SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: JUNE 30, 1999
[ ] 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
(State or other jurisdiction of incorporation or organization)
39-0444025
(IRS Employer Identification No.)
133 South Blair Street, Madison, Wisconsin 53703
(Address of principal executive offices and ZIP code)
(608) 252-7000
(Registrant's telephone number including area code)
Common Stock Outstanding at August 13, 1999: 16,079,718 shares
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months, and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
TABLE OF CONTENTS
=================
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements and Notes
Consolidated Statements of Income and Retained Income. . . . . . . .3
Consolidated Statements of Cash Flows. . . . . . . . . . . . . . . .4
Consolidated Balance Sheets. . . . . . . . . . . . . . . . . . . . .5
Consolidated Statements of Capitalization. . . . . . . . . . . . . .6
Notes to Consolidated Financial Statements . . . . . . . . . . . .7-9
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Resources. . . . . . . . . . . . . . . . .10-12
Results of Operations. . . . . . . . . . . . . . . . . . . . . .13-15
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings . . . . . . . . . . . . . . . . . . . . 16
Item 4 - Results of Votes of Security Holders. . . . . . . . . . . 16
Item 5 - Other Information . . . . . . . . . . . . . . . . . . . . 17
Item 6(a) - Exhibits . . . . . . . . . . . . . . . . . . . . . . . 17
Item 6(b) - Reports on Form 8-K. . . . . . . . . . . . . . . . . . 17
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
EXHIBITS:
Exhibit 12 - Ratio of Earnings to Fixed Charges. . . . . . . . . . 19
Exhibit 27 - Financial Data Schedule UT. . . . . . . . . . . . . . 20
PART I. FINANCIAL INFORMATION
=============================
<TABLE>
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED INCOME
Thousands of Dollars (Unaudited)
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ --------------------
1999 1998 1999 1998
------- ------- -------- --------
<S> <C> <C> <C> <C>
STATEMENTS OF INCOME
Operating Revenues:
Electric $44,409 $42,444 $ 85,603 $ 80,837
Gas 12,753 12,118 51,093 48,840
------- ------- -------- --------
Total Operating Revenues 57,162 54,562 136,696 129,677
------- ------- -------- --------
Operating Expenses:
Fuel for electric generation 7,505 7,825 14,950 14,671
Purchased power 6,949 3,640 9,372 5,342
Natural gas purchased 6,096 6,145 28,943 28,926
Other operations 16,814 16,381 32,742 32,226
Maintenance 4,408 4,527 7,314 7,054
Depreciation and amortization 9,170 8,278 17,518 16,536
Other general taxes 2,351 2,361 4,717 4,691
Income taxes 310 844 5,805 5,436
------- ------- -------- --------
Total Operating Expenses 53,603 50,001 121,361 114,882
------- ------- -------- --------
Net Operating Income 3,559 4,561 15,335 14,795
Allowance for funds used during
construction - equity funds 84 30 152 54
Other income, net 1,795 323 1,965 1,014
Nonutility operating income, net - 83 - 216
------- ------- -------- --------
Income before Interest Expense 5,438 4,997 17,452 16,079
------- ------- -------- --------
Interest Expense:
Interest on long-term debt 2,873 2,425 5,749 4,848
Other interest 128 135 245 392
Allowance for funds used during
construction - borrowed funds (43) (16) (78) (29)
------- ------- -------- --------
Net Interest Expense 2,958 2,544 5,916 5,211
------- ------- -------- --------
Net Income $ 2,480 $ 2,453 $ 11,536 $ 10,868
======= ======= ======== ========
Earnings per share of common stock
(basic and diluted) (Note 3) $0.15 $0.15 $0.72 $0.68
======= ======= ======== ========
STATEMENTS OF RETAINED INCOME
Balance - beginning of period $57,454 $55,501 $53,637 $52,285
Earnings on common stock 2,480 2,453 11,536 10,868
Cash dividends on common stock (Note 3) (5,240) (5,199) (10,479) (10,398)
------- ------- -------- --------
Balance - end of period $54,694 $52,755 $54,694 $52,755
======= ======= ======== ========
</TABLE>
The accompanying notes are an integral part of the above statements.
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Thousands of Dollars (Unaudited)
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ------------------
1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
Operating Activities:
Net income $ 2,480 $ 2,453 $11,536 $10,868
Items not affecting working capital:
Depreciation and amortization 9,170 8,278 17,518 16,536
Deferred income taxes (786) (1,257) 336 (2,695)
Amortization of nuclear fuel 660 685 1,320 1,303
Amortization of investment tax credits (185) (187) (369) (373)
Allowance for funds used during construction -
equity funds (84) (30) (152) (54)
Changes in working capital excluding
cash, sinking funds, maturities, and
interim loans:
Decrease in current assets 4,145 539 13,297 15,382
Increase/(decrease) in current liabilities (1,767) (833) (523) 3,050
Other noncurrent items, net 62 1,890 4,941 8,388
------- ------- ------- -------
Cash provided by Operating Activities 13,695 11,538 47,904 52,405
------- ------- ------- -------
Investing Activities:
Additions to utility plant and nuclear fuel (18,522) (9,184) (25,042) (14,360)
Allowance for funds used during construction -
borrowed funds (43) (16) (78) (29)
Increase in nuclear decommissioning fund (3,402) (2,459) (5,734) (4,976)
------- ------- ------- -------
Cash used for Investing Activities (21,967) (11,659) (30,854) (19,365)
------- ------- ------- -------
Financing Activities:
Cash dividends on common stock (5,240) (5,199) (10,479) (10,398)
Other decreases in First Mortgage Bonds 9 9 19 19
Increase/(decrease) in interim loans - 3,000 - (21,750)
------- ------- ------- -------
Cash used for Financing Activities (5,231) (2,190) (10,460) (32,129)
------- ------- ------- -------
Change in Cash and Cash Equivalents (13,503) (2,311) 6,590 911
Cash and cash equivalents at beginning of period 27,343 5,330 7,250 2,108
------- ------- ------- -------
Cash and cash equivalents at end of period $13,840 $ 3,019 $13,840 $ 3,019
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of the above statements.
<TABLE>
CONSOLIDATED BALANCE SHEETS
Thousands of Dollars (Unaudited)
<CAPTION>
June 30, Dec. 31,
1999 1998
-------- --------
<S> <C> <C>
ASSETS
Utility Plant, at Original Cost, in Service:
Electric $531,344 $520,753
Gas 187,186 184,868
-------- --------
Gross plant in service 718,530 705,621
Less accumulated provision for depreciation (465,634) (446,984)
-------- --------
Net plant in service 252,896 258,637
Construction work in progress 31,607 21,490
Nuclear decommissioning fund 87,924 79,089
Nuclear fuel, net 7,346 8,086
-------- --------
Total Utility Plant 379,773 367,302
-------- --------
Other property and investments 6,508 6,700
-------- --------
Current Assets:
Cash and cash equivalents 13,840 7,250
Accounts receivable, less reserves of $1,204
and $1,281, respectively 22,656 26,812
Unbilled revenue 8,193 13,113
Materials and supplies, at average cost 6,094 5,936
Fossil fuel, at average cost 3,552 3,509
Stored natural gas, at average cost 5,219 9,709
Prepaid taxes 6,493 6,573
Other prepayments 1,178 1,030
-------- --------
Total Current Assets 67,225 73,932
-------- --------
Deferred charges 22,101 18,331
-------- --------
Total Assets $475,607 $466,265
======== ========
CAPITALIZATION AND LIABILITIES
Capitalization (see statement) $343,112 $342,036
-------- --------
Current Liabilities:
Long-term debt sinking fund requirements 200 200
Accounts payable 15,124 15,364
Accrued taxes 2,161 549
Accrued interest 2,787 2,734
Accrued nonregulated items 1,583 2,771
Other 10,227 4,696
-------- --------
Total Current Liabilities 32,082 26,314
-------- --------
Other Credits:
Deferred income taxes 44,679 44,343
Regulatory liability - SFAS 109 23,360 23,745
Investment tax credit - deferred 9,569 9,938
Other regulatory liabilities 22,805 19,889
-------- --------
Total Other Credits 100,413 97,915
-------- --------
Commitments - -
-------- --------
Total Liabilities 132,495 124,229
-------- --------
Total Capitalization and Liabilities $475,607 $466,265
======== ========
</TABLE>
The accompanying notes are an integral part of the balance sheets.
<TABLE>
CONSOLIDATED STATEMENTS OF CAPITALIZATION
Thousands of Dollars (Unaudited)
<CAPTION>
June 30, Dec. 31,
1999 1998
-------- --------
<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 54,694 53,637
-------- --------
Total Common Shareholders' Equity 183,332 182,275
-------- --------
First Mortgage Bonds:
6-1/2%, 2006 series:
Pollution Control Revenue Bonds 6,475 6,475
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 21,200 21,200
-------- --------
First Mortgage Bonds Outstanding 114,975 114,975
Unamortized discount and premium on bonds, net (995) (1,014)
Long-term debt sinking fund requirements (200) (200)
-------- --------
Total First Mortgage Bonds 113,780 113,761
-------- --------
Other Long-Term Debt:
6.01%, due 2000 11,000 11,000
6.91%, due 2004 5,000 5,000
6.02%, due 2008 30,000 30,000
-------- --------
Total Long-Term Debt 159,780 159,761
-------- --------
Total Capitalization $343,112 $342,036
======== ========
</TABLE>
The accompanying notes are an integral part of the above statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
June 30, 1999
======================================================
Madison Gas and Electric Company (MGE) prepared these consolidated
financial statements, without audit (except for balance sheet information
at December 31, 1998), pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. MGE believes
the disclosures provided are accurate and not misleading. MGE management
believes it has made all normal recurring adjustments needed to present
fairly the financial statements and notes in this report.
It is suggested that these consolidated financial statements be read in
conjunction with the financial statements and the notes on pages 18
through 27 of MGE's 1998 Annual Report to Shareholders and in MGE's 1998
Annual Report on Form 10-K.
1. Summary of Significant Accounting Policies
The accounting and financial policies related to the following items have
been described in the 1998 Annual Report to Shareholders. The information
is not repeated here because it has not changed materially at this time.
a. General
b. Utility plant
c. Nuclear fuel
d. Joint plant ownership
e. Depreciation
f. Income taxes
g. Pension plans
h. Fair value of financial instruments
i. Capitalization matters: First Mortgage Bonds and other long-term debt;
preferred stock; and notes payable to banks, commercial paper, and
lines of credit
j. Segments of business
k. Regulatory assets and liabilities
2. Nuclear Decommissioning
Nuclear decommissioning costs for the Kewaunee Nuclear Power Plant
(Kewaunee) are currently being accrued for full cost recovery by the end
of 2002. These costs are currently recovered from customers in rates and
are deposited in external trusts. MGE is presently funding decommissioning
costs at $8.1 million annually. These trusts are shown on the balance
sheet in the utility plant section. As of June 30, 1999, these trusts
totaled $88.0 million (pretax fair market value) and are offset by an
equal amount under accumulated provision for depreciation.
Decommissioning costs are recovered through depreciation expense,
exclusive of earnings on the trusts. Net earnings on the trusts are
included in other income. MGE assumed a 5.6% long-term, after-tax earnings
on these trusts.
MGE's share of Kewaunee decommissioning costs is estimated to be
$85.6 million (in current after-tax dollars) based on a site-specific
study performed in 1992 using immediate dismantlement as the method of
decommissioning. In accordance with the agreement between Wisconsin Public
Service Corp. and MGE regarding the sale of Kewaunee, MGE's
decommissioning liability has been limited to the current fund balances
plus all decommissioning contributions through 2002. Decommissioning costs
are assumed to inflate at an average rate of 6.0%. Physical
decommissioning is expected to occur from 2014 to 2021, with additional
expenditures being incurred from 2022 to 2039 for storing spent fuel at
the site.
3. Per-share Amounts
Earnings per share of common stock are computed on the basis of the
weighted average of the daily number of shares outstanding. For the three
and six months ended June 30, 1999 and 1998, there were 16,079,718 shares
outstanding.
Dividends declared and paid per share of common stock for the periods
ended June 30, 1999 and 1998 were, respectively, for the three months
$0.326 and $0.323; for the six months $0.652 and $0.647.
4. Rate Matters
On July 16, 1999, MGE filed an application with the Public Service
Commission of Wisconsin for a temporary increase in electric rates of
1.7%. The temporary rate increase is primarily due to higher purchased
power costs caused by a longer-than-expected outage at the Columbia Energy
Center (Columbia), which MGE jointly owns with Alliant Energy and
Wisconsin Public Service Corp. If approved by the Commission, the rate
change would be effective from the fall through the end of the year.
MGE also filed on July 16, 1999, a request seeking a 5.7% electric rate
increase effective next year to cover unexpected repair costs at Kewaunee
and higher purchased power costs during the outage. MGE was scheduled to
sell its ownership interest in Kewaunee in May of 2000, when the remaining
owners planned to replace the plant's steam generators. Due to
manufacturing delays, the generator replacement and simultaneous ownership
change is now scheduled for fall 2001. Kewaunee must have a maintenance
outage and temporary steam generator repairs early next year in order to
continue operating until the steam generator replacement begins.
5. Supplemental Cash Flow Information
For purposes of the Consolidated Statements of Cash Flows, MGE considers
cash equivalents to be those investments that are highly liquid with
maturity dates of less than three months.
Cash payments for interest, net of amounts capitalized, and net cash
receipts from income tax refunds were as follows:
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
(Thousands of dollars) 1999 1998 1999 1998
------ ------ ------ ------
Interest paid, net of
amounts capitalized...... $3,863 $3,890 $5,863 $5,240
Income taxes paid, net..... $4,651 $7,102 $5,604 $6,208
6. Commitments
Beginning in March 1999, MGE entered into an agreement with Commonwealth
Edison to purchase 60 MW of firm capacity and energy for approximately
$10.2 million in 1999. This amount includes MGE's costs to secure firm
transmission (approximately $0.5 million) to deliver firm capacity and
energy to the MGE system. Also beginning in March 1999, MGE entered into
an agreement to sell 30 MW of the 60 MW to Wisconsin Public Power Inc. for
approximately $4.8 million in 1999, plus any taxes applicable to the sale.
MGE has several other firm purchased power contracts for capacity.
Purchase obligations on these contracts are $3.5 million in 1999.
7. Gas Marketing Subsidiaries
In December 1996, MGE wrote down its investment in both Great Lakes Energy
Corp. and American Energy Management, Inc., to reflect current value. As
of June 30, 1999, a $1.6 million liability remains to account for the
remaining contingencies related to this writedown.
MGE recognized some one-time benefits during the second quarter of 1999 in
the amount of $0.6 million (after tax) on some outstanding legal and tax
issues related to these gas marketing subsidiaries.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
===================================================================
LIQUIDITY AND CAPITAL RESOURCES
Capital Requirements
- --------------------
MGE's liquidity is primarily affected by its construction requirements.
During the second quarter of this year, MGE's plant additions totaled
$18.5 million, an increase of $9.3 million over last year. For the first
half of 1999, MGE had capital expenditures of $25 million. It is
anticipated that total capital expenditures will be $62.5 million in 1999.
Major projects include:
- A wind farm;
- Improvements at MGE's Blount Generating Station;
- MGE-owned backup generators, located at customers' sites, to help meet
their emergency energy needs.
Cash Provided by Operating Activities
- -------------------------------------
Cash provided by operating activities increased $2.2 million, or 18.7%,
for the second quarter of 1999 compared to the second quarter of 1998.
This is primarily due to a $4.1 million decrease in current assets,
primarily accounts receivable.
Cash provided by operating activities decreased $4.5 million, or 8.6%, for
the first half of 1999 compared to last year's first half due to the
decrease in current liabilities.
Cash Used for Investing Activities
- ----------------------------------
MGE increased its cash used for investing activities by $10.3 million for
the second quarter of 1999 and $11.5 million for the first half of 1999.
This is due to increased plant additions (as described above),
particularly MGE's wind project.
Cash Used for Financing and Capital Resource Activities
- -------------------------------------------------------
Cash used for financing activities increased $3.0 million compared to the
second quarter of 1998. In the second quarter of 1998, $3.0 million of
short-term debt was issued compared to this year's second quarter where no
short-term debt was issued.
For the first half of the year, cash used for financing activities
decreased $21.7 million from last year. MGE used $21.8 million of cash to
decrease short-term debt in the first half of 1998.
Bank lines of credit available to MGE as of June 30, 1999, were
$45 million.
MGE's capitalization ratios were as follows:
June 30, 1999 Dec. 31, 1998
------------- -------------
Common shareholders' equity...... 53.4% 53.3%
Long-term debt*.................. 46.6% 46.7%
*Includes current maturities and current sinking fund requirements.
MGE's First Mortgage Bonds are currently rated Aa2 by Moody's Investors
Service, Inc., and AA by Standard & Poor's Corporation. MGE's Medium-Term
Notes are currently rated Aa3 by Moody's and AA- by Standard & Poor's.
MGE's dealer-issued commercial paper carries the highest ratings assigned
by Moody's and Standard & Poor's.
Year 2000 Readiness Disclosure
- ------------------------------
As of June 30, 1999, the critical systems MGE needs to provide gas and
electric service are Year 2000 (Y2K) ready. Independent consultants have
reviewed MGE's guidelines, project methodology, and project organization
to become Y2K ready. In May, MGE received the highest readiness rating
given after its Y2K readiness program was audited by a team of industry
experts sponsored by the North American Electric Reliability Council
(NERC) and the Department of Energy.
The Y2K issue is the result of computer programs that were written using
two digits rather than four to define the applicable year. A failure due
to the Y2K issue could cause disruptions in normal business operations.
MGE has not experienced any significant Y2K failure to date. However, the
most conscientious efforts cannot guarantee that every problem will be
found and corrected prior to January 1, 2000. MGE is taking the necessary
steps to identify and reduce risks associated with the Y2K issue. MGE has
developed contingency plans for its critical operating and business
systems.
MGE estimates its total Y2K costs to be $4.3 million. MGE has spent
$3.7 million to date on Y2K. These costs are being expensed as incurred
and funded through operating cash flow.
MGE's Y2K project team, created in 1997, developed a work plan that
includes the following phases:
Information Embedded
Percentage Complete as of 06/30/1999 Systems Systems
- ---------------------------------------- ----------- --------
Project organization and awareness...... 100% 100%
Assessment.............................. 100% 100%
Remediation............................. 100% 100%
Verification and testing................ 100% 100%
Auditing................................ 75% 75%
Contingency planning and preparedness... 80% 95%
MGE has identified its major suppliers and assessed their Y2K readiness
through surveys and interviews. Our two most critical vendors are
operators of our jointly owned power plants. Kewaunee is following the Y2K
readiness guidelines and methods that have been established by the Nuclear
Energy Institute. An evaluation of Kewaunee's Y2K readiness plans,
processes, and progress was made by an independent consultant. The
Kewaunee operator reported to the Nuclear Regulatory Commission that the
plant was Y2K ready on June 30, 1999. Columbia is also Y2K ready according
to the plant operating company and NERC.
Y2K operational contingency preparedness is nearing completion. Through
the Mid-America Interconnected Network, MGE is participating in NERC's
industry-wide Y2K preparedness and contingency planning efforts including
two industry-wide Y2K drills. MGE has developed contingency plans that
follow guidelines issued by the NERC. These plans and associated drills
are being coordinated with other electric and gas utilities in the region
as well as local emergency management agencies.
MGE participated in the NERC's first nationwide drill on April 9 ,1999,
along with 200 other electric utilities. During the drill, MGE
successfully tested backup communications for monitoring the gas and
electric systems. MGE field crews manually checked pressure and flow
readings at natural gas facilities and monitored power system conditions
at electric substations. Two-way radios were used to communicate between
the field locations and MGE's Systems Operation Center (SOC) control room.
Staff at MGE's SOC recorded the field reports on paper and then entered
the data on an off-line backup computer. The drill did not affect gas and
electric service to MGE customers. NERC's second drill is scheduled for
September 8 and 9, 1999.
MGE participates in quarterly assessments of the gas utility industry
coordinated by the American Gas Association to communicate Y2K readiness
of the industry.
MGE subsidiaries are being assessed for Y2K issues, but those systems are
not critical and therefore will not have a material effect on normal
operations.
RESULTS OF OPERATIONS
Electric Sales and Revenues
- ---------------------------
Electric retail sales increased approximately 2% (see table) for the
three-month and six-month periods ending June 30, 1999, over the
comparable periods last year.
Electric Sales Three Months Ended Six Months Ended
(megawatt-hours) June 30, June 30,
------------------------- -----------------------------
1999 1998 % Change 1999 1998 % Change
------- ------- -------- --------- --------- --------
Residential........ 166,547 166,045 0.3 361,136 351,848 2.6
Large commercial... 267,499 255,318 4.8 521,856 500,615 4.2
Small commercial... 196,449 196,149 0.2 370,838 366,120 1.3
Other.............. 74,885 74,614 0.4 137,934 149,668 (7.8)
------- ------- --------- ---------
Total Retail..... 705,380 692,126 1.9 1,391,764 1,368,251 1.7
Sales for Resale... 71,570 21,833 227.8 109,266 48,802 123.9
------- ------- --------- ---------
Total Sales...... 776,950 713,959 8.8 1,501,030 1,417,053 5.9
======= ======= ========= =========
Electric operating revenues increased $2.0 million, or 4.6%, for the
second quarter of 1999 versus the same period last year. Second quarter
electric operating revenues were up mainly due to an increase in sales for
resale of approximately $1.0 million compared to last year's second
quarter. Beginning in March of this year, MGE entered into an agreement to
sell 30 MW of firm capacity to Wisconsin Public Power Inc. (see
Footnote 6).
Electric operating revenues increased $4.8 million, or 5.9%, for the first
half of 1999 compared to last year. Revenues were up due to a 5.1%
electric rate increase effective in January 1999, higher sales for resale
as described above, and higher retail sales.
Gas Sales and Revenues
- ----------------------
For the three months ended June 30, 1999, gas revenues increased slightly
while retail deliveries remained unchanged compared to the same period
last year (see table).
For the six months ended June 30, 1999, retail gas deliveries increased
5.8% (see table) due to colder temperatures primarily in the first
quarter, adding $2.3 million in revenue, a 4.6% increase over 1998.
Gas Deliveries Three Months Ended Six Months Ended
(thousands of therms) June 30, June 30,
---------------------- ------------------------
1999 1998 % Change 1999 1998 % Change
------ ------ -------- ------- ------- --------
Residential............. 10,712 10,436 2.6 50,080 45,942 9.0
Commercial.............. 9,040 9,322 (3.0) 39,387 38,619 2.0
------ ------ ------- -------
Total Retail........... 19,752 19,758 0.0 89,467 84,561 5.8
Transport............... 8,916 7,491 19.0 24,668 18,767 31.4
------ ------ ------- -------
Total Gas Deliveries... 28,668 27,249 5.2 114,135 103,328 10.5
====== ====== ======= =======
Electric Fuel and Natural Gas Costs
- -----------------------------------
Fuel costs and purchased power increased $3.0 million, or 26.1%, for the
second quarter compared to the same period in 1998 due to higher purchased
power costs associated with the outages at Columbia. As a result, MGE's
electric margin (revenues less fuel and purchased power costs) decreased
$1.0 million, or 3.3%, versus the second quarter of 1998.
Fuel costs for electric generation and purchased power increased $4.3
million, or 21.5%, for the first six months of 1999 compared to the same
period last year. The Columbia plant was down at various times during the
first half of 1999 requiring MGE to generate more power at its Blount
Generating Station at a higher fuel cost. Also, MGE entered into a
purchased power contract with Commonwealth Edison to purchase 60 MW of
capacity (see Footnote 6).
Natural gas costs for the second quarter of 1999 were relatively unchanged
compared to the same period a year ago. Natural gas costs were up slightly
for the first six months compared to the same period last year due to a
5.8% increase in total retail gas deliveries. MGE's gas margin (revenues
less purchased gas costs) increased $2.2 million, or 11.2%, primarily due
to a rise in retail deliveries and a slight rate increase which became
effective in January 1999.
Other Operating Expenses
- ------------------------
Income taxes for the three months ended June 30, 1999, decreased $0.5
million, or 63.3%, due to a decrease in operating income.
Operations and maintenance, including depreciation and general taxes,
increased $1.2 million, or 3.8%, for the second quarter of 1999, and $1.8
million, or 2.9%, for the six months ended June 30, 1999, compared to the
same periods a year ago. The major contributors to these higher costs are
increased depreciation due to new capital projects going into service
during the first half of this year compared to last year and the outages
experienced at Columbia.
Other Income
- ------------
Other income increased $1.4 million for the second quarter of 1999 and
$0.8 million for the six months ended June 30, 1999, compared to the same
periods a year ago. MGE recognized some one-time benefits of $0.6 million
(after tax) in this year's second quarter after receiving a favorable
ruling on some outstanding legal and tax issues related to its gas
marketing subsidiaries (see Footnote 7). Also, income from the
decommissioning fund increased $0.8 million for the first half of 1999
compared to the same period last year.
PART II. OTHER INFORMATION
==========================
Item 1 - Legal Proceedings
- --------------------------
In May 1999, MGE demanded arbitration against Alliant Energy Corp., parent
company of Wisconsin Power and Light Company (WPL), for the way it is
operating and maintaining the Columbia Energy Center. MGE owns 22% of
Columbia.
MGE claims that since WPL merged with two Iowa utilities last year to form
Alliant Energy, it has changed the way it operates and maintains the
plant--violating operating agreements. MGE wants Alliant/WPL to relinquish
its ownership in the Columbia plant to MGE.
Item 4 - Results of Votes of Security Holders
- ---------------------------------------------
MGE's Annual Meeting of Shareholders was held on May 4, 1999, in Madison,
Wisconsin. Proxies for the meeting were solicited pursuant to Regulation
14A of the Securities Exchange Act of 1934. The election of three persons
to serve as Class I Directors to hold office until 2002 was voted on by
the shareholders at the meeting. Listed below are the nominees for Class I
Director and the results of the voting.
The election of three members of the Board of Directors of Class I to hold
office until 2002 are:
For Withhold Authority
---------- ------------------
Jean Manchester Biddick 13,072,278 195,774
David C. Mebane 13,097,239 170,813
Regina M. Millner 13,085,769 182,283
No votes were cast for any other nominee. The directors continuing in
office until the 2000 annual meeting are H. Lee Swanson and John R. Nevin.
The directors continuing in office until the 2001 annual meeting are
Richard E. Blaney, Frederic E. Mohs, and F. Curtis Hastings.
The shareholders voted on an amendment to MGE's bylaws as follows:
For Against Abstain Broker Non-votes
---------- ------- ------- ----------------
10,023,202 326,738 286,797 5,442,980
The amendment states: "3.02(b) Qualifications. Each director who is a
full-time employee of the Corporation or a subsidiary of the Corporation
shall cease to hold office as a Director upon a termination of employment
with the Company and its subsidiaries for any reason other than retirement
with the consent of the Board of Directors by a resolution adopted by
directors constituting not less than 70 percent of the number of directors
of the Corporation fixed by the Board of Directors in accordance with
section 3.01."
Item 5 - Other Information
- --------------------------
Forward-Looking Statements
This report, and certain other MGE public documents, contain forward-
looking statements that reflect management's current assumptions and
estimates of future performance and economic conditions, especially as
they relate to future revenues, expenses, financial resources and
regulatory matters.
These forward-looking statements are made pursuant to the Safe Harbor
provisions of the Private Securities Litigation Reform Act of 1995. MGE
cautions investors that forward-looking statements are subject to known
and unknown risks and uncertainties that may cause MGE's actual results to
differ materially from those projected, expressed or implied. Some of
those risks and uncertainties include the following:
- Economic and market conditions in MGE's service territory;
- Magnitude and timing of capital expenditures;
- Regulatory environment (including restructuring the electric utility
industry in Wisconsin);
- Availability and cost of power supplies; and
- MGE's ability to become Year 2000 ready at a reasonable cost.
Item 6(a) - Exhibits
- --------------------
Exhibit 4 - Indenture of Mortgage and Deed of Trust between MGE and
Firstar Trust Company, as Trustee (and supplements) reference was provided
in MGE's 1998 Annual Report on Form 10-K (Commission File No. 0-1125).
Exhibit 12 - Ratio of Earnings to Fixed Charges
Exhibit 27 - Appendix E to Item 601(c) of Regulation S-K: Public Utility
Companies Financial Data Schedule UT.
Exhibit Page
------- ----
Exhibit 4....... NA
Exhibit 12...... 19
Exhibit 27...... 20
Item 6(b) Reports on Form 8-k
- -----------------------------
No reports on 8-K were filed during the quarter for which this report is
filed.
SIGNATURES
==========
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MADISON GAS AND ELECTRIC COMPANY
(Registrant)
Date: August 13, 1999 /s/ David C. Mebane
--------------------------------
Chairman, President and Chief Executive Officer
(Duly Authorized Officer)
Date: August 13, 1999 /s/ Terry A. Hanson
--------------------------------
Vice President - Finance
(Chief Financial and Accounting Officer)
RATIO OF EARNINGS TO FIXED CHARGES
EXHIBIT 12
Six Months Ended June 30, 1999
(Thousands of dollars)
Earnings
Income before interest expense 17,452
Add:
Income tax items 5,805
Income tax on other income 643
Amortization of debt discount, premium expense 165
Allowance for funds used during construction -
borrowed funds 78
Interest on rentals 568
------
Total earnings before interest and taxes 24,711
======
Fixed Charges
Interest on long-term debt 5,749
Other interest 245
Amortization of debt discount, premium expense 165
Interest on rentals 568
-----
Total fixed charges 6,727
=====
Ratio of Earnings to Fixed Charges 3.67x
=====
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<ARTICLE> UT
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