-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, htTqzcY0hpo7PzVz401SpoWO0hTcE1VyfaqztTFX5stfrmZgyM5372qkzckRa71G nvfnf/SlvnLaqnbY7JgNCQ== 0000201533-95-000059.txt : 19950516 0000201533-95-000059.hdr.sgml : 19950516 ACCESSION NUMBER: 0000201533-95-000059 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19950331 FILED AS OF DATE: 19950515 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CONSUMERS POWER CO CENTRAL INDEX KEY: 0000201533 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC & OTHER SERVICES COMBINED [4931] IRS NUMBER: 380442310 STATE OF INCORPORATION: MI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-05611 FILM NUMBER: 95539071 BUSINESS ADDRESS: STREET 1: 212 W MICHIGAN AVE CITY: JACKSON STATE: MI ZIP: 49201 BUSINESS PHONE: 5177881030 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CMS ENERGY CORP CENTRAL INDEX KEY: 0000811156 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC & OTHER SERVICES COMBINED [4931] IRS NUMBER: 382726431 STATE OF INCORPORATION: MI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-09513 FILM NUMBER: 95538971 BUSINESS ADDRESS: STREET 1: FAIRLANE PLZ SOUTH STE 1100 STREET 2: 330 TOWN CENTER DR CITY: DEARBORN STATE: MI ZIP: 48126 BUSINESS PHONE: 3134369261 MAIL ADDRESS: STREET 1: FAIRLANE PLAZA SOUTH, SUITE 1100 STREET 2: 330 TOWN CENTER DRIVE CITY: DEARBORN STATE: MI ZIP: 48126 10-Q 1 BODY OF 10-Q DOCUMENT FOR CMS ENERGY & CONSUMERS 1 FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1995 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission Registrant; State of Incorporation; IRS Employer File Number Address; and Telephone Number Identification No. 1-9513 CMS ENERGY CORPORATION 38-2726431 (A Michigan Corporation) Fairlane Plaza South, Suite 1100 330 Town Center Drive Dearborn, Michigan 48126 (313)436-9261 1-5611 CONSUMERS POWER COMPANY 38-0442310 (A Michigan Corporation) 212 West Michigan Avenue Jackson, Michigan 49201 (517)788-1030 Indicate by check mark whether the Registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: CMS Energy Corporation, $.01 par value, shares outstanding at April 30, 1995 - 87,972,540 Consumers Power Company, $10 par value, shares outstanding and privately held by CMS Energy Corporation at April 30, 1995 - 84,108,789 2 CMS Energy Corporation and Consumers Power Company Quarterly reports on Form 10-Q to the Securities and Exchange Commission for the Quarter Ended March 31, 1995 This combined Form 10-Q is separately filed by CMS Energy Corporation and Consumers Power Company. Information contained herein relating to each individual registrant is filed by such registrant on its own behalf. Accordingly, except for its subsidiaries, Consumers Power Company makes no representation as to information relating to any other companies affiliated with CMS Energy Corporation. TABLE OF CONTENTS Page Glossary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 PART I: CMS Energy Corporation Report of Independent Public Accountants. . . . . . . . . . . . 6 Consolidated Statements of Income . . . . . . . . . . . . . . . 7 Consolidated Statements of Cash Flows . . . . . . . . . . . . . 8 Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . 9 Consolidated Statements of Common Stockholders' Equity. . . . . 11 Condensed Notes to Consolidated Financial Statements. . . . . . 12 Management's Discussion and Analysis. . . . . . . . . . . . . . 21 Consumers Power Company Report of Independent Public Accountants. . . . . . . . . . . . 32 Consolidated Statements of Income . . . . . . . . . . . . . . . 33 Consolidated Statements of Cash Flows . . . . . . . . . . . . . 34 Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . 35 Consolidated Statements of Common Stockholder's Equity. . . . . 37 Condensed Notes to Consolidated Financial Statements. . . . . . 38 Management's Discussion and Analysis. . . . . . . . . . . . . . 46 PART II: Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . 55 Item 4. Submission of Matters to a Vote of Security Holders . 57 Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . 57 Signatures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 3 GLOSSARY Certain terms used in the text and financial statements are defined below. ABATE . . . . . . . . . . . . . . Association of Businesses Advocating Tariff Equity ALJ . . . . . . . . . . . . . . . Administrative Law Judge Antrim. . . . . . . . . . . . . . Antrim Limited Partnership Articles. . . . . . . . . . . . . Articles of Incorporation Attorney General. . . . . . . . . The Michigan Attorney General bcf . . . . . . . . . . . . . . . Billion cubic feet Class G Common Stock. . . . . . . One of two classes of common stock of CMS Energy Clean Air Act . . . . . . . . . . Federal Clean Air Act as amended on November 15, 1990 CMS Energy. . . . . . . . . . . . CMS Energy Corporation CMS Energy Common Stock . . . . . One of two classes of common stock of CMS Energy CMS Gas Transmission. . . . . . . CMS Gas Transmission and Storage Company, a subsidiary of Enterprises CMS Generation. . . . . . . . . . CMS Generation Co., a subsidiary of Enterprises CMS Holdings. . . . . . . . . . . CMS Midland Holdings Company, a subsidiary of Consumers CMS Midland . . . . . . . . . . . CMS Midland Inc., a subsidiary of Consumers CMS NOMECO. . . . . . . . . . . . CMS NOMECO Oil & Gas Co., a subsidiary of Enterprises Common Stock. . . . . . . . . . . Common Stock of CMS Energy, including CMS Energy Common Stock and Class G Common Stock Consumers . . . . . . . . . . . . Consumers Power Company, a subsidiary of CMS Energy Consumers Gas Group . . . . . . . The gas distribution, storage and transportation businesses currently conducted by Consumers and Michigan Gas Storage Court of Appeals. . . . . . . . . Michigan Court of Appeals Detroit Edison. . . . . . . . . . The Detroit Edison Company DNR . . . . . . . . . . . . . . . Michigan Department of Natural Resources DOE . . . . . . . . . . . . . . . U. S. Department of Energy DSM . . . . . . . . . . . . . . . Demand-side management Enterprises . . . . . . . . . . . CMS Enterprises Company, a subsidiary of CMS Energy Environmental Response Act. . . . Michigan Environmental Response Act FASB. . . . . . . . . . . . . . . Financial Accounting Standards Board FERC. . . . . . . . . . . . . . . Federal Energy Regulatory Commission FMLP. . . . . . . . . . . . . . . First Midland Limited Partnership GCR . . . . . . . . . . . . . . . Gas cost recovery HYDRA-CO. . . . . . . . . . . . . HYDRA-CO Enterprises, Inc., a subsidiary of CMS Generation and former independent power production subsidiary of Niagara Mohawk Power Corporation kWh . . . . . . . . . . . . . . . Kilowatt-hour Ludington . . . . . . . . . . . . Ludington pumped storage plant, jointly owned by Consumers and Detroit Edison MCV . . . . . . . . . . . . . . . Midland Cogeneration Venture MCV Bonds . . . . . . . . . . . . Collectively, senior secured lease obligation bonds and subordinated secured lease obligation bonds issued in connection with the leveraged-lease financing of the MCV Facility, and tax-exempt pollution control revenue bonds MCV Facility. . . . . . . . . . . A natural gas-fueled, combined cycle cogeneration facility operated by the MCV Partnership MCV Partnership . . . . . . . . . Midland Cogeneration Venture Limited Partnership MD&A. . . . . . . . . . . . . . . Management's Discussion and Analysis Michigan Gas Storage. . . . . . . Michigan Gas Storage Company, a subsidiary of Consumers MMBtu . . . . . . . . . . . . . . Million British thermal unit MMCG. . . . . . . . . . . . . . . Michigan Municipal Cooperative Group MOAPA . . . . . . . . . . . . . . MOAPA Energy Limited Partnership, a wholly owned affiliate of CMS Generation MPSC. . . . . . . . . . . . . . . Michigan Public Service Commission MW. . . . . . . . . . . . . . . . Megawatts NEPA. . . . . . . . . . . . . . . National Environmental Response Act NOPR. . . . . . . . . . . . . . . Notice of proposed rulemaking NRC . . . . . . . . . . . . . . . Nuclear Regulatory Commission O&M . . . . . . . . . . . . . . . Other operation and maintenance expense Owner Participants. . . . . . . . Lessors of the MCV Facility Palisades . . . . . . . . . . . . Palisades nuclear plant, owned by Consumers PPA . . . . . . . . . . . . . . . The Power Purchase Agreement between Consumers and the MCV Partnership with a 35-year term commencing in March 1990 Preferred Stock . . . . . . . . . CMS Energy preferred stock PSCR. . . . . . . . . . . . . . . Power supply cost recovery PUHCA . . . . . . . . . . . . . . Public Utility Holding Company Act of 1935 SEC . . . . . . . . . . . . . . . Securities and Exchange Commission Settlement Order. . . . . . . . . MPSC Order issued March 31, 1993 in MPSC Case Nos. U-10127, U-8871 and others, and the rehearing order issued May 26, 1993 SFAS. . . . . . . . . . . . . . . Statement of Financial Accounting Standards Superfund . . . . . . . . . . . . Comprehensive Environmental Response, Compensation and Liability Act Walter. . . . . . . . . . . . . . Walter International, Inc., a Texas corporation (This page intentionally left blank) 6 ARTHUR ANDERSEN LLP Report of Independent Public Accountants To CMS Energy Corporation: We have reviewed the accompanying consolidated balance sheets of CMS ENERGY CORPORATION (a Michigan corporation) and subsidiaries as of March 31, 1995 and 1994, and the related consolidated statements of income, common stockholders' equity and cash flows for the three-month and twelve-month periods then ended. These financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the financial statements referred to above for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet and consolidated statements of long-term debt and preferred stock of CMS Energy Corporation and subsidiaries as of December 31, 1994, and the related consolidated statements of income, common stockholders' equity and cash flows for the year then ended (not presented herein), and, in our report dated January 31, 1995 (except with respect to certain matters discussed in Notes 2, 3, 7 and 13 to the consolidated financial statements as to which the date is March 1, 1995), we expressed an unqualified opinion on those statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 1994, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived. Arthur Andersen LLP Detroit, Michigan, May 8, 1995. 7 CMS Energy Corporation Consolidated Statements of Income (Unaudited)
Three Months Ended Twelve Months Ended March 31 March 31 1995 1994 1995 1994 In Millions, Except Per Share Amounts OPERATING REVENUE Electric utility $ 540 $ 545 $2,185 $2,132 Gas utility 482 528 1,105 1,194 Oil and gas exploration and production 34 18 101 76 Independent power production 23 8 60 24 Natural gas transmission, storage and marketing 38 42 140 148 Other 2 1 6 4 ----------------------------------------------- Total operating revenue 1,119 1,142 3,597 3,578 ----------------------------------------------- OPERATING EXPENSES Operation Fuel for electric generation 67 79 294 303 Purchased power - related parties 124 122 484 481 Purchased and interchange power 36 42 156 165 Cost of gas sold 308 372 721 824 Other 162 144 643 591 ----------------------------------------------- Total operation 697 759 2,298 2,364 Maintenance 46 43 194 205 Depreciation, depletion and amortization 114 103 390 368 General taxes 56 62 178 195 ----------------------------------------------- Total operating expenses 913 967 3,060 3,132 ----------------------------------------------- PRETAX OPERATING INCOME (LOSS) Electric utility 87 88 333 293 Gas utility 91 84 143 158 Oil and gas exploration and production 15 2 22 1 Independent power production 13 2 31 5 Natural gas transmission, storage and marketing 3 3 9 8 Other (3) (4) (1) (19) ----------------------------------------------- Total pretax operating income 206 175 537 446 ----------------------------------------------- INCOME TAXES 54 47 111 86 ----------------------------------------------- NET OPERATING INCOME 152 128 426 360 ----------------------------------------------- OTHER INCOME (DEDUCTIONS) Accretion income 3 3 12 14 Accretion expense (8) (9) (34) (37) Other income taxes, net 1 2 11 4 MCV Bond income - - - 24 Other, net 5 5 17 22 ----------------------------------------------- Total other income 1 1 6 27 ----------------------------------------------- FIXED CHARGES Interest on long-term debt 56 46 203 199 Other interest 5 3 20 21 Capitalized interest (1) (1) (6) (5) Preferred dividends 7 3 28 11 ----------------------------------------------- Net fixed charges 67 51 245 226 ----------------------------------------------- NET INCOME $ 86 $ 78 $ 187 $ 161 =============================================== AVERAGE COMMON SHARES OUTSTANDING 87 85 86 83 =============================================== EARNINGS PER AVERAGE COMMON SHARE $ .99 $ .92 $ 2.17 $ 1.95 =============================================== DIVIDENDS DECLARED PER COMMON SHARE $ .21 $ .18 $ .81 $ .66 =============================================== THE ACCOMPANYING CONDENSED NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS. /TABLE 8 CMS Energy Corporation Consolidated Statements of Cash Flows (Unaudited)
Three Months Ended Twelve Months Ended March 31 March 31 1995 1994 1995 1994 In Millions CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 86 $ 78 $ 187 $ 161 Adjustments to reconcile net income to net cash provided by operating activities Depreciation, depletion and amortization (includes nuclear decommissioning depreciation of $13, $12, $49 and $47, respectively) 114 103 390 368 Capital lease and other amortization 10 17 30 38 Debt discount amortization 8 9 36 36 Deferred income taxes and investment tax credit 29 17 68 52 Accretion expense 8 9 34 37 Accretion income - abandoned Midland project (3) (3) (12) (14) MCV power purchases - settlement (Note 2) (37) (22) (102) (78) Other (12) (7) (29) (11) Changes in other assets and liabilities 103 184 (69) (72) ------ ------ ------ ------ Net cash provided by operating activities 306 385 533 517 ------ ------ ------ ------ CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures (excludes assets placed under capital lease) (287) (114) (748) (564) Investments in nuclear decommissioning trust funds (13) (12) (49) (47) Investments in partnerships and unconsolidated subsidiaries (11) (23) (41) (131) Cost to retire property, net (9) (7) (41) (33) Deferred demand-side management costs (2) - (11) (39) Proceeds from sale of property - - 20 1 Proceeds from MCV Bonds - - - 322 Sale of subsidiary - - - (14) Other (4) - (9) (5) ------ ------ ------ ------ Net cash used in investing activities (326) (156) (879) (510) ------ ------ ------ ------ CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from bank loans, notes and bonds 208 39 869 662 Issuance of common stock 33 13 50 145 Issuance of preferred stock - 193 - 193 Increase (decrease) in notes payable, net (204) (259) 135 (21) Payment of common stock dividends (18) (15) (70) (54) Retirement of bonds and other long-term debt (11) (109) (181) (703) Payment of capital lease obligations (10) (16) (29) (34) Repayment of bank loans (9) (54) (427) (246) Retirement of common stock - (1) (1) (4) ------ ------ ------ ------ Net cash provided by (used in) financing activities (11) (209) 346 (62) ------ ------ ------ ------ NET INCREASE (DECREASE) IN CASH AND TEMPORARY CASH INVESTMENTS (31) 20 - (55) CASH AND TEMPORARY CASH INVESTMENTS, BEGINNING OF PERIOD 79 28 48 103 ------ ------ ------ ------ CASH AND TEMPORARY CASH INVESTMENTS, END OF PERIOD $ 48 $ 48 $ 48 $ 48 ====== ====== ====== ====== THE ACCOMPANYING CONDENSED NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
9 CMS Energy Corporation Consolidated Balance Sheets
March 31 March 31 1995 December 31 1994 (Unaudited) 1994 (Unaudited) In Millions ASSETS PLANT AND PROPERTY (At Cost) Electric $5,826 $5,771 $5,539 Gas 2,115 2,102 1,992 Oil and gas properties (full-cost method) 978 934 858 Other 55 61 70 ----------------------------------- 8,974 8,868 8,459 Less accumulated depreciation, depletion and amortization 4,405 4,299 4,105 ----------------------------------- 4,569 4,569 4,354 Construction work-in-progress 257 245 248 ----------------------------------- 4,826 4,814 4,602 ----------------------------------- INVESTMENTS Independent power production 262 152 118 First Midland Limited Partnership (Note 2) 219 218 214 Midland Cogeneration Venture Limited Partnership (Note 2) 83 74 67 Other 57 56 43 ----------------------------------- 621 500 442 ----------------------------------- CURRENT ASSETS Cash and temporary cash investments at cost, which approximates market 48 79 48 Accounts receivable and accrued revenue, less allowances of $4, $5 and $4, respectively (Note 7) 149 156 129 Inventories at average cost Gas in underground storage 80 235 62 Materials and supplies 79 75 78 Generating plant fuel stock 27 37 22 Deferred income taxes 37 34 13 Trunkline settlement 30 30 30 Prepayments and other 148 186 169 ----------------------------------- 598 832 551 ----------------------------------- NON-CURRENT ASSETS Postretirement benefits 479 484 498 Nuclear decommissioning trust funds 236 213 179 Abandoned Midland project (Note 3) 143 147 158 Trunkline settlement 48 55 78 Other 393 339 317 ----------------------------------- 1,299 1,238 1,230 ----------------------------------- TOTAL ASSETS $7,344 $7,384 $6,825 ===================================
10
March 31 March 31 1995 December 31 1994 (Unaudited) 1994 (Unaudited) In Millions STOCKHOLDERS' INVESTMENT AND LIABILITIES CAPITALIZATION (Note 7) Common stockholders' equity $1,209 $1,107 $1,042 Preferred stock of subsidiary 356 356 356 Long-term debt 2,787 2,709 2,376 Non-current portion of capital leases 103 108 122 ----------------------------------- 4,455 4,280 3,896 ----------------------------------- CURRENT LIABILITIES Current portion of long-term debt and capital leases 180 64 284 Accrued taxes 172 216 182 Accounts payable 160 194 153 Notes payable 135 339 - MCV power purchases - settlement (Note 2) 95 95 82 Accounts payable - related parties 54 50 49 Accrued refunds 35 25 33 Accrued interest 30 40 26 Other 166 198 172 ----------------------------------- 1,027 1,221 981 ----------------------------------- NON-CURRENT LIABILITIES Deferred income taxes 604 582 518 Postretirement benefits 555 550 557 MCV power purchases - settlement (Note 2) 295 324 378 Deferred investment tax credits 178 181 188 Trunkline settlement 48 55 78 Regulatory liabilities for income taxes, net 29 16 13 Other 153 175 216 ----------------------------------- 1,862 1,883 1,948 ----------------------------------- COMMITMENTS AND CONTINGENCIES (Notes 2, 3, 4 and 5) TOTAL STOCKHOLDERS' INVESTMENT AND LIABILITIES $7,344 $7,384 $6,825 =================================== THE ACCOMPANYING CONDENSED NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
11 CMS Energy Corporation Consolidated Statements of Common Stockholders' Equity (Unaudited)
Three Months Ended Twelve Months Ended March 31 March 31 1995 1994 1995 1994 In Millions COMMON STOCK At beginning and end of period $ 1 $ 1 $ 1 $ 1 ------- ------- ------- ------- OTHER PAID-IN CAPITAL At beginning of period 1,701 1,672 1,684 1,539 Common stock reacquired - (1) (1) (4) Common stock issued 33 13 50 145 Common stock reissued - - 1 4 ------- ------- ------- ------- At end of period 1,734 1,684 1,734 1,684 ------- ------- ------- ------- REVALUATION CAPITAL At beginning of period - - 1 - SFAS 115 - unrealized gain, net of tax 1 1 - 1 ------- ------- ------- ------- At end of period 1 1 1 1 ------- ------- ------- ------- RETAINED EARNINGS (DEFICIT) At beginning of period (595) (707) (644) (751) Net income 86 78 187 161 Common stock dividends declared (18) (15) (70) (54) ------- ------- ------- ------- At end of period (527) (644) (527) (644) ------- ------- ------- ------- TOTAL COMMON STOCKHOLDERS' EQUITY $1,209 $1,042 $1,209 $1,042 ======= ======= ======= ======= THE ACCOMPANYING CONDENSED NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
12 CMS Energy Corporation Condensed Notes to Consolidated Financial Statements These financial statements and their related condensed notes should be read along with the consolidated financial statements and notes contained in the 1994 Form 10-K of CMS Energy Corporation that includes the Report of Independent Public Accountants. In the opinion of management, the unaudited information herein reflects all adjustments necessary to assure the fair presentation of financial position, results of operations and cash flows for the periods presented. 1: Corporate Structure and Basis of Presentation CMS Energy is the parent holding company of Consumers and Enterprises. Consumers, a combination electric and gas utility company serving the Lower Peninsula of Michigan, is the principal subsidiary of CMS Energy. Consumers' customer base includes a mix of residential, commercial and diversified industrial customers, the largest of which is the automotive industry. Enterprises is engaged in several domestic and international energy-related businesses including: 1) oil and gas exploration and production, 2) development and operation of independent power production facilities, 3) gas marketing services to utility, commercial and industrial customers, and 4) storage and transmission of natural gas. CMS Energy uses the equity method of accounting for investments in its companies and partnerships where it has more than a 20 percent but less than a majority ownership interest and includes these results in operating income. For the 3 and 12 month periods ended March 31, 1995, equity earnings were $14 million and $42 million, respectively and $6 million and $17 million for the three and 12 month periods ended March 31, 1994. 2: The Midland Cogeneration Venture The MCV Partnership, which leases and operates the MCV Facility, contracted to sell electricity to Consumers for a 35-year period beginning in 1990 and to supply electricity and steam to The Dow Chemical Company. At March 31, 1995, Consumers, through its subsidiaries, held the following assets related to the MCV: 1) CMS Midland owned a 49 percent general partnership interest in the MCV Partnership; and 2) CMS Holdings held through the FMLP a 35 percent lessor interest in the MCV Facility. Power Purchases from the MCV Partnership: Consumers' obligation for purchase of contract capacity from the MCV Partnership under the PPA increased to its maximum amount of 1,240 MW in 1995. In 1993, the MPSC issued the Settlement Order that has allowed Consumers to recover substantially all of the payments for its ongoing purchase of 915 MW of contract capacity. Capacity and energy purchases from the MCV Partnership above the 915 MW level can be utilized to satisfy customers' power needs but the MPSC would determine the levels of recovery from retail customers at a later date. The Settlement Order also provides Consumers the right to remarket to third parties the remaining contract capacity. At the request of the MPSC, the MCV Partnership confirmed that it did not object to the Settlement Order. ABATE and the Attorney General have appealed the Settlement Order to the Court of Appeals. The PPA provides that Consumers is to pay the MCV Partnership a minimum levelized average capacity charge of 3.77 cents per kWh, a fixed energy charge and a variable energy charge which is based primarily on Consumers' average cost of coal consumed. The Settlement Order permits Consumers to recover capacity charges averaging 3.62 cents per kWh for 915 MW of capacity and the prescribed energy charges associated with the scheduled deliveries within certain hourly availability limits, whether or not those deliveries are scheduled on an economic basis. For all economic energy deliveries above the availability limits to 915 MW, Consumers is allowed to recover 1/2 cent per kWh capacity payment in addition to the variable energy charge. In 1992, Consumers recognized a loss for the present value of the estimated future underrecoveries of power costs under the PPA as a result of the Settlement Order. This loss was based, in part, on management's assessment of the future availability of the MCV Facility, and the effect of the future power market on the amount, timing and price at which various increments of the capacity, above the MPSC authorized level, could be resold. Additional losses may occur if actual future experience materially differs from the 1992 estimates. As anticipated in 1992, Consumers continues to experience cash underrecoveries associated with the Settlement Order. These after-tax cash underrecoveries were $24 million for the three months ended March 31, 1995. If Consumers is unable to sell any capacity above the current MPSC-authorized level, future additional after-tax losses and after-tax cash underrecoveries would be incurred. Consumers' estimates of its future after-tax cash underrecoveries, and possible losses for 1995 and the next four years if none of the additional capacity is sold, are shown in the table below. After-tax, In Millions 1995 1996 1997 1998 1999 ---- ---- ---- ---- ---- Expected cash underrecoveries $60 $56 $55 $ 8 $ 9 Possible additional underrecoveries and losses (a) $20 $20 $22 $72 $72 (a) If unable to sell any capacity above the MPSC's authorized level. At March 31, 1995 and December 31, 1994, the after-tax present value of the Settlement Order liability totaled $253 million and $272 million, respectively. The reduction in the liability reflects after-tax cash underrecoveries of $24 million, partially offset by after-tax accretion expense of $5 million. The undiscounted after-tax amount associated with the liability totaled $653 million at March 31, 1995. In 1994, Consumers was notified by the MCV Partnership that it was initiating arbitration proceedings under the PPA to determine whether the energy charge paid to the MCV Partnership is being properly calculated. The amount in dispute, which relates to the period beginning in 1990 and continuing through the term of the PPA, has been estimated by the MCV Partnership to total $6 million annually. An arbitrator has been selected, arbitration hearings have commenced and a ruling is expected in the third quarter of 1995. Consumers believes that its calculation of the energy charge is correct but cannot predict the outcome of this arbitration. In 1994, Consumers paid $30 million to terminate a power purchase agreement with a 65 MW coal-fired cogeneration facility. Additionally, in February 1995, Consumers agreed to pay $15 million to terminate a power purchase agreement with a 44 MW wood and chipped-tire facility. Consumers plans to seek MPSC approval to substitute less expensive contract capacity from the MCV Facility which Consumers is currently not authorized to recover from retail customers. This proposed substitution of capacity would start in late 1996, the year the coal-fired cogeneration facility was scheduled to begin operations. The capacity substitution represents significant savings to Consumers' customers, compared to the cost approved by the MPSC for similar facilities. As a result, Consumers has recorded a regulatory asset of $45 million, which it believes will ultimately be recoverable in rates. In April 1995, an ALJ issued a proposal for decision related to the 1995 PSCR case that agreed with objections, raised by certain parties, as to the inclusion of the 65 MW of capacity substitution as part of the five year forecast included in plan cases. Although recovery of the costs relating to the substitution is not being requested in this case, the ALJ concluded that additional capacity should be competitively bid and recommended that the MPSC state in its order that cost recovery for substituting capacity absent a competitive bid is unlikely to be approved. MCV-related PSCR Matters: Consistent with the terms of the 1993 Settlement Order, Consumers withdrew its appeals of various MPSC orders issued in connection with several PSCR cases. The MPSC also confirmed the recovery of MCV-related costs consistent with the Settlement Order as part of the 1993 and 1994 plan case orders. ABATE or the Attorney General has appealed these plan case orders to the Court of Appeals. 3: Rate Matters Electric Rate Case: In mid-1994, the MPSC granted Consumers a $58 million annual increase in its retail electric rates. In late 1994, Consumers filed a request with the MPSC which could increase its retail electric rates in a range from $104 million to $140 million, depending upon the ratemaking treatment afforded sales losses to competition and the treatment of the MCV contract capacity above 915 MW. The request includes a proposed increase in Consumers' authorized rate of return on equity to 13 percent from the current 11.75 percent, recognition of increased expenditures related to continuing construction activities and capital additions aimed at maintaining and improving system reliability and increases in financing costs. Consumers requested that the MPSC eliminate the remaining subsidization of residential rates in a two-step adjustment, eliminate all DSM expenditures after April 1995 and allow recovery of all jurisdictional costs associated with the proposed settlement of the proceedings concerning the operation of Ludington (see Note 4). In response to Consumers' requested rate increase, the MPSC staff initially recommended a final annual increase of $45 million to Consumers' base rates, as well as suggested several options for cost recovery of 325 MW of MCV capacity. However, on motions filed by ABATE and the Attorney General, an ALJ struck portions of the MPSC staff's testimony relating to the cost of this capacity and the MPSC staff subsequently withdrew several other portions of its testimony. As a result, the MPSC staff's recommendations do not currently include a rate design. The MPSC staff recommendations remaining in the case proposed a different sales forecast than Consumers, as well as a 12 percent return on common equity and a lower equity ratio than that included in Consumers' proposed capital structure. In May 1995, the MPSC affirmed the ALJ's decision to strike the MPSC staff's testimony and stated that the remaining 325 MW of MCV capacity will be considered only as part of a competitive capacity solicitation, and not as part of the electric rate case. Consumers also has a separate request before the MPSC to offer competitive special rates to certain large qualifying customers (see Special Rates discussion in the MD&A). In January 1995, Consumers filed a request with the MPSC, seeking to adjust its depreciation rates and to reallocate certain portions of its electric production plant to transmission accounts, which if approved would result in a net decrease in depreciation expense of $7 million for ratemaking purposes. In April 1995, the MPSC staff filed its testimony in this proceeding. For further information, see Electric Rate Case discussion in the MD&A. Abandoned Midland Project: In 1991, the MPSC ordered partial recovery of the abandoned Midland project and Consumers began collecting $35 million pretax annually for the next 10 years. In December 1994, the Court of Appeals upheld the MPSC orders allowing recovery of the abandoned investment. Consumers, ABATE and the Attorney General have filed applications for leave to appeal this decision with the Michigan Supreme Court, where the matter is pending. Management cannot predict the outcome of this issue. Electric DSM: In 1994, as part of Consumers' electric rate case, the MPSC authorized Consumers to continue certain DSM programs ($30 million annually) in 1994 through 1996. Consumers is deferring program costs and amortizing the costs over the period these costs are being recovered from customers in accordance with an MPSC accounting order. The unamortized balance of deferred costs totaled $70 million at March 31, 1995. During 1994, Consumers recognized $11 million in incentive revenue related to an earlier DSM program approved by the MPSC. In April 1995, a proposal for decision issued by the ALJ conducting the proceedings recommended that Consumers be awarded the full $11 million incentive and that Consumers' current DSM programs continue through 1996. A final order, authorizing Consumers to collect the $11 million incentive, is expected by mid-1995. PSCR Issues: In February 1995, the MPSC issued a final order in the 1993 PSCR reconciliation proceeding that addressed the extended refueling and maintenance outage at Palisades in 1993. The order disallowed $4 million of replacement power costs. Consumers accrued a loss for this issue in 1994. Gas Rates: In 1994, the MPSC approved an agreement previously reached between the MPSC staff and Consumers, to charge $10 million of costs for postretirement benefits against 1994 earnings. The agreement was reached in response to a claim that gas utility business earnings for 1993 were excessive. This charge against earnings partially offsets savings related to reduced state property taxes. The agreement also provides for an additional $4 million of postretirement benefit costs to be charged against 1995 earnings instead of being deferred. As part of the agreement, Consumers filed a gas rate case in December 1994. Consumers requested an increase in its gas rates of $21 million annually. The request, among other things, incorporates cost increases, including costs for postretirement benefits and costs related to Consumers' former manufactured gas plant sites. Consumers requested that the MPSC authorize a 13 percent rate of return on equity, instead of the currently authorized rate of 13.25 percent. Consumers expects an MPSC decision in early 1996. GCR Issues: In 1993, the MPSC provided that the price payable to certain intrastate gas producers by Consumers be reduced. As a result, Consumers was not allowed to recover $13 million of costs. Consumers accrued a loss prior to 1993 in excess of the disallowed amount. In March 1995, management concluded that the intrastate producers' pending appeals of the MPSC order would not be successful and accordingly reversed $23 million (pretax), which represented the portion of the loss in excess of the disallowed amount. In April 1995, an ALJ issued a proposal for decision in a proceeding that had been initiated by Consumers regarding a gas supply contract pricing dispute with certain intrastate producers. The ALJ agreed with Consumers that certain market based pricing provisions should, on a prospective basis, limit the price paid by Consumers under the three agreements at issue. The ALJ also found that the market based pricing provision required specific MPSC approval before Consumers could apply those prices to purchases under the agreements and found that such approval had not previously been given. Consumers does not agree with the ALJ's findings and conclusions on this point and will file exceptions to the proposal for decision for the MPSC's consideration. If the MPSC issues an order adopting the recommendations of the ALJ, the market based provisions upon which Consumers had paid for gas purchased under these agreements will not be effective prior to such an MPSC order. If the producers pursue a court action for amounts owed for previously purchased gas, Consumers could be liable for as much as $44 million (excluding any interest) under the producers' theories. Consumers cannot predict the outcome of this issue. Estimated losses for certain contingencies discussed in this note have been accrued. Resolution of these contingencies is not expected to have a material impact on Consumers' financial position or results of operations. 4: Commitments and Contingencies Ludington Pumped Storage Plant: In 1994, Consumers, Detroit Edison, the Attorney General, the DNR and certain other parties signed an agreement in principle designed to resolve all legal issues associated with fish mortality at Ludington. The proposed settlement allows for continued operation of the plant through the end of its FERC license. Upon approval of the settlement agreement, Consumers will transfer land (with an original cost of $9 million and a fair market value in excess of $20 million) to the state of Michigan and the Great Lakes Fishery Trust, make an initial payment of approximately $3 million and incur approximately $1 million of expenditures related to recreational improvements. Future annual payments of approximately $1 million are also anticipated over the next 24 years and are intended to enhance the fishery resources of the Great Lakes. The definitive settlement documents have been completed and were filed with the appropriate Michigan courts and state and federal agencies. The agreement is subject to the MPSC permitting Consumers to recover all such settlement costs from electric customers, and approval by the FERC. The proposed settlement would resolve two lawsuits filed by the Attorney General in 1986 and 1987 on behalf of the State of Michigan. In one, the state sought $148 million (including $16 million of interest) for past injuries and $89,000 per day for future injuries, reduced only upon installation of "adequate" fish barriers and other changed conditions. Each year, a barrier net would continue to be installed at Ludington from April to October. In the other lawsuit, the Attorney General sought to have Ludington's bottomlands lease declared void. Environmental Matters: Consumers is a so-called "Potentially Responsible Party" at several sites being administered under Superfund. Although Superfund liability is joint and several, along with Consumers, there are numerous credit-worthy, potentially responsible parties with substantial assets cooperating with respect to the individual sites. Based upon past negotiations, Consumers estimates its total liability will average less than 4 percent of the estimated total site remediation costs, and such liability is expected to be less than $9 million. At March 31, 1995, Consumers has accrued a liability for its estimated losses. Consumers and CMS Energy believe that it is unlikely that its liability at any of the known Superfund sites, individually or in total, will have a material adverse effect on its financial position or results of operations. Under Michigan's Environmental Response Act, Consumers expects that it will ultimately incur investigation and remedial action costs at a number of sites, including some of the 23 sites that formerly housed manufactured gas plant facilities, even those in which it has a partial or no current ownership interest. Parties other than Consumers with current or former ownership interests may also be considered liable for site investigations and remedial actions. There is limited knowledge of manufactured gas plant contamination at these sites at this time. Consumers has prepared plans for remedial investigation/feasibility studies for several sites and the DNR has approved three of four plans submitted by Consumers. The findings for the first remedial investigation indicate that the expenditures for remedial action at this site are likely to be minimal. However, Consumers does not believe that a single site is representative of all of the sites. Data available to Consumers and its continued internal review have resulted in an estimate for all costs related to investigation and remedial action for all 23 sites of between $48 million and $112 million. These estimates are based on undiscounted 1994 costs. At March 31, 1995, Consumers has accrued a liability of $48 million and has established a regulatory asset for approximately the same amount. Any significant change in assumptions such as remediation technique, nature and extent of contamination and regulatory requirements, could impact the estimate of remedial action costs for the sites. Consumers requested recovery and deferral of certain investigation and remedial action costs in its gas rate case filed in 1994. Consumers and CMS Energy believe that remedial action costs are recoverable in rates as the MPSC in 1993 addressed the question of recovery of investigation and remedial action costs for another Michigan gas utility as part of a gas rate case. In order to be recoverable in rates, prudent costs must be approved in a rate case. Any costs amortized in years prior to filing a rate case may not be recoverable. The MPSC has approved similar deferred accounting requests by several other Michigan utilities relative to investigation and remedial action costs. Consumers has initiated discussions with certain insurance companies regarding coverage for some or all of the costs which may be incurred for these sites. The federal Clean Air Act contains provisions that limit emissions of sulfur dioxide and nitrogen oxides and require enhanced emissions monitoring. Consumers' coal-fueled electric generating units burn low- sulfur coal and are presently operating at or near the sulfur dioxide emission limits which will be effective in the year 2000. The Clean Air Act's provisions required Consumers to make capital expenditures totaling $25 million to install equipment at certain generating units. Consumers estimates capital expenditures for in-process and possible modifications at other coal-fired units to be an additional $50 million by the year 2000. Final acid rain program nitrogen oxide regulations specifying the controls to be installed at the other coal-fired units are not expected earlier than 1996. Management believes that Consumers' annual operating costs will not be materially affected. Capital Expenditures: CMS Energy estimated capital expenditures, including investments in unconsolidated subsidiaries, DSM and new lease commitments, of $932 million for 1995, $623 million for 1996 and $578 million for 1997. Capital expenditures for 1995 include approximately $201 million for acquisitions which commenced in 1994 but did not close until 1995. Public Utility Holding Company Act Exemption: CMS Energy is exempt from registration under PUHCA. However, in 1991, the Attorney General and the MMCG asked the SEC to revoke this exemption. In 1992, the MPSC filed a statement with the SEC recommending that CMS Energy's current exemption be revoked and a new exemption be issued conditioned upon certain reporting and operating requirements. If CMS Energy were to lose its current exemption, it would become more heavily regulated by the SEC; Consumers could ultimately be forced to divest either its electric or gas utility business; and CMS Energy could be restricted from conducting businesses that are not functionally related to the conduct of its utility business as determined by the SEC. CMS Energy is opposing this request and believes it will maintain its current exemption from registration under PUHCA. The SEC has not taken action on this matter. Other: Consumers has experienced a number of lawsuits filed against it relating to so-called stray voltage. Claimants contend that stray voltage results when small electrical currents present in grounded electrical systems are diverted from their intended path. Consumers maintains a policy of investigating all customer calls regarding stray voltage and working with customers to address their concerns including, when necessary, modifying the grounding of the customer's service. At March 31, 1995, Consumers had 73 separate stray voltage lawsuits pending. In addition to the matters disclosed in these notes, Consumers and certain other subsidiaries of CMS Energy are parties to certain lawsuits and administrative proceedings before various courts and governmental agencies, arising from the ordinary course of business involving personal injury and property damage, contractual matters, environmental issues, federal and state taxes, rates, licensing and other matters. Estimated losses for certain contingencies discussed in this note have been accrued. Resolution of these contingencies is not expected to have a material impact on CMS Energy's financial position or results of operations. 5: Nuclear Matters In 1993, the NRC approved the design of the spent fuel dry storage casks now being used by Consumers at Palisades. Subsequently, the Attorney General and certain other parties attempted to block Consumers' use of the storage casks, alleging that the NRC had failed to comply adequately with the procedural requirements of the Atomic Energy Act and the National Environmental Policy Act. In January 1995, the U.S. Sixth Circuit Court of Appeals rejected these allegations and upheld the NRC's rulemaking action. The court found that the NRC's environmental assessment satisfied National Environmental Policy Act requirements, and that a site-specific environmental analysis concerning the use and operation of the storage casks at Palisades was not required. The Attorney General and other parties have asked the U.S. Supreme Court for leave to appeal this decision. As of April 30, 1995, Consumers had loaded 13 dry storage casks with spent nuclear fuel at Palisades. In the latter part of 1995, Consumers plans to unload and replace one of the loaded casks. In a review of the cask manufacturer's quality assurance program, Consumers detected indications of minor flaws in welds in the steel liner of one of the loaded casks. Although testing has not disclosed any leakage, Consumers has nevertheless decided to remove the spent fuel and insert it in another cask. Consumers has examined radiographs for all of its casks and has found all other welds acceptable. In order to address concerns raised subsequent to the initial cask loading, Consumers and the NRC each analyzed the effects of seismic and other natural hazards on the support pad on which the casks are placed, and validated that the pad location is acceptable to support the casks. The Low-Level Radioactive Waste Policy Act encourages the respective states, individually or in cooperation with each other, to be responsible for the disposal of low-level radioactive waste. Currently, a low-level waste site does not exist in Michigan, and no other states' repositories are available to Michigan generators of such waste. Consumers stores low- level waste at its nuclear plant sites and plans to continue to do so following final shutdown of the plants, if necessary, until a permanent storage site is provided. Consumers currently estimates that a permanent low-level radioactive waste disposal site will be available by the year 2027. Consumers maintains insurance coverage against property damage, debris removal, personal injury liability and other risks that are present at its nuclear generating facilities. This insurance includes coverage for replacement power costs for the major portion of prolonged accidental outages for 12 months after a 21 week exclusion with reduced coverage to approximately 80 percent for two additional years. If certain loss events occur at its own or other nuclear plants similarly insured, Consumers could be required to pay maximum assessments of: $33 million in any one year to NML and NEIL; $79 million per event under the nuclear liability secondary financial protection program, limited to $10 million per event in any one year; and $6 million in the event of nuclear workers claiming bodily injury from radiation exposure. Consumers considers the possibility of these assessments to be remote. As an NRC licensee, Consumers is required to make certain calculations and report to the NRC about the continuing ability of the Palisades reactor vessel to withstand postulated "pressurized thermal shock" events during its remaining license life, in light of the embrittlement of reactor vessel materials over time due to operation in a radioactive environment. Analysis of recent data from testing of similar materials indicates that the Palisades reactor vessel can be safely operated through late 1999. In April 1995, Consumers received a Safety Evaluation Report from the NRC concurring with this evaluation and requesting submittal in 1996 of an action plan to provide for operation of the plant beyond 1999. Consumers is continuing to analyze alternative means to permit continued operation of Palisades to the end of its license life in the year 2007. It is currently estimated that expenditures for corrective action related to this issue could total $20 million to $30 million. Consumers cannot predict the outcome of these efforts. 6: Supplemental Cash Flow Information For purposes of the Statement of Cash Flows, all highly liquid investments with an original maturity of three months or less are considered cash equivalents. Other cash flow activities and non-cash investing and financing activities for the periods ended March 31 were: In Millions Three Months Ended Twelve Months Ended 1995 1994 1995 1994 ---- ---- ---- ---- Cash transactions Interest paid (net of amounts capitalized) $ 60 $ 52 $170 $181 Income taxes paid (net of refunds) - - 39 14 Non-cash transactions Nuclear fuel placed under capital lease $ 7 $ 2 $ 25 $ 30 Other assets placed under capital leases 2 1 15 19 Assumption of debt 12 - - - 7: Capitalization and Other CMS Energy On March 21, 1995, CMS Energy received shareholders' approval to amend its Articles of Incorporation and authorize a new class of Common Stock of CMS Energy. This new class of Common Stock, designated Class G Common Stock, is intended to reflect the separate performance of the gas distribution, storage and transportation businesses currently conducted by Consumers and Michigan Gas Storage (such businesses, collectively, will be attributed to the "Consumers Gas Group"). The existing CMS Energy Common Stock will continue to be outstanding and is intended to reflect the performance of all of the businesses of CMS Energy and its subsidiaries, including the business of the Consumers Gas Group, except for the interest in the Consumers Gas Group attributable to the outstanding shares of the Class G Common Stock. The Articles of Incorporation currently permit CMS Energy to issue up to 250 million shares of common stock at $.01 par value and up to 5 million shares of preferred stock at $.01 par value. If the Certificate of Amendment approved on March 21, 1995 is filed, the number of authorized shares of capital stock would increase from 255 million shares to 320 million shares consisting of 250 million shares of CMS Energy Common Stock, par value $.01 per share, 60 million shares of Class G Common Stock, no par value, and 10 million shares of Preferred Stock, par value $.01 per share. This amendment will not become effective until a Certificate of Amendment is filed with the Michigan Department of Commerce. Such certificate will be filed immediately prior to the first issuance of shares of Class G Common Stock, or issuance of more than 5 million shares of Preferred Stock. CMS Energy also filed a shelf-registration statement with the SEC on February 15, 1995 covering the issuance of up to $200 million of securities. Such securities could encompass Common Stock of CMS Energy (including Class G), Preferred Stock of CMS Energy or a special purpose affiliate of CMS Energy, and/or unsecured debt of CMS Energy. CMS Energy will continually evaluate the capital markets and may offer such instruments from time to time, at terms to be determined at or prior to the time of the sale. Consumers Power Debt Consumers has FERC authorization to issue or guarantee up to $900 million of short-term debt through December 31, 1996. Consumers has an unsecured $470 million facility and unsecured, committed lines of credit aggregating $185 million that are used to finance seasonal working capital requirements. At March 31, 1995, Consumers had a total of $133 million outstanding under these facilities. Other Consumers has an established $500 million trade receivables purchase and sale program. At March 31, 1995, receivables sold under the agreement totaled $300 million compared with $275 million at December 31, 1994. Accounts receivable and accrued revenue in the Consolidated Balance Sheets have been reduced to reflect receivables sold. In April 1995, the MPSC issued an order authorizing Consumers to issue and sell up to $300 million of intermediate and/or long-term debt and $100 million of preferred stock or subordinate debentures. CMS NOMECO In February 1995, CMS Energy acquired Walter International, Inc., a Houston-based independent oil company, for approximately $46 million subject to post-closing adjustments. Walter was merged with a wholly- owned subsidiary of CMS NOMECO. In connection with the acquisition, CMS NOMECO remitted $24 million of CMS Energy common stock and assumed $12 million of project financing debt. CMS NOMECO's existing credit line was increased from $110 million at December 31, 1994 to $130 million at March 31, 1995. $82 million of revolving credit debt was outstanding at a weighted average interest rate of 7.38 percent at March 31, 1995. Senior serial notes amounting to $28 million, with a weighted average interest rate of 9.4 percent, are outstanding from a private placement. CMS Generation In January 1995, CMS Generation entered into a one-year $118 million bridge credit facility, for the acquisition of HYDRA-CO. CMS Energy is currently evaluating permanent financing options. 21 CMS Energy Corporation Management's Discussion and Analysis This MD&A should be read along with the MD&A in the 1994 Form 10-K of CMS Energy. CMS Energy is the parent holding company of Consumers and Enterprises. Consumers, a combination electric and gas utility company serving the Lower Peninsula of Michigan, is the principal subsidiary of CMS Energy. Consumers' customer base includes a mix of residential, commercial and diversified industrial customers, the largest of which is the automotive industry. Enterprises is engaged in domestic and international non- utility energy-related businesses including: 1) oil and gas exploration and production, 2) development and operation of independent power production facilities, 3) gas marketing services to utility, commercial and industrial customers, and 4) storage and transmission of natural gas. On January 1, 1995, Consumers was internally reorganized into separate electric utility and gas utility strategic business units. The restructuring, while not affecting Consumers' or CMS Energy's consolidated financial statements or corporate legal form, is designed to sharpen management focus, improve efficiency and accountability in both business segments and better position Consumers for growth in the gas market and to meet increased competition in the electric power market. Management believes that the strategic business unit structure will allow each unit to focus more on its own profitability and growth potential, and will, in the long term, allow Consumers to be more competitive. On March 21, 1995, CMS Energy received shareholders' approval to amend its Articles of Incorporation and authorize a new class of Common Stock of CMS Energy. This new class of Common Stock, designated Class G Common Stock, is intended to reflect the separate performance of the gas distribution, storage and transportation businesses currently conducted by Consumers and Michigan Gas Storage (such businesses, collectively, will be attributed to the "Consumers Gas Group"). The existing CMS Energy Common Stock will continue to be outstanding and is intended to reflect the performance of all of the businesses of CMS Energy and its subsidiaries, including the business of the Consumers Gas Group, except for the interest in the Consumers Gas Group attributable to the outstanding shares of the Class G Common Stock. CMS Energy also filed a shelf-registration statement with the SEC on February 15, 1995 covering the issuance of up to $200 million of securities. Such securities could encompass Common Stock of CMS Energy (including Class G), Preferred Stock of CMS Energy or a special purpose affiliate of CMS Energy, and/or unsecured debt of CMS Energy. CMS Energy will continually evaluate the capital markets and may offer such instruments from time to time, at terms to be determined at or prior to the time of the sale. Consolidated earnings for the quarters ended March 31, 1995 and 1994 Consolidated net income totaled $86 million or $.99 per share for the first quarter of 1995, compared to $78 million or $.92 per share for the first quarter of 1994. The increase in net income reflects increased electric utility sales resulting from Michigan's continuing economic growth, increased revenue from the May 1994 electric rate increase, recognition of the resolution of a previously recorded gas contract loss contingency, and additional earnings reflecting improved operating results and growth of the non-utility businesses. Partially offsetting this increase was a 12.6 percent decrease in gas utility deliveries due to significantly warmer temperatures experienced in the first quarter of 1995 compared with the corresponding period last year. Consolidated earnings for the 12 months ended March 31, 1995 and 1994 Consolidated net income totaled $187 million or $2.17 per share for the 12 months ended March 31, 1995, compared to $161 million or $1.95 per share for the 12 months ended March 31, 1994. The increase in net income reflects the impact of the May 1994 electric rate increase, higher electric utility kWh sales, the recognition of the resolution of a previously recorded gas contract loss contingency, the recognition of DSM revenue, and additional earnings from the growth of the non-utility businesses. Partially offsetting these increases were reduced gas utility deliveries and increased operating costs and depreciation. Cash Position, Financing and Investing CMS Energy's primary ongoing source of operating cash is dividends from its principal subsidiaries. CMS Energy's consolidated operating cash requirements are met by its operating and financing activities. CMS Energy's consolidated cash from operations continues to reflect primarily Consumers' sale and transportation of natural gas and the generation, sale and transmission of electricity and from CMS NOMECO's sale of oil and natural gas. Consolidated cash from operations for the first three months of 1995 primarily reflects Consumers' increased electric sales and increased electric rates which were approved by the MPSC in mid-1994. Cash from operations also reflects Consumers' greater underrecoveries of power costs associated with purchases from the MCV. Financing and Investing Activities: Capital expenditures, including assets placed under capital lease, deferred DSM costs and investments in unconsolidated subsidiaries totaled $309 million for the first quarter of 1995 compared with $140 million for the first quarter of 1994. These amounts primarily represent CMS Energy's continued expansion of the non- utility business segments, and capital investments in the electric and gas utility business units. Capital expenditures for 1995 include requirements of $201 million for acquisitions which commenced in 1994 but did not close until 1995. CMS Energy's expenditures for the first quarter of 1995 for its utility and non-utility businesses were $86 million and $224 million, respectively. In January 1995, CMS Energy paid $18 million in cash dividends to common shareholders. As a continuation of Consumers' dividend policy of paying dividends on its common stock equal to approximately 80 percent of its consolidated income, in April 1995, Consumers declared a $70 million common dividend from its first quarter earnings to be paid in May 1995. Financing and Investing Outlook: CMS Energy estimates that capital expenditures, including DSM and new lease commitments, will total approximately $2.1 billion for the years 1995 through 1997. Cash generated by operations is expected to satisfy a substantial portion of capital expenditures. Additionally, CMS Energy will continue to evaluate capital markets in 1995 as a potential source of financing its subsidiaries' investing activities. In Millions Years Ended December 31 1995 1996 1997 ---- ---- ---- Electric utility $318 $255 $269 Gas utility 130 119 111 Oil and gas exploration and production (a) 129 100 110 Independent power production (b) 255 120 68 Natural gas pipeline, storage and marketing 100 29 20 ---- ---- ---- $932 $623 $578 ==== ==== ==== (a)(b) 1995 capital expenditures include requirements of approximately (a)$46 million and (b)$155 million for acquisitions which commenced in 1994 but did not close until 1995. Consumers has several available sources of credit including unsecured, committed lines of credit totaling $185 million and a $470 million unsecured working capital facility. Consumers has FERC authorization to issue or guarantee up to $900 million in short-term debt through December 31, 1996. Consumers uses short-term borrowings to finance working capital, seasonal fuel inventory and to pay for capital expenditures between long-term financings. Consumers has an agreement permitting the sales of certain accounts receivable for up to $500 million. At March 31, 1995, receivables sold under the agreement totaled $300 million. Electric Utility Results of Operations Electric Pretax Operating Income for the quarters ended March 31, 1995 and 1994: During the first quarter of 1995, electric pretax operating income reflects a decrease of $1 million from the 1994 level. This small reduction primarily resulted from increases in operation, maintenance, and depreciation expenses partially offset by increased electric kWh sales and the positive impact of the May 1994 electric rate increase. Electric Pretax Operating Income for the 12 months ended March 31, 1995 and 1994: The $40 million improvement in the 12 months ended March 1995 electric pretax operating income compared with the corresponding 1994 level is primarily the result of the impact of the May 1994 electric rate increase and the recognition of DSM incentive revenue (see Note 3) which contributed $39 million and $11 million, respectively. Also contributing to the 1995 increased electric pretax operating income was an increase in electric kWh sales. These increases were partially offset by higher electric operating costs and depreciation. The following table quantifies the impact of the major reasons for the changes in electric pretax operating income for the periods ended March 31: In Millions Impact on Pretax Operating Income Quarter ended 12 months ended 1995 compared 1995 compared with 1994 with 1994 --------------- -------------- Sales $ 1 $ 20 Rate increases and other regulatory issues 11 48 O&M, general taxes and depreciation (13) (28) ----- ----- Total change $(1) $ 40 ===== ===== Electric Sales: Electric sales during the first quarter of 1995 totaled 8.7 billion kWh, a 1.5 percent increase from 1994 levels. Residential sales decreased 3.1 percent, commercial sales increased 3.0 percent, and industrial sales increased 5.5 percent, compared with the corresponding period in 1994. Consumers' electric sales have benefited from improved employment and other economic conditions. Electric sales during the 12 months ended March 31, 1995 totaled 34.6 billion kWh, a 4.3 percent increase from 1994 levels. During the 12 months ended 1995 period, commercial and industrial sales increased 3.2 percent and 6.5 percent respectively, while residential sales decreased less than 1.0 percent. The industrial segments of chemicals and transportation equipment accounted for the largest share of the growth in industrial kWh sales. Power Costs: Power costs for the three-month period ending March 31, 1995 totaled $227 million, a $16 million decrease from the corresponding 1994 period. This decrease primarily reflects increased generation at Consumers' nuclear power plants and a corresponding reduction in generation at the more costly oil and coal fired plants. Power costs for the 12-month period ending March 31, 1995 totaled $934 million, a $15 million decrease from the corresponding 1994 period. Electric Utility Issues Power Purchases from the MCV Partnership: Consumers' obligation to purchase contract capacity from the MCV Partnership increased to 1,240 MW in 1995. In 1993, the MPSC issued the Settlement Order that has allowed Consumers to recover substantially all payments for 915 MW of contract capacity purchased from the MCV Partnership. The market for the remaining 325 MW of contract capacity was assessed at the end of 1992. This assessment, along with the Settlement Order, resulted in Consumers recognizing a loss for the present value of the estimated future underrecoveries of power purchases from the MCV Partnership. Additional losses may occur if actual future experience materially differs from the 1992 estimates. ABATE and the Attorney General have appealed the Settlement Order to the Court of Appeals. As anticipated in 1992, Consumers continues to experience cash underrecoveries associated with the Settlement Order. These after-tax cash underrecoveries totaled $24 million for the first three months of 1995. Estimated future after-tax cash underrecoveries, and possible losses for 1995 and the next four years if none of the additional capacity is sold, are shown in the table below. After-tax, In Millions 1995 1996 1997 1998 1999 ---- ---- ---- ---- ---- Expected cash underrecoveries $60 $56 $55 $ 8 $ 9 Possible additional underrecoveries and losses (a) $20 $20 $22 $72 $72 (a) If unable to sell any capacity above the MPSC's authorized level. Consumers and the MCV Partnership are engaged in arbitration proceedings under the PPA to determine whether the energy charge paid to the MCV Partnership is being properly calculated. The MCV Partnership is seeking additional payments from Consumers which the MCV has estimated at $6 million annually for an alleged breach of the PPA. Consumers believes that its calculation of the energy charge is correct, but cannot predict the outcome of this arbitration. In July 1994 and February 1995, Consumers terminated power purchase agreements with a 65 MW coal-fired cogeneration facility and a 44 MW wood and chipped-tire plant. Consumers plans to seek MPSC approval to substitute 109 MW of less expensive contract capacity from the MCV Facility which Consumers is currently not authorized to recover from retail customers. In April 1995, an ALJ issued a proposal for decision related to the 1995 PSCR case that agreed with objections, raised by certain parties, as to the inclusion of the 65 MW of capacity substitution as part of the five year forecast included in plan cases. Although recovery of the costs relating to the substitution is not being requested in this case, the ALJ concluded that additional capacity should be competitively bid and recommended that the MPSC state in its order that cost recovery for substituting capacity absent a competitive bid is unlikely to be approved. For further information, see Note 2. Electric Rate Case: In mid-1994, the MPSC granted Consumers a $58 million annual increase in its retail electric rates. Consumers filed a request with the MPSC in late 1994, to increase its retail electric rates. In March 1995, the MPSC staff recommended a final annual rate increase of $45 million. For further information regarding Consumers' request and the staff's recommendation, see Note 3. Additionally, in January 1995, Consumers filed a request with the MPSC, seeking approval to increase its traditional depreciation expense by $21 million and reallocate certain portions of its utility plant from production to transmission, resulting in a $28 million decrease. If both aspects of the request are approved, the net result would be a decrease in electric depreciation expense of $7 million for ratemaking purposes. In April 1995, the MPSC staff's filing did not support Consumers' requested increase in depreciation expense, but instead proposed a decrease of $24 million. In addition, the MPSC staff also did not support the reallocation of plant investment as proposed by Consumers but suggested several alternatives which could partially address this issue. Consumers is studying the MPSC staff's position. Special Rates: In January 1995, the MPSC dismissed a filing made by Consumers, seeking approval of a plan to offer competitive, special rates to certain large qualifying customers. Consumers had proposed to offer the new rates to customers using high amounts of electricity that have expressed an intention to or are capable of terminating purchases of electricity from Consumers, and that have the ability to acquire energy from alternative sources. Consumers subsequently filed a new, simplified proposal with the MPSC which would allow Consumers a certain level of rate-pricing flexibility, and allow use of MCV contract capacity above the level currently authorized by the MPSC, to respond to customers' alternative energy options. In May 1995, the MPSC issued an order stating that it has legal authority to approve a range of rates under which Consumers could negotiate prices with customers that have competitive energy alternatives. However, the MPSC dismissed from consideration, in this proceeding, the issues related to Consumers' proposed use of the additional 325 MW of MCV contract capacity to serve these customers. PSCR Matters: Consumers experienced an extended refueling and maintenance outage at Palisades during 1993. In February 1995, the MPSC issued a final order in the 1993 PSCR reconciliation, disallowing $4 million of replacement power costs related to the 1993 outage. Consumers accrued a loss for this issue in 1994. Electric Conservation Efforts: Over the past few years, Consumers has participated in several MPSC-authorized DSM programs designed to encourage the efficient use of energy. During 1994, Consumers recognized $11 million in incentive revenue, related to Consumers' achievement of certain DSM program objectives approved by the MPSC in 1992. In April 1995, an ALJ issued a proposal for decision, recommending that Consumers be allowed to recover the full $11 million incentive. A final order, authorizing Consumers to collect the $11 million incentive, is expected from the MPSC by mid-1995. In 1994, as part of Consumers' electric rate case, the MPSC authorized Consumers to continue certain DSM programs. As part of its current electric rate case, Consumers requested that the MPSC eliminate all DSM expenditures after April 1995. The proposal for decision discussed above recommended that Consumers continue its current DSM programs through 1996. For further information, see Note 3. Electric Capital Expenditures: CMS Energy estimates capital expenditures, including deferred DSM costs and new lease commitments, related to Consumers' electric utility operations of $318 million for 1995, $255 million for 1996 and $269 million for 1997. These amounts include an attributed portion of anticipated capital expenditures for plant and equipment common to both the electric and gas utility businesses. Electric Environmental Matters: The 1990 amendment of the federal Clean Air Act significantly increased the environmental constraints that utilities will operate under in the future. While the Clean Air Act's provisions require Consumers to make certain capital expenditures in order to comply with the amendments for nitrogen oxide reductions, Consumers' generating units are presently operating at or near the sulfur dioxide emission limits which will be effective in the year 2000. Therefore, management believes that Consumers' annual operating costs will not be materially affected. In 1990, the State of Michigan passed amendments to the Environmental Response Act, under which Consumers expects that it will ultimately incur costs at a number of sites, even those in which it has a partial or no current ownership interest. Parties other than Consumers with current or former ownership interests may also be considered liable for site investigations and remedial actions. Consumers believes costs incurred for both investigation and required remedial actions will be recovered in rates or from others. Consumers is a so-called "potentially responsible party" at several sites being administered under Superfund. Along with Consumers, there are numerous credit-worthy, potentially responsible parties with substantial assets cooperating with respect to the individual sites. Based on current information, management believes it is unlikely that Consumers' liability at any of the known Superfund sites, individually or in total, will have a material adverse effect on its financial position or results of operations. For further information regarding electric environmental matters, see Note 4. Electric Outlook Competition: Consumers currently expects customer demand for electricity within its service territory will increase by approximately 1.6 percent per year over the next five years. Economic growth and an increasing customer base are expected to lead to consistently higher annual sales. However, Consumers (along with the electric utility industry) is experiencing increased competitive pressures which may result in a negative impact on Consumers' sales growth. The primary sources of this competition include: the installation of cogeneration or other self- generation facilities by Consumers' larger industrial customers; the formation of municipal utilities which would displace retail service by Consumers to an entire community; and competition from neighboring utilities which offer flexible rate arrangements designed to encourage movement to their respective service areas. Several of Consumers' industrial customers are studying these options. Consumers is pursuing several strategies to retain its current "at-risk" customers. These strategies include a request that the MPSC allow Consumers to offer special competitive service rates to current industrial customers which have demonstrated an ability to seek alternate electric supplies and to attract new customers which are considering locating or expanding facilities in Michigan. As part of its current electric rate case, Consumers has requested that the MPSC eliminate the rate subsidization of residential customers. If approved, commercial and industrial customers' electric costs would decrease by a total of approximately $80 million, or approximately 6 percent, per year. Consumers is committed to holding operation and maintenance costs level and continuing to improve customer service. Consumers is also working with large customers to identify ways to improve the efficiency with which energy is used. In 1994, the MPSC approved a framework for a five-year experimental retail wheeling program for Consumers and Detroit Edison. Under the experiment, up to 60 MW of Consumers' additional load requirements could be met by retail wheeling. The program becomes effective upon Consumers' next solicitation for capacity. In February 1995, an ALJ issued a proposal for decision that addressed the methodology for pricing transmission rates to be used for the experiment. An MPSC order is expected by mid-1995. Consumers does not expect this short-term experiment to have a material impact on its financial position or results of operations. In March 1995, the FERC issued a NOPR and a supplemental NOPR that propose changes in the wholesale electric industry. Among the most significant proposals, is a requirement that utilities provide open access to the domestic interstate transmission grid. Under the FERC's proposal, all utilities would be required to use these tariffs for their own wholesale sales and purchases of electric energy; and the utilities would be allowed the opportunity to recover wholesale stranded costs (including those applicable to municipalization situations). Consumers is reviewing the FERC proposal to determine its potential affect, if any on its financial position and results of operations. Nuclear Matters: In 1994, Consumers filed a report with the NRC that included short- and long-term enhancements designed to improve performance at Palisades. The report was filed in response to an NRC-conducted diagnostic evaluation inspection that found certain deficiencies at the plant. Acceptable performance at Palisades will require continuing performance improvements and additional expenditures, which have been included in Consumers' total planned level of expenditures. Consumers' on-site storage pool for spent nuclear fuel at Palisades is at capacity. Consumers is using NRC-approved dry casks, which are steel and concrete vaults, for temporary on-site storage. Several appeals relating to NRC approval of the casks and Consumers' use of the casks had been pending. In January 1995, the U.S. Sixth Circuit Court of Appeals issued a decision, effectively allowing Consumers to continue using dry cask storage at Palisades. The Attorney General and other parties have asked the U.S. Supreme Court for leave to appeal this decision. Consumers is required to make certain calculations and report to the NRC about the continuing ability of the Palisades reactor vessel to withstand postulated "pressurized thermal shock" events during its remaining license life. Analysis of recent data from testing of similar materials indicates that the Palisades reactor vessel can be safely operated through late 1999. Consumers is continuing to analyze alternative means to permit continued operation of Palisades to the end of its license life in the year 2007. Consumers cannot predict the outcome of these efforts. For further information regarding Palisades, see Note 5. Stray Voltage: Consumers has experienced a number of lawsuits relating to the effect of so-called stray voltage on certain livestock. At March 31, 1995, Consumers had 73 separate stray voltage lawsuits pending. Consumers believes that the resolution of these lawsuits will not have a material impact on its financial position or results of operations. For further information, see Note 4. Gas Utility Results of Operations Gas Pretax Operating Income for the quarters ended March 31, 1995 and 1994: During the first quarter of 1995 gas pretax operating income increased $7 million from the 1994 level. The increased pretax operating income reflects the recognition of the resolution of a previously recorded gas contract loss contingency. Partially offsetting this increase was a 12.6 percent decrease in gas deliveries due to significantly warmer weather during the first quarter of 1995 compared with the corresponding 1994 period. The average temperature for the first quarter of 1995 increased 25 percent to 27.5 degrees from 21.9 degrees during the first quarter of 1994. Gas Pretax Operating Income for the 12 months ended March 31, 1995 and 1994: The $15 million decrease in 1995 gas pretax operating income compared with 1994 reflects lower gas deliveries and higher operating expenses, partially offset by the recognition of the resolution of a previously recorded gas contract loss contingency. Increased operating costs included $2 million of postretirement benefit costs related to the gas settlement with the MPSC (see Note 3). The following table quantifies the impact of the major reasons for the changes in gas pretax operating income for the periods ended March 31: In Millions Impact on Pretax Operating Income Quarter ended 12 months ended 1995 compared 1995 compared with 1994 with 1994 --------------- --------------- Deliveries $(19) $(40) Recovery of gas costs and other regulatory issues 26 38 O&M, general taxes and depreciation - (13) ----- ----- Total change $ 7 $(15) ===== ===== Gas Deliveries: Gas sales and gas transported during the first quarter of 1995 totaled 153.8 bcf, a 12.6 percent decrease from the corresponding 1994 level. For the 12 months ended March 31, 1995, gas sales and gas transported totaled 386.8 bcf, a 9.6 percent decrease from the corresponding 1994 level, reflecting record cold winter weather during the 12 months ended March 31, 1994 and a return to more normal weather during the 12 months ended March 31, 1995. Cost of Gas Sold: The utility cost of gas sold for the first quarter of 1995 decreased $53 million from the 1994 level as a result of reduced deliveries and the reversal of a gas contract loss contingency. The utility cost of gas sold for the 12 months ended March 31, 1995 decreased $87 million from the corresponding 1994 level which was also the result of reduced gas deliveries and the gas contract loss contingency reversal. Gas Utility Issues Gas Rates: In December 1994, Consumers filed a request with the MPSC to increase Consumers' annual gas rates by $21 million. The requested increase in revenue reflects increased expenditures, including those associated with postretirement benefits, and proposes a 13 percent return on equity. A final order from the MPSC is expected in early 1996. For further information regarding Consumers' current gas rate case, see Note 3. Consumers entered into a special natural gas transportation contract with one of its transportation customers in response to the customer's proposal to by-pass Consumers' system in favor of a competitive alternative. The contract provides for discounted gas transportation rates in an effort to induce the customer to remain on Consumers' system. In February 1995, the MPSC approved the contract but stated that the revenue shortfall created by the difference between the contract's discounted rate and the floor price of one of Consumers' MPSC authorized gas transportation rates must be borne by Consumers' shareholders. In March 1995, Consumers filed an appeal with the Court of Appeals claiming that the MPSC decision denies Consumers the opportunity to earn its authorized rate of return and is therefore unconstitutional. GCR Issues: In April 1995, an ALJ issued a proposal for decision in a proceeding that had been initiated by Consumers regarding a gas supply contract pricing dispute with certain intrastate producers. The ALJ agreed with Consumers that certain market based pricing provisions should, on a prospective basis, limit the price paid by Consumers under the three agreements at issue. The ALJ also found that the market based pricing provision required specific MPSC approval before Consumers could apply those prices to purchases under the agreements and found that such approval had not previously been given. Consumers does not agree with the ALJ's findings and conclusions on this point and will file exceptions to the proposal for decision for the MPSC's consideration. If the MPSC issues an order adopting the recommendations of the ALJ, the market based provisions upon which Consumers had paid for gas purchased under these agreements will not be effective prior to such an MPSC order. If the producers pursue a court action for amounts owed for previously purchased gas, Consumers could be liable for as much as $44 million (excluding any interest) under the producers' theories. Consumers cannot predict the outcome of this issue. Gas Capital Expenditures: CMS Energy estimates capital expenditures, including new lease commitments, related to Consumers' gas utility operations of $130 million for 1995, $119 million for 1996 and $111 million for 1997. These amounts include an attributed portion of anticipated capital expenditures for plant and equipment common to both the electric and gas utility businesses. Gas Environmental Matters: Under Michigan's Environmental Response Act, Consumers expects that it will ultimately incur investigation and remedial action costs at a number of sites, including some that formerly housed manufactured gas plant facilities. Data available to Consumers and its continued internal review of these former manufactured gas plant sites have resulted in an estimate for all costs related to investigation and remedial action of between $48 million and $112 million. These estimates are based on undiscounted 1994 costs. At March 31, 1995, Consumers has accrued a liability for $48 million and has established a regulatory asset for approximately the same amount. Any significant change in assumptions such as remediation technique, nature and extent of contamination and regulatory requirements, could impact the estimate of remedial action costs for the sites. Consumers requested recovery and deferral of certain investigation and remedial action costs in its gas rate case filed in December 1994. Consumers believes that remedial action costs are recoverable in rates as the MPSC in 1993 addressed the question of recovery of investigation and remedial action costs for another Michigan gas utility as part of a gas rate case. In order to be recovered in rates, prudent costs must be approved in a rate case. The MPSC has approved similar deferred accounting requests by several other Michigan utilities relative to investigation and remedial action costs. Consumers has initiated discussions with certain insurance companies regarding coverage for some or all of the costs which may be incurred for these sites. For further information, see Note 4. Gas Outlook Consumers currently anticipates gas deliveries to grow approximately 2.3 percent per year (excluding MCV transportation and off-system deliveries) over the next five years, primarily due to a steadily growing customer base. Additionally, Consumers has several strategies which will support increased load requirements in the future. These strategies include increased efforts to promote natural gas to both current and potential customers that are using other fuels for space and water heating. Consumers plans additional capital expenditures to construct new gas mains that are expected to expand Consumers' system. New technologies being developed on a national level, such as the emerging use of natural gas vehicles, also provide Consumers with sales growth opportunities. In addition, as air quality standards continue to become more stringent, management believes that greater opportunities exist for converting industrial boiler load and other processes to natural gas. Oil and Gas Exploration and Production Pretax Operating Income: Pretax operating income for the three months ended March 31, 1995 increased $13 million from the same period in 1994, reflecting the gain from assignment and novation of a gas supply contract as well as higher sales volumes and average market prices for oil, partially offset by lower average market prices for gas. Pretax operating income for the 12 months ended March 31, 1995 increased $21 million from the 12 months ended March 31, 1994, primarily due to gains from the assignment of gas supply contracts and higher sales volumes, partially offset by lower average market prices for oil and gas. Capital Expenditures: In February 1995, CMS NOMECO closed on the acquisition of Walter for approximately $46 million, consisting of approximately $24 million of CMS Energy common stock and $22 million in both cash and assumed debt. Post-closing adjustments may result in the issuance of approximately $3 million of additional CMS Energy common stock. CMS NOMECO's acquisition of Walter will add net production of 5,500 barrels per day in 1995 and proven reserves of approximately 20 million barrels of oil. Other capital expenditures for the three months ended March 31, 1995 approximated $14 million, primarily for development of existing oil and gas reserves. These expenditures were made both domestically ($5 million) and internationally ($9 million), primarily in Ecuador ($5 million). CMS Energy currently plans to invest $339 million from 1995 to 1997 in its oil and gas exploration and production operations. These capital expenditures, which reflect the acquisition of Walter, will be concentrated in North and South America and Africa. Independent Power Production Pretax Operating Income: Pretax operating income for the three months ended March 31, 1995 increased $11 million, primarily reflecting higher capacity sales from the MCV partnership, as well as additional equity earnings by CMS Generation subsidiaries primarily due to additional electric generating capacity. Pretax operating income increased $26 million for the 12 months ended March 31, 1995 as compared to the 12 months ended March 31, 1994, primarily reflecting additional electric generating capacity and improved equity earnings and operating efficiencies. Capital Expenditures: In January 1995, CMS Generation completed its acquisition of HYDRA-CO. CMS Generation purchased 100 percent of HYDRA- CO's stock for $207 million, including approximately $52 million of current assets. CMS Generation partially financed the acquisition with a $118 million bridge credit facility supplied by a consortium of four banks led by Union Bank of California. CMS Energy is currently evaluating permanent financing options. With the acquisition, CMS Generation assumed ownership in 735 MW of gross capacity and 224 MW of net ownership. CMS Generation will manage and operate eight plants previously managed by HYDRA-CO and will also assume construction management responsibility for a 60 MW diesel-fueled plant which has begun in Jamaica. The plant is scheduled to go into service in the third quarter of 1996. The Moroccan government has selected a consortium of CMS Generation and Asea Brown Boveri Energy Ventures to exclusively negotiate a definitive agreement for the privatization and expansion of a Moroccan power plant. The privatization of the coal-fired Jorf Lasfar plant, Southwest of Casablanca, includes ownership and operation of two 330 MW generating units which are nearing completion, and the construction of another two 330 MW units. The output of the plants will be sold to the Moroccan national utility. The cost of the facilities will be in excess of $1 billion. CMS Energy currently plans to invest $443 million relating to its independent power production operations over the next three years, primarily in domestic and international subsidiaries and partnerships which includes the acquisition of HYDRA-CO. CMS Generation will pursue acquisitions of operating electric generating plants in Latin America, southern Asia and the Pacific Rim region. Natural Gas Transmission, Storage and Marketing Pretax Operating Income: Pretax operating income for the three months ended March 31, 1995 was unchanged and for the twelve months ended March 31, 1995 increased $1 million, respectively over the same periods for 1994, reflecting earnings growth from existing and new gas pipeline and storage projects and gas marketed to end-users. Capital Expenditures: Effective January 1, 1995, CMS Gas Transmission increased its ownership of The Antrim Limited Partnership to 100 percent by acquiring its partner's remaining 40 percent interest. Under a new agreement with MichCon, CMS Gas Transmission will provide a gas treating service for up to 260 MMcf/d of Antrim gas. CMS Gas Transmission currently plans to expand this existing 120 MMcf/d treating complex to accommodate new Antrim production. This $22 million expansion will treat gas connected to a number of gathering lines including CMS Gas Transmission's South Chester gathering system and deliver gas to MichCon's Northern Michigan pipeline network. In March 1995, CMS Gas Transmission received initial regulatory approval to construct, at a cost of $3 million, a 3.1 mile pipeline from its natural gas transmission system to an interconnection with an existing pipeline at the St. Clair River, south of Port Huron, Michigan. The pipeline, targeted to be in service by November 1995, will provide significantly increased gas supply flexibilities in the U.S. and Canada. CMS Energy currently plans to invest $149 million over the next three years relating to its non-utility gas operations, continuing to pursue development of natural gas storage and gathering and pipeline operations both domestically and internationally. CMS Energy also plans to work toward the development of a Midwest "market center" for natural gas through strategic alliances and asset acquisition and development. Other Other Income: Other income for the 12 months ending March 31, 1995 decreased $21 million when compared with the corresponding 1994 period, reflecting the sale of the remaining MCV Bonds in December 1993 which eliminated the bond interest income. Public Utility Holding Company Act Exemption: CMS Energy is exempt from registration under PUHCA. However, in 1991, the Attorney General and the MMCG asked the SEC to revoke this exemption. In April 1992, the MPSC filed a statement with the SEC recommending that CMS Energy's current exemption be revoked and a new exemption be issued conditioned upon certain reporting and operating requirements. CMS Energy is opposing this request and believes it will maintain its current exemption from registration under PUHCA. The SEC has not taken action on this matter. For further information, see Note 4. New Accounting Standard: In March 1995, the FASB issued SFAS 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. This statement, which is effective for 1996 financial statements, requires that an asset be reviewed for impairment whenever events indicate that the carrying amount of an asset may not be recoverable. The statement also requires that a loss be recognized whenever a regulator excludes a portion of an asset's cost from a company's rate base. CMS Energy is continuing to study SFAS 121, but does not expect the application of this statement to have a material impact on its financial position or results of operations. 32 ARTHUR ANDERSEN LLP Report of Independent Public Accountants To Consumers Power Company: We have reviewed the accompanying consolidated balance sheets of CONSUMERS POWER COMPANY (a Michigan corporation and wholly owned subsidiary of CMS Energy Corporation) and subsidiaries as of March 31, 1995 and 1994, and the related consolidated statements of income, common stockholder's equity and cash flows for the three-month and twelve-month periods then ended. These financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the financial statements referred to above for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet and consolidated statements of long-term debt and preferred stock of Consumers Power Company and subsidiaries as of December 31, 1994, and the related consolidated statements of income, common stockholders' equity and cash flows for the year then ended (not presented herein), and, in our report dated January 31, 1995 (except with respect to certain matters discussed in Notes 2, 3, 7 and 13 to the consolidated financial statements as to which the date is March 1, 1995), we expressed an unqualified opinion on those statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 1994, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived. Arthur Andersen LLP Detroit, Michigan, May 8, 1995. 33 Consumers Power Company Consolidated Statements of Income (Unaudited)
Three Months Ended Twelve Months Ended March 31 March 31 1995 1994 1995 1994 In Millions OPERATING REVENUE Electric $ 540 $ 545 $2,185 $2,132 Gas 482 528 1,105 1,194 Other 10 1 25 4 ---------------------------------------------- Total operating revenue 1,032 1,074 3,315 3,330 ---------------------------------------------- OPERATING EXPENSES Operation Fuel for electric generation 67 79 294 303 Purchased power - related parties 124 122 484 481 Purchased and interchange power 36 42 156 165 Cost of gas sold 281 334 608 695 Other 137 127 571 523 ---------------------------------------------- Total operation 645 704 2,113 2,167 Maintenance 45 43 190 202 Depreciation, depletion and amortization 101 95 342 320 General taxes 54 60 172 189 ---------------------------------------------- Total operating expenses 845 902 2,817 2,878 ---------------------------------------------- PRETAX OPERATING INCOME Electric 87 88 333 293 Gas 91 84 143 158 Other 9 - 22 1 ---------------------------------------------- Total pretax operating income 187 172 498 452 INCOME TAXES 56 52 124 114 ---------------------------------------------- NET OPERATING INCOME 131 120 374 338 ---------------------------------------------- OTHER INCOME (DEDUCTIONS) Dividends from affiliates 4 4 16 16 Accretion income 3 3 12 14 Accretion expense (8) (9) (34) (37) Other income taxes, net 2 4 11 14 MCV Bond income - - - 24 Other, net 2 - 11 3 ---------------------------------------------- Total other income 3 2 16 34 ---------------------------------------------- INTEREST CHARGES Interest on long-term debt 35 34 137 149 Other interest 5 3 19 20 Capitalized interest - - (1) (2) ---------------------------------------------- Net interest charges 40 37 155 167 ---------------------------------------------- Net Income 94 85 235 205 Preferred Stock Dividends 7 3 28 11 ---------------------------------------------- NET INCOME AFTER DIVIDENDS ON PREFERRED STOCK $ 87 $ 82 $ 207 $ 194 ============================================== THE ACCOMPANYING CONDENSED NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
34 Consumers Power Company Consolidated Statements of Cash Flows (Unaudited)
Three Months Ended Twelve Months Ended March 31 March 31 1995 1994 1995 1994 In Millions CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 94 $ 85 $ 235 $ 205 Adjustments to reconcile net income to net cash provided by operating activities Depreciation, depletion and amortization (includes nuclear decommissioning depreciation of $13, $12, $49 and $47, respectively) 101 95 342 320 Capital lease and other amortization 11 15 29 37 Deferred income taxes and investment tax credit 23 15 65 49 Accretion expense 8 9 34 37 Accretion income - abandoned Midland project (3) (3) (12) (14) MCV power purchases - settlement (Note 2) (37) (22) (102) (78) Other (8) (1) (22) (2) Changes in other assets and liabilities 120 179 (34) (118) ------ ------ ------ ------ Net cash provided by operating activities 309 372 535 436 ------ ------ ------ ------ CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures (excludes assets placed under capital lease) (74) (83) (438) (453) Investments in nuclear decommissioning trust funds (13) (12) (49) (47) Cost to retire property, net (9) (7) (41) (33) Other (4) 2 (4) 1 Deferred demand-side management costs (2) - (11) (39) Proceeds from sale of property - - 13 1 Proceeds from Midland-related assets - - - 322 Sale of subsidiary - - - (14) ------ ------ ------ ------ Net cash used in investing activities (102) (100) (530) (262) ------ ------ ------ ------ CASH FLOWS FROM FINANCING ACTIVITIES Increase (decrease) in notes payable, net (204) (259) 135 (20) Payment of capital lease obligations (10) (15) (28) (32) Payment of preferred stock dividends (7) (6) (21) (14) Retirement of bonds and other long-term debt (1) (107) (27) (702) Repayment of bank loans - (47) (422) (78) Payment of common stock dividends - (16) (160) (149) Proceeds from preferred stock - 193 - 193 Proceeds from bank loans - - 400 - Contribution from stockholder - - 100 - Proceeds from bonds and bank loans - - - 644 ------ ------ ------ ------ Net cash used in financing activities (222) (257) (23) (158) ------ ------ ------ ------ NET INCREASE (DECREASE) IN CASH AND TEMPORARY CASH INVESTMENTS (15) 15 (18) 16 CASH AND TEMPORARY CASH INVESTMENTS, BEGINNING OF PERIOD 25 13 28 12 ------ ------ ------ ------ CASH AND TEMPORARY CASH INVESTMENTS, END OF PERIOD $ 10 $ 28 $ 10 $ 28 ====== ====== ====== ====== THE ACCOMPANYING CONDENSED NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
35 Consumers Power Company Consolidated Balance Sheets
March 31 March 31 1995 December 31 1994 (Unaudited) 1994 (Unaudited) In Millions ASSETS PLANT (At original cost) Electric $5,826 $5,771 $5,539 Gas 2,078 2,064 1,956 Other 30 30 26 ----------------------------------- 7,934 7,865 7,521 Less accumulated depreciation, depletion and amortization 3,893 3,794 3,631 ----------------------------------- 4,041 4,071 3,890 Construction work-in-progress 249 241 248 ----------------------------------- 4,290 4,312 4,138 ----------------------------------- INVESTMENTS Stock of affiliates 318 317 314 First Midland Limited Partnership (Note 2) 219 218 214 Midland Cogeneration Venture Limited Partnership (Note 2) 83 74 67 Other 8 8 7 ----------------------------------- 628 617 602 ----------------------------------- CURRENT ASSETS Cash and temporary cash investments at cost, which approximates market 10 25 28 Accounts receivable and accrued revenue, less allowances of $4, $4 and $4, respectively (Note 7) 63 100 87 Accounts receivable - related parties 11 12 9 Inventories at average cost Gas in underground storage 80 235 62 Materials and supplies 76 75 77 Generating plant fuel stock 27 37 22 Deferred income taxes 39 35 15 Trunkline settlement 30 30 30 Postretirement benefits 25 25 25 Prepayments and other 103 143 104 ----------------------------------- 464 717 459 ----------------------------------- NON-CURRENT ASSETS Postretirement benefits 473 478 492 Nuclear decommissioning trust funds 236 213 179 Abandoned Midland Project (Note 3) 143 147 158 Trunkline settlement 48 55 78 Other 274 270 274 ----------------------------------- 1,174 1,163 1,181 ----------------------------------- TOTAL ASSETS $6,556 $6,809 $6,380 ===================================
36
March 31 March 31 1995 December 31 1994 (Unaudited) 1994 (Unaudited) In Millions STOCKHOLDERS' INVESTMENT AND LIABILITIES CAPITALIZATION Common stockholder's equity Common stock $ 841 $ 841 $ 841 Paid-in-capital 491 491 391 Revaluation capital 17 15 15 Retained earnings since December 31, 1992 167 80 120 ----------------------------------- 1,516 1,427 1,367 Preferred stock 356 356 356 Long-term debt 1,954 1,953 1,793 Non-current portion of capital leases 103 108 114 ----------------------------------- 3,929 3,844 3,630 ----------------------------------- CURRENT LIABILITIES Current portion of long-term debt and capital leases 48 45 249 Notes payable 135 339 - Accrued taxes 134 173 125 Accounts payable 125 165 128 MCV power purchases - settlement (Note 2) 95 95 82 Accounts payable - related parties 56 51 51 Accrued refunds 35 25 33 Accrued interest 25 37 25 Other 153 187 163 ----------------------------------- 806 1,117 856 ----------------------------------- NON-CURRENT LIABILITIES Deferred income taxes 585 568 501 Postretirement benefits 537 532 540 MCV power purchases - settlement (Note 2) 295 324 378 Deferred investment tax credit 177 179 187 Trunkline settlement 48 55 78 Regulatory liabilities for income taxes, net 29 16 13 Other (Note 4) 150 174 197 ----------------------------------- 1,821 1,848 1,894 ----------------------------------- COMMITMENTS AND CONTINGENCIES (Notes 2, 3, 4 and 5) TOTAL STOCKHOLDERS' INVESTMENT AND LIABILITIES $6,556 $6,809 $6,380 =================================== THE ACCOMPANYING CONDENSED NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
37 Consumers Power Company Consolidated Statements of Common Stockholder's Equity (Unaudited)
Three Months Ended Twelve Months Ended March 31 March 31 1995 1994 1995 1994 In Millions COMMON STOCK At beginning and end of period $ 841 $ 841 $ 841 $ 841 --------------------------------------------------- OTHER PAID-IN CAPITAL At beginning of period 491 391 391 391 Stockholder's contribution - - 100 - --------------------------------------------------- At end of period 491 391 491 391 --------------------------------------------------- REVALUATION CAPITAL At beginning of period 15 - 15 - Implementation of SFAS 115 - January 1, 1994 - 20 - 20 Change in unrealized loss, net of tax 2 (5) 2 (5) --------------------------------------------------- At end of period 17 15 17 15 --------------------------------------------------- RETAINED EARNINGS At beginning of period 80 54 120 75 Net income 94 85 235 205 Common stock dividends declared - (16) (160) (149) Preferred stock dividends declared (7) (3) (28) (11) --------------------------------------------------- At end of period 167 120 167 120 --------------------------------------------------- TOTAL COMMON STOCKHOLDER'S EQUITY $1,516 $1,367 $1,516 $1,367 =================================================== THE ACCOMPANYING CONDENSED NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
38 Consumers Power Company Condensed Notes to Consolidated Financial Statements These financial statements and their related condensed notes should be read along with the consolidated financial statements and notes contained in the 1994 Form 10-K of Consumers Power Company that includes the Report of Independent Public Accountants. In the opinion of management, the unaudited information herein reflects all adjustments necessary to assure the fair presentation of financial position, results of operations and cash flows for the periods presented. 1: Corporate Structure Consumers is a combination electric and gas utility company serving the Lower Peninsula of Michigan, and is the principal subsidiary of CMS Energy, an energy holding company. Consumers' customer base includes a mix of residential, commercial and diversified industrial customers, the largest of which is the automotive industry. 2: The Midland Cogeneration Venture The MCV Partnership, which leases and operates the MCV Facility, contracted to sell electricity to Consumers for a 35-year period beginning in 1990 and to supply electricity and steam to The Dow Chemical Company. At March 31, 1995, Consumers, through its subsidiaries, held the following assets related to the MCV: 1) CMS Midland owned a 49 percent general partnership interest in the MCV Partnership; and 2) CMS Holdings held through the FMLP a 35 percent lessor interest in the MCV Facility. Power Purchases from the MCV Partnership: Consumers' obligation for purchase of contract capacity from the MCV Partnership under the PPA increased to its maximum amount of 1,240 MW in 1995. In 1993, the MPSC issued the Settlement Order that has allowed Consumers to recover substantially all of the payments for its ongoing purchase of 915 MW of contract capacity. Capacity and energy purchases from the MCV Partnership above the 915 MW level can be utilized to satisfy customers' power needs but the MPSC would determine the levels of recovery from retail customers at a later date. The Settlement Order also provides Consumers the right to remarket to third parties the remaining contract capacity. At the request of the MPSC, the MCV Partnership confirmed that it did not object to the Settlement Order. ABATE and the Attorney General have appealed the Settlement Order to the Court of Appeals. The PPA provides that Consumers is to pay the MCV Partnership a minimum levelized average capacity charge of 3.77 cents per kWh, a fixed energy charge and a variable energy charge which is based primarily on Consumers' average cost of coal consumed. The Settlement Order permits Consumers to recover capacity charges averaging 3.62 cents per kWh for 915 MW of capacity and the prescribed energy charges associated with the scheduled deliveries within certain hourly availability limits, whether or not those deliveries are scheduled on an economic basis. For all economic energy deliveries above the availability limits to 915 MW, Consumers is allowed to recover 1/2 cent per kWh capacity payment in addition to the variable energy charge. In 1992, Consumers recognized a loss for the present value of the estimated future underrecoveries of power costs under the PPA as a result of the Settlement Order. This loss was based, in part, on management's assessment of the future availability of the MCV Facility, and the effect of the future power market on the amount, timing and price at which various increments of the capacity, above the MPSC authorized level, could be resold. Additional losses may occur if actual future experience materially differs from the 1992 estimates. As anticipated in 1992, Consumers continues to experience cash underrecoveries associated with the Settlement Order. These after-tax cash underrecoveries were $24 million for the three months ended March 31, 1995. If Consumers is unable to sell any capacity above the current MPSC-authorized level, future additional after-tax losses and after-tax cash underrecoveries would be incurred. Consumers' estimates of its future after-tax cash underrecoveries, and possible losses for 1995 and the next four years if none of the additional capacity is sold, are shown in the table below. After-tax, In Millions 1995 1996 1997 1998 1999 ---- ---- ---- ---- ---- Expected cash underrecoveries $60 $56 $55 $ 8 $ 9 Possible additional underrecoveries and losses (a) $20 $20 $22 $72 $72 (a) If unable to sell any capacity above the MPSC's authorized level. At March 31, 1995 and December 31, 1994, the after-tax present value of the Settlement Order liability totaled $253 million and $272 million, respectively. The reduction in the liability reflects after-tax cash underrecoveries of $24 million, partially offset by after-tax accretion expense of $5 million. The undiscounted after-tax amount associated with the liability totaled $653 million at March 31, 1995. In 1994, Consumers was notified by the MCV Partnership that it was initiating arbitration proceedings under the PPA to determine whether the energy charge paid to the MCV Partnership is being properly calculated. The amount in dispute, which relates to the period beginning in 1990 and continuing through the term of the PPA, has been estimated by the MCV Partnership to total $6 million annually. An arbitrator has been selected, arbitration hearings have commenced and a ruling is expected in the third quarter of 1995. Consumers believes that its calculation of the energy charge is correct but cannot predict the outcome of this arbitration. In 1994, Consumers paid $30 million to terminate a power purchase agreement with a 65 MW coal-fired cogeneration facility. Additionally, in February 1995, Consumers agreed to pay $15 million to terminate a power purchase agreement with a 44 MW wood and chipped-tire facility. Consumers plans to seek MPSC approval to substitute less expensive contract capacity from the MCV Facility which Consumers is currently not authorized to recover from retail customers. This proposed substitution of capacity would start in late 1996, the year the coal-fired cogeneration facility was scheduled to begin operations. The capacity substitution represents significant savings to Consumers' customers, compared to the cost approved by the MPSC for similar facilities. As a result, Consumers has recorded a regulatory asset of $45 million, which it believes will ultimately be recoverable in rates. In April 1995, an ALJ issued a proposal for decision related to the 1995 PSCR case that agreed with objections, raised by certain parties, as to the inclusion of the 65 MW of capacity substitution as part of the five year forecast included in plan cases. Although recovery of the costs relating to the substitution is not being requested in this case, the ALJ concluded that additional capacity should be competitively bid and recommended that the MPSC state in its order that cost recovery for substituting capacity absent a competitive bid is unlikely to be approved. MCV-related PSCR Matters: Consistent with the terms of the 1993 Settlement Order, Consumers withdrew its appeals of various MPSC orders issued in connection with several PSCR cases. The MPSC also confirmed the recovery of MCV-related costs consistent with the Settlement Order as part of the 1993 and 1994 plan case orders. ABATE or the Attorney General has appealed these plan case orders to the Court of Appeals. 3: Rate Matters Electric Rate Case: In mid-1994, the MPSC granted Consumers a $58 million annual increase in its retail electric rates. In late 1994, Consumers filed a request with the MPSC which could increase its retail electric rates in a range from $104 million to $140 million, depending upon the ratemaking treatment afforded sales losses to competition and the treatment of the MCV contract capacity above 915 MW. The request includes a proposed increase in Consumers' authorized rate of return on equity to 13 percent from the current 11.75 percent, recognition of increased expenditures related to continuing construction activities and capital additions aimed at maintaining and improving system reliability and increases in financing costs. Consumers requested that the MPSC eliminate the remaining subsidization of residential rates in a two-step adjustment, eliminate all DSM expenditures after April 1995 and allow recovery of all jurisdictional costs associated with the proposed settlement of the proceedings concerning the operation of Ludington (see Note 4). In response to Consumers' requested rate increase, the MPSC staff initially recommended a final annual increase of $45 million to Consumers' base rates, as well as suggested several options for cost recovery of 325 MW of MCV capacity. However, on motions filed by ABATE and the Attorney General, an ALJ struck portions of the MPSC staff's testimony relating to the cost of this capacity and the MPSC staff subsequently withdrew several other portions of its testimony. As a result, the MPSC staff's recommendations do not currently include a rate design. The MPSC staff recommendations remaining in the case proposed a different sales forecast than Consumers, as well as a 12 percent return on common equity and a lower equity ratio than that included in Consumers' proposed capital structure. In May 1995, the MPSC affirmed the ALJ's decision to strike the MPSC staff's testimony and stated that the remaining 325 MW of MCV capacity will be considered only as part of a competitive capacity solicitation, and not as part of the electric rate case. Consumers also has a separate request before the MPSC to offer competitive special rates to certain large qualifying customers (see Special Rates discussion in the MD&A). In January 1995, Consumers filed a request with the MPSC, seeking to adjust its depreciation rates and to reallocate certain portions of its electric production plant to transmission accounts, which if approved would result in a net decrease in depreciation expense of $7 million for ratemaking purposes. In April 1995, the MPSC staff filed its testimony in this proceeding. For further information, see Electric Rate Case discussion in the MD&A. Abandoned Midland Project: In 1991, the MPSC ordered partial recovery of the abandoned Midland project and Consumers began collecting $35 million pretax annually for the next 10 years. In December 1994, the Court of Appeals upheld the MPSC orders allowing recovery of the abandoned investment. Consumers, ABATE and the Attorney General have filed applications for leave to appeal this decision with the Michigan Supreme Court, where the matter is pending. Management cannot predict the outcome of this issue. Electric DSM: In 1994, as part of Consumers' electric rate case, the MPSC authorized Consumers to continue certain DSM programs ($30 million annually) in 1994 through 1996. Consumers is deferring program costs and amortizing the costs over the period these costs are being recovered from customers in accordance with an MPSC accounting order. The unamortized balance of deferred costs totaled $70 million at March 31, 1995. During 1994, Consumers recognized $11 million in incentive revenue related to an earlier DSM program approved by the MPSC. In April 1995, a proposal for decision issued by the ALJ conducting the proceedings recommended that Consumers be awarded the full $11 million incentive and that Consumers' current DSM programs continue through 1996. A final order, authorizing Consumers to collect the $11 million incentive, is expected by mid-1995. PSCR Issues: In February 1995, the MPSC issued a final order in the 1993 PSCR reconciliation proceeding that addressed the extended refueling and maintenance outage at Palisades in 1993. The order disallowed $4 million of replacement power costs. Consumers accrued a loss for this issue in 1994. Gas Rates: In 1994, the MPSC approved an agreement previously reached between the MPSC staff and Consumers, to charge $10 million of costs for postretirement benefits against 1994 earnings. The agreement was reached in response to a claim that gas utility business earnings for 1993 were excessive. This charge against earnings partially offsets savings related to reduced state property taxes. The agreement also provides for an additional $4 million of postretirement benefit costs to be charged against 1995 earnings instead of being deferred. As part of the agreement, Consumers filed a gas rate case in December 1994. Consumers requested an increase in its gas rates of $21 million annually. The request, among other things, incorporates cost increases, including costs for postretirement benefits and costs related to Consumers' former manufactured gas plant sites. Consumers requested that the MPSC authorize a 13 percent rate of return on equity, instead of the currently authorized rate of 13.25 percent. Consumers expects an MPSC decision in early 1996. GCR Issues: In 1993, the MPSC provided that the price payable to certain intrastate gas producers by Consumers be reduced. As a result, Consumers was not allowed to recover $13 million of costs. Consumers accrued a loss prior to 1993 in excess of the disallowed amount. In March 1995, management concluded that the intrastate producers' pending appeals of the MPSC order would not be successful and accordingly reversed $23 million (pretax), which represented the portion of the loss in excess of the disallowed amount. In April 1995, an ALJ issued a proposal for decision in a proceeding that had been initiated by Consumers regarding a gas supply contract pricing dispute with certain intrastate producers. The ALJ agreed with Consumers that certain market based pricing provisions should, on a prospective basis, limit the price paid by Consumers under the three agreements at issue. The ALJ also found that the market based pricing provision required specific MPSC approval before Consumers could apply those prices to purchases under the agreements and found that such approval had not previously been given. Consumers does not agree with the ALJ's findings and conclusions on this point and will file exceptions to the proposal for decision for the MPSC's consideration. If the MPSC issues an order adopting the recommendations of the ALJ, the market based provisions upon which Consumers had paid for gas purchased under these agreements will not be effective prior to such an MPSC order. If the producers pursue a court action for amounts owed for previously purchased gas, Consumers could be liable for as much as $44 million (excluding any interest) under the producers' theories. Consumers cannot predict the outcome of this issue. Estimated losses for certain contingencies discussed in this note have been accrued. Resolution of these contingencies is not expected to have a material impact on Consumers' financial position or results of operations. 4: Commitments and Contingencies Ludington Pumped Storage Plant: In 1994, Consumers, Detroit Edison, the Attorney General, the DNR and certain other parties signed an agreement in principle designed to resolve all legal issues associated with fish mortality at Ludington. The proposed settlement allows for continued operation of the plant through the end of its FERC license. Upon approval of the settlement agreement, Consumers will transfer land (with an original cost of $9 million and a fair market value in excess of $20 million) to the state of Michigan and the Great Lakes Fishery Trust, make an initial payment of approximately $3 million and incur approximately $1 million of expenditures related to recreational improvements. Future annual payments of approximately $1 million are also anticipated over the next 24 years and are intended to enhance the fishery resources of the Great Lakes. The definitive settlement documents have been completed and were filed with the appropriate Michigan courts and state and federal agencies. The agreement is subject to the MPSC permitting Consumers to recover all such settlement costs from electric customers, and approval by the FERC. The proposed settlement would resolve two lawsuits filed by the Attorney General in 1986 and 1987 on behalf of the State of Michigan. In one, the state sought $148 million (including $16 million of interest) for past injuries and $89,000 per day for future injuries, reduced only upon installation of "adequate" fish barriers and other changed conditions. Each year, a barrier net would continue to be installed at Ludington from April to October. In the other lawsuit, the Attorney General sought to have Ludington's bottomlands lease declared void. Environmental Matters: Consumers is a so-called "Potentially Responsible Party" at several sites being administered under Superfund. Although Superfund liability is joint and several, along with Consumers, there are numerous credit-worthy, potentially responsible parties with substantial assets cooperating with respect to the individual sites. Based upon past negotiations, Consumers estimates its total liability will average less than 4 percent of the estimated total site remediation costs, and such liability is expected to be less than $9 million. At March 31, 1995, Consumers has accrued a liability for its estimated losses. Consumers believes that it is unlikely that its liability at any of the known Superfund sites, individually or in total, will have a material adverse effect on its financial position or results of operations. Under Michigan's Environmental Response Act, Consumers expects that it will ultimately incur investigation and remedial action costs at a number of sites, including some of the 23 sites that formerly housed manufactured gas plant facilities, even those in which it has a partial or no current ownership interest. Parties other than Consumers with current or former ownership interests may also be considered liable for site investigations and remedial actions. There is limited knowledge of manufactured gas plant contamination at these sites at this time. Consumers has prepared plans for remedial investigation/feasibility studies for several sites and the DNR has approved three of four plans submitted by Consumers. The findings for the first remedial investigation indicate that the expenditures for remedial action at this site are likely to be minimal. However, Consumers does not believe that a single site is representative of all of the sites. Data available to Consumers and its continued internal review have resulted in an estimate for all costs related to investigation and remedial action for all 23 sites of between $48 million and $112 million. These estimates are based on undiscounted 1994 costs. At March 31, 1995, Consumers has accrued a liability of $48 million and has established a regulatory asset for approximately the same amount. Any significant change in assumptions such as remediation technique, nature and extent of contamination and regulatory requirements, could impact the estimate of remedial action costs for the sites. Consumers requested recovery and deferral of certain investigation and remedial action costs in its gas rate case filed in 1994. Consumers believes that remedial action costs are recoverable in rates as the MPSC in 1993 addressed the question of recovery of investigation and remedial action costs for another Michigan gas utility as part of a gas rate case. In order to be recoverable in rates, prudent costs must be approved in a rate case. Any costs amortized in years prior to filing a rate case may not be recoverable. The MPSC has approved similar deferred accounting requests by several other Michigan utilities relative to investigation and remedial action costs. Consumers has initiated discussions with certain insurance companies regarding coverage for some or all of the costs which may be incurred for these sites. The federal Clean Air Act contains provisions that limit emissions of sulfur dioxide and nitrogen oxides and require enhanced emissions monitoring. Consumers' coal-fueled electric generating units burn low- sulfur coal and are presently operating at or near the sulfur dioxide emission limits which will be effective in the year 2000. The Clean Air Act's provisions required Consumers to make capital expenditures totaling $25 million to install equipment at certain generating units. Consumers estimates capital expenditures for in-process and possible modifications at other coal-fired units to be an additional $50 million by the year 2000. Final acid rain program nitrogen oxide regulations specifying the controls to be installed at the other coal-fired units are not expected earlier than 1996. Management believes that Consumers' annual operating costs will not be materially affected. Capital Expenditures: Consumers estimates capital expenditures, including DSM and new lease commitments, of $448 million for 1995, $374 million for 1996 and $380 million for 1997. Public Utility Holding Company Act Exemption: CMS Energy is exempt from registration under PUHCA. However, in 1991, the Attorney General and the MMCG asked the SEC to revoke this exemption. In 1992, the MPSC filed a statement with the SEC recommending that CMS Energy's current exemption be revoked and a new exemption be issued conditioned upon certain reporting and operating requirements. If CMS Energy were to lose its current exemption, it would become more heavily regulated by the SEC; Consumers could ultimately be forced to divest either its electric or gas utility business; and CMS Energy could be restricted from conducting businesses that are not functionally related to the conduct of its utility business as determined by the SEC. CMS Energy is opposing this request and believes it will maintain its current exemption from registration under PUHCA. The SEC has not taken action on this matter. Other: Consumers has experienced a number of lawsuits filed against it relating to so-called stray voltage. Claimants contend that stray voltage results when small electrical currents present in grounded electrical systems are diverted from their intended path. Consumers maintains a policy of investigating all customer calls regarding stray voltage and working with customers to address their concerns including, when necessary, modifying the grounding of the customer's service. At March 31, 1995, Consumers had 73 separate stray voltage lawsuits pending. In addition to the matters disclosed in these notes, Consumers and certain of its subsidiaries are parties to certain lawsuits and administrative proceedings before various courts and governmental agencies, arising from the ordinary course of business involving personal injury and property damage, contractual matters, environmental issues, federal and state taxes, rates, licensing and other matters. Estimated losses for certain contingencies discussed in this note have been accrued. Resolution of these contingencies is not expected to have a material impact on Consumers' financial position or results of operations. 5: Nuclear Matters In 1993, the NRC approved the design of the spent fuel dry storage casks now being used by Consumers at Palisades. Subsequently, the Attorney General and certain other parties attempted to block Consumers' use of the storage casks, alleging that the NRC had failed to comply adequately with the procedural requirements of the Atomic Energy Act and the National Environmental Policy Act. In January 1995, the U.S. Sixth Circuit Court of Appeals rejected these allegations and upheld the NRC's rulemaking action. The court found that the NRC's environmental assessment satisfied National Environmental Policy Act requirements, and that a site-specific environmental analysis concerning the use and operation of the storage casks at Palisades was not required. The Attorney General and other parties have asked the U.S. Supreme Court for leave to appeal this decision. As of April 30, 1995, Consumers had loaded 13 dry storage casks with spent nuclear fuel at Palisades. In the latter part of 1995, Consumers plans to unload and replace one of the loaded casks. In a review of the cask manufacturer's quality assurance program, Consumers detected indications of minor flaws in welds in the steel liner of one of the loaded casks. Although testing has not disclosed any leakage, Consumers has nevertheless decided to remove the spent fuel and insert it in another cask. Consumers has examined radiographs for all of its casks and has found all other welds acceptable. In order to address concerns raised subsequent to the initial cask loading, Consumers and the NRC each analyzed the effects of seismic and other natural hazards on the support pad on which the casks are placed, and validated that the pad location is acceptable to support the casks. The Low-Level Radioactive Waste Policy Act encourages the respective states, individually or in cooperation with each other, to be responsible for the disposal of low-level radioactive waste. Currently, a low-level waste site does not exist in Michigan, and no other states' repositories are available to Michigan generators of such waste. Consumers stores low- level waste at its nuclear plant sites and plans to continue to do so following final shutdown of the plants, if necessary, until a permanent storage site is provided. Consumers currently estimates that a permanent low-level radioactive waste disposal site will be available by the year 2027. Consumers maintains insurance coverage against property damage, debris removal, personal injury liability and other risks that are present at its nuclear generating facilities. This insurance includes coverage for replacement power costs for the major portion of prolonged accidental outages for 12 months after a 21 week exclusion with reduced coverage to approximately 80 percent for two additional years. If certain loss events occur at its own or other nuclear plants similarly insured, Consumers could be required to pay maximum assessments of: $33 million in any one year to NML and NEIL; $79 million per event under the nuclear liability secondary financial protection program, limited to $10 million per event in any one year; and $6 million in the event of nuclear workers claiming bodily injury from radiation exposure. Consumers considers the possibility of these assessments to be remote. As an NRC licensee, Consumers is required to make certain calculations and report to the NRC about the continuing ability of the Palisades reactor vessel to withstand postulated "pressurized thermal shock" events during its remaining license life, in light of the embrittlement of reactor vessel materials over time due to operation in a radioactive environment. Analysis of recent data from testing of similar materials indicates that the Palisades reactor vessel can be safely operated through late 1999. In April 1995, Consumers received a Safety Evaluation Report from the NRC concurring with this evaluation and requesting submittal in 1996 of an action plan to provide for operation of the plant beyond 1999. Consumers is continuing to analyze alternative means to permit continued operation of Palisades to the end of its license life in the year 2007. It is currently estimated that expenditures for corrective action related to this issue could total $20 million to $30 million. Consumers cannot predict the outcome of these efforts. 6: Supplemental Cash Flow Information For purposes of the Statement of Cash Flows, all highly liquid investments with an original maturity of three months or less are considered cash equivalents. Other cash flow activities and non-cash investing and financing activities for the periods ended March 31 were: In Millions Three Months Ended Twelve Months Ended 1995 1994 1995 1994 ---- ---- ---- ---- Cash transactions Interest paid (net of amounts capitalized) $ 50 $ 49 $147 $192 Income taxes paid (net of refunds) - 3 31 63 Non-cash transactions Nuclear fuel placed under capital lease $ 7 $ 2 $ 25 $ 30 Other assets placed under capital leases 2 1 15 19 7: Short-term and Long-term Financings Consumers has FERC authorization to issue or guarantee up to $900 million of short-term debt through December 31, 1996. Consumers has an unsecured $470 million facility and unsecured, committed lines of credit aggregating $185 million that are used to finance seasonal working capital requirements. At March 31, 1995, Consumers had a total of $133 million outstanding under these facilities. Consumers has an established $500 million trade receivables purchase and sale program. At March 31, 1995, receivables sold under the agreement totaled $300 million compared with $275 million at December 31, 1994. Accounts receivable and accrued revenue in the Consolidated Balance Sheets have been reduced to reflect receivables sold. In April 1995, the MPSC issued an order authorizing Consumers to issue and sell up to $300 million of intermediate and/or long-term debt and $100 million of preferred stock or subordinate debentures. 46 Consumers Power Company Management's Discussion and Analysis This MD&A should be read along with the MD&A in the 1994 Form 10-K of Consumers. Consumers is a combination electric and gas utility company serving the Lower Peninsula of Michigan, and is the principal subsidiary of CMS Energy, an energy holding company. Consumers' customer base includes a mix of residential, commercial and diversified industrial customers, the largest of which is the automotive industry. On January 1, 1995, Consumers was internally reorganized into separate electric utility and gas utility strategic business units. The restructuring, while not affecting Consumers' consolidated financial statements or corporate legal form, is designed to sharpen management focus, improve efficiency and accountability in both business segments and better position Consumers for growth in the gas market and to meet increased competition in the electric power market. Management believes that the strategic business unit structure will allow each unit to focus more on its own profitability and growth potential, and will, in the long term, allow Consumers to be more competitive. Consolidated earnings for the quarters ended March 31, 1995 and 1994 Consolidated net income after dividends on preferred stock totaled $87 million for the first quarter of 1995, compared to $82 million for the first quarter of 1994. The increase in net income reflects increased electric sales resulting from Michigan's continuing economic growth, increased revenue from the May 1994 electric rate increase, recognition of the resolution of a previously recorded gas contract loss contingency, and improved operating results from Consumer's interest in the MCV Facility. Partially offsetting this increase was a 12.6 percent decrease in gas deliveries due to significantly warmer temperatures experienced in the first quarter of 1995 compared with the corresponding period last year. Consolidated earnings for the 12 months ended March 31, 1995 and 1994 Consolidated net income after dividends on preferred stock totaled $207 million for the 12 months ended March 31, 1995, compared to $194 million for the 12 months ended March 31, 1994. The increase in net income reflects the impact of the May 1994 electric rate increase, higher electric kWh sales, the recognition of the resolution of a previously recorded gas contract loss contingency, and the recognition of DSM revenue. Partially offsetting these increases were reduced gas deliveries and increased operating costs and depreciation. Cash Position, Financing and Investing Consumers' operating cash requirements are met by its operating and financing activities. Cash from operations continues to reflect Consumers' sale and transportation of natural gas and the generation, sale and transmission of electricity. Cash from operations for the first three months of 1995 reflects increased electric sales and increased electric rates which were approved by the MPSC in mid-1994. Cash from operations also reflects greater underrecoveries of power costs associated with purchases from the MCV. Financing and Investing Activities: Capital expenditures, including assets placed under capital lease and deferred DSM costs, totaled $85 million for the first three months of 1995 compared with $86 million for the first three months of 1994. These amounts primarily represent capital investments in Consumers' electric and gas utility business units. As a continuation of Consumers' dividend policy of paying dividends on its common stock equal to approximately 80 percent of its consolidated income, in April 1995, Consumers declared a $70 million common dividend from its first quarter earnings to be paid in May 1995. Financing and Investing Outlook: Consumers estimates that capital expenditures, including DSM and new lease commitments, related to its electric and gas utility operations will total approximately $1.2 billion over the next three years. Cash generated by operations is expected to satisfy a substantial portion of these capital expenditures. In Millions Years Ended December 31 1995 1996 1997 ---- ---- ---- Consumers Construction (including DSM) $399 $347 $319 Nuclear fuel lease 32 4 38 Capital leases other than nuclear fuel 12 15 17 Michigan Gas Storage 5 8 6 ---- ---- ---- $448 $374 $380 ==== ==== ==== Consumers has several available sources of credit including unsecured, committed lines of credit totaling $185 million and a $470 million unsecured working capital facility. Consumers has FERC authorization to issue or guarantee up to $900 million in short-term debt through December 31, 1996. Consumers uses short-term borrowings to finance working capital, seasonal fuel inventory and to pay for capital expenditures between long-term financings. Consumers has an agreement permitting the sales of certain accounts receivable for up to $500 million. At March 31, 1995, receivables sold under the agreement totaled $300 million. Electric Utility Results of Operations Electric Pretax Operating Income for the quarters ended March 31, 1995 and 1994: During the first quarter of 1995, electric pretax operating income reflects a decrease of $1 million from the 1994 level. This small reduction primarily resulted from increases in operation, maintenance, and depreciation expenses partially offset by increased electric kWh sales and the positive impact of the May 1994 electric rate increase. Electric Pretax Operating Income for the 12 months ended March 31, 1995 and 1994: The $40 million improvement in the 12 months ended March 1995 electric pretax operating income compared with the corresponding 1994 level is primarily the result of the impact of the May 1994 electric rate increase and the recognition of DSM incentive revenue (see Note 3) which contributed $39 million and $11 million, respectively. Also contributing to the 1995 increased electric pretax operating income was an increase in electric kWh sales. These increases were partially offset by higher electric operating costs and depreciation. The following table quantifies the impact of the major reasons for the changes in electric pretax operating income for the periods ended March 31: In Millions Impact on Pretax Operating Income Quarter ended 12 months ended 1995 compared 1995 compared with 1994 with 1994 --------------- -------------- Sales $ 1 $ 20 Rate increases and other regulatory issues 11 48 O&M, general taxes and depreciation (13) (28) ----- ----- Total change $(1) $ 40 ===== ===== Electric Sales: Electric sales during the first quarter of 1995 totaled 8.7 billion kWh, a 1.5 percent increase from 1994 levels. Residential sales decreased 3.1 percent, commercial sales increased 3.0 percent, and industrial sales increased 5.5 percent, compared with the corresponding period in 1994. Consumers' electric sales have benefited from improved employment and other economic conditions. Electric sales during the 12 months ended March 31, 1995 totaled 34.6 billion kWh, a 4.3 percent increase from 1994 levels. During the 12 months ended 1995 period, commercial and industrial sales increased 3.2 percent and 6.5 percent respectively, while residential sales decreased less than 1.0 percent. The industrial segments of chemicals and transportation equipment accounted for the largest share of the growth in industrial kWh sales. Power Costs: Power costs for the three-month period ending March 31, 1995 totaled $227 million, a $16 million decrease from the corresponding 1994 period. This decrease primarily reflects increased generation at Consumers' nuclear power plants and a corresponding reduction in generation at the more costly oil and coal fired plants. Power costs for the 12-month period ending March 31, 1995 totaled $934 million, a $15 million decrease from the corresponding 1994 period. Electric Utility Issues Power Purchases from the MCV Partnership: Consumers' obligation to purchase contract capacity from the MCV Partnership increased to 1,240 MW in 1995. In 1993, the MPSC issued the Settlement Order that has allowed Consumers to recover substantially all payments for 915 MW of contract capacity purchased from the MCV Partnership. The market for the remaining 325 MW of contract capacity was assessed at the end of 1992. This assessment, along with the Settlement Order, resulted in Consumers recognizing a loss for the present value of the estimated future underrecoveries of power purchases from the MCV Partnership. Additional losses may occur if actual future experience materially differs from the 1992 estimates. ABATE and the Attorney General have appealed the Settlement Order to the Court of Appeals. As anticipated in 1992, Consumers continues to experience cash underrecoveries associated with the Settlement Order. These after-tax cash underrecoveries totaled $24 million for the first three months of 1995. Estimated future after-tax cash underrecoveries, and possible losses for 1995 and the next four years if none of the additional capacity is sold, are shown in the table below. After-tax, In Millions 1995 1996 1997 1998 1999 ---- ---- ---- ---- ---- Expected cash underrecoveries $60 $56 $55 $ 8 $ 9 Possible additional underrecoveries and losses (a) $20 $20 $22 $72 $72 (a) If unable to sell any capacity above the MPSC's authorized level. Consumers and the MCV Partnership are engaged in arbitration proceedings under the PPA to determine whether the energy charge paid to the MCV Partnership is being properly calculated. The MCV Partnership is seeking additional payments from Consumers which the MCV has estimated at $6 million annually for an alleged breach of the PPA. Consumers believes that its calculation of the energy charge is correct, but cannot predict the outcome of this arbitration. In July 1994 and February 1995, Consumers terminated power purchase agreements with a 65 MW coal-fired cogeneration facility and a 44 MW wood and chipped-tire plant. Consumers plans to seek MPSC approval to substitute 109 MW of less expensive contract capacity from the MCV Facility which Consumers is currently not authorized to recover from retail customers. In April 1995, an ALJ issued a proposal for decision related to the 1995 PSCR case that agreed with objections, raised by certain parties, as to the inclusion of the 65 MW of capacity substitution as part of the five year forecast included in plan cases. Although recovery of the costs relating to the substitution is not being requested in this case, the ALJ concluded that additional capacity should be competitively bid and recommended that the MPSC state in its order that cost recovery for substituting capacity absent a competitive bid is unlikely to be approved. For further information, see Note 2. Electric Rate Case: In mid-1994, the MPSC granted Consumers a $58 million annual increase in its retail electric rates. Consumers filed a request with the MPSC in late 1994, to increase its retail electric rates. In March 1995, the MPSC staff recommended a final annual rate increase of $45 million. For further information regarding Consumers' request and the staff's recommendation, see Note 3. Additionally, in January 1995, Consumers filed a request with the MPSC, seeking approval to increase its traditional depreciation expense by $21 million and reallocate certain portions of its utility plant from production to transmission, resulting in a $28 million decrease. If both aspects of the request are approved, the net result would be a decrease in electric depreciation expense of $7 million for ratemaking purposes. In April 1995, the MPSC staff's filing did not support Consumers' requested increase in depreciation expense, but instead proposed a decrease of $24 million. In addition, the MPSC staff also did not support the reallocation of plant investment as proposed by Consumers but suggested several alternatives which could partially address this issue. Consumers is studying the MPSC staff's position. Special Rates: In January 1995, the MPSC dismissed a filing made by Consumers, seeking approval of a plan to offer competitive, special rates to certain large qualifying customers. Consumers had proposed to offer the new rates to customers using high amounts of electricity that have expressed an intention to or are capable of terminating purchases of electricity from Consumers, and that have the ability to acquire energy from alternative sources. Consumers subsequently filed a new, simplified proposal with the MPSC which would allow Consumers a certain level of rate-pricing flexibility, and allow use of MCV contract capacity above the level currently authorized by the MPSC, to respond to customers' alternative energy options. In May 1995, the MPSC issued an order stating that it has legal authority to approve a range of rates under which Consumers could negotiate prices with customers that have competitive energy alternatives. However, the MPSC dismissed from consideration, in this proceeding, the issues related to Consumers' proposed use of the additional 325 MW of MCV contract capacity to serve these customers. PSCR Matters: Consumers experienced an extended refueling and maintenance outage at Palisades during 1993. In February 1995, the MPSC issued a final order in the 1993 PSCR reconciliation, disallowing $4 million of replacement power costs related to the 1993 outage. Consumers accrued a loss for this issue in 1994. Electric Conservation Efforts: Over the past few years, Consumers has participated in several MPSC-authorized DSM programs designed to encourage the efficient use of energy. During 1994, Consumers recognized $11 million in incentive revenue, related to Consumers' achievement of certain DSM program objectives approved by the MPSC in 1992. In April 1995, an ALJ issued a proposal for decision, recommending that Consumers be allowed to recover the full $11 million incentive. A final order, authorizing Consumers to collect the $11 million incentive, is expected from the MPSC by mid-1995. In 1994, as part of Consumers' electric rate case, the MPSC authorized Consumers to continue certain DSM programs. As part of its current electric rate case, Consumers requested that the MPSC eliminate all DSM expenditures after April 1995. The proposal for decision discussed above recommended that Consumers continue its current DSM programs through 1996. For further information, see Note 3. Electric Capital Expenditures: Consumers estimates capital expenditures, including deferred DSM costs and new lease commitments, related to its electric utility operations of $318 million for 1995, $255 million for 1996 and $269 million for 1997. These amounts include an attributed portion of Consumers' anticipated capital expenditures for plant and equipment common to both the electric and gas utility businesses. Electric Environmental Matters: The 1990 amendment of the federal Clean Air Act significantly increased the environmental constraints that utilities will operate under in the future. While the Clean Air Act's provisions require Consumers to make certain capital expenditures in order to comply with the amendments for nitrogen oxide reductions, Consumers' generating units are presently operating at or near the sulfur dioxide emission limits which will be effective in the year 2000. Therefore, management believes that Consumers' annual operating costs will not be materially affected. In 1990, the State of Michigan passed amendments to the Environmental Response Act, under which Consumers expects that it will ultimately incur costs at a number of sites, even those in which it has a partial or no current ownership interest. Parties other than Consumers with current or former ownership interests may also be considered liable for site investigations and remedial actions. Consumers believes costs incurred for both investigation and required remedial actions will be recovered in rates or from others. Consumers is a so-called "potentially responsible party" at several sites being administered under Superfund. Along with Consumers, there are numerous credit-worthy, potentially responsible parties with substantial assets cooperating with respect to the individual sites. Based on current information, management believes it is unlikely that Consumers' liability at any of the known Superfund sites, individually or in total, will have a material adverse effect on its financial position or results of operations. For further information regarding electric environmental matters, see Note 4. Electric Outlook Competition: Consumers currently expects customer demand for electricity within its service territory will increase by approximately 1.6 percent per year over the next five years. Economic growth and an increasing customer base are expected to lead to consistently higher annual sales. However, Consumers (along with the electric utility industry) is experiencing increased competitive pressures which may result in a negative impact on Consumers' sales growth. The primary sources of this competition include: the installation of cogeneration or other self- generation facilities by Consumers' larger industrial customers; the formation of municipal utilities which would displace retail service by Consumers to an entire community; and competition from neighboring utilities which offer flexible rate arrangements designed to encourage movement to their respective service areas. Several of Consumers' industrial customers are studying these options. Consumers is pursuing several strategies to retain its current "at-risk" customers. These strategies include a request that the MPSC allow Consumers to offer special competitive service rates to current industrial customers which have demonstrated an ability to seek alternate electric supplies and to attract new customers which are considering locating or expanding facilities in Michigan. As part of its current electric rate case, Consumers has requested that the MPSC eliminate the rate subsidization of residential customers. If approved, commercial and industrial customers' electric costs would decrease by a total of approximately $80 million, or approximately 6 percent, per year. Consumers is committed to holding operation and maintenance costs level and continuing to improve customer service. Consumers is also working with large customers to identify ways to improve the efficiency with which energy is used. In 1994, the MPSC approved a framework for a five-year experimental retail wheeling program for Consumers and Detroit Edison. Under the experiment, up to 60 MW of Consumers' additional load requirements could be met by retail wheeling. The program becomes effective upon Consumers' next solicitation for capacity. In February 1995, an ALJ issued a proposal for decision that addressed the methodology for pricing transmission rates to be used for the experiment. An MPSC order is expected by mid-1995. Consumers does not expect this short-term experiment to have a material impact on its financial position or results of operations. In March 1995, the FERC issued a NOPR and a supplemental NOPR that propose changes in the wholesale electric industry. Among the most significant proposals, is a requirement that utilities provide open access to the domestic interstate transmission grid. Under the FERC's proposal, all utilities would be required to use these tariffs for their own wholesale sales and purchases of electric energy; and the utilities would be allowed the opportunity to recover wholesale stranded costs (including those applicable to municipalization situations). Consumers is reviewing the FERC proposal to determine its potential affect, if any on its financial position and results of operations. Nuclear Matters: In 1994, Consumers filed a report with the NRC that included short- and long-term enhancements designed to improve performance at Palisades. The report was filed in response to an NRC-conducted diagnostic evaluation inspection that found certain deficiencies at the plant. Acceptable performance at Palisades will require continuing performance improvements and additional expenditures, which have been included in Consumers' total planned level of expenditures. Consumers' on-site storage pool for spent nuclear fuel at Palisades is at capacity. Consumers is using NRC-approved dry casks, which are steel and concrete vaults, for temporary on-site storage. Several appeals relating to NRC approval of the casks and Consumers' use of the casks had been pending. In January 1995, the U.S. Sixth Circuit Court of Appeals issued a decision, effectively allowing Consumers to continue using dry cask storage at Palisades. The Attorney General and other parties have asked the U.S. Supreme Court for leave to appeal this decision. Consumers is required to make certain calculations and report to the NRC about the continuing ability of the Palisades reactor vessel to withstand postulated "pressurized thermal shock" events during its remaining license life. Analysis of recent data from testing of similar materials indicates that the Palisades reactor vessel can be safely operated through late 1999. Consumers is continuing to analyze alternative means to permit continued operation of Palisades to the end of its license life in the year 2007. Consumers cannot predict the outcome of these efforts. For further information regarding Palisades, see Note 5. Stray Voltage: Consumers has experienced a number of lawsuits relating to the effect of so-called stray voltage on certain livestock. At March 31, 1995, Consumers had 73 separate stray voltage lawsuits pending. Consumers believes that the resolution of these lawsuits will not have a material impact on its financial position or results of operations. For further information, see Note 4. Gas Utility Results of Operations Gas Pretax Operating Income for the quarters ended March 31, 1995 and 1994: During the first quarter of 1995 gas pretax operating income increased $7 million from the 1994 level. The increased pretax operating income reflects the recognition of the resolution of a previously recorded gas contract loss contingency. Partially offsetting this increase was a 12.6 percent decrease in gas deliveries due to significantly warmer weather during the first quarter of 1995 compared with the corresponding 1994 period. The average temperature for the first quarter of 1995 increased 25 percent to 27.5 degrees from 21.9 degrees during the first quarter of 1994. Gas Pretax Operating Income for the 12 months ended March 31, 1995 and 1994: The $15 million decrease in 1995 gas pretax operating income compared with 1994 reflects lower gas deliveries and higher operating expenses, partially offset by the recognition of the resolution of a previously recorded gas contract loss contingency. Increased operating costs included $2 million of postretirement benefit costs related to the gas settlement with the MPSC (see Note 3). The following table quantifies the impact of the major reasons for the changes in gas pretax operating income for the periods ended March 31: In Millions Impact on Pretax Operating Income Quarter ended 12 months ended 1995 compared 1995 compared with 1994 with 1994 --------------- --------------- Deliveries $(19) $(40) Recovery of gas costs and other regulatory issues 26 38 O&M, general taxes and depreciation - (13) ----- ----- Total change $ 7 $(15) ===== ===== Gas Deliveries: Gas sales and gas transported during the first quarter of 1995 totaled 153.8 bcf, a 12.6 percent decrease from the corresponding 1994 level. For the 12 months ended March 31, 1995, gas sales and gas transported totaled 386.8 bcf, a 9.6 percent decrease from the corresponding 1994 level, reflecting record cold winter weather during the 12 months ended March 31, 1994 and a return to more normal weather during the 12 months ended March 31, 1995. Cost of Gas Sold: The cost of gas sold for the first quarter of 1995 decreased $53 million from the 1994 level as a result of reduced deliveries and the reversal of a gas contract loss contingency. The cost of gas sold for the 12 months ended March 31, 1995 decreased $87 million from the corresponding 1994 level which was also the result of reduced gas deliveries and the gas contract loss contingency reversal. Gas Utility Issues Gas Rates: In December 1994, Consumers filed a request with the MPSC to increase Consumers' annual gas rates by $21 million. The requested increase in revenue reflects increased expenditures, including those associated with postretirement benefits, and proposes a 13 percent return on equity. A final order from the MPSC is expected in early 1996. For further information regarding Consumers' current gas rate case, see Note 3. Consumers entered into a special natural gas transportation contract with one of its transportation customers in response to the customer's proposal to by-pass Consumers' system in favor of a competitive alternative. The contract provides for discounted gas transportation rates in an effort to induce the customer to remain on Consumers' system. In February 1995, the MPSC approved the contract but stated that the revenue shortfall created by the difference between the contract's discounted rate and the floor price of one of Consumers' MPSC authorized gas transportation rates must be borne by Consumers' shareholders. In March 1995, Consumers filed an appeal with the Court of Appeals claiming that the MPSC decision denies Consumers the opportunity to earn its authorized rate of return and is therefore unconstitutional. GCR Issues: In April 1995, an ALJ issued a proposal for decision in a proceeding that had been initiated by Consumers regarding a gas supply contract pricing dispute with certain intrastate producers. The ALJ agreed with Consumers that certain market based pricing provisions should, on a prospective basis, limit the price paid by Consumers under the three agreements at issue. The ALJ also found that the market based pricing provision required specific MPSC approval before Consumers could apply those prices to purchases under the agreements and found that such approval had not previously been given. Consumers does not agree with the ALJ's findings and conclusions on this point and will file exceptions to the proposal for decision for the MPSC's consideration. If the MPSC issues an order adopting the recommendations of the ALJ, the market based provisions upon which Consumers had paid for gas purchased under these agreements will not be effective prior to such an MPSC order. If the producers pursue a court action for amounts owed for previously purchased gas, Consumers could be liable for as much as $44 million (excluding any interest) under the producers' theories. Consumers cannot predict the outcome of this issue. Gas Capital Expenditures: Consumers estimates capital expenditures, including new lease commitments, related to its gas utility operations of $130 million for 1995, $119 million for 1996 and $111 million for 1997. These amounts include an attributed portion of Consumers' anticipated capital expenditures for plant and equipment common to both the electric and gas utility businesses. Gas Environmental Matters: Under Michigan's Environmental Response Act, Consumers expects that it will ultimately incur investigation and remedial action costs at a number of sites, including some that formerly housed manufactured gas plant facilities. Data available to Consumers and its continued internal review of these former manufactured gas plant sites have resulted in an estimate for all costs related to investigation and remedial action of between $48 million and $112 million. These estimates are based on undiscounted 1994 costs. At March 31, 1995, Consumers has accrued a liability for $48 million and has established a regulatory asset for approximately the same amount. Any significant change in assumptions such as remediation technique, nature and extent of contamination and regulatory requirements, could impact the estimate of remedial action costs for the sites. Consumers requested recovery and deferral of certain investigation and remedial action costs in its gas rate case filed in December 1994. Consumers believes that remedial action costs are recoverable in rates as the MPSC in 1993 addressed the question of recovery of investigation and remedial action costs for another Michigan gas utility as part of a gas rate case. In order to be recovered in rates, prudent costs must be approved in a rate case. The MPSC has approved similar deferred accounting requests by several other Michigan utilities relative to investigation and remedial action costs. Consumers has initiated discussions with certain insurance companies regarding coverage for some or all of the costs which may be incurred for these sites. For further information, see Note 4. Gas Outlook Consumers currently anticipates gas deliveries to grow approximately 2.3 percent per year (excluding MCV transportation and off-system deliveries) over the next five years, primarily due to a steadily growing customer base. Additionally, Consumers has several strategies which will support increased load requirements in the future. These strategies include increased efforts to promote natural gas to both current and potential customers that are using other fuels for space and water heating. Consumers plans additional capital expenditures to construct new gas mains that are expected to expand Consumers' system. New technologies being developed on a national level, such as the emerging use of natural gas vehicles, also provide Consumers with sales growth opportunities. In addition, as air quality standards continue to become more stringent, management believes that greater opportunities exist for converting industrial boiler load and other processes to natural gas. Other Other Income: Other income for the 12 months ending March 31, 1995 decreased $18 million when compared with the corresponding 1994 period, reflecting the sale of the remaining MCV Bonds in December 1993 which eliminated the bond interest income. Public Utility Holding Company Act Exemption: CMS Energy is exempt from registration under PUHCA. However, in 1991, the Attorney General and the MMCG asked the SEC to revoke this exemption. In April 1992, the MPSC filed a statement with the SEC recommending that CMS Energy's current exemption be revoked and a new exemption be issued conditioned upon certain reporting and operating requirements. CMS Energy is opposing this request and believes it will maintain its current exemption from registration under PUHCA. The SEC has not taken action on this matter. For further information, see Note 4. New Accounting Standard: In March 1995, the FASB issued SFAS 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. This statement, which is effective for 1996 financial statements, requires that an asset be reviewed for impairment whenever events indicate that the carrying amount of an asset may not be recoverable. The statement also requires that a loss be recognized whenever a regulator excludes a portion of an asset's cost from a company's rate base. Consumers is continuing to study SFAS 121, but does not expect the application of this statement to have a material impact on its financial position or results of operations. 55 PART II. OTHER INFORMATION Item 1. Legal Proceedings The discussion below is limited to an update of developments that have occurred in various judicial and administrative proceedings, many of which are more fully described in CMS Energy's and Consumers' 1994 Forms 10-K. Reference is made to the Notes to the Consolidated Financial Statements included herein for additional information regarding various pending administrative and judicial proceedings involving rate, operating and environmental matters. Rate Case Proceedings Appeal of MPSC Orders Related to the Abandoned Midland Nuclear Plant Investment In 1984, Consumers abandoned construction of its unfinished nuclear power plant located in Midland, Michigan, and subsequently took a series of write-downs. In 1991, the MPSC issued an order in the Midland-related proceeding designated as Step 3A finding that Consumers was not in compliance with certain financial stabilization orders. Several parties, including the Attorney General, filed claims of appeal with the Court of Appeals regarding this order. The Court of Appeals affirmed the MPSC determinations in Step 3A in an order issued in April 1995. 1994 Electric Rate Case Filing In November 1994, Consumers filed a request with the MPSC which could increase its retail electric rates in a range from $104 million to $140 million, depending upon the ratemaking treatment afforded sales losses to competition and the treatment of the MCV contract capacity above 915 MW. Based upon the Attorney General's and ABATE's argument on a Motion to Strike, the ALJ struck all of the Staff's testimony on the treatment of the 325 MW of MCV capacity, and the Staff further withdrew a portion of its testimony concerning the rate design. Consumers and the Staff filed an interlocutory appeal of the ALJ's ruling requesting, among other things, that the stricken testimony be allowed into the record. On May 9, 1995 the MPSC issued an order affirming the ALJ's decision to strike the testimony and stated that any change in the treatment of costs associated with any portion of the remaining 325 MW of MCV capacity will only be considered in the context of a competitive bid solicitation. Palisades Plant -- Spent Nuclear Fuel Storage In May 1993, the Attorney General and certain other parties commenced litigation to block Consumers' use of dry spent fuel storage casks at Palisades. In January 1995, the U.S. Sixth Circuit Court of Appeals rejected the claims of the Attorney General and certain other parties and upheld the NRC's rulemaking action permitting such usage. The opposing parties filed a petition with the U.S. Supreme Court for a Writ of Certiorari to seek further review of the Sixth Circuit decision against their positions on the questions of whether the Sixth Circuit properly rejected as untimely a challenge to an NRC rule, and whether the Nuclear Waste Policy Act permits the NRC to license the storage casks without public hearing or site-specific environmental studies. As of May 1, 1995, Consumers had loaded 13 dry storage casks with spent nuclear fuel. Stray Voltage Lawsuits Consumers has a number of lawsuits relating to so-called stray voltage, which results when small electrical currents present in grounded electric systems are diverted from their intended path. At March 31, 1995, Consumers had 73 separate stray voltage cases pending. Interstate Gas Supplier Contract Pricing Dispute On April 18, 1995, the ALJ issued a proposal for decision in a proceeding that had been initiated by Consumers regarding a gas supply contract pricing dispute. In the proposal for decision the ALJ agreed with Consumers that certain market based pricing provisions should, on a prospective basis, limit the price paid by Consumers under the three gas purchase agreements at issue. The ALJ also found that the market based pricing provisions required specific MPSC approval before Consumers could apply those prices to purchases under the agreements and found that such approval had not previously been given. Consumers does not agree with the ALJ's findings and conclusions on this point and will file exceptions and replies to the proposal for decision by May 23, 1995 for the MPSC's consideration. The MPSC will issue its decision sometime thereafter. If the MPSC issues an order adopting the recommendations of the ALJ, the market based provisions upon which Consumers had paid for gas purchases under these agreements will not be effective prior to such an MPSC order and Consumers may be liable for additional payments for gas previously purchased. Prior to the issuance of the ALJ's proposal for decision, the intrastate gas producers involved in this MPSC proceeding filed a complaint against Consumers in a local circuit alleging breach of contract. On Consumers' motion, the court dismissed the lawsuit. The gas suppliers subsequently filed a petition for rehearing with the court where the matter is pending. Under the producers' theories Consumers' liability for gas previously purchased could be as much as $44 million (excluding any interest). Consumers cannot predict the outcome of this matter. Item 4. Submission of Matters to a Vote of Security Holders At CMS Energy's Special Meeting of Shareholders held on March 21, 1995, the shareholders approved an amendment to the Articles of Incorporation to establish a new class of common stock and increase the authorized preferred stock from 5 million shares to 10 million shares ("Proposal 1"); plan amendments to allow awards to relate to any class of common stock ("Proposal 2"); plan amendments to add performance based business criteria and individual limit on plan awards to preserve federal tax deduction ("Proposal 3"). The vote on these proposals was as follows: For Against Abstain Total ---------- ---------- ---------- ------- Proposal 1 57,376,722 12,010,850 1,147,084 70,534,656 Proposal 2 61,609,030 9,438,014 1,830,592 72,877,636 Proposal 3 63,679,695 3,374,263 1,241,806 68,295,764 Item 6. Exhibits and Reports on Form 8-K (a) List of Exhibits (12) - CMS Energy: Statements regarding computation of Ratio of Earnings to Fixed Charges (15) - CMS Energy: Letter of independent public accountant (27)(a) - CMS Energy: Financial Data Schedule (27)(b) - Consumers: Financial Data Schedule (b) Reports on Form 8-K Current Reports on Form 8-K dated January 10, 1995 and February 2, 1995 (CMS Energy and Consumers) covering matters pursuant to "Item 5. Other Events". 58 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, each registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. The signature for each undersigned company shall be deemed to relate only to matters having reference to such company or its subsidiary. CMS ENERGY CORPORATION (Registrant) Date: May 15, 1995 By A M Wright ------------------------- Alan M. Wright Senior Vice President, Chief Financial Officer and Treasurer CONSUMERS POWER COMPANY (Registrant) Date: May 15, 1995 By A M Wright ------------------------- Alan M. Wright Senior Vice President and Chief Financial Officer EX-12 2 CMS ENERGY RATIO OF EARNING TO FIXED CHARGES EXHIBIT (12) Exhibit (12) CMS ENERGY CORPORATION Ratio of Earnings to Fixed Charges (Millions of Dollars)
Three Months Ended Years Ended December 31 March 31, 1995 1994 1993 1992 1991 1990 ------------- ------ ------ ------ ------ ------ (b) (c)(d) (e) Earnings as defined (a) Net income $ 86 $ 179 $ 155 $(297) $(262) $(494) Income taxes 53 92 75 (146) (94) 25 Exclude equity basis subsidiaries (10) (18) (6) 10 10 13 Fixed charges as defined, adjusted to exclude capitalized interest of $1, $6, $5, $3, $5, and $38 million for the three months ended March 31, 1995 and for the years ended December 31, 1994, 1993, 1992, 1991 and 1990, respectively 69 237 245 228 364 317 ------ ------ ------ ------ ------ ------ Earnings as defined $ 198 $ 490 $ 469 $(205) $ 18 $(139) ====== ====== ====== ====== ====== ====== Fixed charges as defined (a) Interest on long-term debt $ 56 $ 193 $ 204 $ 169 $ 274 $ 293 Estimated interest portion of lease rental 3 9 11 16 17 18 Other interest charges 5 18 24 35 68 33 Preferred stock dividend 10 36 17 16 15 17 ------ ------ ------ ------ ------ ------ Fixed charges as defined $ 74 $ 256 $ 256 $ 236 $ 374 $ 361 ====== ====== ====== ====== ====== ====== Ratio of earnings to fixed charges 2.67 1.91 1.83 - - - ====== ====== ====== ====== ====== ====== NOTES: (a) Earnings and fixed charges as defined in instructions for Item 503 of Regulation S-K. (b) For the year ended December 31, 1992, fixed charges exceeded earnings by $441 million. Earnings as defined include a $520 million pre-tax loss on the settlement of MCV Power Purchases, $(15) million for potential customer refunds and other reserves related to 1992 but recorded in 1991, and $6 million relating to CMS Generation Company's reduction in its investment in The Oxford Energy Company. The ratio of earnings to fixed charges would have been 1.30 excluding these amounts. (c) Excludes an extraordinary after-tax loss of $14 million. (d) For the year ended December 31, 1991, fixed charges exceeded earnings by $356 million. Earnings as defined include pre-tax losses of $398 million for write-downs and reserve amounts related to the abandonment of the Midland nuclear plant, $76 million for potential customer refunds and other reserves, and $51 million relating to CMS Generation Company's reduction in its investment in The Oxford Energy Company. The ratio of earnings to fixed charges would have been 1.45 excluding these amounts. (e) For the year ended December 31, 1990, fixed charges exceeded earnings by $500 million. Earnings as defined include pre-tax losses of $847 million for write-downs and reserve amounts related to the abandonment of the Midland nuclear plant. The ratio of earnings to fixed charges would have been 1.96 excluding these amounts.
EX-15 3 ARTHUR ANDERSEN CONSENT TO CMS ENERGY EXHIBIT (15) ARTHUR ANDERSEN LLP Exhibit (15) To CMS Energy Corporation: We are aware that CMS Energy Corporation has incorporated by reference in its Registration Statements No. 33-51877, No. 33-55805, No. 33-9732, No. 33-29681, No. 33-47629, No. 33-57719 and No. 33-64044 its Form 10-Q for the quarter ended March 31, 1995, which includes our report dated May 8, 1995 covering the unaudited interim financial information contained therein. Pursuant to Regulation C of the Securities Act of 1933, that report is not considered a part of the registration statement prepared or certified by our firm or a report prepared or certified by our firm within the meaning of Sections 7 and 11 of the Act. /s/ Arthur Andersen LLP Detroit, Michigan, May 8, 1995. EX-27 4 CMS ENERGY FINANCIAL DATA SCHEDULE UT
UT THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE STATEMENT OF INCOME, STATEMENT OF CASH FLOWS, BALANCE SHEET, AND STATEMENT OF COMMON STOCKHOLDERS' EQUITY, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000811156 CMS ENERGY CORPORATION 1,000,000 3-MOS DEC-31-1994 JAN-01-1995 MAR-31-1995 PER-BOOK 4,263 1,184 598 1,299 0 7,344 1 1,734 (527) 1,209 0 356 2,021 135 766 0 142 0 103 38 2,575 7,344 1,119 53 913 967 152 0 153 60 93 7 86 18 0 306 .99 0
EX-27 5 CONSUMERS FINANCIAL DATA SCHEDULE UT
UT THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE STATEMENT OF INCOME, STATEMENT OF CASH FLOWS, BALANCE SHEET, AND STATEMENT OF COMMON STOCKHOLDER'S EQUITY, AND QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000201533 CONSUMERS POWER COMPANY 1,000,000 3-MOS DEC-31-1994 JAN-01-1995 MAR-31-1995 PER-BOOK 4,263 655 464 1,174 0 6,556 841 491 167 1,516 0 356 1,550 135 404 0 10 0 103 38 2,461 6,556 1,032 54 845 901 131 1 134 40 94 7 87 0 0 309 0 0
EX-99 6 EXHIBIT COVER AND INDEX UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 CMS ENERGY CORPORATION AND CONSUMERS POWER COMPANY FORM 10-Q EXHIBITS FOR QUARTER ENDED MARCH 31, 1995 EXHIBIT INDEX Exhibit Numbers Description - ---------------------------------------------------- (12) - CMS Energy: Statements regarding computation of Ratio of Earnings to Fixed Charges (15) - CMS Energy: Letter of independent public accountant (27)(a) - CMS Energy: Financial Data Schedule (27)(b) - Consumers: Financial Data Schedule -----END PRIVACY-ENHANCED MESSAGE-----