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
or
Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For Quarter Ended June 30, 1996 Commission File Number 1-3034
NORTHERN STATES POWER COMPANY
(Exact name of registrant as specified in its charter)
Minnesota 41-0448030
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
414 Nicollet Mall, Minneapolis, Minnesota 55401
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code
(612) 330-5500
None
Former name, former address and former fiscal year, if changed
since last report
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 the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date.
Class Outstanding at July 31, 1996
Common Stock, $2.50 par value 69,014,601 shares
Item 1. Financial Statements
<TABLE>
Northern States Power Company (Minnesota) and Subsidiaries
Consolidated Statements of Income (Unaudited)
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Utility operating revenues
Electric.............................................. $506,763 $519,617 $1,019,706 $1,016,931
Gas................................................... 85,495 70,056 291,262 233,909
Total............................................... 592,258 589,673 1,310,968 1,250,840
Utility operating expenses
Fuel for electric generation.......................... 70,128 80,598 146,220 163,937
Purchased and interchange power....................... 58,868 68,478 121,077 120,211
Cost of gas purchased and transported................. 51,505 40,429 185,030 139,845
Other operation....................................... 82,716 79,251 166,676 158,244
Maintenance........................................... 40,326 43,258 87,394 81,025
Administrative and general............................ 40,419 39,743 75,359 83,493
Conservation and energy management.................... 13,788 11,883 29,979 19,652
Depreciation and amortization......................... 76,093 72,069 150,746 143,899
Taxes: Property and general........................... 59,786 62,073 119,914 124,352
Current income tax expense..................... 32,493 27,750 87,320 67,872
Deferred income tax expense.................... (2,467) (1,784) (14,421) (3,074)
Investment tax credit adjustments - net........ (2,198) (2,237) (4,405) (4,476)
Total............................................... 521,457 521,511 1,150,889 1,094,980
Utility operating income............................... 70,801 68,162 160,079 155,860
Other income (expense)
Equity in earnings of unconsolidated affiliates:
Earnings from operations........................... 6,142 6,086 12,131 14,924
Gain from contract termination..................... 0 29,850 0 29,850
Allowance for funds used during construction - equity. 1,542 1,859 4,123 3,198
Other income (deductions) - net....................... (4,969) (6,124) (8,396) (4,100)
Income taxes on non-regulated operations and
non-operating items................................. 3,210 (8,772) 7,238 (9,706)
Total ............................................... 5,925 22,899 15,096 34,166
Income before interest charges......................... 76,726 91,061 175,175 190,026
Interest charges
Interest on utility long-term debt.................... 25,355 25,447 50,376 50,713
Other utility interest and amortization............... 5,597 6,307 10,596 11,424
Non-regulated interest and amortization............... 4,867 2,388 8,932 4,672
Allowance for funds used during construction - debt... (2,475) (2,892) (5,321) (4,785)
Total............................................... 33,344 31,250 64,583 62,024
Net Income ............................................ 43,382 59,811 110,592 128,002
Preferred stock dividends ............................. 3,061 3,125 6,123 6,327
Earnings available for common stock.................... $40,321 $56,686 $104,469 $121,675
Average number of common and equivalent
shares outstanding (000's)........................... 68,661 67,208 68,486 67,107
Earnings per average common share...................... $0.59 $0.84 $1.53 $1.81
Common dividends declared per share.................... $0.690 $0.675 $2.715 $1.335
Statements of Retained Earnings (Unaudited)
Balance at beginning of period......................... $1,284,516 $1,203,982 $1,266,026 $1,183,191
Net income for period.................................. 43,382 59,811 110,592 128,002
Dividends declared:
Cumulative preferred stock............................ (3,061) (3,125) (6,123) (6,327)
Common stock.......................................... (47,634) (45,163) (93,292) (89,361)
Balance at end of period............................... $1,277,203 $1,215,505 $1,277,203 $1,215,505
The Notes to Financial Statements are an integral part of the Statements of Income and Retained Earnings.
</TABLE>
<TABLE>
Northern States Power Company (Minnesota) and Subsidiaries
Consolidated Balance Sheets (Unaudited)
<CAPTION>
June 30, December 31,
1996 1995
(Thousands of dollars)
<S> <C> <C>
ASSETS
Utility Plant
Electric......................................................... $6,675,683 $6,553,383
Gas.............................................................. 720,355 710,035
Common........................................................... 312,478 299,585
Total........................................................ 7,708,516 7,563,003
Accumulated provision for depreciation......................... (3,484,861) (3,343,760)
Nuclear fuel..................................................... 871,333 843,919
Accumulated provision for amortization......................... (771,128) (752,821)
Net utility plant............................................ 4,323,860 4,310,341
Current Assets
Cash and cash equivalents........................................ 39,070 28,794
Short-term investments........................................... 147 149
Customer accounts receivable - net............................... 286,173 281,584
Unbilled utility revenues........................................ 97,049 112,650
Notes receivables................................................ 114,527 15,902
Other receivables................................................ 60,445 63,091
Fossil fuel inventories - at average cost........................ 38,619 43,941
Materials and supplies inventories - at average cost............. 103,810 100,607
Prepayments and other............................................ 61,481 57,745
Total current assets........................................... 801,321 704,463
Other Assets
Regulatory assets................................................ 363,486 374,212
Equity investments in non-regulated projects and other investments 348,285 289,495
External decommissioning fund investments........................ 225,951 203,625
Non-regulated property - net..................................... 176,745 177,598
Long-term receivables............................................ 65,165 83,065
Intangible and other assets...................................... 96,447 85,786
Total other assets............................................ 1,276,079 1,213,781
TOTAL ASSETS................................................. $6,401,260 $6,228,585
LIABILITIES AND EQUITY
Capitalization
Common stock equity:
Common stock and premium - authorized 160,000,000
shares of $2.50 par value, issued shares:
1996, 68,811,524; 1995, 68,175,934........................... $800,388 $769,534
Retained earnings.............................................. 1,277,203 1,266,026
Leveraged common stock held by ESOP............................ (7,401) (10,657)
Currency translation adjustments - net......................... 3,344 2,488
Total common stock equity.................................... 2,073,534 2,027,391
Cumulative preferred stock and premium - authorized
7,000,000 shares of $100 par value; outstanding
shares: 1996 and 1995, 2,400,000
without mandatory redemption................................... 240,469 240,469
Long-term debt................................................... 1,666,459 1,542,286
Total capitalization......................................... 3,980,462 3,810,146
Current Liabilities
Long-term debt due within one year............................... 13,106 25,760
Other long-term debt potentially due within one year............. 141,600 141,600
Short-term debt - primarily commercial paper..................... 377,752 216,194
Accounts payable................................................. 186,310 246,051
Taxes accrued.................................................... 145,270 202,777
Interest accrued................................................. 26,130 31,806
Dividends payable on common and preferred stocks................. 50,326 48,875
Accrued payroll, vacation and other.............................. 73,756 78,310
Total current liabilities.................................... 1,014,250 991,373
Other Liabilities
Deferred income taxes............................................ 815,132 841,153
Deferred investment tax credits.................................. 155,652 161,513
Regulatory liabilities........................................... 247,057 242,787
Pension and other benefit obligations............................ 122,379 115,797
Other long-term obligations and deferred income.................. 66,328 65,816
Total other liabilities...................................... 1,406,548 1,427,066
Commitments and Contingent Liabilities (See Note 4)
TOTAL LIABILITIES AND EQUITY............................... $6,401,260 $6,228,585
The Notes to Financial Statements are an integral part of the Balance Sheets.
</TABLE>
<TABLE>
Northern States Power Company (Minnesota) and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
<CAPTION>
Six Months Ended
June 30,
1996 1995
(Thousands of dollars)
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income................................................................ $110,592 $128,002
Adjustments to reconcile net income to cash from operating activities:
Depreciation and amortization........................................... 165,297 159,145
Nuclear fuel amortization............................................... 19,886 23,775
Deferred income taxes................................................... (16,461) (1,323)
Deferred investment tax credits recognized.............................. (4,558) (4,617)
Allowance for funds used during construction - equity................... (4,123) (3,198)
Undistributed equity in earnings of unconsolidated affiliate operations. (9,989) (10,849)
Undistributed equity in gain from non-regulated contract
termination settlement................................................ (29,850)
Cash used for changes in certain working capital items.................. (112,470) (51,803)
Conservation program expenditures - net of amortization................. (1,771) (7,421)
Cash provided by changes in other assets and liabilities................ 8,817 23,942
Net cash provided by operating activities.................................. 155,220 225,803
Cash Flows from Investing Activities:
Capital expenditures ..................................................... (192,294) (166,708)
Decrease in construction payables......................................... (5,243) (19,611)
Allowance for funds used during construction - equity..................... 4,123 3,198
Sale of short-term investments - net...................................... 2 799
Investment in external decommissioning fund............................... (19,698) (14,571)
Equity investments in and deposits for non-regulated projects and other.. (138,466) (16,167)
Net cash used for investing activities..................................... (351,576) (213,060)
Cash Flows from Financing Activities:
Change in short-term debt - net issuances (repayments).................... 161,558 71,489
Proceeds from issuance of long-term debt - net............................ 126,472 25,044
Loan to ESOP.............................................................. (15,000)
Repayment of long-term debt, including reacquisition premium.............. (14,107) (8,756)
Proceeds from issuance of common stock - net.............................. 30,674 26,298
Dividends paid............................................................ (97,965) (94,502)
Net cash provided by financing activities.................................. 206,632 4,573
Net increase in cash and cash equivalents.................................... 10,276 17,316
Cash and cash equivalents at beginning of period............................. 28,794 41,055
Cash and cash equivalents at end of period................................... $39,070 $58,371
The Notes to Financial Statements are an integral part of the Statements of Cash Flows.
</TABLE>
Northern States Power Company (Minnesota) and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In the opinion of management, the accompanying unaudited
financial statements contain all adjustments necessary to
present fairly the financial position of Northern States Power
Company (Minnesota) (the Company) and its subsidiaries
(collectively, NSP) as of June 30, 1996 and December 31, 1995,
the results of its operations for the three and six months ended
June 30, 1996 and 1995, and its cash flows for the six months
ended June 30, 1996 and 1995. Due to the seasonality of NSP's
electric and gas sales, operating results on a quarterly basis
are not necessarily an appropriate base from which to project
annual results.
The accounting policies followed by NSP are set forth in
Note 1 to NSP's financial statements in NSP's Annual Report on
Form 10-K for the year ended December 31, 1995 (1995 Form 10-K).
The following notes should be read in conjunction with such
policies and other disclosures in the 1995 Form 10-K.
Certain reclassifications have been made to 1995 financial
information to conform with the 1996 presentation. These
reclassifications had no effect on net income or earnings per
share as previously reported.
1. Summary of Significant Accounting Policies
1996 Accounting Change - Wisconsin Gas Costs - While fixed
costs (demand charges) from gas suppliers and transporters are
incurred fairly evenly throughout the year, such costs are
recovered in customer rates on a per unit basis (using average
annual costs per unit), primarily in the winter heating season
when sales volumes are highest. Also, the energy price of gas
purchased (excluding demand charges) can vary from estimated
levels included in customer rates. As a result, gas costs for
both demand and energy charges are incurred throughout the year
at a different time than when such costs are recovered from
customers. The purchased gas adjustment (PGA) clause allows
customer rates to be adjusted periodically to ensure full
recovery of all gas costs incurred.
Effective Jan. 1, 1996, NSP's subsidiary, Northern States
Power Company, a Wisconsin corporation (the Wisconsin Company)
changed its method of accounting for the regulatory effects of
costs recovered through the PGA rate adjustment clause.
Previously, the Wisconsin Company expensed gas costs as
incurred. Beginning in 1996, the cost of gas expensed is
adjusted to equal the level of cost recovery in customer rates,
with such adjustments being reflected as regulatory deferrals on
the balance sheet. This accounting change results in a better
matching of revenues and expenses, and conforms to the cost
recognition method used by the Company.
This change affects the timing of expense recognition
within the year but will not change total annual gas expense for
1996 or any prior years. The effect of the change on second
quarter 1996 results was a decrease in gas costs recognized and
an increase in pretax operating income of approximately $3.1
million, and an increase in net income of $1.9 million (three
cents per share). The effect of the change on the first six
months 1996 results was an increase in gas costs recognized and
a decrease in pretax operating income of approximately $3.4
million, and a decrease in net income of $2.0 million (three
cents per share). Consistent with accounting requirements,
prior year quarterly results have not been restated for this
change. Had the change been implemented as of Jan. 1, 1995, the
effect of the change on second quarter 1995 results would have
been a decrease in gas costs recognized and an increase in
pretax operating income of approximately $1.2 million, and an
increase in net income of $0.7 million (one cent per share).
The effect of the change on the first six months 1995 results
would have been an increase in gas costs recognized and a
decrease in pretax operating income of approximately $2.5
million, and a decrease in net income of $1.5 million (two cents
per share).
2. Proposed Business Combination
On April 28, 1995 NSP and Wisconsin Energy Corporation
(WEC) entered into an Agreement and Plan of Merger (the Merger
Agreement), which provides for a strategic business combination
involving NSP and WEC in a "merger-of-equals" transaction to
form Primergy Corporation (Primergy). See further discussion of
the proposed business combination in the 1995 Form 10-K and Part
II, Item 5-Other Information of this report. Merger-related
filings were made in 1995; 1996 developments with respect to
such filings are discussed below. The goal of NSP and WEC is to
receive approvals from all required regulatory authorities by
the end of 1996. However, there is a possibility (as discussed
below) that, unless NSP is able to settle the issues prior to
that time, all necessary regulatory approvals may not be
obtained until the first quarter of 1997, and as a result, the
merger may not be consummated until the first quarter of 1997.
In July 1995, WEC and NSP filed an application and
supporting testimony with the Federal Energy Regulatory
Commission (FERC) seeking approval of the Merger Agreement. The
FERC has put the merger application on an accelerated schedule,
ordering the administrative law judge's initial decision by
August 30, 1996. On May 28, 1996, WEC and NSP filed additional
evidence with the FERC, providing a detailed analysis of
generation "market power" and more specific information about
the independent system operator (ISO) proposal originally
included in the merger application. This additional information
was provided to the FERC in response to concerns raised by
intervenors in the merger proceeding and by the FERC staff. The
FERC asked for an analysis of "market power" or Primergy's
potential ability to manipulate its generation to raise prices
or cause transmission constraints. WEC and NSP have continued
to work with the FERC staff and other parties on the ISO
proposal and anticipate that the FERC will act on the merger
application in the fourth quarter of 1996.
On April 5, 1996, NSP and WEC submitted the initial filing
to the Securities and Exchange Commission (SEC) to facilitate
registration of Primergy under the Public Utility Holding
Company Act of 1935, as amended. On April 10, 1996, the
Michigan Public Service Commission approved the merger
application, through a settlement agreement containing terms
consistent with the merger application. On June 26, 1996, the
North Dakota Public Service Commission (NDPSC) approved the
merger application. These state commission approvals represent
two of the four states where approval of the merger is required.
On July 24, 1996, the Public Service Commission of
Wisconsin (PSCW) held a prehearing conference on the merger
proceeding. At the prehearing conference the parties agreed
upon an extensive issues list and a schedule for the hearing.
The schedule required staff and intervenor case filings on
September 9, 1996, applicants rebuttal filing on September 20,
1996, and three weeks of hearings commencing on September 24,
1996. At its open meeting on August 8, 1996, the Commission
decided to delay this schedule by one month. The resulting
schedule should lead to a PSCW decision on the merger in late
1996 or early 1997 and a written order in the first quarter of
1997.
In June 1996, the Minnesota Public Utilities Commission
(MPUC) issued an order which established the procedural
framework for the MPUC's consideration of the merger. The
issues of merger-related savings, electric rate freeze
characteristics, NSP's pre-merger revenue requirements,
Primergy's ability to control the transmission interface between
the Mid-Continent Area Power Pool and the Wisconsin and upper
Michigan area, and the impact of this interface on Minnesota
utilities were set for contested case hearings. On August 5,
1996 an administrative law judge issued a Pre-Hearing Order
which set the evidentiary hearing dates from November 18 through
December 6, 1996. If the MPUC approvals proceed on these
hearing dates without settlement, the MPUC's decision may not be
obtained until the first quarter of 1997.
Notification under the Hart-Scott-Rodino Antitrust Act of
1976, as amended, is expected to be filed later this year. The
merger filings with each state included a request for deferred
accounting treatment and rate recovery of costs incurred
associated with the proposed merger. At June 30, 1996, NSP had
incurred $18.3 million of costs associated with the proposed
merger which have been deferred as a component of Intangible
Assets and Other.
Under the Merger Agreement, completion of the merger is
conditioned upon the prior receipt of all necessary regulatory
approvals without the imposition of materially adverse terms.
3. Business Developments
Non-regulated Acquisitions - On April 30, 1996, NSP's
wholly owned subsidiary NRG Energy, Inc. (NRG) closed on its
acquisition of a 41.86 percent interest in O'Brien Environmental
Energy, Inc. (O'Brien) as discussed in the Company's 1995 Annual
Report on Form 10-K and the Company's report on Form 10-Q for
the quarter ended March 31, 1996. O'Brien has been renamed NRG
Generating (U.S.) Inc. (NRGG), and the former shareholders of
O'Brien own the remaining 58.14 percent of NRGG, which will be
publicly traded under the ticker symbol NRGG. NRGG has interests
in three domestic operating power generation facilities with
aggregate capacity of approximately 180 megawatts, and in one
150-megawatt facility in the development stage.
As a result of the purchase, on April 30, 1996
approximately $107.3 million was made available to O'Brien and
its creditors by NRG consisting of the following: (i) a $30.8
million equity investment by NRG for its 41.86 percent interest
in O'Brien; (ii) a $7.5 million investment by NEO Corporation,
a wholly owned subsidiary of NRG, for the purchase of O'Brien's
interest in certain biogas projects; and (iii) loans totalling
$69 million from NRG to O'Brien, which were made to pay off
O'Brien creditors. In connection with the closing on its
O'Brien acquisition, NRG was released from its $100 million
letter of credit obtained in January 1996 to secure its
obligation to complete its proposed investment in O'Brien. At
June 30, 1996, approximately $103 million in loans, from NRG to
NRGG, were outstanding and recorded as notes receivable in
current assets. These loans were made to facilitate the closing
of the long term financing for the projects. On July 11, 1996,
NRGG repaid NRG for all but approximately $12 million of these
loans.
4. Rate Matters
On August 7, 1996, the NDPSC approved an annual reduction
of $491,000 or 1.4 percent in natural gas rates, effective
September 1, 1996. In January 1996, the Company had filed for
an annual gas rate reduction of $485,000, in response to the
NDPSC staff audit of gas earnings for the North Dakota
jurisdiction for the years 1991 to 1995. The approval also
allows the Company to set class rates so that prices are more
consistent with costs to serve and are more competitive with
other alternatives. In addition, the approval also restates the
base cost of gas stated in the Company's tariffs and eliminates
three items unrelated to purchased gas costs from the purchased
gas adjustment recovery mechanism. This reduction is in
addition to the 1.25 percent gas rate reduction approved by the
NDPSC in June 1996, to be implemented upon completion of the
proposed business combination (as discussed previously in the
1995 Form 10-K).
Technical hearings for the Wisconsin Company's electric and
gas rate cases, based on a 1997 pre-merger test year, were held
before the PSCW on July 8, 1996. The Wisconsin Company had
requested changes to electric rates for various classes of
customers, which would have an offsetting effect on overall
revenues. The Wisconsin Company had requested no changes to gas
rates. There were no parties to the proceeding that recommended
a change to electric or gas rates that would impact total
revenues. An order on pre-merger 1997 rates for Wisconsin
customers is expected later this year.
5. Commitments and Contingent Liabilities
Legislative Resource Commitments - In 1994, the Minnesota
Legislature established several energy resource and other
commitments for NSP to fulfill as part of its approval of NSP's
Prairie Island nuclear generating plant's temporary nuclear fuel
storage facility, as discussed in NSP's 1995 Annual Report on
Form 10-K. As steps in fulfilling these commitments, during
1996, NSP: (a) submitted a license application to the Nuclear
Regulatory Commission (NRC) for an alternative site in Goodhue
County to provide temporary storage for spent nuclear fuel; (b)
resolved a conflict over wind rights and other issues with
KENETECH Windpower, Inc. (KENETECH); and (c) selected Minnesota
Valley Alfalfa Producers to supply 75 megawatts (Mw) of farm-
grown, closed-loop biomass generation resources to the NSP
system by Dec. 31, 2000. The application to the NRC is required
before casks six through nine can be used at the existing
facility for temporary spent nuclear fuel storage. The
resolution of the wind rights dispute with KENETECH will allow
NSP and Zond Systems, Inc., selected by NSP to supply the next
stage of wind generation, to proceed with the development of 100
Mw of wind power. The 100 Mw increment represents Phase II of
NSP's commitment to 425 Mw of wind generation resources. The 75
Mw of biomass generation resources represents Phase I of NSP's
legislative commitment to have 125 Mw of such generation by the
end of 2002.
Nuclear Insurance - The circumstances set forth in Note 15
to NSP's financial statements contained in the 1995 Form 10-K
appropriately represent the current status of commitments and
contingent liabilities regarding public liability for claims
resulting from any nuclear incident.
Item 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
On April 28, 1995, the Company and WEC entered into an
Agreement and Plan of Merger which provides for a strategic
business combination involving the two companies in a "merger-
of-equals" transaction. Further information concerning this
agreement and proposed transaction and pro forma financial
information with respect thereto is included in the 1995 Form
10-K, Note 2 to the Financial Statements and Part II of this
report. The following discussion and analysis is based on the
financial condition and operations of NSP and does not reflect
the potential effects of its combination with WEC.
Except for the historical statements contained herein, the
matters discussed in the following discussion and analysis,
including the statements regarding the anticipated impact of the
proposed merger, are forward looking statements that are subject
to certain risks, uncertainties and assumptions. Such forward-
looking statements are intended to be identified in this
document by the words "anticipate", "estimate", "expect",
"objective" and similar expressions. Actual results may vary
materially. Factors that could cause actual results to differ
materially include, but are not limited to: general economic
conditions, including their impact on capital expenditures;
business conditions in the energy industry; competitive factors;
unusual weather; regulatory decisions regarding the proposed
combination of NSP and WEC; and the other risk factors listed in
Exhibit 99.01 to this report on Form 10-Q for the quarter ended
June 30, 1996.
Results of Operations
NSP's earnings per share for the second quarter ended June
30, 1996, were $.59, down $.25 from the $.84 earned for the same
period a year ago.
In addition to items noted in the 1995 Form 10-K, the
historical and future trends of NSP's operating results have
been and are expected to be affected by the following factors:
Non-regulated Business Results - Quarterly results include
earnings contributions from non-regulated businesses of $0.03
per share in 1996 and $0.28 per share in 1995. The following
summarizes the quarterly and year-to-date earnings contributions
of NSP's non-regulated businesses:
3 Mos. Ended 6 Mos. Ended
6/30/96 6/30/95 6/30/96 6/30/95
NRG $0.06 $0.27* $0.10 $0.39*
Eloigne Company 0.01 0.00 0.03 0.02
Cenerprise, Inc.
(Cenerprise) (0.04) 0.00 (0.07) (0.01)
Other 0.00 0.01 0.01 0.01
Total $0.03 $0.28 $0.07 $0.41
* Includes non-recurring transactions as discussed below.
Due to the nature of these non-regulated businesses, NSP
anticipates that the earnings from non-regulated operations will
experience more variability than regulated utility businesses.
As discussed below, NSP's non-regulated earnings in the three-
and six-month periods ended June 30, 1996 are experiencing such
variability.
NRG - NRG's earnings for the three months ended June 30,
1995 included two non-recurring items which added 22 cents to
1995 earnings. A gain of approximately 26 cents per share was
recorded for a power sales contract termination settlement,
which was partially offset by a domestic energy project write-
down of four cents per share. Excluding these non-recurring
items, NRG second quarter 1996 earnings were about the same as
the comparable period one year ago, as first-time equity
earnings from the Schkopau project and NRG Generating (U.S.)
Inc. in 1996 along with increased earnings from Latin Power
projects were offset by lower earnings from MIBRAG. One unit of
the Schkopau power generation facility began commercial
operation in March 1996, with the second unit scheduled to come
on line later in 1996. Equity in earnings from MIBRAG decreased
due to an expected decline in heating briquette and coal sales.
NRG's earnings for the six months ended June 30, 1995
included the same non-recurring items, as discussed above, which
increased earnings by 22 cents per share. Excluding these non-
recurring items, NRG's earnings for the six-month periods ended
June 30 declined in 1996 compared with 1995 due primarily to
higher business development expenses, which increased overall
operating expenses, and lower equity in earnings of projects.
NRG experienced an increased level of business development costs
in late 1995 and early in 1996 as it pursued several significant
international and domestic projects. Until there is substantial
assurance that a project in development will come to financial
closure, such costs are expensed. Equity in earnings of
projects decreased in the six months ended June 30, 1996, as
lower equity in earnings from the MIBRAG and San Joaquin
projects were partially offset by first time earnings from
Schkopau and NRG Generating (U.S.) Inc. Equity in earnings from
MIBRAG decreased due to an expected decline in heating briquette
and coal sales, while the equity in earnings from the San
Joaquin project declined because the plant shut down due to the
buyout of the power sales contract in February 1995.
Cenerprise - The earnings of NSP's wholly owned subsidiary,
Cenerprise, Inc., for the second quarter and six months ended
June 30, 1996 were down due largely to losses incurred from the
gas trading business. With the extreme cold weather experienced
throughout the U.S. in the first quarter of 1996, several of
Cenerprise's gas suppliers and transporters curtailed product
availability. Other, more expensive sources of spot gas supply
were needed to meet sales commitments to Cenerprise's customers.
As a result of the volatility associated with the gas trading
business, Cenerprise curtailed its gas trading activities early
in the second quarter of 1996. Second quarter results include
the final costs associated with the gas trading business. In
the future, Cenerprise will purchase gas only to supply its end-
use customers.
Estimated Impact of Weather on Regulated Earnings - NSP
estimates sales levels under normal weather conditions and
analyzes the approximate effect of variations from historical
average temperatures on actual sales levels. The following
summarizes the estimated impact of weather on actual utility
operating results (in relation to sales under normal weather
conditions):
Increase/Decrease
1996 1995 1996
vs vs vs
Normal Normal 1995
Earnings per Share for:
Quarter Ended
June 30 $0.05 $0.11 ($0.06)
Six Months Ended
June 30 $0.15 $0.04 $0.11
The estimated impact of weather considers only the impacts
of variations from average temperatures. The first quarter of
1996 (which is included in the six months ended June 30, 1996
amounts) includes the effects of extremely cold temperatures in
late January and early February of 1996. Although such cold
weather in this period would be expected to result in increased
energy sales, an ice storm immediately preceding the cold
weather resulted in as many as 200,000 customers being
temporarily out of service, and bitterly cold temperatures
resulted in some customers shutting down or curtailing their
operations. Because these secondary weather impacts are not
reliably quantifiable, their expected effects (an offset to the
energy sales increase from cold weather) have not been included
in the estimated impact of weather on 1996 operating results.
Competition - On April 24, 1996, the FERC issued two final
rules regarding an earlier proposal (called the "Mega-NOPR") for
electric utilities to offer open access transmission service to
wholesale transmission users. The ruling, which will take
effect later this year, requires utilities and other
transmission users to abide by the same terms and conditions in
transmitting power and is intended to promote competition. A
new proposed rule, Capacity Reservation Open Access Transmission
Tariffs, was also issued. With regard to compliance with the
first phase of the Mega-NOPR, on July 9, 1996, NSP submitted its
transmission tariff compliance filing and an information filing
which unbundled the transmission component of the municipal
wholesale customers' rates. NSP continues to be generally
supportive of the FERC's efforts to increase competition.
In response to potential competition from a retail
customer's proposed cogeneration project, on July 29, 1996, the
Company signed an electric service agreement with Koch Refining
Co. (Koch), the Company's largest customer. Under the terms of
the agreement, Koch has provided to the Company an option and
right of first refusal in a base load cogeneration unit that
Koch has the discretion to build at the refinery. In exchange
for this option, the Company has provided to Koch an electric
service agreement to meet Koch's electric power needs, subject
to agreed upon options by Koch. Under a 1996 change in
Minnesota property tax law, Koch was required to offer such an
option to NSP or another Minnesota utility as a pre-condition to
obtaining a property tax reduction on the plant. The electric
service agreement is subject to review and approval of the MPUC.
The Company anticipates a ruling by the MPUC by the end of 1996.
Second Quarter 1996 Compared with Second Quarter 1995
Utility Operating Results
Electric revenues for the second quarter 1996 compared with
the second quarter 1995 decreased $12.9 million or 2.5%. Retail
revenues decreased approximately $8.2 million or 1.7% largely
due to a 1.9% average price decrease. The lower prices were a
result of rate adjustments for lower fuel expenses and lower
rates in Wisconsin, somewhat offset by increased recovery of
conservation expenditures (as discussed below). Retail electric
sales were essentially unchanged from last year due to growth
that was offset by the impacts of more favorable weather in 1995
than 1996. On a weather-adjusted basis, retail sales growth for
the second quarter 1996 was 1.4% higher than 1995. Wholesale
revenues were down $5.9 million primarily due to the effects of
contract terminations for seven municipal customers in July
1995, which were expected. Revenues from sales to other
utilities decreased by $2.6 million mainly due to decreases in
sales volume. This decrease in sales to other utilities
reflects several items including less plant availability due to
more major planned outages in 1996 (as discussed below), market
conditions and regional transmission line limitations. Other
electric revenues increased $3.8 million primarily due to
increased wheeling revenues and revenues related to recovery of
conservation and energy management costs.
Gas revenues for the second quarter 1996 increased $15.4
million or 22.0% compared with the second quarter of 1995. Gas
revenues increased primarily due to a 9.8% increase in gas sales
volume and a 8.7% average price increase. The sales volume
increase is due both to growth and to weather impacts. The
price increase is mainly due to rate adjustments for increased
purchased gas costs resulting primarily from changes in natural
gas market conditions.
Fuel for electric generation and Purchased and interchange
power combined for a net decrease of $20.1 million or 13.5% for
the second quarter of 1996 compared with the second quarter of
1995. Fuel expense decreased $10.5 million primarily due to
lower average fuel costs resulting from a new coal
transportation contract in July 1995, and lower plant output
caused by planned outages for maintenance and conversion of two
plants to peaking status. Purchased and interchange power
decreased $9.6 million due primarily to lower average cost of
purchases, reflecting market conditions and lower demand
expenses, and fewer purchases due to lower sales to other
utilities (as discussed previously).
Cost of gas purchased and transported for second quarter
1996 compared with second quarter 1995 increased $11.1 million
or 27.4% due to higher gas sendout and higher per unit cost of
purchased gas. The higher gas sendout reflects increased gas
sales, while the higher cost of purchased gas reflects changes
in market conditions and gas cost adjustments. (See Note 1 to
the Financial Statements for discussion of the accounting change
for Wisconsin gas costs to more accurately match cost recovery
in revenues.)
Other operation, Maintenance and Administrative and general
expenses together increased $1.2 million or 0.7% compared with
the second quarter 1995. The higher costs are largely due to
the timing of scheduled plant maintenance outages and increased
employee benefit costs.
Conservation and energy management expenses increased $1.9
million in the three-month period ended June 30, 1996 compared
to the same period in the prior year due mainly to higher
amortization levels and concurrent rate recovery of deferred
electric and gas conservation and energy management program
costs. These higher amortization levels are consistent with new
retail electric and gas rate adjustment clauses in the Company's
Minnesota jurisdiction effective May 1, 1995, and Nov. 1, 1995,
respectively. Higher cost levels also include the effects of
expensing currently (rather than amortizing over a period of
time) new conservation expenditures beginning in 1996.
Depreciation and amortization increased $4.0 million or
5.6% compared with the second quarter of 1995. The increase is
mainly due to increased plant in service between the two
periods, including a new customer service system placed in
service in March 1996.
Property and general taxes for the second quarter 1996
compared with the second quarter of 1995 decreased $2.3 million
or 3.7% due primarily to adjustments made to 1995 and 1996
accruals based on final property tax notices received for 1995
(for taxes payable in 1996).
Utility income taxes for second quarter 1996 compared with
second quarter 1995 increased $4.1 million primarily due to
higher pretax operating income (after interest charges) between
the two periods and to a slightly higher effective tax rate
expected for the year.
Other income (deductions) - net increased mainly due to
non-regulated items discussed below.
Allowance for funds used during construction (AFC)
decreased $0.7 million to $4.0 million in 1996 largely due to
timing of returns recorded for capital used to finance
conservation and energy management programs.
Non-regulated Business Results
NSP's non-regulated operations include many diversified
businesses, such as independent power production, energy
services, industrial heating and cooling, and energy-related
refuse-derived fuel production. NSP also has investments in
affordable housing projects and several income-producing
properties. The following discusses NSP's diversified business
results in the aggregate.
Operating Revenues and Expenses - The net results of non-
regulated businesses are reported in Other Income (Deductions)-
Net on the Consolidated Statements of Income. Non-regulated
operating revenues decreased $11.7 million in 1996, to $63.9
million, largely due to Cenerprise's exit from the gas trading
business. Non-regulated operating expenses decreased $12.7
million in 1996 to $68.7 million due to lower gas costs
corresponding with Cenerprise's exit from gas trading and lower
NRG expenses due to a 1995 project write-down (as discussed
previously).
Equity Income - NSP has a less-than-majority equity
interest in many non-regulated projects. Consequently, a large
portion of NSP's non-regulated earnings is reported as Equity in
Earnings of Unconsolidated Affiliates on the Consolidated
Statements of Income. Equity income decreased in the second
quarter of 1996 by $29.9 million primarily due to a gain
recorded in 1995 for a power sales contract termination
settlement, as discussed previously. (See previous discussion
of NRG earnings excluding this non-recurring item).
Non-regulated interest and amortization increased $2.5
million to $4.9 million due to the issuance of new debt by NRG
($125 million in January 1996).
Income Taxes - Income Taxes on Non-regulated Operations and
Non-operating Items reported on the Consolidated Statements of
Income includes income taxes related to non-regulated
businesses. Such income taxes for the second quarter of 1996
were a net benefit of $3.0 million, a $12.2 million decrease
over a net tax expense of $9.2 million in the second quarter of
1995. The decrease in 1996 is due mainly to lower domestic
income from NRG and Cenerprise, as discussed previously, and to
higher income tax credits from Eloigne Company's affordable
housing projects. NSP's management intends to reinvest the
earnings of international operations indefinitely. Accordingly,
U.S. income taxes and foreign withholding taxes have not been
provided on the earnings of international projects.
First Six Months of 1996 Compared with First Six Months of 1995
Utility Operating Results
Electric revenues for the first six months of 1996 compared
with the first six months of 1995 increased $2.8 million or
0.3%. Retail revenues increased approximately $23.7 million or
2.5% largely due to a 2.2% increase in retail electric sales.
The increase in retail electric sales is due to sales growth and
colder-than-normal weather in the first quarter (as discussed
previously). Average retail prices increased slightly, by 0.3%,
primarily due to increased recovery of deferred conservation and
energy management costs (as discussed below) partially offset by
lower fuel expense recovery. Wholesale revenues were impacted
by the effects of contract terminations by seven municipal
customers in July 1995, which were expected, resulting in a
$11.2 million decrease. Revenues from sales to other utilities
decreased by $13.6 million mainly due to decreases in sales
volume. This decrease in sales to other utilities reflects
higher retail sales requirements, less plant availability due to
more major planned outages in 1996 (as discussed below), market
conditions and regional transmission line limitations. Other
electric revenues increased $3.9 million primarily due to
increased wheeling revenues and revenues related to recovery of
conservation and energy management costs.
Gas revenues for the first six months of 1996 increased
$57.4 million or 24.5% compared with the first six months of
1995. Gas revenues increased due to a 16.3% increase in gas
sales volume and a 6.9% average price increase. The sales
volume increase is due primarily to sales growth and weather
impacts. The price increase is mainly due to rate adjustments
for increased purchased gas costs resulting from changes in
natural gas market conditions.
Fuel for electric generation and Purchased and interchange
power combined for a net decrease of $16.9 million or 5.9% for
the first six months of 1996 compared with the first six months
of 1995. Fuel expense decreased $17.7 million primarily due to
lower average fuel costs resulting from a new coal
transportation contract in July 1995, and lower plant output
caused by planned outages for maintenance and conversion of two
plants to peaking status. Purchased and interchange power
increased $0.9 million due primarily to slightly higher cost of
purchases, reflecting market conditions and higher purchases due
to less plant availability (as discussed previously). These
increases were partially offset by lower demand expenses
associated with the purchased power.
Cost of gas purchased and transported for first six months
of 1996 compared with first six months of 1995 increased $45.2
million or 32.3% due to higher gas sendout and higher per unit
cost of purchased gas. The higher gas sendout reflects
increased gas sales, while the higher cost of purchased gas
reflects changes in market conditions and gas cost adjustments.
(See Note 1 to the Financial Statements for discussion of the
accounting change for Wisconsin gas costs to more accurately
match cost recovery in revenues.)
Other operation, Maintenance and Administrative and general
expenses together increased $6.7 million or 2.1% compared with
the first six months of 1995. The higher costs are largely due
to the timing of scheduled plant maintenance outages, partially
offset by lower administrative and general costs. Planned
maintenance outages occurred at three major plants in the first
six months of 1996 compared with only two major plants in the
first six months of 1995. Of the $14.8 million increase in
Other operation and Maintenance expenses, $10.2 million is due
to additional costs related to the timing of planned outages at
generating plants.
Conservation and energy management expenses increased $10.3
million in the six-month period ended June 30, 1996 compared to
the same period in the prior year due mainly to higher
amortization levels and concurrent rate recovery of deferred
electric and gas conservation and energy management program
costs. These higher amortization levels are consistent with new
retail electric and gas rate adjustment clauses in the Company's
Minnesota jurisdiction effective May 1, 1995, and Nov. 1, 1995,
respectively. Higher cost levels also include the effects of
expensing currently (rather than amortizing over a period of
time) new conservation expenditures beginning in 1996.
Depreciation and amortization increased $6.8 million or
4.8% compared with the first six months of 1995. The increase
is mainly due to increased plant in service between the two
periods, including a new customer service system placed in
service in March 1996.
Property and general taxes for the first six months of 1996
compared with the first six months of 1995 decreased $4.4
million or 3.6% due primarily to adjustments made to 1995 and
1996 accruals based on final property tax notices received for
1995 (for taxes payable in 1996).
Utility income taxes for the first six months of 1996
compared with the first six months of 1995 increased $8.2
million primarily due to higher pretax operating income (after
interest charges) between the two periods and slightly higher
effective tax rate expected for the year.
Other income (deductions) - net decreased mainly due to
non-regulated items discussed below.
Allowance for funds used during construction (AFC)
increased $1.5 million to $9.4 million in 1996 largely due to
more construction funded with debt and returns recorded for
capital used to finance conservation and energy management programs.
Non-regulated Business Results
The following discusses NSP's diversified business results
in the aggregate.
Operating Revenues and Expenses - The net results of non-
regulated businesses are reported in Other Income (Deductions)-
Net on the Consolidated Statements of Income. Non-regulated
operating revenues increased $27.0 million in 1996, to $185.2
million, largely due to market-driven increases in gas prices
charged to customers by Cenerprise. Non-regulated operating
expenses increased $34.0 million in 1996 to $196.4 million due
to market-driven increases to cost of gas experienced by
Cenerprise, increased NRG project development costs being
expensed on potential projects in 1996 (as discussed previously)
and losses incurred from Cenerprise's gas trading business (as
discussed previously).
Equity Income - Equity income decreased in the first six
months of 1996 by $32.6 million primarily due to a $29.9 million
gain recorded in 1995 for a power sales contract termination
settlement, as discussed previously. In addition, equity income
from NRG energy projects decreased as discussed previously.
Non-regulated interest and amortization increased $4.3
million to $8.9 million due to the issuance of new debt by NRG
($125 million in January 1996) and Eloigne Company projects.
Other income (expense) - Nonoperating income (net of
expense items) related to non-regulated businesses increased by
$3.8 million mainly due to higher income from cash investments.
Income Taxes - Income taxes related to non-regulated
businesses for the first six months of 1996 were a net benefit
of $8.0 million, a $17.2 million decrease over a net tax expense
of $9.2 million in the first six months of 1995. The decrease
in 1996 is due mainly to lower income from NRG and Cenerprise,
as discussed previously, and to higher income tax credits from
Eloigne Company's affordable housing projects.
Liquidity and Capital Resources
The Company had approximately $373 million in commercial
paper debt outstanding as of June 30, 1996. Commercial banks
currently provide credit lines of approximately $300 million to
the Company. These credit lines make short-term financing
available in the form of bank loans and support for commercial
paper sales. The Company has regulatory approval for up to $445
million in short-term borrowing levels.
Commercial banks currently provide credit lines of $36.2
million to wholly owned subsidiaries of the Company. At June
30, 1996, approximately $4.8 million in loans against these
credit lines were outstanding. In addition, $18.3 million in
letters of credit were outstanding, which reduced the available
credit lines at June 30, 1996 and therefore approximately $13.1
million of those credit lines remained available at June 30,
1996.
In January 1996, stock options for the purchase of 263,039
shares were awarded under the Company's Executive Long-Term
Incentive Award Stock Plan (the Plan). These options are not
exercisable for approximately twelve months after the award
date. As of June 30, 1996, a total of 1,127,178 stock options
were outstanding, which were considered as potential common
stock equivalents for earnings per share purposes. During the
first six months of 1996, the Company has issued 111,090 new
shares of common stock under the Plan pursuant to the exercise
of options and awards granted in prior years. Under NSP's
Dividend Reinvestment and Stock Purchase Plan, the Company has
issued 401,351 shares of common stock during the first six
months of 1996. During 1996, the Company has issued an
additional 123,558 shares of new common stock to the Employee
Stock Ownership Plan for dividends on Company shares held. In
addition, the Company adjusted the number of shares previously
issued in connection with a non-regulated business acquisition.
On January 29, 1996, NRG issued $125 million of 7.625
percent unsecured Senior Notes maturing in 2006 to support
equity requirements for projects currently under way and in
development. The Senior Notes were assigned ratings of BBB- by
Standard & Poor's Rating Group and Baa3 by Moody's Investors
Services. See discussion of NRG's recent project developments
at Note 3 to the Financial Statements.
The Wisconsin Company registered $65 million of first
mortgage bonds with the SEC in July 1996. Depending on capital
market conditions, the Wisconsin Company may issue all or a
portion of this debt in 1996, for purchase or redemption of one
or more series of outstanding first mortgage bonds and repayment
of outstanding short-term borrowings incurred in connection with
the Wisconsin Company's continuing construction program. The
remainder of the proceeds would be added to the general funds of
the Wisconsin Company.
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
As discussed in Item 3 - Legal Proceedings of NSP's 1995
Annual Report on Form 10-K, the Company, along with other major
utilities, filed a lawsuit against the Department of Energy
(DOE) in an attempt to clarify the DOE's obligation to dispose
of spent nuclear fuel beginning not later than Jan. 31, 1998.
The primary purpose of the lawsuit was to insure that the
Company and its customers receive timely storage and disposal of
spent nuclear fuel in accordance with the terms of the Company's
contract with the DOE. On July 23, 1996, the U.S. Court of
Appeals for the District of Columbia Circuit, affirmed the
federal government's obligation. The court unanimously ruled
that the Nuclear Waste Policy Act creates an unconditional
obligation for the DOE to begin acceptance of spent nuclear fuel
by Jan. 31, 1998. The ruling is a very positive development for
the industry regarding concerns about the storage and disposal
of used nuclear fuel. The DOE may seek U.S. Supreme Court
review.
As discussed in the Environmental Contingencies section of
Note 15 to the Company's financial statements in the 1995 Form
10-K, the Environmental Protection Agency or state environmental
agencies have designated the Company as a "potentially
responsible party" (PRP) at several waste disposal sites to
which the Company allegedly sent hazardous materials. In March
1996, the federal government filed suit in U.S. District Court
in Minneapolis seeking to collect at least $1.5 million that
federal agencies have spent investigating and cleaning up a
Brooklyn Park site. The Company is among a group of five
parties designated as a PRP in the suit. The Company has
recorded an estimate of its potential liability for the clean up
of this site.
In April 1996, the Company received a General Notice Letter
from the United States Environmental Protection Agency regarding
the Third Site Superfund Site in Zionsville, Indiana. The
letter alleges the Company is a PRP at the site. The Company is
among over 500 parties designated as a PRP. Management
anticipates that it is likely the Company will be considered de
minimis and qualify for a cash-out payment. The payment is not
expected to be material.
In June 1996, the Landfill Remediation Trust filed suit in
the U.S. District Court for the Western District of Wisconsin
seeking to establish liability for and contributions from
parties at the Junker landfill in Hudson, Wisconsin. The
Company and the Wisconsin Company are among over 600 parties
sued in connection with this landfill. This site was included
in the Company's disclosure regarding environmental
contingencies in Note 15 in the 1995 Form 10-K. NSP has
recorded an estimate of its potential liability for the clean-up
at this site.
Item 5. Other Information
MERGER AGREEMENT WITH WISCONSIN ENERGY CORPORATION
As previously reported in the Company's Current Report on
Form 8-K, dated April 28, 1995 and filed on May 3, 1995, and the
1995 Form 10-K, NSP and WEC have entered into an Agreement and
Plan of Merger (the "Merger Agreement"), which provides for a
strategic business combination involving NSP and WEC in a
"merger-of-equals" transaction (the Merger Transaction). Under
the proposed business combination, current common stockholders
of NSP would receive 1.626 shares of Primergy common stock for
each share of NSP common stock owned, and current bondholders
and preferred stockholders of NSP will become investors in a new
company succeeding to the business of NSP as an operating public
utility (New NSP). The Merger Transaction, which was approved
by the shareholders of the constituent companies at meetings
held on September 13, 1995, is expected to close shortly after
all of the conditions to the consummation of the Merger
Transaction, including obtaining applicable regulatory approv-
als, are met or waived. See Note 2 to the Financial Statements
for 1996 developments on regulatory approvals, and the 1995 Form
10-K for further discussion of the proposed Merger Transaction.
SUMMARIZED PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
The following summary of unaudited pro forma financial
information reflects the adjustment of the historical
consolidated balance sheets and statements of income of NSP and
WEC to give effect to the Merger Transaction to form Primergy
and a new subsidiary structure. The unaudited pro forma balance
sheet information gives effect to the Merger Transaction as if
it had occurred on that date. The unaudited pro forma income
statement information gives effect to the Merger Transaction as
if it had occurred at the beginning of the period presented.
This pro forma information was prepared from the historical
consolidated financial statements of NSP and WEC on the basis of
accounting for the Merger Transaction as a pooling of interests
and should be read in conjunction with such historical
consolidated financial statements and related notes thereto of
NSP and WEC.
The allocation between NSP and WEC and their customers of
the estimated cost savings, resulting from the Merger
Transaction, net of the costs incurred to achieve such savings,
will be subject to regulatory review and approval. None of the
estimated cost savings, the costs to achieve such savings or the
transaction costs have been reflected in the summarized pro
forma income statement information. A $146 million pro forma
adjustment has been made to conform the presentations of non-
current deferred income taxes in the summarized pro forma
combined balance sheet information as a net liability. The pro
forma combined earnings per common share reflect pro forma
adjustments to average common shares outstanding in accordance
with the stock conversion provisions of the Merger Agreement.
The following information is not necessarily indicative of
the financial position or operating results that would have
occurred had the Merger Transaction been consummated on the
date, or at the beginning of the periods, for which the Merger
Transaction is being given effect nor is it necessarily
indicative of future operating results or financial position.
The summarized Primergy pro forma financial information reflects
the combination of the historical financial statements of NSP
and WEC after giving effect to the Merger Transaction to form
Primergy. The summarized New NSP pro forma financial
information reflects the adjustment of the historical financial
statements of NSP to give effect to the Merger Transaction,
including the reincorporation of NSP in Wisconsin, the merger of
the Wisconsin Company into Wisconsin Energy Company, and the
transfer of ownership of all of the current NSP subsidiaries to
Primergy.
Pro Forma
PRIMERGY CORP: NSP WEC Combined
(in millions, except per share amounts)
As of June 30, 1996:
Utility Plant-Net $4,324 $2,914 $7,238
Current Assets 801 487 1,288
Other Assets 1,276 1,151 2,281
Total Assets $6,401 $4,552 $10,807
Common Stockholders' Equity $2,074 $1,897 $3,971
Preferred Stockholders' Equity 240 30 270
Long-Term Debt 1,666 1,359 3,025
Total Capitalization 3,980 3,286 7,266
Current Liabilities 1,014 382 1,396
Other Liabilities 1,407 884 2,145
Total Equity & Liabilities $6,401 $4,552 $10,807
For the Six Months Ended
June 30, 1996:
Utility Operating Revenues $1,311 $897 $2,208
Utility Operating Income $160 $154 $314
Net Income, after Preferred
Dividend Requirements $104 $108 $212
Earnings per Common Share:
As reported $1.53 $.98 --
NSP Equivalent Shares -- -- $1.56
Primergy Shares -- -- $.96
Merger
Divestitures Pro Forma
NEW NSP: NSP Net New NSP
(in millions)
As of June 30, 1996:
Utility Plant-Net $4,324 ($698) $3,626
Current Assets 801 (260) 541
Other Assets 1,276 (572) 704
Total Assets $6,401 ($1,530) $4,871
Common Stockholder's Equity $2,074 ($751) $1,323
Preferred Stockholder's Equity 240 -- 240
Long-Term Debt 1,666 (482) 1,184
Total Capitalization 3,980 (1,233) 2,747
Current Liabilities 1,014 (119) 895
Other Liabilities 1,407 (178) 1,229
Total Equity & Liabilities $6,401 ($1,530) $4,871
For the Six Months Ended
June 30, 1996:
Utility Operating Revenues $1,311 ($114) $1,197
Utility Operating Income $160 ($30) $130
Net Income, after Preferred
Dividend Requirements $104 ($23) $81
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The following Exhibits are filed with this report:
27.01 Financial Data Schedule for the six months ended
June 30, 1996.
99.01 Statement pursuant to Private Securities Litigation
Reform Act of 1995.
(b) Reports on Form 8-K
The following reports on Form 8-K were filed either during
the three months ended June 30, 1996, or between June 30, 1996
and the date of this report:
April 16, 1996 (Filed April 18, 1996) - Item 5. Other
Events. Disclosure of suspension of negotiations with the
Mescalero Apache Tribe (the Tribe) by a consortium of
utilities, including the Company, for interim storage of
used nuclear fuel on the Tribe's reservation in New Mexico.
July 9, 1996 (Filed July 9, 1996) - Item 5. Other Events.
Release of the audited consolidated financial statements
of NRG and its subsidiaries for the year ended 1995 and the
related management's discussion and analysis. Item 7.
Financial Statements and Exhibits. NRG's 1995 audited
consolidated financial statements.
July 19, 1996 (Filed July 19, 1996)- Item 5. Other Events.
Disclosure of the Company's intention to submit an offer,
at the request of Southern Minnesota Municipal Power Agency
(SMMPA), to purchase SMMPA's 41 percent interest in the
Company's Sherburne County Electric Generating Plant Unit
3.
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.
NORTHERN STATES POWER COMPANY
(Registrant)
/s/
Roger D. Sandeen
Vice President, Controller and
Chief Information Officer
/s/
Edward J. McIntyre
Vice President and Chief
Financial Officer
Date: August 14, 1996
EXHIBIT INDEX
Method of Exhibit
Filing No. Description
DT 27.01 Financial Data Schedule
DT 99.01 Statement pursuant to Private
Securities Litigation Reform
Act of 1995
DT = Filed electronically with this direct transmission.
<TABLE> <S> <C>
<ARTICLE> UT
EXHIBIT 27.01
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Statements of Income, Consolidated Balance Sheets and Consolidated
Statements of Cash Flows and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1996
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 4,323,860
<OTHER-PROPERTY-AND-INVEST> 750,981
<TOTAL-CURRENT-ASSETS> 801,321
<TOTAL-DEFERRED-CHARGES> 363,486
<OTHER-ASSETS> 161,612
<TOTAL-ASSETS> 6,401,260
<COMMON> 172,029
<CAPITAL-SURPLUS-PAID-IN> 628,359
<RETAINED-EARNINGS> 1,277,203
<TOTAL-COMMON-STOCKHOLDERS-EQ> 2,073,534<F1>
0
240,469
<LONG-TERM-DEBT-NET> 1,666,459
<SHORT-TERM-NOTES> 5,252
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 372,500
<LONG-TERM-DEBT-CURRENT-PORT> 154,706
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 1,884,283<F1>
<TOT-CAPITALIZATION-AND-LIAB> 6,401,260
<GROSS-OPERATING-REVENUE> 1,310,968
<INCOME-TAX-EXPENSE> 61,256<F2>
<OTHER-OPERATING-EXPENSES> 1,082,395
<TOTAL-OPERATING-EXPENSES> 1,150,889
<OPERATING-INCOME-LOSS> 160,079
<OTHER-INCOME-NET> 7,858<F2>
<INCOME-BEFORE-INTEREST-EXPEN> 175,175
<TOTAL-INTEREST-EXPENSE> 64,583
<NET-INCOME> 110,592
6,123
<EARNINGS-AVAILABLE-FOR-COMM> 104,469
<COMMON-STOCK-DIVIDENDS> 93,292
<TOTAL-INTEREST-ON-BONDS> 58,847
<CASH-FLOW-OPERATIONS> 155,220
<EPS-PRIMARY> $1.53
<EPS-DILUTED> 0
<FN>
<F1>$(4,057) thousand of Common Stockholders' Equity is classified as Other
Items-Capitalization and Liabilities. This represents the net of leveraged
common stock held by the Employee Stock Ownership Plan and the currency
translation adjustments.
<F2>$(7,238) thousand of non-operating income tax benefit is classified as
Income Tax Expense. The financial statement presentation includes this as
a component of Other Income (Expense).
</FN>
</TABLE>
EXHIBIT 99.01
Northern States Power Company Cautionary Factors
The Private Securities Litigation Reform Act of 1995 (the
Act) provides a new "safe harbor" for forward-looking statements
to encourage such disclosures without the threat of litigation
providing those statements are identified as forward-looking and
are accompanied by meaningful, cautionary statements identifying
important factors that could cause the actual results to differ
materially from those projected in the statement. Forward-looking
statements have been and will be made in written documents and
oral presentations of Northern States Power Company (the Company).
Such statements are based on management's beliefs as well as
assumptions made by and information currently available to
management. When used in the Company's documents or oral
presentations, the words "anticipate", "estimate", "expect",
"objective" and similar expressions are intended to identify
forward-looking statements. In addition to any assumptions and
other factors referred to specifically in connection with such
forward-looking statements, factors that could cause the Company's
actual results to differ materially from those contemplated in any
forward-looking statements include, among others, the following:
- - Economic conditions including inflation rates and monetary
fluctuations;
- - Trade, monetary, fiscal, taxation, and environmental policies
of governments, agencies and similar organizations in
geographic areas where the Company has a financial interest;
- - Customer business conditions including demand for their
products or services and supply of labor and materials used in
creating their products and services;
- - Financial or regulatory accounting principles or policies
imposed by the Financial Accounting Standards Board, the
Securities and Exchange Commission, the Federal Energy
Regulatory Commission and similar entities with regulatory
oversight;
- - Availability or cost of capital such as changes in: interest
rates; market perceptions of the utility industry, the Company
or any of its subsidiaries; or security ratings;
- - Factors affecting utility and non-utility operations such as
unusual weather conditions; catastrophic weather-related
damage; unscheduled generation outages, maintenance or repairs;
unanticipated changes to fossil fuel, nuclear fuel or gas
supply costs or availability due to higher demand, shortages,
transportation problems or other developments; nuclear or
environmental incidents; or electric transmission or gas
pipeline system constraints;
- - Employee workforce factors including loss or retirement of key
executives, collective bargaining agreements with union
employees, or work stoppages;
- - Increased competition in the utility industry, including:
industry restructuring initiatives; transmission system
operation and/or administration initiatives; recovery of
investments made under traditional regulation; nature of
competitors entering the industry; retail wheeling; a new
pricing structure; and former customers entering the generation
market;
- - Rate-setting policies or procedures of regulatory entities,
including environmental externalities, which are values
established by regulators assigning environmental costs to each
method of electricity generation when evaluating generation
resource options;
- - Nuclear regulatory policies and procedures including operating
regulations and used nuclear fuel storage;
- - Social attitudes regarding the utility and power industries;
- - Cost and other effects of legal and administrative proceedings,
settlements, investigations and claims;
- - Technological developments that result in competitive
disadvantages and create the potential for impairment of
existing assets;
- - Numerous matters associated with the proposed combination of
the Company and Wisconsin Energy Corporation to form Primergy
Corporation (Primergy), including:
- Regulatory authorities' decisions regarding business
combination issues including the approval of the business
combination as proposed, the rate structure of utility
operating companies after the merger, transmission system
operation and administration, or divestiture of gas
utility or non-regulated portions of the Company's
business;
- Qualification of the transaction as a pooling of
interests;
- Factors affecting the anticipated cost savings including
national and regional economic conditions, national and
regional competitive conditions, inflation rates, weather
conditions, financial market conditions, and synergies
resulting from the business combination;
- Allocation of benefits of cost savings between
shareholders and customers, which will depend, among
other things, upon the results of regulatory proceedings
in various jurisdictions;
- Regulation of Primergy as a registered public utility
holding company and other different or additional federal
and state regulatory requirements or restrictions to
which Primergy and its subsidiaries may be subject as a
result of the business combination (including conditions
which may be imposed in connection with obtaining the
regulatory approvals necessary to consummate the business
combination, such as the possible requirement to divest
gas utility and possibly certain non-regulated
operations);
- Factors affecting dividend policy including results of
operations and financial condition of Primergy and its
subsidiaries and such other business considerations as
the Primergy Board of Directors considers relevant.
- Factors associated with non-regulated investments including
conditions of final legal closing, foreign government actions,
foreign economic and currency risks, political instability in
foreign countries, partnership actions, competition, operating
risks, dependence on certain suppliers and customers, domestic
and foreign environmental and energy regulations;
- Most of the current project investments made by the Company's
subsidiary, NRG Energy, Inc. (NRG) consist of minority
interests, and a substantial portion of future investments may
take the form of minority interests, which limits NRG's ability
to control the development or operation of the project;
- - Other business or investment considerations that may be
disclosed from time to time in the Company's Securities and
Exchange Commission filings or in other publicly disseminated
written documents.
The Company undertakes no obligation to publicly update or revise
any forward-looking statements, whether as a result of new
information, future events or otherwise. The foregoing review of
factors pursuant to the Act should not be construed as exhaustive
or as any admission regarding the adequacy of disclosures made by
the Company prior to the effective date of the Act.
