United States
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark one)
X Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For Quarter Ended SEPTEMBER 30, 1996
Commission File Number 10-3140
NORTHERN STATES POWER COMPANY, A WISCONSIN CORPORATION, MEETS THE
CONDITIONS SET FORTH IN GENERAL INSTRUCTION H (1) AND (2) OF FORM
10-Q AND IS THEREFORE FILING THIS FORM WITH THE REDUCED DISCLOSURE
FORMAT.
Northern States Power Company
(Exact name of registrant as specified in its charter)
Wisconsin 39-0508315
(State or other jurisdiction of (I.R.S.Employer
incorporation or organization) Identification No.)
100 North Barstow Street, Eau Claire, Wisconsin 54703
(Address of principal executive officers) (Zip Code)
Registrant's telephone number, including area code (715) 839-2592
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 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 November 14, 1996
Common Stock, $100 par value 862,000 Shares
All outstanding common stock is owned beneficially and of
record by Northern States Power Company, a Minnesota corporation.
<TABLE>
Northern States Power Company (Wisconsin)
Statements of Income (Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
1996 1995 1996 1995
(Thousands of dollars)
<S> <C> <C> <C> <C>
Operating revenues
Electric............................................ $91,459 $97,458 $279,960 $283,980
Gas................................................. 8,907 7,625 60,814 51,420
Total............................................. 100,366 105,083 340,774 335,400
Operating expenses
Fuel for electric generation........................ 923 1,969 3,523 3,758
Purchased and interchange power..................... 42,375 43,985 133,357 132,788
Gas purchased for resale............................ 5,360 8,585 39,758 35,792
Other operation..................................... 13,482 14,320 41,442 40,294
Maintenance......................................... 4,439 5,140 14,434 14,425
Administrative and general.......................... 5,486 5,888 16,389 18,316
Depreciation and amortization....................... 9,034 8,253 26,547 24,568
Taxes: Property and general......................... 3,552 3,455 10,798 10,455
Current income tax expense................... 3,172 2,294 14,210 14,400
Net provision for deferred income taxes...... 1,391 1,353 2,375 2,275
Net investment tax credit adjustments........ (227) (234) (682) (702)
Total............................................. 88,987 95,008 302,151 296,369
Operating income..................................... 11,379 10,075 38,623 39,031
Other income
Other income and deductions - net................... 82 371 314 643
Allowance for funds used during construction -
equity............................................ 65 119 276 242
Total other income ................................ 147 490 590 885
Income before interest charges....................... 11,526 10,565 39,213 39,916
Interest charges
Interest on long-term debt.......................... 3,968 4,010 11,910 12,048
Other interest and amortization..................... 863 620 2,429 2,696
Allowance for funds used during construction - debt. (104) (112) (276) (296)
Total............................................. 4,727 4,518 14,063 14,448
Net Income .......................................... $6,799 $6,047 $25,150 $25,468
Statements of Retained Earnings (Unaudited)
Balance at beginning of period....................... $227,197 $220,048 $221,638 $218,833
Net income for period................................ 6,799 6,047 25,150 25,468
Net additions...................................... 6,799 6,047 25,150 25,468
Dividends paid....................................... 6,396 6,603 19,188 24,809
Balance at end of period............................. $227,600 $219,492 $227,600 $219,492
The Notes to Financial Statements are an integral part of the Statements of Income and Retained Earnings.
</TABLE>
<TABLE>
Northern States Power Company (Wisconsin)
Balance Sheets (Unaudited)
<CAPTION>
September 30, December 31,
1996 1995
(Thousands of dollars)
<S> <C> <C>
ASSETS
Utility Plant
Electric........................................................ $886,837 $864,514
Gas............................................................. 98,525 94,425
Other........................................................... 67,139 63,758
Total....................................................... 1,052,501 1,022,697
Accumulated provision for depreciation........................ (388,896) (370,634)
Net utility plant........................................... 663,605 652,063
Other Property and Investments.................................... 9,286 9,218
Current Assets
Cash............................................................ 326 247
Accounts receivable - net....................................... 32,397 43,134
Materials and supplies - at average cost
Fuel........................................................ 9,065 6,689
Other....................................................... 5,903 5,561
Unbilled utility revenues....................................... 12,136 18,665
Prepayments and other........................................... 10,463 11,295
Total current assets.......................................... 70,290 85,591
Other Assets
Regulatory assets............................................... 32,799 34,704
Federal income tax receivable................................... 3,307 3,307
Unamortized debt expense........................................ 2,666 2,780
Other........................................................... 3,132 3,235
Total other assets........................................... 41,904 44,026
TOTAL ASSETS................................................ $785,085 $790,898
LIABILITIES AND EQUITY
Capitalization
Common stock - authorized 870,000 shares of $100 par value,
issued shares: 1996 and 1995, 862,000...................... $86,200 $86,200
Premium on common stock....................................... 10,461 10,461
Retained earnings............................................. 227,600 221,638
Total common stock equity................................... 324,261 318,299
Long-term debt.................................................. 211,571 213,235
Total capitalization........................................ 535,832 531,534
Current Liabilities
Notes payable - parent company.................................. 49,800 50,900
Accounts payable................................................ 11,688 14,884
Payable to affiliate companies (principally parent)............. 15,330 13,457
Salaries, wages, and vacation pay accrued....................... 5,209 6,343
Taxes accrued................................................... 1,016 5,648
Interest accrued................................................ 5,066 5,300
Current deferred taxes.......................................... 1,725 1,963
Other........................................................... 4,301 4,177
Total current liabilities................................... 94,135 102,672
Other Liabilities
Accumulated deferred income taxes............................... 102,457 100,227
Accumulated deferred investment tax credits..................... 20,310 21,205
Regulatory liabilities.......................................... 17,869 18,020
Customer advances............................................... 7,424 6,458
Benefit obligations and other................................... 7,058 10,782
Total other liabilities..................................... 155,118 156,692
TOTAL LIABILITIES AND EQUITY.............................. $785,085 $790,898
The Notes to Financial Statements are an integral part of the Balance Sheets.
</TABLE>
<TABLE>
Northern States Power Company (Wisconsin)
Statements of Cash Flows (Unaudited)
<CAPTION>
Nine Months Ended
September 30
1996 1995
(Thousands of dollars)
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income.............................................. $25,150 $25,468
Adjustments to reconcile net income to cash from
operating activities:
Depreciation and amortization......................... 27,216 25,435
Deferred income taxes................................. 919 1,228
Deferred investment tax credits recognized............ (682) (702)
Allowance for funds used during construction - equity. (276) (242)
Decrease in insurance receivable...................... 0 2,996
Cash provided from changes in working capital........... 7,717 19,551
Cash provided from (used for) changes in other
assets and liabilities................................ (2,091) 753
Net cash provided from operating activities 57,953 74,487
Cash Flows from Investing Activities:
Capital expenditures.................................... (38,189) (35,737)
Increase in construction related accounts payable....... 464 275
Allowance for funds used during construction - equity... 276 242
Other................................................... (137) (1,303)
Net cash used for investing activities (37,586) (36,523)
Cash Flows from Financing Activities:
Repayment of short-term debt............................ (1,100) (9,700)
Redemption of long-term debt, including reacquisition
premiums.............................................. 0 (3,375)
Dividends paid to parent................................ (19,188) (24,809)
Net cash used for financing activities (20,288) (37,884)
Net increase in cash and cash equivalents.................. 79 80
Cash and cash equivalents beginning of period.............. 247 61
Cash and cash equivalents end of period.................... $326 $141
The Notes to Financial Statements are an integral part of the Statements of Cash Flows.
</TABLE>
Northern States Power Company (Wisconsin)
NOTES TO FINANCIAL STATEMENTS
The Company is a wholly owned subsidiary of Northern States Power
Company, a Minnesota corporation (NSPM).
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, a Wisconsin corporation (the
Company), as of September 30, 1996 and December 31, 1995, the results of its
operations for the three and nine months ended September 30, 1996 and 1995 and
its cash flows for the nine months ended September 30, 1996 and 1995. Due to
the seasonality of the Company's electric and gas sales, operating results on
a quarterly and year-to-date basis are not necessarily an appropriate base
from which to project annual results.
The accounting policies followed by the Company are set forth in Note 1
to the Company's financial statements in its Annual Report on Form 10-K for
the year ended December 31, 1995 (Form 10-K). The following notes should be
read in conjunction with such policies and other disclosures in the Form 10-K.
Certain reclassifications have been made to 1995 financial information
to conform with the 1996 presentation. These reclassifications had no effect
on net income as previously reported.
1. Accounting Change - Gas Costs
While fixed costs (demand charges) from gas suppliers and transporters
are incurred fairly evenly throughout the year, such costs are recovered in
customer rates on a per unit basis (using average annual costs per unit),
primarily in the winter heating season when sales volumes are highest. Also,
the energy price of gas purchased (excluding demand charges) can vary from
estimated levels included in customer rates. As a result, gas costs for both
demand and energy charges are incurred throughout the year at a different time
than when such costs are recovered from customers. The purchased gas
adjustment (PGA) clause allows customer rates to be adjusted periodically to
ensure full recovery of all gas costs incurred.
Effective January 1, 1996, the Company changed its method of accounting
for the regulatory effects of costs recovered through the PGA rate adjustment
clause. Previously, the Company expensed gas costs as incurred. Beginning
in 1996, the cost of gas expensed is adjusted to equal the level of cost
recovery in customer rates, with such adjustments being reflected as
regulatory deferrals on the balance sheet. This accounting change results in
a better matching of revenues and expenses, and conforms to the cost
recognition method used by NSPM.
This change affects the timing of expense recognition within the year but
will not change total annual gas expense for 1996 or any prior years. The
effect of the change on third quarter 1996 results was a decrease in gas costs
recognized and an increase in pretax operating income of approximately $3.7
million, and an increase in net income of $2.2 million. The effect of the
change on the first nine months of 1996 results was a decrease in gas costs
recognized and an increase in pretax operating income of approximately $0.3
million, and an increase in net income of $0.2 million. Consistent with
accounting requirements, prior year quarterly results have not been restated
for this change. Had the change been implemented as of January 1, 1995, the
effect of the change on third quarter 1995 results would have been a decrease
in gas costs recognized and an increase in pretax operating income of
approximately $4.2 million, and an increase in net income of $2.5 million.
The effect of the change on results for the first nine months of 1995 results
would have been a decrease in gas costs recognized and an increase in pretax
operating income of approximately $1.7 million, and an increase in net income
of $1.0 million.
2. Proposed Business Combination
On April 28, 1995, NSPM and Wisconsin Energy Corporation (WEC) entered
into an Agreement and Plan of Merger (the Merger Agreement), which provides
for a strategic business combination involving NSPM, WEC and the Company to
form a registered utility holding company, which will be known as Primergy
Corporation (Primergy). See further discussion of the proposed business
combination in the 1995 Form 10-K and Part II, Item 5-Other Information of
this report. The 1996 developments, related to merger filings made in 1995,
are discussed below. The goal of NSPM, WEC and the Company was to receive
approvals from all required regulatory authorities by the end of 1996.
However, (as discussed below) it appears that all necessary regulatory
approvals will not be obtained by the end of 1996, and as a result, the merger
will not be completed during 1996. If this is the case, NSPM, WEC and the
Company will continue to pursue regulatory approvals and completion of the
merger as soon as possible in 1997.
In July 1995, WEC and NSPM filed an application and supporting testimony
with the Federal Energy Regulatory Commission (FERC) seeking approval of the
Merger Agreement. On May 28, 1996, WEC and NSPM filed additional evidence
with the FERC, providing a detailed analysis of generation "market power" and
more specific information about the independent system operator (ISO) proposal
included in earlier filings. This additional information was provided to the
FERC in response to concerns raised by intervenors in the merger proceeding
and by the FERC staff.
The FERC administrative law judge (ALJ), in the merger proceeding, issued
an initial decision on August 29, 1996 recommending approval of the merger
application, subject to NSPM and WEC meeting eight conditions. A significant
part of the ALJ's initial decision involves establishing an ISO. The ALJ's
initial decision specifically rejected the need for divestiture of any
generation or transmission facilities as a requirement for ensuring open and
equal access to the transmission system. In October 1996, in response to the
FERC staff and intervenor opposition to the merger based on the claim that
Primergy would be able to exercise transmission market power after the merger,
NSPM and WEC filed a Unilateral Offer of Settlement (UOS) with the FERC. The
UOS includes a transmission system control agreement and articles and bylaws
for establishing an ISO. NSPM and WEC are hopeful that the FERC will
simultaneously approve the UOS and the pending merger application in late
1996.
On April 10, 1996, the Michigan Public Service Commission approved the
merger application through a settlement agreement containing terms consistent
with the merger application. On June 26, 1996, the North Dakota Public
Service Commission approved the merger application. These state commission
approvals represent two of the four states where approval of the merger is
required.
On July 24, 1996, the Public Service Commission of Wisconsin (PSCW) held
a prehearing conference on the merger proceeding. At the prehearing
conference the parties agreed upon an extensive issues list and a schedule for
the hearing. The schedule originally required staff and intervenor case
filings and applicants rebuttal filing in September 1996, and three weeks of
hearings commencing on September 24, 1996. At its open meeting on August 8,
1996, the PSCW revised the schedule and set hearing dates to begin October 30,
1996. The resulting schedule should lead to a PSCW decision on the merger in
early 1997 and a written order in the first quarter of 1997. In October 1996,
the PSCW staff filed testimony with the PSCW proposing various conditions,
including potential divestiture of certain transmission and generation assets
and a larger reduction in electric rates. These recommendations differ
materially from the merger terms and conditions included in the application
which NSPM and WEC originally filed with the PSCW.
In a related matter (as discussed below in Note 3, Regulation and Rate
Matters), the PSCW in September 1996 issued an order that set minimum
standards for creating an ISO that differs from NSPM's and WEC's proposal for
an ISO. This order was issued as part of a generic electric utility
restructuring process the PSCW started in 1995. Although the restructuring
process is separate from the merger proceedings, the order is related because
the PSCW staff, in its testimony filed in the merger proceeding (as discussed
above), recommended establishing an ISO that meets the standards of the PSCW's
order as a condition to approving the merger. In addition, in September 1996,
the PSCW submitted its ISO order to the FERC with a request that the FERC
require the establishment of an ISO satisfying the PSCW minimum standards as
a condition to its approval of the NSPM/WEC merger application. In October
1996, NSPM and WEC filed with the PSCW, as supplemental testimony and exhibits
in the merger proceeding, the same ISO proposal included with the UOS filed
with the FERC (as discussed previously).
In June 1996, the Minnesota Public Utilities Commission (MPUC) issued an
order which established the procedural framework for the MPUC's consideration
of the merger. The issues of merger-related savings, electric rate freeze
characteristics, NSPM's pre-merger revenue requirements, Primergy's ability
to control the transmission interface between the Mid-Continent Area Power
Pool and the Wisconsin and upper Michigan area, and the impact of control of
this interface on Minnesota utilities were set for contested case hearings.
Administrative law judges have scheduled evidentiary hearing dates from
November 20 through December 6, 1996. Unless the MPUC proceedings are
settled, the MPUC's decision will not be obtained until early 1997.
On April 5, 1996, NSPM and WEC submitted the initial filing to the
Securities and Exchange Commission to facilitate registration of Primergy
under the Public Utility Holding Company Act of 1935, as amended.
Notification under the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended, will be filed prior to completion of the proposed merger.
The merger filings, with each state, included a request for deferred
accounting treatment and rate recovery of costs incurred associated with the
proposed merger. At September 30, 1996, the Company had incurred
approximately $593,000 of costs associated with the proposed merger which have
been deferred as a component of Other Assets.
Under the Merger Agreement, completion of the merger is conditioned upon
the prior receipt of all necessary regulatory approvals without the imposition
of materially adverse terms.
3. Regulation and Rate Matters
1997 Rate Cases - There have been no changes in any of the rates for any
of the jurisdictions in which the Company operates, since the Form 10-K was
filed. The technical hearings for the electric and gas stand alone rate
cases, based on a 1997 pre-merger test year, were held before the PSCW on July
8, 1996. On October 10, 1996, at its open meeting, the PSCW made decisions
on the issues in the Company's 1997 rate cases. Although a final order has
not yet been issued by the PSCW, the PSCW made the following preliminary
decisions.
Overall, electric and gas rates will remain unchanged in 1997. However,
certain classes of customers will experience small changes in rates, as a
result of revisions in rate design. The Company had requested changes to
electric rates for various classes of customers, which would have an
offsetting effect on overall revenues. The Company had requested no changes
to gas rates. The PSCW approved a capital structure composed of 45% debt and
55% common equity. The PSCW granted an 11.3% return on common equity.
Based on the PSCW's interpretation of a recent court decision, the PSCW
denied current rate recovery of the federal government's assessment against
the Company for the decommissioning and decontamination of its uranium
enrichment facilities. The Company's annual expense for this item is
approximately $600,000. This cost disallowance was considered in the overall
cost of service which, as approved by the PSCW, supported no change to overall
electric and gas rates. The Company incurs this cost through the interchange
agreement with NSPM. NSPM plans to continue paying the assessments to the
federal government, and based on the PSCW's decision to allow future rate
recovery with interest if the courts ultimately decide the assessments must
be paid, the Company will record the assessments as a regulatory asset
beginning in 1997.
Industry Restructuring - Because of the increased focus on competition
in the electric and natural gas utility industries, the PSCW is investigating
changes in the structure and regulation of both industries. The Company has
actively participated in these proceedings. To date, after reviewing a set
of proposals developed by its working group, the PSCW has set a target date
of 2001 for implementing competition in retail electric markets, established
prerequisites for retail competition and defined a work plan for achieving the
prerequisites. As a part of the electric restructuring process, on September
30, 1996 the PSCW issued an order setting out the minimum standards for an
ISO. These guidelines will be used by the PSCW in the NSPM and WEC merger
proceedings, and in developing further direction for an ISO for purposes of
restructuring. In addition the PSCW proceedings are investigating unbundling
the components of the integrated utility, setting service standards and
establishing methods for the continued promotion of energy conservation and
renewable resources. The PSCW is also examining similar issues for the gas
industry.
4. Commitments and Contingent Liabilities
As discussed in Note 8 to the Financial Statements in the 1995 Form 10-K,
the Company has been named as a potentially responsible party in connection
with environmental contamination at a site in Ashland, Wisconsin. With
respect to developments since the 1995 Form 10-K was filed, the Wisconsin
Department of Natural Resources (WDNR) completed a sediment contamination
investigation of the impacted area of Chequamegon Bay portion of the Ashland
site to determine the extent and nature of contamination. Contamination of
the near shore area has been confirmed by the study. WDNR's consultant is now
preparing a remedial option study for the entire site, which includes Kreher
Park, the Bay and the Company's property. Until this study is completed and
more information is known concerning the extent of the final remediation
required by the WDNR, the remediation method selected, the related costs, the
various parties involved, and the extent of the Company's responsibility, if
any, for sharing the costs, the ultimate cost to the Company and timing of any
payments related to the Ashland site is not determinable. At September 30,
1996, the Company had recorded an estimated liability of $900,000 for future
remediation costs associated with the Company-owned portion of the site. To
date the Company has incurred approximately $558,000 in actual expenditures,
exclusive of the remediation costs. Based on a recent PSCW decision to allow
recovery of incremental costs incurred for this site in rates, the Company has
recorded a regulatory asset for the accrued and actual expenditures related
to this site.
On March 11, 1996, the Company received a Notice of Violation (NOV) from
the WDNR stating that emissions from the Company's French Island facility had
exceeded allowable levels for dioxin. The Company's initial investigation and
response, including a re-test of Unit #1, resulted in the WDNR clearing the
NOV on Unit #1 on September 25, 1996. On October 9, 1996 the Company received
a letter from the WDNR reiterating the outstanding NOV on Unit #2 requesting
a written response by November 15, 1996 setting forth what the Company has
done thus far and what it plans to do to respond. The Company is currently
evaluating alternative boiler control and operating solutions to reduce dioxin
emissions and is planning to re-test Unit #2 later this year. At this time,
based on the Company's response and continued efforts to resolve the issue,
it does not expect any fines to be imposed by the WDNR. The Company does not
believe any corrective actions will have a material adverse effect on the
Company's financial condition or results of operations.
Item 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
Discussion of financial condition and liquidity is omitted per conditions
set forth in general instructions H (1) and (2) of Form 10-Q for wholly-owned
subsidiaries (reduced disclosure format).
On April 28, 1995, NSPM and WEC entered into an Agreement and Plan of
Merger which provides for a strategic business combination involving the two
companies in a "merger-of-equals" transaction. See Note 2 to the Financial
Statements and Part II of this report for more information.
The Company's net income for the third quarter and nine months ended
September 30, 1996 was $6.8 million and $25.1 million, respectively, an
increase of $0.8 million and a decrease of $0.3 million, respectively, from
the comparable periods a year ago.
Except for the historical statements contained herein, the matters
discussed in the following discussion and analysis, including the statements
regarding the anticipated impact of the proposed merger, are forward looking
statements that are subject to certain risks, uncertainties and assumptions.
Such forward-looking statements are intended to be identified in this document
by the words "anticipate", "estimate", "expect", "objective", "possible",
"potential" and similar expressions. Actual results may vary materially.
Factors that could cause actual results to differ materially include, but are
not limited to: general economic conditions, including their impact on
capital expenditures; business conditions in the energy industry; competitive
factors; unusual weather; regulatory decisions regarding the proposed
combination of NSPM and WEC; and the other risk factors listed in Exhibit
99.01 to this report on Form 10-Q for the quarter ended September 30, 1996.
Third Quarter 1996 Compared with Third Quarter 1995
Electric revenues for the third quarter 1996 decreased $6.0 million or
6.2% from the electric revenues for the third quarter 1995. Electric sales
decreased 1.8% in 1996 from 1995, with the majority of the decrease due to
favorable weather in 1995 and unfavorable weather in 1996. Electric revenues
also reflect an electric rate reduction effective January 1, 1996 as discussed
in the Rate Matters by Jurisdiction section of the 1995 Form 10-K. In
addition, Interchange Agreement revenue from NSPM decreased due to lower
production at plants located in Wisconsin.
Gas revenues increased $1.3 million or 16.8% in third quarter 1996
compared to third quarter 1995. Gas sales for the third quarter of 1996 were
3.0% higher than those in the comparable quarter of 1995. Contributing to the
increase were the impacts of cooler summer weather in 1996 relative to an
unusually warm 1995, higher PGA recovery of purchased gas costs and the gas
rate increase effective January 1, 1996, as discussed in the Rate Matters by
Jurisdiction section of Part I of the 1995 Form 10-K.
Fuel for electric generation and Purchased and interchange power combined
for a net decrease of $2.7 million or 5.8% due in part to decreased generation
to meet lower sales requirements and to lower operating costs charged to the
Company by NSPM.
Gas purchased for resale decreased $3.2 million, largely due to the
effects of the change of accounting for gas costs as discussed in Note 1 of
the Notes to the Financial Statements in this report.
Other operation, Maintenance and Administrative and general expenses
together decreased $1.9 million or 7.7% in third quarter 1996 compared to
third quarter 1995. The decrease is due primarily as a result of lower
production and distribution contract maintenance, reduced operating expenses
in the distribution and production areas, and lower employee benefit expenses.
Depreciation and amortization increased $0.8 million in the third quarter
1996 compared with the same quarter of 1995 due to increases in the Company's
plant in service.
Property and general taxes were approximately the same in both periods.
Income tax expense for the third quarter 1996 is up $0.9 million as
compared to the third quarter 1995 mainly due to a higher level of pre-tax
income in the third quarter 1996.
Other income and deductions decreased $0.3 million due to lower
subsidiary company earnings in the third quarter 1996 compared to third
quarter 1995.
Interest expense increased $0.2 million mainly due to higher short term
debt levels.
First Nine Months of 1996 Compared with First Nine Months of 1995
Electric revenues for the first nine months of 1996 decreased $4.0
million or 1.4% from the electric revenues for the same period of 1995 due to
price decreases net of higher sales levels. Less favorable weather in 1996,
partially offset by customer and sales growth, produced an electric sales
increase of 0.8%. These sales increases were more than offset by decreased
revenues from a 1.7% electric rate reduction effective January 1, 1996 as
discussed in the Rate Matters by Jurisdiction section of the 1995 Form 10-K.
Gas revenues increased $9.4 million or 18.3% for the first nine months
of 1996 compared to the same period of 1995. Gas sales increased 15.2% in
1996 from 1995 due to colder winter weather and sales growth. Also
contributing to the increased revenues was the 3.4% gas rate increase
effective January 1, 1996, as discussed in the Rate Matters by Jurisdiction
section of the 1995 Form 10-K.
Fuel for electric generation and Purchased and interchange power together
increased $0.3 million or 0.2% for the first nine months of 1996 over the same
period in 1995 primarily due to increased generation and interchange purchases
from NSPM to meet higher Wisconsin sales requirements.
Gas purchased for resale increased $4.0 million or 11.1% primarily due
to additional gas purchases to support increased gas sales.
Other operation, Maintenance and Administrative and general expenses
together decreased $0.8 million or 1.1% in the first nine months of 1996
compared to the same period in 1995, primarily as a result of reduced employee
benefit expenses, partially offset by an increase in customer service expenses
during the period.
Depreciation and amortization increased $2.0 million in 1996 over 1995
due to increases in the Company's plant in service.
Property and general taxes increased $0.3 million or 3.3% in 1996 over
1995 primarily due to higher gross receipts tax from higher revenues in 1996.
Income tax expense was approximately the same for both periods.
Other income and deductions decreased $0.3 million due to lower
subsidiary company earnings in the first nine months of 1996 compared to the
same period in 1995.
Interest expense decreased $0.4 million for the first nine months of 1996
compared to the same period in 1995 mainly due to a 1995 charge for interest
on prior year income tax assessments.
Part II. OTHER INFORMATION
Item 5. Other Information
MERGER AGREEMENT WITH WISCONSIN ENERGY CORPORATION
As previously reported in the Company's Current Report on Form 8-K, dated
May 8, 1995, and filed on May 8, 1995, and the 1995 Form 10-K, NSPM and WEC
have entered into a Merger Agreement which provides for a strategic business
combination involving NSPM and WEC in a "merger-of-equals" transaction
(Transaction).
In connection with the Transaction, the Company will be merged into WEC's
principal utility subsidiary, Wisconsin Electric Power Company (WE), which
will be renamed "Wisconsin Energy Company." Prior to the merger of the
Company into Wisconsin Energy Company, a new successor company to NSPM,
Northern Power Wisconsin Corp. (New NSP), will acquire from the Company
certain gas utility properties and operations in LaCrosse and Hudson,
Wisconsin with a net historical cost at September 30, 1996 of approximately
$22.7 million. This transfer is for purposes of complying with the Wisconsin
Public Utility Holding Company Act.
Detailed information with respect to the Merger Agreement and the
proposed Transaction is contained in the 1995 Annual Reports on Form 10-K of
NSPM and the Company and in the Joint Proxy Statement/Prospectus dated August
7, 1995 relating to the meetings of the stockholders of WEC and NSPM to vote
on the Merger Agreement and related matters.
SUMMARIZED PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
The following summary of unaudited pro forma financial information
combines historical balance sheet and income statement information of WEC and
NSPM, and of WE and the Company, to give effect to the Transaction to form
Primergy and Wisconsin Energy Company, respectively. The unaudited pro forma
balance sheet information gives effect to the Transaction as if it had
occurred at September 30, 1996. The unaudited pro forma income statement
information gives effect to the Transaction as if it had occurred at January
1, 1996. This pro forma information was prepared from the historical
financial statements of NSPM, WEC and WE and the Company on the basis of
accounting for the Transaction as a pooling of interests and should be read
in conjunction with such historical financial statements and related notes
thereto.
The allocation between Wisconsin Energy Company and New NSP and their
customers of the estimated cost savings resulting from the Transaction, net
of the costs incurred to achieve such estimated cost savings, will be subject
to regulatory review and approval. None of the estimated cost savings, the
costs to achieve such savings, nor transaction costs are reflected in the
summarized unaudited pro forma income statement information. With the
exception of certain non-current deferred tax balance sheet reclassifications
described below, all other financial statement presentation and accounting
policy differences are immaterial and have not been adjusted in the unaudited
pro forma financial information. The following information is not necessarily
indicative of the financial position or operating results that would have
occurred had the Transaction been consummated on the date or at the beginning
of the period for which the Transaction is being given effect nor is it
necessarily indicative of future operating results or financial position.
Primergy Information
The following summarized Primergy unaudited pro forma financial
information reflects the combination of the historical financial statements
of WEC and NSPM after giving effect to the Transaction to form Primergy. A
pro forma adjustment has been made to conform the presentations of non-current
deferred income taxes in the summarized unaudited pro forma combined balance
sheet information as a net liability. The unaudited pro forma combined
earnings per common share reflect pro forma adjustments to average NSPM common
shares outstanding in accordance with the provisions of the Merger Agreement,
whereby each outstanding share of NSPM common stock will be converted into
1.626 shares of Primergy common stock. In the Transaction, each outstanding
share of WEC common stock will remain outstanding as a share of Primergy
common stock.
Unaudited
Pro Forma
PRIMERGY CORP: NSPM WEC Combined
(in millions, except per share amounts)
As of September 30, 1996:
Utility Plant-Net $4,344 $2,971 $7,315
Current Assets 717 466 1,183
Other Assets * 1,334 1,169 2,363
Total Assets $6,395 $4,606 $10,861
Common Stockholders' Equity $2,106 $1,917 $4,023
Preferred Stockholders'
Equity 240 30 270
Long-Term Debt 1,673 1,331 3,004
Total Capitalization 4,019 3,278 7,297
Current Liabilities 946 441 1,387
Other Liabilities * 1,430 887 2,177
Total Equity &
Liabilities $6,395 $4,606 $10,861
For the Nine Months Ended
September 30, 1996:
Utility Operating
Revenues $1,944 $1,296 $3,240
Utility Operating Income $266 $230 $496
Net Income, after Preferred
Dividend Requirements $186 $162 $348
Earnings per Common Share:
As reported $2.70 $1.46 --
NSPM Equivalent Shares -- -- $2.54
Primergy Shares -- -- $1.56
* Includes a $140 million pro forma adjustment to conform the presentation of
non-current deferred taxes as a net liability.
Wisconsin Energy Company Information
The following summarized Wisconsin Energy Company unaudited pro forma
financial information combines historical balance sheet and income statement
information of WE and the Company to give effect to the Transaction, including
the transfer of certain gas utility properties from the Company to New NSP.
The unaudited pro forma income statement information does not reflect
adjustments for 1996 year-to-date revenues of $24.2 million and related
expenses associated with the transfer of certain gas utility properties and
operations from the Company to New NSP. A pro forma adjustment has been made
to conform the presentation of non-current deferred income taxes in the
summarized unaudited pro forma combined balance sheet information as a net
liability.
Wisconsin Energy Company: *
Unaudited
The Pro Forma
WE Company Combined
(as Reported)(as Reported) **
(Millions of Dollars)
As of September 30, 1996:
Utility Plant-Net $2,971 $664 $3,615
Current Assets 455 70 543
Other Assets *** 917 51 832
Total Assets $4,343 $785 $4,990
Common Stockholder's Equity $1,730 $324 $2,054
Preferred Stockholder's
Equity 30 -- 30
Long-Term Debt 1,289 212 1,501
Total Capitalization $3,049 $536 $3,585
Current Liabilities 420 94 514
Other Liabilities *** 874 155 891
Total Equity &
Liabilities $4,343 $785 $4,990
For the Nine Months Ended
September 30, 1996:
Utility Operating
Revenues $1,296 $341 $1,637
Utility Operating Income $230 $39 $269
Net Income, after Preferred
Dividend Requirements $159 $25 $184
* In connection with the Merger Agreement, WE will be renamed Wisconsin
Energy Company.
** Balance Sheet data includes pro forma adjustments for the transfer of
certain gas properties from the Company to New NSP.
*** Includes a $136 million pro forma adjustment to conform the presentation
of non-current deferred taxes as a net liability.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The following exhibit is filed with this report:
27.01 Financial Data Schedule for the nine months ended September
30, 1996.
99.01 Statement pursuant to Private Securities Litigation Reform
Act of 1995.
(b) Reports on Form 8-K
None
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/
David E. Ripka
Controller
(Principal Accounting Officer)
/s/
Neal Siikarla
Treasurer
(Principal Financial Officer)
Date: November 14, 1996
EXHIBIT INDEX
Method of Exhibit Description
Filing No.
DT 27.01 Financial Data Schedule
DT 99.01 Statement pursuant to Private
Securities Litigation Reform
Act of 1995
DT = Filed electronically with this direct transmission.
<TABLE> <S> <C>
<ARTICLE> UT
EXHIBIT 27.01
<LEGEND>
This schedule contains summary financial information extracted from the
Statements of Income, Balance Sheets and Statements of Cash Flows
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1996
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 663,605
<OTHER-PROPERTY-AND-INVEST> 9,286
<TOTAL-CURRENT-ASSETS> 70,290
<TOTAL-DEFERRED-CHARGES> 41,904
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 785,085
<COMMON> 86,200
<CAPITAL-SURPLUS-PAID-IN> 10,461
<RETAINED-EARNINGS> 227,600
<TOTAL-COMMON-STOCKHOLDERS-EQ> 324,261
0
0
<LONG-TERM-DEBT-NET> 211,571
<SHORT-TERM-NOTES> 49,800
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 0
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 199,453
<TOT-CAPITALIZATION-AND-LIAB> 785,085
<GROSS-OPERATING-REVENUE> 340,774
<INCOME-TAX-EXPENSE> 15,903
<OTHER-OPERATING-EXPENSES> 286,248
<TOTAL-OPERATING-EXPENSES> 302,151
<OPERATING-INCOME-LOSS> 38,623
<OTHER-INCOME-NET> 590
<INCOME-BEFORE-INTEREST-EXPEN> 39,213
<TOTAL-INTEREST-EXPENSE> 14,063
<NET-INCOME> 25,150
0
<EARNINGS-AVAILABLE-FOR-COMM> 25,150
<COMMON-STOCK-DIVIDENDS> 19,188
<TOTAL-INTEREST-ON-BONDS> 11,910
<CASH-FLOW-OPERATIONS> 57,953
<EPS-PRIMARY> $29.18
<EPS-DILUTED> $29.18
</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, a Wisconsin
Corporation (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, or the Company;
or security ratings;
- - Factors affecting operations such as unusual weather
conditions; catastrophic weather-related damage; unscheduled
generation outages, maintenance or repairs; unanticipated changes
to fossil fuel or gas supply costs or availability due to higher
demand, shortages, transportation problems or other developments;
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;
- - Social attitudes regarding the utility and power industries;
- - Cost and other effects of legal and administrative
proceedings, settlements, investigations and claims;
- - Technological developments that result in competitive
disadvantages and create the potential for impairment of existing
assets;
- - Numerous matters associated with the proposed combination of
Northern States Power Company, a Minnesota corporation (NSPM) and
Wisconsin Energy Corporation to form Primergy Corporation
(Primergy), including:
- Regulatory authorities' decisions regarding business
combination issues including the approval of the business
combination as proposed, the rate structure of utility operating
companies after the merger, transmission system operation and
administration, or divestiture of gas utility or non-regulated
portions of NSPM's business;
- Qualification of the transaction as a pooling of interests;
- Factors affecting the anticipated cost savings including
national and regional economic conditions, national and regional
competitive conditions, inflation rates, weather conditions,
financial market conditions, and synergies resulting from the
business combination;
- Allocation of benefits of cost savings between shareholders
and customers, which will depend, among other things, upon the
results of regulatory proceedings in various jurisdictions;
- Regulation of Primergy as a registered public utility holding
company and other different or additional federal and state
regulatory requirements or restrictions to which Primergy and its
subsidiaries may be subject as a result of the business combination
(including conditions which may be imposed in connection with
obtaining the regulatory approvals necessary to consummate the
business combination, such as the possible requirement to divest
gas utility and possibly certain non-regulated operations);
- Factors affecting dividend policy including results of
operations and financial condition of Primergy and its subsidiaries
and such other business considerations as the Primergy Board of
Directors considers relevant.
- - 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.
