Eselco Inc – ‘10-K405’ for 12/31/96

As of:  Monday, 3/31/97   ·   For:  12/31/96   ·   Accession #:  912057-97-11335   ·   File #:  0-17736

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Annual Report — [x] Reg. S-K Item 405   —   Form 10-K
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10-K405     Annual Report -- [x] Reg. S-K Item 405                15     69K 
 2: EX-13       Annual or Quarterly Report to Security Holders        36    194K 
 3: EX-21       Eselco Subsidiaries                                    1      4K 
 4: EX-23       Consent of Independent Public Accountants              1      6K 
 5: EX-27       Financial Data Schedule (Pre-XBRL)                     2      7K 
 6: EX-99.1     Letter of Intent                                       7     28K 
 7: EX-99.2     Shareholder Letter                                     1      8K 

10-K405   —   Annual Report — [x] Reg. S-K Item 405
Document Table of Contents

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     FORM 10-K

      SECURITIES AND EXCHANGE COMMISSION
     Washington, D. C.   20549

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE    
ACT OF 1934                                                             
For the fiscal year ended DECEMBER 31, 1996                   

      OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES         
EXCHANGE ACT OF 1934                                                    
For the transition period from      to                        

Commission File Number 0-17736       Name of Registrant   ESELCO, INC.          

MICHIGAN                                    38-2785176            
State of Incorporation                         (I.R.S. Employer                 
                                  Identification Number)

 725 East Portage Avenue
   SAULT STE. MARIE, MICHIGAN  49783
      (Address of principal executive offices)

Registrant's telephone number, including area code    (906) 632-2221            

Securities registered pursuant to Section 12(b) of the Act:  NONE               

Securities registered pursuant to Section 12(g) of the Act:                     
                                             COMMON STOCK -$.007 PAR VALUE
                                          Title of Class

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was     
required to file such reports), and (2) has been subject to such filing         
requirements for the past 90 days.   Yes     X       No                         

Indicated by check mark if disclosure of delinquent filers pursuant to Item 405 
of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of  registrant's knowledge, in definitive    
proxy or information statements incorportated by reference in Part III of this  
Form 10-K or any amendment to this From 10-K [ X ]                              

The aggregate market value of voting stock (being Common Stock, $.007 Par Value)
held by non-affiliates, is computed at $37,217,016 based on 1,378,408 shares    
held by non-affiliates and the average of the bid and ask prices for such stock 
of $25.50 and $28.50, respectively, as reported by Kirkpatrick, Pettis, Smith,  
Polian, Inc., Omaha, NE, a market-maker for the stock, on March 10, 1997.       

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Number of shares outstanding of each of the Registrant's classes of Common      
Stock, as of the date of this report: 1,540,592 shares of Common Stock, $.007   
Par Value.                                                                      

     DOCUMENTS INCORPORATED BY REFERENCE

Certain information appearing in Registrant's 1996 Annual Report to Security    
Holders furnished to the Commission pursuant to Rule 14a-3(b) is incorporated by
reference in response to Part II.                                               

Certain information appearing in the definitive Proxy Statement (filed or to be 
filed pursuant to Regulation 14A) of ESELCO, Inc. with respect to the May 6,    
1997 Annual Meeting of Shareholders is incorporated by reference herein in      
response to Part III.                                                           

     PART  I

ITEM 1.  BUSINESS                                                               

GENERAL                                                                         

      The Registrant ESELCO, Inc. is a non-operating holding company which
  has two subsidiaries, Edison Sault Electric Company (Company) and Northern
Tree Service, Inc. (NTS).                                               

        NTS was founded in May, 1990 to provide tree trimming services to both
 the Company and to outside parties.  Edison Sault Electric Company is the
   principal operating subsidiary of ESELCO and accounts for the vast majority
of ESELCO's total assets, revenue and income.  Therefore, the following 
   discussion and analysis deals primarily with the operations of Edison Sault
Electric Company.                                                       

      The Company is a public utility engaged in the generation, purchase,
   transmission, distribution and sale of electric energy in the Eastern Upper
Peninsula of Michigan.                                                  

       The Company is a Michigan corporation organized in 1891.  Its address
is 725 East Portage Avenue, Sault Ste. Marie, Michigan 49783.           

    The Company supplies electricity in the Eastern Upper Peninsula of
 Michigan.  This area includes the cities of Sault Ste. Marie, Manistique,
   St. Ignace and Mackinac Island.  On December 31, 1988, the Company acquired
  approximately 1,900 customers from Wisconsin Electric Power Company.  This
   acquisition increased its service territory to over 2,000 square miles with
a population of approximately 55,000 people.                            

       Large industrial accounts located within the Company service area are
Manistique Papers, Inc., located in Manistique, which produces primarily
 newsprint; Lakehead Pipeline Company, which operates a crude oil pipeline
through the Company's service area; Michigan Limestone Operation Limited
 Partnership's limestone quarry operation located in Cedarville, Michigan;
 and Specialty Minerals Inc.'s (formerly Inland Steel operation) limestone
quarry operation at Gulliver, Michigan.                                 

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  Wholesale electric energy is supplied to the Cloverland Electric
Cooperative, Inc., an R.E.A. cooperative, serving adjoining rural areas.

      Government facilities in the Company service area are the U.S. Coast
Guard area headquarters located in Sault Ste. Marie and a base in St.   
Ignace, the U.S. Corps of Engineers, Soo Locks complex on the St. Marys 
River, and the U.S. Immigration and Custom Services located at the      
International Bridge Plaza in Sault Ste. Marie.  The State of Michigan  
maintains correctional facilities at Kinross and Manistique, and Lake   
Superior State University, a four year university in Sault Ste. Marie.  

    Recreation and tourism are important factors in the economy of the
  Company's service area.  Lake Superior borders on the north of the Eastern
  Upper Peninsula of Michigan, with the St. Marys River on the east and Lake
 Huron and Lake Michigan on the south.  In addition, there are a number of
  inland lakes and rivers that provide extensive recreation areas along with
  national, state and private parks and campgrounds serving the public.  The
recreation business is a year around activity, with winter sports from  
skiing to snowmobiling, spring fishing, summer water activities and the 
fall colors and hunting.  The famous resort center, Mackinac Island,    
located in the Straits of Mackinac is served by submarine cable from the
Company's St. Ignace Division.                                          

COMPETITION                                                                     

   The Company's electric business is substantially free from direct
competition from other electric utilities or commissions, but has       
competition from other forms of energy, such as natural gas, coal, wood,
oil and other energy sources.                                           

EMPLOYEES                                                                       

 The Company had 88 full time employees as of December 31, 1996.
 Employees, other than officers, supervisors and non-union clerical staff,
   are represented by the United States Steel Workers of America, Local 13547.
The Company and Union signed a three year contract in September, 1995.  
 Management considers its relations with its employees to be satisfactory.
The Company has reduced full time employment from 115 in 1980 to the    
   present 88.  The Company has no full time professional employees engaged in
research and development activities.                                    

REGULATION                                                                      

   The Company is subject to the jurisdiction of the Michigan Public
Service Commission (MPSC) with respect to rates, standards of service,  
accounting and other matters.  The Company is also subject to the       
 jurisdiction of the Federal Energy Regulatory Commission (FERC) under the
Federal Power Act with respect to rates, service, interconnections,     
  accounting and other matters in connection with its purchases and sales of
electricity for resale.  The MPSC has jurisdiction over the issuance of 
long-term securities and the FERC has jurisdiction over short-term      
securities.                                                             

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RATES                                                                           

       Approximately 86% of the Company's revenues for 1996 were from retail
   sales of electricity and 14% from sales of electricity for resale and other
miscellaneous revenue.                                                  

   The last electric rate increase, effective November 17, 1982, was
  authorized on November 16, 1982 by the MPSC in Case No. U-7235.  This MPSC
Order granted a return on rate base of 9.30% which included a return on 
common equity of 14%.                                                   

    Under Michigan law, the Company (until 1996) filed an annual power
 supply cost recovery plan to recover anticipated fuel and purchased power
costs for the following year.  In addition to allowing the Company to   
  recover its power costs, this law provides for a return of over collection
or a surcharge for under collection of power costs at the close of the  
year, both with interest.                                               

        On September 21, 1995, the MPSC approved the Company's application for
 authority to implement price cap regulation.  The Company implemented the
price cap order on January 1, 1996.  For a description of the MPSC's    
approval and the ensuing litigation, see item I 3(a) below ("Legal      
Proceedings,") which description is incorporated herein by reference.   

       The MPSC in Case No. U-10662 prescribed depreciation rates to be used
   by the Company to determine its annual accrual for depreciation.  The order
 in this case was issued November 10, 1994, effective for a period of five
 years beginning January 1, 1995 and continuing through December 31, 1999.

 The Company has FERC approved wholesale contracts for resale of
electric energy with Cloverland Electric Cooperative, Inc.              

SEASONAL                                                                        

       The business of the Company is seasonal due to shorter daylight hours
   and colder temperatures in the winter resulting in greater overall electric
consumption during that time.                                           

ENVIRONMENTAL                                                                   

IN 1993, Edison Sault received notification from the U.S.     
Environmental Protection Agency (U.S. EPA) that it was being named a    
"Potentially Responsible Party" at the Manistique River/ Harbor Area of 
Concern (AOC) in Manistique, Michigan.  There were a number of other    
potentially responsible parties, some of whom have been notified by the 
U.S. EPA.                                                               

      The U.S. EPA, in conjunction with the Michigan Department of Natural
Resources, identified the Manistique River and Harbor as an "Area of    
Concern" (AOC) due to PCBs which have been found in that area.  An      
Environmental Engineering/Cost Analysis (EECA) was submitted to the U.S.
EPA which provided an analysis of various methods of remediation for the
harbor.  The EECA presented six alternatives of remediation action and  
ultimately recommended a remediation method of in-place capping.        
   Management believed this to be the most prudent course of action.  Although
the total ultimate cost of specific remedial action and Edison Sault's  
 potential liability were not known at that time, management had estimated
Edison Sault's minimum cost of this remedy to be $2.9 million.          

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That figure represented an increase of $1.9 million from the amount     
recorded during 1994.  Certain other expenditures for investigation of  
any necessary remedial action were incurred and are reflected in the    
accompanying financial statements.                                      

During 1995 and 1996, the U.S. EPA agreed to allow the PRPs to
remediate the harbor through in-place capping at a total cost of $6.4   
million, with the Edison Sault portion costing $3.2 million.  Through   
further negotiations, the U.S. EPA and the PRPs agreed to a cash-out    
   settlement whereby the PRPs would pay to the U.S. EPA the $6.4 million cost
of capping for the right to be absolved from any future legal actions   
concerning PCB pollution.  To effect this settlement, an Administrative 
Order on Consent was executed by all parties in December, 1996 with     
payments made to the U.S. EPA prior to year-end 1996.                   

    To date, Edison Sault has incurred a total cost of $3.6 million on
this project.  Edison Sault has retained legal assistance to start a    
  process of recovering these costs through several insurance entities.  The
certainty and magnitude of insurance recovery is unknown at this time.  

     Edison Sault believes that the costs discussed above, including the
   payment to the U.S. EPA to be relieved of future liability, is a legitimate
cost of doing business and would be recoverable through utility rates.  
Further, in November 1993, the MPSC issued an order authorizing Edison  
Sault to defer and amortize, over a period not to exceed ten years,     
environmental assessment and remediation costs associated with the      
Manistique River AOC.  Therefore, Edison Sault has recorded a regulatory
asset in the amount of $3.2 million, plus unreimbursed cost of $300,000,
for a total of $3.5 million, which the Company will begin amortizing in 
1997.  Further costs related to this issue are not expected to have a   
  material impact on the Edison Sault's financial position or future results
of operations.                                                          

FRANCHISES - SERVICE AREA                                                       

       The Company has 24 township and village franchises in the counties of
Chippewa, Delta, Mackinac and Schoolcraft, all in the State of Michigan.
 The Company has franchises with the following cities in the service area,
as listed below, with their expiration date for electric service.       
          Franchise             Type of Service          Expiration Date
          ---------------       ---------------          ---------------
       Manistique               Electric              June 9, 2008
          Mackinac Island          Electric              January 1, 2019
         St. Ignace               Electric              April 20, 2001

  The Company operates under a perpetual franchise in the City of Sault Ste.
Marie by virtue of Act. No. 264, Public Acts of Michigan, 1905.         

        The Company's distribution system and services are, for the most part,
located on or under public streets, alleys, avenues, highways and other 
public places, or on private property not owned by the Company, with the
permission or consent, except to an inconsequential extent, of the      
 individual owners.  The Company's distribution system located on or under
public streets and other public places were all installed under valid   
franchises granted by appropriate local authorities.                    

RECENT DEVELOPMENTS                                                             

     As previously disclosed in the Form 8-K filed by the Registrant, on
March 25, 1997 the Registrant and Wisconsin Energy Corporation announced
that they had entered into a letter of intent, setting forth the        
preliminary terms of the potential acquisition of the Registrant by     
Wisconsin Energy Corporation.  Consummation of the proposed transaction 
is contingent upon several conditions, including the negotiation and    
execution of a definitive agreement, approval by the Boards of Directors
of both companies and the shareholders of the Registrant, receipt of all
 appropriate regulatory approvals, and the effectiveness of a registration
statement to be filed with the Securities and Exchange Commission       
covering the Wisconsin Energy Corporation shares to be issued in the    
transaction.  There can be no assurance as to the final terms of the    
proposed transaction, that the conditions will be satisfied, or that the
proposed transaction will be consummated.                               

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ITEM 1a. EXECUTIVE OFFICERS OF THE REGISTRANT                                   

    The following officers of the Company were elected for one year or
 until their successors have been elected and have qualified at the annual
Organizational Meeting of the Board of Directors last held in May, 1996.
All executive officers except Mr. Beedy hold identical positions with   
Registrant.                                                             
     Company
    Position
  Name              Age        Since     Position with Company
  --------------------     ---      --------  ------------------------------
  Thomas S. Nurnberger     78         1980    Director-Chairman of the Board
William R. Gregory       57         1972    Director- President         
James L. Beedy           58         1986    Vice President - Engineering
David R. Hubbard         58         1977    Vice President - Finance    
Donald Sawruk            49         1994    Executive Vice President    
                      1989    Vice President
                 1987    Secretary
Steven L. Boeckman       42         1993    Vice President              
                 1991    Treasurer
Donald C. Wilson         41         1995    Secretary                   

Ernest H.  Maas          40         1996    Assistant Vice President    

David H.  Jirikovic      44         1996    Assistant Vice President    

Paul A.  Schemanski      33         1996    Assistant Vice President    

ITEM 2.  PROPERTIES                                                             

      Registrant's only material asset is the common stock of the Company.

     The Company's major source of power is its hydroelectric generating
plant located on the St. Marys River in Sault Ste. Marie, Michigan.  In 
addition, the Company owns and operates a diesel peaking station in its 
service area.                                                           

       Hydro generation is also purchased by the Company under contract from
the U.S. Corps of Engineers hydroelectric plant located within the Soo  
Locks complex in Sault Ste. Marie.  This contract, which was modified in
1996, has a tenure to November 1, 2040 and cannot be terminated by the  
government prior to November 1, 2030.                                   

     The Company also owns a 138 KV submarine transmission cable circuit
  which interconnects with Consumers Power Company in the Lower Peninsula of
Michigan.  The Company owns and maintains two 138 KV substations which  
connect a 46 mile 138 KV transmission line owned and maintained by      
Cloverland Electric Cooperative.  This line and the remainder of the    
transmission facilities of both companies are operated under a Joint    
Transmission Agreement dated May 1, 1977.                               

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    The Company's electric transmission system extends from Sault Ste.
 Marie to Manistique, approximately 130 miles to the southwest, and to St.
   Ignace, approximately 50 miles to the south.  Additional transmission lines
extend to Cedarville, some 40 miles to the southeast.  In total, the    
Company has 279 miles of transmission line in service as of December 31,
1996.  Also, to serve its customers, the Company maintains 792 miles of 
 primary distribution lines.  Service is rendered to its customers through
approximately 8,600 line transformers and 22,400 meters.                

     During 1996, the Company generated 27% of its total electric energy
requirements in its own hydro plant and purchased the remaining 73% as  
shown below:                                                            

                                          Megawatt Hours
                                         Generated and Purchased
                                         -----------------------
Company Generation                               225,922      
Purchases -                                                   
U.S. Corps of Engineers-Hydro                  130,475  
Consumers Power Company                        306,330  
American Electric Power Company                168,828  
Upper Peninsula Power Company                    7,352  
Cloverland Electric Cooperative                      8  
                                              ----------
     Total                                   838,915
                                               ===========

Hydro Megawatt hours generated and purchased provided 42% of the total  
energy requirements.                                                    

     All of the purchased power was delivered under firm contracts.  The
 Company's transmission system is directly interconnected with the systems
of Consumers Power Company and Cloverland Electric Cooperative.  The    
  interconnection with Consumers Power Company has a capacity of 130,000 KW.
The Company purchases power from Consumers Power Company and American   
  Electric Power Company over this interconnection.  Under contract with the
U.S. Corps of Engineers, the Company purchases the entire hydroelectric 
generation from the St. Marys River plant, less Corps use, for          
   approximately 17,400 KW of power.  Again under contract a certain amount of
the capacity is delivered to other government installations in the area.
The Company was assigned a contract between Wisconsin Electric Power    
Company and Upper Peninsula Power Company (UPPC) to purchase power from 
 UPPC to serve a portion of the customers acquired from Wisconsin Electric
Power Company on December 31, 1988.                                     

The Company's total average generating capability is 34,600 KW
   consisting of the Edison Sault Hydro Plant with 29,800 KW and 4,800 KW from
the diesel generating plant.  The water for the Company's hydroelectric 
generating plant is leased under a contract with the U.S. Corps of      
Engineers with a tenure to December 31, 2050.  However, the Secretary of
the Army has the right to terminate the contract subsequent to December,
  2025 by providing at least a five year termination notice.  No such notice
can be given prior to December 31, 2020.  Starting January 1, 1986, the 
Company began paying for all water taken at predetermined rates with a  
 minimum annual payment of $100,000 per year.  The total flow of water out
 of Lake Superior, which in effect is the volume of water in the St. Marys
River, is under the direction and control of the International Joint    
   Commission.  The International Joint Commission was created by the Boundary
Water Treaty of 1909 between the United States of America and Great     
Britain, now represented by Canada.  This                               

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Commission has placed limitations on the flow of water from Lake        
Superior during certain months of 1973, 1977 and from 1981 through      
1995.  During any limited flow months, it is necessary for the          
Company to purchase additional power from other electric                
utilities and increase the use of the Company diesel generation.        

      The principal electric plants and properties are held subject to the
lien of the Company's Mortgage securing its First Mortgage Bonds.       

ITEM 3.  LEGAL PROCEEDINGS                                                      

   (a)  On September 21, 1995, the MPSC approved the Company's application for
 authority to implement price cap regulation.  The Company implemented the
price cap order on January 1, 1996. In the application, the Company     
   proposed that its base rates be capped at present levels, that its existing
   power supply recovery (PSCR) factor be rolled into base rates, and that its
   existing PSCR Clause be suspended.  In addition, the MPSC required that the
 Company give thirty (30) days notice rather than two (2) weeks notice for
  rate decreases and that the Company file an application by October 1, 2000
to address its experience under the price cap mechanism.  The Order also
   allows the Company to file an application seeking an increase in rates only
under extraordinary circumstances.                                      

    On October 23, 1995 the Attorney General for the State of Michigan
   filed an intervention and petition for rehearing in the Company's price cap
 order.  The Attorney General's intervention was based on the grounds that
the MPSC did not have authority to approve price cap regulation.  On    
December 21, 1995, the MPSC rejected the Attorney General's petition for
  rehearing.  On January 16, 1996, the Attorney General filed an appeal with
the Michigan Court of Appeals.                                          

    Legal counsel for the Company believes that the Attorney General's
 appeal is without merit and that the Company will prevail.  A decision in
this case is not expected until mid 1997.                               

(b)  See Part I, Item 1. - Business - Environmental.                    

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                    

None.                                                         

      PART  II

ITEM 5.  MARKET FOR THE REGISTRANT'S COMMON STOCK                               
AND RELATED SECURITY HOLDER MATTERS                       

     The Tables appearing under the caption "Shareholder Information" in
 the Registrant's 1996 Annual Report to Shareholders, pages 31 and 32, are
incorporated by reference herein.                                       

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ITEM 6.  SELECTED FINANCIAL DATA                                                

    The information appearing under the caption "Six-Year Results of
Operations" in the Registrant's 1996 Annual Report to Shareholders, page
12, is incorporated by reference herein.                                

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF                                
FINANCIAL CONDITION AND RESULTS OF OPERATIONS             

      The information appearing under the caption "Management's Discussion
  and Analysis" in the Registrant's 1996 Annual Report to Shareholders, page
13 through 15, is incorporated by reference herein.                     

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                            

      The financial statements included on pages 16 through 30 of the 1996
Annual Report to Shareholders for the year ended December 31, 1996 are  
incorporated herein by reference.                                       

     PART  III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT                     

(a)  Identification of directors.                                       
    Information appearing under the caption "Election of Directors" in
       ESELCO's definitive Proxy Statement (filed or to be filed pursuant to
   Regulation 14A) with respect to the May 6, 1997 Annual Meeting of
Shareholders is incorporated by reference herein.             
(b)  Identification of executive officers.                              
See Item 1a herein.                                           
(c)  Identification of certain significant employees.                   
None.                                                         
(d)  Family relationships.                                              
   There is no family relationship between any director or executive
     officer and any other director or executive officer of the Company.
(e)  Business experience.                                               
See Item 10 (a) and (b).                                      
(f)  Involvement in certain legal proceedings.                          
 There have been no events under any bankruptcy act, no criminal
        proceedings and no judgments or injunctions material to the evaluation
   of the ability and integrity of any director or executive officer
during the past five years.                                   

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ITEM 11. EXECUTIVE COMPENSATION AND TRANSACTIONS                                

        The information appearing under the caption "Remuneration of Directors
  and Officers" in ESELCO's definitive Proxy Statement (filed or to be filed
  pursuant to Regulation 14A) with respect to the May 6, 1997 Annual Meeting
of Shareholders is incorporated by reference herein.                    

ITEM 12. SECURITY OWNERSHIP OF CERTAIN                                          
BENEFICIAL OWNERS AND MANAGEMENT                          

     The information appearing under the captions "Security Ownership of
Certain Beneficial Owners" and "Election of Director" in ESELCO's       
definitive Proxy Statement (filed or to be filed pursuant to Regulation 
14A) with respect to the May 7, 1997 Annual Meeting of Shareholders is  
incorporated by reference herein.                                       

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                         
None.                                                         

      PART  IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT                                          
SCHEDULES AND REPORTS ON FORM 10-K                        

(a)  1.  Financial Statements                                           
Included in Part II of this report:                 
Statement of Income                           
Statement of Cash Flows                       
Statement of Financial Position               
Statement of Capitalization                   
Statement of Changes in Retained Earnings     
Notes to Financial Statements                 
Report of Independent Public Accountants      

2.  Financial Statement Schedules                             
Included in Part IV of this report:                 
  Schedule II  - Valuation and Qualifying Accounts

     The Report of Independent Public Accountants on Financial
           Statement Schedules for the three years ended December 31, 1996
is on page 30.                                      
         Schedules I, III and IV are omitted as not applicable because
required items or conditions are not met.           

3.  List of Exhibits                                          
(See page 13 for Exhibit Index)                     

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(b)  None.                                                              

 (c)  The Exhibits, if any, filed herewith are identified in (a) 3. above.

   (d)  The Financial Statement Schedules filed herewith are identified in (a)
2. above.                                                     

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      SIGNATURES

 Pursuant to the requirements of Section 13 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.                                  
                    ESELCO, INC.
                      (Registrant)

                           By:   /s/  WILLIAM R. GREGORY
                                  --------------------------
                          WILLIAM R. GREGORY
                              Director and President

                   Date:  March 25, 1997

 Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the          
Registrant and in the capacities and on the dates indicated.                    

/s/ Thomas S. Nurnberger                     /s/ David K. Easlick               
-----------------------------               ----------------------------        
THOMAS S. NURNBERGER                        DAVID K. EASLICK                    
Chairman of the Board                       Director                            
Date: March 25, 1997                        Date: March 25, 1997                

/s/ Allan L. Grauer                          /s/ James S. Clinton               
-----------------------------               ----------------------------        
ALLAN L. GRAUER                             JAMES S. CLINTON                    
Director                                    Director                            
Date: March 25, 1997                        Date: March 25, 1997                

/s/ William R. Gregory                                                          
-----------------------------                                                   
WILLIAM R. GREGORY                                                              
Director                                                                        
Date: March 25, 1997                                                            

/s/ David R. Hubbard                                                            
-----------------------------                                                   
DAVID R. HUBBARD                                                                
Vice President - Finance                                                        
Date: March 25, 1997                                                            

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10-K405
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      EXHIBIT  INDEX
      FORM  10-K
      1996

                                                        [Enlarge/Download Table]

                                                                                       Filed           
                                                                              -------------------------
  No.                           Description of Exhibit                        Herewith     By Reference
-------  ----------------------------------------------------------------     ---------    ------------
                                                                                                       
  (3)    Articles of Incorporation as filed on January 6, 1989 - (d)                            *      
  (4)    Instruments defining the rights of security holders, including                                
          indentures:                                                                                  
         (a)  Mortgage and Deed of Trust as of March 1, 1952 - (a)                              *      
         (b)  Supplemental Indenture dated as of February 1, 1957 - (a)                         *      
         (c)  Second Supplemental Indenture dated as of January 1,                                     
              1964 - (a)                                                                        *      
         (d)  Third Supplemental Indenture dated as of February 1,                                     
              1968 - (a)                                                                        *      
         (e)  Fourth Supplemental Indenture dated as of September                                      
              15, 1975 - (a)                                                                     *     
         (f)  Fifth Supplemental Indenture dated as of October 1, 1986 - (b)                     *     
         (g)  Sixth Supplemental Indenture dated as of April 1, 1989 - (d)                       *     
         (h)  Seventh Supplemental Indenture dated as of February 1,                                   
              1992 - (e)                                                                         *     
         (i)  Debenture Indenture dated as of August 1, 1973 - (a)                               *     
         (j)  Form of Long-Term Energy Thrift Notes - (c)                                        *     
 (13)    Annual Report to Security Holders, Form 10-Q or Quarterly                                     
         Report to Security Holders.                                                                   
         (a)  1996 Annual Report to Shareholders                                     *                 
         (b)  Form 10-Q or Quarterly Report to Security Holders                     N/A         N/A    
 (21)    Subsidiaries of the Registrant                                              *                 
 (23)    Consent of Independent Public Accountants                                   *                 
 (27)    Financial Data Schedule                                                     *                 
 (99.1)  Letter of Intent                                                                              
 (99.2)  Shareholder Letter                                                                            


Key to Exhibits Incorporated by Reference:                                      

(a)     Filed with the Company's Registration Statement, Form S-16,           
No. 2-67191, filed April 2, 1980.                             
(b)     Filed with the Company's Form 10-K for 1986, dated March 30, 1987,    
File No. 0-1158.                                              
(c)     Filed with the Company's Registration Statement, Amendment No. 2 to   
Form S-3, No. 2-67191, filed February 16, 1988.               
(d)     Filed with the Registrant's Form 10-Q for June 30, 1989, dated        
August 11, 1989, File No. 0-17736.                            
(e)     Filed with the Registrant's Form 10-Q for March 31, 1992, dated       
May 13, 1992, File No. 0-17736.                               

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10-K405
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        [LETTERHEAD]

      Report of Independent Public Accountants

To ESELCO, Inc.:                                                                

We have audited in accordance with generally accepted auditing standards, the   
consolidated financial statements included in ESELCO, Inc.'s 1996 annual report 
to shareholders incorporated by reference in this Form 10-K, and have issued our
report thereon dated February 6, 1997.  Our audit was made for the purpose of   
forming an opinion on those statements taken as a whole. The schedules listed in
item 14(a) is the responsibility of the company's management and is presented   
for purpose of complying with the Securities and Exchange Commission's rules and
is not part of the basic consolidated financial statements.  This schedule has  
been subjected to the auditing procedures applied in the audit of the basic     
financial statements and, in our opinion, fairly states in all material respects
the financial data required to be set forth therein in relation to the basic    
consolidated financial statements taken as a whole.                             

                                       ARTHUR ANDERSEN LLP

Detroit, Michigan                                                               
February 6, 1997.                                                               

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    ESELCO, INC.
     -------------
     SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
       -------------------------------------------------

                                                        [Enlarge/Download Table]

       Column A        Column B        Column C               Column D            Column E 

                        Balance       Provisions          Reserse  for purposes   Balance  
                       Beginning      Charged to             for which the         End of  
    Description       of  Period        Income             Reserve was Provided   Period   
--------------------  ------------    ------------        ----------------------  -------  
                                                                                           

                            YEAR ENDED DECEMBER 31, 1996                                   
                            ----------------------------                                   
RESERVE DEDUCTED                                                                           
  FROM ASSET IN                                                                            
 BALANCE SHEET -                                                                           

   Doubtful Accounts   $32,000        $69,526                     $69,526         $32,000  
                       ========       ========                    =======         ======== 

                            YEAR ENDED DECEMBER 31, 1995                                   
                            ----------------------------                                   
RESERVE DEDUCTED                                                                           
  FROM ASSET IN                                                                            
 BALANCE SHEET -                                                                           

   Doubtful Accounts   $32,000        $52,060                     $52,060         $32,000  
                       ========       ========                    ========        ======== 

                            YEAR ENDED DECEMBER 31, 1994                                   
                            -----------------------------                                  
RESERVE DEDUCTED                                                                           
  FROM ASSET IN                                                                            
 BALANCE SHEET -                                                                           

   Doubtful Accounts   $32,000        $81,391                      $81,391        $32,000  
                       ========       ========                     ========       =========


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Dates Referenced Herein   and   Documents Incorporated by Reference

				Referenced-On Page
This ‘10-K405’ Filing		Date		First		Last			Other Filings
		11/1/30		6
		12/31/20		7
		1/1/19		5
		6/9/08		5
		4/20/01		5
		10/1/00		8
		12/31/99		4
		5/7/97		10
		5/6/97		2		10			DEF 14A,  PRE 14A
Filed on:		3/31/97							10-Q
		3/25/97		5		12			8-K
		3/10/97		1
		2/6/97		14
For Period End:		12/31/96		1		15			U-3A-2
		1/16/96		8
		1/1/96		4		8
		12/31/95		15
		12/21/95		8
		10/23/95		8
		9/21/95		4		8
		1/1/95		4
		12/31/94		15
		11/10/94		4
		5/13/92		13
		3/31/92		13
		2/1/92		13
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