SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report: July 2, 1998
(Date of earliest event reported)
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<CAPTION>
Commission Registrant; State of Incorporation IRS Employer
file number Address; and Telephone Number Identification No.
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<S> <C> <C>
1-11337 WPS RESOURCES CORPORATION 39-1775292
(A Wisconsin Corporation)
700 North Adams Street
P. O. Box 19001
Green Bay, WI 54307-9001
920-433-1466
1-3016 WISCONSIN PUBLIC SERVICE CORPORATION 39-0715160
(A Wisconsin Corporation)
700 North Adams Street
P. O. Box 19001
Green Bay, WI 54307-9001
920-433-1466
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ITEM 5. Other Events.
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On July 22, 1998, WPS Resources Corporation ("WPSR") issued a press
release announcing financial results of WPSR for the three-month and six-month
periods ended June 30, 1998. A copy of this press release is attached as
Exhibit 99.1 hereto and is incorporated herein by reference.
On July 2, 1998, the Public Service Commission of Wisconsin ("PSCW")
approved an agreement by Wisconsin Public Service Corporation ("WPSC") and
Alliant Utilities - Wisconsin Power and Light Company ("WP&L") to replace the
steam generators at the Kewaunee Nuclear Power Plant ("KNPP"). The steam
generators have been in use since the KNPP began operations in 1974, and
tubes contained in the generators have begun to wear out, reducing the
electricity that the KNPP can produce. The new steam generators will
return the KNPP to its full capacity of approximately 530,000 kilowatts
compared to its current 500,000 kilowatt capacity. The license to operate
the KNPP expires in 2013. Steam generator replacement is to begin in the
spring of 2000 at an estimated aggregate cost of approximately $90 million.
WPSC's share of this cost will be approximately $53.5 million.
On July 2, 1998, the PSCW agreed that WPSC and WP&L can recover their
investment in the new steam generators and any other unrecovered KNPP
capital costs in retail rates utilizing sum-of-the-years digits
accelerated depreciation over a period of 8-1/2 years following the
completion of the project.
Madison Gas and Electric Company ("MG&E") has appealed the PSCW's
order which authorized KNPP steam generator replacement to the circuit court
of Dane County, Wisconsin. WPSC and MG&E have entered into a letter of intent
to consummate certain transactions which would result in the settlement of
MG&E's opposition to the steam generator replacement and the dismissal of
MG&E's appeal. WPSC and MG&E anticipate executing a definitive settlement
agreement in August 1998. WPSC and WP&L are currently negotiating an
amendment to the KNPP joint power supply agreement to govern the operation of
the KNPP and related matters following the transfer of MG&E's interest to
WPSC.
These proposed agreements contemplate the following:
1) Immediately preceding the commencement of the KNPP steam
generator replacement, MG&E will transfer its 17.8% interest in
the KNPP to WPSC in exchange for an interest in a WPSC
combustion turbine generating facility or other WPSC assets
having an aggregate book value at time of transfer
approximately equal to the book value of MG&E's interest in the
KNPP (estimated at approximately $10 million) with any
difference being settled in cash. Following the ownership
transfer, MG&E, in satisfaction of its decommissioning
responsibilities, will transfer to the WPSC qualified
decommissioning trust the net assets in the MG&E qualified
decommissioning trust which will be fully funded as of the date
of ownership transfer and will transfer funds to the MG&E
nonqualified decommissioning trust which, together with amounts
then held in such trust and in the qualified decommissioning
trust, are deemed to be sufficient, pursuant to a funding plan
approved by the PSCW, to fund fully MG&E's estimated share of
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the costs of decommissioning the KNPP. MG&E will irrevocably
devote the MG&E nonqualified decommissioning trust to satisfy
KNPP decommissioning obligations. If the amounts available
from these decommissioning trusts shall for any reasons
which develop after the transfer exceed or be less
than the KNPP decommissioning costs applicable to MG&E's
original interest in the KNPP, WPSC expects that such
deviations would be reflected in retail rates. WPSC will
also grant to MG&E an option exercisable prior to the
commencement of steam generator replacement to enter into
agreement with WPSC to purchase power, for a two-year term
following the ownership transfer, in an amount equal to any
excess in capacity of the interest in the KNPP transferred by
MG&E to WPSC over the capacity of the interest in any
generating facility transferred in exchange by WPSC to MG&E.
Under this agreement, capacity would be sold by WPSC at a price
reflecting the cost of a new generating facility.
2) Following the transfer of MG&E's ownership interest in the KNPP
to WPSC, WPSC will own 59% of the KNPP and WP&L will own 41% of
the KNPP. WPSC will continue to operate the KNPP. MG&E will
not be liable for any part of the steam generator replacement
costs or for liabilities arising out of the operation of the
KNPP following the ownership transfer. MG&E will remain liable
for its share of any liabilities arising from the operation of
the KNPP prior to the transfer of ownership, including MG&E's
responsibility for disposal of spent fuel utilized prior to the
transfer of ownership.
3) WPSC and WP&L will amend the joint power supply agreement
relating to the KNPP. Under the amended agreement, WPSC will
be able to control decisions relating to the operation of the
KNPP. Both WPSC and WP&L, however, will under certain
circumstances have the right, upon 12 months prior notice, to
cause the other party to agree to the shutdown and
decommissioning of the KNPP or to require the purchase of its
interest in the KNPP by the other party. The purchase price of
the transferred interest would equal the portion of the book
value for regulatory purposes of the KNPP represented by the
interest being transferred. The right to require shutdown
or purchase could be exercised (i) at such time that the book
value of the interest in the KNPP of the party exercising such
right, exclusive of any capital investments made subsequent to
the steam generator replacement, is $5,000,000 or less, which
would not occur until about 2006, (ii) at any time subject to a
30% reduction in the purchase price, unless energy generated
from the KNPP is not then subject to retail rate regulation, or
(iii) at any time for "cause" which includes (a) a material
failure by WPSC to meet agreed upon operation and maintenance
standards which remains uncured 90 days after notice of such
failure, (b) the failure of the parties to resolve certain
material disagreements respecting the KNPP non-fuel operating
and maintenance budget or capital budget, (c) the existence of
material deviations of actual costs from such budgets and
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(d) the refusal, under certain circumstances, of WPSC to
transfer the operations or assets of the KNPP to a nuclear
operating or generating company. Either party will also
have the right to purchase the other party's interest
in the KNPP to enable such party to transfer the operations or
assets of the KNPP to a nuclear operating or generating
company.
WPSC believes that the right of either party to require the other to
agree to KNPP shutdown and decommissioning or to purchase such party's
interest is unlikely to be exercised in the near term because in the case of
an exercise of such right for cause, the triggering events are unlikely to
occur in light of the historic operational experience of the KNPP and because
an exercise not for cause would be subject to a 30% reduction in purchase
price so long as the KNPP remains subject to retail rate regulation. If
exercised in 2006 or thereafter, such exercise would occur at a time when the
book value of the owners' investment in the KNPP had been substantially or
fully depreciated and recovered in retail rates.
All of the foregoing proposed agreements are subject to the
execution of definitive documents and the receipt of required regulatory
approvals.
On July 7, 1998, WPSR's wholly-owned subsidiary, WPS Power
Development, Inc. ("PDI"), announced that it had entered into an agreement to
purchase generating facilities with 92 megawatts of aggregate capacity from
Maine Public Service Company and its subsidiary, New Brunswick Electric Power
Company, for a purchase price of $37.425 million. The transaction is
contingent upon receipt of required regulatory approvals. PDI intends to
finance the purchase through non-recourse project financing.
On July 9, 1998, PDI announced that it had entered into a joint
venture with an affiliate of EarthCo, a Nevada corporation, to turn residue
from coal mining at the Alabama Land & Mineral site in Jasper County, Alabama
into usable energy briquettes. At full production, more than 400,000 tons of
coal dust or "fines" will be processed annually by mixing the fines with a
binding compound to form briquettes. The project began operation in late June
1998 and is eligible to receive federal tax credits because of the briquettes'
status as a synthetic fuel. PDI has invested less than $10 million for a
two-thirds interest in the project.
ITEM 7. Financial Statements and Exhibits.
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(c) Exhibits.
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99-1 WPS Resources Corporation (WPSR) press release dated
July 22, 1998 announcing financial results of WPSR for
the three-month and six-month periods ended June 30,
1998.
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SIGNATURES
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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 hereunto duly authorized.
WPS RESOURCES CORPORATION
By: /s/ Ralph G. Baeten
-------------------------------------
Ralph G. Baeten
Treasurer
Date: July 22, 1998
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SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
WISCONSIN PUBLIC SERVICE CORPORATION
By: /s/ Ralph G. Baeten
-----------------------------------------------
Ralph G. Baeten
Vice President-Treasurer
Date: July 22, 1998
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EXHIBIT 99.1
(WPS RESOURCES CORPORATION LETTERHEAD)
FOR RELEASE: July 22, 1998
For additional information, see attached table or contact:
Ralph G. Baeten, Treasurer, WPS Resources Corporation
(920) 433-1449
WPS RESOURCES CORPORATION
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ANNOUNCES SECOND QUARTER FINANCIAL RESULTS
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Green Bay, WI -- Second quarter basic and diluted earnings per average share
of common stock of WPS Resources Corporation ("WPSR") for the three months
ended June 30, 1998, were $0.41 compared with $0.40 for the corresponding
period in 1997, an increase of 2.5%. Net income for the three months ended
June 30, 1998 and 1997, was $9.9 million and $9.6 million, respectively.
Earnings on common stock at Wisconsin Public Service Corporation ("WPSC"),
WPSR's principal subsidiary, were $11.4 million for the three months ended
June 30, 1998, and $11.2 million for the same period in 1997. "Warmer than
normal weather contributed to higher electric sales and increased earnings
at WPSR for the second quarter of 1998," stated Dan P. Bittner, Vice
President and Chief Financial Officer of WPSR.
//MORE//
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Financial Results
Page 2
July 22, 1998
WPSR operating revenues were $219.6 million in the second quarter of 1998
compared with $191.4 million in the second quarter of 1997, an increase of
14.8%. Electric utility revenues at WPSC increased $6.8 million due primarily
to increased energy prices paid by wholesale and interruptible buy-through
customers during a period of abnormally warm weather in the latter part of the
second quarter of 1998. Also included in 1998 second quarter electric
revenues are $3.8 million of surcharge revenues related to recovery of the
deferred costs of the 1997 steam generator repairs at the Kewaunee Nuclear
Power Plant ("Kewaunee") which were offset by a charge to nuclear maintenance
expense. WPSC is the operator and 41.2% owner of Kewaunee. Partially
offsetting the increase in revenue was a $1.0 million refund as the result of
a Federal Energy Regulatory Commission settlement related to open access
transmission tariff rates. Gas utility revenues decreased $14.9 million as a
result of reduced sales and mild weather in the first half of the second
quarter of 1998. Also contributing to the decrease in gas utility revenues
was a $7.5 million refund from ANR Pipeline Company which WPSC passed on to
its gas customers. This refund was also credited to gas purchases.
Nonregulated energy revenues increased $36.4 million due primarily to
increased gas sales at WPS Energy Services, Inc. ("ESI"), WPSR's energy
marketing subsidiary.
//MORE//
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Financial Results
Page 3
July 22, 1998
Explanation of WPSR Earnings Per Share Changes
Between Quarters Ended June 30, 1998 and June 30, 1997
DOLLAR
IMPACT IN EARNINGS PER
MILLIONS SHARE IMPACT
(Before Tax) (After Tax)
Increase in Electric Utility Margin $7.4 $0.19
Decrease in Gas Utility Margin (1.9) (0.05)
Net Increase in Nonregulated Margins 0.4 0.01
Increase in Maintenance Expenses (2.2) (0.06)
Decrease in Other Income (4.0) (0.10)
Change in Other Items 0.8 0.02
Total Earnings Per Share Impact $0.01
The primary reasons for the increase in WPSR earnings in the second quarter of
1998 were higher electric utility margins due to a 137.1% increase in cooling
degree days and higher nonregulated gas and electric margins as a result of
increased sales. Partially offsetting these increases in earnings were lower
gas utility margins due to less sales, and an increase in nuclear maintenance
expenses due to recognition of the 1997 deferred expenses for Kewaunee steam
generator repairs. Also offsetting the increases in earnings was a reduction
in other income in the second quarter of 1998 compared with the second quarter
of 1997 which reflected the gain from sales of nonutility property of
$2.7 million.
Year-to-date basic and diluted earnings per average share of common stock of
WPSR were $1.13 compared with $1.16 for the corresponding period in 1997.
Operating revenues for the six-month period ending June 30, 1998, were
$496.4 million and net
//MORE//
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Financial Results
Page 4
July 22, 1998
income for the period was $27.0 million. Operating revenues for the
six-month period ending June 30, 1997, were $454.4 million and net
income for the period was $27.8 million. Year-to-date earnings on common
stock at WPSC were $29.3 million for 1998 and $31.2 million for 1997.
The primary reasons for the decrease in earnings at WPSR were a decrease in
other income due to the gain from sales of nonutility property which had
occurred in the second quarter of 1997 and a decrease in utility gas margins.
Partially offsetting these decreases in earnings were increased electric
utility margins as a result of increased prices during a period of abnormally
warm weather in the latter part of the second quarter of 1998, a decrease in
other operating expenses, and an increase in the nonregulated gas margin.
//MORE//
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Financial Results
Page 5
July 22, 1998
Explanation of WPSR Earnings Per Share Changes
Between Six Months Ended June 30, 1998 and June 30, 1997
DOLLAR
IMPACT IN EARNINGS PER
MILLIONS SHARE IMPACT
(Before Tax) (After Tax)
Increase in Electric Utility Margin $4.8 $0.12
Decrease in Gas Utility Margin (2.5) (0.06)
Net Increase in Nonregulated Margins 1.4 0.03
Increase in Depreciation and
Decommissioning Expenses (2.3) (0.06)
Increase in Maintenance Expenses (2.7) (0.07)
Decrease in Other Operating Expenses 2.6 0.07
Decrease in Other Income (2.8) (0.07)
Change in Other Items 0.4 0.01
Total Earnings Per Share Impact $(0.03)
Basic and diluted earnings per average share of common stock of WPSR for the
twelve months ended June 30, 1998, were $2.22 compared with $1.76 for the
twelve months ended June 30, 1997, an increase of 26.1%.
//END//
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<TABLE>
WPS RESOURCES CORPORATION
EARNINGS ANALYSIS
(THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<CAPTION>
QUARTER ENDED % YEAR-TO-DATE % YEAR ENDED %
JUNE 30 CHANGE JUNE 30 CHANGE JUNE 30 CHANGE
1998 1997 1998 1997 1998 1997
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUES $219,620 $191,360 14.8% $496,429 $454,373 9.3% $920,396 $879,662 4.6%
OPERATING EXPENSES 200,090 175,740 13.9% 445,964 405,483 10.0% 818,732 794,035 3.1%
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OPERATING INCOME 19,530 15,620 25.0% 50,465 48,890 3.2% 101,664 85,627 18.7%
OTHER INCOME/(DEDUCTIONS) 1,641 5,782 -71.6% 4,186 7,246 -42.2% 9,377 5,927 58.2%
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INCOME BEFORE INTEREST
AND TAXES 21,171 21,402 -1.1% 54,651 56,136 -2.6% 111,041 91,554 21.3%
INTEREST EXPENSE 6,106 6,187 -1.3% 12,222 12,705 -3.8% 25,920 25,654 1.0%
INCOME TAXES 4,408 4,866 -9.4% 13,893 14,069 -1.3% 29,094 20,868 39.4%
PREFERRED STOCK DIVIDENDS
OF SUBSIDIARY 778 778 0.0% 1,556 1,556 0.0% 3,111 3,111 0.0%
------- ------- ------- ------- ------- -------
NET INCOME $ 9,879 $ 9,571 3.2% $ 26,980 $27,806 -3.0% $ 52,916 $ 41,921 26.2%
======= ======= ======= ======= ======= =======
AVERAGE SHARES OF
COMMON STOCK 23,858 23,875 -0.1% 23,860 23,878 -0.1% 23,864 23,882 -0.1%
EARNINGS PER SHARE $0.41 $0.40 2.5% $1.13 $1.16 -2.6% $2.22 $1.76 26.1%
HEATING DEGREE DAYS 828 1,249 -33.7% 4,069 5,130 -20.7% 7,038 8,370 -15.9%
COOLING DEGREE DAYS 166 70 137.1% 166 70 137.1% 351 292 20.2%
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