<PAGE>
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, 1998 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 APRIL 30, 1998
- -------------------- ----------------------------
COMMON STOCK, $2.50 PAR VALUE 75,368,508 SHARES
<PAGE>
PART 1. FINANCIAL INFORMATION
------------------------------
ITEM 1. FINANCIAL STATEMENTS
- ---------------------------------
NORTHERN STATES POWER COMPANY (MINNESOTA) AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
---------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended
March 31
-----------------------
1998 1997
------------- ----------
(Thousands of dollars)
UTILITY OPERATING REVENUES
<S> <C> <C>
Electric: Retail . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 479,826 $ 482,843
Sales for resale and other . . . . . . . . . . . . . . . . . . . . 41,745 36,291
Gas. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 179,831 223,362
Total .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 701,402 742,496
----------- ----------
UTILITY OPERATING EXPENSES
Fuel for electric generation . . . . . . . . . . . . . . . . . . . . . . . . 75,639 81,294
Purchased and interchange power. . . . . . . . . . . . . . . . . . . . . . . 72,523 58,288
Cost of gas purchased and transported. . . . . . . . . . . . . . . . . . . . 113,582 152,019
Other operation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95,466 88,800
Maintenance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39,860 43,501
Administrative and general.. . . . . . . . . . . . . . . . . . . . . . . . . 37,779 34,628
Conservation and energy management . . . . . . . . . . . . . . . . . . . . . 16,885 17,299
Depreciation and amortization. . . . . . . . . . . . . . . . . . . . . . . . 84,100 79,842
Taxes: Property and general.. . . . . . . . . . . . . . . . . . . . . . . . 55,960 61,353
Current income. . . . . . . . . . . . . . . . . . . . . . . . . . . 38,387 46,217
Deferred income . . . . . . . . . . . . . . . . . . . . . . . . . . (5,623) (7,023)
Investment tax credits recognized.. . . . . . . . . . . . . . . . . (2,206) (2,178)
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 622,352 654,040
----------- ----------
UTILITY OPERATING INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . 79,050 88,456
OTHER INCOME (EXPENSE)
Income from nonregulated businesses - before interest and taxes. . . . . . . 4,380 6,649
Allowance for funds used during construction - equity. . . . . . . . . . . . 1,745 2,314
Other utility income (deductions) - net. . . . . . . . . . . . . . . . . . . 705 (3,138)
Income tax benefits on nonregulated operations and nonoperating items. . . . 14,026 6,391
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,856 12,216
----------- ------------
INCOME BEFORE FINANCING COSTS. . . . . . . . . . . . . . . . . . . . . . . . . 99,906 100,672
FINANCING COSTS
Interest on utility long-term debt.. . . . . . . . . . . . . . . . . . . . . 25,266 25,550
Other utility interest and amortization. . . . . . . . . . . . . . . . . . . 3,419 4,865
Nonregulated interest and amortization . . . . . . . . . . . . . . . . . . . 12,278 4,961
Allowance for funds used during construction - debt. . . . . . . . . . . . . (2,112) (3,102)
----------- ------------
Total interest charges . . . . . . . . . . . . . . . . . . . . . . . . . 38,851 32,274
Distributions on redeemable preferred securities of subsidiary trust.. . . . . 3,938 2,625
----------- -----------
TOTAL FINANCING COSTS. . . . . . . . . . . . . . . . . . . . . . . . . . 42,789 34,899
----------- -----------
NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57,117 65,773
PREFERRED STOCK DIVIDENDS AND REDEMPTION PREMIUMS. . . . . . . . . . . . . . . 2,367 3,957
EARNINGS AVAILABLE FOR COMMON STOCK. . . . . . . . . . . . . . . . . . . . . . $ 54,750 $ 61,816
=========== =======================
AVERAGE NUMBER OF COMMON SHARES OUTSTANDING (000'S). . . . . . . . . . . . . . 74,607 68,724
AVERAGE NUMBER OF COMMON AND POTENTIALLY DILUTIVE SHARES OUTSTANDING (000'S).. 74,733 68,827
EARNINGS PER AVERAGE COMMON SHARE - BASIC. . . . . . . . . . . . . . . . . . . $ 0.73 $ 0.90
EARNINGS PER AVERAGE COMMON SHARE - ASSUMING DILUTION. . . . . . . . . . . . . $ 0.73 $ 0.90
COMMON DIVIDENDS DECLARED PER SHARE. . . . . . . . . . . . . . . . . . . . . . $ 0.705 $ 0.690
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS (UNAUDITED)
- ------------------------------------------------------------------------------
Balance at beginning of period.. . . . . . . . . . . . . . . . . . . . . . . . $1,364,875 $ 1,340,799
Net income for period . . . . . . . . . . . . . . . . . . . . . . . . . . 57,117 65,773
Dividends declared:
Cumulative preferred stock . . . . . . . . . . . . . . . . . . . . (2,367) (2,809)
Common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . (52,622) (47,721)
Premium on redeemed preferred stock. . . . . . . . . . . . . . . . . . . . - (1,148)
----------- -----------------------
Balance at end of period.. . . . . . . . . . . . . . . . . . . . . . . . . . . $1,367,003 $ 1,354,894
=========== =======================
</TABLE>
The Notes to Consolidated Financial Statements are an integral part of the
Statements of Income and Retained Earnings.
1
<PAGE>
NORTHERN STATES POWER COMPANY (MINNESOTA) AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
-------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1998 1997
(Thousands of dollars)
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net Income.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 57,117 $ 65,773
Adjustments to reconcile net income to cash from operating activities:
Depreciation and amortization. . . . . . . . . . . . . . . . . . . . 93,874 87,142
Nuclear fuel amortization. . . . . . . . . . . . . . . . . . . . . . 9,878 9,706
Deferred income taxes. . . . . . . . . . . . . . . . . . . . . . . . (6,181) (6,709)
Deferred investment tax credits recognized . . . . . . . . . . . . . (2,284) (2,256)
Allowance for funds used during construction - equity. . . . . . . . (1,745) (2,314)
Undistributed equity in earnings of unconsolidated affiliates. . . . (11,019) (6,060)
Cash provided by changes in certain working capital items. . . . . . 77,590 63,384
Cash provided by changes in other assets and liabilities.. . . . . . 3,455 9,679
Net cash provided by operating activities.. . . . . . . . . . . . . . . 220,685 218,345
---------- -----------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . (74,814) (80,052)
Decrease in construction payables. . . . . . . . . . . . . . . . . . . (500) (3,402)
Allowance for funds used during construction - equity. . . . . . . . . 1,745 2,314
Investment in external decommissioning fund. . . . . . . . . . . . . . (10,497) (10,505)
Equity investments, loans and deposits for nonregulated projects.. . . (77,230) (6,593)
Collection of loans made to nonregulated projects. . . . . . . . . . . 55,079 -
Other investments - net. . . . . . . . . . . . . . . . . . . . . . . . (7,469) (8,533)
Net cash used for investing activities. . . . . . . . . . . . . . . . . (113,686) (106,771)
---------- -----------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Change in short-term debt - net issuances (repayments).. . . . . . . . (134,971) (214,587)
Proceeds from issuance of long-term debt - net.. . . . . . . . . . . . 252,781 -
Repayment of long-term debt. . . . . . . . . . . . . . . . . . . . . . (9,818) (1,953)
Proceeds from issuance of common stock - net.. . . . . . . . . . . . . 16,045 -
Proceeds from issuance of preferred securities - net.. . . . . . . . . - 193,513
Redemption of preferred stock, including reacquisition premiums. . . . (95,000) (41,278)
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . (55,994) (50,901)
Net cash used for financing activities. . . . . . . . . . . . . . . . . (26,957) (115,206)
---------- -----------------------
Net increase (decrease) in cash and cash equivalents. . . . . . . . . . . 80,042 (3,632)
Cash and cash equivalents at beginning of period. . . . . . . . . . . . . 54,765 51,118
---------- -----------------------
Cash and cash equivalents at end of period. . . . . . . . . . . . . . . . $ 134,807 $ 47,486
========== =======================
</TABLE>
The Notes to Consolidated Financial Statements are an integral part of the
Statements of Cash Flows.
2
<PAGE>
NORTHERN STATES POWER COMPANY (MINNESOTA) AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
---------------------------------------
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
(Thousands of dollars)
<S> <C> <C>
ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
UTILITY PLANT
Electric . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,011,139 $ 6,964,888
Gas. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 823,688 821,119
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 347,063 343,950
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,181,890 8,129,957
Accumulated provision for depreciation . . . . . . . . . . . . . . . . . . . . . . . . (3,942,541) (3,868,810)
Nuclear fuel.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 945,606 932,335
Accumulated provision for amortization.. . . . . . . . . . . . . . . . . . . . . . . . (842,039) (832,162)
Net utility plant. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,342,916 4,361,320
CURRENT ASSETS
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134,807 54,765
Customer accounts receivable - net.. . . . . . . . . . . . . . . . . . . . . . . . . . . 253,569 269,455
Unbilled utility revenues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99,533 121,619
Notes receivable from nonregulated projects. . . . . . . . . . . . . . . . . . . . . . . 26,088 55,787
Other receivables. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61,522 80,803
Fossil fuel inventories - at average cost. . . . . . . . . . . . . . . . . . . . . . . . 43,102 56,434
Materials and supplies inventories - at average cost . . . . . . . . . . . . . . . . . . 111,613 107,254
Prepayments and other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47,112 55,674
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 777,346 801,791
OTHER ASSETS
Equity investments in nonregulated projects. . . . . . . . . . . . . . . . . . . . . . . 808,260 740,734
External decommissioning fund and other investments. . . . . . . . . . . . . . . . . . . 434,943 400,290
Regulatory assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 324,396 340,122
Nonregulated property - net of accumulated depreciation. . . . . . . . . . . . . . . . . 251,690 256,726
Notes receivable from nonregulated projects. . . . . . . . . . . . . . . . . . . . . . . 83,353 77,639
Other long-term receivables. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42,711 42,600
Intangible assets - net of amortization. . . . . . . . . . . . . . . . . . . . . . . . . 90,322 92,829
Long-term prepayments and deferred charges . . . . . . . . . . . . . . . . . . . . . . . 35,064 30,015
Total other assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,070,739 1,980,955
TOTAL ASSETS.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,191,001 $ 7,144,066
======================= ============
LIABILITIES AND EQUITY
CAPITALIZATION
Common stock equity:
Common stock and premium - authorized 160,000,000
shares of $2.50 par value, issued shares:
1998 74,918,021 and 1997 74,618,382. . . . . . . . . . . . . . . . . . . . . . . . . $ 1,096,713 $ 1,080,273
Retained earnings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,367,003 1,364,875
Leveraged common stock held by ESOP. . . . . . . . . . . . . . . . . . . . . . . . . . (8,764) (10,533)
Accumulated other comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . (66,048) (62,887)
Total common stock equity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,388,904 2,371,728
Cumulative preferred stock and premium - authorized
7,000,000 shares of $100 par value; outstanding
shares: 1998, 1,050,000 and 1997, 2,000,000
without mandatory redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105,340 200,340
Mandatorily redeemable preferred securities of subsidiary trust - guaranteed
by NSP*. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 200,000 200,000
Long-term debt.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,122,676 1,878,875
Total capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,816,920 4,650,943
CURRENT LIABILITIES
Long-term debt due within one year.. . . . . . . . . . . . . . . . . . . . . . . . . . . 22,045 22,820
Other long-term debt potentially due within one year.. . . . . . . . . . . . . . . . . . 141,600 141,600
Short-term debt .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125,381 260,352
Accounts payable.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 187,173 249,813
Taxes accrued. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 246,220 186,369
Interest accrued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40,480 28,724
Dividends payable on common and preferred stocks . . . . . . . . . . . . . . . . . . . . 53,773 54,778
Accrued payroll, vacation and other. . . . . . . . . . . . . . . . . . . . . . . . . . . 89,694 89,562
Total current liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 906,366 1,034,018
OTHER LIABILITIES
Deferred income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 782,336 792,569
Deferred investment tax credits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 136,036 138,509
Regulatory liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 342,232 305,765
Postretirement and other benefit obligations . . . . . . . . . . . . . . . . . . . . . . 126,660 135,612
Other long-term obligations and deferred income. . . . . . . . . . . . . . . . . . . . . 80,451 86,650
Total other liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,467,715 1,459,105
COMMITMENTS AND CONTINGENT LIABILITIES (SEE NOTE 3)
TOTAL LIABILITIES AND EQUITY . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,191,001 $ 7,144,066
======================= ============
</TABLE>
The Notes to Consolidated Financial Statements are an integral part of the
Balance Sheets
* 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.
3
<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, 1998 and Dec. 31, 1997, the
results of its operations for the three months ended March 31, 1998 and 1997,
and its cash flows for the three months ended March 31, 1998 and 1997. Due to
the seasonality of NSP's electric and gas sales and variability of nonregulated
operations, 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 the
financial statements in NSP's Annual Report on Form 10-K for the year ended Dec.
31, 1997 (1997 Form 10-K). The following notes should be read in conjunction
with such policies and other disclosures in the 1997 Form 10-K.
Certain reclassifications have been made to 1997 financial information to
conform with the 1998 presentation. These reclassifications had no effect on
net income or earnings per share as previously reported.
1. BUSINESS DEVELOPMENTS
- -- ----------------------
NRG ENERGY, INC. (NRG) - On March 31, 1998, NRG and its 50 percent partner,
NGC Corporation (NGC), concluded the acquisition of the Long Beach Generating
Station, one of two Southern California Edison plants awarded to the NRG and NGC
consortium. The Long Beach Station is a gas-fired plant comprised of seven 60
megawatt gas turbine generators and two steam turbines totaling 140 megawatts.
During April 1998, NRG and NGC, concluded the acquisition of the second plant,
El Segundo Generating Station for approximately $88 million. The El Segundo
Generating Station is a gas-fired plant with a capacity rating of 1,020
megawatts.
During April 1998, NRG exercised its option to acquire 16.8 million
convertible, non-voting preference shares of Energy Developments Limited (EDL)
for $24.8 million, bringing NRG's total investment in EDL to $48.8 million for
an ownership interest of approximately 35 percent. NRG had previously invested
in EDL in 1997. EDL is a listed Australian company that owns 189 megawatts and
operates 238 megawatts of generation throughout Australia and the United
Kingdom.
ENERGY MASTERS INTERNATIONAL, INC. (EMI) - In April 1998, EMI signed an
agreement to sell its interest in the joint venture, Enerval, to its joint
venture partner. Closing of the sale is contingent on approval by the Federal
Trade Commission and is expected to occur during the second quarter of 1998.
EMI's investment in and advances to Enerval were written down to an estimate of
their net realizable value in 1997 and therefore the transaction is expected to
have an immaterial impact on 1998 earnings.
VIKING GAS TRANSMISSION COMPANY (VIKING) - On April 21, 1998, NSP's
subsidiary, Viking, withdrew from participation in the proposed Voyageur
pipeline project, which would have carried natural gas from Emerson, Manitoba,
to Joliet, Ill., allowing communities along the way in Minnesota and Wisconsin
to tap into it. The pipeline had been scheduled to begin service on November 1,
1999.
Projections show that natural gas demand in the upper Midwest will rise
sharply in the years ahead, and the project has received strong support from
businesses, economic development groups, gas distribution companies and state
energy agencies. Although Viking believes a pipeline project will go forward in
the future to meet this demand, the Voyageur proposal did not receive the
necessary producer support to make the project viable at this time under the
proposed schedule.
As of March 31, 1998, Viking had deferred $6.1 million in project-related
costs, including $1.6 million of amounts paid by Viking and $4.5 million of
estimated amounts payable to Voyageur based upon the assumed 40 percent
participation in the partnership. As a result of withdrawing from the project,
the amount payable to Voyageur and the portion of Viking's investment in
Voyageur that would be subject to write-off may be less than the amounts
deferred.
UNION NEGOTIATIONS - Five local unions of the International Brotherhood of
Electrical Workers have accepted NSP's proposal to begin midterm contract
negotiations to modify or create new work rules, practices and operations to
improve workforce productivity. If these midterm negotiations are successfully
completed by Dec. 31, 1998, the Company will then propose a three-year contract
extension including negotiated changes to wages and benefits. If the contract
extension is ratified, new terms and conditions will become effective Jan. 1,
2000. The existing agreements will stay in effect through Dec. 31, 1999 unless
the contract is extended as discussed above.
INDUSTRY RESTRUCTURING - On April 28, 1998, 1997 Wisconsin Act 204 became
law (Act 204). Act 204 includes provisions which require the Public Service
Commission of Wisconsin (PSCW) to order a public utility that owns transmission
facilities to transfer control of its transmission facilities to an independent
system operator (ISO) or divest the public utility's interest in its
transmission facilities to an independent transmission owner (ITO) if the public
utility has not already transferred control to an ISO or divested to an ITO by
June 30, 2000. Under certain circumstances the PSCW has authority to waive
imposition of such an order on June 30, 2000. At Dec. 31, 1997, Northern
States Power Company, a Wisconsin Corporation (the Wisconsin Company) owned
approximately 2,390 miles of transmission lines with a book value of $87.9
million. The Wisconsin Company may attempt to obtain legislative amendment in
1999 of the mandatory transfer or divestiture requirements and is also
considering whether to judicially challenge the transmission transfer or
divestiture requirements of the new law.
2. REGULATION AND RATE MATTERS
- -- ------------------------------
MINNESOTA PUBLIC UTILITIES COMMISSION (MPUC) - During December 1997, NSP
filed for a general increase in Minnesota retail gas rates of $18.5 million or
5.5 percent on an annualized basis. NSP requested an interim rate increase of
$15.6 million or 4.6 percent on an annualized basis, and received approval of an
interim rate increase totaling $13.9 million on an annualized basis, subject to
refund, effective February 1, 1998. In May 1998, the Department of Public
Service filed testimony recommending an annual rate increase of $12.3 million.
Hearings will begin in May 1998 and a final decision by the MPUC is expected
late in the third quarter of 1998.
PUBLIC SERVICE COMMISSION OF WISCONSIN (PSCW) - During November 1997, the
Wisconsin Company filed retail electric and gas rate cases with the PSCW
requesting an annual increase of approximately $12.7 million, or 4.3 percent in
retail electric rates and an annual decrease of $1.7 million, or 1.9 percent in
retail gas rates. In April 1998, the PSCW staff filed testimony recommending an
annual rate increase of $3.8 million in retail electric rates and an annual rate
decrease of $2.5 million in retail gas rates based on a much lower recommended
return on common equity of 11.25 percent. In a recent rate case decision by the
PSCW for a large Wisconsin utility, a 12.2 percent return on common equity was
found reasonable. Although the Wisconsin Company requested that the rates become
effective in the second quarter of 1998, a final decision by the PSCW is not
expected until the third quarter of 1998, which may delay implementation of new
rates.
FEDERAL ENERGY REGULATORY COMMISSION (FERC) - During February and March
1998, NSP filed electric point-to-point and network integration transmission
service (NTS) rate cases with FERC. NSP proposed that both rate changes become
effective May 1, 1998. The proposed point-to-point rates would, if approved,
provide an annual increase in third party transmission service revenue of
approximately $3 million, plus a $1 million annual increase in ancillary service
revenues. The NTS tariff change would, if approved, reduce NTS costs from 1997
accrued levels.
During April 1998, FERC voted to accept the rates, consolidate the cases,
and defer the effective date of the rate changes to Oct. 1, 1998. The proposed
increases in point-to-point and ancillary service rates would be placed into
effect subject to refund. An administrative law judge and a settlement judge
were appointed to hear arguments and facilitate possible settlements in the
case.
3. 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 1997 Annual
Report on Form 10-K.
During April 1998, a final agreement was signed with Lake Benton Power
Partners II LLC for 103.50 megawatts of wind energy. This brings NSP's total
contracted wind energy to approximately 269 megawatts.
POTENTIAL REFUND - During September 1997, the FERC ruled that Kansas
natural gas producers must refund Kansas ad valorem tax improperly collected
from 1983 to 1988 plus interest. During this period, Northern Natural Gas
Company had bought gas from Kansas producers and resold it to NSP. However, the
Kansas producers are appealing the FERC order and are also pursuing federal
legislation to overturn the FERC order. To date, NSP has received approximately
$4.7 million in these refunds but has deferred their recognition by recording a
regulatory liability. NSP requested rule waivers from state regulatory agencies
to defer passing these refunds through to NSP customers pending resolution of
the litigation and legislation.
During April 1998, the MPUC voted to grant a rule waiver to all six
Minnesota investor owned gas utilities and approved a deferral of the refund
obligation for the Kansas ad valorem taxes, with the interest to be accrued on
the unrefunded balance limited to the interest actually earned on an external
account. During April 1998, the North Dakota Public Service Commission
(NDPSC) approved a similar waiver except the interest to be acccrued is to
be at the rate set by NDPSC rule.
4. REPORTING CHANGES
- ----------------------
In June 1997, the Financial Accounting Standards Board issued Statement No.
130, "Reporting Comprehensive Income". The Statement requires that an
enterprise (a) classify items of other comprehensive income by their nature in a
financial statement and (b) display the accumulated balance of other
comprehensive income separately from retained earnings and additional paid-in
capital in the equity section of a statement of financial position. The
Statement is effective for NSP in 1998.
NSP's other comprehensive income consists of currency translation
adjustments related to NRG's investments in international projects. The
currency translation adjustments for the three month periods ended March 31,
1998 and 1997, reduced common stock equity and other comprehensive income by
$3.2 million and $3.5 million, respectively.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- --------------------------------------------------------------------------------
OF OPERATION
------------
Except for the historical statements contained herein, the matters
discussed in the following discussion and analysis 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; regulation; the higher
degree of risk associated with the Company's nonregulated businesses as compared
to the Company's regulated business; 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 Securities and Exchange Commission
(SEC), including Exhibit 99.01 to this report on Form 10-Q for the quarter ended
March 31, 1998.
RESULTS OF OPERATIONS
Northern States Power Company's earnings per share for the first quarter
ended March 31, 1998 were 73 cents, down 17 cents from the 90 cents earned for
the same period a year ago.
FACTORS AFFECTING RESULTS OF OPERATIONS
- -------------------------------------------
In addition to items noted in the 1997 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 - The following summarizes the earnings
contributions of NSP's nonregulated businesses:
<TABLE>
<CAPTION>
3 Months Ended
-------------------
<S> <C> <C>
3/31/98 3/31/97
--------- ---------
NRG Energy, Inc. . . . . . . . . . $ 0.08 $ 0.10
Eloigne Company. . . . . . . . . . 0.02 0.01
Energy Masters International, Inc. (0.03) (0.02)
Other. . . . . . . . . . . . . . . 0.02 0.02
--------- ---------
Total. . . . . . . . . . . . . . $ 0.09 $ 0.11
--------- ---------
</TABLE>
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 later, NSP's nonregulated earnings
in the three-month period ended March 31, 1998 are experiencing such
variability.
ESTIMATED IMPACT OF WEATHER ON REGULATED EARNINGS - NSP estimates utility
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):
<TABLE>
<CAPTION>
Increase (Decrease)
Actual Actual Actual
1998 vs 1997 vs 1998 vs
Normal Normal 1997
--------- ------- --------
<S> <C> <C> <C>
Earnings per Share for:
Quarter Ended March 31 ($0.16) $ 0.03 ($0.19)
</TABLE>
FIRST QUARTER 1998 COMPARED WITH FIRST QUARTER 1997
- ----------------------------------------------------------
Utility Operating Results
- ---------------------------
ELECTRIC REVENUES for the first quarter of 1998 compared with the first
quarter of 1997 increased $2.4 million or 0.5 percent. Retail revenues
decreased approximately $3.0 million largely due to a 0.5 percent decrease in
retail electric sales volume. The decrease in retail electric sales reflects
less favorable weather, partially offset by sales growth. The first quarter of
1998 was one of the warmest first quarters on record. Sales for resale and
other electric revenues increased $5.4 million primarily due to higher sales
volumes in the resale market as a result of more aggressive marketing efforts,
increased transmission of electricity for others, and conservation program
revenues.
GAS REVENUES for the first quarter of 1998 decreased $43.5 million or 19.5
percent compared with the first quarter of 1997. Gas revenues decreased
primarily due to a 12.2 percent decrease in gas sales volume and a 11.2 percent
average price decrease. The sales volume decrease is due primarily to less
favorable weather in 1998 in comparison to 1997, partially offset by sales
growth. The price decrease is mainly due to rate adjustments for decreased
purchased gas costs resulting from market changes in wholesale natural gas
prices partially offset by interim rate increases as discussed in Note 2 to the
Financial Statements. Partially offsetting these decreases were a $2.5 million
increase in other gas revenues, primarily due to higher sales to off-system
users, and a $1.3 million increase in transportation revenues from Viking.
FUEL FOR ELECTRIC GENERATION and PURCHASED AND INTERCHANGE POWER expense
combined increased $8.6 million or 6.1 percent for the first quarter of 1998
compared with the first quarter of 1997. Purchased and interchange power costs
increased $14.2 million primarily due to more purchases to support higher sales
for resale and because of more scheduled outages at NSP's generating plants. In
addition, purchased power costs increased due to higher demand expenses related
to a contract which began in October 1997. Partially offsetting these increases
was lower fuel expense, which decreased $5.7 million primarily due to lower
average fuel prices and less output from NSP's generating plants. The lower
fuel prices are a result of lower rail transportation rates, and the lower
output is a result of scheduled plant maintenance outages.
COST OF GAS PURCHASED AND TRANSPORTED for the first quarter of 1998
compared with the first quarter of 1997 decreased $38.4 million or 25.3 percent
due to the lower cost of gas and lower gas sendout. The lower 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 $6.2 million or 3.7 percent compared with the first quarter
of 1997. The increases are primarily due to higher insurance costs, mainly a
result of an insurance refund in 1997, and higher costs for information
technology improvements and employee benefits.
DEPRECIATION AND AMORTIZATION expense increased $4.3 million or 5.3 percent
compared with the first quarter of 1997. The increase is mainly due to
increased plant in service between the two periods.
PROPERTY AND GENERAL TAXES for the first quarter of 1998 compared with the
first quarter of 1997 decreased $5.4 million or 8.8 percent due primarily to
lower property taxes reflecting recent legislation and lower payroll and
franchise taxes.
UTILITY INCOME TAXES for first quarter 1998 compared with first quarter
1997 were $6.5 million less primarily due to lower operating income in the first
quarter of 1998.
OTHER UTILITY INCOME (DEDUCTIONS) - NET after applicable income taxes
increased $3.0 million mainly due to timing of donations and higher interest
income compared to 1997.
ALLOWANCE FOR FUNDS USED DURING CONSTRUCTION (AFC) decreased $1.6 million
in 1998 largely due to lower returns as a result of less capital used to finance
conservation and energy management programs and fewer construction projects
eligible for AFC.
UTILITY INTEREST AND AMORTIZATION decreased $1.7 million or 5.7 percent
primarily due to lower levels of commercial paper, retirement of bonds in
October 1997 and lower interest rates on variable-rate long term debt, partially
offset by new bonds issued in March 1998.
DISTRIBUTIONS ON REDEEMABLE PREFERRED SECURITIES OF SUBSIDIARY TRUST
increased $1.3 million due to the issuance of new securities in late January
1997.
PREFERRED STOCK DIVIDENDS AND REDEMPTION PREMIUMS decreased $1.6 million in
the first quarter of 1998 compared with 1997 primarily due to reductions in
dividends resulting from the redemption of two issues of preferred stock in
February 1997.
AVERAGE COMMON SHARES OUTSTANDING increased due to stock issuances, mainly
a public offering in September 1997. Share dilution has decreased regulated
1998 earnings by approximately five cents per share in comparison to 1997.
Nonregulated Business Results
- -------------------------------
NSP's nonregulated operations include diversified businesses, such as NRG's
businesses, which are primarily independent power production, commercial and
industrial heating and cooling, and energy-related refuse-derived fuel
production. In addition, EMI's primary business is energy sales and service.
NSP also has investments in affordable housing projects through Eloigne Company
and several income-producing properties through other subsidiaries. The
following summarizes NSP's diversified business results in the aggregate,
including consolidated subsidiaries and unconsolidated affiliates.
<TABLE>
<CAPTION>
3 Mos. Ended
------------------
<S> <C> <C>
(Thousands of dollars, except EPS). . 3/31/98 3/31/97
--------- ---------
Operating revenues. . . . . . . . . . $ 42,009 $ 63,967
Equity in earnings of unconsolidated
affiliates . . . . . . . . . . . . 15,606 7,095
Operating and development expenses. . (52,786) (66,939)
Other income (expense). . . . . . . . (449) 2,526
--------- ---------
Income from nonregulated businesses
before interest and taxes . . . . 4,380 6,649
Interest expense. . . . . . . . . . . (12,278) (4,961)
Income tax benefit. . . . . . . . . . 14,271 5,831
--------- ---------
Net income. . . . . . . . . . . . . . $ 6,373 $ 7,519
- ------------------------------------- --------- ---------
Contribution of nonregulated
businesses to NSP earnings per
share. . . . . . . . . . . . . . . $ 0.09 $ 0.11
- ------------------------------------- --------- ---------
</TABLE>
In the aggregate, one cent per share of the decrease in nonregulated
earnings contribution is due to share dilution resulting primarily from NSP's
stock offering in September 1997.
NRG - NRG's first quarter earnings decreased by 2 cents per share in 1998
from the same period one year ago primarily due to increases in interest costs,
business development expenses, and costs of expanded operations. Higher
interest costs reflect the issuance of $250 million senior notes in mid-1997 and
higher line of credit borrowings. Earnings, including tax credits, from
interests in Pacific Generation Company, Loy Yang, Energy Developments Limited
and other new projects, all purchased after the first quarter of 1997, along
with increased earnings from existing projects partially offset the decrease.
EMI - EMI's first quarter losses increased by 1 cent per share in 1998
compared with 1997, primarily due to lower energy services margins and increased
expenses associated with new businesses acquired in July 1997.
LIQUIDITY AND CAPITAL RESOURCES
Commercial banks currently provide credit lines of $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 approximately $575 million in
short-term borrowing levels.
In addition to Company lines, commercial banks currently provide credit
lines of approximately $317 million to wholly owned subsidiaries of the Company.
At March 31, 1998, approximately $125 million in borrowings were outstanding
under these credit lines. In addition, approximately $41 million in letters of
credit were outstanding, which reduced the credit lines available to
subsidiaries at March 31, 1998, and therefore left approximately $151 million of
unused lines available at that date.
In January 1998, stock options for the purchase of 285,878 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, 1998, a total of 1,298,760 stock options were
outstanding, which were considered potentially dilutive common shares for
calculating earnings per share - assuming dilution. During the first three
months of 1998, the Company has issued 107,059 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 135,699 shares of common stock during the first three months of 1998.
During 1998 the Company has issued an additional 56,881 shares of common stock
to the Employee Stock Ownership Plan (ESOP).
On April 2, 1998, the Company issued 255,863 shares of common stock to the
leveraged ESOP which was financed by a $15 million bank loan.
On March 11, 1998, the Company issued $100 million of 5.875 percent First
Mortgage Bonds due March 1, 2003 and $150 million of 6.5 percent First Mortgage
Bonds due March 1, 2028. A portion of the proceeds was used to redeem preferred
stock and certain First Mortgage Bonds, as discussed below, and to reduce
short-term debt balances.
On March 31, 1998, the Company redeemed 300,000 shares of its cumulative
preferred stock adjustable rate series A and 650,000 shares of its cumulative
preferred stock adjustable rate series B both at $100 per share plus dividends.
On April 22, 1998, NSP shareholders approved an amendment to the Company's
Restated Articles of Incorporation to increase the number of authorized common
shares from 160 million to 350 million.
On April 22, 1998, the Company's Board of Directors authorized a
two-for-one stock split effective June 1, 1998 for shareholders of record on May
18, 1998. The total number of additional shares to be distributed to complete
the stock split is expected to be approximately 75.4 million.
On April 27, 1998, the Company redeemed $50 million of 7.375 percent and
$50 million of 7.5 percent First Mortgage Bonds.
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 1994, 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 suit was filed in the U.S. Court of Appeals for the District of
Columbia Circuit (Court). Since then, the Company and other utilities have
filed additional lawsuits with the Court related to this issue. The Court has
confirmed the unconditional obligation of the DOE to begin acceptance of spent
nuclear fuel by the 1998 deadline and that the obligation exists under statute
and contract. (See detailed discussion in the Company's 1997 Form 10-K, Item 3
- - Legal Proceedings).
On Feb. 19, 1998, the Company and other utilities brought motions asking
the Court to order the DOE to develop a disposal program to dispose of nuclear
fuel beginning immediately; relief from an obligation to pay fees to the Nuclear
Waste Fund (Fund) and allowing escrow of the funds until the DOE is in
compliance; prohibition of any suspension or termination of the DOE's disposal
contract; and prevention of the DOE from paying damages related to the breach of
obligation from the Fund. On May 5, 1998, the Court dismissed the motion
brought by the Company and other utilities. The Court reiterated its earlier
finding that the proper remedy for the utilities is under the Standard Contract
between utilities and the DOE.
The Company is analyzing and preparing continuing legal actions against the
DOE to enforce its statutory and contractual obligations. In addition, NSP and
other utilities are analyzing claims against the DOE for the costs incurred as a
result of the DOE's failure to meet its statutory and contractual obligations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
------------------------------------------------------------
The Annual Meeting of Shareholders of the Company was held on April 22, 1998,
for the purpose of voting on the matters listed below. Proxies for the meeting
were solicited pursuant to Section 14(a) of the Securities Exchange Act of 1934,
as amended, and there was no solicitation in opposition to management's
solicitations. All of management's nominees for directors as listed in the
proxy statement were elected. The matters before the meeting and the voting
results were as follows:
1. A proposal to elect three directors to Class III to serve until the 2001
Annual Meeting of Shareholders;
<TABLE>
<CAPTION>
Election of Director Shares Voted For Withheld Authority
- ---------------------- ---------------- ------------------
<S> <C> <C>
H. Lyman Bretting. . . 64,402,369 1,261,175
David A. Christensen . 64,329,138 1,334,407
Dr. Margaret R. Preska 64,259,578 1,403,966
</TABLE>
2. A proposal to amend the Company's Restated Articles of Incorporation to
increase the number of shares of authorized common stock from 160 million shares
to 350 million shares;
<TABLE>
<CAPTION>
<S> <C>
Shares Voted For 51,002,164
Voted Against. . 3,946,316
Voted Abstain. . 715,065
</TABLE>
3. A proposal to approve the amendments to the Company's Executive Long-Term
Incentive Award Stock Plan;
<TABLE>
<CAPTION>
<S> <C>
Shares Voted For 33,962,777
Voted Against. . 21,584,370
Voted Abstain. . 1,480,703
</TABLE>
The number of broker non-votes on this proposal was 8,635,693.
4. A proposal to approve the Company's Executive Annual Incentive Award Plan;
<TABLE>
<CAPTION>
<S> <C>
Shares Voted For 57,256,058
Voted Against. . 6,811,854
Voted Abstain. . 1,595,633
</TABLE>
5. A proposal to ratify the appointment of Price Waterhouse LLP as independent
accountants for NSP for 1998;
<TABLE>
<CAPTION>
<S> <C>
Shares Voted For 63,305,998
Voted Against. . 1,900,975
Voted Abstain. . 456,571
</TABLE>
6. A "Shareholder Resolution on Conversion of Prairie Island Nuclear Plant to
Natural Gas Plant";
<TABLE>
<CAPTION>
<S> <C>
Shares Voted For 3,118,898
Voted Against. . 51,471,853
Voted Abstain. . 2,465,347
</TABLE>
The number of broker non-votes on this proposal was 8,607,445.
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
-----------------------------------------
(A) EXHIBITS
The following Exhibits are filed with this report:
10.01 Executive Annual Incentive Award Plan.
10.02 Amended and Restated Executive Long-Term Incentive Award Stock Plan.
10.03 Amended and Restated Summary of Terms and Conditions of Employment
of James J. Howard.
27.01 Financial Data Schedule for the three months ended March 31, 1998.
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, 1998, or between March 31, 1998 and the date of this report:
Dec. 31, 1997 (Filed March 5, 1998) - Item 5. Other Events. Item 7. Financial
Statements and Exhibits. Re: Disclosure of agreement and plan of merger with
Black Mountain Gas Company of Cave Creek, Arizona.
March 4, 1998 (Filed March 4, 1998) - Item 5. Other Events. Item 7. Financial
Statements and Exhibits. Re: Disclosure of the Company's consolidated financial
statements for the year ended Dec. 31, 1997 and the related management's
discussion and analysis.
March 5, 1998 (Filed March 5, 1998) - Item 5. Other Events. Item 7. Financial
Statements and Exhibits. Re: Disclosure of announcement that the Company will
redeem all 300,000 shares of its Cumulative Preferred Stock Adjustable Rate
Series A and all 650,000 shares of its Cumulative Preferred Stock Adjustable
Rate B on March 31, 1998.
March 11, 1998 (Filed March 16, 1998) - Item 5. Other Events. Item 7. Financial
Statements and Exhibits. Re: Disclosure of the Company entering into two
underwriting agreements and filing of two prospectus supplements relating to
$250,000,000, in aggregate principal amount of the Company's First Mortgage
Bonds.
April 21, 1998 (Filed April 22, 1998) - Item 5 Other Events. Re: Withdrawal of
NSP's subsidiary, Viking Gas Transmission Company, from participation in the
proposed Viking Voyageur pipeline project.
April 22, 1998 (Filed April 23, 1998) - Item 5. Other Events. Item 7. Financial
Statements and Exhibits. Re: Disclosure of the Company's Board of Directors
authorization of a two-for-one stock split effective June 1, 1998 for
shareholders of record on May 18, 1998.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NORTHERN STATES POWER COMPANY (Registrant)
/s/
------------------------------------
Roger D. Sandeen
Vice President and Controller
/s/
------------------------------------
John P. Moore, Jr.
Corporate Secretary
Date: May 15, 1998
--------------
<PAGE>
EXHIBIT INDEX
METHOD OF FILING EXHIBIT NO. DESCRIPTION
DT 10.01 Executive Annual Incentive Award
Plan.
DT 10.02 Amended and Restated Executive
Long-Term Incentive Award Stock
Plan.
DT 10.03 Amended and Restated Summary of
Terms and Conditions of
Employment of James J. Howard.
DT 27.01 Financial Data Schedule for the
three months ended March 31, 1998.
DT 99.01 Statement pursuant to Private
Securities Litigation Reform
Act of 1995.
DT = Filed electronically with this direct transmission.
EXHIBIT 10.01
<PAGE>
NORTHERN STATES POWER COMPANY
EXECUTIVE ANNUAL INCENTIVE AWARD PLAN
I
PURPOSE AND EFFECTIVE TIME
This Northern States Power Company ("Company") Executive
Annual Incentive Award Plan (the "Plan") is designed to provide a
significant and flexible economic opportunity to selected
officers and employees of the Company and its Affiliates as a
reflection of their individual and group contributions to the
success of the Company and its Affiliates. Payments pursuant to
Section IX of the Plan are intended to qualify under Section
162(m)(4)(C) of the Internal Revenue Code of 1986, as amended, as
excluded from the term "applicable employee remuneration" (such
payments are hereinafter referred to as "Excluded Income"). The
Plan shall be effective as of January 1, 1998, subject to the
shareholder approvals required by Section XII of the Plan for
Covered Employees.
II
DEFINITIONS
"Affiliate" means (i) a corporation at least 50% of the
common stock or voting power of which is owned, directly or
indirectly, by the Company and (ii) any other corporation or
other entity controlled by the Company and designated by the
Committee from time to time as such.
"Board" shall mean the Board of Directors of the Company.
"Change in Control" shall mean the happening of any of the
following events:
(a) An acquisition by an individual, entity or group
(within the meaning of Section 13(d)(3) or 14(d)(2) of the
Exchange Act) (a "Person") of beneficial ownership (within
the meaning of Rule 13d-3 promulgated under the Exchange
Act) of 20% or more of either (1) the then outstanding
shares of common stock of the Company (the "Outstanding
Company Common Stock") or (2) the combined voting power of
the then outstanding voting securities of the Company
entitled to vote generally in the election of directors (the
"Outstanding Company Voting Securities"); excluding,
however, the following: (i) any acquisition directly from
the Company, other than an acquisition by virtue of the
exercise of a conversion privilege unless the security being
so converted was itself acquired directly from the Company,
(ii) any acquisition by the Company, (iii) any acquisition
by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by
the Company or (iv) any acquisition by any corporation
pursuant to a transaction which complies with clauses (i),
(ii) and (iii) of subsection (b) of this definition; or
(b) The approval by the shareholders of the Company of
a reorganization, merger, consolidation, share exchange or
sale or other disposition of all or substantially all of the
assets of the Company ("Corporate Transaction") or, if
consummation of such Corporate Transaction is subject, at
the time of such approval by shareholders, to the consent of
any government or governmental agency, the obtaining of such
consent (either explicitly or implicitly by consummation);
excluding, however, such a Corporate Transaction pursuant to
which (i) all or substantially all of the individuals and
entities who are the beneficial owners, respectively, of the
Outstanding Company Common Stock and Outstanding Company
Voting Securities immediately prior to such Corporate
Transaction will beneficially own, directly or indirectly,
more than 60% of, respectively, the outstanding shares of
common stock, and the combined voting power of the then
outstanding voting securities entitled to vote generally in
the election of directors, as the case may be, of the
corporation resulting from such Corporate Transaction
(including, without limitation, a corporation which as a
result of such transaction owns the Company or all or
substantially all of the Company's assets either directly or
through one or more subsidiaries) in substantially the same
proportions as their ownership, immediately prior to such
Corporate Transaction, of the Outstanding Company Common
Stock and Outstanding Company Voting Securities, as the case
may be, (ii) no Person (other than the Company, any employee
benefit plan (or related trust) of the Company or such
corporation resulting from such Corporate Transaction) will
beneficially own, directly or indirectly, 20% or more of,
respectively, the outstanding shares of common stock of the
corporation resulting from such Corporate Transaction or the
combined voting power of the outstanding voting securities
of such corporation entitled to vote generally in the
election of directors except to the extent that such
ownership existed prior to the Corporate Transaction and
(iii) individuals who were members of the board of directors
of the corporation resulting from such Corporate
Transaction; or
(c) The approval by the shareholders of the Company of
a complete liquidation or dissolution of the Company.
"Code" shall mean the Internal Revenue Code of 1986, as
amended.
"Committee" shall mean the Corporate Management Committee of
the Board, or such other committee of the Board as the Board may
from time to time determine, which, except as specifically
decided otherwise by the Board, is composed solely of not less
than two Disinterested Persons, each of whom shall be appointed
by and serve at the pleasure of the Board.
"Company" shall mean Northern States Power Company, a
Minnesota corporation.
"Covered Employees" shall mean the Participants designated
by the Committee prior to the award of an Incentive Award
opportunity hereunder who are or are expected to be "covered
employees" within the meaning of Section 162(m)(3) of the Code
for the Incentive Period as to which an Incentive Award hereunder
is payable and for whom the Committee intends that amounts
payable hereunder constitute Excluded Income.
"Disinterested Person" shall mean a member of the Board who
qualifies as an "outside director" for purposes of Section 162(m)
of the Code.
"Incentive Award" shall mean a cash award payable to a
Participant pursuant to the terms of the Plan, including a
Special Incentive Award.
"Incentive Period" shall mean the period with respect to
which a Participant is eligible to earn an Incentive Award.
"Participant" shall have the meaning set forth in Article IV
hereof.
"Payment Date" shall mean the date following the conclusion
of a particular Incentive Period on which the Committee certifies
that applicable Performance Goals have been satisfied and
authorizes payment of corresponding Incentive Awards.
"Performance Goals" shall have the meaning set forth in
Article IX hereof.
"Special Incentive Award" shall have the meaning set forth
in Article IX hereof.
"Target Incentive Award" shall mean the amount determined by
multiplying a Participant's base salary as of the last day of the
applicable Incentive Period by a percentage designated by the
Committee in its sole discretion at the time the award is
granted, which percentage need not be the same for each
Participant.
III
ADMINISTRATION
The Plan shall be administered by the Committee. In
administering the Plan, the Committee may at its option employ
compensation consultants, accountants and counsel (who may be the
compensation consultants, independent auditors and outside
counsel of the Company or an Affiliate) and other persons to
assist or render advice to the Committee, all at the expense of
the Company. The Committee shall have the sole authority to make
rules and regulations relating to the administration of the Plan,
and any interpretations and decisions of the Committee with
respect to the Plan shall be final and binding.
IV
ELIGIBILITY
The Committee shall, in its sole discretion, determine for
each Incentive Period those officers and salaried employees of
the Company and its Affiliates who shall be eligible to
participate in the Plan (the "Participants") for such Incentive
Period based upon such Participants' opportunity to have a
substantial impact on the operating results of the Company or an
Affiliate. Nothing contained in the Plan shall be construed as
or be evidence of any contract of employment with any Participant
for a term of any length nor shall participation in the Plan in
any Incentive Period by any Participant require continued
participation by such Participant in any subsequent Incentive
Period.
V
DETERMINATION OF INCENTIVE AWARDS
Subject to Article IX hereof, the amount and terms of each
Incentive Award to a Participant shall be determined by and in
the discretion of the Committee. The Committee may condition the
earning of an Incentive Award upon the attainment of specified
Performance Goals, measured over a period ending no later than
the end of the applicable Incentive Period. Such performance
goals may relate to the Participant or the Company, or any
Affiliate, division or department of the Company for or within
which the Participant is primarily employed, or upon such other
factors or criteria as the Committee shall determine, and may be
different for each Participant. Incentive Awards payable under
the Plan will consist of a cash award from the Company, based
upon a percentage (which may exceed 100%) of the Target Incentive
Award and, if applicable, the degree of achievement of such
performance goals. Incentive Awards under this Plan for Covered
Employees shall be subject to preestablished Performance Goals in
accordance with Article IX hereof. Except with respect to
Covered Employees, the Committee may, in its sole discretion,
increase or decrease the amount of any Incentive Award payable to
a Participant and, in recognition of changed or special
circumstances, may award Incentive Awards to Participants even
though the Incentive Awards are not earned. Incentive Awards
earned or otherwise awarded will be paid as soon as
administratively feasible on or after the Payment Date.
VI
TERMINATION OF EMPLOYMENT
In the event that a Participant's employment with the
Company and its Affiliates terminates for any reason during the
Incentive Period with respect to any Incentive Awards, the
balance of any Incentive Award which remains unpaid at the time
of such termination shall be payable to the Participant, or
forfeited by the Participant, in accordance with the terms of the
award granted by the Committee; PROVIDED, HOWEVER, that in the
case of a Covered Employee, no amount shall be payable pursuant
to the Plan unless the Performance Goals are satisfied or the
termination of employment of the Covered Employee is due to death
or disability. A Participant who remains employed through the
Incentive Period, but is terminated prior to the Payment Date,
shall be entitled to receive any Incentive Award payable to such
Participant with respect to such Incentive Period.
VII
AMENDMENT AND DISCONTINUANCE
The Board shall have the right to amend, alter, discontinue
or otherwise modify the Plan from time to time but no such
modification shall, without the consent of the Participant
affected, impair any award made prior to the effective date of
the modification.
VIII
MISCELLANEOUS
It is presently intended that the Plan constitute an
"unfunded" plan for incentive and deferred compensation. The
Committee may authorize the creation of trusts or other
arrangements to meet the payment obligations created under the
Plan; PROVIDED, HOWEVER, that, unless the Committee otherwise
determines, the existence of such trusts or other arrangements is
consistent with the "unfunded" status of the Plan. The Plan
shall be governed by and construed in accordance with the laws of
the State of Minnesota.
IX
PROCEDURES FOR CERTAIN DESIGNATED PARTICIPANTS
Incentive Awards under the Plan to Participants who are
Covered Employees shall be subject to preestablished Performance
Goals as set forth herein. Notwithstanding Article V hereof, the
Committee shall not have the discretion to modify the terms of
awards to such Participants except as specifically set forth in
this Article IX.
(a) TARGET BONUS. On or before the 90th day of each
Incentive Period, and in any event before 25% or more of the
Incentive Period has elapsed, the Committee shall establish in
writing specific Performance Goals for the Incentive Period, upon
the attainment of which will be conditioned the payment of
Incentive Awards ("Special Incentive Awards") to such of the
Participants who may be Covered Employees. A Special Incentive
Award shall consist of a cash award from the Company to be based
upon a percentage (which may exceed 100%) of a Target Incentive
Award. The extent, if any, to which a Special Incentive Award
will be payable will be based upon the degree of achievement of
preestablished Performance Goals over a specified Incentive
Period; provided, however, that the Committee may, in its sole
discretion, reduce the amount which would otherwise be payable
with respect to an Incentive Period.
(b) INCENTIVE PERIOD. The Incentive Period will be a
period of up to twelve months, unless a shorter period is
otherwise selected and established in writing by the Committee at
the time the Performance Goals are established with respect to
such Incentive Period.
(c) PERFORMANCE GOALS. The Performance Goals established
by the Committee at the time a Special Incentive Award is granted
will be based on one or more of the following: earnings per
share, market share, stock price, sales, costs, net operating
income, cash flow, retained earnings, return on equity, total
shareholder return, shareholder value analysis, results of
customer satisfaction surveys, aggregate product price and other
product price measures, safety record, service reliability,
demand-side management (including conservation and load
management), operating and maintenance cost management, energy
production availability, and individual performance measures;
provided, that all Performance Goals shall be objective
performance goals satisfying the requirements for "performance-
based compensation" within the meaning of Section 162(m)(4) of
the Code. Such Performance Goals also may be based on the
attainment of specified levels of performance of the Company
and/or any Affiliates under one or more of the measures described
above relative to the performance of other corporations.
(d) PAYMENT OF AN INCENTIVE AWARD. At the time the
Special Incentive Award is granted, the Committee shall prescribe
a formula to determine the percentage of the Target Incentive
Award which may be payable based upon the degree of attainment of
the Performance Goals during the Incentive Period. If the
minimum Performance Goals established by the Committee are not
met, no payment will be made to a Participant who is a Covered
Employee. To the extent that the minimum Performance Goals are
satisfied or surpassed, and upon written certification by the
Committee that the Performance Goals have been satisfied to a
particular extent and any other material terms and conditions of
the Special Incentive Awards have been satisfied, payment shall
be made on the Payment Date in accordance with the prescribed
formula based upon a percentage of the Target Incentive Award
unless the Committee determines, in its sole discretion, to
reduce the payment to be made.
(e) MAXIMUM PAYABLE. The maximum amount payable to a
Covered Employee under this Plan for any calendar year of the
Company pursuant to this Plan shall be $1,000,000.
X
CHANGE IN CONTROL
Notwithstanding any other provision of this Plan, (i) upon a
Change in Control, each Participant who is employed by the
Company or an Affiliate immediately before the Change in Control
shall be entitled to receive a payment equal to his or her Target
Incentive Award for the Incentive Period that includes the date
of the Change in Control, and (ii) any additional Incentive Award
that becomes payable to such a Participant for that Incentive
Period shall be reduced (but not below zero) by the amount of the
payment made to such Participant pursuant to clause (i) of this
Article X.
XI
DEFERRAL ELECTIONS
The Committee may at its option establish procedures
pursuant to which Participants are permitted to defer the receipt
of Incentive Awards payable hereunder.
XII
SHAREHOLDER APPROVAL
This Plan shall not become effective with respect to
individuals who are Covered Employees unless it shall have been
approved by the affirmative vote of a majority of the total
voting power of the shares of common stock and preferred stock of
Northern States Power Company present in person or by proxy and
entitled to vote thereon.
<PAGE>
EXHIBIT 10.02
AMENDED AND RESTATED
EFFECTIVE AS OF JANUARY 1, 1998
NORTHERN STATES POWER COMPANY
EXECUTIVE LONG-TERM INCENTIVE AWARD STOCK PLAN
SECTION 1. PURPOSE. The general purpose of the Northern
States Power Company Executive Long-Term Incentive Award Plan
(the "Plan") is to create a compensation environment which will
attract and retain talented officers and key employees of
Northern States Power Company, a Minnesota corporation (the
"Company") and its subsidiaries, by providing to employees
determined to be eligible "("Participants") with common stock of
the Company ("Common Stock") pursuant to awards ("Awards")
described herein.
The specific purposes of the Plan are to:
(a) Provide a total compensation program which is competitive
with general industry programs and also those emerging in the
leading utility companies.
(b) Use a stock based long-term incentive plan to more closely
align the interest of NSP's executives with those of the
shareholders and to maintain NSP's long-term financial strength
so that NSP can take advantage of opportunities that will allow
it to provide quality service at the lowest cost possible.
(c) Provide another element of compensation beyond base salary
and annual incentive pay to focus attention on long-term business
goals and to reward superior company performance.
(d) Encourage teamwork and the spirit of cooperation along the
executive group.
SECTION 2. COMMITTEE. The Plan shall be administered by
the Corporate Management Committee of the Company's Board of
Directors ( the "Committee" ) or any committee designated as its
successor for purposes of this Plan. The Committee shall consist
of not less than three members of the Board of Directors who are
not employees of the Company and all members of the Committee
shall be "disinterested persons" as defined in Rule 16b-3 of the
General Rules and Regulations under the Security Exchange Act of
1934. To the extent required to comply with the performance-
based compensation exemption under Internal Revenue Code ("Code")
Section 162(m) and the related regulations, each member of the
Committee shall qualify as an "outside director" as defined
therein.
SECTION 3. COMMITTEE POWERS AND DUTIES. The Committee shall
have the authority to make rules and regulations governing the
administration of the Plan; to select the eligible employees to
whom Awards shall be granted; to determine the type, amount, size
and terms of Awards; to determine the time when Awards shall be
granted; to determine whether any restrictions shall be placed on
shares of Common Stock granted pursuant to any Awards; to
authorize the Company to make available loans, on specified
terms, to Participants for the purpose of providing funds for the
use of Participants in exercising options granted under the Plan;
and to make all other determinations necessary or advisable for
the administration of the Plan. The Committee's determination
need not be uniform, and may be made selectively among persons
who are eligible to receive Awards under the Plan, whether such
persons are similarly situated. All interpretations, decisions,
or determinations made by the Committee pursuant to the Plan
shall be final and conclusive.
SECTION 4. PARTICIPANTS. Participants will consist of such
key employees (including officers) of the Company or any of its
present or future subsidiaries as the Committee, in its sole
discretion, determines to be mainly responsible for the success
and future growth and profitability of the Company and whom the
Committee may designate from time to time to receive Awards under
the Plan. Awards may be granted under this Plan to persons who
have previously received Awards or other benefits under this or
other plans of the Company.
SECTION 5. AWARDS. Awards may consist of Common Stock
transferred to Participants, subject to restrictions as
described in Section 6, as additional compensation for service
rendered to the Company without any other payment therefor
provided that the value of the Common Stock awarded by the
Committee to any Participant in a calendar year shall not exceed
$1,000,000. The Committee also may make Awards in the form of
stock options, stock appreciation rights, performance awards, or
any combination of the foregoing provided that the Committee
shall not award rights or options to purchase more than 100,000
shares to any Participant in a calendar year. Awards granted
under the Plan in any calendar year cannot exceed one percent
(1%) of the number of outstanding shares of Common Stock at the
end of the previous calendar year. Solely for the purpose of
computing the number of shares of Common Stock granted under
this Plan, there shall not be counted any shares that have been
forfeited. The stock awarded may be previously unissued or
stock repurchased by the Company for purposes of this Plan as
designated by the Board of Directors. If there is any change in
the outstanding Common Stock by reason of a stock dividend or
distribution, stock split-up, recapitalization, combination or
exchange of shares, or by reason of merger, consolidation or
other corporate reorganization in which the Company is the
surviving corporation, the number of shares of Common Stock
available for Awards under the Plan shall be adjusted by the
Committee to give proper effect to such change.
SECTION 6. RESTRICTED STOCK.
(a) AWARDS. All Awards shall consist of restricted
shares of Common Stock granted pursuant to the Plan and
shall entitle the Participant to receive the shares of
Common Stock, subject to forfeiture if specified
conditions are not satisfied, at the end of a specified
period. The shares of Common Stock awarded shall be
subject to such terms and conditions as the Committee
shall from time to time approve; provided, that each
Award shall be subject to the requirements of this
Section 6. Awards of restricted stock shall be
determined by the Committee utilizing performance goals
based on one or more of the following: earnings per
share, market share, stock price, sales, costs, net
operating income, cash flow, retained earnings, return
on equity, total shareholder return, shareholder value
analysis, results of customer satisfaction surveys,
aggregate product price and other product price
measures, safety record, service reliability, demand-
side management (including conservation and load
management), operating and maintenance cost management,
energy production availability, and individual
performance measures; provided, that all Performance
Goals shall be objective performance goals satisfying
the requirements for "performance-based compensation"
within the meaning of Section 162(m)(4) of the Code.
Such Performance Goals also may be based on the
attainment of specified levels of performance of the
Company and/or any Affiliates under one or more of the
measures described above relative to the performance of
other corporations.
(b) RESTRICTED PERIOD. The Committee shall establish a
period (the "Restricted Period") of not less than one
year nor more than five years, commencing on the date
of award, during which the Participant will not be
permitted to sell, transfer, pledge, encumber, or
assign the Common Stock subject to the Award. Within
these limits, the Committee may provide for the lapse
of restrictions in installments or upon the occurrence
of certain events where deemed appropriate. Any
attempt by a Participant to dispose of restricted
shares of Common Stock in a manner contrary to the
applicable restrictions shall be void, and of no force
and effect.
(c) RIGHTS DURING RESTRICTED PERIOD. Except to the extent
otherwise provided in this Section 6 or under the terms
of any restricted stock agreement during the Restricted
Period, the Participant shall have all of the rights of
a stockholder in the Company with respect to the
restricted shares of Common Stock, including the right
to vote the shares and to receive dividends and other
distributions with respect to the shares unless the
Committee shall otherwise determine; provided, that all
stock dividends, stock rights, and stock issued upon
split-ups or reclassification of shares shall be
subject to the same restrictions as the rights, or
additional stock are issued, and may be held in custody
as provided hereafter in this Section 6 until the
restrictions thereon shall have lapsed.
(d) FORFEITURES. Except to the extent otherwise provided
in the restricted stock agreement, if the Participant
shall cease to be an employee of the Company or any
subsidiary, or if any condition established by the
Committee for the release of any restrictions shall not
have occurred, prior to the expiration of the
Restricted Period, all shares of Common stock then
subject to any restrictions shall be forfeited to the
Company without any further obligations of the Company
to the Participant, and all rights of the Participant
with respect to such shares shall terminate.
(e) CUSTODY. Restricted shares may be held in custody by
the Company in an account allocated to the Participant
until restrictions applicable to thereto have expired.
The Committee may require that any certificates
evidencing restricted shares of Common Stock be held in
custody by a bank or other institution, or by the
Company or any subsidiary, until the restrictions
thereon have lapsed. If any certificates are issued
for shares still subject to restrictions, the
Participant awarded such shares shall deliver to the
Company a stock power, endorsed in blank, relating to
the restricted shares as a condition of receiving the
Award.
(f) CERTIFICATES. Subject to paragraph (e) above, if a
recipient of restricted shares pursuant to an Award
shall be issued a certificate or certificates
evidencing the shares of Common Stock subject to the
restrictions provided as to the applicable Award, such
certificates shall bear an appropriate legend referring
to the terms, conditions, and restrictions applicable
to the Award, which legend shall be substantially in
the following form:
"The transferability of this certificate
and the shares represented hereby are
subject to the terms and conditions
(including forfeiture) of the Northern
States Power Company Executive Long-Term
Incentive Award Stock Plan and an
Agreement entered into between the
registered owner and Northern States
Power Company, a Minnesota corporation.
Copies of such Plan and Agreement are on
file in the office of the Secretary,
Northern States Power Company, 414
Nicollet Mall, Minneapolis, Minnesota."
(g) GIFT TO DEPENDENT. Notwithstanding any provision of
this Section 6, the Committee may permit a gift of
restricted shares to the Participant's spouse, child,
stepchild, grandchild, or legal dependent, or to a
trust whose sole beneficiary or beneficiaries shall be
the Participant and/or any one or more of such persons;
provided, that the donee shall have entered into an
agreement with the Company pursuant to which the donee
agrees that the restricted shares of Common Stock shall
be subject to the same restrictions as they were prior
to the donation by the Participant.
SECTION 7. STOCK OPTIONS. A stock option granted pursuant to
the Plan shall entitle the optionee, upon exercise, to purchase
shares of Common Stock at a specified price during a specified
period. Such options will be "nonqualified" for the purposes of
Section 422A of the Internal Revenue Code. Options shall be
subject to such terms and conditions as the Committee shall from
time to time approve; provided, that each option shall be subject
to the following requirements:
(a) TYPE OF OPTION. Each option shall be identified in the
agreement pursuant to which it is granted as a nonqualified
option.
(b) TERM. No option shall be exercisable more than 121
months after the date on which it is granted.
(c) PAYMENT. The purchase price of shares of Common Stock
subject to an option shall be payable in full at the time the
option is exercised. Payment may be made in cash, in shares of
Common Stock having a fair market value which is not less than
the option price on the date of exercise, or by a combination of
cash and such shares, or any other consideration in kind,
including shares of restricted stock, as the Committee may
determine, and subject to such terms and conditions as the
Committee deems appropriate.
(d) OPTIONS NOT TRANSFERABLE. Options shall not be transferable
except to the extent permitted by the agreement evidencing such
option; provided, that in no event shall any option be
transferable by the optionee, other than by will or the laws of
descent and distribution, and shall be exercisable during an
optionee's lifetime only by such optionee. If, pursuant to the
agreement evidencing any option, such option remains exercisable
after the optionee's death, to the extent permitted by such
agreement, it may be exercised by the personal representative of
the optionee's estate or by any person who acquired the right to
exercise such option by bequest, inheritance, or otherwise by
reason of the optionee's death.
Subject to the foregoing, options may be made exercisable in one
or more installments, upon the happening of certain events, upon
the fulfillment of certain conditions, or upon such other terms
and conditions as the Committee shall determine.
SECTION 8. STOCK APPRECIATION RIGHTS. A stock appreciation
right granted pursuant to the Plan shall entitle the holder, upon
exercise, to receive a payment equal to the amount by which the
fair market value of one share of Common Stock (as determined by
the Committee) on the date the right is exercised exceeds the
"base amount" established by the Committee for such right on the
date it was granted. Stock appreciation rights shall be subject
to such terms and conditions as the Committee shall from time to
time approve; provided, that each right shall be subject to the
following requirements:
(a) TYPE OF RIGHT. A stock appreciation right may be granted in
tandem with an option granted pursuant to the Plan, or as a
"freestanding" right not in tandem with an option.
(b) TANDEM RIGHTS. Any option granted in tandem with a stock
appreciation right shall become nonexercisable upon the exercise
of the related right, and any right granted in tandem with an
option shall become nonexercisable upon exercise of the related
option. Shares of Common Stock subject to an option which
becomes nonexercisable by virtue of the exercise of a tandem
right shall not be available for subsequent awards under the
Plan.
(c) TERM. No stock appreciation right shall be exercisable
more than 121 months after the date on which it is granted.
(d) PAYMENT. Any amount payable upon the exercise of a stock
appreciation right may be paid in cash, in shares of Common Stock
having a fair market value which is not more than the amount
payable on the date of exercise, or in a combination of cash and
such shares, or any other consideration in kind, including shares
of restricted stock, as the Committee, in its sole discretion,
shall determine.
(e) RIGHTS NOT TRANSFERABLE. A stock appreciation right shall
not be transferable by the holder except to the extent permitted
by the agreement evidencing such right; provided, that in no
event shall any right be transferable by the holder, other than
by will or the laws of descent and distribution, and such right
shall be exercisable during the holder's lifetime only by the
holder. If, pursuant to the agreement evidencing a stock
appreciation right, the right remains exercisable after the
holder's death, to the extent permitted by such agreement, it may
be exercised by the personal representative of the holder's
estate or by any person who acquired the right to exercise such
right by bequest, inheritance, or otherwise by reason of the
holder's death.
Subject to the foregoing, stock appreciation rights may be made
exercisable in one or more installments, upon the happening of
certain events, upon the fulfillment of certain conditions, or
upon such other terms and conditions as the Committee shall
determine.
SECTION 9. PERFORMANCE AWARDS. Performance Awards made
pursuant to the Plan shall entitle the recipient to receive
future payments of cash or distributions of shares of Common
Stock upon the achievement of pre-established, long-term
performance goals. All performance Awards shall be evidenced by
agreements in such form as the Committee shall from time to time
approve; provided, that each Award shall be subject to the
following requirements:
(a) PERFORMANCE PERIOD. The Committee shall establish with
respect to each performance Award a performance period of not
fewer than one year, nor more than five years.
(b) AMOUNT OF AWARDS. The Committee shall establish a value for
each performance Award, which value may be expressed in terms of
specified dollar amounts or a specified number of shares of
Common Stock. Any such value may be fixed or variable in
accordance with criteria specified by the Committee at the time
of the Award provided that the value of the performance Award
awarded by the Committee to any Participant in a calendar year
shall not exceed $1,000,000.
(c) PERFORMANCE OBJECTIVES. The Committee shall establish
performance objectives to be achieved with respect to each
performance Award during the applicable performance period,
determining the extent to which an employee shall be entitled to
distributions with respect to such performance Award.
(d) PERFORMANCE MEASURES. Performance objectives established by
the Committee may relate to corporate, subsidiary, unit, or
individual performance or any combination thereof, and may be
established in terms of growth in gross or net earnings, earnings
per share, ratio of earnings to equity or assets, share value, or
such other measures or standards as the Committee shall
determine. Multiple objectives may be used which have the same
or different weighting, and such objectives may relate to
absolute performance or to relative performance measured against
other companies or businesses, or against other subsidiaries,
units, or individuals.
(e) ADJUSTMENTS. At any time prior to the end of a performance
period, the Committee may adjust previously established
performance objectives to reflect major unforeseen events such as
changes in applicable laws, regulations, or accounting practices;
mergers, acquisitions, or divestitures; or other unusual or
nonrecurring items of events.
(f) DISTRIBUTIONS WITH RESPECT TO AWARDS. Following the end of
each performance period, the Committee shall determine the extent
to which the performance objectives established for such period
have been achieved and the amounts of cash or number of shares of
Common Stock, if any, that are payable or distributable with
respect to performance Awards made with respect to each period.
Payments with respect to performance Awards may be made in cash
or in shares (based on fair market value at the time of the
distribution), or in any combination thereof, as the Committee
shall determine. Such payments or distributions may be made in a
lump sum or in installments, and shall be subject to such
vesting, deferral or other terms and conditions as the Committee
may determine.
(g) NONTRANSFERABILITY. Performance Awards granted under this
Plan shall not be assignable or otherwise transferable by the
recipient, otherwise than by will or the laws of descent and
distribution, and shall be payable during the recipient's
lifetime, only to the recipient.
SECTION 10. AGREEMENTS. Each Award granted pursuant to the
Plan shall be evidenced by an agreement setting forth the terms
and conditions upon which it is granted. Multiple Awards may be
evidenced by a single agreement. Subject to the limitations set
forth in the Plan, the Committee may, with the consent of the
Participant to whom an Award has been granted, amend any such
agreement to modify the terms or conditions governing the Award
evidenced thereby.
SECTION 11. ADJUSTMENTS. In the event of any change in the
outstanding shares of Common Stock by reason of any stock
dividend or split, recapitalization, reclassification,
combination, or exchange of shares or other similar corporate
change, then if the Committee shall determine, in its sole
discretion, that such change necessarily or equitably requires an
adjustment in the number of shares of Common Stock subject to an
Award, in the option price or value of an Award, or in the
maximum number of shares subject to this Plan, such adjustments
shall be made by the Committee and shall be conclusive and
binding for all purposes of this Plan. No adjustment shall be
made in connection with the issuance by the Company of any
warrants, rights, or options to acquire additional shares of
Common Stock or of securities convertible into shares of Common
Stock.
SECTION 12. TENURE. A Participant's right, if any, to
continue to serve the Company or its subsidiaries as an officer,
employee or otherwise, shall not be enlarged or otherwise
affected by the Participant's designation as a Participant under
the Plan.
SECTION 13. MERGER, CONSOLIDATION,REORGANIZATION, LIQUIDATION, ETC.
Subject to the provisions of the agreement evidencing any Award, if the
Company shall become a party to any corporate merger, consolidation, major
acquisition of property for stock, reorganization, or
liquidation, the Board of Directors of the Company shall have
the power to make any arrangement it deems advisable with
respect to outstanding Awards and in the number of shares of
Common Stock subject to this Plan, which shall be binding for
all purposes of this Plan, including, but not limited to, the
substitution of new Awards for any Awards then outstanding, the
assumption of any such Awards, and the termination of such
Awards. Notwithstanding any other provision of the Plan to the
contrary, in the event of a Change in Control:
(i) Any Stock Options and Stock Appreciation
Rights outstanding as of the date such Change in
Control is determined to have occurred and not then
exercisable and vested shall become fully exercisable
and vested to the full extent of the original grant.
(ii) The restrictions applicable to any Restricted
Stock shall lapse, and such Restricted Stock shall
become free of all restrictions and become fully vested
and transferable to the full extent of the original
grant.
(iii) All Performance Awards shall be
considered to be earned and payable in full and any
other deferral or other restriction shall lapse and
such Performance Awards shall be settled in cash as
promptly as practicable.
"Change in Control" shall mean the happening of any of
the following events:
(a) An acquisition by an individual, entity or group
(within the meaning of Section 13(d)(3) or 14(d)(2) of
the Exchange Act) (a "Person") of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of 20% or more of either (1) the then
outstanding shares of common stock of the Company (the
"Outstanding Company Common Stock") or (2) the combined
voting power of the then outstanding voting securities
of the Company entitled to vote generally in the
election of directors (the "Outstanding Company Voting
Securities"); excluding, however, the following: (i)
any acquisition directly from the Company, other than
an acquisition by virtue of the exercise of a
conversion privilege unless the security being so
converted was itself acquired directly from the
Company, (ii) any acquisition by the Company, (iii) any
acquisition by any employee benefit plan (or related
trust) sponsored or maintained by the Company or any
corporation controlled by the Company or (iv) any
acquisition by any corporation pursuant to a
transaction which complies with clauses (i), (ii) and
(iii) of subsection (b) of this definition; or
(b) The approval by the shareholders of the Company of
a reorganization, merger, consolidation, share exchange
or sale or other disposition of all or substantially
all of the assets of the Company ("Corporate
Transaction") or, if consummation of such Corporate
Transaction is subject, at the time of such approval by
shareholders, to the consent of any government or
governmental agency, the obtaining of such consent
(either explicitly or implicitly by consummation);
excluding, however, such a Corporate Transaction
pursuant to which (i) all or substantially all of the
individuals and entities who are the beneficial owners,
respectively, of the Outstanding Company Common Stock
and Outstanding Company Voting Securities immediately
prior to such Corporate Transaction will beneficially
own, directly or indirectly, more than 60% of,
respectively, the outstanding shares of common stock,
and the combined voting power of the then outstanding
voting securities entitled to vote generally in the
election of directors, as the case may be, of the
corporation resulting from such Corporate Transaction
(including, without limitation, a corporation which as
a result of such transaction owns the Company or all or
substantially all of the Company's assets either
directly or through one or more subsidiaries) in
substantially the same proportions as their ownership,
immediately prior to such Corporate Transaction, of the
Outstanding Company Common Stock and Outstanding
Company Voting Securities, as the case may be, (ii) no
Person (other than the Company, any employee benefit
plan (or related trust) of the Company or such
corporation resulting from such Corporate Transaction)
will beneficially own, directly or indirectly, 20% or
more of, respectively, the outstanding shares of common
stock of the corporation resulting from such Corporate
Transaction or the combined voting power of the
outstanding voting securities of such corporation
entitled to vote generally in the election of directors
except to the extent that such ownership existed prior
to the Corporate Transaction and (iii) individuals who
were members of the board of directors of the
corporation resulting from such Corporate Transaction;
or
(c) The approval by the shareholders of the Company of
a complete liquidation or dissolution of the company.
SECTION 14. EXPENSES OF PLAN. The expenses of administering
this Plan shall be borne by the Company and its subsidiaries.
SECTION 15. RIGHTS AS STOCKHOLDER. Except to the extent
otherwise specifically provided herein or in the agreement
evidencing the Award, no recipient of any Award shall have any
rights as a stockholder with respect to shares of Common Stock
sold or issued pursuant to the Plan until certificates for such
shares have been issued to such person.
SECTION 16. GENERAL RESTRICTIONS. Each Award granted
pursuant to the Plan shall be subject to the requirement that if,
in the opinion of the Committee:
(a) the listing, registration, or qualification of any Common
Stock related thereto upon any securities exchange or any state
or federal law;
(b) the consent or approval of any regulatory body; or
(c) an agreement by the recipient with respect to the
disposition of any such shares of Common stock;
is necessary or desirable as a condition of the issuance or sale
of such shares of Common Stock, such Award shall not be
consummated unless and until such listing, registration,
qualification, consent, approval, or agreement is affected or
obtained in form satisfactory to the Committee.
SECTION 17. WITHHOLDING. If the Company proposes or is
required to distribute shares of Common Stock pursuant to the
Plan, it may require the Participant to remit to it, or withhold
from such Award or from the participant's other compensation, an
amount sufficient to satisfy any applicable federal, state, or
local tax withholding requirements prior to the delivery of any
certificates for such shares of Common Stock.
SECTION 18. AMENDMENTS. The Board of Directors of the
Company may at any time, and from time to time, amend or
terminate the Plan provided, that no amendment:
(a) increasing the number of shares of Common Stock available
for Awards pursuant to the Plan previously established pursuant
to shareholder approval;
(b) changing the classification of employees eligible to
participate in the Plan; or
(c) materially increasing the benefits accruing to Participants
under the Plan;
shall be made without approval by an affirmative vote of
shareholders representing at least the majority of the voting
power at a duly authorized meeting of shareholders if such
affirmative vote is required as a condition of continued
exemption of the Plan under Securities and Exchange Commission
Rule 16b-3.
SECTION 19. SHAREHOLDER APPROVAL. This Agreement shall be
submitted to the shareholders of the Company for its approval by
an affirmative vote of the majority of the voting power at a
meeting of the shareholders before restrictions for any Award
lapse. After initial approval, the Board of Directors shall
determine whether further submission is appropriate or necessary
whenever the Plan is amended, to satisfy Code Section 162(m), the
Rules of the New York Stock Exchange, regulatory or other legal
requirements.
SECTION 20. EFFECTIVE DATE OF THE PLAN. This Plan shall be effective
as of January 1, 1998.
<PAGE>
EXHIBIT 10.03
AMENDED AND RESTATED
EFFECTIVE AS OF JANUARY 28, 1998
SUMMARY OF TERMS AND CONDITIONS
OF EMPLOYMENT
JAMES J. HOWARD
This document is a complete summary of oral and written
arrangements made between Northern States Power Company, a
Minnesota corporation, hereinafter called "NSP," and James J.
Howard, hereinafter called "Howard," effective February 1, 1987,
relating to the employment of Howard by NSP.
1. NSP employs Howard, and Howard will work for NSP as
President and Chief Executive Officer, effective February 1,
1987. Howard also will be a member of the Board of Directors of
NSP. Howard will devote his full time and efforts to his duties
on behalf of NSP for the profit, benefit and advantages of the
business of NSP.
2. NSP will pay Howard a basic salary at the rate of
$375,000 per year, payable in semi-monthly installments, and paid
at the monthly rate of $4,000 for February through December of
1987, and the balance of $331,000 payable in January of 1988.
3. After completing 12 months of employment on January 1,
1988, Howard will receive a one-time cash payment of $187,500 as
his sole award for the executive incentive program for 1987.
4. To offset the loss of income Howard would have earned
from performance units and stock options from American
Technologies and Information Corporation ("Ameritech"), Howard
will receive a one-time payment of $230,000 from NSP upon
completion of 12 months of employment on January 31, 1988.
5. Howard may defer all or any specified portion of the
foregoing amounts due and payable in 1988 under the NSP Deferred
Compensation Plan if he files a written election in that regard
with the Secretary of NSP prior to February 1, 1987. He will be
eligible to defer under the provisions of that Plan any other
compensation to be earned during 1988 at the same time as
elections are filed by other Participants in the Plan.
6. Howard will be eligible for a 50% executive incentive
plan participation beginning on and after January 1, 1988, based
upon mutually established criteria and pending approval by the
NSP Board of Directors.
7. Howard will receive six weeks of vacation per year
accrued on a pro rata basis, and the same paid holidays and sick
leave as is made available to other full-time benefit non-union
employees of NSP.
8. NSP will purchase for Howard disability insurance to
provide Howard with a 50% of base pay benefit in the event of
disability during the first year of employment. After one year
of employment, Howard will be eligible for the disability
benefits provided under the Northern States Power Company Pension
Plan.
9. Howard shall be eligible to elect, in accordance with
the provisions of the plans, coverage for himself and his
dependents, in the same manner as any other newly hired full-time
non-union employee, under the life insurance, medical and dental
programs provided by NSP. In like manner, Howard will be
eligible to participate in all other benefits provided to NSP
full-time benefit non-union employees such as the NSP Retirement
Savings Plan and the NSP-ESOP. (Eligibility under the latter
Plans will commence in 1988.) In lieu of the commitment by NSP
to provide additional life insurance coverage, NSP will pay
Howard $12,250 on January 31, 1988.
10. NSP will pay initiation fees and monthly dues at the
Minneapolis Club for Howard as well as for a country club of his
choice.
11. NSP will provide Howard with a fully-equipped leased
American car of his choice and a heated garage space at work.
Personal travel outside the NSP territory will be subject to
reimbursement at the rates periodically established by NSP.
12. NSP will provide to Howard an annual physical by a
doctor of his choice and a reasonable allowance for financial
planning expenses, including tax and asset management, as
requested by Howard.
13. If Howard leaves NSP prior to age 60, Howard will
receive payments equivalent to the NSP Pension Plan's formula for
his period of service from
February 1, 1987, to date of termination ignoring any limitations
on benefits, service, or compensation. After completion of one
year of employment, the minimum payment will be $22,535 annually.
If Howard works past age 60, NSP will determine his combined
benefits from the Northern States Power Company Pension Plan and
supplemental NSP payments, as though he had completed 30 years of
service; provided, however, that those combined benefits shall be
reduced by the excess, if any, of the annual retirement benefits
of $151,296 he earned from Ameritech over the annual retirement
benefit that the Pension Plan's actuaries reasonably estimate is
equivalent to the accumulated value, at the time Howard's pension
benefit payments begin, of the monthly benefit payments he would
have received prior to that time if monthly benefit payments had
commenced at the end of the month following the month he attained
age 60. This benefit shall be paid in a lump sum at retirement.
The amount of the lump sum shall be determined using the interest
rate for valuing immediate annuities used by the Pension Benefit
Guaranty Corporation at January 1 of the year in which such
payment is being made, or if no such rate has been established
then the PBGC rate in effect for the previous December. The
mortality rates to be used shall be the mortality rates set forth
in the Appendix to the NSP Pension Plan in effect at the time the
payment is made.
14. If Howard is terminated involuntarily by NSP within the
first three years of employment, except for misconduct, NSP will
pay Howard severance pay according to the following schedule:
During 1st year - remaining pay for the
12 months (net of $375,000
+ $187,500 + $230,000) plus
two years annual base pay;
During 2nd year - remaining base pay for the 12-
month period plus one year
annual base pay;
During 3rd year - one year annual base pay.
If Howard resigns voluntarily, no severance pay will be provided.
15. NSP will provide to Howard relocation expenses to
include third party purchase, mortgage interest differential,
physical move, temporary living expenses up to 180 days, house
hunting trips (including expenses of spouse) as needed and one
month base pay for miscellaneous moving expenses.
16. All compensation, perks and employee benefits provided
to Howard by NSP will be subject to all applicable tax laws.
This document is a summary of the terms and conditions of
the employment of Howard by NSP and it is not intended to replace
and supercede the offers and communications with respect to this
subject matter.
<TABLE> <S> <C>
<ARTICLE> UT
EXHIBIT 27.01
<LEGEND>
This schedule contains summary financial information extracted from the
Statements of Income, Balance Sheets, Statements of Capitalization, Statements
of Changes in Common Stockholders' Equity and 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-31-1997
<PERIOD-END> MAR-31-1998
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 4,342,916
<OTHER-PROPERTY-AND-INVEST> 1,494,893
<TOTAL-CURRENT-ASSETS> 777,346
<TOTAL-DEFERRED-CHARGES> 324,396
<OTHER-ASSETS> 251,450
<TOTAL-ASSETS> 7,191,001
<COMMON> 187,287
<CAPITAL-SURPLUS-PAID-IN> 909,426
<RETAINED-EARNINGS> 1,367,003
<TOTAL-COMMON-STOCKHOLDERS-EQ> 2,388,904<F1>
200,000
105,340
<LONG-TERM-DEBT-NET> 2,122,676
<SHORT-TERM-NOTES> 125,381
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 163,645
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 2,010,243<F1>
<TOT-CAPITALIZATION-AND-LIAB> 7,191,001
<GROSS-OPERATING-REVENUE> 701,402
<INCOME-TAX-EXPENSE> 16,532<F2>
<OTHER-OPERATING-EXPENSES> 591,794
<TOTAL-OPERATING-EXPENSES> 622,352
<OPERATING-INCOME-LOSS> 79,050
<OTHER-INCOME-NET> 2,892<F3>
<INCOME-BEFORE-INTEREST-EXPEN> 99,906
<TOTAL-INTEREST-EXPENSE> 38,851
<NET-INCOME> 57,117
2,367
<EARNINGS-AVAILABLE-FOR-COMM> 54,750
<COMMON-STOCK-DIVIDENDS> 52,622
<TOTAL-INTEREST-ON-BONDS> 35,076
<CASH-FLOW-OPERATIONS> 220,685
<EPS-PRIMARY> 0.73
<EPS-DILUTED> 0.73
<FN>
<F1>($74,812) 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>($14,026) thousand of nonregulated and nonoperating income tax benefit is
classified as Income Tax Expense. The financial statement presentation
includes them as a component of Other Income (Expense).
<F3>Includes Income from Nonregulated Businesses - Before Interest and Taxes,
Allowance for Funds Used During Construction-Equity, Other Utility Income
(Deductions)-Net and Distributions on redeemable preferred securities of
subsidiary trust.
</FN>
</TABLE>
EXHIBIIT 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;
- - 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.
