UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1996
_______________________________________
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from ________________ to ______________
Commission file number 0-17427
_____________
UPPER PENINSULA ENERGY CORPORATION
_______________________________________________________________________________
(Exact name of registrant as specified in its charter)
Michigan 38-2817909
______________________________________ _____________________________________
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
600 Lakeshore Drive, Houghton, Michigan 49931-0130
_______________________________________ ________________________
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (906) 487-5000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
___________________ _________________________________________
None
___________________ _________________________________________
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, No Par Value
_______________________________________________________________________________
(Title of Class)
Indicate by check mark whether the registrant (1) has 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
periods that the registrant was required to file such reports), and (2) has
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 registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. [ X ]
The aggregate market value of the voting stock (Common Stock, No Par
Value) held by non-affiliates is computed at $50,476,700 based on 2,969,215
shares held by non-affiliates and the last quoted price for such stock of
$17.00 as reported in "The Wall Street Journal" for February 27, 1997. (A
date within 60 days prior to the date of filing)
Number of shares outstanding of each of the Registrant's classes of
Common Stock, as of February 27, 1997: 2,969,215 shares of Common Stock, No
Par Value.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Registrant's definitive Proxy Statement (filed or to be
filed pursuant to Regulation 14A) with respect to Registrant's April 22,
1997 Annual Meeting of Shareholders are incorporated by reference herein in
response to Part III.
TABLE OF CONTENTS
PART I
PAGE
____
ITEM 1. BUSINESS 1
General 1
Service Area and Customers 1
General 1
Sales and Customers 2
Rates and Regulations 3
Retail Rates 3
Wholesale Rates 4
Wholesale Wheeling 4
Licensing of Hydroelectric Projects 5
Generation and Purchased Power Resources 6
Arrangements with Others 8
Arrangements with Wisconsin
Electric Power Company 8
Arrangements with the City
of Escanaba 8
Other Arrangements 8
Construction and Financing 9
Environmental Matters 10
Employee Relations 11
Patents and Franchises 11
ITEM 2. PROPERTIES 12
Transmission and Distribution 12
Company-Owned Generation 12
Other Properties 13
Property Additions and Retirements 13
Maintenance 13
Titles 14
ITEM 3. LEGAL PROCEEDINGS 14
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS 14
Executive Officers of the Registrant 14
Executive Officers of Upper Peninsula
Power Company 14
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS 16
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA 17
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS 19
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA 24
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS 43
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE
REGISTRANT * 43
ITEM 11. EXECUTIVE COMPENSATION * 43
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT * 43
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS * 44
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE,
AND REPORTS ON FORM 8-K 44
SIGNATURES 54
<F*> Incorporated by Reference
</F>
PART I
Item 1. BUSINESS
_________________
GENERAL
_______
Upper Peninsula Energy Corporation (UPEN) is a holding company,
incorporated in 1988 under the laws of the State of Michigan.
UPEN's principal subsidiary, Upper Peninsula Power Company (UPPCO) is
the primary source of earnings. UPPCO, incorporated in 1947 under the laws
of the State of Michigan, is an electric utility engaged in the generation,
purchase, transmission, distribution and sale of electric energy in the
Upper Peninsula of Michigan.
UPEN also has two other subsidiaries, Upper Peninsula Building
Development Company (UPBDC), owns the corporate head-quarters building and
leases it to UPPCO under a twenty-year renewable lease. The second
subsidiary PENVEST, Incorporated was formed in 1995 to investigate
opportunities in telecommunications, engineering services, and other non-
regulated businesses.
SERVICE AREA AND CUSTOMERS
__________________________
General
_______
UPPCO supplies electric energy to approximately 48,000 customers in
two-thirds of Michigan's Upper Peninsula. UPPCO's service area covers 4,460
square miles and has a population of about 130,000. Its service area is
divided into the Integrated System and the Iron River System. "Integrated
System" refers to UPPCO's "contiguous" service territory and does not
include the isolated Iron River service territory. UPPCO's Integrated
System serves 94 communities and adjacent rural areas at retail and
furnishes electric energy at wholesale to four municipal- ities, two rural
electrification associations and two investor owned utilities, namely
Wisconsin Electric Power Company (WEPCO) and Edison Sault Electric Company.
An interchange power agreement with WEPCO enables UPPCO to purchase and sell
power during emergency conditions at various locations on its Integrated
System. A separate purchase power contract with WEPCO allows UPPCO to
purchase wholesale power from WEPCO to cover all of UPPCO's retail service
requirements for its Iron River System which includes five communities and
adjacent rural areas in the Iron River District.
Approximately 95% of UPPCO's sales are in its Integrated System with
the balance being in the Iron River District.
Iron ore processing, wood products, tourism, equipment manufacturing,
and institutions for higher education constitute the basic industries in
UPPCO's service area.
Unemployment rates in the Upper Peninsula dropped to 7.6% in 1996
compared to 8.0% in 1995. These figures are high compared with the overall
Michigan rate of 4.7% in December 1996 and 1995 as reported by the Michigan
Employment Security Commission.
Sales and Customers
___________________
See "Consolidated Selected Financial Data" on pages 17 and 18 filed
herewith for data on operating revenues and sales (by customer
classification) and customer data.
During 1996 UPPCO derived 40% of its operating revenues from sales of
electric energy to residential customers; 29% from small commercial and
industrial customers; 14% from large commercial and industrial customers;
10% from sales to other electric utilities, municipalities and public
authorities; and 7% from other sources.
In 1996, UPPCO's three largest commercial and industrial customers,
which accounted in the aggregate for 13% of energy sales and 8% of operating
revenues, were:
<TABLE>
<CAPTION>
Operating
Sales (mWh) Revenues
__________ _________
<S> <C> <C>
Stone Container Corporation*.......... 62,053 $2,592,737
Michigan Technological University..... 25,992 1,347,052
Lakehead Pipe Line Company............ 17,970 934,887
- ---------------------
<F*> Excludes sales under emergency rate schedule
</TABLE>
Stone Container Corporation operates a mill at Ontonagon, Michigan,
producing corrugating medium. Sales to this customer in 1997 are
anticipated to be 68,500 mWh.
Michigan Technological University in Houghton, is a nationally
recognized university offering technical degrees and academic programs
through the doctorate level. Michigan Tech has an enrollment of
approximately 7,000. Sales to this customer in 1997 are anticipated to be
25,300 mWh.
Lakehead Pipe Line Company owns and operates a liquid petroleum
transportation pipeline system that extends from Neche, North Dakota to
Marysville, Michigan. UPPCO serves Lakehead's pumping station located at
Rapid River, Michigan. Sales to this customer in 1997 are anticipated to be
21,400 mWh.
In 1996, UPPCO's five largest wholesale customers, which accounted in
the aggregate for 14% of energy sales and 7% of operating revenues, were:
<TABLE>
<CAPTION>
Operating
Sales (MWh) Revenues
__________ _________
<S> <C> <C>
City of Gladstone..................... 30,471 $1,143,116
City of Negaunee...................... 22,741 837,470
Ontonagon County Rural Electrifi-
cation Assn.......................... 20,825 800,981
Alger-Delta Cooperative Electric
Assn................................. 19,952 763,835
Village of Baraga..................... 17,502 691,079
</TABLE>
Sales to the above wholesale customers are projected to total 113,800
MWh in 1997.
Electric sales are influenced by, among other factors, weather
conditions. Peak loads are usually experienced in December or January.
RATES AND REGULATIONS
_____________________
UPPCO is subject to the jurisdiction of the Michigan Public Service
Commission (MPSC) which has general power of supervision and regulation with
reference to territory served, accounting, services, facilities, valuations,
issuance of securities and all electric rates with the exception of
wholesale for resale rates.
UPPCO is a licensee under Part I and a public utility under Part II of
the Federal Power Act and, accordingly, various phases of its business,
including wholesale for resale rates, are subject to the jurisdiction of the
Federal Energy Regulatory Commission (FERC).
Retail Rates
____________
UPPCO derived approximately 83% of its operating revenues from retail
electric sales in 1996.
Billings to customers under MPSC jurisdiction include base rate
charges and a power supply cost recovery (PSCR) factor. Approximately 37%
of UPPCO's operating expense is power supply costs. UPPCO is required under
PA 304 to receive MPSC approval each year to recover projected power supply
costs by establishment of PSCR factors. These factors are subject to annual
reconciliation to actual costs and permit 100% recovery of allowed power
supply costs. Any over or under recovery is deferred on UPPCO's balance
sheet, and such deferrals are relieved as refunds or additional billings are
made.
In Michigan, the implementation of customer choice has been studied
for several years. Governor John Engler requested the MPSC to refine and
act upon a "blueprint for competition" issued in January 1996. In December
1996, commission staff issued a report that recommends a restructuring
approach that would allow customers to choose their electric power supplier
over a phase-in period through 2003.
The MPSC staff report provides utilities the opportunity to recover
stranded costs through a transition charge for customers who choose
alternative energy suppliers. Concepts such as a performance-based cost-
recovery system, rate-reduction bonds, and service-reliability standards are
also addressed in the report.
The MPSC has not yet acted on the staff proposal, which is also
subject to public comment. While we believe that the issues will be debated
by interest groups with opposing needs, it appears that customer choice will
be available to some degree in Michigan in the near future.
Wholesale Rates
_______________
UPPCO derived 10% of its operating revenues from wholesale for resale
rates in 1996.
UPPCO's wholesale rates include a base rate charge and are subject to
a fuel clause (such clause includes certain purchased power costs), with a
30-day billing lag without reconciliation provisions. Most of UPPCO's
wholesale customers are now taking service under special contracts.
Wholesale Wheeling
__________________
"Wholesale Wheeling" refers to a transmission service provided by a
transmission-owning electric utility (in this case WEPCO) to transmit energy
purchased by UPPCO from a third party to the UPPCO Integrated System for
resale at UPPCO filed rates.
Because of the availability of wholesale wheeling, we were able to
take advantage of a lower-cost power supply for part of our off-peak energy
requirements in 1996. These lower costs are expected to continue in 1997,
and are passed directly to all customers through the power supply cost
factors.
In its order 888, FERC required each utility with transmission lines
that could potentially be used for buying or selling wholesale energy to
file an Open-Access Tariff for transmission services. This tariff
"unbundles" or isolates transmission services from the complete delivery
packages that make up most utility rates. Order 888 also defines the terms,
conditions, and rates for transmission services to be provided by
transmission-system owners. We filed our tariff on January 31, 1997.
Another FERC order would have required us to separate our power
marketing function from our transmission operations and planning function
and to post our transmission capacity availability and tariff rates on an
electronic bulletin board via the Internet. We requested and were granted a
waiver from these requirements because of our small size and the additional
expense involved with compliance.
Licensing of Hydroelectric Projects
___________________________________
Licenses have been issued to UPPCO pursuant to Part I of the Federal
Power Act for the Bond Falls Project and the Prickett Hydro Project. Under
the Federal Power Act and said licenses, the United States has the right to
take over these projects at or after the expirations of the licenses in 1990
and 1993, respectively, on paying UPPCO's "net investment" as defined in the
Act and by FERC. Current licenses are usually automatically extended on an
annual basis until FERC issues a new license.
The power generated by UPPCO's hydro projects is delivered to the
Integrated System for use by its' customers.
a) FERC 2402, Prickett - The installed nameplate rating at the
Prickett Project is 2,200 kilowatts. The license offered by the FERC for
this project requires run-of-river operation with a dependable capacity of
704 kW.
An order issuing a license for Prickett (FERC 2402) was issued on
August 29, 1995. UPPCO entered a "Request for Rehearing of Order Issuing a
New License" dated September 28, 1995. The Michigan Department of Natural
Resources (MDNR) issued a "Request for Rehearing of License Order" dated
September 26, 1995. The Michigan Hydro Relicensing Coalition filed a
"Request for Rehearing" dated September 27, 1995. Motions for a rehearing
have been granted. Further FERC action is pending.
b) FERC 1864, Bond Falls - The installed nameplate rating of the
Victoria Project is 12,000 kilowatts. The license application before the
FERC proposes a peaking operation, thus the nameplate capacity if the new
license allows peaking, is 12,000 kilowatts.
A final application for license for the Bond Falls Project (FERC 1864)
was submitted December 24, 1987. An Additional Information Request (AIR)
was issued by the FERC on January 2, 1990 requesting additional studies and
information within 18 months (by June 2, 1991) of the date of the request.
Because of a FERC mandated dam replacement at Victoria, the deadline for
gathering and submittal of certain information was extended to December
1995. The requested information was submitted to FERC in December 1995.
FERC has indicated that it is proceeding with an Environmental Impact
Statement (EIS) for the Project in conjunction with the license application.
Completion date for the EIS is unknown. Final action by the FERC on the
Application for a License will follow completion of the EIS. Meanwhile, the
Project continues to operate under an annual license issued by the FERC in
accordance with terms and conditions of the existing license issued for the
Project in 1953 which expired on January 1, 1989.
In February 1988 UPPCO purchased from Cliffs Electric Service Company
(CESCO), the McClure, Hoist, Cataract and AuTrain hydroelectric facilities
with a total capacity of approximately 15.5 MW.
A license application for the Cataract Project was submitted to FERC
in August 1993 and a license offered in February 1997 is being evaluated. A
license application for the AuTrain Project was submitted in April 1993.
FERC's response is pending. A license application for the Dead River
Project (Silver Lake, Hoist and McClure Developments) was submitted to FERC
in April 1994. FERC's response is pending.
Licensing expenditures through December 1996 were $6,473,000 with
additional expenditures of approximately $185,000 estimated to be spent over
the next two years to complete the licenses.
The estimated cost of licensing by projects are as follows: Bond
Falls, $1,278,000; Prickett, $1,172,000; Dead River, $2,655,000; AuTrain,
$938,000; and Cataract, $615,000. Typical allocation splits by function are
29% for engineering, 29% for environmental studies, 25% for preparation of
the license application, and 17% for post-application requirements.
Although not in the existing rate structure, licensing cost(s) will be
booked (upon acceptance of a license) as a capital asset, thus becoming
eligible for inclusion in the rate base.
GENERATION AND PURCHASED POWER RESOURCES
________________________________________
Available generation and purchased power resources for UPPCO's
Integrated System are described below, together with 1996 and projected 1997
net station generation:
<TABLE>
<CAPTION>
Net Net
Station Fuel Capability (KW) Generation (mWh)
_______ ____ _______________ ________________
Company-Owned 1996 1997
_____________ ____ _____
<S> <C> <C> <C> <C>
Warden Coal/Gas 17,700 (327) (276)
Victoria Hydro 12,340 78,348 69,000
McClure Hydro 8,680 55,083 40,800
Hoist Hydro 4,280 18,406 12,600
Prickett Hydro 2,220 9,919 8,900
Cataract Hydro 1,460 4,370 3,500
AuTrain Hydro 1,060 6,264 5,100
Portage Oil 27,500 17 1,500
Gladstone Oil 27,500 -0- -0-
Purchased Power (Firm)
______________________
WEPCO Coal 65,000 466,075 450,000
Purchased Power (Non-Firm)
__________________________
WEPCO, NSP, & Wisc. Pwr. & Lt. 230,035 246,336
Others (17,362) -0-
_______ _______
Total 850,828 837,460
_______ _______
</TABLE>
During 1993 the Warden Station was upgraded to have natural gas
burning capability and is now capable of burning gas and/or coal in any
combination. Effective January 1, 1994, the station was taken out of
service and placed in service lay-up status.
Generating equipment is in standby or inactive reserve ("service lay-
up status") which is further defined as not normally used equipment that has
been deactivated but would be available for service with short term
reactivation procedures.
In the particular case of the John H. Warden Station, the boiler has
been filled with water containing corrosion-inhibited chemicals which are
periodically circulated throughout the entire system. The turbine generator
is protected by circulating warm, dry air through the equipment to prevent
corrosion resulting from moisture and oxidation. The ambient temperature of
the plant is maintained above freezing during winter months.
In the Iron River District, all requirements are purchased from WEPCO
and totalled 48,849 MWh in 1996 and are projected to be 45,145 MWh in 1997.
In 1996 virtually all energy generated by UPPCO owned facilities was
produced by hydroelectric facilities. UPPCO purchased 61% of its total
energy requirements from WEPCO. UPPCO supplies energy to an isolated WEPCO
load (isolated from the remainder of WEPCO's service territory) in western
Marquette County. WEPCO purchases the energy at wholesale for resale under
their Michigan retail rate structure. This energy comes from any of UPPCO's
resources, including generation and purchased power, and is included in
UPPCO's load planning.
UPPCO has contracted with WEPCO for 65 MW of capacity through December
31, 1997.
We reported previously that we had entered into an agreement with
Northern States Power Company (NSP) to be our major supplier beginning in
1998. Due to flexibility and pricing concerns, we came to a mutual
agreement with NSP in 1996 to terminate that agreement. Early in 1997 we
expect to solicit power supply proposals for our future energy needs.
UPPCO, for reasons of necessity or economy, may exchange energy with
WEPCO, Wisconsin Public Service Corporation, NSP, Wisconsin Power & Light,
the City of Marquette, the City of Escanaba and Edison Sault Electric
Company when and if availability and need exists.
UPPCO's 1997 system net dependable capability, including its capacity
entitlement from WEPCO is 167,740 kW. UPPCO is a winter-peaking utility.
The maximum demand created on the Integrated System by UPPCO's customers was
137,000 kW experienced on December 26, 1996.
ARRANGEMENTS WITH OTHERS
________________________
Arrangements with WEPCO
_______________________
Effective January 1, 1988 UPPCO and WEPCO entered into the following
5-year agreements: (a) Power Plant Operating Agreement whereby UPPCO will
staff and operate WEPCO's Presque Isle Power Plant, (PI), (b) Dispatch
Agreement whereby UPPCO performs electric power dispatch functions for PI
and related transmission facilities, (c) Transmission Maintenance Agreement
whereby UPPCO maintains certain of WEPCO's transmission lines and
substations, and (d) Joint Use Transmission Agreement whereby UPPCO and
WEPCO agree to the joint use of portions of transmission facilities owned by
the other party. During 1990 all of the aforementioned agreements were
extended. In December 1996, WEPCO gave notification that it intends to
terminate the contract on December 31, 1997. The terms of the agreement
call for all UPPCO employees at the plant to be offered employment by WEPCO.
UPPCO and WEPCO representatives have begun efforts to ensure an orderly
transition. UPPCO management believes that this action will not have a
material adverse effect on its financial position or results of operations.
Arrangements with the City of Escanaba
______________________________________
UPPCO operates and manages the City of Escanaba's steam electric
generating station. The City and UPPCO have the following agreements: (a)
Plant Operating Agreement whereby UPPCO operates and manages the station and
pays all costs of operation, and the City reimburses UPPCO for all expenses
incurred in operating and maintaining the plant plus a management fee; (b)
Interconnection Agreement whereby UPPCO and the City may transact energy
exchanges according to published Service Schedules; and (c) Dispatch
Services Agreement whereby UPPCO performs electric power and/or energy
dispatching functions for the City's system. The Plant Operating and
Interconnection Agreements can be terminated upon not less than 36 month's
written notice to the other party. The Dispatch Agreement can be terminated
upon 12 month's written notice to the other party.
Other Arrangements
__________________
The Iron River area, which accounts for approximately 5% of UPPCO's
kWh sales and is not integrated, is served by an interconnection with WEPCO.
UPPCO's 138-kV interconnections with WEPCO provide UPPCO with
electrical interconnections to Wisconsin's electric utilities. These
interconnections permit UPPCO to participate in coordinated planning, design
and operating activities with Wisconsin's electric utilities as a member of
the Wisconsin - Upper Michigan Systems organization. UPPCO also has a 69-kV
interconnection with the City of Marquette, the City of Escanaba, and with
Edison Sault Electric Company.
In 1990, an agreement was executed between UPPCO and WEPCO for the
joint use and sharing of transmission facilities in connection with WEPCO's
construction of an 80-mile, 345-kV transmission line from its Presque Isle
Station in Marquette to Quinnesec, Michigan. The line was put into service
in June 1992, after which UPPCO began maintaining a portion of the
transmission line and terminal equipment under contract with WEPCO. The
agreement allows the companies to share existing rights-of-way and utilize
common structures in areas where transmission line routes coincide.
In October 1996 we transferred our after-hours trouble-call
dispatching and selected system operation functions to Wisconsin Public
Service (WPS) Corporation of Green Bay, Wisconsin. We expect WPS's high-
tech energy management system to help us to reduce costs while maintaining
high service and operating standards. As time goes on, the arrangement
could save us more than originally anticipated by allowing us to avoid the
additional costs of complying with FERC rules for unbundling generation and
transmission activities.
CONSTRUCTION AND FINANCING
__________________________
UPEN's construction expenditures for 1996 totaled $13,181,000
including an Allowance for Funds Used During Construction (AFUDC). Of this
amount, $196,000 was expended on the licensing and relicensing of certain
hydro-electric generating stations and $4,290,000 was spent on the
construction of a new 138-kV transmission line to the Escanaba area and
additions and improvements to several substations. Construction costs
including AFUDC for 1997 and 1998 through 2001 are estimated as follows:
<TABLE>
<CAPTION>
1997 1998-2001
____ _________
<S> <C> <C>
Utility Construction:
Production Plant Improvements........ $ 340,000 $ 900,000
Transmission Plant Improvements and
Extensions.......................... 361,000 1,400,000
Distribution Plant Improvements and
Extensions.......................... 2,625,000 11,600,000
Miscellaneous Improvements........... 574,000 3,400,000
Non Utility Construction............... -0- -0-
AFUDC.................................. -0- 200,000
__________ ___________
$3,900,000 $17,500,000
</TABLE>
Net plant and property at December 31, 1996 amounted to $103,942,000
including AFUDC. The construction program for 1997 through 2001
contemplates aggregate gross additions to plant and property of $21,400,000.
These estimates include capital expenditures of $185,000 that are required
for certain hydro- electric generating stations to become licensed or
relicensed to UPPCO and $300,000 to complete construction of a 138-kV
transmission line to the Escanaba area. (See "Licensing of Hydroelectric
Projects").
See "Liquidity and Capital Resources" under Management's Discussion
and Analysis of Financial Condition and Results of Operations incorporated
herein.
ENVIRONMENTAL MATTERS
_____________________
The Company's operations are subject to Federal, State and local
regulations in regard to air and water quality, land use and other
environmental matters.
The Company is in receipt of information which indicates that
groundwater pollution is emanating from the ash disposal site at the Presque
Isle Station in Marquette, Michigan, sold to WEPCO in December of 1987.
Pursuant to certain agreements between WEPCO, UPPCO and The Cleveland Cliffs
Iron Company, UPPCO may be required to reimburse WEPCO for a portion of the
remediation costs. The first $2 million expended by WEPCO is not
reimbursable and it is estimated that UPPCO's share of the remaining
remediation costs will not be more than $200,000.
The closure of the ash disposal site at UPPCO's John H. Warden Station
near L'Anse, Michigan was completed in 1994. A Closure Certification
Report was submitted to the Michigan Department of Natural Resources (MDNR)
and was approved in January, 1995.
The Closure Certification includes an agreement with the MDNR for the
Company to monitor groundwater surrounding the ash disposal site for a 30-
year period. In December, 1994, an estimated liability and regulatory asset
of $841,000 was recorded for such future costs. The estimated liability and
regulatory asset are being reduced as actual expenses are incurred. At
December 31, 1996 the balance of the estimated liability and regulatory
asset was $689,000.
The Michigan Department of Environmental Quality (MDEQ - Formally
included in the MDNR) also advised UPPCO in early 1995 that recent water
samples from the site indicated elevated levels of boron and lithium. The
MDEQ determined that UPPCO's Feasibility Study submitted in 1993 did not
address the recent issues and was rejected. A Supplemental Remedial
Investigation was performed in 1995 and the results were submitted to the
MDEQ in February 1996. UPPCO also requested and was granted an amendment to
the Consent Order to allow for modification of the Feasibility Study and
redefining a new timetable for submission of the Remedial Action Plan
submitted to the MDEQ by July 31, 1997.
Closure reports for two of three remaining contaminated underground
storage tank sites were submitted to the MDEQ in 1996. Audit responses from
the MDEQ are still forthcoming. Additional site investigations may be
required but are not expected to be extensive.
Title V of the 1990 Clean Air Act requires each State to develop a
Renewable Operating Permit program based on State and Federal requirements.
This Renewable Operating Permit will take the place of Michigan's Permit to
Operate. A sources "Potential to Emit" air contaminants determines the
applicable regulatory requirements. Sources that are not operated
continuously can self impose enforceable limitations to restrict their
emissions below major source threshold limits and not be subject to the
Renewable Operating Permit program.
Because of the evolving changes in the electric utility industry,
UPPCO has elected not to impose limitations on its generating capabilities
at this time. Renewable Operating Permit applications were submitted for
authorization of unrestricted operation for the Gladstone, Portage and John
H. Warden Generating Stations. The applications were deemed
"administratively complete" by the MDEQ in October, 1996.
No major expenditures are currently budgeted for the limitation or
monitoring of hazardous substances or pollution control. The recurring
operational and maintenance costs associated with these items are not
expected to change significantly on an annual basis.
UPPCO cannot presently forecast the full costs and other effects that
current and future regulations may have on the Company.
EMPLOYEE RELATIONS
__________________
On December 31, 1996 UPPCO had 426 full-time employees, of whom 307
were represented by Local 510, International Brotherhood of Electrical
Workers, AFL-CIO, under two separate agreements. UPPCO is in the second
year of a three-year agreement with both the Physical and Clerical Unit
employees, which is effective through April 30, 1998. Wage rate increases
averaging 3.5% were granted to both Physical and Clerical Unit employees on
April 1, 1996. Out of the 426 employees, 213 are assigned to PI, operated for
WEPCO, and 26 are assigned to the Escanaba Generating Station, operated for
the City of Escanaba.
UPPCO has not experienced a work stoppage since 1975. UPPCO has had
an aggressive employee involvement program for the last 14 years and will
continue their continuous improvement process in the future.
PATENTS AND FRANCHISES
______________________
In 1988 UPEN was incorporated as a holding company of which UPPCO is
its principal subsidiary. Therefore, UPPCO retains all franchise
agreements.
UPPCO has no patents.
UPPCO is the transferee of municipal franchises, or has obtained
franchises itself, to conduct business in substantially all of the
municipalities presently served by UPPCO in which operations were commenced
subsequent to January 1, 1909. UPPCO has franchises in 54 townships and
municipalities throughout its system, by virtue of 30-year grants. These
franchises will expire at various times through 2022. All expired
franchises have been renewed.
UPPCO operates in 20 other townships and municipalities by authority
of Public Act 264 of 1905. Court decisions have held that electric
companies who were operating under the 1905 statute before the Michigan
Constitution of 1908 are not required to obtain franchises as stated in the
constitutional provision. This right also applies to successor companies.
UPPCO operates in the Village of Ontonagon by virtue of a 30-year revocable
franchise granted in 1975 by the Village Council and in the Village of
L'Anse by virtue of a 30-year nonrevocable franchise acquired in 1988.
Item 2. PROPERTIES
___________________
Transmission and Distribution
_____________________________
UPPCO's transmission and distribution system is comprised of
approximately 3,499 circuit miles. Transmission and sub-transmission
networks are operated at 138, 69, 33 and 12 kV, consisting of approximately
355, 371, 48 and 13 circuit miles, respectively. The remaining 2,712 miles
are operated at distribution voltages ranging between 120 and 15,000 volts.
As of December 31, 1996, there were 417 mVa of distribution
transformers, 439 mVa of transmission bulk power step-down transformers, and
153 mVa of generation step-up transformers in service on the system.
Company-Owned Generation
________________________
Certain information as to UPPCO owned generation is set forth below:
<TABLE>
<CAPTION>
Year Net
Station Installed Fuel Capability (KW)
_______ _________ ____ _______________
<S> <C> <C> <C>
Warden 1959 Coal/Gas 17,700
Victoria 1930 Hydro 12,340
McClure 1919 Hydro 8,680
Hoist 1916, 1925, 1941 Hydro 4,280
Prickett 1931 Hydro 2,220
Cataract 1929 Hydro 1,460
AuTrain 1910 Hydro 1,060
Portage 1975 Oil 27,500
Gladstone 1987* Oil 27,500
- --------------------
<F*> Installed at Portage in 1973
</TABLE>
See "Generation and Purchased Power Resources", part of Item I.
Business, for information as to utilization of UPPCO-owned generation and
other available generation. The Warden Station is a one-unit plant with an
extraction steam turbine, which extraction unit is no longer in service.
Prickett, Cataract, and AuTrain hydroelectric generating stations are
generally run-of-the river plants with limited capacity to store water while
the Victoria, Hoist and McClure hydroelectric generating stations are
operated as peaking facilities.
The Portage and Gladstone Stations are both one-unit oil- fired gas
turbines.
Other Properties
________________
UPPCO owns numerous miscellaneous properties in various parts of its
territory which are used for office, service and other purposes. The most
important of these are Service Centers at Ishpeming, Houghton, Ontonagon,
Iron River, Escanaba, and Munising, Michigan. UPPCO also leases small
parcels of land for substations and miscellaneous temporary uses.
Property Additions and Retirements
__________________________________
The gross additions to UPPCO's Utility Plant during the period January
1, 1992 to December 31, 1996 amounted to $43,117,815, approximately 24% of
its Gross Utility Plant at December 31, 1996. During the same period, a
total of $7,048,984 was retired.
Maintenance
___________
It is management's opinion that UPPCO's generating facilities are
adequately maintained and equipped (subject to changing environmental
requirements). UPPCO's maintenance practices at all generating facilities
are designed to ensure safe and reliable operation.
UPPCO continues its systematic approach to maintaining and upgrading
existing transmission and distribution plant to ensure reliable service to
customers throughout the service territory. The Company does this through a
program of inspections, rebuilds, replacements, and additions designed to
improve the performance of facilities and enhance the quality of service to
customers. The Company also conducts an aggressive program for maintenance
of transmission and distribution line rights-of-way to improve continuity
and quality of service to customers.
Titles
______
In the opinion of counsel, UPPCO has satisfactory title to its
properties for use in its utility business. Electric transmission and
distribution lines are constructed principally on rights-of-way which are
maintained under franchise or held by easement only. All properties of
UPPCO are subject to the lien of UPPCO's Indenture of Mortgage, dated May 1,
1947 as supplemented, other than "excepted property" as defined therein.
In the opinion of counsel, UPBDC has satisfactory title to its properties
which consist of an office building used by UPPCO for its general office and
corporate headquarters.
Item 3. LEGAL PROCEEDINGS
__________________________
UPEN is subject to various unresolved legal matters that arose in the
normal course of business. Although it is not possible to predict the
outcome of these legal actions, company management believes that these
actions will not have a material adverse effect on its financial position or
results of operations.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
____________________________________________________________
There were no security holder votes occurring in the fourth quarter of
1996.
Executive Officers of the Registrant
____________________________________
<TABLE>
<CAPTION>
Age as of Present Position First Elected
Name of Officer 12/31/96 With Company an Officer
_______________ _________ ________________ _____________
<S> <C> <C> <C>
Clarence R. Fisher 56 Chairman of the Board, 7/09/91
Chief Executive Officer,
President and Director
Burton C. Arola 43 Vice President, Treasurer 8/11/88
and Secretary
</TABLE>
Clarence R. Fisher was first elected a UPEN director on April 8, 1992.
Burton C. Arola was elected a UPEN officer at the July 9, 1996 Board
of Directors meeting. All officers serve until the first Board meeting
following the April 22, 1997 Annual Shareholders' Meeting or until their
respective successors are elected and qualified.
Executive Officers of Upper Peninsula Power Company
___________________________________________________
<TABLE>
<CAPTION>
Age as of Present Position First Elected
Name of Officer 12/31/96 With Company an Officer
_______________ _________ ________________ _____________
<S> <C> <C> <C>
Clarence R. Fisher 56 Chairman of the Board, 7/10/84
Chief Executive Officer,
President and Director
Burton C. Arola 43 Vice President-Finance, 4/12/83
Treasurer and Secretary
Neil D. Nelson 58 Vice President-Operations 1/05/94
</TABLE>
Clarence R. Fisher was first elected an UPPCO director on April 8, 1992.
Burton C. Arola and Neil D. Nelson were elected at the July 9, 1996
Board of Directors' meeting. All officers serve until the first Board
meeting following the April 22, 1997 Annual Shareholders' Meeting or until
their respective successors are elected and qualified.
There are no family relationships between officers and directors.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The corporation's stock is traded on The Nasdaq Stock Market under the
symbol "UPEN." At December 31, 1996, UPEN had 3,924 registered common
shareholders. To our knowledge, no individual shareholder holds more than
5% of the 2,969,215 total outstanding shares.
Dividends have been paid quarterly without interruption or reduction
since May of 1949. Payments are made the first day of February, May,
August, and November, and the current annual dividend is $1.28 per share.
We intend to continue paying dividends, although future payments will be
dependent upon earnings, liquidity, and indenture restrictions (See Notes to
Financial Statements-Note 5). All dividends paid in 1996 were fully taxable
for federal income tax purposes.
Shareholders of at least one (1) share of UPEN common stock may join
this dividend reinvestment plan to purchase additional shares at market
price without brokerage commissions. Part A of this plan allows for
quarterly reinvestment of cash dividends, while part B allows for optional
cash payments of $50 minimum or $5,000 maximum each quarter.
The Company does not sell its stock directly to the public, nor does
it buy shares directly from its shareholders.
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
<S> <C> <C> <C> <C>
Sale Prices ($)
1996 - High............... 20-3/4 19-3/4 20 19-1/4
1996 - Low................ 17-1/2 17 17-1/2 16
1995 - High............... 17 17-3/4 18-1/4 19-1/2
1995 - Low................ 16 16 17-1/4 18
Dividends (CENT)-per Share
1996...................... 31-1/4 31-1/4 31-1/4 32
1995...................... 30 30 31-1/4 31-1/4
</TABLE>
Item 6. SELECTED CONSOLIDATED FINANCIAL DATA
_____________________________________________
(In thousands, except per share data)
<TABLE>
<CAPTION>
Years Ended December 31
1996 1995 1994
<S> <C> <C> <C>
Operating Revenues:
Electric
- Residential........... $ 23,554 $ 23,267 $ 23,991
- Comm. & Ind.-Small.... 16,833 16,581 17,151
- Comm. & Ind.-Large.... 8,405 9,794 11,256
- Other................. 6,590 6,832 6,839
- Provision for Rate
Refunds.............. (1,124) 792 71
Miscellaneous
- Steam.................
- Other................. 4,044 3,839 3,222
__________ __________ __________
Total............... 58,302 61,105 62,530
__________ __________ __________
Operating Expenses:
Operation................. 33,108 34,595 36,232
Maintenance............... 2,976 3,897 4,005
Depreciation and
Amortization............. 5,584 5,718 5,514
Taxes Other Than Income
Taxes.................... 4,803 4,634 4,514
Income Taxes.............. 2,778 2,745 2,688
__________ __________ __________
Total............... 49,249 51,589 52,953
__________ __________ __________
Operating Income............ 9,053 9,516 9,577
Other Income................ 217 (159) (70)
__________ __________ __________
Income Before Interest
Charges.................... 9,270 9,357 9,507
Interest Charges............ 4,117 4,041 4,047
Pref. Dividends of Sub...... 23 25 29
__________ __________ __________
Net Income.................. $ 5,130 $ 5,291 $ 5,431
========== ========== ==========
Average Common Shares....... 2,969,215 2,969,215 2,981,996
Earnings per Common Share... $ 1.73 $ 1.78 $ 1.82
========== ========== ==========
Common Dividends Paid
per Share.................. $ 1.26 $ 1.23 $ 1.19
Book Value of Common Stock.. $ 14.52 $ 14.06 $ 13.52
Total Assets................ $ 133,678 $ 128,384 $ 123,181
Long-Term Debt.............. $ 43,508 $ 43,733 $ 43,942
Redeemable Preferred Stock.. $ 456 $ 503 $ 576
</TABLE>
Item 6. SELECTED CONSOLIDATED FINANCIAL DATA (Cont'd)
______________________________________________________
(In thousands, except per share data)
<TABLE>
<CAPTION>
Years Ended December 31
1993 1992
<S> <C> <C>
Operating Revenues:
Electric
- Residential........... $ 22,833 $ 22,843
- Comm. & Ind.-Small.... 16,044 15,614
- Comm. & Ind.-Large.... 11,098 12,251
- Other................. 7,359 7,272
- Provision for Rate
Refunds.............. 144 34
Miscellaneous
- Steam.................
- Other................. 3,993 3,438
__________ __________
Total............... 61,471 61,452
__________ __________
Operating Expenses:
Operation................. 36,900 37,952
Maintenance............... 3,241 3,479
Depreciation and
Amortization............ 5,627 5,505
Taxes Other Than Income
Taxes................... 4,887 5,058
Income Taxes.............. 2,527 1,904
__________ __________
Total............... 53,182 53,898
__________ __________
Operating Income............ 8,289 7,554
Other Income................ 2,532 87
__________ __________
Income Before Interest
Charges................... 10,821 7,641
Interest Charges............ 3,977 3,937
Pref. Dividends of Sub...... 33 36
__________ __________
Net Income.................. $ 6,811 $ 3,668
========== ==========
Average Common Shares....... 3,038,613 3,034,111
Earnings per Common Share... $ 2.24 $ 1.21
========== ==========
Common Dividends Paid
per Share.................. $ 1.17 $ 1.16
Book Value of Common Stock.. $ 12.92 $ 11.97
Total Assets................ $ 124,440 $ 118,956
Long-Term Debt.............. $ 44,156 $ 43,772
Redeemable Preferred Stock.. $ 649 $ 726
</TABLE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
__________________________________________________________
RESULTS OF OPERATIONS
Upper Peninsula Energy Corporation (the Company) is the parent of
Upper Peninsula Power Company (UPPCO), an electric utility, and two
nonutility subsidiaries. The utility operations of UPPCO are the primary
source of earnings.
Earnings
Earnings per share in 1996 were $1.73 compared with $1.78 in 1995 and
$1.82 in 1994. The 2.8% decrease in earnings is attributable to a full-year
impact of a 5.7% reduction in retail rates in April 1995 and a decline in
large-industrial sales, offset by a reduction of maintenance expenditures.
Earnings declined slightly in 1995 as a 7.7% reduction in operation and
maintenance expense, exclusive of power supply costs, combined with a 1.0%
increase in energy sales, offset the April rate decrease.
Sales and Revenues
The majority of operating revenues come from the sale of electricity
based on rates authorized by the Michigan Public Service Commission (MPSC)
and the Federal Energy Regulatory Commission (FERC). Over the past three
years, approximately 90% of energy sales revenues were under the
jurisdiction of the MPSC.
Fluctuations in revenues occur because of changes in rates, power
supply costs, number of customers, weather, and energy-consumption trends.
Power supply cost recovery matches fuel and purchased-power cost changes and
does not affect earnings.
In 1996, operating revenues were 4.6% lower than in 1995 because of
lower power supply costs, reduced sales, and the April 1995 retail rate
reduction. Operating revenues in 1995 were 2.3% lower than in 1994. The
April 1995 rate reduction and a slight decrease in power supply costs were
the major reasons for the lower 1995 revenues.
Sales of electric energy accounted for 93.1% of operating revenues in
1996. Electric sales in 1996, 1995, and 1994 were 821,311 MWh, 846,951 MWh,
and 838,518 MWh, which included 12,370 MWh, 39,816 MWh, and 31,793 MWh,
respectively, sold at a non-firm emergency rate established in 1993 for
certain large-industrial customers.
Excluding emergency sales, 1996 and 1995 energy sales were up 0.2% and
0.4%, respectively. In the past two years, there has been a general rise in
sales, with the exception of large industrials due in large part to the
closure of the K.I. Sawyer Air Force Base in September 1995. Small-
commercial sales continue to lead the way, rising by 2.4% in 1996 following
a 4.1% gain in 1995.
Sales to K.I. Sawyer Air Force Base accounted for $672,000,
$1,406,000, and $2,783,000 of revenues in 1996, 1995, and 1994,
respectively. New load continues to develop on the base site.
Customers with firm energy requirements exceeding 20,000 MWh in either
of the past two years were:
<TABLE>
<CAPTION>
1996 1995 %
MWh MWh Change
<S> <C> <C> <C>
Stone Container Corporation 62,053 70,180 -11.6
City of Gladstone 30,471 30,042 1.4
Michigan Technological
University 25,992 25,926 0.3
City of Negaunee 22,741 22,551 0.8
Ontonagon R.E.A. 20,825 19,922 4.5
Lakehead Pipeline Company 17,970 21,047 -14.6
K. I. Sawyer Air Force Base 12,749 26,970 -52.7
</TABLE>
Operating Expenses
Operating expenses decreased 4.5% in 1996 following a 2.6% decline in
1995.
Power supply costs (fuel and purchased power) accounted for 37.0%,
38.7%, and 38.1% of operating expenses in 1996, 1995, and 1994,
respectively. Power supply costs change depending on overall system energy
requirements, unit production costs for generation, and purchased-power
rates. Purchased power represented 80.8%, 84.1%, and 84.8% of output to
lines in 1996, 1995, and 1994, respectively. The decrease in the percentage
of UPPCO's energy requirements purchased in 1996 was due to a 23.1% increase
in hydro generation resulting from record snowfalls and a late spring.
Power supply costs decreased 8.7% and 1.0% in 1996 and 1995,
respectively. These costs on a per-unit basis decreased 8.2% in 1996
because of a higher hydro generation and reduced purchased-power costs. In
1995, power supply costs decreased 1.6% on a per-unit basis, more than
offsetting increased energy requirements.
Other operation expenses were 1.6% higher in 1996 as the reduced costs
associated with fewer employees were offset by increased outside service
needs associated with such areas as the changing regulatory climate and
other strategic or operational changes. In 1995, other operation expenses
were 9.0% lower as a result of reduced employment levels and associated
benefit costs.
In 1996, maintenance expenses decreased 23.6% because of reduced tree-
trimming and production-plant expenditures. Maintenance expenses were 2.7%
lower in 1995 despite additional tree-trimming and production-plant
expenditures because of ash-site closure costs in 1994.
Depreciation and amortization expense, which is normally a function of
plant in service, decreased 2.3% in 1996 following a 3.7% increase in 1995.
The decrease in the current year was due to an increase in the estimated
service life of the Victoria hydro facility.
Ad Valorem taxes increased 6.8% and 4.5% in 1996 and 1995,
respectively, due to additional plant in service.
Total interest charges increased slightly in 1996 due to additional
short-term borrowing requirements. In 1995, interest charges remained
relatively unchanged, as most cash needs were satisfied internally.
FUTURE OUTLOOK
In Michigan, the implementation of customer choice has been studied
for several years. Governor John Engler requested the MPSC to refine and
act upon a "blueprint for competition" issued in January 1996. In December
1996, commission staff issued a report that recommends a restructuring
approach that would allow customers to choose their electric power supplier
over a phase-in period through 2003.
The MPSC staff report provides utilities the opportunity to recover
stranded costs through a transition charge for customers who choose
alternative energy suppliers. Concepts such as a performance-based cost-
recovery system, rate-reduction bonds, and service-reliability standards are
also addressed in the report.
The MPSC has not yet acted on the staff proposal, which is also
subject to public comment. While we believe that the issues will be debated
by interest groups with opposing needs, it appears that customer choice will
be available to some degree in Michigan in the near future.
In its order 888, FERC required each utility with transmission lines
that could potentially be used for buying or selling wholesale energy to
file an Open-Access Tariff for transmission services. This tariff
"unbundles" or isolates transmission services from the complete delivery
packages that make up most utility rates. Order 888 also defines the terms,
conditions, and rates for transmission services to be provided by
transmission-system owners. We filed our tariff on January 31, 1997.
Another FERC order would have required us to separate our power
marketing function from our transmission operations and planning function
and to post our transmission capacity availability and tariff rates on an
electronic bulletin board via the Internet. We requested and were granted a
waiver from these requirements because of our small size and the additional
expense involved with compliance.
We cannot predict with any certainty the final outcome of deregulation
efforts or their effect on UPPCO. However, because of UPPCO's relatively
limited energy sales growth projections and the ever-increasing competitive
nature of the electric business, we continue to concentrate on efforts to
reduce costs and develop a more efficient organization to improve our
competitive position.
Management believes that UPPCO meets the criteria of Statement of
Financial Accounting Standards No. 71 (SFAS 71), "Accounting for the Effects
of Certain Types of Regulation," and that all regulatory assets are probable
of recovery. In the event UPPCO no longer meets the criteria of SFAS 71,
such regulatory assets would be removed.
UPPCO's work force involved in regulated utility activities has
decreased by 25.2% over the last three years, from 250 employees at the
beginning of 1994 to 187 at December 31, 1996. In addition to normal
retirements, these reductions were accomplished through voluntary
retirements, severance programs, and layoffs. We are near the employee
complement needed for the future, and further cost reductions will likely
come through workplace efficiencies and operational changes.
The Company has entered into an agreement with the Michigan Department
of Natural Resources to monitor groundwater surrounding the John H. Warden
Station ash landfill, which was closed in 1994. Such monitoring is to be
performed over a 30-year period. At December 31, 1996, the Company has
recorded an estimated liability of $689,000 offset by a regulatory asset of
$689,000 being amortized over the monitoring period.
Under contract with Wisconsin Electric Power Company (WEPCO), UPPCO
has staffed and operated WEPCO's Presque Isle Power Plant located in
Marquette, Michigan, since 1988. Under the terms of the agreement, UPPCO
receives a management fee plus reimbursement for all costs associated with
labor and other services provided. In December 1996, WEPCO gave
notification that it intends to terminate the contract on December 31, 1997.
The terms of the agreement call for all UPPCO employees at the plant to be
offered employment by WEPCO. UPPCO and WEPCO representatives have begun
efforts to ensure an orderly transition. UPPCO management believes that
this action will not have a material adverse effect on its financial
position or results of operations.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash needs are principally for construction expenditures
and debt retirement. Cash is generated through internal operations and
external financing.
To meet short-term cash needs, credit agreements are maintained with
certain banks. These agreements are reviewed annually in the second quarter
of the year. When short-term borrowings grow beyond normal seasonal
requirements, they are replaced with long-term financing. The Company had
$5,000,000 of short-term notes outstanding at December 31, 1996, and had
$5,500,000 of unused lines of credit available at or below the prime rate.
Substantial cash flows are generated annually from operating
activities. Net cash from this source was $11,475,000 in 1996, $13,101,000
in 1995, and $11,052,000 in 1994.
During the three-year period 1994 through 1996, there were no long-
term financing activities. In 1994, the Company repurchased 25,000 common
shares on the open market for $443,000.
Investment activities in 1996, 1995, and 1994 totalled $30,156,000 of
capital expenditures, of which $7,298,000 was spent on a transmission line
project (Chandler) to improve service to Delta County. This project is
scheduled for completion in March 1997. Other utility expenditures were
primarily for distribution and transmission improvements, new service
requests, and equipment replacement.
Utility capital expenditures are expected to be $3,900,000 in 1997.
Cash requirements will be met primarily with short-term borrowings and
internally generated funds.
In 1998 through 2001, the Company is forecasting $22,000,000 of
capital expenditures for system improvements and replacements. The Company
estimates that almost all cash requirements will be internally generated.
Due to its capital-intensive nature, the utility industry is
influenced by inflation. UPPCO's current utility regulation recognizes only
original-cost rate base. However, assuming the continued ability to bill
customers for increases in power supply costs and the receipt of adequate
and timely rate relief, UPPCO will recover cost escalations caused by
inflation.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
____________________________________________________
The following independent auditors' report and consolidated financial
statements of the registrant for the year ended December 31, 1996, are
included herein:
Independent Auditors' Report dated February 7, 1997.
Statements of Income--Years ended December 31, 1996, 1995
and 1994.
Statements of Cash Flows--Years ended December 31, 1996,
1995 and 1994.
Balance Sheets--December 31, 1996 and 1995.
Statements of Changes in Common Equity--Years ended
December 31, 1996, 1995 and 1994.
Statements of Capitalization--December 31, 1996 and 1995.
Notes to Financial Statements--December 31, 1996.
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS
Management is responsible for the preparation and integrity of the
financial statements and representations in this annual report. The
consolidated financial statements have been prepared in conformity with
generally accepted accounting principles as applied to regulated utilities
and necessarily include some amounts that are based on informed judgements
and best estimates of management.
To meet its responsibilities with respect to financial information,
management maintains and enforces a system of internal accounting controls
designed to provide assurance, on a cost-effective basis, that transactions
are carried out in accordance with management's authorizations and assets
are safeguarded against loss from unauthorized use or disposition.
Management believes the Company's accounting policies and controls prevent
material errors and irregularities and allow employees in the normal course
of their duties to detect inaccuracies within a timely period.
Directors who are not officers or employees make up the Audit
Committee of the Board of Directors. The committee meets with management,
the internal auditor, and the Company's independent auditors to discuss
auditing, internal accounting controls, and financial reporting matters.
The independent auditors and internal auditor have free access to the
committee, without management's presence, to discuss the results of their
audits.
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
of Upper Peninsula Energy Corporation
We have audited the consolidated balance sheets and statements of
capitalization of Upper Peninsula Energy Corporation and its subsidiaries as
of December 31, 1996 and 1995, and the related consolidated statements of
income, changes in common equity, and cash flows for each of the three years
in the period ended December 31, 1996 listed in Item 8. Our audits also
included the financial statement schedule listed in Item 14. These
financial state- ments and financial statement schedule are the
responsibility of the Corporation's management. Our responsibility is to
express an opinion on these financial statements and financial statement
schedule 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 Upper Peninsula Energy
Corporation and its subsidiaries as of December 31, 1996 and 1995, and the
results of their operations and their cash flows for each of the three years
in the period ended December 31, 1996, in conformity with generally accepted
accounting principles. Also, in our opinion, such financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.
/s/ Deloitte & Touche LLP
- ----------------------------------------
Deloitte & Touche LLP
Chicago, Illinois
February 7, 1997
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
(Thousands of Dollars)
Year Ended December 31 1996 1995 1994
<S> <C> <C> <C>
Operating Revenues.......... $ 58,302 $ 61,105 $ 62,530
__________ __________ __________
Operating Expenses:
Operaton - Power Supply
Costs.................... 18,245 19,973 20,168
- Other.......... 14,863 14,622 16,064
Maintenance............... 2,976 3,897 4,005
Depreciation and Amorti-
zation................... 5,584 5,718 5,514
Federal Inc. Tax Expense.. 2,778 2,745 2,688
Taxes Other Than Federal
Income Taxes............. 4,803 4,634 4,514
__________ __________ __________
Total............... 49,249 51,589 52,953
__________ __________ __________
Operating Income............ 9,053 9,516 9,577
__________ __________ __________
Other Income (Deductions):
Interest Income........... 84 57 46
Allowance for Equity
Cost Funds............... 116 10 8
Other..................... 97 (285) (181)
Federal Income Taxes...... (80) 59 57
__________ __________ __________
Total............... 217 (159) (70)
__________ __________ __________
Income Before Int. Charges.. 9,270 9,357 9,507
__________ __________ __________
Interest Charge:
Int. on Long-Term Debt.... 3,887 3,905 3,922
Amort. of Debt Expense.... 75 75 75
Other Interest Expense.... 326 73 60
Allowance for Borrowed
Construction Funds....... (171) (12) (10)
__________ __________ __________
Total............... 4,117 4,041 4,047
__________ __________ __________
Income Before Dividends on
Preferred Subsidiary....... 5,153 5,316 5,460
Dividends on Preferred Stock
of Subsidiary.............. 23 25 29
__________ __________ __________
Net Income.................. $ 5,130 $ 5,291 $ 5,431
========== ========== ==========
Average Number of Shares
Outstanding................ 2,969,215 2,969,215 2,981,996
Earnings Per Common Share... $ 1.73 $ 1.78 $ 1.82
</TABLE>
_________________________________________________________________________
The accompanying notes are an integral part of these financial statements
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(Thousands of Dollars)
Year Ended December 31 1996 1995 1994
<S> <C> <C> <C>
Cash Flows from Operating
Activities:
Net Income.................. $ 5,130 $ 5,291 $ 5,431
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and
Amortization............. 5,584 5,718 5,514
Dividends on Preferred
Stock of Subsidiary...... 23 25 29
Allowance for Equity Funds
Used During Construc-
tion..................... (116) (10) (8)
Deferred Federal Income
Taxes.................... 136 658 207
Investment Tax Credit..... (183) (184) (183)
Prepaid and Accrued
Pension.................. (540) 308 (1,277)
Other..................... 1,716 798 1,929
Changes in Current Assets
and Liabilities:
Accounts Receivable....... 350 (600) 751
Inventories............... 135 87 110
Prepayments............... 55 268 (110)
Accrued Ad Valorem Taxes.. (200) (140) (255)
Accounts Payable and
Accrued Accounts......... (615) 882 (1,086)
________ _______ _______
Cash Flows from Operating
Activities................... 11,475 13,101 11,052
________ _______ _______
Cash Flows from Investing
Activities:
Plant and Property Addi-
tions (excluding Allow-
ance for Funds Used
During Construction)....... (13,010) (9,560) (7,586)
Allowance for Borrowed
Funds Used During
Construction............... (171) (12) (10)
Other-Net................... 250 78 (142)
________ _______ _______
Cash Flows from Investing
Activities................... (12,931) (9,494) (7,738)
________ _______ _______
Cash Flows from Financing
Activities:
Repurchase of Common Stock.. (443)
Issuance of Common Stock.... (8)
Retirement of Long-Term Debt
and Preferred Stock........ (272) (282) (287)
Dividends................... (3,757) (3,663) (3,565)
Increase in Notes Payable... 4,300 700
________ _______ _______
Cash Flows from Financing
Activities................... 271 (3,245) (4,303)
________ _______ _______
Net Increase (Decrease) in
Cash and Cash Equivalents.... (1,185) 362 (989)
Cash and Cash Equivalents at
the Beginning of the Year... 3,249 2,887 3,876
________ _______ _______
Cash and Cash Equivalents at
the End of the Year.......... $ 2,064 $ 3,249 $ 2,887
======== ======= =======
Supplemental Cash Flow
Information:
Interest Paid............... $ 4,163 $ 4,077 $ 4,005
Income Taxes Paid........... $ 2,475 $ 2,150 $ 2,986
</TABLE>
__________________________________________________________________________
The accompanying notes are an integral part of these financial statements.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Thousands of Dollars)
December 31 1996 1995
<S> <C> <C>
ASSETS
Utility Plant:
Electric Plant in Service:
Production......................... $ 35,556 $ 35,766
Transmission....................... 43,960 43,319
Distribution....................... 71,175 68,268
General............................ 14,695 15,153
________ ________
Total Electric Plant in Service.. 165,386 162,506
Less Accumulated Depreciation and
Amortization........................ 75,970 71,736
________ ________
Net Electric Plant in Service.... 89,416 90,770
Construction Work in Progress........ 14,526 10,045
________ ________
Net Utility Plant................ 103,942 100,815
________ ________
Other Property and Investments......... 9,942 5,726
________ ________
Current Assets:
Cash and Cash Equivalents............ 2,064 3,249
Accounts Receivable:
Electric (less allowance for
doubtful accounts of $65 in
1996 and $86 in 1995)............. 4,492 4,540
Other.............................. 1,984 1,655
Revenue Receivable - Power Supply
Cost Recovery - Net................. 631
Inventories - at average cost:
Materials and Supplies............. 2,030 2,176
Fuel............................... 274 263
Prepayments.......................... 305 360
Accrued Ad Valorem Taxes............. 3,640 3,440
Deferred Federal Income Taxes........ 1,227 1,219
________ ________
Total............................ 16,016 17,533
________ ________
Deferred Debits and Other Assets:
Unamortized Debt Expense............. 508 550
Intangible Pension Plan Asset........ 1,595 1,821
Other................................ 1,675 1,939
________ ________
Total............................ 3,778 4,310
________ ________
$133,678 $128,384
======== ========
CAPITALIZATION AND LIABILITIES
Capitalization: (See Consolidated
Statements of Capitalization)
Common Stock Equity.................. $ 43,118 $ 41,737
Redeemable Preferred Stock (of
Upper Peninsula Power Company)...... 456 503
Long-Term Debt, less current
maturities.......................... 43,266 43,508
________ ________
Total............................ 86,840 85,748
________ ________
Current Liabilities:
Long-Term Debt Due Within One Year... 242 225
Notes Payable........................ 5,000 700
Accounts Payable..................... 4,182 5,318
Accrued Accounts:
Taxes - Ad Valorem................. 6,212 5,806
- Other...................... 27 147
Wages and Benefits................. 2,934 3,324
Interest........................... 965 871
Dividends.......................... 4 4
Revenue Payable - Power Supply Cost
Recovery - Net...................... 531
________ ________
Total............................ 20,097 16,395
________ ________
Deferred Credits:
Deferred Federal Income Taxes........ 6,923 6,779
Unamortized Investment Tax Credit.... 2,742 2,925
Customer Advances for Construction... 1,591 1,283
Accrued Pension...................... 3,303 4,069
Regulatory Liabilities............... 5,904 5,355
Postretirement Health and Life....... 3,780 2,883
Other................................ 2,498 2,947
________ ________
Total............................ 26,741 26,241
________ ________
Commitments and Contingencies..........
$133,678 $128,384
======== ========
</TABLE>
__________________________________________________________________________
The accompanying notes are an integral part of these financial statements.
CONSOLIDATED STATEMENTS OF CHANGES IN COMMON EQUITY
<TABLE>
<CAPTION>
(Thousands of Dollars)
Common Common Total
Stock Stock Paid-In Retained Common
Shares ParValue Capital Earnings Equity
______ ________ _______ ________ ______
<S> <C> <C> <C> <C> <C>
Balance at December 31,
1993...................... 2,994,215 $ 15 $22,046 $16,636 $38,697
Premium on Common Stock:
Stock Purchase Plan for
Employees............. (8) (8)
Repurchase of Common
Stock................... (25,000) (443) (443)
Discount on the Purchase
of Redeemable Preferred
Stock................... 1 1
Net Income............... 5,431 5,431
Common Dividends - $1.19
per share............... (3,536) (3,536)
_________ _____ _______ _______ _______
Balance at December 31,
1994...................... 2,969,215 15 21,596 18,531 40,142
Premium on Common Stock:
Stock Purchase Plan for
Employees............. (60) (60)
Repurchase of Common
Stock...................
Discount on the Purchase
of Redeemable Preferred
Stock................... 1 1
Net Income............... 5,291 5,291
Common Dividends - $1.23
per share............... (3,637) (3,637)
_________ _____ _______ _______ _______
Balance at December 31,
1995...................... 2,969,215 15 21,537 20,185 41,737
Premium on Common Stock:
Stock Purchase Plan for
Employees............... (15) (15)
Change to No Par Value
Common Stock............ (15) 15
Net Income............... 5,130 5,130
Common Dividends - $1.26
per share............... (3,734) (3,734)
_________ _____ _______ _______ _______
Balance at December 31,
1996...................... 2,969,215 $ $21,537 $21,581 $43,118
========= ===== ======= ======= =======
</TABLE>
__________________________________________________________________________
The accompanying notes are an integral part of these financial statements.
CONSOLIDATED STATEMENTS OF CAPITALIZATION
<TABLE>
<CAPTION>
(Thousands of Dollars)
December 31 1996 1995
<C> <C> <C>
COMMON STOCK EQUITY
Common Stock - No Par Value in 1996 and
$.005 par value in 1995, authorized
5,000,000 shares, issued and
outstanding:
2,969,215 shares (a)..................... $ $ 15
Paid-In Capital............................. 21,537 21,537
Retained Earnings........................... 21,581 20,185
_______ _______
Total Common Stock Equity............... 43,118 41,737
_______ _______
PREFERRED STOCK-UPPER PENINSULA POWER COMPANY
Cumulative Redeemable Preferred Stock - $100
Par Value, authorized 300,000 shares (issu-
able in series), issued and outstanding:
5-1/4% Series - 964 shares in 1996
and 979 shares in 1995.................. 96 98
4.70% Series - 3,600 shares in 1996
and 4,050 shares in 1995................ 360 405
_______ _______
Total Preferred Stock................... 456 503
_______ _______
LONG-TERM DEBT
UPPER PENINSULA POWER COMPANY
First Mortgage Bonds:
7.94% Series due 2003..................... 15,000 15,000
10% Series due 2008....................... 6,000 6,000
9.32% Series due 2021..................... 18,000 18,000
Installment Sales Contract for Air
Pollution Control Equipment:
6.90% Term Bonds due 1999................. 335 435
UPPER PENINSULA BUILDING DEVELOPMENT COMPANY
Senior Secured Note:
9.25% Note due 2011........................ 4,173 4,298
_______ _______
Total................................... 43,508 43,733
Less - Amounts due within one year..... 242 225
_______ _______
Total Long-Term Debt.................... 43,266 43,508
_______ _______
TOTAL CAPITALIZATION.......................... $86,840 $85,748
======= =======
<Fa> Common Stock Changed to No Par Value in July 1996.
</TABLE>
__________________________________________________________________________
The accompanying notes are an integral part of these financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
General
The consolidated financial statements include the accounts of Upper
Peninsula Energy Corporation (UPEN), a holding Company incorporated in 1988
under the laws of the State of Michigan, and its wholly owned subsidiaries
(Company). All significant intercompany balances and transactions have been
eliminated in consolidation.
UPEN's principal subsidiary, Upper Peninsula Power Company (UPPCO), is
the primary source of earnings. UPPCO, incorporated in 1947 under the laws
of the State of Michigan, is an electric utility engaged in the generation,
purchase, transmission, distribution, and sale of electric energy in the
Upper Peninsula of Michigan.
UPPCO supplies electric energy to approximately 48,000 customers in
two-thirds of Michigan's Upper Peninsula. UPPCO's service territory covers
4,460 square miles and has a population of about 130,000. Its service area
is contiguous except for a small area around the city of Iron River near the
northeastern Wisconsin border.
UPEN has two other subsidiaries. Upper Peninsula Building Development
Company owns the corporate headquarters building and leases it to UPPCO
under a twenty-year renewable lease. PENVEST, Inc., was formed to
investigate opportunities in tele- communications, engineering services, and
other non-regulated businesses.
The accounting records of UPPCO are maintained in accordance with the
Uniform System of Accounts prescribed by the Federal Energy Regulatory
Commission (FERC) and the Michigan Public Service Commission (MPSC).
Utility Plant
Plant is stated at original cost. The cost of property additions,
including replacements of units of property and betterments, is capitalized.
Cost includes contract labor, Company labor, materials, allowance for funds
used during construction, and overheads. Expenditures for maintenance and
repairs of property and costs of replacing items determined to be less than
units of property are charges to operating expenses. The original cost of
property and the cost of removal, less salvage, are charged to accumulated
provision for depreciation when the property is retired. Substantially all
utility property is subject to lien and collateralized under first mortgage
bonds.
Regulatory Assets and Liabilities
UPPCO is subject to the provisions of Statement of Financial
Accounting Standard No. 71 (SFAS 71), "Accounting for the Effects of Certain
Types of Regulation." Regulatory assets represent probable future revenue
associated with certain costs that will be recovered from customers through
the ratemaking process. Regulatory liabilities represent amounts previously
collected from customers that are refundable in future rates.
The following regulatory assets and (liabilities) were reflected in
the Consolidated Balance Sheets as of December 31:
<TABLE>
<CAPTION>
(Thousands of Dollars)
1996 1995
<S> <C> <C>
Regulatory Assets:
Loss on Reacquired Debt............. $ 252 $ 285
Retiree Health Care................. 483 514
Warden Ash Site Groundwater
Monitoring......................... 689 754
________ ________
Total........................... $ 1,424 $ 1,553
======== ========
Regulatory Liabilities:
Investment Tax Credit............... $ (1,412) $ (1,507)
Tax Rate Changes.................... (4,492) (3,848)
________ ________
Total........................... $ (5,904) $ (5,355)
======== ========
</TABLE>
Based on prior and current rate treatment of costs, management
believes it is probable that UPPCO will continue to recover from ratepayers
the deferred charges described above.
Allowance for Funds Used During Construction (AFUDC)
AFUDC is defined in the applicable regulatory system of accounts as
the net cost, during the period of construction, of borrowed funds used for
construction purposes and a reasonable rate on equity funds when so used.
Allowance for borrowed funds used during construction also includes interest
capitalized on qualifying assets of nonutility subsidiaries. The cost-of-
borrowed-funds element of AFUDC is reported as a reduction of interest
expense, and the noncash equity portion is reported as other income. AFUDC
was capitalized on utility construction at a rate of 8.93% in 1996, 1995,
and 1994, as ordered by the MPSC.
Depreciation and Amortization
For financial statement purposes, the original cost of utility
property is depreciated by the straight-line method over its estimated
service life. UPPCO's depreciation for book purposes, approved by the MPSC
and calculated during each of the years ended December 31, 1996, 1995, and
1994, was equivalent to approximately 3.5% of depreciable plant in 1996 and
3.7% in 1995 and 1994. For income tax purposes, accelerated methods of
depreciation are utilized.
Debt expense is amortized over the lives of the remaining debt issues.
Inventories
All inventories are valued at average cost.
Income Taxes
Deferred federal income taxes are provided for significant temporary
differences between book and taxable income.
Investment tax credits used to offset federal income taxes are being
amortized ratably over the estimated service lives of the related
properties.
Revenue and Expense Recognition
UPPCO utilizes monthly cycle billing and records revenue based on
bills rendered. Revenue is not accrued for energy delivered but unbilled at
the end of the year. Cost of service rendered is recognized as incurred.
UPPCO is required under Public Act 304 to receive MPSC approval each
year to recover projected fuel and purchased-power costs ("power supply
costs") by establishment of power supply cost recovery (PSCR) factors.
These factors are subject to annual reconciliation to actual costs and
permit 100% recovery of power supply costs. Any over-or-under-recovery is
deferred on the consolidated balance sheets, and such deferrals are relieved
as refunds or additional billings are made.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Statements of Cash Flows
For purposes of the statements of cash flows, all highly liquid
investments with original maturities of three months or less are considered
to be cash equivalents.
Reclassification
Certain items previously reported have been reclassified to conform to
current presentation in the financial statements.
2. Compensating Balances and Short-Term Borrowings
<TABLE>
<CAPTION>
(Thousands of Dollars)
Short-term borrowings were
as follows:
1996 1995
<S> <C> <C>
Maximum amount of short-term
borrowings outstanding during
the year.......................... $ 5,800 $ 1,700
========= =========
Average amount outstanding
during the year................... $ 3,405 $ 495
========= =========
Weighted-average interest
rate during the year.............. 8.05% 8.82%
Weighted-average interest rate
on short-term borrowings
outstanding at year-end........... 8.00% 8.25%
Notes outstanding at December 31... $ 5,000 $ 700
</TABLE>
The Company's unused lines of credit available at December 31, 1996,
totalled $5,500,000. During the past three years, portions of demand
deposits maintained in lending banks were deemed to constitute compensating
balances but were not legally restricted. Because such compensating amounts
are based on average daily balances, cash is not restricted as of any one
day.
3. Other Accounts Receivable
Under contract with Wisconsin Electric Power Company (WEPCO), UPPCO
staffs and operates WEPCO's Presque Isle Power Plant located in Marquette,
Michigan. Under the terms of the contract, UPPCO receives a management fee
plus reimbursement for all costs associated with labor and other services
provided. UPPCO had current receivables from WEPCO at year-end 1996 and
1995 of approximately $1,165,000 and $1,035,000, respectively, in connection
with the above. UPPCO also has other contracts with WEPCO generally
relating to wheeling, dispatching, and transmission maintenance. In
December 1996, WEPCO gave notification of termination of the Presque Isle
Power Plant Operating Agreement effective December 31, 1997. Company
management believes that this action will not have a material adverse effect
on its financial position or results of operations.
4. Common Stock
On December 31, 1996, there were approximately 425 employees eligible
to participate in the employee stock purchase plan. On June 1, 1996, 172
employees purchased 7,424 shares at $17.55 per share, and on December 1,
1996, 159 employees purchased 6,640 shares at $17.10 per share.
A Dividend Reinvestment and Common Stock Purchase Plan (DRIP) provides
for automatic reinvestment of common dividends and allows shareholders
quarterly optional cash payments, within specific limits, for the purchase
of additional shares under the plan. Shares of common stock for the above
plans are purchased on the open market.
5. Dividend Restriction
UPPCO's indentures relating to first mortgage bonds contain certain
limitations on the payment of cash dividends on common stock. Under the
most restrictive of these provisions, approximately $15,659,000 of
consolidated retained earnings was available at December 31, 1996, for the
payment of common stock cash dividends by UPEN.
6. Preferred and Preference Stock
UPPCO is obligated under the terms of the Preferred Stock Purchase
Agreements of the 5-1/4% and 4.70% of redeemable preferred stocks to
annually offer to purchase, at prices not to exceed $100 per share plus
accrued dividends, 3% of the maximum number of shares of each series issued,
less any shares theretofore purchased as a purchase-fund credit for such
year, and will offer to purchase, at $100 per share plus accrued dividends
at May 1, 2002, all of the shares then outstanding under the above
redeemable preferred stock issues. All shares so purchased and surrendered
shall be cancelled and shall not be reissued. Maximum annual purchase-fund
requirements as to outstanding shares of redeemable preferred stock are
$75,000 for 1997 through 2001. At December 31, 1996, the optional
redemption prices per share of the 5-1/4% and 4.70% shares were $105.00 and
$101.00, respectively.
UPPCO has 1,000,000 shares of authorized but unissued $1 par value
preference stock, which may be divided into and issued in one or more series
from time to time as UPPCO's Board of Directors may direct. The preference
stock shall be junior to the preferred stock but in preference to the common
stock.
UPEN has 500,000 shares of authorized but unissued $.01 par value
preferred stock, which may be divided into and issued in one or more series
from time to time as UPEN's Board of Directors may direct.
7. Long-Term Debt
Amounts of long-term debt due in each of the five years subsequent to
December 31, 1996, aggregate approximately $242,000 for 1997, $260,000 for
1998, $884,000 for 1999, $719,000 for 2000, and $683,000 for 2001.
As of December 31, 1996, the market value of UPEN's long-term debt was
$47.4 million. This debt has a recorded value of $43.5 million.
8. Federal Income Taxes
Federal income taxes comprise the following:
<TABLE>
<CAPTION>
(Thousands of Dollars)
Year Ended December 31
___________________________
1996 1995 1994
<S> <C> <C> <C>
Federal income tax-current....... $ 2,276 $ 2,353 $ 2,664
Deferred taxes-net............... 685 576 207
Investment tax credit deferred... (183) (184) (183)
_______ _______ _______
Total federal income tax
expense-operations.............. 2,778 2,745 2,688
Federal income tax expense-
other income-current............ 80 (59) (57)
_______ _______ _______
Total federal income tax
expense......................... $ 2,858 $ 2,686 $ 2,631
======= ======= =======
</TABLE>
Federal income tax expense applicable to current operations differs
from the amount computed by applying the statutory rate on book income
subject to tax for the following reasons:
<TABLE>
<CAPTION>
(Thousands of Dollars)
Year Ended December 31
___________________________
1996 1995 1994
<S> <C> <C> <C>
Income tax at "statutory rate"... $ 2,804 $ 2,801 $ 2,832
Increases (reductions) in tax
resulting from:
Investment tax credit
amortization.................. (183) (184) (183)
Overheads capitalized
on books...................... (8) (9) (10)
Depreciation................... 241 101 123
Miscellaneous items............ 4 (23) (131)
_______ _______ _______
Total federal income tax
expense........................ $ 2,858 $ 2,686 $ 2,631
======= ======= =======
Effective income tax rate........ 35.7% 33.6% 32.5%
</TABLE>
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes.
The tax effects of significant items included in the Company's net deferred
tax liability as of December 31, 1996 and 1995, are as follows:
<TABLE>
<CAPTION>
(Thousands of Dollars)
1996 1995
<S> <C> <C>
Current:
Employee benefits.............. $ 860 $ 1,104
Unbilled revenue............... 511 614
Property taxes................. (414) (399)
Other.......................... 270 (100)
__________ __________
1,227 1,219
__________ __________
Noncurrent:
Depreciation................... (10,216) (10,327)
Investment tax credit.......... 1,413 1,507
Employee benefits.............. 1,966 2,138
Other.......................... (86) (97)
__________ __________
(6,923) (6,779)
__________ __________
Total deferred taxes....... $ (5,696) $ (5,560)
========== ==========
</TABLE>
9. Retirement Benefits
UPPCO has a noncontributory, defined-benefit pension plan, as amended,
covering full-time employees, subject to age and period-of-employment
conditions, that provides benefits based on years of service and employee
compensation. The current funding policy is to contribute to the plan
amounts necessary to comply with the funding provision of the Employee
Retirement Income Security Act of 1974 (ERISA). Contributions of
$2,099,000, $1,385,000 and $3,500,000, were made in 1996, 1995, and 1994,
respectively.
UPPCO has a noncontributory supplemental retirement plan for certain
senior management employees that provides for benefit payments over a
fifteen-year period to the participant upon retirement or to the
participant's spouse upon death prior to retirement. This retirement plan
is non funded, and benefits are paid by UPPCO from its general assets.
Net periodic pension cost for accounting purposes for 1996, 1995, and
1994 included the following components:
<TABLE>
<CAPTION>
(Thousands of Dollars)
Year Ended December 31
_____________________________
1996 1995 1994
<S> <C> <C> <C>
Service cost-benefits earned
during period................... $ 1,055 $ 920 $ 1,323
Interest cost on projected
benefit obligation.............. 3,511 3,453 3,278
Actual return on assets.......... (3,589) (6,259) 426
Net amortization and deferral.... 708 3,736 (2,651)
_______ _______ _______
Net periodic pension cost........ $ 1,685 $ 1,850 $ 2,376
======= ======= =======
</TABLE>
Net periodic pension expense includes amounts charged to WEPCO in
connection with the operation of the Presque Isle Power Plant of $516,000,
$673,000, and $849,000, and for 1996, 1995, and 1994, respectively.
A reconciliation of the funded status of the plans to the amounts
recognized in the December 31 financial statements follows:
<TABLE>
<CAPTION>
(Thousands of Dollars)
Funded Plan
December 31
______________________
1996 1995
<S> <C> <C>
Restated Pension Plan
Vested benefit obligation.......... $ 38,457 $ 36,571
========= =========
Accumulated benefit obligation..... $ 42,436 $ 40,208
========= =========
Projected benefit obligation...... $ 47,319 $ 46,652
Plan assets at fair value......... 40,228 37,174
_________ _________
Projected benefit obligation in
excess of plan assets............ (7,091) (9,478)
Unrecognized net asset existing at
January 1, 1987, being amortized
over 15.7 years.................. (629) (741)
Unrecognized prior service cost... 2,213 2,470
Unrecognized net loss............. 4,894 6,536
_________ _________
Accrued pension cost.............. $ (613) $ (1,213)
========= =========
Required minimum liability........ $ 1,595 $ 1,821
========= =========
</TABLE>
<TABLE>
<CAPTION>
(Thousands of Dollars)
Unfunded Plan
December 31
______________________
1996 1995
<S> <C> <C>
Supplemental Retirement Plan
Vested benefit obligation......... $ 949 $ 952
========= =========
Accumulated benefit obligation.... $ 1,340 $ 1,453
========= =========
Projected benefit obligation-
not funded....................... $ (1,563) $ (1,641)
Unrecognized net obligation
existing at January 1, 1987,
being amortized over 15 years.... 125 150
Unfunded prior service cost....... 196 251
Unrecognized net loss............. 145 205
_________ _________
Accrued pension cost.............. $ (1,097) $ (1,035)
========= =========
</TABLE>
The weighted-average discount rate and rate of increase in future
compensation levels used in determining the actuarial present value of the
projected benefit obligations were 7.5% and 4.0% for 1996 and 7.5% and 5.0%
for 1995. The expected long-term rate of return on assets was 8.5%. Plan
assets consist principally of common stock of public companies, corporate
bonds, and U.S. government securities. Figures reported include benefits of
UPPCO employees assigned to the Presque Isle Power Plant.
UPPCO had a sick leave payback provision in its contract with
bargaining unit employees that provided for a lump-sum payment of
accumulated sick days upon termination at the then-current wage rate up to a
maximum of 100 days. This provision was changed in 1995 wherein the number
of days and wage rate were capped at the May 1, 1995, level, and the payment
is due only upon retirement. New hires will receive no such payments.
Therefore, in 1995 a curtailment gain of $168,000 was realized.
10. Postretirement Benefits Other Than Pension
UPPCO provides certain health care and life insurance benefits for
retired employees. Statement of Financial Accounting Standards No. 106
(SFAS 106), "Employer's Accounting for Postretirement Benefits Other Than
Pensions," requires the accrual of the cost of certain postretirement
benefits other than pensions over the active service life of the employee.
UPPCO previously recorded these costs on the pay-as-you-go (cash) basis.
Effective January 1, 1993, UPPCO adopted SFAS 106. In 1993 UPPCO received
MPSC approval in a general rate order to defer $574,000 in 1993 SFAS 106
postretirement health care costs as a regulatory asset to be amortized over
19 years to match rate recovery.
Net periodic postretirement benefits for accounting purposes in 1996
and 1995 included the following components:
<TABLE>
<CAPTION>
(Thousands of Dollars)
Year Ended December 31
_____________________________
1996 1995 1994
<S> <C> <C> <C>
Service cost-benefits earned
during the period............... $ 203 $ 169 $ 259
Interest cost on accumulated
postretirement benefit
obligation...................... 1,107 946 1,006
Actual return on assets.......... (63) (42) 0
Net amortization and deferral.... 605 547 615
_______ _______ _______
Net cost......................... $ 1,852 $ 1,620 $ 1,880
======= ======= =======
</TABLE>
Net periodic postretirement expense includes amounts charged to WEPCO
in connection with the operation of the Presque Isle Power Plant of
$564,000, $519,000, and $607,000 for 1996, 1995, and 1994, respectively.
A reconciliation of the funded status of the plan to the amounts
recognized in the December 31 financial statements follows:
<TABLE>
<CAPTION>
(Thousands of Dollars)
Year Ended December 31
______________________
1996 1995
<S> <C> <C>
Accumulated postretirement benefit
obligation:
Retirees.......................... $ (6,321) $ (5,302)
Fully eligible active plan
participants..................... (5,637) (4,145)
Other active plan participants.... (3,265) (2,943)
________ ________
Total............................... (15,223) (12,390)
Plan assets at fair value........... 620 557
________ ________
Accumulated postretirement benefit
obligation in excess of plan
assets............................. (14,603) (11,833)
Unrecognized obligation (asset) at
transition......................... 9,210 9,786
Unrecognized net gain from past
experience different from that
assumed............................ 1,613 (836)
________ ________
Accrued postretirement benefit
cost............................... $ (3,780) $ (2,883)
======== ========
</TABLE>
For measurement purposes, a 10.4% and 6.1% annual rate of increase in
the per capita cost of covered health care benefits for participants under
age 65 and over age 65, respectively, were assumed for 1996; both of the
rates were assumed to decrease gradually to 5.5% for 2005 and remain at that
level thereafter. The health care cost trend rate assumption has a
significant effect on the amounts reported. To illustrate, increasing the
assumed health care cost trend rate by one (1) percentage point per year
would increase the accumulated postretirement benefit obligation as of
December 31, 1996, by $2,186,650 and the aggregate of the service cost and
the interest cost components of the net periodic postretirement benefit cost
for the year then ended by $187,744.
The obligations disclosed as of December 31, 1996 and 1995, used a
discount rate of 7.5% to measure the accumulated postretirement benefit
obligation.
11. Commitments and Contingencies
UPPCO has a service schedule to a purchase-power agreement with WEPCO
that entitles UPPCO to purchase 65 MW of capacity through 1997. UPPCO pays
$413,000 per month for this entitlement.
The Company is subject to various unresolved legal matters that arose
in the normal course of business. Although it is not possible to predict
the outcome of these legal actions, Company management believes that these
actions will not have a material adverse effect on its financial position or
results of operations.
Cost of the construction program for 1997 is estimated to be
$3,900,000. In connection therewith, certain commitments have been made.
12. Quarterly Information (Unaudited)
The quarterly information has not been audited but in the opinion of
the Company reflects all adjustments necessary for the fair statement of
results of operations for each period.
<TABLE>
<CAPTION>
(Thousands of Dollars)
Quarter Ended
_________________________________________
1996 March 31 June 30 Sept. 30 Dec. 31
<S> <C> <C> <C> <C>
Operating revenues....... $ 15,572 $ 13,810 $ 14,079 $ 14,841
Operating income......... $ 2,675 $ 2,031 $ 2,012 $ 2,335
Net income............... $ 1,695 $ 1,012 $ 1,002 $ 1,421
Earnings per share....... $ .57 $ .34 $ .34 $ .48
1995
Operating revenues....... $ 16,757 $ 14,523 $ 14,906 $ 14,919
Operating income......... $ 3,541 $ 2,299 $ 2,125 $ 1,551
Net income............... $ 2,536 $ 1,286 $ 1,102 $ 367
Earnings per share....... $ .85 $ .44 $ .37 $ .12
</TABLE>
The lower net income in the fourth quarter of 1995 reflects an
increase in scheduled maintenance expenditures.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
______________________________________________________
There are no disagreements on accounting and financial disclosures
between the Registrant and its accountants, Deloitte & Touche LLP.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
____________________________________________________________
The relevant information appearing under the captions, "Election of
Directors", "Directors' Compensation", and "Directors' and Committee
Meetings and Functions" in the Registrant's Proxy Statement (filed pursuant
to Regulation 14A) with respect to the Registrant's April 22, 1997 Annual
Meeting of Shareholders is incorporated herein by reference.
Item 11. EXECUTIVE COMPENSATION
________________________________
The relevant information appearing under the captions "Compensation
Committee Report on Executive Compensation", "Summary Compensation Table",
"Pension Plans", "Supplemental Retirement Plan", "Termination of Employment
and Change of Control Statement Arrangements" and "Other Compensation Plans
(filed pursuant to Regulation 14A) with respect to the Registrant's April
22, 1997 Annual Meeting of Shareholders is incorporated herein by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
_____________________________________________________________
The information appearing in the first paragraph under the caption
"Stock Outstanding, Voting Rights and Votes Required" and the material under
the caption "Election of Directors" in the Registrant's Proxy Statement
(filed pursuant to Regulation 14A) with respect to the Registrant's April
22, 1997 Annual Meeting of Shareholders is incorporated herein by reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
________________________________________________________
The information appearing under the caption "Transactions with
Management" in the Registrant's Proxy Statement (filed pursuant to
Regulation 14A) with respect to the Registrant's April 22, 1997 Annual
Meeting of Shareholders is incorporated herein by reference.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS
ON FORM 8-K
______________________________________________________________
(a) 1. List of financial statements:
Management's Responsibility for Financial Statements
Independent Auditors' Report dated February 7, 1997.
Consolidated Balance Sheets--December 31, 1996 and
1995.
Consolidated Statements of Income--Years ended
December 31, 1996, 1995 and 1994.
Consolidated Statements of Cash Flows--Years ended
December 31, 1996, 1995 and 1994.
Consolidated Statements of Changes in Common Equity--
Years ended December 31, 1996, 1995 and 1994.
Consolidated Statements of Capitalization--
December 31, 1996 and 1995.
Notes to Financial Statements--December 31, 1996.
2. Schedule II Valuation and Qualifying Accounts and
Provisions--Years ended December 31, 1996, 1995 and
1994.
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable, or are included
in the information with the Annual Report to Shareholders and therefore have
been omitted.
3. List of Exhibits
Exhibit No. Description of Exhibit
__________ ______________________
( 3) Articles of Incorporation and Bylaws
3(a) --- Articles of Incorporation of Registrant
(Exhibit 3(i) to Registration
Statement No. 33-24066, filed on
August 30, 1988)
3(b) --- Bylaws of the Registrant
(Exhibit 3(ii) to Registration
Statement No. 33-24066, filed on
August 30, 1988)
[INSTRUMENTS TO WHICH UPPCO IS A PARTY]
3.1(a) --- 1980 Restated Articles of Incorporation
of UPPCO, Incorporating Amendments
No. 1, 2 and 3
(Exhibit 3.1(a) to Form 10-K, dated
March 27, 1991)
3.1(b) --- Bylaws of UPPCO as amended and
restated through June 8, 1988
(Exhibit 3.1(b) to Form 10-K, dated
March 29, 1989)
[INSTRUMENTS TO WHICH UPBDC IS A PARTY]
3.2(a) --- Certificate of Articles of Incorporation
of UPPCO dated January 18, 1989
(Exhibit 3.2(a) to Form 10-K, dated
March 28, 1990)
3.2(b) --- Bylaws of UPBDC
(Exhibit 3.2(b) to Form 10-K, dated
March 28, 1990)
[INSTRUMENTS TO WHICH PENVEST, INC. IS A PARTY]
3.3(a) --- Certificate of Articles of Incorporation
of PENVEST dated October 20, 1995
(Filed herewith)
3.3(b) --- Bylaws of PENVEST, INC.
(Filed herewith)
( 4) Instruments defining the rights of security holders,
including indentures
[INSTRUMENTS TO WHICH UPPCO IS A PARTY]
4.1(a)-1 --- Indenture of Mortgage dated May 1, 1947
relating to UPPCO's First Mortgage
Bonds.
(Exhibit 4(d)-1 to Form 8-K, dated
December 13, 1988)
4.1(a)-2 --- Supplemental Indenture dated as of
May 1, 1947.
(Exhibit 4(d)-2 to Form 8-K, dated
December 13, 1988)
4.1(a)-3 --- Second Supplemental Indenture dated as
of December 1, 1948.
(Exhibit 4(d)-3 to Form 8-K, dated
December 13, 1988)
4.1(a)-4 --- Third Supplemental Indenture dated as of
November 1, 1950.
(Exhibit b(1)(d)4 to Registration No.
2-66759)*
4.1(a)-5 --- Fourth Supplemental Indenture dated as
of October 1, 1953.
(Exhibit b(1)(d)5 to Registration No.
2-66759)*
4.1(a)-6 --- Fifth Supplemental Indenture dated as of
April 1, 1957.
(Exhibit b(1)(d)6 to Registration No.
2-66759)*
4.1(a)-7 --- Sixth Supplemental Indenture dated as of
September 1, 1958.
(Exhibit b(1)(d)7 to Registration No.
2-66759)*
4.1(a)-8 --- Seventh Supplemental Indenture dated as
of May 1, 1961.
(Exhibit b(1)(d)8 to Registration No.
2-66759)*
4.1(a)-9 --- Eighth Supplemental Indenture dated as
of May 1, 1963.
(Exhibit b(1)(d)9 to Registration No.
2-66759)*
4.1(a)-10 --- Ninth Supplemental Indenture dated as of
January 1, 1971.
(Exhibit 4(d-10 to Form 8-K, dated
December 13, 1988)
4.1(a)-11 --- Tenth Supplemental Indenture dated as of
November 1, 1973.
(Exhibit 4(d-11 to Form 8-K, dated
December 13, 1988)
4.1(a)-12 --- Eleventh Supplemental Indenture dated as
of May 1, 1976.
(Exhibit 4(d-12 to Form 8-K, dated
December 13, 1988)
4.1(a)-13 --- Twelfth Supplemental Indenture dated as
of August 1, 1981
(Exhibit 4(a)-13 to Form 10-K, dated
March 26, 1982)*
4.1(a)-14 --- Thirteenth Supplemental Indenture dated
as of November 1, 1988
(Exhibit 4(d-14 to Form 8-K, dated
December 13, 1988)
4.1(a)-15 --- Fourteenth Supplemental Indenture dated
as of November 1, 1991
(Exhibit 4.1(a)-15 to Form 10-Q, dated
November 11, 1991)
4.1(a)-16 --- Fifteenth Supplemental Indenture dated
as of March 1, 1993
(Exhibit 4.1(a)-16 to Form 10-K, dated
March 25, 1993)
4.1(b) --- Installment Sales Contract between the
Village of L'Anse and UPPCO dated
May 1, 1974.
(Exhibit A-II to Form 8-K, dated
July 10, 1974)*
4.1(c)-1 --- Lease and Security Agreement dated May 9,
1977 between UPPCO, as lessee and
debtor, and PruLease, Inc., as lessor
and secured party.
(Exhibit 5 to Form 10-K dated March 28,
1978)*
4.1(c)-2 --- Amendment No. 1 to Lease and Security
Agreement dated June 29, 1979 between
UPPCO, as lessee and debtor, and
PruLease, Inc. as lessor and secured
party.
(Exhibit b(1)(d)15 to Registration No.
2-66759)*
4.1(c)-3 --- Amendment No. 2 to Lease and Security
Agreement dated May 1, 1982 between
UPPCO, as lessee and debtor, and
PruLease, Inc. as lessor and secured
party.
(Exhibit 4(c)-3 to Form 10-K dated
March 28, 1983)*
4.1(c)-4 --- Loan Agreement dated as of June 30, 1988
between UPPCO and First of America
Bank-Copper Country
(Exhibit 4.1(c)-4 to Form 10-K dated
March 29, 1989)
4.1(d) --- Lease Agreement dated as of November 13,
1991 between UPPCO and UPBDC
(Exhibit 4.1(d) to Form 10-K dated
March 25, 1992)
[INSTRUMENTS TO WHICH UPBDC IS A PARTY]
4.2(a) --- Trust Indenture, Mortgage and Security
Agreement dated November 1, 1991,
relating to UPBDCO's Senior Secured
Note
(Exhibit 4.2(a) to Form 10-K dated
March 25, 1992)
4.2(c) --- Loan Agreement dated as of June 20, 1989
between UPBDC and National Bank of
Detroit.
(Exhibit 4.2(c) to Form 10-K, dated
March 28, 1990)
4.2(d) --- Lease Agreement dated as of November 13,
1991 between UPBDC and UPPCO
(Exhibit 4.2(d) to Form 10-K dated
March 25, 1992
( 9) Voting Trust Agreement N/A
(10) Material Contracts
[INSTRUMENTS TO WHICH UPPCO IS A PARTY]
10.1(e)-8 --- Plant Operating Agreement, effective
June 1, 1988 between UPPCO and the
City of Escanaba
(Exhibit 10.1(e)-8 to Form 10-K dated
March 29, 1989)
10.1(e)-9 --- Interconnection Agreement, effective
June 1, 1988 between UPPCO and the
City of Escanaba
(Exhibit 10.1(e)-9 to Form 10-K dated
March 29, 1989)
10.1(e)-10 --- Dispatch Services Agreement, effective
September 8, 1988 between UPPCO and
the City of Escanaba
(Exhibit 10.1(e)-10 to Form 10-K dated
March 29, 1989)
10.1(f)-1 --- Contract among UPPCO and Board of Light
and Power of the City of Marquette,
Michigan, dated September 7, 1978 for
20 mW of capacity from City of
Marquette plant. (Exhibit 10.1(f) to
Form 10-K, dated March 28, 1990)
10.1(f)-2 --- Addendum to contract among UPPCO and
Board of Light and Power of the City of
Marquette, Michigan, dated February 16,
1982.
(Exhibit 10(f)-1 to Form 10-K, dated
March 26, 1982)*
10.1(g)-1 --- Power Plant Operating Agreement dated as
of December 31, 1987 by and among UPPCO
and WEPCO pertaining to operating the
Presque Isle Power Plant and certain
related facilities
(Exhibit 10(g)-1 to Form 10-K, dated
March 29, 1988)*
10.1(g)-1.1--- Power Plant Operating Agreement dated as
of July 26, 1990 by and among UPPCO
and WEPCO pertaining to operating the
Presque Isle Power Plant and certain
related facilities
(Exhibit 1 to Form 10-Q, dated
August 10, 1990)
10.1(g)-2 --- Dispatch Agreement dated as of December
8, 1987 between UPPCO and WEPCO
pertaining to electric power dispatch
functions for the Presque Isle Power
Plant
(Exhibit 10(g)-2 to Form 10-K, dated
March 29, 1988)*
10.1(g)-2. --- Amendment No. 1 to Dispatch Agreement
dated as of October 31, 1990 between
UPPCO and WEPCO pertaining to electric
power dispatch functions for the
Presque Isle Power Plant
(Exhibit 1 to Form 10-Q, dated
November 12, 1990)
10.1(g)-3 --- Transmission Maintenance Agreement dated
as of December 31, 1987 between UPPCO
and WEPCO pertaining to the mainte-
nance of certain WEPCO transmission
and substation facilities
(Exhibit 10(g)-3 to Form 10-K, dated
March 29, 1988)*
10.1(g)-3.1--- Amendment No. 1 to Transmission
Maintenance Agreement dated as of
October 31, 1990 between UPPCO and
WEPCO pertaining to the maintenance of
certain WEPCO transmission and sub-
station facilities
(Exhibit 2 to Form 10-Q, dated
November 12, 1990)
10.1(g)-4 --- Joint Use of Transmission Agreement
dated as of December 8, 1987 between
UPPCO and WEPCO
(Exhibit 10(g)-4 to Form 10-K, dated
March 29, 1988)*
10.1(g)-4.1--- Amendment No. 1 to Joint Use of
Transmission Agreement dated as of
October 31, 1990 between UPPCO and
WEPCO (Exhibit 3 to Form 10-Q, dated
November 12, 1990)
10.1(g)-5 --- Amendment dated December 8, 1987 to
Interconnection Agreement dated April
9, 1974, as amended August 8, 1980 and
February 2, 1982, between UPPCO and
WEPCO
(Exhibit 10(g)-5 to Form 10-K, dated
March 29, 1988)*
10.1(g)-6 --- Joint Use and Facility Sharing Agreement
dated as of October 9, 1990 between
UPPCO and WEPCO
(Exhibit 10.1(g)-6 to Form 10-K, dated
March 27, 1991)
10.1(h)-1 --- Performance Incentive Plan for Officers
of UPPCO, effective January 1, 1990
(Exhibit 10.1(h)-1 to Form 10-K, dated
March 27, 1991)
10.1(i)-1 --- Power Supply Agreement dated September
17, 1993 between UPPCO and Northern
States Power Company (Exhibit 1 to Form
10-K, dated March 24, 1994)
* Parenthetical references following descriptions of Upper
Peninsula Power Company instruments are to filings made
by that Company. 1934 ACT File No. is 0-1276
(11) Statement re computation of per share earnings N/A
(12) Statements re computation of ratios N/A
(18) Letter re change in accounting principles N/A
(21) Subsidiaries of the registrant:
21(a) --- UPPCO, incorporated in 1947 under the
laws of the State of Michigan doing
business under the same name.
21(b) --- UPBDC, incorporated in 1989 under the
laws of the state of Michigan doing
business under the same name.
21(c) --- PENVEST, incorporated in 1995 under the
laws of the State of Michigan doing
business under the same name.
(22) Published report regarding matters submitted to vote
of security holders N/A
(23) Consents of experts and counsel
23(a) --- Consent of Independent Certified Public
Accountants (Filed herewith)
(24) Power of attorney N/A
(27) Financial Data Schedule
(Filed herewith)
(28) Information from reports furnished to state insurance
regulatory authorities. N/A
(b) Reports on Form 8-K filed in the fourth quarter of 1996.
No reports on Form 8-K have been filed during the last
quarter of 1996.
(c) The exhibits filed herewith are identified above.
(d) See Item (a)2 above.
(99) Additional Exhibits
99(a) --- Notice of Annual Meeting and Proxy
Statement with respect to
Registrant's April 22, 1997
Annual Meeting of Shareholders
(Filed March 19, 1997)
S I G N A T U R E S
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
UPPER PENINSULA ENERGY CORPORATION
__________________________________
(Registrant)
Date: March 27, 1997 /s/ B. C. Arola
__________________________________
B. C. Arola
Vice President, Treasurer and Secretary
(Principal Financial Officer and
Principal Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
/s/ L. Angeli 3/17/97 /s/ C. R. Fisher 3/17/97
_______________________________ ________________________________
L. Angeli, Director (Date) C. R. Fisher, Chairman (Date)
of the Board and President
(Principal Executive Officer)
/s/ S. S. Benedict 3/17/97 /s/ T. M. Strong 3/17/97
_______________________________ ________________________________
S. S. Benedict, Director (Date) T. M. Strong, Director (Date)
/s/ R. T. Ederer 3/17/97 /s/ R. A. Ubbelohde 3/17/97
_______________________________ ________________________________
R. T. Ederer, Director (Date) R. A. Ubbelohde, Director (Date)
SCHEDULE II
UPPER PENINSULA ENERGY CORPORATION AND SUBSIDIARIES
____________________________________________________
VALUATION AND QUALIFYING ACCOUNTS AND PROVISIONS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
_______________________________________________________________________________________________
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
.... ADDITIONS ....
BALANCE AT CHARGED CHARGED DEDUCTIONS BALANCE AT
BEGINNING TO TO OTHER FROM CLOSE
DESCRIPTION OF YEAR INCOME ACCOUNTS(a) RESERVES(b) OF YEAR
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1996
Valuation account deducted from
caption to which it applies -
accumulated provision for
doubtful accounts................ $ 86,436 $(51,100) $114,904 $85,693 $ 64,547
=============================================================
YEAR ENDED DECEMBER 31, 1995
Valuation account deducted from
caption to which it applies -
accumulated provision for
doubtful accounts................ $110,545 $ 42,900 $ (9,656) $57,353 $ 86,436
=============================================================
YEAR ENDED DECEMBER 31, 1994
Valuation account deducted from
caption to which it applies -
accumulated provision for
doubtful accounts................ $ 85,916 $ 70,900 $ 30,779 $77,050 $110,545
=============================================================
<Fa> Recovery of accounts previously written off.
<Fb> Accounts written off.
________________________________________________________________________________________________
</TABLE>
ARTICLES OF INCORPORATION EXHIBIT 3.3(a)
OF
PENVEST, INC.
These Articles of Incorporation are executed pursuant to the
provisions of Act 284, Public Acts of 1972.
ARTICLE I
The name of the Corporation is PENVEST, INC.
ARTICLE II
The purpose or purposes for which the Corporation is organized is to
engage in any activity within the purposes for which corporations may be
organized under the Business Corporation Act of Michigan.
ARTICLE III
Part 1. Authorized Capital Stock
The total authorized capital stock is 100 shares of Common Stock of a
par value $.01 per share (the "Common Stock").
The statement of the designations and the voting and other powers,
preferences and rights, and the qualifications, limitations or restrictions
thereof, of the Common Stock and is as follows:
Part 2. Voting Rights
The holders of shares of the Common Stock shall be entitled to one
vote per share upon each matter coming before any meeting of stockholders.
Part 3. Preemptive Rights
The holders of shares of Common Stock shall have no pre-emptive rights
to subscribe for, or purchase, any additional issues of shares of the
capital stock of the Corporation of any class, now or hereafter authorized,
or any bonds, debentures, or other obligations or rights or options
convertible into or exchangeable for, or entitling, the holder or owner to
subscribe for, or purchase, any shares of capital stock, or any rights to
exchange shares issued for shares to be issued.
Part 4. Issuance of Stock
Except as may be provided by law, the shares of capital stock of any
class or series may be issued by the Corporation, from time to time, without
action by the shareholders, for such lawful considerations as may, from time
to time, be fixed by the Board of Directors.
ARTICLE IV
The address of the initial registered office is: 600 Lakeshore Drive,
Houghton, Michigan 49931.
The name of the initial resident agent is: Clarence R. Fisher.
ARTICLE V
The name and address of the incorporator is:
Name Business Address
Upper Peninsula Energy Corporation, 600 Lakeshore Drive
a Michigan corporation Houghton, Michigan 49931-0130
ARTICLE VI
1. A director of the Corporation shall not be personally liable to
the Corporation, or its shareholders, for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the Corporation, or its shareholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of law, (iii), for a violation of Section 551(1) of
the Michigan Business Corporation Act, or (iv) for any transaction from
which the director derived an improper personal benefit. In the event the
Michigan Business Corporation Act is hereafter amended to authorize
corporate action, further eliminating or limiting the personal liability of
directors, then the liability of a director of the Corporation shall be
eliminated or limited to the fullest extent permitted by the Michigan
Business Corporation Act, as so amended. Any repeal, amendment or other
modification of this section shall not adversely affect any right or
protection of any director of the Corporation existing at the time of such
repeal, amendment or other modification for, or with respect to, any act or
omission occurring prior to the time of such repeal, amendment or other
modification.
2. The Corporation shall indemnify any and all of its directors and
officers, or former directors and officers, or any individual who is, or
was, serving at the Corporation's request as a director, officer, partner,
trustee, employee or agent of another foreign or domestic corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise
(whether for profit or not). A person is considered to be serving an
employee benefit plan at the Corporation's request if his duties to the
Corporation also impose duties on, or otherwise involve services by him to
the plan or to participants in, or beneficiaries of, the plan. Such
indemnification shall be fixed by agreement between the Corporation and such
person. Such indemnification shall not be deemed exclusive of any other
rights to which those indemnified may be entitled, whether under the
Articles of Incorporation, under any bylaw, vote of shareholders, insurance
agreement, statute, or otherwise.
ARTICLE VII
At a meeting of the Shareholders, called for the purpose of removing
any Director, such Director may, by a vote of a majority of all the shares
outstanding and entitled to vote, be removed from office for cause and another
be elected in his place.
ARTICLE VIII
The Board of Directors of the Corporation shall not make or alter any
Bylaws.
Upper Peninsula Energy Corporation, a Michigan corporation, the
incorporator, hereby causes these Articles of Incorporation to be executed
by its duly authorized officer this 20th day of October, 1995.
Upper Peninsula Energy Corporation,
a Michigan corporation
By /s/ Clarence R. Fisher
-------------------------------------
Clarence R. Fisher, Its
Chairman of
the Board and President
EXHIBIT 3.3(b)
PENVEST, INC.
ADOPTION OF BYLAWS AND SELECTION
OF DIRECTORS BY WRITTEN INSTRUMENT
This document is executed by and on behalf of Upper Peninsula Energy
Corporation, a Michigan corporation, as the sole shareholder and
incorporator of PENVEST, INC., a Michigan corporation, pursuant to Section
223 of the Michigan Business Corporation Act (1972 PA 284, MCLA 450.1223) in
lieu of a formal meeting of incorporator for the purpose of adopting bylaws
and selecting directors of PENVEST, INC.
ADOPTION OF BYLAWS
RESOLVED, that bylaws in the form attached hereto as Exhibit A, be,
and the same are, hereby adopted as the bylaws of PENVEST, INC.
SELECTION OF DIRECTORS
RESOLVED, that each of the following persons are hereby selected as
directors of PENVEST, INC. to serve until the first annual meeting of
shareholders of PENVEST, INC. and until their respective successors are duly
elected and qualified:
Clarence R. Fisher
Burton C. Arola
Neil D. Nelson
IN WITNESS WHEREOF, Upper Peninsula Energy Corporation, sole
shareholder and incorporator, has caused this instrument to be executed by
its duly authorized officer as of the 20th day of October, 1995.
UPPER PENINSULA ENERGY CORPORATION,
a Michigan corporation
By /s/ Clarence R. Fisher
-----------------------------------------
Clarence R. Fisher, Chairman of the Board
and President
BYLAWS
OF
PENVEST, INC.
ARTICLE I
OFFICES
Penvest, Inc. (Company) shall maintain a principal office in the State
of Michigan, as required by law.
ARTICLE II
SEAL
The Company shall have no corporate seal.
ARTICLE III
MEETINGS OF SHAREHOLDERS
Section 1. Place. Meetings of the shareholders of the Company shall
be held at such place either within or without the State of Michigan as may,
from time to time, be designated by the Board of Directors and stated in the
notice of meeting.
Section 2. Annual Meeting. Commencing in 1996, an annual meeting of
the shareholders of the Company shall be held each year on the fourth
Tuesday in April (or if that be a legal holiday, then on the next business
day) for the election of directors and for the transaction of such other
business as may be brought before the meeting.
Section 3. Special Meetings. Special meetings of the shareholders
may be called on the order of the Chairman of the Board, the President, a
Vice President, or of a majority of the Board of Directors.
Section 4. Notice. Written notice of all meetings of the
shareholders shall be mailed to, or delivered to, each shareholder not less
than ten (10) nor more than sixty (60) days prior to the meeting. Notice of
any meeting shall state in general terms the purposes for which the meeting
is to be held.
Section 5. Quorum. The holders of a majority of the issued and
outstanding shares of the capital stock of the Company entitled to vote
thereat, present in person or represented by proxy, shall constitute a
quorum for the transaction of business at all meetings of the shareholders,
except as may otherwise be provided by law, by the Articles of Incorporation
or by these Bylaws. The shareholders present in person, or by proxy, at
such meeting may continue to do business until adjournment, notwithstanding
the withdrawal of enough shareholders to leave less than a quorum. If there
be less than a quorum, the holders of a majority of the stock so present or
represented may adjourn the meeting from time to time.
Section 6. Voting. At all meetings of the shareholders, every
registered owner of shares entitled to vote may vote in person or by proxy
and shall have one vote for each such share standing in his name on the
books of the Company. The Board of Directors, in advance of a shareholders'
meeting, may appoint one or more inspectors to act at the meeting or any
adjournment thereof. The inspectors shall perform such duties and shall
make such determinations as are prescribed by law.
Section 7. Chairman of the Meeting. The Chairman of the Board or, in
his absence, the President or, in the President's absence, a Vice President
shall preside at all meetings of the shareholders; and, in the absence of
all of the same, the Board of Directors may appoint any shareholder to act
as chairman of the meeting.
Section 8. Secretary of Meeting. The Secretary of the Company shall
act as secretary of all meetings of the shareholders; and, in his absence,
the chairman may appoint any person to act as secretary of the meeting.
Section 9. Shareholder Action Taken Without Meeting. Any action
required or permitted by 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 a consent in writing, setting forth the action so taken,
is signed by the holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take the
action at a meeting at which all shares entitled to vote thereon were
present and voted.
Prompt notice of the taking of the corporate action without a meeting
by less than unanimous written consent shall be given to shareholders who
have not consented in writing.
ARTICLE IV
BOARD OF DIRECTORS
Section 1. Management of Company. The property, business, and
affairs of the Company shall be managed and controlled by its Board of
Directors.
Section 2. Number, Classification and Term of Office. The number of
Directors shall be not less than three (3) nor more than seven (7), at the
discretion of the Board of Directors. Directors need not be shareholders of
the Company. The first Board of Directors of this corporation shall hold
office until the first annual shareholders' meeting to be held in 1996 and
thereafter until the annual meeting of shareholders held each subsequent
year. Directors shall hold office for the term of one year, and/or until
their successors are elected and qualified.
Section 3. Vacancy. Whenever any vacancy shall occur in the Board of
Directors, by reason of death, resignation, or increase in the number of
directors or otherwise, it may be filled by a majority of the remaining
directors, through less than a quorum, for the balance of the term.
Section 4. Annual Meeting. The annual meeting of the Board of
Directors, of which no notice shall be necessary, shall be held immediately
following the annual meeting of shareholders, or any adjournment thereof,
for the purpose of the organization of the Board of Directors and the
election or appointment of officers for the ensuing year and for the
transaction of such other business as may conveniently and properly be
brought before such meeting.
Section 5. Regular Meetings. Regular meetings of the Board of
Directors shall be held at such dates, hours and places as may, from time to
time, be fixed by the Board of Directors.
Section 6. Special Meetings. Special meetings of the Board of
Directors may be called by any director. The Secretary shall give notice of
the time, place, and purpose or purposes of each special meeting by mailing
the same at least two days before the meeting or by telephoning or
telegraphing the same at least one day before the meeting to each director.
Section 7. Conduct of Meetings. At meetings of the Board of
Directors, the Chairman of the Board, or, in his absence, the President, or
a designated Vice President shall preside. A majority of the members of the
Board of Directors shall constitute a quorum for the transaction of
business, but less than a quorum may adjourn any meeting from time to time
until a quorum shall be present, whereupon the meeting may be held, as
adjourned, without further notice. At any meeting at which every director
shall be present, even though without any notice, any business may be
transacted.
Section 8. Compensation. The directors shall receive such
compensation for their services as directors and as members of any committee
appointed by the Board of Directors as may be prescribed by the Board of
Directors.
Section 9. Manifestation of Dissent. A director of the Company who
is present at a meeting of the Board of Directors at which action on any
corporate matter is taken shall be presumed to have assented to the action
taken, unless his dissent shall be entered in the minutes of the meeting or
unless he shall file his written dissent to such action with the person
acting as the secretary of the meeting before the adjournment thereof or
shall forward such dissent by registered mail to the Secretary of the
Company immediately after the adjournment of the meeting. Such right to
dissent shall not apply to a director who voted in favor of such action.
ARTICLE V
COMMITTEES
Section 1. Committees. The Board of Directors may appoint from among
its own members such committees as the Board of Directors may determine,
which shall consist of one or more directors, and which shall have such
powers and duties as shall, from time to time, be prescribed by the Board of
Directors. The Chairman of the Board shall be a member ex officio of each
committee appointed by the Board of Directors, unless otherwise directed by
the Board of Directors.
Section 2. Rules of Procedure. A majority of members of any
committee may fix its rules of procedure. All action by any committee shall
be reported to the Board of Directors at a meeting succeeding such
action and shall be subject to revision, alteration, and approval by the
Board of Directors; provided that no rights or acts of third parties shall
be affected by any such revision or alteration.
ARTICLE VI
OFFICERS
Section 1. Elections. The Board of Directors shall elect a Chairman
of the Board and a President from its own number and such Vice Presidents
(who may or may not be directors) as in the opinion of the Board of
Directors the business of the Company requires, a Treasurer and a Secretary;
and, it shall elect or appoint, from time to time, such other or additional
officers as in its opinion are desirable for the conduct of the business of
the Company. Any two or more offices may be held by the same person.
Section 2. Removal. In its discretion, the Board of Directors, by
the vote of a majority of the whole Board of Directors, may leave unfilled
for any such period as it may fix by resolution, any office, except those of
the Chairman of the Board, President, Treasurer, and Secretary. Any officer
or agent shall be subject to removal at any time by the affirmative vote of
a majority of the whole Board of Directors. Any officer, agent, or
employee, other than officers appointed by the Board of Directors, shall
hold office at the discretion of the officer appointing them.
Section 3. Duties of the Chairman of the Board. The Chairman of the
Board shall be the Chief Executive Officer of the Company and, as such,
shall have supervision of its policies, business and affairs, and such other
powers and duties as are commonly incident to the office of Chief Executive
Officer. He shall preside at the meetings of the Board of Directors and may
call meetings of the Board of Directors and of any committee thereof,
whenever he deems it necessary, and he shall call to order and act as
chairman of all meetings of the shareholders of the Company. He may sign,
execute, and deliver in the name of the Company, powers of attorney,
contracts, bonds, and other obligations and shall perform such other duties
as may be prescribed, from time to time, by the Board of Directors or by the
Bylaws. He may appoint officers, agents, or employees other than those
appointed by the Board of Directors.
Section 4. President. The President shall be the Chief Operating
Officer of the Company. He shall exercise such duties as customarily
pertain to the office of President and Chief Operating Officer and shall
have general and active supervision over the property, business, and affairs
of the Company and over its several officers and shall have such other
duties as shall be delegated by the Chairman of the Board. He may sign,
execute, and deliver in the name of the Company, powers of attorney,
contracts, bonds, and other obligations and shall perform such other duties
as may be prescribed, from time to time, by the Board of Directors or by the
Bylaws. In the absence or disability of the Chairman of the Board, the
President shall perform the duties and exercise the powers of the Chairman
of the Board.
Section 5. Vice Presidents. The Vice Presidents shall have such
powers and perform such duties as may be assigned to them by the Board of
Directors or the Chairman of the Board or by the President. In the absence
or disability of the President and the Vice President (or if more than one,
the Vice President designated by the Board of Directors to act for the
President) shall perform the duties and exercise the powers of the
President. A Vice President may sign and execute contracts and other
obligations pertaining to the regular course of his duties.
Section 6. Treasurer. The Treasurer shall have general custody of
all the funds and securities of the Company and have general supervision of
the collection and disbursement of funds of the Company. He shall endorse,
on behalf of the Company, for collection checks, notes, and other
obligations, and shall deposit the same to the credit of the Company in such
bank or banks or depositories as the Board of Directors may designate. He
may sign with the Chairman of the Board or the President, or such other
person or persons as may be designated for the purpose by the Board of
Directors all bills of exchange or promissory notes of the Company. He
shall enter, or cause to be entered, regularly in the books of the Company
full and accurate account of all moneys received and paid by him on account
of the Company; shall, at all reasonable times, exhibit his books and
accounts to any director of the Company upon application at the office of
the Company during business hours; and, whenever required by the Board of
Directors or the Chairman of the Board or the President, shall render a
statement of his accounts. He shall be responsible to the Board of
Directors and to the Chairman of the Board and to the President for all
financial control and internal audit of the Company and the subsidiaries.
He shall perform such other duties as may be prescribed from time to time by
the Board of Directors or by the Bylaws.
Section 7. Secretary. The Secretary shall keep the minutes of all
meetings of the shareholders and of the Board of Directors, and to the
extent ordered by the Board of Directors, or the Chairman of the Board or
the President, the minutes of meetings of all committees. He shall cause
notice to be given of meetings of shareholders, of the Board of Directors,
and of any committee appointed by the Board of Directors. He shall have
general charge of the records, documents, and papers of the Company not
pertaining to the performance of the duties vested in other officers, which
shall, at all reasonable times, be open to the examination of any director.
He may sign or execute contracts with the Chairman of the Board or the
President or a Vice President thereunto authorized in the name of the
Company. He shall perform such other duties as may be prescribed, from time
to time, by the Board of Directors or by the Bylaws.
Section 8. Bank Accounts. Bank accounts shall be authorized by
resolution of the Board of Directors.
Section 9. Vacancies. In case any office shall become vacant, the
Board of Directors shall have power to fill such vacancies. In case of the
absence or disability of any officer, the Board of Directors may delegate
the powers or duties of any officer to another officer or a director for the
time being.
Section 10. Exercise of Rights as Shareholders. Unless otherwise
ordered by the Board of Directors, the Chairman of the Board, the President
or a Vice President thereunto duly authorized by the Chairman of the Board
shall have full power and authority on behalf of the Company to attend and
to vote at any meeting of shareholders of any corporation in which this
Company may hold stock, and may exercise on behalf of this Company any and
all of the rights and powers incident to the ownership of such stock at any
such meeting, and shall have power and authority to execute and deliver
proxies and consents on behalf of this Company in connection with the
exercise by this Company of the rights and powers incident to the ownership
of such stock. The Board of Directors, from time to time, may confer like
powers upon any other person or persons.
ARTICLE VII
CAPITAL STOCK
Section 1. Stock Certificates. Certificates for stock of the Company
shall be in such form as the Board of Directors may, from time to time,
prescribe and shall be signed by the Chairman of the Board or the President
or a Vice President and the Secretary or an Assistant Secretary. If
certificates are countersigned by a Transfer Agent (other than the Company
or its employee), the signatures of the officers of the Company may be
facsimile.
Section 2. Transfer Agent. The Board of Directors shall have power
to appoint one or more Transfer Agents and Registrars for the transfer and
registration of certificates of stock of any class, and may require that
stock certificates shall be countersigned and registered by one or more of
such Transfer Agents and Registrars.
Section 3. Transfer of Stock. Shares of capital stock of the Company
shall be transferable on the books of the Company only by the holder of
record thereof in person or by a duly authorized attorney, upon surrender
and cancellation of certificates for a like number of shares.
Section 4. Lost Certificates. In case any certificate for the
capital stock of the Company shall be lost, stolen, or destroyed, the
Company may require such proof of the fact and such indemnity to be given to
it and to its Transfer Agent and Registrar, if any, as shall be deemed
necessary or advisable by it.
Section 5. Holder of Record. The Company shall be entitled to treat
the holder of record of any share or shares of stock as the holder thereof
in fact and shall not be bound to recognize any equitable or other claim to,
or interest in, such shares on the part of any other person, whether or not
it shall have express or other notice thereof, except as otherwise expressly
provided by law.
Section 6. Record Date for Determination of Shareholders. The Board
of Directors may, in its discretion, for the purpose of determining
shareholders entitled to notice of, and to vote at, a meeting of
shareholders or any adjournment thereof, or to express consent or dissent
from a proposal without a meeting, or for the purpose of determining
shareholders entitled to receive payment of a dividend or allotment of a
right, or for the purpose of any other action, may fix in advance a date as
the record date for any such determination of shareholders. The record date
shall not be more than sixty (60) nor less than the ten (10) days before the
date of the meeting, nor more than sixty (60) days before any other action.
When a determination of shareholders of record entitled to notice of, or to
vote at, a meeting of shareholders has been made as provided in this Section
6, the determination applies to any adjournment of the meeting, unless the
Board of Directors fixes a new record date under this Section 6 for the
adjourned meeting.
ARTICLE VIII
MISCELLANEOUS
Section 1. Fiscal Year. The Board of Directors shall have power to
fix, and from time to time change, the fiscal year of the Company. Unless
otherwise fixed by the Board of Directors, the calendar year shall be the
fiscal year.
Section 2. Waiver of Notice. Any notice required to be given under
the provisions of these Bylaws, or otherwise, may be waived by the
shareholder, director, or officer to whom such notice is required to be
given.
Section 3. Indemnification. Directors and officers of the
corporation and former directors and officers, their heirs, executors and
administrators, shall be entitled to indemnification by the corporation to
the extent and under the circumstances permitted by law, including, where
permitted and upon any undertaking required, payment in advance of expenses
incurred in defending a civil or criminal action.
ARTICLE IX
AMENDMENTS
The shareholders entitled to vote may alter, amend, add to or repeal
these Bylaws.
EXHIBIT 21
LIST OF SUBSIDIARIES
UPPCO, incorporated in 1947 under the laws of the State of Michigan
doing business under the same name.
UPBDC, incorporated in 1989 under the laws of the state of Michigan
doing business under the same name.
PENVEST, incorporated in 1995 under the laws of the State of Michigan
doing business under the same name.
EXHIBIT 23(a)
INDEPENDENT AUDITORS' CONSENT
Upper Peninsula Energy Corporation
We consent to the incorporation by reference in Registration Statement
No. 2-83852 on Form S-8 of our reports dated February 7, 1997, appearing in
this Annual Report on Form 10-K of Upper Peninsula Energy Corporation for
the year ended December 31, 1996.
/s/ Deloitte & Touche LLP
- ---------------------------------------
Deloitte & Touche LLP
Chicago, Illinois
March 25, 1997
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