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 March 31, 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 (715) 839-2578
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 May 14, 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.
<PAGE>
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
NORTHERN STATES POWER COMPANY (WISCONSIN)
STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended
March 31
--------------------
1998 1997
-------------------- ---------
<S> <C> <C>
(Thousands of dollars)
OPERATING REVENUES
Electric. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 98,305 $ 98,872
Gas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31,763 39,376
Total.. . . . . . . . . . . . . . . . . . . . . . . . . . . 130,068 138,248
OPERATING EXPENSES
Purchased and interchange power . . . . . . . . . . . . . . . 48,117 46,713
Fuel for electric generation. . . . . . . . . . . . . . . . . 2,180 2,250
Gas purchased for resale. . . . . . . . . . . . . . . . . . . 21,746 27,792
Other operation.. . . . . . . . . . . . . . . . . . . . . . . 11,043 12,446
Maintenance.. . . . . . . . . . . . . . . . . . . . . . . . . 4,159 3,669
Administrative and general. . . . . . . . . . . . . . . . . . 5,070 4,670
Conservation and demand side management.. . . . . . . . . . . 2,234 2,234
Depreciation and amortization.. . . . . . . . . . . . . . . . 9,314 9,349
Taxes: Property and general.. . . . . . . . . . . . . . . . . 3,671 3,638
Current income tax . . . . . . . . . . . . . . . . 6,657 7,499
Deferred income tax. . . . . . . . . . . . . . . . 510 949
Investment tax credits recognized. . . . . . . . . (215) (220)
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . 114,486 120,989
-------------------- ---------
OPERATING INCOME.. . . . . . . . . . . . . . . . . . . . . . . 15,582 17,259
OTHER INCOME (EXPENSE)
Other income and deductions - net of applicable income taxes. (14) 12
Allowance for funds used during construction - equity . . . . 62 50
Total other income (expense) net . . . . . . . . . . . . . . 48 62
-------------------- ---------
INCOME BEFORE INTEREST CHARGES.. . . . . . . . . . . . . . . . 15,630 17,321
INTEREST CHARGES
Interest on long-term debt. . . . . . . . . . . . . . . . . . 4,071 4,080
Other interest and amortization.. . . . . . . . . . . . . . . 696 705
Allowance for funds used during construction - debt . . . . . (73) (72)
Total interest charges. . . . . . . . . . . . . . . . . . . 4,694 4,713
-------------------- ---------
NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . $ 10,936 $ 12,608
==================== =========
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF RETAINED EARNINGS (UNAUDITED)
-------------------------------------------
Three Months Ended
March 31
1998 1997
--------- ---------
<S> <C> <C>
Balance at beginning of period. $244,171 $234,751
Net income for period . . . . . 10,936 12,608
Dividends paid to parent. . . . (6,551) (6,999)
--------- ---------
Balance at end of period. . . . $248,556 $240,360
========= =========
</TABLE>
The Notes to Financial Statements are an integral part of the Statements of
Income and Retained Earnings.
<PAGE>
<TABLE>
<CAPTION>
NORTHERN STATES POWER COMPANY (WISCONSIN)
BALANCE SHEETS (UNAUDITED)
--------------------------
March 31, December 31,
1998 1997
----------------------- --------------
<S> <C> <C>
ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (Thousands of dollars)
UTILITY PLANT
Electric.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 936,957 $ 931,752
Gas. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105,571 105,362
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73,288 70,892
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,115,816 1,108,006
Accumulated provision for depreciation . . . . . . . . . . . . . . . . . . (433,360) (426,723)
Net utility plant. . . . . . . . . . . . . . . . . . . . . . . . . . . . 682,456 681,283
CURRENT ASSETS
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,325 31
Accounts receivable - net. . . . . . . . . . . . . . . . . . . . . . . . . . 36,100 38,102
Fuel inventories - at average cost.. . . . . . . . . . . . . . . . . . . . . 6,021 12,073
Other materials and supplies inventories - at average cost.. . . . . . . . . 6,493 5,604
Unbilled utility revenues. . . . . . . . . . . . . . . . . . . . . . . . . . 13,129 16,376
Prepayments and other. . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,199 12,135
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 73,267 84,321
OTHER ASSETS
Regulatory assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35,790 35,634
Other investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,518 8,166
Federal income tax receivable. . . . . . . . . . . . . . . . . . . . . . . . 3,307 3,307
Nonutility property - net of accumulated depreciation. . . . . . . . . . . . 2,762 2,752
Unamortized debt expense . . . . . . . . . . . . . . . . . . . . . . . . . . 1,738 1,761
Long-term prepayments and deferred charges.. . . . . . . . . . . . . . . . . 8,660 7,411
Total other assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . 60,775 59,031
TOTAL ASSETS.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 816,498 $ 824,635
======================= ==============
LIABILITIES AND EQUITY
CAPITALIZATION
Common stock - authorized 870,000 shares of $100 par value,
issued shares: 1998 and 1997, 862,000 . . . . . . . . . . . . . . . . . $ 86,200 $ 86,200
Premium on common stock. . . . . . . . . . . . . . . . . . . . . . . . . . 10,461 10,461
Retained earnings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 248,556 244,171
Total common stock equity. . . . . . . . . . . . . . . . . . . . . . . . 345,217 340,832
Long-term debt.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 231,797 231,775
----------------------- --------------
Total capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . 577,014 572,607
CURRENT LIABILITIES
Notes payable - parent company.. . . . . . . . . . . . . . . . . . . . . . . 22,200 45,300
Accounts payable.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,320 13,844
Payable to affiliate companies (principally parent). . . . . . . . . . . . . 22,632 15,682
Salaries, wages, and vacation pay accrued. . . . . . . . . . . . . . . . . . 5,625 6,089
Taxes accrued. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,680 1,775
Interest accrued.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,110 4,187
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,008 4,897
Total current liabilities. . . . . . . . . . . . . . . . . . . . . . . . 77,575 91,774
OTHER LIABILITIES
Accumulated deferred income taxes. . . . . . . . . . . . . . . . . . . . . . 106,600 105,850
Accumulated deferred investment tax credits. . . . . . . . . . . . . . . . . 18,755 18,970
Regulatory liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,134 19,306
Customer advances. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,482 8,192
Benefit obligations and other. . . . . . . . . . . . . . . . . . . . . . . . 7,938 7,936
Total other liabilities. . . . . . . . . . . . . . . . . . . . . . . . . 161,909 160,254
COMMITMENTS AND CONTINGENT LIABILITIES (SEE NOTE 3)
TOTAL LIABILITIES AND EQUITY . . . . . . . . . . . . . . . . . . . . . $ 816,498 $ 824,635
======================= ==============
</TABLE>
The Notes to Financial Statements are an integral part of the Balance Sheets.
<PAGE>
<TABLE>
<CAPTION>
NORTHERN STATES POWER COMPANY (WISCONSIN)
STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended
March 31
--------------------
1998 1997
--------- --------
<S> <C> <C>
(Thousands of dollars)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 10,936 $12,608
Adjustments to reconcile net income to cash from operating activities:
Depreciation and amortization.. . . . . . . . . . . . . . . . . . . . 9,546 9,648
Deferred income taxes.. . . . . . . . . . . . . . . . . . . . . . . . 507 492
Deferred investment tax credits recognized. . . . . . . . . . . . . . (215) (220)
Allowance for funds used during construction - equity . . . . . . . . (62) (50)
Cash provided by changes in working capital . . . . . . . . . . . . . . 22,797 12,596
Cash used for changes in other assets and liabilities . . . . . . . . . (415) (1,051)
Net cash provided by operating activities. . . . . . . . . . . . . . . . 43,094 34,023
---------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures. . . . . . . . . . . . . . . . . . . . . . . . . . (10,523) (9,145)
Decrease in construction payables . . . . . . . . . . . . . . . . . . . (381) (63)
Allowance for funds used during construction - equity . . . . . . . . . 62 50
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (307) (339)
Net cash used for investing activities . . . . . . . . . . . . . . . . . (11,149) (9,497)
-------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of notes payable to parent - net. . . . . . . . . . . . . . . (23,100) (15,900)
Dividends paid to parent. . . . . . . . . . . . . . . . . . . . . . . . (6,551) (6,999)
Net cash used for financing activities . . . . . . . . . . . . . . . . . (29,651) (22,899)
-------- --------
Net increase (decrease) in cash and cash equivalents . . . . . . . . . . . 2,294 1,627
Cash and cash equivalents at beginning of period.. . . . . . . . . . . . . 31 208
-------- --------
Cash and cash equivalents at end of period . . . . . $2,325 $1,835
======== ========
</TABLE>
The Notes to Financial Statements are an integral part of the Statements of Cash
Flows.
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 March 31, 1998 and Dec. 31, 1997, the results of its operations
for the three months ended March 31, 1998 and 1997 and its cash flows for the
three months ended March 31, 1998 and 1997. Due to the seasonality of 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
- ------------------------------
UNION NEGOTIATIONS - Five locals of the International Brotherhood of
Electrical Workers have accepted NSPM's and the Company's proposal to begin
midterm contract negotiations to modify or create new work rules, practices and
operations to improve work force productivity. If these midterm negotiations are
successfully completed by Dec. 31, 1998, NSPM and the Company will then propose
a three-year contract extension with changes to wages and benefits. If the
contract extension is ratified, new terms and conditions will become effective
Jan. 1, 2000. The existing labor agreements will stay in effect through Dec. 31,
1999 unless they are extended or modified in response to these negotiations.
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 1 million.
LOSS OF CUSTOMER - In early 1998, officials of the Fort James Corp.
announced that its Ashland, Wis. paper mill would close on or about March 21,
1998. The mill was the third largest employer in Ashland County and was one of
the Company's ten largest electric and gas customers. It purchased in excess of
$2 million of utility services from the Company annually. The effect of losing
this customer was adjusted in the 1998 rate filing.
2. REGULATION AND RATE MATTERS
- --------------------------------
1997 WISCONSIN RATE FILINGS - The Company continues to collect an interim
surcharge of $0.00043 per kilowatt-hour (Kwh) from its Wisconsin customers for
the recovery of fuel and purchased power costs incurred during the summer of
1997. The surcharge was requested because fuel and purchased power costs had
risen beyond the amount included in the Company's current base rates due to
unplanned and extended outages at NSPM's nuclear generating stations and higher
than projected wheeling costs associated with power purchases. The surcharge
will continue in effect on an interim basis until the next rate order is issued
and is subject to refund pending final Public Service Commission of Wisconsin
(PSCW) review.
In its order regarding the Company's 1997 rates, the PSCW denied current
rate recovery of the federal government's assessment for the decommissioning and
decontamination 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. At March 31, 1998 $718,000 had been
deferred. 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 has requested recovery of current and deferred assessments in its 1998
retail electric rate filing as discussed below.
1998 WISCONSIN RATE FILINGS - The Company filed Wisconsin retail electric
and gas rate cases with the PSCW on Nov. 14, 1997 for the test year 1998. The
Company requested a 4.3 percent increase, approximately $12.7 million annually,
in retail electric revenue and a 1.9 percent or $1.7 million decrease in retail
gas revenue. In April 1998, PSCW staff recommended a $3.8 million increase in
annual electric revenue, and a $2.5 million decrease in annual gas revenue,
based on a much lower recommended return on common equity of 11.25 percent. In
a recent rate case decision for another large Wisconsin public utility, the PSCW
found a 12.2 percent return on equity reasonable. Although the Company
requested that new rates become effective during the second quarter of 1998, it
appears that a final PSCW rate order will not be received until the third
quarter of 1998, which would delay the implementation of new rates.
NETWORK TRANSMISSION SERVICE COSTS (NTS) - In July 1997, the Company
received authorization from the PSCW to defer its share of NTS costs incurred
after May 23, 1997. Beginning in the third quarter of1997, the Company began
deferring these costs, including a retroactive adjustment to May 23, 1997.
Through March 31, 1998, $2.4 million of NTS costs had been deferred. Recovery of
deferred NTS costs was sought in the Company's 1998 retail electric rate case.
1998 FERC RATE FILING - On Feb. 17, 1998 NSP filed an application with the
FERC to increase its rates for point-to point transmission service. As filed,
the proposed rates increase the Company's annual transmission revenues by
approximately $600,000.
FERC Order No. 888 requires utilities to offer, among other services, NTS
to qualifying customers. Under NTS, NSP and other qualifying regional utilities
share the costs of operating and maintaining the regional transmission network
which NSP uses, net of related network revenues, based on each company's share
of the total network load. Each FERC regulated utility files a transmission
tariff containing cost information that is used as the basis for NTS rates. In
March 1998 NSP filed a revision to update its NTS information with the FERC,
which is expected to support reductions in NSP's NTS costs.
In April 1998, the FERC voted to accept and consolidate both the
point-to-point and NTS transmission filings, and deferred the effective date of
the rate changes to Oct. 1, 1998. The proposed increases would be placed into
effect subject to refund.
CONSTRUCTION AUTHORIZATION - On April 7, 1998, the PSCW approved the
Company's request to construct a new 161 Kilovolt electric transmission line
between Stone Lake, Wis. and the Bay Front Generating Plant in Ashland, Wis.
The new line is needed to maintain reliable electric service to northwestern
Wisconsin. Construction is scheduled to begin in 1999 and the line is expected
to be in service by 2001. The estimated cost is $37 million.
INDUSTRY RESTRUCTURING - On April 28, 1998, 1997 Wisconsin Act 204 became
law. Act 204 includes provisions which require the PSCW to order a public
utility that owns transmission facilities to transfer control of its
transmission facilities to an independent system operator (ISO) or divest the
public utility's interest in its transmission facilities to an independent
transmission owner (ITO) if the public utility has not already transferred
control to an ISO or divested to an ITO by June 30, 2000. Under certain
circumstances the PSCW has authority to waive imposition of such an order on
June 30, 2000. At Dec. 31, 1997, the Company owned approximately 2,390 miles
of transmission lines with a book value of $87.9 million. The Company may
attempt to obtain legislative amendment in 1999 of the mandatory transfer or
divestiture requirements and is also considering whether to judicially
challenge the transmission transfer or divestiture requirements of the new law.
On April 30, 1998, the Michigan Electric and Gas Association (MEGA), on
behalf of the Company, other investor-owned electric utilities serving the upper
peninsula of Michigan, and Alpena Power Company, communicated the utilities'
position regarding the implementation of a retail access program in Michigan.
MEGA and the Company support:
- - a joint study to develop a common methodology for retail access filings of
the utilities to ensure that all affected customers are provided with consistent
and reliable information before they are asked to choose an alternative
supplier. It recommends that the study be commissioned by Sept. 30, 1998,
- - utility filing of individual rate cases, following the study, to determine
the division between a utility's transmission and distribution facilities and
the proper classification of generation and transmission connecting facilities,
and a reallocation of rates among customer classes based on the cost to serve
each class,
- - a direct access tariff case filing three months after the individual rate
case decisions (but no later than April 1, 2000),
- - a single, fixed date prior to the end of 2001 for the introduction of open
access. If a single date is not agreeable, MEGA believes it reasonable to give
10 percent of utilities' load open access on Jan. 1, 2001, and the remaining
load open access on Jan. 1, 2002, and that
- - prudently incurred costs of implementing the open access program be
covered by a generic accounting order authorizing recovery from Michigan
customers.
WISCONSIN PURCHASED GAS ADJUSTMENT CLAUSE - In March 1996, the PSCW
conducted a generic hearing to consider alternative incentive-based gas cost
recovery mechanisms to replace the current purchased gas adjustment clause
(PGA). In November 1996, the PSCW issued an order with general guidelines for
incentive-based gas cost recovery mechanisms as well as "modified one-for-one"
gas cost recovery mechanisms. All major gas utilities in Wisconsin were
required to file a proposal to replace their current PGA. On Sept. 29, 1997 the
Company filed its proposal with the PSCW. The PSCW has decided to review the
Company's proposal in conjunction with its 1998 rate case.
In the Company's proposal, allowable gas commodity cost recovery would be
based on a benchmark index which is, in turn, based on the market price of gas.
The allowable cost recovery of the remaining components of the cost of gas (for
example, fixed pipeline transportation costs, supply reservation costs, and
other costs approved by the FERC) would be based on actual costs incurred, as is
the case with the Company's current PGA.
The PSCW's decision on the Company's 1998 rate case, including the gas cost
recovery mechanism, is expected in the third quarter of 1998. If the Company's
proposal is approved, the financial impact of the new gas cost recovery
mechanism will be substantially the same as with the current PGA. Approximately
70 percent of the Company's gas revenues represent recovery of gas costs through
the PGA mechanism.
EAU CLAIRE LIQUEFIED NATURAL GAS (LNG) PLANT - The Company's Eau Claire LNG
'peak shaving' plant stores LNG that can be used to supplement the Company's
natural gas supply during periods of high demand. In the past this plant was
also used to supplement the gas supply of other utilities and, as a result, was
subject to FERC jurisdiction. Since the Company no longer provides this service
to other utilities, it filed an application with the FERC to abandon its
jurisdiction over the Eau Claire LNG plant, which would leave the PSCW with sole
jurisdiction. In June 1997 the FERC dismissed the filing in its entirety. In
late October 1997, the FERC voted to grant (in part) the Company's request for a
rehearing of the filings seeking abandonment of the FERC's jurisdiction over the
Eau Claire LNG plant. In 1998, the Company filed notice of the abandonment
effective Dec. 31, 1997.
PRODUCER REFUND - In September 1997, the Federal Energy Regulatory
Commission (FERC) ruled that Kansas natural gas producers must refund
improperly collected Kansas ad valorem tax collected from 1983 to 1988 plus
interest to their customers. During this period, Northern Natural Gas (NNG) had
bought gas from Kansas producers and resold it to the Company under terms that
require NNG to pass any refund from the producers back to the Company. In
December 1997 NNG received one $30 million refund and, in turn, refunded
$538,000 to the Company. In March, 1998, NNG received an additional $4.2 million
of which $69,000 was refunded to the Company. However, the Kansas producers are
appealing the FERC order and are also pursuing federal legislation to overturn
the FERC order. In February 1998, the FERC ruled that the Kansas producers
could place disputed refunds in escrow and that pipelines such as NNG could
recollect refunded amounts if final refunds are less than those already paid.
Because regulators have not yet decided whether the refunds must be
returned to the Kansas gas producers, the Company has not yet passed the refunds
back to its customers. A regulatory liability of $607,000 has been recorded for
the Company's responsibility to pay the refund either to its customers or NNG.
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 contamination
at a site in Ashland, Wis.
At March 31, 1998, the Company had recorded a regulatory asset of
approximately $1,327,000 related to the estimated future remediation costs of
the Ashland site, plus the amount actually paid to date for remediation at that
site less the amount which the PSCW has allowed the Company to recover from its
customers. The PSCW authorized recovery of the amount paid through 1995,
$353,000, over a two year period beginning in 1997. The Company has asked for
recovery of an additional $293,000 over a two year period in its 1998 rate case.
4. 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 expected
to be 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.
<PAGE>
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).
The Company's net income for the quarter ended March 31, 1998 was $10.9
million, a decrease of $1.7 million from the comparable period a year ago. The
following analysis summarizes the specific revenue and expense items impacting
these results.
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; 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 March
31, 1998.
First Quarter 1998 Compared with First Quarter 1997
- ----------------------------------------------------------
ELECTRIC REVENUES in total decreased $0.6 million or 0.6 percent in the
first quarter of 1998 compared with the first quarter of 1997 due to lower
billings to NSPM. Electric revenues from sales to customers were approximately
the same for both periods. The warmer than normal winter weather in 1998 was
offset by customer and sales growth. On a weather-adjusted basis, sales
increased 3.6 percent in the first quarter of 1998 compared to the same period
in 1997.
GAS REVENUES decreased $7.6 million or 19.3 percent in the first quarter of
1998 compared with the first quarter of 1997 due to lower sales levels and
natural gas related price decreases. Total gas sales volumes decreased 14.4
percent in the first quarter of 1998 compared to the same period in 1997 due to
warmer than normal winter weather and lower interruptible sales. Lower costs
per unit of gas, as discussed below, are reflected in customer rates through the
purchased gas adjustment clause mechanism.
PURCHASED AND INTERCHANGE POWER and FUEL FOR ELECTRIC GENERATION together
increased $1.3 million or 2.7 percent for first quarter 1998 compared to first
quarter 1997 due to additional power purchases from NSPM in 1998 for system
requirements and higher demand expenses billed from NSPM in 1998.
GAS PURCHASED FOR RESALE decreased $6.0 million or 21.8 percent in the
first quarter 1998 compared to the first quarter 1997 due to reduced purchases
to support lower sales volumes and a 3.2 percent decrease in the per unit cost
of purchased gas.
OTHER OPERATION, MAINTENANCE, AND ADMINISTRATIVE AND GENERAL expenses
together decreased $0.5 million or 2.5 percent in the first quarter of 1998
compared to the same period in 1997. Lower generating and transmission
operating expenses in 1998 were partially offset by higher customer service
expenses, distribution maintenance expenses, and employee benefit expenses.
Transmission operating expenses decreased in 1998 mainly due to $0.9 million in
NTS costs incurred in the first quarter of 1997, before the PSCW approved
deferral of such costs as discussed in Note 2.
DEPRECIATION AND AMORTIZATION were approximately the same for both periods.
INCOME TAX decreased $1.3 million in the first quarter 1998 as compared to
the first quarter 1997 reflecting lower pretax operating income in 1998.
OTHER INCOME (EXPENSE) - NET was approximately the same for both periods.
INTEREST EXPENSE was approximately the same for both periods.
<PAGE>
- ------
Item 6. Exhibits and Reports on Form 8-K
- -------------------------------------------------
(A) EXHIBITS
The following exhibits are filed with this report:
3.01 Restated Articles of Incorporation of Northern States Power Company (a
Wisconsin corporation) effective May 6, 1998.
10.01 Amended and Restated Executive Long-Term Incentive Award Stock Plan
filed as Exhibit 10.02 to the Form 10-Q for the quarter ended March
31, 1998 of Northern States Power Company (Minnesota) (file number
1-3034) incorporated herein by reference.
27.01 Financial Data Schedule for the three months ended March 31, 1998.
99.01 Statement pursuant to Private Securities Litigation Reform Act of 1995.
(B) REPORTS ON FORM 8-K
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: May 15, 1998
--------------
<PAGE>
EXHIBIT INDEX
Method of Exhibit Description
Filing No.
DT 3.01 Restated Articles of Incorporation of Northern
States Power Company (a Wisconsin corporation)
effective May 6, 1998.
DT 27.01 Financial Data Schedule for the three months
ended March 31, 1998.
DT 99.01 Statement pursuant to Private Securities
Litigation Reform Act of 1995.
<PAGE>
------
EXHIBIT 3.01
------------
NORTHERN STATES POWER COMPANY
(a Wisconsin corporation)
Incorporated November 21, 1901
R E S T A T E D A R T I C L E S O F I N C O R P O R A T I O N
------------------------------------------------------------------
(Effective Date: May 6, 1998)
"RESTATED ARTICLES OF INCORPORATION"
"The following Restated Articles of Incorporation, duly adopted pursuant to the
authority and provisions of Chapter 180 of the Wisconsin Statutes, supersede and
take the place of the existing Restated Articles of Incorporation and amendments
thereto:
"Article 1. The name of the corporation shall be Northern States Power
Company.
"Article 2. The period of existence shall be perpetual.
"Article 3. The business and purposes for which said corporation is
formed are: To manufacture, produce, purchase, or in any manner acquire, and to
sell, market, and distribute gas and its by-products and residual products for
light, heat, power and other purposes; to manufacture, generate, produce, buy,
and in any manner acquire, and to sell, market and distribute electricity for
light, heat, power, and other purposes; to construct, maintain, and operate
street and electric railways; to construct, maintain, and operate water works
for the purpose of supplying municipalities, private consumers, and others with
water for any and all purposes whatsoever; to furnish signals by electricity or
otherwise; to supply steam and hot water for heating and other purposes; to own,
operate, manage, and control plants and equipment for the production,
transmission, delivery, and furnishing of heat, light, water, and power to and
for the public; to manufacture, buy, sell, rent, and deal in apparatus and
appliances used or useful in, or calculated directly or indirectly to
promote the consumption of gas, water, or electricity; to purchase or in any
manner acquire, to own and hold, and to sell, exchange, or in any manner dispose
of stocks, bonds, mortgages, and other securities; to buy, sell, exchange, and
deal in all kinds of real property; and to construct, erect, purchase, or in
any manner acquire, to own, hold, and operate, and to sell, exchange, lease,
encumber, and in any manner dispose of, gas works, water works, steam plants,
hot water plants, hydraulic works, hydroelectric works, electric works, gas
distributing systems, water distributing systems, steam distributing systems,
electric distributing systems and transmission lines, signal transmission
systems, and machinery apparatus, appliances, facilities, rights, privileges,
franchises, ordinances, and all such real and personal property as may be
necessary, useful, or convenient in carrying on the business of procuring or
producing and distributing electricity, gas, water, steam, hot water, and
signals, or in the construction, maintenance, and operation of street and
electric railways. The business of the company may be carried on in any part of
the States of Wisconsin, Michigan, and Minnesota.
"Article 4. The number of shares which it shall have authority to issue
shall be One Million (1,000,000) shares of common stock, and the par value of
each share shall be One Hundred Dollars ($100). At all meetings of the
shareholders of the corporation, the holders of common stock shall be entitled
to one (1) vote for each share of common stock held by them.
"Article 5. The address of the registered office at the time of
adoption of these restated articles is 100 North Barstow Street, Eau Claire,
Wisconsin 54701.
"Article 6. The name of the registered agent at such address at the
time of adoption of these restated articles is J. A. Noer.
"Article 7. The number of directors constituting the Board of Directors shall
be fixed by the Bylaws, but shall not be less than three.
"Article 8. These articles may be amended in the manner authorized by law at
the time of amendment."
<TABLE> <S> <C>
<PAGE>
<ARTICLE> UT
EXHIBIT 27.01
<LEGEND>
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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1998
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 682,456
<OTHER-PROPERTY-AND-INVEST> 11,280
<TOTAL-CURRENT-ASSETS> 73,267
<TOTAL-DEFERRED-CHARGES> 49,495
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 816,498
<COMMON> 86,200
<CAPITAL-SURPLUS-PAID-IN> 10,461
<RETAINED-EARNINGS> 248,556
<TOTAL-COMMON-STOCKHOLDERS-EQ> 345,217
0
0
<LONG-TERM-DEBT-NET> 231,797
<SHORT-TERM-NOTES> 22,200
<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> 217,284
<TOT-CAPITALIZATION-AND-LIAB> 816,498
<GROSS-OPERATING-REVENUE> 130,068
<INCOME-TAX-EXPENSE> 6,952
<OTHER-OPERATING-EXPENSES> 107,534
<TOTAL-OPERATING-EXPENSES> 114,486
<OPERATING-INCOME-LOSS> 15,582
<OTHER-INCOME-NET> 48
<INCOME-BEFORE-INTEREST-EXPEN> 15,630
<TOTAL-INTEREST-EXPENSE> 4,694
<NET-INCOME> 10,936
0
<EARNINGS-AVAILABLE-FOR-COMM> 10,936
<COMMON-STOCK-DIVIDENDS> 6,551
<TOTAL-INTEREST-ON-BONDS> 4,071
<CASH-FLOW-OPERATIONS> 43,094
<EPS-PRIMARY> 12.69
<EPS-DILUTED> 12.69
</TABLE>
<PAGE>
- ------
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 work force 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;
- - 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 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.
