FORM U-3A-2
File No. 69-35
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Annual Statement by Holding Company
Claiming Exemption Under Rule U-2
from Provisions of the Public Utility
Holding Company Act of 1935.
To be filed annually prior to March 1.
WISCONSIN PUBLIC SERVICE CORPORATION hereby files with the
Securities and Exchange Commission, pursuant to Rule U-2, its
statement claiming exemption as holding Company from the
provisions of the Public Utility Holding Company Act of 1935. In
support of such claim for exemption the following information is
submitted:
1. Name, state of organization, location and nature of business
------------------------------------------------------------
of claimant and every subsidiary thereof, other than any
--------------------------------------------------------
exempt wholesale generator (EWG) or foreign utility company
-----------------------------------------------------------
in which claimant directly or indirectly holds an interest.
-----------------------------------------------------------
Wisconsin Public Service Corporation (herein sometimes
------------------------------------
referred to as the "Company") is incorporated under the laws
of the state of Wisconsin and has its principal executive
office at 700 North Adams Street, P. O. Box 19001, Green
Bay, Wisconsin 54307. It is an operating public utility
company engaged chiefly in the production, transmission,
distribution, and sale of electricity and in the purchase,
distribution, and sale of gas. The Company serves
<PAGE>
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approximately 347,000 electric customers and 190,000 gas
customers in 10,000 square miles in northeastern Wisconsin
and an adjacent part of Upper Michigan. The largest cities
served are Green Bay, Sheboygan, Oshkosh, and Wausau, with
populations ranging from 153,642 to 60,854, including
contiguous urban areas (1990 Federal census). The Company
furnishes retail electric service in all these cities except
Sheboygan, and gas in all except Wausau. Additionally, the
Company provides wholesale electric service to 13
communities. About 98% of operating revenues in the year
1993 were derived from Wisconsin customers, and 2% from
Michigan customers.
Wisconsin Valley Improvement Company, of which the Company
------------------------------------
owns 26.9% of the voting stock, is incorporated under the
laws of the state of Wisconsin and has its principal office
at Wausau, Wisconsin. It operates a system of dams and
water reservoirs on the Wisconsin River and tributary
streams to produce as nearly a uniform stream flow as
practicable through all seasons, and charges water tolls to
benefited power plant owners as determined semiannually by
the Public Service Commission of Wisconsin, all pursuant to
special enactments of the Wisconsin Legislature (as amended
by Chapter 497, Wisconsin Laws of 1939). It generates no
electric energy and renders no public utility services.
Total assets of Wisconsin Valley Improvement Company at
<PAGE>
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December 31, 1993 were $837,000 or .07% of the Company's
assets. The Company's equity in net income for the year
1993 was $21,000, or .03% of the Company's total net income.
It is believed that said Improvement Company is not a
"public utility company" as defined in the Public Utility
Holding Company Act of 1935. In findings and opinion
promulgated October 28, 1940, in File No. 31-480 (8 S.E.C.
Decisions, P. 134), to which reference is hereby made, the
Commission declared said Improvement Company not to be a
subsidiary of Wisconsin Public Service Corporation.
Wisconsin River Power Company (herein sometimes called
-----------------------------
"River Company"), of which the Company owns 33.1% of the
voting stock, is incorporated under the laws of the state of
Wisconsin and has its principal office at Wisconsin Rapids,
Wisconsin. Its business consists of the operation of two
hydroelectric plants on the Wisconsin River, the output of
which is sold in equal parts to three companies, including
Wisconsin Public Service Corporation, which three companies
own all outstanding stock of River Company in substantially
equal parts. Total assets of Wisconsin River Power Company
at December 31, 1993 were $6,057,000 or .51% of the
Company's assets. The Company's equity in net income for
the year 1993 was $310,000, or .50% of the Company's total
net income. Further information concerning the nature of
the business of River Company is set forth in findings and
<PAGE>
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opinions of the Commission entered in reference to River
Company on January 29, 1948 in File Nos. 70-1656 and 31-551
(27 S.E.C. Decisions, P. 539) and its orders in Docket No.
EL79-10.
WPS Resources Corporation, (herein sometimes called
-------------------------
"Resources"), was incorporated on December 3, 1993 under the
laws of the state of Wisconsin and has its principal office
at the principal executive offices of the Company.
Resources, at present an inactive, wholly-owned subsidiary
of the Company, was organized for the purpose of becoming
the new parent holding company in a corporate restructuring.
The directors and officers of Resources are in each case
directors and officers of the Company. The Company owns
100% of the Resources' capital stock, consisting of 1,000
shares of common stock, with $1 per share par value, at the
stated capital amount of $1 per share. The total assets of
Resources at December 31, 1993 were $301,720, .03% of the
Company's assets. WPS Resources Corporation does not own
any utility assets.
Packerland Energy Services, Inc., (herein sometimes called
--------------------------------
"Packerland"), (formerly known as Wisconsin Public Service
Nuclear Fuel Inc from April 13, 1973 until the name was
changed to Wisconsin Public Service Resources, Inc. in
September 1983), is a wholly owned subsidiary of the
<PAGE>
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Company. The name was changed to Packerland Energy
Services, Inc on November 15, 1993. Packerland is
incorporated under the laws of the state of Wisconsin and
has its principal office at the principal executive offices
of the Company. Packerland has been inactive since 1973,
but it is anticipated that Packerland will be used as a
vehicle to provide energy supply consulting and natural gas
supply/transportation procurement services for commercial
and industrial customers within and outside the Company's
traditional service area. Packerland is not and will not be
a public utility.
WPS Communications, Inc. was incorporated September 10, 1985
------------------------
under the laws of the state of Wisconsin and has its
principal office at the principal executive offices of the
Company. The directors and officers of WPS Communications,
Inc. are in each case also officers of the Company. The
Company owns 100% of WPS Communications' capital stock,
consisting of 1,000 shares of common stock, with $1 per
share par value, at the stated capital amount of $1 per
share. Total assets of WPS Communications, Inc. at December
31, 1993 were $1,836,000 or .15% of the Company's assets.
The Company's equity in net gain for the year 1993 was
$70,000, or .11% of the Company's total net income. The
intended principal business of WPS Communications, Inc. is
to participate as a partner in the NorLight Partnership
<PAGE>
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which was created to construct and operate a fiber optics
communication system. It is not and will not be a public
utility. In December 1991, the partners of NorLight sold
the assets of the partnership to Midwest Relay Company.
Certain contingencies relating to the sale will expire in
December 1994 and an escrow in which a portion of the
purchase price was deposited will terminate. Any funds then
held in the escrow and not payable to Midwest Relay Company
will be distributed to the NorLight partners. It is
anticipated that WPS Communications, Inc. will be dissolved
at that time.
Dolores Bench General Partner, Inc. (herein sometimes called
-----------------------------------
"Dolores") was incorporated December 23, 1975 under the laws
of the state of Wisconsin and had its principal office at
the principal executive offices of the Company. The
directors and officers of Dolores Bench were in each case
also officers of the Company. The Company owned 100% of
Dolores' capital stock, consisting of 226 shares of common
stock, without par value, at the stated capital amount of
$1,000 per share. The intended principal business of
Dolores was procurement of the Company's natural uranium
requirements for nuclear refueling, either directly or
through other entities. All mining equipment was sold in
1989 and all mining properties were abandoned by the end of
1992. It was not a public utility. Articles of dissolution
<PAGE>
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were filed with the Wisconsin Secretary of State on December
15, 1993, thus terminating the existence of the corporation.
2. A brief description of the properties of claimant and each
----------------------------------------------------------
of its subsidiary public utility companies used for the
-------------------------------------------------------
generation, transmission, and distribution of electric
------------------------------------------------------
energy for sale, or for the production, transmission, and
---------------------------------------------------------
distribution of natural or manufactured gas, indicating the
-----------------------------------------------------------
location of principal generating plants, transmission lines,
------------------------------------------------------------
producing fields, gas manufacturing plants, and electric and
------------------------------------------------------------
gas distribution facilities, including all such properties
----------------------------------------------------------
which are outside the state in which claimant and its
-----------------------------------------------------
subsidiaries are organized and all transmission or pipelines
------------------------------------------------------------
which deliver or receive electric energy or gas at the
------------------------------------------------------
borders of such state.
----------------------
Statistics set forth in the answer to this Item are as of
December 31, 1993.
Wisconsin Public Service Corporation owns and operates
------------------------------------
electric properties comprising an integrated system of
production, transmission and distribution facilities
throughout the territory served. Generating facilities
consist of two steam plants (at Green Bay, and south of
Wausau, Wisconsin) with total rated capacity of 829,100 kw,
<PAGE>
-8-
a 41.2% share of the Kewaunee Plant (nuclear) at Kewaunee,
Wisconsin, which the Company operates, with a rated capacity
of 535,000 kw (the Company's share is 221,000 kw), a 31.8%
share of the Columbia Energy Center at Portage, Wisconsin,
owned jointly with Wisconsin Power and Light Company, the
operator, and Madison Gas and Electric Company, with a rated
capacity of 1,054,000 kw (the Company's share is 335,200
kw), a 31.8% share of the Edgewater Steam Plant Unit #4 at
Sheboygan, Wisconsin, owned jointly with Wisconsin Power and
Light Company, the operator, with a rated capacity of
330,000 kw (the Company's share is 104,940 kw), combustion
turbines of 51,000 kw and 21,500 kw, respectively, south of
Wausau, Wisconsin, two combustion turbines of 41,850 kw each
and a 68% share in a combustion turbine of 83,500 kw (the
WPS share is 56,780 kw) owned jointly with Marshfield
Electric and Water Department and operated by the Company,
all located near Marinette, Wisconsin, 15 hydroelectric
plants (14 in Wisconsin and one on the border stream between
Wisconsin and Michigan) with aggregate rated capacity of
64,786 kw, a 4,000 kw diesel plant at Eagle River,
Wisconsin, and a 40 kw wind turbine located near Kewaunee,
Wisconsin. Its transmission and distribution facilities
include 52 transmission substations, 91 distribution
substations and approximately 21,870 route miles of
transmission and distribution lines. The Company is
interconnected with Wisconsin River Power Company, has 13
<PAGE>
-9-
interconnections in Wisconsin for purposes of power pooling
(Wisconsin Power and Light Company and Madison Gas and
Electric Company), and 24 interconnections (22 in Wisconsin
and two in Michigan) with nonaffiliated neighboring
utilities, principally for the purpose of sharing reserve
capacity and for emergencies. The Company also has ten
interconnections to serve three neighboring municipal
utilities. Gas facilities include approximately 3,409 miles
of main, 65 gate and city regulator stations and 173,835
services. All gas facilities are located in Wisconsin
except for distribution facilities in and near the city of
Menominee, Michigan, which receive gas from the Company's
gas lines in the adjacent city of Marinette, Wisconsin.
Natural gas is purchased only within Wisconsin, from a
nonaffiliated pipeline company, at points adjacent to the
territory served. All of the Company's electric and gas
facilities are located within the borders of the states of
Wisconsin and Michigan. Except for electric and gas lines
crossing the common border of those states necessary to
interconnect the various parts of its system, it does not
have any electric transmission or gas pipelines which
deliver or receive electric energy or gas at the borders of
such states. About 98% of utility plant is located in
Wisconsin, and the balance is in Michigan.
<PAGE>
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3. The following information for the last calendar year with
---------------------------------------------------------
respect to claimant and each of its subsidiary public
-----------------------------------------------------
utility companies: (The information required by Item 3 of
------------------
this Form U-3A-2 is shown in Exhibit B hereto.)
4. The following information for the reporting period with
-------------------------------------------------------
respect to claimant and each interest it holds directly
-------------------------------------------------------
or indirectly in an EWG or a foreign utility company,
-----------------------------------------------------
stating monetary amounts in United States dollars.
--------------------------------------------------
Not Applicable.
<PAGE>
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LIST OF EXHIBITS
Exhibit A-1 Balance Sheet and Statement of Capitalization at
December 31, 1993, of Wisconsin Public Service
Corporation.
Exhibit A-2 Income Statement and Statement of Retained
Earnings of Wisconsin Public Service Corporation
for the year ending December 31, 1993.
Exhibit A-3 Balance Sheet at December 31, 1993, and statements
of income and surplus accounts of Wisconsin River
Power Company for the year ended December 31,
1993, filed by reference to Exhibits A-4 and A-5,
respectively, of Form U-3A-2 being filed by
Consolidated Papers, Inc. in File No. 69-53. (The
financial statements of Wisconsin River Power
Company are not customarily consolidated with
those of any other company.)
Exhibit B Statement showing sales for the calendar year 1993
of electric energy and gas by Wisconsin Public
Service Corporation and Wisconsin River Power
Company.
The above-named claimant has caused this statement to be duly
executed on its behalf by its authorized officer on the 11th day
of February, 1994.
WISCONSIN PUBLIC SERVICE CORPORATION
/s/ D. P. Bittner
-------------------------------------
D. P. Bittner
Senior Vice President - Finance
(CORPORATE SEAL)
/s/ R. H. Knuth
Attest: --------------------------------------
R. H. Knuth
Assistant Vice President-Secretary
<PAGE>
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Name, title, and address of officer to whom notices and
correspondence concerning this statement should be addressed:
R. H. Knuth, Assistant Vice President-Secretary
Wisconsin Public Service Corporation
700 North Adams Street, P. O. Box 19001
Green Bay, Wisconsin 54307
<TABLE>
WISCONSIN PUBLIC SERVICE CORPORATION EXHIBIT A-1
-13-
BALANCE SHEETS
December 31
<CAPTION>
1993 1992 1991
----------- ------------ ----------
(Thousands)
<S> <C> <C> <C>
Assets
Utility Plant:
In service - Electric. . . . . . . . . . . . . . . . . . . . . . . $ 1,374,662 $ 1,327,964 $ 1,269,979
Gas . . . . . . . . . . . . . . . . . . . . . . . . . 183,798 172,763 163,901
----------- ------------ ----------
1,558,460 1,500,727 1,433,880
Less - Accumulated provision for depreciation. . . . . . . . . . 801,056 748,427 695,586
----------- ------------ ----------
757,404 752,300 738,294
Nuclear decommissioning trusts . . . . . . . . . . . . . . . . . . 56,699 51,023 45,504
Construction in progress . . . . . . . . . . . . . . . . . . . . . 11,781 26,864 8,071
Nuclear fuel, less accumulated provision for amortization of
$130,011, $124,394, and $117,792, respectively . . . . . . . . . 17,981 16,880 18,704
----------- ------------ ----------
Net utility plant . . . . . . . . . . . . . . . . . . . . . . . 843,865 847,067 810,573
----------- ------------ ----------
Current Assets:
Cash and equivalents . . . . . . . . . . . . . . . . . . . . . . . 5,391 178 477
Customer and other receivables, net of reserves. . . . . . . . . . 66,511 62,573 65,673
Accrued utility revenues . . . . . . . . . . . . . . . . . . . . . 37,314 33,880 29,545
Fossil fuel, at average cost . . . . . . . . . . . . . . . . . . . 10,208 12,907 25,502
Gas in storage, at average cost. . . . . . . . . . . . . . . . . . 19,885 11,622 1,815
Materials and supplies, at average cost. . . . . . . . . . . . . . 19,411 18,722 19,260
Prepayments and other. . . . . . . . . . . . . . . . . . . . . . . 21,420 20,449 23,121
----------- ------------ ----------
Total current assets . . . . . . . . . . . . . . . . . . . . . 180,140 160,331 165,393
----------- ------------ ----------
Deferred Charges . . . . . . . . . . . . . . . . . . . . . . . . . . 118,128 106,390 63,360
Investments and Other Assets . . . . . . . . . . . . . . . . . . . . 56,708 31,762 34,211
----------- ------------ ----------
$ 1,198,841 $ 1,145,550 $ 1,073,537
----------- ------------ ----------
Capitalization and Liabilities
Capitalization:
Common stock equity. . . . . . . . . . . . . . . . . . . . . . . . $ 434,503 $ 413,226 $ 369,298
Preferred stock with no mandatory redemption . . . . . . . . . . . 51,200 51,200 51,200
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . 314,225 321,498 332,907
----------- ------------ ----------
Total capitalization . . . . . . . . . . . . . . . . . . . . . 799,928 785,924 753,405
----------- ------------ ----------
Current Liabilities:
Note payable . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000 10,000 10,000
Commercial paper . . . . . . . . . . . . . . . . . . . . . . . . . 11,000 10,000 3,000
Maturing first mortgage bonds. . . . . . . . . . . . . . . . . . . -- 8,726 235
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . 64,113 55,300 62,898
Accrued taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . 3,266 1,234 1,258
Accrued interest . . . . . . . . . . . . . . . . . . . . . . . . . 7,695 7,204 6,729
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,956 10,207 12,275
----------- ------------ ----------
Total current liabilities. . . . . . . . . . . . . . . . . . . 106,030 102,671 96,395
----------- ------------ ----------
Other Long-Term Liabilities and Deferred Credits:
Accumulated deferred income taxes. . . . . . . . . . . . . . . . . 138,952 169,012 160,703
Accumulated deferred investment credits. . . . . . . . . . . . . . 34,210 36,071 38,093
Regulatory liabilities . . . . . . . . . . . . . . . . . . . . . . 61,434 6,393 926
Long-term liabilities. . . . . . . . . . . . . . . . . . . . . . . 58,287 45,479 24,015
----------- ------------ ----------
292,883 256,955 223,737
----------- ------------ ----------
Commitments and Contingencies (See Note 6)
----------- ------------ ----------
$ 1,198,841 $ 1,145,550 $ 1,073,537
----------- ------------ ----------
The accompanying notes to financial statements are an integral part of these balance sheets.
</TABLE>
<PAGE>
<TABLE>
WISCONSIN PUBLIC SERVICE CORPORATION EXHIBIT A-1
(CONTINUED)
-14-
STATEMENTS OF CAPITALIZATION
<CAPTION>
December 31
1993 1992 1991
---------- ----------- ---------
(Thousands)
<S> <C> <C> <C>
COMMON STOCK EQUITY:
Common stock, $4 par value, 32,000,000 shares authorized;
23,896,962, 23,846,144 and 22,888,620 shares outstanding, respectively. $ 95,588 $ 95,385 $ 91,555
Premium on capital stock . . . . . . . . . . . . . . . . . . . . . . . . 73,605 72,320 49,711
Retained earnings. . . . . . . . . . . . . . . . . . . . . . . . . . . . 288,693 272,019 257,404
ESOP loan guarantees . . . . . . . . . . . . . . . . . . . . . . . . . . (23,383) (26,498) (29,372)
---------- ----------- ---------
Total common stock equity. . . . . . . . . . . . . . . . . . . . . . 434,503 413,226 369,298
---------- ----------- ---------
PREFERRED STOCK:
Cumulative, $100 par value, 1,000,000 shares authorized:
With no mandatory redemption -
Series Shares Outstanding
5.00% 132,000. . . . . . . . . . . . . . . . . 13,200 13,200 13,200
5.04% 30,000. . . . . . . . . . . . . . . . . 3,000 3,000 3,000
5.08% 50,000. . . . . . . . . . . . . . . . . 5,000 5,000 5,000
6.76% 150,000. . . . . . . . . . . . . . . . . 15,000 15,000 15,000
6.88% 150,000. . . . . . . . . . . . . . . . . 15,000 -- --
7.72% 150,000. . . . . . . . . . . . . . . . . -- 15,000 15,000
---------- ----------- ---------
Total preferred stock. . . . . . . . . . . . . . . . . . . . . . . . 51,200 51,200 51,200
---------- ----------- ---------
LONG-TERM DEBT:
First mortgage bonds -
Series Year Due
4-3/8% 1993. . . . . . . . . . . . . . . . . . . -- -- 8,726
4-1/2% 1994. . . . . . . . . . . . . . . . . . . -- 10,944 10,944
9.50% 1994. . . . . . . . . . . . . . . . . . . -- -- 45,000
6-3/8% 1997. . . . . . . . . . . . . . . . . . . -- 23,482 23,482
5-1/4% 1998. . . . . . . . . . . . . . . . . . . 50,000 -- --
7-1/4% 1999. . . . . . . . . . . . . . . . . . . -- 24,039 24,039
8-1/4% 2001. . . . . . . . . . . . . . . . . . . -- 25,000 25,000
7.30% 2002. . . . . . . . . . . . . . . . . . . 50,000 50,000 --
8-1/8% 2003. . . . . . . . . . . . . . . . . . . -- 25,000 25,000
6.80% 2003. . . . . . . . . . . . . . . . . . . 50,000 -- --
7-7/8% 2005. . . . . . . . . . . . . . . . . . . -- -- 10,530
6-1/8% 2005. . . . . . . . . . . . . . . . . . . 9,075 9,075 --
8.20% 2012. . . . . . . . . . . . . . . . . . . -- 45,000 45,000
6.90% 2013. . . . . . . . . . . . . . . . . . . 22,000 -- --
9.70% 2014. . . . . . . . . . . . . . . . . . . -- 22,000 22,000
10-1/8% 2014. . . . . . . . . . . . . . . . . . . 1,000 1,000 1,000
8.80% 2021. . . . . . . . . . . . . . . . . . . 60,000 60,000 60,000
7-1/8% 2023. . . . . . . . . . . . . . . . . . . 50,000 -- --
---------- ----------- ---------
292,075 295,540 300,721
Unamortized discount and premium on bonds, net . . . . . . . . . . . . . (1,257) (1,037) (1,193)
---------- ----------- ---------
Total first mortgage bonds . . . . . . . . . . . . . . . . . . . . . . . 290,818 294,503 299,528
ESOP loan guarantees . . . . . . . . . . . . . . . . . . . . . . . . . . 23,383 26,498 29,372
Other long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . 24 497 4,007
---------- ----------- ---------
Total long-term debt . . . . . . . . . . . . . . . . . . . . . . . . 314,225 321,498 332,907
---------- ----------- ---------
Total capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 799,928 $ 785,924 $ 753,405
---------- ----------- ---------
The accompanying notes to financial statements are an integral part of these statements.
</TABLE>
<TABLE>
WISCONSIN PUBLIC SERVICE CORPORATION EXHIBIT A-2
-15-
STATEMENTS OF INCOME
<CAPTION>
Year Ended December 31
1993 1992 1991
------------- ------------ ----------
(Thousands)
<S> <C> <C> <C>
Operating Revenues:
Electric . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 493,256 $ 477,625 $ 471,277
Gas. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 187,376 157,177 152,222
------------- ------------ ----------
680,632 634,802 623,499
------------- ------------ ----------
Operating Expenses:
Operation -
Electric production fuels. . . . . . . . . . . . . . . . . . 114,051 123,866 131,054
Gas purchased for resale . . . . . . . . . . . . . . . . . . 133,347 109,890 103,189
Purchased power. . . . . . . . . . . . . . . . . . . . . . . 30,703 29,594 32,886
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . 148,270 135,614 128,820
Maintenance. . . . . . . . . . . . . . . . . . . . . . . . . . 51,597 46,436 48,223
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . 60,609 58,592 55,687
Taxes -
Federal income . . . . . . . . . . . . . . . . . . . . . . . 27,654 23,147 21,961
Investment credit restored . . . . . . . . . . . . . . . . . (1,860) (2,022) (2,071)
State income . . . . . . . . . . . . . . . . . . . . . . . . 7,313 6,081 5,688
Gross receipts and other . . . . . . . . . . . . . . . . . . 25,204 24,459 23,034
------------- ------------ ----------
596,888 555,657 548,471
------------- ------------ ----------
Operating Income . . . . . . . . . . . . . . . . . . . . . . . . 83,744 79,145 75,028
------------- ------------ ----------
Other Income and (Deductions):
Allowance for equity funds used during construction. . . . . 287 494 113
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . 3,356 6,076 4,351
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . 568 (1,116) (478)
------------- ------------ ----------
4,211 5,454 3,986
------------- ------------ ----------
Income Before Interest Expense . . . . . . . . . . . . . . . . . 87,955 84,599 79,014
------------- ------------ ----------
Interest Expense:
Interest on long-term debt . . . . . . . . . . . . . . . . . 24,393 25,662 22,127
Allowance for borrowed funds used during construction. . . . (200) (542) (193)
Other interest . . . . . . . . . . . . . . . . . . . . . . . 1,562 1,477 2,908
------------- ------------ ----------
25,755 26,597 24,842
------------- ------------ ----------
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . 62,200 58,002 54,172
Preferred Stock Dividend Requirements. . . . . . . . . . . . . . 3,311 3,237 3,237
------------- ------------ ----------
Earnings On Common Stock . . . . . . . . . . . . . . . . . . . . $ 58,889 $ 54,765 $ 50,935
------------- ------------ ----------
Average Number Of Shares Of Common Stock Outstanding (Thousands) 23,888 23,350 22,889
Earnings Per Average Share Of Common Stock . . . . . . . . . . . $2.47 $2.35 $2.23
Dividends Per Share On Common Stock. . . . . . . . . . . . . . . $1.76 $1.72 $1.68
The accompanying notes to financial statements are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
WISCONSIN PUBLIC SERVICE CORPORATION EXHIBIT A-2
(CONTINUED)
-16-
STATEMENTS OF RETAINED EARNINGS
<CAPTION>
Year Ended December 31
1993 1992 1991
--------- --------- -----------
(Thousands)
<S> <C> <C> <C>
Balance at Beginning of Year . . . . . . . . . . . . . . . . . . . . . . . $ 272,019 $ 257,404 $ 244,922
Add - Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62,200 58,002 54,172
--------- --------- -----------
334,219 315,406 299,094
--------- --------- -----------
Deduct -
Cash dividends declared on preferred stock-
5.00% Series ($5.00 per share) . . . . . . . . . . . . . . . . . . . . 660 660 660
5.04% Series ($5.04 per share) . . . . . . . . . . . . . . . . . . . . 151 151 151
5.08% Series ($5.08 per share) . . . . . . . . . . . . . . . . . . . . 254 254 254
6.76% Series ($6.76 per share) . . . . . . . . . . . . . . . . . . . . 1,014 1,014 1,014
6.88% Series ($6.88 per share) . . . . . . . . . . . . . . . . . . . . 384 -- --
7.72% Series ($7.72 per share) . . . . . . . . . . . . . . . . . . . . 868 1,158 1,158
Cash dividends declared on common stock. . . . . . . . . . . . . . . . . 42,045 40,150 38,453
Loss on repurchase of preferred stock. . . . . . . . . . . . . . . . . . 150 -- --
--------- --------- -----------
45,526 43,387 41,690
--------- --------- -----------
Balance at End of Year . . . . . . . . . . . . . . . . . . . . . . . . . . $ 288,693 $ 272,019 $ 257,404
--------- --------- -----------
The accompanying notes to financial statements are an integral part of these statements.
</TABLE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Wisconsin Public Service Corporation:
We have audited the accompanying balance sheets and statements of
capitalization of Wisconsin Public Service Corporation (a Wisconsin
corporation) as of December 31, 1993, 1992 and 1991, and the related statements
of income, retained earnings and cash flows for the years then ended. These
financial statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Wisconsin Public Service
Corporation as of December 31, 1993, 1992 and 1991, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
As discussed in notes (1)(m) and (1)(n) to the financial statements,
effective January 1, 1993, Wisconsin Public Service Corporation changed
its method of accounting for pensions, postretirement benefits other than
pensions and income taxes.
Milwaukee, Wisconsin,
January 26, 1994. ARTHUR ANDERSEN & CO.
<PAGE>
WISCONSIN PUBLIC SERVICE CORPORATION EXHIBIT A-2
(CONTINUED)
-17-
NOTES TO FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(a) Business
The Company is a public utility operating company engaged in
supplying electrical energy and natural gas to its customers who are
located primarily in northeastern Wisconsin and Upper Michigan. The
Company follows Statement of Financial Accounting Standards (SFAS)
No. 71, Accounting for the Effects of Certain Types of Regulation,
and its financial statements reflect the effects of the different
ratemaking principles followed by the various jurisdictions
regulating the Company. These include the Public Service Commission
of Wisconsin (PSCW), 89% of revenues, the Michigan Public Service
Commission (MPSC), 2% of revenues, and the Federal Energy Regulatory
Commission (FERC), 9% of revenues.
(b) Corporate Restructuring
On December 9, 1993, the Board of Directors of the Company approved
the formation of a holding company to be known as WPS Resources
Corporation (WPS Resources). If the required shareholder and
regulatory approvals are obtained, one share of $1 par common stock
of WPS Resources will be exchanged on a tax free basis for each
outstanding share of the Company's $4 par common stock. The share
exchange and corporate restructuring will not result in any change
in accounting treatment for the Company. After the share exchange,
the accounts of the Company will be included in the consolidated
financial statements of WPS Resources.
Once the holding company is formed, in all subsequent financial
statements, preferred stock dividends of the Company would be
retroactively restated as a nonoperating expense. This restatement
would have no impact on earnings on common stock, or on earnings per
share.
(c) Utility Plant
Utility plant is stated at the original cost of construction, which
includes an allowance for funds used during construction (AFUDC).
Approximately 50% of retail jurisdictional construction work in
progress (CWIP), except for major new generating facilities which
earn AFUDC on the full amount, is subject to AFUDC using a rate
based on the Company's overall cost of capital. For 1993, retail
rate was approximately 10.8%.
<PAGE>
WISCONSIN PUBLIC SERVICE CORPORATION EXHIBIT A-2
(CONTINUED)
-18-
AFUDC is recorded on wholesale jurisdictional electric construction
work in progress at debt and equity percentages specified in the
FERC Uniform System of Accounts. For 1993, this rate was
approximately 5.2%.
Substantially all of the Company's utility plant is subject to a
first mortgage lien.
(d) Property Additions, Maintenance and Retirements
The cost of renewals and betterments of units of property (as
distinguished from minor items of property) is charged to utility
plant accounts. The cost of units of property retired, sold or
otherwise disposed of, plus removal costs, less salvage, is charged
to the accumulated provision for depreciation. No profit or loss is
recognized in connection with ordinary retirements of property
units. Maintenance and repair costs and replacement and renewal of
items less than units of property are generally charged to operating
expenses.
In October 1993, the Company sold, at its cost, a 32% interest in a
combustion turbine to a municipality for $7.8 million.
(e) Depreciation
Straight-line composite depreciation expense is recorded over the
estimated useful life of the property (including estimated salvage
and cost of removal) as approved by the PSCW.
In a rate order received in December 1993 to become effective
January 1, 1994, new depreciation rates were ordered which will
decrease annual depreciation expense by approximately $5.8 million.
1993 1992 1991
---- ---- ----
Annual composite depreciation rates:
Electric . . . . . . . . . . . . . . . . 3.88% 3.87% 3.80%
Gas. . . . . . . . . . . . . . . . . . . 3.81% 3.81% 4.13%
(f) Nuclear Decommissioning Matters
Nuclear decommissioning costs are accrued over the estimated service
life of the Kewaunee nuclear plant (Kewaunee), currently recovered
from customers in rates, and deposited in external trusts. Such
costs totalled $2.4 million, $2.4 million and $3.2 million for 1993,
1992, and 1991, respectively. In a rate order to become effective
January 1, 1994, decommissioning costs recovered in rates will be
$4.0 million. As of December 31, 1993, the external trusts totalled
$56.7 million ($60.6 million market value). The Company's share of
<PAGE>
WISCONSIN PUBLIC SERVICE CORPORATION EXHIBIT A-2
(CONTINUED)
-19-
Kewaunee decommissioning costs is estimated to be $149 million in
current dollars based on a site specific study, performed in 1992,
using immediate dismantlement as the method of decommissioning.
Depreciation expense includes decommissioning costs recovered and a
charge to offset earnings from the external trusts. As of December
31, 1993, the accumulated provision for depreciation included
accumulated provisions for decommissioning totalling $56.7 million.
(g) Nuclear Fuel
The cost of nuclear fuel is amortized to fuel expense based on the
quantity of heat produced for the generation of electric energy by
Kewaunee. The costs amortized to fuel expense (which assume no
salvage values for uranium or plutonium) include an amount for
ultimate disposal and are recovered through current rates. As
required by the Nuclear Waste Policy Act of 1982, a contract with
the Department of Energy (DOE) has been signed, and quarterly
payments are being made to the DOE for the fuel storage fee related
to generation. Interim storage space for spent nuclear fuel is
provided at Kewaunee, and expenses associated with this storage are
recognized as current operating costs. Currently there is on-site
storage capacity for spent fuel through the year 1999, and after
modifications are made to the spent fuel pool, through the year
2012.
(h) Cash and Equivalents
The Company considers short-term investments with an original
maturity of three months or less to be cash equivalents.
(i) Revenue and Customer Receivables
The Company accrues revenues related to electric and gas service,
including estimated amounts for service rendered but not billed.
Included in customer receivables and in investments and other assets
is a total of $3.5 million of energy conservation loans to customers
as of December 31, 1993. The carrying amount of the loans closely
approximates their market value.
Automatic fuel adjustment clauses are used for FERC wholesale
electric and MPSC retail electric portions of the Company's
business. The PSCW retail electric portion of the business uses a
"cost variance range approach." This range is based on a specific
estimated fuel cost for the upcoming year. If the Company's actual
fuel costs fall outside this range, a hearing may be held and
adjustment to future rates may result.
<PAGE>
WISCONSIN PUBLIC SERVICE CORPORATION EXHIBIT A-2
(CONTINUED)
-20-
The Company has a purchased gas adjustment clause which allows it to
pass on to all classes of gas customers changes in the cost of gas
purchased from its suppliers, subject to PSCW and MPSC review.
The Company is required to provide service and grant credit to
customers within its defined service territory and is precluded from
discontinuing service to residential customers during certain
periods of the year. The Company continually reviews its customers'
credit-worthiness and obtains deposits or refunds deposits
accordingly. The Company is also permitted to recover bad debts in
utility rates.
Approximately 9% of the Company's total revenues are from companies
in the paper products industry.
(j) Deferred Charges
Deferred charges represent costs recoverable in future rates.
Deferred charges are as follows:
1993 1992 1991
---- ---- ----
(Thousands)
DSM expenditures . . . . . . . . . $ 46,219 $33,438 $ 5,633
Coal and rail contract
buy-out costs . . . . . . . . . 24,168 30,822 34,067
Environmental remediation
costs . . . . . . . . . . . . . 16,451 9,100 600
Debt refinancing costs . . . . . . 10,743 6,139 5,431
Enrichment facility fee . . . . . 5,082 6,180 --
Natural gas obligations . . . . . 4,210 8,319 3,041
Computer software . . . . . . . . 2,782 5,451 7,231
Other. . . . . . . . . . . . . . . 8,473 6,941 7,357
------- ------- ------
Total $118,128 $106,390 $63,360
======= ======= ======
Beginning in 1991, the PSCW increased the Demand Side Management
(DSM) expenditures the Company was making to promote electric and
gas conservation. A significant portion of these expenditures are
deferred and are to be recovered in utility rates over a ten-year
period. In the PSCW's latest advance plan, DSM was reaffirmed as an
integral part of their long-term energy planning.
In 1991, in order to lower overall fuel costs, the Company bought
out of a major long-term coal contract and its related rail
transportation contract. These buyouts totalled approximately $34.0
million. Based on management analyses and projected benefit tests
as prescribed by regulators, these buyouts are expected to yield to
ratepayers benefits that significantly exceed their costs.
<PAGE>
WISCONSIN PUBLIC SERVICE CORPORATION EXHIBIT A-2
(CONTINUED)
-21-
Management believes it is probable that the Company will continue to
recover from ratepayers all deferred charges described above based
on prior and current rate treatment of such costs.
(k) Regulatory Liabilities
Regulatory liabilities represent costs previously collected that are
refundable in future rates.
See notes (1)(m) and (1)(n) for specific discussion of deferred
taxes and pension regulatory liabilities.
Regulatory liabilities have been established for the following items
as of December 31,:
1993 1992 1991
---- ---- ----
(Thousands)
Deferred taxes . . . . . . . . . . $33,030 $ - $ -
Pensions . . . . . . . . . . . . . 22,021 6,619 -
Other. . . . . . . . . . . . . . . 6,383 (226) 926
------ ------ ------
Total $61,434 $ 6,393 $ 926
====== ====== ======
(l) Investments and Other Assets
Investments include various immaterial subsidiaries and affiliates,
whose income is included in other income and deductions using the
equity method of accounting. Other assets include prepaid pension
assets, operating deposits for jointly owned plants, the cash
surrender value of life insurance policies on officers and the long-
term portion of energy conservation loans to customers.
(m) Employee Benefit Plans
The Company has non-contributory retirement plans covering
substantially all employees under which annual contributions are
made to an irrevocable trust established to provide retired
employees with a monthly payment if conditions relating to age and
length of service have been met. The plans are fully funded, and no
contributions were made in 1993, 1992 and 1991. Prior to January 1,
1993, the PSCW required the recognition of the funded amounts for
ratemaking and financial reporting purposes. Concurrent with a
rate order effective January 1, 1993, the Company adopted the
accrual method of accounting for pension costs under SFAS No. 87.
In connection therewith, the Company recorded a prepaid pension cost
<PAGE>
WISCONSIN PUBLIC SERVICE CORPORATION EXHIBIT A-2
(CONTINUED)
-22-
and related regulatory liability of $20.0 million reflecting the
plans' overfunded status. Beginning January 1, 1993, this
regulatory liability is being returned to ratepayers over five
years.
The following tables set forth the plans' funded status and expense
(income).
<TABLE>
<CAPTION>
As of December 31
-------------------------------
1993 1992 1991
---- ---- ----
(Thousands)
<S> <C> <C> <C>
Vested benefit obligation . . . . . . . . . . . . . . . . . . . . . . . . $ 162,304 $ 152,581 $ 129,943
Non-vested benefit obligation . . . . . . . . . . . . . . . . . . . . . . 8,084 7,420 6,316
-------- -------- --------
Total actuarial present value of accumulated benefit obligation . . . . . $ 170,388 $ 160,001 $ 136,259
======== ======== ========
Projected benefit obligation for service rendered to date . . . . . . . . $(235,661) $(221,085) $(181,750)
Plan assets at fair value . . . . . . . . . . . . . . . . . . . . . . . . 342,540 314,613 304,672
-------- --------- --------
Plan assets in excess of projected benefit obligation . . . . . . . . . . 106,879 93,528 122,922
Unrecognized net gain . . . . . . . . . . . . . . . . . . . . . . . . . . (59,024) (47,337) (73,381)
Prior service cost not yet recognized . . . . . . . . . . . . . . . . . . 7,044 7,668 8,292
Unrecognized net asset being recognized over 17 years . . . . . . . . . . (30,384) (33,849) (37,313)
-------- -------- --------
Prepaid retirement plan cost . . . . . . . . . . . . . . . . . . . . . . $ 24,515 $ 20,010 $ 20,520
======== ======== ========
The net retirement plan expense (income) includes the following components:
Service cost - benefits earned during the year. . . . . . . . . . . . . . $ 5,935 $ 4,251 $ 4,122
Interest cost on projected benefit obligation . . . . . . . . . . . . . . 16,375 15,003 14,247
Actual return on plan assets . . . . . . . . . . . . . . . . . . . . . . (37,856) (25,826) (61,912)
Net amortization and deferral . . . . . . . . . . . . . . . . . . . . . . 11,042 463 38,471
Regulatory adjustment to funded amount . . . . . . . . . . . . . . . . . (5,326) 6,109 5,072
-------- -------- --------
Net retirement plan expense (income). . . . . . . . . . . . . . . . . . . $ (9,830) $ -- $ --
======== ======== ========
The assumed rates for calculations used
in the above tables were:
1993 1992 1991
---- ---- ----
Expected long-term return on investments 9.00% 9.00% 9.00%
Average rate for future salary increases 6.25% 6.25% 6.25%
Discount rate to compute projected benefit obligation 7.50% 7.50% 8.50%
</TABLE>
The Company also has self-funded plans which provide medical, dental
and life insurance benefits to employees, retirees and their
dependents. The expenses for active employees are expensed as
incurred. Prior to 1993, the Company expensed amounts related to
post-retirement health and welfare plans to the extent that such
amounts were funded to external trusts.
Effective January 1, 1993 and concurrent with a rate order, the
Company adopted SFAS No. 106, which requires the cost of post-
retirement benefits for employees to be accrued as expense over the
<PAGE>
WISCONSIN PUBLIC SERVICE CORPORATION EXHIBIT A-2
(CONTINUED)
-23-
period in which the employee renders service and becomes eligible to
receive benefits. The cost of post-retirement health care benefits
for future retirees is recognized using the projected unit credit
actuarial method. In adopting SFAS No. 106, the Company elected to
recognize the transition obligation for current and future retirees
over 20 years.
Since 1981, the Company has been prospectively funding amounts to
irrevocable trusts as allowed for income tax purposes. These funded
amounts have been expensed and recovered through rates. The
investments of the trust covering administrative employees are
subject to federal income taxes at a 31% tax rate, while the non-
administrative trust is tax-exempt.
The following tables set forth the plans' accrued post retirement
benefit obligation (APBO), as of December 31 and expense provision
for the year then ended.
1993
----
Retirees and dependents . . . . . . . . . . . . . . . $(47,095)
Fully eligible active plan participants . . . . . . . (5,671)
Other active plan participants . . . . . . . . . . . (66,681)
-------
Total APBO. . . . . . . . . . . . . . . . . . . . . . (119,447)
Fair value of plan assets . . . . . . . . . . . . . . 68,949
--------
APBO in excess of plan assets . . . . . . . . . . . . (50,498)
Unrecognized net loss . . . . . . . . . . . . . . . . (1,400)
Unrecognized prior service cost . . . . . . . . . . . -
Unrecognized transition obligation . . . . . . . . . 45,756
--------
Accrued post-retirement benefit obligation . . . . . $ (6,142)
========
Benefits earned during the year . . . . . . . . . . . $ 4,379
Interest on APBO. . . . . . . . . . . . . . . . . . . 8,248
Actual return on plan assets. . . . . . . . . . . . . (4,861)
Net amortization and deferral . . . . . . . . . . . . 2,262
--------
Post-retirement benefit cost . . . . . . . . . . . . $ 10,028
========
The assumed expected long-term return on investments and discount
rate used to measure the APBO under SFAS No. 106 are consistent with
rates used to calculate the pension plans' funded status and expense
under SFAS No. 87. The assumed health care cost trend rates in 1993
were 13% (medical) and 9% (dental), decreasing to 7% and 5%,
respectively, over the following 13 years. The assumed increase in
health care cost for 1994 is 11.5% (medical) and 8.5% (dental).
<PAGE>
WISCONSIN PUBLIC SERVICE CORPORATION EXHIBIT A-2
(CONTINUED)
-24-
Increasing each of the medical and dental cost trend rates by 1% in
each year would increase the total APBO as of December 31, 1993 by
$26.4 million and the total net periodic post-retirement benefit
cost for the year then ended by $4.3 million.
During 1992 and 1991, the cost of post-retirement health care
benefits was $2.7 million and $5.0 million, respectively.
As of December 31, 1993, the Company had approximately 956 retirees
eligible to receive health care benefits.
Concurrent with a rate order effective January 1, 1994, the Company
adopted SFAS No. 112, which establishes accounting and reporting
standards for post-retirement benefits other than those covered by
SFAS Nos. 87 and 106. In connection therewith, the Company will
expense in 1994 the transition obligation of $1.8 million.
The Company has a leveraged Employee Stock Ownership Plan and Trust
(ESOP) that held 2,303,250 shares of Company common stock (market
value approximately $77.4 million) at December 31, 1993. At that
date, the ESOP also had loans guaranteed by the Company and secured
by the common stock. At December 31, 1993, these loans had recorded
values of $2.8 million (bearing an interest rate of 73.5% of prime
rate) and $20.6 million (bearing an interest rate of 9.33%). The
estimated market value of these loans at December 31, 1993 totalled
$24.7 million.
Principal and interest on the loans are to be paid through Company
contributions and dividends on Company common stock held by the
ESOP. Shares in the ESOP are allocated to participants as the loans
are repaid. Tax benefits from dividends paid to the ESOP are
recognized as a reduction in the Company's cost of service. The
PSCW has allowed the Company to include in cost of service an
additional employer contribution to the plan. The net effect of the
tax benefits and employee contribution is an approximately equal
sharing of benefits of the program between customers and employees.
(n) Income Taxes
The effective income tax rates are computed by dividing total income
tax expense, including investment credit restored, by the sum of
such expense and net income. Previously deferred investment tax
credits are being restored over the life of the related utility
plant.
<PAGE>
WISCONSIN PUBLIC SERVICE CORPORATION EXHIBIT A-2
(CONTINUED)
-25-
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
(Thousands except for percentages)
Amount Rate Amount Rate Amount Rate
------ ---- ------ ---- ------ ----
<S> <C> <C> <C> <C> <C> <C>
Statutory federal income tax . . . . . . . $33,159 35.0% $29,350 34.0% $27,277 34.0%
State income taxes, net . . . . . . . . . 4,636 4.9 4,518 5.2 4,546 5.7
Investment credit restored . . . . . . . . (1,860) (2.0) (2,022) (2.3) (2,066) (2.6)
Rate difference on deferred income tax
reversals. . . . . . . . . . . . . . . . (1,441) (1.5) (1,843) (2.1) (1,903) (2.4)
Regulatory effects of dividends paid to
ESOP . . . . . . . . . . . . . . . . . . (1,434) (1.5) (1,381) (1.6) (1,375) (1.7)
Other differences, net . . . . . . . . . . (521) (.5) (300) (.4) (423) (.5)
------ ---- ------ ---- ------ ----
Effective income tax $32,539 34.4% $28,322 32.8% $26,056 32.5%
====== ==== ====== ==== ====== ====
The current and deferred components of income tax expense are as follows:
1993 1992 1991
---- ---- ----
Current provision:
Federal. . . . . . . . . . . . . . . . . . . . . . . $ 28,212 $ 18,284 $ 13,783
State. . . . . . . . . . . . . . . . . . . . . . . . 7,054 4,794 3,685
-------------- ------------ -----------
Total current 35,266 23,078 17,468
-------------- ------------ -----------
Deferred provision (benefit):
DSM expenditures, net . . . . . . . . . . . . . . . 3,070 11,921 1,433
Pension . . . . . . . . . . . . . . . . . . . . . . 3,810 - -
Other post retirement benefits . . . . . . . . . . . (2,201) - -
Coal and rail contract buyout costs, net . . . . . . (2,864) (1,234) 10,996
Depreciation differences . . . . . . . . . . . . . . (1,942) (927) (1,239)
Other, net . . . . . . . . . . . . . . . . . . . . . (740) (2,494) (531)
-------------- ------------ -----------
Total deferred (867) 7,266 10,659
Investment credit restored, net . . . . . . . . . . . (1,860) (2,022) (2,071)
-------------- ------------ -----------
Total income tax expense $ 32,539 $ 28,322 $ 26,056
============== ============ ===========
Classification of income taxes:
Operating expenses . . . . . . . . . . . . . . . . . $ 33,107 $ 27,206 $ 25,578
Other income and deductions . . . . . . . . . . . . (568) 1,116 478
-------------- ------------ -----------
Total income tax expense $ 32,539 $ 28,322 $ 26,056
============== ============ ===========
</TABLE>
Effective January 1, 1993, the Company adopted the liability method
of accounting for income taxes as prescribed by SFAS No. 109,
Accounting for Income Taxes. Under the liability method, deferred
income tax liabilities are established based upon enacted tax laws
and rates applicable to the periods in which the taxes become
payable. The adoption of this accounting standard had an
insignificant impact on the Company's net income as excess deferred
income taxes resulting from taxes provided at rates greater than
current rates and previously unrecorded taxes have been recorded as
a regulatory liability/asset to be refunded to/collected from
customers in future years. Such net regulatory liability totalled
$33.0 million as of December 31, 1993.
<PAGE>
WISCONSIN PUBLIC SERVICE CORPORATION EXHIBIT A-2
(CONTINUED)
-26-
As of December 31, 1993, the Company had the following significant
temporary differences that created deferred tax assets and
liabilities:
Deferred tax assets-
Plant related . . . . . . . . . . . . . . . . . . . . $ 48,853
Other . . . . . . . . . . . . . . . . . . . . . . . . 17,207
----------
Total 66,060
Deferred tax liabilities-
Plant related . . . . . . . . . . . . . . . . . . . . 162,752
DSM expenditures . . . . . . . . . . . . . . . . . . 18,242
Coal and rail contract buy-out costs . . . . . . . . 9,154
Other . . . . . . . . . . . . . . . . . . . . . . . . 14,864
----------
Total 205,012
----------
Net deferred tax liabilities $ 138,952
==========
(2) JOINTLY-OWNED FACILITIES:
Information with respect to the Company's share of major jointly-
owned electric generating facilities in service at December 31, 1993
is as follows:
Columbia Edgewater
Energy Unit
Center No. 4 Kewaunee
-------- --------- --------
(Thousands except for percentages)
Ownership 31.8% 31.8% 41.2%
Plant capacity (Mw) 335.2 104.9 221.0
Utility plant in service $110,190 $21,608 $132,711
Accumulated provision
for depreciation $ 55,910 $11,005 $ 68,530
In-service date 1975 and 1978 1969 1974
The Company's share of direct expenses for these plants is included
in the corresponding operating expenses in the statements of income,
and the Company has supplied its own financing for all jointly-owned
projects. Nuclear decommissioning costs are excluded from the
depreciation amount reported for Kewaunee.
<PAGE>
WISCONSIN PUBLIC SERVICE CORPORATION EXHIBIT A-2
(CONTINUED)
-27-
(3) COMMERCIAL PAPER AND LINES OF CREDIT:
To support outstanding commercial paper, the Company maintains
unused bank lines of credit. Some of these lines may be withdrawn
at the discretion of the lenders. While some cash balances
represent compensating balances for credit lines and bank services,
there are no legal restrictions as to withdrawal of these funds.
The majority of the lines of credit require a fee based on the
unused balance.
The following information relates to short-term borrowings and lines
of credit for the years indicated:
1993 1992 1991
---- ---- ----
(Thousands except
for percentages)
As of end of year -
Discount rate on outstanding
commercial paper 3.4% 3.4% 4.9%
Interest rate on note payable 3.3% 3.5% 4.2%
Unused lines of credit $22,970 $23,150 $23,150
Compensating balance requirements $99 $108 $108
For the year -
Maximum amount of borrowings $27,000 $22,500 $44,000
Average amount of borrowings $12,263 $12,414 $29,541
Weighted average interest rate
on borrowings 3.2% 3.8% 6.3%
Included in the above lines of credit are agreements with commercial
banks that permit the Company to borrow up to $16 million at any
time provided compliance with certain financial covenants is
maintained. These agreements extend for 13 months or more. As of
December 31, 1993, no borrowings were outstanding under these
agreements.
(4) LONG-TERM DEBT:
Sinking fund requirements on first mortgage bonds may be satisfied
by the deposit of cash or reacquired bonds with the trustee and for
certain series by the application of net expenditures for bondable
property in an amount equal to 166-2/3% of the annual requirements.
All series requiring cash or reacquired bonds for sinking fund
purposes have been satisfied to maturity. For those series
requiring unpledged property to satisfy sinking fund requirements,
the Company has adequate unpledged property for at least ten years.
In 1998, $50 million of 5-1/4% bonds will mature.
<PAGE>
WISCONSIN PUBLIC SERVICE CORPORATION EXHIBIT A-2
(CONTINUED)
-28-
As of December 31, 1993 the market value of the Company's first
mortgage bonds was $312.9 million (recorded value of $292.1
million).
(5) COMMON EQUITY:
In June 1992, 800,000 shares of new common stock were issued. This
sale increased the common stock balance by $3.2 million ($4 par per
share) and premium on capital by $19.4 million ($24.25 per share).
Also, beginning in June 1992, the Company commenced a sale of shares
to meet dividend reinvestment program (DRP) requirements. The
Company is authorized to issue up to 600,000 shares of new common
stock pursuant to the DRP. During 1993 and 1992, 50,818 and 157,524
shares, respectively, were issued under the DRP and 391,658 shares
were available for issuance at December 31, 1993. In April 1993,
the Company stopped issuing common stock under the DRP and began
purchasing common stock on the open market for shareholder
reinvested dividends.
At December 31, 1993, $287.8 million of retained earnings were
available for dividends. However, the PSCW requires the Company to
maintain an average common equity capitalization ratio in a range
between 47% to 52%, which incorporates the Company's leveraged ESOP,
thereby limiting the amount available to be paid out as dividends.
(6) COMMITMENTS AND CONTINGENCIES:
Coal Contracts
- --------------
To ensure a reliable, low cost supply of coal the Company has
entered into certain long-term contracts that have take-or-pay
obligations totaling $319.0 million from 1994 through 2016. The
obligations are subject to force majeure provisions which provide
the Company other options, if the specified coal will not meet
emission limits and acid rain legislation. In the opinion of
management, any amounts paid under the take-or-pay obligations
described above would be a legitimate cost of service subject to
recovery in rates.
Gas Costs
- ---------
The Company also has natural gas supply and transportation contracts
that require total demand payments of $417.4 million through October
2003. Management believes that these costs will be recoverable in
future rates.
ANR Pipeline Company (ANR), the Company's primary pipeline supplier,
filed with the FERC for approval to recover a portion of certain
<PAGE>
WISCONSIN PUBLIC SERVICE CORPORATION EXHIBIT A-2
(CONTINUED)
-29-
take-or-pay costs it incurred from renegotiating its long-term gas
contracts. As a result of the filing, ANR was allowed to recover a
portion of these costs from its customers. The Company began paying
its share of these take-or-pay costs to ANR in 1989 and recovering
these costs directly from customers through its purchased gas
adjustment clause. In March 1991, the FERC approved the settlement
under which the Company will pay ANR monthly take-or-pay amounts.
Additional take-or-pay claims by ANR may be filed with FERC. To
date, the PSCW has granted the Company recovery of all take-or-pay
costs.
In April 1992, the FERC issued order No. 636, which requires natural
gas pipelines to restructure their sales and transportation
services. As a result of this order, the Company is obligated to
pay for a portion of ANR's transition costs incurred to comply with
the order. At December 31, 1993, the Company has an accrued
liability with an offsetting regulatory asset in the amount of $3.7
million for a portion of these transition costs. Though there may
be additional costs, which could be significant, the amount and
timing of these costs are unknown at this time. Management expects
to recover these costs in future rates.
The Company will be billed $2.0 million in 1994 for ANR's above-
market costs of gas purchases from the Dakota Gasification Plant.
The Company is protesting the legality of these costs, which could
total $31.4 million through 2009.
Nuclear Liability
- -----------------
The Price-Anderson Act provides for the payment of funds for public
liability claims arising out of a nuclear incident. In the event of
a nuclear incident involving any of the nation's licensed reactors,
the Company is subject to a proportional assessment which is
approximately $27.0 million per incident, not to exceed $4.1 million
per incident, per calendar year. These amounts represent the
Company's 41.2% ownership share of Kewaunee.
Joint Plant Litigation
- ----------------------
The Columbia Energy Center (Columbia) is owned 31.8% by the Company,
46.2% by Wisconsin Power and Light Company (WP&L), and 22.0% by
Madison Gas and Electric Company (MG&E). WP&L operates Columbia.
In 1989, the PSCW concluded that WP&L did not properly administer a
coal contract for Columbia and ordered WP&L to refund $9 million to
the ratepayers of WPSC, WP&L and MG&E proportionately according to
the ownership shares of each utility in Columbia. WP&L appealed the
PSCW decision, and such decision has been found to represent
unlawful retroactive ratemaking by both the Dane County Circuit
Court and the Wisconsin Court of Appeals. The case is currently
before the Wisconsin Supreme Court. Although the ultimate outcome
<PAGE>
WISCONSIN PUBLIC SERVICE CORPORATION EXHIBIT A-2
(CONTINUED)
-30-
of this matter is uncertain, in the opinion of Company management,
there will be no material effect on the Company's results of
operations or financial position.
Clean Air Regulations
- ---------------------
In 1990, the Federal Clean Air Act Amendments (CAAA) were signed
into law. The CAAA requires the Company to meet new emission limits
for sulphur dioxide (SO2) and nitrogen oxide (NOx) in 1995 (Phase I)
and in the year 2000 (Phase II). Since Wisconsin had already
mandated reduced SO2 emissions by 1993 which were lower than the
Federal levels mandated for 1995, the Company was already working on
lowering emissions. Since Federal limits are more stringent than
those mandated by Wisconsin in the year 2000, the Company is
continuing to develop compliance plans for Phase II of the CAAA.
The Company will comply cost effectively with both the Federal and
Wisconsin SO2 laws primarily through fuel switching. The Company was
in compliance with the new Wisconsin SO2 limits in 1993.
The final Federal regulations for NOx are not known at this time;
however, based on draft rules the Company expects to make additional
capital expenditures in the range of $15-$25 million between 1994
and 1999 for Wisconsin and Federal air quality compliance.
Management believes that all costs incurred to comply with these
laws will be recoverable in future rates.
Manufactured Gas Plant Remediation
- ----------------------------------
The Company is currently investigating the need for environmental
cleanup of seven manufactured gas plant sites previously operated by
the Company and has engaged an environmental consultant who
estimated that the cost to remediate one specific site would be
approximately $2.1 million. This estimate is based upon an
investigation of the site and assumes excavation of impacted soils,
disposal of soils to a licensed landfill for such materials, on-site
groundwater extraction and treatment, and post-cleanup and
monitoring for 25 years. The consultant has not yet performed phase
II investigations of the remaining six sites and therefore
comparable information on these sites is not available.
Because the first site is not on a river and the remaining six sites
are, there is no data currently available as to possible
contaminated river sediments. As a result, it is difficult to
estimate the cost of cleanup in the rivers if contamination should
be present; however, based on estimates from the Gas Research
Institute for sites with minimal sediment contamination, and
assuming all six sites have river contamination, management
estimates the additional cost for minimum river remediation to be
$2.7 million in total.
<PAGE>
WISCONSIN PUBLIC SERVICE CORPORATION EXHIBIT A-2
(CONTINUED)
-31-
The Company used the estimate on the first site as a basis for
making projections on cleanup costs at the other sites because of
certain similar characteristics at the other sites. Thus for all
sites, cleanup costs are estimated to be in the range of $6.4 to
$19.2 million. However, management's current estimate of cleanup
costs for all seven sites, excluding any river sediment cleanup, is
$16.5 million which would be spent over the next 33 years.
The $16.5 million estimate has been recorded as a liability with an
offsetting deferred charge (regulatory asset). Based on discussions
with regulatory authorities and effective with a recent rate order,
these costs, less any insurance recoveries, will be recoverable in
future rates, except for carrying costs.
As additional site specific studies are completed (five are
anticipated in 1994), these estimates will be adjusted to reflect
specific site data. Other factors that can impact these estimates
are changes in remediation technology and regulatory requirements.
This estimate does not take into consideration any recovery from
insurance carriers or other third parties which the Company is
pursuing.
The Company is also involved, and has made minor payments for the
investigation and potential cleanup of certain waste disposal sites.
Management believes the Company has been a minor contributor to the
total contamination at these known sites, and accordingly, does not
believe its share of cleanup costs to be material.
Long-term Power Supply
- ----------------------
The Company has signed a contract to build a 116 megawatt
cogeneration facility with Rhinelander Paper Company and has filed
an application for a Certificate of Public Convenience and Necessity
(CPCN) with the PSCW requesting approval for the project. Estimated
cost for the project is $191 million. In addition, as required by
the PSCW's newly developed bidding process, the Company has
requested proposals for the same capacity from electric generating
plant project developers and power purchases from other utilities.
The Company will compare the bids before proposing a solution to its
capacity and energy needs to the PSCW, which must approve the option
selected. A final decision is expected by late 1994.
New Construction
- ----------------
Management estimates 1994 utility plant construction expenditures to
be approximately $77.1 million. DSM expenditures are estimated to
be $32.8 million, of which approximately $20.6 million will be
deferred and amortized over the next ten years.
<PAGE>
WISCONSIN PUBLIC SERVICE CORPORATION EXHIBIT A-2
(CONTINUED)
-32-
(7) SEGMENTS OF BUSINESS:
The following table presents information for the respective years
pertaining to the Company's operations segmented by lines of
business. The information does not represent ratemaking treatment
since the Company is regulated by three jurisdictions with differing
ratemaking practices.
<TABLE>
<CAPTION>
1993 1992 1991
---------------------------- ----------------------------- -----------------------------
(Thousands)
Electric Gas Total Electric Gas Total Electric Gas Total
-------- ------- -------- -------- -------- --------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Operating revenues. $493,256 $187,376 $ 680,632 $ 477,625 $ 157,177 $ 634,802 $ 471,277 $ 152,222 $ 623,499
Operating expenses -
Operation and
maintenance . . 310,535 167,434 477,969 304,347 141,052 445,399 311,028 133,145 444,173
Depreciation. . . 54,498 6,111 60,609 52,819 5,773 58,592 49,683 6,004 55,687
Other taxes . . . 22,064 3,140 25,204 21,687 2,772 24,459 20,516 2,518 23,034
------- ------- -------- -------- -------- --------- -------- ------- --------
387,097 176,685 563,782 378,853 149,597 528,450 381,227 141,667 522,894
Operating income
before income
taxes . . . . . . 106,159 10,691 116,850 98,772 7,580 106,352 90,050 10,555 100,605
AFUDC . . . . . . . 445 43 488 1,014 21 1,035 286 20 306
Provisions for income
tax . . . . . . . 30,599 2,508 33,107 25,746 1,460 27,206 23,143 2,434 25,577
------- ------- -------- -------- -------- --------- -------- ------- --------
Operating income
including AFUDC . $ 76,005 $ 8,226 84,231 $ 74,040 $ 6,141 80,181 $ 67,193 $ 8,141 75,334
======= ======= ======== ======== ======= =======
Other income, net . 3,924 4,960 3,873
Interest expense. . 25,955 27,139 25,035
-------- --------- ---------
Net income. . . . . $ 62,200 $ 58,002 $ 54,172
======== ========= =========
Identifiable assets(a) $938,951 $184,880 $1,123,831 $ 951,074 $ 158,314 $1,109,388 $904,908 $129,483 $1,034,391
======= ======= ======== ======== ======= =======
Assets not allocated(b) 75,010 36,162 39,146
--------- --------- ---------
Total assets. . . $1,198,841 $1,145,550 $1,073,537
========= ========= =========
Construction and nuclear
fuel expenditures
including AFUDC . $ 59,038 $ 13,693 $ 72,731 $ 91,272 $ 11,009 $ 102,281 $ 55,850 $ 8,686 $ 64,536
======= ======= ========= ======== ======== ========= ======= ======= =========
<FN>
- ---------------
(a) At December 31 and net of the respective accumulated provisions for depreciation.
(b) Primarily includes cash, investments, pension assets, nonutility property and other receivables.
</TABLE>
<PAGE>
WISCONSIN PUBLIC SERVICE CORPORATION EXHIBIT A-2
(CONTINUED)
-33-
(8) QUARTERLY FINANCIAL INFORMATION (Unaudited):
<TABLE>
<CAPTION>
Three Months Ended
--------------------------------------------------------
(Thousands except for per share data)
1993
----
<S> <C> <C> <C> <C> <C>
March June September December(1) Total
----- ---- --------- ----------- -----
Operating revenues $189,003 $157,692 $156,310 $177,627 $680,632
Operating income $25,543 $16,946 $22,293 $ 18,962 $ 83,744
Net income $20,980 $11,731 $16,548 $ 12,941 $ 62,200
Earnings on common stock $20,171 $10,883 $15,673 $ 12,162 $ 58,889
Average number of shares of common stock outstanding 23,861 23,897 23,897 23,897 23,888
Earnings per average share of common stock $.85 $.45 $.66 $.51 $2.47
1992
----
March June September December(1) Total
----- ---- --------- ----------- -----
Operating revenues $175,966 $144,396 $141,289 $173,151 $634,802
Operating income $ 23,460 $ 12,922 $ 17,407 $ 25,356 $ 79,145
Net income $ 18,453 $ 7,714 $ 12,591 $ 19,244 $ 58,002
Earnings on common stock $ 17,644 $ 6,905 $ 11,782 $ 18,434 $ 54,765
Average number of shares of common stock outstanding 22,889 22,946 23,748 23,808 23,350
Earnings per average share of common stock $.77 $.30 $.50 $.78 $2.35
1991
----
March June September December Total
----- ---- --------- -------- -----
Operating revenues $181,342 $137,430 $139,835 $164,892 $623,499
Operating income $ 21,599 $ 11,560 $ 21,581 $ 20,288 $ 75,028
Net income $ 16,331 $ 6,745 $ 15,996 $ 15,100 $ 54,172
Earnings on common stock $ 15,522 $ 5,936 $ 15,187 $ 14,290 $ 50,935
Average number of shares of common stock outstanding 22,889 22,889 22,889 22,889 22,889
Earnings per average share of common stock $.68 $.26 $.66 $.63 $2.23
- ------------
</TABLE>
Because of various factors which affect the utility business, the
quarterly results of operations are not necessarily comparable.
(1) In the quarters ended December 1993 and 1992, the Company
recorded adjustments as a result of its annual coal inventory
observation. These adjustments increased net income and earnings
per average share of common stock by $1.2 million and $.05,
respectively, for 1993, and $2.3 million and $.09, respectively, for
1992.
<PAGE>
WISCONSIN PUBLIC SERVICE CORPORATION EXHIBIT B
-34-
SALES OF ELECTRIC ENERGY AND GAS
Calendar Year 1993
Wisconsin Wisconsin
Public Service River Power
Corporation Company
-------------- -----------
(a) Electric energy
sold (at retail or
wholesale) (KWH) 10,150,912,881 243,594,000
Intercompany None 81,198,000*
Other 10,150,912,881 162,396,000*
Gas distributed at
retail (MCF) 34,425,547** None
Intercompany None None
Other 34,425,547** None
(b) Electric energy distributed
at retail outside state
of organization (KWH) 216,907,240 None
Gas distributed at
retail outside state
of organization (MCF) 958,065** None
(c) Electric energy sold at
wholesale outside state
of organization or at
state line (KWH) 10,500,060 None
Gas sold at wholesale
outside state of organization
or at state line (MCF) None None
(d) Electric energy purchased
outside state of organization
or at state line (KWH) None# None
Gas purchased outside state
of organization or at
state line (MCF) None None
<PAGE>
WISCONSIN PUBLIC SERVICE CORPORATION EXHIBIT B
(CONTINUED)
-35-
* Quantities shown represent actual deliveries. By contract, each of the
three purchasers of the output of Wisconsin River Power Company is entitled to
receive, and is required to pay for one-third of the total output.
** "Gas distributed at retail" and "Gas distributed at retail outside state
of organization" include 10,643,066 and 317,521 MCF, respectively, of sales to
Large Commercial and Industrial Customers (those using 2,000 CCF within one
month of a year) under the Company's retail rates. Industrial usage is
indeterminable.
# Receipts of 76,969 KWH of interchange energy were offset by deliveries
of 249 KWH to same supplier at other points in the system. These deliveries
(and other offsetting deliveries of interchange energy) are omitted from
Wisconsin Public Service Corporation sales shown above.
