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NORTHERN STATES POWER CO /MN/
10-Q, 2000-08-10
ELECTRIC & OTHER SERVICES COMBINED

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

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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, 2000 Commission File Number 1-3034

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NORTHERN STATES POWER COMPANY
(Exact name of registrant as specified in its charter)

Registrant's telephone number, including area code (612) 330-5500

None
Former name, former address and former fiscal year, if changed since last report

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    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, 2000
Common Stock, $2.50 par value		158,693,217 shares

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PART 1. FINANCIAL INFORMATION

Item 1. Financial Statements

Northern States Power Company (Minnesota) and Subsidiaries

Consolidated Statements of Income (Unaudited)

					Three Months Ended June 30						Six Months Ended June 30
					2000			1999			2000			1999
					(Thousands of dollars)
Utility operating revenues
	Electric: Retail				$	529,306		$	506,429		$	1,053,712		$	1,009,910
			Sales for resale and other			56,822			50,139			115,340			103,514
	Gas					92,923			70,589			303,004			256,916
		Total				679,051			627,157			1,472,056			1,370,340
Utility operating expenses
	Fuel for electric generation					69,771			81,343			145,739			151,307
	Purchased and interchange power					109,235			107,214			221,945			205,279
	Cost of gas purchased and transported					54,357			35,121			189,631			147,300
	Other operation					104,567			101,782			210,841			202,909
	Maintenance					51,252			53,057			103,041			98,047
	Administrative and general					32,899			35,234			70,999			65,797
	Conservation and energy management					16,616			16,691			27,903			33,928
	Depreciation and amortization					91,688			88,095			183,700			175,580
	Taxes: Property and general					55,843			57,361			113,700			114,993
			Current income			33,239			24,268			66,065			66,814
			Deferred income			(11,296	)		(18,738	)		(13,915	)		(22,773	)
			Investment tax credits recognized			(2,258	)		(2,215	)		(4,519	)		(4,438	)
		Total				605,913			579,213			1,315,130			1,234,743
Utility operating income						73,138			47,944			156,926			135,597
Other income (expense)
	Income (loss) from nonregulated businesses—before interest and taxes					133,136			140			185,517			(7,213	)
	Allowance for funds used during construction—equity					(534	)		(2,231	)		743			945
	Write-down of investment in CellNet stock					0			(812	)		(937	)		(3,412	)
	Other utility income (deductions)—net					(3,830	)		(3,537	)		(5,663	)		(5,948	)
	Income tax (expense) benefit—nonregulated operations and nonoperating items					(16,952	)		21,588			(11,272	)		37,730
		Total				111,820			15,148			168,388			22,102
Income before financing costs						184,958			63,092			325,314			157,699
Financing costs
	Interest on utility long-term debt					28,064			23,288			56,049			47,253
	Other utility interest and amortization					8,919			7,058			17,298			12,610
	Nonregulated interest and amortization					83,600			17,188			137,585			29,329
	Allowance for funds used during construction—debt					(1,725	)		130			(3,656	)		(3,179	)
		Total interest charges				118,858			47,664			207,276			86,013
Distributions on redeemable preferred securities of subsidiary trust						3,938			3,938			7,875			7,875
		Total financing costs				122,796			51,602			215,151			93,888
Net income						62,162			11,490			110,163			63,811
Preferred stock dividends						1,060			2,110			2,121			3,171
Earnings available for common stock					$	61,102		$	9,380		$	108,042		$	60,640
Average number of common shares outstanding (000's)						156,719			153,012			156,305			152,704
Average number of common and potentially dilutive shares outstanding (000's)						156,828			153,118			156,352			152,834
Earnings per average common share—basic					$	0.39		$	0.06		$	0.69		$	0.40
Earnings per average common share—assuming dilution					$	0.39		$	0.06		$	0.69		$	0.40
Common dividends declared per share					$	0.3675		$	0.3625		$	0.7300		$	0.7200
Consolidated Statements of Retained Earnings (Unaudited)
Balance at beginning of period					$	1,424,506		$	1,429,410		$	1,434,247		$	1,432,696
		Net income for period				62,162			11,490			110,163			63,811
		Dividends declared:
			Cumulative preferred stock			(1,060	)		(2,110	)		(2,121	)		(3,171	)
			Common stock			(57,693	)		(55,533	)		(114,374	)		(110,079	)
Balance at end of period					$	1,427,915		$	1,383,257		$	1,427,915		$	1,383,257

The Notes to Consolidated Financial Statements are an
integral part of the Statements of Income and Retained Earnings.

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Northern States Power Company (Minnesota) and Subsidiaries

Consolidated Statements of Cash Flows (Unaudited)

				Six Months Ended June 30,
				2000			1999
				(Thousands of dollars)
Cash Flows from Operating Activities:
	Net Income			$	110,163		$	63,811
	Adjustments to reconcile net income to cash from operating activities:
		Depreciation and amortization			254,600			199,190
		Nuclear fuel amortization			20,675			24,867
		Deferred income taxes			11,481			(33,746	)
		Deferred investment tax credits recognized			(4,604	)		(4,465	)
		Allowance for funds used during construction—equity			(743	)		(2,757	)
		Distributions in excess of (less than) equity in earnings of unconsolidated affiliates			(28,744	)		27,423
		Conservation incentive adjustments—noncash			9,918			35,035
		Cash provided by changes in certain working capital items			(15,820	)		(65,329	)
		Cash provided by changes in other assets and liabilities			64,784			9,820
Net cash provided by operating activities					421,710			253,849
Cash Flows from Investing Activities:
	Capital expenditures:
		Nonregulated property additions and asset acquisitions			(1,793,959	)		(930,185	)
		Utility plant additions			(223,924	)		(240,891	)
	Increase (decrease) in construction payables				(7,852	)		2,558
	Allowance for funds used during construction—equity				743			2,757
	Investment in external decommissioning fund				(26,443	)		(21,119	)
	Equity investments, loans and deposits for nonregulated projects				(70,028	)		(77,606	)
	Collection of loans made to nonregulated projects				339			39,956
	Other investments—net				(9,691	)		(15,502	)
Net cash used for investing activities					(2,130,815	)		(1,240,032	)
Cash Flows from Financing Activities:
	Increase in short-term debt—net issuances				(72,423	)		1,025,992
	Proceeds from issuance of long-term debt—net				2,303,905			309,197
	Repayment of long-term debt				(827,118	)		(208,667	)
	Proceeds from issuance of common stock—net				30,693			27,558
	Proceeds from NRG IPO				453,705			—
	Dividends paid				(115,155	)		(112,088	)
Net cash provided by (used for) financing activities					1,773,607			1,041,992
Net increase in cash and cash equivalents					64,502			55,809
Cash and cash equivalents at beginning of period					55,968			42,364
Cash and cash equivalents at end of period				$	120,470		$	98,173

The Notes to Consolidated Financial Statements are an
integral part of the Statements of Cash Flows.

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Northern States Power Company (Minnesota) and Subsidiaries

Consolidated Balance Sheets (Unaudited)

					June 30, 2000			December 31, 1999
					(Thousands of dollars)
ASSETS
Utility Plant
	Electric				$	7,563,322		$	7,430,686
	Gas					971,828			952,131
	Other					390,644			375,058
			Total			8,925,794			8,757,875
		Accumulated provision for depreciation				(4,554,809	)		(4,409,151	)
	Nuclear fuel—net					1,041,326			1,026,063
		Accumulated provision for amortization				(944,012	)		(923,336	)
			Net utility plant			4,468,299			4,451,451
Current Assets
	Cash and cash equivalents					120,470			55,968
	Customer accounts receivable—net					486,476			370,270
	Unbilled utility revenues					109,183			144,261
	Other receivables					36,776			58,680
	Fossil fuel inventories—at average cost					49,343			59,600
	Materials and supplies inventories—at average cost					313,883			231,503
	Prepayments and other					169,729			113,524
		Total current assets				1,285,860			1,033,806
Other Assets
	Nonregulated property—net of accumulated depreciation					3,904,144			2,086,476
	Equity investments in nonregulated projects					1,039,726			1,047,248
	External decommissioning fund and other investments					597,980			561,682
	Regulatory assets					228,376			248,127
	Notes receivable from nonregulated projects					68,047			66,876
	Long-term prepayments, deferred charges and receivables					215,456			158,096
	Intangible assets—net of accumulated amortization					118,464			113,969
		Total other assets				6,172,193			4,282,474
		TOTAL ASSETS			$	11,926,352		$	9,767,731

The Notes to Consolidated Financial Statements are an
integral part of the Balance Sheets.

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					June 30, 2000			December 31, 1999
					(Thousands of dollars)
LIABILITIES AND EQUITY
Capitalization
	Common stockholders' equity:
		Common stock and premium—authorized: 2000 350,000,000 and 1999 350,000,000 shares of $2.50 par value, issued shares: 2000 157,286,793 and 1999 155,729,663			$	1,457,033		$	1,210,359
		Retained earnings				1,427,915			1,434,247
		Leveraged common stock held by ESOP				(8,248	)		(11,606	)
		Accumulated other comprehensive income				(115,801	)		(75,470	)
			Total common stockholders' equity			2,760,899			2,557,530
Cumulative preferred stock and premium—authorized 7,000,000 shares of $100 par value; outstanding shares: 2000 1,050,000 and 1999 1,050,000 without mandatory redemption						105,340			105,340
Mandatorily redeemable preferred securities of subsidiary trust—guaranteed by NSP*						200,000			200,000
Long-term debt						4,838,940			3,453,364
		Total capitalization				7,905,179			6,316,234
Current Liabilities
	Long-term debt due within one year					239,528			153,231
	Other long-term debt potentially due within one year					141,600			141,600
	Short-term debt—utility					542,586			420,443
	Short-term debt—nonregulated					189,263			378,716
	Accounts payable					379,083			321,382
	Taxes accrued					168,203			172,059
	Interest accrued					85,157			49,327
	Dividends payable on common and preferred stocks					58,863			57,523
	Accrued payroll, vacation and other					149,088			131,855
			Total current liabilities			1,953,371			1,826,136
Other Liabilities
	Deferred income taxes					895,703			811,638
	Deferred investment tax credits					113,606			118,582
	Regulatory liabilities					517,764			461,569
	Postretirement and other benefit obligations					150,260			143,905
	Minority interest in subsidiaries					257,477			14,696
	Other long-term obligations and deferred income					132,992			74,971
			Total other liabilities			2,067,802			1,625,361
Commitments and Contingent Liabilities (See Note 4)
			TOTAL LIABILITIES AND EQUITY		$	11,926,352		$	9,767,731

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*

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.

The Notes to Consolidated Financial Statements are an
integral part of the Balance Sheets.

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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) (NSP-Minnesota) and its subsidiaries (collectively, NSP) as of June 30, 2000 and Dec. 31, 1999, the results of its operations for the three and six months ended June 30, 2000 and 1999, and its cash flows for the six months ended June 30, 2000 and 1999. 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, 1999 (1999 Form 10-K). The following notes should be read in conjunction with such policies and other disclosures in the 1999 Form 10-K.

1.  Proposed Business Combination

    On March 24, 1999, NSP and NCE agreed to merge and form a new entity named Xcel Energy Inc. At the time of the merger, each share of NCE common stock, par value $1.00 per share, will be exchanged for 1.55 shares of Xcel Energy common stock, par value $2.50 per share. NSP shares will become Xcel Energy shares on a one-for-one basis. The merger is expected to be a tax-free, stock-for-stock exchange for shareholders of both companies and to be accounted for as a pooling of interests. The merger has been approved by all the required states, the Federal Energy Regulatory Commission (FERC), the U.S. Justice Department and the Nuclear Regulatory Commission (NRC). The merger is expected to be approved during the third quarter by the SEC and the Federal Communications Commission (FCC) . For more discussion of this proposed business combination, see Part II, Item 5—Other Information of this report.

2.  Business Developments

    NRG Energy, Inc. (NRG)—In January 2000, NRG reached agreement to purchase 1,875 Mw of fossil-fueled electric generation assets in the Northeast region of the United States from Conectiv. The purchase price is approximately $800 million. NRG will sell 500 Mw of power around the clock to Delmarva Power and Light Company under a five-year agreement. The remaining energy and capacity will be sold into the markets in the Northeast region of the United States. NRG will own a 100 percent interest in the project. NRG expects to close the acquisition in the fourth quarter of 2000.

    In March 2000, NRG purchased 1,708 Mw of fossil-fueled generation from Cajun Electric Power Cooperative for approximately $1 billion. The output from the base-load Cajun facility will be sold principally under long-term contracts. NRG owns 100 percent of this project.

    In March 2000, NRG purchased the 680-Mw Killingholme A station from National Power plc. for approximately 390 million pounds sterling (approximately $615 million based on exchange rates at the time of acquisition). Killingholme A was commissioned in 1994 and is a combined-cycle, gas-turbine power station located in England. NRG owns 100 percent of this project.

    During June 2000, the Estonian Cabinet approved the terms under which NRG may proceed to purchase a 49-percent interest in Narva Power, which owns approximately 3,000 megawatts of oil shale-fired generation plants and a 51-percent interest in state-owned oil shale mines, Eesti Polevkivi. NRG's purchase of a 49-percent interest in Narva Power remains subject to successful negotiation of definitive agreements. State-owned Eesti-Energia will retain 51-percent ownership of Narva Power. The terms include a commitment by Narva Power to invest approximately $361 million for reconstructing and refurbishing the generation plants and making environmental improvements. NRG Energy will make an initial $65 million to $70 million equity commitment. Narva Power's two stations, Balti and Eesti,

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currently supply more than 90 percent of Estonia's electricity. Narva Power will enter into a 15-year power purchase agreement with Eesti-Energia.

    During August 2000, NRG was named the successful bidder in the South Australian Government's electricity privatization auction for Flinders Power, South Australian's final generation company to be privatized. NRG agreed to pay (AUS) $313 million ($180 million US) for a 100 year lease of the Flinders Power assets. Flinders Power includes two power stations totaling 760 MW, the Leigh Creek coal mine and a dedicated rail line. The lease agreement also includes managing the long-term fuel supply and power purchase agreement of the 180 MW Osborne Cogeneration Station. The transaction is expected to close in the third quarter of 2000.

    Ultra Power Technologies—During the second quarter of 2000, NSP sold the cable diagnostic assets of Ultra Power Technologies Inc., a wholly owned subsidiary, to Instrument Manufacturing Co. Inc. (IMCORP). Ultra Power marketed the partial discharge cable-testing technology developed by IMCORP to electric distribution system owners. NSP decided to exit the cable-testing business after reviewing its strategic priorities. Including the final exit costs, Ultra Power incurred a loss of approximately 2 cents per share for the first six months of 2000.

    Guardian Pipeline—During June 2000, the FERC approved an order granting Guardian Pipeline a Preliminary Determination that its proposal to construct and operate a new 149-mile natural gas pipeline is in the public interest. The Preliminary Determination covers all non-environmental aspects of Guardian's application, including need, rates, tariffs and other regulatory issues. In July 2000, the FERC staff issued a Draft Environmental Impact Statement determining that construction of Guardian Pipeline would have limited environmental impact and would be an environmentally acceptable action based on Guardian's proposed and other mitigation measures. A final FERC decision on the Guardian Pipeline is expected by March 2001. The Guardian Pipeline will transport natural gas from interconnections with Alliance, Northern Border Pipeline of America at the Chicago hub near Joliet, Ill., to northern Illinois and southern Wisconsin markets. Guardian Pipeline is a partnership among three Midwestern energy companies: CMS Energy, WICOR and Viking Gas, a wholly owned subsidiary of NSP. The three partners will each own an equal share of the proposed pipeline. The total cost of the project is estimated to be $230 million.

    Nuclear Management Company (NMC)—During the second quarter of 2000, the NRC approved requests by NMC's four affiliated utilities to transfer operating authority for their five nuclear plants to NMC. NRC action paves the way for NMC to assume management of operations and maintenance at the five plants. NMC intends to begin operating the plants later this summer after the SEC acts on a request from Alliant Energy. The NRC also is considering requests from three intervenors for hearings regarding NSP's application. NMC responsibilities will include oversight of on-site dry storage facilities for used nuclear fuel at the Point Beach and Prairie Island nuclear plants. Utility plant owners will continue to own the plants, control all energy produced by the plants and retain responsibility for nuclear liability insurance and decommissioning costs. The transfer of operating authority will formally establish NMC as an operating company, with a senior management team focused on sharing best practices from seven nuclear units at the five plants. Existing personnel will continue to provide day-to-day plant operations, with the additional benefit of tapping into ideas from all NMC-operated plants for improved safety, reliability and operational performance.

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    Black Dog Plant Project—During June 2000, the MPUC issued a certificate of need for the Black Dog plant repowering project. The project involves converting two of Black Dog's four electric generating units from coal to natural gas, a move that will result in greater operating efficiency and cleaner power production, including a reduction in NSP's air emissions. Using natural gas combined-cycle technology, output from the two units will be boosted by more than 100 megawatts. Other key regulatory approvals are needed from the Minnesota Environmental Quality Board and Pollution Control Agency. NSP expects to receive final approvals in the fall of 2000 and then immediately begin construction. The project should be completed prior to the summer of 2002.

3.  Regulation and Rate Matters

    Minnesota Fuel Clause Change—In June 2000, the Minnesota Public Utilities Commission (MPUC) approved a change under which bills received by NSP's electricity customers will more accurately reflect energy costs on a timely basis. The fuel clause adjustment (FCA) is a mechanism that allows NSP to bill customers for the actual cost of fuel used to generate electricity at its plants and energy purchased from other suppliers. Previously, the adjustment reflected prior period costs, and it would take approximately three months for customer bills to reflect higher, or lower, fuel costs incurred by NSP. Under the new method, NSP will base the customer billing adjustment on projected energy costs for the current month, and will correct in a subsequent month any differences between projected costs and actual costs incurred. This improved matching between costs and usage should encourage customers to take appropriate steps to reduce energy use during peak periods—when costs are at their highest—while giving appropriate price signals when costs are lower during off-peak periods. NSP implemented the revised fuel clause adjustment with July 2000 billings.

    On April 3, 2000, the Minnesota Office of Attorney General (OAG) filed a petition with the MPUC asking the MPUC to initiate an investigation of NSP's fuel and purchased energy cost recoveries under the FCA provisions of NSP's tariffs. The OAG alleged NSP could be improperly diverting low-cost NSP generation supplies to the wholesale market to increase profits, while recovering higher cost energy purchases through the FCA. NSP contends that it has followed the appropriate FCA rules and regulations. On July 20, 2000, the MPUC issued an order in which it indicated that the record before the MPUC did not reflect any specific allegations of wrongdoing. However, the MPUC instructed NSP and the OAG to resolve any concerns and file a report with the MPUC within 45 days.

    NSP-Wisconsin Rate Change—On Feb. 14, 2000, NSP-Wisconsin filed an application with the Public Service Commission of Wisconsin (PSCW) to increase electric rates for fuel costs. This application was subsequently updated with additional information on March 17, 2000. The increase is primarily the result of higher than forecast purchased power costs. The surcharge factor is expected to increase revenues by approximately $6.5 million in 2000 and represents an increase for a typical residential electric customer of approximately 3 percent. The PSCW issued their order granting the surcharge on May 2, 2000. The surcharge factor is expected to be effective through Dec. 31, 2001.

    Electric Transmission—In April 1998, Wisconsin state legislators enacted a law which included provisions that require the PSCW to order a public utility that owns transmission facilities in Wisconsin to transfer control of its transmission facilities to an independent system operator (ISO) or divest its interest in its transmission facilities to an Independent Transmission Company (ITC), if the public utility has not already transferred control to an ISO or divested to an ITC by June 30, 2000. NSP joined the Midwest ISO (MISO) 1999 and filed for PSCW and FERC approval in March 2000. The

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MISO is not expected to be operational until Nov. 1, 2001. On June 30, 2000, the PSCW issued an order that effectively waived the June 30^th statuatory deadline for the state's five major utilities (including NSP-Wisconsin). It is expected that the PSCW will approve NSP-Wisconsin's request to transfer operating control of its transmission system to the MISO and certify that joining the MISO meets the statutory requirement for a separate transmission operating structure once the MISO becomes operational.

4.  Commitments and Contingent Liabilities

    As of June 30, 2000, Seren had approximately $5 million of intangible assets related to CellNet Data Systems, Inc. In February 2000, CellNet filed for Chapter 11 bankruptcy protection. Although recovery of these assets is not assured at this time, pending the resolution of CellNet's financial difficulties, NSP is working with CellNet to restructure our contracts with them to provide recovery.

    On March 30, 2000, NRG received notification from the New York Independent System Operator (NYISO) of their petition to the FERC to place a $2.52 per megawatt hour market cap on ancillary service revenues. The NYISO also requested authority to impose this cap on a retroactive basis to March 1, 2000. On May 31, 2000, FERC approved a request of the NYISO to impose price limitations on one ancillary service, Ten Minute Non-synchronize Reserves, effective March 28, 2000. FERC rejected the NYISO's request for authority to adjust the market clearing prices for that service on a retroactive basis. As a result of the FERC order (unless the NYISO or another party successfully appeals the order), NRG will retain the approximately $8.0 million of revenues collected in February 2000 and approximately $8.2 million included in revenues, but not collected, for March 2000. The NYISO sought reconsideration of the FERC order on June 30, 2000.

    Nuclear Insurance—The circumstances set forth in Note 14 to NSP's financial statements in NSP's 1999 Form 10-K appropriately represent, in all material respects, the current status of commitments and contingent liabilities regarding public liability for claims resulting from any nuclear incident.

5.  Other Comprehensive Income

    NSP's other comprehensive income consists of foreign currency translation adjustments related to NRG's investments in international projects and changes in the fair value of certain marketable

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securities. Other comprehensive income items for the three and six month ended periods of 2000 and 1999 are listed below.

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6.  Segment Information

    NSP has four reportable segments: Electric Utility, Gas Utility and two nonregulated subsidiaries, NRG and EMI. Segment information for the second quarter and six month ended periods are as follows:

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(a)

The consolidated total revenue amounts represent the sum of utility and nonregulated amounts.

7.  Short-Term Borrowings

    At June 30, 2000, NSP and its subsidiaries had approximately $732 million of short-term debt outstanding at a weighted average interest rate of 6.18 percent. NSP-Minnesota had $542 million in short-term commercial paper borrowings outstanding at a composite rate of 5.94 percent. NSP's subsidiaries had approximately $190 million of short-term debt outstanding at a weighted average interest rate of 6.88 percent. NSP has regulatory approval for up to $1.5 billion in short-term debt levels.

    As of June 30, 2000, NSP-Minnesota 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. In addition to NSP-Minnesota lines, at June 30, 2000, commercial banks provided credit lines of approximately $518 million to wholly owned subsidiaries of NSP with approximately $190 million in borrowings outstanding, mainly to NRG.

8.  Financial Intruments

    As of June 30, 2000, NRG had seven interest rate swap agreements with notional amounts totaling approximately $880 million. If the swaps had been discontinued on June 30, 2000, NRG would have owed the counter-parties approximately $4.4 million. NRG believes that its exposure to credit risk due to nonperformance by the counter-parties to the hedging contracts is insignificant.

    NRG entered into a swap agreement effectively converting the 7.5 percent fixed rate on $200 million of Senior Notes due 2007 to a variable rate based on the London Interbank Offered Rate. The swap expires on June 1, 2009.

    A second swap effectively converts a $16 million issue of non-recourse variable rate debt into a fixed rate debt. The swap expires on Sept. 30, 2002 and is secured by the Camas Power Boiler assets.

    A third swap converts $177 million of non-recourse variable rate debt into fixed rate debt. The swap expires on Dec. 17, 2014 and is secured by the Crockett Cogeneration assets.

    A fourth swap converts £188 million of non-recourse variable rate debt into fixed rate debt. The swap expires on June 30, 2019 and is secured by the Killingholme assets.

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    NRG entered into three additional forward swap agreements to hedge against interest rate risk associated with future corporate bond offerings. The swaps expire on December 31, 2000.

9.  Pro Forma—NRG's Cajun Acquisition

    During March 2000, NRG completed the acquisition of two fossil fueled generating plants from Cajun Electric Power Cooperative, Inc. for approximately $1 billion. The following information summarizes the pro forma results of operations as if the acquisition had occurred as of the beginning of the respective periods in which pro forma information is presented.

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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

    Except for the historical statements contained in this report, 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", "outlook", "expect", "objective", "possible", "potential" and similar expressions. Actual results may vary materially. Factors that could cause actual results to differ materially include, but are not limited to:

•

general economic conditions, including their impact on capital expenditures;



•

business conditions in the energy industry;



•

competitive factors;



•

unusual weather;



•

changes in federal or state legislation;



•

regulation;



•

the higher degree of risk associated with NSP's nonregulated businesses as compared to NSP's regulated business;



•

the items set forth below under "Factors Affecting Results of Operations";



•

currency translation and transaction adjustments;



•

regulatory delays or conditions imposed by regulatory agencies in approving the proposed merger with NCE;



•

and the other risk factors listed from time to time by NSP in reports filed with the SEC, including Exhibit 99.01 to this report on Form 10-Q for the quarter ended June 30, 2000.

RESULTS OF OPERATIONS

    On March 24, 1999, NSP and NCE agreed to merge and form a new entity, Xcel Energy. For more discussion of this proposed business combination, see Part II, Item 5—Other Information of this report. The following discussion and analysis is based on the financial condition and operations of NSP and does not reflect the potential effects of the combination between NSP and NCE.

    NSP's earnings per share—diluted (EPS) for the three and six month periods ending June 30, 2000 and 1999 were as follows:

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Factors Affecting Results of Operations

    In addition to items noted in the 1999 Form 10-K and the Notes to the Financial Statements, the historical and future trends of NSP's operating results are affected by the following factors:

    Conservation program recovery—NSP recorded a charge of $35 million (before tax), or approximately 14 cents per share, in the second quarter of 1999 as a result of a MPUC disallowance of rate recovery of accrued 1998 conservation program incentives. NSP has appealed the MPUC decision to the Minnesota Court of Appeals.

    NSP has had a 4.1 percent conservation rate surcharge in place since 1998, pending resolution of the conservation incentive recovery issue. On July 31, 2000, the MPUC ordered NSP to reduce the surcharge level to 0.68 percent (consistent with current costs to be recovered) and to refund cumulative overcollections of approximately $24 million. This refund does not include the 1998 conservation incentive amounts still under appeal. Although cash flows will be reduced, NSP does not expect any earnings impact from these actions due to accruals previously recorded.

    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):

    Sales Growth—The following table summarizes NSP's growth in actual electric and gas sales and growth on a weather normalized (W/N) basis for the 3-month and the 6-month periods ended June 30, 2000, as compared with the same periods in 1999. NSP's weather normalization process removes the estimated impact on sales of temperature variations from historical averages.

    Accounting Change—In June 1998, the FASB issued Statement of Financial Accounting Standard (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 and its effectiveness.

    In June 2000, the FASB issued SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities, an Amendment to FASB Statement No. 133." This Statement amends SFAS No. 133 in four areas, normal purchases and sales contracts, definition of interest rate risk, hedging recognized foreign currency denominated assets and liabilities and hedging foreign currency risk and intercompany derivatives.

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    NSP plans to adopt both of these standard in 2001, as required. NSP has not yet determined the potential impact of implementing these statements.

Second Quarter 2000 vs. Second Quarter 1999

Utility Operating Results

    Electric revenues for the second quarter of 2000 increased $29.6 million, or 5.3 percent, compared with the second quarter of 1999. The following table summarizes the change in electric revenues for the second quarter.

    Electric margin equals electric revenue minus electric fuel and purchased power costs. The table below summarizes the change in electric margin for the second quarter.

    Gas revenues for the second quarter of 2000 increased $22.3 million, or 31.6 percent, compared with 1999. The following table summarizes the change in gas revenues for the second quarter.

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    Gas margin equals gas revenue minus the cost of purchased gas. The table below summarizes the change in gas margin for the second quarter.

    Other operation, Maintenance and Administrative and general expenses together decreased $1.4 million, or 0.7 percent, compared with the second quarter of 1999.

    Depreciation and amortization expense increased $3.6 million, or 4.1 percent, compared with the second quarter of 1999. The increase is mainly due to increased plant in service.

    Utility interest expense increased $4.8 million for the second quarter of 2000 compared with 1999, primarily due to issuance of $250 million of long-term debt in July 1999 and higher commercial paper balances.

Nonregulated Business Results

    The following table summarizes NSP's nonregulated business results in the aggregate, including consolidated subsidiaries and unconsolidated affiliates.

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*

Including minority interest in NRG earnings.

    NSP's nonregulated operations include diversified businesses, as described below.

•

NRG's primary business is independent power production, commercial and industrial heating and cooling, and energy-related refuse-derived fuel production.



•

EMI's primary business is custom energy services and sales.



•

Eloigne invests in affordable housing projects.



•

Seren Innovations is a communications and data services subsidiary.

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    The following table summarizes the earnings contributions of NSP's nonregulated businesses:

    NRG—NRG's 2000 second quarter earnings increased compared with 1999, as a result of NRG acquisitions completed in the Northeast, South (Cajun), United Kingdom (Killingholme) and favorable weather conditions in the western United States, which favorably affected the earnings of NRG's affiliate, West Coast Power LLC. NSP's earnings in 2000 exclude 4 cents per share of NRG income attributable to minority shareholders after the NRG IPO completed in June 2000.

    Seren—As expected, Seren's expansion of its broadband communications network in St. Cloud, Minn., and initial construction in California resulted in increased losses for the second quarter of 2000.

First Six Months 2000 vs. First Six Months 1999

Utility Operating Results

    Electric revenues for the first six months of 2000 increased $55.6 million, or 5.0 percent, compared with the first six months of 1999. The following table summarizes the change in electric revenues.

    Electric margin equals electric revenue minus electric fuel and purchased power costs. The following table summarizes the change in electric margin for the first six months.

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    Gas revenues for the first six months of 2000 increased $46.1 million, or 17.9 percent, compared with the first six months of 1999. The table below summarizes the change in gas revenues.

    Gas margin equals gas revenue minus the cost of purchased gas. The table below summarizes the change in gas margin for the first six months.

    Other operation, Maintenance and Administrative and general expenses together increased $18.1 million, or 4.9 percent, compared with the first six months of 1999. The increase is primarily due to $8 million of increased outage costs and a $5 million adjustment recorded last year that lowered 1999 retirement costs.

    Depreciation and amortization expense increased $8.1 million, or 4.6 percent, compared with the first six months of 1999. The increase is mainly due to increased plant in service.

    Utility interest expense increased $13.0 million for the first six months of 2000 compared with 1999, primarily due to the issuance of $250 million of long-term debt in July 1999 and higher commercial paper balances.

Nonregulated Business Results

    The following table summarizes NSP's nonregulated business results in the aggregate, including consolidated subsidiaries and unconsolidated affiliates.

			6 Mos. Ended
(Thousands of dollars, except EPS)			6/30/00			6/30/99
Operating revenues			$	850,695		$	139,726
Equity in project earnings				37,449			14,312
Operating and development expenses				(692,877	)		(164,572	)
Other income (expense)*				(9,750	)		3,321
Income (loss) before interest & taxes				185,517			(7,213	)
Interest expense				(137,585	)		(29,329	)
Income tax (expense) benefit and credits				(12,850	)		35,082
Net income (loss)			$	35,082		$	(1,460	)
Nonregulated earnings (loss) per share			$	0.22		$	(0.01	)

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*

Including minority interest in NRG earnings.

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    The following table summarizes the earnings contributions of NSP's nonregulated businesses.

    NRG—NRG's earnings for the first six months of 2000 increased compared with 1999, as a result of NRG acquisitions completed in the Northeast, South (Cajun), United Kingdom (Killingholme) and favorable weather conditions in the western United States, which favorably affected the earnings of NRG's affiliate, West Coast Power LLC. NSP's earnings in 2000 exclude 4 cents per share of NRG income attributable to minority shareholders after the NRG IPO completed in June 2000.

    Seren—As expected, Seren's expansion of its broadband communications network in St. Cloud, Minn., and initial construction in California resulted in increased losses for the first six months of 2000.

LIQUIDITY AND CAPITAL RESOURCES

    For a discussion of short-term borrowings and Financial Instruments, see Notes 7 and 8 to the Financial Statements.

Common Stock

    In January 2000, stock options for 1,443,009 shares were awarded under NSP's Executive Long-Term Incentive Award Stock Plan (the Long-Term Plan). These options cannot be exercised for approximately twelve months after the award date. Normally, stock options cannot be exercised until approximately twelve months after the date of award (beginning January 1999, one third of the options awarded to officers vest each year for three years). But the merger with NCE represents a "change in control" which makes all unvested stock options fully vested and exercisable on the legal close date of the merger.

    As of June 30, 2000, a total of 4,636,846 options were outstanding, which were considered potentially dilutive common shares for calculating earnings per share.

    During the first six months of 2000, NSP issued 1,557,130 new shares of common stock under the Long-Term Plan (pursuant to the exercise of options and awards granted in prior years), the Dividend Reinvestment and Stock Purchase Plan and the Employee Stock Ownership Plan.

Long-term Debt

    NSP—Minnesota may file a universal debt shelf registration during 2000. The timing and size of the debt shelf registration are dependent on the timing of the pending merger and cash requirements.

    In 1999, NSP—Wisconsin received approval to issue up to $80 million of long-term debt, which is now scheduled to be issued during the last half of 2000. The proceeds will be used primarily to repay short-term debt.

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    In March 2000, NRG South Central Generating LLC, a subsidiary of NRG, issued $800 million of senior secured bonds in a two-part offering. The first tranche was for $500 million with a coupon of 8.962 percent and a maturity of 2016. The second tranche was for $300 million with a coupon of 9.479 percent and a maturity of 2024. The proceeds were used to finance a portion of NRG's investment in the Cajun generating facilities.

    In March 2000, NRG issued 160 million pound sterling (approximately $250 million at the time of issuance) of 7.97% reset senior notes due 2020, principally to finance NRG's equity investment in the Killingholme facility. On March 15, 2005, these senior notes may be remarketed by Bank of America, N.A. at a fixed rate of interest through the maturity date or, at a floating rate of interest for up to one year and then at a fixed rate of interest through 2020. Interest is payable semi-annually on these securities beginning Sept. 15, 2000 through March 15, 2005, and then at intervals and interest rates established in the remarketing process.

    In March 2000, three of NRG's foreign subsidiaries entered into a 335 million pound sterling ($533 million) secured borrowing facility agreement with Bank of America International Limited, as arranger. Under this facility, the financial institutions have made available to NRG's subsidiaries various term loans totaling 235 million pound sterling ($374 million) for purposes of financing the acquisition of the Killingholme facility and 100 million pound sterling ($159 million) of revolving credit and letter of credit facilities to provide working capital for operating the Killingholme facility. The final maturity date of the facility is the earlier of June 30, 2019, or the date on which all borrowings and commitments under the largest tranche of the term facility have been repaid or cancelled.

NRG IPO

    During the second quarter of 2000, NRG completed an initial public offering of 28,170,000 shares priced at $15 per share. NRG also granted the underwriters an over-allotment option to purchase an additional 4,225,500 shares. In June 2000, the underwriters exercised their option and purchased the additional shares. The net proceeds were approximately $454 million. NSP owns approximately 147,600,000 Class A shares of NRG common stock, or 82 percent of the shares outstanding. NSP has concluded that this offering of NRG stock will not affect NSP's ability to use the pooling of interests method of accounting for its pending merger with NCE. No proceeds of this offering were received by NSP. Approximately $300 million of the proceeds were used to repay NRG's short-term bridge loan from Citicorp USA, Inc., which was scheduled to mature in August 2000 and was used to finance a portion of the acquisition of the Cajun facilities. The remaining net proceeds are expected to be used for general corporate purposes, which may include funding of capital expenditures and potential acquisitions, the development and construction of new facilities and additions to working capital. Funds not immediately required for such purposes may be used to temporarily reduce any outstanding balances under NRG's revolving credit facility.

    A portion of the proceeds was accounted for as a gain on the sale of 18 percent of NSP's ownership in NRG. This gain of $216 million was not recorded in earnings, but consistent with NSP's accounting policy was recorded as an increase in the common stock premium component of stockholders' equity.

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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.

    On Dec. 11, 1998, a gas explosion in St. Cloud, Minn., killed four people, including two NSP employees, injured approximately 14 people and damaged several buildings. The accident occurred as a crew from Cable Constructors Inc. (CCI) was installing fiber optic cable for Seren. Seren, CCI and Sirti, an architecture/engineering firm retained by Seren, are named as defendants in 10 lawsuits relating to the explosion. NSP is a defendant in eight of the lawsuits. NSP and Seren deny any liability for this accident. On July 11, 2000, the National Transportation Safety Board issued a report, which determined that CCI's inadequate installation procedures and delay in reporting the gas hit were the proximate cause of the accident. NSP has a self-insured retention deductible of $2 million with general liability coverage limits of $185 million. Seren's primary insurance coverage is $1 million and its secondary insurance coverage is $185 million. The ultimate cost to NSP and Seren, if any, is presently unknown.

    In April 1997, a fire damaged several buildings in downtown Grand Forks, N. D., during a flood in the city. On July 23, 1998, the St. Paul Mercury Insurance Co. 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. The insurance company alleges 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. Seven additional lawsuits have been filed against NSP by insurance companies which insured businesses damaged by the fire. One additional lawsuit filed by the First National Bank of Grand Forks is in Federal Court. It is NSP's position that it is not legally responsible for this unforeseeable event. NSP has a self-insured retention deductible of $2 million, with general liability insurance coverage limits of $150 million. The ultimate cost to NSP, if any, is unknown at this time. Trial began on Aug. 1, 2000.

    See Notes 3 and 4 of the Financial Statements for further discussion of legal proceedings, including Regulatory Matters and Commitments and Contingent Liabilities, incorporated by reference.

Item 5. Other Information

Proposed Business Combination

    As previously reported in NSP's Report on Form 8-K, dated March 24, 1999, which was filed on March 25, 1999, NSP and NCE agreed to merge and form Xcel Energy. At the time of the merger, each share of NCE common stock will be exchanged for 1.55 shares of Xcel Energy common stock. NSP shares need not be exchanged and will become Xcel Energy shares on a one-for-one basis. Cash will be paid in lieu of any fractional shares of Xcel Energy common stock. The merger agreement was filed as Exhibit 2.1 to NSP's March 24, 1999 Form 8-K, and is incorporated by reference.

    The merger has been approved by all the required states, the Federal Energy Regulatory Commission (FERC), the U.S. Justice Department and the Nuclear Regulatory Commission (NRC). The merger is expected to be approved during the third quarter by the SEC and the Federal Communications Commission (FCC).

    The merger is expected to be a tax-free, stock-for-stock exchange for shareholders of both companies (except for fractional shares), and to be accounted for as a pooling of interests. NSP and NCE have agreed to certain undertakings and limitations regarding the conduct of their businesses prior to the closing of the transaction. At the time of the merger, Xcel Energy will register as a holding company under the Public Utility Holding Company Act of 1935.

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    At June 30, 2000, NSP had deferred approximately $33 million of merger costs, pending the consumation of the business combination and consistent with NSP's filed request for regulatory amortization over future periods

Xcel Summarized Pro Forma Information

    The following summary of unaudited pro forma financial information for Xcel Energy gives effect to the merger using the pooling of interests method of accounting. Under this accounting method, NSP's and NCE's balance sheets and income statements are treated as if they have always been combined for financial reporting purposes. This unaudited pro forma summarized financial information should be read in conjunction with the historical financial statements and related notes of NSP and NCE, which are included in the 1999 Annual Reports on Form 10-K of the respective companies.

    The unaudited pro forma balance sheet information at June 30, 2000, assumes the merger had been completed on June 30, 2000. The unaudited pro forma income statement information assumes the merger had been completed on Jan. 1, 2000, the beginning of the earliest period presented.

    These summarized pro forma amounts do not include any of the estimated cost savings expected to result from the merger of NCE and NSP. Such cost savings, net of the costs incurred to achieve such savings and to complete the merger transaction, are subject to regulatory review and approval. However, the pro forma amounts for NSP and NCE each include approximately $33 million of deferred nonrecurring merger costs as of June 30, 2000, mainly those directly attributable to the merger transaction. Assuming the business combination is accounted for as a pooling of interests, these costs will be expensed upon the consummation of the NCE/NSP merger. The pro forma income statement information amounts do not reflect any of these costs. The pro forma balance sheet information has been adjusted to reflect a write off of the deferred costs and a related reduction of retained earnings.

    In addition to the pro forma balance sheet adjustment discussed above, adjustments have also been made to the historical amounts for NCE and NSP to conform their presentation for pro forma combined reporting, mainly to group nonregulated property with utility plant, and to report nonregulated revenue and operating income with utility amounts.

    The unaudited summarized pro forma financial information does not necessarily indicate what the combined company's financial position or operating results would have been if the merger had been completed on the assumed completion dates and does not necessarily indicate future operating results of the combined company.

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New NSP Utility Sub Summarized Pro Forma Information

    The following summary of unaudited pro forma financial information for New NSP Utility Sub adjusts the historical financial statements of NSP after the transfer of ownership. Upon completion of the merger, all NSP-Minnesota utility assets (other than investments in and assets of subsidiaries) and liabilities associated with the assets will be transferred to New NSP Utility Sub.

    The unaudited pro forma balance sheet information at June 30, 2000, assumes the merger had been completed on June 30, 2000. The unaudited pro forma income statement information assumes the merger had been completed on Jan.1, 2000, the beginning of the earliest period presented.

    The unaudited summarized pro forma financial information does not necessarily indicate what New NSP Utility Sub's financial position or operating results would have been if the merger had been completed on the assumed completion dates and does not necessarily indicate future operating results of New NSP Utility Sub.

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Item 6. Exhibits and Reports on Form 8-K

(a)

Exhibits

The following Exhibits are filed with this report:

2.01		Agreement and Plan of Merger, dated as of March 24, 1999, by and between Northern States Power Company and New Century Energies, Inc. (Incorporated by reference to Exhibit 2.1 to the Current Report on Form  8-K (File No. 1-12907) of New Century Energies, Inc. dated March 24, 1999).
27.01		Financial Data Schedule for the six months ended June 30, 2000.
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, 2000, or between June 30, 2000 and the date of this report:

    May 26, 2000 (Filed May 26, 2000)—Item 5. Other Events. Re: Disclosure of impact of Cajun acquisition on NRG's April earnings.

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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)
		By:		/s/ ROGER D. SANDEEN
				Roger D. Sandeen Vice President and Controller
		By:		/s/ JOHN P. MOORE, JR.
				John P. Moore, Jr. Vice President and Corporate Secretary

Date: August 10, 2000

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QuickLinks

PART 1. FINANCIAL INFORMATION

Item 1. Financial Statements

Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES

Part II. OTHER INFORMATION

Item 1. Legal Proceedings
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K

SIGNATURES