<PAGE> 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 June 30, 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
--- ---
Number of shares outstanding of each of the issuer's classes of common
stock at July 31, 1995:
CMS Energy Corporation:
CMS Energy Common Stock, $.01 par value 88,180,694
CMS Energy Class G Common Stock, no par value 7,000,000
Consumers Power Company, $10 par value,
privately held by CMS Energy 84,108,789
<PAGE>
<PAGE> 2
CMS Energy Corporation
and
Consumers Power Company
Quarterly reports on Form 10-Q
to the Securities and Exchange Commission
for the Quarter Ended June 30, 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. . . . . . . . . . . . . . . 22
Consumers Power Company
Report of Independent Public Accountants. . . . . . . . . . . . . 36
Consolidated Statements of Income . . . . . . . . . . . . . . . . 37
Consolidated Statements of Cash Flows . . . . . . . . . . . . . . 38
Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . 39
Consolidated Statements of Common Stockholder's Equity. . . . . . 41
Condensed Notes to Consolidated Financial Statements. . . . . . . 42
Management's Discussion and Analysis. . . . . . . . . . . . . . . 50
PART II:
Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . . . 60
Item 4. Submission of Matters to a Vote of Security Holders. . . 62
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . 63
Signatures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
<PAGE>
<PAGE> 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
Attorney General. . . . . . . . . The Michigan Attorney General
bcf . . . . . . . . . . . . . . . Billion cubic feet
Board of Directors. . . . . . . . Board of Directors of CMS Energy
Class G Common Stock. . . . . . . One of two classes of common stock of
CMS Energy, no par value, which
reflects the separate performance of
the Consumers Gas Group
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, par value $.01 per share
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
Credit Facility . . . . . . . . . $400 million unsecured revolving
credit and letter of credit facility
dated as of July 29, 1994
Detroit Edison. . . . . . . . . . The Detroit Edison Company
DNR . . . . . . . . . . . . . . . Michigan Department of Natural
Resources
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
MichCon . . . . . . . . . . . . . Michigan Consolidated Gas Company
Michigan Natural Resources
and Environmental Protection
Act. . . . . . . . . . . . . . . Michigan Natural Resources and
Environmental Protection Act Part 201
Michigan Gas Storage. . . . . . . Michigan Gas Storage Company, a
subsidiary of Consumers
MMcf/d. . . . . . . . . . . . . . Million cubic feet per day
MMCG. . . . . . . . . . . . . . . Michigan Municipal Cooperative Group
MPSC. . . . . . . . . . . . . . . Michigan Public Service Commission
MW. . . . . . . . . . . . . . . . Megawatts
NEIL. . . . . . . . . . . . . . . Nuclear Electric Insurance Ltd.
NML . . . . . . . . . . . . . . . Nuclear Mutual Ltd.
NOPR. . . . . . . . . . . . . . . Notice of proposed rulemaking
NRC . . . . . . . . . . . . . . . Nuclear Regulatory Commission
O&M . . . . . . . . . . . . . . . Other operation and maintenance
expense
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
Restated Articles of
Incorporation. . . . . . . . . . CMS Energy's restated Articles of
Incorporation as filed with the
Michigan Department of Commerce June
6, 1995 authorizing the Class G Common
Stock and increasing the authorized
capital stock
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
SGP Partnership . . . . . . . . . A specialty gas processors limited
partnership composed of CMS Gas
Transmission and Nitrotec Helium
Corporation
SFAS. . . . . . . . . . . . . . . Statement of Financial Accounting
Standards
Superfund . . . . . . . . . . . . Comprehensive Environmental Response,
Compensation and Liability Act
Terra . . . . . . . . . . . . . . Terra Energy Ltd., an oil and gas
exploration and production company
located in Traverse City, Michigan
TGN . . . . . . . . . . . . . . . CMS Gas Transmission's 25 percent
ownership in Argentina's
Transportadora de Gas del Norte
pipeline
Walter. . . . . . . . . . . . . . Walter International, Inc., a Texas
corporation
<PAGE>
<PAGE> 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
June 30, 1995 and 1994, and the related consolidated statements of income,
common stockholders' equity and cash flows for the three-month, six-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
June 9, 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,
August 9, 1995.
<PAGE>
<PAGE> 7
<TABLE>
CMS Energy Corporation
Consolidated Statements of Income
(Unaudited)
<CAPTION>
Three Months Ended Six Months Ended Twelve Months Ended
June 30 June 30 June 30
1995 1994 1995 1994 1995 1994
In Millions, Except Per Share Amounts
<S> <C> <C> <C> <C> <C> <C>
OPERATING REVENUE
Electric utility $ 543 $ 549 $1,083 $1,094 $2,179 $2,193
Gas utility 197 183 679 711 1,119 1,184
Oil and gas exploration and production 26 20 60 38 107 76
Independent power production 23 9 46 17 75 28
Natural gas transmission, storage and marketing 43 36 81 78 147 147
Other 5 - 7 1 10 4
----------------------------------------------------------
Total operating revenue 837 797 1,956 1,939 3,637 3,632
----------------------------------------------------------
OPERATING EXPENSES
Operation
Fuel for electric generation 67 70 134 150 290 302
Purchased power - related parties 121 118 245 240 487 486
Purchased and interchange power 47 55 83 97 148 192
Cost of gas sold 135 123 443 495 733 815
Other 164 154 326 298 653 610
----------------------------------------------------------
Total operation 534 520 1,231 1,280 2,311 2,405
Maintenance 45 49 91 92 191 199
Depreciation, depletion and amortization 92 84 206 187 398 372
General taxes 42 36 98 97 184 184
----------------------------------------------------------
Total operating expenses 713 689 1,626 1,656 3,084 3,160
----------------------------------------------------------
PRETAX OPERATING INCOME (LOSS)
Electric utility 83 86 170 174 330 326
Gas utility 17 18 108 102 142 155
Oil and gas exploration and production 7 2 22 4 26 (1)
Independent power production 13 3 26 5 42 6
Natural gas transmission, storage and marketing 3 3 6 6 10 9
Other 1 (4) (2) (8) 3 (23)
----------------------------------------------------------
Total pretax operating income 124 108 330 283 553 472
INCOME TAXES 25 24 79 71 112 98
----------------------------------------------------------
NET OPERATING INCOME 99 84 251 212 441 374
----------------------------------------------------------
OTHER INCOME (DEDUCTIONS)
Income from contractual arrangements (MCV Bonds) - - - - - 16
Accretion income 3 4 6 7 12 13
Accretion expense (Note 2) (8) (9) (16) (18) (32) (36)
Other income taxes, net 3 5 5 7 9 10
Other, net 3 1 7 6 17 14
----------------------------------------------------------
Total other income 1 1 2 2 6 17
----------------------------------------------------------
FIXED CHARGES
Interest on long-term debt 57 47 113 93 212 196
Other interest 4 3 9 6 22 19
Capitalized interest (1) (2) (2) (3) (5) (6)
Preferred dividends 7 7 14 10 28 15
----------------------------------------------------------
Net fixed charges 67 55 134 106 257 224
----------------------------------------------------------
NET INCOME $ 33 $ 30 $ 119 $ 108 $ 190 $ 167
==========================================================
AVERAGE COMMON SHARES OUTSTANDING 88 86 87 86 87 84
==========================================================
EARNINGS PER AVERAGE COMMON SHARE $ .37 $ .35 $ 1.36 $ 1.27 $ 2.19 $ 1.99
==========================================================
DIVIDENDS DECLARED PER COMMON SHARE $ .21 $ .18 $ .42 $ .36 $ .84 $ .72
==========================================================
<FN>
THE ACCOMPANYING CONDENSED NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
/TABLE
<PAGE>
<PAGE> 8
<TABLE>
CMS Energy Corporation
Consolidated Statements of Cash Flows
(Unaudited)
<CAPTION>
Six Months Ended Twelve Months Ended
June 30 June 30
1995 1994 1995 1994
In Millions
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 119 $ 108 $ 190 $ 167
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation, depletion and amortization (includes
nuclear decommissioning depreciation of $24, $24,
$49 and $48, respectively) 206 187 398 372
Capital lease and other amortization 19 14 42 28
Debt discount amortization 16 19 34 38
Deferred income taxes and investment tax credit 57 50 63 54
Accretion expense 16 18 32 36
Accretion income - abandoned Midland project (6) (7) (12) (13)
MCV power purchases - settlement (Note 2) (70) (45) (112) (82)
Other (23) (7) (38) (11)
Changes in other assets and liabilities 47 107 (48) (56)
------ ------ ------ ------
Net cash provided by operating activities 381 444 549 533
------ ------ ------ ------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (excludes assets placed under
capital lease) (436) (268) (743) (584)
Investments in nuclear decommissioning trust funds (24) (24) (49) (48)
Investments in partnerships and unconsolidated subsidiaries (20) (24) (49) (108)
Cost to retire property, net (19) (14) (43) (33)
Deferred demand-side management costs (4) (4) (9) (28)
Proceeds from sale of property 1 1 20 2
Proceeds from MCV Bonds - - - 322
Sale of subsidiary - - - (14)
Other (6) (3) (8) (6)
------ ------ ------ ------
Net cash used in investing activities (508) (336) (881) (497)
------ ------ ------ ------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from bank loans, notes and bonds 162 122 741 718
Issuance of common stock 39 17 52 149
Issuance of preferred stock - 193 - 193
Payment of common stock dividends (37) (31) (73) (61)
Increase (decrease) in notes payable, net (30) (130) 180 (112)
Payment of capital lease obligations (19) (12) (42) (24)
Retirement of bonds and other long-term debt (13) (147) (145) (740)
Repayment of bank loans (9) (102) (380) (203)
Retirement of common stock - (1) (1) (4)
------ ------ ------ ------
Net cash provided by (used in) financing activities 93 (91) 332 (84)
------ ------ ------ ------
NET INCREASE (DECREASE) IN CASH AND TEMPORARY CASH INVESTMENTS (34) 17 - (48)
CASH AND TEMPORARY CASH INVESTMENTS, BEGINNING OF PERIOD 79 28 45 93
------ ------ ------ ------
CASH AND TEMPORARY CASH INVESTMENTS, END OF PERIOD $ 45 $ 45 $ 45 $ 45
====== ====== ====== ======
<FN>
THE ACCOMPANYING CONDENSED NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
</TABLE>
<PAGE>
<PAGE> 9
<TABLE>
CMS Energy Corporation
Consolidated Balance Sheets
<CAPTION>
June 30 June 30
1995 December 31 1994
(Unaudited) 1994 (Unaudited)
In Millions
ASSETS
<S> <C> <C> <C>
PLANT AND PROPERTY (At Cost)
Electric $5,899 $5,771 $5,598
Gas 2,146 2,102 2,025
Oil and gas properties (full-cost method) 992 934 899
Other 56 61 70
-----------------------------------
9,093 8,868 8,592
Less accumulated depreciation, depletion and amortization 4,493 4,299 4,171
-----------------------------------
4,600 4,569 4,421
Construction work-in-progress 264 245 266
-----------------------------------
4,864 4,814 4,687
-----------------------------------
INVESTMENTS
Independent power production 286 152 121
First Midland Limited Partnership (Note 2) 221 218 215
Midland Cogeneration Venture Limited Partnership (Note 2) 90 74 67
Other 59 56 44
-----------------------------------
656 500 447
-----------------------------------
CURRENT ASSETS
Cash and temporary cash investments at cost,
which approximates market 45 79 45
Accounts receivable and accrued revenue, less
allowances of $4, $5 and $4, respectively (Note 7) 169 156 160
Inventories at average cost
Gas in underground storage 155 235 160
Materials and supplies 79 75 78
Generating plant fuel stock 34 37 26
Trunkline settlement 30 30 30
Deferred income taxes 27 34 19
Prepayments and other 111 186 124
-----------------------------------
650 832 642
-----------------------------------
NON-CURRENT ASSETS
Postretirement benefits 475 484 499
Nuclear decommissioning trust funds 262 213 191
Abandoned Midland project (Note 3) 139 147 155
Trunkline settlement 40 55 70
Other 402 339 318
-----------------------------------
1,318 1,238 1,233
-----------------------------------
TOTAL ASSETS $7,488 $7,384 $7,009
===================================
</TABLE>
<PAGE>
<PAGE> 10
<TABLE>
<CAPTION>
June 30 June 30
1995 December 31 1994
(Unaudited) 1994 (Unaudited)
In Millions
STOCKHOLDERS' INVESTMENT AND LIABILITIES
<S> <C> <C> <C>
CAPITALIZATION (Note 7)
Common stockholders' equity $1,229 $1,107 $1,058
Preferred stock of subsidiary 356 356 356
Long-term debt 2,748 2,709 2,407
Non-current portion of capital leases 109 108 124
-----------------------------------
4,442 4,280 3,945
-----------------------------------
CURRENT LIABILITIES
Current portion of long-term debt and capital leases 181 64 262
Notes payable 309 339 129
Accounts payable 197 194 175
Accrued taxes 147 216 141
MCV power purchases - settlement (Note 2) 95 95 82
Accounts payable - related parties 50 50 39
Accrued interest 40 40 38
Accrued refunds 30 25 41
Other 166 198 188
-----------------------------------
1,215 1,221 1,095
-----------------------------------
NON-CURRENT LIABILITIES
Deferred income taxes 621 582 556
Postretirement benefits 553 550 560
MCV power purchases - settlement (Note 2) 269 324 363
Deferred investment tax credits 176 181 186
Trunkline settlement 40 55 70
Regulatory liabilities for income taxes, net 33 16 16
Other 139 175 218
-----------------------------------
1,831 1,883 1,969
-----------------------------------
COMMITMENTS AND CONTINGENCIES (Notes 2, 3, 4 and 5)
TOTAL STOCKHOLDERS' INVESTMENT AND LIABILITIES $7,488 $7,384 $7,009
===================================
<FN>
THE ACCOMPANYING CONDENSED NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
</TABLE>
<PAGE>
<PAGE> 11
<TABLE>
CMS Energy Corporation
Consolidated Statements of Common Stockholders' Equity
(Unaudited)
<CAPTION>
Three Months Ended Six Months Ended Twelve Months Ended
June 30 June 30 June 30
1995 1994 1995 1994 1995 1994
In Millions
<S> <C> <C> <C> <C> <C> <C>
COMMON STOCK
At beginning and end of period $ 1 $ 1 $ 1 $ 1 $ 1 $ 1
-------------------------------------------------------------------
OTHER PAID-IN CAPITAL
At beginning of period 1,734 1,684 1,701 1,672 1,688 1,543
Common Stock reacquired - - - (1) (1) (4)
Common Stock issued 6 4 39 17 52 149
Common Stock reissued - - - - 1 -
-------------------------------------------------------------------
At end of period 1,740 1,688 1,740 1,688 1,740 1,688
-------------------------------------------------------------------
REVALUATION CAPITAL
At beginning of period 1 1 - - (1) -
SFAS 115 - unrealized loss,
net of tax - (2) 1 (1) 2 (1)
-------------------------------------------------------------------
At end of period 1 (1) 1 (1) 1 (1)
-------------------------------------------------------------------
RETAINED EARNINGS (DEFICIT)
At beginning of period (527) (644) (595) (707) (630) (736)
Net income (loss) 33 30 119 108 190 167
Common stock dividends declared (19) (16) (37) (31) (73) (61)
-------------------------------------------------------------------
At end of period (513) (630) (513) (630) (513) (630)
-------------------------------------------------------------------
TOTAL COMMON STOCKHOLDERS' EQUITY $1,229 $1,058 $1,229 $1,058 $1,229 $1,058
===================================================================
<FN>
THE ACCOMPANYING CONDENSED NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
</TABLE>
<PAGE>
<PAGE> 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
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 three, six and twelve month periods ended June 30, 1995,
equity earnings were $14 million, $28 million and $52 million,
respectively and $4 million, $10 million and $18 million for the three,
six and twelve month periods ended June 30, 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 June 30, 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' annual 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 $46 million
for the six months ended June 30, 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 $72 $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 June 30, 1995 and December 31, 1994, the after-tax present value of the
Settlement Order liability totaled $236 million and $272 million,
respectively. The reduction in the liability reflects after-tax cash
underrecoveries of $46 million, partially offset by after-tax accretion
expense of $10 million. The undiscounted after-tax amount associated with
the liability totaled $638 million at June 30, 1995.
Consumers and the MCV Partnership engaged in arbitration proceedings under
the PPA to determine whether the energy charge paid to the MCV Partnership
is being properly calculated. In July 1995, an arbitrator ruled that
Consumers correctly calculated the energy charges and that the MCV
Partnership is not entitled to additional amounts.
In 1994, Consumers paid $30 million to terminate a power purchase
agreement with a 65 MW coal-fired cogeneration facility. Additionally, in
1995, Consumers paid $15 million to terminate a power purchase agreement
with a proposed 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 the plan case. Although recovery of the
costs relating to the substitution was 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.
Consumers has filed exceptions to the ALJ's recommendation. If the MPSC
adopts the ALJ's recommendation, the regulatory asset may be required to
be reduced.
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 confirmed the
recovery of certain MCV-related costs 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.
As part of its decision in the 1993 PSCR reconciliation case issued
February 23, 1995, the MPSC allocated a portion of the costs related to
purchases from the MCV to non-jurisdictional customers, reducing the
amount allowed for recovery from PSCR customers. Consumers believes this
is inconsistent with the terms of the Settlement Order and has appealed
the February 23 order on this issue.
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 further 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
subsidization of residential rates in a two-step adjustment, eliminate all
DSM expenditures after April 1995 (see Electric DSM) 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, the 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. 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 has filed a petition for rehearing of this order with the
MPSC.
In June 1995, briefs and reply briefs were filed by all parties in this
case. Consumers presented one of its previously filed positions, which
assumes retaining certain customers subject to competition and serving
these customers from jurisdictional sources, as well as from the
uncommitted MCV capacity. If this position is adopted, Consumers' retail
electric base rates would increase by $93 million, with a corresponding
increase in PSCR revenues of $52 million. The MPSC staff recommended a
$43 million increase in Consumers' base rates. This position reflects a
different sales forecast than Consumers', as well as a 12- percent return
on equity and a lower equity ratio than that included in Consumers'
proposed capital structure. The MPSC staff also recommends the
elimination of all rate subsidization by primary customers, which include
industrial and large commercial customers. In August 1995, the ALJ issued
a proposal for decision in this case that recommends a $46 million rate
increase. The ALJ generally adopted the MPSC staff's position with
adjustments to the MPSC staff's sales forecast and equity ratios. The ALJ
also recommended the elimination of rate subsidization.
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. 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. 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 June 30, 1995. During
1994, Consumers recognized $11 million in incentive revenue related to an
earlier DSM program approved by the MPSC. In June 1995, the MPSC
authorized Consumers to collect the $11 million incentive for past program
performance. As part of the same order, the MPSC authorized Consumers to
discontinue future DSM program expenditures and ceased all new program
funding.
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. In June 1995, the MPSC staff filed its position in
this case, recommending an $11 million rate decrease. The MPSC staff's
recommendation included a lower rate base, a lower return on common
equity, a revised capital structure and a lower operating cost forecast
than Consumers had projected. 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) of the previously accrued loss, which represented the portion in
excess of the disallowed amount. In June 1995, the Court of Appeals
affirmed the MPSC's prior decision. The producers have filed a motion for
rehearing with the Court of Appeals.
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 filed 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 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 believes the producers' position is
without merit and intends to vigorously oppose any claims they may raise
but 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. 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 for the significant
sites 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 June 30, 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.
The Michigan Natural Resources and Environmental Protection Act (formerly
the Environmental Response Act) was substantially amended in June 1995.
The Michigan law bears similarities to the federal Superfund law. The
purpose of the 1995 amendments was generally to encourage development of
industrial sites and to remove liability from some parties who were not
responsible for activities causing contamination. 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.
Consumers has prepared plans for remedial investigation/feasibility
studies for several of these 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, since there is limited
knowledge of manufactured gas plant contamination at these sites at this
time. 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 June 30, 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 similar Michigan utilities relative to
investigation and remedial action costs. In June 1995, as part of
Consumers' rate case, the MPSC staff recommended that the MPSC adopt the
same accounting and cost recovery previously provided to other Michigan
utilities. 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 investment in unconsolidated subsidiaries and new lease
commitments, of $1,054 million for 1995, $754 million for 1996 and $644
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 June 30,
1995, Consumers had 70 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. In June 1995, the U.S. Supreme Court
refused to hear an appeal of this decision as requested by the Attorney
General and other parties. As of June 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 confirmed 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 Consumers stores low-level waste
at its nuclear plant sites. Recently, a site in South Carolina announced
that it would be available for accepting low-level waste. Consumers plans
to begin shipping its low-level waste to this site in the third quarter of
1995.
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 of an action plan
to provide for operation of the plant beyond 1999. Consumers is
developing plans to anneal the reactor vessel in 1998 at an estimated cost
of $20 million to $30 million. This repair would allow for operation of
the plant to the end of its license life in the year 2007. 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 June 30 were:
In Millions
Six Months Ended Twelve Months Ended
1995 1994 1995 1994
---- ---- ---- ----
Cash transactions
Interest paid (net of
amounts capitalized) $100 $ 77 $185 $170
Income taxes paid
(net of refunds) 19 20 35 16
Non-cash transactions
Nuclear fuel placed
under capital lease $ 23 $ 3 $ 42 $ 8
Other assets placed
under capital leases 2 7 10 16
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, designated Class G Common Stock which reflects 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 continues 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.
Prior to the approval of the amendment to the Articles of Incorporation on
March 21, 1995, CMS Energy was permitted 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. The filing of the Restated Articles of
Incorporation with the Michigan Department of Commerce increased the
number of authorized shares of capital stock 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.
CMS Energy filed a shelf-registration statement with the SEC on February
15, 1995 covering the issuance of up to $200 million of securities
encompassing Common Stock of CMS Energy (including Class G Common Stock),
Preferred Stock of CMS Energy or a special purpose affiliate of
CMS Energy, and/or unsecured debt of CMS Energy. CMS Energy continually
evaluates the capital markets and may offer such securities from time to
time, at terms to be determined at or prior to the time of the sale. In
July 1995, under such shelf registration statement, CMS Energy received
net proceeds of approximately $116 million from the issuance of 7 million
shares of Class G Common Stock at a price to the public of $17.75 per
share representing 21.875% of the common stockholder's equity value
attributed to the Consumers Gas Group. All of the proceeds will be
invested in the businesses and used for general corporate purposes of
CMS Energy. Initially, such proceeds were used to repay a portion of
CMS Energy's indebtedness under the Credit Facility, none of which is
attributable to the Consumers Gas Group. On August 9, 1995 CMS Energy
received notification that underwriters intend to exercise their option
and purchase an additional 520,000 shares of CMS Energy Class G Common
Stock at a price to the public of $17.75 per share for the purpose of
covering overallotments related to the July 1995 initial public offering.
This issuance of the additional shares will increase the common
stockholder's equity value attributed to the Consumers Gas Group
represented by the outstanding shares of Class G Common Stock to 23.5%.
Earnings (Loss) attributable to CMS Energy Class G Common Stock on a per
share basis will be determined based on 23.5% of the earnings of the
Consumers Gas Group, which reflects the intent of the Board of Directors
that the earnings and financial condition of the Consumers Gas Group be
the primary basis for determining dividends to be paid on the Class G
Common Stock. Stockholders of Class G Common Stock have no direct rights
in the equity or assets of the Consumers Gas Group, but rather have rights
in the equity and assets of CMS Energy as a whole.
In the sole discretion of its Board of Directors, dividends will be paid
exclusively to the holders of Class G Common Stock, exclusively to the
holders of CMS Energy Common Stock, or to the holders of both classes in
equal or unequal amounts. Dividends on the Class G Common Stock are paid
at the discretion of the Board of Directors based primarily upon the
earnings and financial condition of the Consumers Gas Group, and to a
lessor extent, CMS Energy as a whole. It is the Board of Directors'
current intention that the declaration or payment of dividends with
respect to the Class G Common Stock will not be reduced, suspended or
eliminated as a result of factors arising out or relating to the electric
utility business or the non-utility businesses of CMS Energy unless such
factors also require, in the Board of Directors' sole discretion, the
omission of the declaration or reduction in payment of dividends on both
the CMS Energy Common Stock and the Class G Common Stock.
In July 1995, the Board of Directors declared a quarterly dividend of 28
cents per share ($1.12 per share on an annual basis) on Class G Common
Stock.
Consumers Power
Debt
Consumers has FERC authorization to issue or guarantee up to $900 million
of short-term debt through December 31, 1996. At June 30, 1995, Consumers
had an unsecured $470 million facility and unsecured, committed lines of
credit aggregating $185 million that are used to finance seasonal working
capital requirements. At June 30, 1995 and 1994, Consumers had a total of
$309 million and $129 million outstanding under these facilities,
respectively. In July 1995, Consumers signed a new four-year, unsecured
working capital facility in an aggregate amount of $425 million replacing
the $470 million facility which expired by its own terms.
Other
Consumers has an established $500-million trade receivables purchase and
sale program. At June 30, 1995, receivables sold under the agreement
totaled $190 million compared with $205 million at June 30, 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 delivered $24 million of CMS Energy common stock and assumed
$12 million of project financing debt.
CMS NOMECO's existing revolving bank credit line, which converts to term
loans from November 1996 through November 1999, was increased from $110
million at December 31, 1994 to $130 million at June 30, 1995. $82
million of revolving credit debt was outstanding at a weighted average
interest rate of 7.36 percent at June 30, 1995.
Senior serial notes amounting to $28 million, with a weighted average
interest rate of 9.4 percent, are outstanding from a private placement.
On July 6, 1995 CMS NOMECO notified the senior serial note-holders that it
intends to prepay entirely the note balances. The notes will be retired
with available proceeds from the bank credit line.
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. Also in connection with
the acquisition of HYDRA-CO, CMS Generation, is guaranteeing a letter of
credit reimbursement obligation of $48 million.
<PAGE>
<PAGE> 22
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, designated Class G Common Stock which reflects 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 continues 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.
Prior to the approval of the amendment to the Articles of Incorporation on
March 21, 1995, CMS Energy was permitted 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. The filing of the Restated Articles of
Incorporation with the Michigan Department of Commerce increased the
number of authorized shares of capital stock 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.
CMS Energy filed a shelf-registration statement with the SEC on February
15, 1995 covering the issuance of up to $200 million of securities
encompassing Common Stock of CMS Energy (including Class G Common Stock),
Preferred Stock of CMS Energy or a special purpose affiliate of
CMS Energy, and/or unsecured debt of CMS Energy. CMS Energy continually
evaluates the capital markets and may offer such securities from time to
time, at terms to be determined at or prior to the time of the sale. In
July 1995, under such shelf registration statement, CMS Energy received
net proceeds of approximately $116 million from the issuance of 7 million
shares of Class G Common Stock at a price to the public of $17.75 per
share representing 21.875% of the common stockholder's equity value
attributed to the Consumers Gas Group. All of the proceeds will be
invested in the businesses and used for general corporate purposes of
CMS Energy. Initially, such proceeds were used to repay a portion of
CMS Energy's indebtedness under the Credit Facility, none of which is
attributable to the Consumers Gas Group. On August 9, 1995 CMS Energy
received notification that underwriters intend to exercise their option
and purchase an additional 520,000 shares of CMS Energy Class G Common
Stock at a price to the public of $17.75 per share for the purpose of
covering overallotments related to the July 1995 initial public offering.
This issuance of the additional shares will increase the common
stockholder's equity value attributed to the Consumers Gas Group
represented by the outstanding shares of Class G Common Stock to 23.5%.
Consolidated earnings for the quarters ended June 30, 1995 and 1994
Consolidated net income totaled $33 million or $.37 per share for the
second quarter of 1995, compared to $30 million or $.35 per share for the
second quarter of 1994. The increase in net income reflects the growth of
the non-utility businesses, an increase in electric utility sales and gas
utility deliveries, additional earnings reflecting improved operating
results, and increased revenue from the May 1994 electric rate increase.
This increase was offset, however, by the 1994 recognition of DSM
incentive revenue, and higher depreciation and general tax expenses during
1995.
Consolidated earnings for the 6 months ended June 30, 1995 and 1994
Consolidated net income totaled $119 million or $1.36 per share for the
six months ended June 30, 1995, compared to $108 million or $1.27 per
share for the six months ended June 30, 1994. The increase in net income
reflects increased electric utility sales, increased revenue from the May
1994 electric rate increase, reversal of a loss previously recorded for a
gas contract contingency (see Note 3), and additional earnings reflecting
growth and improved operating results of the nonutility businesses.
Partially offsetting these increases were a decrease in gas utility
deliveries, higher operating costs and the recognition of DSM incentive
revenue in the second quarter of 1994.
Consolidated earnings for the 12 months ended June 30, 1995 and 1994
Consolidated net income totaled $190 million or $2.19 per share for the 12
months ended June 30, 1995, compared to $167 million or $1.99 per share
for the 12 months ended June 30, 1994. The increase in net income
reflects the growth of the non-utility businesses, the impact of the May
1994 electric rate increase, higher electric utility kWh sales and the
reversal of losses previously recorded for gas contingencies, partially
offset by lower gas utility deliveries, the recognition of DSM incentive
revenue in the 1994 period, and higher 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 primarily
reflect 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 six months of 1995 primarily reflects Consumers' increased electric
sales and increased electric rates which were approved by the MPSC in mid-
1994, offset by 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 investment in
unconsolidated subsidiaries totaled $485 million for the first six months
of 1995 compared with $306 million for the first six months 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
second quarter of 1995 for its utility and non-utility businesses were
$204 million and $281 million, respectively.
In January 1995, CMS Energy paid $18 million in cash dividends to
CMS Energy shareholders. An $19 million dividend was also paid to
CMS Energy shareholders in May 1995. In the second quarter of 1995,
Consumers declared and paid a $70 million common dividend to CMS Energy
from its first quarter earnings.
In July 1995 CMS Energy issued 7 million shares of Class G Common Stock.
The net proceeds of $116 million will be invested in the businesses and
used for the general corporate purposes of CMS Energy. Initially, such
proceeds were be used to repay a portion of CMS Energy's indebtedness
under the Credit Facility, which at July 31, 1995 had $174 million
principal amount outstanding with an annual interest rate of 7.7 percent.
In July 1995, the Board of Directors declared a quarterly dividend of 28
cents per share ($1.12 cents per share on an annual basis) on Class G
Common Stock and a quarterly dividend of 24 cents per share ($.96 on an
annual basis) on CMS Energy Common Stock.
Financing and Investing Outlook: CMS Energy estimates that capital
expenditures, including new lease commitments, will total approximately
$2.5 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 $330 $297 $250
Gas utility 129 119 101
Oil and gas exploration and production (a) 188 120 135
Independent power production (b) 222 151 85
Natural gas pipeline, storage and marketing 185 67 73
---- ---- ----
$1,054 $754 $644
====== ==== ====
(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.
At June 30, 1995, Consumers had several available sources of credit
including unsecured, committed lines of credit totaling $185 million and a
$470 million unsecured working capital facility. In July 1995, Consumers
signed a new four-year, unsecured working capital facility in an aggregate
amount of $425 million replacing the $470 million facility, which expired
by its own terms. Consumers also 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.
Consumers is continuing efforts toward its goal of increasing the equity
portion of its capital structure. In the current gas rate case, the MPSC
staff has suggested that Consumers temporarily suspend paying cash
dividends to CMS Energy in lieu of CMS Energy making a direct
equity infusion of cash into Consumers. Accordingly, CMS Energy is
considering using this method to accomplish a planned equity investment
in 1995. Any reduction in cash dividends from Consumers as a
result of this action will be offset by a reduction in the cash outflows
for potential equity infusions from CMS Energy to Consumers.
Electric Utility Results of Operations
Electric Pretax Operating Income for the quarters ended June 30, 1995 and
1994: During the second quarter of 1995, electric pretax operating income
decreased $3 million from the 1994 level. This reduction resulted
primarily from the 1994 recognition of DSM incentive revenue and
increases in depreciation and general tax expenses during the 1995 period.
Partially offsetting the net decrease was higher electric kWh sales (see
Electric Sales section), a decrease in other operating expenses, and the
positive impact of the May 1994 electric rate increase.
Electric Pretax Operating Income for the six months ended June 30, 1995
and 1994: Electric pretax operating income for the six months ended June
30, 1995 decreased $4 million from the comparable 1994 period. This
decrease primarily reflects the 1994 recognition of DSM incentive revenue,
and higher operating expenses, depreciation and general taxes during 1995.
The decrease was partially offset by increased electric kWh sales (see
Electric Sales section) and the impact of the May 1994 electric rate
increase, which included the recovery of higher postretirement benefit
costs.
Electric Pretax Operating Income for the 12 months ended June 30, 1995 and
1994: The $4 million improvement in electric pretax operating income for
the 12 months ended June 30, 1995 compared with the corresponding 1994
level is primarily the result of the impact of the May 1994 electric rate
increase, which included the recovery of the higher postretirement benefit
costs, and increased electric kWh sales (see Electric Sales section),
which contributed $38 million and $17 million, respectively. These
increases were partially offset by higher operating costs and
depreciation, along with the impact of the 1994 recognition of DSM
incentive revenue.
The following table quantifies the impact of the major reasons for the
changes in electric pretax operating income for the periods ended June 30:
In Millions
Impact on Pretax Operating Income
Quarter ended Six months ended 12 months ended
1995 compared 1995 compared 1995 compared
with 1994 with 1994 with 1994
Sales $ 8 $ 9 $17
Rate increases and
other regulatory issues (6) 5 24
O&M, general taxes
and depreciation (a) (5) (18) (37)
------- ------- ------
Total change $(3) $(4) $ 4
======= ======= ======
(a) Includes $11 million and $29 million of increased postretirement
benefit costs for the six month and 12 month comparative periods,
respectively.
Electric Sales: Electric sales during the second quarter of 1995 totaled
8.5 billion kWh, a 2.6 percent increase from 1994 levels. The increase
occurred in all customer classes. Consumers' electric sales have
benefited from improved employment and other economic conditions.
Electric sales during the six months ended June 30, 1995 totaled 17.2
billion kWh, a 2.0 percent increase from 1994 levels. This increase
reflects continued strength in the industrial and commercial sectors,
somewhat offset by weather impacts. During the six months ended 1995
period, commercial and industrial sales increased 3.3 percent and 4.2
percent respectively, while residential sales showed a slight decrease.
Electric sales during the 12 months ended June 30, 1995 totaled 34.8
billion kWh, a 3.4 percent increase from 1994 levels. During the 12
months ended 1995 period, commercial and industrial sales increased 2.7
percent and 5.2 percent respectively, while residential sales showed a
slight decrease from 1994 levels. 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 ended June 30, 1995
totaled $235 million, an $8 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 six month period ended June 30, 1995 totaled $462 million, a $25
million decrease from the corresponding 1994 period. Power costs for the
12 month period ended June 30, 1995 totaled $925 million, a $55 million
decrease from the corresponding 1994 period.
Electric Utility Issues
Power Purchases from the MCV Partnership: Consumers' annual 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 $46
million for the first six 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 $72 $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 engaged in arbitration proceedings under
the PPA to determine whether the energy charge paid to the MCV Partnership
is being properly calculated. In July 1995, an arbitrator ruled that
Consumers correctly calculated the energy charges and that the MCV
Partnership is not entitled to additional amounts.
In July 1994 and February 1995, Consumers terminated power purchase
agreements with a 65 MW coal-fired cogeneration facility and a proposed 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 the plan case. Although
recovery of the costs relating to the substitution was 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. Consumers has filed exceptions to the ALJ's
recommendation. 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 further increase its retail electric rates.
As part of this case, in May 1995, the MPSC 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. In
August 1995, the ALJ recommended a final annual rate increase of $46
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. A final
order is expected in late 1995.
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. In
June 1995, Consumers filed a petition for rehearing of this decision with
the MPSC.
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 June 1995, the
MPSC issued an order that authorized Consumers to collect the full $11
million incentive. The MPSC also authorized Consumers to discontinue
future DSM program expenditures and ceased all new program funding. 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 $330 million for 1995, $297
million for 1996 and $250 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.
The Michigan Natural Resources and Environmental Protection Act (formerly
the Environmental Response Act) was substantially amended in June 1995.
The Michigan law bears similarities to the federal Superfund law. The
purpose of the 1995 amendments was generally to encourage development of
industrial sites and to remove liability from some parties who were not
responsible for activities causing contamination. Consumers expects that
it will ultimately incur costs at a number of sites. Consumers believes
costs incurred for both investigation and required remedial actions will
be recovered in rates.
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 June 1995, the MPSC issued an order that
set rates and charges for retail delivery service under the experiment.
Consumers has sought rehearing regarding a number of issues included in
the order. 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 of electric energy, and the utilities would be allowed the
opportunity to recover wholesale stranded costs (including those
applicable to municipalization situations).
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. The
Systematic Assessment of Licensee Performance report issued by the NRC in
June 1995 recognized some improvement in Palisades' performance.
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. In June 1995, the U.S. Supreme Court refused to
hear an appeal of this decision as requested by the Attorney General and
other parties.
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 developing plans to anneal the reactor vessel in 1998
at an estimated cost of $20 million to $30 million. This repair would
allow for operation of the plant 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 June 30,
1995, Consumers had 70 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.
Consumers Gas Group Results of Operations
Gas Pretax Operating Income for the quarters ended June 30, 1995 and 1994:
During the second quarter of 1995, gas pretax operating income decreased
$1 million from the 1994 level. The decreased pretax operating income
reflects higher operating costs, depreciation and general taxes.
Partially offsetting this decrease was a 12.9 percent increase in gas
deliveries (see Gas Deliveries section).
Gas Pretax Operating Income for the six months ended June 30, 1995 and
1994: The $6 million increase in gas pretax operating income for the six
months ended June 30, 1995 compared with the same 1994 period reflects the
reversal of a loss previously recorded for a gas contract contingency (see
Note 3), partially offset by lower gas deliveries (see Gas Deliveries
section), higher gas operating costs and depreciation.
Gas Pretax Operating Income for the 12 months ended June 30, 1995 and
1994: The $13 million decrease in 1995 gas pretax operating income
compared with 1994 reflects lower gas deliveries (see Gas Deliveries
section) and higher operating costs, depreciation, and general taxes,
partially offset by the reversal of losses previously recorded for gas
contingencies. Increased operating costs included $14 million of
postretirement benefit costs (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 June 30:
In Millions
Impact on Pretax Operating Income
Quarter ended Six months ended 12 months ended
1995 compared 1995 compared 1995 compared
with 1994 with 1994 with 1994
Deliveries $ 5 $(14) $(31)
Recovery of gas costs and
other regulatory issues - 26 35
O&M, general taxes
and depreciation (6) (6) (17)
----- ----- -----
Total change $ (1) $ 6 $(13)
===== ===== =====
Gas Deliveries: During the second quarter of 1995, gas sales and gas
transported, excluding transport to the MCV and off-system transportation,
totaled 55.2 bcf, a 12.9 percent increase from the corresponding 1994
level. Gas sales and gas transported increased 4.0 bcf and 2.3 bcf,
respectively, with the majority of the change attributable to increased
usage. For the six months ended June 30, 1995, gas sales and gas
transported for all customer classes totaled 223.8 bcf, a 9.7 percent
decrease from the corresponding 1994 level. Gas sales decreased 9.7 bcf
while transport deliveries increased 2.5 bcf. The decrease in firm sales
occurred primarily due to warmer temperatures. For the 12 months ended
June 30, 1995, gas sales and gas transported for all customer classes
totaled 385.1 bcf, a 9.4 percent decrease from the corresponding 1994
level, reflecting record cold winter weather during the 12 months ended
June 30, 1994 and a return to more normal weather during the 12 months
ended June 30, 1995.
Cost of Gas Sold: The utility cost of gas sold for the second quarter of
1995 increased $9 million from the 1994 level. The utility cost of gas
sold for the six months ended June 30, 1995 decreased $44 million from the
1994 level as a result of reduced deliveries and the reversal of gas
contract loss contingency. The utility cost of gas sold for the 12 months
ended June 30, 1995 decreased $70 million from the corresponding 1994
level which was also the result of reduced gas deliveries and the gas
contract loss contingency reversal.
Consumers Gas Group 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. In June 1995, the MPSC staff filed its position in this case,
recommending an $11 million rate decrease. 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 believes the
producers' position is without merit and intends to vigorously oppose any
claims they may raise but 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 $129 million for 1995, $119 million for 1996 and $101
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: The Michigan Natural Resources and
Environmental Protection Act (formerly the Environmental Response Act) was
substantially amended in June 1995. The Michigan law bears similarities
to the federal Superfund law. The purpose of the 1995 amendments was
generally to encourage development of industrial sites and to remove
liability from some parties who were not responsible for activities
causing contamination. 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
June 30, 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. In June 1995, as part of
Consumers' rate case, the MPSC staff recommended that the MPSC adopt the
same accounting and cost recovery previously provided to other Michigan
utilities. 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.
Consumers Gas Group 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.
Low Income Energy Assistance Program funding currently provides
approximately $71 million in heating assistance to approximately 400,000
Michigan households, with approximately 18 percent of funds going to
Consumers' customers. However, recent actions by the U. S. House of
Representatives Committee on Appropriations has put restoration of funding
for fiscal year 1996 at risk. Consumers is continuing vigorous efforts to
maintain this funding.
Oil and Gas Exploration and Production
Pretax Operating Income: Pretax operating income for the three months
ended June 30, 1995 increased $5 million from the same period in 1994,
reflecting higher oil and gas sales volumes, partially offset by lower
average market prices for oil and gas. Pretax operating income for the
six and twelve months ended June 30, 1995 increased $18 million and $27
million, respectively over the comparable 1994 periods 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 added net production of 5,500
barrels per day in 1995 and proven reserves of approximately 20 million
barrels of oil.
In June 1995, CMS NOMECO signed a letter of intent to purchase Terra
Energy Ltd. for $54 million plus working capital. The acquisition will
add about 81 billion cubic feet of proven gas reserves. A merger
agreement is expected to be signed and closing to occur in the third
quarter of 1995.
Other capital expenditures for the six months ended June 30, 1995
approximated $32 million, primarily for development of existing oil and
gas reserves. These expenditures were made both domestically ($11
million) and internationally ($21 million), including $10 million in
Ecuador development drilling and facilities construction.
CMS Energy currently plans to invest $443 million, including the Walter
and Terra acquisitions, from 1995 to 1997 relating to its oil and gas
exploration and production operations. These capital expenditures will be
concentrated in North and South America and Africa.
Independent Power Production
Pretax Operating Income: Pretax operating income for the three months
ended June 30, 1995 increased $10 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 $21
million and $36 million for the six and twelve months ended June 30, 1995,
respectively as compared to the comparable 1994 periods, 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
one year $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 the transfer of possession and the right to operate
two 330 MW generating units which are nearing completion, and the
construction and operation of another two 330 MW units. The output of the
plants will be sold to the Moroccan national utility. The total cost of
the initial concession to operate the facilities and construct the two
additional units will be in excess of $1.4 billion.
In April 1995, CMS Generation signed a letter of intent to divest its
interest in the Argentine thermal electric generation plant, Centrales
Termicas San Nicolas. The divestiture was completed early in the third
quarter 1995, under which CMS Generation received securities, which
contain an option to put, exercisable in fifteen years and was repaid for
funds CMS Generation previously loaned to the plant.
CMS Energy currently plans to invest $458 million (including the HYDRA-CO
acquisition) relating to its independent power production operations over
the next three years. CMS Generation will pursue acquisitions and
development of electric generating plants in the United States, Latin
America, southern Asia and the Pacific Rim region.
Natural Gas Transmission, Storage and Marketing
Pretax Operating Income: Pretax operating income for the three and six
months ended June 30, 1995 remained unchanged and for the twelve months
ended June 30, 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 its existing 190 MMcf/d treating complex to
accommodate new Antrim production. An additional $9 million facility 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 July 1995, CMS Gas Transmission was the successful bidder in acquiring
a 25 percent ownership interest in TGN pipeline, for $142 million. TGN,
which has current annual revenues of about $150 million, owns and operates
2600 miles of pipelines that provide natural gas transmission service to
the northern and central parts of Argentina, with almost one billion cubic
feet per day of existing pipeline capacity.
Also in July 1995, CMS Gas Transmission received final 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.
Construction, which will commence in August 1995, is expected to be
completed by November 1995. The pipeline will provide significantly
increased gas supply flexibilities in the U.S. and Canada.
CMS Gas Transmission, through its 50 percent ownership in the SGP
Partnership, currently has three helium recovery plants under construction
and scheduled to be in service by year-end. The total estimated capital
cost for these three plants, located in Colorado and Kansas, is $12.5
million.
CMS Energy currently plans to invest $325 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 ended June 30, 1995
decreased $11 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.
In June 1995, the SEC released a staff report that recommended legislative
options to Congress: 1) repeal PUHCA and strengthen the ability of the
FERC and state regulators to obtain books and records, conduct audits and
review affiliate transactions; 2) a repeal of PUHCA, without condition; or
3) amend PUHCA to give the SEC broader exemptive authority. The SEC staff
stated that PUHCA was restrictive in many regards and may prevent
companies from responding effectively to the changes now occurring in the
utility industry. The SEC staff supported option 1 because it would
achieve the benefits of unconditional repeal, while preserving the ability
of states to protect consumers.
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 does not expect the application of this
statement to have a material impact on its financial position or results
of operations.
<PAGE>
<PAGE> 36
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 June 30, 1995 and 1994, and the
related consolidated statements of income, common stockholder's equity and
cash flows for the three-month, six-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 stockholder's 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,
August 9, 1995.
<PAGE>
<PAGE> 37
<TABLE>
Consumers Power Company
Consolidated Statements of Income
(Unaudited)
<CAPTION>
Three Months Ended Six Months Ended Twelve Months Ended
June 30 June 30 June 30
1995 1994 1995 1994 1995 1994
In Millions
<S> <C> <C> <C> <C> <C> <C>
OPERATING REVENUE
Electric $ 543 $ 549 $1,083 $1,094 $2,179 $2,193
Gas 197 183 679 711 1,119 1,184
Other 10 2 21 3 33 6
---------------------------------------------------------
Total operating revenue 750 734 1,783 1,808 3,331 3,383
---------------------------------------------------------
OPERATING EXPENSES
Operation
Fuel for electric generation 67 70 134 150 290 302
Purchased power - related parties 121 118 245 240 487 486
Purchased and interchange power 47 55 83 97 148 192
Cost of gas sold 102 93 383 427 617 687
Other 139 137 276 262 574 533
---------------------------------------------------------
Total operation 476 473 1,121 1,176 2,116 2,200
Maintenance 45 48 89 91 187 196
Depreciation, depletion and amortization 79 74 181 169 347 324
General taxes 41 34 95 94 179 179
---------------------------------------------------------
Total operating expenses 641 629 1,486 1,530 2,829 2,899
---------------------------------------------------------
PRETAX OPERATING INCOME
Electric 83 86 170 174 330 326
Gas 17 18 108 102 142 155
Other 9 1 19 2 30 3
---------------------------------------------------------
Total pretax operating income 109 105 297 278 502 484
INCOME TAXES 28 26 85 79 125 126
---------------------------------------------------------
NET OPERATING INCOME 81 79 212 199 377 358
---------------------------------------------------------
OTHER INCOME (DEDUCTIONS)
MCV Bond income - - - - - 16
Dividends from affiliates 4 4 8 8 17 16
Accretion income 3 4 6 7 12 13
Accretion expense (Note 2) (8) (9) (16) (18) (32) (36)
Other income taxes, net 3 3 6 7 11 15
Other, net 1 - 3 - 9 4
---------------------------------------------------------
Total other income 3 2 7 4 17 28
---------------------------------------------------------
INTEREST CHARGES
Interest on long-term debt 36 33 71 67 139 145
Other interest 4 2 9 5 21 17
Capitalized interest (1) - (1) - (1) (1)
---------------------------------------------------------
Net interest charges 39 35 79 72 159 161
---------------------------------------------------------
Net Income 45 46 140 131 235 225
Preferred Stock Dividends 7 7 14 10 28 15
---------------------------------------------------------
NET INCOME AFTER DIVIDENDS ON PREFERRED STOCK $ 38 $ 39 $ 126 $ 121 $ 207 $ 210
=========================================================
<FN>
THE ACCOMPANYING CONDENSED NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
</TABLE>
<PAGE>
<PAGE> 38
<TABLE>
Consumers Power Company
Consolidated Statements of Cash Flows
(Unaudited)
<CAPTION>
Six Months Ended Twelve Months Ended
June 30 June 30
1995 1994 1995 1994
In Millions
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 140 $ 131 $ 235 $ 225
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation, depletion and amortization (includes
nuclear decommissioning depreciation of $24, $24,
$49 and $48, respectively) 181 169 347 324
Capital lease and other amortization 19 12 42 26
Deferred income taxes and investment tax credit 42 46 52 54
Accretion expense 16 18 32 36
Accretion income - abandoned Midland project (6) (7) (12) (13)
MCV power purchases - settlement (Note 2) (70) (45) (112) (82)
Other (16) (2) (27) (3)
Changes in other assets and liabilities 38 48 15 (120)
------ ------ ------ ------
Net cash provided by operating activities 344 370 572 447
------ ------ ------ ------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (excludes assets placed under
capital lease) (175) (194) (427) (451)
Investments in nuclear decommissioning trust funds (24) (24) (49) (48)
Cost to retire property, net (19) (14) (43) (33)
Deferred demand-side management costs (4) (4) (9) (28)
Proceeds from sale of property 1 1 12 2
Other (5) 2 (5) 1
Proceeds from Midland-related assets - - - 322
Sale of subsidiary - - - (14)
------ ------ ------ ------
Net cash used in investing activities (226) (233) (521) (249)
------ ------ ------ ------
CASH FLOWS FROM FINANCING ACTIVITIES
Payment of common stock dividends (70) (82) (164) (158)
Increase (decrease) in notes payable, net (30) (130) 180 (112)
Payment of capital lease obligations (18) (11) (41) (23)
Payment of preferred stock dividends (14) (6) (28) (11)
Retirement of bonds and other long-term debt (1) (107) (26) (702)
Repayment of bank loans - (94) (375) (125)
Proceeds from preferred stock - 193 - 193
Contribution from stockholder - 100 - 100
Proceeds from bonds and bank loans - - 400 586
------ ------ ------ ------
Net cash used in financing activities (133) (137) (54) (252)
------ ------ ------ ------
NET INCREASE (DECREASE) IN CASH AND TEMPORARY CASH INVESTMENTS (15) - (3) (54)
CASH AND TEMPORARY CASH INVESTMENTS, BEGINNING OF PERIOD 25 13 13 67
------ ------ ------ ------
CASH AND TEMPORARY CASH INVESTMENTS, END OF PERIOD $ 10 $ 13 $ 10 $ 13
====== ====== ====== ======
<FN>
THE ACCOMPANYING CONDENSED NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
</TABLE>
<PAGE>
<PAGE> 39
<TABLE>
Consumers Power Company
Consolidated Balance Sheets
<CAPTION>
June 30 June 30
1995 December 31 1994
(Unaudited) 1994 (Unaudited)
In Millions
ASSETS
<S> <C> <C> <C>
PLANT (At original cost)
Electric $5,899 $5,771 $5,598
Gas 2,097 2,064 1,988
Other 30 30 26
-----------------------------------
8,026 7,865 7,612
Less accumulated depreciation, depletion and amortization 3,968 3,794 3,687
-----------------------------------
4,058 4,071 3,925
Construction work-in-progress 263 241 265
-----------------------------------
4,321 4,312 4,190
-----------------------------------
INVESTMENTS
Stock of affiliates 321 317 310
First Midland Limited Partnership (Note 2) 221 218 215
Midland Cogeneration Venture Limited Partnership (Note 2) 90 74 67
Other 8 8 7
-----------------------------------
640 617 599
-----------------------------------
CURRENT ASSETS
Cash and temporary cash investments at cost,
which approximates market 10 25 13
Accounts receivable and accrued revenue, less
allowances of $3, $4 and $4, respectively (Note 7) 83 100 121
Accounts receivable - related parties 49 12 67
Inventories at average cost
Gas in underground storage 155 235 160
Materials and supplies 75 75 78
Generating plant fuel stock 34 37 26
Trunkline settlement 30 30 30
Deferred income taxes 28 35 20
Postretirement benefits 25 25 25
Prepayments and other 72 143 82
-----------------------------------
561 717 622
-----------------------------------
NON-CURRENT ASSETS
Postretirement benefits 469 478 493
Nuclear decommissioning trust funds 262 213 191
Abandoned Midland Project (Note 3) 139 147 155
Trunkline settlement 40 55 70
Other 275 270 273
-----------------------------------
1,185 1,163 1,182
-----------------------------------
TOTAL ASSETS $6,707 $6,809 $6,593
===================================
</TABLE>
<PAGE> 40
<TABLE>
<CAPTION>
June 30 June 30
1995 December 31 1994
(Unaudited) 1994 (Unaudited)
In Millions
STOCKHOLDERS' INVESTMENT AND LIABILITIES
<S> <C> <C> <C>
CAPITALIZATION
Common stockholder's equity
Common stock $ 841 $ 841 $ 841
Paid-in-capital 491 491 491
Revaluation capital 19 15 12
Retained earnings since December 31, 1992 136 80 93
-----------------------------------
1,487 1,427 1,437
Preferred stock 356 356 356
Long-term debt 1,955 1,953 1,746
Non-current portion of capital leases 109 108 116
-----------------------------------
3,907 3,844 3,655
-----------------------------------
CURRENT LIABILITIES
Current portion of long-term debt and capital leases 49 45 249
Notes payable 309 339 129
Accrued taxes 130 173 116
Accounts payable 158 165 153
MCV power purchases - settlement (Note 2) 95 95 82
Accounts payable - related parties 53 51 42
Accrued interest 34 37 35
Accrued refunds 30 25 41
Other 156 187 180
-----------------------------------
1,014 1,117 1,027
-----------------------------------
NON-CURRENT LIABILITIES
Deferred income taxes 594 568 536
Postretirement benefits 534 532 543
MCV power purchases - settlement (Note 2) 269 324 363
Deferred investment tax credit 174 179 184
Trunkline settlement 40 55 70
Regulatory liabilities for income taxes, net 33 16 16
Other (Note 4) 142 174 199
-----------------------------------
1,786 1,848 1,911
-----------------------------------
COMMITMENTS AND CONTINGENCIES (Notes 2, 3, 4 and 5)
TOTAL STOCKHOLDERS' INVESTMENT AND LIABILITIES $6,707 $6,809 $6,593
===================================
<FN>
THE ACCOMPANYING CONDENSED NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
</TABLE>
<PAGE>
<PAGE> 41
<TABLE>
Consumers Power Company
Consolidated Statements of Common Stockholder's Equity
(Unaudited)
<CAPTION>
Three Months Ended Six Months Ended Twelve Months Ended
June 30 June 30 June 30
1995 1994 1995 1994 1995 1994
In Millions
<S> <C> <C> <C> <C> <C> <C>
COMMON STOCK
At beginning and end of period $ 841 $ 841 $ 841 $ 841 $ 841 $ 841
---------------------------------------------------------
OTHER PAID-IN CAPITAL
At beginning of period 491 391 491 391 491 391
Stockholder's contribution - 100 - 100 - 100
---------------------------------------------------------
At end of period 491 491 491 491 491 491
---------------------------------------------------------
REVALUATION CAPITAL
At beginning of period 17 15 15 - 12 -
Implementation of SFAS 115 - January 1, 1994 - - - 20 - 20
Change in unrealized loss, net of tax 2 (3) 4 (8) 7 (8)
---------------------------------------------------------
At end of period 19 12 19 12 19 12
---------------------------------------------------------
RETAINED EARNINGS
At beginning of period 168 120 80 54 93 41
Net income 45 46 140 131 235 225
Common stock dividends declared (70) (66) (70) (82) (164) (158)
Preferred stock dividends declared (7) (7) (14) (10) (28) (15)
---------------------------------------------------------
At end of period 136 93 136 93 136 93
---------------------------------------------------------
TOTAL COMMON STOCKHOLDER'S EQUITY $1,487 $1,437 $1,487 $1,437 $1,487 $1,437
=========================================================
<FN>
THE ACCOMPANYING CONDENSED NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
</TABLE>
<PAGE>
<PAGE> 42
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 June 30, 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' annual 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 $46 million
for the six months ended June 30, 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 $72 $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 June 30, 1995 and December 31, 1994, the after-tax present value of the
Settlement Order liability totaled $236 million and $272 million,
respectively. The reduction in the liability reflects after-tax cash
underrecoveries of $46 million, partially offset by after-tax accretion
expense of $10 million. The undiscounted after-tax amount associated with
the liability totaled $638 million at June 30, 1995.
Consumers and the MCV Partnership engaged in arbitration proceedings under
the PPA to determine whether the energy charge paid to the MCV Partnership
is being properly calculated. In July 1995, an arbitrator ruled that
Consumers correctly calculated the energy charges and that the MCV
Partnership is not entitled to additional amounts.
In 1994, Consumers paid $30 million to terminate a power purchase
agreement with a 65 MW coal-fired cogeneration facility. Additionally, in
1995, Consumers paid $15 million to terminate a power purchase agreement
with a proposed 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 the plan case. Although recovery of the
costs relating to the substitution was 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.
Consumers has filed exceptions to the ALJ's recommendation. If the MPSC
adopts the ALJ's recommendation, the regulatory asset may be required to
be reduced.
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 confirmed the
recovery of certain MCV-related costs 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.
As part of its decision in the 1993 PSCR reconciliation case issued
February 23, 1995, the MPSC allocated a portion of the costs related to
purchases from the MCV to non-jurisdictional customers, reducing the
amount allowed for recovery from PSCR customers. Consumers believes this
is inconsistent with the terms of the Settlement Order and has appealed
the February 23 order on this issue.
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 further 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
subsidization of residential rates in a two-step adjustment, eliminate all
DSM expenditures after April 1995 (see Electric DSM) 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, the 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. 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 has filed a petition for rehearing of this order with the
MPSC.
In June 1995, briefs and reply briefs were filed by all parties in this
case. Consumers presented one of its previously filed positions, which
assumes retaining certain customers subject to competition and serving
these customers from jurisdictional sources, as well as from the
uncommitted MCV capacity. If this position is adopted, Consumers' retail
electric base rates would increase by $93 million, with a corresponding
increase in PSCR revenues of $52 million. The MPSC staff recommended a
$43 million increase in Consumers' base rates. This position reflects a
different sales forecast than Consumers', as well as a 12- percent return
on equity and a lower equity ratio than that included in Consumers'
proposed capital structure. The MPSC staff also recommends the
elimination of all rate subsidization by primary customers, which include
industrial and large commercial customers. In August 1995, the ALJ issued
a proposal for decision in this case that recommends a $46 million rate
increase. The ALJ generally adopted the MPSC staff's position with
adjustments to the MPSC staff's sales forecast and equity ratios. The ALJ
also recommended the elimination of rate subsidization.
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. 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. 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 June 30, 1995. During
1994, Consumers recognized $11 million in incentive revenue related to an
earlier DSM program approved by the MPSC. In June 1995, the MPSC
authorized Consumers to collect the $11 million incentive for past program
performance. As part of the same order, the MPSC authorized Consumers to
discontinue future DSM program expenditures and ceased all new program
funding.
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. In June 1995, the MPSC staff filed its position in
this case, recommending an $11 million rate decrease. The MPSC staff's
recommendation included a lower rate base, a lower return on common
equity, a revised capital structure and a lower operating cost forecast
than Consumers had projected. 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) of the previously accrued loss, which represented the portion in
excess of the disallowed amount. In June 1995, the Court of Appeals
affirmed the MPSC's prior decision. The producers have filed a motion for
rehearing with the Court of Appeals.
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 filed 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 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 believes the producers' position is
without merit and intends to vigorously oppose any claims they may raise
but 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. 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 for the significant
sites 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 June 30, 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.
The Michigan Natural Resources and Environmental Protection Act (formerly
the Environmental Response Act) was substantially amended in June 1995.
The Michigan law bears similarities to the federal Superfund law. The
purpose of the 1995 amendments was generally to encourage development of
industrial sites and to remove liability from some parties who were not
responsible for activities causing contamination. 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.
Consumers has prepared plans for remedial investigation/feasibility
studies for several of these 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, since there is limited
knowledge of manufactured gas plant contamination at these sites at this
time. 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 June 30, 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 similar Michigan utilities relative to
investigation and remedial action costs. In June 1995, as part of
Consumers' rate case, the MPSC staff recommended that the MPSC adopt the
same accounting and cost recovery previously provided to other Michigan
utilities. 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
new lease commitments, of $459 million for 1995, $416 million for 1996 and
$351 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 June 30,
1995, Consumers had 70 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. In June 1995, the U.S. Supreme Court
refused to hear an appeal of this decision as requested by the Attorney
General and other parties. As of June 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 confirmed 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 Consumers stores low-level waste
at its nuclear plant sites. Recently, a site in South Carolina announced
that it would be available for accepting low-level waste. Consumers plans
to begin shipping its low-level waste to this site in the third quarter of
1995.
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 of an action plan
to provide for operation of the plant beyond 1999. Consumers is
developing plans to anneal the reactor vessel in 1998 at an estimated cost
of $20 million to $30 million. This repair would allow for operation of
the plant to the end of its license life in the year 2007. 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 June 30 were:
In Millions
Six Months Ended Twelve Months Ended
1995 1994 1995 1994
---- ---- ---- ----
Cash transactions
Interest paid (net of
amounts capitalized) $ 77 $ 73 $151 $159
Income taxes paid
(net of refunds) 46 55 25 53
Non-cash transactions
Nuclear fuel placed
under capital lease $ 23 $ 3 $ 42 $ 8
Other assets placed
under capital leases 2 7 10 16
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. At June 30, 1995, Consumers
had an unsecured $470 million facility and unsecured, committed lines of
credit aggregating $185 million that are used to finance seasonal working
capital requirements. At June 30, 1995 and 1994, Consumers had a total of
$309 million and $129 million outstanding under these facilities,
respectively. In July 1995, Consumers signed a new four-year, unsecured
working capital facility in an aggregate amount of $425 million replacing
the $470 million facility which expired by its own terms.
Consumers has an established $500-million trade receivables purchase and
sale program. At June 30, 1995, receivables sold under the agreement
totaled $190 million compared with $205 million at June 30, 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.
<PAGE>
<PAGE> 50
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 June 30, 1995 and 1994
Consolidated net income after dividends on preferred stock totaled $38
million for the second quarter of 1995 and $39 million for the second
quarter of 1994. This small net income decrease reflects the 1994
recognition of DSM incentive revenue, and higher depreciation and general
tax expenses during 1995. Partially offsetting this decrease, however,
were higher electric sales and gas deliveries, improved operating results
from Consumers' interest in the MCV Facility and increased revenue from
the May 1994 electric rate increase, which benefited the entire 1995
quarter.
Consolidated earnings for the six months ended June 30, 1995 and 1994
Consolidated net income after dividends on preferred stock totaled $126
million for the six months ended June 30, 1995, compared with $121 million
for the six months ended June 30, 1994. The increase in net income
reflects increased electric sales, increased revenue from the May 1994
electric rate increase, reversal of a loss previously recorded for a gas
contract contingency (see Note 3), and improved operating results from
Consumers' interest in the MCV Facility. Partially offsetting these
increases were a decrease in gas deliveries, higher operating costs and
the recognition of DSM incentive revenue in the second quarter of 1994.
Consolidated earnings for the 12 months ended June 30, 1995 and 1994
Consolidated net income after dividends on preferred stock totaled $207
million for the 12 months ended June 30, 1995, compared with $210 million
for the 12 months ended June 30, 1994. The decrease in net income
reflects lower gas deliveries, the recognition of DSM incentive revenue in
the 1994 period, and higher operating costs and depreciation, partially
offset by the impact of the May 1994 electric rate increase, higher
electric kWh sales and the reversal of losses previously recorded for gas
contingencies.
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 six
months of 1995 reflects increased electric sales and increased electric
rates which were approved by the MPSC in mid-1994, offset by 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 $204
million for the first six months of 1995 compared with $208 million for
the first six months of 1994. These amounts primarily represent capital
investments in Consumers' electric and gas utility business units.
In the second quarter of 1995, Consumers declared and paid a $70 million
common dividend from its first quarter earnings.
Financing and Investing Outlook: Consumers estimates that capital
expenditures, including 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 $418 $373 $343
Nuclear fuel lease 28 39 4
Capital leases other than nuclear fuel 10 2 2
Michigan Gas Storage 3 2 2
---- ---- ----
$459 $416 $351
==== ==== ====
At June 30, 1995, Consumers had several available sources of credit
including unsecured, committed lines of credit totaling $185 million and a
$470 million unsecured working capital facility. In July 1995, Consumers
signed a new four-year, unsecured working capital facility in an aggregate
amount of $425 million replacing the $470 million facility, which expired
by its own terms. Consumers also 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 June 30, 1995, receivables
sold under the agreement totaled $190 million.
Consumers is continuing efforts toward its goal of increasing the equity
portion of its capital structure. In the current gas rate case, the MPSC
staff has suggested that Consumers temporarily suspend paying dividends to
CMS Energy in lieu of CMS Energy making a direct equity infusion of cash into
Consumers. Accordingly, CMS Energy is considering using this method to
accomplish a planned equity investment in 1995. Any increases in Consumers'
retained earnings as a result of this action will be offset by a reduction in
potential equity infusions from CMS Energy.
Electric Utility Results of Operations
Electric Pretax Operating Income for the quarters ended June 30, 1995 and
1994: During the second quarter of 1995, electric pretax operating income
decreased $3 million from the 1994 level. This reduction resulted
primarily from the 1994 recognition of DSM incentive revenue and
increases in depreciation and general tax expenses during the 1995 period.
Partially offsetting the net decrease was higher electric kWh sales (see
Electric Sales section), a decrease in other operating expenses, and the
positive impact of the May 1994 electric rate increase.
Electric Pretax Operating Income for the six months ended June 30, 1995
and 1994: Electric pretax operating income for the six months ended June
30, 1995 decreased $4 million from the comparable 1994 period. This
decrease primarily reflects the 1994 recognition of DSM incentive revenue,
and higher operating expenses, depreciation and general taxes during 1995.
The decrease was partially offset by increased electric kWh sales (see
Electric Sales section) and the impact of the May 1994 electric rate
increase, which included the recovery of higher postretirement benefit
costs.
Electric Pretax Operating Income for the 12 months ended June 30, 1995 and
1994: The $4 million improvement in electric pretax operating income for
the 12 months ended June 30, 1995 compared with the corresponding 1994
level is primarily the result of the impact of the May 1994 electric rate
increase, which included the recovery of the higher postretirement benefit
costs, and increased electric kWh sales (see Electric Sales section),
which contributed $38 million and $17 million, respectively. These
increases were partially offset by higher operating costs and
depreciation, along with the impact of the 1994 recognition of DSM
incentive revenue.
The following table quantifies the impact of the major reasons for the
changes in electric pretax operating income for the periods ended June 30:
In Millions
Impact on Pretax Operating Income
Quarter ended Six months ended 12 months ended
1995 compared 1995 compared 1995 compared
with 1994 with 1994 with 1994
Sales $ 8 $ 9 $17
Rate increases and
other regulatory issues (6) 5 24
O&M, general taxes
and depreciation (a) (5) (18) (37)
------- ------- ------
Total change $(3) $(4) $ 4
======= ======= ======
(a) Includes $11 million and $29 million of increased postretirement
benefit costs for the six month and 12 month comparative periods,
respectively.
Electric Sales: Electric sales during the second quarter of 1995 totaled
8.5 billion kWh, a 2.6 percent increase from 1994 levels. The increase
occurred in all customer classes. Consumers' electric sales have
benefited from improved employment and other economic conditions.
Electric sales during the six months ended June 30, 1995 totaled 17.2
billion kWh, a 2.0 percent increase from 1994 levels. This increase
reflects continued strength in the industrial and commercial sectors,
somewhat offset by weather impacts. During the six months ended 1995
period, commercial and industrial sales increased 3.3 percent and 4.2
percent respectively, while residential sales showed a slight decrease.
Electric sales during the 12 months ended June 30, 1995 totaled 34.8
billion kWh, a 3.4 percent increase from 1994 levels. During the 12
months ended 1995 period, commercial and industrial sales increased 2.7
percent and 5.2 percent respectively, while residential sales showed a
slight decrease from 1994 levels. 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 ended June 30, 1995
totaled $235 million, an $8 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 six month period ended June 30, 1995 totaled $462 million, a $25
million decrease from the corresponding 1994 period. Power costs for the
12 month period ended June 30, 1995 totaled $925 million, a $55 million
decrease from the corresponding 1994 period.
Electric Utility Issues
Power Purchases from the MCV Partnership: Consumers' annual 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 $46
million for the first six 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 $72 $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 engaged in arbitration proceedings under
the PPA to determine whether the energy charge paid to the MCV Partnership
is being properly calculated. In July 1995, an arbitrator ruled that
Consumers correctly calculated the energy charges and that the MCV
Partnership is not entitled to additional amounts.
In July 1994 and February 1995, Consumers terminated power purchase
agreements with a 65 MW coal-fired cogeneration facility and a proposed 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 the plan case. Although
recovery of the costs relating to the substitution was 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. Consumers has filed exceptions to the ALJ's
recommendation. 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 further increase its retail electric rates.
As part of this case, in May 1995, the MPSC 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. In
August 1995, the ALJ recommended a final annual rate increase of $46
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. A final
order is expected in late 1995.
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. In
June 1995, Consumers filed a petition for rehearing of this decision with
the MPSC.
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 June 1995, the
MPSC issued an order that authorized Consumers to collect the full $11
million incentive. The MPSC also authorized Consumers to discontinue
future DSM program expenditures and ceased all new program funding. 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 $330 million for 1995, $297 million for
1996 and $250 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.
The Michigan Natural Resources and Environmental Protection Act (formerly
the Environmental Response Act) was substantially amended in June 1995.
The Michigan law bears similarities to the federal Superfund law. The
purpose of the 1995 amendments was generally to encourage development of
industrial sites and to remove liability from some parties who were not
responsible for activities causing contamination. Consumers expects that
it will ultimately incur costs at a number of sites. Consumers believes
costs incurred for both investigation and required remedial actions will
be recovered in rates.
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 June 1995, the MPSC issued an order that
set rates and charges for retail delivery service under the experiment.
Consumers has sought rehearing regarding a number of issues included in
the order. 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 of electric energy, and the utilities would be allowed the
opportunity to recover wholesale stranded costs (including those
applicable to municipalization situations).
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. The
Systematic Assessment of Licensee Performance report issued by the NRC in
June 1995 recognized some improvement in Palisades' performance.
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. In June 1995, the U.S. Supreme Court refused to
hear an appeal of this decision as requested by the Attorney General and
other parties.
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 developing plans to anneal the reactor vessel in 1998
at an estimated cost of $20 million to $30 million. This repair would
allow for operation of the plant 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 June 30,
1995, Consumers had 70 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 June 30, 1995 and 1994:
During the second quarter of 1995, gas pretax operating income decreased
$1 million from the 1994 level. The decreased pretax operating income
reflects higher operating costs, depreciation and general taxes.
Partially offsetting this decrease was a 12.9 percent increase in gas
deliveries (see Gas Deliveries section).
Gas Pretax Operating Income for the six months ended June 30, 1995 and
1994: The $6 million increase in gas pretax operating income for the six
months ended June 30, 1995 compared with the same 1994 period reflects the
reversal of a loss previously recorded for a gas contract contingency (see
Note 3), partially offset by lower gas deliveries (see Gas Deliveries
section), higher gas operating costs and depreciation.
Gas Pretax Operating Income for the 12 months ended June 30, 1995 and
1994: The $13 million decrease in 1995 gas pretax operating income
compared with 1994 reflects lower gas deliveries (see Gas Deliveries
section) and higher operating costs, depreciation, and general taxes,
partially offset by the reversal of losses previously recorded for gas
contingencies. Increased operating costs included $14 million of
postretirement benefit costs (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 June 30:
In Millions
Impact on Pretax Operating Income
Quarter ended Six months ended 12 months ended
1995 compared 1995 compared 1995 compared
with 1994 with 1994 with 1994
Deliveries $ 5 $(14) $(31)
Recovery of gas costs and
other regulatory issues - 26 35
O&M, general taxes
and depreciation (6) (6) (17)
----- ----- -----
Total change $ (1) $ 6 $(13)
===== ===== =====
Gas Deliveries: During the second quarter of 1995, gas sales and gas
transported, excluding transport to the MCV and off-system transportation,
totaled 55.2 bcf, a 12.9 percent increase from the corresponding 1994
level. Gas sales and gas transported increased 4.0 bcf and 2.3 bcf,
respectively, with the majority of the change attributable to increased
usage. For the six months ended June 30, 1995, gas sales and gas
transported for all customer classes totaled 223.8 bcf, a 9.7 percent
decrease from the corresponding 1994 level. Gas sales decreased 9.7 bcf
while transport deliveries increased 2.5 bcf. The decrease in firm sales
occurred primarily due to warmer temperatures. For the 12 months ended
June 30, 1995, gas sales and gas transported for all customer classes
totaled 385.1 bcf, a 9.4 percent decrease from the corresponding 1994
level, reflecting record cold winter weather during the 12 months ended
June 30, 1994 and a return to more normal weather during the 12 months
ended June 30, 1995.
Cost of Gas Sold: The cost of gas sold for the second quarter of 1995
increased $9 million from the 1994 level. The cost of gas sold for the
six months ended June 30, 1995 decreased $44 million from the 1994 level
as a result of reduced deliveries and the reversal of gas contract loss
contingency. The cost of gas sold for the 12 months ended June 30, 1995
decreased $70 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. In June 1995, the MPSC staff filed its position in this case,
recommending an $11 million rate decrease. 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 believes the
producers' position is without merit and intends to vigorously oppose any
claims they may raise but 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
$129 million for 1995, $119 million for 1996 and $101 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: The Michigan Natural Resources and
Environmental Protection Act (formerly the Environmental Response Act) was
substantially amended in June 1995. The Michigan law bears similarities
to the federal Superfund law. The purpose of the 1995 amendments was
generally to encourage development of industrial sites and to remove
liability from some parties who were not responsible for activities
causing contamination. 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
June 30, 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. In June 1995, as part of
Consumers' rate case, the MPSC staff recommended that the MPSC adopt the
same accounting and cost recovery previously provided to other Michigan
utilities. 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.
Low Income Energy Assistance Program funding currently provides
approximately $71 million in heating assistance to approximately 400,000
Michigan households, with approximately 18 percent of funds going to
Consumers' customers. However, recent actions by the U. S. House of
Representatives Committee on Appropriations has put restoration of funding
for fiscal year 1996 at risk. Consumers is continuing vigorous efforts to
maintain this funding.
Other
Other Income: Other income for the 12 months ending June 30, 1995
decreased $11 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.
In June 1995, the SEC released a staff report that recommended legislative
options to Congress: 1) repeal PUHCA and strengthen the ability of the
FERC and state regulators to obtain books and records, conduct audits and
review affiliate transactions; 2) a repeal of PUHCA, without condition; or
3) amend PUHCA to give the SEC broader exemptive authority. The SEC staff
stated that PUHCA was restrictive in many regards and may prevent
companies from responding effectively to the changes now occurring in the
utility industry. The SEC staff supported option 1 because it would
achieve the benefits of unconditional repeal, while preserving the ability
of states to protect consumers.
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 does not expect the application of this
statement to have a material impact on its financial position or results
of operations.
<PAGE>
<PAGE> 60
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
for the year ended December 31, 1994 and Forms 10-Q for the quarter ended
March 31, 1995. 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 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. Upon appeal by several parties,
including the Attorney General, the Court of Appeals affirmed the MPSC
determinations in Step 3A in an order issued in April 1995. In May 1995,
ABATE filed an application for leave to appeal this decision with the
Michigan Supreme Court.
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.
Briefs and reply briefs have been filed in this case. Consumers' position
on brief assumed retaining certain customers subject to competition and
serving those customers from jurisdictional sources as well as from the
uncommitted MCV capacity. Consumers' position, if adopted, would increase
Consumers' retail electric base rates by $93 million. In its brief, the
MPSC staff recommended a rate increase in the annual amount of $43
million. This recommendation reflects a different sales forecast than
Consumers, an authorized return on equity of 12% (versus Consumers'
requested 13%) and a lower equity ratio than that included in Consumers'
proposed capital structure. In August 1995, the ALJ issued a proposal for
decision in this case recommending the MPSC authorize a $46 million rate
increase. The ALJ generally adopted the MPSC staff's position with
adjustments to the MPSC staff's sales forecast and equity ratios.
The ALJ also recommended the elimination of cross subsidies among
residential, commercial and industrial rate classes.
As a part of its testimony in this case, the MPSC staff recommended that
the MPSC permit varying levels of cost recovery for some of the MCV
contract capacity above 915 MW. The ALJ struck this testimony on the
grounds that the multiple positions of the staff were confusing. The MPSC
upheld the ALJ's action, stating that the remaining 325 MW of MCV capacity
will be considered only as part of a competitive solicitation. On June 8,
1995, Consumers filed a petition for rehearing with the MPSC of this
ruling.
1994 Gas Rate Case Filing
In June 1995, the MPSC staff filed its position in this case recommending
an $11 million rate decrease. The MPSC staff's recommendation included a
lower rate base, a lower return on common equity, a revised capital
structure and a lower expense sales forecast than Consumers had projected.
Under MPSC rate case scheduling policies, a final order in this case is
expected in early 1996.
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 June 1995, the U.S. Supreme Court denied the opposing
parties' petition for a Writ of Certiorari to seek further review of the
Sixth Circuit decision against their positions As of June 30, 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 June 30, 1995,
Consumers had 70 separate stray voltage cases pending.
MPSC Case No. U-10029 - Intrastate Gas Supply
On February 8, 1993, the MPSC issued an order granting Consumers' request
to lower the price to be paid to one of its intrastate gas suppliers,
North Michigan, under its contract for which North Michigan filed an
appeal with the Court of Appeals. In June 1995, the Court of Appeals
affirmed the MPSC's decision. The producers have filed a motion for
reconsideration with the Court of Appeals. Collateral suits claiming
relief based on a theory of breach of contract, among other things, were
filed by the producers in the Grand Traverse County Circuit Court and in
the Clinton County Circuit Court, which was subsequently transferred to
Jackson County Circuit Court. The Grand Traverse County Circuit Court
suit was dismissed June 12, 1995, and Consumers' motion to dismiss the
Jackson County Circuit Court suit will be argued August 11, 1995.
Request for Approval of a Competitive Tariff for Certain Industrial
Customers
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 additional 325 MW of MCV contract capacity
to serve these customers. In June 1995, Consumers filed a petition for
rehearing of this decision with the MPSC. Hearings are expected to be
completed in August 1995 with briefs filed in September 1995.
MCV - Related Proceedings
On May 5, 1994, the MCV Partnership notified Consumers of its desire to
commence a second arbitration proceeding, this one regarding the
methodology for calculation of the energy charge payable under the PPA.
In August 1995, an arbitrator ruled that Consumers correctly calculated
the energy charges and that the MCV Partnership is not entitled to
recovery of additional amounts.
Retail Wheeling Proceedings
In June 1995, the MPSC issued an order that set rates and charges for
retail delivery service under the experiment. Consumers and ABATE filed a
petition for rehearing regarding a number of issues included in the order.
Detroit Edison has filed a claim of appeal of the MPSC order with the
Court of Appeals.
Item 4. Submission of Matters to a Vote of Security Holders
At the Annual Meeting of Shareholders held on May 26, 1995, the
shareholders ratified the appointment of Arthur Andersen LLP as
independent auditors of CMS Energy and Consumers for the year ended
December 31, 1995. The vote at CMS Energy was 74,357,609 in favor, and
439,478 against, with 504,146 abstaining. The vote at Consumers was
85,193,425 in favor, and 7,665 against, with 20,004 abstaining. At the
same meeting for CMS Energy, the shareholders approved an amendment to the
CMS Energy Performance Incentive Stock Plan to provide that shares awarded
or subject to options may not be more than 3% of the outstanding shares of
each class of common stock of CMS Energy on January 1 of any year less the
number of shares awarded or subject to options granted under the plan
during the previous four years. The vote was 49,949,915 in favor, and
15,649,673 against, with 1,479,234 abstaining.
At the same meeting, shareholders elected all twelve nominees for the
office of director for both CMS Energy and Consumers. The total number of
votes cast at CMS Energy was 75,301,242. The votes for individual
nominees were as follows:
CMS ENERGY CORPORATION
Number of Votes
For Withheld Total
William T. McCormick, Jr. 74,135,763 1,165,479 75,301,242
James J. Duderstadt 74,220,612 1,080,630 75,301,242
Kathleen R. Flaherty 74,195,508 1,105,734 75,301,242
Victor J. Fryling 74,207,069 1,094,173 75,301,242
Earl D. Holton 74,264,967 1,036,275 75,301,242
Lois A. Lund 74,193,451 1,107,791 75,301,242
Frank K. Merlotti 74,250,133 1,051,109 75,301,242
William U. Parfet 74,258,097 1,043,145 75,301,242
Percy A. Pierre 74,243,096 1,058,146 75,301,242
S. Kinnie Smith, Jr. 74,227,510 1,073,732 75,301,242
Kenneth Whipple 74,257,813 1,043,429 75,301,242
John B. Yasinsky 74,256,036 1,045,206 75,301,242
The total number of votes cast at Consumers was 85,221,094. The votes for
individual nominees were as follows:
CONSUMERS POWER COMPANY
Number of Votes
For Withheld Total
William T. McCormick, Jr. 85,193,609 27,485 85,221,094
James J. Duderstadt 85,190,369 30,725 85,221,094
Kathleen R. Flaherty 85,189,806 31,288 85,221,094
Victor J. Fryling 85,195,080 26,014 85,221,094
Earl D. Holton 85,195,260 25,834 85,221,094
Lois A. Lund 85,195,883 28,211 85,221,094
Frank K. Merlotti 85,193,713 27,381 85,221,094
William U. Parfet 85,195,047 26,047 85,221,094
Percy A. Pierre 85,193,028 28,066 85,221,094
S. Kinnie Smith, Jr. 85,195,025 26,069 85,221,094
Kenneth Whipple 85,195,415 25,679 85,221,094
John B. Yasinsky 85,195,245 25,849 85,221,094
Item 6. Exhibits and Reports on Form 8-K
(a) List of Exhibits
(10) - Consumers: Credit Agreement dated as of July 14, 1995 among
Consumers Power Company, the Banks named therein and the
First National Bank of Chicago, as Administrative Agent.
(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
(99) - CMS Energy: Consumers Gas Group Financials
(b) Reports on Form 8-K
There have been no Current Reports on Form 8-K filed since the filing of
CMS Energy Corporation's and Consumers Power Company's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1995.
<PAGE>
<PAGE> 64
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: August 11, 1995 By A M Wright
-------------------------------------
Alan M. Wright
Senior Vice President,
Chief Financial Officer and Treasurer
CONSUMERS POWER COMPANY
(Registrant)
Date: August 11, 1995 By A M Wright
-------------------------------------
Alan M. Wright
Senior Vice President and
Chief Financial Officer
<PAGE>
EXHIBIT (10)<PAGE>
<PAGE>
**************************************************************************
$425,000,000
CONSUMERS POWER COMPANY
________________________________________
CREDIT AGREEMENT
AND
RELATED DOCUMENTS
**************************************************************************
<PAGE>
<PAGE>
CREDIT AGREEMENT
DATED AS OF JULY 14, 1995
AMONG
CONSUMERS POWER COMPANY,
THE BANKS AND
THE FIRST NATIONAL BANK OF CHICAGO,
AS ADMINISTRATIVE AGENT
<PAGE>
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS 1
ARTICLE II THE ADVANCES 11
2.1. Commitment 11
2.2. Drawings 11
2.2.1. Form of Drafts 11
2.2.2. Powers of Attorney 12
2.2.3. Payment of Drafts at Maturity 12
2.2.4. Committed Drawings 12
(a) Request for Committed Drawing 12
(b) Mechanics of Committed Drawings 12
2.3. Loans 13
2.3.1. Committed Loans 13
2.3.1.1. Rate Options; Payment on Last Day of
Interest Period 13
2.3.1.2. Method of Selecting Rate Options and
Interest Periods 13
2.3.1.3. Committed Notes 13
2.3.1.4. Interest Payment Dates; Interest Basis 13
2.3.2. Competitive Bid Advances 14
2.3.2.1. Competitive Bid Option 14
2.3.2.2. Competitive Bid Quote Request 14
2.3.2.3. Invitation for Competitive Bid Quotes 15
2.3.2.4. Submission and Contents of Competitive
Bid Quotes 15
2.3.2.5. Notice to Company 16
2.3.2.6. Acceptance and Notice by Company 16
2.3.2.7. Allocation by Agent 17
2.4. Method of Making Advances 17
2.5. Minimum Amount of Advances 17
2.6. Optional Principal Payments 17
2.7. Commitment Fee and Reduction of Commitment 17
2.8. Agency Fee 18
2.9. Rate after Maturity 18
2.10. Method of Payment 18
2.11. Telephonic Notices 18
2.12. Lending Installations 18
2.13. Non-Receipt of Funds by the Agent 19
ARTICLE III RESERVED 19
ARTICLE IV CHANGE IN CIRCUMSTANCES 19
4.1. Yield Protection 19
4.2. Replacement Bank 20
4.3. Availability of Rate Options 21
4.4. Availability of Drawings 21
4.5. Funding Indemnification 21
4.6. Bank Certificates; Survival of Indemnity 21
ARTICLE V REPRESENTATIONS AND WARRANTIES 22
5.1. Incorporation and Good Standing 22
5.2. Corporate Power and Authority; No Conflicts 22
5.3. Governmental Approvals 22
5.4. Legally Enforceable Agreements 22
5.5. Financial Statements 22
5.6. Litigation 23
5.7. Margin Stock 23
5.8. ERISA 23
ARTICLE VI AFFIRMATIVE COVENANTS 23
6.1. Payment of Taxes, Etc 23
6.2. Maintenance of Insurance 24
6.3. Preservation of Corporate Existence, Etc 24
6.4. Compliance with Laws, Etc 24
6.5. Visitation Rights 24
6.6. Keeping of Books 24
6.7. Reporting Requirements 24
ARTICLE VII NEGATIVE COVENANTS 26
7.1. Liens 26
7.2. Sale of Assets 27
7.3. Mergers, Etc 27
7.4. Compliance with ERISA 27
7.5. Change in Nature of Business 27
ARTICLE VIII FINANCIAL COVENANTS 28
8.1. Debt to Capital Ratio 28
<PAGE>
ARTICLE IX EVENTS OF DEFAULT 28
9.1. Events of Default 28
9.2. Remedies 29
ARTICLE X WAIVERS, AMENDMENTS AND REMEDIES 30
10.1. Amendments 30
10.2. Preservation of Rights 30
ARTICLE XI CONDITIONS PRECEDENT 31
11.1. Initial Advance 31
11.2. Initial Committed Loan; Initial Competitive Bid Loan 31
11.3. Initial Drawing 31
11.4. Each Advance (other than a Refinancing Advance) 31
11.5. Refinancing Advances 32
ARTICLE XII GENERAL PROVISIONS 32
12.1. Successors and Assigns 32
12.2. Survival of Representations 33
12.3. Governmental Regulation 33
12.4. Taxes 33
12.5. Choice of Law 34
12.6. Headings 34
12.7. Entire Agreement 34
12.8. Expenses; Indemnification 34
12.9. Accounting 34
12.10. Severability of Provisions 34
12.11. Setoff 35
12.12. Ratable Payments 35
12.13. Nonliability of Bank 35
12.14. Waiver Under Prior Agreement 35
ARTICLE XIII THE AGENT 35
13.1. Appointment 35
13.2. Powers 36
13.3. General Immunity 36
13.4. No Responsibility for Loans, Recitals, etc 36
13.5. Action on Instructions of Banks 36
13.6. Employment of Agents and Counsel 36
13.7. Reliance on Documents; Counsel 36
13.8. Agent's Reimbursement and Indemnification 36
13.9. Rights as a Lender 37
13.10. Bank Credit Decision 37
13.11. Successor Agent 37
ARTICLE XIV NOTICES 37
14.1. Giving Notice 37
14.2. Change of Address 38
ARTICLE XV COUNTERPARTS 38
EXHIBIT "A" - Note 48
EXHIBIT "B" - Opinion of Counsel 50
EXHIBIT "C" - Committed Drawing Request 52
EXHIBIT "D" - Power of Attorney 54
EXHIBIT "E" - Competitive Bid Note 55
EXHIBIT "F" - Competitive Bid Quote 57
EXHIBIT "G" - Competitive Bid Quote Request 59
EXHIBIT "H" - Invitation for Competitive Bid Quotes 60
EXHIBIT "I" - Form of Certificate as to Debt-Capital Ratio 61
EXHIBIT "J" - Assignment Agreement 63
EXHIBIT "I" - Notice of Assignment 70
<PAGE>
<PAGE>
CREDIT AGREEMENT
----------------
This Credit Agreement, dated as of July 14, 1995, is among Consumers
Power Company, a Michigan corporation (the "Company"), certain banks
listed on the signature pages hereto (the "Banks") and The First National
Bank of Chicago, a national banking association, as Administrative Agent
(the "Agent").
W I T N E S S E T H:
WHEREAS, the Company, certain banks and The First National Bank of
Chicago, as agent for the banks, entered into a Credit Agreement dated as
of July 16, 1993 (as amended, the "1993 Agreement"), which provided a
$470,000,000 revolving credit facility to the Company;
WHEREAS, the Company has requested, and the Banks have agreed to
enter into, a revolving credit facility with the Banks in an aggregate
amount of $425,000,000, providing for loans to the Company at committed
rate options including eurodollar and corporate base rates, and, in
addition, a committed facility under which the Banks may create drafts for
the Company to be discounted at banker's acceptance rates; and
WHEREAS, in addition to the committed facilities for loans and the
creation of discounted drafts, the Banks have agreed to provide a
competitive bid option for loans;
WHEREAS, this Agreement shall document the facility described above
and shall replace the 1993 Agreement;
NOW THEREFORE, the Company, the Banks and the Agent hereby agree as
follows:
ARTICLE I
DEFINITIONS
-----------
As used in this Agreement:
"Absolute Rate" means, with respect to a Competitive Bid Loan made by
a given Bank for the relevant Absolute Rate Interest Period, the rate of
interest per annum (rounded to the nearest 1/100 of 1%) (set either at a
specific rate or at a margin over or under the Base Eurodollar Rate)
offered by such Bank and accepted by the Company.
"Absolute Rate Interest Period" means, with respect to a Competitive
Bid Advance, a period of not less than 7 and not more than 180 days
commencing on a Business Day selected by the Company pursuant to this
Agreement. If such Absolute Rate Interest Period would end on a day which
is not a Business Day, such Absolute Rate Interest Period shall end on the
next succeeding Business Day.
"Advances" means any borrowings hereunder, including all Loans and
Drawings.
"Agent" means The First National Bank of Chicago in its capacity as
administrative agent for the Banks pursuant to Article XIII, and not in
its individual capacity as a Bank, and any successor Agent appointed
pursuant to Article XIII.
"Aggregate Commitment" means the aggregate of the Commitments of the
Banks hereunder.
"Agreement" means this Credit Agreement, as it may be amended from
time to time.
"Alternate Base Rate" means a fluctuating interest rate per annum as
shall be in effect from time to time which rate per annum shall at all
times be equal to the higher of:
(a) the corporate base rate of interest announced publicly by
First Chicago from time to time (which rate is based upon various
factors including costs and desired return, general economic
conditions and other factors, and is used as a reference point for
pricing some loans, which may be priced at, above or below such
announced rate); or
(b) 1/2 of one percent per annum above the Federal Funds Rate
from time to time.
Each change in the Alternate Base Rate shall take effect concurrently with
any change in such base rate or the Federal Funds Rate.
"Applicable Commission Percentage" means, at any date of
determination, whichever of the following is applicable at such time:
(i) 0.30% per annum in the event that, and at all
times during which, the First Mortgage Bonds (the "Senior
Debt") are rated A/A2 or higher by any two of D&P, Fitch,
Moody's and S&P, provided, that at least one of the two rating
agencies used in determining such commission shall be either S&P or
Moody's;
(ii) 0.35% per annum in the event that, and at all
times during which, the Senior Debt is not rated A/A2 or higher
by any two of D&P, Fitch, Moody's and S&P but is rated A-/A3 or
BBB+/Baa1 or higher by any two of D&P, Fitch, Moody's and S&P,
provided that at least one of the two rating agencies used in
determining such commission shall be either S&P or Moody's;
(iii) 0.45% per annum in the event that, and at all
times during which, the Senior Debt is not rated A-/A3 or
BBB+/Baa1 or higher by any two of D&P, Fitch, Moody's and S&P
but is rated BBB/Baa2 or BBB-/Baa3 or higher by any two of D&P,
Fitch, Moody's and S&P, provided, that at least one of the two
rating agencies used in determining such commission shall be
either S&P or Moody's; or
(iv) 0.75% per annum in the event that, and at all
times during which, the Senior Debt is not rated BBB/Baa2 or
BBB-/Baa3 or higher by any two of D&P, Fitch, Moody's and S&P,
provided, that at least one of the two rating agencies used in
determining such commission shall be either S&P or Moody's.
The Applicable Commission Percentage shall be redetermined as noted above
upon any change in the rating of the Senior Debt by D&P, Fitch, Moody's or
S&P, which would cause it to change.
"Applicable Margin" means at any date of determination, whichever of
the following is applicable at such time:
(i) either 0.30% per annum with respect to a
Eurodollar Rate Loan or 0.0% with respect to a Floating Rate
Loan, in the event that, and at all times during which, the
Senior Debt is rated A/A2 or higher by any two of D&P, Fitch,
Moody's and S&P, provided, that at least one of the two rating
agencies used in determining such margin shall be either S&P or
Moody's;
(ii) 0.35% per annum with respect to a Eurodollar Rate
Loan or 0.0% with respect to a Floating Rate Loan, in the event
that, and at all times during which, the Senior Debt is not
rated A/A2 or higher by any two of D&P, Fitch, Moody's and S&P
but is rated A-/A3 or BBB+/Baa1 or higher by any two of D&P,
Fitch, Moody's and S&P, provided, that at least one of the two
rating agencies used in determining such margin shall be either
S&P or Moody's;
(iii) either 0.45% per annum with respect to a
Eurodollar Rate Loan or 0.0% with respect to a Floating Rate
Loan, in the event that, and at all times during which, the
Senior Debt is not rated A-/A3 or BBB+/Baa1 or higher by any
two of D&P, Fitch, Moody's and S&P but is rated BBB/Baa2 or
BBB-/Baa3 or higher by any two of D&P, Fitch, Moody's and S&P,
provided, that at least one of the two rating agencies used in
determining such margin shall be either S&P or Moody's; or
(iv) either 0.75% per annum with respect to a
Eurodollar Rate Loan or 0.25% with respect to a Floating Rate
Loan, in the event that, and at all times during which, the
Senior Debt is not rated BBB/Baa2 or BBB-/Baa3 or higher by any
two of D&P, Fitch, Moody's and S&P, provided, that at least one
of the two rating agencies used in determining such margin
shall be either S&P or Moody's.
The Applicable Margin shall be redetermined as noted above upon any change
in the rating of the Senior Debt by D&P, Fitch, Moody's or S&P, which
would cause it to change.
"Article" means an article of this Agreement unless another document
is specifically referenced.
"BA Reference Banks" shall mean First Chicago, Bank of America
Illinois, and CIBC Inc.
"Banker's Acceptance Reference Rate" means, for any Borrowing Date,
the sum of (a) the rate determined by the Agent to be the arithmetic
average of the Discount Rate for such Borrowing Date for the BA Reference
Banks, rounded to the next highest 5/100ths of 1% plus (b) 1/10 of 1%. If
any of the BA Reference Banks fails to provide such quotation to the
Agent, then the Agent shall determine the Banker's Acceptance Reference
Rate on the basis of the quotations of the remaining BA Reference Banks.
"Banks" means the banks listed on the signature pages of this
Agreement and their respective successors and assigns.
"Base Eurodollar Rate" means, with respect to a Eurodollar Rate Loan
for the relevant Eurodollar Interest Period, the rate determined by the
Agent to be the arithmetic average of the rates reported to the Agent by
each Loan Reference Bank as the rate at which deposits in U.S. Dollars are
offered to such Loan Reference Bank by first-class banks in the London
interbank market at 11 a.m. (London time) two Business Days prior to the
first day of such Eurodollar Interest Period, in the amount of such Loan
Reference Bank's Eurodollar Rate Loan and having a maturity equal to such
Eurodollar Interest Period. If any Loan Reference Bank fails to provide
such quotation to the Agent, then the Agent shall determine the Base
Eurodollar Rate on the basis of the quotations of the remaining Loan
Reference Banks.
"Borrowing Date" means a date on which an Advance is made hereunder.
"Business Day" means (i) with respect to borrowing, payment or rate
selection of Eurodollar Rate Loans, a day on which banks are open for
business in Chicago, New York and Los Angeles and on which dealings in
U.S. Dollars are carried on in the London interbank market and (ii) for
all other purposes, a day on which banks are open for business in Chicago.
"Capital Lease" means any lease which has been or would be
capitalized on the books of the lessee in accordance with GAAP.
"Commission" means, with respect to a Draft pursuant to a Committed
Drawing, an amount equal to (a) the face amount of the Draft times (b) the
Applicable Commission Percentage times (c) a fraction the numerator of
which is the number of days from and including the date of discount of the
Draft to but excluding the maturity date of such Draft and the denominator
of which is 360.
"Commitment" means, for each Bank, the obligation of such Bank to
make Committed Loans and create and discount Committed Drawings not
exceeding the amount set forth opposite its signature below, as such
amount may be modified from time to time.
"Commitment Fee" means, at any date of determination, whichever of
the following is applicable at such time:
(i) 0.10% per annum in the event that, and at all
times during which, the Senior Debt is rated A/A2 or higher by
any two of D&P, Fitch, Moody's and S&P, provided that at least
one of the two rating agencies used in determining such
commitment fee shall be either S&P or Moody's;
(ii) 0.125% per annum in the event that, and at all
times during which, the Senior Debt is not rated A/A2 or higher
by any two of D&P, Fitch, Moody's and S&P but is rated A-/A3 or
BBB+/Baa1 or higher by any two of D&P, Fitch, Moody's and S&P,
provided that at least one of the two rating agencies used in
determining such commitment fee shall be either S&P or Moody's;
(iii) 0.175% per annum in the event that, and at all
times during which, the Senior Debt is not rated A-/A3 or
BBB+/Baa1 or higher by any two of D&P, Fitch, Moody's and S&P
but is rated BBB/Baa2 or BBB-/Baa3 or higher by any two of D&P,
Fitch, Moody's and S&P, provided that at least one of the two
rating agencies used in determining such commitment fee shall
be either S&P or Moody's; or
(iv) 0.25% per annum in the event that, and at all
times during which, the Senior Debt is not rated BBB/Baa2 or
BBB-/Baa3 or higher by any two of D&P, Fitch, Moody's and S&P,
provided that at least one of the two rating agencies used in
determining such commitment fee shall be either S&P or Moody's.
"Committed Drawing" means a borrowing hereunder pursuant to Section
2.2.4. made through the Banks' discounting of Drafts.
"Committed Drawing Request" has the meaning set forth for such term
in Section 2.2.4. hereof.
"Committed Loan" means a borrowing hereunder pursuant to Section
2.3.1.
"Committed Note" means a promissory note in substantially the form of
Exhibit "A" hereto, duly executed and delivered to the Agent by the
Company and payable to the order of a Bank in the amount of its
Commitment, including any amendment, modification, renewal or replacement
of such promissory note.
"Company" means Consumers Power Company, a Michigan corporation, and
its successors and assigns.
"Competitive Bid Advance" means a borrowing hereunder consisting of
the aggregate amount of the Competitive Bid Loans made by some or all of
the Banks to the Company at the same time and for the same Interest
Period.
"Competitive Bid Borrowing Notice" is defined in Section 2.3.2.6.
"Competitive Bid Loan" means a Loan which bears interest at the
Absolute Rate.
"Competitive Bid Note" means a promissory note in substantially the
form of Exhibit "E" hereto, with appropriate insertions, duly executed and
delivered to the Agent by the Company for the account of a Bank and
payable to the order of such Bank, including any amendment, modification,
renewal or replacement of such promissory note.
"Competitive Bid Quote" means a Competitive Bid Quote substantially
in the form of Exhibit "F" hereto completed and delivered by a Bank to the
Agent in accordance with Section 2.3.2.4.
"Competitive Bid Quote Request" means a Competitive Bid Quote Request
substantially in the form of Exhibit "G" hereto completed and delivered by
the Company to the Agent in accordance with Section 2.3.2.2.
"Competitive Bid Reduction" means, for each Bank at any time, such
Bank's ratable portion (determined according to the Banks' respective
Commitments) of the aggregate principal amount of all Competitive Bid
Advances then outstanding (which shall be determined irrespective of
whether such Bank has Competitive Bid Advances outstanding).
"Consolidated Subsidiary" means any Subsidiary whose accounts are or
are required to be consolidated with the accounts of the Company in
accordance with GAAP.
"Credit Documents" means this Agreement, the Notes, the Drafts, the
Drawing Requests and the Powers of Attorney.
"Debt" means, with respect to any Person, and without duplication,
(a) all indebtedness of such Person for borrowed money, (b) all
indebtedness of such Person for the deferred purchase price of property or
services, (c) all Unfunded Vested Liabilities of such Person (if such
Person is not the Company, determined in a manner analogous to that of
determining Unfunded Vested Liabilities of the Company), (d) all
obligations of such Person arising under acceptance facilities, (e) all
obligations of such Person as lessee under Capital Leases, and (f) all
guaranties, endorsements (other than for collection in the ordinary course
of business) and other contingent obligations of such Person to assure a
creditor against loss (whether by the purchase of goods or services, the
provision of funds for payment, the supply of funds to invest in any
Person or otherwise) in respect of indebtedness or obligations of any
other Person of the kinds referred to in clauses (a) through (e) above.
"Default" means an event which but for the giving of notice or lapse
of time, or both, would constitute an Event of Default.
"Designated Officer" means the Chief Financial Officer, the
Treasurer, an Assistant Treasurer, any Vice President in charge of
financial or accounting matters or the principal accounting officer of the
Company.
"Discount" means, with respect to any Draft discounted by a Bank on
the date of creation and discount thereof, an amount equal to (a) such
Bank's Discount Rate for such Draft times (b) the face amount of such
Draft times (c) a fraction the numerator of which is the number of days
from and including the date of discount to but excluding the maturity date
of such Draft and the denominator of which is 360.
"Discount Rate" means, with respect to a Drawing evidenced by a Draft
discounted by a Bank, the bid rate in effect at such Bank on the relevant
Borrowing Date for discounting of commercial drafts or bills eligible for
discount in the same denomination with Federal Reserve Banks and having
maturities on the same date as the maturity date of such Draft, provided,
that no Discount Rate used by any Bank shall be greater than the Banker's
Acceptance Reference Rate.
"Drafts" means the drafts drawn by the Company on a Bank pursuant to
Section 2.2 hereof and discounted by such Bank and which evidence Drawings
under this Agreement.
"Drawing Request" means a Committed Drawing Request.
"Drawings" means Committed Drawings and "Drawing" means a single such
Drawing.
"D & P" means Duff & Phelps, Inc. or any successor thereto.
"Eligible Draft" means any Draft which, if it were to be accepted by
a Bank hereunder, (i) would be eligible for discount by Federal Reserve
Banks and (ii) would not require such Bank to maintain reserves under
Regulation D or any other law or regulation against the liability of such
Bank under such Draft.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time.
"ERISA Affiliate" means any corporation or trade or business which is
a member of the same controlled group of corporations (within the meaning
of Section 414(b) of the Code) as the Company, or is under common control
(within the meaning of Section 414(c) of the Code) with the Company.
"Eurodollar Interest Period" means, with respect to a Eurodollar Rate
Loan, a period of one, two, three or six months commencing on a Business
Day selected by the Company pursuant to this Agreement. Such Eurodollar
Interest Period shall end on the day in the first, second, third or sixth
succeeding calendar month which corresponds numerically to the beginning
day of such Eurodollar Interest Period, provided, that if there is no such
numerically corresponding day in such first, second, third or sixth
succeeding month, such Eurodollar Interest Period shall end on the last
Business Day of such first, second, third or sixth succeeding month. If a
Eurodollar Interest Period would otherwise end on a day which is not a
Business Day, such Eurodollar Interest Period shall end on the next
succeeding Business Day, provided, that if said next succeeding Business
Day falls in a new month, such Eurodollar Interest Period shall end on the
immediately preceding Business Day.
"Eurodollar Rate" means, with respect to a Eurodollar Rate Loan for
the relevant Eurodollar Interest Period, the sum of (i) the Base
Eurodollar Rate applicable to that Eurodollar Interest Period plus (ii)
the Applicable Margin. The Eurodollar Rate shall be rounded, if
necessary, to the next higher 1/16 of 1%. "Eurodollar Rate Loan" means a
Loan which bears interest at a Eurodollar Rate.
"Event of Default" means an event described in Article IX.
"Federal Funds Rate" means, for any period, a fluctuating interest
rate per annum equal for each day during such period to the weighted
average of the rates on overnight Federal funds transactions with members
of the Federal Reserve System arranged by Federal funds brokers, as
published for such day (or, if such day is not a Business Day, for the
next preceding Business Day) by the Federal Reserve Bank of New York, or,
if such rate is not so published for any day which is a Business Day, the
average of the quotations for such day on such transactions received by
the Agent from three Federal funds brokers of recognized standing selected
by it.
"First Chicago" means The First National Bank of Chicago in its
individual capacity, and its successors and assigns.
"First Mortgage Bonds" means those bonds issued by the Company
pursuant to the Indenture.
"Fitch" means Fitchs Investor Services, Inc. or any successor
thereto.
"Fixed Rate" means the Absolute Rate or the Eurodollar Rate.
"Fixed Rate Loan" means a Loan which bears interest at a Fixed Rate.
"Floating Rate" means a rate per annum equal to (i) the Alternate
Base Rate plus (ii) the Applicable Margin, changing when and as the
Alternate Base Rate changes. "Floating Rate Loan" means a Loan which
bears interest at the Floating Rate.
"Floating Rate Interest Period" means, with respect to a Floating
Rate Loan, a period of 90 days commencing on a Business Day selected by
the Company in accordance with Section 2.3.1.2, provided, that with
respect to a Floating Rate Loan to be made less than 90 days prior to the
Termination Date, the Company may select a Floating Rate Interest Period
which ends on the Termination Date. If such Floating Rate Interest Period
would end on a day which is not a Business Day, such Floating Rate
Interest Period shall end on the next succeeding Business Day.
"GAAP" means generally accepted accounting principles in the United
States of America as in effect on the date hereof, applied on a basis
consistent with those used in the preparation of the financial statements
referred to in Section 5.5 (except, for purposes of the financial
statements required to be delivered pursuant to Sections 6.7(c) and (d),
for changes concurred in by the Company's independent public accountants).
"Indenture" means that certain Indenture, dated as of September 1,
1945, as supplemented and amended from time to time, from the Company to
Chemical Bank, as successor Trustee.
"Interest Period" means an Absolute Rate Interest Period, a
Eurodollar Interest Period or a Floating Rate Interest Period.
"Invitation for Competitive Bid Quotes" means an Invitation for
Competitive Bid Quotes substantially in the form of Exhibit "H" hereto,
completed and delivered by the Agent to the Banks in accordance with
Section 2.3.2.3.
"Lending Installation" means any office, branch, subsidiary or
affiliate of a Bank.
"Lien" means any lien (statutory or otherwise), security interest,
mortgage, deed of trust, priority, pledge, charge, conditional sale, title
retention agreement, financing lease or other encumbrance or similar right
of others, or any agreement to give any of the foregoing.
"Loan" means a borrowing (i) pursuant to Section 2.3.1 of this
Agreement which bears interest at the Eurodollar Rate or the Floating Rate
or (ii) pursuant to Section 2.3.2 of this Agreement which bears interest
at the Absolute Rate.
"Loan Reference Banks" means First Chicago, Bank of America Illinois,
and CIBC Inc.
"Loan Request" is defined in Section 2.3.1.2.
"Majority Banks" means Banks in the aggregate having at least 66-2/3%
of the Aggregate Commitment or, if the Aggregate Commitment has been
terminated, Banks in the aggregate holding at least 66-2/3% of the
aggregate unpaid principal amount of the outstanding Advances.
"Moody's" means Moody's Investors Service, Inc. or any successor
thereto.
"Multiemployer Plan" means a "multiemployer plan" as defined in
Section 4001(a)(3) of ERISA.
"Notes" means the Competitive Bid Notes and the Committed Notes.
"Obligations" means all unpaid principal of and accrued and unpaid
interest on the Notes and the Drafts, all accrued and unpaid commitment
fees and all other obligations of the Company to the Banks arising under
the Credit Documents.
"PBGC" means the Pension Benefit Guaranty Corporation and any entity
succeeding to any or all of its functions under ERISA.
"Person" means an individual, partnership, corporation, business
trust, joint stock company, trust, unincorporated association, joint
venture, governmental authority or other entity of whatever nature.
"Plan" means any employee benefit plan (other than a Multiemployer
Plan) maintained for employees of the Company or any ERISA Affiliate and
covered by Title IV of ERISA.
"Powers of Attorney" shall have the meaning set forth for such term
in Section 2.2.2 hereof.
"Prior Agreement" means that certain Credit Agreement dated as of
July 16, 1993, among the Company, First Chicago as agent, and the banks
party thereto, as amended from time to time.
"Rate Option" means the Eurodollar Rate or the Floating Rate.
"Refinancing Advance" means an Advance which, after giving effect to
the Advance and the application of the proceeds thereof, does not increase
the aggregate amount of outstanding Advances, except that a Refinancing
Advance shall not include Advances made upon the maturity of a Competitive
Bid Advance.
"Regulation D" means Regulation D of the Board of Governors of the
Federal Reserve System from time to time in effect and shall include any
successor or other regulation or official interpretation of said Board of
Governors relating to reserve requirements applicable to member banks of
the Federal Reserve System.
"Regulation U" means Regulation U of the Board of Governors of the
Federal Reserve System from time to time in effect and shall include any
successor or other regulation or official interpretation of said Board of
Governors relating to the extension of credit by banks for the purpose of
purchasing or carrying margin stocks applicable to member banks of the
Federal Reserve System.
"Reportable Event" has the meaning assigned to that term in Title IV
of ERISA.
"S&P" means Standard & Poor's Ratings Group or any successor thereto.
"Section" means a numbered section of this Agreement, unless another
document is specifically referenced.
"Single Employer Plan" means a Plan maintained by the Company or any
member of the Controlled Group for employees of the Company or any member
of the Controlled Group.
"Subsidiary" means, as to any Person, any corporation or other entity
of which at least a majority of the securities or other ownership
interests having ordinary voting power (absolutely or contingently) for
the election of directors or other Persons performing similar functions
are at the time owned directly or indirectly by such Person.
"Termination Date" means the earlier of (i) the fourth anniversary of
the date of this Agreement or (ii) any earlier date on which the
obligation of the Banks to make Committed Loans and Committed Drawings
hereunder is terminated.
"Termination Event" means (a) a Reportable Event described in Section
4043 of ERISA and the regulations issued thereunder (other than a
Reportable Event not subject to the provision for 30-day notice to the
PBGC under such regulations), or (b) the withdrawal of the Company or any
of its ERISA Affiliates from a Plan during a plan year in which it was a
"substantial employer" as defined in Section 4001 (a) (2) of ERISA, or (c)
the filing of a notice of intent to terminate a Plan or the treatment of a
Plan amendment as a termination under Section 4041 of ERISA, or (d) the
institution of proceedings to terminate a Plan by the PBGC or to appoint a
trustee to administer any Plan.
"Total Consolidated Capitalization" means, at any date of
determination, the sum of (a) Total Consolidated Debt, (b) equity of the
common stockholders of the Company, (c) equity of the preference
stockholders of the Company and (d) equity of the preferred stockholders
of the Company, in each case determined at such date.
"Total Consolidated Debt" means, at any date of determination, the
aggregate Debt of the Company and its Consolidated Subsidiaries.
"Unfunded Vested Liabilities" means, (i) in the case of Single
Employer Plans, the amount (if any) by which the present value of all
vested nonforfeitable benefits under such Plan exceeds the fair market
value of all Plan assets allocable to such benefits, all determined as of
the then most recent valuation date for such Plan, and (ii) in the case of
Multiemployer Plans, the withdrawal liability of the Company and
Subsidiaries.
The foregoing definitions shall be equally applicable to both the
singular and plural forms of the defined terms.
ARTICLE II
THE ADVANCES
------------
2.1. Commitment. From and including the date of this Agreement
through and including the Termination Date, each Bank severally agrees, on
the terms and conditions set forth in this Agreement, to extend credit to
the Company from time to time by making Committed Loans and creating and
discounting Committed Drawings in amounts not to exceed in the aggregate
at any one time outstanding the amount of its Commitment, provided, that
the Commitment of each Bank shall be deemed utilized from time to time by
the amount of such Bank's Competitive Bid Reduction. Subject to the terms
of this Agreement, the Company may borrow, repay and reborrow at any time
prior to the Termination Date. Each Advance hereunder (other than
Competitive Bid Advances) shall consist of Advances made from the several
Banks ratably in proportion to the ratio that their respective Commitments
bear to the Aggregate Commitment. The total amount of Committed Loans,
Committed Drawings, and Competitive Bid Loans outstanding at any one time
may not exceed the Aggregate Commitment in effect at such time.
The Company shall (a) use the proceeds from the discounting of Drafts
by the Banks to finance the current shipment of fossil fuels within the
United States, including, without limitation, natural gas and coal and (b)
use the proceeds of the Loans for general corporate purposes.
2.2. Drawings.
2.2.1. Form of Drafts. Drawings shall be created severally by each
Bank hereunder by creating and discounting Drafts at such Bank's Discount
Rate. Each Draft shall be drawn on the Bank discounting such Draft and
dated the date such Draft is presented for discount hereunder, shall be an
Eligible Draft and shall mature and be payable by the Company on a
Business Day which is (i) not less than 30 nor more than 180 days after
the date thereof and (ii) not later than the Termination Date in effect at
the time of the creation of such Draft.
2.2.2. Powers of Attorney. The Company will furnish each Bank a
limited Power of Attorney substantially in the form of Exhibit "D" hereto
(together, the "Powers of Attorney"), which will authorize such Bank to
complete and execute the Drafts on behalf of the Company in accordance
with the information to be furnished for each Draft.
2.2.3. Payment of Drafts at Maturity. The Company shall pay each
Bank an amount equal to the face amount of each Draft discounted by such
Bank on the maturity date thereof to the account indicated on the
signature pages to this Agreement for such Bank.
2.2.4. Committed Drawings.
(a) Request for Committed Drawing. Each Committed Drawing shall
be made on telephone notice received by the Agent from the Company not
later than 11:00 A.M. (Chicago time) two Business Days prior to the
Borrowing Date of such Drawing, confirmed by a written notice received by
the Agent by 3:00 P.M. (Chicago time) on such Business Day, substantially
in the form of Exhibit "C" hereto and incorporated herein (each a
"Committed Drawing Request"), specifying, among other things, (i) the
Borrowing Date of such Committed Drawing, (ii) the dates of maturity of
the Drafts (each of which must be a Business Day), (iii) with respect to
each maturity within each Committed Drawing, the aggregate face amount of
the Drafts to be created and discounted and (iv) a description of the
goods, the shipment of which is to be financed by the Committed Drawing.
The Agent shall promptly notify each of the Banks of its ratable
proportion of the Committed Drawing, based on the ratio that such Bank's
Commitment bears to the Aggregate Commitment. By 9:00 A.M. (Chicago time)
on the Borrowing Date for such Committed Drawing, each Bank shall notify
the Agent of such Bank's Discount Rate to be used in the discounting of
the Drafts by such Bank pursuant to such requested Committed Drawing. The
Agent shall calculate the Banker's Acceptance Reference Rate and shall
notify the Company of such rate by 9:30 a.m. (Chicago time) on such
Borrowing Date. If any Bank's Discount Rate is greater than the Banker's
Acceptance Reference Rate for such requested Drawing, the Agent shall
notify such Bank by 9:30 A.M. (Chicago time) on such Borrowing Date and
such Bank shall use the Banker's Acceptance Reference Rate in discounting
the Draft for such requested Drawing as set forth below.
(b) Mechanics of Committed Drawings. Not later than 11:00 A.M.
(Chicago time) on each Borrowing Date for a Committed Drawing and upon
fulfillment of the applicable conditions set forth herein, each Bank will
(i) prepare on behalf of the Company a Draft or Drafts having a face
amount in the aggregate equal to the amount of such Bank's ratable
proportion of the Committed Drawing, each such Draft being dated such
Borrowing Date and having the maturity date specified by the Company, (ii)
execute such Draft or Drafts on behalf of the Company pursuant to the
Powers of Attorney and (iii) discount each Draft by transferring to the
Agent at its address specified on the signature page hereof an amount in
immediately available funds equal to (a) the face amount of such Draft
minus (b) the sum of (x) such Bank's Discount for such Draft plus (y) the
Commission applicable to such Draft. The Agent will make the funds so
received from the Banks available to the Company at the Agent's aforesaid
address.
2.3. Loans.
2.3.1. Committed Loans.
2.3.1.1. Rate Options; Payment on Last Day of Interest
Period. The Loans may be Floating Rate Loans or Eurodollar
Rate Loans, or a combination thereof, selected by the Company
in accordance with Section 2.3.1.2. Each Loan shall be paid
in full by the Company on the last day of the Interest Period
applicable thereto.
2.3.1.2. Method of Selecting Rate Options and Interest
Periods. The Company shall select the Rate Option and
Interest Period applicable to each Loan from time to time.
The Company shall give the Agent irrevocable notice (a "Loan
Request") not later than 11:00 a.m. (Chicago time) on the
Borrowing Date of each Floating Rate Loan and three Business
Days before the Borrowing Date of each Eurodollar Rate Loan,
specifying:
(i) the Borrowing Date, which shall be a Business Day, of
such Loan,
(ii) the aggregate amount of such Loan,
(iii) the Rate Option selected for such Loan, and
(iv) in the case of each Fixed Rate Loan, the Interest
Period applicable thereto.
Each Fixed Rate Loan shall bear interest from and including
the first day of the Interest Period applicable thereto to
(but not including) the last day of such Interest Period at
the interest rate determined as applicable to such Fixed Rate
Loan. The Company shall not select an Interest Period with
respect to any Loan which ends subsequent to the earlier of
(x) the date of maturity of the Committed Notes in effect at
the time of the making of such Loan and (y) the Termination
Date in effect at the time of the making of such Loan.
2.3.1.3. Committed Notes. Each Bank is hereby authorized to
record the principal amount of each of the Loans and each
repayment on the schedule attached to its Committed Note,
provided, that the failure to so record shall not affect the
Company's obligations under such Committed Note. On or before
each of the first, second and third anniversaries of the date
of this Agreement, the Company shall execute and deliver to
the Agent new Committed Notes dated, respectively, the date of
the first, second and third anniversaries of the date of this
Agreement and maturing, respectively, on the second, third and
fourth anniversaries of the date of this Agreement.
2.3.1.4. Interest Payment Dates; Interest Basis. Interest
accrued on each Loan shall be payable on the last day of its
applicable Interest Period and on any date on which the Loan
is prepaid, whether due to acceleration or otherwise.
Interest accrued on each Fixed Rate Loan having an Interest
Period longer than three months shall also be payable on the
last day of each three-month interval during such Interest
Period. Interest on Fixed Rate Loans and Drawings shall be
calculated for actual days elapsed on the basis of a 360-day
year. Interest on Floating Rate Loans shall be calculated for
actual days elapsed on the basis of a 365/366 day year.
Interest shall be payable for the day a Loan is made but not
for the day of any payment on the amount paid if payment is
received prior to 5:00 p.m. (Chicago time) at the place of
payment. If any payment of principal or interest on a Loan
shall become due on a day which is not a Business Day, such
payment shall be made on the next succeeding Business Day and,
in the case of a principal payment, such extension of time
shall be included in computing interest in connection with
such payment.
2.3.2. Competitive Bid Advances.
2.3.2.1. Competitive Bid Option. In addition to the Loans
pursuant to Section 2.3.1, but subject to the terms and
conditions of this Agreement (including, without limitation,
the limitation set forth in Section 2.1 as to the maximum
aggregate principal amount of all outstanding Advances
hereunder), the Company may, as set forth in this Section
2.3.2, request the Banks, prior to the Termination Date, to
make offers to make Competitive Bid Advances to the Company.
Each Bank may, but shall have no obligation to, make such
offers and the Company may, but shall have no obligation to,
accept any such offers in the manner set forth in this Section
2.3.2. Competitive Bid Advances shall be evidenced by the
Competitive Bid Notes.
2.3.2.2. Competitive Bid Quote Request. When the Company
wishes to request offers to make Competitive Bid Loans under
this Section 2.3.2, it shall transmit to the Agent by telex or
telecopy a Competitive Bid Quote Request substantially in the
form of Exhibit "G" hereto so as to be received no later than
9:00 a.m. (Chicago time) at least two Business Days prior to
the Borrowing Date proposed therein, specifying:
(a) the proposed Borrowing Date, which shall be a
Business Day, for the proposed Competitive Bid Advance,
(b) the aggregate principal amount of such
Competitive Bid Advance, and
(c) the Interest Period applicable thereto (which
may not be greater than 180 days and may not end after the
Termination Date).
The Company may request offers to make Competitive Bid Loans
for more than one Interest Period in a single Competitive Bid
Quote Request. A Competitive Bid Quote Request that does not
conform substantially to the format of Exhibit "G" hereto
shall be rejected, and the Agent shall promptly notify the
Company of such rejection by telex or telecopy.
2.3.2.3. Invitation for Competitive Bid Quotes. Promptly,
and in any event before the close of business (Chicago time)
on the same Business Day of receipt of a Competitive Bid Quote
Request that is not rejected pursuant to Section 2.3.2.2, the
Agent shall send to each of the Banks by telex or telecopy an
Invitation for Competitive Bid Quotes substantially in the
form of Exhibit "H" hereto, which shall constitute an
invitation by the Company to each Bank to submit Competitive
Bid Quotes offering to make the Competitive Bid Loans to which
such Competitive Bid Quote Request relates in accordance with
this Section 2.3.2.
2.3.2.4. Submission and Contents of Competitive Bid Quotes.
(i) Each Bank may, in its sole discretion, submit a
Competitive Bid Quote containing an offer or offers to make
Competitive Bid Loans in response to any Invitation for
Competitive Bid Quotes. Each Competitive Bid Quote must
comply with the requirements of this Section 2.3.2.4 and must
be submitted to the Agent by telex or telecopy at its offices
specified in or pursuant to Article XIII not later than 9:00
a.m. (Chicago time) on the proposed Borrowing Date (or, upon
reasonable prior notice to the Banks, such other time and date
as the Company and the Agent may agree), provided, that
Competitive Bid Quotes submitted by First Chicago may only be
submitted if the Agent or First Chicago (in either capacity)
notifies the Company of the terms of the offer or offers
contained therein not later than 15 minutes prior to the
latest time at which the relevant Competitive Bid Quotes must
be submitted by the other Banks. Subject to Articles IX and
XI, any Competitive Bid Quote so made shall be irrevocable
except with the written consent of the Agent given on the
instructions of the Company.
(ii) Each Competitive Bid Quote shall be in
substantially the form of Exhibit "F" hereto and shall in any
case specify:
(a) the proposed Borrowing Date, which shall be the
same as that set forth in the applicable Invitation for
Competitive Bid Quotes,
(b) the principal amount of the Competitive Bid Loan
for which each such offer is being made, which principal
amount (1) may be greater than, less than or equal to the
Commitment of the quoting Bank, (2) must be at least
$10,000,000 and an integral multiple of $1,000,000, and (3)
may not exceed the principal amount of Competitive Bid Loans
for which offers were requested,
(c) the Absolute Rate offered for each such
Competitive Bid Loan,
(d) the Interest Period applicable to each such
Competitive Bid Loan, and
(e) the identity of the quoting Bank.
(iii) The Agent shall reject any Competitive Bid Quote
that:
(a) is not substantially in the form of Exhibit "F"
hereto or does not specify all of the information required by
this Section 2.3.2.4(ii);
(b) contains qualifying, conditional or similar
language, other than any such language contained in Exhibit
"F" hereto;
(c) proposes terms other than or in addition to
those set forth in the applicable Invitation for Competitive
Bid Quotes; or
(d) arrives after the time set forth in Section
2.3.2.4(i).
If any Competitive Bid Quote shall be rejected pursuant to
this Section 2.3.2.4(iii), then the Agent shall notify the
relevant Bank of such rejection as soon as practical.
2.3.2.5. Notice to Company. Not later than 9:30 a.m.
(Chicago time) on the proposed Borrowing Date, the Agent shall
notify the Company of the terms (i) of any Competitive Bid
Quote submitted by a Bank that is in accordance with Section
2.3.2.4 and (ii) of any Competitive Bid Quote that amends,
modifies or is otherwise inconsistent with a previous
Competitive Bid Quote submitted by such Bank with respect to
the same Competitive Bid Quote Request. Any such subsequent
Competitive Bid Quote shall be disregarded by the Agent unless
such subsequent Competitive Bid Quote specifically states that
it is submitted solely to correct a manifest error in such
former Competitive Bid Quote. The Agent's notice to the
Company shall specify the aggregate principal amount of
Competitive Bid Loans for which offers have been received for
each Interest Period specified in the related Competitive Bid
Quote Request and the respective principal amounts and
Absolute Rates so offered.
2.3.2.6. Acceptance and Notice by Company. Not later than
10:00 a.m. (Chicago time) on the proposed Borrowing Date (or,
upon reasonable prior notice to the Banks, such other time and
date as the Company and the Agent may agree), the Company
shall notify the Agent of its acceptance or rejection of the
offers so notified to it pursuant to Section 2.3.2.5,
provided, that the failure by the Company to give such notice
to the Agent shall be deemed to be a rejection of all such
offers. In the case of acceptance, such notice (a
"Competitive Bid Borrowing Notice") shall specify the
aggregate principal amount of offers that are accepted for
each Interest Period and shall be followed promptly by a
confirming telecopy of such Competitive Bid Borrowing Notice.
The Company may accept any Competitive Bid Quote in whole or
in part, provided, that:
(a) the Company may choose to accept Competitive Bid
Quotes in an aggregate principal amount in excess of the
amount of the related Competitive Bid Quote Request,
(b) the Company shall be required to accept the
lowest Competitive Bid Quotes submitted in response to such
Competitive Bid Quote Request, and
(c) the Company may not accept any offer that is
described in Section 2.3.2.4(iii) or that otherwise fails to
comply with the requirements of this Agreement.
2.3.2.7. Allocation by Agent. If offers are made by two or
more Banks with the same Absolute Rates for a greater
aggregate principal amount than the amount in respect of which
offers are accepted for the related Interest Period, the
principal amount of Competitive Bid Loans in respect of which
such offers are accepted shall be allocated by the Agent among
such Banks as nearly as possible (in such multiples, not
greater than $1,000,000, as the Agent may deem appropriate) in
proportion to the aggregate principal amount of such offers.
Allocations by the Agent of the amounts of Competitive Bid
Loans shall be conclusive in the absence of manifest error.
The Agent shall promptly, but in any event on the same
Business Day, notify each Bank of its receipt of a Competitive
Bid Borrowing Notice and the aggregate principal amount of
such Competitive Bid Advance allocated to each participating
Bank.
2.4. Method of Making Advances. Not later than noon (Chicago time)
on each Borrowing Date, each Bank will make the funds available to the
Company at such reasonable location as shall be specified by the Company
in its Loan Request, Competitive Bid Quote Request or Drawing Request.
Notwithstanding the foregoing provisions of this Section, to the extent
that a Loan made by a Bank matures on the Borrowing Date of a requested
Loan, such Bank shall apply the proceeds of the Loan it is then making to
the repayment of the maturing Loan.
2.5. Minimum Amount of Advances. Each Advance shall be in the
minimum amount of $10,000,000 (and in multiples of $1,000,000 if in excess
thereof), provided, that any Floating Rate Loan may be in the amount of
the unused Aggregate Commitment.
2.6. Optional Principal Payments. The Company may from time to time
pay all outstanding Floating Rate Loans, or, in a minimum aggregate amount
of $10,000,000 (and in multiples of $1,000,000 if in excess thereof), any
portion of the outstanding Floating Rate Loans upon one Business Day's
notice to the Agent. A Fixed Rate Loan paid prior to the last day of the
applicable Interest Period shall be subject to the provisions of Section
4.5. A Drawing may not be paid prior to the maturity date thereof.
2.7. Commitment Fee and Reduction of Commitment. The Company agrees
to pay to the Agent for the account of each Bank a Commitment Fee on the
daily unborrowed portion of such Bank's Commitment from the date hereof to
and including the Termination Date payable in arrears on the last day of
each March, June, September and December during the term of the Bank's
Commitment, commencing on September 30, 1995, and on the Termination Date.
The commitment fee shall be calculated for actual days elapsed on the
basis of a 365/366 day year. For purposes of this commitment fee only,
each Bank's Commitment shall not be deemed utilized by the amount of such
Bank's Competitive Bid Reduction. The Company may permanently reduce the
Aggregate Commitment in whole, or in part ratably among the Banks in the
minimum amount of $10,000,000 (and in multiples of $1,000,000 if in excess
thereof), upon at least ten Business Days' written notice to the Agent,
which shall specify the amount of any such reduction, provided, that the
amount of the Aggregate Commitment may not be reduced below the aggregate
outstanding principal amount of the Advances. All accrued commitment fees
shall be payable on the effective date of any termination of the
obligation of the Banks to make Advances hereunder.
2.8. Agency Fee. The Company shall pay an agency fee to the Agent
in an amount to be separately documented between the Company and the
Agent.
2.9. Rate after Maturity. Except as provided in the next sentence,
any Advance not paid by the Company at maturity, whether by acceleration
or otherwise, shall bear interest until paid in full at a rate per annum
equal to the Floating Rate plus 1% per annum. In the case of a Fixed Rate
Loan the maturity of which is accelerated, such Fixed Rate Loan shall bear
interest for the remainder of the applicable Interest Period, at the
higher of the rate otherwise applicable to such Interest Period plus 1%
per annum or the Floating Rate plus 1% per annum.
2.10. Method of Payment. All payments of principal and interest
hereunder for Loans and Drawings and all payments of fees hereunder shall
be made in immediately available funds to the Agent at its address
specified on the signature page of this Agreement or at any other Lending
Installation of the Agent specified in writing by the Agent to the Company
by noon (Chicago time) on the date when due and shall be applied (i)
first, ratably among the Banks with respect to any principal and interest
due in connection with Loans pursuant to Section 2.3.1 or Committed
Drawings, (ii) second, after all amounts described in clause (i) have been
satisfied, ratably among those Banks for whom any payment of principal and
interest is due in connection with any Competitive Bid Loans and (iii)
third, after all amounts described in clauses (i) and (ii) have been
satisfied, ratably to any other Obligations then due. Each payment
delivered to the Agent for the account of any Bank shall be delivered
promptly by the Agent to such Bank in the same type of funds which the
Agent received at its address specified on the signature pages of this
Agreement or at any Lending Installation specified in a notice received by
the Agent from such Bank. The Agent is hereby authorized to charge the
account of the Company maintained with First Chicago, if any, for each
payment of principal or interest for Loans and Drawings and all fees as
such payment becomes due hereunder.
2.11. Telephonic Notices. The Company hereby authorizes the Banks
and the Agent to make Advances and effect Rate Option selections based on
telephonic notices made by any person or persons the Agent or any Bank in
good faith believes to be acting on behalf of the Company. The Company
agrees to deliver promptly to the Agent a written confirmation of each
telephonic notice signed by a Designated Officer. If the written
confirmation differs in any material respect from the action taken by the
Agent and the Banks, the records of the Agent and the Banks shall govern
absent manifest error.
2.12. Lending Installations. Subject to the provisions of Section
4.6 hereof, each Bank may book its Advances at any Lending Installation
selected by such Bank and may change its Lending Installation from time to
time. All terms of this Agreement shall apply to any such Lending
Installation and the Notes and the Drafts shall be deemed held by each
Bank for the benefit of such Lending Installation. Each Bank may, by
written or telex notice to the Company, designate a Lending Installation
through which Advances will be made by it and for whose account payments
on the Advances are to be made.
2.13. Non-Receipt of Funds by the Agent. Unless the Company or a
Bank, as the case may be, notifies the Agent prior to the date on which it
is scheduled to make payment to the Agent of (i) in the case of a Bank,
the proceeds of a Loan or (ii) in the case of the Company, a payment of
principal, interest or fees to the Agent for the account of the Banks,
that it does not intend to make such payment, the Agent may assume that
such payment has been made. The Agent may, but shall not be obligated to,
make the amount of such payment available to the intended recipient in
reliance upon such assumption. If such Bank or the Company, as the case
may be, has not in fact made such payment to the Agent, the recipient of
such payment shall, on demand by the Agent, repay to the Agent the amount
so made available together with interest thereon in respect of each day
during the period commencing on the date such amount was so made available
by the Agent until the date the Agent recovers such amount at a rate per
annum equal to (i) in the case of payment by a Bank, the Federal Funds
Rate for such day (as determined by the Agent) or (ii) in the case of
payment by the Company, the interest rate applicable to the relevant Loan.
ARTICLE III
RESERVED
ARTICLE IV
CHANGE IN CIRCUMSTANCES
-----------------------
4.1. Yield Protection. (a) If any change in law or any governmental
rule, regulation, policy, guideline or directive (whether or not having
the force of law), or any interpretation thereof by any agency or
authority having jurisdiction over any Bank,
(i) subjects any Bank or any applicable Lending Installation
to any increased tax, duty, charge or withholding on or from payments
due from the Company (excluding taxation measured by or attributable
to the overall net income of the Bank or applicable Lending
Installation, whether overall or in any geographic area), or changes
the rate of taxation of payments to any Bank in respect of its
Advances or other amounts due it hereunder, or
(ii) imposes or increases or deems applicable any reserve,
assessment, insurance charge, special deposit or similar requirement
against assets of, deposits with or for the account of, or credit
extended by, any Bank or any applicable Lending Installation
(including, without limitation, (i) any reserve costs under
Regulation D with respect to Eurocurrency liabilities (as defined in
Regulation D) and (ii) a higher discount rate, increased reserve
requirements or additional premium liability to the Federal Deposit
Insurance Corporation resulting from any Draft discounted hereunder
not being an Eligible Draft at the time of its creation, but
excluding reserves and assessments already taken into account in
determining the interest rate applicable to Fixed Rate Loans and
discount rates already taken into account in discounting existing
Drafts), or
(iii) imposes any other condition the result of which is to
increase the cost to any Bank or any applicable Lending Installation
of making, funding or maintaining loans or bankers acceptances, or
reduces any amount receivable by any Bank or any applicable Lending
Installation in connection with loans or bankers acceptances, or
requires any Bank or any applicable Lending Installation to make any
payment calculated by reference to the amount of loans or bankers
acceptances held or interest received by it, by an amount deemed
material by any Bank, or
(iv) affects the amount of capital required or expected to be
maintained by any Bank or any corporation controlling any Bank and
such Bank determines the amount of capital required is increased by
or based upon the existence of this Agreement or its obligation to
make Advances hereunder or of commitments of this type,
then, upon presentation by such Bank to the Company of a certificate (as
referred to in the immediately succeeding sentence of this Section 4.1)
setting forth the basis for such determination and the additional amounts
reasonably determined by such Bank, for the period of up to 90 days prior
to the date on which such certificate is delivered to the Company and the
Agent, to be sufficient to compensate such Bank in light of such
circumstances, the Company shall within 30 days of such delivery of such
certificate pay to the Agent for the account of such Bank the specified
amounts set forth on such certificate. The affected Bank shall deliver to
the Company and the Agent a certificate setting forth the basis of the
claim and specifying in reasonable detail the calculation of such
increased expense, which certificate shall be prima facia evidence as to
such increase and such amounts. An affected Bank may deliver more than
one certificate to the Company during the term of this Agreement. In
making the determinations contemplated by the above-referenced
certificate, such Bank may make such reasonable estimates, assumptions,
allocations and the like that such Bank in good faith determines to be
appropriate, and such Bank's selection thereof in accordance with this
Section 4.1 shall be conclusive and binding on the Company, absent
manifest error.
(b) No Bank shall be entitled to demand compensation or be
compensated hereunder to the extent that such compensation relates to any
period of time more than 90 days prior to the date upon which such Bank
first notified the Company of the occurrence of the event entitling such
Bank to such compensation (unless, and to the extent, that any such
compensation so demanded shall relate to the retroactive application of
any event so notified to the Company).
4.2. Replacement Bank. (a) If any Bank shall make a demand for
payment under Section 4.1, then within 30 days after such demand, the
Company may, with the approval of the Agent (which approval shall not be
unreasonably withheld) and provided that no Default or Event of Default
shall then have occurred and be continuing, demand that such Bank assign
to one or more financial institutions designated by the Company and
approved by the Agent all (but not less than all) of such Bank's
Commitment and the Advances owing to it within the period ending on the
later of such 30th day and the last day of the longest of the then current
Interest Periods or maturity dates for such Advances. It is understood
that such assignment shall be consummated on terms satisfactory to the
assigning Bank, provided, that such Bank's consent to such an assignment
shall not be unreasonably withheld.
(b) In the event that the Company shall elect to replace a Bank as
referred to in clause (a) above, the Company shall prepay all Advances
outstanding of such Bank, and the bank or banks selected by the Company
shall replace such Bank as a Bank hereunder pursuant to an instrument
satisfactory to the Company, the Agent and the Bank being replaced by
making Loans to the Company in the amount of the Loans previously made by
such assigning Bank and discounting Drafts for the Company having the
aggregate face amount and maturities previously discounted by such
assigning Bank, and assuming all the same rights and responsibilities
hereunder as such assigning Bank and having the same Commitment as such
assigning Bank.
4.3. Availability of Rate Options. If any Bank determines that
maintenance of the Eurodollar Rate Loans at a suitable Lending
Installation would violate any applicable law, rule, regulation, or
directive, whether or not having the force of law, or if the Majority
Banks determine that (i) deposits of a type and maturity appropriate to
match fund Fixed Rate Loans are not available or (ii) a Fixed Rate does
not accurately reflect the cost of making or maintaining a Fixed Rate
Loan, then the Agent shall suspend the availability of the affected Rate
Option and require any Fixed Rate Loans outstanding under an affected Rate
Option to be promptly converted to Floating Rate Loans.
4.4. Availability of Drawings. If (i) a determination shall be made
by any regulatory body or any instrumentality thereof (including, without
limitation, any Federal Reserve Bank or any bank examiner) or there is a
change in, or change in interpretation of, any applicable law, rule,
regulation or directive, in either case whether or not having the force of
law, and in either case to the effect that any Draft will not be an
Eligible Draft (or if already discounted is not or, at the time of its
creation, was not an Eligible Draft) with Federal Reserve Banks or (ii) a
restriction (including, without limitation, any change in bankers
acceptance limits imposed on any Bank) is imposed on any Bank by act of
government or of any regulatory body or any in instrumentality thereof
(including, without limitation, any Federal Reserve Bank or any bank
examiner) which would prevent such Bank from extending Advances or
creating Eligible Drafts then, in any such event, the Agent shall suspend
the availability of Drawings hereunder and require any outstanding
Drawings to be promptly converted to Floating Rate Loans.
4.5. Funding Indemnification. If any payment of a Fixed Rate Loan
occurs on a date which is not the last day of the applicable Interest
Period or any payment of a Draft occurs on a date which is not its
specified maturity date, whether because of prepayment or otherwise, or a
Fixed Rate Loan or a Drawing is not made on the date specified by the
Company for any reason other than default by the Banks, the Company will
indemnify each Bank for any loss or cost (but not lost profits) incurred
by it resulting therefrom, including, without limitation, any loss or cost
in liquidating or employing deposits acquired to fund or maintain the
Fixed Rate Loan or Drawing; provided, however, that the Company shall not
be liable for any of the foregoing to the extent they arise because of
acceleration by any Bank.
4.6. Bank Certificates; Survival of Indemnity. To the extent
reasonably possible, each Bank shall designate an alternate Lending
Installation with respect to the Fixed Rate Loans to reduce any liability
of the Company to such Bank under Section 4.1 or to avoid the
unavailability of a Rate Option under Section 4.3, so long as such
designation is not disadvantageous to such Bank. A certificate of such
Bank as to the amount due under Section 4.1 or 4.5 shall be final,
conclusive and binding on the Company in the absence of manifest error.
Determination of amounts payable under such Sections in connection with a
Fixed Rate Loan shall be calculated as though each Bank funded its Fixed
Rate Loan through the purchase of a deposit of the type and maturity
corresponding to the deposit used as a reference in determining the Fixed
Rate applicable to such Loan whether in fact that is the case or not.
Unless otherwise provided herein, the amount specified in the certificate
shall be payable on demand after receipt by the Company of the
certificate. The obligations of the Company under Sections 4.1 and 4.5
shall survive payment of the Obligations and termination of this
Agreement, provided, that no Bank shall be entitled to compensation to the
extent that such compensation relates to any period of time more than 90
days after the termination of this Agreement.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
------------------------------
The Company hereby represents and warrants that:
5.1. Incorporation and Good Standing. The Company is duly
incorporated, validly existing and in good standing under the laws of the
State of Michigan.
5.2. Corporate Power and Authority; No Conflicts. The execution,
delivery and performance by the Company of the Credit Documents to which
it is a party are within the Company's corporate powers, have been duly
authorized by all necessary corporate action and do not (i) violate the
Company's charter, by-laws or any applicable law, or (ii) breach or result
in an event of default under any indenture or material agreement, and do
not result in or require the creation of any Lien upon or with respect to
any of its properties.
5.3. Governmental Approvals. No authorization or approval or other
action by, and no notice to or filing with, any governmental authority or
regulatory body is required for the due execution, delivery and
performance by the Company of any Credit Document to which it is a party,
except for the authorization to issue, sell or guarantee secured and/or
unsecured short-term debt granted by the Federal Energy Regulatory
Commission.
5.4. Legally Enforceable Agreements. This Agreement and the other
Credit Documents except the Notes and Drafts are, and the Notes and Drafts
when delivered hereunder will be legal, valid and binding obligations of
the Company, enforceable against the Company in accordance with their
respective terms, subject to (a) the effect of applicable bankruptcy,
insolvency, reorganization or moratorium or other similar laws affecting
the enforcement of creditors' rights generally, and (b) the application of
general principles of equity (regardless of whether considered in a
proceeding in equity or at law).
5.5. Financial Statements. The audited balance sheet of the Company
and its Consolidated Subsidiaries as at December 31, 1994, and the related
statements of income and changes in financial position of the Company and
its Consolidated Subsidiaries for the fiscal year then ended, as set forth
in the Company's Annual Report on Form 10-K (copies of which have been
furnished to each Bank), and the unaudited balance sheet of the Company
and its Consolidated Subsidiaries as at March 31, 1995 (copies of which
have been furnished to each Bank), fairly present the financial condition
of the Company and its Consolidated Subsidiaries as at such date and the
results of operations of the Company and its Consolidated Subsidiaries for
the period ended on such date, all in accordance with GAAP, and since
March 31, 1995, there has been no material adverse change in such
financial condition or results of operations of the Company and its
Consolidated Subsidiaries, taken as a whole (except to the extent
described in the Company's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1995 as filed with the Securities and Exchange Commission,
copies of which have been furnished to each Bank), that would materially
adversely affect the Company's ability to perform its obligations under
any Credit Document to which it is a party.
5.6. Litigation. Except to the extent described in the Company's
Annual Report on Form 10-K for the year ended December 31, 1994, and
Quarterly Report on Form 10-Q for the quarter ended March 31, 1995, as
filed with the Securities and Exchange Commission, copies of which have
been furnished to each Bank, there is no pending or threatened action or
proceeding against the Company or any of its Consolidated Subsidiaries
before any court, governmental agency or arbitrator, which, if adversely
determined, might reasonably be expected to materially adversely affect
the financial condition or results of operations of the Company and its
Consolidated Subsidiaries, taken as a whole, that would materially
adversely affect the Company's ability to perform its obligations under
any Credit Document to which it is a party.
5.7. Margin Stock. The Company is not engaged in the business of
extending credit for the purpose of buying or carrying margin stock
(within the meaning of Regulation U), and no proceeds of any Advance will
be used to buy or carry any margin stock or to extend credit to others for
the purpose of buying or carrying any margin stock.
5.8. ERISA. No Termination Event has occurred or is reasonably
expected to occur with respect to any Plan. Neither the Company nor any
of its ERISA Affiliates is an employer under a Multiemployer Plan.
ARTICLE VI
AFFIRMATIVE COVENANTS
---------------------
So long as any Advance shall remain unpaid or any Bank shall have any
Commitment under this Agreement, the Company shall:
6.1. Payment of Taxes, Etc. Pay and discharge before the same shall
become delinquent, (a) all taxes, assessments and governmental charges or
levies imposed upon it or upon its property, and (b) all lawful claims
which, if unpaid, might by law become a Lien upon its property, provided,
that the Company shall not be required to pay or discharge any such tax,
assessment, charge or claim (i) which is being contested by it in good
faith and by proper procedures, or (ii) the non-payment of which will not
materially adversely affect the financial condition or results of
operations of the Company and its Consolidated Subsidiaries, taken as a
whole.
6.2. Maintenance of Insurance. Maintain insurance in such amounts
and covering such risks with respect to its business and properties as is
usually carried by companies engaged in similar businesses and owning
similar properties, either with reputable insurance companies or, in whole
or in part, by establishing reserves or one or more insurance funds,
either alone or with other corporations or associations.
6.3. Preservation of Corporate Existence, Etc. Preserve and
maintain its corporate existence, rights and franchises, and qualify and
remain qualified as a foreign corporation in each jurisdiction in which
such qualification is necessary in view of its business and operations or
the ownership of its properties, provided, that the Company shall not be
required to preserve any such right or franchise or to remain so qualified
unless the failure to do so would have a material adverse effect on the
financial condition or results of operations of the Company and its
Consolidated Subsidiaries, taken as a whole, or the ability of the Company
to enter into, or to perform its obligations under, any Credit Document.
6.4. Compliance with Laws, Etc. Comply with the requirements of all
applicable laws, rules, regulations and orders of any governmental
authority, the non-compliance with which would materially adversely affect
the financial condition or results of operations of the Company and its
Consolidated Subsidiaries, taken as a whole, or the ability of the Company
to perform its obligations under any Credit Document.
6.5. Visitation Rights. Subject to any necessary approval from the
Nuclear Regulatory Commission, at any reasonable time and from time to
time, permit the Agent, any of the Banks or any agents or representatives
thereof to examine and make copies of and abstracts from its records and
books of account, visit its properties and discuss its affairs, finances
and accounts with any of its officers.
6.6. Keeping of Books. Keep, and cause each Consolidated Subsidiary
to keep, adequate records and books of account, in which full and correct
entries shall be made of all of its financial transactions and its assets
and business so as to permit the Company and its Consolidated Subsidiaries
to present financial statements in accordance with GAAP.
6.7. Reporting Requirements. Furnish to the Agent, with sufficient
copies for each of the Banks:
(a) as soon as practicable and in any event within five Business
Days after becoming aware of the occurrence of any Default or Event of
Default, a statement of a Designated Officer as to the nature thereof, and
as soon as practicable and in any event within five Business Days
thereafter, a statement of a Designated Officer as to the action which the
Company has taken, is taking or proposes to take with respect thereto;
(b) as soon as available and in any event within 60 days after the
end of each of the first three quarters of each fiscal year of the
Company, a copy of the Quarterly Report on Form 10-Q (or any successor
form) for the Company for such quarter, including therein the consolidated
balance sheet of the Company and its Consolidated Subsidiaries as at the
end of such quarter, and the related consolidated statements of income,
cash flows and common stockholder's equity of the Company and its
Consolidated Subsidiaries as at the end of and for the period commencing
at the end of the previous fiscal year and ending with the end of such
quarter, setting forth in each case in comparative form the corresponding
figures for the corresponding date or period of the preceding fiscal year,
or statements providing substantially similar information, all in
reasonable detail and duly certified (subject to year-end audit
adjustments) by a Designated Officer as having been prepared in accordance
with GAAP consistent with GAAP applied in the preparation of the financial
statements referred to in clause (d) below (except as disclosed in the
notes to such balance sheet and financial statements), together with (i) a
certificate of a Designated Officer (which certificate shall also
accompany the financial statements delivered pursuant to clause (d) below)
stating that he has no knowledge (having made due inquiry with respect
thereto) that a Default or Event of Default has occurred and is
continuing, or, if such Default or Event of Default has occurred and is
continuing, a statement as to the nature thereof and the actions which the
Company has taken, is taking or proposes to take with respect thereto, and
(ii) a certificate of a Designated Officer, in substantially the form of
Exhibit "I" hereto, setting forth the Company's computation of the
financial ratio specified in Sections 8.1 as of the end of the immediately
preceding fiscal quarter or year, as the case may be, of the Company;
(c) as soon as available and in any event within 120 days after
the end of each fiscal year of the Company, a copy of the Annual Report on
Form 10-K (or any successor form) for the Company for such year, including
therein the consolidated balance sheet of the Company and its Consolidated
Subsidiaries as at the end of such year and the consolidated statements of
income, cash flows and common stockholder's equity of the Company and its
Consolidated Subsidiaries as at the end of and for such year, or
statements providing substantially similar information, in each case
certified by Arthur Andersen & Co. or other independent public accountants
of recognized national standing selected by the Company (and not objected
to by the Majority Banks), together with a certificate of such accounting
firm addressed to the Banks stating that, in the course of its examination
of the consolidated financial statements of the Company and its
Consolidated Subsidiaries, which examination was conducted by such
accounting firm in accordance with GAAP, (1) such accounting firm has
obtained no knowledge that an Event of Default, insofar as such Event of
Default related to accounting or financial matters, has occurred and is
continuing, or if, in the opinion of such accounting firm, such an Event
of Default has occurred and is continuing, a statement as to the nature
thereof, and (2) such accounting firm has examined a certificate prepared
by the Company setting forth the computations made by the Company in
determining, as of the end of such fiscal year, the ratio specified in
Sections 8.1, which certificates shall be attached to the certificate of
such accounting firm, and such accounting firm confirms that such
computations accurately reflect such ratios;
(d) promptly after the sending or filing thereof, copies of all
proxy statements which the Company sends to its stockholders, and copies
of all regular, periodic and special reports and all final prospectuses
(other than those which relate solely to employee benefit plans) which the
Company files with the Securities and Exchange Commission or any
governmental authority which may be substituted therefor;
(e) as soon as possible and in any event (i) within 30 days after
the Company or any of its ERISA Affiliates knows or has reason to know
that any Termination Event described in clause (a) of the definition of
Termination Event with respect to any Plan has occurred, and (ii) within
ten days after the Company or any of its ERISA Affiliates knows or has
reason to know that any other Termination Event with respect to any Plan
has occurred, a statement of the Chief Financial Officer of the Company
describing such Termination Event and the action, if any, which the
Company or such ERISA Affiliate, as the case may be, proposes to take with
respect thereto;
(f) promptly upon becoming aware thereof, notice of any upgrading
or downgrading of the rating of the Company's Senior Debt by D&P, Fitch,
Moody's or S&P; and
(g) such other information respecting the business, properties, or
financial condition of the Company as the Agent or any Bank through the
Agent may from time to time reasonably request.
ARTICLE VII
NEGATIVE COVENANTS
------------------
So long as any Advance shall remain unpaid or any Bank shall have any
Commitment under this Agreement, the Company shall not:
7.1. Liens. Create, incur, assume or suffer to exist any Lien, upon
or with respect to any of its properties, now owned or hereafter acquired,
securing Debt owing to any Person, except:
(a) Liens created pursuant to the Indenture securing the First
Mortgage Bonds;
(b) Liens securing pollution control bonds, or bonds issued to
refund or refinance pollution control bonds (including Liens securing
obligations (contingent or otherwise) of the Company under letter of
credit agreements or other reimbursement or similar agreements), provided,
however, that the aggregate face amount of any such bonds so issued shall
not exceed the aggregate face amount of such pollution control bonds, as
the case may be, so refunded or refinanced;
(c) Liens in (and only in) assets acquired to secure Debt incurred
to finance the acquisition of such assets;
(d) Statutory and common law banker's Liens on bank deposits;
(e) Liens in respect of accounts receivable sold, transferred or
assigned by the Company;
(f) Liens for taxes, assessments or other governmental charges or
levies not at the time delinquent or thereafter payable without penalty or
being contested in good faith by appropriate proceedings and for which
adequate reserves in accordance with GAAP shall have been set aside on its
books;
(g) Liens of carriers, warehousemen, mechanics, materialmen and
landlords incurred in the ordinary course of business for sums not overdue
or being contested in good faith by appropriate proceedings and for which
adequate reserves shall have been set aside on its books;
(h) Liens incurred in the ordinary course of business in
connection with workers' compensation, unemployment insurance or other
forms of governmental insurance or benefits, or to secure performance of
tenders, statutory obligations, leases and contracts (other than for
borrowed money) entered into in the ordinary course of business or to
secure obligations on surety or appeal bonds;
(i) Judgment Liens in existence less than 30 days after the entry
thereof or with respect to which execution has been stayed or the payment
of which is covered (subject to a customary deductible) by insurance;
(j) Zoning restrictions, easements, licenses, covenants,
reservations, utility company rights, restrictions on the use of real
property or minor irregularities of title incident thereto which do not in
the aggregate materially detract from the value of the property or assets
of the Company and its Subsidiaries taken as a whole, or materially impair
the operation of their business, taken as a whole.
(k) Liens arising in connection with the financing of the
Company's fuel resources, including, but not limited to, nuclear fuel;
(l) Other Liens securing debt in an aggregate principal amount not
in excess of $150,000,000.
7.2. Sale of Assets. Sell, lease, assign, transfer or otherwise
dispose of all or substantially all of its assets.
7.3. Mergers, Etc. Merge with or into or consolidate with or into
any other Person, except that the Company may merge with any other Person,
provided, that, in each case, immediately after giving effect thereto, (a)
no event shall occur and be continuing which constitutes a Default or
Event of Default, (b) the Company is the surviving corporation and (c) the
Company shall not be liable with respect to any Debt or allow its property
to be subject to any Lien which it could not become liable with respect to
or allow its property to become subject to under this Agreement on the
date of such transaction.
7.4. Compliance with ERISA. Permit to exist any occurrence of any
Reportable Event, or any other event or condition, which presents a
material (in the reasonable opinion of the Majority Banks) risk of a
termination by the PBGC of any Plan of the Company or any ERISA Affiliate,
which termination will result in any material (in the reasonable opinion
of the Majority Banks) liability of the Company or such ERISA Affiliate to
the PBGC.
7.5. Change in Nature of Business. Make any material change in the
nature of its business as carried on at the date hereof.
ARTICLE VIII
FINANCIAL COVENANT
------------------
So long as any of the Advances shall remain unpaid or any Bank shall
have any Commitment under this Agreement, the Company shall:
8.1. Debt to Capital Ratio. At all times, maintain a ratio of Total
Consolidated Debt to Total Consolidated Capitalization of not greater than
.75 to 1.0.
ARTICLE IX
EVENTS OF DEFAULT
-----------------
9.1. Events of Default. The occurrence of any of the following
events shall constitute an "Event of Default":
(a) The Company shall fail to pay any installment of the principal
of any Advance (including the failure to pay a Draft upon maturity
thereof) when due and payable, or any interest on any Advance or any fee
or other Obligation payable hereunder within five days after such interest
or fee or other Obligation becomes due and payable;
(b) Any representation or warranty made by the Company (or any of
its officers) in this Agreement or in any other Credit Document to which
it is a party or in any certificate, document, report, financial or other
written statement furnished at any time pursuant to any such Credit
Document shall prove to have been incorrect in any material respect on or
as of the date made;
(c) The Company shall fail to perform or observe any term,
covenant or agreement contained in Article VII or Article VIII; or the
Company shall fail to perform or observe any other term, covenant or
agreement on its part to be performed or observed in this Agreement or in
any other Credit Document to which it is a party and such failure shall
continue for 30 consecutive days after notice thereof by means of telex,
facsimile, telegraph, regular mail or written notice delivered in person
(or telephonic notice thereof confirmed in writing) shall have been given
to the Company by the Agent or the Majority Banks;
(d) The Company shall: (i) fail to pay any Debt (other than the
payment obligations described in subsection (a) above), in excess of
$25,000,000, or any interest or premium thereon, when due (whether by
scheduled maturity, required prepayment, acceleration, demand or
otherwise) and such failure shall continue after the applicable grace
period, if any, specified in the instrument or agreement relating to such
Debt; or (ii) fail to perform or observe any term, covenant or condition
on its part to be performed or observed under any agreement or instrument
relating to any such Debt, when required to be performed or observed, if
the effect of such failure to perform or observe is to accelerate, or to
permit the acceleration of, the maturity of such Debt, unless the obligee
under or holder of such Debt shall have waived in writing such
circumstances, or such circumstance has been cured, so that such
circumstance is no longer continuing; or (iii) or any such Debt shall be
declared to be due and payable, or required to be prepaid (other than by a
regularly scheduled required prepayment), in each case in accordance with
the terms of such agreement or instrument, prior to the stated maturity
thereof; or (iv) generally not, or shall admit in writing its inability
to, pay its debts as such debts become due;
(e) The Company: (i) shall make an assignment for the benefit of
creditors, or petition or apply to any tribunal for the appointment of a
custodian, receiver or trustee for it or a substantial part of its assets;
or (ii) shall commence any proceeding under any bankruptcy,
reorganization, arrangement, readjustment of debt, dissolution or
liquidation law or statute of any jurisdiction, whether now or hereafter
in effect; or (iii) shall have had any such petition or application filed
or any such proceeding shall have been commenced, against it, in which an
adjudication or appointment is made or order for relief is entered, or
which petition, application or proceeding remains undismissed for a period
of 30 consecutive days or more; or (iv) by any act or omission shall
indicate its consent to, approval of or acquiescence in any such petition,
application or proceeding or order for relief or the appointment of a
custodian, receiver or trustee for all or any substantial part of its
property; or (v) shall suffer any such custodianship, receivership or
trusteeship to continue undischarged for a period of 30 days or more; or
(vi) shall take any corporate action to authorize any of the actions set
forth above in this subsection (e);
(f) One or more judgments, decrees or orders for the payment of
money in excess of $25,000,000 in the aggregate shall be rendered against
the Company and either (i) enforcement proceedings shall have been
commenced by any creditor upon any such judgment or order or (ii) there
shall be any period of more than 30 consecutive days during which a stay
of enforcement of such judgment or order, by reason of a pending appeal or
otherwise, shall not be in effect;
(g) Any Termination Event with respect to a Plan shall have
occurred, and 30 days after notice thereof shall have been given to the
Company by the Agent, (i) such Termination Event (if correctable) shall
not have been corrected, and (ii) the then present value of such Plan's
vested benefits exceeds the then current value of the assets accumulated
in such Plan by more than the amount of $25,000,000 (or in the case of a
Termination Event involving the withdrawal of a "substantial employer" (as
defined in Section 4001(A)(2) of ERISA), the withdrawing employer's
proportionate share of such excess shall exceed such amount).
9.2. Remedies. If any Event of Default shall occur and be
continuing, the Agent shall, upon the request, or may with the consent of
the Majority Banks, by notice to the Company, (a) declare the Commitments
to be terminated, whereupon the same shall forthwith terminate and (b)
declare the Obligations to be forthwith due and payable, whereupon the
Notes, all such interest and all such amounts shall become and be
forthwith due and payable, whereupon the Obligations shall become and be
forthwith due and payable, without presentment, demand, protest or further
notice of any kind, all of which are hereby expressly waived by the
Company, provided, that in the case of an Event of Default referred to in
Section 9.1(e) above, the Commitments shall automatically be terminated,
and the Obligations shall automatically be due and payable without notice,
presentment, demand, protest or other formalities of any kind, all of
which are hereby expressly waived by the Company.
ARTICLE X
WAIVERS, AMENDMENTS AND REMEDIES
--------------------------------
10.1. Amendments. Subject to the provisions of this Article X, the
Majority Banks (or the Agent with the consent in writing of the Majority
Banks) and the Company may enter into written agreements supplemental
hereto for the purpose of adding or modifying any provisions to the Credit
Documents or changing in any manner the rights of the Banks or the Company
hereunder or waiving any Event of Default hereunder, provided, that no
such supplemental agreement shall, without the consent of all of the
Banks:
(a) Extend the maturity of any Note or Draft or reduce the
principal amount thereof, or reduce the rate or extend the time of
payment of interest thereon or fees under this Agreement.
(b) Modify the percentage specified in the definition of
Majority Banks.
(c) Extend the Termination Date or increase the amount of
the Commitment of any Bank hereunder, or permit the Company to assign
its rights under this Agreement.
(d) Amend this Section 10.1.
(e) Any change in an express right in this Agreement of a
single Bank to give its consent, make a request or give a notice.
No amendment of any provision of this Agreement relating to the Agent
shall be effective without the written consent of the Agent.
10.2. Preservation of Rights. No delay or omission of the Banks or
the Agent to exercise any right under the Credit Documents shall impair
such right or be construed to be a waiver of any Event of Default or an
acquiescence therein, and the making of an Advance notwithstanding the
existence of a Event of Default or the inability of the Company to satisfy
the conditions precedent to such Advance shall not constitute any waiver
or acquiescence. Any single or partial exercise of any such right shall
not preclude other or further exercise thereof or the exercise of any
other right, and no waiver, amendment or other variation of the terms,
conditions or provisions of the Credit Documents whatsoever shall be valid
unless in writing signed by the Banks required pursuant to Section 10.1,
and then only to the extent in such writing specifically set forth. All
remedies contained in the Credit Documents or by law afforded shall be
cumulative and all shall be available to the Agent and the Banks until the
Obligations have been paid in full.
ARTICLE XI
CONDITIONS PRECEDENT
--------------------
11.1. Initial Advance. The Banks shall not be required to make the
initial Advance hereunder (whether a Loan or a Drawing) unless the Company
has furnished to the Agent with sufficient copies for the Banks:
(a) Copies of the Restated Articles of Incorporation of the
Company, together with all amendments, certified by the
Secretary or Assistant Secretary of the Company, and a
certificate of good standing, certified by the appropriate
governmental officer in its jurisdiction of incorporation.
(b) Copies, certified by the Secretary or Assistant Secretary of
the Company, of its By-Laws and of its Board of Directors'
resolutions (and resolutions of other bodies, if any are
deemed necessary by counsel for any Bank) authorizing the
execution of the Credit Documents.
(c) An incumbency certificate, executed by the Secretary or
Assistant Secretary of the Company, which shall identify by
name and title and bear the original or facsimile signature of
the officers of the Company authorized to sign the Credit
Documents and the officers or other employees authorized to
make borrowings hereunder, upon which certificate the Banks
shall be entitled to rely until informed of any change in
writing by the Company.
(d) A certificate, signed by a Designated Officer of the Company,
stating that on the initial Borrowing Date no Default or Event
of Default has occurred and is continuing.
(e) A written opinion of the Company's counsel, addressed to the
Banks in substantially the form of Exhibit "B" hereto.
(f) Evidence satisfactory to the Agent of the termination of the
Prior Agreement and payment of all obligations outstanding
thereunder.
(g) Such other documents as any Bank or its counsel may have
reasonably requested.
11.2. Initial Committed Loan; Initial Competitive Bid Loan. The
Banks shall not be required to make the initial Loan hereunder unless the
Company has duly executed and delivered the Committed Notes to the Agent
for the benefit of the Banks. No Bank shall be required to make its
initial Competitive Bid Loan hereunder unless the Company has duly
executed and delivered such Bank's Competitive Bid Note to the Agent for
the benefit of such Bank.
11.3. Initial Drawing. The Banks shall not be required to make the
initial Drawing hereunder unless the Company has furnished to the Agent
the duly executed Powers of Attorney.
11.4. Each Advance (other than a Refinancing Advance).
(a) The Banks shall not be required to make any Advance (other than
a Refinancing Advance), unless on the applicable Borrowing Date (i) there
exists no Default or Event of Default, and (ii) the representations and
warranties contained in Article V and, in the case of a Drawing, the
statements made by the Company in the related Drawing Request, are true
and correct as of such Borrowing Date and (iii) all legal matters incident
to the making of such Advance shall be satisfactory to the Banks and their
counsel.
Each Drawing Request and Loan Request with respect to each such
Advance shall constitute a representation and warranty by the Company that
the conditions contained in Sections 11.4(a)(i) and (ii) have been
satisfied.
(b) The Banks shall not be required to create any Drawing unless
the Company shall have supplied all invoices, contracts or shipping
documents related to such Drawing, if requested by the Agent or a Bank.
11.5. Refinancing Advances. The Banks shall not be required to make
any Refinancing Advance, unless on the Borrowing Date, (i) the
representations and warranties contained in Article V (other than Sections
5.5 and 5.6) and, in the case of a Drawing, the statements made by the
Company in the related Drawing Request, are true and correct as of such
Borrowing Date, and (ii) there exists no Default or Event of Default.
Each Borrowing Notice with respect to such Refinancing Advance shall
constitute a representation and warranty by the Company that the
conditions contained in Sections 11.5 have been satisfied.
ARTICLE XII
GENERAL PROVISIONS
------------------
12.1. Successors and Assigns. (a) The terms and provisions of the
Credit Documents shall be binding upon and inure to the benefit of the
Company and the Banks and their respective successors and assigns, except
that the Company shall not have the right to assign its rights under the
Credit Documents. Any Bank may sell participations in all or a portion of
its rights and obligations under this Agreement pursuant to Section
12.1(b) below and any Bank may assign all or any part of its rights and
obligations under this Agreement pursuant to Section 12.1(c) below.
(b) Any Bank may sell participations to one or more banks or other
entities in all or a portion of its rights and obligations under this
Agreement (including, without limitation, all or a portion of its
Commitment and the Advances owing to it), provided, that (i) such Bank's
obligations under this Agreement (including, without limitation, its
Commitment to the Company hereunder) shall remain unchanged, (ii) such
Bank shall remain solely responsible to the other parties hereto for the
performance of such obligations, (iii) such Bank shall remain the holder
of the Note or Notes issued to such Bank for all purposes of this
Agreement, and (iv) the Company shall continue to deal solely and directly
with such Bank in connection with such Bank's rights and obligations under
this Agreement. In addition to, and not in limitation of the preceding
sentence, any Bank may from time to time in its sole discretion finance
transactions contemplated by Drawings hereunder by selling, rediscounting
or otherwise disposing of the related Drafts to third parties as the
Company's primary obligation to pay such third parties, whether or not
such Bank has accepted any such Draft, and, in connection with any such
disposition, by transferring possession and title to any such Draft to
such third party or its agent, provided, that no such disposition shall in
and of itself affect the eligibility of any such Draft.
(c) Any Bank may, in the ordinary course of its commercial banking
business and in accordance with applicable law, at any time assign to one
or more financial institutions all or any part of its rights and
obligations under this Agreement, provided, that such Bank has received
the Company's prior written consent to such assignment, which consent
shall not be unreasonably withheld, and that the minimum principal amount
of any such assignment (other than assignments to a Federal Reserve Bank)
shall be $10,000,000. Notwithstanding the foregoing sentence, any Bank
may at any time, without the consent of the Company or the Agent, assign
all or any portion of its rights under this Agreement and its Notes to (i)
a Federal Reserve Bank, provided, however, that no such assignment shall
release the transferor Bank from its obligations hereunder; and (ii) to
any affiliate of such assigning Bank, provided, however, that the
creditworthiness of such affiliate (as determined in accordance with
customary standards of the banking industry) is no less than that of the
assigning Bank.
(d) Any Bank may, in connection with any sale or participation or
proposed sale or participation pursuant to this Section 12.1, disclose to
the purchaser or participant or proposed purchaser or participant, any
information relating to the Company furnished to such Bank by or on behalf
of the Company, provided, that, prior to any such disclosure of non-public
information, the purchaser or participant or proposed purchaser or
participant (which purchaser or participant is not an affiliate of a Bank)
shall agree to preserve the confidentiality of any confidential
information (except any such disclosure as may be required by law or
regulatory process) relating to the Company received by it from such Bank.
(e) Assignments under this Section 12.1 shall be substantially in
the form of Exhibit "J" hereto or in such other form as may be agreed to
by the parties thereto and shall not be effective until a $2,500 fee has
been paid to the Agent by the assignee, which fee shall cover the cost of
processing such assignment, provided, that such fee shall not be incurred
in the event of an assignment by any Bank of all or a portion of its
rights under this Agreement and its Notes and Drafts to a Federal Reserve
Bank or to an affiliate of the assigning Bank.
12.2. Survival of Representations. All representations and
warranties of the Company contained in this Agreement shall survive
deliveries of the Notes and the Drafts and the making of the Advances
herein contemplated.
12.3. Governmental Regulation. Anything contained in this Agreement
to the contrary notwithstanding, no Bank shall be obligated to extend
credit to the Company in violation of any limitation or prohibition
provided by any applicable statute or regulation.
12.4. Taxes. Any taxes (excluding income taxes) payable or ruled
payable by Federal or State authority in respect of the execution of the
Credit Documents shall be paid by the Company, together with interest and
penalties, if any.
12.5. Choice of Law. THE CREDIT DOCUMENTS SHALL BE CONSTRUED IN
ACCORDANCE WITH THE INTERNAL LAWS (AND NOT THE LAW OF CONFLICTS) OF THE
STATE OF ILLINOIS, BUT GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO
NATIONAL BANKS. THE COMPANY HEREBY IRREVOCABLY SUBMITS TO THE
NON-EXCLUSIVE JURISDICTION OF ANY UNITED STATES FEDERAL OR ILLINOIS STATE
COURT SITTING IN CHICAGO IN ANY ACTION OR PROCEEDINGS ARISING OUT OF OR
RELATING TO ANY CREDIT DOCUMENTS AND THE COMPANY HEREBY IRREVOCABLY AGREES
THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND
DETERMINED IN ANY SUCH COURT. THE COMPANY HEREBY WAIVES ANY RIGHT TO A
JURY TRIAL IN ANY ACTION ARISING HEREUNDER.
12.6. Headings. Section headings in the Credit Documents are for
convenience of reference only, and shall not govern the interpretation of
any of the provisions of the Credit Documents.
12.7. Entire Agreement. The Credit Documents embody the entire
agreement and understanding between the Company and the Banks and
supersede all prior agreements and understandings between the Company and
the Banks relating to the subject matter thereof.
12.8. Expenses; Indemnification. The Company shall reimburse the
Agent for (a) any reasonable costs, internal charges and out-of-pocket
expenses (including reasonable attorneys' fees and time charges of
attorneys for the Agent) paid or incurred by the Agent in connection with
the preparation, review, execution, delivery, amendment, and modification
of the Credit Documents and (b) any reasonable costs, internal charges and
out-of-pocket expenses (including reasonable attorneys' fees and time
charges of attorneys) paid or incurred by the Agent on its own behalf or
on behalf of any Bank in connection with the collection and enforcement of
the Credit Documents. The Company further agrees to indemnify the Agent
and each Bank, its directors, officers and employees against all losses,
claims, damages, penalties, judgments, liabilities and reasonable expenses
(including, without limitation, all material expenses of litigation or
preparation therefor whether or not the Agent or any such Bank is a party
thereto) which any of them may pay or incur arising out of or relating to
this Agreement, the other Credit Documents, the transactions contemplated
hereby or the direct or indirect application or proposed application of
the proceeds of any Advance hereunder, provided, that the Company shall
not be liable for any of the foregoing to the extent they arise from the
gross negligence or willful misconduct of the Agent or any such Bank. The
obligations of the Company under this Section shall survive the
termination of this Agreement.
12.9. Accounting. Except as provided to the contrary herein, all
accounting terms used herein shall be interpreted and all accounting
determinations hereunder shall be made in accordance with GAAP.
12.10. Severability of Provisions. Any provision in any Credit
Document that is held to be inoperative, unenforceable, or invalid in any
jurisdiction shall, as to that jurisdiction, be inoperative,
unenforceable, or invalid without affecting the remaining provisions in
that jurisdiction or the operation, enforceability, or validity of that
provision in any other jurisdiction, and to this end the provisions of all
Credit Documents are declared to be severable.
12.11. Setoff. In addition to, and without limitation of, any
rights of the Banks under applicable law, if the Company becomes
insolvent, however evidenced, or any Default or Event of Default occurs,
any indebtedness from any Bank to the Company (including all account
balances, whether provisional or final and whether or not collected or
available) may be offset and applied toward the payment of the Obligations
owing to such Bank, whether or not the Obligations, or any part hereof,
shall then be due. The Company agrees that any purchaser or participant
under Section 12.1 may, to the fullest extent permitted by law, exercise
all its rights of payment with respect to such purchase or participation
as if it were the direct creditor of the Company in the amount of the
purchase or participation.
12.12. Ratable Payments. If any Bank, whether by setoff or
otherwise, has payment made to it upon its Advances in a greater
proportion than that received by any other Bank, such Bank agrees,
promptly upon demand, to purchase a portion of the Advances held by the
other Banks so that after such purchase each Bank will hold its ratable
proportion of Advances. If any Bank, whether in connection with setoff or
amounts which might be subject to setoff or otherwise, receives collateral
or other protection for its Obligations or such amounts which may be
subject to set off, such Bank agrees, promptly upon demand, to take such
action necessary such that all Banks share in the benefits of such
collateral ratably in proportion to their Advances. In case any such
payment is disturbed by legal process, or otherwise, appropriate further
adjustments shall be made.
12.13. Nonliability of Bank. The relationship between the Company
and the Banks and the Agent shall be solely that of borrower and lender.
Neither the Agent nor any Bank shall have any fiduciary responsibilities
to the Company. Neither the Agent nor any Bank undertakes any
responsibility to the Company to review or inform the Company of any
matter in connection with any phase of the Company's business or
operations. The Company shall rely entirely upon its own judgment with
respect to its business, and any review, inspection, supervision or
information supplied to the Company by the Banks is for the protection of
the Banks and neither the Company nor any third party is entitled to rely
thereon.
12.14. Waiver Under Prior Agreement. By its execution of this
Agreement, each Bank that is a "Bank" party to the Prior Agreement hereby
agrees to waive the requirement of ten Business Days' written notice to
the Agent prior to termination thereof set forth in Section 2.7 thereof.
Such waiver shall become effective upon execution of counterparts of this
Agreement by sufficient Banks to constitute the "Majority Banks" as that
term is defined in the Prior Agreement.
ARTICLE XIII
THE AGENT
---------
13.1. Appointment. The First National Bank of Chicago is hereby
appointed Agent hereunder, and each of the Banks irrevocably authorizes
the Agent to act as the agent of such Bank. The Agent agrees to act as
such upon the express conditions contained in this Article XIII. The
Agent shall not have a fiduciary relationship in respect of any Bank by
reason of this Agreement.
13.2. Powers. The Agent shall have and may exercise such powers
hereunder as are specifically delegated to the Agent by the terms hereof,
together with such powers as are reasonably incidental thereto. The Agent
shall have no implied duties to the Banks, or any obligation to the Banks
to take any action hereunder except any action specifically provided by
this Agreement to be taken by the Agent.
13.3. General Immunity. Neither the Agent nor any of its directors,
officers, agents or employees shall be liable to the Banks or any Bank for
any action taken or omitted to be taken by it or them hereunder or in
connection herewith except for its or their own gross negligence or
willful misconduct.
13.4. No Responsibility for Loans, Recitals, etc. The Agent shall
not be responsible to the Banks for any recitals, reports, statements,
warranties or representations herein or in any Credit Document or be bound
to ascertain or inquire as to the performance or observance of any of the
terms of this Agreement.
13.5. Action on Instructions of Banks. The Agent shall in all cases
be fully protected in acting, or in refraining from acting, hereunder in
accordance with written instructions signed by the Majority Banks (or all
of the Banks if required by Section 10.1), and such instructions and any
action taken or failure to act pursuant thereto shall be binding on all of
the Banks and on all holders of Notes.
13.6. Employment of Agents and Counsel. The Agent may execute any
of its duties as Agent hereunder by or through employees, agents, and
attorneys-in-fact and shall not be answerable to the Banks, except as to
money or securities received by it or its authorized agents, for the
default or misconduct of any such agents or attorneys-in-fact selected by
it with reasonable care. The Agent shall be entitled to advice of counsel
concerning all matters pertaining to the agency hereby created and its
duties hereunder.
13.7. Reliance on Documents; Counsel. The Agent shall be entitled
to rely upon any Note, notice, consent, certificate, affidavit, letter,
telegram, statement, paper or document believed by it to be genuine and
correct and to have been signed or sent by the proper person or persons,
and, in respect to legal matters, upon the opinion of counsel selected by
the Agent, which counsel may be employees of the Agent.
13.8. Agent's Reimbursement and Indemnification. The Banks agree to
reimburse and indemnify the Agent ratably in proportion to their
respective Commitments (i) for any amounts not reimbursed by the Company
for which the Agent is entitled to reimbursement by the Company under the
Credit Documents, (ii) for any other expenses reasonably incurred by the
Agent on behalf of the Banks, in connection with the preparation,
execution, delivery, administration and enforcement of the Credit
Documents, and for which the Agent is not entitled to reimbursement by the
Company under the Credit Documents, and (iii) for any liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind and nature whatsoever which may be
imposed on, incurred by or asserted against the Agent in any way relating
to or arising out of this Agreement or any other document delivered in
connection with this Agreement or the transactions contemplated hereby or
the enforcement of any of the terms hereof or of any such other documents,
and for which the Agent is not entitled to reimbursement by the Company
under the Credit Documents, provided, that no Bank shall be liable for any
of the foregoing to the extent they arise from the gross negligence or
willful misconduct of the Agent.
13.9. Rights as a Lender. With respect to its Commitment, Loans
made by it, Drawings created by it and the Note or Notes issued to it, the
Agent shall have the same rights and powers hereunder as any Bank and may
exercise the same as though it were not the Agent, and the term "Bank" or
"Banks" shall, unless the context otherwise indicates, include the Agent
in its individual capacity. The Agent may accept deposits from, lend
money to, and generally engage in any kind of banking or trust business
with the Company or any Subsidiary as if it were not the Agent.
13.10. Bank Credit Decision. Each Bank acknowledges that it has,
independently and without reliance upon the Agent or any other Bank and
based on the financial statements prepared by the Company and such other
documents and information as it has deemed appropriate, made its own
credit analysis and decision to enter into this Agreement and the other
Credit Documents. Each Bank also acknowledges that it will, independently
and without reliance upon the Agent or any other Bank and based on such
documents and information as it shall deem appropriate at the time,
continue to make its own credit decisions in taking or not taking action
under this Agreement and the other Credit Documents.
13.11. Successor Agent. The Agent may resign at any time by giving
written notice thereof to the Banks and the Company, and the Agent may be
removed at any time with or without cause by written notice received by
the Agent from the Majority Banks. Upon any such resignation or removal,
the Majority Banks shall have the right to appoint, on behalf of the
Banks, a successor Agent. If no successor Agent shall have been so
appointed by the Required Banks and shall have accepted such appointment
within thirty days after the retiring Agent's giving notice of
resignation, then the retiring Agent may appoint, on behalf of the Banks,
a successor Agent. Such successor Agent shall be a commercial bank having
capital and retained earnings of at least $500,000,000. Upon the
acceptance of any appointment as Agent hereunder by a successor Agent,
such successor Agent shall thereupon succeed to and become vested with all
the rights, powers, privileges and duties of the retiring Agent, and the
retiring Agent shall be discharged from its duties and obligations
hereunder. After any retiring Agent's resignation hereunder as Agent, the
provisions of this Article XIII shall continue in effect for its benefit
in respect of any actions taken or omitted to be taken by it while it was
acting as the Agent hereunder.
ARTICLE XIV
NOTICES
-----------
14.1. Giving Notice. Any notice required or permitted to be given
under this Agreement may be, and shall be deemed, given when deposited in
the United States mail, postage prepaid, or by telegraph, telex or
telecopy when delivered to the appropriate office for transmission,
charges prepaid, addressed to the Company, the Agent or the Banks at the
addresses indicated below their signatures to this Agreement or, where
indicated in this Agreement, by telephone, confirmed in writing on the
same Business Day.
14.2. Change of Address. The Company, the Agent and any Bank may
each change the address for service of notice upon it by a notice in
writing to the other parties hereto.
ARTICLE XV
COUNTERPARTS
------------
This Agreement may be executed in any number of counterparts, all of
which taken together shall constitute one agreement, and any of the
parties hereto may execute this Agreement by signing any such counterpart.
This Agreement shall be effective when it has been executed by the
Company, the Agent and the Banks and each party has notified the Agent by
telex or telephone, that it has taken such action.
<PAGE>
<PAGE>
IN WITNESS WHEREOF, the Company, the Banks and the Agent have executed
this Agreement as of the date first above written.
CONSUMERS POWER COMPANY
By: /s/ Doris Galvin
-------------------------------
Title: Vice President & Treasurer
--------------------------------
212 West Michigan Avenue
Jackson, Michigan 49201
Attention: Vice President
& Treasurer
COMMITMENTS:
- -----------
$15,000,000 THE FIRST NATIONAL BANK OF
CHICAGO, Individually and as Agent
By: /s/ Michael K. Murphy
-------------------------
Michael K. Murphy
Vice President
One First National Plaza
Chicago, Illinois 60670
Suite 0363; 1-10
Attention: Electric, Gas &
Telecommunications Division
Wire Instructions:
ABA No. 7521-7563
$25,000,000 BANK OF AMERICA ILLINOIS
By: /s/ R. Vernon Howard
-------------------------
Title: Authorized Officer
-------------------------
335 Madison Avenue
New York, New York 10021
Attention: Energy/Utilities/
Mining Group
Wire Instructions:
ABA No. 071000039
<PAGE>
<PAGE>
$20,000,000 THE BANK OF CALIFORNIA, N.A.
By: /s/ Susan K. Johnson
-------------------------
Title: Vice President
-------------------------
550 S. Hope Street,
5th Floor
P.O. Box 2330
Los Angeles, CA 90051-0330
Attention: Susan K. Johnson
---------------------------
Wire Instructions:
ABA No. 121000015
$15,000,000 BANK OF MONTREAL
By: /s/ Howard H. Turner
-------------------------
Title: Director
-------------------------
115 S. LaSalle Street,
12th Floor
Chicago, IL 60603
Attention: Angela Corbett
---------------------------
Wire Instructions: 071-000-288
---------------------------
Harris Chicago,
Acct. #124-850-6
Benef: BMO Chicago
$25,000,000 THE BANK OF NEW YORK
By: /s/ Dennis Pidherny
-------------------------
Title: Vice President
-------------------------
One Wall Street, 19th Floor
New York, NY 10286
Attention: Denis Pidherny
---------------------
Wire Instructions:
ABA No. 021000018
<PAGE>
<PAGE>
$15,000,000 CIBC INC.
By: /s/ Margaret E. McTigue
-------------------------
Title: Vice President
-------------------------
Two Paces West
2727 Paces Ferry Road,
Suite 1200
Atlanta, GA 30339
Attention: Clare Coyne
Wire Instructions:
Morgan Guaranty
ABA No. 021-000-238
f/a CIBC New York at
630-00-480
Attn: Credit Operations - Atlanta
Ref: Consumers Power Company
With copies to:
200 W. Madison, Suite 2300
Chicago, IL 60606
Attn: Margaret E. McTigue
$20,000,000 THE CHASE MANHATTAN BANK, N.A.
By: /s/ Thomas L. Casey
-------------------------
Title: Vice President
-------------------------
One Chase Manhattan Plaza,
3rd Floor
New York, NY 10081
Attention:
------------------------
Wire Instructions:
ABA No. 021000021
$20,000,000 CHEMICAL BANK
By: /s/ Jane Ritchie
------------------------
Title: Vice President
------------------------
270 Park Avenue, 8th Floor
New York, NY 10017
Attention: Anne Hickey
------------------------
Wire Instructions:
ABA No. 021000128
<PAGE>
<PAGE>
$25,000,000 COMERICA BANK
By: /s/ Charles L. Weddell
-------------------------
Title: Vice President
-------------------------
One Detroit Center
500 Woodward Avenue, 8th Floor
Detroit, MI 48226
Attention: U.S. Banking
-------------------------
Wire Instructions:
ABA No. 072000096
$15,000,000 CREDIT LYONNAIS, Chicago Branch
By: /s/ Attila Koc
-------------------------
Title: Vice President
-------------------------
227 W. Monroe Street,
Suite 3800
Chicago, IL 60606
Attention:
------------------------
Wire Instructions:
------------------------
CREDIT LYONNAIS,
Cayman Island Branch
By: /s/ Attila Koc
------------------------
Title: Authorized Signature
------------------------
227 W. Monroe Street,
Suite 3800
Chicago, IL 60606
Attention:
------------------------
Wire Instructions:
------------------------
$15,000,000 THE DAI-ICHI KANGYO BANK, LTD.,
Chicago Branch
By: /s/ Masami Tsuboi
------------------------
Title: Vice President
------------------------
10 S. Wacker Drive, 26th Floor
Chicago, IL 60614
Attention: Richard R. Howard
------------------------
Wire Instructions: ABA071000013;
Acct. 10-31198
<PAGE>
<PAGE>
$10,000,000 THE FIRST NATIONAL BANK OF BOSTON
By: /s/ Frank T. Smith, Jr.
------------------------
Title: Director
------------------------
100 Federal Street
M/S 01-08-02
Boston, MA 02110
Attention: Debora F. Williams -
Commercial Loan Svcs.
Wire Instructions: ABA #011000390
-----------------------------
$20,000,000 THE FUJI BANK, LTD.,
Chicago Branch
By: /s/ S. Akutsan
------------------------
Title: Joint General Manager
------------------------
225 West Wacker Drive,
Suite 2000
Chicago, IL 60606
Attention: Loan Administration
------------------------
Wire Instructions:
ABA No. 071000013
$15,000,000 THE INDUSTRIAL
BANK OF JAPAN, LTD.,
Chicago Branch
By: /s/ Hiroaki Nakamura
------------------------
Title: Joint General Manager
------------------------
227 W. Monroe Street,
Suite 2600
Chicago, IL 60606
Attention:
------------------------
Wire Instructions:
------------------------
<PAGE>
<PAGE>
$20,000,000 MICHIGAN NATIONAL BANK
By: /s/ Mark Aben
------------------------
Title: Vice President
------------------------
Michigan National Tower
124 West Allegan Street
P.O. Box 40766
Lansing, MI 48901-7966
Attention:
Wire Instructions:
ABA No. 072000805
$20,000,000 MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By: /s/ Carl J. Mehldau, Jr.
------------------------
Title: Associate
------------------------
60 Wall Street
New York, NY 10260
Attention:
------------------------
Wire Instructions:
------------------------
$25,000,000 NBD BANK
By: /s/ Thomas A. Gamm
------------------------
Title: Second Vice President
------------------------
611 Woodward Avenue, 2nd Floor
Detroit, MI 48226
Attention: Commercial Loan Dept
Acct. 212115
Wire Instructions:
ABA No. 072000326
<PAGE>
<PAGE>
$25,000,000 THE SANWA BANK, LIMITED
By: /s/ Richard H. Ault
------------------------
Title: Vice President
------------------------
10 S. Wacker Drive, Suite 3100
Chicago, IL 60606
Attention: Beverly A. Wyckoff
------------------------
Wire Instructions:
ABA 071001805
$15,000,000 SOCIETE' GENERALE
By: /s/ A. H. Tune /
/s/ Petrus J. Mare
Title: Vice President /
Vice President
------------------------
181 W.Madison, Suite 3400
Chicago, IL 60602
Attention: Utilities
------------------------
Wire Instructions: Citibank, NY
A/C of Societe Generale
A/C #36008936
LSA #9005447
Re: Consumers Power
$10,000,000 THE SUMITOMO BANK, LTD.
By: /s/ H. Iwami
------------------------
Title: Joint General Manager
------------------------
233 South Wacker Drive
Chicago, IL 60606-6448
Attention:
------------------------
Wire Instructions:
------------------------
<PAGE>
<PAGE>
$15,000,000 TORONTO DOMINION (TEXAS), INC.
By: /s/ Frederic Hawley
------------------------
Title: Vice President
------------------------
909 Fannin Street, Suite 1700
Houston, TX 77010
Attention: Manager, Credit
Administration
Wire Instructions:
The Toronto-Dominion Bank
ABA No. 026003243
Further Credit: TD Houston
Acct. No. 2159251
With a copy to:
31 West 52nd Street, 21st Floor
New York, NY 10019-6101
Attention: Director, Utilities
and Project Finance
$20,000,000 UNION BANK OF SWITZERLAND,
Chicago Branch
By: /s/ Walter R. Wolff
------------------------
Title: Managing Director
------------------------
30 S. Wacker Drive, 40th Floor
Chicago, IL 60606
By: /s/ Thomas H. Meyers
------------------------
Title: Lending Officer
------------------------
Attention: Walter R. Wolff
------------------------
Wire Instructions:
ABA No. 026008439
<PAGE>
<PAGE>
$20,000,000 THE YASUDA TRUST & BANKING CO.,
LTD., New York Branch
By: /s/ Michael G. Haggay
------------------------
Title: Vice President
------------------------
666 5th Avenue, Suite 801
New York, NY 10103
Attention: Loan Administration
Wire Instructions:
ABA No. 0210-00128
- -------------
$425,000,000 Total
_____________
<PAGE>
<PAGE>
EXHIBIT "A"
NOTE
$------------- July 14, l9 [1995]* [1996]** [1997]** [1998]**
CONSUMERS POWER COMPANY, a Michigan corporation (the "Company"),
promises to pay to the order of -------------------- (the "Bank") the
lesser of the principal sum of ---------------- Dollars or the aggregate
unpaid principal amount of all Loans made by the Bank to the Company
pursuant to Section 2.1 of the Credit Agreement hereinafter referred to,
whichever is less, in immediately available funds at the main office of
The First National Bank of Chicago in Chicago, Illinois, as Agent,
together with interest on the unpaid principal amount hereof at the rates
and on the dates set forth in the Agreement. The Company shall pay each
Loan in full on the last day of such Loan's applicable Interest Period and
shall pay the aggregate unpaid principal amount of all Loans in full on a
date not later than July 14, [1996]* [1997]** [1998]** [1999]**.
The Bank shall, and is hereby authorized to, record on the schedule
attached hereto, or to otherwise record in accordance with its usual
practice, the date and amount of each Loan and the date and amount of each
principal payment hereunder, provided, that the Bank's failure to record
such amounts on this Note shall not affect the Company's obligation to
repay the obligations evidenced hereby.
This Note is issued pursuant to, and is entitled to the benefits of,
the Credit Agreement, dated as of July 14, 1995, among the Company, the
banks named therein and The First National Bank of Chicago, individually
and as agent (the "Agreement"), to which Agreement, as it may be amended
from time to time, reference is hereby made for a statement of the terms
and conditions under which this Note may be prepaid or its maturity date
accelerated. Capitalized terms used herein and not otherwise defined
herein are used with the meanings attributed to them in the Agreement.
CONSUMERS POWER COMPANY
By: ---------------------
Title: ------------------
- ----------
* Initial note issued at closing.
** Replacement note(s) issued pursuant to Section 2.3.1.3. of the
Agreement.
<PAGE>
<PAGE>
SCHEDULE OF LOANS AND PAYMENTS OF PRINCIPAL
TO
NOTE OF CONSUMERS POWER COMPANY,
DATED JULY 14, [l995] [1996] [1997] [1998]
Principal Maturity Principal
Amount of of Interest Amount Unpaid
Date Loan Period Paid Balance
--------- ----------- --------- --------
<PAGE>
<PAGE>
EXHIBIT "B"
-------, l9--
The Banks who are parties to the
Credit Agreement described below.
Gentlemen:
I am [Assistant] General Counsel for Consumers Power Company, a
Michigan corporation (the "Company") and I, or an attorney or attorneys
under my general supervision, have represented the Company in connection
with its execution and delivery of a Credit Agreement among the Company,
The First National Bank of Chicago, individually and as Agent, and the
Banks named therein, providing for Advances in an aggregate principal
amount not exceeding $425,000,000 at any one time outstanding and dated as
of July 14, 1995 (the "Agreement"). All capitalized terms used in this
opinion shall have the meanings attributed to them in the Agreement.
I, or an attorney or attorneys under my general supervision, have
examined the Company's Articles of Incorporation, By-laws, Resolutions,
the Credit Documents and such other documents and records as I have deemed
necessary in order to render this opinion. Based upon the foregoing, it
is my opinion that:
1. The Company is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of Michigan.
2. The execution and delivery of the Credit Documents by the
Company and the performance by the Company of the Obligations have been
duly authorized by all necessary corporate action and proceedings on the
part of the Company and will not:
(a) contravene the Company's charter or by-laws;
(b) contravene any law or any contractual restriction
imposed by any indenture or any other agreement or instrument
evidencing or governing indebtedness for borrowed money of the
Company; or
(c) result in or require the creation of any Lien upon or
with respect to any of its properties.
3. The Credit Documents have been duly executed and delivered by
the Company and constitute legal, valid and binding obligations of the
Company enforceable against the Company in accordance with their
respective terms, subject to (a) the effect of applicable bankruptcy,
insolvency, reorganization or moratorium or other similar laws affecting
the enforcement of creditors' rights generally, and (b) the application of
general principles of equity (regardless of whether considered in a
proceeding in equity or at law).
4. To the best of my knowledge, there is no pending or threatened
action or proceeding against the Company or any of its Consolidated
Subsidiaries before any court, governmental agency or arbitrator, which
might reasonably be expected to materially adversely affect (except to the
extent described in the Company's annual report on Form 10-K for the year
ended December 31, 1994 and quarterly report on Form 10-Q for the quarter
ended March 31, 1995 as filed with the Securities and Exchange Commission,
copies of which have been furnished to each Bank) the financial condition,
results of operations, business or prospects of the Company and its
Consolidated Subsidiaries, taken as a whole, that would materially
adversely affect the Company's ability to perform its obligations under
any Credit Document to which it is a party.
5. No authorization or approval or other action by, and no notice
to or filing with, any governmental authority or regulatory body is
required for the due execution, delivery and performance by the Company of
any Credit Document to which it is a party, except for the authorization
to issue, sell or guarantee secured and/or unsecured short-term debt
granted by the Federal Energy Regulatory Commission.
I am a member of the bar of the State of Michigan, and as such, have
made no investigation of, and give no opinion on, the laws of any state or
country other than those of the State of Michigan, and, to the extent
pertinent, of the United States of America.
This opinion may be relied upon, and is solely for the benefit of,
the Banks and their participants and assignees under the Credit Documents,
and is not to be otherwise used, circulated, quoted, referred to or relied
upon for any purpose without my express written permission.
Sincerely,
[Assistant] General Counsel
<PAGE>
<PAGE>
EXHIBIT "C"
COMMITTED DRAWING REQUEST
[Letterhead of Consumers Power Company]
The First National Bank of Chicago,
as Agent
One First National Plaza
Chicago, Illinois 60670
Attention: Marilyn J. Pelkowski
Gentlemen:
In reference to the Credit Agreement dated as of July 14, 1995 (the
"Agreement") among the undersigned, Consumers Power Company (the
"Company"), the banks party thereto (the "Banks") and The First National
Bank of Chicago, as agent (the "Agent"), the Company hereby confirms its
telephone request of --------------, 19-- to finance U.S. dollars
$ ---------, by having the Banks complete the Company's Drafts pursuant to
the limited powers of attorney previously granted by the Company to the
Banks. Terms used herein and not otherwise defined shall have the
meanings set forth for such terms in the Agreement.
The Company hereby certifies that each of the underlying transactions
covers the current shipment of goods, with an aggregate U.S. dollar value
of $ -----, and hereby confirms the following information from its
above-referenced request:
Tenor Amount Maturity
(days) Financed Date Merchandise Shipped from Shipped to
- ------ -------- -------- ----------- ------------ ----------
No other means of financing is being used for the above shipment(s). The
amount of the Draft(s) at no time will exceed that amount which is
ordinary and necessary to finance the transactions described above. The
tenor of the Draft(s) is not in excess of the usual or customary period of
credit required to finance the underlying transaction(s) and in no event
exceeds 180 days. The Draft(s) created in connection with this shipment
will be Eligible Drafts.
Copies of the underlying shipping documents are being held by the Company
and are available for inspection and verification by the Banks' official
representatives or representatives of any other regulatory agency.
The Company requests the Banks to discount the Draft(s) for value on -----
- ---, l9-- and credit the net proceeds in immediately available funds to
the Company's account No. 113-10 with NBD Bank, N.A.
The Company hereby agrees to pay each of the Banks the face amount of
these Drafts in immediately available funds on the maturity date to the
account directed by each Bank.
Sincerely,
CONSUMERS POWER COMPANY
By:
--------------------------
Title:
--------------------------
<PAGE>
<PAGE>
EXHIBIT "D"
[Letterhead of Consumers Power Company]
Power of Attorney
July 14, 1995
[Name and address of Bank]
Ladies and Gentlemen:
In reference to the Credit Agreement dated as of July 14, 1995 between
the undersigned, Consumers Power Company (the "Company"), certain banks
including -------- (the "Bank") and The First National Bank of Chicago, as
agent (the "Agent"), the Company may from time to time request the Bank to
provide the Company with financing through the use of eligible drafts for
discount. With regard to such requests, the Company hereby gives its
limited power of attorney to any authorized signer of the Bank to act as
attorney-in-fact for the Company in the completion and execution of such
drafts in accordance with the Company's instructions. This limited power
of attorney shall remain in effect until cancelled or amended by written
notice to the attention of
------------------.
Sincerely,
CONSUMERS POWERS COMPANY
By:
------------------------
Title:
------------------------
<PAGE>
<PAGE>
EXHIBIT "E"
NOTE
(Competitive Bid Loans)
July 14, 1995
Consumers Power Company, a Michigan corporation (the "Company"),
promises to pay, on or before the Termination Date, to the order of
_______________ (the "Bank") the aggregate unpaid principal amount of all
Competitive Bid Loans made by the Bank to the Company pursuant to Section
2.3.2 of the Credit Agreement hereinafter referred to (as the same may be
amended or modified, the "Agreement"), provided, that the aggregate
principal amount of Advances from all Banks under the Agreement shall not
exceed the Aggregate Commitment, in lawful money of the United States in
immediately available funds at the main office of The First National Bank
of Chicago, as Agent, in Chicago, Illinois, together with interest, in
like money and funds, on the unpaid principal amount hereof at the rates
and on the dates determined in accordance with the Agreement. The Company
shall pay each Competitive Bid Loan in full on the last day of such
Competitive Bid Loan's applicable Interest Period.
The Bank shall, and is hereby authorized to, record on the schedule
attached hereto, or otherwise record in accordance with its usual
practice, the date and amount of each Competitive Bid Loan and the date
and amount of each principal payment hereunder.
This Note (Competitive Bid Loans) is one of the Notes issued pursuant
to, and is entitled to the benefits of, the Credit Agreement dated as of
July 14, 1995, among the Company, The First National Bank of Chicago,
individually and as Agent, and the banks named therein, including the
Bank, to which Agreement, as it may be amended from time to time,
reference is hereby made for a statement of the terms and conditions under
which this Note may be prepaid or its maturity date accelerated.
Capitalized terms used herein and not otherwise defined herein are used
with the meanings attributed to them in the Agreement.
CONSUMERS POWER COMPANY
By:
-------------------------
Title:
------------------------
<PAGE>
<PAGE>
SCHEDULE OF LOANS AND PAYMENTS OF PRINCIPAL
TO
NOTE (COMPETITIVE BID LOANS)
OF CONSUMERS POWER COMPANY
DATED JULY 14, l995
Principal Maturity Principal
Amount of of Interest Amount Unpaid
Date Loan Period Paid Balance
- ---- --------- ----------- ---------- --------
<PAGE>
<PAGE>
EXHIBIT "F"
COMPETITIVE BID QUOTE
(Section 2.3.2.4)
----------, 19
To: The First National Bank of Chicago, as Agent ________________
Attn:
----------------
Re: Competitive Bid Quote to Consumers Power Company (the
"Company")
In response to your invitation on behalf of the Company dated ______________,
19__, we hereby make the following Competitive Bid Quote pursuant to
Section 2.3.2.4 of the Credit Agreement hereinafter referred to and on the
following terms:
1. Quoting Bank: _______________
2. Person to contact at Quoting Bank: ______________________
3. Borrowing Date: ____________, 19__ (1)
4. We hereby offer to make Competitive Bid Loan(s) in the following
principal amounts, for the following Interest Periods and at the
following rates:
Principal Interest [Absolute
Amount(2) Period(3) Rate(4)]
$
- ---------------
(1) As specified in the related Invitation.
(2) Principal amount bid for each Interest Period may not exceed principal
amount requested. Bids must be made for $10,000,000 and an integral
multiple of $1,000,000.
(3) At least 7 and up to 180 days, as specified in the related Invitation.
(4) Specify rate of interest (or a margin over/under the Base Eurodollar
Rate) per annum (rounded to the nearest 1/100 of 1%).
We understand and agree that the offer(s) set forth above, subject to
the satisfaction of the applicable conditions set forth in the Credit
Agreement dated as of July 14, 1995 among the Company, the Banks listed on
the signature pages thereof and yourselves, as Agent, as it may be amended
from time to time, irrevocably obligates us to make the Competitive Bid
Loan(s) for which any offer(s) are accepted, in whole or in part.
Very truly yours,
[NAME OF BANK]
Dated: ___________, 19 By:
---------------------------
Authorized Officer
<PAGE>
<PAGE>
EXHIBIT "G"
COMPETITIVE BID QUOTE REQUEST
(Section 2.3.2.2)
_____________, 19
To: The First National Bank of Chicago,
as agent (the "Agent")
From: Consumers Power Company ("Company")
Re: Credit Agreement (the "Agreement") dated as of July 14,
1995, among the Company, The First National Bank of Chicago,
individually and as Agent, and the Banks listed on the
signature pages thereof, as it may be amended from time to
time
We hereby give notice pursuant to Section 2.3.2.2 of the Agreement that
we request Competitive Bid Quotes for the following proposed Competitive
Bid Advance(s):
Borrowing Date: ________________, 19
Principal Amount1 Interest Period2
- ----------------- ----------------
$
Such Competitive Bid Quotes should offer an Absolute Rate.
Upon acceptance by the undersigned of any or all of the Competitive Bid
Advances offered by Banks in response to this request, the undersigned
shall be deemed to affirm as of such date the representations and
warranties made in the Agreement to the extent specified in Article V
thereof. Capitalized terms used herein have the meanings assigned to them
in the Agreement.
CONSUMERS POWER COMPANY
By:
Title:
- --------------------
1 Amount must be at least $10,000,000 and an integral multiple of
$1,000,000.
2 At least 7 and up to 180 days, subject to the provisions of the
definition of Absolute Rate Interest Period.
<PAGE>
<PAGE>
EXHIBIT "H"
INVITATION FOR COMPETITIVE BID QUOTES
(Section 2.3.2.3)
, 19
To: [Name of Bank]
Re: Invitation for Competitive Bid Quotes to
Consumers Power Company (the "Company")
Pursuant to Section 2.3.2.3 of the Credit Agreement dated as of July
14, 1995 (the "Agreement") among the Company, the Banks parties thereto
and the undersigned, as Agent, as it may be amended from time to time, we
are pleased on behalf of the Company to invite you to submit Competitive
Bid Quotes to the Company for the following proposed Competitive Bid
Advance(s):
Borrowing Date: ___________________, 19__
Principal Amount Interest Period
- ---------------- ---------------
$
Such Competitive Bid Quotes should offer an Absolute Rate. Your
Competitive Bid Quote must comply with Section 2.3.2.4 of the Agreement
and the foregoing terms in which the Competitive Bid Quote Request was
made. Capitalized terms used herein have the meanings assigned to them in
the Agreement.
Please respond to this invitation by no later than 9:00 a.m. Chicago
time on ______________________, 19__.
THE FIRST NATIONAL BANK OF CHICAGO,
as Agent
By:
Authorized Officer
<PAGE>
<PAGE>
EXHIBIT "I"
Form of Certificate as to Debt-Capital Ratio and
Pursuant to Section 8.1 of the Credit Agreement
I, ______________________, _____________________ of Consumers Power
Company, a Michigan corporation (the "Company"), DO HEREBY CERTIFY in
connection with the Credit Agreement dated as of July 14, 1995 (the
"Credit Agreement"; the terms defined therein being used herein as
defined), among the Company, the Banks named therein and The First
National Bank of Chicago, as Agent for the Banks, that:
1. Section 8.1 of the Credit Agreement provides that the Company
shall:
"At all times, maintain a ratio of Total Consolidated Debt to
Total Consolidated Capitalization of not greater than .75 to 1.0.
2. The following calculations are made in accordance with the
definitions of Total Consolidated Debt and Total Consolidated
Capitalization in the Credit Agreement and are correct and
accurate as of _______________________, 19__:
A. Total Consolidated Debt:
-----------------------
(a) Indebtedness for borrowed money $
(b) Indebtedness for deferred purchase
price of property/services
(c) Unfunded Vested Liabilities
(d) Obligations under acceptance facilities
(e) Obligations under Capital Leases
(f) Guaranties, endorsements and
other contingent obligations
Total $
B. Total Consolidated Capitalization:
---------------------------------
(a) Total Consolidated Debt $
(b) Equity of common stockholders
(c) Equity of preference stockholders
(d) Equity of preferred stockholders
Total $
C. Debt to Capitalization Ratio
----------------------------
(total of A divided by total of B) $
IN WITNESS WHEREOF, I have signed this Certificate this ___________ day
of______________, 19__.
<PAGE>
<PAGE>
EXHIBIT "J"
ASSIGNMENT AGREEMENT
This Assignment Agreement (this "Assignment Agreement") between -
___________________________________ (the "Assignor") and
___________________ (the "Assignee") is dated as of ____________________,
19__. The parties hereto agree as follows:
1. PRELIMINARY STATEMENT. The Assignor is a party to a Credit
Agreement (which, as it may be amended, modified, renewed or extended from
time to time is herein called the "Credit Agreement") described in Item 1
of Schedule 1 attached hereto ("Schedule 1"). Capitalized terms used
herein and not otherwise defined herein shall have the meanings attributed
to them in the Credit Agreement.
2. ASSIGNMENT AND ASSUMPTION. The Assignor hereby sells and assigns
to the Assignee, and the Assignee hereby purchases and assumes from the
Assignor, an interest in and to the Assignor's rights and obligations
under the Credit Agreement such that after giving effect to such
assignment the Assignee shall have purchased pursuant to this Assignment
Agreement the percentage interest specified in Item 3 of Schedule 1 of all
outstanding rights and obligations under the Credit Agreement relating to
the facilities listed in Item 3 of Schedule 1. The aggregate Commitment
(or Loans, if the applicable Commitment has been terminated) purchased by
the Assignee hereunder is set forth in Item 4 of Schedule 1.
3. EFFECTIVE DATE. The effective date of this Assignment Agreement
(the "Effective Date") shall be the later of the date specified in Item 5
of Schedule 1 or two Business Days (or such shorter period agreed to by
the Agent) after a Notice of Assignment substantially in the form of
Exhibit "I" attached hereto has been delivered to the Agent. Such Notice
of Assignment must include any consents required to be delivered to the
Agent by Section 12.1(c) of the Credit Agreement. In no event will the
Effective Date occur if the payments required to be made by the Assignee
to the Assignor on the Effective Date under Sections 4 and 5 hereof are
not made on the proposed Effective Date. The Assignor will notify the
Assignee of the proposed Effective Date no later than the Business Day
prior to the proposed Effective Date. As of the Effective Date, (i) the
Assignee shall have the rights and obligations of a Bank under the Credit
Agreement with respect to the rights and obligations assigned to the
Assignee hereunder and (ii) the Assignor shall relinquish its rights and
be released from its corresponding obligations under the Credit Agreement
with respect to the rights and obligations assigned to the Assignee
hereunder.
4. PAYMENTS OBLIGATIONS. On and after the Effective Date, the
Assignee shall be entitled to receive from the Agent all payments of
principal, interest and fees with respect to the interest assigned hereby.
The Assignee shall advance funds directly to the Agent with respect to all
Loans and reimbursement payments made on or after the Effective Date with
respect to the interest assigned hereby. [In consideration for the sale
and assignment of Loans hereunder, (i) the Assignee shall pay the
Assignor, on the Effective Date, an amount equal to the principal amount
of the portion of all Floating Rate Loans assigned to the Assignee
hereunder and (ii) with respect to each Fixed Rate Loan made by the
Assignor and assigned to the Assignee hereunder which is outstanding on
the Effective Date, (a) on the last day of the Interest Period therefor or
(b) on such earlier date agreed to by the Assignor and the Assignee or (c)
on the date on which any such Fixed Rate Loan either becomes due (by
acceleration or otherwise) or is prepaid (the date as described in the
foregoing clauses (a), (b) or (c) being hereinafter referred to as the
"Payment Date"), the Assignee shall pay the Assignor an amount equal to
the principal amount of the portion of such Fixed Rate Loan assigned to
the Assignee which is outstanding on the Payment Date. If the Assignor
and the Assignee agree that the Payment Date for such Fixed Rate Loan
shall be the Effective Date, they shall agree to the interest rate
applicable to the portion of such Loan assigned hereunder for the period
from the Effective Date to the end of the existing Interest Period
applicable to such Fixed Rate Loan (the "Agreed Interest Rate") and any
interest received by the Assignee in excess of the Agreed Interest Rate
shall be remitted to the Assignor. In the event interest for the period
from the Effective Date to but not including the Payment Date is not paid
by the Company with respect to any Fixed Rate Loan sold by the Assignor to
the Assignee hereunder, the Assignee shall pay to the Assignor interest
for such period on the portion of such Fixed Rate Loan sold by the
Assignor to the Assignee hereunder at the applicable rate provided by the
Credit Agreement. In the event a prepayment of any Fixed Rate Loan which
is existing on the Payment Date and assigned by the Assignor to the
Assignee hereunder occurs after the Payment Date but before the end of the
Interest Period applicable to such Fixed Rate Loan, the Assignee shall
remit to the Assignor the excess of the prepayment penalty paid with
respect to the portion of such Fixed Rate Loan assigned to the Assignee
hereunder over the amount which would have been paid if such prepayment
penalty was calculated based on the Agreed Interest Rate. The Assignee
will also promptly remit to the Assignor (i) any principal payments
received from the Agent with respect to Fixed Rate Loans prior to the
Payment Date and (ii) any amounts of interest on Loans and fees received
from the Agent which relate to the portion of the Loans assigned to the
Assignee hereunder for periods prior to the Effective Date, in the case of
Floating Rate Loans, or the Payment Date, in the case of Fixed Rate Loans,
and not previously paid by the Assignee to the Assignor.] (1) In the event
that either party hereto receives any payment to which the other party
hereto is entitled under this Assignment Agreement, then the party
receiving such amount shall promptly remit it to the other party hereto.
- ---------------------------
(1) Each Assignor may insert its standard payment provisions in lieu of
the payment terms included in this Exhibit.
5. FEES PAYABLE BY THE ASSIGNEE. The Assignee shall pay to the
Assignor a fee on each day on which a payment of interest or fees is made
under the Credit Agreement with respect to the amounts assigned to the
Assignee hereunder (other than a payment of interest or commitment fees
for the period prior to the Effective Date or, in the case of Fixed Rate
Loans, the Payment Date, which the Assignee is obligated to deliver to the
Assignor pursuant to Section 4 hereof). The amount of such fee shall be
the difference between (i) the interest or fee, as applicable, paid with
respect to the amounts assigned to the Assignee hereunder and (ii) the
interest or fee, as applicable, which would have been paid with respect to
the amounts assigned to the Assignee hereunder if each interest rate was
___ of 1% less than the interest rate paid by the Company or if the
commitment fee was ___ of 1% less than the commitment fee paid by the
Company, as applicable. In addition, the Assignee agrees to pay ___ % of
the recordation fee required to be paid to the Agent in connection with
this Assignment Agreement.
6. REPRESENTATIONS OF THE ASSIGNOR; LIMITATIONS ON THE ASSIGNOR'S
LIABILITY. The Assignor represents and warrants that it is the legal and
beneficial owner of the interest being assigned by it hereunder and that
such interest is free and clear of any adverse claim. It is understood
and agreed that the assignment and assumption hereunder are made without
recourse to the Assignor and that the Assignor makes no other
representation or warranty of any kind to the Assignee. Neither the
Assignor nor any of its officers, directors, employees, agents or
attorneys shall be responsible for (i) the due execution, legality,
validity, enforceability, genuineness, sufficiency or collectability of
the Credit Agreement or any Note or any Draft, (ii) any representation,
warranty or statement made in or in connection with the Credit Agreement,
(iii) the financial condition or creditworthiness of the Company, (iv) the
performance of or compliance with any of the terms or provisions of the
Credit Agreement, (v) inspecting any of the property, books or records of
the Company, or (vi) any mistake, error of judgment, or action taken or
omitted to be taken in connection with the Loans or the Credit Agreement.
7. REPRESENTATIONS OF THE ASSIGNEE. The Assignee (i) confirms that
it has received a copy of the Credit Agreement, together with copies of
the financial statements requested by the Assignee and such other
documents and information as it has deemed appropriate to make its own
credit analysis and decision to enter into this Assignment Agreement, (ii)
agrees that it will, independently and without reliance upon the Agent,
the Assignor or any other Bank and based on such documents and information
at it shall deem appropriate at the time, continue to make its own credit
decisions in taking or not taking action under the Credit Agreement, (iii)
appoints and authorizes the Agent to take such action as agent on its
behalf and to exercise such powers under the Credit Agreement as are
delegated to the Agent by the terms thereof, together with such powers as
are reasonably incidental thereto, (iv) agrees that it will perform in
accordance with their terms all of the obligations which by the terms of
the Credit Agreement are required to be performed by it as a Bank, (v)
agrees that its payment instructions and notice instructions are as set
forth in the attachment to Schedule 1, (vi) confirms that none of the
funds, monies, assets or other consideration being used to make the
purchase and assumption hereunder are "plan assets" as defined under ERISA
and that its rights, benefits and interests in and under the Credit
Agreement will not be "plan assets" under ERISA, [and (vii) attaches the
forms prescribed by the Internal Revenue Service of the United States
certifying that the Assignee is entitled to receive payments under the
Credit Agreement without deduction or withholding of any United States
federal income taxes] (2).
- ------------------------
(2) to be inserted if the Assignee is not incorporated under the laws of the
United States, or a state thereof.
8. INDEMNITY. The Assignee agrees to indemnify and hold the Assignor
harmless against any and all losses, costs and expenses (including,
without limitation, reasonable attorneys' fees) and liabilities incurred
by the Assignor in connection with or arising in any manner from the
Assignee's non-performance of the obligations assumed under this
Assignment Agreement.
9. SUBSEQUENT ASSIGNMENTS. After the Effective Date, the Assignee
shall have the right pursuant to Section 12.1(c) of the Credit Agreement
to assign the rights which are assigned to the Assignee hereunder to any
entity or person, provided that (i) any such subsequent assignment does
not violate any of the terms and conditions of the Credit Agreement or any
law, rule, regulation, order, writ, judgment, injunction or decree and
that any consent required under the terms of the Credit Agreement has been
obtained and (ii) unless the prior written consent of the Assignor is
obtained, the Assignee is not thereby released from its obligations to the
Assignor hereunder, if any remain unsatisfied, including, without
limitation, its obligations under Sections 4, 5 and 8 hereof.
10. REDUCTIONS OF AGGREGATE COMMITMENT. If any reduction in the
Aggregate Commitment occurs between the date of this Assignment Agreement
and the Effective Date, the percentage interest specified in Item 3 of
Schedule 1 shall remain the same, but the dollar amount purchased shall be
recalculated based on the reduced Aggregate Commitment.
11. ENTIRE AGREEMENT. This Assignment Agreement and the attached
Notice of Assignment embody the entire agreement and understanding between
the parties hereto and supersede all prior agreements and understandings
between the parties hereto relating to the subject matter hereof.
12. GOVERNING LAW. This Assignment Agreement shall be governed by the
internal law, and not the law of conflicts, of the State of Illinois.
13. NOTICES. Notices shall be given under this Assignment Agreement
in the manner set forth in the Credit Agreement. For the purpose hereof,
the addresses of the parties hereto (until notice of a change is
delivered) shall be the address set forth in the attachment to Schedule 1.
IN WITNESS WHEREOF, the parties hereto have executed this Assignment
Agreement by their duly authorized officers as of the date first above
written.
[NAME OF ASSIGNOR]
By:
-------------------------------
Title:
-------------------------------
-------------------------------
-------------------------------
-------------------------------
[NAME OF ASSIGNEE]
By:
-------------------------------
Title:
-------------------------------
-------------------------------
-------------------------------
-------------------------------
<PAGE>
<PAGE>
SCHEDULE 1
to Assignment Agreement
1. Description and Date of Credit Agreement: Credit Agreement, dated
as of July 14, 1995, among Consumers Power Company, the banks named
therein and The First National Bank of Chicago, individually and as agent.
2. Date of Assignment Agreement: ______________, 19__
3. Amounts (As of Date of Item 2 above):
a. Total of Commitments
(Loans)* under
Credit Agreement $_______
b. Assignee's Percentage
purchased under
the Assignment
Agreement*** _______%
c. Amount of Assigned Share
purchased under
the Assignment
Agreement $_______
4. Assignee's Aggregate (Loan
Amount)** Commitment Amount
Purchased Hereunder: $_______
5. Proposed Effective Date: ________________________
Accepted and Agreed:
[NAME OF ASSIGNOR] [NAME OF ASSIGNEE]
By: By:
---------------------- ------------------------
Title: Title:
---------------------- ------------------------
* If a Commitment has been terminated, insert outstanding
Loans in place of Commitment
** Percentage taken to 10 decimal places
<PAGE>
<PAGE>
Attachment to SCHEDULE 1 to ASSIGNMENT AGREEMENT
Attach Assignor's Administrative Information Sheet, which must
include notice address for the Assignor and the Assignee
<PAGE>
<PAGE>
EXHIBIT "I"
to Assignment Agreement
NOTICE
OF ASSIGNMENT
-------------
_________________, 19__
To: CONSUMERS POWER COMPANY
212 West Michigan Avenue
Jackson, Michigan 49201
Attention: Vice President & Treasurer
THE FIRST NATIONAL BANK OF CHICAGO
One First National Plaza
Chicago, Illinois 60670
Suite 0363; 1-10
Attention: Electric, Gas & Telecommunications
Division
From: [NAME OF ASSIGNOR] (the "Assignor")
[NAME OF ASSIGNEE] (the "Assignee")
1. We refer to that Credit Agreement (the "Credit
Agreement") described in Item 1 of Schedule 1 attached hereto ("Schedule
1"). Capitalized terms used herein and not otherwise defined herein shall
have the meanings attributed to them in the Credit Agreement.
2. This Notice of Assignment (this "Notice") is
given and delivered to the Company and the Agent pursuant to Section 12.1
of the Credit Agreement.
3. The Assignor and the Assignee have entered into
an Assignment Agreement, dated as of _____________, 19__ (the "Assignment"),
pursuant to which, among other things, the Assignor has sold, assigned,
delegated and transferred to the Assignee, and the Assignee has purchased,
accepted and assumed from the Assignor the percentage interest specified
in Item 3 of Schedule 1 of all outstandings, rights and obligations under
the Credit Agreement relating to the facilities listed in Item 3 of
Schedule 1. The Effective Date of the Assignment shall be the later of
the date specified in Item 5 of Schedule 1 or two Business Days (or such
shorter period as agreed to by the Agent) after this Notice of Assignment
and any consents and fees required by Sections 12.1 of the Credit
Agreement have been delivered to the Agent, provided that the Effective
Date shall not occur if any condition precedent agreed to by the Assignor
and the Assignee has not been satisfied.
4. The Assignor and the Assignee hereby give to
the Company and the Agent notice of the assignment and delegation referred
to herein. The Assignor will confer with the Agent before the date
specified in Item 5 of Schedule 1 to determine if the Assignment Agreement
will become effective on such date pursuant to Section 3 hereof, and will
confer with the Agent to determine the Effective Date pursuant to Section
3 hereof if it occurs thereafter. The Assignor shall notify the Agent if
the Assignment Agreement does not become effective on any proposed
Effective Date as a result of the failure to satisfy the conditions
precedent agreed to by the Assignor and the Assignee. At the request of
the Agent, the Assignor will give the Agent written confirmation of the
satisfaction of the conditions precedent.
5. The Assignor or the Assignee shall pay to the
Agent on or before the Effective Date the processing fee of $2,500
required by Section 12.1 of the Credit Agreement.
6. If Notes are outstanding on the Effective Date,
the Assignor and the Assignee request and direct that the Agent prepare
and cause the Company to execute and deliver new Notes or, as appropriate,
replacements notes, to the Assignor and the Assignee. The Assignor and,
if applicable, the Assignee each agree to deliver to the Agent the
original Note received by it from the Company upon its receipt of a new
Note in the appropriate amount.
7. The Assignee advises the Agent that notice and
payment instructions are set forth in the attachment to Schedule 1.
8. The Assignee hereby represents and warrants
that none of the funds, monies, assets or other consideration being used
to make the purchase pursuant to the Assignment are "plan assets" as
defined under ERISA and that its rights, benefits, and interests in and
under the Loan Documents will not be "plan assets" under ERISA.
9. The Assignee authorizes the Agent to act as its
agent under the Loan Documents in accordance with the terms thereof. The
Assignee acknowledges that the Agent has no duty to supply information
with respect to the Company or the Loan Documents to the Assignee until
the Assignee becomes a party to the Credit Agreement.*
*May be eliminated if Assignee is a party to the Credit Agreement prior to
the Effective Date.
NAME OF ASSIGNOR NAME OF ASSIGNEE
By: By:
-------------------------- --------------------------
Title: Title:
-------------------------- --------------------------
ACKNOWLEDGED AND CONSENTED TO ACKNOWLEDGED AND CONSENTED TO
BY THE FIRST NATIONAL BANK OF CHICAGO BY CONSUMERS POWER COMPANY
By: By:
------------------------------ -----------------------------
Title: Title:
------------------------------ -----------------------------
[Attach photocopy of Schedule 1 to Assignment]
<PAGE>
<PAGE>
EXHIBIT (12)<PAGE>
<PAGE>
Exhibit (12)
<TABLE>
CMS ENERGY CORPORATION
Ratio of Earnings to Fixed Charges
(Millions of Dollars)
<CAPTION>
Six Months
Ended Years Ended December 31
June 30, 1995 1994 1993 1992 1991 1990
(b) (c)(d) (e)
<S> <C> <C> <C> <C> <C> <C>
Earnings as defined (a)
Net income $ 119 $ 179 $ 155 $(297) $(262) $(494)
Income taxes 74 92 75 (146) (94) 25
Exclude equity basis subsidiaries (19) (18) (6) 10 10 13
Fixed charges as defined, adjusted to
exclude capitalized interest of $2,
$6, $5, $3, $5, and $38 million for
the six months ended June 30, 1995
and for the years ended December 31,
1994, 1993, 1992, 1991 and 1990,
respectively 139 237 245 228 364 317
------ ------ ------ ------ ------ ------
Earnings as defined $ 313 $ 490 $ 469 $(205) $ 18 $(139)
====== ====== ====== ====== ====== ======
Fixed charges as defined (a)
Interest on long-term debt $ 113 $ 193 $ 204 $ 169 $ 274 $ 293
Estimated interest portion of lease rental 5 9 11 16 17 18
Other interest charges 9 18 24 35 68 33
Preferred stock dividend 22 36 17 16 15 17
------ ------ ------ ------ ------ ------
Fixed charges as defined $ 149 $ 256 $ 256 $ 236 $ 374 $ 361
====== ====== ====== ====== ====== ======
Ratio of earnings to fixed charges 2.10 1.91 1.83 - - -
====== ====== ====== ====== ====== ======
<FN>
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 pretax 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
pretax 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
pretax 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.
</TABLE>
<PAGE>
<PAGE>
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, No. 33-57719-01, No. 33-64044, No.
33-60007 and No. 33-61595 its Form 10-Q for the quarter ended June 30,
1995, which includes our report dated August 9, 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.
Arthur Andersen LLP
Detroit, Michigan,
August 9, 1995.
<PAGE>
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
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.
</LEGEND>
<CIK> 0000811156
<NAME> CMS ENERGY CORPORATION
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 4,294
<OTHER-PROPERTY-AND-INVEST> 1,226
<TOTAL-CURRENT-ASSETS> 650
<TOTAL-DEFERRED-CHARGES> 1,318
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 7,488
<COMMON> 1
<CAPITAL-SURPLUS-PAID-IN> 1,740
<RETAINED-EARNINGS> (513)
<TOTAL-COMMON-STOCKHOLDERS-EQ> 1,229
0
356
<LONG-TERM-DEBT-NET> 2,038
<SHORT-TERM-NOTES> 309
<LONG-TERM-NOTES-PAYABLE> 710
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 142
0
<CAPITAL-LEASE-OBLIGATIONS> 109
<LEASES-CURRENT> 39
<OTHER-ITEMS-CAPITAL-AND-LIAB> 2,557
<TOT-CAPITALIZATION-AND-LIAB> 7,488
<GROSS-OPERATING-REVENUE> 1,956
<INCOME-TAX-EXPENSE> 74
<OTHER-OPERATING-EXPENSES> 1,626
<TOTAL-OPERATING-EXPENSES> 1,705
<OPERATING-INCOME-LOSS> 251
<OTHER-INCOME-NET> (3)
<INCOME-BEFORE-INTEREST-EXPEN> 253
<TOTAL-INTEREST-EXPENSE> 120
<NET-INCOME> 133
14
<EARNINGS-AVAILABLE-FOR-COMM> 119
<COMMON-STOCK-DIVIDENDS> 37
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 381
<EPS-PRIMARY> 1.36
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
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.
</LEGEND>
<CIK> 0000201533
<NAME> CONSUMERS POWER COMPANY
<MULTIPLIER> 1,000,000
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 4,294
<OTHER-PROPERTY-AND-INVEST> 667
<TOTAL-CURRENT-ASSETS> 561
<TOTAL-DEFERRED-CHARGES> 1,185
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 6,707
<COMMON> 841
<CAPITAL-SURPLUS-PAID-IN> 491
<RETAINED-EARNINGS> 136
<TOTAL-COMMON-STOCKHOLDERS-EQ> 1,487
0
356
<LONG-TERM-DEBT-NET> 1,551
<SHORT-TERM-NOTES> 309
<LONG-TERM-NOTES-PAYABLE> 404
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 10
0
<CAPITAL-LEASE-OBLIGATIONS> 109
<LEASES-CURRENT> 39
<OTHER-ITEMS-CAPITAL-AND-LIAB> 2,461
<TOT-CAPITALIZATION-AND-LIAB> 6,707
<GROSS-OPERATING-REVENUE> 1,783
<INCOME-TAX-EXPENSE> 79
<OTHER-OPERATING-EXPENSES> 1,486
<TOTAL-OPERATING-EXPENSES> 1,571
<OPERATING-INCOME-LOSS> 212
<OTHER-INCOME-NET> 1
<INCOME-BEFORE-INTEREST-EXPEN> 219
<TOTAL-INTEREST-EXPENSE> 79
<NET-INCOME> 140
14
<EARNINGS-AVAILABLE-FOR-COMM> 126
<COMMON-STOCK-DIVIDENDS> 70
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 344
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<PAGE> 1
ARTHUR ANDERSEN LLP
Report of Independent Public Accountants
----------------------------------------
To CMS Energy Corporation:
We have reviewed the accompanying balance sheets of CONSUMERS GAS GROUP
(representing a business unit of Consumers Power Company ("Consumers") and
its wholly-owned subsidiary, Michigan Gas Storage Company) as of June 30,
1995 and 1994, and the related statements of income, common stockholders'
equity and cash flows for the three-month, six-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 balance sheet of Consumers Gas Group as of December 31,
1994, and the related 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 and 6 to the financial statements as to which the
date is June 9, 1995), we expressed an unqualified opinion on those
statements. In our opinion, the information set forth in the accompanying
balance sheet as of December 31, 1994, is fairly stated, in all material
respects, in relation to the balance sheet from which it has been derived.
Arthur Andersen LLP
Detroit, Michigan,
August 9, 1995.
<PAGE>
<PAGE> 2
<TABLE>
Consumers Gas Group
Statements of Income
(Unaudited)
<CAPTION>
Three Months Ended Six Months Ended Twelve Months Ended
June 30 June 30 June 30
1995 1994 1995 1994 1995 1994
In Millions
<S> <C> <C> <C> <C> <C> <C>
OPERATING REVENUE $ 197 $ 183 $ 679 $ 711 $1,119 $1,184
----------------------------------------------------------
OPERATING EXPENSES
Operation
Cost of gas sold 102 93 383 427 617 687
Other 46 43 92 87 190 174
----------------------------------------------------------
Total operation 148 136 475 514 807 861
Maintenance 9 10 19 21 37 42
Depreciation, depletion and amortization 14 12 47 43 80 74
General taxes 9 7 30 31 53 52
----------------------------------------------------------
Total operating expenses 180 165 571 609 977 1,029
----------------------------------------------------------
PRETAX OPERATING INCOME 17 18 108 102 142 155
INCOME TAXES 5 4 36 33 45 44
----------------------------------------------------------
NET OPERATING INCOME 12 14 72 69 97 111
----------------------------------------------------------
OTHER INCOME (DEDUCTIONS) 1 (1) - (1) (1) (1)
----------------------------------------------------------
FIXED CHARGES
Interest on long-term debt 7 7 15 14 30 32
Other interest 1 1 2 2 5 6
Capitalized interest - - - - (1) -
Preferred dividends 2 1 3 2 6 3
----------------------------------------------------------
Net fixed charges 10 9 20 18 40 41
----------------------------------------------------------
NET INCOME $ 3 $ 4 $ 52 $ 50 $ 56 $ 69
==========================================================
<FN>
THE ACCOMPANYING CONDENSED NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
</TABLE>
<PAGE>
<PAGE> 3
<TABLE>
Consumers Gas Group
Statements of Cash Flows
(Unaudited)
<CAPTION>
Six Months Ended Twelve Months Ended
June 30 June 30
1995 1994 1995 1994
In Millions
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 52 $ 50 $ 56 $ 69
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation, depletion and amortization 47 43 80 74
Capital lease and other amortization 3 2 5 5
Deferred income taxes and investment tax credit 15 3 16 4
Changes in other assets and liabilities 51 11 57 5
Other - - 1 2
------ ------ ------ ------
Net cash provided by operating activities 168 109 215 159
------ ------ ------ ------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (excludes assets placed under
capital lease) (47) (48) (128) (146)
Other (5) (2) (11) (5)
------ ------ ------ ------
Net cash used in investing activities (52) (50) (139) (151)
------ ------ ------ ------
CASH FLOWS FROM FINANCING ACTIVITIES
Decrease in notes payable, net (72) (42) (14) (13)
Payment of common stock dividends (40) (34) (53) (54)
Retirement of bonds and other long-term debt (2) (23) (8) (137)
Payment of capital lease obligations (2) (2) (5) (5)
Repayment of bank loans - (21) (85) (21)
Proceeds from bank loans - - 88 2
Proceeds from preferred stock - 42 - 42
Contribution from stockholder - 22 - 22
Proceeds from bonds and other long-term debt - - - 158
------ ------ ------ ------
Net cash used in financing activities (116) (58) (77) (6)
------ ------ ------ ------
NET INCREASE (DECREASE) IN CASH AND TEMPORARY CASH INVESTMENTS - 1 (1) 2
CASH AND TEMPORARY CASH INVESTMENTS, BEGINNING OF PERIOD 4 4 5 3
------ ------ ------ ------
CASH AND TEMPORARY CASH INVESTMENTS, END OF PERIOD $ 4 $ 5 $ 4 $ 5
====== ====== ====== ======
<FN>
THE ACCOMPANYING CONDENSED NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
</TABLE>
<PAGE>
<PAGE> 4
<TABLE>
Consumers Gas Group
Balance Sheets
<CAPTION>
June 30 June 30
1995 December 31 1994
(Unaudited) 1994 (Unaudited)
In Millions
ASSETS
<S> <C> <C> <C>
PLANT (At original cost)
Plant $2,097 $2,064 $1,988
Less accumulated depreciation, depletion and amortization 1,156 1,117 1,098
-----------------------------------
941 947 890
Construction work-in-progress 56 47 49
-----------------------------------
997 994 939
-----------------------------------
CURRENT ASSETS
Cash and temporary cash investments at cost,
which approximates market 4 4 5
Accounts receivable and accrued revenue, less
allowances of $2, $2 and $2, respectively (Note 6) 66 51 162
Inventories at average cost
Gas in underground storage 155 235 160
Materials and supplies 10 9 10
Trunkline settlement 30 30 30
Deferred income taxes 4 16 11
Prepayments and other 27 48 30
-----------------------------------
296 393 408
-----------------------------------
NON-CURRENT ASSETS
Postretirement benefits 158 158 163
Trunkline settlement 40 55 70
Deferred income taxes 5 3 3
Other 69 70 67
-----------------------------------
272 286 303
-----------------------------------
TOTAL ASSETS $1,565 $1,673 $1,650
===================================
</TABLE>
<PAGE>
<PAGE> 5
<TABLE>
<CAPTION>
June 30 June 30
1995 December 31 1994
(Unaudited) 1994 (Unaudited)
In Millions
STOCKHOLDERS' INVESTMENT AND LIABILITIES
<S> <C> <C> <C>
CAPITALIZATION
Common stockholders' equity $ 329 $ 317 $ 326
Preferred stock 78 78 78
Long-term debt 425 426 382
Non-current portion of capital leases 17 18 19
-----------------------------------
849 839 805
-----------------------------------
CURRENT LIABILITIES
Current portion of long-term debt and capital leases 13 13 59
Accounts payable 69 68 79
Accrued taxes 39 55 39
Trunkline settlement 30 30 30
Accrued refunds 28 20 35
Notes payable 27 99 41
Accrued interest 8 8 9
Other 38 68 64
-----------------------------------
252 361 356
-----------------------------------
NON-CURRENT LIABILITIES
Postretirement benefits 175 172 177
Regulatory liabilities for income taxes, net 150 144 137
Trunkline settlement 40 55 70
Deferred investment tax credits 29 30 31
Other 70 72 74
-----------------------------------
464 473 489
-----------------------------------
COMMITMENTS AND CONTINGENCIES (Notes 3 and 4)
TOTAL STOCKHOLDERS' INVESTMENT AND LIABILITIES $1,565 $1,673 $1,650
===================================
<FN>
THE ACCOMPANYING CONDENSED NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
</TABLE>
<PAGE>
<PAGE> 6
<TABLE>
Consumers Gas Group
Statements of Common Stockholders' Equity
(Unaudited)
<CAPTION>
Three Months Ended Six Months Ended Twelve Months Ended
June 30 June 30 June 30
1995 1994 1995 1994 1995 1994
In Millions
<S> <C> <C> <C> <C> <C> <C>
COMMON STOCK
At beginning and end of period $ 184 $ 184 $ 184 $ 184 $ 184 $ 184
-------------------------------------------------------------------
OTHER PAID-IN CAPITAL
At beginning of period 107 85 107 85 107 85
Stockholder's contribution - 22 - 22 - 22
-------------------------------------------------------------------
At end of period 107 107 107 107 107 107
-------------------------------------------------------------------
REVALUATION CAPITAL
At beginning of period (1) - - - - -
SFAS 115 - unrealized loss,
net of tax 1 - - - - -
-------------------------------------------------------------------
At end of period - - - - - -
-------------------------------------------------------------------
RETAINED EARNINGS
At beginning of period 75 56 26 19 35 20
Net income 3 4 52 50 56 69
Common stock dividends declared (40) (25) (40) (34) (53) (54)
-------------------------------------------------------------------
At end of period 38 35 38 35 38 35
-------------------------------------------------------------------
TOTAL COMMON STOCKHOLDERS' EQUITY $ 329 $ 326 $ 329 $ 326 $ 329 $ 326
===================================================================
<FN>
THE ACCOMPANYING CONDENSED NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
</TABLE>
<PAGE>
<PAGE> 7
Consumers Gas Group
Condensed Notes to Financial Statements
In July 1995, CMS Energy issued 7 million shares of Class G Common Stock.
This new class of Common Stock is intended to reflect the separate
performance of the gas distribution, storage and transportation businesses
conducted by Consumers and Michigan Gas Storage (collectively, Consumers
Gas Group). Accordingly, these financial statements and their related
condensed notes should be read along with the financial statements and
notes contained in the 1994 Form 10-K of CMS Energy Corporation that
includes the Report of Independent Public Accountants, and the financial
statements and notes of CMS Energy and Consumers Gas Group in CMS Energy's
Registration Statement on Form S-3 (Nos. 33-57719 and 33-57719-01)
relating to the Class G Common Stock. 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
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 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 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, designated Class G Common Stock which reflects the separate
performance of the Consumers Gas Group. The existing CMS Energy Common
Stock continues to be outstanding and reflects 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.
In July 1995, CMS Energy issued 7 million shares of Class G Common Stock
at a price to the public of $17.75 per share, representing 21.875 percent
of the common stockholders' equity value attributed to the Consumers Gas
Group. On August 9, 1995, CMS Energy received notification that
underwriters intend to exercise their option and purchase an additional
520,000 shares of CMS Energy Class G Common Stock at a price to the public
of $17.75 per share for the purpose of covering over-allotments related to
the July 1995 initial public offering. This issuance of the additional
shares will increase the common stockholder's equity value attributed to
the Consumers Gas Group, represented by the outstanding shares of Class G
Common Stock, to 23.5 percent.
2: Earnings Per Share and Dividends
Earnings (Loss) attributable to CMS Energy Class G Common Stock on a per
share basis will be determined based on 23.5 percent of the earnings of
the Consumers Gas Group, which reflects the intent of the Board of
Directors that the earnings and financial condition of the Consumers Gas
Group be the primary basis for determining dividends to be paid on the
Class G Common Stock. Stockholders of Class G Common Stock have no direct
rights in the equity or assets of the Consumers Gas Group, but rather have
rights in the equity and assets of CMS Energy as a whole.
In the sole discretion of its Board of Directors, dividends will be paid
exclusively to the holders of Class G Common Stock, exclusively to the
holders of CMS Energy Common Stock, or to the holders of both classes in
equal or unequal amounts. Dividends on the Class G Common Stock are paid
at the discretion of the Board of Directors based primarily upon the
earnings and financial condition of the Consumers Gas Group, and to a
lesser extent, CMS Energy as a whole. It is the Board of Directors'
current intention that the declaration or payment of dividends with
respect to the Class G Common Stock will not be reduced, suspended or
eliminated as a result of factors arising out or relating to the electric
utility business or the non-utility businesses of CMS Energy unless such
factors also require, in the Board of Directors' sole discretion, the
omission of the declaration or reduction in payment of dividends on both
the CMS Energy Common Stock and the Class G Common Stock.
In July 1995, the Board of Directors declared a quarterly dividend of 28
cents per share ($1.12 per share on an annual basis) on Class G Common
Stock.
3: Rate Matters
For information regarding rate matters directly affecting the Consumers
Gas Group, see the "Gas Rates" and "GCR Issues," discussions in Note 3 to
the Consolidated Financial Statements of CMS Energy included and
incorporated by reference herein.
4: Commitments and Contingencies
Capital Expenditures: The Consumers Gas Group estimates capital
expenditures, including new lease commitments, will be $129 million for
1995, $119 million for 1996 and $101 million for 1997. These estimates
include an attributed portion of Consumers' anticipated capital
expenditures for common plant and equipment of $24 million, $18 million
and $15 million for 1995, 1996 and 1997, respectively.
For further information regarding commitments and contingencies directly
affecting the Consumers Gas Group (including those involving former
manufactured gas plant sites), see the "Environmental Matters," "Public
Utility Holding Company Act Exemption" and "Other" discussions in Note 4
to the Consolidated Financial Statements of CMS Energy included and
incorporated by reference herein.
5: 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 June 30 were:
In Millions
Six Months Ended Twelve Months Ended
1995 1994 1995 1994
Cash transactions
Interest paid (net
of amounts capitalized) $ 16 $ 16 $ 33 $ 37
Income taxes paid
(net of refunds) 21 26 33 39
Non-cash transactions
Assets placed under
capital leases $ 1 $ 2 $ 4 $ 4
6: 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. At June 30, 1995, Consumers
had an unsecured $470 million facility and unsecured, committed lines of
credit aggregating $185 million that are used to finance seasonal working
capital requirements. At June 30, 1995 and 1994, Consumers had a total of
$309 million and $129 million outstanding under these facilities,
respectively. In July 1995, Consumers signed a new four-year, unsecured
working capital facility in an aggregate amount of $425 million replacing
the $470 million facility which expired by its own terms.
Consumers has an established $500-million trade receivables purchase and
sale program. At June 30, 1995, receivables sold under the agreement
totaled $190 million compared with $205 million at June 30, 1994.
Consumers generally manages its short-term financings on a centralized
consolidated basis. The portion of receivables sold attributable to the
Consumers Gas Group at June 30, 1995 and 1994 is estimated by management
to be $38 million and $42 million, respectively. Accounts receivable and
accrued revenue in the balance sheets have been reduced to reflect
receivables sold. The portions of short-term debt and receivables sold
attributed to Consumers Gas Group reflect the high utilization of
short-term borrowings to finance the purchase of gas for storage in the
summer and fall periods.
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. A portion of any
future issuance of debt or securities may be attributed to the Consumers
Gas Group.
<PAGE>
<PAGE> 10
Consumers Gas Group
Management's Discussion and Analysis
In July 1995, CMS Energy issued 7 million shares of Class G Common Stock.
This new class of Common Stock is intended to reflect the separate
performance of the gas distribution, storage and transportation businesses
conducted by Consumers and Michigan Gas Storage (collectively, Consumers
Gas Group). Accordingly, this MD&A should be read along with the MD&A in
the 1994 Form 10-K of CMS Energy and the MD&As of CMS Energy and Consumers
Gas Group in CMS Energy's Registration Statement on Form S-3 (Nos. 33-
57719 and 33-57719-01) relating to the Class G Common Stock.
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 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, designated Class G Common Stock which reflects the separate
performance of the Consumers Gas Group. The existing CMS Energy Common
Stock continues to be outstanding and reflects 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.
In July 1995, CMS Energy issued 7 million shares of Class G Common Stock
at a price to the public of $17.75 per share, representing 21.875 percent
of the common stockholders' equity value attributed to the Consumers Gas
Group. On August 9, 1995, CMS Energy received notification that
underwriters intend to exercise their option and purchase an additional
520,000 shares of CMS Energy Class G Common Stock at a price to the public
of $17.75 per share for the purpose of covering over-allotments related to
the July 1995 initial public offering. This issuance of the additional
shares will increase the common stockholder's equity value attributed to
the Consumers Gas Group, represented by the outstanding Class G Common
Stock, to 23.5 percent.
Earnings for the quarters ended June 30, 1995 and 1994
Net income for the Consumers Gas Group for the second quarter of 1995
totaled $3 million, compared with $4 million for the second quarter of
1994. The $1 million decrease in 1995 net income compared with 1994
reflects higher gas deliveries, more than offset by higher gas operating
expenses which include depreciation and general taxes. Net income in the
second quarters of 1995 and 1994 reflect the seasonality of Consumers Gas
Group's business in that approximately 74 percent of its revenues are
generated in the first and fourth quarters of each year.
Earnings for the six months ended June 30, 1995 and 1994
Net income for the Consumers Gas Group for the six months ended June 30,
1995 totaled $52 million, compared with $50 million for the six months
ended June 1994. Earnings in 1995 recognize the reversal of a loss
previously recorded for a gas contract contingency partly offset by a
decrease in gas deliveries and higher gas operating expenses which include
depreciation.
Earnings for the 12 months ended June 30, 1995 and 1994
Net income for the Consumers Gas Group for the 12 months ended June 30,
1995 totaled $56 million, compared with $69 million for the 12 months
ended June 30, 1994. The decrease in 1995 net income reflects lower gas
deliveries and higher gas operating expenses which include depreciation
and general taxes, partly offset by the reversal of losses previously
recorded for gas contingencies. Increased operating costs included $14
million of postretirement benefit costs.
Cash Position, Financing and Investing
Consumers Gas Group's cash requirements are met by cash from operations
and financing activities. In the first six months of 1995 and 1994,
Consumers Gas Group's cash inflow from operations was derived mainly from
Consumers' sale and transportation of natural gas. Consumers Gas Group's
primary use of cash continues to reflect its gas utility construction
expenditures and improvements in the reliability of its gas utility
transmission and distribution systems. It also has used its cash to
retire portions of long-term securities and to pay common and preferred
dividends.
Financing and Investing Activities: Capital expenditures for the
Consumers Gas Group (including assets placed under capital lease) totaled
$48 million for the first six months of 1995 compared with $50 million for
the first six months of 1994.
Financing and Investing Outlook: CMS Energy estimates that capital
expenditures for the Consumers Gas Group, including new lease commitments,
will total approximately $359 million over the next three years.
In Millions
Years Ended December 31 1995 1996 1997
Gas Utility (a) $126 $117 $ 99
Michigan Gas Storage 3 2 2
---- ---- ----
$129 $119 $101
==== ==== ====
(a) Includes a portion of anticipated capital expenditures common to both
utility businesses.
The Consumers Gas Group expects that cash from operations and the ability
to access debt markets will provide necessary working capital and
liquidity to fund future capital expenditures, required debt payments and
other cash needs in the foreseeable future.
Consumers generally manages its short-term financings on a centralized,
consolidated basis. At June 30, 1995, Consumers' available sources of
credit included unsecured, committed lines of credit totaling $185 million
and a $470 million working capital facility. In July 1995, Consumers
signed a new four-year, unsecured working capital facility in an aggregate
amount of $425 million, replacing the $470 million facility which expired
by its own terms. Consumers also 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 June 30, 1995, receivables sold
totaled $190 million. Consumers Gas Group's attributed portion of such
receivables sold totaled $38 million.
Results of Operations
For Consumers Gas Group's results of operations, see "Consumers Gas Group
Results of Operations" in CMS Energy's MD&A included and incorporated by
reference herein.
Gas Issues
For Consumers Gas Group's discussion of Gas Rates, GCR Issues and
Environmental Matters, see "Consumers Gas Group Issues" in CMS Energy's
MD&A included and incorporated by reference herein.
Outlook
For Consumers Gas Group's outlook discussion, see "Consumers Gas Group
Outlook" in CMS Energy's MD&A included and incorporated by reference
herein.
Other
For information regarding CMS Energy's exemption from registration under
PUHCA and the effect of New Accounting Standards, see "Other" in
CMS Energy's MD&A included and incorporated by reference herein.
<PAGE>
<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
CMS ENERGY CORPORATION
AND
CONSUMERS POWER COMPANY
FORM 10-Q
EXHIBITS
FOR QUARTER ENDED JUNE 30, 1995
<PAGE>
<PAGE>
EXHIBIT INDEX
Exhibit
Numbers Description
(10) - Consumers: Credit Agreement dated as of July 14, 1995
among Consumers Power Company, the Banks named therein
and the First National Bank of Chicago, as
Administrative Agent.
(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
(99) - CMS Energy: Consumers Gas Group Financials
<PAGE>
