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, 1996, Detroit Edison was named as defendant in 150 lawsuits involving claims for personal injuries and property damage and had been advised of 26 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.
On May 28, 1996, an order was issued by the Circuit Court for Wayne County, Michigan certifying a plaintiff class (Gilford, et al v Detroit Edison) in a lawsuit claiming that Detroit Edison had engaged in age and racial discrimination. Detroit Edison has requested leave to appeal the class certification to the Michigan Supreme Court and has requested a stay of proceedings. A notice has been sent to potential class members, however, the size of the potential class will not be determinable until late May 1997 at the earliest. Detroit Edison is of the opinion that the allegations of discrimination are without merit.
Three Detroit Edison employees have filed a lawsuit in the Circuit Court for Wayne County, Michigan (Sanchez, et al v Detroit Edison) alleging age and national origin discrimination. The plaintiffs, two of whom indicate they are members of the Gilford class and one of whom indicates he may be a member of the Gilford class, seek to represent a group of employees alleged to be similarly situated. Detroit Edison is of the opinion that the allegations of discrimination are without merit.
ITEM 4
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
PART II
ITEM 5
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:
At December 31, 1996, there were 145,119,875 shares of the Company's Common Stock outstanding. These shares were held by a total of 132,839 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 amount of future dividends will depend on the Company's earnings, financial condition and other factors, including the effects of utility restructuring efforts, each of which is periodically reviewed by the Company's Board of Directors.
ITEM 6
ITEM 6 - SELECTED FINANCIAL DATA.
ITEM 7
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 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. A number of non-utility affiliates have been established by the Company with the intent of pursuing non-regulated businesses apart from the regulated operations of Detroit Edison.
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. Detroit Edison represents approximately 98.7% of the Company's assets at December 31, 1996.
RESULTS OF OPERATIONS
For the year ended December 31, 1996, the Company's net income was $309.3 million, or $2.13 per common share, down from the $405.9 million, or $2.80 per common share earned in 1995. The decrease in net income was due to a $149.2 million ($97 million after-tax), or $0.67 per share, special charge to net income following completion of Detroit Edison's review of its steam heating operations. Without the special charge, 1996 earnings per common share would have equaled the $2.80 reported a year ago.
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 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 during the period 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.
At December 31, 1996, the book value of the Company's common stock was $23.69 per share, an increase of 0.3% since December 31, 1995. Return on average total common shareholders' equity was 8.9% in 1996, 11.8% in 1995 and 11.6% in 1994.
The Company's ratio of earnings to fixed charges for 1996, 1995 and 1994 was 2.69, 3.21 and 3.13, respectively. The Company's ratio of earnings to fixed charges and preferred stock dividends for 1996, 1995 and 1994 was 2.49, 2.82 and 2.73, respectively.
OPERATING REVENUES
Total operating revenues increased (decreased) due to the following factors:
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.
Detroit Edison has entered into, and the MPSC has approved, long-term service contracts with large commercial, automotive and other industrial customers. While there are revenue reductions associated with these long-term service contracts, Detroit Edison believes they are strategically advantageous.
The decreases in power supply cost recovery clause revenues have resulted from lower average unit costs of fuel and purchased power.
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
DTE ENERGY COMPANY, THE DETROIT EDISON COMPANY AND SUBSIDIARY COMPANIES - --------------------------------------------------------------------------------
Kilowatthour Sales
Kilowatthour sales increased (decreased) as follows:
Residential sales decreased due to cooler summer weather, partially offset by increases from growth in the customer base. Commercial and industrial sales increased due to improved economic conditions. Higher industrial sales reflect strong demand in the automotive and construction sectors. Sales to other customers increased due to higher sales to wholesale for resale customers.
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.
Interconnection Sales
Interconnection sales represent sales between utilities to meet energy needs as a result of demand and/or generating unit availability.
Interconnection sales decreased due to lower demand for energy.
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.
Fermi 2 Capacity Factor Performance Standard and Reduced Turbine Efficiency Reserves
These reserves are 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:
Net system output and average unit costs were as follows:
The decrease in average unit cost was due to declining fuel prices resulting from greater use of lower-cost western low-sulfur coal and a decrease in nuclear fuel costs.
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.
Other Operation
Detroit Edison's other operation expense increased due primarily to operating expenses related to new computer systems ($12 million), higher nuclear plant ($9.5 million), administrative and general ($8.2 million), employee benefits ($7.9 million) and sales ($7.7 million) expenses, lump sum payments to union employees ($4.3 million) and higher customer accounts expenses ($3 million). These increases were partially offset by lower incentive award expenses related to a shareholder value improvement plan ($14.2 million) and major storm expenses ($5.7 million) and expenses recorded in the year earlier period for the write-off of obsolete and excess stock material ($12 million), the Ludington Pumped Storage Plant fish mortality case ($8.4 million) and Electric Power Research Institute dues ($4.8 million). In addition, the Company's other operation expense increased due to non-utility operations ($8.2 million).
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 Pumped Storage Plant fish mortality case ($8.4 million). These increases 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).
Maintenance
Maintenance expense increased due to higher overhead and underground lines support ($26.1 million), nuclear plant ($7.1 million) and station equipment ($7 million) expenses, partially offset by lower major storm expenses ($3.1 million).
Maintenance expense decreased due primarily to lower nuclear ($17 million) and fossil ($4.3 million) plant expenses.
Steam Heating Special Charges
During the third quarter of 1996, following the completion of a review of its steam heating operations, Detroit Edison recorded a special charge to net income of $149.2 million ($97 million after-tax). The special charge included a reserve for steam purchase commitments during the period from 1997 through 2008 under the agreement with the Detroit Resource Recovery Facility, and for expenditures in 1997 for closure of a portion of the steam heating system and improvements in service to remaining customers.
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
1996 and 1995
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
1996 and 1995
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
1996 and 1995
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
Taxes other than income taxes increased due to higher payroll and property taxes, partially offset by lower Michigan Single Business Taxes.
Taxes other than income taxes decreased due to lower payroll and property taxes.
Income Taxes
Income taxes decreased due primarily to lower pretax income.
Income taxes increased due primarily to higher pretax income.
Other Income and (Deductions) - net
Other deductions decreased due primarily to lower promotional practices expense ($5.3 million), expenses recorded in the year earlier period for the sale of accounts receivable and unbilled revenues ($3.1 million) and the formation of a holding company ($3.1 million) and lower corporate contributions ($2.9 million).
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).
Accretion Income
1996 and 1995
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.
Long-Term Debt Interest Charges
Long-term debt interest charges decreased due to the early redemption of Mortgage Bonds, partially offset by the issuance of Quarterly Income Debt Securities ("QUIDS").
Long-term debt interest charges increased due to the issuance of QUIDS and the timing of the early redemption and refinancing of securities when economic.
Other Interest Charges
1996 and 1995
Other interest charges decreased due primarily to lower levels of short-term borrowings.
Preferred Stock Dividends of Detroit Edison
Preferred stock dividends of Detroit Edison decreased due to the redemption of all of the outstanding Cumulative Preferred Stock, 7.68% Series, 7.45% Series and 7.36% Series.
Preferred stock dividends of Detroit Edison 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.
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
DTE ENERGY COMPANY, THE DETROIT EDISON COMPANY AND SUBSIDIARY COMPANIES - --------------------------------------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES
Private Securities Litigation Reform Act - Forward-Looking Statements
Certain information presented herein is based upon the expectations of the Company and Detroit Edison, and, as such, is forward-looking. The Private Securities Litigation Reform Act of 1995 encourages reporting companies to provide analyses and estimates of future prospects and also permits reporting companies to point out that actual results may differ from those anticipated.
Actual results for the Company and Detroit Edison may differ from those expected due to a number of variables including, but not limited to, the impact of newly-required Federal Energy Regulatory Commission ("FERC") tariffs, actual sales, the effects of competition, the implementation of utility restructuring in Michigan (which involves pending regulatory proceedings, pending and proposed statutory changes and the recovery of stranded costs), environmental and nuclear requirements and the success of non-utility projects. While the Company and Detroit Edison believe that estimates given accurately measure the expected outcome, actual results could vary materially due to the variables mentioned as well as others.
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 risks of non-utility operations.
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.
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.
Federal Energy Regulatory Commission
On April 24, 1996, the FERC issued Orders 888 and 889. Order 888 requires public utilities to file open access transmission tariffs for wholesale transmission services in accordance with non-discriminatory terms and conditions established by the FERC. On July 9, 1996, Detroit Edison filed its Pro-Forma Open Access Transmission Tariff in compliance with FERC Order 888. The tariff sets forth the terms and conditions under which Detroit Edison will supply wholesale Firm and Non-Firm Point-to-Point Transmission Service as well as Network Integration Transmission Service (a service which allows the network customer to integrate, economically dispatch and regulate its network resources to serve its network load in a manner comparable to that in which the transmission provider utilizes its transmission system to serve its native load customers). Detroit Edison's filing also included the development and cost support for the rates to be charged for transmission service and the various ancillary services that are required to be offered. Order 888 permits the recovery of stranded costs on a case by case basis. The FERC has initiated proceedings to review Detroit Edison's tariff filing.
Order 888 also required that, on or before December 31, 1996, utilities engaged in power pooling operations develop and submit to the FERC a joint pro-forma open access transmission tariff applicable to power transactions involving the facilities of both pool utilities, and reform underlying power pool agreements to remove any unduly discriminatory provisions and permit open membership for any interested bulk power market participants.
Detroit Edison is a party to a power pooling agreement with Consumers Energy Company. In compliance with Order 888, on December 31, 1996, Detroit Edison and Consumers Energy Company filed a joint pro-forma open access transmission tariff and a joint transmission agreement that canceled prior transmission sharing arrangements that were developed under the pooling agreement. Neither Detroit Edison nor Consumers Energy Company were able to agree as to what other modifications should be made to the pooling agreement. Therefore, on December 31, 1996, Detroit Edison unilaterally submitted a proposed amendment requesting that the FERC approve termination of the pooling agreement as of April 30, 1997. On the same day, Consumers Energy Company unilaterally submitted a proposed amendment that would delete current membership requirements and permit the current parties to consider membership requests submitted by any creditworthy bulk power market participant.
Since January 3, 1997, public utilities have been required by Order 889 to obtain transmission information for wholesale transactions through a system on the Internet. Public utilities must separate transmission operations and reliability functions from wholesale marketing functions.
FERC has also issued a Notice of Proposed Rulemaking ("NOPR") on Capacity Reservation Transmission Tariffs ("CRT"). The NOPR requested comment by October 21, 1996, on whether there are certain disadvantages inherent in offering transmission service on both a network and single point-to-point basis and whether comparability can be better accomplished using a different methodology. The proposed CRT approach suggests that no later than December 31, 1997, all pro-forma
point-to-point and network service be replaced with a single point-to-point tariff that provides for reservation-based transmission service for all jurisdictional (wholesale sales and wholesale and retail transmission) service.
Detroit Edison is currently unable to estimate the revenue impact, if any, of these newly required tariffs and procedures.
Michigan Public Service Commission
The MPSC has been considering various proposals to implement a competitive utility environment as recommended by Michigan Governor John Engler and the Michigan Jobs Commission ("MJC") in January 1996.
On December 19, 1996, the MPSC Staff Report on Electric Industry Restructuring was filed with the MPSC. The Staff Report recognized that Michigan utilities should have the opportunity to prepare for competition and be able to maintain their financial health and, among other things, recommended:
1. A phase-in program beginning in 1997 for direct customer access (also known as customer choice) by 2004, with the phase-in of load at the rate of approximately 2 1/2% (225 megawatts ("MW")) in 1997, 5% in 1998, 7 1/2% in 1999 and 10% total in 2000 for Detroit Edison. These blocks would be allocated among customers through a bidding process. In 2001, all commercial and industrial customers served at primary voltage would be eligible for direct access and in 2004, all remaining customers would be eligible for direct access.
2. A freeze on base electric rate increases in conjunction with the implementation of a direct customer access program and the suspension of the power supply cost recovery clause during the transition period (ending 2004) for direct customer access. For generation costs, the moratorium would remain effective until a customer class has the option of direct access. A fixed level of fuel and purchased power costs would be subject to recovery in rates during the transition period.
3. The functional separation of generation, transmission and distribution service for rate purposes. Generation costs would be subject to competitive considerations, while transmission and distribution costs would be regulated, but subject to limited performance based regulation ("PBR"). A CPI-1% methodology would be used for regulation of transmission and distribution costs during the transition period. The PBR process would be subject to review at five-year intervals, with the first review in 2001.
4. The recovery of transition costs or stranded costs, (costs that were incurred during the regulated era that would be above prevailing market prices in a competitive marketplace and costs that were incurred to facilitate the transition from a regulated monopoly status to competitive market status), which the Staff Report indicated includes: (a) regulatory assets, (b) nuclear capital costs, (c) contract capacity costs in power purchase agreements, (d) employee related restructuring costs, including retraining and (e) other costs related to implementing restructuring (establishing an independent system operator, creating new billing software systems, new metering systems, etc.) would be recovered primarily through securitization and secondarily through a transition charge. This transition charge would commence when a customer takes direct access and would continue through 2007. These stranded and transition costs are expected to total approximately $2.8 billion for Detroit Edison.
5. Securitization is a method of refinancing debt that lowers electric cost for all customers. The securitization proposed would be implemented by the issuance of "rate reduction bonds" by a trust to be created for such purpose. The proceeds from the sale of such bonds would be used to reduce the amount of Detroit Edison's outstanding debt and equity. Securitization would result in a reduction in base rates that would be partially offset by a charge for bond repayment. The overall impact would be a reduction in customer rates. In the case of Detroit Edison, this would amount to a 9% or approximately $300 million annual rate reduction.
6. Eligible power suppliers would be limited to those able to grant comparable and reciprocal direct access to the Michigan host utility.
7. A requirement that local utilities provide standby power for two years, but not after 2001.
8. The collection of nuclear decommissioning and site security costs by means of a non-by-passable charge.
On December 20, 1996, the MPSC issued an order which provided for three public hearings and a written comment period on the Staff Report during January 1997. Further, on February 5, 1997, the MPSC requested that Detroit Edison and Consumers Energy Company make informational filings with the MPSC to disclose how they would propose to implement the Staff Report. These filings are due March 7, 1997, and would include: detailed calculations of anticipated stranded costs and transition charges, items that the utility would expect to securitize if authorized, allocation of direct access capacity and alternatives to the proposed phase-in program, proposed direct access service charges and conditions of service, standby service options for direct access customers, transmission constraints or limitations, development of an independent system operator, and methods to alleviate concerns regarding market power in a competitive environment. Other Michigan electric utility companies may also make informational filings by March 7, 1997. The MPSC will hold four public hearings on the informational filings on March 25, March 26, April 2 and April 3, 1997, and will receive additional written comments by April 7, 1997.
If the Staff Report recommendations are adopted by the MPSC, a number of legislative and regulatory changes would be necessary for implementation, and the regulatory process in Michigan would be altered. The Staff Report provides for the recovery of regulatory assets, capital costs of Fermi 2, and costs incurred to implement the transition to competition. Also, if the Staff Report in its present form is adopted, the non-nuclear generation segment of Detroit Edison's business would not qualify for SFAS No. 71 accounting following the transition period. However, Detroit Edison believes that the nuclear generation and transmission and distribution segments of its business will continue to be regulated and qualify under the accounting model prescribed by SFAS No. 71.
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
DTE ENERGY COMPANY, THE DETROIT EDISON COMPANY AND SUBSIDIARY COMPANIES - --------------------------------------------------------------------------------
While Detroit Edison is unable to predict the final outcome of the FERC rulemaking and the MPSC Staff Report, substantial changes in regulation and legislation are anticipated.
Nuclear Regulatory Commission ("NRC")
Detroit Edison has established external trust funds for its nuclear decommissioning costs and believes that current provisions are adequate for decommissioning. The NRC, in a September 1996 Draft Policy Statement on the Restructuring and Economic Deregulation of the Electric Utility Industry, indicated that it was monitoring legislative and regulatory activities promoting competition and restructuring for the purpose of assuring licensee's financial qualification and ability to fund decommissioning expenses.
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 $1,079 million in 1996, $913 million in 1995 and $923 million in 1994. Net cash from operating activities increased in 1996 due primarily to changes in current assets and liabilities, primarily as a result of the 1995 repurchase of customer accounts receivable and unbilled revenues. 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 used for investing activities increased in 1996 and 1995 due primarily to higher utility and non-utility plant and equipment expenditures.
Net cash used for financing activities increased in 1996 due primarily to the redemption of preferred stock. Net cash used for financing activities decreased in 1995 due primarily to a decrease in funds used to reduce short-term borrowings. In 1994, as a result of plan changes, Detroit Edison entered into the one-time purchase of common stock from the trustee of the Detroit Edison Savings & Investment Plans.
Additional Information
On February 13, 1996, Detroit Edison issued $185 million of 7.625% QUIDS. Also, on March 21, 1996, Detroit Edison redeemed 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.
During 1996, Detroit Edison purchased a total of $56.5 million of Mortgage Bonds on the open market, consisting of $29.5 million of 7.74% 1993 Series J, $26 million of 8.24% 1993 Series C and $1 million of 8.25% 1993 Series C. These bonds have been canceled.
Detroit Edison's requirements for scheduled long-term debt redemptions are expected to be $144 million, $169 million, $219 million, $194 million and $119 million for 1997, 1998, 1999, 2000 and 2001, respectively.
Detroit Edison's cash requirements for capital expenditures are expected to be approximately $2.2 billion for the period 1997 through 2001. In 1997, cash requirements for capital expenditures are estimated at $448 million. Environmental expenditures are expected to approximate $114 million for the period 1997 through 2001, 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 $464 million at December 31, 1996, under which $10 million of borrowings were outstanding.
Non-Regulated Investments
Cash requirements for 1996 non-regulated investments and capital expenditures were $60 million and are estimated to range from $300 million to $350 million in 1997. Non-regulated investments are expected to be externally financed.
A non-recourse project financing arrangement is in place for PCI Enterprises borrowings of up to $50 million, of which $39 million was outstanding at December 31, 1996. This arrangement is collateralized by specific project assets.
At December 31, 1996, DTE Capital Corporation had a $200 million Revolving Credit Agreement, backed by a Support Agreement from the Company, under which no borrowings were outstanding.
Capitalization
The Company's capital structure ratios (excluding long-term debt due within one year) were as follows:
* Includes 3.2% and 0.7% of QUIDS for the years 1996 and 1995.
Fermi 2
Fermi 2 is a nuclear generating unit of Detroit Edison comprising 25% of its total assets and 9% of its summer net rated capability.
The commercial operation of Fermi 2, which began in 1988, completed Detroit Edison's power plant construction program. Detroit Edison has no current plans for building any additional generating plants. Ownership of an operating nuclear generating unit subjects Detroit Edison to significant additional risks. The nuclear plant is regulated by a number of different governmental agencies concerned with public health, safety and environmental protection. Consequently, Fermi 2 is subjected to greater scrutiny than a conventional fossil-fueled plant.
Fermi 2 was out of service in 1994 and part of 1995, and the unit operated at a reduced power output through September 26, 1996, due to a December 1993 turbine-generator failure. Major
repairs were completed in 1994 and early 1995. These repair costs were approximately $80 million for which to date Detroit Edison has received partial insurance payments of $70 million for property damage. In addition, Detroit Edison has received partial insurance payments of $74.2 million for replacement power costs through December 31, 1996.
Fermi 2 was shut down from September 27, 1996 to January 3, 1997, to replace one-third of its nuclear fuel and install three new low pressure turbines. With the installation of these new turbines the unit is expected to initially operate at 1,085 MW, up from 876 MW prior to this shutdown. The $49 million cost of replacing the major turbine components was not covered by insurance. This cost was capitalized and is expected to be recovered in rates because it is less than the cumulative amount available under the cap on Fermi 2 capital expenditures, a provision of the MPSC's December 1988 order.
On January 17, 1997, there was an electrical component failure in the switchyard outside the plant which resulted in the "motorizing" of the main generator caused by incoming electricity from the Detroit Edison electrical system. As a result, the Fermi 2 plant was shut down to allow for inspection of the internal components of the plant's generator and required repairs and testing. Detroit Edison expects that the unit will be back in service during the second quarter of 1997. Operation of the reactor was not affected by this incident. Although the costs of repairs are expected to be covered by insurance (subject to a $1 million deductible), this incident will require an increase in the Fermi 2 capacity factor performance standard reserve for the period 1997-1999 which will have an adverse effect on earnings in the first quarter of 1997. See Note 3 of the Notes to Consolidated Financial Statements.
At December 31, 1996, Fermi 2 was insured for property damage and public liability as discussed in Note 2 of the Notes to Consolidated Financial Statements. 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 1986, Detroit Edison's compounded annual electric power sales growth was 2% and peak demand growth was 2.6% (after adjusting for the effects of unusual weather). Electric power sales and system demand are expected to grow at compounded annual rates of about 1.6% per year for the next 5 years.
Meeting Energy Demands
In 1996, Detroit Edison met peak demand through a combination of installed generation, long-term purchases and seasonal capacity purchases. It is expected that peak demand in 1997 and later years will be met using the same combination of resources. Detroit Edison anticipates sufficient power will be available for purchase as needed.
Inflation
Inflation is a measure of the purchasing power of the dollar. 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 plants.
The regulatory process limits the amount of depreciation expense recoverable through revenues to the historical cost of Detroit Edison's investment in utility plants. 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 a 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 on the environment, as well as the possibility of global warming resulting from 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 ("EPA") 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.
In November 1996, the EPA proposed new air-quality standards relating to ozone and particulate air pollution. The proposed new rules could lead to additional controls on fossil-fueled power plants to reduce nitrogen oxides and particulate emissions. The Company is unable to predict at this time what impact, if any, the proposed standards may have.
ITEM 8
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The following consolidated financial statements and schedules are included herein.
Page ---- Independent Auditors' Report........................................ 37 Report of Independent Accountants................................... 38 DTE Energy Company and Subsidiary Companies: Consolidated Statement of Income.................................. 39 Consolidated Balance Sheet........................................ 40 Consolidated Statement of Cash Flows.............................. 42 Consolidated Statement of Common Shareholders' Equity............. 43 The Detroit Edison Company and Subsidiary Companies: Consolidated Statement of Income.................................. 44 Consolidated Statement of Cash Flows.............................. 45 Consolidated Balance Sheet........................................ 46 Consolidated Statement of Common Shareholders' Equity............. 48 Notes to Consolidated Financial Statements.......................... 49 Schedule II - Valuation and Qualifying Accounts..................... 78
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.
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, 1996 and 1995, and the related consolidated statements of income, cash flows, and common shareholders' equity for the years 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, 1996 and 1995, and the results of their operations and their cash flows for the years 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 27, 1997
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 statements of income, of cash flows and of common shareholders' equity for the year ended December 31, 1994 present fairly, in all material respects, the results of operations and cash flows of DTE Energy Company and subsidiary companies and of The Detroit Edison Company and subsidiary companies for the year 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 audit. We conducted our audit 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 audit provides 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.
CONSOLIDATED STATEMENT OF INCOME (Dollars in Thousands) DTE Energy Company and Subsidiary Companies
(See accompanying Notes to Consolidated Financial Statements.)
CONSOLIDATED BALANCE SHEET (Dollars in Thousands) DTE Energy Company and Subsidiary Companies
(See accompanying Notes to Consolidated Financial Statements.)
CONSOLIDATED BALANCE SHEET (Dollars in Thousands) DTE Energy Company and Subsidiary Companies
(See accompanying Notes to Consolidated Financial Statements.)
CONSOLIDATED STATEMENT OF CASH FLOWS (Dollars in Thousands) DTE Energy Company and Subsidiary Companies
(See accompanying Notes to Consolidated Financial Statements.)
CONSOLIDATED STATEMENT OF COMMON SHAREHOLDERS' EQUITY (Dollars in Thousands) DTE Energy Company and Subsidiary Companies
(See accompanying Notes to Consolidated Financial Statements.)
CONSOLIDATED STATEMENT OF INCOME (Dollars in Thousands) THE DETROIT EDISON COMPANY AND SUBSIDIARY COMPANIES
(See accompanying Notes to Consolidated Financial Statements.)
CONSOLIDATED STATEMENT OF CASH FLOWS (Dollars in Thousands) THE DETROIT EDISON COMPANY AND SUBSIDIARY COMPANIES
(See accompanying Notes to Consolidated Financial Statements.)
CONSOLIDATED BALANCE SHEET (Dollars in Thousands) THE DETROIT EDISON COMPANY AND SUBSIDIARY COMPANIES
(See accompanying Notes to Consolidated Financial Statements.)
CONSOLIDATED BALANCE SHEET (Dollars in Thousands) THE DETROIT EDISON COMPANY AND SUBSIDIARY COMPANIES
(See accompanying Notes to Consolidated Financial Statements.)
CONSOLIDATED STATEMENT OF COMMON SHAREHOLDERS' EQUITY (Dollars in Thousands) THE DETROIT EDISON COMPANY AND SUBSIDIARY COMPANIES
*At established rate for each series.
(See accompanying Notes to Consolidated Financial Statements.)
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 approximately 98.7% of the Company's assets at December 31, 1996.
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 limited liability companies, partnerships and joint ventures are accounted for using the equity method.
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.
As discussed in Management's Discussion and Analysis of Financial Condition and Results of Operations, the December 19, 1996 MPSC Staff Report on Electric Industry Restructuring, if adopted by the MPSC and Michigan legislature as proposed, would alter the regulatory process in Michigan and provide for a transition to competition for the non-nuclear generation segment of Detroit Edison's business. The Staff Report being considered provides for the recovery of regulatory assets, capital costs of Fermi 2 and costs incurred to implement the transition to competition. Also, if the Staff Report in its present form is adopted, the non-nuclear generation segment of Detroit Edison's business would not qualify for SFAS No. 71 accounting following the transition period. However, Detroit Edison believes that the nuclear generation and transmission and distribution segments of its business will continue to be regulated and qualify under the accounting model prescribed by SFAS No. 71.
Detroit Edison has recorded the following regulatory assets at December 31:
At December 31, 1996 and 1995, Detroit Edison had the following regulatory liabilities: (1) $315 million and $330 million, respectively, for unamortized accumulated deferred investment tax credits, (2) $73 million and $53 million, respectively, for Fermi 2 capacity factor and turbine efficiency disallowances (see Note 3), and (3) $6 million and $22 million, respectively, for other liabilities.
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,
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DTE ENERGY COMPANY, THE DETROIT EDISON COMPANY AND SUBSIDIARY COMPANIES
"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 $102 million, $93 million and $85 million in 1996, 1995 and 1994, respectively.
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 1996, 1995 and 1994, the amounts deferred were $4.5 million, $6 million and $7.5 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.
ALLOWANCE FOR FUNDS USED DURING CONSTRUCTION ("AFUDC") - AFUDC, a non-operating non-cash item, involves a regulatory accounting procedure whereby the approximate interest expense and the cost of other (common and preferred 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 1996, 1995 and 1994. Because the amount of AFUDC computed for MPSC purposes has exceeded the amount computed using the FERC formula, the excess was recorded as a regulatory asset and is being amortized to operating expense over the service life of utility property.
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.
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 1996, 1995 and 1994, 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 1996, 1995 and 1994.
SOFTWARE COSTS - Detroit Edison capitalizes the cost of software developed for internal use. 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.
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 $5.3 million, $7.2 million and $8.9 million in 1996, 1995 and 1994, respectively.
CAPITALIZATION - DISCOUNT AND EXPENSE - The discount 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 and expense related to debt redeemed without refunding are written off to other income and deductions. Capital stock expense related to redeemed preferred stock of Detroit Edison is 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 10.
EMPLOYEE BENEFITS - See Note 13.
STOCK-BASED COMPENSATION - In October 1995, the Financial Accounting Standards Board ("FASB") issued SFAS No. 123, "Accounting for Stock-Based Compensation," effective for 1996. This statement establishes a fair-value based method of accounting for stock compensation plans. As permitted, the Company accounts for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees." See Note 13 for discussion of stock-based compensation as part of the Long-Term Incentive Plan.
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"). This unit represents approximately 25% of total assets, 10% of total operation and maintenance expenses and 9% of summer net rated capability.
MPSC rate orders issued in April 1986, 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.
LICENSING AND OPERATION - The Nuclear Regulatory Commission ("NRC") maintains jurisdiction over the licensing and operation of Fermi 2.
On December 25, 1993, the Fermi 2 reactor automatically shutdown following a turbine-generator failure. The turbine suffered mechanical damage, the exciter and generator incurred mechanical and fire damage, and the condenser had some internal damage. Therefore, Fermi 2 was out of service in 1994 and part of 1995. The nuclear part of the plant was not damaged.
Major repairs were completed in 1994 and early 1995 and the unit operated at a reduced power output through September 26, 1996. These repair costs were approximately $80 million for which to date Detroit Edison has received partial insurance payments of $70 million for property damage. In addition, Detroit Edison has received partial insurance payments of $74.2 million for replacement power costs through December 31, 1996.
The unit was shut down from September 27, 1996 to January 3, 1997 to replace one-third of its nuclear fuel and install three new low-pressure turbines. With the installation of these new turbines the unit is expected to initially operate at 1,085 MW, up from 876 MW prior to this shut down. The $49 million cost of replacing the major turbine components was not covered by insurance. This cost was capitalized and is expected to be recovered in rates because it is 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.
On January 17, 1997, there was an electrical component failure in the switchyard outside the plant which resulted in the "motorizing" of the main generator caused by incoming electricity from the Detroit Edison electrical system. As a result, the Fermi 2 plant was shut down to allow for inspection of the internal components of the plant's generator and required repairs and testing. Detroit Edison expects that the unit will be back in service during the second quarter of 1997. Operation of the reactor was not affected by this incident. Although the costs of repairs are expected to be covered by insurance (subject to a $1 million deductible), this incident will require an increase in the Fermi 2 capacity factor performance standard reserve for the period 1997-1999 which will have an adverse effect on earnings in the first quarter of 1997. 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, effective January 22, 1997, a $10 million deductible for the turbine-generator unit) 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, 1996, 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.
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 $520 million in current 1996 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 1996, 1995 and 1994, Detroit Edison collected $33.5 million, $32.1 million and $26.9 million, respectively, from customers for decommissioning Fermi 2. Also, in 1996, 1995 and 1994, Detroit Edison collected $4.2 million, $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 fund assets during 1996, 1995 and 1994 were $4.4 million, $3.3 million and $1.3 million, respectively. Earnings on the external low-level radioactive waste disposal trust fund assets were $0.7 million, $0.6 million and $0.2 million in 1996, 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 $8.7 million, $4.6 million and $0.7 million in 1996, 1995 and 1994,
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DTE ENERGY COMPANY, THE DETROIT EDISON COMPANY AND SUBSIDIARY COMPANIES
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's disposal costs of $3.5 million and $5.7 million during 1996 and 1995, respectively, were reimbursed by the external trust funds.
At December 31, 1996, Detroit Edison had a reserve of $138.1 million for the future decommissioning of Fermi 2 and $11.2 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 $22.2 million at December 31, 1996 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 $21 million in current 1996 dollars and $114 million in future 2025 dollars.
The FASB 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 Federal Nuclear Waste Policy Act of 1982 provides that in return for this fee the DOE is to provide a permanent repository for spent nuclear fuel by January 31, 1998 which statutory obligation was upheld in October 1996 by the United States Court of Appeals for the District of Columbia Circuit. Nevertheless, the DOE has indicated it will be unable to begin acceptance by the required date and has requested comments from Detroit Edison and other affected companies. The DOE and utilities with nuclear units are pursuing other interim storage options. Detroit Edison estimates that existing temporary storage capacity at Fermi 2 will be sufficient until the year 2001, or until 2017 with the expansion of such storage capacity.
NOTE 3 - REGULATORY 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 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 is the subject of various appeals before the Michigan Court of Appeals.
COMMERCIAL AND INDUSTRIAL RATES - Detroit Edison is continuing to address its competitive status by entering into long-term service contracts with certain of its large commercial and industrial customers. These contracts must be approved by the MPSC prior to implementation. At December 31, 1996 and 1995 these contracts accounted for revenues of approximately $299 million and $208 million, respectively. While there are revenue reductions associated with these long-term service contracts, Detroit Edison believes they are strategically advantageous.
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 $47 million (in 1996 dollars) at December 31, 1996. Under the cap on non-fuel operation and maintenance expenses, the cumulative amount available totals $69 million (in 1996 dollars) at December 31, 1996.
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 operated at a reduced power output during 1995 and 1996. Therefore, the three-year rolling average capacity factor utilized in the Fermi 2 performance standard calculation will be unfavorably affected in the period 1994-1998. The plant's three-year rolling average capacity factor was 53.7% for 1994, 45.4% for 1995 and 33.1% for 1996, utilizing a capacity of 1,093 MW for 1992 and 1993 and 1,139 MW for 1994, 1995 and 1996. The three-year rolling
average capacity factor for the top 50% of U.S. boiling water reactors was 78.6% for 1994 and 81.8% for 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. The capacity factor disallowance for 1995 has not yet been determined by the MPSC. At December 31, 1996, Detroit Edison had accrued $56.8 million (capacity factor disallowances of $95.3 million, less banked credits of $38.5 million) for the Fermi 2 capacity factor performance standard disallowances that are expected to be imposed by the MPSC during the period 1995-1998, based on the following assumptions:
a. Fermi 2 three-year rolling average capacity factor of 45.4% in 1995, 33.1% in 1996, and an estimated 61.7% in 1997 and 71.1% in 1998;
b. Estimated three-year rolling average capacity factor for the top 50% of U.S. boiling water reactors of 81.8% in 1995 and increasing to 84% in 1998;
c. Estimated incremental cost of replacement power of $7.61 per megawatthour in 1995 and increasing to $11 per megawatthour in 1998.
See Note 2 for information on the current Fermi 2 shutdown.
Also, Detroit Edison has recorded an additional liability of $16 million at December 31, 1996 for reduced efficiency of the Fermi 2 turbine in 1995 and 1996 when the unit operated at a reduced power output.
In accordance with the 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, 1996, Detroit Edison's net plant investment in Fermi 2 was $2.8 billion ($3.9 billion less accumulated depreciation and amortization of $1.1 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:
* 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, 1996, 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. Buyback payments to MPPA were $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 Energy Company in proportion to their respective ownership interests in the plant.
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 up to $200 million of its customer accounts receivable and unbilled revenues. At December 31, 1996 and 1995, there were no sales under this agreement. All expenses associated with the agreement were charged to other income and (deductions) in the Consolidated Statement of Income.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DTE ENERGY COMPANY, THE DETROIT EDISON COMPANY AND SUBSIDIARY COMPANIES
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:
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* The Detroit Edison effective income tax rate for 1996 was 40.7%. - --------------------------------------------------------------------------------
Components of income tax expense are as follows:
* The Detroit Edison income tax expense for 1996 was $224,999.
- --------------------------------------------------------------------------------
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.
With the adoption of SFAS 109, "Accounting for Income Taxes" in 1993, an increase in accumulated deferred income tax liabilities was recorded which represented the tax effect of temporary differences not previously recognized, and the recomputation of the 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. The MPSC issued an order 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:
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, 1996.
NOTE 7 - COMMON STOCK AND CUMULATIVE PREFERRED AND PREFERENCE STOCK - --------------------------------------------------------------------------------
At December 31, 1996, the Company had Cumulative Preferred Stock, without par value, 5,000,000 shares authorized with 5,000,000 shares unissued.
At December 31, 1996, Detroit Edison had Cumulative Preference Stock of $1 par value, 30,000,000 shares authorized with 30,000,000 shares unissued.
At December 31, 1996, Detroit Edison had Cumulative Preferred Stock of $100 par value, 6,747,484 shares authorized with 1,539,827 shares unissued, and 1,501,223 and 3,351,223 shares outstanding at December 31, 1996 and 1995, respectively.
Cumulative Preferred Stock outstanding at December 31 was:
On March 21, 1996, Detroit Edison redeemed 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.
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, plus accrued dividends, on and after April 15, 1998 and July 15, 1998, respectively. These series are listed on the New York Stock Exchange as Depositary Receipts (each representing 1/4 of a preferred share) with a par value of $25 each.
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 stock by Detroit Edison.
There are no legal restrictions on the issuance of additional authorized shares of the Company's common and preferred stock.
NOTE 8 - 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, 1996, approximately $3.4 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 8% on any such additional Mortgage Bonds. An additional $1.2 billion principal amount of Mortgage Bonds could have been issued on the basis of bond retirements.
* Weighted average interest rate at December 31, 1996. ** Variable rate at December 31, 1996.
Each series of QUIDS provides 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 such series of QUIDS, Detroit Edison will have the right, upon prior notice by public announcement given in accordance with New York Stock Exchange rules, 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 applicable series of QUIDS would be deferred but would continue to accrue interest 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.
A non-recourse project financing arrangement is in place for PCI Enterprises borrowings of up to $50 million, of which $38.9 million was outstanding at December 31, 1996. This arrangement is collateralized by specific project assets. This
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DTE ENERGY COMPANY, THE DETROIT EDISON COMPANY AND SUBSIDIARY COMPANIES
construction period financing will be converted into a seven-year, variable rate, term loan at the construction loan maturity date of October 31, 1997. The expected maturities of this term loan for 1997, 1998, 1999, 2000 and 2001 consist of $1.5 million, $3.3 million, $3.2 million, $2.8 million and $2.5 million, respectively.
In October 1996, Detroit Edison entered into a three-year interest rate swap agreement based on a notional amount of $25 million. Detroit Edison will receive a rate equal to the London Interbank Offered Rate and pay a rate equal to the quarterly weighted average Public Securities Association Municipal Swap Index divided by 67.3%. The intent of the swap is to shift floating rate exposure from the taxable markets to the tax-exempt markets. As of December 31, 1996 the average rate received was 5.53% and the average rate paid was 5.08%. The swap is subject to market risk of changes in both interest rates and tax rates. Detroit Edison does not believe changes in either or both rates will have a material effect on interest expense.
In 1997, 1998, 1999, 2000 and 2001, Detroit Edison's long-term debt maturities consist of $144 million, $169 million, $219 million, $194 million and $119 million, respectively.
NOTE 9 - SHORT-TERM CREDIT ARRANGEMENTS AND BORROWINGS - -------------------------------------------------------------------------------- At December 31, 1996, Detroit Edison had total short-term credit arrangements of approximately $464 million. At December 31, 1996 and December 31, 1995, $10 million and $37 million, respectively, of short-term borrowings were outstanding. The weighted average interest rates for short-term borrowings during 1996, 1995 and 1994 were 5.6%, 6.1% and 4.3%.
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 1996 and 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, 1996, approximately $264 million was available to Detroit Edison under such Loan Agreement. See Note 10 for a discussion of Detroit Edison's heat purchase contract with Renaissance.
At December 31, 1996, DTE Capital Corporation had a $200 million Revolving Credit Agreement, backed by a Support Agreement from the Company, under which no borrowings were outstanding. Commitment fees incurred in 1996 for this credit agreement were approximately $0.3 million.
NOTE 10 - LEASES
Future minimum lease payments under long-term noncancellable leases, consisting of nuclear fuel ($148 million computed on a projected units of production basis), lake vessels ($36 million), locomotives and coal cars ($152 million), office space ($16 million), and computers, vehicles and other equipment ($3 million) at December 31, 1996 are as follows:
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 $134 million and $145 million at December 31, 1996 and 1995, respectively. The decrease in 1996 from 1995 of $11 million includes additions of $35 million (purchases of $33 million and capitalized interest of $2 million) less $46 million for the amortization of nuclear fuel consumed in 1996.
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 $78 million (including $53 million for nuclear fuel), $97 million (including $67 million for nuclear fuel) and $49 million (including $8 million for nuclear fuel) for 1996, 1995 and 1994, respectively.
NOTE 11 - FAIR VALUE OF FINANCIAL INSTRUMENTS - -------------------------------------------------------------------------------- The fair value of financial instruments is determined by reference to various market data and other valuation techniques as appropriate. The carrying amount of financial instruments, except for long-term debt, approximates fair value. The estimated fair value of total long-term debt at December 31, 1996 and 1995 was $4 billion and $4.1 billion, respectively, compared to the carrying amount of $3.9 billion for each of the two years. For purposes of applying SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities", investments in debt and equity securities are classified as "available for sale."
NOTE 12 - COMMITMENTS AND CONTINGENCIES - -------------------------------------------------------------------------------- COMMITMENTS - Detroit Edison has entered into purchase commitments of approximately $633 million at December 31, 1996, which includes, among other things, line construction and
clearance costs. 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 $30.2 million, $28.2 million and $24.5 million for 1996, 1995 and 1994, respectively, and annual purchase commitments are approximately $35 million, $36 million, $37 million, $39 million and $40 million for 1997, 1998, 1999, 2000 and 2001, respectively. See Note 14 relating to steam heating special charges.
On October 25, 1995, the MPSC issued an order approving Detroit Edison's long-term capacity and energy purchase agreement from Ontario Hydro. The purchase is for 300 MW, on a seasonal basis from mid-May through mid-September for the years 1996 through 2001. This purchase will offset a concomitant agreement to lease 312 MW of 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.
CONTINGENCIES - LEGAL PROCEEDINGS - On May 28, 1996, an order was issued by the Circuit Court for Wayne County, Michigan certifying a plaintiff class (Gilford, et al v Detroit Edison) in a lawsuit claiming that Detroit Edison had engaged in age and racial discrimination. Detroit Edison has requested leave to appeal the class certification to the Michigan Supreme Court and has requested a stay of proceedings. A notice has been sent to potential class members, however, the size of the potential class will not be determinable until late May 1997 at the earliest. Detroit Edison is of the opinion that the allegations of discrimination are without merit.
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 was completed in the spring of 1996. An additional clean-up of the sewer and sewer outfall emptying into the Detroit River began in August 1996 and was completed in November 1996. It is expected the site will soon be removed from the National Priorities List.
OTHER - 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, results of operations and cash flows.
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 employees' 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 $16 million, $29.6 million and $45.8 million for 1996, 1995 and 1994, respectively.
Net pension cost included the following components:
Assumptions used in determining net pension cost are as follows:
The following reconciles the funded status of the Plan to the amount recorded in the Consolidated Balance Sheet:
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DTE ENERGY COMPANY, THE DETROIT EDISON COMPANY AND SUBSIDIARY COMPANIES
Assumptions used in determining the projected benefit obligation are as follows:
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 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 1996 and 1995, 56,000 shares and 66,500 shares, respectively, of restricted common stock, valued at approximately $3.8 million, were conditionally granted to officers of Detroit Edison. Compensation cost of $1,165,000 and $571,000 in 1996 and 1995, respectively, 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 not exceeding 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. Based upon performance under the 1995 plan 12,192 shares were forfeited. 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. Disclosures required by SFAS No. 123 have been omitted because such amounts are considered immaterial.
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 $17.2 million, $13.7 million and $12.5 million for 1996, 1995 and 1994, 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 was 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 four-year period 1994-1997.
Net other postretirement benefits cost included the following components:
Assumptions used in determining net other postretirement benefits costs are as follows:
The following reconciles the funded status to the amount recorded in the Consolidated Balance Sheet:
Assumptions used in determining the accumulated benefit obligation are as follows:
Benefit costs were calculated assuming health care cost trend rates beginning at 10.5% for 1996 and decreasing to 5.5% in 2008 and thereafter for persons under age 65 and decreasing from 6.5% to 5.5% for persons age 65 and over. 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 $9 million for 1996 and increase the accumulated benefit obligation by $76 million at December 31, 1996.
NOTE 14 - STEAM HEATING SPECIAL CHARGES - --------------------------------------------------------------------------------
The Company adopted SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," 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 of $42 million ($32 million after-tax) or $0.22 per share in 1995.
During the third quarter of 1996, following the completion of a review of its steam heating operations, Detroit Edison recorded a special charge to net income of $149.2 million ($97 million after-tax) or $0.67 per share. The special charge included a reserve for steam purchase commitments during the period from 1997 through 2008 under the agreement with the Detroit Resource Recovery Facility, and for expenditures in 1997 for closure of a portion of the steam heating system and improvements in service to remaining customers. See Note 12.
The reserve for steam purchase commitments was recorded at its present value of $134 million at December 31, 1996, using a risk free discount rate of 6.9%, and is included in Other Deferred Credits in the Consolidated Balance Sheet. Therefore, Detroit Edison will record non-cash accretion expense during the period 1997-2008.
NOTE 15 - SUPPLEMENTARY QUARTERLY FINANCIAL INFORMATION (UNAUDITED) - --------------------------------------------------------------------------------
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The third quarter of 1996 includes the steam heating special charge to net income of $149.2 million ($97 million after-tax) or $0.67 per share. See Note 14.
The fourth quarter of 1996 includes a provision for Fermi 2 capacity factor disallowances in the period 1996-1998 and for reduced efficiency of the Fermi 2 turbine in 1995 and 1996 of $20 million ($13 million after-tax) or $0.09 per share. See Note 3.
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 share. See Note 14.
Earnings per share amounts for each quarter are required to be computed independently and, therefore, may not equal the amount computed for the total year.
ITEM 9
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 years 1995 and 1996. The appointments were ratified by the Common Stock Shareholders at the Annual Meetings of Common Stock Shareholders held on April 24, 1995 and April 22, 1996, respectively. Deloitte & Touche LLP's report on the financial statements for the years ending December 31, 1995 and 1996 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 fiscal year 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 year. Price Waterhouse LLP's report on the financial statements for the year ended December 31, 1994 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.
PART III
ITEM 10
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 25-26 thereof; 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 21, 1997, in connection with its Annual Meeting of Shareholders to be held on April 28, 1997; and information regarding directors is incorporated herein by reference to the data under the heading "The Election of Directors" on pages 2-6 of the Company's definitive proxy statement dated March 21, 1997, in connection with its Annual Meeting of Shareholders to be held on April 28, 1997.
ITEM 11
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 9-16 of the Company's definitive proxy statement dated March 21, 1997, in connection with its Annual Meeting of Shareholders to be held on April 28, 1997.
ITEM 12
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 Certain Beneficial Owners" on pages 7-8 of the Company's definitive proxy statement dated March 21, 1997, in connection with its Annual Meeting of Shareholders to be held on April 28, 1997.
ITEM 13
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 16 of the Company's definitive proxy statement dated March 21, 1997, in connection with its Annual Meeting of Shareholders to be held on April 28, 1997.
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.
(a) As of March 1, 1997
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, Earley and Meador, all of the above officers have been employed by Detroit Edison in one or more management capacities during the past five years.
On March 28, 1997, Ronald W. Gresens will retire.
The following appointments are effective April 1, 1997: Gerard M. Anderson - Executive Vice President, Robert J. Buckler - Executive Vice President and Michael E. Champley - Senior Vice President.
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.
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.
David E. Meador was Controller, Mopar Parts Division, at Chrysler Corporation, an international automotive manufacturer, from November 1996 until February 1997. From 1986 to 1996, he held a variety of executive financial positions at Chrysler. Effective February 28, 1997, he was elected Vice President and effective March 29, 1997, he will assume the duties of Controller.
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," the third paragraph of 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 amount of dividends paid by Detroit Edison to the Company will depend on Detroit Edison's earnings, financial condition and other factors, including the effects of utility restructuring efforts, each of which is periodically reviewed by Detroit Edison's Board of Directors.
ITEM 6 - SELECTED FINANCIAL DATA.
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.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See pages 36 through 59.
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 2-6 of the Company's definitive proxy statement dated March 21, 1997, in connection with its Annual Meeting of Shareholders to be held on April 28, 1997.
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 9-16 of the Company's definitive proxy statement dated March 21, 1997, in connection with its Annual Meeting of Shareholders to be held on April 28, 1997.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
All of Detroit Edison's Common Stock is owned by the Company.
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 16 of the Company's definitive proxy statement dated March 21, 1997, in connection with its Annual Meeting of Shareholders to be held on April 28, 1997.
ANNUAL REPORTS ON FORM 10-K FOR DTE ENERGY COMPANY AND THE DETROIT EDISON COMPANY
PART IV
ITEM 14
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 36.
(2) Financial statement schedules. See "Item 8 - Financial Statements and Supplementary Data" on page 36.
(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 ------- 4-177 - Supplemental Indenture establishing the Series KKP No. 12 Mortgage Bonds, dated as of November 1, 1990.
4-178 - Supplemental Indenture establishing the 1991 Series BP and 1991 Series CP Mortgage Bonds, dated as of May 1, 1991.
4-179 - Supplemental Indenture establishing the 1991 Series DP Mortgage Bonds, dated as of May 15, 1991.
4-180 - Supplemental Indenture establishing the 1991 Series EP Mortgage Bonds, dated as of September 1, 1991.
4-181 - Supplemental Indenture establishing the 1991 Series FP Mortgage Bonds, dated as of November 1, 1991.
4-182 - Supplemental Indenture establishing the 1992 Series BP Mortgage Bonds, dated as of January 15, 1992.
*10-4 - Amended and Restated Supplemental Long-Term Disability Plan, dated January 27, 1997.
Exhibit Number ------- *10-5 - Certain arrangements pertaining to the employment of David E. Meador.
11-6 - DTE Energy Company and Subsidiary Companies Primary and Fully Diluted Earnings Per Share of Common Stock.
12-4 - DTE Energy Company and Subsidiary Companies Computation of Ratio of Earnings to Fixed Charges.
12-5 - The Detroit Edison Company and Subsidiary Companies Computation of Ratio of Earnings to Fixed Charges.
12-6 - DTE Energy Company and Subsidiary Companies Computation of Ratio of Earnings to Fixed Charges and Preferred Stock Dividends.
12-7 - The Detroit Edison Company and Subsidiary Companies Computation of Ratio of Earnings to Fixed Charges and Preferred Stock Dividends.
16-2 - Letter regarding change in certifying accountant.
21-1 - Subsidiaries of the Company and Detroit Edison.
23-9 - Consent of Deloitte & Touche LLP.
23-10 - Consent of Price Waterhouse LLP.
27-9 - Financial Data Schedule for the period ended December 31, 1996 for DTE Energy Company and Subsidiary Companies.
27-10 - Financial Data Schedule for the period ended December 31, 1996 for The Detroit Edison Company and Subsidiary Companies.
(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).
Exhibit Number ------- 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).
3(f) - Amended and Restated By-Laws, dated as of February 26, 1996, of the Company (Exhibit 3-3 to Form 10-K for year ended December 31, 1996).
3(g) - Amended and Restated By-Laws, dated as of February 26, 1996, of Detroit Edison (Exhibit 3-4 to Form 10-K for year ended December 31, 1996).
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
Exhibit Number -------
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 April 1, 1991 Exhibit 4-15 to Form 10-K for year ended December 31, 1996 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
Exhibit Number -------
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.
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) - First Amendment, dated as of August 15, 1996, to Second Supplemental Note Indenture (Exhibit 4-17 to Form 10-Q for quarter ended September 30, 1996).
4(f) - Third Supplemental Note Indenture, dated as of August 15, 1994 (Exhibit 4-169 to Form 10-Q for quarter ended September 30, 1994).
4(g) - 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(h) - 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).
Exhibit Number ------- 4(i) - Fifth Supplemental Note Indenture, dated as of February 1, 1996 (Exhibit 4-14 to Form 10-K for year ended December 31, 1996).
4(j) - Standby Note Purchase Credit Facility, dated as of August 17, 1994, among The Detroit Edison Company, Barclays Bank PLC, as Bank and Administrative Agent, Bank of America, The Bank of New York, The Fuji Bank Limited, The Long-Term Credit Bank of Japan, LTD, Union Bank and Citicorp Securities, Inc. and First Chicago Capital Markets, Inc. as Remarketing Agents (Exhibit 99-18 to Form 10-Q for quarter ended September 30, 1994).
4(k) - Support Agreement, dated as of March 8, 1996, between the Company and Detroit Edison (Exhibit 4-176 to Form 10-Q for quarter ended March 31, 1996).
*10(a) - Form of 1995 Indemnification Agreement between the Company and its directors and officers (Exhibit 3L (10-1) to DTE Energy Company Form 8-B dated January 2, 1996).
*10(b) - Form of Indemnification Agreement between Detroit Edison and its officers other than those identified in *10(l) (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) - The Detroit Edison 1996 Shareholder Value Improvement Plan - A (Exhibit 10-1 to Form 10-K for year ended December 31, 1996).
*10(e) - 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(f) - 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).
Exhibit Number -------- *10(g) - Amended and Restated Detroit Edison Company Savings Reparation Plan (Exhibit 10-4 to Form 10-Q for quarter ended March 31, 1996).
*10(h) - 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(i) - 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(j) - 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(k) - 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(l) - 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(m) - Form of Indemnification Agreement between Detroit Edison and its directors (Exhibit 19-8 to Detroit Edison's Form 10-Q for quarter ended March 31, 1992).
*10(n) - Detroit Edison Key Employee Deferred Compensation Plan (January, 1990) (Exhibit 10-2 to Form 10-K for year ended December 31, 1996).
*10(o) - Executive Vehicle Program, dated October 1, 1993 (Exhibit 10-47 to Detroit Edison's Form 10-Q for quarter ended September 30, 1993).
*10(p) - 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).
Exhibit Number -------- *10(q) - 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(r) - 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(s) - 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(t) - 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(u) - 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).
*10(v) - Long-Term Incentive Plan (Exhibit 10-3 to Form 10-K for year ended December 31, 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).
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).
Exhibit Number -------- 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) - $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(g) - 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(h) - Third Amendment, dated as of March 8, 1996, to $200,000,000 364-Day Credit Agreement, dated September 1, 1993, as amended, among Detroit Edison, Renaissance, the Banks party thereto and Barclays Bank, PLC, New York Branch, as Agent (Exhibit 99-11 to Form 10-Q for quarter ended March 31, 1996).
99(i) - Fourth Amendment, dated as of August 29, 1996, to $200,000,000 364-Day Credit Agreement as of September 1, 1990, as amended, among Detroit Edison, Renaissance, the Banks party thereto and Barclays Bank, PLC, New York Branch, as Agent (Exhibit 99-13 to Form 10-Q for quarter ended September 30, 1996).
99(j) - $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(k) - 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).
Exhibit Number -------- 99(l) - Third Amendment, dated as of March 8, 1996, to $200,000,000 Three-Year Credit Agreement, dated September 1, 1993, as amended among Detroit Edison, Renaissance, the Banks party thereto and Barclays Bank, PLC, New York Branch, as Agent (Exhibit 99-12 to Form 10-Q for quarter ended March 31, 1996).
99(m) - Fourth Amendment, dated as of September 1, 1996, to $200,000,000 Multi-Year (formerly Three-Year) Credit Agreement, dated as of September 1, 1993, as amended among Detroit Edison, Renaissance, the Banks party thereto and Barclays Bank, PLC, New York Branch, as Agent (Exhibit 99-14 to Form 10-Q for quarter ended September 30, 1996).
99(n) - 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).
99(o) - 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(p) - 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(q) - 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(r) - Fourth Amendment, dated as of March 8, 1996, to 1988 Amended and Restated Nuclear Fuel Heat Purchase Contract Agreement, dated as of October 4, 1988, between Detroit Edison and Renaissance (Exhibit 99-10 to Form 10-Q for quarter ended March 31, 1996).
Exhibit Number -------- 99(s) - 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(t) - First Amendment, effective as of February 1, 1995, to Master Trust (Exhibit 4-10 to Registration No. 333-00023).
99(u) - Second Amendment, effective as of February 1, 1995 to Master Trust (Exhibit 4-11 to Registration No. 333-00023).
99(v) - Third Amendment, effective January 1, 1996, to Master Trust (Exhibit 4-12 to Registration No. 333-00023).
99(w) - The Detroit Edison Company Irrevocable Grantor Trust for The Detroit Edison Company Savings Reparation Plan (Exhibit 99-1 to Form 10-K for year ended December 31, 1996).
99(x) - The Detroit Edison Company Irrevocable Grantor Trust for The Detroit Edison Company Retirement Reparation Plan (Exhibit 99-2 to Form 10-K for year ended December 31, 1996).
99(y) - The Detroit Edison Company Irrevocable Grantor Trust for The Detroit Edison Company Management Supplemental Benefit Plan (Exhibit 99-3 to Form 10-K for year ended December 31, 1996).
99(z) - The Detroit Edison Company Irrevocable Grantor Trust for The Detroit Edison Company Benefit Equalization Plan (Exhibit 99-4 to Form 10-K for year ended December 31, 1996).
99(aa) - The Detroit Edison Company Irrevocable Grantor Trust for The Detroit Edison Company Plan for Deferring the Payment of Directors' Fees (Exhibit 99-5 to Form 10-K for year ended December 31, 1996).
99(bb) - The Detroit Edison Company Irrevocable Grantor Trust for The DTE Energy Company Retirement Plan for Non-Employee Directors (Exhibit 99-6 to Form 10-K for year ended December 31, 1996).
Exhibit Number -------- 99(cc) - DTE Energy Company Irrevocable Grantor Trust for The DTE Energy Company Plan for Deferring the Payment of Directors' Fees (Exhibit 99-7 to Form 10-K for year ended December 31, 1996).
99(dd) - DTE Energy Company Irrevocable Grantor Trust for The DTE Energy Company Retirement Plan for Non-Employee Directors (Exhibit 99-8 to Form 10-K for year ended December 31, 1996).
99(ee) - Credit Agreement, dated as of March 1, 1996 among DTE Capital Corporation, the Initial Lenders named therein, and Citibank, N.A., as Agent (Exhibit 99-9 to Form 10-Q for quarter ended March 31, 1996).
(b) Registrants filed a report on Form 8-K dated December 20, 1996, disclosing the issuance of the MPSC Staff Report on Electric Industry Restructuring.
(c) *Denotes management contract or compensatory plan or arrangement required to be filed as an exhibit to this report.
DTE ENERGY COMPANY, THE DETROIT EDISON COMPANY AND SUBSIDIARY COMPANIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
- ---------------------
(a) Collection of accounts previously written off.
(b) Uncollectible accounts written off.
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.
Date: March 24, 1997
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.
Date: March 24, 1997
DTE ENERGY COMPANY
FILE NO. 1-11607 THE DETROIT EDISON COMPANY FILE NO. 1-2198
ANNUAL REPORTS ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1996
EXHIBIT INDEX
Exhibits filed herewith.
Exhibit Number Page No. ____
4-177 - Supplemental Indenture establishing the Series KKP No. 12 Mortgage Bonds, dated as of November 1, 1990.
4-178 - Supplemental Indenture establishing the 1991 Series BP and 1991 Series CP Mortgage Bonds, dated as of May 1, 1991.
4-179 - Supplemental Indenture establishing the 1991 Series DP Mortgage Bonds, dated as of May 15, 1991.
4-180 - Supplemental Indenture establishing the 1991 Series EP Mortgage Bonds, dated as of September 1, 1991.
4-181 - Supplemental Indenture establishing the 1991 Series FP Mortgage Bonds, dated as of November 1, 1991.
4-182 - Supplemental Indenture establishing the 1992 Series BP Mortgage Bonds, dated as of January 15, 1992.
*10-4 - Amended and Restated Supplemental Long-Term Disability Plan, dated January 27, 1997.
*10-5 - Certain arrangements pertaining to the employment of David E. Meador.
11-6 - DTE Energy Company and Subsidiary Companies Primary and Fully Diluted Earnings Per Share of Common Stock.
12-4 - DTE Energy Company and Subsidiary Companies Computation of Ratio of Earnings to Fixed Charges.
Exhibit Number
12-5 - The Detroit Edison Company and Subsidiary Companies Computation of Ratio of Earnings to Fixed Charges.
12-6 - DTE Energy Company and Subsidiary Companies Computation of Ratio of Earnings to Fixed Charges and Preferred Stock Dividends.
12-7 - The Detroit Edison Company and Subsidiary Companies Computation of Ratio of Earnings to Fixed Charges and Preferred Stock Dividends.
16-2 - Letter regarding change in certifying accountant.
21-1 - Subsidiaries of the Company and Detroit Edison.
23-9 - Consent of Deloitte & Touche LLP.
23-10 - Consent of Price Waterhouse LLP.
27-9 - Financial Data Schedule for the period ended December 31, 1996 for DTE Energy Company and Subsidiary Companies.
27-10 - Financial Data Schedule for the period ended December 31, 1996 for The Detroit Edison Company and Subsidiary Companies.
Exhibits incorporated herein by reference. See Page Nos. ___ through ___ for location
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.
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 Number
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.
3(d) - Amended and Restated Articles of Incorporation of DTE Energy Company, dated December 13, 1995.
3(e) - Agreement and Plan of Exchange.
3(f) - Amended and Restated By-Laws, dated as of February 26, 1996, of the Company.
3(g) - Amended and Restated By-Laws, dated as of February 26, 1996, of Detroit Edison.
4(a) - Mortgage and Deed of Trust, dated as of October 1, 1924, between Detroit Edison and Bankers Trust Company as Trustee and indentures supplemental thereto, dated as of dates indicated below.
September 1, 1947
October 1, 1968
November 15, 1971
January 15, 1973
June 1, 1978
June 30, 1982
August 15, 1982
October 15, 1985
November 30, 1987
July 15, 1989
December 1, 1989
Exhibit Number
February 15, 1990
April 1, 1991
February 29, 1992
April 15, 1992
July 15, 1992
July 31, 1992
November 30, 1992
January 1, 1993
March 1, 1993
March 15, 1993
April 1, 1993
April 26, 1993
May 31, 1993
June 30, 1993
June 30, 1993
September 15, 1993
March 1, 1994
June 15, 1994
August 15, 1994
December 1, 1994
August 1, 1995
Exhibit Number
4(b) - Collateral Trust Indenture (notes), dated as of June 30, 1993.
4(c) - First Supplemental Note Indenture, dated as of June 30, 1993.
4(d) - Second Supplemental Note Indenture, dated as of September 15, 1993.
4(e) - First Amendment, dated as of August 15, 1996, to Second Supplemental Note Indenture.
4(f) - Third Supplemental Note Indenture, dated as of August 15, 1994.
4(g) - First Amendment, dated as of December 12, 1995, to Third Supplemental Note Indenture, dated as of August 15, 1994.
4(h) - Fourth Supplemental Note Indenture, dated as of August 15, 1995.
4(i) - Fifth Supplemental Note Indenture, dated as of February 1, 1996.
4(j) - Standby Note Purchase Credit Facility, dated as of August 17, 1994, among The Detroit Edison Company, Barclays Bank PLC, as Bank and Administrative Agent, Bank of America, The Bank of New York, The Fuji Bank Limited, The Long-Term Credit Bank of Japan, LTD, Union Bank and Citicorp Securities, Inc. and First Chicago Capital Markets, Inc. as Remarketing Agents.
4(k) - Support Agreement, dated as of March 8, 1996, between the Company and Detroit Edison.
*10(a) - Form of 1995 Indemnification Agreement between the Company and its directors and officers.
*10(b) - Form of Indemnification Agreement between Detroit Edison and its officers other than those identified in *10(l).
*10(c) - The Detroit Edison Company Shareholder Value Improvement Plan - A, as amended and restated effective January 1, 1996.
Exhibit Number
*10(d) - The Detroit Edison 1996 Shareholder Value Improvement Plan - A.
*10(e) - Certain arrangements pertaining to the employment of S. Martin Taylor.
*10(f) - Certain arrangements pertaining to the employment of Anthony F. Earley, Jr.
*10(g) - Amended and Restated Detroit Edison Company Savings Reparation Plan.
*10(h) - Certain arrangements pertaining to the employment of Haven E. Cockerham.
*10(i) - Third Restatement of the Retirement Reparation Plan for Certain Employees of Detroit Edison, effective as of January 1, 1996.
*10(j) - Third Restatement of the Benefit Equalization Plan for Certain Employees of Detroit Edison, effective as of January 1, 1996.
*10(k) - Certain arrangements pertaining to the employment of Larry G. Garberding.
*10(l) - Form of Indemnification Agreement, between Detroit Edison and (1) John E. Lobbia, (2) Larry G. Garberding and (3) Anthony F. Earley, Jr.
*10(m) - Form of Indemnification Agreement between Detroit Edison and its directors.
*10(n) - Detroit Edison Key Employee Deferred Compensation Plan (January, 1990).
*10(o) - Executive Vehicle Program, dated October 1, 1993.
*10(p) - Amendment No. 1 to Executive Vehicle Plan, November 1993.
*10(q) - Certain arrangements pertaining to the employment of Gerard M. Anderson.
Exhibit Number
*10(r) - Third Restatement of The Detroit Edison Company Management Supplemental Benefit Plan, effective as of January 1, 1996.
*10(s) - Third Restatement of The Detroit Edison Company Plan for Deferring the Payment of Directors' Fees (January 1, 1996).
*10(t) - DTE Energy Company Retirement Plan for Non-Employee Directors (January 1, 1996).
*10(u) - DTE Energy Company Plan for Deferring the Payment of Directors' Fees (January 1, 1996).
*10(v) - Long-Term Incentive Plan.
99(a) - Belle River Participation Agreement between Detroit Edison and Michigan Public Power Agency, dated as of December 1, 1982.
99(b) - Belle River Transmission Ownership and Operating Agreement between Detroit Edison and Michigan Public Power Agency, dated as of December 1, 1982.
99(c) - 1988 Amended and Restated Loan Agreement, dated as of October 4, 1988, between Renaissance Energy Company (an unaffiliated company) ("Renaissance") and Detroit Edison.
99(d) - First Amendment to 1988 Amended and Restated Loan Agreement, dated as of February 1, 1990, between Detroit Edison and Renaissance.
99(e) - Second Amendment to 1988 Amended and Restated Loan Agreement, dated as of September 1, 1993, between Detroit Edison and Renaissance.
99(f) - $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.
99(g) - 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,
Exhibit Number
Renaissance Energy Company, the Banks party thereto and Barclays Bank, PLC, New York Branch, as Agent.
99(h) - Third Amendment, dated as of March 8, 1996, to $200,000,000 364-Day Credit Agreement, dated September 1, 1993, as amended, among Detroit Edison, Renaissance, the Banks party thereto and Barclays Bank, PLC, New York Branch, as Agent.
99(i) - Fourth Amendment, dated as of August 29, 1996, to $200,000,000 364-Day Credit Agreement as of September 1, 1990, as amended, among Detroit Edison, Renaissance, the Banks party thereto and Barclays Bank, PLC, New York Branch, as Agent.
99(j) - $200,000,000 Three-Year Credit Agreement, dated September 1, 1993, among Detroit Edison, Renaissance and Barclays Bank PLC, New York Branch, as Agent.
99(k) - 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.
99(l) - Third Amendment, dated as of March 8, 1996, to $200,000,000 Three-Year Credit Agreement, dated September 1, 1993, as amended among Detroit Edison, Renaissance, the Banks party thereto and Barclays Bank, PLC, New York Branch, as Agent.
99(m) - Fourth Amendment, dated as of September 1, 1996, to $200,000,000 Multi-Year (formerly Three-Year) Credit Agreement, dated as of September 1, 1993, as amended among Detroit Edison, Renaissance, the Banks party thereto and Barclays Bank, PLC, New York Branch, as Agent.
99(n) - 1988 Amended and Restated Nuclear Fuel Heat Purchase Contract, dated October 4, 1988, between Detroit Edison and Renaissance.
99(o) - First Amendment to 1988 Amended and Restated Nuclear Fuel Heat Purchase Contract, dated as of February 1, 1990, between Detroit Edison and Renaissance.
Exhibit Number
99(p) - Second Amendment, dated as of September 1, 1993, to 1988 Amended and Restated Nuclear Fuel Heat Purchase Contract between Detroit Edison and Renaissance.
99(q) - Third Amendment, dated as of August 31, 1994, to 1988 Amended and Restated Nuclear Fuel Heat Purchase Contract, dated October 4, 1988, between The Detroit Edison Company and Renaissance Energy Company.
99(r) - Fourth Amendment, dated as of March 8, 1996, to 1988 Amended and Restated Nuclear Fuel Heat Purchase Contract Agreement, dated as of October 4, 1988, between Detroit Edison and Renaissance.
99(s) - 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.
99(t) - First Amendment, effective as of February 1, 1995, to Master Trust.
99(u) - Second Amendment, effective as of February 1, 1995 to Master Trust.
99(v) - Third Amendment, effective January 1, 1996, to Master Trust.
99(w) - The Detroit Edison Company Irrevocable Grantor Trust for The Detroit Edison Company Savings Reparation Plan.
99(x) - The Detroit Edison Company Irrevocable Grantor Trust for The Detroit Edison Company Retirement Reparation Plan.
99(y) - The Detroit Edison Company Irrevocable Grantor Trust for The Detroit Edison Company Management Supplemental Benefit Plan.
99(z) - The Detroit Edison Company Irrevocable Grantor Trust for The Detroit Edison Company Benefit Equalization Plan.
99(aa) - The Detroit Edison Company Irrevocable Grantor Trust for The Detroit Edison Company Plan for Deferring the Payment of Directors' Fees.
Exhibit Number
99(bb) - The Detroit Edison Company Irrevocable Grantor Trust for The DTE Energy Company Retirement Plan for Non-Employee Directors.
99(cc) - DTE Energy Company Irrevocable Grantor Trust for The DTE Energy Company Plan for Deferring the Payment of Directors' Fees.
99(dd) - DTE Energy Company Irrevocable Grantor Trust for The DTE Energy Company Retirement Plan for Non-Employee Directors.
99(ee) - Credit Agreement, dated as of March 1, 1996 among DTE Capital Corporation, the Initial Lenders named therein, and Citibank, N.A., as Agent.
*Denotes management contract or compensatory plan or arrangement required to be filed as an exhibit to this report.