit is in the discovery stage.
(ce)
In June 1975 the FPC, predecessor of FERC, issued an order perrritting " comprehensive interperiod tax allocation" in wholesale gas and electric rate proceedings involving interstate suppliers of gas aad electric energy. The order allowed electric utilities, such as Registrant, to
",ormalize" inccme tax benefits in rate cases establishing wholesale rate nevels. Under normalization, a utility may receive the benefits of these tax deferrals but charge rates as though the postponed taxes had been paid.
In response to an application for rebearing filed by several municipal'y-owrad f
utilities (" Petitioners"), the FPC issued a new order in the proceeding in January 1976. TLis order attempted to define the appropriate factual showings needed by interstate suppliers of gas and elec.tricity to qualify ror compre-hensive interperiod tax allocation.
In response to a further application for rehearing filed by Petitioners, the FPC issued a new order in July 1976 adopting a general policy of permitting normalization. This order was appealed to che D C Court of Appeals. On October 26, 1976 Registrant filed a petition for leave to intervene in this proceeding before the D C Court of Appeals and on June 24, 1977 filed its b_ief with that Court. On February 16, 1979 the D C Court of Appeals remanded the proceeding to the FERC, finding that the FPC's order failed to "(1) assess the consequences of its action for the industry and (2) indicate ' fully and carefully' the purposes behind the order."
On April 3, 1980, FERr published its notice of proposed rulemaking in which it reiterated its support for normalization tax accounting nd proposed to permit utilities to elect normalizing accounting for all tax timing differences not covered by earlier orders.
In the notice of proposed rule-making, FERC also attempted to remedy the deficiencies the D C Court of Appeals had found in the s.ly 1976 order.
(
ITEM 4(a).
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGF. MENT.
Registrant has filed definitive copies of its Proxy Statement with the Commission, pursuant to Regulation 14A, which Statement has been incorporated by reference.
O rp0379-0110a-06 38
}
O ITEM 4(b). EXECUTIVE OFFICERS OF REGISTRANT.
Effective Date of Election to Name Ap Position Present Position J D Sc1by 59' Cha'irman of'the Board, President and Chief Executive Officer and Director October 3, 1979 J B Falahue 56 Vice Chairman of the Board and Director October 3, 1979 R C Youngdahl 56 Executive Vice President and Director December 4, 1974 W R Boris 59 Executive Vice President and Director March 5, 1975 S H Howell 48 Executive Vice President October 1, 1980 J W Reynolds 57 Executive Vice President March 4, 1981 L L Shepard 53 Vice President' December 10, 1974 R C Lincoln 46 Vice President December 10, 1974 C R Bilby 59 Vice President January 1, 1976 R J Fitzpatrick 60 Vice President January 1, 1976 L B Lindemer 59 Vice President and General Counsel January 17, 1977 J W Cook 40 Vice President March 1, 1977 M D Gwinn 58 Vice President March 1, 1978 R J Odlevat 47 Vice President March 1, 1978 S N Spring 53 Vice President and Controller August 2, 1978 R B DeWitt 56 Vice President.
July 11, 1979 G L Heins 51 Vice President July 11, 1979 P A Perry 51 Secretary and Assistant Traasurer May 1, 1968
)
i R M Griswold 49 Treasurer and Assistant Secretary November 1, 1972 The present term of office of each of the above executive officers extends to the first meeting of.Pegistrant's' Board of Directors after the next annual election of directors (scheduled to be held April 14, 1981).
rp0379-0110a-06' 39
O Each of the aLuve executive officers, except Messi s Lindemer and Cook, have been employed by Registrant for more than five years.
Prior to joining Registrant in January 1977, Mr Lindemer was a Justice of the Michigan Supreme Court until December 31, 176 and, priot thereto, a partner in t ie law firm of Foster, Lindemer, Swift and Collins; prior to joining Registrant in March 1977, Mr Cook was a Nuclear Project Engineer with the firm of Stone &
Webster Engineering Corp.
Prior to election to the positions shown above, the following executive officers held other positions with the Registrant since January 1, 1976: Mr Falahee was Vice President and General Counsel, Seni^r Vice President; Mr Howell was Vice President, Senarr Vice President, Mr Reynolds was Senior Vice President; Mr Gwinn was Execucive Manager of Gas Distribution, Executive Manager of Energy Distribution; Mr Odlevak was Executive Manager of Gas Production and Transmission, Executive Manager of Energy Production and Transmission, Executive Manager of Fuel Supply; dr Spring was Controller; Mr DeWitt was Manager of Nuclear Production; and Mr Heins was Executive Manager of the Electric T'anning Department, Executive Manager of System Planning.
There are no family relationships among executive officers of the Registrant.
PART II ITEM 5.
MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS.
Market price of the Registrant's common stock and related security holder matters are incorporated by reference to Page 23 of Registrant's Annual Report to shareholders, which page is incorporated herein.
ITEM 6.
SELECTED FINANCI AL DATA.
Selected financial data are i.iorporated by reference to Page 23 of Registrant's Annual Report to share!.ulders, which page is incorporated herein.
ITFM 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Management's discussion and analysis of financial condition and results of operations are incorporated by reference to Pages 21 and 22 of Registrant's Annual Report to shareholders, which pagea are incorporated herein.
rp03'.' 9 -0110a -06 40
r-
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)
x/
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Consolidated financial statements, together with the report thereon of Arthur Andersen & Co. dated February 6,1981, and supplementary data are incorporated by reference to Pages 8 to 20 of Registrant's Annual Report to shareholders, which pages are incorporated hereir. (except Statement of Management on Page 20).
PART III Registraat has filed definitive copies of its Proxy Statement with the Commission, pursuant to Regulation 14A, which Statement has been incorporated by reference.
PART IV ITEM 11.
EXHIBITS, FINANCIAL STATEMI.NT SCHEDULES AND REPORTS ON FORM 8-K.
/- m
(, )
(a) Consolidated Financial Statements.
The following consolidated statements are as of December 31, 1980 and 1979 or for es h of che three years in the period ended December 31, 1980:
Page Consolidated statement of income Consolidated statement of source of fuads for grcss property additions Consolidated balance sheet Consolidated statement of capitalization Consolidated statement of capital in excess of par value of common stock Consolidated statement of retained earnings Notes to the consolf. dated financial staterents Report of Independent Pubiic Accountants
- Refer to Pages 8 to 20 of tne 1980 Annual Report to shareholders filed herewith.
CN 1
\\~.)
rp0379-0110a-06 41
O The following schedules are for each of the three years in the period ended Decemt. r 31, 1980:*
Page V - Property, plant and equipment 48 thru 50 VI - Accumulated depreciation, depletion and amortization 51 thru 53 VIII - Valuation and qualifying accounts 54 IX - Short-term borrewings 55 thru 57 X - Supplementary income statement information 58
- The fo? lowing echedules are omitted as not applicable or not required:
I, II, III, IV, VII, XI, XLI and XIII.
(b) Reports on Form 8-K.
None (c) Exhibits, Including Those Incorporated by Reference.
Exhibit Number A
- Annual Report on Form 11-K covering Employees' Savings Plan of Registrant for the year ended December 31, 1980.
( ? ', (a )
- Restated Articles of Incorporation of the Registrant.
(3)(b)
- Certificates Giving Acquirej Issued Shares Status of Authorized and Unissued Shares, filed August 28, 1969, April 22, 1970, August 23, 1971 and September 13, 1972.
(Designated in Registration No. 2-37326 as Exhibit 2(c); in Registration No. 2-44136 as Exhibit 2(d); and in Registration No. 2-45643 as Exhibit 2(c)-1.)
(3)(c)
- Copy of By-Laws of the Registrant.
(Designated in Registration No. 2-60884 as Exhibit (b)(6).)
(4)(a)
- Composite Working Copy of Indenture dated as of September 1, I?45, between the Registrant and Citibank, N.A.,
as Trusteo, includir.g therein indenteces supplemental thereto through the Forty-third Supplemental Indenture dated as of May 1, 1979, and indentures supplemental thereto dated as of November 15, 1979 and January 15, 1980.
(Designated in Registration No. 2-65973 as Exhibits (b)(1)-4 9pd (b)(1)-7; in Registration No. 2-68900 as Exhibit (bjti)-5; and in Registration No. 2-69704 as Exhibit (4)(b).)
(4)(b)
- Forty-seventh Supplemental Indenture dated as of June 15, 1980.
(10)(a)
- Material Contracts not previously filed.
(10)(b)
- Amendments to Material Contracts previously filed.
rp0379-0110a-06 42
,m Exhibit Number (11)
- Not applicable.
(12)
- Not applicable.
(13)
- Annual Report to Security Holders.
(19)
- Not applicable.
(21)
- Not applicable.
(22)
- Subsidiat.es of the Registrant.
. (~~\\
(s,)
Report of Independent Public Accountants To Consumers Power Company:
In connection with our examination of the consolidated financial statements included in Consumers Power Company's Annual Report to shareholders and filed with th!s Form 10-K, we have also examined the supporting schedules listed above.
In our opinion, these schedules present fairly, when read in conjunction with the related consolidated statements, the financial dats r* :- ired to be set forth therein, in conformity with generally accepted accounting principles spplied on a consistent basis.
ARTHUR ANDERSEN & CO.
Detroit, Michigan, February 6, 1981.
l I [^'y I 1 i
! \\_ /
l rp0379-0110a-06 43
O EXPERTS Statements contained in Part I under " Item 3.
Legal Proceedings."
as to matters of law and legal conclusions, have been reviewed by Lawrence B Lindemer, Esq, General Counsel for Registrant, and such statements are made on his authority at an expert.
SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 193', Registrant has duly caused this Annual Report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 27th day of March 1981.
Consumers Power Company Registrant By J D Selby J D Selby Chairman of the Board and President Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature Title Date (i) Principal executive officer:
Chairman of the Board and President J D Selby and Director March 27, 1981 (J D Selby)
(ii) Principal financial officer:
Executive Vice President W R Boria and Director March 27, 1981 (W R Boris)
(iii) Controller or principal accounting officer:
Vice President S II Suring and Controller March 27, 1981 (S N Spring) rp0379-0110a-06 44
t
/%
%.s) i Signature Title Date (iv) A majority of the Directors including these named above:
(A H Aymond)
Director March 27, 1981 A H Aymond E Newton Cutler Jr*
Director March 27, 1981 (E Newton Cutler, Jr)
Robert E Dewar*
Director Ma ch 27, 1981 (Robert E Dewar)
J B Felatee Director March 27, 1981 (J B Falahee)
R M Gillett L; rector March 27, 1981
,, rN (R M Gillett)
%/
Martha W Griffiths Director March 27, 1981 (Martha W Griffiths)
John W Hannon. Jr*
Director March 27, 1981 (John W Hannon, Jr)
W N Hubbard, Jr Director March 27, 1981 (W N Hubbard, Jr)
Don T McKone*
Director March 27, 1981 (Don T McKone) i l
P S Mirabito*
Director March 27, 1981
(
(P S Mirabito)
John C Suerth*
Director March 27, 1981 (John C Suerth) f rp0379-0110a-06 45
O Signature TILle Date R B White Director March 27, 1981 (R B White)
I R C Youngdahl Director March 27, 1981 (R C Youngdahl)
- By W R Boric j
(W R Boris, Attorney-in-fact) i i
1 O
t
)
i e
s rp0379-0110a-06 46
O CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation by reference of our report dated February 6,1981, appearing in Consumers Power Company's Annual Report on Form 10-K for the year ended December 31, 1980, into the Company's previously filed Registration Statements No. 2-66930 and No. 2-67409.
ARTHUR ANDERSEN & CO.
Detroit, Michigan, March 27, 1981.
CONSENT.
I hereby consent to the reference made to me under " Experts" in the Form 10-K of Consumers Power Company for the year ended December 31, 1980 to be filed with the Securities and Exchange Commission under the provisions of g
the Securities Exchange Act of 1934 and to the incorporation by reference of s
this consent into Consumers Power Company's Registration Statement (Registra-tion No 2-66930) previously filed with the Securities and Exchange Commission under the Securities Act of 1933 in accordance with its Dividend Reinvestment and Common Stock Purchase Plan and into Consumers Power Company's Registration Statement (Registration No 2-67409) previously filed with the Securities and Exchange Commission under the Securities Act of 1933 in accordance with its Employees' Savings Plan.
LAWRENCE B LINDEMER-March 27, 1981 0
O,v rp0379-0110a-06 47
O CONStME'R$ POW R COMPANY AND SUBSICIARIES Schedule V - Property, Plant and Et,us,.ent Year Ended December 31, 1980 (Thousands of Dollars)
Column A Column B Column C Column D Column E Column F Other Changes -
Balance at Add (Deduct) -
Balance at Beginning Additions Describe End of Classification of Period at Cost Retirements (Note)
Period ELECTRIC UTILITY Consumers Power Company:
Intangible 1,542 30 4
36 (a) 1.t 04 Steam production 749,727 583,217 (b) 2,020 (209)(a) 1,330,715 Nuclear production 221,664 22,062 1,346 (3,613)(c) 238,767 Nuclear fuel 53,086 1,382 (1,048)(a) 53,420 Hydro production kJ.925 508 5
(131)(a) 161,297 Lther prodaction 36,299 15 4
36,310 Iransmission 546,377 54,779 2,471 57 (a) 598,742 Distribution 883,564 60,848 8,705 49 (a) 915,756 General 40,871 2,490 2,832 (40)(a)
- 0,489 Plant held for future use 23 462 2,518 19 (123)(a) 25,8}8 1
Total electric utility
} _2,7_1_7dl 7
}]27,849
$17,406
$ (5,0227
} )_14222M CAS t*TILITY Consumers Power Company:
Intangible 117 3
1 57 (a) 176 hatural gas production 18,038 92 287 2,884 (d) 20,727 Undergro.nd storage 127,005 527 622 (1)(a) 126,909 Transmission 166,261 2,089 296 (363)(a) 167,691 Distribution 638,128 58,344 3,734 (321)(a) 692,417 General 21,135 308 2,126 (20)(a) 19,291 Plant held for future use 162,118 496 159 j 2 880)(d) 159,575 3
lid & 802
$ 61,859
}_7 225 1650)
$ 1 _136 ? >
1 1
1
'hchigan Gas Storage Company 56 289 894_
}
))5
% w8 3
Total gas utility
}lM 99 091
$ 62,753
} 7,%0 (650.
$l 24aM b
1 1
OTHER Consumers Power Company 58,819 2,473
$ 1,892
.,52 (a) 59,952 Northern Michigan Emploration Company 134,769 17,521 1,454 6,198 (a) 157,034 Plateau Resources Limited 34 678 481 3 896 l_0 035_(e) 43 689 1
1 2
1 Total othte U 28,265
$ 24,866
$ 9,242 fl6,785
$ 260,675 Total plant
$4,134,874
$ 815,468
$34,208
$ 11,113
}4,927 247
.g 1
CONSTRUCTION h0RK PROGRESS Consumers Power Company
$1,942,330
$(110,463) 11 (a)
$1,709,770 (81,249)(f)
(40,859)(g)
Richigan Gas Storage Company 213 147 360 Northern Michigan Exploration Company 6,297 3,284 9,581 Plateau Resources Limited 10 480 31,096 (298)(a) 4L278 b
1
$1,959,320
$ (75,9367
$(122 M
$_h760,989
,(
1 Total plant including work in W
progress
$(t,QMM
@JL W 2g
}hM
$ Q J!Q W Q (c) Reclassification of accounts and functions.
(b) Campbell Unit 3 generating plant placed into service in September.
(c) Adjustment related to r'ttlements of lawsuits.
(d) Write-of f of abandoned leases.
(o) Property acquisitions.
(f) Sales of nuclear fuel.
(g) Sale of portion of Campbell Unit 3 generating plant.
M st0281-1519c-06
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_ _ ~. _.. _. _ - --
--._-.w.~
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4 I
l CONSINERS POWER COMPANY AND Sl?SIDI ARIES
{
Schedule V - Property, Plant and Equipment a
}
Year Ended December 31, 1979 j
(Thousands of Dollars) 4 Column __A Column B Column C Column D Column E Column F Other Changes -
Balance at Add (Deduct) -
Balance at j
1 Beginning Additions Describe End of 1
Classification of Period at Cost Retirements (Note)
Period i
1 ELECTRIC UTILITY f
Consumers Power Company:
1, Intangible 1,741 (199)
(5)(a) 1,542 5 (b)
I Steam production 736,816 13,153
$ 294 52 (b) 749,727 j
Nuclear production 224,053 7.777 31 (10,135)(c) 221,664 30,429 (d) 53,086 Nuclear fuel 21,554 1,103
{
Hydro production 160,630 311 10 (6)(b) 160,925 Other production 36,248 52 1
36,299 l
l 1
Transmassion 507,598 39,)00 890 (231)(b) 546,377 j
Distribution 829,306 61,454 7,191 (5)(b) 883,564 General 41,225 1,858 2,341 129 (b) 40,871 Plant held for future use 22206 641 (20)
(105)(b) 43,462 Total electric utility
$2,582,077
$126,050
$10,738
$ 20,128
$2.717,517 j
f GAS UTILITY j
Consumers Power Company:
Intangible 118 6
(7)(a) 117 j
Natural gas production 18,239 100 (6)
(307)(t-)
18,038 I
Synthetic natural gas production 153,746 13 (153,759)(c) f' t;nderground storage 123,144 3,499 49 411 (b) 127,005 Transmission 154,529 12,178 44 (402)(b) 166,261 g
Distribution 5t?,605 48,253 3,758 28 (b) 638,128
- (A\\
Ceneral
- 2,446 311 1,357 (265)(b) 21.135
(
i\\
Plant held for future use 7,371 1,256 122 153,759 (e) 162,118 4
i A"
(146)(b) 91,073,198 i 65,616
, 5,324 (688)
'.l.132,802 325 84_
56,289
}
Machtsan Gas Storage Company 56,048
' 65,941 5,408 (688)
I't,189,091 Total gas utility
- il.129,246 i
OTHER
)
Censumers Power Company 56,776 3 2,496
$ 1,174 721 (b) 58,819 Northern Michigan Exploration Company 115,403 15,160 4,206 (b) 134,769 4
Plateau Resourees Limited 22,737 1,872 2,911 12,980 (f) 34,678 Total other
$ 194,116
$ 19,528
$ 4,085
$ 17,907
$ 228,266 Total plant
$3.906,219
$211,519
$20.231
$ 37,347
$4,134,974 I
CONSTRI. TION WORK IN PROGRESS Consumers Power Company
$1.329,392
$629,805 114 (e)
$1.942,330 (16,981)(g) f 4
Michigan Cas Storage Company 169 44 213 Northern Michigan Exploration Company 3,541 2,756 6,297
[
Plateau Resources Limited 1,834 6,646 10,480 l
$ 1,3 36,936
$439,25T
$ (16,867)
$1,959,320
}
Total plant including work in r
15.243.175
[$ g g
M 41Q_
56.094.194 progress (albrite-off of franchises and con e nts.
(b) Reclassification of accounts and functions.
(c) Adjustment related to settlements of lawsuits.
(d) Nuclear fuel repurchased from lessor and related costs.
(e) Transfer to plaat held for future use.
(f) Property acquititions.
[
(g) Sales of nuclear fuel.
l l
t 69 l
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st0281-1519a-06 j
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1 l
O CONSL?tERS tsIR CoatPANY AND SUBSIDI ARIES Schedule V - Pr merty, Plant and Equipment Year End*3 December 31, 1978 (Thousands of Dollars)
Column A Column B Column C Column D Colura E Column F Other Chaages -
B41ance at Add (Dc/uct) -
Balance at Beginring Addations Describe End of Classification of Period at Cost Retirements (N<te)
Period ELECTRIC LTILITY Consumers Power Cegrany:
intangible 1,748 2
(9)(a) 1,741 steam prv.fuction 6:e 570 53,102 849 (2,007)(b) 736,816 Nuc lear production 206,039 21,056 47 (3.035)(c) 224,053 40 (b)
Nuclear fuci 21.521 12,553 (1,713)(d) 21,554 (10,807)(e)
Hydro production 160,182 670 222 160,630 Other production 35,918 335 5
36,248 Transeassion 490,329 18,371 1,170 68 (b) 507,598 Distribution 781,856 54,632 7,078 (9)(b) 829,306 (95)(f)
General 42,286 892 2,060 107 (b) 41,225 Plant held for future use 21,389 1,871 14 (340)(b) 22 906 2
Total electric utstaty
$2.44[1838
$163,484
$11,445 4 (17,800)
}_2,582,077 CAS LTILITY Consumers Power Company:
Intangible 125 (7)(a) 118 Nat ural gas production 16,634
$ 1,638 192 159 (b) 18,239 Synthetic natural gas production 157,649 934 98 (4.719)(a) 153,746 Enderground storage 123,342 133 348 17 (b) 123,144 Transmission 147,122 5,937 70 1,540 (b) 154,529 Distribution 562,081 35,705 2,531 (1,650)(b) 593,605 Gene at 23,516 15L 1,252 23 (b) 22,446 Plant held for future use 6 S84 912 64 (61)(b) 7,371 t
Ild3h053
},_45,418_
$_4,555 i (4,718}
}I,073 g 8
'fachigan Cas Storage Company 57,250 108
$ 1,310 50,048 Total gas utility
$1,094,303
$ 45,526_
Q 865 (4,718)
$M 21 2_46 OTHER Censumers Power Company 55,03s
$ 2,105
$ 1,069 701 (b) 56,776 Northern Michigan Exploration Company 90,297 19,215 6,898 (b) 115,403 (1,007)(b)
Plateau Resources Lietted 16,150 1,6 1 1,,047 5,958 (i) 22,737 Total other
$ 161,486
$ 22,996_
$ 2,116
$ 12,550
} 194,916 Total plant,703,e27 $232,006 $19,426 $ (9,968) $ 3,906,2 39 CONSTRUCT 70N h0RK IN PROGRESS Consumers Power Company $ 930,778 $454,050 $ (55,436)(c) $1,329,392 Machtsan Gas Storage Company 120 49 169 Northern Michigan Exploration Company 11,075 (7,534) 3,541 Picteau Resources Limited 3,945 (Illl(b) 3,834 $ 941,973 $450,510 $ (55,547) $ 1,3 30,9 36 Total plant including work in progress g ggg g{gjg [pg 3 (65.5151 M4@ (c) Write-off of franchises and consents. (b) Reclassification of accounts and functions. (c}Ajjustment related to settlements of lawsuits. (d) Record deferred tax accounting per Michigan Public Service Commission (MPSC) order. (e) Sales of nuclear fuel and related costs. (f)Wrate-of f of acquisition adjustment on purchase of Allegan City f ight Department. (s)hrite-of f of plant investment disallowed by MPSC. (b) Sale of minerals. (i) Property acquisitions, st0281-1519b-06
=. %s Q CONSl!MFRS P(ATR COMPANY *ND SUBSIDI ARIES Schedule VI - Accumulated Depreciation, Depletion and Amortization of Eroperty, Plant and Equipment Year Ended Dec ent.cr 31, 19R0 (Thousands of Dollars) Column A Column B Column C _ Column D Co_1umn E tiolumn F other Changes - Additions Charged to Add (Deduct) - Balance at Balance at Consolidated Beginning Statement Clearing (Additions) Deductions Desc ribe End of of Period of Income Accounts ketirements kemoval Costs Salvage (Note) Period Description E!ICTRIC UTILITY Intangible 169 43 5 93 (a) 300 Consumers Power Company: Steam prodaction 261,633 29,407 2,071 $ 131 $ (78) (133)(a) 288,781 Nuclear produstion 49,059 7,082 1,346 12 (3) 31 (a) 54,817 Nuclear fuet 46,934 $2,282 (24i's) 49,192 Mydro prodaction 31,146 3,278 4 (2) (1)(a) 34,421 Other production 13,99* I,472 182 15,285 Transmission llo,22t! 9,761 i,253 535 (1,155) (23)(a) 118,333 Distribution 268,438 30,332 8,688 3,234 (4,129) 1 (a) 290,978 General 17.698 959 40 2,832 (396) (415)(a) 15,846 I 1 (a). 2 Total electric utility $ J h 301 @,334 [i,322 }}7 38} $ 3,914 }15d63} (410) $ 867 9 % Plant held for future use 2 2 GAS UTILITY Natural gas production 11,221 $ 1,111 $ 312 $ 11 (61) (106)(a) 11,964 Consumers Power Company: Underground storage 30,980 1,647 622 (101) II (a) 32,217 Transmission 46,491 5,943 281 12 (290) 409 (a) 52,838 Distribution 215,336 25,734 3,715 2,051 (723) (425)(a) 235,602 General 10,699 471 $ 93 2,135 (7") (ll6)(a) 9,312 49 859 159 15' 1 (a) 49 860 2 I._36{,3586 (34,906 L255 $Jj {2,9[_4 E !4] } (126) L 'Ig3 Piant held for future use Total gas ut ility $ _408,0 6 $ 36,377 L273 } 3 596 }2,074 $, 631 Michigan Car Storage Company $ _ 43,510 $ j,471 L 21 L,j!! fr3 (126) $ 7 36 424 Cons,mers Power Company 13.151 $ 1,782 8 $ 9 30 ? 31 $ (167) 689 (b) 14,836 OTHER Northern Machigan Exploration Company 58,302 17,927 1,445 74,784 2,752 Plateau Resources Limited 2,076 3A9 942 655 92.172 Tatal other 73,529 L20,09s $ 950 9 2 030 3:
- J i67J 68 1 Total provision for accumulated depre-ciation, depletion and amortization
$1JgM;Q $138,809 $3,545 $26 992 Apa012 1(2aA04) a 93. Eld &di 2 depreciation l(( 8 gg}] S t 72 (b) 6] Nonutility property accumulated Write-off of deferred abandoned 1,223 plant costs Depreciation, depletion and amortization $})Q Q){ $3J$j (a)Resiassif t :stion of accounts and functions. (b) Loss on disposition of property.
C tiesM 'tt hs I,M k wi6 m Ash v #Alpl u: s b L hedule VI - Arcumulated Deprersation, [>cplet ten and Ama t a /at s on of Prope r t y, Plant and E p l. ment icar i nded lete-sher ll, 1979 (Thousands of Dollars) Coltan A Column _B Column _C _ Column _D Column,E Column _F A Hit ions Cha rged t o Other Changes - l Balan(c at Consolidated Add (Deduc t) - Balance at Beginning Statement Clearing ( Add i t ions]_Deduc t_ ion s Describe End of Description of Period of Inrome Accounts Retirements kemoval Costs Salvage (Note) Period E!F TRIC 1TILITY Consumers Power Company: Intangible 130 39 169 St eam product.or. 239,283 22,810 $ 294 $ 239 (76) (3)(a) 261,633 Neclear production 42,389 6,812 31 111 49,059 huclear tuel 11,924 $ 490 26,520 (b) 46,934 Hydro production 27,911 3,2 39 10 1 (7) 31,146 Other produrtion 12,554 1,446 1 (4)(a) 13,995 Transessanon 100,263 9,299 865 262 (1,640) 153 (c) 110,228 Distributton 246,462 29 097 7,196 3,919 (3,992) 2 (a) 268,438 General 17,628 M99 1,098 2,326 (442) (43)(a) 17,698 Plant held for future use 1 1 Total elect ric utility $ 706 %5 $ 7 3 3_41 $.1 58R {10,123 $4 532 }_(6 M Q,62 5_ $ 799 )_01 1 1 1 2 1 GAS l'TILITY Consumers Power Company: $ Natural gas production 10,500 a 619 $ 147 (6) 19 (6) (38)(a) 11,221 Synthette natural gas production 42,695 7,119 (49,814)(d) l'nderground storage 28,994 2,039 49 (4)(a) 30,980 Transmission 41,262 5,315 42 13 (2) (33)(a) 46,491 l Distributton 199,324 21,153 3,757 2,193 (786) 23 (a) 215,336 i i General 10,265 444 1,182 1,378 7 (215) (22)(a) 10,699 Plant held for future use 45 122 122 49,814 (d) 49 859 l 5 342 }2 232 $ Rod R47 QIj.1 }dl59 f_ _O l AD Od89 6 '1_)1 4 2 4 \\ 5_10 alschigan Gas Storage Company $ _ 41,A77 1,467 t 11 Total gas utility $ 374,962 Q, l_56 },462 }_5,187 [2M 1(LOO 9} } (74) $ 408,096 OTHER Consumers Power Company 12,143 $ 1,738 27 908 11 $ (116) 46 (a) 13.151 Northern Machigan Exploration Company 45,098 13,195 (9) 58,302 -956 2,076 Plateau Resources Lautted 941 2 39 1,852 Total other 58 182 Qd72 [LA7j] 7'l 855_ {Jt $ (116) 46 73 99 2 1 Total pre.ston for accumulated depre-c 4 tion, depletion and amortization $1.,1 4 tB2 $126,969 $4,929 $jMQ $ S 2);j $jfM E S2SM honutility property accumulated depreciation ),.. 14) (12) $ __ 2 0, W Q Q (a) 123 brite-off of franchises med conse.4ts 12 brite-of f of deferred aber Joned plant costs 1,222 Depreciation, depletion and amort.zation $J;$y0] $4JR (a) Reclassification of accrounts and functions. (b) Adjustment for amortired portion of nuc! car fuct repurchased from kolverine Energy Co. (c) Settlements. (d)Trans f e r of %rysville synt het ic gas produ. t son plar.t from plant in servu e to plant held for future use. O O O t_
~- - - - G G e CONSUMERS POWER COMPANT AND SillSIDI ARIES l Schedule VI - Accumulated Deprecistaon, Depletion and Amortizatic n of Property, Plant and Equipment Year Ended December 31, 1978 (Thousands of Dollars) Column A Column B Column C Column D Column E Column F Additions Charged to Other Changes - Balance at Consolidated Add (Deduct) - Balance at beginning Statement clearing (Additiens) Deductions Descrabe End of Description of Period of Income.__ Accounts Retirements Remo W Costs Salvage _ (Note) Period ELECTRIC UTILITY Consumers Power Companyt 130 intangible 90 40 Steam production 219,011 21,270 $ 853 $ 154 $ (51) (42)(a) 239,283 Nuclear production 36,137 6,281 47 2 (4) 16 (a) 42,389 Nuclear fuel 18,916 $1,008 19,924 ' Hydro production 24,910 3,227 222 3 3 2 (a) 27,911 j Other production 11,126 1,429 1 12,554 Transmission 91,948 8,806 1,105 242 (831) 25 (a) 100,263 l l Distribution 226,343 27,075 7,076 2,878 (3,025) (27)(a) 246,462 General 16,945 82* 1,558 2,06 (309) 55 (a) 17.628 Plant held for future use 1 1 ~ !_,36L $3.279 Q21)) 29 $ 706,545 Total electric utility GQ2 QB j6 }2,5p $ 1_ GAS UTILITY Consumers Power Company: Natural gas production 10,389 437 $ 280 194 $ 13 ' $ (12) $ (411)(a) 10,500 $ Synthetic natural gas production 41,470 10,213 98 (8,890)(b) 42,695 Underground storage 26,581 2.331 348 4 (6) 428 (a) 28,994 Transmission 37,805 3.510 81 (15) 13 (a) 41,262 Distribution 185,612 17,963 2.531 ?,276 (583) (27)(a) 199,324 General 10,770 396 1,019 1,252 (180) (84.8)(a) 10,265 45 Plant held for future use 45 94 94 MT9U 333 085 (9.735) t__312,1N (J 4 859
- Id93 1,4,598_
$2,293 4.,877 2 1 Michigan Gas Storage Company 41,671 498 8 Q 300 ,76 (9,735) 374.962 Total gas utility $ 354,34) Qj4'8 4 401 $ 5.598' ig) OTHER Consumers Power Company 10.015 $ I,654 $ 264 $ 571 $ 80 $ (70) 791 (a) S 12,143 Northera Michigan Exploration Company 31,668 13,420 (10) 45,098 l 941 ) 1 135 402~ $ 80 $ (70) 791 4 58,182 { 4f,208 Plateau Resources Limited 89] $ 15,209 $ 264 $ 953 Total other 1 i l I Total provtsion for accumulated depre-ciation, depletion and amortization }},Q42,6M $120,507 $4,231 $l$,Q $1,M3 (Q.2RM 1dla2151 $bl2hkS2 i I Nonutility property accumulated depreciation WM 25 $JL 1 3 W (a) 1% { I . Write-off of franchises and consents 12 j Write-off et deferred abandoned j plant costs 1,222 f 1 Depreciation, depletion and.mortization (12L}il - $h2Mt (a) Reclassification of accounts and functions. (bjAdjustment to reflect unrecognized plant reserves as ordered by the Michigan Puhlic $crvice Comunisblon, 4 i 4- -...- 7
Ol CONSUMERS POWER COMPANY AND SUBSIDIARIES Schedule VIII - Valuation and Qualifying Accounts and Reserves Years Ended December 31, 1980, 1979 and 1978 (Thousands of Dollars) Column A Column B Column C Column D Column E (1) Charged (2) Balance at to Costs Charged Balance Beginning and to Other at End of Description of Period Expenses Accounts (a) Deductions (b) Period Accumulated provision for uncol-1ectible accounts (Consumers Power Company): 1980 $2,746 $137 $2 $1 $2,884 1979 2,602 140 5 1 2,74<5 1978 2,557 41 9 5 2,602 (a) Recoveries of amounts written off in prior years. (b) Accounts receivable written off in connection with merchandise sales. Net uncollectible amounts of $8,132,000 in 1980, $5,677,000 in 1979 and $5,211,000 in 1978 were charged directly to operating expense and credited to accounts receivable. l O Sh et0281-1561c-06
_m CONSUMERS POWER COMPANY AND SUBSIDIARIES Schedule IX - Short-Term Borrowings Year Ended December 31, 1980 (Thousards of Dollars) Column A Column B Column C Column D Column E Colum_n F Weighted Maximum Average (Daily) (Daily) (Daily) Average Weif,hted Amount Amount Interest Balance Average Outstanding Outstanding Rate Category of Aggregate at End Interest Durin?,the During the During the Short-Term Borrowings of Period Rate PerJod Period Period Consumers Power Company: Notes payable $ 40,000 22.6% $209,600 $141,081 14.3% Commercial paper 183,206 29,456 14.8% Bankers' acceptance drafts 144,233 20.1% 144,233 61,228 13.9% $184,233 Michigan Gas Storage Company: tes payable $ 18,750 20.4% 23,250 5,424 16.6% ercial paper 11,837 22.3% 34,170 17,436 13.3% inkers' acceptance drafts 19,624 14.5% 19,624 3,829 13.5% $ 50,211 $234,444 l l ) et0281-1561e-06-5 55
O CONSUMERS POWER COMPANY AND SUBSIDIARIES Schedule IX - Short-Term Borrowings Year Ended December 31, 1979 (Thousands of Dollars) Colemn A Column B Column C Column D Column E Columi. F ' Wvighted 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 ths Short-Term Borrowings of Period Rate Period Period Period Consumers Power Company: Notes payable $174,000 15.1% $188,600 $35,011 14.0% Commercial paper 110,150 14.5% 166,857 45,303 13.6% Bankers' acceptance drafts 4,989 12.0% 5,000 356 14.0% $289,139 Michigan Gas Storage Company: Notes payable $ 18,000 15.1% 19,000 8,492 13.2* Commercial paper 23,810 16.5% 34,353 10,731 12.! $ 41,810 $330,949 O et0281-1561f-06-5 56
i l i OV CONSUMERS POWER COMPANY AND SUBSIDIARIES Schedule IX - Short-Term Borrowings j Year Ended December 31, 1978 (Thousands of Dollars) V Column A Column B Column C Column D Column E Column F' i Weighted Maximum Average. (Daily). l (Daily) (Daily) Average Weighted Amount Amount Intetect i Balance Average Outstanding Outstanding Rate Category of Aggregate at End Interest During the During the During the { Short-Tero Borrowings of Period Rate Period Period -Period i
- Michigan Gas Storage Company
Notes payable $12,830 11.2% $13,330 $4,558 10.5% Commercial paper 15,536 12.1% 16,928 5,966 8.7% 4 $28,366 l l \\s 4 8 i f i 4 ' s. t st0281-1561g-06 57 i ?
91 CONSUMERS POWER COMPANY AND SUBSIDIARIES Schedule X - Supplementary Income Statement Information For the Years Ended December 31, 1980, 1979 and 1978 (Thousands of Dollars) Column A Column B Charged to Costs and Expenses Description (a) 1980 1979 1978 Real and personal property taxes (substantially all Consumers Power Company) $76,807 $70,868 $68,024 (a)0ther items covered by this schedule are either less than 1% of total operating revenue or are disclosed in the consolidated financial state-ments. O 1 O st0281-1561d-06-52 58
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O F="="7'" 7= ' = 'I 5 ~ ' ;dh =*'** Consolidated Financial Hghlights..inside Front Cover I Company Description. 1 '1 Service Area Map .1 h;. The Executive Offce Letter. 2-3 1 1980- A Brief Review. 4-7 Consolidated Financial Statements. 8-12 Notes to the Consolidated Financial Statements. 12-19 Statement of Management..20 Auditors' Report..20 Management's Discussion and Analysis. 21-22 Selected FinancialInformation. 23 Quarterly Financial and Common When Unit 3 (left foreground) Stock Information..23 at the James H. Campbell Company Directors, Offcers. and generating complex was placed Genern Managers. 24 i in commercialservice on Shareholder Information. Outside Back Cover September 26.1980. it increased the Company's total generahng capacity by shghtly more than 11 percent Units 1 and 2 (ng. background)have been in service since 1962 and 1967 resocctively O CONSOLIDATED FINANCIAL HIGHLIGHTS 1980 1979 1978 Thousands. Except per Share Amounts Operat ng Revenue $2,303,983 $2,021.234 $1.889,861 Net Income S 223,798 $ 203.787 $ 185,131 Earrungs per Average Common Share S 3.08 5 3.24 3 21 Aserage No of Common Shares Outstand:ng 54,251 48.003 43.743 Cash Dividends Pad per Common Share S 2.36 2.30 2.18 Return on Average Common Equity 11.1% 11.4% 11.5% Gross Prnperty Additions S 739,532 $ 850.770 $ 682.516 Net investment in Plant at Year-End $5,291,485 $4.813.268 $4.103.487 Total Capitahzation at Year-End S4,765,103 $4.157,925 $3,930.081 D Consumers Power Company Annual Report 1980 l 212 West Michigan Avenue, Jackson, Michigan 49201 (517) 788-0550
1( Company Description Consumers Power Company was incorporated in Mchigan in 1968 and is the successor to a corporation of the same name which was organized in Maine in 1910 and did business in Mchigan from 1915 to 1968. As a combination utihty, Consumers Power supphes electricity or gas. or both, to a service area with more than 5.3 milhon resdents, including those in metropohtan Centers SUCh as Grand Rapds. Fhnt, suburban Detroit Pontiac, Lansing, Kalamazoo. Muskegon. Saginaw. Bay City. Jackson. Traverse City, and Battle Creek. Industries in the temtory served by the Company include autom0 biles and automobile equipment, primary metals, chemicals, fabrcated metal products, pharmaceutcals, machiney, oil refining, paper and paper products, food ploducts, and a diversified group of other industnes. Consumers Power also serves a large rural area with more than 58 000 farms. Overall the Company has about 1.3 million electnc customers and 1.1 millon gas customers. Approximately 425,000 of i these are both electnc and gas customers. In 1980 about 55 percent of consoldated operating revenue was derived from the electric business, about 43 percent from the gas business, and about 2 percent from other sources. The Company has four wholly-owned subsdianes. Northern Michigan Explora+ ion Company is engaged in the exploration, development, purchase. and sale of oil and natural gas, it operates within the contiguous 48 states and in several foreign countnes. Plateau Resources Limited is engaged in the acquisition. exploration, and development of properties for the mining, mil ling, and sale of uranium. Mchigan Gas Storage Company is engaged in the purchase, transm;ssion, and storage of gas and in the sale to the Company of gas from an interstate pipehne suppher. Mchiga.1 Utihty Coi!ecton Service Co. Inc. is engaged in a special collecton servce for past-due utMty bills. ,j +. w:, mg..z. y_ e g;.?. . Wy %[ *y;. _.,;L L L, e f. 6, g; ?.. s zp 9 w ww. 's. ~ D .,, Q T i G%#t n dy } ~. pp- _p. Q/ p.3 L C[h h
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l .h - _ [.l,'. .:M. J.. w j$i_ - k$$ ' z M & ~.y.. L +' s-C ' q. ^ p f Shown in orange on the map is Consumers Power Company's servce area. it encompasses 31,535 square mdes in 67 of the 68 CoJntles in Mchigan's .( lower peninsula. 1
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The Company s financial perform-annua:ly in February 1981, and we fective on the day the unit went into ance for the year 1980, while not expect to receive a final order on our commercial operation. A hearing on adequate. was better than we had total request for $122 million later in the balance of the Campbell costs is forecast in view of the economic the year. now pending, and we expect to re-slump and the significant decrease As inflation has continued to push ceive an additional rate increase cov-in gas and electric safes to Michigan costs upward, the length of time re-enng these costs in early 1981. industries-particularly auto and auto quired to process a rate increase Nineteen eighty saw us making an parts manufacturers Operating in-application before the MPSC has intensive eifort to continue construc-come, which showed improvement become an issue of increasing con-tion of tte Midland Nuclear Plant so in late 1980, was higher than in 1979. cern. In the early 1970s, rate cases that the units will be ready for com-However. earnings per share were could be concludeu in approximately mercial operation in December 1983 $3 08 in comparison with $3.24 one 9 to 12 months but today-with and July 1984. On-site construction year ago. The principal 'easons for increased intervention and MPSC progress continued throughout the the decrease were a larger number workload-even the most routine year, and specialemphasis wasgiven of common shares otJstanding fd case requires approximately 18 to advancing thedetailed engineer significantly higher nonoperating months to complete. Under these cir-related to implementing numer costs. particularly interes charges. cumstances, the timely recovery of regulatory requirements-includ, Arranging financing to support our increasing costs has become virtually those resulting from Company and construction program became more impossible and, as a result, the Com-Nuclear Regulatory Commission d.fficult as interest rates rose above pany's earnings and credit ratings stud:es of the Three Mite Island acci-the 20 percent level. have deteriorated. The seriousness of dent This design effort will enable us An efectric rate order issued by the this situation is becoming recognized to accelerate construction activities in M:chigan Pub'ic Service Commission and-through the mutual efforts of remaining major wor'K areas. By get-(MPSC) in August 1980 authorized the utility industry, the MPSC, and ting the plant on line as soon as pos-an annual rate increase of $70.3 mil-some intervenor interests-legislation sible, we should be able to reduce lion. including a $29.3 million intenm which will permit rates to remain construction costs which result from increase approved in November more nearly current with cos' ! eve!s inflation and the cost of funds used 1979. Although the 18-month penod is now being considered by some for construction, to increase reve-that elapsed before the final order Michigan legislators. nues by reflectirg the cost of the plant was issued was far too long. and the On the positive side, we are ex-and its operations in our rates, and to final amount authonzed by the com-tremely pleased that the new 770-lower our f uel costs with the increased mission was much less than we megawatt. coal-fired Campbell Unit 3 use of nuclear generation. needed, it did help to cover some of went into commercial service on Among the year's other positive our increased costs dunng the last September 26 according to schedule achievements was the outstanding five months of the year On the gas Most importantly. the electric rate performance of our subsidiary North-side of the business. no action on our order issued by the MPSC in August ern Michigan Exploration Company gas rate f: ling, which was uodated in also included an annual increase of (NOMECOl During 1980 NOMECO .;ay 1980 was taken dunng the year. $97.4 million to cover a significant produced 1.5 million barrels of oiland However we did recewe an order for portion of the costs relating to the 11.5 billion cubic feet of gas. In an intenm increase of $76.7 mi!! ion new plant. The increase became ef-dition, the company participate 2 J
l lq.- i e( r f Wh$ j h. f k .j - ) the dnihng of 93 new wells and found measures These include reduced 9 k: oil or gas in 36 of them for a success supphes and inventories, cutbacks in ratio of 39 percent. At the end of 1980 maintenance programs, reduction of '1 L T -- NOMECO had 240 productive wells, overt:me and standby crews, strict plus proven reserves of 8 milhon bar-limitations on travel. curtailed office ~
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'N Q i' rnis of oil and 62.2 billion cubic feet services. and restrictions on hiring. ^ of gas, and had drilhng nghts on 11 New service connections may be de-G. h V k @ ft.
- .3 million gross acres in the United layed in some cases and we may not 4
" 4. L.r. States. Tonga. Behze. and Australia. be able to respond as promptly as .._. (j ' J S - y ./ '. T As we view the outlook for 1981 we would hke to customer calls for E, -M A 8, ", [] i' and beyond, we recognize the need service. But we can and we will con-I: to obtain more adequate and more tinue to take care of emergencies and r = timely increases in our rates.We plan to do the best job pcssib!e with the +.- to file a new e!ectnc rate case early resources availab!e to us. We remain .3 ~ ' 4 ".f' ~ in the year, and we expect to receive firmly committed to a pohcy of effi-John D. Sety a final order on our updated gas cient. cost-effective management, one fihng bv fall. The direct relationship we beheve will. in the long run. pro-of adequate rates to adequate ser. vide good service for our customers i j_ ( vice must be understood and ac-and a fa;r return for our shareholders. 1 i i. I knowledged by the public and the ' L. regulatory authonties, and we will Sincerely.
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) !f1k'$.7'^ that objective. continue our elforts to accomphsh ~(.t .y . y.;.' f.[N. '
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y 4 y_ $lg* position of the new administration in (f Washington-particularly its pledge ~1 f." c.. m. 5]M 'dii44f. c' - l, - . M. to achieve economic improvement y A y ;gg,< and its endorsement of nuclear power. / p _. g.i N 'i. If we are able to proceed under ari John D. Selby ~ effective, rational. 'ederal energy pol-y (( .y Chairman of the Board .x icy. and if the economy does begin to ) : .;- (, ~ }j h } l M-M our major construction project. to im-J f f ~ recover during 1981, we will be in a f.). : 7 much stronger position to carry out j.y 1. /; W M '.n J N prove our operating results, and to $l$g.f ([ 2 i 'Y: meet our service respons;bilities to f.. i.I S . _ 2 F '7,( j' customers. James B. Fatahee 9.;',. fi ~. p '$ ? In add;t;on. we will continue our ef-Vice Chairman of the Board ~ ,3" ? 'P .i forts to hold down expenses and to "~ Jarnes B Fa!ahee work under stringent cost control February 13.1981 1 3
1980-A BRIEF REVIEW Corporate News Mchigan. Because the Company is for ways to become activery involved operating under stnct cost control in the resolution of such issues. measures. no regional shaieholder All concemed shareholders, Dividends and Shareholders meetings will be held in 1981. employees, and retirees are invited to Dunny 1980 Consumers Power take part in the program. Those who Company pad $127,479,000, or $2.36 have not yet joined but with to do so par share, in regular quarterly divdends Management Changes should wnte to the Information/ Action of 59 cents per share to holders of its Several changes in Company manage-Program at the Company address. common shares Divdends for the ment took pl ace dunng 1980. L. C. Roll, Company's preference and preferred in accordance with the board of directors' shareholders amounted to $56,747.000. retirement policy, retired from the board Rates and Regulatory Matters The Company has estimated that 100 on the day of the 1980 annual meeting parcent of the dividends pad on His many v"uab!e contobutions to the common stock in the last three quarters Company's growth and progress during Gas Rate Case of the year and 26 percent of the first his more than 17 years as a director are In February 1981 Consumers Power quarter divdends were nontaxable for greatly appreciated. received an intenm increase in gas rates federalincome tax purposes and - John B. Simpson, executive vce amounting to $76.7 milkon annually in constituted a return of capital All presdent-energy distnbution and addition the authorized overall rate of divdends paid on preference and general services and a mer9er of the return on the Company's gas business preferred stock were fully taxable board of directors, resigned from both was raised from 8 84 percent to 9 58 At year-end common shareholders those positions on June 4 in order to percent. numbered 172.000, preference and devote full time to serving as president The gas rate case to which the preferred shareholders Faled 45.000 and director of Northern Mchigan February 1981 intenm increase apphed Approximately 55 percent of CP Co. Exploration Company a wholly-owned was onginally fded in March 1978. shareholders are Mchigan rescents subsidiary of CP Co. Because the filing was based on a test As of December 31.1980. 26.000 in August Robert E. Dewar, former year ended July 1977. the deficiency in shareholders were enrolled in the chairman of the board and chief executive the Company's gas revenue continued to Company's Divdend Reinvestment and officer of K mart Corporation, was worsen as a result of cost increases Common Stock Purchase Plan. an elected to the Board of Directors of Although the Michigan Pubic Servc increase of 13 percent over 1979 Consumers Power Company. His Commission (MPSC) issued a final c Those participating in tne divdend e:ection became effective September 1. for $29 2 million in rate rehef in June reinvestment plan may purchase At the October board meeting, two 1979, it reopened the case in Septem r additional shares of the Company's off:cers of the Company-Stephen H. of that year a'ter the Company common stock by reinvesting their Howell and James W Cook-were given announced the mothballing of its divdends and/or by makirg cash increased responsibilities. Howell, who Marysville Gas Reforming Plant. reduced purchases without incurnng any was senior vice president-projects, gas rates by $23 9 mahon in October to brokerage fees or service charges. engineenng and construction, was reflect estimated sav:ngs from the Dunng 1980 plan partcipants reinvested elected executive vice president-energy Marysville shutdown, and ordered further $10.957.000 in divdends and made distnbution and general services. He is heanngs to determine more precisely cash payments of $4.270.000. for a total now responsible for general services, what the reductions in the cost of service of $15.227.000, to purchase 856.000 customer servces. and region opera-result;ng from the shutdown would be. shares of common stock Information tsor and for electnc and gas distn-Since hearings in the reopened case about the plan may be obtained by bution to the Company's 1.3 milhon were delayed past January 1980. wnting to the Company's Stock Transfer electnc and 1.1 mi: hon gas customers. Consumers Power asked for and Department. Cook, formerly vice presdent-Mdland received permission from the project, was n2 i ed vice president-commission to submit updated financial projects. engineenng and construction. information on the case in May 1980. Annual Meeting The major project under his direction is A final order on the Company's Consumers Power Company s 1980 the Md!and Nuclear Plant, and he is request for a total gas rate increase of annual meeting of sharehoidars was now responsible for all the Company's $122 million is expected in the fall of held on Apnl 8 in Jackson Mchigan projects, engineenng and Construction 1981. Represented at tae meeting were 712 activities for production, generation, and parcent of a!! shares entit!ed to vote. transmission facihties. In addition he is in Dunng the business session share-charge of the Company's environ-Electric Rate Case ho!ders authonzed an inc. ease in the mental services and activities A final order on an efectric rate applica-number of common shares from 60 ton which the Company fded in January milhon to 100 mdhon and re-elected 15 1979 was received from the MPSC in incumbent members of the board of Shareholder Information/ August 1980. The commission's ruhng, directors After the annual meeting Action Program which came 18 mcnths after the regonal shareholder meetings took The issues and information program Company had filed its case, granted an place in Jackson. Pontiac. Grand Rapids. initiated in 1979 for shareholders. annualincrease of approximately $70.3 Lansing, and Saginaw At each regional employees, ar d retirees continued million in electnc rates, including a meetng. tne chairman or vice chairman throughout 1980 and involved some $29.3 milhon intenm increase appro spoke on Company matters and share-23.000 partcipants at year-end Energy 'n November 1979, to reflect increar holders had the opportunity to ask Update, the program newsletter, provided in general cost levels. Questions about the Company's activit;es data on social, economic, political, Also authorized by the commission The 1981 annual meeting of share-environmental and energy issues was an additionalincrease of $97.4 holders will take place oc. Apnl 14 at important to the Company and Take milhon to cover a substantial part of the I 2.00 PM in the Parnall Offce Budding. Act/on, a separate pubhcation for partci-costs relating to the new Campbell Unit 3. 1945 West Parnall Road. Jackson, pants who request it, offered suggestions This latter amount became effective 4
when the new unit was placed in service on September 26. A heanng, at which the MPSC will review the balance of the costs associated with the unit and adjust the amount of the rate increase accordingly, is pending ,my The Company expects to file a new v electric rate case, which will be based 4 on 1982 projected cost levels,in early 1981. 1 \\ 1 indexing Adjustment j t A heanng on an operation and mainte-J nance expense indexing adjustment FM."g.ty. A g decrease in the Consumer Pnce Index g equal to the percentage increase or i g" masse. METd6dbp'. ge for the 12 months ending August 1980 r .s t 14 wmmudHa + ' was held on December 11. With MPSC approval, the Company increased its Qi electnc rates for a penod of 12 months, yiu#, H beginning in February 1981, by approximately $24 million. ~u, y.1 ,,,? m u n m g. fg Customers and Sales 3 o 'I Customers q 1' M At year-end Consumers Power was y\\s. r a g serving 1.327.713 electnc customers, of which 1.189,061 were residentiat, y-
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a L " ' /' / 129.647 commercial,8.145 industnal. l ~
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/ and 860 other (street and highway lighting. sales for resatel The total num- \\ p.)i W f. \\ ber of electnc customers increased 1.4
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~< s 3 percent over the number served in x _a' )rje 1979, and the total number of gas M,.> s f customers increased 3 6 percent. Most ,' N. of the increase in gas customers came 4 /y' 1 p in the residential category which grew by s , ' % M A +3. a, "F 'RT 4 7< 74 42.292 customers to 1,062.221. Com-T W' Z 'd / 7 r .. L/ .l ( P' mercial and industnal gas customers numbered 68,654 and 7.234. respec- 'j M j 4 ~ .f[;.p s .F ' tively The Company mrved a total of l .,Wf ; / Tj_. ( 1.138.109 gas customers at year-end. 9 - -35&T & ~+, ' R . [ ~ ((?' f,, W ' ' ~ W% ~^ j Sales g5 A' Total electnc sw s for 1980 decreased S;m. .a h 4 8 percent-to 25 5 billion kilowatt-i.:. %.. g' hours-from those in 1979. The largest I portion of the cecrease was in industnal sales which dec. ned 11.4 percent from 4 i <r ~ '^l the previous year J On the gas side. Overall sales increased 9 48 3 percent to 340 8 billion cubic feet. ~- igggggj Because of sales to ubines outside of Michigan, total industnal gas sales e increased about 1 percent. However gas sales to Michigan industnes de-e creased 11.7 percent. Although the number of residential customers in-creased markedly dunng the year, resi-dential gas sa!es rose only 18 percent as a result of conservation efforts. Elec-Construction of the Midland Nuclear Plant continued throughout 1980 as the tnc and gas sales for the coming year Company intensihed its efforts to bnng this project' two units into servoce on are protected to be slightly lower than s schedulein 1983 and 1984 those for 1980. y 5
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~.. O i Financing and COnstruCliOn Midland Nuclear Plant that the effectiveness with which they handle normal, abnormal. and emer-The year 1980 was a t me of major re-evaluation, reorganization, and gency procedures can be evaluated, Secun.ty Ratings replanning for the Mdland project updated, and improved. Present plans in January Bechtel Power Corporation call for training at the complex to begin j in md-Apo! Standard & Poor.s announced that it was lowenng its rating prime contractor for the plant, submitted in mid-1983. 4 en Consumers Power Companys hrst a revised cost estmate and schedule mortgage bonds from A-to BBB, on projecton to the Company, as was ' the Company s preferred stock from A-announced in the 1979 annual report. 4 to BBB, and on the Company s The Bechtel study, which was based on Subs. diaries preference stock from BBB-to BB. In the project's status in the post Three i December Moody's investors Serace Mile Island atmosphere, estimated a lowered its ratng on the Company s first substantial cost increase and projected NOMECO mortgage bonds from A to Baa Moody s commercial operat ng dates of 1984 l ratings on Consumers Power preferred and 1985 for the two units. However a in 1980 Northem Mchgan Exploraton and preference stocks remained at baa subsequent, more thorough study of the Company (NOMECO), a wholly-owned and ba. The pnncipal reasons cited by cnticalitems in the construction subsdiary now in its fourteenth year of both firms for the lowered ratngs were schedule and more up-to-date informa. operation, had net income of $17.1 i depressed sales of energy, inadequate tion on NRC requirements indcated that mdhon, in comparison with $11.3 mdlion - regulatory responses to requests for rate Unit 2 could be ready for commercial in 1979. In both 1979 and 1980 t increases and approval of financing operation by December 1983 and Unit 1 NOMECO paid $6 mdlion in dividends to plans, and the large externd f:nancing by July 1984. In July these conclusions the Company requirement associated w;th the Midland were reviewed and adopted by the During 1980 NOMECO acc.. ired a 24 nuclear project. Company's board of directors and,in percent interest in the oil and gas lease August, an NRC Caseload Forecast rghts on nearty 4.6 milhon gross acres in FinIncing Panel-after visiting the plant and the Surat Basin in northeastern Australia ") While the Company applied to the MPSC reviewing the projected schedule-and surrendered its lease rights in Belize .g in late 1979 for permission to sell expressed essental agreement with the to 1.3 mdlion gross acres, approx.mately Company's estmate of the completion half of its acreage position in that secunties to finance $598 milhon (revised dates for the two units. In October a country in keeping with the company's to $567 milhon) of constructon expendi-revised cost estmate, consistent with objective to expand its exploraton tures in 1980, intervenors prolonged the new project schedule and scope, of efforts througnout the United States and - the heanngs to the point that it was not $3.1 bilhon was reviewed and approved the rest of the world,in 1980,66 percent possible to obtain a final order on the as reasonable by the executive com. of NOMECO's drilling actutes-as Company's request in 1980. However, mittee of the board of directors. compared to 47 percent in 1979-took i dunng the year-through a pnor order Completion of the plant according to place outsde of Mchigan. Within granted in 1979 and through intenm schedule is one of the Company's top Michgan, NOMECO helped initiate the orders granted in 1980-the Company pnont es, and all available resources are passage of legislation which opened, was allowed to issue secunties to being committed to achieving this goal. Under reasonable environmental guide-finance its construction program and to A major reorganization involving the lines, the Pgeon River Country State 4 refund a matunng bond issue and project teams of both the Company and Forest for od and gas development. short-term debt-its major contractors was effected dunng The Company sc'd $100 mill;on of first the year. Mdland was 62 percent Plateau Resources Limited mortgage bonds.12.50 percent senes, complete at the end of 1980. due 2010, and $70 milhon of first mort-During 1980 Plateau Resources Limited, ' gage conds,12.10 percent senes, due the Company's wholly-owned uranium 1987,in January $39 5 milhon of first development subsidiary, continued to mortgage bonds,10% percent series. Nuclear Training Center make sgnifcant progress on its mine I due 1999,in Feoruary; $55 mdlion of Both the utihty industry and the NRC and mdl project in the Henry Mountains $3 85 preference stock in May; $75 have been focusing on more compre-area of Garfield County. Utah. Construc-mdlion of first mortgage bonds,12% hensive, more flexible training for tion of the uranium millis ahead of percent series, due 2010, in June; $73 nuclear reactor operators. To provide schedule and on budget, and was . mdhon of common stock in September: this sort of trainit:g and to improve both approximately 90 percent complete as of and $52 million of $3.98 preference the safety and effdencs af its nuclear year-end. However, because of the i stock in November. In December the operations, the Cvmpany plans to build dramato decrease in the market price of Company completed negotiations tur a a $38 mdlion nuclear trtdning center uranium concentrates during the past 4 i $175 million long-term loan with a near the site of the Mdland plant. year, Plateau suspended virtually all group of five banks. Through the use of simulators, whch activities outside 'he Henry Mountains j utlize high speed computers, and control area. with corresponding reduct ons in panels which duplcate those at the staff and in property positions. As of g Construction Expenditures Company's Palisades and Mdland year-end, Plateau s plant investment was ~ 1 The Company's corctructon expendi-plants, trainees will experience and learn $82 mdlion. tures for 1981 are expected to be to respond to a vanety of situations $619 mdlion, and those for 1981-1985 ranging from normal operations to postu-are estimated to be $2.8 bdhon, These lated abnormal or accident conditions. 3 amounts do not include the cost of Experienced operators will also partici-4 leased nucl ear.uel. pate in regular sessions at the center so 1-y r
CONSUMERS FOWER COMPANY AND SUBSIDIARIES Consolidated Statement of Income Years Ended December 31 1980 1979 1978 Thousands of Dollars OPERATING REVENUE (Notes 1 and 6) Electric utihty S1,273,565 $1,129,565 $1,057,240 GbL 4 986,384 870.316 806.485 Other 44,034 21.353 26,136 W uatq 'esecue S2.303.983 st u/1/34 sitshysni OPERATING EXPENSES AND TAXES Operation: Fuel consumed in electric generation S 418,814 $ 385,944 $ 371,444 wr a at mtuchvce gc.m 204,427 159 944 151.249 Cost of gas sold (Note 1) 657,249 555,150 499.578 ' tei 328.906 286 553 ,%b Total operation expenses S1,609,396 $1,387,591 $1,277,236 r/ " sce tue 11' 117,025 116 120 102.910 Depreciation, depletion and amortization (Note 11) 140,032 128,203 121,741 Ge al ta e:, 103,465 85.784 82 614 Income taxes (Note 8). 15,621 30.585 62.324 h> ,, carg eposes a taes si.985.539 s1 /43 /ad s! Mn un NET OPERATING INCOME Electric utihty S 235,106 $ 200,851 $ 163,627 w: tz. ', 71,699 64 950 l0,13 7 Other 11,639 7.150 9.272 17 ', et wr' w mccm s 318.444 s /// mat s m usn f.THER INCOME Allowance for other funds used during construction (Note 1) S 71,088 $ 66.168 $ 43,710 , rev 1 a ci ! rg :"m 90 2,910 2.617 2.553 Otner. net 16,007 7.526 15.279 b:a ver mcem-S 90.005 S lti 311 5 hl h4i INTEREST CHARGES Interest on long-term debt S 216,5b3 $ 177,973 $ 150,653 39,234 17.021 2.422 Allowance for borrowed funds used during construction (Note 1). (71,136) (49.519) (33.623) ,,et n: erst carm S 184.651 s 143 4 /o d 114 4n/ Net income. S 223,798 5 203,787 $ 185,131 DR Ai;DS (C) FHUERRH) M.D FREFERENCE STOCK 56.747 48 419 44 881 Net income after dividends on preferred and pcaference stock S 167,051 5 155.358 { 140.250 IJdME WMER OF C0%"/0*; SHARES OtJ1 STAND:NG 54,251,000 48,003,000 43.743.000 EARNINGS PER AVEHAGE COMMON SHARE S3.08 $3.24 $3.21 O The accompanying notes are an integral part of this statement. 8
CONSUMERS POWER COMPANY AND SUBSIDIARIES Consoikiated Sfaiement of Scurce of Funds Years Ended h 31 for Gross Property Additkm 1980 1979 1978 O Thousands of Dollars
- \\h S 2231798
$ 203,787 $ 185,131 FUNDS GENERATED Net income l FROM OPERATIONS Principal noncash items: l Depreciation, depletion and amortization-Fer Cm: A ed SM:c: ^ t ct lacnTc 140,032 128 203 121.741 3,553 4,917 4,256 l Charged to other accounts F ' m :: ne r etu _ mt 33,627 26,549 24 001 Deferred investment tax credit, net (24,097) (5,257) 46,568 2 Er Wa tends ts:d de m os
- " ciruc a l N W li (71.038) iE6168
i43 710) S 305,825 $ 292,031 $ 337,987 Less: Nt % ac'c mia1um mcestvA 56,747 48 419 44.831 Dividends on common stock 127,479 109,698 95,050 l ucfmcc cnd gefered ack dn1 cv
- Hern Mt -
24.375 18.198 23140 S 97,224 $1163 $ 174,916 FUNDS OBT/JNED
- v et n mm sa %
S 83,015 S 94 830 $ 106,031 FROM NE'F issuance of preference stock 107,000 58,000 FINANCINL h acfW Msv 46 000 50 000 Sale of first mortgage conds 284,500 138,500 100,000 F
- b m a v bncds (75,000)
Net proceeds from installment sales contracts 8,154 337 7,825 e in h t ' lcas 175,000 100.000 D increase in revolving bankloans 38,500 7,000 ( r > :n aher irita n (1,387) 3.677 235 a x increase (decrease)in notes Dayable due within one year. (96,505) 302,583 10,312 S 623,2// b bHL92/ 5 4d2WJ OTliER SOURCES Changes in net current assets and liabilities, (USES) 0F FUNDS excluding obligations expected to be refinanced: Temporary cash investments.. S (3.805) $ 155,312 $ (20,433) "1
- d~
(36,463) (23.437) (40.312) ~ Accrued revenues (57,801) (19,560) (9,949) 2mo ccord t w 13,737 (53,767) 16 080 Generating plant fue: acck (11,987) (13,005) (6,420) a > gze 27,641 45 357 25A18 Accrued taxes. 9,387 11,011 (9,500) F + ec : e tme 31,742 10.817 2.054 Other, nei (26,987) (41.388) 11,524 S (b4,b9ti) d I1zuU d W l.Dac! Sale of portioil of generating plant (Note 12) 40,859 ., 7 - M ma L m o c r y ent; Acte 5: 81,263 16.955 66.323 Other, net. (19,583) (12.316) (3,298) s 4 t.943 d m ens 3 ai 4nt Total funds from above sources . S 668,444 $ 784,602 $ 638,806 /h M b N ' TN cd ^ m : 7 tv./ w M te 11 71 088 56 168 43 710 GROSS PROPERTY ADDITIONS S 739,532 $ 850.770 $ 682,516 .,^ GROSS PROPERTY ADDITIONS BY SEGMENT ( D: /, '3 S 617,784 $ 750,552 3 617,125 Gas utility.. 63,138 68,032 44,715 Oc' 58 610 321E6 ?0 676 S 739,532 $ 850.770 $ 682,516 The accompanying notes are an integral pt:t of this statement. ..( ) Denotes deduction. g
CONSUMERS FOWER COMPANY FWD SUBSIDIARIES Consolidated Balance Sheet m 31 1980 1979 Assets Thousands of Dollars PLANT (AT EL,ctric utility S3,422,938 $2,717,517 ORIGINAL COST) C ut4 1,243,634 1,189 091 Other 260,675 228.266 S4,S2 /,24 / 5d4 b /4 Less provision for accumulated depreciation 1,396,751 1,280.926 s3,530,496 dz. bod.94d Construction work in progress (Notes 2 and 3) 1,760,989 1,959.320 SS,291,485 d4 Old.zbd CURRENT Cast S 25,529 $ 21,671 ASSETS icnuay cash irs s*mems at cest &cn amccates maut 10,205 6 340 Accounts receivable,less reserves of $2,884,000 in 1980 and $2,746,000 in 1U9 227,914 191,451 Accrued n as TWe 0 185,995 128.194 Gas in underground storage, at average cost 199,406 213,143 &mtrra W M Tcu. : w ageau 93,373 81.386 Materials and supplies, at average cost 93,682 72,780 Rm, Es and d.Mr 111.467 98 391 S 947,571 $ 813.356 OTHER H c;4 y M w etuts s 31,b40 S ad.622 S6,276,596 $5,665,446 Stockholders' investment and Liabilities CAPITAllZATION (See Consolidated Statement of Capitaltzation) D., mn sMcm km eqeJy. S1,586,495 $1.461.266 Redeemable preference stock 128,409 28,924 W eer,"; mete ence n ~- 140,000 140.000 Redeemable preferred stock 137,955 138,355 cr2 cc= e pre cacd dw 334,779 334.779 Long-term debt. 2,437,465 2,054.601 S4, / 6b.103 54.10/.920 CURRENT Currert obligations expected to be rehnanced. LIABILITIES Notes payable due within one year. S 234,444 $ 330,949 H :t m.t W : A c Em ' oes v. : 1% 76.000 3%% First Mortgage Bonds, series due 1981. 38,479 cl.' q L: W; 45,500 Bank term loan 10,000 S 328,423 5 @o.949 Current maturities and sinking fund on long-term debt (Note 4) 33,752 32,850 A: -" 5 WZ t 234.017 206.3/6 Accrued taxes (Note 8) 103,53. 94,147 W md: om ' w? ? 131,708 99.966 Accrued interest 56,819 57,728 01 < 54.880 44 024 S 943,133 $ 941,040 DEFERRED H: N in ,oo S 396,142 S 303.080 CREDITS AND Deferred investment tax credit (Note 8) 135,197 164,924 RESERVES C"< 37,021 38 477 S 568,360 $ 566,481 Construction commitments and contagent liabilities (Notes 3 and 9) S6.276.596 $5 665 446 The accompanying notes are an integral part of this statcment. 10
CONSUMERS POWER COMPANY AND SUBSIDIARIES Consolidated Statement of Capitalization (Note 4) A ) December 31 1980 1979 1980 1979 COMMON STOCKHOLDERS' EQUITY yhares Outstanding Tnousands of Dollars Common stock, $10 par value, authorized 100.000,000 shares .57,634,040 52,455,515 S 576,340 $ 524,555 Castal in e.icess c! par vaWe 555,298 516.572 Retained earnings 479,580 440,008 Less caxa! stock egense. 24.723 19.869 j Total common stockholders' equity. S1,586,495 $1,461.26G PREFERENCE STOCK-Cumulative, $1 par value, amthorized 15,000,000 shares Redeemable: S 6 00 Convertible. $50 stated value. conscrsion once $12.50 21.096 S S 1.055 5.50 Convertible, $50 stated value, conversion price $15.50 68,182 197,380 3,409 9,869 85 00 Nenconsert1 Die. $1000 stated ',alue 18,000 18,000 18,000 16 000 3.85 Nonconvertible, $27.50 stated value 2,000,000 55,000 3.98 Ncnconvertit:!e, $26 stated value 2,000,000 52.000 Total redeemable preference stock. S 128,409 $ 28.924 Nonredeemable, nonconvertible, $25 stated value: S2A3 2,000,000 2.000.000 $ 50,000 $ 50.000 2.23 2,000,000 2,000,000 50,000 50,000 2 b0 1,600,000 1.600.000 40.000 40 000 Total nonrcueemable preference stock S 140,000 $ 140.000 PREFERHE.. STOCK-Cumulative, $100 par value, authorized 7,500,000 shares Redeemable: 54 52 99,550 103.550 S 9,955 S 10 355 9.25 320,000 320,"50 32,000 32,000 9 00 500,000 500,000 50,000 50.000 9.70. 100,000 100.000 10,000 10,000 m ( ) 8625. 360,000 360.000 36.000 36 000 v Total redeemable preferred stock S 137,955 $ 138.355 Nonredeemable: S4 50 547,788 547.788 S 54,779 S 54.779 4.16 100,000 100,000 10,000 10,000 7 45 700,000 700.000 70,000 70.000 7.72 700,000 700,000 70,000 70,000 7 76 750,000 750.000 75,000 75 000 7.63 550,000 550,000 55,000 55.000 T0tal namede:mable preferred sicck S 334./l3 5 M43,9 LONG-TERM DEBT First mortgage bonds, secured by a mortgage and lien on substantially all property. .. S2,001,23S $1,812,560 !nstaMem sa!cs comrccts. a,erage ! merest rate 6 7% net of $355.000 in 1980 and $1.309 000 m 1979 held in trust cening ccmhcanon cf construction expen6tures. 129,745 124.141 33,400 34,000 4%% Sinking Fund Debentures due 1994. 360,000 185 000 Bank term loans. at banks' cnme rates and % to % abcte duc 1981 through 1988. Revolving bank loans, at 110% to 115% of bank's prime rate due 1981. 45,500 7,000 Other 4.235 5622 S2,574,116 $2,168,323 Deduct: Currect ma:Unnes ci fust mortg3ge bonds 33,479 75 000 Sinking fund for first mortgage bonds 22,525 20,825 Currem matunties cf revcising bank loans 45,500 17,500 7,500 Current maturities of bank term bans Current ma'unhas of mstanmem saies ccntracts 2,550 2.550 Sinking fund for debentures 600 600 00er corrent matunhes 577 1,375 Unamortized net debt discouni 8,920 5.872 (3 Tctal long-term dett S2.431.465 S/ U04 bul -Q) Total capitalization S4,765,103 $4,157,925 The accompanying notes are an integral part of this statement. 11
CONSUMERS POWER COMPANY AND SUBSIDIARIES Years Ended December 31 1980 1979 1978 1980 1979 1978 Shares Outstanding Thousands of Do!!ars Consolidated Statement of Capitalin Excess cf Par Valua of Common Stock Ba'ance at January 1 52,455,515 47,176.203 42,199,870 S516,572 S467,607 S405.502 ", m oa x mw;h i & n;a : W nien 4,000,000 4 000.000 4 000 000 30,720 38.440 62.780 Dividend Reinvestment and Common Stcck Purchase Plan. 198,982 628.990 415.957 1,472 6,949 5.265 s t .n
- ,Fu 245,042 103 225 161.085 2,002 1.215 2 216 a
Employees' Savings Plan. 244,900 46.000 1,932 444 ,d 300PC m2St& 80,712 333 252 173 040 202 833 433 Conversions of $5 50 Preference Stock. 408,889 167.845 226.251 2,249 923 1.244 rt; me- : ^;.,n-149 161 167 Balance at December 31 57,634,040 52.455 515 47.176.203 S555,298 S516.572 S467.607 Consolidated Statement of Retained Earnings ,1 S440,008 $394 338 S3491? Net income 223,798 203.787 185,1 < S663,806 5598.125 5b34 269 Less cash dividends (Note 4r Preferred stock 35,529 32,009 31,007 21,218 16.410 13.874 a Comaon stock (S2.36. 52.30 and $2.18 per share) 127,479 '09.698 95.050 S479,580 $ 140 003 5394.33d The accompanying notes are an integral part of these statements. Notes to the Consolidated Financial Statements
- 1. SIGNIFICANT ACCOUNTING POLICIES storage, which is allowed in the rate-making policies of the Michigan Public Service Commission (MPSC), all significant intercompany The accompanying consolidated financizi statements include the accounts and transactions have bean eliminated.
accounts of Consumers Power Company (the Company) ar d all its The Company accrues revenues for services rendered to customers subsidiaries, Northern Michigan Exporation Company. Michigan Gas but not billed at month's end. Storage Company Plateau Resources Limited and Michigan Utility Allowance for funds used durirv} construction (AFUDC) represents Collection Service Co. lac. (together with the Company. the Companies). the cost of funds used to financc the Company's constructicn pro-TFa subsidiaries had previously been included in the financial statements jects. Under established regulatory practices, AFUDC is capitaliz under the equity method of accounting. This change had no material as part of utility plant cost. The corresponding credit is allocat effect on any of the years presented and had no effect on net between an allowance for other (equity) funds and an allowance fo income Except for intercompany profits in inventory of gas in underground borrowed funds. These amounts appear on the Cormlidated State-12
CONSUMERS POWER COMPANY AND SUBSIDIARIES otes to the Consolidated Firiancial Statements (continued) ment of income as other income and as a deduction from interest on the order has been granted, thereby delaying the effectiveness of i charges, respectively During 1978-80, most of the AFUDC resulted the order, and certain individuals have beeri permitted to intervene in from electnc utility plant construction. It was computed at a rate of the proceeding. The Company is presently unable to determine whether 8.50% of the AFUDC base to September 30.1980 and at 9.23% for this matter wi'I result in further delay in initial operation of the plant or the remainder of 1980. The AFUDC base consists of construction further increasas in plant costs. work in progress expenditures, less previe ' sly capitalized AFUDC Another pending Midland Plant issue relates to nuclear fuel cycle and certain other indirect, previously capitalued construction costs, rules. The company docs not expect that further review of this issue The allowance for other funds is a noncash item. It contnbutes to will invalidate the plant construction permits. future cash flows when utikty plant is placed in service and the Applications for full-term,40-year operating licenses for the Pali-Company is permitted a retum on and recovery of the capitalized sades Nuclear Plant and the M:dland Plant are pe%ng before the NRC. AFUDC in the rates charged for utility services. Allowance for other funds expressed as a percentage of net income was 31.8%,32.5%,
- 3. CONSTRUCTION PROGRAM AND and 23 6% in 1980,1979, and 1978, respectively. Allowance for SHORTTERM BORROWING ARRANGEMENTS other funds used during construction appears as a dedu.lon from The Companies' construction expenditures are estimated at approx-funds generated from operations on the Consolidated Statemt.nt of imately $66 r.illion in 1981 and $3.0 billion for 1981-85, of which Source of Funds for Gross Property Adcitions. The allowance for the Company s portion, net of leased nuclear fuel, is estimated at borrowed funds that was also included in this deduction in 1979 and
$619 million and $2.8 billion, respectively Substantial commitments 1978 has been reclassified so that the statement more clearly re' have been made for the construction program in future years. To flects the actual funds generated from operations. finance this construction program and to meet debt maturing through Notes 7,8 and 11 contain information on pens;on plans,. income 1985, the Company will need to issue substantial additional securities, I taxes and depreciation, respectively the amounts, timing and nature of which have not yet been determined. The Company will need significant and timely rate increases if
- 2. NUCLEAR GENERATING PLANTS revenues and income are to reach and be maintained at levels which The Compan it facility des /s investment in the Midland Nuclear Plant, a twin-will result in sufficient intemaily generated funds to meet its opera-igned to provide 1,357 megawatts of capacity for the tional requirements and permit external financi of its construction
^ ompany's electric system and to fumish process steam service to program at a reasonable cost. The Compan ability to obtain The Dow Chemical Company (Dow), was $1.57 ti.un at December extemal financing is also dependent upon time approval, which is 31.1980. Nuclear Regulatory Commission (NRC) consi& ration of not assured, of.ts financing applications by federal and state construction permits and operating licenses has been delayed by the regulatory agencies. If adequate funds cannot be obtained from NRC's concentratiun upon issues related to the Three Mile Island extemal financing and intemal sources, the Company will, as in the accident. On the basis of the estimated etfects of licensing delays past, curtail its construction program to the extent feasible, although and expected design revisions resulting from licensing requirements, any curtailment may affect adversely the reliability of service for and certam other kcensing assumptions, the Company estimates that future customer requirements. In the Company's judgment, deferrals Midland Unit 2 wil: be in commercial operation for electric service in of planned construction may result in near-term cxpenditure December 1983, that Unit I will be in commercial operation for reductions, but increasing costs and inflation would ultimately increase process steam service and electric service in July 1984, and that the the Company's required investment. plant will cost approximately $3.1 billion. Current!y. the Company cannot issue first mortgage bonds (except The Company's decision to continue design and construction of for refunding issues) or preferred stock under the eamings coverage the plant assumes that necessary regulatory approvals will be restrictions contained in its First Mortgage Bond Indenture (Inden-obtained. The Company is vigorously pursuing efforts to identify and ture) and its Articles of incorporatiun (Articles), respectively The favorably resolve matters which could cause delays and cost ability to issue first mortgage bonds and preferred stock in the future increase i There can be no assurance, however, that further delays will depend upon increases in earnings. The issuance of preferunce 'Ind further cost increases will not occur. If commercial operation of stock is not subject to any eamings coerage restriction. At Decem-toe p! ant for process steam service to Dow cannot begin until after ber 31,1980, the Company had MPSG authorization to issue the December 31, 1984, Dow would htve the right to terminate its shares of comrnon stock mentioned in Note 4. Requests for author-agreement with the Company for such service; however, Dow would be ization for the issuance of additional securities are pending before obligated to pav in amor estimated to range from $218 million at the MPSC. Decemter 31, I A0 to $433 million ii the plant were completed at a The Companies' arrangements with banks for short-term borrow-cost of $3.1 billion. Should Dow terminate the agreement for such ings of up to $357 million and for acceptance draft commitments of cause, the reinaining portion of the investment in equipment allocable up to $170 million are subject to periodic review. For the shortwm to process steam service, estimated to range fron $157 million at borrowings, the Companies are generally required to maintain averaw December 31,1980 to $310 million if the plant were completed at a compensating balances with the banks, over an unspecified period, cost of $3.1 Nilion, may not be salvageable. equal to 10% of the total line of credit plus 10% of the average In 1978, the Company discovered foundation soil problems at its borrowings outstanding as determined from the banks' records after 9idland Plant and reported the disccvery to the NRC. Thereafter, the adjustment for uncollected funds. There are no legal restrictions on C issued an order which, il made etfective, would modify the thewithdrawalof thecompensatingbalances.Theacceptancedrafts, tant's construction permits to prohibit remedial construction work which totaled $165 million at December 31,1980, are semmd by undertaken to correct the problems. A Company request for a hearing lie'is on certain of the Companies' fuel and oral gas inver ;z 13 C
Notes to the Consolidated Financial Statements (continued) 4, CAPITAllZATION Common Stock FIVE-YEAR AGGREGATE AMOUNTS OF MANDATORY At December 31,1980. retained earnings of $52,U57,000 out of REDEMPTION REQUIREMENTS OF REDEEMABLE PREFERENCE total retained earnings cf $4t9.530,000 could not be distributed as AND PREFERRED STON cash dividends on common stock under provisions of the Articles. December 31,198C There are also other restrictions as to payment cf cash dividends Pieference Preferred which are presently less resrictive. At December 31,1980, common stock was reserved as follows: 260,289 shares for the Employee Thousa'.Jo of Dollars Stock Ownership Plan,109.100 shares for the Employees' Savings Plan,73.050 shares for the Dividend Reinvestment and Common l%" - $ hj $2 2-Stock Purchase Plan, and 219,942 shares for the conversion of the $5.50 Preference Stock. [ 3 600 1985. 8,950 4,511 Preference and Preferred Stock All or part. at the Company's option, of its pref erence and preferred Should the Ccapany default in the performance of its obligations issues may be repurchased, either at a fixed price or at progressively under the sinking fund provisions of the Articles, preferred share-decreasing prices. Certain issues are subject to restrictions which holders and then preference shareholders have preference over prohibit repurchase with funds raised from the issuance unxurities common shareholders as to the payment of dividends or distribu-ranking.'or to or on pa !ty with the repurchased stock and bcving a tionof assets. lower interest or dividend rate The Company's $5.50, $85.00, S3.85 and $3.98 Preference Stock and its $4.52, $9.25, $9.00, $9.70 and $8.625 o 2ferred Stock are redeemable at mandatory dates and r prlCes REPURCHASE AND REDEMPTION FEATURES December 31,1980 Repurchases at Company's Option Mandatory Redemptions Price Restric-Price (Excluding tions in Annual (Excluding Accrued Effective Effect Number Accrued First q Dividends) Through Through of Shares Dividends) Redemption Redeemable preference: gm i $ 5.50 $ 52.50 June 1985 None 50,000* $ 50.00 July 1980 - ~ l L.' 1 03S 00 Se;;t. 1983 Sect 1983 31500 1 000 00 Oct 1934 3.85 0 31.35 April 1985 April 1990 100,000 27.50 May 1985 = s' 29 93 Oct. 1955 00t. 1985 100 000 26 00 Nov.1965 Redeemable preferred: $ 4 52 $ 104.725 None None 4,000 $ 102125 April 1952 l 9.!a 110.00 t/arr 1932 yarch 1937 16 000 100 00 Apnl1982 d 0.00 110.00 Mara 1983 March 1988 25,000 100.00 April 1983
- R 110 00 Dc; 1984 DCC 1989 50 100 00 Jan 1986 8.625 0 109.00 Dec. 1984 Dec. 1984 72,000 100.00 Jan.1986 l
Nonredeemable preference: i
- D
$ 27A3 Aug 1931 Aug. 1981 l 2.23 27.25 Oct. 1982 Oct. 1982 J:' 27 50 Ju!y 1983 Jdy 1983 Nonredeemable preferred: $ 4.50 $ 110.00 None None ,T 103 25 None None 7.45 106.00 March 1981 None 7u 100 00 June 1982 Ncne 7,76 107.25 May 1983 None 7B 106 00 Oct 1933 None
- The Company has the option to rec 6ive credit for any shares converted.
- Issued in October 1978.
- Issued in May 1980.
- Issued in November 1980.
- tssued in November 1979.
$ 13 sued in July 1978. 14 2
/ CONSUMERS POWER COMPANY AND SUBSIDIARIES Long Term Debt FIVE-YEAR MATURITIES AND ANNUAL SINKING FUND REQUIREMENTS OF LONG TERM DEBT, FIRST MORTGAGE BONDS OUTSTANDING INCLUDING MANDATORY REDEMPTION FEATURES December 31 December 31,1980 le 40 1979 Sinking Fur.d Maturities Requirements Senes Due Wausandsof Dollars 9h% 1980 T $ 75,000 Thousands of Dollars 1h% h* 8h Il I 2' 4% g 144',635 $125 k% 1985. E. 1Na 27,361 27.941 3
- 5. LEASE OBLIGATIONS AND RENTALS 4%%
1990 14,023 15.213 The Company has three leasing arrangements for its nuclear fuel. I 181 18,933 24 070 The lessors' investment in the fuel at December 31,1980 was 11h% 1994 54,000 57,000 approximately $199 million. The current term of one lease expires 1906 46,901 49.578 in November 1984. a second expires in August 1984, and a third 9%% 19 % 70,000 70,000 lease, for which the lessor's investment was approximately $92 E. m9 / 61,37c 64.8 7 million at December 31,1980, expires in May 1981. The first two 8k% 1997 40,000 40,000 leases have provi:; ions for one-year extensions from time to time to E.. 1W8 54,528 54.528 November 2029 and August 2013. respective!y, and all three leases 9[s% 1998 25,000 25,000 are subject to earlier termination in certain events. L 1 1N3 53,905 53.905 Quarterly lease charges consist of a fuel factor, which is based on 1999 50,000 50,000 heat production, plus interest costs and administrative fees and an 1909 55,000 55 000 expenses incurred by the lessors. In the event of termination of any 3%% 1999 78,000 38,500 lease, the lessor would be entitled to an amount equal to its remaining 6.. 20u0 60,000 50.000 investment. The Company is responsible for payment of taxes, 11h% 2000 75,000 75,000 maintenance, operating costs, risks of loss and insurance. d.. sm 60,000 60 000 The Company leases two of its general office buildings. The initial 7h% 2001 60,000 60,000 terms of the leases expire in 2003, with two five-year renewal options 7 2uG2 70,000 10 000 subject to escalation clauses and a third five-year renewal option at 7h% 2002 50,000 50,000 the then fair market rental value. At the expiration of the basic or any 6~- 2003 75,000 lb 000 renewal term, the Company has the option to purchase the buildings 9% 2006 60,000 60,000 at the then fair market sales value. The annual rentals are subject to
- E 2006 60,000 60.000 quadrennial escalation and currently approximate $2.9 million. Taxes, 8?s%
2007 85,000 85,000 insurance and other operating costs are required to be paid by the o 2007 100,000 100 000 Company 9% 2008 75,000 75,000 The Companies also have operating leases for transportation, 10. 2009 100,000 1CQ000 construction and other equipment, and other assets. Rentals for all 123 % 2010 100,000 leases, including amounts charged to clearing and other accounts, E-2010 75,000 amounted to $53,144,000, $43.323,000 and $29,574,000 in 1980, 1979 and 1978, respectively, of which $10,485,000, $11,700,000 $2,001,236 $1.812,560 and $8,074,000, respectively, were contingent upon usage. The Companies' minimum rental commitments for all leases will The Company has executed $31,000,000 principal amount of approximate $41,199,000 in 1981, $30,925,000 in 1982, installment sales contracts and has pledged a like amount of first $30,921,000 in 1983, $27,909.000 in 1984, $18,181,000 in 1985, mortgage bonds as secunty for its obligctions under such contracts. $63,646,000 for the period 1986-90, $44,378,000 for the period Under the terms of the Indenture, the Company is required by 1991-95, $29,313,000 for the period 1996-2000 and $24,073,000 October 1 of each year to deposit with the trustee cash anC/or thereaner. bonds equal to 1% of the total principal amount of all first mortgage The Company's lease obligations are accounted for as operating bonds authenticated before the preceding January 1, except refunding leases in the rate-making process. Accordingly, financmg lease pay-series. In addition, a $600,000 sinking fund depasit is due for the ments are charged to expense as incurred. Had these leases been 4%% Sinking Fund Debentures by September 1 of each year. capitalized, the total assets and liabilities that would have been recorded at December 31,1980, were $266,836,000 related to utility plant, net of accumulated depreciation and amortization, and O' $271,684,000 related to obligations under capital leases. If all financing leases were excitalized, the effect on expense would not be material. 15
Notes to the Consolidated Financial Statomonts (continued) f 2 S RATE MATTERS
- 8. lNCOME TAX EXPENSE f
i ne wrpany innoun( ed plans 'n mothball its COYPONE NTS Of QCOW Ito f XPt NSI ' m my hint heciu e adequate supJ "s i f less Years I nded December 31 g- ,1 A-be iV illihIe until the mid 1980s in is
- onse
+ a, $/ i a miunn 't a previously approve < $29 / 1980 19/9 1978 ._2 g.i He mi r"ase.tnd ordered heanngs to determine it m
- m et ma avre io te requued Dunng the heanngs
' ousands of Dollars i ! ! 9 "O ne portion thdt it ts entitled in Pam a return 'gT,* '/,,', i " c! ne nvestment whiLh Currently approximates Federal income u! m owr its mvestment over the useful hfe of the taxes credit S(16,878) $ < 3 S89. ! 2 S33 4, w -e. u Aun 'nt lude allowing the Company no return Deferred mcome taxes
- t
. msestment and requinng the Company to ref und Cunent net e o sent u ownues up 10 $239 milknn attnbutable m et w uttober 19/ / Revenue reserved for r, n iu s t a reneanng nt several other gas and elecinc possible refund (591) 387 i3 954, m hending these mclude htigation involving alleger M" 'ne fuel cost adjustm -t ciause alleged tie i i >ed and mterthange power adjustment clause h n:i; &, i>voc rates De(emoer 19/ 7 PPAC revenue S 31,517 $ 161/2 $.4 223 sr pr;tethon at tourt ntder leplacement poWef Costs Noncurmit i io mides Hant aunige extending beyond 9n days Accelerated depreciation P vnue' touerted under an indexing sysion where depletion and 4 o ,m,. cv, of other nperat'on and maintenance experSr amort:zation , 13 ; a for thanges in the Consumer Face Index 1980 = noe r a generating plant availabikty incentive ovi,r :ered +(Int rate !qcrease collected from Heversal ot poor te; n: % years deferrals (12,858) < 1164 7 < 11 158 4 ,igorously pursuing these matters before regula-m x ' > anc.n the opmion of management their S 33,627 $26 S49 $240, a o,nould n a nave a matenally adverse effect upon ' : r ! O < 1 cnon of the Companies or the fs ' iperatmns for the penods involved 7 PENSION PLANS -$33 8lb $68 879 S 2 4,b, LtrN nontuntnbutory plans covenng sub ,+ tc w :oninhutions are sufficient to cover Nonoperating 8,548 3 290 6 SSS n !"r e On unfunded poor herVICe costs and ,i bsP l'ntunded poor service costs are i '; yen perH)d Contributions to the plans 1, M % and $22 6/3 000 in 19_3 1979 The 1980 federal inc:ome tax credit includes $43 mdhon related irt a, m 'ho most recent actuanes reports dated to the carryback of the 1980 net operating loss reduced by the loss % ment wa'ues of vested and nonvested $26 mdhon of net investment tax credits ITC which had been rpu N hy usn,g a / 0% ssumed rate claimed in poor years The 1979 credit reflects adjustments to prior 3 N.inc $1 < ' 12 000 respectively and years p,0 visions and ITCs .+4 we were $?n 7166 000 The Companies use hbefahzed depreciation methods and the class hfe asset depreciahJn lange system for income tax purposes income taxes deferred under these methods are charged to income tax expense and credited to deferred income taxes As the timing differences giving use the tax deferrals reverse the related deferred taxes are credited to income tax expense llc used to reduce current income taxes payab9 is deferre' ind amortized over the hfe of the related property As of December 31 1980 unused lTC was approximately $b4 mdhon from credits gene' ated in 1980 $81 mdhon from 1979 and $39 milhon from 197 / i e 16
CONSUME RK WE H COMPANY AND SUBSIDI ARIES O STATUIbny FEDERAL INCOME TAX RATES RECONCILED
- 10. SEGMENTS OF BUSINESS TO THE EFFECTIVE INCOME TAX RATES SEGMENT DATA Years Ended December 31 December 31 1980 1979 and 1978 0
1980 1979 1978 p et n income and Taxes identifiable Statutory f ederal income Amortization tCreditP Assets tax rates 46.0% 46 0 % 48 0% increase decrease. in Thousands of Dollars taus from 1980 Electric bulity S 84,466 S(10,280) S4,424,242 Other 10,419 10,194 814,415 Other portion of AFUDC (13.8) 413 4) (83, Otner net (2.8) (34.i (53) 1979 Electnc utility 5 75 763 $ 1.144 $ 3.994.924 6 W M8 Certain of tne Company s incirect construction costs pnncipally interest are capitakzed for financial repr tng purposes in accord-ance witr the provisions of the MPSC s Uniform System of Accounts but are exonsed for income tax purposes Consistent with past 1978 rate-mahng pohcies of the MPSC. the resulting tax reduction has Electnc utikty $ 71 032 5 20.719 $ 3 317.245 been reflected currently in the Consokdated Statement of Income. 1980 genenc order the MPSC ruled that deferred income taxes Other 13.658 7 758 720.476 indirect construction costs would be recognized in future rate a acept for those attnbutable to generating plants under con-struction at the time of the order ncome taxes land Other corporate expenses) of the Company a are allocated to segments in accordance with the accounting
- 9. CONTINGENT LIABILITIES requirements of the MPSC and the Federal Energy Regulatory In addition to the matters aisclosed elsewhere in these Notes to Comrmssion the Consohdated Financial Statements the Companies are involved in certain legal and administrative proceedings before vanous courts Revenue from soies to General Motors Corporation amounted to and governmental agencies and in contractual matters with others 8 9%.10 5%. and 110% of total operating revenue in 1980.1979 concerning rates environmental issues property and income taxes, and 1978. resaectively hcensing and othe matters and various suits and claims ansing in
- 11. MAINTENANCE AND DEPRECIATION, DEPLETION AND the ordinary cours-t business are pending against the Companies NUCLEAR FUEL AMORTIZATION Although me outcome of such proceedings, matters, suits and claims cannot tx predicted management does not expect that their ulti-The cost of repaes and minor replacements is charged to mate ettect upon the Companies results of operations or financial maintenance expense Property additions and major property condition will be matenally adverse replacements are charged to plant accounts Property retired or disposed in the normal course of business is charged to the provision for accumulated depreciation less net salvage credits The Compi y's depreciation provisions are based un straight-line rates approved by the MPSC lts composite depreciation rates for electnc and gas utikty plant were 3 03% and 3 76% in 1980. 2 93%
and 3 76% in 1979 and 2 87% and 3 60% in 1978. respectively Pnor to September 1980. the electnc rate included an estimate which the Company now considers to be inadequate. for the decommissioning costs of the Company s nuclear plants The Company's request for recovery of higher decommissioning costs has been deferred and the 3 amount included in past rat was discontinued by % MPSC in August 1980 Buth actions are pending a final decision in a genenc heanng now in p?gress Other plant is depreciated or depleted on the units-uf-production C .aethod for capitahzed oil and gas exploration and development costs C and on straight-kne rates for the reit,aining plant The composite of these rates approximated 9 65% ir 1980. 8 35% in 1979 and 9 37% in 1978 in the opinion of management the mpanies provision for accumulated depreciation is reasonably adequate to cover the 17 ^
Notes to the Consolidated Financial Statements (continued) O mo .t a tepm i1 ton 1 the mginal co3t of plant Costs and UthH lpprognate indexes Nuclear plant amounts were N, v ' y; i ' ' amorNed in fpl expense on the basis of the re5tated ny appiying the estima'ed current construction cost per ' % C ; r educed t r eleCli!C generdtiOn Ihe am'9/ation udow3!! of tapdLity in the existing plants Capacities In 1979 the ,t d = 'hM Te synt tiJet nas n0 msidual Value and AlliIDQulIe Current Cnst of nuclear plant Aas estimated by using the Handy 6 r 'm y;d 4 I J igP R!U' to AWust lwd the rate Aas based upon Ine Wnitman index ,5 v 'V went %ei nad a residual Salvage value and would Ihe provisions for depreClation and deplellon stated in Constant 4 <2j r epe t fwd Ihe VPSC has indicated that the Collars and current Cost Aere determined by applying the Companies + . e m Ao w y am Lded frT mcovenng such coe When they 'unctional Class deprecation rates to the average Indexed plant 6 i .ib-r"n dmounts No other amounts on the Jonschdated Statement at in come have Dee, restated loventories the cost of fuel Consumed in electnC generation and tM cost of gas sold have not been restated trom tneir nistoncai cost 12 JOINTLY 0WNED UTILITY PLANTS amounts because the inventory :urnover penods me relatively short and fuel and gas costs are recovereu on a reasonably current basis @ y,, H >H'iGN t J JUNilY OWNE D thrnugh the operattun of adjustment clauses or through adjustments E D'D in DasiC rate scheduies +'y ' ! % and N N f ASB Statement No 33 does not require restatement of income l udl0Qton tax expens< >or <ax purposes only tne nistoricai cost of piarit can Pumped Campbeh be used to Compute the tax deduC!lon for depreciation and depletion ^ Storage Unit 3 When these expenses are increased to recognize the wnte off of the nicher constant dollar and current cost of plant income is reduced but m o w. I N_ 1980 th' re is no correspondmg reduction to mcnme tax expense Without e this reductnn income taies are levied on the Companies at rates 'W Ahich m real terms exceed estabhshed statu'ory rates Dunng 1980 S119,767 S557,963 penods of persistent inflation and rapidly increasing onces this tax poucy e"ectnely results m a tax on shareholders investment a wmme e 4 m Under the rate mahng prescnbed by the regulatory comm,ssions 1980 S 20,517 S 4,591 ' which the Company s accounting is subject only depreciation ine histonCal Cost of pl3nt is recoveranie in,ates and any excess 3. F r + m enante and ither expenses nf the plants are the cos' of plant stated in Constant dohars or Current cost over itt L P D%i. Qany and the co-04nors in the same piop0thon nistoriCal Cost is not presency recoveranle inerefore tne amount of r v A mr. ; of. rest' t he Lompany s snare of these expenses this excess WhiCh accumulated in 1980 is ef ected in the folloAing ! M.r j ertun and malrtenance expense on the Conich r schedules as a reduClion of plant to net reCoverabie cost i nis 'O** excess Aas computed by subtracting from the restated year end net plant balances the total n' the restated oeginning cf the year net plant balances plus the c,.ent year additions in average 1980
- 13. EFFECTS OF CHANGING PRICES (UNAUDITED) dollars less the restated current year provisions for depreciation and depletion The remaining sh;ttan is the assumed amount by 1 Crma50n s supphed in accordance Aith the Ahich the adjusted v3lue of the plant increased in excess of the i
ert ' E mance Accounting Standards Board F ASB State-amount recoverable m rates during the current year 1 WJ @poeng aDC Changing Poces for the To properly reflect the economics of rate regu',on the reduction s 'J, y estmates of certan information aDout the cf plant to net recoverable cost is offset by a gam from the dechne a e "a ? nangme mces The SCP fules are intended to indicate in purchasing power M net amounts owed by the Comparnes Holders j S inames c' betn genvat in'lation represented of monetary assets suffer a loss of general purchasing gower dunng L
- o f
miam Wa' amounts and changes in specific pnces innationary penods Ahile holders of monetary habikties expenence y<mv p r' .ost amounts The estimated informa a gam The theorettcal gain from the dechne n purchasmg power o r e w he # Aed as an approximation of the effects of inflation of net amounts owed is pnmanly attnbutable to the substantial p v y so measuements A numDer of judgments and amount of debt and other fixed-return secunties which Aere used io v eng 'etrrws Aere used in the current cost calculations finance plant Ahich is considered a nonmonetary asset a; rulat,n s ;rNdon hs MSN" Me data would be proportionate to .'v j 3,,s ' Statement No 33 the information "Nrt a wmprerensive acDhCat on of either type v /- 'A + intng ins'ead it represents approximations of the
- any i rap a'fected the Campanies DuSinesses
+ ir Y W Poun!S rentesent histanCal Costs stated in doi. ] 3_ U"avy 0049 as Teasured Dy the Consumer Pnce 4 j m?a i ' Mr urneis cpi U Cu rent Cost dmounts on the r r o s fC pr4 5 of plan' from the 'n r-mange, o m ~ m w ed ! 'nwew and d,ffer from constant
- % on'on* Nt 5pec,f { p:ces have !ncreased nr r
+ 4C9 'm tho cpl U The Current cost of plant r m ate ~ es' repucmg existing plant assets s M A3: tet> WM maq Dy mdermg ine origmal cost of existing [, 's H E y O N' T lrCey
- P,Dilc UtI!y COnstiuCrion 18
,{ - 1, f p ;f.;..g 9., y., l .N,. 4 gv fg. 4
CCNSUMERS POWER COMPANY AND SUBSIDIARIES O CONSTW DOLLAR AND CURRENT COST ADJUSTMENTS TO 1980 INCOME Constant Current Dollars Cost Millionsof Average c 1980 Dollars NET INCOME AFTER DIVIDENDS ON PREFERPED AND PREFERENCE STOCK ADJUSTED FOR CHANGING PRICES As reported on Consolidated Statement of income. $ 167.! $ 167.1 Lcss cotaaNr and dce:ctica expense in excess of amount reported 15h 202 5 A,> adjusted *: $ 16.8 $ (35.4) OTHER ADJUSTMENTS FOR CHANGING i' RICES icm m creat!c pnces ct plant hdd dunng the scar 2 51 216.7 tieduction of plant to net recoverable cost $(446.6) (373.8) S 842.9 Less etfect of increase in general price level of plant 1.212.9 Em ,1 ircrease in ger. era! ;'nce leict os.er ir. crease in specific paces after reduction of plant to rn ece,erare cost. 5 (370.0) " Gain" from decline in purchasing power of net amounts owed 419.6 419.6 S (27 01 5 49_6 Yt W cr rpstmcras ' Excludes the reduction of plant to net recoverable cost. Had this reduction been included, net income after dividends on preferred and preference stock in constant dollars would have been reduced to a $429.9 million loss. b At December 31.1980. plant, net of accumulated depreciation, was $11.0 billion on a current cost basis and $5.3 billion on a historical ost basis. The following table presents selected financial information adjusted for changing prices. Readers may wish to compare these amounts tc (% tistoncal amounts that appear in the tables on page 23. FIVE-YEAR COMPARIS0N OF SELECTED FINANCIAL INFORMATION ADJUSTED FOR EFFECTS OF CHANGING PRICES in Average 1980 Dollars (Millions, Except per Share Amounts) 1980 1979 1978 1977 1976 AVERAGE CONSUMER PRICE INDEX 246.8 217.4 195.4 181.5 170.5 HISTORICAL INFORMATION ADJUSTED FOR GENERAL INFLATION Ccmta tewnte S2,304.0 $2.294 5 52.387.1 $2.225.4 $2.289 0 S2.36 $2.61 $2.75 $2.84 $2.90 Cash dividends per common share. S16.63 S21.26 S28.49 533 SU $33 54 Yeanced ma:ket once per common share un year end 1930 dollarsi. Net income after dividends on preferred and preference stock, excluding reduction of plant to net recoveaula cost S16.8 $43.7 Ectmnp cer J uage cccrron share. S.31 5 91 Net assets at year-end at net recoverable amount S1,518.5 $1,583.9 Ga<n ' fm cccLre m purctnna cc Act ct net amounts oned S419.6 $423.2 CURRENT COST INFORMATION Net loss after dividends on preferred and preference stock, excluding reduction of plant to net recoverable cost S(35.4) $(21.6) Loss per a',noge common snare... S(.65) SL45! cess of increase in General price level over increase in specific prices after reduction of plant to net recoverable cost S370.0 $403.6 . assets at jear-end at net reco.uab'e cost. S1,518.5 51.583 9 There is presently no consensus on which aspect of inflation, if any, should be reported on a continuing basis. Experimentation with these techniques of communicating the effects of inflation and price chan,es may eventually lead to changes in the basic financial statements. Until a f r.al decision is reached, the FASB has decided that primary financial statements will be stated on a historical cost basis. 19
8 :... :,. >. ~
- : a: m.a
~s y* v-?< ARTHUR ANDERSEN & CO. gg PO W Dr.Timir, >!icisioAs company Statement of Management To the Board of D". rectors, The marag%;h of Consumers Power Company has prepared and nsmers Pomr Comm is responsible for the consolidated financial statements and all the We have examined the consolidated balance other information, whether audited or unaudited, in this annual report. The financial statements were prepared in accordance with generally sheet and statement of capitalization of accepted accounting principles and necessarily include amounts that CONSUMERS POWER COMPANY (a Michigan are based on the Company's best estimates and judgments. Financial corporation) and sursidiaries as of December 31, information included elsewhere in this annual report is consisterit 1980, and 1979, and the related consolidated with the financial statements. statements of income, retained earninga, capi + The Company has designed an1 maintains a system of intemal in excess of par value of common stock and accounting control, which, among other things, provides reasonable assurance that assets are safeguarded and that reliatile financial s une of funds for gross property additions for records are ma;ntained for preparing financial statements. The Company's each of the three years in the period ended intemal audit staff continually reviews the system of intemal accountity December 31,1980. Our examinations were made control to determine its adequacy There are inherent limitations that in accordance with generally accepted auditing must be recognized in considering the etfectiveness of any system of standards and, accordingly, included such tests internal accounting control. The concept of reasonaole assurance of the accounting records and such other auditing recognizes that the cost of a system of intemal control should not, in procedures as we considered necessary in the the judgment of management, exceed the benefits derived. The Company believes its system of intemal accounting control appropriately cimmstances. balances this cost-benefit relationship. In our opinion, the financid stateme..sts Arthur Andersen & Co., the Company's independent public account-referred to above present fairly the financial ants, have audited the financial statements in accordance with position of Consumers Power Company and generally accepted auditing standards. The responsibility of Arthur subsidiaries as of December 31,1960, and 1979, Andersen & Co. is limited to an expression of their opinion on the and the results of their operations and source of faimess of the financial statements as they are presented in this annual report. 8 IUP ' gross property additions for each of The audit committee of the ';ompany's board of directors, which the three years in the period ended December 31, consists solely of nonm.q/nent directors, meets periodically with 1980, in conformity with generally accepted management, the intemal auditors and the independent public ac-accounting principles applied on a consistent countants to discuss audit, intemal accounting control and financial basis. reporting matters. The audit committee also reviews the Company's relationship with its independent public accountants with regard t/u% to their performance of nonaudit services, and s ecommends a selected independent public accobating firm to the board. February 6,1981. 20
CONSUMERS PONER COMPANY AND SUBSICIARIES Onagemenfs Discussion and Analysis Increase (Decrease) Financial Statements From Prior Year Electric utility sales decreased 1.3 billion kilowatthours (kWh), or Years Ended December 31 4.8%, in 1980 and increased.4 billion kWh. or 1.7%, in 1979. A decrease of 1.3 billion kWh or 11.4%, in 1980 sales to industrial 1980 1979 customers was oue to the recession in the auto industry. In 1979, Thousands of Dallars ndustrial sales were relatively flat. CONSOLIDATED STATEMENT SIGNIFICANT ELECTRIC RATE INCREASES OF INCOME RECEIVED SINCE 1978 Components of electric utility Effective Date Amount
- operating revenue:
Date Filed Type (Millions) Amount related to sales S (25,024) $ 23,757 Mar. 1978 Jan.1977 Interim $15 TM We 88,165 39 033 Aug.1978 Jan.1977 Final 40 Feb.1979 Nov.1978 CPI Adjustment 12 Fuel and purchased power Nov.1979 Jan.1979 Intenm 29 adjustment clauses. 78,473 9,573 Feb. 1980 Nov.1979 CPI Adjustment 20 ON 2.386 Rh> Aug.1980 Jan.1979 Fiqal 41 S 144,000 $ 72.325 Sept.1980 Jan.1979 Campbell 3 Interimm 97 Components of gas utility operating Feb. 1981 Nov.1980 CPI Adjustment 24 revenue: M st ed to sMes S 38,912 S r44 803!
- Estimated annualized effect on revenue.
Tanff rate. (15,860) 0,281
- Effective when the plant was placed fn commercial operation. An K ' a d os n stment additional final order for the balance of the costs associated with Ne 90,809 97.964 the plant is pending.
Other 2,207 389 The Company's electric fuel and purchased power adjustment S 116.068 S tu bM clauses provide, on a reasonably current basis, for the pass through of 90% of increases or decreases in these costs from the levels Fuel consumed in electric established in the Company's last general rate case. generation S 32,870 $ 14,500 Gas utility sales increased 9.9 billion cubic feet (cf), or 3.0%, in 1980 and decreased 22.2 billion cf, or 6.3%, in 1979. The 1980 Fue, '
- M ncmnge tcz,er 44.483 3 695 increase includes an increase of 13.9 billion cf of sales to out-of-Total power costs S
77,353 $ 23.195 state utilities and the 1979 decrease includes a decrease of 12.3 billion cf of similar sales from 1978. With the exclusion of these Cu t a -W S 102,099 $ 55.572 out-of-state sales, sales to industrial customers decreased 9.5 bil-lion ct, or 11.7%, in 1980 as a result of the recession in the auto Allowance for funds used during industry and decreased 8.3 billion cf in 1979. construction (AFUDC)- The Company received a $20 million interim p rate increase in other and borrowed portions July 1978 and, in June 1979, received the final F J million increase combined. S 26,507 5 38,354 from a case filed in March 1978. When the Corgany announced in September 1979 that it was mothballing s Mnsville Gas Reforming Muu am edudq Plant (see Note 6 to the consolidatet. P.incial statements), the P ud pnca ct AFUDC S 60,793 5 41.919 Michigan Public Service Commission (MPSC) rolled back $24 million of the total $29 million increase to reflect savings in cost of service from closing t19 Marysville Plant and ordered hearings that are still in progress. The Company's purchased gas adjustment clause allows for reasona-bly current recovery of changes in the commodity cost of gas sold from the level established in the Company's last general rate case. Annual hearings are held to reconcile actual cost of gas with Pmounts billed to customers. Any overrecoveries are refunded to customers, but underruns must be absorbed by the Company. In 1980, the cost of fuel consumed in electric generation increased $70 million as a result of higher costs and decreased $37 million as a resultof a2.1 biliiondecreaseinthenumberof kWhgenerated The average fuel cost per kWh generated rose from 1.76 cents to 2.11 cents because of higher oil and coal costs, and generation decreased 9.6% because of lower sales, the availability of lower-cost gurchased power in lieu of oil-fired generation, arj a scheduled outage at the Palisades Nuclear Plant. In 1979, increased oil prices and increased 21 M
Management s Discussion and Analysis (continued)
- ir !. M < w of Lua! CdJsed the dVOIage f uel cost per k A'h generdted tones 31 a substantially lowel effect ve cost and is pursuma tne w%'
t hj ments to l 76 vents Ihr n mber of kWh generated treation JI a hank baChed arrangement to permll access to the C0m-u md relaDvely flat me'Dal pdper marxer
- ne Company nas also imposed stoct cost ef t> 1+C increase m purchased and inteichanne power costs contial measures and has reduced services to help conserve cash e n a i $N munon ncrea3e resulting fmm an ncrease from 2 31 Net construction expenditures which include substantial commit-ent' t: ' hJ cents in the average cost per k Ah purchmed and a $20 ments for the Company and its subsidianes are estimated at $666 m r <ncrease resumng from an increase of 12 7% or 9 bilhon kWh milhon in 1981 and $3 0 bilhon for the 1981-85 penod of which a tv naher of k Ah purchased The 19/9 increase was the result of the Company s portion is $619 milhon and $2 8 bilhon respectively 3 m hor. m /1% increase in k Wh purchased The average cost per see Note 3 Ihe construchon program has been carefully evaiuated k An remaned approomately the same as in 1978 and expenditures mil be made for only the Midland Plant (see Note 2)
Su;xter pnce tncreases were pnmarily responsible for increases and other esser.al projects in the near future The Midland Plant of $K mHhun in both 1980 and 1979 in the cost of gas sold The compnses $4iG milhon and $15 bilkon respectively of the construc-agrage cost rose trorr $139 to $165 per thousand cubic feet in tion expenditures The Company also has significant matunties and 1W9 and to $190 in 1980 Ihe remainder of the changes resulted sinking fund requirements see Note 4, dunng this five-year penod wm nigher sales m 1980 and lower sales 'n 1979 Although the Company s 1981 financing program is tentative The increases in Af UDC see Note 1 weie due to construction the Company anticipates that it will need to issue approximately mend,turos at the Midland Nuclear Plant dunng both years and at $200 milhon of long-term debt $100 milhon of preference stock. Campbell Unit 3 m 1979 Campbell Unit 3 was placed in service in $40 milhon of pollution cmtrol revenue bonds and nine milhon Septemher 1980 shares of common stock The ability to issue first mortgage bonds Interest expense esclusive of the Af UDC credit increased in both and preferred stock depends upon receipt of timely and adequate rate yeam um add:tional fust mortgage bonds and short term borrowings reket or other increases in earnings in addition the MPSC must ma ur-higner rates approve the Company s issuance of long-term secunties The Com-L uidity and Capital Resources pany s December 1979 apphcation for authonty to issue approxi-mately $600 milhon of secunties which compnsed the 1980 financ-he Company s short term houidity is dependent to a great extent an tne achievement of sates levels commensurate mth thosc ing program is still pendin; Two partial final orders which allowed the Company to issue hmited amounts of secunties were received assumed when rates are estabhshed and upon the receipt of ade-quate wety rate mcreases Since 1978 the continuing ecession dunng 1980 Fmal approval for securities has been delayed by the intervention of several parties who object to the continued nas depressed sales levels especially in the more profitable indus-
- % ca'egory Moreover delays in rate rehef and the inadequacy struction of the Midland Plant This delay has required the incre
- f tne amounts rece
- ved have had a further delnmental effect on the use of short-term oebt dunng this penod and will ukely require e use of more in the future The Companv 10 plied to the MPSC for V bdDy S hQuidhy duthonty to issue additionai secuntica m December 1980 Furtner,
- n addit or to its fuel purchased and interchange power and cost the Company plans to continue selkng and leasing back its nuclear at gas clauses the Company is allowed a Consumer Pnce Index CPI' fuel as well as leasing other equipment The Company s ablective mystment to permit annual adjustments in the Company s rates to is to obtain a near-term capitahzation ratio of approximately 50%
- cser mcreases m electnc operation and ma,ntenance costs exclu-long-term debt 15% preferred and preference stock and 35%
me of f ael pu chased power and generating plant maintenance conmon equity anicn re equivalant to changes in the CPI The CPI adjustment has n addition the Company has not been allowed to collect in rates mi neen Mly effecttve because of the low base penod operating and therefore has not recorded on its books deferred income tax A > used by the VPSC and because sales leals have been lower expenses relate 0 tn indirect construction costs (see Note 8) These 'ha^ me base penod sales The recovery of mcreases m other indirect construction costs have been capitahzed on the Company's asts - sucn as generatmg plant maintenance a return on higher bonlis but expensed fc income tax purposes Custon" rates have
- epis t inventory and the higher nost of money - is subject to been lower because they have not reflected the cost ut the deferred me vanngs whicn n recont years have become lengthy and tax As a result. the Cort.pany has not had the benefit of this source maniv r antested of cash flow The Company beheves that it will recover these taxes N Mehness Mth which new and pending rate requests are in rates when plant under construction is placed into service in 1980, m t M " ave a significant Deanng on the Company s short-term the MPSC ruled in a genenc proceeding that deferred taxes on in-Nw, The Company s gas business as previously noted has been direct construction costs would be recognized in future rate cases Lectec D ecaord, nary iegulatory delay S nce October 1979 However the MPSC s rukng excluded generating plants then under y customers were Deir% served at rates that except for the construction
- mdy 1st of gas rettected 1978 cost levels in a May 1980 in the long run the Company s liquidity depends upon its abikty to mied hung the company requested an mteam increase of $89 finance and complete the Midland Plant as scheduled and upon the
- - mo any and a total annuai ncrease of $122 milhon In timely recognition of the investment in the completed plant in the s f enuy> 1981 a $ 7 e, mihlon intenm rate increase was authorued Company s electnc rates Like most nuclear plants currently under W2 ' ra! ?Mer ;s expected on the total request in the fall of 1981 construction the Midland Plant s cost estimate has escalated and Trt;;Ce vany plans to hle a new electnc rate case m early 1981 the scheduled completion dates for its two units have been extended r mamse M :nadequate rates lower sales and the celay m regu~ because of modifications attnbutable to the Three Mile Island accF .a' a e sai et long term fmancmg the Company has had to fund dent and other regulatory delays The Company is concentratin m + " %s ness and construchon act+ ties througr short term resources toward bnnging the units on hne in 1983 and ' > w ngs As short term deot and short term interest rates havc as scheduled and on staying mthin the $31 bilhon cost estim reasec % Company s commerciat paper rating has been inwered tre pn mat its mmmercial paper is effectively excluded from inflation mm* As a 'esA me Company has developed and is us ng a The estimated effects of inflation on the Company and its subsid-wm rceptance f cihty ic hnance a majonty of its fuet inven ianes are descnbed in Note 13 3 22
CONSUMERS POWER COMPANY AND SUBSIDIARIES O Sclected FinancialInformation 1980 1979 1978 1977 1976 (Thousands of Dollars, Except per Share Amounts) Total operating rP lue S2,303,983 $2,021,2' $1,889,861 $1,636,610 $1,581,252 1 1ine w e 223,798 203,787 185,131 155,007 144.545 Earnings per average common share S3.08 $3.24 $3.21 $3.18 $3.63 , Total assets S6,276,596 $5,665.446 $4,991,192 $4,429.400 $3.814.612 Long-term debt, excluding current maturities 2,437,465 2,054,601 2,012,738 1,825,786 1.569,881 Redcemade preference and pcterred stock. 266,364 167.279 128.453 66,526 48,744 Cash dividends per common share S2.36 $2.30 $2.18 $2.09 $2.00 Quaderly Financial and Common Stock Information Quarters Ended O' 1980 1979 i Mar. 31 June 30 Sept. 30 Dec.31 Mar. 31 June 30 Sept. 30 Dec. 31 Toial operating .evenue (000). S708,5'il S444,684 S427,317 S723,415 $625,172 $432,549 $390,038 $573,475 T2 ret cpeng mcome!000; 92,411 61,7;1 65,302 98,990 90 556 60.023 56.742 65.630 Net income (000). 65,079 38,660 48,4 2 71,617 74,016 45,418 43,490 40.863 Net inxmc af ter de,1dends on gefened and p:eference stock.000). 52,201 24,840 33,805 56,205 61,950 33.397 31,578 28.443 Esnings per average common share S.99 S.47 3.63 S.98 $1.31 $.70 $.66 $.58 Cash c.vdends per commcn shre .59 .59 .59 .59 .56 .56 .59 .59 Jommon stock pricessai High $20% S21 % S21% S18% $23% $23% $23% $22% Low 15% 16% 17% 15% 22 % 19 21 % 18 4 (* Based on NYSE-Composite Transactions. The common stock of the Company is listed on the New York and Midwest stock exchanges. The Company had approximately 172,000 common shareholders of record as of December 31,1980. O '23
Company Directors Company Officers A. H. AYMOND JOHN D. SELBY Counsel, Aymand Sullivan & Schwaru Chairman of the Bcard, President, and Chief Executive Officer Jackson, Michigan JAMES B. FALAHS WALTER R BORIS Vice Chairman of ice Board, legal, Accounting and Computer Services, Corporate Planning and Regulation Executive Vice President of the Corpany Jacuan, Michigan RUSSELL C. YOUNGDAHL Executive Vice President, Energy Supply keh,EhyTON CUTLER, JR. [e e Vi e President, Finance and Corporate Affairs New Vernon, New Jersey STEPHEN H. HOWELL Executive Vice President, Energy Distnbution and General Services ROBERT E. DEWAR JACK W. REYN0LDS Chairman of the Executive and Finance Committees Senior Vice President Personnel and Public Affairs K mart Corporation, Detroit, Michigan LOWELL L. SHEPARD (a general merchandise retail chain) Vice President Region Operations RAYNARD C. LINCOLN, JR. c am f e Board of the Company Vice P:esident, General Services ,lackson. Michigan CHARLES R. BILBY Vice President, Fossil Operations RICHARD M. GILLETT ROBERT J. FITZPATRICK Chairman of the Board and Chief Executive Officer Vice President, Public Affairs Old Ker ' Financial Corporation, Grand Rapids, Michigan LAWRENCE B. LINDEMER (a bank holding company) Vice President and GeneralCounsel JAMES W. COOK t ey iff ths riffiths e Resu, Ws, Wnm@hsW@n Romeo' Michen MACLAY D. GWINN Vice President, Energy Distribution JOHN W. HANNON, JR. ROBERT J. ODLEVAK President Vice President, Fuel Supply Bankers Trust Company and Bankers Trust New York SAMUEL N. SPRING CorporaSon, New York, New York Vice President and Controller RUSSELL B. DeWITT W. N. HUBBARD, JR., M.D. Fres' dent Vice President, Nuclear Operations GORDON L HEINS bei Vice Presid'ent, System Operations a ha r u t er) PAUL A. PERRY DON T. McKONE Secretary Charrman of the Boa,d and Chief Executive Officer RICHARD M. GRISWOLD Libbey-0 wens-For$ Company Toledo, Ohio Treasurer (a diversified corpaation) PAUL S. MIRABITO Flegion General Managers Retired Chairman and Director (Headquarters cities in parenthesest a roducer f sit ss eq CHARFS F. BROWN, Central Region (Saginad J. LAUHENCE GILLIE, Western Region (Grand Rapids) JOHN D. SELBY JOHN G. G0ENSE, Northern Region (Traverse City) Chgrma of th car, e dent and Chief RALPH HAHN Snutheastern Region (Pontiac) Jackson, Michigan WILLIAM A. HOLTGREIVE, South Central Region (Lansing) STANLEY M. JURRENS, Eastern Region (Flint) r oa member of the Executive Committee K. EUGENE McGRAW, Southwestem Region (Kalamazoo) Gerber Products Company Fremont, Michigan EUGENE A. WAGGENER, Metro Regian (Ro' i! Oak) (a manufacturer of infant food and infant care products) ROBERT B. WHITE Mant &neral Mawrs Executive Vice President f Citibank, N A. JAMES S. BRUNNER, B. C. Cobb, 81 E. Morrow, & J. R. Whiting Plants New York. fiew Yuik ROBERT C. H0FFMAN, D. E. Karn & J. C. Weac% Plants RUSSELL C. YOUNGDAHL ROBERT W. MONTROSS, Palisades Plant Executive Vice President of the Company JEROME M. SIMPSON, J. H. CampbcIl Plare Jackson, Michigan 24 k____ _ __ _ _ _ _ _ _ _ ____ - - - - - _ ^-'-- ' - - - ~ ~ ~ ~
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l Consumers Power Company 212 West Michigan Avenue, Jackson, Michigan 49201 e i 9_ _ i Shareholder information _i Transfer Agents Annual Report on Form 10-K* Cassette Recording
- Common, Preference, Consumers Power Company's Annual A cassette recording of the 1980 Annual and Preferred Stock Report on Form 10-K for the fiscal year Report text is available free of charge to ended December 31,1980 is required to be shareholders with impaired sight.
s filed with the Securities and Exchange g n 9201 Commission pursuant to the Secunties Exchange Act of 1934. A copy of this re- ] Bradford Trust Com port, without exhibits, will be furnished by Shareholder Booklet
- New York, New York h.
the Company at no charge after April 1, Your Investment in Consumers Power 1981 to any shareholder who so requests. Requests must indicate that, as of February Company a booklet desenbing the Registrars Common Stock 27, 1981, the record date of the annual pany's facilities, its history and the na
- leeting of shareholders, the person mak.
of the uti'ity business,is available to i ested shareholders aryj others. The book National Bank of Jackson ing the request was a beneficial owner of Jackson. Michigan 49201 securities entitled to vote at the annual also provides inform 1 tion on such things meeting. as what to do if you lose a stock certificate, fail to receive a dividend check, or change H Bradford Trust Company your address. New York, New York 1(1004 Financial and B Registrars Preference Statistical Summary *
- Please address all correspon-and Preterred Stock A Financial and Statistical Supplement to dence to Mr. Paul A. Perry, Secre-the 1980 Annual Report covenng the years tary Consumers Power Company, City Bank and Trust Company. N.A.
1970-1980 is avaiiable to interested share-272 West Michigan Avenue, Jack-Jackson, Michigan 49201 holders at no charge. son, Michigan 49201. Bradford Trust Company New York, New York 10004 Q_. Trustee for . = %!@ ~ N.- First Mortgage Bonds Citibank, N A. i . I Box 3297 111 Wall Street so,;, P ~ New York, New York 10043 e w %y. k i f2otice of Annual Meeting ~ x The Annual Meeting of Shareholders of Consumers Power Company will be he.,1 on Tuesday Apnl 14,1981, at 2.00 DM Jack-D ',* scn time at the Company's Parnall Office Bi ild ng.1945 West Parnall Road, Jackson, N,- d, s M t
- ~
M chigan. A notice of meeting. proxy state-m mt, and proxy will be mailed to share. Plant electronic communicabons in full color are a unique aspect of the he dets in Match 1981. The prompt return controlroom of new Unit 3 of the James H. Campbell Plant, which came of ;igned proxies will be appreciated. on line on schedule in 1980.
V APPENDIX D l FORM 10-Q SECURITIES AND Z1 CHANGE COMMISSION Washington, DC 20549 QUAICERLY REPORF t.1RVKd 3ECTICN 13 OR 15(d) 0F THE SECURITIES EXCBAEGE ACT CF 193h For Quarter Ended March 31, 1981 Cossaission file number 1-5611 CCNSINES PCVD CCMPANT (Exact name of registrert as specified in its charter) State of Michigan 38-Ohh2310 (State or other jurisdiction of (I.R.S. Duployer incorporaticus or organizatica) Identification No.) 212 West Michigan Avenue Jackscus. Michiasa h92Cl (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code M) 788-1030 l l Indicate 17 check mark whether the registrant (1) has filed all reports required to be filed uy Sc': tion 13 or 15(d) of the Securities Exchange Act of 193h during the preceding 12 months (or for such shorter period that the registrant was required to file tech reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X. NO (APPLICA3LE CILY TO CORPORATE ISSUERS): Indicate the number of shares outstanding of each of the issuer's classes of consecu stock, as of the latest practicable date. Cessnon stock, $10 par { value, 57,748 h62 shares outstanding at April 30, 1931. e ( L v ~.... ..~
PART I FINANCIAL INFORMATION /m' C9NSUMERS POWEB COMPANY A?*D St*BS!!IAR!ES CCN:ENSID CONSCLI0ATED S*"ATD'ENT CF INCCME (UNAUDITED) Three Months Ended 12 Months Ended March 31 March 31 1981 1960 1961 1960 Thousands of Dollars CPERATINO REVENUE (Note 5) Electric utility................... 3329,996 3328,130 $1,275,h21 $1,177,880 451,590 373,289 1,09h,685 899,5S0 Oas utility Cther 11,0L2 7,1h8 L7.929 27,160 Total operating revenue $622,615 $706,567 $2,k16,03a $2,10a.629 CPEPATING EXPENSES AND TAXES Operatien: Fuel consu=ed in electric generation........ $10k,92k 3 96,188 3 427,550 $ 391,979 Purchased and interchange power 25.116 T6,630 152,913 208.122 Cest of gas sold (Note 1) 340,713 255,115 Tk2.8kT 586,339 Cther 81,014 76,02k 333,996 2o6,7hh Total operatica ex;enses.......... 4551,767 4503.957 31.657,20o $1,473,154 24 k5h 29,966 111,613 125,535 Maintenance
- epreciation, depletien and a=ortization (Notes 1 and 3).......................
k7,L6k 37,799 1h9,697 127,018 General taxes (Note 1)................ 39,635 28,29k 114,8C6 37,k2k Inecce taxes (Note 6) 33.h57 16,2ho 32,338 -16,662 Total operating expenses and taxes..... $606.777 $o16.156 $2.Cee,160 $1.629,623 NE: OPEPATING INCOME [ \\ Electric utility.............. $ 81.808 $ 58,12h 3 258,790 $ 20h,117 V) Other 39.580 31,638 79,641 62,966 ( 04 utility L,h53 2.6ho 13.hk? 7,723 Total net operating incone......... $125,641 3 92.all 351,674_ $ 27s,60o OSER INCOME Allowance for other funds used during eenstruction (Note 1) $ 16,7k6 3 19,283 $ 68,551 3 71.LL9 Ctter, net. 5.h05 2,559 21,763 10.131 Total other inecce... $ 22,151 $ 21,642 90,31= 61,600 INTERIST CHAR 0ES Interest en long-ter= debt. $ 66,2k2 3 52,L20 $ 230,375 3 188,269 8,527 11,123 36,638 26,7L1 Other Allowanee for borrowed funds used during construction (Note 1) (19,217) f1 M (75,08k) (53.LSL) Net interest charges............ $ 55.552 E 9,17a_ $ 191.029 $ 161,55o Net incone... 4 92,640 $ 65,079 4 251.159 4 196,350 DIVI:ECS CN PRm4ID AND PREFERI:*0E STOCK 16,600 12.979 60,L60 Lo,231 Net inco=e after dividends on preferred and preference stock.. $ 75,9h0 $ '2.201 $ 190.690 $ ik5,610 AVEPAGE NWBER OF COM:CN SEARES OtJISTANDINO (000) 57,681 52,615 55,505 k9,327 EARNINOS PIR AVERA0E 00!N03 SHARE $1 31 $.99 $3.hk 22.95 The accenpanying condensed notes are an integral part of this statement.
J CONSUMERS POWER COMPAW AND SUBS! DIARIES CONDENSED CONSOLIDATED STATEMENT OF SOURCE OF FUNDS 'N FOR GROSS PROPERTY ADDITIONS (UNAUDITED) Three Months 12 Months Ended March 31 Ended March 31 1981 1980 1981 1980 Thousands of Dollars FUNDS GENERATED FROM OPERATIONS $17?,051 $ 93,142 $347,734 $272,111 Less: Dividends on preferred and preference stock.... 16,600 12,878 60,469 49,231 Dividends on common stock.. 34,014 30,970 130,523 114,22f Retirement of preference and preferred stock and long-tern debt 24,375 22,675 26,075 33,459 $ 00,062 $ 16,619 $130,667 {,7),192 IUDS OBTAINED FROM NEW FINANCING 1ssuance of common stock $ 1,545 4,546 $ 80,014 $ 96,542 Issuance of preference stock 107,000 Issuance of preferred stock.......... 46,000 Sale of first mortgage bonds 38,479 209,500 113.479 348,000 Refunded first sortgage bonds...... (75,000) Increase in bank tern loan 175,000 Increase in revolving bank loans 4,500 5,500 37,500 12,500 Increase (decrease) in other long-ters debt. (45) 1,271 5,451 5,100 Increase (decrease) in notes payable due within cse (60,390) (132,871) (24,024) 198,078 year $(15,~911) $ 87,94o $419,420 $706,220 OTHER SOURCES (USES) 0F ITNDS Changes in net current assets, excluding obligations erpected to be refinanced. $ 54,542 $ 27,388 $(27,442) $ 17,922 Sale of portion of generating plant. 1,263 42,122 Property sold under leaseback arrangements 3,261 32 84,492 13,581 Other, net 27,639 34,404 (26,348) (11,056) $ 86,705_ $ 61,824 $ 72,824 $ 20,447 Total funds from abave sources $130,856 $ 176,389 $62',911 $801,859 Allowance for other funds used during construction 16,746 19,283 6o,551 71,449 GROSS PROPERTY ADDITIONS $147.602 s 195.672 3691.462 3873.303 GROSS PROPERTY ADDITIONS BY SEGMENT Electric utility $1?3,557 $ 167,623 $568,718 $762,241 Gas utility. 7,623 12,749 58,012 69,566 Other. 21,422 15,300 64,732 41,501 s147.602 s 195.672 s691.462 $373.309 The accompanying condensed notes are an integral part of this statement. O ( ) Lenotes deduction 2 i f x -,
CONSUMERS POWER COMPANY AE SUBSIDIARIES CONLENSED CONSOLID*.it.D BALANCE SHELI March 31 March 31 [] 1981 December 31 '980 i j V (Un udited) 1980 (Ucaudited) Thousands of pollars ASSETS PLANT (at original cost) $3,440,038 $3,422,938 $2.716,060 Electric utility 1.248,471 1,243,634 1,188,774 Gas utility Other.................... 268,674 260,675 232,677 $4,957,183 $4,927,247 $,137,511 Less provision for accumulated depreciation. 1,442,881 1,396,r31 1,318,297 $3.514,302 $3,530,496 $2,819,21e Construction work in progress (Notes 2 and 3) 1,872,376 1,760,989 2,15 *Q $5,386,o78 $5,291.485 $4,969,4 4 CL'RRENT ASSETS Cash 28,868 25,529 21,728 Temporary cash investments at cost, 7,423 10,205 7,422 which approximates market Accounts receivable, less reserves of $2,998,000, $2,884,000 and $2,821,000, 290,164 227,914 212,747 respectively Accrued revenues 99,525 185,995 131,586 Gas in underground storage, at average cost. 100,081 199,406 95,028 Generating plant fuel stock, at average cost 97,777 93,373 65,818 Materials and supplies, at average cost. 100,633 93,682 82,685 85,360 111,467 79,846 Prepayments and other. $ 809,831 5 947,571 $ 690,800 37,540 39,037 33,625 DEFERRED DEBITS s6.230.134 16.276.596 $5.705.341 STOCKHOLDERS' IhTESTMENT AND LIABILITIES CAPITALIZATION Common stockholders' equity $1,630,180 $1,586,495 $1,488,264 128,227 128,409 27,751 Redeemable preference stock Nonredeemable preference stock 140,000 140,000 140,000 Redeemable preferred stock 137,555 137,955 137,955 Nonredeemable preferred stock.. 334,779 334,779 334,779 2,474,968 2,437,465 2,266,651 Long-tern debt $4,845,709 $4,765,103 $4,395,400 CL*RRENT LIABILITIES Current obligations expected to be refinanced: Notes payable due within one year $ 174,054 $ 234,444 $ 198,078 75,000 9-3/4% First Mortgage Bonds series due 1980 3-1/8% First Mortgage Bonds series due 1981 38,479 38,479 Revolving bank loans 50,000 45,500 Bank tern loan 10,000 10,000 $ 272,533 $ 328,423 $ 273,078 Current matarities and sinking fund on 10,827 33,752 11,381 long-term debt (Note 4) 133,131 234,017 122,569 Accounts payable Accrued taxes (Note 6) 175,562 103,534 115.598 IJeferred income taxes (Note 6) 86,736 131,708 94,977 55,682 56,819 55,274 Accrued interest Other 79,574 54,880 46,184 $ 814,045 S 943,133 $ 719,001 DEFERRED CREMTS AND xi.SErJ.s $ 408,478 $ 396,142 $ 372,423 Deferred.ncome taxes (Note 6) D4 erred investment tax credit (N e e 6) 134,039 135,197 163,937 C*.ber 27,863 37,021 54,520 $ 570,380 $ 5e8,360 $ 590,880 Construction commitments and contingent 1. '.ities (Notes 3 and 7) $6.230.134 96.276.596 15.705.341 The accompanying condensed notes are an integral part of this statement. D 3
c.. 1 CONSUMERS P0hTR COMPANT AND SI:BSIDIARIES CONSOLIDATED STAIEMENT OF CAPIIAL IN EXCESS OF PAR VALUE OF -~s ) COMMON STOCK (UNAUDITEL) / i 1981 1980 1981 1980 Ibousands Number of Shares of Dollars Three sooths ended March 31 57,634,040 52,455,515 $555,298 $516,572 Balance at January 1 Issuance of como stock through: Dividend Reinvestment and 1,472 198,982 Common Stock Purchase Plan Employee Stock Ownership Plan.. 20,800 9,000 137 67 Empicyees' Savings Plan..... 71,800 53,000 482 397 Conversions of $6.00 Preference 26 10,604 Stock............. Conversions of $5.50 Preference Stock.. 11,730 67,036 64 369 Net gain cs reaguisition of 158 158 preferred stock........ Balance at March 31........ 57.738.310 52.794.137 1556.139 1111.211 12 sonths ended March 31 Balance at beginning of period 52,794,137 47,409,482 $519,061 $469,744 Issuance of common stock through: Sales through underwriters 4,000,000 4,000,000 30,720 38,440 Dividend Reinvestment and 6,919 708,765 Common Stock Purchase Plan ['~'N Employee Stock Ownership Plan.. 256,842 106,025 2,072 1,204 ') Employees' Savings Plan. 263,700 99,000 2,017 841 i Conversions of $6.00 Preference 70,108 278,080 176 695 Stock... Conversions of $5.50 Preference Stock..... 353,583 192,785 1,944 1,060 i Net gain on reacquisition of 149 158 preference and preferred stock Balance at March 31 57.738.370 52.794.137 s556.139 1519.061 The accompanying condensed notes are an integral part of this statement. d 4
m__. l 4 l l i I t*c3StHE*S POWEP CCMFA.NY AND SL'BSIOTA.9IES t C05SOI.IDATE,0 STA!EMI5! 0F EC/J5ED W.515GS (ULACITED) I t Three Months Ended 12 Months Ended f' March 31 March 31 1951 1960 1961 1950 Thousands of Dollars i Balance at beginning of period.. $kT9,580 $kko,003 $k61,239 $k29,8k9 Net inecme........ 92.Lko 65.079 251.159 19k.850 i $572,020 $505,087 !?l2,398 $624,699 l i Less cash dividends: l Preferred steek 8,882 8,882 35,529 33,019 j Preference stock........ 7,718 3,W6 24,9ko 16,212 Ccim:en stock. 3k.01k 30.970 130.523 11L.220 Balance at March 31 $521.kO6 g gg i The accompanying condensei notes are an integral part of this statement. i t I I 1 i + i l l 1 r I i I 1 ll 4 i i l i i f I' a ""*47 M'e eWy T' N'9N1r'P==9y Wp**'WW'N gFM-Wa-'*=e*T '947 M *W8P W' T
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O CONSUMERS POWER COMPANY AND SUBSIDIARIES CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1. SIGNIFICANT ACCOUNTING POLICIES These financial statements and notes should be read in conjunction with the consolidated financial statements and notes contained in the 1980 Annual Report to shareholders of Consumers Power Company (the Company). In the opinion of Management, the unaudited information herein reflects all adjustments necessary to assure the fair presentation of financial condition and results of operations. The accompanying financial statements include the accounts of the Company and all its subaldiaries: Northern Michigao Exploration Company, Machigan Gas Storage Company, Plateau Resources I,ielted ad Michigan Utility Collection Service Co. Inc. (together with the Company, the Compantes). The subsidiaries had previously L.en included in interim financial state-ments under the equity method of acco.cting. This change had no material 4 effect on any of the periods presented and had no effect on net income. Except for intercompany profits in inventory of gas in underground storage, which are allowed in the rate-making policies of the Michigan Public Service Comunission (MPSC), all stanificant intercompany accounts and transactions have been eliminated. ) The Company records certain annual fixed expenses, primarily depreciation and property taxes, in sonthly periods on the basis of the relationship of monthly sales to estimated annual sales. 3 Allowance for funds used during construction (ATUDC) is an accounting con-vention that represents the cost of funds used to finance the Company's 4 construction projects. Under established utility regulatory practicas, 1 AFUDC is capitalized as part of utility plant cost. The :orresponding l credit is allocated between an allowance for other (equit ?) funds and an allowance for borrowed funds. These amounts appear on t.. Condensed Cov 4 solidated Statement of Incoes as other to:ome and as a deduction from j interest charges, respectively. During the periods presented, most of i the A WDC resulted from electric utility plant under conu ruction. AFLTC 1 was computed at a rate of 8.50% of the AFUDC base to Septenoer 50, 1980, ~ l at 9.23% for the remainder of 1980 and at 10.0% in 1981. The AFUDC base { consists of construction work in progress expenditures, les5 previously capitalized AFUDC and certain other indirect, previously capitalized con-struction costs. The allowance for other funds is a noncash ites. It l contributes to future cash flows when utility plant is accorded plant-in-l service status by the regulatory commission and the Company is permitted a return on and recovery of the capitalized AFUDC in the rates charged for j utility services. Allowance for other funds used during construction appears as a deduction from funds generated froe operations on the Con-densed Consolidated Statement of Source of Funds for Gross Property Addi-l tions. The allowance for borrowed funds, that was also included in this deduction in periods ended prior to December 31, 1980 has been reclassi-J fled so that the statement more clearly reflects the actual funds gener-ated from operations. l 2. NUCLEAR GENERATING PLANTS The Company's investment in the Midland Nuclear Plant, a twin-unit fa-l cility designed to provide 1,357 segawatts of capacity for the Company's l electric system and to furnish process stone service to The Dow Cha:iical Company (Dow), was $1.66 billion at March 31, 1981. Nuclear Regulatory i Consission (NRC) consideration of construction permits and operating li-4 censes has been delayed by the NRC's concentration upon issues related to the Three Mile Island accident. On the Lisss of the estimated ef fects of licensing delays and expected design revisions resulting from licensing L 6 i [ i
l ^ G requirements and certain other licensing assumptions, the Ccapany esti-mates that Midland Unst 2 will be in commercial operation for electric seretce in December 1983, that Unit I will be in commercial operation for process steam service and electric service in July 1984, and that the plant will cost approximately $3.1 billion. The Company's decision to continue design and construction of the plant assumes that necessary regule ory approvals will be obtained. The Company is vigorously pursuing ef forts to identify and favorably resolve matters which could cause delays and cost increasts. There can ce no assurance, however, that further delays and further cost iacreases will not occur. If commercial operation of the plant for process steam service to Dow cannot V in until after December 31, 1984, Dow would have the right to termina a its agreement with the Company for such service; however, Dow would be obligated to pay an amount estimated ts range from $230 million at March 31, 1981 to $430 million if the plant.were ccepleted at a ca t of $3.1 billion. Should Dow terminate the agreement for such cause, the remaining portion of the investment in equipment allocable to process steam service, estimated to range from $165 million at March 31, 1981 to $310 million if the plant were completed at a cost of $3.1 billion, may not be salvageable. In 1978, the Company discovered foundation soil problems at its Midland Plant and reported the discovery to the NRC. Thereafter, the NRC issued an order which, if made effective, would modify the plant's construction permits to prohibit remedial construction work undertaken to correct the problems. A Company request for a hearing on the order has been granted, thereby delaying the effectiveness of the order, and certain individuals have been permitted to intervene in the proceeding. Hearings are sched-uled to begin in July 1981. The Company is presently unable to determine whether this satter will result in further delay in initial operation of [g the plant or in further increases in plant costs. ( )' Another pending Midland Plant issue relates to nuclear fuel cycle rules. The Company does not expect that further review of this issue will invalidate the plant construction permits. Applications for full ters, 40-year operating licenses for the Palfcades Nuclear Plant and the Midland Plant are pending before the NRC. 3. CONSTRUCTION PROGRAM The Companies' construction expenditures are estimated at approximately $682 million for 1981 and $3.1 billion for 1981 85. The Company's por-tions, net of leased nuclear fuel, are estimated at $627 million and $2.8 billion, respectively. Substantial commitments have been made for the construction program in future years. To finance this construction program and to meet debt maturing through 1985, the Company will need to assue substantial additional securities. The amounts, timing and nature of these securities have not yet been determined. The Company will need significant and traely rate increases if revenues and income are to reach and be maintained at levels which will result in sufficient internally generated funds to meet its operational requirements and permit external financing of its construction program at a reasonable cost. The Company's ability to obtain external financing is also depen-dent upon timely approval, which is not assured, of its financing applica-tions by federal and state regulatory agencies. If adequate funds cannot be obtained from external financing and internal sources, the Company will, as in the past, curtail its construction program to the extent feasible, although any curtailment may affect adversely the reliability of service for future custc,mer requirements. In the Company's judgment, deferrals of planned construction may result in near-tera expenditure v ,- - = _
+ \\ reductions, but increasing costs and inflation would ultimately increase the Company's required investment. The Company cannot currently issue preferred stock under the earnings cov-erage restrictions contained in its Articles of Incorporation (Articles), and the Company's ability to issue first mortgage bonds, except for re-funding issues, under d e earnings coverage restrictions contained in its First Mortgage Bond Indenture is limited. The ability to issue first mortgage bonds and preferred stock in the future will depend upon in-creases in earnings. The issuance of preference stock is not subject to .any estnings coverage restriction. The Company has MP5C authorization to issue 349,839 shares of common stock for shareholder and employee plans and $15 million of installment sales contracts. Requests for authoriza-tion for the issu nce of additional securities are pending before the MPSC. 4. CAPITAI.IZATION The number of preference shares authorized by the Articles was incrieased from 15,000,000 to 25,000,000 in April 1981. The Company sold $36,479,000 of 15% Series First Mortgage Bonds in March 1981 and used the proceeds to retire $38,479,000 of 3-1/8% Series First Mortgage Bonds in April 1981. The Company has completed its 1981 sinking fund requirements for first sortgage bonds and sinking fund debentures. 5. RATE MATTERS In September 1979, the Company announced plans to nothball its Marysville Gas Reforming Plant because adequate supplies of less expensive gas would be available until the mid-1980s. In response, the MPSC rolled back $23.9 million of a previously approved $29.2 million annual gas rate increase and ordered hearings to determine if further reductions or refunds were to be required. During the hearings, the Company has taken the position that it is entitled to earn a return on the Marysville Plant net investment (which currently approximates $104 million) and to recover its investment over the useful life of the plant. Intervenors' positions include allow-ing the Company no return on or recovery of its investment and requiring the Company to refund amounts that represent all revenues (up to $239 million) attributable to operation of the plant since October 1977. Appeals and motions for rehearing of several other gas and electric rate orders are pending. These include litigation involving: alleged overcol-1ections under the fuel cost adjustment clause; alleged illegality of the purchased and interchange power adjustment clause (PPAC) revenue ppli-cable to electric rates; December 1977 PPAC revenue collected under pro-tection of court ordar; 1979-81 revenues collected under an indexing system whereby the recovery in rates of other operation and maintenance expense is annually adjusted for changes in the Consumer Price Index; 1980 revenue collected under a generating plant availability incentive syster); and a court-ordered electric rate increase collected from Octol c 1967 to April 1970. The Company is vigorously pursuing these matters before regulatory bodies and the courts and, in the opinion of Management, thaar ultimate rese-lution should not hava a materially adverse effect upon the consolidated financial position of the Companies or the consolidated results of oper-ations for the periods involved. V
6. INCOME TAX EXPENSE 4 Components of income tax expense for periods ended Mar:h 31: Three Months 12 Months 1981 1980 1981 1980 Thousands ol' Dollars Tederal income taxes (credit) $ 69,712 $13.549 $ 39,285 $(13,524) Deferred income taxes: i Current, net-Accrued f reveaues $(39,776) $ 1,560 $(14,748) $ 14,225 Revenue reserved for possible refund (5,873) (7.998) 1,534 118 Real and personal property taxes 677 1,395 4,802 2,362' $(44,972) $(5,043) $ (8,412) $ 16,705 Noncurrent-Accelerated depreciation, depletion and amortization-Deferred in current year $ 13,633 $10,950 $ 40,692 $ 31,425 Reversal of prior years' deferrals (4,088) (3,105) (13,841) $(11.414) Other, net 3,393 1,549 9,720 9,844 $ 12,333 $ 9,394 $ 36,571 $ 29,855 Deferred investment tax credit, net $ (1,148) $ (983) $(24,262) $(13,293) S 35.930 116.917 $ 43.192 3 19.743 f Operatin8 $ 33,457 $16,240 $ 32,838 $ 16,662 Nonoperating 2,473 677 10,344 3,081 1 35.930 $16.917 1 43.132 s 19.743 l The federal income tax credit in the 12 months ended March 31, 1980 is at-tributable to the subsequent reversal of income taxes provided in the three sonths ended March 31, 1979, and to adjustments of prior years' pro-visions and investment tax credits (ITC). As of March 31, 1981, unused ITC was approximately $54 million free credits 8enerated in 1980, $81 million from 1979 and $39 million from 1977. The effective federal income tax rates were 28.0% and 20.6% for the three f months and 14.7% and 9.2% for the 12 months ended March 31, 1981 and 1980, respectively. These amounts are less than the 46.0% statutory rate be-cause certain of the Company's indirect construction costs, principally interest, are capitalized in accordance with the MPSC's Uniform System of 1
_, = - -, t l i f 1 i Accounts but are espersed for tax purposes. Consistent with past rate-making policies of the MPSc. the resulting tax reduction has been re-flected currently in the Condinsed Consolidated State.,ent of Income. i Turther, the other portion of AFUDC has no tax ef'ect. r 7. CONTINGENT LIABILITIES 1 2 In addition to the matters disclosed elsewhere in these Notes, the l Companies are involved in certain legal and administrative proceedings before various courts and governmental agencies and in contractual matters I with others concerning rates, environmental issues, property and income taxes, licensing, and other satters. In addition, various suits and claims arising in the ordinary course of business are pending against the l Companies. Although the outcome of such proceedings, natters, suits and claims cannot be predicted, Management does not expect that their ultimate i effect upon the Companies' results of operations or financial condition will be materially adverse. ~ 8. NUCLEAR FUEL AMORTIZATION AND PLANT DEC0!el!SS10NING Nuclear fuel cost is amortized to fuel expense on the basis of the quantity of beat produced for electric generation. The amortization rate j assumes that the spent fuel has no residual value and will require perpetual storage. Prior to August 1978, the rate was based upon the as-sumptions that spent fuel had a residual salvage value and would be j ] chemically reprocessed. The MPSC has indicated that the Company will not j be precluded from recovering such costs when they are actually incurred. Prior to September 1980, the electric depreciation rates included an esti-mete, which the Company now considers to be inadequate, for the decommis-4 i sioning costs of the Company's nuclear plants. The Company's request for recovery of higher decommissioning costs has been deferred and the amount included in past rates was discontinued by the MPSC in August 1980. Both actions are pending a final decision in a generic hearing now in progress. t 4 1 i i i l l l l t i i-r 10 I I
O CONSLMERS POWER COMPA.W AND S1*BSIDI/JtIES Management's Discusssion and Analysis Thie discussion should be read in conjunction with Management's Discussion and Analysis contained in consumers Power Company's (the Company) 1980 Annual Report to shareholders. Increase (Decrease) From Prior Period Three sonths ended 1* months ended March 31, 1981 March 31, 1981 (Thous, ands of Dollars) Condensed Consolidated Statement of Income (Unaudited) Components of electric utility operating revenue: Amount related to sales $ 2,354 $ (8,844) Tariff rate 35,661 105,122 Fuel and purchased power adjustment clauses (36,471) G,158) Other 312 2,22L $ 1.856 3 97.541 Components of gas utility operating rev*nue: Amount related to sales $ 38,117 $ 77,832 Tariff rate 14,179 10,027 h Purchased gas adjustment clause 54,867 104,305 Other 1,138 2,941 $108.301 3195.105 Juel consumed it electric st eration $ 8,736 $ 45,571 Purchased and interchange power ($1,514) (55,209) Total power costs $(42.778) $ (9.6381 Cost of gas sold $ 85,598 $156,508 COMPARISON OF THE QUARTERS ENDED MARCH 31, 1981 AND 1980 Sales of electricity in the 1981 quarter were relatively flat in comparison with the 1980 quarter. Industrial sales were down 2.4%. Natural gas sales increased 13.1 billion cubic feet (bef) or 9.4*. The increase resulted from an additional 21.5 bei being sold to out-of-state utilities. G.s sales to Michigan industrial customers decreased 8.3%. The Company received a $77 million interim gas rate increase in February 1981. The increase in cos*. of fuel consumed in electric generation was the net result of a $45 million, or 46.8%, ir e===e in the number of kilowatthours (kwh) generated and a $36 million decrease from lower costs. The Palisades Plant was out of service in the first quarter of 1980 and Campbell Unit 3 came on line in September 1980. The availability in 1981 of the lower cost genera-tion from these two plants caused a decrease in fuel cost per kwh generated free 2.28 cents to 1.70 cents. The decrease in purchased and interchange power costs reflects lower purchases beer.use of the availability of generation from the Palisades and Campbell 3 plants. s 11 m
l Supplier price increases caused $6. sillion of the increase in the cost of gas sola and the remainder resulted from the increased sales. The average cost increased from $1.81 to $2.20 per thousand cubic feet. 1 COMPARISON OF THE 12 MONTHS ENDED MARCH 31, 1981 add 1980 Sales of electricity decreased.9 billion kwh, or 3.4%, because of a 9.2% industrial sales decrease resulting from tne recession in the auto industry. Natural gas sales increased 26.9 bef, or 8.2%. The increase includes an increase of 33.7 bef sold to out-of-state utilities. With the exclusion of these out-of-state sales, sales to industrial customers decreased 7.3 bef, or 9.3%, because of the depressed auto industry. The increase in cost of fuel consumed in electric generation resulted from an increase of $38 million, or 9.9%, in the number of kwh generated and an increase of $8 million from a 1.8% increase in the average fuel cost per kwh. The purchasr3 and interchange power cost decrease reflects decreased pur-J chases. Stpplier price increases accounted for the increase in cost of gas sold. The average cost rose from $1.91 to $2.27 per thousand cubic feet. 4 1 1 L _.... _ _ ~ - -....,.. __
PART II. OTER INFORMATION Ites 1. MgalProceedinas. (a) In March 1978 Registrant filed so application with the Michigan Public Service Commission ("MPSC") requesting an increase in its rates for the sale of gas of not less than $76,200,000 on an annual basis. On July 10, 1978 the MPSC issued an order granting Registrant partial and immediate gas rate relief in the annual amount of $19,885,000 under bond and subject to refund. On August 9, 1978 the Attorney General of Michigan (" Attorney General") appealed the MPSC's interia rate order to the Ingham County Circuit Court (" Circuit Court"). On June 27, 1979 the MPSC issued an order in the pro-ceeding authorizing an increase in Registrant's gas rates of $29,162,000 on an annual basis, inclusive of an interim increase granted in July 1978. The MPSC's June 1979 order affirmed the interia increase ano discharged the bond which Registrant had posted in connection therewith. In July 1979 several intervenors in the proceeding, including the Attorney General, appealed the MPSC's June 1979 order to the Circuit Court. The appeals alleged, among other thints, that the Marysville Gas Refo-ming Plant was no longer used and use-d ful" in providing gas service to Registrant's customers, and that the MPSC's June 1979 order had erred in (a) affirsing the July 1978 interia increase, (b) including Registrant's ins as*wnt in the Marysville Plant in the rate base upon which rates were established and (c) recognizing as proper operating expenses Marysville Plant depreciation, feedstock cost and operating and maintenance ("O&M) expense. Injunctive relief was also sought, including a reduction in Registrant's gas rates by the ascunt of Marysville Plant O&M expense recognized by the MPSC's June 1979 order. On September 5,1979 Registrant announced its intention to " mothball" its Marysvill: Plant. On September 6, 1979 the MPSC issued an order reopening the gas rate proceeding and directing Registrant to file additional testimony regarding the effect of mothballing the Marysville Plant on the rates estab-lished by the June 1979 order. On September 7, 1979 the Circuit Court ordered Registrant to reduce its rates $11,212,000 annually, the Marysville Plant O&M ( rp0780-0822a-72-52 1 \\s
6l expense reflected in the June 1979 order. (The other issues raised in the appeals of the MPSC's June 1979 order are pending before the Circuit Court.) On September 21, 1979 Registrant filed testimony with the MP5C indica-ing that the effect of the Marysville Plant mothballing on the rates established by the June 1979 order would be to reduce the annual revenue reqairement found by that order by the amount of $23,914,000, inclusive of the $11,212,000 Ma rysville Pla *. O&M costs. On October 2, 1979 the MPSC issued an order reducing Registrant's gas rates by the annual amount of $23.., 'e,000, inclusive of the $11,212,000 Marysville Plant O&M costs, and ordering hearings to proceed to ascertain whether further rate reductions would be appropriate. On November 2, 1979 the Attorney General petitioned the MPSC for rehearing of the October 2,1979 order. The Attorney General alleged that (a) the reduction of Registrant's gas rates sandated by the order should be retroactive to June 27, 1979 and the difference in revenue that would result frem such retroactive effectiveness should be refunded with interest; (b) Registrant should be required to cefund the revenue difference attributable to the difference between the gas rates authorized in the July 10, 1978 interim order and those authorized by the October 2,1979 order; (c) Registrant should be required to refund with interest all moneys it has collected pursuant to purchased gas adjustments during the years 1978 and 1979 resulting from the inclusion of feedstock costs for the Marysville Plant and the calculation of said purchased gas adjast-ments; and (d) Registrant should be required to file a bond to guarantee refunds with interest of revenues attributable to any difference between gas rates ultimately ordered in the reopened proceeding and those charged pursuant to the MPSC orders dated July 10, 1978, June 27, 1979 and October 2, 1979. On August 19, 1980 the MPSC issued an order denying the Attorney General's application for rehearing of the MPSC's October 2,1979 order reducing rates. On September 18, 1980 the Attorney General appealed both the MPSC's October 2, 1979 order reducing rates and the MPSC's August 19, 19SO rp0780-0822a-72-52 2 m
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d order denying application for rehearing to the Circuit Court. The appeal is pending before the Circuit Court. In the Marysville Plant hearing ordered by the MPSC's action of October 2, 1979, the MPSC Staff has taken the position that Registrant should not be allowed to earn a return on its net investment of approximately $104 million in the Marvsville Plant, but should be allowed to ame.atize or "depre-ciate" such investment in utility cost of service over a period ending in 1988. Two industrial intervenors have taken the position that she Marysville Plant is no longer "used ani useful" in providing utility service. d she.d be eliminated from the rate base and cost of service. The Attorney General has taken the positioc that Registrant should have ceased operation of % Marysville Plant and removed it from the rate base no later than October 1, 1977. On ' 2at theory, the Attorney General's witness has recommended that Registra sake refunds to its customers, reflecting the reduced cost of service and revenue requirement which would have existed had the Marysville Plant not operated, of up to $239 million. Registrant has taken the position that the Marysville Plant should be treated as plant held for future use, in v l which event Registrant would be allowed a return on its net investment in the i j facility. The only lawful alternative to treatment of the Marysville Plant as l plant belo for future use, in Registr3nt's view, is to treat Registrant's net investment as art ext >rdina v aroperty lo-s. In the event it is so treated, Registrant's post.. . Registrant is entitled to amortire the loss o cost of service and to receive a return on the unamortized portion of the loss. i l On January 25, 1980 Registrant filed an application with the MPSC requesting an increase in its rates for the sale of gas of nct less than $76,871,000 on an annul basis. In the applicatU n, Registrant asked the MPSC to either consider its request in a new gas rate proceeding or in the reopened phase of the prior gas rate proc. ding. On March 7, 1980 the MPSC issued an 1 order denying Registrant authority to file a new rate proceeding, but permit-ting Registrant to supplement the record in the prior gas rate proceeding on a 1 ) rp0780-08:2a-72-52 3 i
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limited basis. In response to the March 7 order, Registrant filed an applica-tion with the MPSC on May 5,1980 requesting an increase in its rates for the sale of gas of not less than $129,171,000 on an annual basis and seeking a lesser amount on partini and issnediate rate relief. On February 10, 1981 the MPSC issued an order granting Registrant a partial and immediate rate increase of $76,736,000, on an annual basis, under bond and subject to refund. On March 11, 1981 the Attorney General appealed the MPSC's Februarf 10, 1981 order to the Circuit Court, asking that the order be set aside. (b) Several appeals are pendtng before the Circuit Court of matters arising from an order issued by the MPSC on April 12, 1976 which authorized Registrant to increase its electric rates in the annual amount of $33,977,000. The order also (i) found that Registrant's existing fuel cost adjustment clause ("FCAC") had not resulted.n any overrecoveries of cost by Registrant, (ii) authorized a purchased power adjustment clause ("PPAC") which operates, after notice and hearing, to pass through to ctstemers 90% of monthly increases and decreases in such costs, (iii) replaced the existing FCAC with one which permits only 90% of monthly increases and decreases in such costs to be automatically passed thruugh to customers and (iv) ordered " reconciliation" hrarings which would result in refunds to customers of amounts collected through operation of the two clauses in excess of 90% of the amounts actually expended for fuel and purchased and interchange power over and above the brsing points in the clauses. On May 12, 1976 Registrant appealed the order, etquesting that it be granted additional rate relief in the annual amount of pproximately $41,600,000. Cn May 12, 1976 the Attorney General appealed the order requesting, among other things, that: a refund be ordered of all aroents collected in excess of the rates in effect prior to April 1976; the monthly PPAC hearins procedures and any purchased power adjustment charges resulting therefrom be enjoined; and the MPSC he directed to investigate alleged "overcollection" under Registrant's FCAC. In orders issued following the first two of the monthly PPAC hearings, the MPSC authorized PPAC expense adjustments in Registrant's rates, af ter reducing such expense to reflect the cost of power purchased to replace generation from Registrant's nuclear rp0780-0822a-72-52 4
O generating plants to the extent such plants had been out of service for periods in excess of 90 days. More recently the MPSC has allowed the recovery of PPAC expense even though it was attributable to generating plant outages extsading for periods beyond 90 days (see following paragraph). Registrant and the Attorney General appealed the first monthly order to the Circuit Court and the Attorney General has appealed each of the subsequent monthly orders which authorizzJ a positive PPAC adjustment in Registrant's electric rates. On January 16, 1981 the Circuit Court issued an opinion dismissing that portion of the Attorney General's appeal which challenged the validity of the PPAC, the PPAC hearing prccedures and adjustment charges resulting from such procedures, and dismissing that portion of Registrant's appeal which challenged the reduction of purchased power expense in the two PPAC sonthly hearings when Reg'istrant's nuclear generatics plants had been out of service for periods in excess of 90 days. Certain other issues remain to be decided by the Circuit Court. As indicated above, in orders issued following the first two of the monthly PPAC hearings, the MPSC authorized PPAC expense ( adjustments in Registrant's rates, after reducing such expuse to reflect the I cost of power purchased to replace generation from Registrant's nuclear generating plants to the extent such plants har-been out of service for periods an excess of 90 days. More recently the MPSC has allowed the recovery of PPAC expense even though it was attributable to generating plant outages I extending for periods beyond 90 days. Through March 31, 1981 Registrant had collected revenues authorized by positive PPAC adjustments of approximately $241 million. The Palisades Nuclear Plant was out of service from early September 1979 until late May 1980 for refueling and maintenance, for inspections and reviews in connection with w tain alleged license violations, and for modifi-cations necessary to meet Nuclear Regulatory Commission ("NRC") seismic and other requirements. The Palisades Plant outage resulted in increases in Reg-istrant's costs for replacement power, calculated by Registrant (net of off-setting nuclear fuel cost) to be around $7.5 million por accth. In PPAC orders issued in Februar,, March, April, May, June and July 1980, for the cost rp0780-0822a-72-52 5
months of December 1979 and January, February, March, April and May 1980, respectively, the MPSC did not disallow the recovery of any replacement power costs attributable to the Palisades Plant outage. On May 13, 1980 the Attorney General petitioned the MPSC for rehearing of its April 1980 PPAC order for the cost month of February 1980. The Attorney General alleged that the Palisades Plant was shut down in February 1980 for the reason, in whole or in part, that Registrant had violated NRC safety regulations and requested, zmong other things, that the MPSC: (a) determine that the effect of the Pal.sades Plant outage on Registrant's PP. expense for the month of February 1980 was $10,487,000 rather than the $6,679,709 determined by the.wPSC in its April 1980 PPAC order; (b) redetermine the PPAC expense for February 1980 eliminating the PPAC expense occasioned by the plant outage; (c) cancel, re-voke and rescind Registrant's PPAC; and (d) order Registrant to refund all amounts collected pursuant to the PPAC adjustment authorized by the MPSC's April 1980 PPAC order. The Attorney General's petition was denied on August 8, 1980. On June 27, 1980 the Attorney General appealed the MPSC's May 1980 PP, : order for the cost month f March 1980 to the Circuit Court request-ing relief s'.milar to that i.ought in his petition for rehearing of the April 1980 PPAC order. Similarly, on July 14, and August 25, 1980 the Attorney Grceral appealed the MPSC's June and July 1980 PPAC orders to the Circuit Court. And on September 8,1980 the Attorney Ceneral appealed an MPSC order dated August 8, 1980 on reconciliation of July-December 1979 fuel and i purchased and net interchange power expenses. The Attorney General claimed. 1 among other things, that upon reconciliation, the MPSC should have disallowed expenses incurred by Registrant as a result of the shutdown of the Palisades Plant during the month of December 1979. (c) Cn January 31, 1977 Registrant filed an application with the MPSC requesting authority to increase its rates for the sale of electricity. On July 31, 1978 the MPSC issued an order authorizing an increase in Rrgistrant's return on common equity for its electric business from 12.75*. to 13.50*. and authorized Registrant to increase its rates for the sale of electricity $54,998,000, on an annual basis, which includes an interim rp0780-C822a-72-5 2 6
N electric rate increase in an annual amount of $15,212,000 granted in March 1978 which had previously been placed in effect under bond and subject to refund. An appeal by the Attorney General of the March interia rate order is currently pending before the Circuit Court. The July 1978 order also denied applications for rehearing of the interia rate order which had been filed by certain industrial customers who had requested that interia rate design be changed so that all classes of customers would pay an equal percentaga surcharge and had further requested refunds of any amounts paid in exgess of such equal percentage surcharge. The MPSC's July 1978 order also provided for a Consumer Pric; Indexing System (" Indexing System") pursuant to which Registrant will annually (in February) adjust its rates to reflect a percent-age increase or decrease in the Other Operations and Maintenance Expense base in its rates equal to the annual increase or decrease (during the preceding 12 months, ending each August) of the Consumer Price Index. On August 30, 1978 the Attorney General and an industrial customer appealed certain aspects of the MPSC's July 1978 order, including the Indexing System, '.o the Circuit Court. On January 29, 1979, in accordance with the Indexing System, the MPSC authorized an increase in Registrant's electric races by the amount of approx-instely $12,279 000 for the 12 months beginning February 1979 to reflect changes in the Consumer Price Index occurring between August 1977 and August 1978. On February 7,1979 the Attorney General appealed the MPSC's January 29, 1979 Indexing System order to the Circuit Court. On January 8, 1980 the NPSC issued an order increasing Registrant's electric rates by the amount of approximately $20,288,000 for the 12 months beginning February 1980 to reflect changes in the Consumer Price Index occurring between August 1978 and August 1979. On February 7,1980, the Attorney General and Dov appealed the MPSC's January 8,1980 order to the Circuit Court. On January 30, 1981 the MPSC issued another order increasing Registrant's electric rates by the amount of approximately $23,950,000 for the 12 months beginning February 1981 to reflect changes in the Consumer Price Index occurring between August 1979 and August 1980. On February 13, 1981, the Attorney General appealed the ) rp0780-0822a-72-52 7
O January 20, 1981 order to the Circuit Court. These three appeals are pending befose the Circuit Court. (d) On January 23, 1975 the MPSC issued an order increasing Registrant's electric rates $66,231,000 on an annual basis. The Attorney Deceral and DW-CAP appealed the order to the Circuit Court, requesting that rate increase be restrained and enjoined during the pendency of the suc3 litigattor. At issue in the litigation were electric rates collected during the per12d January 1975 through April 1976. On February 2, 1981 the Circuit Court entered an order dismissing the appeal for lack of progress. The calcubtions in (a) through (d) pertaining to amounts of rate relief grant w or requested are based on the test years governing the respec-tive rate cases, and revenues actually realized depend upon actual unit sales of electricity and gas. (e) On December 29, 1980 Registrant filed three applications with the MPSC requesting authority (i) to is.ue and sell S336,521,000 of long-term or intermediate debt, 8.5 million shares of common stock and 4 million shares of preference stock; (ii) to issue and sell $38,479,000 of First Mortgage Bonds, to enter into installment sales contracts in connection with $59,000,000 and $12,500,000 principal amounts of Pollution Control Revenue Bc, as, and to issue and sell unsecured long-term notes, to mature on December 31, 1988, to refund $175,000,000 of short-term notes maturing on December 31, 1982; and (iii) to increase the credit available under two exist-ing nuclear fuel leasing arrangements from $50,000,000 to $75,000,000 and from $60,000,000 to $100,000,000, respectively, and to enter into a third nuclear fuel leasing arrangement in the amount of $140,000,000. The Attorney General and a "public interest" group have intervened in opposition to the requsst. On February 18, 1981 the MPSC issued an order, ex parte, authort ir-Ragistrant to issue and sell $33,479,000 principal amount of First Mortgage Bonds, solely for the purpose of refunding a like amount of First Mortgage Bonds saturing on April 1, 1981, and authorizing Registrant to enter into installment sales contracts in connection with the issue and sale of rp0780-08224-72-52 8
O $59,000,000 and $12,500,000 principal amounts of Pollution Control Revenue Bonds. On March 11, 1981, the intervenors appesud the MPSC's February 18, 1981 order to the Coart of Appeals. On March 2*,1981 the Court of Appeals denied the appeal for lack of merit. On March 26, 1981 the intervenors applied to the Michigan Supreme Court for lea <e to intervene, seeking an emergency stay of the February 18, 1981 order. The matter is pending before the Supreme Court. On March 26, 1981 the First Mortgage Bond refunding issue was issued and sold by Registrant. (f) On December 6,1979, the NRC issued an order which, if sade ' effective, would modify Registrant's construction permits for the Midland Plant to prohibit remedial construction work undertaken to correct certain foundation soils probless at the Edland Plant, discovered in August 1978, pending Registrant's submittal of an aAendment to its license application for the Midland Plant seeking approval for such work and pending issuance of an amendment to the construction permits authorizing such work. On December 19, N 1979, Registrant filed an amendment to its application for construction per-mits and operating licenses for the plant. seeking NRC approval for the remedial action prohibited by the NRC's December 6, 1979 order. In addition, on December 26, 1979 Registrant requested a hearing with respect to the NRC's order, thereby delaying the order's effectiveness and on March 14, 1980 the NRC issued a notice that a hearing will be held before an NRC Atomic Safety and T.icensing Board ("ASLB"),ljearings are scheduled to begin in July 1981. Prehe. ring conferences were held in the matter in September 1980 and January 1981. Certain individuals have been permitted to intervene in the proceeding. The Staff of the NRC has raised ar. issue in the proceeding as to whether the seismic criteria applicable to the Midland Plant should be made more stringent. As part of the December 6, 1979 order, the NRC also issued two notices of violation, citing Registrant for several noncompliances, including an alleged material false statement in Registrant's license application for the plant, all related to the foundation soils problem. Registrant is unable to determine at this time whether these satters will result in further delay in initial operation of the Midland Plant or further increates in plant costs. rp0780-0822a-72-52 9
9 (g) On November 4, 1979 and January 6, 1930, during two separate cutages of Registrant's Big Rock Point Plant, two individuals requested that the NRC order Registrant to delay a restart of the Big Rock Point Plant until certain alleged safety questions were resolved. Since it did not receive the first petition before the plant was returned to service, the NRC gave notice ..a uecember 4, 1979 that it was treating the petition as a request for an order to show cause why the operating license for the plant should not be suspended pending resolution of the issues raised. The petition was treated as a requast for action under Title 10 of the Code of Federal Regulations, Stetion 2.206, upon which action would be taken "within a reasonable time." Co March 5, 380 the NRC Staff notified the petitioners that their January 6 pitition would be consolidated with their November 4 petition for consider-ation. The NRC Staff also concluded that there was sufficient assurance of safety to permit the plant to continue operating pending final disposition of the issues raised. On April 1, 1980 the Concerned Citizens for t.ie Charlevoix Area requested that the Big Rock Point Plant be shut down i= mediately because, they contended, the plant does not meet minimal NRC requirements relating to containment integrity. On June 26, 1980 the NRC issued a notice that the request was also being treated under 10 CFR 2.206. On December 18, 1980, the NRC's Director of Nuclear Reactor Regulation denied all of the aforenentioned pstitions. By order effective January 26, 1981, the NRC declined to review the Director's decision regarding the April 1, 1980 petition. By order effective March 3, 1981, the NRC declined to review the Director's decision regarding the November 4,1979 and January 6,1980 petit sas. (h) By submittals of April 23, 1979 and June 26, 1979, Registrant requested YRC approval of a proposed amendment to the Big Rock Point Nuclear Plant operating license to allow the addition of storage racks to the plant's spent fuel pool to increase the storage capacity from 193 to 441 fuel asses-blies, in order to permit continued operation past November 1982 in the event off-site spent fuel storage or disposal is not made a<ailable. By order dated January 18, 1980 an NRC ASL3 granted certain petitions for leave to intervene in the proceeding in opposition to the amendment, and public hearings will be rp0780-08:24-72-52 10
i held. The Atomic Safety and Licensing Appeal Board ("ASLAB") has ruled that the fact that granting the amendment would permit operation for a longer period than would otherwise be the case does not, of itself, call for prepara-tion of an environmental impact st."ement under the National Environmental Policy Act. The ASLAB remanded to the ASLB other issues affecting the scope of environmental review that will be required. (1) In light of " undesirable past regulatory performance and per-sonnel errors," the NRC, effective March 9,1981, issued an order confirming various short-term and long-ters actions Registrant has taken and intends to take to upgrade regulatory performance at the Palisades Plant. The order pro-vided that any person having an interest affected by the order could request a hearing within 25 days of the order's issuance. On March 31, 1981, the Utility Workers Union of America, AFL-CIO, and its Michigan State Utility Worters Council requested a hearing on the order, asking that it ce rerrn-sidered and vacated insofar as it restricts the amount of overtime that may S-worked by union members at the Palisades Plant. 4 (j) On December 21, 1979, at the request of Registrant, the Office of General Counsel of the Department of Energy (" DOE") issued an interpreta-tion that a portion of the feedstock utilized in Registrant's Marysville Plant should properly have been included in the Entitlements Program. On May 27, 1980 the Office of General Counsel of the DOE denied a petition for recon-sideration submitted on behalf of Ashland Oil, Inc. Clark 011 and Refining Corp, and Energy Cooperative, Inc, and a petition for reconsideration sub-mitted on behalf of Amoco 011 Company. In August 1980, Registrant was able to complete its filings with the DOE. On the basis of those filings Registrant has received approximately $12,000,000 through operation of the Entitlements Program. It is anticipated Liat any money received by Registrant, as a result of retroactive inclusion in the Entitlements Program to June 1976 and attrib-utable to feedstock which was processed into synthetic natural gas, will flow through to its natural gas customers through operation af its purchased gas adjustment clause. On February 12, 1981 the Econsic Regulatory ( rp0780-0822a-72-52 I?
Administration denied Registrant's request to be included in the Entitlements Program for the period beginning February 1,1976 and ending Jane 16, 1976. On February 20, 1981 Registrant apiealed that denial to the Office of Hearings and Appeals of the DOE. (k) The Conservation Manager of the Geological Survey has ordered a Unitization Agreement pertaining to certain natural gas production in Vsemillion Blocks 320 and 321, in >ffshore Louisiana. Under the proposed Unitization Agreement. ' aroup in which Registrant's subsidiary, Northern Michigan Exploration Company (" Northern"), is participating would be entitled to only 31.86 percent of production, retrosctive to November 14, 1975. Be-cause the group has produced and is producing more than 31.86 percent of the gas produced, the afeet of the order would be to create a contingent lia-bility on Northern's part of approximately $2,940,000 as of March 31, 1981. Such contingent liability will increase by approximately $40,000 per month until it is finally determined whether the percentage of production assigned to the group is as large as it should be and whether the Geological Survey has the power to impose this unitization. The group appealed to the Dieu tor of the Geological Survey, who affirmed the order of the Conservation Manager. The group requested that the Director modify his decision and filed an appeal l with the Board of Land Appeals, US Department of the Interior. The Board of Land Appeals remanded the matter to the Director for reconsideration and issued an order staying implementation of the unitization plan pending such reconsideration. (1) Pursuant to the terms of performance contracts entered into with the Michigan Air Pollution Control Commission ("MAPCC") in 1973, Registrant on January 1, 1980 completed the conversion of D E Karn Units 1 and 2 and J C Wadock Units 7 and 8 to allow utilization of low-sulfur (less than 1*.) rather than high-sulfur coal. In 1979, the MAPCC approved agreements providing for further extensions, until January 1, 1935, of the date by which Registrant's J R Campbell Plant Units I and 2 and B C Cobb Plant must comply with MAPCC ragulations which in general would require the use of fuel with a sulfur rp0 780-08224-72-52 12
content of 1*. or less. The Campbell and Cobb Plants are row being operated in accordance with the extension agreements. Under the Fed.ral Clean Air Act, the extension agreements aust also be approved by the T.nvironmental Protection Agency (" EPA") as revisions to the Michigan State Isrlementation Plan (" State Plan") for air quality. The Campbell agreement was approved effective January 23, 1981. Although the State of New York made no comments during the time limits prescribed for such comments, it filed a petition dated January 16, 1981 requesting the EPA to reconsider its final action regarding the J H Campbell Plant extension agreement, based on an allegation that the Campbell Plant contributes to acid rain in the State of New York. Registrant is taking the position that the petition should be disaissed on both procedural and factual grounds. On February 20, 1981 the State of New York petitioned the US Court of Appeals for the District of Columbia Circuit for i review of the EPA action which approved the revised State Plan for the J H Campbell Plant. Although it has not yet formally approved the Cobb extenaian agreement, the EPA has assured Registrant in writing that it expects to O approve the agreement and does not intend to enforce the unrevised Michigan State Plan while it is reviewing the agreement so long as the plant is operated in accordance with the agreement. The State of New York has submitted a late pleading asking the EPA not to approve the Cobb extension agreement based on an allegation that the Cobb Plant contributes to acid rain in the State of New York. Further, the State of New York has notified the EPA l and Registrant that it intends to bring a legal action fer the purpose of 1 l compelling the EPA to force Registrant to utilize low-sulfur coal at the Cobb l Plant. If EPA approval of the agreement is not obtained and no other appropriate actions are taken by the EPA or Registrant, Registrant could become subject to substantial penalties under the Federal Clean Air Act. l Since the pubP.eation of final EPA regulations in 1980, an additional " noncompliance penalty" equivalent to the a.acunt of money saved by a source because of its noncompliance could be imposed for the violation of any requirement of the Michigan State Plan. rp0780-0822a-72-52 13 i
(m) On March 12, 1981 the Province of Ontario, Canada, filed "A Submission to the United States Environmental Protection Agency Opposing Rslaxation of 50 Emissica Itaits in State Implementation Plans and Urging 2 Enforcement." In that submission Ontario alleges that 18 US power plants, including Registrant's J H Campbell and B C Cobb Plants, significantly con-tribute to acid deposition in Ontario and that any increase in emissions of sulfur dioxtde from these sources will further impair the Ontario environment. Ontario bases its claim to be heard upon: (1) the Federal Administrative Procedure Act; (2) Section 115 of the Federal Clean Air Act; (3) United States judicial decisions; and (4) intersational law. Ontario urges that the Administrator disapprove any revisions to the nate Plans in taese proceedings which would result in any increase of permissible emissicns of sulfur dioxide and that the Administrator reconsider any SIP revisions already approved in these proceedings which result in any increase of permissible emissions of sulfur dioxide and disapprova such revisions. The proposed revision to the Michigan State Plan involving the B C Cobb Plant and the final revision to tts Michigan State Plan involving the J H Campbell Plant extend the compliance date to January 1,1985 for these plants to meet the State of Michigan's sulfur dioxide emission limitations (see Para graph (1) above). (n) In 1979, Registrast entered iato an agreement with various Michigan municipal electric utilities on' rural electric cooperatives settling antitrust issues raised by some of these i.tilities as intervenors before the NRC in proceedings for the licensing of the Midland Nuclear Plant. Among other things, this settles it agreement offered the municipal and cooperative utilities an option to purchase a portion of the J H Campbell Plant Unit 3 and other related facilities. On May 29, 1980, the Michigan Public Power Agency ("MPPA*), an association of municipal electric utilities, exere: sed its option under the settlement agreement by finalizing the purchase of a 4.8*, undivided interest in Campbell Unit 3, as it existed on March 31, 1980, and a 58.06*, undivided ownership interest in other related facilities. As of Maren 31, 1931, Registrant had received a total of $30,300,000 from the MPPA for such purchase. Cn March 30, 1981, Northern Michigan Electric Cooperative. Inc rp0730-08224-72-52 14
O ("NMEC") and Wolverine Electric Cooperative, Inc (" Wolverine") exercised their options under the settlement agreement by finalizing the purchase of a 1.26% undivide<t ownership interest on the part of NMEC, and a 0.63% undivided ownership interest on the part of Wolverine, in Campbell Unit 3 as it existed on January 31, 1981. At the same time NMEC and Volverine acquired, respectively, 20.410% and 10.205% undivided ownership interests in other facilities related to Campbell Unit 3, as they existed at January 31, 1981. ., of March 31, 1981, Registrant had received from NMEC a total of $8,000,000 and from Wolverine a total of $4,000,000 for such purchases. Item 5. Other Information. '.) In connection with Registrant's generating units which burn petroleum products, Registrant is importing two types of residual fuel oil from Canada. Registrant imported approximately 5.5 million barrels in 1980 and expects to import approximately 5.5 million barrels in 1981. Canadian export licenses and US import licenses are required to be renewed from time to time and the receipt of such.'.tcenses is not necessarily assured. I.ong-te rs export licenses free the National Energy Beard of Canada permit the exporta-tion to Registrant of one type of residual fuel oil through 1981 and the other type of residual fuel oil through August 1982. Registrant has a long-term contract through 1987 to purchase from 10,000 to 19,000 barrels per day of the second type of Canadian residual oil and a long-term contract ending on December 31, 1982 to purchase 5,500 barrels per day of the first type of l residual fuel oil, both to be burned at the D E Karn Plant. The Canadian government began curtailing exports of crude oil in January 1973 and has announced that further curtailments can be expected and that it expects to end exports of light crude oil entirely in 1981. These curtailments should not have any adverse effect on Registrant's residual fuel oil deliveries. Canadian export taxes applicable to residual fuel oil imported by Registrant were revised after February 1, 1981. The Canadian export tax for one type of residual fuel oil increased from $13.45 per barrel to $16.45 ter barrel (Canadian dollars) from February 1,1981 to April 1,1981. A second rp0780-0822a-72-52 15
type of residual fuel oil imported by Registrant is taxed partly at the $16.45 per barrel rate and partly at a higher rate applicable to partially processed oil. From February 1 to April 1, 1981 the average rate applicable to this second type of oil increased from $16.02 to S18.10 per barrel (Canadian dol-lars). If the export tax rates remain unchanged during the 12 months begin-ning April 1,1981, Registrant will pay approximately $60 million ($51 million in US dollars) in Caradisa export taxes for the exportation to the US of the first type of residual fuel oil, and approximately $33 million ($28 million in US dollars) in Canadian export taxes for the exportation to the US of the recond type of residual fuel oil. (b) Approximately 33 percent of the gas purchased during the 12 months ended March 31, 1981 for sale to Registrant's customers was pur-chased by Registrant from interstate pipeline suppliers regulated by the Federal Energy Regulatory Consission ("FERC"); namely, Trunkline Gas Company ("Trunkline"), a wholly-owned subsidiary of Panhandle Eastern Pipe Line Company (" Panhandle"), and Michigan Gas Storage company (" Storage Company"), a wholly-owned subsidiary of Registrant. In turn, Storage Company has a FERC approved cost-of-service taritt pursuant to which it sells gas purchased from its sole supplier, Panhandle, to its sole gas customer, Registrant. During the 12 months ended March 31, 1981, substantial increases in the cost of gas purchased from both Trunkline and (through Storage Company) Panhandle oc-curred. Pursuant to purchased gas adjustment clauses in Registrant's retail gas tariffs, Registrant expects to recover substantially all of such increases in cost of gas from its retail gas custcmers. (c) Investment in the Midland Nuclear Plant, a twin-unit facility designed to generate 1,357 megawatts for Registrtnt's electric system and to furnish process steam service to The Dow Chemical Company C'Dow"), was $1.66 billion at March 31, 1981. Because of the accident at the Three Mile Island Unit 2 Nuclear Plant ("TMI"), the NRC has been concentrating its resources toward handling IMI issues; therefore, consideration of construction permits and operating licenses, including Registrant's application for Midland rp0 7 30-08222-72-52 16
( Plant operating licenses, has been delayed. Based on estimates of the effects of licensing delays and expected design revisions as a result of licensing requirements, many of which resulted from the TMI accident, and certain other licensing assumptions, Registrant estimates that Midland Plact Unit 2 will be in commercial operation for electric service in December 1983 and Unit I will be in commercial operation for process steam service and electric service in July 1984, and that the plant will cost approximately $3.1 billion. Registrant's decision to continue design and construction of the plant assumes that necessary regulatory approvals will be obtained. Registrant is vigorously pursuing efforts to identify and favorably resolve matters which could cause delays and cost increases. There can be no assurance, however, that further delays and further cost increases will not occur. If commercial operation of the plant for process steam service to Dow cannot begin until after December 31, 1984, Dow would have the right to terminate its agreement with Registrant for such service; however, Dow would be obligated to pay an amount estimated to range from $230 million at March 31, 1981 to $430 million if the plant were completed at a cost of $3.1 billion. Should Dow terminate ~ the agreement for such cause, the remaining portion of the investment in equipment allocable to the process steam service, estimated to range from $165 million at March 31, 1981 to $310 million if the plant were completed at a cost of $3.1 billion, may not be salvageable. O rp0780-0822a-72-52 17
Item 6. Exhibits and Reports on Form 8-K. (a) List of Exhibits. j Exhibit Number A - Letter af independent public account-ants. B - Letter re unaudited financial inf:.ation. (2)-(3) - Not applicable. (4)(a) - Restated Articles of Incorporation of the Registrant. (4)(b) - Certificates Giving Acquired Issued Shares Status of Authorized and Unissued Shares, filed August 28, 1969, April 22, 1970, August 23, 1971 and September 13, 1972. (Designated in Registration No 2-37326 as Exhibit 2(c); in Regis-tration No 2-44136 as Exhibit 2(d); and in Registration 32 2-45643 as Exhi-bit 2(c)-1.) (4)(c) - Copy of the By Laws of the Registrant. (Designated in Registration No 2-60884 as Exhibit (b)(6).) (6)-(22) - Not applicable. (b) Reports on Fors 8-K. None rp0730-082:a-72-52 18
EXPERTS Statements contained in Part II under " Item 1. Legal Proceedings." and "Ites 5. Other Information." as to matters of law and legal conclusions, have been reviewed by Lawrence B Lindemet, Esq, General Counsel for Registrant, and such statements are made on his authority as an expert. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant Las duly caused this report to be signed'on its behalf by the undersigned thereunto duly authorized. CONSDfERS POWER COMPANY (Registrant) Date May 13, 1981 Ste-hen H Howell Stepnen H Howell Executive Vice President Date May 13, 1981 S N Serir.g S N Spring Vice President and Chief Accounting Officer rp0780-08:2a-72-52 19
~ CONSENT I hereby consent to the reference made to me under " Experts" in the Form 10-Q of Consumers Power Company for the quarter ended March 31, 1981 to be filed with the Securities and Exchange Counission under the provisions of the Securities Exchage Act of 1934 and to the incorporation by reference of this consent into Consumers Power Company's Registration Statement (Registra-tion No 2-66930) previously filed with the Securities and Exchange Commissica vnder the Securities Act of 1933 in accordance with its Dividend Reinvestment and Cocmon Stock Purchase Plan and into Consumers Power Company's Registration Statemeer. (Registration No 2-67409) previously filed with the Securities and Exchange Commission under the Securities Act of 1933 in ascordance with its Employees' Savings Plan. I.AWRENCE B LINDE.E.R May 13, 1981 O l i j rp0730-08222-72-52 20 l l t
Ov APPENDIX E BASIS FOR COMPLETION DATE EXTENSION The Applicant hereby requests an extension of the earliest and latest completion dates for the Midland Plant Units 1 and 2 as follows: Earliest Latesg_ Unit 1 from 10/01/81 10/01/82 Chau.c = 26 mo to 12/01/83 12/01/84 Unit 2 from 10/01/80 10/01/81 Change = 33 mo to 07/01/83 07/01/84 CAUSES OF SCHEDULE DELAY The first request for a construction completion extension for Units 1 and 2 was made by the Applicant in August of 1977 and approved by the NRC in November of 1978. Since that time, the Applicant has experienced several schedule delays, many of which were beyond the Applicant's control. The resulting schedule growth since March of 1978 for key project milestones is shown in Figure E-1. Some of the items that contributed substantially to ~ 2 these delays include: o increases in bulk commodity quantities o design evolution changes o a major work stoppage The construction schedule delay shown in Figure E-1 is largely due to a projected increase in the quantity of bulk commodities to be installed, such as large and small pipe, cable cray, conduit and wire and cable. Several of the factors responsible for this projected quantity increase include additional or revised licensing sequirements, design evolution, refinements in projections, and operational efficiency improvements. The Applicant's improved estimates in the magnitude of the design and construction effort since mid-1977 were developed after an extensive review of the remaining project scope during the first half of 1980. Table E-1 shows the estimated l increases in bulk commodity quantities since the last construction completion extension was granted. The potential schedule delay associated with each commodity is calculated using the currently planned sustained installation rates. However, the schedule delays shown in Table E-1 are not cumulative. Only one work stoppage (labor strike) having a si aificant impact on the F project schedule has occurred since the last request for a construction completion date extension. In May 1978, the laborers struck for 44 days. Since the trades did not participate in the strike, the job was not shut down. i f"'s However, the lack of laborer support required the layoff of certain trades. (,) Manpower levels did not return to pre-strika conditions until three months
- s l
l mi0781-0116a131 E-1 REVISION 2 - JULY 1981 l l L - - - - - ~
O after the strike began. As a result, the strike caused an estimated three-month delay in the overall schedule. Although the causes of delay discussed above result in a schedule extension of 33 months, an earlier study evaluated the potential impact of continued Unit I construction during the late phase of Unit 2 testing. Because of the interferences identified in this study, the security requirements, and the potential for major inefficiencies in both the Unit 1 construction completion effort and the Unit 2 startup test program, the Applicant decided to merge the Units 1 and 2 preoperational test program. As a result, specialized test equipment and trained personnel are retained on site to perform the various tests in a tandem fashion. This integrated test schedule reduces the overall construction duration for Unit 1 by seven months resulting in a five-month span between Unit 2 and Unit 1 fuel load dates rather than 12 months as previously planned. The seven month improvement in the Unit 1 fuel load date causes Unit 1 systems to be constructed in parallel with Unit 2 systems. This seven month shif t in the Unit 1 fuel load date provides a schedule improvement and increased confidence that the preoperational test program will proceed with minimum interferences between the two units. 2 CASELOAD FORECAST PANEL PROJECTIONS The current construction completion schedule was presented to the NRC caseload Forecast Panel at the Plant Site on July 29, 1980 and confirmed'in an / ~ August 22, 1980 letter from J W Cook to D G Eisenhut. A followup meeting in ( Bethesda, Maryland on August 22, 1980 resulted in projections from the Caseload Forecast Panel that, were about three months later than the completion dates shown in Figure E-1. These projections as well as the NRC's licensing schedule were discussed at an August 25, 1980 meeting between high level management from both the NRC and the Applicant. The minutes of this meeting, dated September 16, 1980, reflect the NRC's finding of reas;nable agreement with the applicant's projected construction conpletion schedule.
SUMMARY
The schedule delays described above are chiefly the result of factors outside the Applicant's control. As such, the Applicant believes that these factors constitute good cause showr. for extending the completion ds.tes for a reasonable period of time as contemplated by 10 CFR 50.55(M. OV mi0781-0116a131 E-2 REVISION 2 - JULY 1981
O O O TABLE E-1
SUMMARY
OF INCREASED BULK COMMODITY QUANTITIES l AND ASSOCIATED SCHEDULE DELAYS Forecast # 5 Current ("} Quantity Sustained (D) Schedule Current (#) March 1978 Forecast Increase Installation Rate Delay Status Conanodi ty (Lineal Feet) (Lineal Feet) (Lineal Feet) (Lineal Feet / Month) (Months) (% Complete) Large Pipe 261,000 277,000 16,000 6,500 2.5 96 Sea 11 Pipe 227,000 310,0f?c-83,000 6,900 12 75 Cable Tray 64,000 85,000 '2,000 2,100 10 100 i 4 Exposed Conduit 294,000 534,000 240,000 11,000 22 68 i l Wire & Cable 4,900,000 10,300,000 5,400,000 271,000 20 34 i 2 1 (* Adjusted Forecast #6, August 1980 ( 10% to 90% (c)As of June 1981 l mio781-0116b131 REVISION 2 - JULY 1981
l O O o l l FIGURE E-l CONSUMERS POWER COMPANY HIDLAND UNITS 112 i SCllEDULE GROWTH l 1 70% TIME NOW 7/81 WlRE CABLE l 1 PULLED 50% 70% UNIT 2 UNIT 2 UNIT 1, UNIT l l RESTART CIRCUlT SMALL PIPE COLD FUEL HOT g FUEL FORECAST 5 ENGR'S DESIGN INSTALLED HYDRO LOAD FUNCTIONAL LOAD { MARCil 78 E V Y V 1 Y f y g /80N ll/80 N 5/8 II/8)N j 2/73 11/78 g 7/79\\0/79 \\ 3 g l \\ N N N s! N N s g N I \\ N N N N N \\ N N g N N N I g N N s N N N N l \\ N N N sN N i I l \\ N N N sN N N N N8 NN N l \\ N \\ \\ Ng\\ N \\ s l \\ N N \\ ' \\s j i \\ N N I N N N s s N' s t l \\ N N N N N \\ N i ADJUSTED I \\ \\ !N N \\ N \\ N N g FORECAST 6 I y t h t 0 l AUGUST 80 7/79 l/81 11/81 10/82 5/83 7/83 12/83 I i I REVISION 2 - JULY 1981 m m.
O) 5v APPENDIX F TRADE AND NEWS PUBLICATIONS 1. Trade Publications Electric Light and Power Electrical World Engineering News-Record Nuclear Industry Power Public Utilities Fortnightly 2 Transmission and Distribution 2. News Publications County Publication Alcona Alcona County Review (Harrisville) Allegan Allegan County News-Gazette Alpena The Alpena News () Antrim Antrim County News (Bellaire) (,) Arenac Arecac County Indepec.?ent (Standish) Barry Hastings Banner Bay The Bay City Times Benzie Benzie Record-Banner (Beulah) Berrien The Herald-Palladium (Benton Harbor) The Daily Star (Niles) Branch Coldwater Daily Reporter Calhoun Battle Creek Enquirer and News Marshall Evening Chronicle. Cass Dowagiac Daily News Charlevoix Charlevoix County Press (Boyne City) Charlevoix Courier Cheboygan Cheboygan Daily Tribune Chippewa The Evening News (Sault Ste Marie) Clare Clare Sentinel Clinton Clinten County News (St Johns) Crawford Crawford County Avalanche (Grayling) Eaton Charlotte Republican-Tribune Emmet Petoskey News-Review The Harbor Light (Harbor Springs) Genessee The Flint Jvurnal Gladwin The Gladwin County Record & Beaverton Clarion (Gladwin) Grand Traverse The Traverse City Record-Eagle Gratiot Daily Record-Leader (Alma) Hillsdale The Hillsdale Daily News Houghton The Daily Mining Gazette (Houghton) ,j Huron Huron Daily Tribune (Bad Axe) Ingham The State Journal (Lansing) miO481-0015a131 1 REVISION 2 - JULY 1981 i
2. News Publications (Contd) County Publication Ionia Ionia Daily Sentinel-Standard Portland Independent Review and Observer Iosco Oscoda Press 2l Isabella The Morning Sun Jackson Jackson Citizen-Patriot Kalamazoo Kalamazoo Gazette Kalkaska Leader and Kalkaskian (Kalkaska) Kent The Grand Rapids Press Lowell Ledger-Suburban Life Lake Lake County Star (Bladwin) ~ Lapeer Lapeer County Press Leelenau The Leelenau Enterprise-Tribune Lenawee Adrian Daily Telegram Livingston Livingston County Press (Howell) Macomb Macomb Daily (Mt Clemens) Manistee The Manistee News Advocate Mason Ludington Daily News Mecosta The Pioneer (Big Rapids) Midland Midland Daily News Missaukee The Waterfront (Lake City) Monroe Monroe Evening News Montcalm The Daily News & Belding Banner (Greenville) Montmorency Montmorency County Tribune (Atlanta) Muskegon The Muskegon Chronicle Newaygo The Newaygo Sun Oakland The Oakland Press (Pontiac) Oceana Hart Journal Ogemaw Ogemaw County Herald (West Branch) Osceola Osceola County Herald (Reed City) Oscoda Oscoda County News (Mio) Otsego Otsego County Herald-Times (Gaylord) Ottawa Grand Haven Tribune The Holland Evening Sentinel Zeeland Record Presque Isle Presque Isle County Advance (Rogers City) Roscommon Roscommon Herald-News Saginaw The Saginaw News St Clair The Times Herald (Port Huron) St Joseph Sturgis Journal Three Rivers Commercial Shiawassee The Argus-Press (Owosso) Van Buren South Haven Daily Tribune l The Courier-Leader (Paw Paw) Washtenaw The Ann Arbor News The Chelsea Standard Wayne Detroit Free Press g The Detroit News i ( Wexford Cadillac Evening News x_ - i miO481-0015a131 2 REVISION 2 - JULY 1981 i}}