1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________________________________
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED COMMISSION FILE NUMBER
SEPTEMBER 30, 1995 1-2198
__________________________________
THE DETROIT EDISON COMPANY
(Exact name of registrant as specified in its charter)
MICHIGAN 38-0478650
(State of incorporation) (I.R.S. Employer
Identification No.)
2000 SECOND AVENUE, DETROIT, MICHIGAN 48226
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:
(313) 237-8000
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
----- -----
AT OCTOBER 31, 1995, 145,119,826 SHARES OF THE COMPANY'S $10 PAR VALUE COMMON
STOCK WERE OUTSTANDING.
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TABLE OF CONTENTS
Page
----
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Part I - Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Item 1 - Financial Statements (Unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . 3
Notes to Consolidated Financial Statements (Unaudited) . . . . . . . . . . . . . . 8
Independent Accountants' Report . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Part II - Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Item 1 - Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Item 5 - Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Item 6 - Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . 26
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
DEFINITIONS
ABATE . . . . . . . . . . . . Association of Businesses Advocating Tariff Equity
Annual Report . . . . . . . . The Company's 1994 Annual Report to the Securities and
Exchange Commission on Form 10-K
Annual Report Notes . . . . . Notes to Consolidated Financial Statements appearing on
pages 37 through 48 of the Company's 1994 Annual Report
to the Securities and Exchange Commission on Form 10-K
Company . . . . . . . . . . . The Detroit Edison Company and subsidiary companies
Consumers . . . . . . . . . . Consumers Power Company
FERC . . . . . . . . . . . . Federal Energy Regulatory Commission
kWh . . . . . . . . . . . . . Kilowatthour
MPSC . . . . . . . . . . . . Michigan Public Service Commission
MW . . . . . . . . . . . . . Megawatts
Note(s) . . . . . . . . . . . Note(s) to Consolidated Financial Statements (Unaudited)
appearing herein
PSCR . . . . . . . . . . . . Power Supply Cost Recovery
Quarterly Report . . . . . . The Company's Quarterly Report to the Securities and
Exchange Commission on Form 10-Q for quarters ended
March 31, 1995 and June 30, 1995
Quarterly Report Notes . . . Notes to Consolidated Financial Statements (Unaudited)
appearing in the Company's Quarterly Report to the
Securities and Exchange Commission on Form 10-Q for
quarters ended March 31, 1995 and June 30, 1995
QUIDS . . . . . . . . . . . . Quarterly Income Debt Securities
Registrant . . . . . . . . . The Detroit Edison Company
2
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PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS (UNAUDITED).
THE DETROIT EDISON COMPANY AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
(Dollars in Thousands)
Three Months Ended Nine Months Ended Twelve Months Ended
September 30 September 30 September 30
----------------------------------------------------------------------------
1995 1994 1995 1994 1995 1994
----------------------------------------------------------------------------
OPERATING REVENUES
Electric - System $ 1,008,450 $ 933,558 $ 2,710,411 $ 2,657,970 $ 3,500,793 $3,502,083
Electric - Interconnection 20,591 7,560 40,230 37,881 45,490 55,117
Steam 3,248 3,271 17,877 20,817 24,909 28,413
- ------------------------------------------------------------------------------------------------------------------------
Total Operating Revenues $ 1,032,289 $ 944,389 $ 2,768,518 $ 2,716,668 $ 3,571,192 $3,585,613
- ------------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES
Operation
Fuel $ 193,675 $ 179,587 $ 538,867 $ 550,247 $ 707,835 $ 737,086
Purchased power 51,311 54,528 119,170 145,402 90,715 163,879
Other operation 195,323 166,588 481,694 454,435 648,325 633,658
Maintenance 66,406 65,177 178,780 187,982 253,207 248,193
Depreciation and amortization 125,383 122,696 375,057 358,743 492,730 466,497
Deferred Fermi 2 amortization (1,493) (1,866) (4,479) (5,599) (6,345) (7,839)
Amortization of deferred Fermi 2
depreciation and return 23,248 21,207 69,742 63,621 90,949 71,342
Taxes other than income 64,353 59,323 188,457 199,877 244,454 260,913
Income taxes 88,969 76,851 236,238 210,511 296,384 253,154
- ------------------------------------------------------------------------------------------------------------------------
Total Operating Expenses $ 807,175 $ 744,091 $ 2,183,526 $ 2,165,219 $ 2,818,254 $2,826,883
- ------------------------------------------------------------------------------------------------------------------------
OPERATING INCOME $ 225,114 $ 200,298 $ 584,992 $ 551,449 $ 752,938 $ 758,730
- ------------------------------------------------------------------------------------------------------------------------
OTHER INCOME AND DEDUCTIONS
Allowance for other funds used
during construction $ 369 $ 581 $ 952 $ 1,574 $ 1,061 $ 2,372
Other income and (deductions) - net (7,637) (7,368) (25,913) (12,979) (37,906) (26,928)
Income taxes 1,550 1,632 7,720 3,557 12,274 8,651
Accretion income 2,677 3,332 8,536 10,468 11,712 21,387
Income taxes - disallowed plant costs and
accretion income (811) (1,037) (2,608) (3,272) (3,588) (6,934)
- ------------------------------------------------------------------------------------------------------------------------
Net Other Income and Deductions $ (3,852) $ (2,860) $ (11,313) $ (652) $ (16,447) $ (1,452)
- ------------------------------------------------------------------------------------------------------------------------
INTEREST CHARGES
Long-term debt $ 69,353 $ 66,353 $ 205,873 $ 205,957 $ 273,679 $ 277,955
Amortization of debt discount,
premium and expense 2,849 2,845 8,427 8,082 11,178 10,697
Other 1,698 4,361 7,912 13,584 5,498 14,929
Allowance for borrowed funds used
during construction (credit) (594) (502) (1,535) (1,360) (2,241) (1,508)
- ------------------------------------------------------------------------------------------------------------------------
Net Interest Charges $ 73,306 $ 73,057 $ 220,677 $ 226,263 $ 288,114 $ 302,073
- ------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 147,956 $ 124,381 $ 353,002 $ 324,534 $ 448,377 $ 455,205
PREFERRED STOCK DIVIDEND REQUIREMENTS 6,544 7,409 21,355 22,232 28,763 29,645
- ------------------------------------------------------------------------------------------------------------------------
EARNINGS FOR COMMON STOCK $ 141,412 $ 116,972 $ 331,647 $ 302,302 $ 419,614 $ 425,560
========================================================================================================================
COMMON SHARES OUTSTANDING -
AVERAGE 144,905,909 145,669,721 144,882,040 146,586,449 144,876,686 146,701,827
EARNINGS PER SHARE $0.98 $0.80 $ 2.29 $ 2.06 $ 2.90 $ 2.90
DIVIDENDS DECLARED PER SHARE
OF COMMON STOCK $0.515 $0.515 $1.545 $ 1.545 $ 2.06 $ 2.06
See accompanying Notes to Consolidated Financial Statements (Unaudited).
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THE DETROIT EDISON COMPANY AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEET (UNAUDITED)
ASSETS
(Dollars in Thousands)
September 30 December 31
1995 1994
-------------- -------------
UTILITY PROPERTIES
Plant in service
Electric $ 13,140,182 $ 12,941,414
Steam 70,890 69,813
- --------------------------------------------------------------------------------------------------------------
$ 13,211,072 $ 13,011,227
Less: Accumulated depreciation and amortization (4,855,888) (4,529,692)
- --------------------------------------------------------------------------------------------------------------
$ 8,355,184 $ 8,481,535
Construction work in progress 172,367 104,431
- --------------------------------------------------------------------------------------------------------------
Net utility properties $ 8,527,551 $ 8,585,966
- --------------------------------------------------------------------------------------------------------------
Property under capital leases (less accumulated amortization
of $99,130 and $94,678, respectively) $ 127,488 $ 134,542
Nuclear fuel under capital lease (less accumulated amortization
of $409,922 and $374,405, respectively) 162,349 193,411
- --------------------------------------------------------------------------------------------------------------
Net property under capital leases $ 289,837 $ 327,953
- --------------------------------------------------------------------------------------------------------------
Total owned and leased properties $ 8,817,388 $ 8,913,919
- --------------------------------------------------------------------------------------------------------------
OTHER PROPERTY AND INVESTMENTS
Non-utility property $ 14,289 $ 11,281
Investments and special funds 29,216 18,722
Nuclear decommissioning trust funds 105,685 76,492
- --------------------------------------------------------------------------------------------------------------
$ 149,190 $ 106,495
- --------------------------------------------------------------------------------------------------------------
CURRENT ASSETS
Cash and temporary cash investments $ 12,324 $ 8,122
Customer accounts receivable and unbilled revenues (less allowance
for uncollectible accounts of $27,000 and $30,000, respectively) 422,238 195,824
Other accounts receivable 41,845 34,212
Inventories (at average cost)
Fuel 155,667 136,331
Materials and supplies 142,432 155,921
Prepayments 42,660 10,516
- --------------------------------------------------------------------------------------------------------------
$ 817,166 $ 540,926
- --------------------------------------------------------------------------------------------------------------
DEFERRED DEBITS
Unamortized debt expense $ 45,458 $ 42,876
Unamortized loss on reacquired debt 122,035 123,996
Recoverable income taxes 626,546 663,101
Other postretirement benefits 26,126 36,562
Fermi 2 phase-in plan 321,022 390,764
Fermi 2 deferred amortization 56,738 52,259
Other 137,907 122,080
- --------------------------------------------------------------------------------------------------------------
$ 1,335,832 $ 1,431,638
- --------------------------------------------------------------------------------------------------------------
TOTAL $ 11,119,576 $ 10,992,978
==============================================================================================================
See accompanying Notes to Consolidated Financial Statements (Unaudited).
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THE DETROIT EDISON COMPANY AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEET (UNAUDITED)
LIABILITIES
(Dollars in Thousands)
September 30 December 31
1995 1994
--------------- ---------------
CAPITALIZATION
Common stock - $10 par value, 400,000,000 shares authorized;
145,034,139 and 144,863,447 shares outstanding, respectively
(139,854 and 311,804 shares, respectively, reserved for conversion
of preferred stock) $ 1,450,341 $ 1,448,635
Premium on common stock 547,139 545,825
Common stock expense (47,528) (47,461)
Retained earnings used in the business 1,485,345 1,379,081
- ----------------------------------------------------------------------------------------------------------------
Total common shareholders' equity $ 3,435,297 $ 3,326,080
Cumulative preferred stock - $100 par value, 6,747,484 shares
authorized; 3,376,103 and 3,905,470 shares outstanding,
respectively (1,539,827 shares unissued)
Redeemable solely at the option of the Company 329,037 380,283
Long-term debt 3,855,687 3,825,296
- ----------------------------------------------------------------------------------------------------------------
Total Capitalization $ 7,620,021 $ 7,531,659
- ----------------------------------------------------------------------------------------------------------------
OTHER NON-CURRENT LIABILITIES
Obligations under capital leases $ 118,642 $ 126,076
Other postretirement benefits 42,595 37,143
Other 50,305 48,707
- ----------------------------------------------------------------------------------------------------------------
$ 211,542 $ 211,926
- ----------------------------------------------------------------------------------------------------------------
CURRENT LIABILITIES
Short-term borrowings $ 3,000 $ 39,489
Amounts due within one year
Long-term debt 19,214 19,214
Obligations under capital leases 171,195 201,877
Accounts payable 152,967 147,020
Property and general taxes 17,733 31,608
Income taxes 52,606 5,304
Accumulated deferred income taxes 32,712 32,625
Interest 79,373 60,214
Dividends payable 81,083 82,012
Payrolls 83,254 71,958
Fermi 2 refueling outage 11,080 1,267
Other 110,148 97,215
- ----------------------------------------------------------------------------------------------------------------
$ 814,365 $ 789,803
- ----------------------------------------------------------------------------------------------------------------
DEFERRED CREDITS
Accumulated deferred income taxes $ 2,038,917 $ 2,014,821
Accumulated deferred investment tax credits 335,101 346,379
Other 99,630 98,390
- ----------------------------------------------------------------------------------------------------------------
$ 2,473,648 $ 2,459,590
- ----------------------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (Note 6)
- ----------------------------------------------------------------------------------------------------------------
TOTAL $ 11,119,576 $ 10,992,978
================================================================================================================
See accompanying Notes to Consolidated Financial Statements (Unaudited).
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THE DETROIT EDISON COMPANY AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
(Dollars in Thousands)
Three Months Ended Nine Months Ended Twelve Months Ended
September 30 September 30 September 30
----------------------------------------------------------------------------
1995 1994 1995 1994 1995 1994
----------------------------------------------------------------------------
OPERATING ACTIVITIES
Net Income $ 147,956 $ 124,381 $ 353,002 $ 324,534 $ 448,377 $ 455,205
Adjustments to reconcile net income
to net cash from operating activities:
Accretion income (2,677) (3,332) (8,536) (10,468) (11,712) (21,387)
Depreciation and amortization 125,383 122,696 375,057 358,743 492,730 466,497
Deferred Fermi 2 amortization,
depreciation and return - net 21,755 19,341 65,263 58,022 84,604 63,503
Deferred income taxes and investment
tax credit - net 9,328 4,001 49,411 54,076 88,622 61,395
Fermi 2 refueling outage - net 3,058 (7,634) 9,813 (20,774) 11,080 (16,856)
Other 8,615 42,061 7,837 12,674 (35,929) 48,497
Changes in current assets and liabilities:
Customer accounts receivable and
unbilled revenues (33,935) 1,669 (226,414) 5,475 (232,394) (369)
Other accounts receivable (4,159) 9,260 (7,633) 6,909 (22,135) 11,292
Inventories 16,117 (2,654) (11,547) 3,895 (17,216) (5,799)
Accounts payable 12,495 (19,799) 7,352 (28,725) 22,219 (973)
Taxes payable 20,777 5,940 34,031 (77) 16,077 (27,344)
Interest payable 20,273 (8,478) 19,159 (6,639) 19,624 (10,327)
Other 13,880 8,836 (10,049) (20,527) 8,289 18,449
- ------------------------------------------------------------------------------------------------------------------------
Net cash from operating activities $ 358,866 $ 296,288 $ 656,746 $ 737,118 $ 872,236 $1,041,783
- ------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Plant and equipment expenditures $(113,148) $ (87,863) $(293,126) $(259,038) $(400,480) $ (386,511)
Purchase of leased equipment - - - (11,500) - (11,500)
Nuclear decommissioning trust funds (5,901) (10,428) (29,193) (39,064) (36,692) (40,451)
Non-utility investments 1,173 (767) 1,993 (1,287) (9,563) (1,337)
Changes in current assets and liabilities 9,413 3,761 5,825 1,271 9,596 8,315
Other (24,668) (11,980) (30,632) (2,863) (39,306) (7,342)
- ------------------------------------------------------------------------------------------------------------------------
Net cash used for investing activities $(133,131) $(107,277) $(345,133) $(312,481) $(476,445) $ (438,826)
- ------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Sale of long-term debt $ - $ 200,000 $ - $ 200,000 $ - $ 360,000
Funds received from trustees 22,175 2,850 22,175 10,385 62,260 75,385
Decrease in short-term borrowings (138,877) (14,464) (36,489) (60,732) (74,472) (25,502)
Redemption of long-term debt (22,175) (221,135) (41,389) (247,884) (51,539) (587,599)
Premiums on reacquired long-term debt
and preferred stock (565) (11,058) (565) (11,271) (857) (27,766)
Purchase of common stock - (59,855) - (59,855) - (59,855)
Dividends on common and preferred stock (82,018) (83,146) (246,044) (249,434) (328,055) (332,575)
0ther (4,636) (1,147) (5,099) (1,680) (6,041) (3,309)
- ------------------------------------------------------------------------------------------------------------------------
Net cash used for financing activities $(226,096) $(187,955) $(307,411) $(420,471) $(398,704) $ (601,221)
- ------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND
TEMPORARY CASH INVESTMENTS $ (361) $ 1,056 $ 4,202 $ 4,166 $ (2,913) $ 1,736
CASH AND TEMPORARY CASH INVESTMENTS AT
BEGINNING OF THE PERIOD 12,685 14,181 8,122 11,071 15,237 13,501
- ------------------------------------------------------------------------------------------------------------------------
CASH AND TEMPORARY CASH INVESTMENTS AT
END OF THE PERIOD $ 12,324 $ 15,237 $ 12,324 $ 15,237 $ 12,324 $ 15,237
========================================================================================================================
SUPPLEMENTARY CASH FLOW INFORMATION
Interest paid (excluding interest
capitalized) $ 49,199 $ 77,993 $ 188,898 $ 222,777 $ 255,496 $ 298,112
Income taxes paid 60,757 67,274 137,237 136,479 183,930 219,979
New capital lease obligations 6,564 1,787 4,455 7,689 6,093 11,426
Exchange of preferred stock for
long-term debt 49,878 - 49,878 - 49,878 -
========================================================================================================================
See accompanying Notes to Consolidated Financial Statements (Unaudited).
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THE DETROIT EDISON COMPANY AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF COMMON SHAREHOLDERS' EQUITY (UNAUDITED)
(Dollars in Thousands)
Common Stock Premium Retained
------------------------- on Common Earnings
$10 Par Common Stock Used in the
Shares Value Stock Expense Business
--------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1994 144,863,447 $1,448,635 $545,825 $ (47,461) $ 1,379,081
Issuance of common stock on conversion
of convertible cumulative preferred
stock, 5 1/2% series 170,692 1,706 1,314 (67)
Expense associated with preferred
stock redeemed (1,624)
Net income 353,002
Cash dividends declared
Common stock - $1.545 per share (223,897)
Cumulative preferred stock* (21,217)
- ---------------------------------------------------------------------------------------------------------------
BALANCE AT SEPTEMBER 30, 1995 145,034,139 $1,450,341 $547,139 $ (47,528) $ 1,485,345
===============================================================================================================
*At established rate for each series.
See accompanying Notes to Consolidated Financial Statements (Unaudited).
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 - ANNUAL REPORT NOTES
These consolidated financial statements (unaudited) should be read in
conjunction with the Quarterly Report Notes and the Annual Report Notes. The
Notes contained herein update and supplement matters discussed in the Quarterly
Report Notes and the Annual Report Notes.
The preceding consolidated financial statements are unaudited, but, in
the opinion of the Company, include all adjustments necessary for a fair
statement of the results for the interim periods. Financial results for this
interim period are not necessarily indicative of results that may be expected
for any other interim period or for the fiscal year.
NOTE 2 - FERMI 2
As discussed in Note 2 of the Annual Report Notes and Note 2 of the
Quarterly Report Notes, Fermi 2 was out of service in 1994. On December 25,
1993, the reactor automatically shut down following a turbine-generator
failure. Major repairs were completed in 1994 and early 1995. The unit was
operating at 878 MW at the end of September 1995 and the unit's capacity factor
was 44% for the nine-month period ended September 30, 1995. The Company
expects that most repair costs related to returning the Fermi 2
turbine-generator to service will be covered by insurance. These costs are
estimated to be approximately $80 million. The Company has received partial
insurance payments of $45 million for property damage through September 30,
1995. In addition, the Company has received insurance payments of $71.5
million for replacement power costs through September 30, 1995.
The Company is currently operating Fermi 2 without the large seventh and
eighth stage turbine blades. The new turbine shafts and blades are being
manufactured for the plant's three low-pressure turbines and will be installed
during the next refueling outage in 1996.
The expected cost of replacing the major turbine components in 1996 has
been increased from between $30 million and $40 million to between $45 million
and $50 million. These costs will not be covered by insurance. These costs
will be capitalized and are expected to be recovered in rates because such
costs are less than the cumulative amount available under the cap on Fermi 2
capital expenditures, a provision of the MPSC's December 1988 order.
NOTE 3 - RATE MATTERS
As discussed in Note 3 of the Annual Report Notes and Note 3 of the
Quarterly Report Notes, Fermi 2 was out of service in 1994 and will operate at
a reduced power output until the installation of major turbine components
during the next refueling
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outage in 1996. Therefore, the three-year rolling average capacity factor
utilized in the Fermi 2 performance standard calculation will be unfavorably
affected in 1995-1998, which will result in an estimated capacity factor
disallowance in the range of $40 million to $55 million. The plant's
three-year rolling average capacity factor was 53.7% for 1994 utilizing a
capacity of 1,093 MW for 1992 and 1993 and 1,139 MW for 1994. The three-year
rolling average capacity factor for the top 50% of U.S. boiling water reactors
was 78.6% for 1994. At September 30, 1995, the Company had accrued $45.5
million for the Fermi 2 capacity factor performance standard disallowances that
are expected to be imposed by the MPSC during the period 1995-1998, based on
the following assumptions:
a. Fermi 2 estimated three-year rolling average capacity factor of
44.4% in 1995, 34.6% in 1996, 64.1% in 1997 and 72.7% in 1998;
b. Estimated three-year rolling average capacity factor for the top
50% of U.S. boiling water reactors of 79% in 1995, 79.5% in 1996,
79.5% in 1997 and 80% in 1998;
c. Estimated incremental cost of replacement power of $8 per
megawatthour in 1995 and increasing to $11 per megawatthour in 1998.
NOTE 4 - SALE OF ACCOUNTS RECEIVABLE AND UNBILLED REVENUES
As discussed in Note 5 of the Annual Report Notes and Note 4 of the
Quarterly Report Notes, the Company has an agreement providing for the sale,
assignment and repurchase, from time to time, of an undivided ownership
interest in up to $200 million of the Company's customer accounts receivable
and unbilled revenues. At December 31, 1994, customer accounts receivable and
unbilled revenues in the Consolidated Balance Sheet were reduced by $200
million reflecting such sales. During the nine-month period ended September
30, 1995, customer accounts receivable and unbilled revenues increased as the
Company repurchased the $200 million. Therefore, at September 30, 1995, there
were no sales under this agreement.
NOTE 5 - LONG-TERM DEBT
In July 1995, the Company announced an offer to exchange up to 4,200,000
depositary shares, each representing a one-quarter interest in a share of the
Cumulative Preferred Stock, 7.75% Series, for up to $105,000,000 of the
Company's new 8.50% Deeply Subordinated QUIDS. On August 15, 1995, 1,995,108
depositary shares were accepted for exchange of $49,877,700 aggregate principal
amount of QUIDS.
The QUIDS will mature on September 30, 2025 and will bear interest at an
annual rate of 8.50%. Interest will be payable quarterly provided that, so
long as an event of default has not occurred and is not continuing with respect
to the QUIDS, the Company will have the right, upon prior notice by public
announcement given in accordance with New York Stock Exchange rules at any
time, to extend the interest payment period at any
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time and from time to time on the QUIDS for up to 20 consecutive quarterly
interest payment periods. As a consequence, quarterly interest payments on the
QUIDS would be deferred but would continue to accrue during any deferral
period. In the event that the Company exercises this right, the Company may
not declare or pay dividends on, or redeem, purchase or acquire, any of its
capital stock during such deferral period, other than redemptions of any series
of capital stock of the Company pursuant to the terms of any sinking fund
provisions with respect thereto. In addition, during any deferral period, the
Company may not make any advance or loan to, or purchase any securities of, or
make any other investment in, any affiliate of the Company, including DTE
Energy Company (formerly known as DTE Holdings, Inc.), for the purpose of, or
to enable the payment of, directly or indirectly, dividends on any equity
securities of DTE Energy Company.
NOTE 6 - COMMITMENTS AND CONTINGENCIES
As discussed in Note 12 of the Annual Report Notes and in Note 5 of the
Quarterly Report Notes, on October 5, 1994, the Company (a 49% co-owner of the
Ludington Pumped Storage Plant) and all other parties to a 1986 state lawsuit
and a related FERC proceeding reached a tentative settlement. The settlement
remains contingent upon FERC and MPSC approval. FERC's decision, originally
expected by the end of the summer, is not anticipated before the end of the
year.
As discussed in Note 12 of the Annual Report Notes and in Note 5 of the
Quarterly Report Notes, the Company and 23 other potentially responsible
parties ("PRPs") have been involved since January 1989 with the Carter
Industrial superfund site in Detroit, Michigan. On May 22, 1995, the U.S.
District Court for the Eastern District of Michigan approved an Environmental
Protection Agency ("EPA") amendment to the Record of Decision regarding the
method of remediation of the site to allow removal and landfilling of the
contaminated soil, which will reduce the Company's portion of the cleanup costs
by $3-4 million. On July 14, 1995, the PRP group awarded a contract to
complete the remediation. There continues to be the possibility that EPA may,
through subsequent proceedings, require a cleanup of the sewer and sewer
outfall emptying into the Detroit River. At this time, it is impossible to
predict what further impact, if any, this matter will have upon the Company.
NOTE 7 - NEW ACCOUNTING STANDARD
As discussed in Note 6 of the Quarterly Report Notes for the quarter
ended June 30, 1995, in March 1995, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards ("SFAS") No. 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of. This statement, which is effective for 1996 financial statements,
requires that long-lived assets be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. The statement also requires that a loss be recognized whenever
a regulator excludes all or part of a regulatory asset from a company's
allowable costs. The Company is continuing to review SFAS 121,
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but does not expect that the application of this statement will have a material
impact on its financial position or results of operations based on the current
regulatory structure in which the Company operates.
_______________________________________
This Quarterly Report on Form 10-Q, including the report of Deloitte &
Touche LLP (on page 12) will automatically be incorporated by reference in the
Prospectuses constituting part of the Company's Registration Statements on Form
S-3 (Registration Nos. 33-50325, 33-53207, 33-57095 and 33-64296), and Form S-8
(Registration No. 33-32449), and Form S-4 (Registration No. 33-57545) of DTE
Holdings, Inc., filed under the Securities Act of 1933. Such report of
Deloitte & Touche LLP, however, is not a "report" or "part of the Registration
Statement" within the meaning of Sections 7 and 11 of the Securities Act of
1933 and the liability provisions of Section 11(a) of such Act do not apply.
11
12
INDEPENDENT ACCOUNTANTS' REPORT
To the Board of Directors and Shareholders of
The Detroit Edison Company
We have reviewed the accompanying consolidated balance sheet of The
Detroit Edison Company and subsidiary companies as of September 30, 1995, and
the related consolidated statements of income and of cash flows for the
three-month, nine-month and twelve-month periods then ended, and the
consolidated statement of common shareholders' equity for the nine-month period
then ended. These financial statements are the responsibility of the Company's
management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with generally accepted auditing standards, the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to such consolidated financial statements for them to be in
conformity with generally accepted accounting principles.
The interim financial statements as of September 30, 1994, and for the
three-month, nine-month and twelve-month periods then ended were reviewed by
other accountants whose report dated November 7, 1994 stated that they were not
aware of any material modifications that should be made to those statements in
order for them to be in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
Detroit, Michigan
November 6, 1995
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ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
This analysis for the three, nine and twelve months ended September 30,
1995, as compared to the same periods in 1994, should be read in conjunction
with the consolidated financial statements (unaudited), the accompanying Notes,
the Quarterly Report Notes and the Annual Report Notes.
RESULTS OF OPERATIONS
Total and per share earnings for common stock increased in the three- and
nine-month periods due to higher electricity sales, reflecting the impact of
record summer temperatures and continued strong economic activity on the demand
for electricity. Operating revenues increased due to higher system sales, a
revenue reserve in 1994 for estimated Fermi 2 performance disallowances in
1994-1998 and higher revenues from interconnection sales, partially offset by
lower PSCR clause revenues and lower rates.
For the twelve-month period, as compared to the same period a year ago,
total earnings for common stock were slightly lower, while per share earnings
for common stock were the same as the prior period due to a decrease in average
common shares. A January 1994 order by the MPSC reduced rates by $78 million
annually and increased depreciation and other operation expenses. In addition,
accretion income decreased and amortization of the Fermi 2 nuclear power plant
phase-in plan increased significantly. Also, since Fermi 2 was down for repair
during 1994, the Company elected to upgrade various plant facilities, which
increased maintenance expense, and also established a revenue reserve for
estimated performance disallowances in 1994-1998. The decrease in earnings for
common stock was limited by higher system sales, lower property and Michigan
Single Business tax expenses and lower net interest charges.
At September 30, 1995, the book value of the Company's common
stock was $23.63 per share, an increase of $0.74 per share or 3.2% since
December 31, 1994. Return on average total common shareholders' equity was
12.4% and 12.8% for the twelve months ended September 30, 1995 and 1994,
respectively.
The ratio of earnings to fixed charges was 3.31 and 3.14 for the twelve
months ended September 30, 1995 and 1994, respectively. The ratio of earnings
to fixed charges and preferred stock dividend requirements for the 1995 and
1994 twelve-month periods was 2.89 and 2.76, respectively.
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OPERATING REVENUES
- ------------------------------------------------------------------------------
Total operating revenues increased (decreased), as compared to the same period
a year ago, due to the following factors:
Three Nine Twelve
Months Months Months
------ ------ ------
(Millions)
Rate changes
MPSC rate reduction $ - $ (5) $ (26)
Special manufacturing contracts (9) (18) (18)
PSCR Clause (17) (45) (83)
-----------------------------
(26) (68) (127)
System sales volume and mix 86 117 138
Interconnection sales 13 2 (10)
Fermi 2 capacity factor performance
standard reserve (see Note 3) 20 4 (7)
Other - net (5) (3) (8)
-----------------------------
Total $ 88 $ 52 $ (14)
=============================
RATE CHANGES
The January 1994 MPSC rate order reduced the Company's rates by $78
million annually. In keeping with the MPSC's recognition of the need for
industrial customers to be competitive, the January 1994 rate reduction was
allocated among the various classes of customers approximately as follows:
Industrial - $43 million, Commercial - $24 million, Residential - $10 million
and Governmental - $1 million.
On March 23, 1995, the MPSC issued an order approving the Company's
10-year special manufacturing contracts with Chrysler Corporation, Ford Motor
Company and General Motors Corporation. The revenue reductions from these
contracts initially will amount to approximately $30 million annually and
increase to $50 million annually in 1999-2004, which the Company expects to
offset by further reducing its operating expenses.
The decreases in PSCR Clause revenues resulted from lower fuel and
purchased power expenses.
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kWh SALES
kWh sales increased (decreased), as compared to the same period a year
ago, as follows:
Three Nine Twelve
Months Months Months
------ ------ ------
Residential 20.8 % 7.3 % 5.5 %
Commercial 2.6 2.1 2.1
Industrial 0.5 3.2 3.6
Other (includes primarily sales for resale) 16.1 6.9 0.8
Total System 7.6 4.0 3.4
Interconnection 196.1 34.2 (5.3)
Total 13.4 5.5 2.9
The increases in residential and commercial sales reflect substantially
warmer summer weather. Commercial sales also reflect an improvement in
economic conditions.
The increases in industrial sales reflect higher sales to automotive
customers, increased sales to other industrial customers and higher steel sales
for the nine-month and twelve-month periods due to strong demand from the
automotive and construction sectors and growth in exports. The increased sales
to other customers reflect increased load requirements of wholesale for resale
customers.
Interconnection sales increased in the three- and nine-month periods due
to the improved availability of energy for sale in meeting the increased demand
for energy during the warmer summer period.
OPERATING EXPENSES
- --------------------------------------------------------------------------------
FUEL AND PURCHASED POWER
Fuel and purchased power expenses increased (decreased), as compared to the
same period a year ago, due to the following factors:
Three Nine Twelve
Months Months Months
------ ------ ------
(Millions)
Net system output $ 33 $ 39 $ 29
Average unit cost (22) (68) (59)
Fermi 2 business interruption
insurance proceeds - (5) (71)
Other - (4) (1)
----------------------------------------------------
Total $ 11 $ (38) $ (102)
====================================================
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Net system output and average unit costs were as follows:
Three Months Nine Months Twelve Months
------------ ----------- -------------
1995 1994 1995 1994 1995 1994
---- ---- ---- ---- ---- ----
(Thousands of Megawatthours, "MWh")
Power plant generation
Fossil 10,830 10,738 31,517 31,999 41,961 41,866
Nuclear 1,917 - 3,240 - 3,207 2,086
Purchased power 2,018 2,083 4,724 5,245 6,077 5,586
-----------------------------------------------------------------------
Net system output 14,765 12,821 39,481 37,244 51,245 49,538
======================================================================
Average unit cost ($/MWh) $15.54 $17.04 $15.54 $17.27 $15.62 $16.77
======================================================================
Fuel and purchased power expenses increased for the three-month period
due to higher net system output, partially offset by lower average unit cost.
For the nine- and twelve-month periods, fuel and purchased power expenses
decreased due to lower average unit costs resulting from the increased use of
lower-cost low sulfur western coal, an increase in lower cost nuclear
generation and the receipt of Fermi 2 business interruption insurance proceeds.
Fermi 2 was out of service in 1994 and early 1995 as a result of a
turbine-generator failure in December 1993.
OTHER OPERATION
Three Months
Other operation expense increased due to a reserve for the write-off of
obsolete and excess stock material ($15.0 million), higher storm expenses
($11.6 million), a reserve for settlement of the Ludington fish mortality case
($8.4 million), Electric Power Research Institute dues ($4.8 million) and
employee reorganization expenses ($2.6 million). These increases were
partially offset by expenses recorded in the year-earlier period for service
quality claims expenses ($8.7 million) and to lower nuclear plant ($4.6
million) and postretirement health care and life insurance benefits ($3.8
million) expenses.
Nine Months
Other operation expense increased due to a reserve for the write-off of
obsolete and excess stock material ($15.0 million), higher storm expenses
($10.7 million), a reserve for settlement of the Ludington fish mortality case
($8.4 million), incentive award expenses related to a shareholder value
improvement plan ($6.2 million), higher demand-side management expenses ($5.6
million), Electric Power Research Institute dues ($4.8 million) and higher
sales expenses ($4.2 million). These increases were partially offset by
expenses recorded in the year-earlier period for service quality claims ($8.7
million) and employee reorganization ($5.0 million) and by lower nuclear plant
($6.8 million) and employee retirement plan ($3.1 million) expenses.
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17
Twelve Months
Other operation expense increased due to a reserve for the write-off of
obsolete and excess stock material ($17.6 million), higher postretirement
health care and life insurance benefits ($17.4 million), higher storm expenses
($10.7 million), a reserve for settlement of the Ludington fish mortality case
($8.4 million), higher demand-side management expenses ($7.7 million), Electric
Power Research Institute dues ($4.8 million) and higher sales expenses ($4.2
million). These increases were partially offset by expenses recorded in the
year-earlier period for employee reorganizations ($18.2 million), a reserve for
steam purchases under the agreement with the Greater Detroit Resource Recovery
Authority ($11.0 million), and service quality claims ($8.7 million) and by
lower injuries and damages ($8.3 million), employee retirement plan ($4.0
million) and uncollectible customer account ($2.8 million) expenses.
MAINTENANCE
Three Months
Maintenance expense increased due to higher storm ($6.3 million) and
other transmission and distribution ($1.8 million) expenses, partially offset
by lower nuclear plant expenses ($7.4 million).
Nine Months
Maintenance expense decreased due to lower nuclear plant ($6.4 million)
and line clearance ($3.0 million) expenses.
Twelve Months
Maintenance expense increased due to higher nuclear plant ($4.8 million)
and fossil plant ($3.6 million) expenses, partially offset by lower line
clearance expenses ($4.3 million).
DEPRECIATION AND AMORTIZATION
Depreciation and amortization expense increased due to increases in plant
in service and increased Fermi 2 decommissioning costs authorized by a January
1994 MPSC rate order.
DEFERRED FERMI 2 AMORTIZATION
Deferred Fermi 2 amortization, a non-cash item of income, was recorded
beginning with the Company's purchase of the Wolverine Power Supply
Cooperative, Inc.'s ownership interest in Fermi 2 in February 1990. The annual
amount of deferred amortization decreases each year through 1999.
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18
AMORTIZATION OF DEFERRED FERMI 2 DEPRECIATION AND RETURN
Deferred Fermi 2 depreciation and return, non-cash items of income, were
recorded beginning with the implementation of the Fermi 2 rate phase-in plan in
January 1988. The annual amounts of deferred depreciation and return decreased
each year through 1992. Beginning in 1993 and continuing through 1998, these
deferred amounts will be amortized to operating expense as the cash recovery is
realized through revenues.
TAXES OTHER THAN INCOME TAXES
Three Months
Taxes other than income taxes increased due to higher property taxes,
partially offset by lower payroll and Michigan Single Business taxes.
Nine Months and Twelve Months
Taxes other than income taxes decreased due to lower property, payroll and
Michigan Single Business taxes.
INCOME TAXES
Three Months
Income taxes increased due to higher pretax income.
Nine Months
Income taxes increased due to higher pretax income and a tax reduction
recorded in the prior period related to the 1987-1988 Internal Revenue Service
audit.
Twelve Months
Income taxes increased due to higher pretax income, higher prior years'
federal income tax accrual and a tax reduction recorded in the prior period
related to the 1987-1988 Internal Revenue Service audit.
OTHER INCOME AND DEDUCTIONS
- -------------------------------------------------------------------------------
OTHER INCOME AND (DEDUCTIONS) - NET
Nine Months
Other deductions increased due to promotional practices expenses ($8.9
million), expenses incurred in the formation of a holding company ($2.5
million) and the write-off of
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19
premiums and expenses ($1.7 million) related to a $20 million portion of 1989
Series A General and Refunding Mortgage Bonds not refinanced.
Twelve Months
Other deductions increased due to promotional practices expenses ($8.9
million), the write-off of premiums and expenses ($6.9 million) related to the
$70 million portion of 1989 Series A General and Refunding Mortgage Bonds not
refinanced and expenses incurred in the formation of a holding company ($2.5
million), partially offset by the accrual for decommissioning expenses for
Fermi 1 in the prior period ($7.6 million).
ACCRETION INCOME
Accretion income, a non-cash item of income, was recorded beginning in
January 1988 to restore to income, over the period 1988-1998, losses recorded
due to discounting indirect disallowances of plant costs. The annual amount of
accretion income recorded decreases each year through 1998. Also, effective in
January 1994, accretion income decreased due to the return to rate base of
Greenwood Unit No. 1.
INTEREST CHARGES
- --------------------------------------------------------------------------------
LONG-TERM DEBT
Three Months
Interest expense on long-term debt increased due to the timing of the
early redemption and refinancing of securities when economic and the additional
issuance of long-term debt.
Nine Months and Twelve Months
Interest expense on long-term debt decreased due to the early redemption
and refinancing of securities when economic and the redemption of maturing
securities.
OTHER
Three Months
Other interest expense decreased due primarily to lower levels of short-
term borrowings.
Nine Months and Twelve Months
Other interest expense decreased due to expense recorded in the
year-earlier period for prior years' Michigan Single Business Tax audits and
the settlement of 1987 and 1988 federal income tax audits and lower levels of
short-term borrowings.
19
20
LIQUIDITY AND CAPITAL RESOURCES
FERMI 2
Fermi 2 was out of service during 1994. On December 25, 1993, the reactor
automatically shut down following a turbine-generator failure. The Company is
currently operating Fermi 2 without the large seventh and eighth stage turbine
blades. The new turbine shafts and blades are being manufactured for the
plant's three low-pressure turbines and will be installed during the next
refueling outage in 1996.
The expected cost of replacing the major turbine components in 1996 has
been increased from between $30 million and $40 million to between $45 million
and $50 million. These costs will not be covered by insurance. These costs
will be capitalized and are expected to be recovered in rates because such
costs are less than the cumulative amount available under the cap on Fermi 2
capital expenditures, a provision of the MPSC's December 1988 order.
CASH GENERATION AND CASH REQUIREMENTS
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
Net cash from operating activities increased in the three-month period due
to changes in current assets and liabilities and higher net income.
Net cash from operating activities decreased in the nine- and twelve-month
periods due primarily to changes in current assets and liabilities, primarily
as a result of the repurchase of $200 million of customer accounts receivable
and unbilled revenues.
Net cash used for investing activities was higher in the three-month
period due primarily to increased plant and equipment expenditures. Net cash
used for investing activities was higher in the nine- and twelve-month periods
due to increased funding of utility investments, increased plant and equipment
expenditures and, for the twelve-month period, higher non-utility investments,
partially offset by purchases of leased equipment in the prior periods.
Net cash used for financing activities increased in the three-month period
due primarily to a decrease in short-term borrowings, partially offset by the
one-time purchase in the prior period of common stock from the trustee of the
Detroit Edison Savings & Investment Plans as a result of a plan change. Net
cash used for financing activities decreased in the nine- and twelve-month
periods due to reduced activity in the Company's extensive debt refinancing
program and the one-time purchase in the prior period of common stock from the
trustee of the Detroit Edison Savings & Investment Plans as a result of a plan
change.
20
21
ADDITIONAL INFORMATION
In July 1995, the Company announced an offer to exchange up to 4,200,000
depositary shares, each representing a one-quarter interest in a share of the
Cumulative Preferred Stock, 7.75% Series, for up to $105,000,000 of the
Company's new 8.50% Deeply Subordinated QUIDS. On August 15, 1995, 1,995,108
depositary shares were accepted for exchange of $49,877,700 aggregate principal
amount of QUIDS.
On August 1, 1995, the Company issued $22,175,000 of its 1995 Series BP
Mortgage Bonds, 6.20%, due August 15, 2025, to collateralize its obligations
with respect to the Limited Obligation Refunding Revenue Bonds, Collateralized
Series 1995BB issued by the Michigan Strategic Fund. The proceeds of this
issue were used to refund $2,175,000 of the Michigan Strategic Fund Limited
Obligation Refunding Revenue Bonds, Series 1990 CC, 7%, on August 15, 1995, and
$20,000,000 of the County of Monroe, Michigan Pollution Control Revenue Bonds,
Series I-1985, 10.125%, on September 1, 1995.
On September 1, 1995, the Company issued $97,000,000 of its 1995 Series AP
Mortgage Bonds, 6.40%, due September 1, 2025, to collateralize its obligations
with respect to the Limited Obligation Refunding Revenue Bonds, Collateralized
Series 1995AA issued by the Michigan Strategic Fund. The Company intends to
use the proceeds of this issue to refund $97,000,000 of the County of Monroe,
Michigan Pollution Control Revenue Bonds, Series A-1985, 10.5%, on December 1,
1995.
On September 28, 1995, the Michigan Strategic Fund issued $82,350,000 of
Adjustable Rate Demand Limited Obligation Refunding Revenue Bonds, Series 1995
CC, due September 1, 2030, which are obligations of the Company under a Loan
Agreement. The bonds are in a floating interest rate mode. The proceeds of
this issue were used to refund $7,350,000 of the Michigan Strategic Fund
Limited Obligation Refunding Revenue Bonds, Series 1990 AA, 7.75%, on October
15, 1995, and will also be used to refund $75,000,000 of the County of Monroe,
Michigan Pollution Control Revenue Bonds, Series A-1985, 9.625%, on December 1,
1995.
The Company called for redemption, all of its outstanding shares of 5 1/2%
Series Convertible Cumulative Preferred Stock on October 15, 1995. The
redemption price was $100 per share. Stockholders had the right to convert
shares of the 5 1/2% Series Preferred Stock into shares of the Company's Common
Stock until the close of business on October 15, 1995. The conversion ratio
was 5.62 shares of Common Stock for each share of the 5 1/2% Series Preferred
Stock.
The Company's 1995 cash requirements for its capital expenditure program
are estimated at $422 million, of which $288 million had been expended as of
September 30, 1995.
The Company's internal cash generation in 1995 is expected to be
sufficient to meet cash requirements for capital expenditures as well as
scheduled redemptions not subject to refinancing.
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22
The Company had short-term credit arrangements of approximately $405
million at September 30, 1995, under which $3 million of borrowings were
outstanding.
CAPITALIZATION
- --------------------------------------------------------------------------------
The Company's capital structure as of September 30, 1995 was 45.1% common
shareholders' equity, 4.3% preferred stock and 50.6% long-term debt (including
$49,877,700 or 0.7% of Deeply Subordinated QUIDS) as compared to 44.2%, 5.0%
and 50.8%, respectively, at December 31, 1994.
COMPETITION
- --------------------------------------------------------------------------------
On December 5, 1994, the Company's Board of Directors approved the
formation of a holding company. The Company's shareholders approved this
organizational structure at the Company's April 24, 1995 Annual Meeting of
Common Shareholders. Since all regulatory approvals have been received, the
holding-company structure will be established January 1, 1996 as DTE Energy
Company ("DTE").
The Company's Common Stock will be exchanged share-for-share for the
common stock of DTE. The Company will become a subsidiary of DTE with DTE
owning all of the Company's Common Stock. The Company's Preferred Stock,
Preference Stock (none of which is outstanding), General and Refunding Mortgage
Bonds, and other debt securities will be unchanged and will continue to be
securities and obligations of the Company.
JULY 13-16, 1995 STORMS
- --------------------------------------------------------------------------------
On July 13, 15 and 16, severe weather conditions damaged property within
the Company's service area and caused numerous customer outages. As a result
of the severe weather, the Company incurred storm costs totaling approximately
$27 million. Of this amount, $19 million was charged to other operation and
maintenance expense, $3 million was capitalized and $5 million was recorded as
an insurance claim receivable.
The MPSC held public hearings during August 1995 to solicit public
comments on the Company's response to electric outages caused by the storm. On
October 6, 1995, the MPSC Staff filed its report reviewing the July 1995
storm-related distribution outages. The MPSC Staff report is generally
favorable concerning the performance of the Company in response to the storm,
but does include several recommendations that additional attention be directed
toward pockets of customers who are experiencing an unacceptably high frequency
of outages. In a report filed on October 20, 1995, the Company responded to
the MPSC that while it had fulfilled its storm-related reliability commitment
and in 1991 had put forth a three year plan to further improve reliability for
customers that had experienced outages, further improvements were essential.
In its report, the Company specifically recommended improvements to overall
service reliability and customer satisfaction with reliability through
implementing an enhanced reliability improvement plan for 1995-1997 and
specific service recovery strategies, establishing a customer ombudsman, and
improving
22
23
customer communications and restoration estimates. Also, the Company
recommended establishing service standards for basic electric service
reliability of two or fewer sustained, non-catastrophic storm outages per year.
The MPSC may schedule further proceedings after review of the reports.
23
24
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS.
On September 7, 1995, the Company, along with two other utilities,
filed a petition for review in the United States Court of Appeals for the
District of Columbia Circuit. The petition seeks to overturn a decision of the
United States Department of Energy ("DOE") that it does not have a legal
obligation to begin accepting spent nuclear fuel from nuclear utilities
commencing January 31, 1998. The petition seeks to affirm that such an
obligation exists and to establish court oversight of the development of a
schedule by the DOE to accept spent nuclear fuel by that date. This action has
been consolidated with existing litigation brought by a number of other
utilities as well as a number of states. The United States Court of Appeals
has granted a motion to expedite the briefing schedule and set oral arguments
for January 17, 1996.
See Note 6.
ITEM 5 - OTHER INFORMATION.
As discussed in Part I, Items 1 and 2 - Business and Properties,
"Regulation and Rates - Michigan Public Service Commission - Competitive
Bidding" of the Annual Report and in Item 5 - Other Information of the
Quarterly Report for the quarter ended June 30, 1995, on May 1, 1995, the
Company filed its preliminary Request for Proposal ("RFP") to solicit bids for
the acquisition of new capacity starting in the year 2004. The filing
describes Detroit Edison's future requirements for additional generating
capacity and addresses the role competitive bidding will play in meeting that
capacity need. To better serve its customers in an increasingly competitive
marketplace, the Company is proposing customer load management options which
have the potential to provide an additional 500 MW of peak reduction by the
year 2003. On July 14, 1995, the Company updated its case to reflect the
MPSC's June 19, 1995 Retail Wheeling order. The Company filed, as required by
that MPSC order, a proposed retail wheeling tariff and proposal for
implementing the retail wheeling program. The need for capacity will determine
the retail wheeling program start date. On October 13, 1995, the MPSC Staff
submitted its direct testimony suggesting that Detroit Edison will need more
capacity by 1997 and that the experiment should begin in 1998.
As discussed in Part I, Items 1 and 2 - Business and Properties,
"Regulation and Rates - Michigan Public Service Commission - Retail Wheeling"
of the Annual Report and in Item 5 - Other Information of the Quarterly Report
for the quarter ended June 30, 1995, the MPSC has been considering the
propriety of an experimental retail wheeling program. On May 8, 1995, the U.S.
District Court, Western District of Michigan, Southern Division, issued an
order granting the MPSC's Motion to Dismiss the Company's declaratory judgment
action in connection with the MPSC's April 11, 1994 interim order. On June 19,
1995, the MPSC issued a final order finding that an experimental retail
wheeling program is in the public interest and establishing rates and charges
for the five-year experimental program. Under the program, retail wheeling
customers would make their own
24
25
arrangements to procure power. Implementation of the experimental program
would be limited to 90 MW for Detroit Edison and will be coordinated with the
Company's next solicitation of new capacity. On July 19, 1995, the Company
filed a claim of appeal with the Michigan Court of Appeals. Also, on July 19,
1995, Consumers, ABATE and Dow Chemical Company filed petitions for rehearing
and/or clarification of the June 19, 1995 order with the MPSC. On September 7,
1995, the MPSC issued an Order on Rehearing which left its previous orders
substantially unchanged. Consumers, ABATE and Dow Chemical Company have joined
Detroit Edison in filing claims of appeal with the Michigan Court of Appeals.
Briefs of Appellants are due on December 4, 1995.
As discussed in Part I, Items 1 and 2 - Business and Properties,
"Regulation and Rates - Michigan Public Service Commission" of the Annual
Report and in Item 5 - Other Information of the Quarterly Report for the
quarter ended March 31, 1995, in 1994 the MPSC issued an order approving a
settlement agreement resolving the issues concerning the reconciliation of the
Company's 1993 PSCR plan. On March 30, 1995, the Company submitted its 1994
PSCR reconciliation filing with the MPSC. The application states that expenses
exceeded revenues by $49.9 million. However, after calculation of the Fermi 2
performance standard disallowance pursuant to the methodology approved by the
MPSC in a January 25, 1995 settlement agreement, the Company experienced a net
over-recovery of approximately $5 million. Subsequently, a partial settlement
agreement of $7.7 million is pending approval before the MPSC. The remaining
dispute, involving the Fermi 2 performance standard, is in litigation and a
MPSC order is expected in December 1995 or January 1996.
As discussed in Part I, Items 1 and 2 - Business and Properties,
"Regulation and Rates - Michigan Public Service Commission - Conservation and
Demand-Side Management Programs" of the Annual Report, the January 21, 1994
MPSC order authorized a three-year $41.5 million Demand-Side Management ("DSM")
program. On September 1, 1994, the Company filed for approval of a DSM
surcharge for 1995. The Company's 1995 DSM plan includes measures which pass
the Ratepayer Impact Measure test and customer value DSM measures totaling $4.9
million. An MPSC order approving the Company's plan was issued July 31, 1995.
On September 1, 1995, the Company filed for approval to eliminate the DSM
surcharge, effective January 1, 1996.
On September 11, 1995, the Company filed an application with the MPSC
requesting ex parte approval of a long-term purchase of capacity and energy
from Ontario Hydro. The purchase is for 300 MW, on a seasonal basis from
mid-May through mid-September for the years 1996 through 2001. This purchase
will offset a concomitant agreement to lease 312 MW, of the Company's 917 MW
Ludington Pumped Storage Plant capacity entitlement, to the Toledo Edison
Company for essentially the same time period. The net economic effect of the
Ludington lease and the Ontario Hydro purchase will be to provide the Company's
customers with an estimated reduction in PSCR expense of $74 million which will
be passed through to customers through the PSCR clause. On October 25, 1995,
the MPSC issued an order approving the Company's long-term capacity purchase
from Ontario Hydro.
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26
An all time high peak demand of 10,049 MW was experienced for the
Company's system on August 14, 1995, with a reserve margin of 2.3%. The
previous peak was 9,878 MW set on June 19, 1995. The 1995 peak demand was
higher than projected due to extreme weather conditions. The lower than
projected reserve margin resulted from the high peak demand. Based on the
current load forecast and planned generating capability, the Company estimates
that its summer reserve margin, expressed as a percentage of peak demand, will
be approximately 17% for 1996 and 16% for 1997. Included as part of the 1996
and 1997 reserve margin projections are the Company's present and projected
capacity purchases and anticipated peak reductions due to the implementation of
various demand-side management programs, including the R-10 interruptible rate.
The 1996 and 1997 reserve margins are above the Company's current planning
criterion, which specifies a minimum reserve margin of 12%.
On October 31, 1995, Michigan Governor John Engler appointed David A.
Svanda to a term on the MPSC expiring July 2, 1997. The appointment is subject
to the advice and consent of the State Senate.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
(i) Exhibits filed herewith.
Exhibit
Number
------
4-174 - Supplemental Indenture, dated as of August 1, 1995, establishing
the 1995 Series AP and 1995 Series BP Mortgage Bonds.
4-175 - Fourth Supplemental Note Indenture, dated as of August 15, 1995.
11-24 - Primary and Fully Diluted Earnings Per Share of Common Stock.
15-60 - Awareness Letter of Deloitte & Touche LLP regarding their report
dated November 6, 1995.
27-5 - Financial Data Schedule for the period ended September 30, 1995.
99-33 - Irrevocable Grantor Trust with respect to Deferring the payment of
Directors' Fees (August 1995).
99-34 - Irrevocable Grantor Trust with respect to Retirement Plan for Non-
Employee Directors (August 1995).
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27
(ii) Exhibits incorporated herein by reference.
4(a) - Restated Articles of Incorporation of the Company, as filed December 10, 1991
with the State of Michigan, Department of Commerce - Corporation and Securities
Bureau (Exhibit 4-117 to Form 10-Q for quarter ended March 31, 1993).
4(b) - Certificate containing resolution of the Board of Directors establishing
the Cumulative Preferred Stock, 7.75% Series as filed February 22, 1993
with the State of Michigan, Department of Commerce - Corporation and
Securities Bureau (Exhibit 4-134 to Form 10-Q for quarter ended March 31, 1993).
4(c) - Certificate containing resolution of the Board of Directors establishing
the Cumulative Preferred Stock, 7.74% Series, as filed April 21, 1993
with the State of Michigan, Department of Commerce - Corporation and
Securities Bureau (Exhibit 4-140 to Form 10-Q for quarter ended March 31, 1993).
4(d) - By-Laws of the Company as amended November 25, 1991 (Exhibit 4-118
to Form 10-K for year ended December 31, 1991).
4(e) - Mortgage and Deed of Trust, dated as of October 1, 1924, between the
Company (File No. 1-2198) and Bankers Trust Company as Trustee
(Exhibit B-1 to Registration No. 2-1630) and indentures supplemental
thereto, dated as of dates indicated below, and filed as exhibits to the
filings as set forth below:
September 1, 1947 Exhibit B-20 to Registration No. 2-7136
October 1, 1968 Exhibit 2-B-33 to Registration No. 2-30096
November 15, 1971 Exhibit 2-B-38 to Registration No. 2-42160
January 15, 1973 Exhibit 2-B-39 to Registration No. 2-46595
June 1, 1978 Exhibit 2-B-51 to Registration No. 2-61643
June 30, 1982 Exhibit 4-30 to Registration No. 2-78941
August 15, 1982 Exhibit 4-32 to Registration No. 2-79674
October 15, 1985 Exhibit 4-170 to Form 10-K for year ended December 31, 1994
November 30, 1987 Exhibit 4-139 to Form 10-K for year ended December 31, 1992
July 15, 1989 Exhibit 4-171 to Form 10-K for year ended December 31, 1994
December 1, 1989 Exhibit 4-172 to Form 10-K for year ended December 31, 1994
February 15, 1990 Exhibit 4-173 to Form 10-K for year ended December 31, 1994
27
28
Exhibit
Number
------
November 1, 1990 Exhibit 4-110 to Form 10-K for year ended December 31, 1990
April 1, 1991 Exhibit 4-111 to Form 10-Q for quarter ended March 31, 1991
May 1, 1991 Exhibit 4-112 to Form 10-Q for quarter ended June 30, 1991
May 15, 1991 Exhibit 4-113 to Form 10-Q for quarter ended June 30, 1991
September 1, 1991 Exhibit 4-116 to Form 10-Q for quarter ended September 30, 1991
November 1, 1991 Exhibit 4-119 to Form 10-K for year ended December 31, 1991
January 15, 1992 Exhibit 4-120 to Form 10-K for year ended December 31, 1991
February 29, 1992 Exhibit 4-121 to Form 10-Q for quarter ended March 31, 1992
April 15, 1992 Exhibit 4-122 to Form 10-Q for quarter ended June 30, 1992
July 15, 1992 Exhibit 4-123 to Form 10-Q for quarter ended September 30, 1992
July 31, 1992 Exhibit 4-124 to Form 10-Q for quarter ended September 30, 1992
November 30, 1992 Exhibit 4-130 to Registration No. 33-56496
January 1, 1993 Exhibit 4-131 to Registration No. 33-56496
March 1, 1993 Exhibit 4-141 to Form 10-Q for quarter ended March 31, 1993
March 15, 1993 Exhibit 4-142 to Form 10-Q for quarter ended March 31, 1993
April 1, 1993 Exhibit 4-143 to Form 10-Q for quarter ended March 31, 1993
April 26, 1993 Exhibit 4-144 to Form 10-Q for quarter ended March 31, 1993
May 31, 1993 Exhibit 4-148 to Registration No. 33-64296
June 30, 1993 Exhibit 4-149 to Form 10-Q for quarter ended June 30, 1993 (1993 Series AP)
June 30, 1993 Exhibit 4-150 to Form 10-Q for quarter ended June 30, 1993 (1993 Series H)
September 15, 1993 Exhibit 4-158 to Form 10-Q for quarter ended September 30, 1993
March 1, 1994 Exhibit 4-163 to Registration No. 33-53207
June 15, 1994 Exhibit 4-166 to Form 10-Q for quarter ended June 30, 1994
28
29
Exhibit
Number
-------
August 15, 1994 Exhibit 4-168 to Form 10-Q for quarter ended September 30, 1994
December 1, 1994 Exhibit 4-169 to Form 10-K for year ended December 31, 1994
4(f) - Collateral Trust Indenture (notes), dated as of June 30, 1993 (Exhibit 4-152
to Registration No. 33-50325).
4(g) - First Supplemental Note Indenture, dated as of June 30, 1993 (Exhibit 4-153
to Registration No. 33-50325).
4(h) - Second Supplemental Note Indenture, dated as of September 15, 1993 (Exhibit 4-159
to Form 10-Q for quarter ended September 30, 1993).
4(i) - Third Supplemental Note Indenture, dated as of August 15, 1994 (Exhibit 4-169 to Form 10-Q
for quarter ended September 30, 1994).
4(j) - Standby Note Purchase Credit Facility, dated as of August 17, 1994, among
The Detroit Edison Company, Barclays Bank PLC, as Bank and Administrative Agent,
Bank of America, The Bank of New York, The Fuji Bank Limited, The Long-Term Credit Bank
of Japan, LTD, Union Bank and Citicorp Securities, Inc. and First Chicago Capital
Markets, Inc. as Remarketing Agents (Exhibit 99-18 to Form 10-Q for quarter ended
September 30, 1994).
99(a) - Belle River Participation Agreement between the Company and Michigan Public Power
Agency, dated as of December 1, 1982 (Exhibit 28-5 to Registration No. 2-81501).
99(b) - Belle River Transmission Ownership and Operating Agreement between the Company
and Michigan Public Power Agency, dated as of December 1, 1982 (Exhibit 28-6 to
Registration No. 2-81501.)
99(c) - 1988 Amended and Restated Loan Agreement, dated as of October 4, 1988, between
Renaissance Energy Company (an unaffiliated company) ("Renaissance") and the Company
(Exhibit 99-6 to Registration No. 33-50325).
99(d) - First Amendment to 1988 Amended and Restated Loan Agreement, dated as of
February 1, 1990, between the Company and Renaissance (Exhibit 99-7 to
Registration No. 33-50325).
29
30
Exhibit
Number
------
99(e) - Second Amendment to 1988 Amended and Restated Loan Agreement,
dated as of September 1, 1993, between the Company and
Renaissance (Exhibit 99-8 to Registration No. 33-50325).
99(f) - Third Amendment, dated as of August 31, 1994, to 1988 Amended and
Restated Nuclear Fuel Heat Purchase Contract, dated October 4, 1988,
between The Detroit Edison Company and Renaissance Energy Company
(Exhibit 99-21 to Form 10-Q for quarter ended September 30, 1994).
99(g) - $200,000,000 364-Day Credit Agreement, dated as of September 1, 1993,
among the Company, Renaissance and Barclays Bank PLC, New York Branch,
as Agent (Exhibit 99-12 to Registration No. 33-50325).
99(h) - First Amendment, dated as of August 31, 1994, to $200,000,000 364-Day Credit
Agreement, dated September 1, 1993, among The Detroit Edison Company, Renaissance
Energy Company, the Banks party thereto and Barclays Bank, PLC, New York Branch, as
Agent (Exhibit 99-19 to Form 10-Q for quarter ended September 30, 1994).
99(i) - $200,000,000 Three-Year Credit Agreement, dated September 1, 1993, among the Company,
Renaissance and Barclays Bank PLC, New York Branch, as Agent (Exhibit 99-13 to
Registration No. 33-50325).
99(j) - 1988 Amended and Restated Nuclear Fuel Heat Purchase Contract, dated October 4, 1988,
between the Company and Renaissance (Exhibit 99-9 to Registration No. 33-50325).
99(k) - First Amendment to 1988 Amended and Restated Nuclear Fuel Heat Purchase Contract,
dated as of February 1, 1990, between the Company and Renaissance (Exhibit 99-10 to
Registration No. 33-50325).
99(l) - Second Amendment, dated as of September 1, 1993, to 1988 Amended and Restated Nuclear
Fuel Heat Purchase Contract between the Company and Renaissance (Exhibit 99-11 to
Registration No. 33-50325).
30
31
Exhibit
Number
------
99(m) - First Amendment, dated as of September 1, 1994, to
$200,000,000 Three-Year Credit Agreement, dated as of
September 1, 1993, among The Detroit Edison Company,
Renaissance Energy Company, the Banks party thereto and
Barclays Bank, PLC, New York Branch, as Agent
(Exhibit 99-20 to Form 10-Q for quarter ended
September 30, 1994).
(b) Reports on Form 8-K
The Company did not file any Reports on Form 8-K during the third
quarter of 1995.
31
32
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE DETROIT EDISON COMPANY
------------------------------------
(Registrant)
Date November 6, 1995 /s/ ELAINE M. GODFREY
---------------- ------------------------------------
Elaine M. Godfrey
Assistant Corporate Secretary
Date November 6, 1995 /s/ RONALD W. GRESENS
---------------- ------------------------------------
Ronald W. Gresens
Vice President and Controller
32
33
The Detroit Edison Company
File No. 1-2198
Quarterly Report on Form 10-Q
for the Quarter ended September 30, 1995
Exhibit Index
(a) Exhibits
(i) Exhibits filed herewith.
Exhibit Page
Number Number
------- ------
4-174 - Supplemental Indenture, dated as of August 1, 1995, establishing
the 1995 Series AP and 1995 Series BP Mortgage Bonds.
4-175 - Fourth Supplemental Note Indenture, dated as of August 15, 1995.
11-24 - Primary and Fully Diluted Earnings Per Share of Common Stock.
15-60 - Awareness Letter of Deloitte & Touche LLP regarding their report dated
November 6, 1995.
27-5 - Financial Data Schedule for the period ended September 30, 1995.
99-33 - Irrevocable Grantor Trust with respect to Deferring the payment of
Directors' Fees (August 1995).
99-34 - Irrevocable Grantor Trust with respect to Retirement Plan for Non-Employee
Directors (August 1995).
See Page
Numbers ________
through _______
for location
of Exhibits
Incorporated
by reference
(ii) Exhibits incorporated herein by reference.
4(a) - Restated Articles of Incorporation of the Company, as filed December 10, 1991
with the State of Michigan, Department of Commerce - Corporation and Securities Bureau.
1
34
4(b) - Certificate containing resolution of the Board of Directors
establishing the Cumulative Preferred Stock, 7.75% Series, as
filed February 22, 1993 with the State of Michigan, Department of
Commerce - Corporation and Securities Bureau.
4(c) - Certificate containing resolution of the Board of Directors
establishing the Cumulative Preferred Stock, 7.74% Series, as
filed April 21, 1993 with the State of Michigan, Department of
Commerce - Corporation and Securities Bureau.
4(d) - By-Laws of the Company as amended November 25, 1991.
4(e) - Mortgage and Deed of Trust, dated as of October 1, 1924, between
the Company and Bankers Trust Company as Trustee and indentures
supplemental thereto, dated as of dates indicated below:
September 1, 1947
October 1, 1968
November 15, 1971
January 15, 1973
June 1, 1978
June 30, 1982
August 15, 1982
October 15, 1985
November 30, 1987
July 15, 1989
December 1, 1989
February 15, 1990
November 1, 1990
April 1, 1991
May 1, 1991
May 15, 1991
September 1, 1991
November 1, 1991
January 15, 1992
February 29, 1992
April 15, 1992
July 15, 1992
July 31, 1992
November 30, 1992
January 1, 1993
March 1, 1993
March 15, 1993
April 1, 1993
April 26, 1993
May 31, 1993
June 30, 1993 (1993 Series AP)
June 30, 1993 (1993 Series H)
2
35
September 15, 1993
March 1, 1994
June 15, 1994
August 15, 1994
December 1, 1994
Exhibit
Number
- ------
4(f) - Collateral Trust Indenture (notes), dated June 30, 1993.
4(g) - First Supplemental Note Indenture, dated as of June 30, 1993.
4(h) - Second Supplemental Note Indenture, dated as of September 15, 1993.
4(i) - Third Supplemental Note Indenture, dated as of August 15, 1994.
4(j) - Standby Note Purchase Credit Facility, dated as of August 17, 1994, among
The Detroit Edison Company, Barclays Bank PLC, as Bank and Administrative Agent,
Bank of America, The Bank of New York, The Fuji Bank Limited, The Long-Term Credit Bank
of Japan, LTD, Union Bank and Citicorp Securities, Inc. and First Chicago Capital Markets, Inc.
as Remarketing Agents.
99(a) - Belle River Participation Agreement between the Company and Michigan Public Power Agency,
dated as of December 1, 1982.
99(b) - Belle River Transmission Ownership and Operating Agreement between the Company and Michigan
Public Power Agency, dated as of December 1, 1982.
99(c) - 1988 Amended and Restated Loan Agreement, dated as of October 4, 1988, between Renaissance
Energy Company (an unaffiliated company) ("Renaissance") and the Company.
99(d) - First Amendment to 1988 Amended and Restated Loan Agreement, dated as of February February 1, 1990
between the Company and Renaissance.
99(e) - Second Amendment to 1988 Amended and Restated Loan Agreement, dated as of September 1, 1993,
between the Company and Renaissance.
99(f) - Third Amendment, dated as of August 31, 1994, to 1988 Amended and Restated Nuclear Fuel Heat
Purchase Contract, dated October 4, 1988, between The Detroit Edison Company and Renaissance
Energy Company.
99(g) - $200,000,000 364-Day Credit Agreement, dated as of September 1, 1993, among the Company,
Renaissance and Barclays Bank PLC, New York Branch, as Agent.
99(h) - First Amendment, dated as of August 31, 1994, to $200,000,000 364-Day Credit Agreement,
dated September 1, 1993, among The Detroit Edison Company, Renaissance
3
36
Energy Company, the Banks party thereto and Barclays Bank,
PLC, New York Branch, as Agent.
99(i) - $200,000,000 Three-Year Credit Agreement, dated
September 1, 1993, among the Company, Renaissance and
Barclays Bank PLC, New York Branch, as Agent.
99(j) - 1988 Amended and Restated Nuclear Fuel Heat Purchase
Contract, dated October 4, 1988, between the Company and
Renaissance.
99(k) - First Amendment to 1988 Amended and Restated Nuclear Fuel
Heat Purchase Contract, dated as of February 1, 1990,
between the Company and Renaissance.
99(l) - Second Amendment, dated as of September 1, 1993, to 1988
Amended and Restated Nuclear Fuel Heat Purchase Contract
between the Company and Renaissance.
99(m) - First Amendment, dated as of September 1, 1994, to
$200,000,000 Three-Year Credit Agreement, dated as of
September 1, 1993, among The Detroit Edison Company,
Renaissance Energy Company, the Banks party thereto
and Barclays Bank, PLC, New York Branch, as Agent.
4