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: SEPTEMBER 30, 1996
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from: ______ to _______
Commission File Number 0-1125
MADISON GAS AND ELECTRIC COMPANY
(Exact name of registrant as specified in its charter)
Wisconsin 39-0444025
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
133 South Blair Street, Madison, Wisconsin 53703
(Address of principal executive offices and ZIP code)
(608) 252-7000
(Registrant's telephone number including area code)
Common Stock Outstanding at November 13, 1996: 16,079,718 shares
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, and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [ ]
<PAGE>
<TABLE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Madison Gas and Electric Company and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED INCOME
(Thousands of Dollars, Except Per-Share Amounts)
(Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
STATEMENTS OF INCOME
Operating Revenues:
Electric . . . . . . . . . . . . . $44,547 $47,316 $116,621 $117,908
Gas . . . . . . . . . . . . . . . 8,345 7,407 66,700 59,787
Total Operating Revenues . . . . 52,892 54,723 183,321 177,695
Operating Expenses:
Fuel for electric generation . . . 7,246 8,509 20,047 21,549
Purchased power . . . . . . . . . 3,203 2,526 7,601 6,169
Natural gas purchased . . . . . . 3,823 3,220 41,158 35,716
Other operations . . . . . . . . . 13,902 14,764 41,934 44,725
Maintenance . . . . . . . . . . . 2,898 2,402 7,793 8,919
Depreciation and amortization . . 6,514 6,206 19,039 18,656
Other general taxes . . . . . . . 2,148 2,149 6,596 6,495
Income tax items . . . . . . . . . 4,117 4,933 12,051 10,554
Total Operating Expenses . . . . 43,851 44,709 156,219 152,783
Net Operating Income . . . . . . . . 9,041 10,014 27,102 24,912
AFUDC - equity funds . . . . . . . . 3 10 29 46
Gas marketing subsidiaries
(loss)/income . . . . . . . . . . . . (1,382) (5) (4,321) 1,277
Other income, net . . . . . . . . . . 419 302 938 1,246
Income before interest expense . . . 8,081 10,321 23,748 27,481
Interest expense:
Interest on long-term debt . . . . 2,411 2,593 7,407 7,774
Other interest . . . . . . . . . . 190 208 465 797
AFUDC - borrowed funds . . . . . . (2) (5) (15) (24)
Net Interest Expense . . . . . . 2,599 2,796 7,857 8,547
Net Income . . . . . . . . . . . . . 5,482 7,525 15,891 18,934
Preferred stock dividends . . . . . . - - - 64
Earnings on common stock . . . . . . $5,482 $7,525 $15,891 $18,870
Earnings per share of common stock
(Note 3) . . . . . . . . . . . . . . $0.34 $0.47 $0.99 $1.17
STATEMENTS OF RETAINED INCOME
Balance - beginning of period . . . . $64,722 $62,121 $64,499 $60,851
Earnings on common stock . . . . . . 5,482 7,525 15,891 18,870
Cash dividends on common stock
(Note 3) . . . . . . . . . . . . . . (5,144) (5,093) (15,330) (15,168)
Balance - end of period . . . . . . . $65,060 $64,553 $65,060 $64,553
<FN>
The accompanying notes are an integral part of the above statements.
/TABLE
<PAGE>
<TABLE>
Madison Gas and Electric Company and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOW
(Thousands of Dollars)
(Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Operating Activities:
Net income . . . . . . . . . . . . . . . . . . . . $ 5,482 $ 7,525 $15,891 $18,934
Items not affecting cash:
Depreciation and amortization . . . . . . . . . 6,514 6,206 19,039 18,656
Deferred income taxes . . . . . . . . . . . . . . 22 (323) (1,677) (563)
Amortization of nuclear fuel . . . . . . . . . . 620 797 2,098 1,927
Amortization of investment tax credits . . . . . (200) (192) (592) (581)
AFUDC - equity funds . . . . . . . . . . . . . . (3) (10) (29) (46)
Other . . . . . . . . . . . . . . . . . . . . . 168 157 (2,625) 1,061
Net funds provided from Operations . . . . . . . 12,603 14,160 32,105 39,388
Changes in working capital, excluding
cash equivalents, sinking funds,
maturities, and interim loans:
Decrease/(increase) in current assets . . . . . . (626) (4,667) 13,240 9,985
(Decrease)/increase in current liabilities . . . (3,176) 1,428 (7,734) (1,610)
Other noncurrent items, net . . . . . . . . . . . . (1,372) (2,092) 8,447 (2,073)
Cash provided by Operating Activities . . . . . . 7,429 8,829 46,058 45,690
Financing Activities:
Cash dividends on common and preferred stock . . . (5,144) (5,093) (15,330) (15,232)
Maturities/redemptions of First Mortgage Bonds . . - - (7,840) -
Other increase/(decrease) in First Mortgage Bonds . 9 9 29 (233)
Decrease in preferred stock . . . . . . . . . . . . - - - (5,300)
Decrease in bond construction funds, net . . . . . - 1,976 - 5,469
(Decrease)/increase in interim loans . . . . . . 9,000 (1,250) 2,500 (17,350)
Cash provided by/(used for) Financing Activities. 3,865 (4,358) (20,641) (32,646)
Investing Activities:
Acquisition of nonregulated subsidiary . . . . . . - - - (8,036)
Sale of Superior Lamp, Inc. . . . . . . . . . . . . - - 201 -
Additions to utility plant and nuclear fuel . . . . (7,037) (4,997) (18,380) (13,083)
AFUDC - borrowed funds . . . . . . . . . . . . . . (2) (5) (15) (24)
Increase in nuclear decommissioning fund . . . . . (1,264) (1,135) (3,516) (3,117)
Cash used for Investing Activities . . . . . . (8,303) (6,137) (21,710) (24,260)
Change in Cash and Cash Equivalents (Note 5) . . . . 2,991 (1,666) 3,707 (11,216)
Cash and cash equivalents at beginning of period. . 3,560 1,984 2,844 11,534
Cash and cash equivalents at end of period. . . . . $6,551 $318 $6,551 $318
<FN>
The accompanying notes are an integral part of the above statements.
/TABLE
<PAGE>
<TABLE>
Madison Gas and Electric Company and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(Thousands of Dollars)
(Unaudited)
<CAPTION>
Sept. 30, Dec. 31,
1996 1995
<S> <C> <C>
ASSETS
Utility Plant, at original cost, in service:
Electric . . . . . . . . . . . . . . . . . . . . . $497,777 $489,399
Gas . . . . . . . . . . . . . . . . . . . . . . . 177,213 173,890
Gross plant in service . . . . . . . . . . . . . 674,990 663,289
Less accumulated provision for depreciation . . . . (366,986) (348,254)
Net plant in service . . . . . . . . . . . . . . 308,004 315,035
Construction work in progress . . . . . . . . . . 8,585 9,061
Nuclear decommissioning fund (Note 2) . . . . . . 41,707 36,965
Nuclear fuel, net . . . . . . . . . . . . . . . . 8,378 6,172
Total Utility Plant . . . . . . . . . . . . . . . 366,674 367,233
Other property and investments . . . . . . . . . . . 15,234 17,176
Current Assets:
Cash and cash equivalents . . . . . . . . . . . . 6,551 2,844
Accounts receivable, less reserves of $1,136 and
$1,379, respectively . . . . . . . . . . . . . . . 29,303 36,817
Unbilled revenue . . . . . . . . . . . . . . . . . 6,211 13,529
Materials and supplies, at average cost . . . . . . 5,637 5,987
Fossil fuel, at average cost . . . . . . . . . . . 2,991 2,986
Stored natural gas, at average cost . . . . . . . 10,032 6,203
Prepaid taxes . . . . . . . . . . . . . . . . . . 4,387 5,846
Other prepayments . . . . . . . . . . . . . . . . . 1,174 1,608
Total Current Assets . . . . . . . . . . . . . . 66,286 75,820
Deferred charges . . . . . . . . . . . . . . . . . . 31,931 33,647
Total Assets . . . . . . . . . . . . . . . . . $480,125 $493,876
CAPITALIZATION AND LIABILITIES
Capitalization (see statement) . . . . . . . . . . . $322,774 $322,185
Current Liabilities:
Long-term debt sinking fund requirements . . . . . 200 200
Maturity of 5.45%, 1996 series . . . . . . . . . . - 7,840
Interim loans - commercial paper outstanding . . . 23,000 20,500
Accounts payable . . . . . . . . . . . . . . . . . 21,094 25,928
Accrued taxes . . . . . . . . . . . . . . . . . . 255 1,500
Accrued interest . . . . . . . . . . . . . . . . . 3,604 2,359
Other . . . . . . . . . . . . . . . . . . . . . . . 5,003 7,903
Total Current Liabilities . . . . . . . . . . . . 53,156 66,230
Other Credits:
Accumulated deferred income taxes . . . . . . . . 53,544 54,153
Regulatory liability . . . . . . . . . . . . . . . 24,109 25,177
Investment tax credit - deferred . . . . . . . . . 11,639 12,231
Other . . . . . . . . . . . . . . . . . . . . . . 14,903 13,900
Total Other Credits . . . . . . . . . . . . . . . 104,195 105,461
Commitments . . . . . . . . . . . . . . . . . . . . . - -
Total Capitalization and Liabilities . . . . . $480,125 $493,876
<FN>
The accompanying notes are an integral part of the above balance sheets.
/TABLE
<PAGE>
<TABLE>
Madison Gas and Electric Company and Subsidiaries
CONSOLIDATED STATEMENTS OF CAPITALIZATION
(Thousands of Dollars)
(Unaudited)
<CAPTION>
Sept. 30, Dec. 31,
1996 1995
<S> <C> <C>
Common Shareholders' Equity:
Common stock - par value $1 per share:
Authorized 50,000,000 shares
Outstanding 16,079,718 shares . . . . . . . . . . $ 16,080 $ 16,080
Amount received in excess of par value . . . . . . 112,558 112,558
Retained income . . . . . . . . . . . . . . . . . 65,060 64,499
Total Common Shareholders' Equity . . . . . . . . 193,698 193,137
Redeemable Preferred Stock cumulative, $25 par value,
authorized 1,175,000 shares, 0 shares outstanding. . - -
First Mortgage Bonds:
5.45%, 1996 series . . . . . . . . . . . . . . . . - 7,840
6 1/2%, 2006 series:
Pollution Control Revenue Bonds . . . . . . . . . 7,075 7,075
8.50%, 2022 series . . . . . . . . . . . . . . . . 40,000 40,000
6.75%, 2027A series:
Industrial Development Revenue Bonds . . . . . . 28,000 28,000
6.70%, 2027B series:
Industrial Development Revenue Bonds . . . . . . 19,300 19,300
7.70%, 2028 series . . . . . . . . . . . . . . . . 25,000 25,000
First Mortgage Bonds Outstanding . . . . . . . . 119,375 127,215
Unamortized discount and premium on bonds, net . . (1,099) (1,127)
Long-term debt sinking fund requirements . . . . . (200) (200)
Maturity of 5.45%, 1996 series . . . . . . . . . . - (7,840)
Total First Mortgage Bonds . . . . . . . . . . . 118,076 118,048
Other Long-Term Debt:
6.01%, interest rate SWAP agreement . . . . . . . 11,000 11,000
Total Capitalization . . . . . . . . . . . . . $322,774 $322,185
<FN>
The accompanying notes are an integral part of the above statements.
</TABLE>
<PAGE>
Notes to Consolidated Financial Statements (Unaudited)
September 30, 1996
The consolidated financial statements included herein have been prepared by
the Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission (SEC). 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 rules and regulations, although the Company believes that the
disclosures made are adequate to make the information presented not
misleading. In the opinion of Company management, all adjustments (consisting
of only normal recurring adjustments) necessary to fairly present results have
been made.
It is suggested that these consolidated financial statements be read in
conjunction with the financial statements and the notes thereto set forth on
pages 20 through 25 of the Company's 1995 Annual Report to Shareholders and in
the Company's 1995 Annual Report on Form 10-K.
1. Summary of Significant Accounting Policies
The accounting and financial policies relative to the following items have
been described in the "Notes to Consolidated Financial Statements" in the
Company's 1995 Annual Report to Shareholders and have been omitted herein
because they have not changed materially through the date of this report.
a. General
b. Utility plant
c. Nuclear fuel
d. Joint plant ownership
e. Depreciation
f. Income taxes
g. Pension plans
h. Postretirement benefits other than pensions
i. Fair value of financial instruments
j. Capitalization matters: common stock - stock split, redeemable
preferred stock, other long-term debt, notes payable to banks,
commercial paper, and lines of credit
k. Commitments
l. Segments of business
m. Regulatory assets and liabilities
2. Nuclear Decommissioning
Nuclear decommissioning costs relative to the Kewaunee Nuclear Power Plant
(Kewaunee) are currently accrued over the plant's license term, which
expires in the year 2013. These costs are currently recovered from
customers in rates and are deposited in external trusts. For 1996, the
decommissioning costs recovered in rates will be $3.1 million. These
trusts are shown on the balance sheet in the Utility Plant section, and as
of September 30, 1996, these trusts totaled $41.7 million (fair market
value).
<PAGE>
Decommissioning costs are recovered through depreciation expense,
exclusive of earnings on the trusts. Net earnings on the trusts are
included in other income. The long-term, after-tax earnings assumption on
these trusts is 6.2 percent. As of September 30, 1996, the accumulated
provision for depreciation included accumulated provisions for
decommissioning totaling $41.7 million.
The Company has applied to the Public Service Commission of Wisconsin
(PSCW) for acceleration of decommissioning collections relative to
Kewaunee such that by mid-year 2003 there would be funding adequate to
fully fund currently forecasted decommissioning expenditures. The request
for this acceleration reflects the condition of the present steam
generators (see Part II, Item 5 for additional information).
The Company's share of Kewaunee decommissioning costs is estimated to be
$70 million in current dollars based on a site-specific study performed in
1992 using immediate dismantlement as the method of decommissioning.
Decommissioning costs are assumed to inflate at an average rate of
6.1 percent.
3. Per-Share Amounts
Earnings per share of common stock are computed on the basis of the
weighted average of the daily number of shares outstanding. For the three
months and for the nine months ended September 30, 1996 and 1995, there
were 16,079,718 shares.
Dividends declared and paid per share of common stock for the periods
ended September 30, 1996 and 1995, were, respectively, for the three
months $0.32 and $0.317; for the nine months $0.953 and $0.943.
Both the shares outstanding and the dividends per-share amounts reflect
the Company's 3-for-2 stock split which was effective in the first quarter
of 1996.
4. Capitalization Matters
a. First Mortgage Bonds.
The annual sinking fund requirements of the outstanding First Mortgage
Bonds are $200,000 in 1996. As of September 30, 1996, $200,000 is still
needed to satisfy the 1996 requirements.
The 5.45%, 1996 series, First Mortgage Bonds matured on June 1, 1996,
requiring funding of $7.8 million in short-term debt to retire this
bond series.
5. Supplemental Cash Flow Information
For purposes of the Consolidated Statements of Cash Flow, the Company
considers cash equivalents to be those investments that are highly liquid
with maturity dates of less than three months.
<PAGE>
Cash payments for interest, net of amounts capitalized, and income taxes
were as follows:
Three Months Nine Months
Ended Ended
September 30, September 30,
(Thousands of dollars) 1996 1995 1996 1995
Interest, net of amounts
capitalized $1,420 $1,601 $6,642 $7,481
Income taxes paid $3,702 $4,515 $13,274 $13,495
6. Sale of Nonregulated Subsidiary
In May 1996 the Company sold its 50 percent share in Superior Lamp
Recycling, Inc., a jointly owned subsidiary of the Company and Superior
Services, Inc., purchased during 1993. Superior Lamp recycles fluorescent
lamps that are banned from landfills. The sale resulted in a modest gain
on the Company's investment.
7. Rate Matters
On September 3, 1996, the Company announced its intention to increase
electric rates for the test period beginning July 1, 1997, by
approximately $7.7 million, or 5.1 percent, and increase natural gas rates
by $3.7 million, or 3.8 percent, for the same time period. The proposed
changes are based on a requested return on common equity of 12.0 percent
and would remain in effect through 1998.
The proposed early recovery of the Kewaunee investment and accelerated
decommissioning collections are the primary reasons for the increase in
electric rates. Also, the Company continues its efforts to lower costs but
is experiencing increases in operating costs and construction costs due
primarily to inflation.
Hearings will take place on the Company's recent rate filing in the first
quarter of 1997. A decision is expected sometime in the second quarter of
1997.
Rates for electric service have not been increased since 1990 and were
reduced in 1993 and 1994. Gas rates have not been increased since 1989 and
were reduced in 1990, 1992, and 1993.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Resources
The Company's internally generated funds were greater than the funds used for
construction and nuclear fuel expenditures for the nine-month period ended
September 30, 1996. The Company experienced increased additions to utility
plant and nuclear fuel expenditures during the first nine months of 1996
compared to 1995. It is anticipated that 1996 construction and nuclear fuel
expenditures will be approximately $25 million.
Cash provided by operating activities increased $0.4 million during the first
nine months of 1996 compared to 1995 due to an increase in working capital
somewhat offset by a decrease in net income. Cash provided by operating
activities during the third quarter of 1996 decreased $1.4 million, or
15.9 percent, compared to last year's third quarter. This is mainly
attributable to the decrease in current assets, liabilities, and net income.
Cash used for financing activities decreased $12 million, or 36.8 percent, for
the nine months ended September 30, 1996, primarily due to an increase in
interim loans caused by the maturity of the 5.45%, 1996 series, First Mortgage
Bonds, higher levels of construction, and advances by the parent company to
its subsidiaries. The third quarter 1996 cash provided for financing
activities increased $8.2 million also due to the increase in interim loans.
Bank lines of credit available to the Company as of September 30, 1996, were
$45 million, which includes $10 million for Great Lakes Energy Corp. (GLENCO),
a wholly owned subsidiary of the Company, and American Energy Management Inc.,
a subsidiary of GLENCO.
The Company's capitalization ratios were as follows:
Sept. 30, 1996 Dec. 31, 1995
Common shareholders' equity 56.0% 55.1%
Long-term debt* 37.4 39.1
Short-term debt 6.6 5.8
*Includes current maturities and current sinking fund requirements.
The Company's bonds are currently rated Aa2 by Moody's Investors Service,
Inc., and AA by Standard & Poor's Corporation. The Company's dealer-issued
commercial paper carries the highest ratings assigned by Moody's and Standard
& Poor's.
<PAGE>
Business Environment
On May 1, 1995, Northern States Power Company and Wisconsin Energy Corporation
announced a proposed merger. If approved, the two companies would form a
holding company called Primergy Corporation, creating the tenth largest
utility company in the United States. The merger has been approved by the
shareholders of both companies. Various regulatory agency approval is required
including the SEC, the Nuclear Regulatory Commission (NRC), the Federal Energy
Regulatory Commission (FERC), and state regulatory agencies.
The Company is opposing approval of the merger on the grounds that the merger
would violate antitrust laws and principles by increasing the exercise of
anticompetitive market power by Primergy. Hearings on the proposed merger have
been concluded before the FERC. Hearings on the proposed merger are currently
scheduled before the Wisconsin and Minnesota Public Service Commissions. The
Company believes the proposed merger would have a detrimental impact on the
Wisconsin economy.
Regulatory Environment
The PSCW voted in December 1995 to carefully pursue the restructuring of the
electric utility industry in Wisconsin. This approach is largely consistent
with a plan developed and supported by the Company. The process included a
report by the Commissioners to the legislature, a draft work plan, and a
series of dockets and proceedings over the next three to seven years to
implement the whole plan. It is unknown at this time what impact (if any) this
plan will have on the Company.
An order is expected some time this year regarding a docket that was opened to
examine what changes are needed in the cost recovery mechanism for purchasing
gas costs. Hearings have been concluded on this matter. No material changes
are expected at this time.
Results of Operations
Electric Sales and Revenues
The cooler weather experienced this summer contributed to the decreased
electric sales for the three and nine months ended September 30, 1996,
compared to the same periods last year (see table below). Electric retail
sales decreased 5.1 percent for the three months ended September 30, 1996,
compared to the same period in 1995.
Cooling degree days (measured by the number of degrees the mean daily
temperature is above 65 degrees Fahrenheit) for the third quarter of 1996
decreased approximately 64 percent from last year's third quarter and were
40 percent below normal.
<PAGE>
<TABLE>
Electric Sales in Megawatt-Hours
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
1996 1995 % Change 1996 1995 % Change
<S> <C> <C> <C> <C> <C> <C>
Residential 194,608 227,414 (14.43)% 544,853 561,923 (3.04)%
Large commercial
and industrial 259,585 258,855 0.28 716,855 712,285 0.64
Small commercial
and industrial 196,611 192,348 2.22 540,584 528,405 2.30
Other 81,943 93,779 (12.62) 237,900 245,047 (2.92)
Total retail 732,746 772,396 (5.13) 2,040,192 2,047,660 (0.36)
Sales for resale 8,393 2,859 193.56 23,256 16,768 38.69
Total sales 741,139 775,255 (4.40) 2,063,448 2,064,428 (0.05)
</TABLE>
The decrease in electric sales for both the three- and nine-month periods
contributed to the decrease in electric operating revenues of $2.8 million, or
5.9 percent, for this year's third quarter and $1.3 million, or 1.1 percent,
for the nine months ended September 30, 1996, as compared to the same periods
the previous year.
Gas Sales and Revenues
For the three months ended September 30, 1996, gas revenues increased
$0.9 million, or 12.7 percent, compared to last year, despite a 7.3 percent
decrease in gas deliveries for the same time period. This was the result of
higher unit gas costs. Higher gas costs are passed on to customers in the form
of higher rates through the purchased gas adjustment (PGA) clause, thus
increasing natural gas revenues on a one-for-one basis.
For the nine months ended September 30, 1996, gas operating revenues increased
$6.9 million, or 11.6 percent, compared to the same period in 1995. This
increase in revenues is due to colder weather experienced in the first half of
the year and higher gas costs collected from customers through the PGA clause.
<PAGE>
The following table illustrates gas deliveries as compared to the previous
year:
<TABLE>
Gas Deliveries in Thousands of Therms
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
1996 1995 % Change 1996 1995 % Change
<S> <C> <C> <C> <C> <C> <C>
Residential 5,702 5,702 0.00% 64,705 56,419 14.69%
Commercial and
Industrial 9,117 10,099 (9.72) 61,593 61,437 0.25
Total retail 14,819 15,801 (6.21) 126,298 117,856 7.16
Transport 9,142 10,036 (8.91) 28,578 26,677 7.13
Total deliveries 23,961 25,837 (7.26) 154,876 144,533 7.16
</TABLE>
Electric Fuel and Natural Gas Costs
Fuel for electric generation decreased $1.3 million, or 14.8 percent, for the
third quarter of 1996 compared to last year's third quarter. This was mainly
attributable to decreased power demands due to the mild weather experienced
during this time. Purchased power increased $0.7 million, or 26.8 percent, for
the three months ended September 30, 1996, compared to the same period last
year. This is primarily due to an increase in the cost of capacity purchases.
Fuel for electric generation decreased $1.5 million, or 7.0 percent, for the
nine-month period ended September 30, 1996, when compared to the same period
last year. This was mainly attributable to decreased power demands due to the
cool summer. Purchased power increased $1.4 million, or 23.2 percent, for the
nine months ended September 30, 1996, compared to the same period last year.
This is mainly due to an increase in the cost of capacity purchases.
Natural gas costs for the nine-month period ended September 30, 1996,
increased $5.4 million, or 15.2 percent, compared to the same period a year
ago. This is mainly due to the increase in gas deliveries during the first
half of 1996 because of the cold weather. An increase in the cost per therm
of $.04, or 14.5 percent, also contributed to increased natural gas costs.
Natural gas costs for the three months ended September 30, 1996, versus the
comparative period in 1995 increased $0.6 million, or 18.7 percent. This is
due mainly to a cost per therm increase of $.29.
<PAGE>
Other Operating Expenses
Income taxes for the nine-month period ended September 30, 1996, increased
$1.5 million, or 14.2 percent, compared to last year. The increase is due to
the increase in pretax operating income.
Operations and maintenance costs decreased $0.4 million, or 2.1 percent, for
the third quarter of 1996 and decreased $3.9 million, or 7.3 percent, for the
nine months of the year compared to the same periods a year ago. The primary
reasons for the decrease are continued cost-control efforts throughout the
Company and the conversion from a 12-month to an 18-month fuel cycle at
Kewaunee. During 1995, Kewaunee was on a 12-month fuel cycle with the outage
occurring in the second quarter, increasing operations and maintenance
expenses. Due to the conversion, these operations and maintenance expenses
will shift from the second quarter to the fourth quarter of this year. This
will reduce the 1996 fourth-quarter earnings compared to the fourth quarter
of 1995.
Other Items
Interest expense decreased in both the three- and nine-month periods ended
September 30, 1996, when compared to the same periods a year ago. This is due
to lower interest rates during the 1996 periods compared to 1995.
The Company's unregulated gas marketing subsidiaries continued to incur losses
through the third quarter of this year due to pressure on natural gas profit
margins. Losses of $4.3 million for the nine-month period ended September 30,
1996, were realized on the Company's unregulated gas marketing subsidiaries.
In the first quarter of 1996, extremely cold weather caused natural gas supply
prices to substantially rise. Because of this demand for natural gas,
unregulated gas marketing companies were forced to pay premium prices to fill
customer orders. The Company's gas supply capacity that was used by its
unregulated gas subsidiaries from 1993 to 1995 generated approximately
$2.5 million of revenue to be returned to the Company's customers. Whether
this revenue was properly returned is currently under review. This may have a
negative impact on fourth-quarter earnings in 1996.
<PAGE>
PART II. OTHER INFORMATION
Item 5 Other Information
Kewaunee is operated by Wisconsin Public Service Corporation. The
Company has a 17.8 percent ownership interest in Kewaunee.
Kewaunee is operating with a license that expires in 2013.
The steam generator tubes at Kewaunee are susceptible to corrosion
characteristics seen throughout the nuclear industry. During the
scheduled refueling and maintenance outage, which began
September 21, 1996, electronic inspection of previously sleeved
steam generator tubes disclosed that the growth rate of corrosion
in all tubes was much higher than expected. The owners of Kewaunee
have submitted a request to the NRC, approval of which is still
pending, for a technical specification change that would allow the
laser weld repair of these sleeve joints, thereby allowing the
steam generator tubes with the additional indications to remain in
service. It is estimated that the total cost of repairing corroded
sleeved tubes utilizing laser welding repair technology will be
$3 million to $5 million, the Company's estimated share being
$0.5 million to $0.9 million. It is estimated the repair of the
steam generators could extend the outage several weeks beyond the
original planned period. There will be an additional cost for
replacement purchased power due to the extended outage. Based on
current estimates, Kewaunee is expected to be returned to service
before the end of the year.
The owners of Kewaunee are continuing to evaluate various economic
alternatives to deal with the potential future loss of capacity
resulting from the continuing degradation of the steam generator
tubes. These alternatives range from repairing/replacing the
existing steam generators to early plant closure with replacement
power options. Replacement of steam generators is estimated to
cost $89 million (the Company's share would be 17.8 percent),
excluding additional purchased power costs associated with an
extended shutdown.
The Company is seeking PSCW approval of accelerated depreciation
rates and decommissioning funding for inclusion in future rate
cases based on a possible Kewaunee closure date by the end of the
year 2002, which is consistent with the current condition of steam
generators and the laser welded repairs mentioned above. Steam
generator replacement is necessary for cost-effective operation of
Kewaunee beyond 2002. The Company is investigating ownership
changes which may allow steam generators to be replaced without
its participation.
Item 6(a) Exhibits
Exhibit 4 Indenture of Mortgage and Deed of Trust between the Company and
Firstar Trust Company, as Trustee (and supplements). Reference was
provided in the Company's 1995 Annual Report on Form 10-K
(Commission File No. 0-1125).
Exhibit 12 Ratio of Earnings to Fixed Charges
<PAGE>
Exhibit 27 Appendix E to Item 601(c) of Regulation S-K: Public Utility
Companies Financial Data Schedule UT.
Exhibit Page
Exhibit 4 NA
Exhibit 12 17
Exhibit 27 18
Item 6(b) Reports on Form 8-K
No reports on 8-K were filed during the quarter for which this
report is filed.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MADISON GAS AND ELECTRIC COMPANY
(Registrant)
Date: November 13, 1996 /s/ David C. Mebane
David C. Mebane
Chairman, President and Chief Executive
Officer
(Duly Authorized Officer)
Date: November 13, 1996 /s/ Joseph T. Krzos
Joseph T. Krzos
Vice President - Finance
(Chief Financial and Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
This schedule contains summary financial information extracted from SEC Form
10-Q. Items 1 through 22 are as of September 30, 1996. Items 23 through 38 are
for the nine months ended September 30, 1996.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 366674
<OTHER-PROPERTY-AND-INVEST> 15234
<TOTAL-CURRENT-ASSETS> 66286
<TOTAL-DEFERRED-CHARGES> 31931
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 480125
<COMMON> 16080
<CAPITAL-SURPLUS-PAID-IN> 112558
<RETAINED-EARNINGS> 65060
<TOTAL-COMMON-STOCKHOLDERS-EQ> 193698
0
0
<LONG-TERM-DEBT-NET> 129076
<SHORT-TERM-NOTES> 23000
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 200
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 134151
<TOT-CAPITALIZATION-AND-LIAB> 480125
<GROSS-OPERATING-REVENUE> 183321
<INCOME-TAX-EXPENSE> 12051
<OTHER-OPERATING-EXPENSES> 144168
<TOTAL-OPERATING-EXPENSES> 156219
<OPERATING-INCOME-LOSS> 27102
<OTHER-INCOME-NET> (3354)
<INCOME-BEFORE-INTEREST-EXPEN> 23748
<TOTAL-INTEREST-EXPENSE> 7857
<NET-INCOME> 15891
0
<EARNINGS-AVAILABLE-FOR-COMM> 15891
<COMMON-STOCK-DIVIDENDS> (15330)
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 46058
<EPS-PRIMARY> 0.99
<EPS-DILUTED> 0
</TABLE>
Ratio of Earnings to Fixed Charges Exhibit 12
Nine Months Ended
September 30, 1996
(000s)
Earnings
Income before interest expense . . . . . . . . . $23,748
Add:
Income tax items . . . . . . . . . . . . . . . . 12,051
Income tax on other income . . . . . . . . . . . 407
Amortization of debt discount, premium expense . 216
AFUDC - borrowed funds . . . . . . . . . . . . . 15
Interest on rentals . . . . . . . . . . . . . . . 210
Total Earnings . . . . . . . . . . . . . . . . $36,647
Fixed Charges
Interest on long-term debt . . . . . . . . . . . $ 7,407
Other interest . . . . . . . . . . . . . . . . . 465
Amortization of debt discount, premium expense . 216
Interest on rentals . . . . . . . . . . . . . . . 210
Total Fixed Charges . . . . . . . . . . . . . $ 8,298
Ratio of Earnings to Fixed Charges . . . . . . . 4.42x
