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 March 31, 1997 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 April 30, 1997
Common Stock, $2.50 par value 69,063,712 shares
<PAGE>
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
Northern States Power Company (Minnesota) and Subsidiaries
Consolidated Statements of Income (Unaudited)
Three Months Ended
March 31
1997 1996
(Thousands of dollars)
Utility operating revenues
Electric......................................... $519,134 $512,943
Gas.............................................. 223,362 205,766
Total ......................................... 742,496 718,709
Utility operating expenses
Fuel for electric generation..................... 81,294 76,092
Purchased and interchange power.................. 58,288 62,907
Cost of gas purchased and transported............ 152,019 133,525
Other operation.................................. 88,800 83,263
Maintenance...................................... 43,501 47,068
Administrative and general....................... 34,628 34,941
Conservation and energy management............... 17,299 16,190
Depreciation and amortization.................... 79,842 74,651
Taxes: Property and general..................... 61,353 60,129
Current income tax expense............... 46,217 54,827
Deferred income tax expense.............. (7,023) (11,954)
Investment tax credit adjustments
- net.................................. (2,178) (2,207)
Total........................................ 654,040 629,432
Utility operating income........................... 88,456 89,277
Other income (expense)
Equity in earnings of unconsolidated
affiliate operations........................... 7,176 5,989
Allowance for funds used during construction
- equity....................................... 2,314 2,580
Other income (deductions) - net.................. (3,665) (3,426)
Income tax benefits from nonregulated
operations and nonoperating items.............. 6,391 4,029
Total........................................ 12,216 9,172
Income before financing costs...................... 100,672 98,449
Financing costs
Interest on utility long-term debt............... 25,550 25,021
Other utility interest and amortization.......... 4,865 4,999
Nonregulated interest and amortization........... 4,961 4,065
Allowance for funds used during
construction - debt............................ (3,102) (2,846)
Total interest charges....................... 32,274 31,239
Distributions on redeemable preferred
securities of subsidiary trust................... 2,625 0
Total financing costs........................ 34,899 31,239
Net income ........................................ 65,773 67,210
Preferred stock dividends and redemption premiums.. 3,957 3,061
Earnings available for common stock ............... $61,816 $64,149
Average number of common and equivalent
shares outstanding (000's)....................... 68,827 68,308
Earnings per average common share.................. $0.90 $0.94
Common dividends declared per share................ $0.690 $0.675
Consolidated Statements of Retained Earnings (Unaudited)
Balance at beginning of period..................... $1,340,799 $1,266,026
Net income for period.............................. 65,773 67,210
Dividends declared:
Cumulative preferred stock....................... (2,809) (3,061)
Common stock..................................... (47,721) (45,659)
Premium on redeemed preferred stock................ (1,148) 0
Balance at end of period........................... $1,354,894 $1,284,516
The Notes to Financial Statements are an integral part of the Statements
of Income and Retained Earnings.
</PAGE>
<PAGE>
Northern States Power Company (Minnesota) and Subsidiaries
Consolidated Balance Sheets (Unaudited)
March 31, December 31,
1997 1996
ASSETS (Thousands of dollars)
Utility Plant
Electric...................................... $6,820,619 $6,766,896
Gas........................................... 753,318 750,449
Common........................................ 329,044 331,441
Total..................................... 7,902,981 7,848,786
Accumulated provision for depreciation...... (3,681,905) (3,611,244)
Nuclear fuel.................................. 898,986 892,484
Accumulated provision for amortization...... (801,325) (792,146)
Net utility plant......................... 4,318,737 4,337,880
Current Assets
Cash and cash equivalents..................... 47,486 51,118
Customer accounts receivable - net............ 297,957 288,330
Unbilled utility revenues..................... 104,886 147,366
Other receivables............................. 70,686 83,324
Fossil fuel inventories - at average cost..... 33,995 45,013
Materials and supplies inventories -
at average cost............................. 110,994 109,425
Prepayments and other......................... 58,639 72,647
Total current assets........................ 724,643 797,223
Other Assets
Equity investments in nonregulated
projects and other investments.............. 473,717 451,223
Regulatory assets............................. 342,504 354,128
External decommissioning fund investments..... 270,693 260,756
Nonregulated property - net................... 198,184 192,790
Notes receivable from nonregulated projects... 88,287 75,811
Other long-term receivables................... 61,054 63,684
Intangible and other assets................... 121,618 103,405
Total other assets......................... 1,556,057 1,501,797
TOTAL ASSETS.............................. $6,599,437 $6,636,900
LIABILITIES AND EQUITY
Capitalization
Common stock equity:
Common stock and premium - authorized
160,000,000 shares of $2.50 par value,
issued shares:
1997 and 1996, 69,063,712................. $810,918 $811,378
Retained earnings........................... 1,354,894 1,340,799
Leveraged common stock held by ESOP......... (17,322) (19,091)
Currency translation adjustments - net...... (656) 2,794
Total common stock equity................. 2,147,834 2,135,880
Cumulative preferred stock and premium - authorized
7,000,000 shares of $100 par value; outstanding
shares: 1997, 2,000,000; 1996, 2,400,000
without mandatory redemption................ 200,340 240,469
Mandatorily redeemable preferred securities
of subsidiary trust - guaranteed by NSP*... 200,000 0
Long-term debt................................ 1,588,870 1,592,568
Total capitalization...................... 4,137,044 3,968,917
Current Liabilities
Long-term debt due within one year............ 119,691 119,618
Other long-term debt potentially due
within one year............................. 141,600 141,600
Short-term debt - primarily commercial paper.. 153,780 368,367
Accounts payable.............................. 185,967 236,341
Taxes accrued................................. 265,633 204,348
Interest accrued.............................. 32,826 34,722
Dividends payable on common and preferred
stocks...................................... 50,037 50,409
Accrued payroll, vacation and other........... 78,278 80,995
Total current liabilities................. 1,027,812 1,236,400
Other Liabilities
Deferred income taxes......................... 802,758 804,342
Deferred investment tax credits............... 146,902 149,606
Regulatory liabilities........................ 306,954 302,647
Postretirement and other benefit obligations.. 118,613 114,312
Other long-term obligations and deferred
income...................................... 59,354 60,676
Total other liabilities................... 1,434,581 1,431,583
Commitments and Contingent Liabilities (See Note 4)
TOTAL LIABILITIES AND EQUITY............ $6,599,437 $6,636,900
The Notes to Financial Statements are an integral part of the
Balance Sheets
* As described in Note 3 to Financial Statements, the primary asset
of NSP Financing I, a subsidiary trust of NSP, is $200 million
principal amount of the Company's 7.875% Junior Subordinated
Debentures due 2037.
</PAGE>
<PAGE>
Northern States Power Company (Minnesota) and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Three Months Ended
March 31,
1997 1996
(Thousands of dollars)
Cash Flows from Operating Activities:
Net Income....................................... $65,773 $67,210
Adjustments to reconcile net income to
cash from operating activities:
Depreciation and amortization.................. 87,142 81,643
Nuclear fuel amortization...................... 9,706 9,576
Deferred income taxes.......................... (6,709) (13,494)
Deferred investment tax credits recognized..... (2,256) (2,284)
Allowance for funds used during
construction - equity........................ (2,314) (2,580)
Undistributed equity in earnings of
unconsolidated affiliate operations.......... (6,060) (4,761)
Cash provided by changes in certain working
capital items................................ 63,384 79,077
Conservation program expenditures - net of
amortization................................. 6,140 (403)
Cash provided by changes in other assets and
liabilities.................................. 3,539 4,821
Net cash provided by operating activities......... 218,345 218,805
Cash Flows from Investing Activities:
Capital expenditures ............................ (80,052) (98,571)
Decrease in construction payables................ (3,402) (5,485)
Allowance for funds used during construction
- equity....................................... 2,314 2,580
Investment in external decommissioning fund...... (10,505) (10,036)
Equity investments, loans and deposits for
nonregulated projects.......................... (6,593) (75,933)
Other investments - net.......................... (8,533) (75)
Net cash used for investing activities............ (106,771) (187,520)
Cash Flows from Financing Activities:
Change in short-term debt - net issuances
(repayments)................................... (214,587) (47,117)
Proceeds from issuance of long-term debt - net... 0 125,333
Repayment of long-term debt...................... (1,953) (11,017)
Proceeds from issuance of common stock - net..... 0 16,337
Proceeds from issuance of redeemable preferred
securities - net............................... 193,513 0
Redemption of preferred stock, including
reacquisition premiums......................... (41,278) 0
Dividends paid................................... (50,901) (48,875)
Net cash provided by (used for) financing
activities...................................... (115,206) 34,661
Net increase (decrease) in cash and cash
equivalents....................................... (3,632) 65,946
Cash and cash equivalents at beginning of period.... 51,118 28,794
Cash and cash equivalents at end of period.......... $47,486 $94,740
The Notes to Financial Statements are an integral part of the
Statements of Cash Flows.
</PAGE>
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 March 31, 1997 and December 31, 1996,
the results of its operations for the three months ended March 31, 1997 and
1996, and its cash flows for the three months ended March 31, 1997 and 1996.
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, 1996 (1996 Form 10-K). The following notes should be read in
conjunction with such policies and other disclosures in the 1996 Form 10-K.
Certain reclassifications have been made to 1996 financial information
to conform with the 1997 presentation. These reclassifications had no effect
on net income or earnings per share as previously reported.
1. Change in Reporting of Earnings Per Share
Effective for year-end 1997 financial statements, NSP will be required
to present its results of operations on a per share basis in accordance with
Statement of Financial Accounting Standards (SFAS) No. 128, Earnings Per Share
(EPS). This new reporting standard requires a dual presentation of EPS on the
face of the income statement, with one calculation assuming no dilution and
another assuming full dilution from potential issuance of unexercised stock
awards. The SFAS No. 128 method differs from the current approach, under
which some dilution from common stock equivalents is assumed in the "primary"
EPS calculation. Applying the new method to first quarter 1996 and 1997
results would not change reported EPS. The impact of applying SFAS No. 128
to EPS for other historical periods is expected to be immaterial.
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
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 1996 Form 10-K and Part II, Item 5-Other
Information of this report.
During 1995, NSP and WEC submitted filings to the Federal Energy
Regulatory Commission (FERC), applicable state regulatory commissions and
other governmental authorities seeking approval of the proposed merger to form
Primergy. The goal of NSP and WEC was to complete the merger by year-end
1996. Approvals were obtained from regulators in Michigan and North Dakota
during 1996. However, all necessary regulatory approvals have not yet been
obtained and, as a result, the merger has not yet been completed. NSP and WEC
continue to pursue regulatory approvals, without unacceptable conditions. The
1997 developments related to the merger are discussed below.
On March 5, 1997, the Minnesota Office of the Attorney General -
Residential Utilities Division, an intervenor in the Minnesota merger case,
filed a brief which expressed for the first time opposition to the merger.
On March 20, 1997, the Minnesota Public Utilities Commission (MPUC) heard
comments from the parties on the need for additional hearings or other
procedures prior to making a decision on the merger. On April 4, 1997, the
MPUC decided to hold additional public hearings before it issues a decision
on the proposed merger. The MPUC also requested comments on the impact of the
merger on the state's ability to restructure the electric utility industry in
accordance with 16 restructuring principles adopted by the MPUC. The public
hearings and comment period will be completed by June 20, 1997, with a MPUC
decision on the merger case expected by late summer 1997.
In January 1997, a Dane County Circuit Court judge ordered the Public
Service Commission of Wisconsin (PSCW) to delay its decision on the merger,
pending the results of an investigation regarding alleged prohibited
conversations between one of the commissioners and WEC officials. The judge
further ordered the PSCW to investigate the allegations. NSP cannot predict
when the PSCW will resolve the allegations and proceed with deliberations
concerning the proposed merger.
On Jan. 15, 1997, the United States Department of Justice served its
second request for information and documents regarding merger notification
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.
NSP and WEC anticipate completing responses to the second request in May 1997.
In April 1997, the Nuclear Regulatory Commission (NRC) issued an approval to
transfer nuclear operating licenses to New NSP. The order was issued with an
expiration date of Sept. 30, 1997; however, an application for an extension
of this date can be made, if necessary. In addition, the Company is required
to notify the NRC of any transfer of assets exceeding 10 percent of New NSP's
consolidated net utility plant, as recorded on New NSP's balance sheet.
On April 28, 1997, Madison Gas & Electric Company, the Citizens Utility
Board of Wisconsin and the Wisconsin Federation of Cooperatives sought to
intervene in the proceedings regarding the Primergy transaction before the
Securities and Exchange Commission under the Public Utility Holding Company
Act of 1935, as amended ("PUHCA"). The intervention, which was filed
approximately 11 months after the expiration of the time for such filings,
requests, among other things, the SEC: (i) reject the proposed transaction on
the grounds that it is contrary to PUHCA, (ii) order NSP and WEC to divest
their gas utility properties, or (iii) order a hearing on the efficiency and
competitive implications of the proposed transaction. NSP and WEC will oppose
the intervention and requests of the intervenors.
On May 14, 1997, the FERC issued a lengthy Opinion and Order (the
Opinion) in connection with the proposed business combination. In the
Opinion, the FERC concludes that it cannot approve the proposed merger at this
time and that the administrative law judge was incorrect to find that the
proposed merger, as conditioned, was consistent with the public interest, the
applicable standard under Section 203 of the Federal Power Act. The Opinion
states, however, that the participants should be given another opportunity to
attempt to reach consensus on the means by which Primergy's post-merger market
power may be adequately mitigated and the FERC remands the case to a
settlement judge and directs the participants to attempt to reach a resolution
of the market power issues. The mechanisms suggested by the FERC for
mitigating market power includes possible divestiture of some generation
assets. Any such proposed resolution must be submitted to the FERC for its
review and approval. The Opinion also approves several contested settlements,
provides guidance as to the formation of the independent system operator which
the applicants volunteered to form and rules on certain other matters in
connection with the proposed merger. NSP and WEC are considering the effects
of the FERC ruling.
The merger filings with each state included a request for deferred
accounting treatment and rate recovery of costs incurred in conjunction with
the proposed merger. At March 31, 1997, NSP had incurred $27.4 million of
costs associated with the proposed merger which have been deferred as a
component of Intangible Assets and Other. If the merger is not completed,
these costs would be charged to expense.
Under the Merger Agreement, completion of the merger is subject to
numerous conditions, that, unless waived by the affected party, must be met,
including but not limited to: the prior receipt of all necessary regulatory
approvals without the imposition of materially adverse terms; the accuracy of
each party's representations and warranties in the Merger Agreement, other
than representations and warranties whose inaccuracy does not result in a
material adverse effect on the business, assets, financial condition, results
of operations or prospects of such party and its subsidiaries taken as a
whole; and no such material adverse effect having occurred, or being
reasonably likely to occur, with respect to either party. In addition, the
Merger Agreement provides that both WEC and NSP have the right to terminate
the Merger Agreement under certain circumstances, including without limiting
the foregoing, the inability to fulfill all conditions to the closing of the
merger at April 30, 1997 (other than receipt of all regulatory approvals
without any materially adverse terms), or the failure to receive all
regulatory approvals without any materially adverse terms by Oct. 31, 1997.
Prior to April 30, 1997, NSP and WEC entered into an agreement reserving the
right for each party to assert, at any time after April 30, 1997, that all
conditions to closing (other than receipt of all regulatory approvals without
any materially adverse terms) were met or were not met at April 30, 1997.
NSP continues to work with WEC to complete the merger. However, since numerous
conditions are beyond its control, NSP cannot state whether all necessary
conditions for completion of the merger will occur.
3. Business Developments
Unscheduled Plant Outage - The Company's 555-megawatt Monticello nuclear
generating plant was taken out of service effective May 9, 1997 and may not
return to operation for two to three months. The unscheduled outage
represents an acceleration of design changes originally planned to be made in
January 1998 during the unit's scheduled refueling outage. However, plant
personnel recently discovered that under extreme conditions, suction pressure
for emergency cooling pumps may be inadequate. While design calculations
indicate that there is an extremely low probability of any equipment failure,
the Company has taken this prudent and precautionary step to remove the plant
from service early and make the necessary changes. Much of the design change
project is expected to be capitalized as a plant addition. The 1998 refueling
outage will be rescheduled. During the current plant outage, NSP will
continue to serve its customers with electricity generated at other NSP
facilities and through power purchases from other sources. The majority of
any incremental costs incurred by the Company from replacing the plant's
generation is expected to be recovered via fuel adjustment clause rate
mechanisms in place.
Union Agreements - A new three-year collective-bargaining agreement was
ratified by the Company's union membership on April 10, 1997. All provisions
of this new agreement are effective retroactively to Jan. 1, 1997. The prior
agreement had expired Dec. 31, 1996, but was extended to April 30, 1997.
Issuance of Trust Originated Preferred Securities (TOPrS) - On Jan. 31,
1997, 8,000,000 shares of 7.875 percent TOPrS were issued and sold through NSP
Financing I, a statutory business trust formed under Delaware law. The
Company owns all of the common equity securities of the trust and,
accordingly, the trust is treated as a subsidiary of NSP, with its accounts
included in NSP's consolidated financial statements. The business trust was
formed for the sole purpose of issuing the TOPrS, and the primary asset of the
trust is $200 million of 7.875 percent unsecured Junior Subordinated
Debentures issued by the Company and maturing in 2037. NSP Financing I used
the proceeds from the sale of $200 million of TOPrS to purchase such
Debentures, which are eliminated in NSP's consolidation. The Company used the
proceeds from the issuance of such Debentures to redeem $40 million of
preferred stock and to repay a portion of outstanding short-term borrowings.
The quarterly interest and other payment dates for the Debentures
coincide with the distribution and other payment dates for the TOPrS. NSP has
the right to defer payments of interest on the Debentures by extending the
interest payment period, at any time, for up to 20 consecutive quarters. If
interest payments on the Debentures are so deferred, distributions on the
TOPrS will also be deferred. During any deferral, distributions will continue
to accrue with interest thereon. In addition, during any such deferral, NSP
may not, except in certain limited circumstances, declare or pay any dividend
or other distribution on, or redeem or purchase, any of its capital stock.
The TOPrS are redeemable by NSP (in whole or in part) from time to time,
beginning in 2002, or at any time in the event of certain income tax
circumstances. If the debentures are redeemed, the trust must redeem TOPrS
having an aggregate liquidation amount equal to the aggregate principal amount
of the debentures so redeemed. Upon redemption, holders of the TOPrS are
generally entitled to receive a liquidation amount of $25 per share plus
accrued and unpaid distributions. The TOPrS must be fully redeemed when the
Debentures mature in 2037.
The payment of distributions related to the TOPrS by NSP Financing I and
payments on liquidation of NSP Financing I or the redemption of the TOPrS are
guaranteed by NSP (the "Guarantee"), to the extent set forth therein. The
Guarantee covers payments of distributions and other payments on the TOPrS
only to the extent NSP makes a payment of interest or principal on the
Debentures. NSP's obligations under the Debentures and the Guarantee are
subordinate and junior in right of payment to certain indebtedness of NSP.
NRG Investment in Australian Power Plant - NRG Energy, Inc. (NRG) as
part of a consortium with CMS Energy Corporation (CMS) and Horizon Energy
Australia Investments (Horizon), was the successful bidder in the Australian
State of Victoria's privatization of its Loy Yang A power plant, Victoria's
largest and Australia's lowest-cost electric generating facility. The
consortium agreed to purchase, own and operate the 2,000-megawatt, brown coal-
fired Loy Yang A plant and an associated coal mine. The purchase price was
(U.S.) $3.67 billion and is expected to be financed 75 percent by long-term
project bank debt, with the remaining 25 percent comprised of equity
investments from the consortium. NRG will hold a 25.4 percent ownership
interest in the consortium, with CMS's independent power subsidiary, CMS
Generation, holding a 49.6 percent ownership interest and Horizon holding a
25 percent ownership interest. The consortium closed the transaction and
assumed ownership and operating responsibility in early May 1997.
Loy Yang A is one of the newest and most modern of Victoria's brown coal-
fired generating plants, with a high proportion of its electric output
committed under power supply contracts through the year 2000. The coal mine
has two billion tons of proven coal reserves, enough to serve the coal supply
needs for 50 years of the Loy Yang A and Loy Yang B plants. The mine has a
profitable supply contract with the 1,000 megawatt Loy Yang B electric
generating plant and the exclusive rights to provide coal supplies for a third
Loy Yang generating plant, should it be built. Loy Yang A will be jointly
managed and operated by CMS and NRG.
4. 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 1996 Annual
Report on Form 10-K. Steps have been taken to fulfill certain of these
commitments during 1997 as described below.
The 1994 Prairie Island legislation requires NSP to have under contract,
or in operation, 225 megawatts of wind generation by Dec. 31, 1998. In March
1997, the Company signed two power purchase agreements with Northern
Alternative Energy, Inc. for the development of 22.65 megawatts of wind-
generated electricity. The agreements are subject to approval by the MPUC.
The two contracts will bring the Company's total wind production to 154.65
megawatts. In addition, in April 1997, an independent bid valuation firm
selected four developers as finalists in the competitive bid process to supply
100 megawatts of wind energy by mid-1999. When this 100-megawatt increment
is completed, the Company's total wind production will be 254.65 megawatts.
The Company expects to award the power purchase contract in June 1997.
On May 13, 1997, the Minnesota Court of Appeals (the Court) affirmed an
Order of the Minnesota Environmental Quality Board (MEQB) which authorized the
Company to use four additional casks for the storage of spent nuclear fuel at
the Prairie Island Nuclear Generating Plant. The Court also affirmed the
MEQB's Order which denied a certificate of site compatibility for an
alternative site for the storage of spent nuclear fuel in Goodhue County. The
Prairie Island Indian Tribe (the Tribe) had filed suit with the Court
challenging the MEQB actions in October 1996. The Tribe has until June 12,
1997 to petition the Minnesota Supreme Court for review. Review by the
Minnesota Supreme Court is discretionary.
Nuclear Insurance - The circumstances set forth in Note 14 to NSP's
financial statements contained in the 1996 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 OPERATION
On April 28, 1995, the Company and WEC entered into an Agreement and Plan
of Merger which provides for a 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 1996 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", "possible",
"potential" 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; changes in federal or state legislation; regulatory
decisions regarding the proposed combination of NSP and WEC; the items set
forth below under "Factors Affecting Results of Operations;" and the other
risk factors listed from time to time by the Company in reports filed with the
SEC, including Exhibit 99.01 to this report on Form 10-Q for the quarter ended
March 31, 1997.
Results of Operations
Northern States Power Company's earnings per share for the first quarter
ended March 31, 1997, were $.90, down $.04 from the $.94 earned for the same
period a year ago. The results of the regulated utility businesses and
nonregulated businesses are discussed in more detail later. In addition to
the revenue and expense changes, earnings per share have been affected by an
increasing average number of common and equivalent shares outstanding due
mainly to stock issuance for the Company's dividend reinvestment and stock
ownership plans.
Factors Affecting Results of Operations
In addition to items noted in the 1996 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:
Nonregulated Business Results - Quarterly results include earnings
contributions from nonregulated businesses of $0.11 per share in 1997 and
$0.04 per share in 1996. The following summarizes the earnings contributions
of NSP's nonregulated businesses:
3 Mos. Ended
3/31/97 3/31/96
NRG $0.10 $0.04
Eloigne Company 0.01 0.01
Cenerprise, Inc. (Cenerprise) (0.02) (0.03)
Other 0.02 0.02
Total $0.11 $0.04
Due to the nature of these nonregulated businesses, NSP anticipates that
the earnings from nonregulated operations will experience more variability
than regulated utility businesses. As discussed below, NSP's nonregulated
earnings in the three-month period ended March 31, 1997 are experiencing such
variability.
NRG - NRG's first quarter 1997 earnings increased from the same period one
year ago due primarily to a combination of lower business development
expenses and higher equity income and tax credits from projects. NRG
experienced an increased level of business development costs in late 1995
and 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.
Earnings from NRG projects increased in the first quarter of 1997 mainly
due to new projects. NRG acquired its interest in NRG Generating (U.S.)
Inc. in early 1996. One unit of the Schkopau power generation facility
in Germany began operation in January 1996, and the second unit began
operation in late July of 1996. NRG's landfill gas subsidiary, NEO, has
been entering into projects since the first quarter of 1996 which are
generating higher levels of energy tax credits.
Cenerprise - Cenerprise's first quarter losses were lower in 1997 compared
to the first quarter of 1996 due to losses incurred from gas trading
activities in the first quarter of 1996. Cenerprise curtailed its gas
trading activity in the second quarter of 1996.
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)
Actual Actual Actual
1997 vs Normal 1996 vs Normal 1997 vs 1996
Earnings per Share
for Quarter Ended
March 31 $0.03 $0.09 ($0.06)
Grand Forks Area Flooding - The Company serves approximately 21,000
electric customers, or 1.5 percent of NSP's electric customers and
approximately 13,000 gas customers, or 3.1 percent of NSP's gas customers in
the flood-devastated Grand Forks area (North Dakota and Minnesota). Flood
damage and precautions cut off service to many of these customers on or about
April 21, 1997, and the Company is actively participating in the effort to
restore service as quickly as possible. The Company is also in the process
of reviewing flood damage to its delivery system, estimating costs to rebuild
the system and restore service (including costs that may be capitalized in
plant), and working with regulators and other agencies to determine how the
rebuilding will be funded. In addition to the costs to restore service, the
Company expects lower revenues from the affected area in the second quarter
of 1997.
First Quarter 1997 Compared with First Quarter 1996
Utility Operating Results
Electric revenues for the first quarter of 1997 compared with the first
quarter of 1996 increased $6.2 million or 1.2%. Retail revenue decreased
approximately $2.3 million largely due to a 0.5% decrease in retail electric
sales. The decrease in retail electric sales reflects less favorable weather,
partially offset by sales growth. Wholesale revenue was impacted by the
expected contract terminations of two municipal customers in July 1996,
resulting in a $1.5 million decrease. Revenue from sales to other utilities
increased by $6.0 million mainly due to an increase in sales volume. Other
electric revenues increased by $3.9 million largely due to increases in the
transmission of electricity for others.
Gas revenues for the first quarter of 1997 increased $17.6 million or
8.6% compared with the first quarter of 1996. Gas revenues increased, despite
a 3.0% decrease in gas sales volume, due to a 15.5% average price increase.
The sales volume decrease is due primarily to less favorable weather in 1997
in comparison to 1996. The price increase is mainly due to rate adjustments
for increased purchased gas costs resulting from market changes in wholesale
natural gas prices.
Fuel for electric generation and Purchased and interchange power expense
combined increased $0.6 million or 0.4% for the first quarter of 1997 compared
with the first quarter of 1996. Fuel expense increased $5.2 million primarily
due to greater output from NSP's generating plants and higher average fossil
fuel prices. The increased fuel costs were partially offset by lower
purchased and interchange power costs of $4.6 million primarily due to fewer
outages at NSP's generating plants and lower market purchased power prices.
Cost of gas purchased and transported for the first quarter of 1997
compared with the first quarter of 1996 increased $18.5 million or 13.9% due
to a higher cost of gas partly offset by lower gas sendout. The higher cost
of purchased gas reflects changes in market conditions and purchased gas cost
adjustments to match expense with rate recovery. The lower sendout primarily
is a result of decreased gas sales.
Other operation, Maintenance and Administrative and general expenses
together increased $1.7 million or 1.0% compared with the first quarter of
1996. The cost associated with offering network transmission service (NTS)
to qualifying transmission customers, as a result of FERC Order No. 888, added
$5.7 million to operation and maintenance costs. Under NTS, NSP and
participating customers share the total annual transmission cost for their
combined joint-use systems, net of related transmission revenues, based on
each company's share of the total network load. Partially offsetting this
increase were lower costs for employee benefits, insurance premiums, and storm
damage and other line maintenance.
Conservation and energy management increased in the three-month period
ended March 31, 1997 compared to the same period in the prior year due 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 retail electric and gas rate recovery
levels in the Company's Minnesota jurisdiction which increased in August 1996
for electric and September 1996 for gas.
Depreciation and amortization expense increased $5.2 million or 7.0%
compared with the first quarter of 1996. The increase is mainly due to
increased plant in service between the two periods.
Property and general taxes for the first quarter of 1997 compared with
the first quarter of 1996 increased $1.2 million or 2.0% due primarily to
higher payroll and gross earnings taxes, offset by a small decrease in
property taxes.
Utility income taxes for first quarter 1997 compared with first quarter
1996 were $3.7 million less primarily due to lower operating income in the
first quarter of 1997.
Other income (deductions) - net (related to utility operations) decreased
$4.1 million in the first quarter of 1997 compared with the first quarter of
1996. The decrease was primarily due to lower interest income from financing
programs, higher donations and non-recurring 1996 refund adjustments.
Interest and amortization on utility debt increased $0.4 million or 1.3%
primarily due to higher interest rates on NSP's variable rate long-term debt.
Distributions on redeemable preferred securities of subsidiary trust
increased $2.6 million due to the issuance of new securities in 1997 as
discussed in Note 3 to the Financial Statements.
Preferred stock dividends and redemption premiums increased $0.9 million
primarily due to a $1.1 million premium recorded in February 1997 in
connection with the redemption of two issues of preferred stock.
Nonregulated Business Results
NSP's nonregulated operations include many diversified businesses, such
as independent power production, gas marketing, 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 nonregulated
businesses are reported in Other Income (Deductions)-Net on the Consolidated
Statements of Income. Nonregulated operating revenues decreased $57.4 million
in the first quarter of 1997 compared to the first quarter of 1996, to $64.0
million, largely due to Cenerprise's exit from the gas trading business.
Nonregulated operating expenses decreased $60.7 million in the first quarter
of 1997, to $66.9 million, due primarily to lower gas costs corresponding with
Cenerprise's exit from gas trading.
Equity income - NSP has a less-than-majority equity interest in many
nonregulated projects. Consequently, a large portion of NSP's nonregulated
earnings is reported as Equity in Earnings of Unconsolidated Affiliate
Operations on the Consolidated Statements of Income. Equity income increased
in the first quarter of 1997 compared to the first quarter of 1996 by $1.2
million primarily due to new NRG projects, as discussed previously, partially
offset by lower equity income from Eloigne and Cenerprise projects.
Nonregulated interest and amortization increased $0.9 million to $5.0
million due to a full quarter of 1997 interest on the $125 million of long
term debt issued by NRG on Jan. 31, 1996.
Income Taxes - Other Income (Expense) reported on the Consolidated
Statements of Income includes income tax benefits related to nonregulated
businesses and nonoperating items. The amount of such tax benefits increased
in 1997 mainly due to higher levels of tax credits from new NRG projects, as
discussed previously, and from new Eloigne projects.
Liquidity and Capital Resources
The Company had approximately $149 million in commercial paper debt
outstanding as of March 31, 1997. 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, letters of credit
and support for commercial paper sales. The Company has regulatory approval
for up to $474 million in short-term borrowing levels.
Commercial banks currently provide credit lines of approximately $89.9
million to wholly owned subsidiaries of the Company. At March 31, 1997,
approximately $4.9 million in loans against these credit lines were
outstanding. In addition, approximately $31.1 million in letters of credit
were outstanding, which reduced the available credit lines at March 31, 1997
and therefore approximately $53.9 million of those credit lines remained
available at March 31, 1997.
In January 1997, stock options for the purchase of 286,700 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 March 31, 1997, a total of 1,350,697 stock
options were outstanding, which were considered as potential common stock
equivalents for earnings per share purposes. During the first three months
of 1997, the Company did not issue any new shares of common stock.
As discussed in Note 3 to the Financial Statements, in January 1997 NSP
issued $200 million in 7.875 percent trust-originated preferred securities
that mature in 2037. Approximately $41 million of the proceeds were used in
February 1997 to redeem the Company's $6.80 and $7.00 series of preferred
stock. The balance of the proceeds were used to repay a portion of
outstanding short-term borrowings.
NRG, to support new projects, is planning to obtain approximately $200
million of permanent financing in the form of NRG preferred securities or
long-term debt at the nonregulated subsidiary level. Temporary bridge loans
to NRG from investment firms may be used to finance project investments in the
short-term until such permanent financing is secured.
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
In the normal course of business, various lawsuits and claims have arisen
against NSP. Management, after consultation with legal counsel, has recorded
an estimate of the probable cost of settlement or other disposition for such
matters.
In 1993, a natural gas explosion occurred on the Company's distribution
system in St. Paul, Minn. In 1995, the National Transportation Safety Board
found little, if any, fault with the Company's actions or conduct. Total
damages related to the explosion exceed $1 million. The Company has a self-
insured retention deductible of $1 million, with general liability coverage
of $150 million, which includes coverage for all injuries and damages.
Eighteen lawsuits were filed, including one suit with multiple plaintiffs.
As of May 1997, the Company settled all known claims and lawsuits. The cost
to the Company associated with these settlements is the $1 million insurance
deductible, which was accrued in a prior year.
On July 23, 1996, the U.S. Court of Appeals for the District of Columbia
Circuit (the Court), in a lawsuit filed by the Company along with other major
utilities, unanimously ruled that the Nuclear Waste Policy Act creates an
unconditional obligation for the United States Department of Energy (DOE) to
begin acceptance of spent nuclear fuel by Jan. 31, 1998. The DOE did not seek
U.S. Supreme Court review. On Jan. 31, 1997, the Company along with 30 other
electric utilities and 45 state agencies, filed another lawsuit with the Court
against the DOE requesting authority to withhold payments to the DOE for the
permanent disposal program. On April 30, 1997, the Court ordered the Company
and other parties to file a petition seeking an order to compel the DOE to
begin accepting spent nuclear fuel by Jan. 31, 1998. In its petition, filed
May 7, 1997, the Company and the other parties asked for an order compelling
the DOE to begin accepting spent nuclear fuel, as required by the Nuclear
Waste Policy Act and the DOE's contracts with the utilities; to develop an
enforceable plan for accepting spent nuclear fuel by a date certain; and,
allowing utilities to escrow payments into the Nuclear Waste Fund until the
DOE begins accepting spent nuclear fuel. The petition if granted, will be
significant to NSP and the industry because the DOE will be mandated to take
the above-stated actions concerning spent nuclear fuel.
For discussion of legal proceedings concerning temporary storage of spent
nuclear fuel at the Prairie Island Nuclear Generating Plant, see Note 4 to the
Financial Statements, incorporated herein by reference.
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 1996 Form 10-K, NSP; WEC;
Northern Power Wisconsin Corp., a wholly owned subsidiary of NSP (New NSP);
and WEC Sub Corp., a Wisconsin corporation and a wholly owned subsidiary of
WEC (WEC Sub) have entered into an Agreement and Plan of Merger (the "Merger
Agreement"), which provides for a business combination involving NSP and WEC
in a "merger-of-equals" transaction (the Merger Transaction). The Merger
Transaction, which was approved by the shareholders of the constituent
companies at meetings held on Sept. 13, 1995, would be permitted to close
under the Merger Agreement shortly after all of the conditions to the
consummation of the Merger Transaction, including obtaining applicable regu-
latory approvals, are met or waived. The initial goal of NSP and WEC was to
receive approvals from the regulatory authorities and complete the merger by
the end of 1996. However, as discussed in Note 2 to the Financial Statements,
all necessary regulatory approvals have not yet been obtained, and as a
result, the merger has not been completed. NSP and WEC continue to pursue
regulatory approvals, without unacceptable conditions, to permit completion
of the merger.
In the Merger Transaction, as the holding company of the combined
enterprise, Primergy will be registered under the Public Utility Holding
Company Act of 1935, as amended and will be the parent company of the
operations of both NSP (which, for regulatory reasons, will reincorporate in
Wisconsin) and of WEC's present principal utility subsidiary, Wisconsin
Electric Power Company (WEPCO) which will be renamed "Wisconsin Energy
Company." It is anticipated that, at the time of the Merger Transaction,
except for certain gas distribution properties transferred to the Company,
NSP's Wisconsin Company will be merged into Wisconsin Energy Company and that
NSP's other subsidiaries will become subsidiaries of Primergy.
As noted above, pursuant to the Merger Transaction, NSP will
reincorporate in Wisconsin for regulatory reasons. This reincorporation will
be accomplished by the merger of NSP into New NSP, with New NSP being the
surviving corporation and succeeding to the business of NSP as an operating
public utility. At the time of such merger, WEC Sub will be merged with and
into New NSP, with New NSP being the surviving corporation and becoming a
subsidiary of Primergy. Both New NSP and WEC Sub were created to effect the
Merger Transaction and will not have any significant operations, assets or
liabilities prior to such mergers. 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 New NSP.
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 financial
information. A pro forma adjustment has been made to conform the
presentations of noncurrent 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.
NSP WEC Pro Forma
PRIMERGY CORP: (As Reported) (As Reported) Combined
(in millions, except per share amounts)
As of March 31, 1997:
Utility Plant-Net $4,319 $3,063 $7,382
Current Assets 724 557 1,281
Other Assets * 1,556 1,204 2,604
Total Assets $6,599 $4,824 $11,267
Common Stockholders' Equity $2,148 $1,965 $4,113
Preferred Securities 400 30 430
Long-Term Debt 1,589 1,409 2,998
Total Capitalization 4,137 3,404 7,541
Current Liabilities 1,028 517 1,545
Other Liabilities * 1,434 903 2,181
Total Equity & Liabilities $6,599 $4,824 $11,267
For the Three Months Ended
March 31, 1997:
Utility Operating Revenues $742 $511 $1,253
Utility Operating Income $88 $66 $154
Net Income, after Preferred
Dividend Requirements $62 $45 $107
Earnings per Common Share:
As reported $.90 $.40 --
NSP Equivalent Shares -- -- $.78
Primergy Shares -- -- $.48
* Combined amount includes a $156 million pro forma adjustment to conform the
presentation of noncurrent deferred taxes as a net liability.
Merger
NSP Divestitures Pro Forma
NEW NSP: (As Reported) Net New NSP
(in millions)
As of March 31, 1997:
Utility Plant-Net $4,319 ($710) $3,609
Current Assets 724 (148) 576
Other Assets 1,556 (797) 759
Total Assets $6,599 ($1,655) $4,944
Common Stockholder's Equity $2,148 ($858) $1,290
Preferred Securities 400 -- 400
Long-Term Debt 1,589 (504) 1,085
Total Capitalization 4,137 (1,362) 2,775
Current Liabilities 1,028 (107) 921
Other Liabilities 1,434 (186) 1,248
Total Equity & Liabilities $6,599 ($1,655) $4,944
For the Three Months Ended
March 31, 1997:
Utility Operating Revenues $742 ($72) $670
Utility Operating Income $88 ($19) $69
Net Income, after Preferred
Dividend Requirements $62 ($20) $42
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 three months ended March 31,
1997.
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 March 31, 1997, or between March 31, 1997 and the date of this
report:
December 18, 1996 (Filed January 8, 1997) - Item 5. Other Events. NRG's
announcement of the expiration of its tender offer for all of the
outstanding shares of Compania Boliviana de Energia Electrica S.A. -
Boliviana Power Company Limited (COBEE). The percent of the shares
validly tendered was 95 percent.
December 31, 1996 (Filed January 24, 1997)- Item 5. Other Events.
Disclosure of the expiration of collective bargaining agreements between
NSP and represented NSP employees and agreement to extend the terms of the
agreement to Feb. 28, 1997. Disclosure of NSP's 1996 financial results.
Item 7. Exhibit containing portions of the Investor Relations Release
announcing 1996 financial results.
January 21, 1997 (Filed January 21, 1997) - Item 5. Other Events.
Disclosure of announcement of a non-binding letter of intent with
TransCanada Pipelines, Limited regarding a proposed expansion and
transaction involving Viking. Item 7. Exhibit containing the information
release by NSP concerning the proposed pipeline expansion.
January 28, 1997 (Filed January 31, 1997) - Item 5. Other Events. Filing
of exhibits in connection with the offering by NSP Financing I of
8,000,000 7 7/8% Trust Originated Preferred Securities (TOPrS). Item 7.
Exhibits associated with the TOPrS offering.
April 22, 1997 (Filed April 22, 1997) - Item 5. Other Events. Disclosure
of a consortium, including NRG, as the successful bidder in the purchase
of the Australian State of Victoria's Loy Yang A power plant for $3.67
billion. Item 7. Exhibit containing the news release from NRG concerning
the Loy Yang A power plant purchase.
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 and Controller
/s/
Edward J. McIntyre
Vice President and Chief Financial Officer
Date: May 15, 1997
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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1997
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 4,318,737
<OTHER-PROPERTY-AND-INVEST> 942,594
<TOTAL-CURRENT-ASSETS> 724,643
<TOTAL-DEFERRED-CHARGES> 342,504
<OTHER-ASSETS> 270,959
<TOTAL-ASSETS> 6,599,437
<COMMON> 172,528
<CAPITAL-SURPLUS-PAID-IN> 638,390
<RETAINED-EARNINGS> 1,354,894
<TOTAL-COMMON-STOCKHOLDERS-EQ> 2,147,834<F1>
200,000
200,340
<LONG-TERM-DEBT-NET> 1,588,870
<SHORT-TERM-NOTES> 5,280
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 148,500
<LONG-TERM-DEBT-CURRENT-PORT> 261,291
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 2,029,344<F1>
<TOT-CAPITALIZATION-AND-LIAB> 6,599,437
<GROSS-OPERATING-REVENUE> 742,496
<INCOME-TAX-EXPENSE> 30,625<F2>
<OTHER-OPERATING-EXPENSES> 617,024
<TOTAL-OPERATING-EXPENSES> 654,040
<OPERATING-INCOME-LOSS> 88,456
<OTHER-INCOME-NET> 3,200<F3>
<INCOME-BEFORE-INTEREST-EXPEN> 100,672
<TOTAL-INTEREST-EXPENSE> 32,274
<NET-INCOME> 65,773
3,957
<EARNINGS-AVAILABLE-FOR-COMM> 61,816
<COMMON-STOCK-DIVIDENDS> 47,721
<TOTAL-INTEREST-ON-BONDS> 30,259
<CASH-FLOW-OPERATIONS> 218,345
<EPS-PRIMARY> $.90
<EPS-DILUTED> 0
<FN>
<F1>$(17,978) 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>$(6,391) 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).
<F3>Includes Equity in Earnings of Unconsolidated Affiliate Operations,
Allowance for Funds Used During Construction-Equity, Other Income (Deductions)-
Net and Distributions on redeemable preferred securities of subsidiary trust.
</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", "possible", "potential"
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 nonutility 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 nonregulated 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 nonregulated 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 nonregulated 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.
