______________________________________________________________________________
______________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission Registrant; State of Incorporation; IRS Employer
File Number Address; and Telephone Number Identification No.
- ----------- ----------------------------------- ------------------
1-11337 WPS RESOURCES CORPORATION 39-1775292
(A Wisconsin Corporation)
700 North Adams Street
P. O. Box 19001
Green Bay, WI 54307-9001
920-433-1466
1-3016 WISCONSIN PUBLIC SERVICE CORPORATION 39-0715160
(A Wisconsin Corporation)
700 North Adams Street
P. O. Box 19001
Green Bay, WI 54307-9001
920-433-1466
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.
WPS Resources Corporation Yes [x] No [ ]
Wisconsin Public Service Corporation Yes [x] No [ ]
Indicate the number of shares outstanding of each of the issuers' classes of
common stock, as of the latest practicable date:
WPS RESOURCES CORPORATION Common stock, $1 par value,
26,551,963 shares outstanding at
April 30, 1999
WISCONSIN PUBLIC SERVICE CORPORATION Common stock, $4 par value,
23,896,962 shares outstanding at
April 30, 1999
______________________________________________________________________________
______________________________________________________________________________
<PAGE>
WPS RESOURCES CORPORATION
AND
WISCONSIN PUBLIC SERVICE CORPORATION
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1999
CONTENTS
Page
FORWARD-LOOKING STATEMENTS 4
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
WPS RESOURCES CORPORATION
Consolidated Statements of Income, Comprehensive
Income, and Retained Earnings 5
Consolidated Balance Sheets 6
Consolidated Statements of Capitalization 7
Consolidated Statements of Cash Flows 8
WISCONSIN PUBLIC SERVICE CORPORATION
Consolidated Statements of Income and
Comprehensive Income 9
Consolidated Balance Sheets 10
Consolidated Statements of Capitalization 11
Consolidated Statements of Cash Flows 12
Consolidated Statements of Retained Earnings 13
CONDENSED NOTES TO FINANCIAL STATEMENTS OF
WPS Resources Corporation and
Wisconsin Public Service Corporation 14 - 15
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations for
WPS Resources Corporation 16 - 24
Wisconsin Public Service Corporation 25 - 27
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 27
PART II. OTHER INFORMATION
Item 5. Other Information 28
Item 6. Exhibits and Reports on Form 8-K 29
Signatures 30 - 31
-2-
<PAGE>
EXHIBIT INDEX 32
Exhibit 11 Statement Regarding Computation of Per Share
Earnings
WPS Resources Corporation
Exhibit 27 Financial Data Schedule
WPS Resources Corporation
Wisconsin Public Service Corporation
-3-
<PAGE>
FORWARD-LOOKING STATEMENTS
This report contains statements which are forward-looking. You can
identify these statements by the fact that they do not relate strictly to
historical or current facts and often include words such as "anticipate,"
"believe," "estimate," "expect," "intend," "plan," "project," and other
similar words. Although we believe we have been prudent in our plans and
assumptions, there can be no assurance that indicated results will be
realized. Should known or unknown risks or uncertainties materialize, or
should underlying assumptions prove inaccurate, actual results could vary
materially from those anticipated.
We undertake no obligation to publicly update any forward-looking statements,
whether as a result of new information, future events, or otherwise. We
recommend that you consult any further disclosures we make on related subjects
in our 10-Q, 8-K, and 10-K reports to the Securities and Exchange Commission.
The following is a cautionary list of risks and uncertainties that may affect
the assumptions which form the basis of forward-looking statements relevant to
our business. These factors, and other factors not listed here, could cause
actual results to differ materially from expected and historical results.
- - General economic, business, and regulatory conditions
- - Legislative and regulatory initiatives regarding deregulation and
restructuring of the utility industry which could affect costs and
investment recovery
- - State and federal rate regulation
- - The extent and timing of new business development and additional
competition in the markets of subsidiary companies
- - The performance of projects undertaken by subsidiary companies
- - Business combinations among our competitors and customers
- - Energy supply and demand
- - Financial market conditions, including availability, terms, and use of
capital
- - Nuclear and environmental issues
- - Weather and other natural phenomena
- - Commodity price and interest rate risk
- - Year 2000 readiness.
-4-
<PAGE>
<TABLE>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
WPS RESOURCES CORPORATION
<CAPTION>
=======================================================================================
CONSOLIDATED STATEMENTS OF INCOME, COMPREHENSIVE INCOME, Three Months Ended
AND RETAINED EARNINGS (1) March 31
(Thousands, except per share amounts) 1999 1998
=======================================================================================
<S> <C> <C>
Operating revenues
Electric utility $142,393 $127,223
Gas utility 68,299 65,484
Nonregulated energy and other 119,142 98,519
- ---------------------------------------------------------------------------------------
Total operating revenues 329,834 291,226
=======================================================================================
Operating expenses
Electric production fuels 26,533 25,648
Purchased power 17,872 12,347
Gas purchased for resale 40,284 43,010
Nonregulated energy cost of sales 116,023 96,488
Other operating expenses 44,380 39,716
Maintenance 14,616 10,598
Depreciation and decommissioning 20,219 21,659
Taxes other than income 8,461 8,257
- ---------------------------------------------------------------------------------------
Total operating expenses 288,388 257,723
=======================================================================================
Operating income 41,446 33,503
- ---------------------------------------------------------------------------------------
Other income
Allowance for equity funds used during construction 196 29
Other, net 2,315 2,431
- ---------------------------------------------------------------------------------------
Total other income 2,511 2,460
=======================================================================================
Income before interest expense 43,957 35,963
- ---------------------------------------------------------------------------------------
Interest on long-term debt 6,402 6,381
Other interest 919 951
Allowance for borrowed funds used during construction (177) (11)
- ---------------------------------------------------------------------------------------
Total interest expense 7,144 7,321
=======================================================================================
Distributions - preferred securities of subsidiary trust 875 -
=======================================================================================
Income before income taxes 35,938 28,642
Income taxes 12,623 10,119
Minority interest (215) (212)
Preferred stock dividends of subsidiaries 778 783
- ---------------------------------------------------------------------------------------
Net income 22,752 17,952
- ---------------------------------------------------------------------------------------
Other comprehensive income - -
- ---------------------------------------------------------------------------------------
Comprehensive income 22,752 17,952
=======================================================================================
Retained earnings at beginning of period 335,154 339,508
Cash dividends on common stock 13,157 12,534
- ---------------------------------------------------------------------------------------
Retained earnings at end of period $344,749 $344,926
=======================================================================================
Average shares of common stock 26,520 26,516
Basic and diluted earnings per average share of common stock $0.86 $0.68
Dividend per share of common stock $0.495 $0.485
=======================================================================================
</TABLE>
(1) The 1998 statement gives effect to the merger with Upper Peninsula
Energy Corporation.
The accompanying notes are an integral part of these statements.
-5-
<PAGE>
<TABLE>
WPS RESOURCES CORPORATION
<CAPTION>
=================================================================================================
CONSOLIDATED BALANCE SHEETS March 31 December 31
(Thousands) 1999 1998
=================================================================================================
<S> <C> <C>
ASSETS
- -------------------------------------------------------------------------------------------------
Utility plant
Electric $1,729,055 $1,715,882
Gas 270,710 267,892
- -------------------------------------------------------------------------------------------------
Total 1,999,765 1,983,774
Less - Accumulated depreciation and decommissioning 1,224,864 1,206,123
- -------------------------------------------------------------------------------------------------
Total 774,901 777,651
Nuclear decommissioning trusts 175,480 171,442
Construction in progress 47,145 42,424
Nuclear fuel, less accumulated amortization 17,108 18,641
- -------------------------------------------------------------------------------------------------
Net utility plant 1,014,634 1,010,158
=================================================================================================
Current assets
Cash and equivalents 9,194 7,134
Customer and other receivables, net of reserves 116,850 117,206
Accrued utility revenues 31,234 34,175
Fossil fuel, at average cost 14,928 13,152
Gas in storage, at average cost 3,586 20,795
Materials and supplies, at average cost 23,384 21,788
Prepayments and other 23,312 26,462
- -------------------------------------------------------------------------------------------------
Total current assets 222,488 240,712
=================================================================================================
Regulatory assets 68,700 70,041
Net nonutility and nonregulated plant 39,499 41,235
Pension assets 61,561 60,018
Investments and other assets 79,073 88,223
=================================================================================================
Total $1,485,955 $1,510,387
=================================================================================================
CAPITALIZATION AND LIABILITIES
- -------------------------------------------------------------------------------------------------
Capitalization
Common stock equity $ 529,041 $ 517,190
Preferred stock of subsidiary with no mandatory redemption 51,200 51,200
Company-obligated mandatorily redeemable trust preferred
securities of subsidiary trust holding solely WPSR
7.00% subordinated debentures 50,000 50,000
Long-term debt 343,438 343,037
- -------------------------------------------------------------------------------------------------
Total capitalization 973,679 961,427
=================================================================================================
Current liabilities
Long-term debt due within one year 884 884
Notes payable 10,303 12,703
Commercial paper 14,000 47,590
Accounts payable 93,676 115,490
Accrued taxes 13,287 2,838
Accrued interest 6,473 7,594
Other 23,189 9,095
- -------------------------------------------------------------------------------------------------
Total current liabilities 161,812 196,194
=================================================================================================
Long-term liabilities and deferred credits
Accumulated deferred income taxes 122,601 122,642
Accumulated deferred investment tax credits 27,090 27,150
Regulatory liabilities 50,386 50,474
Environmental remediation liabilities 40,140 40,478
Other long-term liabilities 110,247 112,022
- -------------------------------------------------------------------------------------------------
Total long-term liabilities and deferred credits 350,464 352,766
=================================================================================================
Total $1,485,955 $1,510,387
=================================================================================================
</TABLE>
The accompanying notes are an integral part of these statements.
-6-
<PAGE>
<TABLE>
WPS RESOURCES CORPORATION
<CAPTION>
=============================================================================================
CONSOLIDATED STATEMENTS OF CAPITALIZATION March 31 December 31
(Thousands, except share amounts) 1999 1998
=============================================================================================
<S> <C> <C>
Common stock equity
Common stock, $1 par value, 100,000,000 shares authorized;
26,579,795 and 26,551,405 shares outstanding
at March 31, 1999 and December 31, 1998, respectively $ 26,580 $ 26,551
Premium on capital stock 165,948 163,438
Retained earnings 344,749 335,154
Shares in deferred compensation trust, 53,523 and 49,477 shares
at average cost of $30.60 and $30.42 per share at
March 31, 1999 and December 31, 1998, respectively (1,638) (1,505)
ESOP loan guarantees (6,598) (6,448)
- ---------------------------------------------------------------------------------------------
Total common stock equity 529,041 517,190
=============================================================================================
Preferred stock - Wisconsin Public Service Corporation
Cumulative, $100 par value, 1,000,000 shares authorized;
with no mandatory redemption
Series Shares Outstanding
------ ------------------
5.00% 132,000 13,200 13,200
5.04% 30,000 3,000 3,000
5.08% 50,000 5,000 5,000
6.76% 150,000 15,000 15,000
6.88% 150,000 15,000 15,000
- ---------------------------------------------------------------------------------------------
Total preferred stock with no mandatory redemption 51,200 51,200
=============================================================================================
Company-obligated mandatorily redeemable trust
preferred securities of subsidiary trust
holding solely WPSR 7.00% subordinated debentures 50,000 50,000
=============================================================================================
Long-term debt
First mortgage bonds - Wisconsin Public Service Corporation
Series Year Due
------ --------
7.30% 2002 50,000 50,000
6.80% 2003 50,000 50,000
6-1/8% 2005 9,075 9,075
6.90% 2013 22,000 22,000
8.80% 2021 53,100 53,100
7-1/8% 2023 50,000 50,000
6.08% 2028 50,000 50,000
First mortgage bonds - Upper Peninsula Power Company
Series Year Due
------ --------
7.94% 2003 15,000 15,000
10.0% 2008 6,000 6,000
9.32% 2021 18,000 18,000
Installment sales contract for air pollution control
equipment - Upper Peninsula Power Company
Term Bonds Year Due
---------- --------
6.90% 1999 120 120
- ---------------------------------------------------------------------------------------------
Total 323,295 323,295
Unamortized discount and premium on bonds, net (802) (817)
- ---------------------------------------------------------------------------------------------
Total first mortgage bonds 322,493 322,478
- ---------------------------------------------------------------------------------------------
ESOP loan guarantees 6,598 6,448
Notes payable to bank, secured by nonregulated plant 11,180 10,943
Senior secured note 3,886 3,886
Other long-term debt 165 166
- ---------------------------------------------------------------------------------------------
Total long-term debt 344,322 343,921
Less amounts due within one year (884) (884)
- ---------------------------------------------------------------------------------------------
Net long-term debt 343,438 343,037
=============================================================================================
Total capitalization $973,679 $961,427
=============================================================================================
</TABLE>
The accompanying notes are an integral part of these statements.
-7-
<PAGE>
<TABLE>
WPS RESOURCES CORPORATION
<CAPTION>
=========================================================================================
CONSOLIDATED STATEMENTS OF CASH FLOWS (1) Three Months Ended
(Thousands) March 31
1999 1998
=========================================================================================
<S> <C> <C>
Cash flows from operating activities
Net income $ 22,752 $ 17,952
Adjustments to reconcile net income to net cash from
operating activities
Depreciation and decommissioning 20,219 21,659
Amortization of nuclear fuel and other 3,717 4,386
Deferred income taxes (617) (1,298)
Investment tax credit restored (60) (435)
Allowance for equity funds used during construction (196) (29)
Pension income (1,542) (2,334)
Postretirement funding 1,117 764
Other, net 5,792 1,199
Changes in
Customer and other receivables 356 (14,990)
Accrued utility revenues 2,941 2,821
Fossil fuel inventory (1,776) (2,352)
Gas in storage 17,209 17,755
Accounts payable (21,814) (2,723)
Miscellaneous current and accrued liabilities 14,094 11,174
Accrued taxes 10,449 129
- -----------------------------------------------------------------------------------------
Net cash from operating activities 72,641 53,678
=========================================================================================
Cash flows from (used for) investing activities
Construction of utility plant and nuclear fuel expenditures (20,924) (10,788)
Purchase of other property and equipment (620) (3,386)
Decommissioning funding (2,273) (4,126)
Other (260) (312)
- -----------------------------------------------------------------------------------------
Net cash used for investing activities (24,077) (18,612)
=========================================================================================
Cash flows from (used for) financing activities
Issuance of notes payable 34,250 32,811
Redemptions of notes payable (36,650) (31,800)
Issuance of other long-term debt 237 377
Issuance of commercial paper 687,595 321,137
Redemptions of commercial paper (721,185) (330,243)
Issuance of common stock 2,539 -
Cash dividends on common stock (13,157) (12,539)
Other (133) (146)
- -----------------------------------------------------------------------------------------
Net cash used for financing activities (46,504) (20,403)
=========================================================================================
Net decrease in cash and equivalents 2,060 14,663
Cash and equivalents at beginning of period 7,134 8,495
=========================================================================================
Cash and equivalents at end of period $ 9,194 $ 23,158
=========================================================================================
Cash paid during period for
Interest, less amount capitalized $ 8,926 $ 9,103
Income taxes 1,306 10,304
Preferred stock dividends of subsidiaries 778 783
=========================================================================================
</TABLE>
(1) The 1998 statement gives effect to the merger with Upper Peninsula
Energy Corporation.
The accompanying notes are an integral part of these statements.
-8-
<PAGE>
<TABLE>
WISCONSIN PUBLIC SERVICE CORPORATION
<CAPTION>
=======================================================================================
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME Three Months Ended
(Thousands) March 31
1999 1998
=======================================================================================
<S> <C> <C>
Operating revenues
Electric $127,537 $112,806
Gas 68,299 65,484
- ---------------------------------------------------------------------------------------
Total operating revenues 195,836 178,290
=======================================================================================
Operating expenses
Electric production fuels 26,487 25,618
Purchased power 13,287 8,165
Gas purchased for resale 39,871 42,394
Other operating expenses 36,046 32,515
Maintenance 14,063 9,938
Depreciation and decommissioning 17,977 19,642
Federal income taxes 10,834 8,296
Investment tax credit restored (402) (436)
State income taxes 2,646 2,257
Gross receipts tax and other 6,987 6,786
- ---------------------------------------------------------------------------------------
Total operating expenses 167,796 155,175
=======================================================================================
Operating income 28,040 23,115
- ---------------------------------------------------------------------------------------
Other income and (deductions)
Allowance for equity funds used during construction 196 29
Other, net 2,295 1,820
Income taxes (381) (281)
- ---------------------------------------------------------------------------------------
Total other income and (deductions) 2,110 1,568
=======================================================================================
Income before interest expense 30,150 24,683
- ---------------------------------------------------------------------------------------
Interest expense
Interest on long-term debt 5,465 5,480
Other interest 707 545
Allowance for borrowed funds used during construction (177) (11)
- ---------------------------------------------------------------------------------------
Total interest expense 5,995 6,014
=======================================================================================
Net income 24,155 18,669
Preferred stock dividend requirements 778 778
- ---------------------------------------------------------------------------------------
Earnings on common stock 23,377 17,891
=======================================================================================
Other comprehensive income - -
Comprehensive income $ 23,377 $ 17,891
=======================================================================================
</TABLE>
The accompanying notes are an integral part of these statements.
-9-
<PAGE>
<TABLE>
WISCONSIN PUBLIC SERVICE CORPORATION
<CAPTION>
==============================================================================================
CONSOLIDATED BALANCE SHEETS March 31 December 31
(Thousands) 1999 1998
==============================================================================================
<S> <C> <C>
ASSETS
- ----------------------------------------------------------------------------------------------
Utility plant
Electric $1,548,020 $1,534,711
Gas 270,710 267,892
- ----------------------------------------------------------------------------------------------
Total 1,818,730 1,802,603
Less - Accumulated depreciation and decommissioning 1,137,413 1,120,058
- ----------------------------------------------------------------------------------------------
Total 681,317 682,545
Nuclear decommissioning trusts 175,480 171,442
Construction in progress 39,692 35,996
Nuclear fuel, less accumulated amortization 17,108 18,641
- ----------------------------------------------------------------------------------------------
Net utility plant 913,597 908,624
==============================================================================================
Current assets
Cash and equivalents 5,392 1,882
Customer and other receivables, net of reserves 68,169 63,193
Accrued utility revenues 28,506 30,877
Fossil fuel, at average cost 14,205 12,433
Gas in storage, at average cost 2,589 14,855
Materials and supplies, at average cost 21,594 20,054
Prepayments and other 15,586 19,491
- ----------------------------------------------------------------------------------------------
Total current assets 156,041 162,785
==============================================================================================
Regulatory assets 66,998 68,335
Net nonutility plant 1,437 2,888
Pension assets 61,561 60,018
Investments and other assets 62,975 64,932
==============================================================================================
Total $1,262,609 $1,267,582
==============================================================================================
CAPITALIZATION AND LIABILITIES
- ----------------------------------------------------------------------------------------------
Capitalization
Common stock equity $ 477,435 $ 481,708
Preferred stock with no mandatory redemption 51,200 51,200
Long-term debt to parent 13,993 14,061
Long-term debt 290,136 289,972
- ----------------------------------------------------------------------------------------------
Total capitalization 832,764 836,941
==============================================================================================
Current liabilities
Note payable 10,000 10,000
Commercial paper 14,000 25,000
Accounts payable 48,969 60,680
Accrued interest and taxes 12,867 2,590
Other 21,146 6,564
- ----------------------------------------------------------------------------------------------
Total current liabilities 106,982 104,834
==============================================================================================
Long-term liabilities and deferred credits
Accumulated deferred income taxes 118,249 118,476
Accumulated deferred investment tax credits 24,757 24,772
Regulatory liabilities 43,385 43,591
Environmental remediation liabilities 38,836 39,028
Other long-term liabilities 97,636 99,940
- ----------------------------------------------------------------------------------------------
Total long-term liabilities and deferred credits 322,863 325,807
==============================================================================================
Total $1,262,609 $1,267,582
==============================================================================================
</TABLE>
The accompanying notes are an integral part of these statements.
-10-
<PAGE>
<TABLE>
WISCONSIN PUBLIC SERVICE CORPORATION
<CAPTION>
===================================================================================================
CONSOLIDATED STATEMENTS OF CAPITALIZATION March 31 December 31
(Thousands, except share amounts) 1999 1998
===================================================================================================
<S> <C> <C>
Common stock equity
Common stock $ 95,588 $ 95,588
Premium on capital stock 107,842 107,842
Retained earnings 280,603 284,726
ESOP loan guarantees (6,598) (6,448)
- ---------------------------------------------------------------------------------------------------
Total common stock equity 477,435 481,708
===================================================================================================
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
5.04% 30,000 3,000 3,000
5.08% 50,000 5,000 5,000
6.76% 150,000 15,000 15,000
6.88% 150,000 15,000 15,000
- ---------------------------------------------------------------------------------------------------
Total preferred stock 51,200 51,200
===================================================================================================
Long-term debt to parent
Series Year Due
------ --------
8.76% 2015 5,780 5,808
7.35% 2016 8,213 8,253
- ---------------------------------------------------------------------------------------------------
Total long-term debt to parent 13,993 14,061
===================================================================================================
Long-term debt
First mortgage bonds
Series Year Due
------ --------
7.30% 2002 50,000 50,000
6.80% 2003 50,000 50,000
6-1/8% 2005 9,075 9,075
6.90% 2013 22,000 22,000
8.80% 2021 53,100 53,100
7-1/8% 2023 50,000 50,000
6.08% 2028 50,000 50,000
- ---------------------------------------------------------------------------------------------------
Total 284,175 284,175
Unamortized discount and premium on bonds, net (802) (817)
- ---------------------------------------------------------------------------------------------------
Total first mortgage bonds 283,373 283,358
- ---------------------------------------------------------------------------------------------------
ESOP loan guarantees 6,598 6,448
Other long-term debt 165 166
- ---------------------------------------------------------------------------------------------------
Total long-term debt 290,136 289,972
===================================================================================================
Total capitalization $832,764 $836,941
===================================================================================================
</TABLE>
The accompanying notes are an integral part of these statements.
-11-
<PAGE>
<TABLE>
WISCONSIN PUBLIC SERVICE CORPORATION
<CAPTION>
=======================================================================================
CONSOLIDATED STATEMENTS OF CASH FLOWS Three Months Ended
(Thousands) March 31
1999 1998
=======================================================================================
<S> <C> <C>
Cash flows from operating activities
Net income $ 24,155 $ 18,669
Adjustments to reconcile net income to net cash from
operating activities
Depreciation and decommissioning 17,977 19,642
Amortization of nuclear fuel and other 3,558 4,366
Deferred income taxes (803) (1,365)
Investment tax credit restored (15) (435)
Allowance for equity funds used during construction (196) (29)
Pension income (1,542) (2,334)
Postretirement funding 1,117 1,019
Other, net 1,016 4,044
Changes in
Customer and other receivables (4,976) (2,846)
Accrued utility revenues 2,371 2,821
Fossil fuel inventory (1,772) (2,345)
Gas in storage 12,266 13,384
Accounts payable (11,711) (4,876)
Miscellaneous current and accrued liabilities 12,133 7,127
Accrued taxes 11,754 369
- ---------------------------------------------------------------------------------------
Net cash from operating activities 65,332 57,211
=======================================================================================
Cash flows from (used for) investing activities
Construction of utility plant and nuclear fuel expenditures (19,899) (10,155)
Decommissioning funding (2,273) (4,126)
Purchase of other property and equipment (54) -
Other (318) 312
- ---------------------------------------------------------------------------------------
Net cash used for investing activities (22,544) (13,969)
=======================================================================================
Cash flows from (used for) financing activities
Proceeds from issuance of commercial paper 104,000 47,000
Redemptions of commercial paper (115,000) (62,500)
Dividend to parent (15,000) -
Preferred stock dividends (778) (778)
Common stock dividends (12,500) (11,590)
- ---------------------------------------------------------------------------------------
Net cash used for financing activities (39,278) (27,868)
=======================================================================================
Net decrease in cash and equivalents 3,510 15,374
Cash and equivalents at beginning of period 1,882 3,921
=======================================================================================
Cash and equivalents at end of period $ 5,392 $ 19,295
=======================================================================================
Cash paid during period for
Interest, less amount capitalized $ 7,093 $ 8,439
Income taxes 2,262 9,991
=======================================================================================
</TABLE>
The accompanying notes are an integral part of these statements.
-12-
<PAGE>
<TABLE>
WISCONSIN PUBLIC SERVICE CORPORATION
<CAPTION>
========================================================================================
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS Three Months Ended
(Thousands) March 31
1999 1998
========================================================================================
<S> <C> <C>
Balance at beginning of period $284,726 $297,489
Add Net income 24,155 18,669
- ----------------------------------------------------------------------------------------
308,881 316,158
- ----------------------------------------------------------------------------------------
Deduct
Cash dividends declared on preferred stock 778 778
Dividends declared on common stock 12,500 11,590
Dividend to parent 15,000 -
- ----------------------------------------------------------------------------------------
28,278 12,368
- ----------------------------------------------------------------------------------------
Balance at end of period $280,603 $303,790
========================================================================================
</TABLE>
The accompanying notes are an integral part of these statements.
-13-
<PAGE>
WPS RESOURCES CORPORATION AND SUBSIDIARIES
WISCONSIN PUBLIC SERVICE CORPORATION
CONDENSED NOTES TO FINANCIAL STATEMENTS
March 31, 1999
NOTE 1. FINANCIAL INFORMATION
______________________________
The foregoing consolidated financial statements have been prepared by
WPS Resources Corporation ("WPSR") and Wisconsin Public Service Corporation
("WPSC"), without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission ("SEC") and, in the opinion of Management,
include all adjustments (consisting only of normal recurring adjustments)
necessary for a fair statement of results for each period shown. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such SEC rules and regulations. WPSR and
WPSC believe that the disclosures made are adequate to make the information
presented not misleading. These financial statements should be read in
conjunction with the financial statements and notes thereto included in WPSR's
and WPSC's latest annual report on Form 10-K.
The first quarter 1998 WPSR financial statements have been restated to give
effect to the September 1998 merger between WPSR and Upper Peninsula Energy
Corporation which has been accounted for as a pooling of interests.
Because of the seasonal nature of WPSC's and Upper Peninsula Power Company's
("UPPCO") operations, interim results are not necessarily indicative of annual
results.
NOTE 2. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
______________________________________________________
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 133, "Accounting for Derivative Instruments
and Hedging Activities." This statement requires all derivatives to be
measured at fair value and recognized as either assets or liabilities in the
statement of financial position. The accounting for changes in the fair value
of a derivative is dependent upon the use of the derivative and its resulting
designation. Unless specific hedge accounting criteria are met, changes in
the derivative's fair value must be recognized currently in earnings. This
statement is effective for fiscal periods beginning after June 15, 1999. WPSR
will be adopting the requirements of this statement on January 1, 2000, and
has not yet determined its impact on WPSR's financial statements. However,
the requirements of this statement could increase volatility in earnings and
other comprehensive income.
NOTE 3. INTERNALLY-DEVELOPED SOFTWARE
______________________________________
In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use." This statement
-14-
<PAGE>
requires the capitalization of certain costs related to software developed or
obtained for internal use. The statement is effective for periods beginning
after December 15, 1998. WPSR adopted the requirements of this statement on
January 1, 1999, with no material impact to its financial statements.
NOTE 4. COSTS OF START-UP ACTIVITIES
_____________________________________
In April 1998, the AICPA issued Statement of Position 98-5, "Reporting on the
Costs of Start-up Activities." This statement provides guidance on the
financial reporting of start-up costs and organization costs. Costs of
start-up activities and organization costs are required to be expensed as
incurred. The statement is effective for periods beginning after December 15,
1998. WPSR adopted the requirements of this statement on January 1, 1999,
with no material impact to its financial statements.
NOTE 5. SEGMENTS OF BUSINESS
_____________________________
Effective December 31, 1998, WPSR adopted Statement of Financial Accounting
Standard No. 131, "Disclosures about Segments of an Enterprise and Related
Information." WPSR's reportable segments are managed separately due to their
different operating and regulatory environments. WPSR's principal business
segments are the regulated electric utility operations of WPSC and UPPCO and
the regulated gas utility operations of WPSC. The other reportable business
segment, WPS Energy Services, Inc. ("ESI"), participates in nonregulated
energy marketing operations. Reconciling eliminations represent intercompany
transactions.
The table below presents summary information pertaining to WPSR's operations
segmented by lines of business.
<TABLE>
<CAPTION>
Nonutility and
Regulated Utilities Nonregulated Operations
Segments of Business ------------------- ----------------------- Reconciling WPSR
(Thousands) Electric Gas ESI PDI and Other Eliminations Consolidated
- -------------------- -------- --- --- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
1999 First Quarter
- ------------------
Operating revenues $144,140 $68,299 $115,422 $ 5,204 $(3,231) $329,834
Net income (loss) 15,362 9,345 (834) (1,121) - 22,752
1998 First Quarter
- ------------------
Operating revenues 128,404 65,484 98,522 872 (2,056) 291,226
Net income (loss) 12,499 6,571 (1,515) 397 - 17,952
</TABLE>
-15-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS - WPS RESOURCES CORPORATION
WPSR is a holding company. Approximately 85% of WPSR's assets at
March 31, 1999, and approximately 59% of its revenues for the first three
months of 1999 were derived from WPSC, an electric and gas utility.
Substantially all of WPSR's net income for the first three months of 1999 was
derived from WPSC and UPPCO, an electric utility. WPSR's wholly-owned
subsidiaries include two regulated utilities, WPSC and UPPCO, and two primary
nonregulated subsidiaries, ESI, and WPS Power Development, Inc. ("PDI").
FIRST QUARTER 1999 COMPARED WITH FIRST QUARTER 1998
WPS RESOURCES CORPORATION OVERVIEW
WPSR consolidated operating revenues were $329.8 million in the first quarter
of 1999 compared with $291.2 million in the first quarter of 1998, an increase
of 13.3%. Net income was $22.8 million in the first quarter of 1999 and
$18.0 million in the first quarter of 1998, an increase of 26.7%. Basic and
diluted earnings per share were $0.86 in the first quarter of 1999 compared
with $0.68 in the first quarter of 1998, an increase of 26.5%. The primary
reason for the increase in earnings, as explained below, were increases in the
electric and gas utility margins. Partially offsetting these factors were
increases in other operating expenses and in maintenance expense.
OVERVIEW OF UTILITY OPERATIONS (WPSC AND UPPCO)
Revenues at WPSC were $195.8 million in the first quarter of 1999 compared
with $178.3 million in the first quarter of 1998, an increase of 9.8%.
Earnings were $23.4 million in the first quarter of 1999 and $17.9 million in
the first quarter of 1998, an increase of 30.7%. The primary reasons for the
increase in earnings at WPSC were increased electric and gas utility margins
largely as a result of the implementation of a January 15, 1999, Public
Service Commission of Wisconsin ("PSCW") rate order which authorized a 6.3%
increase in Wisconsin retail electric rates and a 5.1% increase in Wisconsin
retail gas rates. Partially offsetting these factors were increases in other
operating expenses and in maintenance expense.
Revenues at UPPCO were $16.6 million in the first quarter of 1999 compared
with $15.6 million in the first quarter of 1998, an increase of 6.4%.
Earnings were $1.3 million in the first quarter of 1999 compared with
$1.2 million in the first quarter of 1998, an increase of 8.3%. The primary
reasons for the increase in earnings at UPPCO were an increase in the electric
margin and lower interest expense.
ELECTRIC UTILITY OPERATIONS (WPSC AND UPPCO)
WPSR consolidated electric utility margins increased $8.8 million, or 9.8%,
primarily due to WPSC's implementation of a January 15, 1999, PSCW rate order
which authorized a 6.3% increase in Wisconsin retail electric rates.
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<PAGE>
First Quarter
WPSR Consolidated ------------------------
Electric Margins (Thousands) 1999 1998
- ---------------------------- ---- ----
Revenues $142,393 $127,223
Fuel and purchased power 44,405 37,995
------- -------
Margin $ 97,988 $ 89,228
======= =======
Sales in kilowatt-hours (Thousands) 3,144,714 2,946,366
WPSR consolidated electric utility revenues increased $15.2 million, or 11.9%,
largely due to the electric rate increase at WPSC. Also contributing to
higher electric revenues was a 7.2% increase in overall kilowatt-hour sales at
WPSC and a 6.9% increase in kilowatt-hour sales at UPPCO. These sales were
largely the result of weather that was 8.7% colder in the first quarter of
1999 than in the first quarter of 1998.
WPSR consolidated electric production fuel expense increased $0.9 million, or
3.5%, primarily as a result of increased generation requirements at WPSC's
combustion turbine and nuclear generating plants in the first quarter of 1999.
Partially offsetting this factor was a decrease in production at WPSC's fossil
fuel generating plants as a result of scheduled maintenance activities.
WPSR consolidated purchased power expense increased $5.5 million, or 44.7%,
primarily due to additional purchase requirements and higher cost of purchases
at both WPSC and UPPCO in the first quarter of 1999. Purchase requirements at
WPSC in the first quarter of 1999 were higher due to lack of production at
WPSC's fossil fuel generating plants which were off-line for scheduled
maintenance activities.
The PSCW allows WPSC to prospectively adjust the amount billed to Wisconsin
retail customers for fuel and purchased power if costs fall outside a
specified range. WPSC is required to file an application to adjust rates
either higher or lower when costs are plus or minus 2.0% from forecasted costs
on an annualized basis. Forecasted annual 1999 fuel costs at March 31, 1999
are within this 2.0% window.
GAS UTILITY OPERATIONS (WPSC)
WPSR consolidated gas margin increased $5.5 million in the first quarter of
1999, or 24.7%, primarily due to the implementation of the PSCW rate order
which authorized a 5.1% increase in Wisconsin retail gas rates.
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<PAGE>
First Quarter
WPSR Consolidated ----------------------
Gas Margins (Thousands) 1999 1998
- ----------------------- ---- ----
Revenues $68,299 $65,484
Purchase costs 40,284 43,010
------ ------
Margin $28,015 $22,474
====== ======
Volume in therms (Thousands) 250,885 223,804
WPSR consolidated gas operating revenues increased $2.8 million, or 4.3%.
This increase was due to the implementation of new Wisconsin retail gas rates
and a 12.1% increase in overall therm sales as a result of colder weather in
the first quarter of 1999. Although weather was 8.4% warmer than normal in
the first quarter of 1999, it was 8.7% colder than in the first quarter of
1998.
WPSR consolidated gas purchase costs decreased $2.7 million, or 6.3%. This
decrease was due to lower gas prices in the first quarter of 1999 which more
than offset increased purchases due to additional customer demand. Under
current regulatory practice, the PSCW and the Michigan Public Service
Commission allow WPSC to pass changes in the cost of gas on to customers
through a purchased gas adjustment clause.
OTHER UTILITY EXPENSES/INCOME (WPSC AND UPPCO)
Other operating expenses at WPSC increased $3.5 million, or 10.9%, primarily
due to higher customer service expense of $0.8 million, higher administrative
salary expense of $0.8 million, higher miscellaneous distribution expense of
$0.8 million, and higher pension costs of $0.6 million in the first quarter of
1999.
Maintenance expense at WPSC increased $4.1 million, or 41.5%, primarily due to
additional costs of $3.5 million for scheduled maintenance activities at the
fossil generating plants.
OVERVIEW OF NONREGULATED OPERATIONS
Nonregulated operations primarily consist of the gas and electric sales at
ESI, an energy marketing subsidiary. Nonregulated operations also include
those of WPSR as a holding company (primarily investments, borrowings, and
certain unallocated corporate costs) and those of PDI which develops electric
generation projects, invests in generating projects, and provides services to
the electric power generation industry.
Nonregulated operations experienced a loss of $1.9 million in the first
quarter of 1999 compared with a loss of $1.1 million in the first quarter of
1998. Although margins on nonregulated energy sales continue to grow, losses
are being experienced primarily due to expenses associated with the expansion
of customer base. In addition, nonregulated earnings decreased in the first
quarter of 1999 compared with the first quarter of 1998 due to a one-time
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<PAGE>
dividend of $2.0 million received by WPSR from a venture capital investment in
the first quarter of 1998.
OVERVIEW OF WPS ENERGY SERVICES, INC.
Revenues at ESI were $115.4 million in the first quarter of 1999 compared with
$98.5 million in the first quarter of 1998, an increase of 17.2%. ESI
experienced a loss of $0.8 million in the first quarter of 1999 compared with
a loss of $1.5 million in the first quarter of 1998. The primary reasons for
the decrease in losses at ESI were lower electric and gas trading losses
primarily due to decreased trading activities in 1999 and an increase in the
gas margin due to additional sales and improved gas procurement.
NONREGULATED MARGINS (ESI)
Gas margins at ESI were $1.7 million in the first quarter of 1999 compared
with $1.2 million in the first quarter of 1998, an increase of 41.7%.
Electric margins at ESI remained fairly stable. Gas revenues at ESI were
$114.5 million in the first quarter of 1999 compared with $93.9 million in the
first quarter of 1998, an increase of $20.6 million, or 21.9%. This increase
was the result of customer growth and increased wholesale activity. Electric
revenues at ESI were $0.8 million in the first quarter of 1999 and
$4.4 million in 1998, a decrease of $3.6 million, or 81.8%. This decrease was
the result of ESI's decreased activity in the electric markets.
ESI's cost of sales were $113.5 million in the first quarter of 1999 and
$97.1 million in the first quarter of 1998, an increase of $16.4 million or
16.9%. This increase was primarily due to increased gas purchases of
$20.1 million as a result of increased sales and customer growth.
OTHER NONREGULATED EXPENSES/INCOME (ESI)
Other operating expenses at ESI increased $0.8 million, or 39.9%, due to costs
of $0.5 million associated with entering into gas pilot programs and increased
benefit and payroll expenses of $0.3 million. ESI experienced gas trading
losses of $0.2 million in the first quarter of 1999 and $1.1 million in the
first quarter of 1998 due to decreased trading activities.
PRICE RISK MANAGEMENT ACTIVITIES (ESI)
WPSR has minimal price risk management activities at its utility operations,
and much of that price risk exposure is recoverable through customer rates;
however, ESI actively engages in price risk management activities.
ESI utilizes derivative financial and commodity instruments ("derivatives"),
including futures and forward contracts, to reduce market risk associated with
fluctuations in the price of natural gas and electricity sold under firm
commitments with certain of its customers. ESI also utilizes derivatives,
including price swap agreements, call and put option contracts, and futures
and forward contracts, to manage risk associated with a portion of its
anticipated supply requirements. In addition, ESI utilizes derivatives,
within specified guidelines, for trading purposes. The notional amount of
derivatives outstanding at March 31, 1999, decreased from December 31, 1998,
primarily due to the end of the 1999 winter season. This amounted to a
decrease of approximately 52.0% for hedging activities and 84.0% for trading
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<PAGE>
activities. As ESI enters into supply commitments for the 1999-2000 winter
season, it expects that the notional amount of derivatives outstanding will
increase.
OTHER NONREGULATED OPERATIONS
Losses at PDI were $0.8 million in the first quarter of 1999 compared with
$0.6 million in the first quarter of 1998. The increase in losses at PDI was
primarily due to additional costs incurred in the first quarter of 1999 for
the operation of new projects. Other operating expenses at PDI increased
$1.2 million due to the higher project expenses. Operational problems related
to the bonding process at ECO Coal Pelletization #12, LLC have been resolved
with additional sales expected in the second quarter of 1999.
The first quarter of 1998 included a one-time dividend of $2.0 million
received by WPSR from a venture capital investment. This dividend represented
a four cents per share increase to 1998 first quarter earnings.
FINANCIAL CONDITION - WPSR
INVESTMENTS AND FINANCING
A special common stock dividend of $15.0 million was paid by WPSC to WPSR in
February 1999. The special dividend allowed WPSC's average equity
capitalization ratio for ratemaking to remain at approximately 54%, the level
approved by the PSCW.
Internally generated funds exceeded WPSR's cash requirements in the first
quarter of 1999 resulting in a $36.0 million reduction in short-term
borrowings. WPSR's pretax interest coverage was 3.35 times for the 12 months
ended March 31, 1999. See the table below for WPSR's credit ratings.
Credit Ratings Standard & Poor's Moody's
- -------------- ----------------- -------
Wisconsin Public Service Corporation
Bonds AA+ Aa2
Preferred stock AA aa3
Commercial paper A1+ P1
WPS Resources Corporation
Trust preferred securities A+ a1
Commercial paper A1+ P1
WPS Resources Capital Corporation
Unsecured debt* AA A1
* No securities currently outstanding.
WPSR will use internally-generated funds and short-term borrowing to satisfy
most of its capital requirements. WPSR may periodically issue additional
long-term debt and common stock to reduce short-term debt and to maintain
desired capitalization ratios.
The specific forms of financing, amounts, and timing will depend on the
availability of projects, market conditions, and other factors. WPSR began
issuing new shares of common stock for the Stock Investment Plan in January
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<PAGE>
1999. WPSR may also expand its leveraged employee stock ownership plan during
the next three-year period.
WPSC makes large investments in capital assets. Construction expenditures for
WPSC are expected to be approximately $376.0 million in the aggregate for the
1999 through 2001 period. This includes expenditures for the replacement of
the Kewaunee Nuclear Power Plant steam generators and construction of a
proposed transmission line between Wausau, Wisconsin and Duluth, Minnesota.
In addition, other capital requirements for WPSC for the three-year period
will include the Kewaunee Nuclear Power Plant decommissioning trust fund
contributions of $16.8 million.
WPSC's agreement to purchase electricity from the De Pere Energy Center, a
gas-fired cogeneration facility, will be accounted for as a capital lease.
The De Pere Energy Center lease will be capitalized at approximately
$78.0 million at the in-service date, expected to be June 1999. While not a
capital expenditure, this will affect the capital structure.
UPPCO will incur construction expenditures of about $23.0 million in the
aggregate for the period 1999 through 2001, primarily for electric
distribution improvements.
Investment expenditures for nonregulated projects are uncertain since there
are few firm commitments at this time. Approximately $38.0 million will be
incurred in 1999 to purchase generating units located in the State of Maine
and the Canadian Province of New Brunswick. Financing for most nonregulated
projects is expected to be obtained through nonrecourse project financing
and/or through a new subsidiary, WPS Resources Capital Corporation, which was
formed in January 1999 to obtain funding for those projects.
REGULATORY
WPSC received a rate order in the Wisconsin jurisdiction on January 15, 1999.
The impact is a $26.9 million increase in electric revenues and a
$10.3 million increase in gas revenues on an annual basis. The new rates will
be effective for 1999 and 2000. The PSCW authorized a 12.1% return on WPSC
equity for 1999 and 2000. This PSCW rate order will be reopened in the fall
of 1999 to consider issues related to the Kewaunee Nuclear Power Plant, the
recovery of deferred expenses related to the repowering of Pulliam Unit 3, and
the fuel forecast for 2000.
KEWAUNEE NUCLEAR POWER PLANT STEAM GENERATOR REPLACEMENT STATUS
Replacement of the two steam generators at the Kewaunee Nuclear Power Plant is
now scheduled for the fall of 2001. This reflects a delay of approximately
18 months. The previous schedule called for replacement in the spring of 2000.
The delay is attributable to the inability of the manufacturer to meet the
spring 2000 delivery schedule. Delays in meeting the delivery schedule did
not allow for steam generator replacement to occur prior to the start of the
hot summer weather in 2000. Therefore, the decision was made to store the
steam generators after they are received and wait until the next scheduled
refueling outage in the fall of 2001. It is anticipated that the delay will
not adversely impact the reliability of Kewaunee in the interim. Plans to
shutdown the plant for a spring of 2000 refueling remain unchanged.
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Kewaunee is operated by WPSC and is jointly owned by WPSC, Alliant Energy, and
Madison Gas and Electric Company. WPSC's agreement to buy Madison Gas and
Electric's 17.8% share of the plant at the time of steam generator replacement
remains unchanged.
YEAR 2000 COMPLIANCE
The Year 2000 issue arises because software programs, computer hardware, and
equipment that have date sensitive software or embedded chips may recognize a
date using "00" as the year 1900 rather than the year 2000. This may result
in system failures or other disruptions of operations.
WPSR and its subsidiary companies are committed to eliminating or minimizing
adverse effects of the Year 2000 computer compliance issue on their business
operations, including the products and services provided to customers, and to
maintaining WPSR's reputation as an efficient and reliable supplier of energy.
WPSR, however, is unable to guarantee that there will be no adverse effects as
a result of the Year 2000 computer compliance issue because many aspects of
compliance are beyond WPSR's direct control.
WPSR has undertaken a program to assess Year 2000 compliance and to bring
computer systems into compliance by the year 2000. All systems, including
energy production and delivery systems, other embedded systems, and third
party systems of suppliers are being evaluated to identify and resolve
potential problems.
A Year 2000 project plan which includes awareness, inventory and assessment,
remediation, testing, and implementation has been developed. The formal
awareness phase of the Year 2000 project which includes understanding and
communication of the issue to employees, customers, suppliers, and other
affected parties has been completed. The Year 2000 issue has been
communicated to WPSR employees and customers via several media. All WPSR
business unit leaders have been made aware of the Year 2000 project plan and
their roles in implementing the plan. Communication and response to Year 2000
inquiries continue.
The inventory and assessment phase which includes identification of all
information and non-information technology systems and of non-compliant
systems, applications, and hardware, has been completed. Action plans for
remediation, which include modifications to bring systems into compliance, and
action plans for testing including validation of compliance have been
completed.
Modifications of major in-house supported systems to correct Year 2000
problems have been underway since 1996. WPSR's Information Technology
Department has identified five major systems. All of these systems (customer
information, finance, human resources, materials management, and facility
management) are currently Year 2000 compliant.
In addition, all other systems including non-information technology systems
have been identified and ranked as to the risk posed by non-compliance.
Non-information technology systems include computer and embedded systems
related to WPSR's power plant, system operating, hydroelectric, transmission,
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and other operating functions. All systems ranked as "critical," "severe," or
"high" are scheduled to be Year 2000 compliant by early May 1999.
WPSR has hired an external consulting group to monitor the progress of its
Year 2000 compliance activities. The consulting group's responsibilities
include performing a status check on WPSR's ability to achieve Year 2000
compliance.
In addition, WPSR is identifying, contacting, and assessing suppliers and
other business partners for Year 2000 readiness, as these external parties may
have the potential to impact WPSR's Year 2000 readiness. WPSR is also working
to address Year 2000 issues related to all joint ownership facilities. At the
present time, WPSR is not aware of problems that would materially impact the
company's operations. However, WPSR has no means of ensuring that all third
parties will be Year 2000 compliant in a timely manner, and the inability of
these parties to resolve successfully their Year 2000 issues could have a
material impact on the operations of WPSR's subsidiaries.
Due to fewer expenditures for hardware and software than originally
anticipated, the estimate of total Year 2000 project costs has been reduced to
$9.0 million. This estimate is considered reasonable and the Wisconsin retail
portion of this cost has been approved for rate recovery by the PSCW. This
estimate includes internal labor costs of $4.5 million, software replacement
costs for non-compliant products of $2.0 million, and contract labor costs of
$2.5 million. Expenditures for the Year 2000 project incurred through
March 31, 1999, were $2.4 million. Major expenditures for hardware, software,
and other equipment were made in the fourth quarter of 1998 and additional
expenditures will be made in the first half of 1999.
The failure to correct a material Year 2000 problem could result in an
interruption in, or the failure of, certain normal business activities or
operations which could materially affect WPSR's results of operations.
However, due to the general uncertainty inherent in the Year 2000 issue, WPSR
is unable to determine at this time whether the consequences of Year 2000
failures will have a material impact on operations. A preliminary
identification of potential risks related to the failure to be in compliance
by the Year 2000 has been made. The most reasonably likely worst case
Year 2000 scenario includes loss or unavailability of some generation, partial
loss of system monitoring and control functions, partial loss of voice
communications, loss of transmission facilities and loss of load or
uncharacteristic loads. Management believes that the probable extent of any
of these events is not significantly in excess of similar events caused by
normal risks and the handling of such events is within the capabilities of the
systems.
WPSR is assessing the potential impact of failure to achieve Year 2000
compliance with respect to each of the following:
- - Generation availability
- - System monitoring and control functions
- - Ability to restart generators that are out of service for planned or
unplanned outages
- - Company-owned voice/data communications
- - Transmission facilities
- - System protection
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<PAGE>
- - Critical operating data (i.e., generation plant data)
- - Electric and gas distribution systems
- - Pipelines' constraints to the supply or pressure of natural gas
- - Major support systems
Contingency plans for dealing with Year 2000 issues have been developed for
each application that has been identified as "critical" or "severe." In
addition, a proposal for a "quick response team" concept has been drafted, and
a process for handling unexpected Year 2000 problems has been formalized.
Plans to conduct a crisis management training session utilizing a Year 2000
case study will be completed during the second quarter of 1999.
GENERATION ASSET ACQUISITION
PDI has received approval from the Maine Public Service Commission to purchase
generation assets from Maine Public Service Company for approximately
$38.0 million. The closing of the agreement to purchase hydroelectric, steam,
and diesel units in the State of Maine and in the Canadian Province of
New Brunswick is scheduled for June 1999.
ENVIRONMENTAL
In September 1998, the Environmental Protection Agency required certain
states, including Wisconsin, to develop plans to reduce the emission of
nitrogen oxides from sources within the state by May of 2003. WPSC requested
and was granted authority from the PSCW to proceed immediately with a plan to
make necessary modifications to comply with the new nitrogen oxide emission
requirements. WPSC was also granted approval to defer the costs associated
with the modifications until such time as the deferred costs can be considered
for rate recovery. Capital expenditures to comply with the new requirements
in current year dollars are projected to be between $62.4 million and
$112.3 million and operating and maintenance expenditures are projected to be
between $2.0 million and $6.0 million annually.
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<PAGE>
RESULTS OF OPERATIONS - WISCONSIN PUBLIC SERVICE CORPORATION
WPSC is a regulated electric and gas utility. Electric operations accounted
for 65% of first quarter 1999 revenues, while gas operations contributed 35%
to first quarter 1999 revenues.
FIRST QUARTER 1999 COMPARED WITH FIRST QUARTER 1998
WISCONSIN PUBLIC SERVICE CORPORATION OVERVIEW
Revenues at WPSC were $195.8 million in the first quarter of 1999 compared
with $178.3 million in the first quarter of 1998, an increase of 9.8%.
Earnings were $23.4 million in the first quarter of 1999 and $17.9 million in
the first quarter of 1998, an increase of 30.7%. The primary reasons for the
increase in earnings at WPSC were increased electric and gas utility margins
largely as a result of the implementation of a January 15, 1999, PSCW rate
order. Partially offsetting these factors were increases in other operating
expenses and in maintenance expense.
ELECTRIC UTILITY OPERATIONS
WPSC's electric utility margin increased $8.8 million, or 9.8%, primarily due
to the implementation of a January 15, 1999, PSCW rate order which authorized
a 6.3% increase in Wisconsin retail electric rates.
First Quarter
WPSC ------------------------
Electric Margins (Thousands) 1999 1998
- ---------------------------- ---- ----
Revenues $127,537 $112,806
Fuel and purchased power 39,774 33,783
------- -------
Margin $ 87,763 $ 79,023
======= =======
Sales in kilowatt-hours (Thousands) 2,974,684 2,773,751
WPSC's electric utility revenues increased $14.7 million, or 13.1%, largely
due to the electric rate increase at WPSC. Also contributing to higher
electric revenues was a 7.2% increase in overall kilowatt-hour sales. These
sales were largely the result of weather that was 8.7% colder in the first
quarter of 1999 than in the first quarter of 1998.
WPSC's electric production fuel expense increased $0.9 million, or 3.4%,
primarily as a result of increased generation requirements at WPSC's
combustion turbine and nuclear plants in the first quarter of 1999. Partially
offsetting this factor was a decrease in production at WPSC's fossil fuel
plants as a result of scheduled maintenance activities.
WPSC's purchased power expense increased $5.1 million, or 62.7%, primarily due
to additional purchase requirements and higher cost of purchases in the first
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quarter of 1999. Purchase requirements were higher due to lack of production
at WPSC's fossil fuel plants which were off-line for scheduled maintenance
activities.
The PSCW allows WPSC to prospectively adjust the amount billed to Wisconsin
retail customers for fuel and purchased power if costs fall outside a
specified range. WPSC is required to file an application to adjust rates
either higher or lower when costs are plus or minus 2.0% from forecasted costs
on an annualized basis. Forecasted annual 1999 fuel costs at March 31, 1999
are within this 2.0% window.
GAS UTILITY OPERATIONS
WPSC's gas margin increased $5.3 million in the first quarter of 1999, or
23.1%, primarily due to the implementation of the PSCW rate order which
authorized a 5.1% increase in Wisconsin retail gas rates.
First Quarter
WPSC ----------------------
Gas Margins (Thousands) 1999 1998
- ----------------------- ---- ----
Revenues $68,299 $65,484
Purchase costs 39,871 42,394
------ ------
Margin $28,428 $23,090
====== ======
Volume in therms (Thousands) 250,885 223,804
WPSC's gas operating revenues increased $2.8 million, or 4.3%. This increase
was due to the implementation of new Wisconsin retail gas rates and a 12.1%
increase in overall therm sales as a result of colder weather.
WPSC's gas purchase costs decreased $2.5 million, or 6.0%. This decrease was
due to lower gas prices in the first quarter of 1999 which more than offset
increased purchases due to additional customer demand. Under current
regulatory practice, the PSCW and the Michigan Public Service Commission allow
WPSC to pass changes in the cost of gas on to customers through a purchased
gas adjustment clause.
OTHER UTILITY EXPENSES/INCOME
Other operating expenses at WPSC increased $3.5 million, or 10.9%, primarily
due to higher customer service expense of $0.8 million, higher administrative
salary expense of $0.8 million, higher miscellaneous distribution expense of
$0.8 million, and higher pension costs of $0.6 million in the first quarter of
1999.
Maintenance expense at WPSC increased $4.1 million, or 41.5%, primarily due to
additional costs of $3.5 million for scheduled maintenance activities at the
fossil plants.
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FINANCIAL CONDITION - WPSC
INVESTMENTS AND FINANCING
A special common stock dividend of $15.0 million was paid by WPSC to WPSR in
February 1999. The special dividend allowed WPSC's average equity
capitalization ratio for ratemaking to remain at approximately 54%, the level
approved by the PSCW.
Internally generated funds exceeded WPSC's cash requirements in the first
quarter of 1999 resulting in an $11.0 million reduction in short-term
borrowings. WPSC's pretax interest coverage was 4.80 times for the 12 months
ended March 31, 1999. See the table below for WPSC's credit ratings.
Credit Ratings Standard & Poor's Moody's
- -------------- ----------------- -------
Wisconsin Public Service Corporation
Bonds AA+ Aa2
Preferred stock AA aa3
Commercial paper A1+ P1
See WPSR's management discussion at page 19 for additional information
regarding WPSC's financial condition.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Quantitative and Qualitative Disclosures About Market Risk are reported under
"Price Risk Management Activities (ESI)" as part of Item 2, Management's
Discussion and Analysis of Financial Condition and Results of Operations, on
pages 19 and 20.
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PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
RELIABILITY
On April 15, 1999, WPSC and Minnesota Power Company announced a joint proposal
to construct a 345,000 volt transmission line between WPSC's Weston Substation
near Wausau, Wisconsin and Minnesota Power's Arrowhead Substation near Duluth,
Minnesota, a distance of about 250 miles. WPSC is also proposing to construct
a new substation and a 115,000 volt transmission line that would connect the
existing Rhinelander area transmission system to the new 345,000 volt
transmission line. If approved by the PSCW and the Minnesota Environmental
Quality Board, the proposed 345,000 volt transmission line would substantially
enhance the reliability of the electric system in northern and eastern
Wisconsin. It also would provide an additional path for power to be imported
into Wisconsin from the north and west and enhance the reliability of the
existing Wisconsin-Minnesota transmission system interface. Depending on
siting and regulatory review and approval, it is estimated that the new line
could be in service by the end of 2002. The cost of WPSC's portion of this
project could range from $75 million to $120 million, depending on the final
determination of the portion to be owned by WPSC in Wisconsin.
KEWAUNEE NUCLEAR POWER PLANT STEAM GENERATOR REPLACEMENT STATUS
Replacement of the two steam generators at the Kewaunee Nuclear Power Plant is
now scheduled for the fall of 2001. This reflects a delay of approximately
18 months. The previous schedule called for replacement in the spring of 2000.
The delay is attributable to the inability of the manufacturer to meet the
spring 2000 delivery schedule. Delays in meeting the delivery schedule did
not allow for steam generator replacement to occur prior to the start of the
hot summer weather in 2000. Therefore, the decision was made to store the
steam generators after they are received and wait until the next scheduled
refueling outage in the fall of 2001. It is anticipated that the delay will
not adversely impact the reliability of Kewaunee in the interim. Plans to
shutdown the plant for a spring of 2000 refueling remain unchanged.
Kewaunee is operated by WPSC and is jointly owned by WPSC, Alliant Energy, and
Madison Gas and Electric Company. WPSC's agreement to buy Madison Gas and
Electric's 17.8% share of the plant at the time of steam generator replacement
remains unchanged.
KEWAUNEE NUCLEAR POWER PLANT PERFORMANCE REVIEW
The Nuclear Regulatory Commission completed a Plant Performance Review of the
Kewaunee plant on February 4, 1999. This process replaced the previous
Systematic Assessment of Licensee Performance which provided numerical
rankings of various plant performance characteristics. The Plant Performance
Review process does not provide numerical rankings but is designed to
concentrate on identifying areas for improvement. The Nuclear Regulatory
Commission indicated that overall performance has been acceptable during the
assessment period. The report identified some aspects of operations and
timeliness in closing out corrective actions as areas that warranted
-28-
<PAGE>
improvement. The report also noted strengths related to plant material
condition, teamwork, and the fact that the plant had few operational events.
UPPER PENINSULA POWER COMPANY
On April 27, 1999, UPPCO, a utility subsidiary of WPSR, reached final
agreement on a new three-year collective bargaining agreement with Local 510
of the International Brotherhood of Electrical Workers, AFL-CIO. The existing
collective bargaining agreement expired on April 30, 1999. Approximately 131
of the 195 employees of UPPCO are covered by this collective bargaining
agreement.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
The following documents are filed herewith:
Exhibit 11 Statement Regarding Computation of Per
Share Earnings
WPS Resources Corporation
Exhibit 27 Financial Data Schedule
WPS Resources Corporation
Wisconsin Public Service Corporation
(b) REPORT ON FORM 8-K
An amendment on Form 8-K/A filed March 1, 1999 amending the
Current Report on Form 8-K dated December 10, 1999 to
indicate that portions of Exhibit 99-2, the settlement and
ownership transfer agreement between Wisconsin Public
Service Corporation and Madison Gas and Electric Company,
had been omitted based upon a request for confidential
treatment. The non-public information has been filed
separately with the Securities and Exchange Commission.
-29-
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant, WPS Resources Corporation, has duly caused this report to be
signed on its behalf by the undersigned thereunto duly authorized.
WPS Resources Corporation
Date: April 30, 1999 /s/ Diane L. Ford
_________________________________
Diane L. Ford
Controller and Chief
Accounting Officer
(Duly Authorized Officer and
Chief Accounting Officer)
-30-
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant, Wisconsin Public Service Corporation, has duly caused this report
to be signed on its behalf by the undersigned thereunto duly authorized.
Wisconsin Public Service Corporation
Date: April 30, 1999 /s/ Diane L. Ford
____________________________________
Diane L. Ford
Controller
(Duly Authorized Officer and
Chief Accounting Officer)
-31-
<PAGE>
WPS RESOURCES CORPORATION AND
WISCONSIN PUBLIC SERVICE CORPORATION
EXHIBIT INDEX TO FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1999
Exhibit No. Description
___________ ___________
11 Statement Regarding Computation of Per Share Earnings
WPS Resources Corporation
27 Financial Data Schedule
WPS Resources Corporation
Wisconsin Public Service Corporation
-32-
<PAGE>
<TABLE> <S> <C>
<ARTICLE> UT EXHIBIT 27
<CIK> 0000107833
<NAME> WISCONSIN PUBLIC SERVICE CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 913,597
<OTHER-PROPERTY-AND-INVEST> 1,437
<TOTAL-CURRENT-ASSETS> 156,041
<TOTAL-DEFERRED-CHARGES> 66,998
<OTHER-ASSETS> 124,536
<TOTAL-ASSETS> 1,262,609
<COMMON> 95,588
<CAPITAL-SURPLUS-PAID-IN> 107,842
<RETAINED-EARNINGS> 274,005
<TOTAL-COMMON-STOCKHOLDERS-EQ> 477,435
0
51,200
<LONG-TERM-DEBT-NET> 304,129
<SHORT-TERM-NOTES> 10,000
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 14,000
<LONG-TERM-DEBT-CURRENT-PORT> 0
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 405,845
<TOT-CAPITALIZATION-AND-LIAB> 1,262,609
<GROSS-OPERATING-REVENUE> 195,836
<INCOME-TAX-EXPENSE> 13,078
<OTHER-OPERATING-EXPENSES> 154,718
<TOTAL-OPERATING-EXPENSES> 167,796
<OPERATING-INCOME-LOSS> 28,040
<OTHER-INCOME-NET> 2,110
<INCOME-BEFORE-INTEREST-EXPEN> 30,150
<TOTAL-INTEREST-EXPENSE> 5,995
<NET-INCOME> 24,155
778
<EARNINGS-AVAILABLE-FOR-COMM> 23,377
<COMMON-STOCK-DIVIDENDS> 27,500
<TOTAL-INTEREST-ON-BONDS> 7,093
<CASH-FLOW-OPERATIONS> 65,332
<EPS-PRIMARY> 0.00<F1>
<EPS-DILUTED> 0.00<F1>
<FN>
<F1>All of Wisconsin Public Service Corporation ("WPSC")
common stock is controlled by WPS Resources Corporation
which operates as a holding company. WPSC, as a subsidiary,
does not calculate earnings per share. The earnings per
share of WPS Resources Corporation for first quarter ended
March 31, 1999 were $.86 for both basic and diluted earnings per share
calculations.
</FN>
</TABLE>
