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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
REGISTRANTS; STATE OF
COMMISSION INCORPORATION; I.R.S. EMPLOYER
FILE NUMBER ADDRESS; AND TELEPHONE NUMBER IDENTIFICATION NO.
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1-11607 DTE Energy Company 38-3217752
(a Michigan corporation)
2000 2nd Avenue
Detroit, Michigan 48226-1279
313-235-4000
1-2198 The Detroit Edison Company 38-0478650
(a Michigan corporation)
2000 2nd Avenue
Detroit, Michigan 48226-1279
313-235-8000
Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
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DTE Energy Company
Common Stock, without par value New York and Chicago Stock Exchanges
The Detroit Edison Company
Preferred Stock (7.74% and 7.75% Series),
Cumulative, $100 par value New York Stock Exchange
General and Refunding Mortgage Bonds
(only Series R and S) New York Stock Exchange
Quarterly Income Debt Securities (QUIDS)
(Junior Subordinated Deferrable Interest
Debentures - 8.50% and 7-5/8% Series) New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
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(TITLE OF CLASS)
Indicate by check mark whether the registrants (1) have filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrants were required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days.
YES X* NO
---- ----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrants' knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
* DTE Energy Company was formed in connection with the restructuring of The
Detroit Edison Company into a holding company structure. DTE Energy Company
became subject to the reporting requirements of the Securities Exchange Act of
1934, as amended, on January 2, 1996, when its Registration Statement on Form
8-B was declared effective by the Securities and Exchange Commission.
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(Over for continuation of cover page.)
At February 29, 1996, 145,119,875 shares of DTE Energy's Common Stock,
substantially all held by non-affiliates, were outstanding, with an aggregate
market value of approximately $5,169,895,547 based upon the closing price on the
New York Stock Exchange.
DOCUMENTS INCORPORATED BY REFERENCE
Certain information in DTE Energy's definitive proxy statement dated March 15,
1996 in connection with its Annual Meeting of Shareholders to be held on April
22, 1996 is incorporated herein by reference in Part III, Items 10, 11, 12 and
13 hereof.
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[This page intentionally left blank.]
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CROSS REFERENCE TO INFORMATION CONTAINED IN
DTE ENERGY COMPANY'S DEFINITIVE PROXY STATEMENT
DATED MARCH 15, 1996
(INCORPORATED HEREIN BY REFERENCE)
ANNUAL REPORT
ON FORM 10-K LOCATION OF INFORMATION
FOR DTE ENERGY COMPANY IN PROXY STATEMENT
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Part III, Item 10 - Directors and "The Election of Directors" - Pages 1-5
Executive Officers of the Registrant
"Compliance with Section 16(a) of the
Securities Exchange Act of 1934" -
Page 21
Part III, Item 11 - Executive Compensation "Board Compensation Committee Report
on Executive Compensation" - Pages
8-15
Part III, Item 12 - Security Ownership of "Security Ownership of Management" -
Certain Beneficial Owners and Management Page 6
Part III, Item 13 - Certain Relationships "Compensation Committee Interlocks and
and Related Transactions Insider Participation" - Page 15
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DTE ENERGY COMPANY
AND
THE DETROIT EDISON COMPANY
FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
This document contains the Annual Reports on Form 10-K for the fiscal year
ended December 31, 1995 for each of DTE Energy Company and The Detroit Edison
Company. Information contained herein relating to an individual registrant is
filed by such registrant on its own behalf. Accordingly, except for its
subsidiaries, The Detroit Edison Company makes no representation as to
information relating to any other companies affiliated with DTE Energy Company.
TABLE OF CONTENTS
PAGE
----
Definitions ............................................................................... 5
ANNUAL REPORT ON FORM 10-K FOR DTE ENERGY COMPANY:
Part I - Items 1 and 2 - Business and Properties ....................................... 6
General ....................................................................... 6
Non-Regulated Operations ...................................................... 6
Utility Operations ............................................................ 7
Certain Factors Affecting Public Utilities .................................. 8
Capital Expenditure Program ................................................. 10
Financing ................................................................... 10
Properties .................................................................. 11
Fuel Costs and Supply ....................................................... 13
Coal ....................................................................... 13
Oil ........................................................................ 14
Gas ........................................................................ 14
Nuclear .................................................................... 14
Regulation and Rates ........................................................ 15
Michigan Public Service Commission ........................................ 15
Federal Energy Regulatory Commission ...................................... 18
Nuclear Regulatory Commission ............................................. 19
Environmental Matters ....................................................... 19
Air ....................................................................... 19
Water ..................................................................... 20
Wastes and Toxic Substances ............................................... 21
Employees and Executive Officers ............................................ 23
Employees .................................................................. 23
Executive Officers ......................................................... 24
Other Information .......................................................... 24
Item 3 - Legal Proceedings .............................................. 25
Item 4 - Submission of Matters to a Vote of Security Holders ............ 25
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TABLE OF CONTENTS (CONCLUDED)
Part II - Item 5 - Market for Registrant's Common Equity and Related
Stockholder Matters ................................ 25
Item 6 - Selected Financial Data .............................. 26
Item 7 - Management's Discussion and Analysis of Financial
Condition and Results of Operations ................ 27
Item 8 - Financial Statements and Supplementary Data .......... 33
Item 9 - Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure ................ 58
Part III - Item 10 - Directors and Executive Officers of the Registrant ... 58
Item 11 - Executive Compensation ............................... 58
Item 12 - Security Ownership of Certain Beneficial Owners and
Management ......................................... 59
Item 13 - Certain Relationships and Related Transactions ....... 59
ANNUAL REPORT ON FORM 10-K FOR THE DETROIT EDISON COMPANY:
Part I - Items 1 and 2 - Business and Properties ................................. 60
Item 3 - Legal Proceedings .................................... 61
Item 4 - Submission of Matters to a Vote of Security Holders .. 61
Part II - Item 5 - Market for Registrant's Common Equity and Related
Stockholder Matters ................................. 61
Item 6 - Selected Financial Data .............................. 61
Item 7 - Management's Discussion and Analysis of Financial
Condition and Results of Operations .................. 61
Item 8 - Financial Statements and Supplementary Data .......... 62
Item 9 - Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure ............... 62
Part III - Item 10 - Directors and Executive Officers of the Registrant ... 62
Item 11 - Executive Compensation ............................... 62
Item 12 - Security Ownership of Certain Beneficial Owners and
Management ........................................ 62
Item 13 - Certain Relationships and Related Transactions ....... 62
ANNUAL REPORTS ON FORM 10-K FOR DTE ENERGY COMPANY
AND THE DETROIT EDISON COMPANY:
Part IV - Item 14- Exhibits, Financial Statement Schedules and Reports on
Form 8-K .................................................... 63
Signature Page to DTE Energy Company Annual Report on Form 10-K ....................... 75
Signature Page to The Detroit Edison Company Annual Report on Form 10-K ............... 76
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DEFINITIONS
ABATE ........... Association of Businesses Advocating Tariff Equity
AFUDC ........... Allowance for Funds Used During Construction (both
borrowed and other funds)
BTU ............. British Thermal Unit
CERCLA .......... Federal Comprehensive Environmental Response,
Compensation and Liability Act of 1980
Company ......... DTE Energy Company and Subsidiary Companies
Consumers ....... Consumers Power Company (a wholly owned subsidiary of
CMS Energy Corporation)
Detroit Edison .. The Detroit Edison Company (a wholly owned subsidiary of
DTE Energy Company) and Subsidiary Companies
DOE ............. United States Department of Energy
DSM ............. Demand-Side Management
EPA ............. Environmental Protection Agency
ERA ............. Department of Energy's Economic Regulatory Administration
FERC ............ Federal Energy Regulatory Commission
IRP ............. Integrated Resource Plan
kWh ............. Kilowatthour
Ludington ....... Ludington Hydroelectric Pumped Storage Plant (owned jointly
with Consumers)
MDEQ ............ Michigan Department of Environmental Quality (formerly part
of MDNR)
MDNR ............ Michigan Department of Natural Resources
MJC ............. Michigan Jobs Commission
Mortgage Bonds .. Detroit Edison's General and Refunding Mortgage Bonds
MPSC ............ Michigan Public Service Commission
MW .............. Megawatt
MWh ............. Megawatthour
MWRC ............ Michigan Water Resources Commission
Note ............ Notes to Consolidated Financial Statements of the Company
and Detroit Edison
NPDES ........... National Pollutant Discharge Elimination System
NRC ............. Nuclear Regulatory Commission
PCB's ........... Polychlorinated Biphenyls
PRP ............. Potentially Responsible Party
PSCR ............ Power Supply Cost Recovery
Registrant ...... Company or Detroit Edison, as the case may be
Renaissance ..... Renaissance Energy Company (an unaffiliated company)
RFP ............. Request for Proposal
SEC ............. Securities and Exchange Commission
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ANNUAL REPORT ON FORM 10-K FOR DTE ENERGY COMPANY
PART I
ITEMS 1 AND 2 - BUSINESS AND PROPERTIES.
GENERAL
DTE Energy Company, a Michigan corporation incorporated in 1995, is an
exempt holding company under the Public Utility Holding Company Act. On
January 1, 1996, the holders of Detroit Edison's common stock exchanged such
stock on a share-for-share basis for the common stock of the Company. Also on
January 1, 1996, Detroit Edison declared a dividend to the Company in the form
of the stock of five subsidiaries: DE Energy Services, Inc., DTE Capital
Corporation, Edison Development Corporation, Syndeco Realty Corporation and UTS
Systems, Inc. As a result of this corporate restructuring, DTE Energy became
the parent holding company of Detroit Edison and five other subsidiaries. The
new holding company structure is designed to provide financial flexibility for
the development of new energy-related businesses. It is also a mechanism for
separating the regulated utility business of Detroit Edison from non-regulated
businesses, thereby protecting the utility business from the potential
volatility of non-utility operations.
The Company has no significant operations of its own. Detroit Edison is
the Company's principal operating subsidiary, comprising substantially all of
the Company's assets and liabilities. Certain of the Company's wholly-owned
subsidiaries and affiliates are engaged in non-regulated energy-related
businesses that are still in the formative stages.
NON-REGULATED OPERATIONS
Four wholly owned subsidiaries, along with various affiliates, of the
Company are engaged in non-regulated businesses, including energy-related
services. Such services include the operation of landfill gas-to-energy
facilities, providing expertise in the application of new energy technologies,
real estate development and specialty engineering services. A fifth wholly
owned subsidiary, DTE Capital Corporation, provides financial services to the
Company's non-utility affiliates.
On March 8, 1996, DTE Capital entered into a syndicated three-year $200
million bank revolving credit agreement. Borrowings pursuant to this agreement
will be utilized to provide funds for affiliate projects expected to commence
in 1996. Since DTE Capital did not have an established credit history, the
Company agreed to provide credit support during the term of the agreement or
until such earlier time as DTE Capital had been assigned investment-grade
ratings.
Expenditures for 1996 non-regulated investments are estimated to range
from $100 million to $200 million.
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UTILITY OPERATIONS
Detroit Edison, incorporated in Michigan since 1967, is a regulated public
utility engaged in the generation, purchase, transmission, distribution and sale
of electric energy in a 7,600 square mile area in Southeastern Michigan. Detroit
Edison's service area includes about 13% of Michigan's total land area and about
half of its population (approximately five million people). Detroit Edison's
residential customers reside in urban and rural areas, including an extensive
shoreline along the Great Lakes and connecting waters. See operating revenues,
sales and customer data by rate class below.
1995 1994 1993
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Percent Percent Percent
Operating Revenues Amount of Total Amount of Total Amount of Total
------------------ ------ -------- ------ --------- ------ -----------
(Thousands, except percentages)
Electric
Residential..................... $1,210,925 33.3% $ 1,136,169 32.3% $ 1,125,624 31.7%
Commercial...................... 1,495,820 41.1 1,473,309 41.9 1,428,321 40.2
Industrial...................... 728,088 20.0 736,339 20.9 720,002 20.2
Sales for resale and other (1).. 125,637 3.5 102,534 2.9 193,410 5.4
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Total System................. 3,560,470 97.9 3,448,351 98.0 3,467,357 97.5
Interconnection................. 50,979 1.4 43,141 1.2 60,363 1.7
---------- ----- ------------ ------ ------------ -----
Total Electric.................. 3,611,449 99.3 3,491,492 99.2 3,527,720 99.2
Steam Heating..................... 24,095 0.7 27,849 0.8 27,491 0.8
---------- ----- ------------ ------ ------------ -----
Total Operating Revenues..... $3,635,544 100.0% $ 3,519,341 100.0% $ 3,555,211 100.0
========== ===== ============ ===== ============ =====
(1) Primary pumping operating revenues, sales and customers are included in
commercial in 1995 and 1994 and in the other category in 1993.
1995 1994 1993
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Increase Increase Increase
(Decrease) (Decrease) (Decrease)
From Prior From Prior From Prior
Sales Amount Year Amount Year Amount Year
----- ------ ---- ------ ---- ------ ----
Electric (thousands of kWh)
Residential............... 13,006,210 6.9 % 12,169,417 1.1 % 12,032,342 6.4 %
Commercial................ 17,470,922 2.5 17,041,446 6.5 15,996,307 4.0
Industrial................ 13,825,456 3.5 13,356,351 5.9 12,618,018 6.7
Sales for resale and
other (1) ............... 1,670,409 5.3 1,586,162 (31.6) 2,317,793 6.5
----------- ---------- ----------
Total System............. 45,972,997 4.1 44,153,376 2.8 42,964,460 5.6
Interconnection........... 2,968,706 50.1 1,978,135 (45.2) 3,611,455 12.7
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Total Electric........... 48,941,703 6.1 % 46,131,511 (1.0) % 46,575,915 6.1 %
=========== ========== ==========
Steam Heating
(thousands of lbs.)....... 2,968,324 (4.5)% 3,109,596 3.5 % 3,004,394 - %
=========== ========== ==========
(1) See footnote reference above.
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Customers (at Year-End) 1995 1994 1993
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Electric
Residential ..................... 1,824,917 1,805,141 1,790,197
Commercial ...................... 173,651 172,221 170,453
Industrial ...................... 956 889 850
Other (1) ....................... 1,979 1,967 2,034
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Total System .................. 2,001,503 1,980,218 1,963,534
Interconnection ................. 7 7 7
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Total Electric ................ 2,001,510 1,980,225 1,963,541
========= ========= =========
Steam Heating...................... 344 367 378
========= ========= =========
(1) See footnote reference on Page 7.
During 1995, sales to automotive and automotive-related customers
accounted for approximately 11% of total operating revenues. Detroit Edison's
30 largest industrial customers accounted for approximately 17% of total
operating revenues in 1995, 18% in 1994 and 1993 and no one customer accounted
for more than 3%.
Set forth below are comparisons of total system sales by year and quarter.
1995 1994 1993
---------- ---------- ----------
(Thousands of kWh)
First Quarter ................... 11,032,446 10,892,135 10,583,641
Second Quarter .................. 11,004,935 10,696,503 10,170,611
Third Quarter ................... 12,685,866 11,790,735 11,606,908
Fourth Quarter .................. 11,249,750 10,774,003 10,603,300
---------- ---------- ----------
Total System .................... 45,972,997 44,153,376 42,964,460
========== ========== ==========
Detroit Edison generally experiences its peak load and highest total
system sales during the third quarter of the year as a result of air
conditioning and cooling-related loads. In 1995 a new all-time peak of 10,049
MW was reached in August.
For information on an interruptible rate, commonly known as R-10, and the
special manufacturing contracts which are expected to reduce revenues and peak
demand, see "Regulation and Rates" and for information on Detroit Edison's
future sales growth which may be limited by the economic base in Detroit
Edison's service territory, see Item 7 - Management's Discussion and Analysis
of Financial Condition and Results of Operations.
For further information on financial results of the Company's operations,
see Item 6 - Selected Financial Data, Item 7 - Management's Discussion and
Analysis of Financial Condition and Results of Operations, Item 8 - Financial
Statements and Supplementary Data and Item 14 - Exhibits, Financial Statement
Schedules and Reports on Form 8-K.
CERTAIN FACTORS AFFECTING PUBLIC UTILITIES
Detroit Edison, in common with other domestic public utilities, is
addressing efforts at both the Federal and state levels to make the energy
markets competitive. Federal
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legislation, as well as administrative proceedings, dealing with competitive
issues and the effects of competition on both public utilities and consumers is
pending and proposed. Issues under consideration include: (1) the
recovery of stranded costs by public utilities now recovering capital costs
under traditional ratemaking principles, (2) retail wheeling and open
transmission access, and (3) revisions to (and the possible repeal of all or
portions of) various federal energy-related statutes such as the Federal Power
Act, the Federal Public Utility Regulatory Policy Act and the Federal Public
Utility Holding Company Act.
On January 8, 1996, Michigan Governor John Engler forwarded to the MPSC a
report on economic development recommendations for electric and gas utility
reform in Michigan prepared by the MJC. The essential component of the MJC's
recommended strategy for lowering energy costs is the promotion of competition
and customer choice. The Governor strongly encouraged the MPSC to use the
report as guiding principles in its continued efforts to promote competition
within reasonably established time frames.
The MJC's recommendations, if implemented would: (1) allow new industrial
and commercial load to purchase energy from providers of their choice beginning
January 1, 1997 assuming that the Michigan public utilities subject to the new
rules would be permitted to sell power on a reciprocal basis, (2) establish a
Michigan statewide wholesale power pool by January 1, 1998, and (3) permit all
industrial and commercial customers to be able to choose their energy providers
by January 1, 2001. The proposals recognize that the transition to a more
competitive market requires that the recovery of stranded costs be addressed.
In addition, the proposals favor the unbundling of rate tariffs into functional
components.
The MPSC has not yet taken action with respect to the MJC's
recommendations. However, the Michigan House Public Utilities Committee and
the Michigan Senate Technology and Energy Committee have recognized the need
for a review of existing Michigan energy-related statutes regulating public
utilities. These Committees have announced a two-part legislative approach:
(1) preparing for competition and (2) an examination of regulatory flexibility
and any industry realignment necessary to produce an efficient, competitive and
deregulated industry.
Detroit Edison is monitoring the progress and development of Federal and
Michigan legislative and administrative efforts, but is unable to predict, at
this time, the form of legislative and administrative revisions.
In a preliminary response to competitive pressures, Detroit Edison has
developed an interruptible rate for industrial customers and has, also, entered
into special manufacturing contracts with Chrysler Corporation, Ford Motor
Company and General Motors Corporation. These competitive responses are
expected to reduce revenues.
Nevertheless, Detroit Edison continues to believe that, based on current
conditions, it operates under cost-based-rate regulation.
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On February 12, 1996, Detroit Edison and five other Midwest utilities
announced an agreement to develop an independent organization to plan and
operate the combined regional transmission systems of the utilities under
proposed new federal rules promoting competition at the wholesale level. Plans
for the independent organization, known as the Independent System Operator, are
expected to be filed with the FERC later in 1996 and will be implemented in
stages.
In addition, Detroit Edison, in common with other domestic public
utilities, is subject to extensive environmental regulation. Additional costs
may result as the effects of various chemicals on the environment (including
nuclear waste) are studied and governmental regulations are developed and
implemented. The costs of future nuclear decommissioning activities are the
subject of increased regulatory attention.
See Notes 1, 2 and 3, Item 7 - Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital Resources
and "Regulation and Rates - Federal Energy Regulatory Commission" herein.
CAPITAL EXPENDITURE PROGRAM
Detroit Edison has no current plans to construct additional generating
plants. However, an IRP, reviewed by the MPSC biennially, recognizes that the
need for additional capacity may be satisfied by the return to service of
certain units in economy reserve status and various DSM programs. See
"Regulation and Rates - Michigan Public Service Commission - Integrated
Resource Plan."
Capital expenditures in 1995, 1994 and 1993 were $454 million (including
$4 million of AFUDC), $366 million (including $4 million of AFUDC) and $396
million (including $3 million of AFUDC), respectively. Also, the purchase of
leased equipment totaled $11.5 million in 1994 and $2.4 million in 1993.
Projections for the 1996-2000 period contemplate capital expenditures of
approximately $2.1 billion (including an estimated $20 million of AFUDC). The
1996 capital expenditure program is budgeted at $484 million (including $6
million of AFUDC). The 1996 capital expenditure program includes planned
expenditures for production plant improvement projects ($99 million),
transmission and distribution facilities ($198 million), general plant projects
($92 million) and miscellaneous construction and construction overheads
capitalized ($95 million).
FINANCING
Orders of the MPSC permit Detroit Edison to issue approximately $2.03
billion of securities for the purpose of refinancing debt and equity and to
replace funds used for those purposes. Detroit Edison also has MPSC authority
to refinance a substantial portion of its non-taxable debt obligations.
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Detroit Edison's outstanding MPSC orders authorizing securities issuances
remain effective. However, as a result of a change in the law, the MPSC no
longer has the authority to issue new securities orders. As such, all future
requests for authority to issue securities will be made to FERC.
Detroit Edison has an effective Shelf Registration Statement on file with
the SEC pursuant to which it may issue up to $165 million in debt securities
after taking into account debt issuances of $185 million in February 1996.
In May 1995, FERC issued its order authorizing the continuation of Detroit
Edison's $1 billion of short-term borrowing authority. This authority will be
in effect through May 31, 1997. At February 29, 1996, Detroit Edison had
short-term credit arrangements of $452 million under which no borrowings were
outstanding.
At December 31, 1995, the book value of the Company's common stock was
$23.62 per share as compared to $22.89 per share at December 31, 1994.
See Notes 7, 8, 10 and 16.
PROPERTIES
The summer net rated capability of Detroit Edison's generating units is as
follows:
Summer Net
Location By Rated Capability (2) (3)
Michigan ------------------------ Year
Plant Name (1) County (MW) % in Service
- -----------------------------------------------------------------------------------------------------------------------------
Fossil-fueled Steam-Electric
Belle River (4) St. Clair 1,026 10.3% 1984 and 1985
Greenwood St. Clair 785 7.8 1979
Harbor Beach Huron 103 1.0 1968
Marysville St. Clair 167 1.7 1930, 1943 and 1947
Monroe Monroe 3,000 30.0 1971, 1973 and 1974
River Rouge Wayne 500 5.0 1957 and 1958
St. Clair St. Clair 1,379 13.8 1953, 1954, 1961 and 1969
Trenton Channel Wayne 725 7.2 1949, 1950 and 1968
------ -----
7,685 76.8%
Oil or Gas-fueled Peaking Units Various 525 5.2 1966-1971 and 1981
Nuclear-fueled Steam-Electric
Fermi 2 (5) Monroe 876 8.8 1988
Hydroelectric Pumped Storage
Ludington (6) Mason 917 9.2 1973
------ -----
10,003 100.0%
====== =====
(1) See Note 10.
(2) Summer net rated capabilities of generating units in service are based on
periodic load tests and are changed depending on operating experience, the
physical condition of units, environmental control limitations and
customer requirements for steam, which otherwise would be used for
electric generation.
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(3) Excludes two oil-fueled units, River Rouge Unit No. 1 (206 MW) and St.
Clair Unit No. 5 (250 MW), and one coal-fueled power plant, Conners Creek
(236 MW), all in economy reserve status.
(4) The Belle River capability represents Detroit Edison's entitlement to
81.39% of the capacity and energy of the plant. See Note 4.
(5) Fermi 2 has a design electrical rating (net) of 1,139 MW. However due to
certain equipment limitations, the plant is operating at a reduced
capability. See Note 2.
(6) Represents Detroit Edison's 49% interest in Ludington with a total
capability of 1,872 MW. Detroit Edison will lease 312 MW to The Toledo
Edison Company for the six-year period June 1, 1996 through May 31, 2002.
The four Monroe units, two Belle River units, Fermi 2 and one unit at each
of the Trenton Channel and St. Clair Power Plants account for 5,852 MW of
Detroit Edison's summer net rated capability. These units, which commenced
commercial operation during the period 1968 through 1988, are Detroit Edison's
larger, more efficient generating units. The Monroe, Belle River, St. Clair
and Fermi 2 Power Plants provided approximately 42%, 16%, 15% and 11%,
respectively, of Detroit Edison's total 1995 power plant generation.
Sources of electric energy were as follows:
1995 1994 1993
------ ------ ------
(Thousands of MWh)
Power plant generation
Fossil .......................... 41,636 42,410 38,882
Nuclear ......................... 5,092 - 8,274
Purchased power ................... 5,423 6,599 2,211
------ ------ ------
Net system output ................. 52,151 49,009 49,367
====== ====== ======
Detroit Edison and Consumers are parties to an Electric Coordination
Agreement providing for emergency assistance, coordination of operations and
planning for bulk power supply, with energy interchanged at nine
interconnections. Detroit Edison and Consumers also have interchange
agreements to exchange electric energy through 12 interconnections with The
Toledo Edison Company, Indiana Michigan Power Company, Northern Indiana Public
Service Company and Ontario Hydro. In addition, Detroit Edison has interchange
agreements for the exchange of electric energy with Michigan South Central
Power Agency, Rouge Steel Company and the City of Wyandotte.
Detroit Edison also purchases energy from cogeneration facilities and
other small power producers. Energy purchased from cogeneration facilities and
small power producers amounted to $20.6 million, $16.7 million and $13.9
million for 1995, 1994 and 1993, respectively, and is currently estimated at
$27.1 million for 1996.
An all time peak demand of 10,049 MW was experienced for Detroit Edison's
system on August 14, 1995, with a reserve margin of 2.3%. Previous peaks were
9,878 MW set in June 1995 and 9,684 MW set in June 1994. Based on the current
load forecast and planned generating capability, Detroit Edison estimates that
its summer reserve margin,
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expressed as a percentage of peak demand, will be approximately 12% for 1996
and 1997. Included as part of the 1996 and 1997 reserve margin projections are
Detroit Edison's present and projected capacity purchases and anticipated peak
reductions due to the implementation of various DSM programs, including the
R-10 interruptible rate. The 1996 and 1997 reserve margins meet Detroit
Edison's current planning criterion, which specifies a minimum reserve margin
of 12%.
Detroit Edison's electric generating plants are interconnected by a
transmission system operating at 24 to 345 kilovolts through 94 transmission
stations. As of December 31, 1995, electric energy was being distributed in
Detroit Edison's service area through 579 substations over 2,987 distribution
circuits.
See Note 5 for information on an agreement providing for the sale,
assignment and repurchase, from time to time, of an undivided ownership
interest in $200 million of Detroit Edison's customer accounts receivable and
unbilled revenues.
See Note 14 for information on the write-off of the remaining net book
value of Detroit Edison's steam heating plant assets.
FUEL COSTS AND SUPPLY
Detroit Edison's 1991 through 1995 generating capability was primarily
dependent upon coal. Fuel information for these periods is shown below.
Percent of
Cents Per Million BTU Total Fuel Consumed Average
---------------------------------------------------------- ---------------------------------- Cost
Per Ton
All of Coal
Coal Nuclear Oil Gas Fuels Coal Nuclear Oil Gas Consumed
---- ------- --- --- ----- ---- ------- --- --- --------
1995 139cents 108cents 359cents 204cents 137cents 85% 14% -% 1% $ 28.78
1994 153 - 337 285 157 99 - - 1 32.25
1993 154 111 358 259 148 81 18 - 1 31.68
1992 160 97 403 212 150 81 17 - 2 32.88
1991 159 109 409 196 153 84 14 1 1 33.21
COAL. Detroit Edison estimates that it will require approximately 600
million tons of coal over the next 35 years for its coal-fueled generating
units. Detroit Edison expects to obtain a significant portion of its
requirements through long-term contracts and the balance through short-term
agreements and spot purchases. Detroit Edison has contracts with five coal
suppliers for a total purchase of up to 85 million tons of low-sulfur western
coal to be delivered during the period from 1996 through 2005. It also has
several contracts for the purchase of approximately 16 million tons of
Appalachian coal with varying contract expiration dates through 1999. These
existing long-term coal contracts include provisions for market price reopeners
and price escalation as well as de-escalation.
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The low-sulfur western coal contracts have a maximum sulfur content of
0.55%. The Appalachian coal contracts range in maximum sulfur content from
0.80% to 2.8%. As required by the Michigan Air Pollution Control Commission,
Detroit Edison's aggregate consumption of both types of coal averages below 1%
sulfur content.
For further information on environmental matters, see "Environmental
Matters" and Item 7 - Management's Discussion and Analysis of Financial
Condition and Results of Operations.
OIL. Detroit Edison purchases No. 2 oil, used principally for peaking
units and start-up for other units, and No. 6 oil, used principally by
Greenwood Unit No. 1, through short-term agreements and spot market purchases.
GAS. Natural gas is used principally at one of Detroit Edison's steam
heating plants and Greenwood Unit No. 1. Natural gas requirements are met
through short-term agreements and spot market purchases.
NUCLEAR. Renaissance holds title to the nuclear fuel utilized at Fermi 2.
Under the terms of a heat purchase contract between Detroit Edison and
Renaissance, Detroit Edison makes quarterly payments to Renaissance for the
cost of the nuclear fuel consumed and interest expense. For information on
nuclear fuel financing, see Notes 8 and 9.
Detroit Edison has sufficient supplies to meet 1996 plant refueling
requirements. Also, Detroit Edison believes that adequate uranium supplies
exist to supplement existing contracts to meet plant requirements beyond 1996.
Detroit Edison has a contract with the DOE for the future storage and disposal
of spent nuclear fuel from Fermi 2. Under the terms of the contract, Detroit
Edison makes quarterly payments to the DOE based upon a fee of 1 mill per kWh
applied to the Fermi 2 electricity generated and sold. Fees levied for 1995
totaled $5 million. The spent nuclear fuel will be stored on site until the
DOE accepts it for disposal. The DOE has stated that it will be unable to
store spent nuclear fuel at a permanent repository until after 2010. However,
the DOE and utilities with nuclear units are pursuing other interim storage
options. On September 7, 1995, Detroit Edison, along with two other utilities,
filed a petition for review in the United States Circuit Court of Appeals for
the District of Columbia. The petition seeks to overturn a decision of the 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. It is estimated that
existing temporary storage capacity at Fermi 2 will be sufficient until the
year 2001, or until 2019 with the expansion of such storage capacity.
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REGULATION AND RATES
MICHIGAN PUBLIC SERVICE COMMISSION. Detroit Edison is subject to the
general regulatory jurisdiction of the MPSC, which, from time to time, issues
its orders pertaining to Detroit Edison's conditions of service, rates and
recovery of certain costs, accounting and various other matters.
As a result of a change in the law, the MPSC no longer has the authority
to issue new securities orders. As such, all future requests for authority to
issue securities will be made to FERC.
MPSC orders issued in December 1988 and on January 21, 1994 are currently
in effect with respect to Detroit Edison's rates and certain other revenue and
operating-related matters.
On January 21, 1994, the MPSC issued an order reducing Detroit Edison's
rates in the amount of $78 million annually. The order is the subject of
various appeals before the Michigan Court of Appeals. See Note 3 for a
discussion of the provisions of the January 21, 1994 order.
On March 30, 1995, Detroit Edison submitted its 1994 PSCR reconciliation
filing with the MPSC. On December 7, 1995, the MPSC approved a partial
settlement agreement resolving most of the issues regarding the 1994 PSCR
reconciliation and the Fermi 2 capacity factor performance standard
disallowance for 1994. A January 1996 refund of $7.7 million plus interest was
made to PSCR customers. Also, Interruptible Supply Rider (R-10) customers
received a refund of $2.6 million. This partial settlement is the culmination
of several settlement agreements whose intent is to hold customers harmless
from the effects of the December 1993 turbine-generator failure at Fermi 2.
The final MPSC order is still pending regarding unresolved issues. The
Administrative Law Judge has recommended an additional refund of $4 million.
Conservation and Demand-Side Management Programs - As the result of a
generic review of Michigan conservation programs, the MPSC in June 1988 ordered
each Michigan gas and electric utility to file a biennial energy conservation
report, including a three-year plan. Detroit Edison continues to operate
programs in compliance with the generic order and the more recent order on
January 21, 1994.
On April 11, 1994, the MPSC issued an order approving a partial settlement
agreement covering Detroit Edison's energy conservation programs for the period
1994-1996. The order authorizes Detroit Edison to collect $21.2 million
through a surcharge for the three-year program to install energy conservation
measures in low-income customer households.
Also, as discussed in Note 3, the January 21, 1994 MPSC order authorized a
three-year DSM program of up to $41.5 million ($7.6 million in 1994, $14.9
million in 1995 and $19 million in 1996). Detroit Edison collected
approximately $7 million for the 1994 DSM
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program. In September 1994, Detroit Edison filed for approval of a reduced DSM
surcharge and programs totaling $4.9 million in 1995, which were approved by an
MPSC order issued on July 31, 1995. In September 1995, Detroit Edison filed
testimony with the MPSC outlining its proposed $4 million 1996 DSM plan to
implement customer-focused demand reduction programs that will lower customer
rates, and to eliminate the customer surcharge for the plan. An MPSC order
approving the 1996 DSM plan is expected in May 1996.
Integrated Resource Plan - Detroit Edison's IRP is designed to provide
resource plans which have adequate flexibility to react to major changes and at
the same time address the concerns of its customers. It attempts to minimize
risks and costs to customers and shareholders alike, while maintaining an
appropriate balance between demand-side and supply-side alternatives. Detroit
Edison's first IRP proposed to meet future load requirements by utilizing
existing power plant units that are in economy reserve status rather than
building new plants.
On September 1, 1994, Detroit Edison filed its biennial third IRP with the
MPSC. This IRP, which covered a 15-year (1994-2008) study period, called for
the return to service of existing plant and a DSM program that will continue to
provide for interruptible service to large primary customers which is expected
to reduce peak demand by 500 MW. The recommended IRP indicated that the
restart of the Conners Creek coal-fired units that are currently in economy
reserve is the most economic supply-side option for use as the avoided unit for
future capacity solicitations.
Competitive Bidding - In July 1992, the MPSC issued an order establishing
a competitive bidding framework for future electric capacity solicitations for
Detroit Edison. The MPSC directed Detroit Edison to proceed with a capacity
solicitation proceeding based on its 1992 IRP, which outlined Detroit Edison's
long-range plan for meeting its customers' electricity needs, and to submit a
RFP to meet the need for any future electrical capacity. On May 1, 1995,
Detroit Edison filed its preliminary 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, Detroit Edison 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,
Detroit Edison updated its case to reflect the MPSC's June 19, 1995 Retail
Wheeling order.
Retail Wheeling - The MPSC has been considering the propriety of retail
wheeling programs. On June 19, 1995, the MPSC issued a final order finding
that an experimental retail wheeling program is in the public interest and
established rates and charges for the five-year experimental program. Under
the program, retail wheeling customers would make their own arrangements to
procure power. Implementation of the experimental program would be limited to
90 MW for Detroit Edison and will be coordinated with Detroit Edison's next
solicitation of new capacity. On July 14, 1995, Detroit Edison filed testimony
supporting its proposal for implementing the MPSC's experimental retail
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wheeling program including requirements for collecting data and evaluating the
experiment. Detroit Edison's identified need date for new capacity is 2004.
The MPSC Staff supported a need date of 1997 and recommended that the
experiment should begin in 1998. Briefs were filed on February 9, 1996 and
Reply Briefs on February 28, 1996. The MPSC Staff is now recommending that the
MPSC open a new docket to consider a much larger retail wheeling experiment
than the 90 MW ordered previously. The MPSC Staff, ABATE and Energy Michigan
are requesting that the retail wheeling experiment begin immediately,
regardless of the MPSC's determination of the capacity need date.
On July 19, 1995, Detroit Edison filed a claim of appeal of the MPSC's
April 11, 1994 interim order and June 19, 1995 final order with the Michigan
Court of Appeals. Along with other claims, Detroit Edison asserts that the
MPSC lacks authority to compel Detroit Edison to undertake retail wheeling
involuntarily and that the rates, terms and conditions for retail wheeling
transmission service are subject to federal rather than state jurisdiction.
Appeals and/or cross appeals of the MPSC's retail wheeling orders have also
been filed by Consumers, Dow Chemical Company, ABATE and the Michigan Attorney
General.
On March 1, 1996, MascoTech Forming Technologies, Inc., a Detroit Edison
industrial customer currently purchasing approximately 25 MW of electricity
annually (with the potential for an additional 6 MW annually), petitioned the
MPSC to establish a "cost based fair and pro-competitive transportation rate"
for its new and existing electric load. On March 19, 1996, Detroit Edison
filed a motion to dismiss with the MPSC, asserting that the MPSC lacks
jurisdiction to establish the requested rate.
Special Manufacturing Contracts - As part of a continuing response to the
challenge of competition, Detroit Edison entered into 10-year special
manufacturing contracts with Chrysler Corporation, Ford Motor Company and
General Motors Corporation, covering 54 of the Big Three automakers' largest
manufacturing locations in Southeastern Michigan. These long-term contracts
are expected to reduce annual operating revenues in amounts ranging from about
$30 million in 1995 to $50 million in 1999 through 2004. Detroit Edison
expects to offset these reductions by further reducing operating expenses. On
March 23, 1995, the MPSC issued an order approving the special manufacturing
contracts. The MPSC also found that Detroit Edison should assume full
responsibility for negotiating the discounted prices and that its shareholders
should expect to absorb much, if not all, of any revenue shortfall caused by
the pricing and other contract provisions that Detroit Edison negotiates.
Therefore, unless Detroit Edison can make a compelling showing why a different
ratemaking treatment is justified, the MPSC will not permit Detroit Edison to
reallocate the costs of serving contract customers to other ratepayer classes.
In addition, the MPSC agreed that other ratepayers should be protected from any
under-recoveries of PSCR costs and the other Detroit Edison surcharges as a
result of the contracts.
Capacity and Energy Purchase - On October 25, 1995, the MPSC issued an
order approving Detroit Edison's long-term capacity and energy purchase from
Ontario Hydro. On November 27, 1995, the Michigan Attorney General filed an
application for leave to appeal the order in the Michigan Court of Appeals.
The purchase is for 300 MW, on a
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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
Detroit Edison's 917 MW Ludington 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
Detroit Edison's customers with an estimated reduction in PSCR expense of $74
million which will be passed through to customers through the PSCR clause.
For further information on regulation, rates and proposed policy changes,
see "Certain Factors Affecting Public Utilities" herein, Note 3 and Item 7 -
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
FEDERAL ENERGY REGULATORY COMMISSION. Detroit Edison is subject to the
general jurisdiction of the FERC with respect to accounting, sales for resale
in interstate commerce, issuances of securities, the licensing of Ludington and
other matters. Detroit Edison's electric transmission facilities,
interconnected with those of Ontario Hydro at the United States - Canada
border, are subject to safety regulation by various departments of the United
States government and to a permit administered by the ERA. The transmission of
electric energy to Ontario Hydro is subject to regulation by the FERC and the
ERA.
On March 29, 1995, the FERC issued a Notice of Proposed Rulemaking seeking
comments on several proposals for encouraging more competitive wholesale
electric power markets. The proposals address several fundamental issues
facing the electric power industry including transmission open access, stranded
costs, jurisdiction over transmission in interstate commerce including retail
wheeling, pricing of transmission service including ancillary services, the
"bright-line" between transmission and local distribution, real-time
information networks and the implementation of open access pro-forma tariffs.
The FERC is also considering guidelines for the operation of power pools and
requiring the use of an independent system operator to ensure comparability of
service and the mitigation of market power. Final rules are expected to be
issued in the second quarter of 1996.
In 1986, the Michigan Attorney General and the Michigan Natural Resources
Commission filed a state lawsuit against Detroit Edison and Consumers as
co-owners of Ludington for claimed aquatic losses. Detroit Edison is a 49%
co-owner of Ludington. On October 5, 1994, Detroit Edison and all other
parties to the state lawsuit and a related FERC proceeding reached a tentative
settlement. The settlement was contingent upon FERC and MPSC approval. In
January 1996, the FERC approved the settlement agreement, and in February 1996,
the MPSC approved those portions of the settlement agreement related to
Consumers. In February 1996, Detroit Edison waived prior MPSC approval for the
settlement to become effective, but reserved the right to seek rate recovery in
the next main rate case or other MPSC proceeding covering the subject matter of
the settlement. See Note 12.
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NUCLEAR REGULATORY COMMISSION. The NRC has regulatory jurisdiction over
all phases of the operation, construction (including plant modifications),
licensing and decommissioning of Fermi 2. Reports on plant operation are filed
with the NRC on a periodic basis. The scope of regulation is such that from
time to time assertions may be made that deviations from prescribed standards
and the unit's operating license have occurred. Assertions of such a nature
are subject to the NRC's investigative, administrative and appeal procedures
and are considered to be pending until such time as review within the NRC is
completed. At the conclusion of an investigation, the NRC may assess a fine
which should, in accordance with NRC regulations, be calculated in a manner
designed to take into account the severity, length and safety significance of
the alleged infraction. No fines were assessed by the NRC to Detroit Edison in
1995.
In May 1996, the NRC is expected to issue the fifteenth Systematic
Assessment of Licensee Performance which covers Fermi 2 operations during the
period from April 1994 through March 1996.
See Note 2 for further information on matters related to Fermi 2.
ENVIRONMENTAL MATTERS
Detroit Edison, in common with other electric utilities, is subject to
applicable permit requirements and to increasingly stringent federal, state and
local standards covering, among other things, particulate and gaseous stack
emission limitations, the discharge of effluents (including heated cooling
water) into lakes and streams and the handling and disposal of waste material.
In November 1990, the federal Clean Air Act was amended to further strengthen
federal regulations governing air emissions. For further information on
matters related to the 1990 Amendments to the federal Clean Air Act, see Item 7
- - Management's Discussion and Analysis of Financial Condition and Results of
Operations.
Through 1995, Detroit Edison's capital expenditures for environmental
control and protection facilities were approximately $2.9 billion, including
expenditures of $15 million in 1995. Detroit Edison's 1996 capital expenditure
budget for environmental protection is approximately $9 million.
In 1995, the MDNR split into two organizations, the MDNR, with
responsibilities for land and wildlife issues, and the MDEQ, with
responsibilities for air and water discharge permitting, waste and other
industrial compliance issues. Detroit Edison will be regulated by both
departments.
AIR. Detroit Edison's operations are subject to environmental regulations
of the EPA, the State of Michigan and Wayne County. Under the federal Clean
Air Act of 1970, as amended, the EPA has the authority to adopt and implement
additional regulations in support or in substitution of state and local
enactments where the EPA deems such enactments to be deficient in relation to
its regulations.
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A May 1992 EPA rule provides an exemption from new source review for major
modifications at utility facilities associated with pollution control projects
unless the EPA administrator determines the modification renders the unit "less
environmentally beneficial."
Title III of the Clean Air Act Amendments of 1990, Hazardous Air
Pollutants, requires EPA to conduct two studies specifically related to
emissions from electric utility steam generating units and report the results
to Congress. In the first utility study, EPA must assess the hazards to public
health reasonably anticipated to occur from these emissions. The administrator
can regulate utility emissions if the study results indicate it is appropriate
and necessary to do so. The report to Congress was to be submitted November
15, 1993. It has not yet been completed. EPA's second utility study is
specific for mercury and was to have been completed by November 15, 1994. The
report to Congress for this study has also been delayed. In May 1993, the
Michigan Environmental Science Board recommended that the Governor direct the
MPSC to require utilities to compile an accurate emission inventory. Detroit
Edison has submitted such information to the MPSC. Until studies are completed
and resulting regulations, if any, are promulgated, the impact on Detroit
Edison cannot be determined. Michigan's Mercury Pollution Prevention Task
Force is expected to release its final report in early 1996.
WATER. NPDES permits for Detroit Edison's power plants are issued by the
MDEQ pursuant to delegation by the EPA under the federal Clean Water Act. One
renewal permit application will be filed in 1996. Six permit applications
(submitted in 1994 and earlier) remain pending; the expired permits remain
effective until new permits are issued or denied.
In an effort to streamline the industrial facility permitting process, in
1993 the MDEQ created a program to issue general storm water discharge permits
for various types of facilities across the state. Instead of applying for
individual permits, companies are now required to notify the state of the
operating facilities which should be included under the general permits. In
1994, Detroit Edison filed Notices of Intent with the MDEQ for coverage for ten
facilities under the NPDES general permit for storm water discharges associated
with industrial activity. Detroit Edison received Certificates of Coverage for
the facilities in late 1994 and early 1995. These certificates are valid for
the life of the general permit, which expires on January 31, 1999. A Storm
Water Discharge Permit fee program was implemented by the MDEQ in January 1996
and requires the annual payment of $200 per facility.
Detroit Edison is required to demonstrate that the cooling water intake
structures at all of its facilities reflect the "best technology available for
minimizing adverse environmental impact." Detroit Edison filed such
demonstrations in July 1976 and the MDEQ Staff accepted all except those
relating to the St. Clair and Monroe Power Plants. The MDEQ Staff rejected the
St. Clair demonstration and requested additional information, which was
submitted. The MDEQ Staff never made a formal initial decision about the
intake at Detroit Edison's Monroe Power Plant but requested additional
information which was
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submitted on alternative intake technologies. In the event of a final
adverse decision, Detroit Edison may be required to install additional control
technologies to further minimize the impact.
Detroit Edison was required under its Monroe Power Plant NPDES permit to
demonstrate that thermal discharge from the plant does not cause an adverse
environmental impact on Lake Erie. Such demonstration was submitted to the
MWRC and subsequently approved in 1976. The demonstration has been under
review by the EPA which indicated that it was unable to concur in the
acceptability of the demonstration until additional information had been
provided with respect to the cooling water intake effects of the plant.
Additional information was submitted, but it is unknown at this time when this
issue will be resolved, or what the impact, if any, upon Detroit Edison will
be.
WASTES AND TOXIC SUBSTANCES. The Michigan Solid Waste and Hazardous Waste
Management Acts, the Michigan Environmental Response Act and the Federal
Resource Conservation and Recovery Act, Toxic Substances Control Act, and
Comprehensive Environmental Response, Compensation and Liability Act regulate
Detroit Edison's handling, storage and disposal of its waste materials.
A nationwide environmental problem is the discovery of improperly disposed
of, hidden or buried hazardous wastes. Detroit Edison has extensive property
holdings, including approximately 400 miles of transmission corridors which are
accessible to the public. Detroit Edison could be responsible for clean-up of
wastes found on its property, despite the fact that the dumping may have
occurred without Detroit Edison's permission.
On June 5, 1995, Governor John Engler signed P.A. 71 of 1995, which
amended the Michigan Environmental Response Act, now part of the Natural
Resources and Environmental Protection Act. Among other changes, P.A. 71
amended the liability standards to hold a person liable for remediation only if
they are responsible for an activity causing a release of a substance to the
environment. Since the previous standard of liability was simply ownership of
the property, Detroit Edison believes the amendment will remove deterrences to
development in its service territory and more fairly allocate clean-up costs to
those responsible. However, companies are still liable under federal law.
Detroit Edison's Lulu-Milan transmission corridor in northwestern Monroe
County was used as a dump site for drums of paint sludges, solvents and some
PCB's and a portion of the corridor and adjoining property is listed on the
State's "Priority List of Environmental Contamination Sites." Although not
responsible for placing the drums there, Detroit Edison has spent approximately
$550,000 on clean-up and disposal costs. In June 1993, Detroit Edison and the
MDEQ reached an agreement to hire contractors to perform additional
investigative and remedial work at the site. While the costs will be shared
between Detroit Edison and the state, it is impossible at this time to predict
what impact this will have upon Detroit Edison.
See Note 12 for information on the Carter Industrials site matter.
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A landfill site abandoned by the South Macomb Disposal Authority and now
owned in part by Detroit Edison is being surveyed by the MDEQ for possible
contamination. Detroit Edison could be required to contribute toward clean-up
costs, if any occur. It is unknown at this time what impact, if any, this
situation will have upon Detroit Edison.
Detroit Edison has received letters from the EPA requesting information
about its involvement with the following sites of identified contamination in
Michigan: Rasmussen Dump site in Green Oak Township, Livingston County;
Metamora Landfill site in Lapeer County; and the Pioneer Equipment Company site
in Detroit. Detroit Edison has examined its records and finds no evidence of
any involvement at these sites. This information has been communicated to the
EPA, but it remains unknown what impact, if any, the EPA's ongoing
investigations will have upon Detroit Edison.
In February 1992, Detroit Edison received formal notice from the MDEQ that
the Port of Monroe Landfill Site had been identified as a site of environmental
contamination. Also in February 1992, after an investigation of its records,
Detroit Edison sent a letter to the MDEQ stating its belief that it has never
disposed of hazardous material at the Port of Monroe Landfill Site. On March
14, 1994, the MDEQ sent formal notice to the PRPs (but not to Detroit Edison)
that it is seeking reimbursement for its past costs and interest totaling
$750,000. The PRPs sent a letter to Detroit Edison on April 8, 1994 advising
that they will seek a contribution from Detroit Edison on grounds that they
believe it to be a party despite the MDEQ's decision not to include it. It is
unknown what impact, if any, this situation will have upon Detroit Edison.
In March 1989, the EPA served Detroit Edison with an investigative
subpoena requesting extensive information regarding Detroit Edison's PCB
activities. Detroit Edison responded to the investigative subpoena in June
1989. It is unknown at this time what impact, if any, the investigation will
have upon Detroit Edison.
EPA rules for underground storage tanks became effective in December 1988.
These rules are now administered by the State of Michigan and contain
requirements on new tank system installations, leak detection monitoring,
notification and clean-up of leaks, corrosion resistance for new and existing
tank systems and spill prevention. Of the original 90, Detroit Edison now has
66 remaining regulated underground storage tanks containing petroleum products.
Although most of the tanks have been upgraded to "new tank standards," in
accordance with further review of the rules, six tanks and 23 piping systems
still need upgrading or replacement by December 22, 1998. It is estimated that
it will cost Detroit Edison approximately $1.25 million to complete the
underground storage tanks program.
On July 1, 1991, the Michigan Environmental Response Act ("Act 307")
became effective. The law is patterned after the CERCLA and gives the MDEQ
authority to list sites of environmental contamination and bring about
environmental clean-ups within the State of Michigan. Several Detroit
Edison-owned properties are on the Act 307 list as a result of diesel oil
releases or dredged disposal operations, including portions of the Superior
Station and portions of the St. Clair and Monroe Power Plants. Detroit Edison
is
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addressing these issues and it is unknown what impact, if any, they will
have upon Detroit Edison.
In 1993, Detroit Edison received a letter from the MDEQ requesting
information regarding the Satterlee-Sumpter Township landfill site in Wayne
County. In April 1994, Detroit Edison received a letter formally naming it as
a PRP in the case and requesting Detroit Edison, along with the other PRPs, to
conduct a remedial investigation of the site and to pay past costs incurred by
the State. The PRPs have met with the MDEQ to clarify the extent of the
desired investigation. At this time, it is impossible to predict what the
impact upon Detroit Edison will be.
In July 1994, Detroit Edison received a Third Party summons and complaint
from Oakland Disposal, Inc., Bestway Recycling, Inc., Aero Disposal, Inc., and
Oakland Disposal No. 1 regarding the use of the Waterford Hills Sanitary
Landfill for disposal of hazardous waste or hazardous waste constituents. On
September 6, 1995, Detroit Edison paid $5,000 as a deminimis settlement.
Detroit Edison received approval from the MDEQ on October 5, 1993 to close
its hazardous waste storage facility at its Warren Service Center. The
facility's hazardous waste storage area has been closed but the issue of
corrective actions at solid waste management units has not yet been addressed
by the MDEQ or the EPA.
The federal Low-Level Radioactive Waste Policy Act makes each state
responsible for the disposal of low-level radioactive waste situated within
each state's borders. In June 1992, the United States Supreme Court upheld
most of the provisions of this statute. The Court upheld the responsibility of
each state to develop low-level waste facilities, but declared a provision
requiring the state to take title to low-level radioactive waste in 1996 to be
unconstitutional.
For further information on nuclear waste disposal, see "Fuel Costs and
Supply - Nuclear."
For further information on environmental matters, see Notes 2 and 12 and
Item 7 - Management's Discussion and Analysis of Financial Condition and
Results of Operations.
EMPLOYEES AND EXECUTIVE OFFICERS
EMPLOYEES. The total number of employees of the Company was 8,340 (of
which 8,258 employees were employed by Detroit Edison) with an average length
of service of approximately 18 years. Of these, 3,253 employees are
represented by unions under two collective bargaining agreements. One
agreement expires in June 1999 for 2,720 employees and the other agreement
expires in August 2000 for 533 employees.
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EXECUTIVE OFFICERS. PRESENT
POSITION
NAME AGE(a) PRESENT POSITION HELD SINCE (b)
- ------------------------------------------------------------------------------------------------------------------------------------
John E. Lobbia 54 Chairman of the Board and Chief Executive Officer 1-26-95
Anthony F. Earley, Jr. 46 President and Chief Operating Officer 1-26-95
Larry G. Garberding 57 Executive Vice President and Chief Financial Officer 1-26-95
Susan M. Beale 47 Vice President and Corporate Secretary 12-11-95
Ronald W. Gresens 62 Vice President and Controller 12-11-95
Leslie L. Loomans 52 Vice President and Treasurer 1-26-95
Christopher C. Nern 51 Vice President and General Counsel 1-26-95
(a) As of March 1, 1996
(b) The Company was incorporated in January 1995, and, at that time,
certain officers of Detroit Edison were appointed officers of the
Company.
Under the Company's By-Laws, the officers of the Company are elected
annually by the Board of Directors at a meeting held for such purpose, each
to serve until the next annual meeting of shareholders or until their
respective successors are chosen and qualified.
Pursuant to Article VI of the Company's Articles of Incorporation,
directors of the Company will not be personally liable to the Company or
its shareholders in the performance of their duties to the full extent
permitted by law.
Article VII of the Company's Articles of Incorporation provides that
each person who is or was or had agreed to become a director or officer of
the Company, or each such person who is or was serving or who had agreed to
serve at the request of the Board of Directors as an employee or agent of
the Company or as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise
(including the heirs, executors, administrators or estate of such person),
shall be indemnified by the Company to the full extent permitted by the
Michigan Business Corporation Act or any other applicable laws as presently
or hereafter in effect. In addition, the Company has entered into
indemnification agreements with all of its officers and directors, which
agreements set forth procedures for claims for indemnification as well as
contractually obligating the Company to provide indemnification to the
maximum extent permissible by law.
The Company and its directors and officers in their capacities as such
are insured against liability for wrongful acts (to the extent defined)
under three insurance policies providing aggregate coverage in the amount
of $85 million.
OTHER INFORMATION. Pursuant to the provisions of the Company's
By-Laws, the Board of Directors has by resolution set the number of
directors comprising the full Board, effective as of December 29, 1995, at
thirteen.
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ITEM 3 - LEGAL PROCEEDINGS.
Detroit Edison in the ordinary course of its business, is involved in
a number of suits and controversies including claims for personal injuries
and property damage and matters involving zoning ordinances and other
regulatory matters. As of December 31, 1995, Detroit Edison was named as
defendant in 129 lawsuits involving claims for personal injuries and
property damage and had been advised of 25 other potential claims not
evidenced by lawsuits.
From time to time Detroit Edison has paid nominal penalties which were
administratively assessed by the United States Coast Guard, United States
Department of Transportation under the Federal Water Pollution Control Act,
as amended, with respect to minor accidental oil spills at Detroit Edison's
power plants into navigable waters of the United States. Payment of such
penalties represents full disposition of these matters.
Detroit Edison in its 1982 main electric rate case requested the MPSC
to recognize the costs associated with the abandoned Greenwood Unit Nos. 2
and 3 for ratemaking purposes. In March 1983, the MPSC, consistent with
past precedent, granted Detroit Edison authority to defer, amortize and
recover these costs (over a period of 10 years) through the ratemaking
process. The Michigan Attorney General appealed the MPSC's order. In
August 1990, the Ingham County Circuit Court remanded this matter to the
MPSC for additional findings of fact. On November 1, 1991, the MPSC issued
its final order on remand affirming the earlier decision to allow rate
recovery of the costs. The Ingham County Circuit Court has removed this
case from the assigned judges docket pending resolution of issues
determined favorable to Detroit Edison's position in a Michigan Supreme
Court proceeding. Detroit Edison has amortized the costs associated with
the abandoned Greenwood Unit Nos. 2 and 3 in accordance with the MPSC's
order. The amortization was completed in 1993.
See Note 12.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
PART II
ITEM 5 - MARKET FOR REGISTRANT's COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock is listed on the New York Stock Exchange, which
is the principal market for such stock, and the Chicago Stock Exchange. The
following table indicates the reported high and low sales prices of the
Company's Common Stock on the Composite Tape of the New York Stock Exchange and
dividends paid per share for each quarterly period during the past two years:
25
27
PRICE RANGE DIVIDENDS
----------- PAID
CALENDAR QUARTER HIGH LOW PER SHARE
---------------- ---- --- ---------
1994 First 30-1/4 26 $0.515
Second 27-1/4 24-1/4 0.515
Third 27-1/2 24-1/4 0.515
Fourth 27-1/2 24-3/4 0.515
1995 First 29-5/8 25-3/4 $0.515
Second 30-7/8 27-1/8 0.515
Third 32-5/8 28-1/4 0.515
Fourth 34-7/8 32-1/8 0.515
At December 31, 1995, there were 145,119,875 shares of the Company's
Common Stock outstanding. These shares were held by a total of 143,177
shareholders.
The Company's By-Laws provide that Chapter 7B of the Michigan Business
Corporation Act ("Act") does not apply to the Company. The Act regulates
shareholder rights when an individual's stock ownership reaches at least 20
percent of a Michigan corporation's outstanding shares. As a result of the
amendment, a shareholder seeking control of the Company cannot require the
Company's Board of Directors to call a meeting to vote on issues related to
corporate control within 10 days, as stipulated by the Act.
The level of dividends is dependent on earnings and other business
conditions, each of which is periodically reviewed by the Company's Board of
Directors.
ITEM 6 - SELECTED FINANCIAL DATA.
Year Ended December 31
-------------------------- ------------------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ----- ----
(Thousands, except per share amounts)
Operating Revenues ................... $ 3,635,544 $ 3,519,341 $ 3,555,211 $ 3,558,143 $ 3,591,537
Net Income ........................... $ 405,914 $ 390,269 $ 491,066 $ 557,549 $ 535,205
Earnings Per Common Share ............ $ 2.80 $ 2.67 $ 3.34 $ 3.79 $ 3.64
Dividends Declared Per
Share of Common Stock .............. $ 2.06 $ 2.06 $ 2.06 $ 1.98 $ 1.88
At year end:
Total Assets ...................... $11,130,591 $10,992,978 $11,134,879 $10,309,061 $10,463,624
Long-Term Debt
Obligations (including
capital leases) and
Redeemable Preferred and
Preference Stock Outstanding .... $ 4,004,247 $ 3,979,763 $ 4,007,622 $ 4,525,504 $ 4,900,020
26
28
ITEM 7- MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION &
RESULTS OF OPERATIONS
DTE ENERGY COMPANY, THE DETROIT EDISON COMPANY AND SUBSIDIARY COMPANIES
This discussion and analysis should be read in conjunction with the
Consolidated Financial Statements and accompanying Notes thereto, contained
herein.
CORPORATE STRUCTURE
Effective January 1, 1996, DTE Energy Company became the parent holding company
of The Detroit Edison Company ("Detroit Edison"). On January 1, 1996, the
holders of Detroit Edison's common stock exchanged such stock on a
share-for-share basis for the common stock of DTE Energy Company ("Company").
In addition, certain non-utility subsidiaries of Detroit Edison were
transferred to the Company.
Detroit Edison is the principal subsidiary of the Company and, as such,
this discussion explains material changes in results of operations of both the
Company and Detroit Edison and identifies recent trends and events affecting
both the Company and Detroit Edison. For the periods presented, the Company's
operations and those of Detroit Edison are substantially the same.
RESULTS OF OPERATIONS
For the year ended December 31, 1995, the Company's net income was $405.9
million, or $2.80 per common share, up 4% from the $390.3 million, or $2.67 per
common share earned in 1994. The increase in net income was due to higher
sales of electricity in 1995. The sales increase was partially offset by
higher operating expenses, including a non-cash loss of $42 million ($32
million after-tax), or $0.22 per common share, on Detroit Edison's steam
heating business due to the Company's adoption in the fourth quarter of 1995 of
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of" ("SFAS No. 121").
For the year ended December 31, 1994, the Company's net income was $390.3
million, or $2.67 per common share, a decrease of 20.5% from the $491.1
million, or $3.34 per common share earned in 1993. The decrease in net income
was due in part to a January 21, 1994 order by the Michigan Public Service
Commission ("MPSC"), which reduced Detroit Edison's rates by $78 million
annually and increased depreciation and operation expenses by $84 million
annually. In addition, accretion income decreased and amortization of the
Fermi 2 nuclear power plant phase-in plan increased significantly in 1994.
Also, Detroit Edison incurred additional one-time charges at the Fermi 2
nuclear power plant, which was out of service in 1994 due to equipment failure,
for maintenance expenses and the establishment of a reserve for estimated
Fermi 2 capacity factor performance disallowances in 1994-1998. The decrease
in net income was limited by higher system sales and lower interest expense due
to the early redemption and refinancing of higher cost debt and the redemption
of maturing debt.
For the year ended December 31, 1993, the Company's net income was
$491.1 million, or $3.34 per common share, a decrease of 11.9% from the $557.5
million, or $3.79 per common share earned in 1992. The decrease in net income
was due to a 5% reduction in Detroit Edison's rates, effective January 1, 1993,
which reduced 1993 operating revenues by $169 million, or $0.75 per common
share, higher operating expenses (including amortization of Fermi 2 nuclear
power plant phase-in plan deferrals and higher federal income tax expense of
$10.4 million for the full year 1993, or $0.07 per common share, due to an
increase in the corporate income tax rate from 34% to 35% retroactive to
January 1, 1993) and lower non-operating income, partially offset by higher
sales and lower interest expense due to the early redemption and refinancing of
higher cost debt and the redemption of maturing debt. The reduction in
electric rates was due to reinstatement of the Power Supply Cost Recovery
Clause, which was suspended for a four-year period, resulting in lower billings
to customers of $106 million in 1993 due to lower fuel expenses, and the
expiration of an expense stabilization procedure surcharge on January 1, 1993
which provided annual revenues of $63 million in 1992 for the effects of
inflation. Warm summer weather and improved economic conditions in
Southeastern Michigan contributed to the sales increase.
At December 31, 1995, the book value of the Company's common stock was
$23.62 per share, an increase of 3.2% since December 31, 1994. Return on
average total common shareholders' equity was 11.8% in 1995, 11.6% in 1994 and
15.2% in 1993.
Detroit Edison's ratio of earnings to fixed charges for 1995, 1994 and
1993 was 3.21, 3.13, and 3.25, respectively. Detroit Edison's ratio of
earnings to fixed charges and preferred and preference stock dividends for
1995, 1994 and 1993 was 2.82, 2.73, and 2.88, respectively.
OPERATING REVENUES
Total operating revenues increased (decreased) due to the following factors:
1995 1994
---- ----
(Millions)
Rate Changes
MPSC rate reduction $ (5) $(81)
Special Manufacturing Contracts (26) -
Power Supply Cost Recovery Clause (6) (5)
---------------------------------
(37) (86)
System sales volume and mix 149 103
Interconnection sales 8 (17)
Fermi 2 capacity factor performance
standard reserve (1) (31)
Other -- net (3) (5)
---------------------------------
Total $116 $(36)
=================================
RATE CHANGES
The January 21, 1994 MPSC rate order reduced Detroit Edison'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.
27
29
MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION &
RESULTS OF OPERATIONS
DTE ENERGY COMPANY, THE DETROIT EDISON COMPANY AND SUBSIDIARY COMPANIES
On March 23, 1995, the MPSC issued an order approving Detroit Edison'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 Detroit Edison expects to
offset by further reducing its operating expenses.
KILOWATTHOUR SALES
Kilowatthour sales increased (decreased) as follows:
1995 1994
- -------------------------------------------------------------------------------
Residential 6.9% 1.1%
Commercial 2.5 3.5
Industrial 3.5 5.9
Other (includes primarily sales for resale) 5.3 (14.1)
Total System 4.1 2.8
Interconnection 50.1 (45.2)
Total 6.1 (1.0)
- -------------------------------------------------------------------------------
1995
Residential and commercial sales increased due to substantially warmer summer
weather increasing air conditioning and cooling-related loads and colder fall
weather increasing heating-related loads in the fourth quarter. Improved
economic conditions spurred higher sales to commercial, automotive and other
industrial customers. Sales to other customers increased due to higher sales
to wholesale for resale customers.
1994
Residential sales increased due to substantially warmer weather in the second
quarter resulting in increased air conditioning and cooling-related loads,
partially offset by lower cooling-related loads in the third quarter. The
increased heating-related loads in the first quarter were offset by decreased
heating-related loads in the fourth quarter. Commercial sales increased due
primarily to improved economic conditions and increased cooling-related loads.
Industrial sales increased as a result of higher sales to automotive, steel and
other manufacturing customers reflecting the improvement in the economy. The
decreased sales to other customers reflect lower sales to wholesale for resale
customers.
INTERCONNECTION SALES
Interconnection sales represent sales between utilities to meet energy needs as
a result of demand and/or generating unit availability.
1995
Interconnection sales increased due to improved availability of energy for sale
and lower dispatch prices in meeting the increased demand for energy during the
warmer summer and colder fall period.
1994
Interconnection sales decreased due to the reduced availability of energy for
sale as a result of the Fermi 2 outage and lower sales to Consumers Power
Company.
FERMI 2 CAPACITY FACTOR PERFORMANCE STANDARD RESERVE
This reserve is discussed in Note 3 of the Notes to Consolidated Financial
Statements.
OPERATING EXPENSES
FUEL AND PURCHASED POWER
Fuel and purchased power expenses increased (decreased) due to the following
factors:
1995 1994
- -----------------------------------------------------------------------------------------------------
(Millions)
Net system output $53 $ (6)
Average unit cost (86) 59
Fermi 2 business interruption
insurance 48 (65)
Other (2) 6
----------------------------
Total $13 $ (6)
============================
- -----------------------------------------------------------------------------------------------------
Net system output and average unit costs were as follows:
- -----------------------------------------------------------------------------------------------------
1995 1994 1993
- -----------------------------------------------------------------------------------------------------
(Thousands of Megawatthours)
Power plant generation
Fossil 41,636 42,410 38,882
Nuclear 5,092 - 8,274
Purchased power 5,423 6,599 2,211
-------------------------------------------------------
Net system output 52,151 49,009 49,367
=======================================================
Average unit cost ($/Megawatthour) $15.29 $16.94 $15.73
=======================================================
- -----------------------------------------------------------------------------------------------------
1995
The decrease in average unit cost was due to declining fuel prices resulting
from greater use of lower-cost Western low-sulfur coal, lower coal contract
buyout expense and increased lower-cost nuclear generation.
1994
The increase in average unit cost resulted from replacing lower-cost nuclear
generation with higher-cost fossil generation and purchased power due to the
Fermi 2 outage in 1994 as a result of a turbine-generator failure in December
1993.
OTHER OPERATION
1995
Other operation expense increased due primarily to higher incentive award
expenses related to a shareholder value improvement plan ($14.5 million), higher
storm expenses ($13.1 million), an increase in a reserve for the write-off of
obsolete and excess stock material ($9 million), demand-side management expenses
($8.6 million) and a reserve for settlement of the Ludington fish mortality case
($8.4 million). These expenses were partially offset by lower nuclear plant
expenses ($15.5 million), expenses recorded in the year-earlier period for
service quality claims ($8.7 million) and lower uncollectible expense
($6.9 million).
1994
Other operation expense increased due primarily to other postretirement health
care and life insurance benefits expense ($48.3 million), service quality
claims expense ($8.7 million) and higher nuclear plant ($8.1 million),
transmission and
28
30
distribution ($9.7 million) and demand-side management expenses ($4.3
million). These increases were partially offset by lower incentive award
expenses related to a shareholder value improvement plan ($18.7 million),
expenses recorded in the year-earlier period for the write-off of obsolete and
excess stock material ($12.4 million) and a reserve for steam purchases under
the agreement with the Greater Detroit Resource Recovery Authority ($11
million), lower uncollectible ($9.9 million) and employee reorganization ($6.5
million) expenses and lower injuries and damages expense ($8.1 million).
MAINTENANCE
1995
Maintenance expense decreased due primarily to lower nuclear ($17 million) and
fossil ($4.3 million) plant expenses.
1994
Maintenance expense increased due primarily to higher nuclear plant ($17.6
million) and storm ($8.9 million) expenses, partially offset by lower fossil
plant ($8.7 million) and line clearance ($5.3 million) expenses. While Fermi 2
was down for repair in 1994, Detroit Edison elected to upgrade various plant
facilities which resulted in higher nuclear plant maintenance expense.
STEAM PLANT IMPAIRMENT LOSS
1995
As the result of continuing losses in the operation of its steam heating
business, upon adoption of SFAS No. 121 in the fourth quarter of 1995, Detroit
Edison wrote off the remaining net book value of its steam heating plant assets
of $42 million.
DEPRECIATION AND AMORTIZATION
1995 AND 1994
Depreciation and amortization expense increased due to increases in plant in
service, including internally developed software costs, and increased Fermi 2
decommissioning costs authorized by a January 1994 MPSC rate order.
DEFERRED FERMI 2 AMORTIZATION
1995 AND 1994
Deferred Fermi 2 amortization, a non-cash item of income, was recorded
beginning with Detroit Edison's purchase of the Wolverine Power Supply
Cooperative, Inc.'s ownership interest in Fermi 2 in February 1990. The annual
amount deferred decreases each year through 1999.
AMORTIZATION OF DEFERRED FERMI 2 DEPRECIATION AND RETURN
1995 AND 1994
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
1995
Taxes other than income taxes decreased due to lower payroll and property
taxes.
1994
Taxes other than income taxes decreased due primarily to lower property taxes,
partially offset by higher Michigan Single Business Tax ("MSBT").
INCOME TAXES
1995
Income taxes increased due primarily to higher pretax income.
1994
Income taxes decreased due primarily to lower pretax income, partially offset
by higher prior years' federal income tax accrual. In March 1994, the Company
and the Internal Revenue Service ("IRS") reached a settlement of the Company's
income tax returns for the years 1987 and 1988.
OTHER INCOME AND (DEDUCTIONS) - NET
1995
Other deductions increased due to higher promotional practices expense ($8.3
million), expenses incurred in the formation of a holding company ($3.1
million) and joint-use contract costs ($2.7 million), partially offset by lower
expenses related to the sale of accounts receivable and unbilled revenues ($6.1
million) and a decrease in the write-off of premiums and expenses related to
the portion of Detroit Edison's 1989 Series A Mortgage Bonds not refinanced
($3.5 million).
1994
Other deductions increased slightly due primarily to the write-off of premiums
and expenses related to the portion of Detroit Edison's 1989 Series A Mortgage
Bonds not refinanced ($5.2 million) and an accrual for a contribution to the
Detroit Edison Foundation ($5 million), partially offset by an expense recorded
in 1993 for decommissioning of Fermi 1 ($7.6 million), an experimental nuclear
unit that has been shut down since 1972.
ACCRETION INCOME
1995 AND 1994
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 for Greenwood Unit No. 1 for the period that
plant was not allowed in rate base (1988-1993) and for $300 million of Fermi 2
plant costs being recovered from 1989 to 1998 with no return. The annual
amount of accretion income recorded decreases each year through 1998. In
January 1994, accretion income decreased due to the return to rate base of
Greenwood Unit No. 1.
LONG-TERM DEBT INTEREST CHARGES
1995
Long-term debt interest charges increased due to the issuance of Quarterly
Income Debt Securities ("QUIDS") and the timing of the early redemption and
refinancing of securities when economic.
1994
Long-term debt interest charges decreased due to the early redemption and
refinancing of securities when economic and the redemption of maturing
securities.
29
31
MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL
CONDITION & RESULTS OF OPERATIONS
DTE ENERGY COMPANY, THE DETROIT EDISON COMPANY AND SUBSIDIARY
COMPANIES
OTHER INTEREST CHARGES
1995
Other interest charges decreased due primarily to lower levels of short-term
borrowings.
1994
Other interest charges increased due to higher levels of short-term borrowings,
accruals for prior years' MSBT audits and the settlement of 1987 and 1988 IRS
audits.
PREFERRED AND PREFERENCE STOCK DIVIDENDS OF SUBSIDIARY
1995
Preferred stock dividends of subsidiary decreased due to the exchange of a
portion of Cumulative Preferred Stock 7.75% Series for QUIDS and the conversion
and redemption of Cumulative Preferred Stock 5 1/2% Convertible Series.
1994
Preferred and preference stock dividends of subsidiary decreased slightly due
to the optional and mandatory redemption of outstanding shares in 1993.
LIQUIDITY AND CAPITAL RESOURCES
COMPETITION
FORMATION OF A HOLDING COMPANY
The business of energy supply is experiencing rapid change as competition,
coupled with statutory reform, is being introduced into the public utility
sector. Competition is viewed by legislators and regulators, at both the
federal and state levels, as a method of reducing utility rates while
stimulating overall economic growth.
In order to position itself for potential changes in the electric utility
industry, Detroit Edison adopted a holding company structure, effective January
1, 1996. The new holding company structure, under which Detroit Edison is a
wholly-owned subsidiary of the Company, is designed to provide financial
flexibility for the development of new energy-related businesses. It is also a
mechanism for separating the regulated utility business of Detroit Edison from
non-regulated businesses thereby protecting the utility business from the
potential volatility of non-utility operations.
The Company has no significant operations of its own. Detroit Edison is
the Company's principal operating subsidiary, comprising substantially all of
the Company's assets. Certain of the Company's wholly-owned subsidiaries are
engaged in non-regulated energy-related businesses that are still in the
formative stages.
DTE Capital Corporation ("DTE Capital") was incorporated in 1995 to act as
the financing vehicle for the Company's non-utility affiliates. DTE Capital is
in the process of negotiating a $200 million bank revolving credit agreement.
Since DTE Capital does not have an established credit history, the Company
anticipates that it will be asked to provide credit support for DTE Capital's
initial financing activities.
THE DETROIT EDISON COMPANY
The electric utility industry is facing serious issues as legislators and
regulators consider various proposals designed to reduce rates and promote
economic growth through competition. Municipalization, deregulation,
cogeneration, independent power production, open access to transmission lines,
competitive bulk power supply markets and the unbundling of utility products
and services are issues under consideration. There is also a recognition by
legislators and regulators that the stranded costs of utilities must be
addressed as deregulation proceeds.
In March 1995, the Federal Energy Regulatory Commission ("FERC") issued a
Notice of Proposed Rulemaking on Promoting Wholesale Competition Through Open
Access Non-discriminatory Transmission Services by Public Utilities. According
to the FERC, the goals of the proposed new rules are to facilitate the
development of a competitive market by ensuring that wholesale buyers and
sellers can reach each other and to eliminate anticompetitive and
discriminatory practices in transmission services which, in turn, should lead
to lower electric rates.
On January 8, 1996, Michigan Governor John Engler forwarded to the MPSC a
report on economic development recommendations for electric and gas utility
reform in Michigan prepared by the Michigan Jobs Commission ("MJC"). The
essential component of the MJC's recommended strategy for lowering energy costs
is the promotion of competition and customer choice. The Governor strongly
encouraged the MPSC to use the report as guiding principles in its continued
efforts to promote competition within reasonably established time frames.
The MJC's recommendations, if implemented would:
(1) allow new industrial and commercial load to purchase energy from providers
of their choice beginning January 1, 1997 assuming that the Michigan public
utilities subject to the new rules would be permitted to sell power on a
reciprocal basis,
(2) establish a Michigan statewide power pool by January 1, 1998, and (3)
permit all industrial and commercial customers to be able to choose their
energy providers by January 1, 2001. The proposals recognize that the
transition to a more competitive market requires that the recovery of stranded
costs be addressed. In addition, the proposals favor the unbundling of rate
tariffs into functional components. The MPSC has not yet taken action with
respect to the MJC's recommendations.
While Detroit Edison is unable to predict the outcome of the FERC
rulemaking and the Michigan proposals, increased wholesale competition is
anticipated.
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 arrangements to procure power.
Implementation of the experimental program would be limited to 90 megawatts
("MW") for Detroit Edison and will be coordinated with Detroit Edison's next
solicitation of new capacity. On July 19, 1995, Detroit Edison filed a claim
of appeal with the Michigan Court of Appeals claiming that the MPSC does not
have the authority to order Detroit Edison to participate in retail wheeling
and that jurisdiction over transmission rates for wheeling resides with the
FERC.
In response to the changing market for electricity, Detroit Edison has
developed a number of programs designed to increase its efficiency and
competitive status and address customer needs, which include implementing an
interruptible rate for large industrial customers. The January 21, 1994 MPSC
rate order provided that up to 650 MW may be sold under this interruptible
rate, with Detroit Edison absorbing revenue losses associated with 250 MW.
30
32
Competitive status and customer needs were also addressed when, Detroit
Edison entered into 10-year special manufacturing contracts with Chrysler
Corporation, Ford Motor Company and General Motors Corporation, covering 54 of
the Big Three automakers' largest manufacturing locations in Southeastern
Michigan. These special manufacturing contracts are available to customers
with a total connected load of 100 MW or more for specific locations of 5 MW
and over. Service under the special manufacturing contracts includes both firm
and interruptible service, which is priced to provide customers with
competitively-based electric rates.
Detroit Edison continues to review potential energy services as a method
of remaining competitive while diversifying within the scope of its core
business. In addition, the Company anticipates that its affiliates may also
assist in overall customer satisfaction by offering energy-related services.
CASH GENERATION AND CASH REQUIREMENTS
CONSOLIDATED STATEMENT OF CASH FLOWS
The Company generates substantial cash flows from operating activities as shown
in the Consolidated Statement of Cash Flows. Net cash from operating
activities, which is the Company's primary source of liquidity, was $913
million in 1995, $923 million in 1994 and $1,110 million in 1993. Net cash
from operating activities decreased slightly in 1995 as a result of the
repurchase of $200 million of customer accounts receivable and unbilled
revenues, partially offset by higher non-cash charges to income and higher net
income. Net cash from operating activities decreased in 1994 due to lower net
income and changes in current assets and liabilities, partially offset by
higher non-cash charges to income for the Fermi 2 phase-in plan and
depreciation and amortization.
Net cash used for investing activities increased in 1995 due primarily to
higher plant and equipment expenditures. Net cash used for investing
activities increased in 1994 due primarily to increased funding of nuclear
decommissioning trust funds, the purchase of leased equipment and non-utility
investments, partially offset by lower plant and equipment expenditures.
Detroit Edison has engaged in an extensive debt refinancing program in
recent years. Assuming favorable economic conditions, Detroit Edison expects
that it will continue to refinance existing higher-cost
debt and equity securities. Also, in 1994, as a result of a plan change,
Detroit Edison entered into the one-time purchase of common stock from the
trustee of the Detroit Edison Savings & Investment Plans.
ADDITIONAL INFORMATION
In May 1995, FERC issued its order authorizing the continuation of Detroit
Edison's $1 billion of short-term borrowing authority. This authority will be
in effect through May 31, 1997.
An MPSC order permits Detroit Edison to issue approximately $3.5 billion
of securities for the purpose of refinancing debt and preferred and/or
preference stock (issued prior to 1993) prior to maturity (when economic) and
at maturity, and to replace funds used for those purposes. Detroit Edison also
has MPSC authority to refinance substantially all non-taxable debt obligations.
Detroit Edison has an effective Shelf Registration Statement on file with
the Securities and Exchange Commission pursuant to which it may issue up to
$350 million in debt securities. On February 13, 1996, Detroit Edison issued
$185 million of 7 5/8% Quarterly Income Debt Securities. Also, Detroit Edison
called for redemption all of the outstanding Cumulative Preferred Stock, 7.68%
Series, 7.45% Series and 7.36% Series, totaling $185 million, at per share
redemption prices of $101 plus accrued dividends. Such redemption will occur
on March 21, 1996.
Cash requirements for scheduled long-term debt redemptions are expected to
be $119 million, $144 million, $169 million, $219 million and $194 million for
1996, 1997, 1998, 1999 and 2000, respectively.
Detroit Edison's cash requirements for capital expenditures are expected
to be approximately $2.1 billion for the period 1996 through 2000. In 1996,
cash requirements for capital expenditures are estimated at $478 million.
Environmental expenditures are expected to approximate $102 million for the
period 1996 through 2000, including expenditures for Clean Air Act compliance
requirements. See "Environmental Matters" herein.
Detroit Edison's internal cash generation is expected to be sufficient to
meet cash requirements for capital expenditures as well as scheduled long-term
debt redemption requirements.
Detroit Edison had total short-term credit arrangements of approximately
$432 million at December 31, 1995, under which $37 million of borrowings were
outstanding.
CAPITALIZATION
The Company's capital structure ratios (excluding long-term debt due within one
year) were as follows:
December 31
----------------------------------------------------------------
1995 1994 1993
- -------------------------------------------------------------------------------------------------
Common Shareholders' Equity 45.7% 44.2% 43.9%
Cumulative Preferred Stock
of Subsidiary 4.3 5.0 5.1
Long-Term Debt 50.0 50.8 51.0
- -------------------------------------------------------------------------------------------------
100.0% 100.0% 100.0%
================================================================
FERMI 2
Detroit Edison's liquidity has improved since the 1988 commercial operation of
Fermi 2, a nuclear generating unit comprising 27% of total assets and 9% of
summer net rated capability, and lower levels of capital expenditures.
The commercial operation of Fermi 2 completed Detroit Edison's power plant
construction program. Detroit Edison has no current plans for additional
generating plants. Ownership of an operating nuclear generating unit such as
Fermi 2 subjects Detroit Edison to significant additional risks. Nuclear
plants are highly regulated by a number of governmental agencies concerned with
public health and safety as well as the environment, and consequently, are
subject to greater risks and scrutiny than conventional fossil-fueled plants.
Fermi 2 was out of service in 1994 and part of 1995 due to a December 1993
turbine-generator failure. Major repairs were completed in 1994 and early
1995. These repair costs are approximately $80 million for which to date
Detroit Edison has received partial insurance payments of $55 million for
property
31
33
MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL
CONDITION & RESULTS OF OPERATIONS
DTE ENERGY COMPANY, THE DETROIT EDISON COMPANY AND SUBSIDIARY
COMPANIES
damage. In addition, Detroit Edison has received partial insurance
payments of $74.2 million for replacement power costs through December 31,
1995.
Fermi 2 was operating at 874 MW at the end of December 1995 and the unit's
capacity factor was 51.4% for 1995. Detroit Edison is currently operating
Fermi 2 without the large seventh and eighth stage turbine blades on the three
low-pressure turbines. The new turbine shafts and blades for these
low-pressure turbines are being manufactured and will be installed during the
next refueling outage in 1996.
The expected cost of replacing the major turbine components in 1996 is
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.
At December 31, 1995, Fermi 2 was insured for property damage in the
amount of $2.75 billion and Detroit Edison had available approximately $8.5
billion in public liability insurance. To the extent that insurable claims for
replacement power, property damage, decontamination, repair and replacement and
other costs arising from a nuclear incident at Fermi 2 exceed the policy limits
of insurance, or to the extent that such insurance becomes unavailable in the
future, Detroit Edison will retain the risk of loss.
The Financial Accounting Standards Board is reviewing the accounting for
removal costs, including decommissioning of nuclear power plants. If current
electric utility industry accounting practices for such decommissioning are
changed: (1) annual provisions for decommissioning could increase, and (2) the
estimated cost for decommissioning could be recorded as a liability rather than
as accumulated depreciation.
FUTURE SALES GROWTH
Since 1980, the compound annual sales growth was 1.8% and peak demand growth
was 2.4% (after adjusting for the effects of unusual weather). System sales
are expected to grow at a compound annual rate of about 1.5% per year and
system demand at about 1.3% per year for the next 15 years.
MEETING ENERGY DEMANDS
Detroit Edison expects to meet its near-term demand for energy through the
implementation of new load management programs, and eventually through the
return to service, subject to environmental regulations, of power plant units
currently in economy reserve status when energy demand and consumption
requirements provide economic justification. The return to service of these
units is conditioned upon the outcome of a competitive bidding process which
was established by an MPSC order issued in July 1992. On May 1, 1995, Detroit
Edison filed its preliminary Request for Proposal to solicit bids for the
acquisition of new capacity starting in the year 2004. Detroit Edison is
proposing customer load management options which have the potential to provide
an additional 500 MW of peak reduction by the year 2003. Detroit Edison has
filed a proposed retail wheeling tariff and proposal for implementing the
experimental retail wheeling program. See "Competition" herein. 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. On December 5, 1995, Detroit Edison filed rebuttal testimony indicating
that the most recent resource plan still indicates that capacity will not be
required prior to 2003.
INFLATION
Inflation is a measure of the purchasing power of the dollar. In 1995, the
inflation rate, as defined by the Consumer Price Index, was 2.5%. Although the
current inflation rate is relatively low, its compound effect through time can
be significant, primarily in its effect on Detroit Edison's ability to replace
its investment in utility plant.
The regulatory process limits the amount of depreciation expense
recoverable through revenues to the historical cost of Detroit Edison's
investment in utility plant. Such amount produces cash flows which are
inadequate to replace such property in future years. However, Detroit Edison
believes that it will be able to recover the increased cost of replacement
facilities when, and if, replacement occurs.
ENVIRONMENTAL MATTERS
Protecting the environment from damage, as well as correcting past
environmental damage, continues to be the focus of state and federal
regulators. Committees at both the state and federal level are studying the
effects of a wide array of chemicals and electromagnetic fields as well as
global warming (as potentially affected by carbon dioxide emissions).
Legislation and/or rulemaking resulting from these and any future studies could
further impact the electric utility industry including Detroit Edison.
The Environmental Protection Agency and the Michigan Department of
Environmental Quality have aggressive programs regarding the clean-up of
contaminated property. Detroit Edison anticipates that it will be periodically
included in these types of environmental proceedings. Further, additional
environmental expenditures, although difficult to quantify, will be necessary
as Detroit Edison prepares to comply with the phase-in of the 1990 Amendments
to the federal Clean Air Act. Detroit Edison currently meets the first phase
of sulfur dioxide emissions and nitrogen oxides emissions requirements. The
second phase begins in the year 2000. Detroit Edison currently burns some
level of low-sulfur coal (less than 1% sulfur) at all its coal-fired units and
believes it can meet the second phase sulfur dioxide emission requirements by
either increasing the amount of low-sulfur coal used at certain units, by
purchasing sulfur dioxide emission allowances, or by doing some combination of
both, depending upon which strategy proves to be the best economic choice.
Current projections indicate that annual fuel costs may increase by $13 million
to $20 million in the period 2000-2009 in order to comply with new sulfur
dioxide emissions requirements. In addition, approximately $59 million in
capital expenditures may be necessary for nitrogen oxides emissions
requirements.
Detroit Edison expects that substantially all of the costs of
environmental compliance will be recovered through the ratemaking process.
The Company has accrued for settlements in environmental matters discussed
in Note 12 of the Notes to Consolidated Financial Statements.
32
34
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The following consolidated financial statements and schedules are included
herein.
Page
----
Independent Auditors' Report..........................................34
Report of Independent Accountants.....................................35
DTE Energy Company and Subsidiary Companies:
Consolidated Statement of Income....................................36
Consolidated Statement of Cash Flows................................37
Consolidated Balance Sheet..........................................38
Consolidated Statement of Common Shareholders' Equity...............40
The Detroit Edison Company and Subsidiary Companies:
Consolidated Statement of Income....................................41
Consolidated Balance Sheet..........................................42
Consolidated Statement of Cash Flows................................44
Consolidated Statement of Common Shareholders' Equity...............45
Notes to Consolidated Financial Statements............................46
Schedule II - Valuation and Qualifying Accounts.......................74
Note: Detroit Edison's financial statements are presented here for ease
of reference and are not considered to be part of Part II - Item 8 of the
Company's report.
33
35
INDEPENDENT AUDITORS' REPORT
To the Boards of Directors and Shareholders of
DTE Energy Company and
The Detroit Edison Company
We have audited the consolidated balance sheets of DTE Energy Company and
subsidiary companies and of The Detroit Edison Company and subsidiary companies
(together, the "Companies") as of December 31, 1995, and the related
consolidated statements of income, cash flows, and common shareholders' equity
for the year then ended. Our audits also included the financial statement
schedule listed in the Index at Item 8. These financial statements and
financial statement schedule are the responsibility of the Companies'
management. Our responsibility is to express an opinion on the financial
statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements referred to above
present fairly, in all material respects, the financial position of DTE Energy
Company and subsidiary companies and of The Detroit Edison Company and
subsidiary companies at December 31, 1995, and the results of their operations
and their cash flows for the year then ended in conformity with generally
accepted accounting principles. Also, in our opinion, such financial statement
schedule, when considered in relation to the basic consolidated financial
statements of the Companies taken as a whole, presents fairly in all material
respects the information set forth therein.
DELOITTE & TOUCHE LLP
Detroit, Michigan
January 22, 1996
34
36
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
DTE Energy Company and
The Detroit Edison Company
In our opinion, the consolidated balance sheet, and the related
consolidated statements of income, common shareholders' equity and of cash
flows present fairly, in all material respects, the financial position of DTE
Energy Company and subsidiary companies and of The Detroit Edison Company and
subsidiary companies at December 31, 1994 and the results of their operations
and their cash flows for each of the two years in the period ended December 31,
1994, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above. We have not audited the consolidated financial
statements of DTE Energy Company and subsidiary companies and of The Detroit
Edison Company and subsidiary companies for any period subsequent to December
31, 1994.
PRICE WATERHOUSE LLP
Detroit, Michigan
January 23, 1995 except for
Note 1, paragraph one and three,
which is as of January 1, 1996.
35
37
CONSOLIDATED STATEMENT OF INCOME
(DOLLARS IN THOUSANDS)
DTE ENERGY COMPANY AND SUBSIDIARY COMPANIES
YEAR ENDED DECEMBER 31
--------------------------
1995 1994 1993
---- ---- ----
OPERATING REVENUES
Electric - System $3,560,470 $3,448,351 $3,467,357
Electric - Interconnection 50,979 43,141 60,363
Steam 24,095 27,849 27,491
--------- --------- ---------
Total Operating Revenues $3,635,544 $3,519,341 $3,555,211
--------- --------- ---------
OPERATING EXPENSES
Operation
Fuel $ 715,967 $ 719,215 $ 750,127
Purchased power 133,557 116,947 91,747
Other operation 635,297 621,066 604,882
Maintenance 240,115 262,409 251,149
Steam plant impairment loss 42,029 - -
Depreciation and amortization 500,611 476,415 432,512
Deferred Fermi 2 amortization (5,972) (7,465) (8,959)
Amortization of deferred Fermi 2
depreciation and return 92,990 84,828 30,888
Taxes other than income 251,941 255,874 261,449
Income taxes 289,687 270,657 297,469
--------- --------- ---------
Total Operating Expenses $2,896,222 $2,799,946 $2,711,264
--------- --------- ---------
OPERATING INCOME $ 739,322 $ 719,395 $ 843,947
--------- --------- ---------
OTHER INCOME AND (DEDUCTIONS)
Allowance for other funds used
during construction $ 1,408 $ 1,684 $ 2,055
Other income and
(deductions) - net (30,246) (24,973) (24,961)
Income taxes 9,789 8,111 8,594
Accretion income 11,041 13,644 44,130
Income taxes - disallowed plant
costs and accretion income (3,355) (4,252) (14,062)
--------- --------- ---------
Net Other Income
and (Deductions) $ (11,363) $ (5,786) $ 15,756
--------- --------- ---------
INTEREST CHARGES
Long-term debt $ 275,599 $ 273,763 $ 325,194
Amortization of debt discount,
premium and expense 11,312 10,832 9,114
Other 9,666 11,170 4,928
Allowance for borrowed funds used
during construction (credit) (2,269) (2,065) (1,436)
--------- --------- ---------
Net Interest Charges $ 294,308 $ 293,700 $ 337,800
--------- --------- ---------
PREFERRED AND PREFERENCE STOCK
DIVIDENDS OF SUBSIDIARY $ 27,737 $ 29,640 $ 30,837
--------- --------- ---------
NET INCOME $ 405,914 $ 390,269 $ 491,066
========= ========= =========
COMMON SHARES OUTSTANDING - AVERAGE 144,939,875 146,151,505 147,031,446
----------- ----------- -----------
EARNINGS PER COMMON SHARE $2.80 $2.67 $3.34
========= ========= =========
(See accompanying Notes to Consolidated Financial Statements.)
36
38
CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
DTE ENERGY COMPANY AND SUBSIDIARY COMPANIES
YEAR ENDED DECEMBER 31
-------------------------------
1995 1994 1993
----------------------------------------------
OPERATING ACTIVITIES
Net Income $ 405,914 $ 390,269 $ 491,066
Adjustments to reconcile net income to net cash from
operating activities:
Accretion income (11,041) (13,644) (44,130)
Depreciation and amortization 500,611 476,415 432,512
Deferred Fermi 2 depreciation, amortization and return - net 87,018 77,363 21,929
Deferred income taxes and investment tax credit - net 62,523 93,287 85,574
Fermi 2 refueling outage - net 13,075 (19,507) 17,856
Steam plant impairment loss 42,029 - -
Other 5,113 (31,091) 32,367
Changes in current assets and liabilities:
Customer accounts receivable and unbilled revenues (218,579) (505) 10,733
Other accounts receivable (3,452) (7,593) (2,247)
Inventories (18,837) (1,774) 33,839
Accounts payable 18,049 (13,858) 21,364
Taxes payable (2,649) (18,031) (6,499)
Interest payable 1,914 (6,174) (19,769)
Other 31,255 (2,189) 35,350
-------- -------- ----------
Net cash from operating activities $ 912,943 $ 922,968 $ 1,109,945
-------- -------- ----------
INVESTING ACTIVITIES
Plant and equipment expenditures $(453,844) $(366,392) $ (396,407)
Purchase of leased equipment - (11,500) (2,402)
Nuclear decommissioning trust funds (43,351) (46,563) (5,346)
Non-utility investments 1,865 (12,843) 182
Other changes in current assets and liabilities 5,774 5,042 10,225
Other (32,845) (11,537) (19,988)
-------- -------- ----------
Net cash used for investing activities $(522,401) $(443,793) $ (413,736)
-------- -------- ----------
FINANCING ACTIVITIES
Sale of cumulative preferred stock $ - $ - $ 200,000
Sale of general and refunding mortgage bonds - 200,000 1,510,000
Funds received from Trustees: Installment sales contracts
and loan agreements 201,525 50,470 76,510
Increase (decrease) in short-term borrowings (2,499) (98,715) 109,210
Redemption of long-term debt (220,739) (258,034) (2,024,289)
Redemption of preferred and preference stock (955) - (164,158)
Premiums on reacquired long-term debt and preferred and preference
stock (5,946) (11,563) (81,453)
Purchase of common stock - (59,855) -
Dividends on common stock (298,502) (301,801) (299,938)
Other (6,600) (2,626) (20,434)
-------- -------- ----------
Net cash used for financing activities $(333,716) $(482,124) $ (694,552)
-------- -------- ----------
NET INCREASE (DECREASE) IN CASH AND TEMPORARY CASH INVESTMENTS $ 56,826 $ (2,949) $ 1,657
CASH AND TEMPORARY CASH INVESTMENTS AT BEGINNING OF THE PERIOD 8,122 11,071 9,414
-------- -------- ----------
CASH AND TEMPORARY CASH INVESTMENTS AT END OF THE PERIOD $ 64,948 $ 8,122 $ 11,071
======== ======== ==========
SUPPLEMENTARY CASH FLOW INFORMATION
Interest paid (excluding interest capitalized) $ 274,413 $ 289,375 $ 346,542
Income taxes paid 230,537 183,172 233,542
New capital lease obligations 26,850 9,328 36,606
Exchange of preferred stock of subsidiary for long-term debt 49,878 - -
-------- -------- ----------
(See accompanying Notes to Consolidated Financial Statements.)
37
39
CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
DTE ENERGY COMPANY AND SUBSIDIARY COMPANIES
December 31
---------------
ASSETS 1995 1994
----------------------------------
UTILITY PROPERTIES
Plant in service
Electric $13,303,992 $12,941,414
Steam - 69,813
---------- ----------
$13,303,992 $13,011,227
Less: Accumulated depreciation and amortization (4,928,316) (4,529,692)
---------- ----------
$ 8,375,676 $ 8,481,535
Construction work in progress 142,726 104,431
---------- ----------
Net utility properties $ 8,518,402 $ 8,585,966
---------- ----------
Property under capital leases (less accumulated amortization
of $99,633 and $94,678, respectively) $ 137,206 $ 134,542
Nuclear fuel under capital lease (less accumulated amortization
of $427,831 and $374,405, respectively) 145,463 193,411
---------- ----------
Net property under capital leases $ 282,669 $ 327,953
---------- ----------
Total owned and leased properties $ 8,801,071 $ 8,913,919
---------- ----------
OTHER PROPERTY AND INVESTMENTS
Non-utility property $ 21,576 $ 11,281
Investments and special funds 29,058 18,722
Nuclear decommissioning trust funds 119,843 76,492
---------- ----------
$ 170,477 $ 106,495
---------- ----------
CURRENT ASSETS
Cash and temporary cash investments $ 64,948 $ 8,122
Customer accounts receivable and unbilled revenues (less allowance
for uncollectible accounts of $22,000 and $30,000, respectively) 414,403 195,824
Other accounts receivable 37,664 34,212
Inventories (at average cost)
Fuel 162,796 136,331
Materials and supplies 142,782 155,921
Prepayments 12,910 10,516
---------- ----------
$ 835,503 $ 540,926
---------- ----------
DEFERRED DEBITS
Regulatory assets $ 1,155,482 $ 1,277,628
Prepaid pensions 81,865 54,066
Unamortized debt expense 40,936 42,876
Other 45,257 57,068
---------- ----------
$ 1,323,540 $ 1,431,638
---------- ----------
TOTAL $11,130,591 $10,992,978
========== ==========
(See accompanying Notes to Consolidated Financial Statements.)
38
40
CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
DTE ENERGY COMPANY AND SUBSIDIARY COMPANIES
December 31
----------------
LIABILITIES 1995 1994
----------------------------------
CAPITALIZATION
Common stock - without par value, 400,000,000 shares authorized;
(145,119,875 and 144,863,447 shares outstanding, respectively) $ 1,951,437 $ 1,946,999
Retained earnings used in the business 1,484,871 1,379,081
---------- ----------
Total common shareholders' equity $ 3,436,308 $ 3,326,080
Cumulative preferred stock of subsidiary 326,604 380,283
Long-term debt 3,756,094 3,825,296
---------- ----------
Total Capitalization $ 7,519,006 $ 7,531,659
---------- ----------
OTHER NON-CURRENT LIABILITIES
Obligations under capital leases $ 128,362 $ 126,076
Other postretirement benefits 24,381 37,143
Other 58,424 48,707
---------- ----------
$ 211,167 $ 211,926
---------- ----------
CURRENT LIABILITIES
Short-term borrowings $ 36,990 $ 39,489
Amounts due within one year
Long-term debt 119,214 19,214
Obligations under capital leases 154,307 201,877
Accounts payable 165,148 147,020
Property and general taxes 34,416 31,608
Income taxes - 5,304
Accumulated deferred income taxes 51,697 32,625
Interest payable 62,128 60,214
Dividends payable 81,102 82,012
Payrolls 72,164 71,958
Fermi 2 refueling outage 14,342 1,267
Other 130,689 97,215
---------- ----------
$ 922,197 $ 789,803
---------- ----------
DEFERRED CREDITS
Accumulated deferred income taxes $ 2,052,875 $ 2,014,821
Accumulated deferred investment tax credits 330,085 346,379
Other 95,261 98,390
---------- ----------
$ 2,478,221 $ 2,459,590
---------- ----------
COMMITMENTS AND CONTINGENCIES (Notes 1, 2, 3, 4, 9, 12 and 13)
---------- ----------
TOTAL $11,130,591 $10,992,978
========== ==========
(See accompanying Notes to Consolidated Financial Statements.)
39
41
CONSOLIDATED STATEMENT OF COMMON SHAREHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
DTE ENERGY COMPANY AND SUBSIDIARY COMPANIES
Retained Total
Common Stock Earnings Common
------------------------- Used in the Shareholders'
Shares Amount Business Equity
------ ------ ----------- -------------
BALANCE AT DECEMBER 31, 1992 147,016,691 $1,975,728 $1,138,159 $3,113,887
Issuance of common stock on conversion of
convertible cumulative preferred stock of
subsidiary, 5-1/2% series 31,227 542 542
Expense associated with subsidiary preferred
and preference stock redeemed (6,634) (6,634)
Net income 491,066 491,066
Cash dividends declared on
Common stock - $2.06 per share (302,894) (302,894)
Other (12) (12)
----------- ---------- ---------- ----------
BALANCE AT DECEMBER 31, 1993 147,047,918 $1,976,270 $1,319,685 $3,295,955
Issuance of common stock on conversion of
convertible cumulative preferred stock of
subsidiary, 5-1/2% series 22,164 386 386
Common stock reacquired from Detroit Edison
Savings & Investment Plans, August 4, 1994 (2,206,635) (29,657) (30,198) (59,855)
Net income 390,269 390,269
Cash dividends declared on
Common stock - $2.06 per share (300,676) (300,676)
Other 1 1
----------- ---------- ---------- ----------
BALANCE AT DECEMBER 31, 1994 144,863,447 $1,946,999 $1,379,081 $3,326,080
Issuance of common stock on conversion of
convertible cumulative preferred stock of
subsidiary, 5-1/2% series 256,428 4,438 4,438
Expense associated with subsidiary preferred
stock redeemed (1,645) (1,645)
Net income 405,914 405,914
Cash dividends declared on
Common stock - $2.06 per share (298,635) (298,635)
Other 156 156
----------- ---------- ---------- ----------
BALANCE AT DECEMBER 31, 1995 145,119,875 $1,951,437 $1,484,871 $3,436,308
=========== ========== ========== ==========
(See accompanying Notes to Consolidated Financial Statements.)
40
42
CONSOLIDATED STATEMENT OF INCOME
(DOLLARS IN THOUSANDS)
THE DETROIT EDISON COMPANY AND SUBSIDIARY COMPANIES
YEAR ENDED DECEMBER 31
-----------------------------------
1995 1994 1993
-----------------------------------
OPERATING REVENUES
Electric - System $3,560,470 $3,448,351 $3,467,357
Electric - Interconnection 50,979 43,141 60,363
Steam 24,095 27,849 27,491
- ------------------------------------------------------------------------------------------------------
Total Operating Revenues $3,635,544 $3,519,341 $3,555,211
- ------------------------------------------------------------------------------------------------------
OPERATING EXPENSES
Operation
Fuel $ 715,967 $ 719,215 $ 750,127
Purchased power 133,557 116,947 91,747
Other operation 635,297 621,066 604,882
Maintenance 240,115 262,409 251,149
Steam plant impairment loss 42,029 - -
Depreciation and amortization 500,611 476,415 432,512
Deferred Fermi 2 amortization (5,972) (7,465) (8,959)
Amortization of deferred Fermi 2 depreciation and return 92,990 84,828 30,888
Taxes other than income 251,941 255,874 261,449
Income taxes 289,687 270,657 297,469
- ------------------------------------------------------------------------------------------------------
Total Operating Expenses $2,896,222 $2,799,946 $2,711,264
- ------------------------------------------------------------------------------------------------------
OPERATING INCOME $ 739,322 $ 719,395 $ 843,947
- ------------------------------------------------------------------------------------------------------
OTHER INCOME AND (DEDUCTIONS)
Allowance for other funds used during construction $ 1,408 $ 1,684 $ 2,055
Other income and (deductions) - net (30,246) (24,973) (24,961)
Income taxes 9,789 8,111 8,594
Accretion income 11,041 13,644 44,130
Income taxes - disallowed plant costs and accretion income (3,355) (4,252) (14,062)
- ------------------------------------------------------------------------------------------------------
Net Other Income and (Deductions) $ (11,363) $ (5,786) $ 15,756
- ------------------------------------------------------------------------------------------------------
INTEREST CHARGES
Long-term debt $ 275,599 $ 273,763 $ 325,194
Amortization of debt discount, premium and expense 11,312 10,832 9,114
Other 9,666 11,170 4,928
Allowance for borrowed funds used during construction (credit) (2,269) (2,065) (1,436)
- ------------------------------------------------------------------------------------------------------
Net Interest Charges $ 294,308 $ 293,700 $ 337,800
- ------------------------------------------------------------------------------------------------------
NET INCOME $ 433,651 $ 419,909 $ 521,903
PREFERRED AND PREFERENCE STOCK DIVIDENDS $27,737 $ 29,640 $ 30,837
- ------------------------------------------------------------------------------------------------------
NET INCOME AVAILABLE FOR COMMON STOCK $ 405,914 $ 390,269 $ 491,066
======================================================================================================
(See accompanying Notes to Consolidated Financial Statements.)
41
43
CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
THE DETROIT EDISON COMPANY AND SUBSIDIARY COMPANIES
December 31
-------------------------
ASSETS 1995 1994
-------------------------
UTILITY PROPERTIES
Plant in service
Electric $13,303,992 $12,941,414
Steam - 69,813
- -----------------------------------------------------------------------------------------------
$13,303,992 $13,011,227
Less: Accumulated depreciation and amortization (4,928,316) (4,529,692)
- -----------------------------------------------------------------------------------------------
$ 8,375,676 $ 8,481,535
Construction work in progress 142,726 104,431
- -----------------------------------------------------------------------------------------------
Net utility properties $ 8,518,402 $ 8,585,966
- -----------------------------------------------------------------------------------------------
Property under capital leases (less accumulated amortization
of $99,633 and $94,678, respectively) $ 137,206 $ 134,542
Nuclear fuel under capital lease (less accumulated amortization
of $427,831 and $374,405, respectively) 145,463 193,411
- -----------------------------------------------------------------------------------------------
Net property under capital leases $ 282,669 $ 327,953
- -----------------------------------------------------------------------------------------------
Total owned and leased properties $ 8,801,071 $ 8,913,919
- -----------------------------------------------------------------------------------------------
OTHER PROPERTY AND INVESTMENTS
Non-utility property $ 21,576 $ 11,281
Investments and special funds 29,058 18,722
Nuclear decommissioning trust funds 119,843 76,492
- -----------------------------------------------------------------------------------------------
$ 170,477 $ 106,495
- -----------------------------------------------------------------------------------------------
CURRENT ASSETS
Cash and temporary cash investments $ 64,948 $ 8,122
Customer accounts receivable and unbilled revenues (less allowance
for uncollectible accounts of $22,000 and $30,000, respectively) 414,403 195,824
Other accounts receivable 37,664 34,212
Inventories (at average cost)
Fuel 162,796 136,331
Materials and supplies 142,782 155,921
Prepayments 12,910 10,516
- -----------------------------------------------------------------------------------------------
$ 835,503 $ 540,926
- -----------------------------------------------------------------------------------------------
DEFERRED DEBITS
Regulatory assets $ 1,155,482 $ 1,277,628
Prepaid pensions 81,865 54,066
Unamortized debt expense 40,936 42,876
Other 45,257 57,068
- -----------------------------------------------------------------------------------------------
$ 1,323,540 $ 1,431,638
- -----------------------------------------------------------------------------------------------
TOTAL $11,130,591 $10,992,978
===============================================================================================
(See accompanying Notes to Consolidated Financial Statements.)
42
44
CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
THE DETROIT EDISON COMPANY AND SUBSIDIARY COMPANIES
December 31
-------------------------
LIABILITIES 1995 1994
-------------------------
CAPITALIZATION
Common stock - $10 par value, 400,000,000 shares authorized;
145,119,875 and 144,863,447 shares outstanding, respectively $ 1,451,199 $ 1,448,635
Premium on common stock 547,799 545,825
Common stock expense (47,561) (47,461)
Retained earnings used in the business 1,484,871 1,379,081
- -------------------------------------------------------------------------------------------
Total common shareholders' equity $ 3,436,308 $ 3,326,080
Cumulative preferred stock 326,604 380,283
Long-term debt 3,756,094 3,825,296
- -------------------------------------------------------------------------------------------
Total Capitalization $ 7,519,006 $ 7,531,659
- -------------------------------------------------------------------------------------------
OTHER NON-CURRENT LIABILITIES
Obligations under capital leases $ 128,362 $ 126,076
Other postretirement benefits 24,381 37,143
Other 58,424 48,707
- -------------------------------------------------------------------------------------------
$ 211,167 $ 211,926
- -------------------------------------------------------------------------------------------
CURRENT LIABILITIES
Short-term borrowings $ 36,990 $ 39,489
Amounts due within one year
Long-term debt 119,214 19,214
Obligations under capital leases 154,307 201,877
Accounts payable 165,148 147,020
Property and general taxes 34,416 31,608
Income taxes - 5,304
Accumulated deferred income taxes 51,697 32,625
Interest payable 62,128 60,214
Dividends payable 81,102 82,012
Payrolls 72,164 71,958
Fermi 2 refueling outage 14,342 1,267
Other 130,689 97,215
- -------------------------------------------------------------------------------------------
$ 922,197 $ 789,803
- -------------------------------------------------------------------------------------------
DEFERRED CREDITS
Accumulated deferred income taxes $ 2,052,875 $ 2,014,821
Accumulated deferred investment tax credits 330,085 346,379
Other 95,261 98,390
- -------------------------------------------------------------------------------------------
$ 2,478,221 $ 2,459,590
- -------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (Notes 1, 2, 3, 4, 9, 12 and 13)
- -------------------------------------------------------------------------------------------
Total $11,130,591 $10,992,978
===========================================================================================
(See accompanying Notes to Consolidated Financial Statements.)
43
45
CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
THE DETROIT EDISON COMPANY AND SUBSIDIARY COMPANIES
YEAR ENDED DECEMBER 31
-------------------------------------
1995 1994 1993
-------------------------------------
OPERATING ACTIVITIES
Net Income $ 433,651 $ 419,909 $ 521,903
Adjustments to reconcile net income to net cash from operating activities:
Accretion income (11,041) (13,644) (44,130)
Depreciation and amortization 500,611 476,415 432,512
Deferred Fermi 2 depreciation, amortization and return - net 87,018 77,363 21,929
Deferred income taxes and investment tax credit - net 62,523 93,287 85,574
Fermi 2 refueling outage - net 13,075 (19,507) 17,856
Steam plant impairment loss 42,029 - -
Other 5,113 (31,091) 32,367
Changes in current assets and liabilities:
Customer accounts receivable and unbilled revenues (218,579) (505) 10,733
Other accounts receivable (3,452) (7,593) (2,247)
Inventories (18,837) (1,774) 33,839
Accounts payable 18,049 (13,858) 21,364
Taxes payable (2,649) (18,031) (6,499)
Interest payable 1,914 (6,174) (19,769)
Other 31,255 (2,189) 35,350
- --------------------------------------------------------------------------------------------------------------------
Net cash from operating activities $ 940,680 $ 952,608 $1,140,782
- --------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Plant and equipment expenditures $ (453,844) $ (366,392) $ (396,407)
Purchase of leased equipment - (11,500) (2,402)
Nuclear decommissioning trust funds (43,351) (46,563) (5,346)
Non-utility investments 1,865 (12,843) 182
Other changes in current assets and liabilities 5,774 5,042 10,225
Other (32,845) (11,537) (19,988)
- --------------------------------------------------------------------------------------------------------------------
Net cash used for investing activities $ (522,401) $ (443,793) $ (413,736)
- --------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Sale of cumulative preferred stock $ - $ - $ 200,000
Sale of general and refunding mortgage bonds - 200,000 1,510,000
Funds received from Trustees: Installment sales contracts
and loan agreements 201,525 50,470 76,510
Increase (decrease) in short-term borrowings (2,499) (98,715) 109,210
Redemption of long-term debt (220,739) (258,034) (2,024,289)
Redemption of preferred and preference stock (955) - (164,158)
Premiums on reacquired long-term debt and preferred
and preference stock (5,946) (11,563) (81,453)
Purchase of common stock - (59,855) -
Dividends on common, preferred and preference stock (326,239) (331,441) (330,775)
Other (6,600) (2,626) (20,434)
- --------------------------------------------------------------------------------------------------------------------
Net cash used for financing activities $ (361,453) $ (511,764) $ (725,389)
- --------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND TEMPORARY CASH INVESTMENTS $ 56,826 $ (2,949) $ 1,657
CASH AND TEMPORARY CASH INVESTMENTS AT BEGINNING OF THE PERIOD $ 8,122 $ 11,071 $ 9,414
- --------------------------------------------------------------------------------------------------------------------
CASH AND TEMPORARY CASH INVESTMENTS AT END OF THE PERIOD $ 64,948 $ 8,122 $ 11,071
====================================================================================================================
SUPPLEMENTARY CASH FLOW INFORMATION
Interest paid (excluding interest capitalized) $ 274,413 $ 289,375 $ 346,542
Income taxes paid 230,537 183,172 233,542
New capital lease obligations 26,850 9,328 36,606
Exchange of preferred stock for long-term debt 49,878 - -
(See accompanying Notes to Consolidated Financial Statements.)
44
46
CONSOLIDATED STATEMENT OF COMMON SHAREHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
THE DETROIT EDISON COMPANY AND SUBSIDIARY COMPANIES
Common Stock Premium Retained Total
----------------------- on Common Earnings Common
$10 Par Common Stock Used in the Shareholders'
Shares Value Stock Expense Business Equity
- -------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1992 147,016,691 $1,470,167 $553,724 $(48,163) $1,138,159 $3,113,887
Issuance of common stock on
conversion of convertible
cumulative preferred stock,
5-1/2% series 31,227 312 242 (12) 542
Expense associated with preferred
and preference stock redeemed (6,634) (6,634)
Net income 521,903 521,903
Cash dividends declared
Common stock - $2.06 per share (302,894) (302,894)
Cumulative preferred and
preference stock* (30,837) (30,837)
Other (12) (12)
- -------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1993 147,047,918 $1,470,479 $553,966 $(48,175) $1,319,685 $3,295,955
Issuance of common stock on
conversion of convertible
cumulative preferred stock,
5-1/2% series 22,164 222 173 (9) 386
Common stock reacquired from
Detroit Edison Savings &
Investment Plans, August 4, 1994 (2,206,635) (22,066) (8,314) 723 (30,198) (59,855)
Net income 419,909 419,909
Cash dividends declared
Common stock - $2.06 per share (300,676) (300,676)
Cumulative preferred stock* (29,640) (29,640)
Other 1 1
- -------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1994 144,863,447 $1,448,635 $545,825 $(47,461) $1,379,081 $3,326,080
Issuance of common stock on
conversion of convertible
cumulative preferred stock,
5-1/2% series 256,428 2,564 1,974 (100) 4,438
Expense associated with preferred
stock redeemed (1,645) (1,645)
Net income 433,651 433,651
Cash dividends declared
Common stock - $2.06 per share (298,635) (298,635)
Cumulative preferred stock* (27,737) (27,737)
Other 156 156
- -------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1995 145,119,875 $1,451,199 $547,799 $(47,561) $1,484,871 $3,436,308
=============================================================================================================
*At established rate for each series.
(See accompanying Notes to Consolidated Financial Statements.)
45
47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DTE ENERGY COMPANY, THE DETROIT EDISON COMPANY AND SUBSIDIARY COMPANIES
NOTE 1
SIGNIFICANT ACCOUNTING POLICIES
CORPORATE STRUCTURE AND PRINCIPLES OF CONSOLIDATION - DTE Energy Company
("Company") is a Michigan corporation, incorporated in 1995, and an exempt
holding company under the Public Utility Holding Company Act. The Company has
no significant operations of its own, holding instead the stock of an electric
utility and other energy-related businesses. The Detroit Edison Company
("Detroit Edison"), a public utility incorporated in Michigan since 1967, is the
Company's largest operating subsidiary. Detroit Edison represents substantially
all of the Company's assets.
As a regulated public utility, Detroit Edison is engaged in the
generation, purchase, transmission, distribution and sale of electric energy in
a 7,600 square mile area in Southeastern Michigan. The Company's service area
includes about 13% of Michigan's total land area, and about half of its
population (approximately five million people), electric energy consumption and
industrial capacity.
On January 1, 1996, the holders of Detroit Edison's common stock
exchanged such stock on a share-for-share basis for the common stock of the
Company. Also on January 1, 1996, Detroit Edison declared a dividend to the
Company in the form of the stock of five subsidiaries: DE Energy Services,
Inc., DTE Capital Corporation, Edison Development Corporation, Syndeco Realty
Corporation and UTS Systems, Inc. Accordingly, the consolidated financial
statements presented herein include the financial results of operations of the
Company and its wholly-owned subsidiaries as if the Company's current holding
company structure form had existed in all periods shown. For the periods
presented, the Company's operations and those of Detroit Edison are
substantially the same.
All significant intercompany balances and transactions have been
eliminated. Investments in 50%-owned limited liability corporations,
partnerships and joint ventures are accounted for using the equity method. All
non-utility operating transactions are included in the section titled Other
Income and (Deductions) in the Consolidated Statement of Income.
Certain amounts in prior years' consolidated financial statements have
been reclassified to conform to the current year presentation.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS - The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
REGULATION AND REGULATORY ASSETS AND LIABILITIES - Detroit Edison is
subject to regulation by the Michigan Public Service Commission ("MPSC") and the
Federal Energy Regulatory Commission ("FERC") with respect to accounting matters
and maintains its accounts in accordance with Uniform Systems of Accounts
prescribed by these agencies. As a regulated entity, taking into account the
cost recovery restrictions contained in the December 1988 and January 21, 1994
MPSC rate orders and the provisions of the Energy Policy Act of 1992 ("Energy
Act"), Detroit Edison meets the criteria of Statement of Financial Accounting
Standards ("SFAS") No. 71, "Accounting for the Effects of Certain Types of
Regulation." This accounting standard recognizes the ratemaking process which
results in differences in the application of generally accepted accounting
principles between regulated and non-regulated businesses. Detroit Edison has
recorded the regulatory assets listed below. These regulatory assets are
deferred costs, which are normally treated as expenses in non-regulated
businesses, and are being amortized to expense as these costs are included in
rates and recovered from customers. Continued applicability of SFAS No. 71
requires that rates be designed to recover specific costs of providing regulated
services and products, including regulatory assets, and that it be reasonable to
assume that rates are set at levels that will recover a utility's costs and can
be charged and collected from customers. If the criteria of SFAS No. 71 are no
longer met due to various factors, including deregulation of all or part of the
business, a change in the method of regulation or a change in the competitive
environment for the regulated services, the regulatory assets would have to be
written off to expense at that time. Detroit Edison anticipates that it will
continue to recover costs associated with its regulatory assets and continue to
apply SFAS No. 71.
Detroit Edison has recorded the following regulatory assets at
December 31:
1995 1994
-------------------------------------
(Thousands)
Unamortized loss on reacquired debt $ 124,692 $ 123,996
Recoverable income taxes 641,361 663,101
Other postretirement benefits 23,221 36,562
Fermi 2 phase-in plan 297,774 390,764
Fermi 2 deferred amortization 58,231 52,259
United States Department of Energy
decontamination and decommissioning 10,203 10,946
--------- ---------
Total $1,155,482 $1,277,628
========= =========
At December 31, 1995 and 1994, Detroit Edison had the following
regulatory liabilities: (1) $330 million and $346 million, respectively, for
unamortized accumulated deferred investment tax credits, (2) $53 million and $31
million, respectively, for Fermi 2 capacity factor disallowances (see Note 3),
and (3) $22 million at December 31, 1995 and 1994 for other liabilities.
TEMPORARY CASH INVESTMENTS - For purposes of the Consolidated Statement
of Cash Flows, the Company considers investments purchased with a maturity of
three months or less to be cash equivalents.
UNAMORTIZED LOSS ON REACQUIRED DEBT - In accordance with MPSC
regulations applicable to Detroit Edison, the discount, premium and expense
related to debt redeemed with refunding are amortized over the life of the
replacement issue.
RECOVERABLE INCOME TAXES - See Note 6.
OTHER POSTRETIREMENT BENEFITS - See Note 13.
FERMI 2 PHASE-IN PLAN - An MPSC authorized phase-in plan, effective in
January 1988, for Fermi 2, a nuclear generating unit, provided for gradual rate
increases in the early years of plant operation rather than a one-time
substantial rate increase which conventional ratemaking would provide. SFAS No.
92, "Regulated Enterprises - Accounting for Phase-in Plans," permits the
capitalization of costs deferred for future recovery under a phase-in plan.
Accordingly, Detroit Edison recorded non-cash income of deferred depreciation
and deferred return totaling $506.5 million 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. Amortization of
these deferred amounts totaled $93 million, $84.8 million and $30.9 million in
1995, 1994 and 1993, respectively.
46
48
FERMI 2 DEFERRED AMORTIZATION - The December 1988 MPSC rate order provides for
Detroit Edison's February 1990 purchase of Wolverine Power Supply Cooperative,
Inc.'s ("Cooperative") ownership interest in Fermi 2 for $513 million with a
19-year principal amortization and associated interest of 8%, which is the
composite average of the Cooperative debt assumed by Detroit Edison at the time
of the purchase. Since the straight-line amortization of the asset exceeds the
revenues provided for such amortization during the first 10 years of the
recovery period, Detroit Edison is recording deferred amortization, a non-cash
item of income, totaling $67.2 million through 1999. For 1995, 1994 and 1993,
the amounts deferred were $6 million, $7.5 million and $9 million, respectively.
The deferred amounts will be amortized to operating expense as the cash recovery
is realized through revenues during the years 2000 through 2008.
UNITED STATES DEPARTMENT OF ENERGY ("DOE") DECONTAMINATION AND DECOMMISSIONING -
The Energy Act provided for a fund to be established for the decommissioning and
decontamination of existing DOE uranium enrichment facilities. Utilities with
nuclear units are required to pay for a portion of the cost by making annual
payments into the fund over a 15-year period. The law directs state regulators
to treat these payments as a necessary and reasonable cost of fuel. Detroit
Edison recovers these costs through the Power Supply Cost Recovery ("PSCR")
Clause.
REVENUES - Detroit Edison records unbilled revenues for electric and steam
heating services provided after cycle billings through month-end.
PROPERTY, RETIREMENT AND MAINTENANCE, DEPRECIATION AND AMORTIZATION - Utility
properties are recorded at original cost less regulatory disallowances and an
impairment loss. In general, the cost of properties retired in the normal
course of business is charged to accumulated depreciation. Expenditures for
maintenance and repairs are charged to expense, and the cost of new property
installed, which replaces property retired, is charged to property accounts.
The annual provision for utility property depreciation is calculated on the
straight-line remaining life method by applying annual rates approved by the
MPSC to the average of year-beginning and year-ending balances of depreciable
property by primary plant accounts. Provision for depreciation of Fermi 2,
excluding decommissioning expense, was 3.26% of average depreciable property for
1995 and 1994 and 2.63% for 1993, except for $300 million being amortized over
10 years commencing in 1989 and $513 million being amortized over 19 years
commencing in 1990. See Note 3. Provision for depreciation of all other
utility plant, as a percent of average depreciable property, was 3.2% for 1995
and 1994 and 3.4% for 1993.
SOFTWARE COSTS - Detroit Edison capitalizes internally developed software costs.
These costs are amortized on a straight-line basis over a five-year period
beginning with a project's completion.
PROPERTY TAXES - Property taxes are accrued monthly during the fiscal period of
the applicable taxing authority.
INCOME TAXES - Deferred income taxes are provided for temporary differences
between book and tax bases of assets or liabilities to the extent authorized by
the MPSC. For federal income tax purposes, depreciation is computed using
accelerated methods and shorter depreciable lives. Investment tax credits
utilized which relate to utility property were deferred and are amortized over
the estimated composite service life of the related property. See Note 6.
ALLOWANCE FOR FUNDS USED DURING CONSTRUCTION ("AFUDC") - AFUDC, a non-operating
non-cash item, is defined in the FERC Uniform System of Accounts to include "the
net cost for the period of construction of borrowed funds used for construction
purposes and a reasonable rate on other funds when so used." AFUDC involves an
accounting procedure whereby the approximate interest expense and the cost of
other (common, preferred and preference shareholders' equity) funds applicable
to the cost of construction are transferred from the income statement to
construction work in progress in the balance sheet. The cash recovery of AFUDC,
as well as other costs of construction, occurs as completed projects are placed
in service and related depreciation is authorized to be recovered through
customer rates. Detroit Edison capitalized AFUDC at 7.66% in 1995 and 1994 and
9.65% in 1993.
ACCRETION INCOME - In 1988, Detroit Edison adopted SFAS No. 90, "Regulated
Enterprises - Accounting for Abandonments and Disallowances of Plant Costs." As
a result, indirect losses were recorded for Greenwood Unit No. 1 for the period
that plant was not allowed in rate base (1988-1993), and for the indirect loss
related to the $300 million of Fermi 2 plant costs recovered from 1989 to 1998
with no return. The net after-tax losses originally totaled $198 million based
on the discounting required by SFAS No. 90. These amounts are being restored to
income over the respective discount periods as Detroit Edison records a non-cash
return (accretion income). The net after-tax income recorded was $7.2 million,
$8.9 million and $29.5 million in 1995, 1994 and 1993, respectively.
CAPITALIZATION - DISCOUNT, PREMIUM AND EXPENSE - The discount, premium and
expense related to the issuance of long-term debt are amortized over the life of
each issue. In accordance with MPSC regulations applicable to Detroit Edison,
the discount, premium and expense related to debt redeemed without refunding are
written off to other income and deductions. Capital stock premium and expense
related to redeemed preferred and preference stock of Detroit Edison are written
off against retained earnings used in the business.
FERMI 2 REFUELING OUTAGES - Detroit Edison recognizes the cost of Fermi 2
refueling outages over periods in which related revenues are recognized. Under
this procedure, it records a provision for incremental costs anticipated to be
incurred during the next scheduled Fermi 2 refueling outage.
See Note 2.
LEASES - See Note 9.
EMPLOYEE BENEFITS - See Note 13.
NOTE 2
FERMI 2
GENERAL - Fermi 2, a nuclear generating unit, began commercial operation in
January 1988. Fermi 2 has a design electrical rating (net) of 1,139 megawatts
("MW"). However, due to certain equipment limitations, Fermi 2 is rated at
1,116 MW until modifications can be made to achieve the design rating. This
unit represents approximately 27% of total assets, 10% of total operation and
maintenance expenses and 9% of summer net rated capability.
MPSC rate orders issued in April 1986, January 1987, December 1988 and
January 1994 contain provisions with respect to the recovery of Fermi 2 costs.
See Note 3 for a discussion of Fermi 2 rate matters and the MPSC's treatment of
Fermi 2's original project costs of $4.858 billion.
47
49
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DTE ENERGY COMPANY, THE DETROIT EDISON COMPANY AND SUBSIDIARY COMPANIES
LICENSING AND OPERATION - The Nuclear Regulatory Commission ("NRC") maintains
jurisdiction over the licensing and operation of Fermi 2.
Fermi 2 was out of service in 1994 and part of 1995. On December 25,
1993, the reactor automatically shut down following a turbine-generator
failure. Safety systems responded within design and regulatory specifications.
The turbine suffered mechanical damage, the exciter and generator incurred
mechanical and fire damage, and the condenser had some internal damage. The
fire was contained in the turbine building, and there was no release of
radioactive contaminants during the event. The nuclear part of the plant was
not damaged.
Major repairs were completed in 1994 and early 1995. These repair
costs are approximately $80 million for which to date Detroit Edison has
received partial insurance payments of $55 million for property damage. In
addition, Detroit Edison has received partial insurance payments of $74.2
million for replacement power costs through December 31, 1995.
The unit was operating at 874 MW at the end of December 1995 and the
unit's capacity factor was 51.4% for 1995. Detroit Edison is currently
operating Fermi 2 without the large seventh and eighth stage turbine blades on
the three low-pressure turbines. The new turbine shafts and blades for these
low-pressure turbines are being manufactured and will be installed during the
next refueling outage in 1996.
The expected cost of replacing the major turbine components in 1996 is
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. See Note 3.
INSURANCE - Detroit Edison insures Fermi 2 with property damage insurance
provided by Nuclear Mutual Limited ("NML") and Nuclear Electric Insurance
Limited ("NEIL"). The NML and NEIL insurance policies provide $500 million of
composite primary coverage (with a $1 million deductible) and $2.25 billion of
excess coverage, respectively, for stabilization, decontamination and debris
removal costs, repair and/or replacement of property and decommissioning.
Accordingly, the combined limits provide total property damage insurance of
$2.75 billion.
Detroit Edison maintains an insurance policy with NEIL providing for
extra expenses, including certain replacement power costs necessitated by Fermi
2's unavailability due to an insured event. This policy, which has a 21-week
waiting period, provides for three years of coverage.
Under the NML and NEIL policies, Detroit Edison could be liable for
maximum retrospective assessments of up to approximately $28 million per loss
if any one loss should exceed the accumulated funds available to NML or NEIL.
As required by federal law, Detroit Edison maintains $200 million of
public liability insurance for a nuclear incident. Further, under the
Price-Anderson Amendments Act of 1988, deferred premium charges of $75.5
million could be levied against each licensed nuclear facility, but not more
than $10 million per year per facility. On December 31, 1995, there were 110
licensed nuclear facilities in the United States. Thus, deferred premium
charges in the aggregate amount of approximately $8.3 billion could be levied
against all owners of licensed nuclear facilities in the event of a nuclear
incident. Accordingly, public liability for a single nuclear incident is
currently limited to approximately $8.5 billion.
DECOMMISSIONING - The NRC has jurisdiction over the decommissioning of nuclear
power plants. An NRC rule requires decommissioning funding based upon a
site-specific estimate or a predetermined NRC formula. Using the NRC's formula,
plus an additional allowance for decommissioning the non-nuclear portion of the
plant, it is estimated that the cost of decommissioning Fermi 2 when its license
expires in the year 2025 is $514 million in current 1995 dollars and $3 billion
in future 2025 dollars. The assumed annual inflation rate used to increase the
cost to decommission is 6%, compounded annually.
The MPSC and FERC regulate the recovery of costs of decommissioning
nuclear power plants and both require the use of external trust funds to
finance the decommissioning of Fermi 2. The MPSC's January 1994 order includes
an increase in rates for the decommissioning of Fermi 2. The FERC has approved
the recovery of decommissioning expense in base rates in its June 1993 order.
Detroit Edison believes that the MPSC and FERC orders will be adequate to fund
the estimated cost of decommissioning using the NRC formula. See Note 3.
Detroit Edison has established external trust funds to hold
decommissioning and low-level radioactive waste disposal funds collected from
customers. During 1995, 1994 and 1993, Detroit Edison collected $32.1 million,
$26.9 million and $3.7 million, respectively, from customers for
decommissioning Fermi 2. Also, in 1995 and 1994, Detroit Edison collected $4.1
million and $3.3 million, respectively, from customers for low-level
radioactive waste disposal. Such amounts were recorded as components of
depreciation and amortization expense in the Consolidated Statement of Income
and accumulated depreciation and amortization in the Consolidated Balance
Sheet. Earnings on the external decommissioning trust funds assets during
1995, 1994 and 1993 were $3.3 million, $1.3 million and $1.2 million,
respectively. Earnings on the external low-level radioactive waste disposal
trust funds assets were $0.6 million and $0.2 million in 1995 and 1994,
respectively. Trust fund earnings are recorded as an investment with a
corresponding credit to accumulated depreciation and amortization. Trust fund
assets are assumed to earn an after-tax rate of return of 7%, compounded
annually. In accordance with SFAS No. 115, "Accounting for Certain Investments
in Debt and Equity Securities", net unrealized gains of $4.6 million and $0.7
million in 1995 and 1994, respectively, were recorded as increases to the
nuclear decommissioning trust funds and accumulated depreciation and
amortization in the Consolidated Balance Sheet.
During 1995 shipment of low-level radioactive waste to a permanent
disposal site resumed. Detroit Edison incurred disposal costs of $5.7 million
during 1995 which costs were reimbursed by the external trust funds.
At December 31, 1995, Detroit Edison had a reserve of $91.5 million for
the future decommissioning of Fermi 2 and $9.8 million for low-level
radioactive waste disposal costs. These reserves are included in accumulated
depreciation and amortization in the Consolidated Balance Sheet with a like
amount deposited in external trust funds.
Detroit Edison also had a reserve of $18.5 million at December 31, 1995
for the future decommissioning of Fermi 1, an experimental nuclear unit on the
Fermi 2 site that has been shut down since 1972. This reserve is included in
other deferred credits in the Consolidated Balance Sheet with a like amount
deposited in an external trust fund. Detroit Edison estimates that the cost of
decommissioning Fermi 1 in the year 2025 is $20 million in current 1995 dollars
and $114 million in future 2025 dollars.
48
50
The Financial Accounting Standards Board is reviewing the accounting
for removal costs, including decommissioning of nuclear power plants. If
current electric utility industry accounting practices for such decommissioning
are changed: (1) annual provisions for decommissioning could increase, and (2)
the estimated cost for decommissioning could be recorded as a liability rather
than as accumulated depreciation.
NUCLEAR FUEL DISPOSAL COSTS - Detroit Edison has a contract with the DOE for the
future storage and disposal of spent nuclear fuel from Fermi 2. Under the terms
of the contract, Detroit Edison makes quarterly payments to the DOE based upon a
fee of 1 mill per kilowatthour applied to the Fermi 2 electricity generated and
sold. The spent nuclear fuel disposal cost is included as a component of
Detroit Edison's nuclear fuel expense. The DOE has stated that it will be
unable to store spent nuclear fuel at a permanent repository until after 2010.
However, the DOE and utilities with nuclear units are pursuing other interim
storage options. On September 7, 1995, Detroit Edison, 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 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. It is estimated that
existing temporary storage capacity at Fermi 2 will be sufficient until the year
2001, or until 2019 with the expansion of such storage capacity.
NOTE 3
RATE MATTERS
Detroit Edison is subject to the primary regulatory jurisdiction of the MPSC,
which, from time to time, issues its orders pertaining to Detroit Edison's
conditions of service, rates and recovery of certain costs including the costs
of generating facilities. MPSC orders issued in December 1988 and on January
21, 1994 are currently in effect with respect to Detroit Edison's rates and
certain other revenue and operating-related matters.
On January 21, 1994, the MPSC issued an order reducing Detroit Edison's
rates in the amount of $78 million annually. The rate reduction was determined
by using a 1994 test year and an overall rate of return of 7.66%, incorporating
an 11% return on common equity and a capital structure comprised of 40% common
equity, 55.01% long-term debt and 4.99% preferred stock. The MPSC order
includes the recovery of (1) increased Fermi 2 decommissioning costs of $28.1
million annually, which includes the recovery of low-level radioactive waste
disposal costs, (2) full recovery of 1994 other postretirement benefit costs
plus recovery and amortization of the 1993 deferred cost (see Note 13), (3)
costs associated with the return to rate base of Greenwood Unit No. 1, (4)
Fermi 2 phase-in plan revenue requirements of $70.8 million in 1994 and (5)
costs associated with a three-year $41.5 million ($7.6 million in 1994, $14.9
million in 1995 and $19 million in 1996) demand-side management program. 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.
The order was effective for service rendered on and after January 22, 1994 and
is the subject of various appeals before the Michigan Court of Appeals.
INDUSTRIAL RATES - In August 1994, Detroit Edison entered into 10-year special
manufacturing contracts which were approved by the MPSC on March 23, 1995.
These contracts will lower costs for Detroit Edison's three largest customers
(Chrysler Corporation, Ford Motor Company and General Motors Corporation).
Annual revenue reductions will range in amounts from about $30 million in 1995
to $50 million for 1999 through 2004. Detroit Edison expects to offset these
reductions by further reducing operating expenses.
FERMI 2 - The December 1988 MPSC order established, for the period January 1989
through December 2003, (1) a cap on Fermi 2 capital additions of $25 million per
year, in 1988 dollars adjusted by the Consumers Price Index ("CPI"), cumulative,
(2) a cap on Fermi 2 non-fuel operation and maintenance expenses adjusted by the
CPI and (3) a capacity factor performance standard based on a three-year rolling
average commencing in 1991. For a capital investment of $200 million or more
(in 1988 dollars adjusted by the CPI), Detroit Edison must obtain prior MPSC
approval to be included in rate base.
Under the cap on Fermi 2 capital expenditures, the cumulative amount
available totals $54 million (in 1995 dollars) at December 31, 1995. Under the
cap on non-fuel operation and maintenance expenses, the cumulative amount
available totals $52 million (in 1995 dollars) at December 31, 1995.
Under the capacity factor performance standard, a disallowance of net
incremental replacement power cost will be imposed for the amount by which the
Fermi 2 three-year rolling average capacity factor is less than the greater of
either the average of the top 50% of U.S. boiling water reactors or 50%. For
purposes of the capacity factor performance standard, the capacity for Fermi 2
for the period 1989-1993 shall be 1,093 MW, and 1,139 MW for each year
thereafter until December 31, 2003.
As discussed in Note 2, Fermi 2 was out of service in 1994 and part of
1995 and will operate at a reduced power output until the installation of major
turbine components during the next refueling outage in 1996. Therefore, the
three-year rolling average capacity factor utilized in the Fermi 2 performance
standard calculation will be unfavorably affected in 1994-1998. The plant's
three-year rolling average capacity factor was 53.7% for 1994 and 45.4% for
1995 utilizing a capacity of 1,093 MW for 1992 and 1993 and 1,139 MW for 1994
and 1995. The three-year rolling average capacity factor for the top 50% of
U.S. boiling water reactors was 78.6% for 1994 and 81.2% for the 36-month
period ending September 30, 1995.
Detroit Edison incurred a capacity factor disallowance totaling $19.2
million for 1994. In accordance with an MPSC order, three times this amount
was used to determine the net refund to customers in the 1994 PSCR
reconciliation case, resulting in banked credits of $38.5 million which will
reduce future capacity factor disallowance amounts owing to customers. It is
estimated that a net liability in the range of $40 million to $60 million will
be required for capacity factor disallowances in the period 1995-1998. At
December 31, 1995, Detroit Edison had accrued $53 million (capacity factor
disallowances of $91.5 million, less banked credits of $38.5
49
51
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DTE ENERGY COMPANY, THE DETROIT EDISON COMPANY AND SUBSIDIARY COMPANIES
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 three-year rolling average capacity factor of 45.4% in 1995
and an estimated 35.6% in 1996, 65.1% in 1997 and 72.6% in 1998;
b. Estimated three-year rolling average capacity factor for the top 50%
of U.S. boiling water reactors of 80% in 1995-1998;
c. Estimated incremental cost of replacement power of $8 per megawatthour
in 1995 and increasing to $11 per megawatthour in 1998.
In accordance with April 1986 and December 1988 MPSC rate orders,
ratemaking treatment of Detroit Edison's Fermi 2 original project costs of
$4.858 billion is as follows:
(1) $3.018 billion in rate base with recovery and return,
(2) $300 million amortized over 10 years with no return,
(3) $513 million amortized over 19 years with associated interest of 8% and (4)
$1.027 billion disallowed and written off in 1988.
At December 31, 1995, Detroit Edison's net plant investment in Fermi 2 was
$2.9 billion ($3.9 billion less accumulated depreciation and amortization
of $1 billion).
Under the December 1988 MPSC order, if nuclear operations at Fermi 2
permanently cease, amortization in rates of the $300 million and $513 million
investments in Fermi 2 would continue and the remaining net rate base
investment amount shall be removed from rate base and amortized in rates,
without return, over 10 years with such amortization not to exceed $290 million
per year. In this event, unamortized amounts of deferred depreciation and
deferred return, recorded in the Consolidated Balance Sheet under the phase-in
plan prior to the removal of Fermi 2 from rate base, will continue to be
amortized, with a full return on such unamortized balances, so that all amounts
deferred are recovered during the period ending no later than December 31,
1998. The December 1988 and January 1994 rate orders do not address the costs
of decommissioning if operations at Fermi 2 prematurely cease.
Detroit Edison has and believes it will continue to operate under the
terms of all applicable MPSC orders with no significant adverse effects as a
result of any cost recovery restrictions contained therein.
NOTE 4
JOINTLY-OWNED UTILITY PLANT
Detroit Edison's portion of jointly-owned utility plant is as follows:
Ludington
Pumped
Belle River Storage
- --------------------------------------------------------------------------------
In-service date 1984-1985 1973
Undivided ownership interest * 49%
Investment (millions) $1,028.4 $174.3
Accumulated depreciation (millions) $ 321.6 $ 72.2
* Detroit Edison's undivided ownership interest is 62.78% in Unit No. 1,
81.39% of the portion of the facilities applicable to Belle River used
jointly by the Belle River and St. Clair Power Plants, 49.59% in certain
transmission lines and, at December 31, 1995, 75% in facilities used in
common with Unit No. 2.
BELLE RIVER - The Michigan Public Power Agency ("MPPA") has an undivided
ownership interest in Belle River Unit No. 1 and certain other related
facilities. MPPA is entitled to 18.61% of the capacity and energy of the entire
plant and is responsible for the same percentage of the plant's operation and
maintenance expenses and capital improvements. Detroit Edison is obligated to
provide MPPA with backup power when either unit is out of service.
Detroit Edison was required to purchase MPPA's capacity and energy
entitlement through 1994. Such purchases were 20% for 1993 and 10% for 1994.
The cost for the buyback of power was based on MPPA's plant-related
investment, interest costs incurred by MPPA on its original project financing
plus 2.5%, and certain other costs such as depreciation and operation and
maintenance expenses. Buyback payments to MPPA were $12.5 million for 1993
and $6 million for 1994.
LUDINGTON PUMPED STORAGE - Operation, maintenance and other expenses of
the Ludington Pumped Storage Plant ("Ludington") are shared by Detroit
Edison and Consumers Power Company ("Consumers") in proportion to their
respective interests in the plant. See Note 12.
NOTE 5
SALE OF ACCOUNTS RECEIVABLE AND UNBILLED REVENUES
Detroit Edison has an agreement providing for the sale, assignment and
repurchase, from time to time, of an undivided ownership interest in $200
million of its 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 the
sale. However, at December 31, 1995, customer accounts receivable and
unbilled revenues increased as Detroit Edison repurchased the $200 million.
Therefore at December 31, 1995, there were no sales under this agreement. All
expenses associated with the program were charged to other income and
(deductions) in the Consolidated Statement of Income.
NOTE 6
INCOME TAXES
Total income tax expense as a percent of income before tax varies from the
statutory federal income tax rate for the following reasons:
Percent of Income Before Tax
----------------------------
1995 1994 1993
- --------------------------------------------------------------------------------
Statutory income tax rate 35.0% 35.0% 35.0%
Deferred Fermi 2 depreciation
and return 3.7 3.5 1.1
Investment tax credit (2.1) (1.9) (1.7)
Depreciation 3.3 5.5 3.9
Other - net (0.4) (3.2) (1.6)
------------------------------------
Effective income tax rate 39.5% 38.9% 36.7%
====================================
50
52
Components of income taxes were applicable to the following:
- ------------------------------------------------------------------------------
1995 1994 1993
- ------------------------------------------------------------------------------
(Thousands)
Operating expenses
Current $247,676 $195,848 $243,480
--------------------------------------
Deferred-net
Borrowed funds component
of AFUDC (1,081) (1,081) (1,081)
Depreciation and amortization 75,248 52,873 74,567
Property taxes 4,117 (23,640) (9,590)
Alternative minimum tax - - 28,174
Fermi 2 capitalized labor and
expenses (1,598) (1,998) (1,692)
Nuclear fuel (298) 14,645 (1,543)
Fermi 2 performance reserve (4,501) (10,850) -
Reacquired debt losses 253 43,162 -
Indirect construction costs (1,268) (1,268) (1,268)
Uncollectible accounts 3,614 1,380 (700)
Contributions in aid of
construction (5,405) (6,898) (3,756)
Fermi 2 refueling outage (4,576) 6,798 (6,136)
Shareholder value
improvement plan 1,170 2,244 559
Coal contract buyouts (164) (401) (1,411)
Injuries and damages - (1,071) (5,855)
Steam purchase reserve - - (3,850)
Employee reorganization
expenses (557) 4,200 (4,200)
Pensions and benefits 7,808 10,130 4,925
Steam plant impairment loss (8,741) - -
Over/under recoveries 3,923 (1,017) 298
Inventory write-off (5,705) 2,065 -
Fermi 2 nonqualified
decommissioning fund (2,045) (2,153) (485)
Ludington fish mortality (2,947) - -
Other (198) 515 1,260
--------------------------------------
57,049 87,635 68,216
--------------------------------------
Investment tax credit-net
Utilized - 2,612 250
Amortized (15,038) (15,438) (14,477)
--------------------------------------
(15,038) (12,826) (14,227)
--------------------------------------
Total 289,687 270,657 297,469
--------------------------------------
Other income and deductions
Current (8,574) (8,083) (7,712)
Investment tax credit-amortized (1,256) - -
Deferred-net 41 (28) (882)
--------------------------------------
Total (9,789) (8,111) (8,594)
--------------------------------------
Disallowed plant costs and
accretion income
Current (18,372) (18,384) (18,405)
Deferred-net
Disallowed plant costs 17,863 17,863 17,863
Accretion income 3,864 4,773 14,604
--------------------------------------
Total 3,355 4,252 14,062
--------------------------------------
Total income taxes $283,253 $266,798 $302,937
======================================
The Fermi 2 phase-in plan required Detroit Edison to record additional
deferred income tax expense related to deferred depreciation totaling $33.5
million, with this amount amortized to income over the six-year period ending
December 31, 1998.
In January 1993, SFAS No. 109, "Accounting for Income Taxes," which
requires an asset and liability approach for financial accounting and reporting
for income taxes was adopted. At January 1, 1993, an increase in accumulated
deferred income tax liabilities of $740 million was recorded which represented
(a) the tax effect of temporary differences not previously recognized and (b)
the recomputing of its tax liability at the current tax rate. The liability
increase was offset by a regulatory asset of equal value, titled "Recoverable
Income Taxes." This regulatory asset represents the future revenue recovery
from customers for these taxes as they become payable, with no effect on net
income. In August 1993, the Omnibus Budget Reconciliation Act of 1993
increased the federal corporate income tax rate from 34% to 35% retroactive to
January 1, 1993. As a result, (1) an increase of $88.1 million in accumulated
deferred income tax liabilities, offset by a corresponding increase in
"Recoverable Income Taxes," and (2) an increase of $10.4 million in income tax
expense were recorded.
In 1993, the MPSC issued an order, in a generic proceeding, authorizing
accounting procedures consistent with SFAS No. 109 and providing assurance that
the effects of previously flowed-through tax benefits will continue to be
allowed rate recovery.
Deferred income tax assets (liabilities) are comprised of the following
at December 31:
1995 1994
----------- -----------
(Thousands)
Property $(2,166,152) $(2,070,943)
Fermi 2 deferred depreciation
and return (130,048) (170,668)
Property taxes (57,030) (52,913)
Investment tax credit 178,000 187,000
Reacquired debt losses (43,414) (43,162)
Contributions in aid of construction 41,589 36,184
Other 72,483 67,056
-------------------------
$(2,104,572) $(2,047,446)
=========================
Deferred income tax liabilities $(2,659,441) $(2,566,578)
Deferred income tax assets 554,869 519,132
-------------------------
$(2,104,572) $(2,047,446)
=========================
The federal income tax returns of the Company are settled through the
year 1988. The Company believes that adequate provisions for federal income
taxes have been made through December 31, 1995.
51
53
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DTE ENERGY COMPANY, THE DETROIT EDISON COMPANY AND SUBSIDIARY COMPANIES
NOTE 7
COMMON STOCK AND CUMULATIVE PREFERRED AND PREFERENCE STOCK
At December 31, 1995, the Company had Cumulative Preferred Stock, without par
value, 5,000,000 shares authorized with 5,000,000 shares unissued.
At December 31, 1995, Detroit Edison had Cumulative Preference Stock of
$1 par value, 30,000,000 shares authorized with 30,000,000 shares unissued.
At December 31, 1995, Detroit Edison had Cumulative Preferred Stock of
$100 par value, 6,747,484 shares authorized with 1,539,827 shares unissued, and
3,351,223 shares and 3,905,470 shares outstanding at December 31, 1995 and
1994, respectively.
Cumulative Preferred Stock outstanding at December 31 was:
Date of
Issuance 1995 1994
-------- ---- ----
(Thousands)
CUMULATIVE PREFERRED STOCK
5 1/2% Convertible Series,
55,470 shares Oct. 1967 $ - $ 5,547
7.68% Series, 500,000 shares Mar. 1971 50,000 50,000
7.45% Series, 600,000 shares Nov. 1971 60,000 60,000
7.36% Series, 750,000 shares Dec. 1972 75,000 75,000
7.75% Series, 1,001,223 and
1,500,000 shares, respectively Feb. 1993 100,122 150,000
7.74% Series, 500,000 shares Apr. 1993 50,000 50,000
Preferred stock expense (8,518) (10,264)
---------------------
Total Cumulative Preferred Stock $326,604 $380,283
=====================
On October 15, 1995, Detroit Edison redeemed the remaining outstanding
9,539 shares of 5 1/2% Series, $100 par value Convertible Cumulative Preferred
Stock at a price of $100 per share plus accrued dividends. This series was
convertible into shares of Detroit Edison Common Stock until the close of
business on the date of the redemption. The number of shares converted during
1995, 1994 and 1993 was 45,931, 3,949 and 5,563, respectively.
Detroit Edison's 7.68% Series, 7.45% Series and 7.36% Series Cumulative
Preferred Stock are redeemable solely at the option of Detroit Edison at a per
share redemption price of $101 plus accrued dividends. See Note 16.
On August 15, 1995, Detroit Edison exchanged 1,995,108 depositary
shares, each representing a one-quarter interest in a share of the Cumulative
Preferred Stock, 7.75% Series, for $49,877,700 aggregate principal amount of
Detroit Edison's Deeply Subordinated Quarterly Income Debt Securities
("QUIDS"), 8.50% Series. See Note 10 for further discussion on the QUIDS.
Detroit Edison's 7.75% Series and 7.74% Series Cumulative Preferred
Stock are redeemable solely at the option of Detroit Edison at a per share
redemption price of $100 (equivalent to $25 per Depositary Share), plus accrued
dividends, on and after April 15, 1998 and July 15, 1998, respectively.
Apart from MPSC or FERC approval and the requirement that common,
preferred and preference stock be sold for at least par value, there are no
legal restrictions on the issuance of additional authorized shares of such
stock by Detroit Edison.
There are no legal restrictions on the issuance of additional
authorized shares of the Company's common and preferred stock.
In August 1994, Detroit Edison purchased 2,206,635 shares of its Common
Stock at a price of $27.125 per share, totaling $59.9 million, from the trustee
of the Detroit Edison Savings & Investment Plans. These shares were canceled
and reverted to the status of authorized but unissued shares.
NOTE 8
SHORT-TERM CREDIT ARRANGEMENTS AND BORROWINGS
At December 31, 1995, Detroit Edison had total short-term credit arrangements
of approximately $432 million. At December 31, 1995 and December 31, 1994,
$37 million and $39.5 million, respectively, of short-term borrowings were
outstanding with a weighted average interest rate of 6.2% in 1995 and 1994.
Detroit Edison had bank lines of credit of $200 million, all of which
had commitment fees in lieu of compensating balances. Commitment fees incurred
in 1995 for bank lines of credit were approximately $0.3 million. Detroit
Edison uses bank lines of credit to support the issuance of commercial paper
and bank loans. All borrowings are at prevailing money market rates which are
below the banks' prime lending rates.
Detroit Edison has a nuclear fuel financing arrangement (heat purchase
contract) with Renaissance Energy Company ("Renaissance"), an unaffiliated
company. Renaissance may issue commercial paper or borrow from participating
banks on the basis of promissory notes. To the extent the maximum amount of
funds available to Renaissance (currently $400 million) is not needed by
Renaissance to purchase nuclear fuel, such funds may be loaned to Detroit
Edison for general corporate purposes pursuant to a separate Loan Agreement.
At December 31, 1995, approximately $232 million was available to Detroit
Edison under such Loan Agreement. See Note 9 for a discussion of Detroit
Edison's heat purchase contract with Renaissance.
Renaissance entered into five-year interest rate swap agreements,
guaranteed by Detroit Edison, in December 1990, with five banks for a notional
amount of $125 million. These agreements were used to reduce the potential
impact of increases in interest rates on the variable rate debt by exchanging
the receipt of variable rate amounts for fixed interest payments at rates
ranging from 8.12% to 8.145% over the life of the agreements. The differential
paid or received was recognized as an adjustment to the interest component
included as part of nuclear fuel expense. In December 1995, all swap agreements
expired and were not renewed.
52
54
NOTE 9
LEASES
Future minimum lease payments under long-term noncancellable leases, consisting
of nuclear fuel ($170 million computed on a projected units of production
basis), lake vessels ($42 million), locomotives and coal cars ($166 million),
office space ($17 million) and computers, vehicles and other equipment ($5
million) at December 31, 1995 are as follows:
(Millions) (Millions)
------------ ------------
1996 $80 1999 $ 40
1997 79 2000 22
1998 51 Remaining years 128
----
Total $400
====
Detroit Edison has a heat purchase contract with Renaissance which
provides for the purchase by Renaissance for Detroit Edison of up to $400
million of nuclear fuel, subject to the continued availability of funds to
Renaissance to purchase such fuel. Title to the nuclear fuel is held by
Renaissance. Detroit Edison makes quarterly payments under the heat purchase
contract based on the consumption of nuclear fuel for the generation of
electricity. Renaissance's investment in nuclear fuel was $145 million and
$193 million at December 31, 1995 and 1994, respectively. The decrease in 1995
from 1994 of $48 million includes additions of $6 million (purchases of $5
million and capitalized interest of $1 million) less $54 million for the
amortization of nuclear fuel consumed in 1995.
Under SFAS No. 71, amortization of Detroit Edison's leased assets is
modified so that the total of interest on the obligation and amortization of
the leased asset is equal to the rental expense allowed for ratemaking
purposes. For ratemaking purposes, the MPSC has treated all leases as
operating leases. Net income is not affected by capitalization of leases.
Rental expenses for both capital and operating leases were $97 million
(including $67 million for nuclear fuel), $49 million (including $8 million for
nuclear fuel) and $126 million (including $89 million for nuclear fuel) for
1995, 1994 and 1993, respectively.
NOTE 10
LONG-TERM DEBT
Detroit Edison's 1924 Mortgage and Deed of Trust ("Mortgage"), the lien of
which covers substantially all of Detroit Edison's properties, provides for the
issuance of additional bonds. At December 31, 1995, approximately $3.2 billion
principal amount of Mortgage Bonds could have been issued on the basis of
property additions, combined with an earnings test provision, assuming an
interest rate of 7% on any such additional Mortgage Bonds. An additional $1.1
billion principal amount of Mortgage Bonds could have been issued on the basis
of bond retirements.
Long-term debt outstanding at December 31 was:
Interest
Rate 1995 1994
---------- -------- --------
(Thousands)
GENERAL AND REFUNDING
MORTGAGE BONDS
Series R, due 12/1/96 6 % $ 100,000 $ 100,000
Series S, due 10/1/98 6.4 150,000 150,000
1990 Series A, due 3/31/20 7.904 156,975 163,254
1990 Series B, due 3/31/16 7.904 199,836 209,352
1990 Series C, due 3/31/14 8.357 64,961 68,380
1992 Series D, due 8/1/02
and 8/1/22 7.605* 290,000 290,000
1992 Series E, due 12/15/99 6.83 50,000 50,000
1993 Series B, due 12/15/99 6.83 50,000 50,000
1993 Series C, due 1/15/03
and 1/13/23 7.939* 225,000 225,000
1993 Series D, due 4/1/99 6.45 100,000 100,000
1993 Series E, due 3/15/00,
3/17/03 and 3/15/23 6.854* 390,000 390,000
1993 Series G, due 5/1/97
and 5/1/01 5.921* 225,000 225,000
1993 Series J, due 6/1/18 7.74 270,000 270,000
Less: Unamortized net discount (143) (182)
Amount due within one year (119,214) (19,214)
----------------------
$2,152,415 $2,271,590
----------------------
REMARKETED NOTES
Secured by corresponding
amounts of General and
Refunding Mortgage Bonds
1993 Series H, due 7/15/28 6.4** $ 50,000 $ 50,000
1993 Series K, due 8/15/33 4 5/8** 160,000 160,000
1994 Series C, due 8/15/34 6.745** 200,000 200,000
Less: Unamortized net discount (172) (177)
----------------------
$ 409,828 $ 409,823
----------------------
TAX EXEMPT REVENUE BOND
OBLIGATIONS
Secured by corresponding
amounts of General and
Refunding Mortgage Bonds
Installment Sales Contracts,
due 9/1/04 - 9/1/24 7.12* $ 282,155 $ 302,155
Less: Unamortized net discount (191) (279)
----------------------
$ 281,964 $ 301,876
----------------------
Loan Agreements,
due 7/15/08 - 9/1/25 6.657* $ 606,670 $ 487,495
Less: Unamortized net discount (71) (73)
----------------------
$ 606,599 $ 487,422
----------------------
Unsecured
Installment Sales Contracts,
due 12/1/04 - 12/1/19 7.53* $ 142,060 $ 314,060
----------------------
Loan Agreements,
due 4/15/10 - 9/1/30 5.97* $ 113,350 $ 40,525
----------------------
$1,143,973 $1,143,883
----------------------
DEEPLY SUBORDINATED DEBT
Quarterly Income Debt Securities
(QUIDS), due 9/30/25 8.50 $ 49,878 $ -
----------------------
Total Long-Term Debt $3,756,094 $3,825,296
======================
* Weighted average interest rate at December 31, 1995.
**Variable rate at December 31, 1995.
53
55
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DTE ENERGY COMPANY, THE DETROIT EDISON COMPANY AND SUBSIDIARY COMPANIES
The QUIDS (see Note 7) provide that 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, Detroit Edison 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 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 Detroit Edison exercises this right, Detroit Edison 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 Detroit Edison pursuant to the terms of any sinking fund
provisions with respect thereto. In addition, during any deferral period,
Detroit Edison may not make any advance or loan to, or purchase any securities
of, or make any other investment in, any affiliate of Detroit Edison, including
DTE Energy Company, for the purpose of, or to enable the payment of, directly
or indirectly, dividends on any equity securities of DTE Energy Company.
In June 1992, Detroit Edison entered into a three-year interest rate
swap agreement matched to a $31 million variable rate tax exempt revenue bond.
This agreement was used to reduce the potential impact of increases in interest
rates on the variable rate debt by exchanging the receipt of variable rate
amounts for fixed interest payments at a rate of 4.32% over the life of the
agreement. The differential paid or received was recognized as an adjustment
to interest expense related to the debt. In June 1995, the swap agreement
expired and was not renewed.
In 1996, 1997, 1998, 1999 and 2000, Detroit Edison's long-term debt
maturities consist of $119 million, $144 million, $169 million, $219 million
and $194 million, respectively.
NOTE 11
FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values of financial instruments at December 31 are as
follows:
1995 1994
---------------------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
- -------------------------------------------------------------------------------
(Thousands)
Investments and
special funds $ 29,058 $ 29,058 $ 18,722 $ 18,722
Nuclear decommis-
sioning trust funds 119,843 119,843 76,492 76,492
Sale of accounts
receivable and
unbilled revenues - - 200,000 200,000
Cumulative preferred
stock 335,122 335,651 390,547 336,249
Long-term debt 3,875,308 4,115,228 3,844,510 3,511,459
Short-term borrowings 36,990 36,990 39,489 39,489
Customer surety
deposits 9,885 9,885 10,870 10,870
The investments in debt and equity securities are classified as
"available for sale." The following methods and assumptions were used to
estimate the fair value of each class of financial instruments for which it is
practicable to estimate that value:
OTHER INVESTMENTS - The carrying amount of other investments approximates
fair value.
NUCLEAR DECOMMISSIONING TRUST FUNDS - The fair value of nuclear decommissioning
trust funds is estimated based on quoted market prices for securities and
carrying amount for the cash equivalents.
SALE OF ACCOUNTS RECEIVABLE AND UNBILLED REVENUES - The carrying amount
approximates fair value because of the short maturity of accounts receivable and
unbilled revenues pledged for sale.
CUMULATIVE PREFERRED STOCK, LONG-TERM DEBT - The fair value of Detroit Edison's
preferred stock outstanding and long-term debt is estimated based on the quoted
market prices where available. The fair values of all other long-term debt are
estimated using discounted cash flow analysis. The discount rates used are the
Company's incremental borrowing costs for similar types of securities.
SHORT-TERM BORROWINGS, CUSTOMER SURETY DEPOSITS - The carrying amount
approximates fair value because of the short maturity of those instruments.
NOTE 12
COMMITMENTS AND CONTINGENCIES
COMMITMENTS - Detroit Edison has entered into purchase commitments of
approximately $561 million at December 31, 1995, which includes, among other
things, line construction and clearance costs and the costs of major turbine
components to be replaced at Fermi 2. Detroit Edison also has entered into
substantial long-term fuel supply and transportation commitments.
Detroit Edison has an Energy Purchase Agreement ("Agreement") for the
purchase of steam and electricity from the Detroit Resource Recovery Facility.
Under the Agreement, Detroit Edison will purchase steam through the year 2008
and electricity through June 30, 2024. Purchases of steam and electricity were
$28.2 million, $24.5 million and $23.6 million for 1995, 1994 and 1993,
respectively, and annual purchase commitments are approximately $32.6 million,
$35 million, $36.1 million, $37.3 million and $38.5 million for 1996, 1997,
1998, 1999 and 2000, respectively.
On October 25, 1995, the MPSC issued an order approving Detroit Edison's
long-term capacity and energy purchase from Ontario Hydro. On November 27,
1995, the Michigan Attorney General filed an application for leave to appeal the
order in the Michigan Court of Appeals. 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
Detroit Edison's 917 MW Ludington 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 Detroit
Edison's customers with an estimated reduction in PSCR expense of $74 million
which will be passed through to customers through the PSCR clause.
54
56
CONTINGENCIES - LUDINGTON PUMPED STORAGE PLANT - In 1986, the Michigan
Attorney General and the Michigan Natural Resources Commission filed a
state lawsuit against Detroit Edison and Consumers as co-owners of
Ludington for claimed aquatic losses. Detroit Edison is a 49% co-owner
of Ludington. The suit, which alleges violations of the Michigan
Environmental Protection Act and the common law for claimed aquatic
losses, seeks past damages (including interest) of approximately $148
million and future damages (from the time of the filing of the lawsuit)
in the amount of approximately $89,500 per day (of which 49% would be
applicable to Detroit Edison).
In October 1994, Detroit Edison and all other parties to the state
action except certain Indian tribes, reached a tentative settlement. On
February 28, 1995, Detroit Edison and Consumers jointly submitted to
FERC the Ludington Pumped Storage Project Settlement Agreement - FERC
Offer of Settlement. In March 1995, the Circuit Court for Ingham
County, Michigan entered an order adopting the settlement as final upon
the receipt of regulatory approvals. On January 17, 1996, the FERC
issued an order approving the settlement agreement. The settlement
provides for damages and use of a barrier net around the plant intakes
to protect fish. Also, the FERC order requires Detroit Edison and
Consumers to examine new fish mortality abatement technologies, monitor
local fish populations and create a scientific advisory team to review
these matters. Detroit Edison is taking steps to implement the terms of
the settlement and is waiving prior MPSC approval for the settlement to
become effective. The net present value of Detroit Edison's portion of
the settlement is estimated to be approximately $30 million which will
be paid over a 24-year period, including $10 million to enhance
recreational opportunities on Detroit Edison-owned and donated property.
Detroit Edison has recorded a charge to other operation expense in the
Consolidated Statement of Income in 1995 of $8.4 million for its share
of the settlement through December 31, 1995.
CARTER INDUSTRIALS - In January 1989, the Environmental Protection
Agency ("EPA") issued an administrative order under the Comprehensive
Environmental Response, Compensation and Liability Act ordering Detroit
Edison and 23 other potentially responsible parties to begin removal
activities at the Carter Industrials superfund site. In June 1993, a
Consent Decree was entered by the U.S. District Court for the Eastern
District of Michigan. Clean-up of the Carter Industrials site began in
1995 and is expected to be completed in 1996. There is the possibility
that EPA may, through subsequent proceedings, require an additional
clean-up of the sewer and sewer outfall emptying into the Detroit River.
At December 1995, a remaining liability of $3.3 million is included in
other deferred credits in the Consolidated Balance Sheet for completion
of the Carter Industrials site clean-up costs in 1996 and the proposed
clean-up of the sewer and sewer outfall.
OTHER - The Energy Policy Act became effective in October 1992.
While Detroit Edison is unable to predict the ultimate impact of this
legislation on its operations, Detroit Edison expects that, over time,
non-utility generation resources will be developed which will result in
greater competition for power sales. On March 29, 1995, the FERC issued
a Notice of Proposed Rulemaking seeking comment on several proposals for
encouraging more competitive electric power markets. The proposals
address several fundamental issues facing the electric power industry
including transmission open access, stranded costs, jurisdiction over
transmission in interstate commerce including retail wheeling and over
local distribution, real-time information networks and implementation of
open access. Final rules are expected to be issued early in 1996.
While Detroit Edison is unable to predict the ultimate impact of this
rulemaking on its operations, Detroit Edison expects that it will result
in substantially increased wholesale competition.
In addition to the matters reported herein, the Company and its
subsidiaries are involved in litigation and environmental matters
dealing with the numerous aspects of their business operations. The
Company believes that such litigation and the matters discussed above
will not have a material effect on its financial position or results of
operations.
See Notes 2 and 3 for a discussion of contingencies related to Fermi 2.
NOTE 13
EMPLOYEE BENEFITS
RETIREMENT PLAN - Detroit Edison has a trusteed and non-contributory
defined benefit retirement plan ("Plan") covering all eligible employees who
have completed six months of service. The Plan provides retirement benefits
based on the employee's years of benefit service, average final compensation
and age at retirement. Detroit Edison's policy is to fund pension cost
calculated under the projected unit credit actuarial cost method, provided
that this amount is at least equal to the minimum funding requirement of the
Employee Retirement Income Security Act of 1974, as amended, and is not
greater than the maximum amount deductible for federal income tax purposes.
Contributions were made to the Plan totaling $29.6 million, $45.8 million
and $29.4 million for 1995, 1994 and 1993, respectively.
Net pension cost included the following components:
1995 1994 1993
------ ------ ------
(Thousands)
Service cost - benefits
earned during the period $ 22,210 $ 25,146 $ 22,945
Interest cost on projected
benefit obligation 78,592 75,922 74,490
Actual return on Plan assets (164,144) (3,272) (119,037)
Net deferral and amortization:
Deferral of net gain (loss)
during current period 64,461 (90,069) 33,435
Amortization of unrecog-
nized prior service cost 5,188 3,613 3,297
Amortization of unrecog-
nized net asset resulting
from initial application (4,507) (4,507) (4,507)
-------------------------------------
Net pension cost $ 1,800 $ 6,833 $ 10,623
=====================================
Assumptions used in determining net pension cost are as follows:
1995 1994 1993
---- ---- ----
Discount rate 8.0% 7.5% 8.0%
Annual increase in future
compensation levels 4.5 4.5 5.0
Expected long-term rate of
return on Plan assets 9.5 9.5 9.5
55
57
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DTE ENERGY COMPANY, THE DETROIT EDISON COMPANY AND SUBSIDIARY COMPANIES
The following reconciles the funded status of the Plan to the amount
recorded in the Consolidated Balance Sheet:
December 31
----------------------------
1995 1994
(Thousands)
Plan assets at fair value, primarily
equity and debt securities $1,170,000 $1,054,048
-----------------------------
Less actuarial present value of
benefit obligation:
Accumulated benefit obligation,
including vested benefits of $966,765
and $852,374, respectively 991,248 872,530
Increase in future compensation levels 138,127 138,411
-----------------------------
Projected benefit obligation 1,129,375 1,010,941
-----------------------------
Plan assets in excess of projected benefit
obligation 40,625 43,107
Unrecognized net asset resulting from
initial application (28,781) (33,288)
Unrecognized net loss 21,288 3,856
Unrecognized prior service cost 48,733 40,391
-----------------------------
Asset recorded in the Consolidated Balance Sheet $ 81,865 $ 54,066
=============================
Assumptions used in determining the projected benefit obligation are as follows:
December 31
-----------------
1995 1994
---- ----
Discount rate 7.5% 8.0%
Annual increase in future compensation levels 4.5 4.5
The unrecognized net asset at date of initial application
is being amortized over approximately 15.4 years, which
was the average remaining service period of employees at January 1,
1987.
In addition to the Plan, there are several supplemental non-qualified,
non-contributory, retirement benefit plans for certain management
employees.
LONG-TERM INCENTIVE COMPENSATION PLAN - The Company has adopted a long-term
incentive plan ("Incentive Plan"). Under the Incentive Plan, certain key
employees may be granted stock options, stock appreciation rights, restricted
common stock, performance shares and performance units. In 1995, 66,500
shares of restricted common stock, valued at approximately $1.9 million, were
granted to officers of Detroit Edison. Compensation cost of $571,000 in 1995
was recorded based on the award that was expected to vest and recognized over
the period to which the related employee services were to be rendered. The
shares for officers are restricted for a period of approximately one to four
years and all shares are subject to forfeiture if specified performance
measures are not met. There are no exercise prices related to these shares.
During the applicable restriction period, the officer-recipient has all the
voting, dividends and other rights of a record holder except that the shares
are nontransferable, and non-cash distributions paid upon the shares would be
subject to transfer restrictions and risk of forfeiture to the same extent as
the shares themselves. All shares awarded pursuant to this program were
purchased on the open market. Common stock granted under the Incentive Plan
may not exceed 7.2 million shares. Performance units (which have a face
amount of $1) granted under the Incentive Plan may not exceed 25 million in
the aggregate. No stock options, stock appreciation rights, performance
shares or performance units have been granted under this plan.
SAVINGS & INVESTMENT PLANS - Detroit Edison has contributory defined
contribution plans qualified under Section 401 (a) and (k) of the
Internal Revenue Code for all eligible employees. Matching
contributions were $13.7 million, $12.5 million, $10.6 million for 1995,
1994 and 1993, respectively.
OTHER POSTRETIREMENT BENEFITS - Detroit Edison provides certain
postretirement health care and life insurance benefits for retired
employees. Substantially all of Detroit Edison's employees will become
eligible for such benefits if they reach retirement age while working
for Detroit Edison. These benefits are provided principally through
insurance companies and other organizations.
Effective January 1, 1993, Detroit Edison adopted the provisions of SFAS
No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions." The standard required Detroit Edison to change its
accounting for postretirement benefits from the pay-as-you-go (cash)
basis to the accrual of such benefits during the active service periods
of employees to the date they attain full eligibility for benefits. The
transition obligation at the time of adoption is being amortized over 20
years. Detroit Edison's incremental cost upon adoption of the standard
was $49 million for 1993 which is being deferred in accordance with the
January 21, 1994 MPSC rate order. See Note 3. This amount is being
amortized and recovered in rates over the estimated four-year period
1994-1997.
Net other postretirement benefits cost included the following
components:
1995 1994 1993
-----------------------------------
(Thousands)
Service cost - benefits earned
during the period $ 17,295 $16,267 $15,312
Interest cost on accumulated
postretirement benefit obligation 40,156 33,459 33,787
Actual return on assets (17,793) (208) (18)
Deferral of net gain (loss) during
current period 11,368 (833) -
Amortization of unrecognized transition
obligation 20,525 20,633 21,685
------------------------------------
Net other postretirement benefits cost $71,551 $69,318 $70,766
====================================
Assumptions used in determining net other postretirement benefits cost are as follows:
1995 1994 1993
------- ------- -------
Discount rate 8.0% 7.5% 8.0%
Annual increase in future compensation levels 4.5 4.5 5.0
Expected long-term rate of return on assets 8.5 9.5 9.5
56
58
The following reconciles the funded status to the amount recorded in
the Consolidated Balance Sheet:
December 31
-------------------------------
1995 1994
-------- ----------
(Thousands)
Actuarial present value of benefit obligation:
Retirees $ 314,311 $ 256,370
Fully eligible active participants 69,281 67,581
Other active participants 168,335 140,710
------------------------------
Accumulated postretirement
benefit obligation 551,927 464,661
Less assets at fair value, primarily
equity and debt securities 133,147 58,080
------------------------------
Benefit obligation in excess of assets 418,780 406,581
Unrecognized transition obligation (348,934) (369,459)
Unrecognized net gain (loss) (45,465) 21
------------------------------
Liability recorded as Other
Non-Current Liabilities in the
Consolidated Balance Sheet $ 24,381 $ 37,143
==============================
Assumptions used in determining the accumulated benefit obligation are
as follows:
December 31
-----------
1995 1994
----------------------------------------------------------
Discount rate 7.5% 8.0%
Annual increase in future compensation levels 4.5 4.5
Benefit costs were calculated assuming health care cost trend rates
beginning at 11.8% for 1995 and decreasing to 6% in 2008 and thereafter for
persons under age 65 and decreasing from 7.2% to 6% for persons age 65 and over.
For 1996, health care cost trend rates are assumed to begin at 10.5% and 6.5%,
respectively, with both rates decreasing to 5.5% in 2008 and thereafter. A
one-percentage-point increase in health care cost trend rates would increase the
aggregate of the service cost and interest cost components of benefit costs by
$8 million for 1995 and increase the accumulated benefit obligation by $69
million at December 31, 1995.
NOTE 14
NEW ACCOUNTING STANDARD
In March 1995, the Financial Accounting Standards Board issued SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of." This statement 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 Company adopted SFAS No. 121 in the fourth quarter of 1995. As the
result of continuing losses in the operation of its steam heating business, upon
adoption of SFAS No. 121, Detroit Edison wrote off the remaining net book value
of its steam heating plant assets. This resulted in a non-cash loss of $42
million ($32 million after-tax) or $0.22 per common share.
Based on current market conditions, the steam heating operations
continue to generate losses. Therefore, Detroit Edison will continue to review
its steam heating operations to determine what actions, if any, may be
necessary.
The application of SFAS No. 121 to the electric plant and regulatory
assets of Detroit Edison does not result in an impairment as of this time based
on the existing MPSC and FERC regulations. However, this may change in the
future as deregulation, competitive factors and restructuring take effect in the
electric utility industry.
NOTE 15
SUPPLEMENTARY QUARTERLY FINANCIAL INFORMATION
(UNAUDITED)
1995 Quarter Ended
-----------------------------------------------------------------
Mar. 31 June 30 Sept. 30 Dec. 31
-------- -------- ---------- --------
(Thousands, except per share amounts)
Operating Revenues $880,274 $855,955 $1,032,289 $867,026
Operating Income 194,164 165,714 225,114 154,330
Net Income 106,083 84,152 141,412 74,267
Earnings Per
Common Share 0.73 0.58 0.98 0.51
1994 Quarter Ended
-----------------------------------------------------------------
Mar. 31 June 30 Sept. 30 Dec. 31
-------- -------- ---------- --------
(Thousands, except per share amounts)
Operating Revenues $899,589 $872,690 $944,389 $802,673
Operating Income 189,319 161,832 200,298 167,946
Net Income 105,458 79,872 116,972 87,967
Earnings Per
Common Share 0.72 0.54 0.80 0.61
The fourth quarter of 1995 includes the write-off of the remaining net
book value of Detroit Edison's steam heating plant assets when the Company
adopted SFAS No. 121. This resulted in a non-cash loss of $42 million ($32
million after-tax) or $0.22 per common share. See Note 14.
The fourth quarter of 1994 includes a decrease in operating revenues of
$59 million, a decrease in operation expense of $65 million and a decrease in
maintenance expense of $1 million related to a settlement agreement, with the
parties intervening in the 1994 PSCR reconciliation case with the MPSC, for
business interruption insurance proceeds associated with the December 25, 1993
outage at Fermi 2. See Note 2.
NOTE 16
SUBSEQUENT EVENTS (UNAUDITED)
On February 13, 1996, Detroit Edison issued $185 million of 7 5/8% Quarterly
Income Debt Securities. See Note 10 for information on the right of Detroit
Edison to defer payment of interest on the QUIDS and the related consequences.
Also, Detroit Edison called for redemption all of the outstanding Cumulative
Preferred Stock, 7.68% Series, 7.45% Series and 7.36% Series, totaling $185
million, at per share redemption prices of $101 plus accrued dividends. Such
redemption will occur on March 21, 1996.
57
59
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
The Board of Directors, upon the recommendation of the Board's Audit
Committee, appointed Deloitte & Touche LLP as independent accountants for the
year 1995. The appointment was ratified by the Common Stock Shareholders at
the Annual Meeting of Common Stock Shareholders held on April 24, 1995.
Deloitte & Touche LLP's report on the financial statements for the year ending
December 31, 1995 did not contain an adverse opinion or a disclaimer of
opinion, nor was it qualified or modified as to uncertainty, audit scope or
accounting principles.
In prior years, Price Waterhouse LLP served as independent accountants of
the Company. During the Company's two fiscal years ending December 31, 1994,
there were no disagreements with Price Waterhouse LLP on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure, which, if not resolved to its satisfaction, would have
caused Price Waterhouse LLP to make reference thereto in their report on the
financial statements for such years. None of Price Waterhouse LLP's reports on
the financial statements for the years ended December 31, 1994 and 1993
contained an adverse opinion or a disclaimer of opinion, or was qualified or
modified as to uncertainty, audit scope or accounting principles.
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information regarding the Company's executive officers is incorporated
herein by reference to Items 1 and 2 - Business and Properties, "Employees and
Executive Officers" on pages 23-24 hereof; information regarding compliance
with section 16(a) of the Securities Exchange Act of 1934 is incorporated
herein by reference to the data under the heading "Compliance with Section
16(a) of the Securities Exchange Act of 1934" on page 21 of the Company's
definitive proxy statement dated March 15, 1996, in connection with its Annual
Meeting of Shareholders to be held on April 22, 1996; and information regarding
directors is incorporated herein by reference to the data under the heading
"The Election of Directors" on pages 1-5 of the Company's definitive proxy
statement dated March 15, 1996, in connection with its Annual Meeting of
Shareholders to be held on April 22, 1996.
ITEM 11 - EXECUTIVE COMPENSATION.
Information regarding "Executive Compensation" is incorporated herein by
reference to the data under the heading "Board Compensation Committee Report on
Executive Compensation" on pages 8-15 of the Company's definitive proxy
statement dated March 15, 1996, in connection with its Annual Meeting of
Shareholders to be held on April 22, 1996.
58
60
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information regarding ownership of equity securities is incorporated
herein by reference to the heading "Security Ownership of Management" on page 6
of the Company's definitive proxy statement dated March 15, 1996, in connection
with its Annual Meeting of Shareholders to be held on April 22, 1996.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information regarding certain relationships and related transactions is
incorporated herein by reference to the heading "Compensation Committee
Interlocks and Insider Participation" on page 15 of the Company's definitive
proxy statement dated March 15, 1996, in connection with its Annual Meeting of
Shareholders to be held on April 22, 1996.
59
61
ANNUAL REPORT ON FORM 10-K FOR THE DETROIT EDISON COMPANY
PART I
ITEMS 1 AND 2 - BUSINESS AND PROPERTIES.
See the Company's "Items 1 and 2 - Business and Properties" (other than
the paragraphs under the headings "Non-Regulated Operations" and "Executive
Officers"), which is incorporated herein by this reference.
EXECUTIVE OFFICERS. PRESENT
POSITION
NAME AGE(a) PRESENT POSITION HELD SINCE
- ---------------------------------------------------------------------------------------------------
John E. Lobbia .......... 54 Chairman of the Board and Chief Executive Officer 5- 1-90
Anthony F. Earley, Jr. .. 46 President and Chief Operating Officer 3- 1-94
Larry G. Garberding ..... 57 Executive Vice President and Chief Financial Officer 8- 1-90
Frank E. Agosti ......... 59 Senior Vice President-Power Supply 2- 1-90
Robert J. Buckler ....... 46 Senior Vice President-Energy Marketing and 12- 1-92
Distribution
Douglas R. Gipson ....... 48 Senior Vice President-Nuclear Generation 4- 1-93
Gerard M. Anderson ...... 37 Vice President for Non-Utility Business Ventures 12- 1-93
Susan M. Beale .......... 47 Vice President and Corporate Secretary 3-27-95
Michael E. Champley ..... 47 Vice President-Bulk Energy Sourcing and Marketing 2- 1-96
Haven E. Cockerham ...... 48 Vice President-Human Resources 6- 1-94
Ronald W. Gresens ....... 62 Vice President and Controller 5- 1-87
Leslie L. Loomans ....... 52 Vice President and Treasurer 10 -1-89
Christopher C. Nern ..... 51 Vice President and General Counsel 6- 1-93
S. Martin Taylor ........ 55 Vice President-Corporate and Public Affairs 11-28-94
(a) As of March 1, 1996
Under Detroit Edison By-Laws, the officers of Detroit Edison are
elected annually by the Board of Directors at a meeting held for such
purpose, each to serve until the next annual meeting of shareholders or
until their respective successors are chosen and qualified. With the
exception of Messrs. Anderson, Cockerham and Earley, all of the above
officers have been employed by Detroit Edison in one or more management
capacities during the past five years.
Gerard M. Anderson was a senior engagement manager at McKinsey &
Company, Inc., a management consulting firm, from 1988 to 1993. Effective
December 1, 1993, he was elected Vice President of Detroit Edison.
Haven E. Cockerham, from 1991 until 1994, was president of Cockerham,
McCain & Associates, Inc., a management, business development and human
resources consulting firm in Columbia, South Carolina. From 1989 to 1991,
Mr. Cockerham owned Cockerham Chevrolet-Oldsmobile, an automobile
dealership in Newberry, South Carolina. Prior to 1989, Mr. Cockerham was
employed by General Motors in various executive positions in the human
resources area. Effective June 1, 1994, he was elected Vice
President-Human Resources.
60
62
Anthony F. Earley, Jr., from 1989 to 1994, was President and Chief
Operating Officer of Long Island Lighting Company ("LILCO"), an electric
and gas utility company serving Long Island, New York. He previously
served in various executive capacities at LILCO from 1985 to 1989.
Effective March 1, 1994, he was elected President and Chief Operating
Officer and a member of the Board of Directors of Detroit Edison.
ITEM 3 - LEGAL PROCEEDINGS.
See the Company's "Item 3 - Legal Proceedings," which is incorporated
herein by this reference.
ITEM 4 -SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
PART II
ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
See the Company's "Item 5 - Market for Registrant's Common Equity and
Related Stockholder Matters," which is incorporated herein by this reference.
Detroit Edison's By-Laws contain this same provision with respect to the
Michigan Business Corporation Act. All of Detroit Edison's Common Stock is
held by the Company. The level of dividends paid by Detroit Edison to the
Company is periodically reviewed by Detroit Edison's Board of Directors.
ITEM 6 - SELECTED FINANCIAL DATA.
Year Ended December 31
---------------------------------------------------------------
1995 1994 1993 1992 1991
----------- ----------- ----------- ----------- -----------
(Thousands)
Operating Revenues ........................................ $ 3,635,544 $ 3,519,341 $ 3,555,211 $ 3,558,143 $ 3,591,537
Net Income ................................................ $ 433,651 $ 419,909 $ 521,903 $ 588,047 $ 568,037
Net Income Available
for Common Stock......................................... $ 405,914 $ 390,269 $ 491,066 $ 557,549 $ 535,205
At year end:
Total Assets............................................... $11,130,591 $10,992,978 $11,134,879 $10,309,061 $10,463,624
Long-Term Debt
Obligations (including capital
leases) and Redeemable
Preferred and Preference
Stock Outstanding...................................... $ 4,004,247 $ 3,979,763 $ 4,007,622 $ 4,525,504 $ 4,900,020
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
See the Company's and Detroit Edison's "Item 7 - Management's Discussion
and Analysis of Financial Condition and Results of Operations," which is
incorporated herein by this reference to Part II - Item 7 of the Company.
61
63
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See pages 33 through 57.
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
See the Company's "Item 9 - Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure," which is incorporated herein by this
reference.
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information regarding Detroit Edison's executive officers is incorporated
herein by reference to "Items 1 and 2 - Business and Properties, Executive
Officers." Detroit Edison's directors are the same as the Company's directors.
Information regarding directors is incorporated herein by reference to the
data under the heading "The Election of Directors" on pages 1-5 of the
Company's definitive proxy statement dated March 15, 1996, in connection with
its Annual Meeting of Shareholders to be held on April 22, 1996.
ITEM 11 - EXECUTIVE COMPENSATION.
Information regarding "Executive Compensation" is incorporated herein by
reference to the data under the heading "Board Compensation Committee Report on
Executive Compensation" on pages 8-15 of the Company's definitive proxy
statement dated March 15, 1996, in connection with its Annual Meeting of
Shareholders to be held on April 22, 1996.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information regarding ownership of equity securities is incorporated
herein by reference to the heading "Security Ownership of Management" on page 6
of the Company's definitive proxy statement dated March 15, 1996, in connection
with its Annual Meeting of Shareholders to be held on April 22, 1996.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information regarding certain relationships and related transactions is
incorporated herein by reference to the heading "Compensation Committee
Interlocks and Insider Participation" on page 15 of the Company's definitive
proxy statement dated March 15, 1996, in connection with its Annual Meeting of
Shareholders to be held on April 22, 1996.
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64
ANNUAL REPORTS ON FORM 10-K FOR DTE ENERGY COMPANY
AND THE DETROIT EDISON COMPANY
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) The following documents are filed as a part of this Annual
Report on Form 10-K.
(1) Consolidated financial statements. See "Item 8 -
Financial Statements and Supplementary Data" on page 33.
(2) Financial statement schedules. See "Item 8 - Financial
Statements and Supplementary Data" on page 33.
(3) Exhibits (*Denotes management contract or compensatory
plan or arrangement required to be filed as an exhibit to this
report pursuant to Item 14 (c) of this report).
(i) Exhibits filed herewith.
Exhibit
Number
-------
3-3 - Amended and Restated By-Laws, dated as of February 26,
1996, of DTE Energy Company.
3-4 - Amended and Restated By-Laws, dated as of February 26,
1996, of The Detroit Edison Company.
4-14 - Fifth Supplemental Note Indenture, dated as of
February 1, 1996.
4-15 - Supplemental Indenture, dated as of April 1, 1991,
establishing the 1991 Series AP Mortgage Bonds.
*10-1 - Detroit Edison 1996 Shareholder Value Improvement
Plan - A.
*10-2 - Detroit Edison Key Employee Deferred Compensation
Plan (January 1990).
*10-3 - Detroit Edison Long-Term Incentive Plan.
63
65
Exhibit
Number
-------
11-2 - DTE Energy Company and Subsidiary Companies Primary and Fully
Diluted Earnings Per Share of Common Stock.
12-2 - The Detroit Edison Company and Subsidiary Companies Computation of
Ratio of Earnings to Fixed Charges.
12-3 - The Detroit Edison Company and Subsidiary Companies Computation of
Ratio of Earnings to Fixed Charges and Preferred and Preference
Stock Dividends.
16-1 - Letter regarding change in certifying accountant.
23-7 - Consent of Deloitte & Touche LLP.
23-8 - Consent of Price Waterhouse LLP.
27-1 - Financial Data Schedule for the period ended December 31, 1995 for
DTE Energy Company and Subsidiary Companies.
27-2 - Financial Data Schedule for the period ended December 31, 1995 for
The Detroit Edison Company and Subsidiary Companies.
99-1 - The Detroit Edison Company Irrevocable Grantor Trust for The
Detroit Edison Company Savings Reparation Plan.
99-2 - The Detroit Edison Company Irrevocable Grantor Trust for The
Detroit Edison Company Retirement Reparation Plan.
99-3 - The Detroit Edison Company Irrevocable Grantor Trust for The
Detroit Edison Company Management Supplemental Benefit Plan.
99-4 - The Detroit Edison Company Irrevocable Grantor Trust for The
Detroit Edison Company Benefit Equalization Plan.
99-5 - The Detroit Edison Company Irrevocable Grantor Trust for The
Detroit Edison Company Plan for Deferring the Payment of
Directors' Fees.
64
66
Exhibit
Number
-------
99-6 - The Detroit Edison Company Irrevocable Grantor Trust for The DTE
Energy Company Retirement Plan for Non-Employee Directors.
99-7 - DTE Energy Company Irrevocable Grantor Trust for The DTE Energy
Company Plan for Deferring the Payment of Directors' Fees.
99-8 - DTE Energy Company Irrevocable Grantor Trust for The DTE Energy
Company Retirement Plan for Non-Employee Directors.
(ii) Exhibits incorporated herein by reference.
3(a) - Restated Articles of Incorporation of Detroit Edison, 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).
3(b) - Certificate containing resolution of the Detroit Edison 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).
3(c) - Certificate containing resolution of the Detroit Edison 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).
3(d) - Amended and Restated Articles of Incorporation of DTE Energy
Company, dated December 13, 1995 (Exhibit 3A (3.1) to DTE Energy
Form 8-B filed January 2, 1996, File No. 1-11607).
3(e) - Agreement and Plan of Exchange (Exhibit 1(2) to DTE Energy Form
8-B filed January 2, 1996, File No. 1-11607).
65
67
Exhibit
Number
-------
4(a) - Mortgage and Deed of Trust, dated as of October 1, 1924, between
Detroit Edison (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
November 1, 1990 Exhibit 4-110 to Form 10-K for
year ended December 31, 1990
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
66
68
Exhibit
Number
-------
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.
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.
August 1, 1995 Exhibit 4-174 to Form 10-Q for
quarter ended September 30, 1995.
67
69
Exhibit
Number
-------
4(b) - Collateral Trust Indenture (notes), dated as of June 30, 1993
(Exhibit 4-152 to Registration No. 33-50325).
4(c) - First Supplemental Note Indenture, dated as of June 30, 1993
(Exhibit 4-153 to Registration No. 33-50325).
4(d) - Second Supplemental Note Indenture, dated as of September 15, 1993
(Exhibit 4-159 to Form 10-Q for quarter ended September 30, 1993).
4(e) - Third Supplemental Note Indenture, dated as of August 15, 1994
(Exhibit 4-169 to Form 10-Q for quarter ended September 30, 1994).
4(f) - First Amendment, dated as of December 12, 1995, to Third
Supplemental Note Indenture, dated as of August 15, 1994 (Exhibit
4-12 to Registration No. 333-00023).
4(g) - Fourth Supplemental Note Indenture, dated as of August 15, 1995
(Exhibit 4-175 to Detroit Edison Form 10-Q for quarter ended
September 30, 1995).
4(h) - Fifth Supplemental Indenture, dated as of February 1, 1996
(Exhibit 4-1 to Detroit Edison Form 8-A dated March 11, 1996).
4(i) - 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).
68
70
Exhibit
Number
-------
*10(a) - Form of 1995 Indemnification Agreement between the Registrant and
(1) Terence E. Adderley, (2) Lillian Bauder, (3) David Bing, (4)
Anthony F. Earley, Jr., (5) Larry G. Garberding, (6) Allan D.
Gilmour, (7) Theodore S. Leipprandt, (8) John E. Lobbia, (9)
Patricia S. Longe, (10) Eugene A. Miller, (11) Dean E.
Richardson, (12) Alan E. Schwartz, (13) William Wegner, (14)
Christopher C. Arvani, (15) Susan M. Beale, (16) Elaine M.
Godfrey, (17) Ronald J. Giaier, (18) Ronald W. Gresens, (19)
Thomas A. Hughes, (20) Frederick S. Karwacki, (21) Leslie L.
Loomans, (22) Peter A. Marquardt, (23) Christopher C. Nern, and
(24) Albert J. Tack (Exhibit 3L (10-1) to DTE Energy Company Form
8-B dated January 2, 1996).
*10(b) - Form of Indemnification Agreement between The Detroit Edison
Company ("Detroit Edison") and (1) Frank E. Agosti, (2) Gerard M.
Anderson, (3) Robert J. Buckler, (4) Ronald W. Gresens, (5)
Leslie L. Loomans, (6) S. Martin Taylor, (7) Susan M. Beale, (8)
Frederick S. Karwacki, (9) Douglas R. Gipson, (10) Thomas A.
Hughes, (11) Christopher C. Nern, (12) Elaine M. Godfrey, (13)
Christopher C. Arvani, (14) Michael E. Champley, (15) Haven E.
Cockerham, (16) Ronald J. Giaier, (17) Peter A. Marquardt, and
(18) Albert J. Tack (Exhibit 10-41 to Detroit Edison's Form 10-Q
for quarter ended June 30, 1993).
*10(c) - The Detroit Edison Company Shareholder Value Improvement Plan -
A, as amended and restated effective January 1, 1996 (Exhibit 3L
(10-3) to DTE Energy Form 8-B dated January 2, 1996).
*10(d) - Certain arrangements pertaining to the employment of S. Martin
Taylor (Exhibit 10-38 to Detroit Edison's Form 10-K for year
ended December 31, 1992).
*10(e) - Certain arrangements pertaining to the employment of Anthony F.
Earley, Jr. (Exhibit 10-53 to Detroit Edison's Form 10-Q for
quarter ended March 31, 1994).
*10(f) - Third Restatement of The Detroit Edison Company Savings
Reparation Plan, effective as of January 1, 1996 (Exhibit 3L
(10-6) to DTE Energy Form 8-B dated January 2, 1996).
69
71
Exhibit
Number
-------
*10(g) - Certain arrangements pertaining to the employment of Haven E.
Cockerham (Exhibit 10-55 to Detroit Edison's Form 10-Q for
quarter ended September 30, 1994).
*10(h) - Third Restatement of the Retirement Reparation Plan for Certain
Employees of Detroit Edison, effective as of January 1, 1996
(Exhibit 3L (10-9) to DTE Energy Form 8-B dated January 2, 1996).
*10(i) - Third Restatement of the Benefit Equalization Plan for Certain
Employees of Detroit Edison, effective as of January 1, 1996
(Exhibit 3L (10-10) to DTE Energy Form 8-B dated January 2,
1996).
*10(j) - Certain arrangements pertaining to the employment of Larry G.
Garberding (Exhibit 28-52 to Detroit Edison's Form 10-Q for
quarter ended June 30, 1990).
*10(k) - Form of Indemnification Agreement, between Detroit Edison and (1)
John E. Lobbia, (2) Larry G. Garberding and (3) Anthony F.
Earley, Jr. (Exhibit 19-7 to Detroit Edison's Form 10-Q for
quarter ended March 31, 1992).
*10(l) - Form of Indemnification Agreement between Detroit Edison and (1)
Terence E. Adderley, (2) Lillian Bauder, (3) David Bing, (4) Alan
E. Schwartz , (5) William Wegner, (6) Theodore S. Leipprandt, (7)
Patricia S. Longe, (8) Eugene A. Miller, (9) Dean E. Richardson,
and (10) Alan D. Gilmour (Exhibit 19-8 to Detroit Edison's Form
10-Q for quarter ended March 31, 1992).
*10(m) - Supplemental Long Term Disability Plan, dated November 5, 1991
(Exhibit 10-32 to Detroit Edison's Form 10-K for year ended
December 31, 1991).
*10(n) - Executive Vehicle Program, dated October 1, 1993 (Exhibit 10-47
to Detroit Edison's Form 10-Q for quarter ended September 30,
1993).
*10(o) - Amendment No. 1 to Executive Vehicle Plan, November 1993 (Exhibit
10-58 to Detroit Edison's Form 10-K for year ended December 31,
1993).
70
72
Exhibit
Number
*10(p) - Certain arrangements pertaining to the employment of Gerard M.
Anderson (Exhibit 10-40 to Detroit Edison's Form 10-K for year
ended December 31, 1993).
*10(q) - Third Restatement of The Detroit Edison Company Management
Supplemental Benefit Plan, effective as of January 1, 1996
(Exhibit 3L (10-18) to DTE Energy Form 8-B dated January 2,
1996).
*10(r) - Third Restatement of The Detroit Edison Company Plan for
Deferring the Payment of Directors' Fees (January 1, 1996)
(Exhibit 3L (10-19) to DTE Energy Form 8-B dated January 2,
1996).
*10(s) - DTE Energy Company Retirement Plan for Non-Employee Directors
(January 1, 1996) (Exhibit 3L (10-20) to DTE Energy Form 8-B
dated January 2, 1996).
*10(t) - DTE Energy Company Plan for Deferring the Payment of Directors'
Fees (January 1, 1996) (Exhibit 3L (10-21) to DTE Energy Form 8-B
dated January 2, 1996).
21(a) - Subsidiaries of DTE Energy and Detroit Edison (Exhibit 3M (21) to
DTE Energy Form 8-B dated January 2, 1996).
99(a) - Belle River Participation Agreement between Detroit Edison 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 Detroit Edison 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 Detroit Edison (Exhibit 99-6 to
Registration No. 33-50325).
71
73
Exhibit
Number
-------
99(d) - First Amendment to 1988 Amended and Restated Loan Agreement, dated
as of February 1, 1990, between Detroit Edison and Renaissance
(Exhibit 99-7 to Registration No. 33-50325).
99(e) - Second Amendment to 1988 Amended and Restated Loan Agreement,
dated as of September 1, 1993, between Detroit Edison 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 Detroit Edison, 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 Detroit Edison, 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 Detroit Edison and Renaissance
(Exhibit 99-9 to Registration No. 33-50325).
72
74
Exhibit
Number
-------
99(k) - First Amendment to 1988 Amended and Restated Nuclear Fuel Heat
Purchase Contract, dated as of February 1, 1990, between Detroit
Edison 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 Detroit
Edison and Renaissance (Exhibit 99-11 to Registration No.
33-50325).
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).
99(n) - Master Trust Agreement ("Master Trust"), dated as of June 30,
1994, between Detroit Edison and Fidelity Management Trust Company
relating to the Savings & Investment Plans (Exhibit 4-167 to Form
10-Q for quarter ended June 30, 1994).
99(o) - First Amendment, effective as of February 1, 1995, to Master
Trust.
99(p) - Second Amendment, effective as of February 1, 1995 to Master
Trust.
99(q) - Third Amendment, effective January 1, 1996, to Master Trust.
(b) Registrants did not file any reports on Form 8-K during the fourth
quarter of 1995.
(c) *Denotes management contract or compensatory plan or arrangement
required to be filed as an exhibit to this report.
73
75
DTE ENERGY COMPANY, THE DETROIT EDISON COMPANY AND SUBSIDIARY COMPANIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Additions
Balance ----------------------- Balance
at Beginning Charged to Charged to at End
of Costs and Other of
Description Period Expenses Accounts(a) Deductions(b) Period
- ------------------------- ------------ ---------- ----------- ------------- -------
(Thousands)
YEAR 1995
Allowance for
uncollectible accounts
(shown as deduction
from accounts receivable
in balance sheet) ...... $30,000 $4,849 $3,253 $(16,102) $22,000
YEAR 1994
Allowance for
uncollectible accounts
(shown as deduction
from accounts receivable
in balance sheet) ...... $34,000 $11,585 $3,246 $(18,831) $30,000
YEAR 1993
Allowance for
uncollectible accounts
(shown as deduction
from accounts receivable
in balance sheet) ...... $32,000 $21,953 $2,752 $(22,705) $34,000
- -------------------------------------------
(a) Collection of accounts previously written off.
(b) Uncollectible accounts written off.
74
76
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
DTE ENERGY COMPANY
------------------------------------
(Registrant)
By /s/ JOHN E. LOBBIA By /s/ LARRY G. GARBERDING
------------------------------------ ------------------------------------
John E. Lobbia Larry G. Garberding
Chairman of the Board, Executive Vice President,
Chief Executive Officer and Director Chief Financial Officer and Director
By /s/ ANTHONY F. EARLEY, JR. By /s/ RONALD W. GRESENS
------------------------------------ ------------------------------------
Anthony F. Earley, Jr. Ronald W. Gresens
President, Vice President and Controller
Chief Operating Officer and Director
By /s/ TERENCE E. ADDERLEY By /s/ PATRICIA S. LONGE
------------------------------------ ------------------------------------
Terence E. Adderley, Director Patricia S. Longe, Director
By /s/ LILLIAN BAUDER By /s/ EUGENE A. MILLER
------------------------------------ ------------------------------------
Lillian Bauder, Director Eugene A. Miller, Director
By /s/ DAVID BING By /s/ DEAN E. RICHARDSON
------------------------------------ ------------------------------------
David Bing, Director Dean E. Richardson, Director
By /s/ ALLAN D. GILMOUR By /s/ ALAN E. SCHWARTZ
------------------------------------ ------------------------------------
Allan D. Gilmour, Director Alan E. Schwartz, Director
By /s/ THEODORE S. LEIPPRANDT By /s/ WILLIAM WEGNER
------------------------------------ ------------------------------------
Theodore S. Leipprandt, Director William Wegner, Director
Date: March 25, 1996
75
77
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
THE DETROIT EDISON COMPANY
-----------------------------
(Registrant)
By /s/ JOHN E. LOBBIA By /s/ LARRY G. GARBERDING
------------------------------------ -----------------------------
John E. Lobbia Larry G. Garberding
Chairman of the Board, Executive Vice President,
Chief Executive Officer and Director Chief Financial Officer and Director
By /s/ ANTHONY F. EARLEY, JR. By /s/ RONALD W. GRESENS
------------------------------------ -----------------------------
Anthony F. Earley, Jr. Ronald W. Gresens
President, Vice President and Controller
Chief Operating Officer and Director
By /s/ TERENCE E. ADDERLEY By /s/ PATRICIA S. LONGE
------------------------------------ -----------------------------
Terence E. Adderley, Director Patricia S. Longe, Director
By /s/ LILLIAN BAUDER By /s/ EUGENE A. MILLER
------------------------------------ -----------------------------
Lillian Bauder, Director Eugene A. Miller, Director
By /s/ DAVID BING By /s/ DEAN E. RICHARDSON
------------------------------------ -----------------------------
David Bing, Director Dean E. Richardson, Director
By /s/ ALLAN D. GILMOUR By /s/ ALAN E. SCHWARTZ
------------------------------------ -----------------------------
Allan D. Gilmour, Director Alan E. Schwartz, Director
By /s/ THEODORE S. LEIPPRANDT By /s/ WILLIAM WEGNER
------------------------------------ -----------------------------
Theodore S. Leipprandt, Director William Wegner, Director
Date: March 25, 1996
76
78
ANNUAL REPORTS ON FORM 10-K FOR DTE ENERGY COMPANY
AND THE DETROIT EDISON COMPANY
File Nos. 1-11607
1-2198
EXHIBIT INDEX
Exhibit Page
Number Number
------- ------
Exhibits filed herewith.
3-3 - Amended and Restated By-Laws, dated as of
February 26, 1996, of DTE Energy Company.
3-4 - Amended and Restated By-Laws, dated as of
February 26, 1996, of The Detroit Edison Company.
4-14 - Fifth Supplemental Note Indenture, dated as
of February 1, 1996.
4-15 - Supplemental Indenture, dated as of April 1, 1991,
establishing the 1991 Series AP Mortgage Bonds.
*10-1 - Detroit Edison 1996 Shareholder Value
Improvement Plan - A.
*10-2 - Detroit Edison Key Employee Deferred
Compensation Plan (January 1990).
*10-3 - Detroit Edison Long-Term Incentive Plan.
79
Exhibit Page
Number Number
------- ------
11-2 - DTE Energy Company and Subsidiary Companies
Primary and Fully Diluted Earnings Per Share of
Common Stock.
12-2 - The Detroit Edison Company and Subsidiary
Companies Computation of Ratio of Earnings to
Fixed Charges.
12-3 - The Detroit Edison Company and Subsidiary
Companies Computation of Ratio of Earnings to
Fixed Charges and Preferred and Preference
Stock Dividends.
16-1 - Letter regarding change in certifying accountant.
23-7 - Consent of Deloitte & Touche LLP.
23-8 - Consent of Price Waterhouse LLP.
27-1 - Financial Data Schedule for the period ended
December 31, 1995 for DTE Energy Company and
Subsidiary Companies.
27-2 - Financial Data Schedule for the period ended
December 31, 1995 for The Detroit Edison Company
and Subsidiary Companies.
99-1 - The Detroit Edison Company Irrevocable Grantor
Trust for The Detroit Edison Company Savings
Reparation Plan.
99-2 - The Detroit Edison Company Irrevocable Grantor
Trust for The Detroit Edison Company Retirement
Reparation Plan.
99-3 - The Detroit Edison Company Irrevocable Grantor
Trust for The Detroit Edison Company Management
Supplemental Benefit Plan.
99-4 - The Detroit Edison Company Irrevocable Grantor
Trust for The Detroit Edison Company Benefit
Equalization Plan.
99-5 - The Detroit Edison Company Irrevocable Grantor
Trust for The Detroit Edison Company Plan for
Deferring the Payment of Directors' Fees.
80
Exhibit Page
Number Number
------- ------
99-6 - The Detroit Edison Company Irrevocable Grantor
Trust for The DTE Energy Company Retirement
Plan for Non-Employee Directors.
99-7 - DTE Energy Company Irrevocable Grantor Trust
for The DTE Energy Company Plan for Deferring
the Payment of Directors' Fees.
99-8 - DTE Energy Company Irrevocable Grantor Trust for
The DTE Energy Company Retirement Plan for
Non-Employee Directors.
Exhibits incorporated herein by reference.
See Page Numbers
____ for location of
Exhibits Incorporated
By Reference
3(a) - Restated Articles of Incorporation of Detroit
Edison, 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).
3(b) - Certificate containing resolution of the Detroit
Edison 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).
3(c) - Certificate containing resolution of the Detroit
Edison 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).
3(d) - Amended and Restated Articles of Incorporation
of DTE Energy Company, dated December 13, 1995
(Exhibit 3A (3.1) to DTE Energy Form 8-B filed
January 2, 1996, File No. 1-11607).
3(e) - Agreement and Plan of Exchange (Exhibit 1(2) to
DTE Energy Form 8-B filed January 2, 1996,
File No. 1-11607).
81
Exhibit Page
Number Number
------- ------
4(a) - Mortgage and Deed of Trust, dated as of
October 1, 1924, between Detroit Edison
(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
November 1, 1990 Exhibit 4-110 to Form 10-K for
year ended December 31, 1990
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
82
Exhibit Page
Number Number
------- ------
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.
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.
August 1, 1995 Exhibit 4-174 to Form 10-Q for
quarter ended September 30, 1995.
83
Exhibit Page
Number Number
------- ------
4(b) - Collateral Trust Indenture (notes), dated as of
June 30, 1993 (Exhibit 4-152 to Registration
No. 33-50325).
4(c) - First Supplemental Note Indenture, dated as of
June 30, 1993 (Exhibit 4-153 to Registration
No. 33-50325).
4(d) - Second Supplemental Note Indenture, dated as of
September 15, 1993 (Exhibit 4-159 to Form 10-Q
for quarter ended September 30, 1993).
4(e) - Third Supplemental Note Indenture, dated as of
August 15, 1994 (Exhibit 4-169 to Form 10-Q for
quarter ended September 30, 1994).
4(f) - First Amendment, dated as of December 12, 1995,
to Third Supplemental Note Indenture, dated as
of August 15, 1994 (Exhibit 4-12 to Registration
No. 333-00023).
4(g) - Fourth Supplemental Note Indenture, dated as of
August 15, 1995 (Exhibit 4-175 to Detroit Edison
Form 10-Q for quarter ended September 30, 1995).
4(h) - Fifth Supplemental Indenture, dated as of
February 1, 1996 (Exhibit 4-1 to Detroit Edison
Form 8-A dated March 11, 1996).
4(i) - 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).
84
Exhibit Page
Number Number
------- ------
*10(a) - Form of 1995 Indemnification Agreement
between the Registrant and (1) Terence E.
Adderley, (2) Lillian Bauder, (3) David
Bing, (4) Anthony F. Earley, Jr., (5)
Larry G. Garberding, (6) Allan D.
Gilmour, (7) Theodore S. Leipprandt, (8)
John E. Lobbia, (9) Patricia S. Longe,
(10) Eugene A. Miller, (11) Dean E.
Richardson, (12) Alan E. Schwartz, (13)
William Wegner, (14) Christopher C. Arvani,
(15) Susan M. Beale, (16) Elaine M. Godfrey,
(17) Ronald J. Giaier, (18) Ronald W.
Gresens, (19) Thomas A. Hughes, (20)
Frederick S. Karwacki, (21) Leslie L.
Loomans, (22) Peter A. Marquardt, (23)
Christopher C. Nern, and (24) Albert J.
Tack (Exhibit 3L (10-1) to DTE Energy
Company Form 8-B dated January 2, 1996).
*10(b) - Form of Indemnification Agreement between The
Detroit Edison Company ("Detroit Edison")
and (1) Frank E. Agosti, (2) Gerard M.
Anderson, (3) Robert J. Buckler, (4) Ronald W.
Gresens, (5) Leslie L. Loomans, (6) S. Martin
Taylor, (7) Susan M. Beale, (8) Frederick S.
Karwacki, (9) Douglas R. Gipson, (10) Thomas A.
Hughes, (11) Christopher C. Nern, (12) Elaine
M. Godfrey, (13) Christopher C. Arvani,
(14) Michael E. Champley, (15) Haven E.
Cockerham, (16) Ronald J. Giaier, (17) Peter A.
Marquardt, and (18) Albert J. Tack (Exhibit 10-41
to Detroit Edison's Form 10-Q for quarter ended
June 30, 1993).
*10(c) - The Detroit Edison Company Shareholder Value
Improvement Plan - A, as amended and restated
effective January 1, 1996 (Exhibit 3L (10-3) to
DTE Energy Form 8-B dated January 2, 1996).
*10(d) - Certain arrangements pertaining to the employment
of S. Martin Taylor (Exhibit 10-38 to Detroit
Edison's Form 10-K for year ended December 31, 1992).
*10(e) - Certain arrangements pertaining to the employment
of Anthony F. Earley, Jr. (Exhibit 10-53 to Detroit
Edison's Form 10-Q for quarter ended March 31, 1994).
*10(f) - Third Restatement of The Detroit Edison Company
Savings Reparation Plan, effective as of January 1, 1996
(Exhibit 3L (10-6) to DTE Energy Form 8-B dated
January 2, 1996).
85
Exhibit Page
Number Number
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*10(g) - Certain arrangements pertaining to the employment
of Haven E. Cockerham (Exhibit 10-55 to Detroit
Edison's Form 10-Q for quarter ended September
30, 1994).
*10(h) - Third Restatement of the Retirement Reparation Plan
for Certain Employees of Detroit Edison, effective as
of January 1, 1996 (Exhibit 3L (10-9) to DTE Energy
Form 8-B dated January 2, 1996).
*10(i) - Third Restatement of the Benefit Equalization Plan
for Certain Employees of Detroit Edison, effective
as of January 1, 1996 (Exhibit 3L (10-10) to DTE
Energy Form 8-B dated January 2, 1996).
*10(j) - Certain arrangements pertaining to the employment
of Larry G. Garberding (Exhibit 28-52 to Detroit
Edison's Form 10-Q for quarter ended June 30, 1990).
*10(k) - Form of Indemnification Agreement, between Detroit
Edison and (1) John E. Lobbia, (2) Larry G. Garberding
and (3) Anthony F. Earley, Jr. (Exhibit 19-7 to Detroit
Edison's Form 10-Q for quarter ended March 31, 1992).
*10(l) - Form of Indemnification Agreement between Detroit
Edison and (1) Terence E. Adderley, (2) Lillian Bauder,
(3) David Bing, (4) Alan E. Schwartz , (5) William Wegner,
(6) Theodore S. Leipprandt, (7) Patricia S. Longe, (8)
Eugene A. Miller, (9) Dean E. Richardson, and (10) Alan
D. Gilmour (Exhibit 19-8 to Detroit Edison's Form
10-Q for quarter ended March 31, 1992).
*10(m) - Supplemental Long Term Disability Plan, dated November
5, 1991 (Exhibit 10-32 to Detroit Edison's Form 10-K
for year ended December 31, 1991).
*10(n) - Executive Vehicle Program, dated October 1, 1993 (Exhibit
10-47 to Detroit Edison's Form 10-Q for quarter ended
September 30, 1993).
*10(o) - Amendment No. 1 to Executive Vehicle Plan, November 1993
(Exhibit 10-58 to Detroit Edison's Form 10-K for year
ended December 31, 1993).
86
Exhibit Page
Number Number
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*10(p) - Certain arrangements pertaining to the employment
of Gerard M. Anderson (Exhibit 10-40 to Detroit
Edison's Form 10-K for year ended December 31,
1993).
*10(q) - Third Restatement of The Detroit Edison Company
Management Supplemental Benefit Plan, effective
as of January 1, 1996 (Exhibit 3L (10-18) to
DTE Energy Form 8-B dated January 2, 1996).
*10(r) - Third Restatement of The Detroit Edison Company
Plan for Deferring the Payment of Directors' Fees
(January 1, 1996) (Exhibit 3L (10-19) to DTE Energy
Form 8-B dated January 2, 1996).
*10(s) - DTE Energy Company Retirement Plan for Non-Employee
Directors (January 1, 1996) (Exhibit 3L (10-20) to
DTE Energy Form 8-B dated January 2, 1996).
*10(t) - DTE Energy Company Plan for Deferring the Payment of
Directors' Fees (January 1, 1996) (Exhibit 3L (10-21)
to DTE Energy Form 8-B dated January 2, 1996).
21(a) - Subsidiaries of DTE Energy and Detroit Edison (Exhibit
3M (21) to DTE Energy Form 8-B dated January 2, 1996).
99(a) - Belle River Participation Agreement between Detroit
Edison 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 Detroit Edison 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 Detroit
Edison (Exhibit 99-6 to Registration No. 33-50325).
87
Exhibit Page
Number Number
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99(d) - First Amendment to 1988 Amended and Restated Loan
Agreement, dated as of February 1, 1990, between
Detroit Edison and Renaissance (Exhibit 99-7 to
Registration No. 33-50325).
99(e) - Second Amendment to 1988 Amended and Restated
Loan Agreement, dated as of September 1, 1993,
between Detroit Edison 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 Detroit Edison, 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 Detroit Edison,
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 Detroit Edison and Renaissance
(Exhibit 99-9 to Registration No. 33-50325).
88
Exhibit Page
Number Number
------- ------
99(k) - First Amendment to 1988 Amended and Restated Nuclear
Fuel Heat Purchase Contract, dated as of February 1,
1990, between Detroit Edison 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 Detroit Edison and Renaissance (Exhibit 99-11 to
Registration No. 33-50325).
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).
99(n) - Master Trust Agreement ("Master Trust"), dated as of
June 30, 1994, between Detroit Edison and Fidelity
Management Trust Company relating to the Savings &
Investment Plans (Exhibit 4-167 to Form 10-Q for
quarter ended June 30, 1994).
99(o) - First Amendment, effective as of February 1, 1995,
to Master Trust.
99(p) - Second Amendment, effective as of February 1, 1995
to Master Trust.
99(q) - Third Amendment, effective January 1, 1996, to
Master Trust.
(b) Registrants did not file any reports on Form 8-K during
the fourth quarter of 1995.
* Denotes management contract or compensatory plan or
arrangement required to be filed as an exhibit to
this report.