<PAGE> 1
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
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)436-9200
1-5611 CONSUMERS POWER COMPANY 38-0442310
(A Michigan Corporation)
212 West Michigan Avenue
Jackson, Michigan 49201
(517)788-0550
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Registrant Title of Class on Which Registered
CMS Energy Common Stock, $.01 par value New York Stock Exchange
Corporation Class G Common Stock, no par value New York Stock Exchange
Consumers Listed on inside cover
Power Company
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrants (1) have filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that
the Registrants were required to file such reports), and (2) have been
subject to such filing requirements for the past 90 days.
Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrants' knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
Consumers Power Company securities registered pursuant to Section 12(b) of
the Act:
FIRST MORTGAGE BONDS:
5-7/8% Series due 1996
6-7/8% Series due 1998
6-5/8% Series due 1998
7-1/2% Series due 2001
7-1/2% Series due 2002
PREFERRED STOCK - Cumulative
No par:
$2.08 Series
$100 par value:
$4.16 Series $7.68 Series
$4.50 Series $7.72 Series
$7.45 Series $7.76 Series
All securities listed above are registered on the New York Stock Exchange.
The aggregate market value of the voting stock of CMS Energy Corporation
held by non-affiliates, was $2,929,899,288 based on the closing sale price
of $30-3/8 per share for the 91,742,228 common shares, $.01 par value
CMS Energy Common Stock and $18-3/4 per share for the 7,638,886 common
shares, no par value Class G Common Stock, each outstanding on
February 29, 1996.
CMS Energy held all 84,108,789 outstanding common shares, $10 par value,
of Consumers Power Company, and the market value of the voting preferred
stock of Consumers, held by non-affiliates, was $141,862,876 based on the
closing sale price shown below.
Aggregate market value of Consumers' voting stock held by non-affiliates.
Number Shares Transaction
Type of Stock Outstanding Price/Share Date Market Value
(2/29/96)
Preferred:
$4.16 68,451 $56-1/2 2/09/96 $ 3,867,482
4.50 373,148 62-1/4 2/29/96 23,228,463
7.45 379,549 95 2/29/96 36,057,155
7.68 207,565 97 2/28/96 20,133,805
7.72 289,642 98 2/29/96 28,384,916
7.76 308,072 98 2/27/96 30,191,056
--------- ------------
Total 1,626,427 $141,862,877
========= ============
Documents incorporated by reference:
The Registrants' proxy statements relating to the 1996 annual meetings of
shareholders to be held May 24, 1996, are incorporated by reference in
Part III, except for the organization and compensation committee report
contained therein.
<PAGE>
<PAGE> 3
CMS ENERGY CORPORATION
and
CONSUMERS POWER COMPANY
ANNUAL REPORTS ON FORM 10-K
TO THE SECURITIES AND EXCHANGE COMMISSION
FOR THE YEAR ENDED DECEMBER 31, 1995
This combined Form 10-K is separately filed by CMS Energy Corporation and
Consumers Power Company. Information contained herein relating to each
individual registrant is filed by such registrant on its own behalf.
Accordingly, except for its subsidiaries, Consumers Power Company makes no
representation as to information relating to any other companies
affiliated with CMS Energy Corporation.
TABLE OF CONTENTS
Page
PART I
Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . 8
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . 31
Item 3. Legal Proceedings. . . . . . . . . . . . . . . . . . . . 40
Item 4. Submission of Matters to a Vote of Security Holders. . . 46
PART II
Item 5. Market for CMS Energy's and Consumers' Common Equity
and Related Stockholder Matters. . . . . . . . . . . 47
Item 6. Selected Financial Data. . . . . . . . . . . . . . . . . 47
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . . . . 47
Item 8. Financial Statements and Supplementary Data. . . . . . . 48
Item 9. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure. . . . . . . . . 138
PART III
Item 10. Directors and Executive Officers of CMS Energy and
Consumers. . . . . . . . . . . . . . . . . . . . . . 138
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . 138
Item 12. Security Ownership of Certain Beneficial Owners and
Management . . . . . . . . . . . . . . . . . . . . . 138
Item 13. Certain Relationships and Related Transactions . . . . . 138
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K. . . . . . . . . . . . . . . . . . . . . 138
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<PAGE> 4
GLOSSARY
Certain terms used in the text and financial statements are defined below.
ABATE . . . . . . . . . . . . . . . Association of Businesses Advocating
Tariff Equity
ALJ . . . . . . . . . . . . . . . . Administrative Law Judge
AMT . . . . . . . . . . . . . . . . Alternative minimum tax
Articles. . . . . . . . . . . . . . Articles of Incorporation
Attorney General. . . . . . . . . . Michigan Attorney General
bcf . . . . . . . . . . . . . . . . Billion cubic feet
Big Rock. . . . . . . . . . . . . . Big Rock Point nuclear plant, owned
by Consumers
Board of Directors. . . . . . . . . Board of Directors of CMS Energy
Btu . . . . . . . . . . . . . . . . British thermal unit
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 Electric Marketing. . . . . . . CMS Electric Marketing Company, a
subsidiary of Enterprises
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 Marketing . . . . . . . . . CMS Gas Marketing Company, a
subsidiary of Enterprises
CMS Gas Transmission. . . . . . . . CMS Gas Transmission and Storage
Company, a subsidiary of Enterprises
CMS Generation. . . . . . . . . . . CMS Generation Co., a subsidiary of
Enterprises
CMS 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. . . . . . . . . . . . CMS Energy Common Stock and Class G
Common Stock
Consumers . . . . . . . . . . . . . Consumers Power Company, a
subsidiary of CMS Energy
Consumers Gas Group . . . . . . . . The gas distribution, storage and
transportation businesses currently
conducted by Consumers and Michigan
Gas Storage
Court of Appeals. . . . . . . . . . Michigan Court of Appeals
Detroit Edison. . . . . . . . . . . The Detroit Edison Company
DEQ . . . . . . . . . . . . . . . . Department of Environmental Quality
DNR . . . . . . . . . . . . . . . . Michigan Department of Natural
Resources
DOE . . . . . . . . . . . . . . . . U.S. Department of Energy
Dow . . . . . . . . . . . . . . . . The Dow Chemical Company
DSM . . . . . . . . . . . . . . . . Demand-side management
Energy Act. . . . . . . . . . . . . Energy Policy Act of 1992
Enterprises . . . . . . . . . . . . CMS Enterprises Company, a
subsidiary of CMS Energy
EPA . . . . . . . . . . . . . . . . Environmental Protection Agency
FASB. . . . . . . . . . . . . . . . Financial Accounting Standards Board
FERC. . . . . . . . . . . . . . . . Federal Energy Regulatory Commission
FMLP. . . . . . . . . . . . . . . . First Midland Limited Partnership
GCR . . . . . . . . . . . . . . . . Gas cost recovery
General Motors. . . . . . . . . . . General Motors Corporation
GPSLP . . . . . . . . . . . . . . . Genesee Power Station Limited
Partnership
GTNs. . . . . . . . . . . . . . . . $250 million CMS Energy General Term
Notes, Series A
Huron . . . . . . . . . . . . . . . Huron Hydrocarbons, Inc., a
subsidiary of Consumers
HYDRA-CO. . . . . . . . . . . . . . HYDRA-CO Enterprises, Inc., a
subsidiary of CMS Generation
ITC . . . . . . . . . . . . . . . . Investment tax credit
Karn Unit 4 . . . . . . . . . . . . D. E. Karn, Essexville, Michigan
kWh . . . . . . . . . . . . . . . . Kilowatt-hour
Ludington . . . . . . . . . . . . . Ludington pumped storage plant,
jointly owned by Consumers and
Detroit Edison
mcf . . . . . . . . . . . . . . . . Thousand cubic feet
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 Gas Storage. . . . . . . . Michigan Gas Storage Company, a
subsidiary of Consumers
Michigan Natural Resources
and Environmental Protection
Act. . . . . . . . . . . . . . . . Michigan Natural Resources and
Environmental Protection Act Part
201
MMbbls. . . . . . . . . . . . . . . Million barrels
MMBtu . . . . . . . . . . . . . . . Million British thermal unit
MMcf/d. . . . . . . . . . . . . . . Million cubic feet per day
MMCG. . . . . . . . . . . . . . . . Michigan Municipal Cooperative Group
MPSC. . . . . . . . . . . . . . . . Michigan Public Service Commission
MW. . . . . . . . . . . . . . . . . Megawatts
Natural Gas Act . . . . . . . . . . Federal Natural Gas Act
NEIL. . . . . . . . . . . . . . . . Nuclear Electric Insurance Ltd.
NEPA. . . . . . . . . . . . . . . . National Environmental Response Act
NML . . . . . . . . . . . . . . . . Nuclear Mutual Ltd.
NOPR. . . . . . . . . . . . . . . . Notice of proposed rulemaking
NOx . . . . . . . . . . . . . . . . Nitrogen oxide
NPDES . . . . . . . . . . . . . . . National Pollutant Discharge
Elimination System
NRC . . . . . . . . . . . . . . . . Nuclear Regulatory Commission
O&M . . . . . . . . . . . . . . . . Other operation and maintenance
expense
Order 636 . . . . . . . . . . . . . Orders affecting interstate gas
pipelines, including Order 636A and
636B issued by the FERC in 1992,
known also as the Restructuring Rule
Outstanding Shares. . . . . . . . . Outstanding shares of Class G Common
Stock
Palisades . . . . . . . . . . . . . Palisades nuclear plant, owned by
Consumers
Panhandle . . . . . . . . . . . . . Panhandle Eastern Pipeline Company
PCB . . . . . . . . . . . . . . . . Polychlorinated biphenyls
PCRB. . . . . . . . . . . . . . . . Pollution control revenue bond
Pension Plan. . . . . . . . . . . . The trusteed, non-contributory,
defined benefit pension plan of
Consumers and CMS Energy
PPA . . . . . . . . . . . . . . . . The Power Purchase Agreement between
Consumers and the MCV Partnership
with a 35-year term commencing in
March 1990
ppm . . . . . . . . . . . . . . . . Parts per million
PSCR. . . . . . . . . . . . . . . . Power supply cost recovery
PUHCA . . . . . . . . . . . . . . . Public Utility Holding Company Act
of 1935
PURPA . . . . . . . . . . . . . . . Public Utility Regulatory Policies
Act of 1978
Qualifying Facility . . . . . . . . A facility that produces electricity
or steam and electricity and meets
the ownership and technical
requirements of PURPA. Electric
utilities are required to purchase
the electric capacity and energy
made available by a Qualifying
Facility at the purchasing utility's
avoided cost.
Retained Interest . . . . . . . . . The interest in the common
stockholders' equity of the
Consumers Gas Group that is retained
by CMS Energy
Retained Interest Shares. . . . . . Shares of Class G Common Stock not
held by holders of the Outstanding
Shares
Revised Settlement Proposal . . . . The request for approval of a
settlement proposal to resolve MCV
cost recovery issues, PURPA issues
and court remand as filed with the
MPSC on July 7, 1992 and amended on
September 8, 1992
SEC . . . . . . . . . . . . . . . . Securities and Exchange Commission
SERP. . . . . . . . . . . . . . . . Supplemental Executive Retirement
Plan
Settlement Order. . . . . . . . . . MPSC Order issued March 31, 1993 in
MPSC Case Nos. U-10127, U-8871 and
others, and the rehearing order
issued May 26, 1993
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 . . . . . . . . . . . . . . . . Transportadora de Gas del Norte S.
A., a natural gas pipeline located
in Argentina
Trunkline . . . . . . . . . . . . . Trunkline Gas Company
Union . . . . . . . . . . . . . . . Utility Workers of America, AFL-CIO
Unsecured Credit Facility . . . . . $450 million unsecured revolving
credit and letter of credit facility
dated November 21, 1995
UST . . . . . . . . . . . . . . . . Underground storage tanks
Voluntary Employee Beneficiary
Association . . . . . . . . . . . A legal entity, established under
guidelines of the Internal Revenue
Code, through which the company can
provide certain benefits for its
employees or retirees
Walter. . . . . . . . . . . . . . . Walter International, Inc., an oil
and gas exploration and production
company located in Houston, Texas
<PAGE>
<PAGE>
PART I
ITEM 1. BUSINESS.
GENERAL
CMS Energy
CMS Energy, incorporated in Michigan in 1987, is the parent holding
company of Consumers and Enterprises. Consumers, a combination electric
and gas utility company serving all of Michigan's Lower Peninsula, is the
largest subsidiary of CMS Energy. Consumers' customer base includes a mix
of residential, commercial and diversified industrial customers, the
largest segment of which is the automotive industry. Enterprises is
engaged in several non-utility energy-related businesses including: oil
and gas exploration and production; development and operation of
independent power production facilities; marketing gas to utility,
commercial and industrial customers; and transmission, storage and
processing of natural gas. CMS Energy is exempt from registration under
PUHCA, see Item 3. LEGAL PROCEEDINGS.
CMS Energy had consolidated operating revenue in 1995 of $3.9 billion
which was derived approximately 59 percent from its electric utility
operations, approximately 31 percent from its gas utility operations,
approximately 5 percent from gas transmission, storage and marketing,
approximately 3 percent from oil and gas exploration and production
activities and approximately 2 percent from independent power production
and other non-utility activities. Consumers' consolidated operations in
the electric and gas utility businesses account for the major share of
CMS Energy's total assets, revenue and income. The unconsolidated share
of non-utility electric generation and gas transmission and storage
revenue for 1995 was $523 million.
Consumers
Consumers was incorporated in Michigan in 1968 and is the successor to a
corporation of the same name which was organized in Maine in 1910 and
which did business in Michigan from 1915 to 1968.
Consumers is a public utility serving gas or electricity to almost 6
million of Michigan's 9.5 million residents in all 68 counties in
Michigan's Lower Peninsula. Industries in Consumers' service area include
automotive, metal, chemical, food and wood products and a diversified
group of other industries. Consumers had consolidated operating revenue
in 1995 of $3.5 billion which was derived approximately 65 percent from
its electric business, approximately 34 percent from its gas business and
approximately 1 percent from its nonutility business. Consumers' rates
and certain other aspects of its business are subject to the jurisdiction
of the MPSC and FERC.
BUSINESS SEGMENTS
CMS Energy and Consumers Financial Information
For information with respect to operating revenue, net operating income,
assets and liabilities attributable to all of CMS Energy's business
segments, refer to its Consolidated Financial Statements and Notes to
Consolidated Financial Statements for the year ended December 31, 1995, in
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
For information with respect to the operating revenue, net operating
income, assets and liabilities attributable only to Consumers' business
segments, refer to its Consolidated Financial Statements and Notes to
Consolidated Financial Statements for the year ended December 31, 1995, in
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
CMS Energy and Consumers Principal Operations
CMS Energy conducts its principal operations through the following five
business segments: electric utility operations; gas utility operations;
oil and gas exploration and production operations; independent power
production; and gas marketing, transmission, storage and processing.
Consumers conducts CMS Energy's regulated electric and gas utility
operations.
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<PAGE>
Consumers Electric Utility Operations
Consumers generates, purchases, transmits and distributes electricity and
renders electric service in 62 of the 68 counties in the Lower Peninsula
of Michigan. Principal cities served include Battle Creek, Flint, Grand
Rapids, Jackson, Kalamazoo, Muskegon, Saginaw and Wyoming. Consumers had
approximately 1.6 million electric customers at December 31, 1995. Total
electric sales in 1995 were a record 35.5 billion kWh, a 3 percent
increase from the 1994 levels which included a 4.2 percent increase in
system sales to Consumers' ultimate customers. Electric operating revenue
in 1995 was $2.3 billion, an increase of 4 percent from 1994. A peak
demand of 7,158 MW was achieved in August 1995, representing an increase
of 10.1 percent from the peak achieved in 1994, predominantly as a result
of improved industrial sales. Consumers' reserve margin was approximately
3 percent in 1995 and 14.6 percent in 1994, and 8 percent in 1995 and
15 percent in 1994, based on actual and weather adjusted peaks,
respectively.
Including Ludington, in which Consumers has a 51 percent ownership and
capacity entitlement, Consumers owns and operates 28 electric generating
plants with an aggregate net demonstrated capability available to
Consumers in 1995 under summer conditions, of 6,256 MW. In 1995,
Consumers purchased approximately 1,485 MW of net capacity from
independent power producers and cogenerators, the most significant being
the MCV Facility, which amounted to approximately 22 percent of Consumers'
total system requirements. See Item 2. PROPERTIES. CONSUMERS ELECTRIC
UTILITY PROPERTIES.
Consumers' electric generating plants are interconnected by a transmission
system which is itself interconnected at a number of locations with
transmission facilities of unaffiliated systems, including those of other
utilities in Michigan and Indiana. These interconnections permit a
sharing of the reserve capacity of the systems. This allows mutual
assistance during emergencies and substantially reduces investment in
utility plant facilities.
Consumers' customer base includes a mix of residential, commercial, and
diversified industrial customers, the largest segment of which is the
automotive industry. However, Consumers' electric operations are not
dependent upon a single customer, or a few customers, and the loss of any
one or more of such customers would not have a material adverse effect on
its financial condition. Consumers' electric operations are seasonal to
the extent the weather pattern may have an effect on revenues. Peak
demands for 1995 were 5,825 MW in the winter and 7,158 MW in the summer.
For sales by customer class, see Item 1. BUSINESS. CONSUMERS CONSOLIDATED
REVENUE AND SALES BY BUSINESS SEGMENT.
MCV Cost Recovery Issues: The MCV Partnership was formed in January 1987
by subsidiaries of Consumers and Dow to convert a portion of Consumers'
abandoned Midland nuclear plant into a natural gas-fueled, combined cycle
cogeneration facility. The MCV Facility has been certified as a
Qualifying Facility under PURPA. Consumers' current interests in the MCV
Partnership and the MCV Facility are discussed more fully in Note 3 of the
Notes to Consumers' Consolidated Financial Statements.
In 1987, Consumers signed a PPA with the MCV Partnership for the purchase
of up to 1,240 MW of capacity for a 35-year period beginning with the MCV
Facility's commercial operation in March 1990. Consumers' cost recovery
from its electric customers for the amount of capacity purchased by
Consumers from the MCV Partnership, the price paid by Consumers for that
capacity and associated energy, and the method of rate recovery for those
purchases had been at issue before the MPSC and the Michigan appellate
courts since Consumers' first attempt to recover those costs in its annual
PSCR proceedings. Because the MPSC consistently denied Consumers full
recovery of the costs it incurred for its purchases from the MCV
Partnership, Consumers incurred significant ongoing annual losses. On
March 31, 1993, the MPSC issued an Opinion and Order on a Revised
Settlement Proposal, which had been submitted by Consumers, CMS Energy,
the MPSC staff, and ten qualifying facility developers, approving it with
certain modifications. The Settlement Order allows Consumers to schedule
deliveries of energy from the MCV Facility whenever it is available up to
specified hourly availability limits. Consumers can recover an average
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 had been scheduled on
an economic basis. The applicable availability limits are divided into
on-peak and off-peak hours. For the period beginning January 1, 1993
through December 31, 1997, there are no limits applicable on Consumers'
recovery for its purchase of capacity made available during on-peak hours
while recovery for the purchase of capacity made available during off-peak
hours is limited in 1993 at 80 percent of the 915 MW, 82 percent in 1994
and 1995, and 84 percent in 1996 and 1997. Beginning in 1998 and
continuing thereafter both the on and off-peak recovery will be limited to
88.7 percent of the 915 MW of capacity authorized for recovery under the
Settlement Order. With Consumers' acceptance of the Settlement Order, the
uncertainties surrounding Consumers' cost recoveries related to its
purchases from the MCV Partnership were resolved to a sufficient degree
that Consumers effected a quasi-reorganization as of December 31, 1992, in
which Consumers' accumulated deficit of $574 million was eliminated
against other paid-in capital. Following this quasi-reorganization,
Consumers resumed paying dividends in 1993. This action was approved by
Consumers' Board of Directors and did not require shareholder approval.
Because the Settlement Order only permitted Consumers cost recovery for
915 MW of the capacity it is purchasing from the MCV Partnership, cost
recovery for the remainder of the capacity purchased from the MCV
Partnership has continued to be an issue in Consumers' proceedings before
the MPSC. In September 1995, Consumers and the MPSC staff reached a
proposed settlement agreement that would potentially resolve the recovery
of Consumers' cost of purchasing the 325 MW of contract capacity from the
MCV Facility above the level the MPSC has currently authorized for
recovery, among other issues. For further discussion of this proposed
settlement and other legal proceedings involving Consumers and the
MCV Partnership see Item 3. LEGAL PROCEEDINGS.
Fuel: Consumers has five generating plants which utilize coal as a fuel
source and which constitute 77 percent of its baseload capacity. These
plants combined to produce a total of 15,956 million kWhs in 1995
requiring approximately 7 million tons of coal. Consumers has long-term
contracts covering 60 to 70 percent of its coal requirements for 1996.
Consumers' coal requirements not under long-term contract must be supplied
through short-term agreements or spot purchases. Consumers' coal
inventory as of December 31, 1995 amounted to approximately 47 days'
supply.
Consumers currently owns and operates two nuclear power plants, Palisades,
near South Haven, Michigan and Big Rock, near Charlevoix, Michigan. In
1995, the combined net generation of these plants was 5,353 million kWhs,
which constitutes approximately 25 percent of Consumers' baseload
generation. Consumers currently has two contracts for uranium
concentrates which have quantity flexibility sufficient to cover up to
approximately 60 percent of its requirements. The larger of these two
contracts runs through 1996. Consumers intends to purchase the balance of
its 1996 and 1997 concentrate and conversion requirements in the spot
market. Consumers has contracts for nuclear fuel services, including
enrichment of uranium hexafluoride and fabrication of nuclear fuel
assemblies. The enrichment contract covers 70 percent of the requirements
until the year 2000. The fabrication contract was renegotiated in 1995
for Palisades and remains in effect for the next six Palisades reloads
with options to extend for an additional two reloads. The Big Rock
fabrication contract remains in effect through the end of the operating
license in the year 2000. These contracts are with major private indus-
trial suppliers of nuclear fuel and related services and with the United
States Government.
As shown below, Consumers generates electricity principally from coal and
nuclear fuel.
Power Generated
(Millions of kWhs)
1995 1994 1993 1992 1991
Coal 15,956 17,401 16,520 17,024 16,500
Nuclear 5,353 4,904 3,938 5,093 5,340
Oil (a) 318 322 238 206 194
Gas (a) 238 91 110 12 16
Hydro 420 481 489 490 518
Net Pumped Storage (b) (373) (414) (394) (393) (406)
------ ------ ------ ------ ------
Total Net Generation 21,912 22,785 20,901 22,432 22,162
====== ====== ====== ====== ======
(a) Beginning in 1993, reflects the conversion of Karn Unit 4 to a dual
fuel capability enabling the unit to burn natural gas or oil or a
combination of both, having previously only burned oil.
(b) Represents Consumers' share of net generation from Ludington. This
facility pumps water into a storage pond using electricity generated
during off-peak hours, in order to later generate electricity during peak
demand hours.
The cost of all fuels consumed, shown below, fluctuates with the mix of
fuel burned.
Fuel Consumed
(Cost Per Million Btu)
1995 1994 1993 1992 1991
Coal $1.51 $1.57 $1.60 $1.62 $1.61
Oil 2.64 2.96 2.90 2.73 2.96
Gas (a) 2.18 2.81 3.13 4.73 4.58
Nuclear (b) .49 .46 .40 .38 .62
All Fuels (c) 1.27 1.34 1.39 1.33 1.36
(a) Beginning in 1993, includes combustion turbines and Karn Unit 4.
(b) An increase in operating cycles from twelve to eighteen months
beginning in 1992 resulted in a significant reduction in nuclear fuel
costs.
(c) Weighted average fuel costs.
Under the Nuclear Waste Policy Act of 1982, the federal government is
responsible for the permanent disposal of spent nuclear fuel and high-
level radioactive waste beginning not later than 1998. To date, the DOE
has been unable to arrange for storage facilities to meet this obligation.
In 1995, two bills were introduced in Congress which clarify the DOE's
obligation to accept spent nuclear fuel. Both bills direct the DOE to
establish an integrated spent fuel management system that includes
designing and constructing an interim storage facility in the State of
Nevada by 1998. Big Rock has the capacity to accommodate normal spent
fuel discharge through the end of its operating license in 2000, with a
full core discharge reserve through 1996. Consumers' on-site storage pool
at Palisades is at capacity and Consumers is currently storing spent
nuclear fuel in an on-site dry cask storage facility. If the DOE fails to
accept delivery of spent nuclear fuel by the contractually established
dates, which for Big Rock and Palisades are 1999 and 2000, respectively,
Consumers expects to be able to store spent nuclear fuel in dry storage
casks at its nuclear plant sites until a long-term depository is
available. For a discussion relating to the NRC approval of dry storage
casks and Consumers' use of the casks, see Note 13 of the Notes to
Consumers' Consolidated Financial Statements. Consumers began shipping
its low-level radioactive waste to a site in South Carolina during 1995
and plans to have all its current low-level radioactive waste removed from
its nuclear plant sites by the end of 1996.
Consumers Gas Utility Operations
Consumers purchases, transports, stores and distributes gas and renders
gas service to approximately 1.5 million customers in 45 of the 68
counties in Michigan's Lower Peninsula. Principal cities served include
Bay City, Flint, Jackson, Kalamazoo, Lansing, Pontiac and Saginaw, as well
as the suburban Detroit area. It owns gas transmission and distribution
mains and other gas lines, compressor stations and facilities, storage
rights, wells and gathering facilities in several fields in Michigan.
Consumers and Michigan Gas Storage store gas during the warmer months of
the year for use in the colder months when demand is higher. Consumers'
gas operations are not dependent upon a single customer, or a few
customers, and the loss of any one of such customers would not have a
material adverse effect on its financial condition. See Item 2.
PROPERTIES.
Consumers' gas operations are seasonal to the extent that peak demand
occurs in winter due to colder temperatures. Consumers' consolidated gas
operating revenue was $1.2 billion in 1995, an increase of 3.8 percent
from 1994. The all-time record 24 hour send-out of natural gas for
Consumers on January 19, 1994 was 3,100,000 mcf, which Consumers considers
to be the peak-day transportation and distribution capacity of the system.
Deliveries of gas sold by Consumers, and from other sellers over
Consumers' pipeline and distribution network, to ultimate customers
including the MCV Partnership totaled 404 bcf in 1995. See Item 1.
BUSINESS. CONSUMERS CONSOLIDATED REVENUE AND SALES BY BUSINESS SEGMENT.
Consumers Gas Supply: In 1995, Consumers purchased approximately
87 percent of its required gas supply using long-term and short-term
contracts. The contract supply included 44 percent from United States
producers, 23 percent from Canadian producers and 20 percent from Michigan
producers. The remaining 13 percent of Consumers' 1995 gas supply
requirements were met by purchases on the spot market.
Consumers' firm transportation agreements are with Trunkline, Panhandle,
ANR Pipeline Company and Great Lakes Gas Transmission Company. These
agreements are utilized by Consumers to transport its required gas
supplies to market and to replenish its storage fields. In total,
Consumers' firm transportation arrangements will carry almost 90 percent
of Consumers' total gas supply requirements.
Consumers' portfolio of firm transportation from pipelines is as follows:
Volume (dekatherms/day) Expiration
------ -----------------
Trunkline 41,400 February 1997
336,375 October 2002
Panhandle 40,000 March 2000
25,000 March 2000
ANR Pipeline Company 40,000 October 1999
10,000 December 2001
6,000 December 2002
24,900 October 2003
58,765 October 2003
Great Lakes Gas
Transmission Company 84,000 March 2004
The balance of Consumers' required gas supply is transported on
interruptible contracts. The amount of interruptible capacity and the
utilization thereof is primarily a function of the price for such service
and the availability and price of the spot supplies to be purchased and
transported. Consumers' utilization of interruptible transportation is
generally in off-peak summer months and after its firm capacity has been
fully subscribed.
CMS Energy Oil and Gas Exploration and Production
CMS NOMECO is an oil and natural gas producer with activities in Michigan
and 12 other states, the Gulf of Mexico, Colombia, Congo, Ecuador,
Equatorial Guinea, Tunisia, Venezuela and Yemen. In 1995, it produced
approximately 4.5 MMbbls of oil, condensate and plant products and
approximately 26.3 bcf of gas compared to 2.2 MMbbls and 20.5 bcf in 1994.
During 1995, CMS NOMECO participated with a working interest in drilling
wells as follows:
<TABLE>
<S> <C> <C>
Number of
Type of Well Number of Wells Successful Wells Success Ratio
- ------------ --------------- ------------------ ---------------
Gross Net Gross Net Gross Net
----- ---- ----- ----- ----- -----
Exploratory 8 3.67 3 1.31 38% 36%
Development 27 4.20 26 3.92 96% 93%
-- ---- -- ----
Total 35 7.87 29 5.23 83% 66%
-- ---- -- ----
-- ---- -- ----
</TABLE>
The numbers do not include CMS NOMECO's participation in Devonian Antrim
Shale gas wells in Michigan, where CMS NOMECO drilled 120 wells (22 net)
during 1995 with a 98 percent success rate.
CMS NOMECO has a 14 percent working interest in a consortium which is
conducting oil development and production operations in Block 16 and the
adjoining Tivacuno Block of the Oriente Basin of Ecuador. Production
commenced from these Blocks in 1994. In 1995 the three fields were
producing at a pipeline-curtailed rate of 30,500 barrels per day compared
to total production capacity of 40,000 barrels per day. Further, in 1994
the Ministry of Energy and Mines in Ecuador informed the consortium
members that the Ministry will seek to renegotiate the Risk Service
Contract and other contracts governing the project. The negotiations
commenced in September 1995 and will likely continue for at least the next
several months and possibly beyond. CMS NOMECO cannot predict the outcome
of these negotiations. Ecuador currently represents approximately 13.2
percent of the total of CMS NOMECO's proved oil and gas reserves on an
equivalent barrel basis.
In February 1995, CMS NOMECO acquired Walter for approximately $49
million, consisting of approximately $27 million of CMS Energy Common
Stock and $22 million in both cash and assumed debt. CMS NOMECO's
acquisition of Walter added proved reserves of 20 MMbbls of oil.
In August 1995, CMS NOMECO acquired Terra for approximately $63 million of
CMS Energy Common Stock. By virtue of the acquisition, CMS NOMECO
acquired approximately 96 bcf of proved gas reserves. See Item 2.
PROPERTIES. CMS ENERGY OIL AND GAS EXPLORATION AND PRODUCTION PROPERTIES.
CMS Energy Independent Power Production
CMS Generation invests in, develops, converts, constructs, operates and
acquires non-utility power generation projects both domestically and
internationally. As of January 1996, CMS Generation had ownership
interests in 2,812 MW (gross) operating capacity in twenty-eight operating
power projects in Michigan, California, Connecticut, New York, Maine, New
Jersey, Oklahoma, North Carolina, Virginia, Argentina and the Philippines.
These power projects are powered by natural gas, wood waste, coal, oil,
water, tires and wind.
In April 1994, GPSLP, an unconsolidated affiliate of CMS Generation, began
construction of the Genesee Power Station, a 35 MW waste wood-fueled power
plant near Flint, Michigan, which continued during 1995. CMS Generation
has a 50 percent interest in GPSLP. Completion of this plant and
commercial operation occurred in the first quarter of 1996.
In January 1995, CMS Generation acquired HYDRA-CO for $153 million, net of
$54 million cash. CMS Generation acquired 224 MW of net generating
capacity and also assumed shared construction management responsibility
for a 60 MW diesel-fueled plant under construction in Jamaica, scheduled
to go in service in the fourth quarter of 1996.
In January 1995, the Moroccan government selected a consortium of CMS
Generation and an affiliate of Asea Brown Boveri 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, would include a thirty year concession agreement
to operate two 330 MW generating units already in service and to construct
and operate another two 330 MW units. The output of the plants will be
sold to the Moroccan national utility. The operations of the existing
facilities acquired are expected to partially finance the construction of
the two additional units.
In April 1995, CMS Generation sold substantially all of its interest in
the Argentine thermal electric generation plant, Centrales Termicas San
Nicolas.
In August 1995, CMS Generation and Empresa de Energia y Vapor reached an
agreement with YPF S.A., Argentina's largest oil company, to supply YPF
S.A. with electricity and steam from a 150 MW natural gas-fueled plant to
be built at YPF S.A.'s La Plata oil refinery in Buenos Aires Province,
Argentina. CMS Generation holds a 39 percent ownership interest in the
project and will serve as plant operator. Financing for the project is
expected to be complete in early 1996, with a two year construction period
to begin shortly thereafter.
During 1995, CMS Generation invested approximately $11 million in GVK
Industries, the developer of a 235 MW gas/naphtha fired plant under
construction in the state of Andhra Pradesh, India. CMS Generation has a
total equity commitment to the project of approximately $20 million
representing a 25 percent ownership interest. GVK Industries is
negotiating to sell all of its output to the state electric company under
a 30 year power purchase agreement and is expected to commence commercial
operations on its first unit in the second quarter of 1996, subject to
consummation of the power purchase agreement and financial closing.
CMS ENERGY GAS TRANSMISSION AND STORAGE, CMS GAS MARKETING AND CMS
ELECTRIC MARKETING
CMS Gas Marketing was formed in 1987 to arrange natural gas supplies for
large gas consumers throughout the Great Lakes, Midwest and Middle South
regions of the United States. CMS Gas Marketing currently has over 600
customers in 18 states with sales of 101 bcf in 1995. Customers include
industrial facilities, schools, hospitals, electric utilities and local
gas distribution companies.
CMS Gas Transmission, which commenced operations in 1989, owns, develops
and manages domestic and international natural gas transmission,
processing and storage projects.
In 1995, Enterprises formed CMS Electric Marketing to provide electric
supply marketing services to utilities, municipalities, and commercial and
industrial electricity users throughout North and South America.
In 1995, CMS Gas Transmission increased its ownership of the Antrim plant
carbon dioxide processing facilities, located in Otsego County, Michigan,
to 100 percent by acquiring the remaining 40 percent. Under a new
agreement with MichCon, CMS Gas Transmission will provide a gas treatment
service for up to 260 MMcf/d of Antrim gas. A 70 MMcf/d facility was
completed in January 1996.
In July 1995, CMS Gas Transmission acquired a 25 percent ownership
interest in TGN, an Argentine natural gas transporter, for $136 million.
TGN owns and operates 2,600 miles of pipelines that provide natural gas
transmission service to the northern and central parts of Argentina, with
almost one bcf per day of existing pipeline capacity.
In December 1995, CMS Gas Transmission successfully completed construction
of the $3 million, 3.1 mile Bluewater pipeline from an interconnection
with Consumers' natural gas transmission system to an interconnection with
an existing pipeline at the St. Clair River, south of Port Huron,
Michigan. The pipeline, which is capable of transporting up to 200 mcf of
natural gas per day, will provide significantly increased gas supply
flexibilities in the United States and Canada.
In January 1996, CMS Gas Transmission acquired an ownership interest in
Nitrotec Corporation which has two helium recovery plants under
construction, with the first plant scheduled to be in service the first
quarter of 1996. The total estimated capital cost of these two plants,
both located in Kansas, is $8.2 million. Additionally, one helium
recovery plant was placed in service in October 1995. Nitrotec
Corporation has also started construction on a $5.2 million nitrogen
rejection facility in Texas.
In January 1996, CMS Gas Transmission acquired Petal Gas Storage Company
and its related assets. Petal Gas Storage Company is a natural gas
storage facility located in Forrest County, Mississippi. Petal Gas
Storage Company's salt dome storage cavern provides up to 3.2 bcf per day
of ten-day storage service and has the capability of being refilled in
20 days.
<PAGE>
<PAGE>
CMS ENERGY CONSOLIDATED REVENUE AND SALES BY BUSINESS SEGMENT
Revenue For Years Ended December 31 In Millions
1995 1994 1993
Electric Utility Operations
Residential $ 809 $ 756 $ 718
Commercial 675 646 620
Industrial 687 672 635
Other 78 80 75
------ ----- -----
Total System Sales 2,249 2,154 2,048
Intersystem Sales 28 35 29
------ ----- -----
Total 2,277 2,189 2,077
----- ----- -----
Gas Utility Operations
Residential 821 791 803
Commercial 239 230 232
Industrial 59 57 55
Other 26 19 14
Transportation 50 54 56
----- ----- -----
Total 1,195 1,151 1,160
----- ----- -----
Oil and Gas Exploration and
Production Operations 108 78 71
----- ----- -----
Independent Power Production (a) 96 46 21
----- ----- -----
Gas Transmission and Marketing
Operations (b)
Marketing 171 129 130
Transmission 25 16 12
----- ----- -----
Total 196 145 142
----- ----- -----
Other Operations 18 5 5
----- ----- -----
Total $3,890 $3,614 $3,476
------ ------ ------
------ ------ ------
(a) Does not include CMS Energy's share of unconsolidated independent
power production revenues of $497 in 1995, $385 in 1994 and $334 in 1993.
(b) Does not include CMS Energy's share of unconsolidated natural gas
transmission, storage and marketing revenue of $26 in 1995, $7 in 1994 and
$3 in 1993.
<PAGE>
<PAGE>
SALES FOR YEARS ENDED DECEMBER 31
1995 1994 1993
------- ------ ------
Electric Utility Sales
(Millions of kWhs)
Residential 10,712 10,222 10,066
Commercial 9,649 9,174 8,909
Industrial 12,688 12,321 11,541
Other 1,351 1,285 1,142
------ ------ ------
Total System Sales 34,400 33,002 31,658
Intersystem Sales 1,106 1,460 1,106
------ ------ ------
Total 35,506 34,462 32,764
------ ------ ------
------ ------ ------
Gas Utility Sales and
Deliveries (bcf)
Residential 180 171 175
Commercial 58 55 56
Industrial 15 14 14
Transportation 151 169 166
------ ------ ------
Total 404 409 411
------ ------ ------
------ ------ ------
Oil & Gas Exploration and
Production Sales
(net equiv. MMbbls) 8.9 5.6 5.0
------ ------ ------
------ ------ ------
<PAGE>
<PAGE>
CONSUMERS CONSOLIDATED REVENUE AND SALES BY BUSINESS SEGMENT
Revenue For Years Ended December 31 In Millions
- ----------------------------------------------------------
1995 1994 1993
------ ------ ------
Electric Operations
Residential $ 809 $ 756 $ 718
Commercial 675 646 620
Industrial 687 672 635
Other 78 80 75
----- ----- -----
Total System Sales 2,249 2,154 2,048
Intersystem Sales 28 35 29
----- ----- -----
Total 2,277 2,189 2,077
----- ----- -----
Gas Operations
Residential 821 791 803
Commercial 239 230 232
Industrial 59 57 55
Other 26 19 14
Transportation 50 54 56
----- ----- -----
Total 1,195 1,151 1,160
----- ----- -----
Other Operations 39 16 6
----- ----- -----
Total $3,511 $3,356 $3,243
------ ------ ------
------ ------ ------
Sales For Years Ended December 31
- -------------------------------------------------------------
1995 1994 1993
------ ------ ------
Electric Sales (Millions of kWhs)
Residential 10,712 10,222 10,066
Commercial 9,649 9,174 8,909
Industrial 12,688 12,321 11,541
Other 1,351 1,285 1,142
------ ------ ------
Total System Sales 34,400 33,002 31,658
Intersystem Sales 1,106 1,460 1,106
------ ------ ------
Total 35,506 34,462 32,764
------ ------ ------
------ ------ ------
Gas Sales and Deliveries (bcf)
Residential 180 171 175
Commercial 58 55 56
Industrial 15 14 14
Transportation 151 169 166
------ ------ ------
Total 404 409 411
------ ------ ------
------ ------ ------
<PAGE>
<PAGE>
CMS ENERGY AND CONSUMERS REGULATION
CMS Energy, Consumers and their subsidiaries are subject to regulation by
various federal, state, local and foreign governmental agencies, including
those specifically described below.
Michigan Public Service Commission
Consumers is subject to the jurisdiction of the MPSC, which regulates
public utilities in Michigan with respect to retail utility rates,
accounting, services, certain facilities and various other matters. For
information about Consumers' significant pending MPSC matters, see Item 3.
LEGAL PROCEEDINGS. The MPSC also has or will have rate jurisdiction over
several limited partnerships in which CMS Gas Transmission has ownership
interests. These partnerships own or will own and operate intrastate gas
transmission pipelines. In December 1995, the State of Michigan repealed
the statutes granting MPSC jurisdiction over future public utility
securities issuances.
Nuclear Regulatory Commission
Under the Atomic Energy Act of 1954, as amended, and the Energy
Reorganization Act of 1974, Consumers is subject to the jurisdiction of
the NRC with respect to the design, construction and operation of its
nuclear power plants. Consumers is also subject to NRC jurisdiction with
respect to certain other uses of nuclear material. In April 1995,
Consumers received a Safety Evaluation Report from the NRC concurring with
a previous evaluation that the Palisades reactor vessel can be safely
operated through late 1999 and requesting submittal of an action plan to
provide for operation of the plant beyond 1999. The Safety Evaluation
Report and other matters relating to Palisades are more fully described
in Note 13 to Consumers' Consolidated Financial Statements.
Federal Energy Regulatory Commission
FERC has rate jurisdiction over twenty-seven independent power projects in
which CMS Generation has an ownership interest which are Qualifying
Facilities under PURPA. FERC also has jurisdiction over Michigan Gas
Storage as a natural gas company within the meaning of the Natural Gas
Act. The FERC jurisdiction relates, among other things, to the
acquisition, operation and disposal of assets and facilities and to
service provided and rates charged by Michigan Gas Storage. Under certain
circumstances, the FERC also has the power to modify gas tariffs of
interstate pipeline companies. Certain aspects of Consumers' gas business
are also subject to regulation by the FERC including a blanket
transportation tariff pursuant to which Consumers can transport gas in
interstate commerce.
Certain aspects of Consumers' electric operations are also subject to
regulation by the FERC, including compliance with the FERC's accounting
rules and other regulations applicable to "public utilities" and
"licensees", the transmission of electric energy in interstate commerce
and the rates and charges for the sale of electric energy at wholesale,
certain mergers, the sale of certain facilities, the construction,
operation and maintenance of hydroelectric projects and the issuance of
securities, as provided by the Federal Power Act.
Consumers has an effective open-access interconnection service schedule on
file with the FERC for wholesale wheeling transactions and another
wheeling tariff pending before the FERC. In March 1995, the FERC issued a
NOPR and a supplemental NOPR which include a proposed requirement for
open-access transmission services by utilities under standard terms and
conditions and procedures for recovery of stranded costs, which the FERC
proposes would be the reasonably anticipated lost revenues. For further
information about the open-access transmission tariffs, see ITEM 1.
BUSINESS. CONSUMERS AND CMS ENERGY COMPETITION - Electric Competition and
Item 3. LEGAL PROCEEDINGS.
CONSUMERS AND CMS ENERGY INSURANCE
Consumers maintains $500 million of primary property damage insurance from
NML at each of its operating nuclear plants, Big Rock and Palisades,
covering all risks of physical loss, subject to certain exclusions and
deductibles. Consumers is also insured by NEIL and obtains excess
property damage insurance in the amount of $2.0 billion for Palisades.
These nuclear property insurance policies cover decontamination, debris
removal and direct property loss. The NEIL excess property damage
policies for Palisades would also cover much of the cost arising from an
accidental premature decommissioning which was not already funded and part
of the remaining book value of the plant. For any loss over $100 million,
stabilization and decontamination expenses must be satisfied before other
claims proceeds are received from the insurers. Under all these policies,
Consumers retains the risk of loss to the extent the loss is within the
policy deductibles ($1 million for Palisades and $250,000 for Big Rock) or
policy exclusions or if the loss exceeds the combined property damage
policy limits ($2.5 billion for Palisades and $500 million for Big Rock)
at either location. Because NML and NEIL are mutual insurance companies,
Consumers would be subject to assessments under the NML and NEIL excess
property damage policies which could total approximately $27.5 million in
any one policy year in the event of covered losses at its own or any other
member's nuclear facility. Consumers has also procured NEIL I coverage
which would partially cover the cost of replacement power during certain
prolonged accidental outages of the Big Rock or Palisades units. Such
cost would not be covered by the insurance during the first 21 weeks of
any outage, but the major portion of such cost would be covered during the
next 12 months of the outage, followed by a reduced level of coverage for
a period up to two additional years. Consumers would be subject to a
maximum assessment under the replacement power insurance of approximately
$2.5 million in any one policy year in the event of covered losses at its
own or any other member's nuclear facility or facilities.
Consumers maintains nuclear liability insurance and other forms of
financial protection (including an agreement of government indemnity under
the Price-Anderson Act, applicable to the Big Rock) for injuries and off-
site property damage due to the nuclear hazard at such facilities. Such
insurance and financial protection covers Consumers up to the aggregate
limits of liability established by the Price-Anderson Act, which are
presently $544 million for Big Rock and approximately $8.9 billion for
Palisades. Part of such financial protection consists of a mandatory
industry-wide program under which owners of nuclear generating facilities
could be assessed in the event of a nuclear incident at any of such
facilities. Consumers would be subject to a maximum assessment of $79
million per occurrence in the event of a nuclear incident at certain
nuclear facilities, limited to a maximum installment payment of $10
million per occurrence in any year. Consumers also maintains insurance
under a master worker program that covers tort claims for bodily injury
caused by a nuclear hazard to workers who began their nuclear related
employment after January 1, 1988. The policies contain a $200 million
nuclear industry aggregate limit and could subject Consumers to a maximum
assessment of up to $6.4 million in the event of claims thereunder.
Property insurance is also maintained on CMS Energy's and Consumers' non-
nuclear facilities and operations. Conventional (non-nuclear) property
insurance is maintained on buildings, equipment, boilers, machinery and
gas stored underground. The applicable policies insure the full
replacement value of all major operating locations. However, the
insurance policies are subject to standard terms, conditions, exclusions
and coverage limits similar to those of other companies with similar
facilities and operations. Consumers maintains deductibles ranging from
$500,000 to $1 million on plant and facility losses. Certain CMS Energy
projects are specifically insured with lower deductibles. Consumers
insures its overhead electric transmission and distribution system for a
$25 million maximum loss limit subject to a $7.5 million deductible.
CMS Energy's and Consumers' non-nuclear public liability insurance
policies provide a $125 million policy limit, with a $500,000 deductible.
Other policies include $125 million of excess workers' compensation
insurance, subject to the $500,000 deductible; $125 million of fiduciary
and employee benefit liability insurance, subject to the $500,000
deductible; $10 million of crime insurance coverage subject to a $100,000
deductible; $50 million (offshore) and $20 million (onshore) of oil and
gas well blow-out insurance subject to a $250,000 deductible; and a
maximum of $225 million of aircraft insurance. Certain CMS Energy non-
utility projects maintain special insurance with lower deductibles.
CMS Energy and Consumers are not insured with regard to certain risks,
most notably for flood or earthquake damage to its underground gas and
electrical equipment, because it believes that these properties are not
subject to large earthquake and flood risks. Consumers has also not
obtained insurance for flood and earthquake property damage at its nuclear
plants because it believes that the protective systems built into these
plants and the low probability of an event of this type at the locations
of these plants makes such insurance unnecessary. In addition, Consumers'
current insurance coverages do not extend to certain environmental clean-
up costs, such as claims for air pollution, some past PCB contamination
and for some long-term storage or disposal of pollutants. See CONSUMERS
AND CMS ENERGY ENVIRONMENTAL COMPLIANCE section below.
Insurance policy terms, limits and conditions are subject to change during
the year as policies are renewed; however, CMS Energy and Consumers
believe that they and their subsidiaries are adequately insured for the
various risk exposures incidental to their respective businesses.
CONSUMERS AND CMS ENERGY ENVIRONMENTAL COMPLIANCE
Consumers and CMS Energy and their subsidiaries are subject to regulation
with regard to environmental quality, including air and water quality,
waste management, zoning and other matters, by various federal, state and
local authorities. Management believes that the responsible
administration of its energy resources includes reasonable programs for
the protection and enhancement of the environment.
Consumers has installed modern stack emission controls and monitoring
systems at its electric generating plants, converted electric generating
units to burn cleaner fuels, worked with others to use bottom ash as final
cover for ash disposal areas in place of topsoil and as a base for asphalt
in road shoulders, worked with local, state and national organizations on
waste minimization and pollution prevention initiatives to enhance certain
of Consumers' lands for the benefit of wildlife, provided recreational
access to its lands, worked with universities and other institutions on
projects to propagate threatened or endangered species, and made financial
contributions to a variety of environmental enhancement projects.
Capital expenditures by Consumers for environmental protection additions
were approximately $33 million in 1995 and are estimated to be
approximately $39 million in 1996.
Air use permits are required under federal and state law for certain of
Consumers' and CMS Generation's affiliates' sources of air emissions.
These laws require that certain affected facilities control their sources'
air emissions. Permits for Consumers' affected steam electric generating
facilities and other affected sources of air emissions have been issued by
the Michigan Air Pollution Control Commission, and more recently, the DEQ,
pursuant to a delegation of authority from the EPA under the Clean Air Act
and Michigan Air Pollution Act, as amended. Consumers believes that it is
in substantial compliance with all air use permits.
The Clean Air Act contains provisions that limit emissions of sulfur
dioxide and NOx and require 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. Beginning in 1995, certain coal-fueled generating units
receive emissions allowances (all of Consumers' coal units will receive
allowances beginning in the year 2000). Based on projected emissions from
these units, Consumers expects to have excess allowances which may be sold
or saved for future use.
The Clean Air Act's provisions 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 NOx regulations
specifying the limits applicable to the other coal-fired units are
expected to be issued in 1996. Management believes that Consumers' annual
operating costs will not be materially affected.
Consumers is a so-called "potentially responsible party" at several sites
being administered under Superfund. Superfund liability is joint and
several, and 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. On December 31, 1995,
Consumers 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 several of the 23 sites that formerly housed
manufactured gas plant facilities, even those in which it has a partial or
no current ownership interest. Such costs are estimated to be between $48
million and $112 million. There is limited knowledge of manufactured gas
plant contamination at these sites at this time, although Consumers
continues to investigate and study these sites. For further information
about manufactured gas plants, see Note 12 of the Notes to Consumers'
Consolidated Financial Statements.
Consumers has engaged in an aggressive testing and removal program for
USTs. Since 1985, Consumers and its subsidiaries have reduced the number
of regulated UST systems from approximately 256 to 45. At 109 of the
sites from which UST systems were removed, there had been hydrocarbon
releases, either from tank system leaks or from spillage on the surface
during transfer of contents to or from the tanks. Consumers' response
activities have resulted in DNR/DEQ concurrence in closure of 75 of those
releases. The remaining releases are at various stages of cleanup
completion. It is estimated that about $5 million remains to be spent to
complete these response activities. The Michigan Underground Storage Tank
Financial Assurance Act provides a fund to help pay for the cost of
response activities associated with leaking USTs. To qualify for these
funds, an owner or operator must be in compliance with UST regulations and
had to submit requests for reimbursement before June 29, 1995. Through
December 1995, Consumers was reimbursed approximately $2.7 million by this
state fund.
Like most electric utilities, Consumers has PCB in some of its electrical
equipment. Although it has been unlawful to manufacture or sell PCB or
PCB contaminated equipment since the 1970's, its continued use in
preexisting electrical equipment is lawful. Consumers has engaged in a
number of programs to reduce the risk of exposure to the environment from
possible PCB spills. These included such actions as a contingency program
of removing PCB capacitors outside of substations and replacing them with
non-PCB capacitors, draining large transformers and refilling them with
non-PCB mineral oil, removing PCB equipment which was found to pose a risk
to food supplies or animal feed, and other such programs. Consumers still
has a limited number of PCB capacitors in substations. It has
approximately 459,000 untested distribution transformers. By regulation,
unless the PCB level is known, transformers are presumed to be PCB-
contaminated. There may also be PCB in certain other types of equipment.
Based upon results of sampling in 1981, it is thought that about 1 percent
of the pole-top transformers had over 500 ppm of PCB, and about 12 percent
had from 50 to 500 ppm. Those percentages should decline over time with
the retirement of older equipment and its replacement with non-PCB
equipment. From time to time there are accidental releases from such
equipment. Consumers typically spends less than $1 million per year for
all cleanup and disposal of debris and equipment from PCB releases.
NPDES and ground water discharge permits authorize the discharge of
certain waste waters from Consumers' facilities and pipeline construction
projects pursuant to state water quality standards and federal effluent
limitation guidelines. Authorizations for discharges from all of
Consumers' major operating steam electric generating facilities and for
certain discharges from Consumers' other facilities, including Ludington
and pipeline construction projects, have been issued by the State of
Michigan pursuant to a delegation of authority from the EPA under the
Federal Water Pollution Control Act of 1972, as amended. Consumers
believes that it is in substantial compliance with the NPDES permits.
In early 1996, the FERC and MPSC approved a settlement agreement which
resolved two lawsuits filed by the Attorney General in 1986 and 1987
relating to injuries to fishery resources because of the operation of
Ludington. The MPSC also approved recovery of costs related to the
settlement agreement. The Michigan Water Resources Commission issued a
NPDES permit in early 1996, which was also a condition to the settlement
agreement. Approval of the settlement agreement requires Consumers to
transfer certain land to the State of Michigan and the Great Lakes Fishery
Trust (with an original cost of $9 million and a fair market value in
excess of $20 million), 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 will be made over the next 24 years to enhance the fishery
resources of the Great Lakes.
CONSUMERS AND CMS ENERGY COMPETITION
Electric Competition
The electric utility operations of Consumers are regulated at the
wholesale and retail level. The wholesale utility operations of Consumers
are regulated by the FERC while the retail utility operations are
regulated by the MPSC. Competitors in the electric utility operations of
Consumers must also be similarly regulated or specifically exempted from
such regulation. CMS Energy's non-utility electric generation businesses
are exempt from most state and many federal regulations regarding electric
generation and compete in the non-utility power market with other non-
utility energy companies that have similar exemptions.
The electric utility industry has experienced retail load competition in
recent years from cogeneration and self-generation as discussed below.
The electric utility industry is now also experiencing increased
competition in the wholesale power markets. The factors driving this
trend include the enactment of PURPA, the enactment of the Energy Act and
increased transmission access. These initiatives provide both
opportunities for Consumers in competing for new customers and potential
risks because of alternative energy supplies available to existing
customers. CMS Energy is similarly faced with expanded opportunities and
competition for customers in the non-utility electric generation market.
PURPA created a special class of independent power producers that,
providing the requirements of Qualifying Facility status are met, are
entitled by statute to have their production purchased by a utility.
Under PURPA, Qualifying Facilities are generally exempt from federal and
state rate regulation. Similar to PURPA, the Energy Act was designed,
among other things, to foster competition in the wholesale electric market
by facilitating the ownership and operation of generating facilities by
"exempt wholesale generators" (which may include independent power
producers as well as affiliates of electric utilities), by excluding them
from regulation under PUHCA and by authorizing the FERC under certain
conditions to order utilities that own transmission facilities to provide
wholesale transmission services to or for other utilities and other
entities generating electric energy for sale or resale. One effect of the
reduced regulation has been to encourage investment in wholesale power
production facilities that will compete with utilities to provide
generation to meet future system demand and provide competition for
CMS Energy in the domestic and foreign non-utility electric generation
markets.
Some of Consumers' larger industrial customers are exploring the
possibility of constructing and operating their own on-site generating
facilities. Consumers is actively working with these customers to develop
rate and service alternatives that are competitive with self-generation
options. In an effort to meet the challenge of competition, Consumers has
signed sales contracts with some of its largest industrial customers,
including its largest customer, General Motors. The sales contracts with
industrial customers are more fully described in Item 7. Consumers'
Managements' Discussion and Analysis. Under the retail rates authorized
by the MPSC, Consumers' industrial and commercial customer rates are
currently structured such that rates paid by residential customers are
kept at levels lower than they would otherwise be through subsidization by
the industrial and commercial customers. In February 1996, the MPSC
authorized Consumers to increase its retail electric rates by $46 million
and authorized a reduction in the cross-subsidization of residential rates
by the industrial and commercial customers taking service at primary
voltages in a two-step adjustment to take place during 1996.
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 have the ability to acquire energy from alternative sources.
Consumers subsequently filed a new, simplified proposal with the MPSC
which, if approved, would allow Consumers a certain level of rate-pricing
flexibility and allow the use of contract capacity from the MCV Facility
above the level currently authorized for recovery by the MPSC, to
respond to customers' alternative energy options. Consumers' proposal
for rate pricing flexibility for certain customers is addressed
in a proposed settlement agreement reached between Consumers and the MPSC
staff in September 1995 and is presently being reviewed by the MPSC. For
further information about the proposed settlement agreement, see Item 3.
LEGAL PROCEEDINGS.
In addition, a number of municipalities distribute electricity within
their corporate limits and some of these generate all or a portion of
their requirements. These municipalities and various rural electric
cooperative corporations serve a growing number of retail customers in the
same or adjacent areas served by Consumers. In one case, a community
currently served by Consumers is considering the formation of a new
municipal utility which could displace retail service by Consumers.
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 approved the
experimental retail wheeling program at the 60 MW level and set rates and
charges for retail delivery service under the experiment. Consumers and
other parties filed claims of appeal of this order. Consumers does not
expect this short-term experimental program to have a material impact on
its financial position or results of operations.
Consumers has on file with the FERC an open-access transmission tariff
which enables any electric utility (defined in such tariff to include
independent power producers) to use Consumers' integrated transmission
system for the transmission of energy produced and sold by such electric
utility or by third parties. Other similar open-access transmission
tariffs have been made effective by the FERC for several large utility
companies or systems and more open-access transmission tariffs are
anticipated. These developments produce increased marketing opportunities
for utility systems such as Consumers' and expose Consumers' system to
loss of wholesale load or reduced revenues due to possible displacement of
Consumers' wholesale transactions by alternative suppliers with access to
Consumers' primary areas of service. Because wholesale transactions by
Consumers generated less than 2 percent of Consumers' 1995 revenue from
electric operations, Consumers does not believe that this potential loss
is significant.
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. Consumers is unable to
predict what, if any, final rules may be issued by the FERC related to
this proposal; however, management believes that Consumers is well-
positioned to compete in an environment of open access as it has been
voluntarily providing this transmission service since 1992. FERC's final
rules are expected in early 1996.
The governor of the State of Michigan has proposed that the MPSC review
the existing statutory and regulatory framework governing Michigan
utilities in light of increasing competition in the utility industry and
has recommended appropriate revisions. At this time no proceedings have
been initiated at the MPSC on this matter and no new legislation has been
introduced.
Gas Competition
Competition has existed for several years for Consumers' gas operations
and comes primarily from alternate energy sources such as electricity and
alternate fuel sources. In the industrial market segment, customers have
traditionally used alternate fuels such as coal, oil and propane. In the
residential market segment, some customers use propane, fuel oil or
electricity for space heating and water heating; in Consumers' gas
territory, natural gas maintains 95.8 percent market share for residential
space heating and 88 percent for residential water heating. The Natural
Gas Policy Act of 1978 resulted in the deregulation of wellhead gas
prices, substituting supply and demand effects of the marketplace for
regulation. This effectively eliminated artificially-induced curtailments
of gas supply experienced earlier in the decade. Gas competition among
various wellhead suppliers subsequently increased. Order 636 effectively
unbundled the transportation of natural gas from the sale of natural gas
by interstate pipelines thereby requiring pipelines to become common
carriers. Consequently, pipelines must compete for shippers in search of
low priced capacity. Consumers offers unbundled services (transportation
and storage) to its larger end-use customers who choose to acquire gas
supplies from alternate sources. Since Consumers' earnings from its gas
operations are not dependent on gas purchased and resold to its customer
base, Consumers has not suffered any negative earnings impact as a result
of such competition, nor does it believe that any such impact is likely in
the future. The MPSC has initiated legislative-type hearings to
investigate the possibility of making natural gas transportation service
available to other customer segments.
CMS Energy's non-regulated gas subsidiaries face significant competition
from other gas pipeline companies, gas producers, gas storage companies,
and brokers/marketers.
EMPLOYEES
CMS Energy
As of March 1, 1996, CMS Energy and its subsidiaries had 9,898 full-time
employees and 115 part-time equivalent employees for a total of 10,013
employees.
Consumers
As of March 1, 1996, Consumers and its subsidiaries had 9,134 full-time
employees and 107 part-time equivalent employees for a total of 9,241
employees. This total includes 4,139 full-time operating, maintenance and
construction employees of Consumers who are represented by the Union. A
collective bargaining agreement was negotiated between Consumers and the
Union which became effective as of June 1, 1995 and, by its terms, will
continue in full force and effect until June 1, 2000. EXECUTIVE OFFICERS
As of March 1, 1996
<PAGE>
<PAGE>
<TABLE>
CMS Energy
<S> <C> <C>
Name Age Position Period
---- --- -------- ------
William T. McCormick, Jr. 51 Chairman of the Board and Chief Executive Officer
of CMS Energy 1987-Present
Chairman of the Board of Consumers 1992-Present
Chairman of the Board of Enterprises 1995-Present
Chairman of the Board and Chief Executive Officer
of Enterprises 1988-1995
Chairman of the Board and Chief Executive Officer
of Consumers 1985-1992
Victor J. Fryling 48 President and Chief Operating Officer
of CMS Energy 1996-Present
Vice Chairman of the Board of Consumers 1992-Present
President and Chief Executive Officer
of Enterprises 1995-Present
President of CMS Energy 1992-1995
President of Enterprises 1993-1995
President and Chief Financial Officer of
Enterprises 1992-1993
Executive Vice President and Chief Financial
Officer of CMS Energy and Consumers 1988-1992
Michael G. Morris 49 Executive Vice President of CMS Energy 1996-Present
President and Chief Executive Officer of Consumers 1994-Present
Executive Vice President and Chief Operating
Officer of Consumers 1992-1994
Executive Vice President of Consumers 1988-1992
John W. Clark 51 Senior Vice President of CMS Energy 1987-Present
Senior Vice President of Consumers 1985-Present
Alan M. Wright 50 Senior Vice President, Chief Financial Officer
and Treasurer of CMS Energy 1994-Present
Senior Vice President and Chief Financial Officer
of Consumers 1993-Present
Senior Vice President and Chief Financial Officer
and Treasurer of Enterprises 1994-Present
Senior Vice President and Chief Financial Officer
of CMS Energy 1992-1994
Senior Vice President and Chief Financial Officer
of Enterprises 1993-1994
Senior Vice President, Chief Financial Officer and
Treasurer of Consumers 1992-1993
Vice President and Treasurer of Consumers 1991-1992
Name Age Position Period
James W. Cook 55 Senior Vice President of CMS Energy 1995-Present
Senior Vice President of Enterprises 1994-Present
Executive Vice President of Enterprises 1989-1994
President and Chief Executive Officer
of CMS Generation 1989-1995
Rodger A. Kershner 47 Senior Vice President and General Counsel
of CMS Energy 1996-Present
Vice President and General Counsel of Enterprises 1989-Present
Deputy General Counsel and Assistant Secretary
of CMS Energy 1994-1995
Assistant General Counsel and Assistant
Secretary of CMS Energy 1989-1994
General Counsel of Enterprises 1989-1989
Preston D. Hopper 45 Senior Vice President, Controller and Chief
Accounting Officer of CMS Energy 1996-Present
Vice President, Controller and Chief Accounting
Officer of CMS Energy 1992-1996
Vice President and Controller of Enterprises 1992-Present
Vice President and Controller of CMS Energy 1991-1992
Vice President and Controller of ANR Pipeline Co. 1983-1991
David A. Mikelonis* 47 Senior Vice President and General Counsel of
Consumers 1988-Present
</TABLE>
* In May 1993 the Board of Directors designated the Senior Officers of
CMS Energy, its Controller, the President of Enterprises, the President of
Consumers and the General Counsel of Consumers as Executive Officers of
CMS Energy for purposes of the Securities Exchange Act of 1934.
The present term of office of each of the officers extends to the first
meeting of CMS Energy's Board of Directors after the next annual election
of Directors (scheduled to be held May 24, 1996).
There are no family relationships among executive officers and directors
of CMS Energy.
<TABLE>
Consumers
<S> <C> <C>
Name Age Position Period
---- --- -------- ------
William T. McCormick, Jr. 51 See the information under CMS Energy's Officers
Section above.
Victor J. Fryling 48 See the information under CMS Energy's Officers
Section above.
Michael G. Morris 49 See the information under CMS Energy's Officers
Section above.
Paul A. Elbert 46 Executive Vice President and Chief Operating
Officer - Gas of Consumers 1994-Present
Senior Vice President of Consumers 1991-1994
Vice President of Consumers 1988-1991
David W. Joos 42 Executive Vice President and Chief Operating
Officer - Electric of Consumers 1994-Present
Senior Vice President of Consumers 1994-1994
Vice President of Consumers 1990-1994
John W. Clark 51 See the information under CMS Energy's Officers
Section above.
David A. Mikelonis 47 See the information under CMS Energy's Officers
Section above.
Alan M. Wright 50 See the information under CMS Energy's Officers
Section above.
Dennis DaPra** 53 Vice President and Controller of Consumers 1991-Present
Director of Financial and Regulatory Reporting of
Consumers 1984-1991
</TABLE>
** In May 1993, Consumers' Board of Directors designated the Senior
Officers of Consumers and its Controller as Executive Officers of
Consumers for purposes of the Securities Exchange Act of 1934.
The present term of office of each of the officers extends to the first
meeting of Consumers' Board of Directors after the next annual election of
Directors (scheduled to be held May 24, 1996).
There are no family relationships among executive officers and directors
of Consumers.
<PAGE>
(This page intentionally left blank)
<PAGE>
<PAGE> 31
ITEM 2. PROPERTIES.
CHARACTER OF OWNERSHIP
The principal properties of CMS Energy and its subsidiaries are owned in
fee, except that most electric lines and gas mains are located, pursuant
to easements and other rights, in public roads or on land owned by others.
The statements under this item as to ownership of properties are made
without regard to tax and assessment liens, judgments, easements, rights
of way, contracts, reservations, exceptions, conditions, immaterial liens
and encumbrances, and other outstanding rights. None of these outstanding
rights impairs the usefulness of such properties.
Substantially all of Consumers' properties are subject to the lien of its
First Mortgage Bond Indenture. Substantially all properties of the
subsidiaries of CMS Generation that own interests in operating plants are
subject to liens of creditors of the respective subsidiaries. Properties
of certain CMS Gas Transmission subsidiaries are also subject to liens of
creditors of the respective subsidiaries.
CONSUMERS ELECTRIC UTILITY PROPERTIES
Consumers' electric generating system consists of five fossil-fueled
plants, two nuclear plants, one pumped storage hydroelectric facility,
seven gas combustion turbine plants and 13 hydroelectric plants.
<PAGE>
<PAGE> 32
<TABLE>
<CAPTION>
1995 Summer Net 1995 Net
Demonstrated Generation
Name and Location Size and Year Capability (Thousands
(Michigan) Entering Service (Kilowatts) of kWhs)
<S> <C> <C> <C>
Coal Generation
J H Campbell - West Olive 3 Units, 1962-1980 1,346,100 (a) 6,888,444
D E Karn - Essexville 2 Units, 1959-1961 515,000 3,100,008
B C Cobb - Muskegon 2 Units, 1956-1957 296,000 1,984,753
J R Whiting - Erie 3 Units, 1952-1953 310,000 2,004,675
J C Weadock - Essexville 2 Units, 1955-1958 310,000 1,978,526
--------- -----------
Total 2,777,100 15,956,406
--------- -----------
Oil/Gas Generation
D E Karn - Essexville 2 Units, 1975-1977 1,276,000 534,004
--------- -----------
Ludington Pumped Storage 6 Units, 1973 954,700 (b) (373,229) (c)
--------- -----------
Nuclear Generation
Palisades - South Haven 1 Unit, 1971 762,000 4,837,252
Big Rock Point -
Charlevoix 1 Unit, 1962 67,000 515,652
--------- -----------
Total 829,000 5,352,904
--------- -----------
Gas/Oil Combustion Turbine
Generation 7 Plants, 1966-1971 345,000 21,978
--------- -----------
Hydro Generation 13 Plants, 1907-1949 73,800 419,845
--------- -----------
Total Owned Generation 6,255,600 21,911,908
===========
Plus Purchased and Inter-
change Power Capacity 1,555,200 (d)
---------
Total 7,810,800
=========
<FN>
(a) Represents Consumers' share of the capacity of the Campbell Plant Unit 3, net of 6.69 percent (ownership
interests of the Michigan Public Power Agency and Wolverine Power Supply Cooperative, Inc.).
(b) Represents Consumers' share of the capacity of Ludington. Consumers and Detroit Edison have 51 percent and 49
percent undivided ownership, respectively, in the plant, and the capacity of the plant is shared accordingly.
(c) Represents Consumers' share of net pumped storage generation. This facility electrically pumps water during
off-peak hours for storage to later generate electricity during peak-demand hours.
(d) Includes 1,240 MW of purchased contract capacity from the MCV Facility.
</TABLE>
<PAGE>
<PAGE> 33
Consumers' electric transmission and distribution lines owned and in
service are as follows:
Structure Sub-Surface
(Miles) (Miles)
Transmission
345,000 volt 1,137 -
138,000 volt 3,265 4
120,000 volt 20 -
46,000 volt 4,095 9
23,000 volt 30 7
------ -----
Total transmission 8,547 20
Distribution
(2,400-24,900 volt) 51,341 5,276
------ -----
Total transmission and
distribution 59,888 5,296
====== =====
Consumers owns substations having an aggregate transformer capacity of
37,847,720 kilovoltamperes.
CONSUMERS GAS UTILITY PROPERTIES
Consumers' gas distribution and transmission system consists of
21,690 miles of distribution mains and 1,078 miles of transmission lines
throughout the Lower Peninsula of Michigan. Consumers owns and operates
six compressor stations with a total of 130,170 installed horsepower.
Consumers' gas storage fields, listed below, have an aggregate certified
storage capacity of 242.2 bcf:
Total Certified
Field Name Location Storage Capacity (bcf)
Overisel Allegan and Ottawa Counties 64.0
Salem Allegan and Ottawa Counties 35.0
Ira St Clair County 7.5
Lenox Macomb County 3.5
Ray Macomb County 66.0
Northville Oakland, Washtenaw and
Wayne Counties 25.8
Puttygut St Clair County 16.6
Four Corners St Clair County 3.8
Swan Creek St Clair County .6
Hessen St Clair County 18.0
Lyon - 34 Oakland County 1.4
<PAGE>
<PAGE> 34
Michigan Gas Storage owns and operates two compressor stations with a
total of 46,600 installed horsepower. Its transmission system consists of
548 miles of pipelines within the Lower Peninsula of Michigan.
Michigan Gas Storage's gas storage fields, listed below, have an aggregate
certified storage capacity of 117 bcf:
Total Certified
Field Name Location Storage Capacity (bcf)
Winterfield Osceola and Clare Counties 75.0
Cranberry Lake Clare and Missaukee Counties 30.0
Riverside Missaukee County 12.0
Consumers' gas properties also include the Marysville gas reforming plant,
located in Marysville, Michigan. Huron and PanCanadian Petroleum Company
are partners in a partnership to use the expanded capacity of the
underground caverns at the Marysville plant for commercial storage of
liquid hydrocarbons. In addition, Consumers and PanCanadian Petroleum
Company are partners in a partnership to use certain hydrocarbon
fractionation facilities at the plant.
CMS ENERGY OIL AND GAS EXPLORATION AND PRODUCTION PROPERTIES
Net oil and gas production by CMS NOMECO for the years 1993 through 1995
is shown in the following table.
Thousands of barrels of oil
and millions of cubic feet
of gas, except for reserves
1995 1994 1993
Oil and condensate (a) 4,267 2,025 1,716
Natural gas (a) 26,348 20,546 18,487
Plant products (a) 226 193 186
Average daily production (b)
Oil 16.1 7.1 5.6
Gas 84.9 69.3 62.3
Reserves to annual production ratio
Oil (MMbbls) 14.9 26.1 19.1
Gas (bcf) 10.8 11.3 10.9
(a) Revenue interest to CMS NOMECO
(b) CMS NOMECO working interest (includes CMS NOMECO's share of royalties)
<PAGE>
<PAGE> 35
The following table shows CMS NOMECO's estimated proved reserves of oil
and gas for the years 1993 through 1995.
<TABLE>
<CAPTION>
Total Worldwide United States International
Oil Gas Oil Gas Oil Gas
(MMbbls) (bcf) (MMbbls) (bcf) (MMbbls) (bcf)
Proved Developed and
Undeveloped Reserves
<S> <C> <C> <C> <C> <C> <C>
December 31, 1992 36.1 208.5 4.7 201.1 31.4 7.4
Revisions and other changes 0.4 7.2 (0.4) 7.1 0.8 0.1
Extensions and discoveries 0.1 2.9 0.1 2.9 - -
Acquisitions of reserves - 1.7 - 1.7 - -
Production (1.9) (18.5) (1.0) (18.2) (0.9) (0.3)
----- ------ ----- ------ ----- ------
December 31, 1993 34.7 201.8 3.4 194.6 31.3 7.2
Revisions and other changes (1.3) (9.7) (0.3) (9.4) (1.0) (0.3)
Extensions and discoveries 0.4 50.2 0.4 50.2 - -
Acquisitions of reserves 20.2 9.4 - 9.4 20.2 -
Production (2.1) (20.5) (0.8) (20.3) (1.3) (0.2)
----- ------ ----- ------ ----- ------
December 31, 1994 51.9 231.2 2.7 224.5 49.2 6.7
Revisions and other changes (4.1) (23.8) (0.1) (22.9) (4.0) (0.9)
Extensions and discoveries - 13.3 - 2.6 - 10.7
Acquisitions of reserves 20.0 96.2 - 96.2 20.0 -
Sales of reserves (2.4) (6.7) - (1.0) (2.4) (5.7)
Production (4.3) (26.3) (0.7) (26.2) (3.6) (0.1)
----- ------ ----- ------ ----- ------
December 31, 1995 61.1 283.9 1.9 273.2 59.2 10.7
===== ====== ===== ====== ===== ======
Proved Developed Reserves
December 31, 1992 31.7 205.0 4.5 198.8 27.2 6.2
December 31, 1993 31.2 200.0 3.3 193.4 27.9 6.6
December 31, 1994 37.4 211.7 2.5 205.9 34.9 5.8
December 31, 1995 32.7 254.2 1.8 254.2 30.9 -
Equity Interest in Proved
Reserves of Pecten Yemen
December 31, 1993 1.5 - - - 1.5 -
December 31, 1994 2.9 - - - 2.9 -
December 31, 1995 2.8 - - - 2.8 -
</TABLE>
The following table shows CMS NOMECO's undeveloped net acres of oil and
gas leasehold interests at December 31.
Net Acres
1995 1994
Michigan 143,243 85,372
Louisiana (a) 17,408 30,418
North Dakota 15,586 5,099
Texas (a) 11,458 7,823
Indiana 7,014 2,518
Ohio 4,494 2,201
Other states 4,335 1,908
--------- ---------
Total Domestic 203,538 135,339
--------- ---------
Yemen 401,897 401,897
Venezuela 230,175 234,002
Equatorial Guinea 113,947 47,330
Tunisia 67,891 -
Ecuador 66,430 69,160
Colombia 42,571 85,217
Congo 17,981 -
Papua New Guinea - 63,220
New Zealand - 602
--------- ---------
Total International 940,892 901,428
--------- ---------
Total 1,144,430 1,036,767
========= =========
(a) Includes offshore acreage.
CONSUMERS OTHER PROPERTIES
CMS Midland owns a 49 percent interest in the MCV Partnership which was
formed to construct and operate the MCV Facility. The MCV Facility has
been sold to five owner trusts and leased back to the MCV Partnership.
CMS Holdings is a limited partner in the FMLP, which is a beneficiary of
one of these trusts. CMS Holdings' indirect beneficial interest in the
MCV Facility is 35 percent.
Consumers owns fee title to 1,140 acres of land in the City and Township
of Midland, Midland County, Michigan, occupied by the MCV Facility. The
land is leased to the owners of the MCV Facility by five separate leases,
each leasing an undivided interest and in the aggregate totaling 100
percent, for an initial term ending December 31, 2035 with possible
renewal terms to June 15, 2090.
Consumers owns or leases three principal General Office buildings in
Jackson, Michigan and 55 field offices at various locations in Michigan's
Lower Peninsula. Of these, two General Office buildings and eleven field
offices are leased. Also owned are miscellaneous parcels of real estate
not now used in utility operations.
CMS ENERGY OTHER PROPERTIES
The following table shows CMS Generation's interests in independent power
plants at December 31, 1995.
Location Ownership Capacity
Interest (%) (MW)
Wood Fueled
Chateaugay, New York 50.0 20
Grayling Township, Michigan 50.0 39
Imperial Valley, California 48.0 15
Lyonsdale, New York 50.0 19
New Bern, North Carolina 50.0 45
Stratton, Maine 30.0 40
Susanville, California 50.0 36
Fossil Fueled
Cebu Island, Philippines (two plants) 32.5 135
Filer City, Michigan 50.0 60
Lakewood, New Jersey 45.0 236
Little Falls, New York 50.0 4
Mendoza Province, Argentina 51.0 422
Oklahoma City, Oklahoma 8.8 110
Solvay, New York 37.5 80
Tire Fueled
Sterling, Connecticut 50.0 31
Hydro Generation
Benton, Maine 50.0 4
Canton, New York 50.0 8
Copenhagen, New York 50.0 3
Corinth, New York 12.5 58
Limay River, Argentina (two plants) 17.2 1,320
Little Falls, New York 1.0 13
Lyons Falls, New York 50.0 3
Petersburg, Virginia 55.5 3
Port Leyden, New York 12.5 6
Wind Generation
Altamont Pass, California 22.7 30
Montezuma, California 8.5 72
During the year, CMS Generation sold substantially all of its 18.6 percent
interest in a consortium which owns an 88 percent interest in a 650 MW
fossil-fueled plant in San Nicolas, Argentina; and its 50 percent interest
in a 5 MW hydroelectric power plant in Bath, New York.
CMS Gas Transmission owns a 75 percent interest in a general partnership
which owns and operates a 25-mile, 16-inch natural gas transmission
pipeline in Jackson and Ingham Counties, Michigan; owns a 24 percent
limited partnership interest in the Saginaw Bay Area Limited Partnership
which owns 125 miles of 10-inch and 16-inch natural gas transmission
pipeline in north-central Michigan; owns a 44 percent limited partnership
interest in a partnership that owns certain pipelines of 20 and 12 miles
interconnected to the Saginaw Bay Area Limited Partnership facilities;
owns natural gas treating plants in Otsego County, Michigan; owns 41 miles
of gas transmission pipeline in Otsego and Montmorency Counties, Michigan;
and owns a 25 percent general partnership interest in TGN, which owns and
operates 2,600 miles of pipelines that provide natural gas transmission
service to the northern and central parts of Argentina.
In late 1995, CMS Gas Transmission completed construction and commenced
operations of the Bluewater Pipeline, a 3.1 mile pipeline from an
interconnection with Consumers natural gas transmission system to an
interconnection with an existing pipeline at the St. Clair River, south of
Port Huron, Michigan.
CMS Gas Transmission is currently developing the Grands Lacs Market
Center. Located in southeastern Michigan, this site was selected as a
North American natural gas market center which will provide natural gas
storage services, peaking storage, wheeling, parking and other related
natural gas services to both buyers and sellers.
In January 1996, CMS Gas Transmission acquired Petal Gas Storage Company,
a natural gas storage facility located in Forrest County, Mississippi.
The salt dome storage cavern provides up to 3.2 bcf per day of ten day
storage service and has the capability of being refilled in 20 days.
Through an ownership interest in Nitrotec Corporation, a proprietary gas
technology company acquired in January 1996, CMS Gas Transmission
currently has two helium recovery plants under construction in Kansas.
One helium recovery plant was placed in service in October 1995.
CMS Energy, through certain subsidiaries, owns a 50 percent interest in
Bay Harbor Limited Liability Company, a resort development in Emmet
County, Michigan, owns 6,000 acres of undeveloped land in Benzie and
Manistee Counties, Michigan, and owns 53 acres of undeveloped land in
Muskegon County, Michigan.
CONSUMERS CAPITAL EXPENDITURES
Capital expenditures during 1995 for Consumers and its subsidiaries
totaled $445 million for capital additions and $9 million for DSM
programs. These capital additions include $33 million for environmental
protection additions and $31 million for capital leases of nuclear fuel
and other assets. Of the $445 million, $320 million was incurred for
electric utility additions and $125 million for gas utility additions.
The electric and gas utility additions include an attributed portion of
capital expenditures common to both businesses.
In 1996, capital expenditures are estimated to be $428 million for capital
additions and $7 million for DSM programs. These capital addition
estimates include $39 million related to environmental protection
additions and $44 million related to capital leases of nuclear fuel and
other assets. Of the $428 million, $304 million will be incurred for
electric utility additions and $124 million for gas utility additions.
The estimated electric and gas utility additions include an attributed
portion of anticipated capital expenditures common to both businesses.
CMS ENERGY CAPITAL EXPENDITURES
Capital expenditures during 1995 for CMS Energy and its subsidiaries
totaled $1.0 billion for capital additions and $9 million for DSM
programs. These capital additions include $33 million for environmental
protection additions and $31 million for capital leases of nuclear fuel
and other assets. Of the $1.0 billion, $445 million was incurred by
Consumers as discussed above. The remaining $599 million in capital
additions include $168 million for oil and gas exploration and
development, $239 million for independent power production, $178 million
for natural gas transmission, storage and marketing and $14 million for
other capital expenditures.
In 1996, capital expenditures are estimated to be $849 million for capital
additions and $7 million for DSM programs. This capital addition estimate
includes $39 million related to environmental protection additions and $44
million related to capital leases of nuclear fuel and other assets. Of
the $849 million, $428 million will be incurred by Consumers as discussed
above. The remaining $421 million in capital additions will be incurred
as follows: $120 million for oil and gas exploration and development,
$189 million for independent power production, and $112 million for
natural gas transmission, storage and marketing.
<PAGE>
<PAGE>
ITEM 3. LEGAL PROCEEDINGS.
Consumers and some of its subsidiaries and affiliates are parties to
certain routine lawsuits and administrative proceedings incidental to
their businesses involving, for example, claims for personal injury and
property damage, contractual matters, income taxes, and rates and
licensing. Reference is made to the Notes to the Consolidated Financial
Statements included herein for additional information regarding various
pending administrative and judicial proceedings involving rate, operating
and environmental matters.
The Attorney General, ABATE, and the MPSC staff typically intervene in
MPSC proceedings concerning Consumers. Unless otherwise noted below,
these parties have intervened in such proceedings. For many years, almost
every significant MPSC order affecting Consumers has been appealed.
Appeals from such MPSC orders are pending in the Michigan Court of Appeals
and the Michigan Supreme Court. Consumers is vigorously pursuing these
matters. Under Michigan civil procedure, parties may file a claim of
appeal with the Michigan Court of Appeals which serves as a notice of
appeal. The grounds on which the appeal is being made are not finally set
forth until a later date when the parties file their briefs.
RATE CASE PROCEEDINGS
Appeal of MPSC Orders Related to the Abandoned Midland Nuclear Plant
Investment
In November 1983, Consumers filed an electric rate case with the MPSC
which sought recovery of its investment in the abandoned portion of the
Midland nuclear plant. This case was separated into two phases in
September 1984: a financial stabilization phase, MPSC Case No. U-7830,
Step 3A, and a prudence phase, MPSC Case No. U-7830, Step 3B. Numerous
orders were issued in these cases, including one issued in 1985 in the
financial stabilization phase which contained certain conditions to
Consumers' receiving financial stabilization rate relief.
On May 7, 1991, the MPSC issued final orders in both Step 3A and Step 3B
proceedings. In Step 3B, the MPSC ruled, among other things, that
Consumers could recover approximately $760 million of its $2.1 billion of
abandoned Midland investment. In Step 3A, the MPSC reviewed Consumers'
compliance with the financial stabilization order conditions. Consumers,
as well as the Attorney General and ABATE, among others, filed
applications for rehearing with the MPSC of the May 7 Orders in Step 3A
and Step 3B which were all denied by the MPSC. Several parties, including
Consumers, appealed the MPSC determinations in these orders to the Court
of Appeals. Regarding the Step 3B order, the Attorney General and ABATE
primarily disagreed with the standard used by the MPSC to determine the
amount of investment that is recoverable by Consumers from its electric
customers, contending that recovery should not be allowed for utility
assets that have not been placed in service. Consumers disagreed with the
date the MPSC determined it would have been prudent for Consumers to
abandon construction of the Midland nuclear facility and the reduction in
recoverable investment that resulted from this determination. In the
Step 3A appeal, the Attorney General and ABATE contended that Consumers
did not fully comply with the financial stabilization orders. In separate
decisions, the Court of Appeals has affirmed the MPSC determinations in
Step 3A and Step 3B. ABATE, the Attorney General and Consumers filed
applications for leave to appeal the Court of Appeals decision in Step 3B
with the Michigan Supreme Court. In October 1995, the Michigan Supreme
Court denied all applications for leave to appeal the Court of Appeals'
decision relating to the Step 3B order. In May 1995, ABATE filed an
application with the Michigan Supreme Court for leave to appeal the Court
of Appeals' affirmation of the MPSC's determinations in Step 3A.
1993 ELECTRIC RATE CASE
On May 10, 1994, the MPSC issued a final order in this case which
increased annual electric revenues by $58 million, or about 2.8 percent,
and approved an allowed rate of return on common equity of 11.75 percent.
The rate increase is effective for service rendered on and after May 11,
1994. In August 1994, the MPSC denied petitions for rehearing filed by
Consumers and the Attorney General. The Attorney General has appealed the
MPSC order to the Court of Appeals arguing that the MPSC cannot require
Consumers to spend money on DSM programs and that a modified interruptible
rate authorized by the MPSC is unlawful because it permits Consumers to
negotiate rates, for certain customers, within a specified range.
1994 ELECTRIC RATE PROCEEDINGS
In November 1994, Consumers filed a request with the MPSC which could have
increased 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 325 MW of MCV Facility contract
capacity above 915 MW. The request included 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. The filing addressed the ratemaking effect of jurisdictional sales
losses by assuming adoption of a proposed special nonjurisdictional rate
to large, qualifying industrial customers as requested by Consumers in an
earlier June 1994 filing with the MPSC. An alternative approach presented
would use the MCV Facility contract capacity above 915 MW for
jurisdictional electric customers and offer discounted jurisdictional
tariffs. Consumers had also requested that the MPSC eliminate the rate
subsidization of residential rates in a two-step adjustment. In addition,
Consumers proposed to eliminate all DSM expenditures after April 1995 and
further requested MPSC approval to recover costs associated with the
proposed settlement of the proceedings concerning the operation of
Ludington. During this case, the MPSC issued an order stating that the
remaining 325 MW of MCV Facility capacity will be considered only as part
of a competitive capacity solicitation, and not as part of the electric
rate case. In November 1995, the MPSC granted Consumers' petition for
rehearing of this order, and the issue is pending in the settlement
discussed below.
In September 1995, Consumers and the MPSC staff reached a proposed
settlement agreement that, if approved by the MPSC, would resolve several
outstanding regulatory issues currently before the MPSC in three separate
proceedings, one of which was the 1994 electric rate case. In mid-
September, the MPSC issued an order creating a consolidated proceeding to
consider the proposed settlement agreement. Hearings on the proposed
settlement agreement are continuing. Approval of the proposed settlement
agreement could: provide for cost recovery of the remaining 325 MW of
contract capacity from the MCV Facility; result in recovery of Consumers'
regulatory assets related to power purchase agreements which have been
terminated; introduce provisions for incentive ratemaking; resolve the
pending special competitive services and depreciation rate cases;
implement a limited direct access program under which it would be possible
for Consumers to deliver power from qualified third party power suppliers
to qualified retail customers; enable Consumers to negotiate rates for
certain large industrial customers; and accelerate recovery of nuclear
plant investment. The MPSC issued a partial order in the electric rate
case, as described below, and under the current schedule, the MPSC should
decide the remaining issues by mid-1996. Consumers cannot predict whether
the entire settlement will be approved by the MPSC.
On February 5, 1996, the MPSC issued a partial final order in the electric
rate case. In that order, the MPSC authorized Consumers to increase its
electric retail rates and charges by approximately $46 million; authorized
a return on common equity of 12.25 percent; reduced the subsidization of
residential customers by industrial and large commercial customers taking
service at primary voltage in a two-step process, which will increase
residential rates by 3.9 percent for services rendered on and after
February 6, 1996 and increase residential rates by another 3.9 percent for
services rendered on and after December 1, 1996; and approved the
Ludington settlement and the recovery of costs related to the Ludington
settlement.
REQUEST FOR APPROVAL OF A COMPETITIVE TARIFF FOR CERTAIN INDUSTRIAL
CUSTOMERS
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 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 the use of the MCV Facility contract capacity above the level
currently authorized by the MPSC to respond to customers' alternative
energy options. Some of the intervenors in this proceeding filed motions
to dismiss this case contesting the MPSC's jurisdiction to authorize the
type of rates proposed. 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. All parties have filed briefs and reply briefs in
this proceeding. See 1994 Electric Rate Proceedings, for information
concerning a proposed settlement agreement relating to this case,
including treatment of the remaining 325 MW of MCV Facility contract
capacity addressed in this case.
1994 GAS RATE CASE FILING
Consumers filed a general gas rate case in December 1994. Consumers'
final position in this case requested an increase in its gas rates of $6.7
million annually and a 12.25 percent return on equity. Consumers' request
incorporated, among other things, cost increases, including costs for
postretirement benefits and costs related to the investigation and
remediation of Consumers' former manufactured gas plant sites.
The MPSC issued a final order in this case in March 1996. In this order
the MPSC reduced Consumers' general gas rates by $11.7 million annually,
based on a return on common equity of 11.6 percent. Consumers was
authorized to recover the gas utility portion of its postretirement
benefit costs over a period of 16 years. The order also authorized
Consumers to defer environmental cleanup costs relating to its former
manufactured gas plant sites for amortization over a ten-year period
beginning with the year following incurrence. Rate recognition of
amortization expense will not begin until after a prudence review in a
general rate case. The prudence review will include consideration of
Consumers' attempts to minimize it's exposure and obtain reimbursement
from third parties. In this rate order, the MPSC authorized Consumers
current recovery of approximately $1 million a year, based upon an
historical five-year average of such environmental clean up expenses.
Carrying costs will be earned on balances included in rate base at the
authorized pre-tax rate of return.
MCV - RELATED PROCEEDINGS
In March 1993, the MPSC approved, with modifications, a contested
settlement agreement among Consumers, the MPSC staff and 10 independent
cogenerators which resolved certain regulatory issues and allowed
Consumers to recover from electric customers a substantial portion of the
cost of 915 MW of contract capacity from the MCV Facility. After their
requests for rehearing were denied by the MPSC, ABATE and the Attorney
General appealed the orders approving the settlement to the Court of
Appeals. Briefs have been filed and oral argument held before the Court
of Appeals where the appeals await decision. In the meantime, the MPSC
has been implementing the settlement in PSCR plan and reconciliation cases
for 1993, 1994 and subsequent years. However, various parties
dissatisfied with such implementation, including Consumers, have appealed
the MPSC orders in these cases. In February 1996, the Court of Appeals
affirmed the MPSC's order in the 1993 PSCR plan case which implemented the
Settlement Order based upon projected data for 1993. Consumers had not
appealed that implementation order, but ABATE had. The other appeals
remain pending before the Court of Appeals at various stages of the
appellate process.
CMS ENERGY'S EXEMPTION UNDER PUHCA
CMS Energy is exempt from registration under PUHCA. In December 1991, the
Attorney General and the MMCG filed a request with the SEC for the
revocation of CMS Energy's exemption. In January 1992, CMS Energy
responded to the revocation request affirming its position that it is
entitled to the exemption. In April 1992, the MPSC filed a statement with
the SEC that recommended that the SEC impose certain conditions on
CMS Energy's exemption. CMS Energy is vigorously contesting the
revocation request and believes it will maintain the exemption. There has
been no action taken by the SEC on this matter.
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) repeal PUHCA, without condition; or 3)
amend PUHCA to give the SEC broader exemptive authority. The SEC staff
supported option 1 because it would achieve the benefits of unconditional
repeal, while preserving the ability of states to protect consumers. In
October 1995, a bill was introduced in the U. S. Senate to transfer
oversight of public utility holding companies from the SEC to FERC.
LUDINGTON PUMPED STORAGE PLANT
In October 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
definitive settlement documents were thereafter filed with the appropriate
Michigan Courts and State and federal agencies. On January 23, 1996, the
FERC approved the settlement agreement. On February 5, 1996, the MPSC
approved the settlement agreement and the recovery of costs associated
with the settlement agreement. The settlement allows for the continued
operation of the plant through the end of its FERC license and requires
Consumers and Detroit Edison to continue using a seasonal barrier net as
well as monitoring new technology which may further reduce fish loss at
the plant. It requires Consumers to develop and improve recreational
areas and convey undeveloped land to the State of Michigan and the Great
Lakes Fishery Trust (with an original cost of $9 million and a fair market
value in excess of $20 million), 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 settlement resolves
two lawsuits filed by the Attorney General in 1986 and 1987 on behalf of
the State of Michigan in the Circuit Court of Ingham County which sought
damages from Consumers and Detroit Edison for injuries to fishery
resources because of the operation of the Ludington plant and the
revocation of the plant's bottom-lands lease.
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. Claimants contend that
stray voltage affects farm animal behavior, reducing the productivity of
their livestock operations. Investigation by Consumers of prior stray
voltage complaints disclosed that many factors, including improper wiring
and malfunctioning of on-farm equipment can lead to the stray voltage
phenomenon. Consumers maintains a policy of investigating all customer
calls regarding stray voltage and working with customers to address their
concerns including, when necessary, modifying the configuration of the
customer's hook-up to Consumers' system. On October 27, 1993, a complaint
seeking certification as a class action suit was filed against Consumers
in a local circuit court. The complaint alleged that in excess of a
billion dollars of damages, primarily related to lost production by
certain livestock owned by the purported class, were being incurred as a
result of stray voltage from electricity being supplied by Consumers.
Consumers believed the allegations to be without merit and vigorously
opposed the certification of the class and this suit. On March 11, 1994,
the court decided to deny class certification for this complaint and to
dismiss, subject to refiling as separate suits, the October lawsuit with
respect to all but one of the named plaintiffs. On April 4, 1994, the
plaintiffs appealed the court's denial of class certification in this
matter to the Court of Appeals. The Court of Appeals on its own motion
issued an order which decided that since the lead case in the class action
suit had not been dismissed, the trial court's decision to deny class
certification was an interlocutory order and therefore not ripe for
appeal. The Court of Appeals order also found that the trial court's
decision that the other named plaintiffs had been misjoined was final and
ripe for appeal. This issue had not been raised in the plaintiffs' appeal
or brief. Consumers and plaintiffs have now addressed both issues in
their briefs filed with the Court of Appeals. This matter is pending
before the Court of Appeals. A number of individuals who would have been
part of the class action have refiled their claims as separate lawsuits.
On February 14, 1996, Consumers had 33 separate stray voltage cases
pending for trial, down from 83 pending at year-end 1994.
RETAIL WHEELING PROCEEDINGS
In April 1994, the MPSC issued an Opinion and Interim Order which approved
the framework for a five-year experimental retail wheeling program for
Consumers and Detroit Edison, and remanded the case to the ALJ to
determine appropriate rates and charges. The MPSC stated that the purpose
of the experiment is to gather and evaluate information regarding whether
retail wheeling is in the public interest and should occur on a permanent
basis. The experimental program will commence with each utility's next
solicitation of additional supply side resources. In June 1995, the MPSC
issued an order that set rates and charges for retail delivery service
under the experiment. In September 1995, the MPSC denied Consumers' and
ABATE's petitions for rehearing of this order. Consumers, ABATE and Dow
have filed claims of appeal of the MPSC's order with the Court of Appeals,
joining Detroit Edison and the Attorney General who had previously
appealed. The Court of Appeals subsequently consolidated the appellate
cases of these parties.
WHOLESALE WHEELING PROCEEDINGS
Consumers has an approved open-access interconnection service schedule on
file with the FERC for wholesale wheeling transactions. In 1992,
Consumers also filed a separate but complementary open-access transmission
tariff that would make both firm and non-firm transmission service
available to eligible power generators, including investor-owned
utilities, facilities that meet the ownership and technical requirements
under PURPA, independent power producers, and municipal and cooperative
utilities. The FERC accepted the filing, effective May 2, 1992, subject
to refund, and ordered a hearing before an ALJ. In September 1993, the
ALJ issued an initial decision that would compel reductions of the tariff
rates ranging from 25 percent to 65 percent. On November 1, 1993,
Consumers filed exceptions with the FERC, which are still pending, seeking
reversal of the rate reductions proposed in the ALJ's initial decision.
As of January 1, 1996, the amount of firm transmission service currently
subject to the tariff is 29 MW. For discussion of a notice of rulemaking
by the FERC relating to changes in the wholesale electric industry, see
Item 1. BUSINESS. CONSUMERS AND CMS ENERGY COMPETITION - Electric
Competition.
HIGHLAND TOWNSHIP FRANCHISE PROCEEDING
MichCon obtained a revocable franchise in 1956 to provide natural gas
service to Highland Township, Michigan. In 1962, Consumers secured an
irrevocable 30 year franchise to provide natural gas service to Highland
Township. Neither franchise was exclusive. Although MichCon's franchise
for service in Highland Township expired in 1986 and was not renewed,
MichCon continued service to customers in Highland Township. Consumers
secured a revocable renewal franchise for Highland Township in 1992.
Thereafter, in 1992, Consumers filed suit to enjoin MichCon from expanding
its gas service to new customers in Highland Township. The Circuit Court
of Oakland County, Michigan denied MichCon's motion for summary
disposition and granted Consumers' petition for an injunction. MichCon
subsequently transferred its remaining rights and interest in Highland
Township to Consumers, ceased doing business there and appealed the
Circuit Court decision with the Court of Appeals. In August 1995, the
Court of Appeals refused to decide the issue addressed by the Circuit
Court (namely whether MichCon, as a holdover utility without any
franchise, could continue to lawfully do business in a township) because
the Court of Appeals concluded that Consumers' 1992 revocable renewal
franchise was invalid since it was not confirmed by a vote of the Highland
Township electorate as the Court determined was required by the Public
Utility Franchise Act. Prior to this decision, the commonly held
interpretation of the Public Utility Franchise Act was that a vote of the
electorate was only required for irrevocable franchises, not revocable
franchises such as that held by Consumers in this case. The Michigan
Court of Appeals reversed the Circuit Court decision and remanded the case
to the Circuit Court for entry of summary disposition in MichCon's favor -
- - even though the only franchise MichCon had ever possessed was revocable,
and thus under the Court of Appeals' decision, invalid. Although the
Court of Appeals specifically stated in its opinion that continuing to
provide utility service without a valid franchise was not necessarily
unlawful, Consumers currently has over 800 revocable franchises which
could be affected should the Court of Appeals order remain in place.
Consumers' motion for reconsideration and for a stay of the Court of
Appeals' decision was denied. In December 1995, Consumers filed an
application with the Michigan Supreme Court for leave to appeal the Court
of Appeals' decision.
INTRASTATE GAS SUPPLIER CONTRACT PRICING DISPUTE
On October 25, 1995, the MPSC issued an opinion and order in a proceeding
that had been initiated by Consumers regarding a gas contract pricing
dispute under three gas supply contracts. The MPSC found that a pricing
mechanism like the one at issue, that operates within definite ceiling and
floor prices, is a definite pricing provision within the meaning of the
state statutes and was properly implemented to reduce gas prices without
the prior approval of the MPSC. The producers subsequently filed a claim
of appeal of the MPSC order with the Court of Appeals.
Prior to the issuance of the MPSC's order, the intrastate gas producers
involved in this MPSC proceeding filed a complaint against Consumers in
Kent County Circuit Court alleging breach of contract. On Consumers'
motion, the court dismissed the lawsuit. The gas suppliers subsequently
filed a petition for rehearing with the court where the matter is still
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, who then filed an appeal with the Court of Appeals. In
June 1995, the Court of Appeals affirmed the MPSC's decision and North
Michigan's motion for reconsideration was denied in August 1995. In
September 1995, North Michigan filed an application with the Michigan
Supreme Court for leave to appeal the Court of Appeals' order.
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 dismissals
of the Grand Traverse County Circuit Court suit and the Jackson County
Circuit Court suit have been appealed by the producers to the Court of
Appeals.
ENVIRONMENTAL MATTERS
Consumers is subject to various federal, state and local laws and
regulations relating to the environment. Consumers has been named as a
party to several actions involving environmental issues. However, based
on its present knowledge and subject to future legal and factual
developments, CMS Energy and Consumers believe that it is unlikely that
these actions, individually or in total, will have a material adverse
effect on their financial condition. See Item 1. BUSINESS. CONSUMERS AND
CMS ENERGY ENVIRONMENTAL COMPLIANCE.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS.
CMS ENERGY
None in the fourth quarter of 1995 for CMS Energy.
CONSUMERS
None in the fourth quarter of 1995 for Consumers.
<PAGE>
<PAGE> 47
PART II
ITEM 5. MARKET FOR CMS ENERGY'S AND CONSUMERS' COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS.
CMS Energy
Market prices for CMS Energy's common stock and related security holder
matters are contained herein in Item 8, CMS Energy's Quarterly Financial
and Common Stock Information, which is incorporated by reference herein.
Number of common shareholders at February 29, 1996 was 89,167.
Consumers
Consumers' common stock is privately held by its parent, CMS Energy, and
does not trade in the public market. In May 1995, Consumers paid $70
million in cash dividends on its common stock.
ITEM 6. SELECTED FINANCIAL DATA.
CMS Energy
Selected financial information is contained in Item 8, CMS Energy's
Selected Financial Information which is incorporated by reference herein.
Consumers
Selected financial information is contained in Item 8, Consumers' Selected
Financial Information which is incorporated by reference herein.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
CMS Energy
Management's discussion and analysis of financial condition and results of
operations is contained in Item 8, CMS Energy's Management's Discussion
and Analysis which is incorporated by reference herein.
Consumers
Management's discussion and analysis of financial condition and results of
operations is contained in Item 8, Consumers' Management's Discussion and
Analysis which is incorporated by reference herein.
<PAGE>
<PAGE> 48
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Index to Financial Statements:
CMS Energy Page
Selected Financial Information 51
Management's Discussion and Analysis 53
Consolidated Statements of Income 64
Consolidated Statements of Cash Flows 65
Consolidated Balance Sheets 66
Consolidated Statements of Preferred Stock 68
Consolidated Statements of Common Stockholders' Equity 69
Notes to Consolidated Financial Statements 70
Report of Independent Public Accountants 94
Quarterly Financial and Common Stock Information 95
Consumers Page
Selected Financial Information 98
Management's Discussion and Analysis 99
Consolidated Statements of Income 108
Consolidated Statements of Cash Flows 109
Consolidated Balance Sheets 110
Consolidated Statements of Long-Term Debt 112
Consolidated Statements of Preferred Stock 113
Consolidated Statements of Common Stockholder's Equity 114
Notes to Consolidated Financial Statements 115
Report of Independent Public Accountants 136
Quarterly Financial Information 137
<PAGE>
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(This page intentionally left blank)
<PAGE>
<PAGE> 50
CMS Energy Corporation
1995 Financial Statements
<PAGE>
<PAGE> 51
<TABLE>
Selected Financial Information CMS Energy Corporation
<CAPTION>
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C>
Operating revenue (in millions) (a) ($) 3,890 3,614 3,476 3,142 2,994
Net income (loss) (in millions) (b) ($) 204 179 155 (297) (276)
Average common shares outstanding
(in thousands)
CMS Energy 88,810 85,888 81,251 79,877 79,988
Class G 7,511 - - - -
Earnings (loss) per average
common share (b)
CMS Energy ($) 2.27 2.09 1.90 (3.72) (3.44)
Class G ($) .38 - - - -
Cash from operations (in millions) ($) 682 612 484 456 530
Capital expenditures, excludes
capital lease additions and
DSM (in millions) ($) 535 575 550 487 353
Total assets (in millions) (a) ($) 8,143 7,378 6,958 6,842 6,194
Long-term debt, excluding current
maturities (in millions) ($) 2,906 2,709 2,405 2,725 1,941
Non-current portion of capital
leases (in millions) ($) 106 108 115 98 68
Total preferred stock (in millions) ($) 356 356 163 163 163
Cash dividends declared per
common share
CMS Energy ($) .90 .78 .60 .48 .48
Class G ($) .56 - - - -
Market price of common stock
at year-end
CMS Energy ($) 29-7/8 22-7/8 25-1/8 18-3/8 18-3/8
Class G ($) 18-7/8 - - - -
Book value per common share at
year-end
CMS Energy ($) 15.16 12.78 11.33 9.09 13.28
Class G ($) 10.56 - - - -
Return on average common equity (%) 15.9 17.3 18.3 (33.2) (22.4)
Return on assets (%) 5.1 4.7 4.5 (2.3) (0.6)
Number of common shareholders
at year-end 59,983 63,628 66,795 70,801 72,729
Number of employees at year-end
(full time equivalents) 10,072 9,972 10,013 9,971 9,212
Electric utility statistics
Sales (millions of kWh) 35,506 34,462 32,764 31,601 31,813
Customers (in thousands) 1,570 1,547 1,526 1,506 1,492
Average sales rate per kWh (cents) 6.36 6.29 6.28 5.82 5.73
</TABLE>
<PAGE>
<PAGE> 52
<TABLE>
Selected Financial Information (Continued) CMS Energy Corporation
<CAPTION>
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C>
Gas utility statistics
Sales and transportation
deliveries (bcf) 404 409 411 384 362
Customers (in thousands) (c) 1,475 1,448 1,423 1,402 1,382
Average sales rate per mcf ($) 4.42 4.48 4.46 4.55 4.58
Electric and gas non-utility statistics
CMS Energy's share of unconsolidated
independent power production
revenue (in millions) ($) 497 385 334 284 246
Independent power production
sales (millions of kWh) 7,449 6,216 5,019 4,057 3,342
CMS Energy's share of unconsolidated
natural gas transmission, storage
and marketing revenue (in millions) ($) 26 7 3 4 4
Gas marketed for end-users (bcf) 101 66 60 45 23
Exploration and production statistics
Sales (net equiv. MMbbls) 8.9 5.6 5.0 4.6 4.0
Proved reserves (net equiv. MMbbls) 111.2 93.3 69.8 70.9 60.3
Proved reserves added (net equiv.
MMbbls) 26.8 29.0 3.9 15.0 16.0
Finding cost per net equiv. bbl ($) 5.06 5.92 4.97 4.88 6.58
<FN>
(a) Certain prior year amounts were restated for comparative purposes.
(b) Amount in 1991 included an extraordinary loss of $14 million, after tax or $.18 per average
common share.
(c) Excludes off-system transportation customers.
</TABLE>
<PAGE>
<PAGE> 53
CMS Energy Corporation
Management's Discussion and Analysis
CMS Energy is the parent holding company of Consumers and Enterprises.
Consumers, a combination electric and gas utility company serving 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 segment of which is the
automotive industry. Enterprises is engaged in several domestic and
international energy-related businesses, including oil and gas exploration
and production, development and operation of independent power production
facilities, electric and gas marketing services to utility, commercial and
industrial customers, and storage and transmission of natural gas.
Consolidated Earnings
Consolidated net income for 1995 totaled $204 million comprised of $201
million of net income attributable to CMS Energy Common Stock or $2.27 per
share compared to net income of $179 million or $2.09 per share in 1994
and net income of $155 million or $1.90 per share in 1993. Net income
attributable to Class G Common Stock totaled $3 million or $.38 per share
in 1995. The improved net income for 1995 reflects increased utility
electric sales and utility gas deliveries, increased electric utility
revenue as a result of the May 1994 rate increase, reversal of losses
previously recorded for gas utility contingencies (see Note 4), improved
operating results from Consumers' interest in the MCV Facility, and the
continuing growth of the international businesses. For further
information, see the Electric and Gas Utility Results of Operations
sections and the individual international results of operations sections.
The increased 1994 net income over the 1993 period reflects a significant
increase in utility electric sales, the impact of the 1994 electric rate
increase, recognition of incentive revenue related to DSM programs, the
favorable resolution of a previously recorded gas cost contingency, and
the growth of international businesses.
Cash Position, Financing and Investing
CMS Energy's primary ongoing source of operating cash is dividends from
its subsidiaries. In 1995, CMS Energy received a $70 million dividend
from Consumers compared to $176 million in 1994. This decrease represents
Consumers temporarily suspending its common dividends to CMS Energy in
lieu of CMS Energy making a direct equity infusion of cash into Consumers.
In 1996, Consumers plans to resume common stock dividend payments to
CMS Energy.
CMS Energy's consolidated cash from operations is derived mainly from
Consumers' sale and transportation of natural gas, its generation,
transmission, and sale of electricity and CMS NOMECO's sale of oil and
natural gas. Consolidated cash from operations during 1995 increased $70
million from the 1994 level primarily from higher sales of electricity and
gas, lower gas inventories, timing of cash payments related to its utility
operations, CMS NOMECO's increased sale of oil and natural gas and the
growth of the international businesses partially offset by Consumers'
higher power purchases from the MCV Partnership. CMS Energy primarily
uses this operating cash to expand its international businesses, maintain
its electric and gas utility systems, retire portions of its long-term
securities and pay dividends.
Financing Activities: Net cash provided by financing activities in 1995
increased $163 million from 1994, primarily reflecting the issuance of
Class G Common Stock and increased long-term debt. Net cash provided by
financing activities in 1994 increased by $214 million primarily
reflecting the issuance of Consumers preferred stock.
In January 1994, CMS Energy filed a shelf-registration statement with the
SEC for the issuance and sale of up to $250 million of GTNs. As of
December 31, 1995, CMS Energy had issued approximately $221 million of
GTNs with a weighted average interest rate of 7.7 percent.
In the third quarter 1995, CMS Energy received net proceeds of
approximately $123 million from the issuance of 7.52 million shares of
Class G Common Stock at a price to the public of $17.75 per share,
initially representing 23.50 percent of the common stockholder's equity
value attributed to the Consumers Gas Group. All of the proceeds from this
sale will fund the capital programs and be 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 was attributable to the Consumers Gas Group. In 1995, CMS Energy
issued approximately $90 million of CMS Energy Common Stock in conjunction
with the acquisitions of Terra and Walter.
In January 1995, CMS Generation entered into a one-year $118 million
bridge credit facility for the acquisition of HYDRA-CO of which
approximately $109 million remained outstanding as of December 31, 1995.
In January 1996, CMS Generation refinanced the bridge credit facility into
a $110 million, five-year term loan.
During 1995, CMS Energy paid $80 million in cash dividends to holders of
CMS Energy Common Stock compared to $67 million in 1994. The $13 million
increase reflects an annual increase of $.12 per share to $.96 per share,
commencing third quarter 1995. CMS Energy also paid $4 million in cash
dividends to holders of Class G Common Stock. Dividends on preferred
stock increased to $28 million in 1995, reflecting Consumers' issuance of
additional preferred stock in 1994.
In October 1995, CMS NOMECO filed a registration statement with the SEC
for an initial public offering of not more than 20 percent of CMS NOMECO
common stock. CMS Energy will continue to evaluate market conditions for
a possible future offering of CMS NOMECO common stock.
In November 1995, CMS Energy amended the terms of its $400 million
Unsecured Credit Facility, increased the amount to $450 million and
extended the termination date to June 30, 1998. CMS Energy also entered
into a $125 million, seven-year Term Loan Agreement. As of December 31,
1995, $118 million and $125 million remains outstanding for the Unsecured
Credit Facility and Term Loan Agreement, respectively.
Investing Activities: Net cash used in investing activities in 1995
increased $307 million from 1994, primarily reflecting the acquisitions of
TGN and HYDRA-CO. Capital expenditures, including assets placed under
capital lease (see Note 17), deferred DSM costs, investment in
international subsidiaries and common stock issued for acquisitions
totaled $1,053 million in 1995 as compared to $672 million in 1994 and
$768 in 1993. Capital expenditures for 1995 include approximately $200
million for acquisitions which commenced in 1994 but did not close until
1995. CMS Energy's expenditures for its utility, independent power
production, oil and gas exploration and production, and gas transmission
and marketing business segments were $454 million, $239 million, $168
million and $178 million, respectively.
Financing and Investing Outlook: CMS Energy estimates that capital
expenditures, including new lease commitments, and investments in
partnerships and unconsolidated subsidiaries, will total approximately
$2.4 billion over the next three years.
In Millions
Years Ended December 31 1996 1997 1998
- ----------------------- ---- ---- ----
Electric utility $311 $285 $295
Gas utility 124 110 105
Oil and gas exploration and production 120 135 150
Independent power production 189 175 150
Natural gas transmission, storage and marketing 112 70 50
---- ---- ----
$856 $775 $750
===== ===== =====
CMS Energy is required to redeem or retire approximately $1,266 million of
long-term debt over the three-year period ending December 1998. Cash
provided by operating activities is expected to satisfy a substantial
portion of these capital expenditures and debt retirements. In January
1996, Consumers issued and sold 4 million shares of Trust Originated
Preferred Securities with net proceeds totaling $96 million (see Note 8).
CMS Energy will continue to evaluate the capital markets in 1996 as a
source of financing its subsidiaries' investing activities and required
debt retirements.
Consumers has several available, unsecured, committed lines of credit
totaling $145 million and a $425 million working capital facility.
Consumers has FERC authorization to issue or guarantee up to $900 million
in short-term debt through December 31, 1996. Consumers uses short-term
borrowings to finance working capital and gas in storage, 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 December 31, 1995 and 1994, receivables sold totaled
$295 million and $275 million, respectively.
Electric Utility Results of Operations
Pretax Operating Income
Change Compared to Prior Year
In Millions
1995/1994 1994/1993
--------- ---------
Sales $ 59 $ 33
Rate increase and other regulatory issues 9 38
O&M, general taxes and depreciation (38) (25)
---- ----
Total change $ 30 $ 46
==== ====
Electric Sales: Total electric sales in 1995 were a record 35.5 billion
kWh, a 3.0 percent increase from the 1994 level as a result of economic
growth and warmer summer temperatures. The increase in total electric
sales included a 4.2 percent increase in sales to Consumers' ultimate
customers, with fairly consistent increases in the residential,
commercial, and industrial sectors. The increase was partially offset by
a decrease in certain sales to other utilities.
Total electric sales in 1994 were 34.5 billion kWh, a 5.2 percent increase
from the 1993 level, which included a 4.2 percent increase in system sales
to Consumers' ultimate customers.
Power Costs: Power costs for 1995 totaled $970 million, a $20 million
increase from the corresponding 1994 period, primarily reflecting
increased purchased power costs due to higher sales levels. Power costs
for 1994 totaled $950 million, a $42 million increase as compared to 1993
which reflects increased kWh production at Consumers' generating plants
and greater power purchases from outside sources to meet increased sales
demand.
Operating Expenses: Electric operation and maintenance expense for 1995
compared to 1994 increased $13 million, which included $9 million of
additional postretirement benefit costs and increased expenditures to
improve electric system reliability. Electric depreciation for 1995
compared to 1994 increased $15 million, reflecting additional property and
equipment. Electric general taxes increased $11 million in 1995 compared
to 1994, reflecting millage rate increases and additional capital
investments in property and equipment.
Electric Utility Issues
Power Purchases from the MCV Partnership: Consumers' annual obligation to
purchase contract capacity from the MCV Partnership increased 108 MW in
1995 to 1,240 MW. In 1993, the MPSC issued the Settlement Order that have
allowed Consumers to recover substantially all payments for 915 MW of
contract capacity purchased from the MCV Partnership. ABATE and the
Attorney General have appealed the Settlement Order to the Court of
Appeals. 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. As anticipated in 1992,
Consumers continues to experience cash underrecoveries associated with the
Settlement Order. These after-tax cash underrecoveries totaled $90
million, $61 million and $59 million in 1995, 1994 and 1993, respectively.
Estimated future after-tax cash underrecoveries, and possible losses for
1996 and the next four years are shown in the table below.
After-tax, In Millions
1996 1997 1998 1999 2000
---- ---- ---- ---- ----
Estimated cash underrecoveries $56 $55 $ 8 $ 9 $ 7
Possible additional under-
recoveries and losses (a) $20 $22 $72 $72 $74
(a) If unable to sell any capacity above the MPSC's 1993 authorized level.
In September 1995, Consumers and the MPSC staff reached a proposed
settlement agreement that would potentially resolve several issues in
three pending proceedings, including cost recovery for the 325 MW of MCV
Facility capacity above the MPSC's currently authorized level. For
further information regarding the settlement, see Note 4.
In 1994 and 1995, Consumers terminated power purchase agreements with the
developers of a proposed 65 MW coal-fired cogeneration facility and a
proposed 44 MW wood and chipped-tire plant. To replace this capacity,
109 MW of less expensive contract capacity from the MCV Facility which
Consumers is currently not authorized to recover from retail customers
would be used. For further information, see Note 4.
Electric Rate Proceedings: Consumers filed a request with the MPSC in
late 1994 to increase its retail electric rates. In early 1996, the MPSC
granted Consumers authority to increase its annual electric retail rates
by $46 million. This partial final order did not address cost recovery
related to the 325 MW of MCV Facility contract capacity above 915 MW. The
MPSC stated that this matter would be addressed in connection with its
consideration of the proposed settlement agreement discussed below.
In September 1995, Consumers and the MPSC staff reached a proposed
settlement agreement that, if approved by the MPSC, would resolve several
outstanding regulatory issues. One of these issues, Consumers' electric
rate case, was addressed, in part, by the order discussed above. If fully
adopted, the settlement agreement would resolve Consumers' depreciation
and special competitive service cases (discussed below) and cost recovery
of 325 MW of uncommitted MCV Facility capacity. Consumers expects a final
order in the spring of 1996. For more information regarding the electric
rate order and the settlement, see Note 4.
In 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. The MPSC
staff's filing in this case did not support Consumers' requested increase
in depreciation expense, but instead proposed a decrease of $24 million.
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. In September 1995, the ALJ issued a
proposal for decision that essentially supported the MPSC staff's position
regarding depreciation expense and recommended that the MPSC reject both
Consumers' and the MPSC staff's positions regarding the reallocation of
Consumers' depreciation reserve and plant investment. This case is
currently part of the proposed settlement discussed above.
Special Rates: Consumers currently has a request before the MPSC that,
if approved, would allow Consumers a certain level of rate-pricing
flexibility to respond to customers' alternative energy options. This
request has been consolidated into the settlement proceeding discussed
above.
Electric Conservation Efforts: In June 1995, the MPSC issued an order
that authorized Consumers to discontinue future DSM program expenditures
and cease all new programs. For further information, see Note 4.
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 Michigan 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 are
properly recoverable 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, liquidity or results of
operations. For further information regarding electric environmental
matters, see Note 14.
Electric Outlook
Competition: Consumers currently expects approximately 2 percent average
annual growth in electric system sales over the next five years.
Consumers continues to be affected by the developing competitive market
for electricity. The primary sources of 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. Consumers continues to work toward retaining its current
retail service customers.
In an effort to meet the challenge of competition, Consumers has signed
long-term sales contracts with some of its largest industrial customers,
including its largest customer, General Motors Corporation. Under the
General Motors contract, Consumers will serve certain facilities at least
five years and other facilities at least 10 years in exchange for
competitively discounted electric rates. Certain facilities will have the
option of taking retail wheeling service (if available) after the first
three years of the contract. The MPSC approved this contract in 1995.
As part of an order issued in early 1996, the MPSC significantly reduced
the rate subsidization of residential customers by industrial and large
commercial customers. In addition to offering electric rates that are
competitive with other energy providers, Consumers is pursuing other
strategies to retain its "at-risk" customers. These strategies include:
minimizing outages for each customer, promptly responding to customer
inquiries, and providing consulting services to help customers use energy
efficiently.
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, ABATE and Dow filed claims of appeal of the MPSC's retail
wheeling orders. The Court of Appeals subsequently consolidated these
appeals with those previously filed by Detroit Edison and the Attorney
General. Consumers does not expect this short-term experiment to have a
material impact on its financial position, liquidity 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. The FERC's final rules are
expected to be announced in the spring of 1996. Consumers is unable to
predict the terms of these rules. However, management believes that
Consumers is well-positioned to conform to open access as it has been
voluntarily providing this transmission service since 1992.
The Governor of the State of Michigan has proposed that the MPSC review
the existing statutory and regulatory framework governing Michigan
utilities in light of increasing competition in the utility industry and
recommend appropriate revisions. At this time, no proceedings have been
initiated at the MPSC on this matter and no new legislation has been
introduced.
Changes in the competitive environment facing regulated utilities may
eventually lead to the discontinuance of SFAS 71, which allows the
deferral of certain costs and the recording of regulatory assets.
Management has evaluated Consumers' current regulatory position and
believes it continues to support the recognition of Consumers' $779
million of electric-related regulatory assets. If changes in the industry
were to lead to Consumers discontinuing the application of SFAS 71, for
all or part of its business, Consumers may be required to write-off the
portion of any regulatory asset for which no regulatory assurance of
recovery continued to exist. Consumers does not believe that there is any
current evidence that supports the write-off of any of its electric-
related regulatory assets. For further information regarding SFAS 71 and
Consumers' regulatory assets, see Notes 2 and 19.
Nuclear Matters: In July 1995, the NRC issued its Systematic Assessment
of Licensee Performance report for Palisades. The report recognized
improved performance at the plant, specifically in the areas of
Engineering and Plant Operations. In the report, the NRC noted areas
which continue to require management's attention, but also recognized the
development and implementation of plans for corrective action designed to
address previously identified weak areas. The report noted that
performance in the areas of Maintenance and Plant Support was good and
remained unchanged.
Consumers' on-site storage pool for spent nuclear fuel at Palisades is at
capacity. Consequently, Consumers is using NRC-approved dry casks, which
are steel and concrete vaults, for temporary on-site storage. In 1996,
Consumers plans to unload and replace one of the casks where a minor flaw
has been detected. For further information, see Note 15.
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 has been storing low-
level waste at its nuclear plant sites. Consumers began shipping its low-
level waste to a site in South Carolina during 1995 and plans to have all
its currently stored low-level waste removed from the plant sites by the
end of 1996.
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 whether the studies being conducted
as a part of the development plans will support a future decision to
anneal.
At the SEC staff's request, the FASB is reviewing the accounting for
closure and removal costs for long-lived assets, including
decommissioning. The current electric utility industry accounting
practices of recording the cost of removal as a component of depreciation
could be changed. The FASB's tentative decision includes recognition of
the cost of closure and removal obligation as a liability based on
discounted future cash flows with the offset recorded as part of the cost
of the plant asset.
Stray Voltage: Consumers has experienced a number of lawsuits relating to
the effect of so-called stray voltage on certain livestock. At December
31, 1995, Consumers had 30 separate stray voltage lawsuits awaiting trial
court action, down from 83 lawsuits at December 31, 1994. CMS Energy
believes that the resolution of these lawsuits will not have a material
impact on its financial position or results of operations.
Gas Utility Results of Operations
Pretax Operating Income
Change Compared to Prior Year
In Millions
1995/1994 1994/1993
--------- ---------
Sales $ 12 $ (3)
Regulatory recovery of gas cost 19 10
O&M, general taxes and depreciation (15) (19)
---- ----
Total change $ 16 $(12)
==== ====
Gas Deliveries: Gas sales in 1995 totaled 254 bcf, a 5.2 percent
increase from 1994 levels, and total system deliveries, excluding
transport to the MCV Facility, increased 6.5 percent from 1994. On a
weather-adjusted basis, total system deliveries increased 4.1 percent,
reflecting significant growth. In 1994, total system deliveries,
excluding transport to the MCV Facility, were 314 bcf, a slight decrease
from 1993 deliveries.
Cost of Gas Sold: The cost of gas sold for 1995 increased $9 million from
the 1994 level, as a result of increased deliveries. The increased costs
reflect the reversal of a $23 million gas supplier loss contingency.
Operating Expenses: Gas operation and maintenance expense increased $12
million, reflecting an $8 million gas inventory loss. Gas depreciation
for 1995 compared to 1994 increased $7 million, reflecting additional
capital investment in property and equipment.
Gas Utility Issues
Gas Rates: In December 1994, Consumers filed a request with the MPSC to
increase Consumers' annual gas rates. The requested increase totaling $7
million reflected increased expenditures, including those associated with
postretirement benefits, and a 12.25 percent return on equity. The MPSC
staff recommended a $13 million rate decrease. In November 1995, the ALJ
issued a proposal for decision that essentially adopted the MPSC staff's
position. In early 1996, the MPSC issued a final order in this case,
decreasing Consumers' annual gas rates by $11.7 million. For further
information regarding this case, see Note 4.
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 Matters: In October 1995, the MPSC issued an order regarding a $44
million (excluding any interest) gas supply contract pricing dispute
between Consumers and certain intrastate producers. The order stated that
Consumers was not obligated to seek prior approval of market-based pricing
provisions that were implemented under the contracts in question. The
producers subsequently filed a claim of appeal of the MPSC order with the
Court of Appeals. Consumers believes the MPSC order supports its position
that the producers' theories are without merit and intends to vigorously
oppose any claims they may raise but cannot predict the outcome of this
issue.
Gas Environmental Matters: 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 1995 costs.
At December 31, 1995, Consumers has accrued a liability for $48 million
and has established a regulatory asset for approximately the same amount.
Any significant change in assumptions such as remediation technique,
nature and extent of contamination and regulatory requirements, could
impact the estimate of remedial action costs for the sites.
Consumers requested recovery and deferral of certain investigation and
remedial action costs in its gas rate case filed in December 1994.
Consumers believes that remedial action costs are recoverable in rates and
is continuing 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 14.
Gas Outlook
Consumers currently anticipates gas deliveries to grow approximately 2
percent per year (excluding transportation to the MCV Facility 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. The emerging use of natural gas vehicles also provides
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. Consumers also plans additional capital
expenditures to construct new gas mains that are expected to expand
Consumers' system.
In 1995, Consumers purchased approximately 80 percent of its required gas
supply under long-term contracts, and the balance on the spot market.
Consumers estimates that approximately 35 percent of its gas purchases
will be under long-term contracts in future years as current contracts
expire. Consumers also has transmission contracts totaling approximately
90 percent of its supply requirements. The expiration dates of the
transmission contracts range from 1997 to 2004.
In 1995, the Low Income Home Energy Assistance Program provided
approximately $71 million in heating assistance to about 400,000 Michigan
households, with approximately 18 percent of funds going to Consumers'
customers. In late 1995, federal legislative approval provided Michigan
residents with approximately $60 million of funding for 1996. Consumers
cannot predict what level of funding will be approved for 1997.
In January 1996, the MPSC issued a Notice of legislative-type hearings to
be held in 1996, to assess whether it is appropriate to allow all natural
gas customers access to gas transportation service. The MPSC notice
designated all eight local distribution companies whose rates are
regulated by the MPSC as parties to this proceeding.
Under SFAS 71, Consumers is allowed to defer certain costs to the future
and record regulatory assets, based on the recoverability of those costs
through the MPSC's approval. Consumers has evaluated its $276 million of
regulatory assets (see Note 19) related to its gas business, and believes
that sufficient regulatory assurance exists to provide for the recovery of
these deferred costs.
Oil and Gas Exploration and Production
Pretax Operating Income: 1995 pretax operating income increased $22
million from 1994, primarily due to higher sales volumes and oil sales
prices, income attributable to the acquisitions of Walter and Terra and
increased gains from the assignment of gas supply contracts, partially
offset by lower average market prices for gas. 1994 pretax operating
income increased $5 million from 1993, reflecting higher gas sales
volumes, lower international write-offs, and the gain from the disposition
of a gas supply contract, 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 $49 million, consisting of
approximately $27 million of CMS Energy Common Stock and $22 million in
both cash and assumed debt. The Walter acquisition added proved reserves
of approximately 20 million barrels of oil.
In August 1995, CMS NOMECO acquired Terra with approximately $63 million
of CMS Energy Common Stock. The Terra acquisition added approximately 96
bcf of proved gas reserves.
Other capital expenditures for 1995 approximated $84 million, primarily
for development of existing oil and gas reserves.
Independent Power Production
Pretax Operating Income: 1995 pretax operating income increased $25
million, primarily reflecting higher capacity sales by the MCV
Partnership, as well as additional equity earnings by CMS Generation
subsidiaries primarily due to the HYDRA-CO acquisition. 1994 pretax
operating income increased $16 million from 1993, primarily reflecting
additional electric generating capacity.
Capital Expenditures: In January 1995, CMS Generation completed its
acquisition of HYDRA-CO for $153 million, net of $54 million cash.
CMS Generation acquired 224 MW of net generating capacity and also assumed
shared construction management responsibility for a 60 MW diesel-fueled
plant under construction in Jamaica, scheduled to go into service in the
fourth quarter of 1996.
Other capital expenditures for 1995 totaled approximately $86 million
related to expanding ownership in existing facilities and investments in
new facilities.
Natural Gas Transmission, Storage and Marketing
Pretax Operating Income: 1995 pretax operating income increased $5
million over 1994, reflecting growth from new pipeline investments and the
continued growth of existing projects and gas marketed to end-users. 1994
pretax operating income increased $2 million over 1993, reflecting
earnings growth from gas pipeline and storage projects and gas marketed to
end-users. In 1995, 101 bcf of natural gas was marketed compared to 66
bcf and 60 bcf in 1994 and 1993, respectively.
Capital Expenditures: In July 1995, CMS Gas Transmission acquired a 25
percent ownership interest in TGN for $136 million. TGN, which had 1995
revenues of approximately $150 million, owns and operates 2,600 miles of
pipelines that provide natural gas transmission service to the northern
and central parts of Argentina, with almost one bcf per day of existing
pipeline capacity.
CMS Gas Transmission, through an ownership interest in Nitrotec
Corporation, a proprietary gas technology company acquired in January
1996, currently has two helium recovery plants under construction, with
the first plant scheduled to be in service in the first quarter of 1996.
The total estimated cost for these two plants, located in Kansas, is $8.2
million. One helium recovery plant was placed in service in October 1995.
Nitrotec Corporation has also started construction on a $5.2 million
nitrogen rejection facility in Texas.
In January 1996, CMS Gas Transmission signed a letter of intent to
transfer its 50 percent ownership interest to its partner, MHP
Corporation, in the Moss Bluff Gas Storage System, a salt cavern storage
facility on the Gulf Coast of Texas and MHP Corporation will transfer its
50 percent ownership interest to CMS Gas Transmission in the Grand Lacs
Limited Partnership, a marketing center for natural gas. CMS Gas
Transmission will also receive approximately $26 million.
In January 1996, CMS Gas Transmission acquired Petal Gas Storage Company,
a natural gas storage facility located in Forrest County, Mississippi.
The salt dome storage cavern provides up to 3.2 bcf per day of 10-day
storage service and has the capability of being refilled in 20 days.
Other capital expenditures in 1995 totaled approximately $42 million for
acquisitions, expansion of existing facilities and construction of new
facilities.
Other
New Accounting Standard: In 1995, the FASB issued SFAS 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of, which is effective for 1996. CMS Energy does not expect the
application of this statement to have a material impact on its financial
position, liquidity or results of operations. For further information,
see Note 2.
<PAGE>
<PAGE> 64
<TABLE>
Consolidated Statements of Income CMS Energy Corporation
<CAPTION>
In Millions,
Except Per Share Amounts
Years Ended December 31 1995 1994 1993
<S> <C> <C> <C>
Operating Revenue Electric utility $2,277 $2,189 $2,077
Gas utility 1,195 1,151 1,160
Oil and gas exploration and production 108 78 71
Independent power production 96 46 21
Natural gas transmission, storage and marketing 196 145 142
Other 18 5 5
------- ------- -------
Total operating revenue 3,890 3,614 3,476
------- ------- -------
Operating Expenses Operation
Fuel for electric generation 283 306 293
Purchased power - related parties 491 482 467
Purchased and interchange power 196 162 148
Cost of gas sold 821 785 801
Other 698 621 565
------- ------- -------
Total operation 2,489 2,356 2,274
Maintenance 186 192 206
Depreciation, depletion and amortization 416 379 364
General taxes 196 184 193
------- ------- -------
Total operating expenses 3,287 3,111 3,037
------- ------- -------
Pretax Operating Electric utility 362 332 286
Income (Loss) Gas utility 151 135 147
Oil and gas exploration and production 30 8 3
Independent power production 46 21 5
Natural gas transmission, storage and marketing 14 9 7
Other - (2) (9)
------- ------- -------
Total pretax operating income 603 503 439
------- ------- -------
Income Taxes 130 103 81
------- ------- -------
Net Operating Income 473 400 358
------- ------- -------
Other Income Accretion income (Note 2) 11 13 14
(Deductions) Accretion expense (Note 2) (31) (35) (36)
Other income taxes, net 12 11 6
Bond income - - 32
Other, net 10 19 15
------- ------- -------
Total other income 2 8 31
------- ------- -------
Fixed Charges Interest on long-term debt 224 193 204
Other interest 27 18 24
Capitalized interest (8) (6) (5)
Preferred dividends 28 24 11
------- ------- -------
Net fixed charges 271 229 234
------- ------- -------
Net Income $ 204 $ 179 $ 155
======= ======= =======
Net Income Attributable to Common Stocks - CMS Energy $ 201 $ 179 $ 155
Class G $ 3 - -
======= ======= =======
Average Common Shares Outstanding - CMS Energy 89 86 81
Class G 8 - -
======= ======= =======
Earnings Per Average Common Share - CMS Energy $ 2.27 $ 2.09 $ 1.90
Class G $ .38 - -
======= ======= =======
Dividends Declared Per Common Share - CMS Energy $ .90 $ .78 $ .60
Class G $ .56 - -
======= ======= =======
<FN>
The accompanying notes are an integral part of these statements.
/TABLE
<PAGE>
<PAGE> 65
<TABLE>
Consolidated Statements of Cash Flows CMS Energy Corporation
<CAPTION>
In Millions
Years Ended December 31 1995 1994 1993
<S> <C> <C> <C>
Cash Flows From Net income $ 204 $ 179 $ 155
Operating Activities Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation, depletion and amortization (includes
nuclear decommissioning depreciation of $51,
$49 and $46, respectively) 416 379 364
Capital lease amortization 37 36 31
Debt discount amortization 24 37 36
Deferred income taxes and investment tax credit 75 56 56
Accretion expense (Note 2) 31 35 36
Accretion income -
abandoned Midland project (Note 2) (11) (13) (14)
Power purchases - settlement (Note 3) (137) (87) (84)
Undistributed earnings of related parties (53) (25) (9)
Other 7 3 1
Changes in other assets and liabilities (Note 17) 89 12 (88)
-------- -------- --------
Net cash provided by operating activities 682 612 484
-------- -------- --------
Cash Flows From Capital expenditures (excludes capital lease additions
Investing Activities of $31, $36 and $58, respectively and DSM) (Note 17) (535) (575) (550)
Investments in partnerships and unconsolidated
subsidiaries (242) (52) (108)
Acquisition of companies, net of cash acquired (146) - -
Investments in nuclear decommissioning trust funds (51) (49) (46)
Cost to retire property, net (41) (38) (32)
Other (14) (6) (5)
Deferred demand-side management costs (9) (9) (52)
Proceeds from sale of property 22 20 6
Proceeds from sale of bond investments - - 322
Sale of subsidiary - - (14)
-------- -------- --------
Net cash used in investing activities (1,016) (709) (479)
-------- -------- --------
Cash Flows From Proceeds from bank loans, notes and bonds 333 701 673
Financing Activities Issuance of common stock 160 30 132
Increase in notes payable, net 2 80 44
Payment of common stock dividends (84) (67) (49)
Retirement of bonds and other long-term debt (44) (279) (645)
Payment of capital lease obligations (37) (35) (26)
Repayment of bank loans (18) (473) (192)
Retirement of common stock (1) (2) (3)
Issuance of preferred stock - 193 -
-------- -------- --------
Net cash provided by (used in)
financing activities 311 148 (66)
-------- -------- --------
Net Increase (Decrease) in Cash and Temporary Cash Investments (23) 51 (61)
Cash and temporary cash investments
Beginning of year 79 28 89
-------- -------- --------
End of year $ 56 $ 79 $ 28
======== ======== ========
<FN>
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
<PAGE> 66
<TABLE>
Consolidated Balance Sheets CMS Energy Corporation
<CAPTION>
ASSETS In Millions
December 31 1995 1994
<S> <C> <C>
Plant and Property Electric $6,103 $5,771
(At Cost) Gas 2,218 2,102
Oil and gas properties (full-cost method) 1,074 934
Other 105 61
------ ------
9,500 8,868
Less accumulated depreciation, depletion and amortization (Note 2) 4,627 4,299
------ ------
4,873 4,569
Construction work-in-progress 201 245
------ ------
5,074 4,814
------ ------
Investments Independent power production 275 152
First Midland Limited Partnership (Notes 3 and 20) 225 218
Natural gas transmission, storage and marketing 193 40
Midland Cogeneration Venture Limited Partnership (Notes 3 and 20) 103 74
Other 22 16
------ ------
818 500
------ ------
Current Assets Cash and temporary cash investments at cost, which
approximates market 56 79
Accounts receivable and accrued revenue, less allowances
of $4 in 1995 and $5 in 1994 (Note 6) 296 156
Inventories at average cost
Gas in underground storage 184 235
Materials and supplies 83 75
Generating plant fuel stock 37 37
Deferred income taxes (Note 5) 24 34
Prepayments and other 230 216
------ ------
910 832
------ ------
Non-current Assets Postretirement benefits (Note 12) 462 478
Nuclear decommissioning trust funds (Note 2) 304 213
Abandoned Midland project 131 147
Other 444 394
------ ------
1,341 1,232
------ ------
Total Assets $8,143 $7,378
====== ======
</TABLE>
<PAGE>
<PAGE> 67
<TABLE>
CMS Energy Corporation
<CAPTION>
STOCKHOLDERS' INVESTMENT AND LIABILITIES In Millions
December 31 1995 1994
<S> <C> <C>
Capitalization Common stockholders' equity $1,469 $1,107
Preferred stock of subsidiary 356 356
Long-term debt (Note 7) 2,906 2,709
Non-current portion of capital leases (Note 13) 106 108
------ ------
4,837 4,280
------ ------
Current Liabilities Current portion of long-term debt and capital leases 207 64
Notes payable 341 339
Accounts payable 304 194
Accrued taxes 256 216
Power purchases - settlement (Note 3) 90 95
Accounts payable - related parties 53 50
Accrued interest 45 40
Accrued refunds 22 25
Other 192 198
------ ------
1,510 1,221
------ ------
Non-current Deferred income taxes (Note 5) 640 582
Liabilities Postretirement benefits (Note 12) 533 544
Power purchases - settlement (Note 3) 221 324
Deferred investment tax credits 171 181
Regulatory liabilities for income taxes, net (Notes 5 and 19) 44 16
Other 187 230
------ ------
1,796 1,877
------ ------
Commitments and Contingencies (Notes 2, 3, 4, 13, 14 and 15)
Total Stockholders' Investment and Liabilities $8,143 $7,378
====== ======
<FN>
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
<PAGE> 68
<TABLE>
Consolidated Statements of Preferred Stock CMS Energy Corporation
<CAPTION>
Optional
Redemption Number of Shares In Millions
December 31 Series Price 1995 1994 1995 1994
<S> <C> <C> <C> <C> <C> <C>
Consumers' Preferred Stock
Cumulative, $100 par value,
authorized 7,500,000 shares,
with no mandatory redemption $4.16 $103.25 68,451 68,451 $ 7 $ 7
4.50 110.00 373,148 373,148 37 37
7.45 101.00 379,549 379,549 38 38
7.68 101.00 207,565 207,565 21 21
7.72 101.00 289,642 289,642 29 29
7.76 102.21 308,072 308,072 31 31
Consumers' Class A Preferred Stock
Cumulative, no par value,
authorized 16,000,000 shares,
with no mandatory redemption 2.08 25.00 (a) 8,000,000 8,000,000 193 193
---- ----
Total Preferred Stock $356 $356
==== ====
<FN>
(a) Redeemable beginning April 1, 1999.
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
<PAGE> 69
<TABLE>
Consolidated Statements of Common Stockholders' Equity CMS Energy Corporation
<CAPTION>
In Millions,
Except Number of Shares
Other Retained
Number Common Paid-in Revaluation Earnings
of Shares Stock Capital Capital (Deficit) Total
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1993 79,965,722 $1 $1,539 $ - $(813) $ 727
Net income 155 155
Common stock:
Dividends declared (49) (49)
Reacquired (97,442) (3) (3)
Issued 5,135,726 132 132
Reissued 192,789 4 4
---------- -- ------ --- ----- ------
Balance at December 31, 1993 85,196,795 1 1,672 - (707) 966
Net income 179 179
Common stock:
Dividends declared (67) (67)
Reacquired (85,174) (2) (2)
Issued 1,389,578 30 30
Reissued 33,350 1 1
---------- -- ------ --- ----- ------
Balance at December 31, 1994 86,534,549 1 1,701 - (595) 1,107
Net income 204 204
Common stock:
Dividends declared:
CMS Energy (80) (80)
Class G (4) (4)
Reacquired (21,514) (1) (1)
Issued:
CMS Energy 5,039,019 126 126
Class G (a) 124 124
Reissued 41,447 1 1
Change in unrealized
investment-loss (8) (8)
---------- -- ------ --- ----- ------
Balance at December 31, 1995 91,593,501 $1 $1,951 $(8) $(475) $1,469
========== == ====== === ===== ======
<FN>
(a) Number of Class G common shares issued during 1995 and outstanding at December 31, 1995 was 7,618,602.
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
<PAGE> 70
CMS Energy Corporation
Notes to Consolidated Financial Statements
1: Corporate Structure
CMS Energy is the parent holding company of Consumers and Enterprises.
Consumers, a combination electric and gas utility company serving 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 segment of which is the
automotive industry. Enterprises is engaged in several domestic and
international energy-related businesses, including oil and gas exploration
and production, development and operation of independent power production
facilities, electric and gas marketing services to utility, commercial and
industrial customers, and storage and transmission of natural gas.
2: Summary of Significant Accounting Policies and Other Matters
Basis of Presentation: The consolidated financial statements include
CMS Energy, Consumers and Enterprises and their wholly owned subsidiaries.
The financial statements are prepared in conformity with generally
accepted accounting principles and include the use of management's
estimates. 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 years ended December 31, 1995, 1994
and 1993, undistributed equity earnings were $53 million, $25 million and
$9 million, respectively.
Accretion Income and Expense: In 1991, the MPSC ordered that Consumers
could recover a portion of its abandoned Midland investment over a 10-year
period, but did not allow Consumers to earn a return on that amount.
Consumers reduced the recoverable investment to the present value of the
future recoveries. During the recovery period, the unrecovered asset is
adjusted to its present value. This adjustment is reflected as accretion
income. Conversely, Consumers recorded a loss in 1992 for the present
value of its estimated future underrecoveries of power costs resulting
from purchases from the MCV Partnership (see Note 3), and now recognizes
accretion expense annually to reflect the time value of money on the
recorded loss.
Gas Inventory: Consumers uses the weighted average cost method for
valuing working gas inventory. Cushion gas, which is gas stored to
maintain reservoir pressure for recovery of working gas, is recorded in
the appropriate gas utility plant account. Consumers stores gas inventory
in its underground storage facilities.
Maintenance, Depreciation and Depletion: Property repairs and minor
property replacements are charged to maintenance expense. Depreciable
property retired or sold plus cost of removal (net of salvage credits) is
charged to accumulated depreciation. Consumers bases depreciation
provisions for utility plant on straight-line and units-of-production
rates approved by the MPSC. The composite depreciation rate for electric
utility property was 3.5 percent for 1995, 3.5 percent for 1994 and 3.4
percent for 1993. The composite rate for gas utility plant was 4.3
percent for 1995, 4.2 percent for 1994 and 4.4 percent for 1993. The
composite rate for Consumers' other plant and property was 4.9 percent for
1995 and 4.7 percent for 1994 and 1993.
CMS NOMECO, a wholly owned subsidiary of Enterprises, follows the
full-cost method of accounting and, accordingly, capitalizes its
exploration and development costs, including the cost of non-productive
drilling and surrendered acreage, on a country-by-country basis. The
capitalized costs in each cost center are being amortized on an overall
units-of-production method based on total estimated proved oil and gas
reserves. Other depreciable property of CMS Energy and its subsidiaries
is amortized over its estimated useful life.
New Accounting Standard: During 1995, the Financial Accounting Standards
Board 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 its carrying amount
may not be recoverable. The statement also requires that a loss be
recognized whenever a portion of an asset's cost is excluded from a rate-
regulated 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.
Nuclear Fuel Cost: Consumers amortizes nuclear fuel cost to fuel expense
based on the quantity of heat produced for electric generation. Interest
on leased nuclear fuel is expensed as incurred. Under federal law, the DOE
is responsible for permanent disposal of spent nuclear fuel at costs to be
paid by affected utilities. However, in 1994, the DOE asserted that it
does not have a legal obligation to accept spent nuclear fuel without an
operational repository. In 1995, federal legislation was introduced to
clarify the DOE's obligation to accept spent nuclear fuel and direct the
DOE to establish an integrated spent fuel management system that includes
designing and constructing an interim storage facility in Nevada. For
fuel used after April 6, 1983, Consumers charges disposal costs to nuclear
fuel expense, recovers them through electric rates and remits to the DOE
quarterly. Consumers elected to defer payment for disposal of spent
nuclear fuel burned before April 7, 1983, until the spent fuel is
delivered to the DOE, which was originally scheduled to occur in 1998. At
December 31, 1995, Consumers has recorded a liability to the DOE of $100
million, including interest. Consumers recovered through electric rates
the amount of this liability, excluding a portion of interest.
Nuclear Plant Decommissioning: Consumers collects approximately $45
million annually from its electric customers to decommission its two
nuclear plants. On March 1, 1995, Consumers filed updated decommissioning
information with the MPSC which estimated decommissioning costs for Big
Rock and Palisades to be $303 million and $524 million (in 1995 dollars),
respectively. The estimated decommissioning costs increased from previous
estimates principally due to the unavailability of low- and high-level
radioactive waste disposal facilities. Amounts collected from electric
retail customers and deposited in trusts (including trust earnings) are
credited to accumulated depreciation. To meet NRC decommissioning
requirements, Consumers prepared site-specific decommissioning cost
estimates for Big Rock and Palisades, assuming that each plant site will
eventually be restored to conform with the adjacent landscape, and that
all contaminated equipment will be disassembled and disposed of in a
licensed burial facility. After the plants are retired, Consumers plans
to maintain the facilities in protective storage until radioactive waste
disposal facilities are available. As a result, the majority of
decommissioning costs will be incurred several years after each plant's
NRC operating license expires. When Big Rock's and Palisades' NRC
licenses expire in 2000 and 2007, respectively, the trust funds are
estimated to have accumulated to $257 million and $686 million,
respectively. It is estimated that at the time the plants are fully
decommissioned (in the years 2030 for Big Rock and 2046 for Palisades),
the trust funds will have provided $1 billion for Big Rock and $2.1
billion for Palisades including trust earnings over this decommissioning
period. Based on this plan, Consumers believes that the current
decommissioning surcharge will be sufficient to provide for
decommissioning of its nuclear plants. At December 31, 1995, Consumers
had an investment in nuclear decommissioning trust funds of $304 million.
Reclassifications: CMS Energy has reclassified certain prior year amounts
for comparative purposes. These reclassifications did not affect the net
income for the years presented.
Related-Party Transactions: In 1995, 1994 and 1993, Consumers purchased
$53 million, $48 million and $52 million, respectively, of electric
generating capacity and energy from affiliates of Enterprises. Affiliates
of CMS Energy sold, stored and transported natural gas and provided other
services to the MCV Partnership totaling approximately $26 million, $22
million and $27 million for 1995, 1994 and 1993, respectively. For
additional discussion of related-party transactions with the MCV
Partnership and the FMLP, see Notes 3 and 20. Other related-party
transactions are immaterial.
Revenue and Fuel Costs: Consumers accrues revenue for electricity and gas
used by its customers but not billed at the end of an accounting period.
Consumers accrues or reduces revenue for any underrecovery or overrecovery
of electric power supply costs and natural gas costs by establishing a
corresponding asset or liability until it bills or refunds these
differences to customers following an MPSC order.
Utility Regulation: Consumers accounts for the effects of regulation
under SFAS 71, Accounting for the Effects of Certain Types of Regulation.
As a result, the actions of regulators affect when revenues, expenses,
assets and liabilities are recognized.
Other: For significant accounting policies regarding income taxes, see
Note 5; for pensions and other postretirement benefits, see Note 12; and
for cash equivalents, see Note 17.
3: 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.
Consumers, through its subsidiaries, holds the following assets related to
the MCV Partnership and MCV Facility: 1) CMS Midland owns a 49 percent
general partnership interest in the MCV Partnership; and 2) CMS Holdings
holds 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 a 35-year
PPA increased 108 MW 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. ABATE and the Attorney General have appealed the
Settlement Order to the Court of Appeals. Under the Settlement Order,
capacity and energy purchases from the MCV Partnership above the 915 MW
level can be utilized to satisfy customers' power needs but the MPSC will
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. The MCV Partnership did
not object to the Settlement Order.
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, the fixed energy charge 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 energy delivered on an economic basis above the
availability limits to 915 MW, Consumers has been 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. If Consumers is unable to sell any capacity above the
1993 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 1996 and
the next four years are shown in the table below.
After-tax, In Millions
1996 1997 1998 1999 2000
---- ---- ---- ---- ----
Estimated cash underrecoveries $56 $55 $ 8 $ 9 $ 7
Possible additional under-
recoveries and losses (a) $20 $22 $72 $72 $74
(a) If unable to sell any capacity above the MPSC's 1993 authorized level.
In September 1995, Consumers and the MPSC staff reached a proposed
settlement agreement that would potentially resolve several issues in
three pending proceedings, including cost recovery for the 325 MW of MCV
Facility capacity above the MPSC's currently authorized level. For
further information regarding this proposed settlement, see Note 4.
At December 31, 1995 and 1994, the after-tax present value of the
Settlement Order liability totaled $202 million and $272 million,
respectively. The reduction in the liability since December 31, 1994,
reflects after-tax cash underrecoveries of $90 million, partially offset
by after-tax accretion expense of $20 million. The undiscounted after-tax
amount associated with the liability totaled $607 million at December 31,
1995.
In 1994 and 1995, Consumers paid $44 million to terminate power purchase
agreements with the developers of two proposed independent power projects
totaling 109 MW. As part of the proposed settlement reached with the MPSC
staff (see Note 4), Consumers is seeking MPSC approval to utilize less-
expensive contract capacity from the MCV Facility which Consumers is
currently not authorized to recover from retail customers. Cost recovery
for this contract capacity would start in late 1996. Even if Consumers is
not allowed to substitute MCV Facility capacity for the capacity to be
provided under the terminated agreements, Consumers believes that the MPSC
would approve recovery of the buyout costs due to the significant customer
savings resulting from the terminated power purchase agreements. As a
result, Consumers has recorded a regulatory asset of $44 million.
PSCR Matters Related to Power Purchases from the MCV Partnership: As part
of the 1993 and 1994 plan case orders, the MPSC confirmed the recovery of
certain costs related to power purchases from the MCV Partnership. 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 disallowed a portion of the costs related to
purchases from the MCV Partnership, and instead assumed recovery of those
costs from wholesale customers and reduced recovery from retail customers.
Consumers believes this is contrary to the terms of the Settlement Order
and has appealed the February 23 order on this issue.
4: Rate Matters
Electric Rate Proceedings: In late 1994, Consumers filed a request with
the MPSC to increase its retail electric rates. The request included
provisions for ratemaking treatment of expected sales losses to
competition and the treatment of the 325 MW of MCV Facility contract
capacity above 915 MW. Consumers also requested that the MPSC eliminate
subsidization of residential rates in a two-step adjustment.
Early in 1996, the MPSC issued a partial final order in this case,
granting Consumers a $46 million annual increase in its electric retail
rates. This order authorized a 12.25 percent return on equity as compared
to the previously approved 11.75 percent, approved recovery of certain
costs associated with a proposed settlement related to the Ludington plant
(see Note 14), and significantly reduced (in a two-step adjustment) the
subsidization of residential customers by industrial and large commercial
customers. As a result, residential customers were allocated
approximately $31 million of the $46 million increase.
This order did not address cost recovery related to the 325 MW of MCV
Facility contract capacity above 915 MW. The MPSC stated that this matter
would be addressed in connection with its consideration of the proposed
settlement agreement discussed below.
Consumers also has a separate request before the MPSC to offer competitive
special rates to certain large qualifying customers. In addition,
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. If approved, this would result
in a net decrease in depreciation expense of $7 million for ratemaking
purposes. For further information regarding these requests, see the
Electric Rate Proceedings and Special Rates discussions in the
Management's Discussion and Analysis.
In September 1995, Consumers and the MPSC staff reached a proposed
settlement agreement that, if approved by the MPSC, would resolve several
outstanding regulatory issues currently before the MPSC in separate
proceedings. Some of these issues were preliminarily addressed in early
1996 when the MPSC issued an order in Consumers' electric rate case (see
above). If fully adopted, the settlement agreement would: provide for
cost recovery of the 325 MW of uncommitted MCV Facility capacity;
implement provisions for incentive ratemaking; resolve the special
competitive services and depreciation rate cases; implement a limited
direct access program; and accelerate recovery of nuclear plant
investment. Consumers expects a final order in the spring of 1996.
Electric DSM: In June 1995, the MPSC authorized Consumers to discontinue
future DSM program expenditures and cease all new programs. Consumers is
deferring and amortizing past program costs ($68 million at December 31,
1995) over the period these costs are being recovered from customers in
accordance with an MPSC accounting order.
Gas Rates: As part of an agreement approved by the MPSC, Consumers filed
a gas rate case in December 1994. The request, among other things,
incorporated cost increases, including costs for postretirement benefits
and costs related to Consumers' former manufactured gas plant sites and
proposed a 12.25 percent rate of return on equity, instead of the current
13.25 percent. Consumers had requested a $7 million increase in its
annual gas rates. The MPSC staff recommended a $13 million rate decrease,
which 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. In November 1995, the ALJ issued a proposal for
decision that essentially adopted the MPSC staff's position. In early
1996, the MPSC issued a final order in this case, decreasing Consumers'
annual gas rates by $11.7 million and authorized an 11.6 percent return on
equity.
GCR Matters: In 1993, the MPSC issued a ruling favorable to Consumers
regarding a gas pricing disagreement between Consumers and certain
intrastate producers. In 1995, management concluded that the intrastate
producers' pending appeals of the MPSC order would not be successful and
accordingly reversed $23 million (pretax) of a previously accrued loss.
The MPSC ruling was affirmed by the Court of Appeals in June 1995. The
producers have petitioned the Michigan Supreme Court for review.
In October 1995, the MPSC issued an order regarding a $44 million
(excluding any interest) gas supply contract pricing dispute between
Consumers and certain intrastate producers. The order stated that
Consumers was not obligated to seek prior approval of market-based pricing
provisions that were implemented under the contracts in question. The
producers subsequently filed a claim of appeal of the MPSC order with the
Court of Appeals. Consumers believes the MPSC order supports its position
that the producers' theories are 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 CMS Energy's or Consumers' financial position or
results of operations.
5: Income Taxes
CMS Energy and its subsidiaries (including Consumers) file a consolidated
federal income tax return. Income taxes are generally allocated based on
each subsidiary's separate taxable income. CMS Energy and Consumers
practice full deferred tax accounting for temporary differences.
CMS Energy uses ITC to reduce current income taxes payable and defers and
amortizes ITC over the life of the related property. Any AMT paid
generally becomes a tax credit that can be carried forward indefinitely to
reduce regular tax liabilities in future periods when regular taxes paid
exceed the tax calculated for AMT.
The significant components of income tax expense (benefit) consisted of:
In Millions
Years Ended December 31 1995 1994 1993
- ----------------------- ---- ---- ----
Current federal income taxes $ 43 $ 36 $ 19
Deferred income taxes 85 66 67
Deferred income taxes - tax rate change - - (1)
Deferred ITC, net (10) (10) (10)
---- ---- ----
$118 $ 92 $ 75
==== ==== ====
Operating $130 $103 $ 81
Other (12) (11) (6)
---- ---- ----
$118 $ 92 $ 75
==== ==== ====
The principal components of CMS Energy's deferred tax assets (liabilities)
recognized in the balance sheet are as follows:
In Millions
December 31 1995 1994
Property $ (603) $ (601)
Unconsolidated investments (266) (246)
Postretirement benefits (Note 12) (173) (177)
Abandoned Midland project (46) (51)
Employee benefit obligations (includes
postretirement benefits of $175 and $174) (Note 12) 204 203
Power purchases - settlement (Note 3) 112 146
AMT carryforward 161 154
ITC carryforward (expires 2005) 23 37
Other (28) (13)
------- -------
$ (616) $ (548)
======= =======
Gross deferred tax liabilities $(1,698) $(1,659)
Gross deferred tax assets 1,082 1,111
------- -------
$ (616) $ (548)
======= =======
The actual income tax expense differs from the amount computed by applying
the statutory federal tax rate to income before income taxes as follows:
In Millions
Years Ended December 31 1995 1994 1993
- ----------------------- ----- ----- -----
Net income before preferred dividends $232 $203 $166
Income tax expense 118 92 75
----- ----- -----
350 295 241
Statutory federal income tax rate x 35% x 35% x 35%
----- ----- -----
Expected income tax expense 123 103 84
Increase (decrease) in taxes from:
Capitalized overheads previously
flowed through 5 5 5
Differences in book and tax depreciation
not previously deferred 6 7 5
ITC amortization (10) (10) (10)
Nonconventional Fuel Tax Credit (13) (8) (6)
Other, net 7 (5) (3)
----- ----- -----
$118 $ 92 $ 75
===== ===== =====
6: Short-Term Financings
Consumers has FERC authorization to issue or guarantee up to $900 million
of short-term debt through December 31, 1996. Consumers has an unsecured
$425 million facility and unsecured, committed lines of credit aggregating
$145 million that are used to finance seasonal working capital
requirements. At December 31, 1995, $238 million and $103 million were
outstanding under these facilities at weighted average interest rates of
6.4 percent and 6.9 percent, respectively. Consumers has an established
$500 million trade receivables purchase and sale program. At December 31,
1995 and 1994, receivables sold under the agreement totaled $295 million
and $275 million, respectively. Accounts receivable and accrued revenue
in the Consolidated Balance Sheets have been reduced to reflect
receivables sold.
7: Long-Term Debt
At December 31, 1995 and 1994, long term debt consists of the following:
<TABLE>
<CAPTION>
In Millions
December 31
Maturing/Expiring Interest Rate 1995 1994
<S> <C> <C> <C> <C>
First Mortgage Bonds 1996 to 2023 5.875% to 8.875% $1,341 $1,341
Long-Term Bank Debt 1999 6.2% (a) 400 400
Sr. Deferred Coupon Notes 1997 and 1999 9.5% and 9.875% 347 355
General Term Notes 1997 to 2002 7.7% (a) 221 94
Bank Loans 1996 to 2006 8.01% (a) 177 21
Pollution Control Revenue Bonds 2000 to 2018 5.9% (a) 131 131
Term Loan Agreement 2002 7.7% (a) 125 -
Unsecured Credit Facility 1998 7.63% (a) 118 196
Revolving Line of Credit 1999 7.13% 112 89
Nuclear Fuel Disposal 1998 5.5% 100 95
Senior Serial Notes - - - 36
Other - - 4 6
------ ------
Principal Amount Outstanding 3,076 2,764
Current Amounts (161) (21)
Net Unamortized Discount (9) (34)
------ ------
Total Long-Term Debt $2,906 $2,709
====== =======
</TABLE>
(a) Represents the weighted average interest rate during 1995.
The scheduled maturities of long-term debt and improvement fund
obligations are as follows: $161 million in 1996, $325 million in 1997,
$803 million in 1998, $716 million in 1999 and $10 million in 2000.
CMS Energy
In January 1994, CMS Energy filed a shelf-registration statement with the
SEC permitting the issuance and sale of up to $250 million of GTNs. The
GTNs are offered from time to time on terms determined at the time of
sale.
In 1994, CMS Energy refinanced its $220 million Secured Revolving Credit
Facility dated November 30, 1992 with the Unsecured Credit Facility and
extended the termination date to June 30, 1997. In November 1995,
CMS Energy amended the terms of its $400 million Unsecured Credit
Facility, increased the amount to $450 million and extended the
termination date to June 30, 1998. CMS Energy also entered into a $125
million, seven-year Term Loan Agreement dated November 21, 1995.
Consumers
First Mortgage Bonds: Consumers secures its first mortgage bonds by a
mortgage and lien on substantially all of its property. Consumers' ability
to issue and sell securities is restricted by certain provisions in its
First Mortgage Bond Indenture, its Articles and the need for regulatory
approvals in compliance with appropriate federal law.
Long-Term Bank Debt: During 1994, Consumers entered into a $400 million
unsecured, variable rate, five-year term loan and subsequently used the
proceeds to refinance certain long-term bank debt. In 1993, Consumers
entered into an interest rate swap agreement, exchanging variable-rate
interest for fixed-rate interest on $250 million of its long-term bank
debt. The swap agreement hedges the variable rate exposure associated
with Consumers' long-term bank debt. The swap agreement began to decrease
in February 1995 and will terminate by May 1996. At December 31, 1995,
the amount of the swap totaled $94 million at 5.4 percent. The swap
agreement had the effect of decreasing the weighted average interest rate
to 6.3 percent from 6.6 percent for the 12-month period ended December 31,
1995.
Other: Consumers' long-term PCRBs are secured by irrevocable letters of
credit or first mortgage bonds.
CMS NOMECO
CMS NOMECO's existing Revolving Line of Credit, which converts to term
loans maturing from November 1996 through November 1999, was increased
from $110 million at December 31, 1994 to $140 million at December 31,
1995.
Senior serial notes amounting to $28 million, with a weighted average
interest rate of 9.40 percent, were repaid in full on August 10, 1995. In
connection with this early extinguishment of debt, CMS NOMECO incurred a
$1.5 million prepayment premium. The notes were 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 Enterprises, Inc.
of which approximately $109 million remained outstanding as of December
31, 1995. In January, 1996, CMS Generation refinanced this bridge
facility with a $110 million, five-year term loan.
8: Capitalization
CMS Energy
Capital Stock: During 1995, CMS Energy amended its Articles of
Incorporation and authorized a new class of common stock of CMS Energy,
designated Class G Common Stock, which reflects the separate performance
of Consumers Gas Group. The pre-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.
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, Preferred Stock of CMS Energy or of 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 the third quarter 1995, CMS Energy received net
proceeds of approximately $123 million from the issuance of 7.52 million
shares of Class G Common Stock at a price to the public of $17.75 per
share, initially representing 23.50 percent of the common stockholder's
equity value attributed to the Consumers Gas Group. All of the proceeds
will fund the capital programs and be 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. The issuance of additional
shares, during 1995, increased the common stockholder's equity value
attributable to the Consumers Gas Group represented by the outstanding
shares of Class G Common Stock, to 23.73 percent as of December 31, 1995.
Other: Under its most restrictive borrowing arrangement at December 31,
1995, none of CMS Energy's net income was restricted for payment of common
dividends.
Consumers
Capital Stock: During 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. In January 1996, 4 million shares of 8.36 percent Trust
Originated Preferred Securities were issued and sold through a business
trust wholly owned by Consumers. The trust was formed for the sole
purpose of issuing preferred securities and the only asset of the trust is
$103 million of 8.36 percent unsecured subordinated deferrable interest
notes issued by Consumers. The obligations of Consumers with respect to
the preferred securities under the notes that mature in 2015, the
indenture under which the notes will be issued, Consumers' guarantee of
the preferred securities and the Declaration of Trust, taken together,
constitute a full and unconditional guarantee by Consumers of the trust's
obligations under the Trust Originated Preferred Securities. Net proceeds
from the sale totaled $96 million.
Other: Under the provisions of its Articles at December 31, 1995,
Consumers had $197 million of unrestricted retained earnings available to
pay common dividends.
CMS NOMECO
In February 1995, CMS Energy acquired Walter, a Houston-based independent
oil company, for approximately $49 million, consisting of approximately
$27 million of CMS Energy Common Stock and $22 million in cash and assumed
debt. Walter was merged with a wholly owned subsidiary of CMS NOMECO.
In August 1995, CMS Energy acquired 100 percent of the common stock of
Terra, a gas exploration company, located in Traverse City, Michigan for
approximately $63 million. Terra has become a wholly owned subsidiary of
CMS NOMECO.
In October 1995, CMS NOMECO filed a registration statement with the SEC
for an initial public offering of not more than 20 percent of CMS NOMECO
common stock. CMS Energy will continue to evaluate market conditions for
a possible future offering of CMS NOMECO common stock.
9: Earnings Per Share and Dividends
Earnings per share attributable to Common Stock, for the year ended
December 31, 1995 reflect the performance of the Consumers Gas Group since
initial issuance of Class G Common Stock during the third quarter of 1995.
The Class G Common Stock participates in earnings and dividends from the
issue date. The allocation of earnings (loss) attributable to each class
of common stock and the related amounts per share are computed by
considering the weighted average number of shares outstanding.
Earnings (loss) attributable to outstanding Class G Common Stock are equal
to Consumers Gas Group net income (loss) multiplied by a fraction, the
numerator is the weighted average number of Outstanding Shares during the
period and the denominator represents the weighted average number of
Outstanding Shares and Retained Interest Shares during the period. The
earnings attributable to Class G Common Stock on a per share basis, for
the year ended December 31, 1995, are based on 23.45 percent of the income
of the Consumers Gas Group since the initial issuance.
Earnings per share for Class G Common Stock are omitted from the
statements of income for the years ended December 31, 1994 and 1993, since
the Class G Common Stock was not part of the equity structure of
CMS Energy. For purpose of analysis, following are pro forma data for the
years ended December 31, 1995 and 1994 which give effect to the issuance
and sale of 7.52 million shares of Class G Common Stock (representing
23.50 percent of the equity attributable to the Consumers Gas Group) on
January 1, 1994.
In Millions, Except Per Share Amounts
Pro Forma Pro Forma
Years Ended December 31, 1995 1994
- ------------------------ ----- -----
Net Income $ 204 $ 179
Net Income attributable to CMS Energy
Common Stock $ 189 $ 167
Net Income attributable to outstanding
Class G Common Stock $ 15 $ 12
Average shares outstanding:
CMS Energy Common Stock 88.810 85.888
Class G Common Stock 7.536 7.520
Earnings per share attributable to
CMS Energy Common Stock $2.14 $1.94
Earnings per share attributable to
outstanding Class G Common Stock $1.93 $1.66
Holders 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 the Board
of Directors, dividends may 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. The Board of
Directors has stated its intention to declare and pay dividends on the
CMS Energy Common Stock based primarily on the earnings and financial
condition of CMS Energy. 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 of or relating to the
electric utility business or the international 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.
The Board of Directors declared a dividend on CMS Energy Common Stock of
$.21 per share for the first and second quarters and $.24 per share for
the third and fourth quarters of 1995. A dividend on Class G Common Stock
of $.28 per share was declared by the Board of Directors for the third and
fourth quarters of 1995.
10: Financial Instruments
The carrying amounts of cash, short-term investments and current
liabilities approximate their fair values due to their short-term nature.
The estimated fair values of long-term investments are based on quoted
market prices or, in the absence of specific market prices, on quoted
market prices of similar investments or other valuation techniques. The
carrying amounts of all long-term investments in financial instruments
approximate fair value.
The carrying amount of long-term debt was $2.9 billion and $2.7 billion at
December 31, 1995 and 1994, respectively, and the fair value was $3.0
billion and $2.6 billion on those dates. Although the current fair value
of the long-term debt may differ from the current carrying amount,
settlement of the reported debt is generally not expected until maturity.
The fair values of CMS Energy's off-balance-sheet financial instruments
are based on the amounts estimated to terminate or settle the instruments.
At December 31, 1995, the fair value of CMS Energy's interest rate swap
agreements was $16 million, representing the amount that CMS Energy would
pay to terminate the agreements. At December 31, 1994, CMS Energy would
have received $5 million to terminate the agreements. Guarantees and
letters of credit were $148 million and $123 million at December 31, 1995
and 1994, respectively.
In 1994, CMS Energy adopted SFAS 115, Accounting for Certain Investments
in Debt and Equity Securities, which did not materially impact
CMS Energy's financial position or results of operations.
11: Executive Incentive Compensation
Under CMS Energy's Performance Incentive Stock Plan, restricted shares of
common stock of CMS Energy, stock options and stock appreciation rights
may be granted to key employees based on their contributions to the
successful management of CMS Energy and its subsidiaries. During 1995,
shareholders approved amendments to the CMS Energy Performance Incentive
Stock Plan. The amendments authorized awards under the plan consisting of
any class of common stock of CMS Energy and established performance based
business criteria for certain plan awards. The amendments also increased
the number of shares reserved for award to not more than 3 percent of each
class of CMS Energy common stock outstanding on January 1 each year, less
the number of shares of restricted common stock awarded and of common
stock subject to options granted under the plan during the immediately
preceding four calendar years. Any forfeitures are subject to award under
the plan. At December 31, 1995, awards of up to 1,174,388 shares of
CMS Energy Common Stock and 211,634 shares of Class G Common Stock may be
issued.
Restricted shares of common stock are outstanding shares with full voting
and dividend rights. Shares of restricted common stock cannot be
distributed until they are vested and the performance objectives are met.
Further, the restricted stock is subject to forfeiture if employment
terminates before vesting. If key employees exceed performance
objectives, the plan will allow additional awards. Restricted shares vest
fully if control of CMS Energy changes, as defined by the plan. At
December 31, 1995, 475,447 shares of the 517,447 restricted shares
outstanding are subject to performance objectives.
Consumers' Executive Stock Option and Stock Appreciation Rights Plan, an
earlier plan approved by shareholders, expired in September 1995.
Under both plans, for stock options and stock appreciation rights, the
exercise price on each grant date equaled the closing market price on the
grant date. Options are exercisable upon grant and expire up to 10 years
and one month from date of grant. The status of the restricted stock
granted under the Performance Incentive Stock Plan and options granted
under both plans follows.
Restricted
Stock Options
------------ ----------------
Number Number Price
CMS Energy Common Stock of Shares of Shares per Share
- ----------------------- ---------- ---------- ---------
Outstanding at January 1, 1993 323,266 1,435,091 $7.13 - $34.25
Granted 132,000 249,000 $25.13 - $26.25
Exercised or Issued (54,938) (152,125) $ 7.13 - $21.13
Canceled (84,141) (33,000) $20.50 - $33.88
------- ------- --------------
Outstanding at December 31, 1993 316,187 1,498,966 $ 7.13 - $34.25
Granted 133,500 273,000 $21.25 - $22.38
Exercised or Issued (39,361) (158,300) $7.13 - $22.00
Canceled (79,970) (123,000) $26.25 - $33.88
------- ------- --------------
Outstanding at December 31, 1994 330,356 1,490,666 $ 7.13 - $34.25
Granted 253,337 304,000 $23.25 - $34.25
Exercised or Issued (43,939) (147,666) $7.13 - $22.00
Canceled (22,307) (55,000) $20.50 - $34.25
------- ------- --------------
Outstanding at December 31, 1995 517,447 1,592,000 $13.00 - $34.25
======= ========== ==============
During 1995, 6,924 restricted shares and 10,000 options of Class G Common
Stock were granted at a price of $17.88.
12: Retirement Benefits
Postretirement Benefit Plans Other Than Pensions: CMS Energy and its
subsidiaries adopted SFAS 106, Employers' Accounting for Postretirement
Benefits Other than Pensions, effective as of the beginning of 1992 and
Consumers recorded a liability of $466 million for the accumulated
transition obligation and a corresponding regulatory asset for anticipated
recovery in utility rates (see Note 19). CMS Energy's international
subsidiaries expensed their accumulated transition obligation liability.
The amount of such transition obligation is not material to the
presentation of the consolidated financial statements or significant to
CMS Energy's total transition obligation. Both the MPSC and FERC have
generally allowed recovery of SFAS 106 costs. In May 1994, the MPSC
authorized recovery of the electric utility portion of these costs over 18
years. During 1995, the FERC granted Consumers a waiver of a three-year
filing requirement for cost recovery with respect to its wholesale
electric business, which at December 31, 1995, had recorded a regulatory
asset and liability of $7 million. In early 1996, the MPSC approved
recovery of the gas utility portion of these costs over 16 years.
CMS Energy funds the benefits using external Voluntary Employee
Beneficiary Associations, a legal entity, established under guidelines of
the Internal Revenue Code, through which the company can provide certain
benefits for its employees or retirees. Funding of the health care
benefits coincides with Consumers' recovery in rates. A portion of the
life insurance benefits have previously been funded.
Retiree health care costs at December 31, 1995, are based on the
assumption that costs would increase 9.5 percent in 1996, then decrease
gradually to 6 percent in 2004 and thereafter. The health care cost trend
rate assumption significantly affects the amounts reported. For example,
a 1 percentage point increase in each year's estimated health care cost
assumption would increase the accumulated postretirement benefit
obligation as of December 31, 1995 by $80 million and the aggregate of the
service and interest cost components of net periodic postretirement
benefit costs for 1995 by $9 million.
Years Ended December 31 1995 1994 1993
- ----------------------- ----- ----- -----
Weighted average discount rate 7.50% 8.00% 7.25%
Expected long-term rate of return
on plan assets 7.00% 7.00% 8.50%
Net postretirement benefit costs for the health care benefits and life
insurance benefits consisted of:
In Millions
Years Ended December 31 1995 1994 1993
- ----------------------- ---- ---- ----
Service cost $ 11 $ 13 $ 13
Interest cost 40 41 38
Actual return on assets (4) - -
Net amortization and deferral 1 - -
---- ---- ----
Net postretirement benefit costs $ 48 $ 54 $ 51
==== ==== ====
The funded status of the postretirement benefit plans is reconciled with
the liability recorded at December 31 as follows:
In Millions
1995 1994
---- ----
Actuarial present value of estimated benefits
Retirees $ 331 $ 338
Eligible for retirement 46 44
Active (upon retirement) 200 170
------ ------
Accumulated postretirement benefit obligation 577 552
Plan assets (primarily stocks, bonds and money
market investments) at fair value 78 36
------ ------
Accumulated postretirement benefit obligation
in excess of plan assets (499) (516)
Unrecognized net loss from experience
different than assumed 1 4
------ ------
Recorded liability $ (498) $ (512)
====== ======
CMS Energy's postretirement health care plan is partially funded; the
accumulated postretirement benefit obligation for that plan is $562
million and $536 million at December 31, 1995 and 1994, respectively.
SERP: Certain management employees qualify to participate in the SERP.
SERP benefits, which are based on an employee's years of service and
earnings as defined in the SERP, are paid from a trust established and
funded in 1988. Because the SERP is not a qualified plan under the
Internal Revenue Code, earnings of the trust are taxable and trust assets
are included in consolidated assets. At December 31, 1995 and 1994, trust
assets at cost (which approximates market) were $28 million and $19
million, respectively, and were classified as other non-current assets.
Defined Benefit Pension Plan: A trusteed, non-contributory, defined
benefit Pension Plan covers substantially all employees. The benefits are
based on an employee's years of accredited service and earnings, as
defined in the plan, during an employee's five highest years of earnings.
Because the plan was fully funded, no contributions were made in 1993 and
1994. A contribution of $9 million was made in 1995.
Years Ended December 31 1995 1994 1993
- ----------------------- ----- ----- -----
Discount rate 7.50% 8.00% 7.25%
Rate of compensation increase 4.50% 4.50% 4.50%
Expected long-term rate
of return on assets 9.25% 9.25% 8.75%
Net Pension Plan and SERP costs consisted of:
In Millions
Years Ended December 31 1995 1994 1993
- ----------------------- ----- ----- -----
Service cost $ 23 $ 24 $ 19
Interest cost 56 51 50
Actual return on plan assets (168) 21 (92)
Net amortization and deferral 103 (85) 34
------ ------ ------
Net periodic pension cost $ 14 $ 11 $ 11
====== ====== ======
The funded status of the Pension Plan and SERP reconciled to the pension
liability recorded at December 31 was:
In Millions
Pension Plan SERP
1995 1994 1995 1994
- ---------------------------------------------------------------------------
Actuarial present value of
estimated benefits
Vested $496 $421 $ 20 $ 17
Non-vested 74 61 1 -
---- ---- ---- ----
Accumulated benefit obligation 570 482 21 17
Provision for future
pay increases 183 154 13 11
---- ---- ---- ----
Projected benefit obligation 753 636 34 28
Plan assets (primarily stocks and bonds,
including $104 in 1995 and $79 in 1994
in common stock of CMS Energy)
at fair value 779 637 - -
---- ---- ---- ----
Projected benefit obligation less than
(in excess of) plan assets 26 1 (34) (28)
Unrecognized net (gain) loss from
experience different than assumed (69) (35) 7 5
Unrecognized prior service cost 43 40 2 2
Unrecognized net transition
(asset) obligation (32) (39) - 1
----- ----- ----- -----
Recorded liability $(32) $(33) $(25) $(20)
===== ===== ===== =====
Beginning January 1, 1986, the amortization period for the Pension Plan's
unrecognized net transition asset is 16 years and 11 years for the SERP's
unrecognized net transition obligation. Prior service costs are amortized
on a straight-line basis over the average remaining service period of
active employees.
13: Leases
CMS Energy, Consumers, and Enterprises lease various assets, including
vehicles, rail cars, aircraft, construction equipment, computer equipment,
nuclear fuel and buildings. Consumers' nuclear fuel capital leasing
arrangement is scheduled to expire in November 1997 and provides for
additional one-year extensions upon mutual agreement by the parties. Upon
termination of the lease, the lessor would be entitled to a cash payment
equal to its remaining investment, which was $65 million as of December
31, 1995. Consumers is responsible for payment of taxes, maintenance,
operating costs, and insurance.
Minimum rental commitments under CMS Energy's non-cancelable leases at
December 31, 1995, were:
In Millions
Capital Operating
Leases Leases
1996 $ 55 $ 7
1997 56 7
1998 17 6
1999 14 4
2000 13 3
2001 and thereafter 24 18
----- -----
Total minimum lease payments 179 $45
Less imputed interest 27 =====
-----
Present value of net minimum lease payments 152
Less current portion 46
-----
Non-current portion $106
=====
Consumers recovers these charges from customers and accordingly charges
payments for its capital and operating leases to operating expense.
Operating lease charges, including charges to clearing and other accounts
as of December 31, 1995, 1994 and 1993, were $11 million, $10 million and
$10 million, respectively.
Capital lease expenses for the years ended December 31, 1995, 1994 and
1993 were $46 million, $43 million and $34 million, respectively.
Included in these amounts for the years ended 1995, 1994 and 1993 are
nuclear fuel lease expenses of $25 million, $21 million and $13 million,
respectively.
14: Commitments, Contingencies and Other
Ludington Pumped Storage Plant: Early in 1996, the FERC and MPSC approved
the recovery of costs associated with a settlement designed to resolve all
legal issues related to fish mortality at Ludington. Consumers, Detroit
Edison, the Attorney General, the DNR and certain other parties agreed to
the terms of the settlement in 1994. Approval of the settlement requires
Consumers to transfer certain land to the State of Michigan and the Great
Lakes Fishery Trust, make certain recreational improvements, and incur
future annual payments of approximately $1 million (over 24 years) to
improve fishery resources. The settlement resolves two lawsuits filed by
the Attorney General in 1986 and 1987 on behalf of the State of Michigan.
Environmental Matters: Consumers is a so-called "Potentially Responsible
Party" at several sites being administered under Superfund. Superfund
liability is joint and several and 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 December 31, 1995, Consumers has accrued a liability for its
estimated losses.
The Michigan Natural Resources and Environmental Protection Act (formerly
the Michigan 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. Three of the four plans submitted by
Consumers have been approved by the DNR or the Michigan Department of
Environmental Quality (a new department succeeding to some of the former
jurisdiction of the DNR). The findings for the first remedial
investigation indicate that the expenditures for remedial action at this
site are likely to be minimal. However, Consumers does not believe that a
single site is representative of all of the sites. Data available to
Consumers and its continued internal review have resulted in an estimate
for all costs related to investigation and remedial action for all 23
sites of between $48 million and $112 million. These estimates are based
on undiscounted 1995 costs. At December 31, 1995, Consumers has accrued a
liability of $48 million and has established a regulatory asset for
approximately the same amount. Any significant change in assumptions such
as remediation technique, nature and extent of contamination and legal 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. In early 1996,
the MPSC issued an order in this case which authorized Consumers to defer
costs and amortize them over 10 years. The amount of authorized annual
recovery totaled $1 million. Consumers is continuing discussions with
certain insurance companies regarding coverage for some or all of the
costs which may be incurred for these sites.
The Clean Air Act contains provisions that limit emissions of sulfur
dioxide and nitrogen oxides and require 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 limits
applicable to the other coal-fired units are expected to be issued in
1996. Management believes that Consumers' annual operating costs will not
be materially affected.
Capital Expenditures: CMS Energy estimates capital expenditures,
including investments in unconsolidated subsidiaries and new lease
commitments, of $856 million for 1996, $775 million for 1997 and $750
million for 1998.
Commitments for Coal and Gas Supplies: Consumers has entered into coal
supply contracts with various suppliers for its coal-fired generating
stations. These contracts have expiration dates that range from 1997 to
2004. Consumers contracts for approximately 60 - 70 percent of its annual
coal requirements which in 1995 totaled $233 million (72 percent was under
long-term contracts). Consumers supplements its long-term contracts with
spot-market purchases to fulfill its coal needs.
Consumers has entered into gas supply contracts with various suppliers for
its natural gas business. These contracts have expiration dates that
range from 1996 to 2003. In 1995, Consumers' gas requirements totaled
$694 million (80 percent was under long-term contracts). In the future,
Consumers expects that approximately 35 percent of its annual gas
requirements will be under long-term contracts. Consumers supplements its
long-term contracts with spot-market purchases to fulfill its gas needs.
Other: As of December 31, 1995, CMS Energy and Enterprises have
guaranteed up to $62 million in contingent obligations of unconsolidated
affiliates of Enterprises' subsidiaries.
CMS NOMECO periodically enters into oil and gas price hedging arrangements
to mitigate its exposure to price fluctuations on the sale of crude oil
and natural gas. These arrangements limit potential gains/losses from any
future decrease/increase in the spot prices. As of December 31, 1994,
CMS NOMECO was party to gas price collar contracts on 7.3 bcf of gas for
the delivery months of January through December 1995 at prices ranging
from $2.05 to $2.35 per MMBtu. As of December 31, 1995, CMS NOMECO also
has contracts on 7.4 bcf of gas for the delivery months of January through
May 1996 at prices ranging from $1.89 to $2.18 per MMBtu. These hedging
arrangements are accounted for as hedges; accordingly, any changes in
market value and gains or losses from settlements are deferred and
recognized at such time as the hedged transaction is completed. As of
December 31, 1994 and December 31, 1995, the fair values of these hedge
arrangements were not materially different than the book value.
CMS NOMECO also has one arrangement which is used to fix the prices that
CMS NOMECO will pay to supply gas for the years 2001 - 2006 by purchasing
the economic equivalent of 10,000 MMBtu per day at a fixed, escalated
price starting at $2.82 per MMBtu in 2001. The settlement periods are
each a one-year period ending December 31, 2001 through 2006 on 3.65
MMBtu. If the "floating price," essentially the then current Gulf Coast
spot price, for a period is higher than the "fixed price," the seller pays
CMS NOMECO the difference, and vice versa. If a party's exposure at any
time exceeds $2 million, that party is required to obtain a letter of
credit in favor of the other party for the excess over $2 million and up
to $10 million. At December 31, 1995, a letter of credit was not
required.
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 December 31, 1995, Consumers
had 30 separate stray voltage lawsuits awaiting trial court action, down
from 83 lawsuits at December 31, 1994.
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.
15: Nuclear Matters
In 1993, the NRC approved the design of the spent fuel dry storage casks
now being used by Consumers at Palisades. 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. As of December 31, 1995, Consumers had
loaded 13 dry storage casks with spent nuclear fuel at Palisades.
In 1996, 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 the cask continues to safely store
spent fuel and there is no requirement for its replacement, 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. Certain parties, including the Attorney
General, have petitioned the NRC to suspend Consumers' general license to
store spent fuel, claiming that Consumers' cask unloading procedure does
not satisfy NRC regulations. The NRC staff is reviewing the petitions.
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 has been storing low-
level waste at its nuclear plant sites. Consumers began shipping its low-
level waste to a site in South Carolina during 1995 and plans to have all
its currently stored low-level waste removed from the plant sites by the
end of 1996.
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: $30 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.
Under its NML and NEIL policies, Consumers may be entitled to cash
distributions following the discontinued operation of its nuclear
facilities. The amount of any distribution would be determined by NML and
NEIL and would be based, in part, on their overall underwriting
experience.
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 whether the studies being conducted as part of the
development plans will support a future decision to anneal.
16: Jointly Owned Utility Facilities
Consumers is responsible for providing its share of financing for the
jointly owned facilities. The following table indicates the extent of
Consumers' investment in jointly owned utility facilities:
In Millions
December 31 1995 1994
- ----------- ----- -----
Net investment
Ludington - 51% $116 $119
Campbell Unit 3 - 93.3% 332 337
Transmission lines - various 33 31
Accumulated depreciation
Ludington $ 81 $ 76
Campbell Unit 3 238 224
Transmission lines 14 11
17: Supplemental Cash Flow Information
For purposes of the Statement of Cash Flows, all highly liquid investments
with an original maturity of three months or less are considered cash
equivalents. Other cash flow activities and non-cash investing and
financing activities for the years ended December 31 were:
In Millions
1995 1994 1993
----- ----- -----
Cash transactions
Interest paid (net of amounts capitalized) $207 $162 $193
Income taxes paid (net of refunds) 34 36 32
Non-cash transactions
Nuclear fuel placed under capital lease $ 26 $ 21 $ 28
Other assets placed under capital leases 5 15 30
Common Stock issued to acquire companies 90 - -
Assumption of debt 20 - -
Capital leases refinanced 21 - 42
Changes in other assets and liabilities as shown on the Consolidated
Statements of Cash Flows at December 31 are described below:
In Millions
1995 1994 1993
----- ----- -----
Sale of receivables, net $ 20 $(10) $ 60
Accounts receivable (80) (15) 22
Accrued revenue (24) 20 (48)
Inventories 43 (4) (32)
Accounts payable 112 26 (31)
Accrued refunds (3) (3) (49)
Other current assets and liabilities, net 30 4 (4)
Non-current deferred amounts, net (9) (6) (6)
----- ----- -----
$ 89 $ 12 $(88)
===== ===== =====
18: Reportable Segments
CMS Energy operates principally in the following five business segments:
electric utility, gas utility, oil and gas exploration and production,
independent power production, and natural gas transmission, storage and
marketing.
The Consolidated Statements of Income show operating revenue and pretax
operating income by business segment. Other segment information follows:
In Millions
Years Ended December 31 1995 1994 1993
- ----------------------- ----- ----- -----
Depreciation, depletion and amortization
Electric utility $ 272 $ 257 $ 241
Gas utility 83 76 73
Oil and gas exploration and production 52 41 45
Independent power production 4 2 2
Natural gas transmission, storage
and marketing 3 2 1
Other 2 1 2
------- ------- -------
$ 416 $ 379 $ 364
======= ======= =======
Identifiable assets
Electric utility (a) $4,522 $4,364 $4,100
Gas utility (a) 1,690 1,673 1,628
Oil and gas exploration and production 660 469 398
Independent power production 840 536 488
Natural gas transmission, storage
and marketing 303 109 75
Other 128 227 275
------- ------- -------
$8,143 $7,378 $6,964
======= ======= =======
Capital expenditures (b)
Electric utility $ 328 $ 358 $ 403
Gas utility 126 134 158
Oil and gas exploration and production (c) 168 115 83
Independent power production 239 29 110
Natural gas transmission, storage
and marketing 178 31 14
Other 14 5 -
------ ------ ------
$1,053 $ 672 $ 768
====== ====== ======
(a) Amounts include an attributed portion of Consumers' other common
assets to both the electric and gas utility businesses.
(b) Includes capital leases for nuclear fuel and other assets and electric
DSM costs (see Statement of Cash Flows). Amounts also include an
attributed portion of Consumers' capital expenditures for plant and
equipment common to both the electric and gas utility businesses.
(c) Includes common stock issued for acquisitions.
19: Effects of the Ratemaking Process
The following regulatory assets (liabilities) which include both current
and non-current amounts, are reflected in the Consolidated Balance Sheets.
These assets represent probable future revenue to Consumers associated
with certain incurred costs as these costs are recovered through the
ratemaking process.
In Millions
December 31 1995 1994
- ------------ ----- -----
Postretirement benefits (Note 12) $ 487 $ 503
Income taxes (Note 5) 176 189
Abandoned Midland project 131 147
DSM - deferred costs (Note 4) 68 71
Trunkline settlement 55 85
Manufactured gas plant sites (Note 14) 47 47
Power purchase contracts (Note 3) 44 30
Uranium enrichment facility 25 25
Other 22 31
------ ------
Total regulatory assets $1,055 $1,128
====== ======
Income taxes (Note 5) $ (220) $ (205)
DSM - deferred revenue (25) (21)
Other (1) -
------ ------
Total regulatory liabilities $ (246) $ (226)
====== ======
At December 31, 1995, approximately $778 million of Consumers' regulatory
assets are being recovered through rates being charged to customers over
periods of up to 17 years. Consumers anticipates MPSC approval for
recovery of the remaining amounts.
20: Summarized Financial Information of Significant Related Energy
Supplier
Under the PPA with the MCV Partnership discussed in Note 3, Consumers'
1995 obligation to purchase electric capacity from the MCV Partnership was
approximately 16 percent of Consumers' owned and contracted capacity.
Summarized financial information of the MCV Partnership follows:
Statements of Income
In Millions
Years Ended December 31 1995 1994 1993
- ----------------------- ----- ----- -----
Operating revenue (a) $ 618 $ 579 $ 548
Operating expenses 386 378 362
------ ------ ------
Operating income 232 201 186
Other expense, net 171 183 189
------ ------ ------
Net income (loss) $ 61 $ 18 $ (3)
====== ====== ======
Balance Sheets
In Millions
December 31 1995 1994
- ------------ ---- ----
Assets
Current assets (b) $ 263 $ 206
Property, plant and equipment, net 1,948 2,012
Other assets 156 154
------ ------
$2,367 $2,372
====== ======
Liabilities and Partners' Equity
Current liabilities $ 225 $ 218
Long-term debt and other non-current
liabilities (c) 2,008 2,081
Partners' equity (d) 134 73
------ ------
$2,367 $2,372
====== ======
(a) Revenue from Consumers totaled $571 million, $534 million and $505
million for 1995, 1994 and 1993, respectively.
(b) At December 31, 1995 and 1994, $48 million was receivable from
Consumers.
(c) FMLP is the sole beneficiary of an owner trust that is the lessor in a
long-term direct finance lease with the lessee, MCV Partnership.
CMS Holdings holds a 46.4 percent ownership interest in FMLP. At December
31, 1995 and 1994, lease obligations of $1.6 billion and $1.7 billion,
respectively, were owed to the owner trust. CMS Holdings' share of the
interest and principal portion for the 1995 lease payments was $66 million
and $23 million, respectively, and for the 1994 lease payments was $68
million and $14 million, respectively. The lease payments service $1.1
billion and $1.2 billion in non-recourse debt outstanding as of December
31, 1995 and 1994, respectively, of the owner-trust. FMLP's debt is
secured by the MCV Partnership's lease obligations, assets, and operating
revenues. For 1995 and 1994, the owner-trust made debt payments
(including interest) of $192 million and $175 million, respectively.
(d) CMS Midland's recorded investment in the MCV Partnership includes
capitalized interest, which is being amortized to expense over the life of
its investment in the MCV Partnership.
<PAGE>
<PAGE> 94
ARTHUR ANDERSEN LLP
Report of Independent Public Accountants
To CMS Energy Corporation:
We have audited the accompanying consolidated balance sheets and
consolidated statements of preferred stock of CMS ENERGY CORPORATION (a
Michigan corporation) and subsidiaries as of December 31, 1995 and 1994,
and the related consolidated statements of income, common stockholders'
equity, and cash flows for each of the three years in the period ended
December 31, 1995. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of CMS
Energy Corporation and subsidiaries as of December 31, 1995 and 1994, and
the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1995 in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Detroit, Michigan,
January 26, 1996.
<PAGE>
<PAGE> 95
<TABLE>
Quarterly Financial and Common Stock Information CMS Energy Corporation
<CAPTION>
In Millions,
Except Per Share Amounts
1995 (Unaudited) 1994 (Unaudited)
Quarters Ended March 31 June 30 Sept. 30 Dec. 31 March 31 June 30 Sept. 30 Dec. 31
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Operating revenue $1,117 $835 $869 $1,069 $1,140 $795 $766 $913
Pretax operating income $206 $124 $149 $124 $175 $108 $125 $95
Net income $86 $33 $47 $38 $78 $30 $40 $31
Earnings (loss) per average
common share:
CMS Energy $.99 $.37 $.54 $.37 $.92 $.35 $.46 $.36
Class G - - $(.17) $.55 - - - -
Dividends declared per
common share:
CMS Energy $.21 $.21 $.24 $.24 $.18 $.18 $.21 $.21
Class G - - $.28 $.28 - - - -
Common stock prices (a)
CMS Energy:
High $24-3/4 $25-3/8 $26-3/8 $30 $25 $22-7/8 $23-3/8 $23-1/4
Low $22-5/8 $22-1/2 $23-3/8 $26 $21-1/8 $19-5/8 $20-5/8 $20-7/8
Class G:
High - - $18-3/4 $18-7/8 - - - -
Low - - $16-1/8 $17-5/8 - - - -
<FN>
(a) Based on New York Stock Exchange - Composite transactions.
</TABLE>
<PAGE>
<PAGE> 96
Consumers Power Company
1995 Financial Statements
<PAGE>
(This page intentionally left blank)
<PAGE>
<PAGE> 98
<TABLE>
Selected Financial Information Consumers Power Company
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C>
Operating revenue (in millions) ($) 3,511 3,356 3,243 2,978 2,908
Net income (loss) (in millions) (a) ($) 255 226 198 (244) (249)
Net income (loss) after dividends
on preferred stock (in millions) ($) 227 202 187 (255) (260)
Cash from operations (in millions) ($) 642 598 403 470 347
Capital expenditures, excluding capital
lease additions and DSM (in millions) ($) 414 447 451 411 279
Total assets (in millions) ($) 6,954 6,809 6,551 6,596 5,986
Long-term debt, excluding current
maturities (in millions) ($) 1,922 1,953 1,839 2,079 1,846
Non-current portion of capital
leases (in millions) ($) 104 108 106 88 57
Total preferred stock (in millions) ($) 356 356 163 163 163
Number of preferred shareholders
at year-end 10,084 10,599 7,037 7,376 7,616
Book value per common share at
year-end ($) 19.00 16.96 15.28 14.64 17.67
Return on average common equity (%) 15.0 14.9 14.8 (18.8) (16.2)
Return on assets (%) 5.3 4.9 4.7 (0.2) (0.6)
Number of full-time equivalent
employees at year-end
Consumers 9,262 9,409 9,495 9,459 8,861
Michigan Gas Storage 70 73 72 72 72
Electric statistics
Sales (millions of kWh) 35,506 34,462 32,764 31,601 31,813
Customers (in thousands) 1,570 1,547 1,526 1,506 1,492
Average sales rate per kWh cents 6.36 6.29 6.28 5.82 5.73
Gas statistics
Sales and transportation
deliveries (bcf) 404 409 411 384 362
Customers (in thousands) (b) 1,475 1,448 1,423 1,402 1,382
Average sales rate per mcf ($) 4.42 4.48 4.46 4.55 4.58
<FN>
(a) Amount in 1991 included an extraordinary loss of $14 million, after tax.
(b) Excludes off-system transportation customers.
</TABLE>
<PAGE>
<PAGE> 99
Consumers Power Company
Management's Discussion and Analysis
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 segment of which is the automotive industry.
Consolidated Earnings
Consolidated net income after dividends on preferred stock totaled $227
million in 1995, compared to net income of $202 million and $187 million
in 1994 and 1993, respectively. The improved net income for 1995 reflects
increased electric sales and gas deliveries, increased electric revenue as
a result of the May 1994 rate increase, reversal of losses previously
recorded for gas contingencies (see Note 4), and improved operating
results from Consumers' interest in the MCV Facility. For further
information, see the Electric and Gas Utility Results of Operations
sections. The increased 1994 net income over the 1993 period reflects a
significant increase in electric sales, the impact of the 1994 electric
rate increase, recognition of incentive revenue related to DSM programs,
and the favorable resolution of a previously recorded gas cost
contingency.
Cash Position, Financing and Investing
Cash from operations is derived from the sale and transportation of
natural gas and the generation, transmission, and sale of electricity.
Cash from operations during 1995 increased $44 million from the 1994 level
primarily from higher sales of electricity and gas, lower gas inventories
and timing of cash payments related to its operations partially offset by
higher power purchases from the MCV Partnership. Consumers primarily uses
this operating cash to maintain its electric and gas systems and retire
portions of its long-term debt and pay dividends.
Financing Activities: Net cash used in financing activities in 1995
increased $76 million from 1994, reflecting no new stock or debt issuances
during 1995. This change also reflects a $100 million equity investment
from CMS Energy during 1994. During 1995, Consumers declared $70 million
in common stock dividends. This represents a decrease from 1994 as
Consumers temporarily suspended its common dividends in lieu of CMS Energy
making a direct equity infusion of cash into Consumers. In 1996,
Consumers plans to resume common stock dividend payments to CMS Energy.
Dividends on preferred stock increased to $28 million in 1995, reflecting
the issuance of additional preferred stock in 1994.
Investing Activities: Net cash used in investing activities in 1995
decreased $9 million from 1994, primarily reflecting decreased capital
expenditures. Capital expenditures, including assets placed under capital
lease (see Note 15) and deferred DSM costs, totaled $454 million in 1995
as compared to $492 million in 1994 and $561 million in 1993. These
amounts primarily represent capital investments in Consumers' electric and
gas utility business units.
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.
In Millions
Years Ended December 31 1996 1997 1998
----- ----- -----
Consumers
Construction $389 $368 $340
Nuclear fuel lease 34 5 41
Capital leases other than nuclear fuel 10 19 16
Michigan Gas Storage 2 3 3
----- ----- -----
$435 $395 $400
===== ===== =====
Consumers is required to redeem or retire $726 million of long-term debt
over the three-year period ending December 1998. Cash provided by
operating activities is expected to satisfy a substantial portion of these
capital expenditures and debt retirements. Additionally, Consumers will
continue to evaluate the capital markets as a source of financing its
investing activities and required debt retirements.
Consumers has several available, unsecured, committed lines of credit
totaling $145 million and a $425 million working capital facility.
Consumers has FERC authorization to issue or guarantee up to $900 million
in short-term debt through December 31, 1996. Consumers uses short-term
borrowings to finance working capital and gas in storage, 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 December 31, 1995 and 1994, receivables sold totaled
$295 million and $275 million, respectively.
At December 31, 1995, Consumers' capital structure consisted of
approximately 36 percent common equity, 8 percent preferred stock, and 56
percent long- and short-term debt (including capital leases and notes
payable). Consumers is continuing its efforts to improve the percentages
of common and preferred equity on its balance sheet. In January 1996,
Consumers issued and sold, through a business trust, 4 million shares of
Trust Originated Preferred Securities with net proceeds totaling $96
million (see Note 7). Consumers also expects to improve the equity
portion of its capital structure through accumulated earnings and
controlled capital expenditures.
Electric Utility Results of Operations
Electric Pretax Operating Income: During 1995, electric pretax operating
income increased $30 million compared to 1994, reflecting significantly
higher 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. The increase was partially offset by higher
depreciation, general taxes, and electric operation expenses during 1995,
which included $9 million of additional postretirement benefit costs,
along with the impact of $11 million of DSM incentive revenue during 1994.
The 1994 increase of $46 million over the 1993 level reflects increased
electric sales, partially offset by higher depreciation and electric
operation expenses. Other factors contributing to the 1994 increase were
the impact of the May 1994 electric rate increase and the recognition of
1994 DSM incentive revenue.
In Millions
Impact on Pretax Operating Income
Change Compared to Prior Year
1995/1994 1994/1993
--------- ---------
Sales $59 $ 33
Rate increase and other regulatory issues 9 38
O&M, general taxes and depreciation (38) (25)
----- -----
Total change $30 $46
===== =====
Electric Sales: Total electric sales in 1995 were a record 35.5 billion
kWh, a 3.0 percent increase from the 1994 level as a result of economic
growth and warmer summer temperatures. The increase in total electric
sales included a 4.2 percent increase in sales to Consumers' ultimate
customers, with fairly consistent increases in the residential,
commercial, and industrial sectors. The increase was partially offset by
a decrease in certain sales to other utilities.
Total electric sales in 1994 were 34.5 billion kWh, a 5.2 percent increase
from the 1993 level, which included a 4.2 percent increase in system sales
to Consumers' ultimate customers.
Power Costs: Power costs for 1995 totaled $970 million, a $20 million
increase from the corresponding 1994 period, primarily reflecting
increased purchased power costs due to higher sales levels. Power costs
for 1994 totaled $950 million, a $42 million increase as compared to 1993
which reflects increased kWh production at Consumers' generating plants
and greater power purchases from outside sources to meet increased sales
demand.
Operating Expenses: Electric operation and maintenance expense for 1995
compared to 1994 increased $13 million, which included $9 million of
additional postretirement benefit costs and increased expenditures to
improve electric system reliability. Electric depreciation for 1995
compared to 1994 increased $15 million, reflecting additional property and
equipment. Electric general taxes increased $11 million in 1995 compared
to 1994, reflecting millage rate increases and additional capital
investments in property and equipment.
Electric Utility Issues
Power Purchases from the MCV Partnership: Consumers' annual obligation to
purchase contract capacity from the MCV Partnership increased 108 MW in
1995 to 1,240 MW. 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. ABATE and the
Attorney General have appealed the Settlement Order to the Court of
Appeals. 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. As anticipated in 1992,
Consumers continues to experience cash underrecoveries associated with the
Settlement Order. These after-tax cash underrecoveries totaled $90
million, $61 million and $59 million in 1995, 1994 and 1993, respectively.
Estimated future after-tax cash underrecoveries, and possible losses for
1996 and the next four years are shown in the table below.
After-tax, In Millions
1996 1997 1998 1999 2000
---- ---- ---- ---- ----
Estimated cash underrecoveries $56 $55 $ 8 $ 9 $ 7
Possible additional underrecoveries
and losses (a) 20 22 72 72 74
(a) If unable to sell any capacity above the MPSC's 1993 authorized level.
In September 1995, Consumers and the MPSC staff reached a proposed
settlement agreement that would potentially resolve several issues in
three pending proceedings, including cost recovery for the 325 MW of MCV
Facility capacity above the MPSC's currently authorized level. For
further information regarding the settlement, see Note 4.
In 1994 and 1995, Consumers terminated power purchase agreements with the
developers of a proposed 65 MW coal-fired cogeneration facility and a
proposed 44 MW wood and chipped-tire plant. To replace this capacity,
109 MW of less expensive contract capacity from the MCV Facility which
Consumers is currently not authorized to recover from retail customers
would be used. For further information, see Note 3.
Electric Rate Proceedings: Consumers filed a request with the MPSC in
late 1994 to increase its retail electric rates. In early 1996, the MPSC
granted Consumers authority to increase its annual electric retail rates
by $46 million. This partial final order did not address cost recovery
related to the 325 MW of MCV Facility contract capacity above 915 MW. The
MPSC stated that this matter would be addressed in connection with its
consideration of the proposed settlement agreement discussed below.
In September 1995, Consumers and the MPSC staff reached a proposed
settlement agreement that, if approved by the MPSC, would resolve several
outstanding regulatory issues. One of these issues, Consumers' electric
rate case, was addressed, in part, by the order discussed above. If fully
adopted, the settlement agreement would resolve Consumers' depreciation
and special competitive service cases (discussed below) and cost recovery
of 325 MW of uncommitted MCV Facility capacity. Consumers expects a final
order in the spring of 1996. For more information regarding the electric
rate order and the settlement, see Note 4.
In 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. The MPSC
staff's filing in this case did not support Consumers' requested increase
in depreciation expense, but instead proposed a decrease of $24 million.
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. In September 1995, the ALJ issued a
proposal for decision that essentially supported the MPSC staff's position
regarding depreciation expense and recommended that the MPSC reject both
Consumers' and the MPSC staff's positions regarding the reallocation of
Consumers' depreciation reserve and plant investment. This case is
currently part of the proposed settlement discussed above.
Special Rates: Consumers currently has a request before the MPSC that,
if approved, would allow Consumers a certain level of rate-pricing
flexibility to respond to customers' alternative energy options. This
request has been consolidated into the settlement proceeding discussed
above.
Electric Conservation Efforts: In June 1995, the MPSC issued an order
that authorized Consumers to discontinue future DSM program expenditures
and cease all new programs. For further information, see Note 4.
Electric Capital Expenditures: Consumers estimates capital expenditures,
including new lease commitments, related to its electric utility
operations of $311 million for 1996, $285 million for 1997 and $295
million for 1998. 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 Michigan 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 are
properly recoverable 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, liquidity or results of
operations. For further information regarding electric environmental
matters, see Note 12.
Electric Outlook
Competition: Consumers currently expects approximately 2 percent average
annual growth in electric system sales over the next five years.
Consumers continues to be affected by the developing competitive market
for electricity. The primary sources of 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. Consumers continues to work toward retaining its current
retail service customers.
In an effort to meet the challenge of competition, Consumers has signed
long-term sales contracts with some of its largest industrial customers,
including its largest customer, General Motors Corporation. Under the
General Motors contract, Consumers will serve certain facilities at least
five years and other facilities at least 10 years in exchange for
competitively discounted electric rates. Certain facilities will have the
option of taking retail wheeling service (if available) after the first
three years of the contract. The MPSC approved this contract in 1995.
As part of an order issued in early 1996, the MPSC significantly reduced
the rate subsidization of residential customers by industrial and large
commercial customers. In addition to offering electric rates that are
competitive with other energy providers, Consumers is pursuing other
strategies to retain its "at-risk" customers. These strategies include:
minimizing outages for each customer, promptly responding to customer
inquiries, and providing consulting services to help customers use energy
efficiently.
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, ABATE and The Dow Chemical Company filed claims of appeal of
the MPSC's retail wheeling orders. The Court of Appeals subsequently
consolidated these appeals with those previously filed by Detroit Edison
and the Attorney General. Consumers does not expect this short-term
experiment to have a material impact on its financial position, liquidity
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. The FERC's final rules are
expected to be announced in the spring of 1996. Consumers is unable to
predict the terms of these rules. However, management believes that
Consumers is well-positioned to conform to open access as it has been
voluntarily providing this transmission service since 1992.
The Governor of the State of Michigan has proposed that the MPSC review
the existing statutory and regulatory framework governing Michigan
utilities in light of increasing competition in the utility industry and
recommend appropriate revisions. At this time, no proceedings have been
initiated at the MPSC on this matter and no new legislation has been
introduced.
Changes in the competitive environment facing regulated utilities may
eventually lead to the discontinuance of SFAS 71, which allows the
deferral of certain costs and the recording of regulatory assets.
Management has evaluated Consumers' current regulatory position and
believes it continues to support the recognition of Consumers' $779
million of electric-related regulatory assets. If changes in the industry
were to lead to Consumers discontinuing the application of SFAS 71, for
all or part of its business, Consumers may be required to write-off the
portion of any regulatory asset for which no regulatory assurance of
recovery continued to exist. Consumers does not believe that there is any
current evidence that supports the write-off of any of its electric-
related regulatory assets. For further information regarding SFAS 71 and
Consumers' regulatory assets, see Notes 2 and 18.
Nuclear Matters: In July 1995, the NRC issued its Systematic Assessment
of Licensee Performance report for Palisades. The report recognized
improved performance at the plant, specifically in the areas of
Engineering and Plant Operations. In the report, the NRC noted areas
which continue to require management's attention, but also recognized the
development and implementation of plans for corrective action designed to
address previously identified weak areas. The report noted that
performance in the areas of Maintenance and Plant Support was good and
remained unchanged.
Consumers' on-site storage pool for spent nuclear fuel at Palisades is at
capacity. Consequently, Consumers is using NRC-approved dry casks, which
are steel and concrete vaults, for temporary on-site storage. In 1996,
Consumers plans to unload and replace one of the casks where a minor flaw
has been detected. For further information, see Note 13.
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 has been storing low-
level waste at its nuclear plant sites. Consumers began shipping its low-
level waste to a site in South Carolina during 1995 and plans to have all
its currently stored low-level waste removed from the plant sites by the
end of 1996.
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 whether the studies being conducted
as a part of the development plans will support a future decision to
anneal.
At the SEC staff's request, the FASB is reviewing the accounting for
closure and removal costs for long-lived assets, including
decommissioning. The current electric utility industry accounting
practices of recording the cost of removal as a component of depreciation
could be changed. The FASB's tentative decision includes recognition of
the cost of closure and removal obligation as a liability based on
discounted future cash flows with the offset recorded as part of the cost
of the plant asset.
Stray Voltage: Consumers has experienced a number of lawsuits relating to
the effect of so-called stray voltage on certain livestock. At December
31, 1995, Consumers had 30 separate stray voltage lawsuits awaiting trial
court action, down from 83 lawsuits at December 31, 1994. Consumers
believes that the resolution of these lawsuits will not have a material
impact on its financial position or results of operations.
Gas Utility Results of Operations
Gas Pretax Operating Income: For 1995, gas pretax operating income
increased $16 million compared to 1994, reflecting higher gas deliveries
(see Gas Deliveries section), and the reversal of losses previously
recorded for gas contingencies (see Note 4). Partially offsetting this
increase were higher depreciation and gas operation expenses. For 1994,
gas pretax operating income decreased $11 million compared to 1993,
reflecting slightly lower gas sales and higher depreciation and gas
operation and maintenance expenses, partially offset by the favorable
resolution of a previously recorded gas cost contingency.
In Millions
Impact on Pretax Operating Income
Change Compared to Prior Year
1995/1994 1994/1993
--------- ---------
Sales $12 $(3)
Regulatory recovery of gas cost 19 10
O&M, general taxes and depreciation (15) (18)
----- -----
Total change $16 $(11)
===== =====
Gas Deliveries: Gas sales in 1995 totaled 254 bcf, a 5.2 percent increase
from 1994 levels, and total system deliveries, excluding transport to the
MCV Facility, increased 6.5 percent from 1994. On a weather-adjusted
basis, total system deliveries increased 4.1 percent, reflecting
significant growth. In 1994, total system deliveries, excluding transport
to the MCV Facility, were 314 bcf, a slight decrease from 1993 deliveries.
Cost of Gas Sold: The cost of gas sold for 1995 increased $9 million from
the 1994 level, as a result of increased deliveries. The increased costs
reflect the reversal of a $23 million gas supplier loss contingency.
Operating Expenses: Gas operation and maintenance expense increased $12
million, reflecting an $8 million gas inventory loss. Gas depreciation
for 1995 compared to 1994 increased $7 million, reflecting additional
capital investment in property and equipment.
Gas Utility Issues
Gas Rates: In December 1994, Consumers filed a request with the MPSC to
increase Consumers' annual gas rates. The requested increase totaling $7
million reflected increased expenditures, including those associated with
postretirement benefits, and a 12.25 percent return on equity. The MPSC
staff recommended a $13 million rate decrease. In November 1995, the ALJ
issued a proposal for decision that essentially adopted the MPSC staff's
position. In early 1996, the MPSC issued a final order in this case,
decreasing Consumers' annual gas rates by $11.7 million. For further
information regarding this case, see Note 4.
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 Matters: In October 1995, the MPSC issued an order regarding a $44
million (excluding any interest) gas supply contract pricing dispute
between Consumers and certain intrastate producers. The order stated that
Consumers was not obligated to seek prior approval of market-based pricing
provisions that were implemented under the contracts in question. The
producers subsequently filed a claim of appeal of the MPSC order with the
Court of Appeals. Consumers believes the MPSC order supports its position
that the producers' theories are 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
$124 million for 1996, $110 million for 1997 and $105 million for 1998.
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: 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 1995 costs.
At December 31, 1995, Consumers has accrued a liability for $48 million
and has established a regulatory asset for approximately the same amount.
Any significant change in assumptions such as remediation technique,
nature and extent of contamination and regulatory requirements, could
impact the estimate of remedial action costs for the sites.
Consumers requested recovery and deferral of certain investigation and
remedial action costs in its gas rate case filed in December 1994.
Consumers believes that remedial action costs are recoverable in rates and
is continuing 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 12.
Gas Outlook
Consumers currently anticipates gas deliveries to grow approximately 2
percent per year (excluding transportation to the MCV Facility 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. The emerging use of natural gas vehicles also provides
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. Consumers also plans additional capital
expenditures to construct new gas mains that are expected to expand
Consumers' system.
In 1995, Consumers purchased approximately 80 percent of its required gas
supply under long-term contracts, and the balance on the spot market.
Consumers estimates that approximately 35 percent of its gas purchases
will be under long-term contracts in future years as current contracts
expire. Consumers also has transmission contracts totaling approximately
90 percent of its supply requirements. The expiration dates of the
transmission contracts range from 1997 to 2004.
In 1995, the Low Income Home Energy Assistance Program provided
approximately $71 million in heating assistance to about 400,000 Michigan
households, with approximately 18 percent of funds going to Consumers'
customers. In late 1995, federal legislative approval provided Michigan
residents with approximately $60 million of funding for 1996. Consumers
cannot predict what level of funding will be approved for 1997.
In January 1996, the MPSC issued a Notice of legislative-type hearings to
be held in 1996, to assess whether it is appropriate to allow all natural
gas customers access to gas transportation service. The MPSC notice
designated all eight local distribution companies whose rates are
regulated by the MPSC as parties to this proceeding.
Under SFAS 71, Consumers is allowed to defer certain costs to the future
and record regulatory assets, based on the recoverability of those costs
through the MPSC's approval. Consumers has evaluated its $276 million of
regulatory assets (see Note 18) related to its gas business, and believes
that sufficient regulatory assurance exists to provide for the recovery of
these deferred costs.
Other
New Accounting Standard: In 1995, the FASB issued SFAS 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of, which is effective for 1996. Consumers does not expect the
application of this statement to have a material impact on its financial
position, liquidity or results of operations. For further information,
see Note 2.
<PAGE>
<PAGE> 108
<TABLE>
Consolidated Statements of Income Consumers Power Company
In Millions
<CAPTION>
Years Ended December 31 1995 1994 1993
<S> <C> <C> <C>
Operating Revenue Electric $2,277 $2,189 $2,077
Gas 1,195 1,151 1,160
Other 39 16 6
---------------------------------
Total operating revenue 3,511 3,356 3,243
---------------------------------
Operating Expenses Operation
Fuel for electric generation 283 306 293
Purchased power - related parties 491 482 467
Purchased and interchange power 196 162 148
Cost of gas sold 671 662 678
Other 592 562 516
---------------------------------
Total operation 2,233 2,174 2,102
Maintenance 183 188 203
Depreciation, depletion and amortization 357 335 316
General taxes 189 178 187
---------------------------------
Total operating expenses 2,962 2,875 2,808
---------------------------------
Pretax Operating Electric 362 332 286
Income Gas 151 135 146
Other 36 14 3
---------------------------------
Total pretax operating income 549 481 435
Income Taxes 145 120 105
---------------------------------
Net Operating Income 404 361 330
---------------------------------
Other Income Dividends from affiliates 17 17 16
(Deductions) Other income taxes, net 12 12 14
Accretion income (Note 2) 11 13 14
Accretion expense (Note 2) (31) (35) (36)
Bond income - - 32
Other, net 5 9 1
---------------------------------
Total other income 14 16 41
---------------------------------
Interest Charges Interest on long-term debt 141 135 152
Other interest 24 17 22
Capitalized interest (2) (1) (1)
---------------------------------
Net interest charges 163 151 173
---------------------------------
Net Income 255 226 198
Preferred Stock Dividends 28 24 11
---------------------------------
Net Income after Dividends on Preferred Stock $ 227 $ 202 $ 187
=================================
<FN>
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
<PAGE> 109
<TABLE>
Consolidated Statements of Cash Flows Consumers Power Company
<CAPTION>
In Millions
Years Ended December 31 1995 1994 1993
<S> <C> <C> <C>
Cash Flows From Net income $ 255 $ 226 $ 198
Operating Activities Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation, depletion and amortization (includes
nuclear decommissioning of $51, $49 and
$46, respectively) 357 335 316
Capital lease and other amortization 38 35 30
Deferred income taxes and investment tax credit 57 57 50
Accretion expense (Note 2) 31 35 36
Accretion income - abandoned Midland project (Note 2) (11) (13) (14)
Undistributed earnings of related parties (36) (16) (5)
Power purchases - settlement (Note 3) (137) (87) (84)
Other 4 2 2
Changes in other assets and liabilities (Note 15) 84 24 (126)
------ ------ ------
Net cash provided by operating activities 642 598 403
------ ------ ------
Cash Flows From Capital expenditures (excludes capital lease additions
Investing Activities of $31, $36 and $58, respectively and DSM) (Note 15) (414) (447) (451)
Investments in nuclear decommissioning trust funds (51) (49) (46)
Cost to retire property, net (41) (38) (32)
Deferred demand-side management costs (9) (9) (52)
Proceeds from sale of property 1 14 1
Other (5) 1 (2)
Proceeds from sale of bond investments - - 322
Sale of subsidiary - - (14)
------ ------ ------
Net cash used in investing activities (519) (528) (274)
------ ------ ------
Cash Flows From Payment of common stock dividends (70) (176) (133)
Financing Activities Payment of capital lease obligations (37) (34) (24)
Payment of preferred stock dividends (28) (19) (11)
Retirement of bonds and other long-term debt (1) (133) (641)
Increase in notes payable, net 2 80 44
Repayment of bank loans - (469) (31)
Proceeds from bank loans - 400 -
Proceeds from preferred stock - 193 -
Contribution from stockholder - 100 -
Proceeds from bonds - - 644
------ ------ ------
Net cash used in financing activities (134) (58) (152)
------ ------ ------
Net Increase (Decrease) in Cash and Temporary Cash Investments (11) 12 (23)
Cash and temporary cash investments
Beginning of year 25 13 36
------ ------ ------
End of year $ 14 $ 25 $ 13
====== ====== ======
<FN>
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
<PAGE> 110
<TABLE>
Consolidated Balance Sheets Consumers Power Company
<CAPTION>
ASSETS In Millions
December 31 1995 1994
<S> <C> <C>
Plant (At original cost) Electric $6,103 $5,771
Gas 2,169 2,064
Other 30 30
---------------------
8,302 7,865
Less accumulated depreciation, depletion
and amortization (Note 2) 4,090 3,794
---------------------
4,212 4,071
Construction work-in-progress 190 241
---------------------
4,402 4,312
---------------------
Investments Stock of affiliates (Note 17) 337 317
First Midland Limited Partnership (Notes 3 and 19) 225 218
Midland Cogeneration Venture Limited
Partnership (Notes 3 and 19) 103 74
Other 7 8
---------------------
672 617
---------------------
Current Assets Cash and temporary cash investments at cost, which
approximates market 14 25
Accounts receivable and accrued revenue, less allowances
of $3 in 1995 and $4 in 1994 (Note 6) 137 100
Accounts receivable - related parties 10 12
Inventories at average cost
Gas in underground storage 184 235
Materials and supplies 72 75
Generating plant fuel stock 37 37
Deferred income taxes (Note 5) 26 35
Postretirement benefits (Note 10) 25 25
Prepayments and other 181 173
---------------------
686 717
---------------------
Non-current Assets Postretirement benefits (Note 10) 462 478
Nuclear decommissioning trust funds (Note 2) 304 213
Abandoned Midland project 131 147
Other 297 325
---------------------
1,194 1,163
---------------------
Total Assets $6,954 $6,809
=====================
</TABLE>
<PAGE> 111
<TABLE>
<CAPTION>
Consumers Power Company
STOCKHOLDERS' INVESTMENT AND LIABILITIES In Millions
December 31 1995 1994
<S> <C> <C>
Capitalization (Note 7) Common stockholder's equity
Common stock $ 841 $ 841
Paid-in-capital 491 491
Revaluation capital 29 15
Retained earnings since December 31, 1992 237 80
---------------------
1,598 1,427
Preferred stock 356 356
Long-term debt 1,922 1,953
Non-current portion of capital leases 104 108
---------------------
3,980 3,844
---------------------
Current Liabilities Current portion of long-term debt and capital leases 90 45
Notes payable 341 339
Accrued taxes 225 173
Accounts payable 207 165
Power purchases - settlement (Note 3) 90 95
Accounts payable - related parties 56 51
Accrued interest 32 37
Accrued refunds 22 25
Other 178 187
---------------------
1,241 1,117
---------------------
Non-current Liabilities Deferred income taxes (Note 5) 605 568
Postretirement benefits (Note 10) 517 532
Power purchases - settlement (Note 3) 221 324
Deferred investment tax credit 169 179
Regulatory liabilities for income taxes, net (Notes 5 and 18) 44 16
Other 177 229
---------------------
1,733 1,848
---------------------
Commitments and Contingencies (Notes 2, 3, 4, 11, 12 and 13)
Total Stockholders' Investment and Liabilities $6,954 $6,809
=====================
<FN>
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
<PAGE> 112
<TABLE>
Consolidated Statements of Long-Term Debt Consumers Power Company
<CAPTION>
In Millions
December 31 1995 1994
<S> <C> <C>
First Mortgage Bonds Series (%) Due
5-7/8 1996 $ 36 $ 36
6 1997 50 50
8-3/4 1998 248 248
6-5/8 1998 45 45
6-7/8 1998 43 43
8-7/8 1999 200 200
7-1/2 2001 57 57
7-1/2 2002 62 62
6-3/8 2003 300 300
7-3/8 2023 300 300
------- -------
1,341 1,341
Long-Term Bank Debt 400 400
Pollution Control Revenue Bonds 131 131
Nuclear Fuel Disposal 100 95
Other 4 5
------- -------
Principal Amount Outstanding 1,976 1,972
Current Amounts (45) (9)
Net Unamortized Discount (9) (10)
------- -------
Total Long-Term Debt $1,922 $1,953
======= =======
</TABLE>
<TABLE>
LONG-TERM DEBT MATURITIES AND IMPROVEMENT FUND OBLIGATIONS In Millions
<CAPTION>
First Mortgage Improvement Long-Term
Bonds Fund Bank Debt Other Total
<S> <C> <C> <C> <C> <C>
1996 $ 36 $8 $ - $ 1 $ 45
1997 50 8 - 1 59
1998 336 7 200 102 645
1999 200 3 200 - 403
2000 - 1 - - 1
<FN>
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
<PAGE> 113
<TABLE>
Consolidated Statements of Preferred Stock Consumers Power Company
<CAPTION>
Optional
Redemption Number of Shares In Millions
December 31 Series Price 1995 1994 1995 1994
<S> <C> <C> <C> <C> <C> <C>
Preferred Stock
Cumulative, $100 par value,
authorized 7,500,000 shares,
with no mandatory redemption $4.16 $103.25 68,451 68,451 $ 7 $ 7
4.50 110.00 373,148 373,148 37 37
7.45 101.00 379,549 379,549 38 38
7.68 101.00 207,565 207,565 21 21
7.72 101.00 289,642 289,642 29 29
7.76 102.21 308,072 308,072 31 31
Class A Preferred Stock
Cumulative, no par value,
authorized 16,000,000 shares,
with no mandatory redemption 2.08 25.00 (a) 8,000,000 8,000,000 193 193
---- ----
Total Preferred Stock $356 $356
==== ====
<FN>
(a) Redeemable beginning April 1, 1999.
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
<PAGE> 114
<TABLE>
Consolidated Statements of Common Stockholder's Equity Consumers Power Company
<CAPTION>
In Millions
Other
Common Paid-in Revaluation Retained
Stock Capital Capital Earnings Total
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1993 (a) $841 $391 $ - $ - $1,232
Net income 198 198
Cash dividends declared:
Common stock (133) (133)
Preferred stock (11) (11)
-------------------------------------------------------------
Balance at December 31, 1993 (a) 841 391 - 54 1,286
Net income 226 226
Cash dividends declared:
Common stock (176) (176)
Preferred stock (24) (24)
Unrealized investment-gain 15 15
Stockholder's contribution 100 100
-------------------------------------------------------------
Balance at December 31, 1994 (a) 841 491 15 80 1,427
Net income 255 255
Cash dividends declared:
Common stock (70) (70)
Preferred stock (28) (28)
Change in unrealized investment-gain 14 14
-------------------------------------------------------------
Balance at December 31, 1995 (a) $841 $491 $29 $ 237 $1,598
=============================================================
<FN>
(a) Number of shares of common stock outstanding was 84,108,789.
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
<PAGE> 115
Consumers Power Company
Notes to Consolidated Financial Statements
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 segment of which is the automotive industry.
2: Summary of Significant Accounting Policies and Other Matters
Basis of Presentation: The consolidated financial statements include
Consumers and its wholly owned subsidiaries. The financial statements are
prepared in conformity with generally accepted accounting principles and
include the use of management's estimates. Consumers uses the equity
method of accounting for investments in its companies and partnerships
where it has more than a 20 percent but less than a majority ownership
interest.
Accretion Income and Expense: In 1991, the MPSC ordered that Consumers
could recover a portion of its abandoned Midland investment over a 10-year
period, but did not allow Consumers to earn a return on that amount.
Consumers reduced the recoverable investment to the present value of the
future recoveries. During the recovery period, the unrecovered asset is
adjusted to its present value. This adjustment is reflected as accretion
income. Conversely, Consumers recorded a loss in 1992 for the present
value of its estimated future underrecoveries of power costs resulting
from purchases from the MCV Partnership (see Note 3), and now recognizes
accretion expense annually to reflect the time value of money on the
recorded loss.
Gas Inventory: Consumers uses the weighted average cost method for
valuing working gas inventory. Cushion gas, which is gas stored to
maintain reservoir pressure for recovery of working gas, is recorded in
the appropriate gas utility plant account. Consumers stores gas inventory
in its underground storage facilities.
Maintenance, Depreciation and Depletion: Property repairs and minor
property replacements are charged to maintenance expense. Depreciable
property retired or sold plus cost of removal (net of salvage credits) is
charged to accumulated depreciation. Consumers bases depreciation
provisions for utility plant on straight-line and units-of-production
rates approved by the MPSC. The composite depreciation rate for electric
utility property was 3.5 percent for 1995, 3.5 percent for 1994 and 3.4
percent for 1993. The composite rate for gas utility plant was 4.3
percent for 1995, 4.2 percent for 1994 and 4.4 percent for 1993. The
composite rate for other plant and property was 4.9 percent for 1995 and
4.7 percent for 1994 and 1993.
New Accounting Standard: During 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 its carrying amount may not be recoverable.
The statement also requires that a loss be recognized whenever a portion
of an asset's cost is excluded from a rate-regulated 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.
Nuclear Fuel Cost: Consumers amortizes nuclear fuel cost to fuel expense
based on the quantity of heat produced for electric generation. Interest
on leased nuclear fuel is expensed as incurred. Under federal law, the DOE
is responsible for permanent disposal of spent nuclear fuel at costs to be
paid by affected utilities. However, in 1994, the DOE asserted that it
does not have a legal obligation to accept spent nuclear fuel without an
operational repository. In 1995, federal legislation was introduced to
clarify the DOE's obligation to accept spent nuclear fuel and direct the
DOE to establish an integrated spent fuel management system that includes
designing and constructing an interim storage facility in Nevada. For
fuel used after April 6, 1983, Consumers charges disposal costs to nuclear
fuel expense, recovers them through electric rates and remits to the DOE
quarterly. Consumers elected to defer payment for disposal of spent
nuclear fuel burned before April 7, 1983, until the spent fuel is
delivered to the DOE, which was originally scheduled to occur in 1998. At
December 31, 1995, Consumers has recorded a liability to the DOE of $100
million, including interest. Consumers recovered through electric rates
the amount of this liability, excluding a portion of interest.
Nuclear Plant Decommissioning: Consumers collects approximately $45
million annually from its electric customers to decommission its two
nuclear plants. On March 1, 1995, Consumers filed updated decommissioning
information with the MPSC which estimated decommissioning costs for Big
Rock and Palisades to be $303 million and $524 million (in 1995 dollars),
respectively. The estimated decommissioning costs increased from previous
estimates principally due to the unavailability of low- and high-level
radioactive waste disposal facilities. Amounts collected from electric
retail customers and deposited in trusts (including trust earnings) are
credited to accumulated depreciation. To meet NRC decommissioning
requirements, Consumers prepared site-specific decommissioning cost
estimates for Big Rock and Palisades, assuming that each plant site will
eventually be restored to conform with the adjacent landscape, and that
all contaminated equipment will be disassembled and disposed of in a
licensed burial facility. After the plants are retired, Consumers plans
to maintain the facilities in protective storage until radioactive waste
disposal facilities are available. As a result, the majority of
decommissioning costs will be incurred several years after each plant's
NRC operating license expires. When Big Rock's and Palisades' NRC
licenses expire in 2000 and 2007, respectively, the trust funds are
estimated to have accumulated $257 million and $686 million, respectively.
It is estimated that at the time the plants are fully decommissioned (in
the years 2030 for Big Rock and 2046 for Palisades), the trust funds will
have provided $1 billion for Big Rock and $2.1 billion for Palisades
including trust earnings over this decommissioning period. Based on this
plan, Consumers believes that the current decommissioning surcharge will
be sufficient to provide for decommissioning of its nuclear plants. At
December 31, 1995, Consumers had an investment in nuclear decommissioning
trust funds of $304 million.
Reclassifications: Consumers has reclassified certain prior year amounts
for comparative purposes. These reclassifications did not affect net
income for the years presented.
Revenue and Fuel Costs: Consumers accrues revenue for electricity and gas
used by its customers but not billed at the end of an accounting period.
Consumers accrues or reduces revenue for any underrecovery or overrecovery
of electric power supply costs and natural gas costs by establishing a
corresponding asset or liability until it bills or refunds these
differences to customers following an MPSC order.
Utility Regulation: Consumers accounts for the effects of regulation
under SFAS 71, Accounting for the Effects of Certain Types of Regulation.
As a result, the actions of regulators affect when revenues, expenses,
assets and liabilities are recognized.
Other: For significant accounting policies regarding income taxes, see
Note 5; for pensions and other postretirement benefits, see Note 10; and
for cash equivalents, see Note 15.
3: 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.
Consumers, through its subsidiaries, holds the following assets related to
the MCV Partnership and MCV Facility: 1) CMS Midland owns a 49 percent
general partnership interest in the MCV Partnership; and 2) CMS Holdings
holds 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 108 MW 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. ABATE and the Attorney General have appealed the
Settlement Order to the Court of Appeals. Under the Settlement Order,
capacity and energy purchases from the MCV Partnership above the 915 MW
level can be utilized to satisfy customers' power needs but the MPSC will
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. The MCV Partnership did
not object to the Settlement Order.
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, the fixed energy charge 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 energy delivered on an economic basis above the
availability limits to 915 MW, Consumers has been 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. If Consumers is unable to sell any capacity above the
1993 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 1996 and
the next four years are shown in the table below.
After-tax, In Millions
1996 1997 1998 1999 2000
---- ---- ---- ---- ----
Estimated cash underrecoveries $56 $55 $ 8 $ 9 $ 7
Possible additional underrecoveries
and losses (a) 20 22 72 72 74
(a) If unable to sell any capacity above the MPSC's 1993 authorized level.
In September 1995, Consumers and the MPSC staff reached a proposed
settlement agreement that would potentially resolve several issues in
three pending proceedings, including cost recovery for the 325 MW of MCV
Facility capacity above the MPSC's currently authorized level. For
further information regarding this proposed settlement, see Note 4.
At December 31, 1995 and 1994, the after-tax present value of the
Settlement Order liability totaled $202 million and $272 million,
respectively. The reduction in the liability since December 31, 1994,
reflects after-tax cash underrecoveries of $90 million, partially offset
by after-tax accretion expense of $20 million. The undiscounted after-tax
amount associated with the liability totaled $607 million at December 31,
1995.
In 1994 and 1995, Consumers paid $44 million to terminate power purchase
agreements with the developers of two proposed independent power projects
totaling 109 MW. As part of the proposed settlement reached with the MPSC
staff (see Note 4), Consumers is seeking MPSC approval to utilize less-
expensive contract capacity from the MCV Facility which Consumers is
currently not authorized to recover from retail customers. Cost recovery
for this contract capacity would start in late 1996. Even if Consumers is
not allowed to substitute MCV Facility capacity for the capacity to be
provided under the terminated agreements, Consumers believes that the MPSC
would approve recovery of the buyout costs due to the significant customer
savings resulting from the terminated power purchase agreements. As a
result, Consumers has recorded a regulatory asset of $44 million.
PSCR Matters Related to Power Purchases from the MCV Partnership: As part
of the 1993 and 1994 plan case orders, the MPSC confirmed the recovery of
certain costs related to power purchases from the MCV Partnership. 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 disallowed a portion of the costs related to
purchases from the MCV Partnership, and instead assumed recovery of those
costs from wholesale customers and reduced recovery from retail customers.
Consumers believes this is contrary to the terms of the Settlement Order
and has appealed the February 23 order on this issue.
4: Rate Matters
Electric Rate Proceedings: In late 1994, Consumers filed a request with
the MPSC to increase its retail electric rates. The request included
provisions for ratemaking treatment of expected sales losses to
competition and the treatment of the 325 MW of MCV Facility contract
capacity above 915 MW. Consumers also requested that the MPSC eliminate
subsidization of residential rates in a two-step adjustment.
Early in 1996, the MPSC issued a partial final order in this case,
granting Consumers a $46 million annual increase in its electric retail
rates. This order authorized a 12.25 percent return on equity as compared
to the previously approved 11.75 percent, approved recovery of certain
costs associated with a proposed settlement related to the Ludington plant
(see Note 12), and significantly reduced (in a two-step adjustment) the
subsidization of residential customers by industrial and large commercial
customers. As a result, residential customers were allocated
approximately $31 million of the $46 million increase.
This order did not address cost recovery related to the 325 MW of MCV
Facility contract capacity above 915 MW. The MPSC stated that this matter
would be addressed in connection with its consideration of the proposed
settlement agreement discussed below.
Consumers also has a separate request before the MPSC to offer competitive
special rates to certain large qualifying customers. In addition,
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. If approved, this would result
in a net decrease in depreciation expense of $7 million for ratemaking
purposes. For further information regarding these requests, see the
Electric Rate Proceedings and Special Rates discussions in the
Management's Discussion and Analysis.
In September 1995, Consumers and the MPSC staff reached a proposed
settlement agreement that, if approved by the MPSC, would resolve several
outstanding regulatory issues currently before the MPSC in separate
proceedings. Some of these issues were preliminarily addressed in early
1996 when the MPSC issued an order in Consumers' electric rate case (see
above). If fully adopted, the settlement agreement would: provide for
cost recovery of the 325 MW of uncommitted MCV Facility capacity;
implement provisions for incentive ratemaking; resolve the special
competitive services and depreciation rate cases; implement a limited
direct access program; and accelerate recovery of nuclear plant
investment. Consumers expects a final order in the spring of 1996.
Electric DSM: In June 1995, the MPSC authorized Consumers to discontinue
future DSM program expenditures and cease all new programs. Consumers is
deferring and amortizing past program costs ($68 million at December 31,
1995) over the period these costs are being recovered from customers in
accordance with an MPSC accounting order.
Gas Rates: As part of an agreement approved by the MPSC, Consumers filed
a gas rate case in December 1994. The request, among other things,
incorporated cost increases, including costs for postretirement benefits
and costs related to Consumers' former manufactured gas plant sites and
proposed a 12.25 percent rate of return on equity, instead of the current
13.25 percent. Consumers had requested a $7 million increase in its
annual gas rates. The MPSC staff recommended a $13 million rate decrease,
which 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. In November 1995, the ALJ issued a proposal for
decision that essentially adopted the MPSC staff's position. In early
1996, the MPSC issued a final order in this case, decreasing Consumers'
annual gas rates by $11.7 million and authorizing an 11.6 percent return
on equity.
GCR Matters: In 1993, the MPSC issued a ruling favorable to Consumers
regarding a gas pricing disagreement between Consumers and certain
intrastate producers. In 1995, management concluded that the intrastate
producers' pending appeals of the MPSC order would not be successful and
accordingly reversed $23 million (pretax) of a previously accrued loss.
The MPSC ruling was affirmed by the Court of Appeals in June 1995. The
producers have petitioned the Michigan Supreme Court for review.
In October 1995, the MPSC issued an order regarding a $44 million
(excluding any interest) gas supply contract pricing dispute between
Consumers and certain intrastate producers. The order stated that
Consumers was not obligated to seek prior approval of market-based pricing
provisions that were implemented under the contracts in question. The
producers subsequently filed a claim of appeal of the MPSC order with the
Court of Appeals. Consumers believes the MPSC order supports its position
that the producers' theories are 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.
5: Income Taxes
Consumers and its subsidiaries file a consolidated federal income tax
return with CMS Energy. Income taxes are generally allocated based on
each company's separate taxable income. Consumers does not have an
accrued federal income tax benefit from CMS Energy for 1995, but had a $33
million benefit as of December 31, 1994. Consumers practices full
deferred tax accounting for all temporary differences as authorized by the
MPSC.
Consumers uses ITC to reduce current income taxes payable and defers and
amortizes ITC over the life of the related property. Any AMT paid
generally becomes a tax credit that can be carried forward indefinitely to
reduce regular tax liabilities in future periods when regular taxes paid
exceed the tax calculated for AMT.
The significant components of income tax expense (benefit) consisted of:
In Millions
Years Ended December 31 1995 1994 1993
- ----------------------- ----- ----- -----
Current federal income taxes $ 76 $ 51 $ 41
Deferred income taxes 67 67 61
Deferred income taxes - tax rate change - - (2)
Deferred ITC, net (10) (10) (9)
----- ----- -----
$ 133 $ 108 $ 91
===== ===== =====
Operating $ 145 $ 120 $ 105
Other (12) (12) (14)
----- ----- -----
$ 133 $ 108 $ 91
===== ===== =====
The principal components of Consumers' deferred tax assets (liabilities)
recognized in the balance sheet are as follows:
In Millions
December 31 1995 1994
------- -------
Property $ (539) $ (535)
Unconsolidated investments (245) (236)
Postretirement benefits (Note 10) (173) (177)
Abandoned Midland project (46) (51)
Employee benefit obligations (includes
postretirement benefits
of $173 and $172) (Note 10) 200 200
Power purchases - settlement (Note 3) 112 146
AMT carryforward 94 89
ITC carryforward (expires 2005) 23 37
Other (5) (6)
------- -------
$ (579) $ (533)
======= =======
Gross deferred tax liabilities $(1,388) $(1,388)
Gross deferred tax assets 809 855
------- -------
$ (579) $ (533)
======= =======
The actual income tax expense differs from the amount computed by applying
the statutory federal tax rate to income before income taxes as follows:
In Millions
Years Ended December 31 1995 1994 1993
----- ----- -----
Net income $ 255 $ 226 $ 198
Income tax expense 133 108 91
----- ----- -----
388 334 289
Statutory federal income tax rate x 35% x 35% x 35%
----- ----- -----
Expected income tax expense 136 117 101
Increase (decrease) in taxes from:
Capitalized overheads previously
flowed through 5 5 5
Differences in book and tax depreciation
not previously deferred 6 7 6
ITC amortization (10) (10) (10)
Affiliated companies' dividends (6) (6) (6)
Other, net 2 (5) (5)
----- ----- -----
$ 133 $ 108 $ 91
===== ===== =====
6: Short-Term Financings
Consumers has FERC authorization to issue or guarantee up to $900 million
of short-term debt through December 31, 1996. Consumers has an unsecured
$425 million facility and unsecured, committed lines of credit aggregating
$145 million that are used to finance seasonal working capital
requirements. At December 31, 1995, $238 million and $103 million were
outstanding under these facilities at weighted average interest rates of
6.4 percent and 6.9 percent, respectively. Consumers has an established
$500 million trade receivables purchase and sale program. At December 31,
1995 and 1994, receivables sold under the agreement totaled $295 million
and $275 million, respectively. Accounts receivable and accrued revenue
in the Consolidated Balance Sheets have been reduced to reflect
receivables sold.
7: Capitalization
Capital Stock: During 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. In January 1996, 4 million shares of 8.36 percent Trust
Originated Preferred Securities were issued and sold through a business
trust wholly-owned by Consumers. The trust was formed for the sole
purpose of issuing preferred securities and the only asset of the trust is
$103 million of 8.36 percent unsecured subordinated deferrable interest
notes issued by Consumers. The obligations of Consumers with respect to
the preferred securities under the notes that mature in 2015, the
indenture under which the notes will be issued, Consumers' guarantee of
the preferred securities and the Declaration of Trust, taken together,
constitute a full and unconditional guarantee by Consumers of the trust's
obligations under the Trust Originated Preferred Securities. Net proceeds
from the sale totaled $96 million.
First Mortgage Bonds: Consumers secures its first mortgage bonds by a
mortgage and lien on substantially all of its property. Consumers' ability
to issue and sell securities is restricted by certain provisions in its
First Mortgage Bond Indenture, its Articles and the need for regulatory
approvals in compliance with appropriate federal law.
Long-Term Bank Debt: During 1994, Consumers entered into a $400 million
unsecured, variable rate, five-year term loan and subsequently used the
proceeds to refinance certain long-term bank debt. At December 31, 1995,
the loan carried a weighted average interest rate of 6.2 percent. In
1993, Consumers entered into an interest rate swap agreement, exchanging
variable-rate interest for fixed-rate interest on $250 million of its
long-term bank debt. The swap agreement hedges the variable rate exposure
associated with Consumers' long-term bank debt. The swap agreement began
to decrease in February 1995 and will terminate by May 1996. At December
31, 1995, the amount of the swap totaled $94 million at 5.4 percent. The
swap agreement had the effect of decreasing the weighted average interest
rate to 6.3 percent from 6.6 percent for the 12-month period ended
December 31, 1995.
Other: Consumers has a total of $131 million of long-term pollution
control revenue bonds outstanding (secured by irrevocable letters of
credit or first mortgage bonds) with a weighted average interest rate of
5.9 percent as of December 31, 1995.
Under the provisions of its Articles at December 31, 1995, Consumers had
$197 million of unrestricted retained earnings available to pay common
dividends.
8: Financial Instruments
The carrying amounts of cash, short-term investments and current
liabilities approximate their fair values due to their short-term nature.
The estimated fair values of long-term investments are based on quoted
market prices or, in the absence of specific market prices, on quoted
market prices of similar investments or other valuation techniques. The
carrying amounts of all long-term investments, except as shown below,
approximate fair value.
<TABLE>
<CAPTION>
In Millions
December 31 1995 1994
Amortized Fair Unrealized Amortized Fair Unrealized
Available-for-sale securities Cost Value Gain (Loss) Cost Value Gain (Loss)
- ----------------------------- --------- ----- ----------- --------- ----- ----------
<S> <C> <C> <C> <C> <C> <C>
Common stock of
CMS Energy (Note 17) $ 43 $ 88 $ 45 $ 43 $ 67 $ 24
Nuclear decommissioning
investments (a) 286 304 18 223 213 (10)
</TABLE>
(a) Consumers classifies its unrealized gains and losses on nuclear
decommissioning investments in accumulated depreciation.
The carrying amount of long-term debt was $1.9 billion and $2.0 billion at
December 31, 1995 and 1994, respectively, and the fair value, as
calculated by debt-pricing specialists, was $1.9 billion on those dates.
Although the current fair value of the long-term debt may differ from the
current carrying amount, settlement of the reported debt is generally not
expected until maturity. For held-to-maturity securities, see Note 17.
9: Executive Incentive Compensation
Consumers participates in CMS Energy's Performance Incentive Stock Plan.
Under the plan, restricted shares of common stock of CMS Energy, stock
options and stock appreciation rights may be granted to key employees
based on their contributions to the successful management of CMS Energy
and its subsidiaries. During 1995, shareholders approved amendments to
the CMS Energy Performance Incentive Stock Plan. The amendments
authorized awards under the plan consisting of any class of common stock
of CMS Energy and established performance-based business criteria for
certain plan awards. The amendments also increased the number of shares
reserved for award to not more than 3 percent of each class of
CMS Energy's common stock outstanding on January 1 each year, less the
number of shares of restricted common stock awarded and of common stock
subject to options granted under the plan during the immediately preceding
four calendar years. Any forfeitures are subject to award under the plan.
At December 31, 1995, awards of up to 1,174,388 shares of CMS Energy
Common Stock and 211,634 shares of Class G Common Stock may be issued.
Restricted shares of common stock are outstanding shares with full voting
and dividend rights. Shares of restricted common stock cannot be
distributed until they are vested and the performance objectives are met.
Further, the restricted stock is subject to forfeiture if employment
terminates before vesting. If key employees exceed performance
objectives, the plan will allow additional awards. Restricted shares vest
fully if control of CMS Energy changes, as defined by the plan. At
December 31, 1995, 249,053 shares of the 269,053 restricted shares
outstanding are subject to performance objectives.
Consumers' Executive Stock Option and Stock Appreciation Rights Plan, an
earlier plan approved by shareholders, expired in September 1995.
Under both plans, for stock options and stock appreciation rights, the
exercise price on each grant date equaled the closing market price on the
grant date. Options are exercisable upon grant and expire up to 10 years
and one month from date of grant. The status of the restricted stock
granted to Consumers' key employees under the Performance Incentive Stock
Plan and options granted under both plans follows.
Restricted
Stock Options
---------- ---------------
Number Number Price
CMS Energy Common Stock of Shares of Shares per Share
--------- --------- ---------------
Outstanding at January 1, 1993 206,863 922,108 $ 7.13 - $34.25
Granted 83,775 142,550 $26.25 - $26.25
Exercised or Issued (33,325) (112,625) $ 7.13 - $21.13
Canceled (57,188) (33,000) $20.50 - $33.88
-------- -------- ---------------
Outstanding at December 31, 1993 200,125 919,033 $ 7.13 - $34.25
Granted 72,250 145,500 $22.00 - $22.00
Exercised or Issued (22,510) (138,650) $ 7.13 - $22.00
Canceled (60,087) (123,000) $26.25 - $33.88
-------- -------- ---------------
Outstanding at December 31, 1994 189,778 802,883 $ 7.13 - $34.25
Granted 123,615 147,200 $24.75 - $34.25
Exercised or Issued (27,533) (93,333) $ 7.13 - $22.00
Canceled (16,807) (51,000) $20.50 - $34.25
-------- -------- ---------------
Outstanding at December 31, 1995 269,053 805,750 $13.00 - $34.25
======== ======== ===============
During 1995, 6,924 restricted shares and 10,000 options of Class G Common
Stock were granted at a price of $17.88.
10: Retirement Benefits
Postretirement Benefit Plans Other Than Pensions: Consumers adopted SFAS
106, Employers' Accounting for Postretirement Benefits Other than
Pensions, effective as of the beginning of 1992 and recorded a liability
of $466 million for the accumulated transition obligation and a
corresponding regulatory asset for anticipated recovery in utility rates
(see Note 18). Both the MPSC and FERC have generally allowed recovery of
SFAS 106 costs. In May 1994, the MPSC authorized recovery of the electric
utility portion of these costs over 18 years. During 1995, the FERC
granted Consumers a waiver of a three-year filing requirement for cost
recovery with respect to its wholesale electric business, which at
December 31, 1995, had recorded a regulatory asset and liability of $7
million. In early 1996, the MPSC approved recovery of the gas utility
portion of these costs over 16 years. Consumers funds the benefits using
external Voluntary Employee Beneficiary Associations. Funding of the
health care benefits coincides with Consumers' recovery in rates. A
portion of the life insurance benefits have previously been funded.
Retiree health care costs at December 31, 1995, are based on the
assumption that costs would increase 9.5 percent in 1996, then decrease
gradually to 6 percent in 2004 and thereafter. The health care cost trend
rate assumption significantly affects the amounts reported. For example,
a 1 percentage point increase in each year's estimated health care cost
assumption would increase the accumulated postretirement benefit
obligation as of December 31, 1995 by $79 million and the aggregate of the
service and interest cost components of net periodic postretirement
benefit costs for 1995 by $8 million.
Years Ended December 31 1995 1994 1993
----- ----- -----
Weighted average discount rate 7.50% 8.00% 7.25%
Expected long-term rate of return
on plan assets 7.00% 7.00% 8.50%
Net postretirement benefit costs for the health care benefits and life
insurance benefits consisted of:
In Millions
Years Ended December 31 1995 1994 1993
----- ----- -----
Service cost $ 11 $ 13 $ 13
Interest cost 39 40 38
Actual return on assets (4) - -
Net amortization and deferral 1 - -
----- ----- -----
Net postretirement benefit costs $ 47 $ 53 $ 51
===== ===== =====
The funded status of the postretirement benefit plans is reconciled with
the liability recorded at December 31 as follows:
In Millions
1995 1994
------ ------
Actuarial present value of estimated benefits
Retirees $ 329 $ 336
Eligible for retirement 45 43
Active (upon retirement) 195 166
------ ------
Accumulated postretirement benefit obligation 569 545
Plan assets (primarily stocks, bonds and money
market investments) at fair value 76 35
------ -----
Accumulated postretirement benefit obligation
in excess of plan assets (493) (510)
Unrecognized net (gain) loss from experience
different than assumed (1) 2
------ ------
Recorded liability $ (494) $ (508)
====== ======
Consumers' postretirement health care plan is partially funded; the
accumulated postretirement benefit obligation for that plan is $554
million and $530 million at December 31, 1995 and 1994, respectively.
Supplemental Executive Retirement Plan: Certain management employees
qualify to participate in the SERP. SERP benefits, which are based on an
employee's years of service and earnings as defined in the SERP, are paid
from a trust established and funded in 1988. Because the SERP is not a
qualified plan under the Internal Revenue Code, earnings of the trust are
taxable and trust assets are included in consolidated assets. At
December 31, 1995 and 1994, trust assets at cost (which approximates
market) were $19 million and $14 million, respectively, and were
classified as other noncurrent assets.
Defined Benefit Pension Plan: A trusteed, non-contributory, defined
benefit Pension Plan covers substantially all employees. The benefits are
based on an employee's years of accredited service and earnings, as
defined in the plan, during an employee's five highest years of earnings.
Because the plan was fully funded, no contributions were made in 1993 and
1994. A contribution of $9 million was made in 1995. Amounts presented
below for the Pension Plan include minor amounts for employees of
CMS Energy and non-utility affiliates which were not distinguishable from
the plan's total assets.
Years Ended December 31 1995 1994 1993
----- ----- -----
Discount rate 7.50% 8.00% 7.25%
Rate of compensation increase 4.50% 4.50% 4.50%
Expected long-term rate of return on assets 9.25% 9.25% 8.75%
Net Pension Plan and SERP costs consisted of:
In Millions
Years Ended December 31 1995 1994 1993
----- ----- -----
Service cost $ 22 $ 23 $ 19
Interest cost 54 50 49
Actual return on plan assets (168) 21 (92)
Net amortization and deferral 103 (85) 34
----- ----- -----
Net periodic pension cost $ 11 $ 9 $ 10
===== ===== =====
The funded status of the Pension Plan and SERP reconciled to the pension
liability recorded at December 31 was:
In Millions
Pension Plan SERP
------------ ------------
1995 1994 1995 1994
----- ----- ----- -----
Actuarial present value of
estimated benefits
Vested $ 496 $ 421 $ 12 $ 13
Non-vested 74 61 - -
----- ----- ----- -----
Accumulated benefit obligation 570 482 12 13
Provision for future pay increases 183 154 7 6
----- ----- ----- -----
Projected benefit obligation 753 636 19 19
Plan assets (primarily stocks
and bonds, including $104 in
1995 and $79 in 1994 in common
stock of CMS Energy) at fair value 779 637 - -
----- ----- ----- -----
Projected benefit obligation less
than (in excess of) plan assets 26 1 (19) (19)
Unrecognized net (gain) loss from
experience different than assumed (69) (35) 2 3
Unrecognized prior service cost 43 40 1 1
Unrecognized net transition
(asset) obligation (32) (39) - 1
----- ----- ----- -----
Recorded liability $ (32) $ (33) $ (16) $ (14)
===== ===== ===== =====
Beginning January 1, 1986, the amortization period for the Pension Plan's
unrecognized net transition asset is 16 years and 11 years for the SERP's
unrecognized net transition obligation. Prior service costs are amortized
on a straight-line basis over the average remaining service period of
active employees.
11: Leases
Consumers leases various assets, including vehicles, rail cars, aircraft,
construction equipment, computer equipment, nuclear fuel and buildings.
Consumers' nuclear fuel capital leasing arrangement is scheduled to expire
in November 1997 and provides for additional one-year extensions upon
mutual agreement by the parties. Upon termination of the lease, the
lessor would be entitled to a cash payment equal to its remaining
investment, which was $65 million as of December 31, 1995. Consumers is
responsible for payment of taxes, maintenance, operating costs, and
insurance.
Minimum rental commitments under Consumers' non-cancelable leases at
December 31, 1995, were:
In Millions
Capital Operating
Leases Leases
1996 $ 53 $ 3
1997 55 3
1998 16 2
1999 14 2
2000 12 2
2001 and thereafter 24 17
----- -----
Total minimum lease payments 174 $ 29
Less imputed interest 25 =====
-----
Present value of net minimum lease payments 149
Less current portion 45
-----
Non-current portion $ 104
=====
Consumers recovers these charges from customers and accordingly charges
payments for its capital and operating leases to operating expense.
Operating lease charges, including charges to clearing and other accounts
as of December 31, 1995, 1994 and 1993, were $7 million, 8 million and $8
million, respectively.
Capital lease expenses for the years ended December 31, 1995, 1994 and
1993 were $45 million, $40 million and $32 million, respectively.
Included in these amounts for the years ended 1995, 1994 and 1993, are
nuclear fuel lease expenses of $25 million, $21 million and $13 million,
respectively.
12: Commitments and Contingencies
Ludington Pumped Storage Plant: Early in 1996, the FERC and MPSC approved
the recovery of costs associated with a settlement designed to resolve all
legal issues related to fish mortality at Ludington. Consumers, Detroit
Edison, the Attorney General, the DNR and certain other parties agreed to
the terms of the settlement in 1994. Approval of the settlement requires
Consumers to transfer certain land to the State of Michigan and the Great
Lakes Fishery Trust, make certain recreational improvements, and incur
future annual payments of approximately $1 million (over 24 years) to
improve fishery resources. The settlement resolves two lawsuits filed by
the Attorney General in 1986 and 1987 on behalf of the State of Michigan.
Environmental Matters: Consumers is a so-called "potentially responsible
party" at several sites being administered under Superfund. Superfund
liability is joint and several and 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 December 31, 1995, Consumers has accrued a liability for its
estimated losses.
The Michigan Natural Resources and Environmental Protection Act (formerly
the Michigan 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. Three of the four plans submitted by
Consumers have been approved by the DNR or the Michigan Department of
Environmental Quality (a new department succeeding to some of the former
jurisdiction of the DNR). The findings for the first remedial
investigation indicate that the expenditures for remedial action at this
site are likely to be minimal. However, Consumers does not believe that a
single site is representative of all of the sites. Data available to
Consumers and its continued internal review have resulted in an estimate
for all costs related to investigation and remedial action for all 23
sites of between $48 million and $112 million. These estimates are based
on undiscounted 1995 costs. At December 31, 1995, Consumers has accrued a
liability of $48 million and has established a regulatory asset for
approximately the same amount. Any significant change in assumptions such
as remediation technique, nature and extent of contamination and legal 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. In early 1996,
the MPSC issued an order in this case which authorized Consumers to defer
costs and amortize them over 10 years. The amount of authorized annual
recovery totaled $1 million. Consumers is continuing 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 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 limits
applicable to the other coal-fired units are expected to be issued in
1996. Management believes that Consumers' annual operating costs will not
be materially affected.
Capital Expenditures: Consumers estimates capital expenditures, including
new lease commitments, of $435 million for 1996, $395 million for 1997 and
$400 million for 1998.
Commitments for Coal and Gas Supplies: Consumers has entered into coal
supply contracts with various suppliers for its coal-fired generating
stations. These contracts have expiration dates that range from 1997 to
2004. Consumers contracts for approximately 60 - 70 percent of its annual
coal requirements which in 1995 totaled $233 million (72 percent was under
long-term contracts). Consumers supplements its long-term contracts with
spot-market purchases to fulfill its coal needs.
Consumers has entered into gas supply contracts with various suppliers for
its natural gas business. These contracts have expiration dates that
range from 1996 to 2003. In 1995, Consumers' gas requirements totaled
$694 million (80 percent was under long-term contracts). In the future,
Consumers expects that approximately 35 percent of its annual gas
requirements will be under long-term contracts as current contracts
expire. Consumers supplements its long-term contracts with spot-market
purchases to fulfill its gas needs.
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 December
31, 1995, Consumers had 30 separate stray voltage lawsuits awaiting trial
court action, down from 83 lawsuits at December 31, 1994.
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.
13: Nuclear Matters
In 1993, the NRC approved the design of the spent fuel dry storage casks
now being used by Consumers at Palisades. 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. As of December 31, 1995, Consumers had
loaded 13 dry storage casks with spent nuclear fuel at Palisades.
In 1996, 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 the cask continues to safely store
spent fuel and there is no requirement for its replacement, 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. Certain parties, including the Attorney
General, have petitioned the NRC to suspend Consumers' general license to
store spent fuel, claiming that Consumers' cask unloading procedure does
not satisfy NRC regulations. The NRC staff is reviewing the petitions.
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 has been storing low-
level waste at its nuclear plant sites. Consumers began shipping its low-
level waste to a site in South Carolina during 1995 and plans to have all
its currently stored low-level waste removed from the plant sites by the
end of 1996.
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: $30 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.
Under its NML and NEIL policies, Consumers may be entitled to cash
distributions following the discontinued operation of its nuclear
facilities. The amount of any distribution would be determined by NML and
NEIL and would be based, in part, on their overall underwriting
experience.
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 whether the studies being conducted as part of the
development plans will support a future decision to anneal.
14: Jointly Owned Utility Facilities
Consumers is responsible for providing its share of financing for the
jointly owned facilities. The following table indicates the extent of
Consumers' investment in jointly owned utility facilities:
In Millions
December 31 1995 1994
----- -----
Net investment
Ludington - 51% $116 $119
Campbell Unit 3 - 93.3% 332 337
Transmission lines - various 33 31
Accumulated depreciation
Ludington $ 81 $ 76
Campbell Unit 3 238 224
Transmission lines 14 11
15: Supplemental Cash Flow Information
For purposes of the Statement of Cash Flows, all highly liquid investments
with an original maturity of three months or less are considered cash
equivalents. Other cash flow activities and non-cash investing and
financing activities for the years ended December 31 were:
In Millions
1995 1994 1993
----- ----- -----
Cash transactions
Interest paid (net of amounts
capitalized) $158 $147 $177
Income taxes paid (net of refunds) 43 34 90
Non-cash transactions
Nuclear fuel placed under capital lease $ 26 $ 21 $ 28
Other assets placed under capital leases 5 15 30
Capital leases refinanced 21 - 42
Changes in other assets and liabilities as shown on the Consolidated
Statements of Cash Flows at December 31 are described below:
In Millions
1995 1994 1993
----- ----- -----
Sale of receivables, net $ 20 $ (10) $ 60
Accounts receivable (55) (4) 19
Accrued revenue 1 24 (48)
Inventories 54 (5) (32)
Accounts payable 48 19 (25)
Accrued refunds (4) (3) (48)
Other current assets and liabilities, net 28 12 (45)
Non-current deferred amounts, net (8) (9) (7)
------ ------ ------
$ 84 $ 24 $(126)
====== ====== ======
16: Reportable Segments
The Consolidated Statements of Income show operating revenue and pretax
operating income by segments. These amounts include earnings from
investments accounted for by the equity method of $38 million, $16 million
and $6 million for 1995, 1994 and 1993, respectively. Other segment
information follows:
In Millions
Years Ended December 31 1995 1994 1993
------ ------ ------
Depreciation, depletion and amortization
Electric $ 272 $ 257 $ 241
Gas 83 76 73
Other 2 2 2
------ ------ ------
$ 357 $ 335 $ 316
====== ====== ======
Identifiable assets
Electric (a) $ 4,522 $ 4,364 $ 4,100
Gas (a) 1,690 1,673 1,628
Other 742 772 823
------ ------ ------
$ 6,954 $ 6,809 $ 6,551
======= ====== ======
Capital expenditures (b)
Electric $ 328 $ 358 $ 403
Gas 126 134 158
------ ------ ------
$ 454 $ 492 $ 561
====== ====== ======
(a) Amounts include an attributed portion of Consumers' other common
assets to both the electric and gas utility businesses.
(b) Includes capital leases for nuclear fuel and other assets and electric
DSM costs (see Statement of Cash Flows). Amounts also include an
attributed portion of Consumers' capital expenditures for plant and
equipment common to both the electric and gas utility businesses.
17: Related-Party Transactions
Consumers has an investment of $250 million in 10 shares of Enterprises'
preferred stock. Beginning in 1997, a five-year redemption program of $50
million per year will commence. In addition, Consumers has an investment
in approximately 3 million shares of CMS Energy Common Stock with a fair
value totaling $88 million (see Note 8) at December 31, 1995. As a result
of these two investments, Consumers received dividends on affiliates'
common and preferred stock totaling $17 million in 1995 and 1994 and $16
million in 1993. CMS Midland, a wholly owned subsidiary of Consumers,
holds a $10 million short-term note from Consumers, in satisfaction of a
covenant related to CMS Midland's general partnership interest in the MCV
Partnership.
Consumers purchases a portion of its gas from an affiliate, CMS NOMECO Oil
& Gas Co. The amounts of purchases for the years ended 1995, 1994 and
1993 were $19 million, $1 million and $3 million, respectively. In 1995,
1994 and 1993, Consumers purchased $53 million, $48 million and $52
million, respectively, of electric generating capacity and energy from
affiliates of Enterprises. Consumers and its subsidiaries sold, stored
and transported natural gas and provided other services to the MCV
Partnership totaling approximately $13 million for 1995, $13 million for
1994 and $14 million for 1993. For additional discussion of related-party
transactions with the MCV Partnership and the FMLP, see Notes 3 and 19.
Other related-party transactions are immaterial.
18: Effects of the Ratemaking Process
The following regulatory assets (liabilities) which include both current
and non-current amounts, are reflected in the Consolidated Balance Sheets.
These assets represent probable future revenue to Consumers associated
with certain incurred costs as these costs are recovered through the
ratemaking process.
In Millions
December 31 1995 1994
------ ------
Postretirement benefits (Note 10) $ 487 $ 503
Income taxes (Note 5) 176 189
Abandoned Midland project 131 147
DSM - deferred costs (Note 4) 68 71
Trunkline settlement 55 85
Manufactured gas plant sites (Note 12) 47 47
Power purchase contracts (Note 3) 44 30
Uranium enrichment facility 25 25
Other 22 31
------ ------
Total regulatory assets $1,055 $1,128
====== ======
Income taxes (Note 5) $ (220) $ (205)
DSM - deferred revenue (25) (21)
Other (1) -
------ ------
Total regulatory liabilities $ (246) $ (226)
====== ======
At December 31, 1995, approximately $778 million of Consumers' regulatory
assets are being recovered through rates being charged to customers over
periods of up to 17 years. Consumers anticipates MPSC approval for
recovery of the remaining amounts.
19: Summarized Financial Information of Significant Related Energy
Supplier
Under the PPA with the MCV Partnership discussed in Note 3, Consumers'
1995 obligation to purchase electric capacity from the MCV Partnership was
approximately 16 percent of Consumers' owned and contracted capacity.
Summarized financial information of the MCV Partnership follows:
Statements of Income
In Millions
Years Ended December 31 1995 1994 1993
----- ----- -----
Operating revenue (a) $ 618 $ 579 $ 548
Operating expenses 386 378 362
----- ----- -----
Operating income 232 201 186
Other expense, net 171 183 189
----- ----- -----
Net income (loss) $ 61 $ 18 $ (3)
===== ===== =====
Balance Sheets
In Millions
December 31 1995 1994
Assets
Current assets (b) $ 263 $ 206
Property, plant and equipment, net 1,948 2,012
Other assets 156 154
------ ------
$2,367 $2,372
====== ======
Liabilities and Partners' Equity
Current liabilities $ 225 $ 218
Long-term debt and other non-current
liabilities (c) 2,008 2,081
Partners' equity (d) 134 73
------ ------
$2,367 $2,372
====== ======
(a) Revenue from Consumers totaled $571 million, $534 million and $505
million for 1995, 1994 and 1993, respectively.
(b) At December 31, 1995 and 1994, $48 million was receivable from
Consumers.
(c) FMLP is the sole beneficiary of an owner trust that is the lessor in a
long-term direct finance lease with the lessee, MCV Partnership.
CMS Holdings holds a 46.4 percent ownership interest in FMLP. At December
31, 1995 and 1994, lease obligations of $1.6 billion and $1.7 billion,
respectively, were owed to the owner trust. CMS Holdings' share of the
interest and principal portion for the 1995 lease payments was $66 million
and $23 million, respectively, and for the 1994 lease payments was $68
million and $14 million, respectively. The lease payments service $1.1
billion and $1.2 billion in non-recourse debt outstanding as of December
31, 1995 and 1994, respectively, of the owner-trust. FMLP's debt is
secured by the MCV Partnership's lease obligations, assets, and operating
revenues. For 1995 and 1994, the owner-trust made debt payments
(including interest) of $192 million and $175 million, respectively.
(d) CMS Midland's recorded investment in the MCV Partnership includes
capitalized interest, which is being amortized to expense over the life of
its investment in the MCV Partnership.
<PAGE>
<PAGE> 136
ARTHUR ANDERSEN LLP
Report of Independent Public Accountants
To Consumers Power Company:
We have audited the accompanying consolidated balance sheets and
consolidated statements of long-term debt and preferred stock of CONSUMERS
POWER COMPANY (a Michigan corporation and wholly owned subsidiary of CMS
Energy Corporation) and subsidiaries as of December 31, 1995 and 1994, and
the related consolidated statements of income, common stockholder's
equity, and cash flows for each of the three years in the period ended
December 31, 1995. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based upon
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
Consumers Power Company and subsidiaries as of December 31, 1995 and 1994,
and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1995 in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Detroit, Michigan,
January 26, 1996.
<PAGE>
<PAGE> 137
<TABLE>
Quarterly Financial Information Consumers Power Company
<CAPTION>
In Millions
1995 (Unaudited) 1994 (Unaudited)
Quarters Ended March 31 June 30 Sept. 30 Dec. 31 March 31 June 30 Sept. 30 Dec. 31
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Operating revenue $1,032 $750 $772 $956 $1,074 $734 $705 $843
Pretax operating income 187 109 136 116 172 105 117 87
Net income 94 45 63 53 85 46 52 43
Preferred stock dividends 7 7 7 7 3 7 7 7
Net income after preferred
stock dividends 87 38 56 46 82 39 45 36
</TABLE>
<PAGE>
<PAGE> 138
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE.
CMS Energy
None for CMS Energy.
Consumers
None for Consumers.
PART III
(ITEMS 10., 11., 12. and 13.)
CMS Energy
CMS Energy's definitive Proxy Statement, except for the organization and
compensation committee report contained therein, is incorporated by
reference herein. See also Item 1. BUSINESS for information pursuant to
Item 10.
Consumers
Consumers' definitive Proxy Statement, except for the organization and
compensation committee report contained therein, is incorporated by
reference herein. See also Item 1. BUSINESS for information pursuant to
Item 10.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
AND REPORTS ON FORM 8-K.
(a)(1) Financial Statements and Reports of Independent Public Accountants
for CMS Energy and Consumers are listed in Item 8 in the Index to
Financial Statements, and are incorporated by reference herein.
(a)(2) Financial Statement Schedules and Reports of Independent Public
Accountants for CMS Energy and Consumers are listed after the
Exhibits in the Index to Financial Statement Schedules, and are
incorporated by reference herein.
(a)(3) Exhibits for CMS Energy and Consumers are listed after Item (c)
below and are incorporated by reference herein.
(b) Reports on Form 8-K for CMS Energy and Consumers.
CMS Energy
Current Reports dated January 10, 1995, February 2, 1995, September
11, 1995 and February 23, 1996 covering matters reported pursuant
to Item 5. Other Events.
Consumers
Current Reports dated January 10, 1995, February 2, 1995, September
11, 1995 and January 18, 1996 covering matters reported pursuant to
Item 5. Other Events.
(c) Exhibits, including those incorporated by reference (see also
Exhibit volume).
<PAGE>
<PAGE> 139
The following exhibits are applicable to CMS Energy and Consumers except
where otherwise indicated "CMS ONLY":
CMS Energy
and Consumers
Exhibit Numbers
- ---------------
(1)-(2) - Not applicable.
(3)(a) (CMS ONLY) - Restated Articles of Incorporation of
CMS Energy Corporation. (Designated in
CMS Energy Corporation's Form S-4 dated
June 6, 1995, File No. 33-60007, as
Exhibit (3)(i).)
(3)(b) (CMS ONLY) - Copy of the By-Laws of CMS Energy
Corporation (Designated in CMS Energy
Corporation's Form 10-K for the year ended
December 31, 1994, File No. 1-9513, as
Exhibit 3(b).)
(3)(c) - Restated Articles of Incorporation of
Consumers Power Company. (Designated in
Consumers Power Company's Form 10-K for
the year ended December 31, 1994, File No.
1-5611, as Exhibit 3(c).)
(3)(d) - Copy of By-Laws of Consumers Power
Company. (Designated in Consumers Power
Company's Form 10-K for the year ended
December 31, 1994, File No. 1-5611, as
Exhibit 3(d).)
(4)(a) - Composite Working Copy of Indenture dated
as of September 1, 1945, between Consumers
Power Company and Chemical Bank (successor
to Manufacturers Hanover Trust Company),
as Trustee, including therein indentures
supplemental thereto through the
Forty-third Supplemental Indenture dated
as of May 1, 1979. (Designated in
Consumers Power Company's Registration
No. 2-65973 as Exhibit (b)(1)-4.)
Indentures Supplemental thereto:
Consumers
Power Company
Sup Ind/Dated as of File Reference Exhibit
------------------- ---------------- -------
65th 02/15/88 Form 8-K dated
Feb 18, 1988
File No 1-5611 (4)
67th 11/15/89 Reg No 33-31866 (4)(d)
68th 06/15/93 Reg No 33-41126 (4)(c)
69th 09/15/93 Form 8-K dated
September 21, 1993
File No 1-5611 (4)
(4)(b) - Indenture dated as of January 1, 1996 between Consumers
Power Company and The Bank of New York, as Trustee.
First Supplemental Indenture dated as of January 18, 1996
between Consumers Power Company and The Bank of New York,
as Trustee.
(4)(c)
(CMS ONLY) - Indenture between CMS Energy Corporation and NBD Bank,
National Association, as Trustee. (Designated in
CMS Energy's Form S-3 Registration Statement filed May 1,
1992, File No. 33-47629, as Exhibit (4)(a).)
First Supplemental Indenture dated as of October 1, 1992
between CMS Energy Corporation and NBD Bank, National
Association, as Trustee. (Designated in CMS Energy's Form
8-K dated October 1, 1992, File No. 1-9513, as
Exhibit (4).)
Second Supplemental Indenture dated as of October 1, 1992
between CMS Energy Corporation and NBD Bank, National
Association, as Trustee. (Designated in CMS Energy's
Form 8-K dated October 1, 1992, File No. 1-9513, as
Exhibit (4).)
(4)(d)
(CMS ONLY) - Indenture between CMS Energy Corporation and Chase
Manhattan Bank (National Association), as Trustee, dated
as of January 15, 1994. (Designated in CMS Energy's
Form 8-K dated March 29, 1994, File No. 1-9513, as
Exhibit (4a).)
First Supplemental Indenture dated as of January 20, 1994
between CMS Energy Corporation and Chase Manhattan Bank
(National Association), as Trustee. (Designated in
CMS Energy's Form 8-K dated March 29, 1994, File
No. 1-9513, as Exhibit (4b).)
(5)-(9) - Not applicable.
(10)(a)
(CMS ONLY) - Credit Agreement dated as of November 21, 1995, among
CMS Energy Corporation, the Banks, the Co-Agents, the
Documentation Agent, the Operational Agent and the Co-
Managers, all as defined therein, and the Exhibits
thereto. (Designated in CMS Energy's Form S-4
Registration Statement filed January 12, 1996, File No.
33-60007, as Exhibit 4(ii).)
(10)(b)
(CMS ONLY) - Term Loan Agreement dated as of November 21, 1995, among
CMS Energy Corporation, the Banks, the Co-Agents, the
Documentation Agent, the Operational Agent and the Co-
Managers, all as defined therein, and the Exhibits
thereto. (Designated in CMS Energy's Form S-4
Registration Statement filed January 12, 1996, File No.
33-60007, as Exhibit 4(ii)(A).)
(10)(c) - Employment Agreement dated as of August 1, 1990 among
Consumers Power Company, CMS Energy Corporation and
William T. McCormick, Jr (Designated in CMS Energy
Corporation's Form 10-K for the year ended December 31,
1990, File No. 1-9513, as Exhibit (10)(c).)
(10)(d) - Employment Agreement effective as of June 15, 1988 among
Consumers Power Company, CMS Energy Corporation and
Victor J. Fryling. (Designated in Consumers Power
Company's Form 10-K for the year ended December 31, 1988,
File No. 1-5611, as Exhibit (10)(i).)
(10)(e) - Employment Agreement dated May 26, 1989 between Consumers
Power Company and Michael G. Morris. (Designated in
Consumers Power Company's Form 10-K for the year ended
December 31, 1990, File No. 1-5611, as Exhibit (10)(f).)
(10)(f) - Employment Agreement dated May 26, 1989 between Consumers
Power Company and David A. Mikelonis. (Designated in
Consumers Power Company's Form 10-K for the year ended
December 31, 1991, File No. 1-5611, as Exhibit 10(h).)
(10)(g) - Employment Agreement dated May 26, 1989 among Consumers
Power Company, CMS Energy Corporation and John W. Clark.
(Designated in CMS Energy Corporation's Form 10-K for the
year ended December 31, 1990, File No. 1-9513, as
Exhibit (10)(f).)
(10)(h) - Employment Agreement dated March 25, 1992 between
Consumers Power Company, CMS Energy Corporation and
Alan M. Wright. (Designated in Consumers Power Company's
Form 10-K for the year ended December 31, 1992, File
No. 1-5611, as Exhibit 10(j).)
(10)(i) - Employment Agreement dated March 25, 1992 between
Consumers Power Company and Paul A. Elbert. (Designated
in Consumers Power Company's Form 10-K for the year ended
December 31, 1992, File No. 1-5611, as Exhibit 10(k).)
(10)(j)
(CMS ONLY) - Employment Agreement dated January 12, 1996 between CMS
Energy Corporation and Rodger A. Kershner.
(10)(k) - Consumers Power Company's Executive Stock Option and Stock
Appreciation Rights Plan effective December 1, 1989.
(Designated in Consumers Power Company's Form 10-K for the
year ended December 31, 1990, File No. 1-5611, as
Exhibit (10)(g).)
(10)(l) - CMS Energy Corporation's Performance Incentive Stock Plan
effective as of December 1, 1989. (Designated in
CMS Energy Corporation's Form S-8 Registration Statement
filed August 4, 1995, File No. 33-61595, as
Exhibit (4)(d).)
(10)(m) - CMS Deferred Salary Savings Plan effective January 1,
1994. (Designated in CMS Energy Corporation's Form 10-K
for the year ended December 31, 1993, File No. 1-9513, as
Exhibit (10)(m).)
(10)(n) - CMS Energy Corporation and Consumers Power Company Annual
Executive Incentive Compensation Plan effective January 1,
1986, as amended January 1995.
(10)(o) - Consumers Power Company's Supplemental Executive
Retirement Plan effective November 1, 1990. (Designated
in Consumers Power Company's Form 10-K for the year ended
December 31, 1993, File No. 1-5611, as Exhibit (10)(o).)
(10)(p) - Senior Trust Indenture, Leasehold Mortgage and Security
Agreement dated as of June 1, 1990 between The Connecticut
National Bank and United States Trust Company of New York.
(Designated in Midland Cogeneration Venture Limited
Partnership's Form S-1 filed November 23, 1990, File
No. 33-37977, as Exhibit 4.1.)
Indenture Supplemental thereto:
Supplement No. 1 dated as of June 1, 1990. (Designated in
Midland Cogeneration Venture Limited Partnership's
Form S-1 filed November 23, 1990, File No. 33-37977, as
Exhibit 4.2.)
(10)(q) - Collateral Trust Indenture dated as of June 1, 1990 among
Midland Funding Corporation I, Midland Cogeneration
Venture Limited Partnership and United States Trust
Company of New York, Trustee. (Designated in CMS Energy
Corporation's Form 10-Q for the quarter ended June 30,
1990, File No. 1-9513, as Exhibit (28)(b).)
Indenture Supplemental thereto:
Supplement No. 1 dated as of June 1, 1990. (Designated in
Midland Cogeneration Venture Limited Partnership's
Form S-1 filed November 23, 1990, File No. 33-37977, as
Exhibit 4.4.)
(10)(r) - Amended and Restated Investor Partner Tax Indemnification
Agreement dated as of June 1, 1990 among Investor
Partners, CMS Midland Holdings Corporation as Indemnitor
and CMS Energy Corporation as Guarantor. (Designated in
CMS Energy Corporation's Form 10-K for the year ended
December 31, 1990, File No. 1-9513, as Exhibit (10)(v).)
(10)(s) - Environmental Agreement dated as of June 1, 1990 made by
CMS Energy Corporation to The Connecticut National Bank
and Others. (Designated in CMS Energy Corporation's
Form 10-K for the year ended December 31, 1990, File
No. 1-9513, as Exhibit (10)(y) and Form 10-Q for the
quarter ended September 30, 1991, File No. 1-9513, as
Exhibit (19)(d).)**
(10)(t) - Indemnity Agreement dated as of June 1, 1990 made by
CMS Energy Corporation to Midland Cogeneration Venture
Limited Partnership. (Designated in CMS Energy
Corporation's Form 10-K for the year ended December 31,
1990, File No. 1-9513, as Exhibit (10)(z).)**
(10)(u) - Environmental Agreement dated as of June 1, 1990 made by
CMS Energy Corporation to United States Trust Company of
New York, Meridian Trust Company, each Subordinated
Collateral Trust Trustee and Holders from time to time of
Senior Bonds and Subordinated Bonds and Participants from
time to time in Senior Bonds and Subordinated Bonds.
(Designated in CMS Energy Corporation's Form 10-K for the
year ended December 31, 1990, File No. 1-9513, as
Exhibit (10)(aa).)**
(10)(v) - Amended and Restated Participation Agreement dated as of
June 1, 1990 among Midland Cogeneration Venture Limited
Partnership, Owner Participant, The Connecticut National
Bank, United States Trust Company, Meridian Trust Company,
Midland Funding Corporation I, Midland Funding
Corporation II, MEC Development Corporation and
Institutional Senior Bond Purchasers. (Designated in
Midland Cogeneration Venture Limited Partnership's
Form S-1 filed November 23, 1990, File No. 33-37977, as
Exhibit 4.13.)
Amendment No. 1 dated as of July 1, 1991. (Designated in
Consumers Power Company's Form 10-K for the year ended
December 31, 1991, File No. 1-5611, as Exhibit (10)(w).)
(10)(w) - Power Purchase Agreement dated as of July 17, 1986 between
Midland Cogeneration Venture Limited Partnership and
Consumers Power Company. (Designated in Midland
Cogeneration Venture Limited Partnership's Form S-1 filed
November 23, 1990, File No. 33-37977, as Exhibit 10.4.)
Amendments thereto:
Amendment No. 1 dated September 10, 1987. (Designated in
Midland Cogeneration Venture Limited Partnership's
Form S-1 filed November 23, 1990, File No. 33-37977, as
Exhibit 10.5.)
Amendment No. 2 dated March 18, 1988. (Designated in
Midland Cogeneration Venture Limited Partnership's
Form S-1 filed November 23, 1990, File No. 33-37977, as
Exhibit 10.6.)
Amendment No. 3 dated August 28, 1989. (Designated in
Midland Cogeneration Venture Limited Partnership's
Form S-1 filed November 23, 1990, File No. 33-37977, as
Exhibit 10.7.)
Amendment No. 4A dated May 25, 1989. (Designated in
Midland Cogeneration Venture Limited Partnership's
Form S-1 filed November 23, 1990, File No. 33-37977, as
Exhibit 10.8.)
(10)(x) - Request for Approval of Settlement Proposal to Resolve MCV
Cost Recovery Issues and Court Remand, filed with the
Michigan Public Service Commission on July 7, 1992, MPSC
Case No. U-10127. (Designated in CMS Energy Corporation's
and Consumers Power Company's Forms 10-K for the year
ended December 31, 1991 as amended by Form 8 dated
July 15, 1992 as Exhibit (28).)
(10)(y) - Settlement Proposal Filed on July 7, 1992 as Revised on
September 8, 1992 by Filing with the Michigan Public
Service Commission. (Designated in CMS Energy
Corporation's and Consumers Power Company's Forms 8-K
dated September 8, 1992 as Exhibit (28).)
(10)(z) - Michigan Public Service Commission Order Dated March 31,
1993, Approving with Modifications the Settlement Proposal
Filed on July 7, 1992, as Revised on September 8, 1992.
(Designated in CMS Energy Corporation's and Consumers
Power Company's Forms 10-K for the year ended December 31,
1992 as Exhibit (10)(cc).)
(10)(aa) - Unwind Agreement dated as of December 10, 1991 by and
among CMS Energy Corporation, Midland Group, Ltd.,
Consumers Power Company, CMS Midland, Inc., MEC
Development Corp. and CMS Midland Holdings Company.
(Designated in Consumers Power Company's Form 10-K for the
year ended December 31, 1991, File No. 1-5611, as
Exhibit (10)(y).)
(10)(bb) - Stipulated AGE Release Amount Payment Agreement dated as
of June 1, 1990, among CMS Energy Corporation, Consumers
Power Company and The Dow Chemical Company. (Designated
in Consumers Power Company's Form 10-K for the year ended
December 31, 1991, File No. 1-5611, as Exhibit (10)(z).)
(10)(cc) - Parent Guaranty dated as of June 14, 1990 from CMS Energy
Corporation to MCV, each of the Owner Trustees, the
Indenture Trustees, the Owner Participants and the Initial
Purchasers of Senior Bonds in the MCV Sale Leaseback
transaction, and MEC Development. (Designated in
Consumers Power Company's Form 10-K for the year ended
December 31, 1991, File No. 1-5611, as
Exhibit (10)(aa).)**
(11)-(12) - Not applicable.
(13) - Not Applicable.
(14)-(20) - Not applicable.
(21)(a)
(CMS ONLY) - Subsidiaries of CMS Energy Corporation.
(21)(b) - Subsidiaries of Consumers Power Company.
(22) - Not applicable.
(23) - Consents of experts and counsel.
(24)(a) - Power of Attorney for CMS Energy Corporation.
(24)(b) - Power of Attorney for Consumers Power Company.
(25)-(26) - Not applicable.
(27)(a) - Financial Data Schedule UT for CMS Energy Corporation.
(27)(b) - Financial Data Schedule UT for Consumers Power Company.
(28) - Not applicable
(99) - CMS Energy: Consumers Gas Group Financials
** Obligations of only CMS Holdings and CMS Midland, second tier
subsidiaries of Consumers, and of CMS Energy but not of Consumers.
Exhibits listed above which have heretofore been filed with the Securities
and Exchange Commission pursuant to various acts administered by the
Commission, and which were designated as noted above, are hereby
incorporated herein by reference and made a part hereof with the same
effect as if filed herewith.
<PAGE>
<PAGE> 146
Index to Financial Statement Schedules
Page
Schedule II Valuation and Qualifying Accounts and Reserves
1995, 1994 and 1993:
CMS Energy Corporation 147
Consumers Power Company 148
Report of Independent Public Accountants
CMS Energy Corporation 149
Consumers Power Company 150
Schedules other than those listed above are omitted because they are
either not required, not applicable or the required information is shown
in the financial statements or notes thereto.
Columns omitted from schedules filed have been omitted because the
information is not applicable.
<PAGE>
<PAGE> 147
<TABLE>
CMS ENERGY CORPORATION
Schedule II - Valuation and Qualifying Accounts and Reserves
Years Ended December 31, 1995, 1994 and 1993
(Millions of Dollars)
<CAPTION>
Balance at Charged Charged to Balance
Beginning to other at End
Description of Period Expense Accounts Deductions of Period
<S> <C> <C> <C> <C> <C>
Accumulated provision for
uncollectible accounts
(substantially all
Consumers Power Company):
1995 $5 $10 - $11(a) $4
1994 $4 $12 - $11(a) $5
1993 $5 $ 9 - $10(a) $4
<FN>
(a) Accounts receivable written off including net uncollectible amounts of $10 in 1995, $10 in 1994, and
$8 in 1993 charged directly to operating expense and credited to accounts receivable.
</TABLE>
<PAGE>
<PAGE> 148
<TABLE>
CONSUMERS POWER COMPANY
Schedule II - Valuation and Qualifying Accounts and Reserves
Years Ended December 31, 1995, 1994 and 1993
(Millions of Dollars)
<CAPTION>
Balance at Charged Charged to Balance
Beginning to other at End
Description of Period Expense Accounts Deductions of Period
Accumulated provision for
uncollectible accounts:
<S> <C> <C> <C> <C> <C>
1995 $4 $10 - $11(a) $3
1994 $4 $11 - $11(a) $4
1993 $5 $ 9 - $10(a) $4
<FN>
(a) Accounts receivable written off including net uncollectible amounts of $10 in 1995, $10 in 1994, and $8 in
1993 charged directly to operating expense and credited to accounts receivable.
</TABLE>
<PAGE>
<PAGE> 149
ARTHUR ANDERSEN LLP
Report of Independent Public Accountants
To CMS Energy Corporation:
We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements included in CMS Energy Corporation's
1995 Annual Report to shareholders incorporated by reference in this Form
10-K, and have issued our report thereon dated January 26, 1996. Our
audit was made for the purpose of forming an opinion on those basic
consolidated financial statements taken as a whole. The schedule listed
in Item 14(a) is the responsibility of the Company's management and is
presented for the purpose of complying with the Securities and Exchange
Commission's rules and is not part of the basic consolidated financial
statements. This schedule has been subjected to the auditing procedures
applied in the audit of the basic consolidated financial statements and,
in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic consolidated
financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Detroit, Michigan,
January 26, 1996.
<PAGE>
<PAGE> 150
ARTHUR ANDERSEN LLP
Report of Independent Public Accountants
To Consumers Power Company:
We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements included in Consumers Power
Company's 1995 Annual Report to shareholders incorporated by reference in
this Form 10-K, and have issued our report thereon dated January 26, 1996.
Our audit was made for the purpose of forming an opinion on those basic
consolidated financial statements taken as a whole. The schedule listed
in Item 14(a) is the responsibility of the Company's management and is
presented for the purpose of complying with the Securities and Exchange
Commission's rules and is not part of the basic consolidated financial
statements. This schedule has been subjected to the auditing procedures
applied in the audit of the basic consolidated financial statements and,
in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic consolidated
financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Detroit, Michigan,
January 26, 1996.
<PAGE>
<PAGE> 151
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, CMS Energy Corporation has duly caused this Annual
Report to be signed on its behalf by the undersigned, thereunto duly
authorized, on the 14th day of March 1996.
CMS ENERGY CORPORATION
By William T. McCormick, Jr.
---------------------------
William T. McCormick, Jr.
Chairman of the Board
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Annual Report has been signed below by the following persons on behalf of
CMS Energy Corporation and in the capacities and on the 14th day of March
1996.
Signature Title
(i) Principal executive officer:
Chairman of the Board,
Chief Executive Officer
William T. McCormick, Jr. and Director
---------------------------
William T. McCormick, Jr.
(ii) Principal financial officer:
Senior Vice President,
Chief Financial Officer
A M Wright and Treasurer
---------------------------
Alan M. Wright
(iii) Controller or principal
accounting officer:
Senior Vice President, Controller
P. D. Hopper and Chief Accounting Officer
---------------------------
Preston D. Hopper
(iv) A majority of the Directors
including those named above:
James J. Duderstadt* Director
---------------------------
James J. Duderstadt
K R Flaherty* Director
---------------------------
Kathleen R. Flaherty
Victor J. Fryling* Director
---------------------------
Victor J. Fryling
Earl D. Holton* Director
---------------------------
Earl D. Holton
Lois A. Lund* Director
---------------------------
Lois A. Lund
Frank H. Merlotti* Director
---------------------------
Frank H. Merlotti
Michael G. Morris* Director
---------------------------
Michael G. Morris
W. U. Parfet* Director
---------------------------
William U. Parfet
Percy A. Pierre* Director
---------------------------
Percy A. Pierre
K. Whipple* Director
---------------------------
Kenneth Whipple
John B. Yasinsky* Director
---------------------------
John B. Yasinsky
* By Thomas A. McNish
---------------------------
Thomas A. McNish, Attorney-in-Fact
<PAGE>
<PAGE> 153
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Consumers Power Company has duly caused this Annual
Report to be signed on its behalf by the undersigned, thereunto duly
authorized, on the 14th day of March 1996.
CONSUMERS POWER COMPANY
By William T. McCormick, Jr.
---------------------------
William T. McCormick, Jr.
Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Annual Report has been signed below by the following persons on behalf of
Consumers Power Company and in the capacities and on the 14th day of March
1996.
Signature Title
(i) Principal executive officer:
President,
Chief Executive Officer
Michael G. Morris and Director
---------------------------
Michael G. Morris
(ii) Principal financial officer:
Senior Vice President and
A M Wright Chief Financial Officer
---------------------------
Alan M. Wright
(iii) Controller or principal
accounting officer:
Vice President and
Dennis DaPra Controller
---------------------------
Dennis DaPra
(iv) A majority of the Directors
including those named above:
James J. Duderstadt* Director
---------------------------
James J. Duderstadt
K R Flaherty* Director
---------------------------
Kathleen R. Flaherty
Victor J. Fryling* Director
---------------------------
Victor J. Fryling
Earl D. Holton* Director
---------------------------
Earl D. Holton
Lois A. Lund* Director
---------------------------
Lois A. Lund
William T. McCormick, Jr.* Director
---------------------------
William T. McCormick, Jr.
Frank H. Merlotti* Director
---------------------------
Frank H. Merlotti
W. U. Parfet* Director
---------------------------
William U. Parfet
Percy A. Pierre* Director
---------------------------
Percy A. Pierre
K. Whipple* Director
---------------------------
Kenneth Whipple
John B. Yasinsky* Director
---------------------------
John B. Yasinsky
*By Thomas A. McNish
---------------------------
Thomas A. McNish, Attorney-in-Fact
<PAGE>
<PAGE>
Exhibit 4(b)
Consumers Power Company, Issuer
and
The Bank of New York, Trustee
INDENTURE
Dated as of January 1, 1996
Subordinated Debt Securities
<PAGE>
<PAGE>
CROSS REFERENCE SHEET
_____________
Provisions of Trust Indenture Act of 1939 and Indenture to
be dated as of January 1, 1996 between Consumers Power Company and The
Bank of New York:
Section of the Act Section of Indenture
310(a)(1) and (2)............. 6.9
310(a)(3) and (4)............. Inapplicable
310(b)........................ 6.8 and 6.10(a), (b) and (d)
310(c)........................ Inapplicable
311(a)........................ 6.13(a) and (c)(1) and (2)
311(b)........................ 6.13(b)
311(c)........................ Inapplicable
312(a)........................ 4.1 and 4.2(a)
312(b)........................ 4.2(a) and (b)(i) and (ii)
312(c)........................ 4.2(c)
313(a)........................ 4.4(a)
313(b)(1)..................... Inapplicable
313(b)(2)..................... 4.4(b)
313(c)........................ 4.4(c)
313(d)........................ 4.4(d)
314(a)........................ 4.3
314(b)........................ Inapplicable
314(c)(1) and (2)............. 13.5
314(c)(3)..................... Inapplicable
314(d)........................ Inapplicable
314(e)........................ 13.5
314(f)........................ Inapplicable
315(a), (c) and (d)........... 6.1
315(b)........................ 5.11
315(e)........................ 5.12
316(a)(1)..................... 5.9
316(a)(2)..................... Not required
316(a) (last sentence)........ 7.4
316(b)........................ 5.7
316(c)........................ Not required
317(a)........................ 5.2
317(b)........................ 3.4(a) and (b)
318(a)........................ 13.7
________________
* This Cross Reference Sheet is not part of the Indenture.
<PAGE>
<PAGE>
TABLE OF CONTENTS
_____________
Page
PARTIES 1
RECITALS
Authorization of Indenture 1
Compliance with Legal Requirements 1
Purpose of and Consideration for Indenture 1
ARTICLE ONE
DEFINITIONS 1
Section 1.1 Certain Terms Defined 1
Affiliate 2
Authenticating Agent 2
Board of Directors 2
Board Resolution 2
Business Day 2
Commission 2
Common Securities 2
Common Securities Guarantee 3
Consumers Trust 3
Corporate Trust Office 3
Declaration 3
Depository 3
Event of Default 3
Global Security 3
Government Obligations 3
"Holder", "Holder of Securities",
"Securityholder 4
Indenture 4
Interest Payment Date 4
Issuer 4
Issuer Order 4
Maturity 4
Officers' Certificate 4
Opinion of Counsel 4
Outstanding 5
Person 6
Preferred Securities 6
Preferred Securities Guarantee 6
PPPrincipal 6
Property Trustee 6
Record Date 6
Responsible Officer 6
Security" or "Securities 7
Security Register" and "
Security Registrar 7
Senior Indebtedness 7
Subsidiary 7
Stated Maturity 7
Trust Indenture Act of 1939" or
"Trust Indenture Act 7
Trust Securities 7
Trustee 7
ARTICLE TWO
SECURITIES 7
Section 2.1 Forms Generally 7
Section 2.2 Form of Trustee's Certificate of
Authentication 8
Section 2.3 Amount Unlimited; Issuable in Series 9
Section 2.4 Authentication and Delivery of
Securities 12
Section 2.5 Execution of Securities 14
Section 2.6 Certificate of Authentication 15
Section 2.7 Denomination of Securities; Payments
of Interest 15
Section 2.8 Registration, Transfer and Exchange 16
Section 2.9 Mutilated, Defaced, Destroyed, Lost
and Stolen Securities 19
Section 2.10 Cancellation of Securities; Destruction
Thereof 20
Section 2.11 Temporary Securities 21
Section 2.12 Computation of Interest 21
ARTICLE THREE
COVENANTS OF THE ISSUER 21
Section 3.1 Payment of Principal and Interest 21
Section 3.2 Offices for Payments, etc. 22
Section 3.3 Appointment to Fill a Vacancy in Office
of Trustee 23
Section 3.4 Paying Agents 23
Section 3.5 Limitation on Dividends; Transactions
with Affiliates 24
Section 3.6 Covenants as to Consumers Trust 25
ARTICLE FOUR
SECURITYHOLDERS LISTS AND REPORTS BY THE
ISSUER AND THE TRUSTEE 25
Section 4.1 Issuer to Furnish Trustee Names and
Addresses of Securityholders 25
Section 4.2 Preservation and Disclosure of
Securityholders Lists 26
Section 4.3 Reports by the Issuer 27
Section 4.4 Reports by the Trustee 28
ARTICLE FIVE
REMEDIES OF THE TRUSTEE AND SECURITYHOLDERS
ON EVENT OF DEFAULT 29
Section 5.1 Event of Default Defined; Acceleration
of Maturity; Waiver of Default 29
Section 5.2 Collection of Indebtedness by Trustee;
Trustee May Prove Debt 32
Section 5.3 Application of Proceeds 34
Section 5.4 Suits for Enforcement 35
Section 5.5 Restoration of Rights on Abandonment
of Proceedings 36
Section 5.6 Limitations on Suits by Securityholders 36
Section 5.7 Unconditional Right of Securityholders
to Receive Principal and Interest and
to Institute Certain Suits 37
Section 5.8 Powers and Remedies Cumulative; Delay
or Omission Not Waiver of Default 37
Section 5.9 Control by Holders of Securities 37
Section 5.10 Waiver of Past Defaults 38
Section 5.11 Trustee to Give Notice of Default, But
May Withhold in Certain Circumstances 38
Section 5.12 Right of Court to Require Filing of
Undertaking to Pay Costs 39
Section 5.13 Waiver of Stay or Extension Laws 39
ARTICLE SIX
CONCERNING THE TRUSTEE 40
Section 6.1 Duties and Responsibilities of the
Trustee; During Default; Prior to
Default 40
Section 6.2 Certain Rights of the Trustee 41
Section 6.3 Trustee Not Responsible for Recitals,
Disposition of Securities or Application
of Proceeds Thereof 42
Section 6.4 Trustee and Agents May Hold Securities;
Collections, etc. 43
Section 6.5 Moneys Held by Trustee 43
Section 6.6 Compensation and Indemnification of
Trustee and Its Prior Claim 43
Section 6.7 Right of Trustee to Rely on Officers'
Certificate, etc. 44
Section 6.8 Qualification of Trustee; Conflicting
Interests 44
Section 6.9 Persons Eligible for Appointment as
Trustee 44
Section 6.10 Resignation and Removal; Appointment of
Successor Trustee 45
Section 6.11 Acceptance of Appointment by Successor
Trustee 46
Section 6.12 Merger, Conversion, Consolidation or
Succession to Business of Trustee 47
Section 6.13 Preferential Collection of Claims Against
the Issuer 48
Section 6.14 Appointment of Authenticating Agent 48
ARTICLE SEVEN
CONCERNING THE SECURITYHOLDERS 49
Section 7.1 Evidence of Action Taken by
Securityholders 49
Section 7.2 Proof of Execution of Instruments and of
Holding of Securities 49
Section 7.3 Holders to Be Treated as Owners 50
Section 7.4 Securities Owned by Issuer Deemed Not
Outstanding 50
Section 7.5 Right of Revocation of Action Taken 51
Section 7.6 Calculation of Original Issue Discount 52
ARTICLE EIGHT
SUPPLEMENTAL INDENTURES 52
Section 8.1 Supplemental Indentures Without Consent
of Securityholders 52
Section 8.2 Supplemental Indentures With Consent of
Securityholders 53
Section 8.3 Effect of Supplemental Indenture 55
Section 8.4 Documents to Be Given to Trustee 55
Section 8.5 Notation on Securities in Respect of
Supplemental Indentures 55
<PAGE>
<PAGE>
ARTICLE NINE
CONSOLIDATION, MERGER, SALE OR CONVEYANCE 56
Section 9.1 Covenant of Issuer Not to Merge,
Consolidate, Sell or Convey Property
Except Under Certain Conditions 56
Section 9.2 Successor Corporation Substituted for
Issuer 57
Section 9.3 Opinion of Counsel Delivered to Trustee 57
ARTICLE TEN
SATISFACTION AND DISCHARGE OF INDENTURE;
UNCLAIMED MONEYS 58
Section 10.1 Satisfaction and Discharge of Indenture 58
Section 10.2 Application by Trustee of Funds Deposited
for Payment of Securities 61
Section 10.3 Repayment of Moneys Held by Paying Agent 61
Section 10.4 Return of Moneys Held by Trustee and
Paying Agent Unclaimed for Three Years 61
Section 10.5 Indemnity for Government Obligations 62
ARTICLE ELEVEN
REDEMPTION OF SECURITIES AND SINKING FUNDS 62
Section 11.1 Applicability of Article 62
Section 11.2 Notice of Redemption; Partial
Redemptions 62
Section 11.3 Payment of Securities Called for
Redemption 64
Section 11.4 Exclusion of Certain Securities from
Eligibility for Selection for Redemption 64
Section 11.5 Mandatory and Optional Sinking Funds 64
ARTICLE TWELVE
SUBORDINATION 67
Section 12.1 Applicability of Article; Securities
Subordinated to Senior Indebtedness 67
Section 12.2 Issuer Not to Make Payments with Respect
to Subordinated Securities in Certain
Circumstances 68
Section 12.3 Subordinated Securities Subordinated
to Prior Payment of All Senior
Indebtedness on Dissolution, Liquidation
or Reorganization of Issuer 70
Section 12.4 Holders of Subordinated Securities to be
Subrogated to Right of Holders of Senior
Indebtedness 72
Section 12.5 Obligation of the Issuer Unconditional 72
Section 12.6 Trustee Entitled to Assume Payments Not
Prohibited in Absence of Notice 73
Section 12.7 Application by Trustee of Monies or
Government Obligations Deposited with It 74
Section 12.8 Subordination Rights Not Impaired by
Acts or Omissions of Issuer or Holders
of Senior Indebtedness 74
Section 12.9 Securityholders Authorize Trustee to
Effectuate Subordination of Securities 75
Section 12.10 Right of Trustee to Hold Senior
Indebtedness 75
Section 12.11 Article Twelve Not to Prevent Events
of Defaults 76
ARTICLE THIRTEEN
MISCELLANEOUS PROVISIONS 76
Section 13.1 Incorporators, Stockholders, Officers
and Directors of Issuer Exempt from
Individual Liability 76
Section 13.2 Provisions of Indenture for the Sole
Benefit of Parties and Holders of
Securities 76
Section 13.3 Successors and Assigns of Issuer
Bound by Indenture 76
Section 13.4 Notices and Demands on Issuer, Trustee
and Holders of Securities 77
Section 13.5 Officers' Certificates and Opinions
of Counsel; Statements to be
Contained Therein 77
Section 13.6 Payments Due on Saturdays, Sundays
and Holidays 79
Section 13.7 Conflict of any Provision of Indenture
with Trust Indenture Act of 1939 79
Section 13.8 Governing Law 79
Section 13.9 Counterparts 79
Section 13.10 Effect of Headings and Table of
Contents 79
Section 13.11 Separability Clause 80
<PAGE>
<PAGE>
THIS INDENTURE dated as of January 1, 1996 between
Consumers Power Company, a Michigan corporation (the "Issuer"), and The
Bank of New York, a New York banking corporation, as trustee (the
"Trustee").
W I T N E S S E T H :
WHEREAS, the Issuer has duly authorized the issue from
time to time of its debentures, notes, bonds or other evidences of
indebtedness to be issued in one or more series (the "Securities") up to
such principal amount or amounts as may from time to time be authorized in
accordance with the terms of this Indenture;
WHEREAS, the Issuer has duly authorized the execution and
delivery of this Indenture to provide, among other things, for the
authentication, delivery and administration of the Securities; and
WHEREAS, all things necessary to make this Indenture a
valid indenture and agreement according to its terms have been done;
NOW, THEREFORE:
In consideration of the premises and the purchases of the
Securities by the holders thereof, the Issuer and the Trustee mutually
covenant and agree for the equal and proportionate benefit of the
respective holders from time to time of the Securities as follows:
ARTICLE ONE
DEFINITIONS
Section 1.1 Certain Terms Defined. The following terms
(except as otherwise expressly provided or unless the context otherwise
clearly requires) for all purposes of this Indenture and of any indenture
supplemental hereto shall have the respective meanings specified in this
Section. All other terms used in this Indenture that are defined in the
Trust Indenture Act of 1939, including terms defined therein by reference
to the Securities Act of 1933, as amended (except as herein otherwise
expressly provided or unless the context otherwise requires), shall have
the meanings assigned to such terms in said Trust Indenture Act and in
said Securities Act as in force at the date of this Indenture. All
accounting terms used herein and not expressly defined shall have the
meanings assigned to such terms in accordance with generally accepted
accounting principles, and the term "generally accepted accounting
principles" means such accounting principles as are generally accepted in
the United States of America at the time of any computation. References
to any statute mean such statute as amended at the time and includes any
successor legislation. The words "herein", "hereof" and "hereunder" and
other words of similar import refer to this Indenture as a whole and not
to any particular Article, Section or other subdivision. The terms
defined in this Article include the plural as well as the singular.
"Affiliate" of any specified Person means any other Person
directly or indirectly controlling or controlled by or under direct or
indirect common control with such specified Person. For the purposes of
this definition, "control" when used with respect to any specified Person
means the power to direct the management and policies of such Person,
directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Authenticating Agent" shall have the meaning set forth in
Section 6.14.
"Board of Directors" means either the Board of Directors
of the Issuer or any committee of such Board duly authorized to act on its
behalf.
"Board Resolution" means a copy of one or more
resolutions, certified by the secretary or an assistant secretary of the
Issuer to have been duly adopted or consented to by the Board of Directors
and to be in full force and effect, and delivered to the Trustee.
"Business Day" means a day on which banking institutions
in New York, New York or Delaware are not authorized or required by law or
regulation to close.
"Commission" means the Securities and Exchange Commission,
as from time to time constituted, created under the Securities Exchange
Act of 1934, or, if at any time after the execution and delivery of this
Indenture such Commission is not existing and performing the duties now
assigned to it under the Trust Indenture Act of 1939, then the body
performing such duties at such time.
"Common Securities" means undivided beneficial interests
in the assets of a Consumers Trust which rank pari passu with Preferred
Securities issued by such trust; provided, however, that upon the
occurrence of an Event of Default, the rights of holders of Common
Securities to payment in respect of distributions and payments upon
liquidation, redemption and maturity are subordinated to the rights of
holders of Preferred Securities.
"Common Securities Guarantee" means any guarantee that
the Issuer may enter into that operates directly or indirectly for the
benefit of holders of Common Securities of Consumers Trust.
"Consumers Trust" means a Delaware business trust formed
by the Issuer for the purpose of purchasing the Securities of the Issuer.
"Corporate Trust Office" means the office of the Trustee
at which the corporate trust business of the Trustee shall, at any
particular time, be principally administered, which office is, at the date
as of which this Indenture is dated, located at 101 Barclay St., New York,
New York 10286.
"Declaration" means, in respect of a Consumers Trust, the
amended and restated declaration of trust of such Consumers Trust or any
other governing instrument of such Trust.
"Depository" means, with respect to the Securities of any
series issuable or issued in the form of one or more Global Securities,
the Person designated as Depository by the Issuer pursuant to Section 2.3,
which must be a clearing agency registered under the Securities Exchange
Act of 1934, as amended, and any other applicable statute or regulation,
until a successor Depository shall have become such pursuant to the
applicable provisions of this Indenture, and thereafter "Depository" shall
mean each Person who is then a Depository hereunder; and if at any time
there is more than one such Person, "Depository" as used with respect to
the Securities of any such series shall mean each Depository with respect
to the Global Securities of such series.
"Event of Default" means any event or condition specified
as such in Section 5.1.
"Global Security" means a Security evidencing all or a
part of a series of Securities issued to the Depository, or its nominee,
for such series in accordance with Section 2.4, and bearing the legend
prescribed in Section 2.4.
"Government Obligations" means direct obligations of the
United States for the payment of which its full faith and credit is
pledged, or obligations of a person controlled or supervised by and acting
as an agency or instrumentality of the United States and the payment of
which is unconditionally guaranteed by the United States, and shall also
include a depository receipt issued by a bank or trust company as
custodian with respect to any such Government Obligation or a specific
payment of interest on or principal of any such Government Obligation held
by such custodian for the account of a holder of a depository receipt;
provided that (except as required by law) such custodian is not authorized
to make any deduction from the amount payable to the holder of such
depository receipt from any amount received by the custodian in respect of
the Government Obligation or the specific payment of interest on or
principal of the Government Obligation evidenced by such depository
receipt.
"Holder", "Holder of Securities", "Securityholder" or
other similar terms mean the Person in whose name such Security is
registered in the Security Register kept by the Issuer for that purpose in
accordance with the terms hereof.
"Indenture" means this instrument as originally executed
and delivered or, if amended or supplemented as herein provided, as so
amended or supplemented or both, and shall include the forms and terms of
particular series of Securities established as provided hereunder.
"Interest Payment Date" means (a) the date or dates, if
any, on which interest is to be paid on any Security as established
pursuant to Section 2.3(f), (b) the date of maturity or redemption of such
Security, and (c) only with respect to defaulted interest on such
Security, the date established for the payment of such defaulted interest
pursuant to Section 2.7 hereof.
"Issuer" means (except as otherwise provided in
Article Six) Consumers Power Company, a Michigan corporation, and, subject
to Article Nine, its successors and assigns.
"Issuer Order" means a written statement, request or order
of the Issuer signed in its name by the Chairman, the President or any
Vice President (whether or not designated by a number or numbers or a word
or words added before or after the title "Vice President") or by the
Treasurer of the Issuer.
"Maturity" means, when used with respect to any Security,
the date on which the principal of such Security or an installment of
principal becomes due and payable as therein or herein provided, whether
at the Stated Maturity or by declaration of acceleration, call for
redemption or otherwise.
"Officers' Certificate" means a certificate signed by the
Chairman, the President or any Vice President (whether or not designated
by a number or numbers or a word or words added before or after the title
"Vice President"), and by the Chief Financial Officer, Treasurer, any
Assistant Treasurer, the Secretary or any Assistant Secretary, of the
Issuer and delivered to the Trustee. Except as otherwise provided herein,
each such certificate shall include the statements provided for in
Section 14.5.
"Opinion of Counsel" means an opinion in writing signed by
the counsel of the Issuer as designated by the Board of Directors or by
such other legal counsel who may be an employee of or regular counsel to
the Issuer and who shall be satisfactory to the Trustee. Each such
opinion shall include the statements provided for in Section 13.5, if and
to the extent required thereby.
"Outstanding" (except as otherwise provided in
Section 6.8), when used with reference to Securities, shall, subject to
the provisions of Section 7.4, mean, as of any particular time, all
Securities theretofore authenticated and delivered by the Trustee under
this Indenture, except:
(a) Securities theretofore cancelled by the
Trustee or delivered to the Trustee for cancellation;
(b) Securities, or portions thereof, for the
payment or redemption of which moneys or Government
Obligations (as provided for in Section 10.1) in the
necessary amount shall have been theretofore deposited in
trust with the Trustee or with any paying agent (other
than the Issuer) or shall have been set aside, segregated
and held in trust by the Issuer for the Holders of such
Securities (if the Issuer shall act as its own paying
agent), provided that if such Securities, or portions
thereof, are to be redeemed prior to the Maturity thereof,
notice of such redemption shall have been given as herein
provided, or provision satisfactory to the Trustee shall
have been made for giving such notice; and
(c) Securities which shall have been paid or in
substitution for which other Securities shall have been
authenticated and delivered pursuant to the terms of
Section 2.9 (except with respect to any such Security as
to which proof satisfactory to the Trustee is presented
that such Security is held by a Person in whose hands such
Security is a legal, valid and binding obligation of the
Issuer).
In determining whether the Holders of the requisite
principal amount of Outstanding Securities of any or all series have given
any request, demand, authorization, direction, notice, consent or waiver
hereunder Securities owned by the Issuer or any other obligor upon the
Securities of any Affiliate of the Issuer or of such other obligor shall
be disregarded and deemed not to be Outstanding, except that in
determining whether the Trustee shall be protected in relying upon any
such request, demand, authorization, direction, notice, consent or waiver,
only Securities which the Trustee knows to be so owned shall be so
disregarded. Securities so owned which have been pledged in good faith
may be regarded as Outstanding if the pledgee establishes to the
satisfaction of the Trustee the pledgee's right so to act with respect to
such Securities and that the pledgee is not the Issuer or any other
obligor upon the Securities or an Affiliate of the Issuer or of such other
obligor.
"Person" means any individual, corporation, limited
liability company, partnership, joint venture, association, joint-stock
company, trust, unincorporated organization or government or any agency or
political subdivision thereof.
"Preferred Securities" means undivided beneficial
interests in the assets of a Consumers Trust which rank pari passu with
Common Securities issued by such trust; provided however, that upon the
occurrence of an Event of Default, the rights of holders of Common
Securities to payment in respect of distributions and payments upon
liquidation, redemption and otherwise are subordinated to the rights of
holders of Preferred Securities.
"Preferred Securities Guarantee" means any guarantee that
the Issuer may enter into that operates directly or indirectly for the
benefit of holders of Preferred Securities of a Consumers Trust.
"principal" means the amount (including, without
limitation, if and to the extent applicable, any premium) that is payable
with respect to a Security as of any date and for any purpose (including,
without limitation, in connection with any sinking fund, upon any
redemption at the option of the Issuer, upon any purchase or exchange at
the option of the Issuer or the Holder of such Security and upon any
acceleration of the Maturity of such Security).
"Property Trustee" means the entity performing the
functions of the Property Trustee of a Consumers Trust under the
applicable Declaration of such Consumers Trust.
"Record Date" shall have the meaning set forth in
Section 2.7.
"Responsible Officer", when used with respect to the
Trustee, means the chairman of the board of directors, any vice chairman
of the board of directors, the chairman of the trust committee, the
chairman of the executive committee, any vice chairman of the executive
committee, the president, any vice president (whether or not designated by
numbers or words added before or after the title "vice president"), the
cashier, the secretary, the treasurer, any trust officer, any assistant
trust officer, any assistant vice president, any assistant cashier, any
assistant secretary, any assistant treasurer or any other officer or
assistant officer of the Trustee customarily performing functions similar
to those performed by the persons who at the time shall be such officers,
respectively, or to whom any corporate trust matter is referred because of
his knowledge of and familiarity with the particular subject.
"Security" or "Securities" (except as otherwise provided
in Section 6.8) shall have the meaning stated in the first recital of this
Indenture and, more particularly, any Securities that have been
authenticated and delivered under this Indenture.
"Security Register" and "Security Registrar" shall have
the respective meanings set forth in Section 2.8.
"Senior Indebtedness" shall have the meaning set forth in
Section 12.1(b).
"Subsidiary" means a corporation more than 50% of the
outstanding voting stock of which is owned, directly or indirectly, by the
Issuer or by one or more other Subsidiaries. For the purposes of this
definition, "voting stock" means stock which ordinarily has voting power
for the election of directors, whether at all times or only so long as no
senior class of stock has such voting power by reason of any contingency.
"Stated Maturity" means, when used with respect to any
Security or any installment of principal thereof or interest thereon, the
date specified in such Security as the fixed date on which the principal
of such Security or such installment of principal or interest is due and
payable.
"Trust Indenture Act of 1939" or "Trust Indenture Act"
(except as otherwise provided in Sections 8.1 and 8.2) means the Trust
Indenture Act of 1939 as in force at the date as of which this Indenture
was originally executed.
"Trust Securities" means Common Securities and Preferred
Securities.
"Trustee" means the Person identified as the "Trustee" in
the first paragraph hereof and, subject to the provisions of Article Six,
shall also include any successor trustee. "Trustee" shall also mean or
include each Person who is then a trustee hereunder; and if at any time
there is more than one such Person, "Trustee" as used with respect to the
Securities of any series shall mean the trustee with respect to the
Securities of such series.
ARTICLE TWO
SECURITIES
Section 2.1 Forms Generally. The Securities of each
series shall be substantially in such form (not inconsistent with this
Indenture) as shall be established by or pursuant to one or more Board
Resolutions (as set forth in a Board Resolution or, to the extent
established pursuant to rather than set forth in a Board Resolution, an
Officers' Certificate detailing such establishment) or in one or more
indentures supplemental hereto, in each case with such appropriate inser-
tions, omissions, substitutions and other variations as are required or
permitted by this Indenture, and may have imprinted or otherwise
reproduced thereon such letters, numbers or other marks of identification
and such legend or legends or endorsements, not inconsistent with the
provisions of this Indenture, as may be required to comply with any law or
with any rules or regulations pursuant thereto, or with any rules of any
securities exchange or to conform to general usage, all as may be
determined by the officers executing such Securities as evidenced by their
execution of such Securities.
The definitive Securities shall be printed, lithographed
or engraved on steel engraved borders or may be produced in any other
manner, all as determined by the officers executing such Securities as
evidenced by their execution of such Securities.
Section 2.2 Form of Trustee's Certificate of
Authentication. The Trustee's certificate of authentication on all
Securities shall be in substantially the following form:
"This is one of the Securities of the series designated
herein referred to in the within-mentioned Indenture.
The Bank of New York,
as Trustee
By_____________________________
Authorized Signatory
If at any time there shall be an Authenticating Agent
appointed with respect to any series of Securities, then the Trustee's
certificate of authentication to be borne by the Securities of each such
series shall be substantially as follows:
"This is one of the Securities of the series designated
herein referred to in the within-mentioned Indenture.
_________________________
as Authenticating Agent
By_______________________
Authorized Officer
Section 2.3 Amount Unlimited; Issuable in Series.
(a) The aggregate principal amount of Securities which
may be authenticated and delivered under this Indenture is unlimited.
(b) The Securities may be issued in one or more series
and shall be direct obligations of the Issuer.
(c) Each Security shall be dated and issued as of the
date of its authentication by the Trustee.
(d) Each Security shall bear interest from the later of
its original date of authentication or the most recent Interest Payment
Date to which interest has been paid or duly provided for with respect to
such Security until the principal of such Security is paid or made
available for payment, and interest on each Security shall be payable on
each Interest Payment Date after the date of such Security.
(e) Each Security shall mature on a date specified in the
Security and the principal amount of each outstanding Security shall be
payable on the Maturity specified therein.
(f) There shall be established in or pursuant to one or
more Board Resolutions (and, to the extent established pursuant to rather
than set forth in a Board Resolution, in an Officers' Certificate
detailing such establishment) or established in one or more indentures
supplemental hereto, prior to the initial issuance of Securities of any
series:
(1) the designation of the Securities of such
series, which shall distinguish the Securities of such
series from the Securities of all other series;
(2) any limit upon the aggregate principal
amount of the Securities of such series that may be
authenticated and delivered under this Indenture (except
for Securities authenticated and delivered upon
registration of transfer of, or in exchange for, or in
lieu of, other Securities of such series pursuant to
Section 2.8, 2.9, 2.11, 8.5 or 11.3);
(3) subject to Section 2.3(e), the date or dates
(and whether fixed or extendible) on which the principal
of the Securities of such series is payable;
(4) the date from which interest on the
Securities of such series shall begin to accrue, the rate
or rates at which the Securities of such series shall bear
interest, if any, the Interest Payment Date or Dates for
the Securities of such series and the Record Date for
interest payable on any Interest Payment Date;
(5) the place or places where the principal of
and any interest on Securities of such series shall be
payable and where such Securities may be registered or
transferred (if in addition to, or other than, as provided
in Section 3.2);
(6) the right, if any, of the Issuer to redeem
or purchase Securities of such series, in whole or in
part, at its option and the period or periods within
which, the price or prices at which and any terms and
conditions upon which Securities of such series may be so
redeemed;
(7) the obligation, if any, of the Issuer to
redeem, purchase or repay Securities of such series
pursuant to any mandatory redemption, sinking fund or
analogous provisions or at the option of a Holder thereof
and the price or prices at which and the period or periods
within which and any terms and conditions upon which
Securities of such series shall be redeemed, purchased or
repaid, in whole or in part, pursuant to such obligation;
(8) if other than denominations of $25 and any
integral multiple thereof, the denominations in which
Securities of such series shall be issuable;
(9) whether the Securities of such series will
be subordinated to the payment of Senior Indebtedness on
the terms and conditions set forth in Article Twelve and
whether such subordination shall be subject to any
provisions in addition to or in lieu of those set forth in
Article Twelve;
(10) whether the Securities of such series
will be issuable as Global Securities;
(11) whether and under what circumstances the
Issuer will pay additional amounts on the Securities of
such series held by a person who is not a U.S. Person in
respect of any tax, assessment or governmental charge
withheld or deducted and, if so, whether the Issuer will
have the option to redeem such Securities rather than pay
such additional amounts;
(12) if the Securities of such series are to be
issuable in definitive form (whether upon original issue
or upon exchange of a temporary Security of such series)
only upon receipt of certain certificates or other
documents or satisfaction of other conditions, and the
form and terms of any such certificates, documents or
conditions;
(13) any trustees, depositaries, authenticating
or paying agents, transfer agents, conversion agents or
registrars or any other agents with respect to the
Securities of such series;
(14) any events of default or covenants with
respect to the Securities of such series other than those
specified herein;
(15) the Person to whom any interest on a
Security of such series shall be payable, if other than
the Person in whose name the Security (or one or more
predecessor Securities) is registered at the close of
business on the Record Date for such interest;
(16) if the Securities of such series shall be
issued in whole or in part in the form of one or more
Global Securities, whether beneficial owners of interests
in any such Global Security may exchange such interests
for Securities of such series of like tenor and of
authorized form and denomination and the circumstances
under which any such changes may occur, if other than in
the manner provided in Section 2.8;
(17) the right of the Issuer, if any, to defer any
payment of principal of or interest on the Securities of such
series, and the maximum length of any such deferral period;
(18) whether any property will be pledged to
secure the Securities; and
(19) any other terms of such series (which terms
shall not be inconsistent with the provisions of this
Indenture).
All Securities of any one series shall be substantially
identical, except as to denomination and except as may otherwise be
provided by or pursuant to the Board Resolution or Officers' Certificate
referred to above or as set forth in any indenture supplemental hereto
referred to above. All Securities of any one series need not be issued at
the same time and may be issued from time to time, consistent with the
terms of this Indenture, if so provided by or pursuant to such Board
Resolution, such Officers' Certificate or in any such indenture
supplemental hereto.
Section 2.4 Authentication and Delivery of Securities.
The Issuer may from time to time deliver Securities of any series,
executed by the Issuer to the Trustee for authentication, together with
the applicable documents referred to below in this Section, and the
Trustee shall thereupon authenticate and make available for delivery such
Securities to or upon the order of the Issuer (contained in the Issuer
Order referred to below in this Section) or pursuant to such procedures
acceptable to the Trustee and to such recipients as may be specified from
time to time by an Issuer Order. If so provided in the Board Resolution,
Officers' Certificate or supplemental indenture establishing the
Securities of any series, the maturity date, interest accrual date,
interest rate, Interest Payment Date or Dates and any other terms of any
or all of the Securities of such series may be determined by or pursuant
to such Issuer Order and procedures. If provided for in such procedures,
such Issuer Order may authorize authentication and delivery pursuant to
instructions (from the Issuer or its duly authorized agent) in writing, by
facsimile or any other method mutually agreed upon by the Issuer and
Trustee. In authenticating the Securities of a series and accepting the
additional responsibilities under this Indenture in relation to such
Securities, the Trustee shall be entitled to receive (but, in the case of
subparagraphs 2, 3 and 4 below, only at or before the time of the first
request of the Issuer to the Trustee to authenticate Securities of such
series, however, any request after the first shall be deemed to include
the representation of the Issuer that the document previously delivered
pursuant to subparagraphs 2, 3 and 4 below are still true and in effect)
and (subject to Section 6.1) shall be fully protected in relying upon,
unless and until such documents have been superseded or revoked:
(1) an Issuer Order requesting such authen-
tication and setting forth delivery instructions if the
Securities are not to be delivered to the Issuer.
(2) any Board Resolution, Officers' Certificate
and/or executed supplemental indenture referred to in
Sections 2.1 and 2.3 by or pursuant to which the forms and
terms of the Securities of such series were established;
(3) an Officers' Certificate setting forth the
form or forms and terms of the Securities of such series
stating (a) that such form or forms and terms have been
established pursuant to Sections 2.1 and 2.3 and comply
with this Indenture, (b) the aggregate principal amount of
all of the Securities outstanding under this Indenture and
(c) covering such other matters as the Trustee may
reasonably request; and
(4) at the option of the Issuer, either an
Opinion of Counsel, or a letter addressed to the Trustee
permitting it to rely on an Opinion of Counsel,
substantially to the effect that:
(a) the forms of the Securities
of such series have been duly authorized
and established in conformity with the
provisions of this Indenture;
(b) the terms of the Securities
of such series have been duly authorized
and established in conformity with the
provisions of this Indenture;
(c) when the Securities of such
series have been executed by the Issuer
and authenticated by the Trustee in
accordance with the provisions of this
Indenture and delivered to and duly paid
for by the purchasers thereof, they will
have been duly issued under this
Indenture and will be valid and legally
binding obligations of the Issuer,
enforceable in accordance with their
respective terms, subject to bankruptcy,
insolvency, reorganization and other laws
of general applicability relating to or
affecting the enforcement of creditors'
rights and to general principles of
equity, and will be entitled to the
benefits of this Indenture;
(d) the Indenture has been duly
authorized, executed and delivered by the
Issuer and constitutes a legal, valid and
binding agreement of the Issuer,
enforceable in accordance with its terms,
subject to bankruptcy, insolvency,
reorganization and other laws of general
applicability relating to or affecting
the enforcement of creditors' rights and
to general principles of equity;
(e) the issuance of the
Securities will not result in any default
under this Indenture, or any other
contract, indenture, loan agreement or
other instrument to which the Issuer is a
party or by which it or any of its
property is bound; and
(f) no consent, approval,
authorization, order, registration or
qualification of or with any governmental
agency or body having jurisdiction over
the Issuer is required for the execution
and delivery of the Securities of such
series by the Issuer, except such as have
been obtained (except that no opinion
need be expressed as to state securities
or Blue Sky laws).
The Trustee shall have the right to decline to
authenticate and deliver any Securities of any series under this Section
(other than Securities the forms and terms of which shall have been
established by supplemental indenture) if the Trustee, being advised by
counsel, determines that such action may not lawfully be taken by the
Issuer or if the Trustee in good faith by its board of directors or board
of trustees, executive committee or a trust committee of directors,
trustees or Responsible Officers shall determine that such action would
expose the Trustee to personal liability to existing Holders or would
affect the Trustee's rights, duties or immunities under the Securities of
any such series, this Indenture or otherwise.
If the Issuer shall establish pursuant to Section 2.3 that
the Securities of a series are to be issued in the form of one or more
Global Securities, then the Issuer shall execute and the Trustee shall, in
accordance with this Section and the Issuer Order with respect to such
series, authenticate and make available for delivery one or more Global
Securities that (i) shall be in an aggregate amount equal to the aggregate
principal amount specified in such Issuer Order, (ii) shall be registered
in the name of the Depository therefor or its nominee, (iii) shall be
delivered by the Trustee to such Depository or pursuant to such
Depository's instructions and (iv) shall bear a legend substantially to
the following effect: "Unless and until it is exchanged in whole or in
part for Securities in definitive registered form, this Security may not
be transferred except as a whole by the Depository to the nominee of the
Depository or by a nominee of the Depository to the Depository or another
nominee of the Depository or by the Depository or any such nominee to a
successor Depository or a nominee of such successor Depository."
Section 2.5 Execution of Securities. The Securities
shall be signed on behalf of the Issuer by both (a) its Chairman, its
President or any Vice President (whether or not designated by a number or
numbers or a word or words added before or after the title "Vice
President"), under its corporate seal reproduced thereon, which need not
be attested and (b) by its Chief Financial Officer, the Treasurer, any
Assistant Treasurer, the Secretary or any Assistant Secretary. Such
signatures may be the manual or facsimile signatures of such officers.
Typographical and other minor errors or defects in any such signature
shall not affect the validity or enforceability of any Security that has
been duly authenticated and delivered by the Trustee.
In case any officer of the Issuer who shall have so signed
any of the Securities shall cease to be such officer before the Security
so signed shall be authenticated and delivered by the Trustee or disposed
of by the Issuer, such Security nevertheless may be authenticated and
delivered or disposed of as though the person who signed such Security had
not ceased to be such officer of the Issuer; and any Security may be so
signed on behalf of the Issuer by such persons as, at the actual date of
the execution of such Security, shall be the proper officers of the
Issuer, although at the date of the execution and delivery of this
Indenture any such person was not such an officer.
Section 2.6 Certificate of Authentication. Only such
Securities as shall bear thereon a certificate of authentication
substantially in the form hereinbefore recited, executed by the Trustee by
the manual signature of one of its authorized officers, shall be entitled
to the benefits of this Indenture or be valid or obligatory for any
purpose. The execution of such certificate by the Trustee upon any
Security executed by the Issuer shall be conclusive evidence that the
Security so authenticated has been duly authenticated and delivered
hereunder and that the Holder is entitled to the benefits of this
Indenture. Notwithstanding the foregoing, if any Security shall have been
authenticated and delivered hereunder but never issued and sold by the
Issuer, and the Issuer shall deliver such Security to the Trustee for
cancellation as provided in Section 2.10, together with a written
statement (which need not comply with Section 14.5 and need not be
accompanied by an Opinion of Counsel) stating that such Security has never
been issued and sold by the Issuer, for all purposes of this Indenture
such Security shall be deemed never to have been authenticated and
delivered hereunder and shall never be entitled to the benefits of this
Indenture.
Section 2.7 Denomination of Securities; Payments of
Interest. The Securities of each series shall be issuable in registered
form in denominations established as contemplated by Section 2.3. The
Securities of each series shall be numbered, lettered or otherwise
distinguished in such manner or in accordance with such plan as the
officers of the Issuer executing the same may determine with the approval
of the Trustee, as evidenced by the execution and authentication thereof.
The Securities of each series shall bear interest from the
date, and such interest shall be payable on the Interest Payment Dates,
established as contemplated by Section 2.3.
The Person in whose name any Security of any series is
registered at the close of business on any Record Date applicable to such
series with respect to any Interest Payment Date for such series shall be
entitled to receive the interest, if any, payable on such Interest Payment
Date notwithstanding any transfer or exchange of such Security subsequent
to the Record Date and prior to such Interest Payment Date, except if and
to the extent the Issuer shall default in the payment of the interest due
on such Interest Payment Date, in which case such defaulted interest shall
be paid to the Persons in whose names Outstanding Securities of such
series are registered at the close of business on a subsequent Record Date
(which shall be not less than five Business Days prior to the date of
payment of such defaulted interest) established by notice given by mail by
or on behalf of the Issuer to the Holders of Securities of such series not
less than 15 days preceding such subsequent Record Date. The term "Record
Date", as used with respect to any Interest Payment Date (except a date
for payment of defaulted interest) for the Securities of any series, shall
mean the date specified as such in the terms of the Securities of such
series established as contemplated by Section 2.3.
Subject to the foregoing provisions of this Section, each
Security delivered under this Indenture upon registration of transfer of
or in exchange for or in lieu of any other Security shall carry the rights
to interest accrued and unpaid, and to accrue, which were carried by such
other Security.
Section 2.8 Registration, Transfer and Exchange. The
Issuer will keep, or cause to be kept, at the Corporate Trust Office and
at each other office or agency to be maintained for the purpose as
provided in Section 3.2 for each series of Securities a register or
registers (collectively, the "Security Register") in which, subject to
such reasonable regulations as it may prescribe, it will provide for the
registration of Securities of such series and the registration of transfer
of Securities of such series. The Security Register shall be in written
form in the English language or in any other form capable of being
converted into such form within a reasonable time. At all reasonable
times such register or registers not maintained by the Trustee shall be
open for inspection by the Trustee. Unless and until otherwise determined
by the Issuer pursuant to Section 2.3, the Security Register with respect
to each series of Securities shall be kept solely at the Corporate Trust
Office and, for this purpose, the Trustee shall be designated the
"Security Registrar."
Upon due presentation for registration of transfer of any
Security of any series at any such office or agency, the Issuer shall
execute and the Trustee shall authenticate and make available for delivery
in the name of the transferee or transferees a new Security or Securities
of the same series, maturity date and interest rate in authorized
denominations for a like aggregate principal amount.
At the option of the Holder thereof, Securities of any
series (other than a Global Security, except as set forth below) may be
exchanged for one or more Securities of such series in authorized
denominations for a like aggregate principal amount, upon surrender of
such Securities to be exchanged at the office or agency to be maintained
for such purpose in accordance with Section 3.2 and upon payment, if the
Issuer shall so require, of the charges hereinafter provided. Whenever
any Securities are so surrendered for exchange, the Issuer shall execute,
and the Trustee shall authenticate and make available for delivery, the
Securities which the Holder making the exchange is entitled to receive.
All Securities surrendered upon any exchange or transfer provided for in
this Indenture shall be promptly cancelled by the Trustee and the Trustee
will deliver a certificate of cancellation thereof to the Issuer.
All Securities presented for registration of transfer,
exchange, redemption or payment shall (if so required by the Issuer or the
Trustee) be duly endorsed by, or be accompanied by a written instrument or
instruments of transfer in form satisfactory to the Issuer and the Trustee
duly executed by, the Holder or his attorney duly authorized in writing.
The Issuer may require payment of a sum sufficient to
cover any tax or other governmental charge that may be imposed in
connection with any exchange or registration of transfer of Securities,
other than exchanges pursuant to Sections 2.11, 8.5 and 11.2 not involving
any transfer. No service charge shall be made for any such transaction.
The Issuer shall not be required to (a) issue, exchange or
register a transfer of any Securities of any series for a period of 15
days next preceding the first mailing or publication of notice of
redemption of Securities of such series to be redeemed or (b) exchange or
register the transfer of any Securities selected, called or being called
for redemption, in whole or in part, except, in the case of any Security
to be redeemed in part, the portion thereof not so to be redeemed.
Notwithstanding any other provision of this Section,
unless and until it is exchanged in whole or in part for Securities in
definitive registered form, a Global Security representing all or a
portion of the Securities of a series may not be transferred except as a
whole by the Depository for such Global Security to a nominee of such
Depository or by a nominee of such Depository to such Depository or
another nominee of such Depository or by such Depository or any such
nominee to a successor Depository for such Global Security or a nominee of
such successor Depository.
If at any time a Depository for any Securities of a series
represented by one or more Global Securities notifies the Issuer that it
is unwilling or unable to continue as Depository for such Securities or if
at any time any such Depository shall no longer be eligible as a
Depository, the Issuer shall appoint a successor Depository with respect
to the Securities held by such Depository. If a successor Depository is
not appointed by the Issuer within 90 days after the Issuer receives such
notice or becomes aware of such ineligibility, the Securities of such
series shall no longer be represented by one or more Global Securities
held by such Depository, and the Issuer shall execute, and the Trustee,
upon receipt of an Issuer Order for the authentication and delivery of
definitive Securities of such series, shall authenticate and make
available for delivery Securities of such series in definitive registered
form without coupons, in any authorized denominations and in an aggregate
principal amount equal to the principal amount of the Global Security or
Securities held by such Depository in exchange for such Global Security or
Securities.
The Issuer may at any time and in its sole discretion
determine that the Securities of a particular series shall no longer be
represented by a Global Security or Securities. In such event, the Issuer
shall execute, and the Trustee, upon receipt of an Issuer Order for the
authentication and delivery of definitive Securities of such series, shall
authenticate and deliver, Securities of such series in definitive
registered form in any authorized denominations and in an aggregate
principal amount equal to the principal amount of the Global Security or
Securities representing Securities of such series in exchange for such
Global Security or Securities.
If so specified by the Issuer pursuant to Section 2.3 with
respect to Securities of a particular series represented by a Global
Security, the Depository for such Global Security may surrender such
Global Security in exchange in whole or in part for Securities of such
series in definitive registered form on such terms as are acceptable to
the Issuer and such Depository. Thereupon, the Issuer shall execute, and
the Trustee shall authenticate and make available for delivery:
(i) to each Person specified by such Depository
a new Security or Securities of such series, in any
authorized denominations requested by such Person, in an
aggregate principal amount equal to, and in exchange for,
such Person's beneficial interest in the Global Security;
and
(ii) to such Depository a new Global Security in
a denomination equal to the difference between the
principal amount of the surrendered Global Security and
the aggregate principal amount of Securities authenticated
and delivered pursuant to clause (i) above.
Upon the exchange of any Global Security for Securities in
definitive registered form in authorized denominations, such Global
Security shall be cancelled by the Trustee or an agent of the Issuer or
the Trustee. Securities in definitive registered form without coupons
issued in exchange for a Global Security pursuant to this Section shall be
registered in such names and in such authorized denominations as the
Depository for such Global Security, pursuant to instructions from its
direct or indirect participants or otherwise, shall instruct the Trustee
or an agent of the Issuer or the Trustee. The Trustee or such agent shall
deliver such Securities to or as directed by the Persons in whose names
such Securities are so registered.
All Securities issued upon any registration of transfer or
exchange of Securities shall be valid obligations of the Issuer,
evidencing the same debt, and entitled to the same benefits under this
Indenture, as the Securities surrendered upon such registration of
transfer or exchange.
Section 2.9 Mutilated, Defaced, Destroyed, Lost and
Stolen Securities. In case any temporary or definitive Security shall
become mutilated, defaced or be destroyed, lost or stolen, the Issuer in
its discretion may execute, and upon receipt of an Issuer Order, the
Trustee shall authenticate and make available for delivery a new Security
of the same series, maturity date and interest rate, bearing a number or
other distinguishing symbol not contemporaneously outstanding, in exchange
and substitution for the mutilated or defaced Security, or in lieu of and
in substitution for the Security so destroyed, lost or stolen. In every
case the applicant for a substitute Security shall furnish to the Issuer
and to the Trustee or any agent of the Issuer or the Trustee such security
or indemnity as may be required by them to indemnify and defend and to
save each of them and any agent of either of them harmless and, in every
case of destruction, loss or theft, evidence to their satisfaction of the
destruction, loss or theft of such Security and of the ownership thereof
and, in the case of mutilation or defacement, shall surrender the Security
to the Trustee or such agent.
Upon the issuance of any substitute Security the Issuer
may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Trustee or its agent)
connected therewith. In case any Security which has matured or is about
to mature or has been called for redemption in full shall become mutilated
or defaced or be destroyed, lost or stolen, the Issuer may, instead of
issuing a substitute Security, pay or authorize the payment of the same
(without surrender thereof except in the case of a mutilated or defaced
Security), if the applicant for such payment shall furnish to the Issuer
and to the Trustee or any agent of the Issuer or the Trustee such security
or indemnity as may be required by them to save each of them harmless,
and, in every case of destruction, loss or theft, evidence to their
satisfaction of the destruction, loss or theft of such Security and of the
ownership thereof.
Every substitute Security of any series issued pursuant to
the provisions of this Section by virtue of the fact that any such
Security is destroyed, lost or stolen shall constitute an additional
contractual obligation of the Issuer, whether or not the destroyed, lost
or stolen Security shall be at any time enforceable by anyone and shall be
entitled to all the benefits of (but shall be subject to all the
limitations of rights set forth in) this Indenture equally and
proportionately with any and all other Securities of such series duly
authenticated and delivered hereunder. All Securities shall be held and
owned upon the express condition that, to the extent permitted by law, the
foregoing provisions are exclusive with respect to the replacement or
payment of mutilated, defaced, destroyed, lost or stolen Securities and
shall preclude any and all other rights or remedies notwithstanding any
law or statute existing or hereafter enacted to the contrary with respect
to the replacement or payment of negotiable instruments or other
securities without their surrender.
Section 2.10 Cancellation of Securities; Destruction
Thereof. All Securities surrendered for payment, redemption, registration
of transfer or exchange, or for credit against any payment in respect of a
sinking or analogous fund, if surrendered to the Issuer or any agent of
the Issuer or any agent of the Trustee, shall be delivered to the Trustee
or its agent for cancellation or, if surrendered to the Trustee, shall be
cancelled by it; and no Securities shall be issued in lieu thereof except
as expressly permitted by any of the provisions of this Indenture. The
Trustee or its agent shall cancel Securities held by it and deliver a
certificate of cancellation to the Issuer. If the Issuer or its agent
shall acquire any of the Securities, such acquisition shall not operate as
a redemption or satisfaction of the indebtedness represented by such
Securities unless and until the same are delivered to the Trustee or its
agent for cancellation.
Section 2.11 Temporary Securities. Pending the
preparation of definitive Securities for any series, the Issuer may
execute and the Trustee shall authenticate and make available for delivery
temporary Securities for such series (printed, lithographed, typewritten
or otherwise reproduced, in each case in form satisfactory to the
Trustee). Temporary Securities of any series shall be issuable as
registered Securities of any authorized denomination, and substantially in
the form of the definitive Securities of such series but with such
omissions, insertions and variations as may be appropriate for temporary
Securities, all as may be determined by the Issuer with the concurrence of
the Trustee as evidenced by the execution and authentication thereof.
Temporary Securities may contain such references to any provisions of this
Indenture as may be appropriate. Every temporary Security shall be
executed by the Issuer and be authenticated by the Trustee upon the same
conditions and in substantially the same manner, and with like effect, as
the definitive Securities. Without unreasonable delay the Issuer shall
execute and shall furnish definitive Securities of such series and
thereupon temporary Securities of such series may be surrendered in
exchange for such definitive Securities in registered form without charge
at each office or agency to be maintained for such purpose in accordance
with Section 3.2 and the Trustee shall authenticate and make available for
delivery in exchange for such temporary Securities of such series an equal
aggregate principal amount of definitive Securities of the same series in
authorized denominations. Until so exchanged, the temporary Securities of
any series shall be entitled to the same benefits under this Indenture as
definitive Securities of such series, unless otherwise established
pursuant to Section 2.3. The provisions of this Section are subject to
any restrictions or limitations on the issue and delivery of temporary
Securities of any series that may be established pursuant to Section 2.3.
Section 2.12 Computation of Interest. Except as
otherwise specified as contemplated by Section 2.3 for Securities of any
series, interest, if any, on the Securities of each series shall be
computed on the basis of a 360-day year of twelve 30-day months.
<PAGE>
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ARTICLE THREE
COVENANTS OF THE ISSUER
Section 3.1 Payment of Principal and Interest. The
Issuer covenants and agrees for the benefit of each series of Securities
that it will duly and punctually pay or cause to be paid the principal of,
and interest, if any, on, each of the Securities of such series (together
with any additional amounts payable pursuant to the terms of such
Securities) at the place or places, at the respective times and in the
manner provided in such Securities and in this Indenture. The interest on
Securities (together with any additional amounts payable pursuant to the
terms of such Securities) shall be payable only to or upon the written
order of the Holders thereof and, at the option of the Issuer, may be paid
by wire transfer or by mailing checks for such interest payable to or upon
the written order of such Holders at their last addresses as they appear
on the registry books of the Issuer.
Section 3.2 Offices for Payments, etc. So long as any
Securities are outstanding hereunder, the Issuer will maintain in The City
of New York, State of New York an office or agency where the Securities of
each series may be presented for payment, where the Securities of each
series may be presented for exchange as in this Indenture provided, and
where the Securities of each series may be presented for registration of
transfer as in this Indenture provided.
The Issuer will maintain in The City of New York an office
or agency where notices and demands to or upon the Issuer in respect of
the Securities of any series, or this Indenture may be served.
The Issuer will give to the Trustee prompt written notice
of the location of each such office or agency and of any change of
location thereof. In case the Issuer shall fail to maintain any office or
agency required by this Section to be located in The City of New York,
State of New York or shall fail to give such notice of the location or of
any change in the location of any of the above offices or agencies,
presentations and demands may be made and notices may be served at the
Corporate Trust Office of the Trustee, and, in such event, the Trustee
shall act as the Issuer's agent to receive all such presentations,
surrenders, notices and demands.
The Issuer may from time to time designate one or more
additional offices or agencies where the Securities of any series may be
presented for payment, where the Securities of such series may be
presented for exchange as in this Indenture provided, where the Securities
of such series may be presented for registration of transfer as in this
Indenture provided and the Issuer may from time to time rescind any such
designation; provided, however, that no such designation or rescission
shall in any manner relieve the Issuer of its obligation to maintain any
office or agency provided for in this Section. The Issuer will give to
the Trustee prompt written notice of any such designation or rescission
thereof and of change in the location of any such other office or agency.
Section 3.3 Appointment to Fill a Vacancy in Office of
Trustee. The Issuer, whenever necessary to avoid or fill a vacancy in the
office of Trustee, will appoint, in the manner provided in Section 6.10, a
Trustee, so that there shall at all times be a Trustee with respect to
each series of Securities hereunder.
Section 3.4 Paying Agents. Whenever the Issuer shall
appoint a paying agent other than the Trustee with respect to the
Securities of any series, it will cause such paying agent to execute and
deliver to the Trustee an instrument in which such agent shall agree with
the Trustee, subject to the provisions of this Section:
(a) that such paying agent will hold all sums
received by it as such agent for the payment of the
principal of or interest, if any, on the Securities of
such series (whether such sums have been paid to it by the
Issuer or by any other obligor on the Securities of such
series) in trust for the benefit of the Holders of the
Securities of such series entitled thereto or of the
Trustee until such sums shall be paid to such Holders or
otherwise disposed of as herein provided;
(b) that such paying agent will give the Trustee
notice of any failure by the Issuer (or by any other
obligor on the Securities of such series) to make any
payment of the principal of or interest on the Securities
of such series when the same shall be due and payable; and
(c) at any time during the continuance of any
such failure, upon the written request of the Trustee,
forthwith pay to the Trustee all sums so held in trust by
such paying agent.
The Issuer will, on or prior to each due date of the
principal of or interest, if any, on the Securities of any series, deposit
with the paying agent a sum sufficient to pay such principal or interest
so becoming due, such sum to be held in trust for the benefit of the
Holders of the Securities of such series entitled to such principal or
interest, and (unless such paying agent is the Trustee) the Issuer will
promptly notify the Trustee of any failure to take such action.
If the Issuer shall act as its own paying agent with
respect to the Securities of any series, it will, on or before each due
date of the principal of or interest, if any, on the Securities of such
series, set aside, segregate and hold in trust for the benefit of the
Holders of the Securities of such series a sum sufficient to pay such
principal or interest, if any, so becoming due until such sums shall be
paid to such Holders or otherwise disposed of as herein provided. The
Issuer will promptly notify the Trustee of any failure to take such
action.
Anything in this section to the contrary notwithstanding,
but subject to Section 10.1, the Issuer may at any time, for the purpose
of obtaining a satisfaction and discharge with respect to one or more or
all series of Securities hereunder, or for any other reason, pay or cause
to be paid to the Trustee all sums held in trust for any such series by
the Issuer or any paying agent hereunder, as required by this Section,
such sums to be held by the Trustee upon the trusts herein contained, and,
upon such payment by any paying agent to the Trustee, such paying agent
shall be released from all further liability with respect to such money.
Anything in this Section to the contrary notwithstanding,
the agreement to hold sums in trust as provided in this Section is subject
to the provisions of Sections 10.3 and 10.4.
Section 3.5 Limitation on Dividends; Transactions with
Affiliates. (a) If Securities are issued to a Consumer's Trust or a
trustee of such trust in connection with the issuance of Trust Securities
by such Consumers Trust and (i) there shall have occurred any event that
would constitute an Event of Default or (ii) the Company shall be in
default with respect to its payment or any obligations under the Preferred
Securities Guarantee or Common Securities Guarantee relating to such Trust
Securities, then (x) the Company shall not declare or pay any dividend on
, make any distributions with respect to, or redeem, purchase or make a
liquidation payment with respect to, any of its capital stock, (y) the
Company shall not make any payment of interest or principal or premium on,
or repay, repurchase or redeem any debt securities (including guarantees)
issued by the Company which rank pari passu with or junior to such
Securities and (z) the Company shall not make guarantee payments with
respect to the foregoing (other than pursuant to the Preferred Securities
Guarantee).
(b) If Securities are issued to a Consumers Trust or
a trustee of such trust in connection with the issuance of Trust
Securities by such Consumers Trust and the Company shall have given notice
of its election to defer payments of interest on such Securities by
extending the interest payment period as provided in any indenture
supplemental hereto and such period, or any extension thereof, shall be
continuing, then (i) the Company shall not declare or pay any dividend, or
make any distributions with respect to, or redeem, purchase or make a
liquidation payment with respect to, any of its capital stock, (ii) the
Company shall not make any payment of interest or principal or premium on,
or repay, repurchase or redeem any debt securities (including guarantees)
issued by the Company which rank pari passu with or junior to such
Securities and (iii) the Company shall not make any guarantee payments
with respect to the foregoing (other than pursuant to the Preferred
Securities Guarantee), provided, however, the Company may declare and pay
a stock dividend where the dividend stock is the same stock as that on
which the dividend is being paid.
Section 3.6 Covenants as to Consumers Trust. In the
event Securities are issued to a Consumers Trust or a trustee of such
trust, in connection with the issuance of Trust Securities by such trust,
for so long as such Trust Securities remain outstanding, the Company will
(i) maintain 100% direct or indirect ownership of the Common Securities of
such trust; provided, however, that any permitted successor of the Company
under the Indenture may succeed to the Company's ownership of the Common
Securities, (ii) not cause, as sponsor of such trust, or permit, as holder
of Common Securities of such trust, the dissolution, winding-up or
termination of such trust, except in connection with a distribution of
Securities as provided in the Declaration and in connection with certain
mergers, consolidations or amalgamations permitted by the Declaration and
(iii) use its reasonable efforts to cause such trust (a) to remain a
business trust, except in connection with a distribution of Securities,
the redemption of all of the Trust Securities of such Consumers Trust or
certain mergers, consolidations or amalgamations, each as permitted by the
Declaration of such Consumers Trust, and (b) to otherwise continue to be
classified for United States federal income tax purposes as a grantor
trust.
ARTICLE FOUR
SECURITYHOLDERS LISTS AND REPORTS BY THE
ISSUER AND THE TRUSTEE
Section 4.1 Issuer to Furnish Trustee Names and Addresses
of Securityholders. The Issuer and any other obligor on the Securities
covenant and agree that they will furnish or cause to be furnished to the
Trustee a list in such form as the Trustee may reasonably require of the
names and addresses of the Holders of the Securities of each series:
(a) semi-annually and not more than 15 days
after each Record Date for the payment of interest on such
Securities, as of such Record Date and on dates to be
determined pursuant to Section 2.3 for non-interest
bearing Securities, in each year; and
(b) at such other times as the Trustee may
request in writing, within 30 days after receipt by the
Issuer of any such request, as of a date not more than 15
days prior to the time such information is furnished;
provided that if and so long as the Trustee shall be the Security
Registrar for such series such list shall not be required to be furnished.
Section 4.2 Preservation and Disclosure of
Securityholders Lists. (a) The Trustee shall preserve, in as current a
form as is reasonably practicable, all information as to the names and
addresses of the Holders of each series of Securities (i) contained in the
most recent list furnished to it as provided in Section 4.1, (ii) received
by it in the capacity of Security Registrar for such series, if so acting,
and (iii) filed with it within the two preceding years pursuant to Section
4.4(c)(ii). The Trustee may destroy any list furnished to it as provided
in Section 4.1 upon receipt of a new list so furnished.
(b) In case three or more Holders of Securities
(hereinafter referred to as "applicants") apply in writing to the Trustee
and furnish to the Trustee reasonable proof that each such applicant has
owned a Security for a period of at least six months preceding the date of
such application, and such application states that the applicants desire
to communicate with other Holders of Securities of a particular series (in
which case the applicants must all hold Securities of such series) or with
Holders of all Securities with respect to their rights under this
Indenture or under such Securities and such application is accompanied by
a copy of the form of proxy or other communication which such applicants
propose to transmit, then the Trustee shall, within five Business Days
after the receipt of such application, at its election, either
(i) afford to such applicants access to the
information preserved at the time by the Trustee in
accordance with the provisions of subsection (a) of this
Section; or
(ii) inform such applicants as to the
approximate number of Holders of Securities of such series
or of all Securities, as the case may be, whose names and
addresses appear in the information preserved at the time
by the Trustee, in accordance with the provisions of such
subsection (a) and as to the approximate cost of mailing
to such Holders the form of proxy or other communication,
if any, specified in such application.
If the Trustee shall elect not to afford to such
applicants access to such information, the Trustee shall, upon the written
request of such applicants, mail to each Holder of such series or all
Holders of Securities, whose name and address appears in the information
preserved at the time by the Trustee in accordance with the provisions of
such subsection (a) a copy of the form of proxy or other communication
which is specified in such request, with reasonable promptness after a
tender to the Trustee of the material to be mailed and of payment, or
provision for the payment, of the reasonable expenses of mailing, unless
within five days after such tender the Trustee shall mail to such
applicants and file with the Commission, together with a copy of the
material to be mailed, a written statement to the effect that, in the
opinion of the Trustee, such mailing would be contrary to the best
interests of the Holders of Securities of such series or of all
Securities, as the case may be, or would be in violation of applicable
law. Such written statement shall specify the basis of such opinion. If
the Commission, after opportunity for a hearing upon the objections
specified in the written statement so filed, shall enter an order refusing
to sustain any of such objections or if, after the entry of an order
sustaining one or more of such objections, the Commission shall find,
after notice and opportunity for hearing, that all the objections so
sustained have been met, and shall enter an order so declaring, the
Trustee shall mail copies of such material to all such Holders with
reasonable promptness after the entry of such order and the renewal of
such tender; otherwise the Trustee shall be relieved of any obligation or
duty to such applicants respecting their application.
(c) Each and every Holder of Securities by receiving and
holding the same, agrees with the Issuer and the Trustee that neither the
Issuer nor the Trustee nor any agent of the Issuer or the Trustee shall be
held accountable by reason of the disclosure of any such information as to
the names and addresses of the Holders of Securities in accordance with
the provisions of subsection (b) of this Section, regardless of the source
from which such information was derived, and that the Trustee shall not be
held accountable by reason of mailing any material pursuant to a request
made under such subsection (b).
Section 4.3 Reports by the Issuer. The Issuer covenants:
(a) to file with the Trustee, within 15 days
after the Issuer is required to file the same with the
Commission, copies of the annual reports and of the
information, documents and other reports (or copies of
such portions of any of the foregoing as the Commission
may from time to time by rules and regulations prescribe)
which the Issuer may be required to file with the
Commission pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934; or if the Issuer is not
required to file information, documents or reports
pursuant to either of such Sections, then to file with the
Trustee and the Commission, in accordance with rules and
regulations prescribed from time to time by the Commis-
sion, such of the supplementary and periodic information,
documents, and reports which may be required pursuant to
Section 13 of the Securities Exchange Act of 1934 in
respect of a debt security listed and registered on a
national securities exchange as may be prescribed from
time to time in such rules and regulations;
(b) to file with the Trustee and the Commission,
in accordance with rules and regulations prescribed from
time to time by the Commission, such additional
information, documents and reports with respect to
compliance by the Issuer with the conditions and covenants
provided for in this Indenture as may be required from
time to time by such rules and regulations;
(c) to transmit by mail to the Holders of
Securities within 30 days after the filing thereof with
the Trustee, in the manner and to the extent provided in
Section 4.4(c), such summaries of any information,
documents and reports required to be filed by the Issuer
pursuant to subsections (a) and (b) of this Section as may
be required to be transmitted to such Holders by rules and
regulations prescribed from time to time by the Commis-
sion; and
(d) to furnish to the Trustee, not less often than
annually, a brief certificate from the principal executive
officer, principal financial officer or principal accounting
officer as to his or her knowledge of the Issuer's compliance with
all conditions and covenants under this Indenture (such compliance
to be determined without regard to any period of grace or
requirement of notice provided under this Indenture).
Section 4.4 Reports by the Trustee. (a) Annually, not
later than 60 days after May 15 of each year, the Trustee shall transmit
to the Holders and the Commission a report with respect to events
described in section 313(a) of the Trust Indenture Act, in such manner and to
the extent revised thereunder.
(b) The Trustee shall transmit to the Holders of each
series, as provided in subsection (c) of this Section, a brief report with
respect to the character and amount of any advances (and if the Trustee
elects so to state, the circumstances surrounding the making thereof) made
by the Trustee, as such, since the date of the last report transmitted
pursuant to the provisions of subsection (a) of this Section (or if no
such report has yet been so transmitted, since the date of this Indenture)
for the reimbursement of which it claims or may claim a lien or charge,
prior to that of the Securities of such series, on property or funds held
or collected by it as Trustee and which it has not previously reported
pursuant to this subsection (b), except that the Trustee shall not be
required (but may elect) to report such advances if such advances
remaining unpaid at any time aggregate 10% or less of the principal amount
of the Securities of such series outstanding at such time, such report to
be transmitted within 90 days after such time.
(c) Reports pursuant to this Section shall be transmitted
by mail to all Holders of Securities, as the names and addresses of such
Holders appear upon the Security Register;
(d) A copy of each such report shall, at the time of such
transmission to the Holders, be furnished to the Issuer and be filed by
the Trustee with each stock exchange, if any, upon which the Securities of
any series are listed and also with the Commission. The Issuer agrees to
notify the Trustee when and as the Securities of such series become
admitted to trading on any national securities exchange.
ARTICLE FIVE
REMEDIES OF THE TRUSTEE AND SECURITYHOLDERS
ON EVENT OF DEFAULT
Section 5.1 Event of Default Defined; Acceleration of
Maturity; Waiver of Default. "Event of Default" with respect to
Securities of any series, wherever used herein, means each of the
following events which shall have occurred and be continuing (whatever the
reason for such Event of Default and whether it shall be voluntary or
involuntary or be effected by operation of law or pursuant to any
judgment, decree or order of any court or any order, rule or regulation of
any administrative or governmental body):
(a) default in the payment of any installment of
interest upon any of the Securities of such series as and
when the same shall become due and payable, (whether or
not payment is prohibited by the provisions of Article 12
hereof), and continuance of such default for a period of
30 days; provided, however, that if the Issuer is
permitted by the terms of the Securities of such series to
defer the payment in question, the date on which such
payment is due and payable shall be the date on which the
Issuer is required to make payment following such
deferral, if such deferral has been elected pursuant to
the terms of the Securities; or
(b) default in the payment of all or any part of
the principal of the Securities of such series as and when
the same shall become due and payable (whether or not
payment is prohibited by the provisions of Article 12
hereof), whether at Maturity, upon purchase by the Issuer
at the option of the Holder, upon any redemption, by
declaration or otherwise; or
(c) default in the deposit or payment of any
sinking fund or analogous payment (whether or not payment
is prohibited by the provisions of Article 12 hereof) for
the benefit of the Securities of such series as and when
the same shall become due and payable; or
(d) failure on the part of the Issuer duly to
observe or perform any other of the covenants or
agreements on the part of the Issuer in the Securities of
such series or in this Indenture contained (other than a
covenant or agreement expressly included herein solely for
the benefit of Securities of other series) for a period of
60 days after the date on which written notice specifying
such failure, stating that such notice is a "Notice of
Default" hereunder and demanding that the Issuer remedy
the same, shall have been given by registered or certified
mail, return receipt requested, to the Issuer by the
Trustee, or to the Issuer and the Trustee by the Holders
of not less than 25% in aggregate principal amount of the
Outstanding Securities of all series affected thereby; or
(e) a court having jurisdiction in the premises
shall enter a decree or order for relief in respect of the
Issuer in an involuntary case under any applicable
bankruptcy, insolvency or other similar law now or
hereafter in effect, adjudging the Issuer a bankrupt or
insolvent, or approving as properly filed a petition
seeking reorganization, arrangement, adjustment or
composition of or in respect of the Issuer under any
applicable law, or appointing a receiver, liquidator,
assignee, custodian, trustee or sequestrator (or similar
official) of the Issuer or for any substantial part of the
property of the Issuer, or ordering the winding up or
liquidation of the affairs of the Issuer, and such decree
or order shall remain unstayed and in effect for a period
of 60 consecutive days; or
(f) the Issuer shall commence a voluntary case
or proceeding under any applicable bankruptcy, insolvency
or other similar law now or hereafter in effect or any
other case or proceeding to be adjudicated a bankrupt or
insolvent, or consent to the entry of a decree or order
for relief in an involuntary case under any such law, or
to the commencement of any bankruptcy or insolvency case
or proceeding against it, or the filing by it of a
petition or answer or consent seeking reorganization or
relief under any applicable law, or consent to the filing
of such petition or to the appointment or taking
possession by a receiver, liquidator, assignee, custodian,
trustee or sequestrator (or similar official) of the
Issuer or for any substantial part of the property of the
Issuer, or make any general assignment for the benefit of
creditors, or the notice by it in writing of its inability
to pay its debts generally as they become due, or the
taking of any corporate action by the Issuer in
furtherance of any such action; or
(i) in the event Securities are issued to a Consumers
Trust or the trustee of such trust of the Company in connection
with the issuance of Trust Securities by such trust, such trust
shall have voluntarily or involuntarily dissolved, wound-up its
business or otherwise terminated its existence except in
connection with (i) the distribution of Securities to holders of
Trust Securities in liquidation of their interests in such trust,
(ii) the redemption of all outstanding Trust Securities of such
trust, and (iii) mergers, consolidations or amalgamations, each as
permitted by the Declaration of such trust;
then, unless the principal of all the Securities shall have already become
due and payable, either the Trustee or the Holders of not less than 25% in
aggregate principal amount of all the Securities of such series then
Outstanding, by notice in writing to the Issuer (and to the Trustee if
given by such Holders), may declare the entire principal of all the
Securities of such series then Outstanding and interest accrued thereon,
if any, to be due and payable immediately, and upon any such declaration
the same shall become immediately due and payable.
The foregoing paragraph, however, is subject to the
condition that if, at any time after the principal of the Securities of
one or more series shall have been so declared due and payable, and before
any judgment or decree for the payment of the moneys due shall have been
obtained or entered as hereinafter provided, the Issuer shall pay or shall
deposit with the Trustee a sum sufficient to pay all matured installments
of interest upon all the Securities of such series and the principal of
all Securities of such series which shall have become due otherwise than
by acceleration (with interest upon such principal and, to the extent that
payment of such interest is enforceable under applicable law, on overdue
installments of interest at the same rate as the rate of interest
specified in the Securities of such series, to the date of such payment or
deposit) and such amount as shall be sufficient to cover reasonable
compensation to the Trustee, its agents, attorneys and counsel, and all
other expenses and liabilities incurred, and all advances made, by the
Trustee except as a result of negligence or bad faith, and if any and all
Events of Default under this Indenture with respect to such series, other
than the non-payment of the principal of Securities of such series which
shall have become due by acceleration, shall have been cured, waived or
otherwise remedied as provided herein - then, and in every such case, the
Holders of a majority in aggregate principal amount of all the Securities
of such affected series then Outstanding by written notice to the Issuer
and to the Trustee, may direct the Trustee to waive all defaults with
respect to such series and rescind and annul such declaration and its
consequences, but no such waiver or rescission and annulment shall extend
to or shall affect any subsequent default or shall impair any right
consequent thereon.
Section 5.2 Collection of Indebtedness by Trustee;
Trustee May Prove Debt. The Issuer covenants that (a) in case default
shall be made in the payment of any installment of interest on any of the
Securities of any series when such interest shall have become due and
payable, and such default shall have continued for a period of 30 days, or
(b) in case default shall be made in the payment of all or any part of the
principal of any of the Securities of any series when the same shall have
become due and payable, whether at Maturity, upon redemption, by
declaration or otherwise -- then, upon demand of the Trustee, the Issuer
will pay to the Trustee for the benefit of the Holders of the Securities
of such series the whole amount that then shall have become due and
payable on all Securities of such series for principal or interest, as the
case may be (with interest to the date of such payment upon the overdue
principal and, to the extent that payment of such interest is enforceable
under applicable law, on overdue installments of interest at the same rate
as the rate of interest specified in the Securities of such series); and
in addition thereto, such further amount as shall be sufficient to cover
the costs and expenses of collection, including reasonable compensation to
the Trustee, its agents, attorneys and counsel, and any expenses and
liabilities incurred by such parties, and all advances made by the Trustee
except as a result of its negligence or bad faith.
Until such demand is made by the Trustee, the Issuer may
pay the principal of and interest on the Securities of such series to the
Holders, whether or not the Securities of such series be overdue.
In case the Issuer shall fail forthwith to pay such
amounts upon such demand, the Trustee, in its own name and as trustee of
an express trust, shall be entitled and empowered to institute any action
or proceedings at law or in equity for the collection of the sums so due
and unpaid, and may prosecute any such action or proceedings to judgment
or final decree, and may enforce any such judgment or final decree against
the Issuer or other obligor upon the Securities of such series and collect
in the manner provided by law out of the property of the Issuer or other
obligor upon the Securities of such series, wherever situated the moneys
adjudged or decreed to be payable.
In case there shall be pending proceedings relative to the
Issuer or any other obligor upon the Securities of any series under Title
11 of the United States Code or any other applicable Federal or state
bankruptcy, insolvency or other similar law, or in case a receiver,
assignee or trustee in bankruptcy or reorganization, liquidator,
sequestrator or similar official shall have been appointed for or taken
possession of the Issuer or its property or such other obligor, or in case
of any other comparable judicial proceedings relative to the Issuer or
such other obligor, or to the creditors or property of the Issuer or such
other obligor, the Trustee, irrespective of whether the principal of the
Securities of any series shall then be due and payable as therein
expressed or by declaration or otherwise and irrespective of whether the
Trustee shall have made any demand pursuant to the provisions of this
Section, shall be entitled and empowered, by intervention in such
proceedings or otherwise:
(a) to file and prove a claim or claims for the
whole amount of the principal and interest owing and
unpaid in respect of the Securities of each series, and to
file such other papers or documents as may be necessary or
advisable in order to have the claims of the Trustee
(including any claim for reasonable compensation to the
Trustee and its agents, attorneys and counsel, and for
reimbursement of all expenses and liabilities incurred,
and all advances made, by the Trustee, except as a result
of negligence or bad faith) and of the Securityholders
allowed in any judicial proceedings relative to the Issuer
or such other obligor, or to the creditors or property of
the Issuer or such other obligor;
(b) unless prohibited by applicable law and
regulations, to vote on behalf of the Holders of the
Securities of each series in any election of a trustee or
a standby trustee in arrangement, reorganization,
liquidation or other bankruptcy or insolvency proceedings
or person performing similar functions in comparable
proceedings; and
(c) to collect and receive any moneys or other
property payable or deliverable on any such claims, and to
distribute all amounts received with respect to the claims
of the Securityholders and of the Trustee on their behalf;
and any trustee, receiver, liquidator, custodian or other
similar official is hereby authorized by each of the
Securityholders to make payments to the Trustee, and, in
the event that the Trustee shall consent to the making of
payments directly to the Securityholders, to pay to the
Trustee such amounts as shall be sufficient to cover
reasonable compensation to the Trustee, and its agents,
attorneys and counsel, and all other expenses and
liabilities incurred, and all advances made, by the
Trustee except, in each case, as a result of negligence or
bad faith.
Nothing herein contained shall be deemed to authorize the
Trustee to authorize or consent to or vote for or accept or adopt on
behalf of any Holder any plan of reorganization, arrangement, adjustment
or composition affecting the Securities of any series or the rights of any
Holder thereof, or to authorize the Trustee to vote in respect of the
claim of any Holder in any such proceeding except, as aforesaid, to vote
for the election of a trustee in bankruptcy or similar person.
All rights of action and of asserting claims under this
Indenture, or under any of the Securities of any series may be prosecuted
and enforced by the Trustee without the possession of any of the
Securities of such series or the production thereof at any trial or other
proceedings relative thereto, and any such action or proceedings
instituted by the Trustee shall be brought in its own name as trustee of
an express trust, and any recovery of judgment, subject to the payment of
the expenses, disbursements and compensation of the Trustee and its
agents, attorneys and counsel, shall be for the ratable benefit of the
Holders of the Securities in respect of which such action was taken.
In any proceedings brought by the Trustee (and also any
proceedings involving the interpretation of any provision of this
Indenture to which the Trustee shall be a party), the Trustee shall be
held to represent all the Holders of the Securities in respect to which
action was taken, and it shall not be necessary to make any Holders of
such Securities parties to any such proceedings.
Section 5.3 Application of Proceeds. Any moneys
collected by the Trustee pursuant to this Article in respect of the
Securities of any series shall be applied in the following order at the
date or dates fixed by the Trustee and, in case of the distribution of
such moneys on account of principal or interest, upon presentation of the
several Securities in respect of which moneys have been collected and
stamping (or otherwise noting) thereon the payment, and upon surrender
thereof if fully paid, or issuing Securities of the same series in reduced
principal amounts in exchange for the presented Securities if only
partially paid, or upon surrender thereof if fully paid:
FIRST: To the payment of costs and expenses of
collection applicable to such series, including reasonable
compensation to the Trustee and its agents, attorneys and
counsel and of all expenses and liabilities incurred, and
all advances made, by the Trustee except as a result of
negligence or bad faith;
SECOND: In case the principal of the Securities
of such series in respect of which moneys have been
collected shall not have become and be then due and
payable, to the payment of interest, if any, on the
Securities of such series in default in the order of the
maturity of the installments of such interest, with
interest (to the extent that such interest has been
collected by the Trustee and to the extent permitted by
law) upon the overdue installments of interest at the same
rate as the rate of interest specified in such Securities,
such payments to be made ratably to the Persons entitled
thereto, without discrimination or preference;
THIRD: In case the principal of the Securities
of such series in respect of which moneys have been
collected shall have become and be then due and payable,
to the payment of the whole amount then owing and unpaid
upon all the Securities of such series for principal and
interest, if any, with interest upon the overdue
principal, and (to the extent that such interest has been
collected by the Trustee and to the extent permitted by
law) upon overdue installments of interest at the same
rate as the rate of interest specified in the Securities
of such series; and in case such moneys shall be
insufficient to pay in full the whole amount so due and
unpaid upon the Securities of such series, then to the
payment of such principal and interest, without preference
or priority of principal over interest, or of interest
over principal, or of any installment of interest over any
other installment of interest, or of any Security of such
series over any other Security of such series, ratably to
the aggregate of such principal and accrued and unpaid
interest; and
FOURTH: To the payment of the remainder, if any,
to the Issuer or any other Person lawfully entitled
thereto.
Section 5.4 Suits for Enforcement. In case an Event of
Default has occurred, has not been waived and is continuing, the Trustee
may in its discretion proceed to protect and enforce the rights vested in
it by this Indenture by such appropriate judicial proceedings as the
Trustee shall deem most effectual to protect and enforce any of such
rights, either at law or in equity or in bankruptcy or otherwise, whether
for the specific enforcement of any covenant or agreement contained in
this Indenture or in aid of the exercise of any power granted in this
Indenture or to enforce any other legal or equitable right vested in the
Trustee by this Indenture or by law.
Section 5.5 Restoration of Rights on Abandonment of
Proceedings. In case the Trustee or any Holder shall have proceeded to
enforce any right under this Indenture and such proceedings shall have
been discontinued or abandoned for any reason, or shall have been
determined adversely to the Trustee or to such Holder, then, and in every
such case, the Issuer, the Trustee and the Holders shall be restored
respectively to their former positions and rights hereunder, and all
rights, remedies and powers of the Issuer, the Trustee and the Holders
shall continue as though no such proceedings had been taken.
Section 5.6 Limitations on Suits by Securityholders. No
Holder of any Security of any series shall have any right by virtue or by
availing of any provision of this Indenture to institute any action or
proceeding at law or in equity or in bankruptcy or otherwise upon or under
or with respect to this Indenture, or for the appointment of a trustee,
receiver, liquidator, custodian or other similar official or for any other
remedy hereunder, unless such Holder previously shall have given to the
Trustee written notice of default and of the continuance thereof, as
hereinbefore provided, and unless also the Holders of not less than 25% in
aggregate principal amount of the Securities of each affected series then
Outstanding (determined as provided herein and voting as one class) shall
have made written request upon the Trustee to institute such action or
proceedings in its own name as trustee hereunder and shall have offered to
the Trustee such reasonable indemnity as it may require against the costs,
expenses and liabilities to be incurred therein or thereby and the Trustee
for 60 days after its receipt of such notice, request and offer of
indemnity shall have failed to institute any such action or proceeding and
no direction inconsistent with such written request shall have been given
to the Trustee pursuant to Section 5.9; it being understood and intended,
and being expressly covenanted by the taker and Holder of every Security
with every other taker and Holder and the Trustee, that no one or more
Holders of Securities of any series shall have any right in any manner
whatever by virtue or by availing of any provision of this Indenture to
affect, disturb or prejudice the rights of any other Holder of Securities
or to obtain or seek to obtain priority over or preference to any other
such Holder or to enforce any right under this Indenture, except in the
manner herein provided and for the equal, ratable and common benefit of
all Holders of Securities of the affected series. For the protection and
enforcement of the provisions of this Section, each and every
Securityholder and the Trustee shall be entitled to such relief as can be
given either at law or in equity.
Section 5.7 Unconditional Right of Securityholders to
Receive Principal and Interest and to Institute Certain Suits. Not-
withstanding any other provision in this Indenture and any provision of
any Security, the right of any Holder of any Security to receive payment
of the principal of and interest, if any, on such Security on or after the
respective due dates expressed in such Security or any date fixed for
redemption, or to institute suit for the enforcement of any such payment
on or after such respective dates, shall not be impaired or affected
without the consent of such Holder.
Section 5.8 Powers and Remedies Cumulative; Delay or
Omission Not Waiver of Default. Except as provided in Section 5.6, no
right or remedy herein conferred upon or reserved to the Trustee or to the
Holders of Securities is intended to be exclusive of any other right or
remedy, and every right and remedy shall, to the extent permitted by law,
be cumulative and in addition to every other right and remedy given
hereunder or now or hereafter existing at law or in equity or otherwise.
The assertion or employment of any right or remedy hereunder, or
otherwise, shall not prevent the concurrent assertion or employment of any
other appropriate right or remedy.
No delay or omission of the Trustee or of any Holder of
Securities to exercise any right or power accruing upon any Event of
Default occurring and continuing as aforesaid shall impair any such right
or power or shall be construed to be a waiver of any such Event of Default
or an acquiescence therein; and, subject to Section 5.6, every right and
power given by this Indenture or by law to the Trustee or to the Holders
of Securities may be exercised from time to time, and as often as shall be
deemed expedient, by the Trustee or by the Holders of Securities, as the
case may be.
Section 5.9 Control by Holders of Securities. The
Holders of a majority in aggregate principal amount of the Securities of
each series affected at the time Outstanding (determined as provided
herein and voting as one class) shall have the right to direct the time,
method, and place of conducting any proceeding for any remedy available to
the Trustee, or exercising any trust or power conferred upon the Trustee
with respect to the Securities of such affected series by this Indenture;
provided that such direction shall not be otherwise than in accordance
with law and the provisions of this Indenture; and provided further that
(subject to the provisions of Section 6.1) the Trustee shall have the
right to decline to follow any such direction if the Trustee, being
advised by counsel of its choice, shall determine that the action or
proceeding so directed may not lawfully be taken or if the Trustee in good
faith by its board of directors, its executive committee or a trust
committee of directors or Responsible Officers of the Trustee shall
determine that the action or proceedings so directed would involve the
Trustee in personal liability or that the actions or forbearances
specified in or pursuant to such direction would be unduly prejudicial to
the interests of Holders of the Securities of all affected series not
joining in the giving of said direction, it being understood that (subject
to Section 6.1) the Trustee shall have no duty to ascertain whether or not
such actions or forbearances are unduly prejudicial to such Holders.
Nothing in this Indenture shall impair the right of the
Trustee in its discretion to take any action deemed proper by the Trustee
and which is not inconsistent with such direction or directions by
Securityholders.
Section 5.10 Waiver of Past Defaults. Prior to the
declaration of acceleration of the Maturity of any Securities as provided
in Section 5.1, the Holders of a majority in aggregate principal amount of
the Securities of all series at the time Outstanding with respect to which
a default or an Event of Default shall have occurred and be continuing
(determined as provided herein and voting as one class) may on behalf of
the Holders of all such affected Securities waive any past default or
Event of Default described in Section 5.1 and its consequences, except a
default or an Event of Default (i) in the payment of the principal of or
interest, if any, on any Security of such series, or (ii) in respect of a
covenant or provision hereof or of any Security which cannot be modified
or amended without the consent of the Holder of each Security affected.
In the case of any such waiver, the Issuer, the Trustee and the Holders of
all such affected Securities shall be restored to their former positions
and rights hereunder, respectively; but no such waiver shall extend to any
subsequent or other default or impair any right consequent thereon.
Upon any such waiver, such default shall cease to exist
and be deemed to have been cured and not to have occurred, and any Event
of Default arising therefrom shall be deemed to have been cured, and not
to have occurred for every purpose of this Indenture; but no such waiver
shall extend to any subsequent or other default or Event of Default or
impair any right consequent thereon.
Section 5.11 Trustee to Give Notice of Default, But May
Withhold in Certain Circumstances. The Trustee shall, within 90 days
after the occurrence of a default with respect to the Securities of any
series, give notice of all defaults with respect to such series known to
the Trustee to all Holders of Securities of such series in the manner and
to the extent provided in Section 4.4(c), unless in each case such
defaults shall have been cured before the mailing or publication of such
notice (the term "default" for the purpose of this Article being hereby
defined to mean any event or condition which is, or with notice or lapse
of time or both would become, an Event of Default); provided that, except
in the case of default in the payment of the principal of or the interest,
if any, on any of the Securities of such series, or in the payment of any
sinking fund installment or analogous payment on such series, the Trustee
shall be protected in withholding such notice if and so long as the board
of directors, the executive committee or a trust committee of directors or
trustees and/or Responsible Officers of the Trustee in good faith
determines that the withholding of such notice is in the interests of the
Securityholders of such series.
Section 5.12 Right of Court to Require Filing of
Undertaking to Pay Costs. All parties to this Indenture agree, and each
Holder of any Security by his or her acceptance thereof shall be deemed to
have agreed, that any court may in its discretion require, in any suit for
the enforcement of any right or remedy under this Indenture or in any suit
against the Trustee for any action taken, suffered or omitted by it as
Trustee, the filing by any party litigant in such suit of an undertaking
to pay the costs of such suit, and that such court may in its discretion
assess reasonable costs, including reasonable attorneys' fees, against any
party litigant in such suit, having due regard to the merits and good
faith of the claims or defenses made by such party litigant; but the
provisions of this Section shall not apply to any suit instituted by the
Trustee, to any suit instituted by any Securityholder or group of
Securityholders of any series holding in the aggregate more than 10% in
aggregate principal amount of the Securities of such series, or, in the
case of any suit relating to or arising under clause (d) or (g) of section
5.1 (if the suit relates to the Securities of more than one but less than
all series), 10% in aggregate principal amount of the Securities then
Outstanding and affected thereby, or, in the case of any suit relating to
or arising under clause (d) or (g) (if the suit relates to all the
Securities then Outstanding), 10% in aggregate principal amount of all
Securities then Outstanding, or to any suit instituted by any
Securityholder for the enforcement of the payment of the principal of or
the interest on any Security on or after the due date expressed in such
Security or any date fixed for redemption.
Section 5.13 Waiver of Stay or Extension Laws. The
Issuer covenants (to the extent that it may lawfully do so) that it will
not at any time insist upon, or plead, or in any manner whatsoever claim
or take the benefit or advantage of, any stay or extension law wherever
enacted, now or at any time hereafter in force, which may affect the
covenants or the performance of this Indenture; and the Issuer (to the
extent that it may lawfully do so) hereby expressly waives all benefit or
advantage of any such law and covenants that it will not hinder, delay or
impede the execution of any power herein granted to the Trustee, but will
suffer and permit the execution of every such power as though no such law
had been enacted.
ARTICLE SIX
CONCERNING THE TRUSTEE
Section 6.1 Duties and Responsibilities of the Trustee;
During Default; Prior to Default. The Trustee, prior to the occurrence of
an Event of Default with respect to the Securities of a particular series
and after the curing or waiving of all Events of Default which may have
occurred with respect to such series, undertakes to perform such duties
and only such duties as are specifically set forth in this Indenture. In
case an Event of Default with respect to the Securities of a particular
series has occurred (which has not been cured or waived), the Trustee
shall exercise with respect to such series such of the rights and powers
vested in it by this Indenture, and use the same degree of care and skill
in their exercise, as a prudent man would exercise or use under the
circumstances in the conduct of his own affairs.
No provision of this Indenture shall be construed to
relieve the Trustee from liability for its own negligent action, its own
negligent failure to act or its own wilful misconduct, except that
(a) prior to the occurrence of an Event of
Default with respect to the Securities of any series and
after the curing or waiving of all such Events of Default
which may have occurred with respect to such series:
(i) the duties and obligations
of the Trustee with respect to the
Securities of such series shall be deter-
mined solely by the express provisions of
this Indenture, and the Trustee shall not
be liable except for the performance of
such duties and obligations as are
specifically set forth in this Indenture,
and no implied covenants or obligations
shall be read into this Indenture against
the Trustee; and
(ii) in the absence of bad faith on the
part of the Trustee, the Trustee may conclusively
rely, as to the truth of the statements and the
correctness of the opinions expressed therein,
upon any statements, certificates or opinions
furnished to the Trustee and conforming to the
requirements of this Indenture; but in the case
of any such statements, certificates or opinions
which by any provision hereof are specifically
required to be furnished to the Trustee, the
Trustee shall be under a duty to examine the same
to determine whether or not they conform to the
requirements of this Indenture;
(b) the Trustee shall not be liable for any
error of judgment made in good faith by a Responsible
Officer or Responsible Officers of the Trustee, unless it
shall be proved that the Trustee was negligent in
ascertaining the pertinent facts; and
(c) the Trustee shall not be liable with respect
to any action taken or omitted to be taken by it in good
faith in accordance with an appropriate direction of the
Holders pursuant to Section 5.9 relating to the time,
method and place of conducting any proceeding for any
remedy available to the Trustee, or exercising any trust
or power conferred upon the Trustee, under this Indenture.
None of the provisions contained in this Indenture shall
require the Trustee to expend or risk its own funds or otherwise incur
personal financial liability in the performance of any of its duties or in
the exercise of any of its rights or powers, if there shall be reasonable
grounds for believing that the repayment of such funds or adequate
indemnity against such liability is not reasonably assured to it.
Section 6.2 Certain Rights of the Trustee. Subject to
Section 6.1:
(a) the Trustee may rely and shall be protected
in acting or refraining from acting upon any resolution,
Officers' Certificate or other certificate, statement,
instrument, opinion, report, notice, request, consent,
order, bond, debenture, note, security or other paper or
document believed by it to be genuine and to have been
signed or presented by the proper party or parties;
(b) any request, direction, order or demand of
the Issuer mentioned herein shall be sufficiently
evidenced by an Officers' Certificate (unless other
evidence in respect thereof be herein specifically
prescribed); and any resolution of the Board of Directors
may be evidenced to the Trustee by a copy thereof
certified by the secretary or an assistant secretary of
the Issuer;
(c) the Trustee may consult with counsel of its
choice and any advice or any Opinion of Counsel shall be
full and complete authorization and protection in respect
of any action taken, suffered or omitted to be taken by it
hereunder in good faith and in accordance with such advice
or Opinion of Counsel;
(d) the Trustee shall be under no obligation to
exercise any of the trusts or powers vested in it by this
Indenture at the request, order or direction of any of the
Holders pursuant to the provisions of this Indenture,
unless such Holders shall have offered to the Trustee
reasonable indemnity against the costs, expenses and
liabilities which might be incurred therein or thereby;
(e) the Trustee shall not be liable for any
action taken or omitted by it in good faith and believed
by it to be authorized or within the discretion, rights or
powers conferred upon it by this Indenture;
(f) prior to the occurrence of an Event of
Default with respect to the Securities of any series and
after the curing or waiving of all such Events of Default,
the Trustee shall not be bound to make any investigation
into the facts or matters stated in any resolution,
certificate, statement, instrument, opinion, report,
notice, request, consent, order, approval, appraisal,
bond, debenture, note, security or other paper or document
unless requested in writing so to do by the Holders of not
less than a majority in aggregate principal amount of the
Securities of all affected series then Outstanding;
provided that, if the payment within a reasonable time to
the Trustee of the costs, expenses or liabilities likely
to be incurred by it in the making of such investigation
is, in the opinion of the Trustee, not reasonably assured
to the Trustee by the security afforded to it by the terms
of this Indenture, the Trustee may require reasonable
indemnity against such costs, expenses or liabilities as a
condition to proceeding; the reasonable expenses of every
such investigation shall be paid by the Issuer or, if paid
by the Trustee, shall be repaid by the Issuer upon demand;
and
(g) the Trustee may execute any of the trusts or
powers hereunder or perform any duties hereunder either
directly or by or through agents or attorneys not
regularly in its employ, and the Trustee shall not be
responsible for any misconduct or negligence on the part
of any such agent or attorney appointed with due care by
it hereunder.
Section 6.3 Trustee Not Responsible for Recitals,
Disposition of Securities or Application of Proceeds Thereof. The
recitals contained herein and in the Securities, except the Trustee's
certificates of authentication, shall be taken as the statements of the
Issuer, and the Trustee assumes no responsibility for the correctness of
the same. The Trustee makes no representation as to the validity or
sufficiency of this Indenture or of the Securities, other than as to the
due execution and delivery of the Indenture by the Trustee. The Trustee
shall not be accountable for the use or application by the Issuer of any
of the Securities or of the proceeds thereof.
Section 6.4 Trustee and Agents May Hold Securities;
Collections, etc. The Trustee or any agent of the Issuer or the Trustee,
in its individual or any other capacity, may become the owner or pledgee
of Securities with the same rights it would have if it were not the
Trustee or such agent and, subject to Sections 6.8 and 6.13, may otherwise
deal with the Issuer and receive, collect, hold and retain collections
from the Issuer with the same rights it would have if it were not the
Trustee or such agent.
Section 6.5 Moneys Held by Trustee. Subject to the
provisions of Section 10.4, all moneys received by the Trustee shall,
until used or applied as herein provided, be held in trust for the
purposes for which they were received, but need not be segregated from
other funds except to the extent required by mandatory provisions of law.
Neither the Trustee nor any agent of the Issuer or the Trustee shall be
under any liability for interest on any moneys received by it hereunder.
Section 6.6 Compensation and Indemnification of Trustee
and Its Prior Claim. The Issuer covenants and agrees to pay to the
Trustee from time to time, and the Trustee shall be entitled to,
reasonable compensation (which shall not be limited by any provision of
law in regard to the compensation of a trustee of an express trust), and
the Issuer covenants and agrees to pay or reimburse the Trustee upon its
written request for all reasonable expenses, disbursements and advances
incurred or made by or on behalf of it in accordance with any of the
provisions of this Indenture (including the reasonable compensation and
the expenses and disbursements of its counsel and of all agents and other
persons not regularly in its employ) except any such expense, disbursement
or advance as may arise from its negligence or bad faith. The Issuer also
covenants to indemnify the Trustee for, and to hold it harmless against,
any loss, liability or expense incurred without negligence or bad faith on
the part of the Trustee arising out of or in connection with the
acceptance or administration of this Indenture or the trusts hereunder and
the Trustee's duties hereunder, including the costs and expenses of
defending itself against or investigating any claim of liability in the
premises. The obligations of the Issuer under this Section to compensate
and indemnify the Trustee and to pay or reimburse the Trustee for
expenses, disbursements and advances shall constitute additional
indebtedness hereunder and shall survive the satisfaction and discharge of
this Indenture. Such additional indebtedness shall not be deemed to be
Subordinated Securities, as that term is defined in Section 12.1, and
shall be a senior claim to that of the Securities upon all property and
funds held or collected by the Trustee as such, except funds held in trust
for the benefit of the Holders of particular Securities, and the
Securities are hereby subordinated to such senior claim. When the Trustee
incurs expenses after the occurrence of a default, the expenses are
intended to constitute expenses of administration under any bankruptcy
law.
Section 6.7 Right of Trustee to Rely on Officers'
Certificate, etc. Subject to Sections 6.1 and 6.2, whenever in the
administration of the trusts of this Indenture the Trustee shall deem it
necessary or desirable that a matter be proved or established prior to
taking or suffering or omitting any action hereunder, such matter (unless
other evidence in respect thereof be herein specifically prescribed) may,
in the absence of negligence or bad faith on the part of the Trustee, be
deemed to be conclusively proved and established by an Officers'
Certificate delivered to the Trustee, and such certificate, in the absence
of negligence or bad faith on the part of the Trustee, shall be full
warrant to the Trustee for any action taken, suffered or omitted by it
under the provisions of this Indenture in reliance thereon.
Section 6.8 Qualification of Trustee; Conflicting
Interests. If the Trustee has or shall acquire any "conflicting interest"
within the meaning of Section 310(b) of the Trust Indenture Act, the
Trustee and the Company shall in all respects comply with the provisions
of Section 310(b) of the Trust Indenture Act.
Section 6.9 Persons Eligible for Appointment as Trustee.
There shall at all times be a Trustee hereunder which shall be a
corporation organized and doing business under the laws of the United
States of America or of any State thereof or the District of Columbia
having a combined capital and surplus of at least $5,000,000, and which is
authorized under such laws to exercise corporate trust powers and is
subject to supervision or examination by Federal, State or District of
Columbia authority. Such corporation shall have its principal place of
business in The City of New York, if there be such a corporation in such
location willing to act upon reasonable and customary terms and
conditions. If such corporation publishes reports of condition at least
annually, pursuant to law or to the requirements of the aforesaid
supervising or examining authority, then, for the purposes of this
Section, the combined capital and surplus of such corporation shall be
deemed to be its combined capital and surplus as set forth in its most
recent report of condition so published. In case at any time the Trustee
shall cease to be eligible in accordance with the provisions of this
Section, the Trustee shall resign immediately in the manner and with the
effect specified in Section 6.10.
Section 6.10 Resignation and Removal; Appointment of
Successor Trustee. (a) The Trustee, or any trustee or trustees hereafter
appointed, may at any time resign and be discharged of the trusts created
by this Indenture by giving written notice of resignation to the
Issuer and by mailing notice of such resignation to the Holders of the
then Outstanding Securities at their addresses as they shall appear on the
Security registry books. Upon receiving such notice of resignation, the
Issuer shall promptly appoint a successor trustee or trustees with respect
to the applicable series by written instrument, in duplicate, executed by
authority of the Board of Directors, one copy of which instrument shall be
delivered to the resigning Trustee and one copy to the successor trustee
or trustees. If no successor trustee shall have been so appointed with
respect to any series and shall have accepted appointment within 30 days
after the mailing of such notice of resignation, the resigning trustee may
petition any court of competent jurisdiction for the appointment of a
successor trustee, or any Holder who has been a bona fide Holder of a
Security or Securities of such series for at least six months may, subject
to the provisions of Section 5.12, on behalf of such Holder and all others
similarly situated, petition any such court for the appointment of a
successor trustee. Such court may thereupon, after such notice, if any,
as it may deem proper and prescribe, appoint a successor trustee.
(b) In case at any time any of the following shall occur:
(i) the Trustee shall fail to comply with the
provisions of Section 6.8 after written request therefor
by the Issuer or by any Holder who has been a bona fide
Holder of a Security or Securities of such series for at
least six months; or
(ii) the Trustee shall cease to be eligible in
accordance with the provisions of Section 6.9 and shall
fail to resign after written request therefor by the
Issuer or by any Holder; or
(iii) the Trustee shall become incapable of
acting or shall be adjudged a bankrupt or insolvent, or a
receiver or liquidator of the Trustee or of its property
shall be appointed, or any public officer shall take
charge or control of the Trustee or of its property or
affairs for the purpose of rehabilitation, conservation or
liquidation;
then, in any such case, the Issuer may remove the Trustee with respect to
the Securities of any or all series, as appropriate, and appoint a
successor trustee for such series by written instrument, in duplicate,
executed by order of the Board of Directors, one copy of which instrument
shall be delivered to the Trustee so removed and one copy to the successor
trustee or trustees, or, subject to the provisions of Section 5.12, any
Holder who has been a bona fide Holder of a Security or Securities of such
series for at least six months may, on behalf of such Holder and all
others similarly situated, petition any court of competent jurisdiction
for the removal of the Trustee and the appointment of a successor trustee.
Such court may thereupon, after such notice, if any, as it may deem proper
and prescribe, remove the Trustee and appoint a successor trustee.
(c) The Holders of a majority in aggregate principal
amount of the Securities at the time Outstanding may at any time remove
the Trustee and appoint a successor trustee by delivering to the Trustee
so removed, to the successor trustee so appointed and to the Issuer the
evidence provided for in Section 7.1 of the action in that regard taken by
the Holders.
(d) Any resignation or removal of the Trustee and any
appointment of a successor trustee pursuant to any of the provisions of
this Section shall become effective upon acceptance of appointment by the
successor trustee as provided in Section 6.11.
(e) Except in the case of a default in the payment of the
principal of or interest on any Security, or in the payment of any sinking
or purchase fund installment, the Trustee shall not be required to resign
as provided by Section 6.8 if the Trustee shall have sustained the burden
of proving, on application to the Commission and after opportunity for
hearing thereon, that:
(i) the default under this Indenture may be cured or
waived during a reasonable period and under the procedures
described in such application; and
(ii) a stay of the Trustee's duty to resign will not be
inconsistent with the interests of the Securityholders.
Section 6.11 Acceptance of Appointment by Successor
Trustee. Any successor trustee appointed as provided in Section 6.10
shall execute, acknowledge and deliver to the Issuer and to its
predecessor trustee an instrument accepting such appointment hereunder,
and thereupon the resignation or removal of the predecessor trustee shall
become effective and such successor trustee, without any further act, deed
or conveyance, shall become vested with all rights, powers, trusts and
duties of its predecessor hereunder, with like effect as if originally
named as trustee hereunder; but, nevertheless, on the written request of
the Issuer or of the successor Trustee, upon payment of its charges then
unpaid, the trustee ceasing to act shall, subject to Section 10.4, pay
over and transfer to the successor Trustee all moneys and property at the
time held by it hereunder and shall execute, acknowledge and deliver an
instrument transferring to such successor Trustee all such rights, powers,
trusts and duties. Upon request of any such successor Trustee, the Issuer
shall execute and acknowledge any and all instruments in writing for more
fully and certainly vesting in and confirming to such successor Trustee
all such money, property, rights, powers and trusts. Any Trustee ceasing
to act shall, nevertheless, retain a prior claim upon all property or
funds held or collected by such Trustee for the benefit of such applicable
series to secure any amounts then due it pursuant to the provisions of
Section 6.6.
No successor Trustee shall accept appointment as provided
in this Section unless at the time of such acceptance such successor
trustee shall be qualified under the provisions of Section 6.8 and
eligible under the provisions of Section 6.9.
Upon acceptance of appointment by any successor Trustee as
provided in this Section, the Issuer shall give notice thereof to the
Holders of Securities, by mailing such notice to such Holders at their
addresses as they shall appear on the Security registry books. If the
acceptance of appointment is substantially contemporaneous with the
resignation, then the notice called for by the preceding sentence may be
combined with the notice called for by Section 6.10. If the Issuer fails
to give such notice within 10 days after acceptance of appointment by the
successor trustee, the successor trustee shall cause such notice to be
given at the expense of the Issuer.
Section 6.12 Merger, Conversion, Consolidation or
Succession to Business of Trustee. Any corporation into which the Trustee
may be merged or converted or with which it may be consolidated, or any
corporation resulting from any merger, conversion or consolidation to
which the Trustee shall be a party, or any corporation succeeding to the
corporate trust business of the Trustee, shall be the successor of the
Trustee hereunder, provided that such corporation shall be qualified under
the provisions of Section 6.8 and eligible under the provisions of
Section 6.9, without the execution or filing of any paper or any further
act on the part of any of the parties hereto, anything herein to the
contrary notwithstanding.
In case at the time of such succession to the Trustee any
of the Securities of any series shall have been authenticated but not
delivered, any such successor Trustee may adopt the certificate of
authentication of any predecessor Trustee and deliver the Securities so
authenticated; and, in case at that time any of the Securities of any
series shall not have been authenticated, any successor Trustee may
authenticate such Securities either in the name of any predecessor
hereunder or in the name of such successor Trustee; and in all such cases
such certificate of authentication shall have the full force which is
anywhere in the Securities of such series or in this Indenture provided
that the certificate of authentication of the Trustee shall have; provided
that the right to adopt the certification of any predecessor Trustee or to
authenticate Securities of any series in the name of any predecessor
Trustee shall apply only to its successor or successors by merger,
conversion or consolidation.
Section 6.13 Preferential Collection of Claims Against
the Issuer. The Trustee shall comply with its obligations under the
applicable provisions of Section 311 of the Trust Indenture Act.
Section 6.14 Appointment of Authenticating Agent. As
long as any Securities of a series remain Outstanding, the Trustee may, by
an instrument in writing, appoint with the approval of the Issuer an
authenticating agent (the "Authenticating Agent") which shall be
authorized to act on behalf of, but subject to the direction of, the
Trustee to authenticate and deliver Securities of such series, including
Securities issued upon exchange, registration of transfer, partial
redemption or pursuant to Section 2.9. Securities of such series so
authenticated and delivered shall be entitled to the benefits of this
Indenture and shall be valid and obligatory for all purposes as if
authenticated by the Trustee. Whenever reference is made in this
Indenture to the authentication and delivery of Securities of any series
by the Trustee or to the Trustee's certificate of authentication, such
reference shall be deemed to include authentication and delivery on behalf
of the Trustee by an Authenticating Agent for such series and a
certificate of authentication executed on behalf of the Trustee by such
Authenticating Agent. Such Authenticating Agent shall at all times be a
corporation organized and doing business under the laws of the United
States of America or of any State thereof or of the District of Columbia
authorized under such laws to exercise corporate trust powers, having a
combined capital and surplus of at least $5,000,000 (determined as
provided in Section 6.9 with respect to the Trustee) and subject to
supervision or examination by Federal or State authority.
Any corporation into which any Authenticating Agent may be
merged or converted or with which it may be consolidated, or any
corporation resulting from any merger, conversion or consolidation to
which any Authenticating Agent shall be a party, or any corporation
succeeding to the corporate agency or corporate trust business of any
Authenticating Agent, shall be the successor to such Authenticating Agent
with respect to all series of Securities for which it served as Authen-
ticating Agent without the execution or filing of any paper or any further
act on the part of the Trustee or such Authenticating Agent.
Any Authenticating Agent may at any time, and if it shall
cease to be eligible hereunder shall, resign by giving written notice of
resignation to the Trustee and to the Issuer. The Trustee may at any time
terminate the agency of any Authenticating Agent by giving written notice
thereof to such Authenticating Agent and the Issuer. Upon receiving such
a notice of resignation or upon such a termination, or in case at any time
any Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section, the Trustee shall upon receipt of an Issuer
Order appoint a successor Authenticating Agent and shall provide notice of
such appointment to all Holders of Securities affected thereby in the
manner and to the extent provided in Section 6.11 with respect to the
appointment of a successor trustee. Any successor Authenticating Agent
upon acceptance of its appointment hereunder shall become vested with all
rights, powers and duties of its predecessor hereunder, with like effect
as if originally named as an Authenticating Agent. The Authenticating
Agent for the Securities of any series shall have no responsibility or
liability for any action taken by it as such at the direction of the
Trustee.
Sections 6.2, 6.3, 6.4, 6.6 and 7.3 shall be applicable to
any Authenticating Agent.
ARTICLE SEVEN
CONCERNING THE SECURITYHOLDERS
Section 7.1 Evidence of Action Taken by Securityholders.
Any request, demand, authorization, direction, notice, consent, waiver or
other action provided by this Indenture to be given or taken by a
specified percentage in aggregate principal amount of the Holders of one
or more series of Securities may be evidenced (i) by one or more
instruments of substantially similar tenor signed by such specified
percentage of Holders in person or by an agent or proxy duly appointed in
writing; and, except as herein otherwise expressly provided, such action
shall become effective when such instrument or instruments are delivered
to the Trustee; (ii) by the record of such specified percentage of Holders
voting in favor thereof at any meeting of such Holders duly called and
held by the Trustee; and (iii) by a combination of such instrument or
instruments and any such record of a meeting.
Section 7.2 Proof of Execution of Instruments and of
Holding of Securities. Subject to Sections 6.1 and 6.2, the execution of
any instrument by a Holder or his agent or proxy and proof of the holding
by any Person of any of the Securities of any series shall be sufficient
if made in the following manner:
(a) The fact and date of the execution by any
such Person of any instrument may be proved by the
certificate of any notary public or other officer of any
jurisdiction authorized to take acknowledgments of deeds
or administer oaths that the Person executing such
instrument acknowledged to him the execution thereof, or
by an affidavit of a witness to such execution sworn to
before any such notary or other such officer. Where such
execution is by or on behalf of any legal entity other
than an individual, such certificate or affidavit shall
also constitute sufficient proof of the authority of the
Person executing the same.
(b) The ownership of Securities shall be proved
by the Security Register or by a certificate of the
Security Registrar.
Section 7.3 Holders to Be Treated as Owners. The Issuer,
the Trustee and any agent of the Issuer or the Trustee may deem and treat
the Person in whose name any Security of any series shall be registered
upon the Security Register for such series as the absolute owner of such
Security (whether or not such Security shall be overdue and
notwithstanding any notation of ownership or other writing thereon) for
the purpose of receiving payment of or on account of the principal of and,
subject to the provisions of Section 2.7 of this Indenture, interest, if
any, on such Security and for all other purposes; and none of the Issuer,
the Trustee and any agent of the Issuer or the Trustee shall be affected
by any notice to the contrary. All such payments so made to any such
Person, or upon his order, shall be valid, and, to the extent of the sum
or sums so paid, effectual to satisfy and discharge the liability for
moneys payable upon any such Security.
No holder of any beneficial interest in any Global
Security held on its behalf by a Depository shall have any rights under
this Indenture with respect to such Global Security, and such Depository
may be treated by the Issuer, the Trustee, and any agent of the Issuer or
the Trustee as the owner of such Global Security for all purposes
whatsoever. Notwithstanding the foregoing, nothing herein shall impair,
as between a Depository and such holders of beneficial interests, the
operation of customary practices governing the exercise of the rights of
the Depository as holder of any Security.
Section 7.4 Securities Owned by Issuer Deemed Not
Outstanding. In determining whether the Holders of the requisite
aggregate principal amount of Outstanding Securities of one or more series
have concurred in any direction, consent or waiver under this Indenture,
Securities which are owned by the Issuer or any other obligor on the
Securities with respect to which such determination is being made or by
any Person directly or indirectly controlling or controlled by or under
direct or indirect common control with the Issuer or any other obligor on
the Securities with respect to which such determination is being made
shall be disregarded and deemed not to be Outstanding for the purposes of
any such determination, except that for the purpose of determining whether
the Trustee shall be protected in relying on any such direction, consent
or waiver, only Securities which the Trustee knows are so owned shall be
so disregarded. Securities so owned which have been pledged in good faith
may be regarded as Outstanding if the pledgee establishes to the
satisfaction of the Trustee the pledgee's right so to act with respect to
such Securities and that the pledgee is not the Issuer or any other
obligor upon such Securities or any Person directly or indirectly
controlling or controlled by or under direct or indirect common control
with the Issuer or any other obligor on such Securities. In case of a
dispute as to such right, the advice of counsel shall be full protection
in respect of any decision made by the Trustee in accordance with such
advice. Upon request of the Trustee, the Issuer shall furnish to the
Trustee promptly an Officers' Certificate listing and identifying all
Securities, if any, known by the Issuer to be owned or held by or for the
account of any of the above described Persons; and, subject to Sections
6.1 and 6.2, the Trustee shall be entitled to accept such Officers'
Certificate as conclusive evidence of the facts therein set forth and of
the fact that all Securities not listed therein are Outstanding for the
purposes of any such determination.
Section 7.5 Right of Revocation of Action Taken. At any
time prior to (but not after) the evidencing to the Trustee, as provided
in Section 7.1, of the taking of any action by the Holders of the requi-
site percentage in aggregate principal amount of the Securities of one or
more series, as the case may be, specified in this Indenture in connection
with such action, any Holder of a Security the serial number of which is
shown by the evidence to be included among the serial numbers of the
Securities the Holders of which have consented to such action may, by
filing written notice at the Corporate Trust Office and upon proof of
ownership as provided in Section 7.2, revoke such action so far as
concerns such Security. Except as aforesaid, any such action taken by the
Holder of any Security of any series shall be conclusive and binding upon
such Holder and upon all future Holders and owners of such Security and of
any Securities of such series issued in exchange or substitution therefor
or on registration of transfer thereof, irrespective of whether or not any
notation in regard thereto is made upon any such Security. Any action
taken by the Holders of the requisite percentage in aggregate principal
amount of the Securities of one or more series, as the case may be,
specified in this Indenture in connection with such action shall be
conclusively binding upon the Issuer, the Trustee and the Holders of all
the Securities of such series.
Section 7.6 Calculation of Original Issue Discount. The
Company shall file with the Trustee promptly at the end of each calendar
year a written notice specifying the amount of original issue discount
(including daily accruals and accrual periods) accrued on Outstanding
Securities as of the end of such year.
ARTICLE EIGHT
SUPPLEMENTAL INDENTURES
Section 8.1 Supplemental Indentures Without Consent of
Securityholders. The Issuer, when authorized by a resolution of the Board
of Directors (which resolution may provide general terms or parameters for
such action and may provide that the specific terms of such action may be
determined in accordance with or pursuant to an Issuer Order), and the
Trustee may, from time to time and at any time, enter into an indenture or
indentures supplemental hereto (which shall conform to the provisions of
the Trust Indenture Act of 1939 as in force at the date of the execution
thereof) for one or more of the following purposes:
(a) to convey, transfer, assign, mortgage or
pledge to the Trustee as security for the Securities of
one or more series any property or assets;
(b) to evidence the succession of another
corporation to the Issuer, or successive successions, and
the assumption by the successor corporation of the
covenants, agreements and obligations of the Issuer
pursuant to Article Nine;
(c) to add to the covenants of the Issuer for
the benefit of the Holders of all or any series of
Securities (and if such covenants are to be for the
benefit of less than all series of Securities, stating
that such covenants are expressly being included solely
for the benefit of such series) such further covenants,
restrictions, conditions or provisions as the Issuer and
the Trustee shall consider to be for the protection of the
Holders of Securities of any series, and to make the
occurrence, or the occurrence and continuance, of a
default in complying with any such additional covenant,
restriction, condition or provision an Event of Default
permitting the enforcement of all or any of the several
remedies provided in this Indenture as herein set forth;
in respect of any such additional covenant, restriction,
condition or provision, such supplemental indenture may
provide for a particular period of grace after default
(which period may be shorter or longer than that allowed
in the case of other defaults) or may provide for an
immediate enforcement upon such an Event of Default or may
limit the remedies available to the Trustee upon such an
Event of Default or may limit the right of the Holders of
a majority in aggregate principal amount of the Securities
of such series to waive such an Event of Default;
(d) to cure any ambiguity or to correct or
supplement any provision contained herein or in any
supplemental indenture which may be defective or
inconsistent with any other provision contained herein or
in any supplemental indenture, or to make such other
provisions as the Issuer may deem necessary or desirable,
with respect to matters or questions arising under this
Indenture, provided that no such action shall adversely
affect the interests of the Holders of the Securities of
any series appertaining thereto;
(e) to establish the form and terms of the
Securities of any series as permitted by Sections 2.1 and
2.3; and
(f) to evidence and provide for the acceptance
of appointment hereunder by a successor Trustee with
respect to the Securities and to add to or change any of
the provisions of this Indenture as shall be necessary to
provide for or facilitate the administration of the trusts
hereunder by more than one trustee, all as provided in
Section 6.11.
The Trustee is hereby authorized to join with the Issuer
in the execution of any such supplemental indenture, to make any further
appropriate agreements and stipulations which may be therein contained and
to accept the conveyance, transfer, assignment, mortgage or pledge of any
property or assets thereunder, but the Trustee shall not be obligated to
enter into any such supplemental indenture which affects the Trustee's own
rights, duties or immunities under this Indenture or otherwise.
Any supplemental indenture authorized by the provisions of
this Section may be executed without the consent of the Holders of any of
the Securities at the time Outstanding, notwithstanding any of the
provisions of Section 8.2.
Section 8.2 Supplemental Indentures With Consent of
Securityholders. With the consent (evidenced as provided in Article
Seven) of the Holders of not less than a majority in aggregate principal
amount of the Securities of all series at the time Outstanding affected by
such supplemental indenture (voting as one class), the Issuer, when
authorized by a resolution of the Board of Directors (which resolution may
provide general terms or parameters for such action and may provide that
the specific terms of such action may be determined in accordance with or
pursuant to an Issuer Order), and the Trustee may, from time to time and
at any time, enter into an indenture or indentures supplemental hereto
(which shall conform to the provisions of the Trust Indenture Act of 1939
as in force at the date of execution thereof) for the purpose of adding
any provisions to or changing in any manner or eliminating any of the
provisions of this Indenture or of any supplemental indenture or of
modifying in any manner the rights of the Holders of the Securities of
each such series; provided that no such supplemental indenture shall
(a) change the time of payment of the principal, or any installment of the
principal, of any Security or reduce the principal amount thereof, or
reduce the rate or change the time of payment of interest, if any,
thereon, or reduce any amount payable on the redemption thereof, or make
the principal thereof or the interest thereon payable in any coin or
currency other than that provided in such Security in accordance with the
terms thereof or impair or affect the right to institute suit for the
payment thereof when due, or, if such Security shall so provide, any right
of repayment at the option of the Holder, in each case without the consent
of the Holder of each Security so affected, (b) reduce the percentage in
principal amount of the Outstanding Securities of the affected series, the
consent of whose Holders is required for any such supplemental indenture
or for any waiver provided for in this Indenture, without the consent of
the Holders of each Security so affected or (c) without the consent of the
Holders of each Security so affected, modify any of the provisions of this
Section or Section 5.10, except to increase any such percentage or to
provide that certain other provisions of this Indenture cannot be modified
or waived without the consent of the Holder of each Outstanding Security
affected thereby; provided, however, that this clause shall not be deemed
to require the consent of any Holder with respect to changes in the
references to "the Trustee" and concomitant changes in this Section, or
the deletion of this proviso, in accordance with the requirements of
Sections 6.11 and 8.1(f).
A supplemental indenture which changes or eliminates any
covenant or other provision of this Indenture which has expressly been
included solely for the benefit of one or more series of Securities, or
which modifies the rights of the Holders of Securities of such series
appertaining to such Securities with respect to such covenant or
provision, shall be deemed not to affect the rights under this Indenture
of the Holders of Securities of any other series.
Upon the request of the Issuer, accompanied by a Board
Resolution complying with the first paragraph of this Section and evidence
of the consent of the Holders of the Securities as aforesaid and such
other documents, if any, as may be required by Section 7.1, the Trustee
shall join with the Issuer in the execution of such supplemental indenture
unless such supplemental indenture affects the Trustee's own rights,
duties or immunities under this Indenture or otherwise, in which case the
Trustee may in its discretion, but shall not be obligated to, enter into
such supplemental indenture.
It shall not be necessary for the consent of the Holders
under this Section to approve the particular form of any proposed
supplemental indenture, but it shall be sufficient if such consent shall
approve the substance thereof.
Promptly after the execution by the Issuer and the Trustee
of any supplemental indenture pursuant to the provisions of this Section,
the Trustee shall give notice thereof to the Holders of then Outstanding
Securities of each series affected thereby, by mailing a notice thereof by
first-class mail to such Holders at their addresses as they shall appear
on the Security Register, and in each case such notice shall set forth in
general terms the substance of such supplemental indenture. Any failure
of the Issuer to give such notice, or any defect therein, shall not,
however, in any way impair or affect the validity of any such supplemental
indenture.
Section 8.3 Effect of Supplemental Indenture. Upon the
execution of any supplemental indenture pursuant to the provisions hereof,
this Indenture shall be and be deemed to be modified and amended in
accordance therewith and the respective rights, limitations of rights,
obligations, duties and immunities under this Indenture of the Trustee,
the Issuer and the Holders of Securities of each series affected thereby
shall thereafter be determined, exercised and enforced hereunder subject
in all respects to such modifications and amendments, and all the terms
and conditions of any such supplemental indenture shall be and be deemed
to be part of the terms and conditions of this Indenture for any and all
purposes.
Section 8.4 Documents to Be Given to Trustee. The
Trustee, subject to the provisions of Sections 6.1 and 6.2, may receive an
Officers' Certificate and an Opinion of Counsel as conclusive evidence
that any supplemental indenture executed pursuant to this Article complies
with the applicable provisions of this Indenture.
Section 8.5 Notation on Securities in Respect of
Supplemental Indentures. Securities of any series authenticated and
delivered after the execution of any supplemental indenture pursuant to
the provisions of this Article may bear a notation in form approved by the
Trustee as to any matter provided for by such supplemental indenture. If
the Issuer or the Trustee shall so determine, new Securities of any series
so modified as to conform, in the opinion of the Trustee and the Board of
Directors, to any modification of this Indenture contained in any such
supplemental indenture may be prepared and executed by the Issuer,
authenticated by the Trustee and delivered in exchange for the Securities
of such series then Outstanding.
ARTICLE NINE
CONSOLIDATION, MERGER, SALE OR CONVEYANCE
Section 9.1 Covenant of Issuer Not to Merge, Consolidate,
Sell or Convey Property Except Under Certain Conditions. Nothing
contained in this Indenture or in any of the Securities shall prevent any
consolidation of the Issuer with, or merger of the Issuer into, any other
corporation or corporations (whether or not affiliated with the Issuer),
or successive consolidations or mergers to which the Issuer or its
successor or successors shall be a party or parties, shall prevent any
sale, lease or conveyance of the property of the Issuer as an entirety or
substantially as an entirety, shall prevent any consolidation of any
Person with, or the merger of any Person into, the Issuer or shall prevent
any sale, lease or conveyance of the property of any Person as an entirety
or substantially as an entirety to the Issuer; provided, that, and the
Issuer hereby covenants and agrees, upon any such consolidation, merger,
sale, lease or conveyance, the due and punctual payment of the principal
of and interest, if any, on all the Securities, according to their tenor,
and the due and punctual performance and observance of all of the
covenants and conditions of this Indenture to be performed or observed by
the Issuer, shall be expressly assumed, by supplemental indenture
satisfactory in form to the Trustee, executed and delivered to the Trustee
by the corporation formed by such consolidation, or into which the Issuer
shall have been merged, or which shall have acquired such property;
provided, further, that the corporation formed by such consolidation or
into which the Issuer merged or the Person which acquired by conveyance or
sale, or which leases, the properties and assets of the Issuer as an
entirety or substantially as an entirety shall be a corporation organized
and existing under the laws of the United States of America, any State
thereof or the District of Columbia; provided, further, that immediately
after giving effect to such transaction, and treating any indebtedness
which becomes an obligation of the Issuer or a Subsidiary as a result of
such transaction as having been incurred by the Issuer or such Subsidiary
at the time of such transaction, no Event of Default, and no event which,
after notice or lapse of time or both, would become an Event of Default,
shall have happened and be continuing; provided, further, if, as a result
of any such consolidation or merger or such conveyance, transfer or lease,
properties or assets of the Issuer would become subject to a mortgage,
pledge, lien, security interest or other encumbrance which would not be
permitted by this Indenture, the Issuer or such successor corporation or
Person, as the case may be, shall take such steps as shall be necessary
effectively to secure the Securities equally and ratably with (or prior
to) all indebtedness secured thereby.
Section 9.2 Successor Corporation Substituted for Issuer.
In case of any consolidation, merger, sale, lease or conveyance referred
to in, and in accordance with, Section 9.1, and following such an
assumption by the successor corporation, such successor corporation shall
succeed to and be substituted for the Issuer, with the same effect as if
it had been named herein as Issuer.
Such successor corporation may cause to be signed, and may
issue either in its own name or in the name of the Issuer prior to such
succession, any or all of the Securities issuable hereunder which
theretofore shall not have been signed by the Issuer and delivered to the
Trustee; and, upon the order of such successor corporation, instead of the
Issuer, and subject to all the terms, conditions and limitations in this
Indenture prescribed, the Trustee shall authenticate and shall deliver any
Securities which previously shall have been signed and delivered by the
officers of the Issuer to the Trustee for authentication, and any
Securities which such successor corporation thereafter shall cause to be
signed and delivered to the Trustee for that purpose. All of the
Securities so issued shall in all respects have the same legal rank and
benefit under this Indenture as the Securities theretofore or thereafter
issued in accordance with the terms of this indenture as though all of
such Securities had been issued at the date of the execution hereof.
In case of any such consolidation, merger, sale, lease or
conveyance such changes in phraseology and form (but not in substance) may
be made in the Securities thereafter to be issued as may be appropriate.
In the event of any such sale or conveyance (other than a
conveyance by way of lease), the Issuer or any successor corporation which
shall theretofore have become such in the manner described in this Article
shall be discharged from all obligations and covenants under this
Indenture and the Securities and may be liquidated and dissolved.
Section 9.3 Opinion of Counsel Delivered to Trustee. The
Trustee, subject to the provisions of Sections 6.1 and 6.2, may receive an
Opinion of Counsel as conclusive evidence that any such consolidation,
merger, sale, lease or conveyance, and any such assumption, and any such
liquidation or dissolution, complies with the applicable provisions of
this Indenture and that all conditions precedent herein provided for
relating to such transactions have been complied with.
ARTICLE TEN
SATISFACTION AND DISCHARGE OF INDENTURE;
UNCLAIMED MONEYS
Section 10.1 Satisfaction and Discharge of Indenture.
(A) If at any time (a) the Issuer shall have paid or caused to be paid
the principal of, and interest, if any, on all the Securities of each
series theretofore authenticated, (other than Securities which have been
destroyed, lost or stolen and which have been replaced or paid as provided
in Section 2.9), in accordance with the terms of this Indenture and such
Securities or (b) as to Securities not so paid, the Issuer shall have
delivered to the Trustee for cancellation all Securities of each series
theretofore authenticated (other than any Securities which shall have been
destroyed, lost or stolen and which shall have been replaced or paid as
provided in Section 2.9) or (c) as to Securities not so paid or delivered
for cancellation, (i) all the Securities of such series shall have become
due and payable, or are by their terms to become due and payable within
one year or are to be called for redemption within one year under
arrangements satisfactory to the Trustee for the giving of notice of
redemption, and (ii) the Issuer shall have irrevocably deposited or caused
to be deposited with the Trustee as trust funds money in an amount (other
than moneys repaid by the Trustee or any paying agent to the Issuer in
accordance with Section 10.4) or Government Obligations, maturing as to
principal and interest at such times and in such amounts as will insure
the availability of money, or a combination thereof, sufficient in the
opinion of a nationally recognized firm of independent public accountants
expressed in a written certification thereof delivered to the Trustee, to
pay (A) the principal and interest, if any, on all Securities of such
series on each date that such principal or interest, if any, is due and
payable and (B) any mandatory sinking fund or analogous payments on the
dates on which such payments are due and payable in accordance with the
terms of this Indenture and the Securities of such series; and if, in any
such case, the Issuer shall also pay or cause to be paid all other sums
payable hereunder by the Issuer then this Indenture shall cease to be of
further effect (except as to (i) rights of registration of transfer and
exchange of Securities, (ii) substitution of mutilated, defaced,
destroyed, lost or stolen Securities, (iii) the rights of Holders of
Securities to receive payments of principal thereof, and interest, if any,
thereon, upon the original stated due dates therefor or any date of
redemption (but not upon acceleration), and remaining rights of such
Holders to receive mandatory sinking fund or analogous payments, if any,
(iv) the rights, obligations, duties and immunities of the Trustee
hereunder, (v) the rights of Holders of Securities as beneficiaries hereof
with respect to the property so deposited with the Trustee and payable to
all or any of them and (vi) the obligations of the Issuer under
Section 3.2) and the Trustee, on demand of the Issuer accompanied by an
Officers' Certificate and an Opinion of Counsel, each stating that all
conditions precedent herein provided for relating to the satisfaction and
discharge of this Indenture have been complied with, and at the cost and
expense of the Issuer, shall execute proper instruments acknowledging such
satisfaction and discharge of this Indenture, provided that the rights of
Holders of the Securities to receive amounts in respect of principal of
and interest on the Securities held by them shall not be delayed longer
than required by then applicable mandatory rules or policies of any
national securities exchange upon which the Securities are listed. The
Issuer agrees to reimburse the Trustee for any costs or expenses
thereafter reasonably and properly incurred and to compensate the Trustee
for any services thereafter reasonably and properly rendered by the
Trustee in connection with this Indenture or the Securities.
(B) The following provisions shall apply to the
Securities of each series unless specifically otherwise provided in the
Board Resolution, Officers' Certificate or supplemental indenture relating
thereto provided pursuant to Section 2.3. In addition to discharge of
this Indenture pursuant to the next preceding paragraph (A) the Issuer
shall be deemed to have paid and discharged the entire indebtedness on all
the Securities of such series on the 91st day after the date of making the
deposit referred to in clause (a), and the provisions of this Indenture
with respect to the Securities of such series shall no longer be in effect
(except as to (i) rights of registration of transfer and exchange of
Securities of such series, (ii) substitution of mutilated, defaced,
destroyed, lost or stolen Securities, (iii) the rights of Holders of
Securities of such series appertaining thereto to receive payments of
principal thereof and interest, if any, thereon, upon the original stated
due dates therefor or any date of redemption (but not upon acceleration),
and remaining rights of such Holders to receive mandatory sinking fund or
analogous payments, if any, solely from the trust fund referred to in sub-
paragraph (a) below, (iv) the rights, obligations, duties and immunities
of the Trustee hereunder, (v) the rights of Holders of Securities of such
series as beneficiaries hereof with respect to the property so deposited
with the Trustee and payable to all or any of them and (vi) the
obligations of the Issuer under Section 3.2), and the Trustee, at the cost
and expense of the Issuer, shall, at the Issuer's written request, execute
proper instruments acknowledging the same, if:
(a) the Issuer shall have irrevocably deposited
or caused to be irrevocably deposited with the Trustee as
a trust fund specifically pledged as security for, and
dedicated solely to, the benefit of the Holders of the
Securities of such series (i) money in an amount, or
(ii) Government Obligations, maturing as to principal and
interest at such times and in such amounts as will insure
the availability of money, or (iii) a combination thereof,
sufficient in the opinion of a nationally recognized firm
of independent public accountants expressed in a written
certification thereof delivered to the Trustee, to pay
(A) the principal and interest, if any, on all Securities
of such series on each date that such principal or
interest, if any, is due and payable and (B) any mandatory
sinking fund or analogous payments on the dates on which
such payments are due and payable in accordance with the
terms of this Indenture and the Securities of such series;
(b) no Event of Default or event which, with
notice or lapse of time or both, would become an Event of
Default with respect to the Securities of such series
shall have occurred and be continuing on the date of such
deposit or at any time during the period ending on the
91st day after the date of such deposit (it being
understood that this condition shall not be deemed
satisfied until the expiration of such period);
(c) such deposit shall not result in a breach or
violation of, or constitute a default under, this
Indenture or any other material agreement or instrument to
which the Issuer is a party or by which it is bound;
(d) such deposit shall not cause any Securities
of such series then listed on any national securities
exchange registered under the Securities Exchange Act of
1934, as amended, to be delisted;
(e) the Issuer shall have delivered to the
Trustee an Opinion of Counsel to the effect that (i) if
such deposits shall include Government Obligations in
respect of any government other than the United States of
America, such deposit shall not result in the Issuer, the
Trustee or such trust constituting an "investment company"
under the Investment Company Act of 1940, as amended, and
(ii) if any such deposit occurs more than one year prior
to the stated maturity or redemption date of the
Securities of such series, the Holders of the Securities
of such series then Outstanding will not recognize income,
gain or loss for Federal income tax purposes as a result
of such deposit, defeasance and discharge and will be
subject to Federal income tax on the same amounts, in the
same manner and at the same times as would have been the
case if such deposit, defeasance and discharge had not
occurred; and
(f) the Issuer shall have delivered to the
Trustee an Officers' Certificate and an Opinion of
Counsel, each stating that all conditions precedent herein
provided for relating to the defeasance contemplated by
this paragraph have been complied with.
Section 10.2 Application by Trustee of Funds Deposited
for Payment of Securities. Subject to Section 10.4, all moneys and
Government Obligations deposited with the Trustee (or other trustee), and
all money received by the Trustee in respect of Government Obligations
deposited with the Trustee, pursuant to Section 10.1 in respect of the
Outstanding Securities of a particular series shall be held in trust and
applied by it to the payment, either directly or through any paying agent
(including the Issuer acting as its own paying agent), to the Holders of
such Securities of all sums due and to become due thereon for principal
and interest, if any; but such money need not be segregated from other
funds except to the extent required by law.
Section 10.3 Repayment of Moneys Held by Paying Agent.
In connection with the satisfaction and discharge of this Indenture with
respect to the Securities of any series, all moneys then held by any
paying agent under the provisions of this Indenture with respect to such
series of Securities shall, upon demand of the Issuer, be repaid to it or
paid to the Trustee and thereupon such paying agent shall be released from
all further liability with respect to such moneys.
Section 10.4 Return of Moneys Held by Trustee and Paying
Agent Unclaimed for Three Years. Any moneys deposited with or paid to the
Trustee or any paying agent for the payment of the principal of or
interest, if any, on any Security of any series and not applied but
remaining unclaimed for three years after the date upon which such
principal or interest shall have become due and payable, shall, upon the
written request of the Issuer and unless otherwise required by mandatory
provisions of applicable escheat or abandoned or unclaimed property law,
be repaid to the Issuer by the Trustee or such paying agent, and any
Holder of the Securities of such series shall, unless otherwise required
by mandatory provisions of applicable escheat or abandoned or unclaimed
property laws, thereafter look only to the Issuer for any payment which
such Holder may be entitled to collect, and all liability of the Trustee
or any paying agent with respect to such moneys shall thereupon cease;
provided, however, that the Trustee or such paying agent, before being
required to make any such repayment with respect to moneys deposited with
it for any payment shall at the expense of the Issuer, mail by first-class
mail to Holders of such Securities at their addresses as they shall appear
on the Security Register for the Securities of such series, notice that
such moneys remain and that, after a date specified therein, which shall
not be less than 30 days from the date of such mailing any unclaimed
balance of such moneys then remaining will be repaid to the Issuer.
Section 10.5 Indemnity for Government Obligations. The
Issuer shall pay and indemnify the Trustee against any tax, fee or other
charge imposed on or assessed against the Government Obligations deposited
pursuant to Section 10.1 or the principal or interest received in respect
of such Government Obligations, other than any such tax, fee or other
charge which by law is for the account of the Holders of the Securities
for whose benefit such Government Obligations are held.
ARTICLE ELEVEN
REDEMPTION OF SECURITIES AND SINKING FUNDS
Section 11.1 Applicability of Article. The provisions of
this Article shall be applicable to the Securities of any series which are
redeemable before their maturity or to any Securities of a series which
have the benefit of a sinking fund, except as otherwise specified as
contemplated by Section 2.3 for Securities of any series.
Section 11.2 Notice of Redemption; Partial Redemptions.
Notice of redemption to the Holders of Securities of any series to be
redeemed as a whole or in part shall be given by mailing notice of such
redemption by first class mail, postage prepaid, at least 30 days and not
more than 60 days prior to the date fixed for redemption, to such Holders
at their last addresses as they shall appear upon the registry books for
such Securities. Any notice which is mailed in the manner herein provided
shall be conclusively presumed to have been duly given, whether or not the
Holder receives the notice. Failure to give notice by mail, or any defect
in the notice to the Holder of any Security of any series designated for
redemption as a whole or in part, shall not affect the validity of the
proceedings for the redemption of any other Security of such series.
The notice of redemption to each such Holder shall specify
(a) the principal amount of each Security of such series held by such
Holder to be redeemed, (b) the date fixed for redemption, (c) the
redemption price, (d) that such redemption is pursuant to the mandatory or
optional sinking or other analogous fund, or both, if such be the case,
(e) that interest accrued to the date fixed for redemption will be paid as
specified in such notice, (f) that on and after said date interest thereon
or on the portions thereof to be redeemed will cease to accrue, (g) place
for presentment and (h) the CUSIP number. In case any Security is to be
redeemed in part only, the notice of redemption shall state the portion of
the principal amount thereof to be redeemed and shall state that on and
after the date fixed for redemption, upon surrender of such Security, a
new Security or Securities of such series in authorized denominations for
an aggregate principal amount equal to the unredeemed portion thereof will
be issued.
The notice of redemption of Securities of any series to be
redeemed at the option of the Issuer shall be given by the Issuer or, at
the Issuer's request, by the Trustee in the name and at the expense of the
Issuer.
On or before the redemption date specified in the notice
of redemption given as provided in this Section, the Issuer will deposit
with the Trustee or with one or more paying agents (or, if the Issuer is
acting as its own paying agent, set aside, segregate and hold in trust as
provided in Section 3.4) an amount of money sufficient to redeem on the
redemption date all the Securities of any series so called for redemption
at the applicable redemption price, together with accrued interest to the
date fixed for redemption. The Issuer will deliver to the Trustee at
least 60 days prior (except that the Trustee may in its sole discretion
waive such notice period at any time) to the date fixed for redemption an
Officers' Certificate stating such date, the aggregate principal amount of
Securities of each series to be redeemed and that no Events of Default
with respect to the Securities of such series have occurred (which have
not been waived or cured). In case of a redemption at the option of the
Issuer prior to the expiration of any restriction on such redemption, the
Issuer shall deliver to the Trustee, prior to the giving of any notice of
redemption to Holders pursuant to this Section, an Officers' Certificate
stating that such restriction has been complied with. If less than all
the Securities of any series are to be redeemed, the Trustee shall select,
in such manner as it shall deem appropriate and fair, Securities of such
series to be redeemed in whole or in part. Securities may be redeemed in
part in multiples equal to the minimum authorized denomination for
Securities of such series or any multiple thereof. The Trustee shall
promptly notify the Issuer in writing of the Securities of such series
selected for redemption and, in the case of any Securities of such series
selected for partial redemption, the principal amount thereof to be
redeemed. For all purposes of this Indenture, unless the context
otherwise requires, all provisions relating to the redemption of
Securities of any series shall relate, in the case of any Security
redeemed or to be redeemed only in part, to the portion of the principal
amount of such Security which has been or is to be redeemed.
Section 11.3 Payment of Securities Called for Redemption.
If notice of redemption has been given as provided in Section 11.2, the
Securities or portions of Securities specified in such notice shall become
due and payable on the date and at the place stated in such notice at the
applicable redemption price, together with interest accrued to the date
fixed for redemption, and on and after said date (unless the Issuer shall
default in the payment of such Securities at the applicable redemption
price, together with interest accrued to said date) interest on the
Securities or portions of Securities so called for redemption shall cease
to accrue and, except as provided in Sections 6.5 and 10.4, such
Securities shall cease from and after the date fixed for redemption to be
entitled to any benefit or security under this Indenture, and the Holders
thereof shall have no right in respect of such Securities except the right
to receive the applicable redemption price thereof and unpaid interest to
the date fixed for redemption. On presentation and surrender of such
Securities at a place of payment specified in said notice, redemption,
such Securities or the specified portions thereof shall be paid and
redeemed by the Issuer at the applicable redemption price, together with
interest accrued thereon to the date fixed for redemption.
If any Security called for redemption shall not be so paid
upon surrender thereof for redemption, the principal shall, until paid or
duly provided for, bear interest from the date fixed for redemption at the
rate of interest borne by such Security.
Upon presentation of any Security redeemed in part only,
the Issuer shall execute and the Trustee shall authenticate and make
available for delivery to or on the order of the Holder thereof, at the
expense of the Issuer, a new Security or Securities of such series, of
authorized denominations, in principal amount equal to the unredeemed
portion of the Security so presented.
Section 11.4 Exclusion of Certain Securities from
Eligibility for Selection for Redemption. Securities shall be excluded
from eligibility for selection for redemption if they are identified by
registration and certificate number in an Officers' Certificate delivered
to the Trustee at least 60 days prior to the last date on which notice of
redemption may be given as being owned of record and beneficially by, and
not pledged or hypothecated by either (a) the Issuer or (b) an entity
specifically identified in such Officers' Certificate as an Affiliate of
the Issuer.
Section 11.5 Mandatory and Optional Sinking Funds. The
minimum amount of any sinking fund payment provided for by the terms of
the Securities of any series is herein referred to as a "mandatory sinking
fund payment", and any payment in excess of such minimum amount provided
for by the terms of the Securities of any series is herein referred to as
an "optional sinking fund payment". The date on which a sinking fund
payment is to be made is herein referred to as the "sinking fund payment
date".
In lieu of making all or any part of any mandatory sinking
fund payment with respect to any series of Securities in cash, the Issuer
may at its option (a) deliver to the Trustee Securities of such series
theretofore purchased or otherwise acquired (except upon redemption
pursuant to the mandatory sinking fund) by the Issuer or receive credit
for Securities of such series (not previously so credited) theretofore
purchased or otherwise acquired (except as aforesaid) by the Issuer and
delivered to the Trustee for cancellation pursuant to Section 2.10, (b)
receive credit for optional sinking fund payments (not previously so
credited) made pursuant to this Section or (c) receive credit for
Securities of such series (not previously so credited) redeemed by the
Issuer through any optional redemption provision contained in the terms of
such series. Securities so delivered or credited shall be received or
credited by the Trustee at the sinking fund redemption price specified in
such Securities.
On or before the 60th day next preceding each sinking fund
payment date for any series, the Issuer will deliver to the Trustee an
Officers' Certificate (which need not contain the statements required by
Section 14.5) (a) specifying the portion of the mandatory sinking fund
payment due on such date to be satisfied by payment of cash and the
portion to be satisfied by credit of Securities of such series and the
basis for such credit, (b) stating that none of the Securities of such
series to be so credited has theretofore been so credited, (c) stating
that no defaults in the payment of interest or Events of Default with
respect to such series have occurred and are continuing (which have not
been waived or cured) and (d) stating whether or not the Issuer intends to
exercise its right to make an optional sinking fund payment on such date
with respect to such series and, if so, specifying the amount of such
optional sinking fund payment which the Issuer intends to pay on or before
the next succeeding sinking fund payment date. Any Securities of such
series to be so credited and required to be delivered to the Trustee in
order for the Issuer to be entitled to credit therefor as aforesaid which
have not theretofore been delivered to the Trustee shall be delivered for
cancellation pursuant to Section 2.10 to the Trustee with such Officers'
Certificate (or reasonably promptly thereafter if acceptable to the
Trustee). Such Officers' Certificate shall be irrevocable, and upon its
receipt by the Trustee the Issuer shall become unconditionally obligated
to make all the cash payments or other deliveries therein referred to, if
any, on or before the next succeeding sinking fund payment date. Failure
of the Issuer, on or before any such 60th day, to deliver such Officers'
Certificate and securities specified in this paragraph, if any, shall not
constitute a default but shall constitute, on and as of such 60th day, the
irrevocable election of the Issuer that (i) the mandatory sinking fund
payment for such series due on the next succeeding sinking fund payment
date shall be paid entirely in cash without the option to deliver or
credit Securities of such series in respect thereof and (ii) the Issuer
will make no optional sinking fund payment with respect to such series on
such date as provided in this Section.
If the sinking fund payment or payments (mandatory or
optional or both) to be made in cash on the next succeeding sinking fund
payment date plus any unused balance of any preceding sinking fund
payments made in cash shall exceed $50,000 and if the Issuer shall so
request with respect to the Securities of any particular series, such cash
shall be applied on the next succeeding sinking fund payment date to the
redemption of Securities of such series at the applicable sinking fund
redemption price, together with accrued interest to the date fixed for
redemption. If such amount shall be $50,000 or less and the Issuer makes
no such request, then such amount shall be carried over until a sum in
excess of $50,000 is available. The Trustee shall select, in the manner
provided in Section 11.2, for redemption on such sinking fund payment date
a sufficient principal amount of Securities of such series to absorb said
cash, as nearly as may be, and shall (if requested in writing by the
Issuer) inform the Issuer of the serial numbers of the Securities of such
series (or portions thereof) so selected. Securities shall be excluded
from eligibility for redemption under this Section if they are identified
by registration and certificate number in an Officers' Certificate
delivered to the Trustee at least 40 days prior to the sinking fund
payment date as being owned of record and beneficially by, and not pledged
or hypothecated by either (a) the Issuer or (b) an entity specifically
identified in such Officers' Certificate as an Affiliate of the Issuer.
The Trustee, in the name and at the expense of the Issuer (or the Issuer,
if it shall so request the Trustee in writing), shall cause notice of
redemption of the Securities of such series to be given in substantially
the manner provided in Section 11.2 (and with the effect provided in
Section 11.3) for the redemption of Securities of such series in part at
the option of the Issuer. The amount of any sinking fund payments not so
applied or allocated to the redemption of Securities of such series shall
be added to the next cash sinking fund payment for such series and,
together with such payment, shall be applied in accordance with the
provisions of this Section. Any and all sinking fund moneys held on the
stated maturity date of the Securities of a particular series (or earlier,
if such maturity is accelerated), which are not held for the payment or
redemption of particular Securities of such series, shall be applied,
together with other moneys, if necessary, sufficient for the purpose, to
the payment of the principal of and interest on the Securities of such
series at maturity.
Unless otherwise provided for, on or before each sinking
fund payment date, the Issuer shall pay to the Trustee in cash or shall
otherwise provide for the payment of all interest accrued to the date
fixed for redemption on Securities to be redeemed on such sinking fund
payment date.
The Trustee shall not redeem or cause to be redeemed
Securities of any series with sinking fund moneys or give any notice of
redemption of Securities of such series by operation of the sinking fund
for such series during the continuance of any Event of Default with
respect to such series except that, if notice of redemption of any
Securities of such series shall theretofore have been given, the Trustee
shall redeem or cause to be redeemed such Securities, provided that the
Trustee or one or more paying agents shall have received from the Issuer a
sum sufficient for such redemption. Except as aforesaid, any moneys in
the sinking fund for such series at the time when any such Event of
Default shall occur, and any moneys thereafter paid into the sinking fund,
shall, during the continuance of such Event of Default, be deemed to have
been collected under Article Five and held for the payment of all
Securities of such series. In case such Event of Default shall have been
waived as provided in Section 5.10 or such Event of Default cured on or
before the 60th day preceding any sinking fund payment date, such moneys
shall thereafter be applied on the next succeeding sinking fund payment
date in accordance with this Section to the redemption of Securities of
such series.
ARTICLE TWELVE
SUBORDINATION
Section 12.1 Applicability of Article; Securities
Subordinated to Senior Indebtedness. (a) This Article Twelve shall apply
only to the Securities of any series which, pursuant to Section 2.3, are
expressly made subject to this Article. Such Securities are referred to
in this Article Twelve as "Subordinated Securities."
(b) The Issuer covenants and agrees, and each Holder of
Subordinated Securities by his acceptance thereof likewise covenants and
agrees, that the indebtedness represented by the Subordinated Securities
and the payment of the principal and interest, if any, on the Subordinated
Securities is subordinated and subject in right, to the extent and in the
manner provided in this Article, to the prior payment in full of all
Senior Indebtedness.
"Senior Indebtedness" means the principal of and premium,
if any, and interest on the following, whether outstanding on the date
hereof or thereafter incurred, created or assumed: (i) indebtedness of
the Issuer for money borrowed by the Issuer (including purchase money
obligations) or evidenced by debentures (other than the Subordinated
Securities), notes, bankers' acceptances or other corporate debt
securities, or similar instruments issued by the Issuer; (ii) all capital
lease obligations of Consumers; (iii) all obligations of Consumers issued
or assumed as the deferred purchase price of property, all conditional
sale obligations of Consumers and all obligations of Consumers under any
title retention agreement (but excluding trade accounts payable arising in
the ordinary course of business); (iv) obligations with respect to letters
of credit; (v) all indebtedness of others of the type referred to in the
preceding clauses (i) through (iv) assumed by or guaranteed in any manner
by the Issuer or in effect guaranteed by the Issuer; (vi) all obligations
of the type referred to in clauses (i) through (v) above of other persons
secured by any lien on any property or asset of Consumers (whether or not
such obligation is assumed by Consumers), except for (1) any such
indebtedness that is by its terms subordinated to or pari passu with the
Subordinated Notes, as the case may be, including all other debt
securities and guaranties in respect of those debt securities, issued to
any other trusts, partnerships or other entities affiliated with Consumers
which act as a financing vehicle of Consumers in connection with the
issuance of preferred securities by such entity or other securities which
rank pari passu with, or junior to, the Preferred Securities, and (2) any
indebtedness between or among Consumers and its affiliates and/or
(vii) renewals, extensions or refundings of any of the indebtedness
referred to in the preceding clauses unless, in the case of any particular
indebtedness, renewal, extension or refunding, under the express
provisions of the instrument creating or evidencing the same or the
assumption or guarantee of the same, or pursuant to which the same is
outstanding, such indebtedness or such renewal, extension or refunding
thereof is not superior in right of payment to the Subordinated
Securities.
This Article shall constitute a continuing obligation to
all Persons who, in reliance upon such provisions become holders of, or
continue to hold, Senior Indebtedness, and such provisions are made for
the benefit of the holders of Senior Indebtedness, and such holders are
made obligees hereunder and they and/or each of them may enforce such
provisions.
Section 12.2 Issuer Not to Make Payments with Respect to
Subordinated Securities in Certain Circumstances. (a) Upon the maturity
of any Senior Indebtedness by lapse of time, acceleration or otherwise,
all principal thereof and premium and interest thereon shall first be paid
in full, or such payment duly provided for in cash in a manner
satisfactory to the holders of such Senior Indebtedness, before any
payment is made on account of the principal of, or interest on,
Subordinated Securities or to acquire any Subordinated Securities or on
account of any sinking fund provisions of any Subordinated Securities
(except payments made in capital stock of the Issuer or in warrants,
rights or options to purchase or acquire capital stock of the Issuer,
sinking fund payments made in Subordinated Securities acquired by the
Issuer before the maturity of such Senior Indebtedness, and payments made
through the exchange of other debt obligations of the Issuer for such
Subordinated Securities in accordance with the terms of such Subordinated
Securities, provided that such debt obligations are subordinated to Senior
Indebtedness at least to the extent that the Subordinated Securities for
which they are exchanged are so subordinated pursuant to this Article
Twelve).
(b) Upon the happening and during the continuation of any
default in payment of the principal of, or interest on, any Senior
Indebtedness when the same becomes due and payable or in the event any
judicial proceeding shall be pending with respect to any such default,
then, unless and until such default shall have been cured or waived or
shall have ceased to exist, no payment shall be made by the Issuer with
respect to the principal of, or interest on, Subordinated Securities or to
acquire any Subordinated Securities or on account of any sinking fund
provisions of Subordinated Securities (except payments made in capital
stock of the Issuer or in warrants, rights, or options to purchase or
acquire capital stock of the Issuer, sinking fund payments made in
Subordinated Securities acquired by the Issuer before such default and
notice thereof, and payments made through the exchange of other debt
obligations of the Issuer for such Subordinated Securities in accordance
with the terms of such Subordinated Securities, provided that such debt
obligations are subordinated to Senior Indebtedness at least to the extent
that the Subordinated Securities for which they are exchanged are so
subordinated pursuant to this Article Twelve).
(c) In the event that, notwithstanding the provisions of
this Section 12.2, the Issuer shall make any payment to the Trustee on
account of the principal of or interest on Subordinated Securities, or on
account of any sinking fund provisions of such Securities, after the
maturity of any Senior Indebtedness as described in Section 12.2(a) above
or after the happening of a default in payment of the principal of or
interest on any Senior Indebtedness as described in Section 12.2(b) above,
then, unless and until all Senior Indebtedness which shall have matured,
and all premium and interest thereon, shall have been paid in full (or the
declaration of acceleration thereof shall have been rescinded or
annulled), or such default shall have been cured or waived or shall have
ceased to exist, such payment (subject to the provisions of Sections 12.6
and 12.7) shall be held by the Trustee, in trust for the benefit of, and
shall be paid forthwith over and delivered to, the holders of such Senior
Indebtedness (pro rata as to each of such holders on the basis of the
respective amounts of Senior Indebtedness held by them) or their
representative or the trustee under the indenture or other agreement (if
any) pursuant to which such Senior Indebtedness may have been issued, as
their respective interests may appear, for application to the payment of
all such Senior Indebtedness remaining unpaid to the extent necessary to
pay the same in full in accordance with its terms, after giving effect to
any concurrent payment or distribution to or for the holders of Senior
Indebtedness. The Issuer shall give prompt written notice to the Trustee
of any default in the payment of principal of or interest on any Senior
Indebtedness.
Section 12.3 Subordinated Securities Subordinated to
Prior Payment of All Senior Indebtedness on Dissolution, Liquidation or
Reorganization of Issuer. Upon any distribution of assets of the Issuer
in any dissolution, winding up, liquidation or reorganization of the
Issuer (whether voluntary or involuntary, in bankruptcy, insolvency or
receivership proceedings or upon an assignment for the benefit of
creditors or otherwise):
(a) the holders of all Senior Indebtedness shall
first be entitled to receive payments in full of the
principal thereof and premium and interest due thereon, or
provision shall be made for such payment, before the
Holders of Subordinated Securities are entitled to receive
any payment on account of the principal of or interest on
such Securities;
(b) any payment or distribution of assets of the
Issuer of any kind or character, whether in cash, property
or securities (other than securities of the Issuer as
reorganized or readjusted or securities of the Issuer or
any other corporation provided for by a plan or
reorganization or readjustment the payment of which is
subordinate, at least to the extent provided in this
Article Twelve with respect to Subordinated Securities, to
the payment in full without diminution or modification by
such plan of all Senior Indebtedness), to which the
Holders of Subordinated Securities or the Trustee on
behalf of the Holders of Subordinated Securities would be
entitled except for the provisions of this Article Twelve
shall be paid or delivered by the liquidating trustee or
agent or other person making such payment or distribution
directly to the holders of Senior Indebtedness or their
representative, or to the trustee under any indenture
under which Senior Indebtedness may have been issued (pro
rata as to each such holder, representative or trustee on
the basis of the respective amounts of unpaid Senior
Indebtedness held or represented by each), to the extent
necessary to make payment in full of all Senior
Indebtedness remaining unpaid, after giving effect to any
concurrent payment or distribution or provision thereof to
the holders of such Senior Indebtedness; and
(c) in the event that notwithstanding the foregoing
provisions of this Section 12.3, any payment or distribution of
assets of the Issuer of any kind or character, whether in cash,
property or securities (other than securities of the Issuer as
reorganized or readjusted or securities of the Issuer or any other
corporation provided for by a plan of reorganization or
readjustment the payment of which is subordinate, at least to the
extent provided in this Article Twelve with respect to
Subordinated Securities, to the payment in full without diminution
or modification by such plan of all Senior Indebtedness), shall be
received by the Trustee or the Holders of the Subordinated
Securities on account of principal of or interest on the
Subordinated Securities before all Senior Indebtedness is paid in
full, or effective provision made for its payment, such payment or
distribution (subject to the provisions of Section 12.6 and 12.7)
shall be received and held in trust for and shall be paid over to
the holders of the Senior Indebtedness remaining unpaid or
unprovided for or their representative, or to the trustee under
any indenture under which such Senior Indebtedness may have been
issued (pro rata as provided in subsection (b) above), for
application to the payment of such Senior Indebtedness until all
such Senior Indebtedness shall have been paid in full, after
giving effect to any concurrent payment or distribution or
provision therefor to the holders of such Senior Indebtedness.
The Issuer shall give prompt written notice to the Trustee
of any dissolution, winding up, liquidation or reorganization of the
Issuer.
The consolidation of the Issuer with, or the merger of the
Issuer into, another corporation or the liquidation or dissolution of the
Issuer following the conveyance or transfer of its property as an
entirety, or substantially as an entirety, to another corporation upon the
terms and conditions provided for in Article Nine hereof shall not be
deemed a dissolution, winding-up, liquidation or reorganization for the
purposes of this Section 12.3 if such other corporation shall, as a part
of such consolidation, merger, conveyance or transfer, comply with the
conditions stated such in Article Nine.
Section 12.4 Holders of Subordinated Securities to be
Subrogated to Right of Holders of Senior Indebtedness. Subject to the
payment in full of all Senior Indebtedness, the Holders of Subordinated
Securities shall be subrogated to the rights of the holders of Senior
Indebtedness to receive payments or distributions of assets of the Issuer
applicable to the Senior Indebtedness until all amounts owing on
Subordinated Securities shall be paid in full, and for the purposes of
such subrogation no payments or distributions to the holders of the Senior
Indebtedness by or on behalf of the Issuer or by or on behalf of the
Holders of Subordinated Securities by virtue of this Article Twelve which
otherwise would have been made to the Holders of Subordinated Securities
shall, as between the Issuer, its creditors other than holders of Senior
Indebtedness and the Holders of Subordinated Securities, be deemed to be
payment by the Issuer to or on account of the Senior Indebtedness, it
being understood that the provisions of this Article Twelve are and are
intended solely for the purpose of defining the relative rights of the
Holders of the Subordinated Securities, on the one hand, and the holders
of the Senior Indebtedness, on the other hand.
Section 12.5 Obligation of the Issuer Unconditional.
Nothing contained in this Article Twelve or elsewhere in this Indenture or
in any Subordinated Security is intended to or shall impair, as among the
Issuer, its creditors other than holders of Senior Indebtedness and the
Holders of Subordinated Securities, the obligation of the Issuer, which is
absolute and unconditional, to pay to the Holders of Subordinated
Securities the principal of, and interest on, Subordinated Securities as
and when the same shall become due and payable in accordance with their
terms, or is intended to or shall affect the relative rights of the
Holders of Subordinated Securities and creditors of the Issuer other than
the holders of the Senior Indebtedness, nor shall anything herein or
therein prevent the Trustee or the Holder of any Subordinated Security
from exercising all remedies otherwise permitted by applicable law upon
default under this Indenture, subject to the rights, if any, under this
Article Twelve of the holders of Senior Indebtedness in respect of cash,
property or securities of the Issuer received upon the exercise of any
such remedy. Upon any payment or distribution of assets of the Issuer
referred to in this Article Twelve, the Trustee and Holders of
Subordinated Securities shall be entitled to rely upon any order or decree
made by any court of competent jurisdiction in which such dissolution,
winding up, liquidation or reorganization proceedings are pending, or,
subject to the provisions of Section 6.1 and 6.2, a certificate of the
receiver, trustee in bankruptcy, liquidating trustee or agent or other
Person making such payment or distribution to the Trustee or the Holders
of Subordinated Securities, for the purposes of ascertaining the Persons
entitled to participate in such distribution, the holders of the Senior
Indebtedness and other indebtedness of the Issuer, the amount thereof or
payable thereon, the amount or amounts paid or distributed therein and all
other facts pertinent thereto or to this Article Twelve.
Nothing contained in this Article Twelve or elsewhere in
this Indenture or in any Subordinated Security is intended to or shall
affect the obligation of the Issuer to make, or prevent the Issuer from
making, at any time except during the pendency of any dissolution, winding
up, liquidation or reorganization proceeding, and, except as provided in
subsections (a) and (b) of Section 12.2, payments at any time of the
principal of, or interest on Subordinated Securities.
Section 12.6 Trustee Entitled to Assume Payments Not
Prohibited in Absence of Notice. The Issuer shall give prompt written
notice to the Trustee of any fact known to the Issuer which would prohibit
the making of any payment or distribution to or by the Trustee in respect
of the Subordinated Securities. Notwithstanding the provisions of this
Article Twelve or any provision of this Indenture, the Trustee shall not
at any time be charged with knowledge of the existence of any facts which
would prohibit the making of any payment or distribution to or by the
Trustee, unless at least two Business Days prior to the making of any such
payment, the Trustee shall have received written notice thereof from the
Issuer or from one or more holders of Senior Indebtedness or from any
representative thereof or from any trustee therefor, together with proof
satisfactory to the Trustee of such holding of Senior Indebtedness or of
the authority of such representative or trustee; and, prior to the receipt
of any such written notice, the Trustee, subject to the provisions of
Sections 6.1 and 6.2, shall be entitled to assume conclusively that no
such facts exist. The Trustee shall be entitled to rely on the delivery
to it of a written notice by a Person representing himself to be a holder
of Senior Indebtedness (or a representative or trustee on behalf of the
holder) to establish that such notice has been given by a holder of Senior
Indebtedness (or a representative of or trustee on behalf of any such
holder). In the event that the Trustee determines, in good faith, that
further evidence is required with respect to the right of any Person as a
holder of Senior Indebtedness to participate in any payments or
distribution pursuant of this Article Twelve, the Trustee may request such
Person to furnish evidence to the reasonable satisfaction of the Trustee
as to the amount of Senior Indebtedness held by such Person, as to the
extent to which such Person is entitled to participate in such payment or
distribution, and as to other facts pertinent to the rights of such Person
under this Article Twelve, and if such evidence is not furnished, the
Trustee may defer any payment to such Person pending judicial
determination as to the right of such Person to receive such payment. The
Trustee, however, shall not be deemed to owe any fiduciary duty to the
holders of Senior Indebtedness and nothing in this Article Twelve shall
apply to claims of, or payments to, the Trustee under or pursuant to
Section 6.6.
Section 12.7 Application by Trustee of Monies or
Government Obligations Deposited with It. Money or Government obligations
deposited in trust with the Trustee pursuant to and in accordance with
Section 10.1 shall be for the sole benefit of Securityholders and, to the
extent allocated for the payment of Subordinated Securities, shall not be
subject to the subordination provisions of this Article Twelve, if the
same are deposited in trust prior to the happening of any event specified
in Section 12.2. Otherwise, any deposit of monies or Government
Obligations by the Issuer with the Trustee or any paying agent (whether or
not in trust) for the payment of the principal of, or interest on any
Subordinated Securities shall be subject to the provisions of
Section 12.1, 12.2 and 12.3 except that, if prior to the date on which by
the terms of this Indenture any such monies may become payable for any
purposes (including, without limitation, the payment of the principal of,
or the interest, if any, on any Subordinated Security) the Trustee shall
not have received with respect to such monies the notice provided for in
Section 12.6, then the Trustee or the paying agent shall have full power
and authority to receive such monies and Government Obligations and to
apply the same to the purpose for which they were received, and shall not
be affected by any notice to the contrary which may be received by it on
or after such date. This Section 12.7 shall be construed solely for the
benefit of the Trustee and paying agent and, as to the first sentence
hereof, the Securityholders, and shall not otherwise effect the rights of
holders of Senior Indebtedness.
Section 12.8 Subordination Rights Not Impaired by Acts or
Omissions of Issuer or Holders of Senior Indebtedness. No rights of any
present or future holders of any Senior Indebtedness to enforce
subordination as provided herein shall at any time in any way be
prejudiced or impaired by any act or failure to act on the part of the
Issuer or by any act or failure to act, in good faith, by any such holders
or by any noncompliance by the Issuer with the terms of this Indenture,
regardless of any knowledge thereof which any such holder may have or be
otherwise charged with.
Without in any way limiting the generality of the
foregoing paragraph, the holders of Senior Indebtedness of the Issuer may,
at any time and from time to time, without the consent of or notice to the
Trustee or the Holders of the Subordinated Securities, without incurring
responsibility to the Holders of the Subordinated Securities and without
impairing or releasing the subordination provided in this Article Twelve
or the obligations hereunder of the Holders of the Subordinated Securities
to the holders of such Senior Indebtedness, do any one or more of the
following: (i) change the manner, place or terms of payment or extend the
time of payment of, or renew or alter, such Senior Indebtedness, or
otherwise amend or supplement in any manner such Senior Indebtedness or
any instrument evidencing the same or any agreement under which such
Senior Indebtedness is outstanding; (ii) sell, exchange, release or
otherwise deal with any property pledged, mortgaged or otherwise securing
such Senior Indebtedness; (iii) release any Person liable in any manner
for the collection for such Senior Indebtedness; and (iv) exercise or
refrain from exercising any rights against the Issuer, as the case may be,
and any other Person.
Section 12.9 Securityholders Authorize Trustee to
Effectuate Subordination of Securities. Each Holder of Subordinated
Securities by his acceptance thereof authorizes and expressly directs the
Trustee on his behalf to take such action as may be necessary or
appropriate to effectuate the subordination provided in this Article
Twelve and appoints the Trustee his attorney-in-fact for such purpose,
including in the event of any dissolution, winding up, liquidation or
reorganization of the Issuer (whether in bankruptcy, insolvency or
receivership proceedings or upon an assignment for the benefit of
creditors or otherwise) the immediate filing of a claim for the unpaid
balance of his Subordinated Securities in the form required in said
proceedings and causing said claim to be approved. If the Trustee does
not file a proper claim or proof of debt in the form required in such
proceeding prior to 30 days before the expiration of the time to file such
claim or claims, then the holders of Senior Indebtedness have the right to
file and are hereby authorized to file an appropriate claim for and on
behalf of the Holders of said Securities.
Section 12.10 Right of Trustee to Hold Senior
Indebtedness. The Trustee in its individual capacity shall be entitled to
all of the rights set forth in this Article Twelve in respect of any
Senior Indebtedness at any time held by it to the same extent as any other
holder of Senior Indebtedness, and nothing in this Indenture shall be
construed to deprive the Trustee of any of its rights as such holder.
With respect to the holders of Senior Indebtedness of the
Issuer, the Trustee undertakes to perform or to observe only such of its
covenants and obligations as are specifically set forth in this Article
Twelve, and no implied covenants or obligations with respect to the
holders of such Senior Indebtedness shall be read into this Indenture
against the Trustee. The Trustee shall not be deemed to owe any fiduciary
duty to the holders of such Senior Indebtedness and, subject to the
provisions of Sections 12.2 and 12.3, the Trustee shall not be liable to
any holder of such Senior Indebtedness if it shall pay over or deliver to
Holders of Subordinated Securities, the Issuer or any other Person money
or assets to which any holder of such Senior Indebtedness shall be
entitled by virtue of this Article Twelve or otherwise.
Section 12.11 Article Twelve Not to Prevent Events of
Defaults. The failure to make a payment on account of principal or
interest by reason of any provision in this Article Twelve shall not be
construed as preventing the occurrence of an Event of Default under
Section 5.1.
ARTICLE THIRTEEN
MISCELLANEOUS PROVISIONS
Section 13.1 Incorporators, Stockholders, Officers and
Directors of Issuer Exempt from Individual Liability. No recourse under
or upon any obligation, covenant or agreement contained in this Indenture
or in any Security, or because of any indebtedness evidenced thereby,
shall be had against any incorporator, as such, or against any past,
present or future stockholder, officer or director, as such, of the Issuer
or of any successor, either directly or through the Issuer or any
successor, under any rule of law, statute or constitutional provision or
by the enforcement of any assessment or by any legal or equitable
proceeding or otherwise, all such liability being expressly waived and
released by the acceptance of the Securities appertaining thereto by the
Holders thereof and as part of the consideration for the issue of the
Securities appertaining thereto.
Section 13.2 Provisions of Indenture for the Sole Benefit
of Parties and Holders of Securities. Nothing in this Indenture, in the
Securities expressed or implied, shall give or be construed to give to any
Person other than the parties hereto and their successors and the Holders
of the Securities, any legal or equitable right, remedy or claim under
this Indenture or under any covenant or provision herein contained, all
such covenants and provisions being for the sole benefit of the parties
hereto and their successors and of the Holders of the Securities.
Notwithstanding the foregoing, for so long as any Trust Securities remain
outstanding, the Issuer's obligations under this Indenture will also be
for the benefit of the holders of such Trust Securities, and the Issuer
acknowledges and agrees that such holders will be entitled to enforce
certain payment obligations under the Securities directly against the
Issuer to the extent provided in Sections 5(b) and 6(c) of Annex I of the
Declaration dated January 18, 1996.
Section 13.3 Successors and Assigns of Issuer Bound by
Indenture. All the covenants, stipulations, promises and agreements in
this Indenture made by or on behalf of the Issuer shall bind its
successors and assigns, whether so expressed or not.
Section 13.4 Notices and Demands on Issuer, Trustee and
Holders of Securities. Any notice, direction, request or demand which by
any provision of this Indenture is required or permitted to be given or
served by the Trustee or by any Holder of Securities of any series or upon
the Issuer shall be deemed to have been sufficiently given or served by
being deposited postage prepaid in the United States mail, first-class
mail (except as otherwise specifically provided herein), addressed (until
another address of the Issuer is filed by the Issuer with the Trustee) to
Consumers Power Company, 212 West Michigan Avenue, Jackson, Michigan
49201, Attention: Secretary. Any notice, direction, request or demand by
the Issuer or any Holder of Securities of any series or upon the Trustee
shall be deemed to have been sufficiently given or served by being
deposited postage prepaid in the United States mail, first-class mail
(except as otherwise specifically provided herein), addressed (until
another address of the Trustee is filed by the Trustee with the Issuer) to
The Bank of New York, 101 Barclay, 21W, New York, New York 10286, ATTN:
Corporate Trust, Trustee Administration. Any notice required or permitted
to be given or served by the Issuer or by the Trustee to or upon any
Holders of Securities of any series shall be deemed to have been
sufficiently given or served by being deposited in the United States mail,
first-class mail (except as otherwise specifically provided herein),
addressed at their addresses as they shall appear on the Security
Register.
In any case where notice to the Holders of Securities is
given by mail, neither the failure to mail such notice, nor any defect in
any notice so mailed, to any particular Holder shall affect the
sufficiency of such notice with respect to other Holders. Where this
Indenture provides for notice in any manner, such notice may be waived in
writing by the Person entitled to receive such notice, either before or
after the event, and such waiver shall be the equivalent of such notice.
Waivers of notice by Holders shall be filed with the Trustee, but such
filing shall not be a condition precedent to the validity of any action
taken in reliance upon such waiver.
In case, by reason of the suspension of or irregularities
in regular mail service or by reason of any other cause, it shall be
impracticable to mail notice when such notice is required to be given
pursuant to any provision of this Indenture, then any manner of giving
such notice as shall be reasonably satisfactory to the Trustee shall be
deemed to be a sufficient giving of such notice.
Section 13.5 Officers' Certificates and Opinions of
Counsel; Statements to be Contained Therein. Except as otherwise
expressly provided by this Indenture, upon any application or demand by
the Issuer to the Trustee to take any action under any of the provisions
of this Indenture, the Issuer shall furnish to the Trustee an Officers'
Certificate stating that all conditions precedent, if any, provided for in
this Indenture relating to the proposed action have been complied with and
an Opinion of Counsel stating that in the opinion of such counsel all such
conditions precedent, if any, have been complied with, except that in the
case of any such application or demand as to which the furnishing of such
documents is specifically required by any provision of this Indenture
relating to such particular application or demand, no additional
certificate or opinion need be furnished.
Each certificate or opinion provided for in this Indenture
and delivered to the Trustee with respect to compliance with a condition
or covenant provided for in this Indenture (other than certificates
provided pursuant to Section 4.3(d) or Section 11.5) shall include (a) a
statement that the individual signing such certificate or opinion has read
such covenant or condition and the definitions herein relating thereto,
(b) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based, (c) a statement that, in the opinion of
such individual, he has made such examination or investigation as is
necessary to enable him to express an informed opinion as to whether or
not such covenant or condition has been complied with and (d) a statement
as to whether or not, in the opinion of such individual, such condition or
covenant has been complied with.
Any certificate, statement or opinion of an officer of the
Issuer may be based, insofar as it relates to legal matters, upon a
certificate or opinion of or representations by counsel, unless such
officer knows that the certificate or opinion of or representations with
respect to the matters upon which his certificate, statement or opinion
may be based as aforesaid are erroneous, or in the exercise of reasonable
care should know that the same are erroneous. Any such certificate,
statement or Opinion of Counsel may be based, insofar as it relates to
factual matters, on information with respect to which is in the possession
of the Issuer, upon the certificate, statement or opinion of or
representations by an officer or officers of the Issuer, unless such
counsel knows that the certificate, statement or opinion or
representations with respect to the matters upon which his certificate,
statement or opinion may be based as aforesaid are erroneous, or in the
exercise of reasonable care should know that the same are erroneous.
Any certificate, statement or opinion of an officer of the
Issuer or of counsel may be based, insofar as it relates to accounting
matters, upon a certificate or opinion of or representations by an
accountant or firm of accountants in the employ of the Issuer, unless such
officer or counsel, as the case may be, knows that the certificate or
opinion or representations with respect to the accounting matters upon
which his certificate, statement or opinion may be based as aforesaid are
erroneous, or in the exercise of reasonable care should know that the same
are erroneous.
Any certificate or opinion of any independent firm of
public accountants filed with and directed to the Trustee shall contain a
statement that such firm is independent.
Section 13.6 Payments Due on Saturdays, Sundays and
Holidays. If the date of maturity of interest on or principal of the
Securities of any series or the date fixed for redemption or repayment of
any such Security shall not be a Business Day, then (notwithstanding any
other provision of this Indenture or of the Securities) payment of such
interest or principal need not be made on such date, but may be made on
the next succeeding Business Day with the same force and effect as if made
on the date of maturity or the date fixed for redemption or repayment, and
no interest shall accrue for the period from and after such date except
that, if such Business Day is in the next succeeding calendar year, such
payment shall be made on the immediately preceding Business Day, in each
case with the same force and effect as if made on such date.
Section 13.7 Conflict of any Provision of Indenture with
Trust Indenture Act of 1939. If and to the extent that any provision of
this Indenture limits, qualifies or conflicts with any provision set forth
in Sections 310 to 317, inclusive, of the Trust Indenture Act of 1939,
that impose duties on any person, such provision of the Trust Indenture
Act of 1939 shall control.
Section 13.8 Governing Law. This Indenture and each
Security shall be governed by and deemed to be a contract under, and
construed in accordance with, the laws of the State of Michigan, and for
all purposes shall be construed in accordance with the laws of such State,
except as may otherwise be required by mandatory provisions of law,
provided, however, that the rights, duties and obligations of the Trustee
are governed and construed in accordance with the laws of the State of New
York.
Section 13.9 Counterparts. This Indenture may be
executed in any number of counterparts, each of which shall be an
original; but such counterparts shall together constitute but one and the
same instrument.
Section 13.10 Effect of Headings and Table of Contents.
The Article and Section headings herein and the Table of Contents are for
convenience only and shall not affect the construction hereof.
Section 13.11 Separability Clause. In case any provision
in this Indenture or in the Securities shall be invalid, illegal or
unenforceable, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.
<PAGE>
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Indenture to be duly executed, and their respective corporate seals to be
hereunto affixed and attested, all as of the day and year first above
written.
Consumers Power Company
By /s/ A.M. Wright
-------------------------------
Alan M. Wright
Title: Senior Vice President
and Chief Financial Officer
[CORPORATE SEAL]
Attest:
By /s/ Joyce H. Norkey
--------------------------
Title: Assistant Secretary
THE BANK OF NEW YORK,TRUSTEE
By /s/ Paul J. Schmalzel
--------------------------------
Title: Assistant Treasurer
[CORPORATE SEAL]
Attest:
By /s/ Mary La Gumina
--------------------------
Title: Mary La Gumina
Assistant Vice President
<PAGE>
<PAGE>
STATE OF MICHIGAN )
)ss.
COUNTY OF WAYNE )
On the 18th day of January, 1996, before me personally came Alan M.
Wright, to me known, who, being by me duly sworn, did depose and say that
he resides at Ann Arbor, Michigan; that he is Senior Vice President and
Chief Financial Officer of Consumers Power Company, one of the
corporations described in and which executed the foregoing instrument;
that he knows the seal of said corporation; that the seal affixed to said
instrument is such corporate; that it was so affixed by authority of the
Board of Directors of said corporation; and that he signed his name
thereto by like authority.
[Notarial Seal]
/s/ Sherry Ann White
- --------------------------------------
Sherry Ann White
Notary Public, Wayne County, Michigan
My Commission Expires: April 23, 1996
<PAGE>
<PAGE>
STATE OF )
)ss.
COUNTY OF )
On the 22nd day of January, 1996, before me personally came Paul J.
Schmalzel, to me known, who, being by me duly sworn, did depose and say
that he resides at 505 Woodmere Avenue, Neptune, N.J., that he is an
Assistant Treasurer of the Bank of New York, one of the corporations
described in and which executed the foregoing instrument; that he knows
the seal of said corporation; that the seal affixed to said instrument is
such corporate; that it was so affixed by authority of the Board of
Directors of said corporation; and that he signed his name thereto by like
authority.
[Notarial Seal]
/s/ William J. Cassels
- --------------------------------
Notary Public,
My Commission Expires:
William J. Cassels
Notary Public, State of New York
NO. 01CA5027729
Qualified in Bronx County
Certificate Filed in New York County
Commission Expires May 16, 1996
<PAGE>
<PAGE>
====================================
FIRST SUPPLEMENTAL INDENTURE
between
CONSUMERS POWER COMPANY
and
THE BANK OF NEW YORK
Dated as of January 18, 1996
====================================
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I.
DEFINITIONS
SECTION 1.1. Definition of Terms. . . . . . . . . . . . . . . . . 1
ARTICLE II.
GENERAL TERMS AND CONDITIONS OF THE NOTES
SECTION 2.1. Designation and Principal Amount . . . . . . . . . . 3
SECTION 2.2. Maturity . . . . . . . . . . . . . . . . . . . . . . 3
SECTION 2.3. Form and Payment . . . . . . . . . . . . . . . . . . 3
SECTION 2.4. Global Note. . . . . . . . . . . . . . . . . . . . . 3
SECTION 2.5. Interest . . . . . . . . . . . . . . . . . . . . . . 4
ARTICLE III.
REDEMPTION OF THE NOTES
SECTION 3.1. Special Event Redemption . . . . . . . . . . . . . . 5
SECTION 3.2. Optional Redemption by Issuer. . . . . . . . . . . . 5
SECTION 3.3. No Sinking Fund. . . . . . . . . . . . . . . . . . . 6
ARTICLE IV.
EXTENSION OF INTEREST PAYMENT PERIOD
SECTION 4.1. Extension of Interest Payment Period . . . . . . . . 6
SECTION 4.2. Notice of Extension. . . . . . . . . . . . . . . . . 6
ARTICLE V.
EXPENSES
SECTION 5.1. Payment of Expenses. . . . . . . . . . . . . . . . . 7
SECTION 5.2. Payment Upon Resignation or Removal. . . . . . . . . 7
ARTICLE VI.
SUBORDINATION
SECTION 6.1. Agreement to Subordinate . . . . . . . . . . . . . . 8
ARTICLE VII.
COVENANT TO LIST ON EXCHANGE
SECTION 7.1. Listing on an Exchange . . . . . . . . . . . . . . . 8
ARTICLE VIII.
FORM OF NOTES
SECTION 8.1. Form of Note . . . . . . . . . . . . . . . . . . . . 8
ARTICLE IX.
ORIGINAL ISSUE OF NOTES
SECTION 9.1. Original Issue of Notes. . . . . . . . . . . . . . . 13
ARTICLE X.
MISCELLANEOUS
SECTION 10.1 Ratification of Indenture. . . . . . . . . . . . . . 13
SECTION 10.2. Trustee Not Responsible for Recitals . . . . . . . . 13
SECTION 10.3. Governing Law. . . . . . . . . . . . . . . . . . . . 14
SECTION 10.4. Separability . . . . . . . . . . . . . . . . . . . . 14
SECTION 10.5. Counterparts . . . . . . . . . . . . . . . . . . . . 14
<PAGE>
FIRST SUPPLEMENTAL INDENTURE, dated as of January 18, 1996,
(the "First Supplemental Indenture"), between Consumers Power Company, a
Michigan Corporation (the "Issuer"), and The Bank of New York, as trustee
(the "Trustee") under the Indenture dated as of January 1, 1996 between
the Issuer and the Trustee (the "Indenture").
WHEREAS, the Issuer executed and delivered the Indenture to
the Trustee to provide for the future issuance of the Issuer's Securities
to be issued from time to time in one or more series as might be
determined by the Issuer under the Indenture, in an unlimited aggregate
principal amount which may be authenticated and delivered as provided in
the Indenture;
WHEREAS, Section 2.3 of the Indenture permits the terms of any
series of Securities to be established in an indenture supplemental to the
Indenture;
WHEREAS, Section 8.1(e) of the Indenture provides that a
supplemental indenture may be entered into by the Issuer and the Trustee
without the consent of any Holders of the Securities to establish the form
and terms of the Securities of any series.
WHEREAS, pursuant to the terms of the Indenture, the Issuer
desires to provide for the establishment of a new series of its Securities
to be known as its 8.36% Subordinated Deferrable Interest Notes due 2015
(the "Notes"), the form and substance of such Notes and the terms,
provisions and conditions thereof to be set forth as provided in the
Indenture and this First Supplemental Indenture;
WHEREAS, Consumers Power Company Financing I, a Delaware
statutory business trust (the "Trust"), has offered to the public $100
million aggregate liquidation amount of its 8.36% Trust Originated
Preferred Securities (the "Preferred Securities"), representing undivided
beneficial interests in the assets of the Trust and proposes to invest the
proceeds from such offering, together with the proceeds of the issuance
and sale by the Trust to the Issuer of $3,092,800 aggregate liquidation
amount of its 8.36% Trust Originated Common Securities, in $103,092,800
aggregate principal amount of the Notes; and
WHEREAS, the Issuer has requested that the Trustee execute and
deliver this First Supplemental Indenture and all requirements necessary
to make this First Supplemental Indenture a valid instrument in accordance
with its terms, and to make the Notes, when executed by the Issuer and
authenticated and delivered by the Trustee, the valid obligations of the
Issuer, have been performed, and the execution and delivery of this First
Supplemental Indenture has been duly authorized in all respects.
NOW THEREFORE, in consideration of the purchase and acceptance
of the Notes by the Holders thereof, and for the purpose of setting forth,
as provided in the Indenture, the form and substance of the Notes and the
terms, provisions and conditions thereof, the Issuer covenants and agrees
with the Trustee as follows:
ARTICLE I.
DEFINITIONS
SECTION 1.1. Definition of Terms.
Unless the context otherwise requires:
(a) a term defined in the Indenture has the same meaning
when used in this First Supplemental Indenture;
(b) a term defined anywhere in this First Supplemental
Indenture has the same meaning throughout;
(c) the singular includes the plural and vice versa;
(d) a reference to a Section or Article is to a Section or
Article of this First Supplemental Indenture;
(e) headings are for convenience of reference only and do
not affect interpretation;
(f) the following terms have the meanings given to them in
the Declaration: (i) Clearing Agency; (ii) Delaware Trustee;
(iii) Redemption Tax Opinion; (iv) No Recognition Opinion; (v) Preferred
Security Certificate; (vi) Property Trustee; (vii) Regular Trustees;
(viii) Special Event; (ix) Tax Event; (x) Underwriting Agreement;
(xi) Investment Company Event; and (xii) Distribution;
(g) the following terms have the meanings given to them in
this Section 1.1(g):
"Additional Interest" shall have the meaning set forth in
Section 2.5.
"Compounded Interest" shall have the meaning set forth in
Section 4.1.
"Coupon Rate" shall have the meaning set forth in Section 2.5.
"Declaration" means the Amended and Restated Declaration of
Trust of Consumers Power Company Financing I, a Delaware statutory
business trust, dated as of January 18, 1996.
"Deferred Interest" shall have the meaning set forth in
Section 4.1.
"Dissolution Event" means that, as a result of the occurrence
and continuation of a Special Event, the Trust is to be dissolved in
accordance with the Declaration, and the Notes held by the Property
Trustee are to be distributed to the holders of the Trust Securities
issued by the Trust pro rata in accordance with the Declaration.
"Extended Interest Payment Period" shall have the meaning set
forth in Section 4.1.
"Global Note" shall have the meaning set forth in Section 2.4.
"Non Book-Entry Preferred Securities" shall have the meaning
set forth in Section 2.4.
"Optional Redemption Price" shall have the meaning set forth
in Section 3.2.
ARTICLE II.
GENERAL TERMS AND CONDITIONS OF THE NOTES
SECTION 2.1. Designation and Principal Amount.
There is hereby authorized and established a series of
unsecured Securities designated the "8.36% Subordinated Deferrable
Interest Notes due 2015", limited in aggregate principal amount to
$103,092,800, (except as contemplated in Section 2(f)(2) of the
Indenture).
SECTION 2.2. Maturity.
The Maturity Date of the notes is December 31, 2015.
SECTION 2.3. Form and Payment.
The Notes shall be issued in fully registered form without
interest coupons. Principal and interest on the Notes issued in
certificated form will be payable, the transfer of such Notes will be
registrable and such Notes will be exchangeable for Notes bearing
identical terms and provisions, at the office or agency of the Trustee in
the Borough of Manhattan, the City of New York; provided, however, that
payment of interest may be made at the option of the Issuer by check
mailed to the Holder at such address as shall appear in the Security
Register or by wire transfer to an account maintained by the Holder.
Notwithstanding the foregoing, so long as the Holder of any Notes is the
Property Trustee, the payment of the principal of and interest (including
Compounded Interest and Additional Interest, if any) on such Notes held by
the Property Trustee will be made at such place and to such account as may
be designated by the Property Trustee.
SECTION 2.4. Global Note.
(a) In connection with a Dissolution Event,
(i) the Notes may be presented to the Trustee by the
Property Trustee in exchange for a global Note in an aggregate
principal amount equal to the aggregate principal amount of all
outstanding Notes (a "Global Note"), to be registered in the name of
the Clearing Agency, or its nominee, and delivered by the Trustee to
the Clearing Agency for crediting to the accounts of its participants
pursuant to the instructions of the Regular Trustees and the Clearing
Agency will act as Depository for the Notes. The Issuer upon any
such presentation, shall execute a Global Note in such aggregate
principal amount and deliver the same to the Trustee for
authentication and delivery in accordance with the Indenture and this
First Supplemental Indenture. Payments on the Notes issued as a
Global Note will be made to the Depositary; and
(ii) if any Preferred Securities are held in non book-
entry certificated form, the Notes may be presented to the Trustee by
the Property Trustee and any Preferred Security Certificate which
represents Preferred Securities other than Preferred Securities held
by the Clearing Agency or its nominee ("Non Book-Entry Preferred
Securities") will be deemed to represent beneficial interests in
Notes presented to the Trustee by the Property Trustee having an
aggregate principal amount equal to the aggregate liquidation amount
of the Non Book-Entry Preferred Securities until such Preferred
Security Certificates are presented to the Security Registrar for
transfer or reissuance at which time such Preferred Security
Certificates will be cancelled and a Note, registered in the name of
the holder of the Preferred Security Certificate or the transferee of
the holder of such Preferred Security Certificate, as the case may
be, with an aggregate principal amount equal to the aggregate
liquidation amount of the Preferred Security Certificate cancelled,
will be executed by the Issuer and delivered to the Trustee for
authentication and delivery in accordance with the Indenture and this
First Supplemental Indenture.
(b) Except as provided in (c) below, a Global Note may be
transferred, in whole but not in part, only to another nominee of the
Depositary, or to a successor Depositary selected or approved by the
Issuer or to a nominee of such successor Depositary.
(c) If at any time the Depositary notifies the Issuer that
it is unwilling or unable to continue as Depositary or if at any time the
Depositary for such series shall no longer be registered or in good
standing under the Securities Exchange Act of 1934, as amended, or other
applicable statute or regulation, and a successor Depositary for such
series is not appointed by the Issuer within 90 days after the Issuer
receives such notice or becomes aware of such condition, as the case may
be, the Issuer will execute, and, subject to Section 2.8 of the Indenture,
the Trustee, upon written notice from the Issuer, will authenticate and
deliver the Notes in definitive registered form, in authorized
denominations, and in an aggregate principal amount equal to the principal
amount of the Global Note in exchange for such Global Note. In addition,
the Issuer may at any time determine that the Notes shall no longer be
represented by a Global Note. In such event the Issuer will execute, and
subject to Section 2.8 of the Indenture, the Trustee, upon receipt of an
Officers' Certificate evidencing such determination by the Issuer, will
authenticate and deliver the Notes in definitive registered form, in
authorized denominations, and in an aggregate principal amount equal to
the principal amount of the Global Note in exchange for such Global Note.
Upon the exchange of the Global Note for such Notes in definitive
registered form, in authorized denominations, the Global Note shall be
cancelled by the Trustee. Such Notes in definitive registered form issued
in exchange for the Global Note shall be registered in such names and in
such authorized denominations as the Depositary, pursuant to instructions
from its direct or indirect participants or otherwise, shall instruct the
Trustee. The Trustee shall deliver such Notes to the Depositary for
delivery to the Persons in whose names such Notes are so registered.
SECTION 2.5. Interest.
(a) Each Note will bear interest at the rate of 8.36% per
annum (the "Coupon Rate") from the original date of issuance until the
principal thereof becomes due and payable, and on any overdue principal
and (to the extent that payment of such interest is enforceable under
applicable law) on any overdue installment of interest, at the Coupon
Rate, compounded quarterly, payable (subject to the provisions of
Article IV) quarterly in arrears on March 31, June 30, September 30 and
December 31 of each year (each, an "Interest Payment Date," commencing on
March 31, 1996), to the Person in whose name such Note or any predecessor
Note is registered, at the close of business on the regular record date
for such interest installment, which, in respect of any Notes of which the
Property Trustee is the Holder or a Global Note, shall be the close of
business on the Business Day next preceding that Interest Payment Date.
Notwithstanding the foregoing sentence, if the Preferred Securities are no
longer in book-entry only form or, except if the Notes are held by the
Property Trustee, the Notes are not represented by a Global Note, the
regular record date for such interest installment shall be the fifteenth
day of the month in which the applicable Interest Payment Date occurs.
(b) The amount of interest payable for any period will be
computed on the basis of a 360-day year of twelve 30-day months. Except
as provided in the following sentence, the amount of interest payable for
any period shorter than a full quarterly period for which interest is
computed, will be computed on the basis of the actual number of days
elapsed in such a 90-day period. In the event that any date on which
interest is payable on the Notes is not a Business Day, then payment of
interest payable on such date will be made on the next succeeding day
which is a Business Day (and without any interest or other payment in
respect of any such delay), except that, if such Business Day is in the
next succeeding calendar year, such payment shall be made on the
immediately preceding Business Day, in each case with the same force and
effect as if made on such date.
(c) If, at any time while the Property Trustee is the Holder
of any Notes, the Trust or the Property Trustee is required to pay any
taxes, duties, assessments or governmental charges of whatever nature
(other than withholding taxes) imposed by the United States, or any other
taxing authority, then, in any case, the Issuer will pay as additional
interest ("Additional Interest") on the Notes held by the Property
Trustee, such additional amounts as shall be required so that the net
amounts received and retained by the Trust and the Property Trustee after
paying such taxes, duties, assessments or other governmental charges will
be equal to the amounts the Trust and the Property Trustee would have
received had no such taxes, duties, assessments or other governmental
charges been imposed.
ARTICLE III.
REDEMPTION OF THE NOTES
SECTION 3.1. Special Event Redemption.
If (a) a Tax Event has occurred and is continuing and (i) the
Issuer has received a Redemption Tax Opinion, or (ii) The Regular Trustees
shall have been informed by tax counsel that a No Recognition Opinion
cannot be delivered to the Trust, or (b) an Investment Company Event has
occurred and is continuing, then, notwithstanding Section 3.2(a) but
subject to Section 3.2(b) and Article Eleven of the Indenture, the Issuer
shall have the right upon not less than 30 days' nor more than 60 days'
notice to the Holders of the Notes to redeem the Notes, in whole or in
part, for cash within 90 days' following the occurrence of such Special
Event (the "90 Day Period") at a redemption price equal to 100% of the
principal amount to be redeemed plus any accrued and unpaid interest
thereon to the date of such redemption (the "Redemption Price"), provided
that if at the time there is available to the Issuer or the Trust the
opportunity to eliminate, within the 90 Day Period, the Special Event by
taking some ministerial action ("Ministerial Action"), such as filing a
form or making an election, or pursuing some other similar reasonable
measure which has no adverse effect on the Issuer, the Trust or the
Holders of the Trust Securities issued by the Trust, the Issuer shall
pursue such Ministerial Action in lieu of redemption, and, provided,
further, that the Issuer shall have no right to redeem the Notes while the
Trust is pursuing any Ministerial Action pursuant to its obligations under
the Declaration. The Redemption Price shall be paid prior to 12:00 noon,
New York time, on the date of such redemption or such earlier time as the
Issuer determines, and the Issuer shall deposit with the Trustee an amount
sufficient to pay the Redemption Price by 10:00 a.m., New York time, on
the date such Redemption Price is to be paid.
SECTION 3.2. Optional Redemption by Issuer.
(a) Subject to the provisions of Section 3.2(b) and to the
provisions of Article Eleven of the Indenture, the Issuer shall have the
right to redeem the Notes, in whole or in part, from time to time, on or
after December 31, 2000, at a redemption price equal to 100% of the
principal amount to be redeemed plus any accrued and unpaid interest
thereon to the date of such redemption (the "Optional Redemption Price").
Any redemption pursuant to this paragraph will be made upon not less than
30 days' nor more than 60 days' notice to the Holder of the Notes, at the
Optional Redemption Price. If the Notes are only partially redeemed
pursuant to this Section 3.2, the Notes will be redeemed on a pro rata
basis provided that if at the time of redemption the Notes are registered
as a Global Note, the Depository shall determine, in accordance with its
procedures, the principal amount of such Notes held by each Holder of
Notes to be redeemed. The Optional Redemption Price shall be paid prior
to 12:00 noon, New York time, on the date of such redemption or at such
earlier time as the Issuer determines and the Issuer shall deposit with
the Trustee an amount sufficient to pay the Optional Redemption Price by
10:00 a.m., New York time, on the date such Optional Redemption Price is
to be paid.
(b) If a partial redemption of the Notes would result in the
delisting of the Preferred Securities from any national securities
exchange or other organization on which the Preferred Securities are then
listed, the Issuer shall not be permitted to effect such partial
redemption and may only redeem the Notes in whole.
SECTION 3.3. No Sinking Fund.
The Notes are not entitled to the benefit of any sinking fund.
ARTICLE IV.
EXTENSION OF INTEREST PAYMENT PERIOD
SECTION 4.1. Extension of Interest Payment Period.
The Issuer shall have the right, at any time and from time to
time during the term of the Notes, to defer payments of interest by
extending the interest payment period of such Notes for a period not
exceeding 20 consecutive quarters (the "Extended Interest Payment
Period"), during which Extended Interest Payment Period no interest shall
be due and payable; provided that no Extended Interest Payment Period may
extend beyond the Maturity Date. To the extent permitted by applicable
law, interest, the payment of which has been deferred because of the
extension of the interest payment period pursuant to this Section 4.1,
will bear interest thereon at the Coupon Rate compounded quarterly for
each quarter of the Extended Interest Payment Period ("Compounded
Interest"). At the end of the Extended Interest Payment Period, the
Issuer shall pay all interest accrued and unpaid on the Notes, including
any Additional Interest and Compounded Interest (together, "Deferred
Interest") that shall be payable to the Holders of the Notes in whose
names the Notes are registered in the Security Register on the first
record date after the end of the Extended Interest Payment Period. Prior
to the termination of any Extended Interest Payment Period, the Issuer may
further extend such period, provided that such period together with all
such further extensions thereof shall not exceed 20 consecutive quarters.
Upon the termination of any Extended Interest Payment Period and upon the
payment of all Deferred Interest then due, the Issuer may commence a new
Extended Interest Payment Period, subject to the foregoing requirements.
No interest shall be due and payable during an Extended Interest Payment
Period, except at the end thereof, but the Issuer may prepay at any time
all or any portion of the interest accrued during an Extended Interest
Payment Period.
The limitations set forth in Section 3.5 of the Indenture
shall apply during any Extended Interest Payment Period.
SECTION 4.2. Notice of Extension.
(a) If the Property Trustee is the only registered Holder of
the Notes at the time the Issuer elects an Extended Interest Payment
Period, the Issuer shall give written notice to the Regular Trustees, the
Property Trustee and the Trustee of its election of such Extended Interest
Payment Period one Business Day before the earlier of (i) the next
succeeding date on which Distributions on the Trust Securities issued by
the Trust are payable, or (ii) the date the Trust is required to give
notice of the record date, or the date such Distributions are payable, to
the New York Stock Exchange or other applicable self-regulatory
organization or to holders of the Preferred Securities, but in any event
at least one Business Day before such record date.
(b) If the Property Trustee is not the only Holder of the
Notes at the time the Issuer elects an Extended Interest Payment Period,
the Issuer shall give the Holders of the Notes and the Trustee written
notice of its election of such Extended Interest Payment Period ten
Business Days before the earlier of (i) the next succeeding Interest
Payment Date, or (ii) the date the Issuer is required to give notice of
the record or payment date of such interest payment to the New York Stock
Exchange or other applicable self-regulatory organization or to Holders of
the Notes, but in any event at least 2 Business Days before such record
date.
(c) The quarter in which any notice is given pursuant to
paragraphs (a) or (b) of this Section 4.2 shall be counted as one of the
20 quarters permitted in the maximum Extended Interest Payment Period
permitted under Section 4.1.
ARTICLE V.
EXPENSES
SECTION 5.1. Payment of Expenses.
In connection with the offering, sale and issuance of the
Notes to the Property Trustee and in connection with the sale of the Trust
Securities by the Trust, the Issuer, in its capacity as borrower with
respect to the Notes, shall:
(a) pay all costs and expenses relating to the offering,
sale and issuance of the Notes, including commissions to the underwriters
payable pursuant to the Underwriting Agreement and the Pricing Agreements,
and compensation of the Trustee under the Indenture in accordance with the
provisions of Section 6.6 of the Indenture;
(b) pay all costs and expenses of the Trust (including, but
not limited to, costs and expenses relating to the organization of the
Trust, the offering, sale and issuance of the Trust Securities (including
commissions to the underwriters in connection therewith), the fees and
expenses of the Property Trustee and the Delaware Trustee, the costs and
expenses relating to the operation of the Trust, including without
limitation, costs and expenses of accountants, attorneys, statistical or
bookkeeping services, expenses for printing and engraving and computing or
accounting equipment, paying agent(s), registrar(s), transfer agent(s),
duplicating, travel and telephone and other telecommunications expenses
and costs and expenses incurred in connection with the acquisition,
financing, and disposition of Trust assets);
(c) be primarily liable for any indemnification obligations
arising with respect to the Declaration; and
(d) pay any and all taxes (other than United States
withholding taxes attributable to the Trust or its assets) and all
liabilities, costs and expenses with respect to such taxes of the Trust.
SECTION 5.2. Payment Upon Resignation or Removal.
Upon termination of this First Supplemental Indenture or the
Indenture or the removal or resignation of the Trustee pursuant to Section
6.10 of the Indenture, the Issuer shall pay to the Trustee all amounts
accrued to the date of such termination, removal or resignation. Upon
termination of the Declaration or the removal or resignation of the
Delaware Trustee or the Property Trustee, as the case may be, pursuant to
Section 5.6 of the Declaration, the Issuer shall pay to the Delaware
Trustee or the Property Trustee, as the case may be, all amounts accrued
to the date of such termination, removal or resignation.
ARTICLE VI.
SUBORDINATION
SECTION 6.1. Agreement to Subordinate.
The Issuer covenants and agrees, and each Holder of Notes
issued hereunder, by such Holder's acceptance thereof likewise covenants
and agrees, that pursuant to Section 2.3(f)(9) of the Indenture all Notes
shall be issued as Subordinated Securities subject to the provisions of
Article Twelve of the Indenture and this Article VI; and each Holder of a
Note by its acceptance thereof accepts and agrees to be bound by such
provisions.
ARTICLE VII.
COVENANT TO LIST ON EXCHANGE
SECTION 7.1. Listing on an Exchange.
In connection with the distribution of the Notes to the
holders of the Preferred Securities upon a Dissolution Event, the Issuer
will use its best efforts to list such Notes on the New York Stock
Exchange or on such other exchange as the Preferred Securities are then
listed.
ARTICLE VIII.
FORM OF NOTES
SECTION 8.1. Form of Note.
The Notes and the Trustee's Certificate of Authentication to
be endorsed thereon are to be substantially in the following forms and the
Notes shall have such additional terms as may be set forth in such form:
(FORM OF FACE OF NOTE)
[IF THE NOTE IS TO BE A GLOBAL NOTES, INSERT - This Note is a
Global Note within the meaning of the Indenture hereinafter referred to
and is registered in the name of a Depositary or a nominee of a
Depositary. This Note is exchangeable for Notes registered in the name of
a person other than the Depositary or its nominee only in the limited
circumstances described in the Indenture, and no transfer of this Note
(other than a transfer of this Note as a whole by the Depositary to a
nominee of the Depositary or by a nominee of the Depositary to the
Depositary or another nominee of the Depositary) may be registered except
in limited circumstances.
Unless this Note is presented by an authorized representative
of The Depository Trust Company (55 Water Street, New York, New York) to
the issuer or its agent for registration of transfer, exchange or payment,
and any Note issued is registered in the name of Cede & Co. or such other
name as requested by an authorized representative of The Depository Trust
Company and any payment hereon is made to Cede & Co., ANY TRANSFER, PLEDGE
OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY A PERSON IS WRONGFUL since
the registered owner hereof, Cede & Co., has an interest herein.]
No. $
CUSIP NO.
CONSUMERS POWER COMPANY
___% SUBORDINATED DEFERRABLE INTEREST NOTES
DUE 2015
Consumers Power Company, a Michigan corporation (the "Issuer",
which term includes any successor corporation under the Indenture
hereinafter referred to), for value received, hereby promises to pay to
______________, or registered assigns, the principal sum of _____________
Dollars ($___________) on _________, ____, and to pay interest on said
principal sum from ____________, 1996, or from the most recent interest
payment date (each such date, an "Interest Payment Date") to which
interest has been paid or duly provided for, quarterly (subject to
deferral as set forth herein) in arrears on March 31, June 30, September
30 and December 31 of each year commencing ___________ at the rate of ___%
per annum until the principal hereof shall have become due and payable,
and on any overdue principal and premium, if any, and (without duplication
and to the extent that payment of such interest is enforceable under
applicable law) on any overdue installment of interest at the same rate
per annum compounded quarterly. The amount of interest payable on any
Interest Payment Date shall be computed on the basis of a 360-day year of
twelve 30-day months. In the event that any date on which interest is
payable on this Note is not a Business Day, then payment of interest
payable on such date will be made on the next succeeding day that is a
Business Day (and without any interest or other payment in respect of any
such delay), except that, if such Business Day is in the next succeeding
calendar year, such payment shall be made on the immediately preceding
Business Day, in each case with the same force and effect as if made on
such date. The interest installment so payable, and punctually paid or
duly provided for, on any Interest Payment Date will, as provided in the
Indenture, be paid to the person in whose name this Note (or one or more
Predecessor Securities, as defined in said Indenture) is registered at the
close of business on the regular record date for such interest
installment, which shall be the close of business on the business day next
preceding such Interest Payment Date. [IF PURSUANT TO THE PROVISIONS OF
THE INDENTURE THE NOTES ARE NO LONGER REPRESENTED BY A GLOBAL NOTE --
which shall be the close of business on the 15th day of the month in which
such Interest Payment Date occurs.] If and to the extent the Company
shall default in the payment of the interest due on such Interest Payment
Date, interest shall be paid to the person in whose name this Note is
registered at the close of business on a subsequent record date (which
shall not be less than five Business Days prior to the date of payment of
such defaulted interest) established by notice given by mail by or on
behalf of the Company to the Holders of this Note not less than 15 days
preceding such subsequent Record Date. The principal of (and premium, if
any) and the interest on this Note shall be payable at the office or
agency of the Trustee in the Borough of Manhattan, the City of New York
maintained for that purpose in any coin or currency of the United States
of America that at the time of payment is legal tender for payment of
public and private debts; provided, however, that payment of interest may
be made at the option of the Issuer by check mailed to the registered
Holder at such address as shall appear in the Security Register or by wire
transfer to an account maintained by the Holder. Notwithstanding the
foregoing, so long as the Holder of this Note is the Property Trustee, the
payment of the principal of (and premium, if any) and interest on this
Note will be made at such place and to such account as may be designated
by the Property Trustee.
The indebtedness evidenced by this Note is, to the extent
provided in the Indenture, subordinate and junior in right of payment to
the prior payment in full of all Senior Indebtedness, and this Note is
issued subject to the provisions of the Indenture with respect thereto.
Each Holder of this Note, by accepting the same, (a) agrees to and shall
be bound by such provisions, (b) authorizes and directs the Trustee on his
or her behalf to take such action as may be necessary or appropriate to
acknowledge or effectuate the subordination so provided and (c) appoints
the Trustee his or her attorney-in-fact for any and all such purposes.
Each Holder hereof, by his or her acceptance hereof, hereby waives all
notice of the acceptance of the subordination provisions contained herein
and in the Indenture by each holder of Senior Indebtedness, whether now
outstanding or hereafter incurred, and waives reliance by each such holder
upon said provisions.
This Note shall not be entitled to any benefit under the
Indenture hereinafter referred to, be valid or become obligatory for any
purpose until the Certificate of Authentication hereon shall have been
signed by or on behalf of the Trustee.
The provisions of this Note are continued on the reverse side
hereof and such continued provisions shall for all purposes have the same
effect as though fully set forth at this place.
IN WITNESS WHEREOF, the Issuer has caused this instrument to
be executed.
Dated:
-----------------
Consumers Power Company
By:
--------------------
Name:
Title:
Attest:
By:
--------------------------
Name:
Title:
(FORM OF CERTIFICATE OF AUTHENTICATION)
CERTIFICATE OF AUTHENTICATION
This is one of the Securities of the series of Securities described
in the within-mentioned Indenture.
[ ]
----------------------------
as Trustee
By
------------------------
Authorized Officer
(FORM OF REVERSE OF NOTE)
This Note is one of a duly authorized series of Securities of the
Issuer (herein sometimes referred to as the "Notes"), specified in the
Indenture, all issued or to be issued in one or more series under and
pursuant to an Indenture dated as of _______, 1996, duly executed and
delivered between the Issuer and The Bank of New York, as Trustee (the
"Trustee"), as supplemented by the First Supplemented Indenture dated as
of _______, 1996, between the Issuer and the Trustee (the Indenture as so
supplemented, the "Indenture"), to which Indenture and all indentures
supplemental thereto reference is hereby made for a description of the
rights, limitations of rights, obligations, duties and immunities
thereunder of the Trustee, the Issuer and the Holders of the Notes. By
the terms of the Indenture, the Notes are issuable in series that may vary
as to amount, date of maturity, rate of interest and in other respects as
provided in the Indenture. This series of Notes is limited in aggregate
principal amount as specified in said First Supplemental Indenture.
The Issuer shall have the right to redeem this Note at the option of
the Issuer, without premium or penalty, in whole or in part at any time on
or after ___________, 2000 or at any time in certain circumstances upon
the occurrence of a Special Event, at a redemption price equal to 100% of
the principal amount plus any accrued but unpaid interest, to the date of
such redemption. Any redemption pursuant to this paragraph will be made
upon not less than 30 days nor more than 60 days' notice. If the Notes
are only partially redeemed by the Issuer pursuant to an Optional
Redemption, the Notes will be redeemed pro rata.
In the event of redemption of this Note in part only, a new Note or
Notes of this series for the unredeemed portion hereof will be issued in
the name of the Holder hereof upon the cancellation hereof.
In case an Event of Default, as defined in the Indenture, shall have
occurred and be continuing, the principal of all of the Notes may be
declared, and upon such declaration shall become, due and payable, in the
manner, with the effect and subject to the conditions provided in the
Indenture.
The Indenture contains provisions permitting the Issuer and the
Trustee, with the consent of the Holders of not less than a majority in
aggregate principal amount of the Notes and other Indenture securities of
each series affected at the time Outstanding and affected (voting as one
class), as defined in the Indenture, to execute supplemental indentures
for the purpose of adding any provisions to or changing in any manner or
eliminating any of the provisions of the Indenture or of any supplemental
indenture or of modifying in any manner the rights of the Holders of the
Notes; provided, however, that the Company and the Trustee may not,
without the consent of the Holder of each Note then Outstanding and
affected thereby: (a) change the time of payment of the principal (or any
installment) of any Note, or reduce the principal amount thereof, or
reduce the rate or change the time of payment of interest thereon, or
impair the right to institute suit for the enforcement of any payment on
any Note when due or (b) reduce the percentage in principal amount of the
Notes, the consent of whose Holders is required for any such modification
or for any waiver provided for in the Indenture. The Indenture also
contains provisions providing that prior to the acceleration of the
maturity of any Note or other securities outstanding under the Indenture,
the Holders of a majority in aggregate principal amount of Notes of and
other Securities Outstanding under the Indenture with respect to which a
default or/an Event of Default shall have occurred and be continuing
(voting as one class) may on behalf of the Holders of all such affected
Securities (including the Notes) waive any past default and its
consequences, except a default or an Event of Default in respect of a
covenant or provision of the Indenture or of any Note or other Security
which cannot be modified or amended without the consent of the Holder of
each Note or other Security affected. Any such consent or waiver by the
registered Holder of this Note (unless revoked as provided in the
Indenture) shall be conclusive and binding upon such Holder and upon all
future Holders and owners of this Note and of any Note issued in exchange
herefor or in place hereof (whether by registration of transfer or
otherwise), irrespective of whether or not any notation of such consent or
waiver is made upon this Note.
No reference herein to the Indenture and no provision of this Note or
of the Indenture shall alter or impair the obligation of the Issuer, which
is absolute and unconditional, to pay the principal of and premium, if
any, and interest on this Note at the time and place and at the rate and
in the money herein prescribed.
The Issuer shall have the right at any time during the term of the
Notes and from time to time to extend the interest payment period of such
Notes for up to 20 consecutive quarters (an "Extended Interest Payment
Period"), at the end of which period the Issuer shall pay all interest
then accrued and unpaid (together with interest thereon at the rate
specified for the Notes to the extent that payment of such interest is
enforceable under applicable law). Before the termination of any such
Extended Interest Payment Period, the Issuer may further extend such
Extended Interest Payment Period, provided that such Extended Interest
Payment Period together with all such further extensions thereof shall not
exceed 20 consecutive quarters. At the termination of any such Extended
Interest Payment Period and upon the payment of all accrued and unpaid
interest and any additional amounts then due, the Issuer may commence a
new Extended Interest Payment Period.
As provided in the Indenture and subject to certain limitations
therein set forth, this Note is transferable by the registered Holder
hereof on the Security Register of the Issuer, upon surrender of this Note
for registration of transfer at the office or agency of the Trustee in the
City and State of New York accompanied by a written instrument or
instruments of transfer in form satisfactory to the Issuer or the Trustee
duly executed by the registered Holder hereof or his attorney duly
authorized in writing, and thereupon one or more new Notes of authorized
denominations and for the same aggregate principal amount and series will
be issued to the designated transferee or transferees. No service charge
will be made for any such transfer, but the Issuer may require payment of
a sum sufficient to cover any tax or other governmental charge payable in
relation thereto.
Prior to due presentment for registration of transfer of this Note,
the Issuer, the Trustee, any paying agent and the Security Registrar may
deem and treat the registered holder hereof as the absolute owner hereof
(whether or not this Note shall be overdue and notwithstanding any notice
of ownership or writing hereon made by anyone other than the Security
Registrar) for the purpose of receiving payment of or on account of the
principal hereof and premium, if any, and interest due hereon and for all
other purposes, and neither the Issuer nor the Trustee nor any paying
agent nor any Security Registrar shall be affected by any notice to the
contrary.
No recourse shall be had for the payment of the principal of or the
interest on this Note, or for any claim based hereon, or otherwise in
respect hereof, or based on or in respect of the Indenture, against any
incorporator, stockholder, officer or director, past, present or future,
as such, of the Issuer or of any predecessor or successor corporation,
whether by virtue of any constitution, statute or rule of law, or by the
enforcement of any assessment or penalty or otherwise, all such liability
being, by the acceptance hereof and as part of the consideration for the
issuance hereof, expressly waived and released.
Notes of this series so issued are issuable only in registered form
without coupons in denominations of $25 and any integral multiple thereof.
As provided in the Indenture and subject to certain limitations herein and
therein set forth, Notes of this series so issued are exchangeable for a
like aggregate principal amount of Notes of this series in authorized
denominations, as requested by the Holder surrendering the same.
All terms used in this Note that are defined in the Indenture shall
have the meanings assigned to them in the Indenture.
[END OF FORM OF NOTE]
ARTICLE IX.
ORIGINAL ISSUE OF NOTES
SECTION 9.1. Original Issue of Notes.
Notes in the aggregate principal amount of $103,092,800 may, upon
execution of this First Supplemental Indenture, be executed by the Issuer
and delivered to the Trustee for authentication, and the Trustee shall
thereupon authenticate and deliver said Notes to or upon the written order
of the Issuer, in accordance with Section 2.4 of the Indenture.
ARTICLE X.
MISCELLANEOUS
SECTION 10.1 Ratification of Indenture.
The Indenture, as supplemented by this First Supplemental Indenture,
is in all respects ratified and confirmed, and this First Supplemental
Indenture shall be deemed part of the Indenture in the manner and to the
extent herein and therein provided.
SECTION 10.2. Trustee Not Responsible for Recitals.
The recitals herein contained are made by the Issuer and not by the
Trustee, and the Trustee assumes no responsibility for the correctness
thereof. The Trustee makes no representation as to the validity or
sufficiency of this First Supplemental Indenture.
SECTION 10.3. Governing Law.
This First Supplemental Indenture and each Note shall be deemed to be
a contract made under the internal laws of the State of Michigan, and for
all purposes shall be construed in accordance with the laws of said State,
provided, however, that the rights, duties and obligations of the Trustee
are governed and construed in accordance with the laws of the State of New
York.
SECTION 10.4. Separability.
In case any one or more of the provisions contained in this First
Supplemental Indenture or in the Notes shall for any reason be held to be
invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect any other provisions of
this First Supplemental Indenture or of the Notes, but this First
Supplemental Indenture and the Notes shall be construed as if such invalid
or illegal or unenforceable provision had never been contained herein or
therein.
SECTION 10.5. Counterparts.
This First Supplemental Indenture may be executed in any number of
counterparts each of which shall be an original, but such counterparts
shall together constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this First
Supplemental Indenture to be duly executed, and their respective corporate
seals to be hereunto affixed and attested, on the date or dates indicated
in the acknowledgements and as of the day and year first above written.
Consumers Power Company
By: /s/ A.M. Wright
--------------------------
Name: Alan M. Wright
Title: Senior Vice President
and Chief Financial Officer
[Seal]
Attest:
By: /s/ Joyce H. Norkey
------------------------------
Joyce H. Norkey
Assistant Secretary
The Bank of New York as Trustee
By: /s/Paul J. Schmalzel
---------------------------
Name: Paul J. Schmalzel
Title: Assistant Treasurer
Attest:
By: /s/ Mary La Gumina
-------------------------
Mary La Gumina
Assistant Vice President
<PAGE>
<PAGE>
STATE OF MICHIGAN )
)ss.
COUNTY OF WAYNE )
On the 18th day of January, 1996, before me personally came Alan M.
Wright, to me known, who, being by me duly sworn, did depose and say that
he resides at Ann Arbor, Michigan; that he is Senior Vice President and
Chief Financial Officer of Consumers Power Company, one of the
corporations described in and which executed the foregoing instrument;
that he knows the seal of said corporation; that the seal affixed to said
instrument is such corporate; that it was so affixed by authority of the
Board of Directors of said corporation; and that he signed his name
thereto by like authority.
[Notarial Seal]
/s/ Sherry Ann White
- --------------------------------------
Sherry Ann White
Notary Public, Wayne County, Michigan
My Commission Expires: April 23, 1996
H:\S-3\EX4-4.C3<PAGE>
STATE OF )
)ss.
COUNTY OF )
On the 22nd day of January, 1996, before me personally came Paul J.
Schmalzel, to me known, who, being by me duly sworn, did depose and say
that he resides at 505 Woodmere Avenue, Neptune, N.J., that he is an
Assistant Treasurer of the Bank of New York, one of the corporations
described in and which executed the foregoing instrument; that he knows
the seal of said corporation; that the seal affixed to said instrument is
such corporate; that it was so affixed by authority of the Board of
Directors of said corporation; and that he signed his name thereto by like
authority.
[Notarial Seal]
/s/ William J. Cassels
- --------------------------------
Notary Public,
My Commission Expires:
William J. Cassels
Notary Public, State of New York
No. 01CA5027729
Qualified in Bronx County
Certificate Filed in New York County
Commission Expires May 16, 1996
<PAGE>
<PAGE>
Exhibit (10)(j)
EMPLOYMENT AGREEMENT
AGREEMENT between CMS Energy Corporation, a Michigan corporation
(the "Corporation"), and Rodger A. Kershner (the "Executive") dated this
12 day of January, 1996.
Whereas the Corporation considers the maintenance of a vital
management essential to protecting and enhancing the best interests of the
Corporation and its shareholders. Whereas the Corporation has determined
to encourage the continuing attention and dedication of the key members of
its management without the distraction arising from the possibility of a
change in control.
Therefore, the parties hereto agree as follows:
1. Operation of Agreement. The "Effective Date" shall be the
date on which a Change of Control (as defined in Section 2) shall occur.
2. Change of Control. As used in this Agreement, "Change of
Control" shall be deemed to have taken place if a person, including a
"group" as defined in Section 13(d)(3) of the Securities Exchange Act of
1934 becomes the beneficial owner of shares having 35% or more of the
total number of votes that may be cast in the election of Directors of CMS
Energy Corporation.
3. Employment. The Corporation hereby agrees to continue to
employ and engage the services of the Executive as its Senior Vice
President and General Counsel of CMS Energy Corporation for the period
beginning on the Effective Date and ending on the earlier of the fifth
anniversary of such date or the Normal Retirement Date of the Executive
under the Consumers Power Company's Pension Plan (hereinafter "Employment
Period"). The Executive agrees to serve the Corporation in such position,
unless an event shall occur which is described in Section 6.
4. Duties. The Executive agrees during the Employment Period to
devote his full business time to the business and affairs of the
Corporation (except for (i) services on corporate, civic or charitable
boards or committees, (ii) such reasonable time as shall be required for
the investment of the Executive's assets, which do not significantly
interfere with the performance of his responsibilities hereunder and
(iii) periods of vacation and sick leave to which he is entitled) and to
use his best efforts to promote the interests of the Corporation and to
perform faithfully and efficiently the responsibilities of Senior Vice
President and General Counsel of CMS Energy Corporation.
5. Compensation and Other Terms of Employment.
(a) Base Salary. The Executive shall receive an annual base
salary ("Base Salary") of not less than his annual salary immediately
prior to the Effective Date (payable in equal semi-monthly installments)
from the Corporation.
The Base Salary shall be reviewed and may be increased at any
time and from time to time in accordance with the Corporation's regular
practices, and shall be reviewed at least annually by the Organization and
Compensation Committee of its Board of Directors.
(b) Incentive Compensation. As further compensation, the
Executive will be eligible for awards ("Incentive Compensation") under the
Corporation's Executive Incentive Compensation Plan in which he was
participating immediately prior to the Effective Date.
(c) Retirement, Savings and Stock Option Plans. In addition to
the Base Salary and Incentive Compensation payable as hereinabove
provided, the Executive shall be entitled to participate in savings, stock
options and other incentive plans and programs available to executives of
the Corporation or to opportunities provided under any such plans in which
he was participating immediately preceding the Effective Date, whichever
is greater.
(d) Vacation and Employee Benefits.
(i) The Executive shall be entitled to paid vacation and other
employee benefits and perquisites, in accordance with the policies of the
Corporation in effect for executive officers, or the vacation employee
benefits and perquisites to which he was entitled immediately prior to the
Effective Date, whichever is greater.
6. Termination.
(a) Death. This Agreement shall terminate automatically upon
the Executive's death. In the event of such termination, the Corporation
shall pay to the Executive's estate all benefits and compensation accrued
hereunder to the date of death, including a pro rata portion of incentive
compensation.
(b) Disability. In the event the Executive becomes unable by
reason of physical or mental disability to render the services required
hereunder and such disability continues for a continuous period of 6
months, the employment of the Executive hereunder shall terminate, unless
the employment is extended by agreement of the Corporation and the
Executive. Commencing at the date of termination of employment for
disability, the Executive shall receive annually a sum equal to 50% of his
Base Salary at the time of termination of employment, in monthly
installments until his 62nd birthday, or his death if earlier. Disability
payments hereunder shall be reduced by the amount of other
Corporation-sponsored disability benefits paid to the Executive through
insurance or otherwise.
(c) Termination with Cause. The Corporation may terminate the
Executive's employment for Cause. For purposes of this Agreement, "Cause"
shall mean an act or acts of dishonesty, fraud, misappropriation or
intentional material damage to the property or business of the Corporation
or commission of a felony on the Executive's part. If the Executive's
employment is terminated for Cause, the Corporation shall pay the
Executive his full accrued Base Salary through the date of such
termination at the rate in effect at the time of such termination, and the
Corporation shall have no further obligations to the Executive under this
Agreement.
(d) Other Termination or Resignation of Executive.
(i) The Corporation may terminate the Executive's employment
without Cause.
(ii) In the event that the Executive determines in his sole
judgment that his position, authority, or responsibilities have been
diminished as a result of the "Change of Control," the Executive may
terminate his employment with the Corporation upon written notice given
within 12 months after the Effective Date.
(iii) In the event of a termination of employment under this
subsection (d), the Executive shall receive a severance payment equal to
twice his Base Salary at the time of termination of employment plus either
twice his incentive compensation payable with respect to the last full
calendar year prior to the termination of employment or, if no incentive
compensation was awarded to the Executive with respect to the last full
calendar year prior to the termination of employment, twice the standard
incentive award, as defined in the Corporation's Executive Incentive
Compensation Plan for the salary grade of the Executive for such year.
The severance payment shall be paid in a lump sum payment, in cash, or as
otherwise directed by the Executive.
7. No Obligation to Mitigate Damages. The Executive shall not
be obligated to seek other employment in mitigation of amounts payable or
arrangements made under the provisions of this Agreement and the obtaining
of any such other employment shall in no event effect any reduction of the
Corporation's obligations to make the payments and arrangements required
to be made under this Agreement.
8. Indemnification. The Corporation shall include the Executive
in its Director and Officer Liability Insurance policy, if any, during his
Employment Period and for a period of not less than five years after the
termination of the Executive's employment for any reason whatsoever. In
addition to insurance and any other indemnification available to the
Executive as an Officer, the Corporation shall indemnify, to the extent
permitted by applicable law, the Executive for settlements, judgments and
reasonable expenses in connection with activities arising from services
rendered by the Executive as a Director or Officer of the Corporation or
any affiliated company.
9. Notices. Any notices, requests, demands and other
communications provided for by this Agreement shall be sufficient if in
writing and if sent by registered or certified mail to the Executive at
the last address he has filed in writing with the Corporation or, in the
case of the Corporation, Attn: Secretary, at its principal executive
offices.
10. Non-Alienation. The Executive shall not have any right to
pledge, hypothecate, anticipate or in any way create a lien or security
interest upon any amounts provided under this Agreement; and no benefits
payable hereunder shall be assignable in anticipation of payment either by
voluntary or involuntary acts, or by operation of law, except by will or
the laws of descent and distribution.
11. Governing Law. The provisions of this Agreement shall be
construed in accordance with the laws of the State of Michigan.
12. Amendment. This Agreement may be amended or cancelled only
by mutual agreement of the parties in writing without the consent of any
other person and, so long as the Executive lives, no person, other than
the parties hereto, shall have any rights under or interest in this
Agreement or the subject matter hereof.
13. Successor to the Corporation. Except as may be otherwise
provided herein, this Agreement shall be binding upon and inure to the
benefit of the Corporation and any successor of the Corporation.
14. Severability. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or
enforceability of any other provision of this Agreement.
IN WITNESS WHEREOF, the Corporation and the Executive have
executed this Agreement as of the date first above written.
/s/ Rodger A. Kershner
-----------------------------------
Rodger A. Kershner
CMS ENERGY CORPORATION
/s/ William T. McCormick, Jr.
By: ------------------------------
William T. McCormick, Jr.
Chairman of the Board
and Chief Executive Officer
<PAGE>
<PAGE>
Exhibit (10)(n)
CMS ENERGY CORPORATION
and
CONSUMERS POWER COMPANY
ANNUAL EXECUTIVE INCENTIVE
COMPENSATION PLAN
As Amended January 1995
<PAGE>
<PAGE> 1
CMS ENERGY CORPORATION
and
CONSUMERS POWER COMPANY
Annual Executive Incentive Compensation Plan
I. PURPOSE
The purpose of the Annual Executive Incentive Compensation Plan
(Plan) is to:
A. Provide an equitable and competitive level of compensation
that will permit CMS Energy Corporation (CMS) and Consumers
Power Company (CPCo) to attract, retain and motivate highly
competent Officers and key employees.
B. Provide a financial incentive for Officers and key employees
to achieve expected levels of individual performance and
thereby assist in the achievement of each Company's objectives
and CMS Energy's overall objectives.
II. EFFECTIVE DATE
The effective date of the Plan is January 1, 1986.
III. ELIGIBILITY
Officers and key employees in Salary Grades "11" or "D" and above
are eligible for participation in the Plan.
IV. ADMINISTRATION OF THE PLAN
The Plan will be administered by the Chairman & CEO of CMS Energy,
the Manager - Corporate Human Resources and the Executive Director
- Human Resources CMS Enterprises (CMS) under the general
direction of the Committee on Organization and Compensation
(Committee) of the Board of Directors of CMS Energy.
The Committee, no later than March of the Performance Year, will
approve performance goals for the Plan year and will determine the
total Annual Award Fund that will provide a reasonable and
competitive level of awards when "standard" performance goals are
achieved.
<PAGE>
<PAGE> 2
The Committee, no later than March following the Performance Year,
will review for approval the total Annual Award Fund to be
allocated to the Plan participants for the previous calendar year.
This fund will be based on the Company's performance and the
recommendation by the Committee. Individual incentive
compensation awards for all participants, except the Chairman &
CEO, will be recommended by the Chief Executive Officer, subject
to approval of the Committee. The incentive award for the
Chairman & CEO will be recommended by the Chairman of the
Committee.
The Committee reserves the right to modify the performance goals
or otherwise exercise discretion with respect to individual awards
as they deem necessary to maintain the spirit and intent of the
Plan.
V. PERFORMANCE GOALS
The performance goal for the CPCo Plan shall consist of three
factors: (1) the net income of CMS Energy Corporation; (2) the
pre-tax operating income of CPCo and (3) CPCo's gas and electric
rates for customers as compared with those of other major
investor-owned utilities in the Midwest and the United States. In
the event less than 80% of the CMS Energy income goal is achieved,
there will not be a payout under that portion of the Plan. In the
event less than 80% of the CPCo pre-tax operating income goal is
achieved, there will not be a payout under the Plan. Affiliates
of CMS shall establish their own company performance goals in lieu
of the CPCo pre-tax operating income and gas and electric rates
comparison.
A. CMS Energy Net Income Award (After Preferred & Preference
Dividends) - An income goal will be set each year. For each
1% (or fraction thereof) increase achieved in net income above
80% of goal, there will be a corresponding 2.5% (or pro rata
part) increase in the award up to 100% after which there will
be a corresponding 1% (or pro rata part) increase in the award
for each additional 1% (or fraction thereof) increase in net
income above goal. The maximum award is 120%.
B. CPCo Pre-Tax Operating Income Award - An operating income goal
will be set each year. For each 1% (or fraction thereof)
increase achieved in pre-tax operating income above 80% of
goal, there will be a corresponding 2.5% (or pro rata part)
increase in the award up to 100% after which there will be a
corresponding 1% (or pro rata part) increase in the award for
each additional 1% (or fraction thereof) increase in net
income above goal. The maximum award is 120%.
<PAGE>
<PAGE> 3
Actual Net or Operating Income Percent of
as a Percent of Goal Award Granted
------------------------------- -------------
Less Than 80.0% 0
80.0% 50.0%
85.0% 62.5%
90.0% 75.0%
95.0% 87.5%
100.0% 100.0%
105.0% 105.0%
110.0% 110.0%
115.0% 115.0%
120.0% and Above 120.0%
C. Energy Rates Award - A comparison will be made between the
Company's electric rate (average revenue per kilowatt-hour
sold - $/kWh) and gas rate (average revenue per thousand cubic
feet sold - $/Mcf) and rates of comparable utilities. One-
half of the energy rates award portion of the performance goal
will be adjusted by the electric rate comparison and the other
half by the gas rate comparison.
If less than 50% of the comparison companies have rates
exceeding Consumers Power Company, the payout will be zero for
the electric or gas rate award. If 50% of the rate comparison
companies exceed the Company, 50% of the award is granted.
For each 1% (or fraction thereof) increase in the ranking
above 50%, there will be a corresponding 2.5% (or pro rata
part) increase in the award up to a 70% ranking after which
there will be a corresponding 1% (or pro rata part) increase
in the award for each 1% (or fraction thereof) increase
achieved in rank above 70%. The maximum award is 120%.
Electric or Gas Ranking
(Percent of Companies Whose Percent of
Rates Exceed the Company's) Award
----------------------------- ----------
Less Than 50.0% 0
50.0% 50.0%
55.0% 62.5%
60.0% 75.0%
65.0% 87.5%
70.0% 100.0%
75.0% 105.0%
80.0% 110.0%
85.0% 115.0%
90.0% and Above 120.0%
<PAGE>
<PAGE> 4
For the comparison, the individual average rates of a number of
the largest investor-owned utilities in the United States and
Midwest for both gas and electric comparisons will be measured
against the average Company electric and gas rates.
VI. ANNUAL AWARD FUND
Standard incentive awards for each eligible executive will amount
to a percentage of the midpoint, or the determined Market
Reference Value (MRV) midpoint, of his/her salary grade in the
Performance Year. The midpoints are determined each year and are
subject to review and approval by the Committee. The percentage
will vary by position level as indicated below:
Standard Incentive
Award as a % of
Salary Salary Grade/MRV
Position Grade Midpoint Formula*
------------------ ----- ------------------- --------
Chairman & CEO E-9 75.0 I
Vice Chairman,
President E-8 65.0 I
President, Executive
Vice President E-7 60.0 I
President, Executive
Vice President E-6 55.0 II
Senior Vice President E-5 50.0 II
Vice President E-4 45.0 II
Vice President E-3 40.0 II
Other Officers/Senior
Managers/Directors E-2 35.0 III
Senior Managers/
Directors E-1 or F 30.0 III
Managers/Directors 13 25.0 III
Managers/Directors 12 or E 20.0 III
Managers/Directors 11 15.0 III
Managers/Directors
and Equivalent D 10.0 III
*Generally the top five Officers plus four other Officers with multi-
Company responsibilities participate in Formula I. All other
Officers participate in Formula II and all others participate in
Formula III. The formulas are found on Page 5.
The award for individual participants will be based on either two or
three factors: (1) Company performance as measured by achievement of
the net income of CMS Energy; (2) pre-tax operating income of CPCo
and energy rate relationship goals; and (3)individual
<PAGE>
<PAGE> 5
performance; ie, performance must be fully effective or better to be
eligible for an award. Assuming a minimum of fully effective
performance, individual awards may be adjusted in a range from 70% to
130% of the Company performance level in order to take into account
individual performance. Each individual's performance will be
measured against specific, quantifiable objectives for the
Performance Year as established and approved by each participant's
immediate supervisor. Accordingly, each year the levels will be as
follows:
115-130% Exceptional
100-115% Exceeds
70-100% Fully Effective
0 Unacceptable
The Chairman & CEO will review and approve each Officer's
objectives for the Performance Year. Final individual awards,
depending on formula designation, will be calculated as follows:
Formula I
Individual = Standard x CMS Net x Individual
- ---------- -------- ------------ -----------
Award Award Income Award Performance
<TABLE>
<CAPTION> Formula II
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Individual = Standard x (.50 x CMS net + .35 x CPCo Pre-tax + .15 x Rates) x Individual
- ---------- -------- ( ---------- ---------------- -----) -----------
Award Award ( Income Award Opr Income Award Award) Performance
Formula III
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Individual = Standard x (.25 x CMS net + .53 x CPCo Pre-tax + .22 x Rates) x Individual
- ---------- -------- ( ------------ ---------------- -----) -----------
Award Award ( Income Award Opr Income Award Award) Performance
</TABLE>
<PAGE>
<PAGE> 6
VII. PAYMENT OF AWARDS
CURRENT AWARDS
All awards for the Performance Year will be paid in cash
no later than March of the following year after review and
approval by the Committee. The amounts required by law to
be withheld for income tax and Social Security taxes will
be deducted from the award payments.
DEFERRED AWARDS
The payment of all or one-half of each award may be
deferred at the election of the individual participants in
the Plan. A separate irrevocable election must be made
each year prior to the beginning of the Performance Year.
Any award granted after termination of employment or
retirement is not eligible for deferral and will be paid
in full in the year in which the award is made.
The deferred awards may be paid out in a lump sum or in
five or ten annual installments beginning in the January
following retirement or termination of employment. If
awards are paid in annual installments, each year the
payment will be a fraction of the balance equal to one
over the number of annual installments remaining. In the
event of the participant's death, all deferred amounts
will be paid in total the following January.
At the time of electing to defer payment, the participant
must elect whether the sum deferred shall be treated by
the Company in accordance with Paragraph A or Paragraph B
below.
A. The deferred award will be credited with sums
in lieu of interest from the first day of the
month following the month in which the award
was granted to the date of payment. The
"interest rate" will be equivalent to the
prime rate of interest set by Citibank, NA,
compounded quarterly as of the first day of
January, April, July and October of each year
during the deferral period. The prime rate in
effect on the first day of January, April,
July and October shall be the prime rate in
effect for that quarterly period.
B. The deferred award will be treated as if it
were invested as an optional cash payment
under the CMS Energy Corporation's Dividend
Reinvestment and Common Stock Purchase Plan.
The value of the deferred sum at the time of
payment shall be equal to the number of
dollars such an investment would have been
worth as measured by the purchase price of
shares of Common Stock using the average
closing price (NYSE - composite transactions)
for the first five trading days in the
December previous to a payout.
<PAGE>
<PAGE> 7
The amounts deferred are to be satisfied from the general
Corporate funds which are subject to the claims of
creditors.
PAYMENT IN THE EVENT OF DEATH
Participants may name the beneficiary of their choice in
the event they die prior to receipt of either a current or
deferred award. In the event a beneficiary is not named,
the payment will be made to the first surviving class as
follows:
1. Widow or Widower
2. Children
3. Parents
4. Brothers and Sisters
5. Executor or Administrator
Participants may change beneficiary at any time and the
change will be effective as of the date the participants
complete and sign the beneficiary form, whether or not
they are living at the time the request is received by the
Company. However, the Company will not be liable for any
payments it makes before receiving a written request.
VIII. CHANGE OF STATUS
A. SALARY GRADE CHANGE
Individual awards will be based on the salary grade
level in effect as of the beginning of the Performance
Year or such later date on which an employee becomes a
participant in the Plan. However, a participant
promoted to a higher or transferred to a lower eligible
salary grade during the award year may be recommended
for an award based upon the percentage of the
Performance Year in each participating position.
B. NEW HIRE, TRANSFER, PROMOTION
A newly hired employee or an employee promoted during
the Performance Year to a position qualifying for
participation may be recommended for a pro rata award
based on the percentage of the Performance Year the
employee is in the participating position.
<PAGE>
<PAGE> 8
C. DEMOTION
No award will be made to an employee who has been
demoted during the Performance Year because of
performance. If the demotion is due to an organization
change, a pro rata award may be made provided the
employee otherwise qualifies for an award.
D. TERMINATION
An employee whose services are terminated during the
Performance Year for reasons of misconduct, failure to
perform, or other performance-related reasons, shall not
be considered for an award. If the termination is due
to other reasons such as reorganization, transfer to a
subsidiary, etc, and the termination is not due to a
fault of the employee, the employee may be considered
for a pro rata award.
E. RESIGNATION
An employee who resigns to accept employment elsewhere
during or after a performance year, (including self-
employment) will not be eligible for an award. If the
resignation is due to other reasons; eg, ill health in
the immediate family, etc, the employee may be
considered for a pro rata award.
F. DEATH, DISABILITY, RETIREMENT, LEAVE OF
ABSENCE
An employee whose status as an active employee is
changed during the Performance Year for any of the
reasons cited, may be considered for a pro rata award.
IX. IMPACT ON BENEFIT PLANS
Payments made under this program will be considered as
earnings for the Supplemental Executive Retirement Plan
(Salary Grades F and E-1 through E-9) and for life
insurance, but not for purposes of the Employees' Savings
Plan, Pension Plan, or other employee benefit programs.
X. TERMINATION OR AMENDMENT OF THE PLAN
The Company at any time may, in writing, terminate or
amend the Plan.
<PAGE>
<PAGE>
Exhibit (21)(a)
SUBSIDIARIES OF CMS ENERGY CORPORATION
at December 31, 1995
Percent Voting
Stock Owned
by CMS Energy Incorporated
-------------- ------------
Consumers Power Company ("CPCo") 100 Michigan
Michigan Gas Storage Company 0 Michigan
(100% Owned by CPCo)*
CMS Enterprises Company 100 Michigan
* Subject to regulation by FERC
<PAGE>
<PAGE>
Exhibit (21)(b)
SUBSIDIARIES OF CONSUMERS POWER COMPANY
at December 31, 1995
Percent Voting
Stock Owned
by Consumers
Power Company Incorporated
-------------- ------------
Michigan Gas Storage Company* 100 Michigan
* Subject to regulation by FERC
<PAGE>
<PAGE>
ARTHUR ANDERSEN LLP Exhibit (23)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our reports included or incorporated by reference in this
Form 10-K, into CMS Energy Corporation's previously filed Registration
Statements No. 33-9732, No. 33-29681, No. 33-47629, No. 33-64044, No. 33-
51877, No. 33-57719, No. 33-60007, No. 33-61595, No. 33-62573 and No. 333-
01261.
/s/ Arthur Andersen LLP
------------------------
Detroit, Michigan,
March 13, 1996.
<PAGE>
<PAGE>
February 23, 1996 Exhibit (24)(a)
Mr. Alan M. Wright and
Mr. Thomas A. McNish
Fairlane Plaza South, Suite 1100
330 Town Center Drive
Dearborn, MI 48126
CMS Energy Corporation is required to file an Annual Report on Form 10-K
for the year ended December 31, 1995 with the Securities and Exchange
Commission within 90 days after the end of the year.
We hereby make, constitute and appoint each of you our true and lawful
attorney for each of us and in each of our names, places and steads to
sign and cause to be filed with the Securities and Exchange Commission
said Annual Report with any necessary exhibits, and any amendments thereto
that may be required.
Very truly yours,
/s/William T. McCormick, Jr. /s/Frank H. Merlotti
- --------------------------------- -----------------------------
William T. McCormick, Jr. Frank H. Merlotti
/s/James J. Duderstadt /s/Michael G. Morris
- --------------------------------- ------------------------------
James J. Duderstadt Michael G. Morris
/s/K. R. Flaherty /s/W. U. Parfet
- -------------------------------- -----------------------------
Kathleen R. Flaherty William U. Parfet
/s/Victor J. Fryling /s/Percy A. Pierre
- -------------------------------- -----------------------------
Victor J. Fryling Percy A. Pierre
/s/Earl D. Holton /s/K. Whipple
- -------------------------------- -----------------------------
Earl D. Holton Kenneth Whipple
/s/Lois A. Lund /s/John B. Yaskinsky
- -------------------------------- ------------------------------
Lois A. Lund John B. Yasinsky
<PAGE>
Extract from the minutes of a meeting of the Board of Directors of CMS
Energy Corporation (the "Corporation") held on February 23, 1996.
- - - - - - - -
SEC Form 10-K Filing
Draft copies of the Form 10-K for 1995 were given to the
Directors and officers of the Corporation for review and comments.
Pursuant to regulations of the Securities and Exchange Commission, the
Annual Report on Form 10-K must contain the signatures of the principal
executive officer, the principal financial officer and the Controller or
the principal accounting officer. Each officer of the Corporation were
asked to review the Form 10-K and acknowledge approval of the contents as
applied to his/her area of responsibility.
Upon motion duly made and seconded, the following resolution was
thereupon unanimously adopted:
RESOLVED: That the officers of the Corporation, and each of
them, are authorized to execute the Annual Report on Form 10-K
for the year ended December 31, 1995, for and on behalf of the
Corporation, and any amendments thereto, and to file or cause to
be filed such Annual Report, and any amendments thereto, with the
Securities and Exchange Commission and The New York Stock
Exchange, including any exhibits or other documents that may be
required, with any changes thereto as they may deem appropriate
and as counsel may advise.
- - - - - - - -
I, Thomas A. McNish, Vice President and Secretary of CMS Energy
Corporation, CERTIFY that the foregoing is a true and correct copy of a
resolution duly and regularly adopted at a meeting of the Board of
Directors of CMS Energy Corporation duly called and held on February 23,
1996 at which a quorum was in attendance and voting throughout and that
said resolution has not since been rescinded but is still in full force
and effect.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed the seal of
the Corporation is 14th day of March, 1996.
/s/Thomas A. McNish
Thomas A. McNish
Vice President and Secretary
(SEAL)
<PAGE>
February 23, 1996 Exhibit (24)(b)
Mr. Alan M. Wright and
Mr. Thomas A. McNish
212 West Michigan Avenue
Jackson, MI 49201
Consumers Power Company is required to file an Annual Report on Form 10-K
for the year ended December 31, 1995 with the Securities and Exchange
Commission within 90 days after the end of the year.
We hereby make, constitute and appoint each of you our true and lawful
attorney for each of us and in each of our names, places and steads to
sign and cause to be filed with the Securities and Exchange Commission
said Annual Report with any necessary exhibits, and any amendments thereto
that may be required.
Very truly yours,
/s/William T. McCormick, Jr. /s/Frank H. Merlotti
- ----------------------------------- --------------------------------
William T. McCormick, Jr. Frank H. Merlotti
/s/James J. Duderstadt /s/Michael G. Morris
- ---------------------------------- ---------------------------------
James J. Duderstadt Michael G. Morris
/s/K. R. Flaherty /s/W. U. Parfet
- ---------------------------------- ---------------------------------
Kathleen R. Flaherty William U. Parfet
/s/Victor J. Fryling /s/Percy A. Pierre
- ---------------------------------- ---------------------------------
Victor J. Fryling Percy A. Pierre
/s/Earl D. Holton /s/K. Whipple
- ---------------------------------- ----------------------------------
Earl D. Holton Kenneth Whipple
/s/Lois A. Lund /s/John B. Yasinsky
- ---------------------------------- ----------------------------------
Lois A. Lund John B. Yasinsky<PAGE>
<PAGE>
Extract from the minutes of a meeting of the Board of Directors of
Consumers Power Company (the "Company") held on February 23, 1996.
- - - - - - - -
SEC Form 10-K Filing
Draft copies of the Form 10-K for 1995 were given to the Directors
and officers of the Company for review and comments. Pursuant to
regulations of the Securities and Exchange Commission, the Annual Report
on Form 10-K must contain the signatures of the principal executive
officer, the principal financial officer and the Controller or the
principal accounting officer. Each officer of the Company were asked to
review the Form 10-K and acknowledge approval of the contents as applied
to his/her area of responsibility.
Upon motion duly made and seconded, the following resolution was
thereupon unanimously adopted:
RESOLVED: That the officers of the Company, and each of them,
are authorized to execute the Annual Report on Form 10-K for the year
ended December 31, 1995, for and on behalf of the Company, and any
amendments thereto, and to file or cause to be filed such Annual
Report, and any amendments thereto, with the Securities and Exchange
Commission and The New York Stock Exchange, including any exhibits or
other documents that may be required, with any changes thereto as
they may deem appropriate and as counsel may advise.
- - - - - - - -
I, Thomas A. McNish, Vice President and Secretary of Consumers Power
Company, CERTIFY that the foregoing is a true and correct copy of a
resolution duly and regularly adopted at a meeting of the Board of
Directors of Consumers Power Company duly called and held on February 23,
1996 at which a quorum was in attendance and voting throughout and that
said resolution has not since been rescinded but is still in full force
and effect.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed the seal of
the Company is 14th day of March, 1996.
/s/Thomas A. McNish
Thomas A. McNish
Vice President and Secretary
(SEAL)
<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> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 4,377
<OTHER-PROPERTY-AND-INVEST> 1,515
<TOTAL-CURRENT-ASSETS> 910
<TOTAL-DEFERRED-CHARGES> 1,341
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 8,143
<COMMON> 1
<CAPITAL-SURPLUS-PAID-IN> 1,951
<RETAINED-EARNINGS> (475)
<TOTAL-COMMON-STOCKHOLDERS-EQ> 1,469
0
356
<LONG-TERM-DEBT-NET> 1,866
<SHORT-TERM-NOTES> 341
<LONG-TERM-NOTES-PAYABLE> 1,040
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 161
0
<CAPITAL-LEASE-OBLIGATIONS> 106
<LEASES-CURRENT> 46
<OTHER-ITEMS-CAPITAL-AND-LIAB> 2,750
<TOT-CAPITALIZATION-AND-LIAB> 8,143
<GROSS-OPERATING-REVENUE> 3,890
<INCOME-TAX-EXPENSE> 118
<OTHER-OPERATING-EXPENSES> 3,287
<TOTAL-OPERATING-EXPENSES> 3,417
<OPERATING-INCOME-LOSS> 473
<OTHER-INCOME-NET> (10)
<INCOME-BEFORE-INTEREST-EXPEN> 475
<TOTAL-INTEREST-EXPENSE> 243
<NET-INCOME> 232
28
<EARNINGS-AVAILABLE-FOR-COMM> 204
<COMMON-STOCK-DIVIDENDS> 84
<TOTAL-INTEREST-ON-BONDS> 135
<CASH-FLOW-OPERATIONS> 682
<EPS-PRIMARY> 2.27<F1>
<EPS-DILUTED> 0
<FN>
<F1>EPS for CMS Energy Common Stock $2.27
EPS for Class G Common Stock $.38
</FN>
</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 IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000201533
<NAME> CONSUMERS POWER COMPANY
<MULTIPLIER> 1,000,000
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 4,377
<OTHER-PROPERTY-AND-INVEST> 697
<TOTAL-CURRENT-ASSETS> 686
<TOTAL-DEFERRED-CHARGES> 1,194
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 6,954
<COMMON> 841
<CAPITAL-SURPLUS-PAID-IN> 491
<RETAINED-EARNINGS> 237
<TOTAL-COMMON-STOCKHOLDERS-EQ> 1,598
0
356
<LONG-TERM-DEBT-NET> 1,519
<SHORT-TERM-NOTES> 341
<LONG-TERM-NOTES-PAYABLE> 403
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 45
0
<CAPITAL-LEASE-OBLIGATIONS> 104
<LEASES-CURRENT> 45
<OTHER-ITEMS-CAPITAL-AND-LIAB> 2,572
<TOT-CAPITALIZATION-AND-LIAB> 6,954
<GROSS-OPERATING-REVENUE> 3,511
<INCOME-TAX-EXPENSE> 133
<OTHER-OPERATING-EXPENSES> 2,962
<TOTAL-OPERATING-EXPENSES> 3,107
<OPERATING-INCOME-LOSS> 404
<OTHER-INCOME-NET> 2
<INCOME-BEFORE-INTEREST-EXPEN> 418
<TOTAL-INTEREST-EXPENSE> 163
<NET-INCOME> 255
28
<EARNINGS-AVAILABLE-FOR-COMM> 227
<COMMON-STOCK-DIVIDENDS> 70
<TOTAL-INTEREST-ON-BONDS> 135
<CASH-FLOW-OPERATIONS> 642
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<PAGE> 1
ARTHUR ANDERSEN LLP
Report of Independent Public Accountants
To CMS Energy Corporation:
We have audited 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 December
31, 1995 and 1994, and the related statements of income, common
stockholders' equity, and cash flows for each of the three years in the
period ended December 31, 1995. These financial statements are the
responsibility of the management of CMS Energy Corporation, the parent of
Consumers. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Consumers Gas Group as
of December 31, 1995 and 1994, and the results of its operations and its
cash flows for each of the three years in the period ended December 31,
1995 in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Detroit, Michigan,
January 26, 1996.
<PAGE>
<PAGE> 2
Consumers Gas Group
Management's Discussion and Analysis
In 1995, CMS Energy issued a total of 7.62 million shares of Class G
Common Stock. This new class of common stock reflects 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 1995 Form 10-K of CMS Energy.
CMS Energy is the parent holding company of Consumers and CMS Enterprises
Company. Consumers, a combination electric and gas utility company
serving the Lower Peninsula of Michigan, is the principal subsidiary of
CMS Energy. For further information regarding the businesses of
CMS Energy, including the nature and issuance of the Class G Common Stock,
see the MD&A of CMS Energy included and incorporated by reference herein.
Earnings
Net income for the Consumers Gas Group for 1995 totaled $62 million,
compared with $53 million for 1994. The increase in 1995 net income
reflects higher gas deliveries and the reversal of losses previously
recorded for gas contingencies. Partially offsetting these increases were
higher depreciation and operation expenses.
Cash Position, Financing and Investing
Consumers Gas Group's cash requirements are met by its operating and
financing activities. Consumers Gas Group's cash from operations is
derived mainly from Consumers' sale and transportation of natural gas.
Cash from operations for 1995 increased $27 million from 1994 primarily
due to improved sales of gas. Consumers Gas Group primarily uses this
operating cash to maintain its gas utility transmission and distribution
systems and retire portions of its long-term debt and pay dividends.
Financing Activities: Cash flows from financing activities in 1995
decreased $28 million from 1994, reflecting no new stock or debt issuances
during 1995.
Investing Activities: Net cash used in financing activities decreased $2
million from 1994. Capital expenditures for the Consumers Gas Group,
including assets placed under capital lease (see Note 12), totaled $126
million for 1995 compared with $134 million for 1994 and $158 million for
1993.
Financing and Investing Outlook: CMS Energy estimates that capital
expenditures for the Consumers Gas Group, including new lease commitments,
will total $339 million over the next three years.
In Millions
Years Ended December 31 1996 1997 1998
Gas Utility (a) $122 $107 $102
Michigan Gas Storage 2 3 3
---- ---- ----
$124 $110 $105
==== ==== ====
(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 has an agreement permitting the sales of certain accounts
receivable for up to $500 million. At December 31, 1995, receivables sold
totaled $295 million. Consumers Gas Group's attributed portion of such
receivables sold totaled $137 million.
For further information, see CMS Energy's MD&A included and incorporated
by reference herein.
Results of Operations
For Consumers Gas Group's results of operations, see "Gas Utility 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 Matters and
Environmental Matters, see "Gas Utility Issues" in CMS Energy's MD&A
included and incorporated by reference herein.
Outlook
For Consumers Gas Group's outlook discussion, see "Gas Utility Outlook" in
CMS Energy's MD&A included and incorporated by reference herein.
Other
For information regarding the effect of new accounting standards, see
"Other" in CMS Energy's MD&A included and incorporated by reference
herein.
<PAGE>
<PAGE> 4
<TABLE>
Statements of Income Consumers Gas Group
<CAPTION>
In Millions,
Except Per Share Amounts
Years Ended December 31 1995 1994 1993
<S> <C> <C> <C>
Operating Revenue $1,195 $1,151 $1,160
------- ------- -------
Operating Expenses Operation
Cost of gas sold 671 662 678
Other 197 185 171
------- ------- -------
Total operation 868 847 849
Maintenance 39 39 38
Depreciation, depletion and amortization 83 76 73
General taxes 54 54 54
------- ------- -------
Total operating expenses 1,044 1,016 1,014
------- ------- -------
Pretax Operating Income 151 135 146
Income Taxes 48 41 39
------- ------- -------
Net Operating Income 103 94 107
------- ------- -------
Other Income Other income taxes, net - - 1
(Deductions) Other, net - (2) (3)
------- ------- -------
Total other deductions - (2) (2)
------- ------- -------
Fixed Charges Interest on long-term debt 30 29 32
Other interest 6 5 6
Capitalized interest (1) - (1)
Preferred dividends 6 5 2
------- ------- -------
Net fixed charges 41 39 39
------- ------- -------
Net Income $ 62 $ 53 $ 66
======= ======= =======
Net Income Attributable to CMS Energy Shareholders
through Retained Interest $ 59 $ 53 $ 66
======= ======= =======
Net Income Attributable to Class G Shareholders $ 3 - -
======= ======= =======
Average Class G Common Shares Outstanding 8 - -
======= ======= =======
Earnings Per Average Class G Common Share $ .38 - -
======= ======= =======
Dividends Declared Per Class G Common Share $ .56 - -
======= ======= =======
<FN>
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
<PAGE> 5
<TABLE>
Statements of Cash Flows Consumers Gas Group
<CAPTION>
In Millions
Years Ended December 31 1995 1994 1993
<S> <C> <C> <C>
Cash Flows From Net income $ 62 $ 53 $ 66
Operating Activities Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation, depletion and amortization 83 76 73
Capital lease and other amortization 5 4 5
Deferred income taxes and investment tax credit 13 4 4
Other 1 1 2
Changes in other assets and liabilities (Note 12) 16 15 (67)
------ ------ ------
Net cash provided by operating activities 180 153 83
------ ------ ------
Cash Flows From Capital expenditures (excludes assets placed
Investing Activities capital lease) (Note 12) (124) (129) (153)
Cost to retire property, net (10) (8) (6)
Other 2 3 -
------ ------ ------
Net cash used in investing activities (132) (134) (159)
------ ------ ------
Cash Flows From Payment of common stock dividends (58) (46) (47)
Financing Activities Retirement of bonds and other long-term debt (6) (31) (125)
Payment of capital lease obligations (5) (4) (5)
Repayment of bank loans (2) (106) -
Contribution from CMS Energy stockholders 18 22 -
Increase in notes payable, net 6 16 83
Proceeds from bank loans - 88 3
Proceeds from preferred stock - 42 -
Proceeds from bonds and other long-term debt - - 158
------ ------ ------
Net cash provided by (used in)
financing activities (47) (19) 67
------ ------ ------
Net Increase (Decrease) in Cash and Temporary Cash Investments 1 - (9)
Cash and temporary cash investments
Beginning of year 4 4 13
------ ------ ------
End of year $ 5 $ 4 $ 4
====== ====== ======
<FN>
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
<PAGE> 6
<TABLE>
Balance Sheets Consumers Gas Group
<CAPTION>
ASSETS In Millions
December 31 1995 1994
<S> <C> <C>
Plant (At Cost) Plant $2,169 $2,064
Less accumulated depreciation, depletion and amortization 1,179 1,117
------ ------
990 947
Construction work-in-progress 55 47
------ ------
1,045 994
------ ------
Current Assets Cash and temporary cash investments at cost,
which approximates market 5 4
Accounts receivable and accrued revenue, less allowances
of $2 in 1995 and 1994 (Note 5) 99 51
Inventories at average cost
Gas in underground storage 184 235
Materials and supplies 10 9
Trunkline settlement 30 30
Deferred income taxes (Note 4) 9 16
Prepayments and other 49 48
------ ------
386 393
------ ------
Non-current Assets Postretirement benefits (Note 9) 161 158
Trunkline settlement 25 55
Deferred income taxes (Note 4) 14 3
Other 59 70
------ ------
259 286
------ ------
Total Assets $1,690 $1,673
====== ======
</TABLE>
<PAGE>
<PAGE> 7
<TABLE>
Consumers Gas Group
<CAPTION>
STOCKHOLDERS' INVESTMENT AND LIABILITIES In Millions
December 31 1995 1994
<S> <C> <C>
Capitalization Common stockholders' equity
(Note 6) Common stock $ 184 $ 184
Paid-in-capital 125 107
Retained earnings since December 31, 1992 30 26
------ ------
339 317
Preferred stock 78 78
Long-term debt 411 426
Non-current portion of capital leases 20 18
------ ------
848 839
------ ------
Current Liabilities Current portion of long-term debt and capital leases 23 13
Notes payable 105 99
Accounts payable 79 68
Accrued taxes 66 55
Trunkline settlement 30 30
Accrued refunds 20 20
Accrued interest 7 8
Other 52 68
------ ------
382 361
------ ------
Non-current Postretirement benefits (Note 9) 175 172
Liabilities Regulatory liabilities for income taxes, net (Notes 4 and 13) 162 144
Deferred investment tax credit 28 30
Trunkline settlement 25 55
Other 70 72
------ ------
460 473
------ ------
Commitments and Contingencies (Notes 3, 10 and 11)
Total Stockholders' Investment and Liabilities $1,690 $1,673
====== ======
<FN>
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
<PAGE> 8
<TABLE>
Statements of Common Stockholders' Equity Consumers Gas Group
<CAPTION>
In Millions
Other
Common Paid-in Retained
Stock Capital Earnings Total
<S> <C> <C> <C> <C>
Balance at January 1, 1993 (a) $184 $ 85 $ - $269
Net income 66 66
Common stock dividends declared (47) (47)
---- ---- ---- ----
Balance at December 31, 1993 (a) 184 85 19 288
Net income 53 53
Common stock dividends declared (46) (46)
CMS Energy stockholders' contribution 22 22
---- ---- ---- ----
Balance at December 31, 1994 (a) 184 107 26 317
Net income 62 62
Common stock dividends declared (58) (58)
CMS Energy stockholders' contribution 18 18
---- ---- ---- ----
Balance at December 31, 1995 (a) $184 $125 $ 30 $339
==== ==== ==== ====
<FN>
(a) Number of shares of Consumers' common stock outstanding was 84,108,789. Common stock allocated to the
Consumers Gas Group is consistent with the allocation method discussed in Note 6.
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
<PAGE> 9
Consumers Gas Group
Notes to Financial Statements
1: Corporate Structure
CMS Energy is the parent holding company of Consumers and Enterprises.
Consumers, a combination electric and gas utility company serving the
Lower Peninsula of Michigan, is the principal subsidiary of CMS Energy.
For further information regarding the business of CMS Energy, see the
Notes to the Consolidated Financial Statements of CMS Energy included and
incorporated by reference herein.
In 1995, CMS Energy issued a total of 7.62 million shares of Class G
Common Stock. This new class of common stock reflects the separate
performance of the gas distribution, storage and transportation businesses
conducted by Consumers and Michigan Gas Storage (collectively, Consumers
Gas Group). For further information regarding the nature and issuance of
the Class G Common Stock, see Note 8 to the Consolidated Financial
Statements of CMS Energy included and incorporated by reference herein.
These financial statements and their related notes should be read along
with the financial statements and notes contained in the 1995 Form 10-K of
CMS Energy that includes the Report of Independent Public Accountants,
included and incorporated by reference herein.
2: Summary of Significant Accounting Policies and Other Matters
Basis of Presentation: Consumers is a regulated utility. Accordingly, the
majority of the accounting allocation policies described within these
notes have a long-standing basis and have historically been used in
proceedings conducted before the MPSC. The financial statements for the
Consumers Gas Group have been prepared based upon consistent methods that
management believes are reasonable and appropriate to reflect its
financial position, results of operations and cash flows. Where
appropriate, the financial statements reflect the assets, liabilities,
revenues and expenses directly related to the Consumers Gas Group.
However, in instances where common accounts (containing both electric and
gas activities) were not readily attributable to a single business
segment, management allocated to the Consumers Gas Group's financial
statements based on certain measures of business activities, such as gas
revenues, salaries, other operation and maintenance expenditures, number
of gas customers in relationship to total utility customers and/or
functional use surveys. Management believes the attributions are
reasonable.
Although the financial statements of Consumers Gas Group separately report
the assets, liabilities and stockholders' equity, legal title to such
assets and the responsibility for such liabilities are not separately
identifiable to a specific class of common stock. Therefore, the
creditors of CMS Energy are unaffected by the implementation of the
Consumers Gas Group, because all assets of the corporation remain
available to satisfy all liabilities. The holders of CMS Energy Common
Stock and the Class G Common Stock will be subject to all risks associated
with investments in CMS Energy. Holders of Class G Common Stock have no
direct rights in the equity or assets of Consumers Gas Group, but rather
have rights in the equity and assets of CMS Energy.
The financial statements of the Consumers Gas Group incorporate Consumers'
natural gas utility business and the related business of Michigan Gas
Storage. The Consumers Gas Group and the remaining business segments of
CMS Energy comprise all of the accounts included in the Consolidated
Financial Statements of CMS Energy.
The financial statements of Consumers Gas Group were prepared in
accordance with generally accepted accounting principles on a consistent
basis and include the use of management's estimates. Any future changes
in accounting policy not mandated by appropriate authorities must be, in
management's opinion, preferable to the policy in place and must be
disclosed in accordance with generally accepted accounting principles.
For presentation purposes, all material transactions between companies
within the Consumers Gas Group have been eliminated.
Earnings Per Share and Dividends: Earnings per share, for year ended
December 31, 1995, reflect the performance of the Consumers Gas Group
since the initial issuance of the Class G Common Stock during the third
quarter of 1995. The Class G Common Stock participates in earnings and
dividends from the issue date. The earnings (loss) attributable to such
common stock and the related amounts per share are computed by considering
the weighted average number of common shares outstanding.
The earnings (loss) attributable to outstanding Class G Common Stock are
equal to Consumers Gas Group's net income (loss) multiplied by a fraction,
the numerator is the weighted average number of Outstanding Shares during
the period and the denominator represents the weighted average number of
Outstanding Shares and Retained Interest Shares during the period. The
earnings attributable to Class G Common Stock on a per share basis, for
the year ended December 31, 1995, are based on 23.45 percent of the
earnings of the Consumers Gas Group since the initial issuance.
Earnings per share are omitted from the statements of income, for the
years ended December 31, 1994 and 1993, since the Class G Common Stock was
not part of the equity structure of CMS Energy. For purpose of analysis,
following are pro forma data for the years ended December 31, 1995 and
1994 which give effect to the issuance and sale of 7.52 million shares of
Class G Common Stock (representing 23.50 percent of the equity
attributable to the Consumers Gas Group) on January 1, 1994.
In Millions, Except Per Share Amounts
Pro Forma Pro Forma
Years Ended December 31 1995 1994
- ----------------------- ----- -----
Consumers Gas Group Net Income $ 62 $ 53
Net Income attributable to CMS Energy
Common Stock through Retained Interest $ 47 $ 41
Net Income attributable to outstanding
Class G Common Stock $ 15 $ 12
Average shares outstanding
of Class G Common Stock 7.536 7.520
Earnings per share attributable to
outstanding Class G Common Stock $1.93 $1.66
Holders 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 the Board
of Directors, dividends may 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 of 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.
The portion of Consumers' common dividends attributed to the Consumers Gas
Group, for periods prior to the July 1995 issuance of the Class G Common
Stock, have been reflected in the financial statements. These dividend
amounts were allocated based on the ratio of the Consumers Gas Group's net
income to Consumers' consolidated net income after dividends on preferred
stock. This ratio was then applied to Consumers' total dividend payments
for these periods. Dividends declared on the Class G Common Stock
following the issuance are also reflected in the financial statements. In
July and October 1995, the Board of Directors declared quarterly dividends
of $.28 per share ($1.12 per share on an annual basis) on Class G Common
Stock.
Related Party Transactions: The Consumers Gas Group sold, stored and
transported natural gas and provided other services to the MCV Partnership
totaling approximately $13 million for 1995, $13 million for 1994 and $14
million for 1993. Consumers Gas Group purchases a portion of its gas from
an affiliate, CMS NOMECO. The amounts of purchases for the years ended
December 31, 1995, 1994 and 1993 totaled $19 million, $1 million and $3
million, respectively.
Other: For significant accounting policies regarding Consumers Gas
Group's gas inventory, maintenance, depreciation and depletion, revenue
and fuel costs, and utility regulation, as well as the effect of new
accounting standards, see Note 2 to the Consolidated Financial Statements
of CMS Energy included and incorporated by reference herein.
For significant accounting policies regarding income taxes, see Note 4;
for pensions and other postretirement benefits, see Note 9; and for cash
equivalents, see Note 12.
3: Rate Matters
For information regarding rate matters directly affecting the Consumers
Gas Group, see the "Gas Rates" and "GCR Matters" discussions in Note 4 to
the Consolidated Financial Statements of CMS Energy included and
incorporated by reference herein.
4: Income Taxes
The Consumers Gas Group is included in the consolidated federal income tax
return filed by CMS Energy (see Note 5 to the Consolidated Financial
Statements of CMS Energy). The financial statement provision and actual
cash tax payments have been reflected in the Consumers Gas Group's
financial statements in accordance with CMS Energy's tax allocation
policy. The financial statement amounts reflect management's estimate of
the separate taxable income of the segment, the effect of deferred tax
accounting for temporary differences that arise, the amortization of ITC
over the life of the related property included within the Consumers Gas
Group and any AMT credit carryforwards that can be carried forward
indefinitely to reduce regular tax liabilities in future periods related
to the Consumers Gas Group. Tax settlements at Consumers Gas Group are
consistent with settlements of CMS Energy's consolidated returns and are
generally settled in the year, or in the year following the year in which
such amounts are accrued.
The significant components of income tax expense (benefit) for the
Consumers Gas Group consisted of:
In Millions
Years Ended December 31 1995 1994 1993
Current federal income taxes $34 $37 $34
Deferred income taxes 16 6 6
Deferred ITC, net (2) (2) (2)
---- ---- ----
$48 $41 $38
==== ==== ====
Operating $48 $41 $39
Other - - (1)
---- ---- ----
$48 $41 $38
==== ==== ====
The principal components of deferred tax assets (liabilities) recognized
in the balance sheet for the Consumers Gas Group are as follows:
In Millions
December 31 1995 1994
Property $(54) $(54)
Postretirement benefits (Note 9) (59) (58)
Employee benefit obligations (includes
postretirement benefits of $59
and $56) (Note 9) 70 68
Regulatory liability for income taxes 57 50
Other 9 13
----- -----
$ 23 $ 19
===== =====
Gross deferred tax liabilities $(227) $(235)
Gross deferred tax assets 250 254
----- -----
$ 23 $ 19
===== =====
The actual income tax expense for Consumers Gas Group differs from the
amount computed by applying the statutory federal tax rate to income
before income taxes as follows:
In Millions
Years Ended December 31 1995 1994 1993
Net income before preferred dividends $ 68 $ 58 $ 68
Income tax expense 48 41 38
----- ----- -----
116 99 106
Statutory federal income tax rate X 35% X 35% X 35%
----- ----- -----
Expected income tax expense 41 35 37
Increase (decrease) in taxes from:
Differences in book and tax
depreciation not previously deferred 9 8 7
ITC amortization (2) (2) (2)
Other, net - - (4)
----- ----- -----
$48 $41 $38
===== ===== =====
5: Short-Term Financings
Consumers' short-term financings are discussed in Note 6 to the
Consolidated Financial Statements of CMS Energy included and incorporated
by reference herein.
Consumers generally manages its short-term financings on a centralized
consolidated basis. The portion of receivables sold attributable to the
Consumers Gas Group at December 31, 1995 and 1994, is estimated by
management to be $137 million and $111 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 borrowing to finance the purchase of gas for storage in the
summer and fall periods. The allocation of short-term financings and
related interest charges to Consumers Gas Group generally follows the
ratio of gas utility assets to total Consumers' assets. Additionally, the
carrying costs for Consumers' sales of certain of its accounts receivable
under its trade receivable purchase and sale agreement generally are
allocated to the Consumers Gas Group based on the ratio of customer
revenues contributed by Consumers' gas customers to total Consumers'
revenue. However, as a result of the centralized management of short-term
financing, the amounts allocated to the Consumers Gas Group are further
adjusted in both the seasonal gas inventory build-up period (second and
third quarters) and the high seasonal gas sales periods (first and fourth
quarters) to more closely reflect the higher short-term financing
requirements of the inventory build-up period and conversely the lower
financing requirements during the higher sales periods. Management
believes these allocations to be reasonable.
6: Capitalization
Capital Stock and Long-Term Debt: Consumers Gas Group's capital stock
and long-term debt have been allocated based on the ratio of gas utility
assets (including common assets attributed to the gas utility segment) to
total Consumers' assets. Management believes these measurements are
reasonable. For information regarding the capital stock and long-term
debt of CMS Energy and Consumers, see Notes 7 and 8 to the Consolidated
Financial Statements of CMS Energy included and incorporated by reference
herein.
7: Financial Instruments
The carrying amount of Consumers Gas Group's long-term debt was $411
million and $426 million and the fair value was $417 million and $403
million as of December 31, 1995 and 1994, respectively. For additional
information regarding financial instruments, see Note 10 to the
Consolidated Financial Statements of CMS Energy included and incorporated
by reference herein.
8: Executive Incentive Compensation
For information regarding CMS Energy's Performance Incentive Stock Plan,
restricted shares of common stock, stock options and stock appreciation
rights, see Note 11 to the Consolidated Financial Statements of CMS Energy
included and incorporated by reference herein. This plan was amended
during 1995 to provide for awards of Class G Common Stock, to establish
criteria for certain plan awards and to increase the number of shares
reserved for award.
9: Retirement Benefits
Postretirement Benefit Plans Other Than Pensions: The Consumers Gas
Group's attributed portion of CMS Energy's net periodic cost for health
and life insurance benefits totaled $15 million, $17 million and $16
million in 1995, 1994 and 1993, respectively. These allocations were
based on the ratio of salaries and wages related to Consumers' gas
operations to Consumers' total salaries and wages. Management believes
these allocations are reasonable.
Consumers Gas Group's attributed portion of CMS Energy's total recorded
liability for postretirement benefit plans is estimated to be $169 million
and $166 million at December 31, 1995 and 1994, respectively. These
amounts were allocated based on policies Consumers has historically used
in proceedings conducted before the MPSC. For further information
regarding CMS Energy's postretirement benefit plans other than pensions,
see Note 12 to the Consolidated Financial Statements of CMS Energy
included and incorporated by reference herein.
Supplemental Executive Retirement Plan: The attributed trust assets of
Consumers Gas Group at cost (which approximates market) were $6 million
and $4 million, at December 31, 1995 and 1994 respectively, and were
classified as other non-current assets. These allocations were based on a
ratio of salaries and wages related to Consumers' gas operations to
Consumers' total salaries and wages. Management believes these
allocations are reasonable. For further information, see Note 12 to the
Consolidated Financial Statements of CMS Energy included and incorporated
by reference herein.
Defined Benefit Pension Plan: A trusteed, non-contributory, defined
benefit Pension Plan covers substantially all employees. Consumers Gas
Group's attributed portion of CMS Energy's net periodic pension cost
totaled $3 million in 1995, 1994 and 1993. These allocations were based
on the ratio of salaries and wages related to Consumers' gas operations to
Consumers' total salaries and wages. Management believes these allocations
are reasonable.
Consumers Gas Group's attributed portion of CMS Energy's total recorded
liability for the Pension Plan totaled $10 million at December 31, 1995
and 1994 and was allocated to the Consumers Gas Group based on the ratio
of salaries and wages related to Consumers' gas operations to Consumers'
total salaries and wages. Consumers Gas Group's estimated portion of
CMS Energy's recorded liability for the SERP totaled $5 million at
December 31, 1995 and $4 million at December 31, 1994 and was allocated to
the Consumers Gas Group based on the ratio of salaries and wages related
to Consumers' gas operations to Consumers' total salaries and wages.
Management believes these allocations are reasonable. For further
information, see Note 12 to the Consolidated Financial Statements of
CMS Energy included and incorporated by reference herein.
10: Leases
CMS Energy and its subsidiaries lease various assets, including vehicles,
aircraft, construction equipment, computer equipment and buildings.
Consumers Gas Group's attributed portion of CMS Energy's minimum rental
commitments under non-cancelable leases at December 31, 1995, were:
In Millions
Capital Operating
Leases Leases
1996 $ 6 $ 1
1997 6 -
1998 5 -
1999 4 -
2000 3 -
2001 and thereafter 7 -
---- ----
Total minimum lease payments 31 $ 1
Less imputed interest 6 ====
----
Present value of net minimum lease payments 25
Less current portion 5
----
Non-current portion $ 20
====
Consumers recovers these charges from customers and accordingly charges
payments for its capital and operating leases to operating expense.
Operating lease charges for the Consumers Gas Group, including charges to
clearing and other accounts as of December 31, 1995, 1994 and 1993, were
$1 million, $1 million and $1 million, respectively. Capital lease
expenses for the Consumers Gas Group for the years ended December 31,
1995, 1994 and 1993 were $7 million, $6 million and $6 million,
respectively.
Consumers Gas Group's minimum rental commitments and lease expenses are
generally allocated based on the specific use of the leased item. Common
leases are allocated to Consumers Gas Group through functional use
surveys, which management believes to be reasonable.
11: Commitments and Contingencies
Capital Expenditures: The Consumers Gas Group estimates capital
expenditures, including new lease commitments, will be $124 million for
1996, $110 million for 1997 and $105 million for 1998. These estimates
include an attributed portion of Consumers' anticipated capital
expenditures for common plant and equipment.
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,"
"Commitments for Gas Supplies" and "Other" discussions in Note 14 to the
Consolidated Financial Statements of CMS Energy included and incorporated
by reference herein.
12: 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. Consumers Gas Group's other cash flow activities and
non-cash investing and financing activities for the years ended December
31 were:
In Millions
1995 1994 1993
Cash transactions
Interest paid (net of amounts
capitalized) $ 35 $ 33 $ 37
Income taxes paid (net of refunds) 25 31 42
Non-cash transactions
Assets placed under
capital lease $ 2 $ 5 $ 5
Capital leases refinanced 9 - 12
Changes in other assets and liabilities as shown on the Statements of Cash
Flows at December 31 are described below:
In Millions
1995 1994 1993
Sale of receivables, net $ 26 $ (13) $ 72
Accounts receivable (39) 11 (35)
Accrued revenue (35) 30 (31)
Inventories 50 (6) (24)
Accounts payable 11 1 (7)
Accrued refunds - - (10)
Other current assets and liabilities, net (8) (1) (17)
Non-current deferred amounts, net 11 (7) (15)
----- ----- -----
$ 16 $ 15 $(67)
===== ===== =====
13: Effects of the Ratemaking Process
The following regulatory assets (liabilities) which include both current
and non-current amounts, are reflected in Consumers Gas Group's Balance
Sheets. These assets represent probable future revenue to Consumers
associated with certain incurred costs as these costs are recovered
through the ratemaking process.
In Millions
December 31 1995 1994
Postretirement benefits (Note 9) $ 169 $ 166
Trunkline settlement 55 85
Manufactured gas plant sites 47 47
Other 5 14
----- -----
Total regulatory assets $ 276 $ 312
===== =====
Regulatory liabilities for income taxes $(162) $(144)
===== =====
At December 31, 1995, $55 million of Consumers Gas Group's regulatory
assets are being recovered through rates being charged to customers over 2
years. Consumers anticipates MPSC approval for recovery of the remaining
amounts.
<PAGE>
<PAGE> 18
<TABLE>
Quarterly Financial and Common Stock Information Consumers Gas Group
<CAPTION>
In Millions,
Except Per Share Amounts
1995 (Unaudited) 1994 (Unaudited)
Quarters Ended March 31 June 30 Sept. 30 Dec. 31 March 31 June 30 Sept. 30 Dec. 31
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Operating revenue $482 $197 $122 $394 $528 $183 $126 $314
Pretax operating income $91 $17 $2 $41 $84 $18 $4 $29
Net income (loss) $49 $3 $(8) $18 $46 $4 $(5) $8
Earnings (loss) per average
common share - - $(.17) $.55 - - - -
Dividends declared per
common share - - $.28 $.28 - - - -
Common stock prices (a)
High - - $18-3/4 $18-7/8 - - - -
Low - - $16-1/8 $17-5/8 - - - -
<FN>
(a) Based on New York Stock Exchange - Composite transactions.
</TABLE>
<PAGE>
<PAGE>
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
CMS ENERGY CORPORATION
AND
CONSUMERS POWER COMPANY
FORM 10-K
EXHIBITS
FOR FISCAL YEAR ENDED DECEMBER 31, 1995
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
<PAGE>
<PAGE>
The following exhibits are applicable to CMS Energy and Consumers except
where otherwise indicated "CMS ONLY":
CMS Energy
and Consumers
Exhibit Numbers
- ----------------
1(1)-(2) - Not applicable.
(3)(a) (CMS ONLY) - Restated Articles of Incorporation of
CMS Energy Corporation. (Designated in
CMS Energy Corporation's Form S-4 dated
June 6, 1995, File No. 33-60007, as
Exhibit (3)(i).)
(3)(b) (CMS ONLY) - Copy of the By-Laws of CMS Energy
Corporation (Designated in CMS Energy
Corporation's Form 10-K for the year ended
December 31, 1994, File No. 1-9513, as
Exhibit 3(b).)
(3)(c) - Restated Articles of Incorporation of
Consumers Power Company. (Designated in
Consumers Power Company's Form 10-K for
the year ended December 31, 1994, File No.
1-5611, as Exhibit 3(c).)
(3)(d) - Copy of By-Laws of Consumers Power
Company. (Designated in Consumers Power
Company's Form 10-K for the year ended
December 31, 1994, File No. 1-5611, as
Exhibit 3(d).)
(4)(a) - Composite Working Copy of Indenture dated
as of September 1, 1945, between Consumers
Power Company and Chemical Bank (successor
to Manufacturers Hanover Trust Company),
as Trustee, including therein indentures
supplemental thereto through the
Forty-third Supplemental Indenture dated
as of May 1, 1979. (Designated in
Consumers Power Company's Registration
No. 2-65973 as Exhibit (b)(1)-4.)
Indentures Supplemental thereto:
Consumers
Power Company
Sup Ind/Dated as ofFile ReferenceExhibit
----------------------------------------
65th 02/15/88 Form 8-K dated
Feb 18, 1988
File No 1-5611 (4)
67th 11/15/89 Reg No 33-31866(4)(d)
68th 06/15/93 Reg No 33-41126(4)(c)
69th 09/15/93 Form 8-K dated
September 21, 1993
File No 1-5611 (4)
(4)(b) - Indenture dated as of January 1, 1996
between Consumers Power Company and The
Bank of New York, as Trustee.
First Supplemental Indenture dated as of
January 18, 1996 between Consumers Power
Company and The Bank of New York, as
Trustee.
(4)(c) (CMS ONLY) - Indenture between CMS Energy Corporation
and NBD Bank, National Association, as
Trustee. (Designated in CMS Energy's
Form S-3 Registration Statement filed
May 1, 1992, File No. 33-47629, as
Exhibit (4)(a).)
First Supplemental Indenture dated as of
October 1, 1992 between CMS Energy
Corporation and NBD Bank, National
Association, as Trustee. (Designated in
CMS Energy's Form 8-K dated October 1,
1992, File No. 1-9513, as Exhibit (4).)
Second Supplemental Indenture dated as of
October 1, 1992 between CMS Energy
Corporation and NBD Bank, National
Association, as Trustee. (Designated in
CMS Energy's Form 8-K dated October 1,
1992, File No. 1-9513, as Exhibit (4).)
(4)(d) (CMS ONLY) - Indenture between CMS Energy Corporation
and Chase Manhattan Bank (National
Association), as Trustee, dated as of
January 15, 1994. (Designated in
CMS Energy's Form 8-K dated March 29,
1994, File No. 1-9513, as Exhibit (4a).)
First Supplemental Indenture dated as of
January 20, 1994 between CMS Energy
Corporation and Chase Manhattan Bank
(National Association), as Trustee.
(Designated in CMS Energy's Form 8-K dated
March 29, 1994, File No. 1-9513, as
Exhibit (4b).)
(5)-(9) - Not applicable.
(10)(a) (CMS ONLY) - Credit Agreement dated as of November 21,
1995, among CMS Energy Corporation, the
Banks, the Co-Agents, the Documentation
Agent, the Operational Agent and the Co-
Managers, all as defined therein, and the
Exhibits thereto. (Designated in CMS
Energy's Form S-4 Registration Statement
filed January 12, 1996, File No. 33-60007,
as Exhibit 4(ii).)
(10)(b) (CMS ONLY) - Term Loan Agreement dated as of November
21, 1995, among CMS Energy Corporation,
the Banks, the Co-Agents, the
Documentation Agent, the Operational Agent
and the Co-Managers, all as defined
therein, and the Exhibits thereto.
(Designated in CMS Energy's Form S-4
Registration Statement filed January 12,
1996, File No. 33-60007, as Exhibit
4(ii)(A).)
(10)(c) - Employment Agreement dated as of August 1,
1990 among Consumers Power Company,
CMS Energy Corporation and William T.
McCormick, Jr (Designated in CMS Energy
Corporation's Form 10-K for the year ended
December 31, 1990, File No. 1-9513, as
Exhibit (10)(c).)
(10)(d) - Employment Agreement effective as of
June 15, 1988 among Consumers Power
Company, CMS Energy Corporation and
Victor J. Fryling. (Designated in
Consumers Power Company's Form 10-K for
the year ended December 31, 1988, File
No. 1-5611, as Exhibit (10)(i).)
(10)(e) - Employment Agreement dated May 26, 1989
between Consumers Power Company and
Michael G. Morris. (Designated in
Consumers Power Company's Form 10-K for
the year ended December 31, 1990, File
No. 1-5611, as Exhibit (10)(f).)
(10)(f) - Employment Agreement dated May 26, 1989
between Consumers Power Company and
David A. Mikelonis. (Designated in
Consumers Power Company's Form 10-K for
the year ended December 31, 1991, File
No. 1-5611, as Exhibit 10(h).)
(10)(g) - Employment Agreement dated May 26, 1989
among Consumers Power Company, CMS Energy
Corporation and John W. Clark.
(Designated in CMS Energy Corporation's
Form 10-K for the year ended December 31,
1990, File No. 1-9513, as
Exhibit (10)(f).)
(10)(h) - Employment Agreement dated March 25, 1992
between Consumers Power Company,
CMS Energy Corporation and Alan M. Wright.
(Designated in Consumers Power Company's
Form 10-K for the year ended December 31,
1992, File No. 1-5611, as Exhibit 10(j).)
(10)(i) - Employment Agreement dated March 25, 1992
between Consumers Power Company and
Paul A. Elbert. (Designated in Consumers
Power Company's Form 10-K for the year
ended December 31, 1992, File No. 1-5611,
as Exhibit 10(k).)
(10)(j) (CMS ONLY) - Employment Agreement dated January 12,
1996 between CMS Energy Corporation and
Rodger A. Kershner.
(10)(k) - Consumers Power Company's Executive Stock
Option and Stock Appreciation Rights Plan
effective December 1, 1989. (Designated
in Consumers Power Company's Form 10-K for
the year ended December 31, 1990, File
No. 1-5611, as Exhibit (10)(g).)
(10)(l) - CMS Energy Corporation's Performance
Incentive Stock Plan effective as of
December 1, 1989. (Designated in
CMS Energy Corporation's Form S-8
Registration Statement filed August 4,
1995, File No. 33-61595, as
Exhibit (4)(d).)
(10)(m) - CMS Deferred Salary Savings Plan effective
January 1, 1994. (Designated in
CMS Energy Corporation's Form 10-K for the
year ended December 31, 1993, File
No. 1-9513, as Exhibit (10)(m).)
(10)(n) - CMS Energy Corporation and Consumers Power
Company Annual Executive Incentive
Compensation Plan effective January 1,
1986, as amended January 1995.
(10)(o) - Consumers Power Company's Supplemental
Executive Retirement Plan effective
November 1, 1990. (Designated in
Consumers Power Company's Form 10-K for
the year ended December 31, 1993, File
No. 1-5611, as Exhibit (10)(o).)
(10)(p) - Senior Trust Indenture, Leasehold Mortgage
and Security Agreement dated as of June 1,
1990 between The Connecticut National Bank
and United States Trust Company of New
York. (Designated in Midland Cogeneration
Venture Limited Partnership's Form S-1
filed November 23, 1990, File
No. 33-37977, as Exhibit 4.1.)
Indenture Supplemental thereto:
Supplement No. 1 dated as of June 1, 1990.
(Designated in Midland Cogeneration
Venture Limited Partnership's Form S-1
filed November 23, 1990, File
No. 33-37977, as Exhibit 4.2.)
(10)(q) - Collateral Trust Indenture dated as of
June 1, 1990 among Midland Funding
Corporation I, Midland Cogeneration
Venture Limited Partnership and United
States Trust Company of New York, Trustee.
(Designated in CMS Energy Corporation's
Form 10-Q for the quarter ended June 30,
1990, File No. 1-9513, as
Exhibit (28)(b).)
Indenture Supplemental thereto:
Supplement No. 1 dated as of June 1, 1990.
(Designated in Midland Cogeneration
Venture Limited Partnership's Form S-1
filed November 23, 1990, File
No. 33-37977, as Exhibit 4.4.)
(10)(r) - Amended and Restated Investor Partner Tax
Indemnification Agreement dated as of
June 1, 1990 among Investor Partners,
CMS Midland Holdings Corporation as
Indemnitor and CMS Energy Corporation as
Guarantor. (Designated in CMS Energy
Corporation's Form 10-K for the year ended
December 31, 1990, File No. 1-9513, as
Exhibit (10)(v).)
(10)(s) - Environmental Agreement dated as of
June 1, 1990 made by CMS Energy
Corporation to The Connecticut National
Bank and Others. (Designated in
CMS Energy Corporation's Form 10-K for the
year ended December 31, 1990, File
No. 1-9513, as Exhibit (10)(y) and
Form 10-Q for the quarter ended
September 30, 1991, File No. 1-9513, as
Exhibit (19)(d).)**
(10)(t) - Indemnity Agreement dated as of June 1,
1990 made by CMS Energy Corporation to
Midland Cogeneration Venture Limited
Partnership. (Designated in CMS Energy
Corporation's Form 10-K for the year ended
December 31, 1990, File No. 1-9513, as
Exhibit (10)(z).)**
(10)(u) - Environmental Agreement dated as of
June 1, 1990 made by CMS Energy
Corporation to United States Trust Company
of New York, Meridian Trust Company, each
Subordinated Collateral Trust Trustee and
Holders from time to time of Senior Bonds
and Subordinated Bonds and Participants
from time to time in Senior Bonds and
Subordinated Bonds. (Designated in
CMS Energy Corporation's Form 10-K for the
year ended December 31, 1990, File
No. 1-9513, as Exhibit (10)(aa).)**
(10)(v) - Amended and Restated Participation
Agreement dated as of June 1, 1990 among
Midland Cogeneration Venture Limited
Partnership, Owner Participant, The
Connecticut National Bank, United States
Trust Company, Meridian Trust Company,
Midland Funding Corporation I, Midland
Funding Corporation II, MEC Development
Corporation and Institutional Senior Bond
Purchasers. (Designated in Midland
Cogeneration Venture Limited Partnership's
Form S-1 filed November 23, 1990, File
No. 33-37977, as Exhibit 4.13.)
Amendment No. 1 dated as of July 1, 1991.
(Designated in Consumers Power Company's
Form 10-K for the year ended December 31,
1991, File No. 1-5611, as
Exhibit (10)(w).)
(10)(w) - Power Purchase Agreement dated as of
July 17, 1986 between Midland Cogeneration
Venture Limited Partnership and Consumers
Power Company. (Designated in Midland
Cogeneration Venture Limited Partnership's
Form S-1 filed November 23, 1990, File
No. 33-37977, as Exhibit 10.4.)
Amendments thereto:
Amendment No. 1 dated September 10, 1987.
(Designated in Midland Cogeneration
Venture Limited Partnership's Form S-1
filed November 23, 1990, File
No. 33-37977, as Exhibit 10.5.)
Amendment No. 2 dated March 18, 1988.
(Designated in Midland Cogeneration
Venture Limited Partnership's Form S-1
filed November 23, 1990, File
No. 33-37977, as Exhibit 10.6.)
Amendment No. 3 dated August 28, 1989.
(Designated in Midland Cogeneration
Venture Limited Partnership's Form S-1
filed November 23, 1990, File
No. 33-37977, as Exhibit 10.7.)
Amendment No. 4A dated May 25, 1989.
(Designated in Midland Cogeneration
Venture Limited Partnership's Form S-1
filed November 23, 1990, File
No. 33-37977, as Exhibit 10.8.)
(10)(x) - Request for Approval of Settlement
Proposal to Resolve MCV Cost Recovery
Issues and Court Remand, filed with the
Michigan Public Service Commission on
July 7, 1992, MPSC Case No. U-10127.
(Designated in CMS Energy Corporation's
and Consumers Power Company's Forms 10-K
for the year ended December 31, 1991 as
amended by Form 8 dated July 15, 1992 as
Exhibit (28).)
(10)(y) - Settlement Proposal Filed on July 7, 1992
as Revised on September 8, 1992 by Filing
with the Michigan Public Service
Commission. (Designated in CMS Energy
Corporation's and Consumers Power
Company's Forms 8-K dated September 8,
1992 as Exhibit (28).)
(10)(z) - Michigan Public Service Commission Order
Dated March 31, 1993, Approving with
Modifications the Settlement Proposal
Filed on July 7, 1992, as Revised on
September 8, 1992. (Designated in
CMS Energy Corporation's and Consumers
Power Company's Forms 10-K for the year
ended December 31, 1992 as
Exhibit (10)(cc).)
(10)(aa) - Unwind Agreement dated as of December 10,
1991 by and among CMS Energy Corporation,
Midland Group, Ltd., Consumers Power
Company, CMS Midland, Inc., MEC
Development Corp. and CMS Midland Holdings
Company. (Designated in Consumers Power
Company's Form 10-K for the year ended
December 31, 1991, File No. 1-5611, as
Exhibit (10)(y).)
(10)(bb) - Stipulated AGE Release Amount Payment
Agreement dated as of June 1, 1990, among
CMS Energy Corporation, Consumers Power
Company and The Dow Chemical Company.
(Designated in Consumers Power Company's
Form 10-K for the year ended December 31,
1991, File No. 1-5611, as
Exhibit (10)(z).)
(10)(cc) - Parent Guaranty dated as of June 14, 1990
from CMS Energy Corporation to MCV, each
of the Owner Trustees, the Indenture
Trustees, the Owner Participants and the
Initial Purchasers of Senior Bonds in the
MCV Sale Leaseback transaction, and MEC
Development. (Designated in Consumers
Power Company's Form 10-K for the year
ended December 31, 1991, File No. 1-5611,
as Exhibit (10)(aa).)**
(11)-(12) - Not applicable.
(13) - Not Applicable.
(14)-(20) - Not applicable.
(21)(a) (CMS ONLY) - Subsidiaries of CMS Energy Corporation.
(21)(b) - Subsidiaries of Consumers Power Company.
(22) - Not applicable.
(23) - Consents of experts and counsel.
(24)(a) - Power of Attorney for CMS Energy
Corporation.
(24)(b) - Power of Attorney for Consumers Power
Company.
(25)-(26) - Not applicable.
(27)(a) - Financial Data Schedule UT for CMS Energy
Corporation.
(27)(b) - Financial Data Schedule UT for Consumers
Power Company.
(28) - Not applicable
(99) - CMS Energy: Consumers Gas Group Financials
** Obligations of only CMS Holdings and CMS Midland, second tier
subsidiaries of Consumers, and of CMS Energy but not of Consumers.
Exhibits listed above which have heretofore been filed with the Securities
and Exchange Commission pursuant to various acts administered by the
Commission, and which were designated as noted above, are hereby
incorporated herein by reference and made a part hereof with the same
effect as if filed herewith.
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