-----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, TlK5v5PF/Ob8U0w8UbHmpJ8ynXq8dqp/KOOczfBa8wCljWhHY7bW/5VM3mnfEPdz BsDdVnYotG96oZxh0PvplQ== 0000061339-98-000007.txt : 19980814 0000061339-98-000007.hdr.sgml : 19980814 ACCESSION NUMBER: 0000061339-98-000007 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980813 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-Q SEC ACT: SEC FILE NUMBER: 000-01125 FILM NUMBER: 98686567 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-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended: JUNE 30, 1998 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. 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 (State or other jurisdiction of incorporation or organization) 39-0444025 (IRS Employer Identification No.) 133 South Blair Street, Madison, Wisconsin 53703 (Address of principal executive offices and ZIP code) (608) 252-7000 (Registrant's telephone number including area code) Common Stock Outstanding at August 13, 1998: 16,079,718 Shares 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, and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] PART I. FINANCIAL INFORMATION ============================== ITEM 1. FINANCIAL STATEMENTS - ----------------------------- Madison Gas and Electric Company and Subsidiaries CONSOLIDATED STATEMENTS OF INCOME AND RETAINED INCOME (Thousands of Dollars) (Unaudited)
Three Months Ended Six Months Ended June 30, June 30, -------------------- ------------------- 1998 1997 1998 1997 ------- ------- -------- -------- STATEMENTS OF INCOME Operating Revenues Electric $42,444 $40,653 $ 80,837 $ 78,083 Gas 12,118 12,599 48,840 60,081 ------- ------- -------- -------- Total operating revenues 54,562 53,252 129,677 138,164 ------- ------- -------- -------- Operating Expenses Fuel for electric generation 7,825 7,982 14,671 15,492 Purchased power 3,640 4,322 5,342 8,636 Natural gas purchased 6,145 6,261 28,926 39,436 Other operations 16,381 16,098 32,226 31,456 Maintenance 4,527 4,083 7,054 6,623 Depreciation and amortization 8,278 6,403 16,536 12,767 Other general taxes 2,361 2,233 4,691 4,447 Income tax items 844 1,129 5,436 5,215 ------- ------- -------- -------- Total operating expenses 50,001 48,511 114,882 124,072 ------- ------- -------- -------- Net operating income 4,561 4,741 14,795 14,092 AFUDC - equity funds 30 13 54 24 Other income, net 323 259 1,014 791 Nonutility operating income, net 83 123 216 910 ------- ------- -------- -------- Income before interest expense 4,997 5,136 16,079 15,817 ------- ------- -------- -------- Interest expense: Interest on long-term debt 2,425 2,416 4,848 4,820 Other interest 135 161 392 409 AFUDC - borrowed funds (16) (7) (29) (13) ------- ------- -------- -------- Net interest expense 2,544 2,570 5,211 5,216 ------- ------- -------- -------- Net Income $ 2,453 $ 2,566 $ 10,868 $ 10,601 ======= ======= ======== ======== Earnings per share of common stock (basic and diluted) (Note 3) $0.15 $0.16 $0.68 $0.66 ======= ======= ======== ======== STATEMENTS OF RETAINED INCOME Balance - beginning of period $55,501 $53,341 $ 52,285 $ 50,451 Earnings on common stock 2,453 2,566 10,868 10,601 Cash dividends on common stock (Note 3) (5,199) (5,146) (10,398) (10,291) ------- ------- -------- -------- Balance - end of period $52,755 $50,761 $ 52,755 $ 50,761 ======= ======= ======== ======== The accompanying notes are an integral part of the above statements.
Madison Gas and Electric Company and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS (Thousands of Dollars) (Unaudited)
Three Months Ended Six Months Ended June 30, June 30, ------------------ ------------------- 1998 1997 1998 1997 ------- ------- ------- ------- OPERATING ACTIVITIES Net income $ 2,453 $2,566 $10,868 $10,601 Items not affecting working capital: Depreciation and amortization 8,278 6,403 16,536 12,767 Deferred income taxes (1,257) (727) (2,695) (710) Amortization of nuclear fuel 685 98 1,303 98 Amortization of investment tax credits (187) (187) (373) (378) AFUDC - equity (30) (13) (54) (24) Other 935 295 891 474 ------- ------ ------- ------- Net funds provided from operations 10,877 8,435 26,476 22,828 Changes in working capital, excluding cash, sinking funds, maturities, and interim loans: (Increase)/decrease in current assets 539 (74) 15,382 22,727 (Decrease)/increase in current liabilities (833) (2,688) 3,050 (16,500) Other noncurrent items, net 955 (1,790) 7,497 5,306 ------- ------ ------- ------- Cash provided by operating activities 11,538 3,883 52,405 34,361 ------- ------ ------- ------- FINANCING ACTIVITIES Cash dividends on common and preferred stock (5,199) (5,146) (10,398) (10,291) Maturities/redemptions of First Mortgage Bonds 0 (3,800) 0 (3,800) Increases in long-term debt 0 5,000 0 5,000 Other decreases in First Mortgage Bonds 9 10 19 19 Increase/(decrease) in interim loans 3,000 5,000 (21,750) (16,250) ------- ------ ------- ------- (Cash used for)/provided by financing activities (2,190) 1,064 (32,129) (25,322) ------- ------ ------- ------- INVESTING ACTIVITIES Additions to utility plant and nuclear fuel (9,184) (5,910) (14,360) (9,227) AFUDC - borrowed funds (16) (7) (29) (13) Increase in decommissioning fund (2,459) (1,017) (4,976) (2,158) ------- ------ ------- ------- Cash used for investing activities (11,659) (6,934) (19,365) (11,398) ------- ------ ------- ------- CHANGE IN CASH AND EQUIVALENTS (2,311) (1,987) 911 (2,359) Cash and equivalents at beginning of period 5,330 4,916 2,108 5,288 ------- ------ ------- ------- Cash and equivalents at end of period $ 3,019 $2,929 $ 3,019 $ 2,929 ======= ====== ======= ======= The accompanying notes are an integral part of the above statements.
Madison Gas and Electric Company and Subsidiaries CONSOLIDATED BALANCE SHEETS (Thousands of Dollars) (Unaudited)
June 30, 1998 Dec. 31, 1997 ------------- ------------- ASSETS Utility plant, at original cost, in service Electric $514,980 $510,405 Gas 184,246 181,861 -------- -------- Gross plant in service 699,226 692,266 Less accumulated provision for depreciation (427,794) (407,602) -------- -------- Net plant in service 271,432 284,664 Construction work in progress 15,156 10,995 Nuclear decommissioning fund (Note 2) 69,881 59,179 Nuclear fuel, net 7,085 8,255 -------- -------- Total utility plant 363,554 363,093 -------- -------- Other property and investments 7,760 8,252 -------- -------- Current assets: Cash and cash equivalents 3,019 2,108 Accounts receivable, less reserves of $1,058 and $1,626, respectively 21,646 28,395 Unbilled revenue 8,137 13,580 Materials and supplies, at average cost 5,775 5,557 Fossil fuel, at average cost 4,214 3,605 Stored natural gas, at average cost 7,170 9,851 Prepaid taxes 6,366 7,190 Other prepayments 1,569 2,081 -------- -------- Total current assets 57,896 72,367 -------- -------- Deferred charges 22,222 28,078 -------- -------- Total Assets $451,432 $471,790 ======== ======== CAPITALIZATION AND LIABILITIES Capitalization (see statement) $311,335 $310,846 -------- -------- Current liabilities: Long-term debt sinking fund requirements 200 200 Interim loans - commercial paper outstanding 11,750 33,500 Accounts payable 11,555 14,528 Accrued taxes 2,573 79 Accrued interest 2,208 2,206 Accrued nonregulated items 4,736 4,837 Other 8,875 5,247 -------- -------- Total current liabilities 41,897 60,597 -------- -------- Other credits: Deferred income taxes 43,186 45,572 Regulatory liability - SFAS 109 24,336 24,875 Investment tax credit - deferred 10,312 10,685 Other regulatory liabilities 20,366 19,215 -------- -------- Total other credits 98,200 100,347 -------- -------- Commitments - - -------- -------- Total Capitalization and Liabilities $451,432 $471,790 ======== ======== The accompanying notes are an integral part of the above balance sheets.
Madison Gas and Electric Company and Subsidiaries CONSOLIDATED STATEMENTS OF CAPITALIZATION (Thousands of Dollars) (Unaudited)
June 30, 1998 Dec. 31, 1998 ------------- ------------- COMMON SHAREHOLDERS' EQUITY Common stock - par value $1 per share: Authorized 50,000,000 shares Outstanding 16,079,718 shares $ 16,080 $ 16,080 Amount received in excess of par value 112,558 112,558 Retained income 52,755 52,285 -------- -------- Total common shareholders' equity 181,393 180,923 -------- -------- FIRST MORTGAGE BONDS 6 1/2%, 2006 series: Pollution Control Revenue Bonds 6,675 6,675 8.50%, 2022 series 40,000 40,000 6.75%, 2027A series: Industrial Development Revenue Bonds 28,000 28,000 6.70%, 2027B series: Industrial Development Revenue Bonds 19,300 19,300 7.70%, 2028 series 21,200 21,200 -------- -------- First Mortgage Bonds outstanding 115,175 115,175 Unamortized discount and premium on bonds, net (1,033) (1,052) Long-term debt sinking fund requirements (200) (200) -------- -------- Total First Mortgage Bonds 113,942 113,923 -------- -------- OTHER LONG-TERM DEBT 6.01%, due 2000 11,000 11,000 6.91%, due 2004 5,000 5,000 -------- -------- Total capitalization $311,335 $310,846 ======== ======== The accompanying notes are an integral part of the above statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) JUNE 30, 1998 The consolidated financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures made are adequate to make the information presented not misleading. In the opinion of Company management, all adjustments (consisting of only normal recurring adjustments) necessary to fairly present results have been made. It is suggested that these consolidated financial statements be read in conjunction with the financial statements and the notes thereto set forth on pages 18 through 27 of the Company's 1997 Annual Report to Shareholders and in the Company's 1997 Annual Report on Form 10-K. 1. Summary of significant accounting policies The accounting and financial policies relative to the following items have been described in the "Notes to Consolidated Financial Statements" in the Company's 1997 Annual Report to Shareholders and have been omitted herein because they have not changed materially through the date of this report. a. General b. Utility plant c. Nuclear fuel d. Joint plant ownership e. Depreciation f. Income taxes g. Pension plans h. Postretirement benefits other than pensions i. Fair value of financial instruments j. Capitalization matters: First Mortgage Bonds and other long-term debt; preferred stock; and notes payable to banks, commercial paper, and lines of credit k. Gas marketing subsidiaries l. Commitments m. Segments of business n. Regulatory assets and liabilities 2. Nuclear decommissioning Nuclear decommissioning costs are currently accrued to an end-of-service life of 2002 for the Kewaunee Nuclear Power Plant (Kewaunee). These costs are currently recovered from customers in rates and are deposited in external trusts. The Company is presently funding decommissioning costs at the $8.1 million annual level. These trusts are shown on the balance sheet in the utility plant section, and as of June 30, 1998, these trusts totaled $69.9 million (fair market value). Decommissioning costs are currently being recovered through depreciation expense, exclusive of 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 5.6 percent. The Company's share of Kewaunee decommissioning costs is estimated to be $81.0 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 6.0 percent. Physical decommissioning is expected to occur during the period 2014 through 2021, with additional expenditures being incurred during the period 2022 through 2039 related to the storage of spent nuclear fuel at the site. The Company's obligations regarding decommissioning and spent nuclear fuel are significantly changed if an agreement in principal is consummated with Wisconsin Public Service Corporation (WPSC) to transfer the Company's ownership in Kewaunee to WPSC (also discussed in Item 2, Management's Discussion and Analysis). 3. Per-share amounts Earnings per share of common stock, basic and diluted, are computed on the basis of the weighted average of the daily number of shares outstanding. For the three and six months ended June 30, 1998 and 1997, there were 16,079,718 shares. Dividends declared and paid per share of common stock for the periods ended June 30, 1998 and 1997 were, respectively, for the three months $0.323 and $0.32; for the six months $0.647 and $0.64. 4. Rate matters The Company received approval from the Public Service Commission of Wisconsin (PSCW) on March 19, 1998, to recover approximately $1.8 million (excluding carrying costs) of deferred expenses related to the 1997 repairs to the Kewaunee steam generator tubes. The deferred expenses are being recovered through a four-month customer surcharge effective April through July of 1998. On April 15, 1998, the Company announced its intention to increase electric rates for the test year beginning January 1, 1999, by $14.6 million, or 8.9 percent annually, and increase natural gas rates by $4.6 million, or 4.5 percent annually, for the same time period. The proposed changes are based on a requested return on common stock equity of 12.5 percent and would remain in effect through the year 2000. The rising cost of fuel coupled with increased transmission and generation costs to improve electric reliability are the primary reasons for the requested increase in electric rates. Both rate requests include costs to implement technology to ensure computer system compatibility with the year 2000. Hearings are scheduled for September with a final rate order expected by year end. 5. 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, net of amounts capitalized, and income taxes were as follows: Three Months Ended Six Months Ended June 30, June 30, ------------------ ---------------- (Thousands of dollars) 1998 1997 1998 1997 ------ ------ ------ ------ Interest, net of amounts capitalized $3,890 $3,908 $5,240 $5,247 Income taxes paid $7,102 $7,422 $6,208 $7,166 6. Statement of Financial Accounting Standard No. 133, "Accounting for Derivative Instruments and Hedging Activities" On June 15, 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities (FAS 133). FAS 133 is effective for all fiscal quarters of all fiscal years beginning after June 15, 1999 (January 1, 2000, for the Company). FAS 133 requires that all derivative instruments be recorded on the balance sheet at their fair value. Changes in the fair value of derivatives are recorded each period in current earnings or other comprehensive income, depending on whether a derivative is designated as part of a hedge transaction and, if it is, the type of hedge transaction. Management of the Company anticipates that, due to its limited use of derivative instruments, the adoption of FAS 133 will not have a significant effect on the Company's results of operations or its financial position. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - --------------------------------------------------------- GENERAL Certain matters that are discussed in the Management's Discussion and Analysis are forward-looking statements and can generally be identified by words such as "believes," "anticipates," or "expects." These forward-looking statements are subject to certain risks or uncertainties which could cause actual results to differ materially from those currently anticipated. LIQUIDITY AND CAPITAL RESOURCES The Company's internally-generated funds were greater than the funds used for construction and nuclear fuel expenditures for the six-month period ended June 30, 1997. The Company experienced decreased additions to utility plant and nuclear fuel expenditures during the first half of 1998 compared to 1997. It is anticipated that 1998 construction and nuclear fuel expenditures will be approximately $46.4 million. Cash provided by operating activities increased $18.0 million during the first half of 1998 compared to 1997. The increase was caused primarily by two factors. First, there was an increase in depreciation expense due to the acceleration of the Kewaunee plant to an end-of-service life of 2002, which was included in the Company's most recent rate case. Second, for the six months ended June 30, 1997, there was a substantial decrease in current liabilities due to a reduction in current payables of the Company's gas marketing subsidiaries, GLENCO and AEM. Cash provided by operating activities during the second quarter of 1998 increased $7.7 million compared to last year's second quarter. This was also attributable to the decrease in net working capital due to the timing of the Company's payables and the accelerated depreciation expense as stated above. Bank lines of credit available to the Company as of June 30, 1998, were $45 million. The Company's capitalization ratios were as follows: June 30, 1998 Dec. 31, 1997 ------------- ------------- Common shareholders' equity 56.1% 52.5% Long-term debt* 40.3% 37.8% Short-term debt 3.6% 9.7% *Includes current maturities and current sinking fund requirements. The Company's bonds are currently rated Aa2 by Moody's Investors Service, Inc., and AA by Standard & Poor's Corporation. The Company's dealer-issued commercial paper carries the highest ratings assigned by Moody's and Standard & Poor's. Business and regulatory environment - ----------------------------------- In February 1996, the PSCW submitted a report to the State Legislature on electric utility restructuring in Wisconsin. Included in the report was a 32-step work plan and time line summarizing expected restructuring activities. During the summer of 1997, Wisconsin and Illinois experienced electric supply shortages due to outages of a number of nuclear plants in Illinois and Wisconsin, including Kewaunee. The electric reliability crisis caused the PSCW to revise its previous plans for restructuring the electric industry. In October 1997, the PSCW revised the plan to seven steps and stated that retail competition cannot occur until all the safeguards are in place to protect consumers. Also, prior to any significant restructuring, reliability concerns must be addressed. This conclusion was consistent with plans proposed by the Company and a broad coalition of customers. The new plan focuses on the construction of a generation and transmission infrastructure by all Wisconsin utilities to increase the amount of power in the state and the state's ability to obtain electricity from other regions. The PSCW plans to remove any barriers to open access to the transmission system that currently exist and to move forward in its efforts to develop a strong state and regional Independent System Operator (ISO). This would assure that the transmission system is operated safely, reliably, and with open and nondiscriminatory access. Also in its revised plan, the PSCW plans to explore new ways to promote the development of renewable energy sources. The PSCW has not set a date for retail competition and has concluded that any decision to go to retail competition in the electric industry remains to be made in the future. The Company cannot predict what impact future PSCW actions may have on its future financial condition, cash flows, or results of operations. However, the Company believes it is well-positioned to compete in a deregulated market. The restructuring of the electric industry could affect the eligibility of the Company to continue applying Statement of Financial Accounting Standard (SFAS) No. 71, "Accounting for the Effects of Certain Types of Regulation." Under this situation, continued deferral of certain regulatory asset and liability amounts on the Company's books may no longer be appropriate as allowed under SFAS No. 71. The Company is unable to predict whether any adjustments to regulatory assets and liabilities will occur in the future. The PSCW's restructuring plan specifically recognizes the need to allow recovery for commitments made under prior regulatory regimes. The Company's recent rate order authorized a gas cost recovery mechanism that allows recovery of pipeline capacity, Federal Energy Regulatory Commission (FERC)-approved/mandated charges, and supply demand costs. Under the new mechanism, gas commodity costs will be compared to a monthly benchmark equal to the first-of-the-month index plus adders reflecting the effects on pricing for reliability, flexibility, weather, and variable transportation costs. If actual costs are below the benchmark, full recovery is allowed. Gas commodity costs above the benchmark will be reviewed by the PSCW. A target will also be determined for capacity release. Capacity release above the target will be shared 60 percent with the ratepayers and 40 percent with the shareholders. Any shortfalls in capacity release will be shared 40 percent with the ratepayers and 60 percent with the shareholders. Electric Reliability Act - ------------------------ On April 28, 1998, Governor Tommy Thompson signed into law the 1997 Wisconsin Act 204 (the Act) - the Electric Reliability Plan. The Act seeks to guarantee the reliable provision of electricity in Wisconsin for future generations. It received widespread support from consumer groups, legislators, and utilities (including the Company). Among the many provisions included in the Act are those streamlining the regulatory process. For instance, the Act requires the PSCW to prepare a strategic energy assessment, and calls for expediting the PSCW and the Department of Natural Resources deadlines to grant certificates of public convenience and necessity needed to construct electric generating facilities and transmission lines. The Act also calls for utilities to voluntarily transfer transmission operations to an ISO approved by the FERC by June 30th of the year 2000. The Act also includes the following: - Allows for the construction of "merchant" power plants that would sell their power to utilities. A merchant plant is built without prior commitments to buy the power it will produce. - Requires a total of 50 megawatts of new generation to come from renewable power sources, such as wind or solar. The Company is in the process of building a $14 million wind generation project which will allow its customers to purchase blocks of energy produced with renewable resources. Pursuant to the Act, these costs will be recovered from the companies' customers through rates. - Directs the PSCW to conduct a study of constraints in the intrastate and interstate transmission system that hurt the reliability of electric service in Wisconsin. The PSCW must report the results to the state legislature by September 1, 1998. In response to the Act, the Company issued Request for Proposals and has entered into a letter of intent to have a nominal 90 MW gas combustion turbine built. The capital cost of this turbine would be approximately $30 million, and its targeted date of operation is June 1, 2000. Ownership of the facility is one of the options being considered by the Company. Year 2000 - --------- In 1997, the Company established a Year 2000 project coordinator and project team made up of members from all areas of the Company. This team completed a Company-wide assessment in 1997 of Company systems, equipment, and operations that will be impacted by the year 2000. System remediation and testing began in early 1998. The majority of the Company's systems are projected to be year 2000 ready by January 1, 1999, and the remaining systems ready shortly thereafter. MGE is working with its critical suppliers and business partners to coordinate year 2000 conversion efforts. Year 2000 costs incurred during 1997 were $286,000. The Company is estimating total costs of $4.3 million to become year 2000 compliant. Environmental matters - --------------------- The Company received a notice of violation from the Department of Natural Resources (DNR) regarding fugitive dust and coal emissions at its Blount Generating Station. The Company and the DNR have worked out a solution in which the Company will make certain capital improvements over the next two years. The cost of these improvements are included in the Company's currently filed rate case. In the opinion of management, the improvements will meet the Company's obligation to fully comply with the notice. Kewaunee Nuclear Power Plant - ---------------------------- Kewaunee is operated by WPSC. The Company has a 17.8 percent ownership interest in Kewaunee. Kewaunee is operating with a license that expires in 2013. On April 7, 1998, the PSCW approved WPSC's application for replacement of the two steam generators at Kewaunee. The total cost of replacing the steam generators would be approximately $90.7 million (the Company's share would be 17.8 percent or $16.1 million). The replacement work is tentatively planned for the spring of 2000 and will take approximately 60 days. The Company has a letter of intent with WPSC to transfer ownership of Kewaunee to WPSC. The two companies are currently negotiating an asset swap in which WPSC will assume the Company's ownership interest in Kewaunee (17.8%) in exchange for assets yet to be determined. Pursuant to the letter of intent, WPSC will assume the decommissioning liability for the plant, exclusive of spent fuel attributable to the Company's generation, and the Company will effectively transfer the decommissioning funds already collected to WPSC in exchange for the assumption of this obligation. The Company will have an option to purchase capacity and energy up to the Company's current capacity in Kewaunee from WPSC for up to two years following the closing of the transaction. The Company believes it can secure capacity and energy more cost effectively than from its Kewaunee investment. The transaction is scheduled to close prior to the installation of the new steam generators. Kewaunee has been in operation since 1974 and is jointly owned by the Company, WPSC, and Wisconsin Power and Light Company. Background information regarding Kewaunee steam generator repair issues is set forth in the registrant's Annual Report on Form 10-K for the year ended December 31, 1997. RESULTS OF OPERATIONS Electric sales and revenues - --------------------------- Electric retail sales increased 2 percent for the six-month period and 5 percent for the three-month period ending June 30, 1998, over the comparable periods last year (see table below). Electric sales in megawatt-hours
Three Months Ended June 30, Six Months Ended June 30, --------------------------- ----------------------------- 1998 1997 %Change 1998 1997 %Change ------- ------- ------- --------- --------- ------- Residential 166,045 154,519 7.46% 351,848 343,423 2.45% Large commercial and industrial 255,318 242,723 5.19 500,615 473,533 5.72 Small commercial and industrial 196,149 183,333 6.99 366,120 356,174 2.79 Other 74,614 77,130 (3.26) 149,668 164,199 (8.85) ------- ------- --------- --------- Total retail 692,126 657,705 5.23 1,368,251 1,337,329 2.31 Sales for resale 21,833 14,268 53.02 4,802 19,852 145.83 ------- ------- --------- --------- Total sales 713,959 671,973 6.25 1,417,053 1,357,181 4.41 ======= ======= ========= =========
Electric operating revenues increased about $2.8 million, or 3.4 percent, for the first half of 1998 and $1.8 million, or 4 percent, for the second quarter of 1998 versus the same comparable periods in 1997. The increases were due in part to an increase in the electric retail sales and a 3.1 percent electric rate increase in August 1997. Gas sales and revenues - ---------------------- For the six months ended June 30, 1998, gas operating revenues decreased $11.2 million, or 19 percent, compared to the same period in 1997. This decrease in revenues is due to a decrease in gas deliveries of 19 percent (see table below). The decrease in gas deliveries was due to the extremely warm weather experienced in the first quarter of this year. The average temperature for the three months ended March 31, 1998, was 34 percent warmer than the same three months ended a year ago. For the three months ended June 30, 1998, gas revenues decreased $0.5 million, or 4 percent, compared to last year, despite a decrease in retail gas deliveries of 28 percent. A 3.5 percent natural gas rate increase helped offset the decrease in gas deliveries. Also, unit gas costs were much higher for the second quarter of 1998 compared to last year's second quarter. These increased costs are generally passed on to customers through the Gas Cost Recovery Mechanism. The following table illustrates gas deliveries as compared to the previous year: Gas deliveries in thousands of therms
Three Months Ended June 30, Six Months Ended June 30, --------------------------- ------------------------- 1998 1997 %Change 1998 1997 %Change ------ ------ ------- ------- ------- ------- Residential 10,436 13,723 (23.95)% 45,942 54,684 (15.99)% Commercial and industrial 9,322 13,857 (32.72) 38,619 50,256 (23.16) ------ ------ ------- ------- Total retail 19,758 27,580 (28.36) 84,561 104,940 (19.42) Transport 7,491 9,752 (23.18) 18,767 19,093 (1.71) ------ ------ ------- ------- Total deliveries 27,249 37,332 (27.01) 103,328 124,033 (16.69) ====== ====== ======= =======
Electric fuel and natural gas costs - ----------------------------------- Fuel costs for electric generation and purchased power decreased 17 percent, or $4.1 million, for the first six months of 1998 compared to the same time period last year. Electric margin (revenues less fuel and purchased power costs) increased $6.9 million, or 13 percent, for this same time period. The primary factor for the increased electric margin is lower purchased power costs. During the first half of 1997, the Company had higher replacement power costs due to the extended outage of Kewaunee. Fuel costs and purchased power decreased 7 percent, or $0.8 million, for the second quarter of 1998 as compared to last year's second quarter. As mentioned above, the decrease is due to the higher cost of replacement power in 1997 due to the extended outage. Natural gas costs for the six-month period ended June 30, 1998, decreased $10.5 million, or 27 percent, compared to the same period a year ago. This is mainly due to the decrease in retail gas deliveries of 19 percent. Natural gas costs for the second quarter of 1998 decreased slightly versus the comparative 1997 period. Other operating expenses - ------------------------ Income taxes for the three months ending June 30, 1998, decreased $0.3 million, or 25 percent, and increased $0.2 million, or 4 percent, for the six months ended June 30, 1998. The six-month increase was mainly attributable to an increase in pretax operating income. Operations and maintenance costs increased $0.7 million, or 3.6 percent, for the second quarter of 1998 and increased $1.2 million, or 3.15 percent, for the first half of the year compared to the same periods a year ago. The primary reason for the increases is the costs associated with maintenance on our generating facilities in preparation of summer power demand to ensure power reliability. Depreciation and amortization expense increased $1.9 million, or 30 percent, for the three months ended June 30, 1998, and $3.8 million, or 30 percent for the second quarter of 1998 versus the comparable periods a year ago. The increases are mainly attributable to the accelerated depreciation and decommission funding of Kewaunee. The PSCW approved the accelerated depreciation and decommissioning funding for Kewaunee based on its service life ending at the end of 2002. PART II. OTHER INFORMATION ========================== ITEM 1 - LEGAL PROCEEDINGS The Company has filed a case with the Dane County Circuit Court, "Madison Gas and Electric Co. vs Public Service Commission of Wisconsin." The case involves the Company's appeal of the PSCW's order granting Wisconsin Public Service Corporation (WPSC) authority to replace the steam generators at Kewaunee. The owners of Kewaunee have differing views on the desirability of proceeding with the steam generator replacement project. The Company has not favored replacement of the steam generators and believes the record does not support replacement. The case is being held in abeyance pending consummation of the agreement to transfer ownership of Kewaunee. ITEM 4 - RESULTS OF VOTES OF SECURITY HOLDERS The Company's Annual Meeting of Shareholders was held on May 5, 1998, in Madison, Wisconsin. Proxies for the meeting were solicited pursuant to Regulation 14A of the Securities Exchange Act. The election of three persons to serve as Class III Directors to hold office until 2001 was voted on by the shareholders at the meeting. Listed below are the nominees for Class III Director, with the three nominees receiving the greatest number of votes being elected to serve as director. The election of three members of the Board of Directors of Class III to hold office until 2001 are: For Withhold Authority ---------- ------------------- Richard E. Blaney 13,407,127 206,906 Frederic E. Mohs 13,399,371 214,662 Phillip C. Stark 13,381,749 232,284 Joel B. Winnig 78 13,613,955 ITEM 6(a) - EXHIBITS Exh. No. 4. - Indenture of Mortgage and Deed of Trust Between the Company and Firstar Trust Company, as Trustee (and supplements). Reference was provided in the Company's 1994 Annual Report on Form 10-K (Commission File No. 0-1125). Exh. No. 12. - Ratio of Earnings to Fixed Charges Exh. No. 27. - Appendix E to Item 601(c) of Regulation S-K: Public Utility Companies Financial Data Schedule UT ITEM 6(b) - REPORTS ON FORM 8-K No reports on Form 8-K were filed during the quarter for which this report is filed. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. MADISON GAS AND ELECTRIC COMPANY (Registrant) Date: August 13, 1998 /s/ David C. Mebane --------------------------------- Chairman, President and Chief Executive Officer (Duly Authorized Officer) Date: August 13, 1998 /s/ Terry A. Hanson --------------------------------- Vice President - Finance (Chief Financial and Accounting Officer) EX-12 2 RATIO OF EARNINGS TO FIXED CHARGES EXHIBIT 12 (Thousands of dollars) Six Months Ended June 30, 1998 ------------- EARNINGS Income before interest expense $16,079 Add: Income tax items 5,436 Income tax on other income 916 Amortization of debt discount, premium expense 144 Allowance for funds used during construction - borrowed funds 29 Interest on rentals 457 ------- Total Earnings $23,061 ======= FIXED CHARGES Interest on long-term debt $4,848 Other interest 392 Amortization of debt discount, premium expense 144 Interest on rentals 457 ------- Total Fixed Charges $5,841 ======= RATIO OF EARNINGS TO FIXED CHARGES 3.95x ======= EX-27 3
UT This schedule contains summary financial information extracted from SEC Form 10-Q. Items 1 through 22 are as of June 30, 1998. Items 23 through 38 are for the six months ended June 30, 1998. 1,000 6-MOS DEC-31-1998 JUN-30-1998 PER-BOOK 363,554 7,760 57,896 22,222 0 451,432 16,080 112,558 52,755 181,393 0 0 129,942 11,750 0 0 200 0 0 0 129,168 451,432 129,677 5,436 109,446 114,882 14,795 1,284 16,079 5,211 10,868 0 10,868 10,398 9,656 52,405 0.68 0.68
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