SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended: December 31, 1996
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from: __________ to __________
Commission File Number 0-1125
MADISON GAS AND ELECTRIC COMPANY
(Exact name of registrant as specified in its charter)
WISCONSIN 39-0444025
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
133 South Blair Street
Post Office Box 1231
Madison, Wisconsin 53701-1231
(Address of principal executive offices, including ZIP code)
(608) 252-7000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Securities registered pursuant to Section 12(g) of the Act:
Common, Par Value $1 Per Share
(Title of Class)
<PAGE>
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. Yes X No
State the aggregate market value of the voting stock held by nonaffiliates of
the Registrant: $345,713,937 based on a closing bid price of $21.50 on
March 1, 1997 (the record date for the Annual Meeting of Shareholders).
The number of shares outstanding of each of the issuer's classes of common
stock, as of the close of the period covered by this report, was 16,079,718 of
Common Stock, Par Value $1 Per Share.
List hereunder the following documents if incorporated by reference and the
part of the Form 10-K (e.g., Part I, Part II, etc.) into which the document is
incorporated: (1) Any annual report to security holders; (2) Any proxy or
information statement; and (3) Any prospectus filed pursuant to Rule 424(b) or
(c) under the Securities Act of 1933.
- - 1996 Annual Report to Shareholders (Parts I, II, and IV)
- - Definitive Proxy Statement filed on March 24, 1997 (Parts I and III)
<PAGE>
PART I.
Item 1. Business
General Description of Business
The registrant, Madison Gas and Electric Company (the Company), a Wisconsin
corporation organized as such in 1896, is a public utility engaged in the
generation and transmission of electric energy and in its distribution in
Madison and its environs (250 square miles) and in the purchase,
transportation, and distribution of natural gas in Columbia, Crawford, Dane,
Iowa, Juneau, Monroe, and Vernon counties, Wisconsin (1,325 square miles).
Exhibit No. 21 herein provides a description of the Company's wholly owned
subsidiaries.
In January 1997, the Company's two gas marketing subsidiaries, Great Lakes
Energy Corp. (GLENCO) and American Energy Management, Inc. (AEM), formed a
joint venture with National Gas and Electric L.P. (NG&E). The joint venture
will market natural gas and energy services to industrial and commercial
customers in the Great Lakes region. The joint venture is called National
Energy Management, L.L.C. and is based in Chicago. (See Item 7, page II-7, and
Item 8, page F-16, for further discussion.)
The Company is subject to regulation by the Public Service Commission of
Wisconsin (PSCW) as to rates, accounts, issuance of securities, plant and
transmission line siting, and in other respects. The Federal Energy Regulatory
Commission (FERC) has jurisdiction, under the Federal Power Act, over certain
accounting practices of the Company and in certain other respects. The Nuclear
Regulatory Commission (NRC) has jurisdiction over the operation of the
Kewaunee Nuclear Power Plant (Kewaunee). The Company has a 17.8 percent
ownership interest in Kewaunee. The other owners are Wisconsin Public Service
Corporation (WPSC), which operates Kewaunee, and Wisconsin Power and Light
Company (WPL).
The Company is also subject to regulation with regard to air quality, water
quality, and solid waste (see I-6 and I-7) and may be subject to regulation
with regard to other environmental matters by various federal, state, and
local authorities including the Wisconsin Department of Natural Resources
(DNR), which has jurisdiction over air and water quality, solid and hazardous
waste standards, and which regulates the electric generating operations of the
Company with respect to pollution and environmental control matters. The
Company has met the requirements of current environmental regulations. Unknown
additional expenditures may be required for pollution control equipment and
for the modification of existing plants to comply with future unknown
environmental regulations.
<PAGE>
For example, the ongoing issue of global warming could result in significant
compliance cost for carbon dioxide emission reductions. Except as set forth
below, the amounts of such expenditures and the period of time over which they
may be required to be made are not known. The Company is unable to predict
whether compliance with future pollution control regulations would involve
curtailments of operations or reductions in generating capacity or efficiency
of present generating facilities or delays in the construction and operation
of future generating facilities.
Under both the National Environmental Policy Act and the Wisconsin
Environmental Policy Act, the Company must obtain the necessary authorizations
or permits from regulatory agencies for any new projects or other major
actions significantly affecting the quality of the human environment after all
aspects of the proposed project or action are subjected to a complete
environmental review and a detailed environmental impact statement is issued.
Electric Operations
At December 31, 1996, the Company supplied electric service to 121,959
customers, of whom 109,009 were located in the cities of Fitchburg, Madison,
Middleton, and Monona, and 12,950 in adjacent areas. Of the total number of
customers, 105,848 were residential and 15,972 were commercial. For 1996,
residential and commercial electric service revenues comprised 35 and
49 percent, respectively, of total electric revenues. The remaining electric
revenues during 1996 were from industrial sales (7 percent), sales to public
authorities including the University of Wisconsin (9 percent), and sales to
other utilities (less than 1 percent). The electric operations accounted for
60 percent of the total revenues of the Company.
See Item 2 for a description of the Company's electric utility plant.
The Company is a member of Mid-America Interconnected Network, Inc. (MAIN), a
regional reliability group. Membership in this group permits better
utilization of reserve generating capacity and coordination of long-range
system planning and day-to-day operations. MAIN seeks to maintain adequate
planning generation reserve margins as a group in the range of 15 to
22 percent.
In December 1995, the PSCW outlined its plan for the restructuring of the
electric utility industry in Wisconsin. This plan was largely consistent with
the plan proposed by the Company. The PSCW's plan was presented by the
Commissioners to the state legislature and included a work plan and a series
of dockets and proceedings over the next several years to implement the work
plan. (See Item 7, page II-10, Electric Industry Trend for further
discussion.)
<PAGE>
Fuel supply and generation
The Company estimates its net kilowatt-hour requirements for 1997 will be
provided from the following sources: 69 percent from fossil-fueled steam
plants, 9 percent from a nuclear-fueled steam plant, 19 percent from low-cost
power purchases, and 3 percent from a combination of natural gas- and
oil-fired combustion turbines.
The Company has a 22 percent ownership interest in the Columbia Energy Center
(Columbia). The other owners are WPL, which operates Columbia, and WPSC. The
first (Columbia I) and second (Columbia II) units at Columbia were placed in
commercial operation in 1975 and 1978, respectively. The Columbia co-owners'
coal inventory supply for Columbia I and Columbia II decreased from 40 days on
December 31, 1995, to 30 days on December 31, 1996, due to lower-planned
inventories and higher-than-anticipated coal burns with the extended shutdown
of Kewaunee for the repair of the steam generator tubes, as explained below.
The co-owners' goal is to maintain approximately a 40-day inventory. Columbia,
with two 527-megawatt units, uses coal from the Wyoming-Montana coal fields.
One hundred percent (100%) of the low-sulfur coal supply for these units comes
from Powder River Basin sources in Montana and Wyoming.
About 200 megawatts of the Company's electric generating capacity is provided
by the Blount Generating Station (Blount) (see I-10). The Company is able to
burn a variety of coals, natural gas, and other fuels such as paper-derived
fuel at Blount.
The Kewaunee plant began commercial operation in 1974. The Kewaunee capability
factor was 71.3 percent in 1996, compared to a projected industry average of
79.8 percent. The capability factor is the percentage of maximum energy
generation a plant is capable of supplying to the electrical grid limited only
by factors within the control of plant management. The comparable amounts for
1995 were 83.1 and 84.5 percent, respectively. The lower Kewaunee percentage
for 1996 reflects the extended shutdown of Kewaunee for the repair of the
steam generator tubes.
Kewaunee was removed from service on September 21, 1996, for scheduled
refueling and maintenance. Inspection of previously repaired steam generator
tubes disclosed more extensive tube damage than had been anticipated. Repair
of the tubes using laser welding was undertaken. As of December 31, 1996, it
was anticipated repairs would be completed sometime during the first quarter
of 1997. Welding was completed late in January 1997. Subsequent testing
indicated the repair of a number of the tubes was not effective. After further
inspection and laboratory testing, it is now planned to undertake additional
repairs which could allow Kewaunee to return to service sometime in mid-1997.
<PAGE>
The additional repairs involve removing metal sleeves previously installed to
repair the parent tubes. New, slightly longer sleeves will be installed to
cover the areas of concern in the original steam generator tubes. The
operating company believes the NRC will approve this repair process because it
only requires minor changes to the presently approved sleeving process. The
cost of the additional repairs is expected to be between $4.5 million and
$10.0 million, depending on the number of previously repaired sleeves that can
remain in service. The Company's share of the costs is in the range of
$0.8 million to $1.8 million.
At its open meeting, the PSCW approved deferred accounting treatment for steam
generator repair costs at Kewaunee incurred on or after March 20, 1997.
All three owners have approached the PSCW for recovery of the additional
repair costs in customer rates. The Company's portion of the additional power
costs resulting from the extended shutdown of Kewaunee are presently being
recovered from customers through an interim rate order. Returning Kewaunee to
service would provide needed power supply during the summer months when the
demand for electricity is usually high.
If for any reason the steam generators cannot be repaired, the Kewaunee owners
would need to decide on alternatives ranging from replacing the existing steam
generators to early plant closure with replacement power options. Replacement
of steam generators must be approved by the PSCW and is estimated to cost
$89.0 million (the Company's share would be 17.8 percent or $15.8 million),
excluding additional replacement purchased power costs associated with an
extended shutdown.
If Kewaunee remains in operation until expiration of the operating license,
physical decommissioning is expected to occur during the period 2014 through
2021 with additional expenditures being incurred during the period 2022
through 2050 related to the storage of spent nuclear fuel at the site. In July
1994, the PSCW issued an order covering all Wisconsin utilities with nuclear
generation. The order standardizes cost escalation assumptions used in
determining decommissioning liabilities. Based on this methodology and
considering other assumption changes, Kewaunee decommissioning costs are
estimated to be $398.0 million in current dollars and $1.9 billion in
year-of-expenditure dollars. The Company's share of Kewaunee decommissioning
costs is estimated to be $70.8 million in current dollars and $338.2 million
in year-of-expenditure dollars. These costs are recovered currently in
customer rates and deposited in external trusts. As of December 31, 1996, the
Company's external trusts totaled $44.6 million (fair market value). (See
Item 7, page II-9, for further detailed discussion of Kewaunee.)
<PAGE>
The supply of nuclear fuel for Kewaunee requires the purchase of uranium
concentrates, the conversion of uranium concentrates to uranium hexafluoride,
enrichment of the uranium hexafluoride, and fabrication of the enriched
uranium into usable fuel assemblies. After a region of spent fuel
(approximately one-third of the nuclear fuel assemblies in the reactor) is
removed from the reactor, it is placed in temporary storage in a spent fuel
pool at the plant site. Permanent storage is addressed below. There are
presently no operating facilities in the United States that are reprocessing
commercial nuclear fuel. A discussion of the nuclear fuel supply for Kewaunee
follows.
- - Requirements for uranium are met through spot or contract purchases. An
inventory policy, which takes advantage of economical spot market purchases
of uranium, results in inventories sufficient for up to two reactor reloads
of fuel, excluding in-process uranium.
- - Uranium hexafluoride from inventory and from spot market purchases was used
to satisfy converted material requirements in 1996. The co-owners intend to
purchase future conversion services on the spot market but have contracts
with primary suppliers for services in 1997, 1998, and 1999.
- - In 1996, enrichment services were procured from COGEMA, Inc., pursuant to a
contract executed in 1983 and last amended in 1995. Enrichment services can
be purchased from the United States Enrichment Corporation (USEC) under the
terms of the utility services contract which is in effect for the life of
Kewaunee. The co-owners are committed to take 70 percent of its annual
enrichment requirements in 1997 and, in alternate years thereafter, from
USEC.
- - Fuel fabrication services through March 15, 2001, are covered by contract
with Siemens Power Corporation.
- - Beyond the stated periods set forth above, additional contracts for uranium
concentrates, conversion to uranium hexafluoride, enrichment, fabrication,
and spent fuel storage will have to be procured. The co-owners anticipate
the prices for the foregoing will modestly increase.
<PAGE>
Pursuant to the Nuclear Waste Policy Act of 1982 (Nuclear Policy Act), the
U.S. Department of Energy (DOE) entered into a contract with the co-owners to
accept, transport, and dispose of spent nuclear fuel beginning no later than
January 31, 1998. The DOE has announced it will delay the acceptance of spent
nuclear fuel beyond 1998. A fee to offset the costs of the DOE's disposal for
all spent fuel used since April 7, 1983, has been assessed by the DOE at one
mill per net kilowatt-hour of electricity generated and sold by Kewaunee. An
additional one-time fee was paid to the DOE for disposal of spent nuclear fuel
used to generate electricity prior to April 7, 1983. Spent fuel is currently
stored at Kewaunee. The existing capacity of the spent fuel storage facility
will enable storage of the projected quantities of spent fuel through April
2001. The co-owners are evaluating options for the storage of additional
quantities beyond 2001. Several technologies are available. An investment of
approximately $2.5 million in the early 2000s could provide additional storage
sufficient to meet spent fuel storage needs until expiration of the current
operating license in 2013.
The Nuclear Policy Act provides that both the federal government and the
nuclear utilities fund the decontamination and decommissioning of the three
gaseous diffusion plants in the United States. Utility contributions will be
collected through a special assessment based on a utility's percentage of
uranium enrichment services purchased through the date of enactment compared
to total enrichment sales by the DOE. The co-owners of Kewaunee are required
to pay approximately $19.9 million in current dollars over a period of 15
years. At December 31, 1996, the remaining liability was $13.5 million of
which the Company's share was $2.4 million. The payments are subject to
adjustment for inflation.
In 1995, Yankee Atomic Electric Company (Yankee Atomic) received a U.S. Court
of Federal Claims decision that Yankee Atomic was entitled to a refund from
the DOE of $3.0 million paid to the Decontamination and Decommissioning Fund.
The court ruled that by entering into contracts with utilities, the government
agreed to charge certain prices for uranium enrichment services that could not
be legislatively changed after performance and payment were completed. The
Yankee Atomic decision addresses only a refund to Yankee Atomic. Based on the
Yankee Atomic decision, the co-owners have filed a claim against the DOE for a
refund of its payments to the Decontamination and Decommissioning Fund.
Utility customers of the USEC have challenged the pricing of enrichment
services, subsequent to the Energy Policy Act of 1992. The position of the
utilities is that the charges by the USEC are higher than the terms of the
contracts originally entered into with the DOE. The co-owners have filed a
claim that has been denied by the USEC. Subsequently, a complaint was filed in
the U.S. Court of Federal Claims. Action on this complaint by the Claims Court
is expected after the Court of Appeals rules in the Yankee Atomic case.
<PAGE>
If for any reason Kewaunee was forced to permanently suspend operations,
fuel-related obligations are as follows: (1) there are no financial penalties
associated with present uranium supply, conversion service, and enrichment
agreements, and (2) the fuel fabrication contract contains force majeure and
termination for convenience provisions. The maximum exposure could be as much
as $550,000 as of the end of 1996. Uranium inventories could be sold on the
spot market.
The Low-Level Radioactive Waste Policy Act of 1980 specifies that states may
enter into compacts to provide for regional low-level waste disposal
facilities. Wisconsin is a member of the Midwest Low-Level Radioactive Waste
Compact. The state of Ohio has been selected as the host state for the Midwest
Compact and is proceeding with the preliminary phases of site selection. In
July 1995, the Barnwell, South Carolina, disposal facility again began to
accept low-level radioactive waste materials from outside its region.
Air quality
Phase II of the federal Clean Air Act amendments of 1990 sets stringent SO2
and nitrogen oxide emission limitations which may result in increased capital
and operating and maintenance expenditures. Phase 2 emission compliance
strategies could include the following: fuel switching, emission trading,
purchased power agreements, new emission control devices, or installation of
new fuel-burning technologies and clean-coal technologies. Phase II emission
compliance strategies and their costs are currently being evaluated. The
Company has prevailed in legal proceedings in the United States Court of
Appeals for the 7th Circuit against the Environmental Protection Agency (EPA)
to require the EPA to award the Company bonus credits for SO2 emissions under
the Clean Air Act. The Court of Appeals ordered the EPA to review its
disallowance of bonus credits. The Company has prevailed and should receive
additional SO2 credits from the EPA in the near future.
There is a Wisconsin acid rain law which imposes limitations of SO2 emissions
on the major utilities. Blount and the Company's share of Columbia are
required to meet a combined SO2 emission rate of 1.20 pounds of SO2
per million Btu. No capital costs are anticipated to meet compliance with this
standard.
The federal Clean Air Act amendments of 1990 require the EPA to perform
certain studies concerning hazardous air emissions from electric utilities.
Regulation of power plants for these emissions may occur as a result of these
studies. The DNR hazardous air emission regulations currently exempt
fossil-fuel combustion.
The Company believes all of its plants to be in full compliance with all
material aspects of present air-pollution control regulations.
<PAGE>
Water quality
The Company is subject to water quality regulation by the DNR. These
regulations include both categorical-effluent discharge standards and general
water quality standards. The regulations limit discharges from the Company's
plants into Lake Michigan and other Wisconsin waters.
The categorical-effluent discharge standards require each discharger to use
effluent treatment processes equivalent to categorical "best practicable" or
"best available" technologies under compliance schedules established pursuant
to the federal Water Pollution Control Act. The DNR has published categorical
regulations for chemical discharges from steam electric generating plants.
The DNR's water toxic regulations could impose additional discharge
limitations on a number of previously unregulated substances. The Company is
in compliance with applicable standards.
Solid waste
From 1980 to 1984, the Company disposed of a fly-ash sludge at the Refuse
Hideaway Landfill in Middleton, Wisconsin. In October 1992, the EPA placed the
Refuse Hideaway Landfill on the national priorities Superfund list of sites
requiring clean up under the Comprehensive Environmental Response,
Compensation and Liability Act (CERCLA). The scope of liability under CERCLA
is very broad.
Although the Company is listed as a potentially responsible party on the EPA's
roster of generators for the Refuse Hideaway Landfill and received a special
notice letter from the EPA on September 27, 1996, in the opinion of management
and legal counsel, the resolution of this matter will not result in any
materially adverse effect on the operations or financial position of the
Company.
From 1855 through the 1950s, the Company and its predecessors operated a
manufactured gas plant at the present site of Blount. The plant used coal and
oil to produce a low-Btu gas used primarily for residential cooking and
heating. Wastes from the gas manufacturing process included light oils and
tars. These materials were either recycled into the gas manufacturing process
or sold for other uses such as asphalt manufacturing. The residual tars and
oils from the operation of the plant may have impacted the site near the gas
holders. The Company has been monitoring the groundwater and soils in
cooperation with the DNR for several years. In the opinion of management and
legal counsel, the resolution of this matter will not result in any materially
adverse effect on the operations or financial position of the Company.
<PAGE>
The City of Madison has identified the Company as one of many possible
potential responsible parties for the remediation of the Demetral Landfill.
Waste materials disposed of at the site by the Company consisted of fly ash
and bottom ash from the combustion of coal to generate electricity. The
Company and many others used the landfill in the early 1950s. The Company has
the potential to incur liability costs associated with its use of this
landfill. In the opinion of management and legal counsel, the resolution of
this matter will not result in any materially adverse effect on the operations
or financial position of the Company.
Gas Operations
On December 31, 1996, the Company supplied natural gas service to 105,392
customers in the cities of Elroy, Madison, Middleton, Monona, Fitchburg, Lodi,
Verona, and Viroqua; 21 villages; and all or parts of 40 townships. Revenues
received from residential and commercial customers accounted for 58 and
37 percent, respectively, of the total gas revenues for 1996. The gas
operations accounted for 40 percent of the total revenues of the Company.
Revenues from transportation service accounted for 2 percent of the total gas
revenues for 1996. Sales and revenues from best-efforts rate schedules
accounted for 6 and 3 percent of total retail sales and revenues,
respectively.
The Company has the ability to peak shave through use of a propane-air gas
manufacturing plant for which it had on hand adequate fuel supplies for its
peak-shaving requirements during the 1996 to 1997 heating season. In addition,
the Company can curtail gas deliveries to its interruptible customers.
Approximately 9 percent of gas sold in 1996 was sold to interruptible
customers.
Gas supply
The Company has physical interconnections with both ANR Pipeline Company (ANR)
and Northern Natural Gas Company (NNG). The Company's primary service
territory, which includes Madison and the surrounding area, receives
deliveries at four ANR gate stations and one NNG gate station. The Company
also receives deliveries at NNG gate stations located in the communities of
Viroqua, Elroy, and Crawford County. Interconnections with two major pipelines
provide competition in interstate pipeline service and a more reliable and
economical supply mix including gas from Canada and the United States
Mid-Continent and Gulf/Offshore regions.
By contract, a total of 5,576,600 dekatherms can be injected into ANR's
storage fields from April 1 through October 31. These gas supplies are then
available for withdrawal during the subsequent heating season of November 1
through March 31. ANR's storage fields are located in Michigan. Use of storage
provides the Company with the ability to purchase gas supplies during the
summer season when prices are normally lowest and withdraw these supplies
during the winter season when gas prices are typically higher. Storage allows
the Company greater ability to meet daily load fluctuations.
<PAGE>
During the winter months, when the demand of its customers is highest, the
Company is primarily concerned with meeting its obligation to its firm
customers. Long-term firm supply contracts, supplies in storage injected
during the summer, and firm supplies purchased for the winter period are
utilized to meet customer demand. These gas supplies are contracted for prior
to the heating season so price levels can be locked in to assure reliability
of supply and stability in pricing.
The prior heating season (November 1995 and continuing through March 1996) was
much colder than normal, which drove storage inventory levels to low levels.
Demand for natural gas remained high during the summer (April 1996 through
October 1996) as gas was injected into storage to replenish inventories. Gas
prices also remained relatively high. The beginning of the current heating
season (starting November 1996 through March 1997) was colder than normal,
which reduced storage inventories more than was desired. Gas prices escalated
until January 1997. When the weather became warmer than normal, the demand for
natural gas fell as did the price for natural gas. Storage inventories are at
normal levels.
Regarding transportation of supply, the Company has firm transportation
service on ANR for a maximum daily quantity of 33,618 dekatherms. The
Company's NNG maximum daily quantity for firm transportation service is 48,719
dekatherms. The Company also holds 2,389 dekatherms of firm transportation
service into Viroqua's NNG gate station and firm transportation service of
1,500 dekatherms into Crawford County's NNG gate station.
General
The Company's business is seasonal to the same extent as other Upper Midwest
electric and natural gas utilities.
The Company had 694 permanent employees at December 31, 1996.
Information regarding Company executive officers is included under Item 10 of
this report, page III-1, which information is incorporated herein by
reference.
<PAGE>
Item 2. Properties
The following table presents the generating capability in service at
December 31, 1996:
Commercial Net Capability No. of
Plants Operation Date Fuel (Megawatt) Units
Steam plants
Columbia 1975 & 1978 Low-sulfur coal 232 (1,2) 2
Kewaunee 1974 Nuclear 93 (1,3) 1
Blount (Madison) 1957 & 1961 Coal/gas 98 2
1938 & 1942 Gas 40 2
1949 Coal/gas 23 1
1964-1968 Gas/oil 35 4
Combustion turbines 1964-1973 Gas/oil 88 5
Total 609
1 Base load generation
2 Company's 22 percent share of two 527-mw units located near Portage,
Wisconsin
3 Company's 17.8 percent share of 525-mw unit located near Kewaunee, Wisconsin
Major electric transmission and distribution lines and substations in service
at December 31, 1996, are as follows:
Miles
Lines Overhead Lines Underground Lines
Transmission
345 kV 124 -
138 kV 96 3
69 kV 66 18
Distribution
13.8 kV and under 1,025 734
Substation Installed Capacity (kVA)
Transmission (22) 4,132,350
Distribution (33) 361,700
Gas facilities include 1,861 miles of distribution mains and one propane air
plant capable of producing a maximum daily capacity
of 9,000 dekatherms of natural gas equivalent.
<PAGE>
Item 3. Legal Proceedings
The Company filed a suit January 3, 1996, in Dane County Circuit Court
charging WPL with violations of Wisconsin laws and rules in attempting to
provide electric service to the new Ho Chunk bingo parlor on the southeast
side of Madison. The Company also filed a complaint against WPL at the PSCW
for illegally duplicating electric facilities in the same area.
The Company claims that WPL intentionally misrepresented the Company's cost
for electric service to the Ho Chunk Nation, falsely advertised its services
to induce the Ho Chunk Nation to enter into a contract with WPL, and
improperly interfered with the Company's legal rights to serve that facility.
A decision from Dane County Circuit Judge Mark Frankel on March 10, 1997,
upheld a previous ruling by the PSCW, stating that the Company, not WPL, had
the right to provide electric service to the bingo parlor. This decision came
in response to WPL's appeal of last summer's PSCW ruling. In July 1996, the
PSCW ruled that WPL's extension of an electric distribution line to the bingo
parlor violated state law and that the Company was the only utility that could
legally serve the site. It also ordered WPL to remove the service extension.
Item 4. Results of Votes of Security Holders
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year.
<PAGE>
PART II.
Item 5.Market for the Registrant's Common Stock and Related Stockholder
Matters
The principal market in which the common stock of the Company is traded is The
Nasdaq National Stock Market (Nasdaq) under the symbol MDSN. The approximate
number of stockholders of record on January 31, 1997, was 18,245. The
Company's transfer agent and registrar is Harris Trust and Savings Bank,
Chicago, Illinois. The high and low sales prices for the common stock on
Nasdaq and the dividends paid per common share for each quarter for the past
two fiscal years are shown below.
Common stock price range
1996 Dividends per share
High Low 1996
First quarter $27 1/2 $23 1/8 $0.317
Second quarter $25 3/4 $21 1/2 $0.317
Third quarter $23 3/4 $21 1/2 $0.320
Fourth quarter $22 3/8 $19 5/8 $0.320
Common stock price range
1995 Dividends per share
High Low 1995
First quarter $21 7/8 $20 5/8 $0.313
Second quarter $21 7/8 $20 1/2 $0.313
Third quarter $22 5/8 $20 3/8 $0.317
Fourth quarter $23 3/8 $21 7/8 $0.317
<PAGE>
<TABLE>
Item 6. Selected Financial Data
<CAPTION>
(In thousands of dollars, except
per-share amounts)
For the years ended December 31, 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Summary of Operations
Operating Revenues:
Electric $152,747 $153,554 $149,665 $147,201 $142,646
Gas 100,544 95,036 95,307 96,932 85,356
Total 253,291 248,590 244,972 244,133 228,002
Operating expenses 200,486 191,725 187,469 187,717 172,049
Other general taxes 8,736 8,709 8,619 8,222 8,107
Income tax items 12,553 14,285 14,822 13,964 12,784
Net operating income 31,516 33,871 34,062 34,230 35,062
Other (loss)/income (including allowance
for funds used during construction) (14,177) 1,635 2,146 2,118 2,210
Income before interest expense 17,339 35,506 36,208 36,348 37,272
Interest expense 10,912 11,536 11,197 11,673 13,465
Net income 6,427 23,970 25,011 24,675 23,807
Preferred dividends - 64 471 489 506
Earnings on common stock 6,427 $23,906 $24,540 $24,186 $23,301
Average shares outstanding 16,080 16,080 16,080 16,055 16,046
Earnings per share $0.40 $1.49 $1.53 $1.51 $1.45
Dividends paid per share $1.273 $1.260 $1.247 $1.227 $1.193
Ratio of earnings to fixed charges* 2.71 4.23 4.49 4.15 3.60
At December 31,
Assets
Electric $315,022 $327,053 $323,870 $328,048 $325,510
Gas 116,723 119,968 118,210 114,626 106,837
Assets not allocated 52,424 46,855 45,679 22,690 20,390
Total $487,759 $465,364 $452,737 $484,169 $493,876
Capitalization
Common shareholders' equity $179,089 $193,137 $189,489 $184,995 $180,367
Redeemable preferred stock - - 5,100 5,400 5,600
Long-term debt 128,886 129,048 130,800 120,396 122,363
Short-term debt 29,750 20,500 28,600 23,500 17,000
Total Capitalization $353,989 $334,291 $325,330 $337,725 $342,685
* For the purpose of computing the ratio of earnings to fixed charges, earnings have been calculated
by adding to income before interest expense, current and deferred federal and state income taxes,
investment tax credits deferred and restored charged (credited) to operations, and the estimated interest
component of rentals. Fixed charges represent interest expense, amortization of debt discount, premium
and expense, and the estimated interest component of rentals.
</TABLE>
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
GENERAL
Certain matters that are discussed in the Management's Discussion and Analysis
of Financial Condition and Results of Operations are forward-looking
statements and can generally be identified as such because the content
includes statements like the Company "believes," "anticipates," or "expects."
Such forward-looking statements are subject to certain risks and uncertainties
which could cause actual results to differ materially from those currently
anticipated.
RESULTS OF OPERATIONS
Earnings overview
Earnings from Madison Gas and Electric Company's (the Company) core utility
operations increased to $1.48 per share in 1996, compared to $1.42 in 1995.
Earnings from utility operations were higher despite $0.9 million (after tax)
of additional costs for 1996 related to the extended outage of the Kewaunee
Nuclear Power Plant (Kewaunee). The Company's consolidated earnings per share
were negatively impacted by the following items:
- - A one-time charge of $10.4 million (after tax) to reflect the current value
of the Company's investments in its gas marketing subsidiaries;
- - A one-time charge of $1.6 million (after tax) resulting from a refund to
natural gas customers under a sharing mechanism between Great Lakes Energy
Corp. (GLENCO) and the Company; and
- - Operating losses of the Company's gas marketing subsidiaries of
$5.4 million (after tax).
Consolidated earnings per share of the Company's common stock decreased to
$0.40 in 1996, compared to $1.49 in 1995. The Company earned $1.0 million or
$0.07 per share on its gas marketing subsidiaries in 1995.
The consolidated earnings in 1995 of $1.49 per share were lower than the $1.53
earned in 1994 due to the costs associated with industry restructuring,
various regulatory filings in relation to the proposed utility mergers within
the state, and a lower authorized return on common stock equity, which became
effective in January 1995.
<PAGE>
Electric sales and revenues
Electric retail sales for 1996 increased slightly from 1995, despite the cold
summer experienced in 1996 compared to 1995. The increase can be attributable
to an increase of 1.2 percent in the number of electric customers. The
electric sales breakdown by customer class is shown in the table below:
Electric Sales
%
(Megawatt hours) 1996 1995 Change
Residential 725,471 735,442 (1.4)
Commercial 1,381,043 1,347,947 2.5
Industrial 289,903 292,649 (0.9)
Other 305,962 320,869 (4.6)
Total Retail 2,702,379 2,696,907 0.2
Resale - Utilities 26,815 26,344 1.8
Total Sales 2,729,194 2,723,251 0.2
Electric revenues decreased slightly in 1996 compared to 1995. The Company's
electric margin decreased $3.1 million or 2.6 percent during 1996 compared to
1995. The primary factor for the decrease in the electric margin is the
increase in replacement purchased power costs due to the extended outage at
Kewaunee.
Electric retail sales for 1995 increased 7.1 percent from 1994. This increase
is attributable to the hot and humid weather experienced in the summer of
1995. As a result of the increase in electric sales, electric revenues
increased $3.9 million or 2.6 percent in 1995 compared to 1994. The increase
in electric revenues occurred despite a 3.3 percent reduction to electric
rates effective January 1, 1995.
<PAGE>
Gas sales and revenues
Total gas therms delivered by the Company increased 3.3 percent in 1996
compared to 1995, largely reflecting the colder weather experienced during the
first quarter of 1996. Gas therms delivered during the first quarter of 1996
increased 12.7 percent over the same 1995 period. The table below shows total
gas deliveries for 1996 by customer class:
Therms Delivered
%
(Thousands) 1996 1995 Change
Residential 96,062 89,099 7.8
Commercial and Industrial 93,723 94,729 (1.1)
Total Retail System 189,785 183,828 3.2
Transport 37,707 36,502 3.3
Total Gas Deliveries 227,492 220,330 3.3
Gas revenues increased $5.5 million or 5.8 percent in 1996 when compared to
the same period a year ago. This was mainly attributable to the increase in
gas deliveries due to the cold weather experienced in the first quarter as
well as the increase in the number of gas customers of 2.2 percent. The
Company's gas margin (revenues less natural gas purchased) decreased
$3.0 million or 8.1 percent in 1996 compared to 1995. The main reason for the
decreased margin is the Company's return of $2.5 million of revenue to gas
customers under a prior sharing mechanism between GLENCO and the Company (see
Note 5).
Gas delivered to customers in 1995 increased 6.3 percent from 1994. Despite
the increase in gas delivered in 1995, gas revenues remained constant when
compared to 1994. A shift in customers from retail system rates to
transportation rates is the main reason gas revenues did not increase in
proportion to gas deliveries. Gas transport customer revenue is recorded on a
margin basis, whereas retail system customer revenue is recorded on a total
revenue basis.
<PAGE>
Electric fuel and natural gas costs
Electric fuel costs and purchased power costs increased $2.3 million or
6.4 percent in 1996 compared to 1995. As previously mentioned, the increase is
mainly attributable to the increased purchased power costs associated with
replacing power caused by the extended outage at Kewaunee. Purchased power
costs increased $3.6 million or 45.2 percent for 1996 over 1995. This was
offset somewhat by a $1.3 million or 4.8 percent decrease in fuel used for
electric generation for the same comparable periods. Kewaunee normally
provides over 25 percent of the generation requirements of the Company.
Electric fuel costs and purchased power costs remained constant in 1995
compared to 1994.
Natural gas costs increased $8.5 million or 14.8 percent during 1996 compared
to 1995. Due to the cold first quarter experienced in 1996, the demand for
natural gas increased significantly causing the cost per therm to rise
accordingly. The cost per therm in 1996 increased $0.04 or 13.4 percent over
1995.
Natural gas costs decreased $2.2 million or approximately 3.7 percent during
1995 compared to 1994. This was due to a decrease in the cost per therm of
approximately 3.0 percent from the previous year.
Other operating expenses
Operations and maintenance (O&M ) expenses decreased $2.8 million or
3.8 percent during 1996 compared to 1995. Management's continued effort to
control O&M expenses is the primary reason for the decrease. Depreciation
expense increased $0.7 million or 2.8 percent in 1996 compared to 1995.
Depreciation expense related to decommissioning costs contributed $0.4 million
of the increase in total depreciation expense.
Other operations increased $4.7 million or 8.3 percent during 1995 compared to
1994. This is due in part to an increase in industry restructuring costs and
costs associated with participation in proposed utility merger filings.
Other nonoperating expenses
The Company's gas marketing subsidiaries had an after-tax operating loss of
$5.4 million in 1996, compared to $1.0 million in after-tax operating income
in 1995. The main reason for the operating losses this year is due to the
increase in the cost of gas, specifically in the first quarter when the demand
was the highest. In the first quarter of 1996, extremely cold weather caused
natural gas supply prices to rise substantially. Gas marketing companies are
severely impacted by the volatility in natural gas supply prices because they
work on a margin basis (revenues less cost of gas). Therefore, when gas costs
increase, profit margins are reduced.
<PAGE>
The Company recorded a one-time write down in 1996 of $10.4 million (after
tax) to properly reflect the current value of the Company's investments in its
gas marketing subsidiaries and reorganizing these activities for the future
(see Note 4).
Total interest expense decreased $0.6 million or 5.4 percent in 1996 compared
to 1995. This is mainly due to lower interest rates in 1996 than in 1995.
Also, in November 1995, the Company replaced its 7 %, 2001 Series, First
Mortgage Bonds, with lower cost short-term debt.
Electric and gas operations outlook
The Company anticipates electric and gas sales to each grow at a compound
annual rate of 1.5 percent over the next five-year period ending December 31,
2001. The service territory remains well-insulated against economic downturns.
The Company's service area is one of America's most economically vibrant. The
Company expects to remain at a competitive advantage in a disaggregated
electric utility market because of its low generation costs, competitive
rates, and low percentage of industrial customers. The Company continues to
respond with rates and services to meet the needs of its customers as the gas
industry proceeds toward deregulation.
Joint venture
To strengthen its position in the gas marketing business, the Company's gas
marketing subsidiaries entered into a joint venture with another gas marketing
firm in January 1997. GLENCO and American Energy Management Inc. (AEM), the
Company's two gas marketing subsidiaries, formed a joint venture with National
Gas & Electric L.P. (NG&E) to market gas and energy services to industrial and
commercial customers in the Great Lakes region. The joint venture is called
National Energy Management, L.L.C. and is based in Chicago. NG&E, a unit of
PanCanadian Energy, Inc., is a Houston-based gas marketing company. NG&E has a
proven track record of profitability providing gas to a growing commercial and
industrial customer base.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities
Cash provided by operating activities decreased $2.5 million or 4.9 percent in
1996 compared to a year ago. A portion of the decrease is attributable to an
increase in the Company's net working capital. Accounts receivable increased
$2.3 million or 6.3 percent in 1996 compared to a year ago. Also, stored
natural gas and prepaid taxes combined increased $2.4 million or 19.9 percent
over last year.
<PAGE>
Capital requirements and investing activities
The Company's liquidity is primarily affected by the requirement of its
ongoing construction program. In 1996, capital expenditures increased
$2.7 million or 14.3 percent, as compared to 1995, mainly due to an increase
in nuclear fuel expenditures. It is anticipated that capital expenditures will
be in the range of $25 to $35 million for the years 1997 through 2001. For the
five-year period ending December 31, 2001, the Company estimates that
internally generated cash will provide, on average, more than 100 percent of
the utility plant and nuclear fuel expenditures.
<TABLE>
Expenditures for construction and nuclear fuel estimated for 1997, actual for
1996, and the average for the three-year period 1993 to 1995 are shown below.
Expenditures for Construction and Nuclear Fuel
(Thousands of dollars)
<CAPTION>
For the years ended Annual Average
December 31: 1997 Estimated 1996 1993 to 1995
<S> <C> <C> <C> <C> <C> <C>
Electric
Production $ 6,012 19.5% $ 1,472 6.8% $ 2,563 11.1%
Transmission 3,042 9.9 1,051 4.8 1,040 4.5
Distribution and general 9,146 29.7 9,058 41.3 8,958 38.8
Nuclear fuel 4,600 14.9 4,304 19.6 2,288 9.9
Total electric 22,800 74.0 15,885 72.5 14,849 64.3
Gas 5,200 16.9 4,431 20.2 5,877 25.5
Common 2,800 9.1 1,590 7.3 2,354 10.2
Total $30,800 100.0% $21,906 100.0% $23,080 100.0%
</TABLE>
Financing activities and capitalization matters
On June 1, 1996, the Company's 5.45%, 1996 Series, First Mortgage Bonds
matured. The Company was able to satisfy this $7.8 million maturity with
short-term debt.
At December 31, 1996, bank lines of credit available to the Company were
$55 million which included $10 million for GLENCO, a wholly owned subsidiary
of the Company, and AEM, a subsidiary of GLENCO. Credit requirements for
GLENCO and AEM are being transferred to NG&E and the joint venture as part of
the joint venture agreement. The bank lines are generally used to support
commercial paper issued, which represents a primary source of short-term
financing. The Company's dealer-issued commercial paper carries the highest
ratings assigned by Moody's Investors Service and Standard & Poor's
Corporation.
<PAGE>
The Company's existing bonds are rated AA by Standard & Poor's and Aa2 by
Moody's Investors Service.
The Company anticipates it will be able to meet its construction requirements
and sinking fund debt requirements with internally generated funds over the
next three years.
Kewaunee Nuclear Power Plant
Kewaunee is operated by Wisconsin Public Service Corporation. The Company has
a 17.8 percent ownership interest in Kewaunee, which it owns jointly with two
other utilities. Kewaunee is operating with a license that expires in 2013.
Kewaunee was removed from service on September 21, 1996, for scheduled
refueling and maintenance. Inspection of previously repaired steam generator
tubes disclosed more extensive tube damage than had been anticipated. Repair
of the tubes using laser welding was undertaken. As of December 31, 1996, it
was anticipated that repairs would be completed sometime during the first
quarter of 1997. Welding was completed late in January 1997. Subsequent
testing indicated that the repair of a number of the tubes was not effective.
The return of Kewaunee to service will be delayed indefinitely while
additional repair requirements are being investigated. Nuclear Regulatory
Commission (NRC) approval is needed for these repairs and to restart the
plant.
If for any reason the steam generators cannot be repaired, the Kewaunee owners
would need to decide on alternatives ranging from replacing the existing steam
generators to early plant closure with replacement power options. Replacement
of steam generators must also be approved by the Public Service Commission of
Wisconsin (PSCW) and is estimated to cost $89.0 million (the Company's share
would be 17.8 percent or $15.8 million), excluding additional replacement
purchased power costs associated with an extended shutdown.
Even if the repairs are successful and the plant restarts, the tube repairs
are expected to last only a few years. Therefore, Kewaunee would be retired
prior to the expiration of the operating license in 2013 unless the steam
generators are replaced.
The PSCW approved the accelerated recovery of the current undepreciated
Kewaunee plant balance and the unfunded estimated costs to decommission the
plant through 2002.
If Kewaunee returns to service, it will be shut down at midcycle (within one
year after being returned to service) for tube inspection. If significant
further tube damage is discovered during the midcycle shutdown, the NRC may
not permit Kewaunee to continue to operate without replacement of the steam
generators. Since the earliest date by which the steam generators could be
replaced is sometime in 1999, a midcycle shutdown and subsequent requirement
that the steam generators be replaced before startup could result in an
extended outage.
<PAGE>
An extended Kewaunee outage subjects the Company to increased purchased power
costs and increased fuel costs and operating and maintenance costs at other
generating units. Since most Kewaunee costs are incurred whether or not the
plant generates electricity, an extended outage of the plant results in
significant incremental costs for replacement electricity. The cost to use
other generating units and to purchase replacement power is expected to cost
on average $38,000 a day or approximately $3.4 million if the plant remains
down through the end of the first quarter of 1997. The Company received an
interim rate order from the PSCW in March 1997. The order provides for a
$0.507 per kilowatt-hour surcharge on customers' bills to cover the continuing
costs that will be incurred by the Company while Kewaunee remains out of
service. The interim electric rate order is scheduled to remain in effect
until either Kewaunee returns to service or the Company receives its final
rate order. The Company anticipates it will have sufficient sources to meet
its customers' energy requirements during the outage.
If Kewaunee is retired early, the Company believes it would be granted
regulatory approval to recover from its customers the net plant carrying
amount and the estimated costs to decommission Kewaunee in excess of the
decommissioning trust assets. At December 31, 1996, the net plant carrying
amount was approximately $21.7 million. The Company's share of the current
estimated costs to decommission Kewaunee, assuming early retirement, exceeds
the fair market value of decommissioning trust assets at December 31, 1996, by
$26.2 million. If Kewaunee is retired early, the Company believes it will be
able to meet its commitments to supply energy to its customers through either
(1) possible investments in new generating units, and/or (2) contracting for
additional purchased power. The Company is considering various options with
respect to Kewaunee including divestiture or early closure of the nuclear
plant.
<PAGE>
Electric industry trend
During the past several years, the trend in the electric utility industry has
been toward increased competition caused by a changing regulatory environment.
In December 1995, the PSCW outlined its plan for the restructuring of the
electric utility industry in Wisconsin. The PSCW's plan generally followed a
plan proposed by the Company and a broad coalition of customers, public
interest groups, cooperative associations, municipal power entities, organized
labor, and others. Under the proposed PSCW plan, the Company is developing
plans illustrating how it intends to separate generation, transmission,
distribution, and energy services into separate business units. The PSCW would
continue distribution and transmission regulation. To limit the market power
of current transmission owners, the PSCW proposes moving either to appointment
of an independent system operator or to organization of a single statewide
transmission system. Additional proceedings and presentation to the state
legislature on the PSCW's electric utility restructuring proposal are planned
prior to the target implementation date. The targeted date under the PSCW
proposal is the year 2001, at which time consumers will be able to choose
their electricity provider. The Company cannot predict what impact future PSCW
actions may have on its future financial condition, cash flows, or results of
operations. However, the Company believes it is well-positioned to compete in
a deregulated market.
Regulatory and accounting issues
The Company operates under electric and natural gas utility rates that are
approved by the PSCW. These rates are designed to recover the cost of service
and provide a reasonable return to investors. The increasing trend toward
deregulation and increased competition is causing the electric utility
industry to restructure. The restructuring could affect the eligibility of the
Company to continue applying Statement of Financial Accounting Standard (SFAS)
No. 71, "Accounting for the Effects of Certain Types of Regulation." Under
this situation, continued deferral of certain regulatory asset and liability
amounts on the Company's books may no longer be appropriate as allowed under
SFAS 71. The Company is unable to predict whether any adjustments to
regulatory assets and liabilities will occur in the future. The PSCW's
restructuring plan specifically recognizes the need to allow recovery for
commitments made under prior regulatory regimes.
<PAGE>
The PSCW completed its generic investigation of the natural gas industry and
made a determination as to whether or not traditional regulation should be
replaced with a different approach. Currently, the Company has the ability
through the Purchased Gas Adjustment Clause (PGAC) to recover from its
customers the cost of gas purchased by the Company on behalf of its customers.
The PGAC is often referred to as a one-for-one recovery mechanism. On
Novewmber 8, 1996, the PSCW issued an order stating that the Company must
file a modified one-for-one recovery mechanism or an incentive mechanism. On
February 7, 1997, the Company filed a modified one-for-one recovery mechanism
and supporting testimony. Approval of a mechanism from the PSCW is expected by
July 1, 1997. The proposed implementation date is November 1, 1997. The
proposed modified one-for-one recovery mechanism provides appropriate price
signals to the Company's customers while minimizing the risk to shareholders.
SFAS 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of," is effective for fiscal years beginning
on or after December 15, 1995. SFAS 121 requires that long-lived assets be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount may not be recoverable. SFAS 121 also amends SFAS 71
to require the write-off of a regulatory asset if it is no longer probable
that future revenues will recover the asset. The adoption of SFAS 121 did not
have an impact on the Company's financial position, cash flows, or results of
operations. However, the Company cannot predict what effect a competitive
marketplace or future regulatory actions will have on the outcome of the
application of SFAS 121.
Mergers
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 (Primergy), 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 Securities and Exchange Commission, NRC, Federal Energy
Regulatory Commission (FERC), and state regulatory agencies.
The Company and a broad coalition of customer groups are 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. Studies show Primergy could significantly raise prices for electric
customers in Wisconsin by exercising anticompetitive market power. Hearings on
the proposed merger have been concluded before the FERC and PSCW. The Company
believes that the proposed merger would have a detrimental impact on the
Wisconsin economy and that approval of the merger should be denied or strongly
conditioned to prevent the significant anticompetitive effects.
<PAGE>
Inflation
The current financial statements report operating results in terms of
historical cost. Even though the statements provide a reasonable, objective,
quantifiable statement of financial results, they do not evaluate the impact
of inflation. For ratemaking purposes, projected normal operating costs
include impacts of inflation recoverable in revenues. However, electric and
gas utilities, in general, are adversely impacted by inflation because
depreciation of the utility plant is limited to the recovery of historical
costs. Thus, cash flows from the recovery of existing utility plant, to a
certain extent, may not be adequate to provide replacement of plant
investment.
Environmental issues
Phase II of the Federal Clean Air Act amendments of 1990 sets stringent SO2
and nitrogen oxide emission limitations, which generally take effect
January 1, 2000. These may result in increased capital and operating and
maintenance expenditures. Phase II emission compliance strategies for the
Company include the following: fuel switching, emission trading, purchased
power agreements, new emission control devices, or installation of new
fuel-burning technologies and clean coal technologies. Phase II emission
compliance strategies and their costs are currently being evaluated. The
Company expects no major capital expenditures as a result of Phase II.
From 1980 to 1984, the Company disposed of fly-ash sludge at the Refuse
Hideaway Landfill in Middleton, Wisconsin. In October 1992, the Environmental
Protection Agency (EPA) placed the Refuse Hideaway Landfill on the national
priorities Superfund list of sites requiring clean up under the Comprehensive
Environmental Response, Compensation and Liability Act (CERCLA). The scope of
liability under CERCLA is very broad.
The Company is listed as a potentially responsible party on the roster of
generators for the Refuse Hideaway Landfill. A group of approximately 45
companies is currently negotiating with EPA on the cleanup of the site. In the
opinion of management and legal counsel, the Company's share of the final
cleanup costs will not result in any materially adverse effects on the
operations, cash flows, or financial position of the Company. Significant
insurance recovery may also be available for the cleanup.
Accounting principles
The Company is required to adopt Statement of Financial Accounting Standard
(SFAS) No. 128, "Earnings Per Share," in 1997. SFAS 128 specifies the
computation, presentation, and disclosure requirements for earnings per share.
The adoption of this statement will result in the presentation by the Company
of earnings per share, as defined by the statement, and is not expected to
have a material impact on the earnings per share reported in the financial
statements. Upon adoption of this statement, all prior-period earnings per
share amounts will be restated to conform to the provisions of SFAS 128.
<PAGE>
Item 8. Financial Statements and Supplementary Data
Index of Consolidated Financial Statements, Footnotes, and
Supplementary Data
Responsibility for Financial Statements F-1
Report of Independent Accountants F-2
Consolidated Statements of Income and Retained Income F-3
Consolidated Statements of Cash Flows F-4
Consolidated Balance Sheets F-5
Consolidated Statements of Capitalization F-6
Notes to Consolidated Financial Statements F-7 - F-19
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
<PAGE>
Responsibility for Financial Statements
The management of Madison Gas and Electric Company is responsible for the
preparation and presentation of the financial information in this Annual
Report. The following financial statements have been prepared in accordance
with generally accepted accounting principles consistently applied and reflect
management's best estimates and informed judgments as required.
To fulfill these responsibilities, management has developed and maintains a
comprehensive system of internal operating, accounting, and financial
controls. These controls provide reasonable assurance that the Company's
assets are safeguarded, transactions are properly recorded, and the resulting
financial statements are reliable. An internal audit function assists
management in monitoring the effectiveness of the controls.
The Report of Independent Accountants on the financial statements by Coopers &
Lybrand L.L.P. appears on page F-2. The responsibility of the independent
accountants is limited to the audit of the financial statements presented and
the expression of an opinion as to their fairness.
The Board of Directors maintains oversight of the Company's financial
situation through its monthly review of operations and financial condition and
its selection of the independent accountants. The Audit Committee, comprised
of all Board members who are not employees or officers of the Company, also
meets periodically with the independent accountants and the Company's internal
audit staff who have complete access to and meet with the Audit Committee,
without management representatives present, to review accounting, auditing,
and financial matters. Pertinent Items discussed at the meetings are reviewed
with the full Board of Directors.
/s/ David C. Mebane
David C. Mebane
Chairman, President and
Chief Executive Officer
/s/ Joseph T. Krzos
Joseph T. Krzos
Vice President - Finance
<PAGE>
Report of Independent Accountants
To the Shareholders and Board of Directors, Madison Gas and Electric Company:
We have audited the accompanying consolidated balance sheets and statements of
capitalization of MADISON GAS AND ELECTRIC COMPANY and subsidiaries as of
December 31, 1996 and 1995, and the related consolidated statements of income
and retained income and cash flows for the years ended December 31, 1996,
1995, and 1994. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Madison Gas and Electric
Company and subsidiaries as of December 31, 1996 and 1995, and the
consolidated results of their operations and their cash flows for the years
ended December 31, 1996, 1995, and 1994, in conformity with generally accepted
accounting principles.
/s/ Coopers & Lybrand L.L.P.
Milwaukee, Wisconsin
February 7, 1997
<PAGE>
<TABLE>
Consolidated Statements of Income and Retained Income
(Thousands of dollars, except per-share amounts)
<CAPTION>
For the years ended December 31, 1996 1995 1994
<S> <C> <C> <C>
CONSOLIDATED STATEMENTS OF INCOME
Operating Revenues:
Electric $152,747 $153,554 $149,665
Gas (Note 5) 100,544 95,036 95,307
Total Operating Revenues 253,291 248,590 244,972
Operating Expenses:
Fuel for electric generation 26,676 28,017 26,167
Purchased power 11,687 8,048 10,015
Natural gas purchased 66,021 57,488 59,693
Other operations 58,178 61,499 56,795
Maintenance 12,414 11,858 12,416
Depreciation and amortization 25,510 24,815 22,383
Other general taxes 8,736 8,709 8,619
Income tax items 12,553 14,285 14,822
Total Operating Expenses 221,775 214,719 210,910
Net Operating Income 31,516 33,871 34,062
AFUDC - equity funds 40 57 132
Other income, net 1,517 549 1,535
Writedown of nonregulated gas subsidiaries, net (Note 4) (10,400) - -
Non-utility operating (loss)/income, net (5,355) 1,000 404
Income Before Interest Expense 17,318 35,477 36,133
Interest Expense:
Interest on long-term debt 9,815 10,331 10,558
Other interest (Note 5) 1,097 1,205 639
AFUDC - borrowed funds (21) (29) (75)
Net Interest Expense 10,891 11,507 11,122
Net Income 6,427 23,970 25,011
Preferred stock dividends - 64 471
Earnings on Common Stock $ 6,427 $ 23,906 $ 24,540
Earnings Per Share of Common Stock
(Average shares outstanding - 16,079,718 for all years) $0.40 $1.49 $1.53
CONSOLIDATED STATEMENTS OF RETAINED INCOME
Balance - Beginning of Year $64,499 $60,851 $56,357
Add - Net income 6,427 23,970 25,011
Deduct - Cash dividends on common stock (20,475) (20,258) (20,046)
- Preferred stock dividend - (64) (471)
Balance - End of Year $50,451 $64,499 $60,851
The accompanying notes are an integral part of the above statements.
/TABLE
<PAGE>
<TABLE>
Consolidated Statements of Cash Flows
(Thousands of dollars, except per-share amounts)
<CAPTION>
For the years ended December 31, 1996 1995 1994
<S> <C> <C> <C>
Operating Activities:
Net income $ 6,427 $23,970 $25,011
Items not affecting cash:
Depreciation and amortization 25,510 24,815 22,383
Deferred income taxes (7,181) (2,442) 2,428
Amortization of nuclear fuel 2,098 2,740 2,803
Amortization of investment tax credits (792) (768) (783)
AFUDC - equity funds (40) (57) (132)
Writedown of nonregulated gas subsidiaries 15,741 - -
Other 1,146 1,729 994
Net Funds Provided from Operations 42,909 49,987 52,704
Changes in working capital, excluding cash equivalents, sinking
funds, maturities, and interim loans:
Increase in current assets (3,445) (12,168) (10,789)
Increase/(decrease) in current liabilities 2,458 11,287 (2,127)
Other noncurrent items, net 6,386 1,716 1,171
Cash Provided by Operating Activities 48,308 50,822 40,959
Financing Activities:
Cash dividends on common and preferred stock (20,475) (20,322) (20,517)
Maturities/redemptions of First Mortgage Bonds (7,840) (13,263) -
Increase in long-term debt - 11,000 -
Other decreases in First Mortgage Bonds (162) (199) (58)
Decrease in preferred stock - (5,300) (200)
Decrease in bond construction funds, net - 8,090 10,892
Increase/(decrease) in interim loans 9,250 (8,100) 5,100
Cash Used for Financing Activities (19,227) (28,094) (4,783)
Investing Activities:
Acquisition of nonregulated subsidiary - (8,036) -
Additions to utility plant and nuclear fuel (21,906) (19,162) (26,429)
AFUDC - borrowed funds (21) (29) (75)
Increase in nuclear decommissioning fund (4,710) (4,191) (2,316)
Cash Used for Investing Activities (26,637) (31,418) (28,820)
Change in Cash and Cash Equivalents 2,444 (8,690) 7,356
Cash and cash equivalents at beginning of period 2,844 11,534 4,178
Cash and cash equivalents at end of period $ 5,288 $ 2,844 $11,534
The accompanying notes are an integral part of the above statements.
/TABLE
<PAGE>
<TABLE>
Consolidated Balance Sheets
(Thousands of dollars)
<CAPTION>
At December 31, 1996 1995
<S> <C> <C>
ASSETS
Utility Plant, at original cost, in service:
Electric $500,690 $489,399
Gas 178,312 173,890
Gross Plant in Service 679,002 663,289
Less accumulated provision for depreciation (374,315) (348,254)
Net Plant in Service 304,687 315,035
Construction work in progress 7,517 9,061
Nuclear decommissioning fund 44,617 36,965
Nuclear fuel, net 8,378 6,172
Total Utility Plant 365,199 367,233
Other Property and Investments 7,115 17,176
Current Assets:
Cash and cash equivalents 5,288 2,844
Accounts receivable, less reserves of $1,220 and $1,379, respectively 39,145 36,817
Unbilled revenue 13,852 13,529
Materials and supplies, at average cost 5,740 5,987
Fossil fuel, at average cost 1,808 2,986
Stored natural gas, at average cost 7,189 6,203
Prepaid taxes 7,258 5,846
Other prepayments 1,429 1,608
Total Current Assets 81,709 75,820
Deferred Charges 30,146 33,647
Total Assets $484,169 $493,876
CAPITALIZATION AND LIABILITIES
Capitalization (see statement) $307,975 $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 29,750 20,500
Accounts payable 30,094 25,928
Accrued taxes 79 1,500
Accrued interest 2,322 2,359
Accrued nonregulated Items (Note 4) 7,923 -
Other 7,653 7,903
Total Current Liabilities 78,021 66,230
Other Credits:
Deferred income taxes 46,972 54,153
Regulatory liability - SFAS 109 23,914 25,177
Investment tax credit - deferred 11,439 12,231
Other regulatory liabilities 15,848 13,900
Total Other Credits 98,173 105,461
Commitments - -
Total Capitalization and Liabilities $484,169 $493,876
The accompanying notes are an integral part of the above balance sheets.
/TABLE
<PAGE>
<TABLE>
Consolidated Statements of Capitalization
(Thousands of dollars)
<CAPTION>
At December 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 50,451 64,499
Total Common Shareholders' Equity 179,089 193,137
First Mortgage Bonds:
5.45%, 1996 Series - 7,840
6 1/2%, 2006 Series:
Pollution Control Revenue Bonds 6,875 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 119,175 127,215
Unamortized discount and premium on bonds, net (1,089) (1,127)
Long-term debt sinking fund requirements (200) (200)
Maturity of 5.45%, 1996 Series - (7,840)
Total First Mortgage Bonds 117,886 118,048
Other Long-Term Debt:
6.01%, due 2000 11,000 11,000
Total Capitalization $307,975 $322,185
The accompanying notes are an integral part of the above statements.
</TABLE>
<PAGE>
Notes to Consolidated Financial Statements
December 31, 1996, 1995, and 1994.
1. Summary of Significant Accounting Policies
a. General
Madison Gas and Electric Company (the Company) is an investor-owned
public utility headquartered in Madison, Wisconsin. The Company
generates, transmits, and distributes electricity to about 122,000
customers in a 250-square-mile area of Dane County. The Company also
transports and distributes natural gas to over 105,000 customers in
1,325 square miles of service territories in seven counties. The Company
has served the Madison area since 1896.
The consolidated financial statements reflect the application of certain
accounting policies described in this note. The financial statements
include the accounts of the Company and its subsidiaries. All
significant intercompany accounts and transactions have been eliminated
in consolidation. The Company records unbilled revenue on the basis of
service rendered. Gas revenues are subject to an adjustment clause
related to periodic changes in the cost of gas.
Preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the dates of the financial statements and the reported
amounts of revenues and expenses during the reporting periods. Actual
results could differ from those estimates.
b. Utility Plant
Utility plant is stated at the original cost of construction, which
includes indirect costs consisting of payroll taxes, pensions,
postretirement benefits, other fringe benefits, administrative and
general costs, and an allowance for funds used during construction
(AFUDC).
AFUDC represents the approximate cost of debt and equity capital devoted
to plant under construction. The Company presently capitalizes AFUDC at
a rate of 10.62 percent on 50 percent of construction work in progress.
The AFUDC rate approximates the Company's cost of capital. The portion
of the allowance applicable to borrowed funds is presented in the
Consolidated Statements of Income as a reduction of interest expense,
while the portion of the allowance applicable to equity funds is
presented as other income. Although the allowance does not represent
current cash income, it is recovered under the ratemaking process over
the service lives of the related properties.
Substantially all of the Company's utility plant is subject to a first
mortgage lien.
<PAGE>
c. Nuclear Fuel
The cost of nuclear fuel used for electric generation is being amortized
to fuel expense and recovered in rates based on the quantity of heat
produced for the generation of electric energy by the Kewaunee Nuclear
Plant (Kewaunee). Such cost includes a provision for estimated future
disposal costs of spent nuclear fuel. The Company currently pays
disposal fees to the Department of Energy based on net nuclear
generation. The Company has recovered through rates and satisfied its
known fuel disposal liability for past nuclear generation.
The National Energy Policy Act enacted in 1992 contains a provision for
all utilities that have used federal enrichment facilities to pay a
special assessment for decontamination and decommissioning for these
facilities. This special assessment will be based on past enrichment,
and the Company has accrued and deferred an estimate of $2.4 million for
the Company's portion of the special assessment. The Company believes
all costs will be recovered in future rates.
d. Joint Plant Ownership
The Company and two other Wisconsin investor-owned utilities jointly own
two electric generating facilities, which account for 54 percent (325
mw) of the Company's net generating capability. Power from the
facilities is shared in proportion to the companies' ownership
interests. The Company's interests are 22 percent (232 mw) of the
coal-fired Columbia Energy Center (Columbia) and 17.8 percent (93 mw) of
Kewaunee. Each owner provides its own financing and reflects its
respective portion of facilities and operating costs in its financial
statements. The Company's portions of these facilities, included in its
gross utility plant in service, and the related accumulated depreciation
reserves at December 31, were as follows:
Columbia Kewaunee
(Thousands of
dollars) 1996 1995 1996 1995
Utility plant $85,377 $85,075 $57,929 $57,853
Accumulated
depreciation (46,704) (44,366) (36,271) (34,263)
Net Plant $38,673 $40,709 $21,658 $23,590
<PAGE>
e. Depreciation
Provisions at composite straight-line depreciation rates, excluding
decommissioning costs discussed as follows, approximate the
following percentages of the cost of depreciable property: electric,
3.3 percent in 1996 through 1994; gas, 3.4 percent in 1996 and
3.5 percent in 1995 and 1994. Depreciation rates are approved by the
Public Service Commission of Wisconsin (PSCW) and are generally based on
the estimated economic lives of property.
Nuclear decommissioning costs are accrued over the estimated service
life of Kewaunee, which is through 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
were $3.1 million.
Decommissioning costs are recovered through depreciation expense,
excluding 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 December 31, 1996, the
decommissioning trusts, totaling $45 million, are shown on the balance
sheet in the utility plant section and offset by an equal amount under
accumulated provision for depreciation.
The Company's share of Kewaunee decommissioning costs is estimated to be
$70.8 million in current dollars based on a site-specific study
performed in 1992 using immediate dismantlement as the method of
decommissioning. Decommissioning costs as studied are assumed to inflate
at an average rate of 6.1 percent. Physical decommissioning is expected
to occur during the period 2014 through 2021, with additional
expenditures being incurred during the period 2022 through 2050 related
to the storage of spent nuclear fuel at the plant site.
f. Income Taxes
Total income taxes in the Consolidated Statements of Income are as
follows:
(Thousands of dollars) 1996 1995 1994
Income taxes charged to
operations $12,553 $14,285 $14,822
Income taxes charged to
other income (7,942) 786 612
Total income taxes $ 4,611 $15,071 $15,434
<PAGE>
Total income taxes consist of the following provision (benefit)
components for the years ended December 31:
(Thousands of dollars) 1996 1995 1994
Currently payable
Federal $ 9,317 $14,602 $10,985
State 3,267 3,679 2,804
Net deferred
Federal (7,079) (2,217) 1,756
State (102) (225) 672
Amortized investment tax
credits (792) (768) (783)
Total income taxes $ 4,611 $15,071 $15,434
Deferred income taxes are provided to reflect the expected tax
consequences of temporary differences between the tax basis of assets
and liabilities and their reported amounts in the financial statements.
Investment tax credits from regulated operations are amortized over the
service lives of the property to which they relate.
The differences between the federal statutory income tax rate and the
Company's effective rate are as follows:
1996 1995 1994
Statutory federal income tax rate 35.0% 35.0% $35.0%
Amortized investment tax credits (7.2) (2.0) (1.9)
State income taxes, net of federal
benefit 7.3 5.8 5.6
Valuation allowance 10.9 - -
Other, individually insignificant (4.2) (0.2) (0.5)
Effective income tax rate 41.8% 38.6% 38.2%
<PAGE>
The significant components of deferred tax liabilities (assets) that
appear on the Consolidated Balance Sheets as of December 31 are as
follows:
(Thousands of dollars) 1996 1995
Property-related $59,522 $59,767
Other 6,788 8,062
Gross deferred income tax
liabilities 66,310 67,829
Accrued expenses (7,629) (3,571)
Other (3,311) -
Deferred tax regulatory
account (9,598) (10,105)
Gross deferred income tax
assets (20,538) (13,676)
Less valuation allowance 1,200 -
Net deferred income tax
assets (19,338) (13,676)
Deferred income taxes $46,972 $ 54,153
Excess deferred income taxes, resulting chiefly from taxes provided at
rates higher than current rates, have been recorded as a net regulatory
liability ($23.9 million and $25.2 million at December 31, 1996 and
1995, respectively), refundable through future rates.
As discussed in Note 4, the Company's nonregulated gas marketing
subsidiaries have entered into a joint venture with an unrelated third
party. Realization of state deferred tax assets including net operating
loss carryforwards of these subsidiaries is dependent on future income
of the joint venture in states where the subsidiaries file separate tax
returns. Due to the circumstances associated with these temporary
differences, a valuation allowance was established at December 31, 1996,
for these deferred tax assets.
For tax purposes, these subsidiaries, as of December 31, 1996, had
approximately $8.8 million of state tax net operating loss carryforwards
which expire, if unused, in the year 2011.
<PAGE>
g. Pension Plans
The Company maintains two defined benefit plans for its employees. The
pension benefit formula used in the determination of pension costs is
based on the average compensation earned during the last five years of
employment for the salaried plan and career earnings for the nonsalaried
plan subject to a monthly maximum.
Effective January 1, 1995, the Company began recovering pension costs in
customer rates under Statement of Financial Accounting Standard (SFAS)
No. 87, "Employers' Accounting for Pensions." Prior to this date,
pension costs were recovered in rates as funded. Of these funded pension
costs, $0.8 million was charged to operating expenses in 1994. The
plans' assets are in a master trust with a bank.
The funded status of the plans at December 31 is as follows:
(Thousands of dollars) 1996 1995
Fair value of plan assets $58,010 $50,152
Actuarial present value of benefits
rendered to date - Accumulated
benefits based on compensation to
date, including vested benefits of
$40,840 and $44,554, respectively 46,019 45,574
Additional benefits based on
estimated future salary levels 9,093 9,943
Projected benefit obligation $55,112 $55,517
Plan assets greater/(less) than
projected benefit obligation 2,898 (5,365)
Unrecognized net (gain)/loss (4,621) 1,586
Unrecognized prior service cost 1,004 1,130
Net liability $ (719) $(2,649)
<PAGE>
Components of net pension costs for the years ended December 31 are:
(Thousands of dollars) 1996 1995 1994
Service costs (benefits
earned during the period) $1,715 $1,416 $1,462
Interest costs on projected
benefit obligation 4,090 3,724 3,462
Actual (return)/loss on plan
assets (6,542) (10,033) 412
Net amortization and deferral 1,793 6,466 (4,056)
Regulatory effect based on
funding - - (186)
Net pension costs $1,056 $1,573 $1,094
The assumed rates for calculations used in the above tables were:
1996 1995 1994
Expected long-term rate of
return on plan assets 9.50% 9.50% 9.00%
Average rate of increase in
salaries 5.00% 5.00% 5.00%
Weighted average discount
rate 7.75% 7.25% 8.25%
In addition to the noted plans, the Company also maintains two
defined-contribution 401(k) benefit plans for its employees. The
Company's costs of the 401(k) plan for the years 1996 through 1994 were
$0.2 million for each year.
h. Postretirement Benefits Other than Pensions
The Company provides health care and life insurance benefits for its
retired employees, and substantially all of the Company's employees may
become eligible for these benefits upon retirement. These benefits are
accrued over the period in which employees provide services to the
Company.
<PAGE>
The Company has elected to recognize the cost of its transition
obligation (the accumulated postretirement benefit obligation as of
January 1, 1993) by amortizing it on a straight-line basis over 20
years. The Company's obligation and costs are based on a discount rate
of 7.75 percent in 1996, 7.25 percent in 1995, and 8.25 percent in 1994.
The assumed rate of increase in health care costs (health-care-cost
trend rate) is 11 percent in 1996, decreasing gradually to 5 percent in
2003 and remaining constant thereafter. Increasing the health-care-cost
trend rates of future years by one percentage point would increase the
accumulated postretirement benefit obligation by $2.5 million and would
increase annual aggregate service and interest costs by $0.3 million.
The Company's policy is to fund the obligation to the yearly maximum
through tax-advantaged vehicles. The plan's assets are in trust or on
reserve with an insurance company.
The funded status of the plan at December 31 is as follows:
(Thousands of dollars) 1996 1995
Accumulated postretirement
benefit obligation (APBO):
Retirees $(4,192) $(4,054)
Fully eligible active plan
participants (1,662) (1,701)
Other active plan participants (8,526) (7,986)
Total (14,380) (13,741)
Plan assets at fair value 3,581 2,666
APBO in excess of plan assets (10,799) (11,075)
Unrecognized transition
obligation 6,945 7,379
Unrecognized prior service costs 2,000 2,166
Unrecognized gain (1,804) (1,129)
Accrued postretirement benefit
liability $(3,658) $(2,659)
<PAGE>
Components of net periodic benefit costs for the years ended December 31
are as follows:
(Thousands of dollars) 1996 1995 1994
Service cost $ 546 $ 429 $ 402
Interest cost on APBO 1,062 989 772
Actual return on plan
assets (266) (177) (91)
Net amortization and
deferral 601 606 427
Regulatory effect based on
phase in 402 95 (115)
Net periodic benefit cost $2,345 $1,942 $1,395
i. Fair Value of Financial Instruments
At December 31, 1996, the carrying amount of cash and cash equivalents
approximates fair value. The estimated fair market value of the
Company's First Mortgage Bonds and other long-term debt, based on quoted
market prices at December 31, is as follows:
(Thousands of dollars) 1996 1995
Carrying amount (includes sinking
funds) $130,175 $138,215
Fair market value $136,332 $149,469
2. Capitalization Matters
a. First Mortgage Bonds and Other Long-Term Debt
The annual sinking fund requirements of the outstanding first mortgage
bonds is $0.2 million in 1997 through 2001. In June 1996, the
$7.8 million, 5.45%, 1996 Series, First Mortgage Bonds were retired.
b. Preferred Stock
The Company has 1,175,000 shares of $25 par value redeemable preferred
stock, cumulative, that is authorized but unissued at December 31, 1996.
<PAGE>
c. Notes Payable to Banks, Commercial Paper, and Lines of Credit
For short-term borrowings, the Company generally issues commercial paper
(issued at the prevailing discount rate at the time of issuance) which
is supported by unused bank lines of credit. Through negotiations with
several banks, the Company had $55 million in bank lines of credit,
which included $10 million for Great Lakes Energy Corp. (GLENCO) and
American Energy Management Inc. (AEM).
Information concerning short-term borrowings for the years is set forth
below:
(Thousands of dollars)
December 31: 1996 1995 1994
Available lines of credit
(MGE) $45,000 $35,000 $32,000
Available lines of credit
(GLENCO) $10,000 $5,000 -
Commercial paper
outstanding $29,750 $20,500 $28,600
Weighted average interest
rate 5.63% 5.86% 6.06%
During the year:
Maximum short-term
borrowings $29,750 $28,600 $29,500
Average short-term
borrowings $13,805 $16,091 $16,549
Weighted average interest
rate 5.53% 6.03% 4.57%
3. Rate Matters
In September 1996, the Company announced its intention to increase electric
rates for the test period beginning July 1, 1997, by $7.7 million or
5.1 percent annually and increase natural gas rates by $3.7 million or
3.8 percent annually 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. Hearings will be held during
April 1997 with a decision expected by the end of the second quarter of
1997.
<PAGE>
The Company filed an application with the PSCW in December 1996 for interim
electric rate relief for the first half of 1997. The reason for the interim
request is a prolonged outage at Kewaunee, increasing maintenance costs and
replacement power normally supplied by Kewaunee. The Company received an
interim rate order from the PSCW in March 1997. The order provides for a
$0.507 per kilowatt-hour surcharge on customers' bills to cover the
continuing costs that will be incurred by the Company while Kewaunee
remains out of service. The interim electric rate order is scheduled to
remain in effect until either Kewaunee returns to service or the Company
receives its final rate order.
4. Gas Marketing Subsidiaries
The Company continually evaluates its asset base, including certain
intangible assets such as goodwill, for events or changes in circumstances
that indicate the carrying amount of the assets may not be recoverable.
Throughout 1996, the Company experienced a decline in operating margins and
continuing operating losses at the Company's gas marketing subsidiaries.
This prompted the Company to evaluate the assets of the two companies for
potential impairment. In the Company's evaluation, it found that some of
the assets would not be recoverable. Thus, in December 1996, the Company
wrote down its assets in both GLENCO and AEM to properly reflect the
current value. The write down resulted in an after-tax charge to income of
$10.4 million.
GLENCO and AEM, two unregulated gas marketing subsidiaries, formed a joint
venture, effective January 1, 1997, with National Gas & Electric L.P.
(NG&E) to market natural gas and energy services to industrial and
commercial customers in the Great Lakes region. The joint venture is called
National Energy Management, L.L.C. and is based in Chicago. NG&E, a unit of
PanCanadian Energy, Inc., is a Houston-based gas marketing company. The
partnership gives GLENCO and AEM customers additional services to
strengthen their competitive edge while at the same time joining forces
with a gas marketing firm with a proven record. NG&E will actively manage
the joint venture.
5. GLENCO Economic Benefit
In the fourth quarter of 1996, the Company had a one-time charge resulting
from a refund to its natural gas customers. Under a sharing mechanism with
GLENCO, an economic benefit based on GLENCO's net income was to be passed
back to the Company's natural gas utility customers.
GLENCO's economic benefit was $2.5 million plus an additional $0.2 million
in interest, which was added to compensate the natural gas utility
customers for the time funds were retained, for a total refund of
$2.7 million. This has an after-tax impact of $1.6 million on net income.
The refund was properly credited to customers through the Purchased Gas
Adjustment Clause.
<PAGE>
6. Commitments
Utility plant construction expenditures for 1997, including the Company's
proportional share of jointly owned electric power production facilities
and purchases of fuel for Kewaunee, are estimated to be $31 million, and
substantial commitments have been incurred in connection with such
expenditures. Significant commitments have also been made for fuel for
Columbia.
7. Segments of Business
The table below presents information pertaining to the Company's segments
of business. Information regarding the distribution of net assets between
electric and gas for the years ended December 31 is set forth on page II-2.
(Thousands of dollars) 1996 1995 1994
Electric Operations
Total revenues $152,747 $153,554 $149,665
Operation and maintenance
expenses 90,862 89,994 87,748
Depreciation and amortization 20,094 19,503 17,337
Other general taxes 7,000 6,908 6,907
Pre-tax Operating Income 34,791 37,149 37,673
Income taxes 10,221 11,193 11,717
Net Operating Income $ 24,570 $ 25,956 $ 25,956
Construction and Nuclear Fuel
Expenditures (electric) $ 16,855 $ 14,006 $ 16,804
Gas Operations
Operating revenues $100,544 $ 95,036 $ 95,307
Revenues from sales to electric
utility 2,304 3,100 1,671
Total Revenues 102,848 98,136 96,978
Operation and maintenance
expenses 86,418 80,017 79,009
Depreciation and amortization 5,416 5,312 5,046
Other general taxes 1,736 1,801 1,712
Pre-tax Operating Income 9,278 11,006 11,211
Income taxes 2,332 3,091 3,105
Net Operating Income $ 6,946 $ 7,915 $ 8,106
Construction expenditures (gas) $ 5,051 $ 5,156 $ 9,625
<PAGE>
8. Supplemental Cash Flow Information
For purposes of the Consolidated Statements of Cash Flows, the Company
considers cash equivalents to be those investments that are highly liquid
with maturity dates of less than three months.
Cash payments for interest and income taxes for the years ended December 31
were as follows:
(Thousands of dollars) 1996 1995 1994
Interest paid, net of
amounts capitalized $10,932 $11,894 $11,235
Income taxes paid $16,041 $18,016 $13,602
9. Regulatory Assets and Liabilities
Pursuant to SFAS 71, the Company capitalizes, as deferred charges, incurred
costs that are expected to be recovered in future electric and natural gas
rates. The Company also records as other credits, obligations to customers
to refund previously collected revenue or to spend revenue collected from
customers on future costs. The Company's regulatory assets and liabilities
consisted of the following as of December 31:
1996 1995
(Thousands of dollars) Assets Liabilities Assets Liabilities
Demand-side management $12,284 $ 728 $14,169 $ 213
Decommissioning and
decontamination 2,403 2,403 2,569 2,569
Unamortized debt expense 5,260 - 5,448 -
Other postretirement
benefits - 3,481 - 2,516
Other 10,199 9,236 11,461 8,602
Other regulatory
assets/liabilities $30,146 $15,848 $33,647 $13,900
Regulatory liability -
SFAS 109 - 23,914 - 25,177
Total $30,146 $39,762 $33,647 $39,077
<PAGE>
PART III.
Item 10. Directors and Executive Officers of the Registrant
Information concerning the Directors of the Company is contained in the
definitive proxy statement under the section "Election of Directors" filed on
March 24, 1997, with the Securities and Exchange Commission, which is
incorporated herein by reference.
<TABLE>
Executive Officers of the Registrant (elected annually by Directors)
<CAPTION>
Service Years
Effective as an Officer
Executive Title Date
<S> <C> <C> <C>
David C. Mebane Chairman, President and CEO 05/09/94 16
Age: 63 President, CEO and COO 01/01/94
President and COO 10/01/91
Robert E. Domek Executive Vice President 05/01/95 8
Age: 66 Senior Vice President - Human Resources 05/03/93
Vice President - Human Resources 12/01/91
Mark C. Williamson Senior Vice President - Energy Services 05/01/95 5
Age: 43 Vice President - Energy Services 05/03/93
Assistant Vice President - Energy Services 11/01/92
Assistant Vice President - Electric Supply 07/01/92
Executive Director - Electric Supply 12/01/91
Gary J. Wolter Senior Vice President - Administration and Secretary 05/01/95 6
Age: 42 Vice President - Administration and Secretary 12/01/91
James C. Boll Vice President - Law and Corporate Communications 10/20/95 4
Age: 61 Assistant Vice President - Law and Corporate Comms. 05/03/93
Executive Director - Law and Corporate Comms. 01/13/92
Director - Public Affairs and Risk Management 06/01/91
Director - Risk Management 03/05/90
Terry A. Hanson Vice President and Treasurer 10/01/96 6
Age: 45 Treasurer 12/01/91
Lynn K. Hobbie Vice President - Marketing 05/01/96 3
Age: 38 Assistant Vice President - Marketing 11/01/94
Senior Director - Marketing 07/01/93
Director - Market Planning and Programs 11/01/92
Manager - Customer Planning and Research 02/01/92
Supervisor - Market Planning and Evaluation 06/01/90
Joseph T. Krzos Vice President - Finance 12/01/92 11
Age: 52 Assistant Vice President - Accounting and Control 12/01/91
Thomas R. Krull Vice President - Electric Transmission and Distribution 05/01/96 4
Age: 47 Assistant Vice President - Electric Trans. and Dist. 05/03/93
Executive Director -Electric Transmission and Dist. 12/01/91
Richard H. Thies Vice President - Gas Systems Operation 07/01/86 11
Age: 55
Deborah L. Burgess Assistant Vice President - Gas Rates and Supply 11/01/94 3
Age: 37 Director - Gas Rates and Supply 04/01/93
Manager - Gas Rates and Supply 03/01/92
Peter J. Waldron Assistant Vice President - Power Supply Ops. and Eng. 05/01/96 1
Age: 39 Executive Director - Power Supply Ops. and Eng. 10/01/95
Senior Director - Power Supply Ops. and Eng. 12/01/94
Director - Power Supply Ops. and Eng. 04/01/93
Manager - Power Supply Ops. and Eng. 02/01/92
Carol A. Wiskowski Assistant Vice President - Admin. and Assistant Secretary 05/01/92 18
Age: 57
</TABLE>
Item 11. Executive Compensation
See Item 12 below.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The required information for Items 11 and 12 is included in the Company's
definitive proxy statement under the section "Executive Compensation," not
including "Report on Executive Compensation" and "Company Performance," and
under the section "Beneficial Ownership of Common Stock by Directors and
Executive Officers" filed with the Securities and Exchange Commission on
March 24, 1997, which is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
None.
<PAGE>
PART IV.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
1a. Financial statements (consolidated, as of December 31, 1996 and 1995, and
for each of the three years in the period ended December 31, 1996).
Included in Part II, Item 8, of this report:
- Responsibility for Financial Statements
- Report of Independent Accountants
- Statements of Income and Retained Income
- Statements of Cash Flows
- Balance Sheets
- Statements of Capitalization
- Notes to Consolidated Financial Statements
b. Financial statement schedules.
None.
2. All exhibits including those incorporated by reference.
Exhibits (an asterisk (*) indicates a management contract or compensatory
plan or arrangement):
No. Description of document
3.(i) Articles of Incorporation as in effect at May 6, 1996.
3.(ii) By-Laws as in effect at January 1, 1991. (Incorporated by
reference to Exhibit 3B with 1991 10-K in File No. 0-1125.)
4A Indenture of Mortgage and Deed of Trust between the Company and
Firstar Trust Company, as Trustee, dated as of January 1, 1946,
and filed as Exhibit 7-D to SEC File No. 0-1125 and the following
indentures supplemental thereto are incorporated herein by
reference:
Supplemental Dated Exhibit
Indenture as of No. SEC File No.
Tenth1 11/01/76 2.03 2-60227
Fourteenth 04/01/92 4C 0-1125 (1992 10-K)
Fifteenth 04/01/92 4D 0-1125 (1992 10-K)
Sixteenth 10/01/92 4E 0-1125 (1992 10-K)
Seventeenth 02/01/93 4F 0-1125 (1992 10-K)
<PAGE>
10A Copy of Joint Power Supply Agreement with Wisconsin Power and
Light Company and Wisconsin Public Service Corporation dated
February 2, 1967. (Incorporated by reference to Exhibit 4.09 in
File No. 2-27308.)
10B Copy of Joint Power Supply Agreement (Exclusive of Exhibits) with
Wisconsin Power and Light Company and Wisconsin Public Service
Corporation dated July 26, 1973, amending Exhibit 5.04.
(Incorporated by reference to Exhibit 5.04A in File No. 2-48781.)
10D Copy of revised Agreement for Construction and Operation of
Columbia Generating Plant with Wisconsin Power and Light Company
and Wisconsin Public Service Corporation dated July 26, 1973.
(Incorporated by reference to Exhibit 5.07 in File No. 2-48781.)
10F* Form of Severance Agreement. (Incorporated by reference to Exhibit
10F with 1994 10-K in File No. 0-1125.)
12 Statement regarding computation of ratios (page II-2).
21 Subsidiaries of the Registrant.
23 Consent of Independent Accountants.
27 Appendix E to Item 601(c) of Regulation S-K: Public Utilities
Companies Financial Data Schedule UT.
3. Reports on Form 8-K - The Company filed a Current Report on Form 8-K
dated December 31, 1996, under Item 5, "Other Events," which contains,
under Exhibit 99, a press release announcing that its fourth-quarter and
year-end earnings were negatively impacted by several factors.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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: March 24, 1997 /s/ David C. Mebane
David C. Mebane
Chairman, President and Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on March 24, 1997.
/s/ David C. Mebane Chairman, President and Chief Executive
David C. Mebane Officer and Director (Principal
Executive Officer)
/s/ Joseph T. Krzos Vice President - Finance (Principal
Joseph T. Krzos Financial Officer and Principal
Accounting Officer)
/s/ Frank C. Vondrasek Vice Chairman and Director
Frank C. Vondrasek
Jean Manchester Biddick Director
/s/ Richard E. Blaney Director
Richard E. Blaney
/s/ Regina M. Millner Director
Regina M. Millner
/s/ Frederic E. Mohs Director
Frederic E. Mohs
/s/ Phillip C. Stark Director
Phillip C. Stark
H. Lee Swanson Director
Exhibit 3.(i)
RESTATED ARTICLES OF INCORPORATION
OF MADISON GAS AND ELECTRIC COMPANY
(Including all amendments made through May 6, 1996)
The following Restated Articles of Incorporation duly adopted pursuant to the
authority and provisions of the Wisconsin Business Corporation Law supersede
and take the place of the heretofore existing Articles of Organization and
amendments thereto:
Article First. The name of the corporation is MADISON GAS AND ELECTRIC
COMPANY.
Article Second. The purpose of the Company shall be to engage in any lawful
activity within the purposes for which corporations may be organized under the
Wisconsin Business Corporation Law, including but not by way of limitation,
the production, purchase, transmission, distribution and sale of gas and
electricity and any related products, by-products and merchandise, either
directly or indirectly, to or for the public, whether by itself or in
conjunction with others, and to transact any and all business incidental to
such purposes.
Article Third.A. Authorized Capital.
The number of shares of capital stock which the Company shall be authorized to
issue is Fifty-One Million One Hundred Seventy-Five Thousand (51,175,000)
shares, divided into Fifty Million (50,000,000) shares of Common Stock, $1 par
value per share, and One Million One Hundred Seventy-Five Thousand (1,175,000)
shares of Cumulative Preferred Stock, $25 par value per share.
B. Cumulative Preferred Stock.
(I) Series and Variations Between Series. The Cumulative Preferred Stock may
be divided into and issued in series. The Board of Directors is hereby
expressly vested with authority to divide such shares into series and cause
such shares to be issued from time to time in series, and, by resolution
adopted prior to the issue of shares of a particular series, to fix and
determine the following relative rights and preferences with respect to such
series, as to which matters the shares of a particular series may vary from
those of any or all other series:
(a) the distinctive serial designation of the shares of such series;
(b) the rate of dividend thereof;
(c) the amount payable upon the shares in event of voluntary or involuntary
liquidation (except as fixed in this Division B);
<PAGE>
(d) the price or prices at and the terms and conditions on which shares may be
redeemed (except as fixed in this Division B);
(e) sinking fund provisions for the redemption or purchase of such shares; and
(f) the terms and conditions on which such shares may be converted if the
shares of any series are issued with the privilege of conversion.
Except as the shares of a particular series may vary from those of any or all
other series in the foregoing respects, all of the shares of the Cumulative
Preferred Stock, regardless of series, shall in all respects be equal and
shall have the relative rights and preferences herein fixed.
(II) Dividends. (a) The holders of shares of Cumulative Preferred Stock of
each series shall be entitled to receive, as and when declared payable by the
Board of Directors from funds legally available for the payment thereof,
preferential dividends in lawful money of the United States of America at the
rate per annum fixed and determined as herein authorized for the shares of
such series, but no more, payable quarterly on dates to be established for all
series when established by the Board of Directors for the first series (the
quarterly dividend payment dates), in each year with respect to the quarterly
period ending on the day prior to each such respective dividend payment date.
Such dividends shall be cumulative with respect to each share from and
including the quarterly dividend payment date next preceding the date of issue
thereof unless (1) the date of issue be a quarterly dividend payment date, in
which case dividends shall be cumulative from and including the date of issue,
(2) issued during an interval between a record date for the payment of a
quarterly dividend on shares of such series and the payment date for such
dividend, in which case dividends shall be cumulative from and including such
payment date, or (3) the Board of Directors shall determine that the first
dividend with respect to shares of a particular series issued during an
interval between quarterly dividend payment dates shall be cumulative from and
including a date during such interval, in which event dividends shall be
cumulative from and including such date. No dividends shall be declared on
shares of Cumulative Preferred Stock of any series in respect of accumulations
for any quarterly dividend period or portion thereof unless dividends shall
likewise be or have been declared with respect to accumulations on all then
outstanding shares of Cumulative Preferred Stock of each other series for the
same period or portion thereof; and the ratios of the dividends declared to
dividends accumulated with respect to any quarterly dividend period on the
shares of each series outstanding shall be identical. Accumulations of
dividends shall not bear interest.
<PAGE>
(b) So long as any shares of Cumulative Preferred Stock remain outstanding, no
dividend shall be paid or declared, or other distribution made, on shares of
junior stock, nor shall any shares of junior stock be purchased, redeemed,
retired or otherwise acquired for a consideration (1) unless preferential
dividends on outstanding shares of Cumulative Preferred Stock for the current
and all past quarterly dividend periods shall have been paid, or declared and
set apart for payment, provided, however, that the restrictions of this
subparagraph (1) shall not apply to the declaration and payment of dividends
on shares of junior stock if payable solely in shares of junior stock, nor to
the acquisition of any shares of junior stock through application of proceeds
of any shares of junior stock sold at or about the time of such acquisition,
nor shall such restrictions prevent the transfer of any amount from surplus to
stated capital; and (2) except to the extent of earned surplus, provided,
however, that the restriction in this subparagraph (2) shall not apply to any
of the acts described in the proviso set forth in subparagraph (1) above and
shall not apply either to the acquisition of any shares of junior stock issued
after April 1, 1970, to the extent of the proceeds received for the issue of
such shares, or to the payment of any dividend within 60 days after the date
of declaration thereof, if at said date of declaration said dividend conforms
with the provisions of this subparagraph (2).
(III) Liquidation Preferences. (a) In the event of voluntary dissolution or
liquidation of the Company, the holders of shares of Cumulative Preferred
Stock of each series outstanding shall be entitled to receive out of the
assets of the Company an amount per share equal to that which such holders
would have been entitled to receive had shares held by them been redeemed
(otherwise than through operation of a sinking fund) on the date fixed for
payment, but no more, unless shares are not so redeemable at such date, and
then an amount per share to be fixed in the resolution of the Board of
Directors establishing the series of which the shares are a part. In the event
of involuntary dissolution or liquidation of the Company, the holders of
shares of Cumulative Preferred Stock of each series outstanding shall be
entitled to receive out of the assets of the Company $25 per share, plus
preferential dividends at the rate fixed and determined for such series as
herein authorized, accrued and unpaid to the date fixed for payment, but no
more. Until payment to the holders of outstanding shares of Cumulative
Preferred Stock as aforesaid, or until moneys or other assets sufficient for
such payment shall have been set apart for payment by the Company, separate
and apart from its other funds and assets for the account of such holders, so
as to be and continue to be available for payment to such holders, no payment
or distribution shall be made to holders of shares of junior stock in
connection with or upon such dissolution or liquidation. If upon any such
dissolution or liquidation the assets of the Company available for payment and
distribution to shareholders are insufficient to make payment in full, as
hereinabove provided, to the holders of shares of Cumulative Preferred Stock,
payment shall be made to such holders ratably in accordance with the number of
shares held by them, respectively.
<PAGE>
(b) Neither a consolidation nor merger of the Company with or into any other
corporation, nor a merger of any other corporation into the Company nor the
purchase or redemption of all or any part of the outstanding shares of any
class or classes of stock of the Company, nor the sale or transfer of the
property and business of the Company as or substantially as an entirety shall
be construed to be a dissolution or liquidation of the Company within the
meaning of the foregoing provisions.
<PAGE>
(IV) Redemption. (a) Except for any series which may not at the time be
redeemable, the Company may, at its option expressed by vote of the Board of
Directors, at any time or from time to time redeem the whole or any part of
the Cumulative Preferred Stock, or of any series thereof, at the redemption
price or prices at the time in effect, any such redemption to be on such
redemption date and at such place in the City of Madison, State of Wisconsin,
City of Chicago, State of Illinois, or in the City, County and State of New
York, or any combination of the three, as shall be determined by vote of the
Board of Directors. Notice of any proposed redemption of shares of Cumulative
Preferred Stock stating the series to be redeemed, the certificates within
such series to be redeemed if less than all of the shares of such series are
to be redeemed, and the date and place of redemption, shall be given by the
Company by depositing a copy of such notice in the U.S. mails, not more than
60 or less than 30 days prior to the redemption date, addressed to the holders
of record of shares of Cumulative Preferred Stock to be redeemed, at their
respective addresses then appearing on the books of the Company and such
notice shall be deemed delivered when so deposited; and by publishing such
notice at least once in each week for two successive weeks in a newspaper
customarily published at least on each business day, other than Saturdays,
Sundays and holidays, which is printed in the English language and published
and of general circulation in the Borough of Manhattan, City and State of New
York, and in such a newspaper so printed which is published and of general
circulation in the City of Chicago, State of Illinois. Publication of such
notice shall be commenced not more than 60 days, and shall be concluded not
less than 30 days, prior to the redemption date, but such notice need not
necessarily be published on the same day of each week or in the same
newspaper. If publication is made, unintentional omissions or errors in names
or addresses in the mailed notice shall not impair the validity of the notice.
In case less than all of the shares of any series are to be redeemed, the
shares so to be redeemed shall be determined by lot in such manner as may be
prescribed by the Board of Directors unless a method other than by lot is set
forth in the resolution of the Board of Directors establishing such series.
The certificates evidencing the shares to be so redeemed shall be specified by
number in the notice of such redemption and if less than all the shares
evidenced by any of the said certificates are to be redeemed, then the number
of shares to be redeemed shall be specified. On the redemption date the
Company shall, and at any time within 60 days prior to such redemption date
may, deposit in trust, for the account of the holders of shares of Cumulative
Preferred Stock to be redeemed, funds necessary for such redemption with a
bank or trust company in good standing, organized under the laws of the United
States of America or of the State of Wisconsin or of the State of New York or
of the State of Illinois, doing business in the Cities of Milwaukee or
Madison, the State of Wisconsin, or in the City, County and State of New York
or in the City of Chicago, the State of Illinois, and having combined capital,
surplus and undivided profit of at least $5,000,000, which shall be designated
in such notice of redemption.
<PAGE>
(b) If notice of redemption shall have been duly given, or said bank or trust
company has been irrevocably authorized by the Company to give such notice,
and funds necessary for such redemption have been deposited, all as aforesaid,
then all shares of Cumulative Preferred Stock with respect to which such
deposit shall have been made shall forthwith, whether or not the date fixed
for such redemption shall have occurred or the certificates for such shares
shall have been surrendered for cancellation, be deemed no longer to be
outstanding for any purpose, and all rights with respect to such shares shall
thereupon cease and terminate, excepting only the right of the holders of the
certificates for such shares to receive, out of the funds so deposited in
trust, on the redemption date (unless an earlier date is fixed by the Board of
Directors), the redemption funds, without interest, to which they are
entitled, and the right to exercise any privilege of conversion not
theretofore expiring, the Company to be entitled to the return of any funds
deposited for redemption of shares converted pursuant to such privilege. At
the expiration of 6 years after the redemption date such trust shall
terminate. Any such moneys then remaining on deposit, together with any
interest thereon which may be allowed by the bank or trust company with which
the deposit shall have been made, shall be paid by it to the Company, free of
trust, and thereafter the holders of the certificates for such shares shall
have no claim against such bank or trust company but only claims as unsecured
creditors against the Company for the amounts payable upon redemption thereof,
without interest. Interest, if any, allowed by the bank or trust company as
aforesaid shall belong to the Company.
(c) Subject to applicable law and this Article Third, the Company may from
time to time purchase or otherwise acquire outstanding shares of Cumulative
Preferred Stock at a price per share not exceeding the amount (inclusive of
any premium over par value and any accrued dividends) then payable in the
event of redemption thereof otherwise than through operation of a sinking
fund, if any.
(d) No shares of Cumulative Preferred Stock shall be purchased, redeemed or
otherwise acquired for a valuable consideration (1) in any case if all
dividends on the Cumulative Preferred Stock for all past quarter yearly
dividend periods shall not have been paid or declared and a sum sufficient for
the payment thereof set apart, or (2) at any time when the Company shall be in
default or deficient under any requirement of a sinking fund established with
respect to outstanding shares of any series of Cumulative Preferred Stock for
any period then elapsed, except for the purpose of wholly or partially
eliminating such default or deficiency.
(e) Subject to the provisions of this Article Third, any and all shares of
Cumulative Preferred Stock which at any time shall have been:
(1) Redeemed or otherwise retired by the Company, except in the manner set
forth in (2) below, shall assume the status of authorized but unissued
Cumulative Preferred Stock and may thereafter be reissued in the same manner
as other authorized but unissued Cumulative Preferred Stock.
<PAGE>
(2) Redeemed or purchased through operation of any sinking fund with respect
thereto, or which shall have been converted into or exchanged for shares of
any other class or classes or other securities of the Company pursuant to a
right of conversion or exchange reserved in such Cumulative Preferred Stock,
shall be canceled and shall not be reissued, and the Company shall, from time
to time, take such corporate action as may be appropriate or necessary to
reduce the authorized number of shares of Cumulative Preferred Stock
accordingly.
(V) Voting Rights. The holders of Cumulative Preferred Stock shall have no
vote in the affairs of the corporation except as is provided below or at the
time may be mandatorily required by statute:
(a) So long as any shares of Cumulative Preferred Stock are outstanding, the
Company shall not, without the consent (given by vote in person or by proxy at
a meeting called for that purpose) of the holders of at least two-thirds of
the shares of Cumulative Preferred Stock then outstanding:
(1) Create or authorize any shares of senior stock, or create or authorize
any obligation or security convertible into any such shares; or
(2) Alter or change the relative rights or preferences of then outstanding
Cumulative Preferred Stock so as to affect the holders thereof adversely,
provided, however, if any such alteration or change would adversely affect the
holders of one or more, but not all, of the series of Cumulative Preferred
Stock at the time outstanding, only the consent of holders of two-thirds of
the shares of each series so affected shall be required; or
(3) Issue, sell or otherwise dispose of shares of Cumulative Preferred Stock,
or any shares of senior or parity stock, or securities convertible into shares
of Cumulative Preferred Stock or into shares of senior or parity stock, other
than in exchange for, or in connection with the retirement (by redemption or
otherwise) of, not less than a like number of shares of Cumulative Preferred
Stock or shares of senior or parity stock, or securities convertible into not
less than a like number of such shares, as the case may be at the time
outstanding, unless:
<PAGE>
(i) Immediately after such proposed issue, sale or other disposition, the
aggregate of the capital of the Company applicable to all shares of Common
Stock then to be outstanding (including premium on all shares of Common Stock)
plus earned surplus and capital surplus, shall be at least equal to the
involuntary liquidation preference of all shares of Cumulative Preferred Stock
and shares of senior or parity stock then to be outstanding, provided that
until such additional shares or securities, as the case may be, or the
equivalent thereof (in terms of involuntary liquidating preference) in shares
of Cumulative Preferred Stock or senior or parity stock, shall have been
retired, earned surplus of the Company used to meet the requirements of this
clause in connection with the issuance of additional shares of Cumulative
Preferred Stock or shares of senior or parity stock or securities convertible
into either thereof shall not, after the issue of such shares or securities,
be available for dividends or other distributions on Common Stock (other than
dividends payable in Common Stock), except in an amount equal to the cash
subsequently received by the Company as a contribution to its Common Stock
capital or as consideration for the issuance of additional shares of Common
Stock; and
(ii) The gross income of the Company for a period of 12 consecutive calendar
months within the 15 calendar months immediately preceding the issuance, sale
or other disposition of such shares, determined in accordance with such system
of accounts as may be prescribed by governmental authorities having
jurisdiction in the premises, or, in the absence thereof, in accordance with
sound accounting practice (but in any event after deducting the amount for
said period charged by the Company on its books to depreciation expense and
taxes) to be available for the payment of interest, shall have been equal to
at least one and one-half times the sum of (x) the interest charges for one
year on all interest-bearing indebtedness of the Company (plus all
amortization of debt discount and expense, and less all amortization of
premium on debt, applicable to the aforesaid 12 months' period) and (y) the
dividend requirements for one year on all outstanding Cumulative Preferred
Stock, and on all outstanding senior and parity stock; and for the purpose of
both such computations the shares and any indebtedness then proposed to be
issued shall be included, and any indebtedness and shares then proposed to be
retired shall be excluded, and in determining such gross income the Board of
Directors shall make such adjustments, by way of increase or decrease in such
gross income, as shall in its opinion be necessary to give effect, for the
entire 12 months for which such gross income is determined, to any acquisition
or disposition of property, the income from which can be separately
ascertained,
in which event such consent shall not be required.
(b) So long as any Cumulative Preferred Stock is outstanding, the Company
shall not, without the consent (given by vote in person or by proxy at a
meeting called for that purpose) of the holders of at least a majority of the
shares of Cumulative Preferred Stock then outstanding:
<PAGE>
(1) Merge or consolidate with or into any other corporation, provided that
this provision shall not apply to a purchase or other acquisition by the
Company of franchises or assets of another corporation in any manner which
does not involve a statutory merger or consolidation;
(2) Sell, lease, or exchange all or substantially all of its property and
assets, unless the fair value of the net assets of the Company, after
completion of such transaction, shall at least equal the then involuntary
liquidation value of the Cumulative Preferred Stock of all series, and of all
senior or parity stock, then outstanding.
(c) No consent hereinbefore provided for in this subdivision (V)(a) and (b)
shall be required in the case of the holders of any shares of Cumulative
Preferred Stock which are to be redeemed at or prior to the time when an
alteration or change is to take effect, or at or prior to the time of
authorization, issuance, sale or other disposition of any additional
Cumulative Preferred Stock or shares of senior or parity stock or convertible
securities, or a consolidation or merger is to take effect, as the case may
be.
(d) If at any time dividends on any of the outstanding shares of Cumulative
Preferred Stock shall be in default in an amount equivalent to four or more
full quarterly dividends, the holders of outstanding shares of Cumulative
Preferred Stock, voting separately as a class, shall be entitled to elect
either one-fourth or two (whichever shall be greater) of the Directors of the
Company (herein called Certain Directors), which right shall continue in force
and effect until all arrears of dividends on outstanding shares of Cumulative
Preferred Stock shall have been declared and paid or deposited in trust with a
bank or trust company having the qualification set forth in subdivision (IV)
of this Division B for payment on or before the next succeeding dividends
payment date, in which event, such right to elect Certain Directors shall
cease and terminate unless and until the equivalent of four or more full
quarterly dividends shall again be in default on outstanding shares of
Cumulative Preferred Stock. Such right to elect Certain Directors is subject
to the following terms and conditions:
<PAGE>
(1) Such right to elect Certain Directors may be exercised at any annual
meeting of shareholders, or, within the limitations herein provided, at a
special meeting of shareholders held for such purpose. Whenever such right to
elect Certain Directors shall vest, on request signed by any holder of record
of shares of Cumulative Preferred Stock then outstanding and delivered to the
Company's principal office not less than 120 days prior to the date of the
annual meeting next following the date when such right vests, the President or
a Vice-President of the Company shall call a special meeting of shareholders
to be held within 60 days after receipt of such request for the purpose of
electing a new Board of Directors of which holders of outstanding shares of
Cumulative Preferred Stock shall be entitled to elect Certain Directors and
holders of outstanding shares otherwise entitled to vote shall be entitled to
elect the remaining Directors, in each case to serve until the next annual
meeting of shareholders or until their successors shall be elected and shall
qualify.
(2) Whenever, under the terms hereof, holders of outstanding shares of
Cumulative Preferred Stock shall be divested of the right to elect Certain
Directors, upon request signed by any holder of record of shares otherwise
entitled to vote and delivered to the Company at its principal office not less
than 120 days prior to the date for the annual meeting next following the date
of such divesting, the President or a Vice-President of the Company shall call
a special meeting of the holders of shares otherwise entitled to vote, to be
held within 60 days after receipt of such request for the purpose of electing
a new Board of Directors to serve until the next annual meeting or until their
respective successors shall be elected and shall qualify.
(3) If, while holders of outstanding shares of Cumulative Preferred Stock are
entitled to elect Certain Directors, the holders of shares entitled as a class
to elect Directors shall fail to elect the full number of Directors which they
are entitled to elect, either at an annual meeting of shareholders or a
special meeting thereof held as in this subdivision (V) provided, or at an
adjourned session of either thereof held within a period of 90 days beginning
with the date of such meeting, then after the expiration of such period
holders of outstanding shares of Cumulative Preferred Stock and holders of
outstanding shares otherwise entitled to vote, voting as a single class, shall
be entitled to elect such number of Directors as shall not have been elected
during such period by holders of outstanding shares of the class or classes
then entitled to elect the same, to serve until the next annual meeting of
shareholders or until their successors shall be elected and shall qualify. The
term of office of all Directors in office immediately prior to the date of
such annual or special meeting shall terminate as and when a full Board of
Directors shall have been elected at such meeting or a later meeting of
shareholders for the election of Directors, or an adjourned session of either
thereof.
<PAGE>
(4) At any annual or special meeting of the shareholders or adjournment
thereof, held for the purpose of electing Directors while the holders of
outstanding shares of Cumulative Preferred Stock shall be entitled to elect
Certain Directors, the presence in person or by proxy of the holders of a
majority of outstanding shares of Cumulative Preferred Stock shall be
necessary to constitute a quorum of Cumulative Preferred Stock for the
election by such class of members to the Board of Directors and the presence
in person or by proxy of the holders of a majority of outstanding shares
otherwise entitled to vote shall be necessary to constitute a quorum of such
shares for the election of Directors which holders of such shares are then
entitled to elect. In case of a failure by the holders of any class or classes
to elect, at such meeting or an adjourned session held within said period of
90 days, the number of Directors which they are entitled to elect at such
meeting, such meeting shall be deemed ipso facto to have been adjourned to
reconvene at 11:00 A.M., Local Time, on the fourth full business day next
following the close of such 90-day period, at which time, or at a subsequent
adjourned session of such meeting, such number of Directors as shall not have
been elected during such period by holders of outstanding shares of the class
or classes then entitled to elect the same, may be elected by holders of
outstanding shares of Cumulative Preferred Stock and holders of outstanding
shares otherwise entitled to vote, voting as a single class. Subject to the
preceding provisions of this subdivision (V), a majority of the holders of
shares of any class or classes at the time present in person or by proxy shall
have power to adjourn such meeting for the election of Directors by holders of
shares of such class or classes from time to time without notice other than
announcement at the meeting.
(5) While the holders of outstanding shares of Cumulative Preferred Stock
remain entitled to elect Certain Directors, any holder of record of
outstanding shares of Cumulative Preferred Stock shall have the right, during
regular business hours, in person or by a duly authorized representative, to
examine the Company's stock records of Cumulative Preferred Stock for the
purpose of communicating with other holders of shares of such stock with
respect to the exercise of such right of election, and to make a list of such
holders.
(e) Except as by statute at the time mandatorily provided, holders of shares
of Cumulative Preferred Stock shall not be entitled to receive notice of any
meeting of shareholders at which they are not entitled to vote or consent.
(VI) (Vacant)
(VII) (Vacant)
(VIII) (Vacant)
(IX) (Vacant)
<PAGE>
(X) Series E Cumulative Preferred Stock.
(a) Establishment of Series and Designation Thereof. There is established a
series of Cumulative Preferred Stock, the serial designation of the shares of
which shall be, and the shares of which shall be known as, Series E Cumulative
Preferred Stock. Such series shall be a closed series consisting of 300,000
shares of Cumulative Preferred Stock.
(b) Rate of Dividend. The rate of preferred dividends on the shares of Series
E Cumulative Preferred Stock shall be $2.175 per share per annum, which shall
be cumulative from and including August 31, 1978, and shall be payable in
quarterly installments on February 1, May 1, August 1, and November 1 of each
year.
<PAGE>
(c) Price at Which Redeemable. (1) The shares of Series E Cumulative Preferred
Stock shall be redeemable at the option of the Company at any time, or from
time to time, after the issue thereof, and prior to August 1, 1983, at $27.00
per share; on or after August 1, 1983, but prior to August 1, 1988, at $26.60
per share; on or after August 1, 1988, but prior to August 1, 1993, at $26.20
per share; on or after August 1, 1993, but prior to August 1, 1998, at $25.80
per share; on or after August 1, 1998, but prior to August 1, 2003, at $25.40
per share; and on or after August 1, 2003, at $25.00 per share; plus, in each
case, an amount equivalent to preferential dividends at the rate aforesaid
accrued and unpaid to the date of redemption; provided, however, the shares of
Series E Cumulative Preferred Stock shall not be redeemable at the option of
the Company prior to August 1, 1983, directly or indirectly, (i) from or in
anticipation of moneys borrowed by or for the account of the Company, or (ii)
from or in anticipation of the proceeds of the issuance of any other shares of
Cumulative Preferred Stock, or senior or parity stock (as such terms are
defined in Division E), if such borrowing has an effective interest cost to
the Company or such shares have an effective dividend cost to the Company of
less than 8.70% per annum, or if such borrowing or such shares have, as of the
date of the proposed redemption, a weighted average life less than the
remaining weighted average life of the Series E Cumulative Preferred Stock.
Weighted average life of any borrowing or preferred stock means as at the time
of the determination thereof the number of years obtained by dividing the then
remaining dollar-years of such borrowing by the principal amount of such
borrowing or the aggregate involuntary liquidation preference of the shares of
such preferred stock. The term "remaining dollar-years of any borrowing or
preferred stock" means the amount obtained by (1) multiplying the amount of
each then remaining sinking fund, serial maturity, or other required
repayment, redemption, or purchase, including repayment, redemption, or
purchase, at final maturity, by the number of years (calculated at the nearest
one-twelfth) which will elapse between the date of proposed redemption and the
date of that required repayment, redemption, or purchase, and (2) totaling all
the products obtained in (1). If the Company makes any redemption of shares of
Series E Cumulative Preferred Stock on or after August 1, 1983, but prior to
August 1, 1988, which if made prior to August 1, 1983, would have been
prohibited by the terms of this paragraph, then the redemption price shall be
$28.00 per share plus an amount equivalent to preferential dividends at the
rate aforesaid accrued and unpaid to the date of redemption. The shares of
Series E Cumulative Preferred Stock shall be redeemable for purposes of the
sinking fund hereinafter provided at the price of $25.00 per share plus an
amount equivalent to preferential dividends at the rate aforesaid accrued and
unpaid to the date of redemption.
(2) If the Company shall, at any time, redeem at its option less than all of
the then outstanding shares of Series E Cumulative Preferred Stock, it shall
redeem such shares as follows:
<PAGE>
(i) From each purchaser on original issue, or any nominee of such purchaser
("Original Purchaser"), a number of full shares of Series E Cumulative
Preferred Stock, which bears (as nearly as may be practicable) the same ratio
to the total number of such shares to be redeemed as (A) the total number of
shares of Series E Cumulative Preferred Stock held by such Original Purchaser
on the date on which notice of such redemption is given bears to (B) the total
number of such shares outstanding on such date, including such shares held by
the Company as treasury shares; and
(ii) From holders of shares of Series E Cumulative Preferred Stock other than
Original Purchasers and other than the Company, by redemption by lot, a number
of shares of Series E Cumulative Preferred Stock equal to the total number of
such shares to be redeemed, less the number of such shares which the Company
shall be required to redeem from Original Purchasers in accordance with the
provisions of the preceding subparagraph (i).
(d) Sinking Fund. (1) Within each 12 months' period commencing with the 12
months' period ending August 1, 1984, and ending with the 12 months' period
ending August 1, 1993, the Company shall acquire, subject to the restrictions
contained in this Article Third, either by redemption thereof or by purchase
thereof, at a price not exceeding the optional redemption price then in
effect, and shall retire 4,000 shares of Series E Cumulative Preferred Stock,
or the number of shares of such series outstanding, whichever shall be less;
and in each of the 12 months' periods commencing with the 12-month period
ending August 1, 1994, and ending with the 12-month period ending August 1,
1998, the Company shall similarly acquire 8,000 shares of Series E Cumulative
Preferred Stock; and in each of the 12 month-periods commencing with the
12-month period ending August 1, 1999, and ending with the 12-month period
ending August 1, 2008, the Company shall similarly acquire 22,000 shares of
Series E Cumulative Preferred Stock; provided, however, that the obligation
hereunder shall be cumulative so that if the Company shall be
prevented by the restrictions contained in this Article Third from acquiring
during any 12 months' period the number of shares of Series E Cumulative
Preferred Stock which, in the absence of such restrictions, it would be
required to acquire during such period, then, although the Company shall not
be deemed to have defaulted in the performance of the requirements of this
clause (d), it shall be and remain deficient in such performance, and such
deficiency shall be made good as soon as practicable.
(2) Such shares required to be acquired during each such 12 months' period
shall be acquired as follows:
<PAGE>
(i) From each Original Purchaser, by redemption or by purchase, a number of
full shares of Series E Cumulative Preferred Stock which bears (as nearly as
may be practicable) the same ratio to the total number of such shares required
to be retired during such 12 months' period as (A) the total number of shares
of Series E Cumulative Preferred Stock held by such Original Purchaser on the
August 1 beginning such 12 months' period bears to (B) the total number of
such shares outstanding on such August 1, including such shares held by the
Company as treasury shares; provided, however, that the Company's unsatisfied
obligation to acquire shares during any such 12 months' period from any
Original Purchaser shall at no time during such period exceed the number of
shares then held by such Original Purchaser, and
(ii) From holders of shares of Series E Cumulative Preferred Stock other than
Original Purchasers and other than the Company, by redemption by lot or by
purchase, a number of shares of Series E Cumulative Preferred Stock equal to
the total number of such shares required to be acquired during such 12 months'
period less the number of shares which the Company shall have acquired or
shall be required to acquire during such 12 months' period from Original
Purchasers in accordance with the provisions of the preceding subparagraph
(i).
(3) During any 12-month period referred to in paragraph (1) of this clause
(d), the Company shall have the option to redeem at the sinking fund
redemption price up to that number of shares of Series E Cumulative Preferred
Stock which the Company is obligated to acquire during such 12-month period
pursuant to paragraph (1) of this clause (d). Such shares shall be redeemed
from the Original Purchasers and each other stockholder in accordance with the
provisions of paragraph (2) of this clause (d). Such option to redeem
additional shares of Series E Cumulative Preferred Stock shall not be
cumulative and shares so redeemed pursuant to this paragraph (3) shall not be
credited against the obligation of the Company to acquire shares of Series E
Cumulative Preferred Stock pursuant to paragraph (1) of this clause (d).
(4) Any shares of Series E Cumulative Preferred Stock which shall be redeemed
by the Company at the optional redemption price then in effect or purchased by
the Company in any such 12 months' period at a price not exceeding the
optional redemption price, and which shall not be applied to meet the
Company's sinking fund obligation for such 12 months' period, may be credited
on the amounts required to be acquired in any one or more of the following 12
months' periods which the Company may designate. The shares of its Series E
Cumulative Preferred Stock of the Company redeemed or purchased and applied to
meet its sinking fund obligations shall be canceled and shall not be reissued.
(e) No Conversion Privilege. The shares of Series E Cumulative Preferred Stock
shall not be convertible into other shares or securities of the Company.
<PAGE>
C. Common Stock
(I) Dividends. Subject to the limitations in this Article Third set forth,
dividends may be paid on Common Stock out of any funds legally available for
the purpose, when and as declared by the Board of Directors.
(II) Liquidation Rights. In the event of any liquidation or dissolution of the
Company, after there shall have been paid to or set aside for the holders of
outstanding shares having superior liquidation preferences to Common Stock the
full preferential amounts to which they are respectively entitled, the holders
of outstanding shares of Common Stock shall be entitled to receive pro rata,
according to the number of shares held by each, the remaining assets of the
Company available for distribution.
(III) Voting Rights. Except as set forth in this Article Third or in Article
Eighth or as by statute otherwise mandatorily provided, the holders of the
Common Stock shall exclusively possess full voting powers for the election of
Directors and for all other purposes.
D. Preemptive Rights.
No holder of stock of this corporation of any class shall be entitled as of
right to subscribe for, purchase or receive any part of any new or additional
issue of stock of any class, whether now or hereafter authorized, or of any
bonds, debentures or other securities convertible into stock of any class, and
all such additional shares of stock, bonds, debentures or other securities
convertible into stock may be issued and disposed of by the Board of Directors
to such person or persons, and on such terms and for such consideration (so
far as may be permitted by law) as the Board of Directors in their absolute
discretion may deem advisable.
E. Certain Definitions.
In this Article Third, and in any resolution of the Board of Directors adopted
pursuant to this Article Third establishing a series of the Cumulative
Preferred Stock and fixing the designation, description and terms thereof, the
meanings below assigned shall control:
"Senior stock" shall mean shares of stock of any class ranking prior to shares
of Cumulative Preferred Stock as to dividends or upon dissolution or
liquidation;
"Parity stock" shall mean shares of stock of any class ranking on a parity
with, but not prior to, shares of Cumulative Preferred Stock as to dividends
or upon dissolution or liquidation;
"Junior stock" shall mean shares of stock of any class ranking subordinate to
shares of Cumulative Preferred Stock as to dividends and upon dissolution or
liquidation; and
<PAGE>
Preferential dividends accrued and unpaid on a share of Cumulative Preferred
Stock to any particular date shall mean an amount per share at the annual
dividend rate applicable to such share for the period beginning with the date
from and including which dividends on such share are cumulative and concluding
on the day prior to such particular date, less the aggregate of all dividends
paid with respect to such share during such period.
Article Fourth. The number of Directors constituting the Board of Directors,
the classification of such Directors, and their terms shall be fixed by the
Bylaws of the Company. There shall not be more than three classes of
Directors, nor shall the terms of any class of Directors be for more than
three years. In no event shall there be less than three Directors.
Article Fifth. The bylaws of the Company may be adopted either by the
shareholders or the Board of Directors, but no bylaw adopted by the
shareholders shall be amended or repealed by the Directors unless the bylaw
adopted by the shareholders confers such authority upon the Directors. Any
bylaw adopted by the Board of Directors shall be subject to amendment or
repeal by the shareholders as well as by the Directors.
Article Sixth. At the time of the adoption of these Restated Articles of
Incorporation, the name of the registered agent and the address of the
registered office of the Company are:
Agent: Gary J. Wolter
Office:Madison Gas and Electric Company
133 South Blair Street
(P.O. Box 1231)
Madison, Wisconsin 53701
Article Seventh. These articles may be amended by resolution setting forth
such amendment or amendments, adopted at any meeting of the shareholders by a
vote of at least two-thirds of all of the stock of the Company then
outstanding and then entitled to vote.
Article Eighth. A. Certain Definitions.
For purposes of this Article Eighth:
(I) "Affiliate" and "Associate" shall have the respective meanings ascribed
to such terms in Rule 12b-2 under the Securities Exchange Act of 1934 as in
effect on February 6, 1985 (the term "registrant" in Rule 12b-2 meaning in
this case the Company).
<PAGE>
(II) A person shall be a "beneficial owner" of any shares of Voting Stock (a)
which such person or any of its Affiliates or Associates beneficially owns,
directly or indirectly; (b) which such person or any of its Affiliates or
Associates has, directly or indirectly, (i) the right to acquire (whether such
right is exercisable immediately or subject only to the passage of time),
pursuant to any agreement, arrangement or understanding or upon the exercise
of conversion rights, exchange rights, warrants or options, or otherwise, or
(ii) the right to vote pursuant to any agreement, arrangement or
understanding; or (c) which are beneficially owned, directly or indirectly, by
any other person with which such person or any of its Affiliates or Associates
has any agreement, arrangement or understanding for the purpose of acquiring,
holding, voting or disposing of any shares of Voting Stock. For the purposes
of determining whether a person is a Substantial Shareholder pursuant to
subdivision (V) of this division A, the number of shares of Voting Stock
deemed to be outstanding shall include shares deemed beneficially owned by
such person through application of this subdivision (II) of division A, but
shall not include any other shares of Voting Stock that may be issuable
pursuant to any agreement, arrangement or understanding, or upon exercise of
conversion rights, warrants or options, or otherwise.
(III) "Person" shall mean any individual, firm, corporation or other entity
and shall include any group comprised of any person and any other person with
whom such person or any Affiliate or Associate of such person has any
agreement, arrangement or understanding, directly or indirectly, for the
purpose of acquiring, holding, voting or disposing of shares of Voting Stock.
(IV) "Subsidiary" shall mean any corporation of which a majority of each
class of equity security is beneficially owned by the Company.
(V) "Substantial Shareholder" shall mean any person (other than the Company
or any Subsidiary and other than any profit-sharing, employee stock ownership
or other employee benefit plan of the Company or any Subsidiary or any trustee
of or fiduciary with respect to any such plan when acting in such capacity)
who (without giving effect to the provisions of division B of this Article
Eighth) is the beneficial owner of shares of Voting Stock representing ten
percent (10%) or more of the votes entitled to be cast by the holders of all
then outstanding shares of Voting Stock.
(VI) "Voting Stock" shall mean the Common Stock of the Company and any class
or series of preferred or preference stock (other than the Company's
Cumulative Preferred Stock, authorized pursuant to division B of Article
Third) authorized and outstanding from time to time pursuant to Article Third
entitling the holder thereof to vote on the matter with respect to which a
determination is being made pursuant to this Article Eighth; provided,
however, that the shareholders or the Board of Directors, as the case may be,
may specify in the resolution authorizing any such class or series of
preferred or preference stock that the shares of such class or series shall
not constitute Voting Stock and that such shares and the holders thereof shall
be exempt from the provisions of this Article Eighth.
<PAGE>
B. Limitation of Voting Rights.
Any provision of these Restated Articles of Incorporation to the contrary
notwithstanding, so long as any person is a Substantial Shareholder, the
shareholders of record of the shares of Voting Stock beneficially owned by
such Substantial Shareholder shall have limited voting rights on any matter
requiring their vote or consent, as follows:
(I) With respect to the shares of Voting Stock which would entitle such
shareholders of record in the aggregate to cast up to ten percent (10%) of the
total number of votes entitled to be cast by the holders of all outstanding
shares of Voting Stock, such shareholders of record shall be entitled to cast
the votes per share specified in or pursuant to Article Third.
(II) With respect to the shares of Voting Stock which would entitle such
shareholders of record in the aggregate to cast in excess of ten percent (10%)
of the total number of votes entitled to be cast by the holders of all
outstanding shares of Voting Stock, such shareholders of record shall be
entitled to cast only one/one-hundredth (1/100th) of the votes per share to
which a holder of such shares would otherwise be entitled to cast.
(III) Notwithstanding the foregoing, in the event that, after giving effect
to the provisions of subdivisions (I) and (II) of this division B, the
aggregate voting power of such shareholders of record would still exceed
fifteen percent (15%) of the votes entitled to be cast by the holders of all
outstanding shares of Voting Stock, the aggregate voting power of such
shareholders of record shall be further limited so that such shareholders of
record shall be entitled to cast only such number of votes that would equal
(after giving effect to the provisions of this Article Eighth) fifteen percent
(15%) of the number of votes entitled to be cast by all holders of outstanding
shares of Voting Stock.
(IV) The aggregate voting power of such shareholders of record, as limited
pursuant to the provisions of division B, subdivisions (II) and (III) of this
Article Eighth, for all shares of Voting Stock beneficially owned by such
Substantial Shareholder shall be allocated proportionately among such
shareholders of record. In this connection, each such shareholder of record
shall be entitled to cast in respect of his shares of Voting Stock the number
of votes equal to (a) the aggregate number of votes entitled to be cast (after
giving effect to the provisions in this Article Eighth) in respect of the
outstanding shares of Voting Stock beneficially owned by the Substantial
Shareholder, multiplied by (b) a fraction the numerator of which is the number
of votes which the shares of Voting Stock owned by such shareholder of record
would have entitled such shareholder of record to cast were no effect given to
the provision of this Article Eighth, and the denominator of which is the
total number of votes which all shares of Voting Stock beneficially owned by
the Substantial Shareholder would have entitled their record holders to cast
were no effect given to the provisions of this Article Eighth.
<PAGE>
C. Quorum.
The presence, in person or by proxy, of the holders of record of shares of
Voting Stock entitling the holders thereof to cast a majority of the votes
(after giving effect, if required, to the provisions of this Article Eighth)
entitled to be cast by the holders of all outstanding shares of Voting Stock
entitled to vote shall constitute a quorum at all meetings of the
shareholders.
D. Factual Determinations.
(I) The Board of Directors shall have the power and duty to determine for the
purposes of this Article Eighth, on the basis of information known to them
after reasonable inquiry, (a) whether a person is a Substantial Shareholder,
(b) the number of shares of Voting Stock beneficially owned by any person, (c)
whether a person is an Affiliate or an Associate of another, and (d) the
persons who may be deemed to be the record holders of shares of which a
Substantial Shareholder is a beneficial owner. Any such determination made in
good faith shall be binding and conclusive on all parties.
(II) The Board of Directors shall have the right to demand that any person
who is reasonably believed to be a Substantial Shareholder (or holds of record
shares of Voting Stock beneficially owned by a Substantial Shareholder) supply
the Company with complete information as to (a) the record holder(s) of all
shares beneficially owned by such person who is reasonably believed to be a
Substantial Shareholder, (b) the number of shares of Voting Stock beneficially
owned by such person who is reasonably believed to be a Substantial
Shareholder and held of record by each such shareholder of record, and
(c) any other factual matter relating to the applicability or effect of this
Article Eighth, as may reasonably be requested of such person, and such person
shall furnish such information within ten (10) days after the receipt of such
demand.
E. No Derogation of Fiduciary Obligations.
Nothing contained in this Article Eighth shall be construed to relieve any
Substantial Shareholder from any fiduciary obligation imposed by law.
F. Severability.
In the event that any provision or portion of a provision of this Article
Eighth is determined to be invalid, void, illegal or unenforceable, the
remainder of the provisions of this Article Eighth shall continue to be valid
and enforceable and shall in no way be affected, impaired or invalidated.
Exhibit No. 21
Madison Gas and Electric Company and Consolidated Subsidiaries
SUBSIDIARIES OF THE REGISTRANT
As of December 31, 1996, the Company owned 100 percent of the voting
securities of the following subsidiaries (all Wisconsin corporations):
- - MAGAEL INC. - holds title to property acquired by the Company for future
utility plant expansion and nonutility property.
- - Central Wisconsin Development Corporation - assists new and expanding
businesses throughout Central Wisconsin by participating in planning,
financing, property acquisition, joint ventures, and associated activities.
- - Great Lakes Energy Corp. - markets fuels and energy services to commercial,
industrial, and governmental customers in the Upper Midwest. (See Item 7,
page II-7, and Item 8, page F-16, for further discussion.)
- - Wisconsin Resources Corporation - Inactive.
- - North Central Technologies, Inc. - Inactive.
- - Mid America Technologies, Inc. - Inactive.
As of December 31, 1996, Great Lakes Energy Corp. owned 100 percent of the
voting securities of the following subsidiary (a Wisconsin corporation):
- - American Energy Management, Inc. - a national energy marketing firm that
provides gas marketing, energy management, energy auditing, and conservation
services to customers in 12 states. (See Item 7, page II-7, and Item 8,
page F-16, for further discussion.)
Exhibit No. 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements of
Madison Gas and Electric Company on Form S-3 (Registration No. 33-52491 and
Registration No. 33-24115) of our report dated February 7, 1997, on our audits
of the consolidated financial statements of Madison Gas and Electric Company
as of December 31, 1996, 1995, and 1994, and for the years then ended, which
reports are included or incorporated by reference in this annual report on
Form 10-K.
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
Milwaukee, Wisconsin
March 24, 1997
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
This schedule contains summary financial information extracted from SEC Form
10-K. Items 1 through 22 are as of December 31, 1996. Items 23 through 38 are
for the twelve months ended December 31, 1996.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 365,199
<OTHER-PROPERTY-AND-INVEST> 7,115
<TOTAL-CURRENT-ASSETS> 81,709
<TOTAL-DEFERRED-CHARGES> 30,146
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 484,169
<COMMON> 16,080
<CAPITAL-SURPLUS-PAID-IN> 112,558
<RETAINED-EARNINGS> 50,451
<TOTAL-COMMON-STOCKHOLDERS-EQ> 179,089
0
0
<LONG-TERM-DEBT-NET> 128,886
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 29,750
<LONG-TERM-DEBT-CURRENT-PORT> 200
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 146,244
<TOT-CAPITALIZATION-AND-LIAB> 484,169
<GROSS-OPERATING-REVENUE> 253,291
<INCOME-TAX-EXPENSE> 12,553
<OTHER-OPERATING-EXPENSES> 209,222
<TOTAL-OPERATING-EXPENSES> 221,775
<OPERATING-INCOME-LOSS> 31,516
<OTHER-INCOME-NET> (14,198)
<INCOME-BEFORE-INTEREST-EXPEN> 17,318
<TOTAL-INTEREST-EXPENSE> 10,891
<NET-INCOME> 6,427
0
<EARNINGS-AVAILABLE-FOR-COMM> 6,427
<COMMON-STOCK-DIVIDENDS> (20,475)
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 48,308
<EPS-PRIMARY> 0.40
<EPS-DILUTED> 0
</TABLE>
Exhibit No. 99
Madison Gas and Electric Company
Exhibit Index to Form 8-K Current Report
December 31, 1996
Madison Gas and Electric Company's Press Release Dated December 31, 1996
Madison Gas and Electric Co. Reports Fourth-Quarter Earnings Impacts
Madison, Wis., Dec. 31, 1996 Madison Gas and Electric Co. (MGE) (NASDAQ: MDSN)
announced today that its fourth-quarter and year-end earnings will be
negatively impacted by several factors. First, extended outage of the Kewaunee
Nuclear Power Plant (Kewaunee) due to the repair of the steam generators will
increase MGE's purchased power and maintenance expenses related to Kewaunee by
approximately $1.5 million in the fourth quarter of 1996. Second, MGE's gas
marketing subsidiary, Great Lakes Energy Corp. (GLENCO), generated significant
income in prior years. Under a sharing arrangement with the regulated utility,
approximately $2.7 million is being returned to MGE's gas utility customers.
This impact will be recorded in the fourth quarter of 1996. Finally, MGE's gas
marketing subsidiaries, GLENCO and American Energy Management (AEM), have
entered into an agreement in principle to form a joint venture with another
gas marketing company. The agreement is expected to be signed and formally
announced within the next 10 days. To properly reflect the current value of
its investment in GLENCO and AEM, and to restructure these activities for the
future, MGE will take a one-time charge in the fourth quarter of 1996 of
approximately $16 million. All of these nonrecurring expenses are before taxes
and were not reflected in the earnings reported as of Sept. 30, 1996.
Kewaunee status
MGE has a 17.8% ownership interest in Kewaunee. Kewaunee was taken out of
service on Sept. 21, 1996, for scheduled refueling and maintenance. The outage
was expected to last five weeks, but inspection of previously repaired steam
generator tubes showed continued degradation of the repaired joints. This
prevents further operation of the Kewaunee plant until the tubes are repaired.
It is uncertain when Kewaunee will return to service. Thus, MGE filed an
application with the Public Service Commission of Wisconsin on Dec. 20, 1996,
seeking an interim rate increase to recover incremental power costs and
maintenance expenses due to the loss of Kewaunee.
MGE is a public utility that generates, transmits and distributes electricity
to 120,000 customers in Dane County. The company transports and distributes
natural gas to 103,000 customers in seven South Central and Western Wisconsin
counties. MGE has served the Madison area since 1896.
