<PAGE>
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, 1998 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 Identification No.)
incorporation or organization)
100 North Barstow Street, Eau Claire, Wisconsin 54703
(Address of principal executive officers) (Zip Code)
Registrant's telephone number, including area code (612) 330-5907
NONE
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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 13, 1998
-------------------------------- ------------------------------------
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.
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PART 1. FINANCIAL INFORMATION
------------------------------
ITEM 1. FINANCIAL STATEMENTS
---------------------------------
NORTHERN STATES POWER COMPANY (WISCONSIN)
STATEMENTS OF INCOME (UNAUDITED)
--------------------------------
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
------------ ------------
1998 1997 1998 1997
---- ---- ---- ----
(Thousands of dollars)
<S> <C> <C> <C> <C>
OPERATING REVENUES
Electric $104,348 $95,800 $298,085 $284,834
Gas 9,447 8,541 52,861 61,552
------- ------ ------- -------
Total 113,795 104,341 350,946 346,386
OPERATING EXPENSES
Purchased and interchange power 49,314 44,332 145,694 135,131
Fuel for electric generation 4,002 3,629 9,704 7,546
Gas purchased for resale 6,172 5,230 35,277 41,442
Other operation 12,238 10,021 35,547 34,250
Maintenance 5,311 5,185 16,054 14,469
Administrative and general 4,353 4,563 14,160 13,690
Conservation and demand side management 2,079 2,234 6,547 6,701
Depreciation and amortization 9,856 9,465 28,904 28,242
Taxes: Property and general 3,630 3,423 10,935 10,640
Current income tax 4,750 4,501 12,747 14,867
Deferred income tax 374 753 1,409 2,231
Investment tax credits recognized (215) (220) (644) (660)
------- ------ ------- -------
Total 101,864 93,116 316,334 308,549
------- ------ ------- -------
OPERATING INCOME 11,931 11,225 34,612 37,837
OTHER INCOME (EXPENSE)
Allowance for funds used during construction - equity 115 65 258 163
Other income and deductions - net of applicable income
taxes 499 818 580 1,132
Merger costs - net of applicable income taxes 0 0 0 (523)
------- ------ ------- -------
Total other income (expense) net 614 883 838 772
--- --- --- ---
INCOME BEFORE INTEREST CHARGES 12,545 12,108 35,450 38,609
INTEREST CHARGES
Interest on long-term debt 4,046 4,080 12,163 12,238
Other interest and amortization 757 (126) 2,034 1,111
Allowance for funds used during construction - debt (143) (89) (298) (235)
------- ------ ------- -------
Total interest charges 4,660 3,865 13,899 13,114
NET INCOME $7,885 $8,243 $21,551 $25,495
====== ====== ======= =======
STATEMENTS OF RETAINED EARNINGS (UNAUDITED)
-------------------------------------------
Balance at beginning of period $244,735 $238,005 $244,171 $234,751
Net income for period 7,885 8,243 21,551 25,495
Dividends paid to parent (6,552) (7,000) (19,654) (20,998)
Pooling of interests with Natural Gas, Inc 730 0 730 0
Balance at end of period $246,798 $239,248 $246,798 $239,248
The Notes to Financial Statements are an integral part of the Statements of Income and Retained Earnings.
</TABLE>
<TABLE>
<CAPTION>
NORTHERN STATES POWER COMPANY (WISCONSIN)
STATEMENTS OF CASH FLOWS (UNAUDITED)
------------------------------------
Nine Months Ended
September 30
------------
1998 1997
---- ----
(Thousands of dollars)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $21,551 $25,495
Adjustments to reconcile net income to cash from operating activities:
Depreciation and amortization 29,600 29,131
Deferred income taxes 1,401 3,600
Deferred investment tax credits recognized (644) (660)
Allowance for funds used during construction - equity (258) (163)
Cash provided by changes in certain working capital items 11,886 10,921
Cash provided by (used for) changes in other assets and liabilities 6,380 (2,542)
-------- --------
Net cash provided by operating activities 69,916 65,782
------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (44,236) (36,514)
Increase (decrease) in construction payables (729) 1,919
Allowance for funds used during construction - equity 258 163
Other 232 (429)
-------- --------
Net cash used for investing activities (44,475) (34,861)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of notes payable to parent - net (5,400) (10,100)
Repayment of other notes payable - net (200) -
Repayment of long term debt (167) -
Dividends paid to parent (19,654) (20,998)
-------- --------
Net cash used for financing activities (25,421) (31,098)
-------- --------
Net increase (decrease) in cash and cash equivalents 20 (177)
Cash and cash equivalents at beginning of period 31 208
-- ---
Cash and cash equivalents at end of period $51 $31
=== ===
The Notes to Financial Statements are an integral part of the Statements of Cash
Flows.
</TABLE>
<TABLE>
<CAPTION>
NORTHERN STATES POWER COMPANY (WISCONSIN)
BALANCE SHEETS (UNAUDITED)
--------------------------
September 30, December 31,
1998 1997
---- ----
(Thousands of dollars)
<S> <C> <C>
ASSETS
UTILITY PLANT
Electric $955,590 $931,752
Gas 111,458 105,362
Other 78,552 70,892
Total 1,145,600 1,108,006
Accumulated provision for depreciation (447,964) (426,723)
Net utility plant 697,636 681,283
CURRENT ASSETS
Cash 51 31
Accounts receivable - net 28,217 38,102
Unbilled utility revenues 10,922 16,376
Fuel inventories - at average cost 10,018 12,073
Other materials and supplies inventories - at average cost 6,916 5,604
Prepayments and other 11,909 12,135
Total current assets 68,033 84,321
OTHER ASSETS
Regulatory assets 43,611 35,634
Other investments 8,000 8,166
Federal income tax receivable 0 3,307
Nonutility property - net of accumulated depreciation 2,796 2,752
Unamortized debt expense 1,691 1,761
Long-term prepayments and deferred charges 9,714 7,411
Total other assets 65,812 59,031
TOTAL ASSETS $831,481 $824,635
======== ========
LIABILITIES AND EQUITY
CAPITALIZATION
Common stock - authorized 1,000,000 shares of $100 par value,
issued shares: 1998 and 1997, 862,000 $86,200 $86,200
Premium on common stock 10,541 10,461
Retained earnings 246,798 244,171
Total common stock equity 343,539 340,832
Long-term debt 231,841 231,775
------- -------
Total capitalization 575,380 572,607
CURRENT LIABILITIES
Notes payable - parent company 39,900 45,300
Accounts payable 10,248 13,844
Payable to affiliate companies (principally parent) 14,963 15,682
Salaries, wages, and vacation pay accrued 4,967 6,089
Taxes accrued 1,556 1,775
Interest accrued 4,207 4,187
Other 12,745 4,897
Total current liabilities 88,586 91,774
OTHER LIABILITIES
Accumulated deferred income taxes 108,266 105,850
Accumulated deferred investment tax credits 18,338 18,970
Regulatory liabilities 22,389 19,306
Customer advances 8,794 8,192
Benefit obligations and other 9,728 7,936
Total other liabilities 167,515 160,254
COMMITMENTS AND CONTINGENT LIABILITIES (SEE NOTE 3)
TOTAL LIABILITIES AND EQUITY $831,481 $824,635
======== ========
The Notes to Financial Statements are an integral part of the Balance Sheets.
</TABLE>
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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 Sept. 30, 1998 and Dec. 31, 1997, the results of its operations
for the three and nine months ended Sept. 30, 1998 and 1997 and its cash flows
for the nine months ended Sept. 30, 1998 and 1997. 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 Dec. 31, 1997 (1997 Form 10-K). The following notes should be read in
conjunction with such policies and other disclosures in the Form 10-K.
1. BUSINESS DEVELOPMENTS
- ------------------------------
INCREASE IN COMMON STOCK AUTHORIZED - On May 6, 1998, the Company's sole
shareholder approved an increase in the number of common shares authorized from
870,000 to one million.
LOSS OF CUSTOMER - In early 1998, officials of the Fort James Corp.
announced that their Ashland, Wis. paper mill would close on or about March 21,
1998. The mill was one of the Company's ten largest electric and gas customers,
purchasing in excess of $2 million of utility services from the Company
annually. The financial impact of losing this customer is not significant
because the effect was reflected in the Company's 1998 Wisconsin rate filing.
ACQUISITION OF NATURAL GAS, INC. (NGI) - On July 1, 1998, the Company
completed the acquisition of NGI, a natural gas utility serving approximately
1,900 customers in the New Richmond, Wis. area. The transaction was a tax-free
reorganization for tax purposes and was recorded as a 'pooling of interests' for
accounting purposes. Financial statements for prior periods were not restated
because the combination had only an immaterial effect on operating results and
financial condition.
2. REGULATION AND RATE MATTERS
- -------------------------------------
INTERIM FUEL COST SURCHARGE - On Sept. 25, 1997, the Company began
collecting an interim surcharge of $0.00043 per kilowatt-hour (Kwh) from its
Wisconsin electric customers for the recovery of certain fuel and purchased
power costs. The surcharge was requested because fuel and purchased power costs
had risen beyond the amount included in the rates in effect at that time, due to
unplanned and extended outages at NSPM's nuclear generating stations and higher
than projected wheeling costs associated with power purchases. The surcharge
ended when new rates were implemented in September 1998 (discussed below).
RECOVERY OF FEDERAL DECOMMISSIONING AND DECONTAMINATION ASSESSMENTS - In
its order regarding the Company's 1997 electric rates, the PSCW denied current
rate recovery of the federal government's assessment for the decommissioning and
decontamination (D&D) of federal uranium enrichment facilities based on a court
decision involving another utility that these assessments were unlawful. The
PSCW, however, did state that it would allow future rate recovery of these costs
with interest if the courts ultimately decided the assessments must be paid.
While the case was under appeal, the Company continued to pay the assessments
and defer the cost as a regulatory asset. On May 6, 1997, the United States
Court of Appeals reversed the lower court's earlier decision that these
assessments were unlawful. Accordingly, the Company will recover current and
deferred assessments in its 1998 Wisconsin retail electric rates as discussed
below. At Sept. 30, 1998, $945,000 of assessments had been deferred.
RECOVERY OF NETWORK TRANSMISSION SERVICE (NTS) COSTS - In July 1997, the
Company received authorization from the PSCW to defer its share of NTS costs
incurred after May 23, 1997. (NTS costs relate to operating and maintaining the
regional electric transmission network that NSP shares with other qualifying
regional utilities.) Beginning in the third quarter of1997, the Company began
deferring these costs, including a retroactive adjustment to May 23, 1997.
Through Sept. 30, 1998, $3.1 million of NTS costs had been deferred. These
deferred NTS costs will be recovered in the new electric rates approved in
1998, as discussed below.
1998 WISCONSIN RATE FILING - During November 1997, the Company filed
retail electric and gas rate cases with the PSCW requesting an annual increase
of approximately $12.7 million, or 4.3 percent, in retail electric rates and an
annual decrease of $1.7 million, or 1.9 percent, in retail gas rates. On Sept.
15, 1998 the PSCW issued a rate order which authorizes:
- - a $7.3 million, or 2.5 percent, increase in electric rates,
- - a $1.9 million, or 2.2 percent, decrease in gas rates,
- - an 11.9 percent return on common stockholder's equity,
- - recovery of the amount paid through Dec. 31, 1997, for investigation and
environmental remediation at a site near a former manufactured gas
plant in Ashland, Wis.
- - recovery of $4.3 million of deferred and ongoing NTS costs, and
- - the recovery of $491,711 of D&D assessments that had been deferred
from the Company's last rate proceeding, plus ongoing costs.
WISCONSIN PURCHASED GAS ADJUSTMENT CLAUSE - In 1996 the PSCW required all major
gas utilities in Wisconsin to file proposed incentive-based gas cost recovery
mechanisms to replace the current purchased gas adjustment clause (PGA). On
Sept. 29, 1997, the Company filed its proposal with the PSCW.
The PSCW rejected the Company's proposed gas cost recovery mechanism. The
Company was ordered to modify and resubmit its proposal by Nov. 15, 1998. There
was no financial impact to either the Company or its customers because the
current PGA mechanism continues in effect. Approximately 70 percent of the
Company's gas revenues represent recovery of gas costs through the PGA
mechanism.
FEDERAL ENERGY REGULATORY COMMISSION (FERC) - During the first quarter of
1998 NSP filed an application with the FERC to increase its rates for point-to-
point transmission service. As filed, the proposed rates are expected to
increase the Company's annual transmission revenues by approximately $600,000.
In April 1998, the FERC voted to accept the rates, consolidate both the
point-to-point and NTS transmission filings. Rate increases were placed into
effect on Oct. 1, 1998 subject to refund. An administrative law judge and a
settlement judge were appointed to hear arguments and facilitate possible
settlement of the case. NSP is currently in settlement discussions. If this
case is not settled, NSP expects a FERC decision in 1999 or 2000.
INDUSTRY RESTRUCTURING - On April 28, 1998, the 1997 Wisconsin Act 204
became law (Act 204). Act 204 includes provisions which require the Public
Service Commission of Wisconsin (PSCW) to order a public utility that owns
transmission facilities to transfer control of its transmission facilities to an
independent system operator (ISO) or divest the public utility's interest in its
transmission facilities to an independent transmission owner (ITO) if the public
utility has not already transferred control to an ISO or divested to an ITO by
June 30, 2000. Under certain circumstances the PSCW has authority to waive
imposition of such an order on June 30, 2000. At Sept. 30, 1998, the net book
value of the Company's transmission assets was approximately $147 million. The
Company may attempt to obtain a legislative amendment in 1999 of the mandatory
transfer or divestiture requirements and is also considering whether to
judicially challenge the transmission transfer or divestiture requirements of
the new law.
In April 1998 testimony before the FERC, NSP proposed to form an ITC as an
alternative to an ISO. The ITC would own and operate transmission facilities
independent from vertically integrated utilities and other market participants
and satisfy the regulatory requirements for control of transmission facilities.
The ITC would be a for-profit entity.
During the third quarter of 1998, the Mid-Continent Area Power Pool (MAPP)
submitted its ISO proposal and a companion regional transmission tariff to all
MAPP members for approval. On Nov. 4, 1998, MAPP announced that its members
rejected the ISO proposal. The ISO proposal would have transferred control of an
owner's transmission assets to the MAPP center.
In November 1998, NSP and Alliant Energy (Alliant) announced plans to
develop an ITC to provide transmission services to the Upper Midwest. The two
companies are developing a relationship by which NSP will create an ITC, which
will lease the transmission assets of Alliant. Lease terms have not yet been
finalized. The ITC is intended to be a publicly traded entity and not an
affiliate of NSP or Alliant. NSP and Alliant plan to seek the necessary
approvals from state and federal regulators in 1999 with the ITC proposed to be
operational in 2000. In the event that NSP is successful in forming this ITC,
NSP would divest its electric transmission assets (including the Company's
transmission assets) through a sale or spin-off.
In addition to the ISO / ITC provision in Act 204, there are also
provisions which require the PSCW to promulgate rules on a number of topics
including the owning, operating, and controlling of wholesale merchant plants in
Wisconsin by Wisconsin investor owned utility affiliates; the cost treatment of
electricity sales to customers that the utility does not have an obligation to
serve including in-state wholesale contracts and out-of-state retail sales;
the reporting requirements of utilities necessary for the commission to develop
a strategic energy assessment and the setting of service standards for electric
generation, transmission and distribution facilities. The PSCW has subsequently
developed dockets for wholesale sales and wholesale merchant plants, and
anticipates recommendations and decision on all topics by late 1999.
3. COMMITMENTS AND CONTINGENT LIABILITIES
- ----------------------------------------------
ENVIRONMENTAL CONTINGENCIES - As discussed in Note 8 to the Financial
Statements in the 1997 Form 10-K, the Company has been named as one of three
potentially responsible parties in connection with environmental remediation at
a site in Ashland, Wis.
The Company has continued its investigations during 1998. Based on
the results of the Company's investigation to date, and information received
from consultants, the Company has recorded in accrued liabilities an estimate of
its share of future remediation costs at the Ashland site. In addition, the
Company has simultaneously recorded a regulatory asset for these accrued
remediation costs because management expects that prior regulatory recovery of
remediation costs will continue. In its 1998 rate case orders, the PSCW has
authorized recovery in Wisconsin customer rates of amounts paid for
remediation of the Ashland site through December 31, 1997. Also, the PSCW has
authorized recovery of similar remediation costs for other utilities.
4. ACCOUNTING AND REPORTING CHANGES
- -------------------------------------
PENSION COSTS - Effective Jan. 1, 1998, the Company changed its method
of recognizing actuarial gains and losses included in pension costs under SFAS
No. 87. The new method was adopted to reduce the volatility of accrued
pension costs by amortizing actuarial gains and losses related to pension asset
performance over the longest period allowed by SFAS No. 87. The effect of
this change is a decrease in pension costs (represented by an increase in
pension accrual credits) of approximately $2.5 million for the full year 1998,
including $1.8 million related to periods prior to the change.
Effective Jan. 1, 1998, NSP also changed its method of allocating pension
trust assets to its subsidiaries as part of the calculation of pension costs
under SFAS No. 87. The new method was adopted to better match pension plan
assets with the individual participants' benefit obligations for which funding
has been established. The effect of this change is a decrease in pension costs
(represented by an increase in pension accrual credits) of approximately $1
million for the full year 1998, including $360,000 related to periods prior to
the change.
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Item 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
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CONDITION AND RESULTS OF OPERATION
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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).
Except for the historical statements contained herein, the matters
discussed in the following discussion and analysis are forward-looking
statements that are subject to certain risks, uncertainties and assumptions.
Such forward-looking statements are intended to be identified in this document
by the words "anticipate", "estimate", "expect", "objective", "possible",
"potential" and similar expressions. Actual results may vary materially.
Factors that could cause actual results to differ materially include, but are
not limited to: general economic conditions, including their impact on capital
expenditures; business conditions in the energy industry; competitive factors;
unusual weather; changes in federal or state legislation; issues relating to
year 2000 remediation efforts; and the other risk factors listed from time to
time by the Company in reports filed with the SEC, including Exhibit 99.01 to
this report on Form 10-Q for the quarter ended Sept. 30, 1998.
Third Quarter 1998 Compared with Third Quarter 1997
- ----------------------------------------------------------
ELECTRIC REVENUES from sales to customers increased $6.4 million largely
due to favorable weather and sales growth in the residential and commercial and
industrial sectors. On a weather-normalized basis, sales increased 3.2 percent
in third quarter 1998 compared with third quarter 1997. The remaining increase
of $2.1 million relates to higher Interchange Agreement billings to NSPM, which
reflects an increase in the Company's fuel and transmission expenses.
GAS REVENUES increased due to higher interruptible sales volumes. Total
gas sales volumes increased 23.4 percent in third quarter 1998 compared with
third quarter 1997.
Operating expenses increased $8.7 million in third quarter 1998 compared to
third quarter 1997. PURCHASED AND INTERCHANGE POWER and FUEL FOR ELECTRIC
GENERATION together increased $5.3 million because of additional purchases and
generation to support higher sales levels, and higher demand expenses. GAS
PURCHASED FOR RESALE increased $0.9 million because of additional purchases to
support increased sales levels. OTHER OPERATION, MAINTENANCE, AND
ADMINISTRATIVE AND GENERAL expenses together increased $2.1 million because of
higher hydro operating expenses, transmission operating expenses, and employee
benefit expenses. DEPRECIATION AND AMORTIZATION increased $0.4 million because
of increases in the Company's plant in service.
OTHER INCOME (EXPENSE) - NET decreased $0.3 million due to the recognition
in 1997 of interest income and tax adjustments related to the settlement of a
tax issue in dispute with the State of Wisconsin. The tax issue was decided in
the Company's favor in third quarter 1997. Partially offsetting this decrease
were higher subsidiary company earnings in 1998.
INTEREST CHARGES increased $0.8 million in 1998 due to the 1997 reversal of
interest expense recorded in prior years on a tax issue in dispute with the
State of Wisconsin. The tax issue was decided in the Company's favor in third
quarter 1997.
First Nine Months of 1998 Compared with First Nine Months of 1997
- ----------------------------------------------------------------------------
ELECTRIC REVENUES from sales to customers increased $9.7 million largely
due to sales growth in the residential and commercial and industrial sectors.
Partially offsetting the sales growth was less favorable weather in 1998. On a
weather-normalized basis, sales increased 3.4 percent in the first nine months
of 1998 compared with the first nine months of 1997. The remaining electric
revenues increase of $3.6 million relates to higher Interchange Agreement
billings to NSPM, which reflects an increase in the Company's fuel and
transmission expenses.
GAS REVENUES decreased $8.7 million because of lower sales volumes and
natural gas related price decreases. Total gas sales volumes decreased 7.7
percent in the first nine months of 1998 compared with the first nine months of
1997 due to less favorable weather and lower firm sales. Lower costs per unit
of purchased gas, as discussed below, are reflected in rates through the
purchased gas adjustment clause mechanism.
Total operating expenses increased $7.8 million in the first nine months of
1998 compared to the first nine months of 1997. PURCHASED AND INTERCHANGE POWER
and FUEL FOR ELECTRIC GENERATION together increased $12.7 million because of
additional purchases and generation to support higher sales levels, and higher
demand expenses. GAS PURCHASED FOR RESALE decreased $6.2 million due to reduced
purchases to support lower sales levels and lower costs per unit of gas charged
by suppliers. OTHER OPERATION, MAINTENANCE, AND ADMINISTRATIVE AND GENERAL
expenses together increased $3.4 million because of higher transmission
expenses, distribution maintenance expenses including those related to storm
damage, and employee benefit expenses. Partially offsetting these increases in
1998 were lower generating operating expenses. DEPRECIATION AND AMORTIZATION
increased $0.7 million because of increases in the Company's plant in service.
INCOME TAX decreased reflecting lower pretax operating income.
OTHER INCOME (EXPENSE) - NET other income increased due to the write-
off in 1997 of costs incurred related to the proposed merger with Wisconsin
Energy Corporation which was terminated in May 1997.
TECHNOLOGY CHANGES FOR THE YEAR 2000 (Y2K) - NSP expects to incur
significant costs to modify or replace existing technology, including computer
software, for uninterrupted operation in the Year 2000 and beyond. In 1996,
NSP's Board of Directors approved funding to address development and remediation
efforts related to Y2K. A committee made up of senior management is leading
NSP's initiatives to identify Y2K related issues and remediate business
processes as necessary.
NSP's Y2K program covers not only NSP's 2,000 computer applications,
consisting of about 75,000 programs and totaling more than 30 million lines of
code, but also the thousands of hardware and embedded system components in use
throughout NSP. Embedded systems perform mission-critical functions in all
parts of operations including power generation, distribution, communications and
business operations.
NSP has implemented a Y2K methodology consistent with state-of-the-art best
practices and standards within the utility industry. This seven-step process
includes:
- - Discovery of possible date-related logic in components, systems, and
processes.
- - Assessment of potential problems.
- - Plan design to address the problem.
- - Remediation to resolve the problem.
- - Testing to verify that the solutions are workable.
- - Implementation of the solution into production.
- - Closure through re-testing and documentation.
As NSP has developed more detailed plans for completion of the Y2K project
NSP has revised several of the completion targets to align them more logically
with release of Y2K compliant package software and to coordinate logically with
scheduled plant outages. NSP time table for Y2K completion is as follows:
- - By Dec. 31, 1998 - Completion of all Y2K efforts on 70 percent of
mission-critical systems and processes.
- - By Mar. 31, 1999 - Completion of all Y2K efforts on 90 percent of
mission-critical systems and processes.
- - By June 30, 1999 - Completion of all Y2K efforts on mission-critical
systems and processes, completion of all nuclear plant remediation in
accordance with Nuclear Regulatory Commission guidelines, and
finalization of all contingency planning.
- - By Dec. 31, 1999 - Remediate low-priority applications, complete all
testing and implementation, and final closure.
In conjunction with this logical change in timing, NSP has accelerated
completion of primary and secondary systems consistent with NSP's overall plan
for system remediation prior to the Year 2000.
NSP is communicating with its key suppliers, customers and business
partners regarding their Y2K progress, particularly in software and embedded
component areas, to determine the areas in which NSP's operations are vulnerable
to those parties' failure to complete their remediation efforts. NSP is
currently evaluating and initiating follow-up actions regarding the responses
from these parties as appropriate. NSP is also working closely with the
Electric Power Research Institute, MAPP, the Nuclear Energy Institute, the North
American Electric Reliability Council (NERC), and other utilities to enhance
coordination, system reliability and compliance with industry and regulatory
requirements.
NSP has made significant progress in the implementation of its Y2K plan.
Based upon the information currently known regarding its internal operations and
assuming successful and timely completion of its remediation plan, NSP does not
anticipate significant business disruptions from its internal systems due to the
Y2K issue. However, NSP may possibly experience limited interruptions to some
aspects of its activities, relating to information technology, operations,
administrative or otherwise. NSP is considering such potential occurrences in
planning for its most reasonably likely worst case scenarios.
Additionally, risk exists regarding the non-compliance of third parties
with key business or operational importance to NSP. Y2K problems affecting key
customers, interconnected utilities, fuel suppliers and transporters,
telecommunications providers or financial institutions could result in lost
power or gas sales, reductions in power production or transmission or internal
functional and administrative difficulties on the part of NSP. NSP is not
presently aware of any such situations; however, occurrences of this type, if
severe, could have material adverse impacts upon the business, operating results
or financial condition of NSP. Consequently, there can be no assurance that NSP
will be able to identify and correct all aspects of the Y2K problem that affect
it in sufficient time, or that the costs of achieving Y2K readiness will not be
material.
NSP is currently updating contingency plans for all material areas of Y2K
risk and is on track to meet the contingency planning schedule set forth by
NERC. Among the areas contingency planning will address include delays in
completion in NSP's remediation plans, failure or incomplete remediation results
and failure of key third party contacts to be Y2K compliant.
Through September 1998, NSP had spent approximately $10.5 million for Year
2000 remediation. The amount of additional development and remediation costs
necessary for NSP to prepare for the Year 2000 is estimated to be approximately
$14 million. The Company had spent approximately $640,000 for year 2000
remediation. The total estimate of development and remediation costs necessary
for the Company to prepare for the year 2000 is approximately $1.1 million.
Item 6. Exhibits and Reports on Form 8-K
- -------------------------------------------------
(A) EXHIBITS
The following exhibits are filed with this report:
27.01 Financial Data Schedule for the nine months ended Sept.
30, 1998.
99.01 Statement pursuant to Private Securities Litigation
Reform Act of 1995.
(B) REPORTS ON FORM 8-K
None
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NORTHERN STATES POWER COMPANY (WISCONSIN)
(Registrant)
/s/
Roger D. Sandeen
Treasurer and Controller
(Principal Financial and Accounting Officer)
Date: Nov. 13, 1998
---------------
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
EXHIBIT 27.01
This schedule contains summary financial information extracted from the
Statements of Income and Retained Earnings, 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-31-1997
<PERIOD-END> SEP-30-1998
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 697,636
<OTHER-PROPERTY-AND-INVEST> 10,796
<TOTAL-CURRENT-ASSETS> 68,033
<TOTAL-DEFERRED-CHARGES> 55,016
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 831,481
<COMMON> 86,200
<CAPITAL-SURPLUS-PAID-IN> 10,541
<RETAINED-EARNINGS> 246,798
<TOTAL-COMMON-STOCKHOLDERS-EQ> 343,539
0
0
<LONG-TERM-DEBT-NET> 231,841
<SHORT-TERM-NOTES> 39,900
<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> 216,201
<TOT-CAPITALIZATION-AND-LIAB> 831,481
<GROSS-OPERATING-REVENUE> 350,946
<INCOME-TAX-EXPENSE> 13,512
<OTHER-OPERATING-EXPENSES> 302,822
<TOTAL-OPERATING-EXPENSES> 316,334
<OPERATING-INCOME-LOSS> 34,612
<OTHER-INCOME-NET> 838
<INCOME-BEFORE-INTEREST-EXPEN> 35,450
<TOTAL-INTEREST-EXPENSE> 13,899
<NET-INCOME> 21,551
0
<EARNINGS-AVAILABLE-FOR-COMM> 21,551
<COMMON-STOCK-DIVIDENDS> 19,654
<TOTAL-INTEREST-ON-BONDS> 12,163
<CASH-FLOW-OPERATIONS> 69,916
<EPS-PRIMARY> 25.00
<EPS-DILUTED> 25.00
</TABLE>
EXHIBIT 99.01
- --------------
Northern States Power Company Cautionary Factors
The Private Securities Litigation Reform Act of 1995 (the Act) provides a
new "safe harbor" for forward-looking statements to encourage such disclosures
without the threat of litigation providing those statements are identified as
forward-looking and are accompanied by meaningful, cautionary statements
identifying important factors that could cause the actual results to differ
materially from those projected in the statement. Forward-looking statements
have been and will be made in written documents and oral presentations of
Northern States Power Company (the Company). Such statements are based on
management's beliefs as well as assumptions made by and information currently
available to management. When used in the Company's documents or oral
presentations, the words "anticipate", "estimate", "expect", "objective",
"possible", "potential" and similar expressions are intended to identify
forward-looking statements. In addition to any assumptions and other factors
referred to specifically in connection with such forward-looking statements,
factors that could cause the Company's actual results to differ materially from
those contemplated in any forward-looking statements include, among others, the
following:
- - Economic conditions including inflation rates and monetary fluctuations;
- - Trade, monetary, fiscal, taxation, and environmental policies of
governments, agencies and similar organizations in geographic areas where the
Company has a financial interest;
- - Customer business conditions including demand for their products or
services and supply of labor and materials used in creating their products and
services;
- - Financial or regulatory accounting principles or policies imposed by the
Financial Accounting Standards Board, the Securities and Exchange Commission,
the Federal Energy Regulatory Commission and similar entities with regulatory
oversight;
- - Availability or cost of capital such as changes in: interest rates; market
perceptions of the utility industry, the Company or any of its subsidiaries; or
security ratings;
- - Factors affecting utility and nonutility operations such as unusual
weather conditions; catastrophic weather-related damage; unscheduled generation
outages, maintenance or repairs; unanticipated changes to fossil fuel, nuclear
fuel or gas supply costs or availability due to higher demand, shortages,
transportation problems or other developments; nuclear or environmental
incidents; or electric transmission or gas pipeline system constraints;
- - Employee workforce factors including loss or retirement of key executives,
collective bargaining agreements with union employees, or work stoppages;
- - Increased competition in the utility industry, including: industry
restructuring initiatives; transmission system operation and/or administration
initiatives; recovery of investments made under traditional regulation; nature
of competitors entering the industry; retail wheeling; a new pricing structure;
and former customers entering the generation market;
- - Rate-setting policies or procedures of regulatory entities, including
environmental externalities, which are values established by regulators
assigning environmental costs to each method of electricity generation when
evaluating generation resource options;
- - Nuclear regulatory policies and procedures including operating regulations
and used nuclear fuel storage;
- - Social attitudes regarding the utility and power industries;
- - Cost and other effects of legal and administrative proceedings,
settlements, investigations and claims;
- - Technological developments that result in competitive disadvantages and
create the potential for impairment of existing assets;
- - Factors associated with nonregulated investments including conditions of
final legal closing, foreign government actions, foreign economic and currency
risks, political instability in foreign countries, partnership actions,
competition, operating risks, dependence on certain suppliers and customers,
domestic and foreign environmental and energy regulations;
- - Most of the current project investments made by the Company's subsidiary,
NRG Energy, Inc. (NRG) consist of minority interests, and a substantial portion
of future investments may take the form of minority interests, which limits
NRG's ability to control the development or operation of the project;
- - Other business or investment considerations that may be disclosed from
time to time in the Company's Securities and Exchange Commission filings or in
other publicly disseminated written documents.
- - Factors associated with Y2K compliance that might cause material
differences from the expectations disclosed include, but are not limited to, the
availability of key Y2K personnel, NSP's ability to locate and correct all
relevant computer codes, the readiness of third parties, and NSP's ability to
respond to unforeseen Y2K complications. Such material differences could result
in, among other things, business disruption, operational problems, financial
loss, legal liability and similar risks.
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.
