-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, C0ANIh/Cc+xZZip9V5Z7VAPfS+PojXjKjV6Ken05wTfUw7oeB3zTPNNR5FBMRSfE 926+A+B5Y8WkuZopUO5GtA== 0000061339-96-000003.txt : 19960329 0000061339-96-000003.hdr.sgml : 19960329 ACCESSION NUMBER: 0000061339-96-000003 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960328 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: MADISON GAS & ELECTRIC CO CENTRAL INDEX KEY: 0000061339 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC & OTHER SERVICES COMBINED [4931] IRS NUMBER: 390444025 STATE OF INCORPORATION: WI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 000-01125 FILM NUMBER: 96539890 BUSINESS ADDRESS: STREET 1: 133 S BLAIR ST STREET 2: PO BOX 1231 CITY: MADISON STATE: WI ZIP: 53701 BUSINESS PHONE: 6082527923 MAIL ADDRESS: STREET 1: POST OFFICE BOX 1231 CITY: MADISON STATE: WI ZIP: 53701-1231 10-K405 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the fiscal year ended: DECEMBER 31, 1995 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from: ________________ to ________________ Commission File Number 0-1125 MADISON GAS AND ELECTRIC COMPANY (Exact name of registrant as specified in its charter) WISCONSIN 39-0444025 (State or other jurisdiction of (IRS Employer Identification No.) incorporation or organization) 133 South Blair Street Post Office Box 1231 Madison, Wisconsin 53701-1231 (Address of principal executive offices, including zip code) (608) 252-7000 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Securities registered pursuant to Section 12(g) of the Act: Common, Par Value $8 Per Share (Title of Class) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Yes X No State the aggregate market value of the voting stock held by nonaffiliates of the Registrant: $426,112,527 based on a closing bid price of $26.50 on March 1, 1996 (the record date for the Annual Meeting of Shareholders). The number of shares outstanding of each of the issuer's classes of common stock, as of the close of the period covered by this report, was 16,079,718 of Common Stock, Par Value $8 Per Share. List hereunder the following documents if incorporated by reference and the part of the Form 10-K (e.g., Part I, Part II, etc.) into which the document is incorporated: (1) Any annual report to security holders; (2) Any proxy or information statement; and (3) Any prospectus filed pursuant to Rule 424(b) or (c) under the Securities Act of 1933. - - 1995 Annual Report to Shareholders (Parts I, II, and IV) - - Definitive Proxy Statement filed on March 26, 1996 (Parts I and III) PART I. Item 1. Business. General Description of Business The registrant, Madison Gas and Electric Company (the Company), a Wisconsin corporation organized as such in 1896, is a public utility engaged in the generation and transmission of electric energy and in its distribution in Madison and its environs (250 square miles) and in the purchase, transportation, and distribution of natural gas in Columbia, Crawford, Dane, Iowa, Juneau, Monroe, and Vernon counties, Wisconsin (1,325 square miles). Exhibit No. 21 herein provides a description of the Company's wholly owned subsidiaries. The Company also owns two gas marketing companies, Great Lakes Energy Corp. (GLENCO) and American Energy Management, Inc. (AEM), created to take advantage of the opportunities made available by Federal Energy Regulatory Commission (FERC) Order 636. The Company is subject to regulation by the Public Service Commission of Wisconsin (PSCW) as to rates, accounts, issuance of securities, plant and transmission line siting, and in other respects. The Federal Energy Regulatory Commission (FERC) has jurisdiction, under the Federal Power Act, over certain accounting practices of the Company and in certain other respects. The Nuclear Regulatory Commission (NRC) has jurisdiction over the operation of the Kewaunee Nuclear Power Plant (Kewaunee). The Company has a 17.8 percent ownership interest in Kewaunee. The other owners are Wisconsin Public Service Corporation (WPSC), which operates Kewaunee, and Wisconsin Power and Light Company (WPL). The Company is also subject to regulation with regard to air quality, water quality, and solid waste (see I-5 and I-6) and may be subject to regulation with regard to other environmental matters by various federal, state, and local authorities including the Wisconsin Department of Natural Resources (DNR), which has jurisdiction over air and water quality, solid and hazardous waste standards, and regulates the electric generating operations of the Company with respect to pollution and environmental control matters. The Company has met the requirements of current environmental regulations. Unknown additional expenditures may be required for pollution control equipment and for the modification of existing plants to comply with future unknown environmental regulations. For example, the ongoing issue of global warming could result in significant compliance cost for carbon dioxide emission controls. Except as set forth below, the amounts of such expenditures and the period of time over which they may be required to be made are not known. The Company is unable to predict whether compliance with future pollution control regulations would involve curtailments of operations or reductions in generating capacity or efficiency of present generating facilities or delays in the construction and operation of future generating facilities. Under both the National Environmental Policy Act and the Wisconsin Environmental Policy Act, the Company must obtain the necessary authorizations or permits from regulatory agencies for any new projects or other major actions significantly affecting the quality of the human environment after all aspects of the proposed project or action are subjected to a complete environmental review and a detailed environmental impact statement is issued. Electric Operations At December 31, 1995, the Company supplied electric service to 119,886 customers, of whom 107,093 were located in the cities of Fitchburg, Madison, Middleton, and Monona, and 12,793 in adjacent areas. Of the total number of customers, 104,092 were residential and 15,654 were commercial. For 1995, residential and commercial electric service revenues comprised 36 percent and 48 percent, respectively, of total electric revenues. The remaining electric revenues during 1995 were from industrial sales (7 percent), sales to public authorities including the University of Wisconsin (9 percent), and sales to other utilities (less than 1 percent). The electric operations accounted for 62 percent of the total revenues of the Company. See Item 2 for a description of the Company's electric utility plant. The Company is a member of Mid-America Interconnected Network, Inc. (MAIN), a regional reliability group. Membership in this group permits better utilization of reserve generating capacity and coordination of long-range system planning and day-to-day operations. MAIN seeks to maintain adequate planning generation reserve margins as a group in the range of 15 to 22 percent. The PSCW voted in December 1995 to carefully pursue the restructuring of the electric utility industry in Wisconsin. This approach is largely consistent with a plan developed and supported by the Company. The process will include a report by the Commissioners to the legislature, a draft work plan, and a series of dockets and proceedings over the next three to seven years to implement the work plan. (See Item 7, page II-7, Regulatory and Accounting Issues for further discussion.) Fuel supply and generation The Company estimates that its net kilowatt-hour requirements for 1996 will be provided from the following sources: 68 percent from fossil-fueled steam plants, 24 percent from a nuclear-fueled steam plant, 7 percent from low-cost power purchases, and 1 percent from a combination of natural gas- and oil-fired combustion turbines. The Company has a 22 percent ownership interest in the Columbia Energy Center (Columbia). The other owners are WPL, which operates Columbia, and WPSC. The first (Columbia I) and second (Columbia II) units at Columbia were placed in commercial operation in 1975 and 1978, respectively. The Columbia co-owners' coal inventory supply for Columbia I and Columbia II was 40 days on December 31, 1995. The co-owners' goal is to maintain a 40-day inventory. Columbia, with two 527-megawatt units, uses coal from the Wyoming-Montana coal fields. One hundred (100) percent of the low-sulfur coal supply for these units comes from Powder River Basin sources in Montana and Wyoming. About 200 megawatts of the Company's electric generating capacity is provided by the Blount Generating Station (Blount) (see I-9). The Company is able to burn a variety of coals and natural gas at Blount. The Kewaunee plant began commercial operation in 1974. The Kewaunee capability factor was 83.1 percent in 1995, compared to a projected industry average of 84.5 percent. The steam generator tubes at Kewaunee are susceptible to corrosion characteristics seen throughout the nuclear industry. During the first quarter of 1995, Kewaunee was shut down for scheduled maintenance and refueling. Inspection of the steam generators revealed increased levels of tube degradation. Prior to the shutdown, the equivalent of approximately 12 percent of the tubes in the steam generators were plugged with no loss of capacity. When the plant was returned to service in May 1995, approximately 21 percent of the tubes were plugged. As a result of the need to keep Kewaunee cost-competitive and to address the repair or replacement of the steam generators, the co-owners of Kewaunee have been and are continuing to evaluate various alternatives to deal with the potential future loss of capacity resulting from the continuing degradation of the steam generator tubes. As part of this evaluation, the following actions are being taken: - - A request has been submitted to the Nuclear Regulatory Commission (NRC) to redefine the pressure boundary point of the repaired steam generator tubes (sleeved tubes), which have been removed from service by plugging, in order to allow the return of many of the sleeved tubes to service. If the request is granted, and even if additional degraded tubes would be discovered during the next planned shutdown in the fall of 1996, Kewaunee should be able to return to near-full capacity at that time. - - A request will be submitted to the NRC to allow the co- owners to pursue welded repair technologies to repair existing sleeved tubes in an effort to return plugged tubes to service. Although welded tube repair technologies exist, such technologies have not yet been approved by the NRC. - - Continuing evaluations are being performed with respect to the economics of replacing the steam generators. Replacement of steam generators is estimated to cost approximately $100 million (the Company's share is 17.8 percent), exclusive of additional purchase power costs associated with an extended shutdown. - - The Company has requested the PSCW to accelerate the collection of funds through rates for decommissioning and the recovery of the existing net plant. The co-owners continue to evaluate the potential financial and regulatory implications of a change in ownership (which would likely require as a condition precedent authority to replace the steam generator) or early shutdown of Kewaunee. The Company believes that the best near-term economic alternative for the owners of Kewaunee is to continue to pursue tube recovery and repair processes. The Company will reassess its views of available alternatives based on the condition of steam generator tubes during the fall 1996 refueling outage. On December 31, 1995, the net book value of the Company's share of Kewaunee was $23.6 million. Operating and maintenance costs at Kewaunee have been reduced more than 25 percent over the last three years. Continued reduction of costs, while not sacrificing safety, is planned to keep Kewaunee cost-competitive. The NRC continues to rate Kewaunee superior (Category 1) in all areas: maintenance, operations, engineering, and plant support. If Kewaunee remains in operation until expiration of the operating license, physical decommissioning is expected to occur during the period 2014 to 2021 with additional expenditures being incurred during the period 2022 to 2050 related to the storage of spent nuclear fuel at the site. In July of 1994, the PSCW issued an order covering all Wisconsin utilities with nuclear generation. The order standardizes cost escalation assumptions used in determining decommissioning liabilities. Based on this methodology and considering other assumption changes, Kewaunee decommissioning costs are estimated to be $376 million in current dollars and $1.9 billion in year-of-expenditure dollars. The Company's share of Kewaunee decommissioning costs is estimated to be $67 million in current dollars and $339 million in year-of- expenditure dollars. These costs are recovered currently in customer rates and deposited in external trusts. As of December 31, 1995, the Company's external trusts totaled $37 million (fair market value). The supply of nuclear fuel for Kewaunee requires the purchase of uranium concentrates, the conversion of uranium concentrates to uranium hexafluoride, enrichment of the uranium hexafluoride, and fabrication of the enriched uranium into usable fuel assemblies. After a region of spent fuel (approximately one-third of the nuclear fuel assemblies in the reactor) is removed from the reactor, it is placed in temporary storage in a spent fuel pool at the plant site. Permanent storage is addressed below. There are presently no operating facilities in the United States that are reprocessing commercial nuclear fuel. A discussion of the nuclear fuel supply for Kewaunee follows: - - Requirements for uranium are met through spot or contract purchases. An inventory policy, which takes advantage of economical spot market purchases of uranium, results in inventories sufficient for up to two reactor reloads of fuel, excluding in-process uranium. - - Uranium hexafluoride from inventory and from spot market purchases was used to satisfy converted material requirements in 1995. The co-owners intend to purchase future conversion services on the spot market unless they can negotiate economical long-term contracts with primary suppliers. - - In 1995, enrichment services were not required. However, future services will be procured from COGEMA, Inc., pursuant to a contract executed in 1983 and last amended in 1995. Enrichment services are also purchased from the United States Enrichment Corporation (USEC) under the terms of the utility services contract which is in effect for the life of Kewaunee. The co-owners are committed to take 70 percent of its annual enrichment requirements in 1997 and in alternate years thereafter from USEC. - - Fuel fabrication services through March 15, 2001, are covered by contract with Siemens Power Corporation. - - Beyond the stated periods set forth above, additional contracts for uranium concentrates, conversion to uranium hexafluoride, enrichment, fabrication, and spent fuel storage will have to be procured. The co-owners anticipate the prices for the foregoing will modestly increase. Pursuant to the Nuclear Waste Policy Act of 1982 (Nuclear Policy Act), the U.S. Department of Energy (DOE) entered into a contract with the co-owners to accept, transport, and dispose of spent nuclear fuel beginning no later than January 31, 1998. It is likely that the DOE will not accept spent nuclear fuel before the year 2015. A fee to offset the costs of the DOE's disposal for all spent fuel used since April 7, 1983, has been assessed by the DOE at one mill per net kilowatt-hour of electricity generated and sold by Kewaunee. An additional one-time fee was paid to the DOE for the disposal of spent nuclear fuel used to generate electricity prior to April 7, 1983. Spent fuel is currently stored at Kewaunee. The existing capacity of the spent fuel storage facility will enable storage of the projected quantities of spent fuel through April 2001. The co-owners are evaluating options for the storage of additional quantities beyond 2001. Several technologies are available. An investment of approximately $2.5 million in the early 2000s could provide additional storage sufficient to meet spent fuel storage needs until expiration of the current operating license in 2013. The Nuclear Policy Act provides that both the federal government and the nuclear utilities fund the decontamination and decommissioning of the three gaseous diffusion plants in the United States. Utility contributions will be collected through a special assessment based on a utility's percentage of uranium enrichment services purchased through the date of enactment compared to total enrichment sales by the DOE. The co-owners of Kewaunee are required to pay approximately $19.2 million in current dollars over a period of 15 years. At December 31, 1995, the remaining liability was $14.4 million of which the Company's share is $2.6 million. The payments are subject to adjustment for inflation. In 1995, Yankee Atomic Electric Company (Yankee Atomic) received a United States Court of Federal Claims decision that Yankee Atomic was entitled to a refund of $3 million paid to the Uranium Enrichment Decontamination and Decommissioning Fund. The court ruled that by entering into contracts with utilities, the government agreed to charge certain prices for uranium enrichment services that could not be legislatively changed after performance and payment were completed. The Yankee Atomic decision addresses only a refund to Yankee Atomic. Based on the Yankee Atomic decision, the co-owners of Kewaunee are investigating options and actions available. Utility customers of the USEC have challenged the pricing of enrichment services by the USEC subsequent to the Energy Policy Act of 1992. The position of the utilities is that the charges by the USEC are higher than the terms of the contracts originally entered into with the DOE. The co-owners are investigating the situation to determine actions available. The Low-Level Radio- active Waste Policy Act of 1980 specifies that states may enter into compacts to provide for regional low-level waste disposal facilities. Wisconsin is a member of the Midwest Low-Level Radioactive Waste Compact. The state of Ohio has been selected as the host state for the Midwest Compact and is proceeding with the preliminary phases of site selection. In July 1995, the Barnwell, South Carolina, disposal facility again began to accept low-level radioactive waste materials from outside its region. Air quality Phase II of the Federal Clean Air Act amendments of 1990 sets stringent SO2 and nitrogen oxide emission limitations which may result in increased capital and operating and maintenance expenditures. Phase 2 emission compliance strategies could include the following: fuel switching, emission trading, purchased power agreements, new emission control devices, or installation of new fuel-burning technologies and clean-coal technologies. Phase 2 emission compliance strategies and their costs are currently being evaluated. The Company has prevailed in legal proceedings in the United States Court of Appeals for the 7th Circuit against the Environmental Protection Agency (EPA) to require the EPA to award the Company bonus credits for SO2 emissions under the Clean Air Act. The Court of Appeals ordered the EPA to review its disallowance of bonus credits. If the Company prevails, it will receive additional SO2 credits. There is a Wisconsin acid rain law which imposes limitations of SO2 emissions on the major utilities. Blount and the Company's share of Columbia are required to meet a combined SO2 emission rate of 1.20 pounds of SO2 per million Btu. No capital costs are required to meet this standard. The area surrounding Blount has been declared a nonattainment area for secondary ambient particulate standards by the DNR. The DNR's plan for particulate emissions in secondary nonattainment areas may someday require installation of fugitive dust-control facilities for coal- and ash-unloading operations at Blount. The federal Clean Air Act amendments of 1990 require certain studies be performed concerning hazardous air emissions from electric utilities. Regulation of power plants for these emissions may occur as a result of these studies. The DNR hazardous air emission regulations currently exempt fossil-fuel combustion. The Company believes all of its plants to be in full compliance with present air pollution control regulations. Water quality The Company is subject to water quality regulation by the DNR. These regulations include both categorical-effluent discharge standards and general water quality standards. The regulations limit discharges from the Company's plants into Lake Michigan and other Wisconsin waters. The categorical-effluent discharge standards require each discharger to use effluent treatment processes equivalent to categorical "best practicable" or "best available" technologies under compliance schedules established pursuant to the Federal Water Pollution Control Act. The DNR has published categorical regulations for chemical discharges from steam electric generating plants. The DNR's water toxics regulations could impose additional discharge limitations on a number of previously unregulated substances. The Company is in compliance with applicable standards. Solid waste From 1980 to 1984, the Company disposed of a fly-ash sludge at the Refuse Hideaway Landfill in Middleton, Wisconsin. In October 1992, the EPA placed the Refuse Hideaway Landfill on the national priorities Superfund list of sites requiring clean up under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA). The scope of liability under CERCLA is very broad. Although the Company is listed as a potentially responsible party on the DNR's roster of generators for the Refuse Hideaway Landfill and received a general notice of potential liability from the EPA in February 1993, in the opinion of management and legal counsel, the resolution of this matter will not result in any materially adverse effect on the operations or financial position of the Company. From 1855 through the 1950s, the Company and its predecessors operated a manufactured gas plant at the present site of Blount. The plant used coal and oil to produce a low-Btu gas used primarily for residential cooking and heating. Wastes from the gas manufacturing process included light oils and tars. These materials were either recycled into the gas manufacturing process or sold for other uses such as asphalt manufacturing. The residual tars and oils from the operation of the plant may have impacted the site near the gas holders. The Company has been monitoring the groundwater and soils in cooperation with the DNR for several years. In the opinion of management and legal counsel, the resolution of this matter will not result in any materially adverse effect on the operations or financial position of the Company. The City of Madison has identified the Company as one of many possible potential responsible parties for the remediation of the Demetral Landfill. Waste materials disposed of at the site by the Company consisted of fly ash and bottom ash from the combustion of coal to generate electricity. The Company and many others used the landfill in the early 1950s. The Company has the potential to incur liability costs associated with its use of this landfill. In the opinion of management and legal counsel, the resolution of this matter will not result in any materially adverse effect on the operations or financial position of the Company. Gas Operations On December 31, 1995, the Company supplied natural gas service to 102,589 customers in the cities of Elroy, Madison, Middleton, Monona, Fitchburg, Lodi, Verona, and Viroqua; 21 villages; and all or parts of 37 townships. Revenues received from residential and commercial customers accounted for 58 and 36 percent, respectively, of the total gas revenues for 1995. The gas operations accounted for 38 percent of the total revenues of the Company. Revenues from transportation service accounted for 2 percent of the total gas revenues for 1995. Sales and revenues from best-efforts rate schedules accounted for 7 and 4 percent of total retail sales and revenues, respectively. The Company has the ability to peak shave through use of a propane-air gas manufacturing plant for which it had on hand adequate fuel supplies for its peak-shaving requirements during the 1995 to 1996 heating season. In addition, the Company can curtail gas deliveries to its interruptible customers. Approximately 11 percent of gas sold in 1995 was sold to interruptible customers. Gas supply The Company has physical interconnections with both ANR Pipeline Company (ANR) and Northern Natural Gas Company (NNG). The Company's primary service territory, which includes Madison and the surrounding area, receives deliveries at four ANR gate stations and one NNG gate station. The Company also receives deliveries at NNG gate stations located in the communities of Viroqua, Elroy, and Crawford County. Interconnections with two major pipelines provide competition in interstate pipeline service and a more reliable and economical supply mix including gas from Canada and the United States Mid-Continent and Gulf/Offshore regions. A total of 5,576,600 dekatherms can be injected into ANR's storage fields from April 1 through October 31. These gas supplies are then available for withdrawal during the subsequent heating season of November 1 through March 31. ANR's storage fields are located in Michigan. Use of storage provides the Company with the ability to purchase gas supplies during the summer season when prices are normally lowest and withdraw these supplies during the winter season when gas prices are typically higher. Storage allows the Company greater ability to meet daily load fluctuations. During the winter months, when the demand of its customers is highest, the Company is primarily concerned with meeting its obligation to its firm customers. Long-term firm supply contracts, supplies in storage injected during the summer, and firm supplies purchased for the winter period are utilized to meet customer demand. These gas supplies are contracted for prior to the heating season so price levels can be locked in to assure reliability of supply and stability in pricing. The heating season beginning in November 1995 and continuing through March 1996 was much colder than normal. The colder-than- normal weather, along with an extended extreme cold weather period in late January and early February, resulted in significant industry-wide reductions of storage inventory levels, which were already historically low going into the heating season. The low storage levels and limited transportation capacity availability forced gas prices to rise to new levels. The Company's customers were not heavily impacted, however, because low-cost supplies injected into storage during the summer were withdrawn in the winter to meet customer demand. Regarding transportation of supply, the Company has firm transportation service on ANR for a maximum daily quantity of 33,618 dekatherms. The Company's NNG maximum daily quantity for firm transportation service is 48,719 dekatherms. The Company also holds 2,389 dekatherms of firm transportation service into Viroqua's NNG gate station, and firm transportation service of 1,500 dekatherms into Crawford County's NNG gate station. General The Company's business is seasonal to the same extent as other upper Midwest electric and natural gas utilities. The Company had 706 permanent employees at December 31, 1995. Information regarding Company executive officers is included under Item 10 of this report, page III-1, which information is incorporated herein by reference. Item 2. Properties. The following table presents the generating capability in service at December 31, 1995: Commercial Net No. of Plants Operation Fuel Capability Units Date (Megawatt) Steam Plants Columbia 1975 & 1978 Low-sulfur coal 231(1,2) 2 Kewaunee 1974 Nuclear 92(1,3) 1 Blount 1957 & 1961 Coal/gas (Madison) 103 2 1938 & 1942 Gas/coal 40 2 1949 Gas 23 1 1964-1968 Gas/oil 35 4 Combustion 1964-1973 Gas/oil Turbines 90 5 Total 614 1 Base load generation 2 Company's 22 percent share of two 525-mw units located near Portage, Wisconsin 3 Company's 17.8 percent share of 525-mw unit located near Kewaunee, Wisconsin Major electric transmission and distribution lines and substations in service at December 31, 1995, are as follows: Miles Lines Overhead Lines Underground Lines Transmission: 345 kV 124 - 138 kV 96 3 69 kV 66 18 Distribution: 13.8 kV and 1,021 715 under Substations Installed Capacity (kVA) Transmission (22) 4,132,350 Distribution (33) 361,700 Gas facilities include 1,829 miles of distribution mains and one propane air plant capable of producing a maximum daily capacity of 9,000 dekatherms of natural gas equivalent. Item 3. Legal Proceedings. The Company filed a suit January 3, 1996, in Dane County Circuit Court charging WPL with violations of Wisconsin laws and rules in attempting to provide electric service to the new Ho Chunk bingo parlor on the southeast side of Madison. The Company also filed a complaint against WPL at the PSCW for illegally duplicating electric facilities in the same area. The Company claims that WPL intentionally misrepresented the Company's cost for electric service to the Ho Chunk Nation, falsely advertised its services to induce the Ho Chunk Nation to enter into a contract with WPL, and improperly interfered with the Company's legal rights to serve that facility. The Company seeks treble damages for intentional illegal activities and misrepresentation and also seeks orders prohibiting WPL from serving the bingo parlor and other customers on the southeast side of Madison. The Company had already installed substantial electric facilities near the bingo parlor and has provided electric service to other customers in this area since 1963. The Ho Chunk Nation also requested and received electric service from the Company when construction started in June 1995. Item 4. Results of Votes of Security Holders. No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year. PART II. Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters. The principal market in which the common stock of the Company is traded is The Nasdaq Stock Market (Nasdaq) under the symbol MDSN. The approximate number of stockholders of record on February 1, 1996, was 15,895. The Company's transfer agent and registrar is Harris Trust and Savings Bank, Chicago, Illinois. The high and low sales prices for the common stock on The Nasdaq Stock Market and the dividends paid per common share for each quarter for the past two fiscal years are shown below: Common Stock Price Dividends Per Range Share 1995 1995 High Low First quarter $21 7/8 $20 5/8 $0.313 Second quarter $21 7/8 $20 1/2 $0.313 Third quarter $22 5/8 $20 3/8 $0.317 Fourth quarter $23 3/8 $21 7/8 $0.317 Common Stock Price Dividends Per Range Share 1994 1994 High Low First quarter $22 7/8 $20 5/8 $0.310 Second quarter $22 1/2 $21 1/8 $0.310 Third quarter $23 3/8 $21 1/8 $0.313 Fourth quarter $22 1/2 $21 1/8 $0.313 *Dividends and price per common share for the quarterly periods have been restated to reflect the Company's three-for-two stock split. Item 6. Selected Financial Data.
For the years ended December 31, (In thousands of 1995 1994 1993 1992 1991 dollars, except per-share amounts) Summary of Operations Operating Revenues: Electric $153,554 $149,665 $147,201 $142,646 $146,378 Gas 95,036 95,307 96,932 85,356 85,822 Total 248,590 244,972 244,133 228,002 232,200 Operating expenses 191,725 187,469 187,717 172,049 173,419 Other general taxes 8,709 8,619 8,222 8,107 7,872 Income tax items 14,285 14,822 13,964 12,784 14,535 Net operating income 33,871 34,062 34,230 35,062 36,374 Other Income (including allowance for funds used during construction) 1,635 2,146 2,118 2,210 1,242 Income before interest expense 35,506 36,208 36,348 37,272 37,616 Interest expense 11,536 11,197 11,673 13,465 12,736 Net income 23,970 25,011 24,675 23,807 24,880 Preferred dividends 64 471 489 506 524 Earnings on common stock $23,906 $24,540 $24,186 $23,301 $24,356 Average shares outstanding 16,080 16,080 16,055 16,046 16,046 Earnings per share $1.49 $1.53 $1.51 $1.45 $1.52 Dividends paid per share $1.260 $1.247 $1.227 $1.193 $1.167 Ratio of earnings to fixed charges 4.23 4.49 4.15 3.60 3.88 At December 31, Assets Electric $327,053 $323,870 $328,048 $325,510 $330,136 Gas 119,968 118,210 114,626 106,837 104,381 Assets not allocated 46,855 45,679 22,690 20,390 20,548 Total $493,876 $487,759 $465,364 $452,737 $455,065 Capitalization Common shareholders' equity $193,137 $189,489 $184,995 $180,367 $176,213 Redeemable preferred stock - 5,100 5,400 5,600 5,800 Long-term debt 129,048 130,800 120,396 122,363 124,859 Short-term debt 20,500 28,600 23,500 17,000 5,600 Total Capitalization $342,685 $353,989 $334,291 $325,330 $312,472 Average shares outstanding and per-share amounts have been restated to reflect a three-for-two stock split effective February 20, 1996. For the purpose of computing the ratio of earnings to fixed charges, earnings have been calculated by adding to income before interest expense, current and deferred federal and state income taxes, investment tax credits deferred and restored charged (credited) to operations, and the estimated interest component of rentals. Fixed charges represent interest expense, amortization of debt discount, premium and expense, and the estimated interest component of rentals. /TABLE Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. Results of Operations Earnings overview Earnings per share of Madison Gas and Electric Company's (the Company) common stock decreased to $1.49 in 1995, a decrease of 2.6 percent compared to the $1.53 earned in 1994. Factors that led to slightly lower earnings were industry restructuring costs and costs associated with various regulatory filings in relation to the proposed utility mergers within the state of Wisconsin. Also, the Public Service Commission of Wisconsin (PSCW) authorized a slightly lower return on common stock equity effective January 1, 1995. Electric Sales and Revenues Electric retail sales for 1995 increased approximately 7 percent from 1994. Electric retail sales were impacted by the significantly warmer summer which resulted in an increased use of electricity. The electric sales breakdown by customer class is shown in the table below: Electric Sales Megawatt Hours 1995 1994 % Change Residential 735,442 679,211 8.3 Commercial 1,347,947 1,448,474 (6.9) Industrial 292,649 221,384 32.2 Other 320,869 169,755 89.0 Total Retail 2,696,907 2,518,824 7.1 Resale - Utilities 26,344 34,990 (24.7) Total Sales 2,723,251 2,553,814 6.6 As a result of the increase in electric sales, electric revenues increased $3.9 million or 2.6 percent in 1995 compared to 1994. The increase in electric revenues reflects a 3.3 percent reduction to electric rates effective January 1, 1995. The Company's electric margin (revenues less fuel and purchased power) increased $4 million or 3.5 percent during 1995 compared with 1994. The primary factors for the increased margin are the hot and humid weather conditions in July and August which contributed to higher sales, along with positive economic conditions that contributed to increased customer growth. Electric retail sales for 1994 increased 4.0 percent from 1993. The increase in electric sales for 1994 over 1993 was attributable to a 1.4 percent increase in the electric customer base. Also, the addition of a large, baseload industrial customer resulted in increased sales. Electric revenues increased 1.7 percent in 1994 compared to 1993. Electric rates were reduced in June 1993 by 2.9 percent on an annual basis. Gas Sales and Revenues Total gas therms delivered by the Company increased 6.3 percent in 1995 compared to 1994, largely reflecting the colder weather experienced during the fourth quarter of 1995. Gas therms delivered during the fourth quarter of 1995 increased approximately 25 percent over the same 1994 period. The table below shows total gas deliveries by customer class: Therms Delivered Thousands 1995 1994 % Change Residential 89,099 84,326 5.7 Commercial and Industrial 94,729 100,441 (5.7) Total Retail System 183,828 184,767 (0.5) Transport 36,502 22,463 62.5 Total Gas Deliveries 220,330 207,230 6.3 Despite the increase in gas delivered in 1995, gas revenues remained constant when compared to 1994. Gas margin (revenues less natural gas purchased) increased by $1.9 million or over 5 percent in 1995 compared to 1994. A shift in a number of customers from retail system rates to transportation rates (see table) is the main reason gas revenues did not increase in proportion to gas deliveries. Gas transport customers' revenue is recorded on a margin basis (revenue less cost of gas), whereas retail system customers' revenue is recorded on a total revenue basis. Gas delivered to customers in 1994 increased 6.3 percent from 1993. The extremely cold first quarter of 1994 along with the increase in customer base, due in part to the Company's expansion of its gas service territory in western Wisconsin, were the main factors that attributed to the increased gas deliveries. Gas revenues decreased $1.6 million or approximately 2 percent in 1994 compared to 1993. This was the result of lower unit gas costs. Lower gas costs are passed on to customers in the form of lower rates through the purchased gas adjustment clause (PGAC), thus lowering natural gas revenues on a one-for-one basis. Electric Fuel and Natural Gas Costs Electric fuel costs and purchased power costs remained constant in 1995 compared to 1994, despite the hot and humid weather experienced in July and August. During July 1995, the Company set a record for peak demand at 598 megawatts for one hour. The Company relied more on its generating plants and purchased less energy in 1995 versus 1994, due to lower unit fuel costs of Company owned generation. Natural gas costs decreased $2.2 million or approximately 4 percent during 1995 compared to 1994. This was due to a shift in customers from retail system rates to transport rates and a decrease in the cost per therm of approximately 3 percent from the previous year. Other Operating Expenses Other operations increased $4.7 million or 8 percent during 1995 compared to 1994. This is due to an increase in industry restructuring costs and costs associated with participation in proposed utility merger filings. Another contributing factor was increased costs associated with postretirement benefits other than pensions. Depreciation expenses increased $2.4 million or 11 percent in 1995 when compared to 1994. This is primarily due to an increase in nuclear decommissioning costs recorded as depreciation expense that has been included in rates. Other interest increased in 1995 when compared to 1994 and 1993 due to a higher level of commercial paper outstanding during 1995 because of the redemption of the Series E, Preferred Stock, in February 1995. Income taxes charged to operations decreased 3.6 percent in 1995 from 1994, reflecting the reduction in net operating income before income taxes for 1995 relative to 1994. Electric and Gas Operations Outlook The Company anticipates electric sales to grow at a compound annual rate of approximately 1.5 percent to 2.0 percent over the next five-year period ending December 31, 2000. The service territory appears well insulated against industry or economic downturns. The Company's competitive position in a deregulated market remains favorable because of its low generation costs, competitive rates, and low percentage of industrial customers. Natural gas deliveries are estimated to grow at a compound annual rate of 2.0 percent. The Company will continue efforts to expand its unregulated gas marketing activities and its gas service territory. The Company's unregulated gas marketing subsidiaries provide gas supply and marketing services to customers traditionally served by regulated utilities. These companies can be impacted by volatility in natural gas supply prices because they do not have a recovery mechanism, such as a PGAC. In January and February 1996, extremely cold weather caused natural gas supply prices to rise rapidly. While results were negatively impacted during this period, it is not expected to have a material effect on the Company. Liquidity and Capital Resources Capital Requirements and Investing Activities The Company's liquidity is primarily affected by the requirement of its ongoing construction program. In 1995, capital expenditures decreased approximately $7.3 million or 27 percent, as compared to 1994, due in part to management's efforts to control capital spending. Also, significant capital expenditures were required by the Company when it expanded its gas service territory into two new areas in 1994. It is anticipated that capital expenditures will be in the range of $24 million to $25 million for the years 1996 through 2000. For the five-year period ending December 31, 2000, the Company estimates that internally generated cash will provide, on average, more than 100 percent of the utility plant and nuclear fuel expenditures. Expenditures for construction and nuclear fuel estimated for 1996, actual for 1995, and the average for the three-year period 1992 to 1994 are shown below: Expenditures for Construction and Nuclear Fuel (Thousands of Dollars) For the years Annual ended 1996 1995 Average December 31: Estimated 1992 to 1994 Electric Production $ 1,498 6.2% $ 2,485 13.0% $ 2,522 11.3% Transmission 1,456 5.9 357 1.9 1,261 5.7 Distribution and General 8,382 34.2 9,157 47.8 8,146 36.8 Nuclear Fuel 5,099 20.8 526 2.7 2,803 12.7 Total Electric 16,435 67.1 12,525 65.4 14,732 66.5 Gas 4,800 19.6 4,220 22.0 5,663 25.6 Common 3,265 13.3 2,417 12.6 1,751 7.9 TOTAL $24,500 100.0% $19,162 100.0% $22,146 100.0% On January 3, 1995, the Company purchased American Energy Management, Inc. (AEM). AEM is a national energy marketing firm that provides gas marketing, energy management, energy auditing, and conservation services to customers in 12 states. Cash Provided by Operating and Financing Activities Cash provided by operating activities increased $9.9 million or 24 percent, due in large part to an increase in current liabilities for natural gas purchases associated with higher gas sales for the Company and its subsidiaries. In February 1995, the Company redeemed all of its outstanding 8.70%, Series E, Preferred Stock. The Company redeemed its 7-3/4%, 2001 Series, First Mortgage Bonds on November 22, 1995, and replaced them with a long-term debt obligation at a fixed rate of 6.01%. On November 1, 1995, the Company used the balance from its Pollution Control Bond Fund to redeem a portion of its 6-1/2%, 2006 Series, Pollution Control Revenue Bonds. As of December 15, 1995, the Company has completed the drawdown of its Industrial Development Revenue Bond - Construction Fund. Capitalization Matters At December 31, 1995, bank lines of credit available to the Company were $40 million which includes $5 million for Great Lakes Energy Corp. (GLENCO), a wholly owned subsidiary of the Company, and AEM, a subsidiary of GLENCO. The bank lines are generally used to support commercial paper issued which represents a primary source of short-term financing. The Company's dealer-issued commercial paper carries the highest ratings assigned by Moody's Investors Service and Standard & Poor's Corporation. The Company's existing bonds are rated AA by Standard & Poor's and Aa2 by Moody's Investors Service. In 1995, the Company revised its Automatic Dividend Reinvestment and Stock Purchase Plan to the Investors Plus Plan (the Plan). The Plan now allows interested investors to make purchases of the Company's stock directly through the Plan. The Plan has a minimum initial investment and increased its maximum quarterly contributions. The Company anticipates it will be able to meet its construction requirements and sinking fund debt requirements with internally generated funds over the next three years. Kewaunee Nuclear Plant The Kewaunee Nuclear Power Plant (Kewaunee) is operated by Wisconsin Public Service Corporation (WPSC). The Company has a 17.8 percent ownership interest in Kewaunee which it owns jointly with two other utilities. Kewaunee is operating with a license that expires in 2013. Operating and maintenance costs at Kewaunee have been reduced more than 25 percent over the last three years. Continued reduction of costs, while not sacrificing safety and reliability, is planned to keep Kewaunee costs competitive in the near future. The Nuclear Regulatory Commission (NRC) recently rated Kewaunee superior (Category 1) in all areas: maintenance, operations, engineering, and plant support. The steam generator tubes at Kewaunee are susceptible to corrosion characteristics seen throughout the nuclear industry. The owners of Kewaunee are continuing to evaluate various economic alternatives to deal with the potential future loss of capacity resulting from the continuing degradation of the steam generator tubes. These alternatives range from repairing/replacing the existing steam generators to early plant closure with replacement power options. Replacement of steam generators is estimated to cost $100 million (the Company's share would be 17.8%), excluding additional purchased power costs associated with an extended shutdown. The Company is evaluating the need to accelerate the collection of funds through rates for decommissioning and the recovery of the existing net plant. Regulatory and Accounting Issues The Public Service Commission of Wisconsin (PSCW) voted in December 1995 to carefully pursue the restructuring of the electric utility industry in Wisconsin. This approach is largely consistent with a plan developed and supported by the Company. The process will include a report by the Commissioners to the legislature, a draft work plan, and a series of dockets and proceedings over the next three to seven years to implement the work plan. The restructuring could affect the eligibility of the Company to continue applying Statement of Financial Accounting Standard No. 71 (SFAS 71), "Accounting for the Effects of Certain Types of Regulation." Continued accounting under SFAS 71 would require that the Company's regulated operations meet the following criteria: rates for regulated services/products are subject to approval by an independent third-party regulator; the regulated rates are designed to recover the Company's costs of providing regulated services/products; and the regulated rates set can be charged to and recovered from its customers. Although the Company believes it will continue to meet the SFAS 71 criteria in the future, it cannot predict what outcome future PSCW actions will have on its ability to continue to do so. The PSCW has stated they will develop, if necessary, a program allowing appropriate recovery for commitments made under prior regulatory structures. The Company believes local distribution services will continue to be regulated by the PSCW. The Statement of Financial Accounting Standard No. 121 (SFAS 121), "Accounting for the Impairment of Long Lived Assets and for Long Lived Assets to be Disposed Of," is effective for fiscal years beginning on or after December 15, 1995. SFAS 121 requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. SFAS 121 also amends SFAS 71 to require the write- off of a regulatory asset if it is no longer probable that future revenues will recover the asset. The adoption of SFAS 121 will not have a material impact on the Company's financial position or results of operations. However, the Company cannot predict what effect a competitive marketplace or future regulatory actions will have on the outcome of the application of SFAS 121. Inflation The current financial statements report operating results in terms of historical cost. Even though the statements provide a reasonable, objective, quantifiable statement of financial results, they do not evaluate the impact of inflation. For ratemaking purposes, projected normal operating costs include impacts of inflation which are recoverable in revenues. However, electric and gas utilities, in general, are adversely impacted by inflation because depreciation of the utility plant is limited to the recovery of historical costs. Thus, cash flows from the recovery of existing utility plant may, to a certain extent, not be adequate to provide replacement of plant investment. Environmental Issues Phase II of the Federal Clean Air Act amendments of 1990 sets stringent SO2 and nitrogen oxide emission limitations which may result in increased capital and operating and maintenance expenditures. Phase II emission compliance strategies for the Company could include the following: fuel switching, emission trading, purchased power agreements, new emission control devices, or installation of new fuel-burning technologies and clean coal technologies. Phase II emission compliance strategies and their costs are currently being evaluated. The Company expects no major capital expenditures as a result of Phase II. Item 8. Financial Statements and Supplementary Data. Index of Consolidated Financial Statements, Footnotes, and Supplementary Data - - Responsibility for Financial Statements F-1 - - Report of Independent Accountants F-2 - - Consolidated Statements of Income and Retained Income F-3 - - Consolidated Statements of Cash Flows F-4 - - Consolidated Balance Sheets F-5 - - Consolidated Statements of Capitalization F-6 - - Notes to Consolidated Financial Statements F-7 - F-18 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. None. The management of Madison Gas and Electric Company is responsible for the preparation and presentation of the financial information in this Annual Report. The following financial statements have been prepared in accordance with generally accepted accounting principles consistently applied and reflect management's best estimates and informed judgments as required. To fulfill these responsibilities, management has developed and maintains a comprehensive system of internal operating, accounting, and financial controls. These controls provide reasonable assurance that the Company's assets are safeguarded, transactions are properly recorded, and the resulting financial statements are reliable. An internal audit function assists management in monitoring the effectiveness of the controls. The Report of Independent Accountants on the financial statements by Coopers & Lybrand L.L.P. appears on page F-2. The responsibility of the independent accountants is limited to the audit of the financial statements presented and the expression of an opinion as to their fairness. The Board of Directors maintains oversight of the Company's financial situation through its monthly review of operations and financial condition and its selection of the independent accountants. The Audit Committee, comprised of all Board members who are not employees or officers of the Company, also meets periodically with the independent accountants and the Company's internal audit staff who have complete access to and meet with the Audit Committee, without management representatives present, to review accounting, auditing, and financial matters. Pertinent items discussed at the meetings are reviewed with the full Board of Directors. /s/ David C. Mebane David C. Mebane Chairman, President and Chief Executive Officer /s/ Joseph T. Krzos Joseph T. Krzos Vice President - Finance To the Shareholders and Board of Directors, Madison Gas and Electric Company: We have audited the accompanying consolidated balance sheets and statements of capitalization of MADISON GAS AND ELECTRIC COMPANY and subsidiaries as of December 31, 1995 and 1994, and the related consolidated statements of income and retained income and cash flows for the years ended December 31, 1995, 1994, and 1993. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Madison Gas and Electric Company and subsidiaries as of December 31, 1995 and 1994, and the consolidated results of their operations and their cash flows for the years ended December 31, 1995, 1994, and 1993, in conformity with generally accepted accounting principles. Milwaukee, Wisconsin February 9, 1996 CONSOLIDATED STATEMENTS OF INCOME AND RETAINED INCOME
For the years ended December 31 1995 1994 1993 (Thousands of dollars, except per-share amounts) STATEMENTS OF INCOME Operating Revenues Electric $153,554 $149,665 $147,201 Gas 95,036 95,307 96,932 Total Operating Revenues 248,590 244,972 244,133 Operating Expenses Fuel used for electric generation 28,017 26,167 23,125 Purchased power 8,048 10,015 11,190 Natural gas purchased 57,488 59,693 62,479 Other operations 61,499 56,795 56,103 Maintenance 11,858 12,416 13,029 Depreciation and amortization 24,815 22,383 21,791 Other general taxes 8,709 8,619 8,222 Income taxes 14,285 14,822 13,964 Total Operating Expenses 214,719 210,910 209,903 Net Operating Income 33,871 34,062 34,230 Allowance for funds used during construction - equity funds 57 132 81 Other income, net 1,549 1,939 1,988 Income Before Interest Expense 35,477 36,133 36,299 Interest Expense Interest on long-term debt 10,331 10,558 11,195 Other interest 1,205 639 478 Allowance for funds used during construction - borrowed funds (29) (75) (49) Net Interest Expense 11,507 11,122 11,624 Net Income 23,970 25,011 24,675 Preferred stock dividend requirement 64 471 489 Earnings on Common Stock $ 23,906 $ 24,540 $ 24,186 Earnings Per Share of Common Stock (Average shares outstanding 16,079,718, 16,079,718, and 16,055,337, respectively) (Note 2a) $1.49 $1.53 $1.51 STATEMENTS OF RETAINED INCOME Balance Beginning of Year $60,851 $56,357 $51,872 Add - Net income 23,970 25,011 24,675 Deduct - Cash dividends on common stock (20,258) (20,046) (19,701) - Preferred stock dividend (64) (471) (489) Balance End of Year $64,499 $60,851 $56,357 The accompanying notes are an integral part of the above statements. /TABLE CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31 1995 1994 1993 (Thousands of dollars) Operating Activities Net income $23,970 $25,011 $24,675 Income items not affecting working capital Depreciation and amortization 24,815 22,383 21,791 Deferred income taxes (2,442) 2,428 3,255 Amortization of nuclear fuel 2,740 2,803 2,486 Amortization of investment tax credits (768) (783) (803) Allowance for funds used during construction - equity funds (57) (132) (81) Other 1,729 994 (462) Net Funds Provided from Operations 49,987 52,704 50,861 Changes in working capital, excluding cash equivalents, sinking funds, maturities, and interim loans - Increase in current assets (12,168) (10,789) (4,647) Increase/(decrease) in current liabilities 11,287 (2,127) (2,941) Other noncurrent items, net 1,716 1,171 (1,878) Cash Provided by Operating Activities 50,822 40,959 41,395 Financing Activities Common stock issued - - 143 Cash dividends on common and preferred stock (20,322) (20,517) (20,190) Sale of First Mortgage Bonds - - 25,000 Maturities/redemptions of First Mortgage Bonds (5,423) - (33,788) Maturity of 5.45%, 1996 Series (7,840) - - Increase in other long-term debt 11,000 - - Other decreases in First Mortgage Bonds (199) (58) (122) Decrease in preferred stock (5,300) (200) (200) Decrease in bond construction funds, net 8,090 10,892 6,943 (Decrease)/increase in interim loans (8,100) 5,100 6,500 Cash Used for Financing Activities (28,094) (4,783) (15,714) Investing Activities Acquisition in nonregulated subsidiary (8,036) - - Additions to utility plant and nuclear fuel (19,162) (26,429) (23,648) Allowance for funds used during construction - borrowed funds (29) (75) (49) Increase in decommissioning fund (4,191) (2,316) (2,399) Cash Used for Investing Activities (31,418) (28,820) (26,096) Change in Cash and Cash Equivalents (8,690) 7,356 (415) Beginning of period 11,534 4,178 4,593 Cash and cash equivalents - end of period $ 2,844 $11,534 $4,178 The accompanying notes are an integral part of the above statements. /TABLE CONSOLIDATED BALANCE SHEETS
At December 31 1995 1994 (Thousands of dollars) ASSETS Utility Plant, at original cost In service Electric $489,399 $479,346 Gas 173,890 167,710 Gross Plant in Service 663,289 647,056 Less Accumulated provision for depreciation (348,254) (323,511) Net Plant in Service 315,035 323,545 Construction work in progress 9,061 11,920 Nuclear decommissioning fund 36,965 27,815 Nuclear fuel, net 6,172 8,386 Total Utility Plant 367,233 371,666 Other Property and Investments 17,176 9,843 Current Assets Cash and cash equivalents 2,844 11,534 Accounts receivable, less reserves of $1,379 and $921, respectively 36,817 25,998 Unbilled revenue 13,529 10,411 Materials and supplies, at average cost 5,987 6,424 Fossil fuel, at average cost 2,986 2,130 Stored natural gas, at average cost 6,203 8,551 Prepaid taxes 5,846 5,838 Other prepayments 1,608 1,456 Total Current Assets 75,820 72,342 Deferred Charges (Note 7) 33,647 33,908 Total Assets $493,876 $487,759 CAPITALIZATION AND LIABILITIES Capitalization (see statement) $322,185 $325,389 Current Liabilities Long-term debt sinking fund requirements 200 430 Preferred stock sinking fund requirements - 200 Maturity of 5.45%, 1996 Series 7,840 - Interim loans - commercial paper outstanding 20,500 28,600 Accounts payable 25,928 18,360 Accrued taxes 1,500 1,143 Accrued interest 2,359 2,803 Other 7,903 4,327 Total Current Liabilities 66,230 55,863 Other Credits Accumulated deferred income taxes 54,153 56,595 Regulatory liability (Note 1f) 25,177 25,204 Investment tax credit deferred 12,231 12,998 Other (Note 7) 13,900 11,710 Total Other Credits 105,461 106,507 Commitments - - Total Capitalization and Liabilities $493,876 $487,759 The accompanying notes are an integral part of the above balance sheets. /TABLE CONSOLIDATED STATEMENTS OF CAPITALIZATION
At December 31 1995 1994 (Thousands of Dollars) Common Shareholders' Equity (Note 2a) Common stock Par value $8 per share Authorized: 28,000,000 shares Outstanding: 16,079,718 shares $128,638 $128,638 Retained income 64,499 60,851 Total Common Shareholders' Equity 193,137 189,489 Redeemable Preferred Stock, cumulative, $25 par value, authorized 1,175,000 and 1,191,000 shares, respectively Series E, 8.70%, 0 and 212,000 shares outstanding, respectively, less current sinking fund requirements of $0 and $200, respectively - 5,100 First Mortgage Bonds 5.45%, 1996 Series 7,840 7,920 7 3/4%, 2001 Series - 11,478 6 1/2%, 2006 Series, Pollution Control Revenue Bonds, principal amounts of $7,075 and $8,780, respectively, less construction fund of $0 and $1,618, respectively 7,075 7,162 8.50%, 2022 Series 40,000 40,000 6.75%, 2027A Series, Industrial Development Revenue Bonds, principal amount $28,000, less construction fund of $0 and $6,472, respectively 28,000 21,528 6.70%, 2027B Series, Industrial Development Revenue Bonds 19,300 19,300 7.70%, 2028 Series 25,000 25,000 First Mortgage Bonds Outstanding 127,215 132,388 Unamortized discount and premium on bonds, net (1,127) (1,158) Long-term debt sinking fund requirement (200) (430) Maturity of 5.45%, 1996 Series (7,840) - Total First Mortgage Bonds 118,048 130,800 Other Long-Term Debt 6.01%, interest rate SWAP agreement 11,000 - Total Capitalization $322,185 $325,389 The accompanying notes are an integral part of the above statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1995, 1994, and 1993 1. Summary of Significant Accounting Policies a. General Madison Gas and Electric Company (the Company) is an investor- owned public utility headquartered in Madison, Wisconsin. The Company generates, transmits, and distributes electricity to about 120,000 customers in a 250-square-mile area of Dane County. The Company also transports and distributes natural gas to nearly 103,000 customers in 1,325 square miles of service territories in seven counties. The Company has served the Madison area since 1896. Two of the Company's subsidiaries, American Energy Management, Inc. (AEM) and Great Lakes Energy Corp. (GLENCO), market nonregulated energy services to national, regional, and local accounts in 12 states. Services include purchase and transportation of natural gas and other fuels for commercial, industrial, and governmental customers. The consolidated financial statements reflect the application of certain accounting policies described in this note. The financial statements include the accounts of the Company and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. The Company records unbilled revenue on the basis of service rendered. Gas revenues are subject to an adjustment clause related to periodic changes in the cost of gas. Preparation of the consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. b. Utility plant Utility plant is stated at the original cost of construction, which includes indirect costs consisting of payroll taxes, pensions, postretirement benefits, other fringe benefits, administrative and general costs, and an allowance for funds used during construction (AFUDC). AFUDC represents the approximate cost of debt and equity capital devoted to plant under construction. The Company presently capitalizes AFUDC at a rate of 10.62 percent on 50 percent of construction work in progress. The AFUDC rate approximates the Company's cost of capital. The portion of the allowance applicable to borrowed funds is presented in the Consolidated Statements of Income as a reduction of interest expense, while the portion of the allowance applicable to equity funds is presented as other income. Although the allowance does not represent current cash income, it is recovered under the ratemaking process over the service lives of the related properties. Substantially all of the Company's utility plant is subject to a first mortgage lien. c. Nuclear fuel The cost of nuclear fuel used for electric generation is being amortized to fuel expense and recovered in rates based on the quantity of heat produced for the generation of electric energy by the Kewaunee Nuclear Plant (Kewaunee). Such cost includes a provision for estimated future disposal costs of spent nuclear fuel. The Company currently pays disposal fees to the Department of Energy based on net nuclear generation. The Company has recovered through rates and satisfied its known fuel disposal liability for past nuclear generation. The National Energy Policy Act enacted in 1992 contains a provision for all utilities that have used federal enrichment facilities to pay a special assessment for decontamination and decommissioning for these facilities. This special assessment will be based on past enrichment, and the Company has accrued and deferred an estimate of $2.6 million for the Company's portion of the special assessment. The Company believes all costs will be recovered in future rates. d. Joint plant ownership The Company and two other Wisconsin investor-owned utilities jointly own two electric generating facilities, which account for 54 percent (325 mw) of the Company's net generating capability. Power from the facilities is shared in proportion to the companies' ownership interests. The Company's interests are 22 percent (232 mw) of the coal-fired Columbia Energy Center (Columbia) and 17.8 percent (93 mw) of Kewaunee. Each owner provides its own financing and reflects its respective portion of facilities and operating costs in its financial statements. The Company's portions of these facilities, included in its gross utility plant in service, and the related accumulated depreciation reserves at December 31, were as follows: Columbia Kewaunee (Thousands of 1995 1994 1995 1994 dollars) Utility plant $85,075 $85,092 $57,853 $57,534 Accumulated depreciation (44,366) (44,238) (34,263) (32,793) Net Plant $40,709 $40,854 $23,590 $24,741 e. Depreciation Provisions at composite straight-line depreciation rates, excluding decommissioning costs discussed as follows, approximate the following percentages of the cost of depreciable property: electric, 3.3 percent in 1995 and 1994 and 3.5 percent in 1993; gas, 3.5 percent in 1995 through 1993. Depreciation rates are approved by the Public Service Commission of Wisconsin (PSCW) and are generally based on the estimated economic lives of property. Nuclear decommissioning costs are accrued over the estimated service life of Kewaunee, which is through the year 2013. These costs are currently recovered from customers in rates and are deposited in external trusts. For 1995, the decommissioning costs recovered in rates were $3.1 million. Decommissioning costs are recovered through depreciation expense, excluding earnings on the trusts. Net earnings on the trusts are included in other income. The long-term, after-tax earnings assumption on these trusts is 6.2 percent. As of December 31, 1995, the decommissioning trusts, totaling $37 million (fair market value), are shown on the balance sheet in the utility plant section, and offset by an equal amount under accumulated provision for depreciation (Note i). The Company's share of Kewaunee decommissioning costs is estimated to be $66.9 million in current dollars based on a site- specific study performed in 1992 using immediate dismantlement as the method of decommissioning. Decommissioning costs are assumed to inflate at an average rate of 6.1 percent. Physical decommissioning is expected to occur during the period 2014 through 2021, with additional expenditures being incurred during the period 2022 through 2050 related to the storage of spent nuclear fuel at the plant site. f. Income taxes The Company adopted Statement of Financial Accounting Standard No. 109 (SFAS 109), "Accounting for Income Taxes," effective January 1, 1993. This statement replaced the deferred method of income tax accounting with the liability method. The liability method requires the recognition of deferred tax assets and liabilities for the expected tax consequences of temporary differences between the tax basis of assets and liabilities and their reported amounts. The statement was adopted prospectively and the cumulative effect of implementation on 1993 net income was insignificant. Excess accumulated deferred income taxes, resulting chiefly from taxes provided at rates higher than current rates, have been recorded as a net regulatory liability ($25,177,000 and $25,204,000 at December 31, 1995 and 1994, respectively), refundable through future rates. Investment tax credits from regulated operations are amortized over the service lives of the property to which they relate. Total income taxes in the Consolidated Statements of Income are as follows: (Thousands of dollars) 1995 1994 1993 Income taxes charged to operations $14,285 $14,822 $13,964 Income taxes charged to other income 786 612 491 Total income taxes $15,071 $15,434 $14,455 Total income taxes consist of the following provision (benefit) components for the years ended December 31: (Thousands of dollars) 1995 1994 1993 Currently payable Federal $14,602 $10,985 $ 9,485 State 3,679 2,804 2,518 Net deferred Federal (2,217) 1,756 2,432 State (225) 672 823 Amortized investment tax credits (768) (783) (803) Total income taxes $15,071 $15,434 $14,455 The differences between the federal statutory income tax rate and the Company's effective rate are as follows: 1995 1994 1993 Statutory federal income tax rate 35.0% 35.0% 35.0% Restoration of investment tax credit (2.0) (1.9) (2.1) State income taxes, net of federal benefit 5.8 5.6 6.3 Amortization of excess deferred taxes (1.6) (1.1) (1.3) Other, individually insignificant 1.4 0.6 (1.0) Effective income tax rate 38.6% 38.2% 36.9% The significant components of deferred tax liabilities (assets) that appear on the Consolidated Balance Sheets as of December 31, 1995 and 1994, are as follows: (Thousands of dollars) 1995 1994 Property-related $59,069 $60,295 Energy conservation expenses 5,601 6,168 Automated mapping and facilities management system 482 860 Bond transactions 2,145 2,131 Nuclear fuel 698 412 Other, individually insignificant 307 411 Gross deferred income tax liabilities 68,302 70,277 Allowance for bad debts (553) (370) Deferred compensation (1,201) (1,061) Vacation pay (849) (772) Stored natural gas (473) (977) Accrued expenses, not deductible (968) (386) Deferred tax regulatory account (10,105) (10,116) Gross deferred income tax assets (14,149) (13,682) Accumulated deferred income taxes $54,153 $56,595 Valuation allowances for deferred tax assets as of December 31, 1995 and 1994, were deemed unnecessary. g. Pension plans The Company maintains two defined benefit plans for its employees. The pension benefit formula used in the determination of pension costs is based on the average compensation earned during the last five years of employment for the salaried plan and career earnings for the nonsalaried plan subject to a monthly maximum. Effective January 1, 1995, the Company began recovering pension costs in customer rates under Statement of Financial Accounting Standards No. 87, "Employers' Accounting for Pensions" (SFAS 87). Prior to this date, pension costs were recovered in rates as funded. Of these funded pension costs, $810,000 and $861,000 were charged to operating expenses in 1994 and 1993, respectively. The plans' assets are in a master trust with a bank. The funded status of the plans at December 31 is as follows: (Thousands of dollars) 1995 1994 Fair value of plan assets $50,152 $41,230 Actuarial present value of benefits rendered to date - 45,574 36,895 Accumulated benefits based on compensation to date, including vested benefits of $44,554 and $36,066, respectively Additional benefits based on estimated future salary levels 9,943 7,010 Projected benefit obligation $55,517 $43,905 Plan assets less than projected benefit obligation (5,365) (2,675) Unrecognized net asset at date of initial application (1) (40) Unrecognized net (gain)/loss 1,587 (156) Unrecognized prior service cost 1,130 1,256 Net liability $(2,649) $(1,615) Components of net pension costs for the years ended December 31 are: (Thousands of dollars) 1995 1994 1993 Service costs (benefits earned during the period) $1,416 $1,462 $1,596 Interest costs on projected benefit obligation 3,724 3,462 3,196 Actual loss/(return) on plan assets (10,033) 412 (3,663) Net amortization and deferral 6,466 (4,056) 347 Regulatory effect based on funding 0 (186) (401) Net pension costs $1,573 $1,094 $1,075 The assumed rates for calculations used in the above tables were: 1995 1994 1993 Expected long-term rate of return on plan assets 9.50% 9.00% 9.00% Average rate of increase in salaries 5.00% 5.00% 5.00% Weighted average discount rate 7.25% 8.25% 7.50% In addition to the noted plans, the Company also maintains two defined contribution 401(k) benefit plans for its employees. The Company's costs of the 401(k) plan for the years 1995 through 1993 were $199,000, $199,000, and $186,000, respectively. h. Postretirement benefits other than pensions The Company adopted Statement of Financial Accounting Standards No. 106 (SFAS 106), "Employers' Accounting for Postretirement Benefits Other Than Pensions," effective January 1, 1993. This statement requires that postretirement benefits be accrued over the period in which employees provide services to the Company. The Company provides health care and life insurance benefits for its retired employees and substantially all of the Company's employees may become eligible for these benefits upon retirement. The Company has elected to recognize the cost of its transition obligation (the accumulated postretirement benefit obligation as of January 1, 1993) by amortizing it on a straight-line basis over 20 years. The Company's SFAS 106 obligation and costs are based on a discount rate of 7.25 percent in 1995, 8.25 percent in 1994, and 7.50 percent in 1993. The assumed rate of increase in health care costs (health care cost trend rate) is 12 percent in 1995 and 13 percent in 1994 and 1993, decreasing gradually to 5 percent in 2003 and remaining constant thereafter. Increasing the health care cost trend rates of future years by one percentage point would increase the accumulated postretirement benefit obligation by $1.9 million and would increase annual aggregate service and interest costs by $283,000. The PSCW ruled that Wisconsin utilities are required to implement SFAS 106 for ratemaking purposes. The Company is phasing in, over a four-year period, the effect of implementing SFAS 106, which resulted in a regulatory asset of $402,000 at December 31, 1995, and $497,000 at December 31, 1994. The Company's policy is to fund the SFAS 106 obligation to the yearly maximum through tax-advantaged vehicles. The plan's assets are in trust or on reserve with an insurance company. The funded status of the plan at December 31 is as follows: (Thousands of dollars) 1995 1994 Accumulated postretirement benefit obligation (APBO): Retirees $(4,054) $(4,064) Fully eligible active plan participants (1,701) (1,399) Other active plan participants (7,986) (6,562) Total (13,741) (12,025) Plan assets at fair value 2,666 1,465 APBO in excess of plan assets (11,075) (10,560) Unrecognized transition obligation 7,379 7,813 Unrecognized prior service costs 2,166 - Unrecognized loss/(gain) (1,129) 666 Accrued postretirement benefit liability $(2,659) $(2,081) Components of net periodic benefit costs for the years ended December 31 are as follows: (Thousands of dollars) 1995 1994 1993 Service cost $ 429 $ 402 $ 413 Interest cost on APBO 989 772 747 Actual return on plan assets (177) (91) (131) Amortization of transition obligation over 20 years 434 434 434 Net amortization and deferral 172 (7) 56 Regulatory effect based on phase in 95 (115) (382) Net periodic benefit cost $1,942 $1,395 $1,137 i. Fair value of financial instruments At December 15, 1995, the carrying amount of cash and cash equivalents approximates fair value. The estimated fair market value of the Nuclear Decommissioning Fund is $37 million, and the estimated fair market value of the Company's First Mortgage Bonds, and other long-term debt, based on quoted market prices at December 31, is as follows: (Thousands of dollars) 1995 1994 Carrying amount (includes sinking funds) $138,215 $132,388 Fair market value $149,469 $124,677 2. Capitalization Matters a. Common stock - stock split On December 15, 1995, the Board of Directors authorized a three- for-two stock split effected in the form of a stock dividend. The stock dividend was distributed on February 20, 1996, to shareholders of record as of February 1, 1996. All current and prior year per share amounts have been adjusted to reflect this split. To account for the three-for-two split, the number of common shares outstanding was increased by 5,359,906 shares in 1995 and 1994. As a result, common stock par value was increased by $42,879,248 for 1995 and 1994, with an offsetting decrease to amounts received in excess of par value and retained earnings. In December 1995, the Company amended, in its entirety, the Automatic Dividend Reinvestment and Stock Purchase Plan with its new Investors Plus Plan (the Plan). The Plan is designed to provide investors with a convenient way to purchase shares of the Company's common stock. b. Redeemable preferred stock The Company redeemed all 212,000 shares outstanding of its Series E, 8.70%, preferred stock on February 21, 1995. The total amount of approximately $5.5 million was financed with short-term borrowings. c. First mortgage bonds and other long-term debt The annual sinking fund requirements of the outstanding first mortgage bonds is $200,000 in 1996 through 2000. In addition, approximately $8 million will be required in 1996, to retire at maturity, the 5.45%, 1996 Series, First Mortgage Bonds. On November 1, 1995, the Company used the balance from its Pollution Control Bond Fund to redeem $1.7 million of its 6-1/2%, 2006 Series, Pollution Control Revenue Bonds. Also, on November 22, 1995, the Company redeemed $11.5 million of the 7-3/4%, 2001 Series, First Mortgage Bonds. The Company used the proceeds from an interest rate SWAP agreement with a commercial bank, in a principal amount of $11.0 million to redeem the 2001 Series. The SWAP agreement effectively changes the fixed rate from 7-3/4% to 6.01%. The agreement matures on November 10, 2000. d. Notes payable to banks, commercial paper, and lines of credit For short-term borrowings, the Company generally issues commercial paper (issued at the prevailing discount rate at the time of issuance) which is supported by unused bank lines of credit. Through negotiations with several banks, the Company has $40 million in bank lines of credit, which includes $5 million for GLENCO and AEM. Information concerning short-term borrowings at December 31 is set forth below: (Thousands of dollars) 1995 1994 1993 Available lines of credit (MGE) $35,000 $32,000 $25,000 Available lines of credit (GLENCO) $5,000 - - Commercial paper outstanding $20,500 $28,600 $23,500 Weighted average interest rate 5.86% 6.06% 3.45% During the year: Maximum short-term borrowings $28,600 $29,500 $26,000 Average short-term borrowings $16,091 $16,549 $14,056 Weighted average interest rate 6.03% 4.57% 3.31% 3. Rate Matters In December 1994, the PSCW issued its rate order that effectively reduced electric rates by $5.1 million and froze gas rates for the test period ending December 31, 1995. These rates will remain in place until the next test year, which is scheduled to begin July 1, 1997. The current rates are based on a return on common stock equity of 11.7 percent. 4. Commitments Utility plant construction expenditures for 1996, including the Company's proportional share of jointly owned electric power production facilities and purchases of fuel for Kewaunee, are estimated to be $24 million to $25 million, and substantial commitments have been incurred in connection with such expenditures. Significant commitments have also been made for fuel for Columbia. 5. Segments of Business The table below presents information pertaining to the Company's segments of business: Information regarding the distribution of net assets between electric and gas for the years ended December 31 is set forth on page II-2. (Thousands of dollars) 1995 1994 1993 Electric Operations Total revenues $153,554 $149,665 $147,201 Operation and maintenance expenses 89,994 87,748 86,060 Depreciation and amortization 19,503 17,337 16,948 Other general taxes 6,908 6,907 6,651 Pre-tax Operating Income 37,149 37,673 37,542 Income taxes 11,193 11,717 11,104 Net Operating Income $ 25,956 $ 25,956 $ 26,438 Construction and Nuclear Fuel Expenditures (Electric) $ 14,006 $ 16,804 $ 18,064 Gas Operations Operating revenues $ 95,036 $ 95,307 $ 96,932 Revenues from sales to electric utility 3,100 1,671 2,861 Total Revenues 98,136 96,978 99,793 Operation and maintenance expenses 80,017 79,009 82,727 Depreciation and amortization 5,312 5,046 4,843 Other general taxes 1,801 1,712 1,571 Pre-tax Operating Income 11,006 11,211 10,652 Income taxes 3,091 3,105 2,860 Net Operating Income $ 7,915 $ 8,106 $ 7,792 Construction Expenditures (Gas) $ 5,156 $ 9,625 $ 5,584 6. Supplemental Cash Flow Information For purposes of the Consolidated Statements of Cash Flows, the Company considers cash equivalents to be those investments that are highly liquid with maturity dates of less than three months. Cash payments for interest and income taxes for the years ended December 31 were as follows: (Thousands of Dollars) 1995 1994 1993 Interest paid, net of amounts capitalized $11,894 $11,235 $11,704 Income taxes paid $18,016 $13,602 $10,954 7. Regulatory Assets and Liabilities Pursuant to SFAS No. 71, "Accounting for the Effects of Certain Types of Regulation" (SFAS 71), the Company capitalizes, as deferred charges, incurred costs that are expected to be recovered in future electric and natural gas rates. The Company also records as other credits, obligations to customers to refund previously collected revenue or to spend revenue collected from customers on future costs. The Company's regulatory assets and liabilities consisted of the following as of December 31: 1995 1994 (Thousands of Dollars) Assets Liabilities Assets Liabilities Demand-side management $14,169 $ 213 $15,369 $ - Decommissioning & decontamination 2,569 2,569 2,845 2,845 Unamortized debt expense 5,448 - 6,283 - Other 11,461 11,118 9,411 8,865 TOTAL $33,647 $13,900 $33,908 $11,710 PART III. Item 10. Directors and Executive Officers of the Registrant. Information concerning the Directors of the Company is contained in the definitive proxy statement under the section "Election of Directors" filed on March 26, 1996, with the Securities and Exchange Commission, which is incorporated herein by reference. Executive Officers of the Registrant (elected annually by Directors) Service Years as Eff. an Executive Title Date Officer David C. Mebane Chairman, President and 05/09/94 15 Age: 62 CEO President, CEO and COO 01/01/94 President and COO 10/01/91 Senior V.P. and General Counsel 01/01/88 Vice President and General Counsel 04/17/85 Robert E. Domek Executive Vice President 05/01/95 7 Age: 65 Senior V.P. - Human Resources 05/03/93 Vice President - Human Resources 12/01/91 Asst. V.P. - Human Resources 10/01/89 Director - Personnel 01/01/69 Mark C. Williamson Senior V.P. - Energy Age: 42 Services 05/01/95 4 Vice President - Energy Services 05/03/93 Asst. V.P. - Energy Services 06/01/92 Exec. Director - Electric Supply 12/01/91 Corporate Attorney 12/01/89 Senior Staff Attorney 12/01/87 Gary J. Wolter Senior V.P. - Age: 41 Administration and Secretary 05/01/95 5 V.P. - Administration and Secretary 12/01/91 Secretary and Corporate Attorney 12/01/89 Corporate Attorney 02/13/84 Service Years as Eff. an Executive Title Date Officer James C. Boll V.P. - Law and Corp. Age: 60 Comm. 10/20/95 3 Asst. V.P. - Law and Corp. Comm. 05/03/93 Exec. Dir. - Law and Corp. Comm. 01/13/92 Dir. - Public Affairs and Risk Mgmt. 06/01/91 Dir. - Risk Management 03/05/90 Joseph T. Krzos Vice President - Finance 12/01/92 10 Age: 51 Asst. V.P. - Accounting and Control 12/01/91 Treasurer 05/01/88 Assistant Treasurer 06/01/86 Richard H. Thies V.P. - Gas Systems Age: 54 Operation 07/01/86 10 Terry A. Hanson Treasurer 12/01/91 5 Age: 44 Manager - Internal Audit 09/01/84 Service Years as Eff. an Executive Title Date Officer Deborah L. Burgess Asst. V.P. - Gas Rates Age: 36 and Supply 11/01/94 2 Director - Gas Rates and Supply 04/01/93 Manager - Gas Rates and Supply 03/01/92 Gas Supply Coordinator - Gas Rates and Supply 07/18/88 Lynn K. Hobbie Asst. V.P. - Marketing 11/01/94 2 Age: 37 Senior Director - Marketing 07/01/93 Director - Market Planning and Programs 11/01/92 Manager - Customer Planning and Research 02/01/92 Supervisor - Mkt. Planning & Eval. 06/01/90 Supervisor - Program Planning and Eval. 03/01/90 Thomas R. Krull Asst. V.P. - Elec. Trans. 3 Age: 46 & Dist. 05/03/93 Exec. Dir. - Elec. Trans. & Dist. 12/01/91 Director - Elec. Trans. & Dist. 09/01/89 Asst. Dir. - Elec. Trans. & Dist. 04/01/89 Manager - Elec. Trans. & Dist. 07/01/85 Carol A. Wiskowski Asst. V.P. - Admin. 17 Age: 56 and Assistant Secretary 05/01/92 Assistant Secretary 06/01/78 Item 11. Executive Compensation. See Item 12 below. Item 12. Security Ownership of Certain Beneficial Owners and Management. The required information for Items 11 and 12 is included in the Company's definitive proxy statement under the section "Executive Compensation," not including "Report on Executive Compensation" and "Company Performance," and under the section "Beneficial Ownership of Common Stock by Directors and Executive Officers" filed with the Securities and Exchange Commission on March 26, 1996, which is incorporated herein by reference. Item 13. Certain Relationships and Related Transactions. None. PART IV. Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. 1a. Financial Statements (consolidated, as of December 31, 1995 and 1994, and for each of the three years in the period ended December 31, 1995). Included in Part II, Item 8, of this report: Responsibility for Financial Statements Report of Independent Accountants Statements of Income and Retained Income Statements of Cash Flows Balance Sheets Statements of Capitalization Notes to Consolidated Financial Statements b. Financial Statement Schedules. None. 2. All exhibits including those incorporated by reference. Exhibits (an asterisk (*) indicates a management contract or compensatory plan or arrangement): No. Description of Document 3.(i) Articles of Incorporation as in effect at December 15, 1995. 3.(ii) By-Laws as in effect at January 1, 1991. (Incorporated by reference to Exhibit 3B with 1991 10-K in File No. 0-1125.) 4A Indenture of Mortgage and Deed of Trust between the Company and Firstar Trust Company, as Trustee, dated as of January 1, 1946, and filed as Exhibit 7-D to SEC File No. 0-1125 and the following indentures supplemental thereto are incorporated herein by reference: Supplemental Dated Exhibit SEC Indenture as of No. File No. Fifth 06/01/66 4-B-6 2-25244 Tenth1 11/01/76 2.03 2-60227 Fourteenth 04/01/92 4C 0-1125 (1992 10-K) Fifteenth 04/01/92 4D 0-1125 (1992 10-K) Sixteenth 10/01/92 4E 0-1125 (1992 10-K) Seventeenth 02/01/93 4F 0-1125 (1992 10-K) 10A Copy of Joint Power Supply Agreement with Wisconsin Power and Light Company and Wisconsin Public Service Corporation dated February 2, 1967. (Incorporated by reference to Exhibit 4.09 in File No. 2-27308.) 10B Copy of Joint Power Supply Agreement (Exclusive of Exhibits) with Wisconsin Power and Light Company and Wisconsin Public Service Corporation dated July 26, 1973, amending Exhibit 5.04. (Incorporated by reference to Exhibit 5.04A in File No. 2-48781.) 10D Copy of revised Agreement for Construction and Operation of Columbia Generating Plant with Wisconsin Power and Light Company and Wisconsin Public Service Corporation dated July 26, 1973. (Incorporated by reference to Exhibit 5.07 in File No. 2-48781.) 10F* Form of Severance Agreement. (Incorporated by reference to Exhibit 10F with 1994 10-K in File No. 0-1125.) 12 Statement regarding computation of ratios (page II-2). 21 Subsidiaries of the Registrant. 23 Consent of Independent Accountants. 27 Appendix E to Item 601(c) of Regulation S-K: Public Utilities Companies Financial Data Schedule UT. 3. Reports on Form 8-K - No Current Report on Form 8-K was filed for the quarter ended December 31, 1995. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. MADISON GAS AND ELECTRIC COMPANY (Registrant) Date: March 26, 1996 David C. Mebane Chairman, President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on March 26, 1996. Chairman, President and Chief Executive Officer and Director /s/ David C. Mebane (Principal Executive Officer) David C. Mebane Vice President - Finance (Principal Financial Officer and Principal Accounting /s/ Joseph T. Krzos Officer) Joseph T. Krzos /s/ Frank C. Vondrasek Vice Chairman and Director Frank C. Vondrasek /s/ Jean Manchester Biddick Director Jean Manchester Biddick /s/ Richard E. Blaney Director Richard E. Blaney /s/ Robert M. Bolz Director Robert M. Bolz /s/ Frederic E. Mohs Director Frederic E. Mohs /s/ Robert B. Rennebohm Director Robert B. Rennebohm Director Phillip C. Stark /s/ H. Lee Swanson Director H. Lee Swanson EX-3 2 RESTATED ARTICLES OF INCORPORATION OF MADISON GAS AND ELECTRIC COMPANY (Including all amendments made through December 15, 1995) The following Restated Articles of Incorporation duly adopted pursuant to the authority and provisions of the Wisconsin Business Corporation Law supersede and take the place of the heretofore existing Articles of Organization and amendments thereto: Article First. The name of the corporation is MADISON GAS AND ELECTRIC COMPANY. Article Second. The purpose of the Company shall be to engage in any lawful activity within the purposes for which corporations may be organized under the Wisconsin Business Corporation Law, including but not by way of limitation, the production, purchase, transmission, distribution and sale of gas and electricity and any related products, by-products and merchandise, either directly or indirectly, to or for the public, whether by itself or in conjunction with others, and to transact any and all business incidental to such purposes. Article Third. A. Authorized Capital. The authorized capital stock of the Company shall be Two Hundred Fifty-Three Million Three Hundred Seventy-Five Thousand Dollars ($253,375,000) and shall consist of One Million One Hundred Seventy-Five Thousand (1,175,000) shares of Cumulative Preferred Stock, each of which said shares shall be $25 Par Value, and Twenty-Eight Million (28,000,000) shares of Common Stock, each of which said shares shall be $8 Par Value. B. Cumulative Preferred Stock. (I) Series and Variations Between Series. The Cumulative Preferred Stock may be divided into and issued in series. The Board of Directors is hereby expressly vested with authority to divide such shares into series and cause such shares to be issued from time to time in series, and, by resolution adopted prior to the issue of shares of a particular series, to fix and determine the following relative rights and preferences with respect to such series, as to which matters the shares of a particular series may vary from those of any or all other series: (a) the distinctive serial designation of the shares of such series; (b) the rate of dividend thereof; (c) the amount payable upon the shares in event of voluntary or involuntary liquidation (except as fixed in this Division B); (d) the price or prices at and the terms and conditions on which shares may be redeemed (except as fixed in this Division B); (e) sinking fund provisions for the redemption or purchase of such shares; and (f) the terms and conditions on which such shares may be converted if the shares of any series are issued with the privilege of conversion. Except as the shares of a particular series may vary from those of any or all other series in the foregoing respects, all of the shares of the Cumulative Preferred Stock, regardless of series, shall in all respects be equal and shall have the relative rights and preferences herein fixed. (II) Dividends. (a) The holders of shares of Cumulative Preferred Stock of each series shall be entitled to receive, as and when declared payable by the Board of Directors from funds legally available for the payment thereof, preferential dividends in lawful money of the United States of America at the rate per annum fixed and determined as herein authorized for the shares of such series, but no more, payable quarterly on dates to be established for all series when established by the Board of Directors for the first series (the quarterly dividend payment dates), in each year with respect to the quarterly period ending on the day prior to each such respective dividend payment date. Such dividends shall be cumulative with respect to each share from and including the quarterly dividend payment date next preceding the date of issue thereof unless (1) the date of issue be a quarterly dividend payment date, in which case dividends shall be cumulative from and including the date of issue, (2) issued during an interval between a record date for the payment of a quarterly dividend on shares of such series and the payment date for such dividend, in which case dividends shall be cumulative from and including such payment date, or (3) the Board of Directors shall determine that the first dividend with respect to shares of a particular series issued during an interval between quarterly dividend payment dates shall be cumulative from and including a date during such interval, in which event dividends shall be cumulative from and including such date. No dividends shall be declared on shares of Cumulative Preferred Stock of any series in respect of accumulations for any quarterly dividend period or portion thereof unless dividends shall likewise be or have been declared with respect to accumulations on all then outstanding shares of Cumulative Preferred Stock of each other series for the same period or portion thereof; and the ratios of the dividends declared to dividends accumulated with respect to any quarterly dividend period on the shares of each series outstanding shall be identical. Accumulations of dividends shall not bear interest. (b) So long as any shares of Cumulative Preferred Stock remain outstanding, no dividend shall be paid or declared, or other distribution made, on shares of junior stock, nor shall any shares of junior stock be purchased, redeemed, retired or otherwise acquired for a consideration (1) unless preferential dividends on outstanding shares of Cumulative Preferred Stock for the current and all past quarterly dividend periods shall have been paid, or declared and set apart for payment, provided, however, that the restrictions of this subparagraph (1) shall not apply to the declaration and payment of dividends on shares of junior stock if payable solely in shares of junior stock, nor to the acquisition of any shares of junior stock through application of proceeds of any shares of junior stock sold at or about the time of such acquisition, nor shall such restrictions prevent the transfer of any amount from surplus to stated capital; and (2) except to the extent of earned surplus, provided, however, that the restriction in this subparagraph (2) shall not apply to any of the acts described in the proviso set forth in subparagraph (1) above and shall not apply either to the acquisition of any shares of junior stock issued after April 1, 1970, to the extent of the proceeds received for the issue of such shares, or to the payment of any dividend within 60 days after the date of declaration thereof, if at said date of declaration said dividend conforms with the provisions of this subparagraph (2). (III) Liquidation Preferences. (a) In the event of voluntary dissolution or liquidation of the Company, the holders of shares of Cumulative Preferred Stock of each series outstanding shall be entitled to receive out of the assets of the Company an amount per share equal to that which such holders would have been entitled to receive had shares held by them been redeemed (otherwise than through operation of a sinking fund) on the date fixed for payment, but no more, unless shares are not so redeemable at such date, and then an amount per share to be fixed in the resolution of the Board of Directors establishing the series of which the shares are a part. In the event of involuntary dissolution or liquidation of the Company, the holders of shares of Cumulative Preferred Stock of each series outstanding shall be entitled to receive out of the assets of the Company $25 per share, plus preferential dividends at the rate fixed and determined for such series as herein authorized, accrued and unpaid to the date fixed for payment, but no more. Until payment to the holders of outstanding shares of Cumulative Preferred Stock as aforesaid, or until moneys or other assets sufficient for such payment shall have been set apart for payment by the Company, separate and apart from its other funds and assets for the account of such holders, so as to be and continue to be available for payment to such holders, no payment or distribution shall be made to holders of shares of junior stock in connection with or upon such dissolution or liquidation. If upon any such dissolution or liquidation the assets of the Company available for payment and distribution to shareholders are insufficient to make payment in full, as hereinabove provided, to the holders of shares of Cumulative Preferred Stock, payment shall be made to such holders ratably in accordance with the number of shares held by them, respectively. (b) Neither a consolidation nor merger of the Company with or into any other corporation, nor a merger of any other corporation into the Company nor the purchase or redemption of all or any part of the outstanding shares of any class or classes of stock of the Company, nor the sale or transfer of the property and business of the Company as or substantially as an entirety shall be construed to be a dissolution or liquidation of the Company within the meaning of the foregoing provisions. (IV) Redemption. (a) Except for any series which may not at the time be redeemable, the Company may, at its option expressed by vote of the Board of Directors, at any time or from time to time redeem the whole or any part of the Cumulative Preferred Stock, or of any series thereof, at the redemption price or prices at the time in effect, any such redemption to be on such redemption date and at such place in the City of Madison, State of Wisconsin, City of Chicago, State of Illinois, or in the City, County and State of New York, or any combination of the three, as shall be determined by vote of the Board of Directors. Notice of any proposed redemption of shares of Cumulative Preferred Stock stating the series to be redeemed, the certificates within such series to be redeemed if less than all of the shares of such series are to be redeemed, and the date and place of redemption, shall be given by the Company by depositing a copy of such notice in the U.S. mails, not more than 60 or less than 30 days prior to the redemption date, addressed to the holders of record of shares of Cumulative Preferred Stock to be redeemed, at their respective addresses then appearing on the books of the Company and such notice shall be deemed delivered when so deposited; and by publishing such notice at least once in each week for two successive weeks in a newspaper customarily published at least on each business day, other than Saturdays, Sundays and holidays, which is printed in the English language and published and of general circulation in the Borough of Manhattan, City and State of New York, and in such a newspaper so printed which is published and of general circulation in the City of Chicago, State of Illinois. Publication of such notice shall be commenced not more than 60 days, and shall be concluded not less than 30 days, prior to the redemption date, but such notice need not necessarily be published on the same day of each week or in the same newspaper. If publication is made, unintentional omissions or errors in names or addresses in the mailed notice shall not impair the validity of the notice. In case less than all of the shares of any series are to be redeemed, the shares so to be redeemed shall be determined by lot in such manner as may be prescribed by the Board of Directors unless a method other than by lot is set forth in the resolution of the Board of Directors establishing such series. The certificates evidencing the shares to be so redeemed shall be specified by number in the notice of such redemption and if less than all the shares evidenced by any of the said certificates are to be redeemed, then the number of shares to be redeemed shall be specified. On the redemption date the Company shall, and at any time within 60 days prior to such redemption date may, deposit in trust, for the account of the holders of shares of Cumulative Preferred Stock to be redeemed, funds necessary for such redemption with a bank or trust company in good standing, organized under the laws of the United States of America or of the State of Wisconsin or of the State of New York or of the State of Illinois, doing business in the Cities of Milwaukee or Madison, the State of Wisconsin, or in the City, County and State of New York or in the City of Chicago, the State of Illinois, and having combined capital, surplus and undivided profit of at least $5,000,000, which shall be designated in such notice of redemption. (b) If notice of redemption shall have been duly given, or said bank or trust company has been irrevocably authorized by the Company to give such notice, and funds necessary for such redemption have been deposited, all as aforesaid, then all shares of Cumulative Preferred Stock with respect to which such deposit shall have been made shall forthwith, whether or not the date fixed for such redemption shall have occurred or the certificates for such shares shall have been surrendered for cancellation, be deemed no longer to be outstanding for any purpose, and all rights with respect to such shares shall thereupon cease and terminate, excepting only the right of the holders of the certificates for such shares to receive, out of the funds so deposited in trust, on the redemption date (unless an earlier date is fixed by the Board of Directors), the redemption funds, without interest, to which they are entitled, and the right to exercise any privilege of conversion not theretofore expiring, the Company to be entitled to the return of any funds deposited for redemption of shares converted pursuant to such privilege. At the expiration of 6 years after the redemption date such trust shall terminate. Any such moneys then remaining on deposit, together with any interest thereon which may be allowed by the bank or trust company with which the deposit shall have been made, shall be paid by it to the Company, free of trust, and thereafter the holders of the certificates for such shares shall have no claim against such bank or trust company but only claims as unsecured creditors against the Company for the amounts payable upon redemption thereof, without interest. Interest, if any, allowed by the bank or trust company as aforesaid shall belong to the Company. (c) Subject to applicable law and this Article Third, the Company may from time to time purchase or otherwise acquire outstanding shares of Cumulative Preferred Stock at a price per share not exceeding the amount (inclusive of any premium over par value and any accrued dividends) then payable in the event of redemption thereof otherwise than through operation of a sinking fund, if any. (d) No shares of Cumulative Preferred Stock shall be purchased, redeemed or otherwise acquired for a valuable consideration (1) in any case if all dividends on the Cumulative Preferred Stock for all past quarter yearly dividend periods shall not have been paid or declared and a sum sufficient for the payment thereof set apart, or (2) at any time when the Company shall be in default or deficient under any requirement of a sinking fund established with respect to outstanding shares of any series of Cumulative Preferred Stock for any period then elapsed, except for the purpose of wholly or partially eliminating such default or deficiency. (e) Subject to the provisions of this Article Third, any and all shares of Cumulative Preferred Stock which at any time shall have been: (1) Redeemed or otherwise retired by the Company, except in the manner set forth in (2) below, shall assume the status of authorized but unissued Cumulative Preferred Stock and may thereafter be reissued in the same manner as other authorized but unissued Cumulative Preferred Stock. (2) Redeemed or purchased through operation of any sinking fund with respect thereto, or which shall have been converted into or exchanged for shares of any other class or classes or other securities of the Company pursuant to a right of conversion or exchange reserved in such Cumulative Preferred Stock, shall be canceled and shall not be reissued, and the Company shall, from time to time, take such corporate action as may be appropriate or necessary to reduce the authorized number of shares of Cumulative Preferred Stock accordingly. (V) Voting Rights. The holders of Cumulative Preferred Stock shall have no vote in the affairs of the corporation except as is provided below or at the time may be mandatorily required by statute: (a) So long as any shares of Cumulative Preferred Stock are outstanding, the Company shall not, without the consent (given by vote in person or by proxy at a meeting called for that purpose) of the holders of at least two-thirds of the shares of Cumulative Preferred Stock then outstanding: (1) Create or authorize any shares of senior stock, or create or authorize any obligation or security convertible into any such shares; or (2) Alter or change the relative rights or preferences of then outstanding Cumulative Preferred Stock so as to affect the holders thereof adversely, provided, however, if any such alteration or change would adversely affect the holders of one or more, but not all, of the series of Cumulative Preferred Stock at the time outstanding, only the consent of holders of two-thirds of the shares of each series so affected shall be required; or (3) Issue, sell or otherwise dispose of shares of Cumulative Preferred Stock, or any shares of senior or parity stock, or securities convertible into shares of Cumulative Preferred Stock or into shares of senior or parity stock, other than in exchange for, or in connection with the retirement (by redemption or otherwise) of, not less than a like number of shares of Cumulative Preferred Stock or shares of senior or parity stock, or securities convertible into not less than a like number of such shares, as the case may be at the time outstanding, unless: (i) Immediately after such proposed issue, sale or other disposition, the aggregate of the capital of the Company applicable to all shares of Common Stock then to be outstanding (including premium on all shares of Common Stock) plus earned surplus and capital surplus, shall be at least equal to the involuntary liquidation preference of all shares of Cumulative Preferred Stock and shares of senior or parity stock then to be outstanding, provided that until such additional shares or securities, as the case may be, or the equivalent thereof (in terms of involuntary liquidating preference) in shares of Cumulative Preferred Stock or senior or parity stock, shall have been retired, earned surplus of the Company used to meet the requirements of this clause in connection with the issuance of additional shares of Cumulative Preferred Stock or shares of senior or parity stock or securities convertible into either thereof shall not, after the issue of such shares or securities, be available for dividends or other distributions on Common Stock (other than dividends payable in Common Stock), except in an amount equal to the cash subsequently received by the Company as a contribution to its Common Stock capital or as consideration for the issuance of additional shares of Common Stock; and (ii) The gross income of the Company for a period of 12 consecutive calendar months within the 15 calendar months immediately preceding the issuance, sale or other disposition of such shares, determined in accordance with such system of accounts as may be prescribed by governmental authorities having jurisdiction in the premises, or, in the absence thereof, in accordance with sound accounting practice (but in any event after deducting the amount for said period charged by the Company on its books to depreciation expense and taxes) to be available for the payment of interest, shall have been equal to at least one and one-half times the sum of (x) the interest charges for one year on all interest-bearing indebtedness of the Company (plus all amortization of debt discount and expense, and less all amortization of premium on debt, applicable to the aforesaid 12 months' period) and (y) the dividend requirements for one year on all outstanding Cumulative Preferred Stock, and on all outstanding senior and parity stock; and for the purpose of both such computations the shares and any indebtedness then proposed to be issued shall be included, and any indebtedness and shares then proposed to be retired shall be excluded, and in determining such gross income the Board of Directors shall make such adjustments, by way of increase or decrease in such gross income, as shall in its opinion be necessary to give effect, for the entire 12 months for which such gross income is determined, to any acquisition or disposition of property, the income from which can be separately ascertained, in which event such consent shall not be required. (b) So long as any Cumulative Preferred Stock is outstanding, the Company shall not, without the consent (given by vote in person or by proxy at a meeting called for that purpose) of the holders of at least a majority of the shares of Cumulative Preferred Stock then outstanding: (1) Merge or consolidate with or into any other corporation, provided that this provision shall not apply to a purchase or other acquisition by the Company of franchises or assets of another corporation in any manner which does not involve a statutory merger or consolidation; (2) Sell, lease, or exchange all or substantially all of its property and assets, unless the fair value of the net assets of the Company, after completion of such transaction, shall at least equal the then involuntary liquidation value of the Cumulative Preferred Stock of all series, and of all senior or parity stock, then outstanding. (c) No consent hereinbefore provided for in this subdivision (V)(a) and (b) shall be required in the case of the holders of any shares of Cumulative Preferred Stock which are to be redeemed at or prior to the time when an alteration or change is to take effect, or at or prior to the time of authorization, issuance, sale or other disposition of any additional Cumulative Preferred Stock or shares of senior or parity stock or convertible securities, or a consolidation or merger is to take effect, as the case may be. (d) If at any time dividends on any of the outstanding shares of Cumulative Preferred Stock shall be in default in an amount equivalent to four or more full quarterly dividends, the holders of outstanding shares of Cumulative Preferred Stock, voting separately as a class, shall be entitled to elect either one- fourth or two (whichever shall be greater) of the Directors of the Company (herein called Certain Directors), which right shall continue in force and effect until all arrears of dividends on outstanding shares of Cumulative Preferred Stock shall have been declared and paid or deposited in trust with a bank or trust company having the qualification set forth in subdivision (IV) of this Division B for payment on or before the next succeeding dividends payment date, in which event, such right to elect Certain Directors shall cease and terminate unless and until the equivalent of four or more full quarterly dividends shall again be in default on outstanding shares of Cumulative Preferred Stock. Such right to elect Certain Directors is subject to the following terms and conditions: (1) Such right to elect Certain Directors may be exercised at any annual meeting of shareholders, or, within the limitations herein provided, at a special meeting of shareholders held for such purpose. Whenever such right to elect Certain Directors shall vest, on request signed by any holder of record of shares of Cumulative Preferred Stock then outstanding and delivered to the Company's principal office not less than 120 days prior to the date of the annual meeting next following the date when such right vests, the President or a Vice-President of the Company shall call a special meeting of shareholders to be held within 60 days after receipt of such request for the purpose of electing a new Board of Directors of which holders of outstanding shares of Cumulative Preferred Stock shall be entitled to elect Certain Directors and holders of outstanding shares otherwise entitled to vote shall be entitled to elect the remaining Directors, in each case to serve until the next annual meeting of shareholders or until their successors shall be elected and shall qualify. (2) Whenever, under the terms hereof, holders of outstanding shares of Cumulative Preferred Stock shall be divested of the right to elect Certain Directors, upon request signed by any holder of record of shares otherwise entitled to vote and delivered to the Company at its principal office not less than 120 days prior to the date for the annual meeting next following the date of such divesting, the President or a Vice- President of the Company shall call a special meeting of the holders of shares otherwise entitled to vote, to be held within 60 days after receipt of such request for the purpose of electing a new Board of Directors to serve until the next annual meeting or until their respective successors shall be elected and shall qualify. (3) If, while holders of outstanding shares of Cumulative Preferred Stock are entitled to elect Certain Directors, the holders of shares entitled as a class to elect Directors shall fail to elect the full number of Directors which they are entitled to elect, either at an annual meeting of shareholders or a special meeting thereof held as in this subdivision (V) provided, or at an adjourned session of either thereof held within a period of 90 days beginning with the date of such meeting, then after the expiration of such period holders of outstanding shares of Cumulative Preferred Stock and holders of outstanding shares otherwise entitled to vote, voting as a single class, shall be entitled to elect such number of Directors as shall not have been elected during such period by holders of outstanding shares of the class or classes then entitled to elect the same, to serve until the next annual meeting of shareholders or until their successors shall be elected and shall qualify. The term of office of all Directors in office immediately prior to the date of such annual or special meeting shall terminate as and when a full Board of Directors shall have been elected at such meeting or a later meeting of shareholders for the election of Directors, or an adjourned session of either thereof. (4) At any annual or special meeting of the shareholders or adjournment thereof, held for the purpose of electing Directors while the holders of outstanding shares of Cumulative Preferred Stock shall be entitled to elect Certain Directors, the presence in person or by proxy of the holders of a majority of outstanding shares of Cumulative Preferred Stock shall be necessary to constitute a quorum of Cumulative Preferred Stock for the election by such class of members to the Board of Directors and the presence in person or by proxy of the holders of a majority of outstanding shares otherwise entitled to vote shall be necessary to constitute a quorum of such shares for the election of Directors which holders of such shares are then entitled to elect. In case of a failure by the holders of any class or classes to elect, at such meeting or an adjourned session held within said period of 90 days, the number of Directors which they are entitled to elect at such meeting, such meeting shall be deemed ipso facto to have been adjourned to reconvene at 11:00 A.M., Local Time, on the fourth full business day next following the close of such 90-day period, at which time, or at a subsequent adjourned session of such meeting, such number of Directors as shall not have been elected during such period by holders of outstanding shares of the class or classes then entitled to elect the same, may be elected by holders of outstanding shares of Cumulative Preferred Stock and holders of outstanding shares otherwise entitled to vote, voting as a single class. Subject to the preceding provisions of this subdivision (V), a majority of the holders of shares of any class or classes at the time present in person or by proxy shall have power to adjourn such meeting for the election of Directors by holders of shares of such class or classes from time to time without notice other than announcement at the meeting. (5) While the holders of outstanding shares of Cumulative Preferred Stock remain entitled to elect Certain Directors, any holder of record of outstanding shares of Cumulative Preferred Stock shall have the right, during regular business hours, in person or by a duly authorized representative, to examine the Company's stock records of Cumulative Preferred Stock for the purpose of communicating with other holders of shares of such stock with respect to the exercise of such right of election, and to make a list of such holders. (e) Except as by statute at the time mandatorily provided, holders of shares of Cumulative Preferred Stock shall not be entitled to receive notice of any meeting of shareholders at which they are not entitled to vote or consent. (VI) (Vacant) (VII) (Vacant) (VIII) (Vacant) (IX) (Vacant) (X) Series E Cumulative Preferred Stock. (a) Establishment of Series and Designation Thereof. There is established a series of Cumulative Preferred Stock, the serial designation of the shares of which shall be, and the shares of which shall be known as, Series E Cumulative Preferred Stock. Such series shall be a closed series consisting of 300,000 shares of Cumulative Preferred Stock. (b) Rate of Dividend. The rate of preferred dividends on the shares of Series E Cumulative Preferred Stock shall be $2.175 per share per annum, which shall be cumulative from and including August 31, 1978, and shall be payable in quarterly installments on February 1, May 1, August 1, and November 1 of each year. (c) Price at Which Redeemable. (1) The shares of Series E Cumulative Preferred Stock shall be redeemable at the option of the Company at any time, or from time to time, after the issue thereof, and prior to August 1, 1983, at $27.00 per share; on or after August 1, 1983, but prior to August 1, 1988, at $26.60 per share; on or after August 1, 1988, but prior to August 1, 1993, at $26.20 per share; on or after August 1, 1993, but prior to August 1, 1998, at $25.80 per share; on or after August 1, 1998, but prior to August 1, 2003, at $25.40 per share; and on or after August 1, 2003, at $25.00 per share; plus, in each case, an amount equivalent to preferential dividends at the rate aforesaid accrued and unpaid to the date of redemption; provided, however, the shares of Series E Cumulative Preferred Stock shall not be redeemable at the option of the Company prior to August 1, 1983, directly or indirectly, (i) from or in anticipation of moneys borrowed by or for the account of the Company, or (ii) from or in anticipation of the proceeds of the issuance of any other shares of Cumulative Preferred Stock, or senior or parity stock (as such terms are defined in Division E), if such borrowing has an effective interest cost to the Company or such shares have an effective dividend cost to the Company of less than 8.70% per annum, or if such borrowing or such shares have, as of the date of the proposed redemption, a weighted average life less than the remaining weighted average life of the Series E Cumulative Preferred Stock. Weighted average life of any borrowing or preferred stock means as at the time of the determination thereof the number of years obtained by dividing the then remaining dollar-years of such borrowing by the principal amount of such borrowing or the aggregate involuntary liquidation preference of the shares of such preferred stock. The term "remaining dollar- years of any borrowing or preferred stock" means the amount obtained by (1) multiplying the amount of each then remaining sinking fund, serial maturity, or other required repayment, redemption, or purchase, including repayment, redemption, or purchase, at final maturity, by the number of years (calculated at the nearest one-twelfth) which will elapse between the date of proposed redemption and the date of that required repayment, redemption, or purchase, and (2) totaling all the products obtained in (1). If the Company makes any redemption of shares of Series E Cumulative Preferred Stock on or after August 1, 1983, but prior to August 1, 1988, which if made prior to August 1, 1983, would have been prohibited by the terms of this paragraph, then the redemption price shall be $28.00 per share plus an amount equivalent to preferential dividends at the rate aforesaid accrued and unpaid to the date of redemption. The shares of Series E Cumulative Preferred Stock shall be redeemable for purposes of the sinking fund hereinafter provided at the price of $25.00 per share plus an amount equivalent to preferential dividends at the rate aforesaid accrued and unpaid to the date of redemption. (2) If the Company shall, at any time, redeem at its option less than all of the then outstanding shares of Series E Cumulative Preferred Stock, it shall redeem such shares as follows: (i) From each purchaser on original issue, or any nominee of such purchaser ("Original Purchaser"), a number of full shares of Series E Cumulative Preferred Stock, which bears (as nearly as may be practicable) the same ratio to the total number of such shares to be redeemed as (A) the total number of shares of Series E Cumulative Preferred Stock held by such Original Purchaser on the date on which notice of such redemption is given bears to (B) the total number of such shares outstanding on such date, including such shares held by the Company as treasury shares; and (ii) From holders of shares of Series E Cumulative Preferred Stock other than Original Purchasers and other than the Company, by redemption by lot, a number of shares of Series E Cumulative Preferred Stock equal to the total number of such shares to be redeemed, less the number of such shares which the Company shall be required to redeem from Original Purchasers in accordance with the provisions of the preceding subparagraph (i). (d) Sinking Fund. (1) Within each 12 months' period commencing with the 12 months' period ending August 1, 1984, and ending with the 12 months' period ending August 1, 1993, the Company shall acquire, subject to the restrictions contained in this Article Third, either by redemption thereof or by purchase thereof, at a price not exceeding the optional redemption price then in effect, and shall retire 4,000 shares of Series E Cumulative Preferred Stock, or the number of shares of such series outstanding, whichever shall be less; and in each of the 12 months' periods commencing with the 12-month period ending August 1, 1994, and ending with the 12-month period ending August 1, 1998, the Company shall similarly acquire 8,000 shares of Series E Cumulative Preferred Stock; and in each of the 12 month- periods commencing with the 12-month period ending August 1, 1999, and ending with the 12-month period ending August 1, 2008, the Company shall similarly acquire 22,000 shares of Series E Cumulative Preferred Stock; provided, however, that the obligation hereunder shall be cumulative so that if the Company shall be prevented by the restrictions contained in this Article Third from acquiring during any 12 months' period the number of shares of Series E Cumulative Preferred Stock which, in the absence of such restrictions, it would be required to acquire during such period, then, although the Company shall not be deemed to have defaulted in the performance of the requirements of this clause (d), it shall be and remain deficient in such performance, and such deficiency shall be made good as soon as practicable. (2) Such shares required to be acquired during each such 12 months' period shall be acquired as follows: (i) From each Original Purchaser, by redemption or by purchase, a number of full shares of Series E Cumulative Preferred Stock which bears (as nearly as may be practicable) the same ratio to the total number of such shares required to be retired during such 12 months' period as (A) the total number of shares of Series E Cumulative Preferred Stock held by such Original Purchaser on the August 1 beginning such 12 months' period bears to (B) the total number of such shares outstanding on such August 1, including such shares held by the Company as treasury shares; provided, however, that the Company's unsatisfied obligation to acquire shares during any such 12 months' period from any Original Purchaser shall at no time during such period exceed the number of shares then held by such Original Purchaser, and (ii) From holders of shares of Series E Cumulative Preferred Stock other than Original Purchasers and other than the Company, by redemption by lot or by purchase, a number of shares of Series E Cumulative Preferred Stock equal to the total number of such shares required to be acquired during such 12 months' period less the number of shares which the Company shall have acquired or shall be required to acquire during such 12 months' period from Original Purchasers in accordance with the provisions of the preceding subparagraph (i). (3) During any 12-month period referred to in paragraph (1) of this clause (d), the Company shall have the option to redeem at the sinking fund redemption price up to that number of shares of Series E Cumulative Preferred Stock which the Company is obligated to acquire during such 12-month period pursuant to paragraph (1) of this clause (d). Such shares shall be redeemed from the Original Purchasers and each other stockholder in accordance with the provisions of paragraph (2) of this clause (d). Such option to redeem additional shares of Series E Cumulative Preferred Stock shall not be cumulative and shares so redeemed pursuant to this paragraph (3) shall not be credited against the obligation of the Company to acquire shares of Series E Cumulative Preferred Stock pursuant to paragraph (1) of this clause (d). (4) Any shares of Series E Cumulative Preferred Stock which shall be redeemed by the Company at the optional redemption price then in effect or purchased by the Company in any such 12 months' period at a price not exceeding the optional redemption price, and which shall not be applied to meet the Company's sinking fund obligation for such 12 months' period, may be credited on the amounts required to be acquired in any one or more of the following 12 months' periods which the Company may designate. The shares of its Series E Cumulative Preferred Stock of the Company redeemed or purchased and applied to meet its sinking fund obligations shall be canceled and shall not be reissued. (e) No Conversion Privilege. The shares of Series E Cumulative Preferred Stock shall not be convertible into other shares or securities of the Company. C. Common Stock (I) Dividends. Subject to the limitations in this Article Third set forth, dividends may be paid on Common Stock out of any funds legally available for the purpose, when and as declared by the Board of Directors. (II) Liquidation Rights. In the event of any liquidation or dissolution of the Company, after there shall have been paid to or set aside for the holders of outstanding shares having superior liquidation preferences to Common Stock the full preferential amounts to which they are respectively entitled, the holders of outstanding shares of Common Stock shall be entitled to receive pro rata, according to the number of shares held by each, the remaining assets of the Company available for distribution. (III) Voting Rights. Except as set forth in this Article Third or in Article Eighth or as by statute otherwise mandatorily provided, the holders of the Common Stock shall exclusively possess full voting powers for the election of Directors and for all other purposes. D. Preemptive Rights. No holder of stock of this corporation of any class shall be entitled as of right to subscribe for, purchase or receive any part of any new or additional issue of stock of any class, whether now or hereafter authorized, or of any bonds, debentures or other securities convertible into stock of any class, and all such additional shares of stock, bonds, debentures or other securities convertible into stock may be issued and disposed of by the Board of Directors to such person or persons, and on such terms and for such consideration (so far as may be permitted by law) as the Board of Directors in their absolute discretion may deem advisable. E. Certain Definitions. In this Article Third, and in any resolution of the Board of Directors adopted pursuant to this Article Third establishing a series of the Cumulative Preferred Stock and fixing the designation, description and terms thereof, the meanings below assigned shall control: "Senior stock" shall mean shares of stock of any class ranking prior to shares of Cumulative Preferred Stock as to dividends or upon dissolution or liquidation; "Parity stock" shall mean shares of stock of any class ranking on a parity with, but not prior to, shares of Cumulative Preferred Stock as to dividends or upon dissolution or liquidation; "Junior stock" shall mean shares of stock of any class ranking subordinate to shares of Cumulative Preferred Stock as to dividends and upon dissolution or liquidation; and Preferential dividends accrued and unpaid on a share of Cumulative Preferred Stock to any particular date shall mean an amount per share at the annual dividend rate applicable to such share for the period beginning with the date from and including which dividends on such share are cumulative and concluding on the day prior to such particular date, less the aggregate of all dividends paid with respect to such share during such period. Article Fourth. The number of Directors constituting the Board of Directors, the classification of such Directors, and their terms shall be fixed by the Bylaws of the Company. There shall not be more than three classes of Directors, nor shall the terms of any class of Directors be for more than three years. In no event shall there be less than three Directors. Article Fifth. The bylaws of the Company may be adopted either by the shareholders or the Board of Directors, but no bylaw adopted by the shareholders shall be amended or repealed by the Directors unless the bylaw adopted by the shareholders confers such authority upon the Directors. Any bylaw adopted by the Board of Directors shall be subject to amendment or repeal by the shareholders as well as by the Directors. Article Sixth. At the time of the adoption of these Restated Articles of Incorporation, the name of the registered agent and the address of the registered office of the Company are: Agent: Gary J. Wolter Office: Madison Gas and Electric Company 133 South Blair Street (P.O. Box 1231) Madison, Wisconsin 53701 Article Seventh. These articles may be amended by resolution setting forth such amendment or amendments, adopted at any meeting of the shareholders by a vote of at least two-thirds of all of the stock of the Company then outstanding and then entitled to vote. Article Eighth. A. Certain Definitions. For purposes of this Article Eighth: (I) "Affiliate" and "Associate" shall have the respective meanings ascribed to such terms in Rule 12b-2 under the Securities Exchange Act of 1934 as in effect on February 6, 1985 (the term "registrant" in Rule 12b-2 meaning in this case the Company). (II) A person shall be a "beneficial owner" of any shares of Voting Stock (a) which such person or any of its Affiliates or Associates beneficially owns, directly or indirectly; (b) which such person or any of its Affiliates or Associates has, directly or indirectly, (i) the right to acquire (whether such right is exercisable immediately or subject only to the passage of time), pursuant to any agreement, arrangement or understanding or upon the exercise of conversion rights, exchange rights, warrants or options, or otherwise, or (ii) the right to vote pursuant to any agreement, arrangement or understanding; or (c) which are beneficially owned, directly or indirectly, by any other person with which such person or any of its Affiliates or Associates has any agreement, arrangement or understanding for the purpose of acquiring, holding, voting or disposing of any shares of Voting Stock. For the purposes of determining whether a person is a Substantial Shareholder pursuant to subdivision (V) of this division A, the number of shares of Voting Stock deemed to be outstanding shall include shares deemed beneficially owned by such person through application of this subdivision (II) of division A, but shall not include any other shares of Voting Stock that may be issuable pursuant to any agreement, arrangement or understanding, or upon exercise of conversion rights, warrants or options, or otherwise. (III) "Person" shall mean any individual, firm, corporation or other entity and shall include any group comprised of any person and any other person with whom such person or any Affiliate or Associate of such person has any agreement, arrangement or understanding, directly or indirectly, for the purpose of acquiring, holding, voting or disposing of shares of Voting Stock. (IV) "Subsidiary" shall mean any corporation of which a majority of each class of equity security is beneficially owned by the Company. (V) "Substantial Shareholder" shall mean any person (other than the Company or any Subsidiary and other than any profit- sharing, employee stock ownership or other employee benefit plan of the Company or any Subsidiary or any trustee of or fiduciary with respect to any such plan when acting in such capacity) who (without giving effect to the provisions of division B of this Article Eighth) is the beneficial owner of shares of Voting Stock representing ten percent (10%) or more of the votes entitled to be cast by the holders of all then outstanding shares of Voting Stock. (VI) "Voting Stock" shall mean the Common Stock of the Company and any class or series of preferred or preference stock (other than the Company's Cumulative Preferred Stock, authorized pursuant to division B of Article Third) authorized and outstanding from time to time pursuant to Article Third entitling the holder thereof to vote on the matter with respect to which a determination is being made pursuant to this Article Eighth; provided, however, that the shareholders or the Board of Directors, as the case may be, may specify in the resolution authorizing any such class or series of preferred or preference stock that the shares of such class or series shall not constitute Voting Stock and that such shares and the holders thereof shall be exempt from the provisions of this Article Eighth. B. Limitation of Voting Rights. Any provision of these Restated Articles of Incorporation to the contrary notwithstanding, so long as any person is a Substantial Shareholder, the shareholders of record of the shares of Voting Stock beneficially owned by such Substantial Shareholder shall have limited voting rights on any matter requiring their vote or consent, as follows: (I) With respect to the shares of Voting Stock which would entitle such shareholders of record in the aggregate to cast up to ten percent (10%) of the total number of votes entitled to be cast by the holders of all outstanding shares of Voting Stock, such shareholders of record shall be entitled to cast the votes per share specified in or pursuant to Article Third. (II) With respect to the shares of Voting Stock which would entitle such shareholders of record in the aggregate to cast in excess of ten percent (10%) of the total number of votes entitled to be cast by the holders of all outstanding shares of Voting Stock, such shareholders of record shall be entitled to cast only one/one-hundredth (1/100th) of the votes per share to which a holder of such shares would otherwise be entitled to cast. (III) Notwithstanding the foregoing, in the event that, after giving effect to the provisions of subdivisions (I) and (II) of this division B, the aggregate voting power of such shareholders of record would still exceed fifteen percent (15%) of the votes entitled to be cast by the holders of all outstanding shares of Voting Stock, the aggregate voting power of such shareholders of record shall be further limited so that such shareholders of record shall be entitled to cast only such number of votes that would equal (after giving effect to the provisions of this Article Eighth) fifteen percent (15%) of the number of votes entitled to be cast by all holders of outstanding shares of Voting Stock. (IV) The aggregate voting power of such shareholders of record, as limited pursuant to the provisions of division B, subdivisions (II) and (III) of this Article Eighth, for all shares of Voting Stock beneficially owned by such Substantial Shareholder shall be allocated proportionately among such shareholders of record. In this connection, each such shareholder of record shall be entitled to cast in respect of his shares of Voting Stock the number of votes equal to (a) the aggregate number of votes entitled to be cast (after giving effect to the provisions in this Article Eighth) in respect of the outstanding shares of Voting Stock beneficially owned by the Substantial Shareholder, multiplied by (b) a fraction the numerator of which is the number of votes which the shares of Voting Stock owned by such shareholder of record would have entitled such shareholder of record to cast were no effect given to the provision of this Article Eighth, and the denominator of which is the total number of votes which all shares of Voting Stock beneficially owned by the Substantial Shareholder would have entitled their record holders to cast were no effect given to the provisions of this Article Eighth. C. Quorum. The presence, in person or by proxy, of the holders of record of shares of Voting Stock entitling the holders thereof to cast a majority of the votes (after giving effect, if required, to the provisions of this Article Eighth) entitled to be cast by the holders of all outstanding shares of Voting Stock entitled to vote shall constitute a quorum at all meetings of the shareholders. D. Factual Determinations. (I) The Board of Directors shall have the power and duty to determine for the purposes of this Article Eighth, on the basis of information known to them after reasonable inquiry, (a) whether a person is a Substantial Shareholder, (b) the number of shares of Voting Stock beneficially owned by any person, (c) whether a person is an Affiliate or an Associate of another, and (d) the persons who may be deemed to be the record holders of shares of which a Substantial Shareholder is a beneficial owner. Any such determination made in good faith shall be binding and conclusive on all parties. (II) The Board of Directors shall have the right to demand that any person who is reasonably believed to be a Substantial Shareholder (or holds of record shares of Voting Stock beneficially owned by a Substantial Shareholder) supply the Company with complete information as to (a) the record holder(s) of all shares beneficially owned by such person who is reasonably believed to be a Substantial Shareholder, (b) the number of shares of Voting Stock beneficially owned by such person who is reasonably believed to be a Substantial Shareholder and held of record by each such shareholder of record, and (c) any other factual matter relating to the applicability or effect of this Article Eighth, as may reasonably be requested of such person, and such person shall furnish such information within ten (10) days after the receipt of such demand. E. No Derogation of Fiduciary Obligations. Nothing contained in this Article Eighth shall be construed to relieve any Substantial Shareholder from any fiduciary obligation imposed by law. F. Severability. In the event that any provision or portion of a provision of this Article Eighth is determined to be invalid, void, illegal or unenforceable, the remainder of the provisions of this Article Eighth shall continue to be valid and enforceable and shall in no way be affected, impaired or invalidated. EX-21 3 MADISON GAS AND ELECTRIC COMPANY AND CONSOLIDATED SUBSIDIARIES SUBSIDIARIES OF THE REGISTRANT As of December 31, 1995, the Company owned 100 percent of the voting securities of the following subsidiaries (all Wisconsin corporations): - - MAGAEL INC. - holds title to property acquired by the Company for future utility plant expansion and nonutility property. - - Central Wisconsin Development Corporation - assists new and expanding businesses throughout Central Wisconsin by participating in planning, financing, property acquisition, joint ventures, and associated activities. - - Great Lakes Energy Corp. - markets fuels and energy services to commercial, industrial, and governmental customers in the Upper Midwest. - - Wisconsin Resources Corporation - Inactive. - - North Central Technologies, Inc. - Inactive. - - Mid America Technologies, Inc. - Inactive. As of December 31, 1995, the Company owned 50 percent of the voting securities of the following subsidiary (a Wisconsin corporation): - - Superior Lamp Recycling, Inc. - recycles fluorescent lamps and retorts spent mercury. As of December 31, 1995, Great Lakes Energy Corp. owned 100 percent of the voting securities of the following subsidiary (a Wisconsin corporation): - - American Energy Management, Inc. - a national energy marketing firm that provides gas marketing, energy management, energy auditing, and conservation services to customers in 12 states. EX-23 4 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the registration statements of Madison Gas and Electric Company on Form S-3 (Registration No. 33-52491 and Registration No. 33-24115) of our report dated February 9, 1996, on our audits of the consolidated financial statements of Madison Gas and Electric Company as of December 31, 1995, 1994, and 1993, and for the years then ended, which reports are included or incorporated by reference in this annual report on Form 10-K. Milwaukee, Wisconsin March 25, 1996 COOPERS & LYBRAND L.L.P. EX-27 5
UT This schedule contains summary financial information extracted from SEC Form 10-K. Items 1 through 22 are as of December 31, 1995. Items 23 through 38 are for the 12 months ended December 31, 1995. 1,000 YEAR DEC-31-1995 DEC-31-1995 PER-BOOK 367,233 17,176 75,820 33,647 0 493,876 128,638 0 64,499 193,137 0 0 129,048 0 0 20,500 8,040 0 0 0 143,151 493,876 248,590 14,285 200,434 214,719 33,871 1,606 35,477 11,507 23,970 64 23,906 (20,258) 0 50,822 1.49 0
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