<PAGE>
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
For the fiscal year ended December 31, 1997
OR
[ ] Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the transition period from to
Commission Registrant; State of Incorporation; IRS Employer
File Number Address; and Telephone Number Identification No.
---------- --------------------------------- ------------------
1-9513 CMS ENERGY CORPORATION 38-2726431
(A Michigan Corporation)
Fairlane Plaza South, Suite 1100
330 Town Center Drive,
Dearborn, Michigan 48126
(313)436-9200
1-5611 CONSUMERS ENERGY 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 on
Registrant Title of Class Which Registered
- ------------------ ----------------------------------- ----------------
CMS Energy
Corporation Common Stock, $.01 par value New York
Stock Exchange
Class G Common Stock, no par value New York
Stock Exchange
Consumers Energy
Company First Mortgage Bonds:
6-7/8% Series due 1998; New York
6-5/8% Series due 1998 Stock Exchange
Cumulative Preferred Stock, No par value:
$2.08 Series New York
Stock Exchange
Preferred Stocks, $100 par value:
$4.16 Series, $4.50 Series New York
Stock Exchange
Consumers Power
Company Financing I 8.36% Trust Originated
Preferred Securities New York
Stock Exchange
Consumers Energy
Company Financing II 8.20% Trust Originated
Preferred Securities New York
Stock Exchange
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. [ X ]
The aggregate market value of CMS Energy voting and non-voting common
equity held by non-affiliates was $4,655,322,789 for the 100,949,992
CMS Energy Common Stock shares and the 8,276,292 Class G Common Stock
shares outstanding on February 28, 1998.
On February 28, 1998, CMS Energy held all voting and non-voting common
equity of Consumers.
Documents incorporated by reference: The Registrants' proxy statements
relating to the 1998 annual meeting of shareholders to be held May 22,
1998, are incorporated by reference in Part III, except for the
organization and compensation committee report contained therein.
CMS Energy Corporation
and
Consumers Energy Company
Annual Reports on Form 10-K to the Securities and Exchange Commission
for the Year Ended December 31, 1997
This combined Form 10-K is separately filed by CMS Energy Corporation and
Consumers Energy Company. Information contained herein relating to each
individual registrant is filed by such registrant on its own behalf.
Accordingly, except for its subsidiaries, Consumers Energy 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 . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . 24
Item 3. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . 31
Item 4. Submission of Matters to a Vote of Security Holders. . . . . 34
PART II
Item 5. Market for CMS Energy's and Consumers' Common Equity
and Related Stockholder Matters . . . . . . . . . . . . . 35
Item 6. Selected Financial Data. . . . . . . . . . . . . . . . . . . 35
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . 35
Item 7A. Quantitative and Qualitative Disclosures
About Market Risk . . . . . . . . . . . . . . . . . . . . 36
Item 8. Financial Statements and Supplementary Data. . . . . . . . . 36
Item 9. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure . . . . . . . . . . . 146
PART III
Item 10. Directors and Executive Officers of CMS Energy
and Consumers. . . . . . . . . . . . . . . . . . . . . . 146
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . 146
Item 12. Security Ownership of Certain Beneficial Owners
and Management . . . . . . . . . . . . . . . . . . . . . 146
Item 13. Certain Relationships and Related Transactions . . . . . . . 146
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K . . . . . . . . . . . . . . . . . . . 146
<PAGE>
<PAGE> 3
GLOSSARY
Certain terms used in the text and financial statements are defined below.
ABATE . . . . . . . . . . . . Association of Businesses Advocating Tariff
Equity
ALJ . . . . . . . . . . . . . Administrative Law Judge
Ames. . . . . . . . . . . . . Crescent and Ames gas gathering systems and
processing plant in Oklahoma
AMT . . . . . . . . . . . . . Alternative minimum tax
Articles. . . . . . . . . . . Articles of Incorporation
Attorney General. . . . . . . Michigan Attorney General
bcf . . . . . . . . . . . . . Billion cubic feet
Big Rock. . . . . . . . . . . Big Rock Point nuclear power plant, owned by
Consumers
Board of Directors. . . . . . Board of Directors of CMS Energy
Btu . . . . . . . . . . . . . British thermal unit
CFLCL . . . . . . . . . . . . Companhia Forcia e Luz Cataguazes-
Leopoldina, a Brazilian utility
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
CMS Electric and Gas. . . . . CMS Electric and Gas 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 MST . . . . . . . . . . . CMS Marketing, Services and Trading Company,
a subsidiary of Enterprises
CMS NOMECO. . . . . . . . . . CMS NOMECO Oil & Gas Co., a subsidiary of
Enterprises
Common Stock. . . . . . . . . CMS Energy Common Stock and Class G Common
Stock
Consumers . . . . . . . . . . Consumers Energy 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
DOE . . . . . . . . . . . . . U.S. Department of Energy
Dow . . . . . . . . . . . . . The Dow Chemical Company
DSM . . . . . . . . . . . . . Demand-side management
Enterprises . . . . . . . . . CMS Enterprises Company, a subsidiary of
CMS Energy
EPA . . . . . . . . . . . . . Environmental Protection Agency
EPS . . . . . . . . . . . . . Earning per share
FASB. . . . . . . . . . . . . Financial Accounting Standards Board
FERC. . . . . . . . . . . . . Federal Energy Regulatory Commission
FMLP. . . . . . . . . . . . . First Midland Limited Partnership
GCR . . . . . . . . . . . . . Gas cost recovery
Grand Lacs partnership. . . . Grand Lacs Limited Partnership, a marketing
center for natural gas
GTNs. . . . . . . . . . . . . CMS Energy General Term Notes, $250 million
Series A, $125 million Series B, $150
million Series C and $200 million Series D
Huron . . . . . . . . . . . . Huron Hydrocarbons, Inc., a subsidiary of
Consumers
IRC . . . . . . . . . . . . . Internal Revenue Code
ITC . . . . . . . . . . . . . Investment tax credit
Jorf Lasfar . . . . . . . . . A 1,320 MW coal-fueled power plant in
Morocco, Africa, jointly owned by
CMS Generation and ABB Energy Venture, Inc.
kWh . . . . . . . . . . . . . Kilowatt-hour
Loy Yang. . . . . . . . . . . A 2,000 MW brown coal fueled Loy Yang A
power plant and an associated coal mine in
Victoria, Australia, in which CMS Generation
holds a 50 percent ownership interest
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 in which Consumers has a 49
percent interest through CMS Midland
MD&A. . . . . . . . . . . . . Management's Discussion and Analysis
MichCon . . . . . . . . . . . Michigan Consolidated Gas Company
Michigan Gas Storage. . . . . Michigan Gas Storage Company, a subsidiary
of Consumers
Mbbls . . . . . . . . . . . . Thousand barrels
MMbbls. . . . . . . . . . . . Million barrels
MMBtu . . . . . . . . . . . . Million British thermal unit
MMcf. . . . . . . . . . . . . Million cubic feet
Moss Bluff. . . . . . . . . . Moss Bluff Gas Storage Systems, a
partnership that owns a gas storage facility
MPSC. . . . . . . . . . . . . Michigan Public Service Commission
MW. . . . . . . . . . . . . . Megawatts
Natural Gas Act . . . . . . . Federal Natural Gas Act
NEIL. . . . . . . . . . . . . Nuclear Electric Insurance Ltd.
NRC . . . . . . . . . . . . . Nuclear Regulatory Commission
Order 888 and Order 889 . . . FERC final rules issued on April 24, 1996
Outstanding Shares. . . . . . Outstanding shares of Class G Common Stock
Palisades . . . . . . . . . . Palisades nuclear power plant, owned by
Consumers
PCBs. . . . . . . . . . . . . Poly chlorinated biphenyls
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
Qualifying Facility . . . . . A facility that produces electricity or
steam and electricity and meets the
ownership and technical requirements of
PURPA
Retained Interest Shares. . . Authorized but unissued shares of Class G
Common Stock not held by holders of the
Outstanding Shares and attributable to the
Retained Interest
SEC . . . . . . . . . . . . . Securities and Exchange Commission
Securitization. . . . . . . . A financing authorized by statute in which
the statutorily assured flow of revenues
from a portion of the rates charged by
utilities to their customers is set aside
and pledged as security for the repayment of
rate reduction bonds issued by a special
purpose vehicle affiliated with such
utilities
SERP. . . . . . . . . . . . . Supplemental Executive Retirement Plan
Senior Credit Facilities. . . $1.125 billion senior credit facilities
consisting of a $400 million 364-day
revolving credit facility, a $600 million
three-year revolving credit facility and a
five-year $125 million term loan facility
SFAS. . . . . . . . . . . . . Statement of Financial Accounting Standards
Superfund . . . . . . . . . . Comprehensive Environmental Response,
Compensation and Liability Act
TGN . . . . . . . . . . . . . Transportadora de Gas del Norte S. A., a
natural gas pipeline located in Argentina
Transition Costs. . . . . . . Costs incurred by utilities in order to
serve their customers in a regulated
monopoly environment, but which may not be
recoverable in a competitive environment
because of customers leaving their systems
and ceasing to pay for their costs. These
costs could include owned and purchased
generation, regulatory assets, and costs
incurred in the transition to competition.
Trust Preferred
Securities . . . . . . . . . Undivided beneficial interest in the assets
of statutory business trusts, these
interests have a preference with respect to
certain trust distributions over the
interests of either CMS Energy or Consumers,
as applicable, as owner of the common
beneficial interests of the trusts
Union . . . . . . . . . . . . Utility Workers of America, AFL-CIO
UST . . . . . . . . . . . . . Underground storage tanks
Voluntary Employee
Beneficiary
Association. . . . . . . . . A legal entity, established under guidelines
of the Internal Revenue Code, through which
the company can provide certain benefits for
its employees or retirees
<PAGE>
<PAGE> 7
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 in all 68 counties of Michigan's Lower
Peninsula, is the largest subsidiary of CMS Energy. Enterprises is engaged
in several domestic and international energy-related businesses including:
oil and gas exploration and production; acquisition, development and
operation of independent power production facilities; storage,
transmission and processing of natural gas; energy marketing, services and
trading; and international energy distribution. CMS Energy is exempt from
registration under PUHCA, as described in Item 3. Legal Proceedings.
CMS Energy had consolidated operating revenue in 1997 of $4.8 billion. It
derived 53 percent from the electric utility operations, 25 percent from
the gas utility operations, 14 percent from marketing, services and
trading activities, 4 percent from independent power production and other
non-utility activities, 2 percent from gas transmission, storage and
processing activities, and 2 percent from oil and gas exploration and
production activities. Consumers' consolidated operations in the electric
and gas utility businesses account for the majority of CMS Energy's total
assets, revenue and income. CMS Energy's unconsolidated share of non-
utility independent power production, gas transmission and storage,
marketing services and trading, and international energy distribution
revenue for 1997 was $913 million.
CONSUMERS
Consumers, incorporated in Michigan in 1968, is the successor to a
corporation organized in Maine in 1910 that did business in Michigan from
1915 to 1968. Consumers was named Consumers Power Company from 1910 to the
first quarter of 1997, when Consumers changed its name to Consumers Energy
Company to reflect its increasing focus on providing customers with total
energy solutions.
Consumers' customer base includes a mix of residential, commercial and
diversified industrial customers, the largest segment of which is the
automotive industry. Consumers is a public utility serving gas or
electricity to almost 6 million of Michigan's 9.5 million residents in all
Lower Peninsula counties. Consumers' service area includes automotive,
metal, chemical, food and wood products industries and a diversified group
of other industries.
Consumers had consolidated operating revenue in 1997 of $3.8 billion that
was derived 67 percent from its electric business, 32 percent from its gas
business and 1 percent from its non-utility business. Consumers' rates
and certain other aspects of its business are subject to the jurisdiction
of the MPSC and FERC, as described in CMS Energy and Consumers Regulation
later in this Item.
BUSINESS SEGMENTS
CMS ENERGY AND CONSUMERS FINANCIAL INFORMATION
For information with respect to operating revenue, net operating income,
identifiable assets and liabilities attributable to all of CMS Energy's
business segments and international and domestic operations, see Item 8.
Financial Statements and Supplementary Data - Selected Financial
Information and CMS Energy's Consolidated Financial Statements and Notes
to Consolidated Financial Statements.
For information with respect to the operating revenue, net operating
income, identifiable assets and liabilities attributable only to
Consumers' business segments, see Item 8. Financial Statements and
Supplementary Data - Selected Financial Information and Consumers'
Consolidated Financial Statements and Notes to Consolidated Financial
Statements.
CMS ENERGY AND CONSUMERS PRINCIPAL OPERATIONS
CMS Energy conducts its principal operations through the following six
business segments: electric utility operations; gas utility operations;
oil and gas exploration and production operations; independent power
production; energy marketing, services and trading; and storage,
transmission and processing of natural gas. Consumers conducts
CMS Energy's domestic electric and gas utility operations.
CMS Energy's international operations are subject to the risks inherent in
conducting business abroad, including possible nationalization or
expropriation, local market price and restrictions. Changes in the
relative value of currencies occur from time to time and their effects may
be favorable or unfavorable on results of operations. In addition, there
are exchange control restrictions in certain countries which may effect
repatriation of earnings.
CMS Energy and Consumers believe that they and their subsidiaries are
adequately insured for the various risk exposures, including political
risk, incidental to their respective businesses.
CONSUMERS ELECTRIC UTILITY OPERATIONS
Consumers generates, purchases, transmits, or distributes electricity in
61 of Michigan's 68 Lower Peninsula counties. Principal cities served
include Battle Creek, Flint, Grand Rapids, Jackson, Kalamazoo, Midland,
Muskegon and Saginaw. Consumers' electric utility customer base includes a
mix of residential, commercial, and diversified industrial customers, the
largest segment of which is the automotive industry. Consumers' electric
operations are not dependent upon a single customer, or even a few
customers, and the loss of any one or even a few of such customers would
not have a material adverse effect on its financial condition. Consumers
had 1.6 million electric customers at December 31, 1997.
Consumers' electric operations are seasonal. The summer months increase
demand for energy, thereby, affecting revenues. Total electric sales in
1997 were a record 38 billion Kwh, a 2.3 percent increase from the 1996
levels including a 1.2 percent increase in system sales to Consumers'
ultimate customers. Electric operating revenue in 1997 was $2.5 billion,
an increase of 2.8 percent from 1996.
Consumers achieved a peak demand of 7,315 MW in July 1997, exceeding the
1996 peak by 2.1 percent (or 148 MW). Peak demands for 1997 were 5,811 MW
in the winter and 7,315 MW in the summer. Based on actual peaks,
Consumers' reserve margin was 10.4 percent in 1997 compared to 12.7
percent in 1996. Based on weather-adjusted peaks, Consumers' reserve
margin was 10.4 percent in 1997 compared to 13.3 percent in 1996.
Consumers owned and operated 28 electric generating plants for the
majority of 1997 with an aggregate net demonstrated capacity of 6,255 MW
available under summer conditions in 1997 (including Big Rock which was
retired at the end of August). In 1997, Consumers purchased 1,648 MW of
net capacity, which amounted to 34.3 percent of Consumers' total system
requirements, from independent power producers, the largest being the MCV
Partnership. For additional information on Consumers' electric
properties, see Item 2. Properties - Consumers Electric Utility
Properties.
A transmission system interconnects Consumers' electric generating plants
at many locations with transmission facilities of unaffiliated systems,
including those of other utilities in Michigan and Indiana. The
interconnections permit a sharing of the reserve capacity of the connected
systems. This allows mutual assistance during emergencies and
substantially reduces investment in utility plant facilities.
FUEL: Consumers has five generating plants that use coal as a fuel source
and that constitute 77 percent of its baseload capacity. These plants
combined to produce a total of 16,427 million Kwhs in 1997 and required
7.2 million tons of coal. At December 31, 1997, Consumers had long-term
contracts covering 60 to 70 percent of its anticipated coal requirements
for 1998. Consumers will acquire the remaining coal requirement through
short-term agreements or spot purchases. Consumers' coal inventory on
December 31, 1997 amounted to approximately 43 days' supply.
Consumers owned and operated two nuclear power plants for the majority of
1997, Palisades, near South Haven, Michigan, and Big Rock, near
Charlevoix, Michigan. Big Rock closed permanently on August 29, 1997.
During 1997, the combined net generation of these plants was 5,970 million
Kwhs, constituting 26 percent of Consumers' baseload generation. As of
December 31, 1997, Palisades constituted 25 percent of Consumers' baseload
generation with a net generation of 5,776 million Kwhs in 1997. Consumers
currently has one contract for uranium concentrate sufficient to cover
approximately 10 percent of its requirements. Consumers intends to
purchase the balance of its 1998 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 Consumers'
requirements until the year 2000. Consumers renegotiated the fabrication
contract in 1995 for Palisades. The contract remains in effect for the
next six Palisades reloads with options to extend for an additional two
reloads. These contracts are with major private industrial suppliers of
nuclear fuel and related services and with the United States Government.
For further information on the Big Rock closing, see Item 8. Financial
Statements and Supplementary Data - Note 7 of Consumers Notes to
Consolidated Financial Statements.
As shown below, Consumers generates electricity principally from coal and
nuclear fuel.
POWER GENERATED MILLIONS OF Kwhs
__________________________________________________________________________
1997 1996 1995 1994 1993
__________________________________________________________________________
Coal 16,427 16,928 15,956 17,401 16,520
Nuclear 5,970 5,653 5,353 4,904 3,938
Oil 258 364 318 322 238
Gas 80 74 238 91 110
Hydro 467 473 420 481 489
Net pumped storage (a) (477) (419) (373) (414) (394)
__________________________________________________________________________
Total net generation 22,725 23,073 21,912 22,785 20,901
__________________________________________________________________________
__________________________________________________________________________
(a) Represents Consumers' share of net generation from Ludington. This
facility pumps water into a storage pond using electricity generated
during off-peak hours to generate electricity later 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
__________________________________________________________________________
1997 1996 1995 1994 1993
__________________________________________________________________________
Coal $1.53 $1.50 $1.51 $1.57 $1.60
Oil 2.97 2.67 2.64 2.96 2.90
Gas 3.36 3.60 2.18 2.81 3.13
Nuclear .57 .50 .49 .46 .40
All Fuels (a) 1.29 1.27 1.27 1.34 1.39
__________________________________________________________________________
__________________________________________________________________________
(a) 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 in 1998. To date, the DOE has been
unable to arrange for storage facilities to meet this obligation and it
does not anticipate being able to accept spent nuclear fuel for storage in
1998. For a discussion of pending litigation and legislative action
relating to the DOE's obligations in this regard, see Item 3. Legal
Proceedings and Item 8. Financial Statements and Supplementary Data - Note
2 of Consumers' Notes to Consolidated Financial Statements. Big Rock has
the capacity to accommodate normal spent fuel discharge. Consumers' on-
site storage pool at Palisades is at capacity and Consumers is currently
storing spent nuclear fuel in on-site dry casks. For a discussion
relating to the NRC approval of dry storage casks and Consumers' use of
the casks, see Item 8. Financial Statements and Supplementary Data -
Note 7 of Consumers' Notes to Consolidated Financial Statements.
INSURANCE: Consumers maintains $500 million of primary nuclear property
damage insurance from NEIL at Big Rock and Palisades, covering all risks
of physical loss, subject to certain exclusions and deductibles.
Consumers also maintains at Palisades NEIL excess property damage
insurance in the amount of $2 billion. These nuclear property insurance
policies cover decontamination, debris removal and direct property loss.
The NEIL excess property damage policy for Palisades also covers a portion
of the cost arising from an accidental premature decommissioning which is
not already funded by the decommissioning trust funds and part of the
remaining book value of the plant. For any loss more than $100 million,
stabilization and decontamination expenses must be satisfied before
Consumers receives other claims proceeds from NEIL. 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 NEIL is a mutual insurance
company, Consumers could be subject to assessments under the NEIL primary
and excess property damage policies of up to $17.2 million in any one
policy year if covered losses occurred at its own or any other member's
nuclear facility. Consumers has also procured NEIL I coverage that would
partially cover the cost of replacement power during certain prolonged
accidental outages at Palisades. Insurance would not cover such costs
during the first 17 weeks of any outage, but insurance would cover most of
such costs during the next 58 weeks of the outage, followed by a reduced
level of coverage for a period up to two additional years. Consumers
could be subject to a maximum assessment under the replacement power
insurance of $2.2 million in any one policy year if covered losses
occurred at its own or any other member's nuclear facility.
Consumers maintains nuclear liability insurance and other forms of
financial protection (including an agreement of government indemnity under
the Price-Anderson Act, applicable to 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 total 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 if a nuclear incident occurred at any of such facilities.
Consumers could be subject to a maximum assessment of $79 million per
occurrence if a nuclear incident occurred 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 to workers caused by
nuclear hazards. The policy contains a $200 million nuclear industry
aggregate limit. Under a previous insurance program providing coverage
for claims brought by workers, Consumers remains responsible for a maximum
assessment of up to $6.3 million.
Consumers has 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.
Insurance policy terms, limits and conditions are subject to change during
the year as policies are renewed.
CONSUMERS GAS UTILITY OPERATIONS
Consumers purchases, transports, stores and distributes gas. It renders
gas service to 1.5 million customers and is authorized to serve in 54 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
storage fields in Michigan. See Item 2. Properties - Consumers Gas
Utility Properties. Consumers and Michigan Gas Storage inject gas into
storage during the summer months of the year for use during the winter
months when demand is higher. Consumers' gas operations are not dependent
upon a single customer, or even a few customers, and the loss of any one
or even a few of such customers would not have a material adverse effect
on its financial condition.
Consumers' gas operations are seasonal to the extent that peak demand
occurs in winter due to colder temperatures. Consumers' consolidated gas
operating revenue was $1.2 billion in 1997, a decrease of 6.1 percent from
1996. The all-time record 24 hour send-out of natural gas for Consumers
on January 19, 1994 was 3.1 bcf. Consumers considers the peak-day
transportation and distribution capacity of the system to be 3.6 bcf.
Deliveries of gas sold by Consumers, and from other sellers over
Consumers' pipeline and distribution network to ultimate customers,
including the MCV Partnership, totaled 420 bcf in 1997.
CONSUMERS GAS SUPPLY: In 1997, Consumers contracted to purchase
80 percent of its required gas supply under long-term contracts. The
contract supply included 38 percent from United States producers outside
Michigan, 24 percent from Canadian producers and 18 percent from Michigan
producers. Purchases on the spot market met the remaining 20 percent of
Consumers' 1997 gas supply requirements.
Consumers' firm transportation agreements are with Trunkline Gas Company,
Panhandle Eastern Pipeline Company, ANR Pipeline Company and Great Lakes
Gas Transmission, L.P. Consumers uses these agreements to deliver gas to
Michigan for ultimate deliveries to market. In total, Consumers' firm
transportation arrangements will carry over 90 percent of Consumers' total
gas supply requirements. Consumers' portfolio of firm transportation from
pipelines to Michigan is as follows:<PAGE>
<PAGE>
VOLUME (dekatherms/day) EXPIRATION
__________________________________________________________________________
Trunkline Gas Company 336,375 October 2002
Panhandle Eastern Pipeline
Company 40,000 March 2000
25,000 March 2000
ANR Pipeline Company 20,000 October 1999
40,000 October 1999
10,000 December 2001
6,000 December 2002
83,790 October 2003
Great Lakes Gas
Transmission, L.P. 85,092 March 2004
__________________________________________________________________________
__________________________________________________________________________
Consumers transports the balance of its required gas supply under
interruptible contracts. The amount of interruptible capacity and the use
of it primarily varies with the price for such service and the
availability and price of the spot supplies to be purchased and
transported. Consumers' use of interruptible transportation is generally
in off-peak summer months and after Consumers has fully subscribed its
firm capacity.
CMS ENERGY OIL AND GAS EXPLORATION AND PRODUCTION
CMS NOMECO is an oil and natural gas producer. It has projects in
Michigan and 8 other states, the Gulf of Mexico, Colombia, The Republic of
Congo, Ecuador, Equatorial Guinea, Tunisia and Venezuela. In 1997,
CMS NOMECO produced 6.9 Mmbbls of oil, condensate and plant products and
27.2 bcf of gas, compared with 5.2 Mmbbls and 29.4 bcf in 1996.
During 1997, CMS NOMECO participated with a working interest in drilling
wells as follows:
Number of
Number of Wells Successful Wells Success Ratio
Type of Well Gross Net Gross Net Gross Net
__________________________________________________________________________
Exploratory 8 2.60 5 1.88 62.5% 72.3%
Development 26 9.24 24 8.74 92.3% 94.6%
___________ _____________
Total 34 11.84 29 10.62 85.3% 89.7%
__________________________________________________________________________
__________________________________________________________________________
The previous table does not include CMS NOMECO's participation in Devonian
Shale gas wells in Michigan and Indiana, where CMS NOMECO drilled 129
wells (27.94 net) during 1997 with a 96.7 percent success rate.
For additional information, see Item 2. Properties - CMS Energy Oil and
Gas Exploration and Production Properties and Item 7. CMS Energy
Management's Discussion and Analysis - Oil and Gas Exploration and
Production Results of Operations.
CMS ENERGY INDEPENDENT POWER PRODUCTION
CMS Generation, formed in 1986, invests in, develops, constructs and
operates non-utility power generation projects both in the United States
and internationally. As of January 1998, CMS Generation had ownership
interests in 5,982 MW (gross) capacity in 33 operating power plants
throughout the United States and in Argentina, Australia, India, Jamaica,
Morocco and the Philippines. Natural gas, wood, coal, oil, water, scrap
tires, naphtha and wind power these plants.
In early 1997, a consortium of CMS Generation and others, bid for and won
the privatization of Loy Yang A in the Australian state of Victoria. Loy
Yang A is Victoria's largest electric coal-fueled generating plant with a
total capacity of 2,000 MW. The purchase also included associated coal
mines. CMS Generation holds a 50 percent ownership interest in the
acquired assets.
In late 1997, a joint venture of affiliates of CMS Generation and ABB
completed the acquisition of the Jorf Lasfar coal-fueled power plant, the
largest independent power facility in Morocco. The two existing
generating units total 660 MW of capacity. CMS Generation and ABB are
constructing two new generating units at Jorf Lasfar with a total capacity
of 696 MW. These units will be completed by the year 2000.
For additional information, see Item 2. Properties - CMS Energy Other
Properties and Item 7. CMS Energy Management's Discussion and Analysis -
Capital Resources and Liquidity - Capital Expenditures.
CMS ENERGY NATURAL GAS TRANSMISSION, STORAGE AND PROCESSING
CMS Gas Transmission, formed in 1988, owns, develops and manages domestic
and international natural gas transmission, processing and storage
projects. In late 1997, CMS Gas Transmission, through its affiliates and
local consortium partners, commenced construction of a 940 kilometer
pipeline that will transport natural gas across the Andes Mountains from
northern Argentina to markets in northern Chile. A 710 MW gas-fueled,
combined-cycle generating plant is under construction and will be built in
two stages at the end of the pipeline in Chile by the consortium. Plant
operations are expected in 1999.
In mid 1997, CMS Gas Transmission acquired a 100 percent ownership
interest in Western Australia Natural Gas, a 260 mile pipeline in
Australia. The pipeline can transport up to 120 million cubic feet per day
of natural gas. Included in the acquisition were 30 billion cubic feet of
proved natural gas reserves and an associated gas storage facility.
In the third quarter of 1997, CMS Gas Transmission and Westcoast Energy
Inc. initiated plans to construct the Tri State Pipeline, a natural gas
pipeline with a maximum capacity of one billion cubic feet per day. If
built, the pipeline will provide service from Illinois to Consumers'
natural gas system in Michigan, to Ontario, Canada and through connecting
pipelines to eastern United States markets.
For additional information, see Item 7. CMS Energy Management's Discussion
and Analysis - Natural Gas Transmission, Storage and Processing Results of
Operations.
CMS ENERGY MARKETING, SERVICES AND TRADING
CMS MST, formed in 1996, provides gas, oil, coal and electric marketing,
risk management and energy management services to industrial, commercial,
utility and municipal energy users throughout the United States and
internationally. For additional information, see Item 7. CMS Energy
Management's Discussion and Analysis - Marketing, Services and Trading
Results of Operations.
SALES BETWEEN BUSINESS SEGMENTS
CMS Energy's sales between business segments for the years ended December
31 were as follows.
In Millions
__________________________________________________________________________
Years Ended December 31 1997 1996 1995
__________________________________________________________________________
Oil and Gas Exploration and Production $75 $23 $19
Natural Gas Transmission, Storage and Processing 4 3 2
Marketing, Services and Trading 16 9 3
__________________________________________________________________________
__________________________________________________________________________
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. 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.
The Attorney General, ABATE and the MPSC staff typically intervene in MPSC
electric and/or gas related proceedings concerning Consumers. Unless
otherwise noted herein, these parties have intervened in such proceedings.
For many years, various parties have appealed almost every significant
MPSC order affecting Consumers. Appeals from such MPSC orders are pending
in the 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 Court of Appeals that serves
as a notice of appeal of an MPSC order. The grounds on which they are
making the appeal are not finally set forth until a later date when the
parties file their briefs.
RATE PROCEEDINGS: In February 1996, the MPSC issued an order granting a
$46 million annual increase in electric retail rates and authorizing a
12.25 percent return on common equity. The following month the MPSC
issued a final order decreasing gas rates by $12 million annually and
authorizing an 11.6 percent return on common equity.
MPSC REGULATORY CHANGES: In January 1996, the Governor of the State of
Michigan requested that the MPSC review the existing statutory and
regulatory framework governing Michigan electric utilities in light of
increasing competition in the utility industry. Since that time, as a part
of ongoing proceedings relating to the restructuring of the electric
utility industry in Michigan, the MPSC issued various orders: 1)
providing that beginning in 1998 and phasing in until 2002, Consumers
would have to transmit and distribute energy on behalf of competing power
suppliers to serve retail customers; 2) allowing Consumers to recover
Transition Costs (estimated for Consumers at $1.755 billion) through a
charge to direct-access customers until the end of the transition period
in 2007; 3) allowing, subject to a prudency review, a separate charge to
recover costs of implementing a direct-access program, estimated by
Consumers at an additional $200 million; 4) allowing utilities to "true
up" Transition Cost charges for changes in sales and market prices of
power to the extent they are different from estimates used for calculating
Transition Costs; 5) suspending the PSCR clause and freezing PSCR charges;
and 6) confirming the MPSC's belief that Securitization may be a
beneficial mechanism for recovery of Transition Costs while recognizing
that Securitization requires state legislation to occur. By January 1,
2002, all customers would be free to choose (that is, have direct-access
to) their own power suppliers. A February 1998 MPSC order in these
ongoing proceedings suspended the PSCR as proposed by Consumers,
terminated the 1998 PSCR plan case, and established a permanent PSCR/base
rate freeze charge in the 1997 PSCR reconciliation proceeding. Several
MPSC orders related to restructuring are subject to claims of appeal filed
with the Court of Appeals which question whether the MPSC has the
statutory authority to mandate restructuring on an involuntary basis. For
additional information concerning the electric industry restructuring, see
Item 7. Consumers Management's Discussion and Analysis - Outlook -
Electric Business Outlook and Item 8. Financial Statements and
Supplementary Data - Note 4 to Consumers' Notes to Consolidated Financial
Statements.
In late 1996, the MPSC approved a pilot program allowing choice to 40,000
retail gas customers in Bay County, Michigan. After the termination of
the first solicitation in March 1997, one percent of the eligible
customers chose an alternative supplier for the next year. In December
1997, the MPSC approved Consumers' application to supersede the limited
pilot program with a statewide experimental gas transportation pilot
program. Over the three-year period of the program, eventually 300,000
residential, commercial and industrial retail gas sales customers will be
eligible to choose their gas supplier. The program is voluntary for
natural gas customers. Customers choosing to remain as sales customers of
Consumers will not see a rate change in their natural gas rates. This
experimental program will allow competing gas suppliers, including
marketers and brokers to market natural gas to these retail customers in
direct competition with Consumers. The Attorney General, ABATE and other
parties filed claims of appeal regarding the program with the Court of
Appeals. For additional information concerning the MPSC order, see
Item 8. Financial Statements and Supplementary Data - Note 4 to Consumers'
Notes to Consolidated Financial Statements.
RETAIL WHEELING PROCEEDINGS: In April 1994, the MPSC issued an opinion
and interim order that approved the framework for a five-year experimental
retail direct-access program for "wheeling" of electric power purchased by
customers from other suppliers over the transmission systems of Consumers
and Detroit Edison, and remanded the case to the ALJ to decide 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. After the MPSC denied Consumers' and ABATE's petitions for a
rehearing of that order, Consumers, ABATE and Dow filed claims of appeal
of the MPSC's orders with the Court of Appeals, joining Detroit Edison and
the Attorney General who had previously appealed. In January 1998, the
Court of Appeals found that the MPSC has authority to authorize an
experimental wheeling program. That decision is now subject to
applications for leave to appeal filed with the Michigan Supreme Court by
Consumers and Detroit Edison.
INTRASTATE GAS SUPPLIER CONTRACT PRICING DISPUTE: In October 1995, the
MPSC issued an opinion and order in a proceeding that Consumers had
initiated regarding a gas contract pricing dispute under three gas supply
contracts. The MPSC found that the pricing mechanism at issue, which
operates within definite ceiling and floor prices, is a definite pricing
provision within the meaning of the state statutes and was properly
implemented by Consumers 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. The Court of Appeals affirmed the
MPSC order. The producers subsequently filed for leave to appeal with the
Michigan Supreme Court that is still pending.
Before 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.
FEDERAL ENERGY REGULATORY COMMISSION
FERC has limited rate jurisdiction over several independent power projects
in which CMS Generation has an ownership interest. These power projects
are Qualifying Facilities. FERC also has more comprehensive jurisdiction
over Michigan Gas Storage as a natural gas company within the meaning of
the Natural Gas Act. 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, FERC also has the power to modify gas tariffs of interstate
pipeline companies. Some of Consumers' gas business is also subject to
regulation by 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 FERC, including compliance with 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, the consummation of
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.
FERC Regulatory Changes: FERC Orders 888 and 889, as amended on
rehearing, require utilities to file conforming direct-access tariffs and
functionally unbundle transmission and wholesale sales activities.
Consumers complied with several requirements contained in these orders.
For additional information on Orders 888 and 889, see Item 7. Consumers
Management's Discussion and Analysis - Outlook - Electric Business
Outlook.
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. These and other
matters concerning Consumers' nuclear plants are more fully discussed in
Item 8. Financial Statements and Supplementary Data - Notes 2 and 7 to
Consumers' Consolidated Financial Statements.
CMS ENERGY AND CONSUMERS ENVIRONMENTAL COMPLIANCE
CMS Energy and Consumers and their subsidiaries are subject to regulation
for 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
CMS Energy's and Consumers' energy resources includes reasonable programs
for the protection and enhancement of the environment. For additional
information concerning environmental matters, see Item 8. Financial
Statements and Supplementary Data - Note 6 of Consumers' Notes to
Consolidated Financial Statements.
Consumers installed modern stack emission control and monitoring systems
at its electric generating plants and converted electric generating units
to burn cleaner fuels. It has worked with others to use bottom ash as
final cover for ash disposal areas in place of topsoil and compacted clay
and to use fly ash as a filler for asphalt in road shoulders. It has also
worked with local, state and national organizations on waste minimization
and pollution prevention initiatives and enhanced certain of Consumers'
lands for the benefit of wildlife, as well as provided recreational access
to its lands. Finally, it has worked with universities and other
institutions on projects to protect and, in some instances, 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 $21 million in 1997
and are estimated to be $23 million in 1998.
Federal and state laws require air permits 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.
The appropriate agency or department for environmental protection in the
state in which each facility is located has issued permits for Consumers'
and CMS Generation's affiliates affected steam electric generating
facilities and other affected sources of air emissions. Consumers and
CMS Generation believe that these facilities are in substantial compliance
with all air permits.
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 256 to 25. At 118 of the sites from which
Consumers or its subsidiaries removed UST systems, hydrocarbon releases
occurred, 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 Department of Natural Resources/Department of
Environmental Quality concurrence in closure of 106 of those releases.
The remaining releases are at various stages of cleanup completion.
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 include 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 that was found to pose a risk
to food supplies or animal feed, and other such programs. Consumers still
has a few PCB capacitors in substations. It has nearly 500,000
distribution transformers, many of which have not been tested for PCB. By
regulation, unless the PCB level is known, transformers are presumed to be
PCB-contaminated. Other types of electrical equipment may also contain
PCB. Based upon results of sampling in 1981, about 1 percent of the pole-
top transformers had more than 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 the replacement with non-PCB equipment.
From time to time accidental releases occur from such equipment.
Consumers typically spends less than $1 million per year for the clean up
and disposal of debris and equipment from PCB releases.
National Pollutant Discharge Elimination System and equivalent State
Pollutant Discharge Elimination System permits, as well as state ground
water discharge permits, authorize the discharge of certain waste waters
from Consumers' facilities and pipeline construction projects and certain
CMS Generation affiliates' facilities pursuant to state water quality
standards and federal effluent limitation guidelines. The appropriate
agency or department for environmental protection issued authorizations
for discharges from all of Consumers' and CMS Generation affiliates' major
operating steam electric generating facilities and for certain discharges
from Consumers' other facilities, including hydroelectric projects and
pipeline construction projects. Consumers and CMS Generation affiliates
believe that these facilities are in substantial compliance with National
or State Pollutant Discharge Elimination System and groundwater
discharge/exemption permits.
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.
CMS ENERGY AND CONSUMERS COMPETITION
ELECTRIC COMPETITION
Consumers' electric utility business experiences competition and potential
competition from a number of sources, both in the wholesale and retail
markets, and in electric generation, electric delivery, and retail
services.
In the wholesale electricity markets, Consumers competes with other
wholesale suppliers, marketers and brokers. Electric competition in the
wholesale markets increased significantly due to FERC Order 888. In 1996,
Consumers filed wholesale power agreements with FERC to supply power to
six municipal and two electric cooperatives that had preexisting contracts
with Consumers. The new contracts have a term of five years. Because
wholesale transactions by Consumers generated less than two percent of
Consumers' 1997 revenues from electric operations, Consumers does not
believe future loss of wholesale sales to be significant, and in most
instances the customers will continue to be transmission customers.
A significant increase in retail electric competition is likely to occur
with the introduction of retail direct access in Michigan. In its January
14, 1998 order, the MPSC ordered retail direct access in Michigan. Some
parties, including Consumers, are challenging the orders in the courts.
Legislation, if passed, could reinforce or modify the MPSC order. The
MPSC order, as discussed above in "CMS ENERGY AND CONSUMERS REGULATION -
Michigan Public Service Commission - MPSC Regulatory Changes," calls for
Consumers to open up its electric load to competition on a gradual basis
from 1998 through 2001. The MPSC order gives all customers the right to
choose their own electric supplier by 2002. Consumers' financial exposure
to competition in a retail direct-access environment is limited due to:
1) the expectation of recovery of related Transition Costs attributable to
retail direct-access; 2) customer inertia that will likely aid in
retaining a majority of residential and small business customers; 3)
Consumers' opportunity to secure sales in other service territories; and
4) fact that Consumers will still be the deliverer of electricity.
Absent comprehensive deregulation in the retail electric commodity
markets, Consumers has competition or potential competition from the
following sources: 1) from the threat of customers relocating outside of
Consumers' service territory; 2) from the threat of municipalization; 3)
from customer co-generation and self-generation; 4) from adjacent
municipal utilities who extend lines to customers along service territory
boundaries; and 5) from marketers and brokers for customers on the
Consumers' direct-access program, which is currently limited to 100 MW.
Consumers addressed this competition primarily through the offering of
rate discounts and additional services. In the event of municipalization,
Consumers believes it would be entitled to recovery of appropriate
Transition Costs, thus mitigating the potential negative financial impact.
Consumers is beginning to offer non-commodity retail services to electric
customers, and faces competition from numerous sources including energy
management services companies, other utilities, contractors, and retail
merchandisers.
CMS Energy's non-regulated electric subsidiaries primarily face
competition from other marketers, brokers, financial management firms,
energy management firms, and other utilities through the marketing
services and trading business segment; and from other generators,
marketers, brokers, and price of power on the wholesale market through the
independent power production business segment.
For additional information concerning electric competition, see Item 7.
CMS Energy's Management's Discussion and Analysis - Outlook - Electric
Business Outlook and Consumers Management's Discussion and Analysis -
Outlook - Electric Business Outlook.
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 97 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 gas production
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 some storage) to its larger end-use customers who
choose to acquire gas supplies from alternate sources. Traditionally,
Consumers' earnings for its gas operations are not dependent on gas
purchased and resold to its customer base. However, in a proactive move
by Consumers to prepare for an unbundled market where gas supply is
separated from gas distribution, Consumers filed, and the MPSC approved on
December 19, 1997 Consumers' expanded gas customer choice program. See
the discussion of the MPSC's order authorizing the expanded experimental
gas pilot program above in CMS Energy and Consumers Regulation - MPSC
Regulatory Changes.
CMS Energy's non-utility gas subsidiaries face significant competition
from other gas pipeline companies, gas producers, gas storage companies,
and brokers/marketers.
For additional information concerning gas competition, see Item 7.
CMS ENERGY'S MANAGEMENT DISCUSSION AND ANALYSIS - OUTLOOK AND CONSUMERS
MANAGEMENT'S DISCUSSION AND ANALYSIS - OUTLOOK.
EMPLOYEES
CMS ENERGY
As of February 28, 1998, CMS Energy and its subsidiaries had 9,659 full-
time equivalent employees of which 9,540 are full-time employees; the rest
equate to 119 full-time equivalent employees associated with the part-time
work force.
CONSUMERS
As of February 28, 1998, Consumers and its subsidiaries had 8,657 full-
time equivalent employees of which 8,545 are full-time employees; the rest
equate to 112 full-time equivalent employees associated with the part-time
work force. Included in the total are 3,852 full-time operating,
maintenance and construction employees of Consumers whom the Union
represents. Consumers and the Union negotiated a collective bargaining
agreement that became effective as of June 1, 1995. By its terms, it will
continue in full force and effect until June 1, 2000.<PAGE>
<PAGE> 21
CMS ENERGY AND CONSUMERS EXECUTIVE OFFICERS
As of February 28, 1998
NAME AGE POSITION PERIOD
William T. McCormick, Jr. 53 Chairman of the Board and
Chief Executive Officer
of CMS Energy 1987-Present
Chairman of the Board
of Consumers 1985-Present
Chairman of the Board of
Enterprises 1987-Present
Chairman of the Board and
Chief Executive Officer
of Enterprises 1987-1995
Victor J. Fryling 50 President and Chief
Operating Officer
of CMS Energy 1996-Present
President of Consumers 1997-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
Alan M. Wright 52 Senior Vice President
and Chief Financial
Officer of CMS Energy 1998-Present
Senior Vice President
and Chief Financial
Officer of Consumers 1993-Present
Senior Vice President,
Chief Financial Officer
and Treasurer of
Enterprises 1994-Present
Senior Vice President,
Chief Financial Officer
and Treasurer of CMS
Energy 1994-1998
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
Rodger A. Kershner 49 Senior Vice President
and General Counsel
of CMS Energy 1996-Present
Senior Vice President
and General Counsel of
Enterprises 1996-Present
Vice President and General
Counsel of Enterprises 1989-1996
Deputy General Counsel
and Assistant Secretary
of CMS Energy 1994-1995
Assistant General Counsel
and Assistant Secretary
of CMS Energy 1989-1994
John W. Clark 53 Senior Vice President
of CMS Energy 1987-Present
Senior Vice President
of Consumers 1985-Present
James W. Cook 57 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
NAME AGE POSITION PERIOD
Preston D. Hopper 47 Senior Vice President,
Controller and Chief
Accounting Officer of
CMS Energy 1996-Present
Senior Vice President
and Chief Accounting
Officer of Enterprises 1997-Present
Vice President, Controller
and Chief Accounting
Officer of CMS Energy 1992-1996
Senior Vice President
and Controller of
Enterprises 1996-1997
Vice President and
Controller of Enterprises 1992-1996
Rodney E. Boulanger 57 Senior Vice President of
Enterprises 1996-Present
President and Chief
Executive Officer of
CMS Generation 1995-Present
William J. Haener 56 President and Chief
Executive Officer of
CMS Gas Transmission 1994-Present
Gordon L. Wright 55 President and Chief
Executive Officer of
CMS NOMECO 1995-Present
Executive Vice President
and Chief Operating
Officer of CMS NOMECO 1993-1995
Vice President of
Operations of CMS NOMECO 1981-1993
Paul A. Elbert 48 Executive Vice President
of Consumers and President
and Chief Executive Officer
- Gas Business Unit 1997-Present
Executive Vice President
of Consumers and Chief
Operating Officer - Gas
Business Unit 1994-1997
Senior Vice President of
Consumers 1991-1994
David W. Joos 44 Executive Vice President
of Consumers and President
and Chief Executive Officer
- Electric Business Unit 1997-Present
Executive Vice President
of Consumers and Chief
Operating Officer -
Electric Business Unit 1994-1997
Senior Vice President
of Consumers 1994-1994
Vice President of
Consumers 1990-1994
David A. Mikelonis 49 Senior Vice President
and General Counsel of
Consumers 1988-Present
Robert A. Fenech 50 Senior Vice President
of Consumers 1997-Present
Vice President of
Consumers 1994-1997
Dennis DaPra* 55 Vice President and
Controller of Consumers 1991-Present
*Mr. DaPra is an executive officer of Consumers but not of CMS Energy.
All other individuals are executive officers of both CMS Energy and
Consumers.
The present term of office of each of the executive officers extends to
the first meeting of the Board of Directors after the next annual election
of Directors of each of CMS Energy and Consumers (scheduled to be held May
22, 1998).
There are no family relationships among executive officers and directors
of CMS Energy and Consumers.
<PAGE>
<PAGE> 24
ITEM 2. PROPERTIES.
CHARACTER OF OWNERSHIP
The principal properties of CMS Energy, Consumers and their 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 Consumers, CMS Gas Transmission and CMS NOMECO subsidiaries are
also subject to liens of creditors of the respective subsidiaries.
CONSUMERS ELECTRIC UTILITY PROPERTIES
At December 31, 1997, Consumers' electric generating system consists of
five fossil-fueled plants, one nuclear plant, one pumped storage
hydroelectric facility, seven gas combustion turbine plants and 13
hydroelectric plants. During 1997, Consumers retired Big Rock. For
further information on the Big Rock closing, see Item 8. Financial
Statements and Supplementary Data - Note 7 of Consumers Notes to
Consolidated Financial Statements.
<TABLE>
<CAPTION>
1997 Summer Net 1997 Net
Demonstrated Generation
Size and Year Capability (Thousands
Name and Location (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) 8,153,697
D E Karn - Essexville 2 Units, 1959-1961 515,000 3,004,398
B C Cobb - Muskegon 2 Units, 1956-1957 296,000 1,590,996
J R Whiting - Erie 3 Units, 1952-1953 310,000 1,898,773
J C Weadock - Essexville 2 Units, 1955-1958 310,000 1,778,698
--------- ----------
Total coal generation 2,777,100 16,426,562
--------- ----------
Oil/Gas Generation
D E Karn - Essexville 2 Units, 1975-1977 1,276,000 314,635
--------- ----------
Ludington Pumped Storage 6 Units, 1973 954,700(b) (476,535)(c)
--------- ----------
Nuclear Generation
Palisades - South Haven 1 Unit, 1971 762,000 5,776,398
Big Rock Point - Charlevoix (d) 1 Unit, 1962 67,000 193,708
--------- ----------
Total nuclear generation 829,000 5,970,106
--------- ----------
Gas/Oil Combustion Turbine
Generation 7 Plants, 1966-1971 345,000 23,231
--------- ----------
Hydro Generation 13 Plants, 1907-1949 73,500 466,991
--------- ----------
Total owned generation 6,255,300 22,724,990
==========
Purchased and Interchange Power Capacity 1,820,600(e)
---------
Total 8,075,900
=========
</TABLE>
(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) Consumers retired Big Rock on August 29, 1997.
(e) Includes 1,240 MW of purchased contract capacity from the MCV
Facility.Consumers' owns 8,620 miles of electric transmission lines
operating at up to 345 kilovolts, owns 58,555 miles of electric
distribution lines and owns substations having an aggregate transformer
capacity of 38,287,140 kilovoltamperes.
CONSUMERS GAS UTILITY PROPERTIES
Consumers' gas distribution and transmission system consists of
22,825 miles of distribution mains and 1,057 miles of transmission lines
throughout the Lower Peninsula of Michigan. Consumers owns and operates
six compressor stations with a total of 133,560 installed horsepower.
Consumers' gas storage fields, listed below, have an aggregate storage
capacity of 221.3 bcf.
Storage
Field Name Location Capacity (bcf)
Overisel Allegan and Ottawa Counties 62.0
Salem Allegan and Ottawa Counties 35.0
Ira St Clair County 6.8
Lenox Macomb County 3.5
Ray Macomb County 64.5
Northville Oakland, Washtenaw
and Wayne Counties 12.1
Puttygut St Clair County 14.6
Four Corners St Clair County 3.8
Swan Creek St Clair County .6
Hessen St Clair County 17.0
Lyon - 34 Oakland County 1.4
Michigan Gas Storage owns and operates two compressor stations with a
total of 43,400 installed horsepower. Its transmission system consists of
530 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 109.5 bcf.
Total Certified
Field Name Location Storage Capacity (bcf)
Winterfield Osceola and Clare Counties 72.3
Cranberry Lake Clare and Missaukee Counties 28.2
Riverside Missaukee County 9.0
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. There is a pending sale of the
Marysville Gas Reforming Plant, including substantially all of Consumers'
and Huron's partnership interests, to CMS Gas Transmission or a subsidiary
thereof.
CMS ENERGY OIL AND GAS EXPLORATION AND PRODUCTION PROPERTIES
Net oil and gas production by CMS NOMECO for the years 1995 through 1997
is shown in the following table.
1997 1996 1995
Oil and condensate (Mbbls) (a)(c) 6,564 4,921 4,383
Natural gas (MMcf) (a) 27,157 29,371 26,348
Plant products (Mbbls) (a) 321 240 226
Average daily production (b)
Oil (Mbbls) 20.5 16.7 16.1
Gas (MMcf) 89.1 97.9 84.9
Reserves to annual production ratio
Oil (MMbbls) (c) 14.3 16.2 17.5
Gas (bcf) 11.9 11.0 10.8
(a) Revenue interest to CMS NOMECO
(b) CMS NOMECO working interest (includes CMS NOMECO's share of royalties)
(c) Oil volumes have been restated to reflect new reporting method for
Venezuela
The following table shows CMS NOMECO's undeveloped net acres of oil and
gas leasehold interests.
December 31 1997 1996
Michigan 138,903 131,502
Indiana 28,839 10,986
Ohio 9,671 6,104
Texas (Including offshore acreage) 9,557 7,005
Louisiana (Including offshore acreage) 4,424 8,088
North Dakota 2,587 13,840
Other states 55 4,930
--------- ---------
Total domestic 194,036 182,455
--------- ---------
Venezuela 339,521 230,175
Colombia 294,330 294,330
Cameroon 187,636 -
Equatorial Guinea 113,806 113,947
Tunisia 67,193 67,193
Ecuador 66,430 66,430
Congo 17,364 17,981
Yemen - 27,610
--------- ---------
Total international 1,086,280 817,666
--------- ---------
Total net acres 1,280,316 1,000,121
========= =========
The following table shows CMS NOMECO's estimated proved reserves of oil
and gas for the years 1995 through 1997.
<TABLE>
<CAPTION>
Total Worldwide United States International
Oil Gas Oil Gas Oil Gas
(MMbbls) (bcf) (MMbbls) (bcf) (MMbbls) (bcf)
<S> <C> <C> <C> <C> <C> <C>
Proved Developed and
Undeveloped Reserves
December 31, 1994 66.6 231.2 2.7 224.5 63.9 6.7
Revisions and other changes (5.2) (23.8) 0.1 (22.9) (5.3) (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 (4.6) (26.3) (0.9) (26.2) (3.7) (0.1)
----- ----- ----- ----- ----- -----
December 31, 1995 74.4 283.9 1.9 273.2 72.5 10.7
Revisions and other changes 2.7 6.8 1.5 - 1.2 6.8
Extensions and discoveries 4.9 64.6 - 32.6 4.9 32.0
Acquisitions of reserves 0.2 1.0 - 1.0 0.2 -
Sales of reserves (0.6) (3.7) (0.6) (3.7) - -
Production (5.2) (29.4) (1.0) (29.4) (4.2) -
----- ----- ----- ----- ----- -----
December 31, 1996 76.4 323.2 1.8 273.7 74.6 49.5
Revisions and other changes 10.6 6.4 0.2 (7.2) 10.4 13.6
Extensions and discoveries 9.9 26.3 0.3 14.6 9.6 11.7
Acquisitions of reserves 8.3 - - - 8.3 -
Sales of reserves - (6.5) - (6.5) - -
Production (6.9) (27.2) (0.7) (26.5) (6.2) (0.7)
----- ----- ----- ----- ----- -----
December 31, 1997 98.3 322.2 1.6 248.1 96.7 74.1
===== ===== ===== ===== ===== =====
Estimated Proved Developed Reserves (a)
December 31, 1994 44.8 211.7 2.5 205.9 42.3 5.8
December 31, 1995 37.5 254.2 1.8 254.2 35.7 -
December 31, 1996 39.2 270.0 1.8 270.0 37.4 -
December 31, 1997 45.3 267.8 1.7 238.2 43.6 29.6
Equity Interest in Estimated
Proved Reserves of Comeco
Petroleum, Inc. (Yemen)
December 31, 1994 2.9 - - - 2.9 -
December 31, 1995 2.8 - - - 2.8 -
December 31, 1996 3.2 - - - 3.2 -
December 31, 1997 - - - - - -
</TABLE>
(a) The governing license in Venezuela is an oil service contract whereas
CMS NOMECO is paid a fee per barrel for oil discovered, lifted, and
delivered to Corpoven S.A., a subsidiary of Petroleos de Venezuela S.A..
Additionally, CMS NOMECO receives a fee for reimbursement of certain
capital expenditures. The volumes presented represent actual production
with respect to which CMS NOMECO is paid a per barrel fee.
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 was
sold to five owner trusts and leased back to the MCV Partnership.
CMS Holdings is a limited partner in the FMLP, which is a beneficiary of
one of these trusts. CMS Holdings' indirect beneficial interest in the
MCV Facility is 35 percent.
Consumers owns fee title to 1,140 acres of land in the City and Township
of Midland, Midland County, Michigan, occupied by the MCV Facility. The
land is leased to the owners of the MCV Facility by five separate leases,
each leasing an undivided interest and in the aggregate totaling 100
percent, for an initial term ending December 31, 2035 with possible
renewal terms to June 15, 2090.
Consumers owns or leases three principal general office buildings in
Jackson, Michigan and 53 field offices at various locations in Michigan's
Lower Peninsula. Of these, two general office buildings and 15 field
offices are leased. Also owned are miscellaneous parcels of real estate
not now used in utility operations.
For information on capital expenditures, see Item 7. Consumers
Management's Discussion and Analysis - Outlook and Item 8. Financial
Statements and Supplementary Data - Note 15 of Consumers' Notes to
Consolidated Financial Statements.
CMS ENERGY OTHER PROPERTIES
CMS Generation has ownership interests in certain facilities such as Loy
Yang, Jorf Lasfar and El Chocon. The Loy Yang assets are owned in fee,
but are subject to the security interests of its creditors. The Jorf
Lasfar facility is held pursuant to a right of possession agreement with
the Moroccan state owned Office National de l'Electricite. The El Chocon
facility is held pursuant to a 30 year possession agreement.
CMS Gas Transmission has ownership interests in 367 miles of pipelines in
the state of Michigan. Additionally, CMS Gas Transmission owns a 25
percent general partnership interest in TGN, which owns and operates 3,048
miles of pipeline that provides natural gas transmission service to the
northern and central parts of Argentina.
In June 1997, CMS Gas Transmission acquired a 260 mile pipeline in western
Australia. The acquisition included 30 bcf of proved natural gas reserves
with two gas production licenses and an associated gas storage facility in
pre-operational testing.
CMS Gas Transmission also has ownership interests in other facilities,
including a proprietary gas processing company which has patents for its
helium removal and nitrogen rejection processes, gas gathering systems and
processing plants, and an enhanced oil recovery project which involves
flooding depleted oil reservoirs with carbon dioxide.
CMS Energy, through certain subsidiaries; owns a 50 percent interest in
Bay Harbor Company, L.L.C., a 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.
The following table shows interests in independent power plants at
December 31, 1997.
Ownership Gross
Location Interest (%) Capacity (MW)
CMS Generation
Wood Fueled
Domestic 35.0 - 50.0 234
Fossil Fueled
Domestic 8.8 - 50.0 410
International
Andhra Pradesh, India 25.3 235
Mendoza Province, Argentina 80.6 506
Port of Jorf Lasfar, Morocco 50.0 660
State of Victoria, Australia 49.6 2,000
Other 25.3 - 47.5 386
Scrap Tire Fueled
Domestic 50.0 31
Hydro Generation
Domestic 1.0 - 55.5 98
International
Limay River, Argentina 17.2 1,320
Wind Generation
Domestic 8.5 - 22.7 102
CMS Midland
Fossil Fueled
Midland, Michigan 49.0(a) 1,370
(a) See the previous section - Consumers Other Properties - for more
information.
For information on capital expenditures, see Item 7. CMS Energy
Management's Discussion and Analysis - Capital Resources and Liquidity and
Item 8. Financial Statements and Supplementary Data - Note 19 of
CMS Energy's Notes to Consolidated Financial Statements.
<PAGE>
<PAGE>
ITEM 3. LEGAL PROCEEDINGS.
CMS Energy, Consumers and some of their 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, various taxes, and rates
and licensing. Reference is made to the combined Item 1. Business -
CMS Energy and Consumers Regulation, as well as to each of CMS Energy's
and Consumers' item 7. Management's Discussion and Analysis and Item 8.
Financial Statements and Supplementary Data - Notes to Consolidated
Financial Statements included herein for additional information regarding
various pending administrative and judicial proceedings involving
regulatory, operating and environmental matters.
CMS ENERGY
EXEMPTION UNDER PUHCA: CMS Energy is exempt from registration under
PUHCA. In December 1991, the Attorney General and the Michigan Municipal
Cooperative Group 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 vigorously contested 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.
Several bills were introduced during 1997 in the United States House of
Representatives and the United States Senate that would repeal PUHCA. In
April 1997, a bill was introduced in the United States Senate that would
repeal PUCHA without at the same time deregulating the electric industry.
This bill was referred to the Senate Banking Housing and Urban Affairs
Committee, the chairman of which is a cosponsor of the bill, and amended
by that Committee in June 1997 with a recommendation that the bill pass as
amended.
INDEPENDENT POWER PRODUCTION PROJECT LITIGATION: In August 1995, William
R. Williams and two of his corporations, Altresco Philippines, Inc. and
WRW Corporation (formerly Altresco International, Inc.), filed a lawsuit
against CMS Generation now pending in the United States District Court for
the District of Colorado, in connection with a project to be developed in
Bantangas, Philippines by Luzon Power Associates, Inc. in which
CMS Generation owned 50 percent. The complaint alleges breach of a
confidentiality agreement, breach of fiduciary duty, intentional
interference with a contract, breach of implied covenant of good faith and
fair dealing, and unfair competition. The claims primarily relate to a
confidentiality agreement between the parties and CMS Generation's alleged
violation of a restrictive covenant in the confidentiality agreement. The
plaintiffs claim direct damages of approximately $85 million and indirect
damages in a like amount from loss of future business, plus punitive
damages, interest, and attorney's fees. Most issues raised in the suit are
subject to mandatory arbitration, presently scheduled for May 1998. The
trial date has been postponed until the fall of 1998. CMS Generation
believes the plaintiff's position is without merit and intends to
vigorously oppose any claims they may raise but cannot predict the outcome
of this matter.
CONSUMERS
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. In
October 1993, a complaint seeking certification as a class action suit was
filed against Consumers in a Michigan 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. In March 1994, the Court decided to deny class
certification for this complaint, concluded that the claims of over 200
named plaintiffs had been improperly joined in a single action and
dismissed, subject to re-filing as separate suits, the October lawsuit
with respect to all but one of the named plaintiffs. Of the original
plaintiffs, only 49 re-filed separate cases. All of those 49 cases have
been resolved. In April 1994, the plaintiffs appealed the Court's denial
of class certification in this matter to the Court of Appeals. The Court
of Appeals dismissed the case. In December 1997, the Michigan Supreme
Court remanded for further proceedings the March 1994 trial court
decision. The Michigan Supreme Court did not disturb the trial court's
ruling with respect to denial of class certification, nor did it reverse
the trial court determination that the plaintiffs had been improperly
joined in a single action, but questioned the trial court's decision
requiring each of the improperly joined lawsuits to re-file new lawsuits
on an individual basis. Consumers filed a motion for reconsideration with
the Michigan Supreme Court, which was denied. At December 31, 1997,
Consumers had 12 individual cases, unrelated to the cases discussed above,
pending for trial, down from 22 pending at year end 1996.
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 Michigan Public Utility Franchise Act.
Prior to this decision, the commonly held interpretation of the Michigan
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 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. Consumers application with the Michigan
Supreme Court for leave to appeal was granted in April 1997.
Subsequently, the Supreme Court dismissed this proceeding citing the June
1996 passage of Michigan Legislation amending the Michigan Public Utility
Franchise Act to provide that revocable franchises may be granted by a
township without a vote of the electorate. That statute resolved the
issue in this case. This proceeding is now closed.
CONSUMERS' JOINT LAWSUIT AGAINST DOE: Under the Nuclear Waste Policy Act
of 1982, the DOE was required to begin accepting deliveries of spent
nuclear fuel from commercial operators by January 31, 1998 for disposal,
even if a permanent storage repository was not then operational. The
unconditional nature of the DOE's obligation was confirmed by the United
States Court of Appeals for the District of Columbia Circuit in 1996.
Utilities, including Consumers, and their customers have been prepaying
the costs of DOE transport and disposal through fees based on electric
generation by their nuclear plants. In January 1997, in response to the
DOE's declaration in December 1996 that it would not begin to accept spent
nuclear fuel deliveries in 1998, Consumers and other utilities filed suit
in the United States Court of Appeals for the District of Columbia
Circuit. The utilities sought a declaration that they are relieved of
their obligation to remit their quarterly fee payments to the DOE and are
authorized to escrow any related fees collected from their customers,
unless and until the DOE begins to accept spent nuclear fuel. The suit
also sought an order requiring the DOE to develop a program to begin
acceptance of spent nuclear fuel by January 31, 1998. In November 1997,
the United States Court of Appeals decided that the contract between the
DOE and the utilities provided a potentially adequate remedy if the DOE
failed to fulfill its obligations by January 31, 1998. The Court of
Appeals issued a written opinion precluding the DOE from excusing its own
delay on the grounds that it did not have a permanent repository or
interim storage facility. Also in 1997, federal legislation was
reintroduced to clarify the timing of the DOE's obligation to accept spent
nuclear fuel and to direct the DOE to establish an integrated spent fuel
management system that includes designing and constructing an interim
storage facility in Nevada. Further litigation before the courts or
administrative proceedings before the DOE on this subject is likely as the
utilities and their state regulatory agencies strive to secure the
benefits of the Nuclear Waste Policy Act.
CMS ENERGY AND CONSUMERS
ANTITRUST LITIGATION: In October 1997, Indeck Energy Services, Inc. and
Indeck Saginaw Limited Partnership, independent power producers, filed a
lawsuit against CMS Energy and Consumers in the United States District
Court for the Eastern District of Michigan. The suit alleges antitrust
violations relating to contracts that Consumers entered into with some of
its customers as well as claims relating to independent power production
projects. The plaintiffs claim damages of $100 million (which can be
trebled in antitrust cases as provided by law). The transactions of which
plaintiffs complain have been regulated by and are subject to the
jurisdiction of the MPSC. On November 21, 1997, Consumers and CMS Energy
filed a motion for summary judgement and/or dismissal of the complaint.
The motion will be decided in early 1998 before the lawsuit is allowed to
proceed. CMS Energy and Consumers presently believe the lawsuit is
entirely without merit and will vigorously defend against it, but cannot
predict the outcome of this matter.
ENVIRONMENTAL MATTERS: CMS Energy, Consumers and their subsidiaries and
affiliates are subject to various federal, state and local laws and
regulations relating to the environment. Several of these companies have
been named parties to various actions involving environmental issues.
However, based on their 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 - CMS Energy and
Consumers Environmental Compliance, Item 7. Management's Discussion and
Analysis and Item 8. Financial Statements and Supplementary Data - Note 6
of Consumers' Notes to Consolidated Financial Statements.
<PAGE>
<PAGE> 34
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS.
CMS ENERGY
None in the fourth quarter of 1997 for CMS Energy.
CONSUMERS
None in the fourth quarter of 1997 for Consumers.
<PAGE>
<PAGE> 35
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 in Item 8. Financial Statements and Supplementary
Data - CMS Energy's Quarterly Financial and Common Stock Information,
which is incorporated by reference herein. At February 25, 1998, the
number of registered shareholders totaled 67,278 for CMS Energy Common
Stock and 4,466 for Class G Common Stock.
Consumers
Consumers' common stock is privately held by its parent, CMS Energy, and
does not trade in the public market. In May, August, November and
December 1997, Consumers paid $70 million, $43 million, $57 million and
$48 million in cash dividends, respectively, on its common stock. In May,
August, November and December 1996, Consumers paid $75 million, $40
million, $48 million and $37 million in cash dividends, respectively, on
its common stock.
ITEM 6. SELECTED FINANCIAL DATA.
CMS Energy
Selected financial information is contained in Item 8. Financial
Statements and Supplementary Data - CMS Energy's Selected Financial
Information which is incorporated by reference herein.
Consumers
Selected financial information is contained in Item 8. Financial
Statements and Supplementary Data - 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. Financial Statements and Supplementary
Data - 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. Financial Statements and Supplementary
Data - Consumers' Management's Discussion and Analysis which is
incorporated by reference herein.
ITEM 7A. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
CMS Energy
Quantitative and Qualitative Disclosures About Market Risk is contained in
Item 8. Financial Statements and Supplementary Data - CMS Energy's
Management's Discussion and Analysis - Results of Operations - Market Risk
Information which is incorporated by reference herein.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Index to Financial Statements:
CMS Energy Page
Selected Financial Information. . . . . . . . . . . . . . . . 38
Management's Discussion and Analysis. . . . . . . . . . . . . 41
Consolidated Statements of Income . . . . . . . . . . . . . . 57
Consolidated Statements of Cash Flows . . . . . . . . . . . . 58
Consolidated Balance Sheets . . . . . . . . . . . . . . . . . 59
Consolidated Statements of Preferred Stock. . . . . . . . . . 61
Consolidated Statements of Common Stockholders' Equity. . . . 62
Notes to Consolidated Financial Statements. . . . . . . . . . 63
Report of Independent Public Accountants. . . . . . . . . . . 97
Quarterly Financial and Common Stock Information. . . . . . . 98
Consumers Page
Selected Financial Information. . . . . . . . . . . . . . . . 101
Management's Discussion and Analysis. . . . . . . . . . . . . 102
Consolidated Statements of Income . . . . . . . . . . . . . . 113
Consolidated Statements of Cash Flows . . . . . . . . . . . . 114
Consolidated Balance Sheets . . . . . . . . . . . . . . . . . 115
Consolidated Statements of Long-Term Debt . . . . . . . . . . 117
Consolidated Statements of Preferred Stock. . . . . . . . . . 118
Consolidated Statements of Common Stockholder's Equity. . . . 119
Notes to Consolidated Financial Statements. . . . . . . . . . 120
Report of Independent Public Accountants. . . . . . . . . . . 144
Quarterly Financial Information . . . . . . . . . . . . . . . 145
1997 Financial Statements
<PAGE>
<PAGE>
<PAGE> 38
<TABLE>
Selected Financial Information CMS Energy Corporation
<CAPTION>
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C> <C>
Operating revenue (in millions) ($) 4,787 4,333 3,890 3,614 3,476
Consolidated net income (in millions) ($) 268 240 204 179 155
Average common shares outstanding
(in thousands)
CMS Energy 96,144 92,462 88,810 85,888 81,251
Class G 8,015 7,727 7,511 - -
Earnings per average common share
CMS Energy - Basic ($) 2.63 2.45 2.27 2.09 1.90
- Diluted ($) 2.61 2.44 2.26 2.08 1.90
Class G - Basic and Diluted ($) 1.84 1.82 .38 - -
Cash from operations (in millions) ($) 657 661 682 612 484
Capital expenditures, excludes capital
lease additions and DSM (in millions) ($) 711 659 535 575 550
Total assets (in millions) ($) 9,793 8,615 8,143 7,378 6,958
Long-term debt, excluding current
maturities (in millions) ($) 3,272 2,842 2,906 2,709 2,405
Non-current portion of capital
leases (in millions) ($) 75 103 106 108 115
Total preferred stock (in millions) ($) 238 356 356 356 163
Total Trust Preferred Securities (in millions) ($) 393 100 - - -
Cash dividends declared per common share
CMS Energy ($) 1.14 1.02 .90 .78 .60
Class G ($) 1.21 1.15 .56 - -
Market price of common stock at year-end
CMS Energy ($) 44-1/16 33-5/8 29-7/8 22-7/8 25-1/8
Class G ($) 27-1/8 18-3/8 18-7/8 - -
Book value per common share at year-end (a)
CMS Energy ($) 18.73 17.00 15.15 12.78 11.33
Class G ($) 10.91 11.38 10.60 - -
Return on average common equity (%) 14.6 15.2 15.9 17.3 18.3
Return on assets (a) (%) 5.7 5.4 5.2 4.9 4.6
Number of employees at year-end
(full-time equivalents) 9,682 9,712 10,105 9,972 10,013
</TABLE>
<PAGE>
<PAGE> 39
<TABLE>
Selected Financial Information (Continued) CMS Energy Corporation
<CAPTION>
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C> <C>
Electric Utility Statistics
Sales (billions of kWh) 37.9 37.1 35.5 34.5 32.8
Customers (in thousands) 1,617 1,594 1,570 1,547 1,526
Average sales rate per kWh (cents) 6.57 6.55 6.36 6.29 6.28
Gas Utility Statistics
Sales and transportation deliveries (bcf) 420 448 404 409 411
Customers (in thousands) (b) 1,533 1,504 1,476 1,448 1,423
Average sales rate per mcf ($) 4.44 4.45 4.42 4.48 4.46
Electric and Gas Non-Utility Statistics
CMS Energy's share of unconsolidated
independent power production
revenue (in millions) ($) 621 493 497 385 334
Independent power production
sales (millions of kWh) 13,126 7,823 7,422 6,216 5,019
CMS Energy's share of unconsolidated
natural gas transmission, storage and
processing revenue (in millions) ($) 51 42 26 7 3
CMS Energy's share of unconsolidated
marketing, services and trading
revenue ($) 202 - - - -
Gas marketed for end-users (bcf) 243 108 101 66 60
Exploration and Production Statistics
Sales (net equiv. MMbbls) (a) 11.4 10.1 9.0 5.6 5.0
Proved reserves (net equiv. MMbbls) (a) 152.0 133.5 124.5 108.0 69.8
Proved reserves added
(net equiv. MMbbls) (a) 29.8 18.7 25.6 29.0 3.9
Finding cost per net equiv. barrel ($) 2.38 2.94 5.06 5.92 4.97
<FN>
(a) Certain prior year amounts were restated for comparative purposes.
(b) Excludes off-system transportation customers.
</TABLE>
<PAGE>
<PAGE> 40
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<PAGE>
<PAGE> 41
CMS Energy Corporation
Management's Discussion and Analysis
This Annual Report contains forward-looking statements, as defined by the
Private Securities Litigation Reform Act of 1995, that include, without
limitation, discussions as to expectations, beliefs, plans, objectives and
future financial performance, or assumptions underlying or concerning
matters discussed in this report. Refer to the Forward-Looking
Information section of this MD&A for some important factors that could
cause actual results or outcomes to differ materially from those addressed
in the forward-looking discussions.
CMS Energy is the parent holding company of Consumers and Enterprises.
Consumers is a combination electric and gas utility company serving the
Lower Peninsula of Michigan and 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: acquisition,
development and operation of independent power production facilities; oil
and gas exploration and production; storage, transmission and processing
of natural gas; energy marketing, services and trading; and international
energy distribution.
RESULTS OF OPERATIONS
CMS Energy Consolidated Earnings
In Millions, Except Per Share Amounts
Years Ended December 31 1997 1996 Change
- --------------------------------------------------------------
Consolidated Net Income $ 268 $ 240 $ 28
Net Income Attributable
to Common Stocks:
CMS Energy 253 226 27
Class G 15 14 1
Earnings Per Average
Common Share:
CMS Energy
Basic 2.63 2.45 .18
Diluted 2.61 2.44 .17
Class G
Basic and Diluted 1.84 1.82 .02
==============================================================
CMS Energy experienced earnings growth for the fifth consecutive year.
This historical growth reflects changes in regulation allowing CMS Energy
to invest in other states and countries, and to offer a full range of
services and fuels. The increased earnings for 1997 resulted from (i) a
February 1996 electric rate increase received by Consumers that benefitted
all of 1997, (ii) increased electric sales by Consumers, (iii) improved
earnings from the MCV Partnership, (iv) increased revenues from the
transmission of electricity for others, (v) increased income from
international independent power production, and (vi) increased income from
international gas transmission, storage and processing. Partially
offsetting these increases, however, were (i) decreased gas deliveries by
Consumers due to warmer winter month temperatures in 1997 and the loss of
an extra day for the 1996 leap year, (ii) marketing losses due to lower
gas margins, and (iii) lower gas production and lower oil and gas prices
in the oil and gas exploration and production business. Earnings for 1997
also included recognition of a gain on the sale of CMS NOMECO's entire
interest in oil and gas properties in Yemen, an industry expertise service
fee in connection with the Loy Yang A acquisition, a gain on the sale of
the Ames gas gathering system, and Consumers' adjustment of prior years'
income taxes associated with non-taxable earnings on nuclear
decommissioning trust funds. Comparatively, the 1996 results included a
gain on the sale of a power purchase agreement by a partnership in which
CMS Generation owns a 50 percent interest, a gain on the sale of a
partnership interest and a refund received by the MCV Partnership.
The increase in consolidated net income for 1996 over 1995 primarily
reflects the favorable impact of an electric rate increase and an
operating income increase from a refund received by the MCV Partnership
that provided a $6 million earnings benefit for CMS Energy. Earnings in
1996 also reflect increased electric sales, gas deliveries and revenues
from gas loaning activities. Consolidated net income was also affected by
increased earnings from CMS Gas Transmission's 25 percent ownership
interest in TGN and increased equity earnings resulting from the sale of a
power purchase agreement. CMS Gas Transmission and CMS Generation are
subsidiaries of Enterprises.
For further information, see the individual results of operations for each
CMS Energy business segment in this MD&A.
Electric Utility Results of Operations
Electric Pretax Operating Income:
In Millions
Change Compared to Prior Year 1997 vs 1996 1996 vs 1995
- --------------------------------------------------------------------------
Sales (including
special contract discounts) $ 5 $ 1
Rate increases and other regulatory issues 11 50
Operation and maintenance 24 2
General taxes, depreciation and other (19) (14)
---- ----
Total increase/(decrease)
in pretax operating income $ 21 $ 39
==== ====
Electric Sales: Total electric sales in 1997 were 38 billion kWh, an
increase of 2.3 percent over 1996 sales. The increase reflects continued
economic growth in Michigan and a 1.2 percent increase in sales to
ultimate customers, primarily within the industrial class. Total electric
sales in 1996 were 37 billion kWh, an increase of 4.4 percent over the
1995 level. The increase in 1996 is primarily attributable to an increase
in intersystem sales and a 1.7 percent increase in sales to ultimate
customers. This increase also reflects continued economic growth in
Consumers' territory.
Power Costs: Cost increases in both 1997 and 1996 over the prior periods
reflect greater power purchases from outside sources to meet increased
sales demand. The following table quantifies the changes in electric
power costs:
In Millions
Years Ended December 31 1997 1996 Change 1996 1995 Change
- -----------------------------------------------------------------------
$1,139 $1,087 $52 $1,087 $970 $117
=======================================================================
Electric Utility Operating Issues:
Power Purchases from the MCV Partnership: In 1992, Consumers recognized a
loss for the present value of the estimated future underrecoveries of
power purchases from the MCV Partnership. The after-tax cash
underrecoveries are currently based on the assumption that the MCV
Facility will be available to generate electricity 91.5 percent of the
time over its expected life. For 1997, the MCV Facility was available 99
percent of the time, resulting in after-tax cash underrecoveries of $41
million. Consumers believes it will continue to experience after-tax cash
underrecoveries associated with the PPA in amounts as those shown below.
For further information, see Power Purchases from the MCV Partnership in
Note 3.
In Millions
1998 1999 2000 2001 2002
- -----------------------------------------------------------------------
Estimated cash
underrecoveries, net of tax $23 $22 $21 $20 $19
========================================================================
Consumers bases the above estimated underrecoveries, in part, on an
estimate of the future availability of the MCV Facility. If the MCV
Facility operates at levels above management's estimate over the remainder
of the PPA, Consumers will need to recognize losses for future
underrecoveries larger than amounts previously recorded. Therefore,
Consumers would experience larger amounts of cash underrecoveries than
originally anticipated. Management will continue to evaluate the adequacy
of the accrued liability considering actual MCV Facility operations.
Electric Rate Proceedings: In 1996, the MPSC issued a final order
authorizing Consumers to recover costs associated with the purchase of an
additional 325 MW of MCV Facility capacity and to accelerate recovery of
its nuclear plant investment. To implement the accelerated recovery, the
order required an increase in annual nuclear plant depreciation expense by
$18 million with a corresponding decrease in fossil-fueled generating
plant depreciation expense. The order also established an experimental
direct-access program. For further information on these issues, see the
Electric Business Outlook section of this MD&A and Notes 3 and 4.
Nuclear Matters: In January 1997, the NRC issued its Systematic
Assessment of Licensee Performance report for the Palisades. The report
rated all areas as good, unchanged from the previous assessment.
The NRC requires Consumers to make certain calculations and report to it
on the continuing ability of the Palisades reactor vessel to withstand
postulated pressurized thermal shock. In 1996, Consumers received an
interim Safety Evaluation Report from the NRC indicating that the reactor
vessel can be safely operated through 2003. Consumers believes that with
a change in fuel management designed to minimize embrittlement, Palisades
can be operated to the end of its license life in the year 2007.
Palisades' temporary on-site storage pool for spent nuclear fuel is at
capacity. Consequently, Consumers is using NRC-approved steel and
concrete vaults, commonly known as "dry casks," for temporary on-site
storage.
Big Rock closed permanently on August 29, 1997 because management
determined that the plant would be uneconomical to operate in an
increasingly competitive environment. Consumers originally scheduled the
plant to close May 31, 2000, at the end of the plant's operating license.
Plant decommissioning began in September 1997 and may take five to ten
years to return the site to its original condition. The earlier than
planned closure of the plant and the reopening of the South Carolina
Barnwell facility to receive low level radioactive waste have changed the
method of decommissioning from the safe storage option to immediate
dismantlement. This change could have an impact on the estimated
decommissioning cost which is required to be updated in a filing with the
MPSC by March 31, 1998. For further information on nuclear matters, see
Note 11.
Electric Environmental Matters: The Clean Air Act contains significant
environmental provisions specific to utilities. During the past few
years, Consumers incurred $46 million in capital expenditures. Consumers
believes it may incur an additional $30 million in capital expenditures by
the year 2000 to comply with the current sulfur dioxide and nitrogen oxide
emission limits established by the EPA.
Consumers currently operates within all Clean Air Act requirements and
meets current ozone and particulate emission limits. The EPA recently
revised the national air quality standards, which may further limit small
particulate and ozone related emissions, and proposed that the State of
Michigan impose additional nitrogen oxide limits on fossil-fueled
emitters, such as Consumers' generating units. It is unlikely that the
State of Michigan will establish Consumers' emissions reduction target
until mid-to-late 1999. Until this state-mandated target is known, the
estimated cost of compliance is subject to significant revision. The
preliminary estimate of capital costs to reduce nitrogen oxide related
emissions for Consumers' fossil-fueled generating units is approximately
$175 million, plus an additional amount totaling $10 million per year for
the next 20 years for operation and maintenance costs. Consumers may need
an equivalent amount to comply with the new small particulate standards.
The State of Michigan objected to the extent of the proposed EPA emission
reductions. If the State of Michigan's position were to be adopted by the
EPA, costs could be less than the current estimated amounts. Consumers
supports the bipartisan effort in the U.S. Congress to delay
implementation of the revised standards until the relationship between the
new standards and health improvements is established scientifically.
Under the Michigan Natural Resources and Environmental Protection Act,
Consumers expects that it will ultimately incur investigation and remedial
action costs at a number of sites. Nevertheless, it believes that these
costs are properly recoverable in rates under current ratemaking policies.
Consumers is a so-called potentially responsible party at several
contaminated sites administered under Superfund. Many other creditworthy,
potentially responsible parties, with substantial assets also cooperate
with respect to the individual sites. Based on current information,
management believes it is unlikely that the liability at any of the known
Superfund sites, individually or in total, will have a material adverse
effect on CMS Energy's financial position, liquidity or results of
operations.
While decommissioning Big Rock, Consumers found that some areas of the
plant have coatings that contain both metals and polychlorinated
biphenyls. Consumers does not believe that any facility in the United
States currently accepts the radioactive portion of that waste. The cost
of removal and disposal is currently unknown. These costs would
constitute part of the cost to decommission the plant, and will be paid
from the decommissioning fund. Consumers is studying the extent of the
contamination and reviewing options. For further information regarding
these and other environmental matters, see Electric Environmental Matters
in Note 10 and Nuclear Plant Decommissioning in Note 2.
Stray Voltage: Various parties have sued Consumers relating to the effect
of so-called stray voltage on certain livestock. In December 1997, the
Michigan Supreme Court remanded for further proceedings a 1994 Michigan
trial court decision that refused to allow the claims of over 200 named
plaintiffs to be joined in a single action. The trial court dismissed all
of the plaintiffs except the first-named plaintiff, allowing the others to
re-file separate actions. Of the original plaintiffs, only 49 re-filed
separate cases. All of those 49 cases have been resolved. The Michigan
Supreme Court remanded the matter, finding that the proper remedy for
misjoinder was not dismissal, but to automatically allow each case to go
forward separately. Consumers filed a motion for reconsideration with the
Michigan Supreme Court, which was denied. Consumers intends to vigorously
defend these cases, but is unable to predict the outcome. As of December
31, 1997, Consumers had 12 individual stray voltage lawsuits, unrelated to
the cases above, awaiting trial court action, down from 22 lawsuits as
reported at year end 1996.
Other: In October 1997, two independent power producers sued Consumers
and CMS Energy in a federal court alleging antitrust violations and
economic losses due to special electric contracts signed by Consumers with
large customers. The plaintiffs claim damages of $100 million (which a
court can treble in antitrust cases as provided by law). The transactions
of which plaintiffs complain have been regulated by, and are subject to,
the jurisdiction of the MPSC. In November 1997, Consumers and CMS Energy
filed a motion for summary judgement and/or for dismissal of the complaint
filed by the plaintiffs. Consumers and CMS Energy believe the lawsuit is
without merit and will vigorously defend against it, but cannot predict
the outcome of this matter.
Consumers Gas Group Results of Operations
Gas Pretax Operating Income:
In Millions
Change Compared to Prior Year 1997 vs 1996 1996 vs 1995
- -----------------------------------------------------------------
Sales $(13) $ 3
Gas wholesale and retail
services activities (9) 7
Operations and maintenance 24 (4)
General taxes, depreciation
and other (7) (4)
---- ----
Total increase/(decrease)
in pretax operating income $ (5) $ 2
==== ====
Gas Deliveries: System deliveries in 1997, including miscellaneous
transportation, totaled 420 bcf, a decrease of 28 bcf or 6.1 percent
compared to 1996. The decreased deliveries for 1997 compared to 1996
reflect warmer temperatures in 1997 and loss of an extra day for the 1996
leap year. Comparable system deliveries for 1996 totaled 448 bcf, an
increase of 44 bcf or 10.8 percent compared to 1995. The increased
deliveries for 1996 compared to 1995 reflect growth resulting from
customer additions, conversions to natural gas from alternative fuels,
continued strength in the Michigan economy and the benefit from the added
leap year day in 1996.
Cost of Gas Sold: The cost decrease for 1997 was the result of decreased
sales and lower gas prices. The cost increase for 1996 was the result of
increased sales.
In Millions
Years Ended December 31 1997 1996 Change 1996 1995 Change
___________________________________________________________________
$694 $750 $(56) $750 $674 $76
===================================================================
Consumers Gas Group Operating Issues:
Gas Rate Proceedings: Consumers entered into a special natural gas
transportation contract in response to a customer's proposal to bypass
Consumers' system in favor of a competitive alternative. In 1995, the
MPSC approved the contract. The MPSC stated, however, that Consumers'
shareholders must bear the revenue shortfall created by the difference
between the contract's discounted rate and the floor price of an MPSC-
authorized gas transportation rate. In 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. In October 1997, the Court of Appeals issued an opinion
affirming the MPSC's order. Consumers has sought a rehearing of the Court
of Appeals opinion. For further information on Gas Proceedings, see the
Consumers Gas Group Business Outlook section of this MD&A and Note 4.
Gas Cost Recovery Matters: In 1995, the MPSC issued an order favorable to
Consumers' position in a $44 million contract pricing dispute (excluding
interest) between Consumers and certain gas producers. The Court of
Appeals upheld the MPSC order. The gas producers have now appealed to the
Michigan Supreme Court. Consumers believes the MPSC order correctly
concludes that the producers' theories are without merit. Consumers will
vigorously oppose any claims the producers 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.
Consumers estimates its costs related to investigation and remedial action
at $48 million to $98 million. This estimate is based on undiscounted
1998 costs. Any significant change in assumptions, such as remediation
technique, nature and extent of contamination and regulatory requirements,
could affect the estimate of investigation and remedial action costs for
the sites. For further information regarding environmental matters, see
Note 10 .
Independent Power Production Results of Operations
Pretax Operating Income: The improved earnings in the independent power
production business demonstrates the successful strategy to search for
global opportunities. Pretax operating income for 1997 increased $28
million (43 percent) from 1996. This increase primarily reflects
increased operating income resulting from increased international
earnings, higher electricity sales by the MCV Facility, the industry
expertise service fee income earned in connection with the Loy Yang
transaction in 1997, and increased earnings attributable to the Loy Yang
and Jorf Lasfar projects. These increases were offset by the absence of
certain 1996 nonrecurring gains, including the gain on the sale of a power
purchase agreement by a partnership in which CMS Generation owns a 50
percent interest. Pretax operating income for 1996 increased $22 million
from 1995, primarily reflecting nonrecurring gains and increased operating
income from a refund received by the MCV Partnership. See the Capital
Resources and Liquidity - Capital Expenditures, and Outlook -
International Operations Outlook sections of this MD&A for further
discussion of Loy Yang and Jorf Lasfar.
Independent Power Production Operating Issues
Contracts to sell 11 percent of Loy Yang's capacity will expire during
1998. Although Loy Yang will make attempts to replace these contracts at
comparable prices, there is no assurance that the new contracts will be at
the same price. CMS Generation does not currently expect to incur
significant capital costs, if any, at its power facilities to comply with
current environmental regulatory standards.
Oil and Gas Exploration and Production Results of Operations
Pretax Operating Income: The oil and gas exploration and production
segment of CMS Energy experienced continued growth in 1997. Pretax
operating income for 1997 increased $11 million (28 percent) over 1996.
This increase is the result of a gain on the sale of CMS NOMECO's entire
interest in oil and gas properties in Yemen and 33 percent higher oil
production. The increase is offset by lower oil and gas prices and gas
production and higher operating expenses. Pretax operating income for
1996 increased $9 million from 1995, primarily due to higher oil and gas
prices and volumes, partially offset by the recognition of a $10 million
gain from assignment and novation of a gas supply contract recorded in the
first quarter of 1995.
Natural Gas Transmission, Storage and Processing Results of Operations
Pretax Operating Income: Similar to the independent power production
business, CMS Energy's natural gas transmission, storage and processing
business earnings reflect the ability to acquire and develop major
pipelines worldwide. Pretax operating income for 1997 increased $7
million (26 percent). The increase primarily reflects income attributable
to the Australian pipeline acquired in 1997, income attributable to
domestic and international operations and a gain on the sale of a portion
of the Ames gas gathering system. These increases were partially offset by
the 1996 gain resulting from the dissolution of the Moss Bluff and Grand
Lacs partnerships. Pretax operating income for 1996 increased $14 million
from 1995, reflecting new pipeline and storage investments, primarily TGN,
the continued growth of existing projects, and a gain relating to the Moss
Bluff and Grand Lacs partnerships.
Marketing, Services and Trading Results of Operations
Pretax Operating Income: CMS MST provides energy commodity marketing,
risk management and energy management services to commercial and
industrial customers throughout the United States and plans to expand
operations worldwide. Pretax operating income for 1997 decreased $7
million from the 1996 period. The decrease is a result of substantially
higher than expected natural gas prices that severely impacted CMS MST's
ability to achieve positive margins on fixed price sales, and higher than
expected start up costs. Despite the decreased earnings, CMS MST will
continue to position itself for future growth in the new energy world.
Gas marketed for end users totaled 243 bcf and 108 bcf for 1997 and 1996,
respectively. Wholesale electric trading, a new marketing activity for
CMS MST in 1997, totaled 900,000 MW. CMS MST completed over 300 energy
management services projects resulting in $6 million in revenues.
Market Risk Information
CMS Energy is exposed to market risk including, but not limited to,
changes in interest rates, currency exchange rates, and certain commodity
and equity prices. Derivative instruments including, but not limited to,
futures contracts, swaps, options and forward contracts may be used to
manage these exposures. Derivatives are principally used as hedges and
not for trading purposes. During 1997, trading activities were immaterial.
In the case of hedges, management believes that any losses incurred on
derivative instruments used as a hedge would be offset by the opposite
movement of the underlying hedged item.
Management uses commodity futures contracts, options and swaps (which
require a net cash payment for the difference between a fixed and variable
price) and oil swaps to manage commodity price risk. They also use
forward exchange contracts to hedge certain receivables, payables and
long-term debt relating to foreign investments. Management also uses
equity investments in which CMS Energy or its subsidiaries hold less than
a 20 percent interest. These commodity, financial and equity instruments
do not expose CMS Energy to material market risk.
Interest Rate Risk: Management uses a combination of fixed-rate and
variable-rate debt to reduce interest rate exposure. Interest rate swaps
and rate locks may be used to adjust exposure when deemed appropriate,
based upon market conditions. These strategies attempt to provide and
maintain the lowest cost of capital. The carrying amount of long-term
debt was $ 3.3 billion at December 31, 1997 with a fair value of $3.3
billion. The fair value of CMS Energy's financial derivative instruments
at December 31, 1997, with a notional amount of $1.1 billion, was $13
million, representing the amount that CMS Energy would have paid to
terminate these agreements on December 31, 1997. For purposes of the new
SEC disclosure requirements, CMS Energy performed a sensitivity analysis.
The analysis assesses the potential loss in fair value, cash flows and
earnings based upon hypothetical increases and decreases in market
interest rates. A hypothetical 10 percent adverse shift in market rates
in the near term would not have a material impact on CMS Energy's
consolidated financial position, results of operations or cash flows as of
December 31, 1997.
Limitations of the Sensitivity Model: Management does not believe that a
sensitivity analysis alone provides an accurate or reliable method for
monitoring and controlling risk. Therefore, CMS Energy and its
subsidiaries rely on the experience and judgement of senior management and
traders to revise strategies and adjust positions as they deem necessary.
Losses in excess of the amounts determined could occur if market rates or
prices exceed the 10 percent shift used for the analysis. The model
assumes that the maximum exposure associated with purchased options is
limited to premiums paid. The model does not take into consideration that
the Trust Preferred Securities are convertible into CMS Energy Common
Stock. The model assumes that conversion does not take place. If the
conversion occurred, the $173 million of Trust Preferred Securities would
be discharged through the issuance of 4.2 million shares of CMS Energy
Common Stock. The model also does not quantify short-term exposure to
hypothetically adverse price fluctuations in inventories.
For a discussion of accounting policies related to derivative
transactions, see Note 9.
CAPITAL RESOURCES AND LIQUIDITY
Cash Position, Investing and Financing
CMS Energy's primary ongoing source of operating cash is dividends from
subsidiaries. In 1997, Consumers paid $218 million in common dividends.
In October 1997, Consumers returned $50 million of paid-in capital to
CMS Energy. During 1997, Enterprises paid common dividends and other
distributions of $173 million to CMS Energy. CMS Energy's consolidated
operating cash requirements are further met by its operating and financing
activities.
Operating Activities: CMS Energy's consolidated net cash provided by
operating activities is derived mainly from the sale and transportation of
natural gas by Consumers; the generation, transmission, and sale of
electricity by Consumers; the sale of oil and natural gas; the
transportation and storage of natural gas by CMS Gas Transmission; and the
production and sale of electricity by other affiliates. Consolidated cash
from operations totaled $657 million and $661 million for 1997 and 1996,
respectively. The $4 million decrease resulted from changes in working
capital and timing differences related to cash payments, cash receipts and
the recognition of revenues for routine operations, which offset an
increase in net income. CMS Energy uses its operating cash primarily to
expand its international businesses, to maintain and expand electric and
gas systems of Consumers, to retire portions of its long-term debt and to
pay dividends.
Investing Activities: CMS Energy's consolidated net cash used in investing
activities totaled $1.584 billion and $841 million for 1997 and 1996,
respectively. The increase of $743 million primarily reflects increases
in capital expenditures and investments in partnerships and unconsolidated
subsidiaries during 1997. CMS Energy's 1997 expenditures for its utility
and international businesses were $371 million and $1.181 billion,
respectively, compared to $447 million and $432 million, respectively,
during 1996.
Financing Activities: CMS Energy's net cash provided by financing
activities totaled $938 million and $180 million for 1997 and 1996,
respectively. The increase of $758 million in net cash provided by
financing activities resulted from issuing the securities listed in the
table below, an increase in notes payable and the reduction in the
repayment of bank loans. The retirement of bonds and other long-term debt
and the retirement of preferred stock partially offset the 1997 increase.
In Millions
Distribution/ Principal Use of
Month IssuedMaturity Interest Rate Amount Proceeds
- -----------------------------------------------------------------
CMS Energy
Senior Notes May 2002 8.125% $ 350 Fund Loy Yang
Senior Notes September 2004 7.625% 180 Discharge debt
Senior Notes November 2000 7.375% 300 Pay down Senior
Credit Facilities
GTNs
Series C (2) (2) 7.7% (2) 150 General corporate
purposes
Series D (2) (2) 7.3% (2) 78 General corporate
purposes
Trust Preferred
Securities (1) June 2027 7.75% (4) 173 General corporate
purposes
Common Stock November N/A 4.142 shares 152 General corporate
purposes
------
1,383
Consumers
Trust Preferred
Securities(3) September 2027 8.20%(4) 120 Redeem preferred
stock
------
Total $1,503
======
(1)For additional information regarding the sale of these securities see
Note 7 and note (b) on the Consolidated Balance Sheets.
(2)GTNs are issued from time to time with various maturities. The rate
shown herein is a weighted average interest rate.
(3)For additional information regarding the sale of these securities see
Note 7 and note (a) on the Consolidated Balance Sheets.
(4)Distributions are tax deductible.
In 1997, CMS Energy paid $109 million in cash dividends to holders of
CMS Energy Common Stock and $10 million in cash dividends to holders of
Class G Common Stock. In January 1998, the Board of Directors declared a
quarterly dividend of $.30 per share on CMS Energy Common Stock and $.31
per share on Class G Common Stock, payable in February 1998.
In July 1997, the Board of Directors declared quarterly dividends of $.30
per share on CMS Energy Common Stock and $.31 per share on Class G Common
Stock. CMS Energy paid these dividends in August 1997, representing an
increase in the annualized dividend on CMS Energy Common Stock to $1.20
per share from the previous amount of $1.08 per share (an 11 percent
increase) and an increase in the annualized dividend on Class G Common
Stock to $1.24 per share from the previous dividend of $1.18 per share (a
5 percent increase).
Other Investing and Financing Matters: At December 31, 1997, the book
value per share of CMS Energy Common Stock and Class G Common Stock was
$18.73 and $10.91, respectively.
As of December 31, 1997, CMS Energy could issue $241 million in deferred
coupon notes, GTNs, CMS Energy Common Stock, subordinated debentures,
stock purchase contracts, stock purchase units and Trust Preferred
Securities under various outstanding shelf registration statements on file
with the SEC.
In July 1997, CMS Energy refinanced a $450 million unsecured revolving
credit facility and a $125 million term loan with the $1.125 billion
Senior Credit Facilities. The Senior Credit Facilities consist of a $400
million 364-day revolving credit facility, a $600 million three-year
revolving credit facility and a five-year $125 million term loan facility.
Additionally, CMS Energy has unsecured lines of credit and letters of
credit in an aggregate amount of $155 million. These credit facilities
are available to finance working capital requirements and to pay for
capital expenditures between long-term financings. At December 31, 1997,
the total amount utilized under the Senior Credit Facilities was $365
million, including $60 million of contingent obligations, and under the
unsecured lines of credit and letters of credit was $21 million.
CMS Energy has a bank commitment through March 1998 to enter into a $580
million credit agreement to fund investments in power projects.
In January 1998, a Delaware statutory business trust established by
CMS Energy sold $180 million of certificates due January 15, 2005 in a
public offering. In exchange for those proceeds, CMS Energy sold to the
trust $180 million aggregate principal amount of 7 percent Extendible
Tenor Rate Adjusted Securities due January 15, 2005. Net proceeds to
CMS Energy from the sale totaled $176 million.
In January 1998, CMS Energy announced the commencement of an offer to
exchange up to $300 million of its privately placed 7.375 percent Senior
Unsecured Notes due 2000, Series A for 7.375 percent Senior Unsecured
Notes due 2000, Series B that have been registered with the SEC. Other
than their registration, the terms of the Series B Notes are substantially
identical to the Series A (except that the Series B will not have transfer
restrictions). The offer was completed in February 1998.
At December 31, 1997, Consumers had FERC authorization to: (i) issue or
guarantee up to $900 million of short-term securities through 1998; (ii)
issue, through November 1998, $376 million of long-term securities with
maturities up to 30 years, for refinancing or refunding purposes; and
(iii) guarantee, through 1999, up to $25 million in loans made by others,
to residents of Michigan for the purpose of making energy-related home
improvements. In January 1998, Consumers requested authorization to
issue, through November 1998, an additional $500 million of long-term
securities for refinancing or refunding purposes.
Consumers has an unsecured $425 million credit facility and unsecured
lines of credit aggregating $120 million. These facilities are available
to finance seasonal working capital requirements and to pay for capital
expenditures between long-term financings. At December 31, 1997, the
total available amount remaining under these facilities was $168 million.
Consumers also has in place a $500 million trade receivables sale program.
At December 31, 1997, $165 million in receivables remained available for
sale under the program. For further information, see Note 5.
CMS Energy and its subsidiaries must redeem or retire $1.7 billion of
long-term debt over the three-year period ending December 2000. In
addition, at December 31, 1997, Consumers had a recorded liability to the
DOE of $111 million, which Consumers must pay upon the first delivery of
spent nuclear fuel to the DOE. Current federal law originally scheduled
delivery of the fuel to occur in 1998 (see Note 2). Consumers plans to
refinance $850 million of its long-term debt during 1998 and will continue
to evaluate capital markets as a source of financing further debt
retirements. In early 1998, Consumers called for the March 1998
redemption of $57 million aggregate principal amount of its 7.5 percent
First Mortgage Bonds due 2001 and $62 million aggregate principal amount
of its 7.5 percent First Mortgage Bonds due 2002.
In early 1998, Consumers issued $250 million of senior notes due February
1, 2008, at an interest rate of 6.375 percent. The senior notes are
secured by a series of Consumers' First Mortgage Bonds, issued
contemporaneously in a similar amount. Proceeds from the sale were added
to the general funds of Consumers and applied to the payment, at maturity,
of $248 million aggregate principal amount of Consumers' 8.75 percent
First Mortgage Bonds due February 15, 1998.
The following discussions in Capital Expenditures and Outlook contain
forward-looking statements. See the Forward-Looking Information section
of this MD&A for some important factors that could cause actual results or
outcomes to differ materially from those discussed herein.
Capital Expenditures
In September 1997, a joint venture of affiliates of CMS Generation and ABB
Energy Ventures, Inc. collectively invested $395 million for their equity
contribution in the Jorf Lasfar project company. Equity bridge loans from
private banks provided the funds for their equity investment. CMS Energy
guaranteed CMS Generation's 50 percent share of the $395 million borrowing
that funded the equity contribution. A consortium of governmental,
multilateral and private financial institutions provided an estimated
additional $920 million of non-recourse debt financing. Jorf Lasfar is a
$1.5 billion privatization and expansion project. CMS Energy anticipates
that reinvested cash from operations, estimated at $191 million, will
provide the balance of the financing needed for Jorf Lasfar.
In the second quarter of 1997, a consortium comprising subsidiaries of
CMS Generation, among others, financed, through a consortium of banks,
seventy-seven percent of the consortium's $3.7 billion payment to the
Australian State of Victoria government for the Loy Yang acquisition.
This financing occurred on a non-recourse basis to CMS Energy and
CMS Generation. CMS Generation holds a 50 percent interest in the Loy
Yang consortium.
In December 1997, the State of Sergipe, Brazil selected a group consisting
of CMS Energy affiliates and CFLCL, to acquire, in a privatization, an 86
percent interest in the Energipe electric distribution utility. By prior
agreement, CMS Electric & Gas acquired 39 percent of the equity securities
of CFLCL for $180 million, which funded CFLCL's investment in Energipe.
CMS Electric & Gas may increase its ownership interest in CFLCL during the
first half of 1998.
Looking forward, CMS Energy estimates that capital expenditures, including
new lease commitments and investments in partnerships and unconsolidated
subsidiaries, will total $3.7 billion over the next three years. Cash
generated by operations is expected to satisfy a substantial portion of
these capital expenditures. Nevertheless, CMS Energy will continue to
evaluate capital markets in 1998 as a potential source of financing its
subsidiaries' investing activities. CMS Energy estimates capital
expenditures by business segment over the next three years as follows:
In Millions
Years Ended December 31 1998 1999 2000
- ------------------------------------------------------------------------
Consumers electric operations (a) (b) $ 320 $ 265 $ 255
Consumers gas operations (a) 115 115 115
Independent power production 368 469 400
Oil and gas exploration and production 110 160 175
Natural gas transmission and storage 210 61 100
International energy distribution 142 125 100
Marketing, services and trading 70 25 30
------ ------ ------
$1,335 $1,220 $1,175
====== ====== ======
(a) These amounts include an attributed portion of Consumers' anticipated
capital expenditures for plant and equipment common to both the electric
and gas utility businesses.
(b) These amounts do not include preliminary estimates for capital
expenditures possibly required to comply with recently revised national
air quality standards under the Clean Air Act. For further information
see Electric Utility Operating Issues - Electric Environmental Matters
above and Note 10.
CMS Energy currently plans investments from 1998 to 2000: (i) for oil and
gas exploration and production operations, primarily in North and South
America, offshore West Africa and North Africa; (ii) for independent power
production operations to pursue acquisitions and development of electric
generating plants in the United States, Latin America, Asia, Australia,
the Pacific Rim region, North Africa and the Middle East; (iii) to
continue development of non-utility natural gas storage, gathering and
pipeline operations of CMS Gas Transmission, both domestic and
international; (iv) to acquire, develop and expand international energy
distribution businesses; and (v) to provide gas, electric, oil and coal
marketing, risk management and energy management services throughout the
United States and eventually worldwide.
These estimates are prepared for planning purposes and are subject to
revision.
OUTLOOK
As the deregulation and privatization of the energy industry takes place
in the United States and internationally, CMS Energy has positioned itself
to be a leading international energy infrastructure company developing and
operating energy facilities and providing energy services in all major
world growth markets. CMS Energy provides a complete range of
international energy expertise from well-head to burner-tip. Beyond 1997
it will continue to grow its businesses by finding opportunities to invest
in additional energy infrastructures and to capitalize on being a major,
full-service energy company. CMS Energy will increase its involvement in
energy projects by pursuing opportunities in oil and gas exploration and
development projects, natural gas pipelines and storage facilities, power
generation, and electric and gas distribution systems around the world.
In addition, CMS Energy will focus more on marketing energy services and
trading to take advantage of continued growth opportunities in both the
domestic and international markets.
International Operations Outlook
CMS Energy will continue to grow internationally by investing in multiple
projects in each country as well as by developing synergistic projects
across its lines of business. CMS Energy believes these integrated
projects will create more opportunities and greater value than individual
investments. Also, CMS Energy will achieve this growth through strategic
partnering where appropriate.
To improve the efficiency and focus of its international energy
businesses, CMS Energy will separate its development efforts from the
operations of its assets. CMS Energy plans to conduct its development
efforts from offices in four regions of the world: Dearborn, Michigan for
The Americas - Northern Hemisphere; Buenos Aires for The Americas -
Southern Hemisphere; London for Africa, Europe and the Middle East; and
Singapore for Southeast Asia and Australia.
CMS Energy's development efforts will focus on countries where there are
multiple investment opportunities across its businesses, high energy
growth expectations, defined legal and regulatory structures, and economic
policies that support private investment. CMS Energy will continue to
create value by using the extensive knowledge and experience it has gained
in the United States over the past century, to gain competitive positions
in these countries.
CMS Energy structures its investments to minimize operational and
financial risks. These risks are mitigated when operating internationally
by working with local partners, utilizing multi-lateral financing
institutions, procuring political risk insurance and hedging foreign
currency exposure where appropriate.
Electric Business Outlook
Growth: Consumers expects average annual growth of two and one-half
percent per year in electric system deliveries over the next five years,
based on the present industry and regulatory configuration in Michigan.
Abnormal weather, changing economic conditions, or the developing
competitive market for electricity may affect actual electric sales in
future periods.
Restructuring: Consumers' electric retail service is affected by
competition. To meet the challenge of competition, Consumers entered into
multi-year contracts with some of its largest industrial customers to
serve certain facilities. The MPSC has approved these contracts as part
of its phased introduction to competition. Certain customers have the
option to terminate their contracts early.
FERC Orders 888 and 889, as amended, require utilities to provide direct
access to the interstate transmission grid for wholesale transactions.
Consumers and Detroit Edison disagree on the effect of the orders on the
Michigan Electric Power Coordination Center pool. Consumers proposes to
maintain the benefits of the pool, while Detroit Edison has given notice
of early termination. Consumers expects FERC to rule on this issue in
1998.
In June 1997 the MPSC issued an order proposing that beginning January 1,
1998 Consumers would have to transmit and distribute energy on behalf of
competing power suppliers to serve retail customers. The order states
that by January 1, 2002, all customers would be free to choose (that is,
have direct access to) their own power suppliers.
Under the June 1997 order, the MPSC would allow utilities to recover
prudently incurred Transition Costs through a charge to all direct-access
customers until the end of the transition period in 2007.
Subsequent to the June 1997 order, the MPSC issued orders in October 1997
and early in 1998. Ultimately, the MPSC allowed Consumers: (i) to
recover Transition Costs of $1.755 billion through a charge to all direct-
access customers until the end of the transition period in 2007, subject
to an adjustment through a true-up mechanism; (ii) to commence the phase-
in of direct access in March 1998; and (iii) to suspend the power supply
cost recovery clause. The orders also confirm the MPSC's belief that
Securitization may be a beneficial mechanism for recovery of Transition
Costs while recognizing that Securitization requires state legislation to
occur. Consumers believes that the Transition Cost surcharge will apply
to all customers beginning in 2002. A separate charge to direct-access
customers after MPSC review and verification would also recover prudent
costs of implementing a direct-access program estimated at an additional
$200 million. Nuclear decommissioning costs will also continue to be
collected through a separate surcharge to all customers. Consumers
expects Michigan legislative consideration of the entire subject of
electric industry restructuring in 1998. To be acceptable to Consumers,
the legislation would have to provide for full recovery of Transition
Costs. Consumers expects the legislature to review all of the policy
choices made by the MPSC during the restructuring proceedings to assure
that they are in accord with those that the legislature believes should be
paramount. For further information regarding restructuring, see Note 4.
Application of SFAS 71: Consumers applies the utility accounting
standard, SFAS 71, that recognizes the economic effects of rate regulation
and, accordingly, has recorded regulatory assets and liabilities related
to the generation, transmission and distribution operations of its
business in its financial statements. Consumers believes that the
generation segment of its business is still subject to rate regulation
based upon its present obligation to continue providing generation service
to its customers, and the lack of definitive deregulation orders. If rate
recovery of generation-related costs becomes unlikely or uncertain,
whether due to competition or regulatory action, this accounting standard
may no longer apply to the generation segment of Consumers' business.
Such a change could result in either full recovery of generation-related
regulatory assets (net of related regulatory liabilities) or a loss,
depending on whether Consumers' regulators adopt a transition mechanism
for the recovery of all or a portion of these net regulatory assets.
According to recently published Emerging Issues Task Force Issue 97-4,
Deregulation of the Pricing of Electricity - Issues Related to the
Application of FASB Statements No. 71 and 101, Consumers can continue to
carry its generation-related regulatory assets or liabilities for the part
of the business being deregulated if deregulatory legislation or an MPSC
rate order allows the collection of cash flows from its regulated
transmission and distribution customers to recover these specific costs or
settle obligations. Consumers believes that even if it was to discontinue
application of SFAS 71 for the generation segment of its business, its
regulatory assets, including those related to generation, are probable of
future recovery from the regulated portion of the business. At
December 31, 1997, Consumers had $277 million of generation-related net
regulatory assets recorded on its balance sheet, and a net investment in
generation facilities of $1.4 billion included in electric plant and
property. For further information regarding this issue, see Electric
Business Outlook - Restructuring, above.
Consumers Gas Group Business Outlook
Growth: Consumers currently anticipates gas deliveries (excluding
transportation to the MCV Facility and off-system deliveries) to grow at
an average annual rate of between one and two percent over the next five
years based primarily on a steadily growing customer base. Abnormal
weather, alternative energy prices, changes in competitive conditions, and
the level of natural gas consumption may affect actual gas deliveries in
future periods. Consumers is also offering a variety of energy-related
services to its customers focused upon appliance maintenance, home safety,
and home security.
Restructuring In December 1997, the MPSC approved Consumers' application
to implement a statewide, three-year experimental gas transportation pilot
program, eventually allowing 300,000 residential, commercial and
industrial retail gas sales customers to choose their gas supplier. The
program is voluntary for natural gas customers. Customers choosing to
remain as sales customers of Consumers will not see a rate change in their
natural gas rates. To minimize the risk of exposure to higher gas costs,
Consumers currently has contracts in place at known prices covering a
portion of its requirements through the year 2000. ABATE, the Attorney
General and other parties filed claims of appeal of the MPSC's order with
the Court of Appeals. For further information, see Note 4 .
Application of SFAS 71: Based on a regulated utility accounting standard,
SFAS 71, Consumers may 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 regulatory assets related to
its gas business, and believes that sufficient regulatory assurance exists
to provide for the recovery of these deferred costs.
OTHER MATTERS
New Accounting Standards
In 1997, the FASB issued SFAS 130, Reporting Comprehensive Income, and
SFAS 131, Disclosures about Segments of an Enterprise and Related
Information. Each of these standards requires expanded disclosures
effective for 1998. Also in 1997, the Emerging Issues Task Force
published Issue 97-4, Deregulation of the Pricing of Electricity - Issues
Related to the Application of FASB Statements No. 71 and 101, and Issue
97-13, Accounting for Costs Incurred in Connection with a Consulting
Contract or an Internal Project that Combines Business Process
Reengineering and Information Technology Transformation. The consensus
reached in Issue 97-4 allows a company to maintain regulatory assets and
liabilities for part of a business that is being deregulated if
deregulatory legislation or a commission rate order allows the collection
of regulated cash flows to recover costs or settle obligations. The
regulated portion of a business maintains these regulatory assets and
liabilities until they are collected or settled, they are impaired, or
until the regulated portion of the business becomes deregulated. The
consensus reached in Issue 97-13 requires a company to expense the cost of
business process reengineering activities as incurred, and requires a
company to write off previously capitalized costs as a cumulative effect
adjustment in 1997. CMS Energy was not affected by the requirements of
this consensus. In addition, CMS Energy does not expect the application
of the other statements to materially affect its financial position,
liquidity or results of operations.
Computer Modifications for Year 2000
CMS Energy and its subsidiaries use software and related technologies
throughout its businesses that the year 2000 date change will affect and,
if uncorrected, could cause CMS Energy, among other things, to issue
inaccurate bills, report inaccurate data, or incur plant outages. In
1995, CMS Energy began modification of its computer software systems by
dividing programs requiring modification between critical and noncritical
programs. All necessary program modifications are expected to be
completed by the year 2000. CMS Energy devoted significant internal and
external resources to these modifications. It will expense anticipated
spending for these modifications as incurred, while capitalizing and
amortizing the costs for new software over the software's useful life.
CMS Energy does not expect that the cost of these modifications will
materially affect its financial position, liquidity or results of
operations.
Foreign Currency Translation:
CMS Energy adjusts common stockholders' equity to reflect foreign currency
translation adjustments for the operation of long-term investments in
foreign countries. As of December 31, 1997 the foreign currency
translation adjustment was $96 million relating primarily to the U.S. and
Australian Dollar exchange rate fluctuations related to Loy Yang.
CMS Energy currently believes that the Australian economy is stable and
does not expect currency exchange rate fluctuations over the long term to
materially adversely affect CMS Energy's financial position, liquidity or
results of operations.
FORWARD-LOOKING INFORMATION
Forward-looking information is included throughout this report. This
report also describes material contingencies in the Notes to Consolidated
Financial Statements and should be read accordingly.
Some important factors that could cause actual results or outcomes to
differ materially from those discussed in the forward-looking statements
include prevailing domestic and foreign governmental policies and
regulatory actions (including those of FERC and the MPSC) with respect to
rates, proposed electric and natural gas industries restructuring, change
in industry and rate structure, operation of a nuclear power facility,
acquisition and disposal of assets and facilities, operation and
construction of plant facilities, operation and construction of natural
gas pipeline and storage facilities, recovery of the cost of purchased
power or natural gas, decommissioning costs, and present or prospective
wholesale and retail competition, among other important factors. The
business and profitability of CMS Energy are also influenced by economic
and geographic factors, including political and economic risks
(particularly those associated with international development and
operations, including currency fluctuation), changes in environmental laws
and policies, weather conditions, competition for retail and wholesale
customers, pricing and transportation of commodities, market demand for
energy, inflation or deflation, capital market conditions, unanticipated
development project delays or changes in project costs, and the ability to
secure agreement in pending negotiations, among other important factors.
All such factors are difficult to predict, contain uncertainties that may
materially affect actual results, and may be beyond the control of
CMS Energy.
<PAGE>
<PAGE> 57
<TABLE>
Consolidated Statements of Income CMS Energy Corporation
<CAPTION>
In Millions, Except Per Share Amounts
Years Ended December 31 1997 1996 1995
<S> <C> <C> <C>
Operating Revenue Electric utility $2,515 $2,446 $2,277
Gas utility 1,204 1,282 1,195
Independent power production 168 140 96
Oil and gas exploration and production 93 130 108
Natural gas transmission, storage and processing 102 62 25
Marketing, services and trading 692 258 171
Other 13 15 18
------ ------ ------
4,787 4,333 3,890
------ ------ ------
Operating Expenses Operation
Fuel for electric generation 297 296 283
Purchased power - related parties 599 589 491
Purchased and interchange power 243 202 196
Cost of gas sold 1,311 997 824
Other 729 737 679
------ ------ ------
3,179 2,821 2,473
Maintenance 174 178 186
Depreciation, depletion and amortization 477 441 416
General taxes 211 202 196
------ ------ ------
4,041 3,642 3,271
------ ------ ------
Pretax Operating Electric utility 432 411 372
Income (Loss) Gas utility 153 158 156
Independent power production 96 68 46
Oil and gas exploration and production 50 39 30
Natural gas transmission, storage and processing 33 26 12
Marketing, services and trading (5) 2 2
Other (13) (13) 1
------ ------ ------
746 691 619
------ ------ ------
Other Income Accretion income (Note 2) 8 10 11
(Deductions) Accretion expense (Note 2) (17) (22) (31)
Other, net (3) 1 9
------ ------ ------
(12) (11) (11)
------ ------ ------
Fixed Charges Interest on long-term debt 273 230 224
Other interest 49 43 42
Capitalized interest (16) (8) (8)
Preferred dividends 25 28 28
Trust Preferred Securities distributions (Note 7) 18 8 -
------ ------ ------
349 301 286
------ ------ ------
Income Before Income Taxes 385 379 322
Income Taxes 117 139 118
------ ------ ------
Consolidated Net Income $ 268 $ 240 $ 204
====== ====== ======
Net Income Attributable to Common Stocks CMS Energy $ 253 $ 226 $ 201
Class G $ 15 $ 14 $ 3
====== ====== ======
Basic Earnings Per Average Common Share CMS Energy $ 2.63 $ 2.45 $ 2.27
(Note 8) Class G $ 1.84 $ 1.82 $ .38
====== ====== ======
Diluted Earnings Per Average Common Share CMS Energy $ 2.61 $ 2.44 $ 2.26
(Note 8) Class G $ 1.84 $ 1.82 $ .38
====== ====== ======
Dividends Declared Per Common Share CMS Energy $ 1.14 $ 1.02 $ .90
Class G $ 1.21 $ 1.15 $ .56
====== ====== ======
<FN>
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
<PAGE> 58
<TABLE>
Consolidated Statements of Cash Flows CMS Energy Corporation
<CAPTION>
In Millions
Years Ended December 31 1997 1996 1995
<S> <C> <C> <C>
Cash Flows From Consolidated net income $ 268 $ 240 $ 204
Operating Adjustments to reconcile net income to net cash
Activities provided by operating activities
Depreciation, depletion and amortization (includes
nuclear decommissioning of $50, $49 and $51,
respectively) 477 441 416
Capital lease and debt discount amortization 44 41 61
Deferred income taxes and investment tax credit 33 46 75
Accretion expense (Note 2) 17 22 31
Accretion income - abandoned Midland project (Note 2) (8) (10) (11)
Undistributed earnings of related parties (64) (64) (53)
Power purchases (Note 3) (62) (63) (137)
Other (13) 20 7
Changes in other assets and liabilities (Note 12) (35) (12) 89
------- ------- -------
Net cash provided by operating activities 657 661 682
------- ------- -------
Cash Flows From Capital expenditures (excludes capital lease additions of
Investing $11, $31 and $31, respectively and DSM) (Note 12) (711) (659) (535)
Activities Investments in partnerships and unconsolidated
subsidiaries (830) (163) (242)
Investments in nuclear decommissioning trust funds (50) (49) (51)
Cost to retire property, net (28) (31) (41)
Other (14) 8 (14)
Acquisition of companies, net of cash acquired - (20) (146)
Deferred demand-side management costs - (6) (9)
Proceeds from sale of property 49 79 22
------- ------- -------
Net cash used in investing activities (1,584) (841) (1,016)
------- ------- -------
Cash Flows From Proceeds from bank loans, notes and bonds 1,214 433 333
Financing Proceeds from Trust Preferred Securities 286 97 -
Activities Issuance of Common Stock 224 95 160
Increase (decrease) in notes payable, net 49 (8) 2
Retirement of bonds and other long-term debt (521) (37) (44)
Retirement of preferred stock (120) - -
Payment of Common Stock dividends (119) (103) (84)
Payment of capital lease obligations (44) (40) (37)
Repayment of bank loans (29) (256) (18)
Retirement of Common Stock (2) (1) (1)
------- ------- -------
Net cash provided by financing activities 938 180 311
------- ------- -------
Net Increase (Decrease) in Cash and Temporary Cash Investments 11 - (23)
Cash and temporary cash investments
Beginning of year 56 56 79
------- ------- -------
End of year $ 67 $ 56 $ 56
======= ======= =======
<FN>
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
<PAGE> 59
<TABLE>
Consolidated Balance Sheets CMS Energy Corporation
<CAPTION>
ASSETS In Millions
December 31 1997 1996
<S> <C> <C>
Plant and Property Electric $ 6,491 $ 6,333
(At Cost) Gas 2,528 2,337
Oil and gas properties (full-cost method) 1,257 1,140
Other 168 94
------- -------
10,444 9,904
Less accumulated depreciation, depletion
and amortization (Note 2) 5,270 4,867
------- -------
5,174 5,037
Construction work-in-progress 261 243
------- -------
5,435 5,280
------- -------
Investments Independent power production 790 317
Natural gas transmission, storage and processing 256 233
International energy distribution 255 64
First Midland Limited Partnership (Notes 3 and 22) 242 232
Midland Cogeneration Venture Limited
Partnership (Notes 3 and 22) 171 134
Other 48 22
------- -------
1,762 1,002
------- -------
Current Assets Cash and temporary cash investments at cost, which
approximates market 67 56
Accounts receivable and accrued revenue, less allowances
of $7 in 1997 and $10 in 1996 (Note 5) 476 374
Inventories at average cost
Gas in underground storage 197 186
Materials and supplies 85 86
Generating plant fuel stock 35 30
Deferred income taxes (Note 13) 38 48
Prepayments and other 240 235
------- -------
1,138 1,015
------- -------
Non-current Assets Nuclear decommissioning trust funds (Note 2) 486 386
Postretirement benefits (Note 16) 404 435
Abandoned Midland project 93 113
Other 475 384
------- -------
1,458 1,318
------- -------
Total Assets $ 9,793 $ 8,615
======= =======
/TABLE
<PAGE>
<PAGE> 60
<TABLE>
CMS Energy Corporation
<CAPTION>
STOCKHOLDERS' INVESTMENT AND LIABILITIES In Millions
December 31 1997 1996
<S> <C> <C>
Capitalization Common stockholders' equity $ 1,977 $ 1,702
Preferred stock of subsidiary 238 356
Company-obligated mandatorily redeemable
Trust Preferred Securities of:
Consumers Power Company Financing I (a) 100 100
Consumers Energy Company Financing II (a) 120 -
Company-obligated convertible Trust Preferred Securities of
CMS Energy Trust I (b) 173 -
Long-term debt (Note 6) 3,272 2,842
Non-current portion of capital leases (Note 17) 75 103
------- -------
5,955 5,103
------- -------
Current Liabilities Current portion of long-term debt and capital leases 643 409
Notes payable 382 333
Accounts payable 398 348
Accrued taxes 272 262
Accounts payable - related parties 80 63
Accrued interest 51 47
Power purchases (Note 3) 47 47
Accrued refunds 12 8
Other 190 206
------- -------
2,075 1,723
------- -------
Non-current Deferred income taxes (Note 13) 743 698
Liabilities Postretirement benefits (Note 16) 514 521
Deferred investment tax credit 151 161
Power purchases (Note 3) 133 178
Regulatory liabilities for income taxes,
net (Notes 13 and 20) 54 66
Other 168 165
------- -------
1,763 1,789
------- -------
Commitments and Contingencies (Notes 2, 3, 4, 10, 11 and 17)
Total Stockholders' Investment and Liabilities $ 9,793 $ 8,615
======= =======
<FN>
(a) The primary asset of Consumers Power Company Financing I is $103 million principal amount of 8.36 percent
subordinated deferrable interest notes due 2015 from Consumers. The primary asset of Consumers Energy Company
Financing II is $124 million principal amount of 8.20 percent subordinated deferrable interest notes due 2027 from
Consumers. For further discussion, see Note 7 to the Consolidated Financial Statements.
(b) As described in Note 7, the primary asset of CMS Energy Trust I is $178 million principal amount of 7.75 percent
convertible subordinated debentures due 2027 from CMS Energy.
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
<PAGE> 61
<TABLE>
Consolidated Statements of Preferred Stock CMS Energy Corporation
<CAPTION>
Optional
Redemption Number of Shares In Millions
December 31 Series Price 1997 1996 1997 1996
<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 - 38
7.68 101.00 - 207,565 - 20
7.72 101.00 - 289,642 - 29
7.76 102.21 - 308,072 - 31
Consumers' Class A Preferred Stock
Cumulative, no par value,
authorized 16,000,000 shares,
with no mandatory redemption (a) 2.08 25.00 8,000,000 8,000,000 194 194
----- -----
Total Preferred Stock $ 238 $ 356
===== =====
<FN>
(a) Redeemable beginning April 1, 1999.
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
<PAGE> 62
<TABLE>
Consolidated Statements of Common Stockholders' Equity CMS Energy Corporation
<CAPTION>
Number of Shares, In Thousands In Millions
Years Ended December 31 1997 1996 1995 1997 1996 1995
<S> <C> <C> <C> <C> <C> <C>
Common Stock
At beginning and end of period $ 1 $ 1 $ 1
------ ------ ------
Other Paid-in Capital -
CMS Energy
At beginning of period 94,813 91,594 86,535 1,916 1,827 1,701
Common Stock reacquired (54) (32) (21) (2) (1) (1)
Common Stock issued 6,031 3,248 5,039 217 90 126
Common Stock reissued 2 3 41 - - 1
------- ------ ------ ------ ------ ------
At end of period 100,792 94,813 91,594 2,131 1,916 1,827
------- ------ ------ ------ ------ ------
Other Paid-in Capital -
Class G
At beginning of period 7,877 7,619 - 129 124 -
Common Stock reacquired (1) - - - - -
Common Stock issued 343 258 7,619 7 5 124
------- ------ ------ ------ ------ ------
At end of period 8,219 7,877 7,619 136 129 124
------- ------ ------ ------ ------ ------
Revaluation Capital
At beginning of period (6) (8) -
Change in unrealized
investment-gain (loss) - 2 (8)
------ ------ ------
At end of period (6) (6) (8)
------ ------ ------
Foreign Currency Translation
At beginning of period - - -
Change in foreign currency
translation (96) - -
------ ------ ------
At end of period (96) - -
------ ------ ------
Retained Earnings (Deficit)
At beginning of period (338) (475) (595)
Consolidated net income 268 240 204
Common Stock dividends
declared:
CMS Energy (109) (94) (80)
Class G (10) (9) (4)
------ ------ ------
At end of period (189) (338) (475)
------ ------ ------
Total Common Stockholders' Equity $1,977 $1,702 $1,469
====== ====== ======
<FN>
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
<PAGE> 63
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: acquisition,
development and operation of independent power production facilities; oil
and gas exploration and production; storage, transmission and processing
of natural gas; energy marketing, services and trading; and international
energy distribution.
2: Summary of Significant Accounting Policies and Other Matters
Basis of Presentation: The consolidated financial statements include
CMS Energy, Consumers and Enterprises and their majority owned
subsidiaries. The financial statements are prepared in conformity with
generally accepted accounting principles and use management's estimates
where appropriate. 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, 1997, 1996
and 1995, undistributed equity earnings were $64 million, $64 million and
$53 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, Consumers adjusts the
unrecovered asset to its present value. It reflects this adjustment 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). It 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. It records cushion gas, which is gas
stored to maintain reservoir pressure for recovery of working gas, in the
appropriate gas utility plant account. Consumers stores gas inventory in
its underground storage facilities.
Maintenance, Depreciation and Depletion: Consumers charges property
repairs and minor property replacements 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 3.6 percent for 1997
and 3.5 percent for 1996 and 1995. The composite rate for gas utility
plant was 4.1 percent for 1997, 4.2 percent for 1996 and 4.3 percent for
1995. The composite rate for other plant and property was 8.2 percent for
1997, 5.5 percent for 1996 and 4.9 percent for 1995.
CMS NOMECO follows the full-cost method of accounting and, accordingly,
capitalizes its exploration and development costs, including the cost of
non-productive drilling and surrendered acreage, on a country-by-country
basis. It is amortizing the capitalized costs in each cost center on an
overall units-of-production method based on total estimated proved oil and
gas reserves.
Other non-utility depreciable property is amortized over its estimated
useful life; gains and losses are recognized at the time of sale.
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 current federal
law, as confirmed by court decision, the DOE must begin accepting
deliveries of spent nuclear fuel by January 31, 1998 for disposal, even if
a permanent repository is not then operational. Utilities and their
customers have been prepaying the costs of DOE transport and disposal
through fees based on electric generation by their nuclear plants. 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 it delivers the first of
its spent fuel to the DOE. At December 31, 1997, Consumers had a recorded
liability to the DOE of $111 million, including interest, which is payable
upon the first delivery of spent nuclear fuel to the DOE. Consumers
recovered through electric rates the amount of this liability, excluding a
portion of interest. In January 1997, in response to the DOE's
declaration in December 1996 that it would not begin to accept spent
nuclear fuel deliveries in 1998, Consumers and other utilities filed suit
in federal court. The utilities sought a declaration relieving them of
their obligation to remit their quarterly fee payments to the DOE and
authorizing them to escrow any related fees collected from their
customers, unless and until the DOE begins to accept spent nuclear fuel.
The utilities also sought an order requiring the DOE to develop a program
to begin acceptance of spent nuclear fuel by January 31, 1998. A decision
was issued by the court in late 1997 affirming the DOE's duty to take
delivery of spent fuel, but was not specific as to the relief available
for failure of the DOE to comply. Consumers is considering its options.
Also in 1997, federal legislation was reintroduced to clarify the timing
of the DOE's obligation to accept spent nuclear fuel and to direct the DOE
to establish an integrated spent fuel management system that includes
designing and constructing an interim storage facility in Nevada.
Nuclear Plant Decommissioning: Consumers collected $50 million in 1997
from its electric customers for the future decommissioning of its two
nuclear plants. In April 1996, Consumers received a decommissioning order
from the MPSC that estimated decommissioning costs for Big Rock and
Palisades to be $330 million and $573 million (in 1997 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. The April 1996 MPSC Order also requires
Consumers to file updated site-specific decommissioning cost estimates for
Big Rock and Palisades by March 31, 1998. The Big Rock estimate will
reflect the early shut-down and the switch from the safe storage option to
immediate dismantlement because of the reopening of the South Carolina
Barnwell radioactive waste disposal facility. After retirement of
Palisades, Consumers plans to maintain the facility in protective storage
if radioactive waste disposal facilities are not available. As a result,
Consumers will incur most of the Palisades decommissioning costs after the
plant's NRC operating license expires. When the Palisades' NRC license
expires in 2007, the trust funds are currently estimated to have
accumulated $686 million. Consumers estimates that at the time Palisades
is fully decommissioned in the year 2046, the trust funds will have
provided $2.1 billion, including trust earnings, over this decommissioning
period. Consumers will determine if the current decommissioning surcharge
will be sufficient to provide for decommissioning of its nuclear plants
during the first quarter of 1998, after the revised decommissioning cost
estimates are computed for Palisades and Big Rock. At December 31, 1997,
Consumers had an investment in nuclear decommissioning trust funds of $486
million, spent $23 million for the decommissioning of Big Rock and
withdrew $17 million from the Big Rock nuclear decommissioning trust fund.
While decommissioning Big Rock, Consumers found that some areas of the
plant have coatings that contain both metals and polychlorinated
biphenyls. Consumers does not believe that any facility in the United
States currently accepts the radioactive portion of that waste. The cost
of removal and disposal is currently unknown. These costs would
constitute part of the cost to decommission the plant, and will be paid
from the decommissioning fund. Consumers is studying the extent of the
contamination and reviewing options.
Reclassifications: CMS Energy has reclassified certain prior year amounts
for comparative purposes. These reclassifications did not affect
consolidated net income for the years presented. Additionally, CMS Energy
has restated all prior year earnings per share amounts to reflect the
adoption of SFAS 128, Earnings Per Share, for comparative purposes.
Related-Party Transactions: In 1997, 1996 and 1995, Consumers purchased
$51 million, $50 million and $53 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 $21 million, $17 million and $26
million for 1997, 1996 and 1995, respectively. For additional discussion
of related-party transactions with the MCV Partnership and the FMLP, see
Notes 3 and 22. 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
based on a regulated utility accounting standard (SFAS 71). As a result,
the actions of regulators affect when revenues, expenses, assets and
liabilities are recognized. If all or a separable portion of Consumers'
operations becomes no longer subject to the provisions of utility
regulation, a write-off of related regulatory assets and liabilities would
be required, unless some form of transition cost recovery continues
through rates established and collected for Consumers' remaining
operations. In addition, Consumers would be required to determine any
impairment to the carrying costs of deregulated plant and inventory
assets. For further discussion, see Electric Business Outlook and
Consumers Gas Group Business Outlook - Application of SFAS 71, in the MD&A
and Note 20.
Other: For significant accounting policies regarding cash equivalents,
see Note 12; for income taxes, see Note 13; for executive incentive
compensation, see Note 15; and for pensions and other postretirement
benefits, see Note 16.
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 two wholly owned subsidiaries, holds the following
assets related to the MCV Partnership and MCV Facility: (i) CMS Midland
owns a 49 percent general partnership interest in the MCV Partnership; and
(ii) CMS Holdings holds, through FMLP, a 35 percent lessor interest in the
MCV Facility.
Summarized Statements of Income for CMS Midland and CMS Holdings
(unaudited):
In Millions
Years Ended December 31 1997 1996 1995
- ----------------------------------------------------------------------
Pretax operating income $46 $40 $35
Income taxes and other 14 11 10
--- --- ---
Net income $32 $29 $25
=== === ===
Power Purchases from the MCV Partnership: After September 2007, pursuant
to the terms of the PPA and related undertakings, Consumers will only be
required to pay the MCV Partnership the capacity charge and energy charge
amounts authorized for recovery from electric customers by the MPSC.
Prior to then, pursuant to MPSC orders issued to date, Consumers recovered
in 1997 approximately 90 percent of the total capacity charge and energy
charge amounts being billed by the MCV Partnership and paid to the MCV
Partnership by Consumers. Currently, Consumers' annual obligation to
purchase capacity from the MCV Partnership is 1,240 MW through the
termination of the PPA in 2025. 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 based
primarily on Consumers' average cost of coal consumed. Consumers is
recovering 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. Beginning January 1, 1996, the MPSC also permitted
Consumers to recover an average capacity charge of 2.86 cents per kWh for
the remaining 325 MW of MCV Facility capacity. The approved average
capacity charge increased to 3.62 cents per kWh for 109 MW by January 1,
1997. The recoverable portion of the capacity charge for the last 216 MW
of the 325 MW increases each year until it reaches 3.62 cents per kWh in
2004. It remains at this ceiling rate through the end of the PPA term.
Consumers recognized a loss in 1992 for the present value of the estimated
future underrecoveries of power costs under the PPA. At December 31, 1997
and 1996, the after-tax present value of the PPA liability totaled $117
million and $147 million, respectively. The reduction in the liability
since December 31, 1996 reflects after-tax cash underrecoveries of $41
million, partially offset by after-tax accretion expense of $11 million.
The undiscounted after-tax amount associated with the liability totaled
$188 million at December 31, 1997. The after-tax cash underrecoveries are
currently based on the assumption that the MCV Facility will be available
to generate electricity 91.5 percent of the time over its expected life.
For 1997 the MCV Facility was available 99 percent of the time, resulting
in $13 million over anticipated after-tax cash underrecoveries. Consumers
believes it will continue to experience after-tax cash underrecoveries
associated with the PPA in amounts as those shown below.
In Millions
1998 1999 2000 2001 2002
- -----------------------------------------------------------------
Estimated cash under-
recoveries, net of tax $23 $22 $21 $20 $19
Consumers bases the above estimated underrecoveries, in part, on an
estimate of the future availability of the MCV Facility. If the MCV
Facility operates at levels above management's estimate over the remainder
of the PPA, Consumers will need to recognize losses for future
underrecoveries larger than amounts previously recorded. Therefore,
Consumers would experience larger amounts of cash underrecoveries than
originally anticipated. Management will continue to evaluate the adequacy
of the accrued liability considering actual MCV Facility operations.
In early 1998, the MCV Partnership filed a claim of appeal from the
January 1998 MPSC order in the electric utility industry restructuring.
On the same day, the MCV Partnership filed suit in the U.S. District Court
seeking a declaration that the MPSC's failure to provide Consumers and the
MCV Partnership a certain source of recovery of capacity payments after
2007 deprived the MCV Partnership of its rights under the Public Utilities
Regulatory Policies Act of 1978. The MCV Partnership is seeking to
prohibit the MPSC from implementing portions of the order.
PSCR Matters Related to Power Purchases from the MCV Partnership: As part
of a 1995 decision in the 1993 PSCR reconciliation case, 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. Consumers believed this was contrary to the terms of an
earlier 1993 settlement order and appealed. The MCV Partnership and ABATE
also filed separate appeals of this order. In November 1996, the Court of
Appeals affirmed the MPSC's 1995 decision. The MCV Partnership filed an
application for leave to appeal with the Michigan Supreme Court which was
denied in January 1998.
4: Rate Matters
Electric Proceedings: In 1996, the MPSC issued a final order that
authorized Consumers to recover costs associated with the purchase of the
additional 325 MW of MCV Facility capacity (see Note 3) and to accelerate
recovery of its nuclear plant investment by increasing prospective annual
nuclear plant depreciation expense by $18 million, with a corresponding
decrease in fossil-fueled generating plant depreciation expense. It also
established an experimental direct-access program. Customers having a
maximum demand of at least 2 MW are eligible to purchase generation
services directly from any eligible third-party power supplier and
Consumers would transmit the power for a fee. The program is limited to
650 MW of load, of which existing special contracts represent 410 MW. New
special contracts or direct-access load may fill 140 MW of the 650 MW
block. The remaining 100 MW will be available solely to direct-access
customers for at least 18 months. In April 1997, a lottery was held to
select the customers to purchase 100 MW by direct access. Direct access
for a portion of this 100 MW began during the fourth quarter of 1997.
In May 1997, the MPSC authorized Consumers to collect $17 million from
electric customers through a one-time surcharge pertaining to the 1994
PSCR reconciliation. In September 1997, the MPSC further authorized
Consumers to collect $13 million from electric customers through a one-
time surcharge pertaining to the 1995 PSCR reconciliation.
In January 1998, the Court of Appeals ruled that the MPSC has statutory
authority to authorize an experimental electric retail wheeling program.
By its terms, no retail wheeling has yet occurred pursuant to that
program. Consumers filed with the Michigan Supreme Court seeking leave to
appeal that ruling.
For information on other orders, see the Electric Restructuring section
below.
Electric Restructuring: As part of ongoing proceedings relating to the
restructuring of the electric utility industry in Michigan, in June 1997
the MPSC issued an order proposing that beginning January 1, 1998
Consumers would have to transmit and distribute energy on behalf of
competing power suppliers to serve retail customers. The order states
that by January 1, 2002, all customers would be free to choose (that is,
have direct access to) their own power suppliers.
Under the June 1997 order, the MPSC would allow utilities to recover
prudently incurred Transition Costs through a charge to all direct-access
customers until the end of the transition period in 2007. Further
proceedings, as ordered by the MPSC, took place to address other features
of the direct-access programs being considered, including proposals to
"true up" Transition Cost charges for changes in sales and market prices
of power purchase capacity to the extent they are different from estimates
used for calculating Transition Costs. The June order is subject to a
claim of appeal filed with the Court of Appeals which questions whether
the MPSC has the statutory authority to mandate restructuring on an
involuntary basis. In October 1997, the MPSC issued a series of
additional orders relating to its electric industry restructuring
proceedings. The orders primarily addressed issues involving the design
of retail direct-access tariffs, the true-up mechanism in connection with
the recovery of Transition Costs, suspension of the power supply cost
recovery clause and freezing of power supply costs, and performance-based
rate-making.
In January 1998 the MPSC clarified the October 1997 orders on a basis
generally consistent with the June 1997 order. The January 1998 order:
i) defers the commencement of the phase-in of direct access to begin in
March 1998; ii) attempts to clarify the true-up mechanism to be used in
connection with the recovery of Transition Costs; iii) confirms
implementation of a suspension of the power supply cost recovery clause;
and iv) confirms the MPSC's belief that Securitization may be a beneficial
mechanism for recovery of Transition Costs while recognizing that
Securitization requires state legislation to occur. Consumers expects
Michigan legislative consideration of the entire subject of electric
industry restructuring in 1998. To be acceptable to Consumers, the
legislation would have to provide for full recovery of Transition Costs.
Consumers expects the legislature to review all of the policy choices made
by the MPSC during the restructuring proceedings to assure that they are
in accord with those that the legislature believes should be paramount.
The January 1998 order further estimated a Transition Cost for Consumers
at $1.755 billion which is generally consistent with the amount proposed
by Consumers. Consumers will recover this cost through a surcharge to
direct-access customers through 2007. Consumers believes that this
surcharge will apply to all customers beginning in 2002. The surcharge is
subject to adjustment through a true-up mechanism to assure that
Transition Costs actually incurred are collected. A separate charge to
direct-access customers after MPSC review and verification would also
recover prudent costs of implementing a direct-access program estimated at
an additional $200 million. Nuclear decommissioning costs will also
continue to be collected through a separate surcharge to all customers.
Subsequent to the January order, the MPSC issued an order addressing
Consumers', among others, motions for clarification of the January order.
This order results in: i) a suspension of the PSCR in a manner proposed
by Consumers; ii) a termination of the 1998 PSCR plan case; and iii) the
establishing of a permanent PSCR/base rate freeze charge in the 1997 PSCR
reconciliation proceeding. For further information see Electric Business
Outlook - Application of SFAS 71 in the MD&A.
Gas Restructuring: In December 1997, the MPSC approved Consumers'
application to implement a statewide experimental gas transportation pilot
program. Consumers' expanded experimental program will extend over a
three-year period, eventually allowing 300,000 residential, commercial and
industrial retail gas sales customers to choose their gas supplier. The
program is voluntary for natural gas customers. Participating customers
will be selected on a first-come, first-served basis, up to a limit of
100,000 customers on April 1, 1998. Up to 100,000 more customers will be
added on April 1 of each of the next two years. Customers choosing to
remain as sales customers of Consumers will not see a rate change in their
natural gas rates. The order allowing the implementation of this program:
(i) suspends Consumers' gas cost recovery clause, effective April 1, 1998
for a three-year period, establishing a gas commodity cost at a fixed rate
of $2.84 per mcf; (ii) establishes an earnings sharing mechanism that will
provide for refunds to customers if Consumers' earnings during the three
year term of the program exceed certain pre-determined levels; and (iii)
establishes a gas transportation code of conduct that addresses concerns
about the relationship between Consumers and marketers, including its
affiliated marketers. This experimental program will allow competing gas
suppliers, including marketers and brokers, to market natural gas to a
large number of retail customers in direct competition with Consumers. In
1998, the Attorney General, ABATE and other parties filed claims of appeal
regarding the program with the Court of Appeals. To minimize the risk of
exposure to higher gas costs, Consumers currently has contracts in place
at known prices covering 50 percent of its 1998 requirements, 25 percent
of its 1999 requirements and 15 percent of its 2000 requirements.
Additional forward coverage is currently under review and will be firmed
up during the next few months. For further information see Consumers Gas
Group Business Outlook - Application of SFAS 71 in the MD&A.
Gas Proceedings: In 1995, the MPSC issued an order regarding a $44
million (excluding interest) gas supply contract pricing dispute between
Consumers and certain gas producers. The order stated that Consumers was
not obligated to seek prior approval of market-based pricing changes that
Consumers implemented under the contracts in question. The Court of
Appeals upheld the MPSC order. The producers sought leave to appeal with
the Michigan Supreme Court. Their request is still pending. Consumers
believes the MPSC order correctly concludes that the producers' theories
are without merit and will vigorously oppose any claims they may raise,
but cannot predict the outcome of this issue.
Resolution of the issues discussed in this Note is not expected to
materially affect CMS Energy's financial position, liquidity or results of
operations.
5: Short-Term Financings
At December 31, 1997, Consumers had FERC authorization to: (i) issue or
guarantee up to $900 million of short-term securities through 1998; (ii)
issue, through November 1998, $376 million of long-term securities with
maturities up to 30 years, for refinancing or refunding purposes; and
(iii) guarantee, through 1999, up to $25 million in loans made by others,
to residents of Michigan for the purpose of making energy-related home
improvements. In January 1998, Consumers requested authorization to
issue, through November 1998, an additional $500 million of long-term
securities for refinancing or refunding purposes.
Consumers has an unsecured $425 million credit facility and unsecured
lines of credit aggregating $120 million. These facilities are available
to finance seasonal working capital requirements and to pay for capital
expenditures between long-term financings. At December 31, 1997, a total
of $377 million was outstanding at a weighted average interest rate of 6.5
percent, compared with $333 million outstanding at December 31, 1996, at a
weighted average interest rate of 6.3 percent.
Consumers also has in place a $500 million trade receivables sale program.
At December 31, 1997 and 1996, receivables sold under the program totaled
$335 million and $318 million, respectively. Accounts receivable and
accrued revenue in the Consolidated Balance Sheets have been reduced to
reflect receivables sold.
6: Long-Term Debt
Long-term debt consists of the following:
<TABLE>
<CAPTION>
In Millions
December 31 Maturing/Expiring Interest Rate 1997 1996
<S> <C> <C> <C> <C>
First Mortgage Bonds 1997 to 2023 6.0% to 8.875% $1,255 $1,305
Long-Term Bank Debt 1999 6.4%(a) 400 400
Senior Unsecured Notes 2000 to 2004 7.75%(a) 830 -
Senior Deferred
Coupon Notes 1997 9.5% and 9.875% - 347
Senior Credit
Facilities 1998 to 2002 7.2%(a) 305 -
General Term Notes
Series A to D 1998 to 2004 7.7%(a) 509 353
Pollution Control
Revenue Bonds 2000 to 2018 5.1%(a) 131 131
Term Loan Agreement:
CMS Energy 2002 7.2%(a) - 125
CMS Generation 2001 7.4%(a) 91 107
Revolving Line of Credit 2003 6.5%(a) 124 122
Unsecured Revolving
Credit Facility 1997 6.8%(a) - 120
Nuclear Fuel Disposal (b) 5.1% 111 106
Bank Loans and Other 1997 to 2009 8.7%(a) 134 105
Principal Amount Outstanding 3,890 3,221
Current Amounts (609) (370)
Net Unamortized Discount (9) (9)
------ ------
Total Long-Term Debt $3,272 $2,842
====== ======
</TABLE>
(a) Represents the weighted average interest rate at December 31, 1997.
(b) Due date uncertain (see Note 2).
The scheduled maturities of long-term debt and improvement fund
obligations are as follows: $609 million in 1998, $466 million in 1999,
$662 million in 2000, $192 million in 2001 and $759 million in 2002.
CMS Energy
In July 1997, CMS Energy refinanced a $450 million unsecured revolving
credit facility and a $125 million term loan with the $1.125 billion
Senior Credit Facilities. The Senior Credit Facilities consist of a $400
million 364-day revolving credit facility, a $600 million three-year
revolving credit facility and a five-year $125 million term loan facility.
Additionally, CMS Energy has unsecured lines of credit and letters of
credit in an aggregate amount of $155 million. At December 31, 1997, the
total amount utilized under the Senior Credit Facilities was $365 million,
including $60 million of contingent obligations, and under the unsecured
lines of credit and letters of credit was $21 million.
In January 1998, a Delaware statutory business trust established by CMS
Energy sold $180 million of certificates due January 15, 2005 in a public
offering. In exchange for those proceeds, CMS Energy sold to the trust
$180 million aggregate principal amount of 7 percent Extendible Tenor Rate
Adjusted Securities due January 15, 2005. Net proceeds to CMS Energy from
the sale totaled $176 million.
In January 1998, CMS Energy announced the commencement of an offer to
exchange up to $300 million of its 7.375 percent Senior Unsecured Notes
due 2000, Series A for 7.375 percent Senior Unsecured Notes due 2000,
Series B that have been registered with the SEC. Other than their
registration, the terms of the Series B Notes are substantially similar to
the Series A(except that the Series B will not have transfer
restrictions). The offer was completed in early 1998.
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 of Incorporation and
the need for regulatory approvals to meet appropriate federal law.
In early 1998, Consumers called for the March 1998 redemption of $57
million aggregate principal amount of its 7.5 percent First Mortgage Bonds
due in 2001 and $62 million aggregate principal amount of its 7.5 percent
First Mortgage Bonds due in 2002.
In early 1998, Consumers issued $250 million of senior notes due February
1, 2008, at an interest rate of 6.375 percent. The senior notes are
secured by a series of Consumers' First Mortgage Bonds, issued
contemporaneously in a similar amount. Proceeds from the sale were added
to the general funds of Consumers and applied to the payment, at maturity,
of $248 million aggregate principal amount of Consumers' 8.75 percent
First Mortgage Bonds due February 15, 1998.
Long-Term Bank Debt: Consumers has a $400 million unsecured, variable
rate, long-term loan.
In January 1998, two agreements to guarantee interest rates for the
issuance of future long-term debt were executed. The first anticipatory
debt agreement is for $250 million at 5.5 percent which expires
February 10, 1998, and the second agreement is for $200 million at 5.8
percent with an expiration of March 16, 1998.
Other: Consumers' long-term pollution control revenue bonds are secured
by irrevocable letters of credit or First Mortgage Bonds.
CMS NOMECO
CMS NOMECO has a $225 million revolving credit facility that converts to
term loans maturing from March 1999 through March 2003.
CMS Generation
In January 1998, CMS Generation refinanced a $110 million, five-year term
loan with a loan provided by CMS Capital Corp., a subsidiary of
Enterprises.
7: Capitalization
CMS Energy
The authorized capital stock of CMS Energy consists of 250 million shares
of CMS Energy Common Stock, 60 million shares of Class G Common Stock, and
10 million shares of CMS Energy Preferred Stock.
In 1996, CMS Energy received net proceeds of $95 million from the issuance
of CMS Energy and Class G Common Stock. The issuance of 2.1 million of
those shares completed the amount remaining on a February 15, 1995 shelf-
registration filing with the SEC that covered the issuance of up to $200
million of securities. CMS Energy used the proceeds from the sale for
general corporate purposes.
In May 1997, CMS Energy and affiliated business trusts filed a shelf-
registration statement with the SEC to issue and sell up to $300 million
of CMS Energy Common Stock, subordinated debentures, stock purchase
contracts, stock purchase units and preferred securities. In June 1997,
3.45 million units of 7.75 percent tax deductible Trust Preferred
Securities were issued and sold through CMS Energy Trust I, a wholly owned
business trust consolidated with CMS Energy. Net proceeds from the sale
totaled $170 million. CMS Energy formed the trust for the sole purpose of
issuing tax deductible Trust Preferred Securities. Its primary asset is
approximately $178 million principal amount of 7.75 percent subordinated
debentures issued by CMS Energy, which mature in 2027. These tax
deductible Trust Preferred Securities are convertible into CMS Energy
Common Stock at a rate equivalent to a conversion price of $40.80 per
share of CMS Energy Common Stock. CMS Energy used proceeds of the
subordinated debentures for general corporate purposes including repayment
of debt, capital expenditures, investment in subsidiaries and working
capital. CMS Energy's obligations under the subordinated debentures, the
indenture through which CMS Energy issued the subordinated debentures, the
declaration of trust and the CMS Energy guarantee provide, in the
aggregate, a full irrevocable and unconditional guarantee of payments of
distributions and other amounts due on the Trust Preferred Securities.
For additional information, see note (b) on the Consolidated Balance
Sheets.
In November 1997, CMS Energy received net proceeds of $152 million from
the issuance of 4.142 million shares of CMS Energy Common Stock. The
issuance of those shares completed the amount remaining on the May 1997
shelf-registration with the SEC. Proceeds from the sale were used for
general corporate purposes.
Other: Under its most restrictive borrowing arrangement at December 31,
1997, none of CMS Energy's consolidated net income was restricted for
payment of common dividends. CMS Energy could pay $354 million in common
dividends under its most restrictive debt covenant.
Consumers
In 1996, 4 million shares of 8.36 percent Trust Preferred Securities were
issued and sold through Consumers Power Company Financing I, a wholly
owned business trust consolidated with Consumers. Net proceeds from the
sale totaled $97 million. In September 1997, 4.8 million shares of 8.20
percent Trust Preferred Securities were issued and sold through Consumers
Energy Company Financing II, a wholly owned business trust consolidated
with Consumers. Net proceeds from the sale totaled $116 million.
Consumers formed both trusts for the sole purpose of issuing the tax
deductible Trust Preferred Securities. Consumers' obligations with
respect to the Trust Preferred Securities under the notes, under the
indenture through which Consumers issued the notes, under Consumers'
guarantee of the Trust Preferred Securities, and under the declaration by
the trusts, taken together, constitute a full and unconditional guarantee
by Consumers of the trusts' obligations under the Trust Preferred
Securities. For additional information, see Note (a) on the Consolidated
Balance Sheets.
In September 1997, the proceeds from the 8.20 percent Trust Preferred
Securities were used by Consumers to redeem all outstanding shares of its
$7.45, $7.68, $7.72 and $7.76 preferred stock for $120 million.
Under the provisions of its Articles of Incorporation at December 31,
1997, Consumers had $280 million of unrestricted retained earnings
available to pay common dividends. In October 1997, Consumers returned
$50 million of paid-in capital to CMS Energy.
8: Earnings Per Share and Dividends
EPS attributable to Common Stock for 1997 and 1996 reflect the performance
of the Consumers Gas Group. 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 has participated in
earnings and dividends from its original issue date in July 1995. The
allocation of earnings 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 attributable to the Outstanding Shares are equal to Consumers Gas
Group net income multiplied by a fraction; the numerator is the weighted
average number of Outstanding Shares during the period and the denominator
is the weighted average number of Outstanding Shares and retained interest
shares, shares not held by the holders of the Outstanding Shares, during
the period. The earnings attributable to Class G Common Stock on a per
share basis for 1997 and 1996 are based on 24.50 percent and 23.79
percent, respectively, of the income of Consumers Gas Group. 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.
Computation of Earnings Per Share:
In Millions, Except Per Share Amounts
Actual Actual Actual Pro Forma
Years Ended December 31 1997 1996 1995 1995
- -------------------------------------------------------------------------
Net Income Applicable to
Basic and Diluted EPS:
Consolidated Net Income $268 $240 $204 $204
==== ==== ==== ====
Net Income Attributable
to Common Stocks:
CMS Energy - Basic EPS $253 $226 $201 $189
Add conversion of 7.75%
Trust Preferred
Securities (net
of tax) 5 - - -
---- ---- ---- ----
CMS Energy - Diluted EPS $258 $226 $201 $189
==== ==== ==== ====
Class G:
Basic and Diluted EPS $ 15 $ 14 $ 3 $ 15
==== ==== ==== ====
Average Common Shares Outstanding
Applicable to Basic
and Diluted EPS:
CMS Energy:
Average Shares - Basic 96.1 92.5 88.8 88.8
Add conversion of 7.75%
Trust Preferred
Securities 2.3 - - -
Options-Treasury Shares 0.3 0.2 0.2 0.2
---- ---- ---- ----
Average Shares - Diluted 98.7 92.7 89.0 89.0
==== ==== ==== ====
Class G:
Average Shares
Basic and Diluted 8.0 7.7 7.5 7.5
==== ==== ==== ====
Earnings Per Average Common Share
CMS Energy:
Basic $2.63 $2.45 $2.27 $2.14
Diluted $2.61 $2.44 $2.26 $2.13
Class G:
Basic and Diluted $1.84 $1.82 $ .38 $1.93
==== ==== ==== ====
Pro forma data for the year ended December 31, 1995 gives 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 Consumers Gas
Group) as if it occurred on January 1, 1995.
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 as a whole. In the sole discretion of the Board of
Directors, CMS Energy may pay dividends 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 Class G Common Stock are
paid at the discretion of the Board of Directors based primarily upon the
earnings and financial condition of Consumers Gas Group, and to a lesser
extent, CMS Energy as a whole.
In February and May 1997, CMS Energy paid dividends of $.27 per share on
CMS Energy Common Stock and $.295 per share on Class G Common Stock. In
August and November 1997, CMS Energy paid dividends of $.30 per share on
CMS Energy Common Stock and $.31 per share on Class G Common Stock. In
January 1998, the Board of Directors declared a quarterly dividend of $.30
per share on Energy Common Stock and $.31 per share on Class G Common
Stock, which were paid in February 1998.
9: Risk Management Activities and Derivatives Transactions
CMS Energy and its subsidiaries use a variety of derivative instruments
(derivatives), including futures contracts, swaps, options and forward
contracts, to manage exposure to fluctuations in commodity prices,
interest rates and foreign exchange rates. To qualify for hedge
accounting, derivatives must meet the following criteria: (i) the item to
be hedged exposes the enterprise to price, interest or exchange rate risk;
and (ii) the derivative reduces that exposure and is designated as a
hedge.
Derivative instruments contain credit risk if the counterparties,
including financial institutions and energy marketers, fail to perform
under the agreements. CMS Energy minimizes such risk by performing
financial credit reviews using, among other things, publicly available
credit ratings of such counterparties. The risk of nonperformance by the
counterparties is considered remote.
Commodity Price Hedges: CMS Energy accounts for its commodity price
derivatives as hedges, as defined above, and as such, defers any changes
in market value and gains and losses resulting from settlements until the
hedged transaction is complete. If there was a loss of correlation
between the changes in (i) the market value of the commodity price
contracts and (ii) the market price ultimately received for the hedged
item, and the impact was material, the open commodity price contracts
would be marked to market and gains and losses would be recognized in the
income statement currently.
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. As of December 31, 1996, CMS NOMECO had 1997 commodity
price contracts on 13.8 bcf of gas at prices ranging from $1.92 to $2.80
per MMBtu and on 2 million barrels of oil at prices ranging from $19.50 to
$22.90 per barrel. During 1997, CMS NOMECO made net payments of $6
million for settlement of 1997 contracts on 14.1 bcf of gas and 2 million
barrels of oil.
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 through 2006 by
purchasing the economic equivalent of 10,000 MMBtu per day at a fixed
price, escalating at 8 percent per year thereafter, 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 million 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 $5 million,
that party is required to obtain a letter of credit in favor of the other
party for the excess over $5 million and up to $10 million. Accordingly,
at December 31, 1997, a letter of credit was not required by either party
to the agreement. As of December 31, 1997, the fair value of this
contract reflected a payment due from CMS NOMECO of $13 million.
CMS MST uses natural gas futures contracts, options and swaps (which
require a net cash payment for the difference between a fixed and variable
price).
Interest Rates Hedges: CMS Energy and some of its subsidiaries enter into
interest rate swap agreements to exchange variable rate interest payment
obligations to fixed rate obligations without exchanging the underlying
notional amounts. These agreements convert variable rate debt to fixed
rate debt to reduce the impact of interest rate fluctuations. The
notional amounts parallel the underlying debt levels and are used to
measure interest to be paid or received and do not represent the exposure
to credit loss. The notional amount of CMS Energy's and its subsidiaries'
interest rate swaps was $1.1 billion at December 31, 1997. The difference
between the amounts paid and received under the swaps is accrued and
recorded as an adjustment to interest expense over the life of the hedged
agreement.
Foreign Exchange Hedges: CMS Energy uses forward exchange contracts to
hedge certain receivables, payables, and long-term debt relating to
foreign investments. The purpose of CMS Energy's foreign currency hedging
activities is to protect the company from the risk that U.S. dollar net
cash flows resulting from sales to foreign customers and purchases from
foreign suppliers and the repayment of non-U.S. dollar borrowings may be
adversely affected by changes in exchange rates. These contracts do not
subject CMS Energy to risk from exchange rate movements because gains and
losses on such contracts offset losses and gains, respectively, on assets
and liabilities being hedged. The notional amount of the outstanding
foreign exchange contracts was $50 million at December 31, 1997.
10: Commitments, Contingencies and Other
Electric Environmental Matters: The Clean Air Act limits emissions of
sulfur dioxide and nitrogen oxides and requires emissions monitoring.
Consumers' coal-fueled electric generating units burn low-sulfur coal and
are currently operating at or near the sulfur dioxide emission limits that
will be effective in the year 2000. During the past few years, in order
to comply with the Act, Consumers incurred capital expenditures totaling
$46 million to install equipment at certain generating units. Consumers
estimates capital expenditures for in-process and proposed modifications
at other coal-fueled units to be an additional $30 million by the year
2000. Management believes that these expenditures will not materially
affect Consumers' annual operating costs.
Consumers currently operates within all Clean Air Act requirements and
meets current ozone and particulate emission limits. The Act requires the
EPA to review, periodically, the effectiveness of the national air quality
standards in preventing adverse health affects. The EPA recently revised
these standards. The revisions may further limit small particulate and
ozone related emissions. Consumers supports the bipartisan effort in the
U.S. Congress to delay implementation of the revised standards until the
relationship between the new standards and health improvements is
established scientifically.
In October 1997, pursuant to recommendations from the Ozone Transport
Assessment Group and the requests of several Northeastern states, the EPA
proposed that the State of Michigan impose additional nitrogen oxide
limits on fossil-fueled emitters, such as Consumers' generating units.
The limits are an effort to reduce statewide nitrogen oxide emissions by
32 percent, as early as 2002. The State of Michigan will have one year to
review and challenge the proposed recommendations, and one year after that
to implement final requirements. It is unlikely that the State of
Michigan will establish Consumers' nitrogen oxide emissions reduction
target until mid-to-late 1999. Until this state-mandated target is known,
the estimated cost of compliance is subject to significant revision.
The preliminary estimate of capital costs to reduce nitrogen oxide related
emissions for Consumers' fossil-fueled generating units is approximately
$175 million, plus an additional amount totaling $10 million per year for
20 years for operation and maintenance costs. Consumers may need an
equivalent amount to comply with the new small particulate standards. The
State of Michigan objected to the extent of the proposed EPA emission
reductions. If the State of Michigan's position were to be adopted by the
EPA, costs could be less than the current estimated amounts.
Under the Michigan Natural Resources and Environmental Protection Act,
Consumers expects that it will ultimately incur investigation and remedial
action costs at a number of sites. Nevertheless, it believes that these
costs are properly recoverable in rates under current ratemaking policies.
Consumers is a so-called potentially responsible party at several
contaminated sites administered under Superfund. Superfund liability is
joint and several; along with Consumers, many other creditworthy,
potentially responsible parties with substantial assets cooperate with
respect to the individual sites. Based upon past negotiations, Consumers
estimates that its share of the total liability for the known Superfund
sites will be between $3 million and $9 million. At December 31, 1997,
Consumers has accrued $3 million for its estimated Superfund liability.
Gas Environmental Matters: Under the Michigan Natural Resources and
Environmental Protection Act, Consumers expects that it will ultimately
incur investigation and remedial action costs at a number of sites,
including some 23 sites that formerly housed manufactured gas plant
facilities, even those in which it has a partial or no current ownership
interest. In 1998 Consumers plans to study indoor air issues at
residences on some sites and ground water impacts or surface soil impacts
at other sites. On sites where the company has received site-wide study
plan approvals, it will continue to implement these plans. It will also
work toward closure of environmental issues at sites as studies are
completed. 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 $98 million.
These estimates are based on undiscounted 1998 costs. At December 31,
1997, 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 affect the
estimate of remedial action costs for the sites. According to an MPSC
rate order issued in 1996, Consumers will defer and amortize, over a
period of ten years, environmental clean-up costs above the amount
currently being recovered in rates. Rate recognition of amortization
expense will not begin until after a prudence review in a general rate
case. The order authorizes current recovery of $1 million annually.
Consumers is continuing discussions with certain insurance companies
regarding coverage for some or all of the costs that it may incur for
these sites.
Capital Expenditures: CMS Energy estimates capital expenditures,
including investments in unconsolidated subsidiaries and new lease
commitments, of $1.335 billion for 1998, $1.220 billion for 1999 and
$1.175 billion for 2000. For further information regarding capital
expenditures, see Capital Resources and Liquidity - Capital Expenditures
in the MD&A.
Commitments for Coal and Gas Supplies: Consumers entered into coal supply
contracts with various suppliers for its coal-fired generating stations.
These contracts have expiration dates that range from 1998 to 2004.
Consumers contracts for 50 - 75 percent of its annual coal requirements
totaling $250 million in 1997 (56 percent was under long-term contracts).
Consumers supplements its long-term contracts with spot-market purchases
to fulfill its coal needs.
Consumers entered into gas supply contracts and transportation contracts
with various suppliers for its natural gas business. These contracts have
expiration dates that range from 1998 to 2003. Consumers' 1997 gas
requirements totaled 250 bcf at a cost of $694 million, 80 percent of
which was under long-term contracts for one year or more. As of the end
of 1997, Consumers had 50 percent of its 1998 gas requirements under such
long-term contracts, and will supplement them with additional long-term
contracts and spot-market purchases.
Other: As of December 31, 1997, CMS Energy and Enterprises have
guaranteed up to $543 million in contingent obligations of unconsolidated
affiliates and unrelated parties.
Various parties have sued Consumers relating to the effect of so-called
stray voltage on certain livestock. Claimants contend that stray voltage
results when low-level 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. It also has an ongoing
mitigation program to modify the service of all customers with livestock.
In December 1997, the Michigan Supreme Court remanded for further
proceedings a 1994 Michigan trial court decision that refused to allow the
claims of over 200 named plaintiffs to be joined in a single action. The
trial court dismissed all of the plaintiffs except the first-named
plaintiff, allowing the others to re-file separate actions. Of the
original plaintiffs, only 49 re-filed separate cases. All of those 49
cases have been resolved. The Michigan Supreme Court remanded the matter,
finding that the proper remedy for misjoinder was not dismissal, but to
automatically allow each case to go forward separately. Consumers filed a
motion for reconsideration with the Michigan Supreme Court, which was
denied. Consumers intends to vigorously defend these cases, but is unable
to predict the outcome. As of December 31, 1997, Consumers had 12
individual stray voltage lawsuits, unrelated to the cases above, awaiting
trial court action, down from 22 lawsuits as reported at year end 1996.
In October 1997, two independent power producers sued Consumers and
CMS Energy in a federal court. The suit alleges antitrust violations
relating to contracts which Consumers entered into with some of its
customers and claims relating to power facilities. The plaintiffs claim
damages of $100 million (which a court can treble in antitrust cases as
provided by law). The transactions of which plaintiffs complain have been
regulated by, and are subject to, the jurisdiction of the MPSC. In
November 1997, Consumers and CMS Energy filed a motion for summary
judgement and/or for dismissal of the complaint filed by the plaintiffs.
Consumers and CMS Energy believe the lawsuit is without merit and will
vigorously defend against it, but cannot predict the outcome of this
matter.
Under agreements relating to CMS NOMECO's 1995 acquisition of Walter
International, Inc. and its Congo operations, CMS Energy and CMS NOMECO
could become jointly and severally liable for the recapture of "dual
consolidated losses" under Section 1503(d) of the IRC if a "triggering
event" were to occur. Potential triggering events include certain asset
or stock dispositions to unrelated parties, certain tax deconsolidations,
certain usage of the losses on a foreign tax return, and certain failures
to comply with Internal Revenue Service regulations. CMS Energy and CMS
NOMECO have no plans to effect any transaction that would be a triggering
event. The amount of the potential tax liability could be up to $67
million plus interest. In connection with the same acquisition, a
subsidiary of CMS NOMECO could also be jointly and severally liable with
an unrelated party for up to $50 million of tax plus interest. In that
event, CMS NOMECO has certain indemnity rights against that unrelated
party. Additionally, CMS NOMECO and its domestic subsidiaries have
incurred losses in certain foreign countries that could be recaptured if a
triggering event were to occur. The additional tax liability could be up
to $10 million plus interest.
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. These lawsuits and
proceedings may involve personal injury, 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 adverse impact on CMS Energy's financial position, liquidity, or
results of operations.
11: Nuclear Matters
Consumers filed updated decommissioning information with the MPSC in 1995
that estimated decommissioning costs for Big Rock and Palisades. In April
1996, the MPSC issued an order in Consumers' nuclear decommissioning case,
which fully supported Consumers' request and did not change the overall
surcharge revenues collected from retail customers. The MPSC ordered
Consumers to file a report on the adequacy of the surcharge revenues with
the MPSC at three-year intervals beginning in 1998. Consumers filed a
revision to its Post Shutdown Activities Report (formerly decommissioning
report) with the NRC to reflect the shutdown of Big Rock.
Big Rock closed permanently on August 29, 1997 because management
determined that the plant would be uneconomical to operate in an
increasingly competitive environment. Consumers originally scheduled the
plant to close May 31, 2000, at the end of the plant's operating license.
Plant decommissioning began in September 1997 and may take five to ten
years to return the site to its original condition. The earlier than
planned closure of the plant and the reopening of the South Carolina
Barnwell facility to receive low level radioactive waste have changed the
method of decommissioning from the safe storage option to immediate
dismantlement. This change could have an impact on the estimated
decommissioning cost which is required to be updated in a filing with the
MPSC by March 31, 1998. For further information on nuclear matters, see
Note 2.
Consumers has loaded 13 dry storage casks with spent nuclear fuel at
Palisades. Consumers plans to load five additional casks at Palisades in
1999 pending approval by the NRC. In June 1997, the NRC approved
Consumers' process for unloading spent fuel from a cask at Palisades
previously discovered to have minor weld flaws. Consumers intends to
transfer the spent fuel to a new transportable cask when one is available.
Westinghouse Corporation has been contracted to design and fabricate
transportable casks for both Palisades and Big Rock. These casks will
support the off-load of the cask with minor flaws, continued operation of
Palisades and the decommissioning of Big Rock.
Consumers maintains insurance coverage against property damage, debris
removal, personal injury liability and other risks that are present at its
nuclear generating facilities. Consumers also maintains coverage for
replacement power costs during prolonged accidental outages at Palisades.
Insurance would not cover such costs during the first 17 weeks of any
outage, but would cover most of such costs during the next 58 weeks of the
outage, followed by reduced coverage to 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 $19 million in any one year to Nuclear Electric Insurance Ltd; $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 if nuclear workers claim bodily injury from radiation exposure.
Consumers considers the possibility of these assessments to be remote.
The NRC requires Consumers to make certain calculations and report to it
on the continuing ability of the Palisades reactor vessel to withstand
postulated pressurized thermal shock events during its remaining license
life, considering the embrittlement of reactor vessel materials over time
due to operation in a radioactive environment. Based on continuing
analysis of data in December 1996 Consumers received an interim Safety
Evaluation Report from the NRC indicating that the reactor vessel can be
safely operated through 2003 before reaching the NRC's screening criteria
for reactor embrittlement. Consumers believes that with fuel management
designed to minimize embrittlement, it can operate Palisades to the end of
its license life in the year 2007 without annealing the reactor vessel.
Nevertheless, Consumers will continue to monitor the matter.
12: Supplemental Cash Flow Information
For purposes of the Consolidated Statements 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 were:
In Millions
Years Ended December 31 1997 1996 1995
Cash transactions
Interest paid (net of
amounts capitalized) $293 $240 $207
Income taxes paid (net of refunds) 67 82 34
Non-cash transactions
Nuclear fuel placed under
capital leases $ 4 $ 28 $ 26
Other assets placed under
capital leases 7 3 5
Common Stock issued to
acquire companies - - 90
Assumption of debt - - 20
Capital leases refinanced - - 21
Changes in other assets and liabilities as shown on the Consolidated
Statements of Cash Flows are described below:
In Millions
Years Ended December 31 1997 1996 1995
Sale of receivables, net $ 17 $ 23 $ 20
Accounts receivable (160) (28) (80)
Accrued revenue 64 (82) (24)
Inventories (15) - 43
Accounts payable 67 55 112
Accrued refunds 4 (13) (3)
Other current assets and
liabilities, net (6) 23 30
Non-current deferred amounts, net (6) 10 (9)
------ ------ ------
$ (35) $ (12) $ 89
====== ====== ======
13: Income Taxes
CMS Energy and its subsidiaries (including Consumers) file a consolidated
federal income tax return. Income taxes are generally allocated based on
each company's separate taxable income. CMS Energy and Consumers practice
full deferred tax accounting for temporary differences, but federal income
taxes have not been recorded on the undistributed earnings of
international subsidiaries where CMS Energy intends to permanently
reinvest those earnings. Upon distribution, those earnings may be subject
to both U.S. income taxes (adjusted for foreign tax credits or
deductions) and withholding taxes payable to various foreign countries.
It is not practical to estimate the amount of unrecognized deferred income
taxes or withholding taxes on undistributed earnings.
CMS Energy used ITC to reduce current income taxes payable, and amortizes
ITC over the life of the related property. Any AMT paid generally becomes
a tax credit that CMS Energy can carry 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 1997 1996 1995
Current income taxes
Federal and other $ 79 $ 90 $ 43
Foreign 5 3 -
----- ----- -----
84 93 43
Deferred income taxes
Federal 50 56 85
Foreign (7) - -
----- ----- -----
43 56 85
Deferred ITC, net (10) (10) (10)
----- ----- -----
$117 $139 $118
===== ===== =====
The principal components of CMS Energy's deferred tax assets (liabilities)
recognized in the balance sheet are as follows:
In Millions
December 31 1997 1996
Property $ (647) $ (621)
Unconsolidated investments (263) (259)
Postretirement benefits (Note 16) (156) (165)
Abandoned Midland project (33) (40)
Employee benefit obligations
(includes postretirement benefits
of $155 and $167) (Note 16) 195 201
AMT carryforward 147 172
Power purchases (Note 3) 66 82
Other (14) (20)
------- -------
$ (705) $ (650)
======= =======
Gross deferred tax liabilities $(1,758) $(1,715)
Gross deferred tax assets 1,053 1,065
------- -------
$ (705) $ (650)
======= =======
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 1997 1996 1995
Consolidated net income before
preferred dividends
Domestic $229 $237 $219
Foreign 64 31 13
---- ---- ----
293 268 232
Income tax expense 117 139 118
---- ---- ----
410 407 350
Statutory federal income tax rate x 35% x 35% x 35%
---- ---- ----
Expected income tax expense 143 142 123
Increase (decrease) in taxes from:
Capitalized overheads previously
flowed through 5 5 5
Differences in book and tax depreciation
not previously deferred 8 6 6
Impact of foreign taxes, tax rates and credits 1 8 3
Undistributed earnings of
international subsidiaries (10) (2) -
ITC amortization (10) (10) (10)
Section 29 Fuel Tax Credits (13) (13) (13)
Other, net (7) 3 4
---- ---- ----
$117 $139 $118
==== ==== ====
14: 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 $3.3 billion at December 31,
1997 and $2.8 billion at December 31, 1996, and the fair values were $3.3
billion and $2.9 billion, respectively. 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 carrying amount of preferred stock and Trust Preferred Securities was
$631 million at December 31, 1997 and $456 million at December 31, 1996,
and the fair value was $632 million and $439 million, respectively.
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, 1997, the fair value of CMS Energy's interest rate swap
agreements, with a notional amount of $1.1 billion, was $13 million,
representing the amount that CMS Energy would have to pay to terminate the
agreements. The settlement of the interest rate swap agreements in 1997
did not materially affect interest expense. At December 31, 1996,
CMS Energy would have paid $10 million to terminate the agreements. Also
refer to Note 9 for a discussion of CMS NOMECO's price hedging
arrangements and their fair values. Guarantees were $543 million and $102
million at December 31, 1997 and 1996, respectively.
The amortized cost of CMS Energy's nuclear decommissioning investments,
which are considered available-for-sale securities in accordance with SFAS
115, Accounting For Certain Investments in Debt and Equity Securities, was
$405 million and $351 million as of December 31, 1997 and 1996,
respectively. The unrealized gain, which is classified in accumulated
depreciation, was $81 million and $35 million as of December 31, 1997 and
1996, respectively.
15: 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. Awards under
the plan may consist of any class of Common Stock of CMS Energy. Certain
plan awards are subject to performance-based business criteria. The plan
reserves for award not more than three percent of CMS Energy's Common
Stock outstanding on January 1 each year, less (i) the number of shares of
restricted Common Stock awarded and (ii) Common Stock subject to options
granted under the plan during the immediately preceding four calendar
years. Any forfeitures of shares previously awarded increase the number
available to be awarded under the plan. At December 31, 1997, awards of
up to 749,889 shares of CMS Energy Common Stock and 192,387 shares of
Class G Common Stock may be issued.
Restricted shares of Common Stock are outstanding shares with full voting
and dividend rights. These awards vest over five years at the rate of 25
percent per year after two years. The restricted shares are subject to
achievement of specified levels of total shareholder return and are
subject to forfeiture if employment terminates before vesting. If
performance objectives are exceeded, the plan provides additional awards.
Restricted shares vest fully if control of CMS Energy changes, as defined
by the plan. At December 31, 1997, 562,711 of the 748,211 shares of
restricted CMS Energy Common Stock outstanding are subject to performance
objectives. At December 31, 1997 all of the 19,791 restricted shares of
Class G Common Stock outstanding are subject to performance objectives.
Under the plan, stock options and stock appreciation rights are granted
with an exercise price equal to the closing market price on each grant
date. Options are exercisable upon grant and expire up to ten years and
one month from date of grant. The status of the restricted stock granted
to CMS Energy's key employees under the Performance Incentive Stock Plan
and options granted under both plans follows.
Restricted
Stock Options
- -------------------------------------------------------------------------
Number Number Weighted-Average
of Shares of Shares Exercise Price
- -------------------------------------------------------------------------
CMS Energy Common Stock:
Outstanding at January 1, 1995 330,356 1,490,666 $ 23.50
Granted 253,337 304,000 $ 25.08
Exercised or Issued (43,939) (147,666) $ 14.52
Forfeited (22,307) - -
Expired - (55,000) $ 27.46
-------- -------- --------
Outstanding at December 31, 1995 517,447 1,592,000 $ 24.50
Granted 222,000 368,176 $ 30.55
Exercised or Issued (92,533) (231,550) $ 20.79
Forfeited (46,076) - -
Expired - (12,000) $ 32.88
-------- -------- --------
Outstanding at December 31, 1996 600,838 1,716,626 $ 26.24
Granted 366,360 431,500 $ 35.91
Exercised or Issued (159,405) (479,422) $ 26.54
Forfeited (59,582) - -
Expired - (2,987) $ 30.13
-------- --------- --------
Outstanding at December 31, 1997 748,211 1,665,717 $ 28.65
======== ========= ========
Class G Common Stock:
Outstanding at December 31, 1995 6,924 10,000 $ 17.88
Granted 9,423 11,000 $ 17.88
----- ------ ------
Outstanding at December 31, 1996 16,347 21,000 $ 17.88
Granted 8,784 12,000 $ 20.24
Exercised or Issued (1,385) (5,000) $ 17.88
Forfeited (3,955) - -
------- ------- -------
Outstanding at December 31, 1997 19,791 28,000 $18.89
======= ======= =======
The following table summarizes information about stock options outstanding
at December 31, 1997:
Number Weighted- Weighted-
Range of of Shares Average Average
Exercise Prices Outstanding Remaining Life Exercise Price
$17.13- $24.75 594,000 4.82 years $21.82
$25.13- $33.88 668,217 5.30 years $30.32
$34.25- $38.00 403,500 9.51 years $35.92
--------------- ---------- ---------- -------
$17.13- $38.00 1,665,717 6.15 years $28.65
=============== ========== ========== =======
The range of exercise prices for Class G Common Stock options is $17.88 to
$23.31; the weighted average remaining life is 8.8 years.
The weighted average fair value of options granted for CMS Energy Common
Stock was $6.38 in 1997, $6.94 in 1996, and $5.37 in 1995. The weighted
average fair value of options granted for Class G Common Stock was $1.87
in 1997, $1.59 in 1996 and $1.57 in 1995. Fair value is estimated using
the Black-Scholes model, a mathematical formula used to value options
traded on securities exchanges, with the following assumptions:
Years Ended December 31 1997 1996 1995
CMS Energy Common Stock Options
Risk-free interest rate 6.06% 6.63% 6.17%
Expected stock-price volatility 17.43% 24.08% 27.12%
Expected dividend rate $ .30 $ .27 $ .24
Expected option life 5 years 5 years 5 years
Class G Common Stock Options
Risk-free interest rate 6.06% 6.63% 6.17%
Expected stock-price volatility 18.05% 16.19% 16.19%
Expected dividend rate $ .31 $ .295 $ .295
Expected option life 5 years 5 years 5 years
CMS Energy applies Accounting Principles Board Opinion 25 and related
interpretations in accounting for the Performance Incentive Stock Plan.
Since stock options are granted at market price, no compensation cost has
been recognized for stock options granted under the plan. The
compensation cost charged against income for restricted stock was $6
million in 1997, $2 million in 1996, and $3 million in 1995. If
compensation cost for stock options had been determined in accordance with
SFAS 123, Accounting for Stock-Based Compensation, CMS Energy's
consolidated net income and earnings per share would have been as follows:
In Millions, Except Per Share Amounts
Pro Forma As Reported
Years Ended December 31 1997 1996 1997 1996
Consolidated Net Income $266 $239 $268 $240
Net Income Attributable
to Common Stocks
CMS Energy 251 225 253 226
Class G 15 14 15 14
Earnings Per Average Common Share
CMS Energy
Basic 2.61 2.43 2.63 2.45
Diluted 2.59 2.42 2.61 2.44
Class G
Basic and Diluted 1.81 1.78 1.84 1.82
16: Retirement Benefits
Postretirement Benefit Plans Other Than Pensions: CMS Energy and its
subsidiaries provide certain health care and life insurance benefits for
retired employees and their eligible dependents. Substantially all
employees may become eligible for such benefits if they attain retirement
status while working for CMS Energy or its subsidiaries. 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 20). 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. The MPSC
authorized recovery of the electric utility portion of these costs in 1994
over 18 years and the gas utility portion in 1996 over 16 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. At December 31, 1997, Consumers had recorded a regulatory asset
and liability of $7 million. By early 1997, the FERC had authorized
recovery of these costs. CMS Energy funds the benefits using external
Voluntary Employee Beneficiary Associations, a legal entity established
under guidelines of the IRC, through which the company can provide certain
benefits for its employees or retirees. Funding of the benefits coincides
with Consumers' recovery in rates.
Retiree health care costs at December 31, 1997 are based on the assumption
that costs would increase 6.5 percent in 1998, then decrease gradually to
5.5 percent in 2004 and thereafter. The health care cost trend rate
assumption significantly affects the amounts reported. For example, a one
percentage point increase in each year's estimated health care cost
assumption would increase the accumulated postretirement benefit
obligation at December 31, 1997 by $83 million and the aggregate of the
service and interest cost components of net periodic postretirement
benefit costs for 1997 by $9 million.
Years Ended December 31 1997 1996 1995
Weighted average discount rate 7.50% 7.75% 7.50%
Expected long-term rate of
return on plan assets 7.00% 7.00% 7.00%
Net postretirement benefit costs for the health care benefits and life
insurance benefits consisted of:
In Millions
Years Ended December 31 1997 1996 1995
Service cost $ 10 $ 13 $ 11
Interest cost 41 42 40
Actual return on assets (38) (14) (4)
Net amortization and deferral 25 8 1
---- ---- ----
Net postretirement benefit costs $ 38 $ 49 $ 48
==== ==== ====
The funded status of the postretirement benefit plans is reconciled with
the liability recorded at December 31 as follows:
In Millions
1997 1996
Actuarial present value of estimated benefits
Retirees $ 325 $ 330
Eligible for retirement 68 66
Active (upon retirement) 189 190
----- -----
Accumulated postretirement benefit obligation 582 586
Plan assets (primarily stocks, bonds and money
market investments) at fair value 224 138
----- -----
Accumulated postretirement benefit obligation
less than (in excess of) plan assets (358) (448)
Unrecognized net (gain) loss from
experience different than assumed (83) (36)
Unrecognized prior service cost - 7
----- -----
Recorded liability $(441) $(477)
===== =====
The health care portion of the accumulated postretirement benefit
obligation is $565 million and $570 million at December 31, 1997 and 1996,
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 in 1988. Because the SERP is not a qualified
plan under the IRC, earnings of the trust are taxable and trust assets are
included in consolidated assets. At December 31, 1997 and 1996, trust
assets were $44 million and $31 million, respectively, and were classified
as other non-current assets.
Defined Benefit Pension Plan: A trusted, 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 1997 and
1996. A contribution of $9 million was made in 1995.
Years Ended December 31 1997 1996 1995
Discount rate 7.50% 7.75% 7.50%
Rate of compensation increase 3.75% 4.00% 4.50%
Expected long-term rate of return on assets 9.25% 9.25% 9.25%
Net Pension Plan and SERP costs consisted of:
In Millions
Years Ended December 31 1997 1996 1995
Service cost $ 26 $ 26 $ 23
Interest cost 61 58 56
Actual return on plan assets (163) (63) (168)
Net amortization and deferral 93 (6) 103
----- ----- -----
Net periodic pension cost $ 17 $ 15 $ 14
===== ===== =====
The funded status of the Pension Plan and SERP reconciled to the liability
recorded at December 31 was:
In Millions
Pension Plan SERP
1997 1996 1997 1996
Actuarial present value of
estimated benefits
Vested $ 548 $ 504 $ 24 $ 21
Non-vested 79 72 1 1
----- ----- ----- -----
Accumulated benefit obligation 627 576 25 22
Provision for future pay increases 165 158 16 15
----- ----- ----- -----
Projected benefit obligation 792 734 41 37
Plan assets (primarily stocks
and bonds, including $153 in 1997
and $117 in 1996 in common stock
of CMS Energy) at fair value 882 779 - -
----- ----- ----- -----
Projected benefit obligation
less than (in excess of)
plan assets 90 45 (41) (37)
Unrecognized net (gain) loss
from experience different
than assumed (157) (99 5) 5
Unrecognized prior service cost 35 39 2 2
Unrecognized net transition (asset) (22) (27) - -
----- ----- ----- -----
Recorded liability $ (54) $ (42) $ (34) $ (30)
===== ===== ===== =====
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.
Defined Contribution Plan: CMS Energy provides a defined contribution
401(k) plan to all U.S. employees of CMS Energy and its subsidiaries which
are at least 80 percent owned and have adopted the plan. CMS Energy will
match at least one-half of the amount contributed by employees up to 3
percent of their salary. These contributions to the plan are invested in
CMS Energy Common Stock. Amounts charged to expense for this plan were
approximately $20 million in 1997, $18 million in 1996 and $17 million in
1995.
17: 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 expires in November 1999, yet 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 $47 million as of December 31, 1997.
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, 1997, were:
In Millions
Capital Operating
Leases Leases
1998 $ 42 $ 11
1999 44 11
2000 14 11
2001 12 8
2002 9 8
2003 and thereafter 7 20
----- -----
Total minimum lease payments 128 $ 69
Less imputed interest 19 =====
-----
Present value of net minimum lease payments 109
Less current portion 34
-----
Non-current portion $ 75
=====
Consumers recovers lease 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
for the years ended December 31, 1997, 1996 and 1995, were $10 million, $8
million and $11 million, respectively.
Capital lease expenses for the years ended December 31, 1997, 1996 and
1995 were $43 million, $46 million and $46 million, respectively.
Included in these amounts for the years ended 1997, 1996 and 1995 are
nuclear fuel lease expenses of $25 million for each year.
18: Jointly Owned Utility Facilities
Consumers is responsible for providing its share of financing for the
jointly owned facilities. The direct expenses of the joint plants are
included in Consumers' operating expenses. The following table indicates
the extent of Consumers' investment in jointly owned utility facilities:
In Millions
December 31 1997 1996
Net investment
Ludington - 51 percent $112 $116
Campbell Unit 3 - 93.3 percent 314 329
Transmission lines - various 34 35
Accumulated depreciation
Ludington $ 88 $ 84
Campbell Unit 3 265 252
Transmission lines 14 14
19: Reportable Segments
CMS Energy operates principally in the following business segments:
electric utility; gas utility; oil and gas exploration and production;
independent power production; natural gas transmission, storage and
processing; and energy marketing, services and trading.
The Consolidated Statements of Income show operating revenue and pretax
operating income by business segment. Other business and geographic
segment information follows:
Business Segments
In Millions
Years Ended December 31 1997 1996 1995
Depreciation, depletion and amortization
Electric utility $ 296 $ 282 $ 272
Gas utility 93 87 83
Independent power production 13 8 4
Oil and gas exploration and production 58 55 52
Natural gas transmission, storage
and processing 14 7 3
Marketing, services and trading 1 - -
Other 2 2 2
------ ------ ------
$ 477 $ 441 $ 416
====== ====== ======
Identifiable assets
Electric utility (a) $4,472 $4,505 $4,522
Gas utility (a) 1,644 1,709 1,690
Independent power production 1,699 1,053 840
Oil and gas exploration and production 726 719 660
Natural gas transmission, storage
and processing 536 397 272
Marketing, services and trading 191 52 31
Other 525 180 128
------ ------ ------
$9,793 $8,615 $8,143
====== ====== ======
Capital expenditures (b)
Electric utility $ 255 $ 310 $ 328
Gas utility 116 137 126
Independent power production 704 142 239
Oil and gas exploration and
production (c) 132 88 168
Natural gas transmission, storage
and processing 115 136 178
Marketing, services and trading 28 - -
Other 202 66 14
------ ------ ------
$ 1,552 $ 879 $ 1,053
====== ====== ======
Investments in Equity Method Investees
Independent power production $1,203 $ 683 $ 603
Natural gas transmission, storage
and processing 256 234 193
Marketing, services and trading 26 - -
Other 277 85 22
------ ------ ------
$1,762 $1,002 $ 818
====== ====== ======
Earnings from Equity Method Investees(d)
Independent power production $ 89 $ 91 $ 58
Natural gas transmission, storage
and processing 10 12 9
Marketing, services and trading 2 - -
Other 8 8 11
------ ------ ------
$ 109 $ 111 $ 78
====== ====== ======
Geographic Areas
Investments Earnings
Pretax in Equity from Equity
Operating Operating Identifiable Method Method
Revenue Income Assets Investees Investees(d)
1997
United States $4,582 $ 670 $7,991 $ 765 $ 81
International 205 76 1,802 997 28
1996
United States $4,220 $ 653 $7,802 $ 689 $ 98
International 113 38 813 313 13
1995
United States $3,831 $ 601 $7,611 $ 586 $ 75
International 59 18 532 232 3
(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 Consolidated Statements 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 in 1995.
(d) These amounts are included in operating revenue in the Consolidated
Statements of Income.
20: 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. These costs are being recovered through rates over
periods of up to 15 years.
An accounting standard, effective 1996, requires impairment losses on
long-lived assets to be recognized when an asset's book value exceeds its
expected future cash flows (undiscounted). The standard also imposes
stricter criteria for retention of regulatory-created assets by requiring
that such assets be probable of future recovery at each balance sheet
date. There was no impact on financial position or results of operations
upon adoption because management believes these assets will be recovered.
For further discussion, see Outlook - Application of SFAS 71 in the MD&A.
In Millions
December 31 1997 1996
Postretirement benefits (Note 16) $ 429 $ 460
Income taxes (Note 13) 172 158
Abandoned Midland project 93 113
Manufactured gas plant sites (Note 10) 47 47
DSM - deferred costs 46 60
Uranium enrichment facility 22 23
Ludington Fish Settlement 12 14
Other 16 43
----- -----
Total regulatory assets $ 837 $ 918
===== =====
Income taxes (Note 13) $(226) $(224)
DSM - deferred revenue (24) (25)
----- -----
Total regulatory liabilities $(250) $(249)
===== =====
21: Equity Method Investments
Certain of CMS Energy's subsidiaries invest in companies, partnerships and
joint ventures as part of a strategy for growth through international
diversification. The ownership interests for these investments vary from
20 percent to 50 percent and are all accounted for using the equity method
of accounting. Following is summarized combined financial information for
all equity method investments, except for the MCV Partnership, which is
disclosed separately in Note 22 and Loy Yang, which is disclosed
separately in this note. For information relating to the geographic
location of investees and CMS Energy's and its subsidiaries' equity
earnings from and investment in investees refer to Note 19.
Income Statement Data (unaudited)
In Millions
Years Ended December 31 1997 1996 1995
Operating revenue $1,267 $ 674 $ 587
Operating expenses 808 399 299
------ ------ ------
Operating income 459 275 288
Other expense, net 175 97 114
------ ------ ------
Net income $ 284 $ 178 $ 174
====== ====== ======
Balance Sheet Data (unaudited)
In Millions
December 31 1997 1996
Assets
Current assets $ 439 $ 341
Property, plant and equipment, net 3,335 2,794
Other assets 1,976 164
------- -------
$ 5,750 $ 3,299
======= =======
Liabilities and Equity
Current liabilities $ 696 $ 293
Long-term debt and other
non-current liabilities 3,262 1,351
Equity 1,792 1,655
------- -------
$ 5,750 $ 3,299
======= =======
In the second quarter of 1997, a consortium comprising subsidiaries of CMS
Generation, among others, financed, through a consortium of banks,
seventy-seven percent of the consortium's $3.7 billion payment to the
Australian State of Victoria government for the Loy Yang acquisition.
This financing occurred on a non-recourse basis to CMS Energy and CMS
Generation.
Summarized financial information of Loy Yang:
Income Statement Data (unaudited)
In Millions
Year Ended December 31 1997
Operating revenue $229
Operating expenses 112
----
Operating income 117
Other expense, net 114
----
Net income $ 3
====
Balance Sheet Data (unaudited)
In Millions
December 31 1997
Assets
Current assets $ 144
Property, plant and equipment, net 3,159
Other assets 4
------
$3,307
======
Liabilities and Equity
Current liabilities $ 46
Long-term debt and other non-current liabilities 2,352
Equity 909
------
$3,307
======
22: Summarized Financial Information of Significant
Related Energy Supplier
Under the PPA with the MCV Partnership discussed in Note 3, Consumers'
1997 obligation to purchase electric capacity from the MCV Partnership was
15 percent of Consumers' owned and contracted capacity.
Summarized financial information of the MCV Partnership:
Statements of Income (unaudited)
In Millions
Years Ended December 31 1997 1996 1995
Operating revenue (a) $ 652 $ 645 $ 618
Operating expenses 435 417 386
----- ----- -----
Operating income 217 228 232
Other expense, net 154 162 171
----- ----- -----
Net income before cumulative
effect of accounting change 63 66 61
Cumulative effect of change in method
of accounting for property tax 15 - -
----- ----- -----
Net income $ 78 $ 66 $ 61
===== ===== =====
Balance Sheets (unaudited)
In Millions
December 31 1997 1996
Assets
Current assets (b) $ 362 $ 316
Property, plant and equipment, net 1,820 1,889
Other assets 169 159
------ ------
$2,351 $2,364
====== ======
Liabilities and Partners' Equity
Current liabilities $ 285 $ 235
Long-term debt and other
non-current liabilities (c) 1,789 1,930
Partners' equity (d) 277 199
----- -----
$2,351 $2,364
====== ======
(a) Revenue from Consumers totaled $609 million, $598 million and $571
million for 1997, 1996, and 1995, respectively.
(b) Receivables from Consumers totaled $54 million and $52 million, at
December 31, 1997 and 1996, respectively.
(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, 1997 and 1996, lease obligations of $1.52 billion and
$1.58 billion, respectively, were owed to the owner trust.
CMS Holdings' share of the interest and principal portion for the
1997 lease payments was $62 million and $28 million, respectively,
and for the 1996 lease payments was $64 million and $25 million,
respectively. The lease payments service $1.0 billion and $1.1
billion in non-recourse debt outstanding as of December 31, 1997 and
1996, respectively, of the owner-trust. FMLP's debt is secured by
the MCV Partnership's lease obligations, assets, and operating
revenues. For 1997 and 1996, the owner-trust made debt payments
(including interest) of $192 million. FMLP's earnings for 1997,
1996, and 1995 were $20 million, $17 million, and $14 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. Covenants contained
in financing agreements prohibit the MCV Partnership from paying
distributions until certain financial test requirements are met.
Consumers does not anticipate receiving a cash distribution in the
near future.
<PAGE>
<PAGE> 99
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, 1997 and 1996,
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, 1997. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on
these 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 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 CMS Energy Corporation
and subsidiaries as of December 31, 1997 and 1996, and the results of
their operations and their cash flows for each of the three years in the
period ended December 31, 1997 in conformity with generally accepted
accounting principles.
Arthur Andersen LLP
Detroit, Michigan,
January 26, 1998.
<PAGE>
<PAGE> 98
<TABLE>
Quarterly Financial and Common Stock Information CMS Energy Corporation
<CAPTION>
In Millions, Except Per Share Amounts
1997 (Unaudited) 1996 (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 (a) $1,295 $1,024 $1,032 $1,436 $1,283 $938 $929 $1,183
Pretax operating income (b) $213 $167 $185 $181 $219 $159 $169 $144
Consolidated net income $84 $54 $66 $64 $88 $50 $58 $44
Basic earnings (loss) per
average common
share (c):
CMS Energy $.79 $.55 $.70 $.59 $.83 $.54 $.65 $.43
Class G $1.18 $.16 $(.21) $.70 $1.50 $.16 $(.28) $.44
Diluted earnings (loss) per
average common
share (c):
CMS Energy $.78 $.55 $.69 $.59 $.83 $.53 $.65 $.43
Class G $1.18 $.16 $(.21) $.70 $1.50 $.16 $(.28) $.44
Dividends declared per
common share:
CMS Energy $.27 $.27 $.30 $.30 $.24 $.24 $.27 $.27
Class G $.295 $.295 $.31 $.31 $.28 $.28 $.295 $.295
Common stock prices (d)
CMS Energy:
High $34-1/2 $35-5/8 $38-1/16 $44-1/16 $31-7/8 $31-1/4 $31-5/8 $33-3/4
Low $31-1/2 $31-1/8 $34-7/8 $35-11/16 $27-13/16 $28 $29 $30-1/8
Class G:
High $19-7/8 $19-7/8 $22 $27-1/8 $20 $19-3/8 $18-7/8 $19-1/4
Low $17-7/8 $17-5/8 $19 $20-5/8 $17-7/8 $17-1/2 $16-5/8 $17-3/8
<FN>
(a) Amounts in 1997 were restated for comparative purposes.
(b) Amounts in 1996 were restated for comparative purposes.
(c) The sum of the quarters may not equal the annual earnings per share due to changes in shares outstanding.
(d) Based on New York Stock Exchange - Composite transactions.
</TABLE>
<PAGE>
<PAGE> 99
(This page intentionally left blank)
1997 Financial Statements
<PAGE>
<PAGE>
<PAGE> 101
<TABLE>
Selected Financial Information Consumers Energy Company
<CAPTION>
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C> <C>
Operating revenue (in millions) ($) 3,769 3,770 3,511 3,356 3,243
Net income (in millions) ($) 321 296 255 226 198
Net income available to common
stockholder (in millions) ($) 284 260 227 202 187
Cash from operations (in millions) ($) 758 672 642 598 403
Capital expenditures, excluding capital
lease additions and DSM (in millions) ($) 360 410 414 447 451
Total assets (in millions) ($) 6,949 7,025 6,954 6,809 6,551
Long-term debt, excluding current
maturities (in millions) ($) 1,369 1,900 1,922 1,953 1,839
Non-current portion of capital
leases (in millions) ($) 74 100 104 108 106
Total preferred stock (in millions) ($) 238 356 356 356 163
Total preferred securities (in millions) ($) 220 100 - - -
Number of preferred shareholders at year-end 6,178 9,540 10,084 10,599 7,037
Book value per common share at year-end ($) 20.38 19.96 19.00 16.96 15.28
Return on average common equity (%) 16.8 15.9 15.0 14.9 14.8
Return on assets (%) 6.2 5.7 5.3 4.9 4.7
Number of full-time equivalent
employees at year-end
Consumers 8,640 8,938 9,262 9,409 9,495
Michigan Gas Storage 66 67 70 73 72
Electric statistics
Sales (billions of kWh) 37.9 37.1 35.5 34.5 32.8
Customers (in thousands) 1,617 1,594 1,570 1,547 1,526
Average sales rate per kWh (cents) 6.57 6.55 6.36 6.29 6.28
Gas statistics
Sales and transportation deliveries (bcf) 420 448 404 409 411
Customers (in thousands) (a) 1,533 1,504 1,476 1,448 1,423
Average sales rate per mcf ($) 4.44 4.45 4.42 4.48 4.46
<FN>
(a) Excludes off-system transportation customers.
</TABLE>
<PAGE>
<PAGE> 102
Consumers Energy Company
Management's Discussion and Analysis
This Annual Report contains forward-looking statements, as defined by the
Private Securities Litigation Reform Act of 1995, that include without
limitation, discussions as to expectations, beliefs, plans, objectives and
future financial performance, or assumptions underlying or concerning
matters discussed in this report. Refer to the Forward-Looking Information
section of this MD&A for some important factors that could cause actual
results or outcomes to differ materially from those addressed in the
forward-looking discussions.
Consumers is a combination electric and gas utility company serving the
Lower Peninsula of Michigan and is the principal subsidiary of CMS Energy,
a holding company. Consumers' customer base includes a mix of
residential, commercial and diversified industrial customers, the largest
segment of which is the automotive industry.
RESULTS OF OPERATIONS
In Millions
Years Ended December 31 1997 1996 Change 1996 1995Change
Net income available
to common stockholder $284 $260 $24 $260 $227 $33
Consumers experienced earnings growth for the fifth consecutive year. This
continued growth is the reflection of changes in regulation and Consumers'
strategy to target increased deliveries to industrial and commercial
customers. The improved net income for 1997 reflects the favorable impact
for all of 1997 of an electric rate increase received in February 1996,
increased electric sales, the one-time recognition of interest income for
$7 million from a related-party property sale, increased revenues from the
transmission of electricity for others, and improved earnings from the MCV
Partnership. In addition, the improved net income for 1997 reflects an
adjustment of prior years' income taxes associated with non-taxable
earnings on nuclear decommissioning trust funds of $9 million. The
improved net income for 1996 over the 1995 level reflects the favorable
impact of an electric rate increase received in February 1996, increased
electric sales and gas deliveries, and revenues from gas loaning
activities. In addition, other operating income increased during 1996 due
to a FERC-ordered refund received by the MCV Partnership from a gas
pipeline supplier. For further information, see the Electric and Gas
Utility Results of Operations sections of this MD&A and Note 4.
Electric Utility Results of Operations
Electric Pretax Operating Income:
In Millions
Years Ended December 31 1997 1996 Change 1996 1995 Change
$432 $411 $21 $411 $372 $39
Electric pretax operating income in 1997 benefitted from increased
electric sales, the full effect of the February 1996 electric rate
increase and extensive control of operation and maintenance costs.
Partially offsetting these benefits were lower revenue due to increases in
special contract discounts negotiated with large commercial and industrial
customers and higher depreciation and general taxes expenses. The
increase in electric pretax operating income in 1996 reflects the
favorable impact of the February 1996 electric rate increase and the
benefit of increased kWh sales and lower maintenance expenses. The
increase was partially offset by a decrease in revenues due to increases
in special contract discounts negotiated with large industrial customers
and increased depreciation, general taxes and operation expenses. The
following table quantifies these impacts on pretax operating income:
In Millions
Change Compared to Prior Year 1997 vs 1996 1996 vs 1995
Sales (including special contract discounts) $ 5 $ 1
Rate increases and other regulatory issues 11 50
Operation and maintenance 24 2
General taxes, depreciation and other (19) (14)
---- ----
Total increase/(decrease) in pretax
operating income $21 $39
==== ====
Electric Sales: Total electric sales in 1997 were 38 billion kWh, an
increase of 2.3 percent over 1996 sales. The increase reflects continued
economic growth in Michigan and a 1.2 percent increase in sales to
ultimate customers, primarily within the industrial class. Total electric
sales in 1996 were 37 billion kWh, an increase of 4.4 percent over the
1995 level. The increase in 1996 is primarily attributable to an increase
in intersystem sales and a 1.7 percent increase in sales to ultimate
customers. This increase also reflects continued economic growth in
Consumers' territory.
Power Costs: Cost increases in both 1997 and 1996 over the prior periods
reflect greater power purchases from outside sources to meet increased
sales demand. The following table quantifies the changes in electric
power costs:
In Millions
Years Ended December 31 1997 1996Change 1996 1995 Change
$1,139 $1,087 $52 $1,087 $970 $117
Electric Utility Operating Issues:
Power Purchases from the MCV Partnership - In 1992, Consumers recognized a
loss for the present value of the estimated future underrecoveries of
power purchases from the MCV Partnership. The after-tax cash
underrecoveries are currently based on the assumption that the MCV
Facility will be available to generate electricity 91.5 percent of the
time over its expected life. For 1997, the MCV Facility was available 99
percent of the time, resulting in after-tax cash underrecoveries of $41
million. Consumers believes it will continue to experience after-tax cash
underrecoveries associated with the PPA in amounts as those shown below.
For further information, see Power Purchases from the MCV Partnership in
Note 3.
In Millions
1998 1999 2000 2001 2002
Estimated cash underrecoveries,
net of tax $23 $22 $21 $20 $19
Consumers bases the above estimated underrecoveries, in part, on an
estimate of the future availability of the MCV Facility. If the MCV
Facility operates at levels above management's estimate over the remainder
of the PPA, Consumers will need to recognize losses for future
underrecoveries larger than amounts previously recorded. Therefore,
Consumers would experience larger amounts of cash underrecoveries than
originally anticipated. Management will continue to evaluate the adequacy
of the accrued liability considering actual MCV Facility operations.
Electric Rate Proceedings - In 1996, the MPSC issued a final order
authorizing Consumers to recover costs associated with the purchase of an
additional 325 MW of MCV Facility capacity and to accelerate recovery of
its nuclear plant investment. To implement the accelerated recovery, the
order requires an increase in annual nuclear plant depreciation expense by
$18 million with a corresponding decrease in fossil-fueled generating
plant depreciation expense. The order also established an experimental
direct-access program. For further information on these issues, see the
Electric Business Outlook section of this MD&A and Notes 3 and 4.
Nuclear Matters - In January 1997, the NRC issued its Systematic
Assessment of Licensee Performance report for Palisades. The report rated
all areas as good, unchanged from the previous assessment.
The NRC requires Consumers to make certain calculations and report to it
on the continuing ability of the Palisades reactor vessel to withstand
postulated pressurized thermal shock. In 1996, Consumers received an
interim Safety Evaluation Report from the NRC indicating that the reactor
vessel can be safely operated through 2003. Consumers believes that with
a change in fuel management designed to minimize embrittlement, Palisades
can be operated to the end of its license life in the year 2007.
Palisades' temporary on-site storage pool for spent nuclear fuel is at
capacity. Consequently, Consumers is using NRC-approved steel and
concrete vaults, commonly known as "dry casks", for temporary on-site
storage.
Big Rock closed permanently on August 29, 1997 because management
determined that the plant would be uneconomical to operate in an
increasingly competitive environment. Consumers originally scheduled the
plant to close May 31, 2000, at the end of the plant's operating license.
Plant decommissioning began in September 1997 and may take five to ten
years to return the site to its original condition. The earlier than
planned closure of the plant and the reopening of the South Carolina
Barnwell facility to receive low level radioactive waste have changed the
method of decommissioning from the safe storage option to immediate
dismantlement. This change could have an impact on the estimated
decommissioning cost which is required to be updated in a filing with the
MPSC by March 31, 1998. For further information on nuclear matters, see
Note 7.
Electric Environmental Matters - The Clean Air Act contains significant
environmental provisions specific to utilities. During the past few
years, Consumers incurred $46 million in capital expenditures. Consumers
believes it may incur an additional $30 million in capital expenditures by
the year 2000 to comply with the current sulfur dioxide and nitrogen oxide
emission limits established by the EPA.
Consumers currently operates within all Clean Air Act requirements and
meets current ozone and particulate emission limits. The EPA recently
revised the national air quality standards, which may further limit small
particulate and ozone related emissions, and proposed that the State of
Michigan impose additional nitrogen oxide limits on fossil-fueled
emitters, such as Consumers' generating units. It is unlikely that the
State of Michigan will establish Consumers' emissions reduction target
until mid-to-late 1999. Until this state-mandated target is known, the
estimated cost of compliance is subject to significant revision. The
preliminary estimate of capital costs to reduce nitrogen oxide related
emissions for Consumers' fossil-fueled generating units is approximately
$175 million, plus an additional amount totaling $10 million per year for
the next 20 years for operation and maintenance costs. Consumers may need
an equivalent amount to comply with the new small particulate standards.
The State of Michigan objected to the extent of the proposed EPA emission
reductions. If the State of Michigan's position were to be adopted by the
EPA, costs could be less than the current estimated amounts. Consumers
supports the bipartisan effort in the U.S. Congress to delay
implementation of the revised standards until the relationship between the
new standards and health improvements is established scientifically.
Under the Michigan Natural Resources and Environmental Protection Act,
Consumers expects that it will ultimately incur investigation and remedial
action costs at a number of sites. Nevertheless, it believes that these
costs are properly recoverable in rates under current ratemaking policies.
Consumers is a so-called potentially responsible party at several
contaminated sites administered under Superfund. Many other creditworthy,
potentially responsible parties, with substantial assets also cooperate
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.
While decommissioning Big Rock, Consumers found that some areas of the
plant have coatings that contain both metals and PCBs. Consumers does not
believe that any facility in the United States currently accepts the
radioactive portion of that waste. The cost of removal and disposal is
currently unknown. These costs would constitute part of the cost to
decommission the plant, and will be paid from the decommissioning fund.
Consumers is studying the extent of the contamination and reviewing
options. For further information regarding these and other environmental
matters, see Electric Environmental Matters in Note 6.
Stray Voltage - Various parties have sued Consumers relating to the
effect of so-called stray voltage on certain livestock. In December 1997,
the Michigan Supreme Court remanded for further proceedings a 1994
Michigan trial court decision that refused to allow the claims of over 200
named plaintiffs to be joined in a single action. The trial court
dismissed all of the plaintiffs except the first-named plaintiff, allowing
the others to re-file separate actions. Of the original plaintiffs, only
49 re-filed separate cases. All of those 49 cases have been resolved.
The Michigan Supreme Court remanded the matter, finding that the proper
remedy for misjoinder was not dismissal, but to automatically allow each
case to go forward separately. Consumers filed a motion for
reconsideration with the Michigan Supreme Court, which was denied.
Consumers intends to vigorously defend these cases, but is unable to
predict the outcome. As of December 31, 1997, Consumers had 12 individual
stray voltage lawsuits, unrelated to the cases above, awaiting trial court
action, down from 22 lawsuits as reported at year end 1996.
Other - In October 1997, two independent power producers sued Consumers
and CMS Energy in a federal court alleging antitrust violations and
economic losses due to special electric contracts signed by Consumers with
large customers. The plaintiffs claim damages of $100 million (which a
court can treble in antitrust cases as provided by law). The transactions
of which plaintiffs complain have been regulated by, and are subject to,
the jurisdiction of the MPSC. In November 1997, Consumers and CMS Energy
filed a motion for summary judgement and/or for dismissal of the complaint
filed by the plaintiffs. Consumers believes the lawsuit is without merit
and will vigorously defend against it, but cannot predict the outcome of
this matter.
Gas Utility Results of Operations
Gas Pretax Operating Income:
In Millions
Years Ended December 31 1997 1996 Change 1996 1995 Change
$153 $158 $(5) $158 $156 $2
Gas pretax operating income decreased in 1997 compared to 1996. The
decrease results from reduced gas deliveries due to warmer winter month
temperatures in 1997 and the loss of an extra day for the 1996 leap year.
Revenues were also down in 1997 due to the elimination of surcharges
related to past conservation programs and reduced gas loaning activities.
In addition, depreciation costs and general taxes were higher in 1997 from
increased investments to serve new customers. Offsetting these decreases
to pretax operating income were lower operations and maintenance expenses
that resulted from extensive cost controls. Gas pretax operating income
increased in 1996 compared to 1995. The increase results from increased
gas deliveries and revenues from value-added services and gas loaning
activities. Partially offsetting these increases were higher operating,
depreciation and general tax expenses. The following table quantifies
these impacts on pretax operating income:
In Millions
Change Compared to Prior Year 1997 vs 1996 1996 vs 1995
Sales $(13) $ 3
Gas wholesale and retail services
activities (9) 7
Operations and maintenance 24 (4)
General taxes, depreciation and other (7) (4)
---- ----
Total increase/(decrease) in pretax
operating income $ (5) $ 2
==== ====
Gas Deliveries: System deliveries in 1997, including miscellaneous
transportation, totaled 420 bcf, a decrease of 28 bcf or 6.1 percent
compared to 1996. The decreased deliveries for 1997 compared to 1996
reflect warmer temperatures in 1997 and the loss of an extra day for the
1996 leap year. Comparable system deliveries for 1996 totaled 448 bcf, an
increase of 44 bcf or 10.8 percent compared to 1995. The increased
deliveries for 1996 compared to 1995 reflect growth resulting from
customer additions, conversions to natural gas from alternative fuels,
continued strength in the Michigan economy and the benefit from the added
leap year day in 1996.
Cost of Gas Sold: The cost decrease for 1997 was the result of decreased
sales and lower gas prices. The cost increase for 1996 was the result of
increased sales.
In Millions
Years Ended December 31 1997 1996 Change 1996 1995 Change
$694 $750 $(56) $750 $674 $76
Gas Utility Operating Issues:
Gas Rate Proceedings - Consumers entered into a special natural gas
transportation contract in response to a customer's proposal to bypass
Consumers' system in favor of a competitive alternative. In 1995, the
MPSC approved the contract. The MPSC stated, however, that Consumers'
shareholders must bear the revenue shortfall created by the difference
between the contract's discounted rate and the floor price of an MPSC-
authorized gas transportation rate. In 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. In October 1997, the Court of Appeals issued an opinion
affirming the MPSC's order. Consumers has sought a rehearing of the Court
of Appeals opinion. For further information on Gas Proceedings, see the
Gas Business Outlook section of this MD&A and Note 4.
GCR Matters - In 1995, the MPSC issued an order favorable to Consumers'
position in a $44 million contract pricing dispute (excluding interest)
between Consumers and certain gas producers. The Court of Appeals upheld
the MPSC order. The gas producers have now appealed to the Michigan
Supreme Court. Consumers believes the MPSC order correctly concludes that
the producers' theories are without merit. Consumers will vigorously
oppose any claims the producers 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.
Consumers estimates its costs related to investigation and remedial action
at $48 million to $98 million. This estimate is based on undiscounted
1998 costs. Any significant change in assumptions, such as remediation
technique, nature and extent of contamination and regulatory requirements,
could affect the estimate of investigation and remedial action costs for
the sites. For further information regarding environmental matters, see
Note 6 .
CAPITAL RESOURCES AND LIQUIDITY
Cash Position, Investing and Financing
Operating Activities: Consumers derives cash from operations from the
sale and transportation of natural gas and the generation, transmission
and sale of electricity. Cash from operations totaled $758 million and
$672 million for 1997 and 1996, respectively. The $86 million increase
resulted from an increase in net income due to extensive control of
operation and maintenance costs and a change in working capital. Consumers
uses operating cash primarily to maintain and expand electric and gas
systems, to retire portions of long-term debt, and to pay dividends.
Investing Activities: Cash used by Consumers in investing activities
totaled $392 million and $494 million for 1997 and 1996, respectively.
The $102 million decrease resulted from a decrease in capital expenditures
and receipt of $50 million related to CMS Enterprises' repurchase of two
shares of its preferred stock. Consumers uses cash primarily for capital
expenditures.
Financing Activities: Cash used by Consumers in financing activities
totaled $363 million and $188 million for 1997 and 1996, respectively.
The increase of $175 million in cash used reflects the redemption of $120
million of preferred stock and a return of equity to Consumers' common
stockholder totaling $50 million.
Other Investing and Financing Matters: At December 31, 1997, Consumers
had FERC authorization to: 1) issue or guarantee up to $900 million of
short-term securities through 1998; 2) issue, through November 1998, $376
million of long-term securities with maturities up to 30 years, for
refinancing or refunding purposes; and 3) guarantee, through 1999, up to
$25 million in loans made by others, to residents of Michigan for the
purpose of making energy-related home improvements. In January 1998,
Consumers requested authorization to issue, through November 1998, an
additional $500 million of long-term securities for refinancing or
refunding purposes.
Consumers has an unsecured $425 million credit facility and unsecured
lines of credit aggregating $120 million. These facilities are available
to finance seasonal working capital requirements and to pay for capital
expenditures between long-term financings. At December 31, 1997, the
total available amount remaining under these facilities was $168 million.
Consumers also has in place a $500 million trade receivables sale program.
At December 31, 1997, $165 million in receivables remained available for
sale under the program. For further information, see Note 5.
Consumers must redeem or retire $1 billion of long-term debt over the
three-year period ending December 2000. In addition, at December 31,
1997, Consumers had a recorded liability to the DOE of $111 million, which
Consumers must pay upon the first delivery of spent nuclear fuel to the
DOE. Current federal law originally scheduled delivery of the fuel to
occur in 1998 (see Note 2). Consumers plans to refinance $850 million of
its long-term debt during 1998 and will continue to evaluate capital
markets as a source of financing further debt retirements. In early 1998,
Consumers called for the March 1998 redemption of $57 million aggregate
principal amount of its 7.5 percent First Mortgage Bonds due 2002 and $62
million aggregate principal amount of its 7.5 percent First Mortgage Bonds
due 2002.
In early 1998, Consumers issued $250 million of senior notes due February
1, 2008, at an interest rate of 6.375 percent. The senior notes are
secured by a series of Consumers' First Mortgage Bonds, issued
contemporaneously in a similar amount. Proceeds from the sale were added
to the general funds of Consumers and applied to the payment, at maturity,
of $248 million aggregate principal amount of Consumers' 8.75 percent
First Mortgage Bonds due February 15, 1998.
At December 31, 1997, Consumers' capital structure consisted of 38 percent
common equity, 10 percent preferred equity (including preferred stock and
preferred securities), and 52 percent long- and short-term debt (including
capital leases and notes payable).
OUTLOOK
The following discussions contain forward-looking statements. See the
Forward-Looking Information section of this MD&A for some important
factors that could cause actual results or outcomes to differ materially
from those discussed herein.
Capital Expenditures Outlook
Consumers estimates the following capital expenditures, including new
lease commitments, by company and by business segment over the next three
years. These estimates are prepared for planning purposes and are subject
to revision.
In Millions
Years Ended December 31 1998 1999 2000
Consumers
Construction $367 $358 $350
Nuclear fuel lease 54 - 1
Capital leases other than nuclear fuel 11 19 16
Michigan Gas Storage 3 3 3
---- ---- ----
$435 $380 $370
==== ==== ====
Electric utility operations (a) (b) $320 $265 $255
Gas utility operations (a) 115 115 115
---- ---- ----
$435 $380 $370
==== ==== ====
(a) These amounts include an attributed portion of Consumers' anticipated
capital expenditures for plant and equipment common to both the electric
and gas utility businesses.
(b) These amounts do not include preliminary estimates for capital
expenditures possibly required to comply with recently revised national
air quality standards under the Clean Air Act. For further information
see Electric Utility Operating Issues-Electric Environmental Matters above
and Note 6.
Electric Business Outlook
Growth: Consumers expects average annual growth of two and one-half
percent per year in electric system deliveries over the next five years,
based on the present industry and regulatory configuration in Michigan.
Abnormal weather, changing economic conditions, or the developing
competitive market for electricity may affect actual electric sales in
future periods.
Restructuring: Consumers' electric retail service is affected by
competition. To meet the challenge of competition, Consumers entered into
multi-year contracts with some of its largest industrial customers to
serve certain facilities. The MPSC has approved these contracts as part
of its phased introduction to competition. Certain customers have the
option to terminate their contracts early.
FERC Orders 888 and 889, as amended, require utilities to provide direct
access to the interstate transmission grid for wholesale transactions.
Consumers and Detroit Edison disagree on the effect of the orders on the
Michigan Electric Power Coordination Center pool. Consumers proposes to
maintain the benefits of the pool, while Detroit Edison has given notice
of early termination. Consumers expects FERC to rule on this issue in
1998.
In June 1997 the MPSC issued an order proposing that beginning January 1,
1998 Consumers would have to transmit and distribute energy on behalf of
competing power suppliers to serve retail customers. The order states
that by January 1, 2002, all customers would be free to choose (that is,
have direct access to) their own power suppliers.
Under the June 1997 order, the MPSC would allow utilities to recover
prudently incurred Transition Costs through a charge to all direct-access
customers until the end of the transition period in 2007. Subsequent to
the June 1997 order, the MPSC issued orders in October 1997 and early in
1998. Ultimately, the MPSC allowed Consumers: 1) to recover Transition
Costs of $1.755 billion through a charge to all direct-access customers
until the end of the transition period in 2007, subject to an adjustment
through a true-up mechanism; 2) to commence the phase-in of direct access
in March 1998; and 3) to suspend the power supply cost recovery clause.
The orders also confirm the MPSC's belief that Securitization may be a
beneficial mechanism for recovery of Transition Costs while recognizing
that Securitization requires state legislation to occur. Consumers
believes that the Transition Cost surcharge will apply to all customers
beginning in 2002. A separate charge to direct-access customers after
MPSC review and verification would also recover prudent costs of
implementing a direct-access program estimated at an additional $200
million. Nuclear decommissioning costs will also continue to be collected
through a separate surcharge to all customers. Consumers expects Michigan
legislative consideration of the entire subject of electric industry
restructuring in 1998. To be acceptable to Consumers, the legislation
would have to provide for full recovery of Transition Costs. Consumers
expects the legislature to review all of the policy choices made by the
MPSC during the restructuring proceedings to assure that they are in
accord with those that the legislature believes should be paramount. For
further information regarding restructuring, see Note 4.
Application of SFAS 71: Consumers applies the utility accounting
standard, SFAS 71, that recognizes the economic effects of rate regulation
and, accordingly, has recorded regulatory assets and liabilities related
to the generation, transmission and distribution operations of its
business in its financial statements. Consumers believes that the
generation segment of its business is still subject to rate regulation
based upon its present obligation to continue providing generation service
to its customers, and the lack of definitive deregulation orders. If rate
recovery of generation-related costs becomes unlikely or uncertain,
whether due to competition or regulatory action, this accounting standard
may no longer apply to the generation segment of Consumers' business.
Such a change could result in either full recovery of generation-related
regulatory assets (net of related regulatory liabilities) or a loss,
depending on whether Consumers' regulators adopt a transition mechanism
for the recovery of all or a portion of these net regulatory assets.
According to recently published Emerging Issues Task Force Issue 97-4,
Deregulation of the Pricing of Electricity - Issues Related to the
Application of FASB Statements No. 71 and 101, Consumers can continue to
carry its generation-related regulatory assets or liabilities for the part
of the business being deregulated if deregulatory legislation or an MPSC
rate order allows the collection of cash flows from its regulated
transmission and distribution customers to recover these specific costs or
settle obligations. Consumers believes that even if it was to discontinue
application of SFAS 71 for the generation segment of its business, its
regulatory assets, including those related to generation, are probable of
future recovery from the regulated portion of the business. At
December 31, 1997, Consumers had $277 million of generation-related net
regulatory assets recorded on its balance sheet, and a net investment in
generation facilities of $1.4 billion included in electric plant and
property. For further information regarding this issue, see the Electric
Business Outlook - Restructuring, above.
Gas Business Outlook
Growth: Consumers currently anticipates gas deliveries (excluding
transportation to the MCV Facility and off-system deliveries) to grow at
an average annual rate of between one and two percent over the next five
years based primarily on a steadily growing customer base. Abnormal
weather, alternative energy prices, changes in competitive conditions, and
the level of natural gas consumption may affect actual gas deliveries in
future periods. Consumers is also offering a variety of energy related
services to its customers focused upon appliance maintenance, home safety
and home security.
Restructuring: In December 1997, the MPSC approved Consumers' application
to implement a statewide three-year experimental gas transportation pilot
program, eventually allowing 300,000 residential, commercial and
industrial retail gas sales customers to choose their gas supplier. The
program is voluntary for natural gas customers. Customers choosing to
remain as sales customers of Consumers will not see a rate change in their
natural gas rates. To minimize the risk of exposure to higher gas costs,
Consumers currently has contracts in place at known prices covering a
portion of its requirements through the year 2000. ABATE, the Attorney
General and other parties filed claims of appeal of the MPSC's order with
the Court of Appeals. For further information, see Note 4 .
Application of SFAS 71: Based on a regulated utility accounting standard,
SFAS 71, Consumers may 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 regulatory assets related to
its gas business, and believes that sufficient regulatory assurance exists
to provide for the recovery of these deferred costs.
OTHER MATTERS
New Accounting Standards
In 1997, the FASB issued SFAS 130, Reporting Comprehensive Income, and
SFAS 131, Disclosures about Segments of an Enterprise and Related
Information. Each of these standards requires expanded disclosures
effective for 1998. Also in 1997, the Emerging Issues Task Force
published Issue 97-4, Deregulation of the Pricing of Electricity - Issues
Related to the Application of FASB Statements No. 71 and 101, and Issue
97-13, Accounting for Costs Incurred in Connection with a Consulting
Contract or an Internal Project that Combines Business Process
Reengineering and Information Technology Transformation. The consensus
reached in Issue 97-4 allows a company to maintain regulatory assets and
liabilities for part of a business that is being deregulated if
deregulatory legislation or a commission rate order allows the collection
of regulated cash flows to recover costs or settle obligations. The
regulated portion of a business maintains these regulatory assets and
liabilities until they are collected or settled, they are impaired, or
until the regulated portion of the business becomes deregulated. The
consensus reached in Issue 97-13 requires a company to expense the cost of
business process reengineering activities as incurred, and requires a
company to write off previously capitalized costs as a cumulative effect
adjustment in 1997. Consumers was not affected by the requirements of
this consensus. In addition, Consumers does not expect the application of
the other statements to materially affect its financial position,
liquidity or results of operations.
Computer Modifications for Year 2000
Consumers uses software and related technologies throughout its businesses
that the year 2000 date change will affect and, if uncorrected, could
cause Consumers to, among other things, issue inaccurate bills, report
inaccurate data, or incur plant outages. In 1995, Consumers began
modification of its computer software systems by dividing programs
requiring modification between critical and noncritical programs. All
necessary program modifications are expected to be completed by the year
2000. Consumers devoted significant internal and external resources to
these modifications. It will expense anticipated spending for these
modifications as incurred, while capitalizing and amortizing the costs for
new software over the software's useful life. Consumers does not expect
that the cost of these modifications will materially affect its financial
position, liquidity or results of operations.
Derivatives and Hedges
Consumers is exposed to market risk associated with changes in interest
rates. Management uses a combination of fixed-rate and variable-rate debt
to reduce interest rate exposure. Interest rate swaps may be used to
adjust exposure when deemed appropriate, based upon market conditions.
Derivatives are principally used as hedges and not for trading purposes.
During 1997, trading activities were immaterial. In the case of hedges,
management believes that any losses incurred on derivative instruments
used as a hedge would be offset by the opposite movement of the underlying
hedged item. These strategies attempt to provide and maintain the lowest
cost of capital. The fair value of Consumers' financial derivative
instruments at December 31, 1997 was immaterial. Additionally, exposure
to market risk in the near term would not have a material impact on
Consumers consolidated financial position, results of operations or cash
flows as of December 31, 1997.
For a discussion of accounting policies related to derivative
transactions, see Note 5.
FORWARD-LOOKING INFORMATION
Forward-looking information is included throughout this report. This
report also describes material contingencies in the Notes to the
Consolidated Financial Statements and should be read accordingly.
Some important factors that could cause actual results or outcomes to
differ materially from those discussed in the forward-looking statements
include prevailing governmental policies and regulatory actions (including
those of FERC and the MPSC) with respect to rates, proposed electric and
natural gas industries restructuring, change in industry and rate
structure, operation of a nuclear power facility, acquisition and disposal
of assets and facilities, operation and construction of plant facilities,
operation and construction of natural gas pipeline and storage facilities,
recovery of the cost of purchased power or natural gas, decommissioning
costs, and present or prospective wholesale and retail competition, among
other important factors. The business and profitability of Consumers are
also influenced by economic and geographic factors, including political
and economic risks, changes in environmental laws and policies, weather
conditions, competition for retail and wholesale customers, pricing and
transportation of commodities, market demand for energy, inflation or
deflation, capital market conditions, and the ability to secure agreement
in pending negotiations, among other important factors. All such factors
are difficult to predict, contain uncertainties that may materially affect
actual results, and may be beyond the control of Consumers.
<PAGE>
<PAGE> 113
<TABLE>
Consolidated Statements of Income Consumers Energy Company
In Millions
<CAPTION>
Years Ended December 31 1997 1996 1995
<S> <C> <C> <C>
Operating Revenue Electric $2,515 $2,446 $2,277
Gas 1,204 1,282 1,195
Other 50 42 39
------ ------ ------
3,769 3,770 3,511
------ ------ ------
Operating Expenses Operation
Fuel for electric generation 297 296 283
Purchased power - related parties 599 589 491
Purchased and interchange power 243 202 196
Cost of gas sold 694 750 674
Other 542 586 574
------ ------ ------
2,375 2,423 2,218
Maintenance 170 174 183
Depreciation, depletion and amortization 391 371 357
General taxes 200 191 189
------ ------ ------
3,136 3,159 2,947
------ ------ ------
Pretax Operating Electric 432 411 372
Income Gas 153 158 156
Other 48 42 36
------ ------ ------
633 611 564
------ ------ ------
Other Income Dividends and interest from affiliates (Note 2) 24 17 17
(Deductions) Accretion income (Note 2) 8 10 11
Accretion expense (Note 2) (17) (22) (31)
Other, net (2) (4) 5
------ ------ ------
13 1 2
------ ------ ------
Interest Charges Interest on long-term debt 138 139 141
Other interest 36 29 39
Capitalized interest (1) (2) (2)
------ ------ ------
173 166 178
------ ------ ------
Net Income Before Income Taxes 473 446 388
Income Taxes 152 150 133
------ ------ ------
Net Income 321 296 255
Preferred Stock Dividends 25 28 28
Preferred Securities Distributions (Note 5) 12 8 -
------ ------ ------
Net Income Available to Common Stockholder $ 284 $ 260 $ 227
====== ====== ======
<FN>
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
<PAGE> 114
<TABLE>
Consolidated Statements of Cash Flows Consumers Energy Company
In Millions
<CAPTION>
Years Ended December 31 1997 1996 1995
<S> <C> <C> <C>
Cash Flows From Net income $ 321 $ 296 $ 255
Operating Adjustments to reconcile net income to net cash
Activities provided by operating activities
Depreciation, depletion and amortization
(includes nuclear decommissioning of
$50, $49 and $51, respectively) 391 371 357
Capital lease and other amortization 44 40 38
Deferred income taxes and investment tax credit 13 48 57
Accretion expense (Note 2) 17 22 31
Accretion income - abandoned Midland project (Note 2) (8) (10) (11)
Undistributed earnings of related parties (47) (40) (36)
Power purchases (Note 3) (62) (63) (137)
Other 5 5 4
Changes in other assets and liabilities (Note 8) 84 3 84
----- ----- -----
Net cash provided by operating activities 758 672 642
----- ----- -----
Cash Flows From Capital expenditures (excludes capital lease additions of
Investing Activities $11, $31and $31 respectively and DSM) (Note 8) (360) (410) (414)
Investments in nuclear decommissioning trust funds (50) (49) (51)
Cost to retire property, net (28) (31) (41)
Investment from preferred stock - Affiliate 50 - -
Proceeds from sale of property 1 - 1
Deferred demand-side management costs - (6) (9)
Other (5) 2 (5)
----- ----- -----
Net cash used in investing activities (392) (494) (519)
----- ----- -----
Cash Flows From Payment of common stock dividends (218) (200) (70)
Financing Activities Retirement of Preferred Stock (120) - -
Retirement of bonds and other long-term debt (50) (37) (1)
Contribution from (return of equity to) stockholder (50) 13 -
Payment of capital lease obligations (44) (40) (37)
Payment of preferred stock dividends (29) (28) (28)
Preferred securities distributions (12) (8) -
Increase (decrease) in notes payable, net 44 (8) 2
Proceeds from preferred securities 116 97 -
Proceeds from bank loans - 23 -
----- ----- -----
Net cash used in financing activities (363) (188) (134)
----- ----- -----
Net Increase (Decrease) in Cash and Temporary Cash Investment 3 (10) (11)
Cash and temporary cash investments
Beginning of year 4 14 25
----- ----- -----
End of year $ 7 $ 4 $ 14
===== ===== =====
<FN>
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
<PAGE> 115
<TABLE>
Consolidated Balance Sheets Consumers Energy Company
<CAPTION>
ASSETS In Millions
December 31 1997 1996
<S> <C> <C>
Plant Electric $6,491 $6,333
(At original cost) Gas 2,322 2,203
Other 24 26
------ ------
8,837 8,562
Less accumulated depreciation, depletion
and amortization (Note 2) 4,603 4,269
------ ------
4,234 4,293
Construction work-in-progress 145 158
------ ------
4,379 4,451
------ ------
Investments Stock of affiliates (Note 2) 278 298
First Midland Limited Partnership (Notes 3 and 17) 242 232
Midland Cogeneration Venture Limited
Partnership (Notes 3 and 17) 171 134
Other 7 8
------ ------
698 672
------ ------
Current Assets Cash and temporary cash investments at cost, which
approximates market 7 4
Accounts receivable and accrued revenue, less allowances
of $6 in 1997 and $10 in 1996 (Note 5) 82 148
Accounts receivable - related parties (Note 2) 62 63
Inventories at average cost
Gas in underground storage 197 186
Materials and supplies 63 68
Generating plant fuel stock 35 30
Postretirement benefits (Note 12) 25 25
Deferred income taxes (Note 9) 22 27
Prepayments and other 161 183
------ ------
654 734
------ ------
Non-current Assets Nuclear decommissioning trust funds (Note 2) 486 386
Postretirement benefits (Note 12) 404 435
Abandoned Midland project 93 113
Other 235 234
------ ------
1,218 1,168
------ ------
Total Assets $6,949 $7,025
====== ======
/TABLE
<PAGE>
<PAGE> 116
<TABLE>
<CAPTION>
Consumers Energy Company
STOCKHOLDERS' INVESTMENT AND LIABILITIES In Millions
December 31 1997 1996
<S> <S> <S>
Capitalization Common stockholder's equity
(Note 5) Common stock $ 841 $ 841
Paid-in capital 452 504
Revaluation capital 58 37
Retained earnings since December 31, 1992 363 297
------ ------
1,714 1,679
Preferred stock 238 356
Company-obligated mandatorily redeemable
Trust Preferred Securities of:
Consumers Power Company Financing I (a) 100 100
Consumers Energy Company Financing II (a) 120 -
Long-term debt 1,369 1,900
Non-current portion of capital leases 74 100
------ ------
3,615 4,135
------ ------
Current Liabilities Current portion of long-term debt and capital leases 579 98
Notes payable 377 333
Accrued taxes 244 211
Accounts payable 171 212
Accounts payable - related parties 79 68
Power purchases (Note 3) 47 47
Accrued interest 32 33
Accrued refunds 12 8
Other 136 176
------ ------
1,677 1,186
------ ------
Non-current Deferred income taxes (Note 9) 688 646
Liabilities Postretirement benefits (Note 12) 489 500
Deferred investment tax credit 149 159
Power purchases (Note 3) 133 178
Regulatory liabilities for income taxes,
net (Notes 9 and 16) 54 66
Other 144 155
------ ------
1,657 1,704
------ ------
Commitments and Contingencies (Notes 2, 3, 4, 6, 7 and 13)
Total Stockholders' Investment and Liabilities $6,949 $7,025
====== ======
<FN>
(a) The primary asset of Consumers Power Company Financing I is $103 million principal amount of 8.36% subordinated
deferrable interest notes due 2015 from Consumers. The primary asset of Consumers Energy Company Financing II is $124
million principal amount of 8.20% subordinated deferrable interest notes due 2027 from Consumers. For further
discussion, see Note 5.
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
<PAGE> 117
<TABLE>
Consolidated Statements of Long-Term Debt Consumers Energy Company
In Millions
<CAPTION>
December 31 1997 1996
<S> <C> <C> <C> <C>
First Mortgage Bonds Series (%) Due
6 1997 $ - $ 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
------ ------
1,255 1,305
Long-Term Bank Debt 400 400
Pollution Control Revenue Bonds 131 131
Nuclear Fuel Disposal (a) 111 106
Other 25 26
------ ------
Principal Amount Outstanding 1,922 1,968
Current Amounts (545) (59)
Net Unamortized Discount (8) (9)
------ ------
Total Long-Term Debt $1,369 $1,900
====== ======
</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>
1998 $336 $7 $200 $ 2 $545
1999 200 3 200 5 408
2000 - 1 - 105 106
2001 57 1 - 4 62
2002 62 1 - 5 68
<FN>
(a) Due date uncertain (see Note 2)
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
<PAGE> 118
<TABLE>
Consolidated Statements of Preferred Stock Consumers Energy Company
<CAPTION>
Optional
Redemption Number of Shares In Millions
December 31 Series Price 1997 1996 1997 1996
- -----------------------------------------------------------------------------------------------------------------
<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 - 38
7.68 101.00 - 207,565 - 20
7.72 101.00 - 289,642 - 29
7.76 102.21 - 308,072 - 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 8,000,000 194 194
---- ----
Total Preferred Stock $238 $356
=================================================================================================================
<FN>
(a) Redeemable beginning April 1, 1999.
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
<PAGE> 119
<TABLE>
Consolidated Statements of Common Stockholder's Equity Consumers Energy Company
In Millions
<CAPTION>
Years Ended December 31 1997 1996 1995
<S> <C> <C> <C>
Common Stock At beginning and end of period (a) $ 841 $ 841 $ 841
------- ------- -------
Other Paid-in Capital At beginning of period 504 491 491
Preferred stock reacquired (2) - -
Stockholder's contribution - 13 -
Return of stockholder's contribution (50) - -
------- ------- -------
At end of period 452 504 491
------- ------- -------
Revaluation Capital At beginning of period 37 29 15
Change in unrealized investment - gain 21 8 14
------- ------- -------
At end of period 58 37 29
------- ------- -------
Retained Earnings At beginning of period 297 237 80
Net income 321 296 255
Cash dividends declared
Common Stock (218) (200) (70)
Preferred Stock (25) (28) (28)
Preferred securities distributions (12) (8) -
------- ------- -------
At end of period 363 297 237
------- ------- -------
Total Common Stockholder's Equity $ 1,714 $ 1,679 $ 1,598
======= ======= =======
<FN>
(a) Number of shares of common stock outstanding was 84,108,789 for all periods presented.
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
<PAGE> 120
Consumers Energy 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,
a 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 and includes these results in operating income.
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, Consumers adjusts the
unrecovered asset to its present value. It reflects this adjustment 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). It 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. It records cushion gas, which is gas
stored to maintain reservoir pressure for recovery of working gas, in the
appropriate gas utility plant account. Consumers stores gas inventory in
its underground storage facilities.
Maintenance, Depreciation and Depletion: Consumers charges property
repairs and minor property replacements 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 3.6 percent for 1997
and 3.5 percent for 1996 and 1995. The composite rate for gas utility
plant was 4.1 percent for 1997, 4.2 percent for 1996 and 4.3 percent for
1995. The composite rate for other plant and property was 8.2 percent for
1997, 5.5 percent for 1996 and 4.9 percent for 1995.
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 current federal
law, as confirmed by court decision, the DOE must begin accepting
deliveries of spent nuclear fuel by January 31, 1998 for disposal, even if
a permanent repository is not then operational. Utilities and their
customers have been prepaying the costs of DOE transport and disposal
through fees based on electric generation by their nuclear plants. 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 it delivers the first of
its spent fuel to the DOE. At December 31, 1997, Consumers had a recorded
liability to the DOE of $111 million, including interest, which is payable
upon the first delivery of spent nuclear fuel to the DOE. Consumers
recovered through electric rates the amount of this liability, excluding a
portion of interest. In January 1997, in response to the DOE's
declaration in December 1996 that it would not begin to accept spent
nuclear fuel deliveries in 1998, Consumers and other utilities filed suit
in federal court. The utilities sought a declaration relieving them of
their obligation to remit their quarterly fee payments to the DOE and
authorizing them to escrow any related fees collected from their
customers, unless and until the DOE begins to accept spent nuclear fuel.
The utilities also sought an order requiring the DOE to develop a program
to begin acceptance of spent nuclear fuel by January 31, 1998. A decision
was issued by the court in late 1997 affirming the DOE's duty to take
delivery of spent fuel, but was not specific as to the relief available
for failure of the DOE to comply. Consumers is considering its options.
Also in 1997, federal legislation was reintroduced to clarify the timing
of the DOE's obligation to accept spent nuclear fuel and to direct the DOE
to establish an integrated spent fuel management system that includes
designing and constructing an interim storage facility in Nevada.
Nuclear Plant Decommissioning: Consumers collected $50 million in 1997
from its electric customers for the future decommissioning of its two
nuclear plants. In April 1996, Consumers received a decommissioning order
from the MPSC that estimated decommissioning costs for Big Rock and
Palisades to be $330 million and $573 million (in 1997 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. The April 1996 MPSC Order also requires
Consumers to file updated site-specific decommissioning cost estimates for
Big Rock and Palisades by March 31, 1998. The Big Rock estimate will
reflect the early shut-down and the switch from the safe storage option to
immediate dismantlement because of the reopening of the South Carolina
Barnwell radioactive waste disposal facility. After retirement of
Palisades, Consumers plans to maintain the facility in protective storage
if radioactive waste disposal facilities are not available. As a result,
Consumers will incur most of the Palisades decommissioning costs after the
plant's NRC operating license expires. When the Palisades' NRC license
expires in 2007, the trust funds are currently estimated to have
accumulated $686 million. Consumers estimates that at the time Palisades
is fully decommissioned in the year 2046, the trust funds will have
provided $2.1 billion, including trust earnings, over this decommissioning
period. Consumers will determine if the current decommissioning surcharge
will be sufficient to provide for decommissioning of its nuclear plants
during the first quarter of 1998, after the revised decommissioning cost
estimates are computed for Palisades and Big Rock. At December 31, 1997,
Consumers had an investment in nuclear decommissioning trust funds of $486
million, spent $23 million for the decommissioning of Big Rock and
withdrew $17 million from the Big Rock nuclear decommissioning trust fund.
While decommissioning Big Rock, Consumers found that some areas of the
plant have coatings that contain both metals and PCBs. Consumers does not
believe that any facility in the United States currently accepts the
radioactive portion of that waste. The cost of removal and disposal is
currently unknown. These costs would constitute part of the cost to
decommission the plant, and will be paid from the decommissioning fund.
Consumers is studying the extent of the contamination and reviewing
options.
Reclassifications: Consumers has reclassified certain prior year amounts
for comparative purposes. These reclassifications did not affect
consolidated net income for the years presented.
Related-Party Transactions: Consumers investment in Enterprises'
preferred stock was $200 million in eight shares at December 31, 1997 and
$250 million in ten shares at December 31, 1996. Beginning in 1997,
Enterprises commenced a five-year redemption program of $50 million per
year. In addition, Consumers has an investment in three million shares of
CMS Energy Common Stock with a fair value totaling $129 million at
December 31, 1997 (see Note 10). From these two investments, Consumers
received dividends on affiliates' common and preferred stock totaling $17
million, each year, in 1997, 1996 and 1995. In addition, Consumers
recovered $7 million of interest income in 1997 related to the sale of
land to an affiliate.
Consumers purchases a portion of its gas from CMS NOMECO. The purchases
for the years ended 1997, 1996 and 1995 were $25 million, $24 million and
$19 million, respectively. In 1997, 1996 and 1995, Consumers purchased
$51 million, $50 million and $53 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 $13 million, each year, for
1997, 1996 and 1995. For additional discussion of related-party
transactions with the MCV Partnership and the FMLP, see Notes 3 and 17.
Other related-party transactions are immaterial.
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
based on a regulated utility accounting standard (SFAS 71). As a result,
the actions of regulators affect when revenues, expenses, assets and
liabilities are recognized. If all or a separable portion of Consumers'
operations becomes no longer subject to the provisions of utility
regulation, a write-off of related regulatory assets and liabilities would
be required, unless some form of transition cost recovery continues
through rates established and collected for Consumers' remaining
operations. In addition, Consumers would be required to determine any
impairment to the carrying costs of deregulated plant and inventory
assets. For further discussion, see Electric Business Outlook and Gas
Business Outlook-Application of SFAS 71 in the MD&A, Note 4 and Note 16.
Other: For significant accounting policies regarding cash equivalents,
see Note 8; for income taxes, see Note 9; for executive incentive
compensation, see Note 11; and for pensions and other postretirement
benefits, see Note 12.
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 Dow. Consumers, through
two wholly owned 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 FMLP, a 35 percent lessor interest in the MCV Facility.
Summarized Statements of Income for CMS Midland and CMS Holdings
(unaudited):
In Millions
Years Ended December 31 1997 1996 1995
Pretax operating income $46 $40 $35
Income taxes and other 14 11 10
____ ____ ____
Net income $32 $29 $25
==== ==== ====
Power Purchases from the MCV Partnership: After September 2007, pursuant
to the terms of the PPA and related undertakings, Consumers will only be
required to pay the MCV Partnership the capacity charge and energy charge
amounts authorized for recovery from electric customers by the MPSC.
Prior to then, pursuant to MPSC orders issued to date, Consumers recovered
in 1997 approximately 90 percent of the total capacity charge and energy
charge amounts being billed by the MCV Partnership and paid to the MCV
Partnership by Consumers. Currently, Consumers' annual obligation to
purchase capacity from the MCV Partnership is 1,240 MW through the
termination of the PPA in 2025. 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 based
primarily on Consumers' average cost of coal consumed. Consumers is
recovering 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. Beginning January 1, 1996, the MPSC also permitted
Consumers to recover an average capacity charge of 2.86 cents per kWh for
the remaining 325 MW of MCV Facility capacity. The approved average
capacity charge increased to 3.62 cents per kWh for 109 MW by January 1,
1997. The recoverable portion of the capacity charge for the last 216 MW
of the 325 MW increases each year until it reaches 3.62 cents per kWh in
2004. It remains at this ceiling rate through the end of the PPA term.
Consumers recognized a loss in 1992 for the present value of the estimated
future underrecoveries of power costs under the PPA. At December 31, 1997
and 1996, the after-tax present value of the PPA liability totaled $117
million and $147 million, respectively. The reduction in the liability
since December 31, 1996 reflects after-tax cash underrecoveries of $41
million, partially offset by after-tax accretion expense of $11 million.
The undiscounted after-tax amount associated with the liability totaled
$188 million at December 31, 1997. The after-tax cash underrecoveries are
currently based on the assumption that the MCV Facility will be available
to generate electricity 91.5 percent of the time over its expected life.
For 1997 the MCV Facility was available 99 percent of the time, resulting
in $13 million over anticipated after-tax cash underrecoveries. Consumers
believes it will continue to experience after-tax cash underrecoveries
associated with the PPA in amounts as those shown below.
In Millions
1998 1999 2000 2001 2002
Estimated cash underrecoveries, $23 $22 $21 $20 $19
Consumers bases the above estimated underrecoveries, in part, on an
estimate of the future availability of the MCV Facility. If the MCV
Facility operates at levels above management's estimate over the remainder
of the PPA, Consumers will need to recognize losses for future
underrecoveries larger than amounts previously recorded. Therefore,
Consumers would experience larger amounts of cash underrecoveries than
originally anticipated. Management will continue to evaluate the adequacy
of the accrued liability considering actual MCV Facility operations.
In early 1998, the MCV Partnership filed a claim of appeal from the
January 1998 MPSC order in the electric utility industry restructuring.
On the same day, the MCV Partnership filed suit in the U.S. District Court
seeking a declaration that the MPSC's failure to provide Consumers and the
MCV Partnership a certain source of recovery of capacity payments after
2007 deprived the MCV Partnership of its rights under the Public Utilities
Regulatory Policies Act of 1978. The MCV Partnership is seeking to
prohibit the MPSC from implementing portions of the order.
PSCR Matters Related to Power Purchases from the MCV Partnership: As part
of a 1995 decision in the 1993 PSCR reconciliation case, 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. Consumers believed this was contrary to the terms of an
earlier 1993 settlement order and appealed. The MCV Partnership and ABATE
also filed separate appeals of this order. In November 1996, the Court of
Appeals affirmed the MPSC's 1995 decision. The MCV Partnership filed an
application for leave to appeal with the Michigan Supreme Court which was
denied in January 1998.
4: Rate Matters
Electric Proceedings: In 1996, the MPSC issued a final order that
authorized Consumers to recover costs associated with the purchase of the
additional 325 MW of MCV Facility capacity (see Note 3) and to accelerate
recovery of its nuclear plant investment by increasing prospective annual
nuclear plant depreciation expense by $18 million, with a corresponding
decrease in fossil-fueled generating plant depreciation expense. It also
established an experimental direct-access program. Customers having a
maximum demand of at least 2 MW are eligible to purchase generation
services directly from any eligible third-party power supplier and
Consumers would transmit the power for a fee. The program is limited to
650 MW of load, of which existing special contracts represent 410 MW.
New special contracts or direct-access load may fill 140 MW of the 650 MW
block. The remaining 100 MW will be available solely to direct-access
customers for at least 18 months. In April 1997, a lottery was held to
select the customers to purchase 100 MW by direct access. Direct access
for a portion of this 100 MW began during the fourth quarter of 1997.
In May 1997, the MPSC authorized Consumers to collect $17 million from
electric customers through a one-time surcharge pertaining to the 1994
PSCR reconciliation. In September 1997, the MPSC further authorized
Consumers to collect $13 million from electric customers through a one-
time surcharge pertaining to the 1995 PSCR reconciliation.
In January 1998, the Court of Appeals ruled that the MPSC has statutory
authority to authorize an experimental electric retail wheeling program.
By its terms, no retail wheeling has yet occurred pursuant to that
program. Consumers filed with the Michigan Supreme Court seeking leave to
appeal that ruling.
For information on other orders, see the Electric Restructuring section
below.
Electric Restructuring: As part of ongoing proceedings relating to the
restructuring of the electric utility industry in Michigan, in June 1997
the MPSC issued an order proposing that beginning January 1, 1998
Consumers would have to transmit and distribute energy on behalf of
competing power suppliers to serve retail customers. The order states
that by January 1, 2002, all customers would be free to choose (that is,
have direct access to) their own power suppliers.
Under the June 1997 order, the MPSC would allow utilities to recover
prudently incurred Transition Costs through a charge to all direct-access
customers until the end of the transition period in 2007. Further
proceedings, as ordered by the MPSC, took place to address other features
of the direct-access programs being considered, including proposals to
"true up" Transition Cost charges for changes in sales and market prices
of power purchase capacity to the extent they are different from estimates
used for calculating Transition Costs. The June order is subject to a
claim of appeal filed with the Court of Appeals which questions whether
the MPSC has the statutory authority to mandate restructuring on an
involuntary basis. In October 1997, the MPSC issued a series of
additional orders relating to its electric industry restructuring
proceedings. The orders primarily addressed issues involving the design
of retail direct-access tariffs, the true-up mechanism in connection with
the recovery of Transition Costs, suspension of the power supply cost
recovery clause and freezing of power supply costs, and performance-based
rate-making.
In January 1998, the MPSC clarified the October 1997 orders on a basis
generally consistent with the June 1997 order. The January 1998 order:
1) defers the commencement of the phase-in of direct access to begin in
March 1998; 2) attempts to clarify the true-up mechanism to be used in
connection with the recovery of Transition Costs; 3) confirms
implementation of a suspension of the power supply cost recovery clause;
and 4) confirms the MPSC's belief that Securitization may be a beneficial
mechanism for recovery of Transition Costs while recognizing that
Securitization requires state legislation to occur. Consumers expects
Michigan legislative consideration of the entire subject of electric
industry restructuring in 1998. To be acceptable to Consumers, the
legislation would have to provide for full recovery of Transition Costs.
Consumers expects the legislature to review all of the policy choices made
by the MPSC during the restructuring proceedings to assure that they are
in accord with those that the legislature believes should be paramount.
The January 1998 order further estimated a Transition Cost for Consumers
at $1.755 billion which is generally consistent with the amount proposed
by Consumers. Consumers will recover this cost through a surcharge to
direct-access customers through 2007. Consumers believes that this
surcharge will apply to all customers beginning in 2002. The surcharge is
subject to adjustment through a true-up mechanism to assure that
Transition Costs actually incurred are collected. A separate charge to
direct-access customers after MPSC review and verification would also
recover prudent costs of implementing a direct-access program estimated at
an additional $200 million. Nuclear decommissioning costs will also
continue to be collected through a separate surcharge to all customers.
Subsequent to the January order, the MPSC issued an order addressing
Consumers', among others, motions for clarification of the January order.
This order results in: 1) a suspension of the PSCR in a manner proposed
by Consumers; 2) a termination of the 1998 PSCR plan case; and 3) the
establishing of a permanent PSCR/base rate freeze charge in the 1997 PSCR
reconciliation proceeding. For further information see Electric Business
Outlook - Application of SFAS 71 in the MD&A.
Gas Restructuring: In December 1997, the MPSC approved Consumers'
application to implement a statewide experimental gas transportation pilot
program. Consumers' expanded experimental program will extend over a
three-year period, eventually allowing 300,000 residential, commercial and
industrial retail gas sales customers to choose their gas supplier. The
program is voluntary for natural gas customers. Participating customers
will be selected on a first-come, first-served basis, up to a limit of
100,000 customers on April 1, 1998. Up to 100,000 more customers will be
added on April 1 of each of the next two years. Customers choosing to
remain as sales customers of Consumers will not see a rate change in their
natural gas rates. The order allowing the implementation of this program:
1) suspends Consumers' gas cost recovery clause, effective April 1, 1998
for a three-year period, establishing a gas commodity cost at a fixed rate
of $2.84 per mcf; 2) establishes an earnings sharing mechanism that will
provide for refunds to customers if Consumers' earnings during the three
year term of the program exceed certain pre-determined levels; and 3)
establishes a gas transportation code of conduct that addresses concerns
about the relationship between Consumers and marketers, including its
affiliated marketers. This experimental program will allow competing gas
suppliers, including marketers and brokers, to market natural gas to a
large number of retail customers in direct competition with Consumers. In
1998, the Attorney General, ABATE and other parties filed claims of appeal
regarding the program with the Court of Appeals. To minimize the risk of
exposure to higher gas costs, Consumers currently has contracts in place
at known prices covering 50 percent of its 1998 requirements, 25 percent
of its 1999 requirements and 15 percent of its 2000 requirements.
Additional forward coverage is currently under review and will be firmed
up during the next few months. For further information see Gas Business
Outlook - Application of SFAS 71 in the MD&A.
Gas Proceedings: In 1995, the MPSC issued an order regarding a $44
million (excluding interest) gas supply contract pricing dispute between
Consumers and certain gas producers. The order stated that Consumers was
not obligated to seek prior approval of market-based pricing changes that
Consumers implemented under the contracts in question. The Court of
Appeals upheld the MPSC order. The producers sought leave to appeal with
the Michigan Supreme Court. Their request is still pending. Consumers
believes the MPSC order correctly concludes that the producers' theories
are without merit and will vigorously oppose any claims they may raise,
but cannot predict the outcome of this issue.
Resolution of the issues discussed in this Note is not expected to
materially affect Consumers' financial position, liquidity or results of
operations.
5: Short-Term Financings and Capitalization
Authorization: At December 31, 1997, Consumers had FERC authorization to:
1) issue or guarantee up to $900 million of short-term securities through
1998; 2) issue, through November 1998, $376 million of long-term
securities with maturities up to 30 years, for refinancing or refunding
purposes; and 3) guarantee, through 1999, up to $25 million in loans made
by others, to residents of Michigan for the purpose of making energy-
related home improvements. In January 1998, Consumers requested
authorization to issue, through November 1998, an additional $500 million
of long-term securities for refinancing or refunding purposes.
Short-Term Financings: Consumers has an unsecured $425 million credit
facility and unsecured lines of credit aggregating $120 million. These
facilities are available to finance seasonal working capital requirements
and to pay for capital expenditures between long-term financings. At
December 31, 1997, a total of $377 million was outstanding at a weighted
average interest rate of 6.5 percent, compared with $333 million
outstanding at December 31, 1996, at a weighted average interest rate of
6.3 percent.
Consumers also has in place a $500 million trade receivables sale program.
At December 31, 1997 and 1996, receivables sold under the program totaled
$335 million and $318 million, respectively. Accounts receivable and
accrued revenue in the Consolidated Balance Sheets have been reduced to
reflect receivables sold.
Derivatives: Consumers has entered interest rate swap agreements
(derivatives) to exchange variable rate interest payment obligations for
fixed rate obligations. These swaps attempt to reduce the impact of
interest rate fluctuations. To qualify for hedge accounting, derivatives
must meet the following criteria initially: 1) the item to be hedged
exposes the enterprise to interest rate risk; and 2) the derivative
reduces that exposure and is designated as a hedge. The hedged amounts
are used to measure interest to be paid or received and do not represent
the exposure to principal loss. The difference between the amounts paid
and received under the swaps is accrued and recorded as an adjustment to
interest expense over the life of the hedged agreement.
Derivative instruments contain credit risk if the counterparties,
including financial institutions, fail to perform under the agreements.
Consumers minimizes such risk by performing financial credit reviews
using, among other things, publicly available credit ratings of such
counterparties. The risk of nonperformance by the counterparties is
considered remote.
Capital Stock: In 1996, 4 million shares of 8.36 percent Trust Preferred
Securities were issued and sold through Consumers Power Company Financing
I, a wholly owned business trust consolidated with Consumers. Net
proceeds from the sale totaled $97 million. In September 1997, 4.8
million shares of 8.2 percent Trust Preferred Securities were issued and
sold through Consumers Energy Company Financing II, a wholly owned
business trust consolidated with Consumers. Net proceeds from the sale
totaled $116 million. Consumers formed both trusts for the sole purpose
of issuing the tax deductible Trust Preferred Securities. Consumers'
obligations with respect to the Trust Preferred Securities under the
notes, under the indenture through which Consumers issued the notes, under
Consumers' guarantee of the Trust Preferred Securities, and under the
declaration by the trusts, taken together, constitute a full and
unconditional guarantee by Consumers of the trusts' obligations under the
Trust Preferred Securities. For additional information, see footnote (a)
on the Consolidated Balance Sheets.
In September 1997, the proceeds from Consumers' 8.2 percent Trust
Preferred Securities were used to redeemed all outstanding shares of its
$7.45, $7.68, $7.72 and $7.76 preferred stock for $120 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 of Incorporation and
the need for regulatory approvals to meet appropriate federal law.
In early 1998, Consumers called for the March 1998 redemption of $57
million aggregate principal amount of its 7.5 percent First Mortgage Bonds
due in 2001 and $62 million aggregate principal amount of its 7.5 percent
First Mortgage Bonds due in 2002.
In early 1998, Consumers issued $250 million of senior notes due February
1, 2008, at an interest rate of 6.375 percent. The senior notes are
secured by a series of Consumers' First Mortgage Bonds, issued
contemporaneously in a similar amount. Proceeds from the sale were added
to the general funds of Consumers and applied to the payment, at maturity,
of $248 million aggregate principal amount of Consumers' 8.75 percent
First Mortgage Bonds due February 15, 1998.
Long-Term Bank Debt: Consumers has a $400 million unsecured, variable
rate, long-term loan. At December 31, 1997 and 1996 the loan carried a
weighted average interest rate of 6.4 percent and 6 percent, respectively.
In 1996, an existing interest rate swap ended and Consumers entered into a
new $125 million interest rate swap agreement, again exchanging variable-
rate interest for fixed-rate interest to hedge a portion of its long-term
debt. This swap agreement terminated in November 1997. In December 1997,
Consumers entered into interest rate swaps of $400 million. After taking
into account the effect of the swaps, the weighted average interest rate
on the long-term loan for the years ended December 31, 1997 and 1996 was
6.2 percent and 6.1 percent, respectively.
In January 1998, two agreements to guarantee interest rates for the
issuance of future long-term debt were executed. The first anticipatory
debt agreement is for $250 million at 5.5 percent which expires
February 10, 1998, and the second agreement is for $200 million at 5.8
percent with an expiration of March 16, 1998.
In 1996, Michigan Gas Storage entered into a $23 million secured, variable
rate, seven-year term loan. At December 31, 1997 and 1996 the loan had a
weighted average interest rate of 6.3 percent and 6 percent, respectively.
In October 1997 Michigan Gas Storage entered into a $15 million interest
rate swap agreement at 6.2 percent which terminates on September 30, 2003.
After taking into account the effect of the swap, the weighted average
interest rate on the long-term loan for the year ended December 31, 1997
was 6.4 percent.
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. These bonds had a weighted average
interest rate of 5.1 percent at December 31, 1997.
Under the provisions of its Articles of Incorporation at December 31,
1997, Consumers had $280 million of unrestricted retained earnings
available to pay common dividends. In January 1998, Consumers declared a
$80 million common dividend payable in February 1998.
In October 1997, Consumers returned $50 million of paid-in capital to
CMS Energy.
6: Commitments and Contingencies
Electric Environmental Matters: The Clean Air Act limits emissions of
sulfur dioxide and nitrogen oxides and requires emissions monitoring.
Consumers' coal-fueled electric generating units burn low-sulfur coal and
are currently operating at or near the sulfur dioxide emission limits that
will be effective in the year 2000. During the past few years, in order
to comply with the Act, Consumers incurred capital expenditures totaling
$46 million to install equipment at certain generating units. Consumers
estimates capital expenditures for in-process and proposed modifications
at other coal-fueled units to be an additional $30 million by the year
2000. Management believes that these expenditures will not materially
affect Consumers' annual operating costs.
Consumers currently operates within all Clean Air Act requirements and
meets current ozone and particulate emission limits. The Act requires
the EPA to review, periodically, the effectiveness of the national air
quality standards in preventing adverse health affects. The EPA recently
revised these standards. The revisions may further limit small particulate
and ozone related emissions. Consumers supports the bipartisan effort in
the U.S. Congress to delay implementation of the revised standards until
the relationship between the new standards and health improvements is
established scientifically.
In October 1997, pursuant to recommendations from the Ozone Transport
Assessment Group and the requests of several Northeastern states, the EPA
proposed that the State of Michigan impose additional nitrogen oxide
limits on fossil-fueled emitters, such as Consumers' generating units.
The limits are an effort to reduce statewide nitrogen oxide emissions by
32 percent, as early as 2002. The State of Michigan will have one year to
review and challenge the proposed recommendations, and one year after that
to implement final requirements. It is unlikely that the State of
Michigan will establish Consumers' nitrogen oxide emissions reduction
target until mid-to-late 1999. Until this state-mandated target is known,
the estimated cost of compliance is subject to significant revision.
The preliminary estimate of capital costs to reduce nitrogen oxide related
emissions for Consumers' fossil-fueled generating units is approximately
$175 million, plus an additional amount totaling $10 million per year for
20 years for operation and maintenance costs. Consumers may need an
equivalent amount to comply with the new small particulate standards. The
State of Michigan objected to the extent of the proposed EPA emission
reductions. If the State of Michigan's position were to be adopted by the
EPA, costs could be less than the current estimated amounts.
Under the Michigan Natural Resources and Environmental Protection Act,
Consumers expects that it will ultimately incur investigation and remedial
action costs at a number of sites. Nevertheless, it believes that these
costs are properly recoverable in rates under current ratemaking policies.
Consumers is a so-called potentially responsible party at several
contaminated sites administered under Superfund. Superfund liability is
joint and several; along with Consumers, many other creditworthy,
potentially responsible parties with substantial assets cooperate with
respect to the individual sites. Based upon past negotiations, Consumers
estimates that its share of the total liability for the known Superfund
sites will be between $3 million and $9 million. At December 31, 1997,
Consumers has accrued $3 million for its estimated Superfund liability.
Gas Environmental Matters: Under the Michigan Natural Resources and
Environmental Protection Act, Consumers expects that it will ultimately
incur investigation and remedial action costs at a number of sites,
including some 23 sites that formerly housed manufactured gas plant
facilities, even those in which it has a partial or no current ownership
interest. In 1998 Consumers plans to study indoor air issues at
residences on some sites and ground water impacts or surface soil impacts
at other sites. On sites where the company has received site-wide study
plan approvals, it will continue to implement these plans. It will also
work toward closure of environmental issues at sites as studies are
completed. 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 $98 million.
These estimates are based on undiscounted 1998 costs. At December 31,
1997, 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 affect the
estimate of remedial action costs for the sites. According to an MPSC
rate order issued in 1996, Consumers will defer and amortize, over a
period of ten years, environmental clean-up costs above the amount
currently being recovered in rates. Rate recognition of amortization
expense will not begin until after a prudence review in a general rate
case. The order authorizes current recovery of $1 million annually.
Consumers is continuing discussions with certain insurance companies
regarding coverage for some or all of the costs that it may incur for
these sites.
Capital Expenditures: Consumers estimates capital expenditures, including
new lease commitments, of $435 million for 1998, $380 million for 1999,
and $370 million for 2000. For further information, see the Capital
Expenditures Outlook section in the MD&A.
Commitments for Coal and Gas Supplies: Consumers entered into coal supply
contracts with various suppliers for its coal-fired generating stations.
These contracts have expiration dates that range from 1998 to 2004.
Consumers contracts for 50 - 75 percent of its annual coal requirements,
totaling $250 million, in 1997 (56 percent was under long-term contracts).
Consumers supplements its long-term contracts with spot-market purchases
to fulfill its coal needs.
Consumers entered into gas supply contracts and transportation contracts
with various suppliers for its natural gas business. These contracts have
expiration dates that range from 1998 to 2003. Consumers' 1997 gas
requirements totaled 250 bcf at a cost of $694 million, 80 percent of
which was under long-term contracts for one year or more. As of the end
of 1997, Consumers had 50 percent of its 1998 gas requirements under such
long-term contracts, and will supplement them with additional long-term
contracts and spot-market purchases.
Other: Various parties have sued Consumers relating to the effect of
so-called stray voltage on certain livestock. Claimants contend that
stray voltage results when low-level 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. It
also has an ongoing mitigation program to modify the service of all
customers with livestock.
In December 1997, the Michigan Supreme Court remanded for further
proceedings a 1994 Michigan trial court decision that refused to allow the
claims of over 200 named plaintiffs to be joined in a single action. The
trial court dismissed all of the plaintiffs except the first-named
plaintiff, allowing the others to re-file separate actions. Of the
original plaintiffs, only 49 re-filed separate cases. All of those 49
cases have been resolved. The Michigan Supreme Court remanded the matter,
finding that the proper remedy for misjoinder was not dismissal, but to
automatically allow each case to go forward separately. Consumers filed a
motion for reconsideration with the Michigan Supreme Court, which was
denied. Consumers intends to vigorously defend these cases, but is unable
to predict the outcome. As of December 31, 1997, Consumers had 12
individual stray voltage lawsuits, unrelated to the cases above, awaiting
trial court action, down from 22 lawsuits as reported at year end 1996.
In October 1997, two independent power producers sued Consumers and
CMS Energy in a federal court. The suit alleges antitrust violations
relating to contracts which Consumers entered into with some of its
customers and claims relating to power facilities. The plaintiffs claim
damages of $100 million (which a court can treble in antitrust cases as
provided by law). The transactions of which plaintiffs complain have been
regulated by, and are subject to, the jurisdiction of the MPSC. In
November 1997, Consumers and CMS Energy filed a motion for summary
judgement and/or for dismissal of the complaint filed by the plaintiffs.
Consumers believes the lawsuit is without merit and will vigorously defend
against it, but cannot predict the outcome of this matter.
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. These lawsuits and proceedings may
involve personal injury, property damage, contractual matters,
environmental issues, federal and state taxes, rates, licensing and other
matters.
Consumers has accrued estimated losses for certain contingencies discussed
in this Note. Resolution of these contingencies is not expected to have a
material adverse impact on Consumers' financial position, liquidity, or
results of operations.
7: Nuclear Matters
Consumers filed updated decommissioning information with the MPSC in 1995
that estimated decommissioning costs for Big Rock and Palisades. In April
1996, the MPSC issued an order in Consumers' nuclear decommissioning case,
which fully supported Consumers' request and did not change the overall
surcharge revenues collected from retail customers. The MPSC ordered
Consumers to file a report on the adequacy of the surcharge revenues with
the MPSC at three-year intervals beginning in 1998. Consumers filed a
revision to its Post Shutdown Activities Report (formerly decommissioning
report) with the NRC to reflect the shutdown of Big Rock.
Big Rock closed permanently on August 29, 1997 because management
determined that the plant would be uneconomical to operate in an
increasingly competitive environment. Consumers originally scheduled the
plant to close May 31, 2000, at the end of the plant's operating license.
Plant decommissioning began in September 1997 and may take five to ten
years to return the site to its original condition. The earlier than
planned closure of the plant and the reopening of the South Carolina
Barnwell facility to receive low level radioactive waste have changed the
method of decommissioning from the safe storage option to immediate
dismantlement. This change could have an impact on the estimated
decommissioning cost which is required to be updated in a filing with the
MPSC by March 31, 1998. For further information on nuclear matters, see
Note 2.
Consumers has loaded 13 dry storage casks with spent nuclear fuel at
Palisades. Consumers plans to load five additional casks at Palisades in
1999 pending approval by the NRC. In June 1997, the NRC approved
Consumers' process for unloading spent fuel from a cask at Palisades
previously discovered to have minor weld flaws. Consumers intends to
transfer the spent fuel to a new transportable cask when one is available.
Westinghouse Corporation has been contracted to design and fabricate
transportable casks for both Palisades and Big Rock. These casks will
support the off-load of the cask with minor flaws, continued operation of
Palisades and the decommissioning of Big Rock.
Consumers maintains insurance coverage against property damage, debris
removal, personal injury liability and other risks that are present at its
nuclear generating facilities. Consumers also maintains coverage for
replacement power costs during prolonged accidental outages at Palisades.
Insurance would not cover such costs during the first 17 weeks of any
outage, but would cover most of such costs during the next 58 weeks of the
outage, followed by reduced coverage to 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 $19 million in any one year to Nuclear Electric Insurance Ltd; $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 if nuclear workers claim bodily injury from radiation exposure.
Consumers considers the possibility of these assessments to be remote.
The NRC requires Consumers to make certain calculations and report to it
on the continuing ability of the Palisades reactor vessel to withstand
postulated pressurized thermal shock events during its remaining license
life, considering the embrittlement of reactor vessel materials over time
due to operation in a radioactive environment. Based on continuing
analysis of data in December 1996 Consumers received an interim Safety
Evaluation Report from the NRC indicating that the reactor vessel can be
safely operated through 2003 before reaching the NRC's screening criteria
for reactor embrittlement. Consumers believes that with fuel management
designed to minimize embrittlement, it can operate Palisades to the end of
its license life in the year 2007 without annealing the reactor vessel.
Nevertheless, Consumers will continue to monitor the matter.
8: Supplemental Cash Flow Information
For purposes of the Consolidated Statements 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 were:
In Millions
Years Ended December 31 1997 1996 1995
Cash transactions
Interest paid (net of amounts capitalized) $166 $143 $158
Income taxes paid (net of refunds) 116 119 43
Non-cash transactions
Nuclear fuel placed under capital lease $ 4 $ 28 $ 26
Other assets placed under capital leases 7 3 5
Capital leases refinanced - - 21
Changes in other assets and liabilities as shown on the Consolidated
Statements of Cash Flows are described below:
In Millions
Years Ended December 31 1997 1996 1995
Sale of receivables, net $ 17 $ 23 $ 20
Accounts receivable 31 12 (55)
Accrued revenue 20 (49) 1
Inventories (10) 8 54
Accounts payable (30) 17 48
Accrued refunds 4 (14) (4)
Other current assets and liabilities, net 17 (14) 28
Non-current deferred amounts, net 35 20 (8)
---- ---- ----
$ 84 $ 3 $ 84
==== ==== ====
9: 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 practices full deferred
tax accounting for temporary differences as authorized by the MPSC.
Consumers used 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 Consumers can carry 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 1997 1996 1995
Current federal income taxes $139 $102 $ 76
Deferred income taxes 23 58 67
Deferred ITC, net (10) (10) (10)
---- ---- ----
$152 $150 $133
==== ==== ====
Operating $160 $162 $145
Other (8) (12) (12)
---- ---- ----
$152 $150 $133
==== ==== ====
The principal components of Consumers' deferred tax assets (liabilities)
recognized in the balance sheet are as follows:
In Millions
December 31 1997 1996
Property $ (563) $ (556)
Unconsolidated investments (246) (239)
Postretirement benefits (Note 12) (156) (165)
Abandoned Midland project (33) (40)
Employee benefit obligations (includes post-
retirement benefits of $153 and $165) (Note 12) 184 195
Power purchases (Note 3) 66 82
AMT carryforward 74 93
Other 8 11
-------- --------
$ (666) $ (619)
======== ========
Gross deferred tax liabilities $ (1,372) $ (1,375)
Gross deferred tax assets 706 756
-------- --------
$ (666) $ (619)
======== ========
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 1997 1996 1995
Net income $ 321 $ 296 $ 255
Income tax expense 152 150 133
Preferred securities distributions (12) (8) -
----- ----- -----
Pretax income 461 438 388
Statutory federal income tax rate x 35% x 35% x 35%
----- ----- -----
Expected income tax expense 161 153 136
Increase (decrease) in taxes from
Capitalized overheads previously
flowed through 5 5 5
Differences in book and tax depreciation
not previously deferred 8 6 6
ITC amortization (10) (10) (10)
Affiliated companies' dividends (6) (6) (6)
Other, net (6) 2 2
----- ----- -----
Actual income tax expense $ 152 $ 150 $ 133
===== ===== =====
Effective tax rate 32.9% 34.2% 34.3%
===== ===== =====
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, except as shown below,
approximate fair value.
In Millions
December 31 1997 1996
Available-for-sale Amortized Fair Unrealized Amortized Fair Unrealized
securities Cost Value Gain Cost Value Gain
- ------------------ --------- ----- ---------- --------- ----- ----------
Common stock of CMS $ 43 $ 129 $ 86 $ 43 $ 99 $ 56
Energy
Nuclear decommissioning
investments (a) 405 486 81 351 386 35
===== ===== ===== ===== ===== =====
(a) Consumers classifies its unrealized gains and losses on nuclear
decommissioning investments in accumulated depreciation.
The carrying amount of long-term debt was $1.4 billion at December 31,
1997 and $1.9 billion at December 31, 1996, and the fair values were $1.4
billion and $1.9 billion, respectively. For held-to-maturity securities
and related-party financial instruments, see Note 2.
11: 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. Awards under the plan may consist of any class of
Common Stock of CMS Energy. Certain plan awards are subject to
performance-based business criteria. The plan reserves for award not more
than three percent of CMS Energy's Common Stock outstanding on January 1
each year, less (1) the number of shares of restricted Common Stock
awarded and (2) Common Stock subject to options granted under the plan
during the immediately preceding four calendar years. Any forfeitures of
shares previously awarded increase the number of shares available for
grant. At December 31, 1997, awards of up to 749,889 shares of CMS Energy
Common Stock and 192,387 shares of Class G Common Stock may be issued.
Restricted shares of Common Stock are outstanding shares with full voting
and dividend rights. These awards vest over five years at the rate of 25
percent per year after two years. The restricted shares are subject to
achievement of specified levels of total shareholder return and are
subject to forfeiture if employment terminates before vesting. If
performance objectives are exceeded, the plan provides additional awards.
Restricted shares vest fully if control of CMS Energy changes, as defined
by the plan. At December 31, 1997, 229,601 of the 310,351 shares of
restricted CMS Energy Common Stock outstanding are subject to performance
objectives. At December 31, 1997 all of the 19,791 restricted shares of
Class G Common Stock outstanding are subject to performance objectives.
Under the plan, stock options and stock appreciation rights are granted
with an exercise price equal to the closing market price on each grant
date. Options are exercisable upon grant and expire up to ten years and
one month from date of grant. The status of the restricted stock and
options granted to Consumers' key employees under the Performance
Incentive Stock Plan follows.
Restricted Options
Stock -------
----------
Weighted
Average
Number Number Exercise
CMS Energy Common Stock of Shares of Shares Price
--------- --------- --------
Outstanding at January 1, 1995 189,778 802,883 $ 23.90
Granted 123,615 147,200 $ 25.53
Exercised or Issued (27,533) (93,333) $ 15.64
Forfeited (16,807) -
Expired - (51,000) $ 27.56
-------- -------- -------
Outstanding at December 31, 1995 269,053 805,750 $ 24.93
Granted 84,760 138,520 $ 30.63
Exercised or Issued (50,925) (169,525) $ 21.72
Forfeited (25,522) -
Expired - (12,000) $ 32.88
-------- -------- -------
Outstanding at December 31, 1996 277,366 762,745 $ 26.55
Granted 165,942 152,352 $ 35.97
Exercised or Issued (73,375) (377,317) $ 27.21
Forfeited (59,582) -
-------- -------- -------
Outstanding at December 31, 1997 310,351 537,780 $ 28.28
======== ======== =======
Restricted
Stock Options
---------- -------
Weighted
Average
Number Number Exercise
Class G Common Stock of Shares of Shares Price
--------- --------- --------
Outstanding at January 1, 1995 - -
Granted 6,924 10,000 $ 17.88
-------- -------- -------
Outstanding at December 31, 1995 6,924 10,000 $ 17.88
Granted 9,423 11,000 $ 17.88
-------- -------- -------
Outstanding at December 31, 1996 16,347 21,000 $ 17.88
Granted 8,784 12,000 $ 20.24
Exercised or Issued (1,385) (5,000) $ 17.88
Forfeited (3,955) -
-------- -------- -------
Outstanding at December 31, 1997 19,791 28,000 $ 18.89
======== ======== =======
The following table summarizes information about CMS Energy Common Stock
options outstanding at December 31, 1997:
Number Weighted Weighted
Range of of Shares Average Average
Exercise Prices Outstanding Remaining Life Exercise Price
CMS Energy Common Stock
$17.13 - $24.75 192,800 2.62 years $20.59
$26.25 - $33.88 220,680 5.16 years $30.67
$35.94 - $38.00 124,300 9.65 years $35.98
------- ---------- ------
$17.13 - $38.00 537,780 5.29 years $28.28
======= ========== ======
The range of exercise prices for Class G Common Stock options is $17.88 to
$23.31; the weighted average remaining life is 8.8 years.
The weighted average fair value of options granted for CMS Energy Common
Stock was $6.38 in 1997, $6.94 in 1996, and $5.37 in 1995. The weighted
average fair value of options granted for Class G Common Stock was $1.87
in 1997, $1.59 in 1996 and $1.57 in 1995. Fair value is estimated using
the Black-Scholes model, a mathematical formula used to value options
traded on securities exchanges, with the following assumptions:
Years Ended December 31 1997 1996 1995
CMS Energy Common Stock Options
Risk-free interest rate 6.06% 6.63% 6.17%
Expected stock price volatility 17.43% 24.08% 27.12%
Expected dividend rate $ .30 $ .27 $ .24
Expected option life 5 years 5 years 5 years
Class G Common Stock Options
Risk-free interest rate 6.06% 6.63% 6.17%
Expected stock price volatility 18.05% 16.19% 16.19%
Expected dividend rate $ .31 $ .295 $ .295
Expected option life 5 years 5 years 5 years
Consumers applies Accounting Principles Board Opinion 25 and related
interpretations in accounting for the Performance Incentive Stock Plan.
Since stock options are granted at market price, no compensation cost has
been recognized for stock options granted under the plan. If compensation
cost for stock options had been determined in accordance with SFAS 123,
Accounting for Stock-Based Compensation, Consumers' net income would have
decreased by less than $1 million for 1997, 1996 and 1995. The
compensation cost charged against income for restricted stock was $2
million in 1997, $1 million in 1996, and $2 million in 1995.
12: Retirement Benefits
Postretirement Benefit Plans Other Than Pensions: Consumers provides
certain health care and life insurance benefits for retired employees and
their eligible dependents. Substantially all employees may become
eligible for such benefits if they attain retirement status while working
for Consumers or its subsidiaries. Consumers adopted the required
accounting for these benefits effective in 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 16). The MPSC authorized recovery of the electric utility
portion of these costs in 1994 over 18 years and the gas utility portion
in 1996 over 16 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. At December 31, 1997, Consumers had recorded
a regulatory asset and liability of $7 million. By early 1997, the FERC
had authorized recovery of these costs. Consumers funds the benefits
using external Voluntary Employee Beneficiary Associations. Funding of
the benefits coincides with Consumers' recovery in rates.
Retiree health care costs at December 31, 1997 are based on the assumption
that costs would increase 6.5 percent in 1998, then decrease gradually to
5.5 percent in 2004 and thereafter. The health care cost trend rate
assumption significantly affects the amounts reported. For example, a one
percentage point increase in each year's estimated health care cost
assumption would increase the accumulated postretirement benefit
obligation at December 31, 1997 by $81 million and the aggregate of the
service and interest cost components of net periodic postretirement
benefit costs for 1997 by $8 million.
Years Ended December 31 1997 1996 1995
Weighted average discount rate 7.50% 7.75% 7.50%
Expected long-term rate of return
on plan assets 7.00% 7.00% 7.00%
Net postretirement benefit costs for the health care benefits and life
insurance benefits consisted of:
In Millions
Years Ended December 31 1997 1996 1995
Service cost $ 9 $ 12 $ 11
Interest cost 40 41 39
Actual return on assets (37) (14) (4)
Net amortization and deferral 25 8 1
---- ---- ----
Net postretirement benefit costs $ 37 $ 47 $ 47
==== ==== ====
The funded status of the postretirement benefit plans for the health care
benefits and life insurance benefits is reconciled with the liability
recorded at December 31 as follows:
In Millions
1997 1996
Actuarial present value of estimated benefits
Retirees $ 321 $ 327
Eligible for retirement 67 65
Active (upon retirement) 182 183
----- -----
Accumulated postretirement benefit obligation 570 575
Plan assets (primarily stocks, bonds and money
market investments) at fair value 219 134
----- -----
Accumulated postretirement benefit obligation less
than (in excess of) plan assets (351) (441)
Unrecognized prior service cost (1) 6
Unrecognized net gain from experience different
than assumed (84) (37)
----- -----
Recorded liability $(436) $(472)
===== =====
The health care portion of the accumulated postretirement benefit
obligation is $554 million and $560 million at December 31, 1997 and 1996,
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 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,
1997 and 1996, trust assets were $24 million and $18 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 1997 and
1996. A contribution of $9 million was made in 1995. Amounts presented
below for the Pension Plan include amounts for employees of CMS Energy and
non-utility affiliates which were not distinguishable from the plan's
total assets.
Years Ended December 31 1997 1996 1995
Discount rate 7.50% 7.75% 7.50%
Rate of compensation increase 3.75% 4.00% 4.50%
Expected long-term rate of return
on assets 9.25% 9.25% 9.25%
Net Pension Plan and SERP costs consisted of:
In Millions
Years Ended December 31 1997 1996 1995
Service cost $ 25 $ 25 $ 22
Interest cost 60 57 54
Actual return on plan assets (164) (63) (168)
Net amortization and deferral 93 (6) 103
----- ----- -----
Net periodic pension cost $ 14 $ 13 $ 11
===== ===== =====
The funded status of the CMS Energy Pension Plan and Consumers SERP
reconciled to the pension liability recorded at December 31 was:
In Millions
Pension Plan SERP
1997 1996 1997 1996
Actuarial present value of estimated
benefits
Vested $ 548 $ 504 $ 12 $ 13
Non-vested 79 72 - -
----- ----- ----- -----
Accumulated benefit obligation 627 576 12 13
Provision for future pay increases 165 158 6 8
----- ----- ----- -----
Projected benefit obligation 792 734 18 21
Plan assets (primarily stocks and bonds,
including $153 in 1997 and $117 in
1996 of CMS Energy Common Stock)
at fair value 882 779 - -
----- ----- ----- -----
Projected benefit obligation less than
(in excess of) plan assets 90 45 (18) (21)
Unrecognized net (gain) loss from
experience different than assumed (157) (99) 3 1
Unrecognized prior service cost 35 39 1 1
Unrecognized net transition (asset)
obligation (22) (27) - -
----- ----- ----- -----
Recorded liability $ (54) $ (42) $ (14) $ (19)
===== ===== ===== =====
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.
Defined Contribution Plan: Consumers provides a defined contribution
401(k) plan to all U.S. employees of CMS Energy and its subsidiaries which
are at least 80 percent owned and have adopted the plan. Consumers will
match at least one-half of the amount contributed by employees up to 3
percent of their salary. These contributions to the plan are invested in
CMS Energy Common Stock. Amounts charged to expense for this plan were
$18 million in 1997, $17 million in 1996 and $16 million in 1995.
13: Leases
Consumers leases various assets, including vehicles, rail cars, aircraft,
construction equipment, computer equipment, nuclear fuel and buildings.
Consumers' nuclear fuel capital leasing arrangement expires in November
1999, yet 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
$47 million as of December 31, 1997. Consumers generally is responsible
for payment of taxes, maintenance, operating costs, and insurance.
Minimum rental commitments under Consumers' non-cancelable leases at
December 31, 1997, were:
In Millions
Capital Operating
Leases Leases
1998 $ 42 $ 4
1999 44 3
2000 13 3
2001 12 3
2002 9 2
2003 and thereafter 7 15
---- ----
Total minimum lease payments 127 $ 30
Less imputed interest 19 ====
----
Present value of net minimum lease payments 108
Less current portion 34
----
Non-current portion $ 74
====
Consumers recovers lease 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
for the years ended December 31, 1997, 1996 and 1995, were $3 million, $3
million and $7 million, respectively.
Capital lease expenses for the years ended December 31, 1997, 1996 and
1995 were $43 million, $45 million and $45 million, respectively.
Included in these amounts for the years ended 1997, 1996 and 1995, are
nuclear fuel lease expenses of $25 million for each year.
14: Jointly Owned Utility Facilities
Consumers is responsible for providing its share of financing for the
jointly owned facilities. The direct expenses of the joint plants are
included in Consumers' operating expenses. The following table indicates
the extent of Consumers' investment in jointly owned utility facilities:
In Millions
December 31 1997 1996
Net investment
Ludington - 51 percent $112 $116
Campbell Unit 3 - 93.3 percent 314 329
Transmission lines - various 34 35
Accumulated depreciation
Ludington $ 88 $ 84
Campbell Unit 3 265 252
Transmission lines 14 14
15: 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 $49 million, $42 million
and $39 million for 1997, 1996 and 1995, respectively. Other segment
information follows:
In Millions
Years Ended December 31 1997 1996 1995
Depreciation, depletion and
amortization
Electric $ 296 $ 282 $ 272
Gas 93 87 83
Other 2 2 2
------- ------- -------
$ 391 $ 371 $ 357
======= ======= =======
Identifiable assets
Electric (a) $ 4,472 $ 4,505 $ 4,522
Gas (a) 1,644 1,709 1,690
Other 833 811 742
------- ------- -------
$ 6,949 $ 7,025 $ 6,954
======= ======= =======
Capital expenditures (b)
Electric $ 255 $ 310 $ 328
Gas 116 137 126
------- ------- -------
$ 371 $ 447 $ 454
======= ======= =======
(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 Consolidated Statements 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.
16: 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. These costs are being recovered through rates over
periods of up to 15 years.
An accounting standard, effective 1996, requires impairment losses on
long-lived assets to be recognized when an asset's book value exceeds its
expected future cash flows (undiscounted). The standard also imposes
stricter criteria for retention of regulatory-created assets by requiring
that such assets be probable of future recovery at each balance sheet
date. There was no impact on financial position or results of operations
upon adoption because management believes these assets will be recovered.
For further discussion, see Outlook - Application of SFAS 71 in the MD&A.
In Millions
December 31 1997 1996
Postretirement benefits (Note 12) $ 429 $ 460
Income taxes (Note 9) 172 158
Abandoned Midland project 93 113
Manufactured gas plant sites (Note 6) 47 47
DSM - deferred costs 46 60
Uranium enrichment facility 22 23
Ludington Fish Settlement 12 14
Other 16 43
----- -----
Total regulatory assets $ 837 $ 918
===== =====
Income taxes (Note 9) $(226) $(224)
DSM - deferred revenue (24) (25)
----- -----
Total regulatory liabilities $(250) $(249)
===== =====
17: Summarized Financial Information of Significant Related Energy
Supplier
Under the PPA with the MCV Partnership discussed in Note 3, Consumers'
1997 obligation to purchase electric capacity from the MCV Partnership was
15 percent of Consumers' owned and contracted capacity. Summarized
financial information of the MCV Partnership follows:
Statements of Income (unaudited)
In Millions
Years Ended December 31 1997 1996 1995
Operating revenue (a) $ 652 $ 645 $ 618
Operating expenses 435 417 386
----- ----- -----
Operating income 217 228 232
Other expense, net 154 162 171
----- ----- -----
Net income before cumulative
effect of accounting change 63 66 61
Cumulative effect of change in
method of accounting for
property tax 15 - -
----- ----- -----
Net income $ 78 $ 66 $ 61
===== ===== =====
Balance Sheets (unaudited)
In Millions
December 31 1997 1996
Assets
Current assets (b) $ 362 $ 316
Property, plant and equipment, net 1,820 1,889
Other assets 169 159
------ ------
$2,351 $2,364
====== ======
Liabilities and Partners' Equity
Current liabilities $ 285 $ 235
Long-term debt and other
non-current liabilities (c) 1,789 1,930
Partners' equity (d) 277 199
------ ------
$2,351 $2,364
====== ======
(a) Revenue from Consumers totaled $609 million, $598 million and $571
million for 1997, 1996, and 1995, respectively.
(b) Receivables from Consumers totaled $54 million and $52 million, at
December 31, 1997 and 1996, respectively.
(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, 1997 and 1996, lease obligations of $1.52 billion and $1.58
billion, respectively, were owed to the owner trust. CMS Holdings' share
of the interest and principal portion for the 1997 lease payments was $62
million and $28 million, respectively, and for the 1996 lease payments was
$64 million and $25 million, respectively. The lease payments service
$1.0 billion and $1.1 billion in non-recourse debt outstanding as of
December 31, 1997 and 1996, respectively, of the owner-trust. FMLP's debt
is secured by the MCV Partnership's lease obligations, assets, and
operating revenues. For 1997 and 1996, the owner-trust made debt payments
(including interest) of $192 million. FMLP's earnings for 1997, 1996, and
1995 were $20 million, $17 million, and $14 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. Covenants contained in financing
agreements prohibit the MCV Partnership from paying distributions until
certain financial test requirements are met. Consumers does not
anticipate receiving a cash distribution in the near future.
<PAGE>
<PAGE> 144
ARTHUR ANDERSEN LLP
Report of Independent Public Accountants
To Consumers Energy Company:
We have audited the accompanying consolidated balance sheets and
consolidated statements of long-term debt and preferred stock of CONSUMERS
ENERGY COMPANY (a Michigan corporation and wholly owned subsidiary of
CMS Energy Corporation) and subsidiaries as of December 31, 1997 and 1996,
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, 1997. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on
these 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 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 Energy
Company and subsidiaries as of December 31, 1997 and 1996, and the results
of their operations and their cash flows for each of the three years in
the period ended December 31, 1997 in conformity with generally accepted
accounting principles.
Arthur Andersen LLP
Detroit, Michigan,
January 26, 1998.
<PAGE>
<PAGE> 145
<TABLE>
Quarterly Financial Information Consumers Energy Company
In Millions
1997 (Unaudited) 1996 (Unaudited)
<CAPTION>
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 (a) $1,127 $829 $799 $1,014 $1,143 $799 $798 $1,030
Pretax operating
income (a) $193 $137 $149 $154 $202 $130 $147 $132
Net income $97 $63 $80 $81 $102 $58 $69 $67
Preferred stock dividends $7 $7 $6 $5 $7 $7 $7 $7
Preferred securities
distributions $2 $2 $3 $5 $1 $2 $2 $3
Net income available to
common stockholder $88 $54 $71 $71 $94 $49 $60 $57
<FN>
(a) Amounts in 1996 were restated for comparative purposes.
</TABLE>
<PAGE>
<PAGE> 146
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. Financial
Statements and Supplementary Data 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 Report dated December 23, 1997 covering matters reported
pursuant to Item 5. Other Events.
Consumers
Current Report dated December 23, 1997 covering matters reported
pursuant to Item 5. Other Events.
(c) Exhibits, including those incorporated by reference (see also
Exhibit volume).
<PAGE>
<PAGE>
CMS ENERGY AND CONSUMERS EXHIBITS
PREVIOUSLY FILED
WITH FILE AS EXHIBIT
EXHIBITS NUMBER NUMBER DESCRIPTION
(3)(a) 33-60007 (3)(i) - Restated Articles of Incorporation of
CMS Energy.
(3)(b) 1-9513 (3)(b) - By-Laws of CMS Energy. (1994 Form
10-K)
(3)(c) 1-5611 (3)(c) - Certificate of Amendment to the
Articles of Incorporation dated March
10, 1997 and Restated Articles of
Incorporation dated March 25, 1994.
(1996 Form 10-K)
(3)(d) 1-5611 (3)(d) - By-Laws of Consumers. (1996 Form 10-
K)
(4)(a) 2-65973 (b)(1)-4 - Indenture dated as of September 1,
1945, between Consumers 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.
- Indentures Supplemental thereto:
33-31866 (4)(d) - 67th 11/15/89
33-41126 (4)(c) - 68th 06/15/93
1-5611 (4) - 69th 09/15/93 (Form 8-K dated
Sep. 21, 1993)
- 70th 02/01/98
- 71st 03/06/98
(4)(b) 1-5611 (4)(b) - Indenture dated as of January 1, 1996
between Consumers and The Bank of New
York, as Trustee. (1995 Form 10-K)
- Indentures Supplemental thereto:
1-5611 (4)(b) - 1st 01/18/96 (1995 Form 10-K)
1-5611 (4)(a) - 2nd 09/04/97 (3rd qtr 1997 Form 10-
Q)
(4)(c) - Indenture dated as of February 1,
1998 between Consumers and The Chase
Manhattan Bank, as Trustee.
(4)(d) 33-47629 (4)(a) - Indenture dated as of September 15,
1992 between CMS Energy and NBD Bank,
as Trustee.
- Indentures Supplemental thereto:
1-9513 (4) - 3rd 05/06/97 (1st qtr 1997 Form 10-
Q)
333-37241 (4)(a) - 4th 09/26/97
1-9513 (4)(b) - 5th 11/04/97 (3rd qtr 1997 Form 10-
Q)
- 6th 01/13/98
(4)(e) 1-9513 (4a) - Indenture between CMS Energy and The
Chase Manhattan Bank, as Trustee,
dated as of January 15, 1994. (Form
8-K dated March 29, 1994)
- Indentures Supplemental thereto:
1-9513 (4b) - 1st 01/20/94 (Form 8-K dated
March 29, 1994)
1-9513 (4) - 2nd 03/19/96 (1st qtr 1996 Form 10-
Q)
1-9513 (4)(a)(iv) - 3rd 03/17/97 (Form 8-K dated May 1,
1997)
333-36115 (4)(d) - 4th 09/17/97
(4)(f) 1-9513 (4a) - Indenture dated as of June 1, 1997,
between CMS Energy and The Bank of
New York, as trustee. (Form 8-K dated
July 1, 1997)
- Indentures Supplemental thereto:
1-9513 (4b) - 1st 06/20/97 (Form 8-K dated July 1,
1997)
(10)(a) 1-9513 (4) - Credit Agreement dated as of July 2,
1997, among CMS Energy, the
Administrative Agent, Collateral
Agent, Documentation Agent,
Syndication Agent, Co-Agents and Lead
Manager, all as defined therein, and
the Exhibits and Schedules thereto.
(2nd qtr 1997 Form 10-Q)
(10)(b) 1-5611 (10) - Credit Agreement dated as of July 14,
1995 among Consumers, the Banks named
therein and the First National Bank
of Chicago, as Administrative Agent.
(10)(c) 1-9513 (10)(c) - Employment Agreement dated as of
August 1, 1990 among Consumers,
CMS Energy and William T.
McCormick, Jr. (1990 Form 10-K)
(10)(d) 1-5611 (10)(i) - Employment Agreement effective as of
June 15, 1988 among Consumers,
CMS Energy and Victor J. Fryling.
(1988 Form 10-K)
(10)(e) 1-5611 (10)(f) - Employment Agreement dated May 26,
1989 between Consumers and Michael G.
Morris. (1990 Form 10-K)
(10)(f) 1-5611 (10)(h) - Employment Agreement dated May 26,
1989 between Consumers and David A.
Mikelonis. (1991 10-K)
(10)(g) 1-9513 (10)(f) - Employment Agreement dated May 26,
1989 among Consumers, CMS Energy and
John W. Clark. (1990 Form 10-K)
(10)(h) 1-5611 (10)(j) - Employment Agreement dated March 25,
1992 between Consumers, CMS Energy
and Alan M. Wright. (1992 Form 10-K)
(10)(i) 1-5611 (10)(k) - Employment Agreement dated March 25,
1992 between Consumers and Paul A.
Elbert. (1992 10-K)
(10)(j) 1-9513 (10) - Employment Agreement dated January
12, 1996 between CMS Energy and
Rodger A. Kershner. (1995 Form 10-K)
(10)(k) 1-9513 (10)(m) - Employment Agreement dated April 2,
1996 between CMS Energy and William
J. Haener. (1996 Form 10-K)
(10)(l) 1-9513 (10)(n) - Employment Agreement dated April 4,
1996 between CMS Energy,
CMS Enterprises and James W. Cook.
(1996 Form 10-K)
(10)(m) 1-5611 (10)(o) - Employment Agreement dated March 19,
1996 between Consumers and David W.
Joos. (1996 Form 10-K)
(10)(n) - Employment Agreement dated December
4, 1997 between Consumers and Robert
A. Fenech.
(10)(o) 1-5611 (10)(g) - Consumers' Executive Stock Option and
Stock Appreciation Rights Plan
effective December 1, 1989. (1990
Form 10-K)
(10)(p) 33-61595 (4)(d) - CMS Energy's Performance Incentive
Stock Plan effective as of
December 1, 1989.
(10)(q) 1-9513 (10)(m) - CMS Deferred Salary Savings Plan
effective January 1, 1994. (1993
Form 10-K)
(10)(r) 1-5611 (10)(n) - CMS Energy and Consumers Annual
Executive Incentive Compensation Plan
effective January 1, 1986, as amended
January 1995. (1995 Form 10-K)
(10)(s) 1-5611 (10)(o) - Consumers' Supplemental Executive
Retirement Plan effective November 1,
1990. (1993 Form 10-K)
(10)(t) 33-37977 4.1 - 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.
(MCV Partnership)
Indenture Supplemental thereto:
33-37977 4.2 - Supplement No. 1 dated as of June 1,
1990. (MCV Partnership)
(10)(u) 1-9513 (28)(b) - Collateral Trust Indenture dated as
of June 1, 1990 among Midland Funding
Corporation I, MCV Partnership and
United States Trust Company of New
York, Trustee. (3rd qtr 1990 Form
10-Q)
Indenture Supplemental thereto:
33-37977 4.4 - Supplement No. 1 dated as of June 1,
1990. (MCV Partnership)
(10)(v) 1-9513 (10)(v) - Amended and Restated Investor Partner
Tax Indemnification Agreement dated
as of June 1, 1990 among Investor
Partners, CMS Midland as Indemnitor
and CMS Energy as Guarantor. (1990
Form 10-K)
(10)(w) 1-9513 (19)(d)** - Environmental Agreement dated as of
June 1, 1990 made by CMS Energy to
The Connecticut National Bank and
Others. (1990 Form 10-K)
(10)(x) 1-9513 (10)(z)** - Indemnity Agreement dated as of
June 1, 1990 made by CMS Energy to
Midland Cogeneration Venture Limited
Partnership. (1990 Form 10-K)
(10)(y) 1-9513 (10)(aa)** - Environmental Agreement dated as of
June 1, 1990 made by CMS Energy 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.
(1990 Form 10-K)
(10)(z) 33-37977 10.4 - Amended and Restated Participation
Agreement dated as of June 1, 1990
among MCV 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.
(MCV Partnership)
1-5611 (10)(w) - Amendment No. 1 dated as of July 1,
1991. (1991 Form 10-K)
(10)(aa) 33-37977 10.4 - Power Purchase Agreement dated as of
July 17, 1986 between MCV Partnership
and Consumers. (MCV Partnership)
Amendments thereto:
33-37977 10.5 - Amendment No. 1 dated September 10,
1987. (MCV Partnership)
33-37977 10.6 - Amendment No. 2 dated March 18, 1988.
(MCV Partnership)
33-37977 10.7 - Amendment No. 3 dated August 28,
1989. (MCV Partnership)
33-37977 10.8 - Amendment No. 4A dated May 25, 1989.
(MCV Partnership)
(10)(bb) 1-5611 (10)(y) - Unwind Agreement dated as of
December 10, 1991 by and among
CMS Energy, Midland Group, Ltd.,
Consumers, CMS Midland, Inc., MEC
Development Corp. and CMS Midland
Holdings Company. (1991 Form 10-K)
(10)(cc) 1-5611 (10)(z) - Stipulated AGE Release Amount Payment
Agreement dated as of June 1, 1990,
among CMS Energy, Consumers and The
Dow Chemical Company. (1991 Form 10-
K)
(10)(dd) 1-5611 (10)(aa)** - Parent Guaranty dated as of June 14,
1990 from CMS Energy 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.
(1991 Form 10-K)
(12) - Statements regarding computation of
CMS Energy's Ratio of Earnings to
Fixed Charges
(21)(a) - Subsidiaries of CMS Energy.
(21)(b) - Subsidiaries of Consumers.
(23) - Consents of experts for CMS Energy.
(24)(a) - Power of Attorney for CMS Energy.
(24)(b) - Power of Attorney for Consumers.
(27)(a) - Financial Data Schedule UT for
CMS Energy .
(27)(b) - Restated Financial Data Schedule UT
for CMS Energy.
(27)(c) - Financial Data Schedule UT for
Consumers.
(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> 151
Index to Financial Statement Schedules
Page
Schedule II Valuation and Qualifying Accounts and Reserves
1997, 1996 and 1995:
CMS Energy Corporation . . . . . . . . . . . . 152
Consumers Power Company. . . . . . . . . . . . 152
Report of Independent Public Accountants
CMS Energy Corporation . . . . . . . . . . . . 153
Consumers Power Company. . . . . . . . . . . . 153
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> 152
<TABLE>
CMS ENERGY CORPORATION
Schedule II - Valuation and Qualifying Accounts and Reserves
Years Ended December 31, 1997, 1996 and 1995
(In Millions)
<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 Energy Company):
1997 $10 $8 $1 $12(a) $7
1996 $4 $21 - $15(a) $10
1995 $5 $10 - $11(a) $4
<FN>
(a) Accounts receivable written off including net uncollectible amounts of $11 in 1997, $13 in 1996 and $10 in
1995 charged directly to operating expense and credited to accounts receivable.
</TABLE>
<TABLE>
CONSUMERS ENERGY COMPANY
Schedule II - Valuation and Qualifying Accounts and Reserves
Years Ended December 31, 1997, 1996 and 1995
(In Millions)
<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:
1997 $10 $8 - $12(a) $6
1996 $3 $21 - $14(a) $10
1995 $4 $10 - $11(a) $3
<FN>
(a) Accounts receivable written off including net uncollectible amounts of $11 in 1997, $13 in 1996 and $10 in
1995 charged directly to operating expense and credited to accounts receivable.
</TABLE>
<PAGE>
<PAGE> 153
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
1997 Annual Report to shareholders incorporated by reference in this Form
10-K, and have issued our report thereon dated January 26, 1998. 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, 1998.
Report of Independent Public Accountants
To Consumers Energy Company:
We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements included in Consumers Energy
Company's 1997 Annual Report to shareholders incorporated by reference in
this Form 10-K, and have issued our report thereon dated January 26, 1998.
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, 1998.
<PAGE>
<PAGE> 154
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 24th day of March 1998.
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 24th day of March
1998.
Signature Title
(i) Principal executive officer:
Chairman of the Board,
Chief Executive Officer
William T. McCormick, Jr. and Director
William T. McCormick, Jr.
(ii) Principal financial officer:
Senior Vice President,
and Chief Financial Officer
A. M. Wright
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:
John M Deutch* Director
John M. Deutch
Signature Title
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
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
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Consumers Energy Company has duly caused this Annual
Report to be signed on its behalf by the undersigned, thereunto duly
authorized, on the 24th day of March 1998.
CONSUMERS ENERGY COMPANY
By William T. McMormick 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 Energy Company and in the capacities and on the 24th day of
March 1998.
Signature Title
(i) Principal executive officer:
Vice Chairman of the Board,
President and Director
Victor J. Fryling
Victor J.Fryling
(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:
John M Deutch* Director
John M. Deutch SignatureTitle
James J. Duderstadt* Director
James J. Duderstadt
K R Flaherty* Director
Kathleen R. Flaherty
Earl D. Holton* Director
Earl D. Holton
William T. McCormick, Jr.* Director
William T. McCormick, Jr.
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>
SEVENTIETH SUPPLEMENTAL INDENTURE
Providing among other things for
FIRST MORTGAGE BONDS,
Senior Note Series A due February 1, 2008
______________
Dated as of February 1, 1998
______________
CONSUMERS ENERGY COMPANY
TO
THE CHASE MANHATTAN BANK,
Trustee
Counterpart ______ of 100<PAGE>
<PAGE> 1
SEVENTIETH SUPPLEMENTAL INDENTURE, dated as of February 1, 1998
(herein sometimes referred to as "this Supplemental Indenture"), made and
entered into by and between CONSUMERS ENERGY COMPANY, a corporation
organized and existing under the laws of the State of Michigan, with its
principal executive office and place of business at 212 West Michigan
Avenue, in Jackson, Jackson County, Michigan 49201, formerly known as
Consumers Power Company, (hereinafter sometimes referred to as the
"Company"), and THE CHASE MANHATTAN BANK, a corporation organized and
existing under the laws of the State of New York, with its corporate trust
offices at 450 W. 33rd Street, in the Borough of Manhattan, The City of
New York, New York 10001 (hereinafter sometimes referred to as the
"Trustee"), as Trustee under the Indenture dated as of September 1, 1945
between Consumers Power Company, a Maine corporation (hereinafter
sometimes referred to as the "Maine corporation"), and City Bank Farmers
Trust Company (Citibank, N.A., successor, hereinafter sometimes referred
to as the "Predecessor Trustee"), securing bonds issued and to be issued
as provided therein (hereinafter sometimes referred to as the
"Indenture"),
WHEREAS at the close of business on January 30, 1959, City Bank
Farmers Trust Company was converted into a national banking association
under the title "First National City Trust Company"; and
WHEREAS at the close of business on January 15, 1963, First
National City Trust Company was merged into First National City Bank; and
WHEREAS at the close of business on October 31, 1968, First
National City Bank was merged into The City Bank of New York, National
Association, the name of which was thereupon changed to First National
City Bank; and
WHEREAS effective March 1, 1976, the name of First National City
Bank was changed to Citibank, N.A.; and
WHEREAS effective July 16, 1984, Manufacturers Hanover Trust
Company succeeded Citibank, N.A. as Trustee under the Indenture; and
WHEREAS effective June 19, 1992, Chemical Bank succeeded by merger
to Manufacturers Hanover Trust Company as Trustee under the Indenture; and
WHEREAS effective July 15, 1996, The Chase Manhattan Bank
(National Association), merged with and into Chemical Bank which
thereafter was renamed The Chase Manhattan Bank as Trustee under the
Indenture; and
WHEREAS the Indenture was executed and delivered for the purpose
of securing such bonds as may from time to time be issued under and in
accordance with the terms of the Indenture, the aggregate principal amount
of bonds to be secured thereby being limited to $5,000,000,000 at any one
time outstanding (except as provided in Section 2.01 of the Indenture),
and the Indenture describes and sets forth the property conveyed thereby
and is filed in the Office of the Secretary of State of the State of
Michigan and is of record in the Office of the Register of Deeds of each
county in the State of Michigan in which this Supplemental Indenture is to
be recorded; and
WHEREAS the Indenture has been supplemented and amended by various
indentures supplemental thereto, each of which is filed in the Office of
the Secretary of State of the State of Michigan and is of record in the
Office of the Register of Deeds of each county in the State of Michigan in
which this Supplemental Indenture is to be recorded; and
WHEREAS the Company and the Maine corporation entered into an
Agreement of Merger and Consolidation, dated as of February 14, 1968,
which provided for the Maine corporation to merge into the Company; and
WHEREAS the effective date of such Agreement of Merger and
Consolidation was June 6, 1968, upon which date the Maine corporation was
merged into the Company and the name of the Company was changed from
"Consumers Power Company of Michigan" to "Consumers Power Company"; and
WHEREAS the Company and the Predecessor Trustee entered into a
Sixteenth Supplemental Indenture, dated as of June 4, 1968, which
provided, among other things, for the assumption of the Indenture by the
Company; and
WHEREAS said Sixteenth Supplemental Indenture became effective on
the effective date of such Agreement of Merger and Consolidation; and
WHEREAS the Company has succeeded to and has been substituted for
the Maine corporation under the Indenture with the same effect as if it
had been named therein as the mortgagor corporation; and
WHEREAS effective March 11, 1997, the name of Consumers Power
Company was changed to Consumers Energy Company; and
WHEREAS, the Company has entered into an Indenture dated as of
February 1, 1998 ("Senior Note Indenture") with The Chase Manhattan Bank,
as trustee ("Senior Note Trustee") providing for the issuance of notes
thereunder, and pursuant to such Senior Note Indenture the Company has
agreed to issue to the Senior Note Trustee, as security for the notes
("Senior Notes") to be issued thereunder, a new series of bonds under the
Indenture at the time of authentication of each series of Senior Notes
issued under such Senior Note Indenture; and
WHEREAS, for such purposes the Company desires to issue a new
series of bonds, to be designated First Mortgage Bonds, Senior Note
Series A due February 1, 2008 each of which bonds shall also bear the
descriptive title "First Mortgage Bond" (hereinafter provided for and
hereinafter sometimes referred to as the "Senior Note Series A Bonds"),
the bonds of which series are to be issued as registered bonds without
coupons and are to bear interest at the rate per annum specified herein
and are to mature February 1, 2008; and
WHEREAS, the Senior Note Series A Bonds shall be issued to the
Senior Note Trustee in connection with the issuance by the Company of its
Senior Notes, 6 3/8% due 2008, Series A (the "Series A Notes"); and
WHEREAS each of the registered bonds without coupons of the Senior
Note Series A Bonds and the Trustee's Authentication Certificate thereon
are to be substantially in the following forms, to wit:<PAGE>
<PAGE> 3
[FORM OF REGISTERED BOND OF THE SENIOR NOTE SERIES A BONDS]
[FACE]
NOTWITHSTANDING ANY PROVISIONS HEREOF OR IN THE INDENTURE, THIS
BOND IS NOT ASSIGNABLE OR TRANSFERABLE EXCEPT AS PERMITTED OR REQUIRED BY
SECTION 4.04 OF THE INDENTURE, DATED AS OF FEBRUARY 1, 1998 BETWEEN
CONSUMERS ENERGY COMPANY AND THE CHASE MANHATTAN BANK, AS TRUSTEE.
CONSUMERS ENERGY COMPANY
FIRST MORTGAGE BOND, SENIOR NOTE SERIES A DUE FEBRUARY 1, 2008
No. $
CONSUMERS ENERGY COMPANY, a Michigan corporation (hereinafter
called the "Company"), for value received, hereby promises to pay to The
Chase Manhattan Bank, as trustee under the Senior Note Indenture
hereinafter referred to, or registered assigns, the principal sum of Two
Hundred Fifty Million Dollars on February 1, 2008, and to pay to the
registered holder hereof interest on said sum from the latest semi-annual
interest payment date to which interest has been paid on the bonds of this
series preceding the date hereof, unless the date hereof be an interest
payment date to which interest is being paid, in which case from the date
hereof, or unless the date hereof is prior to August 1, 1998, in which
case from February 1, 1998, (or if this bond is dated between the record
date for any interest payment date and such interest payment date, then
from such interest payment date, provided, however, that if the Company
shall default in payment of the interest due on such interest payment
date, then from the next preceding semi-annual interest payment date to
which interest has been paid on the bonds of this series, or if such
interest payment date is August 1, 1998, from February 1, 1998), at the
rate per annum of 6 3/8%, except that during the continuation of a
Registration Default, as defined in the Registration Rights Agreement
referred to below, the rate shall be 6 5/8% per annum, until the principal
hereof shall have become due and payable, payable on each February 1 and
August 1 in each year, commencing August 1, 1998.
Under an Indenture dated as of February 1, 1998 (hereinafter
sometimes referred to as the "Senior Note Indenture"), between Consumers
Energy Company and The Chase Manhattan Bank, as trustee (hereinafter
sometimes called the "Senior Note Trustee"), the Company will issue,
concurrently with the issuance of this bond, an issue of notes under the
Senior Note Indenture entitled Senior Notes, 6 3/8% due 2008, Series A
(the "Series A Notes"). Pursuant to Article IV of the Senior Note
Indenture, this bond is issued to the Senior Note Trustee to secure any
and all obligations of the Company under the Series A Notes and any other
series of senior notes from time to time outstanding under the Senior Note
Indenture. Payment of principal of, or premium, if any, or interest on,
the Series A Notes (and on any Exchange Notes (as such term is defined on
the reverse hereof and in the supplemental indenture pursuant to which
this bond has been issued (the "Supplemental Indenture") issued in
exchange therefor) shall constitute payments on this bond as further
provided herein and in the Supplemental Indenture.
The provisions of this bond are continued on the reverse hereof
and such continued provisions shall for all purposes have the same effect
as though fully set forth at this place.
This bond shall not be valid or become obligatory for any purpose
unless and until it shall have been authenticated by the execution by the
Trustee or its successor in trust under the Indenture of the certificate
hereon.
<PAGE>
<PAGE> 4
IN WITNESS WHEREOF, Consumers Energy Company has caused this bond
to be executed in its name by its Chairman of the Board, its President or
one of its Vice Presidents by his signature or a facsimile thereof, and
its corporate seal or a facsimile thereof to be affixed hereto or
imprinted hereon and attested by its Secretary or one of its Assistant
Secretaries by his signature or a facsimile thereof.
CONSUMERS ENERGY COMPANY,
Dated: By ________________________
Its ________________________
Attest: _________________________
Secretary
[FORM OF TRUSTEE'S AUTHENTICATION CERTIFICATE]
TRUSTEE'S AUTHENTICATION CERTIFICATE
This is one of the bonds, of the series designated therein,
described in the within-mentioned Indenture.
THE CHASE MANHATTAN BANK, Trustee
By ________________________
Authorized Officer
[REVERSE]
CONSUMERS ENERGY COMPANY
FIRST MORTGAGE BOND, SENIOR NOTE SERIES A DUE FEBRUARY 1, 2008
The interest payable on any February 1 and August 1 will, subject
to certain exceptions provided in the Indenture hereinafter mentioned, be
paid to the person in whose name this bond is registered at the close of
business on the record date, which shall be January 15 or July 15, as the
case may be, next preceding such interest payment date, or, if such
January 15 or July 15 shall be a legal holiday or a day on which banking
institutions in the City of New York, New York or the City of Detroit,
Michigan are authorized by law to close, the next succeeding day which
shall not be a legal holiday or a day on which such institutions are so
authorized to close. The principal of and the premium, if any, and the
interest on this bond shall be payable at the office or agency of the
Company in the City of Jackson, Michigan designated for that purpose, in
any coin or currency of the United States of America which at the time of
payment is legal tender for public and private debts.
Upon any payment of the principal of, premium, if any, and
interest on, all or any portion of the Series A Notes (or Exchange Notes
(as defined below) issued in exchange therefor), whether at maturity or
prior to maturity by redemption or otherwise or upon provision for the
payment thereof having been made in accordance with Section 5.01(a) of the
Senior Note Indenture, Senior Note Series A Bonds in a principal amount
equal to the principal amount of such Series A Notes (or Exchange Notes)
and having both a corresponding maturity date and interest rate shall, to
the extent of such payment of principal, premium, if any, and interest,
be deemed paid and the obligation of the Company thereunder to make such
payment shall be discharged to such extent and, in the case of the payment
of principal (and premium, if any) such bonds of said series shall be
surrendered to the Company for cancellation as provided in Section 4.08 of
the Senior Note Indenture. The Trustee may at anytime and all times
conclusively assume that the obligation of the Company to make payments
with respect to the principal of and premium, if any, and interest on the
Senior Note Series A Bonds, so far as such payments at the time have
become due, has been fully satisfied and discharged pursuant to the
foregoing sentence unless and until the Trustee shall have received a
written notice from the Senior Note Trustee signed by one of its officers
stating (i) that timely payment of, or premium or interest on, the
Series A Notes has not been made, (ii) that the Company is in arrears as
to the payments required to be made by it to the Senior Note Trustee
pursuant to the Senior Note Indenture, and (iii) the amount of the
arrearage.
For purposes of Section 4.09 of the Senior Note Indenture, this
bond shall be deemed to be the "related series of Senior Note First
Mortgage Bonds" in respect of (i) the Series A Notes, and (ii) any
Exchange Notes.
This bond is one of the bonds issued and to be issued from time to
time under and in accordance with and all secured by an Indenture dated as
of September 1, 1945, given by the Company (or its predecessor, Consumers
Power Company, a Maine corporation) to City Bank Farmers Trust Company
(The Chase Manhattan Bank, successor) (hereinafter sometimes referred to
as the "Trustee"), and indentures supplemental thereto, heretofore or
hereafter executed, to which indenture and indentures supplemental thereto
(hereinafter referred to collectively as the "Indenture") reference is
hereby made for a description of the property mortgaged and pledged, the
nature and extent of the security and the rights, duties and immunities
thereunder of the Trustee and the rights of the holders of said bonds and
of the Trustee and of the Company in respect of such security, and the
limitations on such rights. By the terms of the Indenture, the bonds to
be secured thereby are issuable in series which may vary as to date,
amount, date of maturity, rate of interest and in other respects as
provided in the Indenture.
The Indenture contains provisions permitting the Company and the
Trustee, with the consent of the holders of not less than seventy-five per
centum in principal amount of the bonds (exclusive of bonds disqualified
by reason of the Company's interest therein) at the time outstanding,
including, if more than one series of bonds shall be at the time
outstanding, not less than sixty per centum in principal amount of each
series affected, to effect, by an indenture supplemental to the Indenture,
modifications or alterations of the Indenture and of the rights and
obligations of the Company and the rights of the holders of the bonds and
coupons; provided, however, that no such modification or alteration shall
be made without the written approval or consent of the holder hereof which
will (a) extend the maturity of this bond or reduce the rate or extend the
time of payment of interest hereon or reduce the amount of the principal
hereof, or (b) permit the creation of any lien, not otherwise permitted,
prior to or on a parity with the lien of the Indenture, or (c) reduce the
percentage of the principal amount of the bonds the holders of which are
required to approve any such supplemental indenture.
The Company reserves the right, without any consent, vote or other
action by holders of bonds of this series or any other series created
after the Sixty-eighth Supplemental Indenture to amend the Indenture to
reduce the percentage of the principal amount of bonds the holders of
which are required to approve any supplemental indenture (other than any
supplemental indenture which is subject to the proviso contained in the
immediately preceding sentence) (a) from not less than seventy-five per
centum (including sixty per centum of each series affected) to not less
than a majority in principal amount of the bonds at the time outstanding
or (b) in case fewer than all series are affected, not less than a
majority in principal amount of the bonds of all affected series, voting
together.
This bond is not redeemable except on the respective dates, in the
respective principal amounts and for the respective redemption prices
which correspond to the redemption dates for, the principal amounts to be
redeemed of, and the redemption prices for, the Series A Notes (and any
senior notes issued in exchange therefor pursuant to the Registration
Rights Agreement, dated February 13, 1998, between the Company and Morgan
Stanley & Co. Incorporated, Salomon Brothers Inc., BancAmerica Robertson
Stephens and Goldman, Sachs & Co. (the "Exchange Notes")), and except upon
written demand of the Senior Note Trustee following the occurrence of an
Event of Default under the Senior Note Indenture and the acceleration of
the senior notes, as provided in Section 8.01 of the Senior Note
Indenture. This bond is not redeemable by the operation of the
improvement fund or the maintenance and replacement provisions of the
Indenture or with the proceeds of released property.
This bond shall not be assignable or transferable except as
permitted or required by Section 4.04 of the Senior Note Indenture. Any
such transfer shall be effected at the Investor Services Department of the
Company, as transfer agent (hereinafter referred to as "corporate trust
office"). This bond shall be exchangeable for other registered bonds of
the same series, in the manner and upon the conditions prescribed in the
Indenture, upon the surrender of such bonds at said corporate trust office
of the transfer agent. However, notwithstanding the provisions of
Section 2.05 of the Indenture, no charge shall be made upon any
registration of transfer or exchange of bonds of said series other than
for any tax or taxes or other governmental charge required to be paid by
the Company.
As provided in Section 4.11 of the Senior Note Indenture, from and
after the Release Date (as defined in the Senior Note Indenture), the
obligations of the Company with respect to this bond shall be deemed to be
satisfied and discharged, this bond shall cease to secure in any manner
any senior notes outstanding under the Senior Note Indenture, and,
pursuant to Section 4.08 of the Senior Note Indenture, the Senior Note
Trustee shall forthwith deliver this bond to the Company for cancellation.
In case of certain defaults as specified in the Indenture, the
principal of this bond may be declared or may become due and payable on
the conditions, at the time, in the manner and with the effect provided in
the Indenture.
No recourse shall be had for the payment of the principal of or
premium, if any, or interest on this bond, or for any claim based hereon,
or otherwise in respect hereof or of the Indenture, to or against any
incorporator, stockholder, director or officer, past, present or future,
as such, of the Company, or of any predecessor or successor company,
either directly or through the Company, or such predecessor or successor
company, or otherwise, under any constitution or statute or rule of law,
or by the enforcement of any assessment or penalty, or otherwise, all such
liability of incorporators, stockholders, directors and officers, as such,
being waived and released by the holder and owner hereof by the acceptance
of this bond and being likewise waived and released by the terms of the
Indenture.
____________________
AND WHEREAS all acts and things necessary to make the bonds of the
Senior Note Series A Bonds, when duly executed by the Company and
authenticated by the Trustee or its agent and issued as prescribed in the
Indenture, as heretofore supplemented and amended, and this Supplemental
Indenture provided, the valid, binding and legal obligations of the
Company, and to constitute the Indenture, as supplemented and amended as
aforesaid, as well as by this Supplemental Indenture, a valid, binding and
legal instrument for the security thereof, have been done and performed,
and the creation, execution and delivery of this Supplemental Indenture
and the creation, execution and issuance of bonds subject to the terms
hereof and of the Indenture, as so supplemented and amended, have in all
respects been duly authorized;
NOW, THEREFORE, in consideration of the premises, of the
acceptance and purchase by the holders thereof of the bonds issued and to
be issued under the Indenture, as supplemented and amended as above set
forth, and of the sum of One Dollar duly paid by the Trustee to the
Company, and of other good and valuable considerations, the receipt
whereof is hereby acknowledged, and for the purpose of securing the due
and punctual payment of the principal of and premium, if any, and interest
on all bonds now outstanding under the Indenture and the $250,000,000
principal amount of Senior Note Series A Bonds proposed to be issued
initially and all other bonds which shall be issued under the Indenture,
as supplemented and amended from time to time, and for the purpose of
securing the faithful performance and observance of all covenants and
conditions therein, and in any indenture supplemental thereto, set forth,
the Company has given, granted, bargained, sold, released, transferred,
assigned, hypothecated, pledged, mortgaged, confirmed, set over,
warranted, alienated and conveyed and by these presents does give, grant,
bargain, sell, release, transfer, assign, hypothecate, pledge, mortgage,
confirm, set over, warrant, alien and convey unto The Chase Manhattan
Bank, as Trustee, as provided in the Indenture, and its successor or
successors in the trust thereby and hereby created and to its or their
assigns forever, all the right, title and interest of the Company in and
to all the property, described in Section 13 hereof, together (subject to
the provisions of Article X of the Indenture) with the tolls, rents,
revenues, issues, earnings, income, products and profits thereof,
excepting, however, the property, interests and rights specifically
excepted from the lien of the Indenture as set forth in the Indenture.
TOGETHER WITH all and singular the tenements, hereditaments and
appurtenances belonging or in any wise appertaining to the premises,
property, franchises and rights, or any thereof, referred to in the
foregoing granting clause, with the reversion and reversions, remainder
and remainders and (subject to the provisions of Article X of the
Indenture) the tolls, rents, revenues, issues, earnings, income, products
and profits thereof, and all the estate, right, title and interest and
claim whatsoever, at law as well as in equity, which the Company now has
or may hereafter acquire in and to the aforesaid premises, property,
franchises and rights and every part and parcel thereof.
SUBJECT, HOWEVER, with respect to such premises, property,
franchises and rights, to excepted encumbrances as said term is defined in
Section 1.02 of the Indenture, and subject also to all defects and
limitations of title and to all encumbrances existing at the time of
acquisition.
TO HAVE AND TO HOLD all said premises, property, franchises and
rights hereby conveyed, assigned, pledged or mortgaged, or intended so to
be, unto the Trustee, its successor or successors in trust and their
assigns forever;
BUT IN TRUST, NEVERTHELESS, with power of sale for the equal and
proportionate benefit and security of the holders of all bonds now or
hereafter authenticated and delivered under and secured by the Indenture
and interest coupons appurtenant thereto, pursuant to the provisions of
the Indenture and of any supplemental indenture, and for the enforcement
of the payment of said bonds and coupons when payable and the performance
of and compliance with the covenants and conditions of the Indenture and
of any supplemental indenture, without any preference, distinction or
priority as to lien or otherwise of any bond or bonds over others by
reason of the difference in time of the actual authentication, delivery,
issue, sale or negotiation thereof or for any other reason whatsoever,
except as otherwise expressly provided in the Indenture; and so that each
and every bond now or hereafter authenticated and delivered thereunder
shall have the same lien, and so that the principal of and premium, if
any, and interest on every such bond shall, subject to the terms thereof,
be equally and proportionately secured, as if it had been made, executed,
authenticated, delivered, sold and negotiated simultaneously with the
execution and delivery thereof.
AND IT IS EXPRESSLY DECLARED by the Company that all bonds
authenticated and delivered under and secured by the Indenture, as
supplemented and amended as above set forth, are to be issued,
authenticated and delivered, and all said premises, property, franchises
and rights hereby and by the Indenture and indentures supplemental thereto
conveyed, assigned, pledged or mortgaged, or intended so to be, are to be
dealt with and disposed of under, upon and subject to the terms,
conditions, stipulations, covenants, agreements, trusts, uses and purposes
expressed in the Indenture, as supplemented and amended as above set
forth, and the parties hereto mutually agree as follows:
SECTION 1. There is hereby created one series of bonds (the
"Senior Note Series A Bonds") designated as hereinabove provided, which
shall also bear the descriptive title "First Mortgage Bond", and the form
thereof shall be substantially as hereinbefore set forth. Senior Note
Series A Bonds shall be issued in the aggregate principal amount of
$250,000,000, shall mature on February 1, 2008 and shall be issued only as
registered bonds without coupons in denominations of $1,000 and any
multiple thereof. The serial numbers of bonds of the Senior Note Series A
Bonds shall be such as may be approved by any officer of the Company, the
execution thereof by any such officer either manually or by facsimile
signature to be conclusive evidence of such approval. Senior Note
Series A Bonds shall bear interest at a rate of 6 3/8% per annum, except
that during the continuation of a Registration Default, as defined in the
Registration Rights Agreement dated February 13, 1998, between the Company
and Morgan Stanley & Co. Incorporated, Salomon Brothers Inc., BancAmerica
Robertson Stephens and Goldman, Sachs & Co. shall bear interest at a rate
of 6 5/8% per annum until the principal thereof shall have become due and
payable, payable semi-annually on February 1 and August 1 in each year
commencing August 1, 1998. The principal of and the premium, if any, and
the interest on said bonds shall be payable in any coin or currency of the
United States of America which at the time of payment is legal tender for
public and private debts, at the office or agency of the Company in the
City of Jackson, Michigan designated for that purpose.
Upon any payment of the principal of, premium, if any, and
interest on, all or any portion of the Series A Notes (or Exchange Notes
(as defined below) issued in exchange therefor), whether at maturity or
prior to maturity by redemption or otherwise or upon provision for the
payment thereof having been made in accordance with Section 5.01(a) of the
Senior Note Indenture, Senior Note Series A Bonds in a principal amount
equal to the principal amount of such Series A Notes (or Exchange Notes)
and having both a corresponding maturity date and interest rate shall, to
the extent of such payment of principal, premium, if any, and interest, be
deemed paid and the obligation of the Company thereunder to make such
payment shall be discharged to such extent and, in the case of the payment
of principal (and premium, if any) such bonds of said series shall be
surrendered to the Company for cancellation as provided in Section 4.08 of
the Senior Note Indenture. The Trustee may at anytime and all times
conclusively assume that the obligation of the Company to make payments
with respect to the principal of and premium, if any, and interest on the
Senior Note Series A Bonds, so far as such payments at the time have
become due, has been fully satisfied and discharged pursuant to the
foregoing sentence unless and until the Trustee shall have received a
written notice from the Senior Note Trustee signed by one of its officers
stating (i) that timely payment of, or premium or interest on, the
Series A Notes has not been so made, (ii) that the Company is in arrears
as to the payments required to be made by it to the Senior Note Trustee
pursuant to the Senior Note Indenture, and (iii) the amount of the
arrearage.
Each Senior Note Series A Bond is to be issued to and registered
in the name of The Chase Manhattan Bank, as trustee, or a successor
trustee (said trustee or any successor trustee being hereinafter referred
to as the "Senior Note Trustee") under the Indenture, dated as of
February 1, 1998 (hereinafter sometimes referred to as the "Senior Note
Indenture") between Consumers Energy Company and the Senior Note Trustee,
to secure any and all obligations of the Company under the Series A Notes
and any other series of senior notes from time to time outstanding under
the Senior Note Indenture.
The Senior Note Series A Bonds shall not be assignable or
transferable except as permitted or required by Section 4.04 of the Senior
Note Indenture. Any such transfer shall be effected at the Investor
Services Department of the Company, as transfer agent (hereinafter
referred to as "corporate trust office"). The Senior Note Series A Bonds
shall be exchangeable for other registered bonds of the same series, in
the manner and upon the conditions prescribed in the Indenture, upon the
surrender of such bonds at said corporate trust office of the transfer
agent. However, notwithstanding the provisions of Section 2.05 of the
Indenture, no charge shall be made upon any registration of transfer or
exchange of bonds of said series other than for any tax or taxes or other
governmental charge required to be paid by the Company.
SECTION 2. Senior Note Series A Bonds shall not be redeemable
except on the respective dates, in the respective principal amounts and
for the respective redemption prices which correspond to the redemption
dates for, the principal amounts to be redeemed of, and the redemption
prices for, the Series A Notes (and any Exchange Notes (as defined in the
form of Senior Note Series A Bonds hereinabove set forth)) and except as
set forth in Section 3 hereof.
In the event the Company redeems any Series A Notes (or Exchange
Notes) prior to maturity in accordance with the provisions of the Senior
Note Indenture, the Senior Note Trustee shall on the same date deliver to
the Company the Senior Note Series A Bonds in principal amounts
corresponding to the Series A Notes (or Exchange Notes) so redeemed, as
provided in Section 4.08 of the Senior Note Indenture. The Company agrees
to give the Senior Note Trustee notice of any such redemption of the
Series A Notes (or Exchange Notes) on or before the date fixed for any
such redemption.
Senior Notes Series A Bonds are not redeemable by the operation of
the improvement fund or the maintenance and replacement provisions of this
Indenture or with the proceeds of released property.
SECTION 3. Upon the occurrence of an Event of Default under the
Senior Note Indenture and the acceleration of the Series A Notes (or
Exchange Notes), the Senior Note Series A Bonds shall be redeemable in
whole upon receipt by the Trustee of a written demand (hereinafter called
a "Redemption Demand") from the Senior Note Trustee stating that there has
occurred under the Senior Note Indenture both an Event of Default and a
declaration of acceleration of payment of principal, accrued interest and
premium, if any, on the Series A Notes (or Exchange Notes), specifying the
last date to which interest on such notes has been paid (such date being
hereinafter referred to as the "Initial Interest Accrual Date") and
demanding redemption of Senior Note Series A Bonds. The Company waives
any right it may have to prior notice of such redemption under the
Indenture. Upon surrender of the Senior Note Series A Bonds by the Senior
Note Trustee to the Trustee, the Senior Note Series A Bonds shall be
redeemed at a redemption price equal to the principal amount thereof plus
accrued interest thereon from the Initial Interest Accrual Date to the
date of the Redemption Demand; provided, however, that in the event of a
recision of acceleration of senior notes pursuant to the last paragraph of
Section 8.01(a) of the Senior Note Indenture, then any Redemption Demand
shall thereby be deemed to be rescinded by the Senior Note Trustee; but no
such recision or annulment shall extend to or affect any subsequent
default or impair any right consequent thereon.
SECTION 4. For purposes of Section 4.09 of the Senior Note
Indenture, this bond shall be deemed to be the "related series of Senior
Note First Mortgage Bonds" in respect of (i) the Series A Notes, and
(ii) any Exchange Notes.
SECTION 5. As provided in Section 4.11 of the Senior Note
Indenture, from and after the Release Date (as defined in the Senior Note
Indenture), the obligations of the Company with respect to the Senior Note
Series A Bonds (the "Bonds") shall be deemed to be satisfied and
discharged, the Bonds shall cease to secure in any manner any senior notes
outstanding under the Senior Note Indenture, and, pursuant to Section 4.08
of the Senior Note Indenture, the Senior Note Trustee shall forthwith
deliver the Bonds to the Company for cancellation.
SECTION 6. The Company reserves the right, without any consent,
vote or other action by the holder of the Senior Note Series A Bonds or
the holders of any Series A Notes or any Exchange Notes, or of any
subsequent series of bonds issued under the Indenture, to make such
amendments to the Indenture, as supplemented, as shall be necessary in
order to amend Section 17.02 to read as follows:
SECTION 17.02. With the consent of the holders of not
less than a majority in principal amount of the bonds at the time
outstanding or their attorneys-in-fact duly authorized, or, if
fewer than all series are affected, not less than a majority in
principal amount of the bonds at the time outstanding of each
series the rights of the holders of which are affected, voting
together, the Company, when authorized by a resolution, and the
Trustee may from time to time and at any time enter into an
indenture or indentures supplemental hereto 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 modifying the rights and obligations of the Company
and the rights of the holders of any of the bonds and coupons;
provided, however, that no such supplemental indenture shall
(1) extend the maturity of any of the bonds or reduce the rate or
extend the time of payment of interest thereon, or reduce the
amount of the principal thereof, or reduce any premium payable on
the redemption thereof, without the consent of the holder of each
bond so affected, or (2) permit the creation of any lien, not
otherwise permitted, prior to or on a parity with the lien of this
Indenture, without the consent of the holders of all the bonds
then outstanding, or (3) reduce the aforesaid percentage of the
principal amount of bonds the holders of which are required to
approve any such supplemental indenture, without the consent of
the holders of all the bonds then outstanding. For the purposes
of this Section, bonds shall be deemed to be affected by a
supplemental indenture if such supplemental indenture adversely
affects or diminishes the rights of holders thereof against the
Company or against its property. The Trustee may in its
discretion determine whether or not, in accordance with the
foregoing, bonds of any particular series would be affected by any
supplemental indenture and any such determination shall be
conclusive upon the holders of bonds of such series and all other
series. Subject to the provisions of Sections 16.02 and 16.03
hereof, the Trustee shall not be liable for any determination made
in good faith in connection herewith.
Upon the written request of the Company, accompanied by a
resolution authorizing the execution of any such supplemental
indenture, and upon the filing with the Trustee of evidence of the
consent of bondholders as aforesaid (the instrument or instruments
evidencing such consent to be dated within one year of such
request), the Trustee shall join with the Company 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
bondholders 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.
The Company and the Trustee, if they so elect, and either
before or after such consent has been obtained, may require the
holder of any bond consenting to the execution of any such
supplemental indenture to submit his bond to the Trustee or to ask
such bank, banker or trust company as may be designated by the
Trustee for the purpose, for the notation thereon of the fact that
the holder of such bond has consented to the execution of such
supplemental indenture, and in such case such notation, in form
satisfactory to the Trustee, shall be made upon all bonds so
submitted, and such bonds bearing such notation shall forthwith be
returned to the persons entitled thereto.
Prior to the execution by the Company and the Trustee of
any supplemental indenture pursuant to the provisions of this
Section, the Company shall publish a notice, setting forth in
general terms the substance of such supplemental indenture, at
least once in one daily newspaper of general circulation in each
city in which the principal of any of the bonds shall be payable,
or, if all bonds outstanding shall be registered bonds without
coupons or coupon bonds registered as to principal, such notice
shall be sufficiently given if mailed, first class, postage
prepaid, and registered if the Company so elects, to each
registered holder of bonds at the last address of such holder
appearing on the registry books, such publication or mailing, as
the case may be, to be made not less than thirty days prior to
such execution. Any failure of the Company 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 7. As supplemented and amended as above set forth, the
Indenture is in all respects ratified and confirmed, and the Indenture and
all indentures supplemental thereto shall be read, taken and construed as
one and the same instrument.
SECTION 8. Nothing contained in this Supplemental Indenture
shall, or shall be construed to, confer upon any person other than a
holder of bonds issued under the Indenture, as supplemented and amended as
above set forth, the Company, the Trustee and the Senior Note Trustee, for
the benefit of the holder or holders of the Series A Notes and Exchange
Notes, any right or interest to avail himself of any benefit under any
provision of the Indenture, as so supplemented and amended.
SECTION 9. The Trustee assumes no responsibility for or in
respect of the validity or sufficiency of this Supplemental Indenture or
of the Indenture as hereby supplemented or the due execution hereof by the
Company or for or in respect of the recitals and statements contained
herein (other than those contained in the sixth and seventh recitals
hereof), all of which recitals and statements are made solely by the
Company.
SECTION 10. This Supplemental Indenture may be simultaneously
executed in several counterparts and all such counterparts executed and
delivered, each as an original, shall constitute but one and the same
instrument.
SECTION 11. In the event the date of any notice required or
permitted hereunder or the date of maturity of interest on or principal of
the Senior Note Series A Bonds or the date fixed for redemption or
repayment of the Senior Note Series A Bonds shall not be a Business Day,
then (notwithstanding any other provision of the Indenture or of any
supplemental indenture thereto) such notice or such 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 fixed for such notice or 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. "Business Day" means, with
respect to this Section 11, a day of the year on which banks are not
required or authorized to close in New York City or Detroit, Michigan.
SECTION 12. This Supplemental Indenture and the Senior Note
Series A Bonds 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.
SECTION 13. Detailed Description of Property Mortgaged:
I.
ELECTRIC GENERATING PLANTS AND DAMS
All the electric generating plants and stations of the Company,
constructed or otherwise acquired by it and not heretofore described in
the Indenture or any supplement thereto and not heretofore released from
the lien of the Indenture, including all powerhouses, buildings,
reservoirs, dams, pipelines, flumes, structures and works and the land on
which the same are situated and all water rights and all other lands and
easements, rights of way, permits, privileges, towers, poles, wires,
machinery, equipment, appliances, appurtenances and supplies and all other
property, real or personal, forming a part of or appertaining to or used,
occupied or enjoyed in connection with such plants and stations or any of
them, or adjacent thereto.
Ownership interest of the Company in addition to the Ludington
Pumped Storage Plant, located in:
Sections 10, 14 and 15, Township 17 North, Range 18 West, Summit
Township and Section 3, Township 17 North, Range 18 West,
Pere Marquette Township and Sections 24 and 34, Township 18 North,
Range 18 West, Pere Marquette Township, all in Mason County,
Michigan.
Ownership interest of the Company in addition to the Campbell
Plant Site located in:
Sections 10, 11 and 15, Township 6 North, Range 16 West,
Port Sheldon Township, Ottawa County, Michigan.
II.
ELECTRIC TRANSMISSION LINES
All the electric transmission lines of the Company, constructed or
otherwise acquired by it and not heretofore described in the Indenture or
any supplement thereto and not heretofore released from the lien of the
Indenture, including towers, poles, pole lines, wires, switches, switch
racks, switchboards, insulators and other appliances and equipment, and
all other property, real or personal, forming a part of or appertaining to
or used, occupied or enjoyed in connection with such transmission lines or
any of them or adjacent thereto; together with all real property, rights
of way, easements, permits, privileges, franchises and rights for or
relating to the construction, maintenance or operation thereof, through,
over, under or upon any private property or any public streets or
highways, within as well as without the corporate limits of any municipal
corporation, including lines in the State of Michigan connecting the
points indicated as follows:
(a) Transmission Lines:
A complete transmission line commencing at the Fort Custer
Substation in the Northwest 1/4 of Section 32 and running Southwesterly to
the existing Lafayette Substation in the Southeast 1/4 of the Southwest
1/4 of Section 34, all in Township 1 North, Range 8 West, Bedford
Township, Calhoun County, Michigan, a distance of 2.4 miles. 138,000 kV
A complete transmission line commencing at Eaton Rapids Municipal
Substation in the East 1/2 of the Northwest 1/4 of Section 34, Township 2
North, Range 3 West, Eaton Rapids Township, Eaton County, Michigan, and
running Southerly and Easterly to a point on the existing Broughwell-Kipp
Road transmission line in the Northwest 1/4 of the Northwest 1/4 of
Section 6, Township 1 North, Range 1 West, Leslie Township, Ingham County,
Michigan, a distance of 9.6 miles. 138,000 kV
A complete transmission line commencing at Pavilion Substation in the
North 1/2 of the Northwest 1/4 of Section 6, Town 3 South, Range 10 West,
Pavilion Township, Kalamazoo County, running North and East to a point on
the existing Cork Street-Upjohn transmission line in the Southeast 1/4 of
the Southeast 1/4 of Section 32, Township 2 South, Range 10 West, Comstock
Township, Kalamazoo County, Michigan, a distance of 1.68 miles. 138,000 kV
A complete transmission line commencing at Stonegate Substation in
the Southwest 1/4 of Section 16, Township 6 North, Range 12 West, City of
Grandville, Kent County, Michigan, and running Southerly to a point on the
existing Campbell-Buck Creek transmission line in the Southwest 1/4 of the
Southwest 1/4 of Section 5, Township 5 North, Range 12 West, Bryon
Township, Kent County, Michigan, a distance of 5.2 miles. 138,000 kV
A complete transmission line commencing at the Lacks Substation in
the South 1/2 of the Southwest 1/4 of Section 25 and running generally
Southerly to a point on the existing Kendrick to East Paris-Plaster Creek
transmission line in the South 1/2 of the Southwest 1/4 of Section 25, all
in Township 6 North, Range 11 West, City of Kentwood, Kent County,
Michigan, a distance of .18 of a mile. 138,000 kV
A complete transmission line commencing at Diesel Tech Substation
located in the Northeast 1/4, Section 25 and running Southeasterly to a
point on the existing Kendrick-Campbell-Spaulding transmission line in the
Northeast 1/4 of Section 36, all in Township 6 North, Range 11 West, City
of Kentwood, Kent County, Michigan, a distance of .72 of a mile. 138,000 kV
A complete transmission line commencing at the Gaines Substation in
the Northwest 1/4 of the Southeast 1/4 of Section 13, Township 5 North,
Range 11 West, Gaines Township, and running Northerly and Easterly to the
East Paris (Customer) Substation in the Northeast 1/4 of the Southwest 1/4
of Section 36, Township 6 North, Range 11 West, Paris Township, all in
Kent County, Michigan, a distance of 3.7 miles.
138,000 kV
A complete transmission line commencing at the Plaster Creek
Substation in the Southwest 1/4 of the Southeast 1/4 of Section 26, and
running Southwesterly to a point on the Gaines-East Paris transmission
line in the North 1/2 of the Southwest 1/4 of Section 36, all in Township
6 North, Range 11 West, Paris Township, Kent County, Michigan, a distance
of 1.8 miles. 138,000 kV
A complete transmission line commencing at Chaffee Substation in the
Northeast 1/4 of Section 19, City of Wyoming and running Southerly and
Easterly to a point on the existing Beals Road-Broadmoor transmission line
in the Southwest 1/4 of the Southwest 1/4 of Section 29, City of Kentwood,
all in Township 6 North, Range 11 West, Kent County, Michigan, a distance
of 1.5 miles. 138,000 kV
A complete transmission line commencing at Beecher Substation in the
Southwest 1/4 of the Southeast 1/4 of Section 1 and running Westerly to
the Solvay Substation in the Northwest 1/4 of the Northeast 1/4 of Section
9, all in Township 7 South, Range 3 East, Madison Township, Lenawee
County, Michigan, a distance of 3.5 miles. 138,000 kV
A complete transmission line commencing at the Pere Marquette
Substation in the Northeast 1/4 of Section 20 and running Northerly and
Westerly to the existing Amber Substation in the Southeast 1/4 of Section
18, all in Township 18 North, Range 17 West, Amber Township, Mason County,
Michigan, a distance of 1.4 miles. 138,000 kV
A complete transmission line commencing at the Michigan Power
Substation in the Southeast 1/4 of Section 23 and running Easterly and
Northerly to the existing Pere Marquette Substation in the Northeast 1/4
of Section 20, all in Township 18 North, Range 17 West, Amber Township,
Mason County, Michigan, a distance of 3.5 miles. 138,000 kV
A complete transmission line commencing at the Lorin Substation in
the Northwest 1/4 of the Northeast 1/4 of Section 33 and running Westerly
and Southerly to a point on the existing B. C. Cobb-Muskegon Heights #2
line in the Southeast 1/4 of the Northwest 1/4 of Section 33, all in
Township 10 North, Range 16 West, Muskegon Township, Muskegon County,
Michigan, a distance of 0.5 mile.
138,000 kV
A complete transmission line commencing at the Northern Fibre
Substation in the Northeast 1/4 of the Northwest 1/4 of Section 32 and
running Easterly to a point on the existing Campbell to Black River line
in Section 34, all in Township 6 North, Range 15 West, Olive Township,
Ottawa County, Michigan, a distance of 2.25 miles. 138,000 KV
A complete transmission line commencing at the Manlius Substation in
the Southeast 1/4 of the Southwest 1/4 of Section 10 and running Westerly
and Southerly to a point on the existing Beals Road to Scott Lake line in
the Northeast 1/4 of the Northwest 1/4 of Section 15, all in Township 3
North, Range 15 West, Manlius Township, Allegan County, Michigan, a
distance of .15 of a mile. 46,000 kV
A complete transmission line commencing at the Williams Substation in
the Southwest 1/4 of the Northwest 1/4 of Section 34, Township 2 North,
Range 13 West, Allegan Township, and running generally Southerly and
Westerly to a point on the existing Scott Lake-Williams to Merson line in
the East 1/2 of the Southeast 1/4 of Section 8, Township 1 North, Range 13
West, Trowbridge Township, all in Allegan County, Michigan, a distance of
4 miles. 46,000 kV
A complete transmission line commencing at Antrim Substation and
running Northwesterly to a point on the existing Elk Rapids transmission
line, all in the Northeast 1/4 of the Northwest 1/4 of Section 21,
Township 29 North, Range 9 West, Elk Rapids Township, Antrim County,
Michigan, a distance of .15 of a mile. 46,000 kV
A complete transmission line commencing at Caine Substation and
running Northerly to a point on the existing Kellogg-Post Cereal
transmission line, all in the Southwest 1/4 of the Northeast 1/4 of
Section 8, Township 2 South, Range 7 West, Emmett Township, Calhoun
County, Michigan, a distance of .12 of a mile. 46,000 kV
A complete transmission line commencing at Cellasto (Customer)
Substation in the Southwest 1/4 of the Northeast 1/4 of Section 26 and
running West and South to a point on the existing Verona-Marshall to EYT
transmission line in the Northeast 1/4 of the Southwest 1/4 of Section 26,
all in Township 2 South, Range 6 West, City of Marshall, Calhoun County,
Michigan, a distance of .15 of a mile. 46,000 kV
A complete transmission line commencing at the Cheney Limestone
(Customer) Substation and running Northwesterly to a point in the existing
Veronna-Bellevue transmission line, all in the Northeast 1/4 of Section
30, Township 1 North, Range 6 West, Bellevue Township, Eaton County,
Michigan, a distance of .4 miles. 46,000 kV
A complete transmission line commencing at Bay Harbor Substation in
the East 1/2 of the Northwest 1/4 of Section 10, running Northeasterly and
Southeasterly to a point on the existing Penn Dixie Spur in the Southeast
1/4 of the Northeast 1/4 of Section 10, all in Township 34 North, Range 6
West, Resort Township, Emmet County, Michigan, a distance of .4 of a mile.
46,000 kV
A complete transmission line commencing at Beers Road Substation in
the Southwest 1/4 of the Southeast 1/4 of Section 13, Township 6 North,
Range 5 East, Gaines Township, Genesee County, Michigan, and running
Northerly to a point on the existing Dort-Flint-Hemphill transmission line
in the Southwest 1/4 of the Northwest 1/4 of Section 6, Township 6 North,
Range 6 East, Mundy Township, Genesee County, Michigan, a distance of 3.4
miles. 46,000 kV
A complete transmission line commencing at the Beveridge Substation
in the Northwest 1/4 of the Southeast 1/4 of Section 21, running Southerly
and Easterly to a point on the existing Beveridge-Van Slyke transmission
line located in the Southwest 1/4 of the Northeast 1/4 of Section 27, all
in Township 7 North, Range 6 East, Flint Township, Genesee County,
Michigan, a distance of 1.9 miles. 46,000 kV
A complete transmission line commencing at the Leslie Industrial
Substation in the Southwest 1/4 of the Northwest 1/4 of Section 27 and
running generally Westerly and Southerly to a point on the existing Mason-
Blackstone line in the Southwest 1/4 of Section 28, all in Township 1
North, Range 1 West, Leslie Township, Ingham County, Michigan, a distance
of 1.3 miles. 46,000 kV
A complete transmission line commencing at Certainteed Substation and
running Westerly and Southerly to a point on the existing Lefere Spur
transmission line, all in the Southwest 1/4 of the Northeast 1/4 of
Section 2, Township 3 South, Range 1 West, City of Jackson, Jackson
County, Michigan, a distance of .25 of a mile. 46,000 kV
A complete transmission line commencing at Tru-Turn Substation in the
Northeast 14 of the Southeast 1/4 of Section 36, Township 4 South, Range 4
West, Homer Township, Calhoun County, and running Easterly to a point on
the existing Concord to Rice Creek-Parma line in the North 1/2 of the
Southwest 1/4 of Section 27, Township 3 South, Range 3 West, Concord
Township, Jackson County, Michigan, a distance of 4 miles. 46,000 kV
A complete transmission line commencing at Kalamazoo Metal Substation
in the Northeast 1/4 of the Northwest 1/4 of Section 23, running
Northwesterly and Southwesterly to a pont on the existing Parkway Spur
transmission line in the Northeast 1/4 of the Northeast 1/4 of Section 22,
all in Township 2 South, Range 11 West, Kalamazoo Township, Kalamazoo
County, Michigan, a distance of .6 of a mile.
46,000 kV
A complete transmission line commencing at McClain Substation and
running Easterly and Northerly to a point on the existing Morrow-Phillips
transmission line, all in the Southeast 1/4 of Section 30, Township 2
South, Range 10 West, Comstock Township, Kalamazoo County, Michigan, a
distance of .5 of a mile.
46,000 kV
A complete transmission line commencing at Clay Substation and
running Northerly to a point on the existing Beals Road-Scott Lake
transmission line, all in the Southeast 1/4 of the Southwest 1/4 of
Section 25, Township 6 North, Range 12 West, Wyoming Township, Kent
County, Michigan, a distance of .62 of a mile. 46,000 kV
A complete transmission line commencing at Lee Street Substation and
running Southeasterly to a point on the existing Beals Road-Wealthy
transmission line, all in the Northeast 1/4 of the Southeast 1/4 of
Section 2, Township 6 North, Range 12 West, Wyoming Township, Kent County,
Michigan, a distance of .3 of a mile. 46,000 kV
A complete transmission line commencing at Seneca Substation in the
Southwest 1/4 of the Northeast 1/4 of Section 7, Township 8 South, Range 2
East, Seneca Township, Lenawee County, Michigan, and running Westerly to a
point on the existing Morenci Spur transmission line in the Southeast 1/4
of the Northeast 1/4 of Section 12, Township 8 South, Range 1 East, Medina
Township, Lenawee County, Michigan, a distance of .6 of a mile. 46,000 kV
A complete transmission line commencing at Klar Customer Substation
and running Southerly and Easterly to a point on the existing Amber-
Washington transmission line, all in the Northeast 1/4 of the Southeast
1/4 of Section 23, Township 18 North, Range 18 West, Pere Marquette
Township, Mason County, Michigan, a distance of .2 of mile. 46,000 kV
A complete transmission line commencing at the Mona Lake Spur in the
Southeast 1/4 of the Northwest 1/4 of Section 16, Township 9 North, Range
16 West, Fruitport Township, and running generally Northwesterly to a
point on the existing Muskegon Heights-Maple Grove line in the South 1/2
of Section 31, Township 10 North, Range 16 West, City of Muskegon Heights,
all in Muskegon County, Michigan, a distance of 3.5 miles. 46,000 kV
A complete transmission line commencing at a point on the Mona View
Spur and running West to a point on the Norton Spur, all in the North 1/2
of Section 21, Township 9 North, Range 16 West, Fruitport Township,
Muskegon County, a distance of .2 miles. 46,000 kV
A complete transmission line commencing at the Ottawa Generating
Substation in the Southwest 1/4 of the Southeast 1/4 of Section 27 and
running Easterly and Northerly to a point on the existing Rochester
Products-Four Mile line in the North 1/2 of Section 26, all in Township 8
North, Range 14 West, Polkton Township, Ottawa County, Michigan, a
distance of 2.5 miles. 46,000 kV
A complete transmission line commencing at the Landwer Substation in
the Southeast 1/4 of the Southwest 1/4 of Section 4 and running Northerly
to a point on the existing Taft Spur taps Norton to Muskegon Heights-
Cleveland line in the Northeast 1/4 of Section 4, all in Township 8 North,
Range 16 West, Spring Lake Township, Ottawa County, Michigan, a distance
of .5 of a mile. 46,000 kV
A complete transmission line commencing at the Logistic Substation in
the Southwest 1/4 of the Southeast 1/4 of Section 17 and running Easterly
and Northerly to a point on the existing Ransom-Black River line in the
West 1/2 of the West 1/2 of Section 16, all in Township 5 North, Range 14
West, Zeeland Township, Ottawa County, Michigan, a distance of 1.5 miles.
46,000 kV
A complete transmission line commencing at Parr Road Substation in
the Northeast 1/4 of the Northwest 1/4 of Section 1, running Southerly and
Southwesterly to a point on the existing Cement City-Manchester
transmission line in the Southwest 1/4 of the Southeast 1/4 of Section 11,
all in Township 5 South, Range 3 East, Manchester Township, Washtenaw
County, Michigan, a distance of 2.75 miles.
46,000 kV
b) Also all the real property, rights of way, easements, permits,
privileges and rights for or relating to the construction, maintenance or
operation of certain transmission lines, the land and rights for which are
owned by the Company, which are either not built or now being constructed,
as follows:
A complete transmission line commencing at Silbond Substation located
in the Southwest 1/4, Section 17, Township 8 South, Range 3 East,
Fairfield Township, Lenawee County, Michigan and running Northerly and
Easterly to Fairfield Substation in the Northeast 1/4 of Section 32,
Township 7 South, Range 3 East, Madison Township, Lenawee County,
Michigan, a distance of 4.0 miles. 46,000 kV
III.
ELECTRIC DISTRIBUTION SYSTEMS
All the electric distribution systems of the Company, constructed or
otherwise acquired by it and not heretofore described in the Indenture or
any supplement thereto and not heretofore released from the lien of the
Indenture, including substations, transformers, switchboards, towers,
poles, wires, insulators, subways, trenches, conduits, manholes, cables,
meters and other appliances and equipment, and all other property, real or
personal, forming a part of or appertaining to or used, occupied or
enjoyed in connection with such distribution systems or any of them or
adjacent thereto; together with all real property, rights of way,
easements, permits, privileges, franchises, grants and rights, for or
relating to the construction, maintenance or operation thereof, through,
over, under or upon any private property or any public streets or highways
within as well as without the corporate limits of any municipal
corporation, including, in the State of Michigan, systems in or near the
cities, villages and townships named in the following tabulation. Such
electric distribution systems are or may be operated by authority of
certain state or legislative grants and/or of certain local franchises
granted by the governing bodies of said cities, villages and townships,
which grants or franchises include the following:
WHERE LOCAL FRANCHISE EXISTS,
CITY, VILLAGE OR TOWNSHIP ITS EFFECTIVE DATE
Alcona County
Township of Alcona . . . . . . . April 20, 1995 Renewal
Alcona County
Township of Caledonia . . . . . . . July 20, 1995 Renewal
Alcona County
Township of Curtis . . . . . . . June 22, 1995 Renewal
Alcona County
Township of Mitchell . . . . . . . May 11, 1995 Renewal
Allegan County
Township of Leighton . . . . . . . January 20, 1994 Renewal
Allegan County
City of Plainwell . . . . . . . April 16, 1995 Renewal
Allegan County
Township of Valley . . . . . . . March 22, 1996 Renewal
Arenac County
Township of Adams . . . . . . . June 15, 1995 Renewal
Arenac County
Township of Arenac . . . . . . . August 11, 1993 Renewal
Arenac County
Township of Clayton . . . . . . . September 21, 1995 Renewal
Arenac County
Township of Deep River . . . . . . . January 18, 1996 Renewal
Arenac County
Township of Mason . . . . . . . December 21, 1995 Renewal
Arenac County
Township of Moffatt . . . . . . . January 18, 1996 Renewal
Arenac County
Township of Turner . . . . . . . September 21, 1995 Renewal
Arenac County
Township of Whitney . . . . . . . August 24, 1995 Renewal
Bay County
Township of Beaver . . . . . . . November 17, 1995 Renewal
Bay County
Township of Fraser . . . . . . . July 20, 1995 Renewal
Bay County
Township of Gibson . . . . . . . October 19, 1995 Renewal
Bay County
Township of Kawkawlin . . . . . . . September 29, 1995 Renewal
Bay County
Township of Monitor . . . . . . . September 11, 1995 Renewal
Bay County
Township of Mount Forest . . . . . . . September 21, 1995 Renewal
Bay County
Township of Pinconning . . . . . . . September 21, 1995 Renewal
Bay County
Township of Portsmouth . . . . . . . October 22, 1993 Renewal
Benzie County
Township of Benzonia . . . . . . . January 20, 1994 Renewal
Benzie County
Village of Benzonia . . . . . . . March 3, 1994 Renewal
Benzie County
Village of Beulah . . . . . . . February 24, 1994 Renewal
Benzie County
Township of Blaine . . . . . . . January 13, 1994 Renewal
<PAGE>
WHERE LOCAL FRANCHISE EXISTS,
CITY, VILLAGE OR TOWNSHIP ITS EFFECTIVE DATE
Benzie County
Village of Elberta . . . . . . . December 8, 1994 Renewal
Benzie County
Township of Gilmore . . . . . . . February 17, 1994 Renewal
Benzie County
Township of Homestead . . . . . . . December 16, 1993 Renewal
Benzie County
Village of Honor . . . . . . . February 17. 1994 Renewal
Benzie County
Township of Joyfield . . . . . . . January 13, 1994 Renewal
Benzie County
Township of Lake . . . . . . . February 17, 1994 Renewal
Benzie County
Township of Platte . . . . . . . January 13, 1994 Renewal
Branch County
City of Bronson . . . . . . . April 12, 1996 Renewal
Branch County
Township of Union . . . . . . . December 24, 1994 Renewal
Calhoun County
Township of Convis . . . . . . . October 21, 1995 Renewal
Calhoun County
Township of Marshall . . . . . . . September 6, 1995 Renewal
Charlevoix County
Township of Charlevoix . . . . . . . April 21, 1995 Renewal
(A portion of Twp)
Charlevoix County
Township of Hayes . . . . . . . June 20, 1995 Renewal
Clare County
City of Harrison . . . . . . . March 8, 1996 Renewal
Clare County
Township of Sheridan . . . . . . . January 26, 1994 Renewal
Clinton County
Township of Bath . . . . . . . February 27, 1996 Renewal
Clinton County
Township of DeWitt . . . . . . . October 3, 1995 Renewal
Clinton County
Township of Victor . . . . . . . February 20, 1996 Renewal
Eaton County
Township of Bellevue . . . . . . . July 26, 1995 Renewal
Eaton County
Township of Benton . . . . . . . August 23, 1995 Renewal
Eaton County
Township of Brookfield . . . . . . . August 16, 1995 Renewal
Eaton County
Township of Carmel . . . . . . . August 30, 1995 Renewal
Eaton County
Township of Eaton . . . . . . . August 13, 1995 Renewal
Eaton County
Township of Hamlin . . . . . . . April 22, 1996 Renewal
Eaton County
Township of Walton . . . . . . . August 16, 1995 Renewal
Eaton County
Township of Windsor . . . . . . . March 7, 1996 Renewal
Genesee County
Township of Flint . . . . . . . April 1, 1996 Renewal
Genesee County
Township of Genesee . . . . . . . March 27, 1996 Renewal
Genesee County
Township of Mount Morris . . . . . . . January 12, 1996 Renewal
Genesee County
City of Swartz Creek . . . . . . . October 14, 1996 Renewal
Gladwin County
Township of Beaverton . . . . . . . January 19, 1995 Renewal
Gladwin County
Township of Bentley . . . . . . . September 21, 1995 Renewal
Gladwin County
Township of Billings . . . . . . . December 21, 1995 Renewal
Gladwin County
Township of Butman . . . . . . . December 21, 1995 Renewal
Gladwin County
City of Gladwin . . . . . . . September 23, 1993 Renewal
Gladwin County
Township of Grim . . . . . . . December 21, 1995 Renewal
Gladwin County
Township of Hay . . . . . . . February 22, 1996 Renewal
Gladwin County
Township of Sherman . . . . . . . January 25, 1996 Renewal
Gratiot County
Township of Arcada . . . . . . . March 18, 1994 Renewal
Gratiot County
Township of New Haven . . . . . . . October 20, 1995 Renewal
Gratiot County
City of Saint Louis . . . . . . . June 14, 1997 Renewal
<PAGE>
WHERE LOCAL FRANCHISE EXISTS,
CITY, VILLAGE OR TOWNSHIP ITS EFFECTIVE DATE
Hillsdale County
Township of Cambria . . . . . . . July 28, 1995 Renewal
Hillsdale County
Township of Camden . . . . . . . October 27, 1995 Renewal
Hillsdale County
Village of Camden . . . . . . . September 21, 1995 Renewal
Hillsdale County
Township of Hillsdale . . . . . . . June 5, 1997 Renewal
Hillsdale County
Village of Montgomery . . . . . . . August 11, 1995 Renewal
Hillsdale County
Township of Woodbridge . . . . . . . March 16, 1996 Renewal
Ingham County
Township of Lansing . . . . . . . March 9, 1996 Renewal
Ionia County
Township of Berlin . . . . . . . September 18, 1995 Renewal
Iosco County
Township of Alabaster . . . . . . . October 19, 1995 Renewal
Iosco County
Township of Baldwin . . . . . . . July 20, 1995 Renewal
Iosco County
Township of Burleigh . . . . . . . October 12, 1995 Renewal
Iosco County
Township of Grant . . . . . . . February 15, 1996 Renewal
Iosco County
Township of Tawas . . . . . . . August 24, 1995 Renewal
Iosco County
Township of Wilber . . . . . . . December 14, 1995 Renewal
Isabella County
Township of Coe . . . . . . . August 24, 1995 Renewal
Isabella County
Township of Lincoln . . . . . . . August 18, 1995 Renewal
Jackson County
Township of Rives . . . . . . . August 16, 1995 Renewal
Jackson County
Township of Sandstone . . . . . . . January 9, 1995 Renewal
Kent County
Township of Ada . . . . . . . March 10, 1996 Renewal
Kent County
Township of Courtland . . . . . . . February 21, 1996 Renewal
Kent County
Township of Nelson . . . . . . . February 28, 1996 Renewal
Kent County
Township of Oakfield . . . . . . . April 23, 1996 Renewal
Kent County
Township of Tyrone . . . . . . . April 24, 1996 Renewal
Lake County
Township of Chase . . . . . . . March 22, 1996 Renewal
Lake County
Township of Dover . . . . . . . March 22, 1996 Renewal
Lake County
Township of Ellsworth . . . . . . . January 26, 1996 Renewal
Lake County
Village of Luther . . . . . . . March 1, 1996 Renewal
Lake County
Township of Newkirk . . . . . . . January 26, 1996 Renewal
Leelanau County
Township of Cleveland . . . . . . . November 19, 1993 Renewal
Leelanau County
Township of Empire . . . . . . . August 6, 1993 Renewal
Leelanau County
Village of Empire . . . . . . . October 29, 1993 Renewal
Leelanau County
Township of Glen Arbor . . . . . . . November 26, 1993 Renewal
Leelanau County
Township of Kasson . . . . . . . December 17, 1993 Renewal
Livingston County
Township of Iosco . . . . . . . May 29, 1997 New
(A portion of Twp)
Manistee County
Township of Arcadia . . . . . . . December 2, 1993 Renewal
Manistee County
Township of Bear Lake . . . . . . . November 25, 1993 Renewal
Manistee County
Village of Bear Lake . . . . . . . January 27, 1994 Renewal
Manistee County
Township of Brown . . . . . . . August 18, 1995 Renewal
Manistee County
Township of Marilla . . . . . . . April 21, 1996 Renewal
Manistee County
Township of Pleasanton . . . . . . . November 18, 1993 Renewal
Mecosta County
Township of Mecosta . . . . . . . December 21, 1995 Renewal
<PAGE>
WHERE LOCAL FRANCHISE EXISTS,
CITY, VILLAGE OR TOWNSHIP ITS EFFECTIVE DATE
Midland County
Township of Geneva . . . . . . . December 22, 1993 Renewal
Midland County
Township of Greendale . . . . . . . September 24, 1995 Renewal
Midland County
Township of Larkin . . . . . . . July 23, 1993 Renewal
Midland County
Township of Lee . . . . . . . January 20, 1994 Renewal
Midland County
Township of Mills . . . . . . . September 21, 1995 Renewal
Midland County
Township of Porter . . . . . . . December 12, 1993 Renewal
Midland County
Township of Warren . . . . . . . March 1, 1996 Renewal
Missaukee County
Township of Aetna . . . . . . . September 7, 1993 Renewal
Missaukee County
Township of Butterfield . . . . . . . March 26, 1996 Renewal
Missaukee County
Township of Enterprise . . . . . . . March 5, 1996 Renewal
Monroe County
Township of Summerfield . . . . . . . December 9, 1994 New
(A portion of Twp)
Montcalm County
Township of Ferris . . . . . . . October 17, 1995 Renewal
Muskegon County
Township of Casnovia . . . . . . . January 17, 1996 Renewal
Muskegon County
Township of Egelston . . . . . . . August 12, 1996 Renewal
Muskegon County
Township of Fruitland . . . . . . . September 26, 1995 Renewal
Muskegon County
Township of Laketon . . . . . . . June 18, 1995 Renewal
Muskegon County
Township of Moorland . . . . . . . April 12, 1996 Renewal
Muskegon County
City of Norton Shores . . . . . . . July 8, 1995 Renewal
Muskegon County
City of Roosevelt Park . . . . . . . March 27, 1996 Renewal
Muskegon County
Township of Sullivan . . . . . . . August 18, 1996 Renewal
Newaygo County
Township of Ashland . . . . . . . November 16, 1995 Renewal
Newaygo County
Township of Bridgeton . . . . . . . November 23, 1995 Renewal
Newaygo County
Township of Brooks . . . . . . . August 31, 1995 Renewal
Newaygo County
Township of Croton . . . . . . . July 20, 1995 Renewal
Newaygo County
Township of Ensley . . . . . . . May 23, 1996 Renewal
Newaygo County
Township of Garfield . . . . . . . June 22, 1995 Renewal
Newaygo County
Township of Grant . . . . . . . August 15, 1996 Renewal
Ogemaw County
Township of Edwards . . . . . . . June 23, 1995 Renewal
Ogemaw County
Township of Goodar . . . . . . . June 30, 1995 Renewal
Ogemaw County
Township of Hill . . . . . . . January 19, 1996 Renewal
Ogemaw County
Township of Ogemaw . . . . . . . June 16, 1995 Renewal
Ogemaw County
Township of Rose . . . . . . . January 19, 1996 Renewal
Osceola County
Township of Hartwick . . . . . . . December 14, 1995 Renewal
Osceola County
Village of Hersey . . . . . . . December 29, 1995 Renewal
Osceola County
Township of Highland . . . . . . . January 20, 1996 Renewal
Osceola County
Township of Lincoln . . . . . . . February 18, 1996 Renewal
Osceola County
Township of Rose Lake . . . . . . . April 9, 1996 Renewal
Osceola County
Township of Sherman . . . . . . . March 19, 1996 Renewal
Oscoda County
Township of Big Creek . . . . . . . April 12, 1995 Renewal
Oscoda County
Township of Clinton . . . . . . . April 5, 1995 Renewal
Oscoda County
Township of Comins . . . . . . . May 31, 1995 Renewal
<PAGE>
WHERE LOCAL FRANCHISE EXISTS,
CITY, VILLAGE OR TOWNSHIP ITS EFFECTIVE DATE
Oscoda County
Township of Elmer . . . . . . . April 26, 1995 Renewal
Oscoda County
Township of Mentor . . . . . . . May 24, 1995 Renewal
Ottawa County
Township of Grand Haven . . . . . . . March 16, 1996 Renewal
Ottawa County
Township of Park . . . . . . . January 22, 1996 Renewal
Ottawa County
Township of Robinson . . . . . . . February 25, 1996 Renewal
Roscommon County
Township of Lake . . . . . . . March 8, 1996 Renewal
Saginaw County
Township of Birch Run . . . . . . . January 18, 1996 Renewal
Saginaw County
Township of Brady . . . . . . . December 11, 1995 Renewal
Saginaw County
Township of Brant . . . . . . . May 15, 1995 Renewal
Saginaw County
Township of Carrollton . . . . . . . April 11, 1997 Renewal
Saginaw County
Township of Fremont . . . . . . . April 16, 1996 Renewal
Saginaw County
Township of James . . . . . . . March 21, 1996 Renewal
Saginaw County
Township of Lakefield . . . . . . . March 26, 1996 Renewal
Saginaw County
Township of Marion . . . . . . . March 19, 1996 Renewal
Saginaw County
Township of Spaulding . . . . . . . December 2, 1995 Renewal
Saginaw County
Township of Tittabawassee. . . . . . . August 15, 1993 Renewal
Saginaw County
Township of Zilwaukee . . . . . . . June 21, 1997 Renewal
Saint Joseph County
Village of Burr Oak . . . . . . . February 8, 1996 Renewal
Saint Joseph County
Township of Florence . . . . . . . February 27, 1996 Renewal
Shiawassee County
Township of Bennington . . . . . . . December 23, 1995 Renewal
Shiawassee County
Township of Owosso . . . . . . . March 2, 1996 Renewal
Shiawassee County
Township of Sciota . . . . . . . February 24, 1996 Renewal
Tuscola County
Township of Arbela . . . . . . . February 22, 1996 Renewal
Wexford County
Township of Antioch . . . . . . . March 21, 1996 Renewal
Wexford County
Township of Cherry Grove . . . . . . . March 29, 1996 Renewal
Wexford County
Township of Clam Lake . . . . . . . January 20, 1996 Renewal
Wexford County
Township of Colfax . . . . . . . April 5, 1996 Renewal
Wexford County
Township of Haring . . . . . . . February 16, 1996 Renewal
IV.
ELECTRIC SUBSTATIONS,
SWITCHING STATIONS AND SITES
All the substations, switching stations and sites of the Company,
constructed or otherwise acquired by it and not heretofore described in
the Indenture or any supplement thereto and not heretofore released from
the lien of the Indenture, for transforming, regulating, converting or
distributing or otherwise controlling electric current at any of its
plants and elsewhere, together with all buildings, transformers, wires,
insulators and other appliances and equipment, and all other property,
real or personal, forming a part of or appertaining to or used, occupied
or enjoyed in connection with any of such substations and switching
stations, or adjacent thereto, with sites to be used for such purposes,
including the following described property located in the State of
Michigan and in or near the cities, townships and communities named:
(a) Substations and Switching Stations:
Perrigo Substation located on property of Perrigo Company, North of
114th Street in the East 1/2 of the Southwest 1/4 of Section 27, Township
6 North, Range 11 West, Allegan Township, Allegan County, Michigan
Swan Creek Substation located on the West side of 44th Street in
the Southeast 1/4 of the Southeast 1/4 of the Northeast 1/4 of Section 8,
Township 1 North, Range 14 West, Cheshire Township, Allegan County,
Michigan.
Aubil Lake Substation located on the South side of 140th Avenue and
West of Patterson Road in the Northwest 1/4 of the Northwest 1/4 of the
Northeast 1/4 of Section 25, Township 4 North, Range 11 West, Leighton
Township, Allegan County, Michigan.
New Richmond Substation located on the South side of 132nd Avenue
in the Northeast 1/4 of the Northwest 1/4 of Section 18, Township 3 North,
Range 15 West, Manlius Township, Allegan County, Michigan.
Geneva Substation located East of Highway US-31 and North of
129th Avenue (Bradley) in the Southwest 1/4 of the Northeast 1/4 of
Section 19, Township 3 North, Range 11 West, Wayland Township, Allegan
County, Michigan.
Wayland II Substation located North of Sycamore Street in the
Northeast 1/4 of the Southeast 1/4 of Section 6, Township 3 North,
Range 11 West, Wayland Township, Allegan County, Michigan.
MSI Substation located on property of MSI Battle Creek Stamping,
South of "F" Drive, North, and North of the Penn Central Railroad, in the
Northwest 1/4 of the Northwest 1/4 of Section 23, Township 2 South,
Range 7 West, Emmett Township, Calhoun County, Michigan.
Boyne Mountain Substation located on property of Boyne USA Inc. in
the Southeast 1/4 of the Northwest 1/4 of Section 16, Township 32 North,
Range 5 West, Boyne Valley Township, Charlevoix County, Michigan.
Beaver Creek Substation located South of Four Mile Road in the
Northwest 1/4 of the Northeast 1/4 of Section 5, Township 25 North,
Range 3 West, Beaver Creek Township, Crawford County, Michigan.
Georgia Pacific Substation located on property of Georgia-Pacific
Company on the South side of County Road No. 76 (Four Mile Road), on the
West side of the Penn Central Railroad right of way in the Northeast 1/4
of the Northeast 1/4 of Section 5, Township 25 North, Range 3 West, Beaver
Creek Township, Crawford County, Michigan.
Jordan Iron Substation located on property of Jordan Iron Works,
North of Nichols Street and West of Main Street in the Northwest 1/4 of
the Northeast 1/4 of Section 23, Township 32 North, Range 7 West, City of
East Jordan, Charlevoix County, Michigan.
Cochran Substation located West of I-69 and North of Kalamo Road in
the West 1/2 of the Southeast 1/4 of Section 19, Township 2 North, Range 4
West, Eaton Township, Eaton County, Michigan.
Canal Substation located on property of the State of Michigan,
Northwesterly of the Grand Trunk Western Railroad right of way in the
Northeast corner of the Northeast 1/4 of the Southwest 1/4 of Section 4,
Township 3 North, Range 3 West, Windsor Township, Eaton County, Michigan.
Atherton Substation located on the South side of Atherton Road and
East of Cuthbertson Road in the Northwest 1/4 of the Northeast 1/4 of
Section 30, Township 7 North, Range 7 East, City of Flint, Genesee County,
Michigan.
Calkins Substation Addition located East of Linden Road and South
of Calkins Road in the Northwest 1/4 of the Northwest 1/4 of Section 16,
Township 7 North, Range 6 East, Flint Township, Genesee County, Michigan.
Bishop Substation located South of Bristol Road and West of Torrey
Road in the Northeast 1/4 of the Northeast 1/4 of Section 35, Township 7
North, Range 6 East, Flint Township, Genesee County, Michigan.
Grand Blanc BOC Substation located on property of General Motors
Corporation, East of Dort Highway, North of Reid Road and South of Hill
Road in the South 1/2 of the Southwest 1/4 of the Southwest 1/4 of Section
9, Township 6 North, Range 7 East, Grand Blanc Township, Genesee County,
Michigan.
Blinton Substation located on the South side of Baldwin Road and
East of McWain Road in the Northeast corner of the Northeast 1/4 of
Section 32, Township 6 North, Range 7 East, Grand Blanc Township, Genesee
County, Michigan.
Swartz Creek Substation Addition located on Lots 24 and 25 of
Houston-Miller-Chambers Plat No. 1, a subdivision in the Northwest 1/4 of
Section 1, Township 6 North, Range 5 East, City of Swartz Creek, Genesee
County, Michigan.
Gladwin Machine Substation located on property of Gladwin Machine
Products, South of Webber Road in the Northeast 1/4 of the Northwest 1/4
of Section 6, Township 18 North, Range 1 West, Buckeye Township, Gladwin
County, Michigan.
Lako Substation located on property of Lako Products, South of
Webber Road in the Northwest 1/4 of the Northeast 1/4 of Section 6,
Township 18 North, Range 1 West, Buckeye Township, Gladwin County,
Michigan.
Hammond Road Substation located South of Hammond Road, East of
Garfield Road and North of Emerson Road in the Northwest 1/4 of the
Northwest 1/4 of Section 25, Township 27 North, Range 11 West, Garfield
Township, Grand Traverse County, Michigan.
East Bay Substation located on Lot 6 of Oakwood Addition to the
City of Traverse City in the Southwest 1/4 of the Northwest 1/4 of Section
12, Township 27 North, Range 11 West, Garfield Township, Grand Traverse
County, Michigan.
Alma Products Substation located on property of Alma Products,
North of Williams Street and West of Florida Avenue, in the Southwest 1/4
of the Northeast 1/4 of Section 35, Township 12 North, Range 3 West, City
of Alma, Gratiot County, Michigan.
Refinery Substation located South of Superior Street and East of
Elmwood Street in the Northwest 1/4 of the Northeast 1/4 of Section 2,
Township 11 North, Range 3 West, Arcada Township, Gratiot County,
Michigan.
Knowles Road Substation located on property of Quincy Stamping and
Manufacturing Company, West of Knowles Road and East of the Penn Central
Railroad, in the Southeast 1/4 of the Northwest 1/4 of Section 10,
Township 6 South, Range 2 West, Adams Township, Hillsdale County,
Michigan.
Dexter Trail Substation Site located East of Dexter Trail in the
Northwest 1/4 of the Southwest 1/4 of Section 6, Township 1 North, Range 2
East, Stockbridge Township, Ingham County, Michigan.
American Bumper Substation located on property of American Bumper
and Manufacturing in the South 1/2 of the Southwest 1/4 of Section 21,
Township 7 North, Range 6 West, Ionia Township, Ionia County, Michigan.
Herbruck Foods Substation located on property of Herbruck Foods,
North of Bonanza Street and West of Jordan Lake Road, in the Southeast 1/4
of the Northeast 1/4 of Section 28, Township 5 North, Range 7 West, Odessa
Township, Ionia County, Michigan.
Bluegrass Substation located in the Northwest 1/4 of the
Southwest 1/4 of Section 30, Township 14 North, Range 3 West, Chippewa
Township, Isabella County, Michigan.
Jackson RCF Substation located on property of the State Prison of
Southern Michigan, South of Parnall Road in the Northeast 1/4 of Section
23, Township 2 South, Range 1 West, Blackman Township, Jackson County,
Michigan.
Dial Machine Substation located on property of Dial Machine and
Tool Company, South of Michigan Avenue, North of Main Street and East of
Oak Grove in the Southeast 1/4 of the Southwest 1/4 of Section 32,
Township 2 South, Range 1 West, Blackman Township, Jackson County,
Michigan.
Leroy Street Substation located on property of Junction
Manufacturing Company, North of Leroy Street and East of Horton Street, in
the Southwest 1/4 of the Northeast 1/4 of Section 36, Township 2 South,
Range 1 West, City of Jackson, Jackson County, Michigan.
Junction Manufacturing Substation located on property of Junction
Manufacturing Company, Northeast of Rives Eaton Road and North of Perrine
Road, in the West 1/2 of the Southwest 1/4 of Section 8, Township 1 South,
Range 1 West, Rives Township, Jackson County, Michigan.
Denso Jackson Substation located on property of Nippondenso
Manufacturing USA, Incorporated, South of Highway I-94 and West of Dearing
Road, in the Southeast 1/4 of the Southeast 1/4 of Section 28, Township 2
South, Range 2 West, Sandstone Township, Jackson County, Michigan.
Worthington Substation located on property of Worthington
Industries, East of US-127, South of McDevitt Avenue and West of Conrail
Railroad, in the Southeast 1/4 of the Southeast 1/4 of Section 24,
Township 3 South, Range 1 West, Summit Township, Jackson County, Michigan.
Twilight Substation located South of M-43 and East of 26th Street,
in the Northwest 1/4 of the Southwest 1/4 of Section 5, Township 2 South,
Range 10 West, Comstock Township, Kalamazoo County, Michigan.
Hull Street Substation located North of Hull Street and East of
Division Avenue, in the Northeast 1/4 of the Northwest 1/4 of Section 7,
Township 9 North, Range 11 West, Algoma Township, Kent County, Michigan.
Division Substation located South of 84th Street and East of
Highway US-131, in the Northeast 1/4 of the Northeast 1/4 of Section 24,
Township 5 North, Range 12 West, Byron Township, Kent County, Michigan.
Cannon Substation located East of US-131 and South of Ten Mile
Road, in the South 1/2 of the Northwest 1/4 of Section 6, Township 8
North, Range 10 West, Cannon Township, Kent County, Michigan.
Kendrick Substation located North of 52nd Street and West of Kraft
Avenue, in the Southwest 1/4 of the Southeast 1/4 of Section 30, Township
6 North, Range 10 West, Cascade Township, Kent County, Michigan.
Dutton Substation Site located South of 68th Street in the
Northwest 1/4 of the Northeast 1/4 of Section 9, Township 5 North, Range
11 West, Gaines Township, Kent County, Michigan.
Grand Rapids Pumping Substation located on property of the City of
Grand Rapids, North of the Chesapeake and Ohio Railroad, and South of
Market Street, in the Southeast 1/4 of the Northeast 1/4 of Section 35,
Township 7 North, Range 12 West, City of Grand Rapids, Kent County,
Michigan.
Burton Pumping Substation located on property of the City of
Grand Rapids in the South 1/2 of the Southwest 1/4 of the Southeast 1/4 of
Section 6, Township 6 North, Range 12 West, Walker Township, Kent County,
Michigan.
United Parcel Substation located on the West side of Clyde Park
Avenue in the Northeast 1/4 of the Southeast 1/4 of Section 35, Township 6
North, Range 12 West, City of Wyoming, Kent County, Michigan.
Suttons Bay Substation located West of East Pine View Street in the
Northeast 1/4 of the Northwest 1/4 of Section 33, Township 30 North, Range
11 West, Suttons Bay Township, Leelanau County, Michigan.
Ervin Substation located on property of Ervin Industries located on
Lot 20 of Industrial Park No. 1, a subdivision of part of the North 1/2 of
the Northwest 1/4 of Section 3, Township 6 South, Range 4 East, Raisin
Township, Lenawee County, Michigan.
Semrec Metering Substation located on property of Southeastern
Michigan Rural Electric Cooperative, South of Sutton Road and West of
Wilmoth Road, in the Northeast 1/4 of the Northeast 1/4 of Section 20,
Township 6 South, Range 4 East, Raisin Township, Lenawee County, Michigan.
Lenawee Stamping Substation located on property of Lenawee
Stamping, South of Highway M-50 in the Northwest 1/4 of the Southwest 1/4
of Section 35, Township 5 South, Range 4 East, Tecumseh Township, Lenawee
County, Michigan.
Sun Exploration Substation located on property of Sun Exploration
and Production Company, North of Highway M-20 and East of County Line
Road, in the Southwest 1/4 of the Southwest 1/4 of Section 7, Township 14
North, Range 2 West, Greendale Township, Midland County, Michigan.
Letts Road Substation located North of Letts Road and East of
Jefferson Road, in the Southeast corner of the Southeast 1/4 of the
Southwest 1/4 of Section 27, Township 15 North, Range 2 East, Larkin
Township, Midland County, Michigan.
Dearborn Machine Substation located on property of Dearborn Machine
Company, West of Scharmer Drive, South of Wilcox Street and East of
Whitbeck Road, in the Southwest 1/4 of the Northwest 1/4 of Section 29,
Township 12 North, Range 17 West, City of Montague, Muskegon County,
Michigan.
Hyde Park Substation located North of Tyler Road and East of Hyde
Park Road, in the Southwest 1/4 of the Northwest 1/4 of Section 30,
Township 11 North, Range 16 West, Dalton Township, Muskegon County,
Michigan.
Latimer Substation located West of Sheridan Road in the
Southeast 1/4 of the Northeast 1/4 of Section 34, Township 10 North, Range
16 West, City of Muskegon Heights, Muskegon County, Michigan.
Muskegon Prison Substation located on property of Muskegon Regional
Correctional Facility in the Southeast 1/4 of the Southwest 1/4 of Section
35, Township 10 North, Range 16 West, City of Muskegon, Muskegon County,
Michigan.
Becker Substation located West of Getty Road and North of Highway
M-20 (Holton Road), in the Northwest 1/4 of the Southeast 1/4 of
Section 5, Township 10 North, Range 16 West, Muskegon Township, Muskegon
County, Michigan.
Cannon Muskegon Substation located on property of Cannon Muskegon
Corporation, East of Lincoln Street in the Northwest 1/4 of the Southwest
1/4 of the Northwest 1/4 of Section 2, Township 9 North, Range 17 West,
City of Norton Shores, Muskegon County, Michigan.
Hickory Substation located West of Grand Haven Road, North of
Wilson East Road and South of Judson Road, in the North 1/2 of the
Southwest 1/4 of Section 33, Township 9 North, Range 16 West, City
of Norton Shores, Muskegon County, Michigan.
Leprino Foods Substation located on property of Leprino Foods, East
of 48th Avenue and South of Rich Street, in the Northwest 1/4 of the
Southwest 1/4 of Section 19, Township 7 North, Range 13 West, Allendale
Township, Ottawa County, Michigan.
Nicholas Substation located on property of Nicholas Plastics, Inc.,
North of Rich Street and West of 46th Avenue, in the Southwest 1/4 of the
Northwest 1/4 of Section 19, Township 7 North, Range 13 West, Allendale
Township, Ottawa County, Michigan.
Hudsonville Substation Addition located on part of Lot 33 of
Ohlman's Assessors Plat #1 in the Southeast 1/4 of the Northeast 1/4 of
Section 32, City of Hudsonville, Ottawa County, Michigan.
Taft Street Substation Site located North of Taft Street, East of
the Chesapeake and Ohio Railway and West of Highway US-31, in the
Southwest 1/4 of the Southeast 1/4 of Section 4, Township 8 North, Range
16 West, Spring Lake Township, Ottawa County, Michigan.
Wire Products Substation located on the South side of Industrial
Park Drive and East of 72nd Avenue in the Southwest 1/4 of the Northwest
1/4 of Section 8, Township 14 North, Range 17 West, Shelby Township,
Oceana County, Michigan.
Acuglas Substation located on property of Acustar Inc., East of
95th Street and South of Highway US-10, in the Northwest 1/4 of the
Northeast 1/4 of Section 4, Township 17 North, Range 8 West, Evart
Township, Osceola County, Michigan.
Ohman Road Substation located South of Highway US-10 and North of
Ohman Road, in the Southwest 1/4 of the Northeast 1/4 of Section 4,
Township 17 North, Range 8 West, Evart Township, Osceola County, Michigan.
Chicago Road Substation located North of M-21 (Chicago Drive), in
the Northwest 1/4 of the Northwest 1/4 of Section 27, Township 6 North,
Range 13 West, Georgetown Township, Ottawa County, Michigan.
Lake Shore Substation located South of Lake Michigan Drive (M-45)
and East of Lake Shore Avenue, in the Northwest 1/4 of the Northwest 1/4
of Section 28, Township 7 North, Range 16 West, Grand Haven Township,
Ottawa County, Michigan.
Hager Park Substation located West of 40th Avenue and North of
Bauer Road, in the Northeast 1/4 of the Northeast 1/4 of Section 7,
Township 6 North, Range 13 West, Georgetown Township, Ottawa County,
Michigan.
Rochester Products Substation located on property of General Motors
Corporation, North of Randall Street, East of 68th Avenue and South of
Cleveland Street, in the Northeast 1/4 of the Southeast 1/4 of Section 22,
Township 8 North, Range 14 West, Polkton Township, Ottawa County,
Michigan.
Manning Substation located East of Manning Road and North of
Washington Road, in the Northwest 1/4 of the Southeast 1/4 of Section 8,
Township 12 North, Range 6 East, Blumfield Township, Saginaw County,
Michigan.
Bavarian Substation located on Lots 19 and 20 of Industrial Park
Plat, being a subdivision, according to the recorded plat thereof, in
the Northwest 1/4 of the Northwest 1/4 of Section 35, Township 11 North,
Range 6 East, City of Frankenmuth, Saginaw County, Michigan.
Cheyenne Substation located South of Shattuck Road in the
Northwest 1/4 of the Northwest 1/4 of Section 16, Township 12 North, Range
4 East, Saginaw Township, Saginaw County, Michigan.
(b) Sites for Substations:
Branch Substation Site located South of Lindley Road and East of
Snow Prairie Road, in the South 1/2 of Section 28, Township 6 South, Range
7 West, Batavia Township, Branch County, Michigan.
Three Fires Substation Site located South of US-31 and North of Old
Highway US-31 in the Southeast 1/4 of the Northeast 1/4 of Section 9,
Township 34 North, Range 6 West, Resort Township, Emmet County, Michigan.
Van Buren Substation Site located North of Van Buren Street and
East of Grover Street in the Southwest 1/4 of the Southwest 1/4 of Section
2, Township 11 North, Range 3 West, Arcada Township, Gratiot County,
Michigan.
Englishville Substation Site located North of 10-Mile Road at the
North end of Krupp Road in the Southwest 1/4 of the Southeast 1/4 of
Section 31, Township 9 North, Range 11 West, Algoma Township, Kent County,
Michigan.
Buck Creek Substation Site located West of Division Avenue and
North of 66th Street in the Southeast 1/4 of the Northeast 1/4 of Section
1, Township 5 North, Range 12 West, Byron Township, Kent County, Michigan.
Meadowbrooke Substation Site located East of Patterson and South of
60th Street in the Southwest 1/4 of the Northeast 1/4 of Section 6,
Township 5 North, Range 10 West, Caledonia Township, Kent County,
Michigan.
Michigan Substation Site located on Lot 1 of Sweet's Subdivision,
West of North Street and North of Fairbank Street in the Northeast 1/4 of
the Southwest 1/4 of Section 19, Township 7 North, Range 11 West, City of
Grand Rapids, Kent County, Michigan
Gaines Substation Site located West of Patterson Avenue and North
of 84th Street, in the Northwest 1/4 of the Southeast 1/4 and in the
Northeast 1/4 of the Southwest 1/4 of Section 13, Township 5 North,
Range 11 West, Gaines Township, Kent County, Michigan.
Chaffee Substation #2 located on Lot 44 of Kent Industrial Center,
an Addition to the City of Wyoming, according to the recorded plat
thereof, and being a part of the Southeast 1/4 of the Southeast 1/4 of
Section 18, Township 6 North, Range 11 West, City of Wyoming, Kent County,
Michigan.
Tyrone Substation Site located West of Fenton Road and North of
Foley Road in the Northwest 1/4 of the Northeast 1/4 of Section 14,
Township 4 North, Range 6 East, Tyrone Township, Livingston County,
Michigan.
East Grant Substation Site located North of 120th Avenue and West
of Oak Avenue in the Southeast 1/4 of the Southeast 1/4 of Section 14,
Township 11 North, Range 12 West, Grant Township, Newaygo County,
Michigan.
Van Wagoner Substation Site located at the West end of Van Wagoner
Street and West of Grand Haven Road in the Southwest 1/4 of the Northwest
1/4 of Section 9, Township 8 North, Range 16 West, Spring Lake Township,
Ottawa County, Michigan.
V.
GAS COMPRESSOR STATIONS, GAS PROCESSING PLANTS,
DESULPHURIZATION STATIONS, METERING STATIONS,
ODORIZING STATIONS, REGULATORS AND SITES
All the compressor stations, processing plants, desulphurization
stations, metering stations, odorizing stations, regulators and sites of
the Company, constructed or otherwise acquired by it and not heretofore
described in the Indenture or any supplement thereto and not heretofore
released from the lien of the Indenture, for compressing, processing,
desulphurizing, metering, odorizing and regulating manufactured or natural
gas at any of its plants and elsewhere, together with all buildings,
meters and other appliances and equipment, and all other property, real or
personal, forming a part of or appertaining to or used, occupied or
enjoyed in connection with any of such purposes, including the following
described property located in the State of Michigan and in or near the
cities, towns and communities named:
(a) Regulator, Compressor, Metering and Odorizing Stations and
Processing Plants:
Hotchkiss and Mackinaw Regulator Station located in the Northeast
1/4 of the Northeast 1/4 of the Northwest 1/4 of Section 3, Township 13
North, Range 4 East, Frankenlust Township, Bay County, Michigan.
First and Van Buren Regulator Station located North of First Street
and West of Van Buren Street, in the Southeast 1/4 of the Northeast 1/4 of
Section 21, Township 14 North, Range 5 East, Hampton Township, Bay County,
Michigan.
Kalamazoo and Liggitt Regulator Station located in the Northeast
1/4 of the Southeast 1/4 of Section 35, Township 2 South, Range 6 West,
City of Marshall, Calhoun County, Michigan.
Otto Road Regulator Station located in the Northwest 1/4 of the
Southwest 1/4 of Section 4, Township 2 North, Range 4 West, Eaton
Township, Eaton County, Michigan.
Beecher and Houran Regulator Station located South of Beecher Road
in the North 1/2 of the Northeast 1/4 of Section 15, Township 7 North,
Range 6 East, Flint Township, Genesee County, Michigan.
Torrey Hills Mobile Home Park Station located North of Hill Road
and West of Torrey Road, in the Southeast 1/4 of Section 3, Township 6
North, Range 6 East, Mundy Township, Genesee County, Michigan.
Elms and Miller Regulator Station located on part of Lot 10 of
Supervisors Plat of Begole Farm, a subdivision in the Northwest 1/4 of the
Southwest 1/4 of Section 31, Township 7 North, Range 6 East, City of
Swartz Creek, Genesee County, Michigan.
Buckeye "36" Odorizer Station located North of Badger Road in the
Southeast 1/4 of the Southwest 1/4 of Section 36, Township 18 North, Range
1 West, Buckeye Township, Gladwin County, Michigan.
Petrostar Grout Odorizer Station located South of Woods Road in the
Northwest 1/4 of the Southwest 1/4 of Section 14, Township 18 North, Range
2 East, Grout Township, Gladwin County, Michigan.
Addition to Beaverton Gas Regulator Station located East of Highway
M-18 in the Northwest corner of the Southwest 1/4 of the Southwest 1/4 of
Section 7, Township 17 North, Range 1 West, Tobacco Township, Gladwin
County, Michigan.
Harrison and Warner Regulator Station located in the Southeast
corner of the Southeast 1/4 of the Southeast 1/4 of Section 9, Township 11
North, Range 4 West, Sumner Township, Gratiot County, Michigan.
Sheridan and Turner Regulator Station located East of Turner Street
and West of Creston Street, in the Northeast 1/4 of the Northwest 1/4 of
Section 4, Township 4 South, Range 2 West, Lansing Township, Ingham
County, Michigan.
M-66 and Tuttle Regulator Station located on the South 20 feet of
the East 40 feet of Lot 1 of Larson's Acres, a subdivision in the
Southeast 1/4 of the Northeast 1/4 of Section 36, Township 7 North, Range
7 West, Berlin Township, Ionia County, Michigan.
Jackson and Grand River Regulator Station located in the Southeast
1/4 of the Southeast 1/4 of Section 24, Township 6 North, Range 8 West,
Boston Township, Ionia County, Michigan.
Mosherville City Gate located South of Hanover Road and East of
Watson Road in the Northwest 1/4 of the Northwest 1/4 of Section 28,
Township 4 South, Range 3 West, Pulaski Township, Jackson County,
Michigan.
Lapeer Industrial Park Regulator Station located in the Northwest
1/4 of the Northwest 1/4 of the Southeast 1/4 of Section 12, Township 7
North, Range 9 East, Elba Township, Lapeer County, Michigan.
Dickman and River Road Regulator Station located South of Michigan
Avenue (Dickman Road) in the Southeast 1/4 of the Southeast 1/4 of Section
34, Township 1 South, Range 9 West, Village of Augusta, Kalamazoo County,
Michigan.
Gull Run Regulator Station located in the South 1/2 of the South
1/2 of the Northeast 1/4 of Section 6, Township 2 South, Range 10 West,
Comstock Township, Kalamazoo County, Michigan.
Thirtieth Street and Comstock Regulator Station located West of
Thirtieth Street and North of East Michigan Avenue, in the Southeast 1/4
of the Southeast 1/4 of Section 16, Township 2 South, Range 10 West,
Comstock Township, Kalamazoo County, Michigan.
Charles and Wallace Regulator Station located South of Charles
Avenue in the Northwest corner of the Northeast 1/4 of the Southeast 1/4
of Section 14, Township 2 South, Range 11 West, Kalamazoo Township,
Kalamazoo County, Michigan.
Metamora City Gate located North of Davison Lake Road and East of
Thomas Road, in the West 1/2 of the Southwest 1/4 of Section 33, Township
6 North, Range 10 East, Metamora Township, Lapeer County, Michigan.
Metamora Odorizer Station located North of Davison Lake Road and
East of Thomas Road, in the West 1/2 of the Southwest 1/4 of Section 33,
Township 6 North, Range 10 East, Metamora Township, Lapeer County,
Michigan.
Ridgeway Regulator Station located North of Highway M-50, also
known as Monroe Road, in the Southwest 1/4 of the Southwest 1/4 of Section
32, Township 5 South, Range 5 East, Ridgeway Township, Lenawee County,
Michigan.
Cemetery Road Regulator Station located South of Cemetery Road and
Northeasterly of the New York Central Railroad, in the Northeast 1/4 of
the Northeast 1/4 of Section 4, Township 8 South, Range 5 East, Riga
Township, Lenawee County, Michigan.
Grand River and Challis Regulator Station located South of Challis
Road in the Northeast 1/4 of the Northeast 1/4 of Section 25, Township 2
North, Range 5 East, Genoa Township, Livingston County, Michigan.
Nicholson and Grand River Regulator Station located West
of Nicholson Road in the Northeast 1/4 of the Southeast 1/4 of Section 8,
Township 3 North, Range 3 East, Handy Township, Livingston County,
Michigan.
M-36 and Hall Road Gas Regulator Station located South of Highway
M-36 in the Southeast 1/4 of the Northeast 1/4 of Section 25, Township 1
North, Range 5 East, Hamburg Township, Livingston County, Michigan.
M-59 and Tipsico Lake Road Regulator Station located South of
Highway M-59 (Highland Road) in the Northeast 1/4 of Section 25, Township
3 North, Range 6 East, Hartland Township, Livingston County, Michigan.
Patrick Road at Waldo Regulator Station located South of Patrick
Road and East of Waldo Road, in the Northwest 1/4 of the Northwest 1/4 of
the Northwest 1/4 of Section 24, Township 14 North, Range 2 East, Midland
Township, Midland County, Michigan.
Albert "5" Purchase Meter Station located South of Winding Road in
the Northeast 1/4 of the Southwest 1/4 of Section 5, Township 29 North,
Range 1 East, Albert Township, Montmorency County, Michigan.
Lake Angeles and Gidding Regulator Station located on part of Lot 3
of Atlantic Commons Park of Metro North Technology Park, a subdivision of
part of Section 3, Township 3 North, Range 10 East, City of Auburn Hills,
Oakland County, Michigan.
Chrysler Tech Center Meter and Regulator Station located South of
Butler Street extended Westerly and West of Squirrel Road in the Northeast
1/4 of the Southeast 1/4 of the Southwest 1/4 of Section 24, Township 3
North, Range 10 East, City of Auburn Hills, Oakland County, Michigan.
South Boulevard and Bloomfield Village Boulevard Regulator Station
located in the Southeast 1/4 of the Southeast 1/4 of Section 35, Township
3 North, Range 10 East, City of Auburn Hills, Oakland County, Michigan.
Industrial and Halstead Regulator Station located on Lot 33 of
Farmington Freeway Industrial Park No. 2, a subdivision of part of the
Northeast 1/4 of Section 30, Township 1 North, Range 9 East, Farmington
Township, Oakland County, Michigan.
Keatington Regulator Station located in the Northwest 1/4 of the
Northeast 1/4 of Section 28, Township 4 North, Range 10 East, Orion
Township, Oakland County, Michigan.
Grand River and Oakland Regulator Station located on part of Lot 1
of Grand Oak Commerce Center Subdivision, being a subdivision in the
Northeast 1/4 of the Southwest 1/4 of Section 7, Township 1 North, Range 8
East, City of Wixom, Oakland County, Michigan.
Charlton "14 (A)" Purchase Meter Station located South of Old State
Road in the Northwest 1/4 of the Northwest 1/4 of Section 14, Township 29
North, Range 1 West, Charlton Township, Otsego County, Michigan.
North Charlton "22" Purchase Meter Station located North of Sparr
Road in the Southeast 1/4 of the Southwest 1/4 of Section 22, Township 31
North, Range 1 West, Charlton Township, Otsego County, Michigan.
North Charlton "24 (A)" Purchase Meter Station located North of
Sparr Road in the Southwest 1/4 of the Southwest 1/4 of Section 24,
Township 31 North, Range 1 West, Charlton Township, Otsego County,
Michigan.
South Charlton "27" Purchase Meter Station located East of Round
Lake Trail in the Southeast 1/4 of the Southwest 1/4 of Section 27,
Township 29 North, Range 1 West, Charlton Township, Otsego County,
Michigan.
Charlton "30" Purchase Meter Station located North of Sparr Road in
the Southeast 1/4 of the Southwest 1/4 of Section 30, Township 31 North,
Range 1 West, Charlton Township, Otsego County, Michigan.
Chester "17" Purchase Meter Station located South of Old State Road
in the Northwest 1/4 of the Northwest 1/4 of Section 17, Township 29
North, Range 2 West, Chester Township, Otsego County, Michigan.
Chester "17 (A)" Purchase Meter Station located South of Old State
Road in the Northwest 1/4 of the Northwest 1/4 of Section 17, Township 29
North, Range 2 West, Chester Township, Otsego County, Michigan.
Chester "18 (A)" Purchase Meter Station located Southwesterly of
Lower Chub Lake Road in the Southwest 1/4 of the Southeast 1/4 of Section
18, Township 29 North, Range 2 West, Chester Township, Otsego County,
Michigan.
Chester "22" Purchase Meter Station located West of Lovells Road in
the Southwest 1/4 of the Northwest 1/4 of Section 22, Township 29 North,
Range 2 West, Chester Township, Otsego County, Michigan.
Dover "17" Purchase Meter Station located East of Marquardt Road
and North of Seymore Road, in the West 1/2 of the Southeast 1/4 of Section
17, Township 31 North, Range 2 West, Dover Township, Otsego County,
Michigan.
Dover "18" Purchase Meter Station located East of Peanut Hill Road
in the Southwest 1/4 of the Northwest 1/4 of Section 18, Township 31
North, Range 2 West, Dover Township, Otsego County, Michigan.
Otsego Lake "12" Purchase Meter Station located West of East Opal
Lake Road in the Northeast 1/4 of the Northeast 1/4 of Section 12,
Township 29 North, Range 3 West, Otsego Lake Township, Otsego County,
Michigan.
Otsego Lake "12 (A)" Purchase Meter Station located South of Ranger
Lake Road in the Northeast 1/4 of the Northeast 1/4 of Section 12,
Township 29 North, Range 3 West, Otsego Lake Township, Otsego County,
Michigan.
Frankenmuth Junction Regulator Station located South of Junction
Road in the Northwest 1/4 of the Northwest 1/4 of Section 25, Township 11
North, Range 5 East, Bridgeport Township, Saginaw County, Michigan.
Lansing and Monroe Regulator Station located North of Monroe Road
and South of Lansing Road, in the North 1/2 of the Northeast 1/4 of
Section 16, Township 6 North, Range 4 East, Vernon Township, Shiawassee
County, Michigan.
56th Street and Standard Regulator Station located East of North
Main Street in the Southwest 1/4 of the Southwest 1/4 of Section 12,
Township 3 South, Range 13 West, Village of Mattawan, Van Buren County,
Michigan.
Newburgh City Gate located North of Plymouth Road and East of
Newburgh Road, on Lots 18, 19 and 20 of Woodlands Village a subdivision of
part of the West 1/2 of the Southwest 1/4 of Section 29, Township 1 South,
Range 9 East, City of Livonia, Wayne County, Michigan.
(b) Sites for Regulators, Compressors, Metering and Odorizing Stations
and Processing Plants.
Woodward and Fulton Gas Regulator Station Site located South of
Nebraska Avenue on Lot 452 of Woodward Estates Subdivision, according to
the recorded plat thereof, and being a part of the East 1/2 of the
Northwest 1/4 of Section 4, Township 2 North, Range 10 East, Bloomfield
Township, Oakland County, Michigan.
Commerce and Bogie Lake Regulator Station Site located South of
Wise Road and East of Commerce Road in the Northwest 1/4 of the Northeast
1/4 of Section 10, Township 2 North, Range 8 East, Commerce Township,
Oakland County, Michigan.
VI.
GAS STORAGE FIELDS
The natural gas rights and interests of the Company, including
wells and well lines (but not including natural gas, oil and minerals),
the gas gathering system, the underground gas storage rights, the
underground gas storage wells and injection and withdrawal system used in
connection therewith, constructed or otherwise acquired by it and not
heretofore described in the Indenture or any supplement thereto and not
heretofore released from the lien of the Indenture: In the Overisel Gas
Storage Field, located in the Township of Overisel, Allegan County, and in
the Township of Zeeland, Ottawa County, Michigan; in the Northville Gas
Storage Field located in the Township of Salem, Washtenaw County, Township
of Lyon, Oakland County, and the Townships of Northville and Plymouth and
City of Plymouth, Wayne County, Michigan; in the Salem Gas Storage Field,
located in the Township of Salem, Allegan County, and in the Township of
Jamestown, Ottawa County, Michigan; in the Ray Gas Storage Field, located
in the Townships of Ray and Armada, Macomb County, Michigan; in the Lenox
Gas Storage Field, located in the Townships of Lenox and Chesterfield,
Macomb County, Michigan; in the Ira Gas Storage Field, located in the
Township of Ira, St. Clair County, Michigan; in the Puttygut Gas Storage
Field, located in the Township of Casco, St. Clair County, Michigan; in
the Four Corners Gas Storage Field, located in the Townships of Casco,
China, Cottrellville and Ira, St. Clair County, Michigan; in the Swan
Creek Gas Storage Field, located in the Township of Casco and Ira, St.
Clair County, Michigan; and in the Hessen Gas Storage Field, located in
the Townships of Casco and Columbus, St. Clair, Michigan.
VII.
GAS TRANSMISSION LINES
All the gas transmission lines of the Company, constructed or
otherwise acquired by it and not heretofore described in the Indenture or
any supplement thereto and not heretofore released from the lien of the
Indenture, including gas mains, pipes, pipelines, gates, valves, meters
and other appliances and equipment, and all other property, real or
personal, forming a part of or appertaining to or used, occupied or
enjoyed in connection with such transmission lines or any of them or
adjacent thereto; together with all real property, right of way,
easements, permits, privileges, franchises and rights for or relating to
the construction, maintenance or operation thereof, through, over, under
or upon any private property or any public streets or highways, within as
well as without the corporate limits of any municipal corporation,
including lines in the State of Michigan connecting the points indicated
as follows:
(a) Transmission Lines:
LENGTH
SIZE IN MILES
Commencing at Michigan Petroleum
Exploration Inc. #1-5A Whittum
Well in the Southwest 1/4 of the
Northeast 1/4 of Section 5 and
running Northwesterly and Westerly
to Consumers Energy Company's
Hamlin "8" Field Lateral in the
Southwest 1/4 of the Northwest 1/4
of Section 5, Township 1 North,
Range 3 West, Hamlin Township,
Eaton County, Michigan. . . . . . . . 2 3/8-inch .38
Commencing at Michigan Petroleum
Exploration Inc. #1-5A Whittum Well
in the Southwest 1/4 of the Northeast
1/4 of Section 5 and running Northerly
and Westerly to a point on the Hamlin
"8" Field Lateral in the Southeast 1/4
of the Northwest 1/4 of said Section 5,
all in Township 1 North, Range 3 West,
Hamlin Township, Eaton County,
Michigan. . . . . . . . . . . . . . . 2 3/8-inch .38
Commencing at Nomeco #1-12 State
Pinewood Shores Well in the
Southeast 1/4 of the Northwest
1/4 of Section 12, and running
Southerly to Consumers Energy
Company's 4 1/2" East Bay "12(A)"
Field Lateral in the Northeast
1/4 of the Southwest 1/4 of
Section 12, all in Township 26
North, Range 10 West, East Bay
Township, Grand Traverse
County, Michigan. . . . . . . . . . . 2 3/8-inch .03
Commencing at Sullivan #1 Orla
Well in the Northwest 1/4 of
the Northeast 1/4 of Section 19,
Township 2 North, Range 2 East,
White Oak Township, Ingham County
and running Southwesterly to a point
on the existing Consumers Energy
Company's White Oak "32" Field Lateral
in the Southeast 1/4 of the Northeast
1/4 of Section 24, Township 2 North,
Range 1 East, Ingham Township,
Ingham County, Michigan . . . . . . . 2 3/8-inch 1.3
<PAGE>
<PAGE>
LENGTH
SIZE IN MILES
Commencing at West Bay #2-31
State-Kalkaska Well in the
Northeast 1/4 of the Northeast
1/4 of Section 31 and running
Northwesterly to Consumers E
nergy Company's 10 3/4" Whitewater
"36" Lateral in the Southeast 1/4
of the Southwest 1/4 of Section 30,
all in Township 27 North, Range 8
West, Kalkaska Township, Kalkaska
County, Michigan. . . . . . . . . . . 2 3/8-inch .78
Commencing at Finders #3-25 Meter
Run and running generally
Northeasterly to Finders #4-25
Johnson-State to Manistee Well
Lateral, all in the Southeast 1/4
of the Southeast 1/4 of the
Southeast 1/4 of Section 24,
Township 22 North, Range 17 West,
Manistee Township, Manistee
County, Michigan. . . . . . . . . . . 2 3/8-inch .02
Commencing at Federal Oil Company
#1-8 Deel, et al., Well, and running
generally Northerly to Michigan
Consolidated Gas Company's 16" Blair
Loop Pipeline Extension, all in the
Northeast 1/4 of the Southwest 1/4
of Section 8, Township 23 North,
Range 14 West, Maple Grove Township,
Manistee County, Michigan . . . . . . 2 3/8-inch .15
Commencing at Finders #7-19A
State Maple Grove Well in the
Northeast 1/4 of the Southeast
1/4 of Section 19, and running
generally Easterly to Michigan
Consolidated Gas Company's 3 1/2"
Pipeline in the West 1/2 of the
Southwest 1/4 of Section 20,
all in Township 23 North,
Range 14 West, Maple Grove
Township, Manistee County,
Michigan. . . . . . . . . . . . . . . 2 3/8-inch .30
Commencing at Terra Energy #11-29
Watson Well and running Northerly to
Michigan Consolidated Gas Company's
16" Blair Loop Pipeline, all being in
the Southeast 1/4 of the Southeast 1/4
of Section 29, Township 23 North,
Range 15 West, Bear Lake Township,
Manistee County, Michigan . . . . . . 2 3/8-inch .12
Commencing at Muskegon Development
Traverse Lakes Central Production
Facility in the Northeast 1/4 of
the Southeast 1/4 of Section 24 and
running Southerly to a point on the
existing Consumers Energy Company's
6 5/8" Charlton "24" Field Lateral
in the Southeast 1/4 of the Southeast
1/4 of Section 24, all in Township 30
North, Range 1 West, Charlton Township,
Otsego County, Michigan . . . . . . . 2 3/8-inch .34
Commencing at Muskegon Development
Ginsel Lake Central Production Facility
in the Northeast 1/4 of the Southeast
1/4 of Section 14, and running Northerly
to Shell Oil Company's 8" Pipeline in the
Southeast 1/4 of the Northeast 1/4 of
Section 14, all in Township 30 North,
Range 2 West, Chester Township, Otsego
County, Michigan. . . . . . . . . . . 2 3/8-inch .31
<PAGE>
<PAGE>
LENGTH
SIZE IN MILES
Commencing at Muskegon Development
Lower Chub Lake Central Production
Facility in the Southwest 1/4 of
the Southeast 1/4 of Section 18 and
running Northwesterly to Michigan
Consolidated Gas Company's 20"
Kalkaska Tie Line in the North 1/2 of
the Northwest 1/4 of Section 18, all
in Township 29 North, Range 2 West,
Chester Township, Otsego County,
Michigan. . . . . . . . . . . . . . . 2 3/8-inch 1.0
Commencing at Muskegon Development Hayes
"15" Central Production Facility in the
Southwest 1/4 of the Southeast 1/4 of
Section 15 and running Southeasterly to
a point on Michigan Consolidated Gas
Company's 20" Kalkaska Tie Line in the
Southeast 1/4 of the Southeast 1/4 of
Section 15, all in Township 29 North,
Range 4 West, Hayes Township, Otsego
County, Michigan. . . . . . . . . . . 2 3/8-inch .2
Commencing at Antrim Development
Dodge Lake Central Production
Facility and running Northwesterly
to a point on Michigan Consolidated
Gas Company's 20" Kalkaska Tie Line,
all in the Southeast 1/4 of the
Northeast 1/4 of Section 18, Township
29 North, Range 3 West, Otsego Lake
Township, Otsego County, Michigan . . 2 3/8-inch .09
Commencing at Traverse #1-10 Gembis
- -McDonald Well in the Southeast 1/4
of the Northwest 1/4 of Section 10
and running Southerly and Easterly
through Sections 10, 14 and 15 to a
point on the existing 4 1/2" Consumers
Energy Company's Field Lateral in the
Northwest 1/4 of the Northwest 1/4 of
Section 14, all in Township 26 North,
Range 10 West, East Bay Township, Grand
Traverse County, Michigan . . . . . . 4 1/2-inch 1.69
Commencing at Amoco-Nomeco #3A-31 State
Union "V" Well in the Northwest 1/4 of
the Northeast 1/4 of Section 31 and
running Southerly and Westerly to a
point on the existing 4" Michigan
Consolidated Gas Company's Union "31"
Pipeline in the Northeast 1/4 of the
Southwest 1/4 of said Section 31, all
in Township 26 North, Range 9 West,
Union Township, Grand Traverse County,
Michigan. . . . . . . . . . . . . . . 4 1/2-inch .97
Commencing at Amoco #1-20 State
- -Whitewater "J" Well in the Southwest
1/4 of the Southwest 1/4 of Section 20
and running Southerly to a point on the
existing Consumers Energy Company's
Whitewater "32" Field Lateral in the
Northwest 1/4 of the Northwest 1/4 of
Section 32, all in Township 27 North,
Range 9 West, Whitewater Township,
Grand Traverse County, Michigan . . . 4 1/2-inch 1.48
Commencing at Miller Brothers, Nomeco
Tribal #2-24 State, Cleon Well in the
Northeast 1/4 of the Northeast 1/4 of
Section 24 and running Northerly to an
existing 8" Shell Pipeline in the
Southeast 1/4 of the Northeast 1/4 of
Section 13, all in Township 24 North,
Range 13 West, Cleon Township, Manistee
County, Michigan. . . . . . . . . . . 4 1/2-inch .87
<PAGE>
<PAGE>
LENGTH
SIZE IN MILES
Commencing at Total #2-30B Gustafson
Well in the Northwest 1/4 of the
Southwest 1/4 of Section 30 and
running Northerly to Consumers Energy
Company's 4 1/2" Maple Grove "30"
Field Lateral in the Southwest 1/4
of the Northwest 1/4 of Section 30,
all in Township 23 North, Range 14
West, Maple Grove Township,
Manistee County, Michigan . . . . . . 4 1/2-inch .06
Commencing at Petrostar Manistee "36"
Facility and running Southeasterly to
Michigan Consolidated Gas Company's 6"
Manistee "30" Pipeline Extension III,
all located in the Southwest 1/4 of the
Northeast 1/4 of Section 36, Township 22
North, Range 17 West, Manistee Township,
Manistee County, Michigan . . . . . . 4 1/2-inch .08
Commencing at Northern Michigan
Petroleum #1-3 Randall-Thompson Well
in the Northwest 1/4 of the Northwest
1/4 of Section 3 and running Easterly
to Consumers Energy Company's Traverse
#1-2 Myers-Olsen Well Lateral in the
Northwest 1/4 of the Northwest 1/4 of
Section 2, all in Township 23 North,
Range 15 West, Bear Lake Township,
Manistee County, Michigan . . . . . . 4 1/2-inch 1.22
Commencing at Muskegon Development
Central Production Facility in the
Northeast 1/4 of the Southwest 1/4
of Section 18, Township 29 North,
Range 1 West, Charlton Township and
running Northwesterly to a point in
the Northeast 1/4 of Section 13,
Township 29 North Range 2 West,
Chester Township; thence Easterly to
Consumers Energy Company's 4 1/2"
Charlton "18" Pipeline in the West
1/4 of the Northwest 1/4 of Section
18, Township 29 North, Range 1 West,
Charlton Township, all in Otsego
County, Michigan. . . . . . . . . . . 4 1/2-inch .60
Commencing at Miller Brothers
#2-6A State Charlton Well in the
Northwest 1/4 of the Northwest 1/4
of Section 6, Township 29 North,
Range 1 West, Charlton Township,
running Westerly to Consumers
Energy Company's Chester "1" Field
Lateral in the Northeast 1/4 of the
Northeast 1/4 of Section 1, Township
29 North, Range 2 West, Chester
Township, all in Otsego County,
Michigan. . . . . . . . . . . . . . . 4 1/2-inch .10
Commencing at Miller Brothers Charlton
"18" Gas Sweetening Facility in the
Northwest corner of Section 18, Township
29 North, Range 1 West, Charlton Township,
and running Northerly to Consumers Energy
Company's 4 1/2" Chester "1" Field Lateral
in the Northeast 1/4 of the Northeast 1/4
of Section 1, Township 29 North, Range 2
West, Chester Township, all in Otsego
County, Michigan. . . . . . . . . . . 4 1/2-inch 2.05
Commencing at Muskegon Development Bass
Lake Central Production Facility in the
Northeast 1/4 of the Southeast 1/4 of
Section 3, Township 29 North, Range 2 West,
Chester Township, Otsego County, running
generally Northerly to a point on the
existing Consumers Energy Company's Chester
"34" Field Lateral in the Southeast 1/4 of
the Southeast 1/4 of Section 34, Township
30 North, Range 2 West, Chester Township,
Otsego County, Michigan . . . . . . . 4 1/2-inch 1.0
<PAGE>
<PAGE>
LENGTH
SIZE IN MILES
Commencing at a point on the existing
Muskegon Development Pipeline in the
Northeast 1/4 of the Southwest 1/4 of
Section 20 and running Easterly and
Southerly through Sections 20, 21 and
22 to a point on the existing Michigan
Consolidated Gas Company's Dover "27"
Pipeline Extension, all in Township 31
North, Range 2 West, Dover Township,
Otsego County, Michigan . . . . . . . 4 1/2-inch 2.2
Commencing at Mack Oil Central Production
Facility in the Northwest 1/4 of the
Southwest 1/4 of Section 24 and running
Northerly to Michigan Consolidated Gas
Company's 20" Kalkaska Tie Line in the
Northwest 1/4 of the Northwest 1/4 of
Section 24, all in Township 29 North,
Range 4 West, Hayes Township, Otsego
County, Michigan. . . . . . . . . . . 4 1/2-inch .50
Commencing at Antrim Development
Central Production Facility in the
Northwest 1/4 of the Northwest 1/4
of Section 10 and running in an
Easterly and Southerly direction
through Sections 10, 14 and 15 to a
point on the existing Michigan
Consolidated Gas Company's Kalkaska
Tie Line in the Northwest 1/4 of the
Northwest 1/4 of Section 23, all in
Township 29 North, Range 4 West,
Hayes Township, Otsego County,
Michigan. . . . . . . . . . . . . . . 4 1/2-inch 2.32
Commencing at Muskegon Development
Heart Lake Central Production
Facility in the Northwest 1/4 of the
Northeast 1/4 of Section 28 and running
Northerly and Easterly in Sections 28,
21 and 22 to a point on the existing 6"
Michigan Consolidated Gas Company's
Otsego Lake "34" Pipeline in the South
1/2 of Section 22, all in Township 29
North, Range 3 West, Otsego Lake Township,
Otsego County, Michigan . . . . . . . 4 1/2-inch 1.28
Commencing at Muskegon Development
East Heart Lake Central Production
Facility in the Northwest 1/4 of
the Southwest 1/4 of Section 26 and
running Southerly; thence Westerly
to a point on the existing 6"
Michigan Consolidated Gas Company's
Otsego Lake "34" Pipeline in the
Northeast 1/4 of the Southeast 1/4
of Section 27, all in Township 29
North, Range 3 West, Otsego Lake
Township, Otsego County,
Michigan. . . . . . . . . . . . . . . 4 1/2-inch .43
Commencing at Schmude Oil Incorporated
#2-34 Consumers Energy Company Well in
the Southwest 1/4 of the Northwest 1/4
of Section 34 and running Southerly to
Consumers Energy Company's 8 5/8" Lyon
"34" Pipeline in the Southeast 1/4 of
the Southeast 1/4 of Section 33 all in
Township 1 North, Range 7 East, Lyon
Township, Oakland County, Michigan. . 8 5/8-inch 2.1
(b) Also all the real property, rights of way, easements, permits,
privileges and rights for or relating to the construction,
maintenance or operation of certain transmission lines, the land and
rights for which are owned by the Company, which are either not
built or are now being constructed, as follows:
A complete transmission line right of way commencing at Somoco
Production Facility in the Southeast 1/4 of the Southeast 1/4
of the Northwest 1/4 and running Southeasterly to a tap site
on Consumers Energy Company's existing 26" St. Clair-Macomb
Junction-Rochester Pipeline in the Northwest 1/4 of the
Northwest 1/4 of the Southeast 1/4, all in Section 2, Township
3 North, Range 12 East, Shelby Township, Macomb County,
Michigan.
VIII.
GAS DISTRIBUTION SYSTEMS
All the gas distribution systems of the Company, constructed or
otherwise acquired by it and not heretofore described in the Indenture or
any supplement thereto and not heretofore released from the lien of the
Indenture, including tunnels, conduits, gas mains and pipes, service
pipes, fittings, gates, valves, connections, meters and other appliances
and equipment, and all other property, real or personal, forming a part of
or appertaining to or used, occupied or enjoyed in connection with such
distribution systems or any of them or adjacent thereto; together with all
real property, rights of way, easements, permits, privileges, franchises,
grants and rights, for or relating to the construction, maintenance or
operation thereof, through, over, under or upon any private property or
any public streets or highways within as well as without the corporate
limits of any municipal corporation, including, in the State of Michigan,
systems in or near the cities, villages and townships named in the
following tabulation. Such gas distribution systems are or may be
operated by authority of certain state or legislative grants and/or of
certain local franchises granted by the governing bodies of said cities,
villages and townships, which grants or franchises include the following:
WHERE LOCAL FRANCHISE EXISTS,
CITY, VILLAGE OR TOWNSHIP ITS EFFECTIVE DATE
Allegan County
Township of Dorr . . . . . . . November 24, 1994 Renewal
Allegan County
City of Holland . . . . . . . February 22, 1995 New
(A portion of Twp)
Allegan County
Township of Martin . . . . . . . August 26, 1997 Renewal
Allegan County
Township of Overisel . . . . . . . April 16, 1994 New
Allegan County
Township of Salem . . . . . . . October 21, 1993 Renewal
(A portion of Twp)
Arenac County
Township of Arenac . . . . . . . August 11, 1993 Renewal
Arenac County
City of Au Gres . . . . . . . April 21, 1994 Renewal
Arenac County
Township of Deep River . . . . . . . November 18, 1993 Renewal
Arenac County
City of Omer . . . . . . . March 24, 1994 Renewal
Arenac County
Village of Sterling . . . . . . . March 17, 1994 Renewal
Arenac County
Township of Whitney . . . . . . . April 24, 1997 Renewal
Barry County
Township of Baltimore . . . . . . . April 28, 1995 New
Barry County
Township of Irving . . . . . . . August 25, 1995 New
Barry County
Township of Orangeville . . . . . . . March 14, 1997 Renewal
Barry County
Township of Yankee Springs . . . . . . March 26, 1997 Renewal
Bay County
Township of Beaver . . . . . . . August 29, 1997 Renewal
Bay County
Township of Kawkawlin . . . . . . . September 29, 1995 Renewal
Bay County
Township of Portsmouth . . . . . . . May 19, 1995 Renewal
Berrien County
Township of Watervliet . . . . . . . September 23, 1993 New
Branch County
Township of Matteson . . . . . . . September 15, 1995 Renewal
Branch County
Township of Sherwood . . . . . . . October 20, 1995 Renewal
Branch County
Village of Sherwood . . . . . . . October 13, 1995 Renewal
Branch County
Township of Union . . . . . . . October 21, 1994 New
(A portion of Twp)
Calhoun County
Township of Athens . . . . . . . October 1, 1995 Renewal
(A portion of Twp)
Calhoun County
Village of Athens . . . . . . . September 17, 1995 Renewal
Calhoun County
Township of Convis . . . . . . . September 25, 1993 Renewal
<PAGE>
WHERE LOCAL FRANCHISE EXISTS,
CITY, VILLAGE OR TOWNSHIP ITS EFFECTIVE DATE
Calhoun County
Township of Emmett . . . . . . . May 22, 1994 Renewal
(A portion of Twp)
Calhoun County
Township of Lee . . . . . . . May 26, 1997 New
(A portion of Twp)
Calhoun County
Township of Leroy . . . . . . . May 21, 1995 New
Cass County
Township of Marcellus . . . . . . . March 25, 1994 Renewal
Cass County
Village of Marcellus . . . . . . . October 8, 1993 Renewal
Clinton County
Township of Bengal . . . . . . . October 25, 1993 Renewal
Clinton County
Township of Dallas . . . . . . . November 15, 1993 Renewal
Clinton County
Township of DeWitt . . . . . . . October 3, 1995 Renewal
Clinton County
Township of Eagle . . . . . . . February 12, 1997 Renewal
Clinton County
Village of Elsie . . . . . . . March 4, 1995 Renewal
Clinton County
Village of Fowler . . . . . . . October 25, 1993 Renewal
Clinton County
Township of Greenbush . . . . . . . February 11, 1996 New
Clinton County
Village of Ovid . . . . . . . August 11, 1993 Renewal
Clinton County
Township of Westphalia . . . . . . . October 27, 1993 Renewal
Clinton County
Village of Westphalia . . . . . . . December 20, 1993 Renewal
Eaton County
Township of Carmel . . . . . . . August 30, 1995 Renewal
Eaton County
Township of Hamlin . . . . . . . April 22, 1996 Renewal
Eaton County
Township of Walton . . . . . . . August 16, 1995 Renewal
Genesee County
Township of Argentine . . . . . . . February 27, 1994 Renewal
Genesee County
Township of Flint . . . . . . . April 1, 1996 Renewal
Genesee County
Township of Forest . . . . . . . September 23, 1993 Renewal
Genesee County
Village of Gaines . . . . . . . January 28, 1994 Renewal
Genesee County
Township of Genesee . . . . . . . March 27, 1996 Renewal
Genesee County
Village of Goodrich . . . . . . . July 31, 1995 Renewal
Genesee County
Township of Mount Morris . . . . . . . January 12, 1996 Renewal
Genesee County
Village of Otisville . . . . . . . December 17, 1993 Renewal
Genesee County
City of Swartz Creek . . . . . . . October 14, 1996 Renewal
Gladwin County
City of Gladwin . . . . . . . September 23, 1993 Renewal
Gladwin County
Township of Sage . . . . . . . November 18, 1993 New
Gratiot County
Township of Arcada . . . . . . . March 18, 1994 Renewal
Gratiot County
Village of Ashley . . . . . . . November 12, 1993 Renewal
Gratiot County
Township of Bethany . . . . . . . March 22, 1994 Renewal
Gratiot County
Township of Elba . . . . . . . October 19, 1993 Renewal
Gratiot County
Township of Emerson . . . . . . . February 25, 1994 Renewal
Gratiot County
Township of New Haven . . . . . . . October 20, 1995 Renewal
Gratiot County
Township of North Star . . . . . . . September 24, 1993 Renewal
Gratiot County
Township of Sumner . . . . . . . July 11, 1997 Renewal
Gratiot County
Township of Washington . . . . . . . September 21, 1993 Renewal
Gratiot County
Township of Wheeler . . . . . . . February 18, 1994 Renewal
Hillsdale County
Township of Somerset . . . . . . . August 29, 1997 Renewal
<PAGE>
WHERE LOCAL FRANCHISE EXISTS,
CITY, VILLAGE OR TOWNSHIP ITS EFFECTIVE DATE
Huron County
City of Bad Axe . . . . . . . November 20, 1993 Renewal
Huron County
Township of Bingham . . . . . . . September 18, 1993 Renewal
Huron County
Township of Caseville . . . . . . . April 19, 1995 Renewal
Huron County
Village of Caseville . . . . . . . June 22, 1994 Renewal
Huron County
Township of Colfax . . . . . . . September 23, 1993 Renewal
Huron County
Township of Dwight . . . . . . . March 15, 1995 Renewal
Huron County
Township of Fair Haven . . . . . . . August 16, 1995 Renewal
Huron County
City of Harbor Beach . . . . . . . September 24, 1993 Renewal
Huron County
Township of Hume . . . . . . . February 25, 1995 Renewal
Huron County
Village of Kinde . . . . . . . December 23, 1994 Renewal
Huron County
Township of Lake . . . . . . . March 29, 1995 Renewal
Huron County
Township of Lincoln . . . . . . . March 16, 1995 Renewal
Huron County
Township of Mc Kinley . . . . . . . December 21, 1994 Renewal
Huron County
Township of Meade . . . . . . . February 28, 1995 Renewal
Huron County
Township of Oliver . . . . . . . February 9, 1994 Renewal
Huron County
Village of Owendale . . . . . . . October 19, 1993 Renewal
Huron County
Village of Pigeon . . . . . . . January 2, 1994 Renewal
Huron County
Township of Port Austin . . . . . . . January 26, 1995 Renewal
Huron County
Village of Port Austin . . . . . . . October 18, 1994 Renewal
Huron County
Township of Sand Beach . . . . . . . October 29, 1993 Renewal
Huron County
Township of Sheridan . . . . . . . November 12, 1993 Renewal
Huron County
Township of Sherman . . . . . . . March 24, 1995 Renewal
Huron County
Township of Sigel . . . . . . . November 9, 1993 Renewal
Huron County
Village of Ubly . . . . . . . November 15, 1993 Renewal
Huron County
Township of Verona . . . . . . . November 18, 1993 Renewal
Huron County
Township of Winsor . . . . . . . July 21, 1993 Renewal
Ingham County
Village of Dansville . . . . . . . September 28, 1995 Renewal
Ingham County
Township of Ingham . . . . . . . September 1, 1995 Renewal
Ingham County
Township of Lansing . . . . . . . March 9, 1996 Renewal
Ingham County
Township of Wheatfield . . . . . . . July 22, 1993 Renewal
Ionia County
Township of Campbell . . . . . . . November 12, 1993 New
Ionia County
Township of Keene . . . . . . . July 20, 1993 New
Ionia County
Village of Pewamo . . . . . . . October 11, 1993 Renewal
Isabella County
Township of Rolland . . . . . . . February 23, 1995 Renewal
Isabella County
Township of Sherman . . . . . . . May 16, 1994 New
Jackson County
Township of Henrietta . . . . . . . March 22, 1995 Renewal
Jackson County
Township of Liberty . . . . . . . April 29, 1995 Renewal
Jackson County
Township of Rives . . . . . . . August 16, 1995 Renewal
Jackson County
Township of Tompkins . . . . . . . April 15, 1994 New
Jackson County
Township of Waterloo . . . . . . . September 28, 1994 Renewal
Kalamazoo County
Township of Alamo . . . . . . . September 21, 1994 Renewal
<PAGE>
WHERE LOCAL FRANCHISE EXISTS,
CITY, VILLAGE OR TOWNSHIP ITS EFFECTIVE DATE
Kalkaska County
Township of Bear Lake . . . . . . . November 23, 1995 New
Kalkaska County
Township of Cold Springs . . . . . . . May 18, 1995 Renewal
Kalkaska County
Township of Excelsior . . . . . . . July 15, 1993 New
Kalkaska County
Township of Kalkaska . . . . . . . September 21, 1995 New
(A portion of Twp)
Kent County
Township of Bowne . . . . . . . February 29, 1996 Renewal
Kent County
Township of Byron . . . . . . . February 19, 1997 New
(A portion of Twp)
Kent County
Township of Caledonia . . . . . . . September 1, 1993 Renewal
Kent County
Township of Cascade . . . . . . . August 31, 1994 New
(A portion of Twp)
Lapeer County
Township of Burnside . . . . . . . September 26, 1994 New
Lapeer County
Village of Columbiaville . . . . . . . January 13, 1994 Renewal
Lapeer County
Township of Marathon . . . . . . . September 30, 1993 Renewal
Lenawee County
Village of Britton . . . . . . . October 1, 1993 Renewal
Lenawee County
Township of Franklin . . . . . . . April 20, 1995 Renewal
Lenawee County
Township of Ridgeway . . . . . . . October 15, 1993 Renewal
Livingston County
City of Brighton . . . . . . . January 21, 1994 Renewal
Livingston County
Township of Cohoctah . . . . . . . February 22, 1996 Renewal
Livingston County
Township of Conway . . . . . . . August 8, 1995 New
Livingston County
Township of Deerfield . . . . . . . March 23, 1996 Renewal
Livingston County
Township of Hamburg . . . . . . . October 20, 1993 Renewal
Livingston County
Township of Hartland . . . . . . . March 30, 1995 Renewal
Livingston County
Township of Marion . . . . . . . April 20, 1995 Renewal
Livingston County
Township of Oceola . . . . . . . December 28, 1995 Renewal
Livingston County
Village of Pinckney . . . . . . . October 21, 1993 Renewal
Livingston County
Township of Putnam . . . . . . . October 28, 1993 Renewal
Macomb County
Township of Washington . . . . . . . August 21, 1997 New
Macomb County
Township of Washington . . . . . . . September 28, 1995 New
(A portion of Twp)
Mecosta County
Township of Austin . . . . . . . April 5, 1995 Renewal
(A portion of Twp)
Mecosta County
Village of Mecosta . . . . . . . June 16, 1995 Renewal
Mecosta County
Township of Millbrook . . . . . . . June 16, 1995
Mecosta County
Township of Morton . . . . . . . April 21, 1995 Renewal
Mecosta County
Township of Sheridan . . . . . . . June 16, 1995 Renewal
(A portion of Twp)
Mecosta County
Township of Wheatland . . . . . . . August 25, 1993 Renewal
Midland County
Township of Ingersoll . . . . . . . October 25, 1993 Renewal
Midland County
Township of Jerome . . . . . . . October 25, 1993 Renewal
Midland County
Township of Lee . . . . . . . January 20, 1994 Renewal
Midland County
Township of Lincoln . . . . . . . January 20, 1994 Renewal
Midland County
Village of Sanford . . . . . . . September 22, 1994 Renewal
<PAGE>
<PAGE>
WHERE LOCAL FRANCHISE EXISTS,
CITY, VILLAGE OR TOWNSHIP ITS EFFECTIVE DATE
Monroe County
Township of Whiteford . . . . . . . January 1, 1994 Renewal
(A portion of Twp)
Montcalm County
Township of Bushnell . . . . . . . May 18, 1995 New
Montcalm County
Township of Fairplains . . . . . . . March 15, 1995 New
Montcalm County
Township of Ferris . . . . . . . October 17, 1995 Renewal
Montcalm County
Village of Mc Bride . . . . . . . August 25, 1993 Renewal
Montcalm County
Township of Sidney . . . . . . . March 10, 1996 Renewal
Oakland County
City of Lake Angelus . . . . . . . March 21, 1995 Renewal
Oakland County
Village of Ortonville . . . . . . . August 17, 1993 Renewal
Osceola County
Township of Marion . . . . . . . April 16, 1995 New
Osceola County
Township of Middle Branch. . . . . . . July 22, 1993 New
Ottawa County
Township of Jamestown . . . . . . . April 2, 1997 New
(A portion of Twp)
Saginaw County
Township of Albee . . . . . . . March 11, 1996 Renewal
Saginaw County
Township of Birch Run . . . . . . . January 18, 1996 Renewal
Saginaw County
Township of Brady . . . . . . . December 11, 1995 Renewal
Saginaw County
Township of Fremont . . . . . . . June 20, 1995 New
Saginaw County
Township of Spaulding . . . . . . . December 2, 1995 Renewal
Saginaw County
Township of Taymouth . . . . . . . February 6, 1995 Renewal
Saginaw County
Township of Tittabawassee. . . . . . . August 15, 1993 Renewal
Saint Joseph County
Township of Leonidas . . . . . . . September 28, 1995 Renewal
Saint Joseph County
Township of Mendon . . . . . . . August 17, 1995 Renewal
Saint Joseph County
Village of Mendon . . . . . . . October 28, 1995 Renewal
Saint Joseph County
Township of Nottawa . . . . . . . February 29, 1997 New
(A portion of Twp)
Sanilac County
Township of Delaware . . . . . . . March 24, 1995 Renewal
Sanilac County
Township of Minden . . . . . . . February 10, 1995 Renewal
Sanilac County
Village of Minden City . . . . . . . July 22, 1994 Renewal
Shiawassee County
Township of Bennington . . . . . . . December 23, 1995 Renewal
Shiawassee County
Township of Burns . . . . . . . October 9, 1993 Renewal
Shiawassee County
Village of Byron . . . . . . . November 14, 1993 Renewal
Shiawassee County
Township of New Haven . . . . . . . April 13, 1996 Renewal
Shiawassee County
Township of Rush . . . . . . . July 17, 1993 Renewal
Shiawassee County
Township of Venice . . . . . . . October 9, 1993 Renewal
Shiawassee County
Village of Vernon . . . . . . . February 26, 1994 Renewal
Tuscola County
Township of Almer . . . . . . . February 17, 1994 Renewal
Tuscola County
Township of Arbela . . . . . . . February 22, 1996 Renewal
Tuscola County
Township of Ellington . . . . . . . March 7, 1996 New
(A portion of Twp)
Tuscola County
Township of Elmwood . . . . . . . January 27, 1994 Renewal
Tuscola County
Township of Fremont . . . . . . . August 20, 1993 Renewal
Tuscola County
Village of Gagetown . . . . . . . October 14, 1993
Tuscola County
Township of Gilford . . . . . . . August 5, 1993 New
<PAGE>
WHERE LOCAL FRANCHISE EXISTS,
CITY, VILLAGE OR TOWNSHIP ITS EFFECTIVE DATE
Van Buren County
Village of Breedsville . . . . . . . April 22, 1997 Renewal
Van Buren County
Township of Columbia . . . . . . . May 1, 1997 Renewal
Van Buren County
Township of Hamilton . . . . . . . November 9, 1994 Renewal
Washtenaw County
Township of Bridgewater . . . . . . . May 26, 1995 Renewal
Washtenaw County
Township of Lima . . . . . . . December 15, 1995 New
Washtenaw County
Township of Saline . . . . . . . October 19, 1995 New
Washtenaw County
Township of Superior . . . . . . . October 29, 1996 New
Washtenaw County
Township of Webster . . . . . . . May 26, 1994 Renewal
(A portion of Twp)
IX.
OFFICE BUILDINGS,
SERVICE BUILDINGS, GARAGES, ETC.
All office, garage, service and other buildings of the Company,
wherever located, in the State of Michigan, constructed or otherwise
acquired by it and not heretofore described in the Indenture or any
supplement thereto and not heretofore released from the lien of the
Indenture, together with the land on which the same are situated and all
easements, rights of way and appurtenances to said lands, together with
all furniture and fixtures located in said buildings, including the
following:
Standish Service Center located in the North 1/2 of Section 10,
Township 18 North, Range 4 East, City of Standish, Arenac
County, Michigan.
Marshall Training Center located in the South 1/2 of the
Northeast 1/4 of Section 35, Township 2 South, Range 6 West,
Marshall Township, Calhoun County, Michigan.
Eaton Rapids Field Office located in the Southeast 1/4 of the
Southwest 1/4 of Section 36, Township 2 North, Range 3 West,
Eaton Rapids Township, Eaton County, Michigan.
Lansing Credit Union located in the West 1/2 of the
Northwest 1/4 of Section 9, Township 4 North, Range 2 West, City
of Lansing, Ingham County, Michigan.
Zeeland Work Headquarters located in the Southwest 1/4 of the
Northwest 1/4 of Section 23, Township 5 North, Range 15 West,
Holland Township, Ottawa County, Michigan.
X.
TELEPHONE PROPERTIES AND
RADIO COMMUNICATION EQUIPMENT
All telephone lines, switchboards, systems and equipment of the
Company, constructed or otherwise acquired by it and not heretofore
described in the Indenture or any supplement thereto and not heretofore
released from the line of the Indenture, used or available for use in the
operation of its properties, and all other property, real or personal,
forming a part of or appertaining to or used, occupied or enjoyed in
connection with such telephone properties or any of them or adjacent
thereto; together with all real estate, rights of way, easements, permits,
privileges, franchises, property, devices or rights related to the
dispatch, transmission, reception or reproduction of messages,
communications, intelligence, signals, light, vision or sound by
electricity, wire or otherwise, including all telephone equipment
installed in buildings used as general and regional offices, substations
and generating stations and all telephone lines erected on towers and
poles; and all radio communication equipment of the Company, together with
all property, real or personal (except any in the Indenture expressly
excepted), fixed stations, towers, auxiliary radio buildings and
equipment, and all appurtenances used in connection therewith, wherever
located, in the State of Michigan.
The real property, rights of way, easements, permits, privileges and
rights for or relating to the construction, maintenance or operation of
certain telephone properties and radio communication equipment, the land
and rights for which are owned by the Company, which are either not built
or are not being constructed as follows:
Alma Radio Tower Site located West of Alger Road and East of the
Ann Arbor Railroad right of way in the North 1/2 of the
Northeast 1/4 of Section 33, Township 12 North, Range 3 West,
City of Alma, Gratiot County, Michigan.
Allen Radio Tower Site located West of Sand Lake Road in the
East 1/2 of the Southeast 1/4 of Section 36, Township 6 South,
Range 4 West, Allen Township, Hillsdale County, Michigan.
Colon Radio Tower Site located South of Spring Creek Road and
West of Farrand Road in the Northeast 1/4 of the Northwest 1/4
of Section 15, Township 6 South, Range 9 West, Colon Township,
St. Joseph County, Michigan.
Bad Axe Radio Tower Site located North of Priemer Road and West
of Verona Road in the Southeast 1/4 of the Southeast 1/4 of
Section 12, Township 15 North, Range 13 East, Bingham Township,
Huron County, Michigan.
Midland Radio Tower Site located East of Jefferson Road and
North of Saiko Road in the West 1/2 of the Southwest 1/4 of
Section 3, Township 16 North, Range 2 East, Mills Township,
Midland County, Michigan.
Dundee Radio Tower Site located on the West side of
Dundee-Azalia Road in the Southeast 1/4 of the Southeast 1/4 of
Section 1, Township 6 South, Range 6 East, Dundee Township,
Monroe County, Michigan.
Owosso Radio Tower Site located South of Highway M-21 and North
of Simpson Road in the Northeast 1/4 of the Northwest 1/4 of
Section 20, Township 7 North, Range 2 East, Owosso Township,
Shiawassee County, Michigan.
Sharon Valley Radio Tower Site located on the East side of
Sylvan Road and North or Wingate Road in the Southwest 1/4 of
the Northwest 1/4 of Section 15, Township 3 South, Range 3 East,
Sharon Township, Washtenaw County, Michigan.
XI.
OTHER REAL PROPERTY
All other real property of the Company and all interests therein, of
every nature and description (except any in the Indenture expressly
excepted) wherever located, in the State of Michigan, acquired by it and
not heretofore described in the Indenture or any supplement thereto and
not heretofore released from the line of the Indenture, including:
Allegan County
All of the lands, estates, easements, hereditaments and appurtenances
in the County of Allegan, described as follows:
Lots 9 and 10 in Block 12, Lots 1, 2, 4, 5, 6, 7, 8 and 9
in Block 16, and Lots 1, 2, 3, 4, 8 and 9 in Block 20, all being
a part of the South Haven Highlands, a subdivision in Section
24, Township 1 North, Range 17 West, according to the recorded
plat thereof, as recorded in Liber 4 of Plats on page 50,
Allegan County Records.
Lot 12 in Block 20 in the subdivision of South Haven Highlands,
in Section 24, Township 1 North, Range 17 West, according to the
recorded plat thereof, as recorded in Liber 4 of Plats on page
50, Allegan County Records.
Lot 13 in Block 12 in the subdivision of South Haven Highlands,
in Section 24, Township 1 North, Range 17 West, according to the
recorded plat thereof, as recorded in Liber 4 of Plats on page
50, Allegan County Records.
Bay County
All of the lands, estates, easements, hereditaments and appurtenances
in the County of Bay, described as follows:
The South 660 feet of the Southwest 1/4 of the Northeast 1/4 of
Section 23, Township 14 North, Range 6 East.
The East 1/2 of the Southeast 1/4 of Section 23, Township 14
North, Range 6 East, excepting therefrom the following described
parcel of land: To find the place of beginning of said excepted
parcel of land, commence at the Southeast corner of said
section; run thence N 88(DEGREE) 38' 00" W along the South line
of said section, 661.57 feet to the place of beginning of the
description of said excepted parcel of land; thence continuing N
88(DEGREE) 38' 00" W, 342.78 feet; thence N 00(DEGREE) 31' 52"
E, 1307.33 feet to the South 1/8 line of said section; thence S
88(DEGREE) 30' 00" E, 338.73 feet; thence S 00(DEGREE) 21' 15"
W, 1306.61 feet to the place of beginning of said excepted
parcel of land.
The East 1/2 of the West 1/2 of the Southwest 1/4 of Section 24,
Township 14 North, Range 6 East.
Branch County
All of the lands, estates, easements, hereditaments and appurtenances
in the County of Branch, described as follows:
A parcel of land in the Southeast 1/4 and the South 1/4 of the
Northeast 1/4 of Section 3, Township 5 South, Range 7 West,
being more particularly described as follows: Beginning at the
South 1/4 corner of said Section 3 and running thence N
00(DEGREE) 35' 26" E, 2664.48 feet along the North and South 1/4
line to the center of said Section 3; thence continuing along
said North and South 1/4 line N 00(DEGREE) 35' 26" E, 665.98
feet to the North line of the South 1/4 of the Northeast 1/4;
thence along said North line N 88(DEGREE) 42' 35" E, 2634.64
feet to the East line of said section; thence along said East
line S 00(DEGREE) 38' 56" W, 665.17 feet to the East 1/4 corner
of said section; thence continuing along said East line S
00(DEGREE) 28' 58" W, 1857.56 feet; thence North 66(DEGREE) 05'
38" W, 396.00 feet; thence parallel with the South line of said
section S 88(DEGREE) 29' 28" W, 647.00 feet; thence S 01(DEGREE)
30' 32" E, 701.00 feet; thence parallel with the South line of
said section S 88(DEGREE) 29' 28" W, 829.00 feet; thence S
01(DEGREE) 30' 32" E, 266.00 feet to the South line of said
section and the center line of Hayner Road right of way; thence
along said South line and said road right of way center line S
88(DEGREE) 29' 28" W, 833.36 feet to the point of beginning.
The North 10 acres of the South 1/2 of the Southeast 1/4 of the
Northeast 1/4 of Section 33, Township 5 South, Range 7 West,
being more particularly described as follows: To find the point
of beginning of this description, commence at the East 1/4
corner of said Section 33; thence N 00(DEGREE) 13' 38" E, along
the East line of said section, 328.30 feet to the point of
beginning of this description; thence continuing N 00(DEGREE)
13' 38" E, along said East line of said section, 330.57 feet to
the North line of the South 1/2 of the Southeast 1/4 of the
Northeast 1/4 of said section; thence N 89(DEGREE) 16' 18" W,
along said North line, 1317.34 feet to the West line of the
Southeast 1/4 of the Northeast 1/4 of said section; thence S
00(DEGREE) 23' 44" W, along said West line, 330.57 feet to the
South line of the North 10 acres of the South 1/2 of the
Southeast 1/4 of the Northeast 1/4 of said section; thence S
89(DEGREE) 16' 18" E, along said South line, 1318.33 feet to the
point of beginning.
The South 10 acres of the Southeast 1/4 of the Northeast 1/4 of
Section 33, Township 5 South, Range 7 West, being more
particularly described as follows: Beginning at the East 1/4
corner of said Section 33; running thence N 89(DEGREE) 18' 13"
W, along the East and West 1/4 line of said section, 1319.28
feet to the West line of the Southeast 1/4 of the Northeast 1/4
of said section; thence N 00(DEGREE) 23' 44" E, along said West
line of the Southeast 1/4 of the Northeast 1/4 of said section,
329.03 feet to the North line of the South 10 acres of said
Southeast 1/4 of the Northeast 1/4 of said section; thence S
89(DEGREE) 16' 18" E, along said North line of said South 10
acres of the Southeast 1/4 of the Northeast 1/4 of said section,
1318.33 feet to a point on the East section line of said
section; thence S 00(DEGREE) 13' 38" W, along said East section
line, 328.30 feet to the point of beginning.
A strip of land 190 feet in width across the North 1/2 of the
Southeast 1/4 of the Northeast 1/4 of Section 33, Township 5
South, Range 7 West, being more particularly described as
follows: To find the point of beginning of this description,
commence at the East 1/4 corner of said Section 33; thence N
00(DEGREE) 13' 38" E, along the East line of said section,
658.87 feet to the South line of the North 1/2 of the Southeast
1/4 of the Northeast 1/4 of said section; thence N 89(DEGREE)
16' 18" W, along said South line, 1051.07 feet to a point 215
feet East of the center line of Consumers Energy Company's
existing Verona Batavia electric transmission line, said point
being the point of beginning of this description; thence
continuing N 89(DEGREE) 16' 18" W, along said South line, 190.02
feet; thence N 00(DEGREE) 07' 27" E, along a line 25 feet East
of and parallel with the center line of said existing
transmission line, 659.58 feet to the North line of the North
1/2 of the Southeast 1/4 of the Northeast 1/4 of said section;
thence S 89(DEGREE) 14' 22" E, along said North line, 190.02
feet; thence S 00(DEGREE) 07' 27" W 659.48 feet to the point of
beginning.
A parcel of land in the Northeast 1/4 of Section 21, and in the
Northwest 1/4 of Section 22, Township 6 South, Range 7 West,
described as follows: Commencing at the Northeast corner of
said Section 21 and running thence N 89(DEGREE) 54' 51" E, 8.39
feet to a point in the center line of Snow Prairie Road; thence
along the center line of said Snow Prairie Road S 28(DEGREE) 04'
51" W, 629.86 feet to the point of beginning of this
description; thence S 65(DEGREE) 27' 32" E, 660.15 feet; thence
S 27(DEGREE) 45' 51" W, 600.00 feet; thence S 89(DEGREE) 30' 51"
W, 754.00 feet to a point on the center line of Snow Prairie
Road; thence along said Snow Prairie Road center line N
28(DEGREE) 04' 51" E, 919.78 feet to the point of beginning.
Excepting therefrom a parcel of land described as: Commencing
at the Northeast corner of said Section 21 and running thence N
89(DEGREE) 54' 51" E, 8.39 feet to a point in the center line of
Snow Prairie Road; thence along the center line of said Snow
Prairie Road S 28(DEGREE) 04' 51" W, 629.86 feet to the point of
beginning; thence continuing along said road center line, S
28(DEGREE) 04' 51" W, 207.96 feet; thence S 61(DEGREE) 55' 09"
E, 200.00 feet; thence N 28(DEGREE) 04' 51" E, 220.31 feet;
thence N 65(DEGREE) 27' 32" W, 200.06 feet to the point of
beginning.
A parcel of land in the Northeast 1/4 of the Northeast 1/4 of
Section 34, Township 6 South, Range 7 West, described as:
Commencing at the Northeast corner of said Section 34 and
running thence S 89(DEGREE) 58' 53" W, 1305.52 feet along the
North line of said Section 34 to the West line of the Northeast
1/4 of the Northeast 1/4 of said Section 34; thence along said
West line S 00(DEGREE) 07' 01" E, 446.35 feet to the place of
beginning of this description; thence continuing along said West
line S 00(DEGREE) 07' 01" E, 132.79 feet; thence N 64(DEGREE)
31' 39" E, 281.71 feet; thence N 20(DEGREE) 05' 33" W, 120.53
feet; thence S 64(DEGREE) 31' 39" W, 236.14 feet to the place of
beginning.
A parcel of land in the Northwest 1/4 of Section 10, Township 7
South, Range 7 West, described as follows: Commencing at the
North 1/4 corner of said Section 10 and running thence S
89(DEGREE) 36' 53" W, 442.72 feet along the North line of said
Section 10 and the center line of Lockwood Road to the point of
beginning of this description; thence continuing S 89(DEGREE)
36' 53" W, 251.26 feet along said North line and said center
line of Lockwood Road; thence S 01(DEGREE) 24' 39" E, 306.28
feet; thence N 89(DEGREE) 36' 53" E, 251.26 feet; thence N
01(DEGREE) 24' 39" W, 306.28 feet to the point of beginning.
The Southwest 1/4 of the Southwest 1/4, except the East 16 rods
and except the South 72 rods thereof, of Section 19, Township 7
South, Range 7 West, said parcel being more particularly
described as follows: To find the point of beginning of this
description, commence at the Southwest corner of said Section
19; thence N 00(DEGREE) 16' 17" E along the West line of said
section, 1188.00 feet to the point of beginning of this
description; thence continuing N 00(DEGREE) 16' 17" E, 145.11
feet to the North line of the Southwest 1/4 of the Southwest 1/4
of said section; thence S 89(DEGREE) 35' 36" E along said North
line, 1213.75 feet; thence S 00(DEGREE) 21' 29" W, 143.50 feet;
thence N 89(DEGREE) 40' 10" W, 1213.53 feet to the point of
beginning.
The Northeast 1/4 of the Northwest 1/4 of Section 28, Township 7
South, Range 8 West, more particularly described as follows:
Commence at the North 1/4 corner of said Section 28; thence
along the North and South 1/4 line of said Section 28, S
00(DEGREE) 33' 39" W, 1321.29 feet to the South line of the
Northeast 1/4 of the Northwest 1/4 of said Section 28; thence
along said South line N 89(DEGREE) 37' 27" W, 1309.33 feet to
the West line of said Northeast 1/4 of the Northwest 1/4; thence
along said West line N 00(DEGREE) 34' 14" E, 1323.64 feet to the
North line of said Section 28 and the center line of Carpenter
Road right of way; thence along said North section line and road
right of way center line S 89(DEGREE) 31' 18" E, 1309.10 feet to
the place of beginning.
A parcel of land in the North 1/2 of the Northwest 1/4
of Section 33, Township 7 South, Range 8 West, more particularly
described as follows: To find the place of beginning, commence
at the Northwest corner of said Section 33; thence S 89(DEGREE)
38' 48" E, 33.00 feet along the North line of said Section 33
and the center line of Douglas Road to the place of beginning of
this description; thence continuing S 89(DEGREE) 38' 48" E,
82.00 feet along said North line and said center line of Douglas
Road; thence S 00(DEGREE) 07' 14" W, 659.89 feet; thence N
89(DEGREE) 35' 48" W, 82.00 feet; thence N 00(DEGREE) 07' 14" E,
659.79 feet to the place of beginning.
Calhoun County
All of the lands, estates, easements, hereditaments and appurtenances
in the County of Calhoun, described as follows:
The West 1/2 of the West 1/2 of the Southwest 1/4 of Section 26,
Township 1 South, Range 7 West, excepting a parcel containing 1-
1/4 acres described as: Commencing at the Southeast corner of
the West 1/2 of the West 1/2 of the Southwest 1/4 of Section 26;
thence West 15 rods; thence North 13-1/3 rods; thence East 15
rods; thence South 13-1/3 rods to the place of beginning. Also
excepting the North 36 rods of the West 1/2 of the West 1/2 of
the Southwest 1/4 of Section 26. And also excepting a parcel
described as beginning at a point 15 rods East of the Southwest
corner of Section 26; thence North 16 rods; thence East 10 rods;
thence South 16 rods; thence West 10 rods to the point of
beginning. Excepting all oil, gas and other minerals in and
under the above-described parcel.
The North 70 acres of the East 120 acres of the Northeast 1/4 of
Section 33, Township 1 South, Range 7 West, more particularly
described as follows: Commencing at the Northeast corner of
said Section 33, the point of beginning of this description;
thence N 89(DEGREE) 39' 47" W, 1991.65 feet along the center
line of N Drive North and the North line of said Section 33;
thence S 00(DEGREE) 27' 57" E, 1544.61 feet; thence S 89(DEGREE)
31' 08" E, 1996.97 feet to a point on the center line of Nine
Mile road and the East section line of said Section 33; thence N
00(DEGREE) 39' 34" W, 1549.71 feet along said center line and
said East section line to the point of beginning. Excepting 1/2
of the oil and gas in and under the land herein described.
The North 330 feet of the Northeast 1/4 of the Northwest 1/4
lying East of Bellevue Highway, and the North 330 feet of the
West 1/2 of the Northwest 1/4 of the Northeast 1/4 of Section
33, Township 1 South, Range 7 West, more particularly described
as: Commencing at the North 1/4 corner of said Section 33, the
point of beginning of this description; thence N 88(DEGREE) 48'
08" W, 143.44 feet along the North line of said Section 33 and
the center line of N Drive North to a point in the center line
of Bellevue Highway; thence along the center line of said
Bellevue Highway S 18(DEGREE) 15' 28" W, 345.08 feet; thence S
88(DEGREE) 48' 08" E, 253.89 feet to a point on the North and
South 1/4 line of said Section 33; thence S 89(DEGREE) 39' 47"
E, 668.51 feet to a point on the East line of the West 1/2 of
the Northwest 1/4 of the Northeast 1/4 of said section; thence
along said East line N 00(DEGREE) 27' 57" W, 330.03 feet to a
point on the center line of N Drive North and the North line of
said Section 33; thence N 89(DEGREE) 39' 47" W, 663.89 feet to
the point of beginning. Excepting all oil, gas and mineral
rights owned by Erasma D. Butchbaker at the time of her death.
A strip of land across the South 433.62 feet (6 chains 57 links)
of the Southwest 1/4 of the Northwest 1/4 of Section 28,
Township 1 South, Range 7 West, and across the North 664.13 feet
(10 chains 6-1/4 links) of the Northwest 1/4 of the Southwest
1/4 of said Section 28, and being more particularly described as
follows: To find the point of beginning of this description,
commence at the West 1/4 corner of said Section 28; thence S
89(DEGREE) 29' 34" E, along the East and West 1/4 line of said
section, 965.53 feet to the point of beginning of this
description; thence S 01(DEGREE) 36' 31" W, along the Easterly
line of existing Consumers Energy Company property, 664.25 feet;
thence S 89(DEGREE) 29' 34" E, 254.21 feet; thence N 01(DEGREE)
01' 47" E, 664.15 feet to the East and West 1/4 line of said
section; thence continuing N 01(DEGREE) 01' 47" E, 433.64 feet;
thence N 89(DEGREE) 29' 34" W, 243.12 feet to the Easterly line
of existing Consumers Energy Company property; thence S
01(DEGREE) 36' 31" W, along said existing Consumers Energy
Company easterly property line, 433.70 feet to the point of
beginning. Except any part thereof that may lie Southerly of the
center of the bed of Battle Creek River. Excepting all oil, gas
and other minerals (but not sand, clay or gravel) in and under
the above described strip of land, but without any right
whatsoever of surface entry or surface use upon said land in
connection therewith.
A parcel of land in the Northwest 1/4 of Section 34, Township 1
South, Range 7 West, described as follows: To find the point of
beginning, commence at the West 1/4 corner of said Section 34;
thence N 00(DEGREE) 39' 34" W, 1926.90 feet along the West line
of said Section 34 and the center line of McAllister Road;
thence N 89(DEGREE) 20' 26" E, 33.00 feet; thence Northeasterly
a distance of 125.00 feet along the arc of a curve to the right
having a radius of 539.98 feet and a chord bearing N 05(DEGREE)
58' 20" E, 124.72 feet, to the point of beginning of this
description; thence Northeasterly a distance of 130.00 feet
along the arc of a curve to the right having a radius of 539.98
feet and a chord bearing N 19(DEGREE) 30' 03" E, 129.69 feet;
thence S 63(DEGREE) 36' 08" E, 169.56 feet; thence S 18(DEGREE)
58' 13" W, 88.87 feet; thence N 77(DEGREE) 23' 46" W, 170.39
feet to the point of beginning.
A parcel of land in the Northwest 1/4 of Section 34, Township 1
South, Range 7 West, described as follows: To find the point of
beginning, commence at the West 1/4 corner of said Section 34;
thence N 00(DEGREE) 39' 34" W, 1926.90 feet along the West line
of said Section 34 and the center line of McAllister Road;
thence N 89(DEGREE) 20' 26" E, 33.00 feet to the point of
beginning of this description; thence Northeasterly a distance
of 125.00 feet along the arc of a curve to the right having a
radius of 539.98 feet and a chord bearing N 05(DEGREE) 58' 20"
E, 124.72 feet; thence S 77(DEGREE) 23' 46" E, 170.39 feet;
thence S 18(DEGREE) 58' 13" W, 90.03 feet; thence S 89(DEGREE)
20' 26" W, 150.00 feet to the point of beginning.
The North 3/4 of the West 1/2 of the Northwest 1/4 of Section
34, Township 1 South, Range 7 West; except the Subdivision of
Hillcrest Acres; also except all that part of said North 3/4 of
the West 1/2 of the Northwest 1/4 of said Section 34 lying North
of the angling portion of McAllister Road (also called Gorsline
Road); also except a parcel of land described as beginning at
the Northeast corner of Lot 8 of Hillcrest Acres Subdivision;
thence East 150 feet; thence South 220 feet; thence West 150
feet to the Southeast corner of Lot 7 of said Hillcrest Acres;
thence North 220 feet along the East lines of said Lots 7 and 8
to the point of beginning; also except a parcel of land
described as beginning 1926.90 feet North of and 33 feet East of
the West 1/4 corner of said Section 34; thence Northeasterly
along the Southeasterly right of way line of McAllister Road
(Gorsline) 255 feet; thence S 62(DEGREE) 56' 44" E, 169.56 feet;
thence S 19(DEGREE) 37' 47" W, 178.90 feet; thence West 150 feet
to the place of beginning.
A parcel of land in the Southeast 1/4 of Section 2, Township 2
South, Range 7 West, more particularly described as: Commencing
at the South 1/4 corner of said Section 2, the point of
beginning of this description; thence N 89(DEGREE) 19' 18" E,
385.68 feet along the South line of said Section 2; thence N
00(DEGREE) 27' 23" W, 591.48 feet; thence S 84(DEGREE) 32' 37"
W, 243.00 feet; thence S 89(DEGREE) 32' 37" W, 143.60 feet to a
point on the North and South 1/4 line of said Section 2; thence
S 00(DEGREE) 27' 23" E, 571.80 feet along said North and South
1/4 line to the point of beginning.
A part of the Southwest 1/4 of and part of the Southeast 1/4 of
Section 2, Township 2 South, Range 7 West, described as:
Commencing at the South 1/4 corner of said Section 2 and running
thence N 00(DEGREE) 27' 23" W, 571.80 feet along the North and
South 1/4 line to the place of beginning of this description;
thence N 89(DEGREE) 32' 37" E, 143.60 feet; thence N 00(DEGREE)
27' 23" W, 1328.33 feet to the center line of Verona Road;
thence along said center line N 60(DEGREE) 40' 56" W, 338.26
feet; thence S 00(DEGREE) 27' 23" E, 1496.31 feet; thence N
89(DEGREE) 32' 37" E, 150.00 feet to the place of beginning.
The Easterly 230 feet of that part of the Northeast 1/4 of the
Southwest 1/4 of Section 2, Township 2 South, Range 7 West,
lying North of the center line of Verona Road, being more
particularly described as: Commencing at the East 1/4 corner of
said Section 2 and running thence S 89(DEGREE) 42' 17" W,
2652.11 feet along the East and West 1/4 line to the center of
said Section 2 and the point of beginning of this description;
thence continuing S 89(DEGREE) 42' 17" W, along said East and
West 1/4 line, 230.00 feet; thence S 00(DEGREE) 27' 23" E,
553.07 feet to the center line of Verona Road; thence along said
center line S 60(DEGREE) 40' 56" E, 264.98 feet to the North and
South 1/4 line of said Section; thence along said North and
South 1/4 line N 00(DEGREE) 27' 23" W, 684.02 feet to the point
of beginning.
A part of the North 3/4 of the West 1/8 of the Northeast 1/4 of
Section 11, Township 2 South, Range 7 West, said parcel being
more particularly described as follows: Commencing at the North
1/4 corner of said Section 11 and running thence S 00(DEGREE)
37' 01" E, 792.00 feet along the North and South 1/4 line of
said Section 11 to the point of beginning of this description;
thence continuing along said North and South 1/4 line S
00(DEGREE) 37' 01" E, 792.00 feet; thence N 89(DEGREE) 22' 59"
E, 110.00 feet; thence S 00(DEGREE) 37' 01" E, 402.42 feet
parallel with said North and South 1/4 line to the center line
of "I" Drive North road right of way; thence along said road
right of way center line N 89(DEGREE) 37' 21" E, 185.00 feet;
thence N 00(DEGREE) 37' 01" W, 403.19 feet parallel with said
North and South 1/4 line; thence S 89(DEGREE) 22' 59" W, 75.00
feet; thence N 00(DEGREE) 37' 01" W, 792.00 feet parallel with
said North and South 1/4 line; thence S 89(DEGREE) 22' 59" W,
220.00 feet to the point of beginning. Excepting one-half of
the minerals in and under the land herein described.
A part of the West 1/8 of the North 3/4 of the Northeast 1/4,
and also the West 5 acres of the East 1/2 of the West 1/2 of the
North 3/4 of the West 1/2 of the Northeast 1/4, of Section 11,
Township 2 South, Range 7 West, all of said land being more
particularly described as follows: Beginning at the North 1/4
corner of said Section 11; thence S 00(DEGREE) 37' 01" E along
the North and South 1/4 line of said section, 792.00 feet;
thence N 89(DEGREE) 22' 59" E, 220.00 feet; thence S 00(DEGREE)
37' 01" E parallel with said North and South 1/4 line, 792.00
feet; thence N 89(DEGREE) 22' 59" E, 75.00 feet; thence S
00(DEGREE) 37' 01" E parallel with said North and South 1/4
line, 403.19 feet to the center line of the road right of way of
"I" Drive North; thence N 89(DEGREE) 37' 21" E along said road
right of way center line, 145.71 feet; thence N 00(DEGREE) 36'
08" W, 1988.26 feet to the North line of said section; thence S
89(DEGREE) 19' 18" W along said North section line, 441.24 feet
to the point of beginning.
A part of the Southwest 1/4 of Section 14 lying Southerly of
Highway I-94 right of way, and a part of the Southeast 1/4 of
Section 14 lying Southerly of Highway I-94 right of way, in
Township 2 South, Range 7 West, described as: Commencing at the
South 1/4 corner of said section 14, the point of beginning of
this description; thence S 89(DEGREE) 50' 10" W, 917.73 feet
along the South line of said Section 14; thence N 00(DEGREE) 18'
34" W, 2115.12 feet to the Southerly right of way of Highway I-
94; thence along said Southerly right of way N 69(DEGREE) 14'
28" E, 974.89 feet to the North and South 1/4 line of said
Section 14; thence continuing along said Southerly right of way
N 69(DEGREE) 14' 28" E, 126.21 feet; thence S 00(DEGREE) 14' 17"
E, 2502.44 feet to the South line of said Section 14; thence S
89(DEGREE) 50' 10" W, 110.88 feet along said South line to the
point of beginning.
All that part of the Westerly 100 acres of that part of Section
23, Township 2 South, Range 7 West, lying Northerly of the North
right of way line of the railroad that lies East of a line that
is 230 feet West of and parallel to the North and South 1/4 line
of said Section 23, more particularly described as follows:
Commencing at the Northwest corner of Section 23, Township 2
South, Range 7 West, and running thence along the North line of
said Section 23 and the center line of the "F" Drive North right
of way N 89(DEGREE) 50' 10" E, 2405.09 feet to the point of
beginning of this description; thence continuing along said
North line and said center line of the road right of way N
89(DEGREE) 50' 10" E, 230.00 feet to the North 1/4 corner of
said Section 23; thence continuing along said North line and
said center line of the road right of way N 89(DEGREE) 50' 10"
E, 373.75 feet; thence S 00(DEGREE) 07' 42" W, 2234.70 feet to
the Northerly right of way of the railroad; thence along said
railroad right of way N 62(DEGREE) 19' 36" W, 666.02 feet;
thence parallel to said North and South 1/4 line N 00(DEGREE)
15' 54" W, 1922.96 feet to the point of beginning.
All those two parcels of land situate in the Township of Emmett,
County of Calhoun, State of Michigan, being that property of the
former Detroit, Toledo and Milwaukee Railroad Company further
bounded and described as follows according to a plan of survey
made by Sheridan Surveying Company, James H. Miller, Registered
Land Surveyor No. 27456, dated January 9, 1992, marked Exhibit
A, attached hereto and made a part hereof:
Parcel 1: Being the North 22 feet of the Northeast 1/4 of the
Southeast 1/4 and the South 50 feet of the Southeast 1/4 of the
Northeast 1/4 of Section 27, Township 2 South, Range 7 West, and
being further described as follows: Beginning at the East 1/4
corner of said Section 27; thence along the East line of said
Section 27 S 00(DEGREE) 19' 38" E, 22.00 feet; thence parallel
with the East and West 1/4 line of said section N 89(DEGREE) 39'
46" W, 1325.05 feet to the West line of the Northeast 1/4 of the
Southeast 1/4; thence N 00(DEGREE) 12' 27" W, 22.00 feet to the
Northwest corner of the Northeast 1/4 of the Southeast 1/4;
thence along the West line of the Southeast 1/4 of the Northeast
1/4 N 00(DEGREE) 04' 02" W, 50.00 feet; thence parallel with the
East and West 1/4 line of said section, S 89(DEGREE) 39' 46" E,
1325.02 feet to the East line of said section; thence
S 00(DEGREE) 02' 48" E, 50.00 feet to the point of beginning.
Parcel 2: Being the North 33 feet of the West 1/2 of the
Southwest 1/4, the South 33 feet of the West 1/2 of the
Northwest 1/4, the North 50 feet of the East 1/2 of the
Southwest 1/4, and a strip which varies from 0.00 feet to 50
feet in width across the North 50 feet of the Southeast 1/4 of
Section 26, Township 2 South, Range 7 West, and being further
described as follows: Beginning at the West 1/4 corner of said
Section 26; thence along the West line of said Section 26 N
00(DEGREE) 02' 48" W, 33.00 feet; thence parallel with the East
and West 1/4 line of said section N 89(DEGREE) 50' 00" E,
1325.63 feet to the East line of the Southwest 1/4 of the
Northwest 1/4; thence S 00(DEGREE) 09' 18" E, 33.00 feet to the
Southeast corner of said Southwest 1/4 of the Northwest 1/4;
thence along the East and West 1/4 line of said section N
89(DEGREE) 50' 00" E, 1325.70 feet to the center of said
section; thence continuing along the East and West 1/4 line of
said section N 89(DEGREE) 50' 00" E, 2619.68 feet to a point
which lies S 89(DEGREE) 50' 00" W, 28.00 feet from the East 1/4
corner, said point being on a railroad curve concave to the
Northwest and having a radius of 1763.18 feet and a degree of
curve of 3(DEGREE) 15' 00"; thence Southwesterly along said
curve through a central angle of 13(DEGREE) 40' 43", 420.94
feet; thence parallel with and 50.00 feet South of the East and
West 1/4 line of said section S 89(DEGREE) 50' 00" W, 2202.66
feet to the North and South 1/4 line of said section; thence
continuing S 89(DEGREE) 50' 00" W, 1325.66 feet to the East line
of the Northwest 1/4 of the Southwest 1/4 of said Section 26;
thence along said East line N 00(DEGREE) 17' 43" W, 17.00 feet;
thence parallel with and 33.00 feet South of said East and West
1/4 line S 89(DEGREE) 50' 00" W, 1325.67 feet to the West line
of said Section 26; thence N 00(DEGREE) 19' 38" W, 33.00 feet to
the point of beginning.
The Northwest 1/4 of Section 11, Township 3 South, Range 7 West,
except a parcel described in Liber 113 of Deeds at page 284 as
follows: A strip of land 16 feet in width running in a
triangular course across the Southeast part of the West 1/2 of
the Northwest 1/4 of Section 11, 60 rods, along on the line so
described as the Fanning Drain as described on the profile of
said drain. Also excepting therefrom: Beginning at the
Northwest corner of Section 11, Township 3 South, Range 7 West;
thence East 42 rods; thence 35-1/2 rods, more or less, to the
center of a ditch; thence Westerly in the center of the ditch to
the West section line; thence North to the place of beginning.
Excepting all oil, gas, and other minerals, but not including
sand, clay, or gravel, in, on, or underlying said parcel of
land.
A parcel of land in the Northeast 1/4 of Section 35, Township 2
South, Range 7 West, more particularly described as: To find
the point of beginning, commence at the North 1/4 corner of said
Section 35; thence S 89(DEGREE) 13' 40" E, along the North line
of said section, 327.76 feet to the point of beginning of this
description; thence S 00(DEGREE) 46' 20" W, 225.00 feet; thence
S 89(DEGREE) 13' 40" E, 220.00 feet; thence N 00(DEGREE) 46' 20"
E, 225.00 feet to the North line of said section; thence N
89(DEGREE) 13' 40" W, along said North section line, 220.00 feet
to the point of beginning.
All that part of the East 1/2 of the Northwest 1/4 of Section 34
lying Southerly and Easterly of the center line of Oak Grove
Road, and a portion of that part of the West 1/2 of the
Northeast 1/4 of Section 34 lying Southerly and Easterly of the
center line of Oak Grove Road, all being in Township 3 South,
Range 7 West, and all being more particularly described as
follows: To find the point of beginning of this description,
commence at the East 1/4 corner of said Section 34; thence N
89(DEGREE) 41' 14" W along the East and West 1/4 line of said
section, 1325.17 feet to the point of beginning of this
description; thence continuing N 89(DEGREE) 41' 14" W along said
East and West 1/4 line, 2652.24 feet to the West line of the
East 1/2 of the Northwest 1/4 of said section; thence N
00(DEGREE) 05' 00" W along said West line, 371.69 feet to a
point on the center line of Oak Grove Road; thence N 44(DEGREE)
50' 04" E along said center line of said road, 3100.64 feet;
thence S 45(DEGREE) 09' 56" E, 105.01 feet; thence S 89(DEGREE)
35' 32" E, 387.24 feet to a point on the East line of the West
1/2 of the Northeast 1/4 of said section; thence S 00(DEGREE)
06' 44" E along said East line, 2508.19 feet to the point of
beginning.
Part of the East 1/2 of the Northwest 1/4 and the West 1/2 of
the Northeast 1/4 lying North of Oak Grove Road in Section 34,
Township 3 South, Range 7 West, described as: Commencing at the
North 1/4 corner of said Section 34; thence N 89(DEGREE) 41' 21"
W, 14.21 feet along the North section line to the point of
beginning of this description; thence continuing along said
North section line N 89(DEGREE) 41' 21" W, 1311.22 feet to the
West line of the East 1/2 of the Northwest 1/4 of said Section
34; thence S 00(DEGREE) 05' 00" E, 403.13 feet along said West
line; thence S 45(DEGREE) 09' 56" E, 1320.94 feet to a point in
the center line of Oak Grove Road; thence along said center line
N 44(DEGREE) 50' 04" E, 1201.24 feet; thence N 44(DEGREE) 51'
13" W, 670.75 feet to the point of beginning.
The West 1/2 of the Northeast 1/4, and the Northeast 1/4 of the
Northeast 1/4, of Section 15, Township 4 South, Range 7 West,
all being more particularly described as follows: Beginning at
the Northeast corner of said Section 15; thence N 89(DEGREE) 24'
09" W along the North line of said section 2695.10 feet to the
North 1/4 corner of said section; thence S 00(DEGREE) 32' 21" W
along the North and South 1/4 line of said section and the
center line of 9-1/2 Mile Road, 2663.23 feet to the center of
said section; thence S 89(DEGREE) 21' 55" E along the East and
West 1/4 line of said section and the center line of "Q" Drive
South, 1347.60 feet to the East line of the West 1/2 of the
Northeast 1/4 of said section; thence N 00(DEGREE) 32' 17" E
along said East line of the West 1/2 of the Northeast 1/4 of
said section, 1332.06 feet to the South line of the Northeast
1/4 of the Northeast 1/4 of said section; thence S 89(DEGREE)
23' 02" E along said South line of the Northeast 1/4 of the
Northeast 1/4 of said section 1347.58 feet to the East line of
said section; thence N 00(DEGREE) 32' 13" E along said East line
of said section, 1332.50 feet to the point of beginning.
The East 1/4 of Section 27 lying South of Highway M-60, except
the East 1/2 of the Northeast 1/4 of said section; also the East
132 feet of the Northwest 1/4 of the Southeast 1/4 of Section 27
lying South of Highway M-60, all in Township 4 South, Range 7
West, more particularly described as: Commencing at the East
1/4 corner of said Section 27, the point of beginning of this
description; thence along the East and West 1/4 line N
89(DEGREE) 39' 27" W, 542.66 feet to a point on the center line
of Highway M-60; thence along said center line S 45(DEGREE) 25'
00" W, 223.78 feet to a point on a curve to the right having a
radius of 5729.65 feet; thence Southwesterly 989.28 feet along
the arc of said curve through a central angle of 09(DEGREE) 53'
34" to the West line of the East 132.00 feet of the Northwest
1/4 of the Southeast 1/4 of said section; thence along said West
line S 00(DEGREE) 08' 15" W, 537.92 feet to the South line of
said Northwest 1/4 of the Southeast 1/4; thence along said South
line S 89(DEGREE) 43' 36" E, 132.00 feet to the West line of the
East 1/4 of said Section 27; thence along said West line S
00(DEGREE) 08' 15" W, 1331.36 feet to the South line of said
Section 27; thence along said South line S 89(DEGREE) 47' 43" E,
1336.13 feet to the East line of said Section 27; thence along
said East line N 00(DEGREE) 01' 43" W, 2659.54 feet to the point
of beginning.
A parcel of land in the Southeast 1/4 of Section 34, Township 4
South, Range 7 West, more particularly described as follows: To
find the place of beginning, commence at the East 1/4 corner of
said Section 34; thence along the East and West 1/4 line and the
center line of "W" Drive South N 89(DEGREE) 47' 34" W, 835.02
feet to the place of beginning of this description; thence
continuing along said East and West 1/4 line and said road
center line N 89(DEGREE) 47' 34" W, 230.01 feet; thence S
00(DEGREE) 35' 19" W, 595.01 feet; thence N 89(DEGREE) 47' 34"
W, 20.70 feet; thence S 00(DEGREE) 35' 19" W, 1112.76 feet;
thence S 89(DEGREE) 47' 24" E, 250.71 feet; thence N 00(DEGREE)
35' 19" E, 1707.78 feet to the place of beginning.
Eaton County
All of the lands, estates, easements, hereditaments and appurtenances
in the County of Eaton, described as follows:
A parcel of land in the Southeast 1/4 of the Southwest 1/4 of
Section 9, Township 1 North, Range 4 West, described as follows:
Beginning at the South 1/4 corner of said section; running
thence North 89(DEGREE) 27' 05" West along the South line of
said section, 321.00 feet; thence North 0(DEGREE) 04' 51" West,
271.50 feet; thence South 89(DEGREE) 27' 05" East, 321.00 feet
to the North and South 1/4 line of said section; thence South
0(DEGREE) 04' 51" East along said North and South 1/4 line of
said section, 271.50 feet to the place of beginning of this
description.
A parcel of land in the Southeast 1/4 of the Southwest 1/4 of
Section 9, Township 1 North, Range 4 West, described as follows:
To find the place of beginning of this description, commence at
the South 1/4 corner of said section; run thence North 0(DEGREE)
04' 51" West along the North and South 1/4 line of said section,
271.50 feet to the place of beginning of this description;
running thence North 89(DEGREE) 27' 05" West, 261.00 feet;
thence North 0(DEGREE) 04' 51" West, 200.00 feet; thence South
89(DEGREE) 34' 06" East, 261.00 feet to the North and South 1/4
line of said section; thence South 0(DEGREE) 04' 51" East along
said North and South 1/4 line of said section, 200.53 feet to
the place of beginning.
A parcel of land in the Southeast 1/4 of the Southwest 1/4 of
Section 9, Township 1 North, Range 4 West, described as follows:
To find the place of beginning of this description, commence at
the South 1/4 corner of said section; run thence North 0(DEGREE)
04' 51" West along the North and South 1/4 line of said section,
472.03 feet to the place of beginning of this description;
running thence North 89(DEGREE) 34' 06" West, 261.00 feet;
thence North 0(DEGREE) 04' 51" West, 854.05 feet to the South
1/8 line of said South section; thence South 89(DEGREE) 30' 19"
East along said South 1/8 of said section, 261.00 feet to the
North and South 1/4 line of said section; thence South 0(DEGREE)
04' 51" East along said North and South 1/4 line of said
section, 853.76 feet to the place of beginning.
The West 350 feet of the South 1/2 of the Southeast 1/4 of the
Northwest 1/4 of Section 10, Township 2 North, Range 4 West,
being more particularly described as follows: To find the point
of beginning of this description, commence at the North 1/4
corner of said section; run thence North 89(DEGREE) 31' 42" West
along the North line of said section, 1322.84 feet to the West
1/8 line of said section; thence South 1(DEGREE) 06' 11" West
along said West 1/8 line of said section, 1988.96 feet to the
North line of the South 1/2 of the Southeast 1/4 of the
Northwest 1/4 of said section and the point of beginning for
this description; running thence South 89(DEGREE) 43' 20" East
along said North line of the South 1/2 of the Southeast 1/4 of
the Northwest 1/4 of said section, 350.04 feet; thence South
1(DEGREE) 06' 11" West, 662.59 feet to the East and West 1/4
line of said section; thence North 89(DEGREE) 47' 12" West along
said East and West 1/4 line of said section, 350.04 feet to the
West 1/8 line of said section; thence North 1(DEGREE) 06' 11"
East along said West 1/8 line of said section, 662.99 feet to
the point of beginning.
A parcel of land in the East 1/2 of the Northwest 1/4 of Section
15, Township 2 North, Range 4 West, described as follows: To
find the place of beginning, commence at the North 1/4 corner of
said section; run thence North 89(DEGREE) 50' 49" West along the
North line of the Northwest 1/4 of said section, 940.09 feet to
the place of beginning; thence South 0(DEGREE) 36' 37" East,
330.00 feet; thence North 89(DEGREE) 50' 49" West, 390.00 feet
to the West 1/8 line of said section; thence North 0(DEGREE) 36'
37" West along the West 1/8 line of said section, 330.00 feet to
the North line of the Northwest 1/4 of said section; thence
South 89(DEGREE) 50' 49" East along the North line of the
Northwest 1/4 of said section, 390.00 feet to the place of
beginning.
The West 350 feet of the East 1/2 of the Northwest 1/4
of Section 22, Township 2 North, Range 4 West, described
as follows: To find the place of beginning of this description,
commence at the Northwest corner of said section; run thence
North 89(DEGREE) 57' 40" East along the North line of said
section, 1327.54 feet to the West 1/8 line of said section and
the place of beginning of this description; thence continuing
North 89(DEGREE) 57' 40" East along said North line of said
section, 350.02 feet; thence South 0(DEGREE) 30' 20" East,
2652.35 feet to the East and West 1/4 line of said section;
thence North 89(DEGREE) 51' 37" West along said East and West
1/4 line of said section, 350.02 feet to the West 1/8 line of
said section; thence North 0(DEGREE) 30' 20" West along said
West 1/8 line of said section, 2651.28 feet to the place of
beginning.
A parcel of land in Section 36, Township 2 North, Range 3 West,
described as follows: To find the place of beginning of this
description, commence at the South 1/4 post of said Section 36;
run thence West along the South line of said section, 286.00
feet to the place of beginning of this description; thence North
00(DEGREE) 02' 17" West, 269.00 feet; thence East, 286.00 feet
to a point on the North and South 1/4 line of said section;
thence North 00(DEGREE) 02' 17" West along said North and South
1/4 line, 494.56 feet; thence West, 386.00 feet; thence South
00(DEGREE) 02' 17" East parallel with said North and South 1/4
line, 763.56 feet to a point on the South line of said section;
thence East along said South line, 100.00 feet to the point of
beginning.
Emmet County
All of the lands, estates, easements, hereditaments and appurtenances
in the County of Emmet, described as follows:
A parcel of land in the North 1/2 of the Southeast 1/4 of
Section 10, Township 39 North, Range 4 West, being part of
Government Lot No. 3, described as: To find the place of
beginning, commence at the Southeast corner of said section; run
thence North 0(DEGREE) 32' 44" East along the East line of
said section, 1186.82 feet to an iron; thence North 5(DEGREE)
13' 13" West, 32.1 feet to a P.K. nail said P.K. nail being
South 05(DEGREE) 13' 13" East, 100.33 feet from the South line
of Government Lot No. 2; thence South 89(DEGREE) 24' 54" West,
parallel with the South line of Government Lot No. 2, 1314.36
feet to an iron on the East line of Government Lot No. 3, said
iron being North 0(DEGREE) 32' 44" East 1221.34 feet of the
Southeast corner of Government Lot No. 3; thence North 0(DEGREE)
32' 44" East, along the East line of Government Lot No. 3, 530.0
feet to a rebar and the place of beginning of this description;
thence South 89(DEGREE) 18' 30" West, 50.0 feet to a rebar;
thence North 0(DEGREE) 32' 44" East parallel with the East line
of Government Lot No. 3, 438.82 feet to a rebar near the South
shoreline of Straits of Mackinac; thence continuing North
0(DEGREE) 32' 44" East to the South shoreline of Straits of
Mackinac; thence Easterly along the South shoreline of Straits
of Mackinac to a point that is North 0(DEGREE) 32' 44" East of
the place of beginning; thence South 0(DEGREE) 32' 44" West to a
large stone; thence South 00(DEGREE) 32' 44" West, along the
East line of Government Lot No. 3, 474.66 feet to the place of
beginning.
Ingham County
All of the lands, estates, easements, hereditaments and appurtenances
in the County of Ingham, described as follows:
A parcel of land in the Northwest 1/4 of Section 9, Township 4
North, Range 2 West, being a part of the Original Plat of the
Village of Michigan (now City of Lansing), described as
beginning on the North line of Willow Street at the Southwest
corner of Lot 8, Block 25 of said Original Plat; run thence
North along the West line of said Lot 8, 200 feet; thence East a
distance of 90.75 feet; thence South a distance of 200 feet to
the North line of Willow Street; thence West 90.75 feet to the
place of beginning, being also known as the South 200 feet of
Lot 67 of Assessor's Plat No. 15 of part of the Original Block
25 of the Plat of Michigan and Outlot "A" of Glendale Place,
according to the recorded plat thereof as recorded in Liber 10
of Plats on page 18, Ingham County Records; together with all
easements for walks or driveways appurtenant thereto or in
anywise connected therewith.
That part of Lots 32 and 33 of River View Park No. 1
Subdivision, in the Northeast 1/4 of Section 8, Township 4
North, Range 2 West, described as follows: Commence at a point
14.77 feet West of the Northeast corner of said Lot 33 and run
thence Westerly along the Northerly line of said Lots 32 and 33,
60.00 feet; thence S 37(DEGREE) 16' W, 191.9 feet to the
Southerly lot line; thence S 73(DEGREE) 29' 50" E, 75.15 feet;
thence S 65(DEGREE) 43' 10" E, 53.51 feet; thence Northeasterly
to the place of beginning.
Lot 34 and that part of Lot 33 of River View Park No. 1
Subdivision, in the Northeast 1/4 of Section 8, Township 4
North, Range 2 West, described as: Commencing 14.77 feet West
of the Northwest corner of said Lot 34 and running thence East
14.77 feet; thence S 09(DEGREE) 11' W, 200.70 feet along the
West line of said Lot 34; thence N 65(DEGREE) 43' 20" W, 38.00
feet along the South line of said Lot 33; thence Northeasterly
to the place of beginning.
Lots 8, 9, 10 and 11 of Culver's Subdivision, being a part of
the Northwest 1/4 of Section 9, Township 4 North, Range 2 West,
according to the plat thereof, as recorded in Liber 7 on Page 7,
Ingham County Records.
Ionia County
All of the lands, estates, easements, hereditaments and appurtenances
in the County of Ionia described as follows:
A strip of land 100 feet wide across a portion of the
Southwest 1/4 of Section 1, Township 8 North, Range 8 West,
described as follows: To find the point of beginning of this
description, commence at the West 1/4 corner of said section;
run thence South 0(DEGREE) 28' 49" West along the West line of
said section, 299.38 feet; thence South 56(DEGREE) 58' 28" East,
426.47 feet to the center line of Long Lake Road and the point
of beginning for this description; thence continuing South
56(DEGREE) 58' 28" East, 590.64 feet to the Northwest right of
way line of the C & O Railroad; thence on a curve concave to the
Northwest along said railroad right of way line a chord bearing
and distance of South 57(DEGREE) 43' 57" West, 50.72 feet, said
curve having a radius of 668.77 feet, to the end of said curve;
thence continuing along said railroad right of way line, South
59(DEGREE) 54' 00" West, 60.44 feet; thence North 56(DEGREE) 58'
28" West, 395.53 feet to a point near the Easterly bank of the
Flat River; thence continuing North 56(DEGREE) 58' 28" West to
the thread of said river; thence Northerly along said thread to
the center line of Long Lake Road; thence South 87(DEGREE) 28'
00" East along said center line to the point of beginning.
Isabella County
All of the lands, estates, easements, hereditaments and appurtenances
in the County of Isabella described as follows:
Two triangular shaped parcels of land situate in the City of
Mt. Pleasant, County of Isabella and State of Michigan, being
parts of the Northwest 1/4 of Section 15, Township 14 North,
Range 4 West, separately bounded and described as follows:
Parcel 1
Beginning at a point in the West 1/8 line of said Section 15,
distant 1320 feet measured due South, along said West 1/8 line,
from the North line of said Section 15, said North line being
coincident with the center line of Pickard Avenue; extending
from said beginning point the following three courses and
distances:
(1) Due South, along said West 1/8 line, 295 feet, more or
less, to a point in the Easterly line of the 100 foot
wide right of way formerly of The Ann
Arbor Railroad Company; thence
(2) North 20 degrees West, along said Easterly line of
right of way, 305 feet, more or less, to a corner of
land now or formerly of the State of Michigan; and
thence
(3) Due East, by the last mentioned land, 82.50 feet to
the place of beginning.
Parcel 2:
Beginning at a point where the Southerly line of the parcel of
land which was acquired by David D. Coyne and Mark K. Coyne from
John M. Chase, Jr., Trustee of the property of The Ann Arbor
Railroad Company by deed dated February 12, 1980 and recorded in
Liber 460 at page 505 of the Isabella County Records meets the
Easterly line of the 100 foot wide right of way formerly of The
Ann Arbor Railroad Company, said beginning point being at the
distance of 740 feet, more or less, measured Southwardly, along
said Easterly line of right of way, from the North line of said
Section 15, said North line being coincident with the center
line of Pickard Avenue; extending from said beginning point the
following four courses and distances:
(1) Due East, along said Southerly line of the parcel of
land acquired as aforesaid in Liber 460 at page 505,
the distance of 85 feet, more or less, to a point in a
Westerly line of land now or formerly of the State of
Michigan; thence
(2) Due South, by the last mentioned land, 369.60 feet to
a point in said Easterly line of 100 foot wide right
of way; the following two courses and distances being
along said Easterly line; thence
(3) North 20 degrees West, 85 feet, more or less, to a
point of curve; and thence
(4) Northwardly, on a curve to the right having a radius
of 2814.34 feet, the arc distance of 290 feet, more or
less, to the place of beginning.
Kent County
All of the lands, estates, easements, hereditaments and appurtenances
in the County of Kent, described as follows:
Part of the Northwest 1/4 of the Northwest 1/4 of Section 13,
Township 8 North, Range 10 West, beginning on the Southerly line
thereof, 792 feet North 88(DEGREE) 16' East from a point on the
West section line, which point is 1320 feet North of the West
1/4 corner, Section 13; thence North 88(DEGREE) 16' East, 233.66
feet along said Southerly line to a point which is 280 feet
Westerly from the West 1/8 line; thence North 00(DEGREE) 18' 14"
West parallel with said West 1/8 line, 751.48 feet to a point on
the Southerly line of Old Belding Road which point is 282.06
feet West (measured along said Southerly line) from the West 1/8
line; thence Westerly along said road line, 232.85 feet along a
5762.578 foot radius curve to the right, the long chord of which
bears South 85(DEGREE) 01' 51" West, 232.83 feet; thence South
00(DEGREE) 14' 20" East, 573.37 feet to a point which is 792
feet East and 165.0 feet North of the Southwest corner of said
Northwest 1/4 of the Northwest 1/4; thence South 165.0 feet to
the point of beginning.
A triangular shaped parcel of land in the South 1/2 of the
Southeast 1/4 of
Section 26, Township 6 North, Range 11 West, described as
follows: To find the point of beginning of this description,
commence at the Southeast corner of said Section 26; run thence
North 0(DEGREE) 26' 10" East along the East line of the
Southeast 1/4 of said section, 1328.94 feet to the South 1/8
line of said section; thence North 87(DEGREE) 42' 09" West along
said South 1/8 line of said section, 1480.33 feet to the
Northeast corner of the parcel described in clause (3) of
Exhibit A of the deed recorded in Liber 2242 of Deeds at
pages 446-447, Kent County Records, which is the point of
beginning of this description; thence South 0(DEGREE) 25' 44"
West 370.00 feet along the East line of said parcel described in
clause (3) of Exhibit A of said deed recorded in Liber 2242 of
Deeds at pages 446-447, Kent County Records; thence North
43(DEGREE) 38' 12" West, 531.72 feet to a point on the South 1/8
line of said section and the North line of said parcel described
in clause (3) of Exhibit A of said deed recorded in Liber 2242
of Deeds at pages 446-447, Kent County Records; thence South
87(DEGREE) 42' 09" East along said South 1/8 line of said
section and said North line of said parcel described in clause
(3) of Exhibit A of said deed recorded in Liber 2242 of Deeds at
pages 446-447, Kent County Records, 370.00 feet to the point of
beginning.
Lots 5 through 10, inclusive, and the Northerly 1/2 of Lot 11
lying Westerly of the former Michigan Railroad right of way the
Westerly line of right of way being 75 feet Westerly from the
center line of the main track of said railroad and all that part
of Alabastine Avenue 40 feet wide lying Northeasterly of and
adjacent to said lots hereinabove described, all in Block 2 of
Alabastine Company's Addition to the City of Grand Rapids in the
Northeast 1/4 of Section 2, Township 6 North, Range 12 West,
according to the recorded plat thereof.
Lot 50 of Maple Creek Plat No. 1, being a subdivision of the
East 1/2 of the Southwest 1/4 of Section 28, Township 6
North, Range 11 West, according to the recorded plat thereof.
Manistee County
All of the lands, estates, easements, hereditaments and appurtenances
in the County of Manistee, described as follows:
The Northwest 1/4 of the Southeast 1/4 of Section 32,
Township 21 North, Range 13 West, Norman Township.
The South 1/2 of the North 1/2 of the Northeast 1/4 of the
Southwest 1/4 of Section 6, Township 21 North, Range 13 West.
A parcel of land in Section 12, Township 21 North, Range 14
West, described as commencing at the Northwest corner of the
Southwest 1/4 of the Northwest 1/4 of said section; thence South
along the West line of the Southwest 1/4 of the Northwest 1/4, a
distance of 440 feet; thence East and parallel to North line of
said description to a point 50 feet West of the West line of the
right of way; thence Northerly and parallel with the right of
way to the North line of the Southwest 1/4 of the Northwest 1/4;
thence West along the North line to the place of beginning.
Mason County
All of the lands, estates, easements, hereditaments and appurtenances
in the County of Mason, described as follows:
Lots 8, 9, 10 and 11 of Elkhorn Subdivision, according to the
plat thereof as recorded in Liber 2 of Plats on page 32, Mason
County Records, the same being a part of Government Lot 1 in
Section 1, Township 17 North, Range 18 West.
The South 1/2 of the Northwest 1/4 of the Southwest 1/4
of Section 5 and the East 1/2 of the East 1/2 of the
Northeast 1/4 of the Northwest 1/4 of Section 9, all in Township
20 North, Range 16 West, Freesoil Township.
St. Joseph County
All of the lands, estates, easements, hereditaments and appurtenances
in the County of St. Joseph, described as follows:
All that portion of the Southeast 1/4 of the Northeast 1/4 lying
Northerly of a proposed 230 foot wide easement in Section 13,
Township 8 South, Range 9 West, and more particularly described
as follows: Commencing at the Northeast corner of said Section
13; thence along the East line of said Section 13 S 00(DEGREE)
45' 39" W, 1320.71 feet to the point of beginning of this
description; thence continuing along said East line S 00(DEGREE)
45' 39" W, 22.20 feet to a point on the Northerly line of said
proposed easement; thence along said Northerly line S 64(DEGREE)
53' 51" W, 1473.83 feet to a point on the West line of the
Southeast 1/4 of the Northeast 1/4 of said Section 13; thence
along said West line N 00(DEGREE) 45' 07" E, 665.47 feet to a
point on the North line of the Southeast 1/4 of the Northeast
1/4 of said Section 13; thence along said North line S
89(DEGREE) 13' 25" E, 1326.31 feet to the point of beginning.
Commencing at the Northwest corner of the Southeast 1/4 of the
Northwest 1/4 of Section 13, Township 8 South, Range 9 West;
thence South along the 1/8 line 1885 feet to the point of
beginning of this description. The boundary runs thence East 540
feet; thence Northeasterly to a point 750 feet East of the North
and South 1/8 line and 1045 feet South of the East and West 1/8
line; thence continues Northeasterly to a point 780 feet South
of the East and West 1/8 line and 340 feet West of the North and
South 1/4 line; thence East 340 feet to the North and South 1/4
line to a point 780 feet South of the East and West 1/8 line;
thence South along the North and South 1/4 line to Fawn River;
thence West along Fawn River to the North and South 1/8 line;
thence North along the North and South 1/8 line to the point of
beginning.
The East 416.51 feet of the North 720 feet of the Southwest 1/4
of the Southwest 1/4 of Section 15, Township 8 South, Range 9
West, said parcel being more particularly described as:
Commencing at the Northwest corner of Section 22, Township 8
South, Range 9 West; running thence N 89(DEGREE) 55' 17" E,
1322.65 feet along the North line of said Section 22 to the East
line of the Southwest 1/4 of the Southwest 1/4 of said Section
15; thence along said East line N 00(DEGREE) 35' 44" E, 602.61
feet to the point of beginning of this description; thence
continuing along said East line N 00(DEGREE) 35' 44" E, 720.05
feet to the North line of the Southwest 1/4 of the Southwest 1/4
of said Section 15; thence along said North line N 89(DEGREE)
53' 31" W, 416.52 feet; thence S 00(DEGREE) 35' 44" W, 720.05
feet; thence S 89(DEGREE) 53' 31" E, 416.52 feet to the point of
beginning.
All that part of the Southwest 1/4 of the Southwest 1/4 of
Section 15, Township 8 South, Range 9 West, described as
follows: Commencing at the Southwest corner of said Section 15
which is the point of beginning of this description; running
thence North along the section line, 606.93 feet; thence N
89(DEGREE) 29' 14" E, 1322.34 feet; thence S 00(DEGREE) 01' 40"
E along the 1/2-1/4 line, 602.61 feet to the Southeast corner of
the Southwest 1/4 of the Southwest 1/4 of said Section 15;
thence S 89(DEGREE) 18' 02" W along the South line of said
section 1322.67 feet to the point of beginning. Also the
Northwest 1/4 of the Northwest 1/4 of Section 22, Township 8
South, Range 9 West. Also, commencing at the Northeast corner
of the Northwest 1/4 of the Northwest 1/4 of Section 22,
Township 8 South, Range 9 West; thence East 28-1/4 rods; thence
South 57 rods; thence West 28-1/4 rods; thence North 57 rods to
the place of beginning.
The Southeast 1/4 of the North fractional 1/4 of Section 21,
Township 8 South, Range 9 West, being more particularly
described as follows: Commencing at the Southeast corner of the
Northeast fractional 1/4 of said Section 21, said point being a
point on the Michigan/Indiana State Line, and the point of
beginning of this description; thence along said State Line,
which is also the center line of the State Line Road right of
way N 89(DEGREE) 24' 12" W, 1316.46 feet to the West line of the
Southeast 1/4 of the Northeast fractional 1/4 of said Section 21
and the center line of the Kime Road right of way; thence along
said West line and the center line of the road right of way N
00(DEGREE) 23' 26" E, 1290.64 feet to the North line of the
Southeast 1/4 of the Northeast fractional 1/4 of said Section
21; thence along said North line S 89(DEGREE) 32' 06" E 1319.12
feet to the East line of said Section 21 and the center line of
the Carls Road right of way; thence along said East line and the
center line of the road right of way S 00(DEGREE) 30' 33" W,
1293.67 feet to the point of beginning.
Van Buren County
All of the lands, estates, easements, hereditaments and appurtenances
in the County of Van Buren, described as follows:
Lot 3, EXCEPT Green Acres, ALSO EXCEPT beginning at the
Northeast corner of Lot 1 of Wait Subdivision; thence Northerly
along the 1/8 line, 132 feet; thence Southwesterly to the
Southeast corner of Lot 13 of said Green Acres; thence
continuing Southwesterly along the lot line to the Southwest
corner of said Lot 13; thence Southerly along the road to the
Northwest corner of Lot 2 of Wait Subdivision; thence
Northeasterly along the Northerly line of said Lots 1 and 2 to
the place of beginning.
SECTION 9. The Company is a transmitting utility under
Section 9401(5) of the Michigan Uniform Commercial Code
(M.C.L. 440.9401(5)) as defined in M.C.L. 440.9105(n).
<PAGE>
<PAGE> S-1
IN WITNESS WHEREOF, said Consumers Energy Company has caused this
Supplemental Indenture to be executed in its corporate name by its
Chairman of the Board, President, a Vice President or its Treasurer and
its corporate seal to be hereunto affixed and to be attested by its
Secretary or an Assistant Secretary, and said The Chase Manhattan Bank, as
Trustee as aforesaid, to evidence its acceptance hereof, has caused this
Supplemental Indenture to be executed in its corporate name by an
Assistant Vice President and its corporate seal to be hereunto affixed and
to be attested by a Trust Officer, in several counterparts, all as of the
day and year first above written.
CONSUMERS ENERGY COMPANY
(SEAL) By /s/ A.M. Wright
___________________________
Alan M. Wright
Attest: Senior Vice President and
Chief Financial Officer
/s/ Joyce H. Norkey
____________________________
Joyce H. Norkey
Assistant Secretary
Signed, sealed and delivered
by CONSUMERS ENERGY COMPANY
in the presence of
/s/ Kimberly A. Connelly
____________________________
Kimberly A. Connelly
/s/ Janet Sanders
____________________________
Janet Sanders
STATE OF MICHIGAN )
ss.
COUNTY OF JACKSON )
The foregoing instrument was acknowledged before me this 10th day
of February, 1998, by Alan M. Wright, Senior Vice President and Chief
Financial Officer of CONSUMERS ENERGY COMPANY, a Michigan corporation, on
behalf of the corporation.
/s/ Renee E. Stephens
______________________________
Notary Public
[Seal] Jackson County, Michigan
My Commission Expires: 3-5-99<PAGE>
<PAGE> S-2
THE CHASE MANHATTAN BANK, AS TRUSTEE
(SEAL) By /s/ G. Mc Farlane
_________________________________
G. McFarlane
Vice President
Attest:
/s/ Wanda Eiland
____________________________
Trust Officer
Wanda Eiland
Signed, sealed and delivered
by THE CHASE MANHATTAN BANK
in the presence of
/s/ Glenn G.McKeever
____________________________
Glenn G. McKeever
/s/ A. Agard
____________________________
A. Agard
STATE OF NEW YORK )
ss.
COUNTY OF NEW YORK )
The foregoing instrument was acknowledged before me this 10th day
of February, 1998, by G. McFarlane, a Vice President of THE CHASE
MANHATTAN BANK, a New York corporation, on behalf of the corporation.
/s/ Emily Fayan
________________________________
Emily Fayan, Notary Public
[Seal] New York County, New York
My Commission Expires: 12/31/99
Prepared by:
Kimberly A. Connelly
212 West Michigan Avenue
Jackson, MI 49201
<PAGE>
SEVENTY-FIRST SUPPLEMENTAL INDENTURE
Providing among other things for
FIRST MORTGAGE BONDS,
Senior Note Series A due March 1, 2018
______________
Dated as of March 1, 1998
______________
CONSUMERS ENERGY COMPANY
TO
THE CHASE MANHATTAN BANK,
Trustee
Counterpart ______ of 100<PAGE>
<PAGE> 1
SEVENTY-FIRST SUPPLEMENTAL INDENTURE, dated as of March 1,
1998 (herein sometimes referred to as "this Supplemental Indenture"), made
and entered into by and between CONSUMERS ENERGY COMPANY, a corporation
organized and existing under the laws of the State of Michigan, with its
principal executive office and place of business at 212 West Michigan
Avenue, in Jackson, Jackson County, Michigan 49201, formerly known as
Consumers Power Company, (hereinafter sometimes referred to as the
"Company"), and THE CHASE MANHATTAN BANK, a corporation organized and
existing under the laws of the State of New York, with its corporate trust
offices at 450 W. 33rd Street, in the Borough of Manhattan, The City of
New York, New York 10001 (hereinafter sometimes referred to as the
"Trustee"), as Trustee under the Indenture dated as of September 1, 1945
between Consumers Power Company, a Maine corporation (hereinafter
sometimes referred to as the "Maine corporation"), and City Bank Farmers
Trust Company (Citibank, N.A., successor, hereinafter sometimes referred
to as the "Predecessor Trustee"), securing bonds issued and to be issued
as provided therein (hereinafter sometimes referred to as the
"Indenture"),
WHEREAS at the close of business on January 30, 1959, City
Bank Farmers Trust Company was converted into a national banking
association under the title "First National City Trust Company"; and
WHEREAS at the close of business on January 15, 1963,
First National City Trust Company was merged into First National City
Bank; and
WHEREAS at the close of business on October 31, 1968,
First National City Bank was merged into The City Bank of New York,
National Association, the name of which was thereupon changed to First
National City Bank; and
WHEREAS effective March 1, 1976, the name of First
National City Bank was changed to Citibank, N.A.; and
WHEREAS effective July 16, 1984, Manufacturers Hanover
Trust Company succeeded Citibank, N.A. as Trustee under the Indenture; and
WHEREAS effective June 19, 1992, Chemical Bank succeeded
by merger to Manufacturers Hanover Trust Company as Trustee under the
Indenture; and
WHEREAS effective July 15, 1996, The Chase Manhattan Bank
(National Association), merged with and into Chemical Bank which
thereafter was renamed The Chase Manhattan Bank as Trustee under the
Indenture; and
WHEREAS the Indenture was executed and delivered for the
purpose of securing such bonds as may from time to time be issued under
and in accordance with the terms of the Indenture, the aggregate principal
amount of bonds to be secured thereby being limited to $5,000,000,000 at
any one time outstanding (except as provided in Section 2.01 of the
Indenture), and the Indenture describes and sets forth the property
conveyed thereby and is filed in the Office of the Secretary of State of
the State of Michigan and is of record in the Office of the Register of
Deeds of each county in the State of Michigan in which this Supplemental
Indenture is to be recorded; and
WHEREAS the Indenture has been supplemented and amended by
various indentures supplemental thereto, each of which is filed in the
Office of the Secretary of State of the State of Michigan and is of record
in the Office of the Register of Deeds of each county in the State of
Michigan in which this Supplemental Indenture is to be recorded; and
WHEREAS the Company and the Maine corporation entered into
an Agreement of Merger and Consolidation, dated as of February 14, 1968,
which provided for the Maine corporation to merge into the Company; and
WHEREAS the effective date of such Agreement of Merger and
Consolidation was June 6, 1968, upon which date the Maine corporation was
merged into the Company and the name of the Company was changed from
"Consumers Power Company of Michigan" to "Consumers Power Company"; and
WHEREAS the Company and the Predecessor Trustee entered
into a Sixteenth Supplemental Indenture, dated as of June 4, 1968, which
provided, among other things, for the assumption of the Indenture by the
Company; and
WHEREAS said Sixteenth Supplemental Indenture became
effective on the effective date of such Agreement of Merger and
Consolidation; and
WHEREAS the Company has succeeded to and has been
substituted for the Maine corporation under the Indenture with the same
effect as if it had been named therein as the mortgagor corporation; and
WHEREAS effective March 11, 1997, the name of Consumers
Power Company was changed to Consumers Energy Company; and
WHEREAS, the Company has entered into an Indenture dated
as of February 1, 1998 ("Senior Note Indenture") with The Chase Manhattan
Bank, as trustee ("Senior Note Trustee") providing for the issuance of
notes thereunder, and pursuant to such Senior Note Indenture the Company
has agreed to issue to the Senior Note Trustee, as security for the notes
("Senior Notes") to be issued thereunder, a new series of bonds under the
Indenture at the time of authentication of each series of Senior Notes
issued under such Senior Note Indenture; and
WHEREAS, for such purposes the Company desires to issue a
new series of bonds, to be designated First Mortgage Bonds, Senior Note
Series A due March 1, 2018 each of which bonds shall also bear the
descriptive title "First Mortgage Bond" (hereinafter provided for and
hereinafter sometimes referred to as the "Senior Note Series A Bonds"),
the bonds of which series are to be issued as registered bonds without
coupons and are to bear interest at the rate per annum specified herein
and are to mature March 1, 2018; and
WHEREAS, the Senior Note Series A Bonds shall be issued to
the Senior Note Trustee in connection with the issuance by the Company of
its Senior Notes, 6 7/8% due 2018, Series A (the "Series A Notes"); and
WHEREAS each of the registered bonds without coupons of
the Senior Note Series A Bonds and the Trustee's Authentication
Certificate thereon are to be substantially in the following forms, to
wit:<PAGE>
<PAGE> 3
[FORM OF REGISTERED BOND OF THE SENIOR NOTE SERIES A BONDS]
[FACE]
NOTWITHSTANDING ANY PROVISIONS HEREOF OR IN THE INDENTURE,
THIS BOND IS NOT ASSIGNABLE OR TRANSFERABLE EXCEPT AS PERMITTED OR
REQUIRED BY SECTION 4.04 OF THE INDENTURE, DATED AS OF FEBRUARY 1, 1998
BETWEEN CONSUMERS ENERGY COMPANY AND THE CHASE MANHATTAN BANK, AS TRUSTEE.
CONSUMERS ENERGY COMPANY
FIRST MORTGAGE BOND, SENIOR NOTE SERIES A DUE MARCH 1, 2018
No. $
CONSUMERS ENERGY COMPANY, a Michigan corporation
(hereinafter called the "Company"), for value received, hereby promises to
pay to The Chase Manhattan Bank, as trustee under the Senior Note
Indenture hereinafter referred to, or registered assigns, the principal
sum of Two Hundred Twenty-Five Million Dollars on March 1, 2018, and to
pay to the registered holder hereof interest on said sum from the latest
semi-annual interest payment date to which interest has been paid on the
bonds of this series preceding the date hereof, unless the date hereof be
an interest payment date to which interest is being paid, in which case
from the date hereof, or unless the date hereof is prior to September 1,
1998, in which case from March 1, 1998, (or if this bond is dated between
the record date for any interest payment date and such interest payment
date, then from such interest payment date, provided, however, that if the
Company shall default in payment of the interest due on such interest
payment date, then from the next preceding semi-annual interest payment
date to which interest has been paid on the bonds of this series, or if
such interest payment date is September 1, 1998, from March 1, 1998), at
the rate per annum of 6 7/8%, except that during the continuation of a
Registration Default, as defined in the Registration Rights Agreement
referred to below, the rate shall be 7 1/8% per annum, until the principal
hereof shall have become due and payable, payable on each March 1 and
September 1 in each year, commencing September 1, 1998.
Under an Indenture dated as of February 1, 1998
(hereinafter sometimes referred to as the "Senior Note Indenture"),
between Consumers Energy Company and The Chase Manhattan Bank, as trustee
(hereinafter sometimes called the "Senior Note Trustee"), the Company will
issue, concurrently with the issuance of this bond, an issue of notes
under the Senior Note Indenture entitled Senior Notes, 6 7/8% due 2018,
Series A (the "Series A Notes"). Pursuant to Article IV of the Senior
Note Indenture, this bond is issued to the Senior Note Trustee to secure
any and all obligations of the Company under the Series A Notes and any
other series of senior notes from time to time outstanding under the
Senior Note Indenture. Payment of principal of, or premium, if any, or
interest on, the Series A Notes (and on any Exchange Notes (as such term
is defined on the reverse hereof and in the supplemental indenture
pursuant to which this bond has been issued (the "Supplemental Indenture")
issued in exchange therefor) shall constitute payments on this bond as
further provided herein and in the Supplemental Indenture.
The provisions of this bond are continued on the reverse
hereof and such continued provisions shall for all purposes have the same
effect as though fully set forth at this place.
This bond shall not be valid or become obligatory for any
purpose unless and until it shall have been authenticated by the execution
by the Trustee or its successor in trust under the Indenture of the
certificate hereon.
IN WITNESS WHEREOF, Consumers Energy Company has caused
this bond to be executed in its name by its Chairman of the Board, its
President or one of its Vice Presidents by his signature or a facsimile
thereof, and its corporate seal or a facsimile thereof to be affixed
hereto or imprinted hereon and attested by its Secretary or one of its
Assistant Secretaries by his signature or a facsimile thereof.
CONSUMERS ENERGY COMPANY,
Dated: By _________________________
Its ________________________
Attest: _________________________
Secretary
[FORM OF TRUSTEE'S AUTHENTICATION CERTIFICATE]
TRUSTEE'S AUTHENTICATION CERTIFICATE
This is one of the bonds, of the series designated
therein, described in the within-mentioned Indenture.
THE CHASE MANHATTAN BANK, Trustee
By _____________________________________
Authorized Officer
[REVERSE]
CONSUMERS ENERGY COMPANY
FIRST MORTGAGE BOND, SENIOR NOTE SERIES A DUE MARCH 1, 2018
The interest payable on any March 1 and September 1 will,
subject to certain exceptions provided in the Indenture hereinafter
mentioned, be paid to the person in whose name this bond is registered at
the close of business on the record date, which shall be February 15 or
August 15, as the case may be, next preceding such interest payment date,
or, if such February 15 or August 15 shall be a legal holiday or a day on
which banking institutions in the City of New York, New York or the City
of Detroit, Michigan are authorized by law to close, the next succeeding
day which shall not be a legal holiday or a day on which such institutions
are so authorized to close. The principal of and the premium, if any, and
the interest on this bond shall be payable at the office or agency of the
Company in the City of Jackson, Michigan designated for that purpose, in
any coin or currency of the United States of America which at the time of
payment is legal tender for public and private debts.
Upon any payment of the principal of, premium, if any, and
interest on, all or any portion of the Series A Notes (or Exchange Notes
(as defined below) issued in exchange therefor), whether at maturity or
prior to maturity by redemption or otherwise or upon provision for the
payment thereof having been made in accordance with Section 5.01(a) of the
Senior Note Indenture, Senior Note Series A Bonds in a principal amount
equal to the principal amount of such Series A Notes (or Exchange Notes)
and having both a corresponding maturity date and interest rate shall, to
the extent of such payment of principal, premium, if any, and interest,
be deemed paid and the obligation of the Company thereunder to make such
payment shall be discharged to such extent and, in the case of the payment
of principal (and premium, if any) such bonds of said series shall be
surrendered to the Company for cancellation as provided in Section 4.08 of
the Senior Note Indenture. The Trustee may at anytime and all times
conclusively assume that the obligation of the Company to make payments
with respect to the principal of and premium, if any, and interest on the
Senior Note Series A Bonds, so far as such payments at the time have
become due, has been fully satisfied and discharged pursuant to the
foregoing sentence unless and until the Trustee shall have received a
written notice from the Senior Note Trustee signed by one of its officers
stating (i) that timely payment of, or premium or interest on, the
Series A Notes has not been made, (ii) that the Company is in arrears as
to the payments required to be made by it to the Senior Note Trustee
pursuant to the Senior Note Indenture, and (iii) the amount of the
arrearage.
For purposes of Section 4.09 of the Senior Note Indenture,
this bond shall be deemed to be the "related series of Senior Note First
Mortgage Bonds" in respect of (i) the Series A Notes, and (ii) any
Exchange Notes.
This bond is one of the bonds issued and to be issued from
time to time under and in accordance with and all secured by an Indenture
dated as of September 1, 1945, given by the Company (or its predecessor,
Consumers Power Company, a Maine corporation) to City Bank Farmers Trust
Company (The Chase Manhattan Bank, successor) (hereinafter sometimes
referred to as the "Trustee"), and indentures supplemental thereto,
heretofore or hereafter executed, to which indenture and indentures
supplemental thereto (hereinafter referred to collectively as the
"Indenture") reference is hereby made for a description of the property
mortgaged and pledged, the nature and extent of the security and the
rights, duties and immunities thereunder of the Trustee and the rights of
the holders of said bonds and of the Trustee and of the Company in respect
of such security, and the limitations on such rights. By the terms of the
Indenture, the bonds to be secured thereby are issuable in series which
may vary as to date, amount, date of maturity, rate of interest and in
other respects as provided in the Indenture.
The Indenture contains provisions permitting the Company
and the Trustee, with the consent of the holders of not less than seventy-
five per centum in principal amount of the bonds (exclusive of bonds
disqualified by reason of the Company's interest therein) at the time
outstanding, including, if more than one series of bonds shall be at the
time outstanding, not less than sixty per centum in principal amount of
each series affected, to effect, by an indenture supplemental to the
Indenture, modifications or alterations of the Indenture and of the rights
and obligations of the Company and the rights of the holders of the bonds
and coupons; provided, however, that no such modification or alteration
shall be made without the written approval or consent of the holder hereof
which will (a) extend the maturity of this bond or reduce the rate or
extend the time of payment of interest hereon or reduce the amount of the
principal hereof, or (b) permit the creation of any lien, not otherwise
permitted, prior to or on a parity with the lien of the Indenture, or
(c) reduce the percentage of the principal amount of the bonds the holders
of which are required to approve any such supplemental indenture.
The Company reserves the right, without any consent, vote
or other action by holders of bonds of this series or any other series
created after the Sixty-eighth Supplemental Indenture to amend the
Indenture to reduce the percentage of the principal amount of bonds the
holders of which are required to approve any supplemental indenture (other
than any supplemental indenture which is subject to the proviso contained
in the immediately preceding sentence) (a) from not less than seventy-five
per centum (including sixty per centum of each series affected) to not
less than a majority in principal amount of the bonds at the time
outstanding or (b) in case fewer than all series are affected, not less
than a majority in principal amount of the bonds of all affected series,
voting together.
This bond is not redeemable except on the respective
dates, in the respective principal amounts and for the respective
redemption prices which correspond to the redemption dates for, the
principal amounts to be redeemed of, and the redemption prices for, the
Series A Notes (and any senior notes issued in exchange therefor pursuant
to the Registration Rights Agreement, dated March 6, 1998, between the
Company and Salomon Brothers Inc., Morgan Stanley & Co. Incorporated, BZW
Securities Inc., Donaldson, Lufkin & Jenrette Securities Corporation and
First Chicago Capital Markets, Inc. (the "Exchange Notes")), and except
upon written demand of the Senior Note Trustee following the occurrence of
an Event of Default under the Senior Note Indenture and the acceleration
of the senior notes, as provided in Section 8.01 of the Senior Note
Indenture. This bond is not redeemable by the operation of the
improvement fund or the maintenance and replacement provisions of the
Indenture or with the proceeds of released property.
This bond shall not be assignable or transferable except
as permitted or required by Section 4.04 of the Senior Note Indenture.
Any such transfer shall be effected at the Investor Services Department of
the Company, as transfer agent (hereinafter referred to as "corporate
trust office"). This bond shall be exchangeable for other registered
bonds of the same series, in the manner and upon the conditions prescribed
in the Indenture, upon the surrender of such bonds at said corporate trust
office of the transfer agent. However, notwithstanding the provisions of
Section 2.05 of the Indenture, no charge shall be made upon any
registration of transfer or exchange of bonds of said series other than
for any tax or taxes or other governmental charge required to be paid by
the Company.
As provided in Section 4.11 of the Senior Note Indenture,
from and after the Release Date (as defined in the Senior Note Indenture),
the obligations of the Company with respect to this bond shall be deemed
to be satisfied and discharged, this bond shall cease to secure in any
manner any senior notes outstanding under the Senior Note Indenture, and,
pursuant to Section 4.08 of the Senior Note Indenture, the Senior Note
Trustee shall forthwith deliver this bond to the Company for cancellation.
In case of certain defaults as specified in the Indenture,
the principal of this bond may be declared or may become due and payable
on the conditions, at the time, in the manner and with the effect provided
in the Indenture.
No recourse shall be had for the payment of the principal
of or premium, if any, or interest on this bond, or for any claim based
hereon, or otherwise in respect hereof or of the Indenture, to or against
any incorporator, stockholder, director or officer, past, present or
future, as such, of the Company, or of any predecessor or successor
company, either directly or through the Company, or such predecessor or
successor company, or otherwise, under any constitution or statute or rule
of law, or by the enforcement of any assessment or penalty, or otherwise,
all such liability of incorporators, stockholders, directors and officers,
as such, being waived and released by the holder and owner hereof by the
acceptance of this bond and being likewise waived and released by the
terms of the Indenture.
____________________
AND WHEREAS all acts and things necessary to make the
bonds of the Senior Note Series A Bonds, when duly executed by the Company
and authenticated by the Trustee or its agent and issued as prescribed in
the Indenture, as heretofore supplemented and amended, and this
Supplemental Indenture provided, the valid, binding and legal obligations
of the Company, and to constitute the Indenture, as supplemented and
amended as aforesaid, as well as by this Supplemental Indenture, a valid,
binding and legal instrument for the security thereof, have been done and
performed, and the creation, execution and delivery of this Supplemental
Indenture and the creation, execution and issuance of bonds subject to the
terms hereof and of the Indenture, as so supplemented and amended, have in
all respects been duly authorized;
NOW, THEREFORE, in consideration of the premises, of the
acceptance and purchase by the holders thereof of the bonds issued and to
be issued under the Indenture, as supplemented and amended as above set
forth, and of the sum of One Dollar duly paid by the Trustee to the
Company, and of other good and valuable considerations, the receipt
whereof is hereby acknowledged, and for the purpose of securing the due
and punctual payment of the principal of and premium, if any, and interest
on all bonds now outstanding under the Indenture and the $225,000,000
principal amount of Senior Note Series A Bonds proposed to be issued
initially and all other bonds which shall be issued under the Indenture,
as supplemented and amended from time to time, and for the purpose of
securing the faithful performance and observance of all covenants and
conditions therein, and in any indenture supplemental thereto, set forth,
the Company has given, granted, bargained, sold, released, transferred,
assigned, hypothecated, pledged, mortgaged, confirmed, set over,
warranted, alienated and conveyed and by these presents does give, grant,
bargain, sell, release, transfer, assign, hypothecate, pledge, mortgage,
confirm, set over, warrant, alien and convey unto The Chase Manhattan
Bank, as Trustee, as provided in the Indenture, and its successor or
successors in the trust thereby and hereby created and to its or their
assigns forever, all the right, title and interest of the Company in and
to all the property, described in Section 13 hereof, together (subject to
the provisions of Article X of the Indenture) with the tolls, rents,
revenues, issues, earnings, income, products and profits thereof,
excepting, however, the property, interests and rights specifically
excepted from the lien of the Indenture as set forth in the Indenture.
TOGETHER WITH all and singular the tenements,
hereditaments and appurtenances belonging or in any wise appertaining to
the premises, property, franchises and rights, or any thereof, referred to
in the foregoing granting clause, with the reversion and reversions,
remainder and remainders and (subject to the provisions of Article X of
the Indenture) the tolls, rents, revenues, issues, earnings, income,
products and profits thereof, and all the estate, right, title and
interest and claim whatsoever, at law as well as in equity, which the
Company now has or may hereafter acquire in and to the aforesaid premises,
property, franchises and rights and every part and parcel thereof.
SUBJECT, HOWEVER, with respect to such premises, property,
franchises and rights, to excepted encumbrances as said term is defined in
Section 1.02 of the Indenture, and subject also to all defects and
limitations of title and to all encumbrances existing at the time of
acquisition.
TO HAVE AND TO HOLD all said premises, property,
franchises and rights hereby conveyed, assigned, pledged or mortgaged, or
intended so to be, unto the Trustee, its successor or successors in trust
and their assigns forever;
BUT IN TRUST, NEVERTHELESS, with power of sale for the
equal and proportionate benefit and security of the holders of all bonds
now or hereafter authenticated and delivered under and secured by the
Indenture and interest coupons appurtenant thereto, pursuant to the
provisions of the Indenture and of any supplemental indenture, and for the
enforcement of the payment of said bonds and coupons when payable and the
performance of and compliance with the covenants and conditions of the
Indenture and of any supplemental indenture, without any preference,
distinction or priority as to lien or otherwise of any bond or bonds over
others by reason of the difference in time of the actual authentication,
delivery, issue, sale or negotiation thereof or for any other reason
whatsoever, except as otherwise expressly provided in the Indenture; and
so that each and every bond now or hereafter authenticated and delivered
thereunder shall have the same lien, and so that the principal of and
premium, if any, and interest on every such bond shall, subject to the
terms thereof, be equally and proportionately secured, as if it had been
made, executed, authenticated, delivered, sold and negotiated
simultaneously with the execution and delivery thereof.
AND IT IS EXPRESSLY DECLARED by the Company that all bonds
authenticated and delivered under and secured by the Indenture, as
supplemented and amended as above set forth, are to be issued,
authenticated and delivered, and all said premises, property, franchises
and rights hereby and by the Indenture and indentures supplemental thereto
conveyed, assigned, pledged or mortgaged, or intended so to be, are to be
dealt with and disposed of under, upon and subject to the terms,
conditions, stipulations, covenants, agreements, trusts, uses and purposes
expressed in the Indenture, as supplemented and amended as above set
forth, and the parties hereto mutually agree as follows:
SECTION 1. There is hereby created one series of bonds
(the "Senior Note Series A Bonds") designated as hereinabove provided,
which shall also bear the descriptive title "First Mortgage Bond", and the
form thereof shall be substantially as hereinbefore set forth. Senior
Note Series A Bonds shall be issued in the aggregate principal amount of
$225,000,000, shall mature on March 1, 2018 and shall be issued only as
registered bonds without coupons in denominations of $1,000 and any
multiple thereof. The serial numbers of bonds of the Senior Note Series A
Bonds shall be such as may be approved by any officer of the Company, the
execution thereof by any such officer either manually or by facsimile
signature to be conclusive evidence of such approval. Senior Note
Series A Bonds shall bear interest at a rate of 6 7/8% per annum, except
that during the continuation of a Registration Default, as defined in the
Registration Rights Agreement dated March 6, 1998, between the Company and
Salomon Brothers Inc., Morgan Stanley & Co. Incorporated, BZW Securities
Inc., Donaldson, Lufkin & Jenrette Securities Corporation and First
Chicago Capital Markets, Inc. shall bear interest at a rate of 7 1/8% per
annum until the principal thereof shall have become due and payable,
payable semi-annually on March 1 and September 1 in each year commencing
September 1, 1998. The principal of and the premium, if any, and the
interest on said bonds shall be payable in any coin or currency of the
United States of America which at the time of payment is legal tender for
public and private debts, at the office or agency of the Company in the
City of Jackson, Michigan designated for that purpose.
Upon any payment of the principal of, premium, if any, and
interest on, all or any portion of the Series A Notes (or Exchange Notes
(as defined below) issued in exchange therefor), whether at maturity or
prior to maturity by redemption or otherwise or upon provision for the
payment thereof having been made in accordance with Section 5.01(a) of the
Senior Note Indenture, Senior Note Series A Bonds in a principal amount
equal to the principal amount of such Series A Notes (or Exchange Notes)
and having both a corresponding maturity date and interest rate shall, to
the extent of such payment of principal, premium, if any, and interest, be
deemed paid and the obligation of the Company thereunder to make such
payment shall be discharged to such extent and, in the case of the payment
of principal (and premium, if any) such bonds of said series shall be
surrendered to the Company for cancellation as provided in Section 4.08 of
the Senior Note Indenture. The Trustee may at anytime and all times
conclusively assume that the obligation of the Company to make payments
with respect to the principal of and premium, if any, and interest on the
Senior Note Series A Bonds, so far as such payments at the time have
become due, has been fully satisfied and discharged pursuant to the
foregoing sentence unless and until the Trustee shall have received a
written notice from the Senior Note Trustee signed by one of its officers
stating (i) that timely payment of, or premium or interest on, the
Series A Notes has not been so made, (ii) that the Company is in arrears
as to the payments required to be made by it to the Senior Note Trustee
pursuant to the Senior Note Indenture, and (iii) the amount of the
arrearage.
Each Senior Note Series A Bond is to be issued to and
registered in the name of The Chase Manhattan Bank, as trustee, or a
successor trustee (said trustee or any successor trustee being hereinafter
referred to as the "Senior Note Trustee") under the Indenture, dated as of
February 1, 1998 (hereinafter sometimes referred to as the "Senior Note
Indenture") between Consumers Energy Company and the Senior Note Trustee,
to secure any and all obligations of the Company under the Series A Notes
and any other series of senior notes from time to time outstanding under
the Senior Note Indenture.
The Senior Note Series A Bonds shall not be assignable or
transferable except as permitted or required by Section 4.04 of the Senior
Note Indenture. Any such transfer shall be effected at the Investor
Services Department of the Company, as transfer agent (hereinafter
referred to as "corporate trust office"). The Senior Note Series A Bonds
shall be exchangeable for other registered bonds of the same series, in
the manner and upon the conditions prescribed in the Indenture, upon the
surrender of such bonds at said corporate trust office of the transfer
agent. However, notwithstanding the provisions of Section 2.05 of the
Indenture, no charge shall be made upon any registration of transfer or
exchange of bonds of said series other than for any tax or taxes or other
governmental charge required to be paid by the Company.
SECTION 2. Senior Note Series A Bonds shall not be
redeemable except on the respective dates, in the respective principal
amounts and for the respective redemption prices which correspond to the
redemption dates for, the principal amounts to be redeemed of, and the
redemption prices for, the Series A Notes (and any Exchange Notes (as
defined in the form of Senior Note Series A Bonds hereinabove set forth))
and except as set forth in Section 3 hereof.
In the event the Company redeems any Series A Notes (or
Exchange Notes) prior to maturity in accordance with the provisions of the
Senior Note Indenture, the Senior Note Trustee shall on the same date
deliver to the Company the Senior Note Series A Bonds in principal amounts
corresponding to the Series A Notes (or Exchange Notes) so redeemed, as
provided in Section 4.08 of the Senior Note Indenture. The Company agrees
to give the Senior Note Trustee notice of any such redemption of the
Series A Notes (or Exchange Notes) on or before the date fixed for any
such redemption.
Senior Notes Series A Bonds are not redeemable by the
operation of the improvement fund or the maintenance and replacement
provisions of this Indenture or with the proceeds of released property.
SECTION 3. Upon the occurrence of an Event of Default
under the Senior Note Indenture and the acceleration of the Series A Notes
(or Exchange Notes), the Senior Note Series A Bonds shall be redeemable in
whole upon receipt by the Trustee of a written demand (hereinafter called
a "Redemption Demand") from the Senior Note Trustee stating that there has
occurred under the Senior Note Indenture both an Event of Default and a
declaration of acceleration of payment of principal, accrued interest and
premium, if any, on the Series A Notes (or Exchange Notes), specifying the
last date to which interest on such notes has been paid (such date being
hereinafter referred to as the "Initial Interest Accrual Date") and
demanding redemption of Senior Note Series A Bonds. The Company waives
any right it may have to prior notice of such redemption under the
Indenture. Upon surrender of the Senior Note Series A Bonds by the Senior
Note Trustee to the Trustee, the Senior Note Series A Bonds shall be
redeemed at a redemption price equal to the principal amount thereof plus
accrued interest thereon from the Initial Interest Accrual Date to the
date of the Redemption Demand; provided, however, that in the event of a
recision of acceleration of senior notes pursuant to the last paragraph of
Section 8.01(a) of the Senior Note Indenture, then any Redemption Demand
shall thereby be deemed to be rescinded by the Senior Note Trustee; but no
such recision or annulment shall extend to or affect any subsequent
default or impair any right consequent thereon.
SECTION 4. For purposes of Section 4.09 of the Senior
Note Indenture, this bond shall be deemed to be the "related series of
Senior Note First Mortgage Bonds" in respect of (i) the Series A Notes,
and (ii) any Exchange Notes.
SECTION 5. As provided in Section 4.11 of the Senior Note
Indenture, from and after the Release Date (as defined in the Senior Note
Indenture), the obligations of the Company with respect to the Senior Note
Series A Bonds (the "Bonds") shall be deemed to be satisfied and
discharged, the Bonds shall cease to secure in any manner any senior notes
outstanding under the Senior Note Indenture, and, pursuant to Section 4.08
of the Senior Note Indenture, the Senior Note Trustee shall forthwith
deliver the Bonds to the Company for cancellation.
SECTION 6. The Company reserves the right, without any
consent, vote or other action by the holder of the Senior Note Series A
Bonds or the holders of any Series A Notes or any Exchange Notes, or of
any subsequent series of bonds issued under the Indenture, to make such
amendments to the Indenture, as supplemented, as shall be necessary in
order to amend Section 17.02 to read as follows:
SECTION 17.02. With the consent
of the holders of not less than a
majority in principal amount of the bonds
at the time outstanding or their
attorneys-in-fact duly authorized, or, if
fewer than all series are affected, not
less than a majority in principal amount
of the bonds at the time outstanding of
each series the rights of the holders of
which are affected, voting together, the
Company, when authorized by a resolution,
and the Trustee may from time to time and
at any time enter into an indenture or
indentures supplemental hereto 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 modifying
the rights and obligations of the Company
and the rights of the holders of any of
the bonds and coupons; provided, however,
that no such supplemental indenture shall
(1) extend the maturity of any of the
bonds or reduce the rate or extend the
time of payment of interest thereon, or
reduce the amount of the principal
thereof, or reduce any premium payable on
the redemption thereof, without the
consent of the holder of each bond so
affected, or (2) permit the creation of
any lien, not otherwise permitted, prior
to or on a parity with the lien of this
Indenture, without the consent of the
holders of all the bonds then
outstanding, or (3) reduce the aforesaid
percentage of the principal amount of
bonds the holders of which are required
to approve any such supplemental
indenture, without the consent of the
holders of all the bonds then
outstanding. For the purposes of this
Section, bonds shall be deemed to be
affected by a supplemental indenture if
such supplemental indenture adversely
affects or diminishes the rights of
holders thereof against the Company or
against its property. The Trustee may in
its discretion determine whether or not,
in accordance with the foregoing, bonds
of any particular series would be
affected by any supplemental indenture
and any such determination shall be
conclusive upon the holders of bonds of
such series and all other series.
Subject to the provisions of
Sections 16.02 and 16.03 hereof, the
Trustee shall not be liable for any
determination made in good faith in
connection herewith.
Upon the written request of the
Company, accompanied by a resolution
authorizing the execution of any such
supplemental indenture, and upon the
filing with the Trustee of evidence of
the consent of bondholders as aforesaid
(the instrument or instruments evidencing
such consent to be dated within one year
of such request), the Trustee shall join
with the Company 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 bondholders 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.
The Company and the Trustee, if
they so elect, and either before or after
such consent has been obtained, may
require the holder of any bond consenting
to the execution of any such supplemental
indenture to submit his bond to the
Trustee or to ask such bank, banker or
trust company as may be designated by the
Trustee for the purpose, for the notation
thereon of the fact that the holder of
such bond has consented to the execution
of such supplemental indenture, and in
such case such notation, in form
satisfactory to the Trustee, shall be
made upon all bonds so submitted, and
such bonds bearing such notation shall
forthwith be returned to the persons
entitled thereto.
Prior to the execution by the
Company and the Trustee of any
supplemental indenture pursuant to the
provisions of this Section, the Company
shall publish a notice, setting forth in
general terms the substance of such
supplemental indenture, at least once in
one daily newspaper of general
circulation in each city in which the
principal of any of the bonds shall be
payable, or, if all bonds outstanding
shall be registered bonds without coupons
or coupon bonds registered as to
principal, such notice shall be
sufficiently given if mailed, first
class, postage prepaid, and registered if
the Company so elects, to each registered
holder of bonds at the last address of
such holder appearing on the registry
books, such publication or mailing, as
the case may be, to be made not less than
thirty days prior to such execution. Any
failure of the Company 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 7. As supplemented and amended as above set
forth, the Indenture is in all respects ratified and confirmed, and the
Indenture and all indentures supplemental thereto shall be read, taken and
construed as one and the same instrument.
SECTION 8. Nothing contained in this Supplemental
Indenture shall, or shall be construed to, confer upon any person other
than a holder of bonds issued under the Indenture, as supplemented and
amended as above set forth, the Company, the Trustee and the Senior Note
Trustee, for the benefit of the holder or holders of the Series A Notes
and Exchange Notes, any right or interest to avail himself of any benefit
under any provision of the Indenture, as so supplemented and amended.
SECTION 9. The Trustee assumes no responsibility for or
in respect of the validity or sufficiency of this Supplemental Indenture
or of the Indenture as hereby supplemented or the due execution hereof by
the Company or for or in respect of the recitals and statements contained
herein (other than those contained in the sixth and seventh recitals
hereof), all of which recitals and statements are made solely by the
Company.
SECTION 10. This Supplemental Indenture may be
simultaneously executed in several counterparts and all such counterparts
executed and delivered, each as an original, shall constitute but one and
the same instrument.
SECTION 11. In the event the date of any notice required
or permitted hereunder or the date of maturity of interest on or principal
of the Senior Note Series A Bonds or the date fixed for redemption or
repayment of the Senior Note Series A Bonds shall not be a Business Day,
then (notwithstanding any other provision of the Indenture or of any
supplemental indenture thereto) such notice or such 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 fixed for such notice or 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. "Business Day" means, with
respect to this Section 11, a day of the year on which banks are not
required or authorized to close in New York City or Detroit, Michigan.
SECTION 12. This Supplemental Indenture and the Senior
Note Series A Bonds 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.
SECTION 13. Detailed Description of Property Mortgaged:
I.
ELECTRIC GENERATING PLANTS AND DAMS
All the electric generating plants and stations of the
Company, constructed or otherwise acquired by it and not heretofore
described in the Indenture or any supplement thereto and not heretofore
released from the lien of the Indenture, including all powerhouses,
buildings, reservoirs, dams, pipelines, flumes, structures and works and
the land on which the same are situated and all water rights and all other
lands and easements, rights of way, permits, privileges, towers, poles,
wires, machinery, equipment, appliances, appurtenances and supplies and
all other property, real or personal, forming a part of or appertaining to
or used, occupied or enjoyed in connection with such plants and stations
or any of them, or adjacent thereto.
II.
ELECTRIC TRANSMISSION LINES
All the electric transmission lines of the Company,
constructed or otherwise acquired by it and not heretofore described in
the Indenture or any supplement thereto and not heretofore released from
the lien of the Indenture, including towers, poles, pole lines, wires,
switches, switch racks, switchboards, insulators and other appliances and
equipment, and all other property, real or personal, forming a part of or
appertaining to or used, occupied or enjoyed in connection with such
transmission lines or any of them or adjacent thereto; together with all
real property, rights of way, easements, permits, privileges, franchises
and rights for or relating to the construction, maintenance or operation
thereof, through, over, under or upon any private property or any public
streets or highways, within as well as without the corporate limits of
any municipal corporation. Also all the real property, rights of way,
easements, permits, privileges and rights for or relating to the
construction, maintenance or operation of certain transmission lines, the
land and rights for which are owned by the Company, which are either not
built or now being constructed.
III.
ELECTRIC DISTRIBUTION SYSTEMS
All the electric distribution systems of the Company,
constructed or otherwise acquired by it and not heretofore described in
the Indenture or any supplement thereto and not heretofore released from
the lien of the Indenture, including substations, transformers,
switchboards, towers, poles, wires, insulators, subways, trenches,
conduits, manholes, cables, meters and other appliances and equipment, and
all other property, real or personal, forming a part of or appertaining to
or used, occupied or enjoyed in connection with such distribution systems
or any of them or adjacent thereto; together with all real property,
rights of way, easements, permits, privileges, franchises, grants and
rights, for or relating to the construction, maintenance or operation
thereof, through, over, under or upon any private property or any public
streets or highways within as well as without the corporate limits of any
municipal corporation.
IV.
ELECTRIC SUBSTATIONS,
SWITCHING STATIONS AND SITES
All the substations, switching stations and sites of the
Company, constructed or otherwise acquired by it and not heretofore
described in the Indenture or any supplement thereto and not heretofore
released from the lien of the Indenture, for transforming, regulating,
converting or distributing or otherwise controlling electric current at
any of its plants and elsewhere, together with all buildings,
transformers, wires, insulators and other appliances and equipment, and
all other property, real or personal, forming a part of or appertaining to
or used, occupied or enjoyed in connection with any of such substations
and switching stations, or adjacent thereto, with sites to be used for
such purposes.
V.
GAS COMPRESSOR STATIONS, GAS PROCESSING PLANTS,
DESULPHURIZATION STATIONS, METERING STATIONS,
ODORIZING STATIONS, REGULATORS AND SITES
All the compressor stations, processing plants,
desulphurization stations, metering stations, odorizing stations,
regulators and sites of the Company, constructed or otherwise acquired by
it and not heretofore described in the Indenture or any supplement thereto
and not heretofore released from the lien of the Indenture, for
compressing, processing, desulphurizing, metering, odorizing and
regulating manufactured or natural gas at any of its plants and elsewhere,
together with all buildings, meters and other appliances and equipment,
and all other property, real or personal, forming a part of or
appertaining to or used, occupied or enjoyed in connection with any of
such purposes, with sites to be used for such purposes.
VI.
GAS STORAGE FIELDS
The natural gas rights and interests of the Company,
including wells and well lines (but not including natural gas, oil and
minerals), the gas gathering system, the underground gas storage rights,
the underground gas storage wells and injection and withdrawal system used
in connection therewith, constructed or otherwise acquired by it and not
heretofore described in the Indenture or any supplement thereto and not
heretofore released from the lien of the Indenture: In the Overisel Gas
Storage Field, located in the Township of Overisel, Allegan County, and in
the Township of Zeeland, Ottawa County, Michigan; in the Northville Gas
Storage Field located in the Township of Salem, Washtenaw County, Township
of Lyon, Oakland County, and the Townships of Northville and Plymouth and
City of Plymouth, Wayne County, Michigan; in the Salem Gas Storage Field,
located in the Township of Salem, Allegan County, and in the Township of
Jamestown, Ottawa County, Michigan; in the Ray Gas Storage Field, located
in the Townships of Ray and Armada, Macomb County, Michigan; in the Lenox
Gas Storage Field, located in the Townships of Lenox and Chesterfield,
Macomb County, Michigan; in the Ira Gas Storage Field, located in the
Township of Ira, St. Clair County, Michigan; in the Puttygut Gas Storage
Field, located in the Township of Casco, St. Clair County, Michigan; in
the Four Corners Gas Storage Field, located in the Townships of Casco,
China, Cottrellville and Ira, St. Clair County, Michigan; in the Swan
Creek Gas Storage Field, located in the Township of Casco and Ira, St.
Clair County, Michigan; and in the Hessen Gas Storage Field, located in
the Townships of Casco and Columbus, St. Clair, Michigan.
VII.
GAS TRANSMISSION LINES
All the gas transmission lines of the Company, constructed
or otherwise acquired by it and not heretofore described in the Indenture
or any supplement thereto and not heretofore released from the lien of the
Indenture, including gas mains, pipes, pipelines, gates, valves, meters
and other appliances and equipment, and all other property, real or
personal, forming a part of or appertaining to or used, occupied or
enjoyed in connection with such transmission lines or any of them or
adjacent thereto; together with all real property, right of way,
easements, permits, privileges, franchises and rights for or relating to
the construction, maintenance or operation thereof, through, over, under
or upon any private property or any public streets or highways, within as
well as without the corporate limits of any municipal corporation.
VIII.
GAS DISTRIBUTION SYSTEMS
All the gas distribution systems of the Company,
constructed or otherwise acquired by it and not heretofore described in
the Indenture or any supplement thereto and not heretofore released from
the lien of the Indenture, including tunnels, conduits, gas mains and
pipes, service pipes, fittings, gates, valves, connections, meters and
other appliances and equipment, and all other property, real or personal,
forming a part of or appertaining to or used, occupied or enjoyed in
connection with such distribution systems or any of them or adjacent
thereto; together with all real property, rights of way, easements,
permits, privileges, franchises, grants and rights, for or relating to the
construction, maintenance or operation thereof, through, over, under or
upon any private property or any public streets or highways within as well
as without the corporate limits of any municipal corporation.
IX.
OFFICE BUILDINGS,
SERVICE BUILDINGS, GARAGES, ETC.
All office, garage, service and other buildings of the
Company, wherever located, in the State of Michigan, constructed or
otherwise acquired by it and not heretofore described in the Indenture or
any supplement thereto and not heretofore released from the lien of the
Indenture, together with the land on which the same are situated and all
easements, rights of way and appurtenances to said lands, together with
all furniture and fixtures located in said buildings.
X.
TELEPHONE PROPERTIES AND
RADIO COMMUNICATION EQUIPMENT
All telephone lines, switchboards, systems and equipment
of the Company, constructed or otherwise acquired by it and not heretofore
described in the Indenture or any supplement thereto and not heretofore
released from the line of the Indenture, used or available for use in the
operation of its properties, and all other property, real or personal,
forming a part of or appertaining to or used, occupied or enjoyed in
connection with such telephone properties or any of them or adjacent
thereto; together with all real estate, rights of way, easements, permits,
privileges, franchises, property, devices or rights related to the
dispatch, transmission, reception or reproduction of messages,
communications, intelligence, signals, light, vision or sound by
electricity, wire or otherwise, including all telephone equipment
installed in buildings used as general and regional offices, substations
and generating stations and all telephone lines erected on towers and
poles; and all radio communication equipment of the Company, together with
all property, real or personal (except any in the Indenture expressly
excepted), fixed stations, towers, auxiliary radio buildings and
equipment, and all appurtenances used in connection therewith, wherever
located, in the State of Michigan.
XI.
OTHER REAL PROPERTY
All other real property of the Company and all interests
therein, of every nature and description (except any in the Indenture
expressly excepted) wherever located, in the State of Michigan, acquired
by it and not heretofore described in the Indenture or any supplement
thereto and not heretofore released from the line of the Indenture.
SECTION 9. The Company is a transmitting utility under
Section 9401(5) of the Michigan Uniform Commercial Code
(M.C.L. 440.9401(5)) as defined in M.C.L. 440.9105(n).
IN WITNESS WHEREOF, said Consumers Energy Company has
caused this Supplemental Indenture to be executed in its corporate name by
its Chairman of the Board, President, a Vice President or its Treasurer
and its corporate seal to be hereunto affixed and to be attested by its
Secretary or an Assistant Secretary, and said The Chase Manhattan Bank, as
Trustee as aforesaid, to evidence its acceptance hereof, has caused this
Supplemental Indenture to be executed in its corporate name by a Vice
President and its corporate seal to be hereunto affixed and to be attested
by a Trust Officer, in several counterparts, all as of the day and year
first above written.<PAGE>
<PAGE> S-1
CONSUMERS ENERGY COMPANY
(SEAL) By /s/ A. M. Wright
______________________
Alan M. Wright
Attest: Senior Vice President and
Chief Financial Officer
/s/ Joyce H. Norkey
____________________________
Joyce H. Norkey
Assistant Secretary
Signed, sealed and delivered
by CONSUMERS ENERGY COMPANY
in the presence of
/s/ Kimberly A. Connelly
____________________________
Kimberly A. Connelly
/s/ Janet Sanders
____________________________
Janet Sanders
STATE OF MICHIGAN )
ss.
COUNTY OF JACKSON )
The foregoing instrument was acknowledged before me this
6th day of March, 1998, by Alan M. Wright, Senior Vice President and Chief
Financial Officer of CONSUMERS ENERGY COMPANY, a Michigan corporation, on
behalf of the corporation.
/s/ Margaret Hillman
________________________
Margaret Hillman, Notary Public
[Seal] Jackson County, Michigan
My Commission Expires: June 14, 2000<PAGE>
<PAGE> S-2
THE CHASE MANHATTAN BANK, AS TRUSTEE
(SEAL) By /s/ G. McFarlane
_________________________
G. McFarlane
Attest: Vice President
/s/ Wanda Eiland
____________________________
Wanda Eiland
Trust Officer
Signed, sealed and delivered
by THE CHASE MANHATTAN BANK
in the presence of
/s/ A. Agard
____________________________
A. Agard
/s/ Glenn G. McKeever
____________________________
Glenn G. McKeever
Vice President
STATE OF NEW YORK )
ss.
COUNTY OF NEW YORK )
The foregoing instrument was acknowledged before me this
6th day of March, 1998, by G. McFarlane a Vice President of THE CHASE
MANHATTAN BANK, a New York corporation, on behalf of the corporation.
/s/ Emily Fayan
______________________________
Emily Fayan, Notary Public
[Seal] New York County, New York
My Commission Expires: 12/31/99
Prepared by: When recorded, return to:
Kimberly A. Connelly Consumers Energy Company
212 West Michigan Avenue General Services Real Estate Department
Jackson, MI 49201 Attn: Nancy P. Fisher, P-21-410B
1945 W. Parnall Road
Jackson, MI 49201
<PAGE>
<PAGE>
Exhibit (4)(c)
__________________________________________________________________________
__________________________________________________________________________
CONSUMERS ENERGY COMPANY
AND
THE CHASE MANHATTAN BANK
TRUSTEE
_________________
INDENTURE
DATED AS OF FEBRUARY 1, 1998
__________________________________________________________________________
__________________________________________________________________________
<PAGE>
<PAGE>
CROSS REFERENCE SHEET SHOWING THE LOCATION IN THE INDENTURE
OF THE PROVISIONS INSERTED PURSUANT TO SECTIONS 310
THROUGH 318(a),INCLUSIVE, OF THE TRUST
INDENTURE ACT OF 1939
Trust Indenture Act Indenture
Section Section
310 (a) (1) . . . . . . . . . . . . . . . . . . . . . . . 9.09
(a) (2). . . . . . . . . . . . . . . . . . . . . . . . 9.09
(a) (3). . . . . . . . . . . . . . . . . . . . . . . .Not Applicable
(a) (4). . . . . . . . . . . . . . . . . . . . . . . .Not Applicable
(a) (5). . . . . . . . . . . . . . . . . . . . . . . . 9.09
(b). . . . . . . . . . . . . . . . . . . . . . . . . . 9.08
(c). . . . . . . . . . . . . . . . . . . . . . . . . .Not Applicable
311 (a) . . . . . . . . . . . . . . . . . . . . . . . . . 9.14
(b). . . . . . . . . . . . . . . . . . . . . . . . . . 9.14
(c). . . . . . . . . . . . . . . . . . . . . . . . . .Not Applicable
312 (a) . . . . . . . . . . . . . . . . . . . . . . . . .7.01 and 7.02(a)
(b). . . . . . . . . . . . . . . . . . . . . . . . . .7.02(b)
(c). . . . . . . . . . . . . . . . . . . . . . . . . .7.02(c)
313 (a) . . . . . . . . . . . . . . . . . . . . . . . . .7.04(a)
(b). . . . . . . . . . . . . . . . . . . . . . . . . .7.04(b)
(c). . . . . . . . . . . . . . . . . . . . . . . . . .7.04(d)
(d). . . . . . . . . . . . . . . . . . . . . . . . . .7.04(c)
314 (a) . . . . . . . . . . . . . . . . . . . . . . . . .7.03 and 6.06
(b). . . . . . . . . . . . . . . . . . . . . . . . . . 6.05
(c) (1). . . . . . . . . . . . . . . . . . . . . . . .1.03 and 15.05
(c) (2). . . . . . . . . . . . . . . . . . . . . . . .1.03 and 15.05
(c) (3). . . . . . . . . . . . . . . . . . . . . . . .Not Applicable
(d). . . . . . . . . . . . . . . . . . . . . . . . . .1.03 and 4.06
(e). . . . . . . . . . . . . . . . . . . . . . . . . .15.05(b)
(f). . . . . . . . . . . . . . . . . . . . . . . . . .Not Applicable
315 (a) . . . . . . . . . . . . . . . . . . . . . . . . . 9.01
(b). . . . . . . . . . . . . . . . . . . . . . . . . . 8.08
(c). . . . . . . . . . . . . . . . . . . . . . . . . .9.01(a)
(d). . . . . . . . . . . . . . . . . . . . . . . . . .9.01(b)
(e). . . . . . . . . . . . . . . . . . . . . . . . . . 8.09
316 (a) . . . . . . . . . . . . . . . . . . . . . . . . .8.07 and 10.04
(b). . . . . . . . . . . . . . . . . . . . . . . . . .8.04(b) and 13.02
(c). . . . . . . . . . . . . . . . . . . . . . . . . . 10.06
317 (a) (1) . . . . . . . . . . . . . . . . . . . . . . .8.02(b)
(a) (2). . . . . . . . . . . . . . . . . . . . . . . .8.02(c)
(b). . . . . . . . . . . . . . . . . . . . . . . . . .5.02 and 6.04
318 (a) . . . . . . . . . . . . . . . . . . . . . . . . . 15.07
- -------------------
NOTE: This reconciliation and tie shall not, for any purpose, be deemed
to be a
part of the Indenture.<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I
DEFINITIONS
Section 1.01 General . . . . . . . . . . . . . . . . . . . . . 1
Section 1.02 Trust Indenture Act . . . . . . . . . . . . . . . 1
Section 1.03 Definitions . . . . . . . . . . . . . . . . . . . 2
ARTICLE II
FORM, ISSUE, EXECUTION, REGISTRATION AND
EXCHANGE OF NOTES
Section 2.01 Form Generally. . . . . . . . . . . . . . . . . . 9
Section 2.02 Form Of Trustee's Certificate Of Authentication . 9
Section 2.03 Amount Unlimited. . . . . . . . . . . . . . . . . 9
Section 2.04 Denominations, Dates, Interest Payment And Record
Dates . . . . . . . . . . . . . . . . . . . . . . 10
Section 2.05 Execution, Authentication, Delivery And Dating. . 11
Section 2.06 Exchange And Registration Of Transfer Of Notes. . 14
Section 2.07 Mutilated, Destroyed, Lost Or Stolen Notes. . . . 15
Section 2.08 Temporary Notes.. . . . . . . . . . . . . . . . . 16
Section 2.09 Cancellation Of Notes Paid, Etc.. . . . . . . . . 17
Section 2.10 Interest Rights Preserved.. . . . . . . . . . . . 17
Section 2.11 Special Record Date.. . . . . . . . . . . . . . . 17
Section 2.12 Payment Of Notes. . . . . . . . . . . . . . . . . 17
Section 2.13 Notes Issuable In The Form Of A Global Note.. . . 18
ARTICLE III
REDEMPTION OF NOTES
Section 3.01 Applicability Of Article. . . . . . . . . . . . . 21
Section 3.02 Notice Of Redemption; Selection Of Notes. . . . . 21
Section 3.03 Payment Of Notes On Redemption; Deposit Of
Redemption Price. . . . . . . . . . . . . . . . . 22
ARTICLE IV
SENIOR NOTE FIRST MORTGAGE BONDS
Section 4.01 Delivery Of Initial Series Of Senior Note
First Mortgage Bonds. . . . . . . . . . . . . . . 23
Section 4.02 Receipt.. . . . . . . . . . . . . . . . . . . . . 24
Section 4.03 Senior Note First Mortgage Bonds Held By
The Trustee.. . . . . . . . . . . . . . . . . . . 24
Section 4.04 No Transfer Of Senior Note First Mortgage
Bonds; Exceptions.. . . . . . . . . . . . . . . . 24
Section 4.05 Delivery To The Company Of All Senior Note
First Mortgage Bonds. . . . . . . . . . . . . . . 24
Section 4.06 Fair Value Certificate. . . . . . . . . . . . . . 25
Section 4.07 Further Assurances. . . . . . . . . . . . . . . . 26
Section 4.08 Exchange And Surrender Of Senior Note
First Mortgage Bonds. . . . . . . . . . . . . . . 26
Section 4.09 Acceptance Of Additional Senior Note First
Mortgage Bonds. . . . . . . . . . . . . . . . . . 27
Section 4.10 Terms Of Senior Note First Mortgage Bonds.. . . . 27
Section 4.11 Senior Note First Mortgage Bonds As Security
For Notes.. . . . . . . . . . . . . . . . . . . . 27
ARTICLE V
SATISFACTION AND DISCHARGE; UNCLAIMED MONEYS
Section 5.01 Satisfaction And Discharge. . . . . . . . . . . . 28
Section 5.02 Deposited Moneys To Be Held In Trust By Trustee.. 30
Section 5.03 Paying Agent To Repay Moneys Held.. . . . . . . . 30
Section 5.04 Return Of Unclaimed Moneys. . . . . . . . . . . . 30
ARTICLE VI
PARTICULAR COVENANTS OF THE COMPANY
Section 6.01 Payment Of Principal And Interest.. . . . . . . . 30
Section 6.02 Offices For Payments, Etc.. . . . . . . . . . . . 30
Section 6.03 Appointment To Fill A Vacancy In Office
Of Trustee. . . . . . . . . . . . . . . . . . . . 31
Section 6.04 Provision As To Paying Agent. . . . . . . . . . . 31
Section 6.05 Opinions Of Counsel.. . . . . . . . . . . . . . . 32
Section 6.06 Certificates And Notice To Trustee. . . . . . . . 33
Section 6.07 Restrictions On Liens.. . . . . . . . . . . . . . 33
Section 6.08 Restrictions On Sale And Lease-Back
Transactions. . . . . . . . . . . . . . . . . . . 35
Section 6.09 Corporate Existence.. . . . . . . . . . . . . . . 35
ARTICLE VII
NOTEHOLDER LISTS AND REPORTS BY
THE COMPANY AND THE TRUSTEE
Section 7.01 Company To Furnish Noteholder Lists.. . . . . . . 36
Section 7.02 Preservation and Disclosure of Noteholder Lists.. 36
Section 7.03 Reports By The Company. . . . . . . . . . . . . . 37
Section 7.04 Reports By The Trustee. . . . . . . . . . . . . . 38
ARTICLE VIII
REMEDIES OF THE TRUSTEE AND NOTEHOLDERS
ON EVENTS OF DEFAULT
Section 8.01 Events Of Default.. . . . . . . . . . . . . . . . 39
Section 8.02 Collection Of Indebtedness By Trustee;
Trustee May Prove Debt. . . . . . . . . . . . . . 41
Section 8.03 Application Of Proceeds.. . . . . . . . . . . . . 43
Section 8.04 Limitations On Suits By Noteholders.. . . . . . . 44
Section 8.05 Suits For Enforcement.. . . . . . . . . . . . . . 44
Section 8.06 Powers And Remedies Cumulative; Delay Or
Omission Not Waiver Of Default. . . . . . . . . . 44
Section 8.07 Direction of Proceedings and Waiver of
Defaults By Majority of Noteholders.. . . . . . . 45
Section 8.08 Notice of Default.. . . . . . . . . . . . . . . . 45
Section 8.09 Undertaking To Pay Costs. . . . . . . . . . . . . 46
Section 8.10 Restoration of Rights on Abandonment of
Proceedings.. . . . . . . . . . . . . . . . . . . 46
Section 8.11 Defaults Under The First Mortgage.. . . . . . . . 46
Section 8.12 Waiver of Usury, Stay or Extension Laws.. . . . . 46
ARTICLE IX
CONCERNING THE TRUSTEE
Section 9.01 Duties and Responsibilities of Trustee. . . . . . 47
Section 9.02 Reliance on Documents, Opinions, Etc. . . . . . . 48
Section 9.03 No Responsibility For Recitals, Etc.. . . . . . . 49
Section 9.04 Trustee, Authenticating Agent, Paying
Agent Or Registrar May Own Notes. . . . . . . . . 49
Section 9.05 Moneys To Be Held In Trust. . . . . . . . . . . . 49
Section 9.06 Compensation And Expenses Of Trustee. . . . . . . 49
Section 9.07 Officers' Certificate As Evidence.. . . . . . . . 50
Section 9.08 Conflicting Interest Of Trustee.. . . . . . . . . 50
Section 9.09 Existence And Eligibility Of Trustee. . . . . . . 50
Section 9.10 Resignation Or Removal Of Trustee.. . . . . . . . 50
Section 9.11 Appointment Of Successor Trustee. . . . . . . . . 51
Section 9.12 Acceptance By Successor Trustee.. . . . . . . . . 52
Section 9.13 Succession By Merger, Etc.. . . . . . . . . . . . 52
Section 9.14 Limitations On Rights Of Trustee As A Creditor. . 53
Section 9.15 Authenticating Agent. . . . . . . . . . . . . . . 53
ARTICLE X
CONCERNING THE NOTEHOLDERS
Section 10.01 Action By Noteholders.. . . . . . . . . . . . . . 54
Section 10.02 Proof Of Execution By Noteholders.. . . . . . . . 54
Section 10.03 Persons Deemed Absolute Owners. . . . . . . . . . 54
Section 10.04 Company-Owned Notes Disregarded.. . . . . . . . . 54
Section 10.05 Revocation Of Consents; Future Holders Bound. . . 55
Section 10.06 Record Date For Noteholder Acts.. . . . . . . . . 55
ARTICLE XI
NOTEHOLDERS' MEETING
Section 11.01 Purposes Of Meetings. . . . . . . . . . . . . . . 56
Section 11.02 Call Of Meetings By Trustee.. . . . . . . . . . . 56
Section 11.03 Call Of Meetings By Company Or Noteholders. . . . 56
Section 11.04 Qualifications For Voting.. . . . . . . . . . . . 56
Section 11.05 Regulations.. . . . . . . . . . . . . . . . . . . 57
Section 11.06 Voting. . . . . . . . . . . . . . . . . . . . . . 57
Section 11.07 Rights Of Trustee Or Noteholders Not Delayed. . . 58
<PAGE>
<PAGE>
ARTICLE XII
CONSOLIDATION, MERGER, SALE, TRANSFER OR CONVEYANCE
Section 12.01 Company May Consolidate, Etc. Only On
Certain Terms.. . . . . . . . . . . . . . . . . . 58
Section 12.02 Successor Corporation Substituted.. . . . . . . . 59
ARTICLE XIII
SUPPLEMENTAL INDENTURES
Section 13.01 Supplemental Indentures Without Consent
Of Noteholders. . . . . . . . . . . . . . . . . . 59
Section 13.02 Supplemental Indentures With Consent Of
Noteholders.. . . . . . . . . . . . . . . . . . . 61
Section 13.03 Compliance With Trust Indenture Act;
Effect Of Supplemental Indentures.. . . . . . . . 62
Section 13.04 Notation On Notes.. . . . . . . . . . . . . . . . 62
Section 13.05 Evidence Of Compliance Of Supplemental
Indenture To Be Furnished Trustee.. . . . . . . . 62
ARTICLE XIV
IMMUNITY OF INCORPORATORS,
STOCKHOLDERS, OFFICERS AND DIRECTORS
Section 14.01 Indenture And Notes Solely Corporate
Obligations.. . . . . . . . . . . . . . . . . . . 63
ARTICLE XV
MISCELLANEOUS PROVISIONS
Section 15.01 Provisions Binding On Company's Successors. . . . 63
Section 15.02 Official Acts By Successor Corporation. . . . . . 63
Section 15.03 Notices.. . . . . . . . . . . . . . . . . . . . . 63
Section 15.04 Governing Law.. . . . . . . . . . . . . . . . . . 64
Section 15.05 Evidence Of Compliance With Conditions
Precedent.. . . . . . . . . . . . . . . . . . . . 64
Section 15.06 Business Days.. . . . . . . . . . . . . . . . . . 65
Section 15.07 Trust Indenture Act To Control. . . . . . . . . . 65
Section 15.08 Table Of Contents, Headings, Etc. . . . . . . . . 65
Section 15.09 Execution In Counterparts.. . . . . . . . . . . . 65
Section 15.10 Manner Of Mailing Notice To Noteholders.. . . . . 66
Section 15.11 Approval By Trustee Of Expert Or Counsel. . . . . 66
EXHIBIT A - Form of Global Note Prior to Release Date . . . A-1
EXHIBIT B - Form of Note Prior to Release Date. . . . . . . B-1
EXHIBIT C - Form of Global Note Following Release Date. . . C-1
EXHIBIT D - Form of Note Following Release Date . . . . . . D-1
EXHIBIT E - Modifications of First Mortgage . . . . . . . . E-1
<PAGE>
<PAGE> 1
THIS INDENTURE, dated as of February 1, 1998, between CONSUMERS
ENERGY COMPANY, a corporation duly organized and existing under the laws
of the State of Michigan (the "COMPANY"), and THE CHASE MANHATTAN BANK, a
New York banking corporation, as trustee (the "TRUSTEE").
WITNESSETH
WHEREAS, for its lawful corporate purposes, the Company has duly
authorized the execution and delivery of this Indenture to provide for the
issuance from time to time of its Senior Notes (the "NOTES"), to be issued
as in this Indenture provided;
WHEREAS, subject to the provisions of Section 4.11 hereof, the
Company has issued a series of Senior Note First Mortgage Bonds (as
hereinafter defined) and has delivered such series to the Trustee to hold
in trust for the benefit of the respective Holders (as hereinafter
defined) from time to time of the Notes, and, subject to the terms and
provisions hereof, the Company may deliver additional Senior Note First
Mortgage Bonds to the Trustee for such purpose or require the Trustee to
deliver to the Company, for cancellation, any and all Senior Note First
Mortgage Bonds held by the Trustee;
AND WHEREAS, all acts and things necessary to make this Indenture
a valid agreement according to its terms have been done and performed, and
the execution of this Indenture and the issue hereunder of the Notes have
in all respects been duly authorized;
NOW THEREFORE, THIS INDENTURE WITNESSETH:
That in order to declare the terms and conditions upon which the
Notes are, and are to be authenticated, issued and delivered, and in
consideration of the premises, of the purchase and acceptance of the Notes
by the Holders thereof and of the sum of one dollar duly paid to it by the
Trustee at the execution of this Indenture, the receipt whereof is hereby
acknowledged, the Company covenants and agrees with the Trustee for the
equal and proportionate benefit of the respective Holders from time to
time of the Notes, as follows:
ARTICLE I
DEFINITIONS
Section 1.01 GENERAL. The terms defined in this Article I
(whether or not capitalized and except as herein otherwise expressly
provided or unless the context otherwise requires) for all purposes of
this Indenture and of any indenture supplemental hereto shall have the
respective meanings specified in this Article I.
Section 1.02 TRUST INDENTURE ACT. (a) Whenever this
Indenture refers to a provision of the Trust Indenture Act of 1939 (the
"TIA"), such provision is incorporated by reference in and made a part of
this Indenture.
(b) Unless otherwise indicated, all terms used in this
Indenture that are defined by the TIA, defined by the TIA by reference to
another statute or defined by a rule of the Commission under the TIA shall
have the meanings assigned to them in the TIA or such statute or rule as
in force on the date of execution of this Indenture.
Section 1.03 DEFINITIONS. For purposes of this Indenture,
the following terms shall have the following meanings.
"AUTHENTICATING AGENT" shall mean any agent of the Trustee
which shall be appointed and acting pursuant to Section 9.15 hereof.
"AUTHORIZED AGENT" shall mean any agent of the Company
designated as such by an Officers' Certificate delivered to the Trustee.
"BOARD OF DIRECTORS" shall mean the Board of Directors of the
Company or the Executive Committee of such Board or any other duly
authorized committee of such Board.
"BOARD RESOLUTION" shall mean a copy of a resolution certified
by the Secretary or an Assistant Secretary of the Company to have been
duly adopted by the Board of Directors and to be in full force and effect
on the date of such certification, and delivered to the Trustee.
"BUSINESS DAY" shall mean each Monday, Tuesday, Wednesday,
Thursday and Friday that is not a day on which banking institutions or
trust companies in the Borough of Manhattan, the City and State of New
York, or in the city where the corporate trust office of the Trustee is
located, are obligated or authorized by law or executive order to close.
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"CAPITAL LEASE" shall mean any lease which has been or would
be capitalized on the books of the lessee in accordance with GAAP.
"CAPITALIZATION" shall mean the total of all the following
items appearing on, or included in, the consolidated balance sheet of the
Company: (i) liabilities for indebtedness maturing more than twelve (12)
months from the date of determination; and (ii) common stock, preferred
stock, Hybrid Preferred Securities, premium on capital stock, capital
surplus, capital in excess of par value, and retained earnings (however
the foregoing may be designated), less, to the extent not otherwise
deducted, the cost of shares of capital stock of the Company held in its
treasury. Subject to the foregoing, Capitalization shall be determined in
accordance with generally accepted accounting principles and practices
applicable to the type of business in which the Company is engaged and
that are approved by independent accountants regularly retained by the
Company, and may be determined as of a date not more than sixty (60) days
prior to the happening of an event for which such determination is being
made.
"COMMISSION" shall mean the United States Securities and
Exchange Commission, or if at any time hereafter the Commission is not
existing or performing the duties now assigned to it under the TIA, then
the body performing such duties.
"COMPANY" shall mean the corporation named as the "Company" in
the first paragraph of this Indenture, and its successors and assigns
permitted hereunder.
"COMPANY ORDER" shall mean a written order signed in the name
of the Company by one of the Chairman, the President, any Vice President
(whether or not designated by a number or numbers or a void or words added
before or after the title "Vice President"), the Treasurer or an Assistant
Treasurer, of the Company, and delivered to the Trustee. At the Company's
option, a Company Order may take the form of a supplemental indenture to
this Indenture.
"CONSOLIDATED SUBSIDIARY" shall mean any Subsidiary whose
accounts are or are required to be consolidated with the accounts of the
Company in accordance with GAAP.
"CORPORATE TRUST OFFICE OF THE TRUSTEE", or other similar
term, shall mean the corporate trust office of the Trustee, at which at
any particular time its corporate trust business shall be principally
administered, which office is at the date of the execution of this
Indenture located at 450 W. 33rd Street, 15th Floor, New York, New York,
10001.
"DEBT" shall mean any outstanding debt for money borrowed
evidenced by notes, debentures, bonds, or other securities, or guarantees
of any thereof.
"DEPOSITARY" shall mean, unless otherwise specified in a
Company Order pursuant to Section 2.05 hereof, The Depository Trust
Company, New York, New York, or any successor thereto registered and
qualified as a clearing agency under the Securities Exchange Act of 1934,
or other applicable statute or regulation.
"EVENT OF DEFAULT" shall mean any event specified in Section
8.01 hereof, continued for the period of time, if any, and after the
giving of the notice, if any, therein designated.
"EXPERT" shall mean any officer of the Company familiar with
the terms of the First Mortgage and this Indenture, any law firm, any
investment banking firm, or any other Person, satisfactory in the
reasonable judgment of the Trustee.
"FIRST MORTGAGE" shall mean the Indenture, dated as of
September 1, 1945 from the Company to The Chase Manhattan Bank, as
successor trustee to City Bank Farmers Trust Company, as supplemented and
amended from time to time.
"FIRST MORTGAGE BONDS" shall mean all first mortgage bonds
issued by the Company and outstanding under the First Mortgage, other than
Senior Note First Mortgage Bonds.
"GAAP" shall mean generally accepted accounting principles in
the United States of America as in effect on the date hereof, applied on a
basis consistent with those used in the preparation of any financial
statements referred to herein, unless otherwise stated herein.
"GLOBAL NOTE" shall mean a Note that, pursuant to Section 2.05
hereof, is issued to evidence Notes, that is delivered to the Depositary
or pursuant to the instructions of the Depositary and that shall be
registered in the name of the Depositary or its nominee.
"HYBRID PREFERRED SECURITIES" shall mean any preferred
securities issued by a Hybrid Preferred Securities Subsidiary, where such
preferred securities have the following characteristics:
(i) such Hybrid Preferred Securities Subsidiary
lends substantially all of the proceeds from the issuance of
such preferred securities to the Company in exchange for
Junior Subordinated Indebtedness issued by the Company;
(ii) such preferred securities contain terms
providing for the deferral of interest payments corresponding
to provisions providing for the deferral of interest payments
on the Junior Subordinated Indebtedness; and
(iii) the Company makes periodic interest payments
on the Junior Subordinated Indebtedness, which interest
payments are in turn used by the Hybrid Preferred Securities
Subsidiary to make corresponding payments to the holders of
the preferred securities.
"HYBRID PREFERRED SECURITIES SUBSIDIARY" shall mean any
business trust (or similar entity) (i) all of the common equity interest
of which is owned (either directly or indirectly through one or more
wholly-owned Subsidiaries of the Company or any Consolidated Subsidiary of
the Company) at all times by the Company, (ii) that has been formed for
the purpose of issuing Hybrid Preferred Securities and (iii) substantially
all of the assets of which consist at all times solely of Junior
Subordinated Indebtedness issued by the Company and payments made from
time to time on such Junior Subordinated Indebtedness.
"INDENTURE" shall mean this instrument as originally executed
or, if amended or supplemented as herein provided, as so amended or
supplemented.
"INTEREST PAYMENT DATE" shall mean (a) each date designated as
such for the payment of interest on a Note specified in a Company Order
pursuant to Section 2.05 hereof, (provided that the first Interest Payment
Date for any Note, the Original Issue Date of which is after a Regular
Record Date but prior to the respective Interest Payment Date, shall be
the Interest Payment Date following the next succeeding Regular Record
Date), (b) a date of maturity of such Note and (c) only with respect to
defaulted interest on such Note, the date established by the Trustee for
the payment of such defaulted interest pursuant to Section 2.11 hereof.
"JUNIOR SUBORDINATED INDEBTEDNESS" shall mean any unsecured
Debt of the Company (i) issued in exchange for the proceeds of Hybrid
Preferred Securities and (ii) subordinated to the rights of the Holders
hereunder.
"LIEN" shall mean any mortgage, security interest, pledge or
lien.
"MATURITY," when used with respect to any Note, shall mean the
date on which the principal of such Note becomes due and payable as
therein or herein provided, whether at the stated maturity thereof or by
declaration of acceleration, redemption or otherwise.
"MORTGAGE TRUSTEE" shall mean the Person serving as trustee at
the time under the First Mortgage.
"NET TANGIBLE ASSETS" shall mean the amount shown as total
assets on the consolidated balance sheet of the Company, less the
following: (i) intangible assets including, but without limitation, such
items as goodwill, trademarks, trade names, patents, and unamortized debt
discount and expense and (ii) appropriate adjustments, if any, on account
of minority interests. Net Tangible Assets shall be determined in
accordance with generally accepted accounting principles and practices
applicable to the type of business in which the Company is engaged and
that are approved by the independent accountants regularly retained by the
Company, and may be determined as of a date not more than sixty (60) days
prior to the happening of the event for which such determination is being
made.
"NOTE" or "NOTES" shall mean any Note or Notes, as the case
may be, authenticated and delivered under this Indenture, including any
Global Note.
"NOTEHOLDER", "HOLDER OF NOTES" or "HOLDER" shall mean any
Person in whose name at the time a particular Note is registered on the
books of the Trustee kept for that purpose in accordance with the terms
hereof.
"OFFICERS' CERTIFICATE" when used with respect to the Company,
shall mean a certificate signed by one of the Chairman, the President, 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 an Assistant Secretary of the Company; provided, that no individual
shall be entitled to sign in more than one capacity.
"OPERATING PROPERTY" shall mean (i) any interest in real
property owned by the Company and (ii) any asset owned by the Company that
is depreciable in accordance with GAAP, excluding, in either case, any
interest of the Company as lessee under a Capital Lease (except for a
lease that results from a Sale and Lease-Back Transaction).
"OPINION OF COUNSEL" shall mean an opinion in writing signed
by legal counsel, who may be an employee of the Company, meeting the
applicable requirements of Section 15.05 hereof. If the Indenture requires
the delivery of an Opinion of Counsel to the Trustee, the text and
substance of which has been previously delivered to the Trustee, the
Company may satisfy such requirement by the delivery by the legal counsel
that delivered such previous Opinion of Counsel of a letter to the Trustee
to the effect that the Trustee may rely on such previous Opinion of
Counsel as if such Opinion of Counsel was dated and delivered the date
delivery of such Opinion of Counsel is required. Any Opinion of Counsel
may contain reasonable conditions and qualifications satisfactory to the
Trustee.
"OPINION OF INDEPENDENT COUNSEL" shall mean an opinion in
writing signed by legal counsel, who shall not be an employee of the
Company, meeting the applicable requirements of Section 15.05. Any Opinion
of Independent Counsel may contain conditions and qualifications
satisfactory to the Trustee.
"ORIGINAL ISSUE DATE" shall mean for a Note, or portions
thereof, the date upon which it, or such portion, was issued by the
Company pursuant to this Indenture and authenticated by the Trustee (other
than in connection with a transfer, exchange or substitution).
"OUTSTANDING", when used with reference to Notes, shall,
subject to Section 10.04 hereof, mean, as of any particular time, all
Notes authenticated and delivered by the Trustee under this Indenture,
except
(a) Notes theretofore cancelled by the Trustee or
delivered to the Trustee for cancellation;
(b) Notes, or portions thereof, for the payment or
redemption of which moneys in the necessary amount shall have been
deposited in trust with the Trustee or with any paying agent (other than
the Company), provided that if such Notes are to be redeemed prior to the
maturity thereof, notice of such redemption shall have been given as
provided in Article III, or provisions satisfactory to the Trustee shall
have been made for giving such notice;
(c) Notes, or portions thereof, that have been paid and
discharged or are deemed to have been paid and discharged pursuant to the
provisions of this Indenture; and
(d) Notes in lieu of or in substitution for which other
Notes shall have been authenticated and delivered, or which have been
paid, pursuant to Section 2.07 hereof.
"PERSON" shall mean any individual, corporation, partnership,
joint venture, limited liability company, association, joint-stock
company, trust, unincorporated organization or government or any agent or
political subdivision thereof.
"PRINCIPAL EXECUTIVE OFFICES OF THE COMPANY" shall mean 212
West Michigan Avenue, Jackson, Michigan, 49201, or such other place where
the main corporate offices of the Company are located as designated in
writing to the Trustee by an Authorized Agent.
"REGISTRATION RIGHTS AGREEMENT" shall mean the registration
rights agreement by and among the Company, Morgan Stanley & Co.
Incorporated, Salomon Brothers Inc., BancAmerica Robertson Stephens and
Goldman, Sachs & Co. dated as of February 13, 1998.
"REGULAR RECORD DATE" shall mean, unless otherwise specified
in a Company Order pursuant to Section 2.05, for an Interest Payment Date
for a particular Note (a) the fifteenth day of the calendar month next
preceding each Interest Payment Date (unless the Interest Payment Date is
the date of maturity of such Note, in which event, the Regular Record Date
shall be as described in clause (b) hereof) and (b) the date of maturity
of such Note.
"RELATED SERIES OF NOTES" shall mean, when used in reference
to the First Mortgage Bonds, Senior Notes Series A, the Company's Senior
Notes, 6?% Due 2008 Series A (and any Senior Notes issued in exchange
thereof pursuant to the Registration Rights Agreement) and, when used in
reference to another series of Senior Note First Mortgage Bonds, shall
mean the series of Notes in respect of which such series of Senior Note
First Mortgage Bonds were delivered to the Trustee pursuant to Section
4.09 hereof upon the initial authentication and issuance of such series of
Notes pursuant to Section 2.05 hereof.
"RELATED SERIES OF SENIOR NOTE FIRST MORTGAGE BONDS" shall
mean, when used in reference to the Company's Senior Notes, 6?% Due 2008
Series A (and any Senior Notes issued in exchange thereof pursuant to the
Registration Rights Agreement), the First Mortgage Bonds, Senior Notes
Series A, and, when used in reference to any other series of Notes, shall
mean the series of Senior Note First Mortgage Bonds delivered to the
Trustee pursuant to Section 4.09 hereof in connection with the initial
authentication and issuance of such series of Notes pursuant to Section
2.05 hereof.
"RELEASE DATE" shall mean the date as of which all First
Mortgage Bonds have been retired through payment, redemption, or otherwise
at, before or after the maturity thereof.
"RESPONSIBLE OFFICER" or "RESPONSIBLE OFFICERS" when used with
respect to the Trustee shall mean one or more of the following: the
chairman of the board of directors, the vice chairman of the board of
directors, the 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 secretary, the treasurer, any
trust officer, any assistant trust officer, any second or assistant vice
president, 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 or her knowledge of and familiarity with the
particular subject.
"SALE AND LEASE-BACK TRANSACTION" shall mean any arrangement
with any Person providing for the leasing to the Company of any Operating
Property (except for leases for a term, including any renewal thereof, of
not more than forty-eight (48) months), which Operating Property has been
or is to be sold or transferred by the Company to such Person; provided,
however, Sale and Lease-back Transaction shall not include any arrangement
first entered into prior to the date of this Indenture.
"SENIOR NOTE FIRST MORTGAGE BONDS" shall mean the First
Mortgage Bonds, Senior Note Series A issued by the Company pursuant to the
70th Supplemental Trust Indenture to the First Mortgage dated as of
February 1, 1998 and any other first mortgage bonds issued by the Company
under the First Mortgage pursuant to supplemental indentures to the First
Mortgage and delivered to the Trustee pursuant to Section 4.09 hereof.
"SPECIAL RECORD DATE" shall mean, with respect to any Note,
the date established by the Trustee in connection with the payment of
defaulted interest on such Note pursuant to Section 2.11 hereof.
"STATED MATURITY" shall mean with respect to any Note, the
last date on which principal on such Note becomes due and payable as
therein or herein provided, other than by declaration of acceleration or
by redemption.
"SUBSIDIARY" shall mean, as to any Person, any corporation or
other entity of which at least a majority of the securities or other
ownership interest having ordinary voting power (absolutely or
contingently) for the election of directors or other Persons performing
similar functions are at the time owned directly or indirectly by such
Person.
"TRUSTEE" shall mean The Chase Manhattan Bank and, subject to
Article IX, shall also include any successor Trustee.
"U.S. GOVERNMENT OBLIGATIONS" shall mean (i) direct non-
callable obligations of, or non-callable obligations guaranteed as to
timely payment of principal and interest by, the United States of America
or obligations of a person controlled or supervised by and acting as an
agency or instrumentality thereof for the payment of which obligations or
guarantee the full faith and credit of the United States is pledged or
(ii) certificates or receipts representing direct ownership interests in
obligations or specified portions (such as principal or interest) of
obligations described in clause (i) above, which obligations are held by a
custodian in safekeeping in a manner satisfactory to the Trustee.
"VALUE" shall mean, with respect to a Sale and Lease-Back
Transaction, as of any particular time, the amount equal to the greater of
(i) the net proceeds to the Company from the sale or transfer of the
property leased pursuant to such Sale and Lease-Back Transaction or (ii)
the net book value of such property, as determined in accordance with
generally accepted accounting principles by the Company at the time of
entering into such Sale and Lease-Back Transaction, in either case
multiplied by a fraction, the numerator of which shall be equal to the
number of full years of the term of the lease that is part of such Sale
and Lease-Back Transaction remaining at the time of determination and the
denominator of which shall be equal to the number of full years of such
term, without regard, in any case, to any renewal or extension options
contained in such lease.
ARTICLE II
FORM, ISSUE, EXECUTION, REGISTRATION AND
EXCHANGE OF NOTES
Section 2.01 FORM GENERALLY.
(a) If the Notes are in the form of a Global Note they
shall be in substantially the form set forth in Exhibit A (or, following
the Release Date, Exhibit C) to this Indenture, and, if the Notes are not
in the form of a Global Note, they shall be in substantially the form set
forth in Exhibit B (or, following the Release Date, Exhibit D) to this
Indenture, or, in any case, in such other form as shall be established by
a Board Resolution, or a Company Order pursuant to a Board Resolution, or
in one or more indentures supplemental hereto, in each case with such
appropriate insertions, omissions, substitutions and other variations as
are required or permitted by this Indenture, and may have such letters,
numbers or other marks of identification and such legends or endorsements
placed thereon as may be required to comply with applicable rules of any
securities exchange or of the Depositary or with applicable law or as may,
consistently herewith, be determined by the officers executing such Notes,
as evidenced by their execution of such Notes.
(b) The definitive Notes shall be typed, printed,
lithographed or engraved on steel engraved borders or may be produced in
any other manner, all as determined by the officers executing such Notes,
as evidenced by their execution of such Notes.
Section 2.02 FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION.
The Trustee's certificate of authentication on all Notes shall be in
substantially the following form:
Trustee's Certificate of Authentication
This Note is one of the Notes of the series herein designated,
described or provided for in the within-mentioned Indenture.
The Chase Manhattan Bank,
As Trustee
By:___________________________
Authorized Officer
Section 2.03 AMOUNT UNLIMITED. The aggregate principal
amount of Notes that may be authenticated and delivered under this
Indenture is unlimited, subject to compliance with the provisions of this
Indenture.
Section 2.04 DENOMINATIONS, DATES, INTEREST PAYMENT AND
RECORD DATES.
(a) The Notes shall be issuable in registered form
without coupons in denominations of $1,000 and integral multiples thereof
or such other amount or amounts as may be authorized by the Board of
Directors or a Company Order pursuant to a Board Resolution or in one or
more indentures supplemental hereto; provided, that the principal amount
of a Global Note shall not exceed $200,000,000 unless otherwise permitted
by the Depositary.
(b) Each Note shall be dated and issued as of the date of
its authentication by the Trustee, and shall bear an Original Issue Date;
each Note issued upon transfer, exchange or substitution of a Note shall
bear the Original Issue Date or Dates of such transferred, exchanged or
substituted Note, subject to the provisions of Section 2.13(e) hereof.
(c) Each Note shall bear interest from the later of (1)
its Original Issue Date or the date specified in such Note or (2) the most
recent date to which interest has been paid or duly provided for with
respect to such Note until the principal of such Note is paid or made
available for payment, and interest on each Note shall be payable on each
Interest Payment Date after the Original Issue Date.
(d) Each Note shall mature on a stated maturity specified
in the Note. The principal amount of each outstanding Note shall be
payable on the maturity date or dates specified therein.
(e) Unless otherwise specified in a Company Order
pursuant to Section 2.05 hereof, interest on each of the Notes shall be
calculated on the basis of a 360-day year of twelve 30-day months and
shall be computed at a fixed rate until the maturity of such Notes. The
method of computing interest on any Notes not bearing a fixed rate of
interest shall be set forth in a Company Order pursuant to Section 2.05
hereof. Unless otherwise specified in a Company Order pursuant to Section
2.05 hereof, principal, interest and premium on the Notes shall be payable
in the currency of the United States.
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(f) Except as provided in the following sentence, the
Person in whose name any Note is registered at the close of business on
any Regular Record Date or Special Record Date with respect to an Interest
Payment Date for such Note shall be entitled to receive the interest
payable on such Interest Payment Date notwithstanding the cancellation of
such Note upon any registration of transfer, exchange or substitution of
such Note subsequent to such Regular Record Date or Special Record Date
and prior to such Interest Payment Date. Any interest payable at maturity
shall be paid to the Person to whom the principal of such Note is payable.
(g) So long as the Trustee is the registrar and paying
agent, the Trustee shall, as soon as practicable but no later than the
Regular Record Date preceding each applicable Interest Payment Date,
provide to the Company a list of the principal, interest and premium to be
paid on Notes on such Interest Payment Date. The Trustee shall assume
responsibility for withholding taxes on interest paid as required by law
except with respect to any Global Note.
Section 2.05 EXECUTION, AUTHENTICATION, DELIVERY AND DATING.
(a) The Notes shall be executed on behalf of the Company
by one of its Chairman, President, 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"), its Treasurer or an Assistant Treasurer of
the Company and attested by the Secretary or an Assistant Secretary of the
Company. The signature of any of these officers on the Notes may be manual
or facsimile. Typographical and other minor errors or defects in any such
signature shall not affect the validity or enforceability of any Note that
has been duly authenticated and delivered by the Trustee.
(b) Notes bearing the manual or facsimile signatures of
individuals who were at the time of execution the proper officers of the
Company shall bind the Company, notwithstanding that such individuals or
any of them have ceased to hold such offices prior to the authentication
and delivery of such Notes or did not hold such offices at the date of
such Notes.
(c) At any time and from time to time after the execution
and delivery of this Indenture, the Company may deliver Notes executed by
the Company to the Trustee for authentication, together with or preceded
by one or more Company Orders for the authentication and delivery of such
Notes, and the Trustee in accordance with any such Company Order shall
authenticate and make available for delivery such Notes. The Notes shall
be issued in series. Such Company Order shall specify the following with
respect to each series of Notes: (i) any limitations on the aggregate
principal amount of the Notes to be issued as part of such series, (ii)
the Original Issue Date for such series, (iii) the stated maturity or
maturities of Notes of such series, (iv) the interest rate or rates, or
method of calculation of such rate or rates, for such series and the date
from which such interest will accrue, (v) the terms, if any, regarding the
optional or mandatory redemption of such series, including redemption date
or dates of such series, if any, and the price or prices applicable to
such redemption, (vi) whether or not the Notes of such series shall be
issued in whole or in part in the form of a Global Note and, if so, the
Depositary for such Global Note, (vii) the designation of such series,
(viii) if the form of the Notes of such series is not as described in
Exhibit A, Exhibit B, Exhibit C or Exhibit D hereto, the form of the Notes
of such series, (ix) the maximum annual interest rate, if any, of the
Notes permitted for such series, (x) any other information necessary to
complete the Notes of such series, (xi) if prior to the Release Date, the
designation of the Related Series of Senior Note First Mortgage Bonds
being delivered to the Trustee in connection with the issuance of such
series of Notes, (xii) the establishment of any office or agency pursuant
to Section 6.02 hereof, and (xiii) any other terms of such series not
inconsistent with this Indenture. Prior to authenticating Notes of any
series, and in accepting the additional responsibilities under this
Indenture in relation to such Notes, the Trustee shall receive from the
Company the following at or before the issuance of the initial Note of
such series of Notes, and (subject to Section 9.01 hereof) shall be fully
protected in relying upon, unless and until such documents have been
superseded or revoked prior to such issuance:
(1) A Board Resolution authorizing such Company
Order or Orders and, if the form of Notes is established
by a Board Resolution or a Company Order pursuant to a
Board Resolution, a copy of such Board Resolution;
(2) At the option of the Company, either an Opinion
of Counsel or a letter addressed to the Trustee permitting
it to rely on an Opinion of Counsel, stating substantially
the following subject to customary qualifications and
exceptions:
(A) if the form of Notes has been established
by or pursuant to a Board Resolution, a Company Order
pursuant to a Board Resolution, or in a supplemental
indenture as permitted by Section 2.01 hereof, that
such form has been established in conformity with
this Indenture;
(B) that the Indenture has been duly
authorized, executed and delivered by the Company and
constitutes a valid and binding obligation of the
Company, enforceable against the Company in
accordance with its terms, except as may be limited
by applicable bankruptcy, insolvency, reorganization,
fraudulent conveyance, moratorium or similar laws of
general application relating to or affecting the
enforcement of creditors, the application of general
principles of equity (regardless of whether such
application is made in a proceeding at law or in
equity) and by an implied covenant of good faith and
fair dealing and except as enforcement of provisions
of the Indenture may be limited by state laws
affecting the remedies for the enforcement of the
security provided for in the Indenture;
(C) if prior to the Release Date, that the
Related Series of Senior Note First Mortgage Bonds
being delivered to the Trustee in connection with the
issuance of such series of Notes have been duly
authorized, executed and delivered, and that such
Senior Note First Mortgage Bonds are valid and
binding obligations of the Company, enforceable in
accordance with their terms, except as may be limited
by applicable bankruptcy, insolvency, reorganization,
fraudulent conveyance, moratorium or similar laws of
general application relating to or affecting the
enforcement of creditors and the application of
general principles of equity (regardless of whether
such application is made in a proceeding at law or in
equity) and by an implied covenant of good faith and
fair dealing and except as enforcement of provisions
thereof may be limited by state laws affecting the
remedies for the enforcement of the security provided
for in the First Mortgage; and that such Senior Note
First Mortgage Bonds are entitled to the benefit of
the First Mortgage, equally and ratably, with all
First Mortgage Bonds and other Senior Note First
Mortgage Bonds (if any) outstanding thereunder,
except as to sinking fund provisions;
(D) that the Indenture and, if prior to the
Release Date, the First Mortgage are qualified to the
extent necessary under the TIA;
(E) that such Notes have been duly authorized
and executed by the Company, and when authenticated
by the Trustee and issued by the Company in the
manner and subject to any conditions specified in
such Opinion of Counsel, will constitute valid and
binding obligations of the Company, enforceable in
accordance with their terms, except as may be limited
by applicable bankruptcy, insolvency, reorganization,
fraudulent conveyance, moratorium or similar laws of
general application relating to or affecting the
enforcement of creditors, the application of general
principles of equity (regardless of whether such
application is made in a proceeding at law or in
equity) and by an implied covenant of good faith and
fair dealing and except as enforcement of provisions
of this Indenture may be limited by state laws
affecting the remedies for the enforcement of the
security provided for in this Indenture;
(F) that the issuance of the Notes and, if
prior to the Release Date, the delivery by the
Company of the Related Series of Senior Note First
Mortgage Bonds in connection therewith will not
result in any default under this Indenture or (if
applicable) the First Mortgage;
(G) that all consents or approvals of the
Federal Energy Regulatory Commission (or any
successor agency) and of any other federal or state
regulatory agency required in connection with the
Company's execution and delivery of this Indenture,
such series of Notes and any Senior Note First
Mortgage Bonds have been obtained and are in full
force and effect (except that no statement need be
made with respect to state securities laws);
(H) if prior to the Release Date, that the
First Mortgage (except the supplemental indenture
establishing the Related Series of Senior Note First
Mortgage Bonds being delivered to the Trustee in
connection with the issuance of such series of Notes)
and all financing statements have been duly filed and
recorded in all places where such filing or recording
is necessary for the perfection or preservation of
the lien of the First Mortgage, and the First
Mortgage constitutes a valid and perfected first lien
upon the property purported to be covered thereby,
subject only to excepted encumbrances (as defined in
the First Mortgage) and to liens upon the property,
if any, specifically identified in such supplemental
indenture prior to its recordation; and
(I) that all conditions that must be met by the
Company to issue Notes under this Indenture have been
met.
(3) If prior to the Release Date, the certificate of
an Expert meeting the requirements of Section 4.06(a)
hereof and a series of Senior Note First Mortgage Bonds
meeting the requirements of Section 4.10 hereof (except
that such certificate need not be delivered in connection
with the issue of the first series of Notes hereunder).
(4) An Officers' Certificate stating that (i) the
Company is not, and upon the authentication by the Trustee
of the series of Notes, will not be in default under any
of the terms or covenants contained in the Indenture, (ii)
all conditions that must be met by the Company to issue
Notes under this Indenture have been met, and (iii) if
prior to the Release Date, the Related Series of Senior
Note First Mortgage Bonds being delivered to the Trustee
meets the requirements of Section 4.10 hereof.
(d) No Note shall be entitled to any benefit under this
Indenture or be valid or obligatory for any purpose unless there appears
on such Note a certificate of authentication substantially in the form
provided for herein executed by the Trustee by the manual signature of an
authorized officer, and such certificate upon any Note shall be conclusive
evidence, and the only evidence, that such Note has been duly
authenticated and delivered hereunder and is entitled to the benefits of
this Indenture.
(e) If all Notes of a series are not to be authenticated
and issued at one time, the Company shall not be required to deliver the
Company Order, Board Resolutions, certificate of an Expert, Senior Note
First Mortgage Bonds, Officers' Certificate and Opinion of Counsel
(including any of the foregoing that would be otherwise required pursuant
to Section 15.05 hereof) described in Section 2.05(c) hereof at or prior
to the authentication of each Note of such series, if such items are
delivered at or prior to the time of authentication of the first Note of
such series to be authenticated and issued. If all of the Notes of a
series are not authenticated and issued at one time, for each issuance of
Notes after the initial issuance of Notes, the Company shall be required
only to deliver to the Trustee the Note and a written request (executed by
one of the Chairman, the President, any Vice President, the Treasurer, or
an Assistant Treasurer) to the Trustee to authenticate such Note and to
deliver such Note in accordance with the instructions specified by such
request. Any such request shall constitute a representation and warranty
by the Company that the statements made in the Officers' Certificate
delivered to the Trustee prior to the authentication and issuance of the
first Note of such series are true and correct on the date thereof as if
made on and as of the date thereof.
Section 2.06 EXCHANGE AND REGISTRATION OF TRANSFER OF NOTES.
(a) Subject to Section 2.13 hereof, Notes may be
exchanged for one or more new Notes of any authorized denominations and of
a like aggregate principal amount, series and stated maturity and having
the same terms and Original Issue Date. Notes to be exchanged shall be
surrendered at any of the offices or agencies to be maintained pursuant to
Section 6.02 hereof, and the Trustee shall authenticate and deliver in
exchange therefor the Note or Notes which the Noteholder making the
exchange shall be entitled to receive.
(b) The Trustee shall keep, at one of said offices or
agencies, a register or registers in which, subject to such reasonable
regulations as it may prescribe, the Trustee shall register or cause to be
registered Notes and shall register or cause to be registered the transfer
of Notes as in this Article II provided. Such register shall be in written
form or in any other form capable of being converted into written form
within a reasonable time. At all reasonable times, such register shall be
open for inspection by the Company. Upon due presentment for registration
of transfer of any Note at any such office or agency, the Company shall
execute and the Trustee shall register, authenticate and deliver in the
name of the transferee or transferees one or more new Notes of any
authorized denominations and of a like aggregate principal amount, series
and stated maturity and having the same terms and Original Issue Date.
(c) All Notes presented for registration of transfer or
for exchange, redemption or payment shall be duly endorsed by, or be
accompanied by a written instrument or instruments of transfer in form
satisfactory to the Company and the Trustee and duly executed by the
Holder or the attorney in fact of such Holder duly authorized in writing.
(d) No service charge shall be made for any exchange or
registration of transfer of Notes, but the Company may require payment of
a sum sufficient to cover any tax or other governmental charge that may be
imposed in connection therewith.
(e) The Trustee shall not be required to exchange or
register the transfer of any Notes selected, called or being called for
redemption (including Notes, if any, redeemable at the option of the
Holder provided such Notes are then redeemable at such Holder's option)
except, in the case of any Note to be redeemed in part, the portion
thereof not to be so redeemed.
(f) If the principal amount, and applicable premium, of
part, but not all of a Global Note is paid, then upon surrender to the
Trustee of such Global Note, the Company shall execute, and the Trustee
shall authenticate, deliver and register, a Global Note in an authorized
denomination in aggregate principal amount equal to, and having the same
terms, Original Issue Date and series as, the unpaid portion of such
Global Note.
Section 2.07 MUTILATED, DESTROYED, LOST OR STOLEN NOTES. (a)
If any temporary or definitive Note shall become mutilated or be
destroyed, lost or stolen, the Company shall execute, and upon its written
request the Trustee shall authenticate and deliver, a new Note of like
form and principal amount and having the same terms and Original Issue
Date and bearing a number not contemporaneously outstanding, in exchange
and substitution for the mutilated Note, or in lieu of and in substitution
for the Note so destroyed, lost or stolen. In every case the applicant for
a substituted Note shall furnish to the Company, the Trustee and any
paying agent or Authenticating Agent 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 of a Note, the applicant shall also furnish to
the Company and to the Trustee evidence to their satisfaction of the
destruction, loss or theft of such Note and of the ownership thereof.
(b) The Trustee shall authenticate any such substituted
Note and deliver the same upon the written request or authorization of any
officer of the Company. Upon the issuance of any substituted Note, the
Company 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 connected therewith. If any Note which has matured, is
about to mature, has been redeemed or called for redemption shall become
mutilated or be destroyed, lost or stolen, the Company may, instead of
issuing a substituted Note, pay or authorize the payment of the same
(without surrender thereof except in the case of a mutilated Note) if the
applicant for such payment shall furnish to the Company, the Trustee and
any paying agent or Authenticating Agent such security or indemnity as may
be required by them to save each of them harmless and, in case of
destruction, loss or theft, evidence satisfactory to the Company and the
Trustee of the destruction, loss or theft of such Note and of the
ownership thereof.
(c) Every substituted Note issued pursuant to this
Section 2.07 by virtue of the fact that any Note is mutilated, destroyed,
lost or stolen shall constitute an additional contractual obligation of
the Company, whether or not such destroyed, lost or stolen Note shall be
found at any time, and shall be entitled to all the benefits of this
Indenture equally and proportionately with any and all other Notes duly
issued hereunder. All Notes 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,
destroyed, lost or stolen Notes and shall preclude to the full extent
permitted by applicable law any and all other rights or remedies with
respect to the replacement or payment of negotiable instruments or other
securities without their surrender.
Section 2.08 TEMPORARY NOTES. Pending the preparation of
definitive Notes, the Company may execute and the Trustee shall
authenticate and deliver temporary Notes (printed, lithographed or
otherwise reproduced). Temporary Notes shall be issuable in any authorized
denomination and substantially in the form of the definitive Notes but
with such omissions, insertions and variations as may be appropriate for
temporary Notes, all as may be determined by the Company. Every such
temporary Note shall be authenticated by the Trustee upon the same
conditions and in substantially the same manner, and with the same effect,
as the definitive Notes. Without unreasonable delay the Company shall
execute and shall deliver to the Trustee definitive Notes and thereupon
any or all temporary Notes shall be surrendered in exchange therefor at
the corporate trust office of the Trustee, and the Trustee shall
authenticate, deliver and register in exchange for such temporary Notes an
equal aggregate principal amount of definitive Notes. Such exchange shall
be made by the Company at its own expense and without any charge therefor
to the Noteholders. Until so exchanged, the temporary Notes shall in all
respects be entitled to the same benefits under this Indenture as
definitive Notes authenticated and delivered hereunder.
Section 2.09 CANCELLATION OF NOTES PAID, ETC. All Notes
surrendered for the purpose of payment, redemption, exchange or
registration of transfer shall be surrendered to the Trustee for
cancellation and promptly cancelled by it and no Notes shall be issued in
lieu thereof except as expressly permitted by this Indenture. The Company
shall surrender to the Trustee any Notes so acquired by it and such Notes
shall be cancelled by the Trustee. No Notes shall be authenticated in
lieu of or in exchange for any Notes so cancelled.
Section 2.10 INTEREST RIGHTS PRESERVED. Each Note delivered
under this Indenture upon transfer of or in exchange for or in lieu of any
other Note shall carry all the rights to interest accrued and unpaid, and
to accrue, which were carried by such other Note, and each such Note shall
be so dated that neither gain nor loss of interest shall result from such
transfer, exchange or substitution.
Section 2.11 SPECIAL RECORD DATE. If and to the extent that
the Company fails to make timely payment or provision for timely payment
of interest on any series of Notes (other than on an Interest Payment Date
that is a maturity date), that interest shall cease to be payable to the
Persons who were the Noteholders of such series at the applicable Regular
Record Date. In that event, when moneys become available for payment of
the interest, the Trustee shall (a) establish a date of payment of such
interest and a Special Record Date for the payment of that interest, which
Special Record Date shall be not more than 15 or fewer than 10 days prior
to the date of the proposed payment and (b) mail notice of the date of
payment and of the Special Record Date not fewer than 10 days preceding
the Special Record Date to each Noteholder of such series at the close of
business on the 15th day preceding the mailing at the address of such
Noteholder, as it appeared on the register for the Notes. On the day so
established by the Trustee the interest shall be payable to the Holders of
the applicable Notes at the close of business on the Special Record Date.
Section 2.12 PAYMENT OF NOTES. Payment of the principal,
interest and premium on all Notes shall be payable as follows:
(a) On or before 9:30 a.m., New York City time, or such
other time as shall be agreed upon between the Trustee and the Company, of
the day on which payment of principal, interest and premium is due on any
Global Note pursuant to the terms thereof, the Company shall deliver to
the Trustee funds available on such date sufficient to make such payment,
by wire transfer of immediately available funds or by instructing the
Trustee to withdraw sufficient funds from an account maintained by the
Company with the Trustee or such other method as is acceptable to the
Trustee. On or before 12:00 noon, New York City time, or such other time
as shall be agreed upon between the Trustee and the Depositary, of the day
on which any payment of interest is due on any Global Note (other than at
maturity), the Trustee shall pay to the Depositary such interest in same
day funds. On or before 1:00 p.m., New York City time or such other time
as shall be agreed upon between the Trustee and the Depositary, of the day
on which principal, interest payable at maturity and premium, if any, is
due on any Global Note, the Trustee shall deposit with the Depositary the
amount equal to the principal, interest payable at maturity and premium,
if any, by wire transfer into the account specified by the Depositary. As
a condition to the payment, at maturity or upon redemption, of any part of
the principal of interest on and applicable premium of any Global Note,
the Depositary shall surrender, or cause to be surrendered, such Global
Note to the Trustee, whereupon a new Global Note shall be issued to the
Depositary pursuant to Section 2.06(f) hereof.
(b) With respect to any Note that is not a Global Note,
principal, applicable premium and interest due at the maturity of the Note
shall be payable in immediately available funds when due upon presentation
and surrender of such Note at the corporate trust office of the Trustee or
at the authorized office of any paying agent. Interest on any Note that is
not a Global Note (other than interest payable at maturity) shall be paid
by check mailed to the Holder thereof at such Holder's address as it
appears on the register by check payable in clearinghouse funds; provided
that if the Trustee receives a written request from any Holder of Notes,
the aggregate principal amount of which having the same Interest Payment
Date equals or exceeds $10,000,000, on or before the applicable Regular
Record Date for such Interest Payment Date, interest shall be paid by wire
transfer of immediately available funds to a bank within the continental
United States designated by such Holder in its request or by direct
deposit into the account of such Holder designated by such Holder in its
request if such account is maintained with the Trustee or any paying
agent.
(c) The Trustee shall receive the Senior Note First
Mortgage Bonds from the Company as provided in this Indenture and shall
hold the Senior Note First Mortgage Bonds, and any and all sums payable
thereon or with respect thereto or realized therefrom, in trust for the
benefit of the holders of the Notes, as herein provided. Subject to
Article XIII hereof, all payments made by or on behalf of the Company to
the Trustee on a series of Senior Note First Mortgage Bonds shall be
deemed to be a payment by the Company pursuant to this Section 2.12 and
shall be applied by the Trustee to pay, when due, principal of, premium,
if any, and/or interest on the Related Series of Notes and, to the extent
so applied, shall satisfy the Company's obligations on such Notes. The
Company shall cause payment to be made to the Trustee of principal of,
premium, if any, and (if applicable) interest on a series of Senior Note
First Mortgage Bonds in a manner and at a time that will enable the
Trustee to make payments when due, of the principal of, premium, if any,
and interest on the Related Series of Notes.
Section 2.13 NOTES ISSUABLE IN THE FORM OF A GLOBAL NOTE.
(a) If the Company shall establish pursuant to Section
2.05 hereof that the Notes of a particular series are to be issued in
whole or in part in the form of one or more Global Notes, then the Company
shall execute and the Trustee shall, in accordance with Section 2.05
hereof and the Company Order delivered to the Trustee thereunder,
authenticate and deliver such Global Note or Notes, which (i) shall
represent, shall be denominated in an amount equal to the aggregate
principal amount of, and shall have the same terms as, the outstanding
Notes of such series to be represented by such Global Note or Notes, (ii)
shall be registered in the name of the Depositary or its nominee, (iii)
shall be delivered by the Trustee to the Depositary or pursuant to the
Depositary's instruction and (iv) shall bear a legend substantially to the
following effect: "This Note is a Global Note registered in the name of
the Depositary (referred to herein) or a nominee thereof and, unless and
until it is exchanged in whole or in part for the individual Notes
represented hereby, this Global Note may not be transferred except 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 or
by the Depositary or any such nominee to a successor Depositary or a
nominee of such successor Depositary. Unless this Global Note is presented
by an authorized representative of The Depository Trust Company (55 Water
Street, New York, New York), to the Trustee for registration of transfer,
exchange or payment, and any certificate 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 is made to
Cede & Co., any transfer, pledge or other use hereof for value or
otherwise by or to any person is wrongful since the registered owner
hereof, Cede & Co., has an interest herein" or such other legend as may be
required by the rules and regulations of the Depositary.
(b) Notwithstanding any other provision of Section 2.06
hereof or of this Section 2.13, unless the terms of a Global Note
expressly permit such Global Note to be exchanged in whole or in part for
individual Notes, a Global Note may be transferred, in whole but not in
part, only as described in the legend thereto.
(c) (i) If at any time the Depositary for a Global
Note notifies the Company that it is unwilling or unable to continue as
Depositary for such Global Note or if at any time the Depositary for the
Global Note shall no longer be eligible or in good standing under the
Securities Exchange Act of 1934 or other applicable statute or regulation,
the Company shall appoint a successor Depositary with respect to such
Global Note. If a successor Depositary for such Global Note is not
appointed by the Company within 90 days after the Company receives such
notice or becomes aware of such ineligibility, the Company's election
pursuant to Section 2.05(c)(vi) hereof shall no longer be effective with
respect to the series of Notes evidenced by such Global Note and the
Company shall execute, and the Trustee, upon receipt of a Company Order
for the authentication and delivery of individual Notes of such series in
exchange for such Global Note, shall authenticate and deliver, individual
Notes of such series of like tenor and terms in definitive form in an
aggregate principal amount equal to the principal amount of the Global
Note in exchange for such Global Note. The Trustee shall not be charged
with knowledge or notice of the ineligibility of a Depositary unless a
responsible officer assigned to and working in its corporate trustee
administration department shall have actual knowledge thereof.
(ii) (A) The Company may at any time and in its sole
discretion determine that all outstanding (but not less than
all) Notes of a series issued or issuable in the form of one
or more Global Notes shall no longer be represented by such
Global Note or Notes. In such event the Company shall execute,
and the Trustee, upon receipt of a Company Order for the
authentication and delivery of individual Notes in exchange
for such Global Note, shall authenticate and deliver
individual Notes of like tenor and terms in definitive form in
an aggregate principal amount equal to the principal amount of
such Global Note or Notes in exchange for such Global Note or
Notes.
(B) Within seven days after the occurrence of
an Event of Default with respect to any series of
Global Notes, the Company shall execute, and the
Trustee shall authenticate and deliver, Notes of such
series in definitive registered form in any
authorized denominations and in aggregate principal
amount equal to the principal amount of the Global
Notes in exchange for such Global Notes.
(iii) In any exchange provided for in any of the
preceding two paragraphs, the Company will execute and the
Trustee will authenticate and deliver individual Notes in
definitive registered form in authorized denominations. Upon
the exchange of a Global Note for individual Notes, such
Global Note shall be cancelled by the Trustee. Notes issued in
exchange for a Global Note pursuant to this Section shall be
registered in such names and in such authorized denominations
as the Depositary for such Global Note, 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, or if the
Depositary shall refuse or be unable to deliver such Notes,
the Trustee shall deliver such Notes to the persons in whose
names such Notes are registered, unless otherwise agreed upon
between the Trustee and the Company, in which event the
Company shall cause the Notes to be delivered to the persons
in whose names such Notes are registered.
(d) Neither the Company, the Trustee, any Authenticating
Agent nor any paying agent shall have any responsibility or liability for
any aspect of the records relating to, or payments made on account of,
beneficial ownership interests of a Global Note or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interest.
(e) Pursuant to the provisions of this subsection, at the
option of the Trustee and upon 30 days' written notice to the Depositary
but not prior to the first Interest Payment Date of the respective Global
Notes, the Depositary shall be required to surrender any two or more
Global Notes which have identical terms, including, without limitation,
identical maturities, interest rates and redemption provisions (but which
may have differing Original Issue Dates) to the Trustee, and the Company
shall execute and the Trustee shall authenticate and deliver to, or at the
direction of, the Depositary a Global Note in principal amount equal to
the aggregate principal amount of, and with all terms identical to, the
Global Notes surrendered thereto and that shall indicate each applicable
Original Issue Date and the principal amount applicable to each such
Original Issue Date. The exchange contemplated in this subsection shall be
consummated at least 30 days prior to any Interest Payment Date applicable
to any of the Global Notes surrendered to the Trustee. Upon any exchange
of any Global Note with two or more Original Issue Dates, whether pursuant
to this Section or pursuant to Section 2.06 or Section 3.03 hereof, the
aggregate principal amount of the Notes with a particular Original Issue
Date shall be the same before and after such exchange, after giving effect
to any retirement of Notes and the Original Issue Dates applicable to such
Notes occurring in connection with such exchange.
ARTICLE III
REDEMPTION OF NOTES
Section 3.01 APPLICABILITY OF ARTICLE. Such of the Notes as
are, by their terms, redeemable prior to their stated maturity date at the
option of the Company, may be redeemed by the Company at such times, in
such amounts and at such prices as may be specified therein and in
accordance with the provisions of this Article III.
Section 3.02 NOTICE OF REDEMPTION; SELECTION OF NOTES.
(a) The election of the Company to redeem any Notes shall
be evidenced by a Board Resolution which shall be given with notice of
redemption to the Trustee at least 45 days (or such shorter period
acceptable to the Trustee in its sole discretion) prior to the redemption
date specified in such notice.
(b) Notice of redemption to each Holder of Notes to be
redeemed as a whole or in part shall be given by the Trustee, in the
manner provided in Section 15.10 hereof, no less than 30 or more than 60
days prior to the date fixed for redemption. Any notice which is given in
the manner herein provided shall be conclusively presumed to have been
duly given, whether or not the Noteholder receives the notice. In any
case, failure duly to give such notice, or any defect in such notice, to
the Holder of any Note designated for redemption as a whole or in part
shall not affect the validity of the proceedings for the redemption of any
other Note.
(c) Each such notice shall specify the date fixed for
redemption, the places of redemption and the redemption price (or the
method for calculation thereof) at which such Notes are to be redeemed,
and shall state that (subject to subsection (e) of this section) payment
of the redemption price of such Notes or portion thereof to be redeemed
will be made upon surrender of such Notes at such places of redemption,
that interest accrued to the date fixed for redemption will be paid as
specified in such notice, and that from and after such date interest
thereon shall cease to accrue. If less than all of a series of Notes
having the same terms are to be redeemed, the notice shall specify the
Notes or portions thereof to be redeemed. If any Note is to be redeemed in
part only, the notice which relates to such Note shall state the portion
of the principal amount thereof to be redeemed, and shall state that, upon
surrender of such Note, a new Note or Notes having the same terms in
aggregate principal amount equal to the unredeemed portion thereof will be
issued.
(d) Unless otherwise provided by a supplemental indenture
or Company Order under Section 2.05 hereof, if less than all of a series
of Notes is to be redeemed, the Trustee shall select in such manner as it
shall deem appropriate and fair in its discretion the particular Notes to
be redeemed in whole or in part and shall thereafter promptly notify the
Company in writing of the Notes so to be redeemed. If less than all of a
series of Notes represented by a Global Note is to be redeemed, the
particular Notes or portions thereof of such series to be redeemed shall
be selected by the Depositary for such series of Notes in such manner as
the Depositary shall determine. Notes shall be redeemed only in
denominations of $1,000, provided that any remaining principal amount of a
Note redeemed in part shall be a denomination authorized under this
Indenture.
(e) If at the time of the mailing of any notice of
redemption at the option of the Company, the Company shall not have
irrevocably directed the Trustee to apply funds then on deposit with the
Trustee or held by it and available to be used for the redemption of Notes
to redeem all the Notes called for redemption, such notice, at the
election of the Company, may state that it is conditional and subject to
the receipt of the redemption moneys by the Trustee on or before the date
fixed for redemption and that such notice shall be of no effect unless
such moneys are so received on or before such date.
Section 3.03 PAYMENT OF NOTES ON REDEMPTION; DEPOSIT OF
REDEMPTION PRICE.
(a) If notice of redemption for any Notes shall have been
given as provided in Section 3.02 hereof and such notice shall not contain
the language permitted at the Company's option under Section 3.02(e)
hereof, such Notes or portions of Notes called for redemption shall become
due and payable on the date and at the places stated in such notice at the
applicable redemption price, together with interest accrued to the date
fixed for redemption of such Notes. Interest on the Notes or portions
thereof so called for redemption shall cease to accrue and such Notes or
portions thereof shall be deemed not to be entitled to any benefit under
this Indenture except to receive payment of the redemption price together
with interest accrued thereon to the date fixed for redemption. Upon
presentation and surrender of such Notes at the place of payment specified
in such notice, such Notes or the specified portions thereof shall be paid
and redeemed at the applicable redemption price, together with interest
accrued thereon to the date fixed for redemption.
(b) If notice of redemption shall have been given as
provided in Section 3.02 hereof and such notice shall contain the language
permitted at the Company's option under Section 3.02(e) hereof, such Notes
or portions of Notes called for redemption shall become due and payable on
the date and at the places stated in such notice at the applicable
redemption price, together with interest accrued to the date fixed for
redemption of such Notes, and interest on the Notes or portions thereof so
called for redemption shall cease to accrue and such Notes or portions
thereof shall be deemed not to be entitled to any benefit under this
Indenture except to receive payment of the redemption price together with
interest accrued thereon to the date fixed for redemption; provided that,
in each case, the Company shall have deposited with the Trustee or a
paying agent on or prior to 11:00 a.m. New York City time on such
redemption date an amount sufficient to pay the redemption price together
with interest accrued to the date fixed for redemption. Upon the Company
making such deposit and, upon presentation and surrender of such Notes at
such a place of payment in such notice specified, such Notes or the
specified portions thereof shall be paid and redeemed at the applicable
redemption price, together with interest accrued thereon to the date fixed
for redemption. If the Company shall not make such deposit on or prior to
the redemption date, the notice of redemption shall be of no force and
effect and the principal on such Notes or specified portions thereof shall
continue to bear interest as if the notice of redemption had not been
given.
(c) No notice of redemption of Notes shall be mailed
during the continuance of any Event of Default, except (1) that, when
notice of redemption of any Notes has been mailed, the Company shall
redeem such Notes but only if funds sufficient for that purpose have prior
to the occurrence of such Event of Default been deposited with the Trustee
or a paying agent for such purpose, and (2) that notices of redemption of
all outstanding Notes may be given during the continuance of an Event of
Default.
(d) Upon surrender of any Note redeemed in part only, the
Company shall execute, and the Trustee shall authenticate, deliver and
register, a new Note or Notes of authorized denominations in aggregate
principal amount equal to, and having the same terms, Original Issue Date
or Dates and series as, the unredeemed portion of the Note so surrendered.
ARTICLE IV
SENIOR NOTE FIRST MORTGAGE BONDS
Section 4.01 DELIVERY OF INITIAL SERIES OF SENIOR NOTE FIRST
MORTGAGE BONDS. Subject to the provisions of Section 4.11 and Article V
hereof, the Company hereby (a) delivers to the Trustee, in connection with
the initial issuance of a series of Notes hereunder in an aggregate
principal amount not to exceed $250,000,000 (and any Senior Notes issued
in exchange therefor pursuant to the Registration Rights Agreement),
Senior Note First Mortgage Bonds bearing the designation "First Mortgage
Bonds, Senior Note Series A" in the aggregate principal amount of
$250,000,000, fully registered in the name of the Trustee, in trust for
the benefit of the Holders from time to time of the Notes issued under
this Indenture as security for any and all obligations of the Company
under the Notes, including, but not limited to, (1) the full and prompt
payment of the principal of and premium, if any, on the Notes when and as
the same shall become due and payable in accordance with the terms and
provisions of this Indenture or the Notes, either at the stated maturity
thereof, upon acceleration of the maturity thereof or upon redemption, and
(2) the full and prompt payment of any interest on the Notes when and as
the same shall become due and payable in accordance with the terms and
provisions of this Indenture or the Notes and (b) delivers to the Trustee
the certificate of the Expert required by Section 4.06 hereof (if
required). The exchange of Senior Notes, 6?% Due 2008, Series A for other
Senior Notes pursuant to the Registration Rights Agreement shall not be
deemed to be payment, satisfaction or discharge of such Senior Notes, 6?%,
Series A for purposes of Article V hereof.
Section 4.02 RECEIPT. The Trustee acknowledges receipt of
the Senior Note First Mortgage Bonds described in Section 4.01 hereof.
Section 4.03 SENIOR NOTE FIRST MORTGAGE BONDS HELD BY THE
TRUSTEE. The Trustee shall, as the holder of Senior Note First Mortgage
Bonds, attend such meeting or meetings of bondholders under the First
Mortgage or, at its option, deliver its proxy in connection therewith, as
relate to matters with respect to which it is entitled to vote or consent.
So long as no Event of Default hereunder shall have occurred and be
continuing, either at any such meeting or meetings, or otherwise when the
consent of the holders of the first mortgage bonds outstanding under the
First Mortgage is sought without a meeting, the Trustee shall vote as
holder of such Senior Note First Mortgage Bonds, or shall consent with
respect thereto, as follows:
(1) the Trustee shall vote all Senior Note First Mortgage
Bonds then held by it, or consent with respect thereto, in
favor of any or all amendments or modifications of the First
Mortgage of substantially the same tenor and effect as any or
all of those set forth in Exhibit E to this Indenture; and
(2) with respect to any other amendments or modifications
of the First Mortgage, the Trustee shall vote all Senior Note
First Mortgage Bonds then held by it, or consent with respect
thereto, in accordance with instructions provided in a
certificate of the Company or the Mortgage Trustee, which
instructions (a) shall direct the Trustee to so vote or
consent in proportion with the vote or consent (as of 9:00
a.m. New York City time on the day of such vote or consent) of
the holders of all other first mortgage bonds outstanding
under the First Mortgage, the holders of which are eligible to
vote or consent and (b) shall set forth said proportions;
provided, however, that the Trustee shall not so vote in favor
of, or so consent to, any amendment or modification of the
First Mortgage which, if it were an amendment or modification
of this Indenture, would require the consent of Holders,
without the prior consent, obtained in the manner prescribed
in Section 13.02, of Holders of Notes which would be required
under said Section 13.02 for such an amendment or modification
of this Indenture.
Section 4.04 NO TRANSFER OF SENIOR NOTE FIRST MORTGAGE BONDS;
EXCEPTIONS. Except (i) as required to effect an assignment to a successor
trustee under this Indenture, (ii) pursuant to Section 4.05 or Section
4.08 hereof, or (iii) in compliance with a final order of a court of
competent jurisdiction in connection with any bankruptcy or reorganization
proceeding of the Company, the Trustee shall not sell, assign or transfer
the Senior Note First Mortgage Bonds and the Company shall issue stop
transfer instructions to the Mortgage Trustee and any transfer agent under
the First Mortgage to effect compliance with this Section 4.04.
Section 4.05 DELIVERY TO THE COMPANY OF ALL SENIOR NOTE FIRST
MORTGAGE BONDS. When the obligation of the Company to make payment with
respect to the principal of and premium, if any, and interest on all
Senior Note First Mortgage Bonds shall be satisfied or deemed satisfied
pursuant to Section 4.11 or Section 5.01(b) hereof, the Trustee shall,
upon written request of the Company and receipt of the certificate of the
Expert described in Section 4.06(b) hereof (if such certificate is then
required by Section 4.06(b) hereof), deliver to the Company without charge
therefor all of the Senior Note First Mortgage Bonds, together with such
appropriate instruments of transfer or release as may be reasonably
requested by the Company. All Senior Note First Mortgage Bonds delivered
to the Company in accordance with this Section 4.05 shall be delivered by
the Company to the Mortgage Trustee for cancellation.
Section 4.06 FAIR VALUE CERTIFICATE. (a) Upon the delivery
by the Company to the Trustee of Senior Note First Mortgage Bonds pursuant
to Section 4.01 or Section 4.09 hereof, the Company shall simultaneously
therewith deliver to the Trustee a certificate of an Expert (1) stating
that it is familiar with the provisions of such Senior Note First Mortgage
Bonds and of this Indenture; (2) stating the principal amount of such
Senior Note First Mortgage Bonds so delivered, the stated interest rate
(or method of calculation of interest) of such Senior Note First Mortgage
Bonds (if any) and the stated maturity date of such Senior Note First
Mortgage Bonds; (3) identifying the Notes being issued contemporaneously
therewith, and (4) stating the fair value to the Company of such Senior
Note First Mortgage Bonds. If the fair value to the Company of the Senior
Note First Mortgage Bonds so delivered, as described in the certificate to
be delivered pursuant to this Section 4.06(a), both (l) is equal to or
exceeds (A) $25,000 and (B) 1% of the principal amount of the Notes
outstanding at the date of delivery of such Senior Note First Mortgage
Bonds and (2) together with the fair value to the Company, as described in
the certificates to be delivered pursuant to this Section 4.06(a), of all
other Senior Note First Mortgage Bonds delivered to the Trustee since the
commencement of the then current calendar year, is equal to or exceeds 10%
of the principal amount of the Notes outstanding at the date of delivery
of such Senior Note First Mortgage Bonds, then the certificate required by
this Section 4.06(a) shall (1) be delivered by an Expert who shall be
independent of the Company and (2), in addition to the certifications
described above, state the fair value to the Company of all Senior Note
First Mortgage Bonds delivered to the Trustee pursuant to Section 4.09
hereof since the commencement of the then current year as to which a
certificate was not delivered by an Expert independent of the Company.
(b) If Senior Note First Mortgage Bonds are delivered or
surrendered to the Company pursuant to Section 4.05 or 4.08 hereof, the
Company shall simultaneously therewith deliver to the Trustee a
certificate of an Expert (1) stating that it is familiar with the
provisions of such Senior Note First Mortgage Bonds and of this Indenture,
(2) stating the principal amount of such Senior Note First Mortgage Bonds
so delivered, the stated interest rate (or method of calculation of
interest) of such Senior Note First Mortgage Bonds (if any) and the stated
maturity date of such Senior Note First Mortgage Bonds, (3) if applicable,
identifying the Notes, the payment of the interest on and principal of
which has been discharged hereunder, (4) stating that such delivery and
release will not impair the lien of this Indenture in contravention of the
provisions of this Indenture. If, prior to the Release Date, the fair
value of the Senior Note First Mortgage Bonds so delivered and released,
as described in the certificate to be delivered pursuant to this Section
4.06(b), both (l) is equal to or exceeds (A) $25,000 and (B) 1% of the
principal amount of the outstanding Notes at the date of release of such
Senior Note First Mortgage Bonds and (2) together with the fair value, as
described in the certificates to be delivered pursuant to this Section
4.06(b), of all other Senior Note First Mortgage Bonds released from the
lien of this Indenture since the commencement of the then current calendar
year, is equal to or exceeds 10% of the principal amount of the Notes
outstanding at the date of release of such Senior Note First Mortgage
Bonds, then the certificate required by this Section 4.06(b) shall be
delivered by an Expert who shall be independent of the Company.
If, in connection with a delivery or release of outstanding
Senior Note First Mortgage Bonds, the Company provides to the Trustee an
Opinion of Counsel stating that the certificate described by this Section
4.06 is not required by law, such certificate shall not be required to be
delivered hereunder in connection with such delivery or release.
Section 4.07 FURTHER ASSURANCES. The Company, at its own
expense, shall do such further lawful acts and things, and execute and
deliver such additional conveyances, assignments, assurances, agreements,
financing statements and instruments, as may be necessary in order to
better assign, assure and confirm to the Trustee its interest in the
Senior Note First Mortgage Bonds and for maintaining, protecting and
preserving such interest.
Section 4.08 EXCHANGE AND SURRENDER OF SENIOR NOTE FIRST
MORTGAGE BONDS. At any time a Note shall cease to be entitled to any
lien, benefit or security under this Indenture pursuant to Section 5.01(b)
hereof and the Company shall have provided the Trustee with notice
thereof, the Trustee shall surrender an equal principal amount of the
Related Series of Senior Note First Mortgage Bonds, subject to the
limitations of this Section 4.08, to the Company for cancellation. The
Trustee shall, together with such Senior Note First Mortgage Bonds,
deliver to the Company such appropriate instruments of transfer or release
as the Company may reasonably request. Prior to the surrender required by
this paragraph, the Trustee shall receive from the Company the following,
and (subject to Section 9.01 hereof) shall be fully protected in relying
upon, an Officers' Certificate stating (i) the aggregate outstanding
principal amount of the Senior Note First Mortgage Bonds of the series
surrendered by the Trustee, after giving effect to such surrender, (ii)
the aggregate outstanding principal amount of the Related Series of Notes
and (iii) that the surrender of the Senior Note First Mortgage Bonds will
not result in any default under this Indenture.
The Company shall not be permitted to cause the surrender or
exchange of all or any part of a series of Senior Note First Mortgage
Bonds contemplated in this Section, if, after such surrender or exchange,
the aggregate outstanding principal amount of the Related Series of Notes
would exceed the aggregate outstanding principal amount of such series of
Senior Note First Mortgage Bonds held by the Trustee. Any Senior Note
First Mortgage Bonds received by the Company pursuant to this Section 4.08
shall be delivered to the Mortgage Trustee for cancellation.
Notwithstanding anything herein to the contrary, until the Release Date,
the Company shall preserve and maintain the Lien of this Indenture, and
shall not permit, at any time prior to the Release Date, the aggregate
principal amount of Senior Note First Mortgage Bonds held by the Trustee
to be less than the aggregate amount of Notes Outstanding.
Section 4.09 ACCEPTANCE OF ADDITIONAL SENIOR NOTE FIRST
MORTGAGE BONDS. Upon the issuance of a series of Notes hereunder (other
than the initial series of Notes referred to in Section 4.01 hereof) at
any time prior to the Release Date, the Company shall deliver to the
Trustee in trust for the benefit of the Holders of the Notes as described
in Section 4.11 hereof, and the Trustee shall accept therefor, a Related
Series of Senior Note First Mortgage Bonds registered in the name of the
Trustee conforming to the requirements of Section 4.10 hereof.
Section 4.10 TERMS OF SENIOR NOTE FIRST MORTGAGE BONDS. Each
series of Senior Note First Mortgage Bonds delivered to the Trustee
pursuant to Section 4.01 or Section 4.09 hereof shall have the same stated
maturity date and shall be in the same aggregate principal amount, as and
have redemption provisions corresponding to the Related Series of Notes
being issued; it being expressly understood that such Senior Note First
Mortgage Bonds may, but need not, bear interest, any such interest to be
payable on the same Interest Payment Dates as the Related Series of Notes
being issued.
Section 4.11 SENIOR NOTE FIRST MORTGAGE BONDS AS SECURITY FOR
NOTES. Until the Release Date and subject to Article V hereof, Senior
Note First Mortgage Bonds delivered to the Trustee, for the benefit of the
Holders of the Notes, shall constitute part of the trust estate and
security for any and all obligations of the Company under the Notes,
including, but not limited to (1) the full and prompt payment of the
principal of and premium, if any, on such Notes when and as the same shall
become due and payable in accordance with the terms and provisions of this
Indenture or the Notes, either at the stated maturity thereof, upon
acceleration of the maturity thereof or upon redemption, and (2) the full
and prompt payment of any interest on such Notes when and as the same
shall become due and payable in accordance with the terms and provisions
of this Indenture or the Notes.
Notwithstanding anything in this Indenture to the contrary,
from and after the Release Date, the obligation of the Company to make
payment with respect to the principal of and premium, if any, and interest
on the Senior Note First Mortgage Bonds shall be deemed satisfied and
discharged as provided in the supplemental trust indenture or indentures
to the First Mortgage creating such Senior Note First Mortgage Bonds and
the Senior Note First Mortgage Bonds shall cease to secure in any manner
Notes theretofore or subsequently issued. From and after the Release Date,
any conditions to the issuance of Notes that refer or relate to Senior
Note First Mortgage Bonds or the First Mortgage shall be inapplicable.
Following the Release Date, the Company shall cause the First Mortgage to
be discharged and the Company shall not issue any additional First
Mortgage Bonds or Senior Note First Mortgage Bonds under the First
Mortgage. The Company shall notify the Trustee promptly of the occurrence
of the Release Date. Notice of the occurrence of the Release Date shall
be given by the Trustee to the Holders of the Notes in the manner provided
in Section 15.10 hereof not later than 30 days after the Release Date.
ARTICLE V
SATISFACTION AND DISCHARGE; UNCLAIMED MONEYS
Section 5.01 SATISFACTION AND DISCHARGE.
(a) If at any time:
(1) the Company shall have paid or caused to be
paid the principal of and premium, if any, and interest on
all the outstanding Notes, as and when the same shall have
become due and payable,
(2) the Company shall have delivered to the
Trustee for cancellation all outstanding Notes, or
(3) the Company shall have irrevocably deposited
or caused to be irrevocably deposited with the Trustee as
trust funds the entire amount in (A) cash, (B) U.S.
Government Obligations maturing as to principal and
interest in such amounts and at such times as will insure
the availability of cash, or (C) a combination of cash and
U.S. Government Obligations, in any case sufficient,
without reinvestment, as certified by an independent
public accounting firm of national reputation in a written
certification delivered to the Trustee, to pay at maturity
or the applicable redemption date (provided that notice of
redemption shall have been duly given or irrevocable
provision satisfactory to the Trustee shall have been duly
made for the giving of any notice of redemption) all
outstanding Notes, including principal and any premium and
interest due or to become due to such date of maturity, as
the case may be and, unless all outstanding Notes are to
be due within 90 days of such deposit by redemption or
otherwise, shall also deliver to the Trustee an opinion of
counsel expert in federal income tax matters to the effect
that the Company has received from, or there has been
published by, the Internal Revenue Service a ruling or
similar pronouncement by the Internal Revenue Service or
that there has been a change of law (collectively, an
"External Tax Pronouncement"), in either case to the
effect that the Holders of the Notes will not recognize
income, gain or loss for federal income tax purposes as a
result of such defeasance or discharge of the Indenture,
and if, in any such case, (x) the Company shall also pay or cause to be
paid all other sums payable hereunder by the Company and (y) the Company
has delivered to the Trustee 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, then this Indenture shall cease to be of further effect
(except as to (i) rights of registration of transfer and exchange of
Notes, (ii) substitution of mutilated, defaced, destroyed, lost or stolen
Notes, (iii) rights of Noteholders to receive payments of principal
thereof, and any premium and interest thereon, upon the original stated
due dates therefor or upon the applicable redemption date (but not upon
acceleration of maturity) from the moneys and U.S. Government Obligations
held by the Trustee pursuant to Section 5.02 hereof, (iv) the rights and
immunities of the Trustee hereunder, (v) the rights of the Holders of
Notes as beneficiaries hereof with respect to the property so deposited
with the Trustee payable to all or any of them, (vi) the obligations of
the Company under Sections 6.02 and 6.03 hereof, (vii) the obligations and
rights of the Trustee and the Company under Section 5.04 hereof, and
(viii) the duties of the Trustee with respect to any of the foregoing),
and the Company shall be deemed to have paid and discharged the entire
indebtedness represented by, and its obligations under, the Notes, and the
Trustee, on demand of the Company and at the cost and expense of the
Company, shall execute proper instruments acknowledging such satisfaction
of and discharging this Indenture and the Trustee shall at the request of
the Company return to the Company all Senior Note First Mortgage Bonds and
all other property and money held by it under this Indenture and
determined by it from time to time in accordance with the certification
pursuant to this Section 5.01(a)(3) to be in excess of the amount required
to be held under this Section.
If the Notes are deemed to be paid and discharged pursuant to
Section 5.01(a)(3) hereof, within 15 days after those Notes are so deemed
to be paid and discharged, the Trustee shall cause a written notice to be
given to each Holder in the manner provided by Section 15.10 hereof. The
notice shall:
(i) state that the Notes are deemed to be paid and
discharged;
(ii) set forth a description of any U.S. Government
Obligations and cash held by the Trustee as described
above;
(iii) if any Notes will be called for redemption,
specify the date or dates on which those Notes are to be
called for redemption.
Notwithstanding the satisfaction and discharge of this
Indenture, the obligations of the Company to the Trustee under Section
9.06 hereof, shall survive.
If the Notes are deemed paid and discharged pursuant to this
Section 5.01, the obligation of the Company to make payment with respect
to the principal of and premium, if any, and interest on the Senior Note
First Mortgage Bonds shall be satisfied and discharged and the Senior Note
First Mortgage Bonds shall cease to secure the Notes in any manner.
(b) If the Company shall have paid or caused to be paid
the principal of and premium, if any, and interest on any Note, as and
when the same shall have become due and payable or the Company shall have
delivered to the Trustee for cancellation any outstanding Note, such Note
shall cease to be entitled to any lien, benefit or security under this
Indenture. Upon a Note of any series ceasing to be entitled to any lien,
benefit or security under this Indenture, the obligation of the Company to
make payment with respect to principal of and premium, if any, and
interest on a principal amount of the Related Series of Senior Note First
Mortgage Bonds equal to the principal amount of such Note shall be
satisfied and discharged and such portion of the principal amount of such
Senior Note First Mortgage Bonds shall cease to secure the Notes in any
manner.
Section 5.02 DEPOSITED MONEYS TO BE HELD IN TRUST BY TRUSTEE.
Subject to Section 5.04, all moneys and U.S. Government Obligations
deposited with the Trustee pursuant to Section 5.01 hereof, shall be held
in trust and applied by it to the payment, either directly or through any
paying agent (including the Company if acting as its own paying agent), to
the Holders of the particular Notes for the payment or redemption of which
such moneys and U.S. Government Obligations have been deposited with the
Trustee of all sums due and to become due thereon for principal and
premium, if any, and interest.
Section 5.03 PAYING AGENT TO REPAY MONEYS HELD. Upon the
satisfaction and discharge of this Indenture all moneys then held by any
paying agent for the Notes (other than the Trustee) shall, upon written
demand by the Company, be repaid to the Company or paid to the Trustee,
and thereupon such paying agent shall be released from all further
obligations with respect to such moneys.
Section 5.04 RETURN OF UNCLAIMED MONEYS. Any moneys
deposited with or paid to the Trustee for payment of the principal of or
any premium or interest on any Notes and not applied but remaining
unclaimed by the Holders of such Notes for two years after the date upon
which the principal of or any premium or interest on such Notes, as the
case may be, shall have become due and payable, shall be repaid to the
Company, subject to applicable abandoned property laws, by the Trustee on
written demand by the Company; and any Holder of any of such Notes shall
thereafter look only to the Company for any payment which such Holder may
be entitled to collect.
ARTICLE VI
PARTICULAR COVENANTS OF THE COMPANY
Section 6.01 PAYMENT OF PRINCIPAL AND INTEREST. The Company
covenants and agrees for the benefit of the Holders of the Notes that it
will duly and punctually pay or cause to be paid the principal of and any
premium and interest, if any, on, each of the Notes at the places, at the
respective times and in the manner provided in such Notes or in this
Indenture.
Section 6.02 OFFICES FOR PAYMENTS, ETC. So long as any Notes
are outstanding hereunder, the Company will maintain in the Borough of
Manhattan, The City of New York, State of New York an office or agency
where the Notes may be presented for payment, for exchange as in this
Indenture provided and for registration of transfer as in this Indenture
provided.
The Company will maintain in the Borough of Manhattan, The
City of New York, State of New York an office or agency where notices and
demands to or upon the Company in respect of the Notes or this Indenture
may be served.
The Company 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 Company shall fail to maintain any office or agency
required by this Section to be located in the Borough of Manhattan, 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 Company's agent to receive all such
presentations, surrenders, notices and demands.
The Company may from time to time designate one or more
additional offices or agencies where the Notes may be presented for
payment, for exchange as in this Indenture provided and for registration
of transfer as in this Indenture provided, and the Company may from time
to time rescind any such designation; provided, however, that no such
designation or rescission shall in any manner relieve the Company of its
obligation to maintain any office or agency provided for in this Section.
The Company will give to the Trustee prompt written notice of any such
designation or rescission thereof and of any change in the location of any
such other office or agency.
Section 6.03 APPOINTMENT TO FILL A VACANCY IN OFFICE OF
TRUSTEE. The Company, whenever necessary to avoid or fill a vacancy in
the office of Trustee, will appoint, in the manner provided in Section
9.11, a Trustee, so that there shall at all times be a Trustee hereunder.
Section 6.04 PROVISION AS TO PAYING AGENT. The Trustee shall
be the paying agent for the Notes and, at the option of the Company, the
Company may appoint additional paying agents (including without limitation
itself). Whenever the Company shall appoint a paying agent other than the
Trustee with respect to the Notes, 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:
(1) 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 Notes (whether
such sums have been paid to it by the Company or by any
other obligor on the Notes) in trust for the benefit of
the Holders of the Notes, or of the Trustee until such
sums shall be paid to such Holders or otherwise disposed
of as herein provided;
(2) that such paying agent will give the Trustee
notice of any failure by the Company (or by any other
obligor on Notes) to make any payment of the principal of,
premium if any, or interest on the Notes when the same
shall be due and payable; and
(3) that such paying agent will 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 Company will, on or prior to each due date of the
principal of and any premium, if any, or interest on the Notes, deposit
with the paying agent a sum sufficient to pay such principal and any
premium or interest so becoming due, such sum to be held in trust for the
benefit of the Holders of the Notes entitled to such principal of and any
premium or interest, and (unless such paying agent is the Trustee) the
Company will promptly notify the Trustee of any failure to take such
action.
If the Company shall act as its own paying agent with respect
to the Notes, it will, on or before each due date of the principal of (and
premium, if any,) or interest, if any, on the Notes, set aside, segregate
and hold in trust for the benefit of the Holders of the Notes, a sum
sufficient to pay such principal (and premium, if any,) or interest, if
any, so becoming due until such sums shall be paid to such Holders or
otherwise disposed of as herein provided. The Company will promptly
notify the Trustee of any failure to take such action.
The Company may at any time pay or cause to be paid to the
Trustee all sums held in trust by it 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 5.03 and 5.04.
Section 6.05 OPINIONS OF COUNSEL. The Company will cause
this Indenture, any indentures supplemental to this Indenture, and any
financing or continuation statements to be promptly recorded and filed and
rerecorded and refiled in such a manner and in such places, as may be
required by law in order fully to preserve, protect and perfect the
security of the Noteholders and all rights of the Trustee, and shall
deliver to the Trustee:
(a) promptly after the execution and delivery of this
Indenture and of any indenture supplemental to this Indenture but prior to
the Release Date, an Opinion of Counsel either stating that, in the
opinion of such counsel, this Indenture or such supplemental indenture and
any financing or continuation statements have been properly recorded and
filed so as to make effective and to perfect the interest of the Trustee
intended to be created by this Indenture for the benefit of the Holders
from time to time of the Notes in the Senior Note First Mortgage Bonds,
and reciting the details of such action, or stating that, in the opinion
of such counsel, no such action is necessary to perfect or make such
interest effective and stating what, if any, action of the foregoing
character may reasonably be expected to become necessary prior to the next
succeeding February 1 to maintain, perfect and make such interest
effective; and
(b) on or before February 1 of each year, commencing
February 1, 1999, and prior to the Release Date, an Opinion of Counsel
either stating that in the opinion of such counsel such action has been
taken, since the date of the most recent Opinion of Counsel furnished
pursuant to this Section 6.05(b) or the first Opinion of Counsel furnished
pursuant to Section 6.05(a) hereof, with respect to the recording, filing,
rerecording, or refiling of this Indenture, each supplemental indenture
and any financing or continuation statements, as is necessary to maintain
and perfect the interest of the Trustee intended to be created by this
Indenture for the benefit of the Holders from time to time of the Notes in
the Senior Note First Mortgage Bonds, and reciting the details of such
action, or stating that in the opinion of such counsel no such action is
necessary to maintain and perfect such interest and stating what, if any,
action of the foregoing character may reasonably be expected to become
necessary prior to the next succeeding February 1 to maintain, perfect and
make such security interest effective.
Section 6.06 CERTIFICATES AND NOTICE TO TRUSTEE. The Company
shall, on or before February 1 of each year, commencing February 1, 1999,
deliver to the Trustee a certificate from its principal executive officer,
principal financial officer or principal accounting officer covering the
preceding calendar year and stating whether or not, to the knowledge of
such Person, the Company has complied with all conditions and covenants
under this Indenture, and, if not, describing in reasonable detail any
failure by the Company to comply with any such conditions or covenants.
For purposes of this Section, compliance shall be determined without
regard to any period of grace or requirement of notice provided under this
Indenture. Upon the occurrence of a default (as defined in the First
Mortgage) prior to the Release Date, the Company shall promptly notify the
Trustee of such event.
Section 6.07 RESTRICTIONS ON LIENS.
(a) So long as any Notes are outstanding, the Company
will not issue, assume, guarantee or permit to exist after the Release
Date any Debt secured by any Lien on any Operating Property of the
Company, whether owned at the date of this Indenture or thereafter
acquired, without in any such case effectively securing the outstanding
Notes (together with, if the Company shall so determine, any other Debt of
or guaranteed by the Company ranking equally with, the Notes) equally and
ratably with such Debt (but only so long as such Debt is so secured);
provided, however, that the foregoing restriction shall not apply to Debt
secured by any of the following:
(i) Liens on any Operating Property existing at the
time of acquisition thereof (which Liens may also extend to
subsequent repairs, alterations and improvements to such
Operating Property);
(ii) Liens on operating property of a corporation
existing at the time such corporation is merged into or
consolidated with the Company, or at the time of a sale,
lease, or other disposition of the properties of such
corporation or a division thereof as an entirety or
substantially as an entirety to the Company;
(iii) Liens on Operating Property to secure all or
part of the cost of acquiring, constructing, developing, or
substantially repairing, altering, or improving such property,
or to secure indebtedness incurred to provide funds for any
such purpose or for reimbursement of funds previously expended
for any such purpose, provided such Liens are created or
assumed contemporaneously with, or within eighteen (18) months
after, such acquisition or the completion of construction,
development, or substantial repair, alteration or improvement;
(iv) Liens in favor of any State, or any department,
agency, or instrumentality or political subdivision of any
State, or for the benefit of holders of securities issued by
any such entity (or providers of credit enhancement with
respect to such securities), to secure any Debt (including,
without limitation, obligations of the Company with respect to
industrial development, pollution control or similar revenue
bonds) incurred for the purpose of financing all or any part
of the purchase price or the cost of constructing, developing,
or substantially repairing, altering, or improving Operating
Property of the Company;
(v) any extension, renewal or replacement (or
successive extensions, renewals, or replacements), in whole or
in part, of any Lien referred to in the foregoing clauses (i)
to (iv), inclusive; provided, however, that the principal
amount of Debt secured thereby and not otherwise authorized by
said clauses (i) to (iv), inclusive, shall not exceed the
principal amount of Debt, plus any premium or fee payable in
connection with any such extension, renewal, or replacement,
so secured at the time of such extension, renewal, or
replacement.
(b) Notwithstanding the provisions of Section 6.07(a),
the Company may issue, assume, or guarantee Debt, or permit to exist after
the Release Date any Debt, in each case, secured by Liens which would
otherwise be subject to the restrictions of Section 6.07(a) up to an
aggregate principal amount that, together with the principal amount of all
other Debt of the Company secured by Liens (other than Liens permitted by
Section 6.07(a) that would otherwise be subject to any of the foregoing
restrictions) and the Value of all Sale and Lease-Back Transactions in
existence at such time (other than any Sale and Lease-Back Transaction
that, if such Sale and Lease-Back Transaction had been a Lien, would have
been permitted by Section 6.07(a), other than Sale and Lease-Back
Transactions permitted by Section 6.08 because the commitment by or on
behalf of the purchaser was obtained no later than eighteen (18) months
after the later of events described in (i) or (ii) of Section 6.08, and
other than Sale and Lease-Back Transactions as to which application of
amounts have been made in accordance with clause (z) of Section 6.08),
does not at the time exceed the greater of fifteen percent (15%) of Net
Tangible Assets or fifteen percent (15%) of Capitalization.
(c) If the Company shall issue, assume, or guarantee any
Debt secured by any Lien and if Section 6.07(a) requires that the
outstanding Notes be secured equally and ratably with such Debt, the
Company will promptly execute, at its expense, any instruments necessary
to so equally and ratably secure the outstanding Notes and deliver the
same to the Trustee along with:
(i) An Officers' Certificate stating that the
covenant of the Company contained in Section 6.07(a) has been
complied with; and
(ii) An Opinion of Counsel to the effect that the
Company has complied with the covenant contained in Section
6.07(a), and that any instruments executed by the Company in
the performance of such covenant comply with the requirements
of such covenant.
In the event that the Company shall hereafter secure
outstanding Notes equally and ratably with any other obligation or
indebtedness pursuant to the provisions of this Section 6.07, the Company
will, upon the request of the Trustee, enter into an indenture or
agreement supplemental hereto and to take such other action, if any, as
the Trustee may reasonably request to enable it to enforce effectively the
rights of the Holders of outstanding Notes so secured, equally and ratably
with such other obligation or indebtedness.
Section 6.08 RESTRICTIONS ON SALE AND LEASE-BACK
TRANSACTIONS. So long as any Notes are outstanding, the Company will not
enter into or permit to exist after the Release Date any Sale and
Lease-Back Transaction with respect to any Operating Property if, in any
case, the commitment by or on behalf of the purchaser is obtained more
than eighteen (18) months after the later of (i) the completion of the
acquisition, construction, or development of such Operating Property or
(ii) the placing in operation of such Operating Property or of such
Operating Property as constructed, developed, or substantially repaired,
altered, or improved, unless (x) the Company would be entitled pursuant to
Section 6.07(a) to issue, assume, guarantee or permit to exist Debt
secured by a Lien on such Operating Property without equally and ratably
securing the Notes or (y) the Company would be entitled pursuant to
Section 6.07(b), after giving effect to such Sale and Lease-Back
Transaction, to incur $1.00 of additional Debt secured by Liens (other
than Liens permitted by Section 6.07(a)) or (z) the Company shall apply or
cause to be applied, in the case of a sale or transfer for cash, an amount
equal to the net proceeds thereof (but not in excess of the net book value
of such Operating Property at the date of such sale or transfer) and, in
the case of a sale or transfer otherwise than for cash, an amount equal to
the fair value (as determined by the Board of Directors) of the Operating
Property so leased, to the retirement, within one hundred eighty (180)
days after the effective date of such Sale and Lease-Back Transaction, of
Notes (in accordance with their terms) or other Debt of the Company
ranking senior to, or equally with, the Notes; provided, however, that the
amount to be applied to such retirement of Debt shall be reduced by an
amount equal to the principal amount, plus any premium or fee paid in
connection with any redemption in accordance with the terms of Debt
voluntarily retired by the Company within such one hundred eighty (180)
day period, excluding retirement pursuant to mandatory sinking fund or
prepayment provisions and payments at maturity.
Section 6.09 CORPORATE EXISTENCE. Subject to the rights of
the Company under Article XII, the Company shall do or cause to be done
all things necessary to preserve and keep in full force and effect its
corporate existence and the rights (charter and statutory) and franchises
of the Company; provided, however, that the Company shall not be required
to preserve any such right or franchise if, in the judgment of the
Company, the preservation thereof is no longer desirable in the conduct of
the business of the Company.
ARTICLE VII
NOTEHOLDER LISTS AND REPORTS BY
THE COMPANY AND THE TRUSTEE
Section 7.01 COMPANY TO FURNISH NOTEHOLDER LISTS. The
Company and any other obligor on the Notes shall 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 Notes:
(a) semi-annually and not more than 15 days after each
Regular Record Date for each Interest Payment Date that is not a maturity
date, as of such Regular Record Date, and such list need not include
information received after such date; and
(b) at such other times as the Trustee may request in
writing, within 30 days after receipt by the Company of any such request,
as of a date not more than 15 days prior to the time such information is
furnished, and such list need not include information received after such
date;
provided that if and so long as the Trustee shall be the registrar for the
Notes, such list shall not be required to be furnished.
Section 7.02 PRESERVATION AND DISCLOSURE OF NOTEHOLDER 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 the Notes (i) contained in the most recent lists
furnished to it as provided in Section 7.01, (ii) received by it in the
capacity of registrar for the Notes, if so acting, and (iii) filed with it
within the two preceding years pursuant to Section 7.04(d)(2). The
Trustee may destroy any list furnished to it as provided in Section 7.01
upon receipt of a new list so furnished.
(b) In case three or more Holders of Notes (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 Note
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 Notes with respect to their rights under
this Indenture or under the Notes 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 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 Notes, 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 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 a Note, by receiving and
holding the same, agrees with the Company and the Trustee that neither the
Company nor the Trustee nor any agent of the Company 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 Notes 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 7.03 REPORTS BY THE COMPANY. The Company shall:
(a) file with the Trustee, within 15 days after the
Company 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 Company 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 Company is not
required to file information, documents or reports pursuant to either of
said Sections, then it will file with the Trustee and the Commission, in
accordance with rules and regulations prescribed from time to time by the
Commission, 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 security listed and registered on a
national securities exchange as may be prescribed from time to time in
such rules and regulations;
(b) 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 Company with the conditions and covenants of
this Indenture as may be required from time to time by such rules and
regulations; and
(c) transmit by mail to all Holders of Notes, within 30
days after the filing thereof with the Trustee in the manner and to the
extent provided in Section 7.04(d), such summaries of any information,
documents and reports required to be filed by the Company pursuant to
paragraphs (a) and (b) of this Section as may be required by rules and
regulations prescribed from time to time by the Commission.
Section 7.04 REPORTS BY THE TRUSTEE.
(a) Annually, not later than August 15 of each year, the
Trustee shall transmit by mail a brief report dated as of such date that
complies with Section 313(a) of the TIA (to the extent required by such
Section).
(b) The Trustee shall from time to time transmit by mail
brief reports that comply, both in content and date of delivery, with
Section 313(b) of the TIA (to the extent required by such Section).
(c) A copy of each such report filed pursuant to this
section shall, at the time of such transmission to such Holders, be filed
by the Trustee with each stock exchange upon which any Notes are listed
and also with the Commission. The Company will notify the Trustee promptly
in writing upon the listing of such Notes on any stock exchange.
(d) Reports pursuant to this Section shall be transmitted
(1) by mail to all Holders of Notes, as their
names and addresses appear in the register for the Notes;
(2) by mail to such Holders of Notes as have,
within the two years preceding such transmission, filed
their names and addresses with the Trustee for such
purpose;
(3) by mail, except in the case of reports
pursuant to Section 7.04(b) and (c) hereof, to all Holders
of Notes whose names and addresses have been furnished to
or received by the Trustee pursuant to Section 7.01 and
7.02(a)(ii) hereof; and
(4) at the time such report is transmitted to the
Holders of the Notes, to each exchange on which Notes are
listed and also with the Commission.
ARTICLE VIII
REMEDIES OF THE TRUSTEE AND NOTEHOLDERS
ON EVENTS OF DEFAULT
Section 8.01 EVENTS OF DEFAULT.
(a) If one or more of the following Events of Default
shall have occurred and be continuing:
(1) default in the payment of any installment of
interest upon any of the Notes as and when the same shall
become due and payable, and continuance of such default
for a period of sixty (60) days;
(2) default in the payment of the principal of or
any premium on any of the Notes as and when the same shall
become due and payable;
(3) failure on the part of the Company duly to
observe or perform any other of the covenants or
agreements on the part of the Company contained in the
Notes or in this Indenture for a period of ninety (90)
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 Company remedy
the same, shall have been given to the Company by the
Trustee by registered mail, or to the Company and the
Trustee by the Holders of not less than 33% in aggregate
principal amount of the Notes at the time outstanding;
(4) prior to the Release Date, a default (as
defined in the First Mortgage) has occurred and is
continuing; provided, however, that anything in this
Indenture to the contrary notwithstanding, the waiver or
cure of such default under the First Mortgage and the
rescission and annulment of the consequences thereof under
the First Mortgage shall constitute a waiver of the
corresponding Event of Default hereunder and a rescission
and annulment of the consequences thereof hereunder.
(5) a court having jurisdiction in the premises
shall enter a decree or order for relief in respect of the
Company in an involuntary case under any applicable
bankruptcy, insolvency or other similar law now or
hereafter in effect, adjudging the Company a bankrupt or
insolvent, or approving as properly filed a petition
seeking reorganization, arrangement, adjustment or
composition of or in respect of the Company under any
applicable law, or appointing a receiver, liquidator,
assignee, custodian, trustee or sequestrator (or similar
official) of the Company or for any substantial part of
the property of the Company, or ordering the winding up or
liquidation of the affairs of the Company, and such decree
or order shall remain unstayed and in effect for a period
of 60 consecutive days; or
(6) the Company shall commence a voluntary case or
proceeding under any applicable bankruptcy, insolvency,
reorganization 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 Company or for any
substantial part of the property of the Company, 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 Company in furtherance of any such
action;
then, unless the principal of all of the Notes shall have already become
due and payable, either the Trustee or the Holders of a majority in
aggregate principal amount of the Notes then outstanding, by notice in
writing to the Company (and to the Trustee if given by such Holders), may
declare the principal of all the Notes to be due and payable immediately
and upon any such declaration the same shall become immediately due and
payable, anything in this Indenture or in the Notes contained to the
contrary notwithstanding and, upon the Notes being declared to be due and
payable, the Trustee shall immediately file with the Mortgage Trustee a
written demand for redemption of all Senior Note First Mortgage Bonds to
the extent provided in the applicable provisions of the supplemental
indentures to the First Mortgage.
The foregoing paragraph, however, is subject to the condition
that if, at any time after the principal of the Notes 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, and prior to the acceleration of all of the first
mortgage bonds issued and outstanding under the First Mortgage the Company
shall pay or shall deposit with the Trustee a sum sufficient to pay all
matured installments of interest upon all of the Notes and the principal
of and any premium on any and all Notes which shall have become due
otherwise than by acceleration (with interest on overdue installments of
interest, to the extent that payment of such interest is enforceable under
applicable law, and on such principal and applicable premium at the rate
borne by the Notes to the date of such payment or deposit) and all sums
paid or advanced by the Trustee hereunder, the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and
counsel, and any other amounts due the Trustee under Section 9.06 hereof,
and any and all defaults under this Indenture, other than the non-payment
of principal of and accrued interest on Notes which shall have become due
solely by acceleration of maturity, shall have been cured or waived
(including any defaults under the First Mortgage, as evidenced by notice
thereof from the Mortgage Trustee to the Trustee) -- then and in every
such case such payment or deposit shall cause an automatic waiver of the
Event of Default and its consequences (including, if given, the written
demand for redemption of all Senior Note First Mortgage Bonds) and shall
cause an automatic rescission and annulment of the acceleration of the
Notes; but no such waiver or rescission and annulment shall extend to or
shall affect any subsequent default, or shall impair any right consequent
thereon.
(b) If the Trustee shall have proceeded to enforce any
right under this Indenture and such proceedings shall have been
discontinued or abandoned because of such rescission or annulment or for
any other reason or shall have been determined adversely to the Trustee,
then and in every such case the Company and the Trustee shall be restored
respectively to their several positions and rights hereunder, and all
rights, remedies and powers of the Company and the Trustee shall continue
as though no such proceeding had been taken.
Section 8.02 COLLECTION OF INDEBTEDNESS BY TRUSTEE; TRUSTEE
MAY PROVE DEBT.
(a) The Company covenants that if an Event of Default
described in clause (a)(1) or (a) (2) of Section 8.01 shall have occurred
and be continuing, then, upon demand of the Trustee, the Company shall pay
to the Trustee, for the benefit of the Holders of the Notes, the whole
amount that then shall have so become due and payable on all such Notes
for principal or interest, as the case may be, with interest upon the
overdue principal and any premium and (to the extent that payment of such
interest is enforceable under applicable law) upon the overdue
installments of interest at the rate borne by the Notes; and, in addition
thereto, such further amounts as shall be sufficient to cover the costs
and expenses of collection, including reasonable compensation to the
Trustee, its agents, attorneys and counsel, any expenses or liabilities
incurred by the Trustee hereunder other than through its negligence or bad
faith. Until such demand is made by the Trustee, the Company may pay the
principal of and interest on the Notes to the Holders, whether or not the
Notes be overdue.
(b) In case the Company 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 actions
or proceedings at law or in equity for the collection of the sums so due
and unpaid, including, prior to the Release Date, to exercise any rights
to that end it may have as a holder of Senior Note First Mortgage Bonds,
and may enforce any such judgment or final decree against the Company or
any other obligor on the Notes and collect in the manner provided by law
out of the property of the Company or any other obligor on such series of
Notes wherever situated, the moneys adjudged or decreed to be payable.
(c) In case there shall be pending proceedings relative
to the Company or any other obligor upon the Notes 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
Company or its property or such other obligor, or in case of any other
comparable judicial proceedings relative to the Company or such other
obligor, or to the creditors or property of the Company or such other
obligor, the Trustee, irrespective of whether the principal of the Notes
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:
(1) to file and prove a claim or claims for the
whole amount of the principal and interest owing and
unpaid in respect of the Notes, and to file such other
papers or documents as may be necessary or advisable in
order to have the claims of the Trustee (including, prior
to the Release Date, any claims of the Trustee as holder
of Senior Note First Mortgage Bonds and including any
amounts due to the Trustee under Section 9.06 hereof) and
of the Noteholders allowed in any judicial proceedings
relative to the Company or such other obligor, or to the
creditors or property of the Company or such other
obligor; and
(2) 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 Noteholders and of the Trustee on their behalf; and
any trustee, receiver, liquidator, custodian or other
similar official is hereby authorized by each of the
Noteholders to make payments to the Trustee, and, in the
event that the Trustee shall consent to the making of the
payments directly to the Noteholders, to pay to Trustee
such amounts due pursuant to Section 9.06 hereof.
(d) 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 Notes 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 to vote for the election
of a trustee in bankruptcy or similar person.
(e) All rights of action and of asserting claims under
this Indenture, or under any of the Notes may be prosecuted and enforced
by the Trustee without the possession of any of the Notes 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 Notes in respect of which
such action was taken.
(f) 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 Notes in respect to which action
was taken, and it shall not be necessary to make any Holders of such Notes
parties to any such proceedings.
Section 8.03 APPLICATION OF PROCEEDS. Any moneys collected
by the Trustee with respect to any of the Notes pursuant to this Article
shall be applied in the following order, at the date or dates fixed by the
Trustee for the distribution of such moneys, upon presentation of the
several Notes, and stamping thereon the payment, if only partially paid,
and upon surrender thereof if fully paid.
FIRST: To the payment of all amounts due to the Trustee
pursuant to Section 9.06 hereof;
SECOND: In case the principal of the outstanding Notes in
respect of which such moneys have been collected shall not have become due
and be unpaid, to the payment of interest on the Notes, in the order of
the maturity of the installments of such interest, with interest (to the
extent allowed by law) upon the overdue installments of interest at the
rate borne by the Notes, such payments to be made ratably to the persons
entitled thereto, and then to the payment to the Holders entitled thereto
of the unpaid principal of and applicable premium on any of the Notes
which shall have become due (other than Notes previously called for
redemption for the payment of which moneys are held pursuant to the
provisions of this Indenture), whether at stated maturity or by
redemption, in the order of their due dates, beginning with the earliest
due date, and if the amount available is not sufficient to pay in full all
Notes due on any particular date, then to the payment thereof ratably,
according to the amounts of principal and applicable premium due on that
date, to the Holders entitled thereto, without any discrimination or
privilege;
THIRD: In case the principal of the outstanding Notes in
respect of which such moneys have been collected shall have become due, by
declaration or otherwise, to the payment of the whole amount then owing
and unpaid upon the Notes for principal and any premium and interest
thereon, with interest on the overdue principal and any premium and (to
the extent allowed by law) upon overdue installments of interest at the
rate borne by the Notes; and in case such moneys shall be insufficient to
pay in full the whole amount so due and unpaid upon the Notes, then to the
payment of such principal and any premium and interest without preference
or priority of principal and any premium over interest, or of interest
over principal and any premium or of any installment of interest over any
other installment of interest, or of any Note over any other Note, ratably
to the aggregate of such principal and any premium and accrued and unpaid
interest; and
FOURTH: To the payment of the remainder, if any, to the
Company or its successors or assigns, or to whomsoever may lawfully be
entitled to the same, or as a court of competent jurisdiction may
determine.
Section 8.04 LIMITATIONS ON SUITS BY NOTEHOLDERS.
(a) No Holder of any Note shall have any right by virtue
of or by availing of any provision of this Indenture to institute any
suit, action or proceeding in equity or at law upon or under or with
respect to this Indenture or for the appointment of a receiver or trustee,
or for any other remedy hereunder, unless such Holder previously shall
have given to the Trustee written notice of an Event of Default with
respect to such Note and of the continuance thereof, as hereinabove
provided, and unless also Noteholders of a majority in aggregate principal
amount of the Notes then outstanding affected by such Event of Default
shall have made written request upon the Trustee to institute such action,
suit or proceeding 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 neglected or refused to institute any such
action, suit or proceeding; it being understood and intended, and being
expressly covenanted by the taker and Holder of every Note with every
other taker and Holder and the Trustee, that no one or more Holders of
Notes 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 Notes, 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 Notes. For the
protection and enforcement of the provisions of this Section, each and
every Noteholder and the Trustee shall be entitled to such relief as can
be given either at law or in equity.
(b) Notwithstanding any other provision in this
Indenture, however, the rights of any Holder of any Note to receive
payment of the principal of and any premium and interest on such Note, on
or after the respective due dates expressed in such Note or on the
applicable redemption date, or to institute suit for the enforcement of
any such payment on or after such respective dates are absolute and
unconditional, and shall not be impaired or affected without the consent
of such Holder.
Section 8.05 SUITS FOR ENFORCEMENT. In case an Event of
Default has occurred, has not been waived and is continuing, hereunder the
Trustee may in its discretion proceed to protect and enforce the rights
vested in it by this Indenture, including, prior to the Release Date, its
rights as holder of the Senior Note First Mortgage Bonds, by such
appropriate judicial proceedings as the Trustee shall deem most effectual
to protect and enforce any of such rights, either by suit in equity or by
action at law or by proceeding 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 to it under this
Indenture, or to enforce any other legal or equitable right vested in the
Trustee by this Indenture or by law.
Section 8.06 POWERS AND REMEDIES CUMULATIVE; DELAY OR
OMISSION NOT WAIVER OF DEFAULT. No right or remedy herein conferred upon
or reserved to the Trustee or to the Holders of Notes 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 Notes 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 8.04, every right and power
given by this Indenture or by law to the Trustee or to the Holders of
Notes may be exercised from time to time, and as often as shall be deemed
expedient, by the Trustee or by the Holders of Notes, as the case may be.
Section 8.07 DIRECTION OF PROCEEDINGS AND WAIVER OF DEFAULTS
BY MAJORITY OF NOTEHOLDERS.
(a) The Holders of a majority in aggregate principal
amount of the Notes at the time outstanding 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 on
the Trustee; 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 Section 9.01 hereof) the Trustee shall have the
right to decline to follow any such direction if the Trustee being advised
by counsel determines that the action or proceeding so directed may not
lawfully be taken or if the Trustee in good faith by its board of
directors or trustees, executive committee, or a trust committee of
directors or trustees or responsible officers shall determine that the
action or proceeding so directed would involve the Trustee in personal
liability. 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
Noteholders.
(b) The Holders of a majority in aggregate principal
amount of the Notes at the time outstanding may on behalf of all of the
Holders of the Notes waive any past default or Event of Default hereunder
and its consequences except a default in the payment of principal of or
any premium or interest on the Notes. Upon any such waiver the Company,
the Trustee and the Holders of the Notes shall be restored to their former
positions and rights hereunder, respectively, but no such waiver shall
extend to any subsequent or other default or Event of 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 be continuing,
and any Event of Default arising therefrom shall be deemed to have been
cured and not to be continuing, 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 8.08 NOTICE OF DEFAULT. The Trustee shall, within 90
days after the occurrence of a default with respect to the Notes, give to
all Holders of the Notes, in the manner provided in Section 15.10, notice
of such default known to the Trustee, unless such default shall have been
cured or waived before the giving of such notice, the term "default" for
the purpose of this Section 8.08 being hereby defined to be any event
which is or after 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 any premium or interest on any of the Notes, or in the
payment of any sinking or purchase fund installments, the Trustee shall be
protected in withholding such notice if and so long as its board of
directors or trustees, executive committee, or a trust committee of
directors or trustees or responsible officers in good faith determines
that the withholding of such notice is in the interests of the Holders of
the Notes.
Section 8.09 UNDERTAKING TO PAY COSTS. All parties to this
Indenture agree, and each Holder of any Note by 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 this Section 8.09 shall not apply to any suit instituted by
the Trustee, or to any suit instituted by any Noteholder, or group of
Noteholders, holding in the aggregate more than 10% in principal amount of
the Notes outstanding, or to any suit instituted by any Noteholder for the
enforcement of the payment of the principal of or any premium or interest
on any Note on or after the due date expressed in such Note or the
applicable redemption date.
Section 8.10 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 Company, the Trustee and the Holders shall be restored
respectively to their former positions and rights hereunder, and all
rights, remedies and powers of the Company, the Trustee and the Holders
shall continue as though no such proceedings had been taken.
Section 8.11 DEFAULTS UNDER THE FIRST MORTGAGE. In addition
to every other right and remedy provided herein, the Trustee may exercise
any right or remedy available to the Trustee in its capacity as owner and
holder of Senior Note First Mortgage Bonds which arises as a result of a
default under the First Mortgage whether or not an Event of Default under
this Indenture shall then have occurred and be continuing.
Section 8.12 WAIVER OF USURY, STAY OR EXTENSION LAWS. The
Company 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 usury, 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 Company (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.
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ARTICLE IX
CONCERNING THE TRUSTEE
Section 9.01 DUTIES AND RESPONSIBILITIES OF TRUSTEE.
(a) The Trustee, prior to the occurrence of an Event of
Default and after the curing of all Events of Default which may have
occurred, undertakes to perform such duties and only such duties as are
specifically set forth in this Indenture. If an Event of Default has
occurred (which has not been cured or waived), the Trustee shall exercise
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.
(b) No provisions 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 willful misconduct, except that:
(1) prior to the occurrence of any Event of
Default and after the curing or waiving of all Events of
Default which may have occurred
(A) the duties and obligations of the Trustee
shall be determined 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
(B) in the absence of bad faith or actual
knowledge 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 certificates or opinions furnished
to the Trustee and conforming to the requirements of
this Indenture; but, in the case of any such
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;
(2) the Trustee shall not be liable for any error
of judgment made in good faith by a responsible officer or
officers of the Trustee, unless it shall be proved that
the Trustee was negligent in ascertaining the pertinent
facts; and
(3) 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 the direction, pursuant to this
Indenture, of the Holders of a majority in principal
amount of the Notes, including, but not limited to,
Section 8.07 hereof 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.
Section 9.02 RELIANCE ON DOCUMENTS, OPINIONS, ETC. Except as
otherwise provided in Section 9.01 hereof:
(a) the Trustee may rely and shall be protected in acting
or refraining from acting upon any resolution, certificate, statement,
instrument, opinion, report, notice, request, consent, order, note 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
Company mentioned herein shall be sufficiently evidenced by an Officers'
Certificate (unless other evidence in respect thereof is herein
specifically prescribed); and any Board Resolution may be evidenced to the
Trustee by a copy thereof certified by the Secretary or an Assistant
Secretary of the Company;
(c) the Trustee may consult with counsel and any advice
or Opinion of Counsel shall be full and complete authorization and
protection in respect of any action taken, suffered or omitted 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 rights or powers vested in it by this Indenture at the request,
order or direction of any of the Noteholders, pursuant to this Indenture,
unless such Noteholders shall have offered to the Trustee reasonable
security or indemnity against the costs, expenses and liabilities which
may be incurred by such exercise;
(e) the Trustee shall not be liable for any action taken,
suffered or omitted by it in good faith and believed by it to be
authorized or within the discretion or rights or powers conferred upon it
by this Indenture;
(f) prior to the occurrence of an Event of Default
hereunder and after the curing or waiving of all 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, note or other
paper or document, unless requested in writing to do so by the Holders of
at least a majority in principal amount of the then outstanding Notes;
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 this
Indenture, the Trustee may require reasonable indemnity against such
expense or liability as a condition to so proceeding;
(g) the Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or through
agents or attorneys; provided that the Trustee shall not be liable for the
conduct or acts of any such agent or attorney that shall have been
appointed in accordance herewith with due care.
Section 9.03 NO RESPONSIBILITY FOR RECITALS, ETC. The
recitals contained herein and in the Notes (except in the certificate of
authentication) shall be taken as the statements of the Company, and the
Trustee assumes no responsibility for the correctness of the same. The
Trustee makes no representations as to the validity or sufficiency of this
Indenture or of the Notes. The Trustee shall not be accountable for the
use or application by the Company of any Notes or the proceeds of any
Notes authenticated and delivered by the Trustee in conformity with this
Indenture.
Section 9.04 TRUSTEE, AUTHENTICATING AGENT, PAYING AGENT OR
REGISTRAR MAY OWN NOTES. The Trustee and any Authenticating Agent or
paying agent in its individual or other capacity, may become the owner or
pledgee of Notes with the same rights it would have if it were not
Trustee, Authenticating Agent or paying agent.
Section 9.05 MONEYS TO BE HELD IN TRUST. Subject to Section
5.04 hereof, 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 law. The Trustee may allow and credit to the
Company interest on any money received hereunder at such rate, if any, as
may be agreed upon by the Company and the Trustee from time to time as may
be permitted by law.
Section 9.06 COMPENSATION AND EXPENSES OF TRUSTEE. The
Company 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 law in regard to the compensation of a trustee of an
express trust), and the Company shall pay or reimburse the Trustee upon
its request for all reasonable expenses, disbursements and advances
incurred or made by the Trustee in accordance with this Indenture
(including the reasonable compensation and the reasonable expenses and
disbursements of its counsel and agents, including any Authenticating
Agents, and of all persons not regularly in its employ) except any such
expense, disbursement or advance as may arise from its negligence or bad
faith. The Company 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 and arising out of or
in connection with the acceptance or administration of this trust,
including the costs and expenses of defending itself against any claim or
liability. The obligations of the Company under this Section 9.06 to
compensate the Trustee and to pay or reimburse the Trustee for expenses,
disbursements and advances shall constitute additional indebtedness
hereunder. Such additional indebtedness shall be secured by a lien prior
to that of the Notes 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 any particular Notes.
Section 9.07 OFFICERS' CERTIFICATE AS EVIDENCE. Whenever in
the administration of this Indenture, the Trustee shall deem it necessary
or desirable that a matter be proved or established prior to the taking,
suffering or omitting of any action hereunder, such matter (unless other
evidence in respect thereof is 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 Officers' 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 this Indenture in reliance thereon.
Section 9.08 CONFLICTING INTEREST OF TRUSTEE. The Trustee
shall be subject to and shall comply with the provisions of Section 310(b)
of the TIA. Nothing in this Indenture shall be deemed to prohibit the
Trustee or the Company from making any application permitted pursuant to
such section.
Section 9.09 EXISTENCE AND ELIGIBILITY OF TRUSTEE. There
shall at all times be a Trustee hereunder which Trustee shall at all times
be a corporation organized and doing business under the laws of the United
States or any State thereof or of the District of Columbia having a
combined capital and surplus of at least $50,000,000 and which is
authorized under such laws to exercise corporate trust powers and is
subject to supervision or examination by Federal or State authorities.
Such corporation shall have its principal place of business in the City of
Detroit, Michigan or the Borough of Manhattan, The City of New York, State
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 authority, then for the
purposes of this Section 9.09, the combined capital and surplus shall be
deemed to be as set forth in its most recent report of condition so
published. No obligor upon the Notes or Person directly or indirectly
controlling, controlled by, or under common control with such obligor
shall serve as Trustee. If at any time the Trustee shall cease to be
eligible in accordance with this Section 9.09, the Trustee shall resign
immediately in the manner and with the effect specified in Section 9.10
hereof.
Section 9.10 RESIGNATION OR REMOVAL OF TRUSTEE.
(a) Pursuant to the provisions of this Article, the
Trustee may at any time resign and be discharged of the trusts created by
this Indenture by giving written notice to the Company specifying the day
upon which such resignation shall take effect, and such resignation shall
take effect immediately upon the later of the appointment of a successor
trustee and such day.
(b) Any Trustee may be removed at any time by an
instrument or concurrent instruments in writing filed with such Trustee
and signed and acknowledged by the Holders of a majority in principal
amount of the then outstanding Notes or by their attorneys in fact duly
authorized.
(c) So long as no Event of Default has occurred and is
continuing, and no event has occurred and is continuing that, with the
giving of notice or the lapse of time or both, would become an Event of
Default, the Company may remove any Trustee upon written notice to the
Holder of each Note outstanding and the Trustee and appoint a successor
Trustee meeting the requirements of Section 9.09. The Company or the
successor Trustee shall give notice to the Holders, in the manner provided
in Section 15.10, of such removal and appointment within 30 days of such
removal and appointment.
(d) If at any time (i) the Trustee shall cease to be
eligible in accordance with Section 9.09 hereof and shall fail to resign
after written request therefor by the Company or by any Holder who has
been a bona fide Holder for at least six months, (ii) the Trustee shall
fail to comply with Section 9.08 hereof after written request therefor by
the Company or any such Holder, or (iii) the Trustee shall become
incapable of acting or shall be adjudged a bankrupt or insolvent or a
receiver of the Trustee or 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 the Trustee may be removed forthwith by an instrument or concurrent
instruments in writing filed with the Trustee and either:
(1) signed by the President or any Vice President
of the Company and attested by the Secretary or an
Assistant Secretary of the Company; or
(2) signed and acknowledged by the Holders of a
majority in principal amount of outstanding Notes or by
their attorneys in fact duly authorized.
(e) Any resignation or removal of the Trustee shall not
become effective until acceptance of appointment by the successor Trustee
as provided in Section 9.11 hereof.
Section 9.11 APPOINTMENT OF SUCCESSOR TRUSTEE.
(a) If at any time the Trustee shall resign or be
removed, the Company, by a Board Resolution, shall promptly appoint a
successor Trustee.
(b) The Company shall provide written notice of its
appointment of a Successor Trustee to the Holder of each Note outstanding
following any such appointment.
(c) If no appointment of a successor Trustee shall be
made pursuant to Section 9.11(a) hereof within 60 days after appointment
shall be required, any Noteholder or the resigning Trustee may apply to
any court of competent jurisdiction to appoint a successor Trustee. Said
court may thereupon after such notice, if any, as such court may deem
proper and prescribe, appoint a successor Trustee.
(d) Any Trustee appointed under this Section 9.11 as a
successor Trustee shall be a bank or trust company eligible under Section
9.09 hereof and qualified under Section 9.08 hereof.
Section 9.12 ACCEPTANCE BY SUCCESSOR TRUSTEE.
(a) Any successor Trustee appointed as provided in
Section 9.11 hereof shall execute, acknowledge and deliver to the Company
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 the rights,
powers, duties and obligations of its predecessor hereunder, with like
effect as if originally named as Trustee herein; but nevertheless, on the
written request of the Company or of the successor Trustee, the Trustee
ceasing to act shall, upon payment of any amounts then due it pursuant to
Section 9.06 hereof, execute and deliver an instrument transferring to
such successor Trustee all the rights and powers of the Trustee so ceasing
to act, including all right, title, and interest in the Senior Note First
Mortgage Bonds. Upon request of any such successor Trustee, the Company
shall execute any and all instruments in writing in order more fully and
certainly to vest in and confirm to such successor Trustee all such rights
and powers. Any Trustee ceasing to act shall, nevertheless, retain a lien
upon all property or funds held or collected by such Trustee to secure any
amounts then due it pursuant to Section 9.06 hereof.
(b) No successor Trustee shall accept appointment as
provided in this Section 9.12 unless at the time of such acceptance such
successor Trustee shall be qualified under Section 9.08 hereof and
eligible under Section 9.09 hereof.
(c) Upon acceptance of appointment by a successor Trustee
as provided in this Section 9.12, the successor Trustee shall mail notice
of its succession hereunder to all Holders of Notes as the names and
addresses of such Holders appear on the registry books.
Section 9.13 SUCCESSION BY MERGER, ETC.
(a) 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 all or
substantially all of the corporate trust business of the Trustee, shall be
the successor of the Trustee hereunder without the execution or filing of
any paper or any further act on the part of any of the parties hereto,
provided such corporation shall be otherwise qualified and eligible under
this Article.
(b) If at the time such successor to the Trustee shall
succeed to the trusts created by this Indenture any of the Notes shall
have been authenticated but not delivered, any such successor to the
Trustee may adopt the certificate of authentication of any predecessor
Trustee, and deliver such Notes so authenticated; and in case at that time
any of the Notes shall not have been authenticated, any successor to the
Trustee may authenticate such Notes either in the name of any predecessor
hereunder or in the name of the successor Trustee; and in all such cases
such certificates shall have the full force which it is anywhere in the
Notes or in this Indenture provided that the certificates of the Trustee
shall have; provided that the right to adopt the certificate of
authentication of any predecessor Trustee or authenticate Notes in the
name of any predecessor Trustee shall apply only to its successor or
successors by merger, conversion or consolidation.
Section 9.14 LIMITATIONS ON RIGHTS OF TRUSTEE AS A CREDITOR.
The Trustee shall be subject to, and shall comply with, the provisions of
Section 311 of the TIA.
Section 9.15 AUTHENTICATING AGENT.
(a) There may be one or more Authenticating Agents
appointed by the Trustee with the written consent of the Company, with
power to act on its behalf and subject to the direction of the Trustee in
the authentication and delivery of Notes in connection with transfers and
exchanges under Sections 2.06, 2.07, 2.08, 2.13, 3.03, and 13.04 hereof,
as fully to all intents and purposes as though such Authenticating Agents
had been expressly authorized by those Sections to authenticate and
deliver Notes. For all purposes of this Indenture, the authentication and
delivery of Notes by any Authenticating Agent pursuant to this Section
9.15 shall be deemed to be the authentication and delivery of such Notes
"by the Trustee." Any such Authenticating Agent shall be a bank or trust
company or other Person of the character and qualifications set forth in
Section 9.09 hereof.
(b) 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 trust business of any Authenticating Agent,
shall be the successor of such Authenticating Agent hereunder, if such
successor corporation is otherwise eligible under this Section 9.15,
without the execution or filing of any paper or any further act on the
part of the parties hereto or such Authenticating Agent or such successor
corporation.
(c) Any Authenticating Agent may at any time resign by
giving written notice of resignation to the Trustee and to the Company.
The Trustee may at any time terminate the agency of any Authenticating
Agent by giving written notice of termination to such Authenticating Agent
and to the Company. 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 under this Section 9.15, the Trustee may, with the
written consent of the Company, appoint a successor Authenticating Agent,
and upon so doing shall give written notice of such appointment to the
Company and shall mail, in the manner provided in Section 15.10, notice of
such appointment to the Holders of Notes.
(d) The Trustee agrees to pay to each Authenticating
Agent from time to time reasonable compensation for its services, and the
Trustee shall be entitled to be reimbursed for such payments, in
accordance with Section 9.06 hereof.
(e) Sections 9.02, 9.03, 9.06, 9.07 and 9.09 hereof shall
be applicable to any Authenticating Agent.
ARTICLE X
CONCERNING THE NOTEHOLDERS
Section 10.01 ACTION BY NOTEHOLDERS. Whenever in this
Indenture it is provided that the Holders of a specified percentage in
aggregate principal amount of the Notes may take any action, the fact that
at the time of taking any such action the Holders of such specified
percentage have joined therein may be evidenced (a) by any instrument or
any number of instruments of similar tenor executed by such Noteholders in
person or by agent or proxy appointed in writing, (b) by the record of
such Noteholders voting in favor thereof at any meeting of Noteholders
duly called and held in accordance with Article XI hereof, or (c) by a
combination of such instrument or instruments and any such record of such
a meeting of Noteholders.
Section 10.02 PROOF OF EXECUTION BY NOTEHOLDERS.
(a) Subject to Sections 9.01, 9.02 and 11.05 hereof,
proof of the execution of any instruments by a Noteholder or the agent or
proxy for such Noteholder shall be sufficient if made in accordance with
such reasonable rules and regulations as may be prescribed by the Trustee
or in such manner as shall be satisfactory to the Trustee. The ownership
of Notes shall be proved by the register for the Notes maintained by the
Trustee.
(b) The record of any Noteholders' meeting shall be
proven in the manner provided in Section 11.06 hereof.
Section 10.03 PERSONS DEEMED ABSOLUTE OWNERS. Subject to
Sections 2.04(f) and 10.01 hereof, the Company, the Trustee, any paying
agent and any Authenticating Agent shall deem the person in whose name any
Note shall be registered upon the register for the Notes to be, and shall
treat such person as, the absolute owner of such Note (whether or not such
Note shall be overdue) for the purpose of receiving payment of or on
account of the principal and premium, if any, and interest on such Note,
and for all other purposes; and neither the Company nor the Trustee nor
any paying agent nor any Authenticating Agent shall be affected by any
notice to the contrary. All such payments shall be valid and effectual to
satisfy and discharge the liability upon any such Note to the extent of
the sum or sums so paid.
Section 10.04 COMPANY-OWNED NOTES DISREGARDED. In determining
whether the Holders of the requisite aggregate principal amount of
outstanding Notes have concurred in any direction, consent or waiver under
this Indenture, Notes which are owned by the Company or any other obligor
on the Notes or by any person directly or indirectly controlling or
controlled by or under direct or indirect common control with the Company
or any other obligor on the Notes shall be disregarded and deemed not to
be outstanding for the purpose of any such determination; provided that,
for the purposes of determining whether the Trustee shall be protected in
relying on any such direction, consent or waiver, only Notes which the
Trustee knows are so owned shall be so disregarded. Notes so owned which
have been pledged in good faith to third parties may be regarded as
outstanding for the purposes of this Section 10.04 if the pledgee shall
establish the pledgee's right to take action with respect to such Notes
and that the pledgee is not a person directly or indirectly controlling or
controlled by or under direct or indirect common control with the Company
or any such other obligor. In the case of a dispute as to such right, the
Trustee may rely upon an Opinion of Counsel and an Officers' Certificate
to establish the foregoing.
Section 10.05 REVOCATION OF CONSENTS; FUTURE HOLDERS BOUND.
Except as may be otherwise required in the case of a Global Note by the
applicable rules and regulations of the Depositary, at any time prior to
the taking of any action by the Holders of the percentage in aggregate
principal amount of the Notes specified in this Indenture in connection
with such action, any Holder of a Note, which has been included in the
Notes the Holders of which have consented to such action may, by filing
written notice with the Trustee at the corporate trust office of the
Trustee and upon proof of ownership as provided in Section 10.02(a)
hereof, revoke such action so far as it concerns such Note. Except as
aforesaid, any such action taken by the Holder of any Note shall be
conclusive and binding upon such Holder and upon all future Holders and
owners of such Note and of any Notes issued in exchange, substitution or
upon registration of transfer therefor, irrespective of whether or not any
notation thereof is made upon such Note or such other Notes.
Section 10.06 RECORD DATE FOR NOTEHOLDER ACTS. If the Company
shall solicit from the Noteholders any request, demand, authorization,
direction, notice, consent, waiver or other act, the Company may, at its
option, by Board Resolution, fix in advance a record date for the
determination of Noteholders entitled to give such request, demand,
authorization, direction, notice, consent, waiver or other act, but the
Company shall have no obligation to do so. If such a record date is fixed,
such request, demand, authorization, direction, notice, consent, waiver or
other act may be given before or after the record date, but only the
Noteholders of record at the close of business on the record date shall be
deemed to be Noteholders for the purpose of determining whether Holders of
the requisite aggregate principal amount of outstanding Notes have
authorized or agreed or consented to such request, demand, authorization,
direction, notice, consent, waiver or other act, and for that purpose the
outstanding Notes shall be computed as of the record date; provided that
no such request, demand, authorization, direction, notice, consent, waiver
or other act by the Noteholders on the record date shall be deemed
effective unless it shall become effective pursuant to this Indenture not
later than six months after the record date. Any such record date shall be
at least 30 days prior to the date of the solicitation to the Noteholders
by the Company.
ARTICLE XI
NOTEHOLDERS' MEETING
Section 11.01 PURPOSES OF MEETINGS. A meeting of Noteholders
may be called at any time and from time to time pursuant to this Article
XI for any of the following purposes:
(a) to give any notice to the Company or to the Trustee,
or to give any directions to the Trustee, or to consent to the waiving of
any Event of Default hereunder and its consequences, or to take any other
action authorized to be taken by Noteholders pursuant to Article XIII;
(b) to remove the Trustee pursuant to Article IX;
(c) to consent to the execution of an indenture or
indentures supplemental hereto pursuant to Section 13.02 hereof; or
(d) to take any other action authorized to be taken by or
on behalf of the Holders of any specified aggregate principal amount of
the Notes, as the case may be, under any other provision of this Indenture
or under applicable law.
Section 11.02 CALL OF MEETINGS BY TRUSTEE. The Trustee may at
any time call a meeting of Holders of Notes to take any action specified
in Section 11.01 hereof, to be held at such time and at such place as the
Trustee shall determine. Notice of every such meeting of Noteholders,
setting forth the time and the place of such meeting and in general terms
the action proposed to be taken at such meeting, shall be given to Holders
of the Notes that may be affected by the action proposed to be taken at
such meeting in the manner provided in Section 15.10 hereof. Such notice
shall be given not less than 20 nor more than 90 days prior to the date
fixed for such meeting.
Section 11.03 CALL OF MEETINGS BY COMPANY OR NOTEHOLDERS. If
at any time the Company, pursuant to a Board Resolution, or the Holders of
at least 10% in aggregate principal amount of the Notes then outstanding,
shall have requested the Trustee to call a meeting of Noteholders, by
written request setting forth in reasonable detail the action proposed to
be taken at the meeting, and the Trustee shall not have mailed the notice
of such meeting within 20 days after receipt of such request, then the
Company or such Noteholders may determine the time and the place for such
meeting and may call such meeting to take any action authorized in Section
11.01 hereof, by giving notice thereof as provided in Section 11.02
hereof.
Section 11.04 QUALIFICATIONS FOR VOTING. To be entitled to
vote at any meetings of Noteholders a Person shall (a) be a Holder of one
or more Notes affected by the action proposed to be taken or (b) be a
Person appointed by an instrument in writing as proxy by a Holder of one
or more such Notes. The only Persons who shall be entitled to be present
or to speak at any meeting of Noteholders shall be the Persons entitled to
vote at such meeting and their counsel and any representatives (including
employees) of the Trustee and its counsel and any representatives
(including employees) of the Company and its counsel.
Section 11.05 REGULATIONS.
(a) Notwithstanding any other provisions of this
Indenture, the Trustee may make such reasonable regulations as it may deem
advisable for any meeting of Noteholders in regard to proof of the holding
of Notes and of the appointment of proxies, and in regard to the
appointment and duties of inspectors of votes, the submission and
examination of proxies, certificates and other evidence of the right to
vote, and such other matters concerning the conduct of the meeting as it
shall think fit.
(b) The Trustee shall, by an instrument in writing,
appoint a temporary chairman of the meeting, unless the meeting shall have
been called by the Company or by the Noteholders as provided in Section
11.03 hereof, in which case the Company or Noteholders calling the
meeting, as the case may be, shall in like manner appoint a temporary
chairman. A permanent chairman and a permanent secretary of the meeting
shall be elected by the Holders of a majority in aggregate principal
amount of the Notes present in person or by proxy at the meeting.
(c) Subject to Section 10.04 hereof, at any meeting each
Noteholder or proxy shall be entitled to one vote for each $1,000
principal amount of Notes held or represented by such Noteholder; provided
that no vote shall be cast or counted at any meeting in respect of any
Note determined to be not outstanding. The chairman of the meeting shall
have no right to vote other than by virtue of Notes held by such chairman
or instruments in writing as aforesaid duly designating such chairman as
the person to vote on behalf of other Noteholders. At any meeting of
Noteholders duly called pursuant to Section 11.02 or 11.03 hereof, the
presence of persons holding or representing Notes in an aggregate
principal amount sufficient to take action on any business for the
transaction for which such meeting was called shall constitute a quorum.
Any meeting of Noteholders duly called pursuant to Section 11.02 or 11.03
hereof may be adjourned from time to time by the Holders of a majority in
aggregate principal amount of the Notes present in person or by proxy at
the meeting, whether or not constituting a quorum, and the meeting may be
held as so adjourned without further notice.
Section 11.06 VOTING. The vote upon any resolution submitted
to any meeting of Noteholders shall be by written ballots on which shall
be subscribed the signatures of the Holders of Notes or of their
representatives by proxy and the principal amount of Notes held or
represented by them. The permanent chairman of the meeting shall appoint
two inspectors of votes who shall count all votes cast at the meeting for
or against any resolution and who shall make and file with the secretary
of the meeting their verified written reports in duplicate of all votes
cast at the meeting. A record in duplicate of the proceedings of such
meeting of Noteholders shall be prepared by the secretary of the meeting
and there shall be attached to said record the original reports of the
inspectors of votes on any vote by ballot taken thereat and affidavits by
one or more persons having knowledge of the facts setting forth a copy of
the notice of the meeting and showing that said notice was given as
provided in Section 11.02 hereof. The record shall show the aggregate
principal amount of the Notes voting in favor of or against any
resolution. The record shall be signed and verified by the affidavits of
the permanent chairman and secretary of the meeting and one of the
duplicates shall be delivered to the Company and the other to the Trustee
to be preserved by the Trustee and the Trustee shall have the ballots
taken at the meeting attached to such duplicate. Any record so signed and
verified shall be conclusive evidence of the matters therein stated.
Section 11.07 RIGHTS OF TRUSTEE OR NOTEHOLDERS NOT DELAYED.
Nothing in this Article XI shall be deemed or construed to authorize or
permit, by reason of any call of a meeting of Noteholders or any rights
expressly or impliedly conferred hereunder to make such call, any
hindrance or delay in the exercise of any right or rights conferred upon
or reserved to the Trustee or to the Holders of Notes under any of the
provisions of this Indenture or of the Notes.
ARTICLE XII
CONSOLIDATION, MERGER, SALE, TRANSFER OR CONVEYANCE
Section 12.01 COMPANY MAY CONSOLIDATE, ETC. ONLY ON CERTAIN
TERMS. The Company shall not consolidate with or merge into any other
corporation or sell, or otherwise dispose of its properties as or
substantially as an entirety to any Person unless the Company has
delivered to the Trustee an Officers' Certificate and an Opinion of
Counsel each stating that such consolidation, merger, conveyance or
transfer and such supplemental indenture comply with this Article XII and
that all conditions precedent herein provided for have been complied with,
and the corporation formed by such consolidation or into which the Company
is merged or the Person which receives such properties pursuant to such
sale, transfer or other disposition (a) shall be a corporation organized
and existing under the laws of the United States of America, any state
thereof or the District of Columbia; (b) shall expressly assume, by an
indenture supplemental hereto, executed and delivered to the Trustee, in
form reasonably satisfactory to the Trustee, the due and punctual payment
of the principal of and premium and interest on all of the Notes and the
performance of every covenant of this Indenture on the part of the Company
to be performed or observed and (c) if such consolidation, merger, sale,
transfer or other disposition occurs prior to the Release Date, shall
expressly assume, by an indenture supplemental to the First Mortgage,
executed and delivered to the Mortgage Trustee, the due and punctual
payment of the principal of and premium and interest on all of the Senior
Note First Mortgage Bonds and the performance of every covenant of the
First Mortgage on the part of the Company to be performed or observed.
Anything in this Indenture to the contrary notwithstanding, the
conveyance or other transfer by the Company of (a) all or any portion of
its facilities for the generation of electric energy, (b) all of its
facilities for the transmission of electric energy or (c) all of its
facilities for the distribution of natural gas, in each case considered
alone or in any combination with properties described in any other clause,
shall in no event be deemed to constitute a conveyance or other transfer
of all the properties of the Company, as or substantially as an entirety.
The character of particular facilities shall be determined in accordance
with the Uniform System of Accounts prescribed for public utilities and
licensees subject to the Federal Power Act, as amended, to the extent
applicable.
Section 12.02 SUCCESSOR CORPORATION SUBSTITUTED. Upon any
consolidation or merger, or any sale, transfer or other disposition of the
properties of the Company substantially as an entirety in accordance with
Section 12.01 hereof, the successor corporation formed by such
consolidation or into which the Company is merged or to which such sale,
transfer or other disposition is made shall succeed to, and be substituted
for and may exercise every right and power of, the Company under this
Indenture with the same effect as if such successor corporation had been
named as the Company herein and the Company shall be released from all
obligations hereunder.
ARTICLE XIII
SUPPLEMENTAL INDENTURES
Section 13.01 SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF
NOTEHOLDERS.
(a) The Company, when authorized by Board Resolution, and
the Trustee may from time to time and at any time enter into an indenture
or indentures supplemental hereto for one or more of the following
purposes:
(1) to make such provision in regard to matters or
questions arising under this Indenture as may be necessary
or desirable, and not inconsistent with this Indenture or
prejudicial to the interests of the Holders in any
material respect, for the purpose of supplying any
omission, curing any ambiguity, or curing, correcting or
supplementing any defective or inconsistent provision;
(2) to change or eliminate any of the provisions
of this Indenture, provided that any such change or
elimination shall become effective only when there is no
Note outstanding created prior to the execution of such
supplemental indenture which is entitled to the benefit of
such provision or such change or elimination is applicable
only to Notes issued after the effective date of such
change or elimination;
(3) to establish the form of Notes as permitted by
Section 2.01 hereof or to establish or reflect any terms
of any Note determined pursuant to Section 2.05 hereof;
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(4) to evidence the succession of another
corporation to the Company as permitted hereunder, and the
assumption by any such successor of the covenants of the
Company herein and in the Notes;
(5) to grant to or confer upon the Trustee for the
benefit of the Holders any additional rights, remedies,
powers or authority;
(6) to permit the Trustee to comply with any
duties imposed upon it by law;
(7) to specify further the duties and
responsibilities of, and to define further the
relationships among the Trustee, any Authenticating Agent
and any paying agent;
(8) to add to the covenants of the Company for the
benefit of the Holders of one or more series of Notes, to
add to the security for the Notes, to surrender a right or
power conferred on the Company herein or to add any Event
of Default with respect to one or more series of Notes;
(9) to add provisions permitting the Company to be
released with respect to one or more series of outstanding
Notes from its obligations under Sections 6.07, 6.08
and/or Article XII (and providing that no Event of Default
shall be deemed to have occurred as a result of the
Company's noncompliance with such obligations) if the
Company makes the deposit of cash and/or U.S. Government
obligations with respect to such series of Notes required
by Section 5.01 and otherwise complies with the
requirements of such Section (except that the opinion of
counsel referred to in Section 5.01(a)(3) need not be
based on an External Tax Pronouncement);
(10) to comply with the Company's obligations under
Section 6.07; and
(11) to make any other change that is not
prejudicial to the Holders in any material respect.
(b) The Trustee is hereby authorized to join with the
Company 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 and assignment of any
property 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.
(c) Any supplemental indenture authorized by this Section
13.01 may be executed by the Company and the Trustee without the consent
of the Holders of any of the Notes at the time outstanding,
notwithstanding any of the provisions of Section 13.02 hereof.
Section 13.02 SUPPLEMENTAL INDENTURES WITH CONSENT OF
NOTEHOLDERS.
(a) With the consent (evidenced as provided in Section
10.01 hereof) of the Holders of a majority in aggregate principal amount
of the Notes at the time outstanding, the Company, when authorized by
Board Resolution, and the Trustee may from time to time and at any time
enter into an indenture or indentures supplemental hereto 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 Noteholders; provided that no
such supplemental indenture shall:
(1) change the maturity date of any Note, or
reduce the rate (or change the method of calculation
thereof) or extend the time of payment of interest
thereon, or reduce the principal amount thereof or any
premium thereon, or change the coin or currency in which
the principal of any Note or any premium or interest
thereon is payable, or change the date on which any Note
may be redeemed or adversely affect the rights of the
Noteholders to institute suit for the enforcement of any
payment of principal of or any premium or interest on any
Note, or impair the interest hereunder of the Trustee in
the Senior Note First Mortgage Bonds, or prior to the
Release Date, reduce the principal amount of any series of
Senior Note First Mortgage Bonds to an amount less than
the principal amount of the Related Series of Notes or
alter the payment provisions of such Senior Note First
Mortgage Bonds in a manner adverse to the Holders of the
Notes, in each case without the consent of the Holder of
each Note so affected; or
(2) modify this Section 13.02(a) or reduce the
aforesaid percentage of Notes, the Holders of which are
required to consent to any such supplemental indenture or
to reduce the percentage of Notes, the Holders of which
are required to waive Events of Default, in each case,
without the consent of the Holders of all of the Notes
then outstanding.
(b) Upon the request of the Company, accompanied by a
copy of the Board Resolution authorizing the execution of any such
supplemental indenture, and upon the filing with the Trustee of evidence
of the consent of Noteholders as aforesaid, the Trustee shall join with
the Company 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.
(c) A supplemental indenture which changes or eliminates
any covenant or other provision of this Indenture (or any supplemental
indenture) which has expressly been included solely for the benefit of one
or more series of Notes, or which modifies the rights of the Holders of
Notes of such series with respect to such covenant or provision, shall be
deemed not to affect the rights under this Indenture of the Holders of
Notes of any other series.
(d) It shall not be necessary for the consent of the
Holders of Notes under this Section 13.02 to approve the particular form
of any proposed supplemental indenture, but it shall be sufficient if such
consent shall approve the substance thereof.
(e) Promptly after the execution by the Company and the
Trustee of any supplemental indenture pursuant to this Section 13.02, the
Trustee shall give notice in the manner provided in Section 15.10 hereof,
setting forth in general terms the substance of such supplemental
indenture, to all Noteholders. Any failure of the Trustee 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 13.03 COMPLIANCE WITH TRUST INDENTURE ACT; EFFECT OF
SUPPLEMENTAL INDENTURES. Any supplemental indenture executed pursuant to
this Article XIII shall comply with the TIA. Upon the execution of any
supplemental indenture pursuant to this Article XIII, the 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 Company and the
Noteholders 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 13.04 NOTATION ON NOTES. Notes authenticated and
delivered after the execution of any supplemental indenture pursuant to
this Article XIII may bear a notation in form approved by the Trustee as
to any matter provided for in such supplemental indenture. If the Company
shall so determine, new Notes so modified as approved by the Trustee and
the Board of Directors with respect to any modification of this Indenture
contained in any such supplemental indenture may be prepared and executed
by the Company, authenticated by the Trustee and delivered in exchange for
the Notes then outstanding.
Section 13.05 EVIDENCE OF COMPLIANCE OF SUPPLEMENTAL INDENTURE
TO BE FURNISHED TRUSTEE. The Trustee, subject to Sections 9.01 and 9.02
hereof, may receive an Officers' Certificate and an Opinion of Counsel as
conclusive evidence that any supplemental indenture executed pursuant
hereto complies with the requirements of this Article XIII.
ARTICLE XIV
IMMUNITY OF INCORPORATORS,
STOCKHOLDERS, OFFICERS AND DIRECTORS
Section 14.01 INDENTURE AND NOTES SOLELY CORPORATE
OBLIGATIONS. No recourse for the payment of the principal of or any
premium or interest on any Note or any Senior Note First Mortgage Bond, or
for any claim based thereon or otherwise in respect thereof, and no
recourse under or upon any obligation, covenant or agreement of the
Company, contained in this Indenture, the First Mortgage or in any
supplemental indenture, or in any Note or in any Senior Note First
Mortgage Bond, or because of the creation of any indebtedness represented
thereby, shall be had against any incorporator, stockholder, officer or
director, as such, past, present or future, of the Company or of any
successor corporation, either directly or through the Company or any
successor corporation, whether by virtue of any constitution, statute or
rule of law, or by the enforcement of any assessment or penalty or
otherwise; it being expressly understood that all such liability is hereby
expressly waived and released as a condition of, and as a consideration
for, the execution of this Indenture and the issuance of the Notes.
ARTICLE XV
MISCELLANEOUS PROVISIONS
Section 15.01 PROVISIONS BINDING ON COMPANY'S SUCCESSORS. All
the covenants, stipulations, promises and agreements made by the Company
in this Indenture shall bind its successors and assigns whether so
expressed or not.
Section 15.02 OFFICIAL ACTS BY SUCCESSOR CORPORATION. Any act
or proceeding by any provision of this Indenture authorized or required to
be done or performed by any board, committee or officer of the Company
shall and may be done and performed with like force and effect by the like
board, committee or officer of any corporation that shall at the time be
the lawful successor of the Company.
Section 15.03 NOTICES. Any notice or demand which by any
provision of this Indenture is required or permitted to be given or served
by the Trustee or by the Noteholders on the Company may be given or served
by being deposited postage prepaid in a post office letter box addressed
(until another address is filed by the Company with the Trustee) at the
principal executive offices of the Company, to the attention of the
Secretary. Any notice, direction, request or demand by any Noteholder, the
Company or the Mortgage Trustee to or upon the Trustee shall be deemed to
have been sufficiently given or made, for all purposes, if given or made
in writing at the corporate trust office of the Trustee, Attention:
Corporate Trust Department.
Section 15.04 GOVERNING LAW. This Indenture and each Note
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 said State, except as
may otherwise be required by mandatory provisions of law.
Section 15.05 EVIDENCE OF COMPLIANCE WITH CONDITIONS
PRECEDENT.
(a) Upon any application or demand by the Company to the
Trustee to take any action under this Indenture, the Company shall furnish
to the Trustee an Officers' Certificate stating that all conditions
precedent, if any, provided for in this Indenture (including any covenants
compliance with which constitutes a condition precedent) 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 have
been complied with.
(b) 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 the
certificates delivered pursuant to Section 6.06 hereof) shall include (1)
a statement that each Person making such certificate or opinion has read
such covenant or condition and the definitions relating thereto; (2) 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; (3) a statement that, in the opinion of
each such Person, such Person has made such examination or investigation
as is necessary to enable such Person to express an informed opinion as to
whether or not such covenant or condition has been complied with; and (4)
a statement as to whether or not, in the opinion of each such Person, such
condition or covenant has been complied with.
(c) In any case where several matters are required to be
certified by, or covered by an opinion of, any specified Person, it is not
necessary that all such matters be certified by, or covered by the opinion
of, only one such Person, or that they be so certified or covered by only
one document, but one such Person may certify or give an opinion with
respect to some matters and one or more other such Persons as to other
matters, and any such Person may certify or give an opinion as to such
matters in one or several documents.
(d) Any certificate or opinion of an officer of the
Company may be based, insofar as it relates to legal matters, upon a
certificate or opinion of, or representations by, counsel, unless such
officer knows, or in the exercise of reasonable care should know, that the
certificate or opinion or representations with respect to the matters upon
which such certificate or opinion is based are erroneous. Any such
certificate or opinion of counsel delivered under the Indenture may be
based, insofar as it relates to factual matters, upon a certificate or
opinion of, or representations by, an officer or officers of the Company
stating that the information with respect to such factual matters is in
the possession of the Company, unless such person knows, or in the
exercise of reasonable care should know, that the certificate or opinion
of representations with respect to such matters are erroneous. Any opinion
of counsel delivered hereunder may contain standard exceptions and
qualifications reasonably satisfactory to the Trustee.
(e) Any certificate, statement or opinion of any officer
of the Company, or of counsel, may be based, insofar as it relates to
accounting matters, upon a certificate or opinion of or representations by
an independent public accountant or firm of accountants, unless such
officer or counsel, as the case may be, knows that the certificate or
opinions or representations with respect to the accounting matters upon
which the certificate, statement or opinion of such officer or counsel 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
firm of independent public accountants filed with the Trustee shall
contain a statement that such firm is independent.
(f) Where any Person is required to make, give or execute
two or more applications, requests, consents, certificates, statements,
opinions or other instruments under this Indenture, they may, but need
not, be consolidated and form one instrument.
Section 15.06 BUSINESS DAYS. Unless otherwise provided
pursuant to Section 2.05(c) hereof, in any case where the date of maturity
of the principal of or any premium or interest on any Note or the date
fixed for redemption of any Note is not a Business Day, then payment of
such principal or any premium or interest 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, and, in the case of timely payment thereof, no interest shall
accrue for the period from and after such Interest Payment Date or the
date on which the principal or premium of the Note is required to be paid.
Section 15.07 TRUST INDENTURE ACT TO CONTROL. If and to the
extent that any provision of this Indenture limits, qualifies or conflicts
with the duties imposed by the TIA, such required provision of the TIA
shall govern.
Section 15.08 TABLE OF CONTENTS, HEADINGS, ETC. The table of
contents and the titles and headings of the articles and sections of this
Indenture have been inserted for convenience of reference only, are not to
be considered a part hereof, and shall in no way modify or restrict any of
the terms or provisions hereof.
Section 15.09 EXECUTION IN 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 15.10 MANNER OF MAILING NOTICE TO NOTEHOLDERS.
(a) Any notice or demand which by any provision of this
Indenture is required or permitted to be given or served by the Trustee or
the Company to or on the Holders of Notes, as the case may be, shall be
given or served by first-class mail, postage prepaid, addressed to the
Holders of such Notes at their last addresses as the same appear on the
register for the Notes referred to in Section 2.06, and any such notice
shall be deemed to be given or served by being deposited in a post office
letter box in the form and manner provided in this Section 15.10. In case
by reason of the suspension of regular mail service or by reason of any
other cause it shall be impracticable to give notice to any Holder by
mail, then such notification to such Holder as shall be made with the
approval of the Trustee shall constitute a sufficient notification for
every purpose hereunder.
(b) The Company shall also provide any notices required
under this Indenture by publication, but only to the extent that such
publication is required by the TIA, the rules and regulations of the
Commission or any securities exchange upon which any series of Notes is
listed.
Section 15.11 APPROVAL BY TRUSTEE OF EXPERT OR COUNSEL.
Wherever the Trustee is required to approve an Expert or counsel who is to
furnish evidence of compliance with conditions precedent in this
Indenture, such approval by the Trustee shall be deemed to have been given
upon the taking of any action by the Trustee pursuant to and in accordance
with the certificate or opinion so furnished by such Expert or counsel.
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<PAGE> 67
IN WITNESS WHEREOF, CONSUMERS ENERGY COMPANY has caused this
Indenture to be signed and acknowledged by one of its Vice Presidents, and
attested by its Special Counsel, and THE CHASE MANHATTAN BANK has caused
this Indenture to be signed and acknowledged by one of its Vice
Presidents, and attested by one of its Vice Presidents, as of the day and
year first written above.
CONSUMERS ENERGY COMPANY
By /s/ A.M. Wright
____________________________
Name:
ATTEST:
/s/ Michael D. Van Hemert
_____________________________
THE CHASE MANHATTAN BANK,
AS TRUSTEE
By /s/ Glenn G. McKeever
______________________________
Name: Glenn G. McKeever
Vice President
ATTEST:
/s/ Andrew M. Deck
______________________________
Andrew M. Deck
Vice President<PAGE>
<PAGE> 68
State of Michigan )
)ss:
County of Wayne )
On the 13th day of February, 1998, before me personally came
ALAN M. WRIGHT, to me known, who, being by me duly sworn, did depose and
say that he resides in Ann Arbor, Michigan; that he is Senior Vice
President and Chief Financial Officer of Consumers Energy Company, a
Michigan corporation, and which executed the foregoing Indenture that he
knows the seal of said corporation; that the seal affixed to said
Indenture is such corporate seal; 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.
/s/ Sherry Ann White
____________________________________
Sherry Ann White
Notary Public
Wayne County, Michigan
My Commission Expires: March 7, 2002
<PAGE>
<PAGE> A-1
EXHIBIT A
FORM OF GLOBAL NOTE
PRIOR TO RELEASE DATE
REGISTERED REGISTERED
THIS NOTE IS A GLOBAL NOTE REGISTERED IN THE NAME OF THE
DEPOSITARY (REFERRED TO HEREIN) OR A NOMINEE THEREOF AND, UNLESS AND UNTIL
IT IS EXCHANGED IN WHOLE OR IN PART FOR THE INDIVIDUAL NOTES REPRESENTED
HEREBY, THIS GLOBAL NOTE MAY NOT BE TRANSFERRED EXCEPT 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 OR BY
THE DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE
OF SUCH SUCCESSOR DEPOSITARY. UNLESS THIS GLOBAL NOTE IS PRESENTED BY AN
AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (55 WATER
STREET, NEW YORK, NEW YORK), TO THE TRUSTEE FOR REGISTRATION OF TRANSFER,
EXCHANGE OR PAYMENT, AND ANY CERTIFICATE 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 IS MADE TO
CEDE & CO., ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
CONSUMERS ENERGY COMPANY
SENIOR NOTE, __% DUE ______ SERIES __
CUSIP: NUMBER:
ORIGINAL ISSUE DATE: PRINCIPAL AMOUNT:
INTEREST RATE: MATURITY DATE:
CONSUMERS ENERGY COMPANY, a corporation of the State of Michigan
(the "COMPANY"), for value received hereby promises to pay to Cede & Co.
or registered assigns, the principal sum of
DOLLARS
on the Maturity Date set forth above, and to pay interest thereon from
or from the most recent Interest Payment
Date to which interest has been paid or duly provided for, semiannually in
arrears on the and in each year, commencing
on the first such Interest Payment Date succeeding
, at the per annum Interest Rate set forth above, until
the principal hereof is paid or made available for payment. No interest
shall accrue on the Maturity Date, so long as the principal amount of this
Global Note is paid on the Maturity Date. The interest so payable and
punctually paid or duly provided for on any such Interest Payment Date
will, as provided in the Indenture, be paid to the Person in whose name
this Note is registered at the close of business on the Regular Record
Date for such interest, which shall be the or
, as the case may be, next preceding such Interest Payment Date; provided
that the first Interest Payment Date for any part of this Note, the
Original Issue Date of which is after a Regular Record Date but prior to
the applicable Interest Payment Date, shall be the Interest Payment Date
following the next succeeding Regular Record Date; and provided that
interest payable on the Maturity Date set forth above or, if applicable,
upon redemption or acceleration, shall be payable to the Person to whom
principal shall be payable. Except as otherwise provided in the Indenture
(as defined below), any such interest not so punctually paid or duly
provided for shall forthwith cease to be payable to the Holder on such
Regular Record Date and shall be paid to the Person in whose name this
Note is registered at the close of business on a Special Record Date for
the payment of such defaulted interest to be fixed by the Trustee, notice
whereof shall be given to Noteholders not more than fifteen days or fewer
than ten days prior to such Special Record Date.
This Global Note is a global security in respect of a duly
authorized issue of Senior Notes, __% Due _____, Series __ (the "NOTES OF
THIS SERIES", which term includes any Global Notes representing such
Notes) of the Company issued and to be issued under an Indenture dated as
of February 1, 1998, between the Company and The Chase Manhattan Bank, as
trustee (the "TRUSTEE", which term includes any successor Trustee under
the Indenture) and indentures supplemental thereto (collectively, the
"INDENTURE"). Under the Indenture, one or more series of notes may be
issued and, as used herein, the term "Notes" refers to the Notes of this
Series and any other outstanding series of Notes. Reference is hereby made
to the Indenture for a more complete statement of the respective rights,
limitations of rights, duties and immunities thereunder of the Company,
the Trustee and the Noteholders and of the terms upon which the Notes are
and are to be authenticated and delivered. This Global Note has been
issued in respect of the series designated on the first page hereof,
limited in aggregate principal amount to $ .
Prior to the Release Date (as hereinafter defined), the Notes will
be secured by first mortgage bonds (the "SENIOR NOTE FIRST MORTGAGE
BONDS") delivered by the Company to the Trustee for the benefit of the
Holders of the Notes, issued under the Indenture, dated as of September 1,
1945, from the Company to The Chase Manhattan Bank, as successor trustee
to City Bank Farmers Trust Company (the "MORTGAGE TRUSTEE"), as
supplemented and modified (collectively, the "FIRST MORTGAGE"). Reference
is made to the First Mortgage and the Indenture for a description of the
rights of the Trustee as holder of the Senior Note First Mortgage Bonds,
the property mortgaged and pledged, the nature and extent of the security
and the rights of the holders of first mortgage bonds, under the First
Mortgage and the rights of the Company and of the Mortgage Trustee in
respect thereof, the duties and immunities of the Mortgage Trustee and the
terms and conditions upon which the Senior Note First Mortgage Bonds are
secured and the circumstances under which additional first mortgage bonds
may be issued.
From and after such time as all first mortgage bonds (other than
Senior Note First Mortgage Bonds) issued under the First Mortgage have
been retired through payment, redemption or otherwise at, before or after
the maturity thereof (the "Release Date"), the Senior Note First Mortgage
Bonds shall cease to secure the Notes in any manner. In certain
circumstances prior to the Release Date as provided in the Indenture, the
Company is permitted to reduce the aggregate principal amount of a series
of Senior Note First Mortgage Bonds held by the Trustee, but in no event
prior to the Release Date to amount less than the aggregate outstanding
principal amount of the series of Notes initially issued contemporaneously
with such Senior Note First Mortgage Bonds.
Each Note of this Series shall be dated and issued as of the date
of its authentication by the Trustee and shall bear an Original Issue
Date. Each Note or Global Note issued upon transfer, exchange or
substitution of such Note or Global Note shall bear the Original Issue
Date of such transferred, exchanged or substituted Note or Global Note, as
the case may be.
[Insert redemption provisions, if any]
Interest payments for this Global Note shall be computed and paid
on the basis of a 360-day year of twelve 30-day months. If any Interest
Payment Date or date on which the principal of this Global Note is
required to be paid is not a Business Day, then payment of principal,
premium or interest 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
such Interest Payment Date or date on which the principal of this Global
Note is required to be paid and, in the case of timely payment thereof, no
interest shall accrue for the period from and after such Interest Payment
Date or the date on which the principal of this Global Note is required to
be paid.
The Company, at its option, and subject to the terms and
conditions provided in the Indenture, will be discharged from any and all
obligations in respect of the Notes (except for certain obligations
including obligations to register the transfer or exchange of Notes,
replace stolen, lost or mutilated Notes, maintain paying agencies and hold
monies for payment in trust, all as set forth in the Indenture) if the
Company deposits with the Trustee money, U.S. Government Obligations which
through the payment of interest thereon and principal thereof in
accordance with their terms will provide money, or a combination of money
and U.S. Government Obligations, in any event in an amount sufficient,
without reinvestment, to pay all the principal of and any premium and
interest on the Notes on the dates such payments are due in accordance
with the terms of the Notes.
If an Event of Default shall occur and be continuing, the
principal of the Notes may be declared due and payable in the manner and
with the effect provided in the Indenture and, upon such declaration, the
Trustee shall demand the redemption of the Senior Note First Mortgage
Bonds to the extent provided in the Indenture.
The Indenture permits, with certain exceptions as therein
provided, the amendment thereof and the modifications of the rights and
obligations of the Company and the rights of the Noteholders under the
Indenture at any time by the Company and the Trustee with the consent of
the Holders of not less than a majority in principal amount of the
outstanding Notes. Any such consent or waiver by the Holder of this Global
Note shall be conclusive and binding upon such Holder and upon all future
Holders of this Global Note and of any Note issued upon the registration
of transfer hereof or in exchange therefor or in lieu thereof whether or
not notation of such consent or waiver is made upon the Note.
As set forth in and subject to the provisions of the Indenture, no
Holder of any Notes will have any right to institute any proceeding with
respect to the Indenture or for any remedy thereunder unless such Holder
shall have previously given to the Trustee written notice of a continuing
Event of Default with respect to such Notes, the Holders of not less than
a majority in principal amount of the outstanding Notes affected by such
Event of Default shall have made written request and offered reasonable
indemnity to the Trustee to institute such proceeding as Trustee and the
Trustee shall have failed to institute such proceeding within 60 days;
provided that such limitations do not apply to a suit instituted by the
Holder hereof for the enforcement of payment of the principal of and any
premium or interest on this Note on or after the respective due dates
expressed here.
No reference herein to the Indenture and to provisions of this
Global Note or of the Indenture shall alter or impair the obligation of
the Company, which is absolute and unconditional, to pay the principal of
and any premium and interest on this Global Note at the times, places and
rates and the coin or currency prescribed in the Indenture.
As provided in the Indenture and subject to certain limitations
therein set forth, this Global Note may be transferred only as permitted
by the legend hereto.
The Indenture and the Notes shall be governed by, and construed in
accordance with, the laws of the State of Michigan.
Unless the certificate of authentication hereon has been executed
by the Trustee, directly or through an Authenticating Agent by manual
signature of an authorized officer, this Global Note shall not be entitled
to any benefit under the Indenture or be valid or obligatory for any
purpose.
All terms used in this Global Note which are defined in the
Indenture shall have the meanings assigned to them in the Indenture unless
otherwise indicated herein.
IN WITNESS WHEREOF, the Company has caused this instrument to be
duly executed.
CONSUMERS ENERGY COMPANY
Dated: By:______________________________
Title:___________________________
Attest:__________________________
Title:___________________________
TRUSTEE'S CERTIFICATE
OF AUTHENTICATION
This Note is one of the Notes of the series
herein designated, described or provided for
in the within-mentioned Indenture.
THE CHASE MANHATTAN BANK, As Trustee
By:______________________________
Authorized Officer<PAGE>
<PAGE>
ABBREVIATIONS
The following abbreviations, when used in the inscription on the
face of this instrument, shall be construed as though they were written
out in full according to applicable laws or regulations:
TEN COM -- as tenants in common UNIF GIFT
MIN ACT - _____ Custodian ______
(Cust) (Minor)
TEN ENT -- as tenants by the
entireties Under Uniform Gifts to Minors
JT TEN -- as joint tenants with right
of survivorship and not as tenants in
common
____________________
State
Additional abbreviations may also be used
though not in the above list.
____________________
FOR VALUE RECEIVED the undersigned hereby sell(s),
assign(s) and transfer(s) unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
Please print or typewrite name and address
including postal zip code of assignee
_________________________________________________
the within note and all rights thereunder, hereby
irrevocably constituting and appointing
attorney to transfer
said note on the books of the Company, with
full power of substitution in the premises.
Dated: ______________________
NOTICE: The signature to this
assignment must correspond with the
name as written upon the face of the
within instrument in every particular,
without alteration or enlargement or
any change whatever.<PAGE>
<PAGE> B-1
EXHIBIT B
FORM OF NOTE
PRIOR TO RELEASE DATE
REGISTERED REGISTERED
CONSUMERS ENERGY COMPANY
SENIOR NOTE, __% DUE _____, SERIES __
CUSIP: PRINCIPAL AMOUNT:
ORIGINAL ISSUE DATE: MATURITY DATE:
INTEREST RATE: NUMBER:
CONSUMERS ENERGY COMPANY, a corporation of the State of Michigan
(the "COMPANY"), for value received hereby promises to pay to
or registered assigns, the principal sum of
DOLLARS
on the Maturity Date set forth above, and to pay interest thereon from
or from the most recent date to which interest has
been paid or duly provided for, semiannually in arrears on
and in each year, commencing on the first such
Interest Payment Date succeeding , at the per
annum Interest Rate set forth above, until the principal hereof is paid or
made available for payment. No interest shall accrue on the Maturity Date,
so long as the principal amount of this Note is paid in full on the
Maturity Date. The interest so payable and punctually paid or duly
provided for on any such Interest Payment Date will, as provided in the
Indenture (as defined below), be paid to the Person in whose name this
Note is registered at the close of business on the Regular Record Date for
such interest, which shall be the or
, as the case may be, next preceding such Interest Payment Date; provided
that the first Interest Payment Date for any Note of this Series, the
Original Issue Date of which is after a Regular Record Date but prior to
the applicable Interest Payment Date, shall be the Interest Payment Date
following the next succeeding Regular Record Date; and provided, further,
that interest payable on the Maturity Date set forth above or, if
applicable, upon redemption or acceleration, shall be payable to the
Person to whom principal shall be payable. Except as otherwise provided in
the Indenture (referred to on the reverse hereof), any such interest not
so punctually paid or duly provided for will forthwith cease to be payable
to the Holder on such Regular Record Date and shall be paid to the Person
in whose name this Note is registered at the close of business on a
Special Record Date for the payment of such defaulted interest to be fixed
by the Trustee, notice whereof shall be given to Noteholders not more than
fifteen days nor fewer than ten days prior to such Special Record Date.
Principal, applicable premium and interest due at the maturity of this
Note shall be payable in immediately available funds when due upon
presentation and surrender of this Note at the corporate trust office of
the Trustee or at the authorized office of any paying agent in the Borough
of Manhattan, the City and State of New York. Interest on this Note (other
than interest payable at maturity) shall be paid by check in clearinghouse
funds to the Holder as its name appears on the register; provided that if
the Trustee receives a written request from any Holder of Notes (as
defined below), the aggregate principal amount of all of which having the
same Interest Payment Date as this Note equals or exceeds $10,000,000, on
or prior to the applicable Regular Record Date, interest on this Note
shall be paid by wire transfer of immediately available funds to a bank
within the continental United States designated by such Holder in its
request or by direct deposit into the account of such Holder designated by
such Holder in its request if such account is maintained with the Trustee
or any paying agent.
REFERENCE IS HEREBY MADE TO THE FURTHER PROVISIONS OF THIS NOTE
SET FORTH IN FULL ON THE REVERSE HEREOF, WHICH FURTHER PROVISIONS SHALL
FOR ALL PURPOSES HAVE THE SAME EFFECT AS IF SET FORTH IN FULL AT THIS
PLACE.
Unless the certificate of authentication hereon has been executed
by the Trustee referred to on the reverse hereof, directly or through an
Authenticating Agent by manual signature of an authorized officer, this
Note shall not be entitled to any benefit under the Indenture or be valid
or obligatory for any purpose.
<PAGE>
<PAGE>
IN WITNESS WHEREOF, the Company has caused this instrument to be
duly executed.
CONSUMERS ENERGY COMPANY
Dated: By: ____________________________
Title:__________________________
Attest:_________________________
Title:__________________________
TRUSTEE'S CERTIFICATE
OF AUTHENTICATION
This Note is one of the Notes of the series herein
designated, described or provided for in the within-
mentioned Indenture.
THE CHASE MANHATTAN BANK, As Trustee
By:_____________________________________
Authorized Officer<PAGE>
<PAGE>
[FORM OF REVERSE OF NOTE]
CONSUMERS ENERGY COMPANY SENIOR NOTE, __% DUE ____, SERIES __
This Note is one of a duly authorized issue of Senior Notes, __%
Due ____, Series __ (the "NOTES OF THIS SERIES") of the Company issued and
to be issued under an Indenture dated as of February 1, 1998 between the
Company and The Chase Manhattan Bank, as trustee (the "TRUSTEE", which
term includes any successor Trustee under the Indenture) and indentures
supplemental thereto (collectively, the "INDENTURE"). Under the
Indenture, one or more series of notes may be issued and, as used herein,
the term "Notes" refers to the Notes of this Series and any other
outstanding series of Notes. Reference is hereby made to the Indenture
for a more complete statement of the respective rights, limitations of
rights, duties and immunities thereunder of the Company, the Trustee and
the Noteholders and of the terms upon which the Notes are and are to be
authenticated and delivered. This Note is one of the series designated on
the face hereof, limited in aggregate principal amount to $
.
Prior to the Release Date (as hereinafter defined), the Notes will
be secured by first mortgage bonds (the "SENIOR NOTE FIRST MORTGAGE
BONDS") delivered by the Company to the Trustee for the benefit of the
Holders of the Notes, issued under the Trust Indenture, dated as of
September 1, 1945, from the Company to The Chase Manhattan Bank, as
successor trustee to City Bank Farmers Trust Company (the "MORTGAGE
TRUSTEE"), as supplemented and modified (collectively, the "FIRST
MORTGAGE"). Reference is made to the First Mortgage and the Indenture for
a description of the rights of the Trustee as holder of the Senior Note
First Mortgage Bonds, the property mortgaged and pledged, the nature and
extent of the security and the rights of the holders of first mortgage
bonds, under the First Mortgage and the rights of the Company and of the
Mortgage Trustee in respect thereof, the duties and immunities of the
Mortgage Trustee and the terms and conditions upon which the Senior Note
First Mortgage Bonds are secured and the circumstances under which
additional first mortgage bonds may be issued.
From and after such time as all first mortgage bonds (other than
Senior Note First Mortgage Bonds) issued under the First Mortgage have
been retired through payment, redemption or otherwise at, before or after
the maturity thereof (the "Release Date"), the Senior Note First Mortgage
Bonds shall cease to secure the notes in any manner. In certain
circumstances prior to the Release Date as provided in the Indenture, the
Company is permitted to reduce the aggregate principal amount of a series
of Senior Note First Mortgage Bonds held by the Trustee, but in no event
prior to the Release Date to amount less than the aggregate outstanding
principal amount of the series of Notes initially issued contemporaneously
with such Senior Note First Mortgage Bonds.
[Insert redemption provisions, if any]
Interest payments for this Note shall be computed and paid on the
basis of a 360-day year of twelve 30-day months. If any Interest Payment
Date or the date on which the principal of this Note is required to paid
is not a Business Day, then payment of principal, premium or interest 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 such Interest Payment
Date or the date on which the principal of this Note is required to be
paid, and, in the case of timely payment thereof, no interest shall accrue
for the period from and after such Interest Payment Date or the date on
which the principal of this Note is required to be paid.
The Company, at its option, and subject to the terms and
conditions provided in the Indenture, will be discharged from any and all
obligations in respect of the Notes (except for certain obligations
including obligations to register the transfer or exchange of Notes,
replace stolen, lost or mutilated Notes, maintain paying agencies and hold
monies for payment in trust, all as set forth in the Indenture) if the
Company deposits with the Trustee money, U.S. Government Obligations which
through the payment of interest thereon and principal thereof in
accordance with their terms will provide money, or a combination of money
and U.S. Government Obligations, in any event in an amount sufficient,
without reinvestment, to pay all the principal of and any premium and
interest on the Notes on the dates such payments are due in accordance
with the terms of the Notes.
If an Event of Default shall occur and be continuing, the
principal of the Notes may be declared due and payable in the manner and
with the effect provided in the Indenture and, upon such declaration, the
Trustee shall demand the redemption of the Senior Note First Mortgage
Bonds to the extent provided in the Indenture.
The Indenture permits, with certain exceptions as therein
provided, the amendment thereof and the modifications of the rights and
obligations of the Company and the rights of the Noteholders under the
Indenture at any time by the Company and the Trustee with the consent of
the Holders of not less than a majority in principal amount of the
outstanding Notes. Any such consent or waiver by the Holder of this Note
shall be conclusive and binding upon such Holder and upon all future
Holders of this Note and of any Note issued upon the registration of
transfer hereof or in exchange therefor in lieu thereof whether or not
notation of such consent or waiver is made upon the Note.
As set forth in and subject to the provisions of the Indenture, no
Holder of any Notes will have any right to institute any proceeding with
respect to the Indenture or for any remedy thereunder unless such Holder
shall have previously given to the Trustee written notice of a continuing
Event of Default with respect to such Notes, the Holders of not less than
a majority in principal amount of the outstanding Notes affected by such
Event of Default shall have made written request and offered reasonable
indemnity to the Trustee to institute such proceeding as Trustee and the
Trustee shall have failed to institute such proceeding within 60 days;
provided that such limitations do not apply to a suit instituted by the
Holder hereof for the enforcement of payment of the principal of and any
premium or interest on this Note on or after the respective due dates
expressed here.
No reference herein to the Indenture and to provisions of this
Note or of the Indenture shall alter or impair the obligation of the
Company, which is absolute and unconditional, to pay the principal of and
any premium and interest on this Note at the times, places and rates and
the coin or currency prescribed in the Indenture.
As provided in the Indenture and subject to certain limitations
therein set forth, the transfer of this Note is registrable in the Note
register. Upon surrender of this Note for registration or transfer at the
corporate trust office of the Trustee or such other office or agency as
may be designated by the Company in the Borough of Manhattan, the City and
State of New York, endorsed by or accompanied by a written instrument of
transfer in form satisfactory to the Company and the Note registrar, duly
executed by the Holder hereof or the attorney in fact of such Holder duly
authorized in writing, one or more new Notes of this Series of like tenor
and of authorized denominations and for the same aggregate principal
amount will be issued to the designated transferee or transferees.
The Notes of this Series are issuable only in registered form,
without coupons, in denominations of $1,000 and any integral multiple
thereof. As provided in the Indenture and subject to certain limitations
therein set forth, Notes of this Series are exchangeable for a like
aggregate principal amount of Notes of this Series of like tenor and of a
different authorized denomination, as requested by the Holder surrendering
the same.
No service charge shall be made for any such registration of
transfer or exchange but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge payable in
connection therewith.
Prior to due presentment of this Note for registration of
transfer, the Company, the Trustee and any agent of the Company or the
Trustee may treat the Person in whose name this Note is registered as the
owner thereof for all purposes, whether or not this Note is overdue, and
neither the Company, the Trustee nor any such agent shall be affected by
notice to the contrary.
The Indenture and the Notes shall be governed by, and construed in
accordance with, the laws of the State of Michigan.
All terms used in this Note which are defined in the Indenture
shall have the meanings assigned to them in the Indenture.<PAGE>
<PAGE>
ABBREVIATIONS
The following abbreviations, when used in the inscription on the
face of this instrument, shall be construed as though they were written
out in full according to applicable laws or regulations:
TEN COM -- as tenants in common UNIF GIFT
MIN ACT -_____ Custodian ______
(Cust) (Minor)
TEN ENT -- as tenants by the
entireties Under Uniform Gifts to Minors
JT TEN -- as joint tenants with right
of survivorship and not as tenants in
common ________________________________
State
Additional abbreviations may also be used
though not in the above list.
____________________
FOR VALUE RECEIVED the undersigned hereby sell(s),
assign(s) and transfer(s) unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
Please print or typewrite name and address
including postal zip code of assignee
_________________________________________________
the within note and all rights thereunder, hereby
irrevocably constituting and appointing
attorney to transfer
said note on the books of the Company, with
full power of substitution in the premises.
Dated: ______________________
NOTICE: The signature to this
assignment must correspond with
the name as written upon the face
of the within instrument in every
particular, without alteration or
enlargement or any change
whatever.<PAGE>
<PAGE>
EXHIBIT C
FORM OF GLOBAL NOTE FOLLOWING RELEASE DATE
REGISTERED REGISTERED
THIS NOTE IS A GLOBAL NOTE REGISTERED IN THE NAME OF THE
DEPOSITARY (REFERRED TO HEREIN) OR A NOMINEE THEREOF AND, UNLESS AND UNTIL
IT IS EXCHANGED IN WHOLE OR IN PART FOR THE INDIVIDUAL NOTES REPRESENTED
HEREBY, THIS GLOBAL NOTE MAY NOT BE TRANSFERRED EXCEPT 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 OR BY
THE DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE
OF SUCH SUCCESSOR DEPOSITARY. UNLESS THIS GLOBAL NOTE IS PRESENTED BY AN
AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (55 WATER
STREET, NEW YORK, NEW YORK), TO THE TRUSTEE FOR REGISTRATION OF TRANSFER,
EXCHANGE OR PAYMENT, AND ANY CERTIFICATE 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 IS MADE TO
CEDE & CO., ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
CONSUMERS ENERGY COMPANY
SENIOR NOTE, __% DUE ____, SERIES __
CUSIP: NUMBER:
ORIGINAL ISSUE DATE: PRINCIPAL AMOUNT:
INTEREST RATE: MATURITY DATE:
CONSUMERS ENERGY COMPANY, a corporation of the State of Michigan
(the "COMPANY"), for value received hereby promises to pay to Cede & Co.
or registered assigns, the principal sum of
DOLLARS
on the Maturity Date set forth above, and to pay interest thereon
or from the most recent Interest Payment Date
to which interest has been paid or duly provided for, semiannually in
arrears on the and in each year,
commencing on the first such Interest Payment Date succeeding
, at the per annum Interest Rate set forth
above, until the principal hereof is paid or made available for payment.
No interest shall accrue on the Maturity Date, so long as the principal
amount of this Global Note is paid on the Maturity Date. The interest so
payable and punctually paid or duly provided for on any such Interest
Payment Date will, as provided in the Indenture, be paid to the Person in
whose name this Note is registered at the close of business on the Regular
Record Date for such interest, which shall be the or
, as the case may be, next preceding such Interest Payment
Date; provided, that the first Interest Payment Date for any part of this
Note, the Original Issue Date of which is after a Regular Record Date but
prior to the applicable Interest Payment Date, shall be the Interest
Payment Date following the next succeeding Regular Record Date; and
provided, that interest payable on the Maturity Date set forth above or,
if applicable, upon redemption or acceleration, shall be payable to the
Person to whom principal shall be payable. Except as otherwise provided in
the Indenture (as defined below), any such interest not so punctually paid
or duly provided for will forthwith cease to be payable to the Holder on
such Regular Record Date and shall be paid to the Person in whose name
this Note is registered at the close of business on a Special Record Date
for the payment of such defaulted interest to be fixed by the Trustee,
notice whereof shall be given to Noteholders not more than fifteen days or
fewer than ten days prior to such Special Record Date.
This Global Note is a global security in respect of a duly
authorized issue of Senior Notes, __% Due ____, Series __(the "NOTES OF
THIS SERIES", which term includes any Global Notes representing such
Notes) of the Company issued and to be issued under an Indenture dated as
of February 1, 1998 between the Company and The Chase Manhattan Bank, as
trustee (herein called the "TRUSTEE", which term includes any successor
Trustee under the Indenture) and indentures supplemental thereto
(collectively, the "INDENTURE"). Under the Indenture, one or more series
of notes may be issued and, as used herein, the term "Notes" refers to the
Notes of this Series and any other outstanding series of Notes. Reference
is hereby made to the Indenture for a more complete statement of the
respective rights, limitations of rights, duties and immunities thereunder
of the Company, the Trustee and the Noteholders and of the terms upon
which the Notes are and are to be authenticated and delivered. This Global
Note has been issued in respect of the series designated on the first page
hereof, limited in aggregate principal amount to $ .
Each Note of this Series shall be dated and issued as of the date
of its authentication by the Trustee and shall bear an Original Issue
Date. Each Note or Global Note issued upon transfer, exchange or
substitution of such Note or Global Note shall bear the Original Issue
Date of such transferred, exchanged or substituted Note or Global Note, as
the case may be.
[Insert redemption provisions, if any]
Interest payments for this Global Note shall be computed and paid
on the basis of a 360-day year of twelve 30-day months. In any case where
any Interest Payment Date or date on which the principal of this Global
Note is required to be paid is not a Business Day, then payment of
principal, premium or interest 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 such Interest Payment Date or date on which the principal of
this Global Note is required to be paid and, in the case of timely payment
thereof, no interest shall accrue for the period from and after such
Interest Payment Date or the date on which the principal of this Global
Note is required to be paid.
The Company, at its option, and subject to the terms and
conditions provided in the Indenture, will be discharged from any and all
obligations in respect of the Notes (except for certain obligations
including obligations to register the transfer or exchange of Notes,
replace stolen, lost or mutilated Notes, maintain paying agencies and hold
monies for payment in trust, all as set forth in the Indenture) if the
Company deposits with the Trustee money, U.S. Government Obligations which
through the payment of interest thereon and principal thereof in
accordance with their terms will provide money, or a combination of money
and U.S. Government Obligations, in any event in an amount sufficient,
without reinvestment, to pay all the principal of and any premium and
interest on the Notes on the dates such payments are due in accordance
with the terms of the Notes.
If an Event of Default shall occur and be continuing, the
principal of the Notes may be declared due and payable in the manner and
with the effect provided in the Indenture.
The Indenture permits, with certain exceptions as therein
provided, the amendment thereof and the modifications of the rights and
obligations of the Company and the rights of the Noteholders under the
Indenture at any time by the Company and the Trustee with the consent of
the Holders of not less than a majority in principal amount of the
outstanding Notes. Any such consent or waiver by the Holder of this Global
Note shall be conclusive and binding upon such Holder and upon all future
Holders of this Global Note and of any Note issued upon the registration
of transfer hereof or in exchange therefor or in lieu thereof whether or
not notation of such consent or waiver is made upon the Note.
As set forth in and subject to the provisions of the Indenture, no
Holder of any Notes will have any right to institute any proceeding with
respect to the Indenture or for any remedy thereunder unless such Holder
shall have previously given to the Trustee written notice of a continuing
Event of Default with respect to such Notes, the Holders of not less than
a majority in principal amount of the outstanding Notes affected by such
Event of Default shall have made written request and offered reasonable
indemnity to the Trustee to institute such proceeding as Trustee and the
Trustee shall have failed to institute such proceeding within 60 days;
provided, however, that such limitations do not apply to a suit instituted
by the Holder hereof for the enforcement of payment of the principal of
and any premium or interest on this Note on or after the respective due
dates expressed here.
No reference herein to the Indenture and to provisions of this
Global Note or of the Indenture shall alter or impair the obligation of
the Company, which is absolute and unconditional, to pay the principal of
and any premium and interest on this Global Note at the times, places and
rates and the coin or currency prescribed in the Indenture.
As provided in the Indenture and subject to certain limitations
therein set forth, this Global Note may be transferred only as permitted
by the legend hereto.
The Indenture and the Notes shall be governed by, and construed in
accordance with, the laws of the State of Michigan.
Unless the certificate of authentication hereon has been executed
by the Trustee, directly or through an Authenticating Agent by manual
signature of an authorized officer, this Global Note shall not be entitled
to any benefit under the Indenture or be valid or obligatory for any
purpose.
All terms used in this Global Note which are defined in the
Indenture shall have the meanings assigned to them in the Indenture unless
otherwise indicated herein.
IN WITNESS WHEREOF, the Company has caused this instrument to be
duly executed.
CONSUMERS ENERGY COMPANY
Dated: By: ___________________________
Title: ________________________
Attest: _______________________
Title: ________________________
TRUSTEE'S CERTIFICATE
OF AUTHENTICATION
This Note is one of the Notes of
the series herein designated,
described or provided for in the
within-mentioned Indenture.
THE CHASE MANHATTAN BANK, As Trustee
By: ________________________________
Authorized Officer<PAGE>
<PAGE>
ABBREVIATIONS
The following abbreviations, when used in the inscription on the
face of this instrument, shall be construed as though they were written
out in full according to applicable laws or regulations:
TEN COM -- as tenants in common UNIF GIFT
MIN ACT -_____ Custodian ______
(Cust) (Minor)
TEN ENT -- as tenants by the
entireties Under Uniform Gifts to Minors
JT TEN -- as joint tenants with right
of survivorship and not as tenants in
common _______________________________
State
Additional abbreviations may also be used
though not in the above list.
____________________
FOR VALUE RECEIVED the undersigned hereby sell(s),
assign(s) and transfer(s) unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
Please print or typewrite name and address
including postal zip code of assignee
______________________________________________
the within note and all rights thereunder,
hereby irrevocably constituting and appointing
attorney to transfer
said note on the books of the Company, with
full power of substitution in the premises.
Dated: ______________________
NOTICE: The signature to this assignment
must correspond with the name as written
upon the face of the within instrument in
every particular, without alteration or
enlargement or any change whatever.<PAGE>
<PAGE> D-1
EXHIBIT D
FORM OF NOTE FOLLOWING RELEASE DATE
REGISTERED REGISTERED
CONSUMERS ENERGY COMPANY
SENIOR NOTE, __% DUE ____, SERIES __
CUSIP: PRINCIPAL AMOUNT:
ORIGINAL ISSUE DATE: MATURITY DATE:
INTEREST RATE: NUMBER:
CONSUMERS ENERGY COMPANY, a corporation of the State of Michigan
(the "COMPANY"), for value received hereby promises to pay to
or registered assigns, the principal sum of
DOLLARS
on the Maturity Date set forth above, and to pay interest thereon from
or from the most recent date to which interest
has been paid or duly provided for, semiannually in arrears on
and in each year, commencing on the first such Interest
Payment Date succeeding , at the per annum
Interest Rate set forth above, until the principal hereof is paid or made
available for payment. No interest shall accrue on the Maturity Date, so
long as the principal amount of this Note is paid in full on the Maturity
Date. The interest so payable and punctually paid or duly provided for on
any such Interest Payment Date will, as provided in the Indenture (as
defined below), be paid to the Person in whose name this Note is
registered at the close of business on the Regular Record Date for such
interest, which shall be the or , as the case
may be, next preceding such Interest Payment Date; provided that the first
Interest Payment Date for any Note, the Original Issue Date of which is
after a Regular Record Date but prior to the applicable Interest Payment
Date, shall be the Interest Payment Date following the next succeeding
Regular Record Date; and provided, that interest payable on the Maturity
Date set forth above or, if applicable, upon redemption or acceleration,
shall be payable to the Person to whom principal shall be payable. Except
as otherwise provided in the Indenture (referred to on the reverse
hereof), any such interest not so punctually paid or duly provided for
will forthwith cease to be payable to the Holder on such Regular Record
Date and shall be paid to the Person in whose name this Note is registered
at the close of business on a Special Record Date for the payment of such
defaulted interest to be fixed by the Trustee, notice whereof shall be
given to Noteholders not more than fifteen days nor fewer than ten days
prior to such Special Record Date. Principal, applicable premium and
interest due at the maturity of this Note shall be payable in immediately
available funds when due upon presentation and surrender of this Note at
the corporate trust office of the Trustee or at the authorized office of
any paying agent in the Borough of Manhattan, the City and State of New
York. Interest on this Note (other than interest payable at maturity)
shall be paid by check in clearinghouse funds to the Holder as its name
appears on the register; provided, that if the Trustee receives a written
request from any Holder of Notes (as defined below), the aggregate
principal amount of all of which having the same Interest Payment Date as
this Note equals or exceeds $10,000,000, on or prior to the applicable
Regular Record Date, interest on the Note shall be paid by wire transfer
of immediately available funds to a bank within the continental United
States (designated by such Holder in its request or by direct deposit into
the account of such Holder designated by such Holder in its request if
such account is maintained with the Trustee or any paying agent.
REFERENCE IS HEREBY MADE TO THE FURTHER PROVISIONS OF THIS NOTE
SET FORTH IN FULL ON THE REVERSE HEREOF, WHICH FURTHER PROVISIONS SHALL
FOR ALL PURPOSES HAVE THE SAME EFFECT AS IF SET FORTH IN FULL AT THIS
PLACE.
<PAGE>
<PAGE>
Unless the certificate of authentication hereon has been executed
by the Trustee referred to on the reverse hereof, directly or through an
Authenticating Agent by manual signature of an authorized officer, this
Note shall not be entitled to any benefit under the Indenture or be valid
or obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this instrument to be
duly executed.
CONSUMERS ENERGY COMPANY
Dated: By: _____________________________
Title:___________________________
Attest: _________________________
Title: ________________________
TRUSTEE'S CERTIFICATE
OF AUTHENTICATION
This Note is one of the Notes of the series
herein designated, described or provided for
in the within-mentioned Indenture.
THE CHASE MANHATTAN BANK, As Trustee
By:__________________________________
Authorized Officer<PAGE>
<PAGE>
[FORM OF REVERSE OF NOTE]
CONSUMERS ENERGY COMPANY
SENIOR NOTE, __% DUE ____, SERIES __
This Note is one of a duly authorized issue of Senior Notes, __%
Due ____, Series __ Series (the "NOTES OF THIS SERIES") of the Company
issued and to be issued under an Indenture dated as of February 1, 1998,
between the Company and The Chase Manhattan Bank, as trustee (herein
called the "TRUSTEE", which term includes any successor Trustee under the
Indenture) and indentures supplemental thereto (collectively, the
"INDENTURE"). Under the Indenture, one or more series of notes may be
issued and, as used herein, the term "Notes" refers to the Notes of this
Series and any other outstanding series of Notes. Reference is hereby made
to the Indenture for a more complete statement of the respective rights,
limitations of rights, duties and immunities thereunder of the Company,
the Trustee and the Noteholders and of the terms upon which the Notes are
and are to be authenticated and delivered. This Note is one of the series
designated on the face hereof, limited in aggregate principal amount to
$ .
[Insert redemption provisions, if any]
[If less than all of this Note is to be redeemed, the Trustee
shall select, in such manner as it shall deem appropriate and fair, the
particular portion of this Note to be redeemed.] Notice of redemption
shall be given by mail not less than 30 nor more than 60 days prior to the
date fixed for redemption to the Holder of this Note, all as provided in
the Indenture. On and after the date fixed for redemption (unless the
Company shall default in the payment of this Note or a portion hereof to
be redeemed at the applicable redemption price), interest on this Note or
a portion hereof so called for redemption shall cease to accrue.
Interest payments for this Note shall be computed and paid on the
basis of a 360-day year of twelve 30-day months. In any case where any
Interest Payment Date or the date on which the principal of this Note is
required to paid is not a Business Day, then payment of principal, premium
or interest 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 such
Interest Payment Date or the date on which the principal of this Note is
required to be paid, and, in the case of timely payment thereof, no
interest shall accrue for the period from and after such Interest Payment
Date or the date on which the principal of this Note is required to be
paid.
The Company, at its option, and subject to the terms and
conditions provided in the Indenture, will be discharged from any and all
obligations in respect of the Notes (except for certain obligations
including obligations to register the transfer or exchange of Notes,
replace stolen, lost or mutilated Notes, maintain paying agencies and hold
monies for payment in trust, all as set forth in the Indenture) if the
Company deposits with the Trustee money, U.S. Government Obligations which
through the payment of interest thereon and principal thereof in
accordance with their terms will provide money, or a combination of money
and U.S. Government Obligations, in any event in an amount sufficient,
without reinvestment, to pay all the principal of and any premium and
interest on the Notes on the dates such payments are due in accordance
with the terms of the Notes.
If an Event of Default shall occur and be continuing, the
principal of the Notes may be declared due and payable in the manner and
with the effect provided in the Indenture.
The Indenture permits, with certain exceptions as therein
provided, the amendment thereof and the modifications of the rights and
obligations of the Company and the rights of the Noteholders under the
Indenture at any time by the Company and the Trustee with the consent of
the Holders of not less than a majority in principal amount of the
outstanding Notes. Any such consent or waiver by the Holder of this Note
shall be conclusive and binding upon such Holder and upon all future
Holders of this Note and of any Note issued upon the registration of
transfer hereof or in exchange therefor in lieu thereof whether or not
notation of such consent or waiver is made upon the Note.
As set forth in and subject to the provisions of the Indenture, no
Holder of any Notes will have any right to institute any proceeding with
respect to the Indenture or for any remedy thereunder unless such Holder
shall have previously given to the Trustee written notice of a continuing
Event of Default with respect to such Notes, the Holders of not less than
a majority in principal amount of the outstanding Notes affected by such
Event of Default shall have made written request and offered reasonable
indemnity to the Trustee to institute such proceeding as Trustee and the
Trustee shall have failed to institute such proceeding within 60 days;
provided, however, that such limitations do not apply to a suit instituted
by the Holder hereof for the enforcement of payment of the principal of
and any premium or interest on this Note on or after the respective due
dates expressed here.
No reference herein to the Indenture and to provisions of this
Note or of the Indenture shall alter or impair the obligation of the
Company, which is absolute and unconditional, to pay the principal of and
any premium and interest on this Note at the times, places and rates and
the coin or currency prescribed in the Indenture.
As provided in the Indenture and subject to certain limitations
therein set forth, the transfer of this Note is registrable in the Note
register. Upon surrender of this Note for registration or transfer at the
corporate trust office of the Trustee or such other office or agency as
may be designated by the Company in the Borough of Manhattan, the City and
State of New York, endorsed by or accompanied by a written instrument of
transfer in form satisfactory to the Company and the Note registrar, duly
executed by the Holder hereof or the attorney in fact of such Holder duly
authorized in writing, one or more new Notes of this Series of like tenor
and of authorized denominations and for the same aggregate principal
amount will be issued to the designated transferee or transferees.
The Notes of this Series are issuable only in registered form,
without coupons, in denominations of $1,000 and any integral multiple
thereof. As provided in the Indenture and subject to certain limitations
therein set forth, Notes of this Series are exchangeable for a like
aggregate principal amount of Notes of this Series of like tenor and of a
different authorized denomination, as requested by the Holder surrendering
the same.
No service charge shall be made for any such registration of
transfer or exchange but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge payable in
connection therewith.
Prior to due presentment of this Note for registration of
transfer, the Company, the Trustee and any agent of the Company or the
Trustee may treat the Person in whose name this Note is registered as the
owner thereof for all purposes, whether or not this Note is overdue, and
neither the Company, the Trustee nor any such agent shall be affected by
notice to the contrary.
The Indenture and the Notes shall be governed by, and construed in
accordance with, the laws of the State of Michigan.
All terms used in this Note which are defined in the Indenture
shall have the meanings assigned to them in the Indenture.<PAGE>
<PAGE>
ABBREVIATIONS
The following abbreviations, when used in the inscription on the
face of this instrument, shall be construed as though they were written
out in full according to applicable laws or regulations:
TEN COM -- as tenants in common UNIF GIFT
MIN ACT -_____ Custodian ______
(Cust) (Minor)
TEN ENT -- as tenants by the
entireties Under Uniform Gifts to Minors
JT TEN -- as joint tenants with right
of survivorship and not as tenants in
common _____________________________
State
Additional abbreviations may also be used
though not in the above list.
____________________
FOR VALUE RECEIVED the undersigned hereby sell(s),
assign(s) and transfer(s) unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
Please print or typewrite name and address
including postal zip code of assignee
______________________________________________
the within note and all rights thereunder,
hereby irrevocably constituting and appointing
attorney to transfer
said note on the books of the Company, with
full power of substitution in the premises.
Dated: ______________________
NOTICE: The signature to this
assignment must correspond with
the name as written upon the face
of the within instrument in every
particular, without alteration or
enlargement or any change
whatever.<PAGE>
<PAGE> E-1
EXHIBIT E
Modifications of First Mortgage
The deletion from the First Mortgage of Section 7.07 thereof
(other than the first paragraph of such Section) and all references
thereto and the amendment of Section 4.01 of the First Mortgage to add
thereto a new paragraph reading as follows:
Notwithstanding any other provision of this Indenture, to the
extent that net property additions have been taken as a credit to
satisfy any maintenance and replacement requirements hereunder
which maintenance and replacement requirements shall no longer be
in effect, such net property additions may again be used for any
other purpose hereunder, as if the same had never been so taken as
a credit to satisfy such maintenance and replacement requirements
and irrespective of the date or dates such net property additions
were made, acquired, constructed or erected.
The deletion from the First Mortgage of any provisions added by
supplemental indentures for the establishment of sinking funds or
improvement funds ("S&I Funds") and all references thereto (to the
extent such deletions may be made pursuant to the vote or consent
of holders of First Mortgage Bonds other than those of the series
so established) and the amendment of Section 4.01 of the First
Mortgage to add thereto a new paragraph reading as follows:
Notwithstanding any other provision of this Indenture, to
the extent that net property additions have been applied
to satisfy any sinking fund or improvement fund
requirements hereunder which sinking or improvement fund
shall no longer be in effect, such net property additions
may again be used for any other purpose hereunder, as if
the same had never been so applied to satisfy such sinking
or improvement fund requirements and irrespective of the
date or dates such net property additions were made,
acquired, constructed or erected.
The deletion from the First Mortgage of Sections 7.15 and 7.16
thereof and all references thereto.
(a) The modification of Section 4.01 of the
First Mortgage by changing the percentage set forth in the
first sentence thereto from "sixty per centum (60%)" to
"seventy per centum (70%)";
(b) The modification of any provisions
establishing S&I Funds (to the extent not otherwise
eliminated) by permitting the requirements thereof to be
satisfied by the application of net property additions in
an amount equal to 70% of such additions instead of 60%;
and
(c) The modification of Section 7.05 of the
First Mortgage by changing the percentage set forth in the
first sentence thereof from "sixty per centum (60%)" to
"seventy per centum (70%)";
The deletion from the First Mortgage of Section 1.03 thereof and
all references thereto and to the requirements that the Company
deliver a net earnings certificate for any purpose under the First
Mortgage.
The modification of Section 7.06 of the First Mortgage by changing
the dollar figure in the first sentence thereof from "$50,000" to
"the greater of (i) $5,000,000 and (ii) three per centum (3%) of
the aggregate principal amount of bonds then outstanding
hereunder", and to make a correlative modification to the fourth
paragraph of such Section.
The modification of subsection (1) of Section 10.02 of the First
Mortgage by (i) deleting the proviso at the end of such
subsection, (ii) deleting the word "and" immediately before clause
(c) of such subsection; and (iii) adding the following in place of
such deleted proviso:
; and (d) any property, the fair value of which
shall be stated in an engineer's certificate delivered to
the Trustee, which property, as stated in such engineer's
certificate, is deemed by the Company to be desirable to
be released; provided that (i) the aggregate fair value of
all property released pursuant to this clause (d) in any
calendar year shall not exceed an amount equal to the
greater of (x) $5,000,0000 and (y) three per centum (3%)
of the aggregate principal amount of bonds then
outstanding hereunder; (ii) said engineer's certificate
shall also state that such release will not impair the
security under this Indenture in contravention of the
provisions thereof; and (iii) the consideration, if any,
received by the Company upon the sale or disposition of
any property so released shall be retained by the Company
without any obligation to deposit the same with the
Trustee in compliance with any other provision of this
Article X.
The modification of clause (b) of subsection (3) of Section 10.03
of the First Mortgage by (i) changing the percentage set forth
therein from "sixty per centum (60%)" to "seventy per centum
(70%)", and (ii) deleting the further proviso which ends such
clause.
9. The modification of Section 9.05 of the First Mortgage by
deleting the following language from the end of the first sentence of such
section: ", or not exceeding one hundred ten per centum (110%) of the
principal of bonds not so redeemable, plus accrued interest".
<PAGE>
SIXTH SUPPLEMENTAL INDENTURE
dated as of January 13, 1998
____________________
This Sixth Supplemental Indenture, dated as of the 13th day
of January, 1998 between CMS Energy Corporation, a corporation duly
organized and existing under the laws of the State of Michigan
(hereinafter called the "Issuer") and having its principal office at
Fairlane Plaza South, Suite 1100, 330 Town Center Drive, Dearborn,
Michigan 48126, and NBD Bank, a Michigan banking corporation (hereinafter
called the "Indenture Trustee") and having its principal Corporate Trust
Office at 611 Woodward Avenue, Detroit, Michigan 48226.
WITNESSETH:
WHEREAS, the Issuer and the Indenture Trustee (formerly
known as NBD Bank, National Association) entered into an Indenture, dated
as of September 15, 1992 (the "Original Indenture"), pursuant to which one
or more series of debt securities of the Issuer (the "Securities") may be
issued from time to time; and
WHEREAS, Section 2.3 of the Original Indenture permits the
terms of any series of Securities to be established in an indenture
supplemental to the Original Indenture; and
WHEREAS, Section 8.1(e) of the Original Indenture provides
that a supplemental indenture may be entered into by the Issuer and the
Indenture Trustee without the consent of any Holders of the Securities to
establish the form and terms of the Securities of any series; and
WHEREAS, the Issuer has requested the Indenture Trustee to
join with it in the execution and delivery of this Sixth Supplemental
Indenture in order to supplement and amend the Original Indenture by,
among other things, establishing the form and terms of a series of
Securities to be known as the Issuer's "Extendible Tenor Rate-Adjusted
Securities" (the "X-TRAS"), providing for the issuance of the X-TRAS and
amending and adding certain provisions thereof for the benefit of the
Holders of the X-TRAS; and
WHEREAS, the Issuer and the Indenture Trustee desire to
enter into this Sixth Supplemental Indenture for the purposes set forth in
Sections 2.3 and 8.1(e) of the Original Indenture as referred to above;
and
WHEREAS, the Issuer has furnished the Indenture Trustee with
a copy of the resolutions of its Board of Directors certified by its
Secretary or Assistant Secretary authorizing the execution of this Sixth
Supplemental Indenture; and
WHEREAS, all things necessary to make this Sixth
Supplemental Indenture a valid agreement of the Issuer and the Indenture
Trustee and a valid supplement to the Original Indenture have been done,
NOW, THEREFORE, THIS SIXTH SUPPLEMENTAL INDENTURE
WITNESSETH:
For and in consideration of the premises and the purchase of
the X-TRAS to be issued hereunder by holders thereof, the Issuer and the
Indenture Trustee mutually covenant and agree, for the equal and
proportionate benefit of the respective holders from time to time of the
X-TRAS, as follows:
ARTICLE I.
STANDARD PROVISIONS; DEFINITIONS
SECTION 1. STANDARD PROVISIONS. The Original Indenture
together with this Sixth Supplemental Indenture and all previous
indentures supplemental thereto entered into pursuant to the applicable
terms thereof are hereinafter sometimes collectively referred to as the
"Indenture." All capitalized terms which are used herein and not
otherwise defined herein are defined in the Indenture and are used herein
with the same meanings as in the Indenture.
SECTION 2. DEFINITIONS. Section 1.1 of the Original
Indenture is amended to insert the new definitions applicable to the X-
TRAS, in the appropriate alphabetical sequence, as follows:
"Amortization Expense" means, for any period, amounts
recognized during such period as amortization of capital leases,
depletion, nuclear fuel, goodwill and assets classified as intangible
assets in accordance with generally accepted accounting principles.
"Applicable Premium" means, with respect to X-TRAS (or
portion thereof) being redeemed at any time, the excess of (A) the present
value at such time of the principal amount of such X-TRAS (or portion
thereof) being redeemed plus all interest payments due on such X-TRAS (or
portion thereof) from and after the date of redemption, which present
value shall be computed using a discount rate equal to the Treasury Rate
plus 50 basis points, over (B) the principal amount of such X-TRAS (or
portion thereof) being redeemed at such time. For purposes of this
definition, the present values of interest and principal payments will be
determined in accordance with generally accepted principles of financial
analysis.
"Average Life" means, as of the date of determination, with
respect to any Indebtedness, the quotient obtained by dividing (i) the sum
of the products of (x) the number of years from the date of determination
to the dates of each successive scheduled principal payment of such
Indebtedness and (y) the amount of such principal payment by (ii) the sum
of all such principal payments.
"Calculation Agent" means Morgan Stanley Capital Services,
Inc., or such other calculation agent as may be provided from time to time
under the ISDA Master Agreement. All determinations made by the
Calculation Agent will be at the sole discretion of the Calculation Agent
and will, in the absence of manifest error, be conclusive for all purposes
and binding on the Issuer.
"Capital Lease Obligation" of a Person means any obligation
that is required to be classified and accounted for as a capital lease on
the face of a balance sheet of such Person prepared in accordance with
generally accepted accounting principles; the amount of such obligation
shall be the capitalized amount thereof, determined in accordance with
generally accepted accounting principles; the stated maturity thereof
shall be the date of the last payment of rent or any other amount due
under such lease prior to the first date upon which such lease may be
terminated by the lessee without payment of a penalty; and such obligation
shall be deemed secured by a Lien on any property or assets to which such
lease relates.
"Capital Stock" means any and all shares, interests, rights
to purchase, warrants, options, participations or other equivalents of or
interests in (however designated) corporate stock, including any Preferred
Stock or Letter Stock; provided that Hybrid Preferred Securities are not
considered Capital Stock for purposes of this definition.
"Certificate" or "Certificates" shall have the meaning set
forth in the Pass Through Trust Agreement.
"Certificateholder" or "Certificateholders" shall have the
meaning set forth in the Pass Through Trust Agreement.
"Change in Control" means an event or series of events by
which (i) the Issuer ceases to own beneficially, directly or indirectly,
at least 80% of the total voting power of all classes of Capital Stock
then outstanding of Consumers (whether arising from issuance of securities
of the Issuer or Consumers, any direct or indirect transfer of securities
by the Issuer or Consumers, any merger, consolidation, liquidation or
dissolution of the Issuer or Consumers or otherwise); (ii) any "person" or
"group" (as such terms are used in Sections 13(d) and 14(d) of the
Exchange Act) becomes the "beneficial owner" (as such term is used in
Rules 13d-3 and 13d-5 under the Exchange Act, except that a person or
group shall be deemed to have "beneficial ownership" of all shares that
such person or group has the right to acquire, whether such right is
exercisable immediately or only after the passage of time), directly or
indirectly, of more than 35% of the Voting Stock of the Issuer; or (iii)
the Issuer consolidates with or merges into another corporation or
directly or indirectly conveys, transfers or leases all or substantially
all of its assets to any Person, or any corporation consolidates with or
merges into the Issuer, in either event pursuant to a transaction in which
the outstanding Voting Stock of the Issuer is changed into or exchanged
for cash, securities, or other property, other than any such transaction
in which (A) the outstanding Voting Stock of the Issuer is changed into or
exchanged for Voting Stock of the surviving corporation and (B) the
holders of the Voting Stock of the Issuer immediately prior to such
transaction retain, directly or indirectly, substantially proportionate
ownership of the Voting Stock of the surviving corporation immediately
after such transaction.
"CMS Electric and Gas" means CMS Electric and Gas Company, a
Michigan corporation and wholly-owned subsidiary of Enterprises.
"CMS Gas Transmission and Storage" means CMS Gas
Transmission and Storage Company, a Michigan corporation and wholly-owned
subsidiary of Enterprises.
"CMS Generation" means CMS Generation Co., a Michigan
corporation and wholly-owned subsidiary of Enterprises.
"CMS MST" means CMS Marketing, Services and Trading Company,
a Michigan corporation and wholly-owned subsidiary of Enterprises.
"Consolidated Assets" means, at any date of determination,
the aggregate assets of the Issuer and its Consolidated Subsidiaries
determined on a consolidated basis in accordance with generally accepted
accounting principles.
"Consolidated Coverage Ratio" with respect to any period
means the ratio of (i) the aggregate amount of Operating Cash Flow for
such period to (ii) the aggregate amount of Consolidated Interest Expense
for such period.
"Consolidated Current Liabilities" means, for any period,
the aggregate amount of liabilities of the Issuer and its Consolidated
Subsidiaries which may properly be classified as current liabilities
(including taxes accrued as estimated), after (i) eliminating all inter-
company items between the Issuer and any Consolidated Subsidiary and (ii)
deducting all current maturities of long-term Indebtedness, all as
determined in accordance with generally accepted accounting principles.
"Consolidated Indebtedness" means, at any date of
determination, the aggregate Indebtedness of the Issuer and its
Consolidated Subsidiaries determined on a consolidated basis in accordance
with generally accepted accounting principles; provided that Consolidated
Indebtedness shall not include any subordinated debt owned by any Hybrid
Preferred Securities Subsidiary.
"Consolidated Interest Expense" means, for any period, the
total interest expense in respect of Consolidated Indebtedness of the
Issuer and its Consolidated Subsidiaries, including, without duplication,
(i) interest expense attributable to capital leases, (ii) amortization of
debt discount, (iii) capitalized interest, (iv) cash and noncash interest
payments, (v) commissions, discounts and other fees and charges owed with
respect to letters of credit and bankers' acceptance financing, (vi) net
costs under Interest Rate Protection Agreements (including amortization of
discount) and (vii) interest expense in respect of obligations of other
Persons deemed to be Indebtedness of the Issuer or any Consolidated
Subsidiaries under clause (v) or (vi) of the definition of Indebtedness,
provided, however, that Consolidated Interest Expense shall exclude (a)
any costs otherwise included in interest expense recognized on early
retirement of debt and (b) any interest expense in respect of any
Indebtedness of any Subsidiary of Consumers, CMS Generation, NOMECO,
CMS Electric and Gas, CMS Gas Transmission and Storage, CMS MST or any
other Designated Enterprises Subsidiary, provided that such Indebtedness
is without recourse to any assets of the Issuer, Consumers, Enterprises,
CMS Generation, NOMECO, CMS Electric and Gas, CMS Gas Transmission and
Storage, CMS MST or any other Designated Enterprises Subsidiary.
"Consolidated Net Income" means, for any period, the net
income of the Issuer and its Consolidated Subsidiaries determined on a
consolidated basis in accordance with generally accepted accounting
principles; provided, however, that there shall not be included in such
Consolidated Net Income:
(1) any net income of any Person if such Person is not a
Subsidiary, except that (A) the Issuer's equity in the net income of
any such Person for such period shall be included in such
Consolidated Net Income up to the aggregate amount of cash actually
distributed by such Person during such period to the Issuer or a
Consolidated Subsidiary as a dividend or other distribution and (B)
the Issuer's equity in a net loss of any such Person for such period
shall be included in determining such Consolidated Net Income;
(2) any net income of any Person acquired by the Issuer
or a Subsidiary in a pooling of interests transaction for any period
prior to the date of such acquisition;
(3) any gain or loss realized upon the sale or other
disposition of any property, plant or equipment of the Issuer or its
Consolidated Subsidiaries which is not sold or otherwise disposed of
in the ordinary course of business and any gain or loss realized upon
the sale or other disposition of any Capital Stock of any Person; and
(4) any net income of any Subsidiary of Consumers,
CMS Generation, NOMECO, CMS Electric and Gas, CMS Gas Transmission
and Storage, CMS MST or any other Designated Enterprises Subsidiary
whose interest expense is excluded from Consolidated Interest
Expense, provided, however, that for purposes of this subsection
(iv), any cash, dividends or distributions of any such Subsidiary to
the Issuer shall be included in calculating Consolidated Net Income.
"Consolidated Net Tangible Assets" means, for any period,
the total amount of assets (less accumulated depreciation or amortization,
allowances for doubtful receivables, other applicable reserves and other
properly deductible items) as set forth on the most recently available
quarterly or annual consolidated balance sheet of the Issuer and its
Consolidated Subsidiaries, determined on a consolidated basis in
accordance with generally accepted accounting principles, and after giving
effect to purchase accounting and after deducting therefrom, to the extent
otherwise included, the amounts of: (i) Consolidated Current Liabilities;
(ii) minority interests in Consolidated Subsidiaries held by Persons other
than the Issuer or a Restricted Subsidiary; (iii) excess of cost over fair
value of assets of businesses acquired, as determined in good faith by the
Board of Directors as evidenced by Board resolutions; (iv) any revaluation
or other write-up in value of assets subsequent to December 31, 1996, as a
result of a change in the method of valuation in accordance with generally
accepted accounting principles; (v) unamortized debt discount and expenses
and other unamortized deferred charges, goodwill, patents, trademarks,
service marks, trade names, copyrights, licenses, organization or
developmental expenses and other intangible items; (vi) treasury stock;
and (vii) any cash set apart and held in a sinking or other analogous fund
established for the purpose of redemption or other retirement of Capital
Stock to the extent such obligation is not reflected in Consolidated
Current Liabilities.
"Consolidated Net Worth" of any Person means the total of
the amounts shown on the consolidated balance sheet of such Person and its
consolidated subsidiaries, determined on a consolidated basis in
accordance with generally accepted accounting principles, as of any date
selected by such Person not more than 90 days prior to the taking of any
action for the purpose of which the determination is being made (and
adjusted for any material events since such date), as (i) the par or
stated value of all outstanding Capital Stock plus (ii) paid- in capital
or capital surplus relating to such Capital Stock plus (iii) any retained
earnings or earned surplus less (A) any accumulated deficit, (B) any
amounts attributable to Redeemable Stock and (C) any amounts attributable
to Exchangeable Stock.
"Consolidated Subsidiary" means, any Subsidiary whose
accounts are or are required to be consolidated with the accounts of the
Issuer in accordance with generally accepted accounting principles.
"Consumers" means Consumers Energy Company, a Michigan
corporation, all of whose common stock is on the date hereof owned by the
Issuer.
"covenant defeasance" shall have the meaning set forth in
Section 6.04.
"Designated Enterprises Subsidiary" means any wholly-owned
subsidiary of Enterprises formed after the date of this Sixth Supplemental
Indenture which is designated a Designated Enterprises Subsidiary by the
Board of Directors.
"Enterprises" means CMS Enterprises Company, a Michigan
corporation and wholly-owned subsidiary of the Issuer.
"Early Redemption Option" shall have the meaning set forth
in Section 7.01(b).
"Event of Default" with respect to the X-TRAS has the
meaning specified in Article V of this Sixth Supplemental Indenture.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Exchangeable Stock" means any Capital Stock of a
corporation that is exchangeable for or convertible into another security
(other than Capital Stock of such corporation that is neither Exchangeable
Stock nor Redeemable Stock).
"Exercise Date" means the Premium Termination Date.
"Extended Stated Maturity" shall have the meaning set forth
in Section 2.01.
"Extension Notice" shall have the meaning set forth in the
Pass Through Trust Agreement.
"Extension Option" shall have the meaning set forth in the
Pass Through Trust Agreement.
"Extension Option Buyer" means Morgan Stanley Capital
Services, Inc.
"FD Redemption Option" shall have the meaning set forth in
Section 7.01(c).
"Final Distribution" shall have the meaning set forth in the
Pass Through Trust Agreement.
"Final Distribution Date" shall have the meaning set forth
in the Pass Through Trust Agreement.
"Hybrid Preferred Securities" means any preferred securities
issued by a Hybrid Preferred Securities Subsidiary, where such preferred
securities have the following characteristics: (i) such Hybrid Preferred
Securities Subsidiary lends substantially all of the proceeds from the
issuance of such preferred securities to the Issuer or Consumers in
exchange for subordinated debt issued by the Issuer or Consumers,
respectively; (ii) such preferred securities contain terms providing for
the deferral of distributions corresponding to provisions providing for
the deferral of interest payments on such subordinated debt; and (iii) the
Issuer or Consumers (as the case may be) makes periodic interest payments
on such subordinated debt, which interest payments are in turn used by the
Hybrid Preferred Securities Subsidiary to make corresponding payments to
the holders of the Hybrid Preferred Securities.
"Hybrid Preferred Securities Subsidiary" means any business
trust (or similar entity) (i) all of the common equity interest of which
is owned (either directly or indirectly through one or more wholly-owned
Subsidiaries of the Issuer or Consumers) at all times by the Issuer or
Consumers, (ii) that has been formed for the purpose of issuing Hybrid
Preferred Securities and (iii) substantially all of the assets of which
consist at all times solely of subordinated debt issued by the Issuer or
Consumers (as the case may be) and payments made from time to time on such
subordinated debt.
"ISDA Amount" shall mean such amount as may be due and
payable by the Pass Through Trust under the ISDA Master Agreement under
the circumstances contemplated thereby as notified to the Issuer, the
Indenture Trustee and the Pass Through Trustee by the Calculation Agent.
"Indebtedness" of any Person means, without duplication,
(i) the principal of and premium (if any) in respect of
(A) indebtedness of such Person for money borrowed and (B)
indebtedness evidenced by notes, debentures, bonds or other similar
instruments for the payment of which such Person is responsible or
liable;
(ii) all Capital Lease Obligations of such Person;
(iii) all obligations of such Person issued or assumed as
the deferred purchase price of property, all conditional sale
obligations and all obligations under any title retention agreement
(but excluding trade accounts payable arising in the ordinary course
of business);
(iv) all obligations of such Person for the reimbursement
of any obligor on any letter of credit, bankers' acceptance or
similar credit transaction (other than obligations with respect to
letters of credit securing obligations (other than obligations
described in clauses (i) through (iii) above) entered into in the
ordinary course of business of such Person to the extent such letters
of credit are not drawn upon or, if and to the extent drawn upon,
such drawing is reimbursed no later than the third Business Day
following receipt by such Person of a demand for reimbursement
following payment on the letter of credit);
(v) all obligations of the type referred to in clauses
(i) through (iv) of other Persons and all dividends of other Persons
for the payment of which, in either case, such Person is responsible
or liable as obligor, guarantor or otherwise; and
(vi) all obligations of the type referred to in clauses
(i) through (v) of other Persons secured by any Lien on any property
or asset of such Person (whether or not such obligation is assumed by
such Person), the amount of such obligation being deemed to be the
lesser of the value of such property or assets or the amount of the
obligation so secured.
"Initial Stated Maturity" means, with respect to the X-TRAS,
January 15, 2005.
"Interest Payment Date" means July, 15 1998 and each January
15 and July 15 in each year thereafter.
"ISDA Master Agreement" means the ISDA Master Agreement,
Schedule and Confirmation dated as of January 13, 1998 entered into by the
Pass Through Trust and the Extension Option Buyer, as amended from time to
time.
"Interest Rate Protection Agreement" means any interest rate
swap agreement, interest rate cap agreement or other financial agreement
or arrangement designed to protect the Issuer or any Subsidiary against
fluctuations in interest rates.
"legal defeasance" shall have the meaning set forth in
Section 6.03.
"Letter Stock", as applied to the Capital Stock of any
corporation, means Capital Stock of any class or classes (however
designated) which is intended to reflect the separate performance of
certain of the businesses or operations conducted by such corporation or
any of its subsidiaries.
"Lien" means any lien, mortgage, pledge, security interest,
conditional sale, title retention agreement or other charge or encumbrance
of any kind.
"Net Cash Proceeds" means, (a) with respect to any Asset
Sale, the aggregate proceeds of such Asset Sale including the fair market
value (as determined by the Board of Directors and net of any associated
debt and of any consideration other than Capital Stock received in return)
of property other than cash, received by the Issuer, net of (i) brokerage
commissions and other fees and expenses (including fees and expenses of
counsel and investment bankers) related to such Asset Sale, (ii)
provisions for all taxes (whether or not such taxes will actually be paid
or are payable) as a result of such Asset Sale without regard to the
consolidated results of operations of the Issuer and its Restricted
Subsidiaries, taken as a whole, (iii) payments made to repay Indebtedness
or any other obligation outstanding at the time of such Asset Sale that
either (A) is secured by a Lien on the property or assets sold or (B) is
required to be paid as a result of such sale and (iv) appropriate amounts
to be provided by the Issuer or any Restricted Subsidiary of the Issuer as
a reserve against any liabilities associated with such Asset Sale
including, without limitation, pension and other post-employment benefit
liabilities, liabilities related to environmental matters and liabilities
under any indemnification obligations associated with such Asset Sale, all
as determined in conformity with generally accepted accounting principles
and (b) with respect to any issuance or sale or contribution in respect of
Capital Stock, the aggregate proceeds of such issuance, sale or
contribution, including the fair market value (as determined by the Board
of Directors and net of any associated debt and of any consideration other
than Capital Stock received in return) of property other than cash,
received by the Issuer, net of attorneys' fees, accountants' fees,
underwriters' or placement agents' fees, discounts or commissions and
brokerage, consultant and other fees incurred in connection with such
issuance or sale and net of taxes paid or payable as a result thereof,
provided, however, that if such fair market value as determined by the
Board of Directors of property other than cash is greater than $25
million, the value thereof shall be based upon an opinion from an
independent nationally recognized firm experienced in the appraisal or
similar review of similar types of transactions.
"NOMECO" means, CMS NOMECO Oil & Gas Co., a Michigan
corporation and wholly-owned subsidiary of Enterprises.
"Non-Convertible Capital Stock" means, with respect to any
corporation, any non- convertible Capital Stock of such corporation and
any Capital Stock of such corporation convertible solely into non-
convertible Capital Stock other than Preferred Stock of such corporation;
provided, however, that Non-Convertible Capital Stock shall not include
any Redeemable Stock or Exchangeable Stock.
"Operating Cash Flow" means, for any period, with respect to
the Issuer and its Consolidated Subsidiaries, the aggregate amount of
Consolidated Net Income after adding thereto Consolidated Interest Expense
(adjusted to include costs recognized on early retirement of debt), income
taxes, depreciation expense, Amortization Expense and any noncash
amortization of debt issuance costs, any nonrecurring, noncash charges to
earnings and any negative accretion recognition.
"Other Rating Agency" shall mean any one of Duff & Phelps
Credit Rating Co., Fitch Investors Service, L.P. or Moody's Investors
Service, Inc., and any successor to any of these organizations which is a
nationally recognized statistical rating organization.
"Pass Through Trust" means the CMS Energy X-TRASsm Pass
Through Trust I created under the Pass Through Trust Agreement, as holder
of the X-TRAS from the Original Issue Date to the Initial Stated Maturity.
"Pass Through Trust Agreement" means the Amended and
Restated Pass Through Trust Agreement dated as of January 13, 1998 between
the Issuer and the Pass Through Trustee.
"Pass Through Trustee" means the Pass Through Trustee
appointed from time to time under the Pass Through Trust Agreement (which
initially shall be Wilmington Trust Company).
"Paying Agent" means any person authorized by the Issuer to
pay the principal of (and premium, if any) or interest on any of the X-
TRAS on behalf of the Issuer. Initially, the Paying Agent is the
Indenture Trustee.
"Predecessor X-TRAS" of any particular X-TRAS means all
previous X-TRAS evidencing all or a portion of the same debt as that
evidenced by such particular X-TRAS; and, for the purposes of the
definition, any X-TRAS authenticated and delivered under Section 2.9 of
the Indenture in exchange for or in lieu of a mutilated, destroyed, lost
or stolen X-TRAS shall be deemed to evidence the same debt as the
mutilated, destroyed, lost or stolen X-TRAS.
"Preferred Stock", as applied to the Capital Stock of any
corporation, means Capital Stock of any class or classes (however
designated) that is preferred as to the payment of dividends, or as to the
distribution of assets upon any voluntary or involuntary liquidation or
dissolution of such corporation, over shares of Capital Stock of any other
class of such corporation; provided that Hybrid Preferred Securities are
not considered Preferred Stock for purposes of this definition.
"Premium Termination Date" means the 90th day prior to the
Initial Stated Maturity. If the 90th day prior to the Initial Stated
Maturity is not a Business Day, then the Premium Termination Date shall be
the next succeeding Business Day.
"Put Option" shall have the meaning set forth in
Section 7.02.
"Redeemable Stock" means any Capital Stock that by its terms
or otherwise is required to be redeemed prior to the first anniversary of
the Stated Maturity of the Outstanding X-TRAS or is redeemable at the
option of the holder thereof at any time prior to the first anniversary of
the Stated Maturity of the Outstanding X-TRAS.
"Redemption Date" means the date specified for redemption of
the X-TRAS by the Issuer in a notice provided pursuant to Section 7.01(b).
"Reference Treasury Note Yield" means 5.80%.
"Remarketing Agent" means Morgan Stanley & Co. Incorporated
or such other investment banking institution as shall be selected in
accordance with Section 8.02 in connection with a remarketing of the X-
TRAS.
"Remarketing Deadline" means the fifteenth day prior to the
Initial Stated Maturity or such earlier date as may be mutually agreed by
the Issuer, the Indenture Trustee, the Pass Through Trustee and the
Extension Option Buyer.
"Remarketing Procedure" shall have the meaning set forth in
Section 8.02.
"Required Remarketing Proceeds" shall have the meaning set
forth in Section 8.01.
"Restricted Subsidiary" means any Subsidiary (other than
Consumers and its subsidiaries) of the Issuer which, as of the date of the
Issuer's most recent quarterly consolidated balance sheet, constituted at
least 10% of the total Consolidated Assets of the Issuer and its
Consolidated Subsidiaries and any other Subsidiary which from time to time
is designated a Restricted Subsidiary by the Board of Directors; provided
that no Subsidiary may be designated a Restricted Subsidiary if,
immediately after giving effect thereto, an Event of Default or event
that, with the lapse of time or giving of notice or both, would constitute
an Event of Default would exist or the Issuer and its Restricted
Subsidiaries could not incur at least one dollar of additional
Indebtedness under Section 4.03, and (i) any such Subsidiary so designated
as a Restricted Subsidiary must be organized under the laws of the United
States or any State thereof, (ii) more than 80% of the Voting Stock of
such Subsidiary must be owned of record and beneficially by the Issuer or
a Restricted Subsidiary and (iii) such Restricted Subsidiary must be a
Consolidated Subsidiary.
"satisfaction and discharge" shall have the meaning set
forth in Section 6.02.
"Settlement Date" means the settlement date under the ISDA
Master Agreement (which is the Initial Stated Maturity).
"Standard & Poor's" shall mean Standard & Poor's Ratings
Group, a division of McGraw Hill Inc., and any successor thereto which is
a nationally recognized statistical rating organization, or if such entity
shall cease to rate the X-TRAS or shall cease to exist and there shall be
no such successor thereto, any other nationally recognized statistical
rating organization selected by the Issuer which is acceptable to the
Indenture Trustee.
"Subordinated Indebtedness" means any Indebtedness of the
Issuer (whether outstanding on the date of this Sixth Supplemental
Indenture or thereafter incurred) which is contractually subordinated or
junior in right of payment to the X-TRAS.
"Support Obligations" means, for any Person, without
duplication, any financial obligation, contingent or otherwise, of such
Person guaranteeing or otherwise supporting any debt or other obligation
of any other Person in any manner, whether directly or indirectly, and
including, without limitation, any obligation of such Person, direct or
indirect, (i) to purchase or pay (or advance or supply funds for the
purchase or payment of) such debt or to purchase (or to advance or supply
funds for the purchase of) any security for the payment of such debt,
(ii) to purchase property, securities or services for the purpose of
assuring the owner of such debt of the payment of such debt, (iii) to
maintain working capital, equity capital, available cash or other
financial statement condition of the primary obligor so as to enable the
primary obligor to pay such debt, (iv) to provide equity capital under or
in respect of equity subscription arrangements (to the extent that such
obligation to provide equity capital does not otherwise constitute debt),
or (v) to perform, or arrange for the performance of, any non-monetary
obligations or non- funded debt payment obligations of the primary
obligor.
"Tax-Sharing Agreement" means the Amended and Restated
Agreement for the Allocation of Income Tax Liabilities and Benefits, dated
January 1, 1994, as amended or supplemented from time to time, by and
among Issuer, each of the members of the Consolidated Group (as defined
therein), and each of the corporations that become members of the
Consolidated Group.
"Treasury Rate" means the yield to maturity at the time of
computation of United States Treasury securities with a constant maturity
(as compiled and published in the most recent Federal Reserve Statistical
Release H.15(519) (the "Statistical Release") which has become publicly
available at least two Business Days prior to the redemption date or, in
the case of defeasance, prior to the date of deposit (or, if such
Statistical Release is no longer published, any publicly available source
of similar market data)) most nearly equal to the then remaining average
life to stated maturity of the X-TRAS; provided, however, that if the
average life to stated maturity of the X-TRAS is not equal to the constant
maturity of a United States Treasury security for which a weekly average
yield is given, the Treasury Rate shall be obtained by linear
interpolation (calculated to the nearest one-twelfth of a year) from the
weekly average yields of United States Treasury securities for which such
yields are given.
"Voting Stock" means securities of any class or classes the
holders of which are ordinarily, in the absence of contingencies, entitled
to vote for corporate directors (or persons performing similar functions).
"Yield" means the yield-to-maturity on the then current
7-year U.S. Treasury Note as determined by linear interpolation, which
shall equal the sum of (i) 0.6 times the 5-year then current offered-side
yield and (ii) 0.4 times the 10-year then current offered-side yield, in
each case, in respect of the on-the-run most recently issued U.S. Treasury
Notes, as published on Telerate page 500 as of approximately 12:30 p.m.,
New York City time, on the Exercise Date. If Telerate 500 is unavailable,
"Yield" means the arithmetic mean of offered-side yields for the then
current 7-year U.S. Treasury Note as determined by linear interpolation,
which shall equal the sum of (i) 0.6 times the 5-year then current
offered-side yield and (ii) 0.4 times the 10-year then current offered-
side yield, in each case, in respect of the on-the-run most recently
issued U.S. Treasury Notes, without regard to highest and lowest yields,
quoted as of approximately 12:30 p.m., New York City time, on the Exercise
Date by five primary dealers in U.S. Treasury Notes selected by the
Calculation Agent.
Certain terms, used principally in Articles Three and Four
of this Sixth Supplemental Indenture, are defined in those Articles.
ARTICLE II.
DESIGNATION AND TERMS OF THE X-TRAS; FORMS
SECTION 1. ESTABLISHMENT OF SERIES. a. There is hereby
created a series of Securities to be known and designated as the
"Extendible Tenor Rate-Adjusted Securities" and limited in aggregate
principal amount (except as contemplated in Section 2.3(f)(2) of the
Indenture) to $180,000,000. If the Yield on the Exercise Date is equal to
or greater than the Reference Treasury Note Yield, the X-TRAS will mature
on January 15, 2005 (the "Initial Stated Maturity"). If the Yield on the
Exercise Date is less than the Reference Treasury Note Yield, the maturity
of the X-TRAS will be extended until January 15, 2012 (the "Extended
Stated Maturity").
b. During the period commencing on the Original Issue
Date and ending on the Initial Stated Maturity, the X-TRAS will bear
interest from the Original Issue Date, or from the most recent date to
which interest has been paid or duly provided for, at the rate of 7% per
annum stated therein until the principal thereof is paid or made available
for payment on the Initial Stated Maturity; provided, that if the maturity
of the X-TRAS is extended until the Extended Stated Maturity, the X-TRAS
will bear interest from the date of closing of the remarketed X-TRAS, at
such rate per annum as may be established pursuant to Article VIII, until
the principal thereof is paid or made available for payment on the
Extended Stated Maturity. Interest will be payable semiannually on each
Interest Payment Date and at Maturity, as provided in the form of X-TRAS
in Section 2.03 hereof.
c. The Record Date referred to in Section 2.3(f)(4) of
the Indenture for the payment of the interest on any X-TRAS payable on any
Interest Payment Date (other than at Maturity) shall be the first day
(whether or not a Business Day) of the calendar month in which such
Interest Payment Date occurs and, in the case of interest payable at
Maturity, the Record Date shall be the date of Maturity.
(d) The payment of the principal of, premium (if any)
and interest on the X- TRAS shall not be secured by a security interest in
any property.
(e) The X-TRAS shall be redeemable at the option of the
Issuer as provided in Section 7.01(b) and (c) hereof. The holders of X-
TRAS shall not be entitled to any sinking fund payments. The X-TRAS shall
be purchased by the Issuer at the option of the Holders thereof as
provided in Sections 3.01, 4.05 and 7.02 hereof.
(f) The X-TRAS shall not be convertible.
(g) The X-TRAS will not be subordinated to the payment
of Senior Debt.
(h) The Issuer will not pay any additional amounts on
the X-TRAS held by a Person who is not a U.S. Person in respect of any
tax, assessment or government charge withheld or deducted.
(i) The events specified in Events of Default with
respect to the X-TRAS shall include the events specified in Article Five
of this Sixth Supplemental Indenture. In addition to the covenants set
forth in Article Three of the Original Indenture, the Holders of the X-
TRAS shall have the benefit of the covenants of the Issuer set forth in
Article Four hereto.
(j) In the event the maturity of the X-TRAs is extended
until the Extended Maturity Date, then, unless the Issuer exercises the FD
Redemption Option (which option the Issuer shall be entitled to exercise
at any time subsequent to the delivery of the Extension Notice and prior
to the earlier of the pricing of the remarketing and the Remarketing
Deadline), the interest rate borne by the X-TRAS will be reset in order
that the X-TRAS may be remarketed so as to yield proceeds at least
sufficient to make available to the Pass Through Trustee on the Final
Distribution Date an amount in cash equal to 100% of the principal amount
thereof plus the ISDA Amount. The remarketing of the X-TRAS will be
conducted in accordance with the provisions of Article VIII hereof.
SECTION 2. FORMS GENERALLY. The X-TRAS and Indenture
Trustee's certificates of authentication shall be in substantially the
form set forth in this Article, with such appropriate insertions,
omissions, substitutions and other variations as are required or permitted
by the Indenture, and may have such letters, numbers or other marks of
identification and such legends or endorsements placed thereon as may be
required to comply with the rules of any securities exchange or as may,
consistently herewith, be determined by the officers executing such X-
TRAS, as evidenced by their execution thereof.
The definitive X-TRAS 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 X-TRAS, as evidenced by
their execution thereof.
SECTION 3. FORM OF FACE OF X-TRAS.
CMS ENERGY CORPORATION
7% EXTENDIBLE TENOR RATE-ADJUSTED SECURITIES ("X-TRAS_")
No. ________ $__________
CMS Energy Corporation, a corporation duly organized and
existing under the laws of the State of Michigan (herein called the
"Issuer", which term includes any successor Person under the Indenture
hereinafter referred to), for value received, hereby promises to pay to
_________________________________, or registered assigns, the principal
sum of ____________________ Dollars on January 15, 2005 ("Initial Stated
Maturity") or, in the event the maturity of the X-TRAS is extended until
the Extended Stated Maturity, January 13, 2012 and to pay interest
thereon, semi-annually on January 15 and July 15 in each year, from
January 13, 1998 (the "Original Issue Date") or from the most recent
Interest Payment Date to which interest has been paid or duly provided
for, commencing July 15, 1998 at the rate of 7% per annum, until the
principal hereof is paid or made available for payment on the Initial
Stated Maturity; provided, that if the maturity of the X-TRAS is extended
until the Extended Stated Maturity, the X-TRAS will bear interest from the
date of closing of the remarketed X-TRAS at such rate per annum as may be
established pursuant to the Remarketing Procedure, until the principal
hereof is paid or made available for payment on the Extended Stated
Maturity. 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.
The interest so payable, and punctually paid or duly provided for, on any
Interest Payment Date will, as provided in such Indenture, be paid to the
Person in whose name this Extendible Tenor Rate-Adjusted Security
("Security") (or one or more Predecessor X-TRAS) is registered at the
close of business on the Record Date for such interest, which shall be the
first day of the calendar month in which such Interest Payment Date occurs
(whether or not a Business Day) except that the Record Date for interest
payable at the Initial Stated Maturity or Extended Stated Maturity shall
be the date of such Initial Stated Maturity or Extended Stated Maturity.
Any such interest not so punctually paid or duly provided for will
forthwith cease to be payable to the Holder on such Record Date and may
either be paid to the Person in whose name this Security (or one or more
Predecessor X-TRAS) is 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) for the payment of such
defaulted interest to be fixed by the Indenture Trustee, notice whereof
shall be given to Holders of X-TRAS not less than 15 days preceding such
subsequent Record Date.
Payment of the principal of (and premium, if any) and
interest, if any, on this Security will be made at the office or agency of
the Issuer maintained for that purpose in New York, New York (the "Place
of Payment"), in such coin or currency of the United States of America as
at the time of payment is legal tender for payment of public and private
debts; provided, however, that at the option of the Issuer payment of the
principal of (and premium, if any) and interest may be made by check
mailed to the address of the Person entitled thereto as such address shall
appear in the Security Register or by wire transfer to an account
designated by such Person not later than ten days prior to the date of
such payment. If the date on which payment of principal or interest on
this Security becomes due is not a Business Day, then such principal or
interest shall be due and payable on the next succeeding Business Day.
Reference is hereby made to the further provisions of this
Security set forth on the reverse hereof, which further provisions shall
for all purposes have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been
executed by the Indenture Trustee referred to on the reverse hereof by
manual signature, this Security shall not be entitled to any benefit under
the Indenture or be valid or obligatory for any purpose.
IN WITNESS WHEREOF, the Issuer has caused this instrument to
be duly executed under its corporate seal.
Dated:
CMS ENERGY CORPORATION
By: _______________________
Its:_______________________
By: _______________________
Its:_______________________
Attest:
<PAGE>
<PAGE>
SECTION 4. FORM OF REVERSE OF SECURITY.
This 7% Extendible Tenor Rate-Adjusted Security is one of a
duly authorized issue of securities of the Issuer (herein called the "X-
TRAS"), issued and to be issued under an Indenture, dated as of September
15, 1992, as supplemented by certain supplemental indentures, including
the Sixth Supplemental Indenture, dated as of January 13, 1998 (herein
collectively referred to as the "Indenture"), between the Issuer and NBD
Bank, a Michigan banking corporation (formerly known as NBD Bank, National
Association), as Indenture Trustee (herein called the "Indenture Trustee",
which term includes any successor trustee under the Indenture), to which
Indenture and all indentures supplemental thereto reference is hereby made
for a statement of the respective rights, limitations of rights, duties
and immunities thereunder of the Issuer, the Indenture Trustee, the
Holders of the X-TRAS and of the terms upon which the X- TRAS are, and are
to be, authenticated and delivered. This Security is one of the series
designated on the face hereof, limited in aggregate principal amount to
$180,000,000.
The X-TRAS will be redeemable at any time, at the option of
the Issuer, in whole or in part, on any date on or prior to the Premium
Termination Date on not less than 30 nor more than 60 days' notice to the
Indenture Trustee, the Pass Through Trustee and the Extension Option
Buyer, at a redemption price ("Early Redemption Price") equal to the sum
of (i) 100% of the principal amount of the X-TRAS being redeemed, together
with accrued interest, thereon to the Redemption Date plus the Applicable
Premium (but interest installments whose Stated Maturity is on or prior to
the Redemption Date will be payable to the Holder thereof of record at the
close of business on the relevant Record Date referred to on the face
hereof all as provided in the Indenture) plus (ii) the ISDA Amount, if
any, as of the second Business Day preceding the Redemption Date as
determined by the Extension Option Buyer and notified to the Issuer, the
Indenture Trustee and the Pass Through Trustee by 12 noon, New York City
time, on such second preceding Business Day. In no event will the Early
Redemption Price calculated pursuant to the foregoing clause (i) ever be
less than 100% of the principal amount of the X- TRAS plus accrued
interest to the Redemption Date. The Notional Amount used to determine
the ISDA Amount shall be equal to the aggregate principal amount of X-TRAS
redeemed. The following definitions are used to determine the Applicable
Premium:
"Applicable Premium" means, with respect to X-TRAS (or
portion thereof) being redeemed at any time, the excess of (A) the present
value at such time of the principal amount of such X-TRAS (or portion
thereof) being redeemed plus all interest payments due on such X- TRAS (or
portion thereof) from and after the date of redemption, which present
value shall be computed using a discount rate equal to the Treasury Rate
plus 50 basis points, over (B) the principal amount of such X-TRAS (or
portion thereof) being redeemed at such time. For purposes of this
definition, the present values of interest and principal payments will be
determined in accordance with generally accepted principles of financial
analysis.
"Treasury Rate" means the yield to maturity at the time of
computation of United States Treasury securities with a constant maturity
(as compiled and published in the most recent Federal Reserve Statistical
Release H.15(519) (the "Statistical Release") which has become publicly
available at least two Business Days prior to the redemption date or, in
the case of defeasance, prior to the date of deposit (or, if such
Statistical Release is no longer published, any publicly available source
of similar market data)) most nearly equal to the then remaining average
life to stated maturity of the X-TRAS; provided, however, that if the
average life to stated maturity of the X-TRAS is not equal to the constant
maturity of a United States Treasury security for which a weekly average
yield is given, the Treasury Rate shall be obtained by linear
interpolation (calculated to the nearest one-twelfth of a year) from the
weekly average yields of United States Treasury securities for which such
yields are given.
In the event of redemption of the X-TRAS in part, new X-TRAS
for the unredeemed portion thereof will be issued in the name of the
Holder thereof upon cancellation hereof.
If the X-TRAS are extended until the Extended Stated
Maturity, the Issuer shall have the option (the "FD Redemption Option"),
in lieu of permitting the X-TRAS to be remarketed in accordance with
Section 8.01 of the Indenture, to redeem the X-TRAS in whole on the
Initial Stated Maturity, by irrevocable notice given to the Indenture
Trustee, the Pass Through Trustee, the Extension Option Buyer and the
Calculation Agent not later than the Remarketing Deadline, at a redemption
price, payable in cash, equal to the sum of (i) 100% of the principal
amount of the X-TRAS being redeemed together with accrued interest, if
any, thereon to the Initial Stated Maturity plus (ii) the ISDA Amount, if
any, as of the Exercise Date (as calculated by the Calculation Agent on
the Exercise Date and notified to the Issuer, the Indenture Trustee and
the Pass Through Trustee on or promptly following such date (but in any
event within five Business Days thereafter)), which redemption price shall
be payable at the Initial Stated Maturity. The Notional Amount used to
determine the ISDA Amount shall be the aggregate principal amount of the
X-TRAS outstanding as of the Exercise Date.
If a Change in Control occurs, the Issuer shall notify the
Holder of this Security, the Indenture Trustee, the Pass Through Trustee
and the Extension Option Buyer of such occurrence and each Holder shall
have the right to require the Issuer to make a Required Repurchase of all
or any part of this Security at a Change in Control Purchase Price equal
to 101% of the principal amount of the X-TRAS to be so purchased together
with accrued interest thereon to the date of repurchase plus (in the
aggregate with all other X-TRAS repurchased pursuant to such Required
Repurchase) the ISDA Amount, if any, as of the second Business Day
preceding the Change in Control Purchase Date as determined by the
Extension Option Buyer and notified to the Issuer, the Indenture Trustee
and the Pass Through Trustee by 12 noon, New York City time, on such
second preceding Business Day, as more fully provided in the Indenture and
subject to the terms and conditions set forth therein. In the event of a
Required Repurchase of only a portion of this Security, a new Security or
Notes for the unrepurchased portion hereof will be issued in the name of
the Holder hereof upon the cancellation hereof.
In the event that the Issuer has Excess Proceeds from an
Asset Sale, it shall be required to make an offer to purchase from Holders
on a pro rata basis an aggregate principal amount of X-TRAS equal to the
Excess Proceeds, at a purchase price equal to the sum of (i) 100% of the
principal amount of and unpaid interest, if any, to the purchase date on
such X- TRAS, plus (ii) (in the aggregate with all other X-TRAS
repurchased pursuant to such Excess Proceeds Offer) the ISDA Amount as of
the second Business Day preceding the Excess Proceeds Purchase Date as
determined by the Extension Option Buyer and notified to the Issuer, the
Indenture Trustee and the Pass Through Trustee by 12 noon, New York City
time, on such second preceding Business Day.
If the maturity of the X-TRAS is extended and for any reason
the Pass Through Trustee does not receive an amount in cash equal to the
principal amount of and interest on the X-TRAS plus the ISDA Amount by the
Remarketing Deadline, the Holders of the X-TRAS will be deemed to have
exercised the Put Option and required the Issuer to purchase all of the
outstanding X-TRAS on the Initial Stated Maturity at a purchase price
equal to 100% of the principal amount of and interest on the X-TRAS.
If an Event of Default with respect to this Security shall
occur and be continuing, the principal of this Security may be declared
due and payable in the manner and with the effect provided in the
Indenture. If any such acceleration occurs, the Issuer will also be
obligated to pay the ISDA Amount, if any, as of the date of such
acceleration, as determined by the Extension Option Buyer and notified to
the Issuer, the Indenture Trustee and the Pass Through Trustee within five
Business Days after the date of such acceleration.
In any case where any Interest Payment Date, repurchase
date, Stated Maturity or Maturity of any Security shall not be a Business
Day at any Place of Payment, then (notwithstanding any other provision of
the Indenture or this Security), payment of interest or principal (and
premium, if any) need not be made at such Place of Payment on such date,
but may be made on the next succeeding Business Day at such Place of
Payment with the same force and effect as if made on the Interest Payment
Date, repurchase date or at the Stated Maturity or Maturity; provided that
no interest shall accrue on the amount so payable for the period from and
after such Interest Payment Date, redemption date, repurchase date, Stated
Maturity or Maturity, as the case may be, to such Business Day.
The Indenture contains provisions for defeasance at any time
of (i) the entire indebtedness of this Security or (ii) certain
restrictive covenants and Events of Default with respect to this Security,
in each case upon compliance with certain conditions set forth therein.
The Indenture permits, with certain exceptions as therein
provided, the amendment thereof and the modification of the rights and
obligations of the Issuer and the rights of the Holders of all Outstanding
X-TRAS under the Indenture at any time by the Issuer and the Indenture
Trustee with the consent of the Holders of not less than a majority in
principal amount of Securities of all series then Outstanding and affected
(voting as one class). No such amendment or modification may be made to
the Indenture which has a material adverse effect on the Extension Option
Buyer without the consent of the Extension Option Buyer.
The Indenture permits the Holders of not less than a
majority in principal amount of Securities of all series at the time
Outstanding with respect to which a default shall have occurred and be
continuing (voting as one class) to waive on behalf of the Holders of all
Outstanding Securities of such series any past default by the Issuer,
provided that no such waiver may be made with respect to a default in the
payment of the principal of or the interest on any Security of such series
or the default by the Issuer in respect of certain covenants or provisions
of the Indenture, the modification or amendment of which must be consented
to by the Holder of each Outstanding Security of each series affected or
by the Extension Option Buyer, as the case may be.
As set forth in, and subject to, the provisions of the
Indenture, no Holder of any Securities of any series will have any right
to institute any proceeding with respect to the Indenture or for any
remedy thereunder, unless such Holder shall have previously given to the
Indenture Trustee written notice of a continuing Event of Default, the
Holders of not less than 25% in principal amount of the Outstanding
Securities of each affected series (voting as one class) shall have made
written request, and offered reasonable indemnity, to the Indenture
Trustee to institute such proceeding as trustee, and the Indenture Trustee
shall not have received from the Holders of a majority in principal amount
of the Outstanding Securities of each affected series (voting as one
class) a direction inconsistent with such request and shall have failed to
institute such proceeding within 60 days; provided, however, that such
limitations do not apply to a suit instituted by the Holder hereof for the
enforcement of payment of the principal of (and premium, if any) or any
interest on this Security on or after the respective due dates expressed
herein.
No reference herein to the Indenture and no provision of
this Security or of the Indenture shall alter or impair the obligation of
the Issuer, which is absolute and unconditional, to pay the principal of
and any premium and interest on this Security at the times, place and
rate, and in the coin or currency, herein prescribed.
As provided in the Indenture and subject to certain
limitations therein set forth, the transfer of this Security is
registerable in the Security Register, upon surrender of this Security for
registration of transfer at the office or agency of the Issuer in any
place where the principal of and any premium and interest on this Security
are payable, duly endorsed by, or accompanied by a written instrument of
transfer in form satisfactory to the Issuer and the Security Registrar
duly executed by, the Holder hereof or his attorney duly authorized in
writing, and thereupon one or more new Securities of this series and of
like tenor, of authorized denominations and for the same aggregate
principal amount, will be issued to the designated transferee or
transferees.
The X-TRAS are issuable only in registered form without
coupons in denominations of $1,000 and any integral multiple thereof. As
provided in the Indenture and subject to certain limitations therein set
forth, X-TRAS are exchangeable for a like aggregate principal amount of X-
TRAS and of like tenor of a different authorized denomination, as
requested by the Holder surrendering the same.
No service charge shall be made for any such registration of
transfer or exchange, but the Issuer may require payment of a sum
sufficient to cover any tax or other governmental charge payable in
connection therewith.
The Issuer shall not be required to (a) issue, exchange or
register the transfer of this Security for a period of 15 days next
preceding the mailing of the notice of redemption of X-TRAS or (b)
exchange or register the transfer of any Security or any portion thereof
selected, called or being called for redemption, except in the case of any
Security to be redeemed in part, the portion thereof not so to be
redeemed.
Prior to due presentment of this Security for registration
of transfer, the Issuer, the Indenture Trustee and any agent of the Issuer
or the Indenture Trustee may treat the Person in whose name this Security
is registered as the owner hereof for all purposes, whether or not this
Security be overdue, and neither the Issuer, the Indenture Trustee nor any
such agent shall be affected by notice to the contrary.
All terms used in this Security without definition which are
defined in the Indenture shall have the meanings assigned to them in the
Indenture.
SECTION 2.05. FORM OF INDENTURE TRUSTEE'S CERTIFICATE OF
AUTHENTICATION. The Indenture Trustee's certificates of authentication
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.
__________________________________
as Indenture Trustee
By: ______________________________
Authorized Officer
ARTICLE III.
CHANGE IN CONTROL
SECTION 1. CHANGE IN CONTROL. Upon the occurrence of a
Change in Control (the effective date of such Change in Control being the
"Change in Control Date"), each Holder of X-TRAS shall have the right to
require that the Issuer repurchase (a "Required Repurchase") all or any
part of such Holder's X-TRAS at a repurchase price (the "Change in Control
Purchase Price") payable in cash equal to the sum of (i) 101% of the
principal amount of such X-TRAS plus accrued interest to the Change in
Control Purchase Date (as defined below) (the "Change in Control Purchase
Price") plus (in the aggregate with all other X-TRAS repurchased pursuant
to this Section 3.01) the ISDA Amount, if any, as of the second Business
Day preceding the Change in Control Purchase Date as determined by the
Extension Option Buyer and notified to the Issuer, the Indenture Trustee
and the Pass Through Trustee by 12 noon, New York City time, on such
second preceding Business Day. The Notional Amount used to determine the
ISDA Amount shall be equal to the aggregate principal amount of X-TRAS
tendered for repurchase and not withdrawn.
a. Within 30 days following the Change in Control Date,
the Issuer shall mail a notice (the "Required Repurchase Notice") to
each Holder with copies to the Indenture Trustee, Pass Through
Trustee and Extension Option Buyer stating:
(1) that a Change in Control has occurred and
that such Holder has the right to require the Issuer to
repurchase all or any part of such Holder's X-TRAS at the
Change in Control Purchase Price;
(2) the Change in Control Purchase Price;
(3) the date on which any Required Repurchase
shall be made (which shall be no earlier than 60 days nor
later than 90 days from the date such notice is mailed) (the
"Change in Control Purchase Date");
(4) the name and address of the Paying Agent;
and
(5) the procedures that Holders must follow to
cause the X-TRAS to be repurchased, which shall be
consistent with this Section and the Indenture.
b. Holders electing to have X-TRAS repurchased must
deliver a written notice (the "Change in Control Purchase Notice") to
the Paying Agent (initially the Indenture Trustee) at its corporate
trust office in Detroit, Michigan, or any other office of the Paying
Agent maintained for such purposes, not later than 30 days prior to
the Change in Control Purchase Date. The Change in Control Purchase
Notice shall state: (i) the portion of the principal amount of any X-
TRAS to be repurchased, which portion must be $1,000 or an integral
multiple thereof; (ii) that such X-TRAS are to be repurchased by the
Issuer pursuant to the change in control provisions of the Indenture;
and (iii) unless the X-TRAS are represented by one or more Global
Notes, the certificate numbers of the X-TRAS to be delivered by the
Holder thereof for repurchase by the Issuer. Any Change in Control
Purchase Notice may be withdrawn by the Holder by a written notice of
withdrawal delivered to the Paying Agent not later than three
Business Days prior to the Change in Control Purchase Date. The
notice of withdrawal shall state the principal amount and, if
applicable, the certificate numbers of the X-TRAS as to which the
withdrawal notice relates and the principal amount of such X-TRAS, if
any, which remains subject to a Change in Control Purchase Notice.
c. Payment of the Change in Control Purchase Price for
X-TRAS for which a Change in Control Purchase Notice has been
delivered and not withdrawn is conditioned upon delivery of such X-
TRAS (together with necessary endorsements) to the Paying Agent at
its office in Detroit, Michigan, or any other office of the Paying
Agent maintained for such purpose, at any time (whether prior to, on
or after the Change in Control Purchase Date) after the delivery of
such Change in Control Purchase Notice. Payment of the Change in
Control Purchase Price for such X-TRAS will be made promptly
following the later of the Change in Control Purchase Date or the
time of delivery of such X-TRAS. If the Paying Agent holds, in
accordance with the terms of the Indenture, money sufficient to pay
the Change in Control Purchase Price of such X- TRAS on the Business
Day following the Change in Control Purchase Date, then, on and after
such date, interest will cease accruing, and all other rights of the
Holder shall terminate (other than the right to receive the Change in
Control Purchase Price upon delivery of the X-TRAS).
d. The Issuer shall comply with the provisions of
Regulation 14E and any other tender offer rules under the Exchange
Act which may then be applicable in connection with any offer by the
Issuer to repurchase X-TRAS at the option of Holders upon a Change in
Control.
e. No X-TRAS may be repurchased by the Issuer as a
result of a Change in Control if there has occurred and is continuing
an Event of Default (other than a default in the Payment of the
Change in Control Purchase Price with respect to the X-TRAS).
ARTICLE IV.
ADDITIONAL COVENANTS OF THE ISSUER
WITH RESPECT TO THE X-TRAS
SECTION 1. LIMITATION ON CERTAIN LIENS. So long as any of
the X-TRAS are outstanding, the Issuer shall not create, incur, assume or
suffer to exist any Lien or any other type of arrangement intended or
having the effect of conferring upon a creditor of the Issuer or any
Subsidiary a preferential interest upon or with respect to any of its
property of any character, including without limitation any shares of
Capital Stock of Consumers or Enterprises, without making effective
provision whereby the X-TRAS shall (so long as any such other creditor
shall be so secured) be equally and ratably secured (along with any other
creditor similarly entitled to be secured) by a direct Lien on all
property subject to such Lien, provided, however, that the foregoing
restrictions shall not apply to:
(1) Liens for taxes, assessments or governmental charges
or levies to the extent not past due;
(2) pledges or deposits to secure (a) obligations under
workmen's compensation laws or similar legislation, (b) statutory
obligations of the Issuer or (c) Support Obligations at any one time
outstanding;
(3) Liens imposed by law, such as materialmen's,
mechanics', carriers', workmen's and repairmen's Liens and other
similar Liens arising in the ordinary course of business securing
obligations which are not overdue or which have been fully bonded and
are being contested in good faith;
(4) purchase money Liens upon or in property acquired
and held by the Issuer in the ordinary course of business to secure
the purchase price of such property or to secure Indebtedness
incurred solely for the purpose of financing the acquisition of any
such property to be subject to such Liens, or Liens existing on any
such property at the time of acquisition, or extensions, renewals or
replacements of any of the foregoing for the same or a lesser amount,
provided that no such Lien shall extend to or cover any property
other than the property being acquired and no such extension, renewal
or replacement shall extend to or cover property not theretofore
subject to the Lien being extended, renewed or replaced, and
provided, further, that the aggregate principal amount of the
Indebtedness at any one time outstanding secured by Liens permitted
by this clause (iv) shall not exceed $10,000,000; and
(5) Liens not otherwise permitted by clauses (i) through
(iv) of this Section securing Indebtedness of the Issuer; provided
that on the date such Liens are created, and after giving effect to
such Indebtedness, the aggregate principal amount at maturity of all
of the secured Indebtedness of the Issuer at such date shall not
exceed 5% of Consolidated Net Tangible Assets at such date.
SECTION 2. LIMITATION ON CONSOLIDATION, MERGER, SALE OR
CONVEYANCE OF ASSETS. So long as any of the X-TRAS are Outstanding and
until senior unsecured debt of the Issuer is rated BBB- or above (or an
equivalent rating) by Standard & Poor's and one Other Rating Agency (or,
if Standard & Poor's shall change its rating system, an equivalent of such
rating then employed by such organization), at which time the Issuer will
be permanently released from the provisions of this Section 4.02, and
subject also to Article Nine of the Indenture, the Issuer shall not
consolidate with or merge into any other Person or sell, lease or convey
the property of the Issuer in the entirety or substantially as an
entirety, unless (i) immediately after giving effect to such transaction
the Consolidated Net Worth of the surviving entity is at least equal to
the Consolidated Net Worth of the Issuer immediately prior to the
transaction, and (ii) after giving effect to such transaction, the
surviving entity would be entitled to incur at least one dollar of
additional Indebtedness (other than revolving Indebtedness to banks)
without violation of the limitations in Section 4.03 hereof.
SECTION 3. LIMITATION ON CONSOLIDATED INDEBTEDNESS. a. So
long as any of the X-TRAS are Outstanding and until the senior unsecured
debt of the Issuer is rated BBB- or above (or an equivalent rating) by
Standard & Poor's and one Other Rating Agency (or, if Standard & Poor's
shall change its rating system, an equivalent of such rating then employed
by such organization), at which time the Issuer will be permanently
released from the provisions of this Section 4.03, the Issuer shall not,
and shall not permit any Consolidated Subsidiary of the Issuer to, issue,
create, assume, guarantee, incur or otherwise become liable for
(collectively, "issue"), directly or indirectly, any Indebtedness unless
the Consolidated Coverage Ratio of the Issuer and its Consolidated
Subsidiaries for the four consecutive fiscal quarters immediately
preceding the issuance of such Indebtedness (as shown by a pro forma
consolidated income statement of the Issuer and its Consolidated
Subsidiaries for the four most recent fiscal quarters ending at least 30
days prior to the issuance of such Indebtedness after giving effect to (i)
the issuance of such Indebtedness and (if applicable) the application of
the net proceeds thereof to refinance other Indebtedness as if such
Indebtedness was issued at the beginning of the period, (ii) the issuance
and retirement of any other Indebtedness since the first day of the period
as if such Indebtedness was issued or retired at the beginning of the
period and (iii) the acquisition of any company or business acquired by
the Issuer or any Subsidiary since the first day of the period (including
giving effect to the pro forma historical earnings of such company or
business), including any acquisition which will be consummated
contemporaneously with the issuance of such Indebtedness, as if in each
case such acquisition occurred at the beginning of the period) exceeds a
ratio of 1.7 to 1.0.
b. Notwithstanding the foregoing paragraph, the Issuer
or any Restricted Subsidiary may issue, directly or indirectly, the
following Indebtedness:
(a) Indebtedness of the Issuer to banks not to exceed
$1,000,000,000 in aggregate outstanding principal amount at any time;
(b) Indebtedness (other than Indebtedness described in
clause (1) of this Subsection) outstanding on the date of this Sixth
Supplemental Indenture, as set forth on Schedule 4.03(b)(2) attached
hereto and made a part hereof, and Indebtedness issued in exchange
for, or the proceeds of which are used to refund or refinance, any
Indebtedness permitted by this clause (2); provided, however, that
(i) the principal amount (or accreted value in the case of
Indebtedness issued at a discount) of the Indebtedness so issued
shall not exceed the principal amount (or accreted value in the case
of Indebtedness issued at a discount) of, premium, if any, and
accrued but unpaid interest on, the Indebtedness so exchanged,
refunded or refinanced and (ii) the Indebtedness so issued (A) shall
not mature prior to the stated maturity of the Indebtedness so
exchanged, refunded or refinanced, (B) shall have an Average Life
equal to or greater than the remaining Average Life of the
Indebtedness so exchanged, refunded or refinanced and (C) if the
Indebtedness to be exchanged, refunded or refinanced is subordinated
to the X-TRAS, the Indebtedness is subordinated to the X-TRAS in
right of payment;
(c) Indebtedness of the Issuer owed to and held by a
Subsidiary and Indebtedness of a Subsidiary owed to and held by the
Issuer; provided, however, that, in the case of Indebtedness of the
Issuer owed to and held by a Subsidiary, (i) any subsequent issuance
or transfer of any Capital Stock that results in any such Subsidiary
ceasing to be a Subsidiary or (ii) any transfer of such Indebtedness
(except to the Issuer or a Subsidiary) shall be deemed for the
purposes of this Subsection to constitute the issuance of such
Indebtedness by the Issuer;
(d) Indebtedness of the Issuer issued in exchange for,
or the proceeds of which are used to refund or refinance,
Indebtedness of the Issuer issued in accordance with Subsection (a)
of this Section, provided that (i) the principal amount (or accreted
value in the case of Indebtedness issued at a discount) of the
Indebtedness so issued shall not exceed the principal amount (or
accreted value in the case of Indebtedness issued at a discount) of,
premium, if any, and accrued but unpaid interest on, the Indebtedness
so exchanged, refunded or refinanced and (ii) the Indebtedness so
issued (A) shall not mature prior to the stated maturity of the
Indebtedness so exchanged, refunded or refinanced, (B) shall have an
Average Life equal to or greater than the remaining Average Life of
the Indebtedness so exchanged, refunded or refinanced and (C) if the
Indebtedness to be exchanged, refunded or refinanced is subordinated
to the X-TRAS, the Indebtedness so issued is subordinated to the X-
TRAS in right of payment;
(e) Indebtedness of a Restricted Subsidiary issued in
exchange for, or the proceeds of which are used to refund or
refinance, Indebtedness of a Restricted Subsidiary issued in
accordance with Subsection (a) of this Section, provided that (i) the
principal amount (or accreted value in the case of Indebtedness
issued at a discount) of the Indebtedness so issued shall not exceed
the principal amount (or accreted value in the case of Indebtedness
issued at a discount) of, premium, if any, and accrued but unpaid
interest on, the Indebtedness so exchanged, refunded or refinanced
and (ii) the Indebtedness so issued (A) shall not mature prior to the
stated maturity of the Indebtedness so exchanged, refunded or
refinanced and (B) shall have an Average Life equal to or greater
than the remaining Average Life of the Indebtedness so exchanged,
refunded or refinanced.
(f) Indebtedness of a Consolidated Subsidiary issued to
acquire, develop, improve, construct or to provide working capital
for a gas, oil or electric generation, exploration, production,
distribution, storage or transmission facility and related assets,
provided that such Indebtedness is without recourse to any assets of
the Issuer, Consumers, Enterprises, CMS Generation, NOMECO,
CMS Electric and Gas, CMS Gas Transmission and Storage, CMS MST or
any other Designated Enterprises Subsidiary;
(g) Indebtedness of a Person existing at the time at
which such person became a Subsidiary and not incurred in connection
with, or in contemplation of, such Person becoming a Subsidiary.
Such Indebtedness shall be deemed to be incurred on the date the
acquired Person becomes a Consolidated Subsidiary;
(h) Indebtedness issued by the Issuer not to exceed
$150,000,000 in aggregate principal amount at any time; and
(i) Indebtedness of a Consolidated Subsidiary in respect
of rate reduction bonds issued to recover electric restructuring
transition costs of Consumers provided that such Indebtedness is
without recourse to the assets of Consumers.
SECTION 4. LIMITATION ON RESTRICTED PAYMENTS. a. So long
as the X-TRAS are Outstanding and until senior unsecured debt of the
Issuer is rated BBB- or above (or an equivalent rating) by Standard &
Poor's and one Other Rating Agency (or, if Standard & Poor's shall change
its rating system, an equivalent of such rating then employed by such
organization), at which time the Issuer will be permanently released from
the provisions of this Section 4.04, the Issuer shall not, and shall not
permit any Restricted Subsidiary of the Issuer, directly or indirectly, to
(i) declare or pay any dividend or make any distribution on the Capital
Stock of the Issuer to the direct or indirect holders of its Capital Stock
(except dividends or distributions payable solely in its Non-Convertible
Capital Stock or in options, warrants or other rights to purchase such
Non-Convertible Capital Stock and except dividends or distributions
payable to the Issuer or a Subsidiary), (ii) purchase, redeem or otherwise
acquire or retire for value any Capital Stock of the Issuer, or (iii)
purchase, repurchase, redeem, defease or otherwise acquire or retire for
value, prior to scheduled maturity or scheduled repayment thereof, any
Subordinated Indebtedness (any such dividend, distribution, purchase,
redemption, repurchase, defeasing, other acquisition or retirement being
hereinafter referred to as a "Restricted Payment") if at the time the
Issuer or such Subsidiary makes such Restricted Payment:
(a) an Event of Default, or an event that with the lapse
of time or the giving of notice or both would constitute an Event of
Default, shall have occurred and be continuing (or would result
therefrom); or
(b) the aggregate amount of such Restricted Payment and
all other Restricted Payments made since May 6, 1997 would exceed the
sum of:
i) $100,000,000;
ii) 100% of Consolidated Net Income, accrued
during the period (treated as one accounting period) from
May 6, 1997 to the end of the most recent fiscal quarter
ending at least 45 days prior to the date of such Restricted
Payment (or, in case such sum shall be a deficit, minus 100%
of the deficit); and
iii) the aggregate Net Cash Proceeds received by
the Issuer from the issue or sale of or contribution with
respect to its Capital Stock subsequent to May 6, 1997.
For the purpose of determining the amount of any Restricted Payment not in
the form of cash, the amount shall be the fair value of such Restricted
Payment as determined in good faith by the Board of Directors, provided
that if the value of the non-cash portion of such Restricted Payment as
determined by the Board of Directors is in excess of $25 million, such
value shall be based on the opinion from a nationally recognized firm
experienced in the appraisal of similar types of transactions.
b. The provisions of Section 4.04(a) shall not
prohibit:
(1) any purchase or redemption of Capital Stock
of the Issuer made by exchange for, or out of the proceeds
of the substantially concurrent sale of, Capital Stock of
the Issuer (other than Redeemable Stock or Exchangeable
Stock); provided, however, that such purchase or redemption
shall be excluded from the calculation of the amount of
Restricted Payments;
(2) dividends or other distributions paid in
respect of any class of the Issuer's Capital Stock issued in
respect of the acquisition of any business or assets by the
Issuer or a Restricted Subsidiary if the dividends or other
distributions with respect to such Capital Stock are payable
solely from the net earnings of such business or assets;
(3) dividends paid within 60 days after the date
of declaration thereof if at such date of declaration such
dividend would have complied with this Section; provided,
however, that at the time of payment of such dividend, no
Event of Default shall have occurred and be continuing (or
result therefrom), and provided further, however, that such
dividends shall be included (without duplication) in the
calculation of the amount of Restricted Payments; or
(4) payments pursuant to the Tax-Sharing
Agreement.
SECTION 5. LIMITATION ON ASSET SALES. So long as any of
the X-TRAS are outstanding, the Issuer may not sell, transfer or otherwise
dispose of any property or assets of the Issuer, including Capital Stock
of any Consolidated Subsidiary, in one transaction or a series of
transactions in an amount which exceeds $50,000,000 (an "Asset Sale")
unless the Issuer shall (i) apply an amount equal to such excess Net Cash
Proceeds to permanently repay Indebtedness of a Consolidated Subsidiary or
Indebtedness of the Issuer which is pari passu with the X-TRAS or (ii)
invest an equal amount not so used in clause (i) in property or assets of
related business within 24 months after the date of the Asset Sale (the
"Application Period") or (iii) apply such excess Net Cash Proceeds not so
used in (i) or (ii) (the "Excess Proceeds") to make an offer (the "Excess
Proceeds Offer"), within 30 days after the end of the Application Period,
to purchase (the "Excess Proceeds Repurchase") from the Holders on a pro
rata basis an aggregate principal amount of X-TRAS on the Excess Proceeds
Purchase Date (as defined herein) equal to the Excess Proceeds on such
date, at a purchase price equal to 100% of the principal amount of the X-
TRAS on the Excess Proceeds Purchase Date and unpaid interest, if any, to
such date (the "Excess Proceeds Repurchase Price") plus (in the aggregate
with all other X-TRAS repurchased pursuant to such Excess Proceeds Offer)
the ISDA Amount, if any, as of the Excess Proceeds Purchase Date as
determined by the Extension Option Buyer as of such date and notified to
the Issuer, the Indenture Trustee and the Pass Through Trustee by 10 a.m.,
New York City time, on such date. The Notional Amount used to determine
the ISDA Amount shall be equal to the aggregate principal amount of X-TRAS
tendered for repurchase and not withdrawn. The Issuer shall only be
required to make an offer to purchase X-TRAS from Holders pursuant to
subsection (iii) if the Excess Proceeds equal or exceed $25,000,000 at any
given time.
a. Within 30 days after the end of the Application
Period, the Issuer shall mail a notice (the "Excess Proceeds
Repurchase Notice") to each Holder with copies to the Indenture
Trustee, Pass Through Trustee and Extension Option Buyer stating:
(1) that the Issuer is making an Excess Proceeds
Offer pursuant to Section 4.05 of the Sixth Supplemental
Indenture;
(2) the Excess Proceeds Purchase Price;
(3) the date on which any Excess Proceeds
Repurchase shall be made (which shall be no earlier than 60
days nor later than 90 days from the date such notice is
mailed) (the "Excess Proceeds Purchase Date");
(4) the name and address of the Paying Agent;
and
(5) the procedures that Holders must follow to
cause the X-TRAS to be repurchased, which shall be
consistent with this Section and the Indenture.
b. Holders electing to have X-TRAS repurchased must
deliver a written notice (the "Excess Proceeds Purchase Notice") to
the Paying Agent (initially the Indenture Trustee) at its corporate
trust office in Detroit, Michigan, or any other office of the Paying
Agent maintained for such purposes, not later than 30 days prior to
the Excess Proceeds Purchase Date. The Excess Proceeds Purchase
Notice shall state: (i) the portion of the principal amount of any X-
TRAS to be repurchased, which portion must be $1,000 or an integral
multiple thereof; (ii) that such X-TRAS are to be repurchased by the
Issuer pursuant to the Excess Proceeds Offer provisions of the
Indenture; and (iii) unless the X-TRAS are represented by one or more
Global Notes, the certificate numbers of the X-TRAS to be delivered
by the Holder thereof for repurchase by the Issuer. Any Excess
Proceeds Purchase Notice may be withdrawn by the Holder by a written
notice of withdrawal delivered to the Paying Agent not later than
three Business Days prior to the Excess Proceeds Purchase Date. The
notice of withdrawal shall state the principal amount and, if
applicable, the certificate numbers of the X-TRAS as to which the
withdrawal notice relates and the principal amount of such X-TRAS, if
any, which remains subject to an Excess Proceeds Purchase Notice.
c. Payment of the Excess Proceeds Purchase Price for X-
TRAS for which an Excess Proceeds Purchase Notice has been delivered
and not withdrawn is conditioned upon delivery of such X-TRAS
(together with necessary endorsements) to the Paying Agent at its
office in Detroit, Michigan, or any other office of the Paying Agent
maintained for such purpose, at any time (whether prior to, on or
after the Excess Proceeds Purchase Date) after the delivery of such
Excess Proceeds Purchase Notice. Payment of the Excess Proceeds
Purchase Price for such X-TRAS will be made promptly following the
later of the Excess Proceeds Purchase Date or the time of delivery of
such X-TRAS. If the Paying Agent holds, in accordance with the terms
of the Indenture, money sufficient to pay the Excess Proceeds
Purchase Price of such X-TRAS on the Business Day following the
Excess Proceeds Purchase Date, then, on and after such date, interest
will cease accruing, and all other rights of the Holder shall
terminate (other than the right to receive the Excess Proceeds
Purchase Price upon delivery of the X-TRAS).
d. The Issuer shall comply with the provisions of
Regulation 14E and any other tender offer rules under the Exchange
Act which may then be applicable in connection with any Excess
Proceeds Offer.
ARTICLE V.
ADDITIONAL EVENTS OF DEFAULT
WITH RESPECT TO THE X-TRAS
SECTION 1. DEFINITION. All of the events specified in
clauses (a) through (h) of Section 5.1 of the Original Indenture shall be
"Events of Default" with respect to the X- TRAS. In addition, each of the
following events that shall have occurred and be continuing shall be an
Event of Default: (i) default in the payment when due of any Applicable
Premium on any of the X-TRAS, whether at maturity, upon redemption,
acceleration, purchase by the Issuer at the option of the Holders or
otherwise; and (ii) default in the payment when due of the ISDA Amount, if
any, whether on the Initial Stated Maturity, upon redemption,
acceleration, purchase by the Issuer at the option of the Holders or
otherwise.
SECTION 2. AMENDMENTS TO SECTION 5.1 OF THE ORIGINAL
INDENTURE. (a) Solely for the purpose of determining Events of Default
with respect to the X-TRAS, paragraphs (e), (f) and (h) of Section 5.1 of
the Original Indenture shall be amended such that each and every reference
therein to the Issuer shall be deemed to mean either the Issuer or
Consumers.
(b) Solely for purposes of determining waivers of
defaults and their consequences in respect of the X-TRAS, the penultimate
paragraph of Section 5.1 of the Original Indenture shall be amended such
that no such waiver may be made of any such default in respect of a
covenant or provision of the Sixth Supplemental Indenture which cannot be
modified or amended without the consent of each Holder of the X-TRAS or
the Extension Option Buyer without the consent of such Holder or buyer,
respectively.
(c) Solely for purposes of determining the application
of proceeds in respect of defaults under the X-TRAS, paragraphs SECOND and
THIRD of Section 5.3 of the Original Indenture shall be amended to provide
that proceeds paid thereunder shall be applied on a pro rata basis to (i)
the payment in full of the aggregate unpaid principal amount of the X-TRAS
and all accrued but unpaid interest on the X-TRAS to the Interest Payment
Date and (ii) the payment of the amount due under Section 5.03 of this
Sixth Supplemental Indenture.
SECTION 3. PAYMENT OF ISDA AMOUNT UPON ACCELERATION OF X-
TRAS. If an Event of Default resulting in acceleration of the X-TRAS
occurs, the Issuer shall pay to the Indenture Trustee, in addition to such
amounts as may be due in respect of the principal of, Applicable Premium,
if any, and accrued interest on the X-TRAS pursuant to Article V of the
Original Indenture and this Sixth Supplemental Indenture, an amount equal
to the ISDA Amount as of the date of acceleration of the X-TRAS (as
calculated by the Calculation Agent as of such date and notified to the
Issuer, the Indenture Trustee and the Pass Through Trustee within five
Business Days thereafter).
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ARTICLE VI.
DEFEASANCE
SECTION 1. GENERAL. All of the provisions of Article Ten
of the Original Indenture shall be applicable to the X-TRAS.
SECTION 2. SATISFACTION AND DISCHARGE. The provisions of
Section 10.1(A) of the Original Indenture are amended to provide that, in
addition to the requirements set forth therein for obtaining the
satisfaction and discharge of the Issuer's obligations under the Indenture
in respect of the X-TRAS, the Issuer shall, on the date of deposit
referred to in Section 10.1(A)(c)(ii) of the Original Indenture, be
required to deliver to the Indenture Trustee for the benefit of the Pass
Through Trustee the ISDA Amount, if any, as of the second Business Day
preceding such date of deposit as determined by the Extension Option Buyer
and notified to the Issuer, the Indenture Trustee and the Pass Through
Trustee by 12 noon, New York City time, on such second preceding Business
Day.
SECTION 3. LEGAL DEFEASANCE. (a) Solely for purposes of
a legal defeasance of the X-TRAS, the requirements for a legal defeasance
set forth in Section 10.1(B) of the Original Indenture are amended to
provide that in addition to the requirements set forth in clauses (a)
through (f), the Issuer shall be required to deliver to the Indenture
Trustee on the date of deposit referred to in Section 10.1(B)(a) of the
Original Indenture cash in an amount equal to the ISDA Amount, if any, as
of the second Business Day preceding such date of deposit as determined by
the Extension Option Buyer as of such date and notified to the Issuer, the
Indenture Trustee and the Pass Through Trustee by 12 noon, New York City
time, on such second preceding Business Day.
(b) Upon satisfaction by the Issuer of the requirements
of Section 10.1(B) of the Original Indenture and the foregoing clause (a),
in connection with any legal defeasance of the X-TRAS, the Issuer shall be
released from its obligations under the Original Indenture and under this
Sixth Supplemental Indenture with respect to the X-TRAS, except to the
extent otherwise provided in Section 10.1(b) of the Original Indenture.
SECTION 4. COVENANT DEFEASANCE. (a) Solely for purposes
of a covenant defeasance of the X-TRAS, the requirements for a covenant
defeasance set forth in Section 10.1(C) of the Original Indenture are
amended to provide that in addition to the requirements set forth in
clauses (a) through (f), the Issuer shall be required to deliver to the
Indenture Trustee for the benefit of the Pass Through Trustee on the date
of deposit referred to in Section 10.1(C)(a) of the Original Indenture
cash in an amount equal to the ISDA Amount, if any, as of the second
Business Day preceding such date of deposit as determined by the Extension
Option Buyer and notified to the Issuer, the Indenture Trustee and the
Pass Through Trustee by 12 noon, New York City time, on such second
preceding Business Day.
(b) Upon satisfaction by the Issuer of the requirements
of Section 10.1(C) of the Original Indenture, in connection with any
covenant defeasance of the X-TRAS, the Issuer shall be released from its
obligations under Article Nine of the Original Indenture and under
Articles III and IV of this Sixth Supplemental Indenture with respect to
the X-TRAS.
ARTICLE VII.
REDEMPTION
SECTION 1. REDEMPTION AT THE OPTION OF THE ISSUER. (a)
The provisions of Article XI of the Original Indenture (other than
Sections 11.5 and 11.6) shall be applicable to the X-TRAS.
(b) The X-TRAS will be redeemable at any time, at the
option of the Issuer, in whole or in part, on any date on or prior to the
Premium Termination Date on not less than 30 nor more than 60 days' notice
to the Indenture Trustee, the Pass Through Trustee and the Extension
Option Buyer, at a redemption price ("Early Redemption Price") equal to
the sum of (i) 100% of the principal amount of the X-TRAS being redeemed,
together with accrued interest, thereon to the Redemption Date plus the
Applicable Premium (but interest installments whose Stated Maturity is on
or prior to the Redemption Date will be payable to the Holder thereof of
record at the close of business on the relevant Record Date) plus (ii) the
ISDA Amount, if any, as of the second Business Day preceding the
Redemption Date as determined by the Extension Option Buyer and notified
to the Issuer, the Indenture Trustee and the Pass Through Trustee by 12
noon, New York City time, on such second preceding Business Day. In no
event will the Redemption Price calculated pursuant to the foregoing
clause (i) ever be less than 100% of the principal amount of the X-TRAS
plus accrued interest to the Redemption Date. The Notional Amount used
to determine the ISDA Amount shall be equal to the aggregate principal
amount of X-TRAS redeemed.
(c) If the X-TRAS are extended until the Extended Stated
Maturity, the Issuer shall have the option (the "FD Redemption Option"),
in lieu of permitting the X- TRAS to be remarketed in accordance with
Article VIII of this Sixth Supplemental Indenture, to redeem the X-TRAS in
whole on the Initial Stated Maturity, by irrevocable notice given to the
Indenture Trustee, the Pass Through Trustee, the Extension Option Buyer
and the Calculation Agent not later than the Remarketing Deadline, at a
redemption price, payable in cash, equal to the sum of (i) 100% of the
principal amount of the X-TRAS being redeemed together with accrued
interest, if any, thereon to the Initial Stated Maturity plus (ii) the
ISDA Amount, if any, as of the Exercise Date (as calculated by the
Calculation Agent on the Exercise Date and notified to the Issuer, the
Indenture Trustee and the Pass Through Trustee on or promptly following
such date (but in any event within five Business Days thereafter)), which
redemption price shall be payable at the Initial Stated Maturity. The
Notional Amount used to determine the ISDA Amount shall be the aggregate
principal amount of the X-TRAS outstanding as of the Exercise Date.
SECTION 2. PUT OPTION OF HOLDERS. If the maturity of the
X-TRAS is extended and for any reason the Pass Through Trustee does not
receive an amount in cash equal to the principal amount of and interest on
the X-TRAS plus the ISDA Amount by the Remarketing Deadline, the Holders
of the X-TRAS will be deemed to have exercised the Put Option and required
the Issuer to purchase all of the outstanding X-TRAS on the Initial Stated
Maturity at a purchase price equal to 100% of the principal amount of and
interest on the X-TRAS.
ARTICLE VIII.
REMARKETING OF X-TRAS
SECTION 1. REMARKETING OF X-TRAS. In the event that the
maturity of the X-TRAS is extended until the Extended Stated Maturity,
then, unless the Issuer exercises the FD Redemption Option (which option
the Issuer shall be entitled to exercise at any time subsequent to the
delivery of the Extension Notice and prior to the earlier of the pricing
of the remarketing and the Remarketing Deadline upon delivery of an
irrevocable notice of redemption), the interest rate borne by the X-TRAS
will be reset effective on and as of the date of closing of the
remarketing in order that the X-TRAS may be remarketed so as to yield net
proceeds in cash at least equal to the sum of (i) 100% of the principal
amount of the X-TRAS plus (ii) the ISDA Amount as of the Exercise Date as
calculated by the Calculation Agent and notified to the Issuer, the
Indenture Trustee and the Pass Through Trustee on or promptly following
such date (but in any event within five Business Days thereafter)
(collectively, the "Required Remarketing Proceeds"). As more
particularly set forth in the next sentence, it is intended that the
portions of the Required Remarketing Proceeds representing the principal
amount of the X-TRAS, together with the amount payable by the Issuer
pursuant to such sentence, will be sufficient to enable the Pass Through
Trustee to make the Final Distribution on the Certificates. Accordingly,
the Issuer shall be obligated to pay to the Pass Through Trust,
simultaneously with the closing of the remarketing, an amount equal to the
interest that would have accrued on the X-TRAS had they been held by the
Pass Through Trust to the Initial Stated Maturity. In the event that the
Final Distribution Date shall not be a Business Day at any Place of
Payment, then (notwithstanding any other provision of the Indenture),
payment of the portion of the Required Remarketing Proceeds representing
the principal amount of the X-TRAS, together with the amount equal to the
interest that would have accrued on the X-TRAS had they been held by the
Pass Through Trust to the Initial Stated Maturity need not be made at such
Place of Payment on such date, but may be made on the next succeeding
Business Day at such Place of Payment with the same force and effect as if
made on the Initial Stated Maturity; provided that no interest shall
accrue on the amount so payable for the period from and after such Initial
Stated Maturity to such Business Day. Upon payment of the Final
Distribution to Certificateholders and the ISDA Amount to the Extension
Option Buyer on the Final Distribution Date, the Issuer shall be entitled
to receive any amounts earned in respect of the investment by the Pass
Through Trustee of the Required Remarketing Proceeds and the ISDA Amount
in Government Obligations pursuant to clause (d) of Section 8.02 below.
In no event shall the Issuer have any obligation to pay the principal
amount of the X-TRAS to the Pass Through Trust on the Initial Stated
Maturity.
SECTION 2. REMARKETING PROCEDURE. The X-TRAS will be
remarketed in accordance with the following procedure (the "Remarketing
Procedure"):
(a) On the Exercise Date and thereafter on the 75th,
60th, 45th, 30th and 15th day prior to the Initial Stated Maturity, Morgan
Stanley & Co. Incorporated (or, subsequent to the Exercise Date, such
other investment banking institution as may be selected as the Remarketing
Agent) will provide the Issuer with non-binding indications of the
interest rate and discount or premium at which it believes it could
remarket the X-TRAS in order to yield the Required Remarketing Proceeds.
(b) Morgan Stanley & Co. Incorporated shall act as the
Remarketing Agent for the X-TRAS unless, no later than 60 days prior to
the Initial Stated Maturity, the Issuer shall select another investment
banking institution to remarket the X-TRAS or exercise the FD Redemption
Option in accordance with the provisions of Section 7.01(c) hereof.
(c) No later than 15 days prior to the Remarketing
Deadline, the Remarketing Agent will commence marketing of the X-TRAS to
investors.
(d) Pricing and closing of the remarketed X-TRAS shall
occur at any time within 10 days prior to the Remarketing Deadline,
subject to then prevailing market conditions and settlement cycles. Upon
completion of the remarketing, the net proceeds thereof, together with the
amount payable by the Issuer equal to the interest that would have accrued
on the X-TRAS had they been held by the Pass Through Trust to the Initial
Stated Maturity, will be deposited with the Pass Through Trustee and
invested in Government Obligations having a maturity as close as possible
equal to the number of days between the date of such investment and the
Initial Stated Maturity.
(e) The Remarketing Agent will be entitled to
underwriting commissions, payable at settlement of the Remarketing
Procedure, which will be determined at the time the Remarketing Procedure
is commenced and shall be consistent with then prevailing market
practices. In the event that Morgan Stanley & Co. Incorporated purchases
the X-TRAS pursuant to clause (i) below, it shall be entitled to
underwriting commissions, payable at settlement of such purchase, which
will be determined at the time it gives notice of its offer pursuant to
clause (i) below and shall be consistent with then prevailing market
practices.
(f) The Issuer will cooperate with and provide
information reasonably requested by the Remarketing Agent and (in the
event of an offer to purchase by Morgan Stanley & Co. Incorporated made
pursuant to clause (i) below) by Morgan Stanley & Co. Incorporated in
connection with the remarketing or purchase of the X-TRAS, as applicable,
including, without limitation, (1) promptly preparing an offering
memorandum or prospectus containing such disclosures as may be required by
applicable law and as may be required by the Remarketing Agent or Morgan
Stanley & Co. Incorporated, as applicable, in its reasonable judgment,
(ii) executing and delivering or causing to be executed and delivered
legal documentation (including a purchase agreement or underwriting
agreement and registration rights agreement with customary indemnities,
covenants, representations and warranties, comfort letters and legal
opinions) in form and substance reasonably satisfactory to the Remarketing
Agent or Morgan Stanley & Co. Incorporated, as applicable, (iii) providing
promptly upon request updated consolidated financial statements to the
date of its latest report filed with the Commission and (iv) to the extent
the Issuer and the Remarketing Agent or Morgan Stanley & Co. Incorporated,
as applicable, deem reasonably necessary for successful completion of the
Remarketing Procedure or the purchase by Morgan Stanley & Co.
Incorporated, as applicable, making available senior management of the
Issuer for road show and one-on-one presentations.
(g) The Issuer may, in its sole discretion, elect to
cause the X-TRAS to be remarketed by conducting an underwritten offering
or private placement thereof on a firm- commitment basis. In such event,
the Issuer shall notify the Remarketing Agent of such request no later
than 70 days prior to the Final Distribution Date. The Issuer
acknowledges that in no event shall the Remarketing Agent be deemed by
this provision to have made a commitment to underwrite or place the X-
TRAS.
(h) Regardless of whether it has been selected to act as
Remarketing Agent, Morgan Stanley & Co. Incorporated shall at all times be
permitted to make an offer, on not less than five Business Days' notice,
to purchase the X-TRAS bearing a reset interest rate specified by Morgan
Stanley & Co. Incorporated on a date not later than the Remarketing
Deadline for net proceeds in cash equal to the Required Remarketing
Proceeds, which offer the Company and the Trustee shall be required to
accept, unless, on or prior to the date for such purchase specified in the
notice provided by Morgan Stanley & Co. Incorporated, (i) the Company
shall have delivered an irrevocable notice of redemption pursuant to
Section 7.01(c) of this Sixth Supplemental Indenture or (B) any other
party shall have remarketed the X-TRAS bearing a reset interest rate lower
than or equal to that specified by Morgan Stanley & Co. Incorporated for
net proceeds in cash at least equal to the Required Remarketing Proceeds.
(i) The remarketed X-TRAS will bear interest at the
reset interest rate commencing upon the date of closing of the
remarketing. For the avoidance of doubt, holders of the remarketed X-TRAS
shall not be entitled to receive any interest thereon for any period prior
to the date of closing of the remarketing.
ARTICLE IX.
SUPPLEMENTAL INDENTURES
SECTION 1. EFFECT ON ORIGINAL INDENTURE. This Sixth
Supplemental Indenture is a supplement to the Original Indenture. As
supplemented by this Sixth Supplemental Indenture, the Original Indenture
is in all respects ratified, approved and confirmed, and the Original
Indenture and this Sixth Supplemental Indenture shall together constitute
one and the same instrument.
SECTION 2. SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF
SECURITYHOLDERS. The Issuer and the Indenture Trustee may enter into
supplemental indentures to this Sixth Supplemental Indenture without the
consent of the Holders of the X-TRAS for any of the purposes for which
execution of a supplemental indenture without the consent of the Holders
of the X-TRAS is authorized as provided in Section 8.1 of the Original
Indenture. In addition, any such supplemental indentures may be entered
into without the consent of the Holders of the X-TRAS for the purpose of
(i) curing any ambiguity or correcting or supplementing any provision
which may be defective or inconsistent with any other provision in the
Original Indenture, the ISDA Master Agreement or the Pass Through Trust
Agreement or (ii) modifying or amending any of the provisions hereof or of
the X-TRAS (A) relating to the ISDA Master Agreement or (B) that is
effective only from and after the closing of the remarketing of the X-
TRAS; provided that no such action adversely affects the interests of the
Holders of Securities of any Series; and provided further that no such
supplemental indenture referred to in the first clause of this sentence
and in clauses (a) through (f) of Section 8.1 of the Original Indenture
which has a material adverse effect on the Extension Option Buyer may be
entered into without the consent of the Extension Option Buyer.
SECTION 3. SUPPLEMENTAL INDENTURES WITH CONSENT OF
SECURITYHOLDERS. The provisions of Section 8.2 of the Original Indenture
are hereby amended to provide that notwithstanding any consent obtained
from the Holders of X-TRAS in respect of any modification, amendment or
supplement to this Sixth Supplemental Indenture requiring the consent of
the Holders of the X-TRAS pursuant to Section 8.2 of the Original
Indenture, no modification, amendment or supplement may be made to this
Sixth Supplemental Indenture that has a material adverse effect on the
Extension Option Buyer without the consent of the Extension Option Buyer.
ARTICLE X.
MISCELLANEOUS PROVISIONS
SECTION 1. PROVISIONS OF INDENTURE FOR THE SOLE BENEFIT OF
PARTIES AND HOLDERS OF SECURITIES AND COUPONS. The provisions of Section
14.2 of the Original Indenture are hereby amended to provide that, solely
for purposes of the X-TRAS issued under the Sixth Supplemental Indenture,
(i) each of the Extension Option Buyer and Morgan Stanley & Co.
Incorporated (as Remarketing Agent) shall be a third party beneficiary of
this Agreement and may enforce the obligations of the Issuer hereunder
running in favor of the Extension Option Buyer and Morgan Stanley & Co.
Incorporated, as applicable, and (ii) all amounts payable by the Issuer
under this Sixth Supplemental Indenture shall be for the benefit of and
enforceable by the Pass Through Trustee, as registered holder of the X-
TRAS, and shall be paid over by the Indenture Trustee to the Pass Through
Trustee promptly upon confirmation of the receipt of funds from the
Company by the Indenture Trustee.
SECTION 2. MICHIGAN LAW TO GOVERN. This Sixth
Supplemental Indenture and the X-TRAS 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.
TESTIMONIUM
This Sixth Supplemental Indenture may be executed in any
number of counterparts, each of which so executed shall be deemed to be an
original, but all such counterparts shall together constitute but one and
the same instrument.
<PAGE>
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Sixth Supplemental Indenture to be duly executed and their respective
corporate seals to be hereunto affixed and attested, all as of the day and
year first written above.
CMS ENERGY CORPORATION
By: /s/ A.M. Wright
___________________________
Attest: /s/ Michael D. Van Hemert
(Corporate Seal)
NBD BANK
as Indenture Trustee
By: /s/ J. Michael Banas
____________________________
Attest:
/s/ Steven D. VanderClay
(Corporate Seal)
<PAGE>
<PAGE>
SCHEDULE 4.03(b)(2)
Indebtedness of CMS Energy Corporation outstanding on January 13, 1998
<PAGE>
EMPLOYMENT AGREEMENT
AGREEMENT between Consumers Energy Company, a Michigan
corporation (the "Company"), and Robert A. Fenech (the "Executive") dated
this 4th day of December, 1997.
Whereas the Company considers the maintenance of a vital
management essential to protecting and enhancing the best interests of the
Company and its shareholders. Whereas the Company 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 Company hereby agrees to continue to employ
and engage the services of the Executive as its Senior Vice President of
the Company 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 Company's Pension Plan (hereinafter
"Employment Period"). The Executive agrees to serve the Company 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
Company (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 Company and to perform faithfully
and efficiently the responsibilities of Senior Vice President.
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 Company.
The Base Salary shall be reviewed and may be increased at
any time and from time to time in accordance with the Company'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
Company'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 Company 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 Company 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 Company
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.
<PAGE>
<PAGE>
(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 Company 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 Company-sponsored disability
benefits paid to the Executive through insurance or otherwise.
(c) TERMINATION WITH CAUSE. The Company 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 Company or
commission of a felony on the Executive's part. If the Executive's
employment is terminated for Cause, the Company 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 Company shall have
no further obligations to the Executive under this Agreement.
(d) OTHER TERMINATION OR RESIGNATION OF EXECUTIVE.
(i) The Company 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 Company 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 Company'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
Company's obligations to make the payments and arrangements required to be
made under this Agreement.
8. INDEMNIFICATION. The Company 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 Company 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 Company 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 Company or, in the case
of the Company, 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 canceled 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 COMPANY. Except as may be otherwise
provided herein, this Agreement shall be binding upon and inure to the
benefit of the Company and any successor of the Company.
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 Company and the Executive have executed
this Agreement as of the date first above written.
/s/ Robert A. Fenech
______________________
Robert A. Fenech
CONSUMERS ENERGY COMPANY
By:/s/ William T. McCormick, Jr.
_______________________________
William T. McCormick, Jr.
Chairman of the Board
<PAGE>
<TABLE>
Exhibit (12)
CMS ENERGY CORPORATION
Ratio of Earnings to Fixed Charges and Preferred Securities Dividends and Distributions
(Millions of Dollars)
Years Ended December 31
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Earnings as defined (a)
Consolidated net income $ 268 $ 240 $ 204 $ 179 $ 155
Income taxes 117 139 118 92 75
Exclude equity basis subsidiaries (80) (85) (57) (18) (6)
Fixed charges as defined, adjusted to
exclude capitalized interest of $16,
$8, $8, $6 and $5 for the years
ended December 31, 1997, 1996,
1995, 1994, and 1993,
respectively 357 310 295 249 253
----- ----- ----- ----- -----
Earnings as defined $ 662 $ 604 $ 560 $ 502 $ 477
===== ===== ===== ===== =====
Fixed charges as defined (a)
Interest on long-term debt $ 273 $ 230 $ 224 $ 193 $ 204
Estimated interest portion of lease rental 8 10 9 9 11
Other interest charges 49 43 42 30 32
Preferred securities dividends
and distributions 67 54 42 36 17
----- ----- ----- ----- -----
Fixed charges as defined $ 397 $ 337 $ 317 $ 268 $ 264
===== ===== ===== ===== =====
Ratio of earnings to fixed charges and
preferred securities dividends and distributions 1.67 1.79 1.77 1.87 1.81
===== ===== ===== ===== =====
NOTES:
(a) Earnings and fixed charges as defined in instructions for Item 503 of Regulation S-K.
</TABLE>
<PAGE>
<PAGE>
Exhibit (21)(a)
SUBSIDIARIES OF CMS ENERGY CORPORATION
At December 31, 1997
Percent Voting
Stock Owned by
CMS Energy Incorporated
Consumers Energy Company
("Consumers") 100 Michigan
Michigan Gas Storage Company 0 Michigan
(100% Owned by Consumers)*
CMS Enterprises Company
("CMS Enterprises") 100 Michigan
CMS Generation Co. 0 Michigan
(100% Owned by CMS Enterprises)
*Subject to regulation by FERC
<PAGE>
<PAGE>
Exhibit (21)(b)
SUBSIDIARIES OF CONSUMERS ENERGY COMPANY
At December 31, 1997
Percent Voting
Stock Owned by
Consumers Energy Company Incorporated
Michigan Gas Storage Company* 100 Michigan
*Subject to regulation by FERC
<PAGE>
<PAGE>
ARTHUR ANDERSEN LLP
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. 33-29681, No. 33-47629, No. 33-60007, No. 33-61595, No. 33-
62573, No. 333-32229 and No. 333-34087.
Arthur Andersen LLP
Detroit, Michigan,
March 24, 1998.
<PAGE>
<PAGE>
CMS ENERGY
Fairlane Plaza South
330 Town Center Drive
Suite 1100
Dearborn, MI 48126-2712
Tel: 313 436 9200
Fax: 313 436 9225
February 27, 1998
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, 1997 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/ Victor J. Fryling
William T. McCormick, Jr. Victor J. Fryling
/s/ John Deutch /s/ W. U. Parfet
John M. Deutch William U. Parfet
/s/ James J. Duderstadt /s/ Percy A. Pierre
James J. Duderstadt Percy A. Pierre
/s/ K. R. Flaherty /s/ Whipple
Kathleen R. Flaherty Kenneth Whipple
/s/ Earl D. Holton /s/ John B. Yasinsky
Earl D. Holton John B. Yasinsky
<PAGE>
<PAGE>
CONSUMERS ENERGY
GENERAL OFFICES
212 West Michigan Avenue
Jackson, MI 49201-2277
Tel:517 788 0550
February 27, 1998
Mr. Alan M. Wright and
Mr. Thomas A. McNish
212 West Michigan Avenue
Jackson, MI 49201
Consumers Energy Company is required to file an Annual Report on Form 10-K
for the year ended December 31, 1997 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/ Victor J. Fryling
William T. McCormick, Jr. Victor J. Fryling
/s/ John Deutch /s/ W. U. Parfet
John M. Deutch William U. Parfet
/s/ James J. Duderstadt /s/ Percy A. Pierre
James J. Duderstadt Percy A. Pierre
/s/ K. R. Flaherty /s/ Whipple
Kathleen R. Flaherty Kenneth Whipple
/s/ Earl D. Holton /s/ John B. Yasinsky
Earl D. Holton John B. Yasinsky
<PAGE>
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE STATEMENT OF INCOME, STATEMENT OF CASH FLOWS, BALANCE SHEET, AND
STATEMENT OF COMMON STOCKHOLDERS' EQUITY, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000811156
<NAME> CMS ENERGY CORPORATION
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 4,356
<OTHER-PROPERTY-AND-INVEST> 2,841
<TOTAL-CURRENT-ASSETS> 1,138
<TOTAL-DEFERRED-CHARGES> 1,458
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 9,793
<COMMON> 1
<CAPITAL-SURPLUS-PAID-IN> 2,267
<RETAINED-EARNINGS> (189)
<TOTAL-COMMON-STOCKHOLDERS-EQ> 1,977
393
238
<LONG-TERM-DEBT-NET> 1,528
<SHORT-TERM-NOTES> 382
<LONG-TERM-NOTES-PAYABLE> 1,744
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 609
0
<CAPITAL-LEASE-OBLIGATIONS> 75
<LEASES-CURRENT> 34
<OTHER-ITEMS-CAPITAL-AND-LIAB> 2,711
<TOT-CAPITALIZATION-AND-LIAB> 9,793
<GROSS-OPERATING-REVENUE> 4,787
<INCOME-TAX-EXPENSE> 117
<OTHER-OPERATING-EXPENSES> 4,041
<TOTAL-OPERATING-EXPENSES> 4,158
<OPERATING-INCOME-LOSS> 629
<OTHER-INCOME-NET> (12)
<INCOME-BEFORE-INTEREST-EXPEN> 617
<TOTAL-INTEREST-EXPENSE> 306
<NET-INCOME> 311
43
<EARNINGS-AVAILABLE-FOR-COMM> 268
<COMMON-STOCK-DIVIDENDS> 119
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 657
<EPS-PRIMARY> 2.63<F1>
<EPS-DILUTED> 2.61
<FN>
<F1> EPS for CMS Energy Common Stock $2.63
EPS for Class G Common Stock $1.84
</FN>
<PAGE>
</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 STOCKHOLDERS' EQUITY, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<CIK> 0000811156
<NAME> CMS ENERGY CORPORATION
<MULTIPLIER> 1,000,000
<S> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997 DEC-31-1997
<PERIOD-START> JAN-01-1997 JAN-01-1997 JAN-01-1997
<PERIOD-END> MAR-31-1997 JUN-30-1997 SEP-30-1997
<BOOK-VALUE> PER-BOOK PER-BOOK PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 4,393 4,368 4,347
<OTHER-PROPERTY-AND-INVEST> 1,909 2,576 2,650
<TOTAL-CURRENT-ASSETS> 769 801 1,020
<TOTAL-DEFERRED-CHARGES> 1,332 1,391 1,483
<OTHER-ASSETS> 0 0 0
<TOTAL-ASSETS> 8,403 9,136 9,500
<COMMON> 1 1 1
<CAPITAL-SURPLUS-PAID-IN> 2,062 2,075 2,103
<RETAINED-EARNINGS> (282) (256) (221)
<TOTAL-COMMON-STOCKHOLDERS-EQ> 1,775 1,814 1,834
100 273 393
356 356 238
<LONG-TERM-DEBT-NET> 1,667 1,988 1,562
<SHORT-TERM-NOTES> 88 246 394
<LONG-TERM-NOTES-PAYABLE> 962 1,089 1,498
<COMMERCIAL-PAPER-OBLIGATIONS> 0 0 0
<LONG-TERM-DEBT-CURRENT-PORT> 628 650 878
0 0 0
<CAPITAL-LEASE-OBLIGATIONS> 99 89 82
<LEASES-CURRENT> 40 40 33
<OTHER-ITEMS-CAPITAL-AND-LIAB> 2,682 2,585 2,539
<TOT-CAPITALIZATION-AND-LIAB> 8,403 9,136 9,500
<GROSS-OPERATING-REVENUE> 1,295 2,319 3,351
<INCOME-TAX-EXPENSE> 50 79 107
<OTHER-OPERATING-EXPENSES> 1,082 1,939 2,786
<TOTAL-OPERATING-EXPENSES> 1,132 2,018 2,893
<OPERATING-INCOME-LOSS> 163 301 458
<OTHER-INCOME-NET> (2) (3) (2)
<INCOME-BEFORE-INTEREST-EXPEN> 161 298 456
<TOTAL-INTEREST-EXPENSE> 68 141 221
<NET-INCOME> 93 157 235
9 19 31
<EARNINGS-AVAILABLE-FOR-COMM> 84 138 204
<COMMON-STOCK-DIVIDENDS> 28 56 87
<TOTAL-INTEREST-ON-BONDS> 0 0 113
<CASH-FLOW-OPERATIONS> 379 381 363
<EPS-PRIMARY> .79<F1> 1.34<F1> 2.04<F1>
<EPS-DILUTED> .78 1.33 2.02
<FN>
<F1> EPS for CMS Energy Common Stock $ .79 $1.34 $2.04
EPS for Class G Common Stock $1.18 $1.34 $1.13
</FN>
<PAGE>
</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 ENERGY COMPANY
<MULTIPLIER> 1,000,000
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 4,356
<OTHER-PROPERTY-AND-INVEST> 721
<TOTAL-CURRENT-ASSETS> 654
<TOTAL-DEFERRED-CHARGES> 1,218
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 6,949
<COMMON> 841
<CAPITAL-SURPLUS-PAID-IN> 452
<RETAINED-EARNINGS> 363
<TOTAL-COMMON-STOCKHOLDERS-EQ> 1,714
220
238
<LONG-TERM-DEBT-NET> 1,146
<SHORT-TERM-NOTES> 377
<LONG-TERM-NOTES-PAYABLE> 223
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 545
0
<CAPITAL-LEASE-OBLIGATIONS> 74
<LEASES-CURRENT> 34
<OTHER-ITEMS-CAPITAL-AND-LIAB> 2,436
<TOT-CAPITALIZATION-AND-LIAB> 6,949
<GROSS-OPERATING-REVENUE> 3,769
<INCOME-TAX-EXPENSE> 152
<OTHER-OPERATING-EXPENSES> 3,136
<TOTAL-OPERATING-EXPENSES> 3,288
<OPERATING-INCOME-LOSS> 481
<OTHER-INCOME-NET> 13
<INCOME-BEFORE-INTEREST-EXPEN> 494
<TOTAL-INTEREST-EXPENSE> 173
<NET-INCOME> 321
37
<EARNINGS-AVAILABLE-FOR-COMM> 284
<COMMON-STOCK-DIVIDENDS> 218
<TOTAL-INTEREST-ON-BONDS> 131
<CASH-FLOW-OPERATIONS> 758
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<PAGE>
</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 Energy Company ("Consumers")
and its wholly-owned subsidiary, Michigan Gas Storage Company) as of
December 31, 1997 and 1996, and the related statements of income, common
stockholders' equity, and cash flows for each of the three years in the
period ended December 31, 1997. 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, 1997 and 1996, and the results of its operations and its
cash flows for each of the three years in the period ended December 31,
1997 in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Detroit, Michigan,
January 26, 1998.
<PAGE>
<PAGE> 2
Consumers Gas Group
Management's Discussion and Analysis
In 1995, CMS Energy Corporation (CMS Energy) issued a total of 7.62
million shares of Class G Common Stock. This class of common stock
reflects the separate performance of the gas distribution, storage and
transportation businesses conducted by Consumers Energy Company
(Consumers) and Michigan Gas Storage Company, a subsidiary of Consumers
(collectively, Consumers Gas Group). Accordingly, this Management's
Discussion and Analysis (MD&A) should be read along with the MD&A in the
1997 Annual Report of CMS Energy included and incorporated by reference
herein.
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 Class G Common Stock, see
the MD&A of CMS Energy.
Results of Operations
Net income for Consumers Gas Group for 1997 totaled $60 million compared
with $59 million for 1996. The increase in 1997 net income reflects
reduced operation and maintenance expenses offset by decreased gas
deliveries due to warmer winter month temperatures in 1997 and an extra
day for the 1996 leap year, and increased depreciation and general tax
expenses. Other items benefitting 1997 were the recognition of interest
income from a related-party property sale and reduced other income
deductions in 1997 reflecting the absence of an unusual material write-off
which occurred during 1996. Net income for 1996 totaled $59 million
compared with $62 million for 1995. The decrease in 1996 net income
reflects the reversal of a previously recorded gas contract contingency in
1995 and higher operating expenses during 1996. Partially offsetting these
decreases were higher gas deliveries and revenues from value-added
services and gas loaning activities during 1996. For a further
discussion, see Consumers Gas Group Results of Operations in CMS Energy's
MD&A.
Gas Issues
For a discussion of Gas Rate Proceedings, Gas Cost Recovery Matters and
Gas Environmental Matters, see Consumers Gas Group Operating Issues in
CMS Energy's MD&A.
Cash Position, Investing and Financing
Operating Activities: 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 1997 and 1996 totaled $223 million
and $141 million, respectively. The $82 million increase primarily
reflects changes in the timing of cash receipts and payments related to
Consumers Gas Group's operations. Consumers Gas Group uses its operating
cash mainly to maintain and expand its gas utility transmission and
distribution systems and to retire portions of its long-term debt and pay
dividends.
Investing Activities: Cash used in investing activities for 1997 and 1996
totaled $122 million and $145 million, respectively. The $23 million
decrease in cash used primarily reflects a decrease in capital
expenditures.
Financing Activities: Cash used in financing activities during 1997
totaled $114 million while cash provided by financing activities during
1996 totaled $13 million. The $127 million increase in cash used
primarily reflects an increase in the retirement of bonds, other long-term
debt, preferred stock and the return of CMS Energy stockholders'
contributions in 1997 compared to 1996.
Other Investing and Financing Matters: Consumers has an agreement
permitting the sale of certain accounts receivable for up to $500 million.
At December 31, 1997, receivables sold totaled $335 million. Consumers
Gas Group's attributed portion of these receivables sold totaled $138
million. For further information, see Cash Position, Investing and
Financing in CMS Energy's MD&A.
Forward-Looking Information
For cautionary statements relating to Consumers Gas Group's forward-
looking information, see Forward-Looking Information in CMS Energy's MD&A.
Capital Expenditures: CMS Energy estimates the following capital
expenditures for Consumers Gas Group, including new lease commitments,
over the next three years. These estimates are prepared for planning
purposes and are subject to revision.
In Millions
Years Ended December 31 1998 1999 2000
Gas utility (a) $112 $112 $112
Michigan Gas Storage 3 3 3
---- ---- ----
$115 $115 $115
==== ==== ====
(a) Includes a portion of anticipated capital expenditures common to
Consumers' gas and electric utility businesses.
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. For further information regarding
forward-looking information, see the Consumers Gas Group Business Outlook
discussion in CMS Energy's MD&A.
<PAGE>
<PAGE> 4
<TABLE>
Statements of Income Consumers Gas Group
<CAPTION>
In Millions, Except Per Share Amounts
Years Ended December 31 1997 1996 1995
<S> <C> <C> <C>
Operating Revenue $1,204 $1,282 $1,195
------ ------ ------
Operating Expenses Operation
Cost of gas sold 694 750 674
Other 175 193 189
------ ------ ------
869 943 863
Maintenance 34 40 39
Depreciation, depletion and amortization 93 87 83
General taxes 55 54 54
------ ------ ------
1,051 1,124 1,039
------ ------ ------
Pretax Operating Income 153 158 156
------ ------ ------
Other Income (Deductions) (2) (6) -
------ ------ ------
Fixed Charges Interest on long-term debt 28 30 30
Other interest 13 12 11
Capitalized interest - (1) (1)
Preferred dividends 5 6 6
------ ------ ------
46 47 46
------ ------ ------
Income Before Income Taxes 105 105 110
Income Taxes 45 46 48
------ ------ ------
Net Income $ 60 $ 59 $ 62
====== ====== ======
Net Income Attributable to CMS Energy Shareholders
through Retained Interest $ 45 $ 45 $ 59
====== ====== ======
Net Income Attributable to Class G Shareholders $ 15 $ 14 $ 3
====== ====== ======
Average Class G Common Shares Outstanding 8 8 8
====== ====== ======
Basic and Diluted Earnings Per Average Class G Common Share $ 1.84 $ 1.82 $ .38
====== ====== ======
Dividends Declared Per Class G Common Share $ 1.21 $ 1.15 $ .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 1997 1996 1995
<S> <C> <C> <C>
Cash Flows From Net income $ 60 $ 59 $ 62
Operating Adjustments to reconcile net income to net cash
Activities provided by operating activities
Depreciation, depletion and amortization 93 87 83
Capital lease and other amortization 4 4 5
Deferred income taxes and investment tax credit 5 13 14
Other (1) 2 -
Changes in other assets and liabilities (Note 6) 62 (24) 16
------ ------ ------
Net cash provided by operating activities 223 141 180
------ ------ ------
Cash Flows From Capital expenditures (excludes capital
Investing lease additions) (Note 6) (113) (137) (124)
Activities Cost to retire property, net (9) (9) (10)
Other - 1 2
------ ------ ------
Net cash used in investing activities (122) (145) (132)
------ ------ ------
Cash Flows From Payment of common stock dividends (40) (37) (58)
Financing Return of CMS Energy stockholders' contribution (39) - -
Activities Retirement of bonds and other long-term debt (33) (8) (6)
Retirement of preferred stock (26) - -
Repayment of bank loans (7) - (2)
Payment of capital lease obligations (4) (4) (5)
Repayment of long-term note (2) - -
Proceeds from long-term note 25 22 -
Issuance of common stock 7 5 1
Increase in notes payable, net 5 9 6
Proceeds from bank loans - 23 -
Contribution from CMS Energy stockholders - 3 18
------ ------ ------
Net cash provided by (used in)
financing activities (114) 13 (46)
------ ------ ------
Net Increase (Decrease) in Cash and Temporary Cash Investments (13) 9 2
Cash and temporary cash investments
Beginning of year 15 6 4
------ ------ ------
End of year $ 2 $ 15 $ 6
====== ====== ======
<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 1997 1996
<S> <C> <C>
Plant and Property Plant and property $2,322 $2,203
(At Cost) Less accumulated depreciation, depletion
and amortization (Note 2) 1,231 1,133
------ ------
1,091 1,070
Construction work-in-progress 28 46
------ ------
1,119 1,116
------ ------
Current Assets Cash and temporary cash investments at cost,
which approximates market 2 15
Accounts receivable and accrued revenue, less allowances
of $3 in 1997 and $4 in 1996 (Note 4) 53 97
Inventories at average cost
Gas in underground storage 197 186
Materials and supplies 7 8
Deferred income taxes (Note 7) 6 4
Trunkline settlement - 25
Prepayments and other 51 49
------ ------
316 384
------ ------
Non-current Assets Postretirement benefits (Note 10) 142 153
Deferred income taxes (Note 7) 6 11
Other 61 59
------ ------
209 223
------ ------
Total Assets $1,644 $1,723
====== ======
</TABLE>
<PAGE>
<PAGE> 7
<TABLE>
Consumers Gas Group
<CAPTION>
STOCKHOLDERS' INVESTMENT AND LIABILITIES In Millions
December 31 1997 1996
<S> <C> <C>
Capitalization Common stockholders' equity
(Note 4) Common stock $ 184 $ 184
Paid-in capital 102 134
Retained earnings since December 31, 1992 72 52
------ ------
358 370
Preferred stock 52 78
Long-term debt 333 446
Non-current portion of capital leases (Note 11) 16 17
------ ------
759 911
------ ------
Current Liabilities Current portion of long-term debt and capital leases 118 24
Notes payable 119 114
Accounts payable 94 85
Accrued taxes 65 61
Accrued refunds 10 7
Accrued interest 4 7
Trunkline settlement - 25
Other 44 52
------ ------
454 375
------ ------
Non-current Postretirement benefits (Note 10) 168 171
Liabilities Regulatory liabilities for income taxes, net
(Notes 7 and 12) 173 169
Deferred investment tax credit 25 27
Other 65 70
------ ------
431 437
------ ------
Commitments and Contingencies (Notes 2, 3, 5 and 11)
Total Stockholders' Investment and Liabilities $1,644 $1,723
====== ======
<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
Years Ended December 31 1997 1996 1995
<S> <C> <C> <C>
Common Stock At beginning and end of period (a) $ 184 $ 184 $ 184
----- ----- -----
Other Paid-in Capital At beginning of period 134 126 107
Common stock issued 7 5 1
CMS Energy stockholders' contribution - 3 18
Return of CMS Energy stockholders' contribution (39) - -
----- ----- -----
At end of period 102 134 126
----- ----- -----
Retained Earnings At beginning of period 52 30 26
Net income 60 59 62
Common stock dividends declared (40) (37) (58)
----- ----- -----
At end of period 72 52 30
----- ----- -----
Total Common Stockholders' Equity $ 358 $ 370 $ 340
===== ===== =====
<FN>
(a) Number of shares of Consumers' common stock outstanding was 84,108,789 for all periods presented. Common
stock allocated to the Consumers Gas Group is consistent with the allocation method discussed in Note 4.
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 Corporation (CMS Energy) is the parent holding company of
Consumers Energy Company (Consumers) and CMS Enterprises Company
(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 businesses of
CMS Energy, see the Notes to Consolidated Financial Statements of
CMS Energy included and incorporated by reference herein.
CMS Energy has issued shares of Class G Common Stock. This class of
common stock reflects the separate performance of the gas distribution,
storage and transportation businesses conducted by Consumers and Michigan
Gas Storage Company, a subsidiary of Consumers (collectively, Consumers
Gas Group). For further information regarding the nature and issuance of
the Class G Common Stock, see Note 7 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 1997 Annual
Report 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 Michigan Public Service Commission
(MPSC). The financial statements for 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
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
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 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 Consumers Gas Group incorporate Consumers'
natural gas utility business and the related business of Michigan Gas
Storage Company. 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 Consumers Gas Group have been eliminated.
Earnings Per Share and Dividends: Basic and Diluted earnings per share for
the years ended December 31, 1997 and 1996, reflect the performance of
Consumers Gas Group. Basic and Diluted earnings per share for 1995
reflect the performance of Consumers Gas Group since the initial issuance
of the Class G Common Stock in 1995. The earnings attributable to Class G
Common Stock and the related amounts per share are computed by considering
the weighted average number of shares of Class G Common Stock outstanding.
Earnings attributable to outstanding Class G Common Stock are equal to
Consumers Gas Group's net income multiplied by a fraction; the numerator
is the weighted average number of Outstanding Shares during the period
(Outstanding Shares), and the denominator is the weighted average number
of Outstanding Shares and Retained Interest Shares, shares not held by the
holders of the Outstanding Shares, during the period. The earnings
attributable to Class G Common Stock on a per share basis, for the years
ended December 31, 1997, 1996 and 1995, are based on 24.50 percent, 23.79
percent and 23.45 percent of the income of Consumers Gas Group since the
initial issuance, respectively.
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 as a whole. In the sole discretion of the Board of
Directors of CMS Energy (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 Class G Common Stock are paid at
the discretion of the Board of Directors based primarily upon the earnings
and financial condition of 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.
In February and May 1997, CMS Energy paid dividends of $.295 per share on
Class G Common Stock. In August and November of 1997, and February 1998,
CMS Energy paid dividends of $.31 per share on Class G Common Stock.
Related Party Transactions: Consumers Gas Group sold, stored and
transported natural gas and provided other services to the Midland
Cogeneration Venture Limited Partnership totaling $13 million, each year,
for 1997, 1996 and 1995. Consumers Gas Group purchases a portion of its
gas from CMS NOMECO Oil & Gas Co., a wholly owned subsidiary of
Enterprises. The amounts of purchases for the years ended December 31,
1997, 1996 and 1995 totaled $25 million, $24 million and $19 million,
respectively.
Other: For significant accounting policies refer to the following Notes
to Consolidated Financial Statements of CMS Energy: for Consumers Gas
Group's gas inventory, maintenance, depreciation and depletion, revenue
and fuel costs, and utility regulation, see Note 2; for cash equivalents,
see Note 12; for income taxes, see Note 13; for executive incentive
compensation, see Note 15; and for pensions and other postretirement
benefits, see Note 16 included and incorporated by reference herein.
3: Rate Matters
For information regarding rate matters directly affecting Consumers Gas
Group, see Note 4 in the Consolidated Financial Statements of CMS Energy
included and incorporated by reference herein.
4: Short-Term Financings and Capitalization
Short-Term Financings: Consumers' short-term financings are discussed in
Consolidated Financial Statements of CMS Energy Note 5 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
Consumers Gas Group at December 31, 1997 and 1996, is estimated by
management to be $138 million and $137 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 attributable 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 Consumers Gas Group based on the ratio of customer revenues
contributed by Consumers' gas customers to total Consumers' revenue. As a
result of the centralized management of short-term financing, the amounts
allocated to 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 period (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.
Capital Stock and Long-Term Debt: Consumers Gas Group's capital stock and
long-term debt, including debt resulting from the sale of Trust Preferred
Securities, 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 long-term debt and capital stock of
CMS Energy and Consumers, see Note 6 and Note 7 to the Consolidated
Financial Statements of CMS Energy included and incorporated by reference
herein.
5: Commitments and Contingencies
Capital Expenditures: Consumers Gas Group estimates capital expenditures,
including new lease commitments, of $115 million for 1998, 1999 and 2000.
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 Consumers Gas Group (including those involving former
manufactured gas plant sites), see the Gas Environmental Matters and Other
discussions in CMS Energy's Note 10 included and incorporated by reference
herein.
6: Supplemental Cash Flow Information
For purposes of the Statement of Cash Flows, all highly liquid investments
with an original maturity of three months or less are considered cash
equivalents. Consumers Gas Group's other cash flow activities and
non-cash investing and financing activities were:
In Millions
Years Ended December 31 1997 1996 1995
Cash transactions
Interest paid
(net of amounts capitalized) $42 $39 $40
Income taxes paid (net of refunds) 40 33 25
Non-cash transactions
Assets placed under capital lease $ 3 $ 1 $ 2
Capital leases refinanced - - 9
Changes in other assets and liabilities as shown on the Statements of Cash
Flows at December 31 are described below:
In Millions
Years Ended December 31 1997 1996 1995
Sale of receivables, net $ 1 $ - $ 26
Accounts receivable 18 7 (39)
Accrued revenue 25 (5) (35)
Inventories (10) - 50
Accounts payable 9 6 11
Accrued refunds 3 (13) -
Other current assets and liabilities, net (9) (5) (8)
Non-current deferred amounts, net 25 (14) 11
---- ---- ----
$ 62 $(24) $ 16
==== ==== ====
7: Income Taxes
Consumers Gas Group is included in the consolidated federal income tax
return filed by CMS Energy (see Note 13 to the Consolidated Financial
Statements of CMS Energy). The financial statement provision and actual
cash tax payments have been reflected in 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 and the amortization of investment tax
credits (ITC) over the life of the related property included within the
Consumers Gas Group. Tax settlements at Consumers Gas Group are
consistent with settlements of CMS Energy's consolidated tax 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 Consumers Gas Group consisted of:
In Millions
Years Ended December 31 1997 1996 1995
Current federal income taxes $40 $33 $34
Deferred income taxes 7 14 16
Deferred ITC, net (2) (1) (2)
--- --- ---
$45 $46 $48
=== === ===
Operating $46 $50 $50
Other (1) (4) (2)
--- --- ---
$45 $46 $48
=== === ===
The principal components of deferred tax assets (liabilities) recognized
in the balance sheet for Consumers Gas Group are as follows.
In Millions
December 31 1997 1996
Property $ (66) $ (60)
Postretirement benefits (Note 10) (53) (57)
Employee benefit obligations (includes postretirement
benefits of $53 and $57) (Note 10) 66 69
Regulatory liability for income taxes 60 59
Other 5 4
----- -----
$ 12 $ 15
===== =====
Gross deferred tax liabilities $(217) $(226)
Gross deferred tax assets 229 241
===== =====
$ 12 $ 15
===== =====
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 1997 1996 1995
Net income before preferred dividends $ 65 $ 65 $ 68
Income tax expense 45 46 48
---- ---- ----
110 111 116
Statutory federal income tax rate x 35% x 35% x 35%
---- ---- ----
Expected income tax expense 39 39 41
Increase (decrease) in taxes from:
Differences in book and tax depreciation
not previously deferred 8 9 9
ITC amortization (2) (2) (2)
---- ---- ----
Actual income tax expense $ 45 $ 46 $ 48
==== ==== ====
8: Financial Instruments
The carrying amount of Consumers Gas Group's long-term debt was $333
million and $446 million and the fair value was $335 million and $448
million as of December 31, 1997 and 1996, respectively. For additional
information regarding financial instruments, see Note 14 to the
Consolidated Financial Statements of CMS Energy included and incorporated
by reference herein.
9: 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 15 to the Consolidated Financial Statements of CMS Energy
included and incorporated by reference herein. This plan allows for
awards of Class G Common Stock, and has established criteria for certain
plan awards.
10: Retirement Benefits
Postretirement Benefit Plans Other Than Pensions: Consumers Gas Group's
attributed portion of CMS Energy's net periodic cost for health and life
insurance benefits totaled $12 million, $15 million and $15 million in
1997, 1996 and 1995, 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 $153 million
and $163 million at December 31, 1997 and 1996, respectively. These
amounts were allocated based on policies Consumers has historically used
in proceedings conducted before the Michigan Public Service Commission.
For further information regarding CMS Energy's postretirement benefit
plans other than pensions, see Note 16 to the Consolidated Financial
Statements of CMS Energy included and incorporated by reference herein.
Supplemental Executive Retirement Plan: The attributed Supplemental
Executive Retirement Plan (SERP) trust assets of Consumers Gas Group were
$8 million at December 31, 1997 and $6 million at December 31, 1996 and
were classified as other non-current assets. Consumers Gas Group's
estimated portion of CMS Energy's recorded liability for the SERP totaled
$4 million at December 31, 1997 and $6 million at December 31, 1996.
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 16 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 (Pension Plan) covers substantially all employees.
Consumers Gas Group's attributed portion of CMS Energy's net periodic
pension cost totaled $4 million in 1997 and 1996, and $3 million in 1995.
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 $17 million at December 31, 1997
and $13 million at December 31, 1996 and was allocated to 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 16 to
the Consolidated Financial Statements of CMS Energy included and
incorporated by reference herein.
Defined Contribution Plan: Consumers provides a defined contribution
401(k) plan to all U.S. employees of CMS Energy and its subsidiaries which
are at least 80 percent owned and have adopted the plan. Consumers'
contributions to the plan are invested in CMS Energy Common Stock. For
further information, see Note 16 to the Consolidated Financial Statements
of CMS Energy included and incorporated by reference herein.
11: 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, 1997, were:
In Millions
Capital Leases
1998 $ 6
1999 5
2000 4
2001 4
2002 3
2003 and thereafter 3
---
Total minimum lease payments 25
Less imputed interest 5
---
Present value of net minimum lease payments 20
Less current portion 4
---
Non-current portion $16
===
Consumers recovers lease charges from customers and accordingly charges
payments for its capital and operating leases to operating expense. There
were no operating lease charges for Consumers Gas Group in 1997 or 1996.
Operating lease charges, including charges to clearing and other accounts,
for the year ended December 31, 1995 were $1 million. Capital lease
expenses for Consumers Gas Group for the years ended December 31, 1997,
1996 and 1995 were $6 million, $6 million and $7 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.
12: 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. Virtually all of these costs are being
recovered through current rates.
In Millions
December 31 1997 1996
Postretirement benefits (Note 10) $ 150 $ 162
Manufactured gas plant sites 47 47
Trunkline settlement - 25
Other 3 3
----- -----
Total regulatory assets $ 200 $ 237
===== =====
Regulatory liabilities for income taxes $(173) $(169)
===== =====
<PAGE>
<PAGE> 17
<TABLE>
Quarterly Financial and Common Stock Information Consumers Gas Group
<CAPTION>
In Millions, Except Per Share Amounts
1997 (Unaudited) 1996 (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 $498 $220 $110 $376 $548 $209 $123 $402
Pretax operating income
(loss) (a) $78 $23 $(1) $53 $93 $23 - $42
Net income (loss) $39 $5 $(7) $23 $48 $5 $(9) $15
Basic and diluted earnings
(loss) per average
common share (b) $1.18 $.16 $(.21) $.70 $1.50 $.16 $(.28) $.44
Dividends declared per
common share $.295 $.295 $.31 $.31 $.28 $.28 $.295 $.295
Common stock prices (c)
High $19-7/8 $19-7/8 $22 $27-1/8 $20 $19-3/8 $18-7/8 $19-1/4
Low $17-7/8 $17-5/8 $19 $20-5/8 $17-7/8 $17-1/2 $16-5/8 $17-3/8
<FN>
(a) Amounts in 1996 were restated for comparative purposes.
(b) The sum of the quarters may not equal the annual earnings per share due to changes in shares outstanding.
(c) Based on New York Stock Exchange - Composite transactions.
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