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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(MARK ONE)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994, OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO TO
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COMMISSION FILE NUMBER 1-10070
MCN CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MICHIGAN 38-2820658
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
500 GRISWOLD STREET, DETROIT, MICHIGAN 48226
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 313-256-5500
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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Common Stock, $.01 Par Value Per Share New York Stock Exchange
9 3/8% Cumulative Preferred Securities, Series A* New York Stock Exchange
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* Issued by MCN Michigan Limited Partnership and the payments of dividends and
payments on liquidation or redemption are guaranteed by MCN Corporation.
Securities registered pursuant to Section 12(g) of the Act:
None
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 period 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 amendments to
this Form 10-K. /X/
The aggregate market value of MCN Corporation Common Stock, $.01 par value
per share, held by non-affiliates as of February 21, 1995 was $1.085 billion
based on 59,862,363 outstanding shares and the closing price on that day (New
York Stock Exchange Composite Transactions).
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of MCN's 1994 Annual Report to Shareholders are incorporated by
reference in Part II, Items 5, 6, 7 and 8 and portions of MCN's March 1995
definitive Proxy Statement are incorporated by reference in Part III, Items 10,
11, 12 and 13.
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KEY TO ABBREVIATED TERMS
ANG.................................. Adsorbed Natural Gas; a technology which uses an
adsorbent material to store natural gas in tanks or
containers at considerably lower pressures (300 to
500 pounds per square inch) than traditional methods
of natural gas storage, such as compressed natural
gas.
Antrim Gas........................... Natural gas produced from shallow wells in the
Devonian (Antrim) shale formations.
Base Pressure........................ Pressure at which measurements of a volume of gas are
measured. MCN's common base pressure is 14.65 pound
per square inch absolute.
Bcf.................................. One billion cubic feet, which is a unit of
measurement of gas volume. 1 Bcf = 1,000 MMcf.
BTU.................................. British Thermal Unit; the amount of heat required to
raise the temperature of one pound of water one
degree Fahrenheit. One cubic foot of natural gas
contains approximately 1,000 BTUs.
Capital Investments.................. MCN's consolidated capital expenditures plus
acquisitions and MCN's share of capital expenditures
of joint ventures, less the minority partners' share
of consolidated capital expenditures.
Citizens............................. Citizens Gas Fuel Company; a wholly-owned natural gas
distribution subsidiary of MCN Corporation.
CNG.................................. Compressed Natural Gas; natural gas typically
pressurized at 2,400 to 3,000 pounds per square inch
for use in cars and other vehicles.
CoEnergy Trading Company............. A wholly-owned gas marketing subsidiary of MCN
Investment.
Cogeneration......................... The production of two forms of energy, usually steam
and electricity, from a single fuel source such as
natural gas.
Degree Days.......................... A measure of the coldness of the weather based on how
much the average daily temperature is below 65
degrees Fahrenheit.
Diversified Services................. MCN's exploration and production, gas marketing,
cogeneration, gas storage, gas gathering and
processing, and computer operations services
businesses.
End User Transportation.............. A gas delivery service provided to large-volume
commercial and industrial customers who purchase
natural gas directly from producers or brokerage
companies for the customers own use.
FERC................................. Federal Energy Regulatory Commission; a federal
agency that determines the rates and regulations of
interstate pipelines.
Gas Gathering........................ The process of collecting natural gas from gas wells
and then transporting the gas through pipelines to
processing plants or major pipelines.
Gas Processing....................... The removal of various components from natural gas to
meet market quality standards.
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KEY TO ABBREVIATED TERMS (CONCLUDED)
Gas Storage.......................... The process of injecting and withdrawing natural gas
from a depleted underground natural gas field or salt
cavern.
GCR.................................. Gas Cost Recovery; a process by which MichCon,
through annual gas cost proceedings before the
Michigan Public Service Commission, can recover the
prudent and reasonable cost of gas sold.
The Genix Group...................... The wholly-owned subsidiary of MCN Investment
Corporation providing computer and related
outsourcing services.
Intermediate Transportation.......... A gas delivery service provided to gas producers, gas
brokers and other gas companies that own the natural
gas, but are not the ultimate consumers.
Mcf.................................. One thousand cubic feet, which is a unit of
measurement of gas volume.
MCN.................................. MCN Corporation and its subsidiaries.
MCN Investment....................... MCN Investment Corporation, a wholly-owned subsidiary
of MCN Corporation and the holding company for MCN's
Diversified Services subsidiaries.
MichCon.............................. Michigan Consolidated Gas Company; a wholly-owned
natural gas distribution and intrastate transmission
subsidiary of MCN Corporation.
Minority Interest.................... The minority partners' share of a project, such as
the Saginaw Bay project.
MMcf................................. One million cubic feet, which is a unit of
measurement of gas volume. 1 MMcf = 1,000 Mcf.
MPSC................................. Michigan Public Service Commission; the regulator of
intrastate aspects of the natural gas industry within
the State of Michigan.
Normal Weather....................... The average daily temperature within MCN's Gas
Distribution service area during a recent 30-year
period, as measured and published by the National
Weather Service.
Order No. 636........................ An order issued in 1992 by the FERC, and subsequent
related orders, which require interstate pipeline
companies to separate or unbundle their various
pipeline services.
Peer Group........................... 15 comparable companies: Atlanta Gas Light, Brooklyn
Union, CMS Energy, Columbia Gas, Consolidated Natural
Gas, Detroit Edison, Equitable Resources, Laclede
Gas, National Fuel Gas, NICOR, NorAm Energy Corp.,
Peoples Energy, Southwest Gas, Washington Gas Light
and WICOR.
Saginaw Bay.......................... Saginaw Bay Pipeline Company and Saginaw Bay Lateral
Company; wholly-owned gas gathering subsidiaries of
MCN Investment.
Spot Market.......................... Buying and selling natural gas on a short-term basis,
typically monthly.
Transition Costs..................... Costs incurred by interstate pipeline companies under
FERC Order No. 636 to reduce or eliminate gas supply
related obligations.
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TABLE OF CONTENTS
PAGE
CONTENTS NUMBER
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Part I
Item 1. Business............................................................ 1
Item 2. Properties.......................................................... 14
Item 3. Legal Proceedings................................................... 16
Item 4. Submission of Matters to a Vote of Security Holders................. 17
Executive Officers of the Registrant................................................. 18
Part II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters............................................................. 19
Item 6. Selected Financial Data............................................. 19
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................... 19
Item 8. Financial Statements and Supplementary Data......................... 19
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure................................................ 19
Part III
Item 10. Directors and Executive Officers of the Registrant.................. 20
Compliance with Section 16(a) of the Securities Exchange Act of 1934, as amended..... 20
Item 11. Executive Compensation.............................................. 20
Item 12. Security Ownership of Certain Beneficial Owners and Management...... 20
Item 13. Certain Relationships and Related Transactions...................... 20
Part IV
Item 14. Exhibits, Financial Statement Schedule, and Reports on Form 8-K..... 21
Signatures............................................................................. 26
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PART I
ITEM I. BUSINESS
MCN Corporation (MCN) is a diversified natural gas holding company. Its
principal operating subsidiaries are Michigan Consolidated Gas Company
(MichCon), a natural gas distribution and intrastate transmission company, and
MCN Investment Corporation, (MCN Investment) a holding company with subsidiaries
involved in exploration and production, gas marketing, cogeneration, gas
storage, gas gathering and processing and computer operations services. MCN, a
Michigan corporation organized in 1988, is exempt from most provisions of the
Public Utilities Holding Company Act of 1935. The operating revenues, operating
income, and identifiable assets of MCN's business segments are included in the
financial statements, incorporated by reference in Item 8, "Financial Statements
and Supplementary Data" on page 19. At December 31, 1994, MCN and its
subsidiaries had 3,889 employees.
BUSINESS SEGMENTS
MCN's major business segments are Gas Distribution and, within the
Diversified Services group, Gas Services and Computer Operations Services. Gas
Technology includes MichCon's and MCN Investment's research and development
programs.
GAS DISTRIBUTION operates the largest natural gas distribution and intrastate
transmission system in Michigan and one of the largest in the United States.
This segment includes the following companies:
MichCon -- A Michigan corporation organized in 1898 that, with its
predecessors, has been in business for nearly 150 years. MichCon is a
public utility, engaged in the distribution and transmission of natural gas
in the State of Michigan serving over 1.1 million residential, commercial
and industrial customers.
Citizens -- A Michigan corporation organized in 1951 that, with its
predecessors, has been in business for more than 135 years. Citizens is a
gas utility that conducts all of its business in the State of Michigan
serving 13,000 residential, commercial and industrial customers.
GAS SERVICES is an integrated energy group with investments in: Gas Marketing
and Cogeneration, Exploration and Production, Gas Gathering and Processing and
Gas Storage.
COMPUTER OPERATIONS SERVICES has data centers in three states and is one of the
top ten computer operations management businesses in the United States. The
Genix Group provides computer management, data processing and related services
to more than 100 corporate clients.
GAS TECHNOLOGY researches and develops innovative applications for natural gas
pressurized combustion technologies under MCN Investment and for adsorbed
natural gas (ANG) technology through MichCon.
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GAS DISTRIBUTION
GAS MARKETING AND TRANSPORTATION
Gas Distribution serves customers in the Detroit, Grand Rapids, Ann Arbor,
Traverse City, Muskegon and Adrian metropolitan areas and in various other
communities throughout the State of Michigan. The following services are
provided by Gas Distribution:
- Gas Sales -- Includes the marketing and delivery of natural gas to
residential, commercial and industrial customers.
- End User Transportation -- Through this service, large volume customers
that purchase gas directly from producers or marketers utilize the
company's gas distribution network to transport the gas to their
facilities.
- Intermediate Transportation -- Through this service, Gas Distribution
provides transportation service to pipelines, gas marketers, Michigan
producers and other local distribution companies in the United States and
Canada that own the natural gas, but are not the ultimate consumer.
The following table sets forth revenues earned through gas sales, end user
transportation, intermediate transportation and other revenues for the years
1992-1994.
Gas Distribution -- Revenues (In millions of dollars)
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1994 1993 1992
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Gas Sales.................................................. $ 968.7 $ 983.1 $ 969.2
End User Transportation.................................... 76.5 71.7 70.2
Intermediate Transportation................................ 28.7 19.6 17.8
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Total Sales and Transportation.......................... 1,073.9 1,074.4 1,057.2
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Conservation Programs, Storage Service and other........... 52.2 54.9 103.3
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Total Operating Revenues................................ $1,126.1 $1,129.3 $1,160.5
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The following table sets forth Gas Distribution's gas sales and
transportation delivery volumes for the years 1992-1994.
Gas Distribution -- Markets (Bcf)
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1994 1993 1992
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Gas Sales......................................................... 204.4 205.4 203.1
End User Transportation........................................... 140.0 128.6 129.7
Intermediate Transportation....................................... 303.6 281.1 184.0
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Total Sales and Transportation................................. 648.0 615.1 516.8
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NOTE: Gas sales and intermediate transportation volumes include intercompany
transactions.
Effect of Weather: Gas Distribution's sales and end user transportation
volumes, revenues and net income are impacted by the weather. Given the seasonal
nature of the business, revenues and net income tend to be higher in the first
and fourth quarters of the calendar year. Warmer than normal weather in the last
three years caused total sales and transportation volumes to be lower by 4.4 Bcf
in 1994, 4.3 Bcf in 1993 and 10.2 Bcf in 1992. As a result, weather reduced net
income by $4.0 million in 1994, $3.7 million in 1993 and $8.7 million in 1992.
GAS SALES: This market represents 31% of total deliveries and produced 81%
of Gas Distribution's gross profit margin from sales and transportation
services. The average margin per Mcf from gas sales in 1994 was
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$2.11. Lower consumption per customer, primarily related to the installation of
more energy efficient equipment, offset sales to new customers.
Competition in the gas sales market from alternative energy is minimal,
coming primarily from sources such as electricity, propane, and to a lesser
degree, oil and wood. Natural gas continues to be the preferred fuel for
Michigan residences and businesses. Once the switch to natural gas is made, the
customer rarely switches back to the alternate fuel. Nearly every residential
and commercial developer in Gas Distribution's service territories selects
natural gas in new construction because of the convenience, cleanliness and
price advantage of natural gas compared to propane, fuel oil and other
alternative fuels. Service and price are the primary factors affecting this
market.
The Gas Distribution business continues to take steps to remain
competitive, including broadening the scope of services provided. For example,
MichCon offers the financing of distribution lines and gas appliances to
encourage potential customers to switch to natural gas. The Gas Distribution
business also continues its commitment to maintain low gas costs. During 1994,
it's annual average cost of gas rate of $2.66 per Mcf was the lowest level since
1980, meeting its objective of being in the lowest quartile for costs of gas in
Michigan as well as neighboring states. In addition, the Gas Distribution
business is continuously striving to reduce the cost of operating the business.
In 1994, MichCon aligned its operations along core business processes to make
the company more efficient, competitive and customer focused.
The Gas Distribution business has an Area Expansion Program (AEP) in place
to meet demand for natural gas in areas currently not served. The program is
primarily directed toward the residential and small commercial markets. By
financing the cost of conversion, this program makes it easier for users of
other fuels, primarily propane and fuel oil, to use natural gas for space heat
and other appliances. The AEP has contributed to the 12,559, 11,821 and 5,373
net increases in customers in 1994, 1993 and 1992, respectively. In 1994, 23 new
areas of Michigan were served by MichCon, bringing to 100 the total number of
new areas added since 1984. From time to time in reaching new areas, Gas
Distribution will request a franchise in competition with others wanting to
serve the area.
END USER TRANSPORTATION: In 1994, this market accounted for 22% of total
gas deliveries and produced 14% of Gas Distribution's gross profit margin from
sales and transportation services. The average revenue per Mcf from end user
transportation in 1994 was $.55. End user transportation deliveries increased in
1994 due to a higher level of usage by large-volume commercial and industrial
customers driven by improved business activity in Michigan. The addition of new
customers also contributed to the increased deliveries.
At December 31, 1994, Gas Distribution had end user transportation
agreements representing annual volumes of 133 Bcf. Approximately 75% of these
volumes are under contracts that extend to 1996 or beyond and include virtually
all of the large and most price competitive customers. The contracts for the
remaining volumes are typically one-year contracts that expire at various times
during 1995 and relate to a large number of low volume users with relatively low
price sensitivity. Negotiations have commenced with customers whose contracts
expire in 1995.
Through technical and financial assistance, customers have been encouraged
to increase the use of natural gas in their industrial and commercial
facilities. Gas-fueled cogeneration and air conditioning have been two expanding
markets for natural gas. In 1994, these markets accounted for approximately 16
Bcf of gas deliveries. Air compressors and other small engines in certain
commercial applications also provide possibilities for conversion to natural
gas-powered equipment. The efficiencies and price competitiveness of natural gas
can significantly reduce operating costs for customers, even though a higher
initial outlay may be required.
The primary focus of competition in this market is total cost of fuel.
While some large commercial and industrial customers have the capability to
switch to alternative fuel sources including coal, electricity, oil and steam,
the vast majority of these customers are under long-term contracts. In addition,
some of these customers could bypass Gas Distribution's system and obtain
service directly from a pipeline company. However, cost differentials must be
sufficient to offset the substantial investment costs and risk associated with
fuel switching or bypass. Gas Distribution competes against alternative fuel
sources by providing competitive pricing, reliability
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of supply through use of the company's extensive storage capacity and multiple
supply sources. Almost all significant customers that are in proximity to
pipeline facilities are under long-term contracts.
In the past several years, MichCon has been successful in converting many
customers' facilities to natural gas from alternative fuels and in retaining
those customers after conversion. In 1994, approximately 28 Bcf of MichCon's
transportation deliveries were to customers who displaced coal with natural gas.
End user transportation will expand further in late 1995 with the
completion of the Michigan Power Project. During the third quarter of 1994, MCN
and Destec Energy began construction of a 123 megawatt cogeneration plant in
Ludington, Michigan. MichCon will provide end user transportation of the natural
gas needed to fuel the plant, approximately nine Bcf annually. A 12-mile
pipeline extension, costing $15 million, is being constructed for this purpose.
INTERMEDIATE TRANSPORTATION: This service accounts for 47% of total gas
volumes, but, due to the lower rate charged for this service, represents only 5%
of Gas Distribution's gross profit margin from sales and transportation
services. The average revenue per Mcf from intermediate transportation in 1994
was $.09.
Gas Distribution's extensive transmission pipeline system has enabled it to
increase the volumes transported in 1994 and 1993 for Michigan gas producers,
ANR Pipeline Company (ANR) and other shippers. Gas Distribution operates in a
pivotal geographic location with links to major interstate pipelines that reach
markets elsewhere in the Midwest, the eastern United States and eastern Canada.
Transportation volumes increased due to the start-up of the Blue Lake gas
storage project, in which MichCon began transporting gas for ANR under a firm,
long-term contract. Profit margins on intermediate transportation services are
considerably less than margins on gas sales or for end user transportation
markets.
There has been a significant increase in Michigan Antrim gas production
over the past few years, resulting in a growing demand by gas producers and
brokers for intermediate transportation services. Intermediate transportation
deliveries have nearly tripled since 1991, and have resulted from time to time
in capacity constraints on MichCon's northern Michigan pipeline system. MichCon
currently has a proposal before the MPSC to construct facilities to expand
transportation capacity. This proposal, as well as other competing proposals,
are being reviewed by the MPSC and a decision is expected early in 1995. The
cost of this project could be approximately $40 million over the 1995-1996
period. In addition, MCN's Diversified Services group will invest in new gas
processing facilities related to the expansion.
MichCon currently has a proposal before the MPSC to construct the
Milford-Belle River Loop. This pipeline could be placed in service for the
1995-1996 heating season, and will enable the Gas Distribution business to
expand its intermediate transportation services.
ENERGY ASSISTANCE AND CONSERVATION PROGRAMS
Energy assistance programs funded by the federal government and the state
of Michigan, including the Home Heating Credit for low-income customers and the
Department of Social Services' (DSS) Heating Assistance Program, continue to be
critical to MichCon's ability to control its uncollectible expenses. MichCon has
historically obtained favorable regulatory treatment of its uncollectible costs,
including those related to these energy assistance programs.
The Low-Income Home Energy Assistance Program (LIHEAP) currently provides
approximately $78 million in heating assistance to 385,000 Michigan households
through the DSS, with approximately 40% of the funds going to MichCon's
customers. Congress has approved $1.3 billion for the 1995 fiscal year, which is
a reduction of $.1 billion. In November 1994, however, officials indicated that
all federal programs, including LIHEAP, would be reviewed for cuts or
elimination. MichCon is working to maintain this funding.
MichCon also offers a number of energy conservation programs for its
residential and commercial customers, the costs of which are recovered through
customer charges and MPSC-approved surcharges on gas sales. The MPSC has
consistently provided for recovery of program costs. In September 1994, MichCon
filed a proposal with the MPSC in connection with a Demand Side Management Plan.
This plan is a comprehensive and cost effective energy conservation plan that
includes natural gas conservation programs
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with an emphasis on low income users, and other programs intended to reduce
energy costs for all MichCon's customers, including incentives to promote the
use of natural gas rather than other less efficient fuels. Over the three-year
period ending June 30, 1998, the plan could generate a net annual reduction in
natural gas demand of .4 Bcf, about 0.2% of MichCon's annual sales volume. If
approved by the MPSC, MichCon would spend up to $26 million over the three-year
period, which would be recovered through surcharges on gas sales. An MPSC order
on the case is expected in late 1995.
GAS SUPPLY
MichCon obtains its natural gas supply from various sources in different
geographic areas under agreements that vary in both pricing and terms. This
geographic and contractual diversity of supply ensures that MichCon will be able
to meet the requirements of its present and future customers with reliable
supplies of natural gas at competitive, market responsive prices. Citizens is
currently served by two interstate pipelines, Panhandle Eastern Pipe Line
Company (Panhandle) and ANR. Westside Pipeline Company (Westside), an affiliate
intrastate pipeline company, connects ANR to Citizens' distribution system.
Citizens has firm transportation contracts with ANR and Westside that provide
daily quantities sufficient to meet the needs of Citizens' firm customers.
Citizens purchases gas from suppliers who have firm transportation agreements
with Panhandle. During 1994, Citizens' purchases were 83% from an affiliated
company that had access to long-term supplies and 17% from other non-affiliated
suppliers.
One of MCN's objectives for its Gas Distribution businesses is to be in the
lowest quartile for cost of gas in Michigan and neighboring states. As a result
of efforts to lower cost of gas, including extensive contract renegotiations,
increased use of spot market-priced purchases and the use of available storage,
Gas Distribution's gas cost declined to $2.66 per Mcf in 1994, the lowest among
a group of 22 utilities in Michigan and neighboring states. Gas Distribution's
gas costs have decreased 34% in the last ten years.
The following table summarizes Gas Distribution's gas supply purchases for
the years 1992-1994.
Gas Distribution -- Gas Supply Purchases (Bcf)
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1994 1993 1992
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Michigan Producers.............................................. 86.0 92.7 100.0
Interstate Suppliers............................................ 64.3 80.4 71.7
Canadian Suppliers.............................................. 29.4 15.4 12.1
Spot Market..................................................... 37.2 13.1 17.9
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216.9 201.6 201.7
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Gas Distribution purchased 46% of its 1994 supply from producers in the
southern and midcontinent regions of the United States, 40% from Michigan
producers and 14% from Canadian producers. These supplies are complemented by
130 Bcf of working storage capacity from storage fields owned and operated in
Michigan.
The 1994 increase in volumes associated with Spot Market is due to the
subsequent discontinuance of MichCon purchases of gas from ANR as a result of
FERC Order No. 636, as discussed below.
As a result of ANR's FERC Order No. 636 restructuring, its long-term
relationship with MichCon changed significantly. MichCon no longer purchases
natural gas supply directly from ANR, but instead utilizes ANR solely as a
transporter of gas. MichCon purchases gas directly from producers and marketers
with access to natural gas supplies in Texas, Oklahoma, Louisiana and Canada.
Although MichCon had been purchasing gas directly from others during the last
several years to supplement its purchases from ANR, effective November 1, 1993,
MichCon completely eliminated its reliance on pipeline suppliers for the
purchase of gas supply.
FERC ORDER NO. 636: In 1992, FERC issued Order No. 636 which required
interstate pipelines to separate their pipeline sales service into its various
service components and to price each component separately. The order also
permitted interstate pipelines to recover 100% of their prudently incurred
transition
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costs including costs incurred by interstate pipelines to assign and/or
renegotiate their gas supply related obligations.
In November 1993, ANR, MichCon's primary interstate natural gas
transporter, implemented its FERC Order No. 636 service restructuring. ANR
discontinued its merchant function and modified its rates to reflect the
Straight Fixed/Variable rate design (SFV) mandated by Order No. 636. Under SFV,
pipelines recover fixed costs through monthly demand charges based upon capacity
entitlement and recover only variable costs through volume-sensitive commodity
charges. SFV significantly increases costs to many weather-sensitive local
distribution companies who do not have on-system storage capacity. In contrast,
through the use of its extensive underground storage facilities, MichCon has
been able to lower its pipeline capacity entitlement thereby minimizing pipeline
fixed charges.
During 1994, ANR filed several requests for recovery of these transition
costs, and MichCon accrued its portion totaling $5.4 million, of which $3.9
million is reflected in cost of gas. The MPSC has held that these transition
costs are recoverable through the GCR mechanism, and therefore, an asset has
been recorded for their future recovery. As periodic filings are made by ANR,
MichCon will accrue its allocated portion. It is management's belief that these
costs will have no effect on earnings.
GENERAL SUPPLY: To ensure continuous, uninterrupted service to customers,
MichCon has in place long-term firm transportation agreements with ANR and Great
Lakes Gas Transmission Limited Partnership (Great Lakes). ANR is obligated to
transport approximately 375 MMcf per day of supply for MichCon, while Great
Lakes is obligated to transport 30 MMcf per day. These transportation contracts
expire on various dates between 1999 and 2011.
MichCon also has contracts with independent Michigan producers that expire
on various dates through 2009. A portion of these contracts expire in 1995.
MichCon has begun discussions with several producers concerning gas purchases
after 1995. MichCon has reached agreement with the majority of its intrastate
suppliers to limit the unit price of gas through 1995 to a price indexed to the
natural gas spot market. This will ensure that the price of intrastate supplies
remains competitive with the prices available on the interstate market.
In 1993, Panhandle refunded to MichCon the costs of certain direct billings
totaling $5.4 million plus interest of $4.4 million in compliance with a FERC
order. During late 1994 and early 1995, the FERC issued rehearing orders
permitting Panhandle to seek reimbursement of the $4.4 million in interest from
MichCon. MichCon intends to contest Panhandle's claim in the appropriate courts.
Should MichCon ultimately be unsuccessful in defeating Panhandle's claim, it is
anticipated that these costs will be recoverable through the GCR mechanism.
Accordingly, an asset has been recorded for their future recovery.
At December 31, 1994, MichCon owned and operated five natural gas storage
fields in Michigan with a working storage capacity of approximately 130 Bcf.
MichCon uses its storage capacity to supplement its supply during the winter
months, replacing the gas in April through October when demand is at its lowest.
The use of this storage capacity also allows MichCon to lower its peak day
entitlement, thereby reducing interstate pipeline costs. During 1994, MichCon's
maximum one-day sendout exceeded 2.7 Bcf, of which approximately 70% came from
its underground storage fields. MichCon sells a portion of its natural gas
storage capacity to an affiliated company and third parties.
In 1994, MichCon proposed the construction of the Milford-Belle River Loop.
This 59-mile pipeline would parallel an existing portion of MichCon's pipeline
which is the major link between MichCon's gas storage facilities and major
markets in southeast Michigan. The proposed pipeline is estimated to cost $80
million and will provide backup and more reliable service during peak demand to
customers in southeast Michigan as well as enable Gas Distribution to expand its
intermediate transportation services. If regulatory approval is received this
spring, this pipeline could be in service for the 1995-1996 heating season.
REGULATION AND RATES
MichCon is subject to the jurisdiction of the MPSC as to various phases of
its operations, including gas sales rates, service, accounting and the issuance
of securities. Citizens rates are set by the Adrian Gas Rate
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Commission, a municipal commission. Other various phases of its operations are
subject to the jurisdiction of the MPSC. Both MichCon and Citizens are subject
to the requirements of other regulatory agencies with respect to safety, the
environment and health.
Michigan offers an environment of progressive and reasonable rate
regulation. This is reflected in the approval of flexible rates in the large
volume transportation market, the recovery of postretirement health care costs,
the deferral and future recovery of costs associated with the clean-up of former
gas manufacturing sites and recovery of take-or-pay and gas pipeline transition
costs.
GENERAL RATE PROCEEDINGS: In October 1993, MichCon received approval from
the MPSC in its general rate case to increase rates $15.7 million beginning in
January 1994. This rate increase included $28.7 million for retiree health care
benefits recognized under new accounting requirements and $8.1 million for
higher depreciation rates. Additionally, the MPSC's decision lowered MichCon's
allowed rate of return on common equity to 11.5%. This was consistent with other
rate of return percentages being authorized for local distribution companies in
the United States during 1993.
In addition, MichCon received authorization to defer manufactured gas plant
(MGP) investigation and remediation costs in excess of the $11.7 million
previously reserved by MichCon. The costs are to be amortized over a 10-year
period beginning in the year subsequent to the year environmental investigation
and remediation costs are paid. The recovery of any remediation costs incurred
and any carrying charges will be reviewed in a future rate case. Any carrying
charges accrued will be based on MichCon's pre-tax authorized rate of return.
In June 1994, the MPSC approved the property tax stipulation and settlement
agreement which addresses the treatment of reduced state property tax and
increased state sales tax and federal income tax. The estimated net decrease in
MichCon's operating expense was approximately $4.0 million for 1994 and $6.2
million annually thereafter. The agreement allows MichCon to accelerate the
amortization of its 1993 deferred costs associated with the implementation of
Statement of Financial Accounting Standards No. 106, "Employers Accounting for
Postretirement Benefits Other Than Pension," by the net decreased tax expenses.
In 1993 and 1992, MichCon operated under a comprehensive agreement which
allowed for annual rate adjustments to recover the effects of inflation on
operation and maintenance expenses. MichCon received an inflation-related
increase in rates of $4.9 million, effective January 1992. The agreement also
contained a provision to adjust rates if weather-normalized earnings were above
or below a specified range of return on common equity. Increased gas markets
enabled MichCon to earn returns above the specified range in 1992 which resulted
in a portion of these higher earnings being shared with customers.
In 1994, Citizens proposed and reached a new rate agreement with the
municipal commission that sets Citizens' rates. Under the agreement, Citizens
received a 3% rate increase and will freeze rates for five years. This rate
increase is Citizens' first rate increase in ten years. The new rate agreement,
which went into effect in January 1995, will provide Citizens' customers with
known prices and the company with an opportunity to control costs and continue
to earn a reasonable rate of return.
GAS COST RECOVERY: The GCR process allows MichCon to recover its cost of
gas sold if the MPSC determines that such costs are reasonable and prudent. This
determination includes an annual Gas Supply and Cost Review, in which the MPSC
approves maximum monthly GCR factors. A subsequent annual GCR reconciliation
proceeding provides a review of gas costs incurred during the year, determines
whether approved gas costs have been overcollected or undercollected and, as a
result, whether a refund or surcharge, including interest, is required.
In June 1993, the MPSC issued an order in the 1992 GCR reconciliation case
approving a partial settlement that also consolidated refunds from other cases.
The order allowed MichCon to refund to customers $8.4 million during the July
billing cycle. In August 1993, the MPSC issued its final order approving
MichCon's 1992 purchased gas costs and providing final resolution for previously
unrefunded balances of approximately $1 million.
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In May 1994, the MPSC issued an order in MichCon's 1993 GCR reconciliation
case approving a partial settlement allowing MichCon to refund $11.6 million to
its natural gas customers on their June 1994 bills. The refund consisted
primarily of supply realignment overcollections and excess transportation and
storage revenues, partially offset by 1993 GCR undercollections. In September
1994, the MPSC approved the final settlement, which provides for additional
refunds of $350,000 applicable to GCR sales customers and $100,000 applicable to
transportation customers.
In July 1994, MichCon filed its 1995 GCR plan case. An MPSC order is
expected in the first half of 1995. In February 1995, MichCon filed its 1994 GCR
reconciliation case indicating an over-recovery of $19 million, including
interest, which will be returned to GCR customers using the new rolled-in
prospective refunding methodology approved by the MPSC on June 30, 1994.
ENVIRONMENTAL MATTERS
MANUFACTURED GAS PLANTS: Prior to the construction of major natural gas
pipelines, gas for heating and other uses was manufactured from processes
involving coal, coke or oil. MichCon and Citizens own or previously owned 17
former manufactured gas plant (MGP) sites.
During the mid-1980s, preliminary environmental investigations were
conducted at former MGP sites, and some contamination related to the byproducts
of gas manufacturing was discovered at each site. The existence of these sites
and the results of the environmental investigations have been reported to the
Michigan Department of Natural Resources (MDNR). None of these former MGP sites
are on the National Priorities List prepared by the U.S. Environmental
Protection Agency (USEPA).
MCN is not involved in any administrative proceedings regarding these
former MGP sites, but MichCon is currently negotiating a remedial action plan
for one site with the MDNR and is conducting more extensive investigations at
three other sites. MichCon is involved, however, in a suit with an adjacent
property owner regarding one site. Management believes that the property owner's
claims have no merit and MichCon is vigorously defending this suit.
In 1984, MichCon established an $11.7 million reserve for environmental
investigation and remediation. During 1994, MichCon spent $.6 million
investigating its former MGP sites. The balance in the reserve at December 31,
1994 was $5.5 million.
During 1993, MichCon received MPSC approval of a cost deferral and rate
recovery mechanism for investigation and remediation costs incurred at former
MGP sites in excess of the original $11.7 million reserve. In addition, MCN
notified more than 50 current and former insurance carriers of the environmental
conditions at its former MGP sites and claimed insurance coverage for costs
associated with the investigation and remediation of these sites. MCN is
pursuing any claims it may have against these carriers.
MCN is currently unable to estimate the future costs to be incurred in the
investigation and remediation of their former MGP sites. Management believes,
however, that insurance coverage and the cost deferral and rate recovery
mechanism will prevent environmental costs from having a material adverse impact
on MCN's financial results.
HARBORTOWN: MichCon Development Company, a 100% owned subsidiary of
MichCon, has a minority interest in four partnerships that are developing
Harbortown. Harbortown is a residential development that is being constructed on
a 50 acre parcel along the Detroit River. Environmental and other approvals were
received in 1984, prior to construction. In 1991, the partnerships undertook
additional environmental testing at Harbortown to assess whether there was any
potential public health risk from the presence of metals detected in certain
past soil samples. In 1992, the MDNR accepted the results of this risk
assessment and agreed that there was no health risk due to lead in Harbortown
surface soils.
During 1994, the partnerships completed additional environmental testing
and submitted a remedial action plan for Harbortown to the MDNR. The remedy
includes meeting certain landscaping requirements, and, during future
development, excavation controls consistent with occupational safety and health
regulations. The MDNR supported the proposed remedy at a public meeting in early
1995. Management expects
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approval of the proposed remedy and believes that its implementation will not
have a material adverse impact on future development opportunities at Harbortown
or the financial statements of MCN.
OTHER: In 1993, MichCon received a general notice of liability letter from
the USEPA stating that MichCon is one of two potentially responsible parties at
a suspected dump site in Wyandotte, Michigan. The USEPA requested that MichCon
undertake a remedial investigation and feasibility study at the site. MichCon
has investigated its prior activities in the area, as well as the USEPA's basis
for its conclusion, and does not believe that it is responsible for any
contamination that may exist at the site. In early 1994, MichCon informed the
USEPA of this belief and declined to undertake the requested activities at the
site. MichCon has not received any additional requests from USEPA.
FRANCHISES
MichCon operates in numerous cities, villages, and townships under
franchises or permits that typically are revocable at will and have a 30 year
maximum duration. In Detroit, Grand Rapids and a number of other municipalities
where a substantial part of MichCon's service is furnished, MichCon's operations
originated under franchises that have since expired (in 1923 in the case of
Detroit). In 1993, MichCon began renewing or re-establishing formal franchises
in those municipalities in order to avoid uncertainty with regards to MichCon's
ability to continue and expand service in those areas. Regarding the franchises
which have not been renewed, MichCon's gas distribution systems are rightfully
occupying the streets with the consent or acquiescence of the municipalities.
While MichCon could be ordered by any municipality in which its franchise has
expired to remove its property, it could be deprived of ownership only by its
consent and the payment of an agreed price, or by condemnation and the payment
of the fair value of such property. Should any of these municipalities seek to
terminate MichCon's operations therein and substitute another gas utility
operation, publicly or privately owned, the municipality must either (i) acquire
and operate MichCon's system, (ii) construct a new system or (iii) grant a
franchise to another privately owned utility to construct or acquire its own
distribution system.
During 1994, MichCon gained six new franchises with yearly aggregate gas
sales volumes of approximately 486,000 Mcf annually. Approximately 53 major
franchises were renewed in 1994.
Public utility franchises in Michigan are non-exclusive. Construction under
a second franchise granted to another public utility requires authorization by
the MPSC which must consider, among other things, the service rendered by the
existing utility, the investment by such utility, and the benefit, if any, to
the public of having a second utility serve in the area. In one township where
MichCon formerly served approximately 450 residential customers (representing
78,400 Mcf) under an expired franchise, and upon the suit of a competing utility
with a franchise overlapping the area, a local circuit judge entered an order to
enjoin MichCon from expanding its service in that township. This matter is
presently pending before the Michigan Court of Appeals. On October 1, 1994,
MichCon sold its distribution facilities in that township to the competing
utility. Management expects that issues involving franchise rights will continue
to be actively pursued in judicial and regulatory proceedings.
Citizens operates in cities and townships in and around Adrian, Michigan
under franchises or permits that are revocable, have a 30 year maximum duration,
and provide for municipal rate setting. In 1994, Citizens obtained franchises
from seven remaining townships in Lenawee County. Although Citizens did not
extend its distribution system to any of these areas in 1994, the company is
reviewing potential areas to be served.
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DIVERSIFIED SERVICES
GAS SERVICES
In its Gas Services segment, MCN Investment, through its subsidiaries and
joint ventures, markets natural gas to large-volume customers, develops gas
cogeneration facilities, engages in exploration and production (E&P), provides
gas gathering and processing services and provides gas storage services. The
following table sets forth gas sales and transportation delivery volumes for the
years 1992-1994 for Gas Services.
Diversified Services -- Gas Markets (Bcf)
- --------------------------------------------------------------------------------
1994 1993 1992
----- ----- -----
Gas Sales*
Gas Marketing & Cogeneration................................... 142.4 122.8 112.3
Exploration & Production**..................................... 7.5 .1 --
Transportation.................................................... 20.5 21.8 25.4
----- ----- -----
Total........................................................ 170.4 144.7 137.7
===== ===== =====
- ---------------
* Includes intercompany volumes.
** Represents gas sales made directly to third parties by MCN's E&P operations.
Other E&P production is sold to affiliated companies for marketing.
GAS MARKETING & COGENERATION
MCN's non-regulated gas marketing activities are directed by CoEnergy
Trading Company (CoEnergy Trading). CoEnergy Trading, a wholly-owned subsidiary
of MCN Investment, is engaged in the purchase and sale of natural gas to
large-volume gas users and gas and electric utilities throughout the eastern
United States and Canada. CoEnergy Trading is able to offer buyers in these
markets a bundled service by making arrangements for the acquisition of the
required gas volumes and delivery to customers' facilities, and for all the
necessary services in between. This bundled service is more in demand during the
winter months when interstate pipeline capacity in certain areas of the
Northeast and Midwest is either constrained or uneconomical. The company serves
more than 700 large-volume commercial and industrial customers and numerous
utilities.
To manage CoEnergy's exposure to the risk of fluctuating spot market prices
on profit margins, a comprehensive hedging program is in place. This program
utilizes natural gas futures, options and swap agreements to hedge exposure to
the risk of market price fluctuations on gas sales and purchase contracts and
gas inventories. CoEnergy's objective is to reduce the risk of changes in
natural gas prices which could affect its ability to achieve targeted profit
margins.
CoEnergy Trading competes against numerous marketing companies. A diverse
portfolio of short-, medium- and long-term sales and supply contracts combined
with access to reliable gas suppliers, storage facilities and multiple pipeline
connections enhances its competitive position.
To expand its markets into the northeastern United States, CoEnergy Trading
opened an office in Connecticut during 1994. This office will allow CoEnergy
Trading the opportunity to capitalize on its strengths in terms of gas storage
and gas supply flexibility to meet the growing needs for seasonal services in
the northeast United States. Further, a presence in the market will allow MCN
Investment's various businesses the opportunity to pursue additional
investments.
Cogen Development Company (Cogen), a wholly-owned subsidiary of MCN
Investment which was formed in 1993, pursues cogeneration related opportunities
throughout the United States and Canada. Cogeneration is a process of generating
both electricity and steam from a single fuel source, such as natural
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gas. Cogeneration projects offer MCN the potential for multiple sources of
income, such as long-term gas sales, transportation services and a return on the
investment in the facility.
In recent years, an increasing amount of new electric generating capacity
has been fueled by natural gas because of the lower capital costs, lower
emissions and other advantages associated with natural gas-fueled facilities. In
addition, many states have passed regulations requiring electric utilities to
consider bids from third parties to meet new electric generation needs. Cogen
has the capacity to provide cogeneration facilities with long-term gas supplies
at known prices.
During the third quarter 1994, MCN and Destec Energy broke ground on the
Michigan Power Project, a 123 megawatt cogeneration plant in Ludington,
Michigan. MCN and Destec, through their equal partnership, will build, own and
operate the $150 million facility. The plant, which is expected to be completed
in late 1995, will provide electricity to Consumers Power Company and steam to
Dow Chemical under long-term contracts. In December 1994, the partnership
obtained a $189 million credit facility to finance 100% of the construction
costs and working capital requirements. MCN, through its cogeneration business
group and Gas Distribution operations, will supply and transport the nine Bcf of
natural gas needed annually to fuel the plant.
Cogen owns a 99% limited partnership interest in Ada Cogeneration Limited
Partnership (Ada Cogeneration), which owns and operates a natural gas-fueled
cogeneration facility in western Michigan. Annually, the Ada Cogeneration
facility generates up to 30 megawatts of electricity which is sold to Consumers
Power Company and produces up to 50,000 pounds of steam per hour which is sold
to a nearby commercial operation. MCN supplies and transports two Bcf of natural
gas needed annually to fuel the plant.
Cogen's business also includes a number of small cogeneration units located
at the operating facilities of large commercial and industrial customers. Cogen
has long-term agreements for the sale and transportation of natural gas to these
units.
Cogen's strategy is to take a diversified approach of investing in power
projects of varying size and geographic location that offer an acceptable rate
of return. This industry has seen an increase in the number of participants,
many that are willing to accept lower returns on cogeneration projects
considerably below Cogen's threshold. Because more attractive returns are
available by developing and acquiring gas reserves, MCN will invest more in
these areas and less in gas cogeneration. This decision emphasizes MCN's
investment discipline of not pursuing projects which do not meet its investment
criteria.
Approximately 6% of the gas supply needed for gas marketing and
cogeneration sales in 1994 came from gas produced by affiliates. The remaining
supply was purchased from other producers under various arrangements, mostly of
short-term duration.
EXPLORATION & PRODUCTION
MCN Investment is engaged in natural gas exploration, development and
production through its wholly-owned subsidiary, Supply Development Group, Inc.
(SDGI). The primary objective of entering into gas E&P is to develop a reliable
long-term gas reserve pool to supply its gas marketing and cogeneration
operations, as well as other businesses seeking long-term gas supplies.
Long-term sales obligations of these businesses require long-term gas supplies
at known prices. Gas production in 1994 increased to 16.5 Bcf from 2.3 Bcf in
1993.
During the latter part of 1994, natural gas prices decreased significantly
throughout the United States. MCN's risk management strategy of selling future
gas production under fixed-price contracts and by entering into long-term
fixed-price swap agreements with financial institutions mitigated the effect of
lower prices on MCN's profitability. This strategy increases the likelihood the
Company will achieve its targeted rate of return from E&P investments. As of
December 31, 1994, MCN's gas production for the next ten years was largely
hedged at prices above year-end levels.
In 1994, SDGI drilled approximately 250 wells, bringing the total drilled
to 680 wells since the Company program began in 1992. About 86% of these wells
were drilled in Michigan Devonian (Antrim) shale formations. Even though the
potential natural gas recovery from an average well is less than the recovery
from
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wells drilled in other types of formations, wells drilled in the Antrim shale
formation have a high success rate and are therefore considered relatively low
risk. SDGI's average working interest in Antrim shale E&P wells is approximately
80%. The remaining wells drilled were in the midcontinent region and in Ohio.
The exploratory activities in these areas involve greater risk of dry holes or
unproductive wells but there is also a greater potential for finding larger gas
reserves than with the drilling in Antrim shale. The average working interest in
these wells is approximately 30%. SDGI's strategy is to focus efforts on known
producing areas, both within and outside Michigan. As a result, SDGI's success
rate in the drilling program has averaged 96%.
In 1994, SDGI made significant investments in natural gas reserves
acquiring interests in over 800 gas wells located primarily in Oklahoma, Kansas
and Texas. At December 1994, SDGI owned 422 Bcf of proven gas reserves, 363 Bcf
of potential gas reserves and 1.3 million barrels (equivalent to 8 Bcf) of
proven and potential oil reserves. SDGI held interests in approximately 650,000
undeveloped acres which could support drilling over 2,000 additional wells.
At December 31, 1994, approximately 1,295 wells were producing. An
additional 200 wells were in various stages of completion and are expected to
begin producing in 1995. Additional information on SDGI's exploration and
production activities is reported under Item 2. Properties, located on pages 15
and 16.
The natural gas industry is very competitive, especially in the area of
obtaining desirable properties and projects for the production of natural gas
and oil. SDGI's approach to E&P is selective, conservative, and diversified.
Focus is primarily in known areas of gas production where chances of finding gas
are high. SDGI further reduces the risks inherent in E&P drilling by working
with several producers who use different gas well technologies and operate in
diverse geographical gas producing areas. Additional investments in natural gas
reserves will be made in areas that offer proven reserves and an acceptable
success percentage. Competition ranges from the major oil companies to numerous
small independent gas and oil companies.
GAS GATHERING & PROCESSING
With gas production in Michigan surpassing 220 Bcf annually, there is an
increasing need for the transportation of natural gas from the wellhead to
processing plants and ultimately to consumers. Saginaw Bay Pipeline Company and
Saginaw Bay Lateral Company (collectively "Saginaw Bay") are general partners in
ventures that transport natural gas and natural gas liquids from east-central
Michigan gas fields to processing plants in the northern part of the state.
During 1994, the Saginaw Bay pipeline transported an average of 44.9 MMcf
of natural gas per day and related liquids. Volumes transported in 1994 were
less than 1993 due to a normal production decline of gas reserves from the deep
Prairie du Chien formation.
To increase utilization of existing assets and increase its participation
in this business, MCN plans to extend the gas gathering system to reach new
Antrim gas reserves. MCN is both constructing and acquiring pipeline extensions
and processing plants. Recent pipeline extensions include the Jordan Valley
pipeline and the Lovells extension project. The Jordan Valley pipeline began
operations in early November 1994 and is transporting approximately 22 MMcf of
gas daily. The Lovells project, which has the potential to transport up to 50
MMcf of gas daily, will begin operation in the first half of 1995 and will
initially transport 30 MMcf of gas daily. This expansion is expected to mitigate
the effect of a decrease in the transportation rate of Saginaw Bay's largest
customer that will become effective in January 1996. The rate decrease is in
accordance with the terms of a 15-year contract that reduces the transportation
rate for the last 10 years of the agreement.
Antrim gas contains significant amounts of carbon dioxide that must be
removed before the gas is sold to end users. During 1994, MCN Investment
acquired two carbon dioxide gas processing plants in northern Michigan. In
January 1995, MCN Investment sold its 40% interest in two other plants. In 1995,
it expects to acquire or build additional processing plants which will also
process Antrim gas produced in northern Michigan. These additional plants,
together with the development of new pipeline infrastructure, will allow the
company to use carbon dioxide from these plants to pursue enhanced oil recovery
in Michigan.
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MCN's strategy to grow its gas gathering and processing operations is
focused in Michigan and other states where MCN has gas production interests or
can readily apply its expertise in gas pipelines and processing.
GAS STORAGE
MCN Investment, through its subsidiary, Storage Development Company,
(Storage Development) has adopted a strategy of using joint ventures and
strategic partnerships to provide gas storage services, either as a separate
service or bundled with full gas service, to other gas utilities, pipeline
companies and large-volume gas users. Storage facilities near major consuming
markets provide supply flexibility, improve reliability of deliveries and help
reduce gas costs.
The gas industry's new operating environment requires local distribution
companies to assume greater responsibility for securing gas supplies and
developing a cost-effective, reliable gas supply portfolio. At the same time,
gas marketers and others are playing a larger role in the purchase and delivery
of natural gas to end users. These developments, as well as Michigan's pivotal
geographic location, favorable geology and depleting gas fields, present
significant opportunities for MCN's storage services.
MCN currently is a 50% partner with ANR Storage Company in the Blue Lake
gas storage field. This 42 Bcf field, located in north central lower Michigan
(Kalkaska County), was developed at a cost of $122 million and began operations
in April 1993. MCN's 50% share of the field is equally divided between MichCon
and Storage Development. The field's entire capacity has been sold to ANR
Pipeline under a 20-year contract.
Storage Development also has a 50% interest in the Washington 28 storage
field, which is located northeast of Detroit in Macomb County. This 10 Bcf field
provides storage for MCN's Diversified Services gas marketing operations.
Storage Development entered into a partnership with three partners to
develop a 42 Bcf underground storage field, Washington 10, which is located
northeast of Detroit in Macomb County. The partnership, in which Storage
Development has a 40% interest, plans to invest approximately $120 million to
convert the underground natural gas producing field into a storage field. Three
of the partners or their affiliates, including MCN Investment, will store gas in
the field under long-term contracts. In December 1994, the partnership received
all regulatory approvals to construct the storage field. In conjunction with
their partners, Storage Development is currently assessing how and when to
proceed with the project.
COMPUTER OPERATIONS SERVICES
The Genix Group (Genix), a wholly-owned subsidiary of MCN Investment,
provides data processing, computer operations management, network design and
management, large-scale electronic printing and mailing, and business process
solution services to more than a dozen industries in 23 states. Among the
industries served are manufacturing, insurance, financial services, utilities,
transportation, advertising, publishing, education, retail, health care,
software and food services.
Throughout 1993-1994, Genix gained new customers and increased services to
existing customers. Computer Operations now maintains a well diversified
customer base of over 100 customers with annualized revenues that exceed $100
million. Broken down by service category, 79% of Genix's 1994 revenues were from
computer operations management; 12% from network services and the remaining nine
percent from other services. In providing these services, Genix typically
acquires and operates mainframes and other types of computers that process
information for customers. This allows Genix's customers to focus on their core
businesses rather than investing in and operating in-house data centers.
Genix competes in the computer services outsourcing industry on price, high
quality, flexible contracts and a wide menu of services. Genix targets corporate
clients that are looking for reliable, quality, value-added computer services.
By outsourcing in-house computer and related operations, a company can lower its
cost of doing business by taking advantage of Genix's economies of scale,
skilled personnel and state-of-the-art equipment. Genix added six new clients,
totaling more than $24 million in annualized revenues, in 1994. These
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new contracts provide Genix with multi-year revenue streams ranging from two to
seven years. All major service contracts that were to expire in 1994 were
renewed.
During 1993, Genix expanded the capabilities of its major computing centers
in Michigan and Pennsylvania to handle new business. In 1994, Genix added data
centers in North Carolina and in London, England, and expanded its operating
facilities in Michigan and Pennsylvania. These new facilities will offer Genix
new business opportunities in the southeast U.S. and overseas. IBM compatible
mainframe processing power has expanded to 1,200 million instructions per second
(MIPS) in 1994, a 20% increase from 1993.
GAS TECHNOLOGY
MCN continues to develop technologies that may lead to new markets for
natural gas. One focus of this effort is adsorbed natural gas (ANG), a
technology that permits natural gas to be stored in containers at pressures
one-sixth to one-tenth that of conventional methods. ANG technology has been
used on a fleet of golf carts at The Orchards Golf Club, located approximately
30 miles north of Detroit. Since that golf course opened in 1993, this showcase
project has interested others elsewhere in the United States to begin exploring
ANG use in golf carts. In addition, preparations began for extensive field
testing of natural gas forklifts utilizing ANG technology. MichCon also renewed
its efforts to market ANG technology for brazing and cutting torches.
MCN is also focusing on pressurized combustion technology, which provides
increased fuel efficiency, heat uniformity and compactness of equipment. MCN
Investment developed and patented a prototype residential compact furnace which
is about one-fourth the size of a conventional furnace, with a more efficient
heat output. MCN Investment succeeded in applying pressurized combustion
technology to an industrial furnace.
MCN believes these technologies offer opportunities to expand the use of
natural gas, grow markets and eventually generate profits. MCN's current
investment in technology is minimal. MCN will continually assess the potential
of the technologies to determine whether the potential returns justify the
continuing investment.
OTHER
MCN Investment is involved in several residential and commercial community
development partnerships.
Bridgewater Holdings Inc., a 100% owned subsidiary of MCN Investment, holds
a 33 1/3% limited partnership interest in Bridgewater Place Ltd. Limited
Partnership. The partnership owns a 17-story commercial real estate complex
consisting of approximately 375,000 square feet of leasable office space in
Grand Rapids, Michigan.
Storage Development Company, a 100% owned subsidiary of MCN Investment,
holds a 50% limited partnership interest in The Orchards Golf Limited
Partnership. The Orchards golf course is above the Washington 28 storage field,
which is located north of Detroit. The partnership was formed in 1991 to develop
approximately 520 acres of land in Washington Township, Michigan. This
development consists of an 18-hole championship golf course of approximately 200
acres and a planned residential development for the remaining 320 acres.
ITEM 2. PROPERTIES
MCN, through its principal subsidiaries, leases approximately 62,000 sq.
feet of office space in Detroit and Grand Rapids under long-term leases.
GAS DISTRIBUTION
MichCon operates natural gas distribution, transmission and storage
facilities in the state of Michigan. At December 31, 1994, MichCon's
distribution system included 15,252 miles of distribution mains, 1,035,542
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service lines and 1,157,567 active meters. MichCon owns 2,506 miles of
transmission and production lines which deliver natural gas to the distribution
districts and interconnect its storage fields with the sources of supply and the
market areas. MichCon also owns properties relating to five underground storage
fields with an aggregate storage capacity of approximately 130 Bcf.
Additionally, MichCon owns district office buildings, service buildings and gas
receiving and metering stations. MichCon occupies its principal office
buildings, located in Detroit and Grand Rapids, Michigan under long-term leases.
Portions of these buildings are subleased to affiliates and others.
Most of MichCon's properties are held in fee, by easement, or under lease
agreements expiring at various dates to 2006, with renewal options extending
beyond that date. The principal plants and properties of MichCon are held
subject to the lien of MichCon's Indenture of Mortgage and Deed of Trust under
which MichCon's First Mortgage Bonds are issued. Some existing properties are
being fully utilized and new properties are being added to meet the requirements
of expansion into new areas. MichCon's capital expenditures for 1994 totaled
$145.4 million and could reach $250 million in 1995.
Citizens owns all of the properties used in the conduct of its utility
business. Included in these properties is a gas distribution system, a two-story
office building in downtown Adrian and a one-story service center.
DIVERSIFIED SERVICES
The Saginaw Bay partnership owns substantially all of the properties used
in the conduct of its business, primarily a 126-mile transmission line and
related lateral lines.
The Supply Development Group Inc. has interests in properties used for gas
production, including compressor facilities and gathering lines. (See
information below on Exploration and Production Activities for further details).
Genix owns certain properties, including land and building at their
headquarters located in Dearborn, Michigan. Genix leases facilities and computer
equipment located in Pennsylvania; North Carolina; Southgate, Michigan and
London, England. Certain computer equipment is owned at all locations.
MCN is involved in joint ventures that own property associated with gas
storage, cogeneration, gas gathering and processing, and real estate.
MCN's facilities are suitable and adequate for their intended use.
EXPLORATION AND PRODUCTION ACTIVITIES
Supply Development Group, Inc. (SDGI), a subsidiary of MCN, is involved in
various gas and oil producing activities. The following data, together with the
financial information detailed in Note 12 to the Consolidated Financial
Statements, incorporated by reference in Item 8 of this report and the general
data provided under the "Diversified Services: Gas Services -- Exploration &
Production" section of Item 1 located on page 11, provide additional information
regarding this activity. Reserves were estimated using contract sales prices.
Future revenues (included in the standardized measure of discounted future net
cash flows presented in Note 12 to the Consolidated Financial Statements) were
increased for the higher fixed prices from swap contracts covering a portion of
the volumes. Information on estimated gas and oil reserves was obtained by SDGI
from the independent petroleum engineering consultants Ryder Scott Company and
Miller and Lents, Ltd.
PRODUCTION
For the Year Ended December 31 1994 1993
- ------------------------------------------------------------------------- -------- --------
Average Gas Sales Price (per Mcf)........................................ $ 1.91 $ 2.35
Average Oil Sales Price (per Bbl)........................................ $ 16.29 $ 18.59
Average Production Cost (per Mcf)........................................ $ .52 $ 1.62
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PRODUCTIVE WELLS AND ACREAGE
1994 1994
Producing Wells Gross Net
- ------------------------------------------------------------------------- -------- --------
United States............................................................ 1,295 620
======= =======
Gross wells include nine with multiple completions.
Developed Lease Acreage
- -------------------------------------------------------------------------
United States............................................................ 212,941 101,301
======= =======
Undeveloped Lease Acreage
- -------------------------------------------------------------------------
United States............................................................ 610,606 442,796
Canada................................................................... 42,500 18,063
-------- --------
653,106 460,859
======= =======
DRILLING ACTIVITY
1994 1994
Gross Net
----- ----
Working Interest Well Completions:
Exploratory
Productive.............................................................. 22 11
Dry..................................................................... 16 11
----- ----
Total Exploratory.................................................. 38 22
----- ----
Development
Productive.............................................................. 137 120
Dry..................................................................... 9 6
----- ----
Total Development.................................................. 146 126
----- ----
Total Working Interest Well Completions.................................... 184 148
===== ====
PRESENT ACTIVITIES
1994 1994
At December 31, 1994 Gross Net
- ----------------------------------------------------------------------------- ----- ----
Wells in Process of Drilling................................................. 92 72
DELIVERY COMMITMENTS
Once operations begin in late 1995, Cogen will provide to the Michigan
Power Project up to 9 Bcf of gas, on an annual basis.
ITEM 3. LEGAL PROCEEDINGS
In addition to the Gas Distribution's regulatory proceedings and other
matters described in Item 1, "Business", MCN is also involved in a number of
lawsuits and administrative proceedings in the ordinary course of business with
respect to taxes, environmental matters, personal injury, property damage claims
and other matters.
16
21
On December 27, 1994, a class action complaint was filed against MichCon in
Wayne County Circuit Court, Detroit, Michigan, by six residential customers of
MichCon on behalf of themselves and others who purchased and installed high
efficiency furnaces financed through one of MichCon's energy conservation
programs approved by the MPSC. These furnaces were installed by independent
licensed contractors. Plaintiffs allege, among other things, that MichCon failed
to warn them that unsafe conditions could result from improper installation and
venting of gas appliances, failed to take corrective action to remedy such
conditions, and made false representations and/or omissions in connection
therewith. Plaintiffs seek injunctive relief requiring MichCon to (a) warn its
customers of unsafe conditions created by the installation of high efficiency
furnaces, and (b) to reline all chimneys or install hot water heaters that vent
to the outside. Plaintiffs also seek unspecified money damages among other
things for diminution in the value of their homes, damage to homes, cost of
repairs, exemplary damages, attorneys fees and costs. On February 3, 1995,
immediately following a hearing on plaintiffs' motion to certify the class of
customers, the Wayne County Circuit Court issued an order that denied
plaintiffs' motion without prejudice. While plaintiffs could refile the motion,
the judge stated on the record that before he would reconsider plaintiffs'
motion, plaintiffs must be able to establish a more clearly defined plaintiff
class and damages. Management believes plaintiffs' allegations are without merit
and intends to vigorously defend this action.
The management of MCN believes that the resolution of these matters will
not have a material adverse effect on the financial statements of MCN.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
17
22
EXECUTIVE OFFICERS OF THE REGISTRANT
Information with respect to all executive officers of MCN, as of February
21, 1995, is set forth below. Such officers are appointed by the Board of
Directors for terms expiring at the next annual meeting of shareholders
scheduled to be held on April 27, 1995.
NAME AND POSITION AGE BUSINESS EXPERIENCE DURING PAST FIVE YEARS
- --------------------------------- --- ------------------------------------------------------
Alfred R. Glancy III............. 57 Present position since September 1992; Chairman, Chief
Chairman, President, Chief Executive Officer and Director since August 1988;
Executive Officer and Director Chairman and Director of MCN Investment since 1988;
Chairman and Director of MichCon since 1984 and 1981
respectively; Chief Executive Officer of MichCon from
1984 to September 1992.
Rai P. K. Bhargava............... 47 Present position since January 1994; Executive Vice
President and Chief Executive President and Chief Operating Officer of MCN
Officer of MCN Investment Investment from July 1993 to January 1994; Director of
MCN Investment since November 1993; Vice President,
Marketing, of MichCon from July 1988 to July 1993.
Stephen E. Ewing................. 51 Present position since September 1992; President and
President and Chief Executive Chief Operating Officer from August 1988 to September
Officer of MichCon and Director 1992; Director since August 1988; President and
Director of MichCon since 1985 and 1984 respectively;
Chief Operating Officer of MichCon from 1985 to
September 1992.
William K. McCrackin............. 61 Present position since September 1992; Vice Chairman,
Vice Chairman, Chief Financial Chief Financial Officer, Treasurer and Director from
Officer and Director August 1988 to September 1992; Director of MCN
Investment since 1988; Vice Chairman of MichCon from
March 1986 to September 1992; Chief Financial Officer
of MichCon from 1985 to September 1992; Director of
MichCon since 1984.
Daniel L. Schiffer............... 51 Present position since April 1989; General Counsel and
Vice President, General Counsel Secretary of MCN since August 1988; Vice President and
and Secretary General Counsel of MichCon from July 1991 to September
1992; Associate General Counsel of MichCon from 1984
to July 1991; Secretary of MichCon from June 1988 to
April 1990 and a Director of MichCon since January
1989.
18
23
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MCN Common Stock is traded on the New York Stock Exchange. On February 21,
1995 there were 24,705 holders of record of MCN Common Stock. Information
regarding the market price of MCN Common Stock and related security holder
matters is incorporated by reference herein from the section entitled
"Supplementary Financial Information" in MCN's 1994 Annual Report to
Shareholders, pages 58 and 59.
ITEM 6. SELECTED FINANCIAL DATA
Information required pursuant to this item is incorporated by reference
herein from the section entitled "Supplementary Financial Information" in MCN's
1994 Annual Report to Shareholders, pages 58 and 59.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Information required pursuant to this item is incorporated by reference
herein from the section entitled "Management's Discussion and Analysis" in MCN's
1994 Annual Report to Shareholders, pages 32 through 39.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information required pursuant to this item is incorporated by reference
herein from the following sections of MCN's 1994 Annual Report to Shareholders.
The consolidated statement of income, cash flows and capitalization are for each
of the years ended December 31, 1994, 1993 and 1992 and the consolidated
statement of financial position is as of December 31, 1994 and 1993.
Consolidated Statement of Income, page 40
Consolidated Statement of Financial Position, page 41
Consolidated Statement of Capitalization, page 42
Consolidated Statement of Cash Flows, page 43
Summary of Accounting Policies, page 44
Notes to Consolidated Financial Statements, pages 45 through 55
Independent Auditors' Report, page 56; and
Supplementary Financial Information, pages 58 and 59
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
19
24
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information set forth in the section entitled "Proposal 1-Election of
Directors" in MCN's March 1995 definitive Proxy Statement is incorporated by
reference herein.
Information concerning the executive officers of MCN is set forth in the
section entitled "Executive Officers of the Registrant" on page 18 in Part I of
this Report.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED
All reports concerning ownership of MCN equity securities required to be
filed by MCN's directors and executive officers pursuant to Section 16 of the
Securities Exchange Act of 1934, as amended, were filed on a timely basis with
the Securities and Exchange Commission.
ITEM 11. EXECUTIVE COMPENSATION
The information set forth in the section entitled "Compensation of
Directors and Executive Officers" in MCN's March 1995 definitive Proxy Statement
is incorporated by reference herein.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information set forth in the section entitled "Beneficial Security
Ownership of Directors, Nominees and Executive Officers" in MCN's March 1995
definitive Proxy Statement is incorporated by reference herein.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information set forth in the section entitled "Other Compensation
Matters" in MCN's March 1995 definitive Proxy Statement is incorporated by
reference herein.
20
25
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K
(A) LIST OF DOCUMENTS FILED AS PART OF THE REPORT:
1. For a list of financial statements incorporated by reference, see the
section entitled "Financial Statements and Supplementary Data", on page
19 in Part II, Item 8 of this Report.
2. The Financial Statement Schedule for each of the three years in the
period ended December 31, 1994, unless otherwise noted, is included
herein in response to Part II, Item 8:
Independent Auditor's Report
SCHEDULE
II -- Valuation and Qualifying Accounts
Schedules other than that referred to above are omitted as not applicable
or not required, or the required information is shown in the financial
statements or notes thereto.
21
26
INDEPENDENT AUDITORS' REPORT
MCN Corporation:
We have audited the consolidated financial statements of MCN Corporation
and subsidiaries as of December 31, 1994 and 1993, and for each of the three
years in the period ended December 31, 1994, and have issued our report thereon
dated February 6, 1995; such consolidated financial statements and report are
included in your 1994 Annual Report to Shareholders and are incorporated therein
by reference. Our audits also included the consolidated financial statement
schedule of MCN Corporation and subsidiaries, listed in Item 14. This financial
statement schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audits. 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.
Deloitte & Touche LLP
Detroit, Michigan
February 6, 1995
22
27
SCHEDULE II
MCN CORPORATION AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
(THOUSANDS OF DOLLARS)
COLUMN C
ADDITIONS
------------------ COLUMN D
PROVISIONS DEDUCTIONS
COLUMN B CHARGED TO FOR PURPOSES COLUMN E
BALANCE AT ------------------ FOR WHICH THE BALANCE
COLUMN A BEGINNING UTILITY RESERVES WERE AT END
DESCRIPTION OF PERIOD INCOME PLANT PROVIDED OF PERIOD
- --------------------------------------------------------------- ----------- ------- ------- ------------- ---------
YEAR ENDED DECEMBER 31, 1994
Reserve deducted from assets in Consolidated Statement of
Financial Position:
Allowance for doubtful accounts............................ $19,576 $20,392 $ -- $23,867 $16,101
Allowance for sale of partnership interest (1)............. -- 91 -- -- 91
Allowance for notes receivable............................. 579 1,375 -- -- 1,954
----------- ------- ------- ------------- ---------
$20,155 $21,858 $ -- $23,867 $18,146
========== ======= ====== ============= ==========
Reserves included in Current Liabilities -- Other in
Consolidated Statement of Financial Position:
Environmental testing (2).................................. $ 6,179 $ -- $ -- $ 639 $ 5,540
========== ======= ====== ============= ==========
Reserves included in Deferred Credits and Other
Liabilities -- Other in Consolidated Statement of Financial
Position:
Injuries and damages....................................... $ 9,090 $ 1,656 $ 387 $ 2,731 $ 8,402
========== ======= ====== ============= ==========
YEAR ENDED DECEMBER 31, 1993
Reserve deducted from assets in Consolidated Statement of
Financial Position:
Allowance for doubtful accounts............................ $24,930 $21,138 $ -- $26,492 $19,576
Allowance for notes receivable............................. -- 579 -- -- 579
----------- ------- ------- ------------- ---------
$24,930 $21,717 $ -- $26,492 $20,155
========== ======= ====== ============= ==========
Reserves included in Current Liabilities -- Other in
Consolidated Statement of Financial Position:
Environmental testing (2).................................. $ 1,677 $ -- $ -- $(4,502) $ 6,179
========== ======= ====== ============= ==========
Reserves included in Deferred Credits and Other
Liabilities -- Other in Consolidated Statement of Financial
Position:
Injuries and damages....................................... $10,105 $ 1,895 $ 372 $ 3,282 $ 9,090
Environmental testing (2).................................. 6,575 -- -- 6,575 --
----------- ------- ------- ------------- ---------
$16,680 $ 1,895 $ 372 $ 9,857 $ 9,090
========== ======= ====== ============= ==========
YEAR ENDED DECEMBER 31, 1992
Reserves deducted from assets in Consolidated Statement of
Financial Position:
Allowance for doubtful accounts............................ $31,216 $20,201 $ -- $26,487 $24,930
Allowance for notes receivable............................. 223 -- -- 223 --
----------- ------- ------- ------------- ---------
$31,439 $20,201 $ -- $26,710 $24,930
========== ======= ====== ============= ==========
Reserves included in Current Liabilities -- Other in
Consolidated Statement of Financial Position:
Environmental testing (2).................................. $ 458 $ -- $ -- $(1,219) $ 1,677
Restructuring of gas technology operations................. 150 -- -- 150 --
----------- ------- ------- ------------- ---------
$ 608 $ -- $ -- $(1,069) $ 1,677
========== ======= ====== ============= ==========
Reserves included in Deferred Credits and Other
Liabilities -- Other in Consolidated Statement of Financial
Position:
Injuries and damages....................................... $11,893 $ 629 $ 243 $ 2,660 $10,105
Environmental testing (2).................................. 8,575 -- -- 2,000 6,575
----------- ------- ------- ------------- ---------
$20,468 $ 629 $ 243 $ 4,660 $16,680
========== ======= ====== ============= ==========
- ---------------
NOTES:
(1) During 1994, MCN established a reserve for the expected loss relating to the
sale of a partnership interest in a gas marketing joint venture. The sale is
anticipated to take place during the first half of 1995.
(2) Reference is made to Note 5b to the Consolidated Financial Statements in the
1994 Annual Report to Shareholders of MCN Corporation, page 47. During the
year ended December 31, 1993, $6,575,000 was transferred from Deferred
Credits and Other Liabilities -- Other to Current Liabilities -- Other.
Similarly, $2,000,000 was transferred during the year ended December 31,
1992. Actual expenditures deducted against the reserve in 1993 and 1992 were
$2,073,000 and $781,000, respectively.
23
28
3. Exhibits, Including Those Incorporated By Reference.
EXHIBIT NO. DESCRIPTION
- ----------- -------------------------------------------------------------------------------
3-1 Articles of Incorporation of MCN Corporation (Exhibit 3-1 to March 31, 1993
Form 10-Q).
3-2 By-Laws of MCN Corporation, as amended (Exhibit 3-2 to March 31, 1993 Form
10-Q).
4-1 Rights Plan (Exhibit 28-1 to Form 8-K dated December 20, 1989).
10-1 MCN Stock Option Plan Post-Effective Amendment No. 1 (Registration Statement
No. 33-21930-99).
10-2 Directors' Deferred Fee Plan (Exhibit 10-3 to 1989 Form 10-K).
10-3 Executive Deferred Compensation Plan (Exhibit 10-4 to 1989 Form 10-K).
10-4 MCN Corporation Stock Incentive Plan (Exhibit 10-5 to 1989 Form 10-K).
10-5 Form of Employment Agreement (Exhibit 10-1 to March 31, 1990 Form 10-Q).
10-6 MCN Corporation Annual Performance Plan (Exhibit 10-6 to 1993 Form 10-K).
10-7 MCN Corporation Non-Officer Director Stock Award Plan (Exhibit 10-1 to March
31, 1994 Form 10-Q).
10-8 MCN Corporation Mandatory Deferred Compensation Plan.*
13-1 MCN Corporation 1994 Annual Report to Shareholders.*
21-1 List of MCN Subsidiaries.*
23-1 Independent Auditors' Consent -- Deloitte & Touche LLP.*
23-2 Consent of Ryder Scott Company.*
23-3 Consent of Miller and Lents, Ltd.,*
24-1 Powers of Attorney.*
27-1 Financial Data Schedule.*
- ---------------
* Indicates document filed herewith.
References are to MCN (File No. 1-10070) for documents incorporate by reference.
24
29
(B) REPORTS ON FORM 8-K:
MCN filed a report on Form 8-K dated October 21, 1994, under Item 5, with
respect to the reporting of its third quarter results of operations.
MCN filed a report on Form 8-K dated October 26, 1994, under Item 5, with
respect to the offering by MCN Michigan Limited Partnership (MCN Michigan) of
its 9 3/8% Cumulative Preferred Securities, Series A, liquidation preference $25
per Preferred Security (Preferred Securities). MCN is the general partner of MCN
Michigan. A Form of Purchase Agreement was filed as an Exhibit thereto.
MCN filed an additional report on Form 8-K dated October 26, 1994, under
Item 5, with respect to the offering of the Preferred Securities by MCN
Michigan. The following documents were filed as Exhibits thereto:
- Amended and Restated Limited Partnership Agreement of MCN Michigan
Limited Partnership.
- Action by the General Partner of MCN Michigan Limited Partnership
creating the 9 3/8% Cumulative Preferred Securities, Series A, dated
October 26, 1994.
- Form of Certificate Evidencing Preferred Partner Interest of MCN Michigan
Limited Partnership.
- MCN Corporation Board of Directors' Pricing Committee Resolution
establishing the price, terms and conditions of the Debt Securities.
- Terms and Conditions of Series A Subordinated Deferrable Interest Debt
Securities.
- Form of MCN Corporation Series A Subordinated Deferrable Interest Debt
Security for $100,000,000.
- Form of MCN Corporation Series A Subordinated Deferrable Interest Debt
Security for $1,100,000.
- Form of the Series A Subordinated Deferrable Interest Debt Security to be
issued in the event that MCN Michigan ceases to be the sole holder.
25
30
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this Annual Report to be
signed on its behalf by the undersigned, thereunto duly authorized.
MCN CORPORATION
--------------------------------------
(Registrant)
By: /s/ Patrick Zurlinden
------------------------------------
Patrick Zurlinden
Vice President, Controller
and Chief Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the registrant and
in the capacities and on the date indicated.
TITLE DATE
-------------------------------------- ------------------
* Director, Chairman, President and February 28, 1995
- -------------------------------------------- Chief Executive Officer
Alfred R. Glancy III
* Director, Vice Chairman and Chief February 28, 1995
- -------------------------------------------- Financial Officer
William K. McCrackin
/s/ Patrick Zurlinden Vice President, Controller and Chief February 28, 1995
- -------------------------------------------- Accounting Officer
Patrick Zurlinden
* Director February 28, 1995
- --------------------------------------------
Stephen E. Ewing
* Director February 28, 1995
- --------------------------------------------
Roger Fridholm
* Director February 28, 1995
- --------------------------------------------
Frank M. Hennessey
* Director February 28, 1995
- --------------------------------------------
Thomas H. Jeffs II
* Director February 28, 1995
- --------------------------------------------
Arthur L. Johnson
* Director February 28, 1995
- --------------------------------------------
Dale A. Johnson
* Director February 28, 1995
- --------------------------------------------
Helen O. Petrauskas
* Director February 28, 1995
- --------------------------------------------
Howard F. Sims
*By: /s/ Patrick
Zurlinden
- --------------------------------------------
Patrick Zurlinden
Attorney-in-Fact
26
31
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION OF DOCUMENT
- ----------- -----------------------
3-1 Articles of Incorporation of MCN Corporation (Exhibit 3-1 to March 31,
1993 Form 10-Q).
3-2 By-Laws of MCN Corporation, as amended (Exhibit 3-2 to March 31, 1993
Form 10-Q).
4-1 Rights Plan (Exhibit 28-1 to Form 8-K dated December 20, 1989).
10-1 MCN Stock Option Plan Post-Effective Amendment No. 1 (Registration
Statement No. 33-21930-99).
10-2 Directors' Deferred Fee Plan (Exhibit 10-3 to 1989 Form 10-K).
10-3 Executive Deferred Compensation Plan (Exhibit 10-4 to 1989 Form 10-K).
10-4 MCN Corporation Stock Incentive Plan (Exhibit 10-5 to 1989 Form 10-K).
10-5 Form of Employment Agreement (Exhibit 10-1 to March 31, 1990 Form
10-Q).
10-6 MCN Corporation Annual Performance Plan (Exhibit 10-6 to 1993 Form
10-K).
10-7 MCN Corporation Non-Officer Director Stock Award Plan (Exhibit 10-1 to
March 31, 1994 Form 10-Q).
10-8 MCN Corporation Mandatory Deferred Compensation Plan*.
13-1 MCN Corporation 1994 Annual Report to Shareholders*.
21-1 List of MCN Subsidiaries*.
23-1 Independent Auditors' Consent -- Deloitte & Touche LLP*.
23-2 Consent of Ryder Scott Company*.
23-3 Consent of Miller and Lents, Ltd.,*.
24-1 Powers of Attorney*.
27-1 Financial Data Schedule*.
- ---------------
* Indicates document filed herewith.
References are to MCN (File No. 1-10070) for documents incorporate by reference.