Washington, D.C. 20549
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2000
| Commission | Registrants; State of Incorporation; | I.R.S. Employer | ||
| File Number | Address; and Telephone Number | Identification No. | ||
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1-11607
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DTE Energy Company
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38-3217752
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(a Michigan corporation)
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2000 2nd Avenue
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Detroit, Michigan 48226-1279
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313-235-4000
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1-2198
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The Detroit Edison Company
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38-0478650
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(a Michigan corporation)
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2000 2nd Avenue
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Detroit, Michigan 48226-1279
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313-235-8000
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Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Name of each exchange on which registered | ||
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DTE Energy Company
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New York and Chicago Stock Exchanges
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Common Stock, without par value, with contingent preferred stock
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purchase rights
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The Detroit Edison Company
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Quarterly Income Debt Securities (QUIDS)
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(Junior Subordinated Deferrable Interest Debentures
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New York Stock Exchange
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- 7.625%, 7.54% and 7.375% Series)
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Securities registered pursuant to Section 12(g) of the Act:
Indicate by check mark whether the registrants (1) have filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrants were required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days. Yes
No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrants’ knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
At January 31, 2001, 142,649,172 shares of DTE Energy’s Common Stock, substantially all held by non-affiliates, were outstanding, with an aggregate market value of approximately $5.034 billion based upon the closing price on the New York Stock Exchange.
Certain information in DTE Energy Company’s definitive Proxy Statement for its
2001 Annual Meeting of Common Shareholders to be held April 25, 2001, which will
be filed with the Securities and Exchange Commission pursuant to Regulation 14A,
not later than 120 days after the end of the Registrants’ fiscal year covered by
this report on Form 10-K, is incorporated herein by reference to Part III (Items
10, 11, 12 and 13) of this Form 10-K.
and
The Detroit Edison Company
FORM 10-K
Year Ended December 31, 2000
This document contains the Annual Reports on Form 10-K for the fiscal year ended December 31, 2000 for each of DTE Energy Company and The Detroit Edison Company. Information contained herein relating to an individual registrant is filed by such registrant on its own behalf. Accordingly, except for its subsidiaries, The Detroit Edison Company makes no representation as to information relating to DTE Energy Company or any other companies affiliated with DTE Energy Company.
2
Part II
75
75
75
75
79
Part III
79
79
79
79
The Detroit Edison Company:
Part IV
80
95
96
3
Energy Company)
transmission system which results in access to competitive
generation resources
with Consumers)
and Detroit Edison
4
Item 1 – Business.
GENERAL
The Company, a Michigan corporation incorporated in 1995, is an exempt holding company under the Public Utility Holding Company Act of 1935, as amended. The Company has no operations of its own, holding instead directly or indirectly, the stock of Detroit Edison and other subsidiaries engaged in energy-related businesses. Detroit Edison is the Company’s principal operating subsidiary, representing approximately 87% and 74% of the Company’s assets and revenues, respectively, at December 31, 2000. The Company has no employees. Detroit Edison has 8,691 employees and other Company affiliates have 453 employees.
See Note 2 for information regarding the Company’s proposed merger with MCN.
NON-REGULATED OPERATIONS
Affiliates of the Company are engaged in non-regulated businesses, including energy-related services and products. Such services and products include the operation of pulverized coal facilities and coke oven batteries, coal sourcing, blending and transportation, landfill gas-to-energy facilities, providing expertise in the application of new energy technologies, real estate development and power marketing and trading. Another affiliate, DTE Capital, has approximately $400 million of outstanding debt. DTE Capital will transfer all of its assets and liabilities to the Company and merge its operations into the Company. See Note 9 for further discussion.
Non-regulated operating revenues of $1.468 billion for 2000 were earned primarily from projects related to the steel industry and from energy trading activities.
UTILITY OPERATIONS
Detroit Edison, incorporated in Michigan since 1967, is a public utility subject to regulation by the MPSC and FERC and is engaged in the generation, purchase, transmission, distribution and sale of electric energy in a 7,600 square mile area in Southeastern Michigan. Detroit Edison’s service area includes about 13% of Michigan’s total land area and about half of its population (approximately five million people). Detroit Edison’s residential customers reside in urban and rural areas, including an extensive shoreline along the Great Lakes and connecting waters. 4,287 of Detroit Edison’s 8,691 employees are represented by unions under two collective bargaining agreements. One agreement expires in June 2004 for 3,719 employees and the other agreement expires in September 2005 for 568 employees.
Effective January 2001, the transmission assets of Detroit Edison were transferred to ITC, a wholly owned subsidiary of Detroit Edison.
5
Operating revenues, sales and customer data by rate class are as follows:
2000
1999
1998
(Millions)
$
1,265
$
1,300
$
1,253
1,670
1,629
1,553
848
809
753
346
309
343
$
4,129
$
4,047
$
3,902
(Millions of kWh)
13,903
14,064
13,752
19,762
19,546
18,897
16,090
15,647
14,700
2,653
2,595
2,357
52,408
51,852
49,706
2,592
3,672
5,207
55,000
55,524
54,913
(Thousands)
1,922
1,904
1,884
185
182
181
1
1
1
2
2
2
2,110
2,089
2,068
Detroit Edison generally experiences its peak load and highest total system sales during the third quarter of the year as a result of air conditioning and cooling-related loads.
During 2000, sales to automotive and automotive-related customers accounted for approximately 9% of total Detroit Edison operating revenues. Detroit Edison’s 30 largest industrial customers accounted for approximately 17% of total operating revenues in 2000, 1999 and 1998, and no one customer accounted for more than 5% of total operating revenues.
Detroit Edison’s generating capability is primarily dependent upon coal. Detroit Edison expects to obtain the majority of its coal requirements through long-term contracts and the balance through short-term agreements and spot purchases. Detroit Edison has contracts with three coal suppliers for a total purchase of up to 39 million tons of low-sulfur western coal to be delivered during the period from 2001 through 2005. It also has one contract for the purchase of approximately 11.9 million tons of Appalachian coal to be delivered during the period from 2001 through 2007. These existing long-term coal contracts include provisions for price escalation as well as de-escalation.
6
Certain Factors Affecting Public Utilities
The electric utility industry is changing as the transition to competition occurs. The implementation of electric utility restructuring creates uncertainty as Electric Choice and the unbundling of utility products and services continues. Restructuring presents serious issues, such as planning for peak sales and defining the scope of the public utility obligation. The introduction of Electric Choice has created uncertainty regarding the timing and level of customer load that may move to other suppliers.
Detroit Edison is subject to extensive environmental regulation. Additional costs may result as the effects of various chemicals on the environment (including nuclear waste) are studied and governmental regulations are developed and implemented. The costs of future nuclear decommissioning activities are the subject of increased regulatory attention, and recovery of environmental costs through traditional ratemaking is the subject of considerable uncertainty.
Regulation and Rates
Michigan Public Service Commission.
Detroit Edison is subject to the general regulatory jurisdiction of the MPSC, which, from time to time, issues its orders pertaining to Detroit Edison’s conditions of service, rates and recovery of certain costs, accounting and various other matters.
See Notes 1 and 3 for a discussion of June 2000 Michigan restructuring legislation and related MPSC orders. Other regulatory matters are discussed below.
In July 1998, Detroit Edison filed a required review of its current depreciation rates with the MPSC. The application requested an effective increase in annual depreciation expenses of $66 million; an adjustment in customer rates was not requested. Detroit Edison has not implemented the revised depreciation rates and is unable to predict the timing or final outcome of this request.
In March 1999, the MPSC initiated new dockets to 1) evaluate the need to expedite the supplier licensing program as an alternative for suppliers to obtain local franchises and Certificates of Public Convenience and Necessity from the MPSC, and 2) to establish guidelines for transactions between affiliates. The MPSC approved a licensing procedure for alternative electric suppliers in June 2000. The MPSC issued guidelines for transactions between affiliates in May 2000. These guidelines require accounting separation, annual reporting of transactions, and internal audits to ensure that Detroit Edison is complying with the guidelines. Detroit Edison, in conjunction with other parties, has appealed certain aspects of the order.
In September 1999, the MPSC approved an interim code of conduct filed by Detroit Edison. The interim code allows DTE Energy affiliated companies to participate in the Electric Choice program. The MPSC also opened a proceeding to develop a permanent code of conduct. In December 2000, the MPSC issued an order that expanded the application of the code of conduct broadly to any activities between Detroit Edison and any affiliates. Detroit Edison has filed a petition for rehearing of the
7
order and is to file a compliance plan outlining how it will comply with the code of conduct 60 days after the MPSC issues a rehearing order. Detroit Edison cannot determine the timing or outcome of the proceeding.
Detroit Edison is under an obligation to solicit capacity from external suppliers whenever it determines that additional capacity is required. In April 2000, the MPSC approved Detroit Edison’s plan to use an alternative capacity solicitation process. If Detroit Edison decides to meet its capacity requirements by executing contracts with a term longer than one year, it will utilize a Request for Proposal (RFP) to solicit offers. Otherwise, as long as Detroit Edison has a need to procure summer capacity to serve native load customers, Detroit Edison will file an annual report with the MPSC outlining its expected summer generating needs and the method by which it expects to meet those needs. In December 2000, Detroit Edison filed with the MPSC its plan to meet customers’ needs in the summer of 2001. An update filed in February 2001 indicates that Detroit Edison expects a peak demand of 12,283 MW, which could be lowered by about 451 MW as customers participate in the Electric Choice program. Detroit Edison anticipates it will need to purchase 2,147 MW, of which 1,880 MW of firm transmission into Michigan has already been reserved. Detroit Edison expects to purchase power from Canada and merchant suppliers within Michigan, as well as from customer-owned generation.
Proceedings were held before the MPSC concerning claims that Detroit Edison’s service is lacking in reliability in certain aspects. In one proceeding the MPSC approved a settlement agreement that provides for a program of system improvements designed to address areas in Detroit Edison’s service territory that have been subject to severe storm damage and multiple outages. In another proceeding, the MPSC Staff issued a report proposing electric distribution performance standards that would apply to Michigan utilities including Detroit Edison. The Staff proposed that quarterly reports be filed with the MPSC and that a twelve-month rolling average of data will be used to determine compliance with the standards. If the rolling average is not met, Staff recommends, after notice and hearing, that reductions in rates be imposed for a period of time equal to the time of non-compliance or until the non-compliance is corrected. The amount of reductions would be equal to 1 mill/kwh for all energy sold, or a minimum of $1 per customer per month. Detroit Edison is unable to predict whether the MPSC will take further action in this matter.
In April 2000, Energy Michigan, an intervenor group, filed with the MPSC to reopen the Fermi 2 amortization case, raising similar issues that Nordic Electric raised in a complaint filed at the FERC. Energy Michigan alleges that Detroit Edison has violated its commitment to implement Electric Choice, and requests that a hearing is conducted before the MPSC. Energy Michigan also alleges that Detroit Edison is monopolizing available electric import capability from other utilities within the United States, and is refusing to allow Nordic Electric to import electric supplies from Ontario Hydro Services Company. Detroit Edison believes that the allegations are without merit.
The MPSC initiated a contested case hearing in February 2001, to address the August 2000 request by ABATE to consider the consequences of the proposed transfer of transmission assets from Detroit Edison to ITC. ABATE alleges that Electric Choice customers may overpay for the use of transmission assets, and that Detroit Edison has circumvented the rate freeze provisions in PA141. The Company believes the allegations are without merit. The Company is unable to determine the timing or outcome of the proceedings.
Nuclear Regulatory Commission
The NRC has regulatory jurisdiction over all phases of the operation, construction (including plant modifications), licensing and decommissioning of Fermi 2.
8
Federal Energy Regulatory Commission
In 1996, the FERC issued Order 888, which requires public utilities to file open access transmission tariffs for wholesale transmission services in accordance with non-discriminatory terms and conditions, and Order 889, which requires public utilities and others to obtain transmission information for wholesale transactions through a system on the Internet. In addition, Order 889 requires public utilities to separate transmission operations from wholesale marketing functions.
Detroit Edison has a power pooling agreement with Consumers. In March 1997, a joint transmission tariff, filed by Detroit Edison and Consumers, became effective. In compliance with FERC Order 888, the tariff modified the pooling agreement to permit third-party access to transmission facilities utilized for pooled operations under non-discriminatory terms and conditions. As Detroit Edison and Consumers were unable to agree on other modifications to the pooling agreement, Detroit Edison requested that the FERC approve its termination. In February 2001, Detroit Edison and Consumers filed with the FERC to terminate the pooling agreement effective March 31, 2001, with a new agreement between ITC and Consumers to be effective April 1, 2001. ITC and Consumers will jointly operate the transmission system and will still be the control area operator; however, there will no longer be joint-dispatch of the respective companies’ units.
ENVIRONMENTAL MATTERS
Detroit Edison
Detroit Edison, in common with other electric utilities, is subject to applicable permit and associated record keeping requirements, and to increasingly stringent federal, state and local standards covering, among other things, particulate and gaseous stack emission limitations, the discharge of effluents (including heated cooling water) into lakes and streams and the handling and disposal of waste material.
Air
During 1997 and 1998, the EPA issued ozone transport regulations and final new air quality standards relating to ozone and particulate air pollution. The new rules will lead to additional controls on fossil-fueled power plants to reduce nitrogen oxides, sulfur dioxide, carbon dioxide and particulate emissions. See “Item 7 – Environmental Matters” for further discussion.
The EPA has initiated enforcement actions against several major electric utilities citing violations of new source provisions of the Clean Air Act. Detroit Edison has received and responded to information requests from the EPA on this subject. It is impossible at this time to predict the future impact of this issue upon Detroit Edison.
Water
Detroit Edison is required to demonstrate that the cooling water intake structures at all of its facilities reflect the “best technology available for minimizing adverse environmental impact.” Detroit Edison filed such demonstrations and the MDEQ Staff accepted all of them except those relating to the St. Clair and Monroe Power Plants for which it requested further information. Detroit Edison subsequently submitted the
9
information. In the event of a final adverse decision, Detroit Edison may be required to install additional control technologies to further minimize the impact.
Wastes and Toxic Substances
The Michigan Solid Waste and Hazardous Waste Management Acts, the Michigan Environmental Response Act, the Federal Resource Conservation and Recovery Act, Toxic Substances Control Act, and the Federal Comprehensive Environmental Response, Compensation and Liability Act of 1980 regulate Detroit Edison’s handling, storage and disposal of its waste materials.
The EPA and the MDEQ have aggressive programs regarding the clean-up of contaminated property. Detroit Edison has extensive land holdings and, from time to time, must investigate claims of improperly disposed of contaminants. Detroit Edison anticipates that it will be periodically included in these types of environmental proceedings.
Conners Creek
The Conners Creek Power Plant was in reserve status from 1988 to 1998. In April, 1998 the MPSC issued an order granting Detroit Edison’s request to waive competitive bidding for Conners Creek and restart the plant to meet increased electricity demand. Although Detroit Edison believed that the plant complied with all applicable environmental requirements, the Michigan Department of Natural Resources and the Wayne County Air Quality Management Division issued notices of violation contending that Detroit Edison was required to obtain a series of new permits prior to plant operation. Subsequently the EPA issued a similar notice of violation. Detroit Edison converted the plant and began operating it as a gas-fired facility in 1999. In January 2001, Detroit Edison agreed to pay $450,000 to settle all matters related to the operation of the plant.
Non-Regulated
The Company’s non-regulated affiliates are subject to a number of environmental laws and regulations dealing with the protection of the environment from various pollutants. These non-regulated affiliates are in substantial compliance with all environmental requirements.
10
EXECUTIVE OFFICERS OF THE REGISTRANT
Present
Position
Name
Age(a)
Present Position
Held Since
51
62
42
51
52
60
40
52
43
Under the Company’s By-Laws, the officers of the Company are elected annually by the Board of Directors at a meeting held for such purpose, each to serve until the next annual meeting of directors or until their respective successors are chosen and qualified. With the exception of Messrs. Peterson and Meador, all of the above officers have been employed by the Company in one or more management capacities during the past five years.
Eric H. Peterson was with Worsham Forsythe Wooldridge LLP of Dallas, Texas for 15 years. He was a partner for seven years prior to joining the Company. Effective September 5, 2000, he was elected Senior Vice President and General Counsel.
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 assumed the duties of Controller. Effective April 28, 1999, he was elected Vice President — Finance and Accounting and effective May 15, 2000, he was elected Senior Vice President and Treasurer.
Pursuant to Article VI of the Company’s Articles of Incorporation, directors of the Company will not be personally liable to the Company or its shareholders in the performance of their duties to the full extent permitted by law.
Article VII of the Company’s Articles of Incorporation provides that each person who is or was or had agreed to become a director or officer of the Company, or each such person who is or was serving or who had agreed to serve at the request of the Board of Directors as an employee or agent of the Company or as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise (including the heirs, executors, administrators or estate of such person), shall be indemnified by the Company to the full extent permitted by the Michigan Business Corporation Act or any other applicable laws as presently or hereafter in effect. In addition, the Company has entered into indemnification agreements with all of its officers and directors, which agreements set forth procedures for claims for indemnification as well as contractually obligating the Company to provide indemnification to the maximum extent permissible by law.
11
The Company and its directors and officers in their capacities as such are insured against liability for alleged wrongful acts (to the extent defined) under three insurance policies providing aggregate coverage in the amount of $100 million.
Other Information
Pursuant to the provisions of the Company’s By-Laws, the Board of Directors has by resolution set the number of directors comprising the full Board at 11.
The MCN merger agreement provides that at the completion of the proposed merger, the Company will promptly increase the size of its board of directors or exercise its best efforts to secure the resignation of its present directors in order to cause Mr. Alfred R. Glancy III and two additional persons selected by MCN after consultation with the Company from among MCN’s directors as of the date of the merger agreement to be appointed to the Company’s board of directors.
12
Item 2 – Properties.
DETROIT EDISON
The summer net rated capability of Detroit Edison’s generating units is as follows:
Location By
Michigan
Summer Net
Year
Plant Name
County
Rated Capability (1)
(2)
in Service
(MW
)
1,026
9.3
%
1984 and 1985
167
1.5
1999
785
7.1
1979
103
0.9
1968
167
1.5
1930, 1943 and 1947
3,000
27.2
1971, 1973 and 1974
510
4.6
1957 and 1958
1,417
12.9
1953, 1954, 1961 and 1969
725
6.6
1949, 1950 and 1968
7,900
71.6
%
Various
1,102
10.0
1966-1971, 1981 and 1999
Monroe
1,111
10.1
1988
Mason
917
8.3
1973
11,030
100.0
%
| (1) | Summer net rated capabilities of generating units in service are based on periodic load tests and are changed depending on operating experience, the physical condition of units, environmental control limitations and customer requirements for steam, which otherwise would be used for electric generation. | |
| (2) | Excludes one oil-fueled unit, St. Clair Unit No. 5 (250 MW), in economy reserve status. | |
| (3) | The Belle River capability represents Detroit Edison’s entitlement to 81.39% of the capacity and energy of the plant. See Note 5. | |
| (4) | The Monroe Power Plant provided 35.56% of Detroit Edison’s total 2000 power plant generation. | |
| (5) | Fermi 2 has a design electrical rating (net) of 1,150 MW. | |
| (6) | Represents Detroit Edison’s 49% interest in Ludington with a total capability of 1,872 MW. Detroit Edison is leasing 306 MW to First Energy for the six-year period June 1, 1996 through May 31, 2002. |
Detroit Edison and Consumers interchange energy through nine interconnections. Detroit Edison and Consumers also have interchange agreements to exchange electric energy through 12 interconnections with FirstEnergy, Indiana Michigan Power Company, Northern Indiana Public Service Company and Ontario Hydro Services Company. In addition, Detroit Edison has interchange agreements for the exchange of electric energy with Michigan South Central Power Agency, Rouge Steel Company and the City of Wyandotte.
13
Detroit Edison also purchases energy from cogeneration facilities and other small power producers. Energy purchased from cogeneration facilities and small power producers amounted to $37 million, $34 million and $31 million for 2000, 1999 and 1998, respectively, and is currently estimated at $39 million for 2001.
Detroit Edison’s electric generating plants are interconnected by a transmission system operating at up to 345 kilovolts through 41 transmission stations. As of December 31, 2000, electric energy was being distributed in Detroit Edison’s service area through 618 substations over 3,700 distribution circuits.
Because Detroit Edison must currently import power to meet peak loads in the summer, transmission capacity is a necessary requirement to serve customers reliably during peak load periods. As a result of certain transmission procedures, there continues to be uncertainty surrounding the ability of Detroit Edison to import power reliably into Michigan. To relieve this uncertainty, additional efforts to secure firm transmission rights continue to be necessary, as well as additional in-state generating capability. Detroit Edison has acquired significant additional commitments from other utilities, and modified operating practices to provide flexibility to respond to increasing uncertainties of load and market conditions.
See Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations, and Note 1 for a discussion of the transfer of transmission assets from Detroit Edison to International Transmission Company.
NON-REGULATED
Non-regulated property consists primarily of coke oven battery facilities in Michigan and Indiana, coal processing facilities in Michigan and Maryland, merchant natural gas turbine facilities in Indiana and Michigan, and numerous landfill gas projects located throughout the United States.
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, 2000, Detroit Edison was named as defendant in 149 lawsuits involving claims for personal injuries and property damage and had been advised of 29 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 and 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.
14
See “Note 12 – Commitments and Contingencies” and “Environmental Matters, Detroit Edison, Conners Creek” herein for additional information.
Item 4 – Submission of Matters to a Vote of Security Holders.
None during the fourth quarter of 2000.
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:
| Price Range | Dividends | |||||||||||||||
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Paid | |||||||||||||||
| Calendar Quarter | High | Low | Per Share | |||||||||||||
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1999
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First | 43-3/4 | 37-15/16 | $ | 0.515 | |||||||||||
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Second | 44-11/16 | 38-1/4 | 0.515 | ||||||||||||
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Third | 41-7/8 | 35-3/16 | 0.515 | ||||||||||||
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Fourth | 37-5/16 | 31-1/16 | 0.515 | ||||||||||||
|
2000
|
First | 41-1/4 | 28-7/16 | $ | 0.515 | |||||||||||
|
|
Second | 35-15/16 | 28-7/8 | 0.515 | ||||||||||||
|
|
Third | 40-1/4 | 30-7/16 | 0.515 | ||||||||||||
|
|
Fourth | 39-5/16 | 34-15/16 | 0.515 | ||||||||||||
At December 31, 2000, there were 142,651,172 shares of the Company’s Common Stock outstanding. These shares were held by a total of 96,153 shareholders of record.
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. 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. See “Note 7 — Shareholders’ Equity” for additional information, including information concerning the Rights Agreement, dated as of September 23, 1997.
The amount of future dividends will depend on the Company’s earnings, financial condition and other factors, including the effects of utility restructuring and the transition to competition, each of which is periodically reviewed by the Company’s Board of Directors, and the successful completion of the proposed merger with MCN.
15
Pursuant to Article I, Section 8. (c) and Article II, Section 3.(c) of the
Company’s By-laws, as amended through September 1, 1999, notice is given that
the 2002 Annual Meeting of the Company’s Common Shareholders will be held on
Wednesday, April 24, 2002.
Item 6 – Selected Financial Data.
| Year Ended December 31 | |||||||||||||||||||||||||
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|||||||||||||||||||||||||
| 2000 | 1999 | 1998 | 1997 | 1996 | |||||||||||||||||||||
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| (Millions, except per share amounts) | |||||||||||||||||||||||||
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Operating Revenues
|
$ | 5,597 | $ | 4,728 | $ | 4,221 | $ | 3,764 | $ | 3,645 | |||||||||||||||
|
Net Income
|
$ | 468 | $ | 483 | $ | 443 | $ | 417 | $ | 309 | |||||||||||||||
|
Earnings Per Common Share — Basic
|
|||||||||||||||||||||||||
|
and Diluted
|
$ | 3.27 | $ | 3.33 | $ | 3.05 | $ | 2.88 | $ | 2.13 | |||||||||||||||
|
Dividends Declared Per
|
|||||||||||||||||||||||||
|
Share of Common Stock
|
$ | 2.06 | $ | 2.06 | $ | 2.06 | $ | 2.06 | $ | 2.06 | |||||||||||||||
|
At year end:
|
|||||||||||||||||||||||||
|
Total Assets
|
$ | 12,662 | $ | 12,316 | $ | 12,088 | $ | 11,223 | $ | 11,015 | |||||||||||||||
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Long-Term Debt Obligations
|
|||||||||||||||||||||||||
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(including capital leases) and
|
|||||||||||||||||||||||||
|
Redeemable Preferred and
|
|||||||||||||||||||||||||
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Preference Stock Outstanding
|
$ | 4,018 | $ | 4,052 | $ | 4,323 | $ | 4,058 | $ | 4,038 | |||||||||||||||
16
Item 7 – Management’s Discussion and Analysis of Financial Condition and Results
GROWTH
DTE Energy Company (Company) is focused on prudently growing its earnings base.
For the past three years, it has articulated a growth strategy that has
consistently achieved its 6% growth objective (after adjustment in 2000 for
one-time legislative and merger items). Given its prior successes, depth of
management team and strategic asset base, the Company has increased its growth
objective up to 8% over the next several years. The new anticipated growth rate
is expected to be achieved by strengthening our core electric and gas (after the
proposed merger with MCN Energy Group Inc. (MCN)) utility businesses in the
short term, building our non-regulated businesses in the mid term and leveraging
investments in energy technology over the long term. The growth strategy,
focused on the greater Midwest region, leverages and expands existing assets and
skills.
We will strengthen our core electric and gas (after the proposed merger with
MCN) utility businesses through continuous improvement actions, balancing cost,
reliability and customer satisfaction, and leveraging opportunities to create
value with the non-regulated businesses.
We have established a portfolio of non-regulated businesses, with approximately
$1.7 billion in assets that contributed approximately $84 million to net income
in 2000 and is expected to provide the greatest growth potential for the Company
in the next five years. These non-regulated businesses are expected to provide
approximately $125 million in net income in 2001. Our merchant energy business
will include optimizing fuel supply and plant operations, broadening coal
marketing and coal tolling efforts, rapidly expanding power marketing and
trading operations, growing an emerging base of non-regulated generation assets
in the Midwest region and capitalizing on MCN’s storage and pipeline assets to
serve the rapidly expanding generation sector.
The Company’s long-term growth strategy recognizes the fact that competition,
new technologies and environmental concerns will reshape the electric utility
industry and the manner in which power is delivered. As a result, the Company
has started a distributed generation business, DTE Energy Technologies, a wholly
owned subsidiary, which will provide one-stop sales and service to energy
customers using a variety of new technology products, including backup
generation, micro-turbines, fuel cells and control equipment. Additionally, the
Company continues to make strategic technology investments in companies like
Plug Power, a developer and manufacturer of fuel cell systems.
As discussed in Note 2, the Company and MCN have entered into a merger
agreement. The Company expects that completion of the proposed merger will
result in the issuance of approximately 30 million shares of its common stock
and approximately $1.4 billion in external financing. The proposed merger is
expected to create a fully integrated electric and natural gas company that is
anticipated to support the
17
Company’s commitment to a long-term earnings growth rate of up to 8%. The
proposed merger is expected to permit the Company to be responsive to
competitive pressures. The external financing needs of the proposed merger may
create a sensitivity to interest rate changes. The Company will need to
successfully integrate the two operations to service the expected debt
requirements and achieve aggregate operating cost reductions. The delay in the
receipt of regulatory approvals will negatively impact the effect on earnings in
2001 resulting from the proposed merger, as will the escalation in the price of
natural gas. The Company believes that the proposed merger is strategic for the
Company and has and will continue to fulfill all of its obligations under the
merger agreement. The Company continues to approach this proposed merger with
the best interests of the Company’s shareholders in mind. See Notes 2 and 11 for
further discussion of the proposed DTE/MCN merger and the financial instruments
used to hedge the interest rate risk associated with financing the proposed
merger.
See Note 17 for discussion of subsequent events concerning the
merger.
The Company projects that 2001 earnings will be approximately $3.60 to $3.70 per
share. In addition, 2002 earnings are expected to grow at least 6%, consistent
with the Company’s growth objective. These earnings estimates exclude the impact
of the Company’s proposed merger with MCN.
The Company’s earnings are largely dependent on the earnings of The Detroit
Edison Company (Detroit Edison), the principal operating subsidiary of the
Company, and the use of alternate fuels tax credits generated from certain
non-regulated businesses. Securitization, discussed in Note 3, is expected to
reduce Detroit Edison’s earnings, which may impact the Company’s ability to use
all future available alternate fuels tax credits. However, if that is the case,
a portion of the tax credits may be monetized through sale of interests in
projects that generate the credits.
ELECTRIC INDUSTRY RESTRUCTURING
Detroit Edison is subject to regulation by the Michigan Public Service
Commission (MPSC) and the Federal Energy Regulatory Commission (FERC). Michigan
legislators and regulators have focused on competition and Electric Choice in
the Michigan electric public utility industry and are committed to opening the
electric generation market in Michigan to competition while providing for the
right of electric utilities to recover stranded costs. Electric Choice will give
all retail customers the opportunity to access alternative generation resources.
Michigan’s Customer Choice and Electricity Reliability Act
See Note 3 for a discussion of Public Acts 141 and 142 of 2000 (PA 141 and PA
142), new legislation signed into effect on June 3, 2000, by Michigan Governor
John Engler.
Michigan Public Service Commission
Restructuring Orders
Detroit Edison expects that a limited liability corporation, wholly owned by
Detroit Edison, will issue approximately $1.751 billion of securitization bonds
in the first quarter
18
of 2001. The bonds may not exceed 15 years in term to recover Detroit Edison’s
qualified costs, as approved by the MPSC. Detroit Edison will use the proceeds
of the bonds to retire debt and equity as required by Michigan restructuring
legislation in a manner that will maintain its debt/equity ratio at
approximately 50%. See Note 3 for additional discussion of the November 2, 2000
and January 4, 2001 MPSC orders regarding securitization of Detroit Edison’s
qualified costs.
On October 24, 2000, the MPSC initiated a case to determine the methodology of
calculating net stranded costs, as required by PA 141. Methods to be considered
include: (1) the relationship of market value to net book value of generation
assets and purchase power contracts, (2) evaluations based on the market price
of power in relation to the price assumed by the MPSC in prior orders and (3)
any other method the MPSC considers appropriate. It is expected that the MPSC
will issue an order by the end of 2001. Detroit Edison is unable to predict the
outcome of these proceedings.
Electric Choice
The Electric Choice program began in December 1999, when Detroit Edison
delivered energy from an alternate supplier in a MPSC-directed 90 megawatt (MW)
voluntary portion of the program. As of December 31, 2000, Detroit Edison has
made available 1,125 MW, or more than 12% of its capacity, for Electric Choice.
Detroit Edison has spent approximately $57 million through December 31, 2000,
and estimates that additional expenditures of up to $25 million may be required
through 2001 to fully implement the program on January 1, 2002. Securitization
proceeds will recover $28 million of this amount, with recovery of the remaining
balance determined in current and future MPSC net stranded cost proceedings.
Detroit Edison anticipates that Electric Choice will result in a decrease in its
annual sales as well as a decrease in its peak demand beginning in 2002. These
decreases are not expected to have a significant impact on the Company’s net
income due to effective load management techniques, which are expected to reduce
high-cost sales during peak periods and increase non-regulated sales outside of
Detroit Edison’s service territory at other times.
Federal Energy Regulatory Commission
Detroit Edison is regulated at the federal level by the FERC with respect to
accounting, sales for resale in interstate commerce, transmission services,
issuances of securities, licensing of hydro and pumping stations and other
matters. The FERC, as a policy matter, believes that transmission should be made
available on a non-discriminatory basis.
On September 28, 2000, the FERC conditionally approved an open access
transmission tariff designed to allow for the collection of $138 million in
annual revenues for transmission services provided by the International
Transmission Company (ITC), a wholly owned subsidiary of Detroit Edison. The
level of tariff represents an increase of $45 million over current tariffs.
These revenues may not be collected until such time as ITC notifies FERC that
the Company’s Board of Directors
19
has approved a sale or spin-off of the transmission business to a fully
independent transmission company that has no active or passive ownership
interests by the Company, Detroit Edison or any other market participant. The
ITC must become independent within 24 months of the September 28, 2000 order and
join a FERC-approved Regional Transmission Organization (RTO) by December 15,
2001; otherwise the innovative transmission rates will revert back to present
tariff rates, and revenue collected under the new transmission tariff will be
refunded back to ITC customers. If ITC becomes independent, but has not joined
an RTO in the required time frame, FERC has the authority to assign ITC to an
RTO. The Company and Detroit Edison intend to comply with the FERC requirements.
Effective January 1, 2001, Detroit Edison transferred approximately $390 million
of property and other assets to ITC. This transfer began the process of
establishing the transmission business as an independent company.
In June 1999, Detroit Edison, along with Consumers Energy Co., the American
Electric Power Service Corp., FirstEnergy Corp., and Virginia Electric and Power
Co., filed applications with FERC requesting approval of the Alliance RTO
(Alliance). The Alliance would operate more than 43,000 miles of transmission
lines in nine states. In December 1999, FERC issued an order approving the
Alliance proposal, but indicated that certain elements needed modification or
further development. In January 2001, FERC approved key aspects of Alliance’s
compliance filing, including independence, scope and configuration and rate
design, but directed Alliance to make certain additional modifications in the
areas of ancillary services, market monitoring and inter-regional coordination.
Alliance was directed to make a further compliance filing by May 15, 2001, and
file actual tariffs rates, terms and conditions no later than 120 days prior to
commencement of operation.
LIQUIDITY AND CAPITAL RESOURCES
Cash From Operating Activities
Net cash from operating activities, which is the Company’s primary source of
liquidity, was $1,088 million in 2000, $1,097 million in 1999 and $834 million
in 1998. Net cash from operating activities decreased in 2000, due primarily to
lower net income, partially offset by higher non-cash items. Net cash from
operating activities increased in 1999, due primarily to higher net income and
non-cash items and lower cash used for current assets and liabilities.
Cash Used for Investing Activities
Net cash used for investing activities was lower in 2000, due primarily to
decreased plant and equipment expenditures by Detroit Edison, partially offset
by higher non-regulated plant and equipment expenditures. Net cash used for
investing activities was lower in 1999 due to lower investments in non-regulated
businesses, partially offset by increased plant and equipment expenditures by
Detroit Edison.
20
Cash requirements for 2000 Detroit Edison capital expenditures were $587
million. Detroit Edison’s cash requirements for capital expenditures are
expected to be approximately $2.5 billion for the period 2001 through 2005.
Cash requirements for 2000 non-regulated investments and capital expenditures
were $162 million. Excluding the effects of the proposed merger with MCN, cash
requirements for non-regulated investments and capital expenditures are expected
to be approximately $1.2 billion for the period 2001 through 2005.
Cash Used for Financing Activities
Net cash used for financing activities was lower in 2000 due to decreased
redemptions of long-term debt, partially offset by repurchases of common stock.
Net cash used for Company financing activities was $426 million in 1999, due to
higher redemptions and reduced issuances of long-term debt.
The following securities were issued and redeemed in 2000:
of Operations.
Securities Issued
(Millions)
$
220
51
2
$
273
$
19
175
86
51
$
331
Due to the securitization of $1.751 billion of Detroit Edison’s qualified costs in the first quarter of 2001, the Company expects that 75% of the proceeds will be used to retire debt and 25% to repurchase the Company’s common stock. In February 2001, the
21
Company’s Board of Directors increased the authorization for a stock repurchase program for the purchase of up to 20 million shares. Stock repurchases will be made from time to time on the open market or through negotiated transactions.
ENVIRONMENTAL MATTERS
Protecting the environment from damage, as well as correcting past environmental damage, continues to be a focus of state and federal regulators. Legislation and/or rulemaking could further impact the electric utility industry including Detroit Edison. The U.S. 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. Detroit Edison has spent approximately $50 million and estimates that it will incur approximately $410 million of future capital expenditures, over the next three years, to comply with recent EPA ozone transport regulations and final new air quality standards relating to ozone and particulate air pollution.
INTEREST RATE RISK
The Company is subject to interest rate risk in conjunction with the anticipated issuance of long-term debt to be used to finance the proposed merger with MCN. The Company’s exposure to interest rate risk arises from market fluctuations in interest rates until the date of the anticipated debt issuance. To limit the sensitivity to interest rate fluctuations, the Company has entered into a series of forward-starting interest rate swaps and Treasury locks and designated such instruments as hedges. See Note 11 for further discussion of these derivative financial instruments.
A sensitivity analysis model was used to calculate the fair value of the Company’s derivative financial instruments using applicable market interest rates in effect at December 31, 2000. The sensitivity analysis involved increasing and decreasing the market rates by a hypothetical 10% and calculating the resulting change in the fair value of the interest rate sensitive instruments. The favorable (unfavorable) changes in fair value are as follows:
| Assuming 10% | Assuming 10% | |||||||||||||
| Increase in Rates | Decrease in Rates | |||||||||||||
|
|
|
|||||||||||||
| (Millions) | ||||||||||||||
|
Interest Rate Risk
|
||||||||||||||
|
Interest Rate Sensitive
|
||||||||||||||
|
Forward-Starting Swaps – 5-year
|
$ | 6.5 | $ | (6.8 | ) | |||||||||
|
– 10-year
|
20.5 | (21.7 | ) | |||||||||||
|
Treasury Locks – 10-year
|
1.9 | (2.0 | ) | |||||||||||
|
– 30-year
|
11.8 | (13.2 | ) | |||||||||||
22
MARKET RISK
Detroit Edison expects to have adequate supplies of electric capacity in 2001
and plans to meet expected customer demand through its own electric generating
capability and purchase of over 2,000 MW from other suppliers. Detroit Edison
has secured purchase power contracts for its 2001 requirements, but has not
procured its purchase power requirements for 2002 and beyond. Detroit Edison
expects that its future electricity demands will be impacted by the Electric
Choice program, interruptible contracts with certain customers and weather.
As a result of the June 2000 Michigan restructuring legislation, the MPSC
determined that adjusting rates for changes in fuel and purchased power expenses
would be inconsistent with the legislation. Therefore, actual fuel and purchased
power costs are recorded in the period incurred, without any change in revenue.
Detroit Edison had investments valued at market of $398 million and $361 million
in three nuclear decommissioning trust funds at December 31, 2000 and 1999,
respectively. At December 31, 2000, these investments consisted of approximately
43% in fixed debt instruments, 53% in publicly traded equity securities and 4%
in cash equivalents. At December 31, 1999, these investments consisted of
approximately 37% in fixed debt instruments, 59% in publicly traded equity
securities and 4% in cash equivalents. A hypothetical 10% increase in interest
rates and a 10% decrease in equity prices quoted by stock exchanges would result
in a $14 million and $11 million reduction in the fair value of debt and a $21
million reduction in the fair value of equity securities held by the trusts both
at December 31, 2000 and 1999, respectively.
A hypothetical 10% decrease in interest rates would increase the fair value of
long-term debt from $4.2 billion to $4.7 billion at December 31, 2000, and from
$4 billion to $4.5 billion at December 31, 1999.
DTE Energy Trading, Inc. (DTE ET), an indirect wholly owned subsidiary of the
Company, provides price risk management services using energy commodity
derivative instruments. The Company measures the risk inherent in DTE ET’s
portfolio using Value at Risk (VaR) analysis and other methodologies, which
simulate forward price curves in electric power markets, to quantify estimates
of the magnitude and probability of potential future losses related to open
contract positions. DTE ET VaR expresses the potential loss in fair value of its
forward contract and option position over a particular period of time, with a
specified likelihood of occurrence, due to an adverse market movement. The
Company calculates VaR based on a 95% confidence interval, using 10-day holding
periods. The VaR model uses the variance-covariance statistical modeling
technique, and implied and historical volatilities and correlations over the
past 20-day period. The estimated market prices used to value these transactions
for VaR purposes reflect the use of established pricing models and various
factors including quotations from exchanges and over-the-counter markets, price
volatility factors, the time value of money, and location differentials. At
December 31, 2000 and 1999, DTE ET’s VaR from its power marketing and trading
activities was less than 1% of the Company’s consolidated “Income Before Income
Taxes” for the years ended December 31, 2000 and 1999. For further information,
see Notes 1 and 11.
23
RESULTS OF OPERATIONS
Net income for 2000 was $468 million, down $15 million from 1999 earnings due
primarily to the 5% residential rate reduction provided for in the June 2000
Michigan restructuring legislation, and expenses incurred for the proposed
merger with MCN, partially offset by lower income taxes resulting from tax
credits generated by non-regulated businesses.
Since the MPSC has determined that adjusting rates for changes in fuel and
purchased power expenses, through continuance of the PSCR clause, is
inconsistent with the June 2000 Michigan restructuring legislation, the Company
expects that the distribution of yearly earnings will shift significantly. The
first and fourth quarters of the year are expected to show higher earnings,
while lower earnings are expected in the second and third quarters. In addition,
the fuel clause suspension will have an impact on earnings, since rates will no
longer be adjusted for changes in fuel and purchased power expenses.
Net income for 1999 was up $40 million over 1998 earnings due primarily to lower
income taxes resulting from tax credits generated by non-regulated businesses
and the effects of the end of the Fermi 2 phase-in plan in 1998.
Operating Revenues
Operating revenues were $5.6 billion, up 18% from 1999 operating revenues of
$4.7 billion. Operating revenues increased (decreased) due to the following:
2000
1999
(Millions
)
$
70
$
(25
)
(43
)
—
24
151
14
—
(2
)
(19
)
—
34
19
4
82
145
54
147
734
209
(1
)
6
787
362
$
869
$
507
24
Detroit Edison megawatthour (MWh) sales for 2000 and the percentage change by
year were as follows:
2000
2000
1999
(Thousands of MWh)
Sales
13,903
(1.1
)%
2.3
%
19,762
1.1
3.4
16,090
2.8
6.4
2,653
2.2
10.1
52,408
1.1
4.3
2,592
(29.4
)
(29.5
)
55,000
(0.9
)
1.1
Residential sales decreased in 2000 due to reduced cooling demand, and increased in 1999 due to more heating demand, increased usage, and growth in the customer base. In both 2000 and 1999, commercial and industrial sales increased due to favorable economic conditions. In addition, industrial sales increased due to sales to the Ford Rouge plant. Wholesale sales decreased due to lower demand for energy and decreased availability of energy for sale.
Non-regulated revenues were higher due to an increased level of operations,
primarily at DTE Energy Trading, and the addition of new businesses.
Operating Expenses
Fuel and Purchased Power
Net system output and average fuel and purchased power unit costs per MWh for Detroit Edison were as follows:
2000
1999
1998
(Thousands of MWh)
42,100
43,016
44,091
8,239
9,484
7,130
8,877
6,959
7,216
59,216
59,459
58,437
$
12.78
$
12.51
$
12.76
$
62.57
$
54.80
$
42.26
25
In 2000, fuel and purchased power expense increased due to greater purchases of energy and higher purchased power unit costs. The increase was partially offset by reduced plant generation and lower cost of low sulfur western coal.
In 1999, fuel and purchased power expense increased due to higher purchased power unit costs and a 1.7% increase in net system output. The increase was partially offset by lower fuel unit costs primarily resulting from increased usage of low-cost nuclear fuel.
Non-regulated purchased power expense increased in all periods due to the operations of DTE Energy Trading, with purchased power expenses amounting to $959 million, $227 million and $42 million in 2000, 1999 and 1998, respectively.
Operation and Maintenance
In 2000, operation and maintenance expense remained at the same level as 1999. Higher non-regulated expenses of $50 million were due to an increased level of operations and the addition of new businesses. Lower Detroit Edison expenses resulted primarily from decreased storm activities ($26 million) and elimination of Y2K costs ($46 million). The decrease was partially offset by expenses associated with the proposed DTE/MCN merger ($25 million).
In 1999, operation and maintenance expense increased $192 million. Higher non-regulated expenses of $162 million were due to an increased level of operations and the addition of new businesses. Higher Detroit Edison expenses of $30 million were due to increased system and customer enhancements ($22 million), higher Y2K costs ($10 million), higher employee benefit costs ($9 million), and generation reliability and maintenance work to address unplanned outages ($8 million), partially offset by lower storm expense ($19 million).
Depreciation and Amortization
In 2000, depreciation and amortization expense was higher due to increased levels of plant in service and the accelerated amortization of unamortized nuclear costs, partially offset by a reduction in amortization for the deferral of the effects of the 5% residential rate reduction.
In 1999, depreciation and amortization expense increased due to higher levels of plant in service, the accelerated amortization of unamortized nuclear costs, the adjustment recording one-half of utility earnings in excess of the allowed 11.6% return on equity sharing threshold as additional nuclear cost amortization, and increased Fermi 2 decommissioning funding due to higher revenues.
Interest Expense
In 2000, interest expense decreased due to the redemption of long-term securities and the write-off in 1999 of unamortized bond issuance expense, partially offset in 2000 by increased short-term borrowing costs.
26
In 1999, interest expense increased due to the write-off of unamortized bond issuance expense for early redemption of securities and higher short-term borrowing costs.
Income Taxes
Income tax expense for the Company decreased, due primarily to the decrease in pretax income and increased utilization of alternate fuels credits generated from non-regulated businesses. The majority of alternate fuels credits are available through 2002, while others have been extended through 2007.
FORWARD-LOOKING STATEMENTS
Certain information presented herein is based on 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, interest rates, the level of borrowings, weather, actual sales, changes in the cost of fuel and purchased power due to the suspension of the PSCR mechanism, (including natural gas subsequent to the proposed merger with MCN), the effects of competition and the phased-in implementation of Electric Choice, the implementation of utility restructuring in Michigan (which involves pending regulatory and related judicial proceedings, the successful recovery of stranded costs, and actual and possible reductions in rates and earnings), environmental and nuclear requirements, the impact of FERC proceedings and regulations, and the contributions to earnings by non-regulated businesses. In addition, expected results will be affected by the Company’s proposed merger with MCN and the timing of the accretive effect of such merger. 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.
27
Item 8 – Financial Statements and Supplementary Data.
The following consolidated financial statements and schedules are included herein.
28
INDEPENDENT AUDITORS’ REPORT
To the Boards of Directors and Shareholders of
We have audited the consolidated balance sheets of DTE Energy Company and subsidiaries and of The Detroit Edison
Company and subsidiaries (together, the "Companies") as of December 31, 2000 and 1999, and the related
consolidated statements of income, cash flows, and changes in shareholders’ equity for each of the three years in
the period ended December 31, 2000. Our audits also included the financial statement schedules listed in the
Index at Item 8. These financial statements and financial statement schedules are the responsibility of the
Companies’ management. Our responsibility is to express an opinion on the consolidated financial statements and
financial statement schedules based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of
America. 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 subsidiaries and of The Detroit Edison Company and
subsidiaries at December 31, 2000 and 1999, and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 2000 in conformity with accounting principles generally accepted
in the United States of America. Also, in our opinion, such financial statement schedules, when considered in
relation to the basic consolidated financial statements of the Companies taken as a whole, present fairly in all
material respects the information set forth therein.
DELOITTE & TOUCHE LLP
Detroit, Michigan
29
30
31
32
33
34
35
36
37
38
39
40
DTE Energy Company and The Detroit Edison Company
NOTE 1 — SIGNIFICANT ACCOUNTING POLICIES
Corporate Structure and Principles of Consolidation
DTE Energy Company (Company), a Michigan corporation incorporated in 1995, is
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
its principal operating subsidiary, The Detroit Edison Company (Detroit
Edison), an electric public utility regulated by the Michigan Public Service
Commission (MPSC) and the Federal Energy Regulatory Commission (FERC), and
other energy-related businesses.
All majority-owned subsidiaries are consolidated. Non-majority owned
investments, including investments in limited liability companies, partnerships
and joint ventures, are accounted for using the equity method. All significant
inter-company balances and transactions have been eliminated.
In October 1999, the Company’s investee, Plug Power Inc., completed its initial
public offering (IPO) of shares of common stock at $15 per share. After the
IPO, the Company owned approximately 32% of Plug Power’s outstanding common
stock. As a result of Plug Power’s IPO, the Company recognized its
proportionate share of Plug Power’s net assets immediately after the IPO and
recorded an increase of $44 million in its investment and an after-tax increase
of $28 million to retained earnings with no earnings impact in 1999. The
balance of the Plug Power investment at December 31, 2000, is approximately $37
million.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America 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’s transmission and distribution business 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 cost-based ratemaking process, which results in differences in the
application of generally accepted accounting principles between regulated and
non-regulated businesses. SFAS No. 71 requires the recording of regulatory
assets and liabilities for certain transactions that would have been treated as
revenue and expense in non-regulated businesses. Continued applicability of
SFAS No. 71 requires that rates be designed to recover specific costs of
providing regulated services and products, and that it be reasonable to assume
that rates are set at
41
levels that will recover a utility’s costs and can be charged to and collected
from customers.
MPSC orders issued in 1997 and 1998 altered the regulatory process in Michigan
and provided a plan for transition to competition for the generation business
of Detroit Edison. Therefore, effective December 31, 1998, Detroit Edison’s
generation business no longer met the criteria of SFAS No. 71. See the
following table of regulatory assets and liabilities, and Note 3 for further
details.
June 2000 Michigan restructuring legislation provided for securitization, a
mechanism for Detroit Edison to refinance specific assets and costs at lower
interest rates through the issuance of securitization bonds. The MPSC, in an
order issued on January 4, 2001, clarifying a November 2, 2000 order,
authorized Detroit Edison to securitize up to $1.774 billion of qualified
costs, including most of the regulatory assets currently recorded. The MPSC
denied Detroit Edison’s request to include the residential rate reduction
commencing June 5, 2000, until the date of the order and proposed 2000 Electric
Choice implementation costs in the amount securitized. Detroit Edison will
continue to defer the 2000 and future Electric Choice implementation costs ($30
million in 2000 and an estimated $25 million in 2001) as regulatory assets,
whose recovery will be determined in annual true-ups of stranded cost
proceedings. The MPSC also clarified that recovery of incurred costs, equal to
the impact of the 5% residential rate reduction from the date of the November
order until the securitization bonds are issued (approximately $10 million in
2000 and approximately $15 million for the first quarter of 2001) will occur
before any rate reductions are provided to the commercial and industrial
customers and before the low income energy efficiency fund is initiated.
Securitization bonds are expected to be issued in the first quarter of 2001.
Detroit Edison has recorded the following regulatory assets and liabilities at
December 31:
42
Unamortized nuclear costs — See Note 3
.
Unamortized loss on reacquired debt
In accordance with MPSC regulations applicable to Detroit Edison, the discount,
premium and expense related to debt redeemed with a refinancing are amortized
over the life of the replacement issue. If related to the generation business,
the unamortized amounts will be securitized. See Note 3. Discount, premium
and expense on early redemptions of debt subsequent to December 31, 1998, are
charged to earnings if they relate to the generation business of Detroit Edison
or other non-regulated operations of the Company.
Recoverable income taxes
In 1993, the Company was required to adopt SFAS No. 109, “Accounting for Income
Taxes.” SFAS No. 109 requires that deferred income taxes be recorded at the
current income tax rate for all temporary differences between the book and tax
basis of assets and liabilities. Prior to 1993, only those deferred taxes that
were authorized by the MPSC were recorded. On adoption of SFAS No. 109, the
MPSC authorized the Company to record a regulatory asset providing assurance of
future revenue recovery from customers for all deferred income taxes.
Power supply cost recovery (PSCR)
As a result of the June 2000 Michigan restructuring legislation, the MPSC
determined that adjusting rates for changes in fuel and purchased power
expenses, through continuance of the PSCR clause, would be inconsistent with
the legislation. See Note 3 for further discussion. Beginning in June 2000,
actual fuel and purchased power costs are recorded in the period incurred.
Electric Choice implementation costs
Costs incurred to implement the Electric Choice program, which will allow
customers to purchase electricity from a supplier other than Detroit Edison.
Unamortized deferred investment tax credits
Investment tax credits utilized, which relate to utility property, were
deferred and are amortized over the estimated composite service life of the
related property.
Fermi 2 capacity factor performance standard
As a result of the June 2000 Michigan restructuring legislation and the
corresponding MPSC orders regarding the PSCR clause, the MPSC mechanism that
provided for the disallowance of net incremental replacement power cost when
Fermi 2 did not perform to certain operating criteria, is no longer in effect.
43
Cash Equivalents
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.
Restricted Cash
Cash maintained for debt service requirements and other contractual obligations
is classified as restricted cash.
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
A summary of property by classification at December 31 is as follows:
44
Utility properties are stated at original cost less regulatory disallowances
and impairment losses. 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 as incurred, and the cost of
new property installed, which replaces property retired, is charged to property
accounts. Detroit Edison recognizes a provision, in current liabilities, for
incremental costs of Fermi 2 refueling outages, including maintenance
activities, anticipated to be incurred during the next scheduled Fermi 2
refueling outage. 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 utility plant, as a percent of average depreciable property, was 3.38%,
3.33% and 3.32% for 2000, 1999 and 1998, respectively.
Effective January 2001, the transmission assets of Detroit Edison were
transferred to International Transmission Company, a wholly owned subsidiary of
Detroit Edison. This transfer began the process of establishing the
transmission business as a fully independent company pursuant to FERC orders.
Non-utility property is stated at original cost. Depreciation is computed over
the estimated useful lives using straight-line and declining-balance methods.
Long-Lived Assets
Long-lived assets held and used by the Company are reviewed for impairment
based on market factors and operational considerations whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable.
Software Costs
The Company 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 the project’s completion.
Debt Issue Costs
The costs related to the issuance of long-term debt are amortized over the life
of each issue.
45
Stock-Based Compensation
The Company accounts for stock-based compensation using the intrinsic value
method. Compensation expense is not recorded for stock options granted with an
exercise price
equal to the fair market value at the date of grant. For grants of restricted
stock, compensation equal to the market value of the shares at the date of
grant is deferred and amortized to expense over the vesting period. During the
restriction period, recipients of restricted stock grants have the right to be
paid an amount equal to the dividend equivalent of such shares as dividends are
paid. The Company recognizes these amounts as compensation expense.
Accounting for Risk Management Activities
Trading activities of DTE Energy Trading Inc. (DTE ET), an indirect wholly
owned subsidiary of the Company, are accounted for using the mark-to-market
method of accounting. Under such method, DTE ET’s energy trading contracts,
including both transactions for physical delivery and financial instruments,
are recorded at market value. The resulting unrealized gains and losses from
changes in market value of open positions are recorded as other current assets
or liabilities. Current period changes in the trading assets or liabilities
are recognized as net gains or losses in operating revenues. The market prices
used to value these transactions reflect management’s best estimate considering
various factors, including closing exchange and over-the-counter quotations,
time value and volatility factors underlying the commitments. Realized gains
and losses from transactions settled with cash are also recognized in operating
revenues. Transactions settled by physical delivery of the underlying
commodity are recorded gross in operating revenues and fuel and purchased power
expense.
Detroit Edison accounts for its forward purchase and sale commitments and
over-the-counter options on a settlement basis.
Accounting for Derivative Instruments and Hedging Activities
The Company adopted SFAS No. 133, “Accounting for Derivative Instruments and
Hedging Activities,” as of January 1, 2001. See Note 11 for further
discussion.
Reclassifications
Certain prior year balances have been reclassified to conform to the 2000
presentation.
NOTE 2 – MERGER AGREEMENT
In October 1999, the Company entered into a definitive merger agreement with
MCN. MCN, a Michigan corporation, is primarily involved in natural gas
production, gathering, processing, transmission, storage and distribution and
energy marketing. MCN’s largest subsidiary is Michigan Consolidated Gas
Company, a natural gas utility serving 1.2 million customers in more than 500
communities throughout Michigan. The merger
46
agreement provides that the
Company will acquire all outstanding shares of MCN for $28.50 per share in cash
or 0.775 shares of Company common stock for each share of MCN common stock,
subject to certain allocation procedures requiring that the aggregate number of
shares of MCN common stock that will be converted into cash and the Company’s
common stock will be equal to 55% and 45%, respectively, of the total
number of shares of MCN common stock outstanding immediately prior to the
proposed merger. The transaction was preliminarily valued at $4.6 billion,
which includes the assumption of approximately $2 billion of MCN’s debt. The
Company expects to continue as an exempt public utility holding company after
the completion of the proposed merger. Shareholders of the Company have
approved the issuance of the necessary shares of common stock to complete the
proposed merger and shareholders of MCN have approved the Agreement and Plan of
Merger.
The proposed merger is being reviewed by the Federal Trade Commission (FTC)
pursuant to the Hart-Scott-Rodino Act. The FTC staff has focused primarily on
possible competition between the Company and MCN for cogeneration load and
other gas/electric displacement technologies in the companies’ coincident
retail distribution areas. The Company and MCN are taking action to address
issues raised by the FTC staff, including an agreement for the proposed
transfer to a unit of Exelon Corp. (previously Unicom Corp.) of a property
interest allowing for the utilization of up to 20 billion cubic feet of natural
gas transportation capacity annually on the Michigan Consolidated Gas Company
system in the applicable distribution area. The MPSC approved the agreement in
February 2001. The agreement is subject to regulatory approvals and
consummation of the merger. The Company cannot predict the timing or outcome
of the regulatory review process and, therefore, a projected completion date
for the proposed merger cannot be predicted.
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, regulatory assets and certain other revenue,
accounting and operating-related matters.
Electric Industry Restructuring
There are ongoing proceedings for the restructuring of the Michigan electric
public utility industry and the implementation of Electric Choice.
In a December 28, 1998 order, as clarified March 8, 1999, the MPSC authorized
the accelerated amortization of the remaining net book balances (as of December
31, 1998) of Fermi 2 and its associated regulatory assets in a manner that
provided an opportunity for full recovery under rates from bundled customers
and through transition surcharges from future retail access customers, taking
into account the related tax consequences of those assets, by December 31,
2007.
On June 3, 2000, Michigan Governor John Engler signed Enrolled Senate Bill No.
937, Public Act 141 of 2000 (PA 141), which provides Detroit Edison with the
right to recover
47
stranded costs, codifies and establishes January 1, 2002, as
the date for full implementation of the MPSC’s existing Electric Choice
program, and requires the MPSC to reduce electric residential rates by 5%.
On that same date, the Governor signed Enrolled Senate Bill No. 1253, Public
Act 142 of 2000 (PA 142). PA 142 provides for the recovery through
securitization of “qualified costs,” which consist of an electric utility’s
regulatory assets plus various costs associated with, or resulting from, the
establishment of a competitive electric market, and the issuance of
securitization bonds.
In an order issued on November 2, 2000, and clarified on January 4, 2001, the
MPSC approved the issuance of securitization bonds, which may not exceed 15
years in term, the proceeds of which will be used to recover up to $1.774
billion (compared to approximately $1.850 billion requested by Detroit Edison)
of qualified costs. The qualified costs approved by the MPSC include Fermi 2
costs, costs of certain other regulatory assets, Electric Choice implementation
costs, the initial and periodic costs of issuance associated with
securitization bonds, and the costs of retiring and refunding securities with
the proceeds of securitization. Detroit Edison will use the proceeds of
securitization bonds to retire debt and equity as required. The issuance of
securitization bonds will result in an overall revenue requirement reduction
for Detroit Edison.
Acting pursuant to PA 141, in an order issued June 5, 2000, the MPSC reduced
Detroit Edison’s residential electric rates by 5%, or approximately $65 million
on an annual basis, and imposed a rate freeze for all classes of customers
through 2003.
The legislation also contains provisions preventing rate increases for
residential customers through 2005, for small business customers through 2004
and remaining business customers through 2003. Certain costs may be deferred
after 2003 and during the period that rate increases are impermissible. This
rate cap may be lifted when certain market test provisions are met, namely, an
electric utility has no more than 30% of generation capacity in its relevant
market, with allowance for capacity needed to meet a utility’s responsibility
to serve its customers. Statewide, multi-utility transmission system
improvements also are required. If these market conditions and transmission
improvements conditions are not met, the rate cap may continue until such
conditions are met or through 2013.
In addition, as a result of the legislation the Company must:
As a result of the legislation discussed above, in several orders issued on
June 19, 2000, the MPSC determined that adjusting rates for changes in fuel and
purchased
48
power expenses, through continuance of the PSCR clause, would be
inconsistent with the new statutes. Detroit Edison was not permitted to collect
the 1998 PSCR underrecovery of $8.6 million, plus accrued interest of $3.0
million. Detroit Edison reversed approximately $55 million of liabilities
associated with the PSCR clause as of
the effective date of the legislation. Parties have filed Claims of Appeal
regarding the PSCR issues with the Michigan Court of Appeals. The Company is
not able to determine the timing or outcome of these proceedings.
Detroit Edison is unable to predict the outcome of the matters discussed
herein. Resolution of these matters is dependent upon future MPSC orders which
may impact the financial position of Detroit Edison.
Accounting Implications
Due to 1997 and 1998 restructuring orders which provided sufficient details
regarding the transition to competition for its electric generation business,
at December 31, 1998, Detroit Edison performed an impairment test of its Fermi
2 nuclear generation plant and related regulatory assets. The impairment test
for Fermi 2 indicated that it was fully impaired. Therefore, the Fermi 2 plant
asset and its related regulatory assets were written off. At December 31,
1998, the accumulation of future regulatory recovery for Fermi 2 assets from
bundled customers and transition surcharges from future retail access customers
was calculated. Since the December 28, 1998 MPSC order provided for full
recovery of Fermi 2 through the regulated transmission and distribution
business, a regulatory asset was established which was planned to be amortized
through December 31, 2007. There was no impact on income from the write-off of
the Fermi 2 plant assets and subsequent recording of the regulatory asset for
unamortized nuclear costs. The regulatory asset is included in the amounts
planned to be securitized as provided for in the 2000 Michigan restructuring
legislation and MPSC orders.
Other
In accordance with a November 1997 MPSC order, Detroit Edison reduced revenues
by $53 million to reflect the scheduled reduction in the revenue requirement
for Fermi 2, in accordance with the 1988 settlement agreement. The $53 million
decrease is included in the $94 million decrease effective January 1, 1999. In
addition, the November 1997 MPSC order authorized the deferral of $30 million
of 1997 storm damage costs and amortization and recovery of the costs over a
24-month period commencing January 1998. In December 1997, ABATE and the
Residential Ratepayer Consortium filed a lawsuit in Ingham County Circuit Court
contending that Detroit Edison and the MPSC breached the December 1988 MPSC
order, but the lawsuit was subsequently dismissed. The Michigan Attorney
General has filed an appeal of the November 1997 order in the Michigan Court of
Appeals. In June 1999, in an unpublished opinion, the Michigan Court of
Appeals remanded back to the MPSC for hearing the November 1997 order. Detroit
Edison filed a motion for rehearing with the Michigan Court of Appeals in July
1999, but the motion was subsequently dismissed. In December 2000, the MPSC
issued an order reopening the case for hearing. Detroit Edison is unable to
determine the timing or the outcome of the remand.
49
NOTE 4 — FERMI 2
General
Fermi 2, a nuclear generating unit, began commercial operation in January 1988.
The Nuclear Regulatory Commission (NRC) maintains jurisdiction over the
licensing and operation of Fermi 2. Fermi 2 has a design electrical rating
(net) of 1,150 megawatts (MW). This unit represents approximately 11% of total
operation and maintenance expenses and 10% of summer net rated capability of
Detroit Edison. The net book balance of the Fermi 2 plant was written off at
December 31, 1998, and an equivalent regulatory asset was established. See
Note 3.
Ownership of an operating nuclear generating unit subjects Detroit Edison to
significant additional risks. Fermi 2 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-fuel plant.
Insurance
Detroit Edison insures Fermi 2 with property damage insurance provided by
Nuclear Electric Insurance Limited (NEIL). The NEIL insurance policies provide
$500 million of composite primary coverage (with a $1 million deductible) and
$2.25 billion of excess coverage, respectively, for stabilization,
decontamination and debris removal costs, repair and/or replacement of property
and decommissioning. The combined limits provide total property damage
insurance of $2.75 billion.
Detroit Edison maintains insurance policies with NEIL providing for extra
expenses, including certain replacement power costs necessitated by Fermi 2’s
unavailability due to an insured event. These policies have a 12-week waiting
period and provide for three years of coverage.
Under the NEIL policies, Detroit Edison could be liable for maximum
retrospective assessments of up to approximately $15 million per loss if any
one loss should exceed the accumulated funds available to 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 (Act), deferred premium charges of $84 million could be
levied against each licensed nuclear facility, but not more than $10 million
per year per facility. On December 31, 2000, there were 106 licensed nuclear
facilities in the United States. Thus, deferred premium charges in the
aggregate amount of approximately $8.89 billion could be levied against all
owners of licensed nuclear facilities in the event of a nuclear incident at any
of these facilities. The Act will expire on August 1, 2002. It is unknown
whether this statute will be renewed or modified.
50
Decommissioning
The NRC has jurisdiction over the decommissioning of nuclear power plants and
requires decommissioning funding based upon a formula. 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. Rates approved
by the MPSC provide for the decommissioning costs of Fermi 2. Detroit Edison
is continuing to fund FERC jurisdictional amounts for decommissioning even
though explicit provisions are not included in FERC rates. Detroit Edison
believes that the MPSC and FERC collections will be adequate to fund the
estimated cost of decommissioning using the NRC formula.
Detroit Edison has established external trust funds to hold decommissioning and
low-level radioactive waste disposal funds collected from customers. During
2000, 1999 and 1998, Detroit Edison collected $38 million, $38 million and $36
million, respectively, from customers for decommissioning and low-level
radioactive waste disposal. Such amounts were recorded as components of
depreciation and amortization expense and in other liabilities. A net
unrealized loss of $18 million and a net unrealized gain of $4 million in 2000
and 1999, respectively, were recorded as adjustments to the nuclear
decommissioning trust funds and other liabilities. Investments in debt and
equity securities held within the external trust funds are classified as
“available for sale.”
At December 31, 2000, Detroit Edison had a reserve of $351 million for the
future decommissioning of Fermi 2, $15 million for low-level radioactive waste
disposal costs, and $32 million for the decommissioning of Fermi 1, an
experimental nuclear unit on the Fermi 2 site that has been shut down since
1972. These reserves are included in other liabilities, with a like amount
deposited in external trust funds. It is estimated that the cost of
decommissioning Fermi 2, when its license expires in the year 2025, will be
$912 million in 2000 dollars and $3.7 billion in 2025 dollars using a 6%
inflation rate. The cost of decommissioning Fermi 1 is approximately $30-35
million. During 2000, Detroit Edison decided to proceed with the
decommissioning of Fermi 1, with the goal of removing the radioactive material
and terminating the Fermi 1 license. The full project is expected to take
about five years.
Fermi 2 Phase-In Plan
Based on a MPSC-authorized phase-in plan, Detroit Edison recorded a receivable
totaling $507 million from 1988 through 1992. Beginning in 1993 and ending in
1998, these amounts were amortized to operating expense as they were included
in rates. Amortization of these amounts totaled $84 million in 1998.
Capacity Factor Performance Standard
At December 31, 1999, Detroit Edison had an accrual of $63 million for the
Fermi 2 capacity factor performance standard disallowances that were expected
to be imposed
51
by the MPSC. As a result of the June 2000 Michigan restructuring
legislation, this liability was reversed.
Nuclear Fuel Disposal Costs
In accordance with the Federal Nuclear Waste Policy Act of 1982, Detroit Edison
has a contract with the U.S. Department of Energy (DOE) for the future storage
and disposal of spent nuclear fuel from Fermi 2. Detroit Edison is obligated
to pay DOE a fee of one mill
per net kilowatthour of Fermi 2 electricity generated and sold. The fee is a
component of nuclear fuel expense. Delays have occurred in the DOE’s program
for the acceptance and disposal of spent nuclear fuel at a permanent
repository. Until the DOE is able to fulfill its obligation under the
contract, Detroit Edison is responsible for the spent nuclear fuel storage and
estimates that existing storage capacity will be sufficient until 2007, after
the expansion of such storage capacity in 2001.
NOTE 5 — JOINTLY OWNED UTILITY PLANT
Detroit Edison’s portion of jointly owned utility plant at December 31, 2000 is
as follows:
Belle River
The Michigan Public Power Agency (MPPA) has an 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.
Ludington Pumped Storage
Operation, maintenance and other expenses of the Ludington Pumped Storage Plant
are shared by Detroit Edison and Consumers Energy Company in proportion to
their respective ownership interests in the plant.
52
NOTE 6 — INCOME TAXES
Total income tax expense as a percent of income before tax varied from the
statutory federal income tax rate for the following reasons:
Components of income tax expense were as follows:
Internal Revenue Code Section 29 provides a tax credit (alternate fuels credit)
for qualified fuels produced and sold by a taxpayer to an unrelated person
during the taxable year. The alternate fuels credit reduced current federal
income tax expense $130 million, $116 million and $79 million for 2000, 1999
and 1998, respectively.
53
Deferred income tax assets (liabilities) were comprised of the following at
December 31:
Included in deferred income tax assets is an alternative minimum tax credit
carry-forward of $125 million for 2000 and $50 million for 1999.
The federal income tax returns of the Company are settled through 1992. The
Company believes that adequate provisions for federal income taxes have been
made through December 31, 2000.
NOTE 7 — SHAREHOLDERS’ EQUITY
At December 31, 2000, the Company had 5 million shares of Cumulative Preferred
Stock, without par value, authorized with no shares issued. At December 31,
2000, 1.5 million shares of preferred stock are reserved for issuance in
accordance with the
Shareholders Rights Agreement.
At December 31, 2000, Detroit Edison had 30 million shares of Cumulative
Preference Stock of $1 par value and 6.75 million shares of Cumulative
Preferred Stock of $100 par value authorized, with no shares issued.
In September 1997, the Board of Directors of the Company declared a dividend
distribution of one right (Right) for each share of Company common stock
outstanding. Under certain circumstances, each Right entitles the shareholder
to purchase one one-hundredth of a share of Company Series A Junior
Participating Preferred Stock at a price of $90. If the acquiring person or
group acquires 10% or more of the Company common stock, and the Company
survives, each Right (other than those held by the acquirer) will entitle its
holder to buy Company common stock having a value of $180 for $90. If the
acquiring person or group acquires 10% or more of the Company common stock, and
the Company does not survive, each Right (other than those held by the
surviving or acquiring company) will entitle its holder to buy shares of common
stock of the surviving
54
or acquiring company having a value of $180 for $90. The Rights will expire on
October 6, 2007, unless redeemed by the Company at $0.01 per Right at any time
prior to an event that would permit the Rights to be exercised. The Company
may amend the Rights agreement without the approval of the holders of the
Rights Certificates, except that the redemption price may not be less than
$0.01 per Right.
During the year ended December 31, 2000, the Company repurchased approximately
2.3 million shares at an aggregate cost of approximately $70 million, under a
program that began in February 2000.
55
NOTE 8 — LONG-TERM DEBT
The Company’s long-term debt outstanding at December 31 was:
Page
29
30
31
32
34
36
37
38
40
41
93
and are not considered to be
part of Part II — Item 8 of the Company’s report.
DTE Energy Company and
The Detroit Edison Company
January 24, 2001
Consolidated Statement of Income
(Millions, Except Per Share Amounts)
Year Ended December 31
2000
1999
1998
$
5,597
$
4,728
$
4,221
2,233
1,335
1,063
1,480
1,480
1,288
758
735
661
296
277
272
4,767
3,827
3,284
830
901
937
336
340
319
—
—
6
17
18
15
353
358
340
477
543
597
9
60
154
$
468
$
483
$
443
143
145
145
$
3.27
$
3.33
$
3.05
Consolidated Statement of Cash Flows
Year Ended December 31
2000
1999
1998
$
468
$
483
$
443
758
735
661
(146
)
(90
)
(146
)
43
(10
)
(67
)
(140
)
(94
)
(84
)
8
(5
)
(35
)
139
30
99
(42
)
48
(37
)
1,088
1,097
834
(749
)
(739
)
(589
)
—
(29
)
(408
)
(749
)
(768
)
(997
)
273
265
763
116
156
189
(331
)
(548
)
(255
)
—
—
(150
)
(70
)
—
—
(296
)
(299
)
(299
)
(308
)
(426
)
248
31
(97
)
85
33
130
45
$
64
$
33
$
130
$
334
$
340
$
309
104
152
160
41
3
52
Consolidated Balance Sheet
(Millions, Except Per Share Amounts and Shares)
December 31
2000
1999
$
64
$
33
88
131
510
388
188
166
140
144
163
175
172
168
289
67
38
38
1,652
1,310
398
361
269
274
667
635
12,179
11,755
221
222
705
663
57
106
13,162
12,746
5,775
5,598
7,387
7,148
2,686
2,935
270
288
$
12,662
$
12,316
December 31
2000
1999
$
404
$
273
59
57
73
75
103
97
503
387
97
61
233
270
41
36
280
50
218
259
2,011
1,565
1,801
1,925
145
153
185
262
588
564
2,719
2,904
3,917
3,938
1,918
1,950
2,097
1,959
4,015
3,909
$
12,662
$
12,316
Consolidated Statement of Changes in Shareholders’ Equity
(Millions, Except Per Share Amounts; Shares in Thousands)
2000
1999
1998
Shares
Amount
Shares
Amount
Shares
Amount
—
$
—
—
$
—
1,501
$
144
—
—
—
—
(1,501
)
(150
)
—
—
—
—
—
6
—
$
—
—
$
—
—
$
—
145,041
$
1,950
145,071
$
1,951
145,098
$
1,951
(2,390
)
(32
)
(30
)
(1
)
(27
)
—
142,651
$
1,918
145,041
$
1,950
145,071
$
1,951
$
1,959
$
1,747
$
1,611
468
483
443
(294
)
(299
)
(299
)
—
—
(6
)
(39
)
—
—
3
28
(2
)
$
2,097
$
1,959
$
1,747
$
4,015
$
3,909
$
3,698
Consolidated Statement of Income
(Millions)
Year Ended December 31
2000
1999
1998
$
4,129
$
4,047
$
3,902
1,271
1,106
1,021
977
1,028
998
719
703
643
289
275
270
3,256
3,112
2,932
873
935
970
277
284
277
13
6
15
290
290
292
583
645
678
172
211
260
411
434
418
—
—
6
$
411
$
434
$
412
Consolidated Statement of Cash Flows
(Millions)
Year Ended December 31
2000
1999
1998
$
411
$
434
$
418
719
703
643
(151
)
2
(217
)
(23
)
(70
)
(51
)
13
(6
)
(28
)
37
17
64
12
(52
)
(25
)
1,018
1,028
804
(587
)
(638
)
(548
)
(587
)
(638
)
(548
)
270
265
200
(117
)
131
231
(245
)
(468
)
(219
)
—
—
(150
)
(319
)
(319
)
(328
)
(411
)
(391
)
(266
)
20
(1
)
(10
)
4
5
15
$
24
$
4
$
5
$
275
$
284
$
269
235
276
292
41
3
52
Consolidated Balance Sheet
(Millions, Except Per Share Amounts and Shares)
December 31
2000
1999
$
24
$
4
328
316
188
166
127
138
163
175
139
140
25
29
994
968
398
361
38
34
436
395
11,431
11,204
220
221
705
663
2
4
12,358
12,092
5,659
5,526
6,699
6,566
2,686
2,935
171
187
$
10,986
$
11,051
December 31
2000
1999
$
253
$
224
56
54
80
80
96
90
245
362
95
84
159
194
41
36
167
159
1,192
1,283
1,811
1,879
145
153
185
262
586
562
2,727
2,856
3,344
3,284
authorized, 145,119,875 issued and outstanding
1,451
1,451
548
548
(48
)
(48
)
1,772
1,677
3,723
3,628
$
10,986
$
11,051
Consolidated Statement of Changes in Shareholders’ Equity
(Millions, Except Per Share Amounts; Shares in Thousands)
2000
1999
1998
Shares
Amount
Shares
Amount
Shares
Amount
—
$
—
—
$
—
1,501
$
144
—
—
—
—
(1,501
)
(150
)
—
—
—
—
—
6
—
$
—
—
$
—
—
$
—
145,120
$
1,451
145,120
$
1,451
145,120
$
1,451
$
548
$
548
$
548
$
(48
)
$
(48
)
$
(48
)
$
1,677
$
1,562
$
1,478
411
434
418
(319
)
(319
)
(319
)
—
—
(6
)
—
—
(6
)
3
—
(3
)
$
1,772
$
1,677
$
1,562
$
3,723
$
3,628
$
3,513
2000
1999
(Millions)
Assets
Unamortized nuclear costs
$
2,328
$
2,570
Unamortized loss on reacquired debt
82
85
Recoverable income taxes
194
201
Power supply cost recovery
—
39
Electric Choice implementation costs
57
29
Other
25
11
Total Assets
$
2,686
$
2,935
Liabilities
Unamortized deferred investment tax credits
$
167
$
177
Fermi 2 capacity factor performance standard
—
63
Other
18
22
Total Liabilities
$
185
$
262
2000
1999
(Millions)
Distribution
Property
$
5,153
$
4,856
Construction work in progress
1
1
Property under capital leases
9
4
Less accumulated depreciation
(1,924
)
(1,767
)
3,239
3,094
Transmission
Property
772
742
Construction work in progress
—
—
Property under capital leases
—
—
Less accumulated depreciation
(389
)
(413
)
383
329
Generation
Property
5,506
5,606
Construction work in progress
1
3
Property under capital leases
211
217
Less accumulated depreciation
(2,715
)
(2,747
)
3,003
3,079
Nuclear fuel under capital lease
705
663
Less accumulated amortization
(631
)
(599
)
74
64
2000
1999
(Millions)
Non-utility
Property
748
551
Construction work in progress
55
102
Property under capital leases
1
1
Less accumulated depreciation
(116
)
(72
)
688
582
Total property
$
7,387
7,148
•
File an application by June 5, 2001, to unbundle its commercial and industrial rates.
•
Join a FERC-approved Regional Transmission Organization (RTO) or divest its interest in transmission by December 15, 2001.
•
Continue to provide service to customers who wish to take service from Detroit Edison.
•
Establish a worker transition program for workers that might be displaced.
Belle River
Ludington Pumped Storage
In-service date
1984-1985
1973
Ownership interest
*
49
%
Investment (millions)
$
1,030
$
192
Accumulated depreciation (millions)
$
436
$
96
*
Detroit Edison’s 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, 2000, 75% in facilities used in
common with Unit No. 2.
2000
1999
1998
Statutory income tax rate
35.0
%
35.0
%
35.0
%
Deferred Fermi 2 depreciation and return
—
—
3.9
Investment tax credit
(2.2
)
(1.9
)
(2.5
)
Depreciation
2.3
1.5
5.1
Removal costs
(5.0
)
(2.3
)
(1.9
)
Alternate fuels credit
(27.1
)
(21.3
)
(13.1
)
Other-net
(1.1
)
0.1
(1.0
)
Effective income tax rate
1.9
%
11.1
%
25.5
%
2000
1999
1998
(Millions)
Current federal income tax expense
$
138
$
144
$
143
Deferred federal income tax (benefit) expense
(118
)
(73
)
26
Investment tax credit
(11
)
(11
)
(15
)
Total
$
9
60
$
154
2000
1999
(Millions)
Property
$
(1,212
)
$
(1,209
)
Unamortized nuclear costs
(822
)
(899
)
Property taxes
(68
)
(66
)
Investment tax credit
90
96
Reacquired debt losses
(29
)
(30
)
Contributions in aid of construction
90
73
Other
88
51
$
(1,863
)
$
(1,984
)
Deferred income tax liabilities
$
(2,414
)
$
(2,463
)
Deferred income tax assets
551
479
$
(1,863
)
$
(1,984
)
2000
1999
(Millions)
Mortgage Bonds
6.6% to 8.4% due 2001 to 2023
$
1,564
$
1,539
Remarketed Notes
6.0% to 7.4% due 2028 to 2034 (a)
410
410
6.2% and 7.1% due 2038
400
400
Tax Exempt Revenue Bonds
Secured by Mortgage Bonds
Installment Sales Contracts
6.6% due 2004 to 2024(b)
125
176
Loan Agreements
6.1% due 2008 to 2030(b)
882
831
Unsecured
Installment Sales Contracts
6.4% due 2004
24
24
Loan Agreements
3.9% due 2024 to 2030(a)
113
113
QUIDS
7.4% to 7.6% due 2026 to 2028
385
385
Non-Recourse Debt
7.8% due 2001 to 2009 (b)
247
330
Less amount due within one year
(233)
(270
)
Total Long-Term Debt
$
3,917
$
3,938
(a)
Variable rate at December 31, 2000.
(b)
Weighted average interest rate at December 31, 2000.
In the years 2001 — 2005, the Company’s long-term debt maturities are $233 million, $275 million, $238 million, $64 million and $254 million, respectively.
Detroit Edison’s 1924 Mortgage and Deed of Trust (Mortgage), the lien of which covers a substantial portion of Detroit Edison’s properties, provides for the issuance of additional General and Refunding Mortgage Bonds (Mortgage Bonds). At December 31, 2000, approximately $4.2 billion principal amount of Mortgage Bonds could have been issued on the basis of property additions, combined with an earnings test provision, assuming an interest rate of 7% on any such additional Mortgage Bonds. An additional $2.1 billion principal amount of Mortgage Bonds could have been issued on the basis of bond retirements.
Unless an event of default has occurred, and is continuing, each series of Quarterly Income Debt Securities (QUIDS) provides that interest will be paid quarterly. However,
56
Detroit Edison also has the right to extend the interest payment period on the QUIDS for up to 20 consecutive interest payment periods. Interest would continue to accrue during the deferral period. If this right is exercised, Detroit Edison may not declare or pay dividends on, or redeem, purchase or acquire, any of its capital stock during the deferral period. Detroit Edison may redeem any series of capital stock pursuant to the terms of any sinking fund provisions during the deferral period. Additionally, during any deferral period, Detroit Edison may not enter into any inter-company transactions with any affiliate of Detroit Edison, including the Company, to enable the payment of dividends on any equity securities of the Company.
At December 31, 2000, $273 million of notes and bonds were subject to periodic remarketings within one year. Remarketing agents remarket these securities at the lowest interest rate necessary to produce a par bid. In the event that a remarketing fails, Standby Note Purchase Agreements and/or Letters of Credit provide that banks will purchase the securities and, after the conclusion of all necessary proceedings, remarket the bonds. In the event the banks’ obligations under the Standby Note Purchase Agreements and/or Letters of Credit are not honored, then Detroit Edison would be required to purchase any securities subject to a failed remarketing.
At December 31, 2000, the Company had letters of credit from a bank that allowed the Company to use approximately $45 million of cash previously classified as restricted on the Company’s balance sheet. There were no amounts drawn on these letters of credit at December 31, 2000.
NOTE 9 — SHORT-TERM CREDIT ARRANGEMENTS AND BORROWINGS
At December 31, 2000, Detroit Edison had total short-term credit arrangements of approximately $517 million, under which $245 million was outstanding. At December 31, 1999, $162 million was outstanding. The weighted average interest rates for short-term borrowings at December 31, 2000 and 1999 were 6.6% and 6.9%, respectively.
Detroit Edison’s short-term credit arrangements included bank lines of credit of $201 million, all of which had commitment fees in lieu of compensating balances. Detroit Edison uses bank lines of credit and other credit facilities to support the issuance of commercial paper and bank loans. Detroit Edison had $45 million and $162 million of commercial paper outstanding at December 31, 2000 and 1999, respectively.
Detroit Edison’s short-term credit arrangements also included a $200 million short-term financing agreement secured by its customer accounts receivable and unbilled revenues portfolio under which $200 million was outstanding at December 31, 2000 and 1999, with a weighted average interest rate of 6.76% and 5.42%, respectively.
Detroit Edison has a nuclear fuel financing arrangement 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
57
December 31, 2000, approximately $316 million was available to Detroit Edison under such Loan Agreement.
At December 31, 2000 and 1999, DTE Capital Corporation (DTE Capital), a wholly owned subsidiary of the Company, had $258 million and $25 million of commercial paper outstanding with a weighted average interest rate of 7.69% and 6.80%, respectively. A $400 million short-term credit arrangement, backed by a Support Agreement from the Company, provided credit support for this commercial paper.
During the first quarter of 2000, plans were announced to terminate DTE Capital’s operations. Subsequently, the Company assumed all of DTE Capital’s outstanding guarantees. The Company is authorized to issue up to $550 million of guarantees. At December 31, 2000, the Company had assumed and/or issued guarantees of various consolidated affiliate obligations of approximately $238 million.
NOTE 10 — LEASES
Future minimum lease payments under capital leases, consisting of nuclear fuel ($85 million computed on a projected units of production basis), lake vessels ($13 million), locomotives and coal cars ($142 million), office space ($9 million), and computers, vehicles and other equipment ($1 million) at December 31, 2000 are as follows:
(Millions)
Remaining
2001
2002
2003
2004
2005
Years
Interest
Total
$54
$
45
$
30
$
21
$
14
$
86
$
(64
)
$
186
Future minimum lease payments for operating leases are as follows:
(Millions)
Remaining
2001
2002
2003
2004
2005
Years
Total
$10
$
10
$
9
$
9
$
9
$
45
$
92
Rental expenses for both capital and operating leases were $116 million (including $38 million for nuclear fuel), $107 million (including $52 million for nuclear fuel) and $96 million (including $49 million for nuclear fuel) for 2000, 1999 and 1998, respectively.
Detroit Edison has a 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 contract based on the consumption of nuclear fuel for the generation of electricity.
58
NOTE 11 — FINANCIAL AND OTHER DERIVATIVE INSTRUMENTS
Trading Activities
DTE ET markets and trades electricity and natural gas physical products and
financial instruments, and provides risk management services utilizing energy
commodity derivative instruments, which include futures, exchange traded and
over-the-counter options, and forward purchase and sale commitments.
Notional Amounts and Terms
The notional amounts and terms of DTE ET’s outstanding energy trading financial
instruments at December 31, 2000 were:
Fixed Price
Fixed Price
Maximum
Payor
Receiver
Terms in Years
(Thousand of MWh)
Electricity Commodities
1,116
1,933
1
At December 31, 2000, DTE ET also had sales and purchase commitments for physical delivery of electricity associated with contracts based on fixed prices totaling 810,578 net MWh purchased with terms extending up to 2 years.
Notional amounts reflect the volume of transactions, but do not necessarily represent the amounts exchanged by the parties to the energy commodity derivative instruments. Accordingly, notional amounts do not accurately measure DTE ET’s exposure to market or credit risks. The maximum terms in years detailed above are not indicative of likely future cash flows as these positions may be offset in the markets at any time in response to DTE ET’s risk management needs.
Fair Values
The average fair values of DTE ET’s derivative financial assets and liabilities during 2000 were $109.4 million and $95.1 million, respectively, and during 1999 $28.7 million and $24.3 million, respectively. At December 31, 2000 and 1999, the fair values of the derivative financial assets and liabilities were $288.9 million and $279.9 million and, $66.6 million and $49.6 million, respectively. Net unrealized gains were $9.0 million and $17.0 million at December 31, 2000 and 1999, respectively.
Market Risk
DTE ET manages, on a portfolio basis, the market risks inherent in its activities subject to parameters established by the Company’s Risk Management Committee (RMC), which is authorized by its Board of Directors. Market risks are monitored by the RMC to ensure compliance with the Company’s stated risk management policies. DTE ET marks its portfolio to market and measures its risk on a daily basis in accordance with
59
Value at Risk (VaR) and other risk methodologies. The quantification of market risk using VaR provides a consistent measure of risk across diverse energy markets and products.
Credit Risk
DTE ET is exposed to credit risk in the event of nonperformance by customers or counterparties of its contractual obligations. The concentration of customers and/or counterparties may impact overall exposure to credit risk, either positively or negatively, in that the counterparties may be similarly affected by changes in economic, regulatory or other conditions. However, DTE ET maintains credit policies with regard to its customers and counterparties that management believes significantly minimize overall credit risk. These policies include an evaluation of potential customers’ and counterparties’ financial condition and credit rating, collateral requirements or other credit enhancements such as letters of credit or guarantees, and the use of standardized agreements which allow for the netting or offsetting of positive and negative exposures associated with a single counterparty. Based on these policies, the Company does not anticipate a materially adverse effect on financial position or results of operations as a result of customer or counterparty nonperformance. Those futures and option contracts which are traded on the New York Mercantile Exchange are financially guaranteed by the Exchange and have nominal credit risk.
Non-Trading Activities
The Company has entered into a series of forward-starting interest rate swaps and Treasury locks in order to limit its sensitivity to interest rate fluctuations associated with its anticipated issuance of long-term debt to be used to finance the proposed merger with MCN. The Company has designated these instruments as hedges. The Company expects to issue this debt subsequent to the proposed merger. The forward-starting swaps, which include notional amounts of $250 million and $450 million in five- and 10-year maturities, respectively, have a weighted average interest rate of 7.55% and 7.61%, respectively. The Treasury locks, which include notional amounts of $50 million and $150 million in 10- and 30-year maturities, respectively, have a weighted average interest rate of 6.01% and 6.26%, respectively. At December 31, 2000, the fair value of these derivative financial instruments indicated an unrealized loss of approximately $84 million. The unrealized loss is not reflected in the financial statements at December 31, 2000, but would be recognized as a deferred item upon issuance of the anticipated long-term debt. The deferred item would be amortized through interest expense over the life of the associated long-term debt as a yield adjustment.
PCI Enterprises Company (PCI), a wholly owned coal pulverizing subsidiary, entered into a seven-year interest rate swap agreement beginning June 30, 1997, with the intent of reducing the impact of changes in interest rates on a portion of its variable rate non-recourse debt. The initial notional amount was $30 million. The notional amount outstanding at December 31, 2000 and 1999, was $22 million and $24 million, respectively, and will decline throughout the term of the loan based on amortization of principal amounts. PCI pays a fixed interest rate of 6.96% on the notional amount and receives a variable interest rate based on LIBOR. In 2000 and 1999, the average rate
60
received was 6.48% and 5.28%, respectively. The net of interest received and interest paid on the swap is accrued as a component of interest expense in the current period.
New Accounting Pronouncement
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No. 133. SFAS No. 133, as amended, requires every derivative instrument to be recorded on the balance sheet as an asset or a liability measured at its fair value, and that changes in the derivative’s fair value be recognized currently in earnings unless specific hedge accounting criteria are met.
SFAS No. 133 requires that as of the date of initial adoption, the difference between the fair market value of derivative instruments recorded on the balance sheet and the previous carrying amount of those derivatives be reported in net income or other comprehensive income, as appropriate, as the cumulative effect of a change in accounting principle in accordance with Accounting Principles Board Opinion 20, “Accounting Changes.”
As of January 1, 2001, the Company adopted SFAS No. 133, as required. The cumulative effect of the adoption of SFAS No. 133 is expected to be an after-tax increase in net income of approximately $3.6 million, and an after-tax decrease in other comprehensive income of approximately $41.5 million. The adoption will also impact assets and liabilities recorded on the balance sheet. At January 1, 2001, the Company had the following types of derivative instruments: forward-starting swaps, Treasury locks, wholesale power contracts and an interest rate swap.
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 and other instruments disclosed herein, approximates fair value. The estimated fair value of total long-term debt at December 31, 2000 and 1999 was $4.2 billion and $4 billion, respectively, compared to the carrying amount of $4.1 billion and $4.2 billion, respectively.
NOTE 12 — COMMITMENTS AND CONTINGENCIES
Commitments
Detroit Edison has outstanding purchase commitments of approximately $1,048 million at December 31, 2000, which includes, among other things, line construction and clearance costs and equipment purchases. The Company and Detroit Edison have also entered into long-term fuel supply commitments of approximately $1,005 million.
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 2008 and electricity through June 2024. In 1996, a special charge to net income of $149 million ($97 million after-tax) or $0.67 per
61
share was recorded. The special charge included a reserve for steam purchase commitments from 1997 through 2008 and expenditures for closure of a portion of the steam heating system. The reserve for steam purchase commitments was recorded at its present value; therefore Detroit Edison is recording non-cash accretion expense through 2008. In addition, amortization of the reserve for steam purchase commitments is netted against losses on steam heating purchases recorded in fuel and purchased power expense. Purchases of steam and electricity were approximately $35 million, $35 million and $31 million for 2000, 1999 and 1998, respectively. Annual steam purchase commitments are approximately $38 million, $39 million, $40 million, $42 million and $43 million for 2001, 2002, 2003, 2004 and 2005, respectively.
In October 1995, the MPSC issued an order approving Detroit Edison’s six-year capacity and energy purchase agreement with Ontario Hydro. Ontario Hydro agreed to sell Detroit Edison 300 MW of capacity from mid-May through mid-September. This purchase offsets a concurrent agreement to lease approximately one-third of Detroit Edison’s Ludington 917 MW capacity to FirstEnergy for the same time period. The net economic effect of the Ludington lease and the Ontario Hydro purchase is an estimated reduction in expense of $74 million over the term of the agreement.
The EPA has issued ozone transport regulations and final new air quality standards relating to ozone and particulate air pollution. In September 1998, the EPA issued a State Implementation Plan (SIP) call, giving states a year to develop new regulations to limit nitrogen oxide emissions because of their contribution to ozone formation. Detroit Edison has spent approximately $50 million and estimates that it will incur approximately $410 million of future capital expenditures over the next three years to comply. In March 2000, the U.S. Court of Appeals, D.C. Circuit ruled in favor of the EPA’s SIP call regulations. The new air quality standards have been upheld in legal challenges in the U.S. Court of Appeals, but the U.S. Supreme Court has agreed to hear the appeal. Until the legal issues are resolved, it is impossible to predict the full impact of the new air quality standards. Under the June 2000 Michigan restructuring legislation, beginning January 1, 2004, annual return of and on this capital expenditure, in excess of current depreciation levels, would be deferred, in ratemaking, until after the expiration of the rate cap period, presently expected to end December 31, 2005.
Contingencies
The Company is involved in various legal proceedings, including environmental matters, of a nature considered normal to its business. The Company believes that such litigation and the matters discussed above will not have a material effect on its financial position and results of operations.
See Notes 3 and 4 for a discussion of contingencies related to Regulatory Matters and Fermi 2.
62
NOTE 13 — EMPLOYEE BENEFITS
Retirement Plan
Detroit Edison has a trusteed and non-contributory defined benefit retirement 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.
Net pension cost included the following components:
2000
1999
1998
(Millions)
Service cost – benefits earned during period
$
35
$
35
$
31
Interest cost on projected benefit obligation
107
92
88
Expected return on Plan assets
(139
)
(124
)
(118
)
Amortization of unrecognized prior service cost
10
5
5
Amortization of unrecognized net asset resulting
from initial
application
(4
)
(4
)
(4
)
Net pension cost
$
9
$
4
$
2
The following reconciles the funded status of the Plan to the amount recorded
in the Consolidated Balance Sheet at December 31:
2000
1999
(Millions)
Projected benefit obligation at beginning of year
$
1,457
$
1,400
Service cost – benefits earned during period
35
35
Interest cost on projected benefit obligation
107
92
Net loss (gain)
21
(49
)
Benefits paid to participants
(82
)
(77
)
Plan amendments
2
56
Projected benefit obligation at year-end
1,540
1,457
Fair value of Plan assets (primarily equity and
debt securities) at beginning
of year
1,585
1,416
Actual return on Plan assets
(87
)
246
Benefits paid to participants
(82
)
(77
)
Fair value of Plan assets at year-end
1,416
1,585
63
2000
1999
(Millions)
Plan assets (less than) in excess of projected
benefit obligation
(124
)
128
Unrecognized net asset resulting from initial application
(7
)
(11
)
Unrecognized net loss (gain)
112
(136
)
Unrecognized prior service cost
85
94
Asset recorded in the Consolidated Balance Sheet
$
66
$
75
Assumptions used in determining the projected benefit obligation at December 31
were as follows:
2000
1999
Discount rate
7.5
%
7.5
%
Annual increase in future compensation levels
4.0
4.0
Expected long-term rate of return on Plan assets
9.5
9.5
The unrecognized net asset at the 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.
There are several additional supplemental non-qualified, non-contributory, retirement benefit plans for certain management employees.
Savings and Investment Plans
Detroit Edison has voluntary defined contribution plans qualified under Section 401 (a) and (k) of the Internal Revenue Code for all eligible employees. Detroit Edison contributes up to 6% of base compensation for non-represented employees and up to 4% for represented employees. Matching contributions were $22 million, $21 million and $21 million for 2000, 1999 and 1998, 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.
64
Net other postretirement benefits cost included the following components:
2000
1999
1998
(Millions)
Service cost – benefits earned during period
$
22
$
23
$
19
Interest cost on accumulated
benefit obligation
48
41
38
Expected return on assets
(46
)
(39
)
(30
)
Amortization of unrecognized transition obligation
20
21
21
Net other postretirement benefits cost
$
44
$
46
$
48
The following reconciles the funded status to the amount recorded in the
Consolidated Balance Sheet at December 31:
2000
1999
(Millions)
Postretirement benefit obligation at beginning of year
$
607
$
625
Service cost – benefits earned during period
22
23
Interest cost on accumulated benefit obligation
48
43
Benefit payments
(31
)
(29
)
Net loss (gain)
105
(55
)
Postretirement benefit obligation at year-end
751
607
Fair value of assets (primarily equity and debt
securities) at beginning
of year
501
422
Detroit Edison contributions
23
26
Benefit payments
(9
)
(8
)
Actual return on assets
2
61
Fair value of assets at year-end
517
501
Postretirement benefit obligation in (excess) of assets
(234
)
(106
)
Unrecognized transition obligation
246
267
Unrecognized net loss (gain)
44
(105
)
Asset recorded in the Consolidated
Balance Sheet
$
56
$
56
65
Assumptions used in determining the postretirement benefit obligation at
December 31 were as follows:
2000
1999
Discount rate
7.5
%
7.5
%
Annual increase in future compensation levels
4.0
4.0
Expected long-term rate of return on assets
9.0
9.0
Benefit costs were calculated assuming health care cost trend rates beginning at 9.2% for 2001 and decreasing to 5% in 2008 and thereafter for persons under age 65 and decreasing from 9.8% to 5% for persons age 65 and over. A one-percentage-point increase in health care cost trend rates would have increased the aggregate of the service cost and interest cost components of benefit costs by $12.6 million and would have increased the accumulated benefit obligation by $96.4 million at December 31, 2000. A one-percentage-point decrease in the health care cost trend rates would have decreased the aggregate of the service cost and interest cost components of benefit costs by $10.1 million and would have decreased the accumulated benefit obligation by $78.9 million at December 31, 2000.
66
NOTE 14 – STOCK-BASED COMPENSATION
The Company adopted a Long-Term Incentive Plan (LTIP) in 1995. Under the LTIP, certain key employees may be granted restricted common stock, stock options, stock appreciation rights, performance shares and performance units. Common stock granted under the LTIP may not exceed 7.2 million shares. Performance units (which have a face amount of $1) granted under the LTIP may not exceed 25 million in the aggregate. As of December 31, 2000, no stock appreciation rights or performance units have been granted under the LTIP.
Under the LTIP, shares of restricted common stock were awarded and are
restricted for a period not exceeding four years. All shares are subject to
forfeiture if specified performance measures are not met. During the
applicable restriction period, the recipient has all the voting, dividend 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. The shares were recorded at the market value on the date of grant
and amortized to expense based on the award that was expected to vest and the
period during which the related employee services were to be rendered.
Restricted common stock activity for the year ended December 31 was:
2000
1999
1998
Restricted common shares awarded
29,565
99,500
74,000
Weighted average market price of shares awarded
$
32.00
$
40.99
$
38.77
Compensation cost charged against
income (thousands)
$
1,130
$
945
$
976
67
Effective February 22, 2000, under the LTIP, the Company’s Special Committee on Compensation (the “Committee”) granted performance share awards. The performance share award includes a target award established by the Committee that when paid, can equal a multiple from zero to two times the recipients target award, based on the Company’s performance as compared against the goals established by the Committee on February 22, 2000, for the four fiscal year cycle that began on January 1, 2000. The four performance goals established by the Committee with respect to this grant are based on: 1) the Company’s four-year total shareholder return compared to the Dow Jones Electric Utility Industry Group; 2) the Company’s four-year earnings per share growth; 3) the Company’s four-year employee satisfaction goal; and 4) the Company’s four-year Institute of Nuclear Power Operations goal. During the applicable restriction period, the recipient of a performance share award has no rights as a shareholder until and to the extent that the performance share award is earned and common stock is actually distributed to the recipient. However, recipients will be paid an amount equal to the dividend equivalent on such shares as dividends are paid. Performance share awards are nontransferable and are subject to risk of forfeiture. As of December 31, 2000, there were 125,750 performance share awards outstanding.
Stock options were also issued under the LTIP. Usually options are exercisable
at a rate of 25% per year during the four years following the date of grant.
However in 2000, more than 97% of the 2,018,400 options granted vest 50%, 20%,
20% and 10% over a four-year period. The options will expire 10 years after
the date of the grant. The option exercise price equals the fair market value
of the stock on the date that the option was granted. Stock option activity
was as follows:
Weighted
Number
Average
of Options
Exercise Price
Outstanding at January 1, 1998
310,500
28.50
Granted
319,500
38.38
Exercised
(22,625
)
28.50
Outstanding at December 31, 1998 (58,750 exercisable)
607,375
33.70
Granted
428,000
41.30
Exercised
(11,675
)
30.99
Canceled
(24,625
)
31.96
Outstanding at December 31, 1999 (194,371 exercisable)
999,075
37.03
Granted
2,018,400
32.10
Exercised
(10,750
)
28.50
Canceled
(29,500
)
41.14
Outstanding at December 31, 2000 (442,431 exercisable
at a
weighted average exercise price of $34.72)
2,977,225
33.68
68
The range of exercise prices for options outstanding at December 31, 2000, was
$28.50 to $43.85. The number, weighted average exercise price and weighted
average remaining contractual life of options outstanding was as follows:
Weighted Average
Range of Exercise
Weighted Average
Remaining
Prices
Number of Options
Exercise Price
Contractual Life
$28.50 - $34.75
2,260,475
$
31.65
8.8 years
$38.04 - $43.85
716,750
$
40.11
7.9 years
2,977,225
$
33.68
8.6 years
The Company applies APB Opinion 25, “Accounting for Stock Issued to Employees.”
Accordingly, no compensation expense has been recorded for options granted.
As required by SFAS No. 123, “Accounting for Stock-Based Compensation,” the
Company has determined the pro forma information as if it had accounted for its
employee stock
options under the fair value method. The fair value for these options was
estimated at the date of grant using a modified Black/Scholes option pricing
model — American style and the following weighted average assumptions:
2000
1999
1998
Risk-free interest rate
6.57
%
5.64
%
5.84
%
Dividend yield
6.48
%
4.95
%
5.39
%
Expected volatility
18.51
%
17.28
%
17.48
%
Expected life
10 years
10 years
10 years
Fair value per option
$
5.19
$
7.18
$
6.43
The pro forma effect of these options would be to reduce pretax income by $2,725,000, $1,289,000, and $695,000 for the years ended December 31, 2000, 1999 and 1998, respectively, and to reduce earnings per share by $0.02 and $0.01 for the years ended December 31, 2000 and 1999, respectively. There was no pro forma effect on earnings per share for the year ended December 31, 1998.
NOTE 15 — SEGMENT AND RELATED INFORMATION
The Company’s reportable business segments are its electric utility, Detroit Edison, which is engaged in the generation, purchase, transmission, distribution and sale of electric energy in a 7,600-square-mile area in Southeastern Michigan, its energy trading company, and energy services business, which develops and manages energy-related projects and services primarily concentrated in the steel industry. All Other includes businesses involved in new energy technologies. Inter-segment revenues are not material. Income taxes are allocated based on inter-company tax sharing agreements, which generally allocate the tax benefit of alternate fuels tax credits and accelerated depreciation to the respective subsidiary, without regard to the subsidiary’s own net
69
income or whether such tax benefits are realized by the Company. Financial data for business segments are as follows:
| Reconciliations | |||||||||||||||||||||||||
| Electric | Energy | Energy | All | and | |||||||||||||||||||||
| Utility | Trading | Services | Other | Eliminations | Consolidated | ||||||||||||||||||||
|
|
|
|
|
|
|
||||||||||||||||||||
| 2000 | (Millions) | ||||||||||||||||||||||||
| Operating revenues | $ | 4,129 | $ | 985 | $ | 472 | $ | 92 | $ | (81 | ) | $ | 5,597 | ||||||||||||
| Depreciation and amortization | 719 | — | 34 | 5 | — | 758 | |||||||||||||||||||
| Interest expense | 277 | — | 30 | 4 | 25 | 336 | |||||||||||||||||||
| Income tax expense (benefit) | 172 | 5 | (141 | ) | (18 | ) | (9 | ) | 9 | ||||||||||||||||
| Net income (loss) | 411 | 10 | 109 | (35 | ) | (27 | ) | 468 | |||||||||||||||||
| Total assets | 10,986 | 468 | 942 | 268 | (2 | ) | 12,662 | ||||||||||||||||||
| Capital expenditures | 587 | — | 100 | 62 | — | 749 | |||||||||||||||||||
|
|
|||||||||||||||||||||||||
| 1999 | (Millions) | ||||||||||||||||||||||||
| Operating revenues | $ | 4,047 | $ | 251 | $ | 418 | $ | 39 | $ | (27 | ) | $ | 4,728 | ||||||||||||
| Depreciation and amortization | 703 | — | 31 | 1 | — | 735 | |||||||||||||||||||
| Interest expense | 284 | — | 38 | 1 | 17 | 340 | |||||||||||||||||||
| Income tax expense (benefit) | 211 | 5 | (132 | ) | (12 | ) | (12 | ) | 60 | ||||||||||||||||
| Net income (loss) | 434 | 8 | 84 | (23 | ) | (20 | ) | 483 | |||||||||||||||||
| Total assets | 11,051 | 109 | 945 | 175 | 36 | 12,316 | |||||||||||||||||||
| Capital expenditures | 638 | — | 95 | 35 | — | 768 | |||||||||||||||||||
|
|
|||||||||||||||||||||||||
| 1998 | (Millions) | ||||||||||||||||||||||||
| Operating revenues | $ | 3,902 | $ | 42 | $ | 271 | $ | 12 | $ | (6 | ) | $ | 4,221 | ||||||||||||
| Depreciation and amortization | 643 | — | 18 | — | — | 661 | |||||||||||||||||||
| Interest expense | 277 | — | 33 | — | 9 | 319 | |||||||||||||||||||
| Income tax expense (benefit) | 260 | (4 | ) | (92 | ) | (5 | ) | (5 | ) | 154 | |||||||||||||||
| Net income (loss) | 412 | (7 | ) | 55 | (6 | ) | (11 | ) | 443 | ||||||||||||||||
| Total assets | 10,987 | 31 | 864 | 75 | 131 | 12,088 | |||||||||||||||||||
| Capital expenditures | 548 | — | 433 | 16 | — | 997 | |||||||||||||||||||
70
NOTE 16 — SUPPLEMENTARY QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
NOTE 17 — SUBSEQUENT EVENTS (UNAUDITED)
As discussed in Note 2, in October 1999, the Company entered into
a definitive merger agreement with MCN. On February 28, 2001, the
Company and MCN announced a revised merger agreement that provides
that the Company will acquire all outstanding shares of MCN for
$24.00 per share in cash or 0.715 shares of Company common stock for
each share of MCN common stock. As provided for in the original
agreement, certain allocation and proration procedures will be used
to ensure that the aggregate number of shares of MCN common stock
that will be converted into cash and the Company’s common stock will
be equal to 55% and 45%, respectively, of the total number of shares
of MCN common stock outstanding immediately prior to the proposed
merger. The value of the revised transaction is approximately $4.27
billion, including the assumption of approximately $2 billion of
MCN’s debt.
The revised agreement extends the expiration date of the agreement
from April 15, 2001 to December 31, 2001 to allow sufficient time to
obtain the necessary approvals as well as MCN shareholder approval of
the revised agreement. The boards of directors of DTE and MCN have
approved the revised merger agreement. DTE and MCN now estimate that
all required approvals can be obtained and the merger can be
completed within four to five months.
71
2000 Quarter Ended
Mar. 31
Jun. 30
Sep. 30
Dec. 31
(Millions, except per share amounts)
Operating Revenues
$
1,182
$
1,428
$
1,547
$
1,440
Operating Income
215
203
172
240
Net Income
117
108
104
139
Earnings Per Common Share
0.81
0.76
0.73
0.97
1999 Quarter Ended
Mar. 31
Jun. 30
Sep. 30
Dec. 31
(Millions, except per share amounts)
Operating Revenues
$
1,024
$
1,150
$
1,440
$
1,114
Operating Income
215
211
281
194
Net Income
115
110
161
97
Earnings Per Common Share
0.79
0.76
1.11
0.67
Item 9 — Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
Items 10, 11, 12 and 13
Information required by Part III (Items 10, 11, 12 and 13) of this Form
10-K is incorporated by reference from the Company’s definitive Proxy Statement
for its 2001 Annual Meeting of Common Shareholders to be held April 25, 2001,
which will be filed with the Securities and Exchange Commission, pursuant to
Regulation 14A, not later than 120 days after the end of the Company’s fiscal
year covered by this report on Form 10-K, all of which information is hereby
incorporated by reference in, and made part of, this Form 10-K, except that the
information required by Item 10 with respect to executive officers of the
Registrant is included in Part I of this report.
72
Item 1 — Business.
See the Company’s “Item 1 — Business” which is incorporated herein by this
reference.
EXECUTIVE OFFICERS OF THE REGISTRANT
PART I
Present
Position
Name
Age(a)
Present Position
Held Since
Anthony F. Earley, Jr.
51
Chairman of the Board, Chief Executive Officer,
8-1-98
President, Chief Operating Officer
Larry G. Garberding
62
Executive Vice President and Chief Financial Officer
8-1-90
Gerard M. Anderson
42
President and Chief Operating Officer – DTE Energy
8-1-98
Resources
Robert J. Buckler
51
President and Chief Operating Officer – DTE Energy
8-1-98
Distribution
Daniel G. Brudzynski
40
Controller
4-28-99
Michael E. Champley
52
Senior Vice President
4-1-97
Douglas R. Gipson
53
Executive Vice President and Chief Nuclear Officer
5-18-00
S. Martin Taylor
60
Senior Vice President
4-28-99
Susan M. Beale
52
Vice President and Corporate Secretary
3-27-95
Ron A. May
49
Vice President
8-1-98
David E. Meador
43
Senior Vice President and Treasurer
5-15-00
Sandra J. Miller
57
Vice President
3-30-98
Michael C. Porter
47
Vice President
9-15-97
William R. Roller
55
Vice President
4-28-97
(a)
As of December 31, 2000
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 directors or until their respective successors are chosen and qualified. With the exception of Messrs. Brudzynski, Meador and Porter, all of the above officers have been employed by Detroit Edison in one or more management capacities during the past five years.
Daniel G. Brudzynski was Manager, Product Development Finance and Manager, Forecasting Redesign and Implementation at Chrysler Corporation, an international automotive manufacturer, from 1995 until 1997. He joined Detroit Edison in 1997 as Assistant Controller and effective April 28, 1999 he was elected Controller and appointed Assistant Vice President.
73
Michael C. Porter was Senior Vice President and Managing Director at McCann-Erickson in Detroit from 1994 to September 1997 and Vice President of Marketing for The Stroh Brewery Company in Detroit from 1990 to 1994. Effective September 22, 1997, he was elected Vice President — Corporate Communications.
Item 2 — Properties.
See the Company’s “Item 2 — Properties — Detroit Edison,” which is incorporated herein by this reference.
Item 3 — Legal Proceedings.
See the Company’s “Item 3 — Legal Proceedings,” which is incorporated herein by this reference.
In February 2000, Ricci, et al v. Detroit Edison was filed in the U.S. Federal District Court for the Eastern District of Michigan. The complaint alleges that Detroit Edison employees formerly employed by contractors of Detroit Edison should be treated as if they are entitled to various retirement benefits under ERISA and other benefits that have been available to Detroit Edison employees. The complaint also seeks class action certification. Detroit Edison believes this matter is without merit.
In September 2000, an order was entered in Coch, et al v. Detroit Edison (Circuit Court for Wayne County, Michigan), a lawsuit involving employment-related claims of discrimination, denying plaintiffs’ motion for class certification. An appeal of this motion has been filed.
In February 2001, plaintiffs in Lotharp, et al v. Detroit Edison (Circuit Court for Wayne County, Michigan), an action claiming race/ethnic and gender-based discrimination in Detroit Edison’s employment testing programs, withdrew their lawsuit.
Edison Development Corporation, a Company subsidiary, is an investor in Plug Power, a developer of fuel cell technology. DCT, Inc. v. Detroit Edison, et al (Circuit Court for Wayne County, Michigan) is a pending lawsuit claiming breach of a nondisclosure agreement and a letter of intent as well as misappropriation of trade secrets in connection with the evaluation and eventual investment by Plug Power in fuel cell technology. Plug Power and Edison Development are co-defendants. Discovery is underway. Detroit Edison believes all claims are without merit and is vigorously defending the action.
Item 4 — Submission of Matters to a Vote of Security Holders.
Not applicable.
74
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 future 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 and a transition to competition,
each of which is periodically reviewed by Detroit Edison’s Board of Directors.
Item 6 — Selected Financial Data.
| Year Ended December 31 | ||||||||||||||||||||||
|
|
||||||||||||||||||||||
| 2000 | 1999 | 1998 | 1997 | 1996 | ||||||||||||||||||
|
|
|
|
|
|
||||||||||||||||||
| (Millions) | ||||||||||||||||||||||
| Operating Revenues | $ | 4,129 | $ | 4,047 | $ | 3,902 | $ | 3,657 | $ | 3,642 | ||||||||||||
| Net Income | $ | 411 | $ | 434 | $ | 418 | $ | 417 | $ | 328 | ||||||||||||
| Net Income Available for Common Stock | $ | 411 | $ | 434 | $ | 412 | $ | 405 | $ | 312 | ||||||||||||
| At year end: | ||||||||||||||||||||||
| Total Assets | $ | 10,986 | $ | 11,051 | $ | 10,987 | $ | 10,745 | $ | 10,874 | ||||||||||||
| Long-Term Debt | ||||||||||||||||||||||
| Obligations (including capital leases) and Redeemable | ||||||||||||||||||||||
| Preferred and Preference Stock Outstanding | $ | 3,445 | $ | 3,398 | $ | 3,588 | $ | 3,812 | $ | 4,000 | ||||||||||||
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.
Item 8 — Financial Statements and Supplementary Data.
See pages 28 through 71 (except for Notes 6, 8, 11 and 16 below).
75
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:
Components of income tax expense are as follows:
2000
1999
1998
Statutory income tax rate
35.0
%
35.0
%
35.0
%
Deferred Fermi 2 depreciation and return
—
—
3.5
Investment tax credit
(1.8
)
(1.6
)
(2.1
)
Depreciation
1.9
1.2
4.5
Removal costs
(4.1
)
(1.9
)
(1.7
)
Other-net
(1.5
)
—
(0.9
)
Effective income tax rate
29.5
%
32.7
%
38.3
%
2000
1999
1998
(Millions)
Current federal tax expense
$
245
$
282
$
280
Deferred federal tax benefit — net
(62
)
(60
)
(5
)
Investment tax credits
(11
)
(11
)
(15
)
Total
$
172
$
211
$
260
Deferred income tax assets (liabilities) are comprised of the following at December 31:
2000
1999
(Millions)
Property
$
(1,199
)
$
(1,197
)
Unamortized nuclear costs
(822
)
(899
)
Property taxes
(68
)
(66
)
Investment tax credit
90
96
Reacquired debt losses
(29
)
(30
)
Contributions in aid of construction
90
73
Other
67
83
$
(1,871
)
$
(1,940
)
Deferred income tax liabilities
$
(2,293
)
$
(2,372
)
Deferred income tax assets
422
432
$
(1,871
)
$
(1,940
)
76
NOTE 8 — LONG-TERM DEBT
Long-term debt outstanding at December 31 was:
| 2000 | 1999 | |||||||||||||
|
|
|
|||||||||||||
| (Millions) | ||||||||||||||
| Mortgage Bonds | ||||||||||||||
| 6.6% to 8.4% due 2001 to 2023 | $ | 1,564 | $ | 1,539 | ||||||||||
| Remarketed Notes | ||||||||||||||
| 6.0% to 7.4% due 2028 to 2034 (a) | 410 | 410 | ||||||||||||
| Tax Exempt Revenue Bonds | ||||||||||||||
| Secured by Mortgage Bonds | ||||||||||||||
| Installment Sales Contracts | ||||||||||||||
| 6.6% due 2004 to 2024 (b) | 125 | 176 | ||||||||||||
| Loan Agreements | ||||||||||||||
| 6.1% due 2008 to 2030 (b) | 882 | 831 | ||||||||||||
| Unsecured | ||||||||||||||
| Installment Sales Contracts | ||||||||||||||
| 6.4% due 2004 | 24 | 24 | ||||||||||||
| Loan Agreements | ||||||||||||||
| 3.9% due 2024 to 2030 (a) | 113 | 113 | ||||||||||||
| QUIDS | ||||||||||||||
| 7.4% to 7.6% due 2026 to 2028 | 385 | 385 | ||||||||||||
| Less amount due within one year | (159 | ) | (194 | ) | ||||||||||
|
|
|
|||||||||||||
| Total Long-Term Debt | $ | 3,344 | $ | 3,284 | ||||||||||
|
|
|
|||||||||||||
| (a) | Variable rate at December 31, 2000. | |
| (b) | Weighted average interest rate at December 31, 2000. |
In the years 2001 – 2005, Detroit Edison’s long-term debt maturities are $159, $198, $199, $49 and $239 million, respectively.
Detroit Edison’s 1924 Mortgage and Deed of Trust (Mortgage), the lien of which covers a substantial portion of Detroit Edison’s properties, provides for the issuance of additional General and Refunding Mortgage Bonds (Mortgage Bonds). At December 31, 2000, approximately $4.2 billion principal amount of Mortgage Bonds could have been issued on the basis of property additions, combined with an earnings test provision, assuming an interest rate of 7% on any such additional Mortgage Bonds. An additional $2.1 billion principal amount of Mortgage Bonds could have been issued on the basis of bond retirements.
Unless an event of default has occurred, and is continuing, each series of Quarterly Income Debt Securities (QUIDS) provides that interest will be paid quarterly. However, Detroit Edison also has the right to extend the interest payment period on the QUIDS for up to 20 consecutive interest payment periods. Interest would continue to accrue during the deferral period. If this right is exercised, Detroit Edison may not declare or pay dividends on, or redeem, purchase or acquire, any of its capital stock during the deferral period. Detroit Edison may redeem any series of capital stock pursuant to the terms of any sinking fund provisions during the deferral period.
77
Additionally, during any deferral period, Detroit Edison may not enter into any inter-company transactions with any affiliate of Detroit Edison, including the Company, to enable the payment of dividends on any equity securities of the Company.
At December 31, 2000, $273 million of notes and bonds were subject to periodic remarketings within one year. Remarketing agents remarket these securities at the lowest interest rate necessary to produce a par bid. In the event that a remarketing fails, Standby Note Purchase Agreements and/or Letters of Credit provide that banks will purchase the securities and, after the conclusion of all necessary proceedings, remarket the bonds. In the event the banks’ obligations under the Standby Note Purchase Agreements and/or Letters of Credit are not honored, then Detroit Edison would be required to purchase any bonds subject to a failed remarketing.
NOTE 11 — FINANCIAL AND OTHER DERIVATIVE INSTRUMENTS
As of January 1, 2001, Detroit Edison adopted SFAS No. 133, as required. The
cumulative effect of the adoption of SFAS No. 133 is expected to be an
after-tax decrease in net income of approximately $2.6 million and an after-tax increase in other comprehensive income of
approximately $13.5 million, respectively. The adoption will
also impact assets and liabilities recorded on the balance sheet. At January
1, 2001, Detroit Edison’s derivative instruments included wholesale power
contracts.
NOTE 16 — SUPPLEMENTARY QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
2000 Quarter Ended
Mar. 31
June 30
Sept. 30
Dec. 31
(Millions)
Operating Revenues
$
949
$
1,071
$
1,109
$
1,000
Operating Income
223
214
167
269
Net Income
97
91
76
147
1999 Quarter Ended
Mar. 31
June 30
Sept. 30
Dec. 31
(Millions)
Operating Revenues
$
911
$
1,006
$
1,211
$
919
Operating Income
224
225
286
200
Net Income
104
107
138
85
78
Item —9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
Items 10, 11, 12 and 13
See the Company’s “Items 10, 11, 12 and 13” which is incorporated herein by this reference, except for the information required by Item 10 with respect to executive officers of the Registrant which is included in Part 1 of this report. All of Detroit Edison’s directors are the same as the Company’s directors.
79
Annual Reports on Form 10-K for DTE Energy Company
PART IV
Item 14 — Exhibits, Financial Statement Schedules and Reports on Form 8-K.
80
81
82
83
84
85
86
87
88
89
90
91
92
and The Detroit Edison Company
(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 28.
(2)
Financial statement schedules. See “Item 8 -
Financial Statements and Supplementary Data” on page 28.
(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
2-2
Agreement and Plan of Merger, among DTE Energy Company, MCN Energy
Group Inc. and DTE Enterprises, Inc., dated as of October 4, 1999, as
amended as of November 12, 1999, as further amended as of February
28, 2001.
4-211
Supplemental Indenture, dated as of December
1, 1989, creating the Series KKP No. 11 and BP General and
Refunding Mortgage Bonds
4-212
Supplemental Indenture, dated as of February 15, 1990
creating the 1990 Series A, B, C, D, E, and F General and
Refunding Mortgage Bonds.
4-213
Supplemental Indenture, dated as of November 30, 1992,
creating the 1992 Series E General and Refunding Mortgage
Bonds.
4-214
Supplemental Indenture, dated as of April 1, 1993, creating
the 1993 Series FP and IP General and Refunding Mortgage
Bonds.
4-215
Supplemental Indenture, dated as of April 26,
1993, creating the 1993 Series G General and Refunding
Mortgage bonds and Amendment of Article II, Section 5.
4-216
Supplemental Indenture, dated as of June 30,
1993, creating the Series AP General and Refunding Mortgage
Bonds.
4-217
Supplemental Indenture, dated as of September
15, 1993, creating the 1993 Series K General and Refunding
Mortgage Bonds.
4-218
Supplemental Indenture, dated as of June 15,
1994, creating the 1994 Series BP General and Refunding
Mortgage Bonds.
4-219
Supplemental Indenture, dated as of August 15,
1994, creating the 1994 Series C General and Refunding
Mortgage Bonds.
4-220
Supplemental Indenture, dated as of December 1,
1994, creating the Series KKP No. 15 and DP General and
Refunding Mortgage Bonds.
4-221
Supplemental Indenture, dated as of August 1,
1995, creating the 1995 Series A and DP General and Refunding
Mortgage Bonds.
10-40*
Form of Indemnification Agreement between Detroit Edison
and its officers.
11-21
DTE Energy Company Basic and Diluted Earnings
Per Share
of Common Stock.
12-28
DTE Energy Company Computation of Ratio of
Earnings to
Fixed Charges.
12-29
The Detroit Edison Company Computation of Ratio
of Earnings to Fixed Charges.
21-5
Subsidiaries of the Company and Detroit Edison.
23-14
Consent of Deloitte & Touche LLP.
99-38
Fourth Amended and Restated Credit Agreement, Dated as of
January 16, 2001 among DTE Capital Corporation, the Initial
Lenders, Citibank, N.A., as Agent, and ABN AMRO Bank N.V.,
Bank One N.A., Barclays Bank PLC, Bayerische and as Co-Agents.
99-39
Order, dated January 4, 2001, of the Michigan
Public Service Commission in U-12478.
(ii) Exhibits incorporated herein by reference.
2-1
-
Agreement and Plan of Merger, among DTE
Energy, MCN Energy Group Inc. and DTE Enterprises, Inc., dated
as of October 4, 1999 and amended as of November 12, 1999.
Exhibit 2-1 10 Form 10-K for year ended December 21, 2000.
3(a)
-
Amended and Restated Articles of Incorporation of
DTE Energy Company, dated December 13, 1995. (Exhibit 3-5 to
Form 10-Q for quarter ended September 30, 1997)
3(b)
-
Certificate of Designation of Series A Junior
Participating Preferred Stock of DTE Energy Company. Exhibit
3-6 to Form 10-Q for quarter ended September 30, 1997.)
3(c)
-
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 3-13 to Form 10-Q for quarter ended June 30, 1999.)
3(d)
-
Articles of Incorporation of DTE Enterprises, Inc.
(Exhibit 3.5 to Registration No. 333-89175.)
3(e)
-
Rights Agreement, dated as of September 23, 1997,
by and between DTE Energy Company and The Detroit Edison
Company, as Rights Agent (Exhibit 4-1 to DTE Energy Company
Current Report on Form 8-K, dated September 23, 1997.)
3(f)
-
Agreement and Plan of Exchange (Exhibit 1(2) to DTE
Energy Form 8-B filed January 2, 1996, File No. 1-11607.)
3(g)
-
Bylaws of DTE Energy Company, as amended through
September 22, 1999. (Exhibit 3-3 to Registration No.
333-89175.)
3(h)
-
Bylaws of The Detroit Edison Company, as amended
through September 22, 1999. (Exhibit 3-14 to Form 10-Q for
quarter ended September 30, 1999.)
3(i)
-
Bylaws of DTE Enterprises, Inc. (Exhibit 3.6 to
Registration No. 333-89175.)
4(a)
-
Mortgage and Deed of Trust, dated as of October 1,
1924, between Detroit Edison (File No. 1-2198) and First Chicago
Trust Company of New York 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
November 15, 1971
Exhibit 2-B-38 to Registration No.
2-42160
January 15, 1973
Exhibit 2-B-39 to Registration No. 2-46595
June 1, 1978
Exhibit 2-B-51 to Registration No. 2-
61643
June 30, 1982
Exhibit 4-30 to
Registration No. 2-78941
August 15, 1982
Exhibit 4-32 to Registration No. 2-
79674
April 1, 1991
Exhibit 4-15 to Form
10-K for year ended December 31, 1996
November 1, 1991
Exhibit 4-181 to Form 10-K for year
ended December 31, 1996
January 15, 1992
Exhibit 4-182 to Form 10-K for year ended
December 31, 1996
February 29, 1992
Exhibit 4-187 to Form 10-Q for quarter
ended March 31, 1998
April 15, 1992
Exhibit 4-188 to Form
10-Q for quarter ended March 31, 1998
July 15, 1992
Exhibit 4-189 to Form
10-Q for quarter ended March 31, 1998
January 1, 1993
Exhibit 4-131 to Registration No. 33-56496
March 1, 1993
Exhibit 4-191 to Form 10-Q for
quarter ended March 31, 1998
May 31, 1993
Exhibit 4-148 to Registration No. 33-
64296
March 1, 1994
Exhibit 4-163 to Registration No. 33-
53207
August 1, 1995
Exhibit 4-174 to Form 10-Q for
quarter ended September 30, 1995
August 1, 1999
Exhibit 4-204 to Form 10-Q for
quarter ended September 30, 1999
August 15, 1999
Exhibit 4-205 to Form 10-Q for
quarter ended September 30, 1999
January 1, 2000
Exhibit 4-205 to Form 10-K for year
ended December 31, 2000.
April 15, 2000
Exhibit 4-206 to Form 10-Q for the
quarter ended March 31, 2000.
August 1, 2000
Exhibit 4-210 to Form 10-Q for the
quarter ended September 30, 2000.
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)
-
First Amendment, dated as of July 17, 2000, to the
First Supplemental Indenture, dated as of June 30, 1993, to the
Collateral Trust Indenture (Notes), dated as of June 30, 1993.
(Exhibit 4-209 to Form 10-Q for the quarter ended September 30,
2000.)
4(e)
-
Third Supplemental Note Indenture, dated as of
August 15, 1994 (Exhibit 4-169 to Form 10-Q for quarter ended
September 30, 1994).
4(f)
-
First Amendment, dated as of December 12, 1995, to
Third Supplemental Note Indenture, dated as of August 15, 1994
(Exhibit 4-12 to Registration No. 333-00023).
4(g)
-
Sixth Supplemental Note Indenture, dated as of May
1, 1998, between Detroit Edison and Bankers Trust Company, as
Trustee, creating the 7.54% Quarterly Income Debt Securities
(“QUIDS”), including form of QUIDS. (Exhibit 4-193 to Form 10-Q
for quarter ended June 30, 1998.)
4(h)
-
Seventh Supplemental Note Indenture, dated as of
October 15, 1998, between Detroit Edison and Bankers Trust
Company, as Trustee, creating the 7.375% QUIDS, including form
of QUIDS. (Exhibit 4-198 to Form 10-K for year ended December
31, 1998.)
4(i)
-
Eighth Supplemental Indenture, dated as of April
15, 2000, appointing Bank One Trust Company of New York as
Trustee under the Detroit Edison Trust Indenture (Notes), dated
as of June 30, 1993 (Exhibit 4-207 to Form 10-Q for quarter
ended March 31, 2000.
4(j)
-
$60,000,000 Support Agreement dated as of January
21, 1998 between DTE Energy Company and DTE Capital Corporation.
(Exhibit 4-183 to Form 10-K for year ended December 31, 1997.)
4(k)
-
$100,000,000 Support Agreement, dated as of June
16, 1998, between DTE Energy Company and DTE Capital
Corporation. (Exhibit 4-194 to Form 10-Q for quarter ended June
30, 1998.)
4(l)
-
$300,000,000 Support Agreement, dated as of November
18, 1998, between DTE Energy and DTE Capital Corporation.
(Exhibit 4-199 to Form 10-K for year ended December 31, 1998.)
4(m)
-
$400,000,000 Support Agreement, dated as of January
19, 1999, between DTE Energy Company and DTE Capital
Corporation. (Exhibit 4-201 to Form 10-K for year ended
December 31, 1998.)
4(n)
-
$40,000,000 Support Agreement, dated as of February
24, 1999 between DTE Energy Company and DTE Capital Corporation.
(Exhibit 4-202 to Form 10-Q for quarter ended March 31, 1999.)
4(o)
-
$50,000,000 Support Agreement, dated as of June 10,
1999 between DTE Energy Company and DTE Capital Corporation.
(Exhibit 4-203 to Form 10-Q for quarter ended June 30, 1999.)
4(p)
-
Indenture, dated as of June 15, 1998, between DTE
Capital Corporation and The Bank of New York, as Trustee.
(Exhibit 4-196 to Form 10-Q for quarter ended June 30, 1998.)
4(q)
-
First Supplemental Indenture, dated as of June 15,
1998, between DTE Capital Corporation and The Bank of New York,
as Trustee, creating the $100,000,000 Remarketed Notes, Series A
due 2038, including form of Note. (Exhibit 4-197 to Form 10-Q
for quarter ended June 30, 1998.)
4(r)
-
Second Supplemental Indenture, dated as of November
1, 1998, between DTE Capital Corporation and The Bank of New
York, as Trustee, creating the $300,000,000 Remarketed Notes,
1998 Series B, including form of Note. (Exhibit 4-200 to Form
10-K for year ended December 31, 1998.)
*10(a)
-
Certain arrangements pertaining to the employment of Michael
C. Porter. (Exhibit 10-8* to Form 10-Q for Quarter ended
September 30, 1997.)
*10(b)
-
Form of Change-in-Control Severance Agreement, dated as of
October 1, 1997, between DTE Energy Company and its officers
(Exhibit 10-9* to Form 10-Q for quarter ended September 30,
1997.)
*10(c)
-
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).
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).
99(e)
-
Second Amendment to 1988 Amended and Restated Loan
Agreement, dated as of September 1, 1993, between Detroit Edison
and Renaissance (Exhibit 99-8 to Registration No. 33-50325).
99(f)
-
Third Amendment, dated as of August 28, 1997, to
1988 Amended and Restated Loan Agreement between Detroit Edison
and Renaissance. (Exhibit 99-22 to Form 10-Q for quarter ended
September 30, 1997.)
99(g)
-
$200,000,000 364-Day Credit Agreement, dated as of
September 1, 1993, among Detroit Edison, Renaissance and
Barclays Bank PLC, New York Branch, as Agent (Exhibit 99-12 to
Registration No. 33-50325).
99(h)
-
First Amendment, dated as of August 31, 1994, to
$200,000,000 364-Day Credit Agreement, dated September 1, 1993,
among The Detroit Edison Company, Renaissance Energy Company,
the Banks party thereto and Barclays Bank, PLC, New York Branch,
as Agent (Exhibit 99-19 to Form 10-Q for quarter ended September
30, 1994).
99(i)
-
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(j)
-
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(k)
-
Fifth Amendment, dated as of September 1, 1997, to
$200,000,000 Multi-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 99-24 to Form 10-Q for quarter ended September
30, 1997.)
99(l)
-
Seventh Amendment, dated as of August 26, 1999, to
$200,000,000 364-Day Credit Agreement, dated as of September 1,
1993, as amended among The Detroit Edison Company, Renaissance
Energy Company, the Banks parties thereto and Barclays Bank PLC,
New York branch as Agent. (Exhibit 99-30 to Form 10-Q for
quarter ended September 30, 1999.)
99(m)
-
Eighth Amendment, dated as of August 24, 2000, to the
$200,000,000 364-Day 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 99-36 to Form 10-Q for the quarter ended September 30,
2000.)
99(n)
-
$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(o)
-
First Amendment, dated as of September 1, 1994, to
$200,000,000 Three-Year Credit Agreement, dated as of September
1, 1993, among The Detroit Edison Company, Renaissance Energy
Company, the Banks party thereto and Barclays Bank, PLC, New
York Branch, as Agent (Exhibit 99-20 to Form 10-Q for quarter
ended September 30, 1994).
99(p)
-
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(q)
-
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(r)
-
Fifth Amendment, dated as of August 28, 1997, to
$200,000,000 364-Day Credit Agreement, dated 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 99-25 to Form 10-Q for quarter ended September 30,
1997.)
99(s)
-
Sixth Amendment, dated as of August 27, 1998, to
$200,000,000 364-Day Credit Agreement dated 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 99-32 to Registration No. 333-65765.)
99(t)
-
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(u)
-
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(v)
-
Eighth Amendment, dated as of August 26, 1999 to
1988 Amended and Restated Nuclear Fuel heat Purchase Contract
between Detroit Edison and Renaissance Energy Company. (Exhibit
99-31 to Form 10-Q for quarter ended September 30, 1999.)
99(w)
-
U.S. $160,000,000 Standby Note Purchase Credit
Facility, dated as of October 26, 1999, among Detroit Edison,
the Bank’s signatory thereto, Barclays Bank PLC, as
Administrative Agent and Barclays Capital Inc., Lehman Brothers
Inc. and Bank One Capital Markets, Inc., as Remarketing Agents.
(Exhibit 99-29 to Form 10-Q for quarter ended September 30,
1999.)
99(x)
Amendment, dated October 24, 2000, to the Standby
Note Purchase Credit Facility, dated as of October 26, 1999,
among Detroit Edison, the banks party thereto, and Barclay’s
Bank PLC, as Administrative Agent. (Exhibit 24-208 to Form 10-Q
for the quarter ended September 30, 2000.)
99(y)
-
Standby Note Purchase Credit Facility, dated as of
September 12, 1997, among The Detroit Edison Company and the
Bank’s Signatory thereto and The Chase Manhattan Bank, as
Administrative Agent, and Citicorp Securities, Inc., Lehman
Brokers, Inc., as Remarketing Agents and Chase Securities, Inc.
as Arranger. (Exhibit 999-26 to Form 10-Q for quarter ended
September 30, 1997.)
99(z)
-
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(aa)
-
First Amendment, effective as of February 1, 1995, to Master
Trust (Exhibit 4-10 to Registration No. 333-00023).
99(bb)
-
Second Amendment, effective as of February 1, 1995 to Master
Trust (Exhibit 4-11 to Registration No. 333-00023).
99(cc)
-
Third Amendment, effective January 1, 1996, to Master Trust
(Exhibit 4-12 to Registration No. 333-00023).
99(dd)
-
Fourth Amendment to Trust Agreement Between Fidelity
Management Trust Company and The Detroit Edison Company (July
1996). Exhibit 4-185 to Form 10-K for year ended December 31,
1997.)
99(ee)
-
Fifth Amendment to Trust Agreement Between Fidelity
Management Trust Company and The Detroit Edison Company
(December 1997). Exhibit 4-186 to Form 10-K for the year ended
December 31, 1997.)
99(ff)
-
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(gg)
-
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(hh)
-
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(ii)
-
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(jj)
-
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(kk)
-
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).
99(ll)
-
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(mm)
-
Order, dated November 2, 2000, of the Michigan Public Service
Commission in U-12478.)
(b)
DTE and Detroit Edison have filed:
(i)
Report on Form 8-K, dated November 7, 2000, discussing the
Michigan Public Service Commission’s November 2, 2000 Securitization
Order;
(ii)
Report on Form 8-K, dated November 22, 2000, discussing
Detroit Edison’s Petition for Rehearing with respect to the November
2, 2000 Michigan Public Service Commission Order; and
(iii)
Report on Form 8-K, dated December 7, 2000, reporting that
Detroit Edison had transferred its transmission assets to a
wholly owned subsidiary of Detroit Edison.
(c)
*Denotes management contract or compensatory plan or arrangement
required to be entered as an exhibit to this report.
Additions
Balance
Balance
at Beginning
Charged to
Charged to
at End
of
Costs and
Other
of
Description
Period
Expenses
Accounts
Deductions
Period
(Thousands)
Allowance for
uncollectible accounts
(shown as deduction
from accounts receivable
in balance sheet)
YEAR 2000
$
21,000
$
18,219
$
3,677
(a)
$
(21,896
)(b)
$
21,000
1999
$
20,000
$
21,363
$
3,357
(a)
$
(23,720
)(b)
$
21,000
1998
$
20,000
$
23,216
$
2,789
(a)
$
(26,005
)(b)
$
20,000
Fermi 2 refueling outage accrual
(included in other current
liabilities in the balance
sheet)
YEAR 2000
$
18,221
$
14,002
$
—
$
(22,434
)(c)
$
9,789
1999
$
3,156
$
15,065
$
—
$
—
$
18,221
1998
$
15,690
$
15,468
$
—
$
(28,002
)(c)
$
3,156
| (a) | Collection of accounts previously written off. | |
| (b) | Uncollectible accounts written off. | |
| (c) | Actual amounts paid during refueling outage. |
93
Additions
Balance
Balance
at Beginning
Charged to
Charged to
at End
of
Costs and
Other
of
Description
Period
Expenses
Accounts
Deductions
Period
(Thousands)
Allowance for
uncollectible accounts
(shown as deduction
from accounts receivable
in balance sheet)
YEAR 2000
$
20,000
$
18,219
$
3,677
(a)
$
(21,896
)(b)
$
20,000
1999
$
20,000
$
20,363
$
3,357
(a)
$
(23,720
)(b)
$
20,000
1998
$
20,000
$
23,216
$
2,789
(a)
$
(26,005
)(b)
$
20,000
Fermi 2 refueling outage accrual
(included in other current
liabilities in the balance sheet)
YEAR 2000
$
18,221
$
14,002
$
—
$
(22,434
)(c)
$
9,789
1999
$
3,156
$
15,065
$
—
$
—
$
18,221
1998
$
15,690
$
15,468
$
—
$
(28,002
)(c)
$
3,156
| (a) | Collection of accounts previously written off. | |
| (b) | Uncollectible accounts written off. | |
| (c) | Actual amounts paid during the refueling outage. |
94
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 1, 2001
95
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 1, 2001
96
DTE ENERGY COMPANY
(Registrant)
/s/ ANTHONY F. EARLEY, JR.
Anthony F. Earley, Jr.
Chairman of the Board,
Chief Executive Officer,
President and Chief Operating Officer
By /s/ ANTHONY F. EARLEY, JR.
By Anthony F. Earley, Jr.
Chairman of the Board,
Chief Executive Officer,
President and Chief Operating Officer
By /s/ LARRY G. GARBERDING
Larry G. Garberding
Executive Vice President,
Chief Financial Officer and Director
By /s/ DAVID E. MEADOR
David E. Meador
Senior Vice President and Treasurer
By /s/ TERENCE E. ADDERLEY
Terence E. Adderley, Director
By /s/ LILLIAN BAUDER
Lillian Bauder, Director
By /s/ DAVID BING
David Bing, Director
By /s/ WILLIAM C. BROOKS
William C. Brooks, Director
By /s/ ALLAN D. GILMOUR
Allan D. Gilmour, Director
By /s/ THEODORE S. LEIPPRANDT
Theodore S. Leipprandt, Director
By /s/JOHN E. LOBBIA
John E. Lobbia, Director
By /s/ EUGENE A. MILLER
Eugene A. Miller, Director
By /s/ CHARLES W. PRYOR, JR.
By Charles W. Pryor, Jr., Director
THE DETROIT EDISON COMPANY
(Registrant)
By /s/ ANTHONY F. EARLEY, JR.
Anthony F. Earley, Jr.
Chairman of the Board,
Chief Executive Officer,
President and Chief Operating Officer
Chairman of the Board,
Chief Executive Officer,
President and Chief Operating Officer
By /s/ LARRY G. GARBERDING
Larry G. Garberding
Executive Vice President,
Chief Financial Officer and Director
Controller
Exhibit Index
Exhibit
Number
2-2
Agreement and Plan of Merger, among DTE Energy Company, MCN Energy
Group Inc. and DTE Enterprises, Inc., dated as of October 4, 1999, as
amended as of November 12, 1999, as further amended as of February
28, 2001.
4-211
Supplemental Indenture, dated as of December
1, 1989, creating the Series KKP No. 11 and BP General and
Refunding Mortgage Bonds
4-212
Supplemental Indenture, dated as of February 15, 1990
creating the 1990 Series A, B, C, D, E, and F General and
Refunding Mortgage Bonds.
4-213
Supplemental Indenture, dated as of November 30, 1992,
creating the 1992 Series E General and Refunding Mortgage
Bonds.
4-214
Supplemental Indenture, dated as of April 1, 1993, creating
the 1993 Series FP and IP General and Refunding Mortgage
Bonds.
4-215
Supplemental Indenture, dated as of April 26,
1993, creating the 1993 Series G General and Refunding
Mortgage bonds and Amendment of Article II, Section 5.
4-216
Supplemental Indenture, dated as of June 30,
1993, creating the Series AP General and Refunding Mortgage
Bonds.
4-217
Supplemental Indenture, dated as of September
15, 1993, creating the 1993 Series K General and Refunding
Mortgage Bonds.
4-218
Supplemental Indenture, dated as of June 15,
1994, creating the 1994 Series BP General and Refunding
Mortgage Bonds.
4-219
Supplemental Indenture, dated as of August 15,
1994, creating the 1994 Series C General and Refunding
Mortgage Bonds.
4-220
Supplemental Indenture, dated as of December 1,
1994, creating the Series KKP No. 15 and DP General and
Refunding Mortgage Bonds.
4-221
Supplemental Indenture, dated as of August 1,
1995, creating the 1995 Series A and DP General and Refunding
Mortgage Bonds.
10-40*
Form of Indemnification Agreement between Detroit Edison
and its officers.
11-21
DTE Energy Company Basic and Diluted Earnings
Per Share
of Common Stock.
12-28
DTE Energy Company Computation of Ratio of
Earnings to
Fixed Charges.
12-29
The Detroit Edison Company Computation of Ratio
of Earnings to Fixed Charges.
21-5
Subsidiaries of the Company and Detroit Edison.
23-14
Consent of Deloitte & Touche LLP.
99-38
Fourth Amended and Restated Credit Agreement, Dated as of
January 16, 2001 among DTE Capital Corporation, the Initial
Lenders, Citibank, N.A., as Agent, and ABN AMRO Bank N.V.,
Bank One N.A., Barclays Bank PLC, Bayerische and as Co-Agents.
99-39
Order, dated January 4, 2001, of the Michigan
Public Service Commission in U-12478.
*
Denotes management contract or compensatory plan or arrangement
required to be entered as an exhibit to this report.