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FORM 10-K
UNITED STATES 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, 1999
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
1-2921 PANHANDLE EASTERN PIPE LINE COMPANY 44-0382470
(A Delaware Corporation)
5444 Westheimer Road, P.O. Box 4967, Houston, Texas 77210-4967
(713)989-7000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
<TABLE>
<CAPTION>
Name of Each Exchange
Registrant Title of Class on Which Registered
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CMS ENERGY CORPORATION Common Stock, $.01 par value New York Stock Exchange
8.75% Adjustable Convertible Trust Securities New York Stock Exchange
CONSUMERS ENERGY COMPANY 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
CONSUMERS ENERGY
COMPANY FINANCING III 9.25% Trust Originated Preferred Securities New York Stock Exchange
</TABLE>
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. [ ]
Panhandle Eastern Pipe Line Company meets the conditions set forth in General
Instructions I(1)(a) and (b) of Form 10-K and is therefore filing this Form 10-K
with the reduced disclosure format. Items 4, 6, 10, 11, 12 and 13 have been
omitted and Items 1, 2 and 7 have been reduced in accordance with Instruction I.
The aggregate market value of CMS Energy voting and non-voting common equity
held by non-affiliates was $1,846,266,321 for the 110,224,855 CMS Energy Common
Stock shares outstanding on February 29, 2000.
On February 29, 2000, CMS Energy held all voting and non-voting common equity of
Consumers and Panhandle.
Documents incorporated by reference: CMS Energy's proxy statement and Consumers
information statement relating to the 2000 annual meeting of shareholders to be
held May 26, 2000, are incorporated by reference in Part III, except for the
organization and compensation committee report contained therein.
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CMS ENERGY CORPORATION
AND
CONSUMERS ENERGY COMPANY
AND
PANHANDLE EASTERN PIPE LINE COMPANY
ANNUAL REPORTS ON FORM 10-K TO THE SECURITIES
AND EXCHANGE COMMISSION FOR THE YEAR
ENDED DECEMBER 31, 1999
This combined Form 10-K is separately filed by CMS Energy Corporation, Consumers
Energy Company and Panhandle Eastern Pipe Line 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
and Panhandle Eastern Pipe Line Company make no representation as to information
relating to any other companies affiliated with CMS Energy Corporation.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C> <C>
Glossary .................................................................................. 3
PART I:
Item 1. Business.......................................................................... 7
Item 2. Properties........................................................................ 33
Item 3. Legal Proceedings................................................................. 43
Item 4. Submission of Matters to a Vote of Security Holders............................... 45
PART II
Item 5. Market for CMS Energy's, Consumers' and Panhandle's Common Equity and
Related Stockholder Matters.................................................. 46
Item 6. Selected Financial Data........................................................... 46
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations........................................................ 47
Item 7A. Quantitative and Qualitative Disclosures About Market Risk........................ 47
Item 8. Financial Statements and Supplementary Data....................................... 48
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure.........................................................CO-1
PART III
Item 10. Directors and Executive Officers of CMS Energy and Consumers......................CO-1
Item 11. Executive Compensation............................................................CO-1
Item 12. Security Ownership of Certain Beneficial Owners and Management....................CO-1
Item 13. Certain Relationships and Related Transactions....................................CO-1
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K...................CO-2
</TABLE>
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GLOSSARY
Certain terms used in the text and financial statements are defined below.
<TABLE>
<S> <C>
ABATE..................................... Association of Businesses Advocating Tariff Equity
ALJ....................................... Administrative Law Judge
AMT....................................... Alternative minimum tax
Alliance.................................. Alliance Regional Transmission Organization
Anadarko.................................. Anadarko Petroleum Corporation, a non-affiliated company
Articles.................................. Articles of Incorporation
Attorney General.......................... Michigan Attorney General
Aux Sable................................. Aux Sable Liquids Products, L.P., a non-affiliated company
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
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, redeemed in October 1999.
Clean Air Act............................. Federal Clean Air Act, as amended
CMS Capital............................... CMS Capital Corp., a subsidiary of Enterprises
CMS Electric and Gas...................... CMS Electric and Gas Company, a subsidiary of Enterprises
CMS Energy................................ CMS Energy Corporation, the parent of Consumers and Enterprises
CMS Energy Common Stock................... One of two classes of common stock of CMS Energy, par value $.01 per share
CMS Gas Transmission...................... CMS Gas Transmission and Storage Company, a subsidiary of Enterprises
CMS Generation............................ CMS Generation Co., a subsidiary of Enterprises
CMS Holdings.............................. CMS Midland Holdings Company, a subsidiary of Consumers
CMS Midland............................... CMS Midland Inc., a subsidiary of Consumers
CMS MST................................... CMS Marketing, Services and Trading Company, a subsidiary of Enterprises
CMS Oil and Gas .......................... CMS Oil and Gas Company, a subsidiary of Enterprises
CMS Panhandle Holding .................... CMS Panhandle Holding Company, a subsidiary of CMS Gas Transmission
Common Stock.............................. All classes of Common Stock of CMS Energy and each of its
subsidiaries, or any of them individually, at the time of an award or
grant under the Performance Incentive Stock Plan
CPEE...................................... Companhia Paulista de Energia Electrica
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, a non-affiliated company
DOE....................................... U.S. Department of Energy
Dow....................................... The Dow Chemical Company, a non-affiliated company
DSM....................................... Demand-side management
Duke Energy............................... Duke Energy Corporation, a non-affiliated company
</TABLE>
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<TABLE>
<S> <C>
EITF...................................... Emerging Issues Task Force
El Chocon................................. Hidroelectrica El Chocon S.A.
Enterprises............................... CMS Enterprises Company, a subsidiary of CMS Energy
EPA....................................... Environmental Protection Agency
EPS....................................... Earnings per share
FASB...................................... Financial Accounting Standards Board
FERC...................................... Federal Energy Regulatory Commission
FMLP...................................... First Midland Limited Partnership, a partnership which holds a
75.5% lessor interest in the Midland Cogeneration Venture facility
FTC....................................... Federal Trade Commission
GCR....................................... Gas cost recovery
GTNs...................................... CMS Energy General Term Notes(R), $250 million Series A, $125
million Series B, $150 million Series C, $200 million Series D and
$400 million Series E
Huron..................................... Huron Hydrocarbons, Inc., a subsidiary of Consumers
ITC....................................... Investment tax credit
Jorf Lasfar............................... The 1,356 MW (660 MW in operation and 696 MW under
construction) coal-fueled power plant in Morocco, jointly owned by
CMS Generation and ABB Energy Venture, Inc.
kWh....................................... Kilowatt-hour
Loy Yang.................................. The 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
LNG....................................... Liquefied natural gas
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
MEPCC..................................... Michigan Electric Power Coordination Center
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
MPSC...................................... Michigan Public Service Commission
MW........................................ Megawatts
Natural Gas Act........................... Federal Natural Gas Act
</TABLE>
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<TABLE>
<S> <C>
NEIL...................................... Nuclear Electric Insurance Limited, an industry mutual insurance
company owned by member utility companies
Nitrotec.................................. Nitrotec Corporation, a propriety gas technology company in which
CMS Gas Transmission owns an equity interest
NRC....................................... Nuclear Regulatory Commission
NYMEX..................................... New York Mercantile Exchange
OPEB...................................... Postretirement benefit plans other than pensions for retired
employees
Outstanding Shares........................ Outstanding shares of Class G Common Stock
Palisades................................. Palisades nuclear power plant, owned by Consumers
Pan Gas Storage........................... Pan Gas Storage Company, a subsidiary of Panhandle Eastern Pipe
Line Company
PanEnergy................................. PanEnergy Corp., a subsidiary of Duke Energy and former parent
of Panhandle
Panhandle................................. Panhandle Eastern Pipe Line Company, including its subsidiaries
Trunkline, Pan Gas Storage, Panhandle Storage, and Trunkline
LNG. Panhandle is a wholly owned subsidiary of CMS Gas Transmission
Panhandle Eastern Pipe Line............... Panhandle Eastern Pipe Line Company, a wholly owned subsidiary
of CMS Gas Transmission
Panhandle Storage......................... CMS Panhandle Storage Company, a subsidiary of Panhandle
Eastern Pipe Line Company
PCBs...................................... Poly chlorinated biphenyls
PECO...................................... PECO Energy Company, a non-affiliated company
Pension Plan.............................. The trusteed, non-contributory, defined benefit pension plan of Panhandle,
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
RTO....................................... Regional Transmission Organization
SEC....................................... Securities and Exchange Commission
Senior Credit Facilities.................. $725 million senior credit facilities consisting of a $600 million
three-year revolving credit facility and a five-year $125 million
term loan facility
SERP...................................... Supplemental Executive Retirement Plan
SFAS...................................... Statement of Financial Accounting Standards
SOP....................................... Statement of position
Stranded 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 and regulatory
assets.
Superfund................................. Comprehensive Environmental Response, Compensation and
Liability Act
</TABLE>
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<TABLE>
<S> <C>
TBtu...................................... Trillion british thermal unit
TGN....................................... Transportadora de Gas del Norte S.A., a natural gas pipeline
located in Argentina
Transition Costs.......................... Stranded Costs, as defined, plus the costs incurred in the transition
to competition.
Trunkline................................. Trunkline Gas Company, a subsidiary of Panhandle Eastern Pipe
Line Company
Trunkline LNG............................. Trunkline LNG Company, a subsidiary of Panhandle Eastern Pipe
Line Company
Trust Preferred Securities................ Securities representing an undivided beneficial interest in the assets
of statutory business trusts, which 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
</TABLE>
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PART I
ITEM 1. BUSINESS.
GENERAL
CMS ENERGY
CMS Energy, formed in Michigan in 1987, is a leading diversified energy company
operating in the United States and around the world. Our two principal
subsidiaries are Consumers and Enterprises. Consumers is a public utility that
provides natural gas or electricity to almost six million of the nine and
one-half million residents in Michigan's lower peninsula. Enterprises, through
subsidiaries, is engaged in several domestic and international diversified
energy businesses.
Our consolidated operating revenue in 1999 was $6.1 billion. Our consolidated
operating revenue came from the following seven business segments (which
includes Consumers' utility operations):
Consumers Electric Utility Operations 44 percent
Consumers Gas Utility Operations 19 percent
Marketing, Services and Trading Operations 13 percent
Natural Gas Transmission, Storage and Processing Operations 13 percent
Independent Power Production Operations 6 percent
International Energy Distribution and other
Non-Utility Operations 3 percent; and
Oil and Gas Exploration and Production Operations 2 percent.
See "BUSINESS SEGMENTS" later in this Item 1 for further discussion of each
segment.
CONSUMERS
Consumers, formed in Michigan in 1968, is the successor to a corporation
organized in Maine in 1910. This predecessor did business in Michigan from 1915
to 1968. Consumers was originally named Consumers Power Company. In 1997,
Consumers changed its name to Consumers Energy Company to reflect its increasing
focus on providing customers with total energy solutions.
Consumers' consolidated operations account for a majority of CMS Energy's total
assets, revenues and income. Consumers' service areas include automotive, metal,
chemical, food and wood products and a diversified group of other industries. At
year-end 1999, Consumers' customer base and operating revenues were as follows:
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<TABLE>
<CAPTION>
1999 vs 1998
Customers Served Operating Revenue Operating Revenue
(millions) (millions) % Increase (Decrease)
---------- ---------- ---------------------
<S> <C> <C> <C>
Electric Utility 1.67 $ 2,667 2.3
Gas Utility Business 1.58 1,156 10.0
Non-Utility -- 51 (a) --
Total 3.25 $ 3,874 4.4
</TABLE>
(a) Primarily represents earnings attributable to Consumers' interest in the MCV
Partnership and MCV Facility, which is reported within the Independent Power
Production business segment.
Consumers' rates and certain other aspects of its business are subject to the
jurisdiction of the MPSC and FERC, as described in CMS ENERGY, CONSUMERS AND
PANHANDLE REGULATION later in this Item 1.
PANHANDLE
Panhandle Eastern Pipe Line Company, formed in Delaware in 1929, is a wholly
owned subsidiary of CMS Gas Transmission. On March 29, 1999, Panhandle Eastern
Pipe Line Company and its principal consolidated subsidiaries, Trunkline and Pan
Gas Storage, as well as Panhandle Eastern Pipe Line Company's affiliates,
Trunkline LNG and Panhandle Storage, were acquired from subsidiaries of Duke
Energy by CMS Panhandle Holding, which was an indirect wholly owned subsidiary
of CMS Energy. Immediately following the acquisition, Trunkline LNG and
Panhandle Storage became wholly owned subsidiaries of Panhandle Eastern Pipe
Line Company.
Panhandle is primarily engaged in the interstate transmission and storage of
natural gas. Panhandle operates one of the nation's largest natural gas pipeline
networks, providing customers in the Midwest and Southwest with a comprehensive
array of transportation services. This interconnected 10,400 mile system
accesses virtually all major natural gas regions in the United States. The rates
and operations of Panhandle are subject to regulation by FERC as described in
CMS ENERGY, CONSUMERS AND PANHANDLE REGULATION later in this Item 1.
Panhandle's major customers include approximately 25 utilities located primarily
in the Midwest market area that encompasses large portions of Michigan, Ohio,
Indiana, Illinois, Missouri and Tennessee. Panhandle's consolidated operating
revenue in 1999 was $471 million. Of Panhandle's operating revenue, 84 percent
was generated from transportation services, 10 percent from storage services,
and 6 percent from other business. Transportation services for Consumers and
ProLiance Energy L.L.C., each, accounted for at least 10 percent of the 1999 and
1997 revenues of Panhandle. In 1998, ProLiance Energy, L.L.C. accounted for
approximately 10 percent of Panhandle's revenues. No other customer accounted
for 10 percent or more of Panhandle's revenues during 1999, 1998 or 1997. For
additional information, see ITEM 7. PANHANDLE'S MANAGEMENT'S DISCUSSION AND
ANALYSIS - RESULTS OF OPERATIONS and ITEM 2. PROPERTIES - PANHANDLE EASTERN PIPE
LINE COMPANY.
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CMS ENERGY'S RECENT DEVELOPMENTS
In February 2000, CMS Energy announced a financial restructuring plan to
strengthen significantly its balance sheet, to reduce fixed charges and to
enhance earnings per share growth. During the second or third quarter of 2000,
subject to market conditions, CMS Energy intends to make an initial public
offering of approximately $600 million of a tracking stock representing 20
percent of the economic interest in its electric and gas utility. In addition,
the CMS Energy Board of Directors approved the repurchase of up to 10 million
shares of CMS Energy Common Stock, from time to time, in open market or private
transactions. Substantial progress has been made toward the 10 million share
limit. For additional information, see ITEM 7. CMS ENERGY MANAGEMENT'S
DISCUSSION AND ANALYSIS - RECAPITALIZATION, incorporated by reference herein.
CMS Energy anticipates this restructuring program, along with the proceeds from
the planned sale of assets discussed below, will improve CMS Energy's balance
sheet. If market conditions are not satisfactory for issuance of the tracking
stock, CMS Energy will improve its balance sheet through additional asset sales
or alternate means. In October 1999, CMS Energy identified for possible sale $1
billion of assets, which were expected to contribute little or no earnings
benefit in the short to medium term. In addition, in February 2000, CMS Energy
announced its intention to sell Loy Yang. Excluding Loy Yang, CMS Energy plans
to sell or have agreements to sell $600 to $750 million of such assets by the
end of April 2000. As of February 1, 2000 CMS Energy had sold a partial interest
in its Northern Header gathering system through its natural gas transmission,
storage and processing business and all of its ownership interest in a Brazilian
distribution system through its international energy distribution business. In
addition, CMS Energy has an agreement to sell all its northern Michigan oil and
gas properties through its oil and gas exploration and production business.
These sales are expected to generate approximately $370 million in proceeds. For
additional information concerning the sale of these assets, see ITEM 7. CMS
ENERGY MANAGEMENT'S DISCUSSION AND ANALYSIS - CASH POSITION, INVESTING AND
FINANCING.
BUSINESS SEGMENTS
CMS ENERGY, CONSUMERS AND PANHANDLE 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.
For information with respect to the operating revenue, net operating income,
identifiable assets and liabilities attributable only to Panhandle's business
segments, see ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - PANHANDLE'S
CONSOLIDATED FINANCIAL STATEMENTS AND NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS.
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CMS Energy, Consumers and Panhandle are subject to certain uncertainties and
risks, which are normal for their respective businesses. Certain uncertainties
are described in CMS Energy's ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA - NOTE 4 OF CMS ENERGY'S NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, NOTE 2
OF CONSUMERS' NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, and NOTE 3 AND NOTE 11
OF PANHANDLE'S NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. Certain risks are
described in ITEM 7. CMS ENERGY'S MANAGEMENT'S DISCUSSION AND ANALYSIS - MARKET
RISK INFORMATION and ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTE
9 OF CMS ENERGY'S NOTES TO CONSOLIDATED FINANCIAL STATEMENTS and in ITEM 7.
CONSUMERS' MANAGEMENT'S DISCUSSION AND ANALYSIS - DERIVATIVES AND HEDGES.
CMS Energy, Consumers, and Panhandle believe that they and their subsidiaries
maintain traditional insurance, similar to comparable companies in the same line
of business, for the various risk exposures including political risk from
possible nationalization or expropriation, incidental to CMS Energy's,
Consumers' or Panhandle's respective businesses.
CONSUMERS ELECTRIC UTILITY OPERATIONS
If independent, Consumers' electric utility operation would be the twelfth
largest electric company in the United States based upon the number of
customers. The electric operations of Consumers include the generation,
purchase, transmission, distribution and sale of electricity. At year-end 1999,
it served 1.67 million customers in 61 of the 68 counties of Michigan's lower
peninsula. 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 is not
reasonably likely to have a material adverse effect on its financial condition,
subject to appropriate regulatory treatment that allows an adjustment to
Consumers rates to compensate for the loss of revenues from such customers.
Consumers' electric operations are seasonal. The summer months usually increase
demand for electric energy, principally due to the use of air conditioners and
other cooling equipment, thereby affecting revenues. Total electric sales in
1999 were 41 billion kWh, a 2.5 percent increase over 1998 levels including a
2.8 percent increase in system sales to Consumers' ultimate customers.
Consumers achieved a 1999 winter peak demand of 6,093 MW and a summer peak
demand of 7,460 MW. Based on the summer peak, Consumers' reserve margin was 14.7
percent in 1999 compared to 21.1 percent in 1998. Consumers estimates that
during the summer of 2000, it will be able to satisfy its peak demand with a 9.3
percent reserve margin from a combination of its owned electric generating
plants and existing long-term purchase contracts and a 16.7 percent reserve
margin when short-term electricity purchase contracts or options as well as
other arrangements are added. This estimate is based on 235 MW of coincident
retail open access load being served by others (Consumers will offer other
service providers with the opportunity to serve up to 600 MW of nominal retail
open access load prior to summer 2000). If 235 MW of coincident retail open
access load is not served by others, the reserve margin is expected to be
approximately 15 percent.
Consumers owned and operated 31 electric generating plants in 1999 with an
aggregate of 6,252 MW of capacity. In 1999, Consumers purchased 2,388 MW of net
capacity, which amounted to 32 percent of Consumers' total system requirements,
from other power producers, the largest being the MCV Partnership. For
additional information on Consumers' electric properties, see ITEM 2. PROPERTIES
- - CONSUMERS ELECTRIC UTILITY PROPERTIES. For additional information concerning a
long-term power sales agreement between Consumers and PECO to resell the
capacity and energy purchases under
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the PPA see ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTE 2 OF
CONSUMERS' NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
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 SUPPLY: Consumers has four generating plant sites which use coal as a fuel
source and which constitute 78.5 percent of its baseload capacity (the capacity
used to serve a constant level of customer demand). Combined, these plants
produce a total of 19,085 million kWhs of electricity in 1999 and required 8.9
million tons of coal. Consumers' coal inventory on December 31, 1999 amounted to
approximately 40 days' supply. For additional information on future sources of
coal, see ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTE 2 OF
CONSUMERS' NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNCERTANTIES - OTHER
ELECTRIC UNCERTANTIES.
Consumers owned two and operated one nuclear power plant during 1999. The Big
Rock nuclear power plant, located near Charlevoix, Michigan was closed
permanently on August 29, 1997. During 1999, the net generation of the Palisades
nuclear power plant, located near South Haven, Michigan, was 5,105 million
kWhs, constituting 21 percent of Consumers' baseload generation. Consumers has
two contracts for uranium concentrate sufficient to provide up to 50 percent of
its requirements. Consumers intends to purchase the balance of its concentrate,
conversion and enrichment requirements for the next Palisades reload throughout
the year 2000. Delivery of the next completed reload is scheduled for Spring
2001. Consumers intends to maximize use of the spot market for its future
requirements. Consumers has contracts for nuclear fuel services and fabrication
of nuclear fuel assemblies. The fabrication contract for Palisades remains in
effect for the next three Palisades reloads with options to extend the contract
for an additional two reloads. These contracts are with major private industrial
suppliers of nuclear fuel and related services and with uranium producers,
converters and enrichers who participate in the world nuclear fuel marketplace.
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As shown below, Consumers generates electricity principally from coal and
nuclear fuel.
<TABLE>
<CAPTION>
Power Generated Millions of kWhs
- --------------- ----------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Coal 19,085 17,959 16,427 16,928 15,956
Nuclear 5,105 5,364 5,970 5,653 5,353
Oil 809 520 258 364 318
Gas 441 302 80 74 238
Hydro 365 395 467 473 420
Net pumped storage (a) (476) (480) (477) (419) (373)
- ---------------------- ------ ------ ------ ------ ------
Total net generation 25,329 24,060 22,725 23,073 21,912
==================== ====== ====== ====== ====== ======
</TABLE>
(a) Represents Consumers' 51 percent 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.
<TABLE>
<CAPTION>
Cost per Million Btu
--------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Fuel Consumed
- -------------
Coal $1.38 $1.45 $1.53 $1.50 $1.51
Oil 2.69 2.73 2.97 2.67 2.64
Gas 2.74 2.66 3.36 3.60 2.18
Nuclear 0.48 0.50 0.57 0.50 0.49
All Fuels (a) 1.27 1.28 1.29 1.27 1.27
============= ==== ==== ==== ==== ====
</TABLE>
(a) Weighted average fuel costs.
Under the Nuclear Waste Policy Act of 1982, the federal government was to be
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 2000. 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 CMS ENERGY'S NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS and ITEM 3. LEGAL PROCEEDINGS and ITEM 8. FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA - NOTE 1 OF CONSUMERS' NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS. Consumers' on-site storage pool at Palisades is at capacity and
Consumers is currently storing spent nuclear fuel in NRC-approved steel and
concrete vaults, known as "dry casks". Currently, three storage casks are
available for future storage. For a discussion relating to the NRC approval of
dry casks and Consumers' use of the casks, see ITEM 8. FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA - NOTE 4 OF CMS ENERGY'S NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS and ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTE 2 OF
CONSUMERS' NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
INSURANCE: At Palisades, Consumers maintains primary and excess nuclear property
insurance from NEIL totaling $2.4 billion in recoverable limits. It insures
against covered risks of direct property loss, decontamination, and debris
removal subject to standard policy terms and conditions. Also covered by
insurance are a portion of the costs arising from accidental premature
decommissioning not funded by the decommissioning trust funds, and part of the
remaining book value of the plant. For any loss more than
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<PAGE> 13
$100 million, stabilization and decontamination expenses must be satisfied
before Consumers receives other claim proceeds from NEIL.
Consumers also procured coverage from NEIL 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 12 weeks of any outage,
but insurance would cover most of such costs during the next 52 weeks of the
outage, followed by a reduced level of coverage for a period up to 110
additional weeks.
The permanently closed Big Rock remains insured by NEIL up to $500 million for
decontamination, debris removal, and covered direct property loss subject to
standard policy terms and conditions.
Consumers retains the risk of loss to the extent of the insurance deductibles
and to the extent policy limits are exceeded by a loss. Because NEIL is a mutual
insurance company, Consumers could be subject to assessments from NEIL up to
$15.5 million in any policy year if insured losses occur at its, or any other
member's nuclear facility.
Consumers maintains insurance for injuries and off-site property damage
insurance due to the nuclear hazard at Palisades up to the total limits of
liability established by the Price-Anderson Act, which are presently
approximately $9.5 billion. The Price-Anderson Act was enacted to provide
financial protection for persons who may be liable for a nuclear accident or
incident and persons who may be injured by a nuclear incident. 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
occurs at any of such facilities. The maximum assessment against Consumers could
be $88 million per occurrence, limited to maximum annual installment payments of
$10 million. Consumers also maintains insurance under a 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 nuclear workers,
Consumers remains responsible for a maximum assessment of up to $6.3 million.
The Big Rock plant remains insured for nuclear liability by a combination of
insurance and U.S. government indemnity totaling $544 million.
Consumers has not obtained insurance for property damage at its nuclear plants
caused by floods and earthquakes 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
If independent, Consumers' gas utility operation would be the fifth largest gas
company in the United States based upon the number of customers. Consumers' gas
utility operation purchases, transports, stores, distributes and sells natural
gas. As of December 31, 1999, it rendered gas sales and delivery service to 1.58
million customers and is authorized to provide service 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, where over 900,000 of the gas customers are located. Consumers
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 its wholly owned subsidiary, Michigan Gas
Storage, inject natural gas into storage during the summer months of the year
for use during the winter months when demand is higher. Consumers' gas operation
is not dependent upon a
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single customer, or even a few customers, and the loss of any one or even a few
of such customers is not reasonably likely to have a material adverse effect on
its financial condition, subject to appropriate regulatory treatment that
allows an adjustment to Consumers rates to compensate for the loss of revenues
from such customers.
Consumers' gas operation is seasonal to the extent that peak demand usually
occurs in winter due to colder temperatures and the resulting increased demand
for heating fuels. Total deliveries of natural gas sold by Consumers and from
other sellers over Consumers' pipeline and distribution network to ultimate
customers, including the MCV Partnership, totaled 389 bcf in 1999.
GAS SUPPLY: In 1999, Consumers purchased 80 percent of its required gas supply
under contracts longer than one year. Total 1999 purchases included 28 percent
from United States producers outside Michigan, 26 percent from Canadian
producers, 15 percent from Michigan producers and 13 percent from the spot
market. The remaining 18 percent of gas burned by customers was supplied by
authorized suppliers in the experimental gas customer choice program which
started in April 1998.
Consumers' firm transportation agreements (excluding agreements with its wholly
owned subsidiary Michigan Gas Storage Company) are with Trunkline, Panhandle,
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 are capable of carrying over
90 percent of Consumers' total gas supply requirements. As of December 31, 1999,
Consumers' portfolio of firm transportation from pipelines to Michigan is as
follows:
<TABLE>
<CAPTION>
Volume
------
(dekatherms/day) Expiration
---------------- ----------
<S> <C> <C>
Trunkline 336,375 October 2002
Panhandle 40,000 March 2000
25,000 March 2000
ANR Pipeline Company 10,000 December 2001
6,000 December 2002
83,790 October 2003
Great Lakes Gas Transmission, L.P. 85,092 March 2004
================================== ====== ===== ====
</TABLE>
Consumers transports the balance of its required gas supply under interruptible
contracts. The amount of interruptible transportation service 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 transportation service.
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<PAGE> 15
NATURAL GAS TRANSMISSION, STORAGE AND PROCESSING
CMS Gas Transmission, formed in 1988, owns, develops and manages domestic and
international natural gas facilities consisting of a total of 21,359 miles of
pipeline (including 488 miles of projects under construction) with a daily
capacity of approximately 10.0 bcf per day. At December 31, 1999, CMS Gas
Transmission had processing capabilities of approximately 1.0 bcf per day of
natural gas. Its Michigan carbon dioxide removal plants processed approximately
330 MMcf per day, representing more natural gas processed than any other
processor in the State of Michigan.
CMS Energy expanded the importance of this business segment with the recent
acquisition of the Panhandle Companies. In addition, CMS Gas Transmission
acquired a natural gas pipeline in Western Australia and gathering systems and
processing plants in the panhandle region of Texas and Oklahoma and the Powder
River region of Montana and Wyoming. CMS Gas Transmission's operating revenue in
1999 was $785 million.
In March 2000, CMS Gas Transmission through Trunkline acquired a 1.0 bcf natural
gas and condensate pipeline in the Gulf of Mexico offshore Louisiana, west of an
existing Trunkline system. The system consists of five offshore valving
platforms and one compressor platform, 405 miles of offshore pipeline, 40 miles
of onshore pipeline and one compressor station. Also in March 2000, Panhandle,
as part of its strategy to maximize the use of existing assets, announced an
agreement to form a limited liability company to extend and convert an existing
26" Trunkline pipeline from natural gas transmission service to liquid products
service by the end of 2001. Each of the three parties, including Panhandle, will
own a one-third interest in the limited liability company.
Panhandle's throughput volumes for the years 1995 to 1999 were 1,182 Tbtu, 1,319
Tbtu, 1,279 Tbtu, 1,141 Tbtu and 1,139 Tbtu, respectively. A majority of
delivered volumes of Panhandle's interstate pipelines represents gas transported
under long-term service agreements with local distribution company customers in
the pipeline's market areas. Firm transportation services are also provided
under contract to gas marketers, producers, other pipelines, electric power
generators and a variety of end-users. In addition, the pipelines offer both
firm and interruptible transportation to customers on a short-term or seasonal
basis. Demand for gas transmission of Panhandle's pipeline systems is seasonal,
with the highest throughput and a higher portion of revenues occurring during
the colder period in the first and fourth quarters.
For additional information, see ITEM 7. CMS ENERGY MANAGEMENT'S DISCUSSION AND
ANALYSIS - NATURAL GAS TRANSMISSION, STORAGE AND PROCESSING RESULTS OF
OPERATIONS.
INDEPENDENT POWER PRODUCTION
CMS Generation, formed in 1986, invests in, acquires, develops, constructs and
operates non-utility power generation plants both in the United States and
internationally. As of December 31, 1999, CMS Generation had ownership interests
in operating power plants totaling 8,110 gross MW (3,713 net MW) throughout the
United States and in Argentina, Australia, Chile, India, Jamaica, Morocco, the
Philippines and Thailand. At year-end 1999, its projects range in size from 3 MW
to 2,000 MW and are powered by water, coal, natural gas, oil, wood, wind and
waste material. Additional projects totaling approximately 4,847 gross MW are
under construction or advanced development at December 31, 1999.
The MCV Partnership was formed in January 1987 to convert a portion of an
abandoned Midland County, Michigan nuclear plant owned by Consumers into 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 a partnership which is a
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<PAGE> 16
beneficiary of one of these trusts. CMS Holdings' indirect beneficial interest
in the MCV Facility is 35 percent. CMS Midland owns a 49 percent general
partnership interest in the MCV Partnership. The MCV Facility has a gross
capacity of 1,370 MW.
The rapid growth in CMS Generation's generating capacity has been matched by
growth in this business segment's operating revenue. In 1999, Independent Power
Production's operating revenue, which includes revenues from CMS Generation, the
MCV Facility and the MCV Partnership, was $390 million. For additional
information, see ITEM 2. PROPERTIES - CMS ENERGY OTHER PROPERTIES and ITEM 7.
CMS ENERGY'S MANAGEMENT'S DISCUSSION AND ANALYSIS INDEPENDENT POWER PRODUCTION
RESULTS OF OPERATIONS.
OIL AND GAS EXPLORATION AND PRODUCTION
CMS Oil and Gas (formerly known as CMS NOMECO Oil & Gas Co.), formed in 1967,
conducts oil and gas exploration and development operations throughout the
United States and seven other countries. Historically, most domestic operations
focused on gas exploration and production in Michigan and Texas and coal bed
methane exploration and production in Wyoming. The international operations
focus on oil exploration and production and are distributed across two other
continents. We anticipate that future domestic operations will focus on oil and
gas exploration and production in Texas and coal bed methane exploration and
production in Wyoming. International operations focus on oil exploration and
production and are located in South America and Africa. In 1999, CMS Oil and Gas
achieved production levels of 7.7 million barrels of oil, condensate and plant
products and 26.4 bcf of gas. CMS Oil and Gas' proven oil and gas reserves total
248.2 million net equivalent barrels reflecting a balanced portfolio of
high-quality reserves, including 47 percent oil and condensate and 53 percent
natural gas.
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During 1999, CMS Oil and Gas participated with a working interest in drilling
wells as follows:
<TABLE>
<CAPTION>
Number of
Number of Wells Successful Wells Success Ratio
Type of Well Gross Net Gross Net Gross Net
- ------------ ----- --- ----- --- ----- ---
<S> <C> <C> <C> <C> <C> <C>
Exploratory 5 2.16 5 2.16 100% 100%
Development 32 23.70 31 22.96 97% 97%
-- ----- -- -----
Total 37 25.86 36 25.12 97% 97%
===== == ===== == ===== ===== =====
</TABLE>
The preceding table does not include CMS Oil and Gas' participation in coal bed
methane gas wells in Wyoming and Montana, where CMS Oil and Gas drilled 160
wells (77.3 net) during 1999.
CMS Oil and Gas' operating revenue was $98 million in 1999. 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.
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. CMS MST
has grown dramatically since its inception. CMS Energy intends to use CMS MST to
enhance performance of CMS Energy assets, such as gas reserves and power plants.
CMS MST markets annually approximately 470 bcf of natural gas, 3,709
gigawatt-hours of electricity, 23 million barrels of crude oil and 6.5 million
barrels of natural gas liquids. CMS MST also provided energy management services
to 1,600 projects in the past 36 months. In 1999, CMS MST acquired an energy
services company and an independent energy consulting firm in Kansas City,
Missouri and Toronto, Canada, respectively. These acquisitions expanded CMS
MST's presence in 22 cities in the United States and in Oakville, Montreal and
Vancouver, Canada. At December 31, 1999, CMS MST had more than 10,000 customers,
transported gas on more than 30 gas pipelines and was active in 35 states and 2
countries. CMS MST's operating revenue in 1999 was $799 million. For additional
information, see ITEM 7. CMS ENERGY MANAGEMENT'S DISCUSSION AND ANALYSIS
- -MARKETING, SERVICES AND TRADING RESULTS OF OPERATIONS.
INTERNATIONAL ENERGY DISTRIBUTION
CMS Electric and Gas, formed in 1996, is CMS Energy's international energy
distribution subsidiary. As of February 2000, it has ownership interests in
electric distribution companies which provide service in the states of Sao Paulo
and Minas Gerais in Brazil, the province of Entre Rios in Argentina, and on
Margarita Island in Venezuela. These electric distribution companies serve a
total of 464,000 customers with electricity sales of 3,096 GWh in 1999, after
accounting for the sale in January 2000 of CMS Electric and Gas' interest in
Companhia Forca Luz Cataguazes - Leopoldina and its subsidiaries in Brazil.
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SALES BETWEEN BUSINESS SEGMENTS
CMS Energy's sales between business segments for the years ended December 31
were as follows:
<TABLE>
<CAPTION>
In Millions
-----------
Years Ended December 31 1999 1998 1997
- ----------------------- ---- ---- ----
<S> <C> <C> <C>
Oil and Gas Exploration and Production $45 $64 $75
Natural Gas Transmission, Storage and Processing 69 9 4
Marketing, Services and Trading 73 68 16
</TABLE>
CMS ENERGY, CONSUMERS AND PANHANDLE REGULATION
CMS Energy is exempt from registration under PUHCA. CMS Energy, Consumers,
Panhandle 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 1996, the MPSC issued orders that established the electric
authorized rate of return on common equity at 12.25 percent and the gas
authorized rate of return at 11.6 percent.
MPSC REGULATORY AND MICHIGAN LEGISLATIVE CHANGES: State regulation of the retail
electric and gas utility businesses is in the process of undergoing significant
changes. For example, the MPSC issued several orders in 1997, 1998, and 1999
restructuring the electric power industry in Michigan. Under these orders, which
Consumers has voluntarily agreed to implement, Consumers will allow certain
customers the election of purchasing electric power directly from other
suppliers, such as independent power producers, power marketers and other
utilities. Consumers will continue to transmit and distribute such power
purchases to the end-use retail customers. Importantly, the orders provide for
full recovery by Consumers of its Stranded Costs. This electric customer choice
program commenced in September 1999 and will be phased in to cover 750 MW of
Consumers' retail market by 2001. On January 1, 2002, all of Consumers' electric
customers will have this option. Several MPSC orders related to restructuring
are subject to claims of appeal filed with the Court of Appeals. These appeals
question whether the MPSC has the statutory authority to mandate restructuring
on an involuntary basis and challenge various other aspects of these
restructuring orders. Several bills relative to electric and gas industry
restructuring were introduced in the
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Michigan House of Representatives or Senate for consideration in the 1999-2000
legislative session. For additional information concerning the electric industry
restructuring, see ITEM 7. CMS ENERGY MANAGEMENT'S DISCUSSION AND ANALYSIS -
OUTLOOK - CONSUMERS' ELECTRIC UTILITY OUTLOOK and ITEM 8. FINANCIAL STATEMENTS
AND SUPPLEMENTARY DATA - NOTE 4 TO CMS ENERGY'S NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS and ITEM 7. CONSUMERS' MANAGEMENT'S DISCUSSION AND ANALYSIS -
OUTLOOK - ELECTRIC UTILITY OUTLOOK and ITEM 8. FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA - NOTE 2 TO CONSUMERS' NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS.
As a result of regulatory changes in the natural gas industry, gas distribution
companies like Consumers transport the natural gas commodity, which is sold to
customers by competitors like gas producers, marketers and others. In December
1997, the MPSC approved Consumers' application to implement a statewide
three-year experimental gas transportation program eventually allowing 300,000
residential, commercial and industrial retail gas sales customers to choose
their gas supplier. The program is voluntary, and participating natural gas
customers are selected on a first-come, first-served basis, up to a limit of
100,000 customers per year. As of December 31, 1999, more than 176,000 customers
chose alternative gas suppliers, representing approximately 42.2 bcf of gas
customer requirements. 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. For additional information concerning the MPSC order, see ITEM
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTE 4 TO CMS ENERGY'S NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS, and ITEM 8. FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA - NOTE 2 TO CONSUMERS' NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS.
In December 1999, several bills related to gas industry restructuring were
introduced into the Michigan Legislature. Combined, these bills constitute the
"gas choice program". For additional information concerning this proposed
legislation, see ITEM 7. CMS ENERGY MANAGEMENT'S DISCUSSION AND ANALYSIS -
OUTLOOK - CONSUMERS' GAS UTILITY OUTLOOK, and ITEM 7. CONSUMERS' MANAGEMENT'S
DISCUSSION AND ANALYSIS - OUTLOOK - GAS UTILITY OUTLOOK.
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. No customers ever took service under this program. After various
appeals, in June 1999, the Michigan Supreme Court held that the MPSC does not
have statutory authority to order a utility to provide a mandatory retail
wheeling service. For additional information concerning the MPSC order and
appeals, see ITEM 7. CMS ENERGY MANAGEMENT'S DISCUSSION AND ANALYSIS - OUTLOOK -
CONSUMERS' ELECTRIC UTILITY OUTLOOK - RESTRUCTURING, ITEM 8. FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA - NOTE 4 TO CMS ENERGY'S NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS, ITEM 7. CONSUMERS' MANAGEMENT'S DISCUSSION AND
ANALYSIS - OUTLOOK - ELECTRIC UTILITY OUTLOOK - RESTRUCTURING and ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTE 2 TO CONSUMERS' NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS.
FEDERAL ENERGY REGULATORY COMMISSION
FERC has limited rate jurisdiction over several independent power projects and
some exempt wholesale generators in which CMS Generation and Panhandle have
ownership interests. FERC also has more comprehensive jurisdiction over Michigan
Gas Storage, Panhandle Eastern Pipe Line Company, and Trunkline as natural gas
companies 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 the service provided and rates charged. 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.
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FERC has authority to regulate rates and charges for natural gas transported in
or stored for interstate commerce or sold by a natural gas company in interstate
commerce for resale. FERC also has authority over the construction and operation
of pipeline and related facilities utilized in the transportation and sale of
natural gas in interstate commerce, including the extension, enlargement or
abandonment of such facilities. Panhandle Eastern Pipe Line Company, Trunkline,
and Pan Gas Storage hold certificates of public convenience and necessity issued
by the FERC, authorizing them to construct and operate the pipelines, facilities
and properties now in operation for which such certificates are required, and to
transport and store natural gas in interstate commerce. See ITEM 8. FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA - NOTE 3 TO PANHANDLE'S NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS, incorporated by reference herein.
Certain aspects of Consumers' electric operations are also subject to regulation
by FERC, including:
- - compliance with FERC's accounting rules and other regulations under the
Federal Power Act;
- - the transmission of electric energy in interstate commerce;
- - the rates and charges for the sale of electric energy at wholesale and
transmission of electrical energy in interstate commerce;
- - the transfer of certain assets, including transfers by corporate
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.
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FERC regulations, together with the 1992 enactment of the Energy Policy Act
have effectively granted independent power producers and electricity marketers
"direct access" to the interstate electric transmission systems owned by
electric utilities. All electric utilities are required to offer transmission
services to new market entrants on a non-discriminatory basis under tariffs
approved by the FERC. For a discussion of the effect of certain FERC Orders on
Consumers, see ITEM 7. CMS ENERGY'S MANAGEMENT'S DISCUSSION AND ANALYSIS -
OUTLOOK - CONSUMERS' ELECTRIC UTILITY OUTLOOK and ITEM 7. CONSUMERS'
MANAGEMENT'S DISCUSSION AND ANALYSIS - OUTLOOK - ELECTRIC UTILITY OUTLOOK. For a
discussion of the effect of certain FERC orders on Panhandle see ITEM 7.
PANHANDLE'S MANAGEMENT'S DISCUSSION AND ANALYSIS - OTHER MATTERS - REGULATORY
MATTERS and ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTE 3 TO
PANHANDLE'S NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
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, operation and decommissioning 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 4 TO CMS ENERGY'S CONSOLIDATED FINANCIAL
STATEMENTS, and ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTES 1
AND 2 TO CONSUMERS' CONSOLIDATED FINANCIAL STATEMENTS.
OTHER REGULATION
Regulation of the importation and exportation of natural gas is vested in the
Secretary of Energy, who has delegated various aspects of this jurisdiction to
Office of Fossil Fuels of the Department of Energy.
Panhandle is also subject to the Natural Gas Pipeline Safety Act of 1968, which
regulates gas pipeline safety requirements, and to the Hazardous Liquid Pipeline
Safety Act of 1979, which regulates oil and petroleum pipelines.
CMS ENERGY, CONSUMERS AND PANHANDLE ENVIRONMENTAL COMPLIANCE
CMS Energy, Consumers and Panhandle and their subsidiaries are subject to
various federal, state and local regulations for environmental quality,
including air and water quality, waste management, zoning and other matters.
Management believes that the responsible administration of CMS Energy's,
Consumers' and Panhandle's 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 4 OF CMS ENERGY'S NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS and ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTE 2 OF
CONSUMERS' NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. For additional
information on Panhandle's environmental matters, see ITEM 7. PANHANDLE'S
MANAGEMENT'S DISCUSSION AND ANALYSIS - ENVIRONMENTAL MATTERS and ITEM 8.
PANHANDLE'S FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTE 11 - COMMITMENTS
AND CONTINGENCIES ENVIRONMENTAL MATTERS.
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
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final cover for ash disposal areas in place of topsoil and compacted clay.
Consumers also sells fly ash for use as a filler for asphalt and for
incorporation into concrete products. It has also worked with local, state and
national organizations on waste minimization and pollution prevention
initiatives. Such work includes enhancing particular Consumers' lands for the
benefit of wildlife, and providing 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. This effort
included making financial contributions to a variety of environmental
enhancement projects. Capital expenditures by Consumers for environmental
protection additions were $37 million in 1999. Consumers estimates 2000
expenditures at $103 million.
Federal and state laws require air permits for certain of Consumers',
Panhandle's and CMS Generation's affiliates' air emission sources. 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 that facility and other
affected sources of air emissions. Consumers, Panhandle 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 16. 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 resulted in Department of
Natural Resources/Department of Environmental Quality concurrence in closure of
115 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 1970s, 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, and removing PCB
equipment that was found to pose a risk to food supplies or animal feed.
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, mineral oil transformers built before
July 2, 1979, 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 its 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 certain 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
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substantial compliance with National or State Pollutant Discharge Elimination
System and groundwater discharge/exemption permits.
Certain environmental regulations affecting Panhandle include, but are not
limited to:
- - The Clean Air Act Amendments of 1990; and
- - The Comprehensive Environmental response, Compensation and Liability Act
(CERCLA), which can require any individual or entity which may have owned or
operated a disposal site, as well as transporters or generators of
hazardous wastes which were sent to such site, to share in remediation
costs for the site.
Consumers', CMS Energy's and Panhandle's 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.
For discussion of environmental matters involving Panhandle, including possible
liability and capital costs, see ITEM 7. PANHANDLE'S MANAGEMENT'S DISCUSSION AND
ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION, CURRENT ISSUES -
ENVIRONMENTAL and NOTE 11 TO PANHANDLE'S CONSOLIDATED FINANCIAL STATEMENTS,
COMMITMENTS AND CONTINGENCIES - ENVIRONMENTAL. Compliance with federal, state
and local provisions regulating the discharge of materials into the environment,
or otherwise protecting the environment, is not expected to have a material
adverse effect on the competitive position, consolidated results of operations
or financial position of Panhandle.
23
<PAGE> 24
CMS ENERGY, CONSUMERS AND PANHANDLE COMPETITION
ELECTRIC COMPETITION
Consumers' electric utility business experiences competition, actual and
potential, from many 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 since 1996 due to FERC Order 888. However, wholesale for
retail transactions by Consumers generated an immaterial amount of Consumers'
1999 revenues from electric operations, Consumers does not believe future loss
of wholesale for retail sales to be significant. In most instances, the
customers will continue to be transmission customers even if they cease to be
generation customers.
A significant increase in retail electric competition is likely to occur with
the introduction of retail direct access in Michigan. In a January 1998 order,
the MPSC ordered retail direct access in Michigan. The MPSC order, as
supplemented by additional MPSC orders issued later, as discussed above in CMS
ENERGY, CONSUMERS AND PANHANDLE REGULATION - Michigan Public Service Commission
- - MPSC Regulatory Changes, calls for Consumers gradually to open its electric
customer power supply requirement to competition from 1999 through 2001. The
MPSC order gives all customers the right to choose their own electric supplier
by January 1, 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) residential
and small business customers decisions to remain with Consumers; and 3) the 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 Consumers' service territory;
2) from the possibility of municipalities owning or operating competing electric
delivery systems; 3) from customer co-generation and self-generation; 4) from
adjacent municipal utilities that extend lines to customers near service
territory boundaries; and 5) from marketers and brokers for customers under the
previously implemented Consumers' direct-access programs. Consumers addressed
this competition primarily through the offering of rate discounts and additional
services. If municipalization occurred, 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 many 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 - CONSUMERS' ELECTRIC
UTILITY OUTLOOK and ITEM 7. CONSUMERS MANAGEMENT'S DISCUSSION AND ANALYSIS -
OUTLOOK - ELECTRIC BUSINESS OUTLOOK.
24
<PAGE> 25
GAS COMPETITION
Competition has existed for several years, and is likely to increase, in various
aspects of Consumers' gas business. Competition traditionally comes from
alternate fuels and energy sources, such as propane, oil, and electricity.
Increasingly, competition comes from other suppliers of the natural gas
commodity.
The Natural Gas Policy Act of 1978 resulted in the deregulation of wellhead gas
prices. Supply and demand effects of the gas production marketplace substituted
for the regulation. 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. This Order
required pipelines to become common carriers. Consequently, pipelines must
compete for shippers in search of low-priced transportation capacity. Consumers
offers unbundled services (transportation and some storage) to its larger
end-use customers who choose to acquire gas supplies from alternative sources.
Traditionally, Consumers' earnings for its gas business have not been dependent
upon gas purchased and resold to customers because of gas cost recovery
provisions in Michigan's Public Act 304. However, in a proactive move by
Consumers to prepare for an unbundled market, where gas commodity supply is
separated from gas distribution, Consumers filed a request to conduct an
expanded experimental gas customer choice program which will be effective until
April 2001.
Consumers is aggressively pursuing legislation to give all Michigan consumers a
choice of natural gas suppliers permanently. While the prospect of passage by
the Michigan Legislature is uncertain, such legislation could have a significant
impact on the Consumers' natural gas business. See the discussion of the MPSC's
order authorizing the expanded experimental gas program above in CMS ENERGY,
CONSUMERS AND PANHANDLE 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, ITEM 7. CONSUMERS' MANAGEMENT'S
DISCUSSION AND ANALYSIS - OUTLOOK and ITEM 7. PANHANDLE'S MANAGEMENT'S
DISCUSSION AND ANALYSIS - OUTLOOK.
PANHANDLE COMPETITION
Panhandle's interstate pipelines compete with other interstate and intrastate
pipeline companies in the transportation and storage of natural gas. The
principal elements of competition among pipelines are rates, terms of service
and flexibility and reliability of service. Panhandle competes directly with ANR
Pipeline Company, Natural Gas Pipeline Company of America and Texas Gas
Transmission Corporation in the Midwest market area.
Natural gas competes with other forms of energy available to Panhandle's
customers and end-users, including electricity, coal and fuel oils. The primary
competitive factor is price. Changes in the availability or price of natural gas
and other forms of energy, the level of business activity, conservation,
legislation and governmental regulations, the capability to convert to
alternative fuels, and other factors, including weather, affect the demand for
natural gas in the areas served by Panhandle.
25
<PAGE> 26
EMPLOYEES
CMS ENERGY
As of December 31, 1999, CMS Energy and its subsidiaries, including Consumers
and Panhandle, had 11,462 full-time equivalent employees of which 11,324 are
full-time employees and 138 full-time equivalent employees associated with the
part-time work force. Included in the total are 4,007 employees who are covered
by union contracts.
CONSUMERS
As of December 31, 1999, Consumers and its subsidiaries had 8,799 full-time
equivalent employees of which 8,674 are full-time employees and 125 full-time
equivalent employees associated with the part-time work force. Included in the
total are 3,759 full-time operating, maintenance and construction employees of
Consumers who are represented by the Union. 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.
PANHANDLE
At December 31, 1999, Panhandle had 1,060 full-time equivalent employees. Of
these employees, 248 were represented by the Paper, Allied-Industrial Chemical
and Energy Workers International Union, AFL-CIO, CLC.
CMS ENERGY, CONSUMERS AND PANHANDLE FORWARD-LOOKING STATEMENTS CAUTIONARY
FACTORS.
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for forward-looking statements to encourage such disclosures without the threat
of litigation, providing those statements are identified as forward-looking and
are accompanied by meaningful, cautionary statements identifying important
factors that could cause the actual results to differ materially from those
projected in the statement. Forward-looking statements give our expectations or
forecasts of future events. You can identify these statements by the fact that
they do not relate strictly to historical or current facts. Forward-looking
statements have been and will be made in this Item 1, MD&A and in our other
written documents (such as press releases, visual presentations, and securities
disclosure documents) and oral presentations (such as analyst conference calls).
Such statements are based on management's beliefs as well as assumptions made by
and information currently available to management. When used in our documents or
oral presentations, the words "anticipate", "believe", "estimate", "expect",
"forecast", "intend", "objective", "plan", "possible", "potential", "project"
and variations of such words and similar expressions are intended to identify
forward-looking statements that involve risk and uncertainty.
Any or all of our forward-looking statements in oral or written statements or in
other publications may turn out to be wrong. They can be affected by inaccurate
assumptions or by known or unknown risks and uncertainties. Many such factors
will be important in determining our actual future results. Consequently, no
forward-looking statement can be guaranteed.
26
<PAGE> 27
In addition to any assumptions and other factors referred to specifically in
connection with such forward-looking statements, factors that could cause our
actual results to differ materially from those contemplated in any
forward-looking statements include, among others, the following:
- - ability to sell assets in accordance with our plans;
- - ability to achieve operating synergies and revenue enhancements;
- - capital and financial market conditions, including:
- current price of our common stock,
- interest rates and availability of financing,
- market perceptions of the energy industry, our company, or
any of our subsidiaries,
- our, or any of our subsidiaries', securities ratings, and
- currency exchange controls;
- - factors affecting utility and diversified energy operations, such as:
- unusual weather conditions,
- catastrophic weather-related damage,
- unscheduled generation outages, maintenance or repairs,
- unanticipated changes to fossil fuel, nuclear fuel or gas
supply costs or availability due to higher demand, shortages,
transportation problems or other developments,
- environmental incidents, or
- electric transmission or gas pipeline system constraints;
- - international, national, regional and local economic, competitive and
regulatory conditions and developments, particularly the trade,
monetary, fiscal, taxation and environmental policies of governments,
agencies and similar organizations in geographic areas where we have a
financial interest;
- - adverse regulatory or legal decisions, including:
- a possible MPSC order to reduce rates or refund alleged
excess revenues in resolution of a complaint by ABATE, and
- environmental laws and regulations;
- - pace, implementation and provisions for deregulation of the natural gas
and electric industries whether by legislative or regulatory action,
particularly:
- the ability of the electric utility business to purchase
energy at prices below that allowed in its rates due to
frozen power supply cost recovery,
- the ability of the gas utility to protect against gas price
increases due to implementation of a suspended gas cost
recovery,
- the extension of the direct access pilot program to all our
gas utility business customers,
- the ability of our electric utility business to recover its
current investment in generating facilities and the cost of
purchased power,
- the number of customers that will elect other power suppliers
when customer choice becomes available to them,
- former customers generating their own power, and
- new pricing structures;
- - federal regulation of electric sales and transmission of electricity
that grants independent power producers and electricity marketers
"direct access" to the interstate electric transmission systems owned
by electric utilities, creating opportunity for competitors to market
electricity to our wholesale customers;
- - energy markets, including the timing and extent of unanticipated
changes in commodity prices for oil, coal, natural gas, natural gas
liquids, electricity and certain related products due to higher demand,
shortages, transportation problems or other developments;
- - the timing and success of business development efforts, including:
- significant sums of money spent for international development
start-up and obtaining financing is at risk until all
elements of the project development are successfully
finalized,
27
<PAGE> 28
- international projects may be expropriated, required
agreements, licenses, permits and other approvals may be
changed or terminated in violation of their terms, or newer
or higher taxes may be imposed upon the project,
- the local foreign currency may be devalued or the conversion
of the currency may be restricted or prohibited or other
actions may be taken which adversely affect the value and the
recovery of the investment such as taxes, royalties, or
import duties being increased, and
- adverse financial, operating, management, or other issues
with project partners;
- - the increased competition caused by Federal Energy Regulatory
Commission approval of new pipeline and pipeline expansion projects
that transport large additional volumes of natural gas to the Midwest
from Canada, which could reduce volumes of gas transported by our
natural gas transmission businesses or cause them to lower rates in
order to meet competition;
- - potential disruption, expropriation or interruption of facilities or
operations due to accidents or political events;
- - nuclear power performance, decommissioning, policies, procedures,
incidents, and regulation, including spent nuclear fuel storage
availability;
- - technological developments in energy production, delivery and usage
that may result in competitive disadvantages and create the potential
for impairment of existing assets;
- - financial or regulatory accounting principles or policies imposed by
the Financial Accounting Standards Board, the Securities and Exchange
Commission, the Federal Energy Regulatory Commission, the Michigan
Public Service Commission and similar entities with regulatory
oversight;
- - cost and other effects of legal and administrative proceedings,
settlements, investigations and claims;
- - certain project investments made by our subsidiaries consist of
minority interests, and some future investments may take the form of
minority interests, which limits our ability to control the development
or operation of the project;
- - other uncertainties, all of which are difficult to predict and many of
which are beyond our control; and
- - other business or investment considerations that may be disclosed from
time to time in CMS Energy's, Consumers' or Panhandle's Securities and
Exchange Commission filings or in other publicly disseminated written
documents.
CMS Energy, Consumers, Panhandle and their affiliates undertake no obligation to
update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise. The foregoing review of factors
pursuant to the Private Securities Litigation Reform Act should not be construed
as exhaustive or as any admission regarding the adequacy of our disclosures
prior to the effective date of the Act. Certain risk factors are detailed from
time to time in our various public filings. You are advised, however to consult
any further disclosures we make on related subjects in our reports to the
Securities and Exchange Commission. In particular, you should read the
discussion in the section entitled "Forward-Looking Statements" in our most
recent reports to the Securities and Exchange Commission on Form 10-Q or Form
8-K filed subsequent to this Form 10-K.
28
<PAGE> 29
CMS ENERGY AND CONSUMERS EXECUTIVE OFFICERS
As of February 29, 2000
<TABLE>
<CAPTION>
Name Age Position Period
- ---- --- -------- ------
<S> <C> <C> <C>
William T. McCormick, Jr. 55 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 52 President and Chief Operating Officer
of CMS Energy 1996-Present
Vice Chairman of the Board and President
of Consumers 1998-Present
President and Chief Executive Officer
of Enterprises 1995-Present
President of Consumers 1997-1998
President of CMS Energy 1992-1995
President of Enterprises 1993-1995
John W. Clark 55 Senior Vice President of CMS Energy 1987-Present
Senior Vice President of Consumers 1985-Present
James W. Cook 59 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
Preston D. Hopper 49 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
</TABLE>
29
<PAGE> 30
<TABLE>
<CAPTION>
Name Age Position Period
---- --- -------- ------
<S> <C> <C> <C>
Rodger A. Kershner 51 Senior Vice President and General
Counsel of CMS Energy 1996-Present
Senior Vice President and General
Counsel of Enterprises 1996-Present
Vice President, General Counsel
and Assistant Secretary of Enterprises 1989-1995
Deputy General Counsel and Assistant
Secretary of CMS Energy 1994-1995
Alan M. Wright 54 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 and Chief
Financial Officer of Enterprises 1998-Present
Senior Vice President, Chief Financial
Officer and Treasurer of Enterprises 1994-1998
Senior Vice President, Chief Financial
Officer and Treasurer of CMS Energy 1994-1998
Rodney E. Boulanger 59 Senior Vice President of Enterprises 1996-Present
President and Chief Executive Officer
of CMS Generation 1995-Present
Carl L. English 53 Executive Vice President of Consumers
and President and Chief Executive
Officer - Gas Business Unit 1999-Present
Vice President of Consumers 1990-1999
Bradley W. Fischer 53 President and Chief Executive Officer
of CMS Oil and Gas 1998-Present
Vice President of CMS Oil and Gas 1997-1998
William J. Haener 58 Senior Vice President of Enterprises 1998-Present
President and Chief Executive Officer
of CMS Gas Transmission 1994-Present
</TABLE>
30
<PAGE> 31
<TABLE>
<CAPTION>
Name Age Position Period
- ---- --- -------- ------
<S> <C> <C> <C>
David W. Joos 46 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
Tamela W. Pallas 42 President and Chief Operating Officer
of CMS MST 1999-Present
Christopher A. Helms 45 President and Chief Operating Officer
of Panhandle Eastern Pipe Line Company 1999-Present
Robert A. Fenech 52 Senior Vice President of Consumers 1997-Present
Vice President of Consumers 1994-1997
Doris F. Galvin 45 Senior Vice President of CMS
Enterprises 1999-Present
Vice President and Treasurer of
CMS Energy 1998-1999
Vice President and Treasurer of
CMS Enterprises 1998-1999
Treasurer of CMS Oil and Gas 1997-1999
Vice President and Treasurer of
Consumers 1993-1999
David A. Mikelonis 51 Senior Vice President and General
Counsel of Consumers 1988-Present
Paul N. Preketes 50 Senior Vice President of Consumers 1999-Present
Vice President of Consumers 1994-1999
Dennis DaPra 57 Vice President and Controller of
Consumers 1991-Present
</TABLE>
Ms. Pallas has served as President and Chief Operating Officer of CMS MST since
November 1999. From 1997 until November 1999, Ms. Pallas served as Senior Vice
President of Reliant Energy. From 1992 until 1997, Ms. Pallas was employed by
Basis Energy as a Senior Vice President.
Mr. Helms has served as President and Chief Operating Officer of Panhandle
Eastern Pipe Line Company since March 1999. From 1993 through March 1999, Mr.
Helms served as Director of Corporate Development and Vice President of
Corporate Affairs, respectively, of Duke Energy Corporation.
31
<PAGE> 32
Mr. DaPra is an executive officer of Consumers but not of CMS Energy.
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 on May 26,
2000).
There are no family relationships among executive officers and directors of CMS
Energy and Consumers.
32
<PAGE> 33
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
impair 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 Oil and Gas subsidiaries are also subject to liens of
creditors of the respective subsidiaries.
CONSUMERS ELECTRIC UTILITY PROPERTIES
At December 31, 1999, Consumers' electric generating system consists of four
fossil-fueled coal plant sites, one oil/gas plant, one gas plant, one pumped
storage hydroelectric facility, one nuclear plant, eight gas combustion turbine
plants and 13 conventional hydroelectric plants.
33
<PAGE> 34
<TABLE>
<CAPTION>
1999 Summer Net 1999 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 1&2 - West Olive 2 Units, 1962-1967 609,000 4,012,534
J H Campbell 3 - West Olive 1 Unit, 1980 737,100(a) 5,279,004
D E Karn - Essexville 2 Units, 1959-1961 515,000 3,515,678
B C Cobb - Muskegon 2 Units, 1956-1957 300,000 2,087,808
J R Whiting - Erie 3 Units, 1952-1953 310,000 2,110,618
J C Weadock - Essexville 2 Units, 1955-1958 310,000 2,079,779
-----------------------------------
Total coal generation 2,781,100 19,085,421
-----------------------------------
OIL/GAS GENERATION
B C Cobb - Muskegon 1 Unit, 1999 60,000(b) 27,113
D E Karn - Essexville 2 Units, 1975-1977 1,276,000 1,160,699
-----------------------------------
Total oil/gas generation 1,336,000 1,187,812
-----------------------------------
LUDINGTON PUMPED STORAGE 6 Units, 1973 954,700(c) (475,561)(d)
-----------------------------------
NUCLEAR GENERATION
Palisades - South Haven 1 Unit, 1971 760,000 5,104,581
-----------------------------------
GAS/OIL COMBUSTION TURBINE
GENERATION 8 Plants, 1966-1999 346,800(e) 62,415
-----------------------------------
CONVENTIONAL HYDRO GENERATION 13 Plants, 1907-1949 73,500 364,684
-----------------------------------
Total owned generation 6,252,100 25,329,352
==========
PURCHASED AND INTERCHANGE POWER CAPACITY 1,824,500(f)
Total 8,076,600
============================================================================================================
</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) Consumers is in the process of converting two previously retired B C Cobb
coal units to natural gas. The conversion of these units, totaling 120 MW, is
expected to be completed mid-year 2000.
(c) 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.
(d) 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.
34
<PAGE> 35
(e) Includes 1.8 MW diesel generator entering service in 1999.
(f) This amount includes: (i) dispatchable and must-take contracts with a
duration of six-months or longer, including 1,240 MW of purchase contract
capacity from the MCV Facility, and (ii) an obligation of approximately 52 MW to
the co-owners of the Campbell 3 Units which is not otherwise reflected in
purchased capacity in ITEM 1. BUSINESS - CONSUMERS ELECTRIC UTILITY OPERATIONS.
This amount does not include (A) 128 MW of purchased capacity not required to be
included prior to the year 2000 under certain regulations and capacity being
used as back-up service and (B) 488 MW (net) of contracts with a duration less
than 6 months; whereby both (A) and (B) are reflected in purchased capacity in
ITEM 1. BUSINESS - CONSUMERS ELECTRIC UTILITY OPERATIONS.
Consumers owns 8,640 miles of electric transmission lines operating at up to 345
kilovolts, owns 60,456 miles of electric distribution lines and owns substations
having an aggregate transformer capacity of 40,452,870 kilovoltamperes.
CONSUMERS GAS UTILITY PROPERTIES
Consumers' gas distribution and transmission system consists of 23,933 miles of
distribution mains and 1,156 miles of transmission lines throughout the lower
peninsula of Michigan. Consumers owns and operates six compressor stations with
a total of 115,400 installed horsepower.
Consumers' gas storage fields, listed below, have an aggregate storage capacity
of 221.3 bcf.
<TABLE>
<CAPTION>
Field Name Location Storage Capacity (bcf)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
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 Corner St Clair County 3.8
Swan Creek St Clair County .6
Hessen St Clair County 17.0
Lyon - 34 Oakland County 1.4
======================================================================================================
</TABLE>
Michigan Gas Storage owns and operates two compressor stations with a total of
46,600 installed horsepower. Its transmission system consists of 518 miles of
pipelines within the lower peninsula of Michigan.
35
<PAGE> 36
Michigan Gas Storage's gas storage fields, listed below, have an aggregate
certified storage capacity of 109.5 bcf.
<TABLE>
<CAPTION>
Total Certified
Field Name Location Storage Capacity (bcf)
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Winterfield Osceola and Clare Counties 72.3
Cranberry Lake Clare and Missaukee Counties 28.2
Riverside Missaukee County 9.0
================================================================================================
</TABLE>
In April 1998, Consumers sold gas properties related to the Marysville Gas
Reforming Plant, located in Marysville, Michigan. In addition, Huron
Hydrocarbons, Inc., which is a wholly-owned subsidiary of Consumers, sold its
ownership in St. Clair Underground Storage. These facilities were sold to an
affiliate of Consumers, CMS Gas Transmission and Storage Company. The effective
date of the sale was January 1, 1998.
CMS ENERGY OIL AND GAS EXPLORATION AND PRODUCTION PROPERTIES
Net oil and gas production by CMS Oil and Gas for the years 1997 through 1999 is
shown in the following table.
<TABLE>
<CAPTION>
1999 1998 1997
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Oil and condensate (Mbbls) (a) 7,288 7,307 6,564
Natural gas (MMcf) (a) 26,412 26,495 27,157
Plant products (Mbbls) (a) 396 413 321
Average daily production (b)
Oil (Mbbls) 24.8 23.8 20.5
Gas (MMcf) 119.6 89.3 89.1
Reserves to annual production ratio
Oil (MMbbls) 15.2 11.5 14.3
Gas (bcf) 29.9 21.3 11.9
=============================================================================================
</TABLE>
(a) Revenue interest to CMS Oil and Gas
(b) CMS Oil and Gas working interest (includes CMS Oil and Gas' share of
royalties)
36
<PAGE> 37
The following table shows CMS Oil and Gas' undeveloped net acres of oil and gas
leasehold interests.
<TABLE>
<CAPTION>
December 31 1999 1998
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Wyoming 177,691 137,098
Montana 96,994 107,242
Michigan 71,718 113,911
Texas (including offshore acreage) 50,735 18,657
Indiana 12,212 10,293
Ohio 6,887 9,394
Louisiana (including offshore acreage in 1998) 3,480 4,155
Other states - 583
----------------------------------
Total domestic 419,717 401,333
----------------------------------
Venezuela 339,521 339,521
Colombia 251,680 294,157
Cameroon 187,636 187,636
Equatorial Guinea 148,977 117,366
Ecuador 66,430 66,430
Tunisia 64,761 64,761
Congo 17,364 17,364
Cote d'Ivoire - 89,868
----------------------------------
Total international 1,076,369 1,177,103
----------------------------------
Total net acres 1,496,086 1,578,436
============================================================================================
</TABLE>
37
<PAGE> 38
The following table shows CMS Oil and Gas' estimated proved reserves of oil and
gas for the years 1997 through 1999.
<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, 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
Revisions and other changes (8.2) (27.4) 0.5 (28.8) (8.7) 1.4
Extensions and discoveries 3.3 278.3 - 7.4 3.3 270.9
Acquisitions of reserves 2.9 17.4 - - 2.9 17.4
Sales of reserves - - - - - -
Production (7.7) (26.5) (0.7) (24.6) (7.0) (1.9)
--------------------------------------------------------------------
December 31, 1998 88.6 564.0 1.4 202.1 87.2 361.9
Revisions and other changes 15.2 135.2 0.5 4.1 14.7 131.1
Extensions and discoveries 12.0 23.2 0.7 21.1 11.3 2.1
Acquisitions of reserves 8.8 92.1 - - 8.8 92.1
Sales of reserves - - - - - -
Production (7.7) (26.4) (0.7) (23.1) (7.0) (3.3)
--------------------------------------------------------------------
December 31, 1999 116.9 788.1 1.9 204.2 115.0 583.9
================================================================================================================
ESTIMATED PROVED DEVELOPED RESERVES (a)
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
December 31, 1998 50.6 448.8 1.4 197.8 49.2 251.0
December 31, 1999 74.3 652.7 1.8 191.8 72.5 460.9
================================================================================================================
</TABLE>
38
<PAGE> 39
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
EQUITY INTEREST IN ESTIMATED
PROVED RESERVES OF COMECO
PETROLEUM, INC. (YEMEN) (B)
December 31, 1996 3.2 - - - 3.2 -
December 31, 1997 - - - - - -
December 31, 1998 - - - - - -
December 31, 1999 - - - - - -
===============================================================================================================
</TABLE>
(a) The government license in Venezuela is an oil service contract whereby CMS
Oil and Gas is paid a fee per barrel for oil discovered, lifted, and
delivered to Maraven S.A., a subsidiary of Petroleos de Venezuela S.A..
Additionally, CMS Oil and Gas receives a fee for reimbursement of certain
capital expenditures. The volumes presented represent actual production
with respect to which CMS Oil and Gas is paid a per barrel fee.
(b) CMS Oil & Gas holdings in Comeco Petroleum, Inc. sold on December 5, 1997.
PANHANDLE PROPERTIES
PANHANDLE GAS TRANSMISSION PROPERTIES
Panhandle owns approximately 10,400 miles of interstate pipeline systems.
Panhandle Eastern Pipe Line Company's natural gas transmission system, which
consists of four large-diameter parallel pipelines and 13 mainline compressor
stations, extends a distance of approximately 1,300 miles from producing areas
in the Anadarko Basin of Texas, Oklahoma and Kansas through the states of
Missouri, Illinois, Indiana and Ohio into Michigan. Trunkline's transmission
system extends approximately 1,400 miles from the Gulf Coast areas of Texas and
Louisiana through the states of Arkansas, Mississippi, Tennessee, Kentucky,
Illinois and Indiana to a point on the Indiana-Michigan border. The system
consists principally of three large-diameter parallel pipelines, 18 mainline
compressor stations and one offshore compressor platform.
Trunkline also owns and operates two offshore Louisiana gas supply systems
consisting of 337 miles of pipeline extending approximately 81 miles into the
Gulf of Mexico.
PANHANDLE GAS STORAGE PROPERTIES
Effective April 1, 1999, Panhandle Eastern Pipe Line Company transferred four
underground storage fields located in Kansas, Illinois, Michigan and Oklahoma
with working gas capacity of 57 bcf to its subsidiary, Pan Gas Storage.
Panhandle Eastern Pipe Line Company contracts with Pan Gas Storage for storage
service. Trunkline owns and operates one 13 bcf storage field in Louisiana.
Since the implementation of Order 636, Panhandle Eastern Pipe Line Company,
Trunkline and Pan Gas Storage each provide firm and interruptible storage on an
open-access basis. In addition to owning and operating storage fields, Panhandle
also leases storage capacity. Panhandle Eastern Pipe Line Company and Trunkline
have retained the right to use up to 15 bcf and 10 bcf, respectively, of their
storage capacity for system needs.
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
39
<PAGE> 40
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 51 field offices at various locations in Michigan's lower
peninsula. Of these, two general office buildings and 14 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 10 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.
In Michigan, CMS Gas Transmission has ownership interests in natural gas
pipelines with transmission capacity of 770 MMcf per day, and gathering systems
with capacity of 385 MMcf per day. CMS Gas Transmission also owns five treating
plants that remove carbon dioxide from up to 360 MMcf per day of natural gas.
CMS Gas Transmission owns a hydrocarbon fractionation plant, which has a
capacity of 30,000 barrels per day, and has a 51 percent ownership interest in
an underground storage terminal for liquified petroleum gas products, which has
a storage capacity of 6,600,000 barrels.
CMS Gas Transmission owns CMS Field Services (formerly Continential Natural Gas,
Inc. and Heritage Gas Services, L.L.C.), which is based in Oklahoma and Texas
and operates over 4,300 miles of gas gathering systems and four active
processing plants producing 500,000 gallons per day of natural gas liquids. CMS
Field Services has a 51 percent interest in Bighorn Gas Gathering L.L.C.
(Bighorn), which began service in December 1999. Bighorn serves the northern
part of northeastern Wyoming's Powder River Basin and has a gathering capacity
of more than 250 million cubic feet per day of coal bed methane gas. It delivers
gas to the Fort Union Gathering System (Fort Union) and other market areas via
interstate pipelines connected to Fort Union. Bighorn consists of 60 miles of
large-diameter gathering pipeline, with about 40 additional miles under
construction. CMS Field Services also has a one-third interest in the Fort Union
Gas Gathering System, a 106 mile pipeline that will provide gathering services
through the center of the Powder River Basin.
In South America, CMS Gas Transmission owns a 29.42 percent interest in TGN,
which owns and operates 3,200 miles of pipeline that provides natural gas
transmission service to the northern and central parts of Argentina. CMS Gas
Transmission has a 20 percent interest in the 272 mile TGM pipeline, which is
under construction and, when completed in mid-2000, will transport about 100
MMcf per day of natural gas from Argentina to Brazil. CMS Gas Transmission and
CMS Generation together own a 50 percent interest in GasAtacama, which went into
service in 1999. GasAtacama owns and operates a 585 mile, 20-inch diameter
pipeline that originates in northern Argentina and transports natural gas across
the Andes
40
<PAGE> 41
Mountains to northern Chile. The pipeline supplies GasAtacama's 720 MW electric
generating units. An 88 mile extension to supply a power plant connected to
Chile's central electricity grid was completed in January 2000.
In western Australia, CMS Gas Transmission owns a 260 mile pipeline that
transports natural gas from the north Perth Basin to markets in the Perth area.
In December 1998 and April 1999, a consortium in which CMS Gas Transmission has
a 45 percent interest acquired an 88 percent interest in the 860 mile
Goldsfields Gas Transmission Pipeline, which transports natural gas from the
Northwest Shelf to the mining regions of western Australia.
CMS Gas Transmission and a partner are constructing a methanol plant in
Equatorial Guinea in west Africa. The plant, which will go into service in
mid-2001, will have a capacity of 2,500 metric tons per day and will use about
115 MMcf of residue gas from the CMS Oil and Gas facilities nearby.
CMS Gas Transmission also has an ownership interest in an enhanced oil recovery
project which involves flooding depleted oil reservoirs with carbon dioxide.
CMS Electric and Gas owns electric distribution facilities in South America.
Empresa Distribuidora de Electricidad de Entre Rios S.A. serves approximately
233,000 customers in the province of Entre Rios, Argentina. Sistema Electrico
Nueva Esparta C.A. serves more than 91,000 customers on Margarita Island,
Venezuela. In October 1999, CMS Electric and Gas purchased Companhia Paulista de
Energia Eletrica (CPEE), which serves more than 139,000 customers in the states
of Minas Gerais and Sao Paulo, Brazil. Through its ownership in CPEE, CMS
Electric and Gas has ownership interests in three additional electric
distribution facilities, Companhia Sue Paulista de Energia, Companhia Jaguari de
Energia and Companhia Luz e Forca de Mococa.
CMS Energy, through certain subsidiaries; owns a 50 percent interest in Bay
Harbor Company, L.L.C., a development in Emmet County, Michigan and owns
approximately 6,000 acres of undeveloped land in Benzie and Manistee Counties,
Michigan. In December 1999, the undeveloped land in Muskegon County, Michigan
was sold.
41
<PAGE> 42
The following table shows interests in independent power plants at December 31,
1999.
<TABLE>
<CAPTION>
Location Ownership Interest (%) Gross Capacity (MW)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
CMS GENERATION
Wood-Fueled
Domestic 37.8 - 50.0 155
Fossil-Fueled
Domestic 8.8 - 100.0 813
International
Andhra Pradesh, India 25.3 235
Mendoza Province, Argentina 92.6 540
Port of Jorf Lasfar, Morocco 50.0 660
Prachinburi Province, Thailand 66.2 300
Second Region, Chile 50.0 555
State of Victoria, Australia 49.6 2,000
Tamil Nadu, India 49.0 200
Other 41.2-100.0 337
Scrap Tire-Fueled
Domestic 50.0 31
Hydro Generation
Domestic 1.0 - 55.5 82
International
Limay River, Argentina 17.2 1,320
Wind Generation
Domestic 8.5 - 22.7 102
Other
International
Scudder Fund, Latin America Various 780
CMS MIDLAND
Fossil-Fueled
Midland, Michigan 49.0(a) 1,370
===========================================================================================================
</TABLE>
(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 3 OF CMS ENERGY'S NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS.
42
<PAGE> 43
ITEM 3. LEGAL PROCEEDINGS
CMS Energy, Consumers, Panhandle 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,
CONSUMERS AND PANHANDLE REGULATION, as well as to each of CMS Energy's,
Consumers' and Panhandle's ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS and CMS
Energy's, Consumers' and Panhandle's 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
FTC CONSENT AGREEMENT: In March 1999, CMS Energy signed a consent agreement with
the FTC to settle the FTC's investigation of CMS Energy's acquisition of the
Panhandle Companies and to terminate the waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act. Pursuant to the consent agreement,
CMS Energy agreed that Consumers would receive natural gas tendered for delivery
at all material interconnections with pipelines (other than those of the
Panhandle Companies and other pipelines affiliated with CMS Energy) up to design
capacity of the interconnections, except as the capacity may be reduced for
maintenance or force majeure. If CMS Energy does not provide service at the
agreed capacity, Consumers agrees to provide gas on Consumers' side of the
interconnection and accept delayed repayment in kind. The FTC accepted the
consent agreement on March 18, 1999, and this permitted the acquisition to close
on March 29, 1999. The consent agreement became final on June 2, 1999 and
expires on June 2, 2009. The requirements in the proposed FTC order are
consistent with Consumers' previous practices, and the MPSC has approved new
tariffs to reflect the proposed order.
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 Consumers Energy Company and CMS Energy Corporation 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. In September
1998, the United States District Court for the Eastern District of Michigan
granted CMS Energy's motion to dismiss the complaint for failure to state a
claim against which relief may be granted. On March 31, 1999, the Court issued
an opinion and order granting Consumers' motion for summary judgment, resulting
in dismissal of the case. The plaintiffs appealed this decision to the 6th
Circuit Court of Appeals. Each of the litigants has filed final briefs.
Consumers and CMS Energy believe the lawsuit is without merit and will
vigorously defend against it, but cannot predict the outcome of this matter.
43
<PAGE> 44
CONSUMERS
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. 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. In November
1997, the United States Court of Appeals decided that the contract between DOE
and the utilities provided a potentially adequate remedy if the DOE failed to
fulfill its obligations by January 31, 1998. For further information on this
litigation, see Consumers' ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - NOTE 1 - NUCLEAR FUEL COST
incorporated by reference herein.
PANHANDLE
ILLINOIS ENFORCEMENT PROCEEDINGS: The Illinois Environmental Protection Agency
has indicated that it intends to initiate an environmental enforcement
proceeding relating to alleged air quality permit violations at a natural gas
compressor station. This proceeding could result in a penalty in excess of
$100,000. Under the terms of the sale of Panhandle to CMS Energy, as discussed
see Panhandle's ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS - NOTE 1, penalties incurred related to this
proceeding were retained by a subsidiary of Duke Energy. Panhandle believes the
resolution of this matter will not have a material adverse effect on
consolidated results of operations or financial position.
REGULATORY MATTERS: For a discussion of certain Panhandle regulatory matters,
see Panhandle's ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS - NOTE 3 - REGULATORY MATTERS, as incorporated
by reference herein.
OTHER MATTERS: For a discussion of Panhandle's other litigation matters, see
Panhandle's ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS - NOTE 11 - LITIGATION, as incorporated by
reference herein.
CMS ENERGY, CONSUMERS AND PANHANDLE
ENVIRONMENTAL MATTERS: CMS Energy, Consumers, Panhandle 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. 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, CONSUMERS AND PANHANDLE
ENVIRONMENTAL COMPLIANCE; CMS Energy's, Consumers' and Panhandle's ITEM 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS; and CMS Energy's, Consumers' and
Panhandle's ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
44
<PAGE> 45
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS.
CMS ENERGY
None in the fourth quarter of 1999 for CMS Energy.
CONSUMERS
None in the fourth quarter of 1999 for Consumers.
45
<PAGE> 46
PART II
ITEM 5. MARKET FOR CMS ENERGY'S, CONSUMERS' AND PANHANDLE'S 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 7. CMS ENERGY'S MANAGEMENT'S DISCUSSION AND ANALYSIS -
RECAPITALIZATION and ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - CMS
ENERGY'S QUARTERLY FINANCIAL AND COMMON STOCK INFORMATION, which is incorporated
by reference herein. At February 29, 2000, the number of registered shareholders
totaled 68,048.
CONSUMERS
Consumers' common stock is privately held by its parent, CMS Energy, and does
not trade in the public market. In January, May, August and November 1999,
Consumers paid $97 million, $76 million, $34 million and $55 million in cash
dividends, respectively, on its common stock. In February, May, August and
November 1998, Consumers paid $80 million, $49 million, $44 million and $68
million in cash dividends, respectively, on its common stock.
PANHANDLE
Panhandle's common stock is privately held by its parent, CMS Gas Transmission,
and does not trade in the public market. In June, September and December 1999,
Panhandle paid $13 million, $16 million and $12 million in cash dividends,
respectively, on its common stock to CMS Gas Transmission. In 1998 and the first
quarter of 1999, Panhandle recorded dividends on common stock of $34 million and
$81 million, respectively, to a subsidiary of Duke Energy.
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.
46
<PAGE> 47
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.
PANHANDLE
Management's discussion and analysis of financial condition and results of
operations is contained in ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA -
PANHANDLE'S 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.
CONSUMERS
Quantitative and Qualitative Disclosures About Market Risk is contained in ITEM
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - CONSUMERS' MANAGEMENT'S
DISCUSSION AND ANALYSIS - OTHER MATTERS - MARKET RISK INFORMATION, which is
incorporated by reference herein.
PANHANDLE
Quantitative and Qualitative Disclosures About Market Risk is contained in ITEM
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - PANHANDLE'S MANAGEMENT'S
DISCUSSION AND ANALYSIS - OTHER MATTERS - MARKET RISK INFORMATION, which is
incorporated by reference herein.
47
<PAGE> 48
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Index to Financial Statements:
<TABLE>
<CAPTION>
CMS ENERGY Page
<S> <C>
Selected Financial Information.......................................................... CMS-2
Management's Discussion and Analysis.................................................... CMS-4
Consolidated Statements of Income....................................................... CMS-20
Consolidated Statements of Cash Flows................................................... CMS-23
Consolidated Balance Sheets............................................................. CMS-24
Consolidated Statements of Preferred Stock.............................................. CMS-26
Consolidated Statements of Common Stockholders' Equity.................................. CMS-27
Notes to Consolidated Financial Statements.............................................. CMS-28
Report of Independent Public Accountants................................................ CMS-69
Quarterly Financial and Common Stock Information........................................ CMS-70
CONSUMERS ENERGY
Selected Financial Information.......................................................... CE-2
Management's Discussion and Analysis.................................................... CE-3
Consolidated Statements of Income....................................................... CE-12
Consolidated Statements of Cash Flows................................................... CE-13
Consolidated Balance Sheets............................................................. CE-14
Consolidated Statements of Long-Term Debt............................................... CE-16
Consolidated Statements of Preferred Stock.............................................. CE-17
Consolidated Statements of Common Stockholder's Equity.................................. CE-18
Notes to Consolidated Financial Statements.............................................. CE-19
Report of Independent Public Accountants................................................ CE-44
Quarterly Financial Information......................................................... CE-45
PANHANDLE EASTERN PIPE LINE COMPANY
Management's Discussion and Analysis.................................................... PE-2
Consolidated Statements of Income....................................................... PE-6
Consolidated Statements of Cash Flows................................................... PE-7
Consolidated Balance Sheets............................................................. PE-8
Consolidated Statements of Common Stockholder's Equity.................................. PE-10
Notes to Consolidated Financial Statements.............................................. PE-11
Report of Independent Public Accountants - Arthur Andersen LLP.......................... PE-27
Report of Independent Public Accountants - Deloitte & Touche LLP........................ PE-28
</TABLE>
48
<PAGE> 49
(This page intentionally left blank)
49
<PAGE> 50
[CMS ENERGY LOGO]
1999 FINANCIAL STATEMENTS
CMS-1
<PAGE> 51
SELECTED FINANCIAL INFORMATION CMS ENERGY CORPORATION
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C> <C>
Operating revenue (in millions) ($) 6,103 5,141 4,781 4,324 3,890
Consolidated net income (in millions) ($) 277 285 244 224 195
Average common shares outstanding
(in thousands)
CMS Energy 110,140 102,446 96,144 92,462 88,810
Class G - 8,333 8,015 7,727 7,511
Earnings per average common share
CMS Energy - Basic ($) 2.18 (a) 2.65 2.39 2.27 2.16
- Diluted ($) 2.17 (a) 2.62 2.37 2.26 2.16
Class G - Basic and Diluted ($) 4.21 (a) 1.56 1.84 1.82 0.38
Cash from operations (in millions) ($) 917 516 624 647 640
Capital expenditures, excluding acquisitions,
capital lease additions and DSM (in millions) ($) 1,124 1,295 678 643 508
Total assets (in millions) ($) 15,462 11,310 9,508 8,363 7,909
Long-term debt, excluding current
maturities (in millions) ($) 6,987 4,726 3,272 2,842 2,906
Non-current portion of capital
leases (in millions) ($) 88 105 75 103 106
Total preferred stock (in millions) ($) 44 238 238 356 356
Total Trust Preferred Securities (in millions) ($) 1,119 393 393 100 -
Cash dividends declared per common share
CMS Energy ($) 1.39 1.26 1.14 1.02 0.90
Class G ($) 0.99 1.27 1.21 1.15 0.56
Market price of common stock at year-end
CMS Energy ($) 31-3/16 48-7/16 44-1/16 33-5/8 29-7/8
Class G ($) 24-9/16 (b) 25-1/4 27-1/8 18-3/8 18-7/8
Book value per common share at year-end
CMS Energy ($) 21.17 19.61 16.84 15.24 13.51
Class G ($) - 11.46 10.91 11.38 10.60
Return on average common equity (%) 11.8 14.2 14.7 15.7 17.1
Return on assets (%) 5.2 5.5 5.6 5.4 5.2
Number of employees at year-end
(full-time equivalents) 11,462 9,710 9,682 9,712 10,105
</TABLE>
CMS-2
<PAGE> 52
SELECTED FINANCIAL INFORMATION (CONTINUED) CMS ENERGY CORPORATION
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
ELECTRIC UTILITY STATISTICS
<S> <C> <C> <C> <C> <C> <C>
Sales (billions of kWh) 41.0 40.0 37.9 37.1 35.5
Customers (in thousands) 1,665 1,640 1,617 1,594 1,570
Average sales rate per kWh (cents) 6.54 6.50 6.57 6.55 6.36
GAS UTILITY STATISTICS
Sales and transportation deliveries (bcf) 389 360 420 448 404
Customers (in thousands) (c) 1,584 1,558 1,533 1,504 1,476
Average sales rate per mcf ($) 4.52 4.56 4.44 4.45 4.42
INTERNATIONAL DIVERSIFIED ENERGY STATISTICS
CMS Energy's share of unconsolidated
revenue (in millions):
Independent power production ($) 802 761 621 493 497
Natural gas transmission, storage and processing ($) 130 67 51 42 26
Marketing, services and trading ($) 524 291 202 - -
Independent power production
sales (millions of kWh) 20,472 19,017 13,126 7,823 7,422
Gas pipeline throughput (bcf) 1,131 253 226 177 79
Gas managed and marketed for end users (bcf) 470 366 243 108 101
Electric power marketed (millions of KWh) 3,709 6,973 900 - -
EXPLORATION AND PRODUCTION STATISTICS
Sales (net equiv. MMbbls) 12.1 12.1 11.4 10.1 9.0
Proved reserves (net equiv. MMbbls) 248.2 182.6 152.0 133.5 124.5
Proved reserves added (net equiv. MMbbls) (d) 77.7 42.7 29.9 19.1 25.6
Finding cost per net equiv. barrel ($) 1.94 3.35 2.38 2.94 5.06
</TABLE>
(a) 1999 earnings per average common share includes allocation of the premium on
redemption of Class G Common Stock of $(.26) per CMS Energy basic share, $(.25)
per CMS Energy diluted share and $3.31 per Class G basic and diluted share.
(b) Reflects closing price at the October 25, 1999 exchange date.
(c) Excludes off-system transportation customers.
(d) Certain prior year amounts were restated for comparative purposes.
CMS-3
<PAGE> 53
CMS ENERGY CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
CMS Energy Corporation (CMS Energy) is the parent holding company of Consumers
Energy Company (Consumers) and CMS Enterprises Company (Enterprises). Consumers
is a combination electric and gas utility company serving the Lower Peninsula of
Michigan. Enterprises, through subsidiaries, is engaged in several domestic and
international diversified energy businesses including: natural gas transmission,
storage and processing; independent power production; oil and gas exploration
and production; energy marketing, services and trading; and international energy
distribution. On March 29, 1999, CMS Energy completed the acquisition of
Panhandle Eastern Pipe Line Company, including its subsidiaries Trunkline and
Pan Gas Storage, and its affiliates Panhandle Storage and Trunkline LNG
(Panhandle), as further discussed in the Capital Resources and Liquidity section
of this Management's Discussion and Analysis (MD&A) and Note 3. Panhandle is
primarily engaged in the interstate transportation and storage of natural gas.
This MD&A also refers to, and in some sections specifically incorporates by
reference, CMS Energy's Notes to Consolidated Financial Statements and should be
read in conjunction with such Statements and Notes. This Annual Report and other
written and oral statements made by CMS Energy from time to time contain
forward- looking statements as defined by the Private Securities Litigation
Reform Act of 1995. The words "anticipates," "believes," "estimates," "expects,"
"intends," and "plans," and variations of such words and similar expressions,
are intended to identify forward-looking statements that involve risk and
uncertainty. These forward-looking statements are subject to various factors
which could cause CMS Energy's actual results to differ materially from those
anticipated in such statements. CMS Energy disclaims any obligation to update or
revise forward-looking statements, whether from new information, future events
or otherwise. CMS Energy details certain risk factors, uncertainties and
assumptions in this MD&A and particularly in the section entitled "Forward
Looking Statements Cautionary Factors" in CMS Energy's Form 8-K filed on
February 1, 2000, and periodically in various public filings it makes with the
Securities and Exchange Commission (SEC). This discussion of potential risks and
uncertainties is by no means complete but is designed to highlight important
factors that may impact CMS Energy's outlook. This Annual Report also describes
material contingencies in the Notes to Consolidated Financial Statements and
readers are encouraged to read such Notes.
RESULTS OF OPERATIONS
In October 1999, CMS Energy exchanged .7041 shares of one of two classes of
common stock of CMS Energy, par value $.01 (CMS Energy Common Stock) for each of
the approximately 8.7 million outstanding shares of one of two classes of common
stock of CMS Energy, no par value (Class G Common Stock). This exchange ratio
represented the fair market value of CMS Energy Common Stock equal to 115
percent of the fair market value of one share of Class G Common Stock, and
resulted in a reallocation of earnings per share. CMS Energy's basic and diluted
earnings per share were reduced $.26 and $.25, respectively, and Class G's basic
and diluted earnings per share were increased $3.31, as more fully discussed in
Note 8. The per share allocation does not affect CMS Energy's net income for
1999 or for future periods.
Also in 1999, CMS Energy recorded losses of $84 million, or $49 million net of
tax, relating to its investments in Nitrotec Corporation, a proprietary gas
processing company which has patents for its helium removal and nitrogen
rejection processes for purifying natural gas (Nitrotec). After reviewing the
business alternatives and strategic outlook for its investments in Nitrotec, CMS
Energy determined that the
CMS-4
<PAGE> 54
probability of recovering any portion of its investments was unlikely.
Accordingly, CMS Energy has recorded losses equal to the carrying amount of its
investments.
The following table depicts CMS Energy's Results of Operations before and after
the effects of the above-mentioned events of 1999.
CMS ENERGY CONSOLIDATED EARNINGS
<TABLE>
<CAPTION>
In Millions, Except Per Share Amounts
- ---------------------------------------------------------------------------------------------------
Years Ended December 31 1999 1998 (a) Change
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CONSOLIDATED NET INCOME $ 277 $ 285 $ (8)
Net Income Attributable to CMS Energy Common Stock $ 269 $ 272 $ (3)
Net Income Attributable to Class G Common Stock $ 8 $ 13 $ (5)
CONSOLIDATED NET INCOME OF CMS ENERGY
Net Income Before Losses on Investments in Nitrotec $ 318 $ 272 $ 46
Effects of Losses on Investments in Nitrotec, Net of
$35 Tax (49) - (49)
------------------------------------
Net Income Attributable to CMS Energy Common Stock $ 269 $ 272 $ (3)
====================================
- ---------------------------------------------------------------------------------------------------
BASIC EARNINGS PER AVERAGE COMMON SHARE OF CMS ENERGY
Net Income Before Reconciling Items $ 2.89 $ 2.65 $ .24
Effects of Losses on Investments in Nitrotec (.45) - (.45)
------------------------------------
2.44 2.65 (.21)
Effects of Class G Common Stock Exchange (.26) - (.26)
------------------------------------
Net Income Available After Reconciling Items $ 2.18 $ 2.65 $ (.47)
====================================
- ---------------------------------------------------------------------------------------------------
DILUTED EARNINGS PER AVERAGE COMMON SHARE OF CMS ENERGY
Net Income Before Reconciling Items $ 2.85 $ 2.62 $ .23
Effects of Losses on Investments in Nitrotec (.43) - (.43)
------------------------------------
2.42 2.62 (.20)
Effects of Class G Common Stock Exchange (.25) - (.25)
------------------------------------
Net Income Available After Reconciling Items $ 2.17 $ 2.62 $ (.45)
====================================
</TABLE>
(a) Includes the cumulative effect of an accounting change for property taxes
which increased net income by $43 million, or $.40 per basic and diluted share
of CMS Energy Common Stock.
The increase in consolidated net income for 1999 over 1998 before the effects of
losses on investments in Nitrotec resulted from increased earnings from the
electric and gas utilities; the natural gas transmission, storage and processing
business, primarily as a result of the Panhandle acquisition; the independent
power production business; the oil and gas exploration and production business;
and lower losses from the international energy distribution business. Partially
offsetting these increases was higher interest expense principally related to
the Panhandle acquisition.
The increase in consolidated net income for 1998 over 1997 resulted from
increased earnings from the electric utility; independent power production;
natural gas transmission, storage and processing; and marketing, services and
trading businesses. Partially offsetting these increases were lower earnings
from
CMS-5
<PAGE> 55
the gas utility, oil and gas exploration and production and international energy
distribution businesses; the recognition of a $37 million loss ($24 million
after-tax) for the underrecovery of power costs under the power purchase
agreement between Consumers and the Midland Cogeneration Venture Limited
Partnership (MCV Partnership), and higher interest expense.
For further information, see the individual results of operations for each CMS
Energy business segment in this MD&A.
CONSUMERS' ELECTRIC UTILITY RESULTS OF OPERATIONS
ELECTRIC PRETAX OPERATING INCOME:
<TABLE>
<CAPTION>
In Millions
- ---------------------------------------------------------------------
Change Compared to Prior Year 1999 vs 1998 1998 vs 1997
- ---------------------------------------------------------------------
<S> <C> <C>
Electric deliveries $ 37 $ 40
Power supply costs and related revenue 27 14
Net energy option costs (19) 6
Non-commodity revenue (13) (4)
Operations and maintenance (3) (3)
General taxes and depreciation (10) (10)
-------------------
Total change $ 19 $ 43
=====================================================================
</TABLE>
ELECTRIC DELIVERIES: Electric deliveries were 41 billion kilowatt-hours (kWh)
for 1999, an increase of 1 billion kWh or 2.5 percent compared with 1998. Total
electric deliveries increased in all customer classes. Total electric deliveries
in 1998 were 40 billion kWh, an increase of 2.2 billion kWh or 6 percent
compared with 1997. The increase was primarily attributable to increased sales
to other utilities and a 3 percent increase in deliveries to ultimate customers.
POWER SUPPLY COSTS:
<TABLE>
<CAPTION>
In Millions
- --------------------------------------------------------------------------
Years Ended December 31 1999 1998 Change 1998 1997 Change
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$1,193 $1,175 $18 $1,175 $1,139 $36
==========================================================================
</TABLE>
Power supply costs increased for 1999 to meet increased electric delivery
requirements. Both the 1999 and 1998 power supply cost increases reflect higher
internal generation to meet the increased demand for electricity. In addition,
the cost increase in 1998 over the prior year reflects increased power purchases
from outside sources to meet sales demand. In 1999 and 1998 respectively,
Consumers purchased $19 million and $5 million of energy options for physical
delivery of electricity to ensure a reliable source of power during the summer
months. As a result of periodic excess daily capacity, some options were sold
for $6 million and $11 million during June, July, and August of 1999 and 1998,
respectively. All of the remaining options were exercised or expired. The costs
relating to the expired options, offset by income received from the sale of
options, were reflected as purchased power costs.
CMS-6
<PAGE> 56
CONSUMERS' GAS UTILITY RESULTS OF OPERATIONS
GAS PRETAX OPERATING INCOME:
<TABLE>
<CAPTION>
In Millions
- --------------------------------------------------------------------------------
Change Compared to Prior Year 1999 vs 1998 1998 vs 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
Gas deliveries $ 32 $(42)
Gas commodity and related revenue (5) 19
Gas wholesale and retail services 5 1
Operation and maintenance (14) (1)
General taxes and depreciation (12) (4)
-----------------------------
Total change $ 6 $(27)
================================================================================
</TABLE>
GAS DELIVERIES: Gas system deliveries in 1999, including miscellaneous
transportation, totaled 389 billion cubic feet (bcf), an increase of 29 bcf or 8
percent compared with 1998. The increased deliveries reflect colder temperatures
during the first quarter of 1999. System deliveries in 1998, including
miscellaneous transportation, totaled 360 bcf, a decrease of 60 bcf or 14
percent compared with 1997. The decreased deliveries reflect milder winter
temperatures in the first and fourth quarters of 1998.
COST OF GAS SOLD:
<TABLE>
<CAPTION>
In Millions
- --------------------------------------------------------------------------------
Years Ended December 31 1999 1998 Change 1998 1997 Change
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$637 $564 $73 $564 $694 $(130)
================================================================================
</TABLE>
The cost of gas sold increase for 1999 was the result of increased sales due to
colder temperatures during 1999 and higher gas prices. The cost of gas decrease
for 1998 was the result of decreased sales from milder temperatures during 1998
and decreased gas prices.
NATURAL GAS TRANSMISSION, STORAGE AND PROCESSING RESULTS OF OPERATIONS
PRETAX OPERATING INCOME: Pretax operating income for 1999, including $84 million
of losses on investments in Nitrotec, increased $58 million (176 percent) from
the comparable period in 1998. The increase reflects earnings from Panhandle,
which CMS Energy acquired in March 1999, increased earnings from other
international and domestic operations, and a gain on the sale of a partial
interest in the Northern Header gathering system in Wyoming's Powder River
Basin. Partially offsetting these increases were 1998 gains on the sale of Petal
Gas Storage Company and Australian gas reserves. Pretax operating income for
1998 increased $6 million (22 percent) from the comparable period in 1997
primarily due to a gain on the sale of Petal Gas Storage Company, a gain on the
sale of Australian gas reserves, and lower operating expenses. These increases
were partially offset by a decrease in earnings from international operations.
CMS-7
<PAGE> 57
INDEPENDENT POWER PRODUCTION RESULTS OF OPERATIONS
PRETAX OPERATING INCOME: Pretax operating income for 1999 increased $13 million
(9 percent) from the comparable period in 1998. This increase primarily reflects
increased operating income from international and domestic plant earnings and
fees and an increase in income earned from management service fees. Partially
offsetting these year-over-year increases were 1998 gains of $26 million on the
sale of two power purchase agreements and $9 million on the sale of two plants.
Pretax operating income for 1998 increased $48 million (50 percent) from the
comparable period in 1997. This increase primarily reflects increased operating
income from international plant earnings and fees, a $26 million gain on the
sale of two power purchase agreements, and a $9 million gain on the sale of two
plants. These increases were partially offset by higher net operating expenses
and a scheduled reduction in the industry expertise service fee income earned in
connection with the 2,000 megawatt (MW) brown coal-fueled Loy Yang A power plant
and an associated coal mine in Victoria, Australia (Loy Yang).
OIL AND GAS EXPLORATION AND PRODUCTION RESULTS OF OPERATIONS
PRETAX OPERATING INCOME: Pretax operating income for 1999 increased $11 million
(183 percent) from the comparable period in 1998 as a result of higher realized
commodity prices and lower exploration expenses. Partially offsetting this
increase were higher operating expenses. Pretax operating income for 1998
decreased $20 million (77 percent) from the comparable period in 1997 due to
lower oil prices and a gain in the prior period from the sale of CMS Oil and Gas
Company's (CMS Oil and Gas) entire interest in oil and gas properties in Yemen.
Partially offsetting this decrease were increased oil production, decreased
exploration expenses, and decreased depreciation, depletion and amortization
expenses.
MARKETING, SERVICES AND TRADING RESULTS OF OPERATIONS
PRETAX OPERATING INCOME: Pretax operating income for 1999 was unchanged from the
comparable period in 1998. Increased earnings from retail gas sales, wholesale
gas price volatility and a recent acquisition in energy management services were
offset by costs related to market development activities. Pretax operating
income for 1998 increased $9 million from the comparable period in 1997. This
increase is the result of improved margins on electricity and gas sales combined
with increased electric and gas sales volumes. The increase was partially offset
by additional operating costs relating to growth objectives.
MARKET RISK INFORMATION
CMS Energy is exposed to market risks including, but not limited to, changes in
interest rates, currency exchange rates, and certain commodity and equity
prices. Management employs established policies and procedures to manage its
risks associated with these market fluctuations, including the use of various
derivative instruments such as futures, swaps, options and forward contracts.
Management believes that any losses incurred on derivative instruments used to
hedge risk would be offset by an opposite movement of the value of the hedged
item.
In accordance with SEC disclosure requirements, CMS Energy has performed
sensitivity analyses to assess the potential loss in fair value, cash flows and
earnings based upon hypothetical 10 percent increases and decreases in market
exposures. Management does not believe that sensitivity analyses alone provide
an accurate or reliable method for monitoring and controlling risks. Therefore,
CMS Energy and its subsidiaries rely on the experience and judgment of senior
management and traders to revise strategies and adjust positions as they deem
necessary. Losses in excess of the amounts determined in the sensitivity
analyses could occur if market rates or prices exceed the 10 percent shift used
for the analyses.
CMS-8
<PAGE> 58
COMMODITY PRICE RISK: Management uses commodity futures contracts, options and
swaps (which require a net cash payment for the difference between a fixed and
variable price) to manage commodity price risk. The prices of energy
commodities, such as gas, oil, electric and natural gas liquids, fluctuate due
to changes in the supply of and demand for those commodities. To reduce price
risk caused by these market fluctuations, CMS Energy hedges certain inventory
and purchases and sales contracts. A hypothetical 10 percent adverse shift in
quoted commodity prices in the near term would not have had a material impact on
CMS Energy's consolidated financial position, results of operations or cash
flows as of December 31, 1999. The analysis assumes that the maximum exposure
associated with purchased options is limited to prices paid. The analysis also
does not quantify short-term exposure to hypothetically adverse price
fluctuations in inventories.
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 $7 billion at
December 31, 1999 with a fair value of $6.7 billion. The fair value of CMS
Energy's interest rate swaps at December 31, 1999, with a notional amount of
$2.9 billion, was $6 million, representing the amount CMS Energy would receive
upon settlement. A hypothetical 10 percent adverse shift in interest rates in
the near term would not have a material effect on CMS Energy's consolidated
financial position, results of operations or cash flows as of December 31, 1999.
CURRENCY EXCHANGE RISK: Management uses forward exchange and option contracts to
hedge certain investments in foreign operations. A hypothetical 10 percent
adverse shift in currency exchange rates would not have a material effect on CMS
Energy's consolidated financial position or results of operations as of December
31, 1999, but would result in a net cash settlement of approximately $71
million. The estimated fair value of the foreign exchange and option contracts
at December 31, 1999 was $64 million, representing the amount CMS Energy would
pay upon settlement.
EQUITY SECURITY PRICE RISK: CMS Energy and certain of its subsidiaries have
equity investments in companies in which they hold less than a 20 percent
interest. A hypothetical 10 percent adverse shift in equity security prices
would not have a material effect on CMS Energy's consolidated financial
position, results of operations or cash flows as of December 31, 1999.
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 cash is dividends and distributions from
subsidiaries. In 1999, Consumers paid $262 million in common dividends and
Enterprises paid $118 million in common dividends to CMS Energy. In January
2000, Consumers declared and paid a $79 million dividend to CMS Energy. In June
1999, CMS Energy contributed $150 million of paid-in capital to Consumers. CMS
Energy's consolidated cash requirements are met by its operating and financing
activities.
OPERATING ACTIVITIES: CMS Energy's consolidated net cash provided by operating
activities is derived mainly from the processing, storage, transportation and
sale of natural gas; the generation, transmission, distribution and sale of
electricity; and the sale of oil. Consolidated cash from operations totaled $917
million and $516 million for 1999 and 1998, respectively. The $401 million
increase resulted from an increase in cash earnings, reflecting higher non-cash
charges to earnings in 1999 as compared to 1998, combined with a reduction in
working capital in 1999. CMS Energy uses its cash derived from operating
CMS-9
<PAGE> 59
activities primarily to maintain and expand its international and domestic
businesses, to maintain and expand electric and gas systems of Consumers, to pay
interest on and retire portions of its long-term debt, and to pay dividends.
INVESTING ACTIVITIES: CMS Energy's consolidated net cash used in investing
activities totaled $3.564 billion and $1.634 billion for 1999 and 1998,
respectively. The increase of $1.930 billion primarily reflects the acquisition
of Panhandle in March 1999. CMS Energy's expenditures (excluding acquisitions)
during 1999 for its utility and international businesses were $464 million and
$1.06 billion, respectively, compared to $429 million and $1.271 billion,
respectively, during the comparable period in 1998.
FINANCING ACTIVITIES: CMS Energy's net cash provided by financing activities
totaled $2.678 billion in 1999, primarily for funding the approximately $2
billion Panhandle acquisition, and $1.150 billion in 1998. The increase of $1.5
billion in net cash provided by financing activities resulted from an increase
of $1.212 billion in the issuance of debt and trust preferred securities (see
table below) and a decrease in the retirement of bonds and other long-term debt
($403 million), partially offset by an increase in the retirement of preferred
stock ($194 million) and a decrease in the issuance of common stock ($185
million).
CMS-10
<PAGE> 60
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
In Millions
- ------------------------------------------------------------------------------------------------------------------------------------
Distribution/ Principal
Month Issued Maturity Interest Rate Amount Use of Proceeds
- ------------------------------------------------------------------------------------------------------------------------------------
CMS ENERGY
<S> <C> <C> <C> <C> <C>
GTNs Series E (1) (1) 7.4%(1) $ 244 General corporate purposes
Senior Notes January 2009 7.5% 480 Repay debt and general corporate purposes
Senior Notes February 2004 6.75% 300 Repay debt and general corporate purposes
Trust Preferred Securities June 2001 (2) 250 To refinance acquisition of Panhandle
Senior Notes June 2011 8.0%(3) 250 To refinance acquisition of Panhandle
Senior Notes June 2013 8.375%(4) 150 To refinance acquisition of Panhandle
Adjustable Convertible Trust
Preferred Securities(5) July 2004 8.75% 301 Repay debt and general corporate purposes
------
$1,975
CONSUMERS
Trust Preferred Securities October 2029 9.25% 175 Repay debt and general corporate purposes
PANHANDLE
Senior Notes (6) March 2004 6.125% 300 To fund acquisition of Panhandle
Senior Notes (6) March 2009 6.5% 200 To fund acquisition of Panhandle
Senior Notes (6) March 2029 7.0% 300 To fund acquisition of Panhandle
------
800
------
Total $2,950
====================================================================================================================================
</TABLE>
CMS-11
<PAGE> 61
(1) CMS Energy General Term Notes (R) (GTNs) are issued from time to time with
varying maturity dates. The rate shown herein is a weighted average
interest rate.
(2) The securities representing an undivided beneficial interest in the assets
of statutory business trusts (Trust Preferred Securities) pay quarterly
distributions at a floating rate of LIBOR plus 1.75 percent. For detailed
information, see Note 7, incorporated by reference herein.
(3) The interest rate may be reset in July 2001. For detailed information, see
Note 6, incorporated by reference herein.
(4) The interest rate may be reset in July 2003. For detailed information, see
Note 6, incorporated by reference herein.
(5) For detailed information regarding the conversion provisions of these
securities, see Note 7, incorporated by reference herein.
(6) These notes were privately placed by CMS Panhandle Holding Company (CMS
Panhandle Holding) on March 29, 1999, with an irrevocable and unconditional
guarantee by Panhandle. On June 15, 1999, CMS Panhandle Holding merged into
Panhandle, at which point the notes became direct obligations of Panhandle.
In September 1999, Panhandle exchanged the $800 million of notes originally
issued by CMS Panhandle Holding with substantially identical SEC-registered
notes.
In 1999, CMS Energy declared and paid $154 million in cash dividends to holders
of CMS Energy Common Stock and $9 million in cash dividends to holders of Class
G Common Stock. In January 2000, the Board of Directors of CMS Energy (Board of
Directors) declared a quarterly dividend of $.365 per share on CMS Energy Common
Stock, payable in February 2000.
OTHER INVESTING AND FINANCING MATTERS: At December 31, 1999, the book value per
share of CMS Energy Common Stock was $21.17.
At January 31, 2000, CMS Energy had an aggregate $1.7 billion in securities
registered for future issuance.
CMS Energy has $725 million of senior credit facilities consisting of a $600
million three-year revolving credit facility and a five-year $125 million term
loan facility (Senior Credit Facilities), unsecured lines of credit and letters
of credit as anticipated sources of funds to finance working capital
requirements and to pay for capital expenditures between long-term financings.
At December 31, 1999, the total amount available under the Senior Credit
Facilities was $241 million, and under the unsecured lines of credit and letters
of credit was $218 million. For detailed information, see Note 6, incorporated
by reference herein.
Consumers has credit facilities, lines of credit and a trade receivable sale
program in place as anticipated sources of funds to fulfill its currently
expected capital expenditures. For detailed information about these sources of
funds, see Note 5, incorporated by reference herein.
In March 1999, CMS Energy acquired Panhandle from Duke Energy Corporation (Duke
Energy) for a cash payment of $1.9 billion and existing Panhandle debt of $300
million. Initially, CMS Energy financed the acquisition of Panhandle with funds
from a $600 million bridge loan negotiated with domestic banks, proceeds from
CMS Energy long-term debt, and proceeds from approximately $800 million of notes
privately placed by CMS Panhandle Holding. As of June 30, 1999, the entire
bridge loan had been repaid from proceeds of the sale of $250 million of Trust
Preferred Securities and $400 million of senior notes.
In April 1999, Consumers redeemed all 8 million outstanding shares of its $2.08
preferred stock at $25.00 per share for a total of $200 million.
In October 1999, CMS Energy exchanged approximately 6.1 million shares of CMS
Energy Common Stock for all of the approximately 8.7 million issued and
outstanding shares of Class G Common Stock in
CMS-12
<PAGE> 62
a tax-free exchange for United States federal income tax purposes. For detailed
information, see Note 8, incorporated by reference herein.
In October 1999, CMS Energy announced that because of the low market price of
CMS Energy Common Stock at that time, it identified an alternative way to
improve its balance sheet through the sale of non-strategic assets. At that
time, CMS Energy identified for possible sale $1 billion of assets which were
expected to contribute little or no earnings benefit in the short to medium
term. In addition, in February 2000, CMS Energy announced its intention to sell
its interest in Loy Yang. The amount CMS Energy ultimately realizes from the
sale of Loy Yang could differ materially from the $500 million investment amount
currently reflected in the financial statements. Excluding Loy Yang, CMS Energy
plans to sell, or have agreements to sell, $600 to $750 million of such assets
by the end of April 2000. As of February 1, 2000, CMS Energy had sold a partial
interest in its Northern Header gathering system and all of its ownership
interest in a Brazilian distribution system. In addition, CMS Energy has an
agreement to sell all of its northern Michigan oil and gas properties. These
sales are expected to generate approximately $370 million in proceeds.
CAPITAL EXPENDITURES
CMS Energy estimates that capital expenditures, including new lease commitments
and investments in partnerships and unconsolidated subsidiaries, will total $4.2
billion during 2000 through 2002. These estimates are prepared for planning
purposes and are subject to revision. CMS Energy expects to satisfy a
substantial portion of the capital expenditures with cash from operations. CMS
Energy will continue to evaluate capital markets in 2000 as a potential source
for financing its subsidiaries' investing activities. CMS Energy estimates
capital expenditures by business segment over the next three years as follows:
<TABLE>
<CAPTION>
In Millions
- -----------------------------------------------------------------------------
Years Ended December 31 2000 2001 2002
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Consumers electric operations (a) (b) $ 426 $ 520 $ 473
Consumers gas operations (a) 113 130 127
Natural gas transmission, storage and processing 234 198 248
Independent power production 577 220 223
Oil and gas exploration and production 153 210 212
Marketing, services and trading 32 12 12
International energy distribution 66 -- --
Other 16 -- --
--------------------------
$1,617 $1,290 $1,295
=============================================================================
</TABLE>
(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 Federal Clean Air Act, as amended (Clean Air
Act). For further information see Note 4, Uncertainties.
CMS Energy currently plans investments from 2000 to 2002 in focused regions,
which include: North and South America; West and North Africa; the Middle East
and select areas of Asia, including India, and Western Australia. Investments
will be made in market segments which align with CMS Energy's varied business
units' skills with a focus on optimization and integration of existing assets.
CMS-13
<PAGE> 63
OUTLOOK
As the deregulation and privatization of the energy industry takes place in the
United States and in foreign countries, CMS Energy has positioned itself to be a
leading international integrated energy company acquiring, developing and
operating energy facilities and providing energy services in major world growth
markets. CMS Energy provides a complete range of international energy expertise
from energy production to consumption. CMS Energy intends to pursue its global
growth by making energy investments that provide expansion opportunities for
multiple CMS Energy businesses.
CMS Energy also enhances its growth strategy through an active portfolio
management program (the ongoing sale of non-strategic assets), with proceeds
reinvested in assets with greater potential for synergies with existing or
planned assets. In particular, CMS Energy is reviewing its options regarding
certain assets performing below prior expectations, including Argentine
generating assets. CMS Energy also continues to seek improvement in the
profitability of all assets retained in its portfolio.
RECAPITALIZATION
On February 1, 2000, CMS Energy announced a financial restructuring plan to
strengthen significantly its balance sheet, to reduce fixed charges and to
enhance earnings per share growth. During the second or third quarter of 2000,
subject to market conditions, CMS Energy intends to make an initial public
offering of approximately $600 million of a tracking stock representing 20
percent of the economic interest in its electric and gas utility. CMS Energy
expects to pay about 75 percent of the electric and gas utility earnings as
dividends. The proceeds of the offering will be used mostly to reduce debt. Some
of the proceeds may also be used to repurchase CMS Energy Common Stock, which
management believes is currently undervalued. The CMS Energy Board of Directors
approved the repurchase of up to 10 million shares of CMS Energy Common Stock,
from time to time, in open market or private transactions. Substantial progress
has been made toward the 10 million share limit. In addition, the Board of
Directors has indicated its intention that the CMS Energy dividend, currently at
an annual rate of $1.46 per share, will be reduced after the initial public
offering to an annual rate of $.40 per share. The Board of Directors also
authorized a tax-free exchange offer to provide an opportunity for CMS Energy
Common Stock to be converted into the new tracking stock.
CMS Energy anticipates this restructuring program, along with the proceeds from
the planned sale of $600 to $750 million of assets discussed above, will improve
CMS Energy's balance sheet. If market conditions are not satisfactory for
issuance of the tracking stock, CMS Energy will improve its balance sheet
through additional asset sales or alternate means. These actions are expected to
make further issuance of CMS Energy Common Stock unnecessary in the foreseeable
future, except for issuances in connection with existing convertible securities
or a major acquisition.
DIVERSIFIED ENERGY OUTLOOK
CMS Energy expects to grow its diversified energy businesses by focusing on
acquisitions and greenfield (new construction) projects in the central portion
of the United States, as well as high-growth markets in India, South America and
the Middle East. Additionally, the growth strategy includes exploiting its West
Africa oil and gas reserves, further developing markets for the fuel and
methanol product derived in West Africa, and investigating expansion
opportunities for its existing independent power project in West Africa. CMS
Energy seeks to minimize operational and financial risks when operating
internationally by utilizing multilateral financing institutions, procuring
political risk insurance and hedging foreign currency exposure where
appropriate.
CMS-14
<PAGE> 64
CMS Energy intends to use its marketing, services and trading business to
improve the return on CMS Energy's other business assets. One method to achieve
this goal is to use marketing and trading to enhance performance of assets, such
as gas reserves and power plants. Other strategies include expanding CMS
Energy's industrial and commercial energy services to enhance our commodity
marketing business, using CMS Energy's gas production as a hedge to commodity
risk in other areas of our business, and developing risk management products
that address customer needs.
CONSUMERS' ELECTRIC UTILITY OUTLOOK
GROWTH: Consumers expects average annual growth of 2.5 percent per year in
electric system deliveries for the years 2000 to 2004. This growth rate does not
take into account the possible impact of restructuring or changed regulation on
the industry. Abnormal weather, changing economic conditions, or the developing
competitive market for electricity may affect actual electric sales by Consumers
in future periods.
COMPETITION AND REGULATORY RESTRUCTURING: Generally, electric restructuring is
the regulatory and legislative attempt to introduce competition to the electric
industry by allowing customers to choose their electric generation supplier,
while the transmission and distribution services remain regulated. As a result,
the electric generation suppliers ultimately compete in a less regulated
environment.Competition affects, and will continue to affect, Consumers' retail
electric business. To remain competitive, Consumers has multi-year electric
supply contracts with some of its largest industrial customers to provide power
to some of their facilities. The Michigan Public Service Commission (MPSC)
approved these contracts as part of its phased introduction to competition.
Beginning in 2000 through 2005, some customers, depending on future business and
regulatory circumstances, can terminate or restructure their contracts. The
termination or restructuring of these contracts could affect approximately 600
MW of customer power supply requirements. The ultimate financial impact of
changes related to these power supply contracts is not known at this time.
As a result of a transition of the wholesale and retail electric businesses in
Michigan to competition, The Detroit Edison Company (Detroit Edison), in
December 1996, gave Consumers the required four-year notice of its intent to
terminate the current agreements under which the companies jointly operate the
Michigan Electric Power Coordination Center (MEPCC). At the same time, Detroit
Edison filed with the Federal Energy Regulatory Commission (FERC) seeking early
termination of the agreements. The FERC has not acted on Detroit Edison's
application. Detroit Edison and Consumers are currently in negotiations to
terminate or restructure the MEPCC operations. Consumers is unable to predict
the outcome of these negotiations, but does not anticipate any adverse impacts
caused by termination or restructuring of the MEPCC.
In December 1999, a large coalition of utilities, businesses, and commercial and
industrial energy users agreed upon proposed electric restructuring legislation
for Michigan. This legislation: 1) provides for customer choice of power
suppliers for all customers by January 2002; 2) ensures full recovery of costs
incurred by utilities in order to serve their customers in a regulated monopoly
environment (Stranded Costs) calculated by taking into account the difference
between the market value and the net book value of the generation assets; and 3)
provides for deregulation of electric power suppliers who control less than 30
percent of the sum of Michigan's transmission import and generating capacity by
December 31, 2002. It also provides for a three-year rate freeze through 2002
for all utility customers who keep their utility as their electric supplier. To
be able to sell electric generation services on a deregulated basis, Consumers
would be required to transfer control of sufficient generation resources to meet
the 30 percent test. The legislation precludes Consumers' generating resources
from being deregulated prior to December 31, 2002. The proposed legislation was
introduced into the Michigan Legislature in January 2000, and is expected to be
considered in hearings during the first quarter of 2000. Consumers supports this
specific legislation.
CMS-15
<PAGE> 65
Uncertainty exists with respect to the enactment of federal legislation
restructuring the electric power industry. A variety of bills introduced in
Congress in recent years seek to change existing federal regulation of the
industry. These federal bills could potentially affect or supercede state
regulation; however, none have been enacted. Consumers cannot predict the
outcome of electric restructuring on its financial position, liquidity, or
results of operations.
RATE MATTERS: There are several pending rate issues that could affect Consumers'
electric business. These matters include MPSC rate proceedings and electric
restructuring orders and a complaint by ABATE alleging excess revenues.
For further information and material changes relating to the rate matters and
restructuring of the electric utility industry, see Note 2, Summary of
Significant Accounting Policies and Other Matters, and Note 4, Uncertainties,
"Consumers' Electric Utility Rate Matters - Electric Proceedings" and
"Consumers' Electric Utility Rate Matters - Electric Restructuring,"
incorporated by reference herein.
UNCERTAINTIES: Several trends or uncertainties may affect CMS Energy's financial
results and condition as a result of Consumers' electric business. These trends
or uncertainties have, or CMS Energy reasonably expects could have, a material
impact on net sales, revenues, or income from continuing electric operations.
Such trends and uncertainties include: 1) capital expenditures for compliance
with the Clean Air Act; 2) environmental liabilities arising from compliance
with various federal, state and local environmental laws and regulations,
including potential liability or expenses relating to the Michigan Natural
Resources and Environmental Protection Act and Comprehensive Environmental
Response, Compensation and Liability Act (Superfund); 3) cost recovery relating
to the MCV Partnership; 4) an ABATE rate complaint; 5) electric industry
restructuring; 6) implementation of a frozen power supply cost recovery (PSCR)
and initiatives undertaken to reduce exposure to energy price increases; and 7)
nuclear decommissioning issues and ongoing issues relating to the storage of
spent fuel and the operating life of Palisades Nuclear Power Plant (Palisades).
For detailed information about these trends or uncertainties, see Note 4,
Uncertainties, incorporated by reference herein.
CONSUMERS' GAS UTILITY OUTLOOK
GROWTH: Consumers currently anticipates gas deliveries, including gas customer
choice deliveries (excluding transportation to the natural gas-fueled,
combined-cycle cogeneration facility operated by the MCV Partnership (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. Actual gas deliveries in future periods may be
affected by abnormal weather, alternative energy prices, changes in competitive
conditions, and the level of natural gas consumption. Consumers' gas business
also offers a variety of energy-related services to electric and gas customers
focused upon appliance maintenance, home safety, commodity choice and assistance
to customers purchasing heating, ventilation and air conditioning equipment.
REGULATORY RESTRUCTURING: In December 1999, several bills related to gas
industry restructuring were introduced into the Michigan Legislature. Combined,
these bills constitute the "gas choice program." Consumers is participating in
the legislative process as part of a gas utility coalition that also includes
Michigan Consolidated Gas Company and Southeastern Michigan Gas Company. These
bills provide for 1) a phased-in approach to gas choice requiring 40 percent of
the customers to be allowed choice by April 2002, 60 percent by April 2003 and
all customers by April 2004; 2) a market-based, unregulated pricing mechanism
for gas commodity for customers who exercise choice; and 3) a new "safe haven"
pricing mechanism for customers who do not exercise choice under which NYMEX
pricing would be used to establish a statutory cap on gas commodity prices that
could be charged by gas utilities instead of
CMS-16
<PAGE> 66
traditional cost of service regulation. The proposed bills also provide for a
gas distribution service rate freeze until December 31, 2005, a code of conduct
governing business relationships with affiliated gas suppliers and the MPSC
licensing of all gas suppliers doing business in Michigan and imposes financial
penalties for noncompliance. They also provide customer protection by preventing
"slamming", the switching of a customer's gas supplier without consent, and
"cramming", the inclusion of optional products and services without the
customer's authorization. The bills establishing the gas choice program will
become the subject of extensive legislative hearings during which there will
undoubtedly be various amendments offered by many parties, including the gas
utility coalition. Consumers cannot predict the outcome of this legislative
process.
UNCERTAINTIES: CMS Energy's financial results and position may be affected by a
number of trends or uncertainties that have, or CMS Energy reasonably expects
could have, a material impact on net sales or revenues or income from continuing
gas operations. Such trends and uncertainties include: 1) potential
environmental costs at a number of sites, including sites formerly housing
manufactured gas plant facilities; 2) a statewide experimental gas industry
restructuring program; 3) permanent gas industry restructuring; and 4)
implementation of a suspended gas cost recovery (GCR) and initiatives undertaken
to protect against gas price increases. For detailed information about these
uncertainties see Note 4, Uncertainties, incorporated by reference herein.
PANHANDLE OUTLOOK
CMS Energy intends to use Panhandle as a platform for expansion in the United
States. Panhandle plays an important role in the growth strategy by providing
services for the development of existing gas wells, production, and throughput
of gas to the market. To this end, CMS Energy must also consider expansion of
its existing gathering and processing facilities to accommodate anticipated
increased production. The market for transmission of natural gas to the Midwest
is increasingly competitive, however, and may become more so in light of
projects in progress to increase Midwest transmission capacity for gas
originating in Canada and the Rocky Mountain region. As a result, there
continues to be pressure on prices charged by Panhandle and an increasing
necessity to discount the prices charged from the legal maximum. Panhandle
continues to be selective in offering discounts to maximize revenues from
existing capacity and to advance projects that provide expanded services to meet
the specific needs of customers.
REGULATORY MATTERS: For detailed information about Panhandle's regulatory
uncertainties see Note 4, Uncertainties - Panhandle Matters, incorporated by
reference herein.
OTHER MATTERS
NEW ACCOUNTING RULES
In 1999, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards (SFAS) 137, Accounting for Derivative Instruments
and Hedging Activities - Deferral of the Effective Date of FASB Statement
No.133. SFAS 137 defers the effective date of SFAS 133, Accounting for
Derivative Instruments and Hedging Activities, to January 1, 2001. CMS Energy is
currently studying SFAS 133 and plans to adopt SFAS 133 as of January 1, 2001,
but has yet to quantify the effects of adoption on its financial statements.
YEAR 2000 COMPUTER MODIFICATIONS
In 1999, CMS Energy completed a detailed assessment and inventory of all
technology related to business processes, with an emphasis on mission-critical
systems. CMS Energy identified, remediated and tested
CMS-17
<PAGE> 67
those systems that were not year 2000 ready to ensure that those systems would
operate as desired on and after January 1, 2000.
As a result of its year 2000 efforts, CMS Energy successfully transitioned to
the new year without experiencing year 2000-related system failures, power
outages or disruptions in services provided to its customers.
CMS Energy expensed the cost of software modifications as incurred, and
capitalized the cost of new software and equipment, which is being amortized
over its useful life. Since 1995, the total cost of the Year 2000 Program
modifications was approximately $30 million. CMS Energy funded year 2000
compliance work primarily from operations. This cost did not have a material
effect on CMS Energy's financial position, liquidity or results of operations.
The commitment of CMS Energy resources to the year 2000 issue has not deferred
any information technology projects that could have a material adverse effect on
CMS Energy's financial position, liquidity, or results of operations.
While CMS Energy does not expect any significant year 2000 issues to develop
after year-end 1999, CMS Energy will continue to monitor its systems throughout
the year 2000 to ensure that any year 2000 issues that may arise are addressed
promptly.
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. The adjustment is primarily due to the exchange rate fluctuations
between the United States dollar and each of the Australian dollar, Brazilian
real and Argentine peso. During 1999, the change in the foreign currency
translation adjustment increased equity by $28 million, net of after-tax hedging
proceeds. Although management currently believes that the currency exchange rate
fluctuations over the long term will not have a material adverse affect on CMS
Energy's financial position, liquidity or results of operations, CMS Energy has
hedged its exposure to the Australian dollar, the Brazilian real and the
Argentine peso. CMS Energy uses forward exchange and option contracts to hedge
certain receivables, payables, long-term debt and equity value relating to
foreign investments. The notional amount of the outstanding foreign exchange
contracts was $1.6 billion at December 31, 1999, which includes $207 million,
$435 million and $880 million for Australian, Brazilian and Argentine foreign
exchange contracts, respectively. The estimated fair value of the foreign
exchange and option contracts at December 31, 1999 was $64 million, representing
the amount CMS Energy would pay upon settlement.
CMS-18
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CMS- 19
<PAGE> 69
CONSOLIDATED STATEMENTS OF INCOME CMS ENERGY CORPORATION
<TABLE>
<CAPTION>
In Millions
Years Ended December 31 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATING REVENUE Electric utility $ 2,667 $ 2,606 $ 2,515
Gas utility 1,156 1,051 1,204
Natural gas transmission, storage and processing 785 160 96
Independent power production 390 277 168
Oil and gas exploration and production 98 63 93
Marketing, services and trading 799 939 692
Other 208 45 13
-------------------------------------
6,103 5,141 4,781
- ---------------------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES Operation
Fuel for electric generation 406 359 319
Purchased power - related parties 560 573 599
Purchased and interchange power 509 584 265
Cost of gas sold 1,546 1,212 1,311
Other 1,021 763 719
-------------------------------------
4,042 3,491 3,213
Maintenance 216 176 174
Depreciation, depletion and amortization 595 484 467
General taxes 254 215 211
Write-off of investments in Nitrotec 84 - -
-------------------------------------
5,191 4,366 4,065
- ---------------------------------------------------------------------------------------------------------------------------------
PRETAX OPERATING Electric utility 494 475 432
INCOME (LOSS) Gas utility 132 126 153
Natural gas transmission, storage and processing,
net of $84 Nitrotec write-off in 1999 91 33 27
Independent power production 157 144 96
Oil and gas exploration and production 17 6 26
Marketing, services and trading 4 4 (5)
Other 17 (13) (13)
-------------------------------------
912 775 716
- ---------------------------------------------------------------------------------------------------------------------------------
OTHER INCOME Accretion income 4 6 8
(DEDUCTIONS) Accretion expense (14) (16) (17)
Loss on MCV power purchases - (37) -
Other, net 20 1 (3)
-------------------------------------
10 (46) (12)
- ---------------------------------------------------------------------------------------------------------------------------------
FIXED CHARGES Interest on long-term debt 502 318 273
Other interest 58 47 49
Capitalized interest (41) (29) (13)
Preferred dividends 6 19 25
Trust Preferred Securities distributions 56 32 18
- ---------------------------------------------------------------------------------------------------------------------------------
581 387 352
- ---------------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 341 342 352
INCOME TAXES 64 100 108
- ---------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED NET INCOME BEFORE CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING PRINCIPLE 277 242 244
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING FOR PROPERTY TAXES,
NET OF $23 TAX - 43 -
- ---------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED NET INCOME $ 277 $ 285 $ 244
=================================================================================================================================
</TABLE>
CMS-20
<PAGE> 70
<TABLE>
<CAPTION>
In Millions, Except Per Share Amounts
Years Ended December 31 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CMS ENERGY
NET INCOME
Net Income Attributable to Common Stock $ 269 $ 272 $ 229
Premium on Redemption of Class G Stock (28) - -
--------------------------------
Net Income Available to Common Stock $ 241 $ 272 $ 229
================================
BASIC EARNINGS PER AVERAGE COMMON SHARE
Net Income Attributable to Common Stock $ 2.44 $ 2.65 $ 2.39
Premium on Redemption of Class G Stock (0.26) - -
--------------------------------
Net Income Available to Common Stock $ 2.18 $ 2.65 $ 2.39
================================
DILUTED EARNINGS PER AVERAGE COMMON SHARE
Net Income Attributable to Common Stock $ 2.42 $ 2.62 $ 2.37
Premium on Redemption of Class G Stock (0.25) - -
--------------------------------
Net Income Available to Common Stock $ 2.17 $ 2.62 $ 2.37
================================
DIVIDENDS DECLARED PER COMMON SHARE $ 1.39 $ 1.26 $ 1.14
- ----------------------------------------------------------------------------------------------------------------------
CLASS G
NET INCOME
Net Income Attributable to Common Stock $ 8 $ 13 $ 15
Premium on Redemption of Class G Stock 28 - -
--------------------------------
Net Income Available to Common Stock $ 36 $ 13 $ 15
================================
BASIC EARNINGS PER AVERAGE COMMON SHARE
Net Income Attributable to Common Stock $ 0.90 $ 1.56 $ 1.84
Premium on Redemption of Class G Stock 3.31 - -
--------------------------------
Net Income Available to Common Stock $ 4.21 $ 1.56 $ 1.84
================================
DILUTED EARNINGS PER AVERAGE COMMON SHARE
Net Income Attributable to Common Stock $ 0.90 $ 1.56 $ 1.84
Premium on Redemption of Class G Stock 3.31 - -
--------------------------------
Net Income Available to Common Stock $ 4.21 $ 1.56 $ 1.84
================================
DIVIDENDS DECLARED PER COMMON SHARE $ 0.99 $ 1.27 $ 1.21
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
CMS-21
<PAGE> 71
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CMS-22
<PAGE> 72
CONSOLIDATED STATEMENTS OF CASH FLOWS CMS ENERGY CORPORATION
<TABLE>
<CAPTION>
In Millions
Years Ended December 31 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM Consolidated net income $ 277 $ 285 $ 244
OPERATING ACTIVITIES Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation, depletion and amortization (includes nuclear
decommissioning of $50, $51 and $50, respectively) 595 484 467
Deferred income taxes and investment tax credit 10 54 24
Capital lease and debt discount amortization 35 51 44
Loss on MCV power purchases - 37 -
Accretion expense 14 16 17
Accretion income (4) (6) (8)
Write-off of investments in Nitrotec 84 - -
Undistributed earnings of related parties (45) (95) (58)
Cumulative effect of accounting change - (66) -
MCV power purchases (62) (64) (62)
Changes in other assets and liabilities 13 (180) (44)
-------------------------------------
Net cash provided by operating activities 917 516 624
- -----------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM
INVESTING ACTIVITIES Capital expenditures (excludes assets placed under capital lease) (1,124) (1,295) (678)
Investments in partnerships and unconsolidated subsidiaries (380) (345) (830)
Cost to retire property, net (93) (83) (46)
Other (29) 32 (46)
Acquisition of companies, net of cash acquired (1,938) - -
Proceeds from sale of property - 57 49
-------------------------------------
Net cash used in investing activities (3,564) (1,634) (1,551)
- -----------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM Proceeds from notes, bonds and other long-term debt 2,836 2,348 1,214
FINANCING ACTIVITIES Issuance of Common Stock 84 269 224
Proceeds from Trust Preferred Securities 726 - 286
Retirement of bonds and other long-term debt (258) (661) (521)
Repayments of lines of credit, net (237) (574) (29)
Payment of Common Stock dividends (163) (140) (119)
Increase (decrease) in notes payable, net (97) (53) 49
Payment of capital lease obligations (19) (36) (44)
Retirement of Common Stock - (3) (2)
Retirement of preferred stock (194) - (120)
-------------------------------------
Net cash provided by financing activities 2,678 1,150 938
- -----------------------------------------------------------------------------------------------------------------------------------
NET INCREASE IN CASH AND TEMPORARY CASH INVESTMENTS 31 32 11
CASH AND TEMPORARY CASH INVESTMENTS, BEGINNING OF PERIOD 101 69 58
-------------------------------------
CASH AND TEMPORARY CASH INVESTMENTS, END OF PERIOD $ 132 $ 101 $ 69
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
CMS-23
<PAGE> 73
CONSOLIDATED BALANCE SHEETS CMS ENERGY CORPORATION
<TABLE>
<CAPTION>
ASSETS In Millions
December 31 1999 1998
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PLANT AND PROPERTY Electric utility $ 6,981 $ 6,720
(AT COST) Gas utility 2,461 2,360
Natural gas transmission, storage and processing 1,934 341
Independent power production 974 518
Oil and gas properties (successful efforts method) 817 670
International energy distribution 445 324
Other 62 49
---------------------------------------
13,674 10,982
Less accumulated depreciation, depletion and amortization 6,157 5,213
---------------------------------------
7,517 5,769
Construction work-in-progress 604 271
---------------------------------------
8,121 6,040
- -----------------------------------------------------------------------------------------------------------------------------
INVESTMENTS Independent power production 950 888
Natural gas transmission, storage and processing 369 494
International energy distribution 150 209
Midland Cogeneration Venture Limited Partnership 247 209
First Midland Limited Partnership 240 240
Other 40 33
---------------------------------------
1,996 2,073
- -----------------------------------------------------------------------------------------------------------------------------
CURRENT ASSETS Cash and temporary cash investments at cost, which
approximates market 132 101
Accounts receivable, notes receivable and accrued revenue,
less allowances $12 in 1999 and $13 in 1998 959 720
Inventories at average cost
Gas in underground storage 225 219
Materials and supplies 158 99
Generating plant fuel stock 47 43
Deferred income taxes 33 -
Prepayments and other 263 225
---------------------------------------
1,817 1,407
- -----------------------------------------------------------------------------------------------------------------------------
NON-CURRENT ASSETS Goodwill, net 891 46
Nuclear decommissioning trust funds 602 557
Unamoritzed nuclear costs 519 -
Postretirement benefits 348 373
Notes receivable - related parties 251 20
Abandoned Midland project 48 71
Other 869 723
---------------------------------------
3,528 1,790
---------------------------------------
TOTAL ASSETS $ 15,462 $ 11,310
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
CMS-24
<PAGE> 74
CMS ENERGY CORPORATION
<TABLE>
<CAPTION>
STOCKHOLDERS' INVESTMENT AND LIABILITIES In Millions
December 31 1999 1998
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CAPITALIZATION Common stockholders' equity $ 2,456 $ 2,216
Preferred stock of subsidiary 44 238
Company-obligated mandatorily redeemable Trust Preferred Securities of:
Consumers Power Company Financing I (a) 100 100
Consumers Energy Company Financing II (a) 120 120
Consumers Energy Company Financing III (a) 175 -
Company-obligated convertible Trust Preferred Securities of:
CMS Energy Trust I (b) 173 173
CMS Energy Trust II (b) 301 -
Company-obligated Trust Preferred Securities of CMS RHINOS Trust (c) 250 -
Long-term debt 6,987 4,726
Non-current portion of capital leases 88 105
---------------------------
10,694 7,678
- -----------------------------------------------------------------------------------------------------------------------------------
CURRENT LIABILITIES Current portion of long-term debt and capital leases 552 293
Notes payable 230 328
Accounts payable 775 501
Accrued taxes 320 272
Accounts payable - related parties 61 79
Accrued interest 148 65
Power purchases - MCV Partnership 47 47
Accrued refunds 11 11
Other 363 211
---------------------------
2,507 1,807
- -----------------------------------------------------------------------------------------------------------------------------------
NON-CURRENT LIABILITIES Deferred income taxes 703 652
Postretirement benefits 485 489
Deferred investment tax credit 125 135
Power purchases - MCV Partnership 73 121
Regulatory liabilities for income taxes, net 64 87
Other 811 341
---------------------------
2,261 1,825
---------------------------
Commitments and Contingencies (Notes 2, 4, 14 and 19)
TOTAL STOCKHOLDERS' INVESTMENT AND LIABILITIES $ 15,462 $ 11,310
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(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. The primary asset of Consumers Energy Company
Financing III is $180 million principal amount of 9.25 percent subordinated
deferrable interest notes due 2029 from Consumers. For further discussion, see
Note 7 to the Consolidated Financial Statements.
(b) The primary asset of CMS Energy Trust I is $178 million principal amount of
7.75 percent convertible subordinated deferrable interest debentures due 2027
from CMS Energy. The primary asset of CMS Energy Trust II is $310 million
principal amount of 8.625 percent convertible junior subordinated deferrable
interest debentures due July 2004 from CMS Energy. For further discussion, see
Note 7 to the Consolidated Financial Statements.
(c) As described in Note 7, the primary asset of CMS RHINOS Trust is $258
million principal amount of LIBOR plus 1.75 percent subordinated deferrable
interest debentures due September 2001 from CMS Energy.
CMS-25
<PAGE> 75
CONSOLIDATED STATEMENTS OF PREFERRED STOCK CMS ENERGY CORPORATION
<TABLE>
<CAPTION>
Optional
Redemption Number of Shares In Millions
December 31 Series Price 1999 1998 1999 1998
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CONSUMERS' PREFERRED STOCK
Cumulative, $100 par value,
authorized 7,500,000 shares, $4.16 $103.25 68,451 68,451 $ 7 $ 7
with no mandatory redemption 4.50 110.00 373,148 373,148 37 37
CONSUMERS' CLASS A PREFERRED STOCK
Cumulative, no par value,
authorized 16,000,000 shares,
with no mandatory redemption 2.08 25.00 (a) - 8,000,000 - 194
----------------
TOTAL PREFERRED STOCK $ 44 $ 238
===========================================================================================================================
</TABLE>
(a) Redeemed April 1, 1999.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
CMS-26
<PAGE> 76
CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDERS' EQUITY CMS ENERGY CORPORATION
<TABLE>
<CAPTION>
Number of Shares in Thousands In Millions
Years Ended December 31 1999 1998 1997 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------------
<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 108,104 100,792 94,813 2,452 2,131 1,916
Redemption of affiliate's preferred stock - - - (2) - -
Common stock reacquired (61) (72) (54) (2) (3) (2)
Common stock issued 1,823 7,383 6,031 83 324 217
Common stock reissued 39 1 2 1 - -
Exchange of Class G common stock 6,133 - - 217 -
--------------------------------------------------------------------------
At end of period 116,038 108,104 100,792 2,749 2,452 2,131
- ---------------------------------------------------------------------------------------------------------------------------------
OTHER PAID-IN CAPITAL - CLASS G
At beginning of period 8,453 8,219 7,877 142 136 129
Common stock reacquired - (1) (1) - - -
Common stock issued 257 235 343 6 6 7
Redemption of common stock (8,710) - - (148) - -
--------------------------------------------------------------------------
At end of period - 8,453 8,219 - 142 136
- ---------------------------------------------------------------------------------------------------------------------------------
REVALUATION CAPITAL
At beginning of period (9) (6) (6)
Change in unrealized investment-gain (loss) (a) 12 (3) -
---------------------------------------
At end of period 3 (9) (6)
- ---------------------------------------------------------------------------------------------------------------------------------
FOREIGN CURRENCY TRANSLATION
At beginning of period (136) (96) -
Change in foreign currency translation (a) 28 (40) (96)
---------------------------------------
At end of period (108) (136) (96)
- ---------------------------------------------------------------------------------------------------------------------------------
RETAINED EARNINGS (DEFICIT)
At beginning of period (234) (379) (504)
Consolidated net income (a) 277 285 244
Redemption of Class G common stock (69) - -
Common stock dividends declared:
CMS Energy (154) (129) (109)
Class G (9) (11) (10)
---------------------------------------
At end of period (189) (234) (379)
---------------------------------------
TOTAL COMMON STOCKHOLDERS' EQUITY $ 2,456 $ 2,216 $ 1,787
=================================================================================================================================
(A) DISCLOSURE OF COMPREHENSIVE INCOME:
Revaluation capital
Unrealized investment-gain (loss), net of tax of
$(6), $2 and $0, respectively $ 12 $ (3) $ -
Foreign currency translation 28 (40) (96)
Consolidated net income 277 285 244
---------------------------------------
Total Consolidated Comprehensive Income $ 317 $ 242 $ 148
=======================================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
CMS-27
<PAGE> 77
CMS ENERGY CORPORATION
NOTES TO CONSOLIDATED 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 a subsidiary of CMS Energy. Enterprises, through subsidiaries, is
engaged in several domestic and international diversified energy businesses
including: natural gas transmission, storage and processing; independent power
production; oil and gas exploration and production; energy marketing, services
and trading; and international energy distribution. In March 1999, CMS Energy
completed the acquisition of Panhandle Eastern Pipe Line Company, including its
subsidiaries Trunkline and Pan Gas Storage, and its affiliates Panhandle Storage
and Trunkline LNG (Panhandle), as discussed further below. Panhandle is
primarily engaged in the interstate transportation, storage and processing of
natural gas.
2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND OTHER MATTERS
BASIS OF PRESENTATION: The consolidated financial statements include CMS Energy,
Consumers and Enterprises and their majority owned subsidiaries. The financial
statements are prepared in conformity with generally accepted accounting
principles and use management's estimates where appropriate. Affiliated
companies (where CMS Energy has more than 20 percent but less than a majority
ownership interest) are accounted for by the equity method.
CHANGE IN METHOD OF ACCOUNTING FOR PROPERTY TAXES: During the first quarter of
1998, Consumers implemented a change in the method of accounting for property
taxes so that such taxes are recognized during the fiscal period of the taxing
authority for which the taxes are levied. This change better matches property
tax expense with the services provided by the taxing authorities, and is
considered the most acceptable basis of recording property taxes. Prior to 1998,
Consumers recorded property taxes monthly during the year following the
assessment date (December 31). The cumulative effect of this one-time change in
accounting increased other income in 1998 by $66 million, and earnings, net of
tax, by $43 million or $.40 per basic and diluted share of CMS Energy Common
Stock, including increased other income by $18 million and earnings, net of tax,
of $12 million, or $.36 per basic and diluted share of Class G Common Stock. The
pro forma effect on prior years' consolidated net income of retroactively
recording property taxes as if the new method of accounting had been in effect
for all periods presented is not material.
NON-RECURRING CHARGE: In 1999, CMS Gas Transmission and Storage Company (CMS Gas
Transmission) wrote off the carrying amounts of investments in Nitrotec
Corporation, a proprietary gas processing company which has patents for its
helium removal and nitrogen rejection processes for purifying natural gas. This
write-off occurred after determining that it was unlikely CMS Gas Transmission
would recover any portion of its investments. The write-off of these investments
resulted in a reduction in 1999 operating income of $84 million and reduced net
earnings by $49 million, or $.45 and $.43 per basic and diluted share of CMS
Energy Common Stock, respectively.
CMS-28
<PAGE> 78
ACCRETION INCOME AND EXPENSE: In 1991, the Michigan Public Service Commission
(MPSC) allowed Consumers to 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 Midland Cogeneration Venture Limited Partnership (MCV
Partnership) (see Note 4). 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.
GOODWILL AMORTIZATION: Goodwill represents the excess of the purchase price over
the fair value of the net assets of acquired companies and is amortized using
the straight-line method principally over 40 years. The carrying amount of
goodwill is reviewed annually using undiscounted cash flows for the businesses
acquired over the remaining amortization periods. At December 31, 1999, no
impairments existed. Accumulated amortization of goodwill at December 31, 1999
and 1998 was $25 million and $2 million, respectively.
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
property on straight-line and units-of-production rates approved by the MPSC.
The composite depreciation rate for electric utility property was 3.0 percent
for 1999, 3.5 percent for 1998 and 3.6 percent for 1997. The composite rate for
gas utility property was 4.4 percent for 1999, 4.2 percent for 1998 and 4.1
percent for 1997. The composite rate for other property was 8.6 percent for
1999, 7.4 percent for 1998 and 8.2 percent for 1997.
CMS Oil and Gas Company (CMS Oil and Gas) follows the successful efforts method
of accounting for its investments in oil and gas properties. CMS Oil and Gas
capitalizes, as incurred, the costs of property acquisitions, successful
exploratory wells, all development costs, and support equipment and facilities.
It expenses unsuccessful exploratory wells when they are determined to be
non-productive. CMS Oil and Gas also charges to expense, as incurred, production
costs, overhead, and all exploration costs other than exploratory drilling. CMS
Oil and Gas determines depreciation, depletion and amortization of proved oil
and gas properties on a field-by-field basis using the units-of-production
method over the life of the remaining proved reserves.
Other nonutility depreciable property is amortized over its estimated useful
life; gains and losses on asset sales 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 U.S. Department of Energy (DOE) was to begin accepting
deliveries of spent nuclear fuel for disposal by January 31, 1998. For fuel used
after April 6, 1983, Consumers charges disposal costs to nuclear fuel expense,
recovers them through electric rates, and then remits them to the DOE quarterly.
Consumers elected to defer payment for disposal of spent nuclear fuel burned
before April 7, 1983. At December 31, 1999, Consumers had a recorded liability
to the DOE of $123 million, including interest, which is payable upon the first
delivery of spent nuclear fuel to the DOE.
CMS-29
<PAGE> 79
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 that it would not begin to accept spent nuclear fuel deliveries in
1998, Consumers and other utilities filed suit in federal court. The court
issued a decision 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. Further litigation brought by Consumers and others in 1998 that
was intended to produce specific relief for the DOE's failure to comply has not
been successful to date, although such litigation efforts continue. In January
1999, federal legislation was reintroduced in the House of Representatives 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.
Similar legislation was reintroduced in the Senate. Consumers cannot predict the
outcome of this process.
NUCLEAR PLANT DECOMMISSIONING: Consumers collected $50 million in 1999 from its
electric customers for decommissioning of its two nuclear plants. Amounts
collected from electric retail customers and deposited in trusts (including
trust earnings) are credited to accumulated depreciation. On March 22, 1999,
Consumers received a decommissioning order from the MPSC that approved estimated
decommissioning costs for Big Rock Point nuclear power plant (Big Rock) and
Palisades nuclear power plant (Palisades) of $315 million and $566 million
(calculated in 1999 dollars), respectively. Consumers' site-specific
decommissioning cost estimates for Big Rock and Palisades assume that each plant
site will eventually be restored to conform to the adjacent landscape, and all
contaminated equipment will be disassembled and disposed of in a licensed burial
facility. The MPSC order also set the annual decommissioning surcharges for Big
Rock and Palisades at $32 million and $14 million a year, respectively, and
required Consumers to file revised decommissioning surcharges for Palisades that
incorporate a gradual reduction in the decommissioning trust's equity
investments following the plant's retirement. On December 16, 1999, the MPSC
approved a revised decommissioning surcharge for Palisades in the amount of $6
million a year, effective January 1, 2000.
Big Rock closed permanently in 1997 because management determined that it would
be uneconomical to operate in an increasingly competitive environment. The plant
was originally scheduled to close on May 31, 2000, at the end of the plant's
operating license. The MPSC allowed Consumers to continue collecting
decommissioning surcharges through December 31, 2000. Plant decommissioning
began in 1997 and it may take five to ten years to return the site to its
original condition. For 1999, Consumers incurred costs of $51 million that were
charged to the accumulated depreciation reserve for decommissioning and withdrew
$43 million from the Big Rock nuclear decommissioning trust fund. In total,
Consumers has incurred costs of $126 million that have been charged to the
accumulated depreciation reserve for decommissioning and withdrew $112 million
from the Big Rock nuclear decommissioning trust fund. These activities had no
material impact on net income. At December 31, 1999, Consumers is the
beneficiary of the investment in nuclear decommissioning trust funds of $181
million for Big Rock.
After retirement of Palisades, Consumers plans to maintain the facility in
protective storage if radioactive waste disposal facilities are not available.
Consumers will incur most of the Palisades decommissioning costs after the
plant's Nuclear Regulatory Commission (NRC) operating license expires. When
Palisades' NRC license expires in 2007, the trust funds are currently estimated
to have accumulated $667 million, assuming currently approved MPSC surcharge
levels. Consumers estimates that at the time Palisades is fully decommissioned
in the year 2046, the trust funds will have provided $1.9 billion, including
trust earnings, over this decommissioning period. At December 31, 1999,
Consumers is the beneficiary of the investment in nuclear decommissioning trust
funds of $421 million for Palisades.
CMS-30
<PAGE> 80
RECLASSIFICATIONS: CMS Energy has reclassified certain prior year amounts for
comparative purposes. These reclassifications did not affect consolidated net
income for the years presented.
RELATED-PARTY TRANSACTIONS: In 1999, 1998 and 1997, Consumers paid $52 million,
$51 million and $51 million, respectively, for electric generating capacity and
the energy generated by that capacity from affiliates of Enterprises. Affiliates
of CMS Energy sold, stored and transported natural gas and provided other
services to the MCV Partnership totaling $37 million, $21 million and $21
million for 1999, 1998 and 1997. For additional discussion of related-party
transactions with the MCV Partnership and the First Midland Limited Partnership
(FMLP), see Notes 4 and 19. Other related-party transactions are immaterial.
UTILITY REGULATION: Consumers accounts for the effects of regulation based on
the regulated utility accounting standard Statement of Financial Accounting
Standards (SFAS) 71, Accounting for the Effects of Certain Types of Regulation.
As a result, the actions of regulators affect when Consumers recognizes
revenues, expenses, assets and liabilities.
In March 1999, Consumers received MPSC electric restructuring orders which,
among other things, identified the terms and timing for implementing electric
restructuring in Michigan. Consistent with these orders, Consumers discontinued
application of SFAS 71 for the energy supply portion of its business in the
first quarter of 1999 because Consumers expected to implement retail open access
for its electric customers in September 1999. Discontinuation of SFAS 71 for the
energy supply portion of Consumers' business resulted in Consumers reducing the
carrying value of its Palisades plant-related assets by approximately $535
million and establishing a regulatory asset for a corresponding amount. The
regulatory asset is collectible as part of the costs incurred by Stranded Costs,
as defined, plus the costs incurred in the transition to competition (Transition
Costs) which are recoverable through the regulated transmission and distribution
portion of Consumers' business as approved by an MPSC order in 1998. This order
also allowed Consumers to recover any energy supply-related regulatory assets,
plus a return on any unamortized balance of those assets, from its transmission
and distribution customers. According to current accounting standards, Consumers
can continue to carry its energy supply-related regulatory assets if legislation
or an MPSC rate order allows the collection of cash flows, to recover these
regulatory assets, from its regulated transmission and distribution customers.
At December 31,1999, Consumers had a net investment in energy supply facilities
of $949 million included in electric plant and property.
SFAS 121, Accounting for the Impairment of Long-Lived Assets and for
Long-LivedAssets to be Disposed of, imposes stricter criteria for retention of
regulatory-created assets by requiring that such assets be probable of future
recovery at each balance sheet date. Management believes these assets will be
recovered.
The following regulatory assets (liabilities), which include both current and
non-current amounts, are reflected in the Consolidated Balance Sheets. These
costs are being recovered through rates over periods of up to 13 years.
CMS-31
<PAGE> 81
<TABLE>
<CAPTION>
In Millions
December 31 1999 1998
- --------------------------------------------------------------------------------
<S> <C> <C>
Postretirement benefits $ 366 $ 397
Income taxes 193 148
Abandoned Midland project 48 71
Manufactured gas plant sites 65 48
Demand-side management (DSM) - deferred costs 13 32
Uranium enrichment facility 18 20
Other 33 38
---------------------
Total regulatory assets $ 736 $ 754
===============================================================================
Income taxes $(257) $(235)
DSM - deferred revenue (17) (24)
---------------------
Total regulatory liabilities $(274) $(259)
===============================================================================
</TABLE>
IMPLEMENTATION OF NEW ACCOUNTING STANDARDS: In 1999, CMS Energy implemented
statement of position (SOP) 98-1, Accounting for the Costs of Computer Software
Developed for Internal Use, and SOP 98-5, Reporting on the Costs of Start-Up
Activities. Application of these standards has not had a material effect on CMS
Energy's financial position, liquidity, or results of operations. Effective
January 1, 1999, CMS Energy adopted Emerging Issues Task Force (EITF) Issue
98-10, Accounting for Energy Trading and Risk Management Activities, which
requires mark-to-market accounting for energy contracts entered into for trading
purposes. Under mark-to-market accounting, gains and losses resulting from
changes in market prices on contracts entered into for trading purposes are
reflected in current earnings. The after-tax mark-to-market adjustment resulting
from the adoption of EITF 98-10 did not have a material effect on CMS Energy's
consolidated financial position, results of operations and cash flows as of
December 31, 1999. For energy contracts that are hedges of non-trading
activities, CMS Energy will continue to use accrual accounting until it adopts
SFAS 133, Accounting for Derivative Instruments and Hedging Activities, which
will be effective January 1, 2001.
FOREIGN CURRENCY TRANSLATION: Foreign currency translation adjustments relating
to the operation of CMS Energy's long-term investments in foreign countries are
included in common stockholders' equity. For the year ended December 31, 1999
the change in the foreign currency translation adjustment increased equity by
$28 million, net of after-tax hedging proceeds.
OTHER: For significant accounting policies regarding cash equivalents, see Note
17; for income taxes, see Note 10; for executive incentive compensation, see
Note 12; and for pensions and other postretirement benefits, see Note 13.
3: ACQUISITION
In March 1999, CMS Energy completed the acquisition of Panhandle from Duke
Energy Corporation (Duke Energy) for a cash payment of $1.9 billion and existing
Panhandle debt of $300 million. CMS Energy used the purchase method of
accounting to account for the acquisition and, accordingly, included
CMS-32
<PAGE> 82
the results of operations of Panhandle for the period from March 29, 1999 in the
accompanying consolidated financial statements. Assets acquired and liabilities
assumed are recorded at their estimated fair values and are subject to
adjustment when additional information concerning asset and liability valuations
is finalized by the end of the first quarter of 2000. CMS Energy allocated the
tentative excess purchase price over the estimated fair value of net assets
acquired of approximately $800 million to goodwill and amortizes this amount on
a straight-line basis over 40 years.
The following unaudited pro forma amounts for operating revenue, consolidated
net income, basic earnings per share and diluted earnings per share, as if the
acquisition had occurred on January 1, 1998, illustrate the effects of: (1)
various restructuring, realignment, and elimination of activities between
Panhandle and Duke Energy prior to the closing of the acquisition by CMS Energy;
(2) the adjustments resulting from the acquisition by CMS Energy; and (3)
financing transactions which include the public issuance of $800 million of
senior notes by Panhandle, $850 million of senior notes by CMS Energy, and the
private sale of $250 million of Trust Preferred Securities by CMS Energy.
<TABLE>
<CAPTION>
In Millions, Except Per Share Amounts
- ------------------------------------------------------------------------------------------------------
Years Ended December 31 1999 1998
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operating revenue $6,216 $5,566
Consolidated net income $287 $289
BASIC EARNINGS PER SHARE:
Basic earnings per share before
Class G Common Stock Exchange $2.53 $2.70
Effects of Premium on Redemption
of Class G Common Stock (.26) -
Basic earnings per share after
--------------------------------------------
Class G Common Stock Exchange $2.27 $2.70
============================================
DILUTED EARNINGS PER SHARE:
Diluted earnings per share before
Class G Common Stock Exchange $2.51 $2.67
Effects of Premium on Redemption
of Class G Common Stock (.25) -
Diluted earnings per share after
--------------------------------------------
Class G Common Stock Exchange $2.26 $2.67
======================================================================================================
</TABLE>
4: UNCERTAINTIES
CONSUMERS' ELECTRIC UTILITY CONTINGENCIES
ELECTRIC ENVIRONMENTAL MATTERS: The Clean Air Act limits emissions of sulfur
dioxide and nitrogen oxides and requires emissions and air quality monitoring.
Consumers currently operates within these limits and meets current emission
requirements. The Clean Air Act requires the Environmental Protection Agency
(EPA) to review periodically the effectiveness of the national air quality
standards in preventing adverse health effects. In 1997, the EPA revised these
standards to impose further limitations on nitrogen oxide and small
particulate-related emissions. In May 1999, a United States Court of Appeals
ruled that
CMS-33
<PAGE> 83
the grant of authority to the EPA, to revise the standards as the EPA did, would
amount to an unconstitutional delegation of legislative power. As a result, the
EPA will not implement the standards under the 1997 rule. On October 28, 1999,
the United States Court of Appeals denied a request by the EPA for a rehearing.
On January 27, 2000, the Department of Justice filed a petition for the United
States Supreme Court to review the case. Because of the United States Court of
Appeals decisions, the EPA has proposed to reinstate the pre-1997 standards.
In September 1998, based in part upon the 1997 standards, the EPA Administrator
issued final regulations requiring the state of Michigan to limit further
nitrogen oxide emissions. Consumers anticipates a reduction in nitrogen oxide
emissions by 2003 to only 32 percent of levels allowed for the year 2000. The
state of Michigan had one year to submit an implementation plan. The state of
Michigan filed a lawsuit objecting to the extent of the required emission
reductions and requesting an extension of the submission date. In May 1999 the
United States Court of Appeals granted an indefinite stay of the submission date
for the state of Michigan's implementation plan. In early 2000, the United
States Court of Appeals upheld the EPA's final regulations. The state of
Michigan is expected to appeal this ruling. Until the appeal is decided, it is
unlikely that the state of Michigan will establish Consumers' nitrogen oxide
emissions reduction target. In December 1999, the EPA Administrator signed a
revised final rule under Section 126 of the Clean Air Act. The rule requires
some electric utility generators, including some of Consumers' electric
generating facilities, to achieve the same emission rate as that required by the
currently challenged September 1998 EPA final rule. Under the revised Section
126 rule, the emission rate will become effective on May 1, 2003 and apply
during the ozone season in 2003 and during each subsequent year. Various
parties' petitions challenging the EPA's rule have been filed. Until these
targets are lawfully established, the estimated cost of compliance discussed
below is subject to revision.
The preliminary estimates of capital expenditures to reduce nitrogen
oxide-related emissions to the level proposed by the state of Michigan for
Consumers' fossil-fueled generating units range from $150 million to $290
million, calculated in 1999 dollars. If Consumers had to meet the EPA's 1997
proposed requirements, the estimated cost to Consumers would be between $290
million and $500 million, calculated in 1999 dollars. In both these cases the
lower estimate represents the capital expenditure level that would
satisfactorily meet the proposed emissions limits but would result in higher
operating expense. The higher estimate in the range includes expenditures that
result in lower operating costs while complying with the proposed emissions
limit. Consumers anticipates that it will incur these capital expenditures
between 2000 and 2004, or between 2000 and 2003 if the EPA ultimately imposes
its limits.
Consumers may need an equivalent amount of capital expenditures to comply with
the new small particulate standards sometime after 2004 if those standards
become effective.
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, to comply with the Clean
Air Act, Consumers incurred capital expenditures totaling $67 million to install
equipment at certain generating units. Consumers estimates an additional $5
million of capital expenditures for ongoing and proposed modifications at the
remaining coal-fueled units to meet year 2000 requirements. Management believes
that these expenditures will not materially affect Consumers' annual operating
costs.
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.
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<PAGE> 84
Consumers is a potentially responsible party at several contaminated sites
administered under the Comprehensive Environmental Response, Compensation and
Liability Act (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 $2 million and $9 million. At December
31, 1999, Consumers has accrued the minimum amount of the range for its
estimated Superfund liability.
While decommissioning Big Rock, Consumers found that some areas of the plant
have coatings that contain both metals and poly chlorinated biphenyls (PCBs).
Consumers believes it now has viable disposal options for these materials. It
estimates the additional cost associated with PCB waste at $1.5 million. The
cost of removal and disposal will constitute part of the cost to decommission
the plant and will be paid from the decommissioning fund.
ANTITRUST: In October 1997, two independent power producers sued Consumers in a
federal court. The suit alleged antitrust violations relating to contracts which
Consumers entered into with some of its customers, and interference with
contract claims relating to proposed power facilities. On March 31, 1999, the
court issued an opinion and order granting Consumers' motion for summary
judgment, resulting in the dismissal of the case. The plaintiffs have appealed
this decision. Consumers cannot predict the outcome of this appeal.
CONSUMERS' ELECTRIC UTILITY 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
megawatts (MW) of the natural gas-fueled, combined-cycle cogeneration facility
operated by the MCV Partnership (MCV Facility) capacity (see "Power Purchases
from the MCV Partnership" in this Note). In addition, the order allowed
Consumers to recover 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. The order also
established an experimental direct-access program. Customers having a maximum
demand for electric power of 2 MW or greater are eligible to purchase generation
services directly from any eligible third-party power supplier. Consumers will
transmit that power for a fee. Delivery of electric power through this
direct-access program is limited to 134 MW. In accordance with the MPSC order,
Consumers held a lottery to select the customers that would participate in the
direct-access program. Subsequently, direct-access for a portion of this 134 MW
began in late 1997. The program was substantially filled by the end of March
1999. The Michigan Attorney General (Attorney General), Association of
Businesses Advocating Tariff Equity (ABATE), the MCV Partnership and other
parties filed appeals with the Michigan Court of Appeals (Court of Appeals)
challenging the MPSC's 1996 order. In August 1999, the Court of Appeals affirmed
the MPSC's 1996 order in all respects. In October 1999, the Attorney General
filed an application for leave to appeal this decision to the Michigan Supreme
Court.
In November 1997, ABATE filed a complaint with the MPSC. The complaint alleged
that Consumers' electric earnings are more than its authorized rate of return
and sought an immediate reduction in Consumers' electric rates. In testimony
filed in this case, ABATE claimed that Consumers received approximately $189
million in excess revenues for 1998. In its testimony, the MPSC staff stated
that 1998 financial results show excess revenues of $118 million compared to the
previously authorized electric return on equity. The MPSC staff offered several
alternatives for the MPSC to consider. These alternatives involve several
different refunds or reductions that the MPSC could consider separately or in
combination,
CMS-35
<PAGE> 85
but if made, would not result in a permanent future reduction in electric rates
in the amount being sought by ABATE. Consumers filed testimony showing that
after ratemaking adjustments and normalizations, there is a revenue deficiency
of approximately $3 million. ABATE and other interveners bear the burden of
convincing the MPSC to reduce electric rates, which will otherwise remain
unchanged. Consumers believes that ABATE has not met its burden of proving that
a reduction in rates is required. Consumers also believes that ABATE's request
for refunds from 1995 to present is inappropriate and unlawful; no such
retroactive rate adjustment has ever been granted by the MPSC. In December 1999,
an announcement was made that an agreement concerning legislation in Michigan on
electric deregulation had been reached by Consumers, ABATE, and numerous other
industrial and commercial business interests. In anticipation of the legislation
being introduced, ABATE and Consumers jointly filed a request with the MPSC to
suspend ABATE's electric rate complaint to allow for consideration of the
proposed legislation. The MPSC granted a temporary suspension for 120 days
(expiring in April 2000), subject to its authority to withdraw the suspension at
any time. As part of the suspension, Consumers agreed that, if the case is
resumed and a rate reduction is ultimately ordered by the MPSC, it would
implement the rate reduction retroactively for a period equal to the length of
the actual suspension. In January 2000, the legislation was introduced into the
Michigan Legislature. Consumers is unable to predict the outcome of this matter.
In January 1998, the Court of Appeals affirmed an MPSC conclusion that the MPSC
has statutory authority to authorize an experimental electric retail wheeling
program. In June 1999, the Michigan Supreme Court reversed the Court of Appeals
and held that the MPSC does not have the statutory authority to order a utility
to provide a mandatory retail wheeling service. For more information on the
experimental retail wheeling program see "Electric Restructuring" below.
ELECTRIC RESTRUCTURING: As part of ongoing proceedings relating to the
restructuring of the electric utility industry in Michigan, the MPSC issued
numerous orders since June 1997 proposing that Consumers transmit and distribute
energy for competing power suppliers to retail customers (also known as "retail
open access"). The restructuring orders provide for: 1) recovery of estimated
Stranded Costs of $1.755 billion through a charge to all customers purchasing
their power from other sources until the end of the transition period in 2007,
subject to an adjustment through a true-up mechanism; 2) commencement of the
phase-in of retail open access beginning September 1999; 3) suspension of the
power supply cost recovery (PSCR) clause as discussed below; and 4) the right of
all customers to choose their power suppliers on January 1, 2002. The recovery
of costs of implementing a retail open access program, preliminarily estimated
at an additional $200 million, will be reviewed for prudence by the MPSC and
recovered via a charge approved by the MPSC. Nuclear decommissioning costs will
also continue to be collected through a separate surcharge to all customers.
Consumers submitted its plan for implementing retail open access to the MPSC in
1998. The primary issues addressed in the plan are: 1) the implementation
schedule; 2) the retail open access service options available to customers and
suppliers; 3) the process and requirements for customers and others to obtain
retail open access service; and 4) the roles and responsibilities for Consumers,
customers and suppliers. In March 1999, Consumers received MPSC electric
restructuring orders, which generally supported Consumers' implementation plan.
Consumers began implementing electric retail customer open access in September
1999, and will extend open access to 750 MW of Consumers' retail market by 2001.
On January 1, 2002, all of Consumers' electric customers will have the right to
choose generation suppliers.
Numerous appeals are pending at the Court of Appeals relating to the MPSC's
restructuring orders. Because of the June 1999 Michigan Supreme Court decision
described above in "Electric Proceedings", Consumers believes that the MPSC
lacks statutory authority to mandate industry restructuring. The MPSC
CMS-36
<PAGE> 86
ultimately issued an order in August 1999 finding that it has jurisdiction to
approve rates, terms, and conditions for electricity retail wheeling (also known
as electric customer choice) if a utility voluntarily chooses to offer that
service. ABATE and the Attorney General have each appealed the August 1999 order
to the Court of Appeals. It is uncertain how the issues raised by the MPSC's
August 1999 order will be resolved by the regulatory process, the appellate
courts or by legislation addressing electric restructuring issues.
During periods when electric demand is high, the cost of purchasing energy on
the spot market can be substantial. Consumers is planning to maintain sufficient
generation and to purchase electricity from others to create a power reserve
(also called a reserve margin) that provides Consumers with approximately 15
percent additional power above its anticipated power demands. This allows
Consumers to provide reliable service to its electric service customers and to
protect itself against unscheduled plant outages and unanticipated demand.
Before 1998, the PSCR process provided for the recovery of any prudent and
necessary power supply costs through customer rates, thus minimizing the risk to
shareholders for fluctuations in such costs. In 1998, as a result of an MPSC
order associated with electric restructuring efforts, the PSCR process was
suspended for 4 years. Under the suspension, customers' rates previously subject
to adjustment under the PSCR process, will not be adjusted to reflect the actual
costs of fuel, interchange power and purchased power, through 2001. To reduce
the risk of high energy prices during peak demand periods, Consumers has
employed a strategy of purchasing electric option contracts for the physical
delivery of electricity during the months of June through September in order to
achieve its reserve margin target. Consumers expects to use a similar strategy
in the future. In 1999, Consumers' purchase of electric option contracts cost
approximately $19 million.
In June 1999, Consumers and four other electric utility companies sought
approval from the Federal Energy Regulatory Commission (FERC) to form the
Alliance Regional Transmission Organization (Alliance). The proposed structure
provided for the creation of a transmission entity that would control, operate
and own transmission facilities of one or more of the member companies, and
would control and operate, but not necessarily own, the transmission facilities
of other companies. The proposal was structured to give the member companies the
flexibility to maintain or divest ownership of their transmission facilities
while ensuring independent operation of the regional transmission system. In
December 1999, the FERC conditionally approved formation of Alliance, but asked
the applicants to make a number of changes in the proposal and to provide
additional information. Among other things, the FERC expressed concern about the
proposed governance of Alliance, its rates and its geographic configuration. On
the same day as the Alliance order, the FERC issued Order No. 2000, which
describes the characteristics the FERC would find acceptable in an Regional
Transmission Organization (RTO). In Order No. 2000, the FERC declined to mandate
that utilities join RTOs, but did order utilities to make filings in October
2000 and January 2001 declaring their intentions with respect to RTO membership.
Consumers and the Alliance companies have sought a rehearing on the Alliance
order. Consumers is uncertain about the outcome of the Alliance matter before
the FERC and its continued participation in Alliance.
CMS-37
<PAGE> 87
OTHER CONSUMERS' ELECTRIC UTILITY UNCERTAINTIES
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 Chemical
Company (Dow). Consumers, through two wholly owned subsidiaries, holds the
following assets related to the MCV Partnership and MCV Facility: 1) CMS Midland
Inc. (CMS Midland) owns a 49 percent general partnership interest in the MCV
Partnership; and 2) CMS Midland Holdings Company (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)
<TABLE>
<CAPTION>
In Millions
- ------------------------------------------------------------------------------------------------------------------
Years Ended December 31 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Pretax operating income $49 $49 $46
Income taxes and other 15 15 14
----------------------------------------------------------------
Net income $34 $34 $32
==================================================================================================================
</TABLE>
Power Purchases from the MCV Partnership: Consumers' annual obligation to
purchase capacity from the MCV Partnership is 1,240 MW through the termination
of the power purchase agreement (PPA) between Consumers and the MCV Partnership
in 2025. The PPA provides that Consumers is to pay, based on the MCV Facility's
availability, a levelized average capacity charge of 3.77 cents per
kilowatt-hour (kWh), a fixed energy charge, and a variable energy charge based
primarily on Consumers' average cost of coal consumed for all kWh delivered.
Since January 1, 1993, the MPSC has permitted Consumers to recover capacity
charges averaging 3.62 cents per kWh for 915 MW, plus a substantial portion of
the fixed and variable energy charges. Since January 1, 1996, the MPSC has also
permitted Consumers to recover capacity charges for the remaining 325 MW of
contract capacity with an initial average charge of 2.86 cents per kWh,
increasing periodically to an eventual 3.62 cents per kWh by 2004 and
thereafter. Because the MPSC has already approved recovery of these capacity
costs, Consumers will recover these increases through an adjustment to the
currently frozen PSCR factor that will be effective through 2001. Consumers
expects to recover the remaining increases through the Transition Cost true-up
process and through further adjustments to the PSCR factor. After September
2007, under the terms of the PPA, Consumers will only be required to pay the MCV
Partnership capacity and energy charges that the MPSC has authorized for
recovery from electric customers.
In March 1999, Consumers signed a long-term power sales agreement to resell to
PECO Energy Company (PECO) its capacity and energy purchases under the PPA until
September 2007. After a three-year transition period during which 100 to 150 MW
will be sold to PECO, beginning in 2002, Consumers will sell all 1,240 MW of PPA
capacity and associated energy to PECO. In March 1999, Consumers also filed an
application with the MPSC for accounting and ratemaking approvals related to the
PECO agreement. If used as an offset to electric customers' Transition Cost
responsibility, Consumers estimates that there could be a reduction of as much
as $58 million (on a net present value basis) of Transition Cost related to the
MCV PPA. In an order issued in April 1999, the MPSC conditionally approved the
requests for accounting and rate-making treatment to the extent that customer
rates are not increased from the current level absent the agreement and as
modified by the order. In response to Consumers' and other parties'
CMS-38
<PAGE> 88
requests for clarification and rehearing, in an August 1999 opinion, the MPSC
partially granted the relief Consumers requested on rehearing and attached
certain additional conditions to its approval. Those conditions relate to
Consumers' continued decision to carry out the electricity customer choice
program (which Consumers has affirmed as discussed above) and a determination to
revise its capacity solicitation process (which Consumers has filed but is
awaiting an MPSC decision). The August opinion is a companion order to a power
supply cost reconciliation order issued on the same date in another case. This
order affects the level of frozen power supply costs recoverable in rates during
future years when the transaction with PECO would be taking place. Consumers
filed a motion for clarification of the order relating to the PECO agreement,
which is still pending. Due to the pending electric industry restructuring
legislation in Michigan and the overall uncertainty that exists concerning
restructuring, Consumers and PECO have entered into an interim arrangement for
the sale of 125MW of PPA capacity associated energy to PECO during 2000. Prices
in the interim arrangement are identical to the March 1999 power sales
agreement.
Consumers recognized a loss in 1992 for the present value of the estimated
future underrecoveries of power costs under the PPA based on MPSC recovery
orders. At December 31, 1999 and December 31, 1998, the remaining after-tax
present value of the estimated future PPA liability associated with the 1992
loss totaled $78 million and $110 million, respectively. At December 31, 1999,
the undiscounted after-tax amount associated with this liability totaled $142
million. These after-tax cash underrecoveries are based on the assumption that
the MCV Facility would be available to generate electricity 91.5 percent of the
time over its expected life. Historically the MCV Facility has operated above
the 91.5 percent level. Accordingly, in 1998, Consumers increased its PPA
liability by $37 million. Because the MCV Facility operated above the 91.5
percent level in 1998 and in 1999, Consumers has an accumulated unrecovered
after-tax shortfall of $30 million as of December 31, 1999. Consumers believes
that this shortfall will be resolved in the context of the electric
restructuring effort. If the MCV Facility generates electricity at the 91.5
percent level during the next five years, Consumers' after-tax underrecoveries
associated with the PPA would be as follows.
<TABLE>
<CAPTION>
In Millions
- ------------------------------------------------------------------------------------------------------------------
2000 2001 2002 2003 2004
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Estimated cash underrecoveries, net of tax $21 $20 $19 $18 $17
==================================================================================================================
</TABLE>
If the MCV Facility operates at availability levels above management's 91.5
percent estimate made in 1992 for the remainder of the PPA and expected
shortfalls are not resolved in the context of the electric restructuring effort,
Consumers will need to recognize additional losses for future underrecoveries.
In March 1999, Consumers and the MCV Partnership reached an agreement effective
January 1, 1999 that capped availability payments to the MCV Partnership at 98.5
percent. For further discussion on the impact of the frozen PSCR, see "Electric
Restructuring" in this Note. Management is evaluating the adequacy of the
contract loss liability considering actual MCV Facility operations and any other
relevant circumstances.
In February 1998, the MCV Partnership filed a claim of appeal from the January
1998 and February 1998 MPSC orders in the electric utility industry
restructuring. At the same time, the MCV Partnership filed suit in the United
States 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. In July 1999, the United States
District Court issued an order granting the MCV Partnership's motion for summary
CMS-39
<PAGE> 89
judgment. The order permanently prohibits enforcement of the restructuring
orders in any manner which denies any utility the ability to recover amounts
paid to qualifying facilities such as the MCV Facility or which precludes the
MCV Partnership from recovering the avoided cost rate. The MPSC has appealed the
United States District Court order. Consumers cannot predict the outcome of this
litigation.
NUCLEAR MATTERS: In January 1997, the NRC issued its Systematic Assessment of
Licensee Performance report for Palisades. The report rated all areas as good.
The NRC suspended this assessment process for all licensees in 1998. Until the
NRC completes its review of processes for assessing performance at nuclear power
plants, the NRC uses the Plant Performance Review to provide an assessment of
licensee performance. Palisades received its annual performance review dated
March 26, 1999 in which the NRC stated that the overall performance at Palisades
was acceptable.
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. As of December 31,
1999, Consumers had loaded 18 dry storage casks with spent nuclear fuel at
Palisades. In June 1997, the NRC approved Consumers' process for unloading spent
fuel from a cask previously discovered to have minor weld flaws. Consumers
intends to transfer the spent fuel to a new transportable cask when one is
available.
Consumers maintains insurance 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 12 weeks of any outage, but would cover most of such costs
during the next 52 weeks of the outage, followed by reduced coverage to 80
percent for 110 additional weeks. If certain covered losses occur at its own or
other nuclear plants similarly insured, Consumers could be required to pay
maximum assessments of $15.5 million in any one year to Nuclear Electric
Insurance Limited (NEIL); $88 million per occurrence under the nuclear liability
secondary financial protection program, limited to $10 million per occurrence in
any 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 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 materials. 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.
COMMITMENTS FOR COAL SUPPLIES: Consumers has entered into coal supply contracts
with various suppliers for its coal-fired generating stations. Under the terms
of these agreements, Consumers is obligated to take physical delivery of the
coal and make payment based upon the contract terms. Consumers' current
contracts have expiration dates that range from 2001 to 2004. Consumers enters
into long-term contracts for approximately 50 to 75 percent of its annual coal
requirements. In 1999, coal purchases totaled $262.5 million of which $197.2
million (75 percent of the tonnage requirement) was under long-term contract.
Consumers supplements its long-term contracts with spot-market purchases.
CMS-40
<PAGE> 90
CONSUMERS' GAS UTILITY CONTINGENCIES
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. These include 23
sites that formerly housed manufactured gas plant facilities, even those in
which it has a partial or no current ownership interest. Consumers has completed
initial investigations at the 23 sites. On sites where Consumers 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. Consumers has estimated its costs related to further investigation
and remedial action for all 23 sites using the Gas Research
Institute-Manufactured Gas Plant Probabilistic Cost Model. Using this model,
Consumers estimates the costs to be between $66 million and $118 million. These
estimates are based on undiscounted 1999 costs. As of December 31, 1999,
Consumers has an accrued liability of $62 million and a regulatory asset of $65
million. Any significant change in assumptions, such as remediation techniques,
nature and extent of contamination, and legal and regulatory requirements, could
affect the estimate of remedial action costs for the sites. Consumers defers and
amortizes, over a period of ten years, environmental clean-up costs above the
amount currently being recovered in rates. Rate recognition of amortization
expense cannot begin until after a prudence review in a future general gas rate
case. Consumers is allowed current recovery of $1 million annually. Consumers
has initiated lawsuits against certain insurance companies regarding coverage
for some or all of the costs that it may incur for these sites.
CONSUMERS' GAS UTILITY MATTERS
GAS RESTRUCTURING: In December 1997, the MPSC approved Consumers' application to
implement an experimental gas transportation program. The program will extend
over a three-year period, ending March 31, 2001, eventually allowing 300,000
residential, commercial and industrial retail gas sales customers to choose an
alternative gas commodity supplier in direct competition with Consumers. The
program is voluntary and participating natural gas customers are selected on a
first-come, first-served basis, up to a limit of 100,000 per year. As of
December 31, 1999, more than 176,000 customers chose alternative gas suppliers,
representing approximately 42.2 billion cubic feet (bcf) of gas load. Customers
choosing to remain as sales customers of Consumers will not see a rate change in
their natural gas rates. This three-year program: 1) freezes gas distribution
rates through March 31, 2001, establishing a gas commodity cost at a fixed rate
of $2.84 per thousand cubic feet (mcf); 2) establishes an earnings sharing
mechanism with customers if Consumers' earnings exceed certain pre-determined
levels; and 3) establishes a gas transportation code of conduct that addresses
the relationship between Consumers and marketers, including its affiliated
marketers. In December 1999, the Court of Appeals affirmed in its entirety the
December 1997 MPSC Order. Petitions for rehearing filed by several parties were
subsequently denied by the Court of Appeals.
Consumers contracts to purchase gas to limit its risk associated with gas price
increases. Management's intent is to take physical delivery of the commodity and
failure could result in a significant penalty for nonperformance. At December
31, 1999, Consumers had an exposure to gas price increases if the ultimate cost
of gas was to exceed $2.84 per mcf for the following volumes: 50 percent of its
2000 requirements; and 50 percent of its first quarter 2001 requirements.
Additional contract coverage is currently under review. The gas purchase
contracts currently in place were consummated at an average price of less than
$2.84 per mcf. Consumers uses gas purchase contracts to protect against gas
price increases in a three-year experimental gas program where Consumers is
recovering from its customers $2.84 per mcf for gas.
COMMITMENTS FOR GAS SUPPLIES: Consumers contracts to purchase gas and
transportation from various
CMS-41
<PAGE> 91
suppliers for its natural gas business. These contracts have
expiration dates that range from 2000 to 2004. Consumers' 1999 gas requirements
totaled 200 bcf at a cost of $542 million, 80 percent of which was under
long-term contracts for one year or more. As of the end of 1999, Consumers had
50 percent of its 2000 gas requirements under such long-term contracts, and will
supplement them with additional long-term and short-term contracts and
spot-market purchases.
PANHANDLE MATTERS
REGULATORY MATTERS: Effective August 1996, Trunkline placed into effect in Rate
Proceeding 96-129 a general rate increase, subject to refund. On September 16,
1999, Trunkline filed a FERC settlement agreement to resolve certain issues in
this proceeding. This settlement was approved on February 1, 2000 and will
require refunds of approximately $2 million expected to be made in April 2000,
with supplemental refunds expected in July 2000. On January 12, 2000, the FERC
issued an order on the remainder of the rate proceeding which, if approved
without modification, would result in a substantial reduction to Trunkline's
tariff rates which would impact future revenues and require additional refunds.
Trunkline has requested rehearing of certain matters in this order.
In conjunction with a FERC order issued in September 1997, certain natural gas
producers were required to refund previously collected Kansas ad-valorem taxes
to interstate natural gas pipelines. These pipelines were ordered to refund
these amounts to their customers. All payments are to be made in compliance with
prescribed FERC requirements. At December 31, 1999, accounts receivable included
$54 million due from natural gas producers, and other current liabilities
included $54 million for related obligations.
ENVIRONMENTAL MATTERS: Panhandle is subject to federal, state and local
regulations regarding air and water quality, hazardous and solid waste disposal
and other environmental matters. Panhandle has identified environmental
contamination at certain sites on its systems and has undertaken cleanup
programs at these sites. The contamination resulted from the past use of
lubricants in compressed air systems containing PCBs and the prior use of
wastewater collection facilities and other on-site disposal areas. Under the
terms of the sale of Panhandle to CMS Energy, a subsidiary of Duke Energy is
obligated to complete the Panhandle cleanup programs at certain agreed-upon
sites and to indemnify Panhandle against certain future environmental litigation
and claims. The Illinois EPA included Panhandle and Trunkline, together with
other non-affiliated parties, in a cleanup of former waste oil disposal sites in
Illinois. Prior to a partial cleanup by the United States EPA, a preliminary
study estimated the cleanup costs at one of the sites to be between $5 million
and $15 million. The state of Illinois contends that Panhandle's and Trunkline's
share for the costs of assessment and remediation of the sites, based on the
volume of waste sent to the facilities, is 17.32 percent. Management believes
that the costs of cleanup, if any, will not have a material adverse impact on
CMS Energy's financial position, liquidity, or results of operations.
OTHER UNCERTAINTIES
CMS GENERATION CO. (CMS GENERATION) ENVIRONMENTAL MATTERS: CMS Generation does
not currently expect to incur significant capital costs at its power facilities
for compliance with current environmental regulatory standards.
CAPITAL EXPENDITURES: CMS Energy estimates capital expenditures, including
investments in unconsolidated subsidiaries and new lease commitments, of $1.617
billion for 2000, $1.290 billion for 2001, and $1.295 billion for 2002. For
further information, see Capital Resources and Liquidity-Capital Expenditures in
the Management's Discussion and Analysis
CMS-42
<PAGE> 92
CMS MARKETING, SERVICES AND TRADING COMPANY (CMS MST) GAS SUPPLY CONTRACTS:
During 1999, CMS MST entered into two sales arrangements to provide natural gas
to various entities over periods of up to 12 years. These contracts obligate CMS
MST to provide 179 bcf of gas to these entities at predetermined price levels
over the period of the contracts. CMS MST has established a liability for these
outstanding obligations and hedged its exposures under these arrangements.
OTHER: As of December 31, 1999, CMS Energy and Enterprises guaranteed up to $517
million in contingent obligations of unconsolidated affiliates and related
parties.
In addition to the matters disclosed in this Note, 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.
CMS Energy 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 CMS Energy's financial position, liquidity, or results of
operations.
5: SHORT-TERM FINANCINGS
CMS Energy utilized $600 million of a bridge loan facility to partially fund the
acquisition of Panhandle. As of December 31, 1999, CMS Energy had repaid this
entire bridge loan facility.
At February 1, 2000, Consumers had FERC authorization to issue or guarantee
through June 2000, up to $900 million of short-term securities outstanding at
any one time. Consumers also had remaining FERC authorization to issue through
June 2000, up to $275 million and $365 million of long-term securities with
maturities up to 30 years for refinancing purposes and for general corporate
purposes, respectively.
Consumers has an unsecured $300 million credit facility and unsecured lines of
credit aggregating $135 million. These facilities are available to finance
seasonal working capital requirements and to pay for capital expenditures
between long-term financings. At December 31, 1999, a total of $214 million was
outstanding at a weighted average interest rate of 6.6 percent, compared with
$215 million outstanding at December 31, 1998, at a weighted average interest
rate of 5.8 percent. In January 1999, Consumers renegotiated a variable-to-fixed
interest rate swap totaling $175 million. In September 1999, Consumers entered
into two variable-to-fixed interest rate swaps totaling $740 million; this
amount was reduced by $70 million to $670 million by December 31, 1999 and
terminate January 31, 2000.
Consumers also has in place a $325 million trade receivables sale program. At
December 31, 1999 and 1998, receivables sold under the program totaled $325
million and $306 million, respectively. Accounts receivable and accrued revenue
in the Consolidated Balance Sheets have been reduced to reflect receivables
sold.
CMS-43
<PAGE> 93
6: LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
In Millions
- -----------------------------------------------------------------------------------------------------------------
December 31 Maturing/Expiring Interest Rate 1999 1998
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
First Mortgage Bonds 1999 to 2023 6.4% to 8.9% $ 563 $ 628
Long-Term Bank Debt 2003 5.8%(a) 175 175
Senior Notes:
CMS Energy 2000 to 2009 7.5%(a) 1,610 830
CMS Energy 2011 8.0%(b) 250 -
CMS Energy 2013 8.375%(c) 150 -
Consumers 2008 to 2028 6.5%(a) 1,074 1,075
Panhandle 2004 to 2029 6.9%(a) 1,100 -
Extendible Tenor Rate
Adjusted Securities (d) 2005 7.0%(a) 180 180
Senior Credit Facilities 2000 to 2002 7.5%(a) 444 669
General Term Notes(TM)
Series A to E 2000 to 2009 7.5%(a) 849 625
Pollution Control Revenue Bonds 2000 to 2018 5.1%(a) 131 131
Revolving Line of Credit 2002 7.1%(a) 175 168
Nuclear Fuel Disposal (e) 4.7%(a) 123 117
Bank Loans and Other 2000 to 2014 7.2%(a) 709 410
----------------------
Principal Amount Outstanding 7,533 5,008
Current Amounts (516) (258)
Net Unamortized Discount (30) (24)
------------------------
Total Long-Term Debt $6,987 $4,726
=================================================================================================================
</TABLE>
(a) Represents the weighted average interest rate at December 31, 1999.
(b) The interest rate may be reset in July 2001. For detailed information, see
discussion below.
(c) The interest rate may be reset in July 2003. For detailed information, see
discussion below.
(d) May be extended for an additional seven years.
(e) Maturity date uncertain (see Note 4).
The scheduled maturities of long-term debt and improvement fund obligations are
as follows: $516 million in 2000, $88 million in 2001, $988 million in 2002,
$599 million in 2003 and $1.1 billion in 2004.
CMS ENERGY
CMS Energy's $725 million senior credit facilities consist of a $600 million
three-year revolving credit facility and a five-year $125 million term loan
facility (Senior Credit Facilities). Additionally, CMS Energy has unsecured
lines of credit and letters of credit in an aggregate amount of $357 million. At
December 31, 1999, the total amount utilized under the Senior Credit Facilities
was $484 million, including
CMS-44
<PAGE> 94
$41 million of contingent obligations, and under the unsecured lines of credit
and letters of credit was $139 million.
In January 1999, CMS Energy received net proceeds of approximately $473 million
from the sale of $480 million of senior notes. In February 1999, CMS Energy
received net proceeds of approximately $296 million from the sale of $300
million of senior notes. Proceeds from these offerings were used to repay debt
and for general corporate purposes.
In June 1999, CMS Energy sold $250 million of 8 percent senior notes, due July
1, 2011 and $150 million of 8.375 percent senior notes, due July 1, 2013. The
$250 million senior notes and the $150 million senior notes are subject to a
call option and mandatory put on July 1, 2001 and July 1, 2003, respectively.
The call option allows the callholder to purchase the notes, at which point the
coupon rate will be reset for the remaining term of the notes. If the call
option is not exercised by the callholder, the notes will be mandatorily put to
CMS Energy at a price equal to 100 percent of the principal amount. Net proceeds
of approximately $404 million, which includes approximately $9 million for the
sale of the call options, were also used to pay down the remaining portion of
the bridge loan obtained for the acquisition of Panhandle.
CONSUMERS
Consumers issued long-term bank debt of $15 million in February 1999, maturing
in February 2002, at an initial interest rate of 5.3 percent.
In May 1999, Michigan Gas Storage Company (Michigan Gas Storage) repaid its $20
million outstanding term loan with Toronto Dominion Bank.
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 (Articles) and the need for regulatory
approvals to meet appropriate federal law.
In November 1999, $64 million of Consumers' First Mortgage Bonds matured and
were retired.
Consumers has a total of $131 million of long-term pollution control revenue
bonds outstanding, secured by first mortgage bonds and insurance policies. These
bonds had a weighted average interest rate of 5.1 percent at December 31, 1999.
PANHANDLE
In March 1999, CMS Energy, through its subsidiary CMS Panhandle Holding Company
(CMS Panhandle Holding), received net proceeds of approximately $789 million
from the sale of $800 million of senior notes issued by CMS Panhandle Holding.
Proceeds from this offering were used to initially fund the acquisition of
Panhandle. On June 15, 1999 CMS Panhandle Holding merged into Panhandle, at
which point the notes became direct obligations of Panhandle. In September 1999,
Panhandle exchanged the $800 million of notes originally issued by CMS Panhandle
Holding with substantially identical Security and Exchange Commission
(SEC)-registered notes.
CMS-45
<PAGE> 95
CMS OIL AND GAS
In May 1999, CMS Oil and Gas renegotiated a three-year $225 million floating
rate revolving credit facility which matures in May 2002. At December 31, 1999,
the amount utilized under the credit facility was $175 million.
7: CAPITALIZATION
CMS ENERGY
The authorized capital stock of CMS Energy consists of 250 million shares of CMS
Energy Common Stock, one of two classes of common stock of CMS Energy, par value
$.01 per share (CMS Energy Common Stock), 60 million shares of Class G Common
Stock, one of two classes of common stock of CMS Energy, no par value (Class G
Common Stock) and 10 million shares of CMS Energy Preferred Stock, $.01 par
value.
In June 1999, a Delaware statutory business trust established by CMS Energy
privately sold $250 million of Trust Preferred Securities to an entity organized
by Banc of America Securities LLC. The Trust Preferred Securities pay quarterly
distributions at a floating rate. Under the terms of the Trust Preferred
Securities, if the price of the CMS Energy Common Stock is less than $29 per
share, the holders may request that the Trust Preferred Securities be remarketed
to third parties. In such case, the interest rate and certain other terms of the
subordinated notes could be reset. Net proceeds of approximately $244 million
were used to pay down a portion of the bridge loan obtained for the acquisition
of Panhandle. In exchange for these proceeds, CMS Energy sold subordinated notes
to the trust. In connection with this financing, CMS Energy also agreed to sell
$250 million of CMS Energy Common Stock at prevailing market prices through Banc
of America Securities LLC within 24 months.
In July 1999, 7.25 million units of 8.75 percent Adjustable Convertible Trust
Securities were sold by CMS Energy and CMS Energy Trust II, a Delaware statutory
business trust established by CMS Energy. Each security consists of a Trust
Preferred Security of CMS Energy Trust II maturing in five years and a contract
for the purchase of CMS Energy Common Stock in three years at a conversion
premium up to 28 percent or an effective price of $53 per common share. Net
proceeds from the sale totaled $291 million and were used to repay portions of
various lines of credit and the revolving credit facility.
In November 1999, CMS Energy privately placed 125,000 shares of its Mandatorily
Convertible Preferred Stock with CMS Share Trust, a Delaware statutory business
trust established by CMS Energy, in connection with a $125 million secured debt
issuance by an unconsolidated subsidiary. The Mandatorily Convertible Preferred
Stock has a liquidation preference of $1,000 per share and does not pay
dividends while held by the CMS Share Trust. Under certain circumstances
involving the unconsolidated subsidiary's and CMS Energy's inability to pay
principal and/or interest on the subsidiary's debt, the Mandatorily Convertible
Preferred Stock may be remarketed to third parties with the proceeds applied to
payment of the subsidiary's debt. At the time of remarketing, if any, a
market-based dividend rate and the terms of the conversion into CMS Energy
Common Stock would be established.
CMS-46
<PAGE> 96
During the second or third quarter of 2000, subject to market conditions, CMS
Energy intends to make an initial public offering of approximately $600 million
of a tracking stock representing 20 percent of the economic interest in its
electric and gas utility. The proceeds of the offering will be used mostly to
reduce debt, with the remaining proceeds to be used for repurchase of up to 10
million shares of CMS Energy Common Stock from time to time, in open market or
private transactions.
OTHER: Under its most restrictive borrowing arrangement at December 31, 1999,
none of CMS Energy's consolidated net income was restricted for payment of
common dividends. CMS Energy could pay $1 billion in common dividends under its
most restrictive debt covenant.
CONSUMERS
On April 1, 1999, Consumers redeemed all 8 million outstanding shares of its
$2.08 preferred stock at $25.00 per share for a total of $200 million.
In October 1999, 7 million shares of 9.25 percent Trust Preferred Securities
were issued and sold through Consumers Energy Company Financing III, a wholly
owned business trust consolidated with Consumers. Net proceeds from the sale
totaled approximately $169 million. Consumers formed the trust for the sole
purpose of issuing the Trust Preferred Securities. Consumers' obligations with
respect to the Trust Preferred Securities under the related tax-deductible
notes, under the indenture through which Consumers issued the notes, under
Consumers' guarantee of the Trust Preferred Securities, and under the
declaration by the trust, taken together, constitute a full and unconditional
guarantee by Consumers of the trust's obligations under the Trust Preferred
Securities.
Under the provisions of its Articles of Incorporation, Consumers had $359
million of unrestricted retained earnings available to pay common dividends at
December 31, 1999. In January 2000, Consumers declared and paid a $79 million
common dividend.
8: EARNINGS PER SHARE AND DIVIDENDS
On October 25, 1999, CMS Energy exchanged approximately 6.1 million shares of
CMS Energy Common Stock for all of the approximately 8.7 million issued and
outstanding shares of Class G Common Stock in a tax-free exchange for United
States federal income tax purposes. The exchange ratio of .7041 share of CMS
Energy Common Stock for each share of Class G Common Stock represents the fair
market value of CMS Energy Common Stock equal to 115 percent of the fair market
value of one share of Class G Common Stock. Fair market values of CMS Energy
Common Stock and Class G Common Stock were determined by calculating the average
of the daily closing prices on the New York Stock Exchange from July 28, 1999 to
August 24, 1999. The resulting 15 percent exchange premium of $28 million
resulted in a reallocation of earnings per share between CMS Energy Common Stock
and Class G Common Stock. For the year ended December 31, 1999, CMS Energy's
basic and diluted earnings per share were reduced $.26 and $.25, respectively,
and Class G's basic and diluted earnings per share were increased $3.31, as
shown separately in the calculation of earnings per share in the Consolidated
Statements of Income.
Earnings per share attributable to all classes of Common Stock of CMS Energy and
each of its subsidiaries (Common Stock) from January 1, 1999 to October 25, 1999
and for the years ended December 31, 1998
CMS-47
<PAGE> 97
and 1997 reflect the performance of the gas distribution, storage and
transportation business currently conducted by Consumers and Michigan Gas
Storage (Consumers Gas Group). 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 of Class G Common Stock
(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 authorized but unissued shares of Class G Common Stock
not held by holders of the Outstanding Shares during the period.
CMS-48
<PAGE> 98
COMPUTATION OF EARNINGS PER SHARE (EPS):
<TABLE>
<CAPTION>
In Millions, Except Per Share Amounts
- -----------------------------------------------------------------------------------------------------------------
1999 1998 1997
---------------------------------------------------------
(a)
<S> <C> <C> <C>
NET INCOME APPLICABLE TO BASIC AND DILUTED EPS
Consolidated Net Income $277 $285 $ 244
=========================================================
Net Income Attributable to Common Stocks:
CMS Energy - Basic $241(b) $272 $ 229
Add conversion of 7.75% Trust
Preferred Securities (net of tax) 9 9 5
---------------------------------------------------------
CMS Energy - Diluted $250(b) $281 $ 234
=========================================================
Class G:
Basic and Diluted $36(b)(c) $ 13 $ 15
==========================================================
AVERAGE COMMON SHARES OUTSTANDING
APPLICABLE TO BASIC AND DILUTED EPS
CMS Energy:
Average Shares - Basic 110.1 102.4 96.1
Add conversion of 7.75% Trust
Preferred Securities 4.3 4.3 2.3
Options-Treasury Shares 0.3 0.5 0.3
---------------------------------------------------------
Average Shares - Diluted 114.7 107.2 98.7
=========================================================
Class G:
Average Shares
Basic and Diluted 8.6(c) 8.3 8.0
=========================================================
EARNINGS PER AVERAGE COMMON SHARE
CMS Energy:
Basic $2.18(b) $2.65 $ 2.39
Diluted $2.17(b) $2.62 $ 2.37
Class G:
Basic and Diluted $4.21(b)(c) $1.56 $ 1.84
=================================================================================================================
</TABLE>
(a) Includes the cumulative effect of an accounting change in the first quarter
of 1998 which increased net income attributable to CMS Energy Common Stock
$43 million ($.40 per share - basic and diluted) and Class G Common Stock
$12 million ($.36 per share - basic and diluted).
(b) Reflects the reallocation of net income and earnings per share as a result
of the premium on exchange of Class G Common Stock. As a result, CMS
Energy's basic and diluted earnings per share were reduced $.26 and $.25,
respectively, and Class G's basic and diluted earnings per share were
increased $3.31.
(c) From January 1, 1999 to October 25, 1999.
CMS-49
<PAGE> 99
In February and May 1999, CMS Energy paid dividends of $.33 per share on CMS
Energy Common Stock and $.325 per share on Class G Common Stock. In August 1999,
CMS Energy paid dividends of $.365 per share on CMS Energy Common Stock and $.34
per share on Class G Common Stock. In November 1999, CMS Energy paid dividends
of $.365 per share on CMS Energy Common Stock. As a result of the exchange of
Class G Common Stock for CMS Energy Common Stock, no Class G Common Stock
dividend was declared in September. Class G Common Stock shareholders prior to
the exchange received the CMS Energy Common Stock dividend. In January 2000, the
Board of Directors of CMS Energy (Board of Directors) declared a quarterly
dividend of $.365 per share on CMS Energy Common Stock, which was paid in
February 2000.
CMS Energy will reduce the CMS Energy Common Stock annual dividend to $.40 per
share at the time of a proposed initial public offering of approximately $600
million of a tracking stock representing 20 percent of the financial interest in
CMS Energy's electric and gas utility. The offering is currently expected for
issuance during the second or third quarter of 2000, subject to market
conditions.
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. Nonperformance by counterparties is not expected to have a
material adverse impact on CMS Energy's financial position, liquidity, or
results of operations.
COMMODITY PRICE HEDGES: CMS Energy engages in both energy trading and
non-trading activities as defined by EITF 98-10, Accounting for Energy Trading
and Risk Management Activities. CMS Energy accounts for its non-trading
commodity price derivatives as hedges 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 the market value of the commodity price contracts and 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. Effective January 1, 1999, CMS
Energy adopted mark-to-market accounting for energy trading contracts in
accordance with EITF 98-10. Mark-to-market accounting requires gains and losses
resulting from changes in market prices on contracts entered into for trading
purposes to be reflected in earnings currently. The after-tax mark-to-market
adjustment resulting from the adoption of EITF 98-10 did not have a material
effect on CMS Energy's financial position, results of operations and cash flows
as of December 31, 1999.
Consumers enters into electric option contracts to ensure a reliable source of
capacity to meet its customers'
CMS-50
<PAGE> 100
electricity requirements and to limit its risk associated with electricity price
increases. It is management's intent to take physical delivery of the commodity.
Consumers continuously evaluates its daily capacity needs and sells the option
contracts, if marketable, when it has excess daily capacity. Consumers' maximum
exposure associated with these options is limited to premiums paid.
CMS Oil and Gas has one arrangement which is used to fix the prices that CMS Oil
and Gas will pay for gas supplied to the MCV Facility for the years 2001 through
2006 by purchasing the economic equivalent of 10,000 million British thermal
units (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 Oil and Gas the
difference, and vice versa.
The contract with the seller provides a calculation of exposure for the purpose
of requiring an exposed party to post a standby letter of credit. Under this
calculation, 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. At December 31, 1999, the terms of this
contract reflected no letter of credit by either party. As of December 31, 1999,
the fair value of this contract is $19 million, representing the amount CMS Oil
and Gas would be required to pay to the counterparty at settlement if settled at
this date.
A subsidiary of CMS Gas Transmission uses natural gas futures contracts and CMS
Marketing, Services and Trading Company uses natural gas and oil futures
contracts, options and swaps (which require a net cash payment for the
difference between a fixed and variable price).
INTEREST RATE 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 $2.9 billion at
December 31, 1999. 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 and option contracts
to hedge certain receivables, payables, long-term debt and equity value 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 as well as equity
reported on the company's balance sheet, 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 $1.6 billion at December 31,
1999, which includes $207 million, $435 million and $880 million for Australian,
Brazilian and Argentine foreign exchange contracts, respectively. The estimated
fair value of the foreign exchange and option contracts at December 31, 1999 was
$64 million, representing the amount CMS Energy would pay upon settlement.
CMS-51
<PAGE> 101
10: INCOME TAXES
CMS Energy and its subsidiaries 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 investment tax credit (ITC) to reduce current income taxes
payable, and amortizes ITC over the life of the related property. Any
alternative minimum tax (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:
<TABLE>
<CAPTION>
In Millions
- -----------------------------------------------------------------------------------------------
Years Ended December 31 1999 1998 1997
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current income taxes
Federal and other $ 40 $ 61 $ 76
State and local 2 5 3
Foreign 12 3 5
------- -------------------------------------
54 69 84
Deferred income taxes
Federal 21 77(a) 41
State 4 - -
Foreign (6) (7) (7)
--------- -------------------------------------
19 70 34
Deferred ITC, net (9) (16) (10)
--------- -------------------------------------
$ 64 $123 $108
===============================================================================================
</TABLE>
(a) Includes $23 million for 1998 change in property tax accounting.
CMS-52
<PAGE> 102
The principal components of CMS Energy's deferred tax assets (liabilities)
recognized in the balance sheet are as follows:
<TABLE>
<CAPTION>
In Millions
- -----------------------------------------------------------------------------------------------------
December 31 1999 1998
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Property $ (606) $ (564)
Unconsolidated investments (208) (288)
Postretirement benefits (128) (139)
Abandoned Midland project (17) (25)
Employee benefit obligations (includes postretirement benefits
of $140 and $141 174 182
AMT carryforward 112 134
Power purchases 42 59
Other (34) 4
------------------------
$ (665) $ (637)
Valuation allowances (5) (15)
------------------------
$ (670) $ (652)
=====================================================================================================
Gross deferred tax liabilities $(1,512) $(1,789)
Gross deferred tax assets 842 1,137
------------------------
$ (670) $ (652)
=====================================================================================================
</TABLE>
CMS-53
<PAGE> 103
The actual income tax expense differs from the amount computed by applying the
statutory federal tax rate of 35% to income before income taxes as follows:
<TABLE>
<CAPTION>
In Millions
- ------------------------------------------------------------------------------------------------------------------
Years Ended December 31 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Consolidated net income before
preferred dividends
Domestic $ 187 $247 $222
Foreign 96 57 47
------------------------------------------------
283 304 269
Income tax expense 64 123(a) 108
------------------------------------------------
347 427 377
Statutory federal income tax rate x 35% x 35% x 35%
-------------------------------------------------
Expected income tax expense 121 149 132
Increase (decrease) in taxes from:
Capitalized overheads previously flowed through 5 5 5
Differences in book and tax depreciation
not previously deferred 19 14 14
Impact of foreign taxes, tax rates and credits 15 (5) 1
Undistributed earnings of international subsidiaries (45) (13) (10)
ITC amortization/adjustments (8) (16) (10)
Section 29 Fuel Tax Credits (12) (13) (13)
Valuation allowances, net (10)(b) - -
Reversal of income tax accruals (8) - -
Other, net (13) 2 (11)
----------------------------------------------------------
$ 64 $123 $ 108
=================================================================================================================
Effective tax rate 18.4% 28.8% 28.6%
=================================================================================================================
</TABLE>
(a) Includes $23 million for 1998 change in property tax accounting.
(b) Benefit realization of preacquisition carryforwards.
11: 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. Judgement may also be required to
interpret market data to develop certain estimates of fair value. Accordingly,
the estimates determined as of December 31, 1999 and 1998 are not necessarily
indicative of the amounts which may be realized in current market exchanges.
CMS-54
<PAGE> 104
The carrying amounts of all long-term investments in financial instruments,
except as shown below, approximate fair value.
<TABLE>
<CAPTION>
Years Ended December 31 1999 1998 In Millions
- --------------------------------------------------------------------------------------------------------------------
Gross Gross
Carrying Fair Unrealized Carrying Fair Unrealized
Cost Value Gain (Loss) Cost Value Gain (Loss)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Long-Term Debt (a) $6,987 $6,722 $ (265) $4,726 $4,762 $ 36
Interest Rate Swaps (b) - 6 6 - 15 15
Preferred Stock and
Trust Preferred Securities 1,163 1,042 (121) 631 631 -
Available-for-Sale
Securities
- -------------------------------------------------------------------------------------------------------------------
Investments $ - $ - $ - $82 $67 $(15)
Nuclear Decommissioning 448 602 154 425 557 132
SERP 56 60 4 40 53 13
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
a) Settlement of long-term-debt is generally not expected until maturity.
b) Amounts shown represent estimated amounts CMS Energy would receive if
agreements were settled at current market rates.
<TABLE>
<CAPTION>
Years Ended December 31 1999 1998
- -------------------------------------------------------------------------------------------------------------------
Gross Gross
Fair Unrealized Fair Unrealized
Trading Securities Value Gain (Loss) Value Gain (Loss)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investments $91 $17 $ 6 $ 3
</TABLE>
In 1999, CMS Energy transferred $85 million of investment from the
available-for-sale category into the trading category, and correspondingly,
reflected $14 million of unrealized gains in consolidated net income for the
year ended December 31, 1999.
CMS-55
<PAGE> 105
12: EXECUTIVE INCENTIVE COMPENSATION
Under CMS Energy's Performance Incentive Stock Plan, restricted shares of Common
Stock as well as stock options and stock appreciation rights relating to Common
Stock 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. Certain plan awards are subject to
performance-based business criteria. The plan reserves for award not more than
five percent, as amended January 1, 1999, of 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. The number of shares of restricted
Common Stock awarded under this plan cannot exceed 20% of the aggregate number
of shares reserved for award. Any forfeitures of shares previously awarded will
increase the number of shares available to be awarded under the plan. At
December 31, 1999, awards of up to 2,466,524 shares of CMS Energy 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, 1999, 679,232 of the
884,129 shares of restricted CMS Energy Common Stock outstanding are subject to
performance objectives.
Under the plan, stock options and stock appreciation rights relating to Common
Stock are granted with an exercise price equal to the closing market price on
each grant date. Some options may be exercised upon grant; others vest over five
years at the rate of 25 percent per year after one year. All options expire up
to ten years and one month from date of grant. In 1999, all outstanding Class G
Common Stock and options were converted to CMS Energy Common Stock and options
at an exchange rate of .7041 per Class G Common Stock or option held. The
original vesting or exercise period was retained for all converted shares or
options. The status of the restricted stock granted to CMS Energy's key
employees under the Performance Incentive Stock Plan and options granted under
the plan follows.
CMS-56
<PAGE> 106
<TABLE>
<CAPTION>
Restricted
Stock Options
---------- ----------------------------------
Number Number Weighted-Average
of Shares of Shares Exercise Price
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CMS Energy Common Stock:
Outstanding at January 1, 1997 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
Granted 304,750 376,000 $ 43.38
Exercised or Issued (185,217) (331,925) $ 27.69
Forfeited (6,000) - -
-----------------------------------------------------------
Outstanding at December 31, 1998 861,744 1,709,792 $ 32.07
Granted 284,364 1,137,912 $ 39.23
Converted from Class G 6,060 19,503 $ 32.62
Exercised or Issued (172,916) (258,267) $ 29.44
Forfeited (95,123) - -
Expired - (78,900) $ 39.58
-----------------------------------------------------------
Outstanding at December 31, 1999 884,129 2,530,040 $ 35.33
================================================================================================================
- ----------------------------------------------------------------------------------------------------------------
Class G Common Stock:
Outstanding at January 1, 1997 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
Granted 14,720 45,900 $ 24.50
Exercised or Issued (4,021) - -
-------------------------------------------------------
Outstanding at December 31, 1998 30,490 73,900 $ 22.37
Granted 3,427 - -
Exercised or Issued (7,360) (19,000) $ 18.45
Forfeited (17,949) - -
Expired - (27,200) $ 24.50
Converted to CMS Energy (8,608) (27,700) $ 22.98
-------------------------------------------------------
Outstanding at December 31, 1999 - - -
================================================================================================================
</TABLE>
CMS-57
<PAGE> 107
The following table summarizes information about stock options outstanding at
December 31, 1999:
<TABLE>
<CAPTION>
Number Weighted- Weighted-
Range of of Shares Average Average
Exercise Prices Outstanding Remaining Life Exercise Price
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CMS Energy Common Stock:
$17.13 - $35.94 1,151,128 5.61 years $29.11
$37.19 - $41.44 1,020,412 9.55 years $39.53
$41.75 - $44.06 358,500 8.66 years $43.34
- --------------------------------------------------------------------------------------------------------------
$17.13 - $44.06 2,530,040 7.63 years $35.33
==============================================================================================================
</TABLE>
The weighted average fair value of options granted for CMS Energy Common Stock
was $5.93 in 1999, $6.43 in 1998 and $6.38 in 1997. Fair value is estimated
using the Black-Scholes model, a mathematical formula used to value options
traded on securities exchanges, with the following assumptions:
<TABLE>
<CAPTION>
Years Ended December 31 1999 1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CMS ENERGY COMMON STOCK OPTIONS
Risk-free interest rate 5.65% 5.45% 6.06%
Expected stock-price volatility 16.81% 15.93% 17.43%
Expected dividend rate $.365 $ .33 $ .30
Expected option life (years) 4.5 years 4 years 5 years
===================================================================================================================
</TABLE>
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 $12 million in 1999, $9 million
in 1998 and $6 million in 1997. 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:
CMS-58
<PAGE> 108
<TABLE>
<CAPTION>
In Millions, Except Per Share Amounts
- ---------------------------------------------------------------------------------------------------------------
Pro Forma As Reported
Years Ended December 31 1999 1998 1999 1998
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Consolidated Net Income $ 272 $ 283 $ 277 $ 285
Net Income Attributable to Common Stocks
CMS Energy 236 270 241 272
Class G 36 13 36 13
Earnings Per Average Common Share
CMS Energy
Basic 2.14 2.64 2.18 2.65
Diluted 2.14 2.61 2.17 2.62
Class G
Basic and Diluted 4.21 1.54 4.21 1.56
===============================================================================================================
</TABLE>
13: RETIREMENT BENEFITS
CMS Energy and its subsidiaries provide retirement benefits under a number of
different plans, including certain health care and life insurance benefits under
its postretirement benefit plans other than pensions for retired employees
(OPEB), benefits to certain management employees under its Supplemental
Executive Retirement Plan (SERP), and benefits to substantially all its
employees under a trusteed, non-contributory, defined benefit pension plan of
Consumers and CMS Energy (Pension Plan), and a defined contribution 401(k) plan.
Amounts presented below for the Pension Plan include amounts for employees of
CMS Energy and nonutility affiliates which were not distinguishable from the
plan's total assets.
Weighted-Average Assumptions:
<TABLE>
<CAPTION>
Pension & SERP OPEB
-------------------------------- --------------------------------
Years Ended December 31 1999 1998 1997 1999 1998 1997
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Discount rate 7.75% 7.00% 7.50% 7.75% 7.00% 7.50%
Expected long-term rate
of return on plan assets 9.25% 9.25% 9.25% 7.00% 7.00% 7.00%
Rate of compensation increase:
Pension - to age 45 5.25% 5.25% 5.25%
- age 45 to assumed retirement 3.75% 3.75% 3.75%
SERP 5.50% 5.50% 5.50%
==============================================================================================================
</TABLE>
Retiree health care costs at December 31, 1999 are based on the assumption that
costs would increase 7.0 percent in 2000, then decrease gradually to 5.5 percent
in 2006 and thereafter.
CMS-59
<PAGE> 109
Net Pension Plan, SERP and OPEB costs consist of:
<TABLE>
<CAPTION>
In Millions
- ------------------------------------------------------------------------------------------------------------------
Pension & SERP OPEB
-------------------------------------------------------
Years Ended December 31 1999 1998 1997 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Service cost $ 34 $ 27 $ 26 $ 15 $ 11 $ 10
Interest expense 71 64 61 47 43 41
Expected return on plan assets (84) (73) (70) (25) (18) (13)
Amortization of unrecognized transition (asset) (5) (5) (5) - - -
Amortization of prior service cost 4 4 4 - - -
Ad Hoc Retiree Increase 3 - - - - -
-------------------------------------------------------
Net periodic pension and
postretirement benefit cost $ 23 $ 17 $ 16 $ 37 $ 36 $ 38
==================================================================================================================
</TABLE>
The health care cost trend rate assumption significantly affects the amounts
reported. A one percentage point change in the assumed health care cost trend
assumption would have the following effects:
<TABLE>
<CAPTION>
In Millions
- ----------------------------------------------------------------------------------------------------------------
One Percentage One Percentage
Point Increase Point Decrease
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Effect on total service and interest cost components $ 11 $ (9)
Effect on postretirement benefit obligation $ 109 $ (91)
================================================================================================================
</TABLE>
CMS-60
<PAGE> 110
The funded status of CMS Energy's Pension Plan, SERP and OPEB plans is
reconciled with the liability recorded at December 31 as follows:
<TABLE>
<CAPTION>
In Millions
- ------------------------------------------------------------------------------------------------------------------
Pension Plan SERP OPEB
1999 1998 1999 1998 1999 1998
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Benefit obligation, January 1 $ 874 $792 $50 $ 41 $ 655 $582
Service cost 31 25 3 2 15 11
Interest cost 68 60 4 3 47 43
Plan amendments 4 - - - - -
Business Combinations 70 - 3 - 29 -
Actuarial loss (gain) 3 76 (6) 5 21 47
Benefits paid (79) (79) (1) (1) (31) (28)
-----------------------------------------------------------
Benefit obligation, December 971 874 53 50 736 655
-----------------------------------------------------------
Plan assets at fair value, January 1 970 882 - - 327 224
Actual return on plan assets 120 167 - - 50 54
Company contribution - - 1 1 55 49
Business Combinations 83 - - - - -
Actual benefits paid (79) (79) (1) (1) - -
-----------------------------------------------------------
Plan assets at fair
value, December 31 1,094(a) 970(a) - - 432 327
-----------------------------------------------------------
Benefit obligation less than
(in excess of) plan assets 123 96 (52) (50) (305) (328)
Unrecognized net (gain) loss from
experience different than assumed (212) (176) 4 10 (68) (72)
Unrecognized prior service cost 28 31 1 1 - -
Unrecognized net transition (asset) obligation (11) (16) - - - -
-----------------------------------------------------------
Recorded liability $ (72) $(65) $(47) $(39) $(373) $(400)
==================================================================================================================
</TABLE>
(a) Primarily stocks and bonds, including $108 million in 1999 and $168 million
in 1998 of CMS Energy Common Stock.
SERP benefits are paid from a trust established in 1988. SERP is not a qualified
plan under the Internal Revenue Code, and as such, earnings of the trust are
taxable and trust assets are included in consolidated assets. At December 31,
1999 and 1998, trust assets were $60 million and $53 million, respectively, and
were classified as other noncurrent assets. The accumulated benefit obligation
for SERP was $33 million in 1999 and $31 million in 1998.
Contributions to the 40l(k) plan are invested in CMS Energy Common Stock.
Amounts charged to expense for this plan were $20 million in 1999, $18 million
in 1998 and $20 million in 1997.
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.
CMS-61
<PAGE> 111
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 2, Utility Regulation). 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. At December 31, 1999,
Consumers had recorded a FERC regulatory asset and liability of $5 million. The
FERC has authorized recovery of these costs.
14: 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 2001, 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 $58
million as of December 31, 1999. 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, 1999 were:
<TABLE>
<CAPTION>
In Millions
- -------------------------------------------------------------------------------------------
Capital Operating
Leases Leases
- -------------------------------------------------------------------------------------------
<S> <C> <C>
2000 $ 47 $ 35
2001 58 30
2002 19 25
2003 15 18
2004 11 15
2005 and thereafter 10 69
--------------------------
Total minimum lease payments 160 $ 192
=====
Less imputed interest 35
-------
Present value of net minimum lease payments 125
Less current portion 36
-------
Noncurrent portion $ 89
===========================================================================================
</TABLE>
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, 1999, 1998 and 1997, were $35 million, $19 million, and $10
million, respectively.
CMS-62
<PAGE> 112
Capital lease expenses for the years ended December 31, 1999, 1998 and 1997 were
$42 million, $42 million and $43 million, respectively. Included in these
amounts for the years ended 1999, 1998 and 1997 are nuclear fuel lease expenses
of $23 million, $23 million and $31 million, respectively.
15: JOINTLY OWNED UTILITY FACILITIES
Consumers is responsible for providing its share of financing for the jointly
owned utility facilities. Consumers includes in operating expenses the direct
expenses of the joint plants. The following table indicates the extent of
Consumers' investment in jointly owned utility facilities:
<TABLE>
<CAPTION>
In Millions
- ---------------------------------------------------------------------------------------
Net Investment Accumulated Depreciation
December 31 1999 1998 1999 1998
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Campbell Unit 3 - 93.3 percent $284 $299 $295 $279
Ludington - 51 percent 104 106 100 94
Transmission lines - various 32 33 16 15
=======================================================================================
</TABLE>
16: REPORTABLE SEGMENTS
CMS Energy operates principally in the following six reportable segments:
electric utility; gas utility; independent power production; oil and gas
exploration and production; natural gas transmission, storage and processing;
and energy marketing, services and trading.
The electric utility segment consists of regulated activities associated with
the generation, transmission and distribution of electricity in the state of
Michigan. The gas utility segment consists of regulated activities associated
with the transportation, storage and distribution of natural gas in the state of
Michigan. The other reportable segments consist of the development and
management of electric, gas and other energy-related projects in the United
States and internationally, including energy trading and marketing. CMS Energy's
reportable segments are strategic business units organized and managed by the
nature of the products and services each provides. The accounting policies of
each reportable segment are the same as those described in the summary of
significant accounting policies. CMS Energy's management evaluates performance
based on pretax operating income. Intersegment sales and transfers are accounted
for at current market prices and are eliminated in consolidated pretax operating
income by segment.
The Consolidated Statements of Income show operating revenue and pretax
operating income by reportable segment. Revenues from an international energy
distribution business and a land development business fall below the
quantitative thresholds for reporting. Neither of these segments has ever met
any of the quantitative thresholds for determining reportable segments. Amounts
shown for the natural gas transmission, storage and processing segment include
Panhandle, which was acquired in March 1999. Other financial data for reportable
segments and geographic area are as follows:
CMS-63
<PAGE> 113
Reportable Segments
- -------------------
<TABLE>
<CAPTION>
In Millions
- ------------------------------------------------------------------------------------------------------------------
Years Ended December 31 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Depreciation, Depletion and Amortization
Electric utility $ 315 $ 304 $ 296
Gas utility 107 97 93
Natural gas transmission, storage and processing 68 14 14
Independent power production 35 22 13
Oil and gas exploration and production 44 38 48
Marketing, services and trading 3 2 1
Other 23 7 2
---------------------------------------------
$ 595 $ 484 $ 467
==================================================================================================================
Identifiable Assets
Electric utility (a) $ 4,675 $ 4,640 $ 4,472
Gas utility (a) 1,731 1,726 1,644
Natural gas transmission, storage and processing 3,526 971 508
Independent power production 3,076 2,252 1,710
Oil and gas exploration and production 659 547 456
Marketing, services and trading 367 152 191
Other 1,428 1,022 527
---------------------------------------------
$15,462 $11,310 $ 9,508
==================================================================================================================
Capital Expenditures (b)
Electric utility $ 385 $ 331 $ 255
Gas utility 120 114 116
Natural gas transmission, storage and processing 2,216 573 115
Independent power production 392 462 704
Oil and gas exploration and production 151 143 99
Marketing, services and trading 42 1 28
Other 99 76 202
---------------------------------------------
$ 3,405 $ 1,700 $ 1,519
==================================================================================================================
Investments in Equity Method Investees
Natural gas transmission, storage and processing $ 369 $ 494 $ 241
Independent power production 1,437 1,337 1,205
Marketing, services and trading 27 25 26
Other 163 217 274
---------------------------------------------
$ 1,996 $ 2,073 $ 1,746
==================================================================================================================
</TABLE>
CMS-64
<PAGE> 114
<TABLE>
<S> <C> <C> <C>
Earnings from Equity Method Investees (c)
Natural gas transmission, storage and processing $ 20 $ 9 $ 4
Independent power production 119 158 89
Marketing, services and trading 3 2 2
Other (4) 2 8
----------------------------------------------------------
$ 138 $ 171 $ 103
=======================================================================================================
</TABLE>
Geographic Areas (d)
- -------------------
<TABLE>
<CAPTION>
Pretax
Operating Operating Identifiable
Revenue Income Assets
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1999
United States $ 5,573 $ 794 $11,936
International 530 118 3,526
1998
United States $ 4,867 $ 702 $ 8,842
International 274 73 2,468
1997
United States $ 4,576 $ 665 $ 7,872
International 205 51 1,636
======================================================================================================
</TABLE>
(a) Amounts include an attributed portion of Consumers' other common assets to
both the electric and gas utility businesses.
(b) Includes electric restructuring implementation plan, capital leases for
nuclear fuel and other assets and electric DSM costs. Amounts also include
an attributed portion of Consumers' capital expenditures for plant and
equipment common to both the electric and gas utility businesses.
(c) These amounts are included in operating revenue in the Consolidated
Statements of Income.
(d) Revenues are attributed to countries based on location of customers.
17: 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 noncash investing and financing
activities were:
CMS-65
<PAGE> 115
<TABLE>
<CAPTION>
In Millions
- ------------------------------------------------------------------------------------------------------------------
Years Ended December 31 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH TRANSACTIONS
Interest paid (net of amounts capitalized) $ 424 $313 $293
Income taxes paid (net of refunds) 59 64 67
NONCASH TRANSACTIONS
Nuclear fuel placed under capital leases 6 $ 46 $ 4
Other assets placed under capital leases 14 14 7
Common stock issued to retire Class G Common Stock 217 - -
Common stock issued to acquire companies - 61 -
Assumption of debt 305 88 -
================================================================================================================
</TABLE>
Changes in other assets and liabilities as shown on the Consolidated Statements
of Cash Flows are described below:
<TABLE>
<CAPTION>
In Millions
- ------------------------------------------------------------------------------------------------------------------
Years Ended December 31 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sale of receivables, net $ 19 $ (29) $ 17
Accounts receivable (293) (183) (160)
Accrued revenue 42 (5) 64
Inventories (7) (42) (15)
Accounts payable 172 104 67
Accrued refunds - (1) 4
Other current assets and liabilities, net 124 126 (6)
Noncurrent deferred amounts, net (44) (150) (15)
----- ----- -----
$ 13 $(180) $ (44)
================================================================================================================
</TABLE>
18: EQUITY METHOD INVESTMENTS
Certain of CMS Energy's investments in companies, partnerships and joint
ventures, where CMS Energy's ownership in its affiliates is more than 20 percent
but less than a majority, are accounted for by the equity method. Consolidated
net income includes undistributed equity earnings of $45 million in 1999, $95
million in 1998, and $58 million in 1997 from these investments. The more
significant of these investments are CMS Energy's 50 percent interest in Loy
Yang, a 2,000 MW brown coal-fueled power plant and coal mine in Australia, and
CMS Energy's 50 percent interest in Jorf Lasfar, a 1,356 MW coal-fueled power
plant in Africa. Summarized combined financial information of CMS Energy's
equity method investees follows, except for the MCV Partnership, which is
disclosed separately in Note 19.
CMS-66
<PAGE> 116
INCOME STATEMENT DATA (UNAUDITED)
<TABLE>
<CAPTION>
In Millions
- -------------------------------------------------------------------------------------------------------------------
Years Ended December 31 1999 1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating revenue $3,055 $2,255 $ 1,603
Operating expenses 2,186 1,503 1,154
--------------------------------------------------
Operating income 869 752 449
Other expense, net 558 409 271
--------------------------------------------------
Net income $ 311 $ 343 $ 178
===================================================================================================================
BALANCE SHEET DATA (UNAUDITED)
<CAPTION>
In Millions
- -------------------------------------------------------------------------------------------------------------------
December 31 1999 1998
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets $ 1,006 $ 646
Property, plant and equipment, net 7,581 6,783
Other assets 3,432 2,694
--------------------------------------------------
$12,019 $10,123
===================================================================================================================
LIABILITIES AND EQUITY
Current liabilities $ 971 $ 804
Long-term debt and other noncurrent liabilities 7,885 6,341
Equity 3,163 2,978
--------------------------------------------------
$12,019 $10,123
===================================================================================================================
</TABLE>
19: SUMMARIZED FINANCIAL INFORMATION OF SIGNIFICANT
RELATED ENERGY SUPPLIER
Under the PPA with the MCV Partnership discussed in Note 4, Consumers' 1999
obligation to purchase electric capacity from the MCV Partnership provided 15.5
percent of Consumers' owned and contracted electric generating capacity.
Summarized financial information of the MCV Partnership follows:
CMS-67
<PAGE> 117
STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
In Millions
- -------------------------------------------------------------------------------------------------------------------
Years Ended December 31 1999 1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating revenue (a) $ 617 $ 627 $ 652
Operating expenses 401 405 435
---------------------------------------
Operating income 216 222 217
Other expense, net 136 142 154
-------------------------------------
Net income before cumulative effect of accounting change 80 80 63
Cumulative effect of change in method of accounting for property tax - - 15
-------------------------------------
Net income $ 80 $ 80 $ 78
===================================================================================================================
</TABLE>
BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
In Millions
- -------------------------------------------------------------------------------------------------------------------
December 31 1999 1998 1999 1998
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS LIABILITIES AND EQUITY
Current assets (b) $ 397 $ 341 Current liabilities $ 275 $ 204
Plant, net 1,732 1,773 Noncurrent liabilities (c) 1,586 1,725
Other assets 170 173 Partners' equity (d) 438 358
--------------------- -----------------------
$2,299 $2,287 $2,299 $2,287
===================================================================================================================
</TABLE>
(a) Revenue from Consumers totaled $586 million, $584 million and $609 million
for 1999, 1998, and 1997, respectively.
(b) Receivables from Consumers totaled $49, each year, at December 31, 1999 and
1998.
(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, 1999 and 1998,
lease obligations of $1.36 billion and $1.41 billion, respectively, were owed to
the owner trust. CMS Holdings' share of the interest and principal portion for
the 1999 lease payments was $55 million and $23 million, respectively, and for
the 1998 lease payments was $59 million and $49 million, respectively. The lease
payments service $854 million and $907 million in non-recourse debt outstanding
as of December 31, 1999 and 1998, respectively, of the owner-trust. FMLP's debt
is secured by the MCV Partnership's lease obligations, assets, and operating
revenues. For 1999 and 1998, the owner-trust made debt payments (including
interest) of $167 million and $233 million, respectively. FMLP's earnings for
1999, 1998, and 1997 were $24 million, $23 million, and $20 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.
CMS-68
<PAGE> 118
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, 1999 and 1998, 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, 1999. These financial statements
are the responsibility of the Company's management. 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 CMS Energy Corporation and
subsidiaries as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999 in conformity with generally accepted accounting principles.
As explained in Note 2 to the financial statements, effective January 1, 1998,
Consumers Energy Company, a wholly owned subsidiary of CMS Energy Corporation,
changed its method of accounting for property taxes.
/s/ Arthur Andersen LLP
Detroit, Michigan,
February 4, 2000.
CMS-69
<PAGE> 119
QUARTERLY FINANCIAL AND COMMON STOCK INFORMATION CMS ENERGY CORPORATION
<TABLE>
<CAPTION>
1999 (Unaudited)
Quarters Ended March 31 June 30 Sept. 30 Dec. 31
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating revenue (a) $1,538 $1,331 $1,466 $1,768
Pretax operating income $245 $232 $271 $164
Consolidated net income $98 $75 $83 $21
Basic earnings (loss) per
average common
share (b):
CMS Energy $0.82 $0.68 $0.79 ($0.08)(c)
Class G $1.19 $0.10 ($0.38) $3.31 (c)
Diluted earnings (loss) per
average common
share (b):
CMS Energy $0.80 $0.67 $0.78 ($0.08)(c)
Class G $1.19 $0.10 ($0.38) $3.31 (c)
Dividends declared per
common share:
CMS Energy $0.33 $0.33 $0.365 $0.365
Class G $0.325 $0.325 $0.34 N/A
Common stock prices (d)
CMS Energy:
High $48-7/16 $47-1/16 $41-15/16 $38-1/16
Low $39-9/16 $39-1/4 $33-5/8 $30-5/16
Class G:
High $26 $25-3/8 $26-7/8 $24-15/16 (e)
Low $20-1/8 $20-1/2 $22-3/8 $22-1/4 (e)
- ---------------------------------------------------------------------------------------------------------
<CAPTION>
In Millions, Except Per Share Amounts
1998 (Unaudited)
Quarters Ended March 31 June 30 Sept. 30 Dec. 31
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating revenue (a) $1,374 $1,132 $1,286 $1,349
Pretax operating income $197 $188 $222 $168
Consolidated net income $88 $65 $81 $51
Basic earnings (loss) per
average common
share (b):
CMS Energy $0.79 $0.63 $0.81 $0.44
Class G $1.09 $0.12 ($0.16) $0.52
Diluted earnings (loss) per
average common
share (b):
CMS Energy $0.77 $0.62 $0.80 $0.44
Class G $1.09 $0.12 ($0.16) $0.52
Dividends declared per
common share:
CMS Energy $0.30 $0.30 $0.33 $0.33
Class G $0.31 $0.31 $0.325 $0.325
Common stock prices (d)
CMS Energy:
High $47-5/16 $47-3/16 $44-3/4 $50-1/8
Low $41-7/8 $40-11/16 $38-3/4 $43-3/16
Class G:
High $26-5/8 $26-7/8 $25-1/4 $26-1/2
Low $22-1/4 $23-1/4 $21-3/8 $23-1/8
- ---------------------------------------------------------------------------------------------------------
</TABLE>
(a) Amounts in the second and third quarter of 1999 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) Includes allocation of the premium on redemption of Class G Common Stock of
$(.26) per CMS Energy basic share, $ (.25) per CMS Energy diluted share and
$3.31 per Class G basic and diluted share.
(d) Based on New York Stock Exchange - Composite transactions.
(e) Through October 25, 1999.
CMS-70
<PAGE> 120
[CONSUMERS ENERGY LOGO]
1999 FINANCIAL STATEMENTS
CE-1
<PAGE> 121
SELECTED FINANCIAL INFORMATION CONSUMERS ENERGY COMPANY
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Operating revenue (in millions) ($) 3,874 3,709 3,769 3,770 3,511
Net income (in millions) (Note 1) ($) 340 349 321 296 255
Net income available to common
stockholder (in millions) ($) 313 312 284 260 227
Cash from operations (in millions) ($) 781 625 761 672 642
Capital expenditures, excluding capital
lease additions and DSM (in millions) ($) 444 369 360 410 414
Total assets (in millions) ($) 7,170 7,163 6,949 7,025 6,954
Long-term debt, excluding current
maturities (in millions) ($) 2,006 2,007 1,369 1,900 1,922
Non-current portion of capital
leases (in millions) ($) 85 100 74 100 104
Total preferred stock (in millions) ($) 44 238 238 356 356
Total preferred securities (in millions) ($) 395 220 220 100 -
Number of preferred shareholders at year-end 2,534 5,649 6,178 9,540 10,084
Book value per common share at year-end ($) 23.87 21.94 20.38 19.96 19.00
Return on average common equity (%) 16.2 17.5 16.8 15.9 15.0
Return on average assets (%) 6.4 6.6 6.2 5.7 5.3
Number of full-time equivalent
employees at year-end
Consumers 8,736 8,456 8,640 8,938 9,262
Michigan Gas Storage 63 65 66 67 70
ELECTRIC STATISTICS
Sales (billions of kWh) 41.0 40.0 37.9 37.1 35.5
Customers (in thousands) 1,665 1,640 1,617 1,594 1,570
Average sales rate per kWh (cent) 6.54 6.50 6.57 6.55 6.36
GAS STATISTICS
Sales and transportation deliveries (bcf) 389 360 420 448 404
Customers (in thousands) (a) 1,584 1,558 1,533 1,504 1,476
Average sales rate per mcf ($) 4.52 4.56 4.44 4.45 4.42
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Excludes off-system transportation customers.
CE-2
<PAGE> 122
CONSUMERS ENERGY COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
Consumers is a combination electric and gas utility company serving the lower
peninsula of Michigan and is a 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.
This Annual Report and other written and oral statements made by Consumers from
time to time contain forward-looking statements as defined by the Private
Securities Litigation Reform Act of 1995. The words "anticipates," "believes,"
"estimates," "expects," "intends," and "plans," and variations of such words and
similar expressions, are intended to identify forward-looking statements that
involve risk and uncertainty. These forward-looking statements are subject to
various factors which could cause Consumers' actual results to differ materially
from those anticipated in such statements. Consumers disclaims any obligation to
update or revise forward-looking statements, whether from new information,
future events or otherwise. Consumers details certain risk factors,
uncertainties and assumptions in this Management's Discussion and Analysis and
particularly in the section entitled "Forward Looking Statements Cautionary
Factors" in Consumers' Form 8-K filed on February 1, 2000, and periodically in
various public filings it makes with the SEC. This discussion of potential risks
and uncertainties is by no means complete, but is designed to highlight
important factors that may impact Consumers' outlook. This Annual Report also
describes material contingencies in Consumers' Notes to Consolidated Financial
Statements and readers are encouraged to read such Notes.
RESULTS OF OPERATIONS
CONSUMERS CONSOLIDATED EARNINGS
<TABLE>
<CAPTION>
In Millions
- -------------------------------------------------------------------------------------------------------------------
Years Ended December 31 1999 1998 Change 1998 1997 Change
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net income available to common stockholder $313 $312 $1 $312 $284 $28
===================================================================================================================
</TABLE>
The 1999 net income available to the common stockholder is an increase of $1
million over the 1998 level. This increase includes the net impact of higher
electric and gas deliveries and reduced power costs. Changes in regulation have
allowed Consumers to temporarily benefit when power costs are lower than those
used to establish rates. Somewhat masking these improvements was a change in
accounting for property taxes (as described in Note 1) that provided a
non-recurring benefit in 1998 of $66 million ($43 million after-tax) and the
recognition of a $37 million loss ($24 million after-tax) for the underrecovery
of power costs under the PPA. In addition, 1999 net income reflects $9 million
of gains for the sale of property. The 1998 net income available to the common
stockholder is a $28 million increase over the 1997 level. This increase
reflects higher electric deliveries, improved earnings from the MCV Partnership,
and an adjustment of prior years' income taxes associated with investment tax
credits. Although other operating and maintenance expenses were higher than
1997, a continued focus on cost control benefited net income by nearly
offsetting the amount spent on significant restoration work on the electric
distribution system, which suffered damages caused by several storms. Additional
items that had an impact upon earnings were the recognition of the property tax
benefit reduced by the underrecovery of power costs under the PPA discussed
above, and decreased gas deliveries due to the extreme mild temperatures during
the 1998 heating season. For further information, see the Electric and Gas
Utility Results of Operations sections and Note 2, Uncertainties.
CE-3
<PAGE> 123
ELECTRIC UTILITY RESULTS OF OPERATIONS
ELECTRIC PRETAX OPERATING INCOME:
<TABLE>
<CAPTION>
In Millions
- -------------------------------------------------------------------------------------------------------------------
Years Ended December 31 1999 1998 Change 1998 1997 Change
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$494 $475 $19 $475 $432 $43
===================================================================================================================
</TABLE>
Electric pretax operating income increased $19 million in 1999 from the
comparable period in 1998. The earnings increase reflects higher electric
deliveries and effective management of power costs. Changes in regulation,
effective in 1998, allow Consumers the opportunity to temporarily benefit from
reduced power supply costs. In the past such cost reductions had no impact on
net income because power cost savings were passed on to Consumers' electric
customers. This earnings increase was partially offset by higher depreciation
costs for new property and equipment and lower non-commodity revenues. Electric
pretax operating income for 1998 increased $43 million from the comparable
period in 1997. The increase reflects higher electric deliveries, cost control,
and the changes in regulation mentioned above. Partially offsetting these
increases were higher general taxes and depreciation for new property and
equipment. The following table quantifies these impacts on pretax operating
income:
<TABLE>
<CAPTION>
In Millions
- ---------------------------------------------------------------------------------------------------------------
Change Compared to Prior Year 1999 vs 1998 1998 vs 1997
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Electric deliveries $37 $ 40
Power supply costs and related revenue 27 14
Net energy option costs (19) 6
Non-commodity revenue (13) (4)
Operations and maintenance (3) (3)
General taxes and depreciation (10) (10)
--------------------------
Total change $19 $43
===============================================================================================================
</TABLE>
ELECTRIC DELIVERIES: Electric deliveries were 41 billion kWh for 1999, an
increase of 1 billion kWh or 2.5 percent compared with 1998. Total electric
deliveries increased in all customer classes. Total electric deliveries in 1998
were 40 billion kWh, an increase of 2.2 billion kWh or 6 percent compared with
1997. The increase was primarily attributable to increased sales to other
utilities and a 3 percent increase in deliveries to ultimate customers.
POWER SUPPLY COSTS:
<TABLE>
<CAPTION>
In Millions
- --------------------------------------------------------------------------------------------------------------
Years Ended December 31 1999 1998 Change 1998 1997 Change
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$1,193 $1,175 $18 $1,175 $1,139 $36
==============================================================================================================
</TABLE>
Power supply costs increased for 1999 to meet increased electric delivery
requirements. Both the 1999 and 1998 power supply cost increases reflect higher
internal generation to meet the increased demand for electricity. In addition,
the cost increase in 1998 over the prior year reflects increased power purchases
from outside sources to meet sales demand. In 1999 and 1998 respectively,
Consumers purchased $19 million and $5 million of energy options for physical
delivery of electricity to ensure a reliable source of power during the summer
months. As a result of periodic excess daily capacity, some options were sold
for $6 million and $11
CE-4
<PAGE> 124
million during June, July, and August of 1999 and 1998, respectively. All of the
remaining options were exercised or expired. The costs relating to the expired
options, offset by income received from the sale of options, were reflected as
purchased power costs.
GAS UTILITY RESULTS OF OPERATIONS
GAS PRETAX OPERATING INCOME:
<TABLE>
<CAPTION>
In Millions
- --------------------------------------------------------------------------------------------------------------
Years Ended December 31 1999 1998 Change 1998 1997 Change
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$132 $126 $6 $126 $153 $(27)
==============================================================================================================
</TABLE>
Gas pretax operating income increased by $6 million in 1999 from the comparable
period in 1998. The earnings increase is primarily the result of increased gas
deliveries due to colder temperatures during the first and fourth quarters of
1999 and increased revenues from gas wholesale and retail services activity.
Partially offsetting this earnings increase were a regulatory disallowance,
higher operation and maintenance costs, and increased depreciation and general
taxes due to new property and equipment. Gas pretax operating income decreased
by $27 million in 1998 from the comparable period in 1997. The earnings decrease
is primarily the result of reduced gas deliveries due to significantly milder
temperatures during the first and fourth quarters of 1998 and increased
depreciation and general taxes associated with additional plant investments to
serve new customers. The impact of the mild temperatures on sales was partially
tempered by the suspension of Consumers GCR clause in 1998. Changes in
regulation related to the gas industry restructuring initiatives provided
Consumers the opportunity to temporarily benefit from low gas prices. In the
past these cost reductions would have had no impact on pretax operating income
because any gas cost savings were passed on to Consumers' gas customers; see
Note 2, Uncertainties, "Gas Rate Matters - Gas Restructuring", for more detailed
information on this matter. The following table quantifies these impacts on
Pretax Operating Income.
<TABLE>
<CAPTION>
In Millions
- ----------------------------------------------------------------------------------------------------------------
Change Compared to Prior Year 1999 vs 1998 1998 vs 1997
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Gas deliveries $32 $ (42)
Gas commodity and related revenue (5) 19
Gas wholesale and retail services 5 1
Operation and maintenance (14) (1)
General taxes and depreciation (12) (4)
------------------------------
Total change $ 6 $ (27)
================================================================================================================
</TABLE>
GAS DELIVERIES: Gas system deliveries in 1999, including miscellaneous
transportation, totaled 389 bcf, an increase of 29 bcf or 8 percent compared
with 1998. The increased deliveries reflect colder temperatures during the first
quarter of 1999. System deliveries in 1998, including miscellaneous
transportation, totaled 360 bcf, a decrease of 60 bcf or 14 percent compared
with 1997. The decreased deliveries reflect milder winter temperatures in the
first and fourth quarters of 1998.
CE-5
<PAGE> 125
COST OF GAS SOLD:
<TABLE>
<CAPTION>
In Millions
- ----------------------------------------------------------------------------------------------------------------
Years Ended December 31 1999 1998 Change 1998 1997 Change
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$637 $564 $73 $564 $694 $(130)
===============================================================================================================
</TABLE>
The cost of gas sold increase for 1999 was the result of increased sales due to
colder temperatures during 1999 and higher gas prices. The cost of gas decrease
for 1998 was the result of decreased sales from milder temperatures during 1998
and decreased gas prices.
CAPITAL RESOURCES AND LIQUIDITY
CASH POSITION, INVESTING AND FINANCING
OPERATING ACTIVITIES: Consumers derives cash from operating activities from the
sale and transportation of natural gas and from the generation, transmission,
distribution and sale of electricity. Cash from operations totaled $781 million
and $625 million for 1999 and 1998, respectively. The $156 million increase
resulted primarily from a $48 million increase in the sale of accounts
receivable and a $39 million decrease in gas and coal inventories. The remaining
change is the result of a $21 million increase in depreciation and from the
timing of cash payments related to normal operations. For additional
information, see Note 12, Supplemental Cash Flow Information. Other items
included in 1998 income but which had no effect on cash flow were a one-time
change in accounting for property taxes resulting in a $66 million ($43 million
after-tax) gain and the recognition of a $37 million loss ($24 million
after-tax) for the underrecovery of power costs under the PPA. Consumers
primarily uses cash derived from operating activities to maintain and expand
electric and gas systems, to retire portions of long-term debt and to pay
dividends.
INVESTING ACTIVITIES: Cash used for investing activities totaled $509 million
and $374 million for 1999 and 1998, respectively. The change of $135 million is
primarily the result of a $75 million increase in capital expenditures, a $15
million increase in electric restructuring implementation plan costs, a $10
million increase in the cost of plant retired and the absence of $27 million of
proceeds from the 1998 sale of two non-utility partnerships.
FINANCING ACTIVITIES: Cash used in financing activities totaled $279 and $233
million for 1999 and 1998, respectively. The change of $46 million is primarily
the result of a $133 million net decrease in proceeds from the refinancing and
issuance of Consumers' debt and a $21 million increase in the payment of common
stock dividends offset by $100 million contribution from Consumers' common
stockholder and $9 million decrease in the payment of preferred stock dividends.
OTHER INVESTING AND FINANCING MATTERS: Consumers has credit facilities, lines of
credit and a trade receivable sale program in place as anticipated sources of
funds to fulfill its currently expected capital expenditures. For detailed
information about these source of funds, see Note 1, "Nuclear Fuel Cost" and
Note 3, Short-Term Financings and Capitalization.
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<PAGE> 126
OUTLOOK
CAPITAL EXPENDITURES OUTLOOK
Consumers estimates the following capital expenditures, including new lease
commitments, by company and by business segments over the next three years.
These estimates are prepared for planning purposes and are subject to revision.
<TABLE>
<CAPTION>
In Millions
- ----------------------------------------------------------------------------------------------------------------
Years Ended December 31 2000 2001 2002
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Construction $510 $609 $547
Nuclear fuel lease 3 19 28
Capital leases other than nuclear fuel 26 22 25
-------------------------------
$539 $650 $600
================================================================================================================
Electric utility operations (a)(b) $426 $520 $473
Gas utility operations (a) 113 130 127
-------------------------------
$539 $650 $600
================================================================================================================
</TABLE>
(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 Note 2, Uncertainties.
ELECTRIC BUSINESS OUTLOOK
GROWTH: Consumers expects average annual growth of two and one half percent per
year in electric system deliveries for the years 2000 to 2004. This growth rate
does not take into account the possible impact of restructuring or changed
regulation on the industry. Abnormal weather, changing economic conditions, or
the developing competitive market for electricity may affect actual electric
sales by Consumers in future periods.
COMPETITION AND REGULATORY RESTRUCTURING: Generally, electric restructuring is
the regulatory and legislative attempt to introduce competition to the electric
industry by allowing customers to choose their electric generation supplier,
while the transmission and distribution services remain regulated. As a result,
the electric generation suppliers ultimately compete in a less regulated
environment. Competition affects, and will continue to affect, Consumers' retail
electric business. To remain competitive, Consumers has multi-year electric
supply contracts with some of its largest industrial customers to provide power
to some of their facilities. The MPSC approved these contracts as part of its
phased introduction to competition. Beginning in 2000 through 2005, some
customers, depending on future business and regulatory circumstances, can
terminate or restructure their contracts. The termination or restructuring of
these contracts could affect approximately 600 MW of customer power supply
requirements. The ultimate financial impact of changes related to these power
supply contracts is not known at this time.
As a result of a transition of the wholesale and retail electric businesses in
Michigan to competition, Detroit Edison, in December 1996, gave Consumers the
required four-year notice of its intent to terminate the current agreements
under which the companies jointly operate the MEPCC. At the same time, Detroit
Edison filed
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<PAGE> 127
with the FERC seeking early termination of the agreements. The FERC has not
acted on Detroit Edison's application. Detroit Edison and Consumers are
currently in negotiations to terminate or restructure the MEPCC operations.
Consumers is unable to predict the outcome of these negotiations, but does not
anticipate any adverse impacts caused by termination or restructuring of the
MEPCC.
In December 1999, a large coalition of utilities, businesses, and commercial and
industrial energy users agreed upon proposed electric restructuring legislation
for Michigan. This legislation: 1) provides for customer choice of power
suppliers for all customers by January 2002; 2) ensures full recovery of
Stranded Costs by utilities calculated by taking into account the difference
between the market value and the net book value of the generation assets; and 3)
provides for deregulation of electric power suppliers who control less than 30
percent of the sum of Michigan's transmission import and generating capacity by
December 31, 2002. It also provides for a three-year rate freeze through 2002
for all utility customers who keep their utility as their electric supplier. To
be able to sell electric generation services on a deregulated basis, Consumers
would be required to transfer control of sufficient generation resources to meet
the 30 percent test. The legislation precludes Consumers' generating resources
from being deregulated prior to December 31, 2002. The proposed legislation was
introduced into the Michigan Legislature in January 2000, and is expected to be
considered in hearings during the first quarter of 2000. Consumers supports this
specific legislation.
Uncertainty exists with respect to the enactment of federal legislation
restructuring the electric power industry. A variety of bills introduced in
Congress in recent years seek to change existing federal regulation of the
industry. These federal bills could potentially affect or supercede state
regulation; however, none have been enacted. Consumers cannot predict the
outcome of electric restructuring on its financial position, liquidity, or
results of operations.
RATE MATTERS: There are several pending rate issues that could affect Consumers'
electric business. These matters include MPSC rate proceedings and electric
restructuring orders and a complaint by ABATE alleging excess revenues.
For further information and material changes relating to the rate matters and
restructuring of the electric utility industry, see Note 1, Corporate Structure
and Summary of Significant Accounting Policies, and Note 2, Uncertainties,
"Electric Rate Matters - Electric Proceedings" and "Electric Rate Matters -
Electric Restructuring," incorporated by reference herein.
UNCERTAINTIES: Several trends or uncertainties may affect Consumers' financial
results and condition as a result of Consumers' electric business. These trends
or uncertainties have, or Consumers reasonably expects could have, a material
impact on net sales, revenues, or income from continuing electric operations.
Such trends and uncertainties include: 1) capital expenditures for compliance
with the Clean Air Act; 2) environmental liabilities arising from compliance
with various federal, state and local environmental laws and regulations,
including potential liability or expenses relating to the Michigan Natural
Resources and Environmental Protection Act and Superfund; 3) cost recovery
relating to the MCV Partnership; 4) an ABATE rate complaint; 5) electric
industry restructuring; 6) implementation of a frozen PSCR and initiatives
undertaken to reduce exposure to energy price increases; and 7) nuclear
decommissioning issues and ongoing issues relating to the storage of spent fuel
and the operating life of Palisades. For detailed information about these trends
or uncertainties, see Note 2, Uncertainties, incorporated by reference herein.
CE-8
<PAGE> 128
GAS BUSINESS OUTLOOK
GROWTH: Consumers currently anticipates gas deliveries, including gas customer
choice 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.
Actual gas deliveries in future periods may be affected by abnormal weather,
alternative energy prices, changes in competitive conditions, and the level of
natural gas consumption. Consumers' gas business also offers a variety of
energy-related services to electric and gas customers focused upon appliance
maintenance, home safety, commodity choice and assistance to customers
purchasing heating, ventilation and air conditioning equipment.
REGULATORY RESTRUCTURING: In December 1999, several bills related to gas
industry restructuring were introduced into the Michigan Legislature. Combined,
these bills constitute the "gas choice program." Consumers is participating in
the legislative process as part of a gas utility coalition that also includes
Michigan Consolidated Gas Company and Southeastern Michigan Gas Company. These
bills provide for 1) a phased-in approach to gas choice requiring 40 percent of
the customers to be allowed choice by April 2002, 60 percent by April 2003 and
all customers by April 2004; 2) a market-based, unregulated pricing mechanism
for gas commodity for customers who exercise choice; and 3) a new "safe haven"
pricing mechanism for customers who do not exercise choice under which NYMEX
pricing would be used to establish a statutory cap on gas commodity prices that
could be charged by gas utilities instead of traditional cost of service
regulation. The proposed bills also provide for a gas distribution service rate
freeze until December 31, 2005, a code of conduct governing business
relationships with affiliated gas suppliers and the MPSC licensing of all gas
suppliers doing business in Michigan and imposes financial penalties for
noncompliance. They also provide customer protection by preventing "slamming",
the switching of a customer's gas supplier without consent, and "cramming", the
inclusion of optional products and services without the customer's
authorization. The bills establishing the gas choice program will become the
subject of extensive legislative hearings during which there will undoubtedly be
various amendments offered by many parties, including the gas utility coalition.
Consumers cannot predict the outcome of this legislative process.
UNCERTAINTIES: Consumers' financial results and position may be affected by a
number of trends or uncertainties that have, or Consumers reasonably expects
could have, a material impact on net sales or revenues or income from continuing
gas operations. Such trends and uncertainties include: 1) potential
environmental costs at a number of sites, including sites formerly housing
manufactured gas plant facilities; 2) a statewide experimental gas industry
restructuring program; 3) permanent gas industry restructuring; and 4)
implementation of a suspended GCR and initiatives undertaken to protect against
gas price increases. For detailed information about these uncertainties see Note
2, Uncertainties, incorporated by reference herein.
OTHER MATTERS
NEW ACCOUNTING STANDARDS
In 1999, the FASB issued SFAS 137, Accounting for Derivative Instruments and
Hedging Activities Deferral of the Effective Date of FASB Statement No. 133.
SFAS 137 defers the effective date of SFAS 133, Accounting for Derivative
Instruments and Hedging Activities to January 1, 2001. Consumers will adopt the
standard on January 1, 2001 and is currently analyzing the effects of adoption
on its financial statements.
CE-9
<PAGE> 129
YEAR 2000 COMPUTER MODIFICATIONS
In 1999, Consumers completed a detailed assessment and inventory of all
technology related to business processes, with an emphasis on mission-critical
systems. Consumers identified, remediated and tested those systems that were not
year 2000 ready to ensure that those systems would operate as desired on and
after January 1, 2000.
As a result of its year 2000 efforts, Consumers successfully transitioned to the
new year without experiencing year 2000-related system failures, power outages
or disruptions in services provided to its customers.
Consumers expensed the cost of software modifications as incurred, and
capitalized the cost of new software and equipment, which is being amortized
over its useful life. Since 1995, the total cost of the Year 2000 Program
modifications was $22 million. Consumers funded year 2000 compliance work
primarily from operations. This cost did not have a material effect on
Consumers' financial position, liquidity, or results of operations. The
commitment of Consumers resources to the year 2000 issue has not deferred any
information technology projects whereby the deferral of those projects could
cause a material adverse effect on Consumers' financial position, liquidity, or
results of operations.
While Consumers does not expect any significant year 2000 issues to develop
after year-end 1999, Consumers will continue to monitor its systems throughout
the year 2000 to ensure that any year 2000 issues that may arise are addressed
promptly.
DERIVATIVES AND HEDGES
MARKET RISK INFORMATION: Consumers' exposure to market risk sensitive
instruments and positions include, but are not limited to, changes in interest
rates, debt prices and equity prices in which Consumers holds less than a 20
percent interest. In accordance with the SEC's disclosure requirements,
Consumers performed a 10 percent sensitivity analysis on its derivative and
non-derivative financial instruments. The analysis measures the change in the
net present values based on a hypothetical 10 percent adverse change in the
market rates to determine the potential loss in fair values, cash flows and
earnings. Losses in excess of the amounts determined could occur if market rates
or prices exceed the 10 percent change used for the analysis. Management does
not believe that a sensitivity analysis alone provides an accurate or reliable
method for monitoring and controlling risk. Therefore, Consumers relies on the
experience and judgment of senior management to revise strategies and adjust
positions, as they deem necessary.
For purposes of the analysis below, Consumers has not quantified short-term
exposures to hypothetically adverse changes in the price or nominal amounts
associated with inventories or trade receivables and payables. Furthermore,
Consumers enters into all derivative financial instruments for purposes other
than trading. 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.
EQUITY SECURITY PRICE RISK: Consumers has equity investments in companies in
which it holds less than a 20 percent interest in the entity. A hypothetical 10
percent adverse change in market price would result in a $12 million change in
its investment and equity since this equity instrument is currently
marked-to-market through equity. Consumers believes that such an adverse change
would not have a material effect on its consolidated financial position, results
of operation or cash flows. For further information, regarding Consumers equity
investments, see Note 5, Financial Instruments.
CE-10
<PAGE> 130
DEBT PRICE AND 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.
As of December 31, 1999, Consumers had outstanding $108 million of variable-rate
debt net of any interest rate swaps. To minimize adverse interest-rate changes,
Consumers entered into fixed interest-rate swaps for a notional amount of $845
million. Assuming a hypothetical 10 percent adverse change in market interest
rates, Consumers' exposure to earnings is limited to $1 million. As of December
31, 1999, Consumers has outstanding fixed-rate debt including fixed-rate swaps
of $2.907 billion with a fair value of $2.765 billion. Assuming a hypothetical
10 percent adverse change in market rates, Consumers would have an exposure of
$135 million to its fair value. Consumers believes that any adverse change in
debt price and interest rates would not have a material effect on its
consolidated financial position, results of operation or cash flows.
CE-11
<PAGE> 131
CONSOLIDATED STATEMENTS OF INCOME CONSUMERS ENERGY COMPANY
<TABLE>
<CAPTION>
In Millions
Years Ended December 31 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING REVENUE Electric $ 2,667 $ 2,606 $2,515
Gas 1,156 1,051 1,204
Other 51 52 50
----------------------------------
3,874 3,709 3,769
- ------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES Operation
Fuel for electric generation 336 317 297
Purchased power - related parties 560 573 599
Purchased and interchange power 297 285 243
Cost of gas sold 637 564 694
Other 570 544 542
----------------------------------
2,400 2,283 2,375
Maintenance 174 173 170
Depreciation, depletion and amortization 424 403 391
General taxes 201 201 200
----------------------------------
3,199 3,060 3,136
- ------------------------------------------------------------------------------------------------------------------
PRETAX OPERATING Electric 494 475 432
INCOME Gas 132 126 153
Other 49 48 48
----------------------------------
675 649 633
- ------------------------------------------------------------------------------------------------------------------
OTHER INCOME Loss on MCV power purchases - (37) -
(DEDUCTIONS) Dividends and interest from affiliates 11 14 24
Accretion income (Note 1) 4 6 8
Accretion expense (Note 1) (14) (16) (17)
Other, net 17 - (2)
----------------------------------
18 (33) 13
- ------------------------------------------------------------------------------------------------------------------
INTEREST CHARGES Interest on long-term debt 140 138 138
Other interest 41 38 36
Capitalized interest - (1) (1)
----------------------------------
181 175 173
- ------------------------------------------------------------------------------------------------------------------
NET INCOME BEFORE INCOME TAXES 512 441 473
INCOME TAXES 172 135 152
----------------------------------
NET INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE 340 306 321
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING FOR PROPERTY TAXES,
NET OF $23 TAX (NOTE 1) - 43 -
----------------------------------
NET INCOME 340 349 321
PREFERRED STOCK DIVIDENDS 6 19 25
PREFERRED SECURITIES DISTRIBUTIONS 21 18 12
----------------------------------
NET INCOME AVAILABLE TO COMMON STOCKHOLDER $ 313 $ 312 $ 284
==================================================================================================================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
CE-12
<PAGE> 132
CONSOLIDATED STATEMENTS OF CASH FLOWS CONSUMERS ENERGY COMPANY
<TABLE>
<CAPTION>
In Millions
Years Ended December 31 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM Net income $ 340 $ 349 $ 321
OPERATING ACTIVITIES Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation, depletion and amortization (includes nuclear
decommissioning of $50, $51 and $50, respectively) 424 403 391
Loss on MCV power purchases - 37 -
Capital lease and other amortization 35 36 44
Accretion expense 14 16 17
Deferred income taxes and investment tax credit 2 21 13
Accretion income - abandoned Midland project (4) (6) (8)
Undistributed earnings of related parties (50) (50) (47)
MCV power purchases (62) (64) (62)
Cumulative effect of accounting change - (66) -
Changes in other assets and liabilities 82 (51) 92
---------------------------
Net cash provided by operating activities 781 625 761
- ---------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM Capital expenditures (excludes assets placed under capital lease) (444) (369) (360)
INVESTING ACTIVITIES Cost to retire property, net (93) (83) (46)
Investments in nuclear decommissioning trust funds (50) (51) (50)
Investment in Electric Restructuring Implementation Plan (32) (17) (3)
Associated company preferred stock redemption 50 50 50
Proceeds from nuclear decommissioning trust funds 43 53 17
Proceeds from the sale of two non-utility partnerships - 27 -
Proceeds from FMLP 10 12 -
Other 7 4 (3)
----------------------------
Net cash used in investing activities (509) (374) (395)
- ----------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM Payment of common stock dividends (262) (241) (218)
FINANCING ACTIVITIES Retirement of preferred stock (200) - (120)
Retirement of bonds and other long-term debt (87) (854) (50)
Payment of capital lease obligations (33) (35) (44)
Preferred securities distributions (21) (18) (12)
Payment of preferred stock dividends (10) (19) (29)
Increase (decrease) in notes payable, net - (162) 44
Proceeds from preferred securities 169 - 116
Contribution from (return of equity to) stockholder 150 50 (50)
Proceeds from senior notes & bank loans 15 1,046 -
---------------------------
Net cash used in financing activities (279) (233) (363)
- ----------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND TEMPORARY CASH INVESTMENT (7) 18 3
Cash and temporary cash investments - Beginning of year 25 7 4
---------------------------
End of year $ 18 $ 25 $ 7
=====================================================================================================================
OTHER CASH FLOW ACTIVITIES AND NON-CASH INVESTING AND FINANCING ACTIVITIES WERE:
CASH TRANSACTIONS
Interest paid (net of amounts capitalized) $ 168 $ 161 $ 166
Income taxes paid (net of refunds) 187 153 116
NON-CASH TRANSACTIONS
Nuclear fuel placed under capital lease $ 6 $ 46 $ 4
Other assets placed under capital leases 14 14 7
=====================================================================================================================
</TABLE>
ALL HIGHLY LIQUID INVESTMENTS WITH AN ORIGINAL MATURITY OF THREE MONTHS OR LESS
ARE CONSIDERED CASH EQUIVALENTS.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
CE-13
<PAGE> 133
CONSOLIDATED BALANCE SHEETS CONSUMERS ENERGY COMPANY
<TABLE>
<CAPTION>
ASSETS In Millions
December 31 1999 1998
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PLANT (AT ORIGINAL COST) Electric $6,981 $6,720
Gas 2,461 2,360
Other 25 25
------------------------------
9,467 9,105
Less accumulated depreciation, depletion
and amortization 5,643 4,862
------------------------------
3,824 4,243
Construction work-in-progress 199 165
------------------------------
4,023 4,408
- ------------------------------------------------------------------------------------------------------------------
INVESTMENTS Stock of affiliates 139 241
First Midland Limited Partnership 240 240
Midland Cogeneration Venture Limited Partnership 247 209
------------------------------
626 690
- ------------------------------------------------------------------------------------------------------------------
CURRENT ASSETS Cash and temporary cash investments at cost, which
approximates market 18 25
Accounts receivable and accrued revenue, less allowances
of $4 in 1999 and $5 in 1998 98 114
Accounts receivable - related parties 67 63
Inventories at average cost
Gas in underground storage 216 219
Materials and supplies 62 67
Generating plant fuel stock 46 43
Postretirement benefits 25 25
Deferred income taxes 8 -
Prepaid property taxes and other 159 162
------------------------------
699 718
- ------------------------------------------------------------------------------------------------------------------
NON-CURRENT ASSETS Regulatory Assets
Unamortized nuclear costs 519 -
Postretirement benefits 341 372
Abandoned Midland project 48 71
Other 125 133
Nuclear decommissioning trust funds 602 557
Other 187 214
------------------------------
1,822 1,347
- ------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $7,170 $7,163
==================================================================================================================
</TABLE>
CE-14
<PAGE> 134
CONSUMERS ENERGY COMPANY
<TABLE>
<CAPTION>
STOCKHOLDERS' INVESTMENT AND LIABILITIES In Millions
December 31 1999 1998
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CAPITALIZATION (NOTE 3) Common stockholder's equity
Common stock $ 841 $ 841
Paid-in capital 645 502
Revaluation capital 37 68
Retained earnings since December 31, 1992 485 434
------------------------------
2,008 1,845
Preferred stock 44 238
Company-obligated mandatorily redeemable
preferred securities of:
Consumers Power Company Financing I (a) 100 100
Consumers Energy Company Financing II (a) 120 120
Consumers Energy Company Financing III (a) 175 -
Long-term debt 2,006 2,007
Non-current portion of capital leases 85 100
------------------------------
4,538 4,410
- ------------------------------------------------------------------------------------------------------------------
CURRENT LIABILITIES Current portion of long-term debt and capital leases 90 152
Notes payable 214 215
Accounts payable 224 190
Accrued taxes 232 238
Accounts payable - related parties 82 79
Power purchases - MCV Partnership 47 47
Accrued interest 37 36
Deferred income taxes - 9
Accrued refunds 11 11
Other 139 138
------------------------------
1,076 1,115
- ------------------------------------------------------------------------------------------------------------------
NON-CURRENT LIABILITIES Deferred income taxes 700 666
Postretirement benefits 420 456
Deferred investment tax credit 125 134
Power purchases - MCV Partnership 73 121
Regulatory liabilities for income taxes, net 64 87
Other 174 174
------------------------------
1,556 1,638
- ------------------------------------------------------------------------------------------------------------------
Commitments and Contingencies (Notes 1, 2, 8 and 11)
TOTAL STOCKHOLDERS' INVESTMENT AND LIABILITIES $7,170 $7,163
==================================================================================================================
</TABLE>
(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. The primary asset of Consumers Energy Company Financing III
is $180 million principal amount of 9.25% subordinated deferrable interest notes
due 2029 from Consumers. For further discussion, see Note 3.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE BALANCE SHEETS.
CE-15
<PAGE> 135
CONSOLIDATED STATEMENTS OF LONG-TERM DEBT CONSUMERS ENERGY COMPANY
<TABLE>
<CAPTION>
In Millions
December 31 1999 1998
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FIRST MORTGAGE BONDS SERIES (%) DUE
8-7/8 1999 $ - $ 64
6-3/8 2003 300 300
7-3/8 2023 263 264
----------------------
563 628
SENIOR NOTES 6-3/8 2008 250 250
6-7/8 2018 225 225
6-1/5 2008 250 250
6-1/2 2018 200 200
6-1/2 2028 149 150
----------------------
1,637 1,703
LONG-TERM BANK DEBT 190 175
POLLUTION CONTROL REVENUE BONDS 131 131
NUCLEAR FUEL DISPOSAL (A) 123 117
OTHER - 22
----------------------
PRINCIPAL AMOUNT OUTSTANDING 2,081 2,148
CURRENT AMOUNTS (55) (119)
NET UNAMORTIZED DISCOUNT (20) (22)
----------------------
TOTAL LONG-TERM DEBT $2,006 $2,007
================================================================================================================
<CAPTION>
LONG-TERM DEBT MATURITIES In Millions
First Mortgage Long-Term
Bonds Bank Debt Other Total
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
2000 $ - $ 50 $ 5 $ 55
2001 - - - -
2002 - 56 - 56
2003 300 84 - 384
2004 - - - -
================================================================================================================
</TABLE>
(a) Due date uncertain (see Note 1)
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
CE-16
<PAGE> 136
CONSOLIDATED STATEMENTS OF PREFERRED STOCK CONSUMERS ENERGY COMPANY
<TABLE>
<CAPTION>
Optional
Redemption Number of Shares In Millions
December 31 Series Price 1999 1998 1999 1998
- ------------------------------------------------------------------------------------------------------------------
<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
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 - 194
--------------
TOTAL PREFERRED STOCK $44 $238
==================================================================================================================
</TABLE>
(a) Redeemed April 1, 1999.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
CE-17
<PAGE> 137
CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDER'S EQUITY CONSUMERS ENERGY COMPANY
<TABLE>
<CAPTION>
In Millions
Years Ended December 31 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMON STOCK At beginning and end of period (a) $ 841 $ 841 $ 841
- ---------------------------------------------------------------------------------------------------------------
OTHER PAID-IN CAPITAL At beginning of period 502 452 504
Capital stock reacquired (7) - (2)
Stockholder's contribution 150 100 -
Return of stockholder's contribution - (50) (50)
------------------------------
At end of period 645 502 452
- ---------------------------------------------------------------------------------------------------------------
REVALUATION CAPITAL At beginning of period 68 58 37
Change in unrealized investment - gain (loss)(b) (31) 10 21
------------------------------
At end of period 37 68 58
- ---------------------------------------------------------------------------------------------------------------
RETAINED EARNINGS At beginning of period 434 363 297
Net income (b) 340 349 321
Cash dividends declared - Common Stock (262) (241) (218)
Cash dividends declared - Preferred Stock (6) (19) (25)
Preferred securities distributions (21) (18) (12)
------------------------------
At end of period 485 434 363
------------------------------
TOTAL COMMON STOCKHOLDER'S
EQUITY $2,008 $1,845 $1,714
===============================================================================================================
</TABLE>
(a) Number of shares of common stock outstanding was 84,108,789 for all periods
presented.
<TABLE>
<S> <C> <C> <C>
(b) Disclosure of Comprehensive Income:
Revaluation capital
Unrealized investment - gain (loss), net of tax of $(17), $6 and $11,
respectively $ (31) $ 10 $ 21
Net income 340 349 321
-----------------------------
Total Comprehensive Income $ 309 $ 359 $ 342
=============================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
CE-18
<PAGE> 138
CONSUMERS ENERGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1: CORPORATE STRUCTURE AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CORPORATE STRUCTURE: Consumers is a combination electric and gas utility company
serving the lower peninsula of Michigan and is a 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.
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 allowed Consumers to 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 2). 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
property on straight-line and units-of-production rates approved by the MPSC.
The composite depreciation rate for electric utility property was 3.0 percent
for 1999, 3.5 percent for 1998 and 3.6 percent for 1997. The composite rate for
gas utility property was 4.4 percent for 1999, 4.2 percent for 1998 and 4.1
percent for 1997. The composite rate for other property was 8.6 percent for
1999, 7.4 percent for 1998 and 8.2 percent for 1997.
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 was to begin accepting deliveries of spent nuclear fuel
for disposal by January 31, 1998. For fuel used after April 6, 1983, Consumers
charges disposal costs to nuclear fuel expense, recovers them through electric
rates, and then remits them to the DOE quarterly. Consumers elected to defer
payment for disposal of spent nuclear fuel burned before April 7, 1983. At
December 31, 1999, Consumers had a recorded liability to the DOE of $123
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 that it would not begin to accept spent nuclear fuel
deliveries in 1998, Consumers and other utilities filed suit in federal court.
The court issued a decision 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. Further litigation brought by Consumers and others
in 1998 that was intended to produce specific relief for the DOE's failure to
comply
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has not been successful to date, although such litigation efforts continue. In
January 1999, federal legislation was reintroduced in the House of
Representatives 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. Similar legislation was reintroduced in the Senate.
Consumers cannot predict the outcome of this process.
NUCLEAR PLANT DECOMMISSIONING: Consumers collected $50 million in 1999 from its
electric customers for decommissioning of its two nuclear plants. Amounts
collected from electric retail customers and deposited in trusts (including
trust earnings) are credited to accumulated depreciation. On March 22, 1999,
Consumers received a decommissioning order from the MPSC that approved estimated
decommissioning costs for Big Rock and Palisades of $315 million and $566
million (calculated in 1999 dollars), respectively. Consumers' site-specific
decommissioning cost estimates for Big Rock and Palisades assume that each plant
site will eventually be restored to conform to the adjacent landscape, and all
contaminated equipment will be disassembled and disposed of in a licensed burial
facility. The MPSC order also set the annual decommissioning surcharges for Big
Rock and Palisades at $32 million and $14 million a year, respectively, and
required Consumers to file revised decommissioning surcharges for Palisades that
incorporate a gradual reduction in the decommissioning trust's equity
investments following the plant's retirement. On December 16, 1999, the MPSC
approved a revised decommissioning surcharge for Palisades in the amount of $6
million a year, effective January 1, 2000.
Big Rock closed permanently in 1997 because management determined that it would
be uneconomical to operate in an increasingly competitive environment. The plant
was originally scheduled to close on May 31, 2000, at the end of the plant's
operating license. The MPSC allowed Consumers to continue collecting
decommissioning surcharges through December 31, 2000. Plant decommissioning
began in 1997 and it may take five to ten years to return the site to its
original condition. For 1999, Consumers incurred costs of $51 million that were
charged to the accumulated depreciation reserve for decommissioning and withdrew
$43 million from the Big Rock nuclear decommissioning trust fund. In total,
Consumers has incurred costs of $126 million that have been charged to the
accumulated depreciation reserve for decommissioning and withdrew $112 million
from the Big Rock nuclear decommissioning trust fund. These activities had no
material impact on net income. At December 31, 1999, Consumers is the
beneficiary of the investment in nuclear decommissioning trust funds of $181
million for Big Rock.
After retirement of Palisades, Consumers plans to maintain the facility in
protective storage if radioactive waste disposal facilities are not available.
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 $667
million, assuming currently approved MPSC surcharge levels. Consumers estimates
that at the time Palisades is fully decommissioned in the year 2046, the trust
funds will have provided $1.9 billion, including trust earnings, over this
decommissioning period. At December 31, 1999, Consumers is the beneficiary of
the investment in nuclear decommissioning trust funds of $421 million for
Palisades.
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 $100 million at December 31, 1999 and $150 million at December 31,
1998. Beginning in 1997, Enterprises commenced a five-year redemption program of
$50 million per year. In addition, Consumers has an investment in 2.9 million
shares of CMS Energy Common Stock with a fair value totaling $90 million at
December 31, 1999 (see Note 5). From these two investments, Consumers received
dividends from affiliates' common and preferred stock totaling $11 million, $14
million, and $17 million in 1999, 1998 and 1997, respectively.
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Consumers purchases a portion of its gas from CMS Oil and Gas. The purchases for
the years ended 1999, 1998 and 1997 were $19 million, $24 million and $25
million, respectively. In 1999, 1998 and 1997, Consumers paid $52 million, $51
million and $51 million, respectively, for electric generating capacity and the
energy generated by that capacity from affiliates of Enterprises. Consumers pays
a portion of its gas transportation costs to Panhandle and its subsidiary
Trunkline. Transportation fees paid for the nine months ended December 31, 1999
following the March 29, 1999 acquisition were $33 million. Consumers and its
subsidiaries sold, stored and transported natural gas and provided other
services to the MCV Partnership totaling $23 million, $13 million and $13
million in 1999, 1998 and 1997, respectively. For additional discussion of
related-party transactions with the MCV Partnership and the FMLP, see Notes 2
and 11. Other related-party transactions are immaterial.
UTILITY REGULATION: Consumers accounts for the effects of regulation based on
the regulated utility accounting standard SFAS 71, Accounting for the Effects of
Certain Types of Regulation. As a result, the actions of regulators affect when
Consumers recognizes revenues, expenses, assets and liabilities.
In March 1999, Consumers received MPSC electric restructuring orders which,
among other things, identified the terms and timing for implementing electric
restructuring in Michigan. Consistent with these orders, Consumers discontinued
application of SFAS 71 for the energy supply portion of its business in the
first quarter of 1999 because Consumers expected to implement retail open access
for its electric customers in September 1999. Discontinuation of SFAS 71 for the
energy supply portion of Consumers' business resulted in Consumers reducing the
carrying value of its Palisades plant-related assets by approximately $535
million and establishing a regulatory asset for a corresponding amount. The
regulatory asset is collectible as part of the Transition Costs which are
recoverable through the regulated transmission and distribution portion of
Consumers' business as approved by an MPSC order in 1998. This order also
allowed Consumers to recover any energy supply-related regulatory assets, plus a
return on any unamortized balance of those assets, from its transmission and
distribution customers. According to current accounting standards, Consumers can
continue to carry its energy supply-related regulatory assets if legislation or
an MPSC rate order allows the collection of cash flows to recover these
regulatory assets from its regulated transmission and distribution customers. At
December 31,1999, Consumers had a net investment in energy supply facilities of
$949 million included in electric plant and property.
SFAS 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of imposes stricter criteria for retention of
regulatory-created assets by requiring that such assets be probable of future
recovery at each balance sheet date. Management believes these assets will be
recovered.
The following regulatory assets (liabilities), which include both current and
non-current amounts, are reflected in the Consolidated Balance Sheets. These
costs are being recovered through rates over periods of up to 13 years.
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<TABLE>
<CAPTION>
In Millions
- ----------------------------------------------------------------------------------------------------------------
December 31 1999 1998
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Postretirement benefits (Note 7) $366 $ 397
Income taxes (Note 4) 193 148
Abandoned Midland project 48 71
Manufactured gas plant sites (Note 2) 65 48
DSM - deferred costs 13 32
Uranium enrichment facility 18 20
Other 33 38
------------------------
Total regulatory assets $736 $ 754
================================================================================================================
Income taxes (Note 4) $(257) $(235)
DSM - deferred revenue (17) (24)
------------------------
Total regulatory liabilities $(274) $(259)
================================================================================================================
</TABLE>
RISK MANAGEMENT ACTIVITIES AND DERIVATIVES TRANSACTIONS: Consumers and its
subsidiaries use derivative instruments, including swaps and options, to manage
exposure to fluctuations in interest rates and commodity prices, respectively.
To qualify for hedge accounting, derivatives must meet the following criteria:
1) the item to be hedged exposes the enterprise to price and interest rate risk;
and 2) 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. 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.
Consumers enters into interest rate swap agreements to exchange variable-rate
interest payment obligations for fixed-rate obligations without exchanging the
underlying notional amounts. These agreements convert variable-rate debt to
fixed-rate debt in order 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.
Consumers enters into electric option contracts to ensure a reliable source of
capacity to meet its customers' electric requirements and to limit its risk
associated with electricity price increases. It is management's intent to take
physical delivery of the commodity. Consumers continuously evaluates its daily
capacity needs and sells the option contracts, if marketable, when it has excess
daily capacity. Consumers' maximum exposure associated with these options is
limited to the price paid.
OTHER: For significant accounting policies regarding income taxes, see Note 4;
for executive incentive compensation, see Note 6; and for pensions and other
postretirement benefits, see Note 7.
IMPLEMENTATION OF NEW ACCOUNTING STANDARDS: In 1998, the American Institute of
Certified Public Accountants issued Statement of Position 98-1, Accounting for
the Costs of Computer Software Developed or Obtained for Internal Use, and
Statement of Position 98-5, Reporting on the Costs of Start-Up Activities. Also
in 1998, the Emerging Issues Task Force published Issue 98-10, Accounting for
Energy Trading and Risk Management Activities. Each of these statements was
effective for 1999. Application of these standards has not had a material affect
on Consumers' financial position, liquidity or results of operations.
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CHANGE IN METHOD OF ACCOUNTING FOR PROPERTY TAXES: During the first quarter of
1998, Consumers implemented a change in the method of accounting for property
taxes so that such taxes are recognized during the fiscal period of the taxing
authority for which the taxes are levied. This change better matches property
tax expense with the services provided by the taxing authorities, and is
considered the most acceptable basis of recording property taxes. Prior to 1998,
Consumers recorded property taxes monthly during the year following the
assessment date (December 31). The cumulative effect of this one-time change in
accounting increased other income in 1998 by $66 million, and earnings, net of
tax, by $43 million. The pro forma effect on prior years' consolidated net
income of retroactively recording property taxes as if the new method of
accounting had been in effect for all periods presented is not material.
2: UNCERTAINTIES
ELECTRIC CONTINGENCIES
ELECTRIC ENVIRONMENTAL MATTERS: The Clean Air Act limits emissions of sulfur
dioxide and nitrogen oxides and requires emissions and air quality monitoring.
Consumers currently operates within these limits and meets current emission
requirements. The Clean Air Act requires the EPA to review periodically the
effectiveness of the national air quality standards in preventing adverse health
effects. In 1997, the EPA revised these standards to impose further limitations
on nitrogen oxide and small particulate-related emissions. In May 1999, a United
States Court of Appeals ruled that the grant of authority to the EPA, to revise
the standards as the EPA did, would amount to an unconstitutional delegation of
legislative power. As a result, the EPA will not implement the standards under
the 1997 rule. On October 28, 1999, the United States Court of Appeals denied a
request by the EPA for a rehearing. On January 27, 2000, the Department of
Justice filed a petition for the United States Supreme Court to review the case.
Because of the United States Court of Appeals decisions, the EPA has proposed to
reinstate the pre-1997 standards.
In September 1998, based in part upon the 1997 standards, the EPA Administrator
issued final regulations requiring the state of Michigan to limit further
nitrogen oxide emissions. Consumers anticipates a reduction in nitrogen oxide
emissions by 2003 to only 32 percent of levels allowed for the year 2000. The
state of Michigan had one year to submit an implementation plan. The state of
Michigan filed a lawsuit objecting to the extent of the required emission
reductions and requesting an extension of the submission date. In May 1999, the
United States Court of Appeals granted an indefinite stay of the submission date
for the state of Michigan's implementation plan. In early 2000, the United
States Court of Appeals upheld the EPA's final regulations. The state of
Michigan is expected to appeal this ruling. Until the appeal is decided, it is
unlikely that the state of Michigan will establish Consumers' nitrogen oxide
emissions reduction target. In December 1999, the EPA Administrator signed a
revised final rule under Section 126 of the Clean Air Act. The rule requires
some electric utility generators, including some of Consumers' electric
generating facilities, to achieve the same emission rate as that required by the
currently challenged September 1998 EPA final rule. Under the revised Section
126 rule, the emission rate will become effective on May 1, 2003 and apply
during the ozone season in 2003 and during each subsequent year. Various
parties' petitions challenging the EPA's rule have been filed. Until these
targets are lawfully established, the estimated cost of compliance discussed
below is subject to revision.
The preliminary estimates of capital expenditures to reduce nitrogen
oxide-related emissions to the level proposed by the state of Michigan for
Consumers' fossil-fueled generating units range from $150 million to $290
million, calculated in 1999 dollars. If Consumers had to meet the EPA's 1997
proposed requirements, the estimated cost to Consumers would be between $290
million and $500 million, calculated in 1999 dollars. In both these cases the
lower estimate represents the capital expenditure level that would
satisfactorily meet the proposed emissions limits but would result in higher
operating expense. The higher estimate in the range includes expenditures that
result in lower operating costs while complying
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with the proposed emissions limit. Consumers anticipates that it will incur
these capital expenditures between 2000 and 2004, or between 2000 and 2003 if
the EPA ultimately imposes its limits.
Consumers may need an equivalent amount of capital expenditures to comply with
the new small particulate standards sometime after 2004 if those standards
become effective.
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, to comply with the Clean
Air Act, Consumers incurred capital expenditures totaling $67 million to install
equipment at certain generating units. Consumers estimates an additional $5
million of capital expenditures for ongoing and proposed modifications at the
remaining coal-fueled units to meet year 2000 requirements. Management believes
that these expenditures will not materially affect Consumers' annual operating
costs.
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 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 $2 million and $9 million. At December
31, 1999, Consumers has accrued the minimum amount of the range for its
estimated Superfund liability.
While decommissioning Big Rock, Consumers found that some areas of the plant
have coatings that contain both metals and PCBs. Consumers believes it now has
viable disposal options for these materials. It estimates the additional cost
associated with PCB waste at $1.5 million. The cost of removal and disposal will
constitute part of the cost to decommission the plant and will be paid from the
decommissioning fund.
ANTITRUST: In October 1997, two independent power producers sued Consumers in a
federal court. The suit alleged antitrust violations relating to contracts which
Consumers entered into with some of its customers, and interference with
contract claims relating to proposed power facilities. On March 31, 1999, the
court issued an opinion and order granting Consumers' motion for summary
judgment, resulting in the dismissal of the case. The plaintiffs have appealed
this decision. Consumers cannot predict the outcome of this appeal.
ELECTRIC 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 "Power Purchases from the MCV Partnership" in this
Note). In addition, the order allowed Consumers to recover 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. The order also established an experimental direct-access
program. Customers having a maximum demand for electric power of 2 MW or greater
are eligible to purchase generation services directly from any eligible
third-party power supplier. Consumers will transmit that power for a fee.
Delivery of electric power through this direct-access program is limited to 134
MW. In accordance with the MPSC order, Consumers held a lottery to select the
customers that would participate in the direct-access program. Subsequently,
direct-access for a portion of this 134 MW began in late 1997. The program was
substantially filled by the end of March 1999. The Attorney General, ABATE, the
MCV Partnership and other parties filed appeals with the Court of Appeals
challenging the MPSC's 1996 order. In August 1999, the Court of Appeals affirmed
the MPSC's 1996 order in all respects.
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In October 1999, the Attorney General filed an application for leave to appeal
this decision to the Michigan Supreme Court.
In November 1997, ABATE filed a complaint with the MPSC. The complaint alleged
that Consumers' electric earnings are more than its authorized rate of return
and sought an immediate reduction in Consumers' electric rates. In testimony
filed in this case, ABATE claimed that Consumers received approximately $189
million in excess revenues for 1998. In its testimony, the MPSC staff stated
that 1998 financial results show excess revenues of $118 million compared to the
previously authorized electric return on equity. The MPSC staff offered several
alternatives for the MPSC to consider. These alternatives involve several
different refunds or reductions that the MPSC could consider separately or in
combination, but if made, would not result in a permanent future reduction in
electric rates in the amount being sought by ABATE. Consumers filed testimony
showing that after ratemaking adjustments and normalizations, there is a revenue
deficiency of approximately $3 million. ABATE and other interveners bear the
burden of convincing the MPSC to reduce electric rates, which will otherwise
remain unchanged. Consumers believes that ABATE has not met its burden of
proving that a reduction in rates is required. Consumers also believes that
ABATE's request for refunds from 1995 to present is inappropriate and unlawful;
no such retroactive rate adjustment has ever been granted by the MPSC. In
December 1999, an announcement was made that an agreement concerning legislation
in Michigan on electric deregulation had been reached by Consumers, ABATE, and
numerous other industrial and commercial business interests. In anticipation of
the legislation being introduced, ABATE and Consumers jointly filed a request
with the MPSC to suspend ABATE's electric rate complaint to allow for
consideration of the proposed legislation. The MPSC granted a temporary
suspension for 120 days (expiring in April 2000), subject to its authority to
withdraw the suspension at any time. As part of the suspension, Consumers agreed
that, if the case is resumed and a rate reduction is ultimately ordered by the
MPSC, it would implement the rate reduction retroactively for a period equal to
the length of the actual suspension. In January 2000, the legislation was
introduced into the Michigan Legislature.
Consumers is unable to predict the outcome of this matter.
In January 1998, the Court of Appeals affirmed an MPSC conclusion that the MPSC
has statutory authority to authorize an experimental electric retail wheeling
program. In June 1999, the Michigan Supreme Court reversed the Court of Appeals
and held that the MPSC does not have the statutory authority to order a utility
to provide a mandatory retail wheeling service. For more information on the
experimental retail wheeling program see "Electric Restructuring" below.
ELECTRIC RESTRUCTURING: As part of ongoing proceedings relating to the
restructuring of the electric utility industry in Michigan, the MPSC issued
numerous orders since June 1997 proposing that Consumers transmit and distribute
energy for competing power suppliers to retail customers (also known as "retail
open access"). The restructuring orders provide for: 1) recovery of estimated
Stranded Costs of $1.755 billion through a charge to all customers purchasing
their power from other sources until the end of the transition period in 2007,
subject to an adjustment through a true-up mechanism; 2) commencement of the
phase-in of retail open access beginning September 1999; 3) suspension of the
PSCR clause as discussed below; and 4) the right of all customers to choose
their power suppliers on January 1, 2002. The recovery of costs of implementing
a retail open access program, preliminarily estimated at an additional $200
million, will be reviewed for prudence by the MPSC and recovered via a charge
approved by the MPSC. Nuclear decommissioning costs will also continue to be
collected through a separate surcharge to all customers.
Consumers submitted its plan for implementing retail open access to the MPSC in
1998. The primary issues addressed in the plan are: 1) the implementation
schedule; 2) the retail open access service options available to customers and
suppliers; 3) the process and requirements for customers and others to obtain
retail open access service; and 4) the roles and responsibilities for Consumers,
customers and suppliers. In March 1999, Consumers received MPSC electric
restructuring orders, which generally supported Consumers' implementation plan.
Consumers began implementing electric retail customer open access in September
1999,
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and will extend open access to 750 MW of Consumers' retail market by 2001. On
January 1, 2002, all of Consumers' electric customers will have the right to
choose generation suppliers.
Numerous appeals are pending at the Court of Appeals relating to the MPSC's
restructuring orders. Because of the June 1999 Michigan Supreme Court decision
described above in "Electric Proceedings", Consumers believes that the MPSC
lacks statutory authority to mandate industry restructuring. The MPSC ultimately
issued an order in August 1999 finding that it has jurisdiction to approve
rates, terms, and conditions for electricity retail wheeling (also known as
electric customer choice) if a utility voluntarily chooses to offer that
service. ABATE and the Attorney General have each appealed the August 1999 order
to the Court of Appeals. It is uncertain how the issues raised by the MPSC's
August 1999 order will be resolved by the regulatory process, the appellate
courts or by legislation addressing electric restructuring issues.
During periods when electric demand is high, the cost of purchasing energy on
the spot market can be substantial. Consumers is planning to maintain sufficient
generation and to purchase electricity from others to create a power reserve
(also called a reserve margin) that provides Consumers with approximately 15
percent additional power above its anticipated power demands. This allows
Consumers to provide reliable service to its electric service customers and to
protect itself against unscheduled plant outages and unanticipated demand.
Before 1998, the PSCR process provided for the recovery of any prudent and
necessary power supply costs through customer rates, thus minimizing the risk to
shareholders for fluctuations in such costs. In 1998, as a result of an MPSC
order associated with electric restructuring efforts, the PSCR process was
suspended for 4 years. Under the suspension, customers' rates previously subject
to adjustment under the PSCR process, will not be adjusted to reflect the actual
costs of fuel, interchange power and purchased power, through 2001. To reduce
the risk of high energy prices during peak demand periods, Consumers has
employed a strategy of purchasing electric option contracts for the physical
delivery of electricity during the months of June through September in order to
achieve its reserve margin target. Consumers expects to use a similar strategy
in the future. In 1999, Consumers' purchase of electric option contracts cost
approximately $19 million.
In June 1999, Consumers and four other electric utility companies sought
approval from the FERC to form the Alliance RTO. The proposed structure provided
for the creation of a transmission entity that would control, operate and own
transmission facilities of one or more of the member companies, and would
control and operate, but not necessarily own, the transmission facilities of
other companies. The proposal was structured to give the member companies the
flexibility to maintain or divest ownership of their transmission facilities
while ensuring independent operation of the regional transmission system. In
December 1999, the FERC conditionally approved formation of Alliance, but asked
the applicants to make a number of changes in the proposal and to provide
additional information. Among other things, the FERC expressed concern about the
proposed governance of Alliance, its rates and its geographic configuration. On
the same day as the Alliance order, the FERC issued Order No. 2000, which
describes the characteristics the FERC would find acceptable in an RTO. In Order
No. 2000, the FERC declined to mandate that utilities join RTOs, but did order
utilities to make filings in October 2000 and January 2001 declaring their
intentions with respect to RTO membership. Consumers and the Alliance companies
have sought a rehearing on the Alliance order. Consumers is uncertain about the
outcome of the Alliance matter before the FERC and its continued participation
in Alliance.
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OTHER ELECTRIC UNCERTAINTIES
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)
<TABLE>
<CAPTION>
In Millions
- ------------------------------------------------------------------------------------------------------------------
Year Ended December 31 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Pretax operating income $49 $49 $46
Income taxes and other 15 15 14
----------------------------------------------------------------
Net income $34 $34 $32
==================================================================================================================
</TABLE>
Power Purchases from the MCV Partnership- 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, based on the MCV
Facility's availability, a 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 for all kWh delivered. Since January 1,
1993, the MPSC has permitted Consumers to recover capacity charges averaging
3.62 cents per kWh for 915 MW, plus a substantial portion of the fixed and
variable energy charges. Since January 1, 1996, the MPSC has also permitted
Consumers to recover capacity charges for the remaining 325 MW of contract
capacity with an initial average charge of 2.86 cents per kWh increasing
periodically to an eventual 3.62 cents per kWh by 2004 and thereafter. Because
the MPSC has already approved recovery of these capacity costs, Consumers will
recover these increases through an adjustment to the currently frozen PSCR
factor that will be effective through 2001. Consumers expects to recover the
remaining increases through the Transition Cost true-up process and through
further adjustments to the PSCR factor. After September 2007, under the terms of
the PPA, Consumers will only be required to pay the MCV Partnership capacity and
energy charges that the MPSC has authorized for recovery from electric
customers.
In March 1999, Consumers signed a long-term power sales agreement to resell to
PECO its capacity and energy purchases under the PPA until September 2007. After
a three-year transition period during which 100 to 150 MW will be sold to PECO,
beginning in 2002 Consumers will sell all 1,240 MW of PPA capacity and
associated energy to PECO. In March 1999, Consumers also filed an application
with the MPSC for accounting and ratemaking approvals related to the PECO
agreement. If used as an offset to electric customers' Transition Cost
responsibility, Consumers estimates that there could be a reduction of as much
as $58 million (on a net present value basis) of Transition Cost related to the
MCV PPA. In an order issued in April 1999, the MPSC conditionally approved the
requests for accounting and rate-making treatment to the extent that customer
rates are not increased from the current level absent the agreement and as
modified by the order. In response to Consumers' and other parties' requests for
clarification and rehearing, in an August 1999 opinion, the MPSC partially
granted the relief Consumers requested on rehearing and attached certain
additional conditions to its approval. Those conditions relate to Consumers
continued decision to carry out the electricity customer choice program (which
Consumers has affirmed as discussed above) and a determination to revise its
capacity solicitation process (which Consumers has filed but is awaiting an MPSC
decision). The August opinion is a companion order to a power supply cost
reconciliation order issued on the
CE-27
<PAGE> 147
same date in another case. This order affects the level of frozen power supply
costs recoverable in rates during future years when the transaction with PECO
would be taking place. Consumers filed a motion for clarification of the order
relating to the PECO agreement, which is still pending. Due to the pending
electric industry restructuring legislation in Michigan and the overall
uncertainty that exists concerning restructuring, Consumers and PECO have
entered into an interim arrangement for the sale of 125 MW of PPA capacity
associated energy to PECO during 2000. Prices in the interim arrangement are
identical to the March 1999 power sales agreement.
Consumers recognized a loss in 1992 for the present value of the estimated
future underrecoveries of power costs under the PPA based on MPSC recovery
orders. At December 31, 1999 and December 31, 1998, the remaining after-tax
present value of the estimated future PPA liability associated with the 1992
loss totaled $78 million and $110 million, respectively. At December 31, 1999,
the undiscounted after-tax amount associated with this liability totaled $142
million. These after-tax cash underrecoveries are based on the assumption that
the MCV Facility would be available to generate electricity 91.5 percent of the
time over its expected life. Historically the MCV Facility has operated above
the 91.5 percent level. Accordingly, in 1998, Consumers increased its PPA
liability by $37 million. Because the MCV Facility operated above the 91.5
percent level in 1998 and in 1999, Consumers has an accumulated unrecovered
after-tax shortfall of $30 million as of December 31, 1999. Consumers believes
that this shortfall will be resolved in the context of the electric
restructuring effort. If the MCV Facility generates electricity at the 91.5
percent level during the next five years, Consumers' after-tax cash
underrecoveries associated with the PPA would be as follows.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
In Millions
- --------------------------------------------------------------------------------
2000 2001 2002 2003 2004
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Estimated cash underrecoveries, net of tax $21 $20 $19 $18 $17
================================================================================
</TABLE>
If the MCV Facility operates at availability levels above management's 91.5
percent estimate made in 1992 for the remainder of the PPA and expected
shortfalls are not resolved in the context of the electric restructuring effort,
Consumers will need to recognize additional losses for future underrecoveries.
In March 1999, Consumers and the MCV Partnership reached an agreement effective
January 1, 1999 that capped availability payments to the MCV Partnership at 98.5
percent. For further discussion on the impact of the frozen PSCR, see "Electric
Restructuring" in this Note. Management is evaluating the adequacy of the
contract loss liability considering actual MCV Facility operations and any other
relevant circumstances.
In February 1998, the MCV Partnership filed a claim of appeal from the January
1998 and February 1998 MPSC orders in the electric utility industry
restructuring. At the same time, the MCV Partnership filed suit in the United
States 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. In July 1999, the United States
District Court issued an order granting the MCV Partnership's motion for summary
judgment. The order permanently prohibits enforcement of the restructuring
orders in any manner which denies any utility the ability to recover amounts
paid to qualifying facilities such as the MCV Facility or which precludes the
MCV Partnership from recovering the avoided cost rate. The MPSC has appealed the
United States District Court order. Consumers cannot predict the outcome of this
litigation.
NUCLEAR MATTERS: In January 1997, the NRC issued its Systematic Assessment of
Licensee Performance report for Palisades. The report rated all areas as good.
The NRC suspended this assessment process for all licensees in 1998. Until the
NRC completes its review of processes for assessing performance at nuclear power
plants, the NRC uses the Plant Performance Review to provide an assessment of
licensee performance. Palisades received its annual performance review dated
March 26, 1999 in which the NRC stated that the overall performance at Palisades
was acceptable.
CE-28
<PAGE> 148
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. As of December 31,
1999, Consumers had loaded 18 dry storage casks with spent nuclear fuel at
Palisades. In June 1997, the NRC approved Consumers' process for unloading spent
fuel from a cask previously discovered to have minor weld flaws. Consumers
intends to transfer the spent fuel to a new transportable cask when one is
available.
Consumers maintains insurance 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 12 weeks of any outage, but would cover most of such costs
during the next 52 weeks of the outage, followed by reduced coverage to 80
percent for 110 additional weeks. If certain covered losses occur at its own or
other nuclear plants similarly insured, Consumers could be required to pay
maximum assessments of $15.5 million in any one year to NEIL; $88 million per
occurrence under the nuclear liability secondary financial protection program,
limited to $10 million per occurrence in any 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 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 materials. 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.
CAPITAL EXPENDITURES: Consumers estimates electric capital expenditures,
including new lease commitments, of $426 million for 2000, $520 million for
2001, and $473 million for 2002. For further information, see the Capital
Expenditures Outlook section in the MD&A.
COMMITMENTS FOR COAL SUPPLIES: Consumers has entered into coal supply contracts
with various suppliers for its coal-fired generating stations. Under the terms
of these agreements, Consumers is obligated to take physical delivery of the
coal and make payment based upon the contract terms. Consumers' current
contracts have expiration dates that range from 2001 to 2004. Consumers enters
into long-term contracts for approximately 50 to 75 percent of its annual coal
requirements. In 1999, coal purchases totaled $262.5 million of which $197.2
million (75 percent of the tonnage requirement) was under long-term contract.
Consumers supplements its long-term contracts with spot-market purchases.
GAS CONTINGENCIES
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. These include 23
sites that formerly housed manufactured gas plant facilities, even those in
which it has a partial or no current ownership interest. Consumers has completed
initial investigations at the 23 sites. On sites where Consumers 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. Consumers has estimated its costs related to further investigation
and remedial action for all 23 sites using the Gas Research
Institute-Manufactured Gas Plant Probabilistic Cost Model. Using this model,
Consumers estimates the costs to be between $66 million and $118 million. These
estimates are based on undiscounted 1999 costs. As of December 31, 1999,
Consumers has an accrued liability of $62 million and a regulatory asset of $65
million. Any significant change in assumptions, such as remediation techniques,
nature and extent of contamination,
CE-29
<PAGE> 149
and legal and regulatory requirements, could affect the estimate of remedial
action costs for the sites. Consumers defers and amortizes, over a period of ten
years, environmental clean-up costs above the amount currently being recovered
in rates. Rate recognition of amortization expense cannot begin until after a
prudence review in a future general gas rate case. Consumers is allowed current
recovery of $1 million annually. Consumers has initiated lawsuits against
certain insurance companies regarding coverage for some or all of the costs that
it may incur for these sites.
GAS RATE MATTERS
GAS RESTRUCTURING: In December 1997, the MPSC approved Consumers' application to
implement an experimental gas transportation program. The program will extend
over a three-year period, ending March 31, 2001, eventually allowing 300,000
residential, commercial and industrial retail gas sales customers to choose an
alternative gas commodity supplier in direct competition with Consumers. The
program is voluntary and participating natural gas customers are selected on a
first-come, first-served basis, up to a limit of 100,000 per year. As of
December 31, 1999, more than 176,000 customers chose alternative gas suppliers,
representing approximately 42.2 bcf of gas load. Customers choosing to remain as
sales customers of Consumers will not see a rate change in their natural gas
rates. This three-year program: 1) freezes gas distribution rates through March
31, 2001, establishing a gas commodity cost at a fixed rate of $2.84 per mcf; 2)
establishes an earnings sharing mechanism with customers if Consumers' earnings
exceed certain pre-determined levels; and 3) establishes a gas transportation
code of conduct that addresses the relationship between Consumers and marketers,
including its affiliated marketers. In December 1999, the Court of Appeals
affirmed in its entirety the December 1997 MPSC Order. Petitions for rehearing
filed by several parties were subsequently denied by the Court of Appeals.
Consumers contracts to purchase gas to limit its risk associated with gas price
increases. Management's intent is to take physical delivery of the commodity and
failure could result in a significant penalty for nonperformance. At December
31, 1999, Consumers had an exposure to gas price increases if the ultimate cost
of gas was to exceed $2.84 per mcf for the following volumes: 50 percent of its
2000 requirements; and 50 percent of its first quarter 2001 requirements.
Additional contract coverage is currently under review. The gas purchase
contracts currently in place were consummated at an average price of less than
$2.84 per mcf. Consumers uses gas purchase contracts to protect against gas
price increases in a three-year experimental gas program where Consumers is
recovering from its customers $2.84 per mcf for gas.
OTHER GAS UNCERTAINTIES
CAPITAL EXPENDITURES: Consumers estimates gas capital expenditures, including
new lease commitments, of $113 million for 2000, $130 million for 2001, and $127
million for 2002. For further information, see the Capital Expenditures Outlook
section in the MD&A.
COMMITMENTS FOR GAS SUPPLIES: Consumers contracts to purchase gas and
transportation from various suppliers for its natural gas business. These
contracts have expiration dates that range from 2000 to 2004. Consumers' 1999
gas requirements totaled 200 bcf at a cost of $542 million, 80 percent of which
was under long-term contracts for one year or more. As of the end of 1999,
Consumers had 50 percent of its 2000 gas requirements under such long-term
contracts, and will supplement them with additional long-term and short-term
contracts and spot-market purchases.
OTHER UNCERTAINTIES
In addition to the matters disclosed in this note, Consumers and certain of its
subsidiaries are parties to certain lawsuits and administrative proceedings
before various courts and governmental agencies arising from the
CE-30
<PAGE> 150
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.
3: SHORT-TERM FINANCINGS AND CAPITALIZATION
AUTHORIZATION: At February 1, 2000, Consumers had FERC authorization to issue or
guarantee through June 2000, up to $900 million of short-term securities
outstanding at any one time. Consumers also had remaining FERC authorization to
issue through June 2000, up to $275 million and $365 million of long-term
securities with maturities up to 30 years for refinancing purposes and for
general corporate purposes, respectively.
SHORT-TERM FINANCINGS: Consumers has an unsecured $300 million credit facility
and unsecured lines of credit aggregating $135 million. These facilities are
available to finance seasonal working capital requirements and to pay for
capital expenditures between long-term financings. At December 31, 1999, a total
of $214 million was outstanding at a weighted average interest rate of 6.6
percent, compared with $215 million outstanding at December 31, 1998, at a
weighted average interest rate of 5.8 percent. In January 1999, Consumers
renegotiated a variable-to-fixed interest rate swap totaling $175 million. In
September 1999, Consumers entered into two variable-to-fixed interest rate swaps
totaling $740 million; this amount was reduced by $70 million to $670 million by
December 31, 1999 and terminated January 31, 2000.
Consumers also has in place a $325 million trade receivables sale program. At
December 31, 1999 and 1998, receivables sold under the program totaled $325
million and $306 million, respectively. Accounts receivable and accrued revenue
in the Consolidated Balance Sheets have been reduced to reflect receivables
sold.
LONG-TERM FINANCINGS: Consumers issued long-term bank debt of $15 million in
February 1999, maturing in February 2002, at an initial interest rate of 5.3
percent. For detailed information about long-term financing, see the
Consolidated Statements of Long-Term Debt.
In May 1999, Michigan Gas Storage repaid its $20 million outstanding term loan
with Toronto Dominion Bank.
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 November 1999, $64 million of Consumers' First Mortgage Bonds matured and
were retired.
PREFERRED SECURITIES: On April 1, 1999, Consumers redeemed all 8 million
outstanding shares of its $2.08 preferred stock at $25.00 per share for a total
of $200 million.
In October 1999, 7 million shares of 9.25 percent Trust Preferred Securities
were issued and sold through Consumers Energy Company Financing III, a wholly
owned business trust consolidated with Consumers. Net proceeds from the sale
totaled approximately $169 million. Consumers formed the trust for the sole
purpose of issuing the Trust Preferred Securities. Consumers' obligations with
respect to the Trust Preferred Securities under the related tax-deductible
notes, under the indenture through which Consumers issued the notes, under
Consumers' guarantee of the Trust Preferred Securities, and under the
declaration by the trust, taken together,
CE-31
<PAGE> 151
constitute a full and unconditional guarantee by Consumers of the trust's
obligations under the Trust Preferred Securities.
OTHER: Consumers has a total of $131 million of long-term pollution control
revenue bonds outstanding, secured by first mortgage bonds and insurance
policies. These bonds had a weighted average interest rate of 5.1 percent at
December 31, 1999.
Under the provisions of its Articles of Incorporation, Consumers had $359
million of unrestricted retained earnings available to pay common dividends at
December 31, 1999. In January 2000, Consumers declared and paid a $79 million
common dividend.
4: 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:
<TABLE>
<CAPTION>
In Millions
- ----------------------------------------------------------------------------------------------------------------
Years Ended December 31 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current federal income taxes $170 $138 $139
Deferred income taxes, includes $23 for 1998 change
in accounting (Note 1) 11 36 23
Deferred ITC, net (9) (16) (10)
-------------------------------------------
$172 $158 $152
================================================================================================================
</TABLE>
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<PAGE> 152
The principal components of Consumers' deferred tax assets (liabilities)
recognized in the balance sheet are as follows:
<TABLE>
<CAPTION>
In Millions
- -----------------------------------------------------------------------------------------------------------------
December 31 1999 1998
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Property $ (587) $ (563)
Unconsolidated investments (230) (248)
Postretirement benefits (Note 7) (128) (139)
Abandoned Midland project (17) (25)
Employee benefit obligations, includes postretirement benefits
of $134 and $139 (Note 7) 171 172
Power purchases (Note 2) 42 59
AMT carryforward 48 64
Other 9 5
----------------------------
$ (692) $ (675)
================================================================================================================
Gross deferred tax liabilities $ (1,388) $ (1,377)
Gross deferred tax assets 696 702
----------------------------
$ (692) $ (675)
================================================================================================================
</TABLE>
The actual income tax expense differs from the amount computed by applying the
statutory federal tax rate to income before income taxes as follows:
<TABLE>
<CAPTION>
In Millions
- -----------------------------------------------------------------------------------------------------------------
Years Ended December 31 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income $ 340 $ 349 $ 321
Income tax expense, includes $23 for 1998 change
in accounting (Note 1) 172 158 152
Preferred securities distributions (21) (18) (12)
----------------------------------------------
Pretax income 491 489 461
Statutory federal income tax rate x35% x35% x35%
----------------------------------------------
Expected income tax expense 172 171 161
Increase (decrease) in taxes from
Capitalized overheads previously flowed through 5 5 5
Differences in book and tax depreciation
not previously deferred 19 14 14
ITC amortization/adjustments (9) (16) (10)
Affiliated companies' dividends (4) (5) (6)
Other, net (11) (11) (12)
-----------------------------------------------
Actual income tax expense $ 172 $ 158 $ 152
================================================================================================================
Effective tax rate 35.0% 32.3% 32.9%
================================================================================================================
</TABLE>
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<PAGE> 153
5: FINANCIAL INSTRUMENTS
The carrying amounts of cash, short-term investments and current liabilities
approximate their fair values due to their short-term nature. The estimated fair
values of long-term investments are based on quoted market prices or, in the
absence of specific market prices, on quoted market prices of similar
investments or other valuation techniques. The carrying amounts of all long-term
investments, except as shown below, approximate fair value.
<TABLE>
<CAPTION>
In Millions
- ---------------------------------------------------------------------------------------------------------------
December 31 1999 1998
- ---------------------------------------------------------------------------------------------------------------
Fair Unrealized Fair Unrealized
Available-for-sale securities Cost Value Gain Cost Value Gain
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Common stock of CMS Energy (a) $ 42 $ 90 $ 48 $ 43 $ 142 $ 99
SERP 20 28 8 18 25 7
Nuclear decommissioning
investments (b) 448 602 154 425 557 132
===============================================================================================================
</TABLE>
(a) As of February 17, 2000, the fair value of Consumers investment in CMS
Energy common stock is $53 million.
(b) Consumers classifies its unrealized gains and losses on nuclear
decommissioning investments in accumulated depreciation.
The carrying amount of long-term debt was $2.0 billion at December 31, 1999 and
$2.0 billion at December 31, 1998, and the fair values were $1.9 billion and
$2.0 billion, respectively. For held-to-maturity securities and related-party
financial instruments, see Note 1.
6: 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 related to Common Stock 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 five percent, as
amended January 1, 1999, 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. The number of shares of restricted
Common Stock awarded under this plan cannot exceed 20% of the aggregate number
of shares reserved for award. Any forfeiture of shares previously awarded will
increase the number of shares available to be awarded under the plan. At
December 31, 1999, awards of up to 2,466,524 shares of CMS Energy 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, 1999,
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<PAGE> 154
208,557 of the 283,057 shares of restricted CMS Energy Common Stock outstanding
are subject to performance objectives.
The plan grants stock options and stock appreciation rights relating to Common
Stock with an exercise price equal to the closing market price on each grant
date. Some options may be exercised upon grant; others vest over five years at
the rate of 25 percent per year after one year. All options expire up to ten
years and one month from date of grant. In 1999, all outstanding Class G Common
Stock and options were converted to CMS Energy Common Stock and options at an
exchange rate of .7041 per Class G Common Stock or option held. The original
vesting or exercise period was retained for all converted shares or options. The
status of the restricted stock and options granted to Consumers' key employees
under the Performance Incentive Stock Plan follows.
<TABLE>
<CAPTION>
Restricted
Stock Options
- --------------------------------------------------------------------------------------------------------------
Number Number Weighted Average
CMS ENERGY COMMON STOCK of Shares of Shares Exercise Price
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Outstanding at January 1, 1997 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 $ 28.84
Granted 92,319 116,164 $ 43.38
Exercised or Issued (74,319) (123,288) $ 28.05
---------------------------------------------------------
Outstanding at December 31, 1998 328,351 530,656 $ 32.21
Granted 71,025 250,020 $ 38.56
Exercised or Issued (80,489) (68,609) $ 29.76
Forfeited (41,890) -
Expired - (37,900) $ 39.21
Class G Common Stock Converted 6,060 19,503 $ 32.64
---------------------------------------------------------
Outstanding at December 31, 1999 283,057 693,670 $ 34.37
==============================================================================================================
<CAPTION>
Restricted
Stock Options
- --------------------------------------------------------------------------------------------------------------
Number Number Weighted Average
CLASS G COMMON STOCK of Shares of Shares Exercise Price
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Outstanding at January 1, 1997 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
Granted 14,720 45,900 $ 24.50
Exercised or Issued (4,021) -
--------------------------------------------------------
Outstanding at December 31, 1998 30,490 73,900 $ 22.37
Granted 3,427 -
</TABLE>
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<PAGE> 155
<TABLE>
<S> <C> <C> <C>
Exercised or Issued (7,360) (19,000) $18.45
Forfeited (17,949) -
Expired - (27,200) $24.50
Converted to CMS Energy Common Stock (8,608) (27,700) $22.98
---------------------------------------------------------
Outstanding at December 31, 1999 - - -
==============================================================================================================
</TABLE>
The following table summarizes information about CMS Energy Common Stock options
outstanding at December 31, 1999:
<TABLE>
<CAPTION>
Number Weighted Weighted
Range of of Shares Average Average
Exercise Prices Outstanding Remaining Life Exercise Price
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CMS Energy Common Stock:
$17.13 - $27.61 157,076 4.00 years $23.09
$30.63 - $38.00 232,410 6.84 years $33.81
$39.06 - $43.38 304,184 9.26 years $40.60
- ----------------------------------------------------------------------------------------------------------------
$17.13 - $43.38 693,670 7.26 years $34.37
================================================================================================================
</TABLE>
The weighted average fair value of options granted for CMS Energy Common Stock
was $6.08 in 1999, $6.43 in 1998, and $6.38 in 1997. The weighted average fair
value of options granted for Class G Common Stock was $3.03 in 1998 and $1.87 in
1997. Fair value is estimated using the Black-Scholes model, a mathematical
formula used to value options traded on securities exchanges, with the following
assumptions:
<TABLE>
<CAPTION>
Years Ended December 31 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CMS ENERGY COMMON STOCK OPTIONS
Risk-free interest rate 5.66% 5.45% 6.06%
Expected stock price volatility 16.96% 15.93% 17.43%
Expected dividend rate $ .365 $ .33 $ .30
Expected option life 4.7 years 4 years 5 years
CLASS G COMMON STOCK OPTIONS
Risk-free interest rate 5.44% 6.06%
Expected stock price volatility 20.02% 18.05%
Expected dividend rate $ .325 $ .31
Expected option life 5 years 5 years
================================================================================================================
</TABLE>
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 1999, 1998 and 1997. The compensation cost charged against
income for restricted stock was $3 million in 1999, $4 million in 1998, and $2
million in 1997.
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<PAGE> 156
7: RETIREMENT BENEFITS
Consumers provides retirement benefits under a number of different plans,
including certain health care and life insurance benefits under OPEB, benefits
to certain management employees under SERP, and benefits to substantially all
its employees under a trusteed, non-contributory, defined benefit Pension Plan,
and a defined contribution 401(k) plan.
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.
<TABLE>
<CAPTION>
Weighted-Average Assumptions
- -------------------------------------------------------------------------------------------------------------------
Pension & SERP OPEB
Years Ended December 31 1999 1998 1997 1999 1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Discount rate 7.75% 7.00% 7.50% 7.75% 7.00% 7.50%
Expected long-term rate
of return on plan assets 9.25% 9.25% 9.25% 7.00% 7.00% 7.00%
Rate of compensation increase:
Pension - to age 45 5.25% 5.25% 5.25%
- age 45 to
assumed retirement 3.75% 3.75% 3.75%
SERP 5.50% 5.50% 5.50%
===================================================================================================================
</TABLE>
Retiree health care costs at December 31, 1999 are based on the assumption that
costs would increase 7.0 percent in 2000, then decrease gradually to 5.5 percent
in 2006 and thereafter.
CMS Energy's Net Pension Plan, Consumers' SERP and OPEB benefit costs consist
of:
<TABLE>
<CAPTION>
In Millions
- -------------------------------------------------------------------------------------------------------------------
Pension & SERP OPEB
Years Ended December 31 1999 1998 1997 1999 1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Service cost $ 32 $ 26 $ 25 $12 $10 $ 9
Interest expense 69 61 60 44 42 40
Expected return on plan assets (84) (73) (70) (24) (17) (12)
Amortization of unrecognized transition (asset) (5) (5) (5) - - -
Ad Hoc Retiree Increase 3 - - - - -
Amortization of prior service cost 4 4 4 (1) (1) -
--------------------------------------------------------
Net periodic pension and
postretirement benefit cost $ 19 $13 $14 $31 $34 $37
===================================================================================================================
</TABLE>
The health care cost trend rate assumption significantly affects the amounts
reported. A one percentage point change in the assumed health care cost trend
assumption would have the following effects:
<TABLE>
<CAPTION>
In Millions
- -------------------------------------------------------------------------------------------------------------------
One Percentage One Percentage
Point Increase Point Decrease
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Effect on total service and interest cost component $ 10 $ (8)
Effect on postretirement benefit obligation $ 98 $(82)
===================================================================================================================
</TABLE>
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<PAGE> 157
The funded status of the CMS Energy Pension Plan, Consumers' SERP and OPEB is
reconciled with the liability recorded at December 31 as follows:
<TABLE>
<CAPTION>
In Millions
- -------------------------------------------------------------------------------------------------------------------
Pension Plan SERP OPEB
1999 1998 1999 1998 1999 1998
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Benefit obligation January 1 $ 874 $ 792 $ 21 $ 18 $ 643 $ 570
Service cost 31 25 1 1 12 10
Interest cost 68 60 1 1 44 42
Plan amendments 4 - - - - -
Business combinations 70 - - - - -
Actuarial loss (gain) 3 76 (3) 2 17 49
Benefits paid (79) (79) (1) (1) (31) (28)
-------------------------------------------------------------
Benefit obligation December 31 971 874 19 21 685 643
-------------------------------------------------------------
Plan assets at fair value at January 1 970 882 - - 321 219
Actual return on plan assets 120 167 - - 49 54
Company contribution - - - - 48 48
Business combinations 83 - - - - -
Actual benefits paid (79) (79) - - - -
-------------------------------------------------------------
Plan assets at fair
value at December 31 1,094(a) 970(a) - - 418 321
-------------------------------------------------------------
Benefit obligation less than
(in excess of) plan assets 123 96 (19) (21) (267) (322)
Unrecognized net (gain) loss from
experience different than assumed (212) (176) 2 4 (79) (71)
Unrecognized prior service cost 28 31 1 1 (1) (1)
Unrecognized net transition (asset) obligation (11) (16) - - - -
-------------------------------------------------------------
Recorded liability $ (72) $ (65) $ (16) $(16) $ (347) $ (394)
===================================================================================================================
</TABLE>
(a) Primarily stocks and bonds, including $108 million in 1999 and $168 million
in 1998 of CMS Energy Common Stock.
SERP benefits are paid from a trust established in 1988. SERP is not a qualified
plan under the Internal Revenue Code, and as such, earnings of the trust are
taxable and trust assets are included in consolidated assets. At December 31,
1999 and 1998, trust assets were $28 million and $25 million, respectively, and
were classified as other non-current assets. The accumulated benefit obligation
for SERP was $13 million in 1999 and $14 million in 1998.
Contributions to the 40l(k) plan are invested in CMS Energy Common Stock.
Amounts charged to expense for this plan were $16 million in 1999, $15 million
in 1998, and $18 million in 1997.
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.
Consumers adopted the required accounting for postretirement benefits effective
in 1992 and recorded a liability of $466 million for the accumulated transition
obligation and a corresponding regulatory asset for
CE-38
<PAGE> 158
anticipated recovery in utility rates (see Note 1, Utility Regulation). 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. At December 31,
1999, Consumers had a recorded FERC regulatory asset and liability of $5
million. The FERC has authorized recovery of these costs.
8: LEASES
Consumers leases various assets, including vehicles, rail cars, aircraft,
construction equipment, computer equipment, nuclear fuel and buildings. In
November 1999, Consumers was granted an extension to the nuclear fuel capital
leasing arrangement. The lease expires in November 2001, 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 $58 million as of December 31, 1999.
Consumers generally is responsible for payment of taxes, maintenance, operating
costs, and insurance.
Minimum rental commitments under Consumers' non-cancelable leases at December
31, 1999, were:
<TABLE>
<CAPTION>
In Millions
- ----------------------------------------------------------------------------------------------------------------
Capital Leases Operating Leases
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
2000 $ 45 $ 14
2001 56 13
2002 17 11
2003 14 11
2004 11 8
2005 and thereafter 10 53
------------------------------------
Total minimum lease payments 153 $110
====
Less imputed interest 33
---
Present value of net minimum lease payments 120
Less current portion 35
---
Non-current portion $ 85
================================================================================================================
</TABLE>
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, 1999, 1998 and 1997, were $14 million, $11 million and $3 million,
respectively.
Capital lease expenses for the years ended December 31, 1999, 1998 and 1997 were
$41 million, $41 million and $49 million, respectively. Included in these
amounts, for the years ended 1999, 1998 and 1997, are nuclear fuel lease
expenses of $23 million, $23 million and $31 million, respectively.
CE-39
<PAGE> 159
9: JOINTLY OWNED UTILITY FACILITIES
Consumers is responsible for providing its share of financing for the jointly
owned utility facilities. Consumers includes in operating expenses the direct
expenses of the joint plants. The following table indicates the extent of
Consumers' investment in jointly owned utility facilities:
<TABLE>
<CAPTION>
In Millions
- ------------------------------------------------------------------------------------------------------------------
Net Investment Accumulated Depreciation
December 31 1999 1998 1999 1998
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Campbell Unit 3 - 93.3 percent $284 $299 $295 $279
Ludington - 51 percent 104 106 100 94
Transmission lines - various 32 33 16 15
==================================================================================================================
</TABLE>
10: REPORTABLE SEGMENTS
Consumers has two reportable segments: electric and gas. The electric segment
consists of regulated activities associated with the generation, transmission
and distribution of electricity. The gas segment consists of regulated
activities associated with the transportation, storage and distribution of
natural gas. Consumers' reportable segments are domestic strategic business
units organized and managed by the nature of the product and service each
provides. The accounting policies of the segments are the same as those
described in the summary of significant accounting policies. Consumers'
management evaluates performance based on pretax operating income. The
Consolidated Statements of Income show operating revenue and pretax operating
income by reportable segment. These amounts include earnings from investments
accounted for by the equity method of $50 million, $50 million and $49 million
for 1999, 1998 and 1997, respectively. Consumers had investments accounted for
by the equity method of $487 million, $449 million and $420 million for 1999,
1998 and 1997, respectively. In 1998, Consumers implemented a change in the
method of accounting for property taxes. The cumulative effect of this one-time
change in accounting increased electric and gas earnings, net of tax, by $31
million and $12 million, respectively. Intersegment sales and transfers are
accounted for at current market prices and are eliminated in consolidated pretax
operating income by segment. Other segment information follows:
CE-40
<PAGE> 160
<TABLE>
<CAPTION>
In Millions
- ------------------------------------------------------------------------------------------------------------------
Years Ended December 31 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Depreciation, depletion and amortization
Electric $ 315 $ 304 $ 296
Gas 107 97 93
Other 2 2 2
-------------------------------------------------
Total Consolidated $ 424 $ 403 $ 391
==================================================================================================================
Interest Charges
Electric $133 $129 $123
Gas 48 44 41
Other 19 19 19
-------------------------------------------------
Subtotal 200 192 183
Eliminations (19) (17) (10)
-------------------------------------------------
Total Consolidated $181 $175 $173
==================================================================================================================
Income Taxes
Electric $126 $110 $103
Gas 41 35 45
Other (a) 5 23 4
-------------------------------------------------
Total Consolidated $172 $158 $152
==================================================================================================================
Total assets
Electric (b) $4,675 $4,640 $4,472
Gas (b) 1,731 1,726 1,644
Other 764 797 833
-------------------------------------------------
Total Consolidated $7,170 $7,163 $6,949
==================================================================================================================
Capital expenditures (c)
Electric $ 385 $ 331 $ 255
Gas 120 114 116
-------------------------------------------------
Total $ 505 $ 445 $ 371
==================================================================================================================
</TABLE>
(a) 1998 amount includes the tax effect of the change in accounting method for
property taxes.
(b) Amounts include an attributed portion of Consumers' other common assets to
both the electric and gas utility businesses.
(c) Includes electric restructuring implementation plan, capital leases for
nuclear fuel and other assets and electric DSM costs. Amounts also include an
attributed portion of Consumers' capital expenditures for plant and equipment
common to both the electric and gas utility businesses.
CE-41
<PAGE> 161
11: SUMMARIZED FINANCIAL INFORMATION OF SIGNIFICANT RELATED ENERGY
SUPPLIER
Under the PPA with the MCV Partnership discussed in Note 2, Consumers' 1999
obligation to purchase electric capacity from the MCV Partnership provided 15.5
percent of Consumers' owned and contracted electric generating capacity.
Summarized financial information of the MCV Partnership follows:
STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
In Millions
- -------------------------------------------------------------------------------------------------------------------
Years Ended December 31 1999 1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating revenue (a) $ 617 $ 627 $ 652
Operating expenses 401 405 435
--------------------------------------
Operating income 216 222 217
Other expense, net 136 142 154
--------------------------------------
Net income before cumulative effect of accounting change 80 80 63
Cumulative effect of change in method of accounting for property tax - - 15
--------------------------------------
Net income $ 80 $ 80 $ 78
===================================================================================================================
</TABLE>
BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
In Millions
- -------------------------------------------------------------------------------------------------------------------
December 31 1999 1998 1999 1998
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS LIABILITIES AND EQUITY
Current assets (b) $ 397 $ 341 Current liabilities $ 275 $ 204
Plant, net 1,732 1,773 Noncurrent liabilities (c) 1,586 1,725
Other assets 170 173 Partners' equity (d) 438 358
--------------------- -----------------------
$2,299 $2,287 $2,299 $2,287
===================================================================================================================
</TABLE>
(a) Revenue from Consumers totaled $586 million, $584 million and $609 million
for 1999, 1998, and 1997, respectively.
(b) Receivables from Consumers totaled $49, each year, at December 31, 1999 and
1998.
(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, 1999 and 1998,
lease obligations of $1.36 billion and $1.41 billion, respectively, were owed to
the owner trust. CMS Holdings' share of the interest and principal portion for
the 1999 lease payments was $55 million and $23 million, respectively, and for
the 1998 lease payments was $59 million and $49 million, respectively. The lease
payments service $854 million and $907 million in non-recourse debt outstanding
as of December 31, 1999 and 1998, respectively, of the owner-trust. FMLP's debt
is secured by the MCV Partnership's lease obligations, assets, and operating
revenues. For 1999 and 1998, the owner-trust made debt payments (including
interest) of $167 million and $233 million, respectively. FMLP's earnings for
1999, 1998, and 1997 were $24 million, $23 million, and $20 million,
respectively.
CE-42
<PAGE> 162
(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.
12: SUPPLEMENTAL CASH FLOW INFORMATION
Changes in other assets and liabilities as shown on the Consolidated Statements
of Cash Flows are described below:
<TABLE>
<CAPTION>
In Millions
- ----------------------------------------------------------------------------------------------------------------
Years Ended December 31 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Accounts payable $ 36 $ 19 $(30)
Non-current deferred amounts, net 32 2 38
Accrued revenue 22 (12) 20
Sale of receivables, net 19 (29) 17
Inventories 5 (34) (10)
Accrued refunds - (1) 4
Other current assets and liabilities, net (3) (3) 22
Accounts receivable (29) 7 31
------------------------------------------
$ 82 $ (51) $ 92
================================================================================================================
</TABLE>
CE-43
<PAGE> 163
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, 1999 and 1998, 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, 1999. These financial statements
are the responsibility of the Company's management. 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 Energy Company and
subsidiaries as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999 in conformity with generally accepted accounting principles.
As explained in Note 1 to the financial statements, effective January 1, 1998,
Consumers Energy Company changed its method of accounting for property taxes.
/s/ Arthur Andersen LLP
Detroit, Michigan,
February 4, 2000.
CE-44
<PAGE> 164
QUARTERLY FINANCIAL INFORMATION CONSUMERS ENERGY COMPANY
In Millions
<TABLE>
<CAPTION>
1999 (Unaudited) 1998 (Unaudited)
Quarters Ended March 31 June 30 Sept. 30 Dec. 31 March 31 June 30 Sept. 30 Dec. 31
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Operating revenue $1,156 $850 $878 $990 $1,052 $832 $860 $965
Pretax operating income $227 $149 $175 $124 $183 $141 $171 $154
Net income before cumulative
effect of change in accounting
principle $119 $73 $93 $55 $69 $69 $86 $82
Cumulative effect of change
in accounting for property
taxes, net of $23 tax - - - - $43 - - -
Net income $119 $73 $93 $55 $112 $69 $86 $82
Preferred stock dividends $5 - - $1 $5 $5 $5 $4
Preferred securities
distributions $5 $5 $5 $6 $5 $4 $4 $5
Net income available to
common stockholder $109 $68 $88 $48 $102 $60 $77 $73
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
CE-45
<PAGE> 165
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CE-46
<PAGE> 166
[PANHANDLE EASTERN PIPE LINE COMPANIES LOGO]
1999 FINANCIAL STATEMENTS
PE-1
<PAGE> 167
PANHANDLE EASTERN PIPE LINE COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
Panhandle is primarily engaged in the interstate transportation and storage of
natural gas. Panhandle owns a LNG regasification plant and related tanker port
unloading facilities and LNG and gas storage facilities. The rates and
conditions of service of interstate natural gas transmission, storage and LNG
operations of Panhandle are subject to the rules and regulations of the FERC.
This report contains forward-looking statements, as defined by the Private
Securities Litigation Reform Act of 1995. While forward-looking statements are
based on assumptions and such assumptions are believed to be reasonable and are
made in good faith, Panhandle cautions that assumed results almost always vary
from actual results and differences between assumed and actual results can be
material. The type of assumptions that could materially affect the actual
results are discussed in the Outlook section in this MD&A. More specific risk
factors are contained in various public filings made by Panhandle with the SEC.
This Annual Report also describes material contingencies in the Notes to
Consolidated Financial Statements and the readers are encouraged to read such
Notes.
On March 29, 1999, Panhandle Eastern Pipe Line Company and its principal
subsidiaries, Trunkline and Pan Gas Storage, as well as Panhandle Eastern Pipe
Line Company's affiliates, Trunkline LNG and Panhandle Storage, were acquired
from subsidiaries of Duke Energy by CMS Panhandle Holding, which was an indirect
wholly owned subsidiary of CMS Energy. Immediately following the acquisition,
Trunkline LNG and Panhandle Storage became direct wholly owned subsidiaries of
Panhandle Eastern Pipe Line Company.
Prior to the acquisition, Panhandle's interests in Northern Border Pipeline
Company, Panhandle Field Services Company, Panhandle Gathering Company, and
certain other assets, including the Houston corporate headquarters building,
were transferred to other subsidiaries of Duke Energy; certain intercompany
accounts and notes between Panhandle and Duke Energy subsidiaries were
eliminated; with respect to certain other liabilities, including tax,
environmental and legal matters, CMS Energy was indemnified for any resulting
losses. In addition, Duke Energy agreed to continue its environmental clean-up
program at certain properties and to defend and indemnify Panhandle against
certain future environmental litigation and claims with respect to certain
agreed-upon sites or matters.
CMS Panhandle Holding privately placed $800 million of senior unsecured notes
and received a $1.1 billion initial capital contribution from CMS Energy to fund
the acquisition of Panhandle. On June 15, 1999, CMS Panhandle Holding was merged
into Panhandle. Panhandle then became a wholly owned subsidiary of CMS Gas
Transmission and Storage Company, a subsidiary of CMS Energy. At that time, the
CMS Panhandle Holding notes became direct obligations of Panhandle. In September
1999, Panhandle completed an exchange offer which replaced the $800 million of
notes originally issued by CMS Panhandle Holding with substantially identical
SEC-registered notes issued by Panhandle.
The acquisition by CMS Panhandle Holding was accounted for using the purchase
method of accounting in accordance with generally accepted accounting
principles, with Panhandle allocating the purchase price paid by CMS Panhandle
Holding to Panhandle's net assets as of the acquisition date based on a
preliminary appraisal completed in December 1999. Accordingly, the
post-acquisition financial statements reflect a new basis of accounting, and
pre-acquisition period and post-acquisition period financial results (separated
by a heavy black line) are presented but are not comparable (See Note 1).
PE-2
<PAGE> 168
The following information is provided to facilitate increased understanding of
the 1999 and 1998 consolidated financial statements and accompanying notes of
Panhandle but should be read in conjunction with these financial statements.
Because all of the outstanding common stock of Panhandle is owned by CMS Gas
Transmission and Storage Company, a subsidiary of CMS Energy, the following
discussion uses the reduced disclosure format permitted by Form 10K for issuers
that are wholly owned subsidiaries of reporting companies.
RESULTS OF OPERATIONS
NET INCOME:
<TABLE>
<CAPTION>
In Millions
- --------------------------------------------------------------------------------------------------------------------
December 31 1999 1998 Change
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Twelve Months Ended $74 $91 $ (17)
===================================================================================================================
</TABLE>
For the year ending December 31, 1999, net income was $74 million, down $17
million from the corresponding period in 1998. Total natural gas transportation
volumes for the twelve months ending December 31, 1999 were almost unchanged
from 1998.
Revenues for the twelve months ended December 31, 1999 decreased $25 million
from the corresponding period in 1998; $15 million was as a result of the
transfer of Panhandle Field Services to Duke Energy in March 1999; $14 million
from declining reservation rates; and $5 million due to Pan Border's 1998
revenues from Northern Border Pipe Line Company partnership; partially offset by
$13 million of Trunkline LNG terminal revenues in 1999.
Operating expenses for the twelve months ended December 31, 1999 decreased $17
million from the corresponding period in 1998 due primarily to lower
administrative costs and the transfer of Panhandle Field Services to Duke
Energy.
Other income for the twelve months ended December 31, 1999 decreased $18 million
from the corresponding period in 1998 primarily due to a gain recorded in 1998
on the sale of the general partnership interests in Northern Border of $14
million.
Interest on long-term debt for the twelve months ended December 31, 1999
increased $39 million from the corresponding period in 1998 primarily due to
interest on the new debt assumed by Panhandle (See Notes 1 and 9). Other
interest decreased $38 million for the twelve months ended December 31, 1999
from the corresponding period in 1998 primarily due to interest for a partial
year on the intercompany note with PanEnergy; the note was eliminated with the
sale of Panhandle to CMS Panhandle Holding (See Note 1 and Note 4).
PE-3
<PAGE> 169
<TABLE>
<CAPTION>
OPERATING INCOME:
In Millions
- -------------------------------------------------------------------------------------------------------------------
Twelve Months
Ended December 31
Change Compared to Prior Year 1999 vs. 1998
- -------------------------------------------------------------------------------------------------------------------
<S> <C>
Commodity revenue $ (1)
Reservation and other revenues (24)
Operations and maintenance 22
Depreciation and amortization (2)
General taxes (3)
------------
Total Change $ (8)
===================================================================================================================
</TABLE>
OUTLOOK
CMS Energy intends to use Panhandle as a platform for expansion in the United
States. Panhandle plays an important role in the growth strategy by providing
services for the development of existing gas wells, production and throughput of
gas to the market. The market for transmission of natural gas to the Midwest is
increasingly competitive, however, and may become more so in light of projects
recently completed or in progress to increase Midwest transmission capacity for
gas originating in Canada and the Rocky Mountain region. As a result, there
continues to be pressure on prices charged by Panhandle and an increasing
necessity to discount the prices charged from the legal maximum, which reduces
revenues. New contracts in the current market conditions tend to be of shorter
duration than the expiring contracts being replaced, which will also increase
revenue volatility. In addition, Trunkline in 1996 filed with FERC and placed
into effect a general rate increase, however a subsequent January 2000 FERC
order could, if approved without modification upon rehearing, reduce Trunkline's
tariff rates and future revenue levels by up to 3% of Panhandle's consolidated
revenues. Panhandle continues to be selective in offering discounts to maximize
revenues from existing capacity and to advance projects that provide expanded
services to meet the specific needs of customers. In addition, Panhandle will
continue to evaluate opportunities to acquire synergistic operations such as the
Sea Robin pipeline system (See Note 14), and attempt to maximize the use and
value of its existing assets, such as the proposed conversion of Trunkline's 26
inch pipeline to a liquid products pipeline (See Note 3).
PE-4
<PAGE> 170
OTHER MATTERS
ENVIRONMENTAL MATTERS
PCB (POLYCHLORINATED BIPHENYL) ASSESSMENT AND CLEAN-UP PROGRAMS: Panhandle has
identified environmental contamination at certain sites on its systems and has
undertaken clean-up programs at these sites. The contamination resulted from the
past use of lubricants in compressed air systems containing PCBs and the prior
use of wastewater collection facilities and other on-site disposal areas. Soil
and sediment testing to date has detected no significant off-site contamination.
Panhandle has communicated with the EPA and appropriate state regulatory
agencies on these matters. Under the terms of the sale of Panhandle to CMS
Energy (See Note 1), a subsidiary of Duke Energy is obligated to complete the
Panhandle clean-up programs at certain agreed-upon sites and to defend and
indemnify Panhandle against certain future environmental litigation and claims.
These clean-up programs are expected to continue until 2001.
YEAR 2000 COMPUTER MODIFICATIONS
In 1999, Panhandle completed a detailed assessment of all information technology
and non-information technology hardware and software, with emphasis on mission
critical systems. Panhandle inventoried its information and non-information
technology hardware and software. Panhandle also identified, remediated and
tested those systems that were not year 2000 ready to ensure they would operate
as desired on and after January 1, 2000.
As a result of its year 2000 efforts, Panhandle successfully transitioned to the
new year without experiencing year 2000 related system failures, power outages
or disruptions in services provided to its customers. Panhandle expensed the
cost of software modifications as incurred, and capitalized the cost of new
software and equipment, which is being amortized over its useful life. Since
1995, the total cost of the Year 2000 Program modifications was approximately
$425,000. The commitment of Panhandle resources to the Year 2000 Program has not
deferred any information technology projects that could have a material adverse
effect on Panhandle's financial position, liquidity or results of operations.
While Panhandle does not expect any significant year 2000 issues to develop,
Panhandle will continue to monitor its mission critical applications throughout
the year 2000 to ensure that any year 2000 issues that may arise are addressed
promptly through the use of contingency plans.
MARKET RISK INFORMATION
INTEREST RATE RISK: Panhandle is exposed to risk resulting from changes in
interest rates as a result of its issuance of variable-rate debt and fixed-rate
debt. Panhandle manages its interest rate exposure by limiting its variable-rate
and fixed-rate exposure to a certain percentage of total capitalization, as set
by policy, and by monitoring the effects of market changes in interest rates
(See Notes 8 and 9).
PE-5
<PAGE> 171
PANHANDLE EASTERN PIPE LINE COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(IN MILLIONS)
<TABLE>
<CAPTION>
Years Ended December 31,
Mar. 29 - Jan. 1 - ------------------------
Dec. 31, Mar. 28,
1999 1999 1998 1997
-------- -------- ---------- ----------
<S> <C> <C> <C> <C>
OPERATING REVENUE
Transportation and storage of natural gas $ 318 $ 123 $ 468 $ 501
Other 25 5 28 33
----- ----- ----- -----
Total operating revenue 343 128 496 534
----- ----- ----- -----
OPERATING EXPENSES
Operation and maintenance 151 40 213 254
Depreciation and amortization 44 14 56 59
General taxes 22 7 26 26
----- ----- ----- -----
Total operating expenses 217 61 295 339
----- ----- ----- -----
PRETAX OPERATING INCOME 126 67 201 195
OTHER INCOME, NET 2 4 24 6
INTEREST CHARGES
Interest on long-term debt 59 5 25 25
Other interest 1 13 52 48
----- ----- ----- -----
Total interest charges 60 18 77 73
----- ----- ----- -----
NET INCOME BEFORE INCOME TAXES 68 53 148 128
INCOME TAXES 27 20 57 48
----- ----- ----- -----
CONSOLIDATED NET INCOME $ 41 $ 33 $ 91 $ 80
----- ----- ----- -----
</TABLE>
PE-6
<PAGE> 172
PANHANDLE EASTERN PIPE LINE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN MILLIONS)
<TABLE>
<CAPTION>
Mar. 29 - Jan. 1 - Years Ended December 31,
Dec. 31, Mar. 28, ------------------------
1999 1999 1998 1997
--------- --------- ----------- ----------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 41 $ 33 $ 91 $ 80
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 44 14 61 61
Deferred income taxes 34 - 17 2
Rate settlement - - - (70)
Changes in current assets and liabilities 51 (29) 4 9
Other, net 9 3 1 24
------- ------- ---- ----
Net cash provided by operating activities 179 21 174 106
------- ------- ---- ----
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of Panhandle (1,900) - - -
Capital and investment expenditures (53) (4) (85) (105)
Net increase in advances receivable - PanEnergy - (17) (106) (9)
Retirements and other (1) - 17 8
------- ------- ---- ----
Net cash used in investing activities (1,954) (21) (174) (106)
------- ------- ---- ----
CASH FLOWS FROM FINANCING ACTIVITIES
Contribution from parent 1,116 - - -
Proceeds from senior notes 785 - - -
Net increase in note receivable - CMS (85) - - -
Dividends paid (41) - - -
------- ------- ---- ----
Net cash provided by financing activities 1,775 - - -
------- ------- ---- ----
Net Increase (Decrease) in Cash and Temporary Cash Investments - - - -
CASH AND TEMPORARY CASH INVESTMENTS, BEGINNING OF PERIOD - - - -
------- ------- ---- ----
CASH AND TEMPORARY CASH INVESTMENTS, END OF PERIOD $ - $ - $ - $ -
======= ======= ==== ====
OTHER CASH FLOW ACTIVITIES WERE:
Interest paid (net of amounts capitalized) $ 31 $ 12 $ 78 $ 81
Income taxes paid (net of refunds) 8 37 56 65
</TABLE>
PE-7
<PAGE> 173
PANHANDLE EASTERN PIPE LINE COMPANY
CONSOLIDATED BALANCE SHEETS
(IN MILLIONS)
<TABLE>
<CAPTION>
December 31, December 31,
1999 1998
------------ ------------
<S> <C> <C>
ASSETS
PROPERTY, PLANT AND EQUIPMENT
Cost $ 1,492 $ 2,749
Less accumulated depreciation and amortization 37 1,798
------------ ------------
Sub-total 1,455 951
Construction work-in-progress 45 28
------------ ------------
Net property, plant and equipment 1,500 979
------------ ------------
INVESTMENTS
Advances receivable - PanEnergy - 738
Investment in affiliates 2 44
Other - 6
------------ ------------
Total investments and other assets 2 788
------------ ------------
CURRENT ASSETS
Receivables, less allowances of $1 for 1999 and $2 in 1998 112 94
Inventory and supplies 34 55
Deferred income taxes 11 2
Current portion of regulatory assets - 6
Note receivable - CMS Capital 85 -
Other 30 23
------------ ------------
Total current assets 272 180
------------ ------------
NON-CURRENT ASSETS
Goodwill, net 774 -
Debt issuance cost 11 11
Other 1 15
------------ ------------
Total non-current assets 786 26
------------ ------------
TOTAL ASSETS $ 2,560 $ 1,973
============ ============
</TABLE>
PE-8
<PAGE> 174
<TABLE>
<CAPTION>
December 31, December 31,
1999 1998
------------- -------------
<S> <C> <C>
COMMON STOCKHOLDER'S EQUITY AND LIABILITIES
CAPITALIZATION
Common stockholder's equity
Common stock, no par, 1,000 shares authorized, issued and outstanding $ 1 $ 1
Paid-in capital 1,127 466
Retained earnings - 91
------------- -------------
Total common stockholder's equity 1,128 558
Long-term debt 1,094 299
------------- -------------
Total capitalization 2,222 857
------------- -------------
CURRENT LIABILITIES
Note payable - PanEnergy - 675
Accounts payable 28 56
Accrued taxes 8 58
Accrued interest 29 8
Other 139 117
------------- -------------
Total current liabilities 204 914
------------- -------------
NON-CURRENT LIABILITIES
Deferred income taxes 45 99
Other 89 103
------------- -------------
Total non-current liabilities 134 202
------------- -------------
TOTAL COMMON STOCKHOLDER'S EQUITY AND LIABILITIES $ 2,560 $ 1,973
============= =============
</TABLE>
PE-9
<PAGE> 175
PANHANDLE EASTERN PIPE LINE COMPANY
CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDER'S EQUITY
(IN MILLIONS)
<TABLE>
<CAPTION>
Mar. 29 - Jan. 1 - Years Ended December 31,
Dec. 31, Mar. 28, ------------------------
1999 1999 1998 1997
--------- -------- ---------- ----------
<S> <C> <C> <C> <C>
COMMON STOCK
At beginning and end of period $ 1 $ 1 $ 1 $ 1
--------- -------- ---------- ----------
OTHER PAID-IN CAPITAL
At beginning of period 466 466 466 466
Acquisition adjustment to eliminate original
paid-in capital (466) - - -
Capital contribution of acquisition costs by parent 11 - - -
Cash capital contribution by parent 1,116 - - -
--------- -------- ---------- ----------
At end of period 1,127 466 466 466
--------- -------- ---------- ----------
RETAINED EARNINGS
At beginning of period 101 92 34 29
Acquisition adjustment to eliminate original
retained earnings (101) - - -
Net Income 41 33 91 80
Assumption of net liability by PanEnergy - 57 - -
Common stock dividends (41) (81) (34) (75)
--------- --------- ---------- ----------
At end of period - 101 91 34
--------- --------- ---------- ----------
TOTAL COMMON STOCKHOLDER'S EQUITY $ 1,128 $ 568 $ 558 $ 501
========= ========= ========== ==========
</TABLE>
PE-10
<PAGE> 176
PANHANDLE EASTERN PIPE LINE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. CORPORATE STRUCTURE
Panhandle Eastern Pipe Line Company is a wholly owned subsidiary of CMS Gas
Transmission and Storage Company, which is an indirect wholly owned subsidiary
of CMS Energy. Panhandle Eastern Pipe Line Company was incorporated in Delaware
in 1929. Panhandle is primarily engaged in interstate transportation and storage
of natural gas, which are subject to the rules and regulations of the FERC.
On March 29, 1999, Panhandle Eastern Pipe Line Company and its principal
consolidated subsidiaries, Trunkline and Pan Gas Storage, as well as its
affiliates, Trunkline LNG and Panhandle Storage, were acquired from subsidiaries
of Duke Energy by CMS Panhandle Holding for $1.9 billion in cash and assumption
of existing Panhandle debt of $300 million. Immediately following the
acquisition, CMS Panhandle Holding contributed the stock of Trunkline LNG and
Panhandle Storage to Panhandle Eastern Pipe Line Company. As a result, Trunkline
LNG and Panhandle Storage became wholly owned subsidiaries of Panhandle Eastern
Pipe Line Company.
In conjunction with the acquisition, Panhandle's interests in Northern Border
Pipeline Company, Panhandle Field Services Company, Panhandle Gathering Company,
and certain other assets, including the Houston corporate headquarters building,
were transferred to other subsidiaries of Duke Energy; all intercompany accounts
and notes between Panhandle and Duke Energy subsidiaries were eliminated; and
with respect to certain other liabilities, including tax, environmental and
legal matters, CMS Energy was indemnified for any resulting losses. In addition,
Duke Energy agreed to continue its environmental clean-up program at certain
properties and to defend and indemnify Panhandle against certain future
environmental litigation and claims with respect to certain agreed-upon sites or
matters.
CMS Panhandle Holding privately placed $800 million of senior unsecured notes
and received a $1.1 billion initial capital contribution from CMS Energy to fund
the acquisition of Panhandle. On June 15, 1999, CMS Panhandle Holding was merged
into Panhandle, at which point the CMS Panhandle Holding notes became direct
obligations of Panhandle. In September 1999, Panhandle completed an exchange
offer which replaced the $800 million of notes originally issued by CMS
Panhandle Holding with substantially identical SEC-registered notes.
The acquisition by CMS Panhandle Holding was accounted for using the purchase
method of accounting in accordance with generally accepted accounting
principles, with Panhandle allocating the purchase price paid by CMS Panhandle
Holding to Panhandle's net assets as of the acquisition date based on a
preliminary appraisal completed December 1999. Accordingly, the post-acquisition
financial statements reflect a new basis of accounting, and pre-acquisition
period and post-acquisition period financial results (separated by a heavy black
line) are presented but are not comparable.
PE-11
<PAGE> 177
Assets acquired and liabilities assumed are recorded at their estimated fair
values and are subject to adjustment when additional information concerning
asset and liability valuations is finalized by the end of the first quarter of
2000. Panhandle has allocated the tentative excess purchase price over the
estimated fair value of net assets acquired of approximately $800 million to
goodwill and is amortizing this amount on a straight-line basis over forty
years. The amortization of the excess purchase price over 40 years reflects the
nature of the industry in which Panhandle competes as well as the long-lived
nature of Panhandle's assets. As a result of regulation, high replacement costs,
and competition, entry into the natural gas transmission and storage business
requires a significant investment. The excess purchase price over the prior
carrying amount of Panhandle's net assets as of March 29, 1999 totaled $1.3
billion, and was allocated as follows:
<TABLE>
<CAPTION>
In Millions
- -------------------------------------------------------------
<S> <C>
Property, plant and equipment $ 633
Accounts receivable 3
Inventory (9)
Goodwill 788
Regulatory assets, net (15)
Liabilities (72)
Long-term debt (6)
Other (16)
- -------------------------------------------------------------
Total $1,306
=============================================================
</TABLE>
Pro forma results of operations for 1999 and 1998 as though Panhandle had been
acquired and purchase accounting applied at the beginning of 1999 and 1998,
respectively, are as follows:
<TABLE>
<CAPTION>
In Millions
=======================================================================================
Year Ended Year Ended
December 31, 1999 December 31, 1998
(Unaudited) (Unaudited)
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Revenues $ 467 $ 470
Net income 67 60
Total assets 2,560 2,477
- --------------------------------------------------------------------------------------
</TABLE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND OTHER MATTERS
CONSOLIDATIONS: The consolidated financial statements include the accounts of
all of Panhandle's majority-owned subsidiaries after the elimination of
significant intercompany transactions and balances. Investments in other
entities that are not controlled by Panhandle, but where it has significant
influence over operations, are accounted for using the equity method.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Although these estimates are based on management's knowledge of current and
expected future events, actual results could differ from those estimates.
PE-12
<PAGE> 178
CASH AND CASH EQUIVALENTS: All liquid investments with maturities at date of
purchase of three months or less are considered cash equivalents.
INVENTORY: Inventory consists of gas held for operations and materials and
supplies and is recorded at the lower of cost or market, using the weighted
average cost method. Effective January 1, 1999, Trunkline changed to the
weighted average cost method from the last-in first-out method for its gas held
for operations with no material impact on the financial statements.
GAS IMBALANCES: Gas imbalances occur as a result of differences in volumes
of gas received and delivered. Gas imbalance receivables and payables are
valued at lower of cost or market.
PROPERTY, PLANT AND EQUIPMENT: On March 29, 1999, Panhandle's assets were
acquired by CMS Panhandle Holding. The acquisition was accounted for using the
purchase method of accounting in accordance with generally accepted accounting
principles. Panhandle's property, plant and equipment was adjusted to estimated
fair market value on March 29, 1999 and depreciated based on revised estimated
remaining useful lives. Panhandle's accumulated depreciation and amortization
provision balance at March 29, 1999 was eliminated pursuant to the purchase
method of accounting (See Note 1).
Ongoing additions of property, plant and equipment are stated at original cost.
Panhandle capitalizes all construction-related direct labor and material costs,
as well as indirect construction costs. The cost of renewals and betterments
that extend the useful life of property, plant and equipment is also
capitalized. The cost of repairs and replacements of minor items is charged to
expense as incurred. Depreciation is generally computed using the straight-line
method. The composite weighted-average depreciation rates were 2.6%, 2.2% and
2.2% for 1999, 1998 and 1997, respectively.
When property, plant and equipment is retired, the original cost plus the cost
of retirement, less salvage, is charged to accumulated depreciation and
amortization. When entire regulated operating units are sold or non-regulated
properties are retired or sold, the property and related accumulated
depreciation and amortization accounts are reduced, and any gain or loss is
recorded in income.
IMPAIRMENT OF LONG-LIVED ASSETS: The recoverability of long-lived assets and
intangible assets are reviewed whenever events or changes in circumstances
indicate that the carrying amount of the asset may not be recoverable. Such
evaluation is based on various analyses, including undiscounted cash flow
projections.
UNAMORTIZED DEBT PREMIUM, DISCOUNT AND EXPENSE: Premiums, discounts and expenses
incurred in connection with the issuance of presently outstanding long-term debt
are amortized over the terms of the respective issues.
ENVIRONMENTAL EXPENDITURES: Environmental expenditures that relate to an
existing condition caused by past operations that do not contribute to current
or future revenue generation are expensed. Environmental expenditures relating
to current or future revenues are expensed or capitalized as appropriate.
Liabilities are recorded when environmental assessments and/or clean-ups are
probable and the costs can be reasonably estimated. Under the terms of the sale
of Panhandle to CMS Energy (See Note 1), a subsidiary of Duke Energy is
obligated to complete the Panhandle clean-up programs at certain agreed-upon
sites and to defend and indemnify Panhandle against certain future environmental
litigation and claims. These clean-up programs are expected to continue until
2001.
PE-13
<PAGE> 179
REVENUES: Revenues on transportation and storage of natural gas are recognized
as service is provided. When rate cases are pending final approval, a portion of
the revenues is subject to possible refund. Reserves have been established where
required for such cases.
During 1999 and 1997, sales to ProLiance Energy, L.L.C., a nonaffiliated gas
marketer, and Consumers Energy, a subsidiary of CMS Energy, each accounted for
at least 10% of consolidated revenues of Panhandle. During 1998, sales to
ProLiance Energy, L.L.C. accounted for approximately 10% of consolidated
revenues of Panhandle. No other customer accounted for 10% or more of
consolidated revenues during 1999, 1998 or 1997.
INTEREST COST CAPITALIZED: SFAS 34, Capitalization of Interest Cost, requires
capitalization of interest on certain qualifying assets that are undergoing
activities to prepare them for their intended use. SFAS 34 limits the
capitalization of interest for the period to the actual interest cost that is
incurred and prohibits imputing interest costs on any equity funds. As a result
of the discontinuance of SFAS 71, Panhandle is now subject to the provisions of
SFAS 34.
INCOME TAXES: CMS Energy and its subsidiaries file a consolidated federal income
tax return. Federal income taxes have been provided by Panhandle on the basis of
its separate company income and deductions in accordance with established
practices of the consolidated group. Deferred income taxes have been provided
for temporary differences. Temporary differences occur when events and
transactions recognized for financial reporting result in taxable or
tax-deductible amounts in different periods.
GOODWILL AMORTIZATION: Goodwill represents the excess of the purchase price over
the fair value of the net assets of acquired companies and is amortized using
the straight-line method over forty years. Accumulated amortization of goodwill
at December 31, 1999 was $14 million.
RECLASSIFICATIONS: Certain amounts have been reclassified in the Consolidated
Financial Statements to conform to the current presentation.
NEW ACCOUNTING STANDARD: In 1999, the FASB issued SFAS 137, Accounting for
Derivative Instruments and Hedging Activities - Deferral of the Effective Date
of FASB Statement No.133. SFAS 137 defers the effective date of SFAS 133,
Accounting for Derivative Instruments and Hedging Activities, to January 1,
2001. Panhandle is currently studying SFAS 133 and plans to adopt SFAS 133 as of
January 1, 2001, and has yet to quantify the effects of adoption on its
financial statements.
CHANGE IN ACCOUNTING POLICY: As a result of Panhandle's new cost basis resulting
from the merger with CMS Panhandle Holding, which includes costs not likely to
be considered for regulatory recovery, in addition to the level of discounting
being experienced by Panhandle, it no longer meets the criteria of SFAS 71 and
has discontinued application of SFAS 71. Accordingly, upon acquisition by CMS
Panhandle Holding, the remaining net regulatory assets of approximately $15
million were eliminated in purchase accounting (See Note 1).
PE-14
<PAGE> 180
3. REGULATORY MATTERS
Effective August 1996, Trunkline placed into effect a general rate increase,
subject to refund. On September 16, 1999, Trunkline filed a FERC settlement
agreement to resolve certain issues in this proceeding. This settlement was
approved on February 1, 2000 and will require refunds of approximately $2
million expected to be made in April 2000, with supplemental refunds expected in
July 2000. On January 12, 2000, FERC issued an order on the remainder of the
rate proceeding which, if approved without modification, would result in a
substantial reduction to Trunkline's tariff rates which would impact future
revenues and require refunds. Trunkline has requested rehearing of certain
matters in this order.
In conjunction with a FERC order issued in September 1997, certain natural gas
producers were required to refund previously collected Kansas ad-valorem taxes
to interstate natural gas pipelines. These pipelines were ordered to refund
these amounts to their customers. All payments are to be made in compliance with
prescribed FERC requirements. At December 31, 1999 and December 31, 1998,
accounts receivable included $54 million and $50 million, respectively, due from
natural gas producers, and other current liabilities included $54 million and
$50 million, respectively, for related obligations.
In June 1998, Trunkline filed a petition with the FERC to abandon 720 miles of
its 26-inch diameter pipeline that extends from Longville, Louisiana to Bourbon,
Illinois. Trunkline requested permission to transfer the pipeline to an
affiliate, which had entered into an option agreement with Aux Sable for
potential conversion of the line to allow transportation of hydrocarbon vapors.
Trunkline requested FERC to grant the abandonment authorization in time to
separate the pipeline from existing facilities and allow Aux Sable to convert
the pipeline to hydrocarbon vapor service by October 1, 2000, if the option was
exercised. The option expired on July 1, 1999 and was not renewed by Aux Sable.
On November 8, 1999, the FERC issued a letter order dismissing Trunkline's
filing without prejudice to refiling the abandonment to reflect changed
circumstances. Trunkline on March 9, 2000 refiled its abandonment application
with FERC. This filing is in conjunction with a plan for a joint venture, to
convert the line from natural gas transmission service to a refined products
pipeline by the end of 2001. Panhandle will own a one third interest in the
joint venture.
On May 19, 1999, Trunkline and Trunkline LNG submitted a compliance filing
advising the FERC that the acquisition by CMS Energy of Trunkline LNG triggered
certain provisions of a 1992 settlement. The settlement resolved issues related
to minimum bill provisions of the Trunkline LNG Rate Schedule PLNG-1, as well as
pending rate matters for Trunkline and refund matters for Trunkline LNG.
Specifically, the settlement provisions require Trunkline LNG, and Trunkline in
turn, to make refunds to customers, including Panhandle Eastern Pipe Line
Company and Consumers, who were parties to the settlement, if the ownership of
all or portion of the LNG terminal is transferred to an unaffiliated entity. The
total refund due customers of approximately $17 million will be paid within 30
days of final FERC approval of the compliance filing. In conjunction with the
acquisition of Panhandle by CMS Energy, Duke Energy indemnified Panhandle for
this refund obligation. In conjunction with the settlement, Panhandle Eastern
Pipe Line Company and its customers entered into an agreement, whereby upon FERC
approval of the compliance filing described above, Panhandle Eastern Pipe Line
Company will file to flow through its portion of the settlement amounts to its
customers. The May 19, 1999 compliance filing is pending FERC approval.
PE-15
<PAGE> 181
4. RELATED PARTY TRANSACTIONS
<TABLE>
<CAPTION>
In Millions
- -------------------------------------------------------------------------------------------------------------------
Mar.29 - Jan.1 - For the Years Ended
Dec.31 Mar.28 December 31,
- -------------------------------------------------------------------------------------------------------------------
1999 1999 1998 1997
--------- --------------------------------------------
<S> <C> <C> <C> <C>
Transportation of natural gas $64 $6 $29 $32
Other operating revenues - 2 15 27
Operation and maintenance(a) 25 8 60 66
Interest income 2 - - -
Interest expense - 13 55 49
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Includes allocated benefit plan costs.
Amounts for 1999 reflect only related party transactions with CMS Energy and its
subsidiaries for the period after the sale of Panhandle to CMS Energy. Interest
charges include $55 million for the twelve months ended 1998 for interest
associated with notes payable to a subsidiary of Duke Energy. Note receivable
from CMS Capital included an $85 million note at December 31, 1999, which bore
interest at the 30-day commercial paper interest rate. Other income includes $2
million for the period ended December 31, 1999 for interest on note receivable
from CMS Capital.
A summary of certain balances due to or due from related parties included in the
Consolidated Balance Sheets is as follows:
<TABLE>
<CAPTION>
In Millions
- ----------------------------------------------------------------
December 31,
- ----------------------------------------------------------------
1999 1998
------------ -------------
<S> <C> <C>
Receivables $8 $2
Accounts payable 16 46
Taxes accrued - 35
- ----------------------------------------------------------------
</TABLE>
In conjunction with the acquisition of Panhandle by a subsidiary of CMS Energy,
all intercompany advance and note balances between Panhandle and subsidiaries of
Duke Energy were eliminated. Transactions with prior affiliates before the
acquisition are now reflected as receivables on the Consolidated Balance Sheet.
5. GAS IMBALANCES
The Consolidated Balance Sheets include in-kind balances as a result of
differences in gas volumes received and delivered. At December 31, 1999 and
1998, other current assets included $22 million and $20 million, respectively,
and other current liabilities included $30 million and $22 million,
respectively, related to gas imbalances.
PE-16
<PAGE> 182
6. INCOME TAXES
The separate components of income tax expense consist of:
<TABLE>
<CAPTION>
In Millions
===============================================================================================================
INCOME TAX EXPENSE
- ---------------------------------------------------------------------------------------------------------------
Mar.29 - Jan.1 - For the Years Ended
Dec. 31 Mar.28 December 31,
- ---------------------------------------------------------------------------------------------------------------
1999 1999 1998 1997
--------------------------------------------------------
<S> <C> <C> <C> <C>
Current income taxes
Federal $ (7) $ 18 $ 34 $ 41
State - 2 6 5
--------------------------------------------------------
Total current income taxes (7) 20 40 46
--------------------------------------------------------
Deferred income taxes, net
Federal 29 - 14 1
State 5 - 3 1
--------------------------------------------------------
Total deferred income taxes, net 34 - 17 2
--------------------------------------------------------
Total income tax expense $ 27 $ 20 $ 57 $ 48
===============================================================================================================
</TABLE>
The actual income tax expense differs from the amount computed by applying the
statutory federal tax rate to income before income taxes as follows:
<TABLE>
<CAPTION>
In Millions
===================================================================================================================
INCOME TAX EXPENSE RECONCILIATION TO STATUTORY
- -------------------------------------------------------------------------------------------------------------------
Mar.29 - Jan.1 - For the Years Ended
Dec. 31 Mar. 28 December 31,
- -------------------------------------------------------------------------------------------------------------------
1999 1999 1998 1997
------------------------------------------------------------
<S> <C> <C> <C> <C>
Income tax, computed at the statutory rate $24 $18 $52 $45
Adjustments resulting from:
State income tax, net of federal income
tax effect 3 2 5 3
------------------------------------------------------------
Total income tax expense $27 $20 $57 $48
============================================================
Effective tax rate 39.6% 38.2% 38.5% 37.5%
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
PE-17
<PAGE> 183
The principal components of Panhandle's deferred tax assets (liabilities)
recognized in the balance sheet are as follows:
<TABLE>
<CAPTION>
In Millions
==============================================================================================
NET DEFERRED INCOME TAX LIABILITY COMPONENTS
- ----------------------------------------------------------------------------------------------
December 31,
- ----------------------------------------------------------------------------------------------
1999 1998
------------------------------
<S> <C> <C>
Deferred credits and other liabilities $ 30 $ 85
Other 32 3
------------------------------
Total deferred income tax assets 62 88
------------------------------
Investments and other assets (18) (18)
Property, plant and equipment (10) (148)
Goodwill (65) -
Regulatory assets - (12)
------------------------------
Total deferred income tax liabilities (93) (178)
------------------------------
State deferred income tax, net of federal tax effect (3) (7)
Net deferred income tax liability (34) (97)
------------------------------
Portion classified as current asset 11 2
------------------------------
Noncurrent liability $(45) $ (99)
==============================================================================================
</TABLE>
As described in Note 1, the stock of Panhandle was acquired from subsidiaries of
Duke Energy by CMS Panhandle Holding for a total of $2.2 billion in cash and
acquired debt. The acquisition was treated as an asset acquisition for tax
purposes, which eliminated Panhandle's deferred tax liability and gave rise to a
new tax basis in Panhandle's assets equal to the purchase price.
7. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
In Millions
==============================================================================================
1999 1998
-------------------------------
<S> <C> <C>
Transmission $1,189 $2,003
Gathering 18 265
Underground storage 245 320
General plant 40 161
Construction work-in-progress 45 28
-------------------------------
Total property, plant and equipment 1,537 2,777
Less accumulated depreciation and amortization 37 1,798
-------------------------------
Net property, plant and equipment $1,500 $979
==============================================================================================
</TABLE>
PE-18
<PAGE> 184
8. FINANCIAL INSTRUMENTS
Panhandle's financial instruments include approximately $1.1 billion and $299
million of long-term debt at December 31, 1999 and 1998, respectively, with an
approximate fair value of $1 billion and $318 million as of December 31, 1999
and 1998, respectively. Estimated fair value amounts of long-term debt were
obtained from independent parties. Judgment is required in interpreting market
data to develop the estimates of fair value. Accordingly, the estimates
determined as of December 31, 1999 and 1998 are not necessarily indicative of
the amounts Panhandle could have realized in current market exchanges.
Guarantees made to related parties have no book value associated with them and
there are no fair values readily determinable since quoted market prices are not
available. The fair values of advances and note receivable -- related parties
are not readily determinable since such amounts are carried as open accounts
(See Note 4).
9. LONG-TERM DEBT
<TABLE>
<CAPTION>
In Millions
==========================================================================================
December 31,
-----------------------------
Year Due 1999 1998
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
6.125% - 7.875% Notes 2004 - 2029 $ 900 $100
7.2% - 7.95% Debentures 2023 - 2024 200 200
Unamortized debt (discount) and premium, net (6) (1)
-----------------------------
Total long-term debt $1,094 $299
=============================
</TABLE>
On March 29, 1999, CMS Panhandle Holding privately placed $800 million of senior
notes (See Note 1) including: $300 million of 6.125 percent senior notes due
2004; $200 million of 6.5 percent senior notes due 2009; and $300 million of 7.0
percent senior notes due 2029. On June 15, 1999, CMS Panhandle Holding was
merged into Panhandle and the obligations of CMS Panhandle Holding under the
notes and the related indenture were assumed by Panhandle. In September 1999,
Panhandle completed an exchange offer which replaced the $800 million of notes
originally issued by CMS Panhandle Holding with substantially identical
SEC-registered notes.
In conjunction with the application of purchase accounting, Panhandle's existing
notes totaling $300 million were revalued resulting in a net premium recorded of
approximately $5 million.
The 7.2% - 7.95% debentures have call options whereby Panhandle has the option
to repay the debt early. Based on the year in which Panhandle may first exercise
the redemption options, all $200 million could potentially be repaid in 2003.
At December 31, 1998, Note payable-PanEnergy consisted of a $675 million note
bearing interest at prime rate. The note was eliminated immediately prior to the
acquisition by CMS Energy.
OTHER: Under its most restrictive borrowing arrangement at December 31, 1999,
none of Panhandle's consolidated net income was restricted for payment of common
dividends.
PE-19
<PAGE> 185
10. INVESTMENT IN AFFILIATES
Investments in affiliates, which are not controlled by Panhandle but where
Panhandle has significant influence over operations, are accounted for by the
equity method. These investments include undistributed earnings of $.4 million
and $14 million in 1999 and 1998, respectively. Panhandle's proportionate share
of net income from these affiliates for the years ended December 31, 1999, 1998
and 1997 was $.2 million, $6 million and $5 million, respectively. These amounts
are reflected in the Consolidated Statements of Income as Other Operating
Revenues. Investment in affiliates includes the following:
LEE 8 STORAGE. Panhandle, through its subsidiary Panhandle Storage, owns a 40
percent interest in the Lee 8 partnership, which operates a 1.4 bcf natural gas
storage facility in Michigan. This interest results from the contribution of the
stock of Panhandle Storage to Panhandle Eastern Pipe Line Company by CMS
Panhandle Holding on March 29, 1999.
NORTHERN BORDER PARTNERS, L.P. Northern Border Partners, L.P. is a master
limited partnership that owns 70 percent of Northern Border Pipeline Company, a
partnership operating a pipeline transporting natural gas from Canada to the
Midwest area of the United States. At December 31, 1998, Panhandle held a 7.0
percent limited partnership interest in Northern Border Partners, L.P., and
thus, an indirect 4.9 percent ownership interest in Northern Border Pipeline
Company. In conjunction with the acquisition of Panhandle by CMS Energy,
Panhandle transferred its interest in Northern Border to a subsidiary of Duke
Energy in the first quarter of 1999.
WESTANA GATHERING COMPANY. Westana Gathering Company is a joint venture that
provides gathering, processing and marketing services for natural gas producers
in Oklahoma. In conjunction with the acquisition of Panhandle by CMS Energy,
Panhandle's interest in Westana Gathering Company was transferred to a
subsidiary of Duke Energy in the first quarter of 1999.
11. COMMITMENTS AND CONTINGENCIES
CAPITAL EXPENDITURES: Panhandle estimates capital expenditures and investments,
including allowance for funds used during construction, to be approximately $130
million in 2000 and $60 million in each of the two following years. The year
2000 estimate includes the Sea Robin acquisition (see Note 14). These estimates
are prepared for planning purposes and are subject to revision. Capital
expenditures for 1999 were satisfied by cash from operations.
LITIGATION: Under the terms of the sale of Panhandle to CMS Energy discussed in
Note 1 to the Consolidated Financial Statements, subsidiaries of Duke Energy
indemnified CMS Energy from losses resulting from certain legal and tax
liabilities of Panhandle, including the matter specifically discussed below:
PE-20
<PAGE> 186
In May 1997, Anadarko filed suits against Panhandle and other PanEnergy
affiliates, as defendants, both in the United States District Court for the
Southern District of Texas and State District Court of Harris County, Texas.
Pursuing only the federal court claim, Anadarko claims that it was effectively
indemnified by the defendants against any responsibility for refunds of Kansas
ad valorem taxes which are due from purchasers of gas from Anadarko, retroactive
to 1983. In October 1998 and January 1999, the FERC issued orders on ad valorem
tax issues, finding that first sellers of gas were primarily liable for refunds.
The FERC also noted that claims for indemnity or reimbursement among the parties
would be better addressed by the United States District Court for the Southern
District of Texas. Panhandle believes the resolution of this matter will not
have a material adverse effect on consolidated results of operations or
financial position.
Panhandle is also involved in other legal, tax and regulatory proceedings before
various courts, regulatory commissions and governmental agencies regarding
matters arising in the ordinary course of business, some of which involve
substantial amounts. Where appropriate, Panhandle has made accruals in
accordance with SFAS 5, Accounting for Contingencies, in order to provide for
such matters. Management believes the final disposition of these proceedings
will not have a material adverse effect on consolidated results of operations or
financial position.
ENVIRONMENTAL MATTERS: Panhandle is subject to federal, state and local
regulations regarding air and water quality, hazardous and solid waste disposal
and other environmental matters. Panhandle has identified environmental
contamination at certain sites on its systems and has undertaken clean-up
programs at these sites. The contamination resulted from the past use of
lubricants in compressed air systems containing PCBs and the prior use of
wastewater collection facilities and other on-site disposal areas. Under the
terms of the sale of Panhandle to CMS Energy, a subsidiary of Duke Energy is
obligated to complete the Panhandle clean-up programs at certain agreed-upon
sites and to indemnify against certain future environmental litigation and
claims. The Illinois EPA included Panhandle and Trunkline, together with other
non-affiliated parties, in a cleanup of former waste oil disposal sites in
Illinois. Prior to a partial cleanup by the United States EPA, a preliminary
study estimated the cleanup costs at one of the sites to be between $5 million
and $15 million. The State of Illinois contends that Panhandle Eastern Pipe Line
Company's and Trunkline's share for the costs of assessment and remediation of
the sites, based on the volume of waste sent to the facilities, is 17.32
percent. Management believes that the costs of cleanup, if any, will not have a
material adverse impact on Panhandle's financial position, liquidity, or results
of operations.
OTHER COMMITMENTS AND CONTINGENCIES: In 1993, the U.S. Department of the
Interior announced its intention to seek additional royalties from gas producers
as a result of payments received by such producers in connection with past
take-or-pay settlements, and buyouts and buydowns of gas sales contracts with
natural gas pipelines. Panhandle's pipelines, with respect to certain producer
contract settlements, may be contractually required to reimburse or, in some
instances, to indemnify producers against such royalty claims. The potential
liability of the producers to the government and of the pipelines to the
producers involves complex issues of law and fact which are likely to take
substantial time to resolve. If required to reimburse or indemnify the
producers, Panhandle's pipelines will file with FERC to recover a portion of
these costs from pipeline customers. Management believes these commitments and
contingencies will not have a material adverse effect on consolidated results of
operations or financial position.
PE-21
<PAGE> 187
Under the terms of a settlement related to a transportation agreement between
Panhandle and Northern Border Pipeline Company, Panhandle guarantees payment to
Northern Border Pipeline Company under a transportation agreement held by a
third party. The transportation agreement requires estimated total payments of
$33 million for the remainder of 2000 through 2001. Management believes the
probability that Panhandle will be required to perform under this guarantee is
remote.
LEASES: Panhandle utilizes assets under operating leases in several areas of
operation. Consolidated rental expense amounted to $14 million ($11 million
related to the CMS Energy ownership period and $3 million during the Duke Energy
ownership period), $15 million and $20 million in 1999, 1998 and 1997,
respectively. Future minimum rental payments under Panhandle's various operating
leases for the years 2000 through 2004 are $14 million, $13 million, $10
million, $4 million and $4 million, respectively and $11 million for 2005 and
thereafter.
12. EXECUTIVE INCENTIVE COMPENSATION
Panhandle participates in CMS Energy's Performance Incentive Stock Plan. Under
the plan, restricted shares of Common Stock of CMS Energy, as well as stock
options and stock appreciation rights related to Common Stock 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. Certain plan awards are subject to performance-based business
criteria. The plan reserves for awards not more than five percent, as amended
January 1, 1999, of 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. The number of shares of restricted Common Stock awarded under
this plan can not exceed 20% of the aggregate number of shares reserved for
award. Any forfeiture of shares previously awarded will increase the number of
shares available to be awarded under the plan. At December 31, 1999, awards of
up to 2,466,524 shares of CMS Energy 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
specific 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, 1999, all of the
12,000 shares of restricted CMS Energy Common Stock outstanding are subject to
performance objectives.
The plan grants stock options and stock appreciation rights relating to Common
Stock with an exercise price equal to the closing market price on each grant
date. Some options may be exercised upon grant; others vest over five years at
the rate of 25 percent per year after one year. All options expire up to ten
years and one month from date of grant. The status of the restricted stock and
options granted to Panhandle's key employees under the Performance Incentive
Stock Plan follows:
PE-22
<PAGE> 188
<TABLE>
<CAPTION>
Restricted
Stock Options
- ---------------------------------------------------------------------------------------------------------------------
Number Number Weighted Average
CMS ENERGY COMMON STOCK of Shares of Shares Exercise Price
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Outstanding at December 31, 1998 - - NA
Granted 12,000 299,912 $41.07
Exercised or Issued - - NA
Outstanding at December 31, 1999 12,000 299,912 $41.07
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
The following table summarizes Panhandle information about CMS Energy Common
Stock options outstanding at December 31, 1999:
<TABLE>
<CAPTION>
Number Weighted Weighted
Range of of Shares Average Average
Exercise Prices Outstanding Remaining Life Exercise Price
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CMS Energy Common Stock
$39.0625 - $41.750 299,912 9.46 years $41.07
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
The weighted average fair value of options granted to Panhandle employees for
CMS Energy Common Stock was $5.93 in 1999. Fair value is estimated using the
Black-Scholes model, a mathematical formula used to value options traded on
securities exchanges, with the following assumptions:
Year Ended
December 31, 1999
- ------------------------------------------------------------------------------
Risk-free interest rate 5.65%
Expected stock price volatility 16.81%
Expected dividend rate $.365
Expected option life 4.5 years
- ------------------------------------------------------------------------------
Panhandle 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, Panhandle's net income would have decreased by
approximately $1.2 million for 1999. The compensation cost charged against
income for restricted stock was $.1 million in 1999.
PE-23
<PAGE> 189
13. BENEFIT PLANS
Under the terms of the acquisition of Panhandle by CMS Energy, benefit
obligations related to active employees and certain plan assets were transferred
to CMS Energy. Benefit obligations related to existing retired employees and
remaining plan assets were retained by a subsidiary of Duke Energy.
Following the acquisition of Panhandle by CMS Energy described in Note 1,
Panhandle now participates in CMS Energy's non-contributory defined benefit
retirement plan covering most employees with a minimum of one year vesting
service. Panhandle, through CMS Energy, provides retirement benefits under a
number of different plans, including certain health care and life insurance
benefits under OPEB, benefits to certain management employees under SERP, and
benefits to substantially all its employees under a trusted, non-contributory,
defined benefit pension plan of CMS Energy (Pension Plan) and a defined
contribution 401(K) plan.
CMS Energy's policy is to fund amounts, as necessary, on an actuarial basis to
provide assets sufficient to meet benefits to be paid to plan participants. With
respect to the CMS Pension Plan, the fair value of the plan assets was $1,094
million at December 31, 1999 as compared to the benefit obligation of $971
million. With respect to the prior Duke Energy plan, the fair value of the plan
assets of $819 million at December 31, 1998, exceeded the projected benefit
obligations of $338 million, as of December 31, 1998.
Panhandle's net periodic pension benefit cost, as allocated by CMS Energy, was
$2 million in 1999. For 1998 and 1997, Panhandle's net periodic pension benefit
cost, as allocated by a subsidiary of Duke Energy, was $14 million and $13
million, respectively.
Amounts presented below for the Pension Plan include amounts for employees of
CMS Energy and nonutility affiliates which were not distinguishable from the
plan's total assets.
Weighted-Average Assumptions:
<TABLE>
<CAPTION>
Pension & SERP OPEB
-------------------------------------- --------------------------------------
Years Ended December 31 1999(a) 1998 1997 1999(a) 1998 1997
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Discount rate 7.75% 6.75% 7.25% 7.75% 6.75% 7.25%
Expected long-term rate of
return on plan assets 9.25% 9.25% 9.25% 7.00% 9.25% 9.25%
Rate of compensation increase 4.67% 4.75%
Pension - to age 45 5.25% NA NA
- age 45 to assumed
retirement 3.75% NA NA
SERP 5.50% NA NA
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) 1999 reflects CMS Energy's Pension and Other Postretirement benefits
accounting.
The Pension Plan's net unrecognized transition obligation, resulting from the
implementation of accrual accounting, is amortized over 16 years and 11 years
for the SERP's on a straight-line basis over the average remaining service
period of active employees.
PE-24
<PAGE> 190
Panhandle accrues health care and life insurance benefit costs over the active
service period of employees to the date of full eligibility for the benefits.
With respect to the CMS OPEB Plan, the fair value of the plan assets was $431
million at December 31, 1999 as compared to the benefit obligation of $736
million. With respect to the prior Duke Energy plan, the fair value of the plan
assets of $150 million at December 31, 1998, versus projected benefit
obligations of $225 million, as of December 31, 1998.
It is Panhandle's and CMS Energy's general policy to fund accrued postretirement
health care costs. CMS Energy's retiree life insurance plan is fully funded
based on actuarially determined requirements.
Panhandle's net periodic postretirement benefit cost, as allocated by CMS
Energy, was $4 million in 1999. For each year in 1998 and 1997, Panhandle's net
periodic postretirement benefit cost, as allocated by a subsidiary of Duke
Energy, was $7 million.
For measurement purposes, a 7.0 percent weighted average rate of increase in the
per capita cost of covered health care benefits was assumed for 1999. The rate
is based on assumptions that it will decrease gradually to 5.5 percent in 2006
and thereafter. Assumed health care cost trend rates have a significant effect
on the amounts reported for Panhandle's health care plans.
<TABLE>
<CAPTION>
In Millions
=========================================================================================================
SENSITIVITY TO CHANGES IN ASSUMED HEALTH CARE COST TREND RATES
- ---------------------------------------------------------------------------------------------------------
1-Percentage- 1-Percentage-
Point Increase Point Decrease
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Effect on total service and interest cost components $ 1 $ (1)
Effect on postretirement benefit obligation $ 8 $ (7)
=========================================================================================================
</TABLE>
14. SUBSEQUENT EVENT (UNAUDITED)
In January 2000, Panhandle announced that Trunkline has entered into a
definitive agreement to acquire the Sea Robin Pipeline system, a 1 bcf per day
capacity offshore Gulf of Mexico pipeline, from Southern Natural Gas Company, a
subsidiary of Sonat, Inc., for a total price including certain transaction costs
of approximately $74 million. This transaction is expected to close in March
2000.
PE-25
<PAGE> 191
15. QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
First Second Third Fourth
(In millions) Quarter Quarter Quarter Quarter Total
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1999
Operating revenue $133(a) $104(a) $107 $127 $471
Pretax Operating Income 69(a) 44(a) 41 39 193
Net income 34 14 14 12 74
=============================================================================================================
1998
Operating revenue $139 $116 $111 $130 $496
Pretax Operating Income 70 44 36 51 201
Net income 35 17 11 28(b) 91
- -------------------------------------------------------------------------------------------------------------
</TABLE>
(a) First and second quarters of 1999 were restated to include certain
miscellaneous income, including rental income and gain or loss on sale of
assets, as other revenue.
(b) Includes a gain on sale of certain general partnership interests of $14
million.
PE-26
<PAGE> 192
REPORT OF INDEPENDEDENT PUBLIC ACCOUNTANTS
To Panhandle Eastern Pipe Line Company:
We have audited the accompanying consolidated balance sheet of Panhandle Eastern
Pipe Line Company (a Delaware corporation) and subsidiaries as of December 31,
1999, and the related consolidated statements of income, cash flows and common
stockholder's equity for the period from January 1, 1999 through March 28, 1999
and for the period from March 29, 1999 through December 31, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. 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 Panhandle Eastern Pipe Line
Company and subsidiaries as of December 31, 1999, and the results of their
operations and their cash flows for the period from January 1, 1999 through
March 28, 1999 and for the period from March 29, 1999 through December 31, 1999
in conformity with accounting principles generally accepted in the Unites
States.
/s/ Arthur Andersen LLP
Houston, Texas
February 25, 2000
PE-27
<PAGE> 193
INDEPENDENT AUDITORS' REPORT
Panhandle Eastern Pipe Line Company:
We have audited the accompanying consolidated balance sheets of Panhandle
Eastern Pipe Line Company and subsidiaries (the "Company") as of December
31, 1998 and 1997, and the related consolidated statements of income, common
stockholder's equity and cash flows for each of the two years in the period
ended December 31, 1998. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
the 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, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company as of December 31,
1998 and 1997, and the results of its operations and its cash flows for each of
the two years in the period ended December 31, 1998 in conformity with generally
accepted accounting principles.
/s/ DELOITTE & TOUCHE LLP
Charlotte, North Carolina
February 12, 1999
PE-28
<PAGE> 194
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE.
CMS ENERGY
None for CMS Energy.
CONSUMERS
None for Consumers.
PANHANDLE
Effective upon the closing of the acquisition of Panhandle by CMS Energy,
Panhandle's Board of Directors dismissed Deloitte & Touche LLP as Panhandle's
certifying accountant and retained Arthur Andersen LLP for 1999. Arthur Andersen
LLP is serving as certifying accountant for CMS Energy and its principal
subsidiaries in 1999. Deloitte & Touche LLP's report on the Panhandle financial
statements for 1997 and 1998 did not contain an adverse opinion or a disclaimer
of opinion, nor was it qualified or modified as to uncertainty, audit scope, or
accounting principles. During 1997, 1998 and the interim period from January 1,
1999 through March 29, 1999 (effective upon the closing of the acquisition),
there were no disagreements or "reportable events" as described in Items
304(a)(1)(iv) and (v) of Regulation S-K between Panhandle and Deloitte & Touche
LLP.
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 information 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.
CO-1
<PAGE> 195
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, Consumers, and Panhandle 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, Consumers and Panhandle are listed after
the Exhibits in the Index to Financial Statement Schedules, and are
incorporated by reference herein.
(a)(3) Exhibits for CMS Energy, Consumers, and Panhandle are listed after Item
(c) below and are incorporated by reference herein.
(b) Reports on Form 8-K for CMS Energy, Consumers and Panhandle
CMS ENERGY
Current Reports filed October 18, 1999, October 26, 1999, December 6,
1999 and February 1, 2000 covering matters reported pursuant to ITEM 5.
OTHER EVENTS.
CONSUMERS
Current Reports filed October 18, 1999, October 26, 1999, December 6,
1999 and February 1, 2000 covering matters reported pursuant to ITEM 5.
OTHER EVENTS.
PANHANDLE
Current Report filed March 16, 2000 covering matters reported pursuant
to ITEM 5. OTHER EVENTS.
(c) Exhibits, including those incorporated by reference (see also Exhibit
volume).
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<PAGE> 196
CMS ENERGY, CONSUMERS AND PANHANDLE EXHIBITS
<TABLE>
<CAPTION>
Previously Filed
-------------------------
With File As Exhibit
Exhibits Number Number Description
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(3)(a) 1-9513 (3)(a) - Restated Articles of Incorporation of CMS Energy. (3rd qtr. 1999
Form 10-Q)
(3)(b) - By-Laws of CMS Energy.
(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 of Consumers. (1996 Form 10-K)
(3)(d) - By-Laws of Consumers.
(3)(e) 1-2921 3.01 - Restated Certificate of Incorporation of Panhandle. (1993 Form 10-K)
(3)(f) - By-Laws of Panhandle.
(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 dated as of 11/15/89
33-41126 (4)(c) - 68th dated as of 06/15/93
1-5611 (4) - 69th dated as of 09/15/93 (Form 8-K dated Sep. 21, 1993)
1-5611 (4)(a) - 70th dated as of 02/01/98 (1997 Form 10-K)
1-5611 (4)(a) - 71st dated as of 03/06/98 (1997 Form 10-K)
1-5611 (4)(b) - 72nd dated as of 05/01/98 (1st Qtr. 1998 Form 10-Q)
333-58943 (4)(d) - 73rd dated as of 06/15/98
1-5611 (4)(b) - 74th dated as of 10/29/98 (3rd Qtr. 1998 Form 10-Q)
(4)(b) - 75th dated as of 10/1/99
(4)(c) - 76th dated as of 10/4/99
(4)(d) - 77th dated as of 10/1/99
(4)(e) 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 dated as of 01/18/96 (1995 Form 10-K)
1-5611 (4)(a) - 2nd dated as of 09/04/97 (3rd qtr 1997 Form 10-Q)
1-9513 (4)(a) - 3rd 11/04/99 (3rd qtr 1999 Form 10-Q)
(4)(f) 1-5611 (4)(c) - Indenture dated as of February 1, 1998 between Consumers and The
Chase Manhattan Bank, as Trustee. (1997 Form 10-K)
1-5611 (4)(a) - 1st dated as of 05/01/98 (1st Qtr. 1998 Form 10-Q)
333-58943 (4)(b) - 2nd dated as of 06/15/98
</TABLE>
CO-3
<PAGE> 197
<TABLE>
<S> <C> <C> <C>
1-5611 (4)(a) - 3rd 10/29/98 (3rd Qtr. 1998 Form 10-Q)
(4)(g) 33-47629 (4)(a) - Indenture dated as of September 15, 1992 between CMS Energy and NBD
Bank, as Trustee. (Form S-3 filed May 1, 1992)
- Indentures Supplemental thereto:
1-9513 (4) - 1st dated as of 10/01/92 (Form 8-K dated October 1, 1992)
1-9513 (4) (a) - 2nd dated as of 10/01/92 (Form 8-K dated October 1, 1992)
1-9513 (4) - 3rd dated as of 05/06/97 (1st qtr 1997 Form 10-Q)
333-37241 (4)(a) - 4th dated as of 09/26/97 (Form S-3 filed October 6, 1997)
1-9513 (4)(b) - 5th dated as of 11/04/97 (3rd qtr 1997 Form 10-Q)
1-9513 (4)(d) - 6th dated as of 01/13/98 (1997 Form 10-K)
1-9513 (4)(d)(i) - 7th dated as of 01/25/99 (1998 Form 10-K)
1-9513 (4)(d)(ii) - 8th dated as of 02/03/99 (1998 Form 10-K)
1-9513 (4)(a) - 9th dated as of 06/22/99 (2nd qtr 1999 Form 10-Q)
(4)(h) 1-9513 (4)(b) - 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 dated as of 01/20/94 (Form 8-K dated March 29, 1994)
1-9513 (4) - 2nd dated as of 03/19/96 (1st qtr 1996 Form 10-Q)
1-9513 (4)(a)(iv) - 3rd dated as of 03/17/97 (Form 8-K dated May 1, 1997)
333-36115 (4)(d) - 4th dated as of 09/17/97 (Form S-3 filed September 22, 1997)
333-63229 (4)(c) - 5th dated as of 08/26/98 (Form S-4 filed September 10, 1998)
(4)(i) 1-9513 (4a) - Indenture dated as of June 1, 1997, between CMS Energy and The Bank
of New York, as trustee. (Form 8-K filed July 1, 1997)
- Indentures Supplemental thereto:
1-9513 (4)(b) - 1st dated as of 06/20/97 (Form 8-K filed July 1, 1997)
1-9513 (4)(b) - 2nd dated as of 06/01/99 (2nd qtr 1999 Form 10-Q)
Pursuant to Item 601(b)(4)(iii) of Regulation S-K, in lieu of filing
a copy of such agreement, CMS Energy agrees to furnish a copy of such
agreement to the Commission upon request.
(4)(j) 1-5611 (4)(a) - Indenture dated as of March 29, 1999, among CMS Panhandle Holding
Company, Panhandle Eastern Pipe Line Company and NBD Bank, as
Trustee. (1st Qtr. 1999 10-Q)
(4)(k) 1-9513 (4)(b) - 1st Supplemental Indenture dated as of March 29, 1999, among CMS
Panhandle Holding Company, Panhandle Eastern Pipe Line Company and
NBD Bank, as Trustee, including a form of Guarantee by Panhandle
Eastern Pipe Line Company of the obligations of CMS Panhandle
Holding Company. (1st qtr 1999 Form 10-Q)
(4)(l) 33-58552 4 - Indenture, dated as of February 1, 1993, between Panhandle and
Morgan Guaranty Trust Company of New York. (Form S-3 filed February
19, 1993)
(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
</TABLE>
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<PAGE> 198
<TABLE>
<S> <C> <C> <C>
defined therein, and the Exhibits and Schedules thereto. (2nd qtr 1997
Form 10-Q)
333-63229 (4)(f) - 1st Amendment dated 01/30/98. (Form S-4 filed September 10, 1998)
1-9513 (10)(b)(i) - 2nd Amendment dated 11/05/98. (1998 Form 10-K)
1-9513 (10)(a) - 3rd Amendment dated 06/22/99. (2nd qtr 1999 Form 10-Q)
(10)(b) - Form of Employment Agreement entered into by CMS Energy's and
Consumers' executive officers.
(10)(c) 1-5611 (10)(g) - Consumers' Executive Stock Option and Stock Appreciation Rights
Plan effective December 1, 1989. (1990 Form 10-K)
(10)(d) - CMS Energy's Performance Incentive Stock Plan effective February 3,
1988, as amended December 3, 1999.
(10)(e) 1-9513 (10)(m) - CMS Deferred Salary Savings Plan effective January 1, 1994. (1993
Form 10-K)
(10)(f) 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)(g) 1-5611 (10)(o) - Consumers' Supplemental Executive Retirement Plan effective
November 1, 1990. (1993 Form 10-K)
(10)(h) - Supplemental Executive Retirement Plan for Employees of CMS
Energy / Consumers Energy Company effective January 1, 1982,
as amended December 3, 1999
(10)(i) 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)(j) 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)(k) 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)(l) 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)(m) 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)
</TABLE>
CO-5
<PAGE> 199
<TABLE>
<S> <C> <C> <C>
(10)(n) 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)(o) 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)(p) 33-3797 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)(q) 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)(r) 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)(s) 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)
(10)(t) 1-8157 10.41 - Contract for Firm Transportation of Natural Gas between Consumers
Power Company and Trunkline Gas Company, dated November 1, 1989,
and Amendment, dated November 1, 1989. (1989 Form 10-K of PanEnergy
Corp.)
(10)(u) 1-8157 10.41 - Contract for Firm Transportation of Natural Gas between Consumers
Power Company and Trunkline Gas Company, dated November 1, 1989.
(1991 Form 10-K of PanEnergy Corp.)
(10)(v) 1-2921 10.03 - Contract for Firm Transportation of Natural Gas between Consumers
Power Company and Trunkline Gas Company, dated September 1, 1993.
(1993 Form 10-K)
</TABLE>
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<PAGE> 200
<TABLE>
<S> <C> <C> <C>
(12) - Statements regarding computation of CMS Energy's Ratio of Earnings
to Fixed Charges.
(16)(b) 1-0291 (16)(b) - Letter of Deloitte & Touche LLP
(Form 8-K/A dated July 19, 1999)
(21)(a) - Subsidiaries of CMS Energy.
(21)(b) - Subsidiaries of Consumers.
(23)(a) - Consent of Arthur Andersen LLP for CMS Energy.
(23)(b) - Consent of Arthur Andersen LLP for Consumers.
(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) - Financial Data Schedule UT for Consumers.
(27)(c) - Financial Data Schedule UT for Panhandle.
</TABLE>
** 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> 201
INDEX TO FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
Page
<S> <C>
Schedule II Valuation and Qualifying Accounts and Reserves 1999,
1998 and 1997:
CMS Energy Corporation............................................................. CO-9
Consumers Power Company............................................................ CO-9
Report of Independent Public Accountants
CMS Energy Corporation............................................................. CO-10
Consumers Power Company............................................................ CO-10
</TABLE>
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.
CO-8
<PAGE> 202
CMS ENERGY CORPORATION
Schedule II - Valuation and Qualifying Accounts and Reserves
Years Ended December 31, 1999, 1998 and 1997
(In Millions)
<TABLE>
<CAPTION>
Balance at Charged Charged to Balance
Beginning to other at End
Description of Period Expense Accounts Deductions of Period
- ------------------------------------------------------------------------------------------------------------------
Accumulated provision for uncollectible accounts:
<S> <C> <C> <C> <C> <C>
1999 $13 $15 $(3) $13(a) $12
1998 $7 $12 $5 $11(a) $13
1997 $10 $8 $1 $12(a) $7
==================================================================================================================
</TABLE>
(a) Accounts receivable written off including net uncollectible amounts of $12
in 1999, $10 in 1998 and $11 in 1997 charged directly to operating expense
and credited to accounts receivable.
CONSUMERS ENERGY COMPANY
Schedule II - Valuation and Qualifying Accounts and Reserves
Years Ended December 31, 1999, 1998 and 1997
(In Millions)
<TABLE>
<CAPTION>
Balance at Charged Charged to Balance
Beginning to other at End
Description of Period Expense Accounts Deductions of Period
- -----------------------------------------------------------------------------------------------------------------
Accumulated provision for uncollectible accounts:
<S> <C> <C> <C> <C> <C>
1999 $5 $7 - $8(a) $4
1998 $6 $10 - $11(a) $5
1997 $10 $8 - $12(a) $6
=================================================================================================================
</TABLE>
(a) Accounts receivable written off including net uncollectible amounts of $7
in 1999, $10 in 1998 and $11 in 1997 charged directly to operating expense
and credited to accounts receivable.
CO-9
<PAGE> 203
Report of Independent Public Accountants
To CMS Energy Corporation:
We have audited in accordance with generally accepted auditing standards, CMS
Energy Corporation's consolidated financial statements included in this Form
10-K, and have issued our report thereon dated February 4, 2000. 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.
/s/ Arthur Andersen LLP
Detroit, Michigan,
February 4, 2000.
Report of Independent Public Accountants
To Consumers Energy Company:
We have audited in accordance with generally accepted auditing standards,
Consumers Energy Company's consolidated financial statements included in this
Form 10-K, and have issued our report thereon dated February 4, 2000. 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.
/s/ Arthur Andersen LLP
Detroit, Michigan,
February 4, 2000.
CO-10
<PAGE> 204
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 29th
day of March 2000.
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 29th day of March 2000.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
(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
</TABLE>
CO-11
<PAGE> 205
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
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
Kenneth L. Way* Director
--------------------------------------
KENNETH L. WAY
K. Whipple* Director
--------------------------------------
KENNETH WHIPPLE
John B. Yasinsky* Director
--------------------------------------
JOHN B. YASINSKY
* By Thomas A. McNish
--------------------------------------
THOMAS A. MCNISH, ATTORNEY-IN-FACT
</TABLE>
CO-12
<PAGE> 206
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 29th
day of March 2000.
CONSUMERS ENERGY COMPANY
By William T. McCormick Jr.
--------------------------------
WILLIAM T. MCCORMICK, JR.
CHAIRMAN OF THE BOARD
Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual
Report has been signed below by the following persons on behalf of Consumers
Energy Company and in the capacities and on the 29th day of March 2000.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
(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
</TABLE>
CO-13
<PAGE> 207
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
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
Kenneth L. Way* Director
--------------------------------------
KENNETH L. WAY
K. Whipple* Director
--------------------------------------
KENNETH WHIPPLE
John B. Yasinsky* Director
--------------------------------------
JOHN B. YASINSKY
*By Thomas A. McNish
--------------------------------------
THOMAS A. MCNISH, ATTORNEY-IN-FACT
</TABLE>
CO-14
<PAGE> 208
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, Panhandle Eastern Pipe Line Company has duly caused this Annual
Report to be signed on its behalf by the undersigned, thereunto duly authorized,
on the 29th day of March 2000.
PANHANDLE EASTERN PIPE LINE COMPANY
By William T. McCormick, Jr.
---------------------------------
WILLIAM T. MCCORMICK, JR.
CHAIRMAN OF THE BOARD
Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual
Report has been signed below by the following persons on behalf of Panhandle
Eastern Pipe Line Company and in the capacities and on the 29th day of March
2000.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
(i) Principal executive officer:
Vice Chairman of the Board,
Chief Executive Officer and Director
William J. Haener
--------------------------------------
WILLIAM J. HAENER
(ii) Principal financial officer:
Senior Vice President,
Chief Financial Officer, Treasurer and Director
A. M. Wright
--------------------------------------
ALAN M. WRIGHT
(iii) Controller or principal accounting officer:
Controller
G. W. Lefelar
--------------------------------------
GARY W. LEFELAR
(iv) A majority of the Directors including those named above:
William T. McCormick, Jr. Director
--------------------------------------
WILLIAM T. MCCORMICK, JR.
</TABLE>
CO-15
<PAGE> 209
EXHIBIT INDEX
CMS ENERGY, CONSUMERS AND PANHANDLE EXHIBITS
<TABLE>
<CAPTION>
Previously Filed
-------------------------
With File As Exhibit
Exhibits Number Number Description
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(3)(a) 1-9513 (3)(a) - Restated Articles of Incorporation of CMS Energy. (3rd qtr. 1999
Form 10-Q)
(3)(b) - By-Laws of CMS Energy.
(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 of Consumers. (1996 Form 10-K)
(3)(d) - By-Laws of Consumers.
(3)(e) 1-2921 3.01 - Restated Certificate of Incorporation of Panhandle. (1993 Form 10-K)
(3)(f) - By-Laws of Panhandle.
(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 dated as of 11/15/89
33-41126 (4)(c) - 68th dated as of 06/15/93
1-5611 (4) - 69th dated as of 09/15/93 (Form 8-K dated Sep. 21, 1993)
1-5611 (4)(a) - 70th dated as of 02/01/98 (1997 Form 10-K)
1-5611 (4)(a) - 71st dated as of 03/06/98 (1997 Form 10-K)
1-5611 (4)(b) - 72nd dated as of 05/01/98 (1st Qtr. 1998 Form 10-Q)
333-58943 (4)(d) - 73rd dated as of 06/15/98
1-5611 (4)(b) - 74th dated as of 10/29/98 (3rd Qtr. 1998 Form 10-Q)
(4)(b) - 75th dated as of 10/1/99
(4)(c) - 76th dated as of 10/4/99
(4)(d) - 77th dated as of 10/1/99
(4)(e) 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 dated as of 01/18/96 (1995 Form 10-K)
1-5611 (4)(a) - 2nd dated as of 09/04/97 (3rd qtr 1997 Form 10-Q)
1-9513 (4)(a) - 3rd 11/04/99 (3rd qtr 1999 Form 10-Q)
(4)(f) 1-5611 (4)(c) - Indenture dated as of February 1, 1998 between Consumers and The
Chase Manhattan Bank, as Trustee. (1997 Form 10-K)
1-5611 (4)(a) - 1st dated as of 05/01/98 (1st Qtr. 1998 Form 10-Q)
333-58943 (4)(b) - 2nd dated as of 06/15/98
</TABLE>
<PAGE> 210
<TABLE>
<S> <C> <C> <C>
1-5611 (4)(a) - 3rd 10/29/98 (3rd Qtr. 1998 Form 10-Q)
(4)(g) 33-47629 (4)(a) - Indenture dated as of September 15, 1992 between CMS Energy and NBD
Bank, as Trustee. (Form S-3 filed May 1, 1992)
- Indentures Supplemental thereto:
1-9513 (4) - 1st dated as of 10/01/92 (Form 8-K dated October 1, 1992)
1-9513 (4) (a) - 2nd dated as of 10/01/92 (Form 8-K dated October 1, 1992)
1-9513 (4) - 3rd dated as of 05/06/97 (1st qtr 1997 Form 10-Q)
333-37241 (4)(a) - 4th dated as of 09/26/97 (Form S-3 filed October 6, 1997)
1-9513 (4)(b) - 5th dated as of 11/04/97 (3rd qtr 1997 Form 10-Q)
1-9513 (4)(d) - 6th dated as of 01/13/98 (1997 Form 10-K)
1-9513 (4)(d)(i) - 7th dated as of 01/25/99 (1998 Form 10-K)
1-9513 (4)(d)(ii) - 8th dated as of 02/03/99 (1998 Form 10-K)
1-9513 (4)(a) - 9th dated as of 06/22/99 (2nd qtr 1999 Form 10-Q)
(4)(h) 1-9513 (4)(b) - 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 dated as of 01/20/94 (Form 8-K dated March 29, 1994)
1-9513 (4) - 2nd dated as of 03/19/96 (1st qtr 1996 Form 10-Q)
1-9513 (4)(a)(iv) - 3rd dated as of 03/17/97 (Form 8-K dated May 1, 1997)
333-36115 (4)(d) - 4th dated as of 09/17/97 (Form S-3 filed September 22, 1997)
333-63229 (4)(c) - 5th dated as of 08/26/98 (Form S-4 filed September 10, 1998)
(4)(i) 1-9513 (4a) - Indenture dated as of June 1, 1997, between CMS Energy and The Bank
of New York, as trustee. (Form 8-K filed July 1, 1997)
- Indentures Supplemental thereto:
1-9513 (4)(b) - 1st dated as of 06/20/97 (Form 8-K filed July 1, 1997)
1-9513 (4)(b) - 2nd dated as of 06/01/99 (2nd qtr 1999 Form 10-Q)
Pursuant to Item 601(b)(4)(iii) of Regulation S-K, in lieu of filing
a copy of such agreement, CMS Energy agrees to furnish a copy of such
agreement to the Commission upon request.
(4)(j) 1-5611 (4)(a) - Indenture dated as of March 29, 1999, among CMS Panhandle Holding
Company, Panhandle Eastern Pipe Line Company and NBD Bank, as
Trustee. (1st Qtr. 1999 10-Q)
(4)(k) 1-9513 (4)(b) - 1st Supplemental Indenture dated as of March 29, 1999, among CMS
Panhandle Holding Company, Panhandle Eastern Pipe Line Company and
NBD Bank, as Trustee, including a form of Guarantee by Panhandle
Eastern Pipe Line Company of the obligations of CMS Panhandle
Holding Company. (1st qtr 1999 Form 10-Q)
(4)(l) 33-58552 4 - Indenture, dated as of February 1, 1993, between Panhandle and
Morgan Guaranty Trust Company of New York. (Form S-3 filed February
19, 1993)
(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
</TABLE>
<PAGE> 211
<TABLE>
<S> <C> <C> <C>
defined therein, and the Exhibits and Schedules thereto. (2nd qtr 1997
Form 10-Q)
333-63229 (4)(f) - 1st Amendment dated 01/30/98. (Form S-4 filed September 10, 1998)
1-9513 (10)(b)(i) - 2nd Amendment dated 11/05/98. (1998 Form 10-K)
1-9513 (10)(a) - 3rd Amendment dated 06/22/99. (2nd qtr 1999 Form 10-Q)
(10)(b) - Form of Employment Agreement entered into by CMS Energy's and
Consumers' executive officers.
(10)(c) 1-5611 (10)(g) - Consumers' Executive Stock Option and Stock Appreciation Rights
Plan effective December 1, 1989. (1990 Form 10-K)
(10)(d) - CMS Energy's Performance Incentive Stock Plan effective February 3,
1988, as amended December 3, 1999.
(10)(e) 1-9513 (10)(m) - CMS Deferred Salary Savings Plan effective January 1, 1994. (1993
Form 10-K)
(10)(f) 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)(g) 1-5611 (10)(o) - Consumers' Supplemental Executive Retirement Plan effective
November 1, 1990. (1993 Form 10-K)
(10)(h) - Supplemental Executive Retirement Plan for Employees of CMS Energy
/ Consumers Energy Company effective January 1, 1982, as amended
December 3, 1999
(10)(i) 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)(j) 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)(k) 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)(l) 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)(m) 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)
</TABLE>
<PAGE> 212
<TABLE>
<S> <C> <C> <C>
(10)(n) 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)(o) 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)(p) 33-3797 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)(q) 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)(r) 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)(s) 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)
(10)(t) 1-8157 10.41 - Contract for Firm Transportation of Natural Gas between Consumers
Power Company and Trunkline Gas Company, dated November 1, 1989,
and Amendment, dated November 1, 1989. (1989 Form 10-K of PanEnergy
Corp.)
(10)(u) 1-8157 10.41 - Contract for Firm Transportation of Natural Gas between Consumers
Power Company and Trunkline Gas Company, dated November 1, 1989.
(1991 Form 10-K of PanEnergy Corp.)
(10)(v) 1-2921 10.03 - Contract for Firm Transportation of Natural Gas between Consumers
Power Company and Trunkline Gas Company, dated September 1, 1993.
(1993 Form 10-K)
</TABLE>
<PAGE> 213
<TABLE>
<S> <C> <C> <C>
(12) - Statements regarding computation of CMS Energy's Ratio of Earnings
to Fixed Charges.
(16)(b) 1-0291 (16)(b) - Letter of Deloitte & Touche LLP
(Form 8-K/A dated July 19, 1999)
(21)(a) - Subsidiaries of CMS Energy.
(21)(b) - Subsidiaries of Consumers.
(23)(a) - Consent of Arthur Andersen LLP for CMS Energy.
(23)(b) - Consent of Arthur Andersen LLP for Consumers.
(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) - Financial Data Schedule UT for Consumers.
(27)(c) - Financial Data Schedule UT for Panhandle.
</TABLE>
** 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> 1
EXHIBIT (3)(b)
CMS ENERGY CORPORATION
BYLAWS
ARTICLE I: LOCATION OF OFFICES
Section 1 - Registered Office: The registered office of CMS Energy
Corporation, (the "Corporation") shall be at such place in the City of
Dearborn, County of Wayne, Michigan, or elsewhere in the State of
Michigan, as the Board of Directors may from time to time designate.
Section 2 - Other Offices: The Corporation may have and maintain other
offices within or without the State of Michigan.
ARTICLE II: CORPORATE SEAL
Section 1 - Corporate Seal: The Corporation shall have a corporate seal
bearing the name of the Corporation. The form of the corporate seal may
be altered by the Board of Directors.
ARTICLE III: FISCAL YEAR
Section 1 - Fiscal Year: The fiscal year of the Corporation shall begin
with the first day of January and end with the thirty-first day of
December of each year.
ARTICLE IV: SHAREHOLDERS' MEETINGS
Section 1 - Annual Meetings: An annual meeting of the shareholders for
election of Directors and for such other business as may come before the
meeting shall be held at the registered office of the Corporation or at
such other place within or without the State of Michigan, at 10:00 AM,
Eastern Daylight Saving Time, or at such other time on the fourth Friday
in May of each year or upon such other day as the Board of Directors may
designate, but in no event shall such date be more than ninety (90) days
after the fourth Friday in May.
Section 2 - Special Meetings: Special meetings of the shareholders may
be called by the Board of Directors or by the Chairman of the Board.
Such meetings shall be held at the registered office of the Corporation
or at such other place within or without the State of Michigan as the
Board of Directors may designate.
Section 3 - Notices: Except as otherwise provided by law, written notice
of any meeting of the shareholders shall be given, either personally or
by mail to each shareholder of record entitled to vote at such meeting,
not less than ten (10) days nor more than sixty (60) days prior to the
date of the meeting, at their last known address as the same appears on
the stock records of the Corporation. Written notice shall be considered
given when deposited, with postage thereon prepaid, in a post office or
official depository under the control of the United States postal
service. Such notice shall specify the time and place of holding the
meeting, the purpose or purposes for which such meeting is called, and
the record date fixed for the determination of shareholders entitled to
notice of and to vote at such meeting. The Board of Directors shall fix
a record date for determining shareholders entitled to notice of and to
vote at such meeting. The Board of Directors shall fix a record date for
determining shareholders entitled to notice of and to vote at a meeting
of shareholders, which record date shall not be more than sixty (60)
days nor less than ten (10) days before the date of the meeting. Such
record date shall apply to any adjournment of the meeting unless the
Board of Directors shall fix a new record date for purposes of the
adjourned meeting.
<PAGE> 2
No notice of an adjourned meeting shall be necessary if the time
and place to which the meeting is adjourned are announced at the meeting
at which the adjournment is taken. At the adjourned meeting only such
business may be transacted as might have been transacted at the original
meeting. If, after an adjournment, the Board of Directors shall fix a
new record date for the adjourned meeting, a notice of the adjourned
meeting shall be mailed, in conformity with the provisions of the first
paragraph of this Section 3, to each shareholder of record on the new
record date entitled to vote at the adjourned meeting.
Section 4 - Quorum: Except as otherwise provided by law or by the
Articles of Incorporation of the Corporation, the holders of the shares
of stock of the Corporation entitled to cast a majority of the votes at
a meeting shall constitute a quorum for the transaction of business at
the meeting, but a lesser number may convene any meeting and, by a
majority vote of the shares present at the meeting, may adjourn the same
from time to time until a quorum shall be present.
Section 5 - Voting: Shareholders may vote at all meetings in person or
by proxy, but all proxies shall be filed with the Secretary of the
meeting before being voted upon.
Subject to the provisions of the Articles of Incorporation of the
Corporation at all meetings of the shareholders of the Corporation each
holder of Common Stock shall be entitled on all questions to one vote
for each share of stock held by such holder, and a majority of the votes
cast by the holders of shares entitled to vote thereon shall be
sufficient for the adoption of any question presented, unless otherwise
provided by law or by the Articles of Incorporation of the Corporation.
Section 6 - Inspectors: In advance of any meeting of shareholders the
Board of Directors shall appoint one or more inspectors to act at such
meeting or any adjournment thereof. The inspectors shall have such
powers and duties as are provided by law.
ARTICLE V: DIRECTORS
Section 1 - Number: The Board of Directors of the Corporation shall
consist of not less than seven (7) nor more than seventeen (17) members,
as fixed from time to time by resolution of the Board of Directors.
Section 2 - Election: The Directors shall be elected annually at the
annual meeting of the shareholders or at any adjournment thereof.
Section 3 - Term of Office: Subject to the provisions of the Articles of
Incorporation of the Corporation and unless otherwise provided by law,
the Directors shall hold office from the date of their election until
the next succeeding annual meeting and until their successors are
elected and shall qualify.
Section 4 - Vacancies: Any vacancy or vacancies in the Board of
Directors arising from any cause may be filled by the affirmative vote
of a majority of the Directors then in office although less than a
quorum. An increase in the number of members shall be construed as
creating a vacancy.
ARTICLE VI: DIRECTORS' MEETINGS
Section 1 - Organization Meeting: As soon as possible after their
election, the Board of Directors shall meet and organize and may also
transact other business.
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Section 2 - Other Meetings: Meetings of the Board of Directors may be
held at any time upon call of the Secretary or an Assistant Secretary
made at the direction of the Chairman of the Board, the President, a
Vice Chairman, if any, or a Vice President.
Section 3 - Place of Meeting: All meetings of Directors shall be held at
such place within or without the State of Michigan as may be designated
in the call therefore.
Section 4 - Notice: A reasonable notice of all meetings, in writing or
otherwise, shall be given to each Director or sent to the Director's
residence or place of business; provided, however, that no notice shall
be required for an organization meeting if held on the same day as the
shareholders' meeting at which Directors were elected.
No notice of the holding of an adjourned meeting shall be
necessary.
Notice of all meetings shall specify the time and place of
holding the meeting and unless otherwise stated any and all business may
be transacted at any such meeting.
Notice of the time, place and purpose of any meeting may be
waived in writing either before or after the holding thereof.
Section 5 - Quorum: At all meetings of the Board of Directors a majority
of the Board then in office shall constitute a quorum but a majority of
the Directors present may convene and adjourn any such meeting from time
to time until a quorum shall be present; provided, that if the Board
shall consist of ten (10) and not more than fifteen (15), then five (5)
members shall constitute a quorum; and if the Board shall consist of
more than fifteen (15), then seven (7) members shall constitute a
quorum.
Section 6 - Voting: All questions coming before any meeting of the Board
of Directors for action shall be decided by a majority vote of the
Directors present at such meeting, unless otherwise provided by law, the
Articles of Incorporation of the Corporation or by these Bylaws.
Section 7 - Participation by Communications Equipment: A Director or a
member of a Committee designated by the Board of Directors may
participate in a meeting by means of conference telephone or similar
communications equipment by means of which all persons participating in
the meeting can hear each other. Participation in a meeting by such
means shall constitute presence in person at the meeting.
Section 8 - Action Without Meeting: Any action required or permitted to
be taken pursuant to authorization voted at a meeting of the Board of
Directors or a Committee thereof, may be taken without a meeting if,
before or after the action, all members of the Board or of the Committee
consent thereto in writing. The written consents shall be filed with the
minutes of the proceedings of the Board or Committee, and the consents
shall have the same effect as a vote of the Board or Committee for all
purposes.
ARTICLE VII: EXECUTIVE AND OTHER COMMITTEES
Section 1 - Number and Qualifications: By resolution passed by a
majority of the whole Board, the Board of Directors may from time to
time designate one or more of their number to constitute an Executive or
any other Committee of the Board, as the Board of Directors may from
time to time determine to be desirable, and may fix the number of and
designate the Chairman of each such Committee. Except as otherwise
provided by law, the powers of each such Committee shall be as defined
in the resolution or resolutions of the Board of Directors relating to
the authorization
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of such Committee, and may include, if such resolution or resolutions so
provide, the power and authority to declare a dividend or to authorize
issuance of shares of stock of the Corporation.
Section 2 - Appointment: The appointment of members of each such
Committee, or other action respecting any Committee, may take place at
any meeting of the Directors.
Section 3 - Term of Office: The members of each Committee shall hold
office at the pleasure of the Board of Directors.
Section 4 - Vacancies: Any vacancy or vacancies in any such Committee
arising from any cause shall be filled by resolution passed by a
majority of the whole Board of Directors. By like vote the Board may
designate one or more Directors to serve as alternate members of a
Committee, who may replace an absent or disqualified member at a meeting
of a Committee; provided, however, in the absence or disqualification of
a member of a Committee, the members of the Committee present at a
meeting and not disqualified from voting, whether or not constituting a
quorum, may unanimously appoint another member of the Board of Directors
to act in the place of the absent or disqualified member.
Section 5 - Minutes: Except as provided in Section 2 of Article X hereof
or as otherwise determined by the Board of Directors, each such
Committee shall make a written report or recommendation following its
meetings or keep minutes of all its meetings.
Section 6 - Quorum: At all meetings of any duly authorized Committee of
the Board of Directors, a majority of the members of such Committee
shall constitute a quorum but a majority of the members present may
convene and adjourn any such meeting from time to time until a quorum
shall be present; provided, that with respect to any Committee of the
Board other than the Executive Committee, if the membership of such
Committee is four (4) or less, then two (2) members of such Committee
shall constitute a quorum and one member may convene and adjourn any
such meeting from time to time until a quorum shall be present.
ARTICLE VIII: OFFICERS
Section 1 - Election: The officers shall be chosen by the Board of
Directors. The Corporation shall have a Chairman of the Board, a
President, a Secretary and a Treasurer, and such other officers as the
Board of Directors may from time to time determine, who shall have
respectively such duties and authority as may be provided by these
Bylaws or as may be provided by resolution of the Board of Directors not
inconsistent herewith. Any two (2) or more of such offices may be held
by the same persons but no officer shall execute, acknowledge or verify
any instrument in more than one capacity if such instrument is required
by law, by the Articles of Incorporation of the Corporation or by these
Bylaws to be executed, acknowledged or verified by two (2) or more
officers.
Section 2 - Qualifications: The Chairman of the Board and Vice Chairman,
if any, shall be chosen from among the Board of Directors, but the other
officers need not be members of the Board.
Section 3 - Vacancies: Any vacancy or vacancies among the officers
arising from any cause shall be filled by the Board of Directors. In
case of the absence of any officer of the Corporation or for any other
reason that the Board of Directors may deem sufficient, the Board of
Directors may delegate, for the time being, the powers or duties, or any
of them, of any officer to any other officer or to any Director.
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Section 4 - Term of Office: Each officer of the Corporation shall hold
office until a successor is chosen and qualified, or until the officer's
resignation or removal. Any officer appointed by the Board of Directors
may be removed at any time by the Board of Directors with or without
cause.
Section 5 - Compensation: The compensation of the officers shall be
fixed by the Board of Directors.
ARTICLE IX: AGENTS
Section 1 - Resident Agent: The Corporation shall have and continuously
maintain a resident agent, which may be either an individual resident in
the State of Michigan whose business office is identical with the
Corporation's registered office or a Michigan corporation or a foreign
corporation authorized to transact business in Michigan and having a
business office identical with the Corporation's registered office.
The Board of Directors shall appoint the resident agent.
Section 2 - Other Agents: The Board of Directors may appoint such other
agents as may in their judgment be necessary for the proper conduct of
the business of the Corporation.
ARTICLE X: POWERS AND DUTIES
Section 1 - Directors: The business and affairs of the Corporation shall
be managed by the Board of Directors which shall have and exercise all
of the powers and authority of the Corporation except as otherwise
provided by law, by the Articles of Incorporation of the Corporation or
by these Bylaws.
Section 2 - Executive Committee: In the interim between meetings of the
Board of Directors the Executive Committee shall have and exercise all
the powers and authority of the Board of Directors except as otherwise
provided by law. The Executive Committee shall meet from time to time on
the call of the Chairman of the Board or the Chairman of the Committee.
The Secretary shall keep minutes in sufficient detail to advise fully
the Board of Directors of the actions taken by the Committee and shall
submit copies of such minutes to the Board of Directors for its approval
or other action at its next meeting.
Section 3 - Chairman of the Board: The Chairman of the Board shall be
the chief executive officer of the Corporation and, subject to the
supervision of the Board of Directors and of the Executive Committee,
shall have general charge of the business and affairs of the
Corporation; shall preside at all meetings of Directors and
shareholders; and shall perform and do all acts and things incident to
the position of Chairman of the Board, and such other duties as may be
assigned from time to time by the Board of Directors or the Executive
Committee.
Unless otherwise provided by the Board or the Executive
Committee, the Chairman of the Board shall have full power and authority
on behalf of the Corporation to execute any shareholders' consents and
to attend and act and to vote in person or by proxy at any meetings of
shareholders of any corporation in which the Corporation may own stock
and at any such meeting shall possess and may exercise any and all the
rights and powers incident to the ownership of such stock and which, as
the owner thereof, the Corporation might have possessed and exercised if
present. If the Chairman of the Board shall not exercise such powers, or
in the absence or inability to act of the Chairman, the President may
exercise such powers. In the absence or inability to act of the
President, a Vice Chairman, if any, may exercise such powers. In the
absence or inability to act of a Vice Chairman, any Vice President may
exercise such powers. The Board of Directors or Executive Committee by
resolution from time to time may confer like powers upon any other
person or persons.
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Section 4 - President: The President shall be the chief operating
officer of the Corporation; shall perform and do all acts and things
incident to such position and such other duties as may be assigned from
time to time by the Board of Directors, the Executive Committee or the
Chairman of the Board; in the absence of the Chairman of the Board and a
Vice Chairman, shall preside at meetings of Directors; and in the
absence of the Chairman of the Board shall preside at meetings of
shareholders.
Section 5 - Vice Chairman: A Vice Chairman, if any, shall perform such
of the duties of the Chairman of the Board or the President on behalf of
the Corporation as may be respectively assigned from time to time by the
Board of Directors, the Executive Committee, the Chairman of the Board
or the President; in the absence of the Chairman of the Board shall
preside at meetings of Directors; and in the absence of the Chairman of
the Board and the President shall preside at meetings of shareholders.
Section 6 - Vice Presidents: Vice Presidents, if any, shall perform such
of the duties of the Chairman of the Board or the President or the Vice
Chairman, if any, on behalf of the Corporation as may be respectively
assigned to them from time to time by the Board of Directors, the
Executive Committee, the Chairman of the Board or the President or a
Vice Chairman. The Board of Directors or Executive Committee may
designate one or more of the Vice Presidents as Executive Vice President
or Senior Vice President.
Section 7 - Controller: Subject to the control of the Board of
Directors, the Executive Committee, the Chairman of the Board, the
President and the Vice President having general charge of accounting,
the Controller, if any, shall have charge of the supervision of the
accounting system of the Corporation, including the preparation and
filing of all tax returns and financial reports required by law to be
made to any and all public authorities and officials; and shall perform
such other duties as may be assigned, from time to time, by the Board of
Directors, the Executive Committee, the Chairman of the Board, the
President, a Vice Chairman, if any, or Vice President having general
charge of accounting.
Section 8 - Treasurer: It shall be the duty of the Treasurer to have the
care and custody of all the funds and securities, including the
investment thereof, of the Corporation which may come into Treasurer's
hands, and to endorse checks, drafts and other instruments for the
payment of money for deposit or collection when necessary or proper and
to deposit the same to the credit of the Corporation in such bank or
banks or depository as may be designated, may endorse all commercial
documents requiring endorsements for or on behalf of the Corporation,
may sign all receipts and vouchers for the payments made to the
Corporation, shall render an account of transactions to the Board of
Directors or the Executive Committee as often as the Board or the
Committee shall require, and shall perform all acts incident to the
position of Treasurer, subject to the control of the Board of Directors,
the Executive Committee, the Chairman of the Board, the President and a
Vice Chairman, if any.
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Section 9 - Secretary: The Secretary shall act as custodian of and
record the minutes of all meetings of the Board of Directors, of the
Executive Committee, of the shareholders and of any Committees of the
Board of Directors which keep formal minutes; shall attend to the giving
and serving of all notices of the Corporation; shall prepare or cause to
be prepared the list of shareholders required to be produced at any
meeting; shall attest the seal of the Corporation upon all contracts and
instruments executed under such seal, shall affix or cause to be affixed
the seal of the Corporation thereto and to all certificates of shares of
the capital stock, shall have charge of the stock records of the
Corporation, and shall, in general, perform all the duties of Secretary,
subject to the control of the Board of Directors, the Executive
Committee, the Chairman of the Board, the President and a Vice Chairman,
if any.
Section 10 - General Counsel: The General Counsel, if any, shall have
charge of all matters of a legal nature involving the Corporation.
Section 11 - Assistant Controllers, Assistant Secretaries and Assistant
Treasurers: An Assistant Controller, an Assistant Secretary or an
Assistant Treasurer, if any, shall, in the absence or inability to act
or at the request of the Controller, Secretary or Treasurer,
respectively, perform the duties of the Controller or Secretary or
Treasurer, respectively, and shall perform such other duties as may from
time to time be assigned by the Board of Directors, the Executive
Committee, the Chairman of the Board, the President or a Vice Chairman,
if any. The performance of any such duty shall be conclusive evidence of
right to act.
Section 12 - Principal Financial Officer and Principal Accounting
Officer: The Board of Directors or the Executive Committee may from time
to time designate officers of the Corporation to be the Principal
Financial Officer and the Principal Accounting Officer of the
Corporation.
ARTICLE XI: STOCK
Section 1 - Stock Certificates: The shares of stock of the Corporation
shall be represented by certificates which shall be numbered and shall
be entered on the stock records of the Corporation and registered as
they are issued. Each certificate shall state on its face that the
Corporation is formed under the laws of Michigan, the name of the person
or persons to whom issued, the number and class of shares and the
designation of the series the certificate represents, and the par value
of each share represented by the certificate; shall be signed by the
Chairman of the Board or a Vice Chairman or the President or one of the
Vice Presidents and by the Treasurer or an Assistant Treasurer or the
Secretary or an Assistant Secretary; and shall be sealed with the seal
of the Corporation or a facsimile thereof. When such certificates are
countersigned by a transfer agent or registered by a registrar, the
signatures of any such Chairman of the Board, Vice Chairman, President,
Vice President, Treasurer, Assistant Treasurer, Secretary or Assistant
Secretary may be facsimiles. In case any officer, who shall have signed
or whose facsimile signature shall have been placed on any such
certificate, shall cease to be such officer of the Corporation before
such certificate shall have been issued by the Corporation, such
certificate may nevertheless be issued by the Corporation with the same
effect as if the person, who signed such certificate or whose facsimile
signature shall have been placed thereon, were such officer of the
Corporation at the date of issue.
Each certificate shall set forth on its face or back or state
that the Corporation will furnish to a shareholder upon request and
without charge a full statement of the designations, relative rights,
preferences and limitations of the shares of stock of each class
authorized to be issued and of each series so far as the same have been
prescribed and the authority of the Board of Directors to designate and
prescribe the relative rights, preferences and limitations of other
series.
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Section 2 - Stock Records: The shares of stock of the Corporation shall
be transferable on the stock records of the Corporation in person or by
proxy duly authorized and upon surrender and cancellation of the old
certificates therefore.
The Board of Directors may fix a date preceding the date fixed
for any meeting of the shareholders or any dividend payment date or the
date for the allotment of rights or the date when any change, conversion
or exchange of stock shall go into effect or the date for any other
action, as the record date for the determination of the shareholders
entitled to notice of and to vote at such meeting or to receive payment
of such dividend or to receive such allotment of rights or to exercise
such rights in respect of any such change, conversion or exchange of
stock or to take such other action, as the case may be, notwithstanding
any transfer of shares on the records of the Corporation or otherwise
after any such record date fixed as aforesaid. The record date so fixed
by the Board shall not be more than sixty (60) nor less than ten (10)
days before the date of the meeting of the shareholders, nor more than
sixty (60) days before any other action. If the Board of Directors does
not fix a date of record, as aforesaid, the record date shall be as
provided by law.
Section 3 - Stock - Preferred and Common: The designations, relative
rights, preferences, limitations and voting powers, or restrictions, or
qualifications of the shares of Preferred Stock and Common Stock shall
be as set forth in the Articles of Incorporation of the Corporation.
Section 4 - Replacing Certificates: In case of the alleged loss, theft
or destruction of any certificate of shares of stock and the submission
of proper proof thereof, a new certificate may be issued in lieu thereof
upon delivery to the Corporation by the owner or legal representative of
a bond of indemnity against any claim that may be made against the
Corporation on account of such alleged lost, stolen or destroyed
certificate or such issuance of a new certificate.
ARTICLE XII: AUTHORIZED SIGNATURES
Section 1 - Authorized Signatures: All checks, drafts and other
negotiable instruments issued by the Corporation shall be made in the
name of the Corporation and shall be signed manually or signed by
facsimile signature by such one of the officers of the Corporation or
such other person as the Chairman of the Board, the Vice Chairman of the
Board, the President or the Treasurer may from time to time designate.
ARTICLE XIII: INSURANCE
Section 1 - Insurance: The Corporation may purchase and maintain
liability insurance, to the full extent permitted by law, on behalf of
any person who is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against any
liability asserted against such person and incurred by such person in
any such capacity.
ARTICLE XIV: AMENDMENTS OF BYLAWS
Section 1 - Amendments, How Effected: These Bylaws may be amended or
repealed, or new Bylaws may be adopted, either by the majority vote of
the votes cast by the shareholders entitled to vote thereon or by the
majority vote of the Directors then in office at any meeting of the
Directors.
February 26, 1999
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EXHIBIT (3)(d)
CONSUMERS ENERGY COMPANY
BYLAWS
ARTICLE I: LOCATION OF OFFICES
Section 1 - Registered Office: The registered office of Consumers
Energy Company, (the "Company") shall be at such place in the City of
Jackson, County of Jackson, Michigan, or elsewhere in the State of
Michigan, as the Board of Directors may from time to time designate.
Section 2 - Other Offices: The Company may have and maintain other
offices within or without the State of Michigan.
ARTICLE II: CORPORATE SEAL
Section 1 - Corporate Seal: The Company shall have a corporate seal
bearing the name of the Company. The form of the corporate seal may be
altered by the Board of Directors.
ARTICLE III: FISCAL YEAR
Section 1 - Fiscal Year: The fiscal year of the Company shall begin
with the first day of January and end with the thirty-first day of
December of each year.
ARTICLE IV: SHAREHOLDERS' MEETINGS
Section 1 - Annual Meetings: An annual meeting of the shareholders for
election of Directors and for such other business as may come before
the meeting shall be held at the registered office of the Company or at
such other place within or without the State of Michigan, at 10:00 AM,
Eastern Daylight Saving Time, or at such other time on the fourth
Friday in May of each year or upon such other date as the Board of
Directors may designate, but in no event shall such date be more than
ninety (90) days after the fourth Friday in May.
Section 2 - Special Meetings: Special meetings of the shareholders may
be called by the Board of Directors or by the Chairman of the Board.
Such meetings shall be held at the registered office of the Company or
at such other place within or without the State of Michigan as the
Board of Directors may designate.
Section 3 - Notices: Except as otherwise provided by law, written
notice of any meeting of the shareholders shall be given, either
personally or by mail to each shareholder of record entitled to vote at
such meeting, not less than ten (10) days nor more than sixty (60) days
prior to the date of the meeting, at their last known address as the
same appears on the stock records of the Company. Written notice shall
be considered given when deposited, with postage thereon prepaid, in a
post office or official depository under the control of the United
States postal service. Such notice shall specify the time and place of
holding the meeting, the purpose or purposes for which such meeting is
called, and the record date fixed for the determination of shareholders
entitled to notice of and to vote at such meeting. The Board of
Directors shall fix a record date for determining shareholders entitled
to notice of and to vote at a meeting of shareholders, which record
date shall not be more than sixty (60) days nor less than ten (10) days
before the date of the meeting. Such record date shall apply to any
adjournment of the meeting unless the Board of Directors shall fix a
new record date for purposes of the adjourned meeting.
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No notice of an adjourned meeting shall be necessary if the
time and place to which the meeting is adjourned are announced at the
meeting at which the adjournment is taken. At the adjourned meeting
only such business may be transacted as might have been transacted at
the original meeting. If, after an adjournment, the Board of Directors
shall fix a new record date for the adjourned meeting, a notice of the
adjourned meeting shall be mailed, in conformity with the provisions of
the first paragraph of this Section 3, to each shareholder of record on
the new record date entitled to vote at the adjourned meeting.
Section 4 - Quorum: Except as otherwise provided by law or by the
Articles of Incorporation of the Company, the holders of the shares of
stock of the Company entitled to cast a majority of the votes at a
meeting shall constitute a quorum for the transaction of business at
the meeting, but a lesser number may convene any meeting and, by a
majority vote of the shares present at the meeting, may adjourn the
same from time to time until a quorum shall be present.
Section 5 - Voting: Shareholders may vote at all meetings in person or
by proxy, but all proxies shall be filed with the Secretary of the
meeting before being voted upon.
The voting powers of the shares of Preferred Stock, Class A
Preferred Stock, Preference Stock and Common Stock shall be as provided
by law or set forth in the Articles of Incorporation of the Company.
Section 6 - Inspectors: In advance of any meeting of shareholders the
Board of Directors shall appoint one or more inspectors to act at such
meeting or any adjournment thereof. The inspectors shall have such
powers and duties as are provided by law.
ARTICLE V: DIRECTORS
Section 1 - Number: The Board of Directors of the Company shall consist
of not less than seven (7) nor more than seventeen (17) members, as
fixed from time to time by resolution of the Board of Directors.
Section 2 - Election: The Directors shall be elected annually at the
annual meeting of the shareholders or at any adjournment thereof.
Section 3 - Term of Office: Subject to the provisions of the Articles
of Incorporation of the Company and unless otherwise provided by law,
the Directors shall hold office from the date of their election until
the next succeeding annual meeting and until their successors are
elected and shall qualify.
Section 4 - Vacancies: Any vacancy or vacancies in the Board of
Directors arising from any cause may be filled by the affirmative vote
of a majority of the Directors then in office although less than a
quorum. An increase in the number of members shall be construed as
creating a vacancy.
ARTICLE VI: DIRECTORS' MEETINGS
Section 1 - Organization Meeting: As soon as possible after their
election, the Board of Directors shall meet and organize and may also
transact other business.
Section 2 - Other Meetings: Meetings of the Board of Directors may be
held at any time upon call of the Secretary or an Assistant Secretary
made at the direction of the Chairman of the Board, the President, a
Vice Chairman, if any, or a Vice President.
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Section 3 - Place of Meeting: All meetings of Directors shall be held
at such place within or without the State of Michigan as may be
designated in the call therefor.
Section 4 - Notice: A reasonable notice of all meetings, in writing or
otherwise, shall be given to each Director or sent to the Director's
residence or place of business; provided, however, that no notice shall
be required for an organization meeting if held on the same day as the
shareholders' meeting at which the Directors were elected.
No notice of the holding of an adjourned meeting shall be
necessary.
Notice of all meetings shall specify the time and place of
holding the meeting and unless otherwise stated any and all business
may be transacted at any such meeting.
Notice of the time, place and purpose of any meeting may be
waived in writing either before or after the holding thereof.
Section 5 - Quorum: At all meetings of the Board of Directors a
majority of the Board then in office shall constitute a quorum but a
majority of the Directors present may convene and adjourn any such
meeting from time to time until a quorum shall be present; provided,
that if the Board shall consist of ten (10) and not more than fifteen
(15), then five (5) members shall constitute a quorum; and if the Board
shall consist of more than fifteen (15), then seven (7) members shall
constitute a quorum.
Section 6 - Voting: All questions coming before any meeting of the
Board of Directors for action shall be decided by a majority vote of
the Directors present at such meeting, unless otherwise provided by
law, the Articles of Incorporation of the Company or by these Bylaws.
Section 7 - Participation by Communications Equipment: A Director or a
member of a Committee designated by the Board of Directors may
participate in a meeting by means of conference telephone or similar
communications equipment by means of which all persons participating in
the meeting can hear each other. Participation in a meeting by such
means shall constitute presence in person at the meeting.
Section 8 - Action Without Meeting: Any action required or permitted to
be taken pursuant to authorization voted at a meeting of the Board of
Directors or a Committee thereof, may be taken without a meeting if,
before or after the action, all members of the Board or of the
Committee consent thereto in writing. The written consents shall be
filed with the minutes of the proceedings of the Board or Committee,
and the consents shall have the same effect as a vote of the Board or
Committee for all purposes.
ARTICLE VII: EXECUTIVE AND OTHER COMMITTEES
Section 1 - Number and Qualifications: By resolution passed by a
majority of the whole Board, the Board of Directors may from time to
time designate one or more of their number to constitute an Executive
or any other Committee of the Board, as the Board of Directors may from
time to time determine to be desirable, and may fix the number of and
designate the Chairman of each such Committee. Except as otherwise
provided by law, the powers of each such Committee shall be as defined
in the resolution or resolutions of the Board of Directors relating to
the authorizations of such Committee, and may include, if such
resolution or resolutions so provide, the power and authority to
declare a dividend or to authorize issuance of shares of stock of the
Company.
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Section 2 - Appointment: The appointment of members of each such
Committee, or other action respecting any Committee, may take place at
any meeting of the Directors.
Section 3 - Term of Office: The members of each Committee shall hold
office at the pleasure of the Board of Directors.
Section 4 - Vacancies: Any vacancy or vacancies in any such Committee
arising from any cause shall be filled by resolution passed by a
majority of the whole Board of Directors. By like vote the Board may
designate one or more Directors to serve as alternate members of a
Committee, who may replace an absent or disqualified member at a
meeting of a Committee; provided, however, in the absence or
disqualification of a member of a Committee, the members of the
Committee present at a meeting and not disqualified from voting,
whether or not constituting a quorum, may unanimously appoint another
member of the Board of Directors to act in the place of the absent or
disqualified member.
Section 5 - Minutes: Except as provided in Section 2 of Article X
hereof or as otherwise determined by the Board of Directors, each such
Committee shall make a written report or recommendation following its
meetings or keep minutes of all its meetings.
Section 6 - Quorum: At all meetings of any duly authorized Committee of
the Board of Directors, a majority of the members of such Committee
shall constitute a quorum but a majority of the members present may
convene and adjourn any such meeting from time to time until a quorum
shall be present; provided, that with respect to any Committee of the
Board other than the Executive Committee, if the membership of such
Committee is four (4) or less, then two (2) members of such Committee
shall constitute a quorum and one member may convene and adjourn any
such meeting from time to time until a quorum shall be present.
ARTICLE VIII: OFFICERS
Section 1 - Election: The officers shall be chosen by the Board of
Directors. The Company shall have a Chairman of the Board, a President,
a Secretary and a Treasurer, and such other officers as the Board of
Directors may from time to time determine, who shall have respectively
such duties and authority as may be provided by these Bylaws or as may
be provided by resolution of the Board of Directors not inconsistent
herewith. Any two (2) or more of such offices may be held by the same
person but no officer shall execute, acknowledge or verify any
instrument in more than one capacity if such instrument is required by
law, by the Articles of Incorporation of the Company or by these Bylaws
to be executed, acknowledged or verified by two (2) or more officers.
Section 2 - Qualifications: The Chairman of the Board and Vice
Chairman, if any, shall be chosen from among the Board of Directors,
but the other officers need not be members of the Board.
Section 3 - Vacancies: Any vacancy or vacancies among the officers
arising from any cause shall be filled by the Board of Directors. In
case of the absence of any officer of the Company or for any other
reason that the Board of Directors may deem sufficient, the Board of
Directors may delegate, for the time being, the powers or duties, or
any of them, of any officer to any other officer or to any Director.
Section 4 - Term of Office: Each officer of the Company shall hold
office until the officer's successor is chosen and qualified, or until
the officer's resignation or removal. Any officer appointed by the
Board of Directors may be removed at any time by the Board of Directors
with or without cause.
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Section 5 - Compensation: The compensation of the officers shall be
fixed by the Board of Directors.
ARTICLE IX: AGENTS
Section 1 - Resident Agent: The Company shall have and continuously
maintain a resident agent, which may be either an individual resident
in the State of Michigan whose business office is identical with the
Company's registered office or a Michigan corporation or a foreign
corporation authorized to transact business in Michigan and having a
business office identical with the Company's registered office. The
Board of Directors shall appoint the resident agent.
Section 2 - Other Agents: The Board of Directors may appoint such other
agents as may in their judgment be necessary for the proper conduct of
the business of the Company.
ARTICLE X: POWERS AND DUTIES
Section 1 - Directors: The business and affairs of the Company shall be
managed by the Board of Directors which shall have and exercise all of
the powers and authority of the Company except as otherwise provided by
law, by the Articles of Incorporation of the Company or by these
Bylaws.
Section 2 - Executive Committee: In the interim between meetings of the
Board of Directors the Executive Committee shall have and exercise all
the powers and authority of the Board of Directors except as otherwise
provided by law. The Executive Committee shall meet from time to time
on the call of the Chairman of the Board or the Chairman of the
Committee. The Secretary shall keep minutes in sufficient detail to
advise fully the Board of Directors of the actions taken by the
Committee and shall submit copies of such minutes to the Board of
Directors for its approval or other action at its next meeting.
Section 3 - Chairman of the Board: The Chairman of the Board shall
preside at all meetings of Directors and shareholders; shall perform
and do all acts and things incident to the position of Chairman of the
Board; and shall perform such other duties as may be assigned from time
to time by the Board of Directors or the Executive Committee.
Unless otherwise provided by the Board or the Executive
Committee, the Chairman of the Board shall have full power and
authority on behalf of the Company to execute any shareholders'
consents and to attend and act and to vote in person or by proxy at any
meetings of shareholders of any corporation in which the Company may
own stock and at any such meeting shall possess and may exercise any
and all the rights and powers incident to the ownership of such stock
and which, as the owner thereof, the Company might have possessed and
exercised if present. If the Chairman of the Board shall not exercise
such powers, or in the absence or inability to act of the Chairman, the
President may exercise such powers. In the absence or inability to act
of the President, a Vice Chairman, if any, may exercise such powers. In
the absence or inability to act of a Vice Chairman, any Vice President
may exercise such powers. The Board of Directors or Executive Committee
by resolution from time to time may confer like powers upon any other
person or persons.
Section 4 - President: The President shall be the chief executive
officer of the Company and, subject to the supervision of the Board of
Directors and of the Executive Committee, shall have general charge of
the business and affairs of the Company; shall perform and do all acts
and things incident to such position; and shall perform such other
duties as may be assigned from time to time by the Board of Directors,
the Executive Committee or the Chairman of the Board.
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In the absence of the Chairman of the Board and a Vice Chairman, the
President shall preside at meetings of Directors. In the absence of the
Chairman of the Board, the President shall preside at meetings of
shareholders.
Section 5 - Vice Chairman: The Vice Chairman, if any, shall perform
such of the duties of the Chairman of the Board or the President on
behalf of the Company as may be respectively assigned from time to time
by the Board of Directors, the Executive Committee, the Chairman of the
Board or the President. In the absence of the Chairman of the Board,
the Vice Chairman shall preside at meetings of Directors. In the
absence of the Chairman of the Board and the President, the Vice
Chairman shall preside at meetings of shareholders.
Section 6 - Vice Presidents: Vice Presidents, if any, shall perform
such of the duties of the Chairman of the Board or the President or the
Vice Chairman, if any, on behalf of the Company as may be respectively
assigned from time to time by the Board of Directors, the Executive
Committee, the Chairman of the Board or the President or a Vice
Chairman. The Board of Directors or Executive Committee may designate
one or more of the Vice Presidents as Executive Vice President or
Senior Vice President.
Section 7 - Controller: Subject to the Board of Directors, the
Executive Committee, the Chairman of the Board, the President and the
Vice President having general charge of accounting, the Controller, if
any, shall have charge of the supervision of the accounting system of
the Company, including the preparation and filing of all tax returns
and financial reports required by law to be made to any and all public
authorities and officials; and shall perform such other duties as may
be assigned, from time to time, by the Board of Directors, the
Executive Committee, the Chairman of the Board, the President, a Vice
Chairman, if any, or Vice President having general charge of
accounting.
Section 8 - Treasurer: It shall be the duty of the Treasurer to have
the care and custody of all the funds and securities, including the
investment thereof, of the Company which may come into the Treasurer's
hands, and to endorse checks, drafts and other instruments for the
payment of money for deposit or collection when necessary or proper and
to deposit the same to the credit of the Company in such bank or banks
or depository as the Treasurer may designate, and the Treasurer may
endorse all commercial documents requiring endorsements for or on
behalf of the Company. The Treasurer may sign all receipts and vouchers
for the payments made to the Company; shall render an account of
transactions to the Board of Directors or the Executive Committee as
often as the Board or the Committee shall require; and shall perform
all acts incident to the position of Treasurer, subject to the control
of the Board of Directors, the Executive Committee, the Chairman of the
Board, the President and a Vice Chairman, if any.
Section 9 - Secretary: The Secretary shall act as custodian of and
record the minutes of all meetings of the Board of Directors, of the
Executive Committee, of the shareholders and of any Committees of the
Board of Directors which keep formal minutes; shall attend to the
giving and serving of all notices of the Company; shall prepare or
cause to be prepared the list of shareholders required to be produced
at any meeting; shall attest the seal of the Company upon all contracts
and instruments executed under such seal and shall affix or cause to be
affixed the seal of the Company thereto and to all certificates of
shares of the capital stock; shall have charge of the stock records of
the Company and such other books and papers as the Board of Directors,
the Executive Committee, the Chairman of the Board, the President or a
Vice Chairman, if any, may direct; and shall, in general, perform all
the duties of Secretary, subject to the control of the Board of
Directors, the Executive Committee, the Chairman of the Board, the
President and a Vice Chairman, if any.
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Section 10 - General Counsel: The General Counsel, if any, shall have
charge of all matters of a legal nature involving the Company.
Section 11 - Assistant Controllers, Assistant Secretaries and Assistant
Treasurers: An Assistant Controller, an Assistant Secretary or an
Assistant Treasurer, if any, shall, in the absence or inability to act
or at the request of the Controller, Secretary or Treasurer,
respectively, perform the duties of the Controller or Secretary or
Treasurer, respectively, and shall perform such other duties as may
from time to time be assigned by the Board of Directors, the Executive
Committee, the Chairman of the Board, the President or a Vice Chairman,
if any. The performance of any such duty shall be conclusive evidence
of their right to act.
Section 12 - Principal Financial Officer and Principal Accounting
Officer: The Board of Directors or the Executive Committee may from
time to time designate officers of the Company to be the Principal
Financial Officer and the Principal Accounting Officer of the Company.
ARTICLE XI: STOCK
Section 1 - Stock Certificates: The shares of stock of the Company
shall be represented by certificates which shall be numbered and shall
be entered on the stock records of the Company and registered as they
are issued. Each certificate shall state on its face that the Company
is formed under the laws of Michigan, the name of the person or persons
to whom issued, the number and class of shares and the designation of
the series the certificate represents, and the par value of each share
represented by the certificate; shall be signed by the Chairman of the
Board or a Vice Chairman or the President or one of the Vice Presidents
and also may be signed by the Treasurer or an Assistant Treasurer or
the Secretary or an Assistant Secretary; and shall be sealed with the
seal of the Company or a facsimile thereof. When such certificates are
countersigned by a transfer agent or registered by a registrar, the
signatures of any such Chairman of the Board, Vice Chairman, President,
Vice President, Treasurer, Assistant Treasurer, Secretary or Assistant
Secretary may be facsimiles. In case any officer, who shall have signed
or whose facsimile signature shall have been placed on any such
certificate, shall cease to be such officer of the Company before such
certificate shall have been issued by the Company, such certificate may
nevertheless be issued by the Company with the same effect as if the
person, who signed such certificate or whose facsimile signature shall
have been placed thereon, were such officer of the Company at the date
of issue.
Each certificate shall set forth on its face or back or state
that the Company will furnish to a shareholder upon request and without
charge a full statement of the designations, relative rights,
preferences and limitations of the shares of stock of each class
authorized to be issued and of each series so far as the same have been
prescribed and the authority of the Board of Directors to designate and
prescribe the relative rights, preferences and limitations of other
series.
Section 2 - Stock Records: The shares of stock of the Company shall be
transferable on the stock records of the Company in person or by proxy
duly authorized and upon surrender and cancellation of the old
certificates therefor.
The Board of Directors may fix a date preceding the date fixed
for any meeting of the shareholders or any dividend payment date or the
date for the allotment of rights or the date when any change,
conversion or exchange of stock shall go into effect or the date for
any other action, as the record date for the determination of the
shareholders entitled to notice of and to vote at such meeting or to
receive payment of such dividend or to receive such allotment of rights
or to exercise such rights in respect of any such change, conversion or
exchange of stock or to take such other action, as the case may be,
notwithstanding any transfer of shares on the
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records of the Company or otherwise after any such record date fixed as
aforesaid. The record date so fixed by the Board shall not be more than
sixty (60) nor less than ten (10) days before the date of the meeting
of the shareholders, nor more than sixty (60) days before any other
action. If the Board of Directors does not fix a date of record, as
aforesaid, the record date shall be as provided by law.
Section 3 - Stock - Preferred, Class A Preferred, Preference and
Common: The Preferred Stock, Class A Preferred Stock, Preference Stock
and Common Stock of the Company shall consist of shares having a par
value of $100, no par value, $1 and $10 per share, respectively.
The designations, relative rights, preferences, limitations
and voting powers, or restrictions, or qualifications of the shares of
Preferred Stock, Class A Preferred Stock, Preference Stock and Common
Stock shall be as set forth in the Articles of Incorporation of the
Company.
Section 4 - Replacing Certificates: In case of the alleged loss, theft
or destruction of any certificate of shares of stock and the submission
of proper proof thereof, a new certificate may be issued in lieu
thereof upon delivery to the Company by the owner or the owner's legal
representative of a bond of indemnity against any claim that may be
made against the Company on account of such alleged lost, stolen or
destroyed certificate or such issuance of a new certificate.
ARTICLE XII: AUTHORIZED SIGNATURES
Section 1 - Authorized Signatures: All checks, drafts and other
negotiable instruments issued by the Company shall be made in the name
of the Company and shall be signed manually or signed by facsimile
signature by such one of the officers of the Company or such other
person as the Chairman of the Board, the Vice Chairman of the Board,
President or the Treasurer may from time to time designate.
ARTICLE XIII: INSURANCE
Section 1 - Insurance: The Company may purchase and maintain liability
insurance, to the full extent permitted by law, on behalf of any person
who is or was a director, officer, employee or agent of the Company, or
is or was serving at the request of the Company as a director, officer,
employee or agent of another corporation, partnership, joint venture,
trust or other enterprise against any liability asserted against such
person and incurred by such person in any such capacity.
ARTICLE XIV: AMENDMENTS OF BYLAWS
Section 1 - Amendments, How Effected: These Bylaws may be amended or
repealed, or new Bylaws may be adopted, either by the majority vote of
the votes cast by the shareholders entitled to vote thereon or by the
majority vote of the Directors then in office at any meeting of the
Directors.
February 26, 1999
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EXHIBIT (3)(f)
PANHANDLE EASTERN PIPE LINE COMPANY
BYLAWS
ARTICLE I: LOCATION OF OFFICES
Section 1 - Registered Office: The registered office of Panhandle
Eastern Pipe Line Company ("the Company") shall be at such place in the
City of Wilmington, County of New Castle, Delaware, or elsewhere in the
State of Delaware, as the Board of Directors may from time to time
designate.
Section 2 - Other Offices: The Company may have and maintain other
offices within or without the State of Delaware.
ARTICLE II: CORPORATE SEAL
Section 1 - Corporate Seal: The Company shall have a corporate seal
bearing the name of the Company. The form of the corporate seal may be
altered by the Board of Directors.
ARTICLE III: FISCAL YEAR
Section 1 - Fiscal Year: The fiscal year of the Company shall begin with
the first day of January and end with the thirty-first day of December
of each year.
ARTICLE IV: SHAREHOLDERS' MEETINGS
Section 1 - Annual Meetings: An annual meeting of the shareholders for
election of Directors and for such other business as may come before the
meeting shall be held at the registered office of the Company or at such
other place within or without the State of Delaware, at 10:00 A.M.,
Eastern Standard Time, or at such other time on the first Wednesday in
June of each year or upon such other date as the Board of Directors may
designate, but in no event shall such date be more than ninety (90) days
after the first Wednesday in June of each year.
Section 2 - Special Meetings: Special meetings of the shareholders may
be called by the Board of Directors, by the Chairman of the Board, or by
the President. Such meetings shall be held at the registered office of
the Company or at such other place within or without the State of
Delaware as the Board of Directors may designate.
Section 3 - Notices: Except as otherwise provided by law, written notice
of any meeting of the shareholders shall be given, either personally or
by mail to each shareholder of record entitled to vote at such meeting,
not less than ten (10) days nor more than sixty (60) days prior to the
date of the meeting, at their last known address as the same appears on
the stock records of the Company. Written notice shall be considered
given when deposited, with postage thereon prepaid, in a post office or
official depository under the control of the United States postal
service. Such notice shall specify the time and place of holding the
meeting, the purpose or purposes for which such meeting is called, and
the record date fixed for the determination of shareholders entitled to
notice of and to vote at such meeting. The Board of Directors shall fix
a record date for determining shareholders entitled to notice of and to
vote at a meeting of shareholders, which record date shall not be more
than sixty
<PAGE> 2
(60) days nor less than ten (10) days before the date of the meeting.
Such record date shall apply to any adjournment of the meeting unless
the Board of Directors shall fix a new record date for purposes of the
adjourned meeting.
No notice of an adjourned meeting shall be necessary if the time and
place to which the meeting is adjourned are announced at the meeting at
which the adjournment is taken. At the adjourned meeting only such
business may be transacted as might have been transacted at the original
meeting. If, after an adjournment, the Board of Directors shall fix a
new record date for the adjourned meeting, a notice of the adjourned
meeting shall be mailed, in conformity with the provisions of the first
paragraph of this Section 3, to each shareholder of record on the new
record date entitled to vote at the adjourned meeting.
Section 4 - Quorum: Except as otherwise provided by law or by the
Articles of Incorporation of the Company, the holders of the shares of
stock of the Company entitled to cast a majority of the votes at a
meeting shall constitute a quorum for the transaction of business at the
meeting, but a lesser number may convene any meeting and by a majority
vote of the shares present at the meeting, may adjourn the same from
time to time until a quorum shall be present.
Section 5 - Voting: Shareholders may vote at all meetings in person or
by proxy in writing, but all proxies shall be filed with the Secretary
of the meeting before being voted upon.
Subject to the provisions of the Articles of Incorporation of the
Company, at all meetings of the shareholders of the Company, each holder
of Common Stock shall be entitled on all questions to one vote for each
share of stock held by such holder, and a majority of the votes cast by
the holders of shares entitled to vote thereon shall be sufficient for
the adoption of any question presented, unless otherwise provided by law
or by the Articles of Incorporation of the Company.
Section 6 - Participation by Communications Equipment: Shareholders may
participate in a meeting of shareholders by means of conference
telephone or similar communications equipment by which all persons
participating in the meeting can hear each other. Participation in a
meeting by such means shall constitute presence in person at the
meeting.
Section 7 - Action Without Meeting: Any action required or permitted
under law to be taken at an annual or special meeting of shareholders
may be taken without a meeting, without prior notice and without a vote,
if all the shareholders entitled to vote thereon consent thereto in
writing.
ARTICLE V: DIRECTORS
Section 1 - Number: The Board of Directors of the Company shall consist
of one (1) member, or as many members as shall be fixed from time to
time by resolution of the Board of Directors.
Section 2 - Election: The Directors shall be elected annually at the
annual meeting of the shareholders or at any adjournment thereof.
Section 3 - Term of Office: Subject to the provisions of the Articles of
Incorporation of the Company and unless otherwise provided by law, the
Directors shall hold office from the date of their election until the
next succeeding annual meeting and until their successors are elected
and shall qualify.
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Section 4 - Vacancies: Any vacancy or vacancies in the Board of
Directors arising from any cause may be filled by the affirmative vote
of a majority of the Directors then in office although less than a
quorum. An increase in the number of members shall be construed as
creating a vacancy.
Section 5 - Fees: Except as otherwise provided by law, the Board of
Directors, by affirmative vote of a majority of Directors then in
office, may establish reasonable compensation for Directors for services
to the Company as Directors, and may from time to time review and adjust
such compensation in an amount the Board may deem reasonable.
ARTICLE VI: DIRECTORS' MEETINGS
Section 1 - Organization Meeting: As soon as possible after their
election, the Board of Directors shall meet and organize and may also
transact other business.
Section 2 - Other Meetings: Meetings of the Board of Directors may be
held at any time upon call of the Secretary or an Assistant Secretary
made at the direction of the Chairman of the Board, the President or two
Directors.
Section 3 - Place of Meeting: All meetings of Directors shall be held at
such place within or without the State of Delaware as may be designated
in the call therefor.
Section 4 - Notice: A reasonable notice of all meetings, in writing or
otherwise, shall be given to each Director or sent to the Director's
residence or place of business; provided, however, that no notice shall
be required for an organization meeting if held on the same day as the
shareholders' meeting at which the Directors were elected.
No notice of the holding of an adjourned meeting shall be
necessary.
Notice of all meetings shall specify the time and place of
holding the meeting and unless otherwise stated any and all business may
be transacted at any such meeting.
Notice of the time, place and purpose of any meeting may be
waived in writing either before or after the holding thereof.
Section 5 - Quorum: At all meetings of the Board of Directors a majority
of the Board then in office shall constitute a quorum but a majority of
the Directors present may convene and adjourn any such meeting from time
to time until a quorum shall be present.
Section 6 - Voting: All questions coming before any meeting of the Board
of Directors for action shall be decided by a majority vote of the
Directors present at such meeting, unless otherwise provided by law, the
Articles of Incorporation of the Company or by these Bylaws.
Section 7 - Participation by Communications Equipment: A Director or a
member of a Committee designated by the Board of Directors may
participate in a meeting by means of conference telephone or similar
communications equipment by means of which all persons participating in
the meeting can hear each other. Participation in a meeting by such
means shall constitute presence in person at the meeting.
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Section 8 - Action Without Meeting: Any action required or permitted to
be taken pursuant to authorization voted at a meeting of the Board of
Directors or a Committee thereof, may be taken without a meeting if,
before or after the action, all members of the Board or of the Committee
consent thereto in writing. The written consents shall be filed with the
minutes of the proceedings of the Board or Committee, and the consents
shall have the same effect as a vote of the Board or Committee for all
purposes.
ARTICLE VII: EXECUTIVE AND OTHER COMMITTEES
Section 1 - Number and Qualifications: By resolution passed by a
majority of the whole Board, the Board of Directors may from time to
time designate one or more of their number to constitute an Executive or
any other Committee of the Board, as the Board of Directors may from
time to time determine to be desirable, and may fix the number of and
designate the Chairman of each such Committee. Except as otherwise
provided by law, the powers of each such Committee shall be as defined
in the resolution or resolutions of the Board of Directors relating to
the authorizations of such Committee, and may include, if such
resolution or resolutions so provide, the power and authority to declare
a dividend or to authorize issuance of shares of stock of the Company.
Section 2 - Appointment: The appointment of members of each such
Committee, or other action respecting any Committee, may take place at
any meeting of the Directors.
Section 3 - Term of Office: The members of each Committee shall hold
office at the pleasure of the Board of Directors.
Section 4 - Vacancies: Any vacancy or vacancies in any such Committee
arising from any cause shall be filled by resolution passed by a
majority of the whole Board of Directors. By like vote the Board may
designate one or more Directors to serve as alternate members of a
Committee, who may replace an absent or disqualified member at a meeting
of a Committee; provided, however, in the absence or disqualification of
a member of a Committee, the members of the Committee present at a
meeting and not disqualified from voting, whether or not constituting a
quorum, may unanimously appoint another member of the Board of Directors
to act in the place of the absent or disqualified member.
Section 5 - Fees: Except as otherwise provided by law, the Board of
Directors, by affirmative vote of a majority of Directors then in
office, may establish reasonable compensation of Directors for services
to the Company on Committees of the Board, and may from time to time
review and adjust such compensation in an amount the Board may deem
reasonable.
Section 6 - Minutes: Except as provided in Section 2 of Article IX
hereof or as otherwise determined by the Board of Directors, each such
Committee shall make a written report or recommendation following its
meetings or keep minutes of all its meetings.
Section 7 - Quorum: At all meetings of any duly authorized Committee of
the Board of Directors, a majority of the members of such Committee
shall constitute a quorum but a majority of the members present may
convene and adjourn any such meeting from time to time until a quorum
shall be present; provided, that with respect to any Committee of the
Board other than the Executive Committee, if the membership of such
Committee is four (4) or less, then two (2) members of such Committee
shall constitute a quorum and one member may convene and adjourn any
such meeting from time to time until a quorum shall be present.
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ARTICLE VIII: OFFICERS
Section 1 - Election: The officers shall be chosen by the Board of
Directors. The Company shall have a President, a Secretary and a
Treasurer, and such other officers as the Board of Directors may from
time to time determine, who shall have respectively such duties and
authority as may be provided by these Bylaws or as may be provided by
resolution of the Board of Directors not inconsistent herewith. Any two
(2) or more of such offices may be held by the same person but no
officer shall execute, acknowledge or verify any instrument in more than
one capacity if such instrument is required by law, by the Articles of
Incorporation of the Company or by these Bylaws to be executed,
acknowledged or verified by two (2) or more officers.
Section 2 - Qualifications: The Chairman of the Board and a Vice
Chairman, if any, shall be chosen from among the Board of Directors, but
the other officers need not be members of the Board.
Section 3 - Vacancies: Any vacancy or vacancies among the officers
arising from any cause shall be filled by the Board of Directors. In
case of the absence of any officer of the Company or for any other
reason that the Board of Directors may deem sufficient, the Board of
Directors may delegate, for the time being, the powers or duties, or any
of them, of any officer to any other officer or to any Director.
Section 4 - Term of Office: Each officer of the Company shall hold
office until a successor is chosen and qualified, or until the officer's
resignation or removal. Any officer appointed by the Board of Directors
may be removed at any time by the Board with or without cause.
Section 5 - Compensation: The compensation of the officers shall be
fixed by the Board of Directors.
ARTICLE IX: AGENTS
Section 1 - Resident Agent: The Company shall have and continuously
maintain a resident agent, which may be either an individual resident in
the State of Delaware whose business office is identical with the
Company's registered office or a Delaware corporation or a foreign
corporation authorized to transact business in Delaware and having a
business office identical with the Company's registered office. The
Board of Directors shall appoint the resident agent.
Section 2 - Other Agents: The Board of Directors may appoint such other
agents as may in their judgement be necessary for the proper conduct of
the business of the Company.
ARTICLE X: POWERS AND DUTIES
Section 1 - Directors: The business and affairs of the Company shall be
managed by the Board of Directors which shall have and exercise all of
the powers and authority of the Company except as otherwise provided by
law, by the Articles of Incorporation of the Company or by these Bylaws.
Section 2 - Executive Committee: In the interim between meetings of the
Board of Directors, the Executive Committee shall have and exercise all
the powers and authority of the Board of Directors except as otherwise
provided by law. The Executive Committee shall meet from time to time on
the call of the Chairman of the Board, the President, or the Chairman of
the Committee. The Secretary shall keep minutes in sufficient detail to
advise fully the Board of Directors of the actions taken by
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the Committee and shall submit copies of such minutes to the Board of
Directors for its approval or other action at its next meeting.
Section 3 - Chairman of the Board: The Chairman of the Board shall be
subject to the supervision of the Board of Directors and of the
Executive Committee; shall have general charge of the business and
affairs of the Company; shall preside at all meetings of Directors and
shareholders; shall perform and do all acts and things incident to the
position of Chairman of the Board; and shall perform such other duties
as may be assigned from time to time by the Board of Directors or the
Executive Committee.
Unless otherwise provided by the Board or the Executive
Committee, the Chairman of the Board shall have full power and authority
on behalf of the Company to execute any shareholders' consents and to
attend and act and to vote in person or by proxy at any meetings of
shareholders of any corporation in which the Company may own stock and
at any such meeting shall possess and may exercise any and all the
rights and powers incident to the ownership of such stock and which, as
the owner thereof, the Company might have possessed and exercised if
present. If the Chairman of the Board shall not exercise such powers, or
in the absence or inability to act of the Chairman, the President may
exercise such powers. In the absence or inability to act of the
President, a Vice Chairman, if any, may exercise such powers. The Board
of Directors or Executive Committee by resolution from time to time may
confer like powers upon any other person or persons.
Section 4 - President: The President shall be the chief executive
officer and chief operating officer of the Company. The President shall
perform and do all acts and things incident to such positions; and shall
perform such other duties as may be assigned from time to time by the
Board of Directors, the Executive Committee or the Chairman of the
Board. In the absence of the Chairman of the Board and a Vice Chairman,
the President shall preside at meetings of Directors. In the absence of
the Chairman of the Board, the President shall preside at meetings of
shareholders.
Section 5 - Vice Chairman: A Vice Chairman, if any, shall perform such
of the duties of the Chairman of the Board or the President on behalf of
the Company as may be respectively assigned from time to time by the
Board of Directors, the Executive Committee, the Chairman of the Board
or the President. In the absence of the Chairman of the Board, the Vice
Chairman shall preside at meetings of Directors. In the absence of the
Chairman of the Board and the President, the Vice Chairman shall preside
at meetings of shareholders.
Section 6 - Vice Presidents: Vice Presidents, if any, shall perform such
of the duties of the Chairman of the Board, the President or the Vice
Chairman, if any, on behalf of the Company as may be respectively
assigned from time to time by the Board of Directors, the Executive
Committee, the Chairman of the Board, the President or a Vice Chairman,
if any. The Board of Directors or Executive Committee may designate one
or more of the Vice Presidents as Executive Vice President or Senior
Vice President.
Section 7 - Controller: Subject to the control of the Board of
Directors, the Executive Committee, the Chairman of the Board, the
President, a Vice Chairman, if any, and the Vice President having
general charge of accounting, the Controller, shall have charge of the
supervision of the accounting system of the Company, including the
preparation and filing of all tax returns and financial reports required
by law to be made to any and all public authorities and officials. The
Controller shall perform such other duties as may be assigned, from time
to time, by the Board of Directors, the Executive Committee, the
Chairman of the Board, the President, a Vice Chairman, if any, or the
Vice President having general charge of accounting.
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Section 8 - Treasurer: It shall be the duty of the Treasurer to have the
care and custody of all the funds and securities, including the
investment thereof, of the Company which may come into the Treasurer's
hands, and to endorse checks, drafts and other instruments for the
payment of money for deposit or collection when necessary or proper and
to deposit the same to the credit of the Company in such bank or banks
or depository as the Treasurer may designate; endorse all commercial
documents requiring endorsements for or on behalf of the Company; sign
all receipts and vouchers for the payments made to the Company; render
an account of transactions to the Board of Directors or the Executive
Committee as often as the Board or the Committee shall require; and
perform all acts incident to the position of Treasurer, subject to the
control of the Board of Directors, the Executive Committee, the Chairman
of the Board, the President or a Vice Chairman, if any.
Section 9 - Secretary: The Secretary shall act as custodian of and keep
the minutes of all meetings of the Board of Directors, of the Executive
Committee, of the shareholders and of any Committees of the Board of
Directors which keep formal minutes; attend to the giving and serving of
all notices of the Company; and prepare or cause to be prepared the list
of shareholders required to be produced at any meeting. The Secretary
shall have charge of the stock records of the Company and such other
books and papers as the Board of Directors, the Executive Committee, the
Chairman of the Board, the President or a Vice Chairman, if any, may
direct, and in general, perform all the duties of Secretary, subject to
the control of the Board of Directors, the Executive Committee, the
Chairman of the Board, the President or a Vice Chairman, if any.
Section 10 - General Counsel: The General Counsel, if any, shall have
charge of all matters of a legal nature involving the Company.
Section 11 - Assistant Controllers, Assistant Secretaries and Assistant
Treasurers: An Assistant Controller, an Assistant Secretary or an
Assistant Treasurer, if any, shall, in the absence or inability to act
or at the request of the Controller, Secretary or Treasurer,
respectively, perform the duties of the Controller or Secretary or
Treasurer, respectively, and shall perform such other duties as may from
time to time be assigned by the Board of Directors, the Executive
Committee, the Chairman of the Board, the President or a Vice Chairman,
if any. The performance of any such duty shall be conclusive evidence of
their right to act.
Section 12 - Principal Financial Officer and Principal Accounting
Officer: The Board of Directors or the Executive Committee may from time
to time designate officers of the Company to be the Principal Financial
Officer and the Principal Accounting Officer of the Company.
ARTICLE XI: STOCK
Section 1 - Stock Certificates: The shares of stock of the Company shall
be represented by certificates which shall be numbered and shall be
entered on the stock records of the Company and registered as they are
issued. Each certificate shall state on its face that the Company is
formed under the laws of Delaware, the name of the person or persons to
whom issued, the number and class of shares and the designation of the
series the certificate represents; and shall be signed by the Chairman
of the Board, a Vice Chairman, if any, the President or a Vice President
and by the Treasurer, an Assistant Treasurer, the Secretary or an
Assistant Secretary. When such certificates are countersigned by a
transfer agent or registered by a registrar, the signatures of any such
Chairman of the Board, Vice Chairman, President, Vice President,
Treasurer, Assistant Treasurer, Secretary or Assistant Secretary may be
facsimiles. In the case any officer, who shall have signed or whose
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facsimile signature shall have been placed on any such certificate,
shall cease to be such officer of the Company before such certificate
shall have been issued by the Company, such certificate may nevertheless
be issued by the Company with the same effect as if the person, who
signed such certificate or whose facsimile signature shall have been
placed thereon, were such officer of the Company at the date of issue.
Each certificate shall set forth on its face or back or state
that the Company will furnish to a shareholder upon request and without
charge a full statement of the designations, relative rights,
preferences and limitations of the shares of stock of each class
authorized to be issued and of each series so far as the same have been
prescribed and the authority of the Board of Directors to designate and
prescribe the relative rights, preferences and limitations of other
series.
Section 2 - Stock Records: The shares of stock of the Company shall be
transferable on the stock records of the Company in person or by proxy
duly authorized and upon surrender and cancellation of the old
certificates therefor.
The Board of Directors may fix a date preceding the date fixed
for any meeting of the shareholders or any dividend payment date or the
date for the allotment of rights or the date when any change, conversion
or exchange of stock shall go into effect or the date for any other
action, as the record date for the determination of the shareholders
entitled to notice of and to vote at such meeting or to receive payment
of such dividend or to receive such allotment of rights or to exercise
such rights in respect of any such change, conversion or exchange of
stock or to take such other action, as the case may be, notwithstanding
any transfer of shares on the records of the Company or otherwise after
any such record date fixed as aforesaid. The record date so fixed by the
Board shall not be more than sixty (60) nor less than ten (10) days
before the date of the meeting of the shareholders, nor more than sixty
(60) days before any other action. If the Board of Directors does not
fix a date of record, as aforesaid, the record date shall be as provided
by law.
Section 3 - Stock: The designations, relative rights, preferences,
limitations and voting powers, or restrictions, or qualifications of the
shares of the Company's stock shall be as set forth in the Articles of
Incorporation of the Company.
Section 4 - Replacing Certificates: In case of the alleged loss, theft
or destruction of any certificate of shares of stock and the submission
of proper proof thereof, a new certificate may be issued in lieu thereof
upon delivery to the Company by the owner or their legal representative
of a bond of indemnity against any claim that may be made against the
Company on account of such alleged lost, stolen or destroyed certificate
or such issuance of a new certificate.
ARTICLE XII: DIVIDENDS AND DISTRIBUTIONS
Section 1 - Declaration and Payment: Subject to the provisions of
applicable law and the Articles of Incorporation of the Company, the
Board of Directors may from time to time declare and pay dividends, or
make other distributions, on its outstanding shares of stock.
ARTICLE XIII: AUTHORIZED SIGNATURES
Section 1 - Authorized Signatures: All checks, drafts and other
negotiable instruments issued by the Company shall be made in the name
of the Company and shall be signed manually or signed by
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<PAGE> 9
facsimile signature by such one of the officers of the Company or such
other person as the President or Treasurer may from time to time
designate.
Section 2 - Contracts, Conveyances, etc.: The Board of Directors shall
have the power to designate the officers and agents who shall have
authority to execute any instrument on behalf of the Company. When the
execution of any contract, conveyance or other instrument has been
authorized without specification of the executing officers, the
President or any Vice President may execute the same in the name of and
on behalf of the Company.
ARTICLE XIV: INSURANCE
Section 1 - Insurance: The Company may purchase and maintain liability
insurance, to the full extent permitted by law, on behalf of any person
who is or was a director, officer, employee or agent of the Company, or
is or was serving at the request of the Company as a director, officer,
employee or agent of another corporation, partnership, joint venture,
trust or other enterprise against any liability asserted against such
person and incurred by such person in any such capacity.
ARTICLE XV: AMENDMENTS OF BYLAWS
Section 1 - Amendments, How Effected: These Bylaws may be amended or
repealed, or new Bylaws may be adopted, either by the majority vote of
the votes cast by the shareholders entitled to vote thereon or by the
majority vote of the Directors then in office at any meeting of the
Directors.
March 29, 1999
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<PAGE> 1
EXHIBIT (4)(b)
SEVENTY-FIFTH SUPPLEMENTAL INDENTURE
Providing among other things for
FIRST MORTGAGE BONDS,
Series 1993A Ambac Bonds due June 15, 2010
--------------
Dated as of October 1, 1999
--------------
CONSUMERS ENERGY COMPANY
TO
THE CHASE MANHATTAN BANK,
TRUSTEE
Counterpart of 80
------
<PAGE> 2
SEVENTY-FIFTH SUPPLEMENTAL INDENTURE, dated as of October 1,
1999 (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
<PAGE> 3
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, pursuant to a Trust Indenture, dated as of June 15,
1993 (the "MSF Trust Indenture") by and between the Michigan Strategic Fund,
(the "Issuer") and The Chase Manhattan Bank, (the "MSF Trust Indenture Trustee")
the Issuer has issued $27,900,000 in aggregate principal amount of its
Adjustable Rate Demand Limited Obligation Refunding Revenue Bonds (Consumers
Power Company Project) Series 1993A (hereinafter sometimes called the "MSF
Bonds"); and
WHEREAS, the MSF Trust Indenture has been amended as set forth
in the Amended and Restated Trust Indenture dated as of October 1, 1999 (the
"Amended MSF Trust Indenture") to provide, among other things, for substitute
credit enhancement on the MSF Bonds; and
WHEREAS, Ambac Assurance Corporation, a Wisconsin-domiciled
stock insurance company ("Ambac") has provided such substitute credit
enhancement on the MSF Bonds through the issuance of its Municipal Bond
Insurance Policy (the "Policy") which insures certain payments of principal of
and interest on the MSF Bonds, as specified therein; and
WHEREAS, the Company has entered into an Insurance Agreement,
dated as of October 1, 1999 with Ambac (the "Insurance Agreement") in connection
with the Policy and pursuant to the Insurance Agreement the Company has agreed
to issue a new series of bonds under the Indenture in order to secure its
obligations under the Insurance Agreement; and
WHEREAS, for such purposes the Company desires to issue a new
series of bonds, to be designated First Mortgage Bonds, Series 1993A Ambac Bonds
due June 15, 2010, each of which bonds shall also bear the descriptive title
"First Mortgage Bond" (hereinafter provided for and hereinafter sometimes
referred to as the "Series 1993A Ambac 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 June 15, 2010; and
WHEREAS, the Series 1993A Ambac Bonds shall be issued to Ambac
in connection with the issuance of the Policy; and
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WHEREAS each of the registered bonds without coupons of the
Series 1993A Ambac Bonds and the Trustee's Authentication Certificate thereon
are to be substantially in the following forms, to wit:
[FORM OF REGISTERED BOND OF THE SERIES 1993A AMBAC BONDS]
[FACE]
NOTWITHSTANDING ANY PROVISIONS HEREOF OR IN THE INDENTURE,
THIS BOND IS NOT ASSIGNABLE OR TRANSFERABLE.
CONSUMERS ENERGY COMPANY
FIRST MORTGAGE BOND, SERIES 1993A AMBAC BONDS
DUE JUNE 15, 2010
No. $
CONSUMERS ENERGY COMPANY, a Michigan corporation (hereinafter
called the "Company"), for value received, hereby promises to pay to Ambac
Assurance Corporation ("Ambac"), or registered assigns, the principal sum of
Twenty-Seven Million Nine Hundred Thousand Dollars on June 15, 2010, and to pay
to the registered holder hereof interest on said sum payable at the rate and in
the manner as set forth in the MSF Bonds, defined below. In the event that one
or more MSF Bonds shall have different interest rates from other MSF Bonds, the
interest rate of each allocable portion of the Series 1993A Ambac Bonds shall be
deemed to correspond to the interest rate of each such MSF Bonds (as defined
below).
Under a Trust Indenture dated as of June 15, 1993 between the
Michigan Strategic Fund, as issuer ("the Issuer") and The Chase Manhattan Bank,
as trustee (the "MSF Trust Indenture Trustee"), which has been amended and
restated pursuant to the Amended and Restated Trust Indenture dated as of
October 1, 1999 between the Issuer and the MSF Trust Indenture Trustee and
acknowledged and agreed to by the Company (as so amended and restated, the "MSF
Trust Indenture"). MSF has issued Adjustable Rate Demand Limited Obligation
Refunding Revenue Bonds (Consumers Power Company Project) Series 1993A
(hereinafter sometimes called the "MSF Bonds"). Payments of principal of,
premiums, if any, or interest on, the MSF Bonds shall constitute payments on
this bond as further provided herein and in the supplemental indenture pursuant
to which this bond has been issued; provided that payments of principal and
interest made on the MSF Bonds by Ambac pursuant to its municipal bond insurance
policy (the "Policy") issued with respect of the MSF Bonds shall not constitute
payments on this bond unless all amounts in respect thereof owed to Ambac
pursuant to Section 2.01(a) of the Insurance Agreement dated October 1, 1999
between Ambac, the Company and the MSF Trust Indenture Trustee (the "Insurance
Agreement") shall have been paid in full.
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 or her signature or a facsimile thereof, and
its corporate seal or a facsimile thereof to be affixed hereto or imprinted
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hereon and attested by its Secretary or one of its Assistant Secretaries by his
or her 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, SERIES 1993A AMBAC BONDS
DUE JUNE 15, 2010
The interest payable on any date as specified in the MSF Bonds
(each "Interest Payment Date") 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 as specified in
the MSF Bonds. 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, or
interest on, all or any portion of the MSF Bonds (other than payments of
principal or interest made thereon by Ambac pursuant to the Policy which are not
reimbursed to Ambac when due in accordance with Section 2.01(a) of the Insurance
Agreement), whether at maturity or prior to maturity by redemption or otherwise,
Series 1993A Ambac Bonds in a principal amount equal to the principal amount of
such MSF Bonds shall, to the extent of such payment of principal, premium, if
any, and interest or reimbursements to Ambac, be deemed fully paid and
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<PAGE> 6
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 Series 1993A Ambac Bonds shall be surrendered to
the Company for cancellation as provided in Section 3.01(a) of the Insurance
Agreement. 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 Series 1993A Ambac Bonds and the obligation
of the Company to make payments with respect to Section 2.01(a) of the Insurance
Agreement, so far as such payments at the time have become due, have been fully
satisfied and discharged pursuant to the foregoing sentence unless and until the
Trustee shall have received a written notice from Ambac signed by one of its
officers stating (i) that a claim or claims have been made under the Policy,
(ii) that the Company is in arrears as to the payments required to be made by it
to Ambac pursuant to the Insurance Agreement, and (iii) the amount of the
arrearage.
In the event that there is an Event of Default (as defined in
the MSF Indenture) under the MSF Bonds that results in an acceleration of all
outstanding amounts of principal, premium if any, and interest of the MSF Bonds
and there is an Event of Default (as defined in the Insurance Agreement) with
respect to non-payment of the Company's obligations under Section 2.01(a) of the
Insurance Agreement, then Ambac shall give written notice thereof to the Trustee
and such events shall constitute a default under this bond and the remedies set
forth in the Indenture shall be applicable as provided in the Indenture.
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.
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<PAGE> 7
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 is redeemable on the respective dates and in the
respective principal amounts which correspond to the redemption dates for, and
the principal amounts to be redeemed of, the MSF Bonds (provided that this bond
may not be redeemed where any portion of the principal or interest on the MSF
Bonds is paid by Ambac pursuant to the Policy in connection with the redemption
of the MSF Bonds and Ambac has not been paid as provided in Section 2.01(a) of
the Insurance Agreement). In addition, this bond is redeemable at the option of
the Company in connection with a call for purchase of the MSF Bonds, as set
forth in Section 109 of the Amended MSF Trust Indenture.
This bond shall not be assignable or transferable.
As provided in Section 3.01(b) of the Insurance Agreement,
from and after the Release Date (as defined in the Insurance Agreement), 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
obligation outstanding under the Insurance Agreement, and, pursuant to Section
3.01(a) of the Insurance Agreement, provided that all amounts owed to Ambac
pursuant to Section 2.01(a) of the Insurance Agreement shall be indefeasibly
paid in full, Ambac 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 Series 1993A Ambac 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 $27,900,000 principal amount of Series 1993A Ambac Bonds
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<PAGE> 8
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 12 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
"Series 1993A Ambac Bonds") designated as hereinabove provided, which shall also
bear the descriptive title "First Mortgage
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<PAGE> 9
Bond", and the form thereof shall be substantially as hereinbefore set forth.
Series 1993A Ambac Bonds shall be issued in the aggregate principal amount of
$27,900,000, shall mature on June 15, 2010 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 Series 1993A Ambac 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. Series 1993A Ambac Bonds shall bear interest at the
rate per annum, until the principal thereof shall be paid in full at the times
and in the manner as specified in the MSF Bonds to the holder of the 1993A Ambac
Bonds. 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 MSF Bonds (other than payments of
principal or interest made thereon by Ambac pursuant to the Policy which have
not been reimbursed in accordance with Section 2.01(a)), whether at maturity or
prior to maturity by redemption or otherwise, Series 1993A Ambac Bonds in a
principal amount equal to the principal amount of such MSF Bonds shall, to the
extent of such payment of principal, premium, if any, and interest, or
reimbursements to Ambac, provided that all amounts owed to Ambac under Section
2.01(a) of the Insurance Agreement shall be paid in full to Ambac, be deemed
fully 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 Series 1993A Ambac Bonds shall be
surrendered to the Company for cancellation as provided in Section 3.01(a) of
the Insurance Agreement. 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 Series 1993A Ambac Bonds
and the obligation of the Company to make payments with respect to Section
2.01(a) of the Insurance Agreement, so far as such payments at the time have
become due, have been fully satisfied and discharged pursuant to the foregoing
sentence unless and until the Trustee shall have received a written notice from
Ambac as set forth in Section 3 herein.
Each Series 1993A Ambac Bond is to be issued to and registered
in the name of Ambac to secure any and all obligations of the Company under the
Insurance Agreement.
The Series 1993A Ambac Bonds shall not be assignable or
transferable.
SECTION 2. Series 1993A Ambac 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 MSF
Bonds.
In the event the Company elects to or is required to redeem or
is required to purchase any MSF Bonds prior to maturity in accordance with the
provisions of the MSF Indenture, Ambac shall on the same date deliver to the
Company the Series 1993A Ambac Bonds in principal amounts corresponding to the
MSF Bonds so redeemed or purchased, as provided in Section 3.01(a) of the
Insurance Agreement; provided that Ambac has not made any payments pursuant to
the Policy in connection with any such redemption or purchase of the MSF Bonds
which have not been reimbursed to Ambac in accordance with Section 2.01(a) of
the Insurance Agreement. The Company agrees to give the Trustee and Ambac notice
of any such redemption or purchase of the MSF Bonds on or before the date fixed
for any such redemption or purchase.
Series 1993A Ambac 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.
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SECTION 3. In the event that there is an Event of Default (as
defined in the MSF Trust Indenture) under the MSF Bonds that results in an
acceleration of all outstanding amounts of principal, premium if any, and
interest on the MSF Bonds and there is an Event of Default (as defined in the
Insurance Agreement) with respect to non-payment of the Company's obligations
under Section 2.01(a) of the Insurance Agreement, then Ambac shall give written
notice thereof to the Trustee and such events shall constitute an Event of
Default under this bond and the remedies set forth in the Indenture shall be
applicable as provided in the Indenture.
SECTION 4. As provided in Section 3.01(b) of the Insurance
Agreement and provided that all amounts owing to Ambac under Section 2.01(a) of
the Insurance Agreement shall have been paid in full, from and after the Release
Date (as defined therein), the obligations of the Company with respect to the
Series 1993A Ambac Bonds (the "Bonds") shall be deemed to be satisfied and
discharged, the Bonds shall cease to secure in any manner any obligations
outstanding under the Insurance Agreement, and, pursuant to Section 3.01(a) of
the Insurance Agreement, Ambac shall forthwith deliver the Bonds to the Company
for cancellation.
SECTION 5. The Company reserves the right, without any
consent, vote or other action by the holder of the Series 1993A Ambac Bonds 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.
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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 6. 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 7. 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 Ambac any right or interest to avail himself
of any benefit under any provision of the Indenture, as so supplemented and
amended.
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<PAGE> 12
SECTION 8. 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 9. 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 10. In the event the date of any notice required or
permitted hereunder or the date of maturity of interest on or principal of the
Series 1993A Ambac Bonds or the date fixed for redemption or repayment of the
Series 1993A Ambac 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 10, a day of the year on which banks are not required or
authorized to close in New York City or Detroit, Michigan.
SECTION 11. This Supplemental Indenture and the Series 1993A
Ambac 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 12. 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
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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.
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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.
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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. Such real property includes
but is not limited to the following described property, such property is subject
to any interests that were excepted or reserved in the conveyance to the
Company:
ALCONA COUNTY
Certain land in Caledonia Township, Alcona County, Michigan
described as:
The East 330 feet of the South 660 feet of the SW 1/4 of the
SW 1/4 of Section 8, T28N, R8E, except the West 264 feet of
the South 330 feet thereof; said land being more particularly
described as follows: To find the place of beginning of this
description, commence at the Southwest corner of said section,
run thence East along the South line of said section 1243
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<PAGE> 16
feet to the place of beginning of this description, thence
continuing East along said South line of said section 66 feet
to the West 1/8 line of said section, thence N 02(degree) 09'
30" E along the said West 1/8 line of said section 660 feet,
thence West 330 feet, thence S 02(degree) 09' 30" W, 330 feet,
thence East 264 feet, thence S 02(degree) 09' 30" W, 330 feet
to the place of beginning.
ALLEGAN COUNTY
Certain land in Lee Township, Allegan County, Michigan
described as:
The NE 1/4 of the NW 1/4 of Section 16, T1N, R15W.
ALPENA COUNTY
Certain land in Wilson and Green Townships, Alpena County,
Michigan described as:
All that part of the S'ly 1/2 of the former Boyne City-Gaylord
and Alpena Railroad right of way, being the Southerly 50 feet
of a 100 foot strip of land formerly occupied by said
Railroad, running from the East line of Section 31, T31N, R7E,
Southwesterly across said Section 31 and Sections 5 and 6 of
T30N, R7E and Sections 10, 11 and the E1/2 of Section 9,
except the West 1646 feet thereof, all in T30N, R6E.
ANTRIM COUNTY
Certain land in Mancelona Township, Antrim County, Michigan
described as:
The S 1/2 of the NE 1/4 of Section 33, T29N, R6W, excepting
therefrom all mineral, coal, oil and gas and such other rights
as were reserved unto the State of Michigan in that certain
deed running from the State of Michigan to August W. Schack
and Emma H. Schack, his wife, dated April 15, 1946 and
recorded May 20, 1946 in Liber 97 of Deeds on page 682 of
Antrim County Records.
ARENAC COUNTY
Certain land in Standish Township, Arenac County, Michigan
described as:
A parcel of land in the SW 1/4 of the NW 1/4 of Section 12,
T18N, R4E, described as follows: To find the place of
beginning of said parcel of land, commence at the Northwest
corner of Section 12, T18N, R4E; run thence South along the
West line of said section, said West line of said section
being also the center line of East City Limits Road 2642.15
feet to the W 1/4 post of said section and the place of
beginning of said parcel of land; running thence N 88(degree)
26' 00" E along the East and West 1/4 line of said section,
660.0 feet; thence North parallel with the West line of said
section, 310.0 feet; thence S 88(degree) 26' 00" W, 330.0
feet; thence South parallel with the West line of said
section, 260.0 feet; thence S 88(degree) 26' 00" W, 330.0 feet
to the West line of said section and the center line of East
City Limits
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Road; thence South along the said West line of said section,
50.0 feet to the place of beginning.
BARRY COUNTY
Certain land in Johnstown Township, Barry County, Michigan
described as:
A strip of land 311 feet in width across the SW 1/4 of the NE
1/4 of Section 31, T1N, R8W, described as follows: To find the
place of beginning of this description, commence at the E 1/4
post of said section; run thence N 00(degree) 55' 00" E along
the East line of said section, 555.84 feet; thence N
59(degree) 36' 20" W, 1375.64 feet; thence N 88(degree) 30'
00" W, 130 feet to a point on the East 1/8 line of said
section and the place of beginning of this description; thence
continuing N 88(degree) 30' 00" W, 1327.46 feet to the North
and South 1/4 line of said section; thence S 00(degree) 39'
35" W along said North and South 1/4 line of said section,
311.03 feet to a point, which said point is 952.72 feet
distant N'ly from the East and West 1/4 line of said section
as measured along said North and South 1/4 line of said
section; thence S 88(degree) 30' 00" E, 1326.76 feet to the
East 1/8 line of said section; thence N 00(degree) 47' 20" E
along said East 1/8 line of said section, 311.02 feet to the
place of beginning.
BAY COUNTY
Certain land in Frankenlust Township, Bay County, Michigan
described as:
The South 250 feet of the N 1/2 of the W 1/2 of the W 1/2 of
the SE 1/4 of Section 9, T13N, R4E.
BENZIE COUNTY
Certain land in Benzonia Township, Benzie County, Michigan
described as:
A parcel of land in the Northeast 1/4 of Section 7, Township
26 North, Range 14 West, described as beginning at a point on
the East line of said Section 7, said point being 320 feet
North measured along the East line of said section from the
East 1/4 post; running thence West 165 feet; thence North
parallel with the East line of said section 165 feet; thence
East 165 feet to the East line of said section; thence South
165 feet to the place of beginning.
BRANCH COUNTY
Certain land in Girard Township, Branch County, Michigan
described as:
A parcel of land in the NE1/4 of Section 23 T5S, R6W,
described as beginning at a point on the North and South
quarter line of said section at a point 1278.27 feet distant
South of the North quarter post of said section,
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<PAGE> 18
said distance being measured along the North and South quarter
line of said section, running thence S89(degree)21'E 250 feet,
thence North along a line parallel with the said North and
South quarter line of said section 200 feet, thence
N89(degree)21'W 250 feet to the North and South quarter line
of said section, thence South along said North and South
quarter line of said section 200 feet to the place of
beginning.
CALHOUN COUNTY
Certain land in Convis Township, Calhoun County, Michigan
described as:
A parcel of land in the SE 1/4 of the SE 1/4 of Section 32,
T1S, R6W, described as follows: To find the place of beginning
of this description, commence at the Southeast corner of said
section; run thence North along the East line of said section
1034.32 feet to the place of beginning of this description;
running thence N 89(degree) 39' 52" W, 333.0 feet; thence
North 290.0 feet to the South 1/8 line of said section; thence
S 89(degree) 39' 52" E along said South 1/8 line of said
section 333.0 feet to the East line of said section; thence
South along said East line of said section 290.0 feet to the
place of beginning. (Bearings are based on the East line of
Section 32, T1S, R6W, from the Southeast corner of said
section to the Northeast corner of said section assumed as
North.)
CASS COUNTY
Certain easement rights located across land in Marcellus
Township, Cass County, Michigan described as:
The East 6 rods of the SW 1/4 of the SE 1/4 of Section 4, T5S,
R13W.
CHARLEVOIX COUNTY
Certain land in South Arm Township, Charlevoix County,
Michigan described as:
A parcel of land in the SW 1/4 of Section 29, T32N, R7W,
described as follows: Beginning at the Southwest corner of
said section and running thence North along the West line of
said section 788.25 feet to a point which is 528 feet distant
South of the South 1/8 line of said section as measured along
the said West line of said section; thence N 89(degree) 30'
19" E, parallel with said South 1/8 line of said section 442.1
feet; thence South 788.15 feet to the South line of said
section; thence S 89(degree) 29' 30" W, along said South line
of said section 442.1 feet to the place of beginning.
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CHEBOYGAN COUNTY
Certain land in Inverness Township, Cheboygan County, Michigan
described as:
A parcel of land in the SW frl 1/4 of Section 31, T37N, R2W,
described as beginning at the Northwest corner of the SW frl
1/4, running thence East on the East and West quarter line of
said Section, 40 rods, thence South parallel to the West line
of said Section 40 rods, thence West 40 rods to the West line
of said Section, thence North 40 rods to the place of
beginning.
CLARE COUNTY
Certain land in Frost Township, Clare County, Michigan
described as:
The East 150 feet of the North 225 feet of the NW 1/4 of the
NW 1/4 of Section 15, T20N, R4W.
CLINTON COUNTY
Certain land in Watertown Township, Clinton County, Michigan
described as:
The NE 1/4 of the NE 1/4 of the SE 1/4 of Section 22, and the
North 165 feet of the NW 1/4 of the NE 1/4 of the SE 1/4 of
Section 22, T5N, R3W.
CRAWFORD COUNTY
Certain land in Lovells Township, Crawford County, Michigan
described as:
A parcel of land in Section 1, T28N, R1W, described as:
Commencing at NW corner said section; thence South
89(degree)53'30" East along North section line 105.78 feet to
point of beginning; thence South 89(degree)53'30" East along
North section line 649.64 feet; thence South 55(degree)42'30"
East 340.24 feet; thence South 55(degree)44'37" East 5,061.81
feet to the East section line; thence South 00(degree)00'08"
West along East section line 441.59 feet; thence North
55(degree)44'37" West 5,310.48 feet; thence North
55(degree)42'30" West 877.76 feet to point of beginning.
EATON COUNTY
Certain land in Eaton Township, Eaton County, Michigan
described as:
A parcel of land in the SW 1/4 of Section 6, T2N, R4W,
described as follows: To find the place of beginning of this
description commence at the Southwest corner of said section;
run thence N 89(degree) 51' 30" E along the South line of said
section 400 feet to the place of beginning of this
description; thence continuing N 89(degree) 51' 30" E, 500
feet; thence N 00(degree) 50' 00" W, 600 feet; thence S
89(degree) 51' 30" W parallel with the South line of said
section 500 feet; thence S 00(degree) 50' 00" E, 600 feet to
the place of beginning.
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<PAGE> 20
EMMET COUNTY
Certain land in Wawatam Township, Emmet County, Michigan
described as:
The West 1/2 of the Northeast 1/4 of the Northeast 1/4 of
Section 23, T39N, R4W.
GENESEE COUNTY
Certain land in Argentine Township, Genesee County, Michigan
described as:
A parcel of land of part of the SW 1/4 of Section 8, T5N, R5E,
being more particularly described as follows:
Beginning at a point of the West line of Duffield Road, 100
feet wide, (as now established) distant 829.46 feet measured
N01(degree)42'56"W and 50 feet measured S88(degree)14'04"W
from the South quarter corner, Section 8, T5N, R5E; thence
S88(degree)14'04"W a distance of 550 feet; thence
N01(degree)42'56"W a distance of 500 feet to a point on the
North line of the South half of the Southwest quarter of said
Section 8; thence N88(degree)14'04"E along the North line of
South half of the Southwest quarter of said Section 8 a
distance 550 feet to a point on the West line of Duffield
Road, 100 feet wide (as now established); thence
S01(degree)42'56"E along the West line of said Duffield Road a
distance of 500 feet to the point of beginning.
GLADWIN COUNTY
Certain land in Secord Township, Gladwin County, Michigan
described as:
The East 400 feet of the South 450 feet of Section 2, T19N,
R1E.
GRAND TRAVERSE COUNTY
Certain land in Mayfield Township, Grand Traverse County,
Michigan described as:
A parcel of land in the Northwest 1/4 of Section 3, T25N,
R11W, described as follows: Commencing at the Northwest corner
of said section, running thence S 89(degree)19'15" E along the
North line of said section and the center line of Clouss Road
225 feet, thence South 400 feet, thence N 89(degree)19'15" W
225 feet to the West line of said section and the center line
of Hannah Road, thence North along the West line of said
section and the center line of Hannah Road 400 feet to the
place of beginning for this description.
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<PAGE> 21
GRATIOT COUNTY
Certain land in Washington Township, Gratiot County, Michigan
described as:
Commencing at the Northeast corner of Section 10, T9N, R2W,
running thence West along the North line of said section a
distance of 194.5 feet, thence S0(degree)07'10"W 200 feet to a
point, thence East 194.5 feet to the East line of said Section
10, thence N0(degree)07'10"E along the East line of said
section a distance of 200 feet to the point of beginning.
HILLSDALE COUNTY
Certain land in Litchfield Village, Hillsdale County, Michigan
described as:
Lots numbered three (3) and four (4) of Block three (3) of
Harvey Smiths Southern Addition to the Village of Litchfield
according to the recorded plat thereof as recorded in Liber AK
of deeds, page 490.
HURON COUNTY
Certain easement rights located across land in Sebewaing
Township, Huron County, Michigan described as:
The North 1/2 of the Northwest 1/4 of Section 15, T15N, R9E.
INGHAM COUNTY
Certain land in Vevay Township, Ingham County, Michigan
described as:
A parcel of land 660 feet wide in the Southwest 1/4 of Section
7 lying South of the centerline of Sitts Road as extended to
the North-South 1/4 line of said Section 7, T2N, R1W, more
particularly described as follows: Commence at the Southwest
corner of said Section 7, thence North along the West line of
said Section 2502.71 feet to the centerline of Sitts Road;
thence South 89(degree)54'45" East along said centerline
2282.38 feet to the place of beginning of this description;
thence continuing South 89(degree)54'45" East along said
centerline and said centerline extended 660.00 feet to the
North- South 1/4 line of said section; thence South
00(degree)07'20" West 1461.71 feet; thence North
89(degree)34'58" West 660.00 feet; thence North
00(degree)07'20" East 1457.91 feet to the centerline of Sitts
Road and the place of beginning.
IONIA COUNTY
Certain land in Sebewa Township, Ionia County, Michigan
described as:
A strip of land 280 feet wide across that part of the SW 1/4
of the NE 1/4 of Section 15, T5N, R6W, described as follows:
To find the place of beginning of this description commence at
the E 1/4 corner of said section;
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<PAGE> 22
run thence N 00(degree) 05' 38" W along the East line of said
section, 1218.43 feet; thence S 67(degree) 18' 24" W, 1424.45
feet to the East 1/8 line of said section and the place of
beginning of this description; thence continuing S 67(degree)
18' 24" W, 1426.28 feet to the North and South 1/4 line of
said section at a point which said point is 105.82 feet
distant N'ly of the center of said section as measured along
said North and South 1/4 line of said section; thence N
00(degree) 04' 47" E along said North and South 1/4 line of
said section, 303.67 feet; thence N 67(degree) 18' 24" E,
1425.78 feet to the East 1/8 line of said section; thence S
00(degree) 00' 26" E along said East 1/8 line of said section,
303.48 feet to the place of beginning. (Bearings are based on
the East line of Section 15, T5N, R6W, from the E 1/4 corner
of said section to the Northeast corner of said section
assumed as N 00(degree) 05' 38" W.)
IOSCO COUNTY
Certain land in Alabaster Township, Iosco County, Michigan
described as:
A parcel of land in the NW 1/4 of Section 34, T21N, R7E,
described as follows: To find the place of beginning of this
description commence at the N 1/4 post of said section; run
thence South along the North and South 1/4 line of said
section, 1354.40 feet to the place of beginning of this
description; thence continuing South along the said North and
South 1/4 line of said section, 165.00 feet to a point on the
said North and South 1/4 line of said section which said point
is 1089.00 feet distant North of the center of said section;
thence West 440.00 feet; thence North 165.00 feet; thence East
440.00 feet to the said North and South 1/4 line of said
section and the place of beginning.
ISABELLA COUNTY
Certain land in Chippewa Township, Isabella County, Michigan
described as:
The North 8 rods of the NE 1/4 of the SE 1/4 of Section 29,
T14N, R3W.
JACKSON COUNTY
Certain land in Waterloo Township, Jackson County, Michigan
described as:
A parcel of land in the North fractional part of the N
fractional 1/2 of Section 2, T1S, R2E, described as follows:
To find the place of beginning of this description commence at
the E 1/4 post of said section; run thence N 01(degree) 03'
40" E along the East line of said section 1,335.45 feet to the
North 1/8 line of said section and the place of beginning of
this description; thence N 89(degree) 32' 00" W, 2677.7 feet
to the North and South 1/4 line of said section; thence S
00(degree) 59' 25" W along the North and South 1/4 line of
said section 22.38 feet to the North 1/8 line of said section;
thence S 89(degree) 59' 10" W along the North 1/8 line of said
section 653.65 feet; thence North 22 feet; thence S
89(degree)59' 10" W, 1601.19 feet to the center line of State
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<PAGE> 23
Trunkline Highway M-52; thence N 53(degree) 46' 00" W along
the center line of said highway to the West line of said
section; thence N 00(degree) 55' 10" E along the West line of
said section 74.35 feet; thence S 89(degree) 32' 00" E,
5356.02 feet to the East line of said section; thence S
01(degree) 03' 40" W along the East line of said section 250
feet to the place of beginning.
KALAMAZOO COUNTY
Certain land in Alamo Township, Kalamazoo County, Michigan
described as:
The South 350 feet of the NW 1/4 of the NW 1/4 of Section 16,
T1S, R12W, being more particularly described as follows: To
find the place of beginning of this description, commence at
the Northwest corner of said section; run thence S 00(degree)
36' 55" W along the West line of said section 971.02 feet to
the place of beginning of this description; thence continuing
S 00(degree) 36' 55" W along said West line of said section
350.18 feet to the North 1/8 line of said section; thence S
87(degree) 33' 40" E along the said North 1/8 line of said
section 1325.1 feet to the West 1/8 line of said section;
thence N 00(degree) 38' 25" E along the said West 1/8 line of
said section 350.17 feet; thence N 87(degree) 33' 40" W,
1325.25 feet to the place of beginning.
KALKASKA COUNTY
Certain land in Kalkaska Township, Kalkaska County, Michigan
described as:
The NW 1/4 of the SW 1/4 of Section 4, T27N, R7W, excepting
therefrom all mineral, coal, oil and gas and such other rights
as were reserved unto the State of Michigan in that certain
deed running from the Department of Conservation for the State
of Michigan to George Welker and Mary Welker, his wife, dated
October 9, 1934 and recorded December 28, 1934 in Liber 39 on
page 291 of Kalkaska County Records, and subject to easement
for pipeline purposes as granted to Michigan Consolidated Gas
Company by first party herein on April 4, 1963 and recorded
June 21, 1963 in Liber 91 on page 631 of Kalkaska County
Records.
KENT COUNTY
Certain land in Caledonia Township, Kent County, Michigan
described as:
A parcel of land in the Northwest fractional 1/4 of Section
15, T5N, R10W, described as follows: To find the place of
beginning of this description commence at the North 1/4 corner
of said section, run thence S 0(degree) 59' 26" E along the
North and South 1/4 line of said section 2046.25 feet to the
place of beginning of this description, thence continuing S
0(degree) 59' 26" E along said North and South 1/4 line of
said section 332.88 feet, thence S 88(degree) 58' 30" W
2510.90 feet to a point herein designated "Point A" on the
East bank of the Thornapple River, thence continuing S
88(degree) 53' 30" W to the center thread of the Thornapple
River, thence NW'ly along the center thread of said Thornapple
River to a point which said point is S 88(degree) 58'
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<PAGE> 24
30" W of a point on the East bank of the Thornapple River
herein designated "Point B", said "Point B" being N 23(degree)
41' 35" W 360.75 feet from said above-described "Point A",
thence N 88(degree) 58' 30" E to said "Point B", thence
continuing N 88(degree) 58' 30" E 2650.13 feet to the place of
beginning. (Bearings are based on the East line of Section 15,
T5N, R10W between the East 1/4 corner of said section and the
Northeast corner of said section assumed as N 0(degree) 59'
55" W.)
LAKE COUNTY
Certain land in Pinora and Cherry Valley Townships, Lake
County, Michigan described as:
A strip of land 50 feet wide East and West along and adjoining
the West line of highway on the East side of the North 1/2 of
Section 13 T18N, R12W. Also a strip of land 100 feet wide East
and West along and adjoining the East line of the highway on
the West side of following described land: The South 1/2 of NW
1/4, and the South 1/2 of the NW 1/4 of the SW 1/4, all in
Section 6, T18N, R11W.
LAPEER COUNTY
Certain land in Hadley Township, Lapeer County, Michigan
described as:
The South 825 feet of the W 1/2 of the SW 1/4 of Section 24,
T6N, R9E, except the West 1064 feet thereof.
LEELANAU COUNTY
Certain land in Cleveland Township, Leelanau County, Michigan
described as:
The North 200 feet of the West 180 feet of the SW 1/4 of the
SE 1/4 of Section 35, T29N, R13W.
LENAWEE COUNTY
Certain land in Madison Township, Lenawee County, Michigan
described as:
A strip of land 165 feet wide off the West side of the
following described premises: The E 1/2 of the SE 1/4 of
Section 12. The E 1/2 of the NE 1/4 and the NE 1/4 of the SE
1/4 of Section 13, being all in T7S, R3E, excepting therefrom
a parcel of land in the E 1/2 of the SE 1/4 of Section 12,
T7S, R3E, beginning at the Northwest corner of said E 1/2 of
the SE 1/4 of Section 12, running thence East 4 rods, thence
South 6 rods, thence West 4 rods, thence North 6 rods to the
place of beginning.
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<PAGE> 25
LIVINGSTON COUNTY
Certain land in Cohoctah Township, Livingston County, Michigan
described as:
Parcel 1
The East 390 feet of the East 50 rods of the SW 1/4 of Section
30, T4N, R4E.
Parcel 2
A parcel of land in the NW 1/4 of Section 31, T4N, R4E,
described as follows: To find the place of beginning of this
description commence at the N 1/4 post of said section; run
thence N 89(degree) 13' 06" W along the North line of said
section, 330 feet to the place of beginning of this
description; running thence S 00(degree) 52' 49" W, 2167.87
feet; thence N 88(degree) 59' 49" W, 60 feet; thence N
00(degree) 52' 49" E, 2167.66 feet to the North line of said
section; thence S 89(degree) 13' 06" E along said North line
of said section, 60 feet to the place of beginning.
MACKINAC COUNTY
Certain easement rights located across land in Moran Township,
Mackinac County, Michigan described as:
A 20 foot wide strip of land, 10 feet on each side of the
hereinafter described center line, through Lots 16, 17 and 21,
Block 12 of Partition Plat of Private Claim No. 1, Section 23,
Township 40 North, Range 4 West: Said center line being
described as beginning at Edison Sault Electric Company's
existing 35 foot service pole located 200 feet, more or less,
Northerly of the shoreline of the Straits of Mackinac, running
thence Easterly to a point approximately 20 feet Westerly of
the center line of Lakehead Pipeline Company's existing 20
inch pipeline, thence Northerly and Easterly along and
approximately 20 feet Westerly and Northerly of the center
line of said 20 inch existing pipeline to a certain Michigan
Bell Telephone Company's existing pole located Easterly of the
Westerly line of Lot 22, Block 12 of Partition Plat of Private
Claim No. 1 in said Section 23.
MACOMB COUNTY
Certain land in Macomb Township, Macomb County, Michigan
described as:
A parcel of land commencing on the West line of the E 1/2 of
the NW 1/4 of fractional Section 6, 20 chains South of the NW
corner of said E 1/2 of the NW 1/4 of Section 6; thence South
on said West line and the East line of A. Henry Kotner's Hayes
Road Subdivision #15, according to the recorded plat thereof,
as recorded in Liber 24 of Plats, on page 7, 24.36 chains to
the East and West 1/4 line of said Section 6; thence East on
said East and West 1/4 line 8.93 chains; thence North parallel
with the said
24
<PAGE> 26
West line of the E 1/2 of the NW 1/4 of Section 6, 24.36
chains; thence West 8.93 chains to the place of beginning, all
in T3N, R13E.
MANISTEE COUNTY
Certain land in Manistee Township, Manistee County, Michigan
described as:
A parcel of land in the SW 1/4 of Section 20, T22N, R16W,
described as follows: To find the place of beginning of this
description, commence at the Southwest corner of said section;
run thence East along the South line of said section 832.2
feet to the place of beginning of this description; thence
continuing East along said South line of said section 132
feet; thence North 198 feet; thence West 132 feet; thence
South 198 feet to the place of beginning, excepting therefrom
the South 2 rods thereof which was conveyed to Manistee
Township for highway purposes by a Quitclaim Deed dated June
13, 1919 and recorded July 11, 1919 in Liber 88 of Deeds on
page 638 of Manistee County Records.
MASON COUNTY
Certain land in Riverton Township, Mason County, Michigan
described as:
Parcel 1
The South 10 acres of the West 20 acres of the S 1/2 of the NE
1/4 of Section 22, T17N, R17W.
Parcel 2
A parcel of land containing 4 acres of the West side of
highway, said parcel of land being described as commencing 16
rods South of the Northwest corner of the NW 1/4 of the SW 1/4
of Section 22, T17N, R17W, running thence South 64 rods,
thence NE'ly and N'ly and NW'ly along the W'ly line of said
highway to the place of beginning, together with any and all
right, title, and interest of Howard C. Wicklund and Katherine
E. Wicklund in and to that portion of the hereinbefore
mentioned highway lying adjacent to the E'ly line of said
above described land.
MECOSTA COUNTY
Certain land in Wheatland Township, Mecosta County, Michigan
described as:
A parcel of land in the SW1/4 of the SW1/4 of Section 16,
T14N, R7W, described as beginning at the Southwest corner of
said section; thence East along the South line of Section 133
feet; thence North parallel to the West section line 133 feet;
thence West 133 feet to the West line of said Section; thence
South 133 feet to the place of beginning.
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<PAGE> 27
MIDLAND COUNTY
Certain land in Ingersoll Township, Midland County, Michigan
described as:
The West 200 feet of the W 1/2 of the NE 1/4 of Section 4,
T13N, R2E.
MISSAUKEE COUNTY
Certain land in Norwich Township, Missaukee County, Michigan
described as:
A parcel of land in the NW 1/4 of the NW 1/4 of Section 16,
T24N, R6W, described as follows: Commencing at the Northwest
corner of said section, running thence N 89(degree) 01' 45" E
along the North line of said section 233.00 feet; thence South
233.00 feet; thence S 89(degree) 01' 45" W, 233.00 feet to the
West line of said section; thence North along said West line
of said section 233.00 feet to the place of beginning.
(Bearings are based on the West line of Section 16, T24N, R6W,
between the Southwest and Northwest corners of said section
assumed as North.)
MONROE COUNTY
Certain land in LaSalle Township, Monroe County, Michigan
described as:
A strip of land 150 feet in width across part of the S 1/2 of
the SE 1/4 of Section 35, T7S, R8E, described as follows: To
find the place of beginning of this description commence at
the S 1/4 post of said section; run thence N 89(degree) 30'
20" E along the South line of said section 2118.39 feet to the
place of beginning of this description; thence continuing N
89(degree) 30' 20" E along said South line of said section
198.56 feet to the NW'ly right-of-way line of Highway I-75, so
called; thence N 40(degree) 26' 30" E along the NW'ly line of
said highway 477.72 feet to the East line of said section;
thence N 00(degree) 25' 15" W along the East line of said
section 229.27 feet; thence S 40(degree) 26' 30" W, 781.21
feet to the place of beginning.
MONTCALM COUNTY
Certain land in Crystal Township, Montcalm County, Michigan
described as:
The N 1/2 of the S 1/2 of the SE 1/4 of Section 35, T10N, R5W.
MONTMORENCY COUNTY
Certain land in the Village of Hillman, Montmorency County,
Michigan described as:
Lot 14 of Hillman Industrial Park, being a subdivision in the
South 1/2 of the Northwest 1/4 of Section 24, T31N, R4E,
according to the plat thereof recorded in Liber 4 of Plats on
Pages 32-34, Montmorency County Records.
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<PAGE> 28
MUSKEGON COUNTY
Certain land in Casnovia Township, Muskegon County, Michigan
described as:
The West 433 feet of the North 180 feet of the South 425 feet
of the SW 1/4 of Section 3, T10N, R13W.
NEWAYGO COUNTY
Certain land in Ashland Township, Newaygo County, Michigan
described as:
The West 250 feet of the NE 1/4 of Section 23, T11N, R13W.
OAKLAND COUNTY
Certain land in Wixcom City, Oakland County, Michigan
described as:
The E 75 feet of the N 160 feet of the N 330 feet of the W
526.84 feet of the NW 1/4 of the NW 1/4 of Section 8, T1N,
R8E, more particularly described as follows: Commence at the
NW corner of said Section 8, thence N 87(degree) 14' 29" E
along the North line of said Section 8 a distance of 451.84
feet to the place of beginning for this description; thence
continuing N 87(degree) 14' 29" E along said North section
line a distance of 75.0 feet to the East line of the West
526.84 feet of the NW 1/4 of the NW 1/4 of said Section 8;
thence S 02(degree) 37' 09" E along said East line a distance
of 160.0 feet; thence S 87(degree) 14' 29" W a distance of
75.0 feet; thence N 02(degree) 37' 09" W a distance of 160.0
feet to the place of beginning.
OCEANA COUNTY
Certain land in Crystal Township, Oceana County, Michigan
described as:
The East 290 feet of the SE 1/4 of the NW 1/4 and the East 290
feet of the NE 1/4 of the SW 1/4, all in Section 20, T16N,
R16W.
OGEMAW COUNTY
Certain land in West Branch Township, Ogemaw County, Michigan
described as:
The South 660 feet of the East 660 feet of the NE 1/4 of the
NE 1/4 of Section 33, T22N, R2E.
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<PAGE> 29
OSCEOLA COUNTY
Certain land in Hersey Township, Osceola County, Michigan
described as:
A parcel of land in the North 1/2 of the Northeast 1/4 of
Section 13, T17N, R9W, described as commencing at the
Northeast corner of said Section; thence West along the North
Section line 999 feet to the point of beginning of this
description; thence S 01(degree) 54' 20" E 1327.12 feet to the
North 1/8 line; thence S 89(degree) 17' 05" W along the North
1/8 line 330.89 feet; thence N 01(degree) 54' 20" W 1331.26
feet to the North Section line; thence East along the North
Section line 331 feet to the point of beginning.
OSCODA COUNTY
Certain land in Comins Township, Oscoda County, Michigan
described as:
The East 400 feet of the South 580 feet of the W 1/2 of the SW
1/4 of Section 15, T27N, R3E.
OTSEGO COUNTY
Certain land in Corwith Township, Otsego County, Michigan
described as:
Part of the NW 1/4 of the NE 1/4 of Section 28, T32N, R3W,
described as: Beginning at the N 1/4 corner of said section;
running thence S 89(degree) 04' 06" E along the North line of
said section, 330.00 feet; thence S 00(degree) 28' 43" E,
400.00 feet; thence N 89(degree) 04' 06" W, 330.00 feet to the
North and South 1/4 line of said section; thence N 00(degree)
28' 43" W along the said North and South 1/4 line of said
section, 400.00 feet to the point of beginning; subject to the
use of the N'ly 33.00 feet thereof for highway purposes.
OTTAWA COUNTY
Certain land in Robinson Township, Ottawa County, Michigan
described as:
The North 660 feet of the West 660 feet of the NE 1/4 of the
NW 1/4 of Section 26, T7N, R15W.
PRESQUE ISLE COUNTY
Certain land in Belknap and Pulawski Townships, Presque Isle
County, Michigan described as:
Part of the South half of the Northeast quarter, Section 24,
T34N, R5E, and part of the Northwest quarter, Section 19,
T34N, R6E, more fully described as: Commencing at the East 1/4
corner of said Section 24; thence N 00(degree)15'47" E, 507.42
feet, along the East line of said Section 24 to the point of
beginning; thence S 88(degree)15'36" W, 400.00 feet, parallel
with the
28
<PAGE> 30
North 1/8 line of said Section 24; thence N 00(degree)15'47"
E, 800.00 feet, parallel with said East line of Section 24;
thence N 88(degree)15'36"E, 800.00 feet, along said North 1/8
line of Section 24 and said line extended; thence S
00(degree)15'47" W, 800.00 feet, parallel with said East line
of Section 24; thence S 88(degree)15'36" W, 400.00 feet,
parallel with said North 1/8 line of Section 24 to the point
of beginning.
Together with a 33 foot easement along the West 33 feet of the
Northwest quarter lying North of the North 1/8 line of Section
24, Belknap Township, extended, in Section 19, T34N, R6E.
ROSCOMMON COUNTY
Certain land in Backus Township, Roscommon County, Michigan
described as:
A parcel of land the NW 1/4 of the NE 1/4 of the NE 1/4 of
Section 18, T22N, R2W described as commencing at the North
quarter corner thereof; thence North 89(degree)00'56" East
along the North Section line 208 feet to the point of
beginning; thence continue East along the North line of said
Section 245 feet; thence South 00(degree)59'03" East 233 feet;
thence South 89(degree)00'57" West 245 feet; thence North
00(degree)59'03" West 233 feet to the point of beginning.
SAGINAW COUNTY
Certain land in Chapin Township, Saginaw County, Michigan
described as:
A parcel of land in the SW 1/4 of Section 13, T9N, R1E,
described as follows: To find the place of beginning of this
description commence at the Southwest corner of said section;
run thence North along the West line of said section 1581.4
feet to the place of beginning of this description; thence
continuing North along said West line of said section 230 feet
to the center line of a creek; thence S 70(degree) 07' 00" E
along said center line of said creek 196.78 feet; thence South
163.13 feet; thence West 185 feet to the West line of said
section and the place of beginning.
SANILAC COUNTY
Certain easement rights located across land in Minden
Township, Sanilac County, Michigan described as:
The Southeast 1/4 of the Southeast 1/4 of Section 1, T14N,
R14E, excepting therefrom the South 83 feet of the East 83
feet thereof.
29
<PAGE> 31
SHIAWASSEE COUNTY
Certain land in Burns Township, Shiawassee County, Michigan
described as:
The South 330 feet of the E 1/2 of the NE 1/4 of Section 36,
T5N, R4E.
ST. CLAIR COUNTY
Certain land in Ira Township, St. Clair County, Michigan
described as:
The N 1/2 of the NW 1/4 of the NE 1/4 of Section 6, T3N, R15E.
ST. JOSEPH COUNTY
Certain land in Mendon Township, St. Joseph County, Michigan
described as:
The North 660 feet of the West 660 feet of the NW 1/4 of SW
1/4, Section 35, T5S, R10W.
TUSCOLA COUNTY
Certain land in Millington Township, Tuscola County, Michigan
described as:
A strip of land 280 feet wide across the East 96 rods of the
South 20 rods of the N 1/2 of the SE 1/4 of Section 34, T10N,
R8E, more particularly described as commencing at the
Northeast corner of Section 3, T9N, R8E, thence S 89(degree)
55' 35" W along the South line of said Section 34 a distance
of 329.65 feet, thence N 18(degree) 11' 50" W a distance of
1398.67 feet to the South 1/8 line of said Section 34 and the
place of beginning for this description; thence continuing N
18(degree) 11' 50" W a distance of 349.91 feet; thence N
89(degree) 57' 01" W a distance of 294.80 feet; thence S
18(degree) 11' 50" E a distance of 350.04 feet to the South
1/8 line of said Section 34; thence S 89(degree) 58' 29" E
along the South 1/8 line of said section a distance of 294.76
feet to the place of beginning.
VAN BUREN COUNTY
Certain land in Covert Township, Van Buren County, Michigan
described as:
All that part of the West 20 acres of the N 1/2 of the NE
fractional 1/4 of Section 1, T2S, R17W, except the West 17
rods of the North 80 rods, being more particularly described
as follows: To find the place of beginning of this description
commence at the N 1/4 post of said section; run thence N
89(degree) 29' 20" E along the North line of said section
280.5 feet to the place of beginning of this description;
thence continuing N 89(degree) 29' 20" E along said North line
of said section 288.29 feet; thence S 00(degree) 44' 00" E,
1531.92 feet; thence S 89(degree) 33' 30" W, 568.79 feet to
the North and South 1/4 line of said section; thence N
00(degree) 44' 00" W along said North and South
30
<PAGE> 32
1/4 line of said section 211.4 feet; thence N 89(degree) 29'
20" E, 280.5 feet; thence N 00(degree) 44' 00" W, 1320 feet to
the North line of said section and the place of beginning.
WASHTENAW COUNTY
Certain land in Manchester Township, Washtenaw County,
Michigan described as:
A parcel of land in the NE 1/4 of the NW 1/4 of Section 1,
T4S, R3E, described as follows: To find the place of beginning
of this description commence at the Northwest corner of said
section; run thence East along the North line of said section
1355.07 feet to the West 1/8 line of said section; thence S
00(degree) 22' 20" E along said West 1/8 line of said section
927.66 feet to the place of beginning of this description;
thence continuing S 00(degree) 22' 20" E along said West 1/8
line of said section 660 feet to the North 1/8 line of said
section; thence N 86(degree) 36' 57" E along said North 1/8
line of said section 660.91 feet; thence N 00(degree)22' 20"
W, 660 feet; thence S 86(degree) 36' 57" W, 660.91 feet to the
place of beginning.
WAYNE COUNTY
Certain land in Livonia City, Wayne County, Michigan described
as:
Commencing at the Southeast corner of Section 6, T1S, R9E;
thence North along the East line of Section 6 a distance of
253 feet to the point of beginning; thence continuing North
along the East line of Section 6 a distance of 50 feet; thence
Westerly parallel to the South line of Section 6, a distance
of 215 feet; thence Southerly parallel to the East line of
Section 6 a distance of 50 feet; thence easterly parallel with
the South line of Section 6 a distance of 215 feet to the
point of beginning.
WEXFORD COUNTY
Certain land in Selma Township, Wexford County, Michigan
described as:
A parcel of land in the NW1/4 of Section 7, T22N, R10W,
described as beginning on the North line of said section at a
point 200 feet East of the West line of said section, running
thence East along said North section line 450 feet, thence
South parallel with said West section line 350 feet, thence
West parallel with said North section line 450 feet, thence
North parallel with said West section line 350 feet to the
place of beginning.
SECTION 13. 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,
31
<PAGE> 33
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.
32
<PAGE> 34
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 C. Wilson
- ----------------------------
Kimberly C. Wilson
/s/ Sammie B. Dalton
- ----------------------------
Sammie B. Dalton
STATE OF MICHIGAN )
ss.
COUNTY OF JACKSON )
The foregoing instrument was acknowledged before me this 1st
day of October, 1999, 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
S-1
<PAGE> 35
THE CHASE MANHATTAN BANK, AS TRUSTEE
(SEAL) By /s/ James Freeman
--------------------------------
Attest: Vice President
/s/ Eric Butler
- ----------------------------
Trust Officer
Signed, sealed and delivered
by THE CHASE MANHATTAN BANK
in the presence of
/s/ N. Rodriguez
- ----------------------------
/s/ William G. Keenan
- ----------------------------
STATE OF NEW YORK )
ss.
COUNTY OF NEW YORK )
The foregoing instrument was acknowledged before me this 1st
day of October, 1999, by James Freeman, a Vice President of THE CHASE MANHATTAN
BANK, a New York corporation, on behalf of the corporation.
/s/ Emily Fayan
----------------------------------------
Notary Public
[Seal] New York County, New York
My Commission Expires:
Prepared by: When recorded, return to:
Kimberly C. Wilson 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
S-2
<PAGE> 1
EXHIBIT (4)(c)
SEVENTY-SIXTH SUPPLEMENTAL INDENTURE
Providing among other things for
FIRST MORTGAGE BONDS,
Series 1990A Ambac Bonds due September 1, 2000
--------------
Dated as of October 4, 1999
--------------
CONSUMERS ENERGY COMPANY
TO
THE CHASE MANHATTAN BANK,
TRUSTEE
Counterpart of 80
------
<PAGE> 2
SEVENTY-SIXTH SUPPLEMENTAL INDENTURE, dated as of October 4,
1999 (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
<PAGE> 3
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, pursuant to a Trust Indenture, dated as of September
1, 1990 (the "MSF Trust Indenture") by and between the Michigan Strategic Fund,
(the "Issuer") and Chase Manhattan Trust Company, National Association, (the
"MSF Trust Indenture Trustee") the Issuer has issued $5,250,000 in aggregate
principal amount of its Variable Rate Demand Pollution Control Revenue Refunding
Bonds (Consumers Power Company Project) Series 1990A (hereinafter sometimes
called the "MSF Bonds"); and
WHEREAS, the MSF Trust Indenture has been amended as set forth
in the Amended and Restated Trust Indenture dated as of October 4, 1999 (the
"Amended MSF Trust Indenture") to provide, among other things, for substitute
credit enhancement on the MSF Bonds; and
WHEREAS, Ambac Assurance Corporation, a Wisconsin-domiciled
stock insurance company ("Ambac") has provided such substitute credit
enhancement on the MSF Bonds through the issuance of its Municipal Bond
Insurance Policy (the "Policy") which insures certain payments of principal of
and interest on the MSF Bonds, as specified therein; and
WHEREAS, the Company has entered into an Insurance Agreement,
dated as of October 4, 1999 with Ambac (the "Insurance Agreement") in connection
with the Policy and pursuant to the Insurance Agreement the Company has agreed
to issue a new series of bonds under the Indenture in order to secure its
obligations under the Insurance Agreement; and
WHEREAS, for such purposes the Company desires to issue a new
series of bonds, to be designated First Mortgage Bonds, Series 1990A Ambac Bonds
due September 1, 2000, each of which bonds shall also bear the descriptive title
"First Mortgage Bond" (hereinafter provided for and hereinafter sometimes
referred to as the "Series 1990A Ambac 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 September 1, 2000; and
WHEREAS, the Series 1990A Ambac Bonds shall be issued to Ambac
in connection with the issuance of the Policy; and
2
<PAGE> 4
WHEREAS each of the registered bonds without coupons of the
Series 1990A Ambac Bonds and the Trustee's Authentication Certificate thereon
are to be substantially in the following forms, to wit:
[FORM OF REGISTERED BOND OF THE SERIES 1990A AMBAC BONDS]
[FACE]
NOTWITHSTANDING ANY PROVISIONS HEREOF OR IN THE INDENTURE,
THIS BOND IS NOT ASSIGNABLE OR TRANSFERABLE.
CONSUMERS ENERGY COMPANY
FIRST MORTGAGE BOND, SERIES 1990A AMBAC BONDS
DUE SEPTEMBER 1, 2000
No. $
CONSUMERS ENERGY COMPANY, a Michigan corporation (hereinafter
called the "Company"), for value received, hereby promises to pay to Ambac
Assurance Corporation ("Ambac"), or registered assigns, the principal sum of
Five Million Two Hundred Fifty Thousand Dollars on September 1, 2000, and to pay
to the registered holder hereof interest on said sum payable at the rate and in
the manner as set forth in the MSF Bonds, defined below. In the event that one
or more MSF Bonds shall have different interest rates from other MSF Bonds, the
interest rate of each allocable portion of the Series 1990A Ambac Bonds shall be
deemed to correspond to the interest rate of each such MSF Bonds (as defined
below).
Under a Trust Indenture dated as of September 1, 1990 between
the Michigan Strategic Fund, as issuer (the "Issuer") and Chase Manhattan Trust
Company, National Association, as trustee (the "MSF Trust Indenture Trustee"),
which has been amended and restated pursuant to the Amended and Restated Trust
Indenture dated as of October 4, 1999 between the Issuer and the MSF Trust
Indenture Trustee and acknowledged and agreed to by the Company (as so amended
and restated, the "MSF Trust Indenture"). MSF has issued Variable Rate Demand
Pollution Control Revenue Refunding Bonds (Consumers Power Company Project)
Series 1990A (hereinafter sometimes called the "MSF Bonds"). Payments of
principal of, premiums, if any, or interest on, the MSF Bonds shall constitute
payments on this bond as further provided herein and in the supplemental
indenture pursuant to which this bond has been issued; provided that payments of
principal and interest made on the MSF Bonds by Ambac pursuant to its municipal
bond insurance policy (the "Policy") issued with respect of the MSF Bonds shall
not constitute payments on this bond unless all amounts in respect thereof owed
to Ambac pursuant to Section 2.01(a) of the Insurance Agreement dated October 4,
1999 between Ambac, the Company and the MSF Trust Indenture Trustee (the
"Insurance Agreement") shall have been paid in full.
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 or her signature or a facsimile thereof, and
its corporate seal or a facsimile thereof to be affixed hereto or imprinted
3
<PAGE> 5
hereon and attested by its Secretary or one of its Assistant Secretaries by his
or her 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, SERIES 1990A AMBAC BONDS
DUE SEPTEMBER 1, 2000
The interest payable on any date as specified in the MSF Bonds
(each "Interest Payment Date") 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 as specified in
the MSF Bonds. 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, or
interest on, all or any portion of the MSF Bonds (other than payments of
principal or interest made thereon by Ambac pursuant to the Policy which are not
reimbursed to Ambac when due in accordance with Section 2.01(a) of the Insurance
Agreement), whether at maturity or prior to maturity by redemption or otherwise,
Series 1990A Ambac Bonds in a principal amount equal to the principal amount of
such MSF Bonds shall, to the extent of such payment of principal, premium, if
any, and interest or reimbursements to Ambac, be deemed fully paid and
4
<PAGE> 6
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 Series 1990A Ambac Bonds shall be surrendered to
the Company for cancellation as provided in Section 3.01(a) of the Insurance
Agreement. 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 Series 1990A Ambac Bonds and the obligation
of the Company to make payments with respect to Section 2.01(a) of the Insurance
Agreement, so far as such payments at the time have become due, have been fully
satisfied and discharged pursuant to the foregoing sentence unless and until the
Trustee shall have received a written notice from Ambac signed by one of its
officers stating (i) that a claim or claims have been made under the Policy,
(ii) that the Company is in arrears as to the payments required to be made by it
to Ambac pursuant to the Insurance Agreement, and (iii) the amount of the
arrearage.
In the event that there is an Event of Default (as defined in
the MSF Trust Indenture) under the MSF Bonds that results in an acceleration of
all outstanding amounts of principal, premium if any, and interest of the MSF
Bonds and there is an Event of Default (as defined in the Insurance Agreement)
with respect to non-payment of the Company's obligations under Section 2.01(a)
of the Insurance Agreement, then Ambac shall give written notice thereof to the
Trustee and such events shall constitute a default under this bond and the
remedies set forth in the Indenture shall be applicable as provided in the
Indenture.
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.
5
<PAGE> 7
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 is redeemable on the respective dates and in the
respective principal amounts which correspond to the redemption dates for, and
the principal amounts to be redeemed of, the MSF Bonds (provided that this bond
may not be redeemed where any portion of the principal or interest on the MSF
Bonds is paid by Ambac pursuant to the Policy in connection with the redemption
of the MSF Bonds and Ambac has not been paid as provided in Section 2.01(a) of
the Insurance Agreement). In addition, this bond is redeemable at the option of
the Company in connection with a call for purchase of the MSF Bonds, as set
forth in Article IV of the MSF Trust Indenture.
This bond shall not be assignable or transferable.
As provided in Section 3.01(b) of the Insurance Agreement,
from and after the Release Date (as defined in the Insurance Agreement), 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
obligation outstanding under the Insurance Agreement, and, pursuant to Section
3.01(a) of the Insurance Agreement, provided that all amounts owed to Ambac
pursuant to Section 2.01(a) of the Insurance Agreement shall be indefeasibly
paid in full, Ambac 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 Series 1990A Ambac 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 $5,250,000 principal amount of Series 1990A Ambac Bonds
6
<PAGE> 8
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 12 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
"Series 1990A Ambac Bonds") designated as hereinabove provided, which shall also
bear the descriptive title "First Mortgage
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<PAGE> 9
Bond", and the form thereof shall be substantially as hereinbefore set forth.
Series 1990A Ambac Bonds shall be issued in the aggregate principal amount of
$5,250,000, shall mature on September 1, 2000 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 Series 1990A Ambac 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. Series 1990A Ambac Bonds shall bear interest at the
rate per annum, until the principal thereof shall be paid in full at the times
and in the manner as specified in the MSF Bonds to the holder of the 1990A Ambac
Bonds. 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 MSF Bonds (other than payments of
principal or interest made thereon by Ambac pursuant to the Policy which have
not been reimbursed in accordance with Section 2.01(a)), whether at maturity or
prior to maturity by redemption or otherwise, Series 1990A Ambac Bonds in a
principal amount equal to the principal amount of such MSF Bonds shall, to the
extent of such payment of principal, premium, if any, and interest, or
reimbursements to Ambac, provided that all amounts owed to Ambac under Section
2.01(a) of the Insurance Agreement shall be paid in full to Ambac, be deemed
fully 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 Series 1990A Ambac Bonds shall be
surrendered to the Company for cancellation as provided in Section 3.01(a) of
the Insurance Agreement. 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 Series 1990A Ambac Bonds
and the obligation of the Company to make payments with respect to Section
2.01(a) of the Insurance Agreement, so far as such payments at the time have
become due, have been fully satisfied and discharged pursuant to the foregoing
sentence unless and until the Trustee shall have received a written notice from
Ambac as set forth in Section 3 herein.
Each Series 1990A Ambac Bond is to be issued to and registered
in the name of Ambac to secure any and all obligations of the Company under the
Insurance Agreement.
The Series 1990A Ambac Bonds shall not be assignable or
transferable.
SECTION 2. Series 1990A Ambac 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 MSF
Bonds.
In the event the Company elects to or is required to redeem or
is required to purchase any MSF Bonds prior to maturity in accordance with the
provisions of the MSF Indenture, Ambac shall on the same date deliver to the
Company the Series 1990A Ambac Bonds in principal amounts corresponding to the
MSF Bonds so redeemed or purchased, as provided in Section 3.01(a) of the
Insurance Agreement; provided that Ambac has not made any payments pursuant to
the Policy in connection with any such redemption or purchase of the MSF Bonds
which have not been reimbursed to Ambac in accordance with Section 2.01(a) of
the Insurance Agreement. The Company agrees to give the Trustee and Ambac notice
of any such redemption or purchase of the MSF Bonds on or before the date fixed
for any such redemption or purchase.
Series 1990A Ambac 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.
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SECTION 3. In the event that there is an Event of Default (as
defined in the MSF Trust Indenture) under the MSF Bonds that results in an
acceleration of all outstanding amounts of principal, premium if any, and
interest on the MSF Bonds and there is an Event of Default (as defined in the
Insurance Agreement) with respect to non-payment of the Company's obligations
under Section 2.01(a) of the Insurance Agreement, then Ambac shall give written
notice thereof to the Trustee and such events shall constitute an Event of
Default under this bond and the remedies set forth in the Indenture shall be
applicable as provided in the Indenture.
SECTION 4. As provided in Section 3.01(b) of the Insurance
Agreement and provided that all amounts owing to Ambac under Section 2.01(a) of
the Insurance Agreement shall have been paid in full, from and after the Release
Date (as defined therein), the obligations of the Company with respect to the
Series 1990A Ambac Bonds (the "Bonds") shall be deemed to be satisfied and
discharged, the Bonds shall cease to secure in any manner any obligations
outstanding under the Insurance Agreement, and, pursuant to Section 3.01(a) of
the Insurance Agreement, Ambac shall forthwith deliver the Bonds to the Company
for cancellation.
SECTION 5. The Company reserves the right, without any
consent, vote or other action by the holder of the Series 1990A Ambac Bonds 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.
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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 6. 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 7. 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 Ambac any right or interest to avail himself
of any benefit under any provision of the Indenture, as so supplemented and
amended.
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<PAGE> 12
SECTION 8. 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 9. 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 10. In the event the date of any notice required or
permitted hereunder or the date of maturity of interest on or principal of the
Series 1990A Ambac Bonds or the date fixed for redemption or repayment of the
Series 1990A Ambac 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 10, a day of the year on which banks are not required or
authorized to close in New York City or Detroit, Michigan.
SECTION 11. This Supplemental Indenture and the Series 1990A
Ambac 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 12. 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
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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.
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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.
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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. Such real property includes
but is not limited to the following described property, such property is subject
to any interests that were excepted or reserved in the conveyance to the
Company:
ALCONA COUNTY
Certain land in Caledonia Township, Alcona County, Michigan
described as:
The East 330 feet of the South 660 feet of the SW 1/4 of the
SW 1/4 of Section 8, T28N, R8E, except the West 264 feet of
the South 330 feet thereof; said land being more particularly
described as follows: To find the place of beginning of this
description, commence at the Southwest corner of said section,
run thence East along the South line of said section 1243
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<PAGE> 16
feet to the place of beginning of this description, thence
continuing East along said South line of said section 66 feet
to the West 1/8 line of said section, thence N 02(degree) 09'
30" E along the said West 1/8 line of said section 660 feet,
thence West 330 feet, thence S 02(degree) 09' 30" W, 330 feet,
thence East 264 feet, thence S 02(degree) 09' 30" W, 330 feet
to the place of beginning.
ALLEGAN COUNTY
Certain land in Lee Township, Allegan County, Michigan
described as:
The NE 1/4 of the NW 1/4 of Section 16, T1N, R15W.
ALPENA COUNTY
Certain land in Wilson and Green Townships, Alpena County,
Michigan described as:
All that part of the S'ly 1/2 of the former Boyne City-Gaylord
and Alpena Railroad right of way, being the Southerly 50 feet
of a 100 foot strip of land formerly occupied by said
Railroad, running from the East line of Section 31, T31N, R7E,
Southwesterly across said Section 31 and Sections 5 and 6 of
T30N, R7E and Sections 10, 11 and the E1/2 of Section 9,
except the West 1646 feet thereof, all in T30N, R6E.
ANTRIM COUNTY
Certain land in Mancelona Township, Antrim County, Michigan
described as:
The S 1/2 of the NE 1/4 of Section 33, T29N, R6W, excepting
therefrom all mineral, coal, oil and gas and such other rights
as were reserved unto the State of Michigan in that certain
deed running from the State of Michigan to August W. Schack
and Emma H. Schack, his wife, dated April 15, 1946 and
recorded May 20, 1946 in Liber 97 of Deeds on page 682 of
Antrim County Records.
ARENAC COUNTY
Certain land in Standish Township, Arenac County, Michigan
described as:
A parcel of land in the SW 1/4 of the NW 1/4 of Section 12,
T18N, R4E, described as follows: To find the place of
beginning of said parcel of land, commence at the Northwest
corner of Section 12, T18N, R4E; run thence South along the
West line of said section, said West line of said section
being also the center line of East City Limits Road 2642.15
feet to the W 1/4 post of said section and the place of
beginning of said parcel of land; running thence N 88(degree)
26' 00" E along the East and West 1/4 line of said section,
660.0 feet; thence North parallel with the West line of said
section, 310.0 feet; thence S 88(degree) 26' 00" W, 330.0
feet; thence South parallel with the West line of said
section, 260.0 feet; thence S 88(degree) 26' 00" W, 330.0 feet
to the West line of said section and the center line of East
City Limits
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Road; thence South along the said West line of said section,
50.0 feet to the place of beginning.
BARRY COUNTY
Certain land in Johnstown Township, Barry County, Michigan
described as:
A strip of land 311 feet in width across the SW 1/4 of the NE
1/4 of Section 31, T1N, R8W, described as follows: To find the
place of beginning of this description, commence at the E 1/4
post of said section; run thence N 00(degree) 55' 00" E along
the East line of said section, 555.84 feet; thence N
59(degree) 36' 20" W, 1375.64 feet; thence N 88(degree) 30'
00" W, 130 feet to a point on the East 1/8 line of said
section and the place of beginning of this description; thence
continuing N 88(degree) 30' 00" W, 1327.46 feet to the North
and South 1/4 line of said section; thence S 00(degree) 39'
35" W along said North and South 1/4 line of said section,
311.03 feet to a point, which said point is 952.72 feet
distant N'ly from the East and West 1/4 line of said section
as measured along said North and South 1/4 line of said
section; thence S 88(degree) 30' 00" E, 1326.76 feet to the
East 1/8 line of said section; thence N 00(degree) 47' 20" E
along said East 1/8 line of said section, 311.02 feet to the
place of beginning.
BAY COUNTY
Certain land in Frankenlust Township, Bay County, Michigan
described as:
The South 250 feet of the N 1/2 of the W 1/2 of the W 1/2 of
the SE 1/4 of Section 9, T13N, R4E.
BENZIE COUNTY
Certain land in Benzonia Township, Benzie County, Michigan
described as:
A parcel of land in the Northeast 1/4 of Section 7, Township
26 North, Range 14 West, described as beginning at a point on
the East line of said Section 7, said point being 320 feet
North measured along the East line of said section from the
East 1/4 post; running thence West 165 feet; thence North
parallel with the East line of said section 165 feet; thence
East 165 feet to the East line of said section; thence South
165 feet to the place of beginning.
BRANCH COUNTY
Certain land in Girard Township, Branch County, Michigan
described as:
A parcel of land in the NE1/4 of Section 23 T5S, R6W,
described as beginning at a point on the North and South
quarter line of said section at a point 1278.27 feet distant
South of the North quarter post of said section,
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<PAGE> 18
said distance being measured along the North and South quarter
line of said section, running thence S89(degree)21'E 250 feet,
thence North along a line parallel with the said North and
South quarter line of said section 200 feet, thence
N89(degree)21'W 250 feet to the North and South quarter line
of said section, thence South along said North and South
quarter line of said section 200 feet to the place of
beginning.
CALHOUN COUNTY
Certain land in Convis Township, Calhoun County, Michigan
described as:
A parcel of land in the SE 1/4 of the SE 1/4 of Section 32,
T1S, R6W, described as follows: To find the place of beginning
of this description, commence at the Southeast corner of said
section; run thence North along the East line of said section
1034.32 feet to the place of beginning of this description;
running thence N 89(degree) 39' 52" W, 333.0 feet; thence
North 290.0 feet to the South 1/8 line of said section; thence
S 89(degree) 39' 52" E along said South 1/8 line of said
section 333.0 feet to the East line of said section; thence
South along said East line of said section 290.0 feet to the
place of beginning. (Bearings are based on the East line of
Section 32, T1S, R6W, from the Southeast corner of said
section to the Northeast corner of said section assumed as
North.)
CASS COUNTY
Certain easement rights located across land in Marcellus
Township, Cass County, Michigan described as:
The East 6 rods of the SW 1/4 of the SE 1/4 of Section 4, T5S,
R13W.
CHARLEVOIX COUNTY
Certain land in South Arm Township, Charlevoix County,
Michigan described as:
A parcel of land in the SW 1/4 of Section 29, T32N, R7W,
described as follows: Beginning at the Southwest corner of
said section and running thence North along the West line of
said section 788.25 feet to a point which is 528 feet distant
South of the South 1/8 line of said section as measured along
the said West line of said section; thence N 89(degree) 30'
19" E, parallel with said South 1/8 line of said section 442.1
feet; thence South 788.15 feet to the South line of said
section; thence S 89(degree) 29' 30" W, along said South line
of said section 442.1 feet to the place of beginning.
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CHEBOYGAN COUNTY
Certain land in Inverness Township, Cheboygan County, Michigan
described as:
A parcel of land in the SW frl 1/4 of Section 31, T37N, R2W,
described as beginning at the Northwest corner of the SW frl
1/4, running thence East on the East and West quarter line of
said Section, 40 rods, thence South parallel to the West line
of said Section 40 rods, thence West 40 rods to the West line
of said Section, thence North 40 rods to the place of
beginning.
CLARE COUNTY
Certain land in Frost Township, Clare County, Michigan
described as:
The East 150 feet of the North 225 feet of the NW 1/4 of the
NW 1/4 of Section 15, T20N, R4W.
CLINTON COUNTY
Certain land in Watertown Township, Clinton County, Michigan
described as:
The NE 1/4 of the NE 1/4 of the SE 1/4 of Section 22, and the
North 165 feet of the NW 1/4 of the NE 1/4 of the SE 1/4 of
Section 22, T5N, R3W.
CRAWFORD COUNTY
Certain land in Lovells Township, Crawford County, Michigan
described as:
A parcel of land in Section 1, T28N, R1W, described as:
Commencing at NW corner said section; thence South
89(degree)53'30" East along North section line 105.78 feet to
point of beginning; thence South 89(degree)53'30" East along
North section line 649.64 feet; thence South 55(degree)42'30"
East 340.24 feet; thence South 55(degree)44'37" East 5,061.81
feet to the East section line; thence South 00(degree)00'08"
West along East section line 441.59 feet; thence North
55(degree)44'37" West 5,310.48 feet; thence North
55(degree)42'30" West 877.76 feet to point of beginning.
EATON COUNTY
Certain land in Eaton Township, Eaton County, Michigan
described as:
A parcel of land in the SW 1/4 of Section 6, T2N, R4W,
described as follows: To find the place of beginning of this
description commence at the Southwest corner of said section;
run thence N 89(degree) 51' 30" E along the South line of said
section 400 feet to the place of beginning of this
description; thence continuing N 89(degree) 51' 30" E, 500
feet; thence N 00(degree) 50' 00" W, 600 feet; thence S
89(degree) 51' 30" W parallel with the South line of said
section 500 feet; thence S 00(degree) 50' 00" E, 600 feet to
the place of beginning.
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<PAGE> 20
EMMET COUNTY
Certain land in Wawatam Township, Emmet County, Michigan
described as:
The West 1/2 of the Northeast 1/4 of the Northeast 1/4 of
Section 23, T39N, R4W.
GENESEE COUNTY
Certain land in Argentine Township, Genesee County, Michigan
described as:
A parcel of land of part of the SW 1/4 of Section 8, T5N, R5E,
being more particularly described as follows:
Beginning at a point of the West line of Duffield Road, 100
feet wide, (as now established) distant 829.46 feet measured
N01(degree)42'56"W and 50 feet measured S88(degree)14'04"W
from the South quarter corner, Section 8, T5N, R5E; thence
S88(degree)14'04"W a distance of 550 feet; thence
N01(degree)42'56"W a distance of 500 feet to a point on the
North line of the South half of the Southwest quarter of said
Section 8; thence N88(degree)14'04"E along the North line of
South half of the Southwest quarter of said Section 8 a
distance 550 feet to a point on the West line of Duffield
Road, 100 feet wide (as now established); thence
S01(degree)42'56"E along the West line of said Duffield Road a
distance of 500 feet to the point of beginning.
GLADWIN COUNTY
Certain land in Secord Township, Gladwin County, Michigan
described as:
The East 400 feet of the South 450 feet of Section 2, T19N,
R1E.
GRAND TRAVERSE COUNTY
Certain land in Mayfield Township, Grand Traverse County,
Michigan described as:
A parcel of land in the Northwest 1/4 of Section 3, T25N,
R11W, described as follows: Commencing at the Northwest corner
of said section, running thence S 89(degree)19'15" E along the
North line of said section and the center line of Clouss Road
225 feet, thence South 400 feet, thence N 89(degree)19'15" W
225 feet to the West line of said section and the center line
of Hannah Road, thence North along the West line of said
section and the center line of Hannah Road 400 feet to the
place of beginning for this description.
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<PAGE> 21
GRATIOT COUNTY
Certain land in Washington Township, Gratiot County, Michigan
described as:
Commencing at the Northeast corner of Section 10, T9N, R2W,
running thence West along the North line of said section a
distance of 194.5 feet, thence S0(degree)07'10"W 200 feet to a
point, thence East 194.5 feet to the East line of said Section
10, thence N0(degree)07'10"E along the East line of said
section a distance of 200 feet to the point of beginning.
HILLSDALE COUNTY
Certain land in Litchfield Village, Hillsdale County, Michigan
described as:
Lots numbered three (3) and four (4) of Block three (3) of
Harvey Smiths Southern Addition to the Village of Litchfield
according to the recorded plat thereof as recorded in Liber AK
of deeds, page 490.
HURON COUNTY
Certain easement rights located across land in Sebewaing
Township, Huron County, Michigan described as:
The North 1/2 of the Northwest 1/4 of Section 15, T15N, R9E.
INGHAM COUNTY
Certain land in Vevay Township, Ingham County, Michigan
described as:
A parcel of land 660 feet wide in the Southwest 1/4 of Section
7 lying South of the centerline of Sitts Road as extended to
the North-South 1/4 line of said Section 7, T2N, R1W, more
particularly described as follows: Commence at the Southwest
corner of said Section 7, thence North along the West line of
said Section 2502.71 feet to the centerline of Sitts Road;
thence South 89(degree)54'45" East along said centerline
2282.38 feet to the place of beginning of this description;
thence continuing South 89(degree)54'45" East along said
centerline and said centerline extended 660.00 feet to the
North- South 1/4 line of said section; thence South
00(degree)07'20" West 1461.71 feet; thence North
89(degree)34'58" West 660.00 feet; thence North
00(degree)07'20" East 1457.91 feet to the centerline of Sitts
Road and the place of beginning.
IONIA COUNTY
Certain land in Sebewa Township, Ionia County, Michigan
described as:
A strip of land 280 feet wide across that part of the SW 1/4
of the NE 1/4 of Section 15, T5N, R6W, described as follows:
To find the place of beginning of this description commence at
the E 1/4 corner of said section;
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<PAGE> 22
run thence N 00(degree) 05' 38" W along the East line of said
section, 1218.43 feet; thence S 67(degree) 18' 24" W, 1424.45
feet to the East 1/8 line of said section and the place of
beginning of this description; thence continuing S 67(degree)
18' 24" W, 1426.28 feet to the North and South 1/4 line of
said section at a point which said point is 105.82 feet
distant N'ly of the center of said section as measured along
said North and South 1/4 line of said section; thence N
00(degree) 04' 47" E along said North and South 1/4 line of
said section, 303.67 feet; thence N 67(degree) 18' 24" E,
1425.78 feet to the East 1/8 line of said section; thence S
00(degree) 00' 26" E along said East 1/8 line of said section,
303.48 feet to the place of beginning. (Bearings are based on
the East line of Section 15, T5N, R6W, from the E 1/4 corner
of said section to the Northeast corner of said section
assumed as N 00(degree) 05' 38" W.)
IOSCO COUNTY
Certain land in Alabaster Township, Iosco County, Michigan
described as:
A parcel of land in the NW 1/4 of Section 34, T21N, R7E,
described as follows: To find the place of beginning of this
description commence at the N 1/4 post of said section; run
thence South along the North and South 1/4 line of said
section, 1354.40 feet to the place of beginning of this
description; thence continuing South along the said North and
South 1/4 line of said section, 165.00 feet to a point on the
said North and South 1/4 line of said section which said point
is 1089.00 feet distant North of the center of said section;
thence West 440.00 feet; thence North 165.00 feet; thence East
440.00 feet to the said North and South 1/4 line of said
section and the place of beginning.
ISABELLA COUNTY
Certain land in Chippewa Township, Isabella County, Michigan
described as:
The North 8 rods of the NE 1/4 of the SE 1/4 of Section 29,
T14N, R3W.
JACKSON COUNTY
Certain land in Waterloo Township, Jackson County, Michigan
described as:
A parcel of land in the North fractional part of the N
fractional 1/2 of Section 2, T1S, R2E, described as follows:
To find the place of beginning of this description commence at
the E 1/4 post of said section; run thence N 01(degree) 03'
40" E along the East line of said section 1,335.45 feet to the
North 1/8 line of said section and the place of beginning of
this description; thence N 89(degree) 32' 00" W, 2677.7 feet
to the North and South 1/4 line of said section; thence S
00(degree) 59' 25" W along the North and South 1/4 line of
said section 22.38 feet to the North 1/8 line of said section;
thence S 89(degree) 59' 10" W along the North 1/8 line of said
section 653.65 feet; thence North 22 feet; thence S
89(degree)59' 10" W, 1601.19 feet to the center line of State
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<PAGE> 23
Trunkline Highway M-52; thence N 53(degree) 46' 00" W along
the center line of said highway to the West line of said
section; thence N 00(degree) 55' 10" E along the West line of
said section 74.35 feet; thence S 89(degree) 32' 00" E,
5356.02 feet to the East line of said section; thence S
01(degree) 03' 40" W along the East line of said section 250
feet to the place of beginning.
KALAMAZOO COUNTY
Certain land in Alamo Township, Kalamazoo County, Michigan
described as:
The South 350 feet of the NW 1/4 of the NW 1/4 of Section 16,
T1S, R12W, being more particularly described as follows: To
find the place of beginning of this description, commence at
the Northwest corner of said section; run thence S 00(degree)
36' 55" W along the West line of said section 971.02 feet to
the place of beginning of this description; thence continuing
S 00(degree) 36' 55" W along said West line of said section
350.18 feet to the North 1/8 line of said section; thence S
87(degree) 33' 40" E along the said North 1/8 line of said
section 1325.1 feet to the West 1/8 line of said section;
thence N 00(degree) 38' 25" E along the said West 1/8 line of
said section 350.17 feet; thence N 87(degree) 33' 40" W,
1325.25 feet to the place of beginning.
KALKASKA COUNTY
Certain land in Kalkaska Township, Kalkaska County, Michigan
described as:
The NW 1/4 of the SW 1/4 of Section 4, T27N, R7W, excepting
therefrom all mineral, coal, oil and gas and such other rights
as were reserved unto the State of Michigan in that certain
deed running from the Department of Conservation for the State
of Michigan to George Welker and Mary Welker, his wife, dated
October 9, 1934 and recorded December 28, 1934 in Liber 39 on
page 291 of Kalkaska County Records, and subject to easement
for pipeline purposes as granted to Michigan Consolidated Gas
Company by first party herein on April 4, 1963 and recorded
June 21, 1963 in Liber 91 on page 631 of Kalkaska County
Records.
KENT COUNTY
Certain land in Caledonia Township, Kent County, Michigan
described as:
A parcel of land in the Northwest fractional 1/4 of Section
15, T5N, R10W, described as follows: To find the place of
beginning of this description commence at the North 1/4 corner
of said section, run thence S 0(degree) 59' 26" E along the
North and South 1/4 line of said section 2046.25 feet to the
place of beginning of this description, thence continuing S
0(degree) 59' 26" E along said North and South 1/4 line of
said section 332.88 feet, thence S 88(degree) 58' 30" W
2510.90 feet to a point herein designated "Point A" on the
East bank of the Thornapple River, thence continuing S
88(degree) 53' 30" W to the center thread of the Thornapple
River, thence NW'ly along the center thread of said Thornapple
River to a point which said point is S 88(degree) 58'
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<PAGE> 24
30" W of a point on the East bank of the Thornapple River
herein designated "Point B", said "Point B" being N 23(degree)
41' 35" W 360.75 feet from said above-described "Point A",
thence N 88(degree) 58' 30" E to said "Point B", thence
continuing N 88(degree) 58' 30" E 2650.13 feet to the place of
beginning. (Bearings are based on the East line of Section 15,
T5N, R10W between the East 1/4 corner of said section and the
Northeast corner of said section assumed as N 0(degree) 59'
55" W.)
LAKE COUNTY
Certain land in Pinora and Cherry Valley Townships, Lake
County, Michigan described as:
A strip of land 50 feet wide East and West along and adjoining
the West line of highway on the East side of the North 1/2 of
Section 13 T18N, R12W. Also a strip of land 100 feet wide East
and West along and adjoining the East line of the highway on
the West side of following described land: The South 1/2 of NW
1/4, and the South 1/2 of the NW 1/4 of the SW 1/4, all in
Section 6, T18N, R11W.
LAPEER COUNTY
Certain land in Hadley Township, Lapeer County, Michigan
described as:
The South 825 feet of the W 1/2 of the SW 1/4 of Section 24,
T6N, R9E, except the West 1064 feet thereof.
LEELANAU COUNTY
Certain land in Cleveland Township, Leelanau County, Michigan
described as:
The North 200 feet of the West 180 feet of the SW 1/4 of the
SE 1/4 of Section 35, T29N, R13W.
LENAWEE COUNTY
Certain land in Madison Township, Lenawee County, Michigan
described as:
A strip of land 165 feet wide off the West side of the
following described premises: The E1/2 of the SE1/4 of Section
12. The E1/2 of the NE1/4 and the NE1/4 of the SE1/4 of
Section 13, being all in T7S, R3E, excepting therefrom a
parcel of land in the E1/2 of the SE1/4 of Section 12, T7S,
R3E, beginning at the Northwest corner of said E1/2 of the
SE1/4 of Section 12, running thence East 4 rods, thence South
6 rods, thence West 4 rods, thence North 6 rods to the place
of beginning.
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<PAGE> 25
LIVINGSTON COUNTY
Certain land in Cohoctah Township, Livingston County, Michigan
described as:
Parcel 1
The East 390 feet of the East 50 rods of the SW 1/4 of Section
30, T4N, R4E.
Parcel 2
A parcel of land in the NW 1/4 of Section 31, T4N, R4E,
described as follows: To find the place of beginning of this
description commence at the N 1/4 post of said section; run
thence N 89(degree) 13' 06" W along the North line of said
section, 330 feet to the place of beginning of this
description; running thence S 00(degree) 52' 49" W, 2167.87
feet; thence N 88(degree) 59' 49" W, 60 feet; thence N
00(degree) 52' 49" E, 2167.66 feet to the North line of said
section; thence S 89(degree) 13' 06" E along said North line
of said section, 60 feet to the place of beginning.
MACKINAC COUNTY
Certain easement rights located across land in Moran Township,
Mackinac County, Michigan described as:
A 20 foot wide strip of land, 10 feet on each side of the
hereinafter described center line, through Lots 16, 17 and 21,
Block 12 of Partition Plat of Private Claim No. 1, Section 23,
Township 40 North, Range 4 West: Said center line being
described as beginning at Edison Sault Electric Company's
existing 35 foot service pole located 200 feet, more or less,
Northerly of the shoreline of the Straits of Mackinac, running
thence Easterly to a point approximately 20 feet Westerly of
the center line of Lakehead Pipeline Company's existing 20
inch pipeline, thence Northerly and Easterly along and
approximately 20 feet Westerly and Northerly of the center
line of said 20 inch existing pipeline to a certain Michigan
Bell Telephone Company's existing pole located Easterly of the
Westerly line of Lot 22, Block 12 of Partition Plat of Private
Claim No. 1 in said Section 23.
MACOMB COUNTY
Certain land in Macomb Township, Macomb County, Michigan
described as:
A parcel of land commencing on the West line of the E 1/2 of
the NW 1/4 of fractional Section 6, 20 chains South of the NW
corner of said E 1/2 of the NW 1/4 of Section 6; thence South
on said West line and the East line of A. Henry Kotner's Hayes
Road Subdivision #15, according to the recorded plat thereof,
as recorded in Liber 24 of Plats, on page 7, 24.36 chains to
the East and West 1/4 line of said Section 6; thence East on
said East and West 1/4 line 8.93 chains; thence North parallel
with the said
24
<PAGE> 26
West line of the E 1/2 of the NW 1/4 of Section 6, 24.36
chains; thence West 8.93 chains to the place of beginning, all
in T3N, R13E.
MANISTEE COUNTY
Certain land in Manistee Township, Manistee County, Michigan
described as:
A parcel of land in the SW 1/4 of Section 20, T22N, R16W,
described as follows: To find the place of beginning of this
description, commence at the Southwest corner of said section;
run thence East along the South line of said section 832.2
feet to the place of beginning of this description; thence
continuing East along said South line of said section 132
feet; thence North 198 feet; thence West 132 feet; thence
South 198 feet to the place of beginning, excepting therefrom
the South 2 rods thereof which was conveyed to Manistee
Township for highway purposes by a Quitclaim Deed dated June
13, 1919 and recorded July 11, 1919 in Liber 88 of Deeds on
page 638 of Manistee County Records.
MASON COUNTY
Certain land in Riverton Township, Mason County, Michigan
described as:
Parcel 1
The South 10 acres of the West 20 acres of the S 1/2 of the NE
1/4 of Section 22, T17N, R17W.
Parcel 2
A parcel of land containing 4 acres of the West side of
highway, said parcel of land being described as commencing 16
rods South of the Northwest corner of the NW 1/4 of the SW 1/4
of Section 22, T17N, R17W, running thence South 64 rods,
thence NE'ly and N'ly and NW'ly along the W'ly line of said
highway to the place of beginning, together with any and all
right, title, and interest of Howard C. Wicklund and Katherine
E. Wicklund in and to that portion of the hereinbefore
mentioned highway lying adjacent to the E'ly line of said
above described land.
MECOSTA COUNTY
Certain land in Wheatland Township, Mecosta County, Michigan
described as:
A parcel of land in the SW1/4 of the SW1/4 of Section 16,
T14N, R7W, described as beginning at the Southwest corner of
said section; thence East along the South line of Section 133
feet; thence North parallel to the West section line 133 feet;
thence West 133 feet to the West line of said Section; thence
South 133 feet to the place of beginning.
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<PAGE> 27
MIDLAND COUNTY
Certain land in Ingersoll Township, Midland County, Michigan
described as:
The West 200 feet of the W 1/2 of the NE 1/4 of Section 4,
T13N, R2E.
MISSAUKEE COUNTY
Certain land in Norwich Township, Missaukee County, Michigan
described as:
A parcel of land in the NW 1/4 of the NW 1/4 of Section 16,
T24N, R6W, described as follows: Commencing at the Northwest
corner of said section, running thence N 89(degree) 01' 45" E
along the North line of said section 233.00 feet; thence South
233.00 feet; thence S 89(degree) 01' 45" W, 233.00 feet to the
West line of said section; thence North along said West line
of said section 233.00 feet to the place of beginning.
(Bearings are based on the West line of Section 16, T24N, R6W,
between the Southwest and Northwest corners of said section
assumed as North.)
MONROE COUNTY
Certain land in LaSalle Township, Monroe County, Michigan
described as:
A strip of land 150 feet in width across part of the S 1/2 of
the SE 1/4 of Section 35, T7S, R8E, described as follows: To
find the place of beginning of this description commence at
the S 1/4 post of said section; run thence N 89(degree) 30'
20" E along the South line of said section 2118.39 feet to the
place of beginning of this description; thence continuing N
89(degree) 30' 20" E along said South line of said section
198.56 feet to the NW'ly right-of-way line of Highway I-75, so
called; thence N 40(degree) 26' 30" E along the NW'ly line of
said highway 477.72 feet to the East line of said section;
thence N 00(degree) 25' 15" W along the East line of said
section 229.27 feet; thence S 40(degree) 26' 30" W, 781.21
feet to the place of beginning.
MONTCALM COUNTY
Certain land in Crystal Township, Montcalm County, Michigan
described as:
The N 1/2 of the S 1/2 of the SE 1/4 of Section 35, T10N, R5W.
MONTMORENCY COUNTY
Certain land in the Village of Hillman, Montmorency County,
Michigan described as:
Lot 14 of Hillman Industrial Park, being a subdivision in the
South 1/2 of the Northwest 1/4 of Section 24, T31N, R4E,
according to the plat thereof recorded in Liber 4 of Plats on
Pages 32-34, Montmorency County Records.
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<PAGE> 28
MUSKEGON COUNTY
Certain land in Casnovia Township, Muskegon County, Michigan
described as:
The West 433 feet of the North 180 feet of the South 425 feet
of the SW 1/4 of Section 3, T10N, R13W.
NEWAYGO COUNTY
Certain land in Ashland Township, Newaygo County, Michigan
described as:
The West 250 feet of the NE 1/4 of Section 23, T11N, R13W.
OAKLAND COUNTY
Certain land in Wixcom City, Oakland County, Michigan
described as:
The E 75 feet of the N 160 feet of the N 330 feet of the W
526.84 feet of the NW 1/4 of the NW 1/4 of Section 8, T1N,
R8E, more particularly described as follows: Commence at the
NW corner of said Section 8, thence N 87(degree) 14' 29" E
along the North line of said Section 8 a distance of 451.84
feet to the place of beginning for this description; thence
continuing N 87(degree) 14' 29" E along said North section
line a distance of 75.0 feet to the East line of the West
526.84 feet of the NW 1/4 of the NW 1/4 of said Section 8;
thence S 02(degree) 37' 09" E along said East line a distance
of 160.0 feet; thence S 87(degree) 14' 29" W a distance of
75.0 feet; thence N 02(degree) 37' 09" W a distance of 160.0
feet to the place of beginning.
OCEANA COUNTY
Certain land in Crystal Township, Oceana County, Michigan
described as:
The East 290 feet of the SE 1/4 of the NW 1/4 and the East 290
feet of the NE 1/4 of the SW 1/4, all in Section 20, T16N,
R16W.
OGEMAW COUNTY
Certain land in West Branch Township, Ogemaw County, Michigan
described as:
The South 660 feet of the East 660 feet of the NE 1/4 of the
NE 1/4 of Section 33, T22N, R2E.
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<PAGE> 29
OSCEOLA COUNTY
Certain land in Hersey Township, Osceola County, Michigan
described as:
A parcel of land in the North 1/2 of the Northeast 1/4 of
Section 13, T17N, R9W, described as commencing at the
Northeast corner of said Section; thence West along the North
Section line 999 feet to the point of beginning of this
description; thence S 01(degree) 54' 20" E 1327.12 feet to the
North 1/8 line; thence S 89(degree) 17' 05" W along the North
1/8 line 330.89 feet; thence N 01(degree) 54' 20" W 1331.26
feet to the North Section line; thence East along the North
Section line 331 feet to the point of beginning.
OSCODA COUNTY
Certain land in Comins Township, Oscoda County, Michigan
described as:
The East 400 feet of the South 580 feet of the W 1/2 of the SW
1/4 of Section 15, T27N, R3E.
OTSEGO COUNTY
Certain land in Corwith Township, Otsego County, Michigan
described as:
Part of the NW 1/4 of the NE 1/4 of Section 28, T32N, R3W,
described as: Beginning at the N 1/4 corner of said section;
running thence S 89(degree) 04' 06" E along the North line of
said section, 330.00 feet; thence S 00(degree) 28' 43" E,
400.00 feet; thence N 89(degree) 04' 06" W, 330.00 feet to the
North and South 1/4 line of said section; thence N 00(degree)
28' 43" W along the said North and South 1/4 line of said
section, 400.00 feet to the point of beginning; subject to the
use of the N'ly 33.00 feet thereof for highway purposes.
OTTAWA COUNTY
Certain land in Robinson Township, Ottawa County, Michigan
described as:
The North 660 feet of the West 660 feet of the NE 1/4 of the
NW 1/4 of Section 26, T7N, R15W.
PRESQUE ISLE COUNTY
Certain land in Belknap and Pulawski Townships, Presque Isle
County, Michigan described as:
Part of the South half of the Northeast quarter, Section 24,
T34N, R5E, and part of the Northwest quarter, Section 19,
T34N, R6E, more fully described as: Commencing at the East 1/4
corner of said Section 24; thence N 00(degree)15'47" E, 507.42
feet, along the East line of said Section 24 to the point of
beginning; thence S 88(degree)15'36" W, 400.00 feet, parallel
with the
28
<PAGE> 30
North 1/8 line of said Section 24; thence N 00(degree)15'47"
E, 800.00 feet, parallel with said East line of Section 24;
thence N 88(degree)15'36"E, 800.00 feet, along said North 1/8
line of Section 24 and said line extended; thence S
00(degree)15'47" W, 800.00 feet, parallel with said East line
of Section 24; thence S 88(degree)15'36" W, 400.00 feet,
parallel with said North 1/8 line of Section 24 to the point
of beginning.
Together with a 33 foot easement along the West 33 feet of the
Northwest quarter lying North of the North 1/8 line of Section
24, Belknap Township, extended, in Section 19, T34N, R6E.
ROSCOMMON COUNTY
Certain land in Backus Township, Roscommon County, Michigan
described as:
A parcel of land the NW 1/4 of the NE 1/4 of the NE 1/4 of
Section 18, T22N, R2W described as commencing at the North
quarter corner thereof; thence North 89(degree)00'56" East
along the North Section line 208 feet to the point of
beginning; thence continue East along the North line of said
Section 245 feet; thence South 00(degree)59'03" East 233 feet;
thence South 89(degree)00'57" West 245 feet; thence North
00(degree)59'03" West 233 feet to the point of beginning.
SAGINAW COUNTY
Certain land in Chapin Township, Saginaw County, Michigan
described as:
A parcel of land in the SW 1/4 of Section 13, T9N, R1E,
described as follows: To find the place of beginning of this
description commence at the Southwest corner of said section;
run thence North along the West line of said section 1581.4
feet to the place of beginning of this description; thence
continuing North along said West line of said section 230 feet
to the center line of a creek; thence S 70(degree) 07' 00" E
along said center line of said creek 196.78 feet; thence South
163.13 feet; thence West 185 feet to the West line of said
section and the place of beginning.
SANILAC COUNTY
Certain easement rights located across land in Minden
Township, Sanilac County, Michigan described as:
The Southeast 1/4 of the Southeast 1/4 of Section 1, T14N,
R14E, excepting therefrom the South 83 feet of the East 83
feet thereof.
29
<PAGE> 31
SHIAWASSEE COUNTY
Certain land in Burns Township, Shiawassee County, Michigan
described as:
The South 330 feet of the E 1/2 of the NE 1/4 of Section 36,
T5N, R4E.
ST. CLAIR COUNTY
Certain land in Ira Township, St. Clair County, Michigan
described as:
The N 1/2 of the NW 1/4 of the NE 1/4 of Section 6, T3N, R15E.
ST. JOSEPH COUNTY
Certain land in Mendon Township, St. Joseph County, Michigan
described as:
The North 660 feet of the West 660 feet of the NW 1/4 of SW
1/4, Section 35, T5S, R10W.
TUSCOLA COUNTY
Certain land in Millington Township, Tuscola County, Michigan
described as:
A strip of land 280 feet wide across the East 96 rods of the
South 20 rods of the N 1/2 of the SE 1/4 of Section 34, T10N,
R8E, more particularly described as commencing at the
Northeast corner of Section 3, T9N, R8E, thence S 89(degree)
55' 35" W along the South line of said Section 34 a distance
of 329.65 feet, thence N 18(degree) 11' 50" W a distance of
1398.67 feet to the South 1/8 line of said Section 34 and the
place of beginning for this description; thence continuing N
18(degree) 11' 50" W a distance of 349.91 feet; thence N
89(degree) 57' 01" W a distance of 294.80 feet; thence S
18(degree) 11' 50" E a distance of 350.04 feet to the South
1/8 line of said Section 34; thence S 89(degree) 58' 29" E
along the South 1/8 line of said section a distance of 294.76
feet to the place of beginning.
VAN BUREN COUNTY
Certain land in Covert Township, Van Buren County, Michigan
described as:
All that part of the West 20 acres of the N 1/2 of the NE
fractional 1/4 of Section 1, T2S, R17W, except the West 17
rods of the North 80 rods, being more particularly described
as follows: To find the place of beginning of this description
commence at the N 1/4 post of said section; run thence N
89(degree) 29' 20" E along the North line of said section
280.5 feet to the place of beginning of this description;
thence continuing N 89(degree) 29' 20" E along said North line
of said section 288.29 feet; thence S 00(degree) 44' 00" E,
1531.92 feet; thence S 89(degree) 33' 30" W, 568.79 feet to
the North and South 1/4 line of said section; thence N
00(degree) 44' 00" W along said North and South
30
<PAGE> 32
1/4 line of said section 211.4 feet; thence N 89(degree) 29'
20" E, 280.5 feet; thence N 00(degree) 44' 00" W, 1320 feet to
the North line of said section and the place of beginning.
WASHTENAW COUNTY
Certain land in Manchester Township, Washtenaw County,
Michigan described as:
A parcel of land in the NE 1/4 of the NW 1/4 of Section 1,
T4S, R3E, described as follows: To find the place of beginning
of this description commence at the Northwest corner of said
section; run thence East along the North line of said section
1355.07 feet to the West 1/8 line of said section; thence S
00(degree) 22' 20" E along said West 1/8 line of said section
927.66 feet to the place of beginning of this description;
thence continuing S 00(degree) 22' 20" E along said West 1/8
line of said section 660 feet to the North 1/8 line of said
section; thence N 86(degree) 36' 57" E along said North 1/8
line of said section 660.91 feet; thence N 00(degree)22' 20"
W, 660 feet; thence S 86(degree) 36' 57" W, 660.91 feet to the
place of beginning.
WAYNE COUNTY
Certain land in Livonia City, Wayne County, Michigan described
as:
Commencing at the Southeast corner of Section 6, T1S, R9E;
thence North along the East line of Section 6 a distance of
253 feet to the point of beginning; thence continuing North
along the East line of Section 6 a distance of 50 feet; thence
Westerly parallel to the South line of Section 6, a distance
of 215 feet; thence Southerly parallel to the East line of
Section 6 a distance of 50 feet; thence easterly parallel with
the South line of Section 6 a distance of 215 feet to the
point of beginning.
WEXFORD COUNTY
Certain land in Selma Township, Wexford County, Michigan
described as:
A parcel of land in the NW1/4 of Section 7, T22N, R10W,
described as beginning on the North line of said section at a
point 200 feet East of the West line of said section, running
thence East along said North section line 450 feet, thence
South parallel with said West section line 350 feet, thence
West parallel with said North section line 450 feet, thence
North parallel with said West section line 350 feet to the
place of beginning.
SECTION 13. 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,
31
<PAGE> 33
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.
32
<PAGE> 34
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 C. Wilson
- -----------------------------
Kimberly C. Wilson
/s/ Sammie B. Dalton
- -----------------------------
Sammie B. Dalton
STATE OF MICHIGAN )
ss.
COUNTY OF JACKSON )
The foregoing instrument was acknowledged before me this
4th day of October, 1999, 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
S-1
<PAGE> 35
THE CHASE MANHATTAN BANK, AS TRUSTEE
(SEAL) By /s/ James Freeman
---------------------------------
Attest: Vice President
/s/ Eric Butler
- -----------------------------
Trust Officer
Signed, sealed and delivered
by THE CHASE MANHATTAN BANK
in the presence of
/s/ N. Rodriguez
- -----------------------------
/s/ William G. Keenan
- -----------------------------
STATE OF NEW YORK )
ss.
COUNTY OF NEW YORK )
The foregoing instrument was acknowledged before me this 4th
day of October, 1999, by James Freeman, a Vice President of THE CHASE MANHATTAN
BANK, a New York corporation, on behalf of the corporation.
/s/ Emily Fayan
----------------------------------------
Notary Public
[Seal] New York County, New York
My Commission Expires:
Prepared by: When recorded, return to:
Kimberly C. Wilson 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
S-2
<PAGE> 1
EXHIBIT (4)(d)
SEVENTY-SEVENTH SUPPLEMENTAL INDENTURE
Providing among other things for
FIRST MORTGAGE BONDS,
Series 1988A Ambac Bonds due April 15, 2018
--------------
Dated as of October 1, 1999
--------------
CONSUMERS ENERGY COMPANY
TO
THE CHASE MANHATTAN BANK,
TRUSTEE
Counterpart of 80
------
<PAGE> 2
SEVENTY-SEVENTH SUPPLEMENTAL INDENTURE, dated as of October 1,
1999 (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
<PAGE> 3
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, pursuant to an Indenture of Trust, dated as of April
15, 1988 (the "MSF Trust Indenture") by and between the Michigan Strategic Fund,
(the "Issuer") and Bankers Trust Company, (the "MSF Trust Indenture Trustee")
the Issuer has issued $67,700,000 in aggregate principal amount of its Variable
Rate Demand Pollution Control Revenue Refunding Bonds (Consumers Power Company
Project) Series 1988A (hereinafter sometimes called the "MSF Bonds"); and
WHEREAS, the MSF Trust Indenture has been amended as set forth
in the Amended and Restated Indenture of Trust dated as of October 1, 1999 (the
"Amended MSF Trust Indenture") to provide, among other things, for substitute
credit enhancement on the MSF Bonds; and
WHEREAS, Ambac Assurance Corporation, a Wisconsin-domiciled
stock insurance company ("Ambac") has provided such substitute credit
enhancement on the MSF Bonds through the issuance of its Municipal Bond
Insurance Policy (the "Policy") which insures certain payments of principal of
and interest on the MSF Bonds, as specified therein; and
WHEREAS, the Company has entered into an Insurance Agreement,
dated as of October 1, 1999 with Ambac (the "Insurance Agreement") in connection
with the Policy and pursuant to the Insurance Agreement the Company has agreed
to issue a new series of bonds under the Indenture in order to secure its
obligations under the Insurance Agreement; and
WHEREAS, for such purposes the Company desires to issue a new
series of bonds, to be designated First Mortgage Bonds, Series 1988A Ambac Bonds
due April 15, 2018, each of which bonds shall also bear the descriptive title
"First Mortgage Bond" (hereinafter provided for and hereinafter sometimes
referred to as the "Series 1988A Ambac 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 April 15, 2018; and
WHEREAS, the Series 1988A Ambac Bonds shall be issued to Ambac
in connection with the issuance of the Policy; and
2
<PAGE> 4
WHEREAS each of the registered bonds without coupons of the
Series 1988A Ambac Bonds and the Trustee's Authentication Certificate thereon
are to be substantially in the following forms, to wit:
[FORM OF REGISTERED BOND OF THE SERIES 1988A AMBAC BONDS]
[FACE]
NOTWITHSTANDING ANY PROVISIONS HEREOF OR IN THE INDENTURE,
THIS BOND IS NOT ASSIGNABLE OR TRANSFERABLE.
CONSUMERS ENERGY COMPANY
FIRST MORTGAGE BOND, SERIES 1988A AMBAC BONDS
DUE APRIL 15, 2018
No. $
CONSUMERS ENERGY COMPANY, a Michigan corporation (hereinafter
called the "Company"), for value received, hereby promises to pay to Ambac
Assurance Corporation ("Ambac"), or registered assigns, the principal sum of
Sixty-Seven Million Seven Hundred Thousand Dollars on April 15, 2018, and to pay
to the registered holder hereof interest on said sum payable at the rate and in
the manner as set forth in the MSF Bonds, defined below. In the event that one
or more MSF Bonds shall have different interest rates from other MSF Bonds, the
interest rate of each allocable portion of the Series 1988A Ambac Bonds shall be
deemed to correspond to the interest rate of each such MSF Bonds (as defined
below).
Under an Indenture of Trust dated as of April 15, 1988 between
the Michigan Strategic Fund, as issuer (the "Issuer") and Bankers Trust Company,
as trustee (the "MSF Trust Indenture Trustee"), which has been amended and
restated pursuant to the Amended and Restated Indenture of Trust dated as of
October 1, 1999 between the Issuer and the MSF Trust Indenture Trustee and
acknowledged and agreed to by the Company (as so amended and restated, the "MSF
Trust Indenture"). MSF has issued Variable Rate Demand Pollution Control Revenue
Refunding Bonds (Consumers Power Company Project) Series 1988A (hereinafter
sometimes called the "MSF Bonds"). Payments of principal of, premiums, if any,
or interest on, the MSF Bonds shall constitute payments on this bond as further
provided herein and in the supplemental indenture pursuant to which this bond
has been issued; provided that payments of principal and interest made on the
MSF Bonds by Ambac pursuant to its municipal bond insurance policy (the
"Policy") issued with respect of the MSF Bonds shall not constitute payments on
this bond unless all amounts in respect thereof owed to Ambac pursuant to
Section 2.01(a) of the Insurance Agreement dated October 1, 1999 between Ambac,
the Company and the MSF Trust Indenture Trustee (the "Insurance Agreement")
shall have been paid in full.
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 or her signature or a facsimile thereof, and
its corporate seal or a facsimile thereof to be affixed hereto or imprinted
3
<PAGE> 5
hereon and attested by its Secretary or one of its Assistant Secretaries by his
or her 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, SERIES 1988A AMBAC BONDS
DUE APRIL 15, 2018
The interest payable on any date as specified in the MSF Bonds
(each "Interest Payment Date") 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 as specified in
the MSF Bonds. 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, or
interest on, all or any portion of the MSF Bonds (other than payments of
principal or interest made thereon by Ambac pursuant to the Policy which are not
reimbursed to Ambac when due in accordance with Section 2.01(a) of the Insurance
Agreement), whether at maturity or prior to maturity by redemption or otherwise,
Series 1988A Ambac Bonds in a principal amount equal to the principal amount of
such MSF Bonds shall, to the extent of such payment of principal, premium, if
any, and interest or reimbursements to Ambac, be deemed fully paid and
4
<PAGE> 6
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 Series 1988A Ambac Bonds shall be surrendered to
the Company for cancellation as provided in Section 3.01(a) of the Insurance
Agreement. 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 Series 1988A Ambac Bonds and the obligation
of the Company to make payments with respect to Section 2.01(a) of the Insurance
Agreement, so far as such payments at the time have become due, have been fully
satisfied and discharged pursuant to the foregoing sentence unless and until the
Trustee shall have received a written notice from Ambac signed by one of its
officers stating (i) that a claim or claims have been made under the Policy,
(ii) that the Company is in arrears as to the payments required to be made by it
to Ambac pursuant to the Insurance Agreement, and (iii) the amount of the
arrearage.
In the event that there is an Event of Default (as defined in
the MSF Indenture) under the MSF Bonds that results in an acceleration of all
outstanding amounts of principal, premium if any, and interest of the MSF Bonds
and there is an Event of Default (as defined in the Insurance Agreement) with
respect to non-payment of the Company's obligations under Section 2.01(a) of the
Insurance Agreement, then Ambac shall give written notice thereof to the Trustee
and such events shall constitute a default under this bond and the remedies set
forth in the Indenture shall be applicable as provided in the Indenture.
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.
5
<PAGE> 7
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 is redeemable on the respective dates and in the
respective principal amounts which correspond to the redemption dates for, and
the principal amounts to be redeemed of, the MSF Bonds (provided that this bond
may not be redeemed where any portion of the principal or interest on the MSF
Bonds is paid by Ambac pursuant to the Policy in connection with the redemption
of the MSF Bonds and Ambac has not been paid as provided in Section 2.01(a) of
the Insurance Agreement). In addition, this bond is redeemable at the option of
the Company in connection with a call for purchase of the MSF Bonds, as set
forth in Article III of the Amended MSF Trust Indenture.
This bond shall not be assignable or transferable.
As provided in Section 3.01(b) of the Insurance Agreement,
from and after the Release Date (as defined in the Insurance Agreement), 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
obligation outstanding under the Insurance Agreement, and, pursuant to Section
3.01(a) of the Insurance Agreement, provided that all amounts owed to Ambac
pursuant to Section 2.01(a) of the Insurance Agreement shall be indefeasibly
paid in full, Ambac 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 Series 1988A Ambac 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 $67,700,000 principal amount of Series 1988A Ambac Bonds
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<PAGE> 8
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 12 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
"Series 1988A Ambac Bonds") designated as hereinabove provided, which shall also
bear the descriptive title "First Mortgage
7
<PAGE> 9
Bond", and the form thereof shall be substantially as hereinbefore set forth.
Series 1988A Ambac Bonds shall be issued in the aggregate principal amount of
$67,700,000, shall mature on April 15, 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 Series 1988A Ambac 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. Series 1988A Ambac Bonds shall bear interest at the
rate per annum, until the principal thereof shall be paid in full at the times
and in the manner as specified in the MSF Bonds to the holder of the 1988A Ambac
Bonds. 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 MSF Bonds (other than payments of
principal or interest made thereon by Ambac pursuant to the Policy which have
not been reimbursed in accordance with Section 2.01(a)), whether at maturity or
prior to maturity by redemption or otherwise, Series 1988A Ambac Bonds in a
principal amount equal to the principal amount of such MSF Bonds shall, to the
extent of such payment of principal, premium, if any, and interest, or
reimbursements to Ambac, provided that all amounts owed to Ambac under Section
2.01(a) of the Insurance Agreement shall be paid in full to Ambac, be deemed
fully 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 Series 1988A Ambac Bonds shall be
surrendered to the Company for cancellation as provided in Section 3.01(a) of
the Insurance Agreement. 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 Series 1988A Ambac Bonds
and the obligation of the Company to make payments with respect to Section
2.01(a) of the Insurance Agreement, so far as such payments at the time have
become due, have been fully satisfied and discharged pursuant to the foregoing
sentence unless and until the Trustee shall have received a written notice from
Ambac as set forth in Section 3 herein.
Each Series 1988A Ambac Bond is to be issued to and registered
in the name of Ambac to secure any and all obligations of the Company under the
Insurance Agreement.
The Series 1988A Ambac Bonds shall not be assignable or
transferable.
SECTION 2. Series 1988A Ambac 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 MSF
Bonds.
In the event the Company elects to or is required to redeem or
is required to purchase any MSF Bonds prior to maturity in accordance with the
provisions of the MSF Indenture, Ambac shall on the same date deliver to the
Company the Series 1988A Ambac Bonds in principal amounts corresponding to the
MSF Bonds so redeemed or purchased, as provided in Section 3.01(a) of the
Insurance Agreement; provided that Ambac has not made any payments pursuant to
the Policy in connection with any such redemption or purchase of the MSF Bonds
which have not been reimbursed to Ambac in accordance with Section 2.01(a) of
the Insurance Agreement. The Company agrees to give the Trustee and Ambac notice
of any such redemption or purchase of the MSF Bonds on or before the date fixed
for any such redemption or purchase.
Series 1988A Ambac 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.
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<PAGE> 10
SECTION 3. In the event that there is an Event of Default (as
defined under the MSF Trust Indenture) under the MSF Bonds that results in an
acceleration of all outstanding amounts of principal, premium if any, and
interest on the MSF Bonds and there is an Event of Default (as defined under the
Insurance Agreement) with respect to non-payment of the Company's obligations
under Section 2.01(a) of the Insurance Agreement, then Ambac shall give written
notice thereof to the Trustee and such events shall constitute an Event of
Default and the remedies set forth in the Indenture shall be applicable as
provided in the Indenture.
SECTION 4. As provided in Section 3.01(b) of the Insurance
Agreement and provided that all amounts owing to Ambac under Section 2.01(a) of
the Insurance Agreement shall have been paid in full, from and after the Release
Date (as defined therein), the obligations of the Company with respect to the
Series 1988A Ambac Bonds (the "Bonds") shall be deemed to be satisfied and
discharged, the Bonds shall cease to secure in any manner any obligations
outstanding under the Insurance Agreement, and, pursuant to Section 3.01(a) of
the Insurance Agreement, Ambac shall forthwith deliver the Bonds to the Company
for cancellation.
SECTION 5. The Company reserves the right, without any
consent, vote or other action by the holder of the Series 1988A Ambac Bonds 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.
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<PAGE> 11
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 6. 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 7. 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 Ambac any right or interest to avail himself
of any benefit under any provision of the Indenture, as so supplemented and
amended.
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<PAGE> 12
SECTION 8. 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 9. 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 10. In the event the date of any notice required or
permitted hereunder or the date of maturity of interest on or principal of the
Series 1988A Ambac Bonds or the date fixed for redemption or repayment of the
Series 1988A Ambac 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 10, a day of the year on which banks are not required or
authorized to close in New York City or Detroit, Michigan.
SECTION 11. This Supplemental Indenture and the Series 1988A
Ambac 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 12. 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
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<PAGE> 13
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.
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<PAGE> 14
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.
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<PAGE> 15
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. Such real property includes
but is not limited to the following described property, such property is subject
to any interests that were excepted or reserved in the conveyance to the
Company:
ALCONA COUNTY
Certain land in Caledonia Township, Alcona County, Michigan described as:
The East 330 feet of the South 660 feet of the SW 1/4 of the
SW 1/4 of Section 8, T28N, R8E, except the West 264 feet of
the South 330 feet thereof; said land being more particularly
described as follows: To find the place of beginning of this
description, commence at the Southwest corner of said section,
run thence East along the South line of said section 1243
14
<PAGE> 16
feet to the place of beginning of this description, thence
continuing East along said South line of said section 66 feet
to the West 1/8 line of said section, thence N 02(degree) 09'
30" E along the said West 1/8 line of said section 660 feet,
thence West 330 feet, thence S 02(degree) 09' 30" W, 330 feet,
thence East 264 feet, thence S 02(degree) 09' 30" W, 330 feet
to the place of beginning.
ALLEGAN COUNTY
Certain land in Lee Township, Allegan County, Michigan
described as:
The NE 1/4 of the NW 1/4 of Section 16, T1N, R15W.
ALPENA COUNTY
Certain land in Wilson and Green Townships, Alpena County,
Michigan described as:
All that part of the S'ly 1/2 of the former Boyne City-Gaylord
and Alpena Railroad right of way, being the Southerly 50 feet
of a 100 foot strip of land formerly occupied by said
Railroad, running from the East line of Section 31, T31N, R7E,
Southwesterly across said Section 31 and Sections 5 and 6 of
T30N, R7E and Sections 10, 11 and the E1/2 of Section 9,
except the West 1646 feet thereof, all in T30N, R6E.
ANTRIM COUNTY
Certain land in Mancelona Township, Antrim County, Michigan
described as:
The S 1/2 of the NE 1/4 of Section 33, T29N, R6W, excepting
therefrom all mineral, coal, oil and gas and such other rights
as were reserved unto the State of Michigan in that certain
deed running from the State of Michigan to August W. Schack
and Emma H. Schack, his wife, dated April 15, 1946 and
recorded May 20, 1946 in Liber 97 of Deeds on page 682 of
Antrim County Records.
ARENAC COUNTY
Certain land in Standish Township, Arenac County, Michigan
described as:
A parcel of land in the SW 1/4 of the NW 1/4 of Section 12,
T18N, R4E, described as follows: To find the place of
beginning of said parcel of land, commence at the Northwest
corner of Section 12, T18N, R4E; run thence South along the
West line of said section, said West line of said section
being also the center line of East City Limits Road 2642.15
feet to the W 1/4 post of said section and the place of
beginning of said parcel of land; running thence N 88(degree)
26' 00" E along the East and West 1/4 line of said section,
660.0 feet; thence North parallel with the West line of said
section, 310.0 feet; thence S 88(degree) 26' 00" W, 330.0
feet; thence South parallel with the West line of said
section, 260.0 feet; thence S 88(degree) 26' 00" W, 330.0 feet
to the West line of said section and the center line of East
City Limits
15
<PAGE> 17
Road; thence South along the said West line of said section,
50.0 feet to the place of beginning.
BARRY COUNTY
Certain land in Johnstown Township, Barry County, Michigan
described as:
A strip of land 311 feet in width across the SW 1/4 of the NE
1/4 of Section 31, T1N, R8W, described as follows: To find the
place of beginning of this description, commence at the E 1/4
post of said section; run thence N 00(degree) 55' 00" E along
the East line of said section, 555.84 feet; thence N
59(degree) 36' 20" W, 1375.64 feet; thence N 88(degree) 30'
00" W, 130 feet to a point on the East 1/8 line of said
section and the place of beginning of this description; thence
continuing N 88(degree) 30' 00" W, 1327.46 feet to the North
and South 1/4 line of said section; thence S 00(degree) 39'
35" W along said North and South 1/4 line of said section,
311.03 feet to a point, which said point is 952.72 feet
distant N'ly from the East and West 1/4 line of said section
as measured along said North and South 1/4 line of said
section; thence S 88(degree) 30' 00" E, 1326.76 feet to the
East 1/8 line of said section; thence N 00(degree) 47' 20" E
along said East 1/8 line of said section, 311.02 feet to the
place of beginning.
BAY COUNTY
Certain land in Frankenlust Township, Bay County, Michigan
described as:
The South 250 feet of the N 1/2 of the W 1/2 of the W 1/2 of
the SE 1/4 of Section 9, T13N, R4E.
BENZIE COUNTY
Certain land in Benzonia Township, Benzie County, Michigan
described as:
A parcel of land in the Northeast 1/4 of Section 7, Township
26 North, Range 14 West, described as beginning at a point on
the East line of said Section 7, said point being 320 feet
North measured along the East line of said section from the
East 1/4 post; running thence West 165 feet; thence North
parallel with the East line of said section 165 feet; thence
East 165 feet to the East line of said section; thence South
165 feet to the place of beginning.
BRANCH COUNTY
Certain land in Girard Township, Branch County, Michigan
described as:
A parcel of land in the NE1/4 of Section 23 T5S, R6W,
described as beginning at a point on the North and South
quarter line of said section at a point 1278.27 feet distant
South of the North quarter post of said section,
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<PAGE> 18
said distance being measured along the North and South quarter
line of said section, running thence S89(degree)21'E 250 feet,
thence North along a line parallel with the said North and
South quarter line of said section 200 feet, thence
N89(degree) 21'W 250 feet to the North and South quarter line
of said section, thence South along said North and South
quarter line of said section 200 feet to the place of
beginning.
CALHOUN COUNTY
Certain land in Convis Township, Calhoun County, Michigan
described as:
A parcel of land in the SE 1/4 of the SE 1/4 of Section 32,
T1S, R6W, described as follows: To find the place of beginning
of this description, commence at the Southeast corner of said
section; run thence North along the East line of said section
1034.32 feet to the place of beginning of this description;
running thence N 89(degree) 39' 52" W, 333.0 feet; thence
North 290.0 feet to the South 1/8 line of said section; thence
S 89(degree) 39' 52" E along said South 1/8 line of said
section 333.0 feet to the East line of said section; thence
South along said East line of said section 290.0 feet to the
place of beginning. (Bearings are based on the East line of
Section 32, T1S, R6W, from the Southeast corner of said
section to the Northeast corner of said section assumed as
North.)
CASS COUNTY
Certain easement rights located across land in Marcellus
Township, Cass County, Michigan described as:
The East 6 rods of the SW 1/4 of the SE 1/4 of Section 4, T5S,
R13W.
CHARLEVOIX COUNTY
Certain land in South Arm Township, Charlevoix County,
Michigan described as:
A parcel of land in the SW 1/4 of Section 29, T32N, R7W,
described as follows: Beginning at the Southwest corner of
said section and running thence North along the West line of
said section 788.25 feet to a point which is 528 feet distant
South of the South 1/8 line of said section as measured along
the said West line of said section; thence N 89(degree) 30'
19" E, parallel with said South 1/8 line of said section 442.1
feet; thence South 788.15 feet to the South line of said
section; thence S 89(degree) 29' 30" W, along said South line
of said section 442.1 feet to the place of beginning.
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CHEBOYGAN COUNTY
Certain land in Inverness Township, Cheboygan County,
Michigan described as:
A parcel of land in the SW frl 1/4 of Section 31, T37N, R2W,
described as beginning at the Northwest corner of the SW frl
1/4, running thence East on the East and West quarter line of
said Section, 40 rods, thence South parallel to the West line
of said Section 40 rods, thence West 40 rods to the West line
of said Section, thence North 40 rods to the place of
beginning.
CLARE COUNTY
Certain land in Frost Township, Clare County, Michigan
described as:
The East 150 feet of the North 225 feet of the NW 1/4 of the
NW 1/4 of Section 15, T20N, R4W.
CLINTON COUNTY
Certain land in Watertown Township, Clinton County,
Michigan described as:
The NE 1/4 of the NE 1/4 of the SE 1/4 of Section 22, and the
North 165 feet of the NW 1/4 of the NE 1/4 of the SE 1/4 of
Section 22, T5N, R3W.
CRAWFORD COUNTY
Certain land in Lovells Township, Crawford County, Michigan
described as:
A parcel of land in Section 1, T28N, R1W, described as:
Commencing at NW corner said section; thence South
89(degree) 53'30" East along North section line 105.78 feet to
point of beginning; thence South 89(degree) 53'30" East along
North section line 649.64 feet; thence South 55(degree) 42'30"
East 340.24 feet; thence South 55(degree) 44'37" East 5,061.81
feet to the East section line; thence South 00(degree) 00'08"
West along East section line 441.59 feet; thence North
55(degree) 44'37" West 5,310.48 feet; thence North
55(degree) 42'30" West 877.76 feet to point of beginning.
EATON COUNTY
Certain land in Eaton Township, Eaton County, Michigan
described as:
A parcel of land in the SW 1/4 of Section 6, T2N, R4W,
described as follows: To find the place of beginning of this
description commence at the Southwest corner of said section;
run thence N 89(degree) 51' 30" E along the South line of said
section 400 feet to the place of beginning of this
description; thence continuing N 89(degree) 51' 30" E, 500
feet; thence N 00(degree) 50' 00" W, 600 feet; thence S
89(degree) 51' 30" W parallel with the South line of said
section 500 feet; thence S 00(degree) 50' 00" E, 600 feet to
the place of beginning.
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<PAGE> 20
EMMET COUNTY
Certain land in Wawatam Township, Emmet County, Michigan
described as:
The West 1/2 of the Northeast 1/4 of the Northeast 1/4 of
Section 23, T39N, R4W.
GENESEE COUNTY
Certain land in Argentine Township, Genesee County, Michigan
described as:
A parcel of land of part of the SW 1/4 of Section 8, T5N, R5E,
being more particularly described as follows:
Beginning at a point of the West line of Duffield Road, 100
feet wide, (as now established) distant 829.46 feet measured
N01(degree) 42'56"W and 50 feet measured S88(degree) 14'04"W
from the South quarter corner, Section 8, T5N, R5E; thence
S88(degree) 14'04"W a distance of 550 feet; thence
N01(degree) 42'56"W a distance of 500 feet to a point on the
North line of the South half of the Southwest quarter of said
Section 8; thence N88(degree) 14'04"E along the North line of
South half of the Southwest quarter of said Section 8 a
distance 550 feet to a point on the West line of Duffield
Road, 100 feet wide (as now established); thence
S01(degree) 42'56"E along the West line of said Duffield Road
a distance of 500 feet to the point of beginning.
GLADWIN COUNTY
Certain land in Secord Township, Gladwin County, Michigan
described as:
The East 400 feet of the South 450 feet of Section 2, T19N,
R1E.
GRAND TRAVERSE COUNTY
Certain land in Mayfield Township, Grand Traverse County,
Michigan described as:
A parcel of land in the Northwest 1/4 of Section 3, T25N,
R11W, described as follows: Commencing at the Northwest corner
of said section, running thence S 89(degree) 19'15" E along
the North line of said section and the center line of Clouss
Road 225 feet, thence South 400 feet, thence N
89(degree)19'15" W 225 feet to the West line of said section
and the center line of Hannah Road, thence North along the
West line of said section and the center line of Hannah Road
400 feet to the place of beginning for this description.
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<PAGE> 21
GRATIOT COUNTY
Certain land in Washington Township, Gratiot County,
Michigan described as:
Commencing at the Northeast corner of Section 10, T9N, R2W,
running thence West along the North line of said section a
distance of 194.5 feet, thence S0(degree) 07'10"W 200 feet to
a point, thence East 194.5 feet to the East line of said
Section 10, thence N0(degree) 07'10"E along the East line of
said section a distance of 200 feet to the point of beginning.
HILLSDALE COUNTY
Certain land in Litchfield Village, Hillsdale County,
Michigan described as:
Lots numbered three (3) and four (4) of Block three (3) of
Harvey Smiths Southern Addition to the Village of Litchfield
according to the recorded plat thereof as recorded in Liber AK
of deeds, page 490.
HURON COUNTY
Certain easement rights located across land in Sebewaing
Township, Huron County, Michigan described as:
The North 1/2 of the Northwest 1/4 of Section 15, T15N, R9E.
INGHAM COUNTY
Certain land in Vevay Township, Ingham County,
Michigan described as:
A parcel of land 660 feet wide in the Southwest 1/4 of Section
7 lying South of the centerline of Sitts Road as extended to
the North-South 1/4 line of said Section 7, T2N, R1W, more
particularly described as follows: Commence at the Southwest
corner of said Section 7, thence North along the West line of
said Section 2502.71 feet to the centerline of Sitts Road;
thence South 89(degree) 54'45" East along said centerline
2282.38 feet to the place of beginning of this description;
thence continuing South 89(degree) 54'45" East along said
centerline and said centerline extended 660.00 feet to the
North- South 1/4 line of said section; thence South
00(degree) 07'20" West 1461.71 feet; thence North
89(degree) 34'58" West 660.00 feet; thence North
00(degree) 07'20" East 1457.91 feet to the centerline of Sitts
Road and the place of beginning.
IONIA COUNTY
Certain land in Sebewa Township, Ionia County, Michigan
described as:
A strip of land 280 feet wide across that part of the SW 1/4
of the NE 1/4 of Section 15, T5N, R6W, described as follows:
To find the place of beginning of this description commence at
the E 1/4 corner of said section;
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<PAGE> 22
run thence N 00(degree) 05' 38" W along the East line of said
section, 1218.43 feet; thence S 67(degree) 18' 24" W, 1424.45
feet to the East 1/8 line of said section and the place of
beginning of this description; thence continuing S 67(degree)
18' 24" W, 1426.28 feet to the North and South 1/4 line of
said section at a point which said point is 105.82 feet
distant N'ly of the center of said section as measured along
said North and South 1/4 line of said section; thence N
00(degree) 04' 47" E along said North and South 1/4 line of
said section, 303.67 feet; thence N 67(degree) 18' 24" E,
1425.78 feet to the East 1/8 line of said section; thence S
00(degree) 00' 26" E along said East 1/8 line of said section,
303.48 feet to the place of beginning. (Bearings are based on
the East line of Section 15, T5N, R6W, from the E 1/4 corner
of said section to the Northeast corner of said section
assumed as N 00(degree) 05' 38" W.)
IOSCO COUNTY
Certain land in Alabaster Township, Iosco County, Michigan
described as:
A parcel of land in the NW 1/4 of Section 34, T21N, R7E,
described as follows: To find the place of beginning of this
description commence at the N 1/4 post of said section; run
thence South along the North and South 1/4 line of said
section, 1354.40 feet to the place of beginning of this
description; thence continuing South along the said North and
South 1/4 line of said section, 165.00 feet to a point on the
said North and South 1/4 line of said section which said point
is 1089.00 feet distant North of the center of said section;
thence West 440.00 feet; thence North 165.00 feet; thence East
440.00 feet to the said North and South 1/4 line of said
section and the place of beginning.
ISABELLA COUNTY
Certain land in Chippewa Township, Isabella County, Michigan
described as:
The North 8 rods of the NE 1/4 of the SE 1/4 of Section 29,
T14N, R3W.
JACKSON COUNTY
Certain land in Waterloo Township, Jackson County, Michigan
described as:
A parcel of land in the North fractional part of the N
fractional 1/2 of Section 2, T1S, R2E, described as follows:
To find the place of beginning of this description commence at
the E 1/4 post of said section; run thence N 01(degree) 03'
40" E along the East line of said section 1,335.45 feet to the
North 1/8 line of said section and the place of beginning of
this description; thence N 89(degree) 32' 00" W, 2677.7 feet
to the North and South 1/4 line of said section; thence S
00(degree) 59' 25" W along the North and South 1/4 line of
said section 22.38 feet to the North 1/8 line of said section;
thence S 89(degree) 59' 10" W along the North 1/8 line of said
section 653.65 feet; thence North 22 feet; thence S
89(degree)59' 10" W, 1601.19 feet to the center line of State
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Trunkline Highway M-52; thence N 53(degree) 46' 00" W along
the center line of said highway to the West line of said
section; thence N 00(degree) 55' 10" E along the West line of
said section 74.35 feet; thence S 89(degree) 32' 00" E,
5356.02 feet to the East line of said section; thence S
01(degree) 03' 40" W along the East line of said section 250
feet to the place of beginning.
KALAMAZOO COUNTY
Certain land in Alamo Township, Kalamazoo County,
Michigan described as:
The South 350 feet of the NW 1/4 of the NW 1/4 of Section 16,
T1S, R12W, being more particularly described as follows: To
find the place of beginning of this description, commence at
the Northwest corner of said section; run thence S 00(degree)
36' 55" W along the West line of said section 971.02 feet to
the place of beginning of this description; thence continuing
S 00(degree) 36' 55" W along said West line of said section
350.18 feet to the North 1/8 line of said section; thence S
87(degree) 33' 40" E along the said North 1/8 line of said
section 1325.1 feet to the West 1/8 line of said section;
thence N 00(degree) 38' 25" E along the said West 1/8 line of
said section 350.17 feet; thence N 87(degree) 33' 40" W,
1325.25 feet to the place of beginning.
KALKASKA COUNTY
Certain land in Kalkaska Township, Kalkaska County,
Michigan described as:
The NW 1/4 of the SW 1/4 of Section 4, T27N, R7W, excepting
therefrom all mineral, coal, oil and gas and such other rights
as were reserved unto the State of Michigan in that certain
deed running from the Department of Conservation for the State
of Michigan to George Welker and Mary Welker, his wife, dated
October 9, 1934 and recorded December 28, 1934 in Liber 39 on
page 291 of Kalkaska County Records, and subject to easement
for pipeline purposes as granted to Michigan Consolidated Gas
Company by first party herein on April 4, 1963 and recorded
June 21, 1963 in Liber 91 on page 631 of Kalkaska County
Records.
KENT COUNTY
Certain land in Caledonia Township, Kent County, Michigan
described as:
A parcel of land in the Northwest fractional 1/4 of Section
15, T5N, R10W, described as follows: To find the place of
beginning of this description commence at the North 1/4 corner
of said section, run thence S 0(degree) 59' 26" E along the
North and South 1/4 line of said section 2046.25 feet to the
place of beginning of this description, thence continuing S
0(degree) 59' 26" E along said North and South 1/4 line of
said section 332.88 feet, thence S 88(degree) 58' 30" W
2510.90 feet to a point herein designated "Point A" on the
East bank of the Thornapple River, thence continuing S
88(degree) 53' 30" W to the center thread of the Thornapple
River, thence NW'ly along the center thread of said Thornapple
River to a point which said point is S 88(degree) 58'
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<PAGE> 24
30" W of a point on the East bank of the Thornapple River
herein designated "Point B", said "Point B" being N 23(degree)
41' 35" W 360.75 feet from said above-described "Point A",
thence N 88(degree) 58' 30" E to said "Point B", thence
continuing N 88(degree) 58' 30" E 2650.13 feet to the place of
beginning. (Bearings are based on the East line of Section 15,
T5N, R10W between the East 1/4 corner of said section and the
Northeast corner of said section assumed as N 0(degree) 59'
55" W.)
LAKE COUNTY
Certain land in Pinora and Cherry Valley Townships, Lake
County, Michigan described as:
A strip of land 50 feet wide East and West along and adjoining
the West line of highway on the East side of the North 1/2 of
Section 13 T18N, R12W. Also a strip of land 100 feet wide East
and West along and adjoining the East line of the highway on
the West side of following described land: The South 1/2 of NW
1/4, and the South 1/2 of the NW 1/4 of the SW 1/4, all in
Section 6, T18N, R11W.
LAPEER COUNTY
Certain land in Hadley Township, Lapeer County, Michigan
described as:
The South 825 feet of the W 1/2 of the SW 1/4 of Section 24,
T6N, R9E, except the West 1064 feet thereof.
LEELANAU COUNTY
Certain land in Cleveland Township, Leelanau County, Michigan
described as:
The North 200 feet of the West 180 feet of the SW 1/4 of the
SE 1/4 of Section 35, T29N, R13W.
LENAWEE COUNTY
Certain land in Madison Township, Lenawee County, Michigan
described as:
A strip of land 165 feet wide off the West side of the
following described premises: The E1/2 of the SE1/4 of Section
12. The E1/2 of the NE1/4 and the NE1/4 of the SE1/4 of
Section 13, being all in T7S, R3E, excepting therefrom a
parcel of land in the E1/2 of the SE1/4 of Section 12, T7S,
R3E, beginning at the Northwest corner of said E1/2 of the
SE1/4 of Section 12, running thence East 4 rods, thence South
6 rods, thence West 4 rods, thence North 6 rods to the place
of beginning.
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LIVINGSTON COUNTY
Certain land in Cohoctah Township, Livingston County,
Michigan described as:
Parcel 1
The East 390 feet of the East 50 rods of the SW 1/4 of Section
30, T4N, R4E.
Parcel 2
A parcel of land in the NW 1/4 of Section 31, T4N, R4E,
described as follows: To find the place of beginning of this
description commence at the N 1/4 post of said section; run
thence N 89(degree) 13' 06" W along the North line of said
section, 330 feet to the place of beginning of this
description; running thence S 00(degree) 52' 49" W, 2167.87
feet; thence N 88(degree) 59' 49" W, 60 feet; thence N
00(degree) 52' 49" E, 2167.66 feet to the North line of said
section; thence S 89(degree) 13' 06" E along said North line
of said section, 60 feet to the place of beginning.
MACKINAC COUNTY
Certain easement rights located across land in Moran Township,
Mackinac County, Michigan described as:
A 20 foot wide strip of land, 10 feet on each side of the
hereinafter described center line, through Lots 16, 17 and 21,
Block 12 of Partition Plat of Private Claim No. 1, Section 23,
Township 40 North, Range 4 West: Said center line being
described as beginning at Edison Sault Electric Company's
existing 35 foot service pole located 200 feet, more or less,
Northerly of the shoreline of the Straits of Mackinac, running
thence Easterly to a point approximately 20 feet Westerly of
the center line of Lakehead Pipeline Company's existing 20
inch pipeline, thence Northerly and Easterly along and
approximately 20 feet Westerly and Northerly of the center
line of said 20 inch existing pipeline to a certain Michigan
Bell Telephone Company's existing pole located Easterly of the
Westerly line of Lot 22, Block 12 of Partition Plat of Private
Claim No. 1 in said Section 23.
MACOMB COUNTY
Certain land in Macomb Township, Macomb County, Michigan
described as:
A parcel of land commencing on the West line of the E 1/2 of
the NW 1/4 of fractional Section 6, 20 chains South of the NW
corner of said E 1/2 of the NW 1/4 of Section 6; thence South
on said West line and the East line of A. Henry Kotner's Hayes
Road Subdivision #15, according to the recorded plat thereof,
as recorded in Liber 24 of Plats, on page 7, 24.36 chains to
the East and West 1/4 line of said Section 6; thence East on
said East and West 1/4 line 8.93 chains; thence North parallel
with the said
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<PAGE> 26
West line of the E 1/2 of the NW 1/4 of Section 6, 24.36
chains; thence West 8.93 chains to the place of beginning, all
in T3N, R13E.
MANISTEE COUNTY
Certain land in Manistee Township, Manistee County, Michigan
described as:
A parcel of land in the SW 1/4 of Section 20, T22N, R16W,
described as follows: To find the place of beginning of this
description, commence at the Southwest corner of said section;
run thence East along the South line of said section 832.2
feet to the place of beginning of this description; thence
continuing East along said South line of said section 132
feet; thence North 198 feet; thence West 132 feet; thence
South 198 feet to the place of beginning, excepting therefrom
the South 2 rods thereof which was conveyed to Manistee
Township for highway purposes by a Quitclaim Deed dated June
13, 1919 and recorded July 11, 1919 in Liber 88 of Deeds on
page 638 of Manistee County Records.
MASON COUNTY
Certain land in Riverton Township, Mason County, Michigan
described as:
Parcel 1
The South 10 acres of the West 20 acres of the S 1/2 of the NE
1/4 of Section 22, T17N, R17W.
Parcel 2
A parcel of land containing 4 acres of the West side of
highway, said parcel of land being described as commencing 16
rods South of the Northwest corner of the NW 1/4 of the SW 1/4
of Section 22, T17N, R17W, running thence South 64 rods,
thence NE'ly and N'ly and NW'ly along the W'ly line of said
highway to the place of beginning, together with any and all
right, title, and interest of Howard C. Wicklund and Katherine
E. Wicklund in and to that portion of the hereinbefore
mentioned highway lying adjacent to the E'ly line of said
above described land.
MECOSTA COUNTY
Certain land in Wheatland Township, Mecosta County, Michigan
described as:
A parcel of land in the SW1/4 of the SW1/4 of Section 16,
T14N, R7W, described as beginning at the Southwest corner of
said section; thence East along the South line of Section 133
feet; thence North parallel to the West section line 133 feet;
thence West 133 feet to the West line of said Section; thence
South 133 feet to the place of beginning.
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<PAGE> 27
MIDLAND COUNTY
Certain land in Ingersoll Township, Midland County, Michigan
described as:
The West 200 feet of the W 1/2 of the NE 1/4 of Section 4,
T13N, R2E.
MISSAUKEE COUNTY
Certain land in Norwich Township, Missaukee County, Michigan
described as:
A parcel of land in the NW 1/4 of the NW 1/4 of Section 16,
T24N, R6W, described as follows: Commencing at the Northwest
corner of said section, running thence N 89(degree) 01' 45" E
along the North line of said section 233.00 feet; thence South
233.00 feet; thence S 89(degree) 01' 45" W, 233.00 feet to the
West line of said section; thence North along said West line
of said section 233.00 feet to the place of beginning.
(Bearings are based on the West line of Section 16, T24N, R6W,
between the Southwest and Northwest corners of said section
assumed as North.)
MONROE COUNTY
Certain land in LaSalle Township, Monroe County, Michigan
described as:
A strip of land 150 feet in width across part of the S 1/2 of
the SE 1/4 of Section 35, T7S, R8E, described as follows: To
find the place of beginning of this description commence at
the S 1/4 post of said section; run thence N 89(degree) 30'
20" E along the South line of said section 2118.39 feet to the
place of beginning of this description; thence continuing N
89(degree) 30' 20" E along said South line of said section
198.56 feet to the NW'ly right-of-way line of Highway I-75, so
called; thence N 40(degree) 26' 30" E along the NW'ly line of
said highway 477.72 feet to the East line of said section;
thence N 00(degree) 25' 15" W along the East line of said
section 229.27 feet; thence S 40(degree) 26' 30" W, 781.21
feet to the place of beginning.
MONTCALM COUNTY
Certain land in Crystal Township, Montcalm County, Michigan
described as:
The N 1/2 of the S 1/2 of the SE 1/4 of Section 35, T10N, R5W.
MONTMORENCY COUNTY
Certain land in the Village of Hillman, Montmorency County,
Michigan described as:
Lot 14 of Hillman Industrial Park, being a subdivision in the
South 1/2 of the Northwest 1/4 of Section 24, T31N, R4E,
according to the plat thereof recorded in Liber 4 of Plats on
Pages 32-34, Montmorency County Records.
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<PAGE> 28
MUSKEGON COUNTY
Certain land in Casnovia Township, Muskegon County, Michigan
described as:
The West 433 feet of the North 180 feet of the South 425 feet
of the SW 1/4 of Section 3, T10N, R13W.
NEWAYGO COUNTY
Certain land in Ashland Township, Newaygo County, Michigan
described as:
The West 250 feet of the NE 1/4 of Section 23, T11N, R13W.
OAKLAND COUNTY
Certain land in Wixcom City, Oakland County, Michigan
described as:
The E 75 feet of the N 160 feet of the N 330 feet of the W
526.84 feet of the NW 1/4 of the NW 1/4 of Section 8, T1N,
R8E, more particularly described as follows: Commence at the
NW corner of said Section 8, thence N 87(degree) 14' 29" E
along the North line of said Section 8 a distance of 451.84
feet to the place of beginning for this description; thence
continuing N 87(degree) 14' 29" E along said North section
line a distance of 75.0 feet to the East line of the West
526.84 feet of the NW 1/4 of the NW 1/4 of said Section 8;
thence S 02(degree) 37' 09" E along said East line a distance
of 160.0 feet; thence S 87(degree) 14' 29" W a distance of
75.0 feet; thence N 02(degree) 37' 09" W a distance of 160.0
feet to the place of beginning.
OCEANA COUNTY
Certain land in Crystal Township, Oceana County, Michigan
described as:
The East 290 feet of the SE 1/4 of the NW 1/4 and the East 290
feet of the NE 1/4 of the SW 1/4, all in Section 20, T16N,
R16W.
OGEMAW COUNTY
Certain land in West Branch Township, Ogemaw County, Michigan
described as:
The South 660 feet of the East 660 feet of the NE 1/4 of the
NE 1/4 of Section 33, T22N, R2E.
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OSCEOLA COUNTY
Certain land in Hersey Township, Osceola County, Michigan
described as:
A parcel of land in the North 1/2 of the Northeast 1/4 of
Section 13, T17N, R9W, described as commencing at the
Northeast corner of said Section; thence West along the North
Section line 999 feet to the point of beginning of this
description; thence S 01(degree) 54' 20" E 1327.12 feet to the
North 1/8 line; thence S 89(degree) 17' 05" W along the North
1/8 line 330.89 feet; thence N 01(degree) 54' 20" W 1331.26
feet to the North Section line; thence East along the North
Section line 331 feet to the point of beginning.
OSCODA COUNTY
Certain land in Comins Township, Oscoda County, Michigan
described as:
The East 400 feet of the South 580 feet of the W 1/2 of the SW
1/4 of Section 15, T27N, R3E.
OTSEGO COUNTY
Certain land in Corwith Township, Otsego County, Michigan
described as:
Part of the NW 1/4 of the NE 1/4 of Section 28, T32N, R3W,
described as: Beginning at the N 1/4 corner of said section;
running thence S 89(degree) 04' 06" E along the North line of
said section, 330.00 feet; thence S 00(degree) 28' 43" E,
400.00 feet; thence N 89(degree) 04' 06" W, 330.00 feet to the
North and South 1/4 line of said section; thence N 00(degree)
28' 43" W along the said North and South 1/4 line of said
section, 400.00 feet to the point of beginning; subject to the
use of the N'ly 33.00 feet thereof for highway purposes.
OTTAWA COUNTY
Certain land in Robinson Township, Ottawa County, Michigan
described as:
The North 660 feet of the West 660 feet of the NE 1/4 of the
NW 1/4 of Section 26, T7N, R15W.
PRESQUE ISLE COUNTY
Certain land in Belknap and Pulawski Townships, Presque Isle
County, Michigan described as:
Part of the South half of the Northeast quarter, Section 24,
T34N, R5E, and part of the Northwest quarter, Section 19,
T34N, R6E, more fully described as: Commencing at the East 1/4
corner of said Section 24; thence N 00(degree) 15'47" E,
507.42 feet, along the East line of said Section 24 to the
point of beginning; thence S 88(degree) 15'36" W, 400.00 feet,
parallel with the
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North 1/8 line of said Section 24; thence N 00(degree) 15'47"
E, 800.00 feet, parallel with said East line of Section 24;
thence N 88(degree) 15'36"E, 800.00 feet, along said North 1/8
line of Section 24 and said line extended; thence S
00(degree) 15'47" W, 800.00 feet, parallel with said East line
of Section 24; thence S 88(degree) 15'36" W, 400.00 feet,
parallel with said North 1/8 line of Section 24 to the point
of beginning.
Together with a 33 foot easement along the West 33 feet of the
Northwest quarter lying North of the North 1/8 line of Section
24, Belknap Township, extended, in Section 19, T34N, R6E.
ROSCOMMON COUNTY
Certain land in Backus Township, Roscommon County, Michigan
described as:
A parcel of land the NW 1/4 of the NE 1/4 of the NE 1/4 of
Section 18, T22N, R2W described as commencing at the North
quarter corner thereof; thence North 89(degree) 00'56" East
along the North Section line 208 feet to the point of
beginning; thence continue East along the North line of said
Section 245 feet; thence South 00(degree) 59'03" East 233
feet; thence South 89(degree) 00'57" West 245 feet; thence
North 00(degree) 59'03" West 233 feet to the point of
beginning.
SAGINAW COUNTY
Certain land in Chapin Township, Saginaw County, Michigan
described as:
A parcel of land in the SW 1/4 of Section 13, T9N, R1E,
described as follows: To find the place of beginning of this
description commence at the Southwest corner of said section;
run thence North along the West line of said section 1581.4
feet to the place of beginning of this description; thence
continuing North along said West line of said section 230 feet
to the center line of a creek; thence S 70(degree) 07' 00" E
along said center line of said creek 196.78 feet; thence South
163.13 feet; thence West 185 feet to the West line of said
section and the place of beginning.
SANILAC COUNTY
Certain easement rights located across land in Minden
Township, Sanilac County, Michigan described as:
The Southeast 1/4 of the Southeast 1/4 of Section 1, T14N,
R14E, excepting therefrom the South 83 feet of the East 83
feet thereof.
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SHIAWASSEE COUNTY
Certain land in Burns Township, Shiawassee County, Michigan
described as:
The South 330 feet of the E 1/2 of the NE 1/4 of Section 36,
T5N, R4E.
ST. CLAIR COUNTY
Certain land in Ira Township, St. Clair County, Michigan
described as:
The N 1/2 of the NW 1/4 of the NE 1/4 of Section 6, T3N, R15E.
ST. JOSEPH COUNTY
Certain land in Mendon Township, St. Joseph County, Michigan
described as:
The North 660 feet of the West 660 feet of the NW 1/4 of SW
1/4, Section 35, T5S, R10W.
TUSCOLA COUNTY
Certain land in Millington Township, Tuscola County, Michigan
described as:
A strip of land 280 feet wide across the East 96 rods of the
South 20 rods of the N 1/2 of the SE 1/4 of Section 34, T10N,
R8E, more particularly described as commencing at the
Northeast corner of Section 3, T9N, R8E, thence S 89(degree)
55' 35" W along the South line of said Section 34 a distance
of 329.65 feet, thence N 18(degree) 11' 50" W a distance of
1398.67 feet to the South 1/8 line of said Section 34 and the
place of beginning for this description; thence continuing N
18(degree) 11' 50" W a distance of 349.91 feet; thence N
89(degree) 57' 01" W a distance of 294.80 feet; thence S
18(degree) 11' 50" E a distance of 350.04 feet to the South
1/8 line of said Section 34; thence S 89(degree) 58' 29" E
along the South 1/8 line of said section a distance of 294.76
feet to the place of beginning.
VAN BUREN COUNTY
Certain land in Covert Township, Van Buren County, Michigan
described as:
All that part of the West 20 acres of the N 1/2 of the NE
fractional 1/4 of Section 1, T2S, R17W, except the West 17
rods of the North 80 rods, being more particularly described
as follows: To find the place of beginning of this description
commence at the N 1/4 post of said section; run thence N
89(degree) 29' 20" E along the North line of said section
280.5 feet to the place of beginning of this description;
thence continuing N 89(degree) 29' 20" E along said North line
of said section 288.29 feet; thence S 00(degree) 44' 00" E,
1531.92 feet; thence S 89(degree) 33' 30" W, 568.79 feet to
the North and South 1/4 line of said section; thence N
00(degree) 44' 00" W along said North and South
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<PAGE> 32
1/4 line of said section 211.4 feet; thence N 89(degree) 29'
20" E, 280.5 feet; thence N 00(degree) 44' 00" W, 1320 feet to
the North line of said section and the place of beginning.
WASHTENAW COUNTY
Certain land in Manchester Township, Washtenaw County,
Michigan described as:
A parcel of land in the NE 1/4 of the NW 1/4 of Section 1,
T4S, R3E, described as follows: To find the place of beginning
of this description commence at the Northwest corner of said
section; run thence East along the North line of said section
1355.07 feet to the West 1/8 line of said section; thence S
00(degree) 22' 20" E along said West 1/8 line of said section
927.66 feet to the place of beginning of this description;
thence continuing S 00(degree) 22' 20" E along said West 1/8
line of said section 660 feet to the North 1/8 line of said
section; thence N 86(degree) 36' 57" E along said North 1/8
line of said section 660.91 feet; thence N 00(degree) 22' 20"
W, 660 feet; thence S 86(degree) 36' 57" W, 660.91 feet to the
place of beginning.
WAYNE COUNTY
Certain land in Livonia City, Wayne County, Michigan
described as:
Commencing at the Southeast corner of Section 6, T1S, R9E;
thence North along the East line of Section 6 a distance of
253 feet to the point of beginning; thence continuing North
along the East line of Section 6 a distance of 50 feet; thence
Westerly parallel to the South line of Section 6, a distance
of 215 feet; thence Southerly parallel to the East line of
Section 6 a distance of 50 feet; thence easterly parallel with
the South line of Section 6 a distance of 215 feet to the
point of beginning.
WEXFORD COUNTY
Certain land in Selma Township, Wexford County, Michigan
described as:
A parcel of land in the NW1/4 of Section 7, T22N, R10W,
described as beginning on the North line of said section at a
point 200 feet East of the West line of said section, running
thence East along said North section line 450 feet, thence
South parallel with said West section line 350 feet, thence
West parallel with said North section line 450 feet, thence
North parallel with said West section line 350 feet to the
place of beginning.
SECTION 13. 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,
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<PAGE> 33
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.
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<PAGE> 34
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 C. Wilson
- ----------------------------
Kimberly C. Wilson
/s/ Sammie B. Dalton
- ----------------------------
Sammie B. Dalton
STATE OF MICHIGAN )
ss.
COUNTY OF JACKSON )
The foregoing instrument was acknowledged before me this
1st day of October, 1999, 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
S-1
<PAGE> 35
THE CHASE MANHATTAN BANK, AS TRUSTEE
(SEAL) By /s/ James Freeman
---------------------------------
Attest: Vice President
/s/ Eric Butler
- ----------------------------
Trust Officer
Signed, sealed and delivered
by THE CHASE MANHATTAN BANK
in the presence of
/s/ N. Rodriguez
- ----------------------------
/s/ William G. Keenan
- ----------------------------
STATE OF NEW YORK )
ss.
COUNTY OF NEW YORK )
The foregoing instrument was acknowledged before me this 1st
day of October, 1999, by James Freeman, a Vice President of THE CHASE MANHATTAN
BANK, a New York corporation, on behalf of the corporation.
/s/ Emily Fayan
------------------------------------------
Notary Public
[Seal] New York County, New York
My Commission Expires:
Prepared by: When recorded, return to:
Kimberly C. Wilson 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
S-2
<PAGE> 1
EXHIBIT (10)(b)
[EACH EXECUTIVE OFFICER OF CMS ENERGY AND CONSUMERS ENTERS INTO AN
EMPLOYMENT AGREEMENT IN SUBSTANTIALLY THE FORM ATTACHED]
EMPLOYMENT AGREEMENT
AGREEMENT between __________________________, a Michigan corporation
(the "Company"), and _________________________ (the "Executive") dated this
_______ day of December, 1999.
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. Change of Control. As used in this Agreement, a "Change of
Control" shall occur upon the occurrence of one or more of the following events
and "Change of Control Date" shall be the date of such occurrence:
(a) A Change of Control of CMS Energy Corporation ("CMS") would be
required to be reported in response to Item 1(a) of the
Current Report on Form 8-K, as in effect on the date hereof,
pursuant to Sections 13 or 15(d) of the Exchange Act, whether
or not CMS is then subject to such reporting requirement.
(b) Any "person" or "group" within the meaning of Sections 13(d)
and 14(d)(2) of the Exchange Act becomes the "beneficial
owner" as defined in Rule 13d-3 under the Exchange Act of more
than 30% of the then outstanding voting securities of CMS.
(c) During any period of twenty-four consecutive months the
Present Directors and/or New Directors cease to constitute a
majority of the Board of Directors of CMS. For purposes of
this subsection (c), "Present Directors" shall mean
individuals who at the beginning of such consecutive
twenty-four month period were members of the Board and "New
Directors" shall mean any director of CMS whose election by
the Board or whose nomination for election by CMS'
shareholders was approved by a vote of at least two-thirds of
CMS' Directors then still in office who were Present Directors
or New Directors.
(d) There is a sale by CMS within a three-year period of assets of
CMS with either a book value or market value of 50% or more of
the assets of CMS on a book-value or market-value basis.
(e) A bidder as defined in Rule 14D-1(b) under the Exchange Act
files a Tender Offer Statement with the Securities and
Exchange Commission and CMS.
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<PAGE> 2
2. Employment. The Company hereby agrees to continue to employ and
engage the services of the Executive as _________________________________ of the
Company for the period beginning on the Change of Control Date and ending on the
earlier of the third 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 such as described in Section 5 shall occur.
3. 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) under the policies of the Company in effect on the Change of
Control Date and to use his best efforts to promote the interests of the Company
and to perform faithfully and efficiently the responsibilities assigned to the
Executive on the Change of Control Date.
4. Compensation and Other Terms of Employment.
(a) Base Salary. The Executive shall receive an annual salary
("Base Salary") of not less than his annual salary immediately prior to the
Change of Control Date from the Company (payable in equal semi-monthly
installments).
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 the Board of Directors of CMS Energy Corporation.
(b) Incentive Compensation. As further compensation, the Executive
will be eligible for awards ("Incentive Compensation") under the Company's
Executive Incentive Compensation Plan or any comparable plan in which the
Executive participated immediately prior to the Change of Control Date.
(c) Retirement and Other Benefit Plans. In addition to Base Salary
and Incentive Compensation, the Executive shall be entitled to receive during
the employment period, at the election of the Executive, either: (i) such
retirement, supplemental retirement, health insurance, thrift plan, stock
options, and other benefits as are afforded to executives of the same rank from
time to time; or (ii) benefits of the type set forth in clause 4(c)(i) above
available to the Executive under the Company's plans and programs on the Change
of Control Date.
(d) Vacation and Employee Benefits.
(i) The Executive shall be entitled to paid vacation and other
employee benefits and perquisites, at the election of the Executive, either: (a)
in accordance with the policies of the Company in effect from time to time for
executive officers; or (b) the vacation, employee benefits and perquisites to
which he was entitled immediately prior to the Change of Control Date.
5. Termination by Death, Disability or After Change of Control.
(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.
2
<PAGE> 3
(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 9 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 "Normal Retirement Date," or his
death if earlier. Disability payments hereunder shall be reduced by the amount
of other Company-sponsored disability or early retirement benefits paid to the
Executive through insurance or otherwise.
(c) Termination for Cause. The Executive's employment with the
Company may be terminated for Cause. For purposes of this Agreement, "Cause"
shall mean: (i) fraud, theft or misappropriation of property of the Company or
CMS, (ii) gross negligence in the discharge of Executive's duties or (iii)
violations by the Executive of the Company's or CMS Energy's policies regarding
sexual harassment, racial or national origin harassment, accounting controls,
foreign corrupt practices or confidentiality, and, in each case, the severity of
the act or violation shall have been sufficient to warrant termination of
employment as a disciplinary action, consistent with CMS Energy's previous
disciplinary actions. 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, responsibilities or compensation have
been diminished or rendered less desirable following a Change of Control, the
Executive may terminate his employment with the Company upon written notice
given not later than 12 months after the Change of Control Date.
(iii) In the event of a termination of employment under this
subsection (d), the Executive shall receive a severance payment equal to three
times his Base Salary at the time of termination of employment plus either three
times the incentive compensation paid 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, three times 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 under this
subsection 5(d)(iii) shall be paid in a lump sum payment, in cash, or as
otherwise directed by the Executive not later than 15 days from termination of
employment. In the event a severance payment is paid to the Executive and such
payment, or a portion thereof, and distributions or payments made under any
other executive compensation plan, including, but not limited to, the CMS Energy
Performance Incentive Stock Plan, are subject to any excise taxes because such
payments constitute a "parachute payment" as described in Section 280G of the
Internal Revenue Code of 1986, as amended, the Company shall pay to the
Executive an additional amount such that the net amount retained by the
Executive after deduction of any excise taxes upon such payments and any
Federal, state and local income tax and excise taxes (including FICA) upon the
additional payment shall be equal to such parachute payment. Executive shall
further be entitled to a continuation of all employee benefits to which an
executive of Executive's salary grade at the Change of Control Date is entitled
from time to time, including without
3
<PAGE> 4
limitation all health, dental, life and disability insurance and allowances, but
excluding only the entitlement to receive further awards of stock options, stock
appreciation rights or restricted stock for periods after the termination of
Executive's employment.
(iv) In addition to the rights of Executive set forth in the
preceding paragraph 5(d)(iii), and whether or not Executive's employment has
been terminated, upon a Change of Control shares of restricted stock awarded to
Executive under the Performance Incentive Stock Plan of CMS Energy not yet
vested at the date of the Change of Control shall thereupon vest and be
distributed as provided in that plan.
6. Termination Prior to a Change of Control. If the employment of the
Executive is terminated by the Company, other than for Cause, and there is no
Change of Control, then the Executive shall receive, in 24 equal installments as
if the Executive were an active employee, a severance payment equal to his Base
Salary at the time of termination plus either an amount equal to the incentive
compensation paid with respect to the last full calendar year prior to
termination of employment or, if no incentive compensation was awarded to the
Executive with respect to such year, an amount equal to the standard incentive
compensation award, as defined in CMS Energy's Executive Incentive Compensation
Plan, for the salary grade of the Executive, for such year. Any payment under
this provision shall be contingent upon the Executive's execution of a waiver
and release of all liability by the Company and its agents at the time of
termination. In consideration of and as a condition to the benefit to Executive
contained in this Section 6, Executive agrees for a period of one (1) year
following termination hereunder, (i) that Executive shall not disclose to any
person nor use for any purpose any Confidential Information which came into his
possession of knowledge while employed by the Company. "Confidential
Information" shall mean all information received by him in his capacity as an
employee of the Company which is not at the time of disclosure in the public
domain and (ii) that Executive will not personally participate in or assist any
direct competition with the Company or any subsidiary of the Company. As used in
clause (ii) of the foregoing sentence, the term "direct competition" shall not
be construed to prohibit employment in the energy, electric, gas, or oil
industries, but is intended to prohibit any effort to deprive CMS Energy of a
specific business opportunity known by Executive to be sought by CMS Energy and
to prohibit efforts by Executive to solicit customers doing business of any
particular type with CMS Energy at the time of the termination.
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 cause the Executive to be insured
under its Directors and Officers 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 and shall, to the extent
permitted by law, advance to the Executive all reasonable costs and expenses in
defense of any claim or cause of action arising out of or pertaining to the
Executive's employment with CMS or the Company.
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<PAGE> 5
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. Tax Withholding. The Company may withhold from any cash amounts
payable to the Executive under this Agreement to satisfy all applicable Federal,
State, local or other income and employment withholding taxes. In the event the
Company fails to withhold such sums for any reason, or withholding is required
for any non-cash payments provided in connection with the Executive's
termination of employment, the Company may require the Executive to promptly
remit to the Company sufficient cash to satisfy all applicable income and
employment withholding taxes.
12. Claims Procedure.
(a) The administrator for purposes of this Agreement shall be the
Company whose address is c/o the Secretary, CMS Energy Corporation and whose
telephone number is 517-788-1030. The "Named Fiduciary" as defined in Section
402(a)(2) of ERISA, also shall be the Company. The Company shall have the right
to designate one or more Company employees as the Administrator and the Named
Fiduciary at any time, and to change the address and telephone number of the
same. The Company shall give the Executive written notice of any change in the
Administrator and Named Fiduciary, or in the address or telephone number of the
same.
(b) The Administrator shall make all determinations as to the
right of any person to receive benefits under the Agreement. Any denial by the
Administrator of a claim for benefits by the Executive ("the Claimant") shall be
stated in writing by the Administrator and delivered or mailed to the Executive
within ten (10) days after receipt of the claim, unless special circumstances
require an extension of time for processing the claim. If such an extension is
required, written notice of the extension shall be furnished to the Executive
prior to the termination of the initial 10-day period. In no event shall such
extension exceed a period of ten (10) days from the end of the initial period.
Any notice of denial shall set forth the specific reasons for the denial,
specific reference to pertinent provisions of this Agreement upon which the
denial is based, a description of any additional material or information
necessary for the Executive to perfect the claim, with an explanation of why
such material or information is necessary, and any explanation of claim review
procedures, written to the best of the Administrator's ability in a manner that
may be understood without legal or actuarial counsel.
(c) A claimant whose claim for benefits has been wholly or
partially denied by the Administrator may request, within ten (10) days
following the date of such denial, in writing addressed to the Administrator, a
review of such denial. The claimant shall be entitled to submit such issues or
comments in writing or otherwise, as the claimant shall consider relevant to a
determination of the claim, and the claimant may include a request for a hearing
in person before the Administrator. Prior to submitting the request, the
claimant shall be entitled to review such documents as the Administrator shall
agree are pertinent to the claim. The claimant may, at all stages of review, be
represented by counsel, legal or otherwise, of the claimant's choice. All
requests for review shall be promptly resolved. The Administrator's decision
with respect to any such review shall be set forth in writing and shall be
mailed
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<PAGE> 6
to the claimant not later than ten (10) days following receipt by the
Administrator of the claimant's request unless special circumstances, such as
the need to hold a hearing, require an extension of time for processing, in
which case the Administrator's decision shall be so mailed not later than twenty
(20) days after receipt of such request.
(d) A claimant who has followed the procedure in paragraphs (b)
and (c) of this section, but who has not obtained full relief on the claim for
benefits, may, within sixty (60) days following the claimant's receipt of the
Administrator's written decision on review, apply in writing to the
Administrator for binding arbitration of the claim before an arbitrator mutually
acceptable to both parties, the arbitration to be held in Jackson, Michigan, in
accordance with the arbitration rules of the American Arbitration Association,
as then in effect. If the parties are unable to mutually agree upon an
arbitrator, then the arbitration proceedings shall be held before three
arbitrators, one of which shall be designated by the Company, one of which shall
be designated by the claimant and the third of which shall be designated
mutually by the first two arbitrators in accordance with the arbitration rules
referenced above. The arbitrator(s) sole authority shall be to interpret and
apply the provisions of this Agreement; the arbitrator(s) shall not change, add
to, or subtract from, any of the Agreement's provisions. The arbitrator(s) shall
have the power to compel attendance of witnesses at the hearing. Any court
having jurisdiction may enter a judgment based upon such arbitration. All
decisions of the arbitrator(s) shall be final and binding on the claimant and
the Company without appeal to any court. Upon execution of this Agreement, the
Executive shall be deemed to have waived any right to commence litigation
proceedings regarding this Agreement outside of arbitration without the express
written consent of the Company.
13. ERISA. This agreement is an unfunded compensation arrangement for a
member of a select group of the Company's management and any exceptions under
ERISA, as applicable to such an arrangement, shall be applicable to this
Agreement.
14. Reporting and Disclosure. The Company, from time to time, shall
provide government agencies with such reports concerning this Agreement as may
be required by law, and the Company shall provide the Executive with such
disclosure concerning this Agreement as may be required by law or as the Company
may deem appropriate.
15. Governing Law. To the extent not preempted by the Federal laws of
the United States, the provisions of this Agreement shall be construed in
accordance with the laws of the State of Michigan.
16. Amendment. This Agreement may be amended or canceled only by mutual
agreement of the parties in writing 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.
17. 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.
18. 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.
19. Prior Agreements. This Agreement supersedes and cancels any
previous Employment Agreement between the Company and the Executive.
6
<PAGE> 7
IN WITNESS WHEREOF, the Company and the Executive have executed
this Agreement as of the date first above written.
------------------------------------
(name)
(company name in all caps)
By:
---------------------------------
(name)
Chairman of the Board
7
<PAGE> 1
EXHIBIT (10)(d)
CMS ENERGY CORPORATION
PERFORMANCE INCENTIVE STOCK PLAN
The CMS Energy Performance Incentive Stock Plan, first effective February 3,
1988, is hereby set forth as amended and restated effective December 3, 1999
including amendments as of December 3, 1999.
ARTICLE I. PURPOSE
The CMS Energy Corporation Performance Incentive Stock Plan (hereinafter called
the "Plan") is a Plan to provide incentive compensation to key employees of the
Corporation, including its Subsidiaries, based upon such key employees'
individual contributions to the long-term growth of and profitability of the
Corporation, and in order to encourage such key employees to identify with
shareholder concerns and their current and continuing interest in the
development and financial success of the Corporation. Because it is expected
that the efforts of the key employees selected for participation in the Plan
will have a significant impact on the results of the Corporation's operations in
future years, the Plan is intended to assist the Corporation in attracting and
retaining as key employees individuals of superior ability and in motivating
their activities on behalf of the Corporation.
ARTICLE II. DEFINITIONS
2.1 Definitions: When used in the Plan, the following words and phrases
shall have the following meanings:
a. "Beneficiary" means the beneficiary or beneficiaries designated in
accordance with Article VII to receive the amount, if any, payable
under the Plan upon the death of a Participant.
b. "Board" means the Board of Directors of the Corporation.
c. "Committee" means those members of the Organization and Compensation
Committee of the Board who, at the time of any award or determination
by the Committee hereunder, are not, and at all times within one year
prior thereto shall not have been, eligible for selection as persons
to whom incentive compensation may be awarded pursuant to the Plan, or
to whom incentive or unqualified Stock Options may be granted pursuant
to any other plan of the Corporation.
d. "Common Stock" means all classes of Common Stock of the Corporation as
that term is defined in its Articles of Incorporation at the time of
an award or grant under this Plan.
e. "Common Stock Outstanding" means the number of shares of Common Stock
issued and outstanding on the first day of January of each year. In
case of a reorganization, recapitalization, stock split, stock
dividend, combination of shares, merger, consolidation, rights
offering, or any other change in the capital structure of the
<PAGE> 2
2
Corporation, the Committee shall make such adjustment, if any, as it
may deem appropriate in the determination of Common Stock Outstanding.
f. "Corporation" means CMS Energy Corporation, its successors and
assigns, and each of its Subsidiaries, or any of them individually.
g. "Eligible Employee" means an officer or other key executive who at the
end of the fiscal year is a regular full-time salaried employee of the
Corporation or a Subsidiary, or, to the extent the Committee may
determine, a person whose services to the Corporation terminated
before the end of the fiscal year, who, in the opinion of the
Committee, made a significant contribution to the successful
management of the Corporation or a Subsidiary. A Director of the
Corporation or a Subsidiary is not an Eligible Employee unless he is
also a regular full-time salaried employee of the Corporation or a
Subsidiary.
h. "Incentive Option" means an option to purchase Common Stock of the
Corporation which meets the requirements set forth in the Plan and
also meets the definition of an Incentive Stock Option set forth in
Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code").
i. "Nonqualified Option" means an option to purchase Common Stock of the
Corporation which meets the requirements set forth in the Plan but
does not meet the definition of an Incentive Stock Option set forth in
Section 422 of the Code.
j. "Optionee" means any person to whom an option or right has been
granted or who becomes a holder of an option or right under Article VI
of the Plan.
k. "Participant" means a person to whom an award of Restricted Common
Stock has been made which has not been paid, forfeited, or otherwise
terminated or satisfied under the Plan.
l. "Restricted Common Stock" means Common Stock delivered subject to the
restrictions described in Article VII.
m. "Shareholders" means the shareholders of the Corporation.
n. "Stock Appreciation Right" shall mean a right, granted in conjunction
with a Stock Option, to surrender the Stock Option and receive the
appreciation in value of the optioned shares over the option price.
o. "Stock Option" means an option to purchase shares of Common Stock,
granted pursuant to this Plan.
p. "Subsidiary" means a corporation, domestic or foreign, 80 percent or
more of the voting stock of which is owned directly or indirectly by
the Corporation.
<PAGE> 3
3
ARTICLE III. EFFECTIVE DATE, DURATION, SCOPE AND ADMINISTRATION OF
THE PLAN
3.1 This Plan shall be effective upon approval of the shareholders of the
Corporation and shall continue until terminated by the Board as provided in
Article VIII.
3.2 The Committee shall have full power and authority to construe, interpret
and administer the Plan. All decisions, actions or interpretations of the
Committee shall be final, conclusive and binding upon all parties. If any
person objects to any such interpretation or action formally or informally,
the expenses of the Committee and its agents and counsel shall be
chargeable against any amounts otherwise payable under the Plan to or on
account of the Participant or Optionee.
3.3 No member of the Committee shall be personally liable by reason of any
contract or other instrument executed by him or on his behalf in his
capacity as a member of the Committee nor for any mistake of judgment made
in good faith, and the Corporation shall indemnify and hold harmless each
member of the Committee and each other officer, employee or director of the
Corporation to whom any duty or power relating to the administration or
interpretation of the Plan may be allocated or delegated, against any cost
or expense (including counsel fees) or liability (including any sum paid in
settlement of a claim with the approval of the Board) arising out of any
act or omission to act in connection with the Plan unless arising out of
such person's own fraud or bad faith.
ARTICLE IV. PARTICIPATION, STOCK AWARDS AND OPTION GRANTS
4.1 Each year the Committee shall designate as Participants and/or Optionees in
the Plan those Eligible Employees who, in the opinion of the Committee,
have significantly contributed to the successful management of the
Corporation.
4.2 Each year, the Committee may award shares of Common Stock, and/or may grant
Stock Options which qualify as "Incentive Stock Options" within the meaning
of Section 422 of the Code or Stock Options which do not qualify as
Incentive Stock Options and/or Stock Appreciation Rights for use in
connection with options to each Eligible Employee whom it has designated as
an Optionee or Participant for such year. The Committee has full discretion
to determine the class or classes of Common Stock to which grants or awards
apply. Upon the approval by the Board of Directors of the Corporation of
the individual awards and/or grants, if any, made to officers and of the
total of all awards and grants made to all other Eligible Employees, the
determination of the Committee as to each such award and grant shall become
final.
ARTICLE V. SHARES RESERVED UNDER THE PLAN
5.1 There is hereby reserved for award under this Plan an aggregate number of
whole shares of Common Stock equal as nearly as possible to, but not more
than, 5% of the aggregate shares of each class of Common Stock Outstanding
on the first day of January of each year, less the number of shares of each
class of Restricted Common Stock awarded under the Plan and Common Stock
subject to options, granted under this Plan during the immediately
preceding four calendar year period, which have not been forfeited. Any
shares or options which are
<PAGE> 4
4
forfeited may thereafter again be awarded or made subject to grant under
the Plan. Notwithstanding the above, the number of shares of each class of
Common Stock awarded under Article VII of this Plan will not exceed 20% of
the aggregate number of shares reserved pursuant to this Article V. The
number of shares made available for option and sale under Article VI of
this Plan, plus the number of shares awarded under Article VII of this Plan
will not exceed, at any time, the number of shares of Common Stock reserved
pursuant to this Article V.
5.2 If a dividend shall be declared upon the Common Stock payable in shares of
Common Stock, the number of shares of Common Stock then subject to any such
option and the number of shares reserved for issuance pursuant to the Plan
but not yet covered by an option shall be adjusted by adding to each such
option or share the number of shares which would be distributable thereon
if such share had been outstanding on the date fixed for determining the
shareholders entitled to receive such stock dividend. In the event that the
outstanding shares of the Common Stock shall be changed into or exchanged
for a different number or kind of shares of stock or other securities of
CMS Energy Corporation or of another corporation, whether through
reorganization, recapitalization, stock split-up, combination of shares,
merger or consolidation or otherwise, then there shall be substituted for
each share of Common Stock subject to any such option and for each share of
Common Stock reserved for issuance pursuant to the Plan but not yet covered
by an option, the number and kind of shares of stock or other securities
into which each outstanding share of Common Stock shall be so changed or
for which each such share shall be exchanged. In the event there shall be
any change, other than as specified above in this Section 5.2, in the
number or kind of outstanding shares of Common Stock of the Corporation or
of any stock or other securities into which such Common Stock shall have
been changed or for which it shall have been exchanged, then if the
Committee shall in its sole discretion determine that such change equitably
requires an adjustment in the number or kind of shares theretofore reserved
for issuance pursuant to the Plan but not yet covered by an option and of
the shares then subject to an option or options, such adjustment shall be
made by the Committee and shall be effective and binding for all purposes
of the Plan and each Stock Option agreement. In the case of any such
substitution or adjustment as provided for in this paragraph, the option
price in each Stock Option agreement for each share covered thereby prior
to such substitution or adjustment will be the option price for all shares
of stock or other securities which shall have been substituted for such
share or to which such share shall have been adjusted pursuant to this
section. No adjustment or substitution provided for in this Section 5.2
shall require the Corporation in any Stock Option agreement to sell a
fractional share, and the total substitution or adjustment with respect to
each Stock Option agreement shall be limited accordingly.
5.3 Individual Grant Limit: The maximum shares of Restricted Common Stock
awarded under this Plan and Common Stock subject to Stock Options,
including Stock Appreciation Rights granted in conjunction with Stock
Options, granted under this Plan for any one Eligible Employee for any one
year will not exceed 100,000 shares of each class of Corporation Common
Stock.
ARTICLE VI. STOCK OPTIONS AND STOCK APPRECIATION RIGHTS
<PAGE> 5
5
6.1 The Committee may from time to time provide for the option and sale of
shares of Common Stock, which may consist in whole or in part of the
authorized and unissued or reacquired Common Stock of the Corporation.
6.2 Optionees: The Committee shall determine and designate from time to time,
in its discretion, those Eligible Employees of the Corporation to whom
Stock Options and Stock Appreciation Rights are to be granted and who
thereby become Optionees under the Plan.
6.3 Allotment of Shares: The Committee shall determine and fix the number of
shares and classes of Common Stock subject to options to be offered to each
Optionee.
6.4 Option Price: The Committee shall establish the option price at the time
any option is granted at not less than 100% of the fair market value of the
stock on the date on which such option is granted; provided, however, that
with respect to an Incentive Option granted to an employee who at the time
of the grant owns (after applying the attribution rules of Section 425(d)
of the Code) more than 10% of the total combined voting stock of the
Corporation or of any parent or Subsidiary, the option price shall not be
less than 110% of the fair market value of the stock subject to the
Incentive Option on the date such option is granted.
6.5 Stock Appreciation Rights: At the discretion of the Committee, any Stock
Option granted under this Plan may, at the time of such grant, include a
Stock Appreciation Right. A Stock Appreciation Right shall pertain to, and
be granted only in conjunction with, a related underlying Stock Option, and
shall be exercisable only at the time and to the extent the related
underlying Stock Option is exercisable and only if the fair market value of
the Common Stock of the Corporation exceeds the Stock Option price in the
related underlying Stock Option. An Optionee who is granted a Stock
Appreciation Right may elect to surrender the related underlying Stock
Option with respect to all or part of the number of shares subject to the
related underlying Stock Option and exercise in lieu thereof the Stock
Appreciation Right with respect to the number of shares as to which the
Stock Option is surrendered.
The exercise of the underlying Stock Option shall terminate the related
Stock Appreciation Right to the extent of the number of shares purchased
upon exercise of the underlying Stock Option. The exercise of a Stock
Appreciation Right shall terminate the related underlying Stock Option to
the extent of the number of shares with respect to which the Stock
Appreciation Right is exercised. Upon exercise of a Stock Appreciation
Right, an Optionee shall be entitled to receive, without payment to the
Company (except for applicable withholding taxes), an amount equal to the
excess of (i) the then aggregate fair market value of the number of shares
with respect to which the Optionee exercises the Stock Appreciation Right,
over (ii) the aggregate Stock Option price per share for such number of
shares. Such amount may be paid by the Corporation, at the election of the
Optionee, in cash, Common Stock of the Corporation or any combination
thereof; provided, however, that the Committee shall have sole discretion
to approve or disapprove an election of an Optionee to receive cash upon
exercise of a Stock Appreciation Right.
6.6 Granting and Exercise of Stock Options and Stock Appreciation Rights: The
granting of Stock Options and Stock Appreciation Rights hereunder shall be
effected in accordance with
<PAGE> 6
6
determinations made by the Committee pursuant to the provisions of the
Plan, by execution of instruments in writing in form approved by the
Committee.
Each Stock Option and Stock Appreciation Right granted hereunder shall be
exercisable at any such time or times or in any such installments as may be
determined by the Committee at the time of the grant, subject to the
limitation that for each Incentive Stock Option and related Stock
Appreciation Right granted, a maximum of $100,000 (based on the price at
the date of exercise) may be exercised per year, plus any unused carry-over
from a previous year(s). Except as provided in Section 6.10, Stock Options
and Stock Appreciation Rights may be exercised only while the Optionee is
an employee of the Corporation.
Successive Stock Options and Stock Appreciation Rights may be granted to
the same Optionee, whether or not the Stock Option(s) and Stock
Appreciation Right(s) previously granted to such Optionee remain
unexercised. An Optionee may exercise a Nonqualified Option or related
Stock Appreciation Right, if then exercisable, notwithstanding that Stock
Options and Stock Appreciation Rights previously granted to such Optionee
remain unexercised.
6.7 Payment of Stock Option Price: At the time of the exercise in whole or in
part of any Stock Option granted hereunder, payment of the option price in
full in cash or, with the consent of the Committee, in Common Stock of the
Corporation, shall be made by the Optionee for all shares so purchased. No
Optionee shall have any of the rights of a Shareholder of the Corporation
under any such Stock Option until the actual issuance of shares to said
Optionee, and prior to such issuance no adjustment shall be made for
dividends, distributions or other rights in respect of such shares, except
as provided in Section 5.2.
6.8 Nontransferability of Stock Options and Stock Appreciation Rights: No Stock
Option or Stock Appreciation Right granted under the Plan to an Optionee
shall be transferable by such Optionee otherwise than by will, or by the
laws of descent and distribution, and such Stock Option and Stock
Appreciation Right shall be exercisable, during the lifetime of the
Optionee, only by the Optionee.
6.9 Term of Stock Options and Stock Appreciation Rights: If not sooner
terminated, each Stock Option and Stock Appreciation Right granted
hereunder shall expire not more than ten years (ten years and one month in
the case of a Nonqualified Option and any related Stock Appreciation Right)
from the date of the granting thereof; provided, that with respect to an
Incentive Option and a related Stock Appreciation Right granted to an
Optionee who, at the time of the grant, owns (after applying the
attribution rules of Section 425(d) of the Code) more than 10% of the total
combined voting stock of all classes of stock of the Corporation or of any
parent or Subsidiary, such Stock Option and Stock Appreciation Right shall
expire not more than five years after the date of granting thereof.
6.10 Termination of Employment: If the employment of an Optionee by the
Corporation shall be terminated due to a reason other than the Optionee's
death, the Committee may, in its discretion, permit the exercise of Stock
Options and Stock Appreciation Rights granted to such Optionee for a period
not to exceed one year following such termination of employment or three
years following termination of employment upon retirement in accordance
with a pension plan of the Corporation; provided, however, that no
Incentive Option or related
<PAGE> 7
Stock Appreciation Right may be exercised after three months following an
Optionee's termination of employment, unless such termination of employment
is due to the Optionee's death or disability. If the termination is due to
the Optionee's disability, the Committee may permit the Incentive Option
and related Stock Appreciation Right to be exercised for one year following
the Optionee's termination of employment. If the employment of an Optionee
by the Corporation shall be terminated due to the Optionee's death, any
Stock Option, or related Stock Appreciation Right, transferred by will or
the laws of descent and distribution, may be exercised for one year
following the Optionee's death. In no event, however, shall a Stock Option
or Stock Appreciation Right be exercisable subsequent to its expiration
date and, furthermore, a Stock Option or Stock Appreciation Right may only
be exercised after termination of an Optionee's employment to the extent
exercisable on the date of termination of employment. Upon the termination
of employment of an Optionee by the Corporation, every Stock Option and
related Stock Appreciation Right shall terminate, except as otherwise
specifically provided in this Plan. Further, no Stock Option or related
Stock Appreciation Right may be exercised after such termination of
employment, except within a time period provided in this Section 6.10.
6.11 Investment Purpose: Any shares of Common Stock subject to option under the
Plan may be made subject to such other restrictions as the Committee deems
advisable, including without limitation provisions to comply with Federal
and state securities laws. In making determinations of legal requirements
the Committee shall rely on an opinion of counsel for the Corporation.
6.12 Withholding Payments: If upon the exercise of a Nonqualified Option and/or
a Stock Appreciation Right or as a result of a disqualifying disposition
(within the meaning of Section 422 of the Code) of shares acquired upon
exercise of an Incentive Option, there shall be payable by the Corporation
any amount for income tax withholding, either the Corporation shall
appropriately reduce the amount of stock or cash to be paid to the Optionee
or the Optionee shall pay such amount to the Corporation to reimburse it
for such income tax withholding.
6.13 Restrictions on Sale of Shares: If, at the time of exercise of any Stock
Option or Stock Appreciation Right granted hereunder, the Corporation is
precluded by any legal, regulatory or contractual restriction from selling
and/or delivering shares pursuant to the terms of such Stock Option or
Stock Appreciation Right, the sale and delivery of the shares may be
delayed until the restrictions are resolved and only cash may be paid upon
exercise of the Stock Appreciation Right. At any time during such delay,
the Committee, in its discretion, may permit the Optionee to revoke a Stock
Option exercise, in which event any corresponding Stock Appreciation Right
shall be reinstated.
6.14 Compliance With Rule 16b-3: Notwithstanding any other provision of the Plan
to the contrary, the administration of the Plan and the grant, exercise and
terms of Stock Appreciation Rights hereunder shall comply with Rule 16b-3,
or any successor rule, under the Securities Exchange Act of 1934, as
amended (the "Exchange Act").
<PAGE> 8
8
ARTICLE VII. RESTRICTED COMMON STOCK
7.1 Awards: The Committee may from time to time award restricted shares of
Common Stock to any Eligible Employee it has designated as a Participant
for such year. Awards shall be made to Eligible Employees on the basis of
their contributions to the successful management of the Corporation in
accordance with such rules as the Committee may prescribe. The Committee
may also award restricted shares of Common Stock conditioned on the
attainment of a performance goal that relates to Shareholder return,
measured by factors determined by the Committee as set forth in the award.
7.2 Restrictions:
a. Any shares of Corporation Common Stock awarded or issued under the
Plan may be made subject to such other restrictions as the Committee
deems advisable, including without limitation provisions to comply
with Federal and state securities laws. In making determinations of
legal requirements the Committee shall rely on an opinion of counsel
for the Corporation. The restrictions with respect to the Common Stock
awarded will extend for such period, or periods, of at least twelve
months from and after the date of the award, as may be determined for
each award by the Committee (the award period), except that
nonperformance based awards will vest only after twenty four months
and then in annual installments equal to 25% of the award.
Notwithstanding the foregoing, the restrictions shall terminate upon
the death of the Participant or, within the discretion of the
Committee, upon Participant's retirement pursuant to a pension plan of
the Corporation on or after Participant's 62nd birthday, except as may
otherwise be determined to be necessary or desirable in the opinion of
the Committee, to comply with the law or to prevent Restricted Common
Stock from being subject to Federal income tax prior to the
termination of restrictions.
b. Whenever shares of Common Stock are awarded to a Participant, such
shares shall be outstanding, and stock certificates shall be issued in
the name of the Participant, which certificates may bear a legend
stating that the shares are issued subject to the restrictions set
forth in the Plan. All certificates issued for shares of Common Stock
awarded under the Plan shall be deposited for the benefit of the
Participant with the Secretary of the Corporation as custodian until
such time as the shares are vested and transferable.
c. A Participant who is awarded shares of Common Stock under the Plan
shall have full voting rights on such shares, whether or not the
shares are vested or transferable.
d. Shares of Common Stock awarded to a Participant under the Plan,
whether or not vested or transferable, shall have full dividend rights
with respect to dividends declared after the award, with such
dividends being paid directly to the Participant, regardless of
whether such dividends are paid in cash or in Common Stock. However,
if shares or securities are issued as a result of a merger,
consolidation or similar event, such shares shall be issued in the
same manner, and subject to the same deposit requirements, vesting
provisions and transferability restrictions as the shares of Common
Stock which have been awarded.
<PAGE> 9
9
e. Deliveries of Restricted Common Stock by the Corporation may consist
in whole or in part of the authorized and unissued or reacquired
Common Stock of the Corporation (at such time or times and in such
manner as it may determine). The Restricted Common Stock shall be paid
and delivered as soon as practicable after the award period in
accordance with Section 7.3.
f. The shares may not be sold, exchanged, transferred, pledged,
hypothecated, or otherwise disposed of by the Participant until their
release. However, nothing herein shall preclude a Participant from
making a gift of any shares of Restricted Common Stock to a spouse,
child, stepchild, grandchild, parent or sibling, or legal dependent of
the Participant or to a trust of which the beneficiary or
beneficiaries of the corpus and the income shall be either such a
person or the Participant; provided that, the Restricted Common Stock
so given shall remain subject to the restrictions, obligations and
conditions described in this Article VII.
g. If a Participant has received an award pursuant to the provisions of
the Plan, is employed by the Corporation at the end of the award
period and the performance goals have been met, then the Participant
shall be fully vested, at the end of the award period, in the shares
of Common Stock awarded to the Participant for that award period.
h. In the event of termination of employment of a Participant with the
Corporation prior to the last day of an award period for any reason
other than Participant's death, all rights to any shares of Restricted
Common Stock held in a deposit account with respect to such award,
including any additional shares delivered with respect to such shares
as described in subsection 7.2d above shall be forfeited to the
Corporation. However, the Committee may, if the Committee determines
that the circumstances warrant such action, approve the distribution
of all or any part of the Restricted Common Stock which would
otherwise be forfeited. By way of illustration, but not limitation,
circumstances which might warrant such action on the part of the
Committee include retirement pursuant to a pension plan of the
Corporation, or retirement pursuant to a pension plan of the
Corporation by reason of disability.
7.3 Distribution of Restricted Common Stock
a. Distribution After Award Period: Except as otherwise provided,
distribution of vested awards of Common Stock shall be made as soon as
practicable after the last day of the applicable award period in the
form of full shares of Common Stock, with fractional shares, if any,
being awarded in cash.
b. Distribution After Death of Participant: Upon the death of the
Participant, either before or after retirement, any shares of
Restricted Common Stock then held shall, subject to this Article VII,
be delivered within a reasonable time under the circumstances to
Participant's Beneficiary or, in the absence of an appropriate
Beneficiary designation to the Participant's estate, in such one or
more installments as the Committee may then determine.
<PAGE> 10
10
7.4 Designation of Beneficiaries
If a Participant dies prior to the receipt in full of any award under the
Plan to which the Participant is entitled, the award shall be distributed
to the Participant's Beneficiary or, in the absence of a Beneficiary
designation, to the Participant's estate. The designation of a Beneficiary
shall be made in writing on a form prescribed by and filed with the
Committee prior to the Participant's death. If the Committee is in doubt as
to the right of any person to receive such amount, the Committee may retain
such amount, without liability for any interest thereon, until the rights
thereto are determined, or the Committee may pay such amount into any court
of appropriate jurisdiction and such payment shall be a complete discharge
of the liability of the Plan and the Corporation therefor.
7.5 Transferability: Subject to the provision of this Article VII, shares of
Common Stock awarded to a Participant will become freely transferable by
the Participant only at the end of the award period established with
respect to such shares.
7.6 Distribution to Person Other Than Employee: If the Committee shall find
that any person to whom any award is payable under this Article VII of the
Plan is unable to care for such person's affairs because of illness or
accident, or is a minor, or has died, then any payment due Participant or
Participant's estate (unless a prior claim therefor has been made by a duly
appointed legal representative), may, if the Committee so directs the
Corporation, be paid to Participant's spouse, a child, a relative, an
institution maintaining or having custody of such person, or any other
person deemed by the Committee to be a proper recipient on behalf of such
person otherwise entitled to payment. Any such payment shall be a complete
discharge of the liability of the Committee and the Corporation therefor.
7.7 Restricted Common Stock is intended to constitute an unfunded deferred
compensation arrangement for a select group of management or highly
compensated personnel.
7.8 A forfeiture of shares of Common Stock pursuant to subsection 7.2h of the
Plan shall effect a complete forfeiture of voting rights, dividend rights
and all other rights relating to the award or grant as of the date of
forfeiture.
7.9 Each distribution of Common Stock under this Article VII of the Plan shall
be made subject to such federal, state and local tax withholding
requirements as apply on the distribution date. For this purpose, the
Committee may provide for the withholding of shares of Common Stock or
allow a Participant to pay to the Corporation funds sufficient to satisfy
such withholding requirements.
7.10 Notwithstanding any other provisions in the Plan, in the event of a Change
in Control (as hereinafter defined), each Participant shall be fully vested
in the number of shares of Common Stock awarded to such Participant for all
award periods that, upon such event, have not yet ended. Distribution of
all shares of Common Stock shall be made as soon as practicable within 7
days after the date of the Change in Control, as if the applicable award
period or periods had ended on such date. In addition, the Corporation
shall reimburse a participant for legal fees and expenses incurred by such
Participant in successfully seeking to obtain or enforce any right to
distribution under this Section 7.10. For purposes of this
<PAGE> 11
11
Plan, a Change in Control shall occur upon the occurrence of one or more of
the following events:
(i) A Change in Control of the Corporation would be required to be
reported in response to Item 1(a) of the Current Report on Form 8-K,
as in effect on the date hereof, pursuant to Sections 13 or 15(d) of
the Exchange Act, whether or not the Corporation is then subject to
such reporting requirement;
(ii) Any "person" or "group" within the meaning of Sections 13(d) and
14(d)(2) of the Exchange Act becomes the "beneficial owner" as
defined in Rule 13d-3 under the Exchange Act of more than 30% of the
then outstanding voting securities of the Corporation;
(iii) During any period of twenty-four consecutive months (not including
any period prior to the adoption of this Plan) Present Directors
and/or New Directors cease for any reason to constitute a majority
of the Board. For purposes of this subsection (iii), "Present
Directors" shall mean individuals who at the beginning of such
consecutive twenty-four month period were members of the Board and
"New Directors" shall mean any director of the Corporation whose
election by the Board or whose nomination for election by the
Corporation's Shareholders was approved by a vote of at least
two-thirds of the Corporation's Directors then still in office who
were Present Directors or New Directors;
(iv) There is a sale by the Corporation within a three-year period of
assets of the Corporation with either a book value or market value
of 50% or more of the assets of the Corporation;
(v) A bidder as defined in Rule 14D-1(b) under the Exchange Act files a
Tender Offer Statement with the Securities and Exchange Commission
and the Corporation.
Notwithstanding any other provisions of the Plan, the provisions of this
Section 7.10 may not be amended after the date a Change in Control occurs
without the written consent of a majority in number of participants.
ARTICLE VIII. AMENDMENT OR TERMINATION OF THE PLAN
8.1 Right To Amend, Suspend or Terminate Plan: The Board reserves the right at
any time to amend, suspend or terminate the Plan in whole or in part and
for any reason and without the consent of any Optionee, Participant or
Beneficiary; provided, that no such amendment shall:
a. Change the Stock Option price or adversely affect any Stock Option or
Stock Appreciation Right outstanding under the Plan on the effective
date of such amendment or termination, or
b. Adversely affect any award or grant then in effect or rights to
receive any amount to which Participants or Beneficiaries have become
entitled prior to such amendment, or
<PAGE> 12
12
c. Unless approved by the Shareholders of the Corporation, increase the
aggregate number of shares of Common Stock reserved for award or grant
under the Plan, change the group of Eligible Employees under the Plan
or materially increase benefits to Eligible Employees under the Plan.
8.2 Periodic Review of Plan: In order to assure the continued realization of
the purposes of the Plan, the Committee shall periodically review the Plan,
and the Committee may suggest amendments to the Board as it may deem
appropriate.
8.3 Amendments May Be Retroactive: Subject to Section 8.1 above, any amendment,
modification, suspension or termination of any provisions of the Plan may
be made retroactively.
ARTICLE IX. GENERAL PROVISIONS
9.1 Rights to Continued Employment, Award or Option: Nothing contained in the
Plan or in any Stock Option, Stock Appreciation Right or Restricted Common
Stock award shall give any employee the right to be retained in the
employment of the Corporation or affect the right of the Corporation to
terminate the employee's employment at any time. The adoption of the Plan
shall not constitute a contract between the Corporation and any employee.
No Eligible Employee shall receive any right to be granted an option, right
or award hereunder nor shall any such option, right or award be considered
as compensation under any employee benefit plan of the Corporation.
9.2 Governing Law: The provisions of this Plan and all rights thereunder shall
be governed by and construed in accordance with the laws of the State of
Michigan.
IN WITNESS WHEREOF, execution is hereby effected.
ATTEST: CMS ENERGY CORPORATION
By:
- ------------------------------------ -------------------------------------
Secretary Chairman and Chief Executive Officer
<PAGE> 1
EXHIBIT (10)(h)
SUPPLEMENTAL EXECUTIVE RETIREMENT
PLAN FOR EMPLOYEES OF
CMS ENERGY / CONSUMERS ENERGY COMPANY
INTRODUCTION
The objective of the Supplemental Executive Retirement Plan (hereinafter
referred to as the "Supplemental Plan") is to attract and motivate top level
executives, including those recruited in mid- or late-career whose normal
pension would result in inadequate compensation, by providing additional
retirement income to supplement that provided by the Pension Plan of the
Company.
The Supplemental Executive Retirement Plan became effective on January 1, 1982
and is applicable to all employees of the Company who are eligible in accordance
with the provisions of this Supplemental Plan.
This instrument describes the Supplemental Plan for employees who retire, die or
whose services are terminated on or after May 1, 1998. The rights of employees
who, prior to May 1, 1998, retired, died or whose services were terminated are
governed by the provisions of the instrument in effect at such time. This
Supplemental Plan is an unfunded, unsecured promise to pay benefits at a later
date. Subject to the provisions of this Supplemental Plan, Participants have no
greater rights than the general creditors of the Company.
SECTION I. DEFINITIONS
Whenever used in this Supplemental Plan, the following terms shall have the
respective meanings set forth below, unless the context clearly indicates
otherwise. The definitions set forth in Section I of the Pension Plan are hereby
adopted and made a part of this Supplemental Plan.
"ACCRUED Means the Supplemental Executive Retirement Income
SUPPLEMENTAL beginning at Normal Retirement Date which would be
EXECUTIVE payable to a Participant at the rates provided in
RETIREMENT subsection 1 of Section V, on the basis of his
INCOME" Accredited Service and Preference Service rendered to
the date of computation.
"DISABILITY SERVICE Means the pension supplement, provision for which is
PENSION made in Section V, subsection 9 of this Supplemental
SUPPLEMENT" Executive Retirement Plan.
"EXECUTIVE Means the applicable amount awarded to the Participant
INCENTIVE under an Executive Incentive Compensation Plan of the
COMPENSATION" Company.
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"FINAL EXECUTIVE Means 1/12th of the average of the Earnings (without
PAY" regard to any limitations imposed on the Pension Plan
by the Internal Revenue Code or Regulations thereunder)
plus Executive Incentive Compensation (if any) of a
Participant, including any such amounts deferred, for
his five years of highest totals of Earnings plus
Executive Incentive Compensation (if any) during the
period of his Accredited Service (or the average of his
monthly total of Earnings plus Executive Incentive
Compensation earned over his Accredited Service,
including any such amounts deferred, if the Participant
has fewer than five years of Accredited Service as a
Participant).
For a Participant with a Salary Grade E-5 or above and
who, upon a Change in Control, receives a severance
payment under an employment agreement, three of the
five highest years of Earnings plus Executive Incentive
Compensation shall be one-third of the severance
payment paid to such Participant.
For purposes of determining Final Executive Pay,
Accredited Service shall include only the service
provided while the Participant holds a position that
qualifies for inclusion under this Supplemental Plan.
"PARTICIPANT" Means an employee of the Company included in the
Supplemental Plan pursuant to Section II.
"PLAN" OR Means the Pension Plan for Employees of Consumers
"PENSION PLAN" Energy Company, as amended.
"PREFERENCE Means the period of service credited to a Participant
SERVICE" pursuant to Section III.
"SERP RETIREMENT Means the managing board of the Plan as determined by
BOARD" the Board of Directors.
"SUPPLEMENTAL Means the monthly retirement income provided for by
EXECUTIVE this Supplemental Plan.
RETIREMENT
INCOME"
"SUPPLEMENTAL Means the Supplemental Executive Retirement Plan as it
PLAN" is described in this instrument.
The masculine pronoun wherever used herein shall mean or include the feminine
pronoun.
SECTION II. ELIGIBILITY
1. EMPLOYEES INCLUDED ON JANUARY 1, 1982 BUT BEFORE MAY 1, 1995. Each officer or
other executive of the Company in Salary Grades E-1 and above on January 1,
1982, who is eligible for inclusion in the Pension Plan on that date, will be
included in the Supplemental Plan as of January 1, 1982.
2. EMPLOYEES INCLUDED AFTER JANUARY 1, 1982. Each officer or other executive of
the Company who is eligible for inclusion in the Pension Plan and is appointed
to a position at Salary Grade E-1 or above after January 1, 1982, will be
included in the Supplemental Plan on the first day of the month after he assumes
such a position. Effective May 1, 1995, an officer or executive of Consumers
Energy who is eligible for
2
<PAGE> 3
inclusion in the Pension Plan and is appointed to a position at Salary Grade F
or above will be included in the Supplemental Plan on the first day of the month
after he assumes such position.
SECTION III. DETERMINATION OF PREFERENCE SERVICE
1. PREFERENCE SERVICE. Each Participant with a Salary Grade E-3 or above and
each Participant below Salary Grade E-3 included in this Plan as of April 30,
1998, shall be credited with one month of Preference Service for each month of
Accredited Service credited to him under the Pension Plan until the sum of
Accredited Service and Preference Service equals 20 years and, upon a Change in
Control as defined in Section XII, each Participant with a Salary Grade E-5 or
above and who receives a severance payment under an employment agreement shall
be credited with an additional 36 months of Preference Service; provided,
however, Preference Service will be reduced by the amount (if any) by which the
total period of Preference Service when added to the total period of Accredited
Service exceeds 35 years. Any Participant on May 1, 1998 who has been credited
with more than 20 years of Accredited Service and Preference Service shall not
have such Preference Service reduced until such time as the sum of Accredited
Service and Preference Service exceeds 35 years. Each Participant below Salary
Grade E-3 first included in this Supplemental Plan on or after May 1, 1998 shall
not be credited with Preference Service.
2. TRANSFERS TO OR FROM AFFILIATED COMPANIES. In the case of the transfer of a
Participant to any company now affiliated or associated with the Company which
has at the time of transfer a pension plan with substantially the same terms as
the Pension Plan, and a supplemental plan with substantially the same terms as
this Supplemental Plan, such Participant, if and when he commences to receive
retirement income under the pension plan of the company to which he transferred,
should also receive supplemental executive retirement income from that company
based upon the Earnings and Executive Incentive Compensation received from the
Company as if such Earnings and Executive Incentive Compensation had been
received from the company to which the Participant transferred.
In the case of the transfer to this Company of any participant employed by any
company now affiliated or associated with the Company which has at the time of
transfer a pension plan with substantially the same terms as the Pension Plan,
and a supplemental plan with substantially the same terms as this Supplemental
Plan, such Participant, if and when he commences to receive Retirement Income
under the Pension Plan, will also receive Supplemental Executive Retirement
Income from the Company based upon the earnings and executive incentive
compensation received from the company from which he transferred as if such
earnings and executive incentive compensation were Earnings and Executive
Incentive Compensation received from the Company.
In the event of a transfer or transfers as set forth above, the right of the
Participant to receive benefits under this Supplemental Plan or a supplemental
plan with substantially the same terms maintained by an affiliated or associated
Company will be suspended until such time as the Participant commences to
receive supplemental executive retirement income under such other plan or the
Participant commences to receive Supplemental Executive Retirement Income under
this Supplemental Plan, at which time the Participant shall receive all
supplemental executive retirement income and Supplemental Executive Retirement
Income to which the Participant is entitled under this Supplemental Plan or a
plan maintained by an affiliated or associated company.
SECTION IV. RETIREMENT
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<PAGE> 4
Retirement dates for the purposes of this Supplemental Plan shall be the same as
set forth in the retirement provisions of the Pension Plan; provided, however,
that a Participant must have five years of actual service after inclusion in
this Supplemental Plan to be eligible for Supplemental Executive Retirement
Income. Any Participant with less than five years of actual service under this
Supplemental Plan and who has submitted a request for retirement on or before
July 1, 1998, and whose request has been accepted by the SERP Retirement Board
on or before May 1, 1998, may retire under this Supplemental Plan.
SECTION V. SUPPLEMENTAL EXECUTIVE RETIREMENT INCOME
While the Company hopes and expects to continue the Supplemental Plan
indefinitely, it reserves the right to terminate or modify it at any time.
1. NORMAL OR DEFERRED SUPPLEMENTAL EXECUTIVE RETIREMENT INCOME. The monthly
Supplemental Executive Retirement Income payable to a Participant who, at Normal
Retirement Date or a Deferred Retirement Date, retires on or after September 1,
1995, pursuant to the provisions of the Pension Plan from the service of the
Company, will be an amount equal to the product of the Participant's Final
Executive Pay times the sum of the percentages determined below, plus, for each
employee who retires with 35 years of Accredited Service under the Pension Plan,
an amount equal to $20.00 for each additional full year of vested service that
would otherwise have been credited as Accredited Service but for the application
of the minimum age requirements in the Pension Plan or the 35-year Accredited
Service maximum, minus (i) a portion of the Participant's estimated primary
Social Security benefit, as determined pursuant to the Pension Plan, equal to
the lesser of (1) .5% multiplied by 1/12th of the Participant's "Final Average
Compensation" up to "Covered Compensation" (as those terms are used in Section
401(l) of the Internal Revenue Code) for each year of Accredited Service and
Preference Service, (2) 1/2 of the benefit that would be provided prior to the
application of the offset, with respect to Participant's Final Pay up to Covered
Compensation, or (3) the maximum offset allowed under Section 401(l) of the
Internal Revenue Code, and (ii) the Retirement Income provided by the Pension
Plan:
2.1% for each of the first 20 years of Accredited Service and Preference
Service.
1.5% for each of the next 15 years of Accredited Service and Preference Service.
2. EARLY SUPPLEMENTAL EXECUTIVE RETIREMENT INCOME. The monthly Supplemental
Executive Retirement Income payable to a Participant who, on an Early Retirement
Date, retires from the service of the Company, will be the amount of his Accrued
Supplemental Executive Retirement Income on the date his retirement commences,
reduced by 5/12th of 1% for each month by which his Early Retirement Date
precedes his Normal Retirement Date by more than 36 months.
3. LIMITATION AS TO MONTHS FOR WHICH PAYMENT MAY BE MADE. The Company shall pay
to a Participant, or to his Provisional Payee, if applicable, Supplemental
Executive Retirement Income in the amount determined pursuant to this
Supplemental Plan only for a month in which the Participant or his Provisional
Payee is entitled to receive Retirement Income under the provisions of the
Pension Plan or would be entitled to Retirement Income but for the election of a
Single Sum payment under the Pension Plan. Payment of Supplemental Executive
Retirement Income shall terminate when payment of Retirement Income is
terminated pursuant to the Pension Plan.
4. The payments provided for in this Supplemental Plan shall be made by the
Company at such times as required under this Supplemental Plan; provided,
however, that, while the Company hopes and expects to make the payments provided
for under this Supplemental Plan, such payment is not guaranteed.
5. The Company may establish a fund, as part of the general assets of the
Company, to provide for the payments required under this Supplemental Plan.
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<PAGE> 5
6. MAXIMUM PERMISSIBLE RETIREMENT INCOME. Notwithstanding any other provision of
this Supplemental Plan, if the Retirement Income payable to a retired employee
under provisions of subsection 7 of Section V of the Pension Plan is a greater
amount than permitted by Section 415 of the Internal Revenue Code to be paid by
qualified plans, then such excess Retirement Income shall be payable to such
retired employee under this Plan; subject, however, to approval by the Board of
Directors of the Company for each such employee.
7. SINGLE SUM PAYMENT. The Retirement Board, after discussion with a retiring
Participant, may pay in a single sum to such Participant, who retires on or
after February 1, 1991, at the time of the Participant's retirement with
benefits under the Pension Plan, the present value of the Participant's
Supplemental Executive Retirement Income. The present value of that part of the
Participant's Supplemental Executive Retirement Income which represents payment
to make up Retirement Income lost under the Pension Plan because of the Maximum
Retirement Income provision thereof (Section V, subsection 6 of the Plan) will
not be paid in a lump sum unless the Participant has elected to receive a single
sum payment under the Pension Plan. The present value will be actuarially
determined using the Pension Benefit Guaranty Corporation Immediate Annuity
Rate, as of the date of the distribution, increased to 120%. The discussion with
a retiring Participant is for the purpose of assuring the Retirement Board of
accurate current information for use in making its independent decision as to
whether or not to make payment in a single sum. In making its independent
decision, the Retirement Board may take into account any financial hardship of
the Participant, the health or disability of the Participant, and/or any other
factor it considers relevant. The decision of the Retirement Board shall be in
the sole discretion of said Board and shall be final, binding and conclusive.
Discussion with respect to such a payment and the decision with respect thereto
will take place at least three months before Early Retirement Date, Normal
Retirement Date or Deferred Retirement Date. The SERP Retirement Board will not
render a decision regarding a single sum payment any earlier than six months
prior to the Participant's actual retirement date.
8. RETIRED PARTICIPANTS. The Supplemental Executive Retirement Income of retired
Participants may be increased from time to time by such reasonable amounts as
determined by the Board of Directors of the Company, to counter the effects of
inflation, provided that the percentage amount of such increases will be made
uniformly for all retired Participants, or for retired Participants within such
reasonable classes, as may be determined by the Board of Directors. This
provision shall not apply to any Participant who has received his benefit as a
single sum.
9. DISABILITY SERVICE PENSION SUPPLEMENT. If a Participant is totally disabled
(unable to perform the Participant's regular job because of disease or injury)
and, as a result, fails to accumulate Accredited Service under the Pension Plan
for some period of time (Disability Service), a Disability Service Pension
Supplement will be calculated and paid as if Accredited Service and applicable
Preference Service were credited during such period subject to the following:
A. The Participant must have retired with Retirement Income under the Pension
Plan.
B. The period of Disability Service begins when the Participant stops
accumulating Accredited Service under the Pension Plan as a result of the
Participant's total disability, provided that the Participant has not
undertaken other employment.
C. The period of Disability Service ends when the Participant first:
1. Begins again to accumulate Accredited Service under the Pension Plan,
2. Undertakes other employment,
3. Retires on an Early Retirement Date, or,
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<PAGE> 6
4. Attains the Participant's Normal Retirement Date.
D. The "Final Executive Pay" of the Participant, for purposes of determining
the Disability Pension Supplement only, will be calculated as if the
Participant were earning during the period of Disability Service the sum of
(1) the Participant's last monthly rate of basic earnings prior to the
period of Disability Service, and (2) 1/12th of the average of the
Executive Incentive Compensation (if any) for the five years of Accredited
Service while in an eligible salary grade immediately preceding the period
of Disability Service (or the monthly average of Executive Incentive
Compensation earned over the Participant's Accredited Service if the
Participant has fewer than five years of Accredited Service while in an
eligible salary grade), increased or decreased each July 1, following the
beginning of the Participant's period of Disability Service, according to
the change in the Bureau of Labor Statistics Consumer Price Index (CPI-W)
for the preceding 12-month period of Disability Service (or lesser period
of Disability Service, if applicable). However, no July 1 increase will
exceed an amount which could result in an increase greater than a 5%
compounded annual increase since the beginning of the Participant's period
of Disability Service, nor in a reduction in the Participant's Final
Executive Pay to an amount less than the Participant's Final Executive Pay
prior to the period of Disability Service. For purposes of this provision,
the Consumer Price Index for the second month previous to any measurement
date will be deemed to be in effect on such date.
E. The amount of the Disability Service Pension Supplement is the Supplemental
Executive Retirement Income, calculated using Final Executive Pay as
determined in Section V, subsection 9.D above, and giving credit for
Accredited Service and applicable Preference Service for any period of
Disability Service, less:
1. The Supplemental Executive Retirement Income calculated without regard
to the Disability Service Pension Supplement,
2. The Retirement Income provided by the Pension Plan, and
3. Any amount paid to a retired Participant for lost benefits under the
Pension Plan, for the period of Disability Service, under an insurance
policy, the premiums for which were paid in whole or in part by CMS
Energy Corporation or any subsidiaries which are at least 80% owned,
directly or indirectly, by CMS Energy Corporation.
F. Payments will begin as of the latter of:
1. The Participant's Normal Retirement Date.
2. The first day of the month following the cessation of any Long Term
Disability payments pursuant to any plan or insurance policy, the
premiums for which were paid in whole or in part by CMS Energy
Corporation, or any of its directly or indirectly wholly owned
subsidiaries.
SECTION VI. PROVISIONAL PAYEE OPTIONS AND
PRE-RETIREMENT SURVIVING SPOUSE BENEFIT
1. POST-RETIREMENT. The provisions of Section VI of the Pension Plan, pertaining
to Provisional Payee Options are adopted as part of this Supplemental Plan and
any option which is elected by or otherwise applicable to a Participant under
the Pension Plan will be identically applicable under the provisions of this
Supplemental Plan. A Participant may not have a Provisional Payee Option under
this Supplemental Plan which differs from such option or options elected by or
otherwise applicable to him under the Pension Plan except that a Participant who
has elected a Single Sum under the Pension Plan may name a Provisional Payee
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<PAGE> 7
under this Supplemental Plan. Nevertheless, a Provisional Payee may elect, upon
the death of the Participant and the agreement of the SERP Retirement Board, to
then receive the present value of the amount of the payments to which he
otherwise would be entitled, as determined by the SERP Retirement Board using
such actuarial tables and interest assumptions as may be adopted for this
purpose by the SERP Retirement Board and in use at the time of the Participant's
death.
2. PRE-RETIREMENT SURVIVING SPOUSE BENEFIT. Provisions of Section VI, subsection
2 of the Pension Plan of Consumers Power Company pertaining to Pre-Retirement
Surviving Spouse Benefits are adopted as part of this Supplemental Plan.
SECTION VII. TERMINATION OF SERVICE
If a Participant included in the Supplemental Plan voluntarily terminates his
services other than by transfer to an affiliated or associated company as
provided by subsection 2 of Section III of this Supplemental Plan, retirement as
provided by Section IV of the Pension Plan, or in accordance with the terms of
an Employment Agreement effective following a Change in Control as defined in
Section XII, the Participant will forfeit all Supplemental Executive Retirement
Income except for any amount attributable to Earnings not permitted to be used
for benefit calculation under the Pension Plan by the Internal Revenue Code or
Regulations thereunder. Any such amount shall be calculated without Preference
Service. A Participant whose services are terminated for any reason other than
death prior to attaining five years of actual service after inclusion in this
Supplemental Plan shall not be eligible for Supplemental Executive Retirement
Income. If the Accrued Retirement Income is actuarially reduced because of
retirement at an Early Retirement Date, the Accrued Supplemental Executive
Retirement Income will be reduced by an identical percentage.
SECTION VIII. FORFEITURE
A Participant who is discharged by the Company for cause, or an employee who is
subsequently convicted of any felony committed while in the course of his
employment with the Company, which felony involved theft, malicious destruction
or misuse of the property of the Company or the embezzlement or misapplication
of the funds of the Company, or who makes an admission in writing of the
commission of such felony, shall be ineligible for and forfeit Supplemental
Executive Retirement Income.
SECTION IX. NON-ALIENATION OF BENEFITS
No benefit under the Supplemental Plan shall be subject in any manner to
anticipation, alienation, sale, transfer, assignment, pledge, encumbrance,
charge, renunciation, or reduction and any attempt so to anticipate, alienate,
sell, transfer, assign, pledge, encumber, charge, renounce, or reduce the same
shall be void, nor shall any such benefit be in any manner liable for or subject
to the debts, contracts, liabilities, engagements or torts of the person
entitled to such benefit.
If any Participant or retired Participant or any Provisional Payee under the
Supplemental Plan is adjudicated bankrupt or attempts to anticipate, alienate,
sell, transfer, assign, pledge, encumber, charge, renounce, or reduce any
benefit under the Supplemental Plan, except as specifically provided in the
Supplemental Plan, then such benefit shall cease and terminate and in that event
the SERP Retirement Board shall hold or apply the same or any part thereof to or
for the benefit of such Participant or retired Participant or Provisional Payee
in such manner as the SERP Retirement Board may think proper, provided the SERP
Retirement Board shall not act in any manner as would perpetuate the alienations
prohibited by this Section.
SECTION X. LIMITATION OF RIGHTS
Neither the establishment of this Supplemental Plan, nor any modification
thereto, nor the payment of any benefits, shall be construed as giving to any
Participant, other employee, or other person any legal or
7
<PAGE> 8
equitable rights against the Company, or any officer or employee thereof, or the
SERP Retirement Board, except as herein provided. Under no circumstances shall
the terms of employment of any employee be modified or in any way affected
hereby. Inclusion under the Supplemental Plan will not give any Participant or
any Provisional Payee any right to claim a Supplemental Executive Retirement
Income except to the extent such right is specifically fixed under the terms of
the Supplemental Plan. Subject to the provisions of this Supplemental Plan and
the Supplemental Executive Retirement Trust the Participant shall have no rights
greater than those of a general, unsecured creditor of the Company.
SECTION XI. ADMINISTRATION OF SUPPLEMENTAL PLAN
The general administration of this Supplemental Plan shall be placed in the SERP
Retirement Board provided for in this Supplemental Plan and the provisions of
Section XII of the Pension Plan will govern the administration of this
Supplemental Plan as far as applicable. The determination of the SERP Retirement
Board as to any question or matter arising under this Supplemental Plan shall be
conclusive and binding.
The claim procedure of this Supplemental Plan shall be the same as the claim
procedure provided in the Pension Plan.
SECTION XII. AMENDMENT, MODIFICATION OR
TERMINATION OF THE SUPPLEMENTAL PLAN
This Supplemental Plan may be amended, modified or terminated at any time by
action of the Board of Directors of the Company. Notwithstanding any other
provisions of this Supplemental Plan, in the event of a Change in Control (as
hereinafter defined), each Participant shall be fully vested in any benefit
accredited to the Participant as of the date of the Change in Control, and such
amount shall not be subject to further vesting requirements or to any forfeiture
provisions. These provisions with respect to Change in Control may not be
amended subsequent to such Change in Control without the written consent of a
majority in number of Participants. For purposes of this Supplemental Plan, a
Change in Control shall occur upon the occurrence of one or more of the
following:
(i) a Change in Control of the Corporation would be required to be
reported in response to Item 1(a) of the Current Report on Form
8-K, as in effect on the date hereof, pursuant to Sections 13 or
15(d) of the Exchange Act, whether or not the Corporation is then
subject to such reporting requirement;
(ii) any "person" or "group" within the meaning of Sections 13(d) and
14(d)(2) of the Exchange Act becomes the "beneficial owner" as
defined in Rule 13d-3 under the Exchange Act of more than 30% of
the then outstanding voting securities of the Corporation;
(iii) during any period of twenty-four consecutive months (not
including any period prior to the adoption of this Plan) Present
Directors and/or New Directors cease for any reason to constitute
a majority of the Board. For purposes of this subsection (iii),
"Present Directors" shall mean individuals who at the beginning
of such consecutive twenty-four month period were members of the
Board and "New Directors" shall mean any director of the
Corporation whose election by the Board or whose nomination for
election by the Corporation's shareholders was approved by a vote
of at least two-thirds of the Corporation's Directors then still
in office who were Present Directors or New Directors;
(iv) there is a sale by the Corporation within a three-year period of
assets of the Corporation with either a book value or market
value of 50% or more of the assets of the Corporation;
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(v) a bidder as defined in Rule 14D-1(b) under the Exchange Act files
a Tender Offer Statement with the Securities & Exchange
Commission and the Corporation.
IN WITNESS WHEREOF, execution is hereby effected this 3rd day of December, 1999.
CMS ENERGY CORPORATION /
CONSUMERS ENERGY COMPANY
/s/ William T. McCormick, Jr.
------------------------------
Chairman of the Board
ATTEST:
/s/ Thomas A. McNish
- --------------------------------------
Vice President and Secretary
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<PAGE> 1
EXHIBIT 12
CMS ENERGY CORPORATION
Ratio of Earnings to Fixed Charges
(Millions of Dollars)
<TABLE>
<CAPTION>
Years Ended December 31 -
1999 1998 1997 1996 1995
----------------------------------------------------
<S> <C> <C> <C> <C> <C>
(b)
Earnings as defined (a)
Consolidated net income $ 277 $ 242 $ 244 $ 224 $ 195
Income taxes 64 100 108 137 113
Exclude equity basis subsidiaries (84) (92) (80) (85) (57)
Fixed charges as defined, adjusted to
exclude capitalized interest of $41, $28, $13,
$5, and $4 million for the
years ended December 31, 1999, 1998, 1997, 1996
and 1995, respectively 588 395 360 313 299
--------------------------------------------------
Earnings as defined $ 845 $ 645 $ 632 $ 589 $ 550
==================================================
Fixed charges as defined (a)
Interest on long-term debt $ 502 $ 319 $ 273 $ 230 $ 224
Estimated interest portion of lease rental 7 8 8 10 9
Other interest charges 57 48 49 43 42
Preferred securities dividends and
Distributions 96 77 67 54 42
--------------------------------------------------
Fixed charges as defined $ 662 $ 452 $ 397 $ 337 $ 317
==================================================
Ratio of earnings to fixed charges 1.28 1.43 1.59 1.75 1.74
==================================================
</TABLE>
NOTES:
(a) Earnings and fixed charges as defined in instructions for Item 503 of
Regulation S-K.
(b) Excludes a cumulative effect of change in accounting after-tax gain of $43
million.
<PAGE> 1
EXHIBIT 21(a)
SUBSIDIARIES OF CMS ENERGY CORPORATION
At December 31, 1999
[Numbers on left are Dun & Bradstreet hierarchy (tier level) indicators.]
<TABLE>
<CAPTION>
<S> <C> <C>
Subsidiary Name Jurisdiction
of Formation
01 CMS Enterprises Company Michigan
02 CMS Capital Corp. Michigan
03 CMS Capital Financial Services, Inc. Michigan
04 First Utility Finance, Inc. Michigan
02 CMS Comercializadora de Energia S.A.(99%) Argentina
02 CMS Electric and Gas Company Michigan
03 CMS Netherlands Funding Company Michigan
04 Notera Holding B.V. Netherlands
03 CMS Rio Grande de Sul Ltda Brazil
03 CMS Venezuela, S.A. Venezuela
03 Compania de Inversiones en Energia Electrica S.A. (CIEESA) Argentina
04 Distribuidora de Electricidad S.A. (99%) Argentina
04 Inversora en Distribucion de Entre Rios S.A.(53.5%) Argentina
05 Empresa Distribuidora de Electricidad de Entre Rios S.A. Argentina
04 Sociedad Inversora en Distribucion de Electricidad S.A. (60%) Argentina
04 Sociedad Inversora y Distribucion de Electricidad S.A. (57%) Argentina
03 ENELMAR, S.A. (90%) Venezuela
04 Sistema Electrico Nueva Esparta C.A. ("Seneca") (70%) Venezuela
03 Financial Joint Venture, L.L.C. (99%) Michigan
04 International Investments, Inc. Michigan
05 CMS Brazil Energia Ltda. Brazil
06 Companhia Forca E Luz Cataguazes-Leopoldina (21.56%) Brazil
06 Companhia Paulista de Energia Electrica S.A. (95.83%) Brazil
07 Companhia Sul Paulista de Energia S.A. (87.27%) Brazil
08 Companhia Jaguari de Energia S.A. (79.99%) Brazil
09 Companhia Luz E Forca de Mococa S.A.(22.71%) Brazil
06 GIPAR, S.A (49.9%) Brazil
06 Itacatu, S.A. (0.41%) Brazil
07 GIPAR, S.A (50.1%) Brazil
08 Companhia Forca E Luz Cataguazes-Leopoldina (51%) Brazil
07 Companhia Forca E Luz Cataguazes-Leopoldina (9.18%) Brazil
08 Empresa Energetica De Sergipe S.A. (12.18%) Brazil
08 Energisa S.A. (87.24%) Brazil
09 Empresa Energetica De Sergipe S.A. (84%) Brazil
06 CMS Distribuidora Ltda. Brazil
07 Energisa S.A. (4.92%) Brazil
02 CMS Energy Asia Private Limited Singapore
03 CMS Energy India Development Company Private Limited India
02 CMS Energy South America Company (CESA) Cayman Islands
03 CMS Empreendimentos Ltda Brazil
03 CMS Enterprises Development Company S.A. (CEDC) Argentina
</TABLE>
<PAGE> 2
<TABLE>
<S> <C> <C>
02 CMS Energy UK Limited United Kingdom
02 CMS Enterprises Development, L.L.C. Michigan
02 CMS Gas Transmission and Storage Company Michigan
03 AMPCO Marketing, LLC (50%) Michigan
03 AMPCO Services, LLC (50%) Michigan
03 Atlantic Methanol Capital Company (50%) Cayman Islands
03 CMS Antrim Gas Company Michigan
03 CMS Field Services, Inc. Michigan
04 Bighorn Gas Gathering, LLC (50%) Delaware
04 Bradshaw Energy LLC (97.5%) Oklahoma
04 CBC/Leon Limited Partnership (89%) Oklahoma
05 Bright Star Partnership (4.57%) Oklahoma
04 Cherokee Gas Processing LLC (92%) Oklahoma
04 CMS Pipeline Company, LLC (99%) Oklahoma
04 Continental Gas Processing, LLC (99%) Oklahoma
04 Continental Holdings Company Oklahoma
05 Bighorn Gas Gathering, LLC (1%) Delaware
05 CMS Pipeline Company, LLC (1%) Oklahoma
05 Continental Gas Processing, LLC (1%) Oklahoma
05 Continental Hydrocarbons, LLC (1%) Oklahoma
05 Continental Laverne Gas Processing, LLC (1%) Oklahoma
05 Continental Natural Gas Gathering, LLC (1%) Oklahoma
05 Continental/Taurus Energy Company, LP (1%) Oklahoma
04 Continental Hydrocarbons, LLC (99%) Oklahoma
04 Continental Laverne Gas Processing, LLC (99%) Oklahoma
04 Continental Natural Gas Gathering, LLC (99%) Oklahoma
04 Continental/Oklahoma Natural Gas Gathering, LLC Oklahoma
05 Foss Joint Venture (30%)
04 Continental/Taurus Holdings Company, LLC Oklahoma
05 Continental/Taurus Energy Company, LP (99%) Oklahoma
04 Fort Union Gas Gathering, LLC (33.33%) Delaware
04 Heritage Gas Gathering LLC Oklahoma
05 Tekas Pipeline, LLC Delaware
04 Hillsboro Gas Gathering System (23.7064%)
04 Laubhan Friesen Gas Gathering System (41%)
04 Leon Limited Partnership I (50%) Oklahoma
05 Bright Star Partnership (5.43%) Oklahoma
04 Moody Gas Gathering System (57.1632%)
04 Roaring Creek Gas Services LLC Oklahoma
05 Cherokee Gas Processing LLC (8%) Oklahoma
04 Warrel Gas Gathering System (43.65%)
03 CMS Gas Argentina Company Cayman Islands
04 Aguas de Chile Limitada (0.01%) Chile
04 Compania de Inversiones CMS Energy Chile Limitada (1%) Chile
04 Transportadora de Gas del Norte S.A.(TGN) (29.4%) Argentina
03 CMS Goldfields Gas Transmission Company (Inactive) Michigan
03 CMS Grands Lacs Holding Company Michigan
03 CMS Jackson Pipeline Company Michigan
03 CMS Marysville Gas Liquids Company Michigan
04 Marysville Fractionation Partnership (51%) Michigan
04 St. Clair Underground Storage Partnership (51%) Michigan
03 CMS Methanol Company Cayman Islands
04 Atlantic Methanol Associates LLC (50%) Cayman Islands
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
05 Atlantic Methanol Production Company LLC (90%) Cayman Islands
03 CMS Saginaw Bay Company Michigan
03 CMS Saginaw Bay Lateral Company Michigan
03 CMS TriState Canada General Company Michigan
04 TriState Canada Gas Pipeline Ltd (66.67%) Canada
03 Financial Joint Venture, LLC (1%) Michigan
03 Grands Lacs Limited Partnership (49%) Michigan
03 Guardian Pipeline, LLC (33.33%) Michigan
03 Michigan Intrastate Lateral System Partnership (50%) Michigan
04 Saginaw Bay Lateral Limited Partnership (10%) Michigan
03 Nitrotec Corporation (50%) Delaware
03 Otsego EOR LLC (25%) Michigan
03 Panhandle Eastern Pipe Line Company Delaware
04 CMS Panhandle Eastern Resources, Inc. Delaware
04 CMS Panhandle Storage Company Delaware
04 CMS Trunkline Pipeline Holdings, Inc. Delaware
04 Pan Gas Storage Company Delaware
05 Lee 8 Storage Partnership (40%)
04 Trunkline Field Services Company Delaware
05 PanEnergy Lake Charles Generation, Inc. Delaware
04 Trunkline Gas Company Delaware
05 CMS Trunkline Gas Resources, Inc. Delaware
04 Trunkline LNG Company Delaware
03 TriState Pipeline, LLC (66-2/3%) Michigan
03 Western Australia Gas Transmission Company I Cayman Islands
04 CMS Gas Transmission del Sur Company (60%) Cayman Islands
05 Atacama Finance Co.(40%) Cayman Islands
05 CMS Atacama Company (40%) Cayman Islands
05 CMS Gas Transmission of Australia Holdings Company Cayman Islands
06 CMS Gas Transmission of Australia Cayman Islands
05 Compania de Inversiones CMS Energy Chile Limitada (99%) Chile
06 Administradora Proyecto Atacama S.A. (50%)
06 CMS Servicios de Agua de Chile Compania Limitada Chile
06 Gasoducto Atacama Compania Limitada LLP (50%)
06 Nor Oeste Pacifico Generacion de Energia Limitada (50%)
05 Energex Co.(20%) Cayman Islands
05 Gasoducto Cuenca Noroeste Limitado LLP (50%)
06 Gasoducto Cuenca Noroeste Limitada Argentine Branch
04 CMS International Financial Services Company Cayman Islands
04 CMS Luxembourg SARL Luxembourg
05 Valandrid B.V. Netherlands
06 CMS Goldfields Gas Transmission Australia Pty. Ltd. Australia
07 SCP Investments (No. 1) Pty. Ltd.(45%) Australia
08 SCP Investments (No. 2) Pty. Ltd. Australia
09 Southern Cross Pipelines Australia Pty. Ltd. Australia
10 Goldfields Gas Transmission Joint Venture (66.664%) Australia
08 SCP Investments (No. 3) Pty. Ltd. Australia
09 Southern Cross Pipelines (NPL) Australia Pty. Ltd. Australia
10 Goldfields Gas Transmission Joint Venture (25.493%) Australia
08 Goldfields Gas Transmission Pty. Ltd. Australia
06 CMS TriState Canada Unlimited Company Canada
07 TriState Canada Limited Partnership (66%) Canada
02 CMS Generation Co. Michigan
</TABLE>
<PAGE> 4
<TABLE>
<S> <C> <C>
03 CMS Centrales Termicas S.A. (99%) Argentina
03 CMS Generation Altoona Company (Inactive) Michigan
03 CMS Generation Chateauguay Company Michigan
03 CMS Generation Filer City, Inc. Michigan
03 CMS Generation Filer City Operating Company Michigan
03 CMS Generation Genesee Company Michigan
03 CMS Generation Grayling Company Michigan
03 CMS Generation Grayling Holdings Company Michigan
03 CMS Generation Holdings Company Michigan
04 CMS Centrales Termicas SA (1%) Argentina
04 CMS Generation SA (0.01%) Argentina
04 Genesee Power Station LP (48.75%) Delaware
05 GPS Newco, LLC (25%) Kansas
04 GPS Newco, LLC (50%) Kansas
04 Lyonsdale Energy LP (49%) Michigan
04 McCook Cogeneration Station, LLC (50%) (Inactive) Michigan
04 Moapa Energy Limited Partnership (1%) Nevada
04 Metro East, LLC (50%)(Inactive) Michigan
04 Mon Valley Energy LP (49.5%)(Inactive) Pennsylvania
04 Moose River Properties, Inc. (50%) Delaware
04 Oxford/CMS Development LP (1%) Michigan
03 CMS Generation Honey Lake Company Michigan
03 CMS Generation Investment Company I Cayman Islands
04 Aguas de Chile Limitada (99.99%) Chile
04 Atacama Finance Company (16%) Cayman Islands
04 CMS Generation Cebu Limited Duration Company (99%) Cayman Islands
05 Toledo Holdings Corporation (40%) Philippines
05 Toledo Power Company (47.5%) Philippines
04 CMS Generation Cebu Operating Limited Duration Company (99%) Cayman Islands
04 CMS Generation Jegurupadu I Limited Duration Company (99%) Cayman Islands
05 Jegurupadu O&M Company Mauritius (50%) Mauritius
06 Jegurupadu Operating and Maintenance Company (60%) India
04 CMS Generation Jegurupadu II Limited Duration Company (99%) Cayman Islands
05 Jegurupadu O&M Company Mauritius (50%) Mauritius
04 CMS Generation Jorf Lasfar I Limited Duration Company (99%) Cayman Islands
05 Jorf Lasfar Power Energy Handelsbolag (50%) Sweden
06 Jorf Lasfar Energy Company SCA (23%) Sweden
05 Jorf Lasfar I Handelsbolag (50%) Sweden
06 Jorf Lasfar Energy Company SCA (25%) Sweden
05 Jorf Lasfar Handelsbolag (50%) Sweden
06 Jorf Lasfar Energy Company SCA (2%) Sweden
04 CMS Generation Jorf Lasfar II Limited Duration Company (99%) Cayman Islands
05 Jorf Lasfar Power Energy Handelsbolag (50%) Sweden
06 Jorf Lasfar Energy Company SCA (23%) Sweden
05 Jorf Lasfar I Handelsbolag (50%) Sweden
06 Jorf Lasfar Energy Company SCA (25%) Sweden
05 Jorf Lasfar Handelsbolag (50%) Sweden
06 Jorf Lasfar Energy Company SCA (2%) Sweden
04 CMS Generation Jorf Lasfar III Limited Duration Company (50%) Cayman Islands
05 Jorf Lasfar Operations Handelsbolag (1%) Sweden
06 CMS Morocco Operating Company SCA Morocco
</TABLE>
<PAGE> 5
<TABLE>
<S> <C> <C>
04 CMS Generation Loy Yang Holdings 1 Ltd. Cayman Islands
05 Horizon Energy Holdings Ltd. Cayman Islands
06 Loy Yang Power Partners (49.63%) Australia
06 Loy Yang Power Projects Pty. Ltd. (49.63%) Australia
06 Loy Yang Power Management Pty. Ltd. (49.63%) Australia
04 CMS Generation Loy Yang Holdings 2 Ltd. Cayman Islands
05 CMS Generation Horizon Energy Holdings Ltd. Cayman Islands
04 CMS Generation Pinamucan Limited Duration Company Cayman Islands
04 CMS Generation Pinamucan Operating Limited Duration Company Cayman Islands
04 CMS Generation Neyveli Ltd. (99%) Mauritius
05 ST CMS Electric Company Private Limited (50%) India
04 CMS Servicios de Aguas de Chile Limitada Chile
04 CMS Takoradi Investment Company Cayman Islands
05 CMS Takoradi Investment Company II Cayman Islands
06 Takoradi International Company (90%) Cayman Islands
05 CMS Generation Taweelah Limited Cayman Islands
05 Emirates CMS Power Company (40%) United Arab Emirates
04 CMS Generation Taweelah Limited I Cayman Islands
04 Energex Co. (16%) Cayman Islands
04 Energiaktiebolaget CMS Sweden
04 Jegurupadu O&M Company (99%) Mauritius
04 Monetize Limited Mauritius
05 GMR Vasavi Power Corporation Private Limited India
04 National Power Supply (66.24%) Thailand
04 Scudder Latin American Power I-P LDC (25%) Cayman Islands
03 CMS Generation Investment Company II Cayman Islands
04 CMS Gas Transmission del Sur Company (40%) Cayman Islands
03 CMS Generation Investment Company III Cayman Islands
04 Jegurupadu CMS Generation Company Ltd. Mauritius
05 GVK Industries Ltd. India
03 CMS Generation Lyonsdale Company Michigan
03 CMS Generation Michigan Power LLC Michigan
03 CMS Generation Montreal Company Michigan
03 CMS Generation Mon Valley Company Michigan
03 CMS Generation Operating Company Michigan
03 CMS Generation Recycling Company Michigan
03 CMS Generation SA (99.99%) Argentina
04 Hidroelectrica El Chocon, S.A. (2.48%) Argentina
04 Hidroinvest SA (25%) Argentina
05 Hidroelectrica El Chocon, S.A. (59%) Argentina
03 CMS International Operating Company Cayman Islands
03 Compania de Inversiones en Energia Electrica S.A. (CIEESA)(1%) Argentina
03 Dearborn Generation Operating LLC Michigan
03 Dearborn Industrial Energy, LLC Michigan
04 Dearborn Industrial Generation, L.L.C. Michigan
03 Exeter Management Company (50%) Connecticut
03 Honey Lake Energy I LP (1%) California
03 Honey Lake Energy II LP (1%) California
03 HYDRA-CO Enterprises, Inc. New York
04 Benton Falls Associates (50% GP) Maine
04 Caribbean Electric Power (40% GP)
04 CMS Generation Stratton Company Michigan
05 Stratton Energy Associates (20% GP & 15% LP) New York
</TABLE>
<PAGE> 6
<TABLE>
<S> <C> <C>
04 CMS Generation Operating Company II, Inc. New York
05 HCO-Jamaica, Inc. New York
06 Private Power Operators Limited (50%) Jamaica
04 Cogent Little Falls (49.99% GP) New York
04 Copenhagen Associates (49.99% LP) New York
04 Craven County Wood Energy LP (44.99% LP) Delaware
04 HCE-Appomattox, Inc. New York
05 Appomattox River Associates LP(1% GP & 54.5% LP) Virginia
04 HCE-Biopower, Inc. New York
05 IPP Investment Partnership (51%) Michigan
04 HCE-Hudson, Inc. New York
05 Curtis/Palmer Hydroelectric Company LP (12.5% GP)
04 HCE-Imperial Valley, Inc. New York
05 Imperial Resource Recovery Associates, LP (1.231% LP) California
04 HCE-Jamaica Development, Inc. New York
04 HCE-Lakewood, Inc. New York
05 CMS Generation Lakewood Company Delaware
06 Lakewood Cogeneration, L.P. (1%) Delaware
05 Lakewood Cogeneration, L.P. (1%) Delaware
04 HCE-Rockfort Diesel, Inc. New York
05 Jamaica Private Power Company Limited (43.93%) Jamaica
04 HYDRA-CO Generation, Inc. (Inactive) New York
04 Hydro Power Associates (49.99% GP) New York
04 Imperial Resource Recovery Associates, LP (39.269% LP) California
04 IPP Investment Partnership (49%) Michigan
05 Cogent Little Falls (0.01% GP) New York
05 Copenhagen Associates (0.01% LP) New York
05 Craven County Wood Energy LP (0.01% LP) Delaware
05 Hydro Power Associates (0.01% GP) New York
05 Lyonsdale Associates (0.01% GP) New York
04 Jamaica Energy Team Limited (59.7%) Jamaica
04 Lakewood Cogeneration, L.P. (78%) Delaware
04 Little Falls Hydropower Associates (33.33% GP) New York
04 Lock 17 Group (33.33% GP) New York
05 Little Falls Hydropower Associates (1%) New York
04 Lock 17 Management Group (33.33% GP) New York
04 Lyonsdale Associates (49.99% GP) New York
04 New Bern Energy Recovery, Inc. Delaware
05 Craven County Wood Energy LP (5%) Delaware
04 PowerSmith Cogeneration Project, LP (8.75% LP) Delaware
04 Windpower Partners 1988 (22.73% LP) California
04 Windpower Partners 1989 (8.5346% LP) California
03 Jorf Lasfar Operations Handelsbolag (99%) Sweden
03 McCook Cogeneration Station, LLC (50%)(Inactive) Michigan
03 McCook Waste Wood Recovery Facility, LLC (50% Member) Michigan
03 MCV2 Development Company Partnership (58.68%) Michigan
03 Metro East, LLC (50%)(Inactive) Michigan
03 Mid-Michigan Recycling, LLC Michigan
03 Oxford/CMS Development LP (99%) Delaware
04 Exeter Energy LP (48% LP) Connecticut
04 Moapa Energy LP (99%) Nevada
03 Oxford Tire Recycling, Inc. (Inactive) Delaware
03 Oxford Tire Recycling of Massachusetts, Inc. Delaware
</TABLE>
<PAGE> 7
<TABLE>
<S> <C> <C>
03 Oxford Tire Supply, Inc. Delaware
03 Scudder Latin American Power I-C, LDC (25%) Cayman Islands
03 Taweelah A2 Operating Company
02 CMS Lake Muskegon Company Michigan
03 Lake Muskegon Community, LLC (Inactive) (25%) Michigan
02 CMS Land Company Michigan
03 Bay Harbor Company, LLC (50% Member) Michigan
03 Bay Harbor Village Company, LLC (25%) Michigan
02 CMS Marketing, Services and Trading Company Michigan
03 CMS MST Engineering Company Michigan
03 CMS Texon Company Michigan
04 Texon Distributing LP (1%) Delaware
03 CMS Viron Corporation Missouri
03 Enline Energy Solutions, LLC (50%) Texas
03 PremStar Energy Canada Ltd.(50%) Canada
04 Energistics Group, Inc. Canada
03 Texon Distributing LP (49%) Delaware
02 CMS Oil and Gas Company Michigan
03 CMS Oil and Gas (Holdings) Ltd. Cayman Islands
04 CMS NOMECO Congo LDC (1%) Cayman Islands
04 CMS NOMECO Venezuela LDC (9%) Cayman Islands
04 CMS Oil and Gas (Alba) LDC (1%) Cayman Islands
04 CMS Oil and Gas (Argentina) LDC (1%) Cayman Islands
04 CMS Oil and Gas (Congo) Ltd (1%) Cayman Islands
04 CMS Oil and Gas (Ecuador) LDC (1%) Cayman Islands
04 CMS Oil and Gas (E.G.) LDC (1%) Cayman Islands
04 CMS Oil and Gas (E.G.) Ltd (1%) Cayman Islands
03 CMS Oil and Gas (International) Company Texas
04 CMS NOMECO International Congo Holdings, Inc. Texas
04 CMS NOMECO Congo, Inc. Delaware
04 CMS Oil and Gas (Cameroon) Ltd. Cayman Islands
04 CMS Oil and Gas (Cote d'Ivoire) Ltd Cayman Islands
04 CMS Oil and Gas International (Transportation) Company Texas
04 CMS Oil and Gas International (Tunisia) Company Texas
03 CMS Oil and Gas (International) Ltd. Cayman Islands
04 CMS NOMECO Congo LDC (99%) Cayman Islands
04 CMS NOMECO Venezuela LDC (91%) Cayman Islands
04 CMS Oil and Gas (Alba) LDC (99%) Cayman Islands
04 CMS Oil and Gas (Argentina) LDC (99%) Cayman Islands
04 CMS Oil and Gas (Congo) Ltd (99%) Cayman Islands
04 CMS Oil and Gas (Ecuador) LDC (99%) Cayman Islands
04 CMS Oil and Gas (E.G.) LDC (99%) Cayman Islands
04 CMS Oil and Gas (E.G.) Ltd (99%) Cayman Islands
03 CMS Oil and Gas (Pipeline) Company Michigan
03 Explotaciones CMS Oil and Gas Company Delaware
03 NOMECO China Oil Co. Michigan
03 NOMECO Ecuador Oil Company Michigan
03 Terra Energy, Ltd. Michigan
04 Eagle Productions, Inc. (20%) Michigan
04 Energy Acquisition Operating Corporation Michigan
04 J.R. Productions, Inc. (20%) Michigan
04 Kristen Corporation Michigan
04 Newaygo/Oceana Pipeline LP (43.77%) Michigan
</TABLE>
<PAGE> 8
<TABLE>
<S> <C> <C>
04 Northwest Operations, Inc. (20%) Michigan
04 Phoenix Operations, Inc. (40%) Michigan
04 State 26 Production Co. (20%) Michigan
04 Terra-Hayes Pipeline Company (26.58%) Michigan
04 Terra-Westside Processing Co. Partnership (15%) Michigan
04 Terra Pipeline Company Michigan
04 Thunderbay Pipeline Company LLC (10%) Michigan
04 Wellcorps LLC(55%) Michigan
02 CMS Operating S.A. Argentina
03 CMS Ensenada S.A. Argentina
04 Cuyana S.A. de Inversiones Argentina
05 Centrales Termicas Mendoza, S.A. Argentina
02 CMS Resource Development Company Michigan
02 Monarch Management Company Michigan
01 Consumers Energy Company Michigan
02 CMS Engineering Co. Michigan
02 CMS Midland Holdings Company Michigan
02 CMS Midland, Inc. Michigan
02 Consumers EnergyGuard Services, Inc. Michigan
02 ES Services Company Michigan
02 Huron Hydrocarbons, Inc. Michigan
02 MEC Development Corp. Michigan
02 Michigan Gas Storage Company Michigan
</TABLE>
Additional subsidiaries, unnamed above, when considered in the aggregate as a
single subsidiary would not be considered a significant subsidiary.
<PAGE> 1
EXHIBIT 21(b)
SUBSIDIARIES OF CONSUMERS ENERGY COMPANY
As of December 31, 1999
[Numbers on left are Dun & Bradstreet hierarchy (tier level) indicators.]
<TABLE>
<CAPTION>
Subsidiary Name Jurisdiction
of Formation
<S> <C> <C>
01 CMS Engineering Co. Michigan
01 CMS Midland Holdings Company Michigan
01 CMS Midland, Inc. Michigan
01 Consumers EnergyGuard Services, Inc. Michigan
01 ES Services Company Michigan
01 Huron Hydrocarbons, Inc. Michigan
01 MEC Development Corp. Michigan
01 Michigan Gas Storage Company Michigan
</TABLE>
Additional subsidiaries, unnamed above, when considered in the aggregate as a
single subsidiary would not be considered a significant subsidiary.
<PAGE> 1
EXHIBIT (23)(a)
ARTHUR ANDERSEN
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. 33-47629, No. 33-60007, No. 33-61595, No. 33-62573, No. 333-32229, No.
333-60795, No. 333-63229, No. 333-68937 and No. 333-76347.
/s/ Arthur Andersen LLP
Detroit, Michigan,
March 27, 2000.
<PAGE> 1
EXHIBIT (23)(b)
ARTHUR ANDERSEN
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 Consumers Energy Company's previously filed Registration Statement
No. 333-89363.
/s/ Arthur Andersen LLP
Detroit, Michigan,
March 27, 2000.
<PAGE> 1
EXHIBIT (24)(a)
February 25, 2000
Mr. Alan M. Wright and
Mr. Thomas A. McNish
CMS Energy Corporation
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, 1999 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/ Earl D. Holton
- --------------------------------------- ---------------------------------
William T. McCormick, Jr. Earl D. Holton
/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/ K. L. Way
- --------------------------------------- ---------------------------------
Kathleen R. Flaherty Kenneth L. Way
/s/ Victor J. Fryling /s/ K. Whipple
- --------------------------------------- ---------------------------------
Victor J. Fryling Kenneth Whipple
/s/ John B. Yasinsky
------------------------------
John B. Yasinsky
<PAGE> 1
EXHIBIT (24)(b)
February 25, 2000
Mr. Alan M. Wright and
Mr. Thomas A. McNish
Consumers Energy Company
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, 1999 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/ Earl D. Holton
- ---------------------------------------- -----------------------------------
William T. McCormick, Jr. Earl D. Holton
/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/ K. L. Way
- ---------------------------------------- -----------------------------------
Kathleen R. Flaherty Kenneth L. Way
/s/ Victor J. Fryling /s/ K. Whipple
- ---------------------------------------- -----------------------------------
Victor J. Fryling Kenneth Whipple
/s/ John B. Yasinsky
------------------------------
John B. Yasinsky
<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> 6-MOS 9-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1999 DEC-31-1999
<PERIOD-START> JAN-01-1999 JAN-01-1999 JAN-01-1999
<PERIOD-END> JUN-30-1999 SEP-30-1999 DEC-31-1999
<BOOK-VALUE> PER-BOOK PER-BOOK PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 3,909 3,974 4,004
<OTHER-PROPERTY-AND-INVEST> 5,507 5,648 6,113
<TOTAL-CURRENT-ASSETS> 1,694 1,961 1,817
<TOTAL-DEFERRED-CHARGES> 3,037 3,011 3,528
<OTHER-ASSETS> 0 0 0
<TOTAL-ASSETS> 14,147 14,594 14,462
<COMMON> 1 1 1
<CAPITAL-SURPLUS-PAID-IN> 2,643 2,666 2,749
<RETAINED-EARNINGS> (138) (140) (189)
<TOTAL-COMMON-STOCKHOLDERS-EQ> 2,390 2,393 2,456
643 944 1,119
44 44 44
<LONG-TERM-DEBT-NET> 2,147 2,086 1,802
<SHORT-TERM-NOTES> 264 317 230
<LONG-TERM-NOTES-PAYABLE> 4,932 5,006 5,185
<COMMERCIAL-PAPER-OBLIGATIONS> 0 0 0
<LONG-TERM-DEBT-CURRENT-PORT> 271 273 516
0 0 0
<CAPITAL-LEASE-OBLIGATIONS> 92 89 88
<LEASES-CURRENT> 35 35 36
<OTHER-ITEMS-CAPITAL-AND-LIAB> 3,213 3,273 3,881
<TOT-CAPITALIZATION-AND-LIAB> 14,147 14,594 15,462
<GROSS-OPERATING-REVENUE> 2,869 4,335 6,103
<INCOME-TAX-EXPENSE> 67 92 64
<OTHER-OPERATING-EXPENSES> 2,392 3,587 5,191
<TOTAL-OPERATING-EXPENSES> 2,459 3,679 5,255
<OPERATING-INCOME-LOSS> 410 656 848
<OTHER-INCOME-NET> 13 9 10
<INCOME-BEFORE-INTEREST-EXPEN> 423 665 858
<TOTAL-INTEREST-EXPENSE> 228 368 519
<NET-INCOME> 195 297 339
22 41 62
<EARNINGS-AVAILABLE-FOR-COMM> 173 256 277
<COMMON-STOCK-DIVIDENDS> 77 162 163
<TOTAL-INTEREST-ON-BONDS> 0 0 62
<CASH-FLOW-OPERATIONS> 440 440 917
<EPS-BASIC> 1.50<F1> 2.29<F1> 2.18<F1>
<EPS-DILUTED> 1.48 2.25 2.17
<FN>
<F1>EPS for CMS Energy Common Stock $2.18
EPS for Class G Common Stock $4.21
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
STATEMENT OF INCOME, STATEMENT OF CASH FLOWS, BALANCE SHEET, AND STATEMENT OF
COMMON STOCKHOLDER'S EQUITY, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000201533
<NAME> CONSUMERS ENERGY COMPANY
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 4,004
<OTHER-PROPERTY-AND-INVEST> 645
<TOTAL-CURRENT-ASSETS> 699
<TOTAL-DEFERRED-CHARGES> 1,822
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 7,170
<COMMON> 841
<CAPITAL-SURPLUS-PAID-IN> 645
<RETAINED-EARNINGS> 485
<TOTAL-COMMON-STOCKHOLDERS-EQ> 1,971
395
44
<LONG-TERM-DEBT-NET> 805
<SHORT-TERM-NOTES> 214
<LONG-TERM-NOTES-PAYABLE> 1,201
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 55
0
<CAPITAL-LEASE-OBLIGATIONS> 85
<LEASES-CURRENT> 35
<OTHER-ITEMS-CAPITAL-AND-LIAB> 2,365
<TOT-CAPITALIZATION-AND-LIAB> 7,170
<GROSS-OPERATING-REVENUE> 3,874
<INCOME-TAX-EXPENSE> 172
<OTHER-OPERATING-EXPENSES> 3,199
<TOTAL-OPERATING-EXPENSES> 3,371
<OPERATING-INCOME-LOSS> 503
<OTHER-INCOME-NET> 18
<INCOME-BEFORE-INTEREST-EXPEN> 521
<TOTAL-INTEREST-EXPENSE> 181
<NET-INCOME> 340
27
<EARNINGS-AVAILABLE-FOR-COMM> 313
<COMMON-STOCK-DIVIDENDS> 262
<TOTAL-INTEREST-ON-BONDS> 62
<CASH-FLOW-OPERATIONS> 781
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Panhandle Eastern Pipe Line Company Quarterly Report on Form 10-K for the year
ended December 31, 1999 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<CIK> 0000076063
<NAME> PANHANDLE EASTERN PIPE LINE COMPANY
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 112000
<ALLOWANCES> 0
<INVENTORY> 34000
<CURRENT-ASSETS> 272000
<PP&E> 1537000
<DEPRECIATION> 37000
<TOTAL-ASSETS> 2560000
<CURRENT-LIABILITIES> 204000
<BONDS> 1094000
0
0
<COMMON> 1000
<OTHER-SE> 1127000
<TOTAL-LIABILITY-AND-EQUITY> 2560000
<SALES> 0
<TOTAL-REVENUES> 471000
<CGS> 0
<TOTAL-COSTS> 191000
<OTHER-EXPENSES> 87000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 78000
<INCOME-PRETAX> 193000
<INCOME-TAX> 47000
<INCOME-CONTINUING> 74000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 74000
<EPS-BASIC> 0<F1>
<EPS-DILUTED> 0<F1>
<FN>
<F1>Not meaningful since Panhandle Eastern Pipe Line Company is a wholly-owned
subsidiary.
</FN>
</TABLE>
