SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
or
Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For Quarter Ended June 30, 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 at July 31, 1998
Common Stock, $2.50 par value 151,415,882 shares
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
Northern States Power Company (Minnesota) and Subsidiaries
Consolidated Statements of Income (Unaudited)
1998 1997 1998 1997
(Thousands of dollars)
<S> <C> <C> <C> <C>
Utility operating revenues
Electric: Retail................................................................ $518,745 $482,931 $998,571 $965,775
Sales for resale and other........................................ 51,906 35,111 93,651 71,402
Gas............................................................................. 67,950 76,281 247,781 299,643
Total ........................................................................ 638,601 594,323 1,340,003 1,336,820
Utility operating expenses
Fuel for electric generation.................................................... 75,466 68,147 151,106 149,441
Purchased and interchange power................................................. 96,901 72,024 169,424 130,312
Cost of gas purchased and transported........................................... 37,137 42,379 150,719 194,399
Other operation................................................................. 96,481 93,659 191,947 182,459
Maintenance..................................................................... 54,444 40,736 94,304 84,238
Administrative and general...................................................... 36,492 36,316 74,271 70,943
Conservation and energy management.............................................. 16,667 16,009 33,551 33,308
Depreciation and amortization................................................... 83,111 80,649 167,211 160,491
Taxes: Property and general.................................................... 56,343 56,244 112,304 117,597
Current income..................................................... 20,351 26,943 58,738 73,160
Deferred income.................................................... 2,357 (2,191) (3,265) (9,214)
Investment tax credits recognized.................................. (2,203) (2,178) (4,411) (4,356)
Total....................................................................... 573,547 528,737 1,195,899 1,182,778
Utility operating income.......................................................... 65,054 65,586 144,104 154,042
Other income (expense)
Income from nonregulated businesses - before interest and taxes................. 7,682 5,093 11,967 11,743
Allowance for funds used during construction - equity........................... 1,812 1,507 3,557 3,821
Merger costs.................................................................... - (29,005) - (29,005)
Other utility income (deductions) - net......................................... (6,486) (1,862) (5,686) (5,000)
Income tax benefit - nonregulated operations and nonoperating items............. 11,825 16,811 25,851 23,201
Total....................................................................... 14,833 (7,456) 35,689 4,760
Income before financing costs..................................................... 79,887 58,130 179,793 158,802
Financing costs
Interest on utility long-term debt.............................................. 26,204 25,698 51,470 51,248
Other utility interest and amortization......................................... 2,622 5,029 6,041 9,894
Nonregulated interest and amortization.......................................... 13,859 8,044 26,138 13,005
Allowance for funds used during construction - debt............................. (1,770) (2,832) (3,882) (5,934)
Total interest charges...................................................... 40,915 35,939 79,767 68,213
Distributions on redeemable preferred securities of subsidiary trust.............. 3,938 3,938 7,875 6,563
Total financing costs....................................................... 44,853 39,877 87,642 74,776
Net income ....................................................................... 35,034 18,253 92,151 84,026
Preferred stock dividends and redemption premiums................................. 1,060 2,371 3,427 6,328
Earnings available for common stock .............................................. $33,974 $15,882 $88,724 $77,698
Average number of common shares outstanding (000's)............................... 149,877 137,523 149,547 137,485
Average number of common and potentially dilutive shares outstanding (000's)...... 150,143 137,743 149,807 137,697
Earnings per average common share - basic <F1>.................................... $0.23 $0.12 $0.59 $0.57
Earnings per average common share - assuming dilution <F1>........................ $0.23 $0.12 $0.59 $0.56
Common dividends declared per share............................................... $0.3575 $0.3525 $0.7100 $0.6975
Consolidated Statements of Retained Earnings (Unaudited)
Balance at beginning of period.................................................... $1,367,003 $1,354,894 $1,364,875 $1,340,799
Net income for period........................................................ 35,034 18,253 92,151 84,026
Dividends declared:
Cumulative preferred stock............................................ (1,060) (2,371) (3,427) (5,180)
Common stock.......................................................... (54,000) (48,511) (106,622) (96,232)
Premium on redeemed preferred stock........................................... - - - (1,148)
Balance at end of period.......................................................... $1,346,977 $1,322,265 $1,346,977 $1,322,265
<FN>
<F1> As described in the Management's Discussion and Analysis, earnings for the three and six months ended June 30, 1997, were
reduced by $0.12 per share due to the write-off of $29 million in merger related costs.
</FN>
</TABLE>
The Notes to Consolidated Financial Statements are an integral part of the
Statements of Income and Retained Earnings.
<TABLE>
<CAPTION>
Northern States Power Company (Minnesota) and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Six Months Ended
June 30,
1998 1997
(Thousands of dollars)
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income........................................................................................ $92,151 $84,026
Adjustments to reconcile net income to cash from operating activities:
Depreciation and amortization................................................................... 187,522 176,095
Nuclear fuel amortization....................................................................... 21,148 19,506
Deferred income taxes........................................................................... (2,709) (9,145)
Deferred investment tax credits recognized...................................................... (4,565) (4,837)
Allowance for funds used during construction - equity........................................... (3,557) (3,821)
Undistributed equity in earnings of unconsolidated affiliates .................................. (13,520) (4,605)
Write-off of prior year merger costs............................................................ - 25,289
Cash used for changes in certain working capital items.......................................... (10,042) (11,174)
Cash provided by changes in other assets and liabilities........................................ 3,557 17,067
Net cash provided by operating activities.......................................................... 269,985 288,401
Cash Flows from Investing Activities:
Capital expenditures ............................................................................. (180,459) (185,075)
Decrease in construction payables................................................................. (1,367) (710)
Allowance for funds used during construction - equity............................................. 3,557 3,821
Investment in external decommissioning fund....................................................... (21,020) (20,687)
Equity investments, loans and deposits for nonregulated projects.................................. (126,627) (310,617)
Collection of loans made to nonregulated projects................................................. 63,739 2,188
Other investments - net........................................................................... (10,603) (8,296)
Net cash used for investing activities............................................................. (272,780) (519,376)
Cash Flows from Financing Activities:
Change in short-term debt - net issuances (repayments)............................................ (5,077) (65,643)
Proceeds from issuance of long-term debt - net.................................................... 267,467 250,999
Repayment of long-term debt....................................................................... (115,078) (4,436)
Proceeds from issuance of common stock - net...................................................... 45,540 769
Proceeds from issuance of preferred securities - net.............................................. - 193,315
Redemption of preferred stock, including reacquisition premiums................................... (95,000) (41,278)
Dividends paid.................................................................................... (109,762) (100,736)
Net cash (used for) provided by financing activities............................................... (11,910) 232,990
Net increase (decrease) in cash and cash equivalents................................................. (14,705) 2,015
Cash and cash equivalents at beginning of period..................................................... 54,765 51,118
Cash and cash equivalents at end of period........................................................... $40,060 $53,133
</TABLE>
The Notes to Consolidated Financial Statements are an integral part of the
Statements of Cash Flows.
<TABLE>
<CAPTION>
Northern States Power Company (Minnesota) and Subsidiaries
Consolidated Balance Sheets (Unaudited)
June 30, December 31,
1998 1997
ASSETS (Thousands of dollars)
<S> <C> <C>
Utility Plant
Electric.................................................................................... $7,073,809 $6,964,888
Gas......................................................................................... 835,692 821,119
Other....................................................................................... 355,614 343,950
Total................................................................................... 8,265,115 8,129,957
Accumulated provision for depreciation.................................................... (4,018,606) (3,868,810)
Nuclear fuel................................................................................ 948,625 932,335
Accumulated provision for amortization.................................................... (853,310) (832,162)
Net utility plant....................................................................... 4,341,824 4,361,320
Current Assets
Cash and cash equivalents................................................................... 40,060 54,765
Customer accounts receivable - net.......................................................... 241,355 269,455
Unbilled utility revenues................................................................... 98,345 121,619
Notes receivable from nonregulated projects................................................. 27,874 55,787
Other receivables........................................................................... 50,919 80,803
Fossil fuel inventories - at average cost................................................... 45,031 56,434
Materials and supplies inventories - at average cost........................................ 113,383 107,254
Prepayments and other....................................................................... 56,405 55,674
Total current assets...................................................................... 673,372 801,791
Other Assets
Equity investments in nonregulated projects ................................................ 844,001 740,734
External decommissioning fund and other investments......................................... 444,545 400,290
Regulatory assets........................................................................... 320,922 340,122
Nonregulated property - net of accumulated depreciation..................................... 257,809 256,726
Notes receivable from nonregulated projects................................................. 66,379 77,639
Other long-term receivables................................................................. 43,058 42,600
Intangible assets - net of amortization..................................................... 97,437 92,829
Long-term prepayments and deferred charges.................................................. 41,025 30,015
Total other assets....................................................................... 2,115,176 1,980,955
TOTAL ASSETS............................................................................ $7,130,372 $7,144,066
LIABILITIES AND EQUITY
Capitalization
Common stock equity:
Common stock and premium - authorized: 1998 350,000,000 and 1997 160,000,000
shares of $2.50 par value, issued shares:
1998 150,880,820 and 1997 149,236,764................................................... $1,126,502 $1,080,273
Retained earnings......................................................................... 1,346,977 1,364,875
Leveraged common stock held by ESOP....................................................... (21,924) (10,533)
Accumulated other comprehensive income.................................................... (85,958) (62,887)
Total common stock equity............................................................... 2,365,597 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<F1>.............................................................................. 200,000 200,000
Long-term debt.............................................................................. 2,049,221 1,878,875
Total capitalization.................................................................... 4,720,158 4,650,943
Current Liabilities
Long-term debt due within one year.......................................................... 25,129 22,820
Other long-term debt potentially due within one year........................................ 141,600 141,600
Short-term debt ............................................................................ 255,275 260,352
Accounts payable............................................................................ 201,013 249,813
Taxes accrued............................................................................... 144,720 186,369
Interest accrued............................................................................ 39,105 28,724
Dividends payable on common and preferred stocks............................................ 55,065 54,778
Accrued payroll, vacation and other......................................................... 79,580 89,562
Total current liabilities............................................................... 941,487 1,034,018
Other Liabilities
Deferred income taxes....................................................................... 781,192 792,569
Deferred investment tax credits............................................................. 133,565 138,509
Regulatory liabilities...................................................................... 349,703 305,765
Postretirement and other benefit obligations................................................ 129,414 135,612
Other long-term obligations and deferred income............................................. 74,853 86,650
Total other liabilities................................................................. 1,468,727 1,459,105
Commitments and Contingent Liabilities (See Note 3)
TOTAL LIABILITIES AND EQUITY.......................................................... $7,130,372 $7,144,066
<FN>
<F1> 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.
</FN>
</TABLE>
The Notes to Consolidated Financial Statements are an integral part of the
Balance Sheets
NORTHERN STATES POWER COMPANY (MINNESOTA) AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------
In the opinion of management, the accompanying unaudited financial
statements contain all adjustments necessary to present fairly the financial
position of Northern States Power Company (Minnesota) (the Company) and its
subsidiaries (collectively, NSP) as of June 30, 1998 and Dec. 31, 1997, the
results of its operations for the three and six months ended June 30, 1998 and
1997, and its cash flows for the six months ended June 30, 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.
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. All financial information pertaining to earnings per share and
number of shares outstanding has been adjusted to reflect the stock split.
1. BUSINESS DEVELOPMENTS
- -- ----------------------
NRG ENERGY, INC. (NRG) - On March 31, 1998, NRG and its 50 percent partner,
Dynegy, concluded the acquisition of the Long Beach Generating Station for
approximately $15 million, one of two Southern California Edison plants awarded
to the NRG and Dynegy 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 Dynegy concluded the
acquisition of the second plant, the 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.
In 1996, NRG, Ansaldo Energia SpA, a major Italian industrial company
(Ansaldo), and P.T. Kiani Metra, an Indonesian industrial company (PTKM) formed
a joint venture to develop a 400-megawatt coal-fired power generation facility
in West Java, Indonesia, through P.T. Dayalistrik Pratama (PTDP), a limited
liability company created by the joint venturers. NRG and Ansaldo each have an
ownership interest of 45 percent in PTDP, and PTKM has an ownership interest of
10 percent. As a result of the political and economic instability in Indonesia,
all development efforts have been temporarily halted and the viability of the
project is uncertain. As of June 30, 1998, NRG had invested $9.9 million in the
project, including land acquisition and capitalized development costs. In
addition, NRG has an interest rate hedge in place for a portion of the equity
commitment to PTDP. If the hedge was marked-to-market as of June 30, 1998, NRG
would incur a settlement obligation of $5.2 million. If the West Java project
does not go forward, NRG would write down the majority of these costs. However,
at this time, management remains committed to the project. Consequently, no
impairment loss had been recognized as of June 30, 1998.
Effective in July 1998, NRG's affiliate NRG Generating (U.S.) Inc. changed
its name to Cogeneration Corporation of America (CogenAmerica). NRG holds
approximately 45 percent of the common stock of CogenAmerica.
ENERGY MASTERS INTERNATIONAL, INC. (EMI) - In June 1998, EMI sold its
interest in the joint venture, Enerval, to its joint venture partner. 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 had no material
impact on 1998 earnings.
VIKING GAS TRANSMISSION COMPANY (VIKING) - On April 21, 1998, Viking
withdrew from the proposed Voyageur pipeline project, which would have carried
natural gas from Emerson, Manitoba, to Joliet, Illinois. The pipeline had been
scheduled to begin service on Nov. 1, 1999.
Although Viking believes a pipeline project will go forward in the future
to meet growing midwest 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 June 30, 1998, Viking had written off $1.4 million in costs related
to the Voyageur project. At this time, Viking has eliminated all liabilities
to the partnership from its balance sheet. Viking continues to negotiate the
final termination of its involvement in the partnership and cannot determine if
any additional costs will be incurred related to the Voyageur project.
BLACK MOUNTAIN GAS - On Dec. 31, 1997, the Company announced an agreement
and plan of merger with Black Mountain Gas Company of Cave Creek, Arizona (Black
Mountain). On July 24, 1998, the Company completed its merger with Black
Mountain. Black Mountain is a natural gas and propane distribution company with
natural gas operations in Cave Creek, Carefree, North Phoenix and North
Scottsdale, and propane operations in the city of Page, Arizona. Black Mountain
currently serves about 6,500 customers and had 1997 annual revenue of
approximately $6 million. The transaction was structured as a tax-free
reorganization for income tax purposes and was accounted for using the pooling
of interests method.
NATURAL GAS INC. - In late 1997, Northern States Power Company, a Wisconsin
Corporation (the Wisconsin Company), signed a purchase agreement to acquire
Natural Gas Inc. (NGI) of New Richmond, Wisconsin. On July 1, 1998, the
Wisconsin Company completed the acquisition. New Richmond is located in St.
Croix County - the fastest growing county in Wisconsin in 1996 with a 15 percent
growth rate. NGI, a privately owned natural gas utility founded in 1962, serves
1,900 natural gas customers in New Richmond and has annual revenue of
approximately $2.3 million. The transaction was structured as a tax-free
reorganization for income tax purposes and was accounted for using the pooling
of interests method.
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, the 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, the Wisconsin
Company owned approximately 2,390 miles of transmission lines with a book value
of $87.9 million and transmission substations with a book value of $59.5
million. The Wisconsin Company may attempt to obtain a 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. See Note 2 for a discussion of NSP's
possible divestiture of its transmission assets through the formation of an
Independent Transmission Company (ITC).
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. During May 1998, NSP, the Department of
Public Service (DPS) and the Office of the Attorney General entered into
settlement agreements on essentially all revenue and rate design issues. On
July 29, 1998, the administrative law judge recommended approval of the
settlement and a final rate increase of $13.6 million, or 4.1 percent, on an
annualized basis. A final decision by the MPUC is expected in October 1998.
During April and May 1998, NSP submitted to the MPUC its annual electric
and gas Conservation Improvement Program (CIP) and Financial Incentive Reports.
On June 1, 1998, the DPS recommended the MPUC discontinue further recovery of
lost margins, load management discounts and performance bonuses for NSP and
other Minnesota public utilities. The DPS recommendation, if approved by the
MPUC, would not allow NSP to accrue lost margins, load management discounts and
performance bonuses after Dec. 31, 1997. NSP's annual electric and gas revenues
include approximately $34 million of recovery for lost margins, load management
discounts and performance bonuses associated with conservation programs. During
July 1998, NSP and other Minnesota public utilities filed comments opposing the
DPS position and arguing for continued recovery of CIP incentives. Although the
MPUC has not yet determined when they will deliberate the issue of continued
recovery of CIP incentives, the Company believes that the MPUC will address this
issue before the end 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 has not
yet been received, which will delay the implementation of new rates. The
Wisconsin Company estimates a final order will be received during the third
quarter of 1998.
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 the 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 levels.
During April 1998, the 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. As of early August 1998, the cases were in the initial hearing
stage.
On June 29, 1998, the FERC issued an order requiring NSP to curtail service
to its own retail sales customers proportionally with curtailment of wholesale
transmission-only customers taking service under NSP's Order 888 transmission
tariff. The effect of FERC's order would require that in a situation where
NSP's transmission lines are constrained or about to become overloaded, NSP
would reduce or curtail service to retail customers on a comparable basis with
curtailment of wholesale transactions. On July 1, 1998, NSP filed an emergency
request for clarification and rehearing on FERC's June 29 order and a motion to
stay its effective date. On July 31, 1998, the FERC issued a second order,
denying NSP's request.
On Aug. 3, 1998, NSP filed an appeal of the FERC orders with the U.S. Court
of Appeals, Eighth Circuit (Court). NSP believes FERC exceeded its legal
authority because service to retail customers is subject to state regulation,
not FERC regulation. In addition, NSP believes FERC has issued inconsistent
orders which NSP cannot fully comply with and which places reliability of
service to NSP's retail customers at risk. In its petition, NSP requested a
court order delaying enforcement of the FERC orders and authorizing NSP to
comply with the regional transmission service interruption procedures developed
by the Mid-Continent Area Power Pool, pending a final Court decision. NSP also
requested an expedited Court review and ultimate reversal of the FERC orders.
On Aug. 6, 1998, the Court denied the Company's motion for stay and expedited
consideration. The underlying appeal will be considered by the Court using its
normal procedures. NSP believes a final decision will be issued later in 1998.
During June 1998, the FERC approved NSP's wholesale electric market-based
sales rate application with rates effective immediately. This allows NSP's
Energy Marketing organization to sell wholesale power at market-based rates,
which represent the true clearing price of energy. Previously, NSP's Energy
Marketing organization had been restricted by regulation to sell power only
under cost-based rates. The move to market-based rates reflects the
increasingly competitive nature of the electric industry.
In April 1998 testimony before FERC, the Company proposed to form an
Independent Transmission Company (ITC), as an alternative to an ISO. The ITC
would own and operate transmission facilities independent from vertically
integrated utilities and other market participants and satisfy the regulatory
requirements for control of transmission facilities. The ITC would operate
transmission facilities as a for-profit entity. NSP is currently in discussion
with other utilities to form an ITC and is seeking to reach an agreement to
proceed within the next several months. However there can be no assurance that
such an agreement will be reached. In the event NSP is successful in forming an
ITC, NSP anticipates at the present time that as part of such transaction, it
would divest its electric transmission assets through a sale, spin-off or other
means. At June 30, 1998, the net book value of NSP's transmission assets was
approximately $634 million.
During June 1998, Viking filed a rate case with the FERC, requesting a $3
million annual rate increase. On July 30, 1998, the FERC issued an order
allowing the rate increase to take effect January 1999, subject to refund. A
final order is expected in the second half of 1999.
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 103.5-megawatts of wind energy. This brings
NSP's total contracted wind energy capacity to approximately 269-megawatts.
LEGAL CLAIMS - During April 1997, a fire damaged several buildings in
downtown Grand Forks. This fire occurred during the historic floods in that
city. On July 23, 1998, the St. Paul Mercury Insurance Company, which insured
the First National Corporation and its three buildings in downtown Grand Forks,
commenced a lawsuit against NSP for damages in excess of $15 million. The suit
was filed in the District Court in Grand Forks County in North Dakota. Mr.
Douglas W. Leatherdale, a director of the Company, is Chairman, President and
Chief Executive of St. Paul Companies, Inc., the parent of St. Paul Mercury
Insurance Company. Mr. W. John Driscoll, a director of the Company, is also a
director of St. Paul Companies, Inc.
The insurance company alleges that the fire was electrical in origin and
that NSP was legally responsible for the fire because it failed to shut off
electrical power to downtown Grand Forks during the flood and prior to the fire.
It is NSP's position that it is not legally responsible for this unforeseeable
event. At no time prior to the fire was NSP instructed to shut power off to
downtown Grand Forks by any government officials, including representatives from
the fire department. Moreover, people in downtown Grand Forks were relying on
electricity before and after the fire occurred. NSP has a self-insured
retention deductible of $2 million, with general liability insurance coverage
limits of $150 million. The ultimate costs to NSP, if any, are unknown at this
time.
4. ACCOUNTING AND 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 June 30, 1998
and 1997, reduced common stock equity and other comprehensive income by $19.9
million and $13.2 million, respectively. The currency translation adjustments
for the six month periods ended June 30, 1998 and 1997, reduced common stock
equity and other comprehensive income by $23.1 million and $16.6 million,
respectively.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement requires that all
derivatives be recognized at fair value in the balance sheet and all changes in
fair value be recognized currently in earnings or deferred as a component of
other comprehensive income, depending on the intended use of the derivative, its
resulting designation (for example, as a qualifying hedge) and its
effectiveness, if designated as a qualifying hedge. The Company will be
required to adopt this standard in the third quarter of 1999, but can elect to
adopt it in 1998. The Company has not determined the potential impact of the
implementing this statement or the expected adoption date at this time.
5. SHORT-TERM BORROWINGS
- -- ----------------------
As of June 30, 1998, the Company had a $300 million revolving credit
facility under a commitment fee arrangement. This facility provides short-term
financing 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, as of June 30, 1998, commercial banks
provided credit lines of approximately $317 million to wholly owned subsidiaries
of the Company. At June 30, 1998, approximately $175 million in borrowings were
outstanding under these credit lines. In addition, approximately $42 million in
letters of credit were outstanding, which reduced the credit lines available to
subsidiaries at June 30, 1998, and therefore left approximately $100 million of
unused lines available at that date. At June 30, 1998, the Company had $80
million in short-term commercial paper borrowings outstanding. The weighted
average interest rate on all short-term borrowings was 6.1 percent as of June
30, 1998.
<PAGE>
------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- --------------------------------------------------------------------------------
OF OPERATIONS
-------------
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; issues
relating to year 2000 remediation efforts; 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 June
30, 1998.
RESULTS OF OPERATIONS
Northern States Power Company's earnings per share (assuming dilution) for
the periods ending June 30, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
3 Mos. Ended 6 Mos. Ended
6/30/98 6/30/97 6/30/98 6/30/97
------------- --------- -------- ---------
<S> <C> <C> <C> <C>
Earnings per share:
Ongoing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.23 $ 0.24 $ 0.59 $ 0.68
Merger costs <F1>. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.00 (0.12) 0.00 (0.12)
------------- --------- -------- ---------
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.23 $ 0.12 $ 0.59 $ 0.56
- ------------------------------------------------------------------------------ ============= ========= ======== =========
<FN>
<F1>Net of applicable income tax. See discussion under Nonrecurring transaction.
</FN>
</TABLE>
FACTORS AFFECTING RESULTS OF OPERATIONS
- -----------------------------------------------------------------------------
In addition to items noted in the 1997 Form 10-K, t he 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 Mos. Ended 6 Mos. Ended
6/30/98 6/30/97 6/30/98 6/30/97
<S> <C> <C> <C> <C>
--------------------------------------------
NRG Energy, Inc. . . . . . . . . . . $ 0.05 $ 0.04 $ 0.09 $ 0.09
Eloigne Company. . . . . . . . . . . 0.01 0.01 0.02 0.02
Energy Masters International, Inc. (0.01) (0.01) (0.03) (0.03)
Other. . . . . . . . . . . . . . . . (0.02) (0.01) (0.01) 0.00
--------------------------------------------
Total. . . . . . . . . . . . . . . $ 0.03 $ 0.03 $ 0.07 $ 0.08
- ------------------------------------ ============================================
</TABLE>
Due to the nature of these nonregulated businesses, NSP anticipates that
the earnings from nonregulated operations could experience more variability than
regulated utility businesses.
ESTIMATED IMPACT OF WEATHER ON REGULATED EARNINGS - NSP estimates electric
and gas 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 Normal 1997 vs Normal 1998 vs 1997
- ------------------------------------- -------------------- -------------- --------------
<S> <C> <C> <C>
Earnings per Share for:
Quarter Ended June 30 $ 0.00 $ 0.01 ($0.01)
Six Months Ended June 30. . . ($0.08) $ 0.02 ($0.10)
- ------------------------------------- -------------------- -------------- ---------------
</TABLE>
IMPACT OF STORMS - NSP's results for three and six month periods ending
June 30, 1998, were reduced by approximately 4 cents per share due to a series
of severe hail and wind storms in May and June. Results for 1998 included
approximately $8 million in operating and maintenance expenses related to the
cost of customer restoration and storm repair. In addition, electric margin was
reduced by an estimated $1 million due to customer outages from the storms. NSP
also incurred approximately $8 million of capital expenditures related to the
storms during the 1998 second quarter. It is expected that NSP will incur
approximately $4 million of additional storm related costs in the third quarter
as repairs are completed.
NONRECURRING TRANSACTION - In May 1997, NSP and Wisconsin Energy
Corporation terminated their merger agreement. The operating results for the
three and six month periods ending June 30, 1997, include a charge to
nonoperating expense of approximately $29 million, or 12 cents per share, for
the write-off of costs incurred related to the merger. This charge is being
reported as a nonrecurring item outside of earnings from ongoing operations.
INDUSTRY RESTRUCTURING - Efforts are continuing to bring more competition
to the electric and gas industry. Wisconsin has enacted legislation requiring
utilities to form an ISO or to divest its transmission assets to a ITO. NSP is
separately considering the formation of an ITC. See Notes 1 and 2 of the
Financial Statements for a further discussion of these matters.
TECHNOLOGY CHANGES FOR THE YEAR 2000 - NSP expects to incur significant
costs to modify or replace existing technology, including computer software, for
uninterrupted operation in the year 2000 and beyond. In 1996, NSP's Board of
Directors approved funding to address development and remediation efforts
related to the year 2000. A committee made up of senior management is leading
NSP's initiatives to identify year 2000 related issues and remediate business
processes as necessary in 1998.
NSP's year 2000 program covers not only NSP's 2,000 computer applications
consisting of about 75,000 programs totaling more than 30 million lines of code,
but also the thousands of hardware and embedded system components in use
throughout NSP. Embedded systems perform mission-critical functions in all
parts of operations including power generation, distribution, communications and
business operations. NSP is on track to remediate critical applications and
critical embedded components by the end of 1998 or during scheduled 1999 plant
outages and to devote 1999 to remediating lower priority items, fine tuning and
re-testing, and contingency planning.
NSP is working with major suppliers to minimize business interruptions due
to year 2000 issues in the suppliers' business processes. NSP is also working
closely with the Electric Power Research Institute, the Mid-Continent Area Power
Pool, the Nuclear Energy Institute, the North American Electric Reliability
Council and other utilities to enhance coordination, system reliability and
compliance with industry and regulatory requirements.
Despite these efforts there can be no assurances that every year 2000
related issue will be identified and addressed before 2000. An unexpected
failure regarding a year 2000 issue could result in an interruption in certain
normal business activities or operations. However, NSP believes that with the
completion of its year 2000 project, significant interruptions will not be
encountered.
Through June 30, 1998, NSP had spent approximately $7.5 million for year
2000 remediation. The amount of additional development and remediation costs
necessary for NSP to prepare for the year 2000 is estimated to be approximately
$17 million.
SECOND QUARTER 1998 COMPARED WITH SECOND QUARTER 1997
- ------------------------------------------------------------
Utility Operating Results
- ---------------------------
ELECTRIC REVENUES for the second quarter of 1998 compared with the second
quarter of 1997 increased $52.6 million or 10.2 percent. Retail revenues
increased approximately $35.8 million largely due to a 5.1 percent increase in
retail sales volume and a 2.2 percent increase in average prices due to fuel
cost recovery. The increase in retail electric sales reflects sales growth and
more favorable weather. The average temperature for the second quarter of 1998
was 4.3 degrees warmer than the second quarter of 1997. Sales for resale and
other electric revenues increased $16.8 million primarily due to higher prices
in the resale market reflecting market conditions and higher sales volumes as a
result of more aggressive marketing efforts, and increased transmission of
electricity for others.
GAS REVENUES for the second quarter of 1998 decreased $8.3 million or 10.9
percent compared with the second quarter of 1997. Gas revenues decreased
primarily due to a 28.4 percent decrease in gas sales volume, partially offset
by a 18.2 percent average price increase. The sales volume decrease is due
primarily to less favorable weather in 1998 in comparison to 1997. The average
temperature for the second quarter of 1998 was 4.3 degrees warmer than the
second quarter of 1997. The price increase is mainly due to rate adjustments for
increased purchased gas costs resulting from market changes in natural gas
supply prices and interim rate increases as discussed in Note 2 to the
Financial Statements
FUEL FOR ELECTRIC GENERATION AND PURCHASED AND INTERCHANGE POWER expense
together increased $32.2 million or 23.0 percent for the second quarter of 1998
compared with the second quarter of 1997. Purchased and interchange power costs
increased $24.9 million primarily due to the higher average cost of purchases as
a result of market conditions and higher demand expenses related to a contract
which began in October 1997. In addition, more purchases were required in 1998
to support sales growth. Fuel expenses increased $7.3 million primarily due to
higher output from NSP's generating plants and higher average fossil fuel
prices. The higher output reflects higher sales levels. The higher fuel
prices are primarily due to increased use of less efficient fossil plants to
support higher sales.
COST OF GAS PURCHASED AND TRANSPORTED for the second quarter of 1998
compared with the second quarter of 1997 decreased $5.2 million or 12.4 percent
primarily due to the lower gas sendout, partially offset by higher cost of gas.
The lower sendout primarily is a result of decreased gas sales due to less
favorable weather. The higher cost of purchased gas reflects changes in market
conditions and purchased gas cost adjustments to match expense with rate
recovery.
OTHER OPERATION, MAINTENANCE AND ADMINISTRATIVE AND GENERAL expenses
together increased $16.7 million or 9.8 percent compared with the second quarter
of 1997. The increases are primarily due to storm costs, increased outage
related expenses and higher costs for information technology improvements,
including costs related to the Year 2000 project.
DEPRECIATION AND AMORTIZATION expense increased $2.5 million or 3.1 percent
compared with the second quarter of 1997. The increase is mainly due to
increased plant in service between the two periods partially offset by lower
depreciation rates.
PROPERTY AND GENERAL TAXES for the second quarter of 1998 compared with the
second quarter of 1997 increased $0.1 million or 0.2 percent primarily due to
higher property taxes partially offset by lower payroll taxes. The higher
property taxes reflect timing of accruals as a result of a second quarter 1997
reduction to adjust 1997 year to date accruals. Without this timing issue,
property taxes would have decreased.
UTILITY INCOME TAXES for second quarter 1998 compared with first quarter
1997 were $2.1 million less primarily due to a lower effective tax rate and
lower operating income.
OTHER UTILITY INCOME (DEDUCTIONS) - NET after applicable income taxes
increased $15.1 million mainly due to the write off of merger costs in the
second quarter of 1997.
ALLOWANCE FOR FUNDS USED DURING CONSTRUCTION (AFC) decreased $0.8 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 $1.9 million or 6.2 percent
primarily due to lower levels of commercial paper, retirement of bonds in
October 1997 and April 1998, partially offset by new bonds issued in March 1998
and Senior Notes issued by Viking in October 1997.
PREFERRED STOCK DIVIDENDS AND REDEMPTION PREMIUMS decreased $1.3
million in the second quarter of 1998 compared with 1997 primarily due to
reductions in dividends resulting from the redemption of two issues of preferred
stock in late March 1998.
AVERAGE COMMON SHARES OUTSTANDING increased due to stock issuances, mainly
a public offering in September 1997. Share dilution has decreased second
quarter earnings by approximately two cents per share in 1998 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). . 6/30/98 6/30/97
--------- ---------
Operating revenues. . . . . . . . . . $ 42,373 $ 46,915
Equity in earnings of unconsolidated
affiliates . . . . . . . . . . . . 12,578 4,532
Operating and development expenses. . (50,645) (50,959)
Other income (expense). . . . . . . . 3,376 4,605
--------- ---------
Income from nonregulated businesses
before interest and taxes . . . . 7,682 5,093
Interest expense. . . . . . . . . . . (13,859) (8,044)
Income tax benefit. . . . . . . . . . 10,551 6,259
--------- ---------
Net income. . . . . . . . . . . . . . $ 4,374 $ 3,308
- ------------------------------------- --------- ---------
Contribution of nonregulated
businesses to NSP earnings per
share. . . . . . . . . . . . . . . $ 0.03 $ 0.03
- ------------------------------------- --------- ---------
</TABLE>
NRG - NRG's second quarter earnings increased in 1998 from the same
period one year ago primarily due to earnings, including tax credits, from
interests in Pacific Generation Company, Energy Developments Limited, and other
new projects purchased after the second quarter of 1997. Earnings for 1998 were
partially offset by increased interest costs primarily associated with NRG's
$250 million of senior notes issued in mid-1997 and balances outstanding under
line of credit arrangements. NRG is a public company and is subject to the
informational reporting requirements of the Securities Exchange Act of 1934.
Further information about NRG may be obtained from its Form 10-Q for the quarter
ended June 30, 1998.
EMI - EMI's 1998 second quarter losses were equivalent to those of the
second quarter of 1997.
FIRST SIX MONTHS OF 1998 COMPARED WITH FIRST SIX MONTHS 1997
- ----------------------------------------------------------------------
Utility Operating Results
- ---------------------------
ELECTRIC REVENUES for the first six months of 1998 increased $55.0 million
or 5.3 percent compared with the six months of 1997. Retail revenues increased
approximately $32.8 million largely due to a 2.2 percent increase in retail
sales volume and a 1.2 percent increase in average prices due to fuel cost
recovery. The increase in retail electric sales reflects sales growth,
partially offset by less favorable weather, particularly in the first quarter.
Sales for resale and other electric revenues increased $22.2 million primarily
due to higher sales volumes in the resale market as a result of more aggressive
marketing efforts and higher prices due to market conditions, increased
transmission of electricity for others, and conservation program revenues.
GAS REVENUES for the first six months of 1998 decreased $51.9 million or
17.3 percent compared with the first six months of 1997. Gas revenues decreased
primarily due to a 16.8 percent decrease in gas sales volume and a 4.6 percent
average price decrease. The sales volume decrease is due primarily to less
favorable weather in 1998 in comparison to 1997. The average temperature for
the first six months of 1998 was 5.7 degrees warmer than the first six months
of 1997. The price decrease is mainly due to rate adjustments for decreased
purchased gas costs resulting from market changes in natural gas supply prices,
partially offset by interim rate increases as discussed in Note 2 to the
Financial Statements.
FUEL FOR ELECTRIC GENERATION AND PURCHASED AND INTERCHANGE POWER expense
together increased $40.8 million or 14.6 percent for the first six months of
1998 compared with the first six months of 1997. Purchased and interchange
power costs increased $39.1 million primarily due to higher average cost of
purchases as a result of market conditions and higher demand expenses related to
a contract which began in October 1997. In addition, more purchases were
required in 1998 to support higher sales.
COST OF GAS PURCHASED AND TRANSPORTED for the first six months of 1998
compared with the first six months of 1997 decreased $43.7 million or 22.5
percent due to lower gas sendout and the lower cost of gas. The lower sendout
primarily is a result of decreased gas sales, reflecting less favorable weather
conditions. The lower cost of purchased gas reflects changes in market
conditions and purchased gas cost adjustments to match expense with rate
recovery.
OTHER OPERATION, MAINTENANCE AND ADMINISTRATIVE AND GENERAL expenses
together increased $22.9 million or 6.8 percent compared with the first six
months of 1997. The increases are primarily due to storms costs incurred in the
second quarter of 1998, increased plant outage related expenses, higher costs
for information technology improvements, including costs related to the Year
2000 project, and higher insurance costs mainly as a result of an insurance
refund recorded in 1997.
DEPRECIATION AND AMORTIZATION expense increased $6.7 million or 4.2 percent
compared with the first six months of 1997. The increase is mainly due to
increased plant in service between the two periods partially offset by revised
depreciation lives.
PROPERTY AND GENERAL TAXES for the first six months of 1998 compared with
the first six months of 1997 decreased $5.3 million or 4.5 percent primarily due
to lower property tax rates reflecting recent legislation, and lower franchise
taxes.
UTILITY INCOME TAXES for first six months of 1998 compared with first six
months of 1997 were $8.5 million less primarily due to lower operating income in
the first six months of 1998 and a lower effective tax rate.
OTHER UTILITY INCOME (DEDUCTIONS) - NET after applicable income taxes
increased $18.2 million mainly due to the write off of $29 million of merger
costs (before tax) in the first six months of 1997.
ALLOWANCE FOR FUNDS USED DURING CONSTRUCTION (AFC) decreased $2.3 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 $3.6 million or 5.9 percent
primarily due to lower levels of commercial paper and retirement of bonds in
October 1997 and April 1998, partially offset by new bonds issued in March 1998
and Senior Notes issued by Viking in October 1997.
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 $2.9 million in
the first six months of 1998 compared with 1997 primarily due to reductions in
dividends resulting from the redemption of two issues of preferred stock in
February 1997 and two other issues in late March 1998.
AVERAGE COMMON SHARES OUTSTANDING increased due to stock issuances, mainly
a public offering in September 1997. Share dilution has decreased 1998 earnings
by approximately five cents per share in comparison to 1997.
Nonregulated Business Results
- -------------------------------
The following summarizes NSP's diversified business results in the
aggregate, including consolidated subsidiaries and unconsolidated affiliates.
<TABLE>
<CAPTION>
6 Mos. Ended
-------------------------------------
<S> <C> <C>
(Thousands of dollars, except EPS). . 6/30/98 6/30/97
---------- ----------
Operating revenues. . . . . . . . . . $ 84,286 $ 110,883
Equity in earnings of unconsolidated
affiliates . . . . . . . . . . . . 28,185 11,626
Operating and development expenses. . (103,431) (117,898)
Other income (expense). . . . . . . . 2,927 7,132
---------- ----------
Income from nonregulated businesses
before interest and taxes . . . . 11,967 11,743
Interest expense. . . . . . . . . . . (26,138) (13,005)
Income tax benefit. . . . . . . . . . 24,822 12,090
---------- ----------
Net income. . . . . . . . . . . . . . $ 10,651 $ 10,828
- ------------------------------------- ---------- ----------
Contribution of nonregulated
businesses to NSP earnings per
share. . . . . . . . . . . . . . . $ 0.07 $ 0.08
- ------------------------------------- ---------- ----------
</TABLE>
In the aggregate, approximately 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 earnings for the first six months of 1998 were approximately
equal to the first six months of 1997 on a per share basis. Project earnings,
including tax credits, from interests in Pacific Generation Company, Energy
Developments Limited and other new projects, all purchased after the second
quarter of 1997, along with increased earnings from existing projects were
offset by increases in interest costs, business development expenses, and costs
of expanded operations. Higher interest costs primarily reflect the issuance of
$250 million senior notes in mid-1997 and higher borrowings on its line of
credit.
EMI - EMI's losses for the first six months of 1998 were equivalent to the
first six months of 1997 on a per share basis.
LIQUIDITY AND CAPITAL RESOURCES
For a discussion of available credit lines and short-term borrowings, see
Note 5 to the Financial Statements.
On April 22, 1998, the Company's 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. Also 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. All share
amounts in this report have been restated to reflect this stock split.
In January 1998, stock options for the purchase of 571,756 shares were
awarded under the Company's Executive Long-Term Incentive Award Stock Plan (the
Plan). These options are not exercisable for approximately twelve months after
the award date. As of June 30, 1998, a total of 2,470,008 options were
outstanding, which were considered potentially dilutive common shares for
calculating earnings per share - assuming dilution. During the first six months
of 1998, the Company has issued 317,161 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 589,630 shares of common stock during the first six months of 1998.
During 1998 the Company has issued a total of 737,265 shares of common
stock to the Employee Stock Ownership Plan (ESOP), including 511,726 leveraged
shares, which was financed by a $15 million bank loan in April 1998.
In third quarter of 1998, NSP issued 852,650 shares of common stock in
connection with various business acquisitions.
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 27, 1998, the Company redeemed $50 million of 7.375 percent and
$50 million of 7.5 percent First Mortgage Bonds.
The Company currently anticipates filing with the SEC a $400 million
universal debt shelf registration during the second half of 1998. The Company
currently has $50 million of registered, but unissued, bonds remaining from its
$300 million First Mortgage Bond shelf registration, which was filed in October
1995. Depending on market conditions, the Company expects to issue the long
term debt to raise additional capital for general corporate purposes or to
redeem or retire outstanding securities.
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.
On June 8, 1998, the Company filed a complaint in the Court of Federal
Claims against the DOE requesting damages for the DOE's partial breach of the
Standard Contract. The Company requests damages in excess of $1 billion, which
consists of the costs of storage of spent nuclear fuel at the Prairie Island
nuclear generating plant (Prairie Island), as well as anticipated costs related
to the Private Fuel Storage, LLC and the 1994 state legislation limiting the
number of casks which can be used to store spent nuclear fuel at Prairie Island.
On June 8, 1998, Indiana Michigan Power Company (a subsidiary of American
Electric Power), Duke Energy and Florida Power and Light filed similar
complaints in the Court of Federal Claims against the DOE requesting damages for
the DOE's partial breach of the Standard Contract. On June 17, 1998, the four
utilities filed a motion to consolidate the complaints. On June 26, 1998, the
Court of Federal Claims determined that briefing on jurisdictional issues in the
Company's case would proceed, while the other cases are stayed. Essentially,
the Company's case requesting damages of $1.4 billion will proceed as the lead
case on jurisdictional issues.
On Aug. 7, 1998, a group of residential and commercial customers brought a
class action lawsuit against the DOE in the Federal District Court in
Minneapolis, Minnesota. The suit demands the return of monies paid by customers
into the nuclear waste fund and other damages, based on the failure of the DOE
to meets its unconditional obligation to accept spent nuclear fuel by January
31, 1998. The Company is named as nominal defendant, as the Company has the
contract with the DOE under which payments are made into the Fund.
On Jan. 30, 1998, NRG's 45 percent owned affiliate, CogenAmerica, gave
notice that it intended to seek arbitration of its claim that NRG sold the
Mid-Continent Power Company (MCPC) facility to OGE Energy Corp. (OGE) in
violation of NRG's obligation to offer certain project investments to
CogenAmerica under the Co-Investment Agreement between NRG and CogenAmerica.
On July 31, 1998, an arbitration panel ordered NRG to offer its interest in MCPC
to CogenAmerica and enjoined NRG's pending sale of the MCPC facility to OGE. On
Aug. 4, 1998, NRG, in accordance with the arbitration panel's order, offered its
interest in the MCPC facility to CogenAmerica on the same terms as it had agreed
to sell to OGE. Under the order, CogenAmerica has 30 days to accept NRG's
offer, and if the offer is not accepted in that time period, NRG has the right
to request that the arbitration panel lift the injunction. Finally, if
CogenAmerica accepts the offer, NRG will be required to finance the purchase
price of approximately $25 million in the event that other financing is not
commercially available to CogenAmerica.
On Aug. 12, 1998, the U.S. Court of Appeals for the Eighth Circuit ruled in
the Company's favor on two federal income tax issues. The first issue involved
the in-service dates for nuclear fuel assemblies received at the Prairie Island
plant in 1985 and 1986. The second issue involved the timing of losses on
uranium enrichment contracts sold to third parties in 1985 and 1986. The
Company previously capitalized and depreciated these costs for income tax
purposes, but filed refund claims in 1994 claiming current tax deductions. The
three judge panel voted unanimously in favor of the Company's positions. The
Internal Revenue Service can apply for rehearing and or appeal to the U.S.
Supreme Court. Based on the Court's reasoning and the unanimous vote, outside
legal counsel believes the Company's positions will be sustained.
See Notes 2 and 3 of the Financial Statements for further discussion of
legal proceedings, including Regulatory Matters and Commitments and Contingent
Liabilities, incorporated herein by reference.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
-----------------------------------------
(A) EXHIBITS
The following Exhibits are filed with this report:
3.01 Restated Articles of Incorporation of Northern States Power Company
27.01 Financial Data Schedule for the six months ended June 30, 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 June 30, 1998, or between June 30, 1998 and the date of this report:
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.
May 20, 1998 (Filed May 20, 1998) - Item 5 Other Events. Re: Disclosure of
the Company's two-for-one stock split increase of the number of shares
registered under Statement No. 333-00415 from 3,500,000 to 4,624,674 shares.
<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: August 14, 1998
- -------------------------
EXHIBIT INDEX
Method of Exhibit
Filing No. Description
DT 3.01 Restated Articles of Incorporation of Northern States
Power Company
DT 27.01 Financial Data Schedule for the six months ended June
30, 1998
DT 99.01 Statement pursuant to Private Securities Litigation
Reform Act of 1995.
DT = Filed electronically with this direct transmission
Exhibit 3.01
RESTATED ARTICLES OF INCORPORATION
OF
NORTHERN STATES POWER COMPANY
(a Minnesota Corporation)
ARTICLE I. NAME AND ADDRESS
The name of this corporation shall be Northern States Power Company. At the time
of the adoption of these Articles, the address of the registered office of the
Corporation is 414 Nicollet Mall, Minneapolis, Minnesota 55401.
ARTICLE II. PURPOSE
The corporation is organized for general business purposes, including but not
limited to acquiring, maintaining and operating facilities by or through which
the corporation can provide communication, transportation, water, light, heat,
or power to the public and to acquire and hold rights and franchises for the
occupation and use of property for providing public utility services.
ARTICLE III. DURATION
The period of duration of this Corporation shall be perpetual.
ARTICLE IV. DIRECTORS
1. Names of Directors
The names and places of residence of directors of the Corporation at
the time of the adoption of these Restated Articles (this reference to
"these Restated Articles" refers to the Restated Articles filed on
June 23, 1980<F1>):
David A. Christensen, RR#3, Box 233, Sioux Falls, SD 57101
W. John Discoll, 357 Salem Church Road, St. Paul, MN 55118
N. Bud Grossman,3412 Oakridge Road, Apt. #210,Minnetonka, MN 55343
Dale L. Haakenstad, 1342 South Ninth, Fargo, ND 58102
Robert E. Haugan, 2 Shelby Place, St. Paul, MN 55116
Richard H. Magnuson, 2141 Doswell Avenue, St. Paul, MN 55108
Donald W. McCarthy, 2862 Gale Road, Wayzata, MN 55391
M.D. McVay, 2201 Isengard Road, Minnetonka, MN 55343
William G. Phillips, 2610 West Lafayette Road, Excelsior, MN 55331
G. M. Pieschel, Route 2, Box 78, Springfield, MN 56087
Margaret R. Preska, 10 Sumner Hills, Mankato, MN 56001
D. B. Reinhart, 2425 Main Street, LaCrosse, WI 54601
Dorothy J. Skwiera, 1260 West Larpenteur Avenue, Apt. #207,
St. Paul, MN 55113
<F1> A listing of directors as of the date these Restated
Articles of Incorporation are being filed is no longer required
by applicable law. The information in Article IV, Section 1 is
restated here as current law requires a complete restatement of
the articles of incorporation without amendment.
2. Board of Directors
The management of this Corporation shall be vested in a Board of
Directors composed of not less than three (3) and not more than
seventeen (17) members, who shall be elected by the stockholders
of the Corporation in the manner provided by the Bylaws. It
shall not be necessary that directors be stockholders in the
Corporation. The number of directors shall be fixed from time to
time by the Bylaws, and such number may be increased or decreased
within the above limits in such manner as may be provided by the
Bylaws. Vacancies in the Board caused by an increase in the
number of directors or by death, resignation, disqualification,
or other cause, may be filled by the remaining directors or by
the stockholders at an annual or special meeting, as may be
provided by the Bylaws.
ARTICLE V. DESCRIPTION OF CAPITAL STOCK
The total authorized number of shares that may be issued by the
Corporation and that
the Corporation will henceforth be authorized to have is three
hundred fifty-seven million (357,000,000) of the par value per
share hereinafter set forth.
A description of the classes of shares and a statement of the
number of shares in each class and the relative rights, voting
power, and preferences granted to and restrictions imposed upon
the shares of each class are as follows:
1. Authorized Number and Classes of Shares
Such shares shall be divided into two classes to be
designated, respectively, Preferred Stock and Common Stock.
The total authorized number of shares of Preferred Stock is
seven million (7,000,000) having a par value of one hundred
dollars ($100.00) per share, and the total authorized number
of shares of Common Stock is three hundred and fifty million
(350,000,000) having a par value of two dollars and fifty
cents ($2.50) per share.
2. Issuance and Terms of Preferred Stock
The Preferred Stock may be issued in series, each of which
series shall have such distinctive designation as may be
fixed by the Board of Directors prior to the issuance or
allotment of any share of such series, provided that such
designation shall in each case include the words "Preferred
Stock." The Board of Directors is hereby authorized, within
the limitations and restrictions hereinafter stated, to fix
from time to time, in respect of shares of Preferred Stock
at the time unallotted, the dividend rates and times of
payment, the redemption price, and liquidation price or
preference as to assets in voluntary liquidation of the
shares of any series of Preferred Stock (except the series
designated "Cumulative Preferred Stock, $3.60 Series," in
respect of which such provisions are hereinafter set forth)
and the number of shares constituting any series of
Preferred Stock.
3. Preferences of Preferred Stock
a. Dividends
The holders of shares of Preferred Stock, irrespective
of the series thereof, shall be entitled to receive in
preference to the Common Stock, when and as declared by
the Board of Directors of the Corporation, out of its
net earnings or surplus, cumulative dividends at such
rate as shall have been fixed for the series of which
such shares are a part, and no more, payable to
shareholders of record on such dates and for such
dividend periods as shall be fixed by the Board of
Directors of the Corporation. So long as dividends are
in default in whole or in part on a series of Preferred
Stock for any prior dividend period for such series of
Preferred Stock, any dividends on the Preferred Stock
shall be divided among the outstanding series of
Preferred Stock for which dividends are accumulated and
unpaid for any prior dividend period applicable thereto
in proportion to the aggregate amounts that then would
be distributable to the holders of Preferred Stock of
each such series if all dividends accumulated thereon
and unpaid for all prior dividend periods applicable
thereto were paid and declared thereon. Dividends on
each share of Preferred Stock shall begin to accrue on
the first day of the dividend period during which the
original issue of a certificate for such share shall
occur; provided, however, that, in the case of any
series of Preferred Stock created after May 6, 1970,
the Board of Directors, in its discretion, may fix the
date of original issue of the shares of such series as
the date from which dividends shall accrue.
b. Liquidation and Dissolution
In the event of any distribution of assets of the
Corporation other than by dividends from net earnings
or surplus, whether upon voluntary liquidation or
dissolution or upon involuntary liquidation or
dissolution of the Corporation, the holders of the
shares of Preferred Stock shall be entitled, in
preference to the Common Stock, to one hundred dollars
($100) per share in the case of involuntary liquidation
or dissolution and to such amount per share in the case
of voluntary liquidation or dissolution (which may
differ from that payable in involuntary liquidation or
dissolution) as shall have been fixed by the Board of
Directors for the shares of the series of which they
are a part, plus in each case an amount equal to all
dividends accumulated and unpaid thereon, and no more.
The consolidation or merger of this Corporation with or
into any other corporation or corporations shall not be
deemed to be a distribution of assets or liquidation or
dissolution of the Corporation within the meaning of
any provisions hereof.
If upon any such distribution of assets of the
Corporation the assets distributable among the holders
of the Preferred Stock of all series shall be
insufficient to pay in full the amounts to which the
holders of Preferred Stock of all series are entitled
under the foregoing provisions, the amount
distributable to the holders of all shares of Preferred
Stock of all series shall be apportioned among them
ratably in proportion to the amounts to which they are,
respectively, entitled in accordance with such
foregoing provisions.
c. Dividend Arrearages
Dividends may be paid upon the Common Stock only when
dividends have been paid, or declared and set apart for
payment in full, on the Preferred Stock of all series
from the date on which dividends thereon began to
accrue to the beginning of the current dividend
periods, but whenever all such dividends have been
paid, or declared and funds set apart for the payment
thereof in full, upon the Preferred Stock of all series
then dividends upon the Common Stock may be declared,
payable then or thereafter out of any net earnings or
surplus then remaining. The holders of Preferred Stock
shall not be entitled to receive any amounts upon any
distribution of the assets of the Corporation other
than by dividends from net earnings or surplus in
excess of the amount to which they are, respectively,
entitled in accordance with the foregoing provisions
hereof, but after the payment of such amounts in
accordance with the provisions hereinabove set forth,
the holders of Common Stock, subject to the rights of
holders of stock of any other class hereafter
authorized, shall receive all further amounts in
distribution of such assets of the Corporation.
4. Redemption of Preferred Stock
The Corporation, at its option, may at any time and from
time to time redeem the whole or any part of the Preferred
Stock of any series or all series, upon at least thirty
days' previous notice by mail or publication given to the
holders of record of the shares to be redeemed or upon such
other period and form of notice as shall be fixed by the
Board of Directors in the resolution establishing such
series, by paying for each share to be redeemed the
redemption price which shall have been fixed, as herein
provided, for the shares of the series of which it is a part
plus in each case an amount equal to the dividends upon such
shares so to be redeemed at the rate or rates fixed with
respect to such shares from the date or dates on which
dividends on such shares began to accrue to the date fixed
for the redemption thereof less the amount of dividends
theretofore paid thereon, such payment to be made only on
presentation and surrender for cancellation of the
certificate or certificates representing the share or shares
so called for redemption properly endorsed or assigned by
the owner of record thereof. If less than all the
outstanding shares of the Preferred Stock are to be
redeemed, the shares to be redeemed shall be determined by
the Board of Directors of the Corporation, either by lot, or
by redemption pro rata, as the Board of Directors see fit.
If the notice of redemption hereinabove provided for shall
have been given as hereinabove provided and if on or before
the redemption date specified in such notice funds necessary
for the redemption of the share or shares to be redeemed
shall have been set apart, as a trust fund, so as to be
available therefor, then notwithstanding that any
certificate for the shares of Preferred Stock so to be
redeemed shall not have been surrendered for cancellation,
the shares represented thereby from and after the date of
redemption so specified shall no longer be deemed
outstanding and the right to receive dividends thereon shall
cease to accrue and all rights of the holders of the shares
to be redeemed as shareholders of the Corporation, except
the right to receive the redemption price without interest
upon endorsement and surrender of the certificates for said
shares so redeemed, shall cease and terminate.
5. Voting Rights
a. Number of Votes
The holders of the Preferred Stock (other than
Preferred Stock of the series designated "Cumulative
Preferred Stock, $3.60 Series") shall be entitled to
one vote for each share thereof held by them, the
holders of Preferred Stock heretofore or hereafter
issued of the series designated "Cumulative Preferred
Stock, $3.60 Series" shall be entitled to three votes
for each share thereof held by them, and the holders of
the Common Stock shall be entitled to one vote for each
share thereof held by them; provided, however, that:
(i) If and when dividends payable on the
Preferred Stock of any series at the time
outstanding are in default in an amount equivalent
to the amount payable thereon during the
immediately preceding twelve month period, and
until such default shall have been remedied as
hereinafter provided, the preferred shareholders,
voting as a class and without regard to series,
shall be entitled to elect the smallest number of
directors necessary to constitute a majority of
the full Board of Directors, and the common
shareholders, voting separately as a class, shall
be entitled to elect the remaining directors of
the Corporation. Upon accrual of such special
right of the Preferred Stock, a meeting of the
preferred and the common shareholders for the
election of directors shall be held upon notice
promptly given as provided in the Bylaws for a
special meeting by the President or the Secretary
of the Corporation. If within fifteen days after
the accrual of such special right of the Preferred
Stock the President and the Secretary of the
Corporation shall fail to call such meeting, then
such meeting shall be held upon notice, as
provided in the Bylaws for a special meeting,
given by the holders of not less than 1,000 shares
of the Preferred Stock after filing with the
Corporation of notice of their intention to do so.
The terms of office of all persons who may be
directors of the Corporation at the time shall
terminate upon the election of a majority of the
Board of Directors by the preferred shareholders,
whether or not the common shareholders shall at
the time of such termination have elected the
remaining directors of the Corporation; thereafter
during the continuance of such special right of
the Preferred Stock to elect a majority of the
Board of Directors, the holders of such stock,
voting as a class, shall be entitled to elect a
majority of the Board of Directors and the holders
of the Common Stock, voting separately as a class,
shall be entitled to elect the remaining directors
of the corporation; and all directors so elected,
whether at such special meeting or any adjournment
thereof, or at any subsequent annual meeting for
the election of directors, held during the
continuance of such special right, shall hold
office until the next succeeding annual election
and until their respective successors, elected by
the preferred shareholders, voting as a class, and
the common shareholders, voting as a class, are
elected and qualified, unless their terms of
office shall be sooner terminated as hereinafter
provided. However, if and when all dividends then
in default on the Preferred Stock shall thereafter
be paid (and such dividends shall be declared and
paid out of any funds legally available therefor
as soon as reasonably practicable), the Preferred
Stock shall thereupon be divested of such special
right herein provided for to elect a majority of
the Board of Directors, but subject always to the
same provisions for the vesting of such special
right in such stock in the case of any similar
future default or defaults, and the election of
directors by the preferred and common
shareholders, voting without regard to class,
shall take place at the next succeeding annual
meeting for the election of directors, or at any
adjournment thereof. The terms of office of all
persons who may be directors of the Corporation at
the time of such divestment shall terminate upon
the election of the directors at such annual
meeting or adjournment thereof.
b. First Meeting for Election of Directors
At the first meeting for the election of directors
after any accrual of the special right of the preferred
shareholders to elect a majority of the Board of
Directors, as provided above, and at any subsequent
annual meeting for the election of directors held
during the continuance of such special right, the
presence in person or by proxy of the holders of record
of a majority of the outstanding shares of Preferred
Stock without regard to series, shall be necessary to
constitute a quorum for the election of the directors
whom the preferred shareholders are entitled to elect,
and the presence in person or by proxy of the holders
of record of a majority of the outstanding shares of
Common Stock shall be necessary to constitute a quorum
for the election of the directors whom the common
shareholders are entitled to elect. If at any such
meeting there shall not be such a quorum of the
preferred shareholders, the meeting shall be adjourned
from time to time without notice other than
announcement at the meeting until such quorum shall
have been obtained; provided that, if such quorum shall
not have been obtained within ninety (90) days from the
date of such meeting as originally called (or, in the
case of any annual meeting held during the continuance
of such special right, from the date fixed for such
annual meetings, the presence in person or by proxy of
the holders of record of one-third of the outstanding
shares of the Preferred Stock, without regard to
series, shall then be sufficient to constitute a quorum
for the election of the directors whom such
shareholders are then entitled to elect. The absence
of a quorum of the preferred shareholders as a class or
of the common shareholders as a class shall not, except
as hereinafter provided for, prevent or invalidate the
election by the other class of shareholders of the
directors whom they are entitled to elect, if the
necessary quorum of shareholders of such other class is
present in person or represented by proxy at any such
meeting or any adjournment thereof. However, at the
first meeting for the election of directors after any
accrual of the special right of the preferred
shareholders to elect a majority of the Board of
Directors, the absence of a quorum of the preferred
shareholders shall prevent the election of directors by
the common shareholders, until a quorum of the
preferred shareholders shall be obtained.
c. Cumulative Voting
The holders of shares of stock of any class entitled to
vote at a meeting for the election of directors shall
have the right to cumulate their votes at such election
in the manner provided by the Minnesota Business
Corporation Act.
6. Special Voting Rights of Preferred Stock
a. Act Requiring Majority Vote of Preferred Stock
So long as any of the Preferred Stock is outstanding,
the Corporation shall not, without the consent (given
in writing or by vote at a meeting duly called for the
purpose in accordance with the provisions of the
Bylaws) of the holders of a majority of the total
number of shares of such stock, without regard to
series, present or represented by proxy at such
meeting, at which meeting a quorum as hereinafter
provided shall be present or represented by proxy:
(i) Issue any unsecured notes, debentures, or
other securities representing unsecured
indebtedness, or assume any such unsecured
securities, for purposes other than the refunding
of outstanding unsecured securities theretofore
issued or assumed by the Corporation or the
redemption or other retirement of outstanding
shares of one or more series of the Preferred
Stock, if, immediately after such issue or
assumption, the total principal amount of all
unsecured notes, debentures, or other securities
representing unsecured indebtedness issued or
assumed by the Corporation and then outstanding
(including unsecured securities then to be issued
or assumed) would exceed twenty per cent (20%) of
the aggregate of (a) the total principal amount of
all bonds or other securities representing secured
indebtedness issued or assumed by the Corporation
and then to be outstanding, and (b) the capital
and surplus of the Corporation (including all
earned surplus, paid-in surplus, capital surplus,
or other surplus of the Corporation) as then to be
stated on the books of account of the Corporation;
or
(ii) merge or consolidate with or into any other
corporation or corporations, unless such merger or
consolidation, or the issuance of assumption of
all securities to be issued or assumed in
connection with any such merger or consolidation,
shall have been ordered, approved, or permitted by
the Securities and Exchange Commission under the
provisions of the Public Utility Holding Company
Act of 1935 or by any successor commission or
regulatory authority of the United States of
America having jurisdiction in the premises;
provided that the provisions of this clause (ii)
shall not apply to a purchase or other acquisition
by the Corporation of the franchises or other
assets of another corporation, or otherwise apply
in any matter which does not involve a merger or
consolidation.
b. Quorum of Preferred Stockholders
For the purpose of this Section 6, the presence in
person or by proxy of the holders of record of a
majority of the outstanding shares of Preferred Stock,
without regard to series, shall be necessary to
constitute a quorum; provided, that if such quorum
shall not have been obtained at such meeting or at any
adjournment thereof within thirty (30) days from the
date of such meeting as originally called, the presence
in person or by proxy of the holders of record of one-
third (1/3) of the outstanding shares of such stock,
without regard to series, shall then be sufficient to
constitute a quorum; and provided further that in the
absence of a quorum, such meeting or any adjournment
thereof may be adjourned from time to time by the
officer or officers of the Corporation who shall have
called the meeting (but at intervals of not less than
seven days unless all shareholders present or
represented by proxy shall agree to a shorter interval)
without notice other than announcement at the meeting
until a quorum as above provided shall be obtained.
c. Acts which Include Redemption of Preferred Stock
No vote or consent of the holders of any series of the
Preferred Stock shall be required, however, if, at or
prior to the issue of any such securities representing
unsecured indebtedness, or such consolidation, merger,
or sale, provision is made for the redemption or other
retirement of all shares of such series then
outstanding.
d. Additional to Other Voting Requirements
The provisions set forth in this Section 6 are in
addition to any other vote required by any provision of
the Articles of Incorporation of the Corporation, as
amended, or applicable statute, and shall be so
construed.
7. Increase in Amount of Preferred Stock
So long as any of the Preferred Stock is outstanding, the
Corporation shall not, without the consent (given by vote at
a meeting duly called for the purpose in accordance with the
provisions of the Bylaws) of the holders of a majority of
the total number of shares of such stock then outstanding,
without regard to class or series, present or represented by
proxy at such meeting, increase the total authorized amount
of Preferred Stock (other than as authorized by this Article
V) or authorize any other preferred stock ranking on a
parity with the Preferred Stock as to assets or dividends
(other than through the reclassification of then authorized
but unissued shares of Preferred Stock into shares of such
other preferred stock).
8. Issuance of Stock Preferred over Preferred Stock
So long as any of the Preferred Stock is outstanding, the
Corporation shall not, without the consent (given by vote at
a meeting duly called for the purpose in accordance with the
provisions of the Bylaws) of the holders of at least sixty-
six and two-thirds per cent (66 2/3%) of the total number of
shares of Preferred Stock, without regard to series, then
outstanding, present or represented by proxy at such
meeting, authorize any class of stock which shall be
preferred as to assets or dividends over the Preferred
Stock; or, without the consent of the holders of at least
sixty-six and two-thirds per cent (66 2/3%) of the total
number of shares of Preferred Stock then outstanding, given
as above provided in this Section 8, amend the Articles of
Incorporation to change the express terms and provisions of
the Preferred Stock in any manner substantially prejudicial
to the holders thereof.
9. Effecting and Validating Additional Stock or Securities
Convertible into Stock
So long as any shares of Preferred Stock are outstanding,
the consent of the holders of at least two-thirds (2/3) of
the Preferred Stock at the time outstanding, voting as a
class and without regard to series, given in person or by
proxy, either in writing or by vote at any meeting called
for the purpose, shall be necessary for effecting or
validating the issue of any additional shares of Preferred
Stock (other than and not exceeding 275,000 shares of the
Cumulative Preferred Stock, $3.60 Series), or any shares of
stock, or of any security convertible into stock, of any
class ranking on a parity with the Preferred Stock, unless
(i) the net income of the Corporation (determined as
hereinafter provided) for any twelve consecutive
calendar months within the fifteen calendar months
immediately preceding the month within which the
issuance of such additional shares is authorized by the
Board of Directors of the Corporation shall have been
in the aggregate not less than one and one half times
the sum of the interest requirements for one year on
all of the indebtedness of the Corporation to be
outstanding at the date of such proposed issue and the
full dividend requirements for one year on all shares
of Preferred Stock, and all other stock, if any,
ranking prior to or on a parity with the Preferred
Stock, to be outstanding at the date of such proposed
issue, including the shares then proposed to be issued
but excluding any such indebtedness and any such shares
proposed to be retired in connection with such proposed
issue. For purposes of calculating the dividend
requirements for one year applicable to any series of
Preferred Stock proposed to be issued which will have
dividends determined according to an adjustable,
floating or variable rate, the dividend rate used shall
be the higher of (A) the dividend rate applicable to
such series of Preferred Stock on the date of such
calculation, or (B) the average dividend rate payable
on all series of Preferred Stock outstanding during the
twelve month period immediately preceding the date of
such calculation. For purposes of calculating the
dividend or interest requirements for one year
applicable to any series of Preferred Stock or
indebtedness outstanding at the date of such proposed
issue and having dividends or interest determined
according to an adjustable, floating or variable rate,
the dividend or interest rate used shall be: (A) if
such series of Preferred Stock or indebtedness has been
outstanding for at least twelve months, the actual
amount of dividends or interest paid on account of such
series of Preferred Stock or indebtedness for the
twelve month period immediately preceding the date of
such calculation, or (B) if such series of Preferred
Stock or indebtedness has been outstanding for less
than twelve months, the higher of (1) the dividend or
interest rate applicable to such series of Preferred
Stock or indebtedness on the date of such calculation
or (2) the average dividend or interest rate payable on
all series of Preferred Stock or indebtedness
outstanding during the twelve month period immediately
preceding the date of such calculation. "Net income"
for any period for the purpose of this Section 9 shall
be computed by adding to the net income of the
Corporation for said period, determined in accordance
with generally accepted accounting practices, as
adjusted by action of the Board of Directors of the
Corporation as hereinafter provided, the amount
deducted for interest before arriving at such net
income (adjusted as above provided). In determining
such net income for any period, there shall be deducted
the provisions for depreciation and depletion as
recorded on such books or the minimum amount required
therefor under the provisions of any then existing
trust indenture or supplements thereto of the
Corporation, whichever is larger. In the determination
of such net income, the Board of Directors of the
Corporation may, in the exercise of due discretion,
make adjustments by way of increase or decrease in such
net income to give effect to changes therein resulting
from any acquisition of properties or to any
redemption, acquisition, purchase, sale, or exchange of
securities by the Corporation either prior to the
issuance of any shares of Preferred Stock, or stock, or
securities convertible into stock, ranking on a parity
therewith then to be issued or in connection therewith;
and
(ii) the aggregate of the capital of the Corporation
applicable to all stock of any class ranking junior to
the Preferred Stock, plus the surplus of the
Corporation, shall be not less than the aggregate
amount payable upon involuntary liquidation,
dissolution, or winding up of the affairs of the
Corporation to the holders of all shares of Preferred
Stock and of any shares of stock of any class ranking
on a parity therewith to be outstanding immediately
after such proposed issue, excluding from such
computation all indebtedness and stock to be retired
through such proposed issue. No portion of the surplus
of the Corporation utilized to satisfy the foregoing
requirements shall be available for dividends (other
than dividends payable in stock of any class ranking
junior to the Preferred Stock) or other distributions
upon or in respect of shares of stock of the
Corporation of any class ranking junior to the
Preferred Stock for the purchase of shares of such
junior stock until such number of additional shares of
Preferred Stock or of stock, or securities convertible
into stock, ranking on a parity with the Preferred
Stock are retired or until and to the extent that the
capital applicable to such junior stock shall have been
increased.
10. Dividends on Common Stock
So long as any shares of the Preferred Stock are
outstanding, the Corporation shall not pay any dividends on
its Common Stock (other than dividends payable in Common
Stock) or make any distribution on or purchase or otherwise
acquire for value any of its Common Stock (each such
payment, distribution, purchase and/or acquisition being
herein referred to as a "Common Stock dividend"), except to
the extent permitted by the following provisions of this
Section 10:
a. No Common Stock dividend shall be declared or paid
in an amount which, together with all other Common
Stock dividends declared in the year ending on (and
including) the date of the declaration of such Common
Stock dividend, would in the aggregate exceed fifty per
cent (50%) of the net income of the Corporation for the
period consisting of the twelve consecutive calendar
months ending on the last day of the second calendar
month next preceding the declaration of such Common
Stock dividend after deducting from such net income,
dividends accruing on any preferred stock of the
Corporation during such period, if at the end of such
period the ratio (herein referred to as the
"capitalization ratio") of the sum of (1) the capital
represented by the Common Stock (including premiums on
capital stock) and (2) the surplus accounts, of the
Corporation, to the sum of (1) the total capital and
(2) the surplus accounts, of the Corporation (after
adjustment of the surplus accounts to reflect payment
of such Common Stock dividend) would be less than
twenty per cent (20%).
b. If such capitalization ratio, determined as
aforesaid shall be twenty per- cent (20%) or more, but
less than twenty-five per cent (25%) no Common Stock
dividend shall be declared or paid in an amount which,
together with all other Common Stock dividends declared
in the year ending on (and including) the date of the
declaration of such Common Stock dividend, would in the
aggregate exceed seventy-five per cent (75%) of the net
income of the Corporation for the period consisting of
the twelve consecutive calendar months ending on the
last day of the second calendar month next preceding
the declaration of such Common Stock dividend after
deducting from such net income, dividends accruing on
any preferred stock of the Corporation during such
period; and
c. If such capitalization ratio, determined as
aforesaid, shall be in excess of twenty-five per cent
(25%), no Common Stock dividend shall be declared or
paid which would reduce such capitalization ratio to
less than twenty-five per cent (25%) except to the
extent permitted by the next preceding paragraphs (a)
and (b) hereof. For the purpose of this condition:
(i) The total capital of the Corporation shall be
deemed to consist of the aggregate of (1) the
principal amount of all outstanding indebtedness
of the Corporation maturing more than one year
after the date of issue thereof and (2) the par
value of or the stated capital applicable to all
outstanding capital stock (including premiums on
capital stock) of all classes of the Corporation.
All indebtedness and capital stock owned by the
Corporation shall be excluded in determining total
capital. Surplus accounts shall be deemed to
include all earned surplus, paid-in surplus,
capital surplus, or any other surplus of the
Corporation.
(ii) Such surplus accounts upon which
capitalization ratios are computed shall be
adjusted to eliminate (1) the amount, if any, by
which fifteen per cent (15%) of the gross
operating revenues of the Corporation (calculated
in the manner provided in the covenants relating
to payment of Common Stock dividends embodied in
the indentures and supplemental indentures
securing the mortgage bonds of the Corporation)
for the entire period from July 1, 1946, to the
end of the second calendar month immediately
preceding the date of the proposed payment of
Common Stock dividends exceeds the total amount
expended by the Corporation during such period for
maintenance and repairs and the total provision
made by the Corporation during such period for
depreciation, all as shown by the books of the
Corporation, and (2) any amounts on the books of
the Corporation known or estimated, if not known,
to represent the excess, if any, of recorded value
over original cost of used and useful utility
plant and other property, and any item set forth
on the asset side of the balance sheet of the
Corporation as a result of accounting convention,
such as unamortized debt discount and expense,
capital stock discount and expense, and the
excess, if any, of the aggregate amount payable on
involuntary dissolution, liquidation, or winding
up of the Corporation upon all outstanding shares
of preferred stock of all series over the
aggregate stated or par value of such shares,
unless any such amount or item, as the case may
be, is being amortized or is being provided for by
a reserve; and
(iii) In computing net income of the
Corporation applicable to the Common Stock of the
Corporation for any particular twelve (12) months'
period for the purpose of this condition,
operating expenses, among other things, shall
include the greater of (1) the provision for
depreciation for such period as recorded on the
books of the Corporation or (2) the amount by
which fifteen per cent (15%) of the gross
operating revenues of the Corporation for such
period (calculated in the manner provided in the
above mentioned covenants relating to payment of
Common Stock dividends) exceeds the total amount
expended by the Corporation during such periods
for maintenance and repairs as shown by the books
of the Corporation.
11. Acceptance of Shares
In consideration of the issue by the Corporation, and the
acceptance by the holders thereof, of shares of the capital
stock of the Corporation, each and every present and future
holder of shares of the Preferred Stock, the Common Stock
and of any stock hereafter authorized of the Corporation
shall be conclusively deemed, by acquiring or holding such
shares, to have expressly consented to all and singular the
terms and provisions of this Article V and to have agreed
that the voting rights of such holder and the restrictions
and qualifications thereof shall be as set forth in this
Article.
12. Outstanding Stock or Evidence of Indebtedness
No share of stock or evidence of indebtedness shall be
deemed to be "outstanding," as that term is used in this
Article V, if, prior to or concurrently with the event in
reference to which a determination as to the amount thereof
outstanding is to be made, the requisite funds for the
redemption thereof shall be deposited in trust for that
purpose and the requisite notice for the redemption thereof
shall be given or the depositary of such funds shall be
irrevocably authorized and directed to give or complete such
notice of redemption.
13. Rights of Unissued Stock or Other Securities
No holder of any stock of the Corporation shall be entitled,
as of right, to purchase or subscribe for any part of any
issued shares of stock of the Corporation or for any
additional shares of stock, of any class or series, which
may at any time be issued, whether now or hereafter
authorized, or for any rights, options, or warrants to
purchase or receive shares of stock or for any bonds,
certificates of indebtedness, debentures, or other
securities convertible into shares of stock, or any class or
series thereof; but any such unissued or additional shares,
rights, options, or warrants or convertible securities of
the Corporation may, from time to time, be issued and
disposed of by the Board of Directors to such persons,
firms, corporations or associations, and upon such terms, as
the Board of Directors may, in its discretion, determine,
without offering any part thereof to any shareholders of any
class or series then of record; and any shares, rights,
options or warrants or convertible securities which the
Board of Directors may at any time determine to offer to
shareholders for subscription may be offered to holders of
shares of any class or series at the time existing, to the
exclusion of holders of shares of any or all other classes
or series at the time existing, in each case as the Board of
Directors may, in its discretion, determine.
14. Series of Preferred Stock
a. Cumulative Preferred Stock, $3.60 Series
Anything herein to the contrary notwithstanding, there
shall be and is hereby created a series of preferred
stock which is hereby designated "Cumulative Preferred
Stock, $3.60 Series," dividends on which shares of
Cumulative Preferred Stock, $3.60 Series, shall be
payable, if declared, on the 15th days of January,
April, July, and October of each year; which dividends
shall be cumulative from the first day of the
respective quarter-yearly period in which the
respective shares of such series shall have been
originally issued, the term "quarter-yearly period" as
used herein referred to the period from July 1, 1946,
to and including September 30, 1946, and thereafter to
each quarter-yearly period of three (3) consecutive
months, beginning with October 1, 1946; the dividend
rate of which series is hereby fixed at Three Dollars
and Sixty Cents ($3.60) per share per annum; the
redemption price of the shares of which series is
hereby fixed at One Hundred and Five Dollars and
Seventy Five Cents ($105.75) per share in case of
redemption on or prior to September 30, 1951; One
Hundred and Four Dollars and Seventy Five Cents
($104.75) per share in case of redemption subsequent to
September 30, 1951, and on or prior to September 30,
1956; and One Hundred and Three Dollars and Seventy
Five Cents ($103.75) per share in case of redemption
subsequent to September 30, 1956, in each case plus the
amount payable thereon in accordance with the
provisions hereof equal to the cumulative dividends
accrued and unpaid thereon; the amount which the shares
of such series are entitled to receive in preference to
the Common Stock upon any distribution of assets other
than by dividends from net earnings or surplus upon
voluntary liquidation or dissolution of the Corporation
is hereby fixed at the then redemption price thereof,
plus the amount payable thereon in accordance with the
provisions hereof equal to the cumulative dividends
accrued and unpaid thereon; the amount which the shares
of such series are entitled to receive in preference to
the Common Stock upon any distribution of assets, other
than by dividends from net earnings or surplus, upon
any involuntary liquidation or dissolution of the
Corporation is hereby fixed at One Hundred Dollars
($100) per share, plus the amount payable thereon in
accordance with the provisions hereof equal to the
cumulative dividends accrued and unpaid thereon.
b. Cumulative Preferred Stock, $4.10 Series
(i) There be and there hereby is created from the
authorized and unallotted shares of Preferred
Stock of the Company, a new series of Preferred
Stock of the Company which is hereby designated
"Cumulative Preferred Stock, $4.10 Series," and
the number of shares constituting said new series
is hereby fixed at 175,000 shares.
(ii) The dividend rate of the shares of said new
series is hereby fixed at $4.10 per share per
annum; dividends on said shares shall be payable
on the 15th day of January, April, July and
October for the quarter-yearly period ending with
the last day of the preceding month, when and as
declared by the Board of Directors.
(iii) The redemption price of the shares of
said new series is hereby fixed at $105.50 per
share in case of redemption on or prior to
December 31, 1955; $104.50 per share in case of
redemption subsequent to December 31, 1955 and on
or prior to December 31, 1960; $103.50 per share
in case of redemption subsequent to December 31,
1960 and on or prior to December 31, 1965; and
$102.50 per share in case of redemption subsequent
to December 31, 1965; plus in each case an amount
equal to the dividends at the rate of $4.10 per
share per annum from the date dividends on the
shares to be redeemed began to accrue to the date
fixed for redemption thereof less the amount of
dividends theretofore paid thereon.
(iv) The amount which the shares of said new
series are entitled to receive in preference to
the Common Stock upon any distribution of assets,
other than by dividends from net earnings or
surplus, upon any involuntary liquidation or
dissolution of the corporation is hereby fixed at
$100 per share plus an amount equal to all
dividends accumulated and unpaid thereon and the
amount which the shares of said new series are
entitled to receive in preference to the Common
Stock upon any distribution of assets, other than
by dividends from net earnings or surplus, upon
voluntary liquidation or dissolution of the
corporation is hereby fixed as the then redemption
price, including an amount equal to all dividends
accumulated and unpaid thereon.
c. Cumulative Preferred Stock, $4.08 Series
(i) There be and there hereby is created from the
authorized and unallotted shares of Preferred
Stock of the Company, a new series of Preferred
Stock of the Company which is hereby designated
"Cumulative Preferred Stock, $4.08 Series," and
the number of shares constituting said new series
is hereby fixed at 150,000 shares.
(ii) The dividend rate of the shares of said new
series is hereby fixed at $4.08 per share per
annum; dividends on said shares shall be payable
on the 15th day of January, April, July and
October for the quarter-yearly period ending with
the last day of the preceding month, when and as
declared by the Board of Directors.
(iii) The redemption price of the shares of
said new series is hereby fixed at $105 per share
in case of redemption on or prior to December 31,
1959; $104 per share in case of redemption
subsequent to December 31, 1959 and on or prior to
December 31, 1964; $103 per share in case of
redemption subsequent to December 31, 1964 and on
or prior to December 31, 1969; and $102 per share
in case of redemption subsequent to December 31,
1969; plus in each case an amount equal to the
dividends at the rate of $4.08 per share per annum
from the date dividends on the shares to be
redeemed began to accrue to the date fixed for
redemption thereof less the amount of dividends
theretofore paid thereon.
(iv) The amount which the shares of said new
series are entitled to receive in preference to
the Common Stock upon any distribution of assets,
other than by dividends from net earnings or
surplus, upon voluntary liquidation or dissolution
of the corporation is hereby fixed as the then
redemption price, including an amount equal to all
dividends accumulated and unpaid thereon.
d. Cumulative Preferred Stock, $4.11 Series
(i) There be and there hereby is created from the
authorized and unallotted shares of Preferred
Stock of the Company, a new series of Preferred
Stock of the Company which is hereby designated
"Cumulative Preferred Stock, $4.11 Series," and
the number of shares constituting said new series
is hereby fixed at 200,000 shares.
(ii) The dividend rate of the shares of said new
series is hereby fixed at $4.11 per share per
annum; dividends on said shares shall be payable
on the 15th day of January, April, July and
October for the quarter-yearly period ending with
the last day of the preceding month, when and as
declared by the Board of Directors.
(iii) The redemption prices of the shares of
said new series are hereby fixed at $105.732 per
share in case of redemption on or prior to
December 31, 1959; $104.732 per share in case of
redemption subsequent to December 31, 1959 and on
or prior to December 31, 1964; and $103.732 per
share in case of redemption subsequent to December
31, 1964; plus in each case an amount equal to the
dividends at the rate of $4.11 per share per annum
from the date dividends on the shares to be
redeemed began to accrue to the date fixed for
redemption thereof less the amount of dividends
theretofore paid thereon.
(iv) The amount which the shares of said new
series are entitled to receive in preference to
the Common Stock upon any distribution of assets,
other than by dividends from net earnings or
surplus, upon voluntary liquidation or dissolution
of the corporation is hereby fixed as the then
redemption price, plus an amount equal to all
dividends accumulated and unpaid thereon.
e. Cumulative Preferred Stock, $4.16 Series
(i) There be and there hereby is created from the
authorized and unallotted shares of Preferred
Stock of the Company, a new series of Preferred
Stock of the Company which is hereby designated
"Cumulative Preferred Stock, $4.16 Series," and
the number of shares constituting said new series
is hereby fixed at 100,000 shares.
(ii) The dividend rate of the shares of said new
series is hereby fixed at $4.16 per share per
annum; dividends on said shares shall be payable
on the 15th day of January, April, July and
October for the quarter-yearly period ending with
the last day of the preceding month, when and as
declared by the Board of Directors.
(iii) The redemption prices of the shares of
said new series are hereby fixed at $106.25 per
share in case of redemption on or prior to
December 31, 1961; $105.75 per share in case of
redemption subsequent to December 31, 1961 and on
or prior to December 31, 1966; $104.75 per share
in case of redemption subsequent to December 31,
1966 and on or prior to December 31, 1971; and
$103.75 per share in case of redemption subsequent
to December 31, 1971; plus in each case an amount
equal to the dividends at the rate of $4.16 per
share per annum from the date dividends on the
shares to be redeemed began to accrue to the date
fixed for redemption thereof, less the amount of
dividends theretofore paid thereon.
(iv) The amount which the shares of said new
series are entitled to receive in preference to
the Common Stock upon any distribution of assets,
other than by dividends from net earnings or
surplus, upon voluntary liquidation or dissolution
of the corporation is hereby fixed as the then
redemption price, plus an amount equal to all
dividends accumulated and unpaid thereon.
f. Cumulative Preferred Stock, $4.56 Series
(i) There be and there hereby is created from the
authorized and unallotted shares of Preferred
Stock of the Company, a new series of Preferred
Stock of the Company which is hereby designated
"Cumulative Preferred Stock, $4.56 Series," and
the number of shares constituting said new series
is hereby fixed at 150,000 shares.
(ii) The dividend rate of the shares of said new
series is hereby fixed at $4.56 per share per
annum; dividends on said shares shall be payable
on the 15th day of January, April, July and
October for the quarter-yearly period ending with
the last day of the preceding month, when and as
declared by the Board of Directors.
(iii) The redemption prices of the shares of
said new series are hereby fixed at $105.89 per
share in case of redemption on or prior to
December 31, 1969; $104.75 per share in case of
redemption subsequent to December 31, 1969 and on
or prior to December 31, 1974; $103.64 per share
in case of redemption subsequent to December 31,
1974 and on or prior to December 31, 1979; and
$102.47 per share in case of redemption subsequent
to December 31, 1979; plus in each case an amount
equal to the dividends at the rate of $4.56 per
share per annum from the date dividends on the
shares to be redeemed began to accrue to the date
fixed for redemption thereof, less the amount of
dividends theretofore paid thereon.
(iv) The amount which the shares of said new
series are entitled to receive in preference to
the Common Stock upon any distribution of assets,
other than by dividends from net earnings or
surplus, upon voluntary liquidation or dissolution
of the corporation is hereby fixed as the then
redemption price, including an amount equal to all
dividends accumulated and unpaid thereon.
g. Cumulative Preferred Stock, $6.80 Series
(i) There be and there hereby is created from the
authorized and unallotted shares of Preferred
Stock of the Company, a new series of Preferred
Stock of the Company which is hereby designated
"Cumulative Preferred Stock, $6.80 Series," and
the number of shares constituting said new series
is hereby fixed at 200,000 shares.
(ii) The dividend rate of the shares of said new
series is hereby fixed at $6.80 per share per
annum; dividends on said shares shall be payable
on the 15th day of January, April, July and
October for the quarter-yearly period ending with
the last day of the preceding month, when and as
declared by the Board of Directors.
(iii) The redemption prices of the shares of
said new series are hereby fixed at $108.29 per
share in case of redemption on or prior to
December 31, 1973; $106.59 per share in case of
redemption subsequent to December 31, 1973 and on
or prior to December 31, 1978; $104.89 per share
in case of redemption subsequent to December 31,
1978 and on or prior to December 31, 1983; and the
$103.19 per share in case of redemption subsequent
to December 31, 1983; plus in each case an amount
equal to the dividends at the rate of $6.80 per
share per annum from the date dividends on the
shares to be redeemed begin to accrue to the date
fixed for redemption thereof, less the amount of
dividends theretofore paid thereon; provided,
however, that the shares of said new series shall
not be redeemable prior to May 1, 1973 from the
proceeds of any refunding of shares of said new
series through the incurring of debt, or through
the issuance of preferred stock ranking equally
with or prior to the shares of said new series as
to dividends or on liquidation, if such debt has
an effective interest cost or such preferred stock
has an effective dividend cost to the Company of
less than the effective dividend cost to the
Company of the said new series.
(iv) The amount which the shares of said new
series are entitled to receive in preference to
the Common Stock upon any distribution of assets,
other than by dividends from net earnings or
surplus, upon voluntary liquidation or dissolution
of the corporation is hereby fixed as the then
redemption price, plus an amount equal to all
dividends accumulated and unpaid thereon.
h. Cumulative Preferred Stock, $7.00 Series
(i) There be and there hereby is created from the
authorized and unallotted shares of Preferred
Stock of the Company, a new series of Preferred
Stock of the Company which is hereby designated
"Cumulative Preferred Stock, $7.00 Series," and
the number of shares constituting said new series
is hereby fixed at 200,000 shares.
(ii) The dividend rate of the shares of said new
series is hereby fixed at $7.00 per share per
annum; dividends on said shares shall be payable
on the 15th day of January, April, July and
October for the quarter-yearly period ending with
the last day of the preceding month, when and as
declared by the Board of Directors.
(iii) The redemption prices of the shares of
said new series are hereby fixed at $108.45 per
share in case of redemption on or prior to
December 31, 1974; $106.70 per share in case of
redemption subsequent to December 31, 1974 and on
or prior to December 31, 1979; $104.95 per share
in case of redemption subsequent to December 31,
1979 and on or prior to December 31, 1984; and
$103.20 per share in case of redemption subsequent
to December 31, 1984; plus in each case an amount
equal to the dividends at the rate of $7.00 per
share per annum from the date dividends on the
shares to be redeemed begin to accrue to the date
fixed for redemption thereof, less the amount of
dividends theretofore paid thereon; provided,
however, that the shares of said new series shall
not be redeemed prior to January 1, 1974 from the
proceeds of any refunding of shares of said new
series through the incurring of debt, or through
the issuance of preferred stock ranking equally
with or prior to the shares of said new series as
to dividends or on liquidation, if such debt has
an effective interest cost or such preferred stock
has an effective dividend cost to the Company of
less than the effective dividend cost to the
Company of the said new series.
(iv) The amount which the shares of said new
series are entitled to receive in preference to
the Common Stock upon any distribution of assets,
other than by dividends from net earnings or
surplus, upon voluntary liquidation or dissolution
of the corporation is hereby fixed as the then
redemption price, plus an amount equal to all
dividends accumulated and unpaid thereon.
i. Cumulative Preferred Stock, $8.80 Series
(i) There be and there hereby is created from the
authorized and unallotted shares of Preferred
Stock of the Company, a new series of Preferred
Stock of the Company which is hereby designated
"Cumulative Preferred Stock, $8.80 Series," and
the number of shares constituting said new series
is hereby fixed at 250,000 shares.
(ii) The dividend rate of the shares of said new
series is hereby fixed at $8.80 per share per
annum; dividends on said shares, when and as
declared by the Board of Directors, shall be
payable on the 15th day of January, April, July
and October for the quarter-yearly period ending
with the last day of the preceding month; except
that the dividend period for the first such
dividend shall begin with the date of original
issue.
(iii) The redemption prices of the shares of
said new series are hereby fixed at $109.95 per
share in case of redemption on or prior to
December 31, 1975; $107.75 per share in case of
redemption subsequent to December 31, 1975 and on
or prior to December 31, 1980; $105.55 per share
in case of redemption subsequent to December 31,
1980 and on or prior to December 31, 1985; and
$103.35 per share in case of redemption subsequent
to December 31, 1985; plus in each case an amount
equal to the dividends at the rate of $8.80 per
share per annum from the date dividends on the
shares to be redeemed begin to accrue to the date
fixed for redemption thereof, less the amount of
dividends theretofore paid thereon; provided,
however, that the shares of said new series shall
not be redeemable prior to September 1, 1975 from
the proceeds of any refunding of shares of said
new series through the incurring of debt, or
through the issuance of preferred stock ranking
equally with or prior to the shares of said new
series as to dividends or on liquidation, if such
debt has an effective interest cost or such
preferred stock has an effective dividend cost to
the Company of less than the effective dividend
cost to the Company of the said new series.
(iv) The amount which the shares of said new
series are entitled to receive in preference to
the Common Stock upon any distribution of assets,
other than by dividends from net earnings or
surplus, upon voluntary liquidation or dissolution
of the corporation is hereby fixed as the then
redemption price, plus an amount equal to all
dividends accumulated and unpaid thereon.
j. Cumulative Preferred Stock, $7.84 Series
(i) There be and there hereby is created from the
authorized and unallotted shares of Preferred
Stock of the Company, a new series of Preferred
Stock of the Company which is hereby designated
"Cumulative Preferred Stock, $7.84 Series," and
the number of shares constituting said new series
is hereby fixed at 350,000 shares.
(ii) The dividend rate of the shares of said new
series is hereby fixed at $7.84 per share per
annum; dividends on said shares, when and as
declared by the Board of Directors, shall be
payable on the 15th day of January, April, July
and October for the quarter-yearly period ending
with the last day of the preceding month; except
that the dividend period for the first such
dividend shall begin with the date of original
issue.
(iii) The redemption prices of the shares of
said new series are hereby fixed at $109.00 per
share in case of redemption on or prior to
December 31, 1976; $107.04 per share in case of
redemption subsequent to December 31, 1976, and on
or prior to December 31, 1981; $105.08 per share
in case of redemption subsequent to December 31,
1981, and on or prior to December 31, 1986; and
$103.12 per share in case of redemption subsequent
to December 31, 1986; plus in each case an amount
equal to the dividends at the rate of $7.84 per
share per annum from the date dividends on the
shares to be redeemed begin to accrue to the date
fixed for redemption thereof, less the amount of
dividends theretofore paid thereon; provided,
however, that the shares of said new series shall
not be redeemable prior to October 1, 1976, from
the proceeds of any refunding of shares of said
new series through the incurring of debt, or
through the issuance of preferred stock ranking
equally with or prior to the shares of said new
series as to dividends or on liquidation, if such
debt has an effective interest cost or such
preferred stock has an effective dividend cost to
the Company of less than the effective dividend
cost to the Company of the said new series.
(iv) The amount which the shares of said new
series are entitled to receive in preference to
the Common Stock upon any distribution of assets,
other than by dividends from net earnings or
surplus, upon voluntary liquidation or dissolution
of the corporation is hereby fixed as the then
redemption price, plus an amount equal to all
dividends accumulated and unpaid thereon.
k. Cumulative Preferred Stock, $10.36 Series
(i) There be and there hereby is created from the
authorized and unallotted shares of Preferred
Stock of the Company, a new series of Preferred
Stock of the Company which is hereby designated
"Cumulative Preferred Stock, $10.36 Series," and
the number of shares constituting said new series
is hereby fixed at 250,000 shares.
(ii) The dividend rate of the shares of said new
series is hereby fixed at $10.36 per share per
annum; dividends on said shares, when and as
declared by the Board of Directors, shall be
payable on the 15th day of January, April, July
and October for the quarter-yearly period ending
with the last day of the preceding month; except
that the dividend period for the first such
dividend shall begin with the date of original
issue.
(iii) The redemption prices of the shares of
said new series are hereby fixed at $115.00 per
share in case of redemption on or prior to June
30, 1984; $105.00 per share in case of redemption
subsequent to June 30, 1984, and on or prior to
June 30, 1989; and $102.50 per share in case of
redemption subsequent to June 30, 1989; plus in
each case an amount equal to the dividends at the
rate of $10.36 per share per annum from the date
dividends on the shares to be redeemed begin to
accrue to the date fixed for redemption thereof,
less the amount of dividends theretofore paid
thereon; provided, however, that the shares of
said new series shall not be redeemable prior to
July 1, 1979, from the proceeds of any refunding
of shares of said new series through the incurring
of debt, or through the issuance of preferred
stock ranking equally with or prior to the shares
of said new series as to dividends or on
liquidation, if such debt has an effective
interest cost or such preferred stock has an
effective dividend cost to the Company of less
than the effective dividend cost to the Company of
the said new series. The shares of said new
series will also be redeemable at any time on and
after July 1, 1979, for the sinking fund at the
sinking fund redemption price, which shall be
$101.10 per share plus accrued and unpaid
dividends.
(iv) Subject to the prohibitions and limitations
contained in its Articles of Incorporation, as
amended, and in Orders of the Securities and
Exchange Commission in Files No. 70-3221 and 70-
3279, the Company shall apply as and for a sinking
fund for said new series on July 1 in each year
commencing July 1, 1979, a minimum of 12,500
shares of said new series, and may so apply on
each of said July 1 dates up to a maximum of an
additional 12,500 shares of said new series. The
shares to be applied annually in satisfaction of
the sinking fund may be acquired either by
redemption at the sinking fund redemption price in
accordance with the provisions of Article V of the
Articles of Incorporation and of this resolution,
or by purchase from time to time in such manner as
the Board of Directors may determine. If the
Company shall be prevented by the restrictions
referred to above or for any other reason from
redeeming the number of shares of said new series,
which in the absence of such restrictions it would
be required to apply for the sinking fund on any
such July 1, the deficit shall be made good on the
first succeeding July 1 on which the Company shall
not be prevented by such restrictions from
redeeming the number of shares of said new series,
which in the absence of such restrictions it would
be required to apply for the sinking fund on any
such July 1, the deficit shall be made good on the
first succeeding July 1 on which the Company shall
not be prevented by such restrictions from
redeeming shares of said new series. Shares
applied to the sinking fund on any applicable July
1 date shall be deemed to be not outstanding on
such date. Shares of said new series acquired by
redemption must be applied in satisfaction of the
current sinking fund payments; but shares of said
new series purchased by the Company may be applied
in satisfaction of any sinking fund payment.
Shares applied in satisfaction of the sinking fund
shall become authorized but unissued shares of
Preferred Stock of the Company but may not be
reissued as shares of said new series, and the
Company shall forthwith take all necessary action
to effectuate the foregoing.
(v) The amount which the shares of said new
series are entitled to receive in preference to
the Common Stock upon any distribution of assets,
other than by dividends from net earnings or
surplus, upon voluntary liquidation or dissolution
of the corporation is hereby fixed as the then
redemption price, including an amount equal to all
dividends accumulated and unpaid thereon.
ARTICLE VI. LIMITATION OF DIRECTOR LIABILITY
A director of the Corporation shall not be personally liable to
the Corporation or its shareholders for monetary damages for
breach of fiduciary duty as a director, except to the extent
provided by applicable law for (i) liability based on a breach of
the duty of loyalty to the Corporation or the shareholders; (ii)
liability for acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law; (iii)
liability based on the payment of an improper dividend or an
improper repurchase of the Corporation's stock under Section 559
of the Minnesota Business Corporation Act (Minnesota Statues,
Chap. 302A) or for liability arising under Section 80A.23 of
Minnesota Statutes for the unlawful sale of securities; (iv)
liability for any transaction from which the director derived an
improper personal benefit; or (v) liability for any act or
omission occurring prior to the date this Article VI becomes
effective. If the Minnesota Business Corporation Act is further
amended to authorize the further elimination or limitation of the
liability of directors, then the liability of a director of the
Corporation in addition to the limitation on personal liability
provided herein, shall be limited to the fullest extent permitted
by any amendment to the Minnesota Business Corporation Act. Any
repeal or modification of this Article by the shareholders of the
Corporation shall not adversely affect any limitation on the
personal liability of a director of the Corporation existing at
the time of such repeal or modification.
VII. AMENDMENT OF BYLAWS
Authority to make and alter the Bylaws of the Corporation is
hereby vested in the Board of Directors of the Corporation,
subject to the power of the stockholders to change or repeal such
Bylaws; provided, however, the Board of Directors shall not make
or alter any bylaw fixing their number, qualifications,
classifications, or term of office.
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
EXHIBIT 27.01
This schedule contains summary financial information extracted from the
Statements of Income, Balance Sheets, Statements of Capitalization, Statements
of Changes in Common Stockholder's Equity and Statements of Cash Flows and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1998
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 4,341,824
<OTHER-PROPERTY-AND-INVEST> 1,546,355
<TOTAL-CURRENT-ASSETS> 673,372
<TOTAL-DEFERRED-CHARGES> 320,922
<OTHER-ASSETS> 247,899
<TOTAL-ASSETS> 7,130,372
<COMMON> 377,194
<CAPITAL-SURPLUS-PAID-IN> 749,308
<RETAINED-EARNINGS> 1,346,977
<TOTAL-COMMON-STOCKHOLDERS-EQ> 2,365,597
200,000
105,340
<LONG-TERM-DEBT-NET> 2,049,221
<SHORT-TERM-NOTES> 175,274
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 80,000
<LONG-TERM-DEBT-CURRENT-PORT> 166,729
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 1,880,328
<TOT-CAPITALIZATION-AND-LIAB> 7,130,372
<GROSS-OPERATING-REVENUE> 1,340,003
<INCOME-TAX-EXPENSE> 25,211
<OTHER-OPERATING-EXPENSES> 1,144,837
<TOTAL-OPERATING-EXPENSES> 1,195,899
<OPERATING-INCOME-LOSS> 144,104
<OTHER-INCOME-NET> 1,963
<INCOME-BEFORE-INTEREST-EXPEN> 179,793
<TOTAL-INTEREST-EXPENSE> 79,767
<NET-INCOME> 92,151
3,427
<EARNINGS-AVAILABLE-FOR-COMM> 88,724
<COMMON-STOCK-DIVIDENDS> 106,622
<TOTAL-INTEREST-ON-BONDS> 71,063
<CASH-FLOW-OPERATIONS> 269,985
<EPS-PRIMARY> 0.59
<EPS-DILUTED> 0.59
<FN>
<F1> ($107,882) thousand of Common Stockholder's 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>($25,851) thousand of nonregulated and nonoperating income tax benefit
is classifed 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>
EXHIBIT 99.01
Northern States Power Company Cautionary Factors
The Private Securities Litigation Reform Act of 1995 (the Act) provides a
new "safe harbor" for forward-looking statements to encourage such disclosures
without the threat of litigation providing those statements are identified as
forward-looking and are accompanied by meaningful, cautionary statements
identifying important factors that could cause the actual results to differ
materially from those projected in the statement. Forward-looking statements
have been and will be made in written documents and oral presentations of
Northern States Power Company (the Company). Such statements are based on
management's beliefs as well as assumptions made by and information currently
available to management. When used in the Company's documents or oral
presentations, the words "anticipate", "estimate", "expect", "objective",
"possible", "potential" and similar expressions are intended to identify forward
- -looking statements. In addition to any assumptions and other factors referred
to specifically in connection with such forward-looking statements, factors that
could cause the Company's actual results to differ materially from those
contemplated in any forward-looking statements include, among others, the
following:
- - Economic conditions including inflation rates and monetary fluctuations;
- - Trade, monetary, fiscal, taxation, and environmental policies of governments,
agencies and similar organizations in geographic areas where the Company has
a financial interest;
- - Customer business conditions including demand for their products or services
and supply of labor and materials used in creating their products and
services;
- - Financial or regulatory accounting principles or policies imposed by the
Financial Accounting Standards Board, the Securities and Exchange Commission,
the Federal Energy Regulatory Commission and similar entities with regulatory
oversight;
- - Availability or cost of capital such as changes in: interest rates; market
perceptions of the utility industry, the Company or any of its subsidiaries;
or security ratings;
- - Factors affecting utility and nonutility operations such as unusual weather
conditions; catastrophic weather-related damage; unscheduled generation
outages, maintenance or repairs; unanticipated changes to fossil fuel,
nuclear fuel or gas supply costs or availability due to higher demand,
shortages, transportation problems or other developments; nuclear or
environmental incidents; or electric transmission or gas pipeline system
constraints;
- - Employee workforce factors including loss or retirement of key executives,
collective bargaining agreements with union employees, or work stoppages;
- - Increased competition in the utility industry, including: industry
restructuring initiatives; transmission system operation and/or
administration initiatives; recovery of investments made under traditional
regulation; nature of competitors entering the industry; retail wheeling; a
new pricing structure; and former customers entering the generation market;
- - Rate-setting policies or procedures of regulatory entities, including
environmental externalities, which are values established by regulators
assigning environmental costs to each method of electricity generation when
evaluating generation resource options;
- - Nuclear regulatory policies and procedures including operating regulations
and used nuclear fuel storage;
- - Social attitudes regarding the utility and power industries;
- - Cost and other effects of legal and administrative proceedings, settlements,
investigations and claims;
- - Technological developments that result in competitive disadvantages and
create the potential for impairment of existing assets;
- - 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.
