______________________________________________________________________________
______________________________________________________________________________
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, 2000
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
920-433-4901
1-3016 WISCONSIN PUBLIC SERVICE CORPORATION 39-0715160
(A Wisconsin Corporation)
700 North Adams Street
P. O. Box 19001
Green Bay, WI 54307-9001
800-450-7260
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,
26,488,992 shares outstanding at
April 30, 2000
WISCONSIN PUBLIC SERVICE CORPORATION Common stock, $4 par value,
23,896,962 shares outstanding at
April 30, 2000
______________________________________________________________________________
______________________________________________________________________________
<PAGE>
WPS RESOURCES CORPORATION
AND
WISCONSIN PUBLIC SERVICE CORPORATION
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2000
CONTENTS
Page
FORWARD-LOOKING STATEMENTS 3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
WPS RESOURCES CORPORATION
Consolidated Statements of Income, Comprehensive
Income, and Retained Earnings 4
Consolidated Balance Sheets 5
Consolidated Statements of Capitalization 6
Consolidated Statements of Cash Flows 7
WISCONSIN PUBLIC SERVICE CORPORATION
Consolidated Statements of Income and
Comprehensive Income 8
Consolidated Balance Sheets 9
Consolidated Statements of Capitalization 10
Consolidated Statements of Cash Flows 11
Consolidated Statements of Retained Earnings 12
CONDENSED NOTES TO FINANCIAL STATEMENTS OF
WPS Resources Corporation and
Wisconsin Public Service Corporation 13 - 15
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations for
WPS Resources Corporation 16 - 23
Wisconsin Public Service Corporation 24 - 26
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 26 - 28
PART II. OTHER INFORMATION
Item 5. Other Information 29 - 30
Item 6. Exhibits and Reports on Form 8-K 30
Signatures 31 - 32
EXHIBIT INDEX 33
Exhibit 27 Financial Data Schedule
WPS Resources Corporation
Wisconsin Public Service Corporation
-2-
<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.
Forward-looking statements speak only as of the date on which they are made,
and 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 those contained in forward-looking
statements.
- 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
- Growth and competition and the extent and timing of new business
development 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.
-3-
<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 March 31
(Thousands, except share amounts) 2000 1999
==========================================================================================
<S> <C> <C>
Operating revenues
Electric utility $153,431 $142,393
Gas utility 76,187 68,299
Nonregulated energy and other 169,231 119,142
- ------------------------------------------------------------------------------------------
Total operating revenues 398,849 329,834
==========================================================================================
Operating expenses
Electric production fuels 28,220 26,533
Purchased power 15,673 17,872
Gas purchased for resale 47,406 40,284
Nonregulated energy cost of sales 149,505 116,023
Other operating expenses 62,142 44,380
Maintenance 16,732 14,616
Depreciation and decommissioning 27,170 20,219
Taxes other than income 9,268 8,461
- ------------------------------------------------------------------------------------------
Total operating expenses 356,116 288,388
==========================================================================================
Operating income 42,733 41,446
- ------------------------------------------------------------------------------------------
Other income
Allowance for equity funds used during construction 368 196
Other, net 6,196 2,315
- ------------------------------------------------------------------------------------------
Total other income 6,564 2,511
==========================================================================================
Income before interest expense 49,297 43,957
- ------------------------------------------------------------------------------------------
Interest on long-term debt 8,842 6,402
Other interest 3,437 919
Allowance for borrowed funds used during construction (1,104) (177)
- ------------------------------------------------------------------------------------------
Total interest expense 11,175 7,144
==========================================================================================
Distributions - preferred securities of subsidiary trust 875 875
==========================================================================================
Income before income taxes 37,247 35,938
Income taxes 7,237 12,623
Minority interest - (215)
Preferred stock dividends of subsidiaries 778 778
- ------------------------------------------------------------------------------------------
Net income 29,232 22,752
- ------------------------------------------------------------------------------------------
Other comprehensive income - -
- ------------------------------------------------------------------------------------------
Comprehensive income 29,232 22,752
==========================================================================================
Retained earnings at beginning of period 341,701 335,154
Cash dividends on common stock 13,521 13,157
- ------------------------------------------------------------------------------------------
Retained earnings at end of period $357,412 $344,749
==========================================================================================
Average shares of common stock 26,634 26,520
Basic and diluted earnings per average share of common stock $1.10 $0.86
Dividend per share of common stock $0.505 $0.495
==========================================================================================
</TABLE>
The accompanying notes are an integral part of these statements.
-4-
<PAGE>
<TABLE>
WPS RESOURCES CORPORATION
<CAPTION>
=============================================================================
CONSOLIDATED BALANCE SHEETS March 31 December 31
(Thousands) 2000 1999
=============================================================================
<S> <C> <C>
ASSETS
- -----------------------------------------------------------------------------
Utility plant
Electric $1,815,294 $1,797,832
Gas 287,163 285,048
Property under capital lease 74,130 74,130
- -----------------------------------------------------------------------------
Net 2,176,587 2,157,010
Less - Accumulated depreciation
and decommissioning 1,321,217 1,293,354
- -----------------------------------------------------------------------------
Total 855,370 863,656
Nuclear decommissioning trusts 207,791 198,052
Construction in progress 82,595 74,187
Nuclear fuel, less accumulated amortization 18,788 15,007
- -----------------------------------------------------------------------------
Net utility plant 1,164,544 1,150,902
=============================================================================
Current assets
Cash and equivalents 16,767 10,547
Customer and other receivables, net of reserves 158,441 132,355
Accrued utility revenues 32,321 38,533
Fossil fuel, at average cost 20,847 24,657
Gas in storage, at average cost 11,482 29,344
Materials and supplies, at average cost 28,622 28,618
Assets from risk management activities 98,462 -
Prepayments and other 23,180 28,871
- -----------------------------------------------------------------------------
Total current assets 390,122 292,925
=============================================================================
Regulatory assets 67,701 70,490
Net nonutility and nonregulated plant 134,274 168,143
Pension assets 69,089 65,622
Investments and other assets 116,685 68,466
=============================================================================
Total $1,942,415 $1,816,548
=============================================================================
CAPITALIZATION AND LIABILITIES
- -----------------------------------------------------------------------------
Capitalization
Common stock equity $ 542,125 $ 536,300
Preferred stock of subsidiary with
no mandatory redemption 51,190 51,193
Company-obligated mandatorily redeemable
trust preferred securities of subsidiary
trust holding solely WPS Resources
7.00% subordinated debentures 50,000 50,000
Long-term capital lease obligation 73,483 73,585
Long-term debt 510,891 510,917
- -----------------------------------------------------------------------------
Total capitalization 1,227,689 1,221,995
=============================================================================
Current liabilities
Current portion of long-term debt
and capital lease obligation 1,362 1,362
Notes payable 10,100 10,403
Commercial paper 45,950 79,855
Accounts payable 137,203 103,437
Accrued taxes 10,221 9,844
Accrued interest 11,126 7,561
Liabilities from risk management activities 98,272 -
Other 36,364 21,099
- -----------------------------------------------------------------------------
Total current liabilities 350,598 233,561
=============================================================================
Long-term liabilities and deferred credits
Accumulated deferred income taxes 112,782 111,092
Accumulated deferred investment tax credits 25,300 25,748
Regulatory liabilities 62,460 64,148
Environmental remediation liabilities 40,427 40,557
Postretirement health care liability 48,419 47,115
Other long-term liabilities 74,740 72,332
- -----------------------------------------------------------------------------
Total long-term liabilities and deferred credits 364,128 360,992
=============================================================================
Total $1,942,415 $1,816,548
=============================================================================
</TABLE>
The accompanying notes are an integral part of these statements.
-5-
<PAGE>
<TABLE>
WPS RESOURCES CORPORATION
<CAPTION>
===============================================================================================
CONSOLIDATED STATEMENTS OF CAPITALIZATION March 31 December 31
(Thousands, except share amounts) 2000 1999
===============================================================================================
<S> <C> <C>
Common stock equity
Common stock, $1 par value, 100,000,000 shares authorized;
26,851,045 shares outstanding $ 26,851 $ 26,851
Premium on capital stock 172,108 172,108
Retained earnings 357,412 341,701
Treasury stock, 376,500 shares at average
cost of $25.08 at March 31, 2000 (9,442) -
Shares in deferred compensation trust, 86,756 and 71,097 shares
at average cost of $29.14 and $30.04 per share at
March 31, 2000 and December 31, 1999, respectively (2,528) (2,136)
Employee Stock Ownership Plan loan guarantees (2,276) (2,224)
- -----------------------------------------------------------------------------------------------
Total common stock equity 542,125 536,300
===============================================================================================
Preferred stock - Wisconsin Public Service Corporation
Cumulative, $100 par value, 1,000,000 shares authorized;
with no mandatory redemption
Shares Outstanding
-----------------------
March 31 December 31
Series 2000 1999
------ -------- -----------
5.00% 131,930 131,950 13,193 13,195
5.04% 29,980 29,980 2,998 2,998
5.08% 49,990 50,000 4,999 5,000
6.76% 150,000 150,000 15,000 15,000
6.88% 150,000 150,000 15,000 15,000
- -----------------------------------------------------------------------------------------------
Total preferred stock with no mandatory redemption 51,190 51,193
===============================================================================================
Company-obligated mandatorily redeemable trust
preferred securities of subsidiary trust
holding solely WPSR 7.00% subordinated debentures 50,000 50,000
===============================================================================================
Capital lease obligation - Wisconsin Public Service Corporation 73,902 74,004
Less current portion (419) (419)
- -----------------------------------------------------------------------------------------------
Net capital lease obligation 73,483 73,585
===============================================================================================
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 4,800 4,800
9.32% 2021 18,000 18,000
Unsecured senior notes - WPS Resources Corporation
Series Year Due
------ --------
7.00% 2009 150,000 150,000
Term loan - nonrecourse, secured by nonregulated
assets of PDI New England and PDI Canada
Series Year Due
------ --------
8.75% 2010 24,000 24,000
Employee Stock Ownership Plan loan guarantees 2,276 2,224
Notes payable to bank, secured by nonregulated plant 11,117 11,136
Senior secured note 3,634 3,722
Other long-term debt 142 142
- -----------------------------------------------------------------------------------------------
Total 513,144 513,199
Unamortized discount and premium on bonds
and debt securities, net (1,310) (1,339)
- -----------------------------------------------------------------------------------------------
Total long-term debt 511,834 511,860
Less current portion (943) (943)
- -----------------------------------------------------------------------------------------------
Net long-term debt 510,891 510,917
===============================================================================================
Total capitalization $1,227,689 $1,221,995
===============================================================================================
</TABLE>
The accompanying notes are an integral part of these statements.
-6-
<PAGE>
<TABLE>
WPS RESOURCES CORPORATION
<CAPTION>
============================================================================================
CONSOLIDATED STATEMENTS OF CASH FLOWS Three Months Ended
(Thousands) March 31
2000 1999
============================================================================================
<S> <C> <C>
Cash flows from operating activities
Net income $ 29,232 $ 22,752
Adjustments to reconcile net income to net cash from
operating activities
Depreciation and decommissioning 27,170 20,219
Amortization of nuclear fuel and other 3,891 3,717
Deferred income taxes 997 (617)
Investment tax credit restored (448) (60)
Allowance for equity funds used during construction (368) (196)
Pension income (3,467) (1,542)
Postretirement funding 1,304 1,117
Other, net 4,377 5,792
Changes in
Customer and other receivables (26,086) 356
Accrued utility revenues 6,212 2,941
Fossil fuel inventory 3,810 (1,776)
Gas in storage 17,862 17,209
Accounts payable 33,766 (21,814)
Accrued taxes 377 10,449
Miscellaneous current and accrued liabilities 15,656 14,094
- --------------------------------------------------------------------------------------------
Net cash from operating activities 114,285 72,641
============================================================================================
Cash flows from (used for) investing activities
Construction of utility plant and nuclear fuel expenditures (34,276) (20,924)
Purchase of other property and equipment (8,034) (620)
Decommissioning funding (1,612) (2,273)
Other (6,615) (260)
- --------------------------------------------------------------------------------------------
Net cash used for investing activities (50,537) (24,077)
============================================================================================
Cash flows from (used for) financing activities
Issuance of notes payable - 34,250
Redemptions of notes payable (303) (36,650)
Issuance of other long-term debt 225 237
Redemptions of other long-term debt (107) -
Issuance of commercial paper 259,508 687,595
Redemptions of commercial paper (293,413) (721,185)
Cash dividends on common stock (13,521) (13,157)
Issuance of common stock - 2,539
Purchase of treasury and deferred compensation shares (9,834) (133)
Other (83) -
- --------------------------------------------------------------------------------------------
Net cash used for financing activities (57,528) (46,504)
============================================================================================
Net increase in cash and equivalents 6,220 2,060
Cash and equivalents at beginning of period 10,547 7,134
============================================================================================
Cash and equivalents at end of period $ 16,767 $ 9,194
============================================================================================
Cash paid during period for
Interest, less amount capitalized $ 10,129 $ 8,926
Income taxes 7,831 1,306
Preferred stock dividends of subsidiaries 778 778
============================================================================================
</TABLE>
The accompanying notes are an integral part of these statements.
-7-
<PAGE>
<TABLE>
WISCONSIN PUBLIC SERVICE CORPORATION
<CAPTION>
================================================================================
CONSOLIDATED STATEMENTS OF INCOME Three Months Ended
AND COMPREHENSIVE INCOME March 31
(Thousands) 2000 1999
================================================================================
<S> <C> <C>
Operating revenues
Electric $140,920 $127,537
Gas 76,187 68,299
- --------------------------------------------------------------------------------
Total operating revenues 217,107 195,836
================================================================================
Operating expenses
Electric production fuels 28,159 26,487
Purchased power 13,983 13,287
Gas purchased for resale 47,634 39,871
Other operating expenses 38,812 36,046
Maintenance 15,714 14,063
Depreciation and decommissioning 23,020 17,977
Federal income taxes 11,608 10,834
Investment tax credit restored (401) (402)
State income taxes 2,783 2,646
Gross receipts tax and other 7,626 6,987
- --------------------------------------------------------------------------------
Total operating expenses 188,938 167,796
================================================================================
Operating income 28,169 28,040
- --------------------------------------------------------------------------------
Other income and (deductions)
Allowance for equity funds used during construction 368 196
Other, net 6,197 2,295
Income taxes (106) (381)
- --------------------------------------------------------------------------------
Total other income 6,459 2,110
================================================================================
Income before interest expense 34,628 30,150
- --------------------------------------------------------------------------------
Interest expense
Interest on long-term debt 5,460 5,465
Other interest 2,209 707
Allowance for borrowed funds used
during construction (1,104) (177)
- --------------------------------------------------------------------------------
Total interest expense 6,565 5,995
================================================================================
Net income 28,063 24,155
Preferred stock dividend requirements 778 778
- --------------------------------------------------------------------------------
Earnings on common stock 27,285 23,377
================================================================================
Other comprehensive income - -
Comprehensive income $ 27,285 $ 23,377
================================================================================
</TABLE>
The accompanying notes are an integral part of these statements.
-8-
<PAGE>
<TABLE>
WISCONSIN PUBLIC SERVICE CORPORATION
<CAPTION>
=================================================================================================
CONSOLIDATED BALANCE SHEETS March 31 December 31
(Thousands) 2000 1999
=================================================================================================
<C> <C> <C>
ASSETS
- -------------------------------------------------------------------------------------------------
Utility plant
Electric $1,627,747 $1,611,543
Gas 287,163 285,048
Property under capital lease 74,130 74,130
- -------------------------------------------------------------------------------------------------
Total 1,989,040 1,970,721
Less - Accumulated depreciation and decommissioning 1,228,735 1,202,725
- -------------------------------------------------------------------------------------------------
Total 760,305 767,996
Nuclear decommissioning trusts 207,791 198,052
Construction in progress 76,584 67,831
Nuclear fuel, less accumulated amortization 18,788 15,007
- -------------------------------------------------------------------------------------------------
Net utility plant 1,063,468 1,048,886
=================================================================================================
Current assets
Cash and equivalents 2,256 3,428
Customer and other receivables, net of reserves 66,713 70,940
Accrued utility revenues 29,485 36,132
Fossil fuel, at average cost 13,358 15,134
Gas in storage, at average cost 4,117 18,776
Materials and supplies, at average cost 23,342 21,302
Prepayments and other 16,204 20,734
- -------------------------------------------------------------------------------------------------
Total current assets 155,475 186,446
=================================================================================================
Regulatory assets 65,003 68,169
Net nonutility plant 1,317 1,294
Pension assets 69,089 65,622
Investments and other assets 40,589 39,468
=================================================================================================
Total $1,394,941 $1,409,885
=================================================================================================
CAPITALIZATION AND LIABILITIES
- -------------------------------------------------------------------------------------------------
Capitalization
Common stock equity $ 508,896 $ 525,128
Preferred stock with no mandatory redemption 51,190 51,193
Capital lease obligation 73,483 73,585
Long-term debt to parent 13,706 13,780
Long-term debt 285,849 285,783
- -------------------------------------------------------------------------------------------------
Total capitalization 933,124 949,469
=================================================================================================
Current liabilities
Current portion of capital lease obligation 419 419
Note payable 10,000 10,000
Commercial paper 26,000 40,000
Accounts payable 57,366 52,654
Accrued interest and taxes 11,542 12,819
Other 22,149 13,118
- -------------------------------------------------------------------------------------------------
Total current liabilities 127,476 129,010
=================================================================================================
Long-term liabilities and deferred credits
Accumulated deferred income taxes 109,140 107,516
Accumulated deferred investment tax credits 23,149 23,551
Regulatory liabilities 55,037 56,728
Environmental remediation liabilities 38,502 38,632
Postretirement health care liability 48,419 47,115
Other long-term liabilities 60,094 57,864
- -------------------------------------------------------------------------------------------------
Total long-term liabilities and deferred credits 334,341 331,406
=================================================================================================
Total $1,394,941 $1,409,885
=================================================================================================
</TABLE>
The accompanying notes are an integral part of these statements.
-9-
<PAGE>
<TABLE>
WISCONSIN PUBLIC SERVICE CORPORATION
<CAPTION>
==================================================================================
CONSOLIDATED STATEMENTS OF CAPITALIZATION March 31 December 31
(Thousands, except share amounts) 2000 1999
==================================================================================
<S> <C> <C>
Common stock equity
Common stock $ 95,588 $ 95,588
Premium on capital stock 167,877 167,842
Retained earnings 247,707 263,922
Employee Stock Ownership Plan loan guarantees (2,276) (2,224)
- ----------------------------------------------------------------------------------
Total common stock equity 508,896 525,128
==================================================================================
Preferred stock
Cumulative, $100 par value, 1,000,000 shares
authorized; with no mandatory redemption
Shares Outstanding
-----------------------
March 31 December 31
Series 2000 1999
------ -------- -----------
5.00% 131,930 131,950 13,193 13,195
5.04% 29,980 29,980 2,998 2,998
5.08% 49,990 50,000 4,999 5,000
6.76% 150,000 150,000 15,000 15,000
6.88% 150,000 150,000 15,000 15,000
- ----------------------------------------------------------------------------------
Total preferred stock 51,190 51,193
==================================================================================
Capital lease obligation 73,902 74,004
Less current portion 419 419
- ----------------------------------------------------------------------------------
Net capital lease obligation 73,483 73,585
==================================================================================
Long-term debt to parent
Series Year Due
------ --------
8.76% 2015 5,662 5,693
7.35% 2016 8,044 8,087
- ----------------------------------------------------------------------------------
Total long-term debt to parent 13,706 13,780
==================================================================================
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 (744) (758)
- ----------------------------------------------------------------------------------
Total first mortgage bonds 283,431 283,417
- ----------------------------------------------------------------------------------
Employee Stock Ownership Plan loan guarantees 2,276 2,224
Other long-term debt 142 142
- ----------------------------------------------------------------------------------
Total long-term debt 285,849 285,783
==================================================================================
Total capitalization $933,124 $949,469
==================================================================================
</TABLE>
The accompanying notes are an integral part of these statements.
-10-
<PAGE>
<TABLE>
WISCONSIN PUBLIC SERVICE CORPORATION
<CAPTION>
==================================================================================
CONSOLIDATED STATEMENTS OF CASH FLOWS Three Months Ended
(Thousands) March 31
2000 1999
==================================================================================
<S> <C> <C>
Cash flows from operating activities
Net income $ 28,063 $ 24,155
Adjustments to reconcile net income to net
cash from operating activities
Depreciation and decommissioning 23,020 17,977
Amortization of nuclear fuel and other 3,484 3,558
Deferred income taxes 931 (803)
Investment tax credit restored (402) (15)
Allowance for equity funds used
during construction (368) (196)
Pension income (3,467) (1,542)
Postretirement funding 1,304 1,117
Other, net (785) 1,016
Changes in
Customer and other receivables 4,227 (4,976)
Accrued utility revenues 6,647 2,371
Fossil fuel inventory 1,776 (1,772)
Gas in storage 14,659 12,266
Accounts payable 4,712 (11,711)
Miscellaneous current and accrued liabilities 7,202 12,133
Accrued taxes 200 11,754
- ----------------------------------------------------------------------------------
Net cash from operating activities 91,203 65,332
==================================================================================
Cash flows from (used for) investing activities
Construction of utility plant and nuclear
fuel expenditures (33,220) (19,899)
Decommissioning funding (1,612) (2,273)
Purchase of other property and equipment (24) (54)
Other 881 (318)
- ----------------------------------------------------------------------------------
Net cash used for investing activities (33,975) (22,544)
==================================================================================
Cash flows from (used for) financing activities
Proceeds from issuance of commercial paper 111,000 104,000
Redemptions of commercial paper (125,000) (115,000)
Dividend to parent (43,500) (27,500)
Preferred stock dividends (778) (778)
Other (122) -
- ----------------------------------------------------------------------------------
Net cash used for financing activities (58,400) (39,278)
==================================================================================
Net increase (decrease) in cash and equivalents (1,172) 3,510
Cash and equivalents at beginning of period 3,428 1,882
==================================================================================
Cash and equivalents at end of period $ 2,256 $ 5,392
==================================================================================
Cash paid during period for
Interest, less amount capitalized $ 7,450 $ 7,093
Income taxes 7,285 2,262
==================================================================================
</TABLE>
The accompanying notes are an integral part of these statements.
-11-
<PAGE>
<TABLE>
WISCONSIN PUBLIC SERVICE CORPORATION
<CAPTION>
=======================================================================================
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS Three Months Ended
(Thousands) March 31
2000 1999
=======================================================================================
<S> <C> <C>
Balance at beginning of period $263,922 $284,726
Add Net income 28,063 24,155
- ---------------------------------------------------------------------------------------
291,985 308,881
- ---------------------------------------------------------------------------------------
Deduct
Cash dividends declared on preferred stock 778 778
Dividend to parent 43,500 27,500
- ---------------------------------------------------------------------------------------
44,278 28,278
- ---------------------------------------------------------------------------------------
Balance at end of period $247,707 $280,603
=======================================================================================
</TABLE>
The accompanying notes are an integral part of these statements.
-12-
<PAGE>
WPS RESOURCES CORPORATION AND SUBSIDIARIES
WISCONSIN PUBLIC SERVICE CORPORATION
CONDENSED NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2000
NOTE 1. FINANCIAL INFORMATION
______________________________
We have prepared the consolidated financial statements of WPS Resources
Corporation and Wisconsin Public Service Corporation under the rules and
regulations of the Securities and Exchange Commission. These financial
statements have not been audited. Management believes that these financial
statements include all normal recurring adjustments which are necessary for a
fair presentation of the financial results for each period shown. We have
condensed or omitted certain information and footnote disclosures normally
included in financial statements prepared under generally accepted accounting
principles. We believe that the disclosures made are adequate to make the
information presented not misleading. These financial statements should be
read along with the financial statements and notes included with our latest
annual Form 10-K report.
Because of the seasonal nature of utility operations, the results reported for
the quarter may not be representative of annual results.
NOTE 2. PRICE RISK MANAGEMENT ACTIVITIES
_________________________________________
In November 1998, the Emerging Issues Task Force reached a consensus on Issue
98-10, "Accounting for Contracts Involved in Energy Trading and Risk
Management Activities." Issue 98-10 requires energy trading contracts to be
recorded at fair value on the balance sheet, with changes in fair value
included in earnings. Issue 98-10 became effective on January 1, 1999. There
was no accounting impact on the effective date because we concluded that the
energy contracts of WPS Energy Services did not meet the definition of energy
trading contracts under Issue 98-10.
WPS Energy Services periodically reevaluates whether its contracts meet the
definition of energy trading under Issue 98-10. Primarily as a result of
changes in strategic focus in the first quarter of 2000 that resulted in a
shift in customer mix more to wholesale than retail, we have concluded that
WPS Energy Services meets more of the characteristics of an energy trading
operation as defined by Issue 98-10. Therefore, WPS Energy Services began to
mark-to-market its energy contracts in the first quarter of 2000, including
gas in storage. The impact on the balance sheet as of March 31, 2000 was to
record a current asset called, "Assets from Risk Management Activities," of
$98.5 million which represents gains based on the fair value of energy
contracts and a current liability called, "Liabilities from Risk Management
Activities," of $98.3 million which represents losses based on the fair value
of energy contracts. The impact on the income statement was not material.
Net changes in the fair market value of energy contracts are reported in
nonregulated energy cost of sales. Going forward, we expect the change in
classification of our energy contracts will increase volatility in WPS Energy
Services' balance sheet because of the effect on both assets and liabilities.
Volatility in the income statement may increase as well.
-13-
<PAGE>
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards 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 depends 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.
In June 1999, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 137. This new statement delays the
effective date of Standard No. 133 to fiscal periods beginning after June 15,
2000. We will be adopting Statement No. 133 on January 1, 2001.
We have certain fixed price contracts for future purchases of commodities in
our utility business that may be considered derivatives under Statement
No. 133. We believe these contracts would qualify as hedges under current
interpretations. Based on the limited number of contracts as of December 31,
1999, we do not expect the amount of derivative assets and liabilities that
would be recognized on our balance sheet to be significant. An exposure draft
was issued March 3, 2000 and if adopted as a final standard amending Statement
No. 133, would result in even fewer of the utilities' commodity contracts
being defined as derivatives. The adoption of Statement No. 133 is not
expected to have a material effect on WPS Energy Services because we do not
anticipate designating any derivative contracts as hedges and will continue to
mark our energy trading contracts to market according to Issue 98-10.
NOTE 3. SEGMENTS OF BUSINESS
_____________________________
We manage our reportable segments separately due to their different operating
and regulatory environments. Our principal business segments are the
regulated electric utility operations of Wisconsin Public Service Corporation
and Upper Peninsula Power Company and the regulated gas utility operations of
Wisconsin Public Service. Our other reportable segments include WPS Energy
Services and WPS Power Development. WPS Energy Services is a diversified
energy supply and services company, and WPS Power Development is an electric
generation asset development company.
The table below presents summary information pertaining to our operations
segmented by lines of business. We restated 1999 data for comparative
purposes due to changes in our reportable segments. The changes include
adding a utility subtotal column and separating WPS Power Development from
Other due to its increase in significance.
-14-
<PAGE>
<TABLE>
<CAPTION>
Nonutility and
Regulated Utilities Nonregulated Operations
------------------- -----------------------
Segments of WPS WPS
Business Total Energy WPS Power Reconciling Resources
(Thousands) Electric Gas Utility Services Development Other Eliminations Consolidated
- ----------- -------- --- ------- -------- ----------- ----- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Quarter Ended
March 31, 2000
- ------------------
Operating revenues $157,993 $76,187 $234,180 $145,990 $29,024 $ 3,209 $(13,554) $398,849
Net income (loss) 20,210 8,498 28,708 513 1,041 (1,030) - 29,232
Quarter Ended
March 31, 1999
- ------------------
Operating revenues $144,140 $68,299 $212,439 $115,422 $ 4,074 $ 1,130 $ (3,231) $329,834
Net income (loss) 15,362 9,345 24,707 (834) (835) (286) - 22,752
</TABLE>
-15-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS - WPS RESOURCES CORPORATION
WPS Resources Corporation is a holding company. Our wholly-owned subsidiaries
include two regulated utilities, Wisconsin Public Service Corporation and
Upper Peninsula Power Company. Another wholly-owned subsidiary, WPS Resources
Capital Corporation, is a holding company for our nonregulated businesses
including WPS Energy Services, Inc. and WPS Power Development, Inc.
Approximately 72% of our assets at March 31, 2000, was derived from
Wisconsin Public Service, an electric and gas utility. Approximately 98% of
our net income for the first three months of 2000 was derived from electric
and gas utility operations.
FIRST QUARTER 2000 COMPARED WITH FIRST QUARTER 1999
WPS RESOURCES OVERVIEW
WPS Resources' first quarter 2000 and first quarter 1999 results of operations
are shown in the following chart:
First Quarter
------------------------------
WPS Resources' Results Percent
(Millions, except share amounts) 2000 1999 Change
- -------------------------------- ---- ---- -------
Consolidated operating revenues $398.8 $329.8 20.9
Net income 29.2 22.8 28.1
Basic and diluted earnings per share $1.10 $0.86 27.9
The primary reasons for the higher income were increases in the electric
utility margin and in WPS Energy Services' gas margin. Tax credits received
at WPS Power Development also contributed to higher income. Partially
offsetting these factors were increases in operating, maintenance, and
interest expenses.
OVERVIEW OF UTILITY OPERATIONS (WISCONSIN PUBLIC SERVICE AND UPPER PENINSULA
POWER)
Revenues and income for our utility operations are shown in the following
chart:
-16-
<PAGE>
First Quarter
------------------------------
Percent
Results (Millions) 2000 1999 Change
- ------------------ ---- ---- -------
Wisconsin Public Service
Operating revenues $217.1 $195.8 10.9
Net income 27.3 23.4 16.7
- ---------------------------------------------------------------------------
Upper Peninsula Power
Operating revenues $ 17.1 $ 16.6 3.0
Net income 1.4 1.3 7.7
- ---------------------------------------------------------------------------
ELECTRIC UTILITY OPERATIONS (WISCONSIN PUBLIC SERVICE AND UPPER PENINSULA
POWER)
Our consolidated electric utility margin increased $11.6 million, or 11.8%,
primarily due to increased sales at Wisconsin Public Service and recognition
of additional revenue in the second year of its 1999-2000 biennial rate
increase. Wisconsin Public Service implemented a 6.3% Wisconsin retail
electric rate increase on January 15, 1999 and received an additional 4.6%
Wisconsin retail electric rate increase effective January 1, 2000, primarily
to recover additional fuel and purchased power costs for the year.
First Quarter
WPS Resources' Consolidated ------------------------
Electric Utility Results (Thousands) 2000 1999
- ------------------------------------ ---- ----
Revenues $153,431 $142,393
Fuel and purchased power costs 43,893 44,405
------- -------
Margins $109,538 $ 97,988
======= =======
Sales in kilowatt-hours 3,138,910 3,144,714
Our consolidated electric utility revenues increased $11.0 million, or 7.8%.
Electric utility revenues at Wisconsin Public Service were up 10.5% largely
due to the Wisconsin retail electric rate increases and a 4.1% increase in
sales to commercial and industrial customers.
Our consolidated fuel expense increased $1.7 million, or 6.4%, due to
increased production at Wisconsin Public Service's combustion turbine
generating plants. Our consolidated purchased power expense decreased
$2.2 million, or 12.3%, primarily due to a 1.6% decrease in purchase
requirements at Wisconsin Public Service coupled with a 7.0% increase in the
cost of purchases.
The Public Service Commission of Wisconsin allows Wisconsin Public Service to
adjust prospectively the amount billed to Wisconsin retail customers for fuel
and purchased power if costs fall outside a specified range. Wisconsin Public
Service 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
-17-
<PAGE>
basis. Forecasted annual 2000 fuel costs at March 31, 2000 are expected to be
within this 2.0% window.
GAS UTILITY OPERATIONS (WISCONSIN PUBLIC SERVICE)
The consolidated gas utility margin represents gas revenues less purchases
exclusive of intercompany transactions. The gas utility margin at
Wisconsin Public Service remained relatively stable for the first quarter of
2000 compared with the first quarter of 1999.
First Quarter
Wisconsin Public Service's ----------------------------
Gas Utility Results (Thousands) 2000 1999
- ------------------------------- ---- ----
Revenues $76,187 $68,299
Purchase costs 47,634 39,871
------ ------
Margin $28,553 $28,428
====== ======
Volume in therms 247,520 250,885
Wisconsin Public Service's gas revenues increased $7.9 million, or 11.5%,
while overall therm sales decreased 1.3%. Gas revenues increased as the
result of the January 15, 1999 implementation of a 5.1% increase in Wisconsin
retail gas rates. The rates were effective for the entire first quarter of
2000 but for only a portion of the first quarter of 1999. Weather in the
first quarter of 2000 was 1.2% warmer than in the first quarter of 1999, and
was 10.6% warmer than normal.
Wisconsin Public Service's gas purchase costs increased $7.8 million, or
19.5%. This increase resulted from higher gas costs of 21.6% in the first
quarter of 2000. Under current regulatory practice, the Public Service
Commission of Wisconsin and the Michigan Public Service Commission allow
Wisconsin Public Service to pass changes in the cost of gas on to customers
through a purchased gas adjustment clause.
OTHER UTILITY EXPENSES (WISCONSIN PUBLIC SERVICE AND UPPER PENINSULA POWER)
Other operating expenses at Wisconsin Public Service increased $2.8 million,
or 7.7%, primarily due to increased charges for the transmission of
electricity and to higher meter costs.
Maintenance expense at Wisconsin Public Service increased $1.7 million as a
result of additional maintenance activities at several of its power plants in
preparation for summer demand and more maintenance of overhead lines.
Maintenance expense at Upper Peninsula Power increased $0.5 million primarily
due to storm damage repairs.
-18-
<PAGE>
OVERVIEW OF NONUTILITY AND NONREGULATED OPERATIONS
Nonregulated operations include the gas and electric sales at WPS Energy
Services, Inc., a diversified energy supply and services company and the
operations of WPS Power Development, Inc., an electric generation asset
development company. Nonregulated operations also include those of
WPS Resources and WPS Resources Capital Corporation as holding companies.
Nonutility operations refer to the activities of Wisconsin Public Service and
Upper Peninsula Power which do not fall under utility regulation.
Nonutility and nonregulated operations experienced income of $0.5 million in
the first quarter of 2000 compared with a loss of $1.9 million in the first
quarter of 1999.
OVERVIEW OF WPS ENERGY SERVICES
Revenues at WPS Energy Services were $146.0 million in the first quarter of
2000 compared with $115.4 million in the first quarter of 1999, an increase of
26.5%. WPS Energy Services experienced earnings of $0.5 million in the first
quarter of 2000 compared with a loss of $0.8 million in the first quarter of
1999. The primary reason for the increase in income was improved gas margins
in 2000.
WPS ENERGY SERVICES' MARGINS
Gas margins at WPS Energy Services were $3.7 million in the first quarter of
2000 compared with $1.7 million in the first quarter of 1999. Gas revenues at
WPS Energy Services were $142.4 million in the first quarter of 2000 compared
with $114.5 million in the first quarter of 1999, an increase of 24.4%. This
increase was the result of additional sales in the retail and wholesale
markets.
Electric margins at WPS Energy Services increased $0.3 million in the first
quarter of 2000 compared with the first quarter of 1999. Electric revenues at
WPS Energy Services were $3.2 million in the first quarter of 2000 and
$0.8 million in the first quarter of 1999. This increase was the result of
additional retail electric sales in Maine and Pennsylvania associated with the
WPS Power Development assets that were acquired in the second and fourth
quarter of 1999.
WPS Energy Services' cost of sales was $141.5 million in the first quarter of
2000 compared with $113.5 million in the first quarter of 1999, an increase of
24.7%. This increase was due to higher gas purchases of $25.9 million and
higher electric purchases of $2.1 million, both due primarily to increased
sales.
WPS ENERGY SERVICES' OTHER EXPENSES/INCOME
Operating expenses at WPS Energy Services increased $0.6 million in the first
quarter of 2000 compared with the first quarter of 1999 due to more payroll
and other operational costs associated with business expansion.
-19-
<PAGE>
WPS ENERGY SERVICES' PRICE RISK MANAGEMENT ACTIVITIES
WPS Energy Services uses derivative financial and commodity instruments to
reduce market risk associated with the changing prices of natural gas and
electricity sold at firm prices to customers. WPS Energy Services also uses
derivatives to manage market risk associated with anticipated energy
purchases, as well as trading activities. Derivatives may include futures and
forward contracts, basis swap agreements, or call and put options.
WPS Energy Services adopted the Emerging Issues Task Force Issue 98-10,
"Accounting for Contracts Involved in Energy Trading and Risk Management
Activities," on January 1, 1999. No accounting impact occurred at that time
because management concluded that WPS Energy Services did not meet the
definition of a trading company under Issue 98-10.
WPS Energy Services periodically reevaluates whether its contracts meet the
definition of energy trading under Issue 98-10. Primarily as a result of
changes in strategic focus in the first quarter of 2000 that resulted in a
shift in customer mix more to wholesale than retail, we have concluded that
WPS Energy Services meets more of the characteristics of an energy trading
operation as defined by Issue 98-10. Therefore, WPS Energy Services began to
mark-to-market its energy contracts in the first quarter of 2000, including
gas in storage. The impact on the balance sheet as of March 31, 2000 was to
record a current asset called, "Assets from Risk Management Activities," of
$98.5 million which represents gains based on the fair value of energy
contracts and a current liability called, "Liabilities from Risk Management
Activities," of $98.3 million which represents losses based on the fair value
of energy contracts. The impact on the income statement was not material.
Net changes in the fair market value of energy contracts are reported in
nonregulated energy cost of sales. Going forward, we expect the change in
classification of our energy contracts will increase volatility in WPS Energy
Services' balance sheet because of the effect on both assets and liabilities.
Volatility in the income statement may increase as well.
OVERVIEW OF WPS POWER DEVELOPMENT
Income at WPS Power Development was $1.0 million in the first quarter of 2000
compared with a loss of $0.8 million in the first quarter of 1999. The
increase in income was primarily due to additional tax credits of
approximately $4.7 million received in the first quarter of 2000 from the ECO
#12 synthetic fuel operation. Production at ECO #12 was higher than
anticipated in the first quarter of 2000 because we were able to take
advantage of good weather and spot contracts for the sale of synthetic fuel.
We do not expect to maintain spot sales at this level during the second
quarter as we evaluate options for this portable equipment. The evaluation is
resulting from the mine operator filing Chapter 7 bankruptcy.
In addition, WPS Power Development realized income of $0.9 million in the
first quarter of 2000 as a result of an equity contribution in the ECO #12
synthetic fuel project by the minority owner. Prior to this transaction,
WPS Power Development had been recording 100% of the operating losses of this
project because the minority owner's equity had been reduced to zero, but had
been allocated only 66.7% of the tax credits. Beginning in 2000, WPS Power
Development is receiving 100% of the tax credits and operating results from
the project until the minority owner is able to contribute further capital to
fund its share of the operating costs.
-20-
<PAGE>
WPS Power Development experienced an increase of $10.1 million in its margin
on operating generation facilities in the first quarter of 2000. This
increase was largely due to the operation of the electric generation assets
acquired in Maine and Canada in the second quarter of 1999 and Pennsylvania in
the fourth quarter of 1999. Other operating expenses at WPS Power Development
increased $13.6 million due to operating expenses related to the generation
assets acquired in 1999, including a major overhaul of two generation units at
the Sunbury plant, and to higher operating expenses at ECO #12.
OVERVIEW OF OTHER NONUTILITY AND NONREGULATED OPERATIONS
Other nonutility and nonregulated operations include the activities at
Wisconsin Public Service and Upper Peninsula Power that are not regulated and
the operations of WPS Resources and WPS Resources Capital as holding
companies. Other nonutility and nonregulated operations experienced a loss of
$1.0 million in the first quarter of 2000 compared with a loss of $0.3 million
in the first quarter of 1999. This increase in losses was primarily due to
higher interest expense of $2.6 million at WPS Resources holding company due
to increased financing to provide capital for nonregulated projects.
FINANCIAL CONDITION - WPS RESOURCES
INVESTMENTS AND FINANCING
Special common stock dividends of $30.0 million were paid by Wisconsin Public
Service to WPS Resources in the first quarter of 2000. These special
dividends allowed Wisconsin Public Service's average equity capitalization
ratio for ratemaking to remain at its target level as established by the
Public Service Commission of Wisconsin in its most recent rate order.
Internally generated funds exceeded cash requirements in the first quarter of
2000 and short-term borrowings decreased $34.2 million. Our pretax interest
coverage was 2.99 times for the 12 months ended March 31, 2000. See the table
below for WPS Resources' credit ratings.
Credit Ratings Standard & Poor's Moody's
- -------------- ----------------- -------
WPS Resources Corporation
Senior unsecured debt AA Aa3
Commercial paper A1+ P1
Trust preferred securities A+ aa3
WPS Resources Capital Corporation
Unsecured debt* AA Aa3
Wisconsin Public Service Corporation
Bonds AA+ Aa1
Preferred stock AA aa2
Commercial paper A1+ P1
* No securities currently outstanding.
We normally use internally-generated funds and short-term borrowing to satisfy
most of our capital requirements. We may periodically issue additional
long-term debt and common stock to reduce short-term debt and to maintain
desired capitalization ratios.
-21-
<PAGE>
The specific forms of financing, amounts, and timing will depend on the
availability of projects, market conditions, and other factors.
In October 1999 we filed a shelf registration with the Securities and Exchange
Commission which allows the issuance of $400.0 million in the aggregate of
public long-term debt and common stock. Long-term debt of $150.0 million has
been issued under the shelf registration. We repurchased $9.8 million of
common stock for our stock option plan and other corporate purposes including
the employee stock ownership plan. We may expand our employee stock ownership
plan during the next three-year period.
Wisconsin Public Service makes large investments in capital assets.
Construction expenditures for Wisconsin Public Service are expected to be
approximately $530.0 million in the aggregate for the 2000 through 2002
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 Wisconsin Public Service for the
three-year period will include contributions of approximately $14.1 million to
the Kewaunee Nuclear Power Plant decommissioning trust fund.
Wisconsin Public Service's agreement to purchase electricity from the
De Pere Energy Center, a gas-fired cogeneration facility, is accounted for as
a capital lease.
Upper Peninsula Power is expected to incur construction expenditures of about
$22.0 million in the aggregate for the period 2000 through 2002, primarily for
electric distribution improvements.
In April 2000, Sunbury Generation, LLC, an indirect subsidiary of WPS Power
Development, obtained $83.7 million of nonrecourse financing which is secured
by the Sunbury Generation plant.
Other investment expenditures for nonregulated projects are uncertain.
Financing for most nonregulated projects is expected to be obtained through
nonrecourse project financing and/or through WPS Resources Capital Corporation.
ELECTRIC RELIABILITY
WPS Resources purchased a summer 50-megawatt fixed-price physical contract in
April 2000. The contract is intended for earnings protection against summer
energy price spikes in the event of a loss of generating units.
REGULATORY
Wisconsin Public Service 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 are effective for 1999 and 2000. The Public Service Commission of
Wisconsin authorized a 12.1% return on Wisconsin Public Service's equity for
1999 and 2000.
Wisconsin Public Service received an additional rate order in the Wisconsin
jurisdiction on December 15, 1999. This order approved a 4.6% electric rate
-22-
<PAGE>
increase primarily to recover additional fuel and purchased power costs for
2000. The new rates were implemented on January 1, 2000.
On March 31, 2000 Wisconsin Public Service filed a biennial rate case
application with the Public Service Commission of Wisconsin for the years 2001
and 2002. Wisconsin Public Service requested an 8.9% increase in retail
electric rates and a 2.1% increase in retail gas rates for 2001. An
additional 2.2% increase in retail electric rates and a 1.5% increase in
retail gas rates were requested for 2002. A 12.1% return on equity was
requested. The Public Service Commission of Wisconsin is expected to issue a
rate order in November 2000 with new Wisconsin retail rates effective
January 1, 2001.
ENVIRONMENTAL
Wisconsin Public Service challenged the United States Environmental Protection
Agency's regulations that required Wisconsin to prepare and submit a Nitrogen
Oxide State Implementation Plan. On March 3, 2000, the United States Court of
Appeals for the District of Columbia, held that the United States
Environmental Protection Agency Nitrogen Oxide State Implementation Plan call
was inappropriately issued to the state of Wisconsin.
The decision is being reviewed by the Wisconsin Department of Natural
Resources, which indicated that reductions in nitrogen oxides may still be
necessary to show continued progress in achieving attainment within the
national ambient air quality standard for ozone. The affect of any Wisconsin
Department of Natural Resources' requirements is not yet known. We believe
that the Public Service Commission of Wisconsin will allow rate recovery for
any expenditures associated with nitrogen oxide compliance.
KEWAUNEE NUCLEAR POWER PLANT
The Kewaunee Nuclear Power Plant began its scheduled outage for refueling and
maintenance on April 22, 2000. The plant had operated continuously for 511
days (beginning in 1998) as a result of a move to an 18-month refueling cycle.
Second quarter expenditures for maintenance and purchased power as a result of
this planned outage are expected to be higher than for the second quarter of
1999 when the plant was in operation for the entire quarter.
Absent any unanticipated maintenance, the Kewaunee plant is expected to return
to service during the week of May 28, 2000. Wisconsin Public Service is the
operator and 41.2% owner of the Kewaunee plant.
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<PAGE>
RESULTS OF OPERATIONS - WISCONSIN PUBLIC SERVICE CORPORATION
Wisconsin Public Service Corporation is a regulated electric and gas
utility. Electric operations accounted for approximately 65% of first
quarter 2000 revenues, while gas operations contributed 35% to first quarter
2000 revenues.
FIRST QUARTER 2000 COMPARED WITH FIRST QUARTER 1999
WISCONSIN PUBLIC SERVICE CORPORATION OVERVIEW
Wisconsin Public Service's first quarter 2000 and first quarter 1999 results
of operations are shown in the following chart:
First Quarter
------------------------------
Wisconsin Public Service's Percent
Results (Millions) 2000 1999 Change
- -------------------------- ---- ---- -------
Consolidated operating revenues $217.1 $195.8 10.9
Net income 27.3 23.4 16.7
The primary reason for the higher income was an increase in the electric
utility margin. Partially offsetting this factor was increases in operating
and maintenance expenses.
ELECTRIC UTILITY OPERATIONS
Wisconsin Public Service's electric utility margin increased $11.0 million,
or 12.6%, primarily due to increased sales and recognition of additional
revenue in the second year of its 1999-2000 biennial rate increase.
Wisconsin Public Service implemented a 6.3% Wisconsin retail electric rate
increase on January 15, 1999 and received an additional 4.6% Wisconsin
retail electric rate increase effective January 1, 2000, primarily to
recover additional fuel and purchased power costs for the year.
First Quarter
Wisconsin Public Service's ------------------------
Electric Utility Results (Thousands) 2000 1999
- ------------------------------------ ---- ----
Revenues $140,920 $127,537
Fuel and purchased power costs 42,142 39,774
------- -------
Margins $ 98,778 $ 87,763
======= =======
Sales in kilowatt-hours 3,070,405 2,974,684
Wisconsin Public Service's electric utility revenues increased
$13.4 million, or 10.5%, largely due to the Wisconsin retail electric rate
increases and a 4.1% increase in sales to commercial and industrial
customers.
-24-
<PAGE>
Electric production fuel expense increased $1.7 million, or 6.3%, due to
increased production at Wisconsin Public Service's combustion turbine
generating plants. Purchased power expense increased $0.7 million, or 5.2,
primarily due to a 1.6% decrease in purchase requirements coupled with a
7.0% increase in the cost of purchases.
The Public Service Commission of Wisconsin allows Wisconsin Public Service
to adjust prospectively the amount billed to Wisconsin retail customers for
fuel and purchased power if costs fall outside a specified range.
Wisconsin Public Service 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 2000 fuel costs at March
31, 2000 are expected to be within this 2.0% window.
GAS UTILITY OPERATIONS
The consolidated gas utility margin represents gas revenues less purchases
exclusive of intercompany transactions. The gas utility margin at
Wisconsin Public Service remained relatively stable for the first quarter of
2000 compared with the first quarter of 1999.
First Quarter
Wisconsin Public Service's ----------------------------
Gas Utility Results (Thousands) 2000 1999
- ------------------------------- ---- ----
Revenues $76,187 $68,299
Purchase costs 47,634 39,871
------ ------
Margin $28,553 $28,428
====== ======
Volume in therms 247,520 250,885
Wisconsin Public Service's gas revenues increased $7.9 million, or 11.5%,
while overall therm sales decreased 1.3%. Gas revenues increased as the
result of the January 15, 1999 implementation of a 5.1% increase in
Wisconsin retail gas rates. The rates were effective for the entire first
quarter of 2000 but for only a portion of the first quarter of 1999.
Weather in the first quarter of 2000 was 1.2% warmer than in the first
quarter of 1999, and was 10.6% warmer than normal.
Wisconsin Public Service's gas purchase costs increased $7.8 million, or
19.5%. This increase resulted from higher gas costs of 21.6% in the first
quarter of 2000. Under current regulatory practice, the Public Service
Commission of Wisconsin and the Michigan Public Service Commission allow
Wisconsin Public Service to pass changes in the cost of gas on to customers
through a purchased gas adjustment clause.
OTHER UTILITY EXPENSES
Other operating expenses at Wisconsin Public Service increased $2.8 million,
or 7.7%, primarily due to increased charges for the transmission of
electricity and to higher meter costs.
-25-
<PAGE>
Maintenance expense at Wisconsin Public Service increased $1.7 million as a
result of additional maintenance activities at several of its power plants
in preparation for summer demand and more maintenance of overhead lines.
FINANCIAL CONDITION - WISCONSIN PUBLIC SERVICE
INVESTMENTS AND FINANCING
Special common stock dividends of $30.0 million were paid by Wisconsin
Public Service to WPS Resources in the first quarter of 2000. These special
dividends allowed Wisconsin Public Service's average equity capitalization
ratio for ratemaking to remain at its target level as established by the
Public Service Commission of Wisconsin in its most recent rate order.
Internally generated funds exceeded cash requirements in the first quarter
of 2000 resulting in a $14.0 million reduction in short-term borrowings.
Pretax interest coverage was 4.68 times for the 12 months ended March 31,
2000. See the table below for Wisconsin Public Service's credit ratings.
Credit Ratings Standard & Poor's Moody's
- -------------- ----------------- -------
Wisconsin Public Service Corporation
Bonds AA+ Aa1
Preferred stock AA aa2
Commercial paper A1+ P1
See WPS Resources' management discussion at page 21 for additional
information regarding Wisconsin Public Service's financial condition.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
MARKET RISKS
WPS Resources has potential market risk exposure related to interest rate
risk, equity return and principal preservation risk, and commodity price
risk. There currently is no material exposure due to any foreign currency
risk. Our exposure to interest rate risk relates primarily to ongoing
short-term financing and a long-term nonrecourse debt financing at one of
our indirect subsidiaries. Exposure to equity return and principal
preservation risk results from various debt and equity security investments
in our employee benefit trusts and decommissioning trusts. Exposure to
commodity price risk exists with respect to the cost of coal, uranium,
natural gas, and fuel oil. Much of the price risk exposure related to these
fuel costs is recoverable through customer rates.
INTEREST RATE RISK
WPS Resources generally issues commercial paper, subject to varying interest
rates, for short-term borrowing. The fluctuation of interest rates will
have an impact on interest expense related to this short-term borrowing.
The amount of commercial paper outstanding is generally 5% of the
outstanding capital of WPS Resources. Based on total capitalization as of
December 31, 1999, 5% would be approximately $60.0 million of commercial
paper. A change in interest rates of 100 basis points would affect annual
interest expense by $0.6 million.
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<PAGE>
Sunbury Generation, LLC, an indirect subsidiary of WPS Resources, obtained
an $83.7 million variable rate nonrecourse loan in 2000. Sunbury
Generation, LLC has fixed the interest rate for 50% of the amount of the
loan through the purchase of an interest rate swap. It is anticipated that
the remaining 50% will be fixed should the annual exposure of continuing to
pay the variable rate on the remaining 50% of the debt reach approximately
$585,000. Other than this interest rate swap WPS Resources currently does
not employ any other interest rate swaps.
Mid American Power, LLC, an indirect subsidiary of WPS Resources, currently
has outstanding an $8.2 million variable rate loan. The interest rate, which
is tied to 90-day treasury security yields is 6.65% on March 31, 2000. The
interest rate is adjusted quarterly.
EQUITY RETURN AND PRINCIPAL PRESERVATION RISK
WPS Resources currently funds its liabilities related to employee benefits
and nuclear decommissioning through various trusts. These trusts hold
investments in debt and equity securities. Changes in the market value of
these investments can have an impact on the future expenses related to these
liabilities. Although the pension liability is adequately funded and under
normal market conditions future required contributions to the plan are
unlikely, changes in the market value of investments could impact future
contributions for healthcare benefits and decommissioning costs. All
decommissioning costs and most of the employee benefit costs relate to the
regulated entities of Wisconsin Public Service and Upper Peninsula Power.
The majority of these costs are reflected in rates and, therefore, any
equity return and principal preservation risk on these assets would be
mitigated.
At March 31, 2000, the fair value of assets exposed to potential equity
return and principal preservation risk is:
Pension $ 685,870,738
Other post-retirement benefits 159,022,120
Nuclear decommissioning 237,468,418
-------------
TOTAL $1,082,361,276
=============
COMMODITY PRICE RISK
Exposure to commodity price risk exists with respect to the cost of coal,
uranium, natural gas, and fuel oil. Much of the price risk exposure related
to these fuel costs is recoverable through customer rates.
WPS Resources and its affiliates utilize various types of financial
instruments that may qualify as derivatives to reduce market risk associated
with changing prices of natural gas and electricity.
Currently, we believe such activities in our regulated subsidiaries are
immaterial. In addition, the fuel cost adjustments and purchase gas cost
adjustment mechanisms in Wisconsin's regulatory environment should mitigate
many of these costs. For additional information on the regulated
subsidiaries activities in this area, please see Note 2 entitled Price Risk
Management Activities on page 13.
-27-
<PAGE>
The nonregulated subsidiaries of WPS Resources also use various derivative
instruments to reduce market risk associated with potential changes in
prices of natural gas and electricity. For additional information on these
activities, see the discussion entitled Price Risk Management Activities on
page 20.
-28-
<PAGE>
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
GENERATING CAPACITY
Wisconsin Public Service has entered into several definitive agreements with
Madison Gas and Electric Company under which Wisconsin Public Service will
design and construct a combustion turbine electric generation facility to be
sold to Madison Gas and Electric. The natural gas fired single cycle
facility will be located at the Wisconsin Public Service West Marinette site
and will generate approximately 83 megawatts of electricity. Wisconsin
Public Service will operate and maintain the facility for Madison Gas and
Electric. Under an energy exchange agreement, Wisconsin Public Service will
receive the output of the facility when dispatched by Madison Gas and
Electric in exchange for energy from the Wisconsin Public Service share of
output from the Columbia Energy Center and/or Wisconsin Public Service
energy system. The energy exchange and interconnection aspects of this
arrangement are currently under review by the Federal Energy Regulatory
Commission. Approval to construct the facility was received from the
Public Service Commission of Wisconsin in December 1998. Construction is to
be completed and the facility transferred to Madison Gas and Electric by
June 1, 2000.
AMERICAN TRANSMISSION COMPANY
1999 Wisconsin Act 9 requires the formation of a transmission company that
could own electric transmission facilities throughout Wisconsin and
neighboring states. The transmission company was required to begin
operation no later than November 1, 2000. On April 12, 2000, 1999 Wisconsin
Act 75 was signed which set January 1, 2001 as the new required date for the
transfer of assets and "day one" operations for the transmission company.
Wisconsin Public Service and five other regional energy companies are
working to create the nation's first for-profit electric transmission
company. The company will be the American Transmission Company, LLC. The
six companies working to develop the American Transmission Company are
Alliant-Energy, Madison Gas and Electric Company, Minnesota Power Inc.,
Wisconsin Electric Power Company, Wisconsin Public Power Inc., and
Wisconsin Public Service Corporation. At this time, only Wisconsin Electric
Power Company and Alliant-Wisconsin Power and Light have committed to
transfer ownership and control of their transmission systems to the American
Transmission Company.
ELECTRIC AND NATURAL GAS RATES
Wisconsin Public Service is requesting approval from the Public Service
Commission of Wisconsin to increase retail electric and natural gas rates
for its Wisconsin customers in 2001 and 2002. The request includes a return
on equity rate of 12.1%. If approved, electric rates will increase 8.9% in
2001 and 2.2% in 2002. Increases of 2.1% in 2001 and 1.5% in 2002 are also
being requested in gas rates. The application for increased rates was filed
on March 31, 2000.
-29-
<PAGE>
NUCLEAR POWER PLANT PLANNED OUTAGE
The Kewaunee Nuclear Power Plant began its scheduled outage for refueling
and maintenance on April 22, 2000. Maintenance and refueling is expected to
be completed and the plant returned to service during the week of May 28,
2000. During the prior refueling in the fall of 1998, the Nuclear
Regulatory Commission issued a Technical Specification that increased the
number of steam generator tubes allowed to remain in service. The Technical
Specification has now been amended to allow these tubes to remain in service
through the upcoming refueling cycle. Although no delays are expected at
this time, the outage could be extended if unexpected maintenance is
necessary.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
The following documents are attached as exhibits:
Exhibit 27 Financial Data
WPS Resources Corporation
Wisconsin Public Service Corporation
(b) REPORT ON FORM 8-K
A Form 8-K was filed on March 8, 2000 to report that
WPS Resources Corporation will increase its purchases of
shares of its common stock in the open market to further
fund its stock-based employee benefit plans, including
certain of its stock option plans.
-30-
<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: May 9, 2000 /s/ Diane L. Ford
_________________________________
Diane L. Ford
Vice President-Controller
and Chief Accounting Officer
(Duly Authorized Officer and
Chief Accounting Officer)
-31-
<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: May 9, 2000 /s/ Diane L. Ford
____________________________________
Diane L. Ford
Vice President-Controller
(Duly Authorized Officer and
Chief Accounting Officer)
-32-
<PAGE>
WPS RESOURCES CORPORATION AND
WISCONSIN PUBLIC SERVICE CORPORATION
EXHIBIT INDEX TO FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2000
Exhibit No. Description
___________ ___________
27 Financial Data Schedule
WPS Resources Corporation
Wisconsin Public Service Corporation
-33-
<PAGE>
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<ARTICLE> UT
<CIK> 0000107833
<NAME> WISCONSIN PUBLIC SERVICE CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,063,468
<OTHER-PROPERTY-AND-INVEST> 1,317
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<TOTAL-DEFERRED-CHARGES> 65,003
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<CAPITAL-SURPLUS-PAID-IN> 167,877
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0
51,190
<LONG-TERM-DEBT-NET> 299,555
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<LONG-TERM-DEBT-CURRENT-PORT> 0
0
<CAPITAL-LEASE-OBLIGATIONS> 73,483
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<OTHER-ITEMS-CAPITAL-AND-LIAB> 425,398
<TOT-CAPITALIZATION-AND-LIAB> 1,394,941
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<INCOME-TAX-EXPENSE> 13,990
<OTHER-OPERATING-EXPENSES> 174,948
<TOTAL-OPERATING-EXPENSES> 188,938
<OPERATING-INCOME-LOSS> 28,169
<OTHER-INCOME-NET> 6,459
<INCOME-BEFORE-INTEREST-EXPEN> 34,628
<TOTAL-INTEREST-EXPENSE> 6,565
<NET-INCOME> 28,063
778
<EARNINGS-AVAILABLE-FOR-COMM> 27,285
<COMMON-STOCK-DIVIDENDS> 43,500
<TOTAL-INTEREST-ON-BONDS> 7,450
<CASH-FLOW-OPERATIONS> 91,203
<EPS-BASIC> 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, 2000 were $1.10 for both basic and diluted earnings per
share calculations.
</FN>
</TABLE>
